Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, MUMBAI “C” BENCH, MUMBAI
Before: SHRI SHAILENDRA KUMAR YADAV, JUDICIAL & SHRI JASON P. BOAZ.
अपीलाथ� क� ओर से/By Appellant : Shri M. C. Om Nangsen, D.R. ��यथ� क� ओर से/By Respondent: Shri N. R. Agarwal, A.R. सुनवाई क� तार�ख/Date of Hearing : 29.08.2016 घोषणा क� तार�ख/Date of Pronouncement : 31.08.2016 ORDER PER SHAILENDRA KUMAR YADAV, J.M:
This appeal has been filed by Revenue against the order of Commissioner of Income-Tax (Appeals)-34, Mumbai, dated 17.10.2013 for A.Y. 2009-10 on following grounds:
“1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the estimated Net Profit addition of Rs.1,77,73,250/- despite the A.Y. 09-10 [ACIT vs. M/s. Color Image) Page 2 assessee failing to explain the drastic fall in the G.P. and N.P. ratio as compared to earlier years. 1.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating the issue of increase in wages, salaries and factory expenses dealt by the AO, thereby invoking the provisions of section 145 as the books of accounts were not found reliable and hence rejected.
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.2,68,594/- made on account of discount to M/s. Jaypee Technoplast despite the fact that the said discount had been accounted for A.Y.2012-13 and wrong claim has been made in A.Y.2009-10.
On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of Rs.2,50,000/- made on account of discount/rebate to M/s. Sunbeam Machine P. Ltd. despite the fact that the said rebate claimed was relevant to A.Y.2010-11 and wrong claim has been made in A.Y.2009-10.
4. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the disallowance of wages of Rs.2,38,890/- despite the fact that the assessee could not substantiate its claim of payment of wages of concerned persons.”
2. Assessee is a partnership firm and was engaged in the business of manufacturing corrugated boxes and foils. Assessee filed its return of income u/s.139(1) on 30.09.2009, declaring total income of Rs.26,02,100/-. Assessing Officer selected the case of assessee for scrutiny and determined its income at Rs.1,41,35,950/- after rejecting the books of account of assessee u/s.145(3) of the Act and estimated higher net profit of 35.55% of sales turnover and also making certain A.Y. 09-10 [ACIT vs. M/s. Color Image) Page 3 other additions/disallowances to income declared by assessee as under: i. Estimated net Profit @ 35.55% of Sales Rs.1,77,73,250 ii. Disallowance u/s. 40(a)(ia) Rs. 3,17,200 iii. Disallowance as per para 19 of the Asst. Order Rs. 2,68,594 iv. Disallowance as per para 20 of the Asst. Order Rs. 2,50,000 v. Disallowance as per para 21 of the Asst. Order Rs. 2,38,890 Rs. 1,88,47,934 Less: Deduction u/s.80IB(5)(i) @ 25% of net profit Rs. 47,11,984 Total Income Rs. 1,4135,950 Assessing Officer discussed this issue in para 4 to 18 of assessment order. Assessing Officer while making assessment raised a question as to why there was a drastic reduction in gross profit rate from 62.29% in A.Y. 2008-09 to 23.30% in A.Y. 2009-10 and net profit rate from 55.59% in A.Y. 2008-09 to 7.35% in A.Y. 2009-10. Assessing Officer observed that since up to last year, assessee was eligible for 100% deduction in respect of its profits u/s.80IB(5) of the Act and 25% deduction in respect of its profits from A.Y. 2009-10, assessee had intentionally suppressed the profit. Assessee tried to justify its deduction in gross profit and net profit by way of written submission and certain details but Assessing Officer did not agree with the same. He concluded that correctness and completeness of accounts and as per provisions of Section 145(3) of the Act and made assessment by estimating net profit on total turnover for the year under consideration and further to give natural justice to assessee, the average of three years including year under consideration, net profit ratio was taken for estimating the income of assessee which works out to ITA No.5/Mum/14 A.Y. 09-10 [ACIT vs. M/s. Color Image) Page 4 35.55% on the total turnover of Rs.4,99,95,07/-, net profit was estimated at Rs.1,77,73,250/-.
2.1 Matter was carried before the First Appellate Authority, wherein various contentions were raised on behalf of assessee and having considered the same, CIT(A) granted relief to assessee on all accounts. Same has been opposed before us on behalf of Revenue.
3. First issue is with regard to estimated net profit addition of Rs.1,77,73,250/-. Learned Departmental Representative submitted that assessee failed to substantiate the drastic fall in gross profit and net profit ratio as compared to earlier years. CIT(A) erred in not appreciated the issue on increase in wages, salaries and factory expenses by invoking the provisions of Section 145 of the Act as books of account were not found reliable. Accordingly, he submitted that order of CIT(A) be set aside and that of Assessing Officer be restored. On the other hand, learned Authorized Representative supported the order of CIT(A) and reiterated the submission made before CIT(A) and requested to upheld the order of CIT(A).
3.1 After going through rival submissions and perused the material on record, we find that stand of assessee has been that relating main issue, learned Authorized Representative drew our attention to comparative position of sales gross profit and net profit which is as under: A.Y.2009-10 A.Y. 2008-09 Sales 4,99,95,078/- 9,70,29,438/- A.Y. 09-10 [ACIT vs. M/s. Color Image) Page 5 G.P. 1,16,49,365/- (23.3%) 6,04,37,834/-(62.29%) N.P. 36,72,188/-(7.35%) 5,39,57,881/- (55.59%) In foil manufacturing, gross profit ratio came down from 79.55% to 66.36% and in the business of box gross profit ratio came down from 8.53% to 3.50%. According to learned Authorized Representative, Assessing Officer did not consider the opening and closing stock figures. According to him, correct figure has been detailed on page no.196 of paper book which gives comprising item-wise quantity manufacturing: Assess Item-wise quantity manufactured during the year Total of ment quantity Corrugate Duplex Ptd Stickers/ Transfer/ Year d Box Box Lables Decalcom anias Opening 7,968 71,000 9,985 14,950 1,03,903 7.67 68.33 9.61 14.39 100% A.Y. Mfg 6,82,740 40,32,118 11,07,68,995 17,06,204 11,71,90,057 2008-09 0.58 3.44 94.52 1.46 100% Sold (6,82,158) (37,67,118) (10,71,75,107) (17,06,204) (11,33,30,587) 0.60 3.32 94.57 1.51 100% Closing 8,550 3,36,000 36,03,873 14,950 39,63,373 0.22 8.48 90.93 0.38 100%
Opening 8,550 3,36,000 36,03,873 14,950 39,63,373 0.22 8.48 90.93 0.38 100% A.Y. Mfg 4,61,260 52,16,015 4,29,36,087 4,72,191 4,90,85,553 2009-10 0.94 10.63 87.47 0.96 100% Sold (4,29,361) (54,39,815) (4,65,39,960) (4,72,191) (5,28,81,327) 0.81 10.29 88.01 0.89 100% Closing 40,449 1,12,200 - 14,950 1,67,599 24.13 66.95 - 8.92 100%
Change in % Qty Mfg as -32.44% 29.36% -61.24% -72.33% -58.11% compared to Last Year Change in % Qty Sold as -37.06% 44.40% -56.58% -72.33% -53.34% compared to Last Year Manufactured quantity of foils (Ptd Stickers/Lables & Transfer/Decalcomania) was reduced from Rs.11.24 crore to Rs.4,34,80,278/- i.e. reduced by Rs.6,90,66,921/-. This deduction is more than 60% as evident from the details of page no. 196 of paper book. Regarding quantity of box (Corrugated Box + Duplex Box) increased from Rs.47,14,858/- to A.Y. 09-10 [ACIT vs. M/s. Color Image) Page 6 Rs.56,77,275/- which increased about Rs.9,62,417/- as evident from page no.196 of paper book. Sold quantity of foils (Ptd Stickers/Lables & Transfer/Decalcomania) reduced from Rs.10,88,81,311/- to Rs.4,70,12,151/- reduced by about Rs.6,18,69,160/- more than 60% as evident from details of page no.196 of paper book. The sold quantity of boxes increased from Rs.44,94,276/- to Rs.58,69,176/- which increased from Rs.14,19,900/-. The percentage of boxes sold compared to last year increased by 3.67% while that of foil reduced by 64.45%. The freight expenses increased and indirect expenses also increased as evident from the details given on page 4 of paper book. During A.Y. 2009-10 turnover of foils reduced to Rs.157 lacs from Rs.734lacs. Assessee earned better value addition in business of foils i.e. approximately 66.36%. As turnover in foils reduced from 75% to 31% gross profit also reduced proportionately. During A.Y. 2009-10 turnover of boxes increased to Rs.342/- lacs from Rs.234/- lacs, in terms of value, it was less. Wages were increased from A.Y. 2008-09 to 2009-10 because of increase in case of labour. The factory expenses in the year A.Y.2009-10 had a major overhaul of machineries that’s why same were increased. Fall in gross profit in the business of boxes and foils is claimed due to be increased in purchase cost and reduction in sales price, for which, learned Authorized Representative took us to different details as mentioned in page nos. 198 to 223 of paper book. Other factors have been claimed to be discount to Cello Plastotech Rs.25,09,876/- as detailed on page 7 of assessment order. The discount to M/s. A.Y. 09-10 [ACIT vs. M/s. Color Image) Page 7 Jaypee Technoplast P. Ltd. is claimed to be other factor for low profit amount received by assessee was less. Hence, same were written off only in the year under consideration. Other, customer accounted the same in A.Y. 2012-13. All discount/bad debts have to be allowed to assessee. There is nothing on record to suggest that any of such discount of bad debt has come to assessee indirectly in any manner. Agreeing to the contention, we are of the view that CIT(A) was justified in deleting addition of Rs.1,77,73,250/- by reasoned factual finding. Same needs no interference from our side. We uphold the same.
Next issue is with regard to addition of Rs.2,68,594/- made on account of discount to M/s. Jaypee Technoplast. Assessing Officer has discussed the issue in para 19 of assessment order. From the details filed during assessment proceedings, assessee had shown discount/rebate allowed to M/s. Jaypee Technoplast of Rs.2,68,594/-. To cross verify this transaction, Assessing Officer issued notice u/s.133(6) of the Act to M/s. Jaypee Technoplast. In reply, it was observed by him that discounts have been accounted on 06.04.2011 i.e. in A.Y. 2012-13. Thus, the claim of discount/rebate of Rs.2,68,594/- claimed by assessee in A.Y. 2009-10 was not found teneable and added back to the total income of assessee, which was deleted by CIT(A) by observing that stand of assessee has been that it was apprehensive about receiving balance outstanding dues from M/s. Jaypee Technoplast, based on circumstantial evidence. Assessee being a prudent A.Y. 09-10 [ACIT vs. M/s. Color Image) Page 8 businessman has written off a debt. This does not prevent the assessee from claiming the same in earlier year. This fact of assessee was nothing but written off a debt, which, according to it has become bad and according to Income Tax Act, the only condition of claiming a bad debt is to write off in the books of account and that entitles any assessee to claim it in the year of write off. Under facts and circumstances, CIT(A) rightly allowed the same by giving reasoned factual finding. Same is upheld.
Next issue is with regard to disallowance of discount/rebate allowed to Sunbeam Machines India Pvt. Ltd. amounting to Rs.2,50,000/-. Assessing Officer has discussed this issue in para 20 of assessment order. Assessee had paid an advance of Rs.2,50,000/- to Sunbeam Machines India Pvt. Ltd. for supplying a mould worth Rs.5,00,000/-. Due to bad quality of mould, assessee had rejected the mould, but could not recover the advance from Sunbeam Machines India Pvt. Ltd. in view of specific condition that advance would not be returned in case of cancellation of order. In response to notice issued u/s.133(6) of the Act, it was revealed that the party has issue non-acceptance of rejection vide its letter dated 05.12.2009 i.e. in A.Y. 2010-11 and hence Assessing Officer contended that this claim was not to be allowed in A.Y.2009- 10. So, the dispute in not with regard to discount but year of discount. As regards, allowability of year, no sonner did it come to know that the amount of advance is not recoverable, it wrote off the same in accounts as a prudent businessman and A.Y. 09-10 [ACIT vs. M/s. Color Image) Page 9 as per Section 36(1)(vii) of the Act, it is to be allowed in the year in which it was written off in the books of account. So, CIT(A) rightly deleted the same by way of reasoned factual finding. Same needs no interference from our side. We uphold the same.
Next issue is with regard to disallowance of Rs.2,38,890/- out of wages paid to the factory workers of assessee. Assessing Officer asked to assessee for wages register of assessee, out of which, she issued notices u/s.133(6) of the Act to four employees, which were returned by postal authorities with remarks ‘Not Known’. Assessing Officer had then asked assessee to produce them personally before her and on its inability to produce them, she disallowed the same of Rs.2,38,890/- being aggregate salaries paid to them.
6.1 Matter was carried before the First Appellate Authority, wherein assessee submitted wages register and summary of wages paid to 13 employees amounting to Rs.8,40,545/-, wherein the addresses of workers were also given. A second statement for wages aggregating to rs.18,51,502/- was also given in respect of wages paid to daily workers. Concerned Deputy Commissioner of Income Tax never raised any questions about authenticity of wages register or statement of wages. She, however, issued summons to 4 persons, who had received wages in aggregate of Rs.2,38,890/- which were returned unaccepted with remarks ‘not known’ and accordingly, Deputy Commissioner of Income Tax disallowed the same. In this regard, stand of assessee has been that A.Y. 09-10 [ACIT vs. M/s. Color Image) Page 10 workers, whose addresses were given to Deputy Commissioner of Income Tax were as per addresses given to assessee by the said workers while joining the service. All the workers, to whom summons u/s.133(6) of the Act were sent had been paid wages of around Rs.5000/- per month. They were very poor people and most of which were not residents of Daman and were staying in rented premises. Being migrant, they kept on changing their residences because they did not have their own permanent residence. Under the circumstances, assessee could not keep track of those workers. All of them had left job of assessee. So, disallowance in question was not justified. CIT(A) has rightly deleted the addition in question because assessee can make payment to workers, whose addresses were told to assessee at relevant point of time. Assessee has not mechanism to hold these workers on the same address after work is done. So, taking all facts and circumstances into consideration, CIT(A) was justified in deleting the addition by way of reasoned factual finding. Same needs no interference from our side. We uphold the same.
In the result, the appeal filed by Revenue is dismissed.
Pronounced in the open Court on this the 31st day of August, 2016.