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Income Tax Appellate Tribunal, SURAT– BENCH ‘SURAT
Before: SHRI RAJPAL YADAV & SHRI AMARJIT SINGH
-आयकर अपील�य अ�धकरण, अहमदाबाद �यायपीठ । IN THE INCOME TAX APPELLATE TRIBUNAL SURAT– BENCH ‘SURAT BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ITA No.17/Ahd/2015 WITH CO NO.29/AHD/2015 �नधा�रण वष�/Asstt. Year: 2009-10 ACIT, Cir.2(1)(1) Vs. Ujala Dyeing & Printing Surat. S/112, JJ A.C. Market Ring Road Dist. Surat PAN : AAACU 2949 M ITA No.2274/Ahd/2016 �नधा�रण वष�/Asstt. Year: 2009-10 Ujala Dyeing & Printing Vs. ACIT, Cir.2(1)(1) S/112, JJ A.C. Market Surat. Ring Road Dist. Surat PAN : AAACU 2949 M (Applicant) (Respondent)
Assessee by : Shri Ramesh Malpani, CA Revenue by : Smt.Smitha V. Nair, Sr.DR सुनवाई क� तार�ख/Date of Hearing : 12/11/2018 घोषणा क� तार�ख /Date of Pronouncement: 13/11/2018 आदेश/O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: ITA No.17/Ahd/2015 is directed at the instance of Revenue against order of ld.CIT(A)-II, Surat dated 13.10.2014 passed for the Asstt.Year 2009-10. On receipt of notice in Revenue’s appeal, the assessee has filed CO bearing No.29/Ahd/2015. ITA No.2274/Ahd/2016 is directed at the
ITA No.17/Ahd/2015 With CO and ITA No.2274/Ahd/2016 2 instance of assessee against order of ld.CIT(A)-II, Surat dated 12.6.2016 passed for the Asstt.Year 2009-10. This appeal arises from an order passed under section 154 of the Act on 15.1.2016 on the application of the assessee. Application of the assessee moved under section 154 was rejected and dissatisfied with order of the AO, the assessee filed appeal before the ld.CIT(A), which has been dismissed vide order dated 12.6.2016. All these appeals and CO are disposed of by this common order.
First, we take appeal of the Revenue and CO of the assessee. Grounds taken by the Revenue are not are not in consonance with the Rule 8 of the Income Tax (Appellate Tribunal) Rules, 1963 - they are descriptive and argumentative in nature. In brief ground nos.1 and 2 exhibit grievance of the Revenue. In the first fold of grievance the Revenue has pleaded that the ld.CIT(A) has erred in restricting addition on account of low GP to Rs.5,87,605/- as against Rs.50,18,790/- made by the AO. This issue is inter-connected with the issue raised in the assessee’s CO, whereby the assessee has aggrieved by the action of the ld.CIT(A) in sustaining addition of Rs.5,87,605/- on account of low GP. Therefore, we proceed to adjudicate both the issues together for the sake of convenience.
Brief facts are that the assessee has filed its return of income on 30.9.2009 declaring total income at Rs.1,59,49,445/-. The case of the assessee was selected for scrutiny assessment and notice under section 143(3) was served upon the assessee. On scrutiny of the accounts, the ld.AO has observed that survey under section 133A of the Act
ITA No.17/Ahd/2015 With CO and ITA No.2274/Ahd/2016 3 was carried out at the business premises of the assessee on 2.9.2008 wherein the assessee-company has made disclosure of Rs.1,85,49,160/-. The ld.AO further observed that the assessee has shown GP at 9.53% of the turnover as against GP at 12.39% in the immediately preceding year. The ld.AO confronted the assessee as to why its books of accounts are not being rejected and GP should not be estimated. In response to the query of the AO, the assessee filed written submissions which has been noticed by the AO in para-6 of the assessment order. Reply given by the assessee reads as under:
“6. The AR of the assessee vide letter dated 13.12.2011 furnished the reply which is reproduced as under: "Justification for Decline in G.P. and returned income of Rs.1,59,49,445/-: 1. In the year 2006-07 G.P. was 11.78% which went up to 12.39% in the year 2007-08 and declined to 9.53% in the year 2008-09. It appears from the past records that, G.P. has gone up or gone down depending upon financial and economical circumstances. In the year 2008-09 G.P. was low right from the beginning which is corroborated by pre-survey financials of the company for which the G.P. works out to 9.83%. This can be verified with the pre-survey soft data of financials collected by the department during the course of survey. There were so many internal and external factors which contributed to the down in G.P. as follows:- (i) Consistencies and continuation of production team in process house plays pivotal role in increasing profitability of the products. During the year the company passed through severe crises in continuing the production team
ITA No.17/Ahd/2015 With CO and ITA No.2274/Ahd/2016 4 which was working for last several years. During the year 2008-09 production team changed for 3 times.
Different processing teams have different processing style and different mix of color and chemical. Every time the team changes fresh sampling of colour chemical is done which not only increases usage of material but sampling cost also goes high. Due to the frequent change of dyeing and printing masters even before pre-survey period our G.P. declined to 9.83%.
(ii) During the year continues flow of gas supply was completely disturbed by Gujarat Gas Company Ltd. and the unit had to resort on dual power supply for continues production.
(iii) (a) During the year additional thermopack boiler was installed and activated for uninterrupted production which increased boiler fuel consumption.
(b) During the year 2007-08 basic price of petroleum coke was about Rs.3600/- per M.T. However during the year 2008-09 there was substantial increase in basic price to average Rs.6100/- per M.T. Almost 70% hike in pet coke basic price also contributed to increase in fuel expenses. Fuel surcharge is hiked by DGVCL from Average (iv) Rs.0.15 in the year 2007-08 to Rs.0.71 in the year 2008- 09. This has increased the power cost by about Rs.13.50 lacs. (a) Additional Tax @ 2.50% was levied by Gujarat (v) Gas Co. Ltd during the year. (b) Monthly maximum signed quantity (SCM) was increase from 93600/- to 119600/- during the year. (c) The average rate charged during the year 2007-08 was Rs.9.764 per unit which went up to Rs. 12.066 per
ITA No.17/Ahd/2015 With CO and ITA No.2274/Ahd/2016 5 unit in the year 2008-09. Foil work was started during the year which cost (vi) Rs.882449/-. Cumulative effect of all the above factors resulted (vii) into lower G.P. which is also corroborated by pre-survey period G.P. which works out to 9.83% and post-survey which works out to 9.33% and average G.P. works out to 9.53% for the whole year which is justified considering all the above facts and circumstances of the case.” 4. The ld.AO was not satisfied with the explanation of the assessee. He made addition of Rs.50,18,790/-.
Dissatisfied with the addition, assessee carried the matter in appeal before the ld.CIT(A). The ld.CIT(A) has restricted this addition to Rs.5,87,605/-. The ld.CIT(A) found that the AO has not pointed out any specific defects in the books of accounts of the assessee. The sole reason assigned by the AO that the assessee was not maintaining day-to-day stock register, but in the opinion of the ld.CIT(A) it was not such a substantial aspect which could goad the AO to estimate GP at 12.39%. The ld.CIT(A), as a matter of fact found that fuel expenses and raw-material consumption has increased by 3.22% and 3.54% before survey and post-survey. Thus, as a matter of fact, the ld.CIT(A) found that the assessee has given justifiable reasons for decline in the GP. The ld.CIT(A) has confirmed addition of Rs.5,87,605/-, because she found that unaccounted stock at Rs.48,96,705/- was found at the time of survey. This stock has been alleged to be sold at cost. The ld.CIT(A)did not accept this contention of the assessee and
ITA No.17/Ahd/2015 With CO and ITA No.2274/Ahd/2016 6 estimated the GP on this item at 12% which has given figure of profit at Rs.5,87,605/-. This amount has been confirmed as addition to the total income of the assessee by the ld.CIT(A).
With the assistance of the ld.representatives, we have gone through the record carefully. A perusal of the reply given by the assessee and extracted supra would indicate that the assessee has given plausible explanation as to why its GP has fallen. Fuel prices, raw-material cost, coke, etc. are of so many factors which have declined the profit margin of the assessee. The ld.CIT(A) has taken cognizance of these facts and thereafter accepted the contentions of the assessee. After going through the well reasoned order of the ld.CIT(A), in the light of the explanation given by the assessee extracted (supra), we do not find any merit in the ground no.1 of the Revenue. It is rejected. Consequently, ground raised in the CO also stands rejected.
In ground no.2, Revenue has pleaded that the ld.CIT(A) has erred in deleting the addition of Rs.47,81,000/- which was added by the AO by declining prayer of the assessee to set off depreciation against the income disclosed during the survey. Before we take cognizance of the details, we would like to make reference to the order of the ld.CIT(A) on this issue, which reads as under:
“8.3 The appellant’s contention has been examined. Apparently, the figure of Rs.47,81,000/- disallowed is a mistake. In the first part of the computation of income
ITA No.17/Ahd/2015 With CO and ITA No.2274/Ahd/2016 7 given in para 13 of the order. The figure mentioned is only Rs. 25,74,715/- for reference para 13 of the order is reproduced hereunder: Income from business or profession Net profit as per P & L account Rs. 1,59,74,445/- Less: Disclosure Income during the survey Rs. 1,85,49,160/- declared (-) Rs. 25,74,715/- Income from other sources Income disclosed during the course Rs.1,85,49,160/- of survey Rs. 1,85,49,160/- Add: (i) Disallowance on Rs. 50,18,790/- account of low G.P as discussed in para 8 (ii) Depreciation Rs. 47,81,000/- disallowed as discussed in para 11 (iii) Keyman Policy Rs. 4,25,642/- Rs. 1,02,25,432/- premium disallowed as discussed in para 10 Total Assessed Income Rs. 2,87,74,592/- i.e. Rounded off to Rs.2,87,74,590/-
8.4 Therefore, it is held that only an amount of Rs.25,74,715/- has been set off against the income declared during the survey U/s. 69 and 69A and therefore depreciation to that extent can not be set off against the income declared during the survey of Rs.1,,85,49,160/- if the decision of the Gujarat High Court (Supra) if followed. However, the G.P addition
ITA No.17/Ahd/2015 With CO and ITA No.2274/Ahd/2016 8 sustained is an income under the head ‘Business or Profession’. The assessee is entitled to set off depreciation against the G.P addition sustained. Therefore, even if the aforesaid decision of the Hon'ble Gujarat High Court is followed the set off will be allowed to the extent of Rs.5,87,605/- and the remaining depreciation of Rs.19,87,110/- only [Rs.2574715/— Rs.5,87,605/-] can be added . However, the Hon’ble Gujarat High Court in its decision in the case of Radhe Developers India Ltd. reported in 329 ITR1 has held that the act does not envisage taxing any income under any head not specified in section 14. This decision has been given after considering the decision in the case of Fakir Mohmed Haji Hasan relied upon by the AO. Therefore, following the above later decision of Hon’ble Gujarat High Court which is subsequent to the decision in the case of Fakir Mohmed Haji Hasan, the addition of even Rs. 19,87,110/- can not be made. Therefore, ground no. 2 of the appeal is allowed.” 8. With the assistance of the ld.representatives, we have gone through the record carefully. A perusal of the above finding would indicate that there was no claim of Rs.47,81,000/- ever made by the assessee on account of set off against income disclosed during the survey. It is not ascertainable from where this figure has been brought by the AO. The ld.DR was unable to clarify the position of the AO qua this aspect. Therefore, this ground basically does not emerge from the assessment in logical sense. The ld.CIT(A) has rightly set this aspect right on factual issues. It is pertinent to observe that the assessee has claimed depreciation of Rs.25,74,715/- against income declared during the survey at Rs.1,85,49,160/- . It has shown net taxable income at Rs.1,59,74,445/-. The
ITA No.17/Ahd/2015 With CO and ITA No.2274/Ahd/2016 9 AO was of the view that income declared during the course of survey is under a different head and against this income depreciation cannot be set off. He followed the decision of Hon’ble Gujarat High Court in the case of Fakir Mohmed Haji Hasan, 247 ITR 290. On appeal, the ld.CIT(A) examined this aspect and observed that in the total income an addition of Rs.5,87,605/- was made on account of GP. Atleast against this income, depreciation can be set off, and hence, if any depreciation is to be disallowed, then it is the amount of Rs.19,87,110/- only (Rs.25,74,715/- minus Rs.5,87,605/-). However, the ld.CIT(A) further observed that Hon’ble Gujarat High Court in the case of Radhe Developers India Ltd., 329 ITR 1 has considered its earlier decision in the case of Fakir Mohmed Haji Hasan (supra) and held that even the income disclosed during the course of survey depreciation could be allowed. The ld.CIT(A) further held that addition of Rs.19,87,110/- cannot be made. It is discernible from the finding of the ld.CIT(A) extracted (supra). After considering this well reasoned finding of the ld.CIT(A) we do not find any merit in ground no.2 also. It is rejected.
In the remaining grounds of appeal, the Revenue has just raised arguments without specifically raising any grounds. In other words, these grounds are in support of first two grounds. Hence, all other grounds are also rejected.
In the result, appeal of the Revenue and CO of the assessee, both are dismissed.
ITA No.17/Ahd/2015 With CO and ITA No.2274/Ahd/2016 10
Now we take appeal of the assessee i.e. ITA No.2274/Ahd/2016. The assessee filed an application before the AO contending therein that while determining total income, he took the income at figure of Rs.1,85,49,160/- instead of correct figure of Rs.1,59,49,445/-. The ld.AO has dismissed this application of the assessee by following the decision of Hon’ble Gujarat High Court in the case of Fakir Mohd. Haji Hasan (supra). Basically, dispute between the assessee and the Revenue is that the ld.CIT(A) has taken figure of depreciation amounting to Rs.25,74,715/-. This figure was set off by the assessee against income at Rs.1,85,49,160/- and net income was declared at Rs.1,59,74,445/-. The ld.AO did not allow set off this depreciation against the income disclosed during the course of survey. Hence, he dismissed the application of the assessee moved under section 154 of the Act. On appeal, the ld.CIT(A) has appreciated this fact in right perspective, but observed that this issue has been examined by the ld.CIT(A) and decided in favour of the assessee by following decision of Hon’ble Gujarat High Court in the case of Radhe Developers India Ltd. (supra). According to the ld.CIT(A), the assessee ought to have moved an application before the AO in the order giving effect instead of pointing out apparent error in the assessment order.
With the assistance of the ld.representatives, we have gone through the record carefully. The AO was required to compute true
ITA No.17/Ahd/2015 With CO and ITA No.2274/Ahd/2016 11 income of the assessee after the order of the ld.CIT(A). Even if an assessee filed an application pointing out apparent error in the assessment order, then also the AO should take into consideration finding of the ld.CIT(A). The basic reason is that he has to determine true income after giving effect to the order of the ld.CIT(A) or other appellate authority. On account of some technical aspect, he cannot over-assess the assessee. The basic issue is whether, deprecation amounting to Rs.25,74,715/- could be adjusted/set off against the income declared after survey. In other words, the positive figure of Rs.18,5,49,160/- or net correct total of Rs.1,59,74,445/- is to be taken for computation of income. A perusal of the order of the ld.CIT(A) in the quantum proceedings, we are of the view that the AO has committed an apparent error by not adopting the figure of Rs.1,59,74,445/-. We allow the appeal of the assessee and direct the AO to adopt figure of Rs.1,59,74,445/- instead of Rs.1,85,49,160/-.
In the result, appeal of the Revenue and CO of the assessee, are dismissed. Appeal of the assessee i.e. ITA No.2274/Ahd/2016 is allowed.
Order pronounced in the Court on 13th November, 2018.
Sd/- Sd/- (AMARJIT SINGH) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER Surat; Dated 13/11/2018