The ACIT, Circle-1,, Bhavnagar v. M/s. S.P. Industries, Bhavnagar

ITA 1743/AHD/2009 | 2005-2006
Pronouncement Date: 05-01-2011 | Result: Dismissed

Appeal Details

RSA Number 174320514 RSA 2009
Assessee PAN AAMFS5181N
Bench Ahmedabad
Appeal Number ITA 1743/AHD/2009
Duration Of Justice 1 year(s) 7 month(s) 8 day(s)
Appellant The ACIT, Circle-1,, Bhavnagar
Respondent M/s. S.P. Industries, Bhavnagar
Appeal Type Income Tax Appeal
Pronouncement Date 05-01-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 05-01-2011
Date Of Final Hearing 05-01-2011
Next Hearing Date 05-01-2011
Assessment Year 2005-2006
Appeal Filed On 27-05-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL : B BENCH : AHMEDABAD (BEFORE HONBLE SHRI T.K. SHARMA J.M. & HON' BLE SHRI N.S. SAINI A.M. ) I.T.A. NO. 1743/AHD./2009 ASSESSMENT YEAR : 2005-2006 ASSISTANT COMMISSIONER OF INCOME TAX -VS.- M /S. S.P. INDUSTRIES BHAVNAGAR CIRCLE-1 BHAVNAGAR (PAN : AAMFS 5181 N) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K. MADHUSUDAN S R. D.R. RESPONDENT BY : N O N E O R D E R PER SHRI T.K. SHARMA JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE IS AGAINST THE OR DER DATED 03.02.2009 OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-XX AHMEDABAD FOR THE ASSESSMENT YEAR 2005-06. 2. VARIOUS GROUNDS RAISED BY THE REVENUE IN ITS APP EAL ARE AS UNDER :- 1. THE LD. CITIA)-XX AHMEDABAD HAS ERRED IN LOW A ND ON FACTS FN RESTRICTING THE ADDITION OF RS.3 35 856/- MADE BY T HE AO ON ACCOUNT OF ESTIMATION OF GROSS PROFIT TO RS.2 00 000/- WITHOUT PROPERLY A PPRECIATING THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECORD BY THE AO. 1.2. IN DOING SO THE LD. CIT(A)-XX AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN REDUCING THE SAID ADDITION FROM RS. 3 35 856/- T O RS.2 00 000/- WITHOUT ANY PROPER BASIS IGNORING THAT THE SAID ADDITION WAS R IGHTLY MADE BY THE AO BY ESTIMATING THE G.P. AL THE RATE OF 9% KEEPING IN VI EW THE G.P SHOWN BY THE ASSESSEE DURING THE PRECEDING 3 YEARS. 2. THE LD. C1T(A)-XX AHMEDABAD HAS ERRED IN LAW A ND ON FACTS IN DELETING THE ADDITION OF RS. 6 95 000/- MADE BY THE AO U/S 6 8 OF THE ACCOUNT IN RESPECT OF UNEXPLAINED CREDITS IN THE NAME OF SHRI K.D. JUTHAN I SMT USHA JUTHANI WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECORD BY THE AO. 2.2. IN DOING SO THE LD. CIT(A]-XX AHMEDABAD HAS ERRED IN LAW IN NOT APPRECIATING THAT SINCE THE SAID CREDITORS DID NOT APPEAR BEFORE THE ASSESSING 2 ITA NO. 1743-AHD-2009 OFFICER INSPITE OF SUMMONS HAVING BEEN ISSUED U/S 1 31 OF THE ACT THE CREDIT WORTHINESS OF THE SAID CREDITORS COULD NOT BE ESTAB LISHED BEFORE THE AO. 2.3. IN DOING SO THE LD. LEARNED COMMISSIONER OF I NCOME TAX (APPEALS)-XX AHMEDABAD HAS ERRED IN LAW AND FACTS IN OBSERVING T HAT THE ASSESSEE WAS NOT SUPPOSED TO PROVE THE GENUINENESS OF CASH DEPOSITED IN THE BANK ACCOUNTS OF THE CREDITORS IGNORING THAT THE SOURCE OF THE SAID CAS H DEPOSITS REMAINED UNEXPLAINED DUE LO THE FAILURE OF CREDITORS TO APPEAR BEFORE TH E AO AND AS SUCH THE ONUS OF ESTABLISHING THE CREDIT WORTHINESS OF CREDITORS COU LD NOT BE ESTABLISHED BY THE ASSESSEE BEFORE THE AO. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD.CIT (A) OUGHT TO HAVE UPHELD THE ORDER OF THE A.O. 4. IT IS THEREFORE PRAYED THAT THE ORDER O F THE CIT(A) BE SET ASIDE AND THAT OF A.O. BE RESTORED TO THE ABOVE EXTENT. 3. ON THE DATE FIXED FOR HEARING NEITHER ANYBODY A PPEARED ON BEHALF OF THE ASSESSEE NOR APPLICATION FOR ADJOURNMENT RECEIVED. WE THEREFORE PROCEED TO DECIDE THIS APPEAL ON THE BASIS OF SUBMISSIONS MADE BY THE LD. DEPARTMENTAL REPRESENTA TIVE AND THE MATERIAL AVAILABLE ON RECORD. 4. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSEE I S A FIRM ENGAGED IN THE BUSINESS OF MANUFACTURING OF BAKELITE POWDER ETC. FOR THE ASSE SSMENT YEAR UNDER APPEAL IT FILED THE RETURN OF INCOME DECLARING TOTAL LOSS OF RS.9 77 710/- ON 29.10.2005 ALONG WITH TAX AUDIT REPORT UNDER SECTION 44AB OF THE INCOME TAX ACT 1961. THE ASSES SING OFFICER FRAMED THE ASSESSMENT UNDER SECTION 143(3) WHEREIN HE MADE THE FOLLOWING ADDITI ONS :- (A) ADDITION OF RS.3 35 856/- BY ESTIMATING HIGHER GROSS PROFIT IN ARBITRARY MANNER; (B) ADDITION OF RS.5 849/- IN RESPECT OF ESIC; (C) ADDITION OF RS.6 95 000/- IN RESPECT OF UNSECUR ED LOANS ACCEPTED FROM K.D. JUTHANI (RS.4 45 000/-) AND USHA BEN JUTHANI (RS.2 50 000/-) BY INVOKING SECTION 68 OF THE ACT. ON APPEAL BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) WITH REGARD TO G.P. ADDITION IT WAS CONTENDED THAT SINCE THE BOOKS OF ACCOUNTS WERE NOT REJECTED BY THE ASSESSING OFFICER UNDER THE PROVISIONS OF SECTION 145(3) OF T HE INCOME TAX ACT NO ADDITION ON ACCOUNT OF G.P. CAN BE MADE. IT WAS FURTHER STATED THAT EVEN I F THE BOOKS OF ACCOUNTS ARE HYPOTHETICALLY 3 ITA NO. 1743-AHD-2009 TREATED AS HAVING BEEN REJECTED THE SAME DOES NOT RESULT IN ADDITION AUTOMATICALLY AS FOR EVERY ADDITION TO THE RETURNED INCOME THE ASSESSING OFFI CER HAS TO HAVE JUSTIFICATION AND HE CANNOT SIMPLY ESTIMATE THE PROFIT AT ANY HIGHER FIGURE SO AS TO MAKE ADDITION OF THE DIFFERENCE. IT WAS ALSO CONTENDED THAT FLUCTUATION IN THE PROFITABILIT Y RATE HAS ALWAYS BEEN A MATTER OF ROUTINE IN A PRIVATE SECTOR UNDERTAKING OPERATING ON A VERY SMA LL SCALE AND FACING ACUTE COMPETITION AND MERE DOWNFALL IN THE PROFITABILITY RATIO CANNOT THU S AUTOMATICALLY RESULT IN ANY ADDITION. 5. AFTER CONSIDERING ALL THE AFORESAID OBJECTIONS O F THE ASSESSING OFFICER IN THE IMPUGNED ORDER THE LEARNED COMMISSIONER OF INCOME TAX (APPE ALS) RESTRICTED THE ADDITION TO RS.2 00 000/- FOR THE DETAILED REASONS GIVEN IN PAR A 2.3 WHICH READS AS UNDER :- I HAVE CONSIDERED THE FACTS OF THE CAST AND SUBMIS SION MADE BY THE LD. COUNSEL FOR THE APPELLANT. THE ONLY SPECIFIC POINT HIGHLIGH TED BY THE APPELLANT FOR FALL IN GROSS PROFIT IS ABOUT THE SPIRALING OF THE COST OF PHENOL BEING THE RAW MATERIAL WHICH COULD NOT BE COMPENSATED BY PROPORTIONATE INC REASE IN SALE PRICE. HOWEVER THE APPELLANT HAS NOT FURNISHED THE DETAIL ED WORKING AS TO PRECISELY BY WHAT AMOUNT THE GROSS PROFIT IS AFFECTED ON THIS SC ORE. THUS THIS ARGUMENT OF THE APPELLANT CANNOT BE ACCEPTED IN TOTALITY ON THE OTH ER SIDE THE ARGUMENT OF THE APPELLANT THAT THE SO-CALLED MISTAKE POINTED OUT IN THAT ORDER EITHER DO NOT CONSTITUTE SUCH MISTAKES AS TO WARRANT THE CHANGE I N THE QUANTIFICATION OF GROSS PROFIT CANNOT BE BRUSHED ASIDE. THOUGH THE AO HAS E STIMATED HIGHER GROSS PROFIT AND MADE THE ADDITION ACCORDINGLY. I FIND THAT IN A BSENCE OF CLEAR REJECTION OF BOOKS OF ACCOUNT THE ADDITIONS SO MADE ON THE BASI S OF ESTIMATION OF GROSS PROFIT BE SUSTAINED. BUT IN THIS CASE THE FACTS AR E VERY CLEAR THAT CERTAIN DEFECTS IN MAINTENANCE OF BOOKS OF ACCOUNTS HAVE BEEN DETEC TED BY THE A.O. DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE A.O. HAS MENT IONED THAT THE WORKING OF STOCK IS NOT IN ACCORDANCE WITH THE ACCOUNTING STAN DARD-2 (REVISED) ISSUED BY ICAI FOR VALUATION OF INVENTORIES AND NO DETAILED S TOCK REGISTERS ARE MAINTAINED FOR PRODUCTION AND CONSUMPTION OF MATERIALS THOUGH THE SAME ARE MAINTAINED FOR INWARDS. BESIDES THE AUDITORS HAVE ALSO MADE C ERTAIN REMARKS AS POINTED OUT BY THE A.O. WHICH REVEALS THAT THE BOOK RESULT SHOWN BY THE APPELLANT CANNOT BE ACCEPTED AS SHOWN BY THE APPELLANT. THERE ARE CERTAIN DISCREPANCIES IN SO FAR AS MAINTENANCE OF BOOKS OF ACCOUNTS ARE C ONCERNED WHICH RAISES DOUBT ABOUT CORRECTNESS OF QUANTITATIVE DETAILS. FO R SUCH DEFECTS AND UNVERIFIABLE DISCREPANCIES LOOKING INTO THE NATURE AND EXTENT OF BUSINESS I HOLD THAT IT WOULD BE REASONABLE IF AN ADDITION OF RS.2 LAKHS IS RETAINED TO COVER UP THE DEFECTS AND IRREGULARITIES. THEREFORE THE ADDI TION TO THE EXTENT OF RS.2 LAKHS IS CONFIRMED AND BALANCE OF RS.1.35 LAKHS IS HEREBY DELETED. 6. THE ADDITION OF RS.5 849/- WAS NOT CONTESTED THE ASSESSEE BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) THEREFORE THI S ADDITION WAS UPHELD BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). 4 ITA NO. 1743-AHD-2009 7. WITH REGARD TO ADDITION UNDER SECTION 68 OF THE ACT BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IT WAS CONTENDED THAT BOTH THE DEPOSITORS ARE DIRECT RELATIVES OF THE ASSESSEE. THEIR IDENTITIES HAD NEVER BEEN DOUBTED B Y THE ASSESSING OFFICER/ SHRI K.D. JUTHANI IS A RETIRED OFFICER OF RESERVE BANK OF INDIA. IT WAS FU RTHER STATED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE FURNISHED CONF IRMATION OF ACCOUNTS ALONGWITH ADDRESS AND OTHER RELEVANT PARTICULARS OF THE DEPOSITORS EXPLA NATION AS TO THE SOURCE OF FUND AND CLARIFICATION THAT SHRI K.D. JUTHANI HAS BEEN A RETIRED OFFICER O F RESERVE BANK OF INDIA THE PAN OF BOTH THE DEPOSITORS CLARIFICATION FROM THE DEPOSITORS THAT SINCE THEIR INCOME WAS BELOW THE MAXIMUM AMOUNT NOT CHARGEABLE TO TAX THEY HAD NOT FILED TH EIR RETURN OF INCOME FOR THE RELEVANT PERIOD AND COPY OF THE PASS BOOKS MAINTAINED BY BOTH THE DEPOS ITORS IN CONNECTION WITH THEIR RESPECTIVE BANKING ACCOUNT MAINTAINED WERE ALSO FURNISHED. I T WAS FURTHER STATED THAT EVERY SINGLE CHEQUE ISSUED BY THE DEPOSITOR WAS IN FAVOUR OF THE ASSESS EE BY CROSSED ACCOUNT PAYEE CHEQUE. THE LD. COUNSEL OF THE ASSESSEE ALSO RELIED ON THE FOLLOWIN G DECISIONS :- (I) DCIT VS.- ROHINI BUILDERS (2002) 256 ITR 360; (II) 254 ITR (ST.) 275 (2002); (III) LABH CHAND BOHRA VS.- ITO (2008) 8 DTR (RA J.) 44; (IV) CIT VS.- LOVELY EXPORTS (P) LTD. (2008) 216 CTR (SC) 195; (V) ARAVALI TRADING CO. VS.- ITO (2008) 8 DTR (R AJ.) 199; (VI) UNION OF INDIA VS.- KAMALAKSHI FINANCE CORPOR ATION LTD. (1991) 55 ELT 433 (SC). 8. AFTER CONSIDERING THE SUBMISSIONS IN THE IMPUGN ED ORDER THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE ADDITION FOR THE D ETAILED REASONS GIVEN IN PARA 4.3 WHICH READS AS UNDER :- 4.3. I HAVE CONSIDERED THE FACTS OF THE CASE CAS E LAWS AND BY THE ID. COUNSEL FOR THE APPELLANT. IT IS FOUND THAT THE APP ELLANT HAD DISCHARGED THE INITIAL ONUS WHICH LAY ON IT IN TERMS OF SECTION 68 BY PROVING THE IDENTITY OF THE CREDITORS BY GIVING THEIR COMPLETE ADDRESS GIR NUM BERS/ PERMANENT ACCOUNT NUMBERS AND CONFIRMATION OF THE DEPOSITORS THAT IT HAD ALSO PROVED THE CAPACITY OF THE CREDITORS BY SHOWING THAT THE AMOUNTS WERE R ECEIVED BY THE APPELLANT BY ACCOUNT PAYEE CHEQUES DRAWN FROM BANK ACCOUNTS OF T HE CREDITORS AND THE ASSESSEE WAS NOT EXPECTED TO PROVE THE GENUINENESS OF CASH DEPOSITED IN THE BANK ACCOUNTS OF THOSE CREDITORS BECAUSE UNDER LAW THE ASSESSEE CAN BE ASKED TO PROVE THE SOURCE OF THE CREDITS IN ITS BOOKS OF ACC OUNTS BUT NOT THE SOURCE OF THE SOURCE. IN VIEW OF THE FACTS AND CIRCUMSTANCES STAT ED ABOVE I AM OF THE VIEW 5 ITA NO. 1743-AHD-2009 THAT THE A.O. WAS NOT JUSTIFIED IN TREATING THE LOA NS RECEIVED FROM THE ABOVE PARTIES AS UNDISCLOSED INCOME OF THE APPELLANT. HEN CE THE ADDITION MADE BY THE A.O. ON THIS COUNT U/S. 68 OF THE ACT OF RS.6 95 00 0/- IS HEREBY DELETED. AGGRIEVED WITH THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS) PARTIALLY DELETING THE GP ADDITION AND ENTIRE ADDITION MADE UNDER SECT ION 68 OF THE INCOME TAX ACT THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 9. AT THE TIME OF HEARING BEFORE US ON BEHALF OF R EVENUE SHRI K. MADHUSUDAN LD. SR. D.R. APPEARED AND CONTENDED THAT IN THE IMPUGNED ORDER THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS RESTRICTED THE GP ADDITION TO RS.2 00 000/- WITHOUT APPRECIATING THE FACTS OF THE CASE AND MATERIAL BROUGHT ON RECORD BY THE ASSESSIN G OFFICER. HE CONTENDED THAT IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR GROSS PROFIT WAS 13.52% WHEREAS IN THE ASSESSMENT YEAR UNDER APPEAL IT IS ONLY 5.99%. IN THE AUDIT RE PORT IN FORM 3CB AUDITOR HAS REMARKED IN ITS REPORT AS UNDER :- WE HAVE RELIED UPON THE CERTIFICATE OF PARTNERS TH AT THE ENTRIES PASSED IN THE CASH BOOK FOR PAYMENT AND RECEIPT OF CASH WH ICH IS NOT SUPPORTED BY A PROPER RECEIPT FROM THE CONCERNED PARTY REFLEC TS PROPER PAYMENT OR RECEIPT AS THE CASE MAY BE. FURTHER IN THE NOTES OF ACCOUNT AUDITOR HAS REMAR KED AS UNDER :- AUDITORS HAVE RELIED UPON STOCK AT BHAVNAGAR FACTO RY AS TAKEN AND VALUED BY WORKING PARTNER WITHOUT VERIFICATION BY T HEM. THE WORKING OF STOCK IS NOT ACCORDANCE WITH THE REVISED AS-2 ON VALUATION OF INVENTORIES. THE STOCK REGISTER IS FOR INWARDS AND NO DETAILED STOCK REGISTERS ARE MAINTAINED FOR PRODUCTION AND CONSUMP TION OF MATERIALS. THE LD. D.R. FURTHER POINTED OUT THAT IN THE ASSESS MENT YEAR UNDER APPEAL GP IS REDUCED MORE THAN 50%. 10. AFTER CONSIDERING THE REASONS FOR FALL IN GP BE FORE THE ASSESSING OFFICER THE ASSESSING OFFICER ESTIMATED THE GP AT 9% WHICH IS NEARER TO 9.67% OF AVERAGE PERCENTAGE OF THE ABOVE THREE YEARS GP AND MADE THE ADDITION OF RS.3 35 856 /- WHICH IS FAIR AND REASONABLE. HE 6 ITA NO. 1743-AHD-2009 ACCORDINGLY CONTENDED THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE CONFIRMED THE ENTIRE ADDITION OF RS.3 35 856/-. 11. WITH REGARD TO ADDITION MADE UNDER SECTION 68 O F THE INCOME TAX ACT THE LD. D.R. RELYING ON THE REASONING GIVEN BY THE ASSESSING OFF ICER SUBMITTED THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IS NOT JUSTIFIE D IN DELETING THE ADDITION. 12. AFTER HEARING THE LD. DEPARTMENTAL REPRESENTATI VE WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IT IS PERTINENT TO NOT E THAT IN THE IMPUGNED ORDER THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) MERELY RESTRIC TED THE GP ADDITION TO RS.6 00 000/- AS AGAINST RS.6 95 000/- MADE BY THE ASSESSING OFFICER . THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AFTER CONSIDERING THE UNVERIFIABLE DISCRE PANCIES LOOKING INTO THE NATURE AND EXTENT OF BUSINESS RESTRICTED THE ADDITION TO RS.2 00 000/-. IN OUR CONSIDERED OPINION THE VIEW TAKEN BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AFTER CONSIDERING THE EXPLANATION OF THE ASSESSEE IS FAIR AND REASONABLE. WE THEREFORE INC LINE TO UPHOLD THE VIEW TAKEN BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IN THIS REGARD . RESULTANTLY GROUND NO. 1 IS ACCORDINGLY REJECTED. 13. WITH REGARD TO GROUNDS NO. 2 & 3 WE ARE CONVIN CED THAT THE ASSESSEE HAS DISCHARGED THE ONUS AS LAID DOWN UNDER SECTION 68 OF THE INCOME TA X ACT 1961. THE ASSESSEE HAS PROVED THE SOURCE OF CREDIT IN ITS BOOKS OF ACCOUNTS AND IT IS NOT THE RESPONSIBILITY OF THE ASSESSEE TO PROVE THE SOURCE OF SOURCE. THE LOANS WERE RECEIVED FROM RELATIVES THROUGH ACCOUNT PAYEE CHEQUES. WE THEREFORE INCLINE TO UPHOLD THE ORDER OF LEARN ED COMMISSIONER OF INCOME TAX(APPEALS) DELETING THE ADDITION OF RS.6 95 000/- MADE UNDER S ECTION 68 OF THE INCOME TAX ACT IN RESPECT OF BOTH THE CREDITORS. RESULTANTLY BOTH THESE GROUNDS ARE ALSO REJECTED. 14. IN THE RESULT THE APPEAL FILED BY THE REVENUE IS DISMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON 05.01.20 11 SD/- SD/- (N.S. SAINI) (T.K. SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 05 / 01 / 2011 7 ITA NO. 1743-AHD-2009 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT. 3) CIT(A.) CONCERNED (4) CIT CONCERNED (5) D.R. ITAT AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGI STRAR ITAT AHMEDABAD LAHA/SR.P.S.