Income Tax Appellate Tribunal - Ahmedabad
The Dy. Cit., Circle -3(1)(2),, ... vs M/S. Samir Synthetics Mills,, ... on 1 November, 2018
आयकर अपील य अ धकरण, अहमदाबाद यायपीठ
IN THE INCOME TAX APPELLATE TRIBUNAL,
"D'' BENCH, AHMEDABAD
BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER And
Ms MADHUMITA ROY, JUDICIAL MEMBER
आयकर अपील सं./ITA No.3418/Ahd/2016
नधा रण वष /Asstt. Year: 2013-2014
D.C.I.T., Samir Synthetic Mills Ltd.,
Circle 3(1) (2), Vs 395-402, GIDC Estate Odhav,
Ahmedabad. . Ahmedabad-382 415
PAN: AADFS 1631 A
(Applicant) (Responent)
Revenue by : Shri Vinod Talwani, Sr.D.R
Assessee by : Shri S.N. Divatia & Mehul Talera,
A.Rs
सन
ु वाई क तार ख/Date of Hearing : 22/10/2018
घोषणा क तार ख /Date of Pronouncement: 01/11/2018
आदे श/O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Revenue against the order of the Commissioner of Income Tax (Appeals) - 9, Ahmedabad [CIT(A) in short] vide appeal no.CIT(A)-9/441/DCIT Cir.3(1)(2)/15-16 dated 03.10.2016 arising in the matter of assessment order passed under s.143(3) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") dated 01.02.2016 relevant to the Assessment Year (AY) 2013- 2014.
ITA nos.3418/Ahd/2016 Asstt. Year 2013-14 2
2. The Revenue has raised following grounds of appeals.
1. The Ld.CIT(A) has erred in law and on facts in deleting addition of Rs.1,10,23,501/- made on account of suppress of job work income.
2. The Ld.CIT(A)has erred in law and on facts in not appreciating the fact that shrinkage and expansion during the process of converting grey cloth to finished clothes pertains the customers of assessee. Therefore, shortage is ot attributable to the assessee.
3. On the facts and circumstances of the case, the Ld.Commissioner of Income Tax (A) ought to have upheld the order of the Assessing Officer.
4. It is, therefore, prayed that the order of the Ld.Commissioner of Income tax(A) may be set aside and that of the Assessing Officer be restored.
3. The only issue raised by the Revenue in this appeal is that the ld. CIT(A) erred in deleting the addition made by the ld. AO for Rs.1,10,23,501/- on account of suppression of job work income.
4. Briefly stated facts are that the assessee is a partnership firm and engaged in the business of manufacturing of handlooms, power looms and textiles. The assessee during the year has shown shortage of clothes measuring 14,58,135 meters in the manufacturing process which carried out by assessee on account of job work. This fact was reported in the tax audit report of the assessee.
4.1 The assessee before the ld. AO explained to justify the shortage of clothes i.e 14,56,135 meters by furnishing the details of the clothes received from the customers and billed to the customers. As per the assessee the loss shown in the tax audit report is representing the production loss generated in the process of job work taken by the assessee.
ITA nos.3418/Ahd/2016 Asstt. Year 2013-14 3 However, the ld. AO disagreed with the submission and held as under:
"4.3 The reply of the assessee has been considered carefully. The same is found not acceptable. The assessee is doing the business of processing of clothes on job wok basis. Assessee receives raw material i.e grey cloth from various customer and after processing finished clothes returns to the person. This work is done in lumps. Ownership of this lumps are always with the customers of the assessee. Shrinkage and expansion(increase) during the process of converting grey cloth to finished clothes pertains to the customers of the assessee. Therefore, shortage is not attributable to the assessee. From the chart furnished with letter dated 21/01/2016, it is clear that the assessee had proceded 3,89,69,638 mtrs clothes. If the assessee had dispatched only 3,72,92,923 mtrs cloth and billed for it. Thus, shortage shown by the assessee is either to be shown as closing stock or income of the same may have been recorded in the books of accounts of assessee. Closing stock of the assessee is increased by 218580 mtrs (op,stock 3420519 -- ck stock 3639099).The. assessee had manufactured 38969638 meters grey cloth. Out of this the assess had recorded only 37511503 mtrs (37292923 + 218580). Job work charges received by the assessee is for its entire production, The assessee had produced 38969638 meters cloths. Therefore, the bill is to be raised for 38969638 meters cloths not for 37511503 meters (37292923 + 218580) cloth. Thus, the assessee had not recorded job work charges for 1458135 mtrs(16,76,715 -218580 rntrs) which is produced during the year under consideration, Thus, the assessee had suppressed its job work, income of 1458 135 meters. Average price of job work per meter is worked out as under:
= Total Amount of billing Quantity billed =282111003 37292923 =Rs. 7,56 per meter !In view of above it is clear that the assessee had suppressed its job work income by amount of Rs.l, 10,23,5017- (11458135 x 7.56 Rs.) Therefore, an amount, of Rs.l, 10,23,501/- is added to the income of the assessee, Penalty proceedings u/s.271(l)(c) of the Income tax Act, are initiated separately for concealment of Income and furnishing of inaccurate particulars of Income."
5. Aggrieved, assessee preferred an appeal before the ld. CIT(A) and submitted that after the process carried out on the cloth if there is any shortage that shortage is to be borne by the customer. The assessee has duly disclosed shortage in terms of quantity in its books of accounts which occurred due to manufacturing process. But the ld. AO without pointing out any defect in the ITA nos.3418/Ahd/2016 Asstt. Year 2013-14 4 tax audit report/books of accounts of the assessee treated the shortage as suppressed income of the assessee.
5.1 The assessee has been showing such shortage in its books of accounts consistently for the last several years which was accepted by the Revenue in earlier years therefore, there is no question of treating shortage as suppressed sale of the assessee.
5.2 The ld. CIT(A) after considering the submissions of the assessee deleted the addition made by the ld. AO by observing as follows:
5. I have carefully considered rival contentions, case law relied upon as well as observations rnnde by the A.O. in the assessment order. It is observed that A.O. has made an addition of Rs.1,10,23,501/- on account of suppressed sales through job work done. According to the A.O. on verification of quantity! produced and quantity billed by the appellant, appellant had suppressed its job work charges for 14,58,135 meters. On show caused, appellant mentioned that difference in processing charges is due to production loss and hence difference .of 14,50,135 meters cannot be added as income. However, A.O. has not accepted the contention of the appellant and by charging Rs.7.56 per meter on average price of job work per meter, made addition of Rs.1,10,23,501/- as appellant's suppressed job work income. During the appellate proceedings appellant has submitted that production loss during the job work process is a normal practice. There have always been a difference or shortage on the quantity produced and quantify billed. It has also submitted that appellant had been regularly showing this genuine shortage in previous years also. According to the appellant in A.Y. 2010-11 there was production loss of 12,09,067 meters on the total job work 6f 3,97,76,939 meters, in A.Y. 2011-12, thorn was production loss of 14,64,034 meters on the total job work of 4,37,99,690 meters. Similarly for A.Y. 2012-13 there was production loss of 13,00,785 meters on the total job work of 4,07,42,824 meters and in A.Y. 2013-14 there was production loss of 14,50,135 meters on the total job work of 4,23,90,157 meters. It is seen that in all these years production loss had varied from 3% to 3.5%. In the earlier A.Y. the A.O. have accepted production loss and have not held production loss as suppression of job work income. Considering the above facts and circumstances, I am of the considered opinion the production loss is normal feature of the business of the appellant. Therefore, A.O. was not justified in holding that production loss amounts to suppression of job work income. Thus, addition of Rs. 1,10,23,501/- is hereby directed to be deleted. This ground of appeal is allowed.
Being aggrieved by the order of ld. CIT(A), Revenue is in appeal before us.
ITA nos.3418/Ahd/2016 Asstt. Year 2013-14 5
6. The ld. DR, before us relied on the order of the ld. CIT(A). On the other hand the ld. AR, before us filed a paper book running from pages 1 to 96 and submitted that the loss incurred during the manufacturing process does not belong to the assessee. The ld. Authorized Representative also submitted that the necessary details for the shortage of quantity were duly furnished to the ld. AO, during the assessment proceedings. The ld. AR drew our attention at pages 68 to 70 of the paper book demonstrating the details of the purchases, sales, production and opening/closing inventory of the goods.
6.1 The ld. AR also drew our attention on the shortage of quantity, the details of which is placed at page 72 to 93 of the paper book. The ld. AR, vehemently supported the order of ld. CIT(A).
7. We have heard the rival contentions and perused the materials available on record. From the preceding discussions we find that the addition was made by the ld. AO solely on the basis of the shortage of quantity reflected in the tax audit report. As per the ld. AO, the shortage on quantity was representing the suppressed sale which was not billed to the customers as well as not disclosed in the income tax return.
7.1 On perusal of the order of the ld. AO, we note that there was no whisper/ remarks suggesting that the assessee had made sales outside the books of accounts. The ld. AO was aware of parties/customers for whom the assessee was carrying out the manufacturing activities but the ld. AO did not make any inquiry before reaching to the conclusion that the assessee has suppressed sales.
ITA nos.3418/Ahd/2016 Asstt. Year 2013-14 6 7.2 Even it is presumed that the assessee has suppressed sales then the ld. AO, should have rejected the books of accounts of the assessee but the ld. AO has not done so.
7.3 We also find that books of accounts of the assessee were duly audited and there was no defect or whatsoever was pointed out by the ld.AO during the assessment proceedings. We also note that the assessee during the assessment proceedings has furnished all the necessary details with regard to the shortage of quantity shown in the tax audit report but the same was rejected by the ld.AO, without pointing out any reason thereon.
7.4 We also find similar kinds of losses were also shown by the assessee in the earlier years but the Revenue has not made any kind of addition on account of such shortage of quantity happened during the manufacturing process.
In view of the above, we are of the view that the addition has been made by the ld. AO on Surmises and Conjectures without bringing any tangible material available on record. Therefore, we are inclined not to interfere in the findings of ld. CIT(A), hence, the ground of appeal of Revenue is dismissed.
8. In the result, appeal of the Revenue is dismissed.
Order pronounced in the Court on 01/11/2018 at Ahmedabad.
Sd/- Sd/-
(Ms MADHUMITA ROY) (WASEEM AHMED)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated 01/11/2018
manish
ITA nos.3418/Ahd/2016
Asstt. Year 2013-14
7
आदे श क त ल प े षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. संबं धत आयकर आय
ु त / Concerned CIT
4. आयकर आयु त(अपील) / The CIT(A)
5. वभागीय #त#न ध, आयकर अपील य अ धकरण / DR, ITAT,
6. गाड% फाईल / Guard file.
ु ार/BY ORDER,
आदे शानस
उप/सहायक पंजीकार (Dy./Asstt.Registrar)
आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad
True copy