Income Tax Appellate Tribunal - Ahmedabad
First Vac Met Corporation Pvt.Ltd.,, ... vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD
AHMEDABAD "A" BENCH
(BEFORE S/SHRI G.D. AGARWAL, VICE-PRESIDENT AND
MUKUL SHRAWAT, JUDICIAL MEMBER)
ITA.No.864/Ahd/2010
Asstt.Year : 2007-2008
First Vac Met Corporation Pvt. Ltd., Vs. ITO, Ward-1(2)
Central Road No.3 Surat.
Udhna Udyognagar, Udhna
Surat 394 210.
(Appellant) (Respondent)
Assessee by : Shri B.S.Talati
Revenue by : Shri Samir Tekriwal
ORDER
PER G.D. AGARWAL, VICE-PRESIDENT: This is assessee's appeal against the order of the CIT(A)-I, Surat dated 28.01.2010 for A.Y.2007-2008 arising out of the order of the Assessing Officer passed under Section 143(3) of the Income Tax Act, 1961.
2. Ground No.1 of the assessee's appeal being general in nature, needs no adjudication. Ground No.2 of the appeal reads as under:
"2. That the Ld.CIT(A) erred in confirming Rs.1,40,991/- i.e. 50% of the total addition of Rs.2,81,982/- made by the AO on account of low GP rate. The entire addition needs to be deleted as it was made without specific defects in the books of accounts, arbitrarily and on ad hoc basis."
3. Brief facts of the case are that the assessee is engaged in the business of manufacturing and job work of metalised/lacquered polyester, plastic films and metallic yarn. During the accounting year relevant to the assessment year under consideration, there was fall in the GP. The AO rejected the books of accounts on the ground that the assessee has not maintained the register on day- to-day consumption of colour and chemicals. He therefore rejected the books of ITA.No.864/Ahd/2010 accounts and applied GP rate of 8.66% which resulted in addition of Rs.2,81,982/-. On appeal, the CIT(A) held that defects in the books of accounts were not such as to justify the rejection of accounts. However, he was of the opinion that the fall in GP was substantial for which no satisfactory explanation was given therefore he restricted the addition to 50% of the addition made by the AO. The Revenue has accepted the order of the CIT(A) while the assessee is in appeal against the GP addition of Rs.1,40,991/- sustained by the learned CIT(A).
4. We have carefully considered the arguments of both the sides and perused the material placed before us. The finding of the CIT(A) is as under:
"2.3 I have considered the submission made by the appellant and the observation of the AO. The AO has brought no material on record to show that either the purchases were inflated or bogus or the sales were undervalued or unrecorded. The appellant had purchased the sale bills in which no defect has been found. The only reason that consumption of colour & chemical has not been maintained on day-to-day basis. As per the settled position of law non-maintenance of such stock register when there is a fall in GP rate is not enough to reject the books of account. There should be some other factors which should result in the opinion that the correct profits cannot be sustained. I agree with the appellant that no such defects have been pointed out. However, in the entire submission of the appellant, the appellant has not been able to explain as to why the sales price has decreased. The turnover in A.Ys.2005-06, 2006-07 and in the current year are almost same amount of Rs.1.01 crore or so. However, the GP rate in the current year is at 6% whereas in the earlier year it was 11.16%. While the appellant has been able to explain that there are increase in the cost price. I agree with the appellant that though there are no defects in the books of account but considering the overall fall in GP rate and the fact that decrease in sale price is totally unexplained, the addition made by the AO is confirmed upto 50%."
From the above, it is evident that the CIT(A) has recorded the finding that mere non-maintenance of the stock register is not enough to reject the books of accounts and in the case of the assessee except the non-maintenance of the stock register for colour and chemicals no other defect is found. However, he sustained the GP addition partly because there was a fall in the GP rate. In our opinion, -2- ITA.No.864/Ahd/2010 unless there is sufficient material to reject the books of accounts no GP addition can be made, even if there is a fall in the GP. The question of application of proper rate of GP would arise only after rejection of the books of accounts. Since in this case, the CIT(A) has recorded the finding that there was no sufficient material to reject the books of accounts, in our opinion, he was not justified in confirming the GP addition even partially. We therefore delete the GP addition of Rs.1,40,991/- sustained by the CIT(A).
5. Ground No.3 of the assessee's appeal reads as under:
"That the AO and CIT(A) both erred in disallowing contribution of Rs.17,370/- of PF/ESI. Therefore, the same should be allowed."
6. It is submitted by the learned counsel that this issue is covered in favour of the assessee by the decision of Delhi High Court in the case of CIT Vs. P.M.Electronics Ltd., (2008) 220 CTR 635 (Delhi) wherein the Hon'ble Delhi High Court has discussed in para-4 as under:-
"4. On 27th Nov., 1998 the assessee had filed a return of income declaring a loss of Rs.8,92,888. On 11th May, 1999 the return was processed under s. 143(1)(a) of the Act. The case of the assessee was selected for scrutiny. Accordingly, a notice dt. 27th Sept., 1999 under s. 143(2) of the Act was issued to the assessee. In response to the notice and on examination of the details submitted by the assessee with respect to provident fund payments made both on account of employer's and employees' share revealed that payments in the sum of Rs.17,94,042 were late as per the provisions of s. 36(1)(va) r.w s. 2(24)(x) and s. 43B. Consequently, the AO disallowed the deduction and added a sum of Rs.17,94,042 towards EPF contribution."
And subsequently decide this issue in para-10 to 14 of Hon'ble Delhi High Court, which read as under:-
"10. In view of the above, it is quite evident that the special leave petition was dismissed by a speaking order and while doing so the Supreme Court had noticed the fact that the matter in appeal before it pertains to a period prior to the amendment brought about in s. 43B of the Act. The aforesaid position as regards the state of the law for a period prior to the amendment to s. 43B has been noticed by a Division Bench of this Court in Dharmendra Sharma (supra) . Applying the ratio -3- ITA.No.864/Ahd/2010 of the decision of the Supreme Court in Vinay Cement (supra) a Division Bench of this Court dismissed the appeals of the Revenue. In the passing we may also note that a Division Bench of the Madras High Court in the case of CIT vs. Nexus Computer (P) Ltd. by a judgment dt. 19th Aug., 2008, passed in Tax Case (Appeal) No.1192/2008 [reported at (2008) 219 CTR (Mad.) 54 - Ed.] discussed the impact of both the dismissal of the special leave petition in the case of George Williamson (Assam) Ltd. (supra) and Vinay Cement (supra) as well as a contrary view of the Division Bench of its own Court in Synergy Financial Exchange (supra). The Division Bench of the Madras High Court has explained the effect of the dismissal of a special leave petition by a speaking order by relying upon the judgment of the Supreme Court in the case of Kunhayammed & Ors.Vs. State of Kerala & Anr. (2000) 162 CTR (SC) 97: 119 STC 505 at p. 526 in para 40 and noted the following observations :
"If the order refusing leave to appeal is a speaking order, i.e., gives reasons for refusing the grant of leave, then the order has two implications. Firstly, the statement of law contained in the order is a declaration of law by the Supreme Court within the meaning of Art. 141 of the Constitution. Secondly, other than the declaration of law, whatever is stated in the order are the findings recorded by the Supreme Court which would bind the parties thereto and also the Court. Tribunal or authority in any proceedings subsequent thereto by way of judicial discipline, the Supreme Court being the apex Court of the country. But, this does not amount to saying that the order of the Court. Tribunal or authority below has stood merged in the order of the Supreme Court rejecting special leave petition or that the order of the Supreme Court is the only order binding as res judicata in subsequent proceedings between the parties."
11. Upon noting the observations of the Supreme Court in Kunhayammed & Ors. (supra) the Division Bench of the Madras High Court in the case of Nexus Computer (P) Ltd. (supra) came to the conclusion that the view taken by the Supreme Court in Vinay Cement (supra) would bind the High Court as it was law declared by the Supreme Court under Art. 141 of the Constitution.
12. We are in respectful agreement with the reasoning of the Madras High Court in Nexus Computer (P) Ltd. (supra). Judicial discipline requires us to follow the view of the Supreme Court in Vinay Cement (supra) as also the view of the Division Bench of this Court in I Dharmendra Sharma (supra).
13. In these circumstances, we respectfully disagree with the approach adopted by a Division Bench of the Bombay High Court in Pamwi Tissues Ltd. (supra).
-4- ITA.No.864/Ahd/201014. In these circumstances indicated above, we are of the opinion that no substantial question of law arises for our consideration in the present appeal. The appeal is, thus, dismissed."
7. We find that the Hon'ble Delhi High Court in the case of P.M. Electronics Ltd. (supra) has decided this issue of payment of Employees contribution towards Provident Fund after considering the decision of Hon'ble Apex Court in the case of Vinay Cement (supra) and also distinguished the case law referred by the Ld. DR of Bombay High Court in Pamwi Tissues Ltd. (supra). Even now this issue has been considered by Hon'ble Apex Court in the case of CIT vs. Alom Extrusions Ltd. (2009) 319 ITR 306 (SC) / (2009) 185 Taxman 416 (SC), wherein, it is held that "Contribution to provident fund, made before due date of filing of return allowable as deduction. The deletion of the second proviso to section 43B, and the amendment to the first proviso, by the Finance Act, 2003 was to overcome implementation problems. Consequently, the amendments, though made applicable by Parliament only with effect from 1-4-2004, were curative in nature and would apply retrospectively w.e.f. 1-4-1988. Accordingly, following Apex Court in the case of Alom Extrusions Ltd. (supra) and Delhi High Court in P.M. Electronics Ltd. (supra), we allow the claim of the assessee.
8. In the result, the assessee's appeal is allowed.
Order pronounced in Open Court on 9th July, 2010.
Sd/- Sd/- (MUKUL SHRAWAT) (G.D. AGARWAL) JUDICIAL MEMBER VICE-PRESIDENT Place : Ahmedabad Date : 09-07-2010 Vk* Copy of the order forwarded to: 1) : Appellant 2) : Respondent -5- ITA.No.864/Ahd/2010 3) : CIT(A) 4) : CIT concerned 5) : DR, ITAT. BY ORDER AR, ITAT, AHMEDABAD -6-