Wintex Mills Pvt.Ltd.,, Surat v. The ACIT.,Circle-4.,, Surat

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH AT SURAT CAMP AHMEDABAD BEFORE SHRI T.K. SHARMA JUDICIAL MEMBER AND SHRI D. C. AGRAWAL ACCOUNTANT MEMBER ITA NO.528/AHD/2008 ASSESSMENT YEAR: 2004-05 DATE OF HEARING:20.5.10 DRAFTED:25.5.10 M/S. WINTEX MILLS PVT. LTD. 201-203 GIDC PNDESARA SURAT PAN NO.AAACW2128A V/S . ASSTT. COMMISSIONER OF INCOME-TAX CIRCLE-4 SURAT (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI R.N. VEPAR AR RESPONDENT BY:- SMT. JYOTI LAXIMI SR-DR O R D E R PER D.C.AGRAWAL ACCOUNTANT MEMBER:- THIS IS AN APPEAL FILED BY THE ASSESSEE RAISING FO LLOWING GROUNDS:- (I) REJECTION OF BOOK RESULT:- (1) THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) ERRED IN CONFIRMING REJECTION OF BOOK RESULT WHEN:- (I) THE GROUNDS GIVEN FOR EJECTION OF BOOK RESULT V IZ. RISE IN CERTAIN EXPENSES WERE EXPLAINED; (II) ON ACCOUNT OF FLOODS THE BOOKS AND RECORDS WER E DESTROYED AND COULD NOT BE PRODUCED. (2) THE APPELLANT THEREFORE SUBMITS THAT THE BOOK RESULT OUGHT NOT TO HAVE BEEN DISTURBED. (II) ADDITION ON ACCOUNT OF GROSS PROFIT RS.13 3 3 088/- ITA NO.528/AHD/2008 A.Y.2004-05 M/S. WINNTEX MILLS PVT. V. ACIT CIR-4 SRT PAGE 2 (1) THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) ERRED IN CONFIRMING ADDITION OF RS.13 33 088/- WHEN THE APPE LLANT HAD GIVEN DETAILS AND REASONS FOR FALL IN GROSS PROFIT. (2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE A OUGHT TO HAVE BEEN DELETED. (III) MISCELLANEOUS:- (1) THE APPELLANT CRAVES LEAVE TO ADD ALTER OR VAR Y ANY OF THE GROUNDS OF APPEAL. 2. IN BRIEF TWO ISSUES ARE INVOLVED ONE IS ABOUT REJECTION OF THE BOOKS AND OTHER IS ABOUT GROSS PROFIT ADDITION OF RS.13 3 3 088/-. 3. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF ART S ILK CLOTH PROCESSING ON JOB WORK BASIS. IT HAS DECLARED A GROSS LOSS OF RS. 23 85 145/- AND NET LOSS OF RS.43 99 182/-. 4. DURING ASSESSMENT PROCEEDINGS THE ASSESSING OFF ICER REQUIRED THE ASSESSEE TO PRODUCE BOOKS OF ACCOUNTS AND VOUCHERS BUT ASSESSEE DID NOT PRODUCE THE BASIC RECORDS ON THE GROUND THAT THEY A RE LOST IN THE FLOOD. THE AO DD NOT RELY ON THE BOOK RESULTS SHOWN BY ASSESSE E AND PROCEEDED TO ESTIMATE THE PROFITS. HE NOTICED THAT DURING THE Y EAR UNDER CONSIDERATION GROSS LOSS IS SHOWN AT 28.27% OF THE TURNOVER WHERE AS IN THE IMMEDIATELY PRECEDING YEAR GP WAS SHOWN AT 13.64%. THUS THERE WAS A STEEP FALL BY 41.31%. THE ASSESSEE SOUGHT TO EXPLAIN THE FALL ON THE GROUND THAT THE TURNOVER HAS SUBSTANTIALLY DECREASED THIS YEAR. LAS T YEAR THE TURNOVER WAS AT RSS.2 89 40 880/- WHEREAS THIS YEAR IT IS REDUCED T O RS.84 37 268/-. THERE WAS A FIXED EXPENDITURE ON MANAGEMENT AND ADMINISTR ATION WHICH THE ASSESSEE HAD TO INCUR. BECAUSE OF SUCH HIGH FIXED EXPENDITURE THE ASSESSEE SUFFERED LOSS. THE AO NOTICED THAT ON COMPARISON OF MANUFACTURING EXPENSES INCURRED IN THE PRECEDING YEAR WITH THE EXPENDITURE INCURRED THIS YEAR THE FALL IS NOT SUBSTANTIAL AS COMPARED TO THE FALL IN PROFI TS. HE PROVIDED FOLLOWING TWO CHARTS:- ITA NO.528/AHD/2008 A.Y.2004-05 M/S. WINNTEX MILLS PVT. V. ACIT CIR-4 SRT PAGE 3 A.Y. 2004-05 A.Y. 2003-04 % MANUFACTURING EXPENSES TO NET FINISHING CHARGES RECEIVED 13011 84.50 COLOUR CHEMICALS 28.47 30.72 ELECTRICITY 41.71 18.74 GAS 30.15 11.87 LAST YEAR (RS) THIS YEAR (RS.) ELECTRIC POWER 45 81 999 33 03 758 GAS CONSUMPTION 29 01 543 23 88 707 WAGES ETC. 6 22 346 4 35 573 ACCORDINGLY ASSESSING OFFICER NOT ACCEPTING THE BO OK RESULTS APPLIED GP RATE OF 15.80% BEING THE GP RATIO SHOWN IN THE ASSESSMEN T YEAR 2003-04 AND 2002-03 AND WORKED OUT AN ADDITION OF RS.13 73 088/ -. 5. LD. CIT(APPEALS) CONFIRMED THE ADDITION BY OBSER VING AS UNDER:- 2.4 I HAVE CONSIDERED THE SUBMISSION MADE BY THE A PPELLANT AND OBSERVATION OF THE AO. IT IS SEEN THAT THE ASSESSEE HAS GIVEN A REPLY TO THE AO ON 21.7.06. AT THAT TIME THE FLOOD HAD NOT T AKEN PLACE AND THE ASSESSEE COULD HAVE EASILY GIVEN DOCUMENTARY EVIDEN CE FOR FALL IN GP RATE FOR DISPROPORTIONATE EXPENSES AS COMPARED TO L AST YEAR BUT THE ASSESSEE DID NOT DO SO. IT IS ONLY LATER ON THAT TH E BOOKS OF ACCOUNTS MIGHT HAVE BEEN DESTROYED BY THE FLOOD. HENCE THE A PPELLANT HAS FAILED TO EXPLAIN SUCH HUGE FALL IN PROFIT. IN THE LAST YE AR THE ASSESSEE HAD EARNED PROFIT OF RS.37.73 LACS WHEREAS IN THE CURRE NT YEAR THE ASSESSEE HAS SHOWN LOSS OF RS.23.85 LACS. THE APPELLANT HAS ALSO NOT BEEN ABLE TO SHOW SUCH A HUGE FALL IN TURNOVER FROM RS.2.44 C RORES IN THE LAST YEAR TO RS.29.2 LACS IN THE CURRENT YEAR. EVEN IF APRIL AND MAY MONTHS ARE TAKEN AS CLOSED MONTHS BECAUSE OF STRIKE STILL THE MONTHLY SALE IS ONLY RS.20 LACS APPROX. EVEN IF THIS IS TAKEN INTO ACCOU NT THE TURNOVER SHOULD BE AROUND RS.2 CRORES WHEREAS THE ASSESSEE HAS SHOW N RS.97 LACS. IN VIEW OF THE ABOVE REASONS THE EXPLANATION OF THE AP PELLANT IS NOT ACCEPTABLE. THE BOOK RESULTS HAVE BEEN RIGHTLY REJE CTED BY THE AO AS THE BOOKS OF ACCOUNTS ARE NOT PRODUCED AND THE EXPL ANATION GIVEN BY THE APPELLANT ARE NOT ACCEPTED EVEN THOUGH IT HAS F ILED THE REPLY BEFORE THE BOOKS OF ACCOUNTS WERE DESTROYED. HENCE THE AD DITION MADE IS CONFIRMED AND THE GROUNDS OF APPEAL ARE DISMISSED. ITA NO.528/AHD/2008 A.Y.2004-05 M/S. WINNTEX MILLS PVT. V. ACIT CIR-4 SRT PAGE 4 6. AGAINST THIS LD. AR FOR THE ASSESSEE SUBMITTED T HAT IT IS INCORRECT TO SAY THAT EXPENDITURE HAS FALLEN IN THE SAME RATIO AS TU RNOVER HAS FALLEN. THE ASSESSEE HAS NECESSARILY INCURRED FIXED EXPENDITURE . THE CONSISTENCY IN FALL CAN BE FOUND ONLY IN RESPECT OF VARIABLE EXPENDITUR E. HE PRODUCED A CHART SHOWING THAT FALL IN EXPENDITURE IN CONSUMPTION OF COLOUR AND CHEMICALS COAL REPAIRS PRINTING CHARGES FRINGE AND OCTORI ETC. HA VE BEEN PRACTICALLY IN THE SAME PROPORTION AS THE FALL IN TURNOVER I.E. JOB WO RK RECEIPT. HE REFERRED TO THE FOLLOWING TABLE:- STATEMENT SHOWING COMPARISON OF EXPENDITURE. PARTICULARS CURRENT YEAR(A.Y. 2004-05) (AMOUNT RS.) PREVIOUS YEAR (A.Y.2003-04) (AMOUNT RS.) REDUCTION (IN AMOUNT TERMS) REDUCTION (IN % AGE TERMS) INCOME: FINISHING CHARGES (JOB CHARGES) 8 437.268 28 940.880 (20 503 6 12) -70.85% MNUFACTURING EXPENSES VARIABLE NATURE CONSUMPTION OF COLOURS AND CHEMICALS CONSUMPTION OF COAL AND LIGNITE & GENERATOR MACHINERY REPAIRS AND ENGINEERING DYEING AND PRINTING CHARGES FREIGHT AND OCTROI FACTORY EXPENSES ENVIRONMENT CHARGES OTHERS WAGES P.F. ESI. P.T.ETC. ELECTRIC POWER CONSUMPTION OF GAS 2 255.432 7 507 653 (5 252.221 ) -69.96% 500.912 1 526.438 (1 025.52 6) -67.18% 194.085 301.619 (107.5 34) -35.65% 1 136.037 2 816.919 (1 680.882 ) -59.67% 5.795 14.866 (9.071) -61.02% 24.018 233.347 (209.3 29) -89.71% 61.203 158.053 (96.8 50) -61.28% 435.573 622.343 (186.770) -30.01% 3 303.758 4 581.999 (1.278.241) -27.90% 2 388.707 2 901.543 (512.836) -17.67% 7. ON THE OTHER HAND LD. SR-DR SUPPORTED THE ORDER OF LD. CIT(APPEALS) AND SUBMITTED THAT CONSUMPTION OF GAS IS A VARIABLE EXPENDITURE BUT ITS FALL IS ONLY 17%. SIMILARLY FALL IN ELECTRICITY EXPENSE IS 28%. THEREFORE IT CANNOT BE SAID THAT FALL IN GP IS SATISFACTORILY EXPLAINED. ITA NO.528/AHD/2008 A.Y.2004-05 M/S. WINNTEX MILLS PVT. V. ACIT CIR-4 SRT PAGE 5 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIALS ON RECORD. IN OUR CONSIDERED VIEW BO OKS ARE CORRECTLY REJECTED BY THE ASSESSING OFFICER AS ASSESSEE HAS NOT BEEN A BLE TO PRODUCE THE SAME BEFORE HIM. THIS GROUND OF THE ASSESSEE IS THEREFOR E REJECTED. REGARDING ESTIMATION OF PROFIT WE ARE OF THE CONSIDERED VIEW THAT THERE IS SUBSTANTIAL FALL IN GP THOUGH ASSESSEE HAS TRIED TO EXPLAIN THAT IT HAS TO INCUR FIXED EXPENSE AND THERE IS A CORRESPONDING FALL IN VARIABLE EXPEN DITURE BUT IT DOES NOT EXPLAIN ENTIRE DECREASE OF 41% GP IN THE CURRENT YEAR. CONS IDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES WE DIRECT THE ASSESSING OF FICER TO APPLY A GP RATE OF 5% AS AGAINST 15.8% APPLIED. THE ASSESSING OFFICER WILL WORK OUT ADDITION ACCORDINGLY. 9. IN THE RESULT APPEAL FILED BY THE ASSESSEE IS PART LY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 28/05 /2010 SD/- SD/- (T.K.SHARMA) (D. C.AGRAWAL) (JUDICIAL MEMBER) (ACCOUNTANT MEMBERS) AHMEDABAD DATED : 28/05/2010 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)-I SURAT 4. THE CIT CONCERNS. 5. THE DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD