Income Tax Appellate Tribunal - Jaipur
Ito, Jaipur vs Pinkcity Packing Pvt. Ltd., Jaipur on 13 July, 2017
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IN THE INCOME TAX APPELLATE TRIBUNAL,
JAIPUR BENCHES (SMC), JAIPUR
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BEFORE: SHRI BHAGCHAND, ACCOUNTANT MEMBER
vk;dj vihy la-@ITA No. 956/JP/2016
fu/kZkj.k o"kZ@Assessment Year : 2012-13
Income Tax Officer, cuke M/s Pinkcity Packaging Pvt. Ltd.,
Ward-2(3), Vs. S-34, Vivek Vihar, New
Jaipur. Sanganer Road, Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AADCP 1732 G
vihykFkhZ@Appellant izR;FkhZ@Respondent
jktLo dh vksj ls@ Revenue by : Smt. Poonam Rai (DCIT)
fu/kZkfjrh dh vksj ls@ Assessee by : Shri M.L. Borad (Adv.)
lquokbZ dh rkjh[k@ Date of Hearing : 12/07/2017
mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 13/07/2017
vkns'k@ ORDER
PER: BHAGCHAND, A.M. This is an appeal filed by the revenue emanates from the order passed by the ld CIT(A)-I, Jaipur dated 30/08/2016 for the A.Y. 2012-13.
2. The assessee is engaged in the business of manufacturing of aluminium caps which are supplied as finished product to Rajasthan State Ganganagar Sugar Mills Ltd., Rajasthan. The Assessing Officer rejected the books of account and estimated the income of Rs.
47,03,907/- by applying the G.P. rate @ 16% on the declared turnover.
2 ITA 956/JP/2016_ ITO Vs Pinkcity Packaging Pvt. Ltd.
3. The ld. CIT(A) has granted relief to the assessee by holding as under:-
(i) The brief facts of the case are that the appellant was engaged in the business of manufacturing of aluminium caps and supplied the finished products to Rajasthan State Ganganagar Sugar Mills, Rajasthan at fixed rate contract. During the assessment proceedings, it was noted by the AO that GP rate declared by the appellant has decreased substantially from 19.95% in the immediately preceding year to 6.45% in the year under consideration and the yield of the finished product has also decreased from 66.99% in the immediately preceding year to 66.04% in the year under consideration. The AO further observed that in the daily stock register, daily production of finished products and the scrap was not mentioned. In view of these facts, the AO rejected the books of accounts of the appellant u/s 143(3) of the Act and applied GP rate of 16% to the turnover of the appellant and made trading addition of Rs.
47,03,907/- to the income of the appellant.
(ii) During the appellate proceedings, it was submitted by the appellant that it is registered under the Central Excise Act and is filing its monthly returns in ER-1 which contains the details of Raw material purchased; Material consumed for finished goods; Scrap generated and Balance of Finished goods and scrap and the production is subjected to periodical Audits by the Excise Department. It was further submitted that the overall yield is around 65 to 68% depending upon the thickness of raw material purchased and it would not be reasonable to expect the same yield in all the years and thus rejection of books of accounts u/s 145(3) of the Act was not justified. It was another contention of the AR that the AO has not taken the figures of GP rate correctly as the GP rate for the AY 2011- 12 and 2012-13 were taken at 19.95% and 6.45% by the AO 3 ITA 956/JP/2016_ ITO Vs Pinkcity Packaging Pvt. Ltd.
whereas the same were 0.84% and 6.28% respectively. It was further stated that the higher GP rate of 19.95% for AY 2011-12 was declared by the auditor in Tax Audit Report by resorting to incorrect grouping of items of manufacturing and trading account. It was also stated by the AR that GP rate of 16% applied by the AO has no basis as its GP rate has, in fact, increased from 0.84% to 6.28% and not decreased as stated by the AO and thus the trading addition made by the AO deserves to be deleted.
(iii) I have duly considered the submissions of the AR, assessment order and the material placed on record. During the appellate proceedings, the AR was required to produce the excise records as maintained by it under the Central Excise Act. The AR produced a number of Excise register including stock register i.e. RG-1, RG-23A, etc. as stated by the appellant in its written submissions. A perusal of these excise registers revealed that the daily production of caps and scrap were recorded therein and thus the observation of the AO that daily production of finished products and scrap was not maintained in the stock register is not correct. The appellant has stated before the AO that the fall in yield ratio is on account of thickness of the raw material and the yield cannot be same for all the years. It is noted that there was fall of just 0.95% in yield from 66.99% in the immediate preceding year to 66.04% in the under consideration. In view of the fact that the excise records were maintained by the appellant which were subjected to audit by the Central Excise Department and the AO has not brought on record any material which may indicate that either the appellant has sold its finished products outside its books of accounts or has inflated its purchase of raw material, the fall in yield percentage alone without pinpointing any specific defect or bringing on record any adverse material cannot be the basis of rejection of books of accounts.
4 ITA 956/JP/2016_ ITO Vs Pinkcity Packaging Pvt. Ltd.
(iv) The AO has also stated fall in GP rate from 19.95% in the immediate preceding year on turnover of Rs. 1,73,83,638/- to 6.45% on total turnover of Rs. 4,92,80,641/- for the year under consideration as one of the reason for rejecting the books of accounts of the appellant u/s 145(3) of the Act. As stated earlier that it was the contention of the AR that its GP rate has increased from 0.84% in the immediately preceding year to 6.28% in the year under consideration whereas the AO has stated in the assessment order that the GP rate has decreased from 19.95% in the immediately preceding year to 6.45% in the year under consideration. In view of these counter claims, the matter has been examined very carefully and it appears that the difference in GP rate is on account of grouping of heads of income and expenditure. It is evident from the chart submitted by the AR that the 'other income' of Rs. 21,77,483/- and Rs. 1,12,683/- for the FY 2010-11 and 2011-12 were not included by the AR while computing the GP rate. The amount of Rs. 1,12,683/- for the FY 2011-12 was on account of interest on income tax refund and thus has no relation with the trading account and thus has rightly been excluded from the manufacturing and trading account. However, the details of 'other income' of Rs. 21,77,472.86 for the FY 2010-11 reveals that some of the items pertained to the trading account of the appellant. In view of these facts, the appellant was required to furnish a chart for AY 2011-12 and 2012-13 after incorporating the income under the head 'income from other sources' which are related to the manufacturing and trading activities of the appellant company. The required chart was prepared and submitted by the appellant which is enclosed to this order as Annexure-A. It is noted from the said chart that the GP rate for the AY 2011-12 and 2012-13 are now worked out at 8.38% and 6.42% respectively.
5 ITA 956/JP/2016_ ITO Vs Pinkcity Packaging Pvt. Ltd.
(v) Thus, the GP rate for the AY 2011-12 worked out to 8.38% and neither 0.84% as claimed by the appellant nor 19.95% as stated by the AO and for the year under consideration, the GP rate was 6.42% and not 6.45% as taken by the AO. It is a well recognized principle that with increase in turnover, normally there is fall in GP rate. In the instant case under consideration, the turnover of the appellant has increased from Rs. 1.52 Crore in the immediate preceding year to Rs. 4.91 Crore in the year under consideration i.e. the turnover of the appellant for the year under consideration has increased by more than 200% in comparison to immediate preceding year. Moreover, it has been held in a number of judicial pronouncements that fall in GP rate alone cannot be the basis of rejection of books of account.
(vi) Therefore, in view of the above discussion, it is held that the AO was not justified in rejecting the books of accounts of the appellant u/s 145(3) of the Act. As the rejection of books of accounts by the AO has not been upheld, therefore, there is no question of applying GP rate and thus the trading addition of Rs. 47,03,907/- made by the AO is hereby deleted.
4. Now the revenue is in appeal by taking following grounds of appeal:
"1. Whether on the facts and in the circumstances of the case in law the ld. CIT(A) has erred in deleting the addition of Rs. 47,03,907/- made by invoking the provision of Section 145(3) and applying GP rate when was fall in GP rate from 19.95% in the immediate preceding year to 6.45% for the year under consideration, holding that capital gain was to be taxed in the year when sale agreement was partly executed and not in the year when sale agreement was fully executed and got registered with Registration and stamp authority.
6 ITA 956/JP/2016_ ITO Vs Pinkcity Packaging Pvt. Ltd.
2. Whether on the facts and in the circumstances of the case in law the ld. CIT(A) was justified in deciding the issue by accepting the additional evidence without giving a reasonable opportunity to Assessing Officer to examine the evidence or documents as required under Rule 46A(3)."
5. While pleading on behalf of the revenue, the ld. DR has submitted that the ld. CIT(A) was not justified in deciding the issue after accepting additional evidences without giving a reasonable opportunity to the Assessing Officer to examine the evidence or documents. Thus there is a violation of Rule 46A (3) of the Income Tax Rules, 1962. Further she also pleaded that the ld. CIT(A) has deleted the addition for the reason that the gross profit rate as submitted by the assessee for earlier year was not correct for the reason that there is a discrepancy in grouping the expenses. Thus, the ld. CIT(A) had considered additional evidence filed by the assessee to give the relief without giving an opportunity to the Assessing Officer. She prayed that the order of the Assessing Officer should be restored.
6. On the other hand, the ld AR of the assessee has submitted that the assessee is registered with the Excise Department. The assessee is maintaining details of raw material purchased, raw material consumed, finished goods, scrap generated etc. The daily stock register, production 7 ITA 956/JP/2016_ ITO Vs Pinkcity Packaging Pvt. Ltd.
register etc. was also maintained. The assessee's production is subjected to periodical audits by the Excise Department. The assessee submitted excise audit certificate for the relevant financial year wherein no discrepancy in maintaining the records have been observed. The assessee is maintaining all regular books of account. The Assessing Officer estimated ad hoc G.P. @ 16% is completely without any basis. He further submitted that there was a decline in the yield of the finished goods products by .94% as the yield depends on the thickness of the raw material used in the production of caps. Overall production ranges from 65 to 68% of raw material as it depends upon the thickness of the aluminium sheet used in the production. Wherever the yield is on lower side it is due to the thickness of the alunimium sheet then the scrap production increases. He also submitted that the gross profit rate for earlier year was wrongly worked out due to wrong grouping of expenses.
It was not 19.95% but it was only 0.84%. The ld. AR also submitted that the gross profit rate for the year under consideration was 6.45% instead of 6.28% as worked out by the Assessing Officer. The ld AR also placed reliance on the various decisions including the decision of the Hon'ble Rajasthan High Court in the case of Malani Ramjivan Jagannath Vs ACIT, decision of the Hon'ble ITAT, Jaipur Benches in the case of DCIT, Circle-2, Jaipur Vs. M/s Sand Dune Constructions (P) Ltd. (2015- 8 ITA 956/JP/2016_ ITO Vs Pinkcity Packaging Pvt. Ltd.
(9)TMI15). Reliance was also placed on money of the other unreported orders of the ITAT.
7. I have heard both the sides on this issue. On the revised claim of working of the GP rate for the immediate preceding year and for the year under consideration, the ld. CIT(A) required to furnish a chart for A.Y. 2011-12 and 2012-13 after incorporating the income under the head "income from other sources", which was submitted by the assessee. The same has been made part of the assessment order as an annexure 'A'.
Thus, the reworking of the GP rate by regrouping of the various expenses in the trading account and manufacturing account was submitted by the assessee on the instance of the ld. CIT(A). Thus, it was not an additional evidence as pleaded by the revenue. It is a well settled law that the ld. CIT(A) has coterminous power as of an Assessing Officer and he can do all the actions which the Assessing Officer can do. The ld.
CIT(A) can also ask the Assessing Officer to do the same. In the instant case, the ld. CIT(A) himself has examined the claim of the assessee in respect of the grouping of the heads of income and expenditure for reworking out the GP rate. Ld. DR is not able to pin point any mistake in the chart submitted by the assessee on the instance of ld. CIT(A) and the same was made part of order as Annexure-'A'. Therefore, in view of 9 ITA 956/JP/2016_ ITO Vs Pinkcity Packaging Pvt. Ltd.
these facts, I am of the view that the ld. CIT(A) was justified in granting the relief to the assessee. Accordingly, I uphold the order of the ld.
CIT(A).
8. In the result, the appeal of the revenue is dismissed.
Order pronounced in the open court on 13/07/2017.
Sd/-
¼Hkkxpan½ (BHAGCHAND) ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 13th July, 2017 *Ranjan vkns'k dh izfrfyfi vxzsf'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- The ITO, Ward-2(3), Jaipur.
2. izR;FkhZ@ The Respondent- M/s Pinkcity Packaging Pvt. Ltd., Jaipur.
3. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDr¼vihy½@The CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File (ITA No. 956/JP/2016) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar