Income Tax Appellate Tribunal - Ahmedabad
Wintex Mills Pvt.Ltd.,, Surat vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "D" BENCH AT SURAT CAMP,
AHMEDABAD
Before Shri T.K. Sharma, Judicial Member, and
Shri D. C. Agrawal, Accountant Member
IT A No.528/ Ahd/2008
Assessment Year: 2004-05
Date of hearing:20.5.10 Drafted:25.5.10
M/s. W intex Mills Pvt. V/s. Asstt. Commissioner of
Ltd. 201-203, GIDC, Income-tax, Circle-4,
Pndesara, Surat Surat
PAN No. AAACW21 28A
(Appellant) .. (Respondent)
Appellant b y :- Shri R.N. Vepar, AR
Respondent by:- Smt. Jyoti Laximi, SR-DR
ORDER
PER D.C.Agrawal, Accountant Member:-
This is an appeal filed by the assessee raising following grounds:-
"(I) Rejection of Book Result:-
(1) The learned Commissioner of Income-tax(Appeals) erred in confirming rejection of Book Result when:-
(i) the grounds given for ejection of Book Result viz. rise in certain expenses were explained;
(ii) on account of floods the books and records were destroyed and could not be produced.
(2) The appellant, therefore, submits that the Book Result ought not to have been disturbed.
(II) Addition on account of Gross Profit - Rs.13,33,088/-ITA No.528/Ahd/2008 A.Y.2004-05
M/s. Winntex Mills Pvt. V. ACIT, Cir-4, SRT Page 2 (1) The learned Commissioner of Income-tax(Appeals) erred in confirming addition of Rs.13,33,088/- when the appellant had given details and reasons for fall in gross profit. (2) On the facts and circumstances of the case, the a ought to have been deleted.
(III) Miscellaneous:-
(1) The appellant craves leave to add, alter or vary any of the grounds of appeal."
2. In brief, two issues are involved - one is about rejection of the books and other is about gross profit addition of Rs.13,33,088/-.
3. The assessee is engaged in the business of art silk cloth processing on job work basis. It has declared a gross loss of Rs.23,85,145/- and net loss of Rs.43,99,182/-.
4. During assessment proceedings, the Assessing Officer required the assessee to produce books of accounts and vouchers but assessee did not produce the basic records on the ground that they are lost in the flood. The AO dd not rely on the book results shown by assessee and proceeded to estimate the profits. He noticed that during the year under consideration gross loss is shown at 28.27% of the turnover whereas in the immediately preceding year, GP was shown at 13.64%. Thus, there was a steep fall by 41.31%. The assessee sought to explain the fall on the ground that the turnover has substantially decreased this year. Last year the turnover was at Rss.2,89,40,880/- whereas this year it is reduced to Rs.84,37,268/-. There was a fixed expenditure on management and administration which the assessee had to incur. Because of such high fixed expenditure, the assessee suffered loss. The AO noticed that on comparison of manufacturing expenses incurred in the preceding year with the expenditure incurred this year, the fall is not substantial as compared to the fall in profits. He provided following two charts:-
ITA No.528/Ahd/2008 A.Y.2004-05M/s. Winntex Mills Pvt. V. ACIT, Cir-4, SRT Page 3 A.Y. 2004-05 A.Y. 2003-04 % manufacturing expenses to 13011 84.50 net finishing charges received Colour chemicals 28.47 30.72 Electricity 41.71 18.74 Gas 30.15 11.87 Last year (Rs) This year (Rs.) Electric Power 45,81,999 33,03,758 Gas consumption 29,01,543 23,88,707 Wages etc. 6,22,346 4,35,573 Accordingly, Assessing Officer not accepting the book results, applied GP rate of 15.80% being the GP ratio shown in the assessment year 2003-04 and 2002-03 and worked out an addition of Rs.13,73,088/-.
5. Ld. CIT(Appeals) confirmed the addition by observing as under:-
"2.4 I have considered the submission made by the appellant and observation of the AO. It is seen that the assessee has given a reply to the AO on 21.7.06. At that time the flood had not taken place and the assessee could have easily given documentary evidence for fall in GP rate for disproportionate expenses as compared to last year but the assessee did not do so. It is only later on that the books of accounts might have been destroyed by the flood. Hence the appellant has failed to explain such huge fall in profit. In the last year the assessee had earned profit of Rs.37.73 lacs whereas in the current year the assessee has shown loss of Rs.23.85 lacs. The appellant has also not been able to show such a huge fall in turnover from Rs.2.44 crores in the last year to Rs.29.2 lacs in the current year. Even if April and May months are taken as closed months because of strike still the monthly sale is only Rs.20 lacs approx. Even if this is taken into account the turnover should be around Rs.2 crores whereas the assessee has shown Rs.97 lacs. In view of the above reasons the explanation of the appellant is not acceptable. The book results have been rightly rejected by the AO as the books of accounts are not produced and the explanation given by the appellant are not accepted even though it has filed the reply before the books of accounts were destroyed. Hence, the addition made is confirmed and the grounds of appeal are dismissed."ITA No.528/Ahd/2008 A.Y.2004-05
M/s. Winntex Mills Pvt. V. ACIT, Cir-4, SRT Page 4
6. Against this Ld. AR for the assessee submitted that it is incorrect to say that expenditure has fallen in the same ratio as turnover has fallen. The assessee has necessarily incurred fixed expenditure. The consistency in fall can be found only in respect of variable expenditure. He produced a chart showing that fall in expenditure in consumption of colour and chemicals, coal, repairs, printing charges fringe and octori etc. have been practically in the same proportion as the fall in turnover i.e. job work receipt. He referred to the following table:-
"Statement showing comparison of expenditure.
Particulars Current Previous Year Reduction Reduction
Year(A.Y. (A.Y.2003-04) (in Amount (in % age
2004-05) (Amount Rs.) terms) terms)
(Amount Rs.)
Income: 8,437.268 28,940.880 (20,503,612) -70.85%
Finishing charges (Job
Charges)
MNUFACTURING
EXPENSES
Variable Nature
Consumption of Colours
and chemicals 2,255.432 7,507,653 (5,252.221) -69.96%
Consumption of coal and 500.912 1,526.438 (1,025.526) -67.18%
lignite & Generator
Machinery repairs and 194.085 301.619 (107.534) -35.65%
engineering
Dyeing and Printing 1,136.037 2,816.919 (1,680.882) -59.67%
charges
Freight and Octroi 5.795 14.866 (9.071) -61.02%
Factory Expenses 24.018 233.347 (209.329) -89.71%
Environment charges 61.203 158.053 (96.850) -61.28%
Others
Wages, P.F. ESI. P.T.etc. 435.573 622.343 (186.770) -30.01%
Electric power 3,303.758 4,581.999 (1.278.241) -27.90%
Consumption of gas 2,388.707 2,901.543 (512.836) -17.67%
7. On the other hand Ld. SR-DR supported the order of Ld. CIT(Appeals) and submitted that consumption of gas is a variable expenditure but its fall is only 17%. Similarly fall in electricity expense is 28%. Therefore, it cannot be said that fall in GP is satisfactorily explained.ITA No.528/Ahd/2008 A.Y.2004-05
M/s. Winntex Mills Pvt. V. ACIT, Cir-4, SRT Page 5
8. We have considered the rival submissions of the parties and perused the materials on record. In our considered view books are correctly rejected by the Assessing Officer as assessee has not been able to produce the same before him. This ground of the assessee is therefore rejected. Regarding estimation of profit we are of the considered view that there is substantial fall in GP though assessee has tried to explain that it has to incur fixed expense and there is a corresponding fall in variable expenditure but it does not explain entire decrease of 41% GP in the current year. Considering the totality of the facts and circumstances, we direct the Assessing Officer to apply a GP rate of 5% as against 15.8% applied. The Assessing Officer will work out addition accordingly.
9. In the result, appeal filed by the assessee is partly allowed. Order pronounced in Open Court on 28/05 /2010 Sd/- Sd/-
(T.K.Sharma) (D.C.Agrawal)
(Judicial Member) (Accountant Members)
Ahmedabad,
Dated : 28/05/2010
*Dkp
Copy of the Order forwarded to:-
1. The Appellant.
2. The Respondent.
3. The CIT(Appeals)-I, Surat
4. The CIT concerns.
5. The DR, ITAT, Ahmedabad
6. Guard File.
BY ORDER,
/True copy/
Deputy/Asstt.Registrar
ITAT, Ahmedabad