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Income Tax Appellate Tribunal, KOLKATA BENCH “A”, KOLKATA
Before: SH. J.SUDHAKAR REDDY & SH.S.S.VISWANETHRA RAVI
ORDER
PER S.S. VISWANETHRA RAVI, JUDICIAL MEMBER Both these appeals filed by the Revenue against the separate orders dated 05.12.2016 and 12.09.2017 passed by CIT(A)-4, Kolkata for AY 2011-12 & 2012-13 respectively.
ITA No.-349/KOL/2017 (ASSESSMENT YEAR-2011-12) 2. Ground Nos. [i] to [iii] raised by the Revenue challenging the action of the CIT(A) in accepting the assessee’s arguments on wastage without calling for any design specific quantification of wastage and thereby deleting the addition made by the AO in the facts and circumstances of the case.
ITA No.-349 & 2490/KOL/2018 (ASSESSMENT YEAR-2011-12 & 2012-13) 3. Heard both parties and perused material available on record. It is noted from the record that the assessee is a company and is a manufacturer and retailer jewellery and other allied products. During the course of assessment proceedings and on perusal of the details submitted by the assessee, the AO held that M/s. Senco Gold Impex Pvt. Ltd. is a wholly owned subsidiary of assessee. Further he found that the assessee shown wastage of 5.97% which is compared with the wastage as shown by its subsidiary i.e M/s. Senco Gold Impex Ltd. and held that the assessee has shown excess wastage of 1.80% [5.97% - 4.17%] and by taking into consideration the wastage at 31733 grms of gold, the AO added an amount of Rs.7,05,74,192/- [31,733 grms. X Rs.2,224/- per grm.] to the total income of the assessee. Before CIT(A), it is noted that the assessee contended that it deals in manufacturing and retailing of gold jewellery products mainly through handcrafting by the Karigars. The said jewellery is produced on an individual item basis and the wastage percent is more in handcrafting of jewellery than on a mass production scale or machine made jewellery. Further, it contended that the handcrafted production, the input/output ratio as well as wastage percent can never be the same in respect of machine made basis jewellery. Considering the submissions of the assessee and by placing reliance on the decision of Hon’ble High Courts of Calcutta, Bombay and Madras, for a proposition that the AO cannot equate the excess portion of wastage in a particular year to the wastage as shown in any other two years, the CIT(A) deleted the addition made by the AO for the reasons stated herein below:-
4.3. “I have considered the submissions of the AR of the appellant in the backdrop of the assessment order. I find force in the argument of the AR of the appellant that since the jewellery is produced on an individual item basis & not on a mass production scale or machine made basis the standard quantum of input/output ratio & wastage percentage can never be the same. It will vary based on the production process and the design of the product especially in case of jewelry production because it is totally human- dependent. Thus, I find that the action of the AO to benchmark the percentage of wastage of jewellery production in the H.O. Division of the appellant cannot form a formidable basis to form his opinion. I find that the AO has made a simple mathematical calculation without any basis or tangible material in his records to establish the excess claim of wastage by the appellant. The entire exercise of the AO is based on incorrect comparison and incorrect understanding of the facts of the case. I also find that the appellant has to Page | 2 ITA No.-349 & 2490/KOL/2018 (ASSESSMENT YEAR-2011-12 & 2012-13) cater to individual customers who have their own likes/dislikes/ preferences & product designs which would result in variation of wastage due to different styles and types of jewellery manufactured by it. I find that the AO has not brought any material on record to establish that the appellant had indeed suppressed its profits by claiming wastage / shortage on consumption of gold. The AO has not found any defect in the purchases, sales and production but merely made his calculation based on presumptions and conjectures and not on any cogent material evidences on record. I find that the judicial decisions cited by the AR of the appellant (supra) in support of his arguments squarely fits into the facts and circumstances of the appellant's case. In view of the foregoing discussions made in the matter, the action of the AO is found to be not tenable for which the Impugned addition of Rs.7,05,74,192/- is directed to be deleted. This ground is allowed.”
Before us, Ld.DR submits that no books were rejected and the CIT(A) did not call for any item–wise wastage of gold. It is the responsibility of the assessee to prove that wastage by producing relevant evidence. The assessee could not produce any evidence before the AO as well as by the CIT(A) but, however, the CIT(A) without considering the facts and circumstances of the case without calling for specific wastage of quantity basis as given relief to the assessee and prayed to reverse the finding of CIT(A) and allow Ground Nos. [i] to [iii] raised by the Revenue.
Ld.AR submits that the benchmarking of wastage by comparing with that of subsidiary company is bad in law, the nature of manufacturing of jewellery is entirely different in respect of Karigar manufacturing & machine made basis manufacturing. The AO high handedly by comparing the wastage as shown by the subsidiary of assessee and by wrong mathematical calculation without any basis held that the assessee suppressed the sale, is invalid in the facts and circumstances of the case. Further, the AO did not bring on record anything to show that the assessee suppressed its profits by claiming excess wastage and shortage on consumption of gold. Ld.AR further supported the order of CIT(A) and prayed to uphold the same. We find as rightly pointed out by the Ld.AR that the AO compared the wastage shown by the subsidiary of assessee in the jewellery making process. Further, there is no dispute that the assessee dealt with the hand-crafting jewellery making process to cater individual customers who have their own likes and preferences on product designs. It is also observed that the results in customization in jewellery making process Page | 3
ITA No.-349 & 2490/KOL/2018 (ASSESSMENT YEAR-2011-12 & 2012-13) sometimes results in variation thereby causes wastage due to different styles and types of jewellery. It is also not in dispute that the assessee subsidiary company i.e. M/s. Senco Gold Pvt.Ltd. is engaged in the bulk production as wherein the type of jewellery is more or less is same and is produced in bulk quantity. Therefore, we find force in the argument of Ld.AR that there is no any comparison with the bulk making jewellery manufacturing process with that of karigar making jewellery process regarding the likes and preferences of individual customers of the product designs. Therefore, we find no infirmity in the order of CIT(A) and we are in agreement with the reasons rendered by him in para 4.3 of the impugned order. Thereby Ground Nos.[i] to [iii] raised by the Revenue are dismissed.
Ground No.[iv] raised by the Revenue questioning the action of CIT(A) in deleting the addition made on account of advance from customers violating Rule 46A of the Rule.
Heard both parties and perused the material available on record. The AO found that the assessee shown customer advance outstanding to an extent of Rs.2,63,21,576/- as on 31.03.2011. The AO asked to submit the details of the customers. In explanation, the AO found that the assessee adjusted advance to an extent of Rs.2,39,58,201/- and there was no adjustment to Rs.23,63,375/- and for having non-submission of details to Rs.23,63,375/- (Rs.2,63,21,201/- - Rs.2,39,58,201/-) is added to the income of the assessee. It is noted that a contention was made before the CIT(A) that the assessee has various promotional schemes like Swarna Yojna Schemes wherein it accepts advance, payments, installments from customers that the said customers during the special occasion like marriage and the assessee could advance in lumpsum. It is also observed advances made by the customers remained with the assessee for a longer period of time due to reasons that customers leaving the city or country due to job requirement or any other such reasons. Considering the said submissions and also the chart of showing details of advance from customers relating to the year under consideration and Page | 4
ITA No.-349 & 2490/KOL/2018 (ASSESSMENT YEAR-2011-12 & 2012-13) subsequent years, the CIT(A) deleted the addition made by the AO on account of advance from customers. The relevant portion of CIT(A) is reproduced herein below:-
5.2. “A further written submission on the matter was filed by the AR of the appellant which reads as follows: A.) Movement of Advance From Customers We are also enclosing herewith an excel file depicting the movement of advance from customers relating to F.Y-2010-11 (AY- 2011-12) which was received and adjusted during F. Y -2011-12 and subsequent years. The summary of this movement is given here below for your ready reference:
Particulars Amount (Rs.) Balance of Advance from Customers as on 01.04.2011 2,63,21,576 Add: Fresh Advance received from these customers in F.Y. 2011-12 35,01,101 Less: Adjusted against sales/ refund in F.Y. 2011-12 (2,47,81,182) Balance of Advance for customers pertaining to F.Y. 2010-11 as on 31.03.2012 50,41,495 Add: Fresh Advance received from these customers in F.Y. 2012-13 1,43,455 Less: Adjusted against sales/ refund in F.Y. 2012-13 (32,53,907) Balance of Advance for customers pertaining to F.Y. 2010-11 as on 31.03.2013 19,31,043 Add: Fresh Advance received from these customers in F.Y. 2013-14 58,200 Less: Adjusted against sales/ refund in F.Y. 2013-14 (4,04,429) Balance of Advance for customers pertaining to F.Y. 2010-11 as on 31.03.2014 15,84,814 Add: Fresh Advance received from these customers in F.Y. 2014-15 48,804 Less: Adjusted against sales! refund in F.Y. 2014-15 (1,46,400) Balance of Advance for customers pertaining to F.Y. 2010-11 as on 31.03.2015 14,87,218 Add: Fresh Advance received from these customers in F.Y. 2015-16 - Less Adjusted against sales/ refund in F.Y. 2015-16 (99,956) Less:-Written back as offered to tax in F.Y. 2015-16 13,87,262 Balance of Advance for customers pertaining to F.Y. 2010-11 on 31.03.2016 Nil (b). In respect of advance from customers we are mentioning here below the following judgments made by various authorities wherein the lordships have clearly stated that addition u/s 41 (1) with respect to cessation I remission of liability cannot be made by AO until and unless he has conclusive proof or evidence of same. The lordships have decided that even if the said liability is existing for a longer duration it cannot be treated as cessation/ remission until it is so decided by the business entity or if the AO has any evidence to support his addition. The Case Laws are as below: 1.) CIT VS. Sri Vardhmaan Overseas Limited ITA No- 774/2009 (Delhi-HC) 2.) CCIT Vs. Kesaria Tea Co. Ltd. (2002) 254 ITR 434 (SC) 3.) CIT Vs. Sugauli Sugar Works Pvt Ltd. (1999) 2361TR 518 (SC) 5.3. I have considered the submissions of the AR of the appellant in juxtaposition with the assessment order. I find that the appellant receives advances on various promotional schemes like Swarna Yojna Scheme where customers make advance payments in installments. It was explained by the AR of the appellant that under normal course of business, a customer makes a lump sum payment as advance especially for occasions like marriage etc. which is kept for a period of 30-120 days or more based on the customer's order. It was further explained that under compelling situations, advances Page | 5 ITA No.-349 & 2490/KOL/2018 (ASSESSMENT YEAR-2011-12 & 2012-13) were given along with the orders by the customers but for some reasons beyond control, some of them leave the city or country due to compelling reasons and the advances remain with the company for an extended period of time. That in these circumstances the advances may remain unadjusted as on a particular date which may be adjusted at a later date. That such advances lying unadjusted have been duly reflected as liabilities in the books of account of the appellant company. Considering the ground realities and respectfully following the above cited judicial decisions, I find that the AO has made the impugned addition based on his misconstrued perception on the matter. There is no denial to the fact that the liability still existed in the books of the appellant. The appellant has also filed the movement of such advances during the year (supra). I find that the AO has not come up with any cogent findings with relevant evidentiary materials on record that Rs.23,63,375/- represented income of the appellant on account of cessation of liability as per section 41(1) of the Act except for making specious averments in the matter, which cannot stand the test of appeal at this stage. I do not find that, given the facts and circumstances of the matter at hand as discussed in the foregoing, the action of the AO in the matter could be sustained in any manner. Therefore, section 41(1) cannot be applied in the appellant's case. Considering the entire gamut of the matter, in my considered opinion, the impugned addition made by the AO in an amount of Rs.23,63,375/- u/s 41 (1) cannot be justified and thereby considered to be bad in law. The AO is therefore directed to delete this addition. This ground is allowed.”
It is noted from the record the CIT(A) examined the record and found the liability to the customers who paid advance is still existed in the books of the assessee. According to Ld.AR that the advance belongs to the year under consideration and also to subsequent years which can be adjusted in subsequent transactions with the same customers. Further, it is noted during the course of assessment proceedings, the assessee filed books of accounts and bank accounts which were examined by the AO with reference to the balance sheet and P&L A/c but, however, we find no cogent reasons given by the AO regarding the impugned addition made on account of advance from customers. It is also observed that the AO observed that it is very much impossible that the whole amount i.e. impugned amount was not adjusted even during the next FY 201112 relating to 2012-13 Assessment Year, may be due to some compelling reasons, the customers are leaving the city etc. the same amounts remained unadjusted and shown liability in the books of accounts. Therefore, we find no infirmity in the order of CIT(A) in deleting the addition made by the AO. Thus, Ground No.-[iv] raised by the Revenue is dismissed.
In the result, the appeal of the Revenue is dismissed.
ITA No.-349 & 2490/KOL/2018 (ASSESSMENT YEAR-2011-12 & 2012-13) ITA No.-2490/KOL/2017 (ASSESSMENT YEAR-2012-13) 10. As discussed above, the issues raised in this appeal are similar to the issue raised in Revenue and the same view is applicable in this appeal also. Thus, grounds raised by the Revenue in this appeal are dismissed.
11. In the result, the appeal of the Revenue is dismissed. 12. In the final result, both appeals of the Revenue are dismissed. Order pronounced in the open court on 03.05.2019.
Sd/- Sd/- (J.SUDHAKAR REDDY) (S.S.VISWANETHRA RAVI) ACCOUNTANT MEMBER JUDICIAL MEMBER Date:- 03.05.2019 *Amit Kumar* Copy forwarded to:
1. 1. Appellant- [1]. ACIT, Circle-11(2), Kolkata-700069. [2]. ACIT, Central Circle-4(1), Kolkata-700107.
2. Respondent- [1]. M/s. Senco Gold Ltd., 7 & 8, C.I.T.Road, Kolkata-700014. [2]. M/s. Senco Gold Ltd., 7 & 8, C.I.T.Road, Kolkata-700014.
3. CIT-Kolkata 4. CIT(Appeals)-Kolkata 5. DR: ITAT -Kolkata Benches By order
AR/H.O.O ITAT, KOLKATA