Ahlcons India Pvt. Ltd.,, New Delhi v. ACIT, New Delhi

ITA 3364/DEL/2009 | 2005-2006
Pronouncement Date: 30-04-2010 | Result: Partly Allowed

Appeal Details

RSA Number 336420114 RSA 2009
Assessee PAN AAACA8064H
Bench Delhi
Appeal Number ITA 3364/DEL/2009
Duration Of Justice 9 month(s) 2 day(s)
Appellant Ahlcons India Pvt. Ltd.,, New Delhi
Respondent ACIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 30-04-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 30-04-2010
Date Of Final Hearing 01-12-2009
Next Hearing Date 01-12-2009
Assessment Year 2005-2006
Appeal Filed On 28-07-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A NEW DELHI BEFORE SHRI VIMAL GANDHI : HONBLE PRESIDENT AND SHRI G.E. VEERABHADRAPPA : VICE PRESIDENT ITA NO. 3364/DEL/09 ASSTT. YR: 2005-06 AHLCONS INDIA PVT. LTD. VS. ACIT CIR. 1(1) A-177 OKHLA INDUSTRIAL AREA NEW DELHI. PHASE-I NEW DELHI. PAN/ GIR NO. AAACA8064H ( APPELLANT ) ( RESPONDENT ) APPELLANT BY : SHRI A.L. SEHGAL CA RESPONDENT BY : MRS. PRATIMA KAUSHIK SR. DR O R D E R PER G.E. VEERABHADRAPPA V.P. : THIS APPEAL FILED BY THE ASSESSEE ARISES OUT OF THE ORDER DATED 8-6- 2009 OF THE CIT(APPEALS)-IV NEW DELHI FOR A.Y. 20 0506. 2. THE ASSESSEE IS AGGRIEVED BY THE REJECTION OF BO OKS OF ACCOUNT BY INVOKING THE PROVISIONS OF SECTION 145(3) OF THE IN COME-TAX ACT 1961 THEREBY MAKING AN ADDITION OF RS. 6 02 845/- TO THE TRADING ACCOUNT DISCLOSED. SECOND GRIEVANCE IS WITH REGARD TO DISAL LOWANCE OF RS. 80 327/- ON ACCOUNT OF EXPENDITURE INCURRED UNDER THE HEAD BUSINESS PROMOTION EXPENSES. 3. THE ASSESSEE IT MAY BE STATED IS A COMPANY CA RRYING ON THE BUSINESS OF MANUFACTURING AND FABRICATING OF PRODUCTS IN ITS FACTORY AT A-177 OKHLA INDUSTRIAL AREA PHASE-I NEW DELHI. IT FABRICATES SUCH ALUMINUM PRODUCTS ON THE BASIS OF DESIGNS SUBMITTED BY THE CUSTOMERS. THE ASSESSEE HAS ITA 3364/DEL/09 AHLCONS INDIA PVT. LTD. 2 MAINTAINED REGULAR BOOKS OF ACCOUNT REGULARLY AUDI TED UNDER THE COMPANIES ACT AS WELL AS U/S 44AB OF THE INCOME-TAX ACT 196 1. IT HAS MAINTAINED COMPLETE STOCK REGISTER AS REQUIRED UNDER THE EXCIS E ACT IN RESPECT OF PURCHASE OF MATERIALS AND ITS ISSUE FOR DAY TO DAY FABRICATION. THE ASSESSING OFFICER IN THE COURSE OF ASSESSMENT FOUND THAT THE GROSS PROFIT DISCLOSED IN THE P&L A/C FOR THE YEAR UNDER CONSIDERATION HAD S UBSTANTIALLY REDUCED FROM 5.89% TO 4.85%. THE ASSESSEE WAS ASKED TO JUST IFY THE FALL IN THE GROSS PROFIT. THE ASSESSEE WAS ALSO ASKED TO FURNISH THE STOCK STATEMENT ALONG WITH THE STOCK REGISTER AND PURCHASE BILLS AND VOUCHERS IN RESPECT OF EXPENSES. THE ASSESSEE PRODUCED STOCK REGISTER AND PURCHASE B ILLS FOR THE MONTH OF MARCH 2005. IN THE COURSE OF VERIFICATION OF THE S AME IT WAS SEEN THAT THE QUANTITATIVE STOCK OF ALUMINUM COMPOSITE PANELS (A CP) IS PURCHASED AGAINST THE SPECIFICATION OF ORDERS FROM THE CUSTOM ERS WHO GIVE THEIR OWN DESIGNS COLOURS AND SIZE OF THE SAID MATERIAL. THE QUANTITY OF THE ACP WAS NOT REFLECTED IN THE SAID REGISTER. ON BEING ENQUIR ED INTO IT WAS STATED THAT THE ABOVE STOCK MIGHT HAVE BEEN ISSUED FOR TO BE PL ACED AT FLOOR. HOWEVER THERE WAS NO SUCH ENTRY IN THE SAID STOCK REGISTER. THE ASSESSEE COULD NOT PRODUCE THE FLOOR REGISTER. IN THE STOCK REGISTER F OR THE MONTH OF FEBRUARY 2005 IT WAS ALSO FOUND THAT AS ON 1-2-2005 THE OP ENING STOCK OF ACP WAS 3210.094 UNITS. HOWEVER CONSIDERING THE RECEIPT AN D ISSUANCE OF GOODS ON 1-2-2005 THE BALANCE WAS ERRONEOUSLY REFLECTED. T HE ASSESSEE WAS ASKED TO EXPLAIN THE DIFFERENCE. ALTHOUGH THE ASSESSEE OFFER ED SOME EXPLANATION THE ASSESSING OFFICER CAME TO A CONCLUSION THAT T HE AC COUNTS OF THE ASSESSEE WERE NOT REFLECTING THE CORRECT STATE OF AFFAIRS SO FAR AS ITS TRADING RESULTS WERE CONCERNED. ACCORDINGLY THE TRADING RESULTS OF THE ASSESSEE WERE REJECTED AND THE GROSS PROFIT OF THE ASSESSEE WAS TAKEN AT 5.25% OF ITS TURN-OVER AND AN ITA 3364/DEL/09 AHLCONS INDIA PVT. LTD. 3 ADDITION OF RS. 6 02 845/- WAS MADE WHICH ADDITION WAS CONFIRMED BY THE CIT(A). THE ASSESSEE IS AGGRIEVED. 4. THE LEARNED COUNSEL FOR THE ASSESSEE ARGUED THAT ITS BOOKS OF ACCOUNT ARE MAINTAINED IN THE REGULAR COURSE OF ITS BUSINE SS. THE SAID ACCOUNTS WERE DULY AUDITED BOTH UNDER THE COMPANIES ACT AND ALS O U/S 44AB OF THE INCOME-TAX ACT 1961. THE AUDITORS HAVE NOT QUALIFI ED THE ACCOUNTS MAINTAINED BY THE ASSESSEE. THE ASSESSEE HAS MAINTA INED COMPLETE STOCK REGISTER AS REQUIRED UNDER THE EXCISE ACT. ALL PURC HASE OF MATERIALS AND ITS ISSUE FOR DAY TO AY FABRICATION OF PRODUCTS HAVE BE EN DULY RECORDED. THE ASSESSING OFFICER VERIFIED COMPLETE PURCHASE AND SA LES BILLS WITH THE STOCK RECORDS AND ITS DAY TO DAY CONSUMPTION FOR THE MONT H OF MARCH 2005 AS DESIRED BY HIM. AN ARITHMETICAL SINGLE ERROR IN RE CORDING ISSUES OF MATERIAL IN THE MONTH OF MARCH 2005 AS POINTED OUT DOES NOT LEAD TO THE CONCLUSION THAT THE ACCOUNTS OF THE ASSESSEE MAINTAINED FOR TH E YEAR UNDER CONSIDERATION DO NOT REFLECT THE TRUE STAT OF AFFAIRS. THE ASSESS ING OFFICER ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE WAS NOT JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNT ON WHOLESALE BASIS AND RESORTING TO ESTIMAT ION OF GROSS PROFIT. THE MARGIN OF GROSS PROFIT IN WORK CONTRACT IS LOWER A S COMPARED TO THE MARGIN OF PROFIT ON SALE OF PRODUCTS WHICH HAS A LIMITED S COPE. THE 260% INCREASE IN WORK CONTRACT RECEIPT HAS LOWERED THE PERCENTAGE OF GROSS PROFIT COMPARED TO 128% INCREASE IN SALES WHICH HAS RESULTED INTO 1% DECLINE IN THE CONSOLIDATED GROSS PROFIT PERCENTAGE. THE LEARNED C OUNSEL EXPLAINED TO US THAT ONCE THE MATERIAL ISSUED ON THE FLOOR FOR FABR ICATION PROCESSING AND IS CUT INTO PIECES FOR END PRODUCT THE END FINISHED P RODUCT WILL BE BILLED AND SCRAP IS RECORDED IN THE STOCK REGISTER UNDER RULE 11 OF THE CENTRAL EXCISE RULES 2002.THE ASSESSEE HAS NOT MAINTAINED THE MOV EMENT REGISTER IN THE FLOOR OF THE PROCESSING AS IT WAS CONSIDERED TO BE NOT FEASIBLE BUT DRAWING AN ITA 3364/DEL/09 AHLCONS INDIA PVT. LTD. 4 ADVERSE INFERENCE MERELY ON THAT BASIS ACCORDING T O HIM IS NOT FAIR AND PROPER HAVING REGARD TO THE FACT THAT THE ASSESSEE HAS RETURNED SUBSTANTIAL INCOME FOR THE PURPOSE OF ASSESSMENT HE WOULD NOT DO THIS FALSIFICATION TO TAKE A TAX ADVANTAGE ON AN INCOME OF RS. 6 LACS. 4.1. THE ASSESSEE IN SUPPORT OF THESE CONTENTIONS H AS PRODUCED THE EXTRACT OF THE STOCK REGISTER AS WELL AS STOCK REGISTER MAI NTAINED IN FORM RG-23A IN RESPECT OF THE MATERIAL DEALT BY THE ASSESSEE AND H AS ALSO PRODUCED COPIES OF THE PURCHASE INVOICES AND CERTAIN STATEMENTS FURNIS HED TO THE BANK IN RESPECT OF THE STOCK HELD BY THE ASSESSEE FROM TIME TO TIME . THE ASSESSEE HAS ALSO FILED COPIES OF EXPLANATION THE STOCK POSITION AS PER THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE. THE LEARNED COUNSEL FOR THE ASSESSEE POINTED OUT THAT SIGNIFICANT INCREASE IN THE WORKS CONTRACT HAS RESULTED IN FALL OF THE OVERALL GROSS PROFIT PERCENTAGE. THE LEARNED COUNSE L RELIED UPON THE DETAILED REPLY FILED TO THE ASSESSING OFFICER IN RESPECT OF THE DISPUTED ISSUE INCLUDING THE RECONCILIATION OF THE STOCK REGISTER GIVING QUA NTITATIVE STOCK TALLY OF ACP MATERIAL. 5. THE LEARNED DR ON THE OTHER HAND STRONGLY ARGU ED THAT THE ADDITION MADE BY THE ASSESSING OFFICER IS BASED ON CERTAIN MATERI ALS FOUND UPON THE EXAMINATION OF THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE. THE ASSESSEE HAS NOT EXPLAINED THE DIFFERENCE IN THE STOCK REGISTER IN NOT RECORDING THE ACP INVENTORY INTO THE BOOKS OF ACCOUNT. ACCORDING TO HIM THE LE ARNED CIT(A) HAS ELABORATELY DISCUSSED THE ISSUE FROM DIFFERENT ANGLES TO JUSTIF Y THE ACTION. 6. WE HAVE CAREFULLY GONE THROUGH THE RECORDS AND CONSIDERED THE RIVAL SUBMISSIONS IN THE LIGHT OF MATERIAL PLACED ON RECO RD. IN OUR VIEW THE ADDITION MADE BY REJECTING THE BOOKS OF ACCOUNT MAI NTAINED IN THE NORMAL COURSE OF ITS BUSINESS ACTIVITY IS NOT JUSTIFIED . THERE IS A FALL IN THE GROSS PROFIT FROM 5.89% IN THE EARLIER YEAR TO 4.85% IN T HE CURRENT ASSESSMENT ITA 3364/DEL/09 AHLCONS INDIA PVT. LTD. 5 YEAR. THE ASSESSEE HAS EXPLAINED THE REASONS FOR TH E FALL ON THE GROUND THAT THERE IS 260% INCREASE IN WORK CONTRACT RECEIPT WHI CH HAS LOWER PERCENTAGE OF PROFIT COMPARED TO 128% INCREASE ON SALES OF FIN ISHED PRODUCT. THIS HAS RESULTED INTO 1% DECLINE IN THE CONSOLIDATED PROFIT PERCENTA GE. THE ACCOUNTS OF THE ASSESSEE ARE AUDITED BOTH UNDER THE COMPANIE S ACT AND UNDER THE INCOME-TAX ACT. NONE OF THESE AUDITORS HAVE QUALIFI ED THE ACCOUNTS MEANING THEREBY THE ACCOUNTS THAT ARE MAINTAINED AR E PROPERLY MAINTAINED IN THE COURSE OF BUSINESS. THERE WAS A SMALL MISTAKE I N CARRYING FORWARD OF THE STOCK WHICH THE ASSESSEE SAYS WAS A PART OF THE W ORK IN PROGRESS. THE ASSESSEE IS IN THE BUSINESS OF DESIGNING MANUFACT URING OF ALUMINUM DOORS WINDOWS AND OTHER RELATED PRODUCTS. THE RAW-MATERIA L REQUIRED IS ALUMINUM COMPOSITE PANEL (ACP) WHICH IS PURCHASED AGAINST THE SPECIFICATION OF THE ORDERS OF THE CUSTOMERS WHO GIVE THEIR OWN DESIGNS COLOURS AND SIZE OF THE ACP. THESE ACP MATERIAL IS ISSUED ON THE FLOOR FOR FURTHER PROCESSING UNDER THE SUPERVISION OF PRODUCTION ENGINEER FOR CORRECT SPECIFICATION AS PER ORDER. THE ASSESSEE HAS NOT MAINTAINED FLOOR STOCK REGISTE R FOR THE MOVEMENT OF THE RAW-MATERIAL. OF COURSE HE HAS TRANSFERRED THE MAT ERIAL IN QUESTION TO THE WORK IN PROGRESS AND ITS ACCOUNT HAS A DIFFERENCE O F ONLY .010 SQ. MTR. IN THE MONTH OF FEBRUARY 2005 AS PER FOLIO 22 OF THE STOC K REGISTER. SUCH A SMALL DIFFERENCE CANNOT BE A GROUND FOR REJECTION OF THE BOOKS OF ACCOUNT WHICH ARE MAINTAINED IN THE NORMAL COURSE OF BUSINESS. TH E ASSESSEES SALES DURING THE YEAR IN QUESTION WAS RS. 16.46 CRORES AS AGAINS T 5.65 CRORES DURING EARLIER YEAR. THE ASSESSEE HAS GIVEN A BETTER PERFO RMANCE WHEN COMPARED TO THE PREVIOUS YEAR BUT WITH SLIGHT FALL IN THE GRO SS PROFIT RATE. IT CAN BE THAT THE ASSESSEE MIGHT HAVE REDUCED ITS MARGIN JUST TO EARN HIGHER SALES VALUES. THE ASSESSEE WOULD NOT FALSIFY THE ACCOUNTS JUST FO R CONCEALING THE INCOME OF RS. 6 LACS WHEN THE ASSESSEES PROFIT & LOSS A/C SHOWS NET PROFIT OF RS. ITA 3364/DEL/09 AHLCONS INDIA PVT. LTD. 6 1 04 58 406/- DISCLOSED AS AGAINST THE EARLIER YEAR S FIGURE OF RS. 18 75 995/-. IN OUR VIEW THE ASSESSING OFFICER WAS NOT JUSTIFIE D IN REJECTING THE BOOKS OF ACCOUNT MAINTAINED IN THE NORMAL COURSE OF BUSINESS ONLY ON THE REASONING THAT THERE IS A FALL IN THE GROSS PROFIT PERCENTAGE AFTER HAVING REGARD TO THE OTHER ATTENDING CIRCUMSTANCES DISCUSSED. AFTER ALL THE ASSESSEE HAS EXPLAINED THE REASONS FOR FALL OF THE GROSS PROFIT PERCENTAGE . APART FROM THE ABOVE THE STOCK REGISTERS ARE MAINTAINED UNDER THE EXCISE REG ULATIONS AND ARE SUBJECT TO REGULAR INSPECTION BY THE EXCISE AUTHORITIES. MOREO VER THE ASSESSEES ENTIRE TRANSACTIONS MUST BE SEEN BEFORE JUMPING INTO A CON CLUSION BY HOLDING SMALL DIFFERENCE IN INVENTORY ACCOUNTING IN A MONTH OR TW O. THE ASSESSEE HAS LARGE QUANTITY OF STOCKS WHICH HAVE BEEN DULY REFLECTED I N THE STOCK REGISTER. THEREFORE IN THE LIGHT OF THESE DISCUSSIONS THE A DDITION STANDS DELETED. 7. THE NEXT DISPUTE IN THIS APPEAL RELATES TO THE D ISALLOWANCE OF RS. 80 327/- UNDER THE HEAD BUSINESS PROMOTION EXPENSE S. IN THE COURSE OF THE SCRUTINY IT WAS SEEN THAT AN AMOUNT OF RS. 1 60 653 /- HAS BEEN PAID THROUGH CREDIT CARDS IN THE NAMES OF THE DIRECTORS OF THE C OMPANY. ON BEING ASKED SPECIFICALLY ABOUT THE NATURE OF SUCH EXPENSES AND JUSTIFICATION FOR THEIR ALLOWABILITY THE ASSESSEE DID NOT EXPLAIN IT PROPE RLY AND THE AO CONCLUDED THAT WHOLE OF THE EXPENDITURE WAS INADMISSIBLE FOR NOT BEING INCURRED WHOLLY AND SUBSTANTIALLY FOR THE PURPOSE OF BUSINESS. HOWE VER THE CIT(A) ANALYZED THE EXPENDITURE AND HE WAS OF THE OPINION THAT THE TURN OVER OF THE ASSESSEE INCREASED SUBSTANTIALLY FROM 5.66 CRORES TO RS. 16 .46 CRORES AND THE NET PROFIT ALSO INCREASED FROM RS. 18.76 LACS TO RS. 1. 54 CRORES WHEREAS THE INCREASE IN BUSINESS PROMOTION EXPENSES DURING THE YEAR AS COMPARED TO LAST YEAR WAS VERY MEAGER AMOUNT FROM RS. 2 59 429/- TO RS. 3 87 739/-. THE CIT(A) ALSO OBSERVED THAT THE DIRECTORS HAVING CRE DIT CARDS WERE WHOLE TIME WORKING DIRECTORS OF THE COMPANY AND THE EXPENSES W ERE ONLY FOR BUSINESS ITA 3364/DEL/09 AHLCONS INDIA PVT. LTD. 7 PURPOSES AND PROPERLY ACCOUNTED FOR IN THE BOOKS O F ACCOUNT. BUT ON GOING THROUGH THE BILLS IT WAS NOT CLEAR TO HIM THAT TH EY WERE FULLY FOR THE PURPOSE OF BUSINESS. IT ALSO COULD NOT BE SAID WITH FULL CE RTAINTY THAT THEY WERE FOR THE PURPOSE OF BUSINESS. THEREFORE THE CIT(A) REDU CED THE DISALLOWANCE TO 50% OF THE SAID EXPENSES. THE ASSESSEE IS STILL AGG RIEVED. 8. THE ASSESSEE HAS FILED DETAILS OF THE BUSINESS P ROMOTION EXPENSES AT PAGES 51 52 53 & 54 OF THE PAPER BOOK. WE HAVE HE ARD BOTH SIDES AND GONE THROUGH THESE DETAILS. ALTHOUGH THE ASSESSEE HAS G IVEN FULL DETAILS IT IS NOT CLEAR WHETHER ALL PURCHASES FOR WHICH THE PAYMENT H AS BEEN MADE THROUGH CREDIT CARDS ARE FOR THE PURPOSE OF BUSINESS. IN ABSENCE OF ANY ACCEPTABLE MATERIAL TO SHOW THAT ALL THESE PAYMENTS THROUGH CR EDIT CARS IN THE NAME OF DIRECTORS WERE ONLY FOR THE PURPOSE OF BUSINESS WE AFFIRM HIS ORDER ON THIS ISSUE. IT WAS FOR THE ASSESSEE TO FURNISH FULL DETA ILS OF THESE EXPENSES INCLUDING THE BILLS CONNECTED THERE UNDER TO SHOW T HAT THESE EXPENSES WERE REALLY FOR THE PURPOSE OF BUSINESS AND WERE NOT FOR THE PURPOSE OF ANY PERSONAL PLEASURE OF THE DIRECTORS. IN OUR VIEW THE CIT(A) HAS TAKEN A REASONABLE VIEW OF THE MATTER AND WE SEE NO REASON TO INTERFERE WITH THE SAME ON THIS ISSUE. 9. IN THE RESULT ASSESSEES APPEAL IS PARTLY ALLOW ED. ORDER PRONOUNCED IN OPEN ON 30-4-2010. SD/- SD/- (VIMAL GANDHI) ( G.E. VEERABHADRAPP A ) PRESIDENT VICE PRESIDENT DATED: 30 TH APRIL 2010. MP COPY TO : 1. ASSESSEE 4. CIT(A) 2. AO 5. DR. ITAT. 3. CIT ITA 3364/DEL/09 AHLCONS INDIA PVT. LTD. 8