The ACIT, Circle-5,, Ahmedabad v. Naval Technoplast Ind.Ltd.,, Ahmedabad

ITA 1326/AHD/2007 | 2003-2004
Pronouncement Date: 30-09-2010 | Result: Partly Allowed

Appeal Details

RSA Number 132620514 RSA 2007
Assessee PAN AAACN4950B
Bench Ahmedabad
Appeal Number ITA 1326/AHD/2007
Duration Of Justice 3 year(s) 5 month(s) 28 day(s)
Appellant The ACIT, Circle-5,, Ahmedabad
Respondent Naval Technoplast Ind.Ltd.,, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 30-09-2010
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted D
Tribunal Order Date 30-09-2010
Date Of Final Hearing 23-09-2010
Next Hearing Date 23-09-2010
Assessment Year 2003-2004
Appeal Filed On 02-04-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'D' BEFORE SHRI BHAVNESH SAINI JM & SHRI A N PAHUJA AM ITA NO.1326/AHD/2007 (ASSESSMENT YEAR:-2003-04) ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE-5 AHMEDABAD V/S NAVAL TECHNOPLAST INDUSTRIES LTD. 38 WHITE HOUSE PANCHWATI AHMEDABAD [PAN: AAACN 4950 B] [APPELLANT] [RESPONDENT] REVENUE BY :- SHRI SANDIP GARG DR ASSESSEE BY:- SHRI S N SOPARKAR AR O R D E R A N PAHUJA: THIS APPEAL BY THE REVENUE AGAINST AN ORDER DATED 18-01-2007 OF THE LD. CIT(APPEALS)-XI AHMEDABAD RAISES THE FOLLOWING GROUNDS:- 1. THE LD. COMMISSIONER OF INCOME TAX (A)-XI AHMEDABA D HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE OF RS.21 75 379/-ON ACCOUNT OF DISALLOWANCE OF MANUFAC TURING EXPENSES. 2. THE LD. COMMISSIONER OF INCOME TAX (A)-XI AHMED ABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE OF RS.2 32 776/- ON ACCOUNT OF DISALLOWANCE OF PACKING AND FREIGHT CHARGES. 3. THE LD. COMMISSIONER OF INCOME TAX (A)-XI AHMED ABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE OF RS.2 50 000/- ON ACCOUNT OF DISALLOWANCE OF TRAVELL ING AND CONVEYANCE EXPENSES. 4. THE LD. COMMISSIONER OF INCOME TAX (A)-XI AHMED ABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE OF RS.6 12 600/-BEING THE VALUE OF EXCESS STOCK FOUND DURING THE COURSE OF SURVEY OPERATION UNDER SECTION 133A 1 OF THE INCOME TAX ACT 1961 CARRIED OUT ON 03/01/2002. 5. THE LD. COMMISSIONER OF INCOME TAX (A)-XI AHMED ABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE OF ITA NO.1326/AHD/2007 2 RS.3 00 453/- ON ACCOUNT OF DISALLOWANCE OF INTERES T RELATING TO THE DIFFERENCE IN CASH FOUND DURING THE COURSE OF S URVEY. 2 ADVERTING FIRST TO GROUND NO.1 IN THE APPEAL FAC TS IN BRIEF AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING I NCOME OF RS.18 47 706/- FILED ON 14.10.2003 BY THE ASSESSEE MANUFACTURING BOBBINS TUBES CONES ETC. AFTER B EING PROCESSED ON 24.12.2003 U/S 143(1) OF THE INCOME-TA X ACT 1961 [HEREINAFTER REFERRED TO AS THE ACT] WAS SELECTE D FOR SCRUTINY WITH THE SERVICE OF NOTICE U/S 143(2) ON 17-01-2004 .IN THIS CASE A SURVEY U/S 133A OF THE ACT WAS CONDUCTED ON 03-01 -2003. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AS SESSING OFFICER (AO IN SHORT) NOTICED THAT EVEN THOUGH SAL ES DURING THE YEAR HAD INCREASED FROM RS.6 21 17 426/- IN FY 2001 -02 TO RS.7 57 81 816/- IN THE YEAR UNDER CONSIDERATION I NCREASE IN FOLLOWING EXPENSES WAS DISPROPORTIONATE: EXPENSES FY 01-02 FY 02-03 % INCREASE A) MFG. EXPENSES (INCLUDING PROCESSING CHARGES) 67 68 492 1 18 54 323 75% B) PROCESSING CHARGES 11 90 450 58 23 741 390% C) PACKING & FREIGHT 77 822 3 42 505 340% D) TRAVELLING & CONVEYANCE 46 731 3 14 300 572% 2.1 TO A QUERY BY THE AO THE ASSESSEE SUBMITTED THAT EVEN THOUGH THE SALES OF THE COMPANY HAVE INCREASED BY 2 2% DURING THE YEAR OVER THE SALES OF PRECEDING YEAR THE MANU FACTURING EXPENSES EXCLUDING THE PROCESS CHARGES INCREASED BY ONLY BY 8.11% THE COMPANY HAVING GOT ITS WORK DONE FROM OU TSIDE PARTIES. THERE WAS SUBSTANTIAL INCREASE IN PROCESS CHARGES WHILE OTHER MANUFACTURING EXPENSES LIKE POWER AND F UEL LABOUR CHARGES HAVE REMAINED STAGNANT OR HAVE SHOWN ONLY M ARGINAL INCREASE. AS REGARDS INCREASE IN PACKING & FREIGHT CHARGES THE ASSESSEE EXPLAINED THAT EARLIER IT WAS THE PRACTICE OF THE ITA NO.1326/AHD/2007 3 COMPANY TO RECOVER SOME OF THE PACKING EXPENSES FRO M THE CUSTOMERS AND THE ASSESSEE USED TO CHARGE CERTAIN P ERCENTAGE OF SALE AS PACKING CHARGES FROM THEM. SINCE SOME OF THE CUSTOMERS RESISTED THE LEVY OF PACKING CHARGES TH E RECOVERY OF THE PACKING CHARGES FROM THESE CUSTOMERS WAS REDUCE D TO THE EXTENT OF SOME PERCENTAGE OF THE SALE AMOUNT IN THE YEAR UNDER CONSIDERATION VIS-A-VIS PRECEDING YEAR. THE ASSESSE E ALSO POINTED OUT THAT NO PERSONAL VISIT WAS INCLUDED IN THE TRAVELING AND CONVEYANCE EXPENSES. THESE EXPENSES INCREASED D UE TO SUBSTANTIAL PROCESS ACTIVITIES DONE FROM OUTSIDE PA RTIES. HOWEVER THE AO DID NOT ACCEPT THESE CONTENTIONS OF THE ASSESSEE ON THE GROUND THAT IF THE ASSESSEE GOT WOR K DONE FROM OUTSIDE PARTIES THEN DIRECT MANUFACTURING EXP ENSES LIKE POWER & FUEL LABOUR CHARGES ETC. WOULD HAVE DECREA SED VIS-- VIS PRECEDING YEAR. THE FACT THAT DIRECT MANUFACTUR ING EXPENSES HAD INCREASED BY 8.11% REFLECTED THAT THE MANUFACTU RING HAD BEEN DONE IN THE ASSESSEES OWN FACTORY PREMISES AN D PROCESSING CHARGES WERE PAID ONLY TO DECREASE THE P ROFIT OF THE COMPANY. SINCE THERE WAS 43% INCREASE IN PRODUCTION OF FINISHED GOODS IN THE YEAR UNDER CONSIDERATION WHIL E THE ASSESSEE COULD NOT JUSTIFY SUBSTANTIAL INCREASE IN THE EXPENSES THE AO DISALLOWED THE MANUFACTURING EXPENSES OF RS.21 75 379/-. 3. ON APPEAL THE LEARNED CIT(A) DELETED THE DISALL OWANCE IN THE FOLLOWING TERMS:- 3.1 IN THE WRITTEN SUBMISSIONS IT IS SUBMITTED BY THE AR OF THE APPELLANT AS UNDER: 'THE APPELLANT IS A LIMITED COMPANY ENGAGED IN THE MANUFACTURING AND SELLING OF BOBBINS TUBES AND CONES ETC. THAT D URING THE YEAR UNDER CONSIDERATION THE SALES OF THE APPELLANT HAVE INCREASED FROM RS.6 21 17 426/- TO RS.7 57 81 846/- IN VALUE TERMS SHOWING AN INCREASE OF 22%. IN QUANTITY TERMS ALSO THE SALES H AVE INCREASED ITA NO.1326/AHD/2007 4 FROM 343574 KGS. TO 491550 KGS. SHOWING AN INCREASE OF 43%. THE SAID RESULTS HAVE BEEN ACHIEVED BY THE APPELLANT MA INLY BECAUSE THE APPELLANT GOT ITS JOB DONE FROM OUTSIDE PARTIES. TH E OUTSIDE JOB CONSISTED OF PROCESSING OF RAW MATERIALS TO FINISHE D GOODS I.E. THE APPELLANT GAVE THE RAW MATERIAL TO THE JOB PROCESSO RS AND IN TURN GOT THE FINISHED GOODS IN SALEABLE CONDITIONS. THE APPE LLANT DID NOT INCUR ANY EXPENDITURE IN RESPECT OF THIS JOB WORK EXCEPT THE JOB CHARGES. ALL THE VARIABLE EXPENDITURE LIKE ELECTRICITY WAGES ET C. WERE BORNE BY THE JOB PROCESSORS. THE APPELLANT HAD TO RESORT TO THIS BUSINESS PLAN AS THE INSTALLED CAPACITY WAS UTILIZED IN FULL BY IT A ND THERE WAS NO SCOPE FOR IMMEDIATE EXPANSION OF THE INSTALLED CAPACITY. HAD THE APPELLANT GONE FOR EXPANSION OF INSTALLED CAPACITY IT WOULD H AVE INCURRED FIXED COST BY WAY OF INTEREST ON TERM LOAN FOR LAND BUIL DING AND PLANT AND MACHINERY AND DEPRECIATION ETC BY ADOPTING THIS BUS INESS PLAN THE APPELLANT WAS BENEFITED IN AS MUCH AS THAT WITH THE SAME BUSINESS SETUP AND WITH THE SAME LEVEL OF FIXED OVERHEAD EXP ENDITURE IT COULD EARN HIGHER PROFITS WHICH CAN BE SEEN FROM A STATEM ENT ATTACHED HEREWITH -AS ANNEXURE 'A' SHOWING THE INCREMENTAL/M ARGINAL PROFIT OF RS.18 62 210/- EARNED BY IT DUE TO JOB WORK DONE FR OM OUTSIDE. IT IS RESPECTFULLY SUBMITTED THAT THE LEARNED ASSES SING OFFICER HAS NOT APPRECIATED THE WRITTEN SUBMISSION MADE BY THE APPE LLANT CONTAINED IN ITS LETTER DATED 16.11.05. IT IS FURTHER SUBMITTED THAT THE LEARNED A.O. HAS N OT POINTED OUT ANY AMOUNT IN RELATION TO THE PROCESSING CHARGES WHICH IN HER OPINION IS EITHER BOGUS OR NOT SUPPORTED BY PROPER BILLS. ON T HE OTHER HAND THE APPELLANT HAS SUBMITTED ALL THE DETAILS IN RESPECT THEREOF TO SHOW THAT THE TRANSACTIONS WERE FULLY VOUCHED AND THE PAYMENT S WERE THROUGH CHEQUES ONLY. IT HAD ALSO PRODUCED THE EXCISE RECOR DS TO SHOW THE MOVEMENT OF RAW MATERIAL FROM APPELLANT'S PREMISES TO JOB PROCESSORS AND BACK FROM JOB PROCESSORS TO APPELLAN T'S PREMISES IN THE FORM OF FINISHED GOODS. IN VIEW OF THE ABOVE SUBMISSIONS IT IS PRAYED THAT THE DISALLOWANCE MADE BY THE LEARNED AO ON THIS GROUND MAY KINDLY BE DELETED. 3.2 THE SUBMISSIONS MADE BY THE A. R. OF THE APPELL ANT HAVE BEEN PERUSED. THE OBSERVATIONS OF THE ASSESSING OFF ICER IN THE ASSESSMENT ORDER HAVE ALSO BEEN PERUSED. 3.2.1. IT MAY BE SEEN THAT FOR THE ASSESSMENT YEAR UNDER CONSIDERATION THERE HAS BEEN CONSIDERABLE GROWTH IN TOTAL TURNOVER OF THE APPELLANT. THE GROWTH OF SALES IS AT 43%. THE A PPELLANT HAD TO GET ARTICLES MANUFACTURED FROM OUT SIDE PARTIES ON JOB WORK BASIS SINCE ITS OWN MANUFACTURING CAPACITY BEING LIMITED. THEREFORE THERE IS A CORRESPONDING INCREASE IN MANUFACTURING EXPENSES. T HE APPELLANT HAS BEEN MAINTAINING BOOKS OF ACCOUNTS AND THE JOB WORK IS ALSO SUBJECT TO CENTRAL EXCISE SUPERVISION. THE INCREASE IN COST OF ITA NO.1326/AHD/2007 5 MANUFACTURING IS INEVITABLE IN VIEW OF THE FACT THA T THE APPELLANT HAS INCREASED THE TOTAL MANUFACTURING OF THE ARTICLES W HICH MANIFESTS IN INCREASE THE SALES. THEREFORE IT APPEARS THAT THE FACTS OF THE CASE ARE NOT APPRECIATED BY THE AO AND HAS RESORTED TO PARTI AL DISALLOWANCE OF THE MANUFACTURING EXPENSES. I DO NOT FIND ANY VALID REASON IN MAKING PARTIAL DISALLOWANCES OF MANUFACTURING EXPENSES SIN CE THE SAID EXPENSES ARE NOT PROVED OF BOGUS NATURE. HENCE THE ADDITION MADE CANNOT BE SUSTAINED . 4. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST T HE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARN ED DR SUPPORTED THE ORDER OF THE AO WHILE THE LEARNED AR ON BEHALF OF THE ASSESSEE SUPPORTED THE FINDINGS OF THE LD. CIT( A). 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. WE FIND THAT THE AO HAS NOWHERE DOUBTED THE GENUINENESS OF THE EXPENDITURE NOR POINTED OUT ANY DEFECT IN THE BOOKS OF ACCOUNT. WE FIND THAT THE QUANTITY OF GOODS MANUFACTURED INCREASED FROM 343574 KGS. TO 491550 K GS. IN THE YEAR UNDER CONSIDERATION. AS POINTED OUT BY THE LD. CIT( A) SINCE THE ASSESSEE GOT THE ARTICLES MANUFACTURED FROM OUTSIDE PARTIES ON JOB WORK THERE WAS NO CORRESPONDING INCREASE IN MA NUFACTURING EXPENSES. IN THE ABSENCE OF ANY MATERIAL THAT THE E XPENDITURE ON ACCOUNT OF MANUFACTURING EXPENSES PROCESSING CH ARGES PACKING AND FREIGHT OR TRAVELLING EXPENSES WERE NOT GENUINE OR NOT SUPPORTED BY ANY BILLS ETC. WE ARE NOT INCLIN ED TO INTERFERE WITH THE FINDINGS OF THE LEARNED CIT(A). THEREFORE GROUND NO.1 IN THE APPEAL IS DISMISSED. 6. GROUND NO.2 RELATES TO DISALLOWANCE OF RS.2 32 7 76/- ON ACCOUNT OF PACKING AND FREIGHT CHARGES. THE AO DISA LLOWED AN AMOUNT OF RS.2 32 776/- SINCE QUANTITY OF SALES INC REASED ONLY BY 41% IN COMPARISON TO PRECEDING ASSESSMENT YEAR W HILE PACKING CHARGES INCREASED BY 340%. 7. ON APPEAL THE LEARNED CIT(A) DELETED THE DISALL OWANCE ON THE SUBMISSION OF THE ASSESSEE THAT THE RECOVERY OF PACKING ITA NO.1326/AHD/2007 6 CHARGES FROM THE CUSTOMERS WAS MERELY 80% IN THE YE AR UNDER CONSIDERATION AS AGAINST 94% IN THE PRECEDING YEAR. TOTAL PACKING AND FREIGHT CHARGES WERE RS.17.96 LACS IN T HE YEAR UNDER CONSIDERATION AS AGAINST RS.13.55 LACS IN THE PRECEDING YEAR. 8. THE REVENUE IS IN APPEAL BEFORE US AGAINST THE A FORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED DR SUPP ORTED THE ORDER OF THE AO WHILE THE LEARNED AR ON BEHALF OF T HE ASSESSEE SUPPORTED THE FINDINGS OF THE LEARNED CIT(A). 9. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. WE DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF THE LEARNED CIT(A) IN ACCEPTING THE SUBMISSION OF T HE ASSESSEE THAT THE RECOVERY OF PACKING CHARGES FROM THE CUSTO MERS WAS LOWER IN THE YEAR UNDER CONSIDERATION VIS--VIS IN THE PRECEDING YEAR WHILE TOTAL PACKING AND FREIGHT CHARGES WERE R S.17.96 LACS IN THE YEAR UNDER CONSIDERATION AS AGAINST RS.13.55 LACS IN THE PRECEDING YEAR. EVEN OTHERWISE THE REVENUE HAS NOT PLACED ANY MATERIAL BEFORE US IN ORDER TO ENABLE US TO TAKE A DIFFERENT VIEW. THEREFORE WE HAVE NO HESITATION IN UPHOLDING THE FINDINGS OF THE LD. CIT(A) AND CONSEQUENTLY REJECT GROUND NO.2 IN THE APPEAL. 10. GROUND NO.3 RELATES TO DISALLOWANCE OF RS.2 50 000/- OUT OF TRAVELLING AND CONVEYANCE EXPENSES. THE AO DISAL LOWED AN AMOUNT OF RS.2 50 000/- ON ESTIMATE ON THE GROUND T HAT SINCE THE SUBSTANTIAL PRODUCTION OF THE ASSESSEE HAVING B EEN CARRIED OUT IN ITS OWN FACTORY PREMISES THE PLEA OF THE AS SESSEE THAT THE COMPANY GOT SUBSTANTIAL PROCESS ACTIVITIES DONE FROM OUTSIDE PARTIES AND THEREFORE WAS REQUIRED TO EXER CISE SUPERVISORY CONTROL WAS NOT ACCEPTABLE. ITA NO.1326/AHD/2007 7 11. ON APPEAL THE LEARNED CIT(A) DELETED THE DISAL LOWANCE ON THE GROUND THAT THERE WAS NO SPECIFIC FINDING INDIC ATING ANY NON- BUSINESS EXPENDITURE. 12. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARN ED DR SUPPORTED THE ORDER OF THE AO WHILE THE LEARNED AR ON BEHALF OF THE ASSESSEE SUPPORTED THE FINDINGS OF THE LEARNED CIT(A). 13. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. WE FIND THAT THE AO HAS NOT DOUB TED THE GENUINENESS OF THE EXPENDITURE NOR PIN-POINTED ANY SPECIFIC ITEM OF EXPENDITURE UNDER THE HEAD TRAVELLING & CO NVEYANCE EXPENDITURE WHICH HAD BEEN INCURRED FOR NON-BUSINE SS PURPOSES. EVEN OTHERWISE THE LEARNED DR DID NOT REF ER US TO ANY MATERIAL CONTROVERTING THE FACT THAT INCREASED AMOU NT OF TRAVELLING AND CONVEYANCE EXPENSES WERE INCURRED ON LY TO SUPERVISE THE SUBSTANTIAL PROCESSING ACTIVITIES DON E FROM OUTSIDE PARTIES. IN THESE CIRCUMSTANCES THEREBEING NO BASIS SO AS TO AS ENABLE US TO TAKE A DIFFERENT VIEW IN THE MATTER WE ARE NOT INCLINED TO INTERFERE WITH THE FINDINGS OF THE LEARNED CIT(A). THEREFORE GROUND NO.3 IN THE APPEAL IS ALSO DISMIS SED. 14. GROUND NO.4 IN THE APPEAL RELATES TO AN ADDITIO N OF RS.6 12 600/- ON ACCOUNT OF EXCESS STOCK FOUND DURI NG THE COURSE OF SURVEY U/S 133A OF THE ACT IN THE PREMISE S OF THE ASSESSEE ON 03-01-2003. THE AO NOTICED THAT DURING THE COURSE OF SURVEY IN THE BUSINESS PREMISES OF THE ASSESSEE STOCK OF 141317 KGS. WAS FOUND IN THE BUSINESS PREMISES WHER EAS THE STOCK AS PER BOOKS WERE ONLY 134168 KGS. THE ASSES SEE DID NOT EXPLAIN THE DISCREPANCY DURING THE COURSE OF SU RVEY. TO A QUERY BY THE AO DURING THE COURSE OF ASSESSMENT PRO CEEDINGS THE ASSESSEE SUBMITTED THAT THE SURVEY PARTY CONSID ERED THE STOCK OF COLOUR AND CHEMICALS AND OTHER CONSUMABLES WHILE THE ITA NO.1326/AHD/2007 8 BOOKS OF ACCOUNT CONTAINED INVENTORY OF ONLY FINISH ED GOODS AND RAW MATERIAL. THE STOCK OF RAW MATERIALS COLOUR AN D CHEMICALS PACKING MATERIAL AND REUSABLE MATERIALS ALONG WITH FINISHED GOODS WERE KEPT IN BAGS AS WELL AS IN LOOSE QUANTIT Y. THE MATERIALS KEPT IN BAGS WERE NOT OF UNIFORM QUANTITY IN EACH BAG. SINCE THE SURVEY PARTY ESTIMATED THAT EACH BAG CONT AINED 25 KGS. WHEREAS SOME OF THE BAGS MIGHT HAVE LOWER QUAN TITY WHILE THE ACTUAL MEASUREMENT OF STOCK WAS NOT TAKEN THER E WAS POSSIBILITY OF PERCENTAGE OF ERROR OF 2 TO 3 % IN E STIMATION. HOWEVER THE AO DID NOT ACCEPT THE CONTENTIONS OF T HE ASSESSEE THE ASSESSEE HAVING FAILED TO EXPLAIN THE DIFFERENCE OF 7149 KGS. IN STOCK. SINCE THE AVERAGE COST OF RA W MATERIAL AS REVEALED FROM NOTES ON ACCOUNTS WAS RS.85.69 PER KG . THE AO ADDED AN AMOUNT OF RS.6 12 600/- TOWARDS UNEXPLAIN ED EXPENDITURE. 15. ON APPEAL THE LEARNED CIT(A) DELETED THE ADDIT ION IN THE FOLLOWING TERMS:- 5.2. THE SUBMISSIONS MADE BY THE A. R. HAVE BEEN PE RUSED. THE OBSERVATIONS OF THE ASSESSING OFFICER HAVE ALSO BEE N PERUSED. IN THE LIGHT OF THE ABOVE SUBMISSION OF THE AR IT APPEARS THAT THE INVENTORY TAKEN IS ON ESTIMATION BASIS FROM WHICH IT LOOKS AC CURACY FACTORS ARE NOT DESERVED HENCE DIFFERENCE IN STOCK CANNOT BE ATTRIBUTED AS CORRECT AS ALLEGED THEREFORE THE ADDITION MADE BY THE A. 0. IS DELETED . 16. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARN ED DR WHILE REFERRING TO THE IMPUGNED ORDERS CONTENDED THAT T HE ASSESSEE DID NOT DISPUTE THE DIFFERENCE IN QUANTITY OF STOCK UNTIL THE ISSUE OF SHOW-CAUSE NOTICE ISSUED BY THE AO EVEN WHEN A COPY OF INVENTORY WAS HANDED OVER TO THE ASSESSEE BY THE SU RVEY PARTY ON CONCLUSION OF SURVEY . SINCE ITEM-WISE DETAILS OF COLOUR AND CHEMICALS AND OTHER CONSUMABLES WERE NOT AVAILABLE IN THE ITA NO.1326/AHD/2007 9 BOOKS OF ACCOUNT NOR THE ASSESSEE COULD GIVE ANY CL ARIFICATION DURING THE COURSE OF SURVEY THE AO WAS JUSTIFIED I N MAKING THE ADDITION ON ESTIMATE BASIS. THE LEARNED DR POINTED OUT THAT THE CIT(A) HAS NOT GIVEN ANY REASONS WHILE DELETING THE ADDITION APART FROM STATING THAT THE INVENTORY WAS TAKEN ON ESTIMATE BASIS. ON THE OTHER HAND THE LEARNED AR ON BEHALF OF THE ASSESSEE CONTENDED THAT THE AO HAS NOT IDENTIFIED A S TO WHETHER THE COLOUR AND CHEMICALS WERE IN SHORT OR S OME OTHER ITEM. EVEN THE AVERAGE PRICE ON THE BASIS OF NOTES ON ACCOUNTS ADOPTED BY THE AO WAS NOT JUSTIFIED IN ABSENCE OF I DENTIFICATION OF THE MATERIAL. IN REPLY THE LEARNED DR ADDED THA T SINCE THE ASSESSEE DID NOT MAINTAIN ANY STOCK REGISTER PHYSI CAL INVENTORY OF STOCK WAS TAKEN DURING THE COURSE OF SURVEY. THE ASSESSEE HAVING FAILED TO EXPLAIN THE DIFFERENCE THE LD. CI T(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION. 17. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. DURING THE COURSE OF SURVEY INV ENTORY OF STOCK WEIGHING 141137 KGS. WAS PREPARED WHILE THE S TOCK AS PER BOOKS WAS FOUND TO BE 134168 KGS. UNDISPUTEDLY STOC K OF COLOUR AND CHEMICALS AND OTHER CONSUMABLES WERE NOT ACCOUN TED FOR IN THE BOOKS OF ACCOUNTS WHILE ADMITTEDLY ONLY STOC K OF FINISHED GOODS AND RAW MATERIAL ALONE WERE ACCOUNTED FOR. IN THESE CIRCUMSTANCES ESPECIALLY WHEN DIFFERENCE OF 7149KG S. WAS POINTED OUT DURING THE COURSE OF SURVEY ONUS WAS O N THE ASSESSEE TO EXPLAIN THE DIFFERENCE WITH COGENT EVID ENCE. THERE IS NOTHING TO SUGGEST THAT THE ASSESSEE DISCHARGED THIS ONUS. THE LD. CIT(A) DID NOT ANALYSE EITHER THE INVENTORY OF PHYSICAL STOCK FOUND DURING THE COURSE OF SURVEY OR THE STAT EMENT OF THE ASSESSEE RECORDED DURING THE SURVEY NOR THE SAME HA VE BEEN PLACED BEFORE US. APPARENTLY THE AFORESAID ORDER O F THE LD. CIT(A) IS NOT A SPEAKING ORDER. THE APPLICATION OF MIND TO THE MATERIAL FACTS AND THE ARGUMENTS SHOULD MANIFEST ITSELF IN T HE ORDER. SECTION 250(6) ITA NO.1326/AHD/2007 10 OF THE INCOME TAX ACT 1961 MANDATES THAT THE ORDER OF THE CIT(A) WHILE DISPOSING OF THE APPEAL SHALL BE IN WRITING AND SHA LL STATE THE POINTS FOR DETERMINATION THE DECISION THEREON AND THE REASON FOR THE DECISION. AS IS APPARENT FROM THE IMPUGNED ORDER IN OUR OPINION T HE ORDER PASSED BY THE LD. CIT(A) IS CRYPTIC AND GROSSLY VIOLATIVE OF ONE OF THE FACETS OF THE RULES OF NATURAL JUSTICE NAMELY THAT EVERY JUDICIAL/QUASI- JUDICIAL BODY/AUTHORITY MUST PASS REASONED ORDER WHICH SHOULD REFLECT APPLICATI ON OF MIND BY THE CONCERNED AUTHORITY TO THE ISSUES/POINTS RAISED BEF ORE IT. THE REQUIREMENT OF RECORDING OF REASONS AND COMMUNICATION THEREOF HAS BEEN READ AS AN INTEGRAL PART OF THE CONCEPT OF FAIR PROCEDURE. THE REQUIREMENT OF RECORDING OF REASONS BY THE QUASI-JUDICIAL AUTHORITIES IS AN IMPORTANT SAFEGUARD TO ENSURE OBSERVANCE OF THE RULE OF LAW. IT INTRODUCES CLARITY CHECKS THE INTRODUCTION OF EXTRANEOUS OR IRRELEVANT CONSIDERAT IONS AND MINIMIZES ARBITRARINESS IN THE DECISION-MAKING PROCESS. WE MA Y REITERATE THAT A DECISION DOES NOT MERELY MEAN THE CONCLUSION. I T EMBRACES WITHIN ITS FOLD THE REASONS FORMING BASIS FOR THE CONCLUSION.[MUKHT IAR SINGH VS. STATE OF PUNJAB (1995)1SCC 760(SC)]. AS IS APPARENT THE IMP UGNED ORDER SUFFERS FROM LACK OF REASONING AND IS NOT A SPEAKING ORDER . IN VIEW OF THE FOREGOING ESPECIALLY WHEN THE LD. CIT(A) HAS NOT P ASSED A SPEAKING ORDER ON THE ISSUE RAISED IN GROUND NO. 4 IN THE APPEAL BEFORE US WE CONSIDER IT FAIR AND APPROPRIATE TO SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE MATTER TO HIS FILE FOR DECIDING THE ISSUES RAISED IN THE SAID GROUND AFRESH IN ACCORDANCE WITH LAW IN THE LIGHT OF OUR AFORESAID O BSERVATIONS AFTER ALLOWING SUFFICIENT OPPORTUNITY TO BOTH THE PARTIES. NEEDLES S TO SAY THAT WHILE REDECIDING THE ISSUE THE LEARNED CIT(A) SHALL PASS A SPEAKING ORDER KEEPING IN MIND INTER ALIA THE MANDATE OF PROVISI ONS OF SEC. 250(6) OF THE ACT. WITH THESE OBSERVATIONS GROUND NO. 1 IS DISP OSED OF. 18. GROUND NO.5 RELATES TO DISALLOWANCE OF INTEREST OF RS.3 00 453/- ON ACCOUNT OF DIFFERENCE IN CASH FOUN D DURING THE COURSE OF SURVEY. DURING THE COURSE OF SURVEY ON 03 -01-2003 CASH OF RS.91 200/- WAS FOUND WHEREAS BOOKS OF ACCO UNTS OF THE ASSESSEE REVEALED CASH OF RS.17 60 385/-. SHRI SHARAD ITA NO.1326/AHD/2007 11 TIBREWALA AUTHORIZED SIGNATORY OF THE ASSESSEE EXP LAINED IN HIS STATEMENT RECORDED DURING THE COURSE OF SURVEY THAT THE DIFFERENCE WAS BECAUSE OF THE FACT THAT CERTAIN EXP ENDITURE ON ACCOUNT OF SALARY AND FACTORY EXPENSES WERE YET TO BE RECORDED IN THE COMPUTERIZED BOOKS OF ACCOUNTS. HOWEVER HE COULD NOT PRODUCE ANY VOUCHERS FOR EXPENSES NOR THESE WERE FO UND EITHER IN THE FACTORY PREMISES OR IN THE OFFICE PREMISES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS TO A QUERY BY THE AO THE ASSESSEE EXPLAINED VIDE LETTER DATED 23-03-2006 THA T THE PHYSICAL CASH WAS FOUND IN EXCESS IN THE BOOKS OF A CCOUNT BECAUSE CASH HAD BEEN WITHDRAWN FROM TIME TO TIME F ROM THE RESPECTIVE BANKS FOR THE PURPOSE OF MEETING THE EXP ENSES. SINCE THE EXPENSES WERE NOT RECORDED IN THE COMPUTE R PHYSICAL CASH WAS FOUND LESS. THE ASSESSEE FURNISHED A COPY OF CASH FLOW STATEMENT TILL 31-12-2002. ON PERUSAL OF CASH FLOW STATEMENT THE AO OBSERVED THAT EXCEPT FOR THE MONT H OF OCTOBER THE MONTHLY EXPENSES NEVER EXCEEDED RS.3 L ACS AND THE ASSESSEE WAS HAVING ENOUGH BROUGHT FORWARD CASH BALANCE IN THE BEGINNING OF THE MONTH TO MEET THE MONTHLY E XPENSES. SINCE THE ASSESSEE WAS NOT UNABLE TO SUBSTANTIATE I TS EXPLANATION IN RESPECT OF CASH DIFFERENCE THE AO D ISALLOWED THE INTEREST AT THE RATE OF 18% PA ON THE EXCESS CASH OF RS.16 69 185/- OUT OF TOTAL INTEREST CLAIM OF RS.5 86 981/-. 19. ON APPEAL THE LEARNED CIT(A) DELETED THE DISAL LOWANCE ACCEPTING THE SUBMISSIONS OF THE ASSESSEE THAT THE AO DID NOT DISPROVE THE EXPENSES WHICH WERE NOT ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS AT THE TIME OF SURVEY AND REFLECT ED IN THE CASH FLOW STATEMENT. 20. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARN ED DR ITA NO.1326/AHD/2007 12 SUPPORTED THE ORDER OF THE AO WHILE THE LEARNED AR ON BEHALF OF THE ASSESSEE SUPPORTED THE FINDINGS OF THE LEARNED CIT(A). 21. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. WE FIND THAT THE GENUINENESS OF THE EXPENDITURE DEBITED IN THE BOOKS OF ACCOUNT HAS NOW HERE BEEN DOUBTED AND IN FACT THE AO HAS ALLOWED THE EXPENSES WHILE COMPLETING THE ASSESSMENT. UNDER THESE CIRCUMSTANCE S ESPECIALLY WHEN THE REVENUE HAVE NOT PLACED ANY MAT ERIAL CONTROVERTING THE FINDINGS OF THE LEARNED CIT(A) W E HAVE NO ALTERNATIVE BUT TO UPHOLD HIS FINDINGS. THEREFORE GROUND NO.5 IN THE APPEAL IS DISMISSED. 22. IN THE RESULT THE APPEAL IS PARTLY ALLOWED BU T FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT TODAY ON 30-09-2010 SD/- SD/- (BHAVNESH SAINI) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATE : 30-09-2010 COPY OF THE ORDER FORWARDED TO: 1. NAVAL TECHNOPLAST INDUSTRIES LTD. 38 WHITE HOU SE PANCHWATI AHMEDABAD 2. ACIT CIRCLE-5 AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-XI AHMEDABAD 5. DR BENCH-D ITAT AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT AHMEDABAD