M/s Maruti Packaging, GANDHIDHAM v. The Income Tax Officer Ward 1, GANDHIDHAM

ITA 856/RJT/2009 | 2006-2007
Pronouncement Date: 23-12-2010 | Result: Partly Allowed

Appeal Details

RSA Number 85624914 RSA 2009
Assessee PAN AAHFM4396G
Bench Rajkot
Appeal Number ITA 856/RJT/2009
Duration Of Justice 1 year(s) 5 month(s) 27 day(s)
Appellant M/s Maruti Packaging, GANDHIDHAM
Respondent The Income Tax Officer Ward 1, GANDHIDHAM
Appeal Type Income Tax Appeal
Pronouncement Date 23-12-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted DB
Tribunal Order Date 23-12-2010
Date Of Final Hearing 13-12-2010
Next Hearing Date 13-12-2010
Assessment Year 2006-2007
Appeal Filed On 26-06-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH RAJKOT BEFORE SHRI A.L. GEHLOT (AM) AND SHRI D.T. GARASIA (JM) I.T.A. NO.856/RJT/2009 (ASSESSMENT YEAR 2006-07) M/S MARUTI PACKAGING VS ITO WD.1 SHED NO.214 SECTOR-3 GANDHIDHAM KSEZ GANDHIDHAM-KUTCH PAN : AAHFM4396G (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MP SARDA RESPONDENT BY : SHRI JAI RAJ KUMAR O R D E R GARASIA : THIS APPEAL BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER OF CIT(A)-II RAJKOT DATED 19-05-2009 FOR THE ASSESSMENT YEAR 200 6-07. 2. THE FOLLOWING EFFECTIVE GROUNDS ARE RAISED IN TH E APPEAL: 2. THE AO HAS ERRED IN LAW AS WELL AS ON FACTS IN DISALLOWING THE CLAIM OF EXEMPTION U/S 10A OF RS.8 31 538/-. T HE LD.CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE AO. 3. THE AO ERRED IN LAW AS WELL AS ON FACTS IN MAKI NG ADDITION OF RS.11 97 653/- ON ACCOUNT OF LOW GP BY ESTIMATIN G GP AT 15.49%. THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE AO. 3. WE HAVE HEARD SHRI MP SARDA THE LD.AR OF THE AS SESSEE AND SHRI JAI RAJ KUMAR THE LD.DR. 4. WITH REGARD TO THE FIRST GROUND THE FACTS IN B RIEF ARE THAT THE ASSESSEE CLAIMED THE IMPUGNED DEDUCTION OF 8 31 538 U/S 10A OF THE ACT ON THE BASIS THAT IT SOLD THE PACKAGING MATERIAL TO OTHER EXPORTING U NITS WHICH UNITS USED THEM IN EXPORTING THE PRODUCTS WITHOUT ANY FURTHER PROCESSI NG AND THAT THE PACKAGING ITA NO.856/RJT/2009 2 MATERIALS WERE EXPORTED AND PROCEEDS WERE RECEIVED BY THOSE EXPORTING UNITS IN FOREIGN CURRENCY AND THEREFORE THE SERVICE UNITS SH OULD BE TREATED AT PAR WITH THE EXPORTING UNITS IN SEZ. IT WAS ALSO THE CLAIM OF T HE ASSESSEE THAT THERE WAS NO DUPLICATION OF EXEMPTION AS PACKAGING MATERIALS WER E COST FOR EXPORTING UNITS EXPORTING THE PRODUCTS WHICH REDUCED THEIR PROFITS. EXIM POLICY 1997-2002 WAS RELIED UPON IN RESPECT OF EXPORT SALES. THE CLAIM WAS NOT ACCEPTABLE TO THE AUTHORITIES BELOW. ACCORDING TO THE CIT(A) THE AS SESSEE HAS FAILED TO COMPLY WITH THE CONDITIONS OF EXPORT AND RECEIPT IN FOREIG N EXCHANGE PRESCRIBED IN SECTION 10A FOR CLAIMING EXEMPTION; THERE WAS NO EX PORT AND RECEIPT IN FOREIGN EXCHANGE. THE LD.CIT(A) THEREFORE RELYING ON THE ORDERS OF HIS PREDECESSOR FOR ASSESSMENT YEARS 2003-04 AND 2004 CONFIRMED THE ACT ION OF THE ASSESSING OFFICER DENYING THE CLAIM TO THE ASSESSEE. AGGRIEV ED FURTHER THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5. THE LD.AR OF THE ASSESSEE FAIRLY CONCEDED THAT T HE TRIBUNAL FOR THE ASSESSMENT YEAR 2005-06 HAS UPHELD THE ORDERS OF AU THORITIES BELOW ON THE ISSUE. HE ALSO HAS FAIRLY ADMITTED THAT THERE IS N O CHANGE IN THE FACTS AND CIRCUMSTANCES ON THE ISSUE. IN VIEW OF THIS ADMITT ED POSITION WE DO NOT SEE A REASON TO DEVIATE FROM THE DECISION ALREADY TAKEN B Y THE TRIBUNAL ON THE ISSUE IN WHICH ONE OF US WAS A PARTY TO THE ORDER. WE THER EFORE FOLLOWING THE PRECEDENT REJECT GROUND NO.2 OF THE ASSESSEE. THE FOLLOWING ARE THE FINDINGS RECORDED BY THE TRIBUNAL FOR THE ASSESSMENT YEAR 2005-06: 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS WE AR E OF THE VIEW THAT THE ASSESSEE IS NOT ENTITLED FOR EXEMPTIO N UNDER SECTION 10A AS THE ASSESSEE HAS NOT MADE EXPORT AND HE HAS NOT RECEIVED ANY REALIZATION IN FOREIGN EXCHANGE. MERELY BECAUS E TO WHOM THE ASSESSEE SOLD THE GOODS HAVE MADE EXPORT AND RECEIV ED REALIZATION IN FOREIGN EXCHANGE CANNOT MAKE THE ASS ESSEE ENTITLED FOR EXEMPTION. WE ACCORDINGLY CONFIRM THE ORDER O F THE CIT(A) ON THIS ISSUE. ITA NO.856/RJT/2009 3 6. WITH REGARD TO THE OTHER EFFECTIVE GROUND IN THE APPEAL PERTAINING TO CONFIRMATION OF GROSS PROFIT ADDITION THE ASSESSIN G OFFICER NOTICED THAT THE GROSS PROFIT DECLARED FOR THE YEAR UNDER CONSIDERATION WA S ONLY 9.51% AS AGAINST THE GROSS PROFIT RATE OF 26.38% IN THE ASSESSMENT YEAR 2004-05. ACCORDING TO THE ASSESSING OFFICER THE GROSS PROFIT RATE DECLARED B Y THE ASSESSEE WHEN SEEN THROUGH THE THREE ASSESSMENT YEARS I.E. AY 2004-05 2005-06 AND 2006-07 SHOWED A DOWNWARD TREND AT 26.38% 10.59% AND 9.51% RESPECTIVELY. THE ASSESSEE EXPLAINED THAT THE UNIT OF THE ASSESSEE IS HAVING ITS ACTIVITY AT KANDLA SPECIAL ECONOMIC ZONE AND WAS HAVING ACTIVITY OF PH YSICAL OR DEEMED EXPORT SALES AND THAT GROSS PROFIT OR NET PROFIT IS DEPEND ENT ON MANY CIRCUMSTANCES LIKE LOCAL OR FOREIGN MARKET FLUCTUATION FOR FOREIGN CUR RENCY RATE AGAINST INDIAN CURRENCY SALES OF COMPANY PRODUCTS IN LOCAL OR FOR EIGN MARKET AS PROFIT AT LOCAL MARKET NORMALLY REMAINS LOWER THAN THE EXPORT SALES ETC. THE ASSESSING OFFICER HOWEVER NOT CONVINCE WITH THE REPLY OF THE ASSESSE E. ACCORDING TO HIM THE CLAIM THAT THE ASSESSEE EFFECTED SALES OF THE PRODU CTS IN FOREIGN MARKET IS FAR FROM THE TRUTH. HE THEREFORE ADOPTED A GROSS PRO FIT RATE OF 15.49% WHICH RESULTED IN AN ADDITION OF RS.11 97 653. 7. THE ASSESSEE CARRIED THE ISSUE BEFORE THE CIT(A) AND CONTENDED THAT THE GROSS PROFIT DECLARED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION WAS COMPARABLE WITH THE GROSS PROFIT FOR THE IMMEDIATEL Y PRECEDING ASSESSMENT YEAR; A PLAUSIBLE EXPLANATION FURNISHED BY THE ASSESSEE W AS SIMPLY DISBELIEVED BY THE ASSESSING OFFICER; AND THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE WERE AUDITED AND NO DEFECT WAS FOUND THEREIN AND THEREFORE THE SCOPE FOR NOT ACCEPTING THE BOOK RESULTS WAS BARE MINIMUM. THE CIT(A) HOWEVER WAS NOT CONVINCED AND REJECTED THE GROUND OF THE ASSESSEE WITH THE FOLLOW ING OBSERVATIONS: (B) THE REASONS FOR ADDITION AND APPELLANTS SUBMI SSIONS WERE DULY CONSIDERED BY ME. FROM THE COMPARATIVE DETAIL S OF G.P. IT IS OBSERVED THAT THE G.P. WAS SHOWING DECLINING TREND. FROM THE GP OF 26.38% IN A.Y. 2004-05 THE APPELLANT SHOWED G.P . OF ONLY 9.51% IN A.Y. 2006-07. THUS THERE WAS A MAJOR DEC LINE OF 16.87% WITHIN A SHORT SPAN OF 2 YEARS. THE APPELLANT EXPL AINED BEFORE THE ITA NO.856/RJT/2009 4 A.O. THAT G.P. WAS DEPENDENT UPON LOCAL SALES FORE IGN SALES AND FOREIGN CURRENCY FLUCTUATIONS. THIS EXPLANATION WAS NEITHER HERE NOR THERE. IT WAS A QUITE VAGUE EXPLANATION WHICH NO WAY REVEALED THE TRUE STATE OF AFFAIRS. THE ONUS WAS CLEARLY ON THE APPELLANT TO EXPLAIN SUCH ABNORMAL DECLINE WITH CONVINCING EXPLA NATIONS AND SUPPORTING EVIDENCES. IN PLACE OF THAT THE APPELL ANT CHOSE TO ADVANCE UNSUPPORTED AND UNVERIFIABLE THEORIES FOR T HE REASONS BEST KNOWN TO IT. EVEN BEFORE ME THERE WAS NO PLAUSIBL E SUBMISSION AS TO EXPLAIN SUCH HUGE DECLINE IN G.P. RATIO IN SHORT SPAN OF 2 YEARS. INSTEAD OF EXPLAINING THE REASONS FOR SUCH DECLINE THE APPELLANT PREFERRED TO BLAME THE A.O. BY ARGUING THAT THE BOO KS OF ACCOUNTS WERE AUDITED AND THERE WERE NO DEFECTS FOUND IN IT. IT IS NOT A RULE THAT AUDITED BOOKS COULD NOT BE QUESTIONED AT ALL I N THE ASSESSMENT PROCEEDINGS. THE A.O. WAS PERFECTLY JUSTIFIED IN QU ESTIONING THE BOOKS RESULTS IN VIEW OF HEAVY DECLINE IN G.P. RATI O IN SHORT PERIOD. THE APPELLANTS FAILURE TO EXPLAIN THE REASONS FOR HEAVY DECLINE IN G.P. RATIO AND SIMPLY RELYING ON AUDITED BOOKS GIVE IMPRESSION THAT SOMETHING WAS WRONG WHICH THE APPELLANT DID NOT WAN T TO COME ON RECORD. THE ARGUMENTS OF AUDITED BOOKS AND NO DEFE CTS COULD ASSUME WEIGH ONLY AFTER CONVINCING EXPLANATIONS FOR SUCH HUGE DECLINE IN PROFITS IN SHORT PERIOD. IN MY OPINION IN THE INSTANT CASE THE APPELLANT CAN NOT SEEK ANY RELIEF ONLY ON THE S TRENGTH OF AUDITED BOOKS. UNDER THE CIRCUMSTANCES I HAVE NO HESITATI ON IN CONFIRMING THE ACTION OF THE A.O. AND ALSO THE ADDITION OF RS. 11 97 653/-. THIS GROUND OF APPEAL IS DISMISSED. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL PLACED BEFORE US. THE GROSS PROFIT OF THE YEAR STO OD AT 9.51% ON A TURNOVER OF RS. 2 00 27 655 WHICH WAS LOW COMPARED TO EARLIER A SSESSMENT YEARS 2004-05 AT 26.38% ON A TURNOVER OF RS.1 13 91 392 AND FOR A SSESSMENT YEAR 2005-06 AT 10.59% ON A TURNOVER OF RS.1 85 06 896. IT IS THUS TRUE THAT THERE IS ABNORMAL REDUCTION OF GROSS PROFIT COMPARED TO ASSESSMENT YE AR 2004-05. BUT IN OUR VIEW WHEN A COMPARISON IS TO BE MADE THE BEST COURSE OF ACTION THAT ONE SHOULD ADOPT IS TO COMPARE IT TO THE IMMEDIATELY PRECEDING YEAR THAN COMPARING IT WITH THE PRECEDING YEAR OF THE PRECEDING YEAR. FROM THE DETAILS FURNISHED BEFORE US WE FIND THAT THERE IS ALSO ABNORMAL INCREASE IN THE TURNOVER OF THE ASSESSEE. ALBEIT ALL THESE WE SEE THAT THOUGH THE ASSESSEE C LAIMS THAT THE FALL IN GROSS PROFIT RATE WAS PLAUSIBLY EXPLAINED WE ARE NOT IMP RESSED WITH THIS SUBMISSION. THE FALL IN GROSS PROFIT RATE IS NOT EXPLAINED PROP ERLY. IT IS ONLY THE ASSESSEE WHO ITA NO.856/RJT/2009 5 CAN ATTRIBUTE REASONS WITH MATERIALS FOR THE FALL I N GROSS PROFIT. IN THE SAME BREATH WE ARE ALSO NOT IN AGREEMENT WITH THE AUTHO RITIES BELOW IN COMPARING THE BOOK RESULTS OF THE ASSESSEE WITH THE BOOK RESULTS FOR THE YEAR PRECEDING THE ASSESSMENT YEAR PRECEDED. IF WE ALLOW SUCH A COURS E OF ACTION THAT WOULD LEAD TO AN ILLOGICAL SITUATION SUCH AS THE AUTHORITIES B ELOW MAY RESORT TO A COURSE OF ACTION BY COMPARING THE BOOK RESULTS FOR THE LAST T EN TEARS AND WOULD PICK THE PEAK OF THE GROSS PROFIT RATE IN THOSE TEN ASSESSME NT YEARS WHICH WOULD NOT BE A TENABLE COURSE OF ACTION IN THE EYES OF LAW. VIEWI NG FROM THING ANGLE WE ARE CONVINCED THAT SINCE THE ASSESSEES BOOKS RESULTS D ISCLOSED A GROSS PROFIT RATE OF 10.59% IF AT ALL ANY ADDITION ON ACCOUNT OF GROSS PROFIT IS WARRANTED THAT SHOULD BE CENTERED AROUND THE GROSS PROFIT RATIO OF 10.59% . AS DISCUSSED EARLIER THERE IS FALL IN GROSS PROFIT THOUGH THERE WAS INCREASE I N TOTAL TURNOVER. BUT IN THE ABSENCE OF ANY PLAUSIBLE EXPLANATION WITH EVIDENCE COMING FORTH FROM THE ASSESSEES SIDE IN OUR CONSIDERED OPINION IT WOUL D BE JUST AND FAIR TO ADOPT THE GROSS PROFIT OF THE IMMEDIATELY PRECEDING ASSESSMEN T YEAR WHICH IS 10.59%. WE THEREFORE DIRECT THE ASSESSING OFFICER TO ADOPT TH E GROSS PROFIT RATE AT 10.59%. AS A RESULT GROUND NO.3 OF THE ASSESSEE SUCCEEDS PART LY. 8. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23-12-2010 SD/- SD/- (A.L. GEHLOT) (D.T. GARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DT : 23 RD DECEMBER 2010 PK/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A)-II RAJKOT 4. THE CIT-I RAJKOT 5. THE DR (TRUE COPY) BY ORDER ASSTT.REGISTRAR ITAT RAJKOT