Saheli Synthetics Pvt. Ltd.,, Surat v. The Income tax Officer, Ward-4(2),, Surat

ITA 434/AHD/2007 | 2003-2004
Pronouncement Date: 19-03-2010 | Result: Partly Allowed

Appeal Details

RSA Number 43420514 RSA 2007
Bench Ahmedabad
Appeal Number ITA 434/AHD/2007
Duration Of Justice 3 year(s) 1 month(s) 21 day(s)
Appellant Saheli Synthetics Pvt. Ltd.,, Surat
Respondent The Income tax Officer, Ward-4(2),, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 19-03-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted D
Tribunal Order Date 19-03-2010
Date Of Final Hearing 11-03-2010
Next Hearing Date 11-03-2010
Assessment Year 2003-2004
Appeal Filed On 29-01-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE SHRI N.S.SAINI ACCOUNTANT MEMBER AND SHRI MAHAVIR SINGH JUDICIAL MEMBER ITA NO.434/AHD/2007 ASSESSMENT YEAR:2003-04 DATE OF HEARING:11.3.10 DRAFTED:11.3.10 SAHELI SYNTHETICS PVT. LTD. PLOT NO.274/2 GIDC PANDESARA SURA PAN NO.AADCS3521L V/S . INCOME TAX OFFICER WARD-2(4) SURAT (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI S.N.SOPARKAR AR RESPONDENT BY:- SHRI C.K.MISHRA SR-DR O R D E R PER MAHAVIR SINGH JUDICIAL MEMBER:- THIS APPEAL BY THE ASSESSEE IS ARISING OUT OF THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-III SURAT IN APPEAL NO.CAS-II I/22/06-07 DATED 20-12-2006. THE ASSESSMENT WAS FRAMED BY THE ITO WARD-4(2) SUR AT U/S.143(3) OF THE INCOME- TAX AC 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 24-03-2006 FOR ASSESSMENT YEAR 2003-04. 2. THE FIRST ISSUE IN THIS APPEAL OF THE ASSESSEE I S AGAINST THE ORDER OF CIT(A) IN CONFIRMING THE ADDITION OF RS.74 38 446/- MADE ON A CCOUNT OF LOW GROSS PROFIT BY THE ASSESSING OFFICER. 3. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE T HAT THE ASSESSING OFFICER MADE THE ADDITION BY OBSERVING THAT THE ASSESSEE HAS NOT PRODUCED BOOKS OF ACCOUNT SUPPORTING BILLS & VOUCHERS FOR EXAMINATION BY STAT ING THE FACT THAT THESE WERE SEIZED BY THE CENTRAL EXCISE DEPARTMENT. EVEN THE ASSESSE E HAS NOT PRODUCED ANY INTERNAL RECORDS LIKE RAW MATERIALS ISSUE REGISTER AND DAILY PRODUCTION RECORD. THE ASSESSEE IS IN THE BUSINESS OF PROCESSING OF GRAY C LOTH AND SELLING THE SAME IN THE LOCAL MARKET OR EXPORTS. THE ASSESSEES GROSS SALE IN THE RELEVANT ASSESSMENT YEAR ITA NO.434/AHD/2007 A.Y. 2003-04 SAHELI SYNTHETICS PVT. LTD. V. ITO WD-4(2) SURAT PAGE 2 IS AT RS.47 77 71 638/- AS AGAINST THE SALE OF RS.2 9 94 11 625/- IN THE IMMEDIATE PRECEDING YEAR. THE NET PROFIT WORKED OUT AT 1.53% AS AGAINST IN THE IMMEDIATE PRECEDING YEAR AT 1.73%. ACCORDING TO THE ASSESSING OFFICER THE GROSS PROFIT RATIO OF THE ASSESSEE IS DECLINED BY 3.23% AS COMPARED TO TH E IMMEDIATE PRECEDING YEAR. WHEN REQUIRED TO EXPLAIN THE ASSESSEE STATED THAT THE EXPORT SALES IN THIS YEAR WAS AT NIL AS AGAINST IN THE PREVIOUS YEAR THE EXPORT S ALES WERE AT 83% OF THE TOTAL TURNOVER. HE STATED THAT EVEN THE QUALITY AND FASHI ON OF THE CLOTHS WHICH WERE MANUFACTURED FOR EXPORTS WERE DIFFERENT AND THE EXP ORT CLOTHS WERE DIFFICULT TO SELL IN THE LOCAL MARKET. ACCORDINGLY ASSESSEE-COMPANY IS TO SALE ITS PRODUCTS AT MUCH LOWER PRICE. THE SALE PRICE WENT DOWN TO 48.7% AND THE LOCAL PURCHASES ALSO INCREASED FROM 71.98% WHICH FURTHER FELL IN PURCHA SE PRICE BY 15.78%. THE ASSESSEE ALSO CONTENDED THAT THE OPENING STOCK OF R EJECT/WASTE MATERIAL WORTH RS.18.6 LAKH WAS DESTROYED AND THERE WAS GENUINE CA USE FOR DROP IN PROFIT RATE. THE AO HAS NOT ACCEPTED THE EXPLANATION BY STATING THAT ALTHOUGH IT WAS ABLE TO MANAGE PROFIT IN DEEMED SALES. THE AO REJECTED THE EXPLANA TION AND HELD THAT ALTHOUGH IT WAS A FACT THAT THE ASSESSEE DID NOT DERIVE ANY INC OME FROM EXPORTS THE OPENING STOCK OF FINISHED GOODS AND THE WORK-IN-PROGRESS WA S RS.6 57 713/- AND AT THE MOST THE COMPANY MIGHT HAVE BEEN FORCED TO SELL THIS STO CK AT A LOWER PRICE AND NOT THE ENTIRE YEARS SALES WOULD BE AT A LOWER PRICE. THE AO THEREFORE REJECTED THE BOOK RESULTS U/S.145(3) OF THE ACT AND RE-CAST THE CORRE CT FIGURES FOR THE YEAR AND FOUND THAT THE AVERAGE COST OF PRODUCTION EXCEEDED THE AV ERAGE SALES PRICE DURING THE YEAR. HE WORKED OUT THE COST OF PRODUCTION AT RS.26 .09 PER METER AND SALES PRICE AT 25.09 PER METER AND COME TO THE CONCLU9SION THAT TH IS COULD HAPPEN ONLY WHEN UNACCOUNTED SALES WERE MADE WHILE THE PRODUCTION EX PENSES WERE INCLUDED IN THE ACCOUNTS. THIS WAS ALSO PROVED BY THE FACT THAT THE CENTRAL EXCISE DEPARTMENT DETECTED UNACCOUNTED JOB-WORK WHEN THE ASSESSEE DIS CLOSED RS.75 LAKH IN THE RETURN OF INCOME. HE FURTHER HELD THAT COST OF PROD UCTION PER METER WOULD BE AT PAR WITH THE AVERAGE SALE PRICE SINCE ADDITIONAL PROFIT OF RS.75 LAKH WAS ALREADY DISCLOSED. THE DIFFERENCE IN THE COST AND SALE PRIC E WORKED OUT AT RS.0.40 PER METER IN RESPECT OF 1 85 96 116 MT. OF CLOTH WAS CALCULAT ED BY THE AO AT RS.74 38 556/- AND THE SAME WAS ADDED TO TH9E INCOME. THE AO ALSO HAD OBSERVED THAT THE ASSESSEE HAD PROCESSED ITS OWN FABRICS AND THE GP W OULD NEVER BE NEGATIVE IN SUCH KIND OF INDUSTRY. THE GP IN DYEING AND PRINTING UNI T DOING JOB-WORK VALID FROM 13% TO 15% AND TAKING THE COST OF JOB-WORK AT RS.3.02 PER METER FOR 1.66 CRORE METERS OF ITA NO.434/AHD/2007 A.Y. 2003-04 SAHELI SYNTHETICS PVT. LTD. V. ITO WD-4(2) SURAT PAGE 3 CLOTH THE GP WOULD WORK OUT TO ABOUT RS.70 LAKH WH ICH WAS ALMOST THE SAME AS WORKED OUT BY TAKING THE EXPENSES INTO CONSIDERATIO N. AGGRIEVED THE ASSESSEE PREFERRED APPEAL BEFORE CIT(A). 4. THE CIT(A) ALSO CONFIRMED THE ACTION OF THE AO IN ESTIMATING THE GP AT RS.74 38 446/- BY GIVING FOLLOWING FINDING IN PAGE-3 READS AS UNDER:- I HAVE CONSIDERED THE SUBMISSIONS AND HAVE GONE TH ROUGH THE DETAILS FILED BEFORE ME. I AM NOT INCLINED TO AGREE WITH THE APP ELLANT THAT A GROSS PROFIT BECAME NEGATIVE ONLY DUE TO THE EXPORTS BEING REDUC ED TO ZERO DURING THE YEAR UNDER CONSIDERATION. ALTHOUGH THERE COULD BE S OME DECLINE IN MARGIN OF PROFIT IT IS NOT THAT THE APPELLANT COMPANY WOULD BE FORCED TO SALE ALL ITS PRODUCTION AT A LOSS. AS RIGHTLY POINTED OUT BY THE AO THE APPELLANT MIGHT HAVE BEEN FORCED TO SALE ITS OPENING STOCK ONLY AT A LOSS BUT THE PRODUCTION DURING THE YEAR WHEN THE COMPANY KNEW THAT THERE W OULD BE NO EXPORTS WOULD NOT BE SOLD AT A LOSS. THE PROCESS HOUSES MAN UFACTURE CLOTH FOR EXPORTS ONLY WHEN THEY RECEIVE FIRM ORDERS FROM ABROAD WHIC H ARE PLACED WELL IN ADVANCE. SINCE THE APPELLANT COMPANY KNEW THAT THE CLOTH THAT IT WAS PROCESSING WOULD NOT BE EXPORTED THERE COULD BE NO NEED OR REASONS TO MANUFACTURE SUCH CLOTHS. THEREFORE THIS SO-CALLED DISTRESS SALE IS ONLY AN AFTER THOUGHT AND DOES NOT REFLECT THE REALITY. I A M IN AGREEMENT WITH THE AO THAT THE AVERAGE SALE PRICE WOULD NEVER BE LESS THA N THE PRODUCTION COST AND IT WOULD HAPPEN ONLY WHEN UNACCOUNTED SALES ARE MADE A ND PRODUCTION EXPENSES ARE DEBITED TO PROFIT AND LOSS ACCOUNT. TH IS IS ALSO IN AGREEMENT WITH THE FACT THAT THE APPELLANT DISCLOSE AN ADDITI ONAL INCOME OF RS.75 LACS AS A RESULT OF DETECTION BY THE CENTRAL EXCISE DEPARTM ENT. THE AO HAS WORKED OUT THE GROSS PROFIT IN A TOTALLY SCIENTIFIC MANNER AND I FIND NO REASON TO INTERFERE IN HIS FINDINGS. THIS GROUND OF APPEAL T HEREFORE FAILS. FURTHER SINCE BOOKS OF ACCOUNT WERE NOT PRODUCED BEFORE THE AO TH ERE COULD BE NO JUSTIFICATION IN THE SUBMISSION OF THE APPELLANT TH AT BOOK RESULTS NOT BE REJECTED U/S.145(3) OF THE IT ACT. THE AO HAD NO ALTERNATIVE BUT TO APPLY THE PROVISIONS OF SECTION 145(3) OF THE ACT. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. AT THE OUTSET LD. COUNS EL FOR THE ASSESSEE SHRI S.N. SOPARKAR MADE AN ARGUMENT THAT HE IS NOT CHALLENGIN G THE REJECTION OF BOOK RESULTS BUT HE URGED THE BENCH TO APPLY A REASONABLE GROSS PROFIT RATE. WE FIND THAT THE ASSESSING OFFICER AFTER REJECTING THE BOOK RESULTS HAS NOT TAKEN ANY BASIS FOR APPLYING THE NET PROFIT. HE HAS MERELY GONE THOROU GH THE COST OF JOB-WORK PER METER AND THE TOTAL METERS SOLD BY THE ASSESSEE WERE MULT IPLIED. IN OUR VIEW FOR FAIR ESTIMATING THE GP RATE THE AO SHOULD HAVE GONE INT O THE PREVIOUS 3 YEARS GP DECLARED AND ASSESSED IN THE CASE OF THE ASSESSEE AND AVERAGE OF THE SAME SHOULD HAVE BEEN APPLIED. TAKING INTO CONSIDERATION THE LOSS INCURRED BY THE ASSESSEE ON ITA NO.434/AHD/2007 A.Y. 2003-04 SAHELI SYNTHETICS PVT. LTD. V. ITO WD-4(2) SURAT PAGE 4 ACCOUNT OF REJECT AND WASTE OF OPENING STOCK SHOULD HAVE BEEN CONSIDERED. ACCORDINGLY WE DIRECT THE ASSESSING OFFICER TO AD OPT THE AVERAGE GP OF PREVIOUS THREE YEARS AND ACCORDINGLY ESTIMATE THE GP OF THE ASSESSEE AND ASSESS THE INCOME ACCORDINGLY. ACCORDINGLY THIS ISSUE OF THE ASSESSEES APPEAL IS SET ASIDE TO THE FILE OF AO AS INDICATED ABOVE. 6. THE NEXT ISSUE IN THIS APPEAL OF THE ASSESSEE IS AGAINST THE ORDER OF CIT(A) IN CONFIRMING THE ADDITION MADE ON ACCOUNT OF VEHICLE RUNNING EXPENSES. 7. AFTER HEARING THE RIVAL CONTENTIONS AND GOING TH ROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE WE FIND THAT THE ASSESSI NG OFFICER HAS MADE THE DISALLOWANCE OF 20% OF VEHICLE RUNNING EXPENSES INC LUDING THE DEPRECIATION ON VEHICLES. LD. COUNSEL FOR THE ASSESSEE BEFORE US ST ATED THAT THE VEHICLES WERE USED ONLY FOR OFFICIAL PURPOSES AND USED BY DIRECTOR AND THAT IS WHY NO LOG BOOK IS MAINTAINED. THE CIT(A) HAS NOT ACCEPTED THE EXPLANA TION OF THE ASSESSEE AND CONFIRMED THE DISALLOWANCE AT 20%. THE LD. COUNSEL FOR THE ASSESSEE FAIRLY STATED THAT A REASONABLE ESTIMATE WILL SUFFICE. AFTER HEAR ING LD.SR DR WE ARE OF THE VIEW THAT 1/10 TH DISALLOWANCE OF VEHICLE EXPENSES WILL MEET THE END S OF JUSTICE AND ACCORDINGLY WE DIRECT THE ASSESSING OFFICER TO RE-C OMPUTE THE DISALLOWANCE AND THIS ISSUE OF THE ASSESSEES APPEAL IS PARTLY ALLOWED. 8. IN THE RESULT ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 19/03/2010 SD/- SD/- (N.S.SAINI) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD DATED : 19/03/2010 *DKP COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 4. THE CIT CONCERNS. 2. THE RESPONDENT. 5. THE DR ITAT AHMEDABAD 3. THE CIT(APPEALS)-III SURAT 6. GUARD FILE. BY ORDER DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD