The ACIT, Circle-6,, Surat v. Yash Silk Mills, Surat

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD C BENCH (BEFORE S/SHRI G.D. AGARWAL VICE-PRESIDENT AND MUKUL KUMAR SHRAWAT JUDICIAL MEMBER) ITA NO.4596/AHD/2007 [ASSTT. YEAR : 2004-2005] ACIT CIR.6 SURAT. VS. M/S. YASH SILK MILLS 249/2 GIDC PANDESARA SURAT. (APPELLANT) (RESPONDENT) REVENUE BY : DR.RAJA RAM SAHU ASSESSEE BY : SHRI J.P. SHAH O R D E R PER MUKUL KUMAR SHRAWAT JUDICIAL MEMBER: THIS IS AN APPEAL AT THE BEHEST OF THE REVENUE WHICH HAS EMAN ATED FROM THE ORDER OF THE CIT(A)-IV SURAT DATED 15.10.2007. THE ONLY SUBSTA NTIVE GROUND IS GROUND NO.1 REPRODUCED BELOW: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.27 25 259/- MADE BY THE AO ON ACCOUNT OF SUPPRESSION OF JOB RECEIPTS. 2. THE FACTS IN BRIEF AS EMERGED FROM THE CORRESPON DING ASSESSMENT ORDER PASSED UNDER SECTION 143(3) DATED 27-12-2006 WERE T HAT THE ASSESSEE FIRM IS IN THE BUSINESS OF DYEING OF ART-WORK ON SILK CLOTH ON JOB WORK BASIS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS NOTICE D BY THE AO THAT THERE WERE CERTAIN DISCREPANCIES IN THE LOT REGISTERS AND OUTWARD AND INWARD REGISTERS. THEREUPON HE HAS INVOKED THE PROVISIONS OF SECTION 145. HOWEVER THE MAIN REASON FOR THE IMPUGNED ADDITION NOW CHALLENGED BE FORE US WAS THAT FOR TWO MONTHS I.E. APRIL AND MAY 2003 THERE WAS SUBSTANT IAL FALL IN THE PROCESSING CHARGES RECEIVED BY THE ASSESSEE. AS PER THE AO ON ONE HAND THERE WERE SUBSTANTIAL DECREASE IN THE RECEIPTS OF PROCESSING CHARGES HOWEVER ON THE OTHER HAND THE DIRECT EXPENSES LIKE COLOUR CHEMICALS CONSUMPTION LABOUR CHARGES POWER AND DIESEL CHARGES ETC. WERE INCURRED AT THE NORMAL RATES. IT HAS ALSO BEEN OBSERVED BY THE AO THAT THOSE DIRE CT EXPENSES HAD EXCEEDED ITA NO.4596/AHD/2007 -2- THE JOB WORK RECEIPTS FOR THESE TWO MONTHS. THEREA FTER HE HAS TABULATED THE ESTIMATED JOB CHARGES OF SEVERAL MONTHS AND THEREUP ON ARRIVED AT THE CONCLUSION THAT THERE WAS SUPPRESSION OF JOB RECEIP TS IN THESE TWO MONTHS TO THE TUNE OF RS.27 25 259/-. ACCORDINGLY THE SAID AMO UNT WAS TAXED. 3. THE MATTER WAS CARRIED BEFORE THE FIRST APPELLAT E AUTHORITY. THE LEARNED CIT(A) HAS EXAMINED THE FACTS OF THE CASE AND CAME TO KNOW THAT THERE WAS STRIKE AGAINST THE EXEMPTION OF EXCISE DUTY ON SILK CLOTH BY SILK CLOTH MANUFACTURING UNITS . DUE TO THE STRIKE THE ASSESSEE WAS NOT PROVIDED SUFFICIENT GREY CLOTH FOR JOB WORK AND PROCESSING A S COMPARED TO THE OTHER MONTHS. IT WAS DEMONSTRATED THAT FOR OTHER MONTHS ABOUT 5 LAKHS TO 15 LAKHS METERS OF GREY CLOTH WAS RECEIVED FOR PROCESSING H OWEVER DURING THE MONTH OF APRIL AND MAY 2003 THE ASSESSEE HAD RECEIVED ONLY 1.20 LAKH METERS OF CLOTH. WITH THESE OBSERVATIONS THE LEARNED CIT(A) HAS HEL D AS UNDER: ... I HAVE CONSIDERED THE SUBMISSIONS AND HAVE GO NE THROUGH THE DETAILS. I FIND THAT THE AO HAS MADE THIS ADDITION ONLY ON THE BASIS OF CONJECTURES AND SURMISES BY TOTALLY IGNORING THE FA CT THAT THE INWARD FLOW OF GREY CLOTH DURING THE MONTH OF APRIL & MAY 2003 WOULD BE SERIOUSLY AFFECTED DUE TO STRIKE IN TEXTILE INDUSTR Y. NO EVIDENCE OR MATERIAL HAS BEEN BROUGHT ON RECORD BY THE AO TO SH OW THAT THE APPELLANT PROCESSED UNACCOUNTED GREY CLOTH DURING T HESE TWO MONTHS. HE HAS ONLY RELIED ON THE CONSUMPTION OF COLOUR & C HEMICALS POWER AND LABOUR CHARGES INCURRED BY THE APPELLANT IN OTH ER MONTHS FOR EARNING JOB CHARGES TO HYPOTHETICALLY CALCULATE THE SUPPRESSED PRODUCTION DURING THE TWO MONTHS. IT IS FURTHER SE EN THAT THE MAJOR AMOUNT OF LABOUR CHARGES INCURRED IN APRIL & MAY 2 003 WERE ON ACCOUNT OF FIXED SALARIES OF THE DYEING MASTERS WHI CH WOULD HAVE TO BE PAID EVEN IF THE PRODUCTION WAS NEGLIGIBLE. THE BO OKS OF ACCOUNTS WHICH SHOW LOSS FOR A SMALL PART OF THE YEAR CANNOT BE RE JECTED WHICH WOULD OTHERWISE MEAN WHENEVER LOSS RETURN IS FILED BY AN ASSESSEE THE BOOKS OF ACCOUNTS WERE LIABLE TO BE REJECTED. THE APPELLANT HAS ALSO MAINTAINED LOT REGISTER AND INWARD OUTWARD REGISTER WHICH ARE EVIDENCE OF APPELLANTS CLAIM OF REDUCED INFLOW OF GREY DURING THE FIRST TWO MONTHS. IT IS ALSO NOT CORRECT TO TAKE THE SUM OF ALL THE J OB CHARGES RECEIVED DURING THE RET OF THE 10 MONTHS AND DEDUCTING TOTAL EXPENDITURE FROM IT FOR ARRIVING AT THE AVERAGE PROFIT IN EACH MONTH. IT IS ALSO A FACT THAT SOME OF THE POWER FUEL AND WATER EXPENDITURE HAVE TO BE INCURRED AT ALMOST OF THE SAME LEVEL EVEN WHEN THE PRODUCTION IS MINIMAL IN ORDER ITA NO.4596/AHD/2007 -3- TO MAINTAIN AND RUN THE MACHINES SMOOTHLY. THE AO S ACTION THEREFORE IN ESTIMATING PROFIT IN THE FIRST TWO MONTHS OF THE YEAR WITHOUT APPRECIATING THE SUBMISSION OF THE APPELLANT IS NOT IN ORDER AND ADDITION ON THIS ACCOUNT IS DIRECTED TO BE DELETED. 4. WITH THIS BACKGROUND WE HAVE HEARD BOTH THE SID ES. ONCE IT WAS AN ADMITTED FACTUAL POSITION THAT THERE WAS STRIKE DUR ING THESE TWO MONTHS VIZ. MARCH AND APRIL 2003 AND THE ASSESSEE HAS NOT RECEIVED SUFFICIENT QUANTITY OF GREY CLOTH FOR PROCESSING ON JOB WORK B ASIS THEREFORE NATURALLY THERE OUGHT TO BE DECLINE IN THE JOB CHARGES RECEIP TS. AS FAR AS THE OVERHEADS WERE CONCERNED IT WAS ALSO EXPLAINED THAT SALARY E TC. WERE FIXED CHARGES WHICH COULD NOT BE REDUCED ON ACCOUNT OF DECLINE IN THE JOB WORK WHICH RESULTED INTO LOSS FOR THESE TWO MONTHS. ALL THESE FACTS HAVE BEEN APPRECIATED BY THE LEARNED CIT(A) AND IN OUR CONSIDERED VIEW HE HAS RIGHTLY REVERSED THE FINDINGS OF THE AO. EVEN BEFORE US THE LEARNED AR HAS PLACED ON RECORD A CUTTING OF THE NEWSPAPER TO ESTABLISH THAT WEAVERS WERE ON STRIKE DURING THAT PERIOD. UNDER THE TOTALITY OF THE FACTS AND CIRCUM STANCES OF THE CASE WE HEREBY CONFIRM THE FINDING OF THE CIT(A). THIS GROUND OF THE REVENUE IS DISMISSED. 5. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN OPEN COURT ON 28 TH FEBRUARY 2011. SD/- SD/- (G.D. AGARWAL) VICE-PRESIDENT (MUKUL KR. SHRAWAT) JUDICIAL MEMBER PLACE : AHMEDABAD DATE : 28-02-2011 COPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR ITAT. BY ORDER DR/AR ITAT AHMEDABAD