Income Tax Appellate Tribunal - Ahmedabad
Mahavir Dye Chem, Surat vs Department Of Income Tax on 26 June, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL,
"B " BENCH, AHMEDABAD
Before Shri A. K. GARODIA, ACCOUNTANT MEMBER
and Shri KUL BHARAT, JUDICIAL MEMBER
I.T.A. No. 1719/ Ahd/2010
(Assessment year 2006-07)
DCIT, Circle 2, Vs. M/s. Mahavir Dye Chem,
Surat Plot no.7121, GIDC,
Sachin, Surat
PAN/GIR No. : AAEFM7890E
(APPELLANT) .. (RESPONDENT)
Appellant by: Shri O P Batheja, Sr. DR
Respondent by: Shri Mehul R. Shah, AR
Date of hearing: 26.06.2012
Date of pronouncement: 06. 07.2012
ORDER
PER SHRI A. K. GARODIA, AM:-
This is revenue's appeal directed against the order of Ld. CIT(A) II, Surat dated 23.02.2010 for the assessment year 2006-07. The grounds raised by the revenue are as under:
"1) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) I, Surat has erred in deleting the addition made by the A.O. of Rs.21,03,521/- on account of estimation of gross profit.
2) On the facts and in the circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the A.O.
3) It is, therefore, prayed that the order of the CIT(A) may be set aside and that of A.O. may be restored to the above extent."
2. Brief facts of the case till the assessment stage are noted by Ld. CIT(A) in para 3 of his order which is reproduced below:
2 I.T.A.No.1719 /Ahd/2010"3. During the year, the Assessee was engaged in doing job-work and exporting chemicals dyes and intermediates. The GP ratio disclosed during the year was 27.24% on a turnover of Rs.4.21 crores, as against the GP ratio of 2.24% on a turnover of Rs.7.32 crores in the immediately preceding year, hen asked to explain the fall in the GP ratio, the Assessee explained that it was because of fluctuations in the cost of raw materials as also in the selling price of finished product. The A.O. treated such reply as being general in nature. She therefore asked the assessee to furnish details of the product mix with their input and output ratios during the year, and to compare them with the preceding years. The Assessee submitted that it was not possible to do so since, more than one raw-material was used in one finished product. Therefore, the consumption of each item could not be measured. The AO further noted that even though the purchase price and the selling price of the major items of raw-materials as also finished products were furnished yet, it did not fully explain the fail in the GP ratio. There were many raw-materials whose price had declined during the year. The explanation furnished regarding the selling price was taken on record by the AO. The AO further noted that the Assessee had deliberately ignored the saving in the manufacturing expenses to the tune of Rs.11.20 lacs, and that, the Assessee had failed to furnish the batch-wise details of production even though it was claimed that the quantitative details and all relevant records had been maintained under the Central Excise Act, On the basis of such findings and observations, the AO came to the conclusion that the book results of the Assessee during the year was not reliable, and therefore, she rejected the same u/s. 145(3) of the IT Act. After having done so, the AO applied the GP ratio of the immediately preceding year i.e. 32.24%, and made the addition of Rs.21,03,521 to the Assessee's total income."
3. Being aggrieved, the assessee carried the matter in appeal before Ld. CIT(A) who deleted this addition and now, the revenue is in appeal before us.
4. Ld. D.R. of the revenue supported the assessment order but he could not point out any specific defect in the order of Ld. CIT(A). Ld. 3 I.T.A.No.1719 /Ahd/2010 A.R. supported the order of Ld. CIT(A). He further submitted that details of comparative price of sale and purchases are available on page 22-23 of the paper book as per which it can be seen that there is interest of Rs.23.58 lacs on the profit of the present year on account of decrease in G.P. on account of fall in selling price of the current year as compared to the preceding year. He further submitted that as per page 23 of the paper book, there is decrease in the cost of raw material of only Rs.5 lacs because of decrease in the rates of purchase in the present year as compared to the preceding year. He pointed out that both these working show that even after taking note of decrease in purchase cost of Rs.5 lacs, there is net adverse impact on GP of the present year of Rs.18.58 lacs on account of fall in sale price of the present year as compared to the preceding year. He further submitted that under these facts, the order of Ld. CIT(A) should be confirmed. He also submitted copy of the tribunal order rendered in the case of Dharmesh Silk Mills Pvt. Ltd. in I.T.A.No. 4108/Ahd/2007 dated 2.108.2009 in support of this contention that under similar facts, addition made by the A.O. in that case was also deleted by the Tribunal.
5. We have considered rival submissions, perused the material on record and have gone through the orders of authorities below and the Tribunal decision cited by the Ld. A.R. of the assessee. In the present case, finding of Ld. CIT(A) is as per para 5, 5.1 & 5.2 of his order, which are reproduced below for the sake of ready reference:
"I have carefully considered both the positions. From the copies of the written submissions submitted before the AO, I find that voluminous details furnished as stated in the preceding paragraphs, along with the complete set of books of accounts,, vouchers and bills. The substance of the assessee's explanation regarding the fail in the GP ratio was that, while the of purchase, 4 I.T.A.No.1719 /Ahd/2010 especially of raw-materials, had increased substantially, the selling price of the finished products did not increase in .proportion. It had in fact decreased in the comparison to the immediately preceding year. The AO discounted such explanation since, the purchase cost of some of the items had fallen. What she failed to appreciate was that, the purchase cost of the major items had increased in leading to an overall increase in the total purchase cost",, not only as a percentage of the turnover but also in comparison to the cost of raw-materials in the immediately preceding year. The increase in cost and the decrease in the selling price (which the AO apparently accepted), had led to the fall in the turnover by Rs.3.11 crores which was a decrease of 42.52%, 5.1 Instead of appreciating the facts of the case and the ground level situation, the AO sought details which not only the Assessee but any businessperson in the same business would not normally maintain. She sought the composition of the product mix with the input and output ratios of the current year in comparison to the two preceding years. She also sought to compare the manufacturing expenses of the current year with the preceding year, and observed that there was a 'saving' of Rs.11.20 lacs which was in fact a decrease in the expenses during the year; but she failed to take into consideration the decrease in the turnover as we!!. She repeatedly observed that the Assessee had conveniently escaped from furnishing such details including batch-wise details of production. The point to note is that, no businessperson can be expected to maintain his records as per the whims and fancies of the AO. The Assessee had maintained his records as per the prescribed accounting standards and the records were duly audited, and the Auditors had certified the correctness of such records.
5.2 Given such facts and circumstances of the case, it is absolutely clear that there was no basis whatsoever for the AO to reject the book-results '^'/'' f3p$ y|\u/s. 145(3) of the IT Act, The AO's action is struck-down and consequently, A (ill /0the addition of Rs.21,03,521 is also directed to be deleted."
6. From the above decision of Ld. CIT(A), we find that a clear finding is given by Ld. CIT(A) that there was no basis whatsoever for the A.O. to reject the book results u/s 145(3) of the Income tax Act, 1961. In the 5 I.T.A.No.1719 /Ahd/2010 grounds raised by the revenue as reproduced above, there is no ground raised by the revenue that this finding of Ld. CIT(A) is not correct that the A.O. was not justified to reject the book results. In the absence of any ground on this aspect, the grounds raised by the revenue on merit do not survive because if the books of accounts cannot be rejected then no addition can be made by way of estimation of G.P. Moreover, on merit of such addition also, we feel that the assessee has properly explained regarding fall in G.P. in the present year by showing that there is net impact of Rs.18.58 lass in the present year on account of decrease in selling price and purchase price in the present year as compared to the preceding year. The addition made by the A.O. is of Rs.21.03 lacs and if the impact on account of decrease in selling price is of Rs.18.58 lacs, the remaining amount is very small which can be for various reasons and therefore, no such addition on account of fall of G.P. is justified without bringing any concrete adverse material on record. Hence, on merit also, we do not find any reason to interfere in the order of Ld. CIT(A).
7. In the result, appeal of the revenue is dismissed.
8. Order pronounced in the open court on the date mentioned hereinabove.
Sd./- Sd./-
(KUL BHARAT) (A. K. GARODIA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Sp
Copy of the Order forwarded to:
1. The applicant
2. The Respondent
3. The CIT Concerned
4. The Ld. CIT (Appeals)
5. The DR, Ahmedabad By order
6. The Guard File
AR,ITAT,Ahmedabad
6 I.T.A.No.1719 /Ahd/2010
1. Date of dictation.........26/6.
2. Date on which the typed draft is placed before the Dictating Member.........27/6....Other Member ............
3. Date on which the approved draft comes to the Sr. P.S./P.S.5/7
4. Date on which the fair order is placed before the Dictating Member for pronouncement ......6/7
5. Date on which the fair order comes back to the Sr. P.S./P.S.6/7
6. Date on which the file goes to the Bench Clerk ...06/07/2012
7. Date on which the file goes to the Head Clerk .......................
8. The date on which the file goes to the Assistant Registrar for signature on the order .........................
9. Date of Despatch of the order. ......................