The ACIT,Vapi Circle, Vapi V. M/s Deev Gen Set Sales & Services, Dadra

ITA 987/AHD/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 50833 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 04-10-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 02-04-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DR JAYANT JHAVERI
• Assessee Lawyers: M K PATEL
• Keywords: Gross profit estimation; Rejection of books of accounts; Opportunity of being heard; Additional evidence; Bad and doubtful debts
• Section: 143(3); 80IB

Judgement Text

, , , , , IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, A BENCH . .. . . .. . , , , , !'# !'# !'# !'#, , , , $ $ $ $ %% % & %% % & %% % & %% % &, , , , ' ' ' ' ( # ( # ( # ( # BEFORE S/SHRI G.D. AGARWAL, VICE-PRESIDENT AND MUKUL KR. SHRAWAT, JUDICIAL MEMBER) ITA NO.987/AHD/2009 [ASSTT. YEAR : 2005-2006] ACIT, VAPI CIRCLE VAPI. /VS. M/S.DEEV GEN SET SALES & SERVICES SURVEY NO.277/13, DEMNI ROAD VILLAGE DADRA PAN : AACFD 0992 J ITA NO.1162/AHD/2009 [ASSTT. YEAR : 2005-2006] M/S.DEEV GEN SET SALES & SERVICES SURVEY NO.277/13, DEMNI ROAD VILLAGE DADRA /VS. ACIT, VAPI CIRCLE VAPI. ( (( (*+ *+ *+ *+ / APPELLANT) ( (( (,-*+ ,-*+ ,-*+ ,-*+ / RESPONDENT) ' . / (/ REVENUE BY : DR.JAYANT JHAVERI 1& . / (/ ASSESSEE BY : SHRI M.K. PATEL DATE OF HEARING : 4 TH OCTOBER, 2011 DATE OF PRONOUNCEMENT : 14 TH OCTOBER, 2011 (2 / O R D E R PER G.D. AGARWAL , VICE-PRESIDENT : THESE TWO APPEALS ARE BY THE REVENUE AND ASSESSEE AGAINST THE ORDER OF THE COMMI SSIONER OF INCOME-TAX (APPEALS), VALSAD DATED 12.1.2009 ARISING OUT OF TH E ORDER OF THE ASSESSING OFFICER UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961. FOR THE SAKE OF CONVENIENCE WE DISPOSE OF BOTH THE APPEALS BY THIS COMMON ORDER. ITA NO.987/AHD/2009 (REVENUES APPEAL) 2. THE FIRST GROUND RAISED IN THIS APPEAL BY THE RE VENUE READS AS UNDER: ITA NO.987 AND 1162/AHD/2009 -2- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT THE ACTIVITY OF AS SESSEE IS MANUFACTURING ACTIVITY WITHIN THE MEANING OF SECTIO N 80IB(2) AND NOT ASSEMBLING AND DIRECTING TO ALLOW DEDUCTION UNDER S ECTION 80IB AMOUNTING TO RS.1,77,077/- 3. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL PLACED BEFORE US. WE FIND THAT THIS ISSUE IS CONSIDERED BY THE I TAT IN ASSESSEES OWN CASE FOR A.Y.2001-2002 VIDE ITA NO.1034/AHD/2005. THAT IN A.Y.2001-2002 ALSO THE AO REFUSED TO ALLOW DEDUCTION UNDER SECTION 80I B ON THE GROUND THAT THE ASSESSEES ACTIVITY DOES NOT AMOUNT TO MANUFACTURE. ON APPEAL, THE ITAT CONSIDERED THIS ISSUE AT LENGTH AND HELD AS UNDER: THE ASSESSEE MANUFACTURED SAFETY DEVICE AND OTHER EQUIPMENT WHICH A VERY VITAL FOR THE OPERATION OF GENERATOR SET. THE ACTIVITY AS CARRIED OUT BY THE ASSESSEE-FIRM IS NOT OF ERECTION AND COMMISS ION OF MACHINES BUT IT REQUIRES THE SKILLED TECHNICIANS, SOPHISTICATED MAC HINES LIKE LATHE MACHINE, DRILLING MACHINE A WELDING MACHINE, ETC. A FTER BRINGING THESE VARIOUS EQUIPMENTS TOGETHER AND AFT CARRYING OUT VA RIOUS PROCESSES, SUCH AS WELDING, MOUNTING, COUPLING, BORING, WIRING AND JOINING, ETC., ON VARIOUS EQUIPMENTS AND MACHINES, SUCH AS, DIESEL ENGINE COUPLING, CONTROL PANEL AND FUEL TANK, ETC. A NEW PRODUCT IN THE FORM OF D G. SET W BROUGHT INTO EXISTENCE FOR THE GENERATION OF ELECTR ICITY WE FIND THAT IT H. MANUFACTURED SAFETY DEVICE AND CONTROL PANELS, WHIC H ARE VITAL TO REGULATE THE FUNCTIONING OF VARIOUS EQUIPMENTS AND IT THIS WAY ALL THE COMPONENTS WE ASSEMBLED TOGETHER AND THESE FUNCTION ED TOGETHER TO GENERATE ELECTRICITY. THUS, THE BASIS OF ABOVE REFE RRED DETAILS AND FACTS WE ARE OF THE VIEW THAT THE FINDINGS THE HON'BLE CA LCUTTA HIGH COURT IN THE CASE OF BABCOCK & WILCOX INDIA LTD. (SUPRA) CAN NOT BE APPLIED TO THE FACTS OF THE CASE OF THE ASSESSEE. ACCORDINGLY, THE ASSESSEE'S ACTIVITIES WERE THAT OF THE MANUFACTURING AND THE A SSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB OF THE ACT. 4. ADMITTEDLY, THE FACTS OF THE YEAR UNDER APPEAL A RE IDENTICAL, THEREFORE, WE RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE ITAT IN ASSESSEES OWN CASE REJECT GROUND NO.1 OF THE REVENUES APPEAL. 5. GROUND NO.2 OF THE REVENUES APPEAL READS AS UND ER: ITA NO.987 AND 1162/AHD/2009 -3- 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITION O N ACCOUNT OF LOW GROSS PROFIT OF RS.19,86,134/- WITHOUT APPRECIATING THE FACTS BROUGHT IN BY THE AO IN ITS ENTIRETY. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL PLACED BEFORE US. THE AO REJECTED THE ASSESSEES BOOKS OF ACCOUN TS ON THE GROUND THAT THERE WAS DISCREPANCY IN THE CONSUMPTION OF ALTERNATOR AN D ENGINE. ON APPEAL, THE CIT(A) ACCEPTED THE ASSESSEES CONTENTION WITH THE FOLLOWING FINDING: I HAVE CONSIDERED THE SUBMISSIONS AND FIND THAT TH E AO HAS REJECTED THE BOOKS OF ACCOUNTS ON THE GROUND THAT THERE IS F ALL IN GP AND THAT THE APPELLANT COULD NOT RECONCILE THE CONSUMPTION OF RA W MATERIAL WITH THE FINISHED PRODUCTS. AFTER GOING THROUGH THE DETAILS , IT IS SEEN THAT THE AO HAS INCORRECTLY COME TO THE CONCLUSION THAT THERE W AS EXCESS CONSUMPTION OF 18 ALTERNATORS OR ENGINES WITHOUT AP PRECIAT8NG THE SALES OF THESE ITEMS AS EVIDENCED BY COMMERCIAL INVOICES. IT IS ALSO SEEN THAT THE QUANTITATIVE DETAILS OF MAJOR SPARE PARTS ISSUE D FOR PRODUCTION AND ISSUED FOR SALES IS MATCHING AND THERE APPEALS TO B E NO EXCESS CONSUMPTION VIS--VIS THE PRODUCTION. I AM THEREFO RE OF THE VIEW THAT THE BOOKS OF ACCOUNTS HAVE BEEN REJECTED ON INCORRE CT APPRECIATION OF FACTS AND WITHOUT CONSIDERING THE APPELLANTS EXPLA NATION REGARDING INCREASE IN PURCHASE PRICE AND NON-INCLUSION OF OTH ER INCOMES IN THE CURRENT YEARS ACCOUNTS. THE ADDITION HAS BEEN MADE IN A CURSORY MANNER AND IS NOT SUSTAINABLE. AT THE TIME OF HEARING BEFORE US, THE LEARNED COUNS EL FOR THE ASSESSEE FAIRLY CONCEDED THAT THE DETAILED EXPLANATION WITH REGARD TO CONSUMPTION OF ALTERNATOR AND ENGINE SETS WERE SUBMITTED BEFORE THE CIT(A) AN D THOSE DETAILS WERE NOT FURNISHED BEFORE THE AO. THE CIT(A) ALSO DID NOT A LLOW ANY OPPORTUNITY TO THE AO TO EXAMINE SUCH FRESH EVIDENCE FURNISHED BEFORE HIM. 7. SUB-RULE (3) OF RULE 46A READS AS UNDER: (3) THE DEPUTY COMMISSIONER (APPEALS) OR, AS THE CA SE MAY BE, THE COMMISSIONER (APPEALS) SHALL NOT TAKE INTO ACCOUNT ANY EVIDENCE PRODUCED UNDER SUB-RULE (1) UNLESS THE ASSESSING OF FICER HAS BEEN ALLOWED A REASONABLE OPPORTUNITY-- ITA NO.987 AND 1162/AHD/2009 -4- (A) TO EXAMINE THE EVIDENCE OR DOCUMENT OR TO CROSS -EXAMINE THE WITNESS PRODUCED BY THE APPELLANT, OR (B) TO PRODUCE ANY EVIDENCE OR DOCUMENT OR ANY WITN ESS IN REBUTTAL OF THE ADDITIONAL EVIDENCE PRODUCED BY THE APPELLANT. ADMITTEDLY, THE CIT(A) HAS NOT FOLLOWED THE ABOVE S UB-RULE (3) OF RULE 46A BECAUSE HE HAS NOT ALLOWED ANY OPPORTUNITY TO THE A O TO EXAMINE THE DETAILS/EXPLANATION GIVEN BY THE ASSESSEE BEFORE HI M. WE THEREFORE DEEM IT PROPER TO SET ASIDE THE ORDER OF THE AUTHORITIES BE LOW AND RESTORE THE MATTER BACK TO THE FILE OF THE AO. WE DIRECT THE ASSESSEE TO P RODUCE ALL THE EVIDENCES AND EXPLANATIONS BEFORE THE AO. WE ALSO DIRECT THE AO TO ALLOW ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND THER EAFTER ADJUDICATE THE ISSUE AFRESH AFTER CONSIDERING THE DETAILS/EXPLANATION/EV IDENCE THAT MAY BE PRODUCED BEFORE HIM BY THE ASSESSEE. ITA NO.1162/AHD/2009 (ASSESSEES APPEAL) 8. THE ONLY GROUND RAISED IN THIS APPEAL BY THE ASS ESSEE IS AGAINST THE DISALLOWANCE OF THE ASSESSEES CLAIM AMOUNTING TO R S.7,32,867/- OUT OF BAD DEBTS. 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL PLACED BEFORE US. THE AO DISALLOWED THE CLAIM OF BAD DEBTS WITH THE FOLLOWING FINDING, WHICH WAS CONFIRMED BY THE CIT(A): IN VIEW OF THE ABOVE REASONS AND IN VIEW OF THE AM ENDMENTS MADE IN SECTION 36(1)(VII), 36(2)(III) AND 36(2)(IV) FOR AN D FROM A.Y.1989-90, THERE IS A GENERAL MISCONCEPTION THAT WRITING OFF A DEBT AS IRRECOVERABLE IN THE ACCOUNT OF THE ASSESSEE FOR ACCOUNTING YEAR FOR WHICH THE CLAIM FOR DEDUCTION HAS BEEN MADE IS SUFFICIENT COMPLIANC E OF THE PROVISIONS OF THE LAW. IN THE RECENT JUDGMENT OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. GIRISH BHAGWATPRASAD REPORTED I N 265 ITR 722 IT HAS BEEN HELD THAT ASSESSEE IS NOT REQUIRED TO ESTA BLISH THAT A DEBT HAD BECOME BAD IN THE RELEVANT YEAR AND WERE WRITING OF F OF AMOUNT OF BAD DEBT IS SUFFICIENT. HOWEVER, IT HAS ALSO BEEN OBSE RVED IN THIS DECISION THAT THE GENUINENESS OF THE CLAIM OF ASSESSEE SHOUL D NOT BE IN DOUBT AND THERE SHOULD BE NO CHANCE FOR THE ASSESSEE TO RECOV ER THE AMOUNT. ITA NO.987 AND 1162/AHD/2009 -5- WE FIND THAT NOW THE ISSUE IS SETTLED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF T.R.F. LTD. V S. CIT, 323 ITR 397 (SC) WHEREIN THEIR LORDSHIP HELD AS UNDER: AFTER THE AMENDMENT OF SECTION 36(1)(VII) OF THE I NCOME TAX ACT, 1961 WITH EFFECT FROM APRIL 1, 1989, IN ORDER TO OBTAIN A DED UCTION IN RELATION TO BAD DEBTS, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH T HAT THE DEBT, IN FACT, HAS BECOME IRRECOVERABLE; IT IS ENOUGH IF THE BAD DEBT IS WRIT TEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. IN THE CASE UNDER APPEAL BEFORE US, THE AO MADE DIS ALLOWANCE ON THE GROUND THAT THE ASSESSEE COULD NOT ESTABLISH THAT D EBT WRITTEN HAS IN FACT BECOME BAD. IN THE CASE OF TRF LTD., (SUPRA) THE H ONBLE APEX COURT HELD THAT AFTER 1-4-89 IN ORDER TO CLAIM DEDUCTION IN RELATION TO BAD DEBT IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT HAS IN FACT BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. IN THE CASE OF THE ASSESSEE, IT IS NOT DISPUTED THAT THE DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. WE THEREFORE RESPECTFULL Y FOLLOWING THE ABOVE DECISION OF THE HONBLE APEX COURT ALLOW THE CLAIM OF THE ASSESSEE IN RESPECT OF BAD DEBT AND ALLOW THE ASSESSEES APPEAL . 10. IN RESULT, REVENUES APPEAL IS DEEMED TO BE PAR TLY ALLOWED WHILE ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT THE DATE MENTIONED O N THE FIRST PAGE OF THIS ORDER. SD/- SD/- ( %% % & %% % & %% % & %% % & /MUKUL KR. SHRAWAT ) ' ' ' ' /JUDICIAL MEMBER ( . .. . . .. . G.D. AGARWAL) !'# !'# !'# !'# /VICE-PRESIDENT C OPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT