M/s Chang Hing Tannery, Kolkata V. D.C.I.T Cir - 33,kolkata., Kolkata

ITA 971/KOL/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4680 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 3 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 28-06-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 26-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJAT KUMAR KUREEL J
• Assessee Lawyers: SAUMITRA CHOUDHURY
• Keywords: Business income; Principle of natural justice; Additional evidence
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH A KOLKATA BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI S.S.VISWANETHRA RAVI, JUDICIAL MEMBER ITA NO.971/KOL/2013 ASSESSMENT YEARS:2009-10 M/S CHANG HING TANNERY 77, MATHESWARTALA ROAD, KOLKATA-700 046 [ PAN NO.AACFC 4080 C ] / V/S . DCIT, CIRCLE-33, 10B, MIDDLETON ROW, KOLKATA-700 071 /APPELLANT .. /RESPONDENT /BY APPELLANT SHRI SAUMITRA CHOUDHURY, ADVOCATE /BY RESPONDENT SHRI RAJAT KUMAR KUREEL, JCIT-DR /DATE OF HEARING 28-06-2016 /DATE OF PRONOUNCEMENT 10-08-2016 /O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-XIX, KOLKATA IN APPEAL NO. 156/CIT(A) -XIX/CIR-33/KOL/12-13 DATED 21.01.2013. ASSESSMENT WAS FRAMED BY DCIT, CIRCLE-3 3, KOLKATA U/S 143(3)/145(3) R.W.S. 184(5) OF THE INCOME TAX ACT, 1961 (HEREINAF TER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 27.12.2011 FOR ASSESSMENT YEAR 2009 -10. THE GROUNDS RAISED BY THE ASSESSEE PER ITS APPEAL ARE AS UNDER:- 1. FOR THAT ON THE FACTS OF THE CASE, THE APPELLAT E ORDER OF THE LD. CIT(A)-XIX, KOLKATA IS COMPLETELY ARBITRARY, UNJUSTIFIED, UNWAR RANTED AND ILLEGAL. 2. FOR THAT ON THE FACTS OF THE CASE THE LD. CIT(AP PEALS) WAS WRONG IN UPHOLDING THE REJECTION OF AUDITED ACCOUNTS AND TAK E RECOURSE U/S. 145(3) OF THE ITA NO.971/KOL/2013 A.Y. 2009-10 M/S CHANG HIGH TANNERY VS. DCIT, CIR-33 KOL. PAGE 2 IT ACT, 1961, THEREBY SUSTAINED THE ESTIMATED NET P ROFIT @ 3.39% AMOUNTING TO RS.44,34,395/- WHICH IS EXCESSIVELY HIGH, THUS HIS ACTION IS COMPLETELY ARBITRARY, UNJUSTIFIED, UNWARRANTED AND ILLEGAL. 3. FOR THAT THE STATUS OF THE APPELLANT HAS BEEN TA KEN AS FIRM, SO SEC. 40(B) SQUARELY APPLIES READ WITH CLAUSE (IV) AND (V) OF S EC. 40(B) OF THE IT ACT, 1961 AMOUNTING TO RS.29,69,096/- AND RS.240,000/- BEING INTEREST ON PARTNERS CAPITAL AND REMUNERATION TO BE DEDUCTED FROM FIRMS TOTAL INCOMES WHICH IS AGAINST THE REQUIREMENT OF LAW. 4. FOR THAT THE INTEREST CHARGES U/S. 234B RS.3,13, 878/- WITHOUT ALLOWING ANY OPPORTUNITY OF HEARING, THUS THERE HAS BEEN GROSS V IOLATION OF NATURAL JUSTICE. 5. FOR THAT THE APPELLANT RESERVES THE RIGHT TO ADD UCE ANY FURTHER GROUND OR GROUNDS, EVIDENCE OR EVIDENCES IF NECESSARY, AT OR BEFORE THE HEARING OF THE APPEAL. SHRI SAUMITRA CHOUDHURY, LD. AUTHORIZED REPRESENTAT IVE APPEARED ON BEHALF OF ASSESSEE AND SHRI RAJAT KUMAR KUREEL, LD DEPARTMENT AL REPRESENTATIVE APPEARED ON BEHALF OF REVENUE. 2. FACTS IN BRIEF ARE THAT ASSESSEE IN THE PRESENT CASE IS A PARTNERSHIP FIRM AND ENGAGED IN THE BUSINESS OF TANNING OF RAW HIDES TO FINISHED LEATHER AND SALES THEREOF. FOR THE YEAR, ASSESSEE HAS FILED ITS RETURN OF INCO ME ON 24.09.2009 DECLARING BUSINESS INCOME OF 23,78,107/- THEREAFTER CASE WAS SELECTED FOR SCRUTI NY UNDER CASS MODULE. ACCORDINGLY NOTICES WERE ISSUED U/S 143(2) R.W.S 14 2(1) OF THE ACT. 3. FIRST ISSUE RAISED BY ASSESSEE IS THAT LD. CIT(A ) ERRED IN CONFIRMING THE ACTION OF ASSESSING OFFICER BY REJECTING THE BOOKS OF ACCO UNT AND SUSTAINING THE ESTIMATED NET PROFIT @ 3.39% WHICH IS EXCESSIVE AND HIGH. 3.1 THE ASSESSEE IS IN THE MANUFACTURING BUSINESS O F TANNING LEATHER FROM RAW HIDES. IT WAS OBSERVED THE RAW HIDES IS AVAILABLE I N THE MARKET IN DIFFERENT SIZE AND IT IS SOLD IN THE UNIT OF PIECE AND THE FINISHED GOODS OF LEATHER IS SOLD IN THE FORM OF SQUARE FEET. AS PER THE TAX AUDIT REPORT, THE FINISHED GOO DS WERE PRODUCED 94.74% FROM THE RAW MATERIALS. THEREFORE, THERE WAS A HUGE FALL OF 5.26% WHICH WAS GENERATED DURING ITA NO.971/KOL/2013 A.Y. 2009-10 M/S CHANG HIGH TANNERY VS. DCIT, CIR-33 KOL. PAGE 3 THE MANUFACTURING PROCESS AS THE WASTAGE WHICH IS A RISING ON ACCOUNT OF INPUT AND OUTPUT RATIO OF 5.26% WHICH NORMALLY IS SOLD AS SCR AP. HOWEVER, AO OBSERVED THAT NO SALE OF SCRAP HAS BEEN SHOWN IN THE BOOKS OF ACCOUN T OF ASSESSEE. THE AO FURTHER OBSERVED THAT PRODUCTION REGISTER AND STOCK REGISTE R BOTH ARE REQUIRED TO BE MAINTAINED BY ASSESSEE BUT WERE NOT MAINTAINED. THE REFORE, ACTUALLY QUANTITY OF SCRAP CANNOT BE VERIFIED. AS SUCH, THE TRADING A/C SHOWN BY ASSESSEE IS NEITHER VERIFIABLE NOR ACCEPTABLE. IN THE ABSENCE OF MANUFACTURING ACCOUNT OF ASSESSEE, THE AO DURING THE ASSESSMENT PROCEEDINGS, ALSO OBSERVED THAT THERE IS A DECLINE IN THE NET PROFIT RATIO IN COMPARISON TO EARLIER YEARS OF NET PROFIT RATIO OF ASSESSEE. ACCORDINGLY, AO ASKED ASSESSEE TO PRODUCE BOOKS OF ACCOUNT, STOCK REGISTE R AND PRODUCTION REGISTER. BUT NO COMPLIANCE WAS MADE BY ASSESSEE TILL THE DATE OF PA SSING ASSESSMENT ORDER. IN VIEW OF THE ABOVE, AO REJECTED THE BOOKS OF ACCOUNT OF ASSE SSEE AND HAS APPLIED THE NET PROFIT RATIO TAKING THE AVERAGE NET PROFIT RATIOS OF THE L AST THREE PRECEDING ASSESSMENT YEARS AND AO WORKED OUT THE AVERAGE PROFIT @ 3.39% AND CA LCULATED THE NET PROFIT AT 44,34,395/- U/S 145(3) R.W.S 184(5) OF THE ACT. 4. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A) WHEREAS ASSESSEE SUBMITTED THAT THE DECLINE IN GROSS PROFIT RATIO AN D NET PROFIT RATIO IN COMPARISON TO EARLIER YEAR IS DUE TO MARKET RECESSION IN THE GLOB AL MARKET AND RATE OF DOLLAR VALUE DURING THAT PERIOD. HOWEVER, LD. CIT(A) DISREGARDED THE CLAIM OF ASSESSEE BY OBSERVING THAT THE STOCK REGISTER / PRODUCTION REGI STER AND OTHER RELEVANT IN THE BOOKS OF ACCOUNT WERE NEVER PRODUCED BEFORE AO AND SUCH N ON-MAINTENANCE OF THE AFORESAID REGISTERS WERE THE MAJOR DEFECT. THEREFORE AO WAS J USTIFIED IN INVOKING THE SEC. 145(3) OF THE ACT. ACCORDINGLY, LD. CIT(A) UPHELD T HE ACTION OF AO BY OBSERVING AS UNDER:- 13) IN THE BACKGROUND OF THE ABOVE DISCUSSION NOW THE RELEVANT QUESTION IS WHAT PROFIT RATE SHOULD BE ADOPTED FOR ESTIMATING T HE PROFIT. THERE CANNOT BE ANY BETTER COMPARABLE CASE THEN THE CASE OF ASSESSE E WHERE THE BUSINESS ARE IDENTICAL. THE ASSESSEE HAS HIMSELF OFFERED NET PRO FIT AT FOLLOWING DIFFERENT RATES IN EARLIER ASSESSMENT YEARS: ASSESSMENT PROFIT RATIO 2006-07 2.68% ITA NO.971/KOL/2013 A.Y. 2009-10 M/S CHANG HIGH TANNERY VS. DCIT, CIR-33 KOL. PAGE 4 2007-08 4.46% 2008-09 3.04% 14) THE ABOVE PROFIT RATIO CLEARLY SHOWS THAT THE A CHIEVABLE PROFIT RATIO IN THE CASE OF THE ASSESSEE IS AS HIGH AS 4.46% THE AO WAS VERY REASONABLE TO ADOPT NET PROFIT RATION @ 3.39% WHICH IS WELL BELOW 4.46% . IN VIEW OF THIS I DONT FIND ANY INFIRMITY AND DEFICIENCY IN ADOPTING INCOM E FROM BUSINESS AT RS.44,34,395/- BY ESTIMATING @ 3.39% ON THE TURNOVE R OF RS.13,08,08,115/- 15) THE A/R OTHER GROUNDS RAISED ARE ONLY ADJUNCT T O THE MAIN GROUNDS OF APPEAL AND THEREFORE IT IS ONLY CONSEQUENTIAL IN NA TURE. AS A RESULT THE ADDITION OF RS.36,46,483/- MADE BY THE AO TO THE RETURNED IN COME IS CONFIRMED ON MERIT. ALL THE GROUNDS OF APPEAL RAISED STAND DISPO SED OFF ACCORDINGLY. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSE E CAME IN SECOND APPEAL BEFORE US. 5. BEFORE US LD. AR FILED PAPER BOOK WHICH IS RUNNI NG PAGES FROM 1 TO 18 AND DREW OUR ATTENTION AT PAGE 7 OF THE PAPER BOOK WHER E THE DETAILS OF RAW MATERIALS CONSUMED AND FINISHED PRODUCTS WERE PLACED. THE LD. AR SUBMITTED FOR ESTIMATING THE REASONABLE AMOUNT OF NET PROFIT. ON THE OTHER H AND, LD. DR VEHEMENTLY SUPPORTED THE ORDER OF AUTHORITIES BELOW. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET, LD AR BEFORE US SUBMITTED TH E PRODUCTION REGISTER WHICH IS AN ADDITIONAL EVIDENCE FOR PRODUCTION REGISTER AND IT WAS NEVER PRODUCED BEFORE AUTHORITIES BELOW. SINCE THE ADDITIONAL EVIDENCE HA S BEEN PRODUCED BEFORE US FOR THE FIRST TIME AND WHICH REQUIRES TO BE VERIFIED AT THE LEVEL OF AUTHORITIES BELOW. ACCORDINGLY, WE THEREFORE IN THE INTEREST OF JUSTIC E AND FAIR PLAY RESTORE THE MATTER TO THE FILE OF AO FOR FRESH ADJUDICATION AS PER LAW. H ENCE, ASSESSEES ISSUE IS ALLOWED FOR STATISTICAL PURPOSE IN TERMS OF ABOVE. ITA NO.971/KOL/2013 A.Y. 2009-10 M/S CHANG HIGH TANNERY VS. DCIT, CIR-33 KOL. PAGE 5 7. REMAINING GROUNDS DO NOT CALL FOR ANY ADJUDICATI ON AT THIS STAGE BECAUSE THE MATTER IS ALREADY RESTORED BACK TO THE FILE OF ASSE SSING OFFICER FOR DECIDING THE ISSUE AFRESH AFTER PROVIDING REASONABLE OPPORTUNITY OF BE ING HEARD TO ASSESSEE. 8. IN THE RESULT, ASSESSEES APPEAL STANDS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN OPEN COURT ON 10/08/2016 SD/- SD/- (S.S.VISWANETHRA RAVI) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER *DKP ! - 10/08/2016 / KOLKATA / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-M/S CHANG HING TANNERY, 77 MATHESWARTALA RD., KOL-46 2. /RESPONDENT-DCIT, CIR-33, 10B, MIDDLETON ROW, KOLKA TA-71 3. '# % / CONCERNED CIT 4. % - / CIT (A) 5. &'( ))'# , '# / DR, ITAT, KOLKATA 6. (*+ / GUARD FILE. BY ORDER/ , /TRUE COPY/ / '#,