Smt. Neeta Nilesh Shah, JAMNAGAR V. The Income Tax Officer. Ward-2(2), JAMNAGAR

ITA 91/RJT/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7146 (ITAT-RAJKOT)
• Duration Of Justice: 2 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-03-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2004-2005
• Appeal Filed On: 11-02-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S L MEENA
• Assessee Lawyers: J C RANPURA
• Keywords: Onus to prove

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT BEFORE SHRI M.V.NAYAR (AM) AND SHRI D.T. GARASIA (J M) ITA NO. 91/RJT/2008 - AY 2004-05 SMT NEETA NILESH SHAH PROP OF VIRAL PRODUCTS JAM KHAMBHALIYA HIGHWAY, POST VASAI DIST JAMNAGAR APPELLANT PAN : AGNPS8732J V/S. THE INCOME TAX OFFICER, WARD 2(2),JAMNAGAR RESPONDENT ITA NO. 150/RJT/2008 - AY 2004-05 THE INCOME TAX OFFICER, WARD 2(2),JAMNAGAR APPELLANT V/S. SMT NEETA NILESH SHAH PROP OF VIRAL PRODUCTS JAM KHAMBHALIYA HIGHWAY, POST VASAI DIST JAMNAGAR RESPONDENT ASSESSEE BY : SHRI J C RANPURA, CA REVENUE BY : SHRI S L MEENA, CIT(DR) O R D E R PER M.V. NAYAR, A.M. THESE ARE THE APPEALS FILED BY THE ASSESSEE AND RE VENUE AGAINST THE ORDER OF CIT(A), JAMNAGAR IN THE APPEAL NO. 319/06-07/830 VI DE ORDER DTD. 28/12/2007. ITA NO. 150/RJT/2008 - AY 2004-05 2. THE FOLLOWING GROUNDS OF APPEALS WERE RAISED IN THE PRESENT APPEAL. A. THE LD. CIT(A) HAS ERRED IN LAW IN DELETING THE ADDITION OF RS 44,735/- MADE ON ACCOUNT OF CASTING CHARGES PAID OUT OF UNKN OWN SOURCES. B. THE CIT(A) HAS ERRED IN LAW IN DELETING THE ADDI TION OF RS 22,43,165/- MADE ON ACCOUNT OF UNACCOUNTED PURCHASES. ITA NO. 91 & 150/R JT/2008 A.Y. 2004-05 2 C. THE CIT(A) HAS ERRED IN LAW IN DELETING THE ADDI TION OF RS 7,14,071/- MADE ON ACCOUNT OF UNACCOUNTED SALES. D. THE CIT(A) HAS ERRED IN LAW IN DELETING THE ADDI TION OF RS 2,32,075/- MADE ON ACCOUNT OF DISALLOWANCES OF SALES COMMISSION. 3. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUF ACTURING AND SELLING OF BRASS PARTS. THE FIRST GROUND PERTAINS TO ADDITION OF RS 44,735/- MADE ON ACCOUNT OF CASTING CHARGES PAID OUT OF UNKNOWN SOURCES. THE AO IN THE COURSE OF THE ASSESSMENT PROCEEDINGS HAD CALLED FOR THE DETAILS O F CASTING CHARGES PAID BY HER. SINCE THE ASSESSEE HAD FAILED TO CORROBORATE THE PR ODUCTION VIS--VIS CASTING CHARGES PAID BY HER, AND AS IN THE MONTHS OF APRIL AND JULY TO OCTOBER 2003 THE ASSESSEE HAS SHOWN PRODUCTION BUT THERE BEING NO FO UNDRY BILLS AND SCRAP MATERIALS FOR CASTING OF 12142.47 KGS., HE THEREFORE HELD THA T THE CASTING CHARGES TO THE EXTENT OF 12147.47 KGS WERE PAID BY THE ASSESSEE FROM HER UNKNOWN SOURCES. TAKING THE AVERAGE CHARGE OF CASTING AT RS 3.5 PER KG, HE MADE AN ADDITION OF RS 44,735/- BEING CASTING CHARGES MET FROM UNDISCLOSED SOURCES. THE MATTER CARRIED BEFORE THE LD. CIT(A), WHO HAD DELETED THE ADDITION MADE BY TH E AO. 3.1. BEFORE US, THE LD. AR OF THE ASSESSEE SUBMITTE D THAT, THE AO HAS NOT GIVEN CREDIT OF CASTING OF 28.355 KGS. OUT OF OPENING STO CK AND PROFILE PURCHASED OF 700 KGS. DURING THE MONTH FROM WHICH FINISHED GOODS OF 640.700 KGS WERE PRODUCED AND SCRAP OF 87.655 KGS. WERE GENERATED. IF THIS CREDIT IS GIVEN, THE DIFFERENCE IS ONLY OF 1690 KGS WHICH IS MET OUT OF BORROWING FROM RELIANC E BRASS INDUSTRIES. THE LD. AR FURTHER SUBMITTED THAT, IN THE MONTH OF JULY 2003, CASTING OF 2361.614 KGS WERE SENT OUT OF OPENING STOCK AND PROFILE OF 510 KGS WERE SE NT OUT OF OPENING STOCK AND REMAINING 453 KGS WERE SENT OUT OF PURCHASES DURING THE MONTH AND THUS, OUT OF 3324.614 KGS, OUTPUT OF FINISHED GOODS WERE 1757.87 5 KGS AND SCRAP GENERATED WAS 1566.739 KGS. THUS, THE LD. AR CONTENDED THAT, THE AO HAD NOT TAKEN INTO ACCOUNT THE CASTING OUT OF OPENING STOCK AND PROFILES OUT O F OPENING STOCK AND PURCHASES. SIMILARLY FOR THE MONTH OF AUGUST 2003, THE LD. AR SUBMITTED THAT MATERIAL OF 884.835 KGS WERE SENT OUT OF OPENING STOCK OF CASTING AND P ROFILES OF 400 KGS WERE SENT OUT OF PURCHASES MADE DURING THE MONTH. SIMILARLY, THE CASTING WEIGHING 5042.950 KGS WERE SENT OUT OF OPENING STOCK AND PROFILES SENT WA S 2730 KGS OUT OF WHICH 588 KGS WERE OUT OF OPENING STOCK AND 2142 KGS FROM PURCHAS ES MADE DURING THE MONTH. HE THEREFORE SUBMITTED THAT, THE AO FAILED TO TAKE INT O ACCOUNT THE CASTING OUT OF ITA NO. 91 & 150/R JT/2008 A.Y. 2004-05 3 OPENING STOCK AND PROFILES OUT OF OPENING STOCK AND PURCHASES MADE DURING THE MONTH. 4. WE HAVE CONSIDERED THE SUBMISSION PUT FORTH BY T HE LD. AR AS ALSO GONE THROUGH THE ASSESSMENT ORDER AS ALSO THE ORDER OF T HE LD. CIT(A). WE FIND THAT, THE LD. CIT(A) WHILE DELETING THE ADDITION HAD HELD THAT, F OR THE PURPOSE OF COMPUTING RAW MATERIALS USED CUM ACTUAL PRODUCTION, OPENING STOC K OF SCRAP PROFILES AND CASTING, AS ALSO PURCHASE OF SCRAP AND PROFILES HAVE TO BE T AKEN INTO ACCOUNT IN EACH OF THE ABOVE MONTHS. HE THEREFORE HELD THAT, THE AO HAD NO T GIVEN CREDIT OF THE STOCK USED IN ACTUAL PRODUCTION AND THAT, IF THE SAID CREDIT I S GIVEN, THE ONLY DIFFERENCE IS ON ACCOUNT OF LOAN TRANSACTION OF 1690 KGS IN THE MONT H OF APRIL 2003 AND 1500 KGS IN THE MONTH OF OCTOBER 2003. HOWEVER, SINCE THE ASSE SSEE HAD FAILED TO EXPLAIN THE LOAN OF STOCK TAKEN DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LD. CIT(A) HELD THAT, A MORE REASONABLE APPROACH WOULD BE TO ADOPT A HIGHER GP RATE AND THEREFORE AGAINST THE GP SHOWN OF 17.92%, GP OF 23% WAS DIREC TED TO BE ADOPTED. WE HOLD THIS FINDING AS A WELL REASONED DECISION AND HENCE, DECLINE TO INTERFERE IN THE FINDING OF THE LD. CIT(A). THUS, REVENUES FIRST GROUND OF APPEAL IS DISMISSED. 5. THE SECOND GROUND IS ADDITION OF RS 22,43,165/- MADE BY THE AO ON ACCOUNT OF ALLEGED UNRECORDED PURCHASES OF 23681.80 KGS. TH E AO AFTER HOLDING THE CASTING CHARGES AT 44,735/- BEING MET OUT OF UNEXPLAINED SO URCES PROCEEDED TO HOLD THAT THE DIFFERENCE SUGGESTS THAT THE ASSESSEE HAD MADE UNAC COUNTED PURCHASES BECAUSE THE PURCHASE IN KGS AND FIGURES OF CASTING ARE QUIT E DIFFERENT AND THEY DO NOT INCLUDE PRODUCTION FOR APRIL AND JULY TO OCTOBER 2003. HE THEREFORE HELD THAT, THOUGH BRASS PRODUCTS INVOLVED A NUMBER OF PROCESSES, REGENERATI ON OF SCRAP, BUT THEIR SUBSEQUENT CASTING BILLS WERE MISSING. THE AO UNDER CHART SHOWN AT PAGE NO 13 OF THE ASSESSMENT ORDER HELD THAT THE DIFFERENCE IN TH E MONTHS OF OCTOBER, NOVEMBER 2003 AND MARCH 2004 IS OF 8817.22 KGS, 983.42 KGS A ND 13881.16 KGS FROM THE FIGURES OF MAXIMUM BRASS AVAILABLE FOR SENDING FOR CASTING PURPOSES AND ACTUAL BRASS SENT FOR CASTING. THE TOTAL OF SUCH DIFFERENC E WORKED OUT TO 23681.80 KGS AND TAKING THE AVERAGE COST OF RAW MATERIAL AT RS 94.72 KGS, MADE AN ADDITION OF RS 22,43,165/-. 5.1 THE MATTER WAS CARRIED IN APPEAL BEFORE THE LD. CIT(A), WHO HAD DELETED THE ADDITION. BEFORE US, THE LD. AR OF THE ASSESSEE SUB MITTED THAT, IN THE MONTH OF ITA NO. 91 & 150/R JT/2008 A.Y. 2004-05 4 NOVEMBER, SCRAP SENT TO FOUNDRY IS 7304.800 KGS, OU T OF WHICH 5304.8 KGS ARE FROM THE OPENING STOCK AND 2000 KGS OF SCRAP IS FROM THE PURCHASES MADE DURING THE MONTH. BESIDES, CHHOL (SLING SCRAP) OF 10514.200 KG S WERE SENT TO THE FOUNDRIES IN NOVEMBER 2003 OUT OF REGENERATED CHHOL. THE TOTAL A S STATED BY THE LD. AR IS 17819 KGS. SIMILARLY, HE STATED THAT, IN THE MONTH OF DEC EMBER 2003, 7862.200 KGS OF SCRAP WERE SENT TO FOUNDRIES OUT OF WHICH 1299.054 KGS AR E OUT OF OPENING STOCK AND 6533.246 KGS ARE OUT OF REGENERATED CHHOL. THE LD. AR THEREFORE STATED THAT, TOTAL OF 15694.5 KGS HAVE BEEN SENT TO THE FOUNDRY. IN THE M ONTH OF MARCH 2004 HE SUBMITTED THAT, SCRAP OF 1644.70 KGS PURCHASED DURI NG THE MONTH WERE SENT TO THE FOUNDRY AND THE BALANCE OF 17256.40 KG WAS CHHOL SE NT TO FOUNDRIES, OUT OF WHICH 737.804 KGS ARE OUT OF OPENING STOCK AND 16518.596 KGS ARE OUT OF REGENERATED CHHOL. HENCE, ACCORDING TO THE LD. AR OF THE ASSESS EE, THERE IS NO DIFFERENCE. THE LD. AR ALSO RELIED UPON THE AOS OBSERVATION UNDER PAGE 3 OF THE ASSESSMENT ORDER THAT, THE GOODS SENT FOR CASTING IS ALWAYS MORE THA N THE ACTUAL PURCHASES OF BRASS SCRAP BECAUSE EACH PROCESS LEAVES SCRAP BEHIND IT. 6. WE HAVE CONSIDERED THE SUBMISSION PUT FORTH BY T HE LD. AR AS ALSO GONE THROUGH THE ASSESSMENT ORDER AS ALSO THE ORDER OF T HE LD. CIT(A). WE FIND THAT, THE LD. CIT(A) WHILE DELETING THE ADDITION HAD HELD THAT, O N THE BASIS OF THE DISCUSSION MADE IN PREVIOUS GROUND, HELD THAT THE ASSESSEES BOOKS OF ACCOUNTS, PARTICULARLY THE STOCK REGISTER IS NOT PROPER AND THEREFORE THE GP R ETURNED BY THE ASSESSEE IS NOT RELIABLE AND HENCE, THE BOOKS OF ACCOUNTS ARE TO BE REJECTED AND THE GP IS TO BE ESTIMATED. WHILE DISPOSING THE PREVIOUS GROUND, HE HAD DIRECTED THE AO TO ADOPT HIGHER GP OF 23% AND HELD THAT THE SAME FINDING WOU LD APPLY TO THIS GROUND ALSO. THUS, THE ADDITION WAS DELETED BY HIM. WE FIND THAT , THE LD. CIT(A) HAS TAKEN A VERY JUDICIOUS APPROACH TO THE ISSUE AND THEREFORE DECLI NE TO INTERFERE IN THE FINDING OF THE LD. CIT(A). THUS, REVENUES SECOND GROUND OF APPEAL IS DISMISSED. 7. THE THIRD GROUND IS ADDITION OF RS 7,14,071/- MA DE ON ACCOUNT OF UNACCOUNTED SALES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO HAD TAKEN RAW MATERIAL SENT FOR CASTING AT 34720.86 KGS AND ARRIVED AT THE FIGURE OF 30792.01 KGS AS MATERIAL RECEIVED BACK AS FINISHED GOODS AND FROM THAT REDUC ED CLOSING STOCK OF FINISHED GOODS OF 7050 KGS AND ADDED SALES OF FINISHED GOODS OF 38630.87 KGS AND ARRIVED AT TOTAL QUANTITY OF 45680.87 KGS. FROM THIS HE REDUCE D THE OPENING STOCK OF FINISHED ITA NO. 91 & 150/R JT/2008 A.Y. 2004-05 5 GOODS AS PER AUDIT REPORT I.E., 11850 KGS AND THE R ESULTANT FIGURE HAS BEEN REDUCED FROM FINISHED GOODS REQUIRED FOR EQUALIZING THE SAL E, WHICH IS AT 33830 KGS. THE AO THUS CAME TO A CONCLUSION THAT WHILE THE MATERIAL R ECEIVED BACK AS FINISHED GOODS IS 30792.01 KGS, THE DIFFERENCE IS 3038.86 KGS AND ADO PTED THE VALUE OF THE SAME AT RS 234.98 PER KG AND MADE ADDITION OF RS 7,14,071/- AS UNACCOUNTED SALES. 7.1 DURING THE FIRST APPELLATE PROCEEDINGS, THE LD. CIT(A) HAD DELETED THE ADDITION. BEFORE US, THE LD. AR SUBMITTED THAT, THE AO DURING THE ASSESSMENT PROCEEDINGS HAD FAILED TO APPRECIATE THAT THE FIGURE OF 34720.86 KG S ARE NOT RAW MATERIAL BUT PRODUCTION OF THE YEAR AND IN THE PRODUCTION BURNIN G LOSS IS TO BE ADDED AND NOT TO BE REDUCED THAT THE MATERIAL RECEIVED BACK OF 30792 .01 KGS IS NOT MATERIAL RECEIVED BACK AS FINISHED GOODS BUT FROM JOB WORKERS AND THE SAME SHOULD BE INCLUDED IN THE CASTINGS. 8. WE HAVE GONE THROUGH THE FINDING OF THE AO AS AL SO THE ORDER OF THE LD. CIT(A) AND THE SUBMISSION PUT FORTH BY THE LD. AR OF THE A SSESSEE. WE FIND THAT, THE LD. CIT(A) WHILE DELETING THE ADDITION HAD HELD THAT, T HERE IS SUBSTANTIAL FORCE IN THE ARGUMENT OF THE ASSESSEE THAT THE AO HAS WRONGLY TA KEN THE FIGURE OF 34720.86 KGS AS RAW MATERIAL SENT FOR CASTING, WHEREAS IT IS THE PRODUCTION OF THE YEAR AND BURNING LOSS, THEREFORE IS NOT TO BE REDUCED BUT TO BE ADDE D TO THE SAME. THEREFORE THE WHOLE PREMISE FOR WORKING OUT OF THE ABOVE DIFFERENCE IS WRONG. WE FIND THAT THE LD. CIT(A) IS RIGHT IN HOLDING THAT THE AO HAS WRONGLY INTERPR ETED THE WHOLE ISSUE AND HE FAILED TO GIVE HIS FINDING ON THE ARGUMENT PUTFORTH BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS, EXCEPT BY STATING THAT THE SUBMISSION PUTFORTH BY THE ASSESSEE IS VAGUE. THE LD. CIT(A) HAD THEREFORE RIG HTLY DELETED THE ADDITION AND WE DECLINE TO INTERFERE IN HIS FINDING AND HENCE, THIS GROUND OF THE REVENUE IS DIRECTED TO BE DELETED. 9. THE FOURTH GROUND IS ADDITION OF RS 2,32,076/- O UT OF SALES COMMISSION. WE FIND THAT, THIS ADDITION WAS MADE SIMPLY ON THE GRO UND THAT THE ASSESSEE HAD FAILED TO PRODUCE TWO PARTIES NAMELY SHRI MANISH NATHALAL PATEL AND SHRI NATHALAL B PATEL. IT IS ALSO SEEN THAT, DURING THE COURSE OF ASSESSME NT PROCEEDINGS, THE ASSESSEE HAD FURNISHED PA NUMBER, COPY OF ACCOUNTS AND ADDRESSES TO THE AO. THE LD. CIT(A) WHILE DELETING THIS ADDITION HAD HELD THAT, IN SO F AR AS THE BURDEN TO PROVE THE GENUINENESS OF THE PARTIES ARE CONCERNED, THE AO HA D NOT ESTABLISHED THAT THE ITA NO. 91 & 150/R JT/2008 A.Y. 2004-05 6 ADDRESSES AND THE PA NUMBERS OF THE PERSONS WERE WR ONG OR THAT THE PERSONS ARE NOT RESIDING AT THE SAID ADDRESS. HE DELETED THE AD DITION BY HOLDING THAT, THE ASSESSEE HAS DISCHARGED THE PRIMARY ONUS OF FURNISH ING THE DETAILS OF THE COMMISSION PAYMENT AS ALSO NAME AND ADDRESS OF THE PERSONS ALONG WITH PA TO WHOM THE COMMISSION HAS BEEN PAID. THE MATTER STILL REMAINS THE SAME. THE ASSESSEE HAVING DISCHARGED HER ONUS, THE MATTER RES TED UPON THE AO TO PROVE THAT THE SAID CONTENTION WAS WRONG. IN THE ABSENCE OF AN Y CONTRARIAN FINDING FROM THE AO, WE UPHOLD THE DECISION OF THE LD. CIT(A) AND THIS G ROUND OF REVENUE IS THEREFORE DISMISSED. ITA NO. 91/RJT/2008 - AY 2004-05 10. THIS IS ASSESSEES APPEAL. IT IS SEEN THAT, ALL THE ABOVE GROUNDS RAISED BY THE REVENUE HAVE ALSO BEEN RAISED BY THE ASSESSEE. HOWE VER, SINCE THE LD. CIT(A) HAD DELETED ALL THE GROUNDS, EXCEPT THAT OF ESTIMATION OF GP AT 23%, WE FIND THAT THE ASSESSEE HAS NO GROUND OF ARGUMENT, EXCEPT ON THE G ROUND OF ESTIMATION OF HIGHER GP. SO FAR AS THIS ESTIMATION OF HIGHER GP IS CONCE RNED, WE FIND THAT THE LD. CIT(A) HAD RIGHTLY HELD THAT THE ASSESSEES BOOKS DOES NOT SHOW TRUE AND FAIR PICTURE AND HENCE, THE BOOKS WERE RIGHTLY REJECTED. WE UPHOLD T HIS FINDING OF THE LD. CIT(A) AND THEREFORE THE ASSESSEES ENTIRE GROUND OF APPEAL IS DISMISSED. 11. IN THE RESULT, THE APPEAL OF THE REVENUE AS WEL L AS THAT OF THE ASSESSEE IS DISMISSED. ORDER IS PRONOUNCED IN THE OPEN COURT ON _19/03/201 0_ SD/- SD/- (D.T. GARASIA) (M.V. NAYAR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 19/03/2010 RAJKOT ITA NO. 91 & 150/R JT/2008 A.Y. 2004-05 7 COPY FORWARDED TO, 1. SMT. NEETA NILESH SHAH, PROP. VIRAL PRODUTS, SUR VEY NO. 126, JAM-KHAMBHALIYA HIGHWAY, POST VASAI, DIST. JAMNAGAR 2. THE INCOME TAX OFFICER, WARD-2(2), JAMNAGAR. 3. THE CIT, JAMNAGAR 4. THE CIT(A), JAMNAGAR 5. THE D.R., I.T.A.T., RAJKOT 6. THE GUARD FILE TRUE COPY BY ORDER ASSISTAN T REGISTRAR