Income Tax Appellate Tribunal - Ahmedabad
Jain Tex, Surat vs Assessee on 24 March, 2010
IN THE INCOME_TAX APPELLATE TRIBUNAL " B " BENCH, AHMEDABAD
BEFORE SHRI Deepak R. Shah AND SHRI D.T. Garasia.
ITA No. 3829/Ahd/2007
(Assessment Year:2004-05)
(CAMP AT SURAT)
M/s. Jain Tex Vs The Income Tax Officer,
205 K.B.Industrial Complex, Ward 2(1), Aayakar Bhavan,
Jawahar Road No.1, Udhna Majura Gate,
Udyog Nagar, Udhna, Surat. Surat.
(Appellant) (Respondent)
PAN: AACFJ 8974 E
Appellant by : Shri Anil K. Shah
Respondent by : Shri Kumar Hrishikesh,Sr.D.R.
(आदे श)/ORDER
)/ PER: SHRI D.T. GARASIA.
The first ground reads as under:-
"The learned Commissioner of Income Ta(A)-II, Surat has wrongly confirmed addition of Rs.12,38,861/- as value of the unaccounted production. We pray for deletion of the additions."
2. During the year under consideration the assessee has disclosed gross profit of 1.597% on total turnover of Rs.89,25,210/- as against last year's G.P. at 9.31% on total turnover of Rs.14,41,647/- in the immediately preceding year. The A.O. observed that there was wide fluctuation on month to month basis. The average rate of production of yarn was low during the months 1 of May, June, August, October,2003 and February,2004. Against show cause notice was issued for the first time during the year on 19.5.2003 whereas the production of grey cloth started earlier on 16.5.2003 itself. The assessee has not quantified the yarn on the machines The assessee had the capacity of 34,000 mtrs., of grey per month whereas he had shown the average production of 22,763 mtrs., for 11 months during which the actual production was done. This meant that assessee had shown excessive job work expenses to its sister concern. However, assessee has failed to produce any details in respect of the movement of the goods. The assessee has consumed 37,817.27 kg. of yarn during the said 5 months and had shown production of greycloth of 1,88,617 mtrs. During the same period. This meant that average production of 4.89 of grey per kg. of yarn as against the average production of 8.36 per mtr per kg. This meant that average production of 4.89 mtrs. Of grey per kg. of yarn, as against average production of 8.36 mtr. Per kg. was adopted then the production for these months should have been 3,16,194 mtrs. Therefore, assessee hs understated the production to the extent of 1,27,576 mtrs. of grey. The assessee took the contention before the A.O. that in the month of April,2003 there was a strike against levy of excise duty and moreover the factory was closed due to fire. The yarn received in the month of May was not totally consumed and much of the yarn had remained on the machine and same was situation in the month of June. From the month of July assessee has produced from master weavers. Thus the assessee tempted to explain the variation in the production of grey during the different months. However, the A.O. rejected the explanation furnished by the assessee and came to the conclusion that assessee has suppressed production of grey to the extent of 2 1,27,576 mtrs. and he made the addition of Rs.12,38,861/-. The matter carried to the CIT(A) and the C.I.T.(A) has dismissed the appeal.
3. The learned A.R. submitted that assessee has two factories, where in one there were weaving looms, while in the other twisting and crimping machines. The learned A.R. submitted that the A.O. has made the addition on the ground that during the year Gross profit has decreased in percentage of last year. In the last year the gross profit was 9.31% where incurrent year G.P. is 1.61% only therefore, the assessee has taken contention that there was fire and due to fire the assessee has incurred loss and G.P. would be 10.18% therefore, G.P. would be better than previous year. The learned AR submitted that the entire factory was closed in the month April,2003 and our factory also remained closed in April,2003 due to fire in the factory. As the Government made the excise law applicable to weavers, the entire industry went on strike in the month of April,2003. The assessee had excess work on hand therefore, they could not make the production in their factory and therefore, it must be allowed.
4. We have heard the rival contentions of both the [arties. Looking to the facts and circumstances of the case, we find that during the year under consideration the gross profit disclosed at 1.97% on total turnover of Rs.89,25,210/-. Therefore, the A.O. found that there were defects in expenses claimed by the assessee. Assessee explained before us that there was heavy fire on 3.4.2003 and loss debited to manufacturing account of Rs.6,65,711/-. If the fire loss is to be excluded gross profit would be better. The 3 assessee has explained that the Govt., has made excise law applicable to the weavers therefore, in the month of April the entire industry went on strike. Therefore, assessee has reason for decrease in G.P. RG-12 records maintained and tallied with the records of custom department. Thus, the assessee maintained all records which are statutorily to be maintained for Excise Law. Excise Department did not find any error or omission in the records. The assessee has also produced factory-wise production, self production and job work. The assessee has total production of 572697.75 mtrs. This total production is of assessee's own production and job work done etc., The separate production is shown by the assessee and all the details were furnished before the A.O. We also find that every month production is as per Excise records RG-12, therefore, no addition is required. We find that the addition is based on the calculation of average use of yarn and production. No addition can be made on the basis of consumption and also no addition can be made on the basis of the capacity of the machine. The assessee has given all the details of production and reason for fall in G.P. therefore, we reverse finding of CIT(A) and allow the appeal.
5. The second ground is regarding the disallowance of excess loss claimed by fire of Rs.20,356/-. There was fire and assessee has total fire loss of Rs.17,01,995/- and the assessee has claimed Rs.16,81,693/- before the Insurance Company. Therefore, assessee has not claimed loss of Rs.20,356/- while claiming before the 4 Insurance Company.Therefore, the A.O. has disallowed the same and the CIT(A) has confirmed the same.
6. We heard the rival contentions of both the parties. Looking to the facts and circumstances of the case we find that it is not in dispute that due to fire at Kosamba factory as soon as the fire occurred and statement given to the Police department and to the fire department they have provided figures of loss, all records stock and machines were damaged. When the figure was given assessee has given the figure on estimated basis and when assessee has verified the records and all the damages figures were entered in the books the difference of Rs.20,356/- only with fire recorded at the time of fire and actual loss. The assessee has filed affidavit in this regard therefore, we are of the view that it is a genuine claim and there is no basis for making this addition. Therefore, we delete the addition.
7. The third ground is against addition of Rs.3,29,400/- as capital loss due to fire. The assessee has claimed the total loss of Rs.17,01,995/- out of which Rs.3,29,400/- belong to the factory and plant and machinery. Since these were of capital asset in nature the A.O. issued show cause notice and asked as to why the loss should not be treated as capital loss. The assessee explained that loss to the factory and plant and machinery has been credited to fixed asset account. Though the difference was debited in Profit and loss account and there was short fall and included in loss of stock. The A.O. observed that the assessee has not submitted any detail or detail head under which the assessee's claim has been rejected. No documentary evidence has been produced regarding 5 such rejection. From the papers filed by the assessee shows that the assessee has not received the entire amount claimed, the A.O. has disallowed the same as capital loss.
8. The matter carried to the CIT(A) and the C.I.T.(A) has confirmed the same.
9. We have heard the rival contentions of both the parties. Looking to the facts and circumstances of the case, we find that the assessee has incurred total loss of Rs.17,01,995/- and assessee has claimed the receipt of Rs.9,36,362/-. We find that assessee had incurred loss due to fire, police panchnama, fire brigade report and letter to Excise Department was written. We find that insurance company has not given bifurcation while giving the insurance claim but the assessee has incurred substantial loss and hence it is revenue expenditure. We find that there is loss on account of stock 13,46,135/- and stores and spare Rs.26,460/- and we find that this is a revenue loss and assessee is not entitled for the loss on factory building and plant and machinery. The assessee has debited total loss and profit and loss account Rs.7,65,771/- but that can be allowed in the proportionate to the revenue expenditure only. Therefore, we reverse the finding of the CIT (A) and restore the matter to the file of the A.O. to give the proportionate revenue loss regarding stock must be allowed after giving due opportunity of hearing.
10. Ground No.4 and 5 are not pressed.
611. Ground No.6, the A.O. has observed that the assessee has obtained loan from Bank and Financial Institutions at the maximum rate of 15%. There was therefore, no reason why the assessee should make borrowings from the party and he has to pay interest at 24%. The assessee was given show cause notice and in reply to show cause notice assessee submitted that the assessee had to give higher rate of interest because it is difficult to get the finance from the market borrowings were made because of the financial constraint and it was unable to repay the loan taken from Canara Bank. The A.O. has rejected the claim.
12 . We have heard the rival contentions of both the parties. Looking to the facts and circumstances of the case we find that the assessee had taken loan from Private Parties @ 24% which is very excessive and assessee has paid interest @ 15% to the Bank. We find that the assessee had submitted that assessee was unable to pay the Bank instalments and therefore assessee was constrained to take the loans from private parties and for that he has paid the interest at 24%. We find that all these findings have confirmed the transaction and no amount of interest found non genuine by A.O. Therefore, we delete the same.
13. Ground No.8 is regarding invoking the provisions of section 145 while rejecting the books of account which is not pressed before the CIT(A).The assessee has raised this ground before the Tribunal but we are disturbing the income of the assessee, therefore, this ground does not survive. Hence this ground is dismissed.
714. In the result the appeal is partly allowed for statistical purpose.
Order pronounced in Open Court on 24 /03 /2010.
Sd/- Sd/-
(DEEPAK R. SHAH) (D.T. GARASIA)
ACCOUNTANT MEMBER. JUDICIAL MEMBER.
Ahmedabad.
Dated: 24 /03/2010.
S.A.Patki.
Copy of the Order forwarded to:-
1. The Appellant.
2. The Respondent.
3. The CIT(Appeals)-
4. The CIT concerned.
5. The DR.,ITAT, Ahmedabad.
6. Guard File.
By ORDER
Deputy/Asstt.Registrar
ITAT,Ahmedabad.
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