ITO, Jaipur V. PINKCITY PACKING PVT. LTD., Jaipur

ITA 956/JPR/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2011 (ITAT-JAIPUR)
• Duration Of Justice: 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 12-07-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 04-11-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: POONAM RAI
• Assessee Lawyers: M L BORAD ADV DHK
• Keywords: Rejection of books of accounts; Additional evidence
• Section: 143(3)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES (SMC), JAIPUR JH HKKXPAN] YS[KK LNL; ] DS LE{K BEFORE: SHRI BHAGCHAND, ACCOUNTANT MEMBER VK;DJ VIHY LA-@ ITA NO. 956/JP/2016 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2012-13 INCOME TAX OFFICER, WARD-2(3), JAIPUR. CUKE VS. M/S PINKCITY PACKAGING PVT. LTD., S-34, VIVEK VIHAR, NEW SANGANER ROAD, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AADCP 1732 G VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS@ REVENUE BY : SMT. POONAM RAI (DCIT) FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI M.L. BORAD (ADV.) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 12/07/2017 MN?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 13/07/2017 VKNS'K@ ORDER PER: BHAGCHAND, A.M. THIS IS AN APPEAL FILED BY THE REVENUE EMANATES FRO M THE ORDER PASSED BY THE LD CIT(A)-I, JAIPUR DATED 30/08/2016 FOR THE A.Y. 2012-13. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFA CTURING OF ALUMINIUM CAPS WHICH ARE SUPPLIED AS FINISHED PRODUC T TO RAJASTHAN STATE GANGANAGAR SUGAR MILLS LTD., RAJASTHAN. THE A SSESSING OFFICER REJECTED THE BOOKS OF ACCOUNT AND ESTIMATED THE INC OME OF RS. 47,03,907/- BY APPLYING THE G.P. RATE @ 16% ON THE D ECLARED TURNOVER. ITA 956/JP/2016_ ITO VS PINKCITY PACKAGING PVT. LTD. 2 3. THE LD. CIT(A) HAS GRANTED RELIEF TO THE ASSESSEE BY HOLDING AS UNDER:- (I) THE BRIEF FACTS OF THE CASE ARE THAT THE APPELL ANT WAS ENGAGED IN THE BUSINESS OF MANUFACTURING OF ALUMINIUM CAPS AND SUP PLIED THE FINISHED PRODUCTS TO RAJASTHAN STATE GANGANAGAR SUGAR MILLS, RAJASTHAN AT FIXED RATE CONTRACT. DURING THE ASSESSMENT PROCEEDINGS, I T WAS NOTED BY THE AO THAT GP RATE DECLARED BY THE APPELLANT HAS DECRE ASED SUBSTANTIALLY FROM 19.95% IN THE IMMEDIATELY PRECEDING YEAR TO 6. 45% IN THE YEAR UNDER CONSIDERATION AND THE YIELD OF THE FINISHED P RODUCT HAS ALSO DECREASED FROM 66.99% IN THE IMMEDIATELY PRECEDING YEAR TO 66.04% IN THE YEAR UNDER CONSIDERATION. THE AO FURTHER OBSERV ED THAT IN THE DAILY STOCK REGISTER, DAILY PRODUCTION OF FINISHED PRODUC TS AND THE SCRAP WAS NOT MENTIONED. IN VIEW OF THESE FACTS, THE AO REJEC TED THE BOOKS OF ACCOUNTS OF THE APPELLANT U/S 143(3) OF THE ACT AND APPLIED GP RATE OF 16% TO THE TURNOVER OF THE APPELLANT AND MADE TRADI NG ADDITION OF RS. 47,03,907/- TO THE INCOME OF THE APPELLANT. (II) DURING THE APPELLATE PROCEEDINGS, IT WAS SUBMI TTED BY THE APPELLANT THAT IT IS REGISTERED UNDER THE CENTRAL EXCISE ACT AND IS FILING ITS MONTHLY RETURNS IN ER-1 WHICH CONTAINS THE DETAILS OF RAW M ATERIAL PURCHASED; MATERIAL CONSUMED FOR FINISHED GOODS; SCRAP GENERAT ED AND BALANCE OF FINISHED GOODS AND SCRAP AND THE PRODUCTION IS SUBJ ECTED TO PERIODICAL AUDITS BY THE EXCISE DEPARTMENT. IT WAS FURTHER SUB MITTED THAT THE OVERALL YIELD IS AROUND 65 TO 68% DEPENDING UPON TH E THICKNESS OF RAW MATERIAL PURCHASED AND IT WOULD NOT BE REASONABLE T O EXPECT THE SAME YIELD IN ALL THE YEARS AND THUS REJECTION OF BOOKS OF ACCOUNTS U/S 145(3) OF THE ACT WAS NOT JUSTIFIED. IT WAS ANOTHER CONTEN TION OF THE AR THAT THE AO HAS NOT TAKEN THE FIGURES OF GP RATE CORRECTLY A S THE GP RATE FOR THE AY 2011- 12 AND 2012-13 WERE TAKEN AT 19.95% AND 6. 45% BY THE AO ITA 956/JP/2016_ ITO VS PINKCITY PACKAGING PVT. LTD. 3 WHEREAS THE SAME WERE 0.84% AND 6.28% RESPECTIVELY. IT WAS FURTHER STATED THAT THE HIGHER GP RATE OF 19.95% FOR AY 201 1-12 WAS DECLARED BY THE AUDITOR IN TAX AUDIT REPORT BY RESORTING TO INCORRECT GROUPING OF ITEMS OF MANUFACTURING AND TRADING ACCOUNT. IT WAS ALSO STATED BY THE AR THAT GP RATE OF 16% APPLIED BY THE AO HAS NO BAS IS AS ITS GP RATE HAS, IN FACT, INCREASED FROM 0.84% TO 6.28% AND NOT DECREASED AS STATED BY THE AO AND THUS THE TRADING ADDITION MADE BY THE AO DESERVES TO BE DELETED. (III) I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE AR, ASSESSMENT ORDER AND THE MATERIAL PLACED ON RECORD. DURING THE APPELLATE PROCEEDINGS, THE AR WAS REQUIRED TO PRODUCE THE EXCISE RECORDS AS MAINT AINED BY IT UNDER THE CENTRAL EXCISE ACT. THE AR PRODUCED A NUMBER OF EXCISE REGISTER INCLUDING STOCK REGISTER I.E. RG-1, RG-23A, ETC. AS STATED BY THE APPELLANT IN ITS WRITTEN SUBMISSIONS. A PERUSAL OF THESE EXCI SE REGISTERS REVEALED THAT THE DAILY PRODUCTION OF CAPS AND SCRAP WERE RE CORDED THEREIN AND THUS THE OBSERVATION OF THE AO THAT DAILY PRODUCTIO N OF FINISHED PRODUCTS AND SCRAP WAS NOT MAINTAINED IN THE STOCK REGISTER IS NOT CORRECT. THE APPELLANT HAS STATED BEFORE THE AO THA T THE FALL IN YIELD RATIO IS ON ACCOUNT OF THICKNESS OF THE RAW MATERIA L AND THE YIELD CANNOT BE SAME FOR ALL THE YEARS. IT IS NOTED THAT THERE W AS FALL OF JUST 0.95% IN YIELD FROM 66.99% IN THE IMMEDIATE PRECEDING YEAR T O 66.04% IN THE UNDER CONSIDERATION. IN VIEW OF THE FACT THAT THE E XCISE RECORDS WERE MAINTAINED BY THE APPELLANT WHICH WERE SUBJECTED TO AUDIT BY THE CENTRAL EXCISE DEPARTMENT AND THE AO HAS NOT BROUGH T ON RECORD ANY MATERIAL WHICH MAY INDICATE THAT EITHER THE APPELLA NT HAS SOLD ITS FINISHED PRODUCTS OUTSIDE ITS BOOKS OF ACCOUNTS OR HAS INFLATED ITS PURCHASE OF RAW MATERIAL, THE FALL IN YIELD PERCENT AGE ALONE WITHOUT PINPOINTING ANY SPECIFIC DEFECT OR BRINGING ON RECO RD ANY ADVERSE MATERIAL CANNOT BE THE BASIS OF REJECTION OF BOOKS OF ACCOUNTS. ITA 956/JP/2016_ ITO VS PINKCITY PACKAGING PVT. LTD. 4 (IV) THE AO HAS ALSO STATED FALL IN GP RATE FROM 19 .95% IN THE IMMEDIATE PRECEDING YEAR ON TURNOVER OF RS. 1,73,83,638/- TO 6.45% ON TOTAL TURNOVER OF RS. 4,92,80,641/- FOR THE YEAR UNDER CO NSIDERATION AS ONE OF THE REASON FOR REJECTING THE BOOKS OF ACCOUNTS OF T HE APPELLANT U/S 145(3) OF THE ACT. AS STATED EARLIER THAT IT WAS TH E CONTENTION OF THE AR THAT ITS GP RATE HAS INCREASED FROM 0.84% IN THE IM MEDIATELY PRECEDING YEAR TO 6.28% IN THE YEAR UNDER CONSIDERATION WHERE AS THE AO HAS STATED IN THE ASSESSMENT ORDER THAT THE GP RATE HAS DECREASED FROM 19.95% IN THE IMMEDIATELY PRECEDING YEAR TO 6.45% I N THE YEAR UNDER CONSIDERATION. IN VIEW OF THESE COUNTER CLAIMS, THE MATTER HAS BEEN EXAMINED VERY CAREFULLY AND IT APPEARS THAT THE DIF FERENCE IN GP RATE IS ON ACCOUNT OF GROUPING OF HEADS OF INCOME AND EXPEN DITURE. IT IS EVIDENT FROM THE CHART SUBMITTED BY THE AR THAT THE OTHER INCOME OF RS. 21,77,483/- AND RS. 1,12,683/- FOR THE FY 2010-11 A ND 2011-12 WERE NOT INCLUDED BY THE AR WHILE COMPUTING THE GP RATE. THE AMOUNT OF RS. 1,12,683/- FOR THE FY 2011-12 WAS ON ACCOUNT OF INT EREST ON INCOME TAX REFUND AND THUS HAS NO RELATION WITH THE TRADING AC COUNT AND THUS HAS RIGHTLY BEEN EXCLUDED FROM THE MANUFACTURING AND TR ADING ACCOUNT. HOWEVER, THE DETAILS OF OTHER INCOME OF RS. 21,77 ,472.86 FOR THE FY 2010-11 REVEALS THAT SOME OF THE ITEMS PERTAINED TO THE TRADING ACCOUNT OF THE APPELLANT. IN VIEW OF THESE FACTS, THE APPEL LANT WAS REQUIRED TO FURNISH A CHART FOR AY 2011-12 AND 2012-13 AFTER IN CORPORATING THE INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES W HICH ARE RELATED TO THE MANUFACTURING AND TRADING ACTIVITIES OF THE APP ELLANT COMPANY. THE REQUIRED CHART WAS PREPARED AND SUBMITTED BY THE AP PELLANT WHICH IS ENCLOSED TO THIS ORDER AS ANNEXURE-A. IT IS NOTED F ROM THE SAID CHART THAT THE GP RATE FOR THE AY 2011-12 AND 2012-13 ARE NOW WORKED OUT AT 8.38% AND 6.42% RESPECTIVELY. ITA 956/JP/2016_ ITO VS PINKCITY PACKAGING PVT. LTD. 5 (V) THUS, THE GP RATE FOR THE AY 2011-12 WORKED OUT TO 8.38% AND NEITHER 0.84% AS CLAIMED BY THE APPELLANT NOR 19.95% AS STA TED BY THE AO AND FOR THE YEAR UNDER CONSIDERATION, THE GP RATE WAS 6 .42% AND NOT 6.45% AS TAKEN BY THE AO. IT IS A WELL RECOGNIZED PRINCIP LE THAT WITH INCREASE IN TURNOVER, NORMALLY THERE IS FALL IN GP RATE. IN THE INSTANT CASE UNDER CONSIDERATION, THE TURNOVER OF THE APPELLANT HAS IN CREASED FROM RS. 1.52 CRORE IN THE IMMEDIATE PRECEDING YEAR TO RS. 4.91 C RORE IN THE YEAR UNDER CONSIDERATION I.E. THE TURNOVER OF THE APPELL ANT FOR THE YEAR UNDER CONSIDERATION HAS INCREASED BY MORE THAN 200% IN CO MPARISON TO IMMEDIATE PRECEDING YEAR. MOREOVER, IT HAS BEEN HEL D IN A NUMBER OF JUDICIAL PRONOUNCEMENTS THAT FALL IN GP RATE ALONE CANNOT BE THE BASIS OF REJECTION OF BOOKS OF ACCOUNT. (VI) THEREFORE, IN VIEW OF THE ABOVE DISCUSSION, IT IS HELD THAT THE AO WAS NOT JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNTS OF THE APPELLANT U/S 145(3) OF THE ACT. AS THE REJECTION OF BOOKS OF ACCOUNTS BY T HE AO HAS NOT BEEN UPHELD, THEREFORE, THERE IS NO QUESTION OF APPLYING GP RATE AND THUS THE TRADING ADDITION OF RS. 47,03,907/- MADE BY THE AO IS HEREBY DELETED. 4. NOW THE REVENUE IS IN APPEAL BY TAKING FOLLOWING G ROUNDS OF APPEAL: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 47,03,907/- MADE BY INVOKING THE PROVISION OF SECTION 145(3) AND APPLYING GP RATE WHEN WAS FALL IN GP RATE FROM 19.95% IN THE IMMEDIATE PRECEDING YEAR TO 6.45% FOR THE YEAR UNDER CONSIDERATION, HOLDING THAT CAPITAL GAIN WAS T O BE TAXED IN THE YEAR WHEN SALE AGREEMENT WAS PARTLY EXECUTED AND NOT IN THE YEAR WHEN SALE AGREEMENT WAS FULLY EXECUTED AND GOT REGISTERED WITH REGISTRATION AND STAMP AUTHORITY. ITA 956/JP/2016_ ITO VS PINKCITY PACKAGING PVT. LTD. 6 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN LAW THE LD. CIT(A) WAS JUSTIFIED IN DECIDING T HE ISSUE BY ACCEPTING THE ADDITIONAL EVIDENCE WITHOUT GIVING A REASONABLE OPPORTUNITY TO ASSESSING OFFICE R TO EXAMINE THE EVIDENCE OR DOCUMENTS AS REQUIRED UNDER RULE 46A(3). 5. WHILE PLEADING ON BEHALF OF THE REVENUE, THE LD. DR HAS SUBMITTED THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN DECIDING TH E ISSUE AFTER ACCEPTING ADDITIONAL EVIDENCES WITHOUT GIVING A REASONABLE OPP ORTUNITY TO THE ASSESSING OFFICER TO EXAMINE THE EVIDENCE OR DOCUME NTS. THUS THERE IS A VIOLATION OF RULE 46A (3) OF THE INCOME TAX RULES, 1962. FURTHER SHE ALSO PLEADED THAT THE LD. CIT(A) HAS DELETED THE ADDITION FOR THE REASON THAT THE GROSS PROFIT RATE AS SUBMITTED BY THE ASSESSEE FOR EARLIER YEAR WAS NOT CORRECT FOR THE REASON THAT THERE IS A DISCREPA NCY IN GROUPING THE EXPENSES. THUS, THE LD. CIT(A) HAD CONSIDERED ADDITIO NAL EVIDENCE FILED BY THE ASSESSEE TO GIVE THE RELIEF WITHOUT GIVING AN OPPORTUNITY TO THE ASSESSING OFFICER. SHE PRAYED THAT THE ORDER OF THE ASSESSING OFFICER SHOULD BE RESTORED. 6. ON THE OTHER HAND, THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE IS REGISTERED WITH THE EXCISE DEPARTMEN T. THE ASSESSEE IS MAINTAINING DETAILS OF RAW MATERIAL PURCHASED, RAW MA TERIAL CONSUMED, FINISHED GOODS, SCRAP GENERATED ETC. THE DAILY STOCK REGISTER, PRODUCTION ITA 956/JP/2016_ ITO VS PINKCITY PACKAGING PVT. LTD. 7 REGISTER ETC. WAS ALSO MAINTAINED. THE ASSESSEES PRO DUCTION IS SUBJECTED TO PERIODICAL AUDITS BY THE EXCISE DEPARTMENT. THE A SSESSEE SUBMITTED EXCISE AUDIT CERTIFICATE FOR THE RELEVANT FINANCIAL YEAR WHEREIN NO DISCREPANCY IN MAINTAINING THE RECORDS HAVE BEEN OB SERVED. THE ASSESSEE IS MAINTAINING ALL REGULAR BOOKS OF ACCOUN T. THE ASSESSING OFFICER ESTIMATED AD HOC G.P. @ 16% IS COMPLETELY WIT HOUT ANY BASIS. HE FURTHER SUBMITTED THAT THERE WAS A DECLINE IN THE YI ELD OF THE FINISHED GOODS PRODUCTS BY .94% AS THE YIELD DEPENDS ON THE THICKNESS OF THE RAW MATERIAL USED IN THE PRODUCTION OF CAPS. OVERALL PRODUCTION RANGES FROM 65 TO 68% OF RAW MATERIAL AS IT DEPENDS UPON TH E THICKNESS OF THE ALUMINIUM SHEET USED IN THE PRODUCTION. WHEREVER TH E YIELD IS ON LOWER SIDE IT IS DUE TO THE THICKNESS OF THE ALUNIMIUM SH EET THEN THE SCRAP PRODUCTION INCREASES. HE ALSO SUBMITTED THAT THE GR OSS PROFIT RATE FOR EARLIER YEAR WAS WRONGLY WORKED OUT DUE TO WRONG GROUPI NG OF EXPENSES. IT WAS NOT 19.95% BUT IT WAS ONLY 0.84%. THE LD. AR ALSO SUBMITTED THAT THE GROSS PROFIT RATE FOR THE YEAR UNDER CONSI DERATION WAS 6.45% INSTEAD OF 6.28% AS WORKED OUT BY THE ASSESSING OFFI CER. THE LD AR ALSO PLACED RELIANCE ON THE VARIOUS DECISIONS INCLUDING THE DECISION OF THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF MALANI RAMJIVAN JAGANNATH VS ACIT, DECISION OF THE HONBLE ITAT, JAIPUR BENCHES IN THE CASE OF DCIT, CIRCLE-2, JAIPUR VS. M/S SAND DUNE CONSTRUCTIO NS (P) LTD. (2015- ITA 956/JP/2016_ ITO VS PINKCITY PACKAGING PVT. LTD. 8 (9)TMI15). RELIANCE WAS ALSO PLACED ON MONEY OF THE OTHER UNREPORTED ORDERS OF THE ITAT. 7. I HAVE HEARD BOTH THE SIDES ON THIS ISSUE. ON TH E REVISED CLAIM OF WORKING OF THE GP RATE FOR THE IMMEDIATE PRECEDING Y EAR AND FOR THE YEAR UNDER CONSIDERATION, THE LD. CIT(A) REQUIRED TO FURN ISH A CHART FOR A.Y. 2011-12 AND 2012-13 AFTER INCORPORATING THE INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES, WHICH WAS SUBMITTED BY T HE ASSESSEE. THE SAME HAS BEEN MADE PART OF THE ASSESSMENT ORDER AS AN ANNEXURE A. THUS, THE REWORKING OF THE GP RATE BY REGROUPING OF T HE VARIOUS EXPENSES IN THE TRADING ACCOUNT AND MANUFACTURING A CCOUNT WAS SUBMITTED BY THE ASSESSEE ON THE INSTANCE OF THE LD . CIT(A). THUS, IT WAS NOT AN ADDITIONAL EVIDENCE AS PLEADED BY THE REVENU E. IT IS A WELL SETTLED LAW THAT THE LD. CIT(A) HAS COTERMINOUS POWER AS OF AN ASSESSING OFFICER AND HE CAN DO ALL THE ACTIONS WHICH THE ASSESSING OF FICER CAN DO. THE LD. CIT(A) CAN ALSO ASK THE ASSESSING OFFICER TO DO THE SAME. IN THE INSTANT CASE, THE LD. CIT(A) HIMSELF HAS EXAMINED THE CLAIM OF THE ASSESSEE IN RESPECT OF THE GROUPING OF THE HEADS OF INCOME AND EXPENDITURE FOR REWORKING OUT THE GP RATE. LD. DR IS NOT ABLE TO PIN POINT ANY MISTAKE IN THE CHART SUBMITTED BY THE ASSESSEE ON THE INSTANCE OF LD. CIT(A) AND THE SAME WAS MADE PART OF ORDER AS ANNEXURE-A. THEREFO RE, IN VIEW OF ITA 956/JP/2016_ ITO VS PINKCITY PACKAGING PVT. LTD. 9 THESE FACTS, I AM OF THE VIEW THAT THE LD. CIT(A) WAS JUSTIFIED IN GRANTING THE RELIEF TO THE ASSESSEE. ACCORDINGLY, I UPHOLD T HE ORDER OF THE LD. CIT(A). 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13/07/2017. SD/- HKKXPAN (BHAGCHAND) YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 13 TH JULY, 2017 *RANJAN VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- THE ITO, WARD-2(3), JAIPUR. 2. IZR;FKHZ @ THE RESPONDENT- M/S PINKCITY PACKAGING PVT. LTD., JA IPUR. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 956/JP/2016) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR