The ACIT, Ahmedabad Circle-3,, Ahmedabad v. M/s. Samir Synthetic Mills,, Ahmedabad

ITA 1891/AHD/2007 | 2004-2005
Pronouncement Date: 17-09-2010 | Result: Dismissed

Appeal Details

RSA Number 189120514 RSA 2007
Assessee PAN AADFS1631A
Bench Ahmedabad
Appeal Number ITA 1891/AHD/2007
Duration Of Justice 3 year(s) 4 month(s) 10 day(s)
Appellant The ACIT, Ahmedabad Circle-3,, Ahmedabad
Respondent M/s. Samir Synthetic Mills,, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 17-09-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 17-09-2010
Date Of Final Hearing 24-08-2010
Next Hearing Date 24-08-2010
Assessment Year 2004-2005
Appeal Filed On 07-05-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD A BENCH BEFORE SHRI G.D. AGARWAL VICE-PRESIDENT (AZ) AND SHRI MAHAVIR SINGH JUDICIAL MEMBER ITA NO.1891/AHD/2007 [ASSTT.YEAR: 2004-05] ACIT CIRCLE-3 5 TH FLOOR -VS- SAMIR SYNTHETICS MILLS INSURANCE BUILDING ASHRAM ROAD PLOT NO.395-402 G IDC ESTATE AHMEDABAD ODHAV AHMEDABAD PAN NO.AADFS1631A ITA NO.2105-2106/AHD/2008 [ASSTT. YEAR: 2003-04 & 2005-06] ACIT CIRCLE-3 5 TH FLOOR -VS- SAMIR SYNTHETICS MILLS INSURANCE BUILDING ASHRAM ROAD PLOT NO.395-402 G IDC ESTATE AHMEDABAD ODHAV AHMEDABAD PAN NO.AADFS1631A CO NO.127-128/AHD/2008 (ARISING OUT ITA NO.2105-2106/AHD/2008) [ASSTT. YEAR: 2003-04 & 2005-06] SAMIR SYNTHETICS MILLS -VS- ACIT CIRCLE-3 5 TH FLOOR PLOT NO.395-402 GIDC ESTATE INSURANCE BUILDING AS HRAM ODHAV AHMEDABAD ROAD AHMEDABAD (APPELLANT) (RESPONDENT) REVENUE BY : SHRI R.K.DHAMESTA DR ASSESSEE BY: SHRI S.N. DIV ETIA AR O R D E R PER MAHAVIR SINGH JUDICIAL MEMBER:- THESE THREE APPEALS BY REVENUE AND TWO CROSS OBJEC TIONS (CO) BY ASSESSEE ARE ARISING OUT OF THE ORDER OF COMMISSION ER OF INCOME-TAX (APPEALS)-VII AHMEDABAD IN APPEAL NO. CIT(A)/VII/CIR.3/183 189-1 90/2006-07/07-08 BY DIFFERENT DATED 22-02-2007AND 24-03-2008. THE ASSESSMENTS WER E FRAMED BY ACIT CIRCLE- ITA NO.1891/AHD/07 2105-06/AHD/08 CO.127-28/AHD/08 AYS 03-04 TO 05-06 ACIT CIR-3 ABD V. SAMIR SYNTHETICS MILLS PAGE 2 3/ITO-WARD-3(3) AHMEDABAD U/S.143(3) R.W.S 147 OF THE INCOME-TAX ACT 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE THEIR O RDERS DATED 29-12-2006 17-12-2007 AND 26-12-2007 FOR ASSESSMENT YEARS 2003-04 TO 2005 -06 RESPECTIVELY. 2. THE FIRST ISSUE IN THIS APPEAL OF REVENUE IN ITA NO.1891/AHD/2007 IS AS REGARDS TO ESTIMATION OF GROSS PROFIT (GP IN SHORT) AFTER REJECTING THE BOOK RESULTS U/S.145 OF THE ACT AND THEREBY MAKING ADDITION OF R S.10 LAKH AND SAME WAS DELETED BY CIT(A). 3. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE T HAT ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT T HERE IS FALL IN GP RATION AS COMPARED TO IMMEDIATE PRECEDING YEAR WHICH IS AT 9 .53% AS AGAINST 13.32% AND IN ONE MORE PRECEDING YEAR THE GP RATE WAS AT 11.46%. THE AO REQUESTED THE ASSESSEE TO EXPLAIN FALL IN GP. THE ASSESSEE PRODUC ED COMPLETE BOOKS OF ACCOUNT ALONG WITH STOCK STATEMENTS SHOWING OPENING STOCK PURCHASE SALES CLOSING STOCK AND FILED DETAILS HOW THE PRODUCTION LOSS/ WASTAGE FOR THE YEAR UNDER CONSIDERATION HAVE BEEN WORKED OUT. THE ASSESSEE IS CARRYING ON J OB WORK OF PRODUCTION OF GRAY CLOTH AS WELL AS ITS OWN PRODUCTION IN THE JOB WOR K AND IT HAS SHOWN PRODUCTION AND SALES AT 2 45 73 284. THE AO SUBSEQUENTLY REQUIRED THE ASSESSEE TO FILE MONTH-WISE DETAILS OF SALES PURCHASE JOB WORK PRODUCTION AND CONSUMPTION OF COLOUR AND CHEMICALS. THE ASSESSEE SUBMITTED COMPLETE DETAILS. THE AO ON VERIFICATION FOUND THAT THERE IS DISCREPANCY AS REGARDS TO COST OF PRO DUCTION I.E. AVERAGE RATE OF JOB WORK COMES TO 4.11 PER MT. AND THE CONSUMPTION OF C OLOUR COMES AT 1.58 PER MT. THE AO ALSO COMPARED THE PRODUCTION FOR THE MONTH O F FEB. AND NOTED THAT ASSESSEE HAS EARNED PROFIT AT 5.1 PER MT. ABOVE AVE RAGE RATE OF 4.17 PER MT. HE ALSO NOTED THAT THE CONSUMPTION OF COLOUR AND CHEMICALS RATIO COMES 1.84 AS AGAINST THE AVERAGE CONSUMPTION OF 1.58 PER MT. ON COMPARATIVE ANALYSIS THE AO NOTED THAT WASTAGE/SHORTAGE CLAIMED BY THE ASSESSEE IS ON HIGH ER SIDE FOR THESE MONTHS I.E. JAN. AND FEB. AND ACCORDINGLY HE NOTED THAT ACCOUNT OF THE ASSESSEE ARE NOT RELIABLE AND MOREOVER ASSESSEE IS NOT MAINTAINING STOCK REG ISTER OF CONSUMPTION. ACCORDINGLY HE ESTIMATED ADDITION OF RS.10 LAKH. A GGRIEVED ASSESSEE PREFERRED APPEAL BEFORE CIT(A). HE DELETED THE ADDITION BY GI VING FOLLOWING FINDING IN PARA-4 OF HIS APPELLATE ORDER:- ITA NO.1891/AHD/07 2105-06/AHD/08 CO.127-28/AHD/08 AYS 03-04 TO 05-06 ACIT CIR-3 ABD V. SAMIR SYNTHETICS MILLS PAGE 3 4. I HAVE CONSIDERED THE SUBMISSIONS AND DETAILS F ILED BY THE APPELLANT AND THE REASONS STATED BY THE AO FOR MAKING THE ADDITIO NS. THE MAIN REASON FOR REJECTING THE BOOKS OF ACCOUNT IS STATED TO BE NON- MAINTENANCE OF COLOUR AND CHEMICAL CONSUMPTION REGISTER. THIS FACT OF NON-MAI NTENANCE OF CHEMICAL COLOUR CONSUMPTION REGISTER IS ACCEPTED BY THE APPE LLANT. WHILE OBSERVING THAT THIS YEAR THE GP IS 9.53% COMPARED TO 13.32% AND 11 .46% IN EARLIER YEARS THE AO MADE SOME SAMPLE CHECK OF CHEMICAL AND COLOU R CONSUMPTION DURING DIFFERENT MONTHS. THE APPELLANT IS IN THE BUSINESS OF JOB WORK RELATING TO PRINTING OF CLOTH. IT ALSO DOES JOB WORK OF SIZING THE CLOTH. IN THE BUSINESS OF PRINTING OF CLOTH IT USES COLOUR AND CHEMICALS. THE AO FOUND THAT THE YEARLY AVERAGE COST OF COLOUR AND CHEMICALS FOR ONE METER OF CLOTH IS RS.1.58 BUT FOR THE MONTH OF FEBRUARY SUCH AVERAGE COMES TO RS.184 PER METER AND FOR THE MONTH OF MARCH SUCH AVERAGE COMES TO RS.194 PER MET ER. FROM THIS HE CONCLUDED THAT MORE COLOUR AND CHEMICALS HAVE BEEN USED FOR LESS QUANTITY OF CLOTH. HE ALSO FOUND THAT THE APPELLANT HAS NOT MAI NTAINED REGISTER OF COLOUR AND CHEMICALS. ACCORDINGLY HE REJECTED THE BOOKS O F ACCOUNT AND MADE ADDITION OF RS.10 LAKH ONE ESTIMATE BASIS TO THE RE TURNED INCOME. AGGRIEVED REVENUE CAME IN APPEAL BEFORE THE TRIBUN AL. 4. AFTER HEARING THE RIVAL CONTENTIONS AND GOING TH ROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE WE FIND FIRST OF ALL THA T DURING THE YEAR UNDER CONSIDERATION GP WAS AT 9.03% ON TOTAL COMBINE TURNOVER OF RS.13 49 29 213/- AS AGAINST THE GP OF 13.32% ON COMBINED TURNOVER OF RS.11 23 53 802/- FOR THE IMMEDIATE PRECEDING YEAR AND THERE IS FALL IN GP BY 3.79%. BUT WE FIND THAT THE NET PROFIT RATIO IS MUCH BETTER IN THE YEAR UNDER CONSIDERATION AT 3.49% AS AGAINST 2.57% IN THE IMMEDIATE PRECEDING YEAR AT 1.521% IN ONE YEAR TO THE PRECEDI NG YEAR. THE ASSESSEES CONTENTION WAS THAT THE FALL IN GP WAS MAINLY ATTRI BUTED TO THE COMPARATIVE INCREASE IN THE COST OF PRODUCTION OF JOB WORK AS WELL AS PR ODUCTION WHEREAS THERE IS NO INCREASE IN COMPARATIVE JOB CHARGES/SALES PRICE. HE STATED THAT TO PROVE THIS POINT THE ASSESSEE HAS FILED COMPLETE DETAILS BEFORE AO I .E. THE COMPLETE BOOKS OF ACCOUNT STOCK REGISTER STOCK STATEMENT BILLS AND VOUCHERS AND OTHER DETAILS. WE FIND THAT AO COULD NOT POINT OUT ANY DEFECT IN THE BOOKS OF ACCOUNT AND WITHOUT POINTING OUT ANY DEFECT IN THE BOOKS OF ACCOUNT REJ ECTED THE BOOK RESULTS. BUT IN NO WAY WE ARE OF THE VIEW THAT ONCE THE ASSESSEE IS A BLE TO PROVE INCREASE IN COST OF PRODUCTION AND COMPARATIVELY THERE IS NO INCREASE I N SALES PRICE/JOB CHARGES RECEIVED THERE IS NO QUESTION OF MAKING ANY ESTIMA TE WITHOUT POINTING OUT ANY SPECIFIC DEFECT. ACCORDINGLY WE ARE OF THE VIEW TH AT CIT(A) HAS RIGHTLY DELETED THE ADDITION AND WE CONFIRM THIS ADDITION. THIS ISSUE O F REVENUES APPEAL IS DISMISSED. ITA NO.1891/AHD/07 2105-06/AHD/08 CO.127-28/AHD/08 AYS 03-04 TO 05-06 ACIT CIR-3 ABD V. SAMIR SYNTHETICS MILLS PAGE 4 5. THE NEXT COMMON ISSUE IN REVENUES APPEALS IN ITA NO.1891/AHD/2007 AND ITA NO.2105-2106/AHD/2008 IS AS REGARD TO THE ORDER OF CIT(A) IN DELETING TH E ADDITION MADE BY ASSESSING OFFICER ON ACCOUNT OF D ISALLOWANCE OF INTEREST ON ADVANCE CONSIDERING THE SAME AS SUNDRY DEBTORS. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. THE BRIEF FACTS ARE THAT ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASS ESSEE HAS CLAIMED INTEREST EXPENDITURE ON BORROWED FUNDS. BUT THE ASSESSEE HAS DIVERTED THE BORROWED FUNDS IN GIVING LOANS TO M/S. BADOPADIYA TEXTILE INDUSTRI ES AMOUNTING TO RS.34 60 874/- AND THIS AMOUNT HAS BEEN SHOWN IN THE ACCOUNTS UNDE R THE HEAD LOANS AND ADVANCES. THE AO FURTHER NOTED THAT ASSESSEE HAS CL AIMED INTEREST EXPENDITURE OF RS.40 23 767/-. THE AO NOTED THAT THE AMOUNT ADVANC E TO M/S. BADOPADIYA TEXTILE INDUSTRIES IS OUT OF BORROWED FUNDS AND NO INTEREST HAS BEEN CHARGED FROM THE SAME. ACCORDINGLY AO DISALLOWED PROPORTIONATE INTEREST O F RS.6 22 957/-. AGGRIEVED ASSESSEE PREFERRED APPEAL BEFORE CIT(A) AND CIT(A) DELETED THE DISALLOWANCE BY GIVING FOLLOWING FINDING IN PARA-5.2 OF HIS APPELLATE ORDER:- 5.2 WHEREAS WITH REGARD TO THE INVESTMENT MADE BY THE APPELLANT AT RS.63 90 498/- IN MUTUAL FUNDS I HAVE HELD THAT TH E APPELLANT HAS INVESTED THE SALE PROCEEDS INTO MUTUAL FUNDS WHEREAS THE APPELLA NT HAS BEEN PAYING INTEREST ON THE BORROWED FUNDS AND THEREBY THE FUND S WHICH THE APPELLANT COULD HAVE UTILIZED FOR THE PURPOSE OF THE BUSINESS ARE DIVERTED FOR MAKING INVESTMENT IN MUTUAL FUNDS. THEREFORE IT IS TREATE D THAT THE INTEREST CHARGED ON THE SAID AMOUNT BY THE AO AND DISALLOWED HAS BEE N CONFIRMED AND HENCE FOR THIS ASSESSMENT YEAR ALSO INTEREST DISALLOWANCE IS CONFIRMED TO THE EXTENT OF THE INVESTMENTS IN MUTUAL FUNDS. THE A.O IS DIRE CTED TO RE-COMPUTE SUCH DISALLOWABLE INTEREST WHILE GIVING EFFECT TO THIS O RDER. THIS GROUND OF APPEAL IS PARTLY ALLOWED. AGGRIEVED REVENUE CAME IN APPEAL BEFORE TRIBUNAL. 7. AFTER HEARING THE RIVAL SUBMISSIONS WE FIND THA T THERE A CLEAR-CUT FINDING BY THE CIT(A) THAT THE AMOUNT OUTSTANDING IN THE ACCOU NT OF M/S. BADOPADIYA TEXTILE IS OUTSTANDING ON ACCOUNT OF SALES MADE IN EARLIER YEA R AND THERE IS AMOUNT HAS BEEN BROUGHT FORWARD FROM THE FINANCIAL YEAR 1994-95. WE FURTHER FIND THAT THIS FINDINGS OF CIT(A) HAS NOT BEEN CONTROVERTED BY DR DURING THE C OURSE OF HEARING. WE ARE OF THE VIEW THAT ONCE AMOUNT OUTSTANDING ON ACCOUNT OF SAL ES MADE IN EARLIER YEAR NO ITA NO.1891/AHD/07 2105-06/AHD/08 CO.127-28/AHD/08 AYS 03-04 TO 05-06 ACIT CIR-3 ABD V. SAMIR SYNTHETICS MILLS PAGE 5 DISALLOWANCE ON ACCOUNT OF INTEREST EXPENDITURE ON BORROWED BASIS CAN BE MADE ON THIS ACCOUNT. ACCORDINGLY WE CONFIRM THE ORDER OF CIT(A) AND DISMISS THE REVENUES ISSUE. SIMILARLY ARE THE FACTS IN ITA NO.2105-2106/AHD/2008 HENCE TAKING A CONSISTENT VIEW WE DISMISS THIS COMMON ISSUE IN REV ENUES APPEALS. COMING TO ASSESSEES CO. NO.127-128/AHD/2008. 8. THE FIRST ISSUE IN ASSESSEES CO NO.127/AHD/2008 IS AS REGARDS TO THE REOPENING OF THE ASSESSMENT. 9. AT THE OUTSET LD. COUNSEL FOR THE ASSESSEE SHRI S.N. DIVETIA STATED THAT HE HAS INSTRUCTIONS FROM THE ASSESSEE NOT TO PRESS THI S ISSUE OF RE-OPENING. ACCORDINGLY SAME IS DISMISSED AS NOT PRESSED. 10. THE NEXT COMMON ISSUE IN ASSESSEES CO NO.127-128/AHD/2008 IS AS REGARDS TO DISALLOWANCE OF INTEREST ON PROPORTIONAT E BASIS TO THE EXTENT OF INVESTMENT MADE IN MUTUAL FUNDS. 11. THE BRIEF FACTS ARE THAT THE ASSESSING OFFICER NOTED FROM SCHEDULE-M WHICH REPRESENT INVESTMENT MADE IN DIFFERENT MUTUAL FUNDS AT RS.63 90 498/-. THE ASSESSING OFFICER NOTED THAT DURING THE YEAR ASSES SEE HAS MADE INVESTMENT IN MUTUAL FUNDS TO THE TUNE OF RS.45 92 716/- WHICH H AS BEEN MADE OUT OF SALE PROCEED RECEIVED FROM JOB PARTIES DEPOSITED WITH BA NK. THE AO REQUIRED THAT THE INVESTMENT IN MUTUAL FUND IS MADE OUT OF BORROWED F UNDS ON WHICH INTEREST IS PAID. ACCORDINGLY AO ISSUED SHOW CAUSE NOTICE TO THE ASS ESSEE AS TO WHY PROPORTIONATE DISALLOWANCE ON THIS NOT DISALLOWED. THE ASSESSEE R EPLIED THAT THE INVESTMENT IS OUT OF SALE PROCEEDS RECEIVED FROM JOB PARTIES AND DEPO SITED WITH THE BANK. THE AO HAS NOT CONSIDERED THE REPLY OF THE ASSESSEE AND MADE D ISALLOWANCE OF INTEREST EXPENDITURE AT RS.14 02 006/-. AGGRIEVED ASSESSEE PREFERRED APPEAL BEFORE CIT(A). THE CIT(A) CONFIRMED THE ADDITION BY GIVING FOLLOWI NG FINDING IN PARA-5.2 OF HIS APPELLATE ORDER:- 5.2. WHEREAS WITH REGARD TO INVESTMENT MADE BY TH E APPELLANT AT RS.63 90 498/- IN MUTUAL FUNDS I HAVE HELD THAT TH E APPELLANT HAS INVESTED THE SALE PROCEEDS INTO MUTUAL FUNDS WHEREAS THE APPELLA NT HAS PAID INTEREST ON THE BORROWED FUNDS AND THEREBY THE FUNDS WHICH THE APPELLANT COULD HAVE UTILIZED FOR THE PURPOSE OF THE BUSINESS ARE DIVER TED FOR MAKING INVESTMENT IN MUTUAL FUNDS. THEREFORE IT IS TREATED THAT THE INT EREST CHARGED ON THE SAID AMOUNT BY THE ASSESSING OFFICER AND DISALLOWED HAS BEEN CONFIRMED AND ITA NO.1891/AHD/07 2105-06/AHD/08 CO.127-28/AHD/08 AYS 03-04 TO 05-06 ACIT CIR-3 ABD V. SAMIR SYNTHETICS MILLS PAGE 6 HENCE FOR THIS ASSESSMENT YEAR ALSO INTEREST DISALL OWED IS CONFIRMED TO THE EXTENT OF THE INVESTMENT IN MUTUAL FUNDS. THE ASSES SING OFFICER IS DIRECTED TO RECOMPUTED SUCH DISALLOWABLE INTEREST WHILE GIVING EFFECT TO THIS ORDER. THIS GROUND OF APPEAL IS PARTLY ALLOWED. AGGRIEVED ASSESSEE PREFERRED CO BEFORE US. 12. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE TH ROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE CIT(A) HAS GIVEN CONTRADICTORY FINDING IN RESPECT TO UTILIZATION OF FUNDS. ON ONE HAND THE C IT(A) HELD THAT THE ASSESSEE HAS INVESTED THE SALE PROCEEDS IN MUTUAL FUNDS AND ON T HE OTHER HAND TREATED THE DIVERSION OF FUNDS FOR MAKING INVESTMENT IN NON-BUS INESS PURPOSES. WE ARE OF THE VIEW THAT ONCE THE ASSESSEE HAS MADE INVESTMENT IN MUTUAL FUNS OUT OF THE PROCEEDS OF SALES IT CANNOT BE ASCERTAINED HOW THE ASSESSEE HAS UTILIZED BORROWED FUNDS FOR THE PURPOSE OF INVESTMENT IN MUTUAL FUNDS AND ASSESSEE IS ALSO PAYING INTEREST. IN VIEW OF THESE FACTS WE ARE OF THE VIE W THAT THE INTEREST DISALLOWANCE IS WITHOUT ANY BASIS AND WE DELETE THE SAME. THIS COMM ON ISSUE IN BOTH THE COS OF THE ASSESSEE IS ALLOWED. 13. IN THE RESULT REVENUES APPEALS ARE DISMISSED AND THAT OF ASSESSEES COS ARE ALLOWED. ORDER PRONOUNCED ON THIS DAY OF 17 TH SEPT 2010 SD/- SD/- ( G.D.AGARWAL ) ( MAHAVIR SINGH ) (VICE PRESIDENT) (JUDICIAL MEMBER) AHMEDABAD DATED : 17/09/2010 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)-VII AHMEDABAD 4. THE CIT CONCERNS. 5. THE DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD