The ACIT, Circle-5,, Surat v. Shri Mohd.Zenulbhai Vasi, Surat

ITA 4156/AHD/2008 | 2005-2006
Pronouncement Date: 01-04-2010 | Result: Dismissed

Appeal Details

RSA Number 415620514 RSA 2008
Assessee PAN ABAVP0417D
Bench Ahmedabad
Appeal Number ITA 4156/AHD/2008
Duration Of Justice 1 year(s) 3 month(s) 1 day(s)
Appellant The ACIT, Circle-5,, Surat
Respondent Shri Mohd.Zenulbhai Vasi, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 01-04-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted D
Tribunal Order Date 01-04-2010
Date Of Final Hearing 23-03-2010
Next Hearing Date 23-03-2010
Assessment Year 2005-2006
Appeal Filed On 30-12-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH AHMEDABAD (BEFORE S/SHRI G. D. AGARWAL VP AND BHAVNESH SAINI JM) ITA NO.4156/AHD/2008 A. Y.: 2005-06 THE A. C. I. T. CIRCLE-5 ROOM NO.309 AAYAKAR BHAVAN MAJURA GATE SURAT VS SHRI MOHD. ZENUBHAI VASI HUSEINI BAUG CHOWK BAZAR SURAT PA NO. ABAVP 0417 D (APPELLANT) (RESPONDENT) APPELLANT BY SMT. NEETA SHAH DR RESPONDENT BY SHRI KAMLESH BHATT AR O R D E R PER BHAVNESH SAINI: THIS APPEAL BY REVENUE IS DIRECTED AGAINST ORDER OF THE CIT(A)-III SURAT DATED 6 TH OCTOBER 2008 FOR ASSESSMENT YEAR 2005-06 ON THE FOLLOWING GROUNDS: 1. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. CIT(A)-III SURAT HAS ERRED IN DELETIN G THE ADDITION OF RS.43 309/- MADE BY THE A. O. ON ACCOUN T OF UNRECORDED STOCK OF FINISHED GOODS. 2. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW THE LD. CIT(A)-III SURAT HAS ERRED IN DELETIN G THE ADDITION OF RS.41 91 620/- MADE BY THE A. O. ON ACCOUNT OF UNRECORDED JOB CHARGES. 3. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW THE LD. CIT(A)-III SURAT HAS ERRED IN DELETIN G THE ADDITION OF RS.1 35 27/- MADE BY THE A. O. ON ACCOU NT OF EXPENSES TREATED AS CAPITAL NATURE. 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND C ONSIDERED THE MATERIAL AVAILABLE ON RECORD. ITA NO.4156/AHD/2008 SHRI MOHD. ZENULBHAI VASI 2 3. ON GROUNDS NO. 1 AND 2 OF THE APPEAL OF THE ASSE SSEE THE AO REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE AND M ADE ADDITIONS OF RS.43 309/- ON ACCOUNT OF UNRECORDED STOCK OF FINIS HED GOODS AND ADDITION OF RS.41 91 620/- AS UNRECORDED PROCESSING CHARGES. THE AO OBSERVED THAT ON VERIFICATION OF THE MANUFACTURING ACCOUNT IT WAS FOUND THAT CLOSING STOCK OF RAW MATERIAL WAS SHOWN AT 666 KGS. VALUED AT RS.93 156/-. HOWEVER NO CLOSING STOCK OF FINISHED GOODS WAS DECLARED. THE AO RECASTED THE MANUFACTURING ACCOUNT AND CONCL UDED THAT 269 KGS. OF FINISHED GOODS WAS NOT SHOWN. THE AO PREPAR ED A MONTH WISE PRODUCTION CHART ON PAGE 4 OF THE ASSESSMENT ORDER AND FOUND THAT ASSESSEE MANUFACTURED 278342 KGS. OF COPPER OUT OF WHICH 41889 KGS. WAS ITS OWN PRODUCTION AND THE BALANCE BY PROCESSIN G JOB WORK. HOWEVER THE ASSESSEES PRODUCTION AND SALE CHART W AS 89288 KGS. OUT OF WHICH OWN PRODUCTION WAS 41889 KGS AND JOB WORK WAS 47130 KGS. SINCE THERE WAS SUBSTANTIAL DIFFERENCE BETWEEN THE TWO VALUES THE AO CONCLUDED THAT THE BOOK RESULT WAS NOT RELIABLE AND REJECTED THE SAME U/S 145 (3) OF THE IT ACT. THE AO THEREFORE ALSO MADE ADDITION ON ACCOUNT OF 269 KGS. OF FINISHED GOODS NOT DISCLOSED IN THE CLOSING STOCK. THE AO FURTHER OBSERVED THAT ON PERUSAL OF THE PROD UCTION CHART ALONG WITH CONSUMPTION OF ELECTRICITY REVEALED THAT THERE WAS A DIFFERENCE OF 189322 KG. ON ACCOUNT OF PROCESSING JOB WORK AND AD OPTING THE RATE OF RS.22.14 PER KG. WORKED OUT THE UNRECORDED PROCESSI NG CHARGES AT RS.41 91 620/-. 4. BOTH THE ADDITIONS WERE CHALLENGED BEFORE THE LE ARNED CIT(A) AND IT WAS SUBMITTED THAT THE ASSESSEE WAS ENGAGED IN MANU FACTURING COPPER WIRES. THE RAW MATERIAL WAS COPPER WHICH HAD A PURI TY RANGING FROM 40% TO 98%. THE ASSESSEE WOULD PROCURE CHEAPER MATERIAL OF LOW PURITY WHICH WAS PURIFIED AT THE FACTORY. THE ASSESSEE MANUFACTU RED WIRES AND ALSO UTILIZED THE FACILITIES FOR JOB WORKS FOR OTHERS. T HE SAME PARTY WAS GIVEN MATERIAL FOR REMOVAL OF IMPURITIES ONLY AND SUCH JO B WORK WAS MELTING ITA NO.4156/AHD/2008 SHRI MOHD. ZENULBHAI VASI 3 JOB WORK WHILE OTHER JOB WORK WOULD BE WIRE DRAWING JOB WORK. THE TOTAL JOB WORK DURING THE YEAR WAS WORTH RS.10 43 315/- F OR 236452 KGS. OUT OF WHICH MELTING JOB WORK WAS FOR RS.8 36 595/- FOR 189322 KGS AND WIRE DRAWING JOB WORK WAS FOR RS.2 06 720/- FOR 47130 KG S. DURING THE ASSESSMENT PROCEEDINGS A COMPOSITE CHART WAS GIVEN TO EXPLAIN POWER CONSUMPTION FOR WHICH THE JOB WORK OF COPPER MELTIN G WAS TAKEN AS JOB WORK DONE. THEREAFTER THE ASSESSEE WAS REQUIRED TO FURNISH A QUANTITATIVE CHART SHOWING THE QUANTITY OF WIRES DR AWN FOR OWN PRODUCTION AND FOR OTHERS ON JOB WORK BASIS. HOWEVE R THE AO TRIED TO COMPARE VARIOUS FIGURES OF BOTH THE CHART FOR ISOLA TION AND THAT RESULTED IN DISTORTED RESULTS. THE ASSESSEE HAD TOTAL QUANTI TY OF STOCK OF 42974 KGS. OUT OF WHICH THE BURNING LOSS WAS 996 KGS. AND AFTER SALE OF 41312 KGS. THE CLOSING STOCK WAS 666 KGS. IN ADDITION TO THIS 4777 KGS. WAS RECEIVED FOR JOB WORK OF WIRE DRAWING FOR OTHER PAR TIES. BUT WHILE ANALYZING THE FIGURES THE AO CONSIDERED THE FIGURE S OF JOB WORK AS ABSOLUTE FIGURE OUT OF WHICH THE AO REDUCED THE BUR NING LOSS. HOWEVER IN CASE OF JOB WORK THE BURNING LOSS WAS NOT TO TH E ACCOUNT OF THE ASSESSEE AND THEREFORE MATERIAL REMAINING AFTER D EDUCTION OF BURNING LOSS WAS DECIDED ON THE BASIS OF QUANTITY OF MATERI AL RECEIVED AND FIGURES OF PRODUCTION IN RESPECT OF JOB WORK RECEIPT WOULD ALSO BE LOSS TO THAT EXTENT. THIS LOSS WAS OF 577 KGS. IN WIRE DRAWING J OB WORK. SIMILARLY LOSS WAS IN COPPER MELTING ACTIVITIES ALSO. BUT THE AO C ONCLUDED THAT THERE WOULD BE NO LOSS IN EITHER OF THE TWO ACTIVITIES. T HE AO THEREFORE TREATED THE MATERIAL RECEIVED FOR JOB WORK AS PRODUCTION AN D WORKED OUT A DIFFERENCE OF 269 KGS. IN STOCK. FURTHER A CHART S HOWING PRODUCTION OF DIFFERENT ITEMS WAS FILED WITH A VIEW TO EXPLAIN PO WER CONSUMPTION AND FOR THAT PURPOSE THE JOB WORK OF COPPER MELTING WAS ALSO TAKEN AS JOB WORK DONE. THE AO REQUIRED THE ASSESSEE TO FURNISH A COMPARATIVE CHART FOR WIRE DRAWING ACTIVITIES. THE ASSESSEES OWN PRO DUCTION WAS 41889 KGS. AND PROCESSING (MELTING AND WIRE DRAWING) WAS 236452 KGS. SUBSEQUENTLY A CHART CONTAINING WIRE DRAWING ACTIV ITIES ONLY WAS ITA NO.4156/AHD/2008 SHRI MOHD. ZENULBHAI VASI 4 FURNISHED WHERE THE TOTAL PRODUCTION WAS SHOWN AT 4 7707 KGS. BUT THE AO DID NOT APPRECIATE THAT THE ACTIVITY OF THE ASSE SSEE WAS IN TWO PARTS ONE BEING COPPER MELTING AND OTHER BEING WIRE DRAWI NG. THE AO DISREGARDED THE COPPER MELTING IGNORING THE FACT TH AT JOB WORK CHARGES OF RS.8 36 595/- WAS ACCOUNTED FOR AND CREDIT OF TDS O F RS.28 073/- WAS ALSO ALLOWED. BUT THE AO CALCULATED THE JOB CHARGES BY DIVIDING TOTAL JOB CHARGES OF RS.10 43 315/- BY QUANTITY OF COPPER WIR E DRAWING JOB WORK OF 47130 KGS. AND APPROVED FOR JOB WORK RATE OF RS.22 .12 PER KG. AND NOTED THAT THE ASSESSEE HAS NOT RECORDED PRODUCTION AND M ADE THE ADDITION ACCORDINGLY. 5. THE LEARNED CIT(A) CONSIDERING THE SUBMISSIONS O F THE ASSESSEE MATERIAL AVAILABLE ON RECORD AND FINDINGS OF THE AO DELETED THE ENTIRE ADDITIONS OF BOTH THE GROUNDS. THE FINDINGS OF THE LEARNED CIT(A) ARE REPRODUCED AS UNDER: I HAVE GONE THROUGH THE DETAILS AND FIND THAT THE AO HAS MISINTERPRETED THE CHARTS FURNISHED BY THE APPELLAN T REGARDING OVERALL POWER CONSUMPTION VIS--VIS THE PRODUCTION AND PRODUCTION ON ACCOUNT OF WIRE DRAWING ACTIVITY. IN CALCULATING THE AVERAGE JOB WORK CHARGES @ RS.22.12 PER KG. THE AO IGNORED THE QUANTITY OF JOB WORK OF COPPER MELTING AND DIVIDED THE TOTAL AMOUNT OF JOB WORK INCOME BY QUANTITY OF COPPER WIRE DRAWING JOB. THE QUANTUM OF COPPER MELTING ACTIVITY HAS NOT BEEN CONSIDERED BY HER. IT IS SEEN THAT THE PRODUCT ION OF COPPER MELTING JOB WORK CHARGES OF RS.8 36 595/- W HICH IS DULY ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS. THE AO S CONCLUSION IS BASED ON TWO DIFFERENT CHARTS FURNIS HED BY THE APPELLANT BUT SHE HAS NOT TAKEN INTO ACCOUNT THE FA CT THAT THE FIRST CHART SHOWS PROCESSING IN BOTH THE ACTIVITIES I.E. MELTING AND WIRE DRAWING WHEREAS THE SECOND CHART SHOWS ONL Y THE WIRE DRAWING ACTIVITY. SINCE THE MELTING ACTIVITY H AS NOT BEEN CONSIDERED BY THE AO THE DIFFERENCE BETWEEN THE TW O CHARTS IN RESPECT OF JOB WORK CHARGES HAS BEEN TAKEN AS UN ACCOUNTED PRODUCTION AND BY WRONGLY CALCULATING THE AVERAGE J OB RATE @ RS.22.12 PER KG THE UNRECORDED PROCESSING CHARGES HAVE BEEN CALCULATED AT RS.41 91 620/-. FURTHER THE AO HAS ALSO IGNORED THE FACT THAT THERE WOULD BE BURNING LOSS O F MATERIAL RECEIVED FOR JOB WORK AND CALCULATED THE DIFFERENCE IN STOCK AT ITA NO.4156/AHD/2008 SHRI MOHD. ZENULBHAI VASI 5 269 KGS. I AM THEREFORE OF T4HE CONSIDERED VIEW THA T THE AO HAS REJECTED THE BOOKS OF ACCOUNTS AND MADE THE ADD ITION ON ACCOUNT OF SO CALLED UNRECORDED JOB WORK CHARGES BY IGNORING THE MELTING ACTIVITY ALTHOUGH THE JOB CHARGES FROM THESE ACTIVITIES WERE ACCOUNTED FOR IN THE BOOKS. SHE HAS ALSO ERRED IN HOLDING THAT THERE WAS NO LOSS IN THE JOB WORK A CTIVITY AND THAT IS WHY REJECTED THE BOOKS OF ACCOUNTS. IN VIEW OF THIS THE ADDITION ON ACCOUNT OF VALUE OF 269 KGS. WORKED OUT BY THE AO AT RS.43 309/- AND UNRECORDED JOB WORK CHARGES COMP UTED AT RS.41 91 620/- IS DIRECTED TO BE DELETED. 6. THE LEARNED DR RELIED UPON THE ORDER OF THE AO A ND REFERRED TO STATEMENT OF FACT AND ALSO SUBMITTED THAT THE LEARN ED CIT(A) HAS CONSIDERED THE QUANTITY OF JOB WORK OF COPPER MELTI NG WHICH ISSUE WAS NOT CONSIDERED BY THE AO AND ON WHICH THE ASSESSEE HAS ALSO NOT MADE ADEQUATE SUBMISSIONS. THE LEARNED DR SUBMITTED THAT THE LEARNED CIT(A) HAS PASSED A NON-SPEAKING ORDER WITHOUT CONSIDERING OBSERVATIONS OF THE AO. THEREFORE BOTH THE ADDITIONS DELETED BY THE LE ARNED CIT(A) ARE CLEARLY UNJUSTIFIED. ON THE OTHER HAND THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THAT COMPLETE DETAILS WERE FILED BEFO RE THE AUTHORITIES BELOW ON THE ISSUE WHICH CLARIFY THAT THE LEARNED C IT(A) ON PROPER APPRECIATION OF FACTS AND MATERIAL ON RECORD RIGHTL Y DELETED THE ADDITIONS. HE HAS REFERRED TO PB 15 WHICH IS DETAILS OF MON TH WISE CONSUMPTION OF ELECTRICITY OIL ETC. PB 16 QUANTITY WISE P RODUCTION DETAILS IN KG AND JOB WORK COPPER (FOR WIRE DRAWING PROCESS ONLY) PB 17 AND PB 18 WHICH ARE DETAILS OF JOB WORK DONE FOR THE ASSESSME NT YEAR IN QUESTION. HE HAS REFERRED TO PB 10 WHICH IS THE EXPLANATION OF THE ASSESSEE ON THE ABOVE ISSUE. THE LEARNED COUNSEL FOR THE ASSESS EE SUBMITTED THAT THE LEARNED CIT(A) ON PROPER APPRECIATION OF DETAILS AN D EVIDENCE ON RECORD RIGHTLY DELETED BOTH THE ADDITIONS. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL AVAILABLE ON RECORD AND DO NOT FIND ANY JU STIFICATION TO INTERFERE WITH THE ORDER OF THE LEARNED CIT(A) . THE LEARNED CIT(A) CORRECTLY NOTED ITA NO.4156/AHD/2008 SHRI MOHD. ZENULBHAI VASI 6 THAT THE AO HAS IGNORED THE QUANTITY OF JOB WORK OF COPPER MELTING AND DIVIDED THE TOTAL AMOUNT OF JOB WORK INCOME BY QUAN TITY OF COPPER WIRE DRAWING JOB WORK. THE ASSESSEE HAS FILED COMPLETE DETAILS ON THIS ISSUE FROM PAGES 15 TO 18 OF THE PAPER BOOK WHICH SUPPORT THE CONTENTION OF THE ASSESSEE SO RAISED BEFORE THE LEARNED CIT(A). T HE LEARNED CIT(A) CONSIDERING THE ACTIVITIES OF THE ASSESSEE AND THE WORK DONE BY THE ASSESSEE IN TWO PARTS I.E. ONE JOB WORK OF MELTING AND THE OTHER BEING WIRE DRAWING RIGHTLY CAME TO THE CONCLUSION THAT THE AO HAS NOT PROPERLY APPRECIATED THE FACTS OF THE CASE. ALL THE FIGURES EXPLAINED BY THE ASSESSEE ARE ACCOUNTED FOR IN THE BOOKS OF ACCOUNT. THE AO HAS NOT TAKEN INTO ACCOUNT BOTH THE ACTIVITIES OF THE ASSES SEE. SINCE MELTING ACTIVITY WAS ALSO ACTIVITY OF THE ASSESSEE WHICH HA S A BEARING IN THE ISSUE THEREFORE THE LEARNED CIT(A) RIGHTLY CONSIDERED TH E SAME FOR THE PURPOSE OF DECIDING THE ISSUE. THE AO HAS NOT POINTED OUT A NY SPECIFIC DEFECTS IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AND MERELY ON COMPARISON OF THE FIGURES MADE THE ADDITIONS. WE DO NOT FIND ANY MERI T IN BOTH THE GROUNDS OF APPEAL OF THE REVENUE AND THE SAME ARE DISMISSED . 8. ON GROUND NO.3 OF THE APPEAL THE AO OBSERVED TH AT THE ASSESSEE PURCHASED DIAMOND DYES WORTH RS.1 35 2 27/- AND HELD THAT THIS RESULTED IN ENDURING BENEFIT AND THEREFO RE WAS CAPITAL IN NATURE. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT DIAMOND DYES WAS A PART USE FOR WIRE DRAWING MACHINES AND DUE TO CONSTANT FRICTION WITH COPPER WHILE DRAWING WIRES GETS HEAVY WEAR AND TEAR AND HAD TO BE REPLACED PERIODICALLY. THE LEARNED CIT(A) ACCEPTED THE CONTENTION OF THE ASSESSEE AND FOUND THAT THE DYE IN ITSELF IS NOT A MACHINERY AND IS ONLY A REPLACEABLE PART OF THE ENTIRE MACHINERIES. THEREFO RE IT CANNOT BE TREATED AS CAPITAL EXPENDITURE. THE LEARNED CIT(A) ACCORDIN GLY DELETED THE ADDITION. ITA NO.4156/AHD/2008 SHRI MOHD. ZENULBHAI VASI 7 9. ON CONSIDERATION OF THE RIVAL SUBMISSIONS WE AR E OF THE VIEW THAT NO INTERFERENCE IS CALLED FOR IN THE MATTER. THE LE ARNED CIT(A) HAS GIVEN A SPECIFIC FINDING THAT DYE BY ITSELF IS NOT A MACHIN ERY. IT WAS ONE OF THE PARTS WHICH ARE REPLACED WHILE USING IN THE MANUFAC TURING. IT THEREFORE WOULD NOT GIVE ANY ENDURING BENEFIT TO THE ASSESSEE . IT IS NOT A CAPITAL EXPENDITURE. THE LEARNED CIT(A) ON PROPER APPRECIAT ION OF FACTS AND MATERIAL ON RECORD RIGHTLY DELETED THE ADDITION. AS A RESULT THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 10. AS A RESULT THE DEPARTMENTAL APPEAL STANDS DIS MISSED. ORDER PRONOUNCED ON 01-04-2010 SD/- SD/- (G. D. AGARWAL) VICE PRESIDENT (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 01- 04-2010 LAKSHMIKANT/- 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