ITO,Ward 3(3),, Malegaon v. M/s. Ismail Bafati,, Malegaon

ITA 750/PUN/2008 | 2001-2002
Pronouncement Date: 31-01-2011 | Result: Dismissed

Appeal Details

RSA Number 75024514 RSA 2008
Bench Pune
Appeal Number ITA 750/PUN/2008
Duration Of Justice 2 year(s) 7 month(s) 28 day(s)
Appellant ITO,Ward 3(3),, Malegaon
Respondent M/s. Ismail Bafati,, Malegaon
Appeal Type Income Tax Appeal
Pronouncement Date 31-01-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 31-01-2011
Assessment Year 2001-2002
Appeal Filed On 02-06-2008
Judgment Text
ITA NO 750/PN/08 M/S ISMAIL BAFATI NASHIK 1 IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B PUNE BEFORE SHRI I C SUDHIR JUDICIAL MEMBER AND SHRI G.S. PANNU ACCOUNTANT MEMBER ITA NO. 750/PN/08 (ASSTT YEAR: 2001-02) INCOME-TAX OFFICER WARD 3(3) MALEGAON .. APPELLANT VS. M/S ISMAIL BAFATI NASHIK .. RESPONDENT PAN AAAF16099M APPELLANT BY : SHRI KRISHNA MURARI RESPONDENT BY : SHRI SUNIL GANOO ORDER PER G.S. PANNU A.M: THIS APPEAL BY REVENUE IS DIRECTED AGAINST THE O RDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-II NASHIK DAT ED 31.3.2008 WHICH IN TURN HAS ARISEN FROM AN ORDER DATED 26.3.2004 P ASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3) OF THE INCOM E-TAX ACT 1961 (IN SHORT THE ACT) PERTAINING TO THE ASSESSMENT YEAR 2001-02. 2. THE GROUNDS OF APPEAL PREFERRED BY THE REVENUE R EAD AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT(A)-II NASHIK ERRED IN DELETING THE ADDITION OF RS 32 19 158/- MA DE BY THE AO ON ACCOUNT OF PURCHASES OF TENDU LEAVES MADE BY THE AS SESSEE BASED ON A UNSCIENTIFIC FORMULA. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE CIT(A)-II NASHIK FAILED TO APPRECIATE THE FORMULA APPLIED BY THE AO IN ORDER TO WORK OUT ITA NO 750/PN/08 M/S ISMAIL BAFATI NASHIK 2 THE AVAILABILITY OF STOCK IS ON WRONG FOOTING AND C ANNOT BE APPLIED BECAUSE IN ABSENCE OF THE PROPER STOCK RECORD THE A O HAS NO CHOICE BUT TO ADOPT THE BASE AVAILABLE PROCEDURE TO ESTIMATE T HE QUANTITATIVE FIGURES SO CRUCIAL TO EXAMINE THE MANUFACTURING PROCESS OF THE ASSESSEE. 3. BRIEFLY PUT THE RELEVANT FACTS ARE THAT THE ASSESSE E IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF MANUFACTURING BIDIS . IT FILED ITS RETURN OF INCOME ON 31.3.2002 DECLARING TOTAL INCOME OF RS 6 88 670/-. THE ASSESSING OFFICER NOTED THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD EFFECTED PURCHASES OF TENDU LEAVES ON E OF THE PRINCIPAL RAW MATERIAL IN THE MONTHS OF JUNE NOVEMBER 2000 AND JANUARY AND FEBRUARY 2001 WHEREAS OTHER EXPENSES INCIDENTAL T O THE MANUFACTURING PROCESS LIKE WAGES PURCHASE OF TOBACCO ETC. WERE FOUND TO HAVE BEEN INCURRED THROUGHOUT THE YEAR MORE OR LESS IN AN EVE N MANNER. FOR THE AFORESAID REASON THE ASSESSING OFFICER VERIFIED TH E POSITION OF AVAILABILITY OF TENDU LEAVES FOR PRODUCTION OF BIDIS ON A MONTH- WISE BASIS. AFTER EXAMINING MONTH-WISE PRODUCTION EXCISE REGISTER A S ALSO OTHER RECORDS MAINTAINED BY THE ASSESSEE THE ASSESSING OFFICER F OUND THAT FROM SEPTEMBER 2000 TO DECEMBER 2000 THE ASSESSEE WAS MANUFACTURING BIDIS WITHOUT THERE BEING AVAILABILITY OF TENDU LEA VES AN ESSENTIAL INGREDIENT FOR THE MANUFACTURE OF BIDIS. ACCORDING TO THE ASSESSING OFFICER THIS INDICATED AN UNACCOUNTED EXPENDITURE IN THE PU RCHASE OF TENDU LEAVES DURING THE PERIOD OF SEPTEMBER TO DECEMBER 2000. THE ASSESSING OFFICER THEREAFTER COMPUTED THE SHORTAGE OF TENDU L EAVES OF RS 32 19 158/- AND ADDED THE SAME AS UNEXPLAINED EXPEN DITURE TOWARDS COST OF ACQUISITION OF TENDU LEAVES CONSUMED FOR THE PRO DUCTION OF BIDIS DURING THE PERIOD SEPTEMBER TO DECEMBER 2000. HENCE THE IMPUGNED ADDITION WAS MADE BY THE ASSESSING OFFICER. ITA NO 750/PN/08 M/S ISMAIL BAFATI NASHIK 3 4. BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS) ASSESSEE CONTENDED THAT IT WAS MAINTAINING REGULAR ACCOUNT B OOKS WHICH WERE VERIFIED BY THE ASSESSING OFFICER AND THE SAME WERE ACCEPTED INCLUDING THE QUANTITATIVE DETAILS OF PURCHASES AS WELL AS OP ENING STOCK AND CLOSING STOCK; THAT THERE WAS NO EVIDENCE OF ANY PURCHASES EFFECTED BY THE ASSESSEE OUTSIDE THE ACCOUNT BOOKS; THAT PURCHASE A ND TRANSPORTATION OF TENDU LEAVES IS FULLY CONTROLLED BY THE FOREST DEPA RTMENT AND THEREFORE NO UNACCOUNTED PURCHASE WAS POSSIBLE. FOR ALL THE ABOV E REASONS IT WAS CONTENDED THAT THE ADDITION MADE BY THE ASSESSING O FFICER WAS NOT JUSTIFIED. THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS SINCE DELETED THE ADDITION BY NOTICING THAT THE FORMULA ADOPTED BY TH E ASSESSING OFFICER TO COMPUTE SHORTAGE OF TENDU LEAVES IN PARTICULAR MONT HS WAS UNSCIENTIFIC AND WRONG. THE COMMISSIONER OF INCOME-TAX (APPEALS) ALSO OBSERVED THAT THERE WAS ABSENCE OF ANY POSITIVE EVIDENCE OF UNACC OUNTED PURCHASES AND FURTHER THAT NO DISCREPANCIES HAD BEEN FOUND BY THE ASSESSING OFFICER IN THE ACCOUNT BOOKS AS ALSO EXCISE REGISTERS MAINT AINED BY THE ASSESSEE. ACCORDINGLY THE ADDITION OF RS 32 19 158/- WAS DEL ETED WHICH IS IN CHALLENGE BEFORE US IN TERMS OF THE GROUNDS OF APPE AL RAISED BY THE REVENUE. 5. BEFORE US THE LEARNED DEPARTMENTAL REPRESENTATI VE HAS PRIMARILY RELIED UPON THE ORDER OF THE ASSESSING OF FICER IN SUPPORT OF THE CASE OF THE REVENUE. ACCORDING TO THE LEARNE D DEPARTMENTAL REPRESENTATIVE THE COMMISSIONER OF IN COME-TAX (APPEALS) ERRED IN OBSERVING THAT THE FORMULA ADOPT ED BY THE ASSESSING OFFICER TO COMPUTE SHORTAGE OF TENDU LEAVES IS UNSC IENTIFIC BECAUSE THE SAME WAS A STANDARD FORMULA WHICH CLEARLY SHOWED TH AT AT CERTAIN TIMES ITA NO 750/PN/08 M/S ISMAIL BAFATI NASHIK 4 DURING THE YEAR ASSESSEE WAS CARRYING ON PRODUCTIO N OF BIDIS IN THE ABSENCE OF THE REQUISITE TENDU LEAVES IN STOCK. 6. ON THE OTHER HAND THE LEARNED COUNSEL FOR THE R ESPONDENT- ASSESSEE VEHEMENTLY ARGUED THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) MADE NO MISTAKE IN DELETING THE ADDITION INASMUCH AS THE PURCHASE OF TENDU LEAVES WAS IN KILOGRAMS WHEREAS THE PRODUCTION OF BIDIS IS RECORDED IN NUMBERS. THEREFORE THE STANDA RD FORMULA ADOPTED BY THE ASSESSING OFFICER TO COMPUTE THE SHORTAGE IN PU RCHASES WAS UNWORKABLE. HE THEREFORE SUBMITTED THAT THE COMMI SSIONER OF INCOME- TAX (APPEALS) MADE NO MISTAKE IN OBSERVING THAT IN THE ABSENCE OF ACCOUNT BOOKS BEING REJECTED BY THE ASSESSING OFFIC ER THE IMPUGNED ADDITION WAS UNSUSTAINABLE. THE LEARNED COUNSEL ALS O POINTED TO THE FACT SITUATION THAT DURING THE YEAR UNDER CONSIDERATION THE GROSS PROFIT RATE HAS IMPROVED OVER THE PRECEDING YEAR AND THEREFORE TH ERE WAS NO JUSTIFICATION TO INTERFERE WITH THE TRADING RESULTS DECLARED BY T HE ASSESSEE. IN NUT-SHELL THE DELETION OF ADDITION DONE THE COMMISSIONER OF I NCOME-TAX (APPEALS) IS SOUGHT TO BE DEFENDED. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY. IN THIS CASE IN SUM AND SUBSTANCE THE DISPUTE REVOLVES ROUND THE CA SE MADE OUT BY THE ASSESSING OFFICER THAT ASSESSEE HAS UNDERTAKEN PURC HASES OF TENDU LEAVES OUTSIDE THE BOOKS OF ACCOUNT. THE PRIMARY RE ASON FOR THE ASSESSING OFFICER TO INFER SO IS THAT THE ASSESSEE IS STATED TO HAVE UNDERTAKEN PRODUCTION OF BIDIS DURING THE PERIOD SE PTEMBER TO DECEMBER 2000 WHEN THE REQUISITE TENDU LEAVES WERE NOT AVAIL ABLE IN STOCK. THE SHORTAGE OF TENDU LEAVES HAS BEEN CONCLUDED BY THE ASSESSING OFFICER ON THE BASIS OF A STANDARD FORMULA. THE ASSESSING OFFI CER ADOPTED THE FIGURES MAINTAINED BY THE ASSESSEE IN THE PRODUCTION REGIST ERS AND FROM THOSE HE ITA NO 750/PN/08 M/S ISMAIL BAFATI NASHIK 5 HAS WORKED OUT THE PROPORTIONATE MONTH-WISE PRODUCT ION OF BIDIS AND CONSUMPTION OF TENDU LEAVES. IT IS QUITE CLEAR THAT THE ASSESSING OFFICER ADOPTED FIGURES OF OPENING STOCK PURCHASE SALES A ND CLOSING STOCK OF TENDU LEAVES AS PER THE BOOKS MAINTAINED BY THE ASS ESSEE. ALL THIS INFORMATION IS IN KILOGRAMS WHEREAS THE PRODUCTION REGISTERS CONTAINING THE QUANTITATIVE DETAILS OF PRODUCTION OF BIDIS IS MAINTAINED IN NUMBERS. THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS OBSERV ED IN PARAGRAPH 5 THAT THE FORMULA ADOPTED BY THE ASSESSING OFFICER T O ARRIVE AT THE MONTH- WISE PRODUCTION OF BIDIS ON THE BASIS OF MONTH-WISE CONSUMPTION OF TENDU LEAVES IS NOT SCIENTIFIC AND RATIONAL. WE ARE IN CO NFORMITY WITH THIS OBSERVATION INASMUCH AS SUCH ANALYSIS MAY BE A REA SON TO INVESTIGATE FURTHER BUT CERTAINLY THE SAME IPSO FACTO CANNOT B E A GROUND TO ESTABLISH UNACCOUNTED PURCHASES WITHOUT THERE BEING ANY DIREC T OR INDIRECT EVIDENCE OF ASSESSEE HAVING EFFECTED ANY PURCHASES OUTSIDE T HE ACCOUNT BOOKS. WE SAY SO ESPECIALLY IN THE PRESENT CASE WHEREIN T HE PURCHASE AND TRANSPORTATION OF TENDU LEAVES IS UNDER THE AUTHORI ZATION AND CONTROL OF THE FOREST DEPARTMENT AND ALSO ON ACCOUNT OF THE FA CT THAT THE PRODUCTION RECORDS OF THE ASSESSEE ARE IN CONFORMITY WITH THE STATUTORILY MAINTAINED EXCISE REGISTERS. CONSIDERING THE ENTIRETY OF THE C IRCUMSTANCES IN OUR VIEW IN THIS CASE THE ASSESSING OFFICER BASED HIS DECISION TO ESTABLISH UNACCOUNTED PURCHASES ON MERE SUSPICION AND SURMISE S AND NOT ON THE BASIS OF ANY COGENT EVIDENCE. THE COMMISSIONER OF I NCOME-TAX (APPEALS) IN OUR VIEW MADE NO MISTAKE IN DELETING THE ADDITION AND THE GRIEVANCE OF THE REVENUE AS MANIFESTED IN THE STATE D GROUNDS OF APPEAL IS UNTENABLE. 8. BEFORE PARTING WE MAY REFER TO AN OBSERVATION B Y THE ASSESSING OFFICER THAT IN THE COURSE OF ASSESSMENT PROCEEDING S ASSESSEE AGREED FOR ITA NO 750/PN/08 M/S ISMAIL BAFATI NASHIK 6 THE ADDITION. IN THIS REGARD THE COMMISSIONER OF I NCOME-TAX (APPEALS) HAS TAKEN NOTE OF THE SAID SITUATION IN PARAGRAPH 2.1 O F THE IMPUGNED ORDER. SO HOWEVER IN THE GROUNDS OF APPEAL RAISED BEFORE US WHICH HAS BEEN EXTRACTED BY US IN THE EARLIER PART OF THIS ORDER THERE IS NO GROUND RAISED BY THE REVENUE ON THIS SCORE. THEREFORE WE HAVE AD JUDICATED THE CAPTIONED APPEAL ON THE BASIS OF THE DISPUTE AGITAT ED BY THE REVENUE AS MANIFESTED IN THE GROUNDS OF APPEAL. 9. IN THE RESULT THE APPEAL OF THE REVENUE IS DISM ISSED. PRONOUNCED IN THE OPEN COURT ON THIS 31ST DAY OF JANUARY 2011. SD/- SD/- (I C SUDHIR) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE DATED: 31ST JANUARY 2011 COPY TO:- 1) M/S ISMAIL BAFATI NASHIK 2) THE ITO WD-3(3) MALEGAON 3) THE CIT (A)II NASHIK 4) THE CIT-II NASHIK 5) THE DEPARTMENTAL REPRESENTATIVE B BENCH ITAT PUNE. BY ORDER TRUE COPY ASST. REGISTRAR I.T.A.T. PUNE B