Income Tax Appellate Tribunal - Ahmedabad
Himson Twisting & Texturing Pvt.Ltd.,, ... vs Department Of Income Tax on 18 March, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
AT AHMEDABAD "D" BENCH
Before: Shri D.K. Tyagi, Judicial Member
and Shri A.K. Garodia, Accountant Member
ITA No. 1575/Ahd/2010
Assessment Year:-2007-2008
Dy. Commissioner of M/s Himson Twisting &
Income-tax, Circle-1, Texturising Ind. Pvt. Ltd.
Room No. 108, Aayakar Vs Hiralal Colony, A.K. Road,
Bhavan, Majura Gate, Surat.
Surat PAN-AAACH5982R
(Appellant) (Respondent)
Revenue by: Sri T. Shankar, Sr. D.R.
Assessee by: None
Date of hearing : 18-03-2013
Date of pronouncement : 12-04-2013
आदे श/ORDER
PER : D.K. TYAGI, JUDICIAL MEMBER:-
This is the revenue's appeal against the order of ld. CIT(A)-I Surat dated 10-03-2010.
2. The only effective ground taken by the Revenue is as under:-
I.T.A No.1575/Ahd/2010 A.Y. 2007-08 Page No 2 DCIT vs. M/s. Himson Twisting & Texturising Ind. Pvt. Ltd.
"1. On the facts and in the circumstances of the case and in law, the learned CIT(A)-I, Surat has erred in deleting the addition made by the A.O. of Rs. 20,21,267/- on account of fall in GP."
3. During the assessment proceedings assessing officer observed that assessee has shown 6.41 % GP rate on the total turn over of Rs. 7,80,41,199/- as against the GP of 13.02 % on the total turn over of Rs. 7,81,67,199/- shown in the immediate preceding year. Thus, there is fall in GP of 6.61 % during the year under appeal as compared to immediately preceding year. Assessee was asked to explain the fall in G.P. The assessee's reply was that they have retrenched many of the employees during the year under appeal and paid gratuity payment of Rs. 8,81,717/- as compared to only Rs. 21,195/- in the last year as well as there was increase in the labour payment from 25.44 lacs to Rs. 78.36 lacs. It was also submitted on behalf of assessee that purchase price of yarn has increased by 4 % to 5 % as compared to last year whereas the sale price has reduced by Rs. 1 on various twisted/dyed yarn. This explanation was not acceptable to the A.O. according to him labour payment was under the direct control of the management and the assessee can manipulate the same to reduce the profit and its tax liability. He rejected the books of account of the assessee for the following reason:-
1. The manufacturing expenses have increased from 92.20 lacs in the last year to Rs. 127.98 lacs in the current year even though the turnover has not increased at all during the current year as compared to last year. The assessee has not been able to explain disproportionate increase in consumption of raw material and expenses.
I.T.A No.1575/Ahd/2010 A.Y. 2007-08 Page No 3 DCIT vs. M/s. Himson Twisting & Texturising Ind. Pvt. Ltd. 2 With respect to the increase in labour payment, the A.O. stated that the labour payment is in the direct control of the management and the assessee can manipulate the same to reduce the profit. No justification for such increase has been given by the assessee.
3. During the year, the assessee has made payment of Rs. 3.19 crores owards raw material purchased and Rs. 20.01 lacs for job work to parties covered by the provisions of Section 40A(2)(b). The A.O. asked the assessee for justification of these payments. The assessee stated that goods purchased from sister concern and outsiders are not comparable as they were of different quality or different dates.
and adopted the GP rate at 9 % as against 6.41 % shown by the assessee thereby making addition of Rs. 20,21,267/-.
4. When the matter was carried in appeal before ld. CIT(A), he deleted this addition on following grounds:-
i). A.O. has not brought on record any material evidence to show that the books of account are not reliable or the sales are undervalued or their sales are outside the books of account.
ii) The assessee has explained the reasons by fall in G.P.
iii) Absence of stock register and other supporting proof/evidence were low factor in invoking provisions of section 145(3) of the Act.
I.T.A No.1575/Ahd/2010 A.Y. 2007-08 Page No 4 DCIT vs. M/s. Himson Twisting & Texturising Ind. Pvt. Ltd.
iv) A.O. has not compared as to how labour charges were excessive or reasonable as compared to prevailing market price.
5. Aggrieved by this order of Ld. CIT(A) revenue is now in appeal before us. At the time of hearing none appeared on behalf of the assessee however written submissions are on record which read as under:-
"1. Fall in G.P. During the year the appellant's turnover was Rs. 7.80 cr with a G.P. rate of 6.41% as against turnover of 7.81 cr with a G.P. rate of 13.02%. Thus there was a fall in G.P. rate by 6.61 %. The Assessing Officer has not fully considered the fall in G.P. and rejected the books of account and estimated G.P. at 9 %. Therefore, addition of Rs. 2020267/- was made to the returned income.
2. Justification for fall in G.P. The reasons for fall in G.P. were manifold and were explained before the assessing officer and also before CIT(A).
(a)Outsourcing of labour work There was a retrenchment of employees whereby amount of Rs. 881717/- was paid as compared to Rs. 21195/- in the immediately preceding year. This has the effect on G.P. by 1.1%.
(b)Outsourcing of labour work During the year under consideration, the appellant outsourced much of the production as compared to production done at the appellant's premises. Due to retrenchment of employees, many of the employees were not available for the requisite production. Since the activities were outsourced, many of the expenses cannot be controlled.
I.T.A No.1575/Ahd/2010 A.Y. 2007-08 Page No 5DCIT vs. M/s. Himson Twisting & Texturising Ind. Pvt. Ltd.
(c)Effect on gross margin.
There was a decrease in sales price from Rs. 178.71/- per kg to Rs. 170.38/- in A.Y. 2007-08. Thus there is a fall of Rs. 8.33/- per kg in sales price.
On the other hand the purchase price of raw materials being yarn had increased from Rs. 147.54/- per kg to Rs. 149.70/- per kg. Thus there is a rise of Rs. 2.16/- per kg.
The combined effects of both of these factors have resulted in decrease in G.P. by Rs. 3801862/- which is equivalent to 6.08/- of the turnover. This is depicted in the table shown hereunder.
Particulars A.Y. 07-08 A.Y. 06-07 Fall in Quantity sold Effect on
Sales gross
Price margin
Per Kg
Sales Rs. 62505871 Rs. 63573768
Sales 366843 Kg 355724 Kg
Quantity
Average Rs. 170.38 Rs. 178.71 per Rs. 8.33 Rs. 366843 Rs.
Price per kg kg 3055802
Purchase Rs. 51708507 Rs. 51784225
Purchase 345398 Kg 350980 Kg
quantity
Average Rs. 149.70 Rs. 147.54 per Rs. 2.16 Rs. 345398 Rs. 746060
Price per kg kg
Effect on Gross Margin Rs. 3801862
(d) No defects in books of account
The books of accounts are audited and no defects in the books are found during the assessment proceedings. The assessing officer had not brought any material on record justifying that the sales have been undervalued or the purchases have been overvalued. No bogus purchases have been found.
I.T.A No.1575/Ahd/2010 A.Y. 2007-08 Page No 6DCIT vs. M/s. Himson Twisting & Texturising Ind. Pvt. Ltd.
In view of the above, the Hon'ble bench is requested to dismiss the departmental appeal and allow our appeal in respect of G.P. addition."
ld. D.R. on the other hand vehemently supported the order of A.O. but could not rebut the submission of the assessee in respect of justification for fall in G.P. We further find that revenue has not challenged the finding of ld. CIT(A) that assessing officer was not justified in rejecting the books of account of the assessee. Law is settled that unless this is done, G.P. addition cannot be defended by revenue. In view of this, we are not inclined to interfere with the order passed by ld. CIT(A) and the same is hereby upheld.
6. In the result, revenue's appeal is dismissed.
Order pronounced in open court on the date mentioned hereinabove at caption page Sd/- Sd/-
(A.K. GARODIA) ( D.K.TYAGI) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 12 /04/2013 ak
आदे श कȧ ूितिलǒप अमेǒषत / Copy of Order Forwarded to:-
1. अपीलाथȸ / Appellant
2. ू×यथȸ / Respondent
3. संबंिधत आयकर आयुƠ / Concerned CIT
4. आयकर आयुƠ- अपील / CIT (A)
5. ǒवभागीय ूितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड[ फाइल / Guard file.
By order/आदे श से, उप/सहायक पंजीकार आयकर अपीलीय अिधकरण, अहमदाबाद I.T.A No.1575/Ahd/2010 A.Y. 2007-08 Page No 7 DCIT vs. M/s. Himson Twisting & Texturising Ind. Pvt. Ltd.
Strengthened preparation & delivery of orders in the ITAT
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4) Date of correction 05-04-2013
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