Archna Dyeing & Printing Mills Pvt.Ltd.,, Surat v. The Income tax Officer,Ward-1(1),, Surat

ITA 268/AHD/2009 | 2005-2006
Pronouncement Date: 25-11-2011 | Result: Partly Allowed

Appeal Details

RSA Number 26820514 RSA 2009
Assessee PAN AABCA9865H
Bench Ahmedabad
Appeal Number ITA 268/AHD/2009
Duration Of Justice 2 year(s) 9 month(s) 28 day(s)
Appellant Archna Dyeing & Printing Mills Pvt.Ltd.,, Surat
Respondent The Income tax Officer,Ward-1(1),, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 25-11-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted D
Tribunal Order Date 25-11-2011
Date Of Final Hearing 04-11-2011
Next Hearing Date 04-11-2011
Assessment Year 2005-2006
Appeal Filed On 28-01-2009
Judgment Text
/ // / / // / / // / IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH AHMEDABAD ! ! ! ! .#$ !#$ %& % ' BEFORE SHRI MUKUL KR.SHRAWAT JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY ACCOUNTANT MEMBER !./ I.T.A. NO.268/AHD/2009 ( $ ( $ ( $ ( $ ( / / / / ASSESSMENT YEAR : 2005-06) ARCHNA DYEING & PRINTING MILLS PVT.LTD. 810/3-A GIDC SACHIN ROAD NO.8 SACHIN SURAT $ $ $ $ / VS. THE ITO WARD-1(1) SURAT ) %& !./*+ !./ PAN/GIR NO. : AABCA 9865 H ( ) / // / APPELLANT ) .. ( -.) / RESPONDENT ) ) / %/ APPELLANT BY : SHRI J.P.SHAH A.R. -.) 0 / % / RESPONDENT BY : SHRI B.L. YADAV D.R. $1 0 &/ // / DATE OF HEARING : 04/11/2011 2#( 0 & / DATE OF PRONOUNCEMENT : 25/11/2011 %3/ O R D E R PER SHRI MUKUL KR. SHRAWAT JUDICIAL MEMBER : THIS IS AN APPEAL AT THE BEHEST OF THE ASSESSEE W HICH HAS EMANATED FROM THE ORDER OF LEARNED CIT(APPEALS)-I SURAT DAT ED 28/11/2008 PASSED FOR ASSESSMENT YEAR 2005-06. 2. GROUND NO.1 READS AS FOLLOWS:- 1. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE TH E LEARNED CIT(A)HAS ERRED IN CONFIRMING THE ADDITION OF RS.1 82 338/- IN RESPECT OF ALLEGED UNDER VALUATION OF WORK-IN-PROGRESS WHICH IS ABSOLUTELY ERRONEOUS AND NEEDS TO BE DELETED SINCE ITA NO .268/AHD/2009 ARCHNA DYEING & PRINTING MILLS P.LTD. VS. ITO ASST.YEAR 2005-06 - 2 - - THE LD. CIT(A) HAS DELETED THE ERRONEOUS REJECT ION OF BOOKS OF ACCOUNT U/S.145(3) OF THE ACT AS MADE BY THE LD. AO. - THE MANNER OF WORKING OF CLOSING STOCK CANNOT BE TAKEN IN ISOLATION WITHOUT TAKING THE SAME FOR THE VALUATION OF OPENING STOCK. - THE METHOD OF ACCOUNTING FOR VALUATION OF STOCK C ONSISTENTLY FOLLOWED AND EVEN ACCEPTED BY THE DEPARTMENT CANNOT BE DEPARTED. - THE IMPUGNED ADDITION HAS BEEN MADE MERELY ON CONJECTURES SURMISES AND GUESSWORK. 2.1. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDI NG ASSESSMENT ORDER PASSED U/S.143(3) R.W.S. 145(3) OF THE I.T. ACT 1 961 DATED 28/12/2007 WERE THAT THE ASSESSEE-COMPANY IS IN THE BUSINESS O F PROCESSING OF ART SILK FABRICS. AT THE START OF THE ASSESSMENT ORDER IT WAS RECOR DED BY THE ASSESSING OFFICER THAT ON THE TURNOVER OF RS.4 86 80 174/- THE APPELLANT HAD SHOWN RATIO OF GROSS PROFIT AT 19.02% DURING THE YEAR UNDER CONSIDERATION. AS AGAINST THAT ON THE TURNOVER OF RS.3 97 01 608/- THE RATIO OF GROSS PROFIT DISCLOSED BY THE ASSESSEE AT 17.83% DURING PRECEDING ASSESSMENT YEAR. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS THEREFORE POINTED OUT AT THIS JU NCTURE THAT THE TURNOVER AS WELL AS THE GROSS PROFIT RATIO BOTH WERE BETTER IN THE ASSESSMENT YEAR UNDER APPEAL. 2.1. THE ASSESSING OFFICER HAS ISSUED A SHOW-CAUSE NOTICE ASKING THE ASSESSEE TO PROVIDE QUANTITATIVE DETAILS OF STOCK A ND TO INFORM WHETHER ITA NO .268/AHD/2009 ARCHNA DYEING & PRINTING MILLS P.LTD. VS. ITO ASST.YEAR 2005-06 - 3 - DAY-TO-DAY REGISTER WAS MAINTAINED OR NOT. THE ASS ESSEE HAS FURNISHED AN INVENTORY OF CLOSING STOCK AS FOLLOWS:- (I) COLOUR & CHEMICAL RS. 3 86 997/- (II) DESIGNS & DESIGN MATERIALS RS. 33 263/- (III) COAL & LIGNITE RS.11 01 223/- (IV) STORES & SPARES RS. 45 367/- (V) FINISHED GOOD (ON JOB) RS. 69 600/- (VI) STOCK IN PROGRESS (ON JOB ) RS. 22 360/- (VII) STOCK OF CARBA WASTE & SCRAP ETC. RS. 10 000/- RS.16 68 810/- 2.2 THE ASSESSING OFFICER HAS LOOKED INTO THE VALUA TION IN RESPECT OF WORK-IN-PROGRESS OF FINISHED GOODS DISCLOSED AT RS. 69 600/- AND THE VALUATION OF STOCK IN PROGRESS OF RS.22 360/-. AS PER ASSESSING OFFICER THE VALUE AS DISCLOSED BY THE ASSESSEE WAS VERY LOW CONSIDERING THE VALUATION OF THE BUSINESS. A SHOW-CAUSE WAS ISSUE D TO JUSTIFY THE VALUE OF THE WORK-IN-PROGRESS. IN COMPLIANCE IT WAS RE SPONDED THAT THE CALCULATION OF WORK-IN-PROGRESS WAS TAKEN ON PHYSIC AL VERIFICATION ON STOCK AT THE END OF THE YEAR. IT HAS ALSO BEEN IN FORMED THAT THE COST INCURRED ON THE GOODS WAS SHOWN IN WORK-IN-PROGRESS . THE ASSESSING OFFICER WAS NOT CONVINCED AND IN HIS OPINION THE A SSESSEE HAS NOT DISCLOSED THE CORRECT QUANTITY OF WORK-IN-PROGRESS AND THE COST TAKEN FOR ITS VALUATION HAS ALSO NOT BEEN PROPERLY PROVIDED. ACCORDING TO HIM THE FABRIC UNDER PROCESS HAD BORNE PART OF EXPENSES ON ACCOUNT OF COLOUR CHEMICAL WAGES POWER AND FUEL ETC. ACCORDING T O HIM THE FABRIC UNDER PROCESS SHOULD HAVE BORNE SUCH EXPENDITURE T HEREFORE SHOULD HAVE FORMED THE PART OF THE CLOSING STOCK OF WIP. THE ASSESSING OFFICER HAS ALSO CITED A DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT ITA NO .268/AHD/2009 ARCHNA DYEING & PRINTING MILLS P.LTD. VS. ITO ASST.YEAR 2005-06 - 4 - VS. BRITISH PAINTS INDIA LTD. REPORTED IN 188 ITR 4 4(SC) FOR THE LEGAL PROPOSITION THAT THERE IS NO ESTOPPEL FOR THE ASS ESSING OFFICER TO APPLY A CORRECT METHOD OF VALUATION. THE ASSESSING OFFICER HAS INVOKED THE PROVISIONS OF SECTION 145(3) OF THE I.T.ACT AND THE REAFTER VALUED CLOSING STOCK OF WIP AS FOLLOWS:- 7. THEREFORE THE VALUE OF CLOSING STOCK OF WIP H AS TO BE CORRECTLY WORKED OUT. THE BOOK RESULT DECLARED BY THE ASSESSEE HAS ALREADY BEEN REJECTED BY INVOKING THE PROVISION S OF SECTION 145(3) OF THE I.T. ACT ACCORDINGLY THE ISSUE IS D ETERMINED IN THE MANNER PRESCRIBED U/S 144 OF THE I.T.ACT. THE ASSE SSEE HAS PROCESSED 7181664 METERS DURING THE YEAR UNDER CONSIDERATION. TAKING INTO CONSIDERATION 360 DAYS AS WORKING DAYS PER YEAR THE AVERAGE OF PROCESS OF CLOTH PER DAY WORKS OUT TO 19949 METERS. IT IS COMMON KNOWLEDGE THAT TO COMPLETE A CIRCLE OF PR OCESS IN TEXTILE PROCESSING UNIT IT TAKES AT LEAST FIVE DAYS. THER EFORE A LOT OF GREY CLOTH PUT TO PROCESS ON FIRST DAY COMES OUT ON THE 6 TH DAY DULY PROCESSED. THEREFORE IT CAN BE HELD THAT THE ASSE SSEE MUST HAVE FIVE DAYS WORK-IN-PROCESS AS ON 31.03.2005. THIS W ORKS OUT TO 19949 METERS X 5 DAYS = 99745 METERS. THE AVERAGE COST OF PROCESSING CHARGES PER METER WORKS OUT AT RS.5.49 ( GROSS RECEIPT GROSS PROFIT = COST/METER PROCESSED = 48680174 9257502 = 39422672 / 7181664 = RS.5.49). CONSIDERING THE VA RIOUS STAGES OF PROCESS IT WOULD BE REASONABLE TO ADOPT 50% I.E . RS. 2.75 /- PER METER FOR ARRIVING AT VALUE OF WORK-IN-PROCESS. TH EREFORE THE CLOSING STOCK OF WORK-IN-PROCESS. THEREFORE THE C LOSING STOCK OF WORK-IN-PROCESS IN THIS CASE IS WORKED OUT AT RS.2 74 298/- (99745 METERS X RS.2.75-). SINCE THE ASSESSEE COMPANY ITSELF HAS SHOWN THE CLOSING STOCK OF WIP OF RS.91 960/- THE DIFFER ENCE OF RS.1 82 338/- IS TREATED SUPPRESSED VALUE OF WORK I N PROGRESS. THEREFORE THE SUPPRESSED VALUE OF WORK-IN-PROGRESS OF RS.1 82 338/- AS WORKED OUT ABOVE IS ADDED TO THE TOTAL INCOME O F THE ASSESSEE. SINCE THE ASSESSEE COMPANY HAS FILED INACCURATE PARTICULAR OF ITS INCOME THE PENALTY PROCEEDINGS U /S.271(1)(C) R.W. EXPLANATION 1 THERETO OF THE I.T.ACT IS INITIATED. ITA NO .268/AHD/2009 ARCHNA DYEING & PRINTING MILLS P.LTD. VS. ITO ASST.YEAR 2005-06 - 5 - 2. 3. THE AFORESAID ADDITION WAS CHALLENGED BEFORE THE LEARNED CIT(APPEALS) WHO HAS AFFIRMED THE ACTION OF THE ASS ESSING OFFICER. 3. WITH THIS BRIEF BACK GROUND WE HAVE HEARD BOTH THE SIDES. IN FACT BOTH THE SIDES HAVE INITIALLY ARGUED THEIR RESPECTI VE STANDS ON THE LEGAL ASPECT OF THE ISSUE THAT WHETHER THE ASSESSING OFFI CER WAS RIGHT IN DISTURBING THE CLOSING STOCK OF WORK-IN-PROGRESS WI THOUT GIVING CORRESPONDING EFFECT ON THE OPENING STOCK OF THE YE AR UNDER CONSIDERATION. FROM THE SIDE OF THE ASSESSEE LEAR NED AUTHORISED REPRESENTATIVE OF THE ASSESSEE MR.J.P.SHAH APPEARED AND IN SUPPORT OF THE SAID LEGAL ASPECT OF THE ISSUE HE HAS PLACED R ELIANCE ON THE FOLLOWING CASE LAWS:- 1. 4 ITC 245 (PC) 2. (1946) 14 ITR 110 (MAD) 3. (1991) 188 ITR 44 AT 48 56 (SC) CIT VS. BRITISH PAINTS 4. (1992) 107 CTR 34 (CAL) 5. (1999) 60 TTJ 125 (AHD) 6. (2008) 14 DTR 206 (MUM) (T) 7. (2008) 297 ITR 77 (DEL) DEPT.S SLP DISMISSED 30 7 ITR 4 (ST) 8. (2008) 26 SOT 141 (BOM) 9. (2010) 127 TTJ 410 (MUM) DC V. BECK INDIA LTD. 4. ON THE OTHER HAND FROM THE SIDE OF THE REVENUE LEARNED DEPARTMENTAL REPRESENTATIVE MR.B.L.YADAV APPEARED A ND VEHEMENTLY ARGUED THAT IF A METHOD OF VALUATION IN A PARTICULA R ASSESSMENT YEAR IS TO BE ALTERED THEN IT WAS NOT DESIRED TO GIVE CORRESP ONDING EFFECT IN THE VALUATION OF THE OPENING STOCK AS WELL BECAUSE A C ORRECT PROCEDURE FOR THE VALUATION OF THE STOCK HAS TO BE FOLLOWED AND T HE CHANGE IN THE VALUE OF THE CLOSING STOCK BECOMES NEUTRAL IN NATURE IN T HE SUBSEQUENT YEAR. ITA NO .268/AHD/2009 ARCHNA DYEING & PRINTING MILLS P.LTD. VS. ITO ASST.YEAR 2005-06 - 6 - FOR THIS LEGAL PROPOSITION RELIANCE WAS PLACED ON FOLLOWING TWO DECISIONS:- 1. MOLMOULD CORPORATION VS. CIT (1993) 71 TAXMAN 4 7 (BOM.) 2.ASST.CIT VS. S.P.FABRICATORS(P.) LTD. (2006) 10 SOT 652 (MUM.) 5. THOUGH BOTH THE SIDES HAVE INITIALLY CONTESTED T HIS LEGAL ASPECT BUT LATER ON AFTER SOME DISCUSSION IT WAS FOUND THAT ULTIMATELY THE ASSESSING OFFICER HAD MADE THE IMPUGNED ADDITION BY ESTIMATING CERTAIN PERCENTAGE ON ADOPTING A HYPOTHETICAL METHO D. IT WAS THEREFORE SUGGESTED BY THE PARTIES THAT CONSIDERING THE SMALLNESS OF THE QUANTUM IN QUESTION I.E. RS.1 82 338/- IT IS BETT ER TO KEEP THE BREVITY IN MIND AND DETERMINE A REASONABLE FIGURE OF ADDITION. BY ACCEPTING THE SAID SUGGESTION WE HAVE PERUSED THE RELEVANT PARAG RAPH OF THE ASSESSING OFFICER (ALREADY REPRODUCED SUPRA) AND HAVE NOTICED THAT THE ASSESSING OFFICER HAS WORKED OUT AN AVERAGE OF CLOTH PROCESSI NG PER DAY AT 19 949 METERS. THEN THE ASSESSING OFFICER HAD ALSO OPINED ON THE BASIS OF A COMMON KNOWLEDGE THAT TO COMPLETE A CIRCLE OF PROCE SSING OF TEXTILE IT GENERALLY TAKES ABOUT FIVE DAYS. THEREFORE IN ASSE SSING OFFICERS OPINION ABOUT 99 745 METERS CLOTH WOULD BE UNDER WO RK-IN-PROGRESS. ON THAT ESTIMATED METERS OF CLOTH HE HAS FURTHER APPLIED AN AVERAGE OF COST OF PROCESSING CHARGES AT RS.2.75/- PER METER. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS THEREFORE CONTES TED THAT THE WORKING OF THE AVAILABILITY OF CLOTH IN METERS AS WORK-IN-PROC ESS WAS A HYPOTHETICAL FIGURE. AS WELL AS THE COST APPLIED AT RS.2.75 PER METER WAS ALSO MERELY AN ESTIMATED AVERAGE COST ALLEGED TO HAVE BEEN INCU RRED PRESUMING THAT ALL THE FIVE STAGES OF PROCESSING WAS COMPLETED. AS AGAINST THAT PRESUMPTION IT HAS BEEN INFORMED THAT THE VALUE OF FINISHED GOODS AND ITA NO .268/AHD/2009 ARCHNA DYEING & PRINTING MILLS P.LTD. VS. ITO ASST.YEAR 2005-06 - 7 - STOCK IN PROGRESS DECLARED AT RS.91 960/- WAS ON PH YSICAL VERIFICATION AT THE CLOSE OF THE ACCOUNTING PERIOD. IT IS TRUE THA T THE PROCESSING OF ART SILK FABRICS HAS VARIOUS STAGES OF PROCESSING AND A PARTICULAR STAGE ON THE LAST DAY OF THE ACCOUNTING PERIOD IS ONLY KNOWN TO THE ASSESSEE WHILE PREPARING THE INVENTORY OF THE STOCK. BUT THERE IS ALWAYS A SCOPE OF VARIATION IN RESPECT OF SUCH ESTIMATED AVERAGE COS T INCURRED AT A PARTICULAR STAGE OF PROCESSING. CONSIDERING THE NA TURE OF THE MANUFACTURING ACTIVITY CARRIED OUT BY THE ASSESSEE AND THE ALTERNATE PLEA OF BOTH THE SIDES WE HEREBY AS A RESULT EXERCIS E OUR DISCRETION AND GRANT 50% RELIEF TO THIS ASSESSEE IN RESPECT OF THE TOTAL ADDITION MADE BY THE ASSESSING OFFICER. RESULTANTLY ASSESSEE SHALL BE ENTITLED FOR A RELIEF OF RS.91 170/-. THIS GROUND IS PARTLY ALLOWED. 6. GROUND NO.2 READS AS FOLLOWS:- 2. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE TH E LEARNED CIT(A)HAS ERRED IN UPHOLDING THE ADDITION OF SUPPRE SSION IN CONSUMPTION OF COAL AMOUNTING RS.94 274/- WORKED OUT ON THE BASIS OF MONTHLY CONSUMPTION BASED ON ANNULLISED AV ERAGE WHICH IS ABSOLUTELY ERRONEOUS AND BAD-IN-LAW REQUIRING O UTRIGHT DELETION. 6.1. THE ASSESSING OFFICER HAS VERIFIED THE CONSUMP TION OF THE COAL AND THE PURCHASES OF THE COAL OF EACH MONTH AND THEREAF TER AS PER HIS CALCULATION THERE WAS A SHORTAGE OF CLOSING STOCK F OR THE MONTH OF AUGUST AND NOVEBMER-2004. FOR THE MONTH OF AUGUST-2004 THE SHORTFALL AS PER ASSESSING OFFICERS CALCULATION WAS 19 460 KGS AND FOR THE MONTH OF NOVEMBER-2004 THE SAID SHORTFALL WAS WORKED OUT AT 23 005 KGS. BY APPLYING THE COST OF PER KG. AT RS.2.22/- THE A SSESSING OFFICER HAD ITA NO .268/AHD/2009 ARCHNA DYEING & PRINTING MILLS P.LTD. VS. ITO ASST.YEAR 2005-06 - 8 - ADDED AN AMOUNT OF RS.94 274/- AS AN INVESTMENT TOW ARDS COAL CONSUMPTION BEING A DEFICIT QUANTFIED FOR THE SAID TWO MONTHS. THE SAID ADDITION WAS CARRIED BEFORE THE FIRST APPELLATE AUT HORITY WHO HAS AFFIRMED THE ACTION OF THE AO AS PER FOLLOWING PARAGRAPH:- 4.2. AS STATED ABOVE THE APPELLANT HAS NOT GIVEN ANY SUBMISSION DURING THE APPELLATE PROCEEDINGS FROM THE CHART OF CONSUMPTION AND CLOSING STOCK OF COAL PREPARED BY THE A.O. ON PAGE-8 IT IS CLEAR THAT THERE IS A DEFICIT OF COAL BEING NEGATIV E BALANCE IN THE MONTH OF AUGUST AND NOVEMBER. THIS IS IMPOSSIBILIT Y. THERE CANNOT BE NEGATIVE BALANCE OF COAL. HENCE THE ADD ITION MADE BY THE A.O. IN RESPECT OF SHORTAGE OF COAL IS FROM CO NSERVATIVE AND CORRECT. THE ADDITION MADE BY THE A.O. IS THEREFOR E CONFIRMED. THIS GROUND OF APPEAL IS DISMISSED. 7. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE. THE PRELIMINARY ARGUMENT OF LEARNED AUTHORISED REPRESENTATIVE OF TH E ASSESSEE WAS THAT THE PURCHASE AND CONSUMPTION OF THE COAL WAS DULY R ECORDED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AND ON THAT BASIS THE ST OCK WAS VALUED AT THE END OF THE ACCOUNTING PERIOD AT RS.11 01 223/-. HO WEVER THE STRONG CONTENTION OF LEARNED DEPARTMENTAL REPRESENTATIVE W AS THAT ON VERIFICATION OF QUANTITATIVE DETAILS OF PURCHASE I T WAS EVIDENT THAT THERE WAS A SHORTFALL IN THE AVAILABLE QUANTITY OF COAL FOR TWO MONTHS. THAT SHORTFALL WAS ADMITTED BY THE ASSESSEE AND NO CONVI NCING REASON OF THE SAID SHORTFALL WAS GIVEN TO THE ASSESSING OFFICER. THE ASSESSEE HAS FILED A CHART OF MONTH-WISE CONSUMPTION OF COAL VIS--VIS MONTH-WISE PURCHASE OF THE COAL. THAT CHART AS SUBMITTED BY T HE ASSESSEE HAS ITSELF DISCLOSED THE IMPUGNED DEFICIT OF STOCK OF COAL. E VEN AT THIS STAGE OF APPEAL WE HAVE NOTICED THAT NO COGENT MATERIAL IS PLACED IN DEFENSE BY THE ASSESSEE. THE ONLY ARGUMENT OF LEARNED AUTHORI SED REPRESENTATIVE ITA NO .268/AHD/2009 ARCHNA DYEING & PRINTING MILLS P.LTD. VS. ITO ASST.YEAR 2005-06 - 9 - OF THE ASSESSEE IS THAT THE CONSUMPTION OF COAL WAS WORKED OUT ON AN ESTIMATE BASIS BUT ONE FACT SHOULD ALSO NOT BE IGN ORED THAT THE FIGURES OF CONSUMPTION HAS ALSO BEEN GIVEN BY THE ASSESSEE HIM SELF FOR EACH MONTH. THROUGH THE SAID CHART IT WAS VERY MUCH EVIDENT THA T THERE WAS A SHORTFALL IN THE STOCK OF COAL FOR THE TWO MONTHS I.E. AUGUS T AND NOVEBMER-2004. IN THE ABSENCE OF ANY CONVINCING ARGUMENT OR MATERI AL FROM THE SIDE OF THE ASSESSEE WE ARE NOT INCLINED TO DISTURB THE SA ID ADDITION HENCE THE SAME IS HEREBY CONFIRMED. THIS GROUND IS THEREFORE DISMISSED. 8. GROUND NO.3 READS AS FOLLOWS:- THAT ON FACTS AND CIRCUMSTANCES OF THE CASE THE LE ARNED CIT(A) HAS ERRED IN UPHOLDING THE DISALLOWANCE OF VATAV KASAR AND DISCOUNT EXPENSES AMOUNTING TO RS.2 24 230/- AS MADE BY THE LD.AO WHICH IS ERRONEOUS AND NEEDS TO BE DELETED I N THE INTEREST OF NATURAL JUSTICE AND EQUITY. 8.1. ON VERIFICATION OF PROFIT & LOSS ACCOUNT IT W AS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS CLAIMED VA TAV KASAR ON SALES OF RS.10 25 271/-. FOR THE PREVIOUS YEAR THE SAID CLAIM WAS ONLY OF RS.1 92 195/-. IT WAS CLARIFIED THAT THE SAID CLAI M WAS OF TWO TYPES (I) IN THE NATURE OF DISCOUNT GIVEN AND (II) IN THE NATURE OF RATE DIFFERENCE GRANTED FOR DEFECTIVE WORK. THE ASSESSEE HAS FURNI SHED A CHART GIVING THE NAMES OF THE PARTIES TO WHOM DISCOUNT OR RATE DIFFE RENCE WAS GRANTED. THE ASSESSEE HAS FURNISHED THE DETAILS OF THE BILLS AND THE WORKING OF THE DISCOUNT GRANTED TO THOSE PARTIES. A REPLY WAS SUB MITTED AS UNDER:- WITH REFERENCE TO REPLY RELATING TO DISCOUNT EXPENSES INCURRED BY US THERE IS NO PERFECT TREND OF GIVING DISCOUNT TO THE PARTIES WHICH ITA NO .268/AHD/2009 ARCHNA DYEING & PRINTING MILLS P.LTD. VS. ITO ASST.YEAR 2005-06 - 10 - WE HAVE ALREADY STATED TO YOU. DURING THE YEAR WE HAVE HIGH TURNOVER OF TECHNICIANS IN OUR UNIT DUE TO WHICH LO T OF THE GOODS OF THE PARTIES HAD BEEN DAMAGED A ND FOR THAT WE HAVE TO NEGOTIATE WITH THE PARTIES AND PROVIDE THEM DISCOUNT TO KEEP CONTINUANCE OF BUSINESS FURTHER. WE HAVE TRIED TO GET CONFIRMATIONS FROM THE PARTIES FROM THE LIST GIVEN UNDER POINT NO.5(IV) AND OUT OF ALL THESE PAR TIES WE HEREBY PROVIDE YOU SOME OF THE CONFIRMATION OF DISCOUNT RE CEIVED BY THEM. AS REFLECTED UNDER THE COLUMN OF PERCENTAGE OF DISC OUNT THE FACT IS THAT DISCOUNT PROVIDED WAS NOT ON THE BASIS OF ANY VOLUME OF SALE BUT WAS ON THE NEGOTIATION AGAINST BAD QUALITY OF J OB OR LOSS OF MATERIAL OF THE PARTIES HAPPENED IN OUR FACTORY DUE TO CARELESSNESS OF THE TECHNICIANS. HENCE SEEING THE CONFIRMATION S IT CAN BE PROVED THE GENUINENESS OF THE COMPENSATION GIVEN TO THE PARTIES IN THE FORM OF DISCOUNT. FINALLY WE HAVE DONE THE BUS INESS WITH PROFIT AND BETTER GROSS PROFIT COMPARED TO EARLIER YEARS. ON THIS GROUND WE BEG TO STATE THAT ALLOW THE EXPENDITURES IN THE ACCOUNT OF DISCOUNT WHICH IS JUST 0.94% OF THE OVERALL JOB INC OME. 8.2. HOWEVER THE ASSESSING OFFICER WAS NOT CONVINC ED AND HELD THAT IN RESPECT OF THE CONFIRMATIONS PRODUCED BY THE ASSESS EE THE CLAIM WAS ADMISSIBLE AND IN RESPECT OF REMAINING PARTIES IN T HE ABSENCE OF CONFIRMATION THE CLAIM OF DISCOUNT EXPENSES REMAINE D UNEXPLAINED. THE ASSESSING OFFICER HAS THEREAFTER ON THAT BASIS WORK ED OUT A PARTY-WISE DISCOUNT AT RS.2 41 265/- AND TAXED IN THE HANDS OF THE ASSESSEE. THE SAID ADDITION WAS CHALLENGED BEFORE THE FIRST APPELLATE AUTHORITY WHO HAS AFFIRMED THE ADDITION BARRING AN AMOUNT OF RS.17 03 5/- WHICH WAS FOUND TO BE AN AMOUNT REPRESENTING OPENING BALANCE OF THE SAID PARTY. 9. HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES A ND AFTER DUE CONSIDERATION OF THE PARTY-WISE DETAILS AS DISCUSSE D BY THE ASSESSING OFFICER WE ARE OF THE CONSIDERED VIEW THAT IN RESP ECT OF THE IMPUGNED PARTIES MERELY FOR NON-FURNISHING OF CONFIRMATION THE SAID ADDITION WAS ITA NO .268/AHD/2009 ARCHNA DYEING & PRINTING MILLS P.LTD. VS. ITO ASST.YEAR 2005-06 - 11 - MADE HOWEVER IN RESPECT OF MOST OF THE PARTIES NO SUCH ADDITION WAS MADE. BY FURNISHING THE EVIDENCE AND DETAILS THE ASSESSEE HAS EXPLAINED ABOUT THE COMMON PRACTICE AS ALSO THE TREND OF THE BUSINESS. AS PER THE KNOWN BUSINESS PRACTICE THE ASSESSEE WAS GRANTING CASH DISCOUNT AS WELL AS A DAMAGE-DISCOUNT IF A DEFECT IN THE PRINTING PROCESS WOULD BE NOTICED BY THE CUSTOMER. THE ALLEGATION OF THE ASS ESSING OFFICER WAS NOT THAT THE GRANT OF DISCOUNT WAS NOT IN PRACTICE OR T HAT THE PARTIES WERE BOGUS. BUT THE MAIN REASON FOR THE IMPUGNED ADDITIO N WAS THAT THE REQUISITE CONFIRMATIONS COULD NOT BE FILED. IN THI S REGARD THE ASSESSEE HAD EXPLAINED THAT SOME OF THE PARTIES WERE NOT TRA CEABLE HOWEVER THEIR RESPECTIVE ACCOUNTS HAVE SHOWN THE CORRECT AMOUNT R ECEIVED BY THEM AND FINALLY THE ACCOUNT WAS SETTLED BY TRANSFERRING THE BALANCE-DIFFERENCE IN THE VATAV KASAR ACCOUNT. ACCORDING TO US CONSID ERING PARTY-WISE DETAILS AS DISCUSSED BY THE ASSESSING OFFICER AND O THER COGENT MATERIAL MENTIONED BY THE AUTHORITIES BELOW IT WAS NOT FAIR ON THE PART OF THE ASSESSING OFFICER TO DISALLOW THE EXPENDITURE IN RE SPECT OF SOME OF THE PARTIES AND TO ALLOW IN RESPECT OF THE OTHER PARTIE S. AFTER DUE CONSIDERATION OF THE COMMON BUSINESS PRACTICE AS EX PLAINED AND THE COGENT MATERIAL WE ACCORDINGLY DIRECT TO ALLOW THE EXPENDITURE . RESULTANTLY THIS GROUND IS HEREBY ALLOWED. 10. GROUND NO.4 READS AS FOLLOWS:- THAT ON FACTS AND CIRCUMSTANCES OF THE CASE THE LE ARNED CIT(A) HAS ERRED IN UPHOLDING THE DISALLOWANCE OF DELAYED PAYMENT OF EMPLOYEES CONTRIBUTION OF ESI & PF AMOUNTING TO RS .33 790/ - AS MADE BY THE LD. AO WHICH IS INCORRECT AND NEEDS TO BE DELETED IN THE INTEREST OF NATURAL JUSTICE AND EQUITY. ITA NO .268/AHD/2009 ARCHNA DYEING & PRINTING MILLS P.LTD. VS. ITO ASST.YEAR 2005-06 - 12 - 11. THE ONLY REASON FOR THE IMPUGNED ADDITION WAS T HAT THE EMPLOYEES CONTRIBUTION TOWARDS PF AND ESIC WAS NOT DEPOSITED BY THE ASSESSEE WITHIN THE DUE DATE PRESCRIBED IN THE STAT UTE. HOWEVER AS PER THE CHART PLACED ON RECORD BY THE ASSESSING OFFICER IT WAS FOUND THAT THE PAYMENTS WERE MADE IN THE MONTH OF JULY AUGUST OC TOBER-2004 & JANUARY-2005 RESPECTIVELY AND THEN DEPOSITED IN T HE MONTHS OF AUGUST SEPTEMBER DECEMBER-2004 AND MARCH-2005. ON THESE FACTS NOW THIS ISSUE STOOD SETTLED BY THE DECISION IN THE CASE OF CIT V/S. AIMIL LTD. 321 ITR 508 (DEL) THE HON'BLE COURT HAS APPLIED THE DE CISION OF CIT V/S. VINAY CEMENT CIT VS. VINAY CEMENT LTD. 313 ITR 01 ( SC) AND HELD THAT WHERE THE ASSESSEE HAD DEPOSITED EMPLOYERS CONTRIB UTION AS WELL AS EMPLOYEES CONTRIBUTION TOWARDS PF & ESI AFTER THE DUE DATE AS PRESCRIBED UNDER THE RELEVANT ACT BUT BEFORE THE DU E DATE OF FILING OF THE RETURN UNDER I.T. ACT THEN NO DISALLOWANCE COULD B E MADE IN VIEW OF THE PROVISIONS OF SECTION 43-B OF THE I.T.ACT. IN A LA TEST DECISION OF ITAT D BENCH AHMEDABAD IN THE CASE OF AGEW STEEL MANUF ACTURERS PVT.LTD. VS. DY.CIT BEARING ITA NO.488/AHD/2011 ORDER DATED 22/07/2011 WHEREIN ONE OF US I.E. JM IS THE CO-SIGNATORY TH E PROVISIONS OF SECTIONS 43-B 2(24)(X) AND 36(1)(VA) HAVE BEEN CONSIDERED I N THE FOLLOWING MANNER:- 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUG H THE FACTS OF THE CASE AS ALSO THE AFORESAID DECISIONS. AS REGARDS EMPLOYERS AND EMPLOYEES CONTRIBUTION TOWARDS PF WE FIND THAT THE ITAT AHMEDABAD BENCHES HAVE BEEN CONSISTENTLY FOLLO WING THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF CIT V. ITA NO .268/AHD/2009 ARCHNA DYEING & PRINTING MILLS P.LTD. VS. ITO ASST.YEAR 2005-06 - 13 - P.M.ELECTRONICS LTD. 220 CTR 635 (DELHI) WHEREIN RELYING UPON THE DECISION OF HONBLE APEX COURT IN THE CASE OF CIT VS. VINAY CEMENT LTD. 213 CTR (SC) 268 THE HONBLE COURT CONCURRE D WITH THE VIEW TAKEN BY THE HONBLE MADRAS HIGH COURT IN NEXUS COM PUTER (P) LTD. 219 CTR(MAD) 54 IN HOLDING THAT EMPLOYER/EMPL OYEES CONTRIBUTION TOWARDS PROVIDENT FUND PAYMENTS MADE A FTER THE DUE DATE PRESCRIBED UNDER THE EMPLOYEES PROVIDENT FUND ACT AND RULES MADE THEREUNDER AND BEFORE THE DUE DATE FOR FURNISHING T HE RETURN OF INCOME UNDER SUB SEC. 1 OF SEC. 139 OF THE ACT ARE ALLOWA BLE UNDER S.36(1)(VA) READ WITH SEC. 2(24(X) AND SEC. 43B OF THE ACT. 5.1 MOREOVER RECENTLY HONBLE APEX COURT IN THE CASE OF CIT VS ALOM EXTRUSIONS LTD. 319 ITR 306 (SC) HELD THAT TH E OMISSION OF THE SECOND PROVISO TO SECTION 43B OF THE ACT BY THE FIN ANCE ACT 2003 OPERATED RETROSPECTIVELY WITH EFFECT FROM APRIL 1 1988 AND NOT PROSPECTIVELY FROM APRIL 1 2004. HONBLE COURT OBS ERVED THAT EARLIER UNDER THE SECOND PROVISO TO SECTION 43B AS AMENDED BY THE FINANCE ACT 1989 THE ASSESSEES WERE ENTITLED TO DEDUCTIO N ONLY IF THE CONTRIBUTION STOOD CREDITED ON OR BEFORE THE DUE DA TE GIVEN IN THE PROVIDENT FUNDS ACT. THIS CREATED FURTHER DIFFICULT IES AND ON A REPRESENTATION MADE TO THE FINANCE MINISTRY ONE MO RE AMENDMENT WAS MADE BY THE FINANCE ACT 2003. THOUGH THIS AME NDMENT WAS MADE APPLICABLE WITH EFFECT FROM APRIL 1 2004 THE AMENDMENT WAS CURATIVE IN NATURE AND APPLIED RETROSPECTIVELY WITH EFFECT FROM APRIL 1 1988.IT WAS CLARIFIED THAT WHEN A PROVISO IN A SECT ION IS INSERTED TO REMEDY UNINTENDED CONSEQUENCES AND TO MAKE THE SECT ION WORKABLE THE PROVISO WHICH SUPPLIES AN OBVIOUS OMISSION THER EIN IS REQUIRED TO BE READ RETROSPECTIVELY IN OPERATION PARTICULARLY TO GIVE EFFECT TO THE SECTION AS A WHOLE. 5.2 HONBLE KARNATAKA HIGH COURT IN THEIR DECIS ION IN ANZ INFORMATION TECHNOLOGY P LTD. 318 ITR 123 WHILE FO LLOWING THEIR EARLIER DECISION IN CIT VS. SABARI ENTERPRISES 298 ITR 141 (KAR.) CONCLUDED THAT DEPOSITS MADE BY THE EMPLOYER OF THE EMPLOYEES CONTRIBUTION BELATEDLY AND CONTRIBUTION TOWARDS ESI & PF UNDER T HE RELEVANT ENACTMENTS CAN NOT BE TREATED AS INCOME OF THE ASSE SSEE U/S 36(1)(VA) READ WITH SEC. 2(24)(X) IN VIEW OF PROVI SIONS OF SEC. 43B OF THE ACT. 5.3 HONBLE DELHI HIGH COURT IN ANOTHER DECISION DATED 23.12.2009 IN CIT VS. AIMIL LTD.(DELHI)IN ITA NO. 1063/2008 OBSER VED THAT SEC. 2(24)(X) PROVIDES THAT AMOUNTS RECEIVED BY AN ASSES SEE FROM EMPLOYEES TOWARDS PF CONTRIBUTIONS ETC. SHALL BE I NCOME. S. 36 (1) (VA) PROVIDES THAT IF SUCH SUMS ARE CONTRIBUTED TO THE EMPLOYEES ACCOUNT IN THE RELEVANT FUND ON OR BEFORE THE DUE D ATE SPECIFIED IN THE PF LEGISLATION THE ASSESSEE SHALL BE ENTITLED TO A DEDUCTION. THE SECOND PROVISO TO S. 43B (B) PROVIDED THAT ANY SUM PAID BY THE ITA NO .268/AHD/2009 ARCHNA DYEING & PRINTING MILLS P.LTD. VS. ITO ASST.YEAR 2005-06 - 14 - ASSESSEE AS AN EMPLOYER BY WAY OF CONTRIBUTION TO A NY PROVIDENT FUND SHALL BE ALLOWED AS A DEDUCTION ONLY IF PAID ON OR BEFORE THE DUE DATE SPECIFIED IN 36(1)(VA) OF THE ACT. AFTER THE OMISSI ON OF THE SECOND PROVISO W.E.F 1.4.2004 THE DEDUCTION IS ALLOWABLE UNDER THE FIRST PROVISO IF THE PAYMENT IS MADE ON OR BEFORE THE DUE DATE FOR FURNISHING THE RETURN OF INCOME. THE HONBLE HIGH COURT WHILE CONSIDERING WHETHER THE BENEFIT OF S. 43B CAN BE EXTENDED TO EM PLOYEES CONTRIBUTION AS WELL WHICH ARE PAID AFTER THE DUE DATE UNDER THE PF LAW BUT BEFORE THE DUE DATE FOR FILING THE RETURN HELD THAT (I) THOUGH THE REVENUE HAS ARGUED THAT A DISTINCTIO N IS TO BE MADE BETWEEN EMPLOYERS CONTRIBUTION AND EMPLOYE ES CONTRIBUTION AND THAT EMPLOYEES CONTRIBUTION BEIN G IN THE NATURE OF TRUST MONEY IN THE HANDS OF THE ASSESSEE CANNOT BE ALLOWED AS A DEDUCTION IF NOT PAID ON OR BEFORE THE DUE DATE SPECIFIED IN THE PF ETC LAW THE SCHEME OF THE ACT IS THAT EMPLOYEES CONTRIBUTION IS TREATED AS INCOME U/S 2 (24) (X) ON RECEIPT BY THE ASSESSEE AND ALLOWED AS A DEDUCTION U/S 36 (1) (VA) ON MAKING DEPOSIT WITH THE CONCERNED AUTHORITI ES. S. 43B (B) STIPULATES THAT SUCH DEDUCTION WOULD BE PERMISS IBLE ONLY ON ACTUAL PAYMENT; (II) THE QUESTION AS TO WHEN ACTUAL PAYMENT SHOULD BE MADE IS ANSWE RED BY VINAY CEMENTS 213 CTR 268 WHERE THE DE LETION OF THE SECOND PROVISO TO S. 43B W.E.F 1.4.2004 WAS HELD APPLICABLE TO EARLIER YEARS AS WELL. AS THE DELETIO N OF THE 2ND PROVISO IS RETROSPECTIVE THE CASE HAS TO BE GOVERN ED BY THE FIRST PROVISO. DHARMENDRA SHARMA 297 ITR 320 (DEL) & P.M. ELECTRONICS 313 ITR 161 (DELHI) FOLLOWED; (III) IF THE EMPLOYEES CONTRIBUTION IS NOT DEPOSIT ED BY THE DUE DATE PRESCRIBED UNDER THE RELEVANT ACTS AND IS DEPO SITED LATE THE EMPLOYER NOT ONLY PAYS INTEREST ON DELAYED PAYM ENT BUT CAN INCUR PENALTIES ALSO FOR WHICH SPECIFIC PROVISIONS ARE MADE IN THE PROVIDENT FUND ACT AS WELL AS THE ESI ACT. THER EFORE THE ACT PERMITS THE EMPLOYER TO MAKE THE DEPOSIT WITH S OME DELAYS SUBJECT TO THE AFORESAID CONSEQUENCES. INSOFAR AS T HE INCOME- TAX ACT IS CONCERNED THE ASSESSEE CAN GET THE BENE FIT IF THE ACTUAL PAYMENT IS MADE BEFORE THE RETURN IS FILED AS PER THE PRINCIPLE LAID DOWN IN VINAY CEMENT. 5.4 IN VIEW OF THE FOREGOING AND IN THE LIGHT OF VIEW TAKEN IN THE AFORESAID DECISIONS WE HAVE NO HESITATION IN HOLDI NG THAT THE EMPLOYEES CONTRIBUTION TOWARDS PF & ESI PAID BY THE ASSESSEE BEFORE THE DUE DATE OF FILING OF RETURN U/S 139(1) OF THE ACT FOR THE ASSESSMENT YEAR UNDER CONSIDERATION IS ADMISSIBLE. THEREFORE WE HAVE NO HESITATION IN VACATING THE FINDINGS OF THE LD. CIT(A) AND ITA NO .268/AHD/2009 ARCHNA DYEING & PRINTING MILLS P.LTD. VS. ITO ASST.YEAR 2005-06 - 15 - CONSEQUENTLY DIRECT THE AO TO ALLOW PAYMENT MADE ON ACCOUNT OF EMPLOYEES CONTRIBUTION TOWARDS PF & ESI ON OR BEFO RE THE DUE DATE OF FILING OF THE RETURN U/S 139(1) OF THE ACT. WITH TH ESE DIRECTIONS GROUND NOS. 1 & 2 IN THE APPEAL ARE ALLOWED. 12. IN THE LIGHT OF THE ABOVE DISCUSSION TWO THI NGS ARE CLEAR FIRST THAT THE HON'BLE COURTS HAVE HELD THAT THE OMISSION OF S ECTION PROVISION TO SECTION 43-B OF THE I.T.ACT BY THE FINANCE ACT 200 3 HAS OPERATED RETROSPECTIVELY WITH EFFECT FROM 1/4/1988 AND NOT P ROSPECTIVELY FROM 1/4/2004. IT WAS HELD THAT THE SAID AMENDMENT BEIN G CURATIVE IN NATURE THEREFORE APPLIED RETROSPECTIVELY. THE SECOND ASPE CT WHICH HAS NOW STREAMLINED IS THAT THE ACT PERMITS THE EMPLOYER TO MAKE THE DEPOSIT BEFORE THE DUE DATE OF FILING OF THE RETURN. IT WA S OBSERVED BY THE HON'BLE COURTS THAT IN CASE THE EMPLOYEES CONTRIBUTION IS NOT DEPOSITED WITHIN THE DUE DATE AS PRESCRIBED UNDER THE RELEVANT ACTS BUT DEPOSITED LATE THEN THE EMPLOYER HAS TO PAY INTEREST ON THE DELAYE D PAYMENT AND ALSO CAN BE SUBJECTED TO PENALTY UNDER THE RELEVANT ACT. IT WAS QUOTED THAT SUCH SPECIFIC PROVISIONS ARE BEING MADE IN THE PF A CT AND ALSO IN ESI ACT. IN THE PRESENT CASE THE ASSESSING OFFICER HAS NOT MENTIONED ABOUT THE EXACT DUE DATE OF FILING OF RETURN. FOR THIS R EASON THE MATTER IS HEREBY RESTORED BACK TO THE STAGE OF THE ASSESSMENT WITH T HE DIRECTION TO FOLLOW THE PRECEDENTS CITED ABOVE AND ALLOW THE CLAIM ACCO RDINGLY AS PER LAW. 13. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED . SD/- SD/- (A. MOHAN ALANKAMONY) (MUKUL KR. SHRAWAT) ACCOUNTANT MEMBER JUDICIAL ME MBER AHMEDABAD; DATED 25/ 11 /2011 4..$ .$../ T.C. NAIR SR. PS ITA NO .268/AHD/2009 ARCHNA DYEING & PRINTING MILLS P.LTD. VS. ITO ASST.YEAR 2005-06 - 16 - %3 0 -5 6%5( %3 0 -5 6%5( %3 0 -5 6%5( %3 0 -5 6%5(/ COPY OF THE ORDER FORWARDED TO : 1. ) / THE APPELLANT 2. -.) / THE RESPONDENT. 3. !! 7 / CONCERNED CIT 4. 7() / THE CIT(A)-I SURAT 5. 5:; -$ / DR ITAT AHMEDABAD 6. ; <1 / GUARD FILE. %3$ %3$ %3$ %3$ / BY ORDER .5 - //TRUE COPY// = == =/ // / !* !* !* !* ( DY./ASSTT.REGISTRAR) / ITAT AHMEDABAD 1. DATE OF DICTATION..04.11.11 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 08.11.11 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S 25.11.11 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 25.11.11 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 9. DATE OF DESPATCH OF THE ORDER