Income Tax Appellate Tribunal - Ahmedabad
Shanpur Industries, Baroda vs Department Of Income Tax on 19 December, 2008
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IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "D" AHMEDABAD
Before S/Shri Bhavnesh Saini, JM and A. Mohan Alankamony, AM
ITA No.864/Ahd/2009
Asst. Year 2005-06
Dy. CIT, Cir.2(2), Baroda. Vs. M/s Shanpar Industries,
303/5, GIDC,
Makarpura, Baroda-10.
(Appellant) (Respondent)
..
Appellant by :- Shri P. R. Ghosh, DR
Respondent by:- None
ORDER
Per A. Mohan Alankamony, Accountant Member.
This is an appeal filed by the Revenue aggrieved by the order of the Ld.CIT(A)-II,Baroda in appeal No. CAB/II-447/07-08 dated 19/12/2008 raising the following grounds:-
(1) On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in granting relief of Rs.25,13,098/- out of the total addition of Rs.27,72,765/- made by the AO by invoking the provisions of section 145(3) of the I.T. Act, 1961.
(2) On the facts and in the circumstances of the case and in law the ld. CIT(A) erred in estimating the profit from purchase of Rs.830,934/- at 31.25% i.e. Rs.2,59,667/- and confirmed the addition to this extent and granted relief of Rs.25,13,098/-.
(3) The appellant craves leave to, amend or alter the above grounds as may be deemed necessary.ITA No.864/Ahd/2009
Asst. Year 2005-06
2. None appeared on behalf of the assessee, however, the Ld. DR was present. Since the issue involved was simple we decided to proceed with the case for adjudication on merits based on the materials before us. The first two grounds of the Revenue are being considered herein below while as ground No. three is general in nature and does not survive for adjudication.
3. The assessee firm is engaged in the business of manufacturing of fine chemicals. The assessee filed return of income on 27.10.2005 declaring total income at Rs.67,83,630/-. The assessee also furnished Tax Audit Report u/s 44AB accompanied with balance sheet and profit and loss account in respect of FY under review. The assessment was completed u/s 143(3) of the Act on 28.12.2007 by making certain additions, like disallowance of telephone expenses to the extent of Rs.25,000/-, 1/5th of vehicle expenses amount to Rs.14,780/-, 1/10th of traveling expenses amounting to Rs.22,650/- etc. The AO also made an addition of Rs.27,72,765/- due to fall in GP and coupled with non- maintenance of record of stock or production in respect of non-excisable goods by invoking provisions of section 145(3) of the Act., and addition of Rs.1,85,950/- u/s 68.
4. The assessee went in appeal before the ld. CIT(A), who after considering the submissions of assessee and the assessment order confirmed the disallowance of telephone and traveling expenses. As regards the disallowance regarding vehicle expenses it was considered fair to disallow 1/10th of the expenses and accordingly directed the AO. With respect to the additions U/s. 68 of the Act., the Ld.CIT(A) deleted the addition.
2 ITA No.864/Ahd/2009Asst. Year 2005-06 5.1 As regards the addition of Rs.27,72,765/- it was submitted by the ld. AR before the ld. CIT(A) that assessee has been maintaining books of accounts regularly which are subject to audit inspection by various authorities. All the records under the Excise Law are maintained and necessary audit of production is regularly conducted by the Excise Department. Books of accounts are supported by necessary bills and evidences. The ld. AR also submitted that the main reason for decrease in GP was the cost of raw material had increased substantially in the current year. The cost of raw material for AY 2004-05 was 42.87% while for AY 2005-06 it had increased to 47.42%. The ld. AR in this regard submitted following chart showing the turnover/gross profit and GP ratio as under:-
Sl.No. Assessment Turnover (Rs.) Gross profit G.P. Ratio (%) Year (Rs.)
1. 2005-06 5,54,55,381/- 1,73,30,224/- 31.25 2 2004-05 4,57,14,353/- 1,55,77,656/- 34.07 3 2003-04 4,05,05,505/- 94,72,332/- 23.39 4 2002-03 4,02,06,852/- 78,66,344/- 19.56
5. 2001-02 3,41,85,312/- 50,35,603/- 14.73 The ld. AR also submitted that to bring about an increase in turnover from 4.57 crore in AY 2004-05 to 5.54 crore in AY 2005-06 prices have been decreased to ensure sales in an extremely competitive market. The assessee further submitted that in the year under consideration the total purchase of raw material was of Rs.2,46,63,975/-. Against this purchase on which MODVAT credit has been availed amounts to Rs.2,38,33,041/-.
The purchase from traders was of Rs.8,30,934/- only i.e. 3.37% of the total purchase. Therefore for raw materials valued at Rs.8,30,934/-, stock register has not been maintained. There was no requirement under the 3 ITA No.864/Ahd/2009 Asst. Year 2005-06 excise law to do so. The books of accounts have been audited. No defect has been pointed out by the AO.
5.2 The ld. CIT(A) considered the submissions of ld. AR and the contentions raised in the assessment order. The ld. CIT(A) observed that the comparison of the GP of last 5 years reveals that the current year's gross profit is favorable. The average of gross profit from assessment year 2001-02 to 2004-05 works out to 22.93%. Against this the current year's gross profit has been declared at 31.25%. Merely because the GP declared last year was 34.07% cannot lead to the conclusion that the books of accounts are not correct and deserve to be rejected. No evidence has been brought on record by the AO with regard to any discrepancy in purchase price, sale price or the valuation of stock. Hence increasing the GP by 5% cannot be justified. The products manufactured by the assessee are subject to excise duty for which records are maintained and audited. The only discrepancy lies in non-maintenance of records on purchase from traders amounting to Rs.8,30,934/-. However, nothing has been brought on record to show that these purchases have not been used in manufacturing of products which have been sold in the regular cause of business and profits have been booked. However, to ensure that there is no leakage of revenue, it would be fair to estimate the profits from purchase of rs.8,30,934/- at 31.25% i.e. Rs.2,59,667/-. Hence the appellant gets relief of rs.25,13,098/-. The balance is confirmed. Against this observation of ld. CIT(A) the Revenue is aggrieved and has come in appeal before the Tribunal.
6. We have heard the Ld.DR and perused over the materials on record. The facts of the case reveal that the Ld.CIT(A) has analysed the issue in detail and came to a finding that the assessee has purchases for 4 ITA No.864/Ahd/2009 Asst. Year 2005-06 only Rs. 8,30,934/- for which the records are not maintained. Thereafter the Ld.CIT(A) has applied the current GP ratio for the purchases at 31.25% and sustained an addition of Rs. 2,59,667/-, thus granted relief for Rs.25,13,098/-. In our opinion the Ld.CIT(A) had a very reasoned approach on the issue. On the other hand the Ld.AO's finding on the issue was that the appellant's Profit and Loss Account showed fall in GP and further the appellant had not maintained stock or production record in respect of non-excisable goods by invoking provisions of section 145(3) of the Act and thereby made a whooping addition for Rs. 27,72,765/- by increasing the overall GP rate to 5% which is excessive and not reasonable. With our above view we have no hesitation to confirm the order of the Ld.CIT(A) on this count. It is ordered accordingly.
7. In the result the appeal of the Revenue is dismissed.
Order was pronounced in open Court on 22/7/11.
Sd/- Sd/-
(Bhavnesh Saini) (A. Mohan Alankamony)
Judicial Member Accountant Member
Ahmedabad,
Dated : 22/7/11.
Mahata/-
Copy of the Order forwarded to:-
1. The Assessee.
2. The Revenue.
3. The CIT(Appeals)-
4. The CIT concerns.
5. The DR, ITAT, Ahmedabad
6. Guard File.
BY ORDER,
Deputy/Asstt.Registrar
ITAT, Ahmedabad
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ITA No.864/Ahd/2009
Asst. Year 2005-06
1.Date of dictation 18/7/11.
2.Date on which the typed draft is placed before the Dictating Member 18/7/11.
/Other Member................
3.Date on which the approved draft comes to the Sr.P.S./P.S.............
4.Date on which the fair order is placed before the Dictating Member for pronouncement..............
5.Date on which the fair order comes back to the Sr.P.S./P.S...............
6.Date on which the file goes to the Bench Clerk...........
7.Date on which the file goes to the Head Clerk.............
8.The date on which the file goes to the Asstt. Registrar for signature on the order........................
9.Date of Despatch of the Order.................
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