Income Tax Appellate Tribunal - Ahmedabad
Aradhana Industries Pvt.Ltd.,, Surat vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "D" AHMEDABAD
Before Dr. O.K. Narayanan, Vice-President (AZ) and
Shri Mahavir Singh, Judicial Member
ITA No.2951/ Ahd/2009
Assessment Year: 2004-05
Drafted: 4.01.10
Asstt. Commissioner of V/s. M/s. Aradhana Industries
Income-tax, Circle-6, Pvt. Ltd., 206/1, GIDC
Surat, Room No.16, Estate, Pandesara,
Aayakar Bhavan, Majura Surat
Gate, Surat PAN No. AABCA9948A
(Appellant) .. (Respondent)
Appellant by :- Shri C.K. Mishra, Sr.DR
Respondent by:- Shri S. Kabra, AR
Date of order reserved: 04/01/10
ORDER
PER Mahavir Singh, Judicial Member:-
This appeal by the Revenue is arising out of the order of Commissioner of Income-tax (Appeals)-I Surat, in appeal No.CAS-1/270/08-09 dated 26-08-2009. The assessment was framed by the Income-tax Officer, Ward-1(1), Surat u/s.143(3) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') vide her order dated 17-11-2006 for the assessment year 2004-05. The penalty under dispute was levied by the ITO Ward-1(1), Surat u/s.271(1)© of the Act vide his order dated 05-03-2009.
ITA No.2951/Ahd/2009 A.Y. 2004-05ITO Wd-1(1), Surat v. M/s. Aradhana Industries Pvt. Ltd. Page 2
2. The only issue in this appeal of the Revenue is against the order of CIT(A) deleting the penalty levied by the Assessing Officer u/s.71(1)(c) of the Act amounting to Rs.5,06,747/-.
3. We have heard the rival contentions and gone through the facts and circumstances of the case. We have also perused the case records including the assessment order, order of CIT(A) and penalty order. The brief facts leading to the above penalty are that the assessee-company is engaged in the activity of dyeing and printing of art silk fabrics on job-work basis and the return of income for the year under consideration declaring a total income NIL was filed on 01-11-2004 and the assessment in the case was completed u/s.143(3) of the Act on 17-11-2006, determining total income of the assessee at Rs.3,50,140/- making an addition of Rs.14,12,533/- while completing the assessment additions of Rs.13,11,043/- and Rs.1,01,490/- were made on account of low gross profit and on account of disallowance of capital expenses debited to the profit & loss a/c respectively. During the year the assessee has shown gross receipts of Rs.5.49 crores and GP rate of 3.62% as compared to gross receipts of Rs.7.29 cores and GP ate of 7.9% in the last year. This shows there has been fall of GP rate of 4.3% during the current year as compared to last year. The assessee was asked to explain the fall in GP. The assessee submitted that during the year the production of unit had reduced by 2.57% than that of the previous year. It has also stated that the expenditure has increased in terms of percentage and cost per metre. There is reduction of cost of process material i.e. colour chemical by 34 paisa per metre. He further submitted that the reduction in GP ratio is for the specific reason of reduction in process quantity. The assessee further submitted that day-to-day production records are maintained but colour and chemical consumption details are not maintained on day- to-day basis because this involves lot of complex nature of working. It was submitted that from time to time the management takes physical stock and works out the cost of consumption in terms of per mete cost in value. The A.O did not accept this explanation because the assessee failed to produce the register of colour chemicals ITA No.2951/Ahd/2009 A.Y. 2004-05 ITO Wd-1(1), Surat v. M/s. Aradhana Industries Pvt. Ltd. Page 3 maintained as stated above and also failed to produce the details of physical stock of colour chemicals taken from time to time as claimed by the assessee.
4. The assessee, however, failed to produce such records to substantiate the contention in respect of stock register of colour chemicals. It also failed to produce the consumption records in respect of coal. From the details submitted the A.O noticed various irregularities. The A.O further noticed that if other income is reduced amounting to Rs.29,72,43/- then the assessee would incur business loss of Rs.9,84,099/-. The A.O further noticed that as per the chart of processed cloth and consumption of electricity and wages prepared on page-4 of the assessment order, in the month of October average consumption of power was Rs.1.93 per month whereas in the month of September average power consumption was Rs.2.26 per month. Likewise, in the month of December average consumption of power was Rs.2.79 per month whereas in the month of February average power consumption was Rs.3.45 per month. In the month of May average consumption was Rs.3.45 per month. In the month of May average consumption of power was Rs.1.67 per month and in April it was Rs.3.74 per month and in the month of June average power consumption is Rs.5.7 per month. The A.O also stated that during the last year the electricity consumed was 15.19% of the turnover whereas in the current year it was 18.78% of the turnover showing an increase of 3.59%. Similarly, the gas consumed was 11.1% of the turnover and during the year it was 14.54% of the turnover showing an increase of 3.44%. The A.O also stated that the assessee has not maintained record of coal consumption and quantity-wise quality records in respect of colour consumed. The A.O. also found that the valuation of work-in-progress shown at Rs.5 lakh was much less than what it should have been. The A.O. worked out the closing stock of work-in-progress which according to her calculation would be Rs.9,57,273/- whereas the assessee had shown Rs.5 lakhs thereby showing the work-in-progress of closing stock less by Rs.4,57,273/-. The assessee has submitted to the A.O that during the year average job receipts are only Rs.7.48 per month compared to Rs.7.68 per month in the last year. The colour chemicals consumed is on an average Rs.2.8 per month during the current year compared to Rs6/- per month as per last year. However, according to the assessee the ITA No.2951/Ahd/2009 A.Y. 2004-05 ITO Wd-1(1), Surat v. M/s. Aradhana Industries Pvt. Ltd. Page 4 manufacturing expense have increased considerably during the year they are Rs.3.4 per month during the year compared to Rs.3.04 per month in the last year and also the expenditure of employee has increased from Rs.1.4 per month in the last year to Rs.1.5 per month in the current year. According to the assessee even in manufacturing expenses the reason for increase in cost of power and fuel was because whether the lot is small or large it does not affect the total cost of electricity and gas and hence in terms of cost per month explaining increase if the lot is small and decrease if the lot is bigger. The assessee has stated that the consumption of electricity and gas has increased on percentage basis because there is reduction in production. In the last year the production was 94.99 lacs metres in the whole year whereas in the current year the production is only 73.55 lacs metres. With respect to the employee expenses it has been stated that the wages have not registered much change this year. The salary has increased by 12.93% which is normal increase for fixed pay staff. With respect to closing stock of work-in-progress the assessee stated the production of 5 days of April 003 was 79,190 metres which was rounded off to 80,000 metres @ Rs.3.55 per metre. The work-in-progress was rounded off to Rs.3 lakh is. The assessee pointed out to the A.O that the A.O has considered the work- in-progress in respect of 8 days cycle which is not correct. According to the assessee on page-6 the working shows that the A.O has adopted 8 days cycle whereas the cycle is generally 5-6 days cycle. With respect to the coal consumption the assessee submitted that the coal is used for running the boiler and generation of steam. Parallel to it gas is also used for the same purpose. In view of the above the assessee submitted that the GP fall is explained and hence no addition should be made. The AO did not accept the above explanation and made the addition on account of low GP. With respect to the revenue expenses treated as capital, the A.O has stated that it was noticed that the assessee has purchased kirloskar made three water pumps amounting to Rs.1.01,490/- and claimed this expenses as revenue expenditure by debiting it to the profit & loss a/c. The AO has stated that these are capital expenditure and hence the same was disallowed as revenue expenditure. On being asked to show cause as to why these be not disallowed as capital expenditure, the assessee agreed that these expenditure were technically capital expenditure but it was taken as revenue expenditure and if it is taken as capital expenditure, then depreciation should be allowed. Hence, the A.O disallowed the expenditure as ITA No.2951/Ahd/2009 A.Y. 2004-05 ITO Wd-1(1), Surat v. M/s. Aradhana Industries Pvt. Ltd. Page 5 capital expenditure and exactly on these facts levied the penalty u/s.271(1)© of the Act. Aggrieved, the assessee preferred appeal before CIT(A).
5. The CIT(A) deleted the penalty by giving following finding in para-2.3 of his appellate order:-
"2.3 I have considered the submission made by the appellate and the observation of the A.O. With respect to the G.P addition, it is sent hat in the case of Sudesh Khanna Vs. ACIT reported in 98-TTJ-106, the Hon'ble ITAT, Ahmedabad has held that if the additions are confirmed by the Tribunal on account of fall in gross profit rate it cannot be said that the assessee had concealed the particulars of income or furnished inaccurate particulars and, therefore, no penalty should be levied u/s.271(1)©. The penalty cannot be levied on account of G.P addition in view of the decision of the Hon'ble Gujaat High Court in the case of CIT Vs. Lakhdhir Lalji (85-ITR-77) in this regard. The G.P addition is clearly an estimate addition and, therefore, as per the settled position of law no penalty can be levied on estimate addition, as decided by the Hon'ble Gujarat High Court in the case of S.P. Bhatt (97-ITR-440) and Subhash Trading Co. (221-ITR-110), when the addition is made on estimate basis and there is nothing on record to show that there is no particular entries in the books of account are false or incorrect then no penalty can be levied for furnishing inaccurate particulars or concealment of income. I agree with the appellant that the G.P addition is on account of estimation of income. There is nothing on the record to suggest that there was furnishing of inaccurate particulars of income. The addition is consequence of estimation of income for which penalty u/s.271(1)© cannot be levied as decided by several Courts including ITAT, Ahmedabad as stated above. With respect to the revenue expenditure being treated as capital expenditure, I agree with the appellant that it is an issue of debatable nature and hence no penalty can be levied. Hence, the penalty levied by the A.O is deleted and the ground of appeal is allowed."
6. After hearing the rival contentions and going through the case records, we find that the reasons for addition of GP was that the assessee is not maintaining consumption record of chemicals and there was variation from month-to-month in the consumption of electricity, gas and coal expenses. According to the Assessing Officer the valuation of the work-in-progress at the end of the year was not stated to be shown correctly. But the assessee stated before the CIT(A) as well as before us now that the AO estimated the GP at 6% without giving any reason and the addition is based on at the estimates and not on any material found. Even the AO has not recorded a finding that how the valuation the work-in-progress is not correct. We ITA No.2951/Ahd/2009 A.Y. 2004-05 ITO Wd-1(1), Surat v. M/s. Aradhana Industries Pvt. Ltd. Page 6 find that the addition made on estimates and without any material or basis the penalty for concealment cannot be levied. Accordingly, we find no infirmity in the order of CIT(A) deleting the penalty. We confirm the order of CIT(A) and this issue of the Revenue's appeal is dismissed.
7. In the result, Revenue's appeal is dismissed.
Order pronounced in Open Court on 06/01/2010
Sd/- Sd/-
(Dr.O.K.Narayanan) (Mahavir Singh)
(Vice President) (Judicial Member)
Ahmedabad,
Dated : 06/01/2010
*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