Income Tax Appellate Tribunal - Ahmedabad
Uttamchand Nemichand , Ahmedabad vs Assessee on 7 October, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL,
" D " BENCH, AHMEDABAD
Before Shri T.K. SHARMA, JUDICIAL MEMBER
and Shri A. K. GARODIA, ACCOUNTANT MEMBER
I.T.A. No.2906 / Ahd/2010
(Assessment year 2007-08)
M/s. Uttamchand Nemichand Vs. ITO, Ward 11(3),
C/o R B Rathi & Co., Ahmedabad
35, New Cloth Market,
Ahmedabad
PAN/GIR No. : AALPV1408N
(APPELLANT) .. (RESPONDENT)
Appellant by: Shri R B Rathi, AR
Respondent by: Shri Jayraj Kumar, Sr. DR
Date of hearing: 07.10.2011
Date of pronouncement: 14.10.11
ORDER
PER SHRI A. K. GARODIA, AM:-
This is assessee's appeal directed against the order of Ld. CIT(A) XVI, Ahmedabad dated 01.09.2010 for the assessment year 2007-08. The grounds raised by the assessee are as under:
"The Authorities Below have erred in law & fact by making the G.P. addition to the tune of Rs.15,75,168/- even though the appellant has aduce every reason for decreasing the G.P. as compare to the previous year. The appellant has stated that G.P. percentage of last six years wherein it is flucting every year and G.P. is being accepted as it is by the department in each and every year. The learned A.O. and learned C.I.T. has misunderstood the reprocess of cloth which they have taken into the total of shrinkage while the appellant has produced all the bills of reprocess of the process house along with the delivery slips and copy of reprocess 2 I.T.A.No. 2906 /Ahd/2010 bills. The learned C.I.T. has not gone the list submitted by the assessee of the reprocess of the goods and only taken into consideration to first bill and not through the other details which has been submitted to the learned C.I.T. The appellant has explained that there is no discrepancies of 18090 meters of cloth at it has been reprocess by the appellant for which the complete evidence submitted to the A.O. as well as the learned C.I.T. The authorities below have erred in law and fact by rejecting the books result merely on the belief that the G.P. was lower as compare to the last year.
Any other grounds which may need at the end of justice shall be submitted at the time of hearing."
2. The brief facts till the assessment stage are noted by the Ld. CIT(A) in para 2.1 of his order which is being reproduced below:
"2.1 This is regarding addition of Rs. 15,75,168/- on account of low gross profit. In the assessment order, the AO has stated that the assessee is engaged in the business of trading of cloth. During the year the assessee has shown turnover of Rs. 3.6 crore and GP rate of 13.39% as against the turnover of Rs. 0.53 crore and GP rate of 22.13% in the last year. In view of this reason, there is a fall in GP rate of 8.74%. The AO asked the assessee to give reasons for fall in GP rate along with supporting evidence. The AO stated that the assessee has given general reply without any corroborative supporting evidence. The assessee has also not furnished details regarding shrinkage of 25739 mtr of cloth. The AO therefore, issued a show cause notice as to why the last year's gross profit rate be not adopted. The assessee replied that the sales had increased by a large proportion as compared to last year. Due to damages of the cloth the assessee was compelled to sell the same at lower rate. The assessee also stated that during the year the rate of job work was also increased. The AO did not accept this explanation saying that it is general reply without any documentary or supporting evidence. The AO further stated that the assessee has not given any details of the shrinkage. The AO has reproduced the details of shrinkages as per various bill numbers in para-5.1.3 on 3 I.T.A.No. 2906 /Ahd/2010 page 3 of the assessment order. The AO stated that in some of the examples in the table shrinkage is hardly 0.5% whereas in some cases the shrinkage was as large as 20%. This shows that the assessee's books of accounts are not reliable. In view of the reason that the shrinkage data is not at all reliable and because there is a large fall in the GP rate, he rejected the books of accounts and adopted the GP rate of last year thereby making an addition of Rs. 15,75,168/- to the total income."
3. Being aggrieved, the assessee carried the mater in appeal before Ld. CIT(A) but without success and now, the assessee is in further appeal before us.
4. It was the submission of the Ld. A.R. of the assessee that the A.O. has mainly based his decision on this fact that the assessee has claimed shrinkage of 25739 mtrs. but this is not factually correct and the A.O. adopted wrong figures of shrinkage. He submitted that the details were submitted before the A.O. as per letter dated 28.12.2009, copy of which is available on page 5 of the paper book. He drew our attention to the details submitted in the letter as per which, shortage on account of shrinkage is of 7467.75 mtrs. and of 18271.75 mtrs. was on account of reprocessing. He submitted that out of total production of 469047 mtrs., shrinkage of 7467.75 mtrs. is only 1.59%, which is quite reasonable and no adverse inference should be drawn on this account.
5. As against this, Ld. D.R. supported the orders of authorities below. Regarding the argument of the Ld. A.R. that shrinkage is of 7467.75 mtrs. and 18271.75 mtrs. was on account of damaged cloth, he submitted that finding is given by Ld. CIT(A) in para 2.3 of his order that he assessee could not substantiate this explanation because the assessee has filed some bills but except from only one bill, it is not clear that the same 4 I.T.A.No. 2906 /Ahd/2010 is in respect of reprocessing. He submitted that under these facts, the order of CIT(A) should be confirmed.
6. We have considered the rival submissions, perused the material on record and have gone through he orders of authorities below. We find that in the present year, the assessee has declared G.P. of only 13.39% as against G.P. @ 22.13% in the preceding year. Admittedly, there is a large increase in the turnover of the assessee in the present year to Rs.360.40 lacs as against Rs.53.51 lacs in the preceding year but still such a steep fall in the G.P. from 22.13% to 13.39% is not automatically explained being on account of increase in turnover. In addition to this, the A.O. has also noted that the assessee has shown shrinkage of 22739 mtrs. As per the explanation given by the assessee before the authorities below and also before us, the assessee is also accepting that the shrinkage to this extent is not justified because assessee is explaining that out of total quantity of 22739 mtrs., shrinkage is only 7467.75 mtrs. and the balance quantity of 18271.75 mtrs. is damaged cloth and not shrinkage. Hence, the assessee is also not justifying the shrinkage of 22739 mtrs. Regarding this claim of the assessee that there was damaged cloth which was got reprocessed to the extent of 18271.75 mtrs., clear finding is given by Ld. CIT(A) in para 2.3 of his order that the assessee has filed some bills but except from one bill, it is not clear that this is in respect of reprocessing. He further observed that the only bill is bill No.L2121 dated 28.09.2006 of only 180.75 mtrs. In spite of this clear finding of Ld. CIT(A), no evidence has been brought on record before us to show /establish this claim of damaged cloth having been sent for reprocessing. On page 9 of the paper book, assessee has furnished the details of reprocessing of 18271.75 mtrs. but no supporting evidence has been submitted in the paper book. Although the assessee has stated at page 11 5 I.T.A.No. 2906 /Ahd/2010 of the paper book that the reprocessing bills are enclosed, but the same are not enclosed in the paper book. As per the G.P. chart submitted by the assessee on page 4 of the paper book, we find that the G.P. was 16.20% in assessment year 2008-09 i.e. succeeding year and it was 22.13% in the assessment year 2006-07 i.e. the preceding year. The A.O. has adopted the average G.P. @ 17.76% being the average of G.P. for the assessment years 2006-07 and 2007-08. We also find that in para 2.3 of Ld. CIT(A)'s order, finding is also given regarding fall in G.P. on account of unexplained discrepancy in respect of 18090 mtrs. of cloth which is claimed by the assessee as damaged cloth. CIT(A) has adopted average rate of Rs.90 per mtr for valuing of quantity of alleged damaged cloth and worked out the same at Rs.16.28 lacs as against G.P. addition made by the A.O. of Rs.15,75,168/-. This goes to show that not only the fall in G.P. alone but the failure of the assessee to explain this high quantity of shrinkage/damaged cloth justify the addition made by the A.O. On page 7 of the paper book is detail given by the assessee with regard to closing stock valuation of the present year and from the same, we find that the assessee has reduced the quantity of reprocessing goods to the extent of 18271.75 mtrs. from the total opening stock and purchase of grey cloth. We fail to understand that even if it is accepted that certain quantity of cloth was reprocessed by the assessee, how the quantity of cloth can be reduced from the closing stock of grey cloth because ultimately, the same has been reprocessed and as a result, converted into finished goods and, therefore, even if assessee's claim is correct that certain quantity of damaged cloth was reprocessed, it does not explain the reason for deducting this quantity of reprocessed cloth form closing stock of grey cloth because if we do the same, we have to first add the same quantity in the finished goods which has come from reprocessing. The chart given 6 I.T.A.No. 2906 /Ahd/2010 by the assessee on page 7 regarding closing stock valuation is very much relevant and hence, the same is reproduced below:
Closing stock for the assessment year 2007-08 Grey mtr. Finished goods Finished goods Todi Mtr.
mtr. Kgs. Opening stock 98527.50 36137.25 817.25 Purchase 408875.70 17256.35 4590.56 Finish goods 469047.45 469047.45 58731.7 Reprocess -18271.75 goods Todi -58731.70 Sales -10110.25 -384639.6 -4471.37 -58336.30 Shrinkage -7467.75 Closing stock 2506.00 79069.75 119.19 1212.65
7. From the above working of closing stock reproduced, we find that although the assessee has reduced the quantity of alleged reprocessed goods of 18271.75 mtrs. from grey cloth but the same is not added in the quantity of grey cloth being the quantity of cloth received for reprocessing from finished section. We also find that the same quantity of 469047.45 mtrs. was added in the stock of finished goods and the same quantity was reduced from the stock of grey cloth and hence, no further reduction from grey cloth is called for even if the claim of the assessee is correct that to the extent of 18271.75 mtrs., there was reprocessing of cloth because it is not the claim of the assessee that this quantity of cloth was not usable at all and this is the only claim of the assessee that this quantity of cloth was reprocessed and therefore, the same cannot be reduced form the closing stock of grey cloth.
8. We also find that on page 11 of the paper book, the assessee has given quantitative details for the next year i.e. assessment year 2008-09.
The same is also reproduced below:
7 I.T.A.No. 2906 /Ahd/2010Particulars Grey mtrs. Finished goods Finished goods Todi mts mts. Kgs.
Opening stock 2506.00 79069.75 119.19 1212.65
Purchases 33942.90 11403.85 1125.52
Transfer to (33757.00) 33757.00 - 33796.35
finished goods
- 454.00 - -
Todi (33796.35)
Finished goods - (30738.25) - (454.00)
reprocess
Received Mts. - 30203.75
reprocess
Sales - (63474.50) 1244.71 (32386.00)
Shrinkage 1330.90 (988.50) - -
Closing stock 1361.00 25890.75 - 2169.00
9. In the above working of quantitative detail for the next year, it is seen that the same quantity was reduced from grey cloth and added to stock of finished goods and regarding reprocessing, we find that the quantity of 30,378.25 mtrs. was first reduced from the stock of finished goods and thereafter, 30203.25 mtrs. was added back to the stock of finished goods and there is no impact on the stock of grey cloth in the next year on account of reprocessing and only shrinkage of 1330.9 mtrs.
was reduced from the stock of grey cloth of that year. This working of the assessee itself clearly shows that in the present year, the stock of grey cloth was artificially reduced by deducting 18271.75 mtrs from grey cloth without any corresponding addition in grey cloth or finished goods stock as in the next year where reprocessing has taken place of 30738.25 mtrs. and the same has been added back in the stock of finished goods and there is only marginal loss on account of reprocessing to the extent of 534.50 mtrs.. Hence, it is clear that in the represent year, the grey cloth stock was artificially reduced and, therefore, the addition made by the A.O. is justified because a clear finding is given by Ld. CIT(A) that if this quantity of cloth is valued then the value of the same is less than the G.P. 8 I.T.A.No. 2906 /Ahd/2010 addition made by the A.O. Since the entire addition made by the A.O. is less than the value of this quantity of cloth artificially reduced by the assessee from the stock of grey cloth, we are of the considered opinion that no interference is called for in the order of Ld. CIT(A) in the facts of the present case.
11. In the result, the appeal of the assessee is dismissed.
12. Order pronounced in the open court on 14th Oct., 2011.
Sd./- Sd./-
(T.K. SHARMA) (A. K. GARODIA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated : 14.10. 2011
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
1. Date of dictation.........10/10
2. Date on which the typed draft is placed before the Dictating Member...13/10 Other Member .........
3. Date on which the approved draft comes to the Sr. P.S./P.S.13/10
4. Date on which the fair order is placed before the Dictating Member for pronouncement ...14/10
5. Date on which the fair order comes back to the Sr. P.S./P.S.14/10
6. Date on which the file goes to the Bench Clerk ...14/10/11
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. .......................