Income Tax Appellate Tribunal - Ahmedabad
Gopal Glass Works Ltd.,, Ahmedabad vs Department Of Income Tax on 4 May, 2016
आयकर अपील
य अ धकरण, अहमदाबाद यायपीठ 'A' अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
"A" BENCH, AHMEDABAD
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER
AND
SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER
आयकर अपील सं./ ITA.No.2002/Ahd/2008
[Asstt.Year 2005-06]
The ITO, Ward-4(1) Gopal Glass Works Ltd.
Ahmedabad. Vs A/182, Gangavihar Flats
Khanpur, Ahmedabad 380 001.
अपीलाथ*/ (Appellant) +,यथ*/ (Respondent)
Revenue by : Shri R.I. Patel, CIT-DR with
Shri A.K. Rewer, Sr.DR
Assessee by : Shri Tushar Hemani, AR
ु वाई क तार ख/ Date
सन of Hearing : 27/04/2016
घोषणा क तार ख / Date of Pronouncement: 04/05/2016
आदे श/O RDER
PER RAJPAL YADAV, JUDICIAL MEMBER:
The Revenue is in appeal before us against the order of the ld.CIT(A)-VIII, Ahmedabad dated 11.3.2008 passed for the Asst.Year 2005-06.
2. The ground no.1, 2 and 3 are inter-connected with each other. In these grounds of appeal, the Revenue has pleaded that the ld.CIT(A) has erred in setting aside the finding of the AO in respect of rejection of the books of accounts, and estimation of GP at 20% of the turnover by ITA No.2002/Ahd/2008 2 entertaining additional evidence in violation of Rule 46A of the Income Tax Rules, 1962.
3. Brief facts of the case are that the assessee-company has filed its return of income on 31.10.2005 declaring total loss of Rs.2,61,78,898/-. The case of the assessee was selected for scrutiny assessment and notice under section 143(2) was issued and served upon the assessee. The assessee-company at the relevant time was engaged in manufacturing of glass. On scrutiny of the accounts, it revealed that the assessee has shown sales of Rs.37.69 crores. It has shown gross profit (GP) of Rs.5.22 crores which comes to 13.86% of sales, whereas GP in the preceding year shown by the assessee was 21.07%. The ld.AO has called for the explanation as to why the GP of Rs.21.07% should not be applied during this year. In response to the query of the AO, it was contended that sales have increased by 92.5%. Competition has been increased, therefore, it has to scale down the rates. The raw-material price of soda ash, silica sand, cullets etc. has substantially increased. During the year, the assessee has started new plant in the month of April, 2004. The assessee has been using gas supplied by GAIL for production, but was not sufficient, therefore, it has to purchase furnace oil for new plant. The natural gas rate was Rs.3.78 per MT., whereas furnace oil rate was Rs.11.60 per litre. Thus, there was a significant increase in the input cost. The ld.AO was not satisfied with the explanation of the assessee. He rejected books and estimated the GP at Rs.7,53,94,795/- which is 20% of the total turnover.
ITA No.2002/Ahd/2008 34. On appeal, the ld.CIT(A) has deleted the addition by recoding the following finding:
"3.2. I have considered the submissions of the A.R carefully. It is the contention of the A.R. that the A.O. has rejected the books of accounts based on the papers relating to A.Y.2001-02 & 2002-03 which were seized by the Central Excise Department at the time of Excise raid on 25.9.2003 and further he has relied upon the survey conducted by ADI (Inv.), Mehsana on 18.12.2006. The discrepancy in the expenditure as per the books and as per seized documents marked as Annexure-A/7 which were seized by the Excise Department related to A.Y.2001-02 & 2002-03. The A.O. has also referred to the statement of the Director of Shri Mayur Shah wherein he has admitted unaccounted income of Rs.2 crores relating to F.Y.2006-07. Thus, incriminating papers have not been found either by Excise Department or by ADI(lnv) relating the year under consideration. The A.O. has not found out any defects from the books of accounts of the year under consideration by way of any inflation of purchases or omission of sales or any missing vouchers or any unaccounted or unrecorded expenditure. The A.O. has i not arrived at any finding that books of accounts maintained by the appellant for the year under consideration are not correct and complete. No finding has been given whether the true profits cannot be deduced for the year under consideration from ie accounts maintained by the appellant or from the method of accounting followed by the appellant. In view of the various decisions cited by the A.R including the decision of Andhra Pradesh High Court in Margadarshi Chit Fund (P) Ltd, the rejection of books of accounts resorted to by the A.O is held to be not proper as he has not found any defects especially when the accounts of the appellant have been subjected to tax audit. As regards estimate of G.P., there is no material with the A.O. to show that the book results are not correct and relying on the materials found for the subsequent year or earlier year no presumption can be drawn for the current year in absence of any discrepancy in the books of accounts or any evidence of suppression of profit for the year under consideration . Further, it is found as per the working given by the appellant at Page-19 of the paper book that there has been mistake in calculation in G.P rate while adding the difference in (increase /decrease of) stock. For example instead of subtracting the difference in stock of Rs.1,40,63,6777- for the year under consideration , the Auditor has added that and accordingly the G.P. has been arrived at 13.84% as per the working of the Auditor where as the correct working of G.P. should be of 39.71%. Similarly, in the earlier years, the figures of G.P. have been worked out wrongly and the correct working of G.P. for various years is made as under:
i) A.Y.2005-06
(In Rs.) (In Rs.)
Opening Stock 15,57,431 Net Sales 30,76,68,632
ITA No.2002/Ahd/2008
4
Raw Materials & 24,13,54,150 Closing Stock 1,56,21,108
mfg. expenses
Gross Profit 8,03,78,159
32,32,89,740 32,32,89,740
G.P. is 26.12% on net sales.
If calculated on gross sales of Rs.37.69 crores G.P. works out to 39.70%.
ii) A.Y.2004-05
(In Rs.) (In Rs.)
Opening Stock 71,17,151 Net Sales 16,06,29,822
Raw Materials 12,48,10,229 Closing Stock 15,57,431
& mfg. expenses
Gross Profit 3,02,59,873
16,21,87,253 16,21,87,253
GP. is 18.83% on net sales.
If calculated on gross sales of Rs. 19.63 crores G.P. works out to 33.60% iii)
ii) A.Y.2003-04 (In Rs.) (In Rs.) Opening Stock 1,12,11,419 Net Sales 13,51,98,855 Raw Materials 10,70,68,204 Closing Stock 71,17,151 & mfg. expenses Gross Profit 2,40,36,383 14,23,16,006 14,23,16,006 G.P. is 17.77% on net sales. If calculated on gross sales of Rs.16.64 crores G.P. works out to 33.23%.
iv) A.Y.2002-03
(In Rs.) (In Rs.)
Opening Stock 66,67,930 Net Sales 13,19,17,857
ITA No.2002/Ahd/2008
5
Raw Materials & 10,85,31,523 Closing Stock 1,12,11,419
mfg. expenses
Gross Profit 2,79,29,823
14,31,29,276 14,31,29,276
G.P. is 21.17% on net sales.
If calculated on gross sales of Rs.16.15 crores G.P works out to 35.62%.
v) Thus the figures of G.P. as reported by the appellant and discussed in the assessment order at page -3 would be revised as under;
Asstt. Year G.P % as worked out Revised working of by Auditor G.P % 2002-03 14.50(on net sales ) 21.17 2003-04 23.83(on net sales) 17.77 2004-05 21.07 (On gross 33.60 sales) 2005-06 13.84(on gross 39.70 sales) From the above table it is seen that G.P. of the current year is more than the G.P. of earlier years, therefore, there is no fall in G.P. and the appellant has shown better results in the year under consideration, therefore the estimate of G.P is held to be not -proper. Even assuming the observations of the A.O. to be correct , the appellant has properly explained the reasons for variations in G.P. and as there are no materials to suppression of Gross Profit for the year under consideration, the addition of G.P. by the A.O. is held to be not justified and the same is deleted."
5. Before us, the ld.DR relied upon the order of the AO, whereas, the ld.counsel for the assessee relied upon the submission made before the ld.CIT(A).
6. In order to demonstrate error committed by the auditor, while including a sum of Rs.1,40,63,677/- in the stock, the ld.counsel for the assessee took us through page no.39 of the paper book and pointed out ITA No.2002/Ahd/2008 6 that before the preparation of balance sheet, this difference in the stock ought to have been reduced instead of addition, and due to this reason, the GP has come down to 13.84% otherwise, it was 26.12%. The net sale figure is the figure, which is after exclusion of excise and sales-tax and the gross sale is the figure, which is based on inclusion of excise and sales-tax. From both the angles, if the GP is to be computed then, it is more than the last year, and therefore, no adjustment should have been made. The ld.counsel for the assessee further contended that the AO did not find any defect in the books of accounts. The reference made to Annexure A/7 is concerned, it is a document found during the course of search by the excise authority which contained sales accounted for as well as unaccounted. But this document pertains to earlier assessment years i.e. Asstt.Year 2001-02 to 2002-2003. Similarly, during the course of survey, nothing found relating to this year. Thus, there is no evidence with the AO to doubt the books of accounts and estimate the GP.
7. We have duly considered rival contentions and gone through the record. Section 145 of the Income Tax Act is the relevant provision for this issue, therefore, it is pertinent to take note of this section. It reads as under :
"145. (1) Income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee.
(2) The Central Government may notify in the Official Gazette from time to time [accounting standards] to be followed by any class of assessees or in respect of any class of income.
(3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of ITA No.2002/Ahd/2008 7 accounting provided in sub-section (1) [or accounting standards as notified under sub-section (2), have not been regularly followed by the assessee], the Assessing Officer may make an assessment in the manner provided in section
144.]"
8. A bare reading of Section 145 would reveal that it provide the mechanism how to compute the income of the Assessee. According to sub- section 1, the income chargeable under the head profit and gains of business or profession or income from other source shall be computed in accordance with the method of accountancy employed by an Assessee regularly, subject to sub-section 2 of Section 145 of the Act. Sub-section 2 provides that the Central Government may notify in the official gazette from time to time, the Accounting Standard required to be followed by any class of Assessee in respect of any class of income. Thus, it indicates that income has to be computed in accordance with the method of accountancy followed by an Assessee i.e. cash or mercantile, such method has to be followed keeping in view the Accounting Standard notified by the Central Government from time to time. Sub clause 3 provides a situation, that is, if the Assessing Officer is unable to deduce the true income. On the basis of method of accountancy followed by an Assessee than he can reject the book result and the assessee's income according to his estimation or according to his best judgment. The Assessing Officer in that case is required to point out the defects in the accounts of Assessee and required to seek explanation of the Assessee qua those defects. If the assessee failed to explain the defects than on the basis of the book result, income cannot be determined and Assessing Officer would compute the income according to his estimation keeping in view the guiding factor for estimating such income.
9. In the light of the above, if we examine the record, then, it would reveal that the ld.AO failed to point out any defect in the accounts for ITA No.2002/Ahd/2008 8 the year under consideration. He has not made any reference to any material which is related to this year. Reference made to Annexure A/7 is concerned, that does not relate to this assessment year. These documents pertained to the Asstt.Year 2001-02 and 2002-03. Similarly, during the course of survey carried on 18.12.2006, nothing was found related to this assessment year. The ld.CIT(A) has recorded a categorical finding that the AO did not find any defect in the books of accounts for the year under consideration i.e. by way of any inflation of purchase or omission of sales or any missing vouchers or and/or unrecorded and unaccounted expenditure. The GP shown by the assessee is more. It is the mistake of the auditor to calculate the GP at a lower figure. This error has been explained by the assessee with the help of books of accounts. As far as entertaining of alleged additional evidence is concerned, the assessee has not filed any application for admission of additional evidence under Rule 46 of the Income Tax Rules. The assessee has merely provided re-working of the GP based on the entries already given to the AO. Thus, it was not a fresh evidence as such. The ground of appeal is misconceived. The Revenue has nowhere demonstrated which particular document was produced before the First Appellate Authority for the first time. On due consideration of the record, we do not find any error in the order of the ld.CIT(A). These grounds of the appeal are rejected.
10. In the next ground of appeal, the grievance of the Revenue is that the ld.CIT(A) has erred in allowing the claim of additional depreciation of Rs.95,49,346/-. This claim was disallowed to the assessee by the AO on the ground that the certificate from the auditor was not submitted in ITA No.2002/Ahd/2008 9 required proforma i.e. in form No.3AA along with the return. The assessee has submitted all the details during the course of assessment proceedings. The ld.AO was of the view that the assessee should have filed the certificate in prescribed performa along with the return , and since it failed to file the same, the assessee is not entitled for additional depreciation. On the other hand, the ld.CIT(A) observed that it is a procedural irregularity, and it has been complied with the assessee, and therefore, additional depreciation should not be denied to the assessee. The ld.CIT(A) has made reference to the decision of the Hon'ble Gujarat High Court in the case of CIT Vs. Gujarat Oil and Allied Industries, 201 ITR 325 and Zenith Processing Mills Vs. CIT, 219 ITR 721 (Guj).
11. On due considerations of the record, we are of the view that the assessee has complied with the conditions during the assessment proceedings itself. Therefore, the ld.CIT(A) has rightly entertained the claim of the assessee, and has rightly allowed additional depreciation.
12. Ground nos.5 and 6 are general in nature. They do not call for recording of any specific finding. Hence, rejected.
13. In the result, the appeal of the Revenue is dismissed.
Order pronounced in the Court on 4th May, 2016 at Ahmedabad.
Sd/- Sd/- (N.K. BILLAIYA) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 04/05/2016