Aquaguard Plastics & Polymers Pvt.Ltd., Baroda V. The ACIT.,Circle-1, Baroda

ITA 958/AHD/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1484 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 04-04-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 02-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NARENDRA SINGH
• Assessee Lawyers: K K NARIA
• Keywords: Unexplained investment; Unexplained expenditure
• Section: 69C; 143(3); 133A; 69

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH BEFORE: S H RI PRAMOD KUMAR , ACCOUNTANT MEMBER AND SHR I S. S. GODARA , JUDICIAL MEMBER AQUAGUARD PLASTICS & POLYMERS PVT. LTD, A - 1/839 GIDC MAKARPURA, BARODA - 390010 PAN: AABCA5877F (APPELLANT) VS THE ACIT, CIRCLE - 1, BARODA (RESPONDENT) REVENUE BY : S H RI NARENDRA SINGH , SR. D . R. ASS ESSEE BY: S H RI K.K. NARIA , A.R. DATE OF HEARING : 04 - 04 - 2 016 DATE OF PRONOUNCEMENT : 31 - 05 - 2 016 / ORDER P ER : S. S. GODARA , JUDICIAL MEMBER : - THIS ASSESSEE S APPEAL FOR A.Y. 2004 - 05 , AR I SES FROM ORDER OF THE CIT(A) - I, BARODA DATED 02 - 02 - 2012 IN APPEAL NO. CAB - I/344/06 - 07 , CONFIRMING ASSESSING OFFICER S ACTION MAKING ADDITION OF NOTIONAL FIGURE OF RS. 7,51,065/ - TOWARDS FALL IN GP MARGINS, IN PROCEEDINGS UNDER SECTI ON 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . I T A NO . 958 / A HD/20 12 A SSESSMENT YEAR 200 4 - 05 I.T.A NO. 958/AHD/2012 A.Y. 2004 - 05 PAGE NO AQUAGUARD PLASTICS & POLYMERS PVT. LTD VS. ACIT 2 2. WE N OTICE AT THE OUTSET THAT THE CIT (A) S FINDINGS UNDER CHALLENGE ELABORATELY DISCUSS FACTS OF THE CASE AS WELL AS ASSESSING OFFICER S OBSERVATIONS AS FOLLOWS: - 8. GROUND NO. 7 OF APP EAL IS TH AT THE ID. AO ERRED IN TREATING EXCESS STOCK OF RS. 1 4 , 09,205/ - AS UNEXPLAINED EXPENDITURE. DURING THE COURSE OF SURVEY PROCEEDINGS U/S 133A ON 14.10.2003 AT APPELLANT'S PREMISES, EXCESS STOCK OF 16MM LATERALS BY 156250 METERS AND 12 MM LATERALS BY 53150 M ETERS OF VALUE RS.4,21 ,875/ - AND RS.95,670/ - RESPECTIVELY WAS FOUND. FURTHER ON PHYSICAL VERIFICATION, SCRAP OF 16,23 MTS OF THE VALUE RS,8,91, 660/ - WAS FOUND TO BE NOT R ECORDED IN THE BOOKS OF ACCOUNT. IN RESPONSE TO AO'S PROPOSAL TO TAX UNACCOUNTED STOCK/ SCRAP FOUND DURING SURVEY AS UNEXPLAINED EXPENDITURE U/S 69C, APPELLANT CLAIMED TO HAVE RECORDED EXCESS STOCK FOU ND DURING SURVEY IN THE STOCK RES GISTER, DUE TO WHICH WHILE VALUING CLOSING STOCK ON LAST DAY OF RELEVANT PREVIOUS YEAR, EXCESS QUANTITY FOUND ON DAY OF SURVEY WAS SAID TO BE TAKEN INTO CONSIDERATION. AO HELD THAT AS PER PROVISO TO SECTION 69C, UNEXPLAINED EXPENDITURE REPRESENTED BY UNEXPLAINED STOCK HAD TO BE DISALLOWED AND ADDED TO TOTAL INCOME, AO ADDED AMOUNT OF RS. 14,09,205/ - TO APPELL ANT'S INCOME. 8.1 IN APPEAL, IT WAS SUBMITTED THAT THE EXCESS STOCK WAS DETERMINED AS PER ESTIMATION DURING SURVEY TO WHICH APPELLANT AGREED ONLY TO BUY PEACE OF MIND. AS PER APPELLANT, THE AFORESAID EXPENDITURE OF RS.14,09,205/ - DID NOT FALL WITHIN THE MEANING OF 'UNEXPLAINED EXPENDITURE REPRESENTED BY UNEXPLAINED STOCK' FOR THE REASON THAT STOCK WAS DULY ACCOUNTED FOR IN THE STOCK LEDGER AND WAS CONSIDERED FOR VALUING CLOSING INVENTORY. IT WAS SUBMITTED THAT STOCK VALUE ONCE INCLUDED, INCREASED PROFIT OF APPELLANT AND THEREFORE SECOND ADDITION U/S 69C OF THE SAME AMOUNT WAS NOT JUSTIFIED. COPY OF APPELLANT'S SUBMISSIONS WAS FORWARDED TO THE AO ON 19.10.2010 BY M Y LD. PREDECESSOR CIT(A) - I, BARODA FOR COMMENTS. 8.2 IN REPORT DT 12.8.2011, AO REFERRED T O PROVISO BEL OW SECTION 69C. IT WAS SUBMITTED THAT SIMPLY INCLUDING UNEXPLAINED STOCK IN STOCK REGISTE R WAS NOT ACCEPTABLE. COPY OF AO 'S REPORT WAS PROVIDED TO THE APPELLANT, WHO RELIED ON SUBMISSIONS ALREADY MADE. I.T.A NO. 958/AHD/2012 A.Y. 2004 - 05 PAGE NO AQUAGUARD PLASTICS & POLYMERS PVT. LTD VS. ACIT 3 8. 3 I HAVE CONSIDERED THE SUBMISSIONS A ND FACTS OF THE CASE. IT IS SEEN FROM STATEMENT OF SHRI GAURI SHANKAR MUNDHRA, MANAGING DIRECTOR OF APPELLANT COMPANY RECORDED AT THE TIM E OF SURVEY THAT THE DIFFERENCE IN STOCKS AS WELL AS SCRAP WORKED OUT BY SURVEY PARTY - WAS ACCEPTED BY HIM AT THE TIME O F SURVEY, EVEN THOUGH IT WAS OBSERVED THAT THERE COULD BE AN ELEMENT OF ESTIMATION INVOLVED IN STOCK TAKING. FURTHER, AFTER THE SURVEY, APPELLANT INTRODUCED QUANTITY OF SUCH UNACCOUNTED STOCK AS WELL AS SCRAP IN ITS STOCK REGISTER, I.E. BOOKS OF AC COUNT. IN VIEW OF THIS, THE FACT OF UNACCOUNTED STOCK OF THE VALUE RS. 14,09,205/ - BEING FOU ND AT APPELLANT'S PREMISES ON THE DAY OF SURVEY CANNOT BE DISPUTED. UNACCOUNTED STOCK FOUND DURING SURVEY WAS TAXABLE AS UNEXPLAINED INVESTMENT U/S 69 AND NOT AS UNEXPLAINED EXPENDITURE U/S 69C OF THE I.T. ACT. PROVISO TO SECTION 69C WAS THEREFORE NOT APPLICABLE M APPELLANT'S CASE. AFTER INTRODUCING UN EXPLAINED/UNACCOUNTED STOCK IN THE BOOKS OF ACCOUNTS, RISE IN GROSS PROF IT RATIO WOULD BE EXPECTED. IT IS HOWEVER NOTED THAT EVEN AFTER INTRODUCING UNA CCOUNTED STOCK OF RS. 14,09,205/ - FOU ND ON THE DAY OF SURVEY IN THE BOOKS OF ACCOUNTS, APPELLANT'S GROSS PROFIT RATIO FELL FROM 27.55 % IN AY 2003 - 04 TO 26 .92% IN AY 2004 - 05. FIGURES SUBMITTED BY APPELLANT IN THIS REGARD ARE AS UNDER: - AY 2004 - 05 AY 2003 - 04 [RS. IN LAKH] [RS. IN LAKH] SALES 457.20 491.25 STOCK DIFFERENCE 43.51 - 12.65 --------- ---------------- 500.71 478.60 ---------- ----------------- LESS: EXPENSES 377.61 343.22 ---------- --------------- GROSS PROFIT 123.10 135.38 ----------- -------------- GROSS PROFIT RATIO 26.92% 27.55% IN FACT, THE FALL IN GP RATIO AFTER REMOVING EFFECT OF UNACCOUNTED STOCK OF RS.14 ,09,205/ - IS MUCH MORE THAN FALL BY 0.6 3% AS ABOVE. THE GROSS PROF IT RATIO AFTER REDUCING STOCK OF RS.14.09 LAKH F ROM I.T.A NO. 958/AHD/2012 A.Y. 2004 - 05 PAGE NO AQUAGUARD PLASTICS & POLYMERS PVT. LTD VS. ACIT 4 PROFITS IS 109.01/50 0.71 I.E. 21.77% AND THE FALL I N GP I S 5.78% AS COMPARED TO AY 2003 - 04. APPELLANT EXPLAINED THE FALL IN GP RATIO ON ACCOUNT OF DECREASE IN SELLING PRICE AND INCREASE IN PRICE OF RAW MATERIAL. APPELLANT MANUFACTURES VARIETY OF ITEMS AS TABULATED IN ANNEXURE - 13 OF TAX AUDIT REPORT FOR FY 2003 - 04 AND INFERENCE OF FALL IN SALES REALIZATION BY AGGREGATING ALL ITEMS IS TOO SIMPLISTI C AN APPROACH TO EXPLAIN FALL IN - GP BY 5.78%, AFTER CONSIDERING EXCESS STOCK FOUND DURING SURVEY SEPARATELY. CONSIDERING ALL ASPECTS, ADDITION OF 1.5% OF SAL ES, I.E. RS.7.51 LAKH IS DIRECTED TO BE MADE TO APPELLANT'S INCOME ON ACCOUNT OF FALL IN GP RATIO DESPITE UNA CCOUNTED STOCK OF RS. 14,09,205/ - HAVING BEEN FOUND DURING SURVEY AT APPELLANT'S PREMISES. THUS, INSTEAD OF ADDITION OF RS. 14,09 ,205/ - , ADDITION OF RS.7,51,065/ - IS DIRECTED TO BE MADE, ALBEIT FOR REASONS AS MENTIONED. 3. BOTH THE LEARNED REPRESENTATIVES REITERATE THEIR RESPECTIVE PLEADINGS AGAINST AND IN SUPPORT OF THE IMPUGNED ADDITION. THE ASSESSEE FILES BEFORE US A COM PARATIVE CHART OF ITS GROSS PROFITS OF THE IMPUGNED ASSESSMENT YEAR AND THE PRECEDING ASSESSMENT YEAR AS FOLLOWS: - SR. NO. ASSESSMENT YEAR 2004 - 05 M ASSESSMENT YEAR 2003 - 04 FALL IN G.P A.Y 2004 - 05 CAUSED BY QTY. (KGS.) RS. IN LACS PER K G RATE QTY. (KGS.) RS. IN LACS PER KG RATE % RS. IN LACS 1 SALES - MFG 581124 402.18 69.21 576620 429.11 74.42 7% $ 30.27 STOCK DIFFERENCE + 43.51 - 12.65 -------- -------- I.T.A NO. 958/AHD/2012 A.Y. 2004 - 05 PAGE NO AQUAGUARD PLASTICS & POLYMERS PVT. LTD VS. ACIT 5 OUT PUT 625994 445.69 562277 416.46 2 TRADE SALES 55.02 - 62.14 - --------- -------- TOTAL OUT PUT 500.71 478.6 3 RAW MATERIALS CONSUME D FOR MFG GOODS 626142 285.46 45.59 562445 242.94 43.19 + 5.50%# 14.88 4 COST OF TRADED SALES 41.36 * 37.3 2 + 15.12% @ 8.32 (75. 17% OF TRADED SALES) ( 60.05% OF TRADED SALES) AGGREGATE LOSS IN GROSS PROFIT 53.47 LESS : EXCESS STOCK IN SURVEY INCLUDED IN CLOSING INVENTORY 14.09 NET LOSS DUE TO MARKET FORCES 39.38 I.T.A NO. 958/AHD/2012 A.Y. 2004 - 05 PAGE NO AQUAGUARD PLASTICS & POLYMERS PVT. LTD VS. ACIT 6 ACTUAL GROSS PROFIT AS PER P/L A/C IN ASSESSMENT YEAR 2004 - 05 123.10 1 SHOULD BE GROSS PROFIT HAD THERE BEEN NO INCREASE IN AMOUNT COST OF RAW MATERIAL OR NO DECREASE IN UNIT REALISATION RATE 39.38 + 123.10 = 162.48 (G.P % FOOT NOTE $ 1 MINUS (69.21 74.42) = 7% AND (402.18 93X7 )= RS. 30.27 LACS #1 MINUS (45.59 4 43.19) = 5.55% AND (285.46 105. 50 X 5.50 ) = RS. 14.88 LACS @ 75.17 % - 60.05% = 15.12 % AND (55.02 X 15.12 100 )= RS. 8.32 LACS THE REVENUE DOES NOT DISPUTE THE ABOVE STATED DETAILS COMPILED IN THE TABULATION. THE ASSESSEE SUBMITS THAT IT S A CASE OF DULY AUDITED BOOKS NOWH ERE REJECTED TILL DATE. ITS CASE IS THAT THE CIT(A) HAS NOT ADOPTED SUCH A COURSE OF ACTION BEFORE ADDING 1.5% OF THE SALES IN QUESTION . WE OBSERVE IN THESE PECULIAR FACTS THAT ONCE THE ABOVE STATED TABULATION IS ADMITTED TO BE CORRECT, IT EMERGES THAT T HE COST OF THE RAW MATERIAL IN QU ESTION IS VERY MUCH HIGHER @ 45. 59 PER KG AS AGAINST RS. 43.19 IN THE PRECEDING ASSESSMENT YEAR. COST OF TRADE SALES HAVE GONE UP FROM RS. 37.32 LACS@ 60.05 % THEREOF TO RS. 41.36 LACS @ 75.17%. WE ACCORDINGLY CONCLUDE TH AT ALL THESE DETAILS OFFER A SUFFICIENT EXPLANATION IN SUPPORT OF ASSESSEE S CASE REGARDING FALL IN ITS GROSS PROFITS. WE ACCEPT ASSESSEE S ARGUMENTS. THE IMPUGNED ADDITION STANDS DELETED. IT IS MADE CLEAR THAT OUR THIS ORDER SHALL N OT BE TREATED AS A P RECEDENT IN ANY PRECEDING OR SUCCEEDING ASSESSMENT YEAR. I.T.A NO. 958/AHD/2012 A.Y. 2004 - 05 PAGE NO AQUAGUARD PLASTICS & POLYMERS PVT. LTD VS. ACIT 7 4. THIS ASSESSEE S APPEAL SUCCEEDS. ORDER PR ONOUNCED IN THE OPEN C OURT ON 31 - 05 - 201 6 SD/ - SD/ - ( PRAMOD KUMAR ) ( S. S. GODARA ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD : DATED 31 /05 /2016 AK / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,