Income Tax Appellate Tribunal - Ahmedabad
Tulsi Intermediaries Pvt.Ltd., ... vs Income Tax Officer,Ward-8(1),, ... on 21 March, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD '' D/SMC " BENCH - AHMEDABAD
Before Shri S. S. Godara, JM & Shri Manish Borad, AM.
ITA No. 996/Ahd/2012
Asst. Year:2007-08
Tulsi Intermediaries (P)Ltd. Vs. ITO, Wd-8(1),
15/A, Vasant Vihar Society, Ahmedabad.
Nr. Mithakhali Six Road,
Navrangpura, Ahmedabad.
Appellant Respondent
PAN AABCT8215A
AND
ITA No. 1224/Ahd/2012
Asst. Year:2007-08
ITO, Wd-8(1), Ahmedabad. Vs. Tulsi Intermediaries (P)
Ltd.
15/A, Vasant Vihar
Society, Nr. Mithakhali
Six Road, Navrangpura,
Ahmedabad.
Appellant Respondent
Appellant by Shri R. B. Shah, AR
Respondent by Shri Sitaram Meena, Sr.DR
Date of hearing: 16/03/2017
Date of pronouncement: 21/03/2017
ORDER
PER Manish Borad, Accountant Member.
These cross appeals for Asst. Year 2007-08 are directed against the order of ld. Commissioner of Income Tax(A)-XIV, Ahmedabad, dated 26/03/2012 vide appeal no.CIT(A)-
ITA No. 996 & 1224/Ahd/2012 2Asst. Year 2007-08 XIV/Wd.8(1)/316/2009-10 arising out of order u/s 143(3) of the Income-tax Act, 1961 (in short the Act) framed on 23/12/2009 by ITO, Wd-8(1), Ahmedabad. Following grounds have been raised by assessee and the Revenue:-
2. Revenue's appeal in ITA No.1224/Ahd/2012
1) The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in allowing the book results rejected by the Assessing Officer by invoking the provisions of Section 145(3) of the Act by restricting the addition of Rs.20,37,059/-,on account of Gross Profit, to Rs. 11,78,612/-.
2) The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in allowing set off of additions sustained on account of Gross Profit addition from the disallowance of claim of loss claimed account of flood.
3) On the facts and in the circumstances of the case, the Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad 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 (Appeals)-XIV, Ahmedabad may be set-a-side and that of the order of the Assessing Officer be restored.
3. We will first take up Revenue's appeal.
4. At the outset ld. counsel for the assessee submitted that appeal of the Revenue is to be dismissed in lieu of CBDT Instructions no.20/2015 dated 10.12.2015 as the tax effect is less than Rs.10 lakhs.
5. Ld. Departmental Representative could not controvert the submissions of the ld. Authorised Representative and accepted that ITA No. 996 & 1224/Ahd/2012 3 Asst. Year 2007-08 the appeal of Revenue is to be dismissed on account of low tax effect.
6. We have heard the rival contentions and perused the record.
Revenue is in appeal raising various grounds. However, both the ld.
representatives have agreed to the fact that tax effect in this Revenue's appeal is less than Rs.10 lacs. This appeal was presented on 05/06/2012. On 10.12.2015 the CBDT has issued Instructions bearing No. 21/2015 prohibiting its subordinate authorities from filing of the appeal to the Tribunal against the order of the CIT(A) where the tax effect by virtue of the relief given by the CIT(A) is less than Rs.10 lakhs. The instructions have been made applicable with retrospective effect, meaning thereby, these instructions are applicable on pending appeal also. The tax effect on deletion of the total addition in this appeal would be less than Rs.10 lakhs. The present appeal deserves to be dismissed being treated to be filed in violation of CBDT Instructions. The case does not fall within the ambit of exceptions provided in the instructions. It is further observed that since, while hearing the appeal, such factors were not considered, therefore, in case, on re-verification at the end of the AO, it came to the notice that the tax effect is more or they fall within the ITA No. 996 & 1224/Ahd/2012 4 Asst. Year 2007-08 ambit of exceptions provided in the Instruction, then the Department will be at liberty to approach the Tribunal for recall of this order. Such application should be filed within limitation provided in law. In view of the above, the appeal of the Revenue is dismissed.
7. In the result, appeal of the Revenue is dismissed.
8. Now we take up assessee's appeal in ITA No.996/Ahd/2012.
9. Briefly stated facts as culled out from the records are that assessee is Private Ltd. company engaged in the business of manufacturing and trading chemicals. Return of income for Asst. Year 2007-08 was filed on 31.10.2007 declaring loss of Rs.3,62,380/-. Case was selected for scrutiny assessment and notice u/s 143(2) followed by notice u/s 142(1) of the Act were issued and duly served on the assessee. Assessee filed copies of audited balance sheet, computation of income and other details including gross profit rate chart for three years and note on manufacturing activities. Ld. Assessing Officer raised question on the downfall of gross profit rate vis - a- vis the previous years to which assessee replied that on account of increase of turnover and manufacturing activities as against job work charges and due to flood gross profit has marginally decreased. However, ld. Assessing Officer was not convinced with the submission of assessee and rejected the books of account u/s 145(3) of the Act and estimated profits by applying gross profit @ 25% as against 20% shown by assessee and after making other additions and disallowance totaling to Rs.46,07,566/- assessed the ITA No. 996 & 1224/Ahd/2012 5 Asst. Year 2007-08 income at Rs.42,45,186/-. Assessee's total income was computed by Assessing Officer in following manner :-
Income from Business or Profession Net loss as per Profit & Loss A/c: Less: (-) Rs. 3,63,930 Less : Disallowable Donation Rs. 1550 (-) Rs. 3,62,380 Add : Addition
(i) On account of GP Rs.20,37,059
(ii)Out of unsecured Loans U/s Rs. 3,52,015 68 isallowance
(iii) Out of Flood Loss Rs.15,43,049
(iv) Out of Job Wofk Expense Rs. 3,00,088
(v)Out of unexplained Expenses Rs. 79,542
(vi) Out of Bad Debt Claim Rs. 2,95,812 Rs.46,07,566 TOTAL INCOME Rs.46,45,186
10. Aggrieved, assessee went in appeal before ld. Commissioner of Income Tax(A) and partly succeeded.
11. Aggrieved, assessee is now in appeal before the Tribunal raising following grounds :-
1) On the facts & in the circumstances of the case it is most respectfully submitted that the Hon'ble CIT(A) has erred in law and on facts by confirming the rejection of accounts u/s 145(3) of the Income Tax Act, 1961.
2) On the facts & in the circumstances of the case it is most respectfully submitted that the Hon'ble C!T(A) has erred on facts by confirming the addition in respect Gross Profit by estimating the Gross. Profit @23% and amount in respect to such to the extent of Rs.11,78,612/-.
3) On the facts & in-the circumstances of the case it is most respectfully submitted that the Hon'ble CIT(A) has erred in law and on facts by confirming the addition to the extent of Rs.3,64,437/- in respect of flood loss.
4) On the facts & in the circumstances of the case it is most respectfully submitted that the Hon'ble CIT(A) has erred in law and on facts by confirming the addition of Rs.3,00,088/- u/s 43B of the I. T. Act, 1961.ITA No. 996 & 1224/Ahd/2012 6
Asst. Year 2007-08
5) On the facts & in the circumstances of the case it is most respectfully submitted that the Hon'ble CIT(A) has erred in law and on facts by confirming the addition of Rs.3,52,016/- u/s 68 of the !.T. Act, 1961
12. At the outset ld. Authorised Representative requested for not pressing ground no.1. Therefore, the same is dismissed as not pressed.
13. Now we take up ground no.2. Ld. Authorised Representative submitted that ld. Commissioner of Income Tax(A) erred in sustaining rate of gross profit @ 23% as against 20% shown by assessee by ignoring the facts that assessee's turnover has increased to approx. Rs.3.80 crores as compared to Rs.1.56 crores in immediately preceding year and job work charges increased to 49.27 lacs as compared to Rs.37.28 lacs in preceding year. In totality total gross profit of the company has increased to Rs.8693532 in the year under appeal as compared to Rs.4913542/-. He further submitted that there was severe flood in the city and assessee's manufacturing activities were badly affected by it which is also a reason for lower gross profit. Ld. Authorised Representative further submitted that it is well established that if the turnover of concern increases many fold it increases the gross profit amount but the rate of gross profit is reduced. He further submitted that in the past assessee's proportion of job work charges were higher in comparison to sale of manufactured goods and gross profit rate is generally higher in job work charges and lower in manufacturing/trading goods. Ld. Authorised Representative also submitted that books of accounts of assessee are regularly audited. Assessee is registered under the Excise Act, VAT return have been filed, quantitative details were ITA No. 996 & 1224/Ahd/2012 7 Asst. Year 2007-08 attached with the audit report and in view of loss due to goods damage in flood gross profit rate shown by assessee was correct and ld. Commissioner of Income Tax(A) erred in sustaining estimated gross profit by applying 23% as against 20%.
14. On the other hand, ld. Departmental Representative vehemently argued supporting the orders of lower authorities. He submitted that assessee was unable to provide quantitative details even on request at several times.
15. We have heard rival contentions and perused record placed before us. Assessee is aggrieved against ld. Commissioner of Income Tax(A)'s order sustaining estimated gross profit @ 23% as against 25% estimated by ld. Assessing Officer whereas assessee has disclosed gross profit @ 20% in its regular audited books of account. We observe that ld. Commissioner of Income Tax(A) estimated 23% gross profit rate by taking note of gross profit rate of 3 years by observing as follows :-
Decision :
I have carefully perused the findings of the assessing officer and submissions made by the ld.AR.lt is noted from the assessment order that in spite of several opportunities, the appellant did not furnish stock register, details of consumption of raw material and other relevant details which could help in determining the correctness of the profit shown by him. Therefore, the rejection of books of account u/s. 145 by the A. O. was justified. The ground of appeal is dismissed.
Regarding the estimation of gross profit @ 25% by the Assessing Officer it is seen that the A. O. has based his estimation on the ground that the G. P. ratio of the immediate previous year was worked out at Rs.34,02% in-the report submitted by the insurance surveyor, whereas the appellant had shown the G. P. rate @ 25% in that year. He accordingly applied the G. P. rale by taking the average of last two years G. P. The appellant has submitted that' there was an ITA No. 996 & 1224/Ahd/2012 8 Asst. Year 2007-08 error in the report given by the surveyor by working the G. P. at 34.2%. The surveyor had taken the manufacturing expenses at Rs.11,59,195/- instead of actual manufacturing expenses of Rs.22,92,944/-:and, .therefore; the G. P. ratio for F. Y. 2005-06 would be 25,42% instead of 34.02%. Further, the appellant has also submitted that the G. P. on the own sales and job work sales are different. In job work sales, the G. P. is higher whereas in own manufacturing sales, the G. P. is lower. In the current A. Y., there were less job work sales as compared to preceding years. The details of own production and job charges of the last three years submitted by the appellant are as follows;
Sr. Assessment Own Job Total % of Job %of
No Year Manufacturing Work Income Work sales Manufact-
Sales .Income to total uring
Sales Sales to
total Sales
1, 2007-08 37994962 4927402 42922364 1 1 .48% 88.52%
2. 2006-07 15596212 3728437 19324649 19.29% 80.70%
3 2005-06 11723024 6313468 18036492 35.00% 65.00%
It is evident* from the above table that the percentage of manufacturing sales to total sales which were 65% in A. Y. 2005-06 has gone up to 88.52% in the current A. Y. Therefore, this ratio is also going to effect the overall G. P. for the current year. In addition to this, it is an admitted fact that there were floods in the factory premises which have resulted in heavy loss to the appellant company. Certain loss has been reimbursed by the insurance company. However, the food has definitely effected the profitability of the company in the current year.
In view of the above mentioned facts-and circumstances, I am of the considered opinion that the G. P. rate of 25% applied by the A. Q. is on" higher side. The appellant has not furnished quantitative details-and stock register and, therefore, rejection of books of accounts have been upheld in the preceding discussion. In these circumstances, the G. P. for the current year has to be estimated on the basis of details available. The G. P. shown by the appellant is 20% and the A. O. has estimated it at the rate of 25% by taking the average of earlier years. In view of peculiar fact such as floods and higher ratio of own manufactured" goods, it would be reasonable to adopt the G.P. rate of 23% for the current year. Accordingly, by applying this ratio on total sales of Rs.4,29,22,364/~, the G.P. ITA No. 996 & 1224/Ahd/2012 9 Asst. Year 2007-08 earned by the appellant should come to Rs.98;72,144/-. The appellant' has shown G.P. of Rs.86,93,532/-. Accordingly, the addition is reduced Jo Rs.11,78,612/- and the balance is directed to be deleted. The ground pf appeal is accordingly partly allowed.
16. From the order of ld. Commissioner of Income Tax(A) we observe that mere estimation has been made by ld. Commissioner of Income Tax(A) by replacing 23% as against 25% applied by Assessing Officer. We find that ld. Commissioner of Income Tax(A) has ignored some important facts which needs consideration in adjudicating this issue:-
(1) Turnover of the assessee has more than doubled in Asst. Year 2007-08 reaching to 3.80 crores as against 1.56 crores in preceding Financial Year;
(2) Gross job work charge income has increased, but decreased in terms of percentage of total revenue;
(3) Gross profit amount has also doubled reaching to Rs.86.94 lacs as against Rs.49.16 lacs in the preceding year;
(4) There was a flood in the town due to which assessee's manufacturing activities were hindered for some period and suffered losses.
17. The above stated facts clearly shows that there were sufficient reasons for lowering down of gross profit rate which were further added by the fact that manufacturing activities increased more in percentage as compared to its job work charges activities as evident ITA No. 996 & 1224/Ahd/2012 10 Asst. Year 2007-08 from the chart forming part of ld. Commissioner of Income Tax(A) order showing that job work revenue which was 35% of the total revenue isn Asst. Year 2005-06 reduced to 19.29% in Asst. Year 2006-07 and to 11.48% in Asst. Year 2007-08. It is also undisputed fact that assessee is working with a single plant where both the activities are carried on and no separate cost sheets for each of the activities are prepared and therefore, it is not possible to bifurcate the activitywise gross profit rate.
18. We are, therefore, of the view that in the totality of the facts as discussed above where assessee is doing manufacturing and providing job work, regular books of accounts are duly audited with almost double revenue as well as gross profit as compared to preceding Financial Year and turbulence faced in the business due to natural calamity in the form of floods which altogether lead to minor decrease in gross profit rate, no addition was called for by estimating gross profit rate at 23% and, therefore, book result of the assessee needs to be accepted.
16. In the result, this ground of assessee is allowed.
17. Now we take up Ground No.3, which is raised against the ld. CIT(A)'s order sustaining the disallowance of loss suffered due to flood at Rs.3,64,437/-.
18. The brief facts related to this ground are that there was flood on 29.07.2006 and as a result of which the assessee suffered heavy losses. Against the total claim of loss of Rs.58,99,205/-, assessee ITA No. 996 & 1224/Ahd/2012 11 Asst. Year 2007-08 received a cheque of Rs.43,56,156/- and the remaining amount of Rs.15,43,049/- was transferred to Profit & Loss Account under the head "loss incurred during flood". During the course of assessment proceedings, the ld. Assessing Officer examined the surveyor's report; as per which safe stocks was valued at Rs.16,93,596/-, but the assessee claimed that the impugned safe stocks was having no market value as they were chemicals which are water soluable and therefore, there was genuine loss of Rs.15,43,049/-. However, ld. Assessing Officer was not convinced with this reply and, taking the basis of surveyor's report, was of the view that the claim amount received by the assessee was the actual flood loss and the remaining amount of Rs.15,43,049/- has been intentionally debited to Profit & Loss Account to reduce income and accordingly reducing the tax liability.
19. Aggrieved, the assessee went in appeal before the ld. Commissioner of Income Tax (Appeals) and partly succeeded as ld. Commissioner of Income Tax(A) gave telescopic benefit against the addition sustained on account of gross profit estimation and accordingly sustained the disallowance of flood loss claim at Rs.3,64,437/-.
20. Aggrieved, the assessee is now in appeal before the Tribunal.
21. Ld. Authorized Representative vehemently argued reiterating the submissions made before the lower authorities. He further added that the surveyor's report was not challenged because it could have ITA No. 996 & 1224/Ahd/2012 12 Asst. Year 2007-08 been a futile exercise and it is well known fact that insurance companies normally pass lower claims than what is actually claimed. It happened so in the case of the assessee where even when the stock was almost damaged, still the surveyor has shown safe stocks of Rs.16,93,596/-, which was hardly having any market value and further requested for allowing the claim of flood loss at Rs.15,43,049/- .
22. On the other hand, ld. Departmental Representative relied on the order of both the lower authorities and added that the surveyor's report was a concrete evidence that the assessee was having safe stocks of Rs.16,93,596/- and the alleged loss of Rs.15,43,049/- has been claimed with a clear intention to reduce the tax liability.
23. We have heard the rival contentions and perused the material placed before us. The solitary grievance in this ground is against the disallowance made on account of flood loss expense of Rs.15,43,049/-. We find that during the Financial Year 2006-07 there was flood on 29.07.2006, due to which the assessee suffered losses. Surveyor was appointed to verify the claim and after physical verification of stock, verification of books & records, analysis of gross profit for last three years, stock statements submitted to banks, CENVAT duty claimed and all other details relating to stock were examined and finally, as per report, damaged goods (without duty) were valued at Rs.38,34,453/- and safe stocks at Rs.16,93,596/-. The issue in this appeal is with regard to safe stocks of Rs.16,93,596/-. The assessee has claimed that the safe stocks has ITA No. 996 & 1224/Ahd/2012 13 Asst. Year 2007-08 hardly any market value and they were almost damaged due to flood as the chemicals manufactured by the assessee were water-soluable and there was no market for such type of damaged goods; whereas, the ld. Assessing Officer relied on the Surveyor's Report and made a view that the assessee has intentionally claimed loss of Rs.15,43,049/- for reducing the tax liability. Subsequently, the ld. Commissioner of Income Tax(A) has also confirmed the observations of the ld. Assessing Officer, but gave telescopic benefit of the addition sustained on account of gross profit estimation which was upheld at Rs.11,78,612/- and sustained the remaining disallowance. We further observe that while adjudicating Ground No.2 relating to gross profit disallowance, we have allowed assessee's plea and deleted the impugned addition on account of gross profit estimation and therefore, the ld. Commissioner of Income Tax(A)'s order will not have any impact, as observed, while adjudicating Ground No.3.
24. Now, coming to the factual part; undisputedly, the assessee has suffered loss due to flood, but even then sales and gross profits have almost doubled in this year which coupled with the fact that assessee is registered under Excise Department and regular returns are being filed and movement of goods are recorded in the excise records and also regular Value Added Tax returns are furnished. There is no finding on the part of the Revenue to disregard the above facts and no mistake has been observed in the statutory record of Excise and VAT returns. We also find that the assessee is dealing in chemicals and there are fair chances that due to flood the alleged safe stocks shown by the surveyor may not be that fit for being ITA No. 996 & 1224/Ahd/2012 14 Asst. Year 2007-08 saleable in the open market, but coupled with above facts, we also find that the assessee had not disputed the surveyor's report at any stage and has accepted the outcome of the report.
25. We are, therefore, of the view that, in the given circumstances and totality of facts, wherein, on one hand, assessee has claimed loss of Rs.15,43,049/- and on the other hand, has not disputed the Surveyor's Report showing safe stocks of residual materials at Rs.16,93,596/- and also accepting that the goods in question are chemicals which losses its value, if mixed with water, but certainly has some value, we find it justified to sustain the disallowance of loss due to flood at Rs.1,50,000/- as against Rs.15,43,049/- claimed by the assessee.
26. In the result, this ground of the assessee is partly allowed.
27. Ground nos. 4 & 5 of assessee's appeal reads as under:-
4. On the facts & in the circumstances of the case it is most respectfully submitted that the Hon'ble Commissioner of Income Tax(A) has erred in law and on facts by confirming the addition of Rs.3,00,088/- u/s 43B of the I.T. act, 1961.
5. On the facts & in the circumstances of the case it is most respectfully submitted that the Hon'ble Commissioner of Income Tax(A) has erred in law and on facts by confirming the addition of Rs.3,53,016/- u/s 68 of the I.T. Act, 1961.ITA No. 996 & 1224/Ahd/2012 15
Asst. Year 2007-08
28. The above grounds are not pressed at the time of hearing; therefore, these grounds are dismissed as not pressed.
29. In the result, assessee's appeal is partly allowed.
30. In the combined result, appeal of the Revenue is dismissed and that of assessee is partly allowed.
Order pronounced in the open Court on 21st, March, 2017 Sd/- Sd/-
(S. S. Godara) (Manish Borad)
Judicial Member Accountant Member
Dated 21/03/2017
Mahata/-
Copy of the order forwarded to:
1. The Appellant
2. The Respondent
3. The CIT concerned
4. The CIT(A) concerned
5. The DR, ITAT, Ahmedabad
6. Guard File
BY ORDER
True Copy
Asst. Registrar, ITAT, Ahmedabad