Income Tax Appellate Tribunal - Ahmedabad
Osaka Pharmaceuticals Pvt.Ltd.,, ... vs Department Of Income Tax on 15 May, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL " D " BENCH, AHMEDABAD
(BEFORE SHRI SHAILENDRA Kr. YADAV, J.M. & SHRI ANIL CHATURVEDI, A.M.)
I.T. A. No. 2482/AHD/2011
(Assessment Year: 2007-08)
The I.T.O., Ward-4(1), V/S Osaka Pharmaceuticals Pvt.
Baroda Ltd. Old National Highway
No. 8, Sakarda, Baroda.
(Appellant) (Respondent)
PAN: AAACO6725F
Appellant by : Smt. Sonia Kumar, Sr. D.R.
Respondent by : Shri Mukund Bakshi, A.R.
(आदे श)/ORDER
Date of hearing : 24-04-2015 Date of Pronouncement : 15 -05-2015 PER SHRI ANIL CHATURVEDI,A.M.
1. This appeal filed by the Revenue is against the order of CIT(A)-III, Baroda dated 05.07.2011 for A.Y. 2007-08.
2. The relevant facts as culled out from the material on record are as under.
3. Assessee is a Company stated to be engaged in the business of manufacturing of Drugs and Pharmaceuticals Products. Assessee filed its return of income for A.Y. 2007-08 on 08.11.2007 declaring total loss of Rs. 1,39,31,516/-. The case was selected for scrutiny and thereafter the 2 ITA No 2482/AHD/2011 . A.Y. 2007-08 assessment was framed under section 143(3) vide order dated 30.12.2009 and the total loss was determined at Rs. 1,23,62,420/-. Aggrieved by the order of A.O., Assessee carried the matter before ld. CIT(A) who vide order dated 05.07.2011 granted substantial relief to the Assessee. Aggrieved by the aforesaid order of ld. CIT(A), Revenue is now in appeal before us and has raised the following ground;-
1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the addition of Rs. 14,22,307/- by the A.O. on account of Gross Profit without appreciating the fact there is a fall in Gross profit by 8.96 % compared to the previous year which has not been satisfactorily explained and further the electricity consumption during the period from 01.04.2006 to 30.11.2006 was 5 times higher than the last year despite the claim of the assessee that no commercial production had been made during the above mentioned period.
4. During the course of assessment proceedings, A.O noticed that the gross profit (GP)of the Assessee for the year under consideration was at 14.63% as against the gross profit of 23.59% in the immediately preceding year and thus there was a short fall in G.P at 8.96%. The Reason for fall in G.P was stated to be closing down of the manufacturing activities from 01.10.2005 to 30.11.2006 on account of renovation of factory and re-engineering of the plant. A.O on comparison of the electric consumption for the month of October, 2005 to March, 2006 noticed that the average consumption of electricity per month was 5098 units and the G.P for the year was very high although no production activity was carried during that period. A.O also noticed that during F.Y. 2006-07 there was lower consumption of electricity in April and May 2006 and thereafter from June 2006 to November 2006, there was higher electric consumption and the average consumption of electricity was 26,873 units per month. He was therefore of the view that the 3 ITA No 2482/AHD/2011 . A.Y. 2007-08 explanation for fall in G.P was not acceptable. He was further of the view that since Assessee could not prove that there was no production during June, 2006 to November 2006 and in the absence of month-wise production, the lower gross profit shown by the Assessee for the year under consideration was not correct. He therefore determined the gross profit @ 5% on the total sales and worked out the G.P at Rs. 55,82,923/- and after giving the credit of the G.P that was shown by the Assessee, made an addition of the difference amount of Rs. 14,22,307/-. Aggrieved by the order of A.O., Assessee carried the matter before ld. CIT(A) who after considering the submissions of the Assessee deleted the addition by holding as under:-
6.6 I have considered the observations made in the assessment order and the submissions made by the appellant. The chart of electricity consumption as incorporated in the assessment order is as follows.
F.Y. 2005-06 F.Y. 2006-07
Month Unit Consumed Month Unit Consumed
October-2005 7163 April 2006 5190
November- 4478 May 2006 7125
2005
December - 5925 June 2006 20553
2005
January 2006 5043 July 2006 22086
February 2006 4270 August 2006 33891
March 2006 3708 September 2006 39153
- - October 2006 37974
- - November 2006 49014
Average 30587/6= 5098 Average 214986/8=26873
Consumption Consumption
6.7 It can be seen that there has been a large increase in consumption of electricity
during the period May 2006 to November 2006. The appellant has explained this increase by stating that the same was because of setting up of manufacturing facilities as per the prescribed international standards. The appellant had also submitted the W.H.O. certificate, dated 08.09.2006, issued by Commissioner, Food and Drugs Control Administration, Gujarat State in this regard. The appellant has also stated that it carried on balancing and trials of these new assets during this period. Accordingly, the appellant has capitalized pre-operative electricity expenses of Rs. 11,67,761/-in its accounts and has claimed electricity expenses of Rs. 8,37,214/- to the Profit & Loss account. It is also claimed that the products manufactured by it are excisable and hence no production for sales is unaccounted as suspected.
4 ITA No 2482/AHD/2011 . A.Y. 2007-08 6.8. The only reason given by the A.O. for making addition on account of low G.P. is that the appellant could not prove that there is no production between June 2006 to November 2006 and that the electricity consumption cannot be five times higher than the previous year without any production. But the appellant's accounts are audited, the products are excisable and A.O. has not been able to point out any discrepancy in its books of accounts. In the absence of the same, merely on surmises addition on account of lower G.P. cannot be made. This is as per the ratio laid down by the Gujarat High Court in the case of Vikram Plastics as reported in 239 ITR 161. The said judgment has been followed by Hon'ble ITAT, Ahmedabad had been in the case of M/s. Associated petroleum Corporation reported in 44 SOT 45(Ahd). The appellant has been able to explain the higher consumption of electricity. An account of setting up of new manufacturing activities due to which there has been marked change in the composition of sales of the appellant with the manufacturing sales increased in manifold and trading sales decreased substantially. The A.O. has not been able point out any discrepancy in these claims made by the appellant.
6.9 Hence, following the ratio laid down by Gujarat High Court and Ahmedabad Bench of ITAT in above mentioned cases, it is held that the rejection of books of account by the A.O was not correct and accordingly, addition of Rs. 14,22,307/- on account of lower G.P. is deleted.
5. Aggrieved by the aforesaid order of ld. CIT(A), Revenue is now in appeal before us.
6. Before us, ld. D.R. supported the order of A.O and further submitted that though the Assessee has stated that during the period May, 2006 to November 2006 the manufacturing activities were closed down to carry on restricting and reengineering of its products so as to enable it to obtain approvals of the quality standards of World Health Organization (WHO) but the aforesaid submission of Assessee is not supported by any material on record. She further submitted that the submissions of Assessee of Assessee of not carrying out any production during that period is also not supported by any material on record. but no material in its support was placed before A.O. She thus supported the order of A.O. ld. A.R. on the other hand reiterated the submissions made before A.O and ld. CIT(A) and supported the order of ld. CIT(A).
5 ITA No 2482/AHD/2011
. A.Y. 2007-08
7. We have heard the rival submissions and perused the material on record. The issue in the present case is about estimation of gross profit. The A.O did not find the reasons given by the Assessee for fall in G.P to be acceptable and therefore made additions. We find that ld. CIT(A) while deleting the addition has noted that Assessee's accounts was audited, the products are excisable and A.O has not been able to point out any discrepancy in the books of accounts and only on the basis of surmises addition on account of lower G.P cannot be made. We further find that ld. CIT(A) has relied on the decision of Ahd. Tribunal in the case of Associated Petroleum Corporation reported in 44 SOT 45 (Ahd) and Gujarat High Court in the case of Vikram Plastic reported in 239 ITR 161. On the other hand, before A.O, it was Assessee's submission that its products are excisable and it maintains proper records of production. During the course of hearing, a specific query was raised by the Bench to ld. A.R. and he was asked to demonstrate the production of goods and related expenses from the annual accounts more so, when in the case of a company the quantitative details of production etc are mandatorily required to be disclosed but the ld. A.R. could not point out the same from the audited accounts. The ld. A.R. however submitted that he would place on record the full set of audited accounts on record but till the date of the dictation of order, the same has not been placed on record. In such circumstance, we are of the view that Assessee's submission of not carrying out any production during the 2 months period needs factual verification. We therefore remit the issue to the file of A.O to ascertain and verify the factual position and thereafter decide the issue in accordance with law. The Assessee is also directed to promptly furnish all the required details called for by the A.O failing which the A.O shall be free to decide the matter on the basis of material available on record. Needless to state that A.O shall 6 ITA No 2482/AHD/2011 . A.Y. 2007-08 grant adequate opportunity of hearing to the Assessee. In the result, the ground of Revenue is allowed for statistical purposes.
8. In the result, the appeal of Revenue is allowed for statistical purposes Order pronounced in Open Court on 15 - 05 - 2015.
Sd/- Sd/-
(SHAILENDRA Kr. YADAV) (ANIL CHATURVEDI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad. TRUE COPY
Rajesh
Copy of the Order forwarded to:-
1. The Appellant.
2. The Respondent.
3. The CIT (Appeals) -
4. The CIT concerned.
5. The DR., ITAT, Ahmedabad.
6. Guard File.
By ORDER
Deputy/Asstt.Registrar
ITAT,Ahmedabad