THE ACIT, Central Circle-1(2), Ahmedabad v. Vimal Pumps Pvt.Ltd.,, Mehsana

ITA 3066/AHD/2007 | 2000-2001
Pronouncement Date: 03-02-2012 | Result: Dismissed

Appeal Details

RSA Number 306620514 RSA 2007
Assessee PAN AAACV4990R
Bench Ahmedabad
Appeal Number ITA 3066/AHD/2007
Duration Of Justice 4 year(s) 6 month(s) 21 day(s)
Appellant THE ACIT, Central Circle-1(2), Ahmedabad
Respondent Vimal Pumps Pvt.Ltd.,, Mehsana
Appeal Type Income Tax Appeal
Pronouncement Date 03-02-2012
Appeal Filed By Department
Order Result Dismissed
Bench Allotted C
Tribunal Order Date 03-02-2012
Date Of Final Hearing 30-01-2012
Next Hearing Date 30-01-2012
Assessment Year 2000-2001
Appeal Filed On 13-07-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH AHMEDABAD (BEFORE SHRI BHAVNESH SAINI JM AND SHRI B. P. JAIN AM) ITA NO.3066/AHD/2007 A. Y.: 2000-01 THE A. C. I. T. CENTRAL CIRCLE 1(2) ROOM NO.305 3 RD FLOOR AAYAKAR BHAVAN ASHRAM ROAD AHMEDABAD VS M/S. VIMAL PUMPS PVT. LTD. VIMAL HOUSE 31-32 GIDC ESTATE MEHSANA PA NO. AAACV 4990 R (APPELLANT) (RESPONDENT) C.O. NO.311/AHD/2007 (IN ITA NO.3066/AHD/2007; A.Y.: 2000-01) M/S. VIMAL PUMPS PVT. LTD. VIMAL HOUSE 31-32 GIDC ESTATE MEHSANA PA NO. AAACV 4990 R VS THE A. C. I. T. CENTRAL CIRCLE 1(2) ROOM NO.305 3 RD FLOOR AAYAKAR BHAVAN ASHRAM ROAD AHMEDABAD (CROSS OBJECTOR) (RESPONDENT) DEPARTMENT BY SHRI S. K. GUPTA CIT DR ASSESSEE BY SHRI VARTIK CHOKSHI AR DATE OF HEARING: 30-01-2012 DATE OF PRONOUNCEMENT: 03-02-2012 O R D E R PER BHAVNESH SAINI: THE DEPARTMENTAL APPEAL AND THE CROSS OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINS T THE ORDER OF THE ITA NO.3066/AHD/2007 & CO NO.311/AHD/2007 M/S. VIMAL PUMPS PTD. LTD. MEHSANA 2 LEARNED CIT(A)-I AHMEDABAD DATED 11-05-2007 FOR A SSESSMENT YEAR 2000-01. 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BO TH THE PARTIES PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND C ONSIDERED THE MATERIAL ON RECORD. THE LEARNED COUNSEL FOR THE ASS ESSEE WITHDREW THE CROSS OBJECTION. THE SAME IS DISMISSED AS WITHD RAWN. 3. ON GROUNDS NO.1 AND 2 REVENUE CHALLENGED THE OR DER OF THE LEARNED CIT(A) IN DIRECTING TO APPLY 11% GROSS PROF IT RATE AS AGAINST 16% APPLIED BY THE AO. THE AO ON PERUSAL OF THE PRO FIT & LOSS ACCOUNT FILED ALONG WITH THE RETURN OF INCOME NOTIC ED THAT TOTAL GROSS PROFIT SHOWN BY THE ASSESSEE FOR THE YEAR IS 29.09% WHICH IS REDUCED TO 1.5% IN SUBSEQUENT YEAR. AVERAGE OF THE GROSS PR OFIT FOR THE YEARS 1999-2000 TO 2004-05 IN WHICH UNDISCLOSED SALES HAV E BEEN MADE BY THE ASSESSEE COMPANY COMES TO 15.8%. THE ASSESSE E ITSELF HAS DISCLOSED AVERAGE GROSS PROFIT FOR THESE YEARS @ 15 .8%. 16% GROSS PROFIT RATE WAS APPLIED TO COVER UP ALL THE DISCREP ANCIES AND ADDITION OF RS.2 00 000/- WAS MADE. THE LEARNED CIT(A) FOUND THAT IN ASSESSMENT YEAR 1999-2000 THE AO ON THE BASIS OF S EIZED MATERIAL APPLIED PROFIT RATE OF 16% ON UNACCOUNTED SALES IN WHICH HE HAS REDUCED THE SAME TO 11%. CONSIDERING THE ORDER FOR PRECEDING ASSESSMENT YEAR THE LEARNED CIT(A) FOUND THAT 11% PROFIT WOULD BE REASONABLE FOR ESTIMATING PROFIT ON UNACCOUNTED SAL ES. ADDITION WAS ACCORDINGLY DELETED. 4. THE LEARNED DR RELIED UPON THE ORDER OF THE AO A ND THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUB MISSIONS MADE ITA NO.3066/AHD/2007 & CO NO.311/AHD/2007 M/S. VIMAL PUMPS PTD. LTD. MEHSANA 3 BEFORE THE AUTHORITIES BELOW AND SUBMITTED THAT ITA T AHMEDABAD BENCH DISMISSED THE DEPARTMENTAL APPEAL IN ASSESSME NT YEAR 1999- 2000 IN ITA NO.3065/AHD/2007 VIDE ORDER DATED 14-12 -2007 ON ACCOUNT OF LOW TAX EFFECT. COPY OF THE ORDER IS PLA CED ON RECORD. 5. ON CONSIDERATION OF THE ABOVE FACTS WE DO NOT F IND ANY MERIT IN THESE GROUNDS OF APPEAL OF THE REVENUE. THE AO NOTE D IN THE ASSESSMENT ORDER THAT THE ASSESSEE HAS SHOWN GROSS PROFIT OF 29.09% AND IN SUBSEQUENT YEAR IT IS REDUCED. THEREF ORE THERE WAS NO BASIS TO APPLY AVERAGE GROSS PROFIT RATE OF FIVE YEARS FOR THE PURPOSE OF MAKING THE ADDITION BY APPLYING 16% PROF IT RATE AGAINST UNACCOUNTED SALES. THE LEARNED CIT(A) DELETED THE A DDITION IN PRECEDING ASSESSMENT YEAR 1999-2000 ON WHICH APPEAL OF THE REVENUE IS ALSO DISMISSED. FURTHER WE FIND THAT TH E ADDITION IS MADE BY THE AO WITHOUT BRINGING ANY EVIDENCE OR MATERIAL ON RECORD AGAINST THE ASSESSEE. THESE GROUNDS OF APPEAL OF TH E REVENUE HAVE NO MERIT AND ARE ACCORDINGLY DISMISSED. 6. ON GROUND NO.3 REVENUE CHALLENGED THE DELETION OF ADDITION OF RS.4 34 500/- MADE ON ACCOUNT OF UNEXPLAINED INITIA L INVESTMENT REQUIRED FOR UNACCOUNTED SALES. THE AO OBSERVED IN THE ASSESSMENT ORDER THAT RATIO OF CLOSING STOCK AND DEBTORS OF TU RNOVER CAME TO 14.7% OF TOTAL SALES WHICH IS INITIAL INVESTMENT R EQUIRED FOR THE PURPOSE OF CARRYING OUT UNACCOUNTED SALES. THE AO H AS APPLIED THE SAID RATIO OF UNACCOUNTED SALES OF RS.40 00 000/- A ND MADE THE ABOVE ADDITION. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT FINANCIAL STATEMENT WOULD PROVE THAT THERE IS NO RE QUIREMENT OF ITA NO.3066/AHD/2007 & CO NO.311/AHD/2007 M/S. VIMAL PUMPS PTD. LTD. MEHSANA 4 WORKING CAPITAL. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE HAS NOT TAKEN ANY WORKING CAPITAL LOAN FOR BUSINESS PURPOSE WHICH ESTABLISHES THAT ON REALIZATION OF STOCK AND DEBTOR S THE ASSESSEE HAS MADE PAYMENTS TO SUNDRY CREDITORS. INITIAL ACCRUALS ARE SUFFICIENT TO MAKE THE PAYMENTS TO THE CREDITORS; THEREFORE NO A DDITION IS REQUIRED TO BE MADE FOR INITIAL INVESTMENT. NO DOCUMENT WAS FOUND TO PROVE THIS ISSUE. THEREFORE ESTIMATED ADDITION WITHOUT B RINGING ANY EVIDENCE OR MATERIAL ON RECORD AGAINST THE ASSESSEE IS UNJUSTIFIED. THE ASSESSEE RELIED UPON THE DECISIONS IN THE CASE OF ASHOK KUMAR RASTOGI VS CIT 100 CTR 204 AND IN THE CASE OF PARK ER VS V. B. PALEKAR 94 ITR 616. THE LEARNED CIT(A) CONSIDERING THE MATERIAL ON RECORD FOUND THAT NO UNACCOUNTED BILL OR OTHER MATE RIAL WAS FOUND TO POINT OUT IF ANY UNACCOUNTED CAPITAL HAD BEEN USED FOR THE PURPOSE OF MAKING THE UNACCOUNTED TURNOVER. THE AO HAS NOT BRO UGHT ANY EVIDENCE ON RECORD TO PROVE THAT THE ASSESSEE REQUI RED WORKING CAPITAL. ADDITION WAS FOUND TO BE MADE MERELY ON PR ESUMPTION. ADDITION WAS ACCORDINGLY DELETED. 7. THE LEARNED DR RELIED UPON THE ORDER OF THE AO. ON THE OTHER HAND THE LEARNED COUNSEL FOR THE ASSESSEE REITERAT ED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. 8. ON CONSIDERATION OF THE RIVAL SUBMISSIONS WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. THE AO MERELY ON PRESUMPTION MADE THE ADDITION FOR REQUIREMENT OF IN ITIAL INVESTMENT IN MAKING UNACCOUNTED SALES. NO EVIDENCE HAS BEEN BROU GHT ON RECORD TO PROVE THAT THE ASSESSEE USED ANY INITIAL INVESTM ENT FOR MAKING THE ITA NO.3066/AHD/2007 & CO NO.311/AHD/2007 M/S. VIMAL PUMPS PTD. LTD. MEHSANA 5 UNACCOUNTED SALES. ADDITION IS MADE MERELY ON PRESU MPTION AND SURMISES. THEREFORE THE LEARNED CIT(A) RIGHTLY DEL ETED THE ADDITION. THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 9. ON GROUNDS NO.4 AND 5 REVENUE CHALLENGED THE DE LETION OF ADDITION OF RS.1 01 559/- U/S 14A OF THE IT ACT ON ACCOUNT OF DISALLOWANCE OF INTEREST FOR NON-BUSINESS PURPOSES. THE AO OBSERVED THAT ASSESSEE HAS MADE INVESTMENT IN SHARES OF VIMA L DAIRY LTD. AND VIMAL OIL & FOODS FOR RS.30 63 500/-. ON WHICH DI VIDEND INCOME FROM THE SAME IS EXEMPT. HE HAS REFERRED TO SECTION 14A OF THE IT ACT AND STATED THAT INTEREST RELATED TO SUCH INVESTMENT IS LIABLE TO BE DISALLOWED. IT WAS FURTHER OBSERVED THAT THERE HAD BEEN NO REQUIREMENT OF FUNDS TO ASSESSEE AND THE ASSESSEE C OULD HAVE AVOIDED BORROWINGS TO THAT EXTENT. IT WAS STATED TH AT THE ASSESSEE COULD NOT SUBSTANTIATED ITS CLAIM THAT INVESTMENT I N SHARES WERE NOT OUT OF BORROWED FUNDS. ADDITION WAS ACCORDINGLY MAD E. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT THE AO HAS NOT ESTABLISHED THAT BORROWED FUNDS WERE USED FOR THE PURPOSE OF MA KING ANY INVESTMENT. NO NEXUS IS PROVED BETWEEN BORROWED FUN DS AND INVESTMENTS FOR MAKING DISALLOWANCE U/S 14A OF THE IT ACT. IT WAS SUBMITTED THAT THE ASSESSEE HAD SUFFICIENT FUNDS AV AILABLE IN THE FORM OF SHARE CAPITAL FREE RESERVE AND SURPLUS AND OTHE R FUNDS WHICH IS MORE THAN SHARES OF RS.30 63 500/-. THEREFORE PROP ORTIONATE INTEREST DISALLOWANCE IS NOT JUSTIFIED. THE ASSESSEE HAS INT EREST-FREE FUNDS OF RS.104.35 LACS AND BREAK-UP OF THE SAME IS NOTED IN THE APPELLATE ORDER. THE LEARNED CIT(A) CONSIDERING THE ABOVE FAC TS FOUND THAT THE AO HAS NOT ESTABLISHED ANY NEXUS BETWEEN INTEREST-B EARING FUNDS ITA NO.3066/AHD/2007 & CO NO.311/AHD/2007 M/S. VIMAL PUMPS PTD. LTD. MEHSANA 6 WITH THAT OF INVESTMENTS IN SHARES AND APPLIED THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF DIGVIJAY CEMENT CO. AND ORDER OF ITAT AHMEDABAD BENCH IN THE CASE OF TORREN T FINANCIERS VS ACIT 73 TTJ 634 AND DELETED THE ADDITION. 10. ON CONSIDERATION OF THE RIVAL SUBMISSIONS WE D O NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITY AND POWE R LTD. 313 ITR 340 HELD AS UNDER: HELD DISMISSING THE APPEAL THAT IF THERE WERE FU NDS AVAILABLE BOTH INTEREST-FREE AND OVERDRAFT AND/OR L OANS TAKEN THEN A PRESUMPTION WOULD ARISE THAT INVESTME NT WOULD BE OUT OF THE INTEREST-FREE FUNDS GENERATED O R AVAILABLE WITH THE COMPANY IF THE INTEREST-FREE FU NDS WERE SUFFICIENT TO MEET THE INVESTMENTS. IN THIS CASE TH IS PRESUMPTION WAS ESTABLISHED CONSIDERING THE FINDING OF FACT BOTH BY THE COMMISSIONER (APPEALS) AND THE TRI BUNAL. THE INTEREST WAS DEDUCTIBLE. THE CASE OF THE ASSESSEE IS PROPERLY APPRECIATED BY THE LEARNED CIT(A) FOR THE PURPOSE OF DELETING THE ADDITION. SI NCE THE ASSESSEE HAS MORE INTEREST-FREE FUNDS AVAILABLE AS AGAINST T HE INVESTMENT MADE IN SHARE THE LEARNED CIT(A) ON PROPER APPRECI ATION OF THE FACTS RIGHTLY DELETED THE ADDITION. FURTHER THE ASSESSEE HAS NOT CLAIMED ANY DEDUCTION IN RESPECT OF THE EXPENDITURE INCURRE D BY THE ASSESSEE IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. THE ASSESSEE PLEADED BEFORE THE AO THAT THE ASSESSE E HAS EARNED SUBSTANTIAL HUGE INTEREST INCOME AGAINST THE INTERE ST EXPENDITURE BECAUSE THE TOTAL INTEREST INCOME EARNED WAS RS.2 1 6 224/- AND AFTER DEDUCTING THE INTEREST EXPENDITURE OF RS.1 01 559/- WHICH IS THE ITA NO.3066/AHD/2007 & CO NO.311/AHD/2007 M/S. VIMAL PUMPS PTD. LTD. MEHSANA 7 ADDITION MADE ABOVE THE NET INTEREST INCOME AVAILA BLE TO THE ASSESSEE IS RS.1 14 665/-. THEREFORE THE AO WAS NO T JUSTIFIED IN MAKING THE ADDITION AGAINST THE ASSESSEE. NO NEXUS HAS BEEN BROUGHT ON RECORD BETWEEN THE BORROWED FUNDS AND TH E INVESTMENT MADE IN THE SHARES. THE LEARNED CIT(A) ON PROPER AP PRECIATION OF THE FACTS RIGHTLY DELETED THE ADDITION. THESE GROUNDS O F APPEAL OF THE REVENUE ARE ACCORDINGLY DISMISSED. 11. NO OTHER POINT IS ARGUED OR PRESSED. 12. IN THE RESULT THE DEPARTMENTAL APPEAL IS DISMISSED AND THE CROSS OBJECTION OF THE ASSESSEE IS DISMISSED AS WIT HDRAWN. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (B. P. JAIN) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER LAKSHMIKANT DEKA/ LAKSHMIKANT DEKA/ LAKSHMIKANT DEKA/ LAKSHMIKANT DEKA/- -- - COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR ITAT AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR ITAT AHMEDABAD