M/s. Associated Petroleum Corporation, Ahmedabad v. The Income tax Officer,Ward-10(4),, Ahmedabad

ITA 2814/AHD/2009 | 2006-2007
Pronouncement Date: 28-07-2011 | Result: Allowed

Appeal Details

RSA Number 281420514 RSA 2009
Assessee PAN AACFA7657H
Bench Ahmedabad
Appeal Number ITA 2814/AHD/2009
Duration Of Justice 1 year(s) 9 month(s) 13 day(s)
Appellant M/s. Associated Petroleum Corporation, Ahmedabad
Respondent The Income tax Officer,Ward-10(4),, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 28-07-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Tribunal Order Date 28-07-2011
Date Of Final Hearing 21-07-2011
Next Hearing Date 21-07-2011
Assessment Year 2006-2007
Appeal Filed On 15-10-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD B BENCH (BEFORE S/SHRI G.D. AGARWAL VICE-PRESIDENT AND D.K. TYAGI JUDICIAL MEMBER) ITA NO.2814/AHD/2009 [ASSTT.YEAR : 2006-2007] ASSOCIATED PETROLEUM CORPORATION C/O. M/S. MADHUSUDAN C. MASHRUWALA & CO. AKIK-301-303 OPP: LIONS HALL MITHAKHALI AHMEDABAD 380 006. PAN : AACFA 7657 H VS. ITO WARD-10(4) AHMEDABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S.N. SOPARKAR WITH SHRI BANDISH SOPARKAR REVENUE BY : SHRI SAMIR TEKRIWAL O R D E R PER G.D. AGARWAL VICE-PRESIDENT : THIS IS ASSESSEES APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-XVI AHMEDABAD DATED 13.08.2009 ARISING OUT OF THE ORDER UNDER SECTION 143(3) OF THE INCOME TAX ACT 1961. 2. THE ASSESSEE IN THE GROUNDS OF APPEAL RAISED MAN Y GROUNDS WHICH ARE DESCRIPTIVE IN NATURE AND IN FACT INVOLVE ONLY ONE ISSUE WHICH READS AS UNDER: 1. THAT THE LD.CIT(A) HAS ERRED IN REJECTING THE A PPELLANT BOOK RESULTS HOLDING THAT THE SHORTAGES SHOWN IN THE SAL E OF PETROL IN EXCESS OF 1.10% BE DISALLOWED AND PROVIDING PART RE LIEF. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E FIRM IS ENGAGED IN THE BUSINESS OF SALE OF PETROL DIESEL OIL AND KER OSENE. THE ASSESSEE IN ITS BOOKS OF ACCOUNTS CLAIMED SHORTAGE IN RESPECT OF PE TROLEUM PRODUCTS AT 1.21%. TO THE QUERY BY THE AO THE ASSESSEE EXPLAI NED THAT VARIOUS ITA NO.2814/AHD/2009 -2- REASON FOR SHORTAGE ARE LOSS IN FILING THE PETROL EVAPORATION SHRINKING LOSS VAPOR DISPLACEMENT AND DUE TO TEMPERATURE AND SPILLAGE LOSS. THAT AS PER REPORT OF VARIOUS BODIES THE AVERAGE LOSS F OR PETROL WOULD 1.4% AND FOR DIESEL 0.78%. THAT ASSESSEE IS MAINTAINING DAILY REPORT OF QUANTITATIVE DETAILS IN RESPECT OF PETROL AND DIESE L SINCE LAST 40 YEARS AND SUCH RECORDS ARE REGULARLY VERIFIED BY THE FOOD & C IVIL SUPPLIES DEPARTMENT. THAT THERE WERE DAMAGES TO EIGHT PIPE LINES AND HAVE BEEN DETECTED WITH LEAK WHICH HAVE BEEN DAMAGED. IN VIEW OF THESE REASONS FOR SHORTAGE WHICH ARE BEYOND THE CONTROL THE LOS S IN SHORTAGE OF PETROL AND DIESEL HAS BEEN ACCRUED. NOT FINDING THE EXPLA NATION OF THE ASSESSEE SATISFACTORY THE AO BASED ON THE AVERAGE OF LAST T HREE YEARS LOSSES ALLOWED 1% SHORTAGE OF PETROL AND THE VALUE OF EXCE SS STORAGE AT 0.21% ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 4. THE AGGRIEVED ASSESSEE PREFERRED FIRST APPEAL BE FORE THE CIT(A) WHO GAVE PART RELIEF BY ESTIMATING THE SHORTAGE AT 1.10% AS AGAINST 1.21% CLAIMED BY THE ASSESSEE AND 1% ALLOWED BY THE AO. STILL AGGRIEVED THE ASSESSEE IS BEFORE US. 5. AT THE TIME OF HEARING BEFORE US IT IS SUBMITTE D BY THE LEARNED COUNSEL OF THE ASSESSEE THAT THE SHORTAGE OF THE PE TROLEUM PRODUCTS IS BEYOND THE CONTROL OF THE ASSESSEE. THE ASSESSEE G AVE DETAILED EXPLANATION BEFORE THE AUTHORITIES BELOW WERE MENTI ONED IN THE ORDERS. THAT THE SALES AND PURCHASES ARE SUPPORTED BY THE I NVOICES AND SALES MEMOS AND ITS BOOKS OF ACCOUNTS ARE DULY AUDITED. COMPLETE QUANTITY DETAILS ARE MAINTAINED AND THE ITO IS NOT ABLE TO P OINT OUT A SINGLE MISTAKE EITHER IN THE MAINTENANCE OF THE BOOKS OF A CCOUNT OR IN MAINTAINING QUANTITY DETAILS. THE AUTHORITIES BELO W HAVE NOT POINTED OUT ITA NO.2814/AHD/2009 -3- ANY DEFECTS IN THE BOOKS OF ACCOUNTS QUANTITY DETA ILS AND OTHER SUPPORTING RECORDS. IT IS FURTHER SUBMITTED THAT THERE WERE L EAKAGES IN THE PIPES WHICH WERE BOUND TO BE HEAVY LOSSES. ONCE THE LEAK AGE WAS DISCOVERED AND AMENDED THE LOSSES CAME DOWN DRASTICALLY. THE LEARNED CIT(A) HAS ACCEPTED THE FACT THAT THE PIPES WERE DAMAGED AND S O THE ASSESSEE SUFFERED HIGH LOSS. IT IS SUBMITTED THAT SINCE ALL THE EXPLANATIONS AND EVIDENCES WERE BEFORE THE AUTHORITIES THE DECISION OF THE CIT(A) IN RESTRICTING THE LOSS TO 1.10% IS UNJUSTIFIED. THE LEARNED COUNSEL FURTHER SUBMITTED THAT SIMILAR CLAIM OF THE ASSESSEE FOR A. Y.2004-05 HAS BEEN ALLOWED BY THE CIT(A) AND THE DEPARTMENTS APPEAL B EFORE THE ITAT WAS DISMISSED IN ITA NO.2308/AHD/2008 DATED 31.8.2010. 6. THE LEARNED DR ON THE OTHER HAND RELIED UPON T HE ORDERS OF THE AUTHORITIES AND SUBMITTED THAT THE LOSS DUE TO ALLE GED DAMAGES OF THE PIPE LINES HAS NOT BEEN REPORTED BY THE IOC AUTHORITIES AND HAS NOT MENTIONED WHETHER THE LEAKAGE WAS THERE IN THE RELEVANT ASSES SMENT YEAR OR NOT. THE CIT(A) HAS GIVEN RELIEF AND THEREFORE NO FURTHER RE LIEF IS TO BE GIVEN TO THE ASSESSEE. 7. WE HAVE CAREFULLY CONSIDERED ARGUMENTS OF BOTH T HE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. WE FIND THA T THE LOWER AUTHORITIES HAVE NOT POINTED OUT ANY DEFECTS FOR REJECTION OF T HE BOOKS RESULTS. IN FACT THE CIT(A) NOTED IN THE IMPUGNED ORDER THAT EIGHT D AMAGED PIPELINES HAVE BEEN REPLACED BY THE IOC AUTHORITIES AND THERE FORE THE CLAIM OF THE ASSESSEE FOR THE SHORTAGE CANNOT BE SIMPLY BRUSHED ASIDE. THE AO REJECTED THE CLAIM ON THE BASIS OF SOME DOUBTS AND SUSPICION WHICH WERE NOT BASED ON ANY EVIDENCES ON RECORD. THE ITAT WHI LE DISMISSING THE ITA NO.2814/AHD/2009 -4- DEPARTMENT APPEAL AGAINST THE ALLOWANCE OF SHORTAGE IN ASSESSEES OWN CASE FOR A.Y. 2004-05 OBSERVED AS UNDER: 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THERE AR E NO REASONS FOR REJECTING THE BOOKS. EVEN THOUGH AO HAS NOT GIV EN ANY SPECIFIC FINDING AS TO WHETHER HE IS INVOKING SECTION 145 AN D REJECTING THE BOOKS BUT EVEN IF WE ACCEPT THE LEGAL ARGUMENT THAT IT IS NOT NECESSARY TO SPECIFICALLY MENTION IN THE BODY OF TH E ORDER THAT BOOKS ARE REJECTED AND IT WOULD BE ENOUGH IF IT IS DISCERNIBLE FROM THE ORDER OF THE AO THAT HE HAS NOT RELIED ON THE B OOKS AS THERE ARE DEFECTS STILL WE ARE NOT SATISFIED THAT THERE ARE ADEQUATE DEFECTS WHICH WOULD WARRANT REJECTION OF BOOKS. THE MAIN PL ANK OF AO IN RESORTING TO ESTIMATING THE WASTAGE IN PETROL AND D IESEL IS THAT ASSESSEE HAS SHOWN HIGHER WASTAGE/LOSSES AS COMPARE D TO WHAT IT OUGHT TO HAVE BEEN IN THE EYES OF AO. SECONDLY ASS ESSEE IS NOT ISSUING BILLS AND VOUCHERS IN RESPECT OF SALES MADE BY THE ASSESSEE TO THE CUSTOMERS AND THEREFORE ASSESSEE HAS OPPORT UNITY TO MANIPULATE THE SALES AS PER HIS WILL AND THIRDLY T HE DAILY STOCK REPORT IS APPARENTLY WRITTEN IN ONE SITTING. 8. WE ARE NOT CONVINCED WITH ANY OF THE ABOVE DEFEC TS. IT IS BECAUSE NOT A SINGLE INSTANCE HAS BEEN POINTED OUT BY THE AO THAT ASSESSEE IS NOT ISSUING VOUCHERS TO THE CUSTOMERS F OR SALE OF PETROL AND DIESEL ETC. MERELY MAKING A GENERAL STATEMENT W ITHOUT ACTUALLY LOOKING INTO THE BOOKS WOULD NOT BE SUFFICIENT TO A RRIVE AT A FINDING THAT ASSESSEE IS ISSUING OR NOT ISSUING VOUCHERS AG AINST ITS SALES. REGARDING DAILY STOCK REPORT WE ARE NOT CONVINCED T HAT IT HAS BEEN PREPARED IN ONE SITTING. IF THE DEPARTMENT HAD ANY DOUBT IT COULD HAVE SUBMITTED THE ORIGINAL DAILY REPORTS AND PRODU CED BEFORE US. IT HAS NOT BEEN DONE. EVEN OTHERWISE APPARENTLY PH OTOCOPIES OF SUCH DAILY REPORTS INDICATED THAT THERE ARE ENOUGH VARIATIONS IN THE WRITING AND IMPRESSION OF THE INK WHICH IN TURN IN DICATE THAT IT COULD NOT HAVE BEEN WRITTEN IN ONE SITTING. SO FAR AS THE CLAIM OF LOSS IS CONCERNED IT IS NOT A CONSEQUENCE OF WRITI NG OF THE BOOKS BUT A CONSEQUENCE OF DOING BUSINESS IN A PARTICULAR MANNER AND THEREFORE EXCESS CLAIM OF LOSSES OR LOW GP CANNOT BE A BASIS FOR REJECTING THE BOOKS. IT HAS BEEN HELD IN CIT VS. JA S JACK ELEGANCE EXPORTS (2010) 324 ITR 95 (DEL) THAT IF ACCOUNTS AR E NOT DEFECTIVE PROFITS CANNOT BE ESTIMATED. SIMILARLY HON. PUNJAB & HARYANA HIGH COURT IN CIT VS. K. BHATIA (2004) 269 ITR 577 (P & H) HELD ITA NO.2814/AHD/2009 -5- THAT IT IS NOT POSSIBLE TO REJECT THE BOOKS OF ACCO UNT MERELY BECAUSE PROFITS ARE LOW AS COMPARED TO EARLIER YEARS. 9. SECTION 145 REQUIRES THE AO TO GIVE A FINDING AS TO WHETHER METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE IS SUC H THAT IT WILL NOT ENABLE THE AO TO COMPUTE THE INCOME OF THE ASSE SSEE CORRECTLY OR THAT THERE ARE SERIOUS DEFECTS IN THE MAINTENANC E OF ACCOUNTS WHICH WILL NOT ENABLE THE AO TO WORK OUT THE INCOME OF THE ASSESSEE. THUS SECTION 145 ONLY RELATES TO METHOD O F ACCOUNTING OR RECORDING OF THE EVENTS WHICH TAKE PLACE DURING TH E COURSE OF BUSINESS. SECTION 145 CANNOT BE INVOKED FOR CARRYIN G OUT BUSINESS IMPRUDENTLY OR VERY GOOD RESULTS IN THE BUSINESS A RE NOT SHOWN. IT IS FOR THE ASSESSEE TO CARRY OUT THE BUSINESS AS PE R HIS OWN PRUDENCE. EFFICIENT BUSINESSMAN MAY GIVE BETTER RES ULTS AND HIGHER INCOME WHEREAS IMPRUDENT OR INEFFICIENT BUSINESSMAN MAY NOT BE ABLE TO EARN THE PROFIT TO THAT EXTENT. THE BOOKS O F AN IMPRUDENT BUSINESSMAN CANNOT BE REJECTED BECAUSE IN THE EYES OF AO HE HAS NOT DECLARED THE PROFITS AS IT OUGHT TO HAVE BEEN. IN THE SIMILAR MANNER BOOKS OF ACCOUNTS OF A PRUDENT BUSINESSMAN G IVING HIGHER INCOME CANNOT BE ACCEPTED MERELY BECAUSE IT HAS GIV EN HIGHER PROFIT EVEN THOUGH BOOKS OF ACCOUNT CONTAINED SERIO US DEFECTS. IN FACT EXAMINATION OF ACCOUNTS IS AN INITIAL STEP. ON LY AFTER CROSSING THIS HURDLE AND GIVING A FINDING ON THE NATURE OF A CCOUNTS BY POINTING OUT THAT VARIOUS INGREDIENTS MENTIONED IN SECTION 145 ARE NOT SATISFIED THE AO GETS JURISDICTION/POWER TO ES TIMATE THE PROFITS. 10. PROVISIONS OF SECTION 145(3) CAN BE INVOKED FOR REJECTING THE BOOKS IF AO GIVES A FINDING THAT (I) ASSESSEE IS NO T FOLLOWING REGULARLY ANY ACCOUNTING STANDARD NOTIFIED BY THE C ENTRAL GOVERNMENT IN ACCORDANCE WITH SECTION 145(2) OR (II ) AO IS NOT SATISFIED ABOUT CORRECTNESS OR COMPLETENESS OF THE ACCOUNT OR (III) WHERE ASSESSEE IS NOT FOLLOWING ANY METHOD OF ACCOU NTING REGULARLY. IF NO SUCH FINDING IS GIVEN THEN INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS HAS TO BE COMPUTED IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. FOR REJECTING THE BOOKS BY INVOKING C ONDITION NO.1 THE AO HAS TO SHOW THAT WHAT WAS THE ACCOUNTING STA NDARD REQUIRED TO BE FOLLOWED COMPULSORILY OR WHAT WAS FO LLOWED IN EARLIER YEARS AND HAS NOT BEEN FOLLOWED THIS YEAR. THE AO HAS ALSO TO SHOW THAT BY NOT FOLLOWING AN ACCOUNTING STANDAR D OR NOT FOLLOWING THE ONE FOLLOWED EARLIER THE COMPUTATION OF CORRECT ITA NO.2814/AHD/2009 -6- INCOME CANNOT BE DONE. FOR REJECTING THE BOOKS UNDE R CONDITION NO.2 THE AO HAS TO SHOW THAT THE ACCOUNTS ARE NOT CORRECT AND COMPLETE AS THERE EXIST SERIOUS DEFECTS IN MAINTENA NCE OF ACCOUNTS IRRESPECTIVE OF WHETHER ACCOUNTING METHOD OR ACCOUN TING STANDARDS ARE REGULARLY FOLLOWED. THE AO HAS TO SHO W HERE THAT THE WAY ACCOUNTS ARE WRITTEN OR KEPT (AND NOT ACCOUNTIN G METHOD ADOPTED LIKE CASH OR MERCANTILE) PROFITS CANNOT BE CORRECTLY DEDUCED THEREFROM. FOR REJECTING THE BOOKS BY INVOK ING CONDITION NO.3 THE AO HAS TO SHOW THAT THE ASSESSEE IS ABRUPT LY CHANGING METHOD OF ACCOUNTING FROM CASH TO MERCANTILE OR FOR DIFFERENT TRANSACTIONS IT IS ADOPTING DIFFERENT METHOD OF CAS H OR MERCANTILE. FOR THIS THE AO HAS TO IDENTIFY THE TRANSACTIONS RE CORDED IN DIFFERENT METHODS OR IDENTIFY THE ASST. YEARS IN W HICH DIFFERENT ACCOUNTING METHODS (CASH OR MERCANTILE) HAVE BEEN F OLLOWED. EVERY FINDING RELATING TO THREE CONDITIONS HAS TO B E BASED ON EVIDENCE AND SHOULD NOT BE MERELY AN OPINION OF THE A.O. FURTHER IT IS NOT ALWAYS CORRECT TO RESORT TO ESTIMATION AF TER REJECTING THE BOOKS IF ADEQUATE MATERIAL IS NOT AVAILABLE TO SUPP ORT THE ESTIMATION OF HIGHER INCOME AS COMPARED TO WHAT ASS ESSEE HAS SHOWN. THUS REJECTION OF THE BOOKS IN ACCORDANCE WI TH SECTION 145 IS THE INITIAL STEP BEFORE AO RESORTS TO NEXT STEP I.E. ESTIMATION OF INCOME. THUS THE REJECTION OF BOOKS CANNOT BE DONE WITHOUT POINTING THE DEFECTS IN ACCOUNTS OR ACCOUNTING METH OD. AS WE HAVE HELD ABOVE THE AO HAS NEITHER GIVEN ANY FINDING AB OUT REJECTION OF BOOKS NOR IT IS DISCERNIBLE FROM HIS ORDER THE WOR KING OF HIS MIND FOR REJECTION OF THE BOOKS. IN VIEW OF THIS WE HOLD THAT AO HAS FAILED TO DISCHARGE THE ONUS OF REJECTING THE BOOKS AND INVOKING SECTION 145(3). WE ARE SUPPORTED BY THE DECISION OF HON. GAUHATI HIGH COURT IN MADNANI CONSTRUCTION CORPORATION P. L TD. VS. COMMISSIONER OF INCOME-TAX (2008) 296 ITR 45 (GAU) WHEREIN IT IS HELD THAT ACCOUNTS CANNOT BE REJECTED IF AO DID NOT FIND BOOKS OF ACCOUNT INCORRECT OR ANY INFIRMITY IN THE AUDIT REP ORT. IN CIT VS.RAJNI KANT DAVE [2006] 281 ITR 0006- (ALL) IT IS HELD THAT IF THERE IS NO FINDING THAT BOOKS OF ACCOUNTS ARE INCO MPLETE OR INCORRECT ACCOUNTS CANNOT BE REJECTED. IN ASHOKE R EFRACTORIES P. LTD. VS. COMMISSIONER OF INCOME-TAX [2005] 279 ITR 0457- [CAL] IT IS HELD THAT EVEN THOUGH THERE MAY BE ABSENCE OF STOCK REGISTER OR ITEMWISE ACCOUNTING OF STOCK BUT IF THERE IS NO FI NDING THAT INCOME COULD NOT BE DEDUCED FROM THE METHOD OF ACCOUNT FOL LOWED ACCOUNTS CANNOT BE REJECTED AND SECTION 145 CANNOT BE INVOKED. SIMILAR VIEW WAS TAKEN BY HON. CALCUTTA HIGH COURT IN JUGGILAL ITA NO.2814/AHD/2009 -7- KAMLAPAT UDYOG LTD. VS. COMMISSIONER OF INCOME-TAX [2005] 278 ITR 0052- [CAL] WHEREIN IT IS HELD THAT IF THERE IS NO FINDING THAT INCOME COULD NOT BE DEDUCED FROM THE ACCOUNTS MAINT AINED BY THE ASSESSEE THEN REJECTION OF ACCOUNTS WOULD BE INVAL ID. HON. GUJARAT HIGH COURT IN COMMISSIONER OF INCOME-TAX VS. VIKRAM PLASTICS [1999] 239 ITR 0161- [GUJ] HAS HELD THAT WHERE BOOK S OF ACCOUNTS HAVE BEEN MAINTAINED REGULARLY AND NO DEFECTS HAVE BEEN FOUND IN THE ACCOUNTS THEN THE TRIBUNAL WOULD BE JUSTIFIED I N HOLDING THAT ACCOUNTS CANNOT BE REJECTED UNDER SECTION 145. ACCO RDINGLY WE HOLD THAT BOOKS OF ASSESSEE CANNOT BE REJECTED AND THEREFORE AO CANNOT RESORT TO ESTIMATION OF INCOME BY ESTIMATING LOSSES. ACCORDINGLY THE APPEAL FILED BY THE DEPARTMENT IS DISMISSED. SINCE THE FACTS OF THE YEAR UNDER APPEAL ARE ALSO S IMILAR THE ABOVE FINDING WOULD BE SQUARELY APPLICABLE TO THE YEAR UNDER APPE AL. RESPECTFULLY FOLLOWING THE SAME WE HOLD THAT IN THE ABSENCE OF ANY DEFECT IN THE BOOKS OF ACCOUNTS THE SAME CANNOT BE REJECTED AND THE AO CANNOT RESORT TO ESTIMATE THE PROFIT. ACCORDINGLY WE DELETE THE AD DITION SUSTAINED BY THE CIT(A). 8. IN RESULT ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 28 TH JULY 2011 SD/- SD/- (D.K. TYAGI) JUDICIAL MEMBER (G.D. AGARWAL) VICE-PRESIDENT PLACE : AHMEDABAD DATE : 28-07-2011 C OPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR ITAT. BY ORDER DR/AR ITAT AHMEDABAD