SAMIR R. MEHTA, MUMBAI v. I.T.O.-16(3)(1), MUMBAI

ITA 7397/MUM/2011 | 2006-2007
Pronouncement Date: 23-10-2013 | Result: Partly Allowed

Appeal Details

RSA Number 739719914 RSA 2011
Assessee PAN AABPM5972C
Bench Mumbai
Appeal Number ITA 7397/MUM/2011
Duration Of Justice 1 year(s) 11 month(s) 19 day(s)
Appellant SAMIR R. MEHTA, MUMBAI
Respondent I.T.O.-16(3)(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 23-10-2013
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted J
Tribunal Order Date 23-10-2013
Date Of Final Hearing 10-10-2013
Next Hearing Date 10-10-2013
Assessment Year 2006-2007
Appeal Filed On 03-11-2011
Judgment Text
` `` ` IN THE INCOME TAX APPELLATE TRIBUNAL J B ENCH MUMBAI ! ' ' ' ' #$ %&'( ) ! * BEFORE SHRI VIJAY PAL RAO JM AND SHRI N.K. BILLAIYA AM ./ I.T.A. NO.7397/MUM/2011 ( # # # # + + + + / ASSESSMENT YEAR : 2006-07 SHRI SAMIR R. MEHTA 2301 PANCHRATNA OPERA HOUSE MUMBAI-400 004 THE ITO -16(3)(1) MUMBAI ! ) ./ - ./PAN/GIR NO. : AABPM 5972C ( . /APPELLANT ) .. ( /0 . / RESPONDENT ) . 1 / APPELLANT BY : ` SHRI VIPUL JOSHI /0 . 2 1 /RESPONDENT BY : SHRI R.K. SAHU # 2 3 ) / DATE OF HEARING :10.10.2013 45+ 2 3 ) / DATE OF PRONOUNCEMENT : 23.10.2013 6 / O R D E R PER N.K. BILLAIYA AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE LD. CIT(A)-27 MUMBAI DT.18.07.2011 PERTAINING TO A.Y. 2006-07. 2. THE ASSESSEE HAS RAISED 3 SUBSTANTIVE GROUNDS OF APPEAL WITH SUB GROUNDS. GROUND NO. 1 RELATES TO THE REJECTION OF BOOK RESULT BY INVOKING THE PROVISION OF SEC. 145 OF THE ACT AND GROUND NO. 2 RELATES TO THE ITA NO.7397/M/2011 2 CONFIRMATION OF THE ACTION OF THE AO IN REDUCING TH E INCOME OF THE ASSESSEE AT RS. NIL AS AGAINST THE LOSS OF RS. 11 5 6 686/-. 3. THE ASSESSEE IS A MANUFACTURER OF STUDDED JEWELL ERY. FOR THE YEAR UNDER CONSIDERATION THE RETURN WAS FILED ON 30.10. 2006 DECLARING NET LOSS AT RS. 7 10 790/-. THE RETURN WAS SELECTED FOR SCR UTINY ASSESSMENT AND ACCORDINGLY STATUTORY NOTICES U/S. 143(2) AND 142(1 ) WERE ISSUED AND SERVED UPON THE ASSESSEE. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEEDINGS THE ASSESSEE WAS ASKED TO PRODUCE DAY TO DAY STOCK REGISTER OF GOLD DIAMOND AND STUDDED JEWELLERY. THE ASSESS EE WAS ALSO ASKED TO SUBSTANTIATE THE VALUE OF THE CLOSING STOCK. THE A SSESSEE FILED DETAILS IN RESPECT OF THE CLOSING STOCK OF RAW MATERIAL. THE AO OBSERVED THAT THE ASSESSEE HAS SIMPLY FILED THE DETAILS OF THE RAW MA TERIAL BUT HAS FAILED TO JUSTIFY ITS VALUATION. THE AO FURTHER OBSERVED THA T THE ASSESSEE HAS FAILED TO SUBSTANTIATE THE VALUE OF THE CLOSING STOCK OF F INISHED GOODS. THE ASSESSEE SUBMITTED DETAILED SUMMARY FOR THE PURPOSE OF PURCHASE OF DIAMOND AND ITS UTILIZATION FOR MANUFACTURING. THE SUMMARY OF THE SAME IS EXHIBITED AT PAGE-4 OF THE ASSESSMENT ORDER. TH E AO FURTHER OBSERVED THAT THE ASSESSEE HAS NOT FURNISHED THE QUANTITATIV E DETAILS IN THE PRESCRIBED FORM IN FORM NO. 3CD INASMUCH AS THE ASS ESSEE HAS NOT QUANTIFIED THE YIELD OF FINISHED PRODUCTS PERCENTA GE OF YIELD AND SHORTAGE IF ANY. THE AO WAS CONVINCED THAT SINCE THE ASSESSEE HAS NOT FURNISHED THE REQUISITE DETAILS RELATING TO THE VAL UATION OF INVENTORY IT IS NOT POSSIBLE TO RELY UPON THE FINANCIAL RESULTS DEC LARED BY THE ASSESSEE AS THE TRUE INCOME OF THE ASSESSEE CANNOT BE ASCERTAIN ED. THE AO ACCORDINGLY REJECTED THE BOOKS OF ACCOUNT AND TREAT ED THE LOSS DECLARED BY THE ASSESSEE AMOUNTING TO RS. 11 56 686/- AS NIL. 4. THE ASSESSEE STRONGLY AGITATED THIS ISSUE BEFORE THE LD. CIT(A). THE LD. CIT(A) AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS WAS ITA NO.7397/M/2011 3 CONVINCED THAT THE STOCK STATEMENT OF FINISHED PROD UCTS FURNISHED BEFORE THE AO QUANTITATIVE DETAILS GIVEN BY THE AUDITOR I N HER AUDIT REPORT AT PARA 28(B) AS PER ANNEXURE-G DO NOT REFLECT YIELD OF THE FINISHED GOODS PERCENTAGE OF YIELD AND SHORTAGES THEREOF. THE LD. CIT(A) FURTHER OBSERVED THAT THERE IS NO CORRELATION AS TO THE QUA NTITIES AND THE VALUE ADOPTED THEREOF IN RESPECT OF THE DETAILS OF FINISH ED GOODS FURNISHED BY THE ASSESSEE. THE LD. CIT(A) FURTHER OBSERVED THAT THERE IS NO ITEM-WISE INVENTORY OF FINISHED GOODS OF DIAMOND STUDDED GOL D JEWELLERY. FURTHER VALUATION OF THE CLOSING STOCK OF FINISHED GOODS WA S NOT MADE AVAILABLE IN TERMS OF COST OF MANUFACTURE INVOLVED BY TAKING TH E APPROPRIATE EXPENSES INCLUDING THAT OF THE LABOUR CHARGES AND OTHER DIRE CT EXPENSES INTO ACCOUNT. THE LD. CIT(A) WAS OF THE FIRM BELIEF TH AT THE LOSS INCURRED BY THE ASSESSEE HAS NOT BEEN PROPERLY EXPLAINED AND CO NFIRMED THE FINDINGS OF THE AO. 5. AGGRIEVED BY THIS FINDING THE ASSESSEE IS BEFOR E US. THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN S UBMITTED BEFORE THE LOWER AUTHORITIES. IT IS THE SAY OF THE LD. COUNS EL THAT THE ASSESSEE HAS FILED ALL THE REQUISITE DETAILS IN RESPECT OF RAW M ATERIALS CONSUMED IN MAKING OF THE JEWELLERY. THE LD. COUNSEL FURTHER S UBMITTED THAT THE RAW MATERIALS HAVE BEEN DULY QUANTIFIED AND NECESSARY DETAILS WERE MADE AVAILABLE TO THE AO. THE LD. COUNSEL FOR THE ASSES SEE FURTHER ARGUED THAT THE ASSESSEE HAS MAINTAINED PROPER BOOKS OF ACCOUNT WHICH WERE DULY AUDITED AND THE AUDIT REPORT WAS BEFORE THE AO. TH EREFORE THERE IS NO REASON FOR REJECTING THE BOOK RESULTS. 6. PER CONTRA THE LD. DR RELIED UPON THE FINDINGS OF THE LOWER AUTHORITIES. ITA NO.7397/M/2011 4 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CAR EFULLY PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE RELEVAN T MATERIAL EVIDENCE BROUGHT ON RECORD IN THE FORM OF PAPER BOOK. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS NOT FILED QUANTITATIVE DETAILS IN RESPECT OF ITS FINISHED PRODUCTS. THE ASSESSEE IS A MANUFACTURER OF STUDDE D JEWELLERY GOLD DIAMONDS AND OTHER RELATED MATERIALS BEING ITS RAW MATERIAL. IT IS SEEN FROM THE RECORD THAT THE ASSESSEE HAS FILED DETAILS ONLY IN RESPECT OF THE RAW MATERIALS. THE ASSESSEE IS NEITHER A DEALER IN GOLD NOR A TRADER IN DIAMOND. THE ASSESSEE IS MANUFACTURING DIAMONDS ST UDDED JEWELLERY THEREFORE MERELY FILING THE QUANTITATIVE DETAILS OF RAW GOLD AND RAW DIAMOND WOULD NOT SUFFICE. BEFORE US ALSO THE ASS ESSEE COULD NOT FILE THE DETAILS RELATING TO ITS FINISHED PRODUCTS. ALL THA T THE ASSESSEE HAS DONE IS TO CONVERT THE STOCK OF FINISHED PRODUCTS IN THE FO RM OF GOLD ORNAMENTS OF VARIOUS QUALITIES RANGING FROM 10 CTS TO 22 CTS INT O PURE GOLD OF 24 CTS BY APPLYING CERTAIN PERCENTAGE AND THEN VALUE THE SAME IN TERMS OF THE COST OF 24 CTS GOLD. THIS EXERCISE IS NOT PROPER TO JUS TIFY THE VALUATION OF THE CLOSING STOCK OF FINISHED GOODS. THE ASSESSEE HAS ALSO NOT EXPLAINED HOW DIRECT COST HAS BEEN ALLOCATED TO THE MANUFACTURING OF GOODS WHEN IN THIS LINE OF BUSINESS THE LABOUR COST CONSTITUTES ALMOST ABOUT 30 TO 35% OF THE TOTAL COST OF THE JEWELLERY. THE INVOICES OF PURCH ASE BROUGHT ON RECORD ONLY RELATES TO THE PURCHASE OF GOLD OR DIAMOND. T HE ASSESSEE HAS GROSSLY FAILED IN EXPLAINING THE VALUATION OF CLOSING STOCK OF FINISHED PRODUCTS VIS--VIS ALLOCATION OF DIRECT EXPENSES. WE THERE FORE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CI T(A). GROUND NO. 1 & 2 WITH THEIR SUB GROUNDS ARE ACCORDINGLY DISMISSED. 8. GROUND NO. 3 RELATES TO THE CLAIM OF DEDUCTION O F LEGAL EXPENSES OF RS. 80 006/- BY TREATING THE SAME AS CAPITAL EXP ENDITURE. ITA NO.7397/M/2011 5 9. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PRO CEEDINGS THE AO NOTICED THAT THE ASSESSEE HAS PAID RS. 80 006/- TO VISION ENTERPRISES FOR PLANNING LAYOUT SUPERVISION AND COORDINATING WITH THE CONTRACTOR. THE AO WAS OF THE OPINION THAT SUCH EXPENSE RELATES WIT H THE REFURBISHING OF THE FACTORY AND IT SHOULD BE CAPITALIZED AND ACCOR DINGLY ADDED BACK TO THE INCOME OF THE ASSESSEE. 10. BEFORE THE LD. CIT(A) THE ASSESSEE CLAIMED THA T IT HAS BEEN INCURRED DURING THE COURSE OF THE BUSINESS. THE LD . CIT(A) OBSERVED THAT THE AO HAS NOT DOUBTED THE GENUINENESS OF THE EXPE NDITURE BUT HAS TREATED THE SAME AS CAPITAL EXPENDITURE AND DISMISS ED THE GRIEVANCE OF THE ASSESSEE. 11. BEFORE US THE LD. COUNSEL FOR THE ASSESSEE SUB MITTED THAT EXPENSES WERE INCURRED AS PROFESSIONAL FEES PAID TO AN ARCHI TECT FOR DESIGNING THE FURNITURE AND FIXTURES AND THE SHOW ROOM OF THE ASS ESSEE AS THIS IS THE FIRST YEAR OF BUSINESS THEREFORE THE SAME DESERVES TO BE ALLOWED AS REVENUE EXPENDITURE. A PERUSAL OF THE BILL SHOW THA T THE EXPENSES HAVE BEEN INCURRED ON FACTORY PREMISES TOWARDS PLANNING AND LAY OUT OF THE FACTORY. WE FURTHER FIND THAT THE PAYMENTS TOWARD S FURNITURE WERE CAPITALIZED IN THE BALANCE SHEET ON WHICH DEPRECIAT ION HAS BEEN CLAIMED ACCORDINGLY. WE THEREFORE DO NOT FIND ANY REASON WHY THE EXPENDITURE INCURRED ON PROFESSIONAL FEES SHOULD ALSO NOT BEEN CAPITALIZED. WE CONFIRM THE FINDINGS OF THE LD. CIT(A) WITH A MODIF ICATION AND DIRECT THE AO TO ALLOW DEPRECIATION AS PER LAW ON THIS CAPITA LIZED EXPENSE. TO THIS EXTENT THE FINDINGS OF THE LD. CIT(A) IS MODIFIED. GROUND NO. 3 IS PARTLY ALLOWED. ITA NO.7397/M/2011 6 12. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23.10.2013 . 6 2 5+ ) 7 #8 9 23.10.20135 2 ? SDMMMMMMMMMMMMMMM SD/- SD/- ( VIJAY PAL RAO ) ( N.K. BILLAIYA ) ! /JUDICIAL MEMBER ) ! / ACCOUNTANT MEMBER MUMBAI; 7 # DATED 23 / 10 /2013 . # . ./ RJ SR. PS 6 2 /3C D+3 6 2 /3C D+3 6 2 /3C D+3 6 2 /3C D+3 / COPY OF THE ORDER FORWARDED TO : 1. . / THE APPELLANT 2. /0 . / THE RESPONDENT. 3. E ( ) / THE CIT(A)- 4. E / CIT 5. F? /3# / DR ITAT MUMBAI 6. ?G H / GUARD FILE. 6# 6# 6# 6# / BY ORDER 03 /3 //TRUE COPY// I II I / J J J J (DY./ASSTT. REGISTRAR)