Ashwin A.Shah, Baroda vs Assessee

आयकर अपीलीय अिधकरण, अिधकरण, अहमदाबाद यायपीठ ''D'', अहमदाबाद ।

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, "D" BENCH सव ौी ौी जी.

जी.सी.

सी.गु ा, माननीय उपा!य", उपा!य", एवं एन.

एन.एस.

एस. सैनी, ी, लेखा सदःय के सम" ।

BEFORE S/SHRI G.C. GUPTA, VICE-PRESIDENT AND N.S. SAINI, ACCOUNTANT MEMBER)

ITA No.3329/Ahd/2010 With CO No.14/Ahd/2011 [Asstt.Year : 2007-2008]

ACIT, Cir.4 बनाम/Vs. Shri Ashwin A. Shah Baroda. 74, Sampatrao Colony Productivity Road Baroda 390 007.

PAN : ALPMS 1474 M

IT(SS)A No.751, 752 and 753/Ahd/2010 [Asstt.Year : 2000-01, 2004-05 and 2005-06]

Shri Ashwin A. Shah बनाम/Vs. ACIT, Cir.4 74, Sampatrao Colony Baroda. Productivity Road Baroda 390 007.

(अपीलाथ+ / Appellant) (ू-यथ+ / Respondent)

राजःव क. ओर से/ : Revenue by Shri B.L. Yadav, Sr.DR िनधा 1रती क. ओर से/ : Assessee by Shri Mukund Bakshi सुनवाई क. तार4ख/ : Date of Hearing 12th December, 2014 घोषणा क. तार4ख/ : Date of Pronouncement 02-02-2015

आदे श / O R D E R

PER G.C. GUPTA, VICE-PRESIDENT: These appeals by the Revenue and the CO by the assessee for the Asstt.Year 2007-08 and appeals of the ITA No.3329/Ahd/2010 with CO No.14/Ahd/2011 and IT(SS)A No.751, 752 and 753/Ahd/2010

assessee for the Asstt.Year 2000-01, 2004-05 and 2005-06 are directed against the order of the CIT(A). These are being disposed of with this consolidated order.

ITA No.3329/Ahd/2010 - Astt.Year 2007-08 (Revenue's appeal) 2. The ground no.1 of the Revenue's appeal is as under:

1(i) On the facts and in the circumstances of the case, the ld.CIT(A) erred in deleting the addition of Rs.19,63,023/- on account of gross profit by invoking the provisions of section 145(3) of the Act, without appreciating the fact that the AO had pointed out various infirmities/discrepancies in the books of accounts."

(ii) The ld.CIT(A) ought to have upheld the action of the AO in making the addition on account of low yield of finished product of Rs.19,63,023/-

."

3. The learned DR submitted that there was an abnormal increase in the consumption of power and fuel during the relevant period as compared to earlier year, and the assessee could not explain the reason thereto, and therefore, the addition was made by invoking the provision of section 145(3) of the Act. He submitted that this consumption of sodium acetate solution was 1776.81 MT during the year as against 96.05 MT in the immediately preceding assessment year. In sodium acetate crude, the consumption was 681.00 MTs. as against 1018.175 MT during the preceding year. He submitted that the turnover of the assessee during the relevant period was almost the same as it was during the immediately preceding assessment year. He submitted that the assessee was given ample opportunity to produce the relevant details and justification for increase in consumption of power and fuel during the relevant period. He relied on the order of the AO.

4. The learned counsel for the assessee has opposed the submissions of the learned counsel for the assessee. He submitted that complete details were produced before the AO. He submitted that the assessee has explained the -2- ITA No.3329/Ahd/2010 with CO No.14/Ahd/2011 and IT(SS)A No.751, 752 and 753/Ahd/2010

reason for increase in the consumption of power and fuel, as it has changed its process of manufacturing which has resulted in the high consumption of sodium acetate solution. He submitted that change in the manufacturing process has resulted in net savings (notional) at Rs.18,38,842/- which was duly shown to the CIT(A). He submitted that the AO could not point out defect in the details produced by the assessee, and it is for the assessee to decide the methodology of its manufacturing process during the relevant period. He submitted that complete excise records were maintained and no defect could be pointed out. He submitted that there was an increase in the cost of input material during the year which has resulted in the lesser GP. He relied on the order of the CIT(A).

5. We have considered rival submissions and perused the orders of the AO and the CIT(A). We find that there was an abnormal increase in the purchase of power and fuel as the sodium acetate solution was purchased at 1776.81 MT during the year as against 96.05 MT in the immediately preceding assessment year. We find that the fuel cost has increased from Rs.14.66 lakhs in the previous year to Rs.38.33 lakhs during the relevant year. The turnover of the assessee has not increased during the relevant period. The plea of the assessee is that with new manufacturing process it was able to save a net saving of Rs.18.38 lakhs during the relevant period, is not convincing for the simple reason that the savings, if made in the manufacturing process, should have been reflected in the overall GP rate of the assessee. The gross profit rate during the relevant period was 26.28% as compared to the GP rate of immediately preceding Asstt.Year 2006-07 at 32.03%. The AO has recorded a finding that the bills and vouchers for the purchase of raw-material, power and fuel and production related register, stock register etc. were not produced before him despite giving a number of opportunities. In these facts, we are of the view that provisions of section 145(3) of the Act were rightly invoked by the AO. However, we find that the GP rate of last year at 32.03% was applied for the

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relevant period, resulting in addition of Rs.19.63 lakhs, which seems to be on the higher side. The assessee has tried to explain that there was increase in the cost of input material during the year, and there was a change in the manufacturing process of the assessee during the relevant year. Considering the totality of the facts of the case, and the pleading of the assessee, we are of the view that the ends of justice shall be met, if the addition on account of GP is restricted to Rs.12,50,000/- as against Rs.19,63,023/- made by the AO and deleted by the CIT(A) and the ground no.1 of the appeal of the Revenue is partly allowed.

6. The ground no.2 of the appeal of the Revenue is as under:

2. On the facts and in the circumstances, the ld.CIT(A) erred in granting relief of rs.26,30,779/- on account of advance of rs.43,05,779/-

given to the assessee by the company through its unit M/s.Akshay Chemicals (NIPL) without appreciating the fact that the transaction is clearly hit by the provisions of section 2(22)(e) of the Income Tax Act, 1961."

7. The learned DR referred to relevant portions of the assessment order in support of the case of the Revenue. He submitted that it is a clear case of deemed dividend and the AO was justified in adding the entire credit side of account and not restricting it to merely a peak amount of the credit. He submitted that there were no commercial relations between two entities. He submitted that there was no separate entity of M/s.Akshay Chemicals, and therefore, the ledger account maintained in the books of M/s.Akshay chemicals was in fact the ledger account of NIPL and also shareholding of the assessee was more than 10% in the NIPL. He submitted that all the four conditions laid down for application of section 2(22)(e) of the Act are fulfilled in this case.

8. The learned counsel for the assessee has opposed the submission of the learned counsel for the assessee. He submitted that, in principle, he agrees that the provisions of section 2(22)(e) of the Act was applicable to the facts of the -4- ITA No.3329/Ahd/2010 with CO No.14/Ahd/2011 and IT(SS)A No.751, 752 and 753/Ahd/2010

case of the assessee. However, he submitted that the amount addable should have been restricted to Rs.15,44,232/- as against Rs.43,05,779/- added by the AO and restricted to Rs.16,75,000/- by the CIT(A). He submitted that the CIT(A) has agreed with the assessee in principle that only amount of Rs.15,44,232/- was addable. But he also added an amount of Rs.66,742/- which the company had given to the assessee in February and March, 2007 and ignored the difference of Rs.64,000/- and confirmed the addition as deemed dividend to the extent of Rs.16,75,000/- for which the assessee has filed a cross- objection separately. He referred to page no.15 and 16 of the compilation which shows that the ledger account in the books of M/s.Nitrochem India P. Ltd. which shows that the assessee was having an opening credit balance of Rs.40,000/- and likewise, wherever there was a credit balance, the payment made upto that amount could not be added as deemed income in the hands of the assessee. However, the learned counsel for the assessee has fairly conceded that the provisions of section 2(22)(e) of the Act is applicable in the facts of the case of the assessee.

9. We have considered rival submissions and perused the orders of the AO and the CIT(A), and also the copy of ledger account in the books of M/s.Nitrochem India Pvt. Ltd. as appearing at page no.15 and 16 of the compilation filed before us. We find that the CIT(A) has passed a well reasoned speaking order on this issue. The payment against the amount receivable by the assessee could not be taken as deemed dividend in the hands of the assessee. The working of addition after allowing adjustments of the amount payable on the date of payment comes to Rs.15,44,232/-. We find that the CIT(A) has directed the addition of Rs.16,75,000/- by adding the figure of Rs.66,742/- paid to the assessee by the company in February and March, 2007 in the figure of Rs.15,44,232/- and difference of Rs.64,000/- was ignored being a meager amount. In these facts, we hold that there being no mistake in the order of the

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CIT(A) on this issue, the same is confirmed and the ground no.2 of the Revenue is dismissed.

CO No.14/Ahd/2011 - Asstt.Year 2007-08 (Assessee's CO)

10. The ground no.1 of the assessees' CO is as under:

"1. On the facts and circumstances of the case, the ld.CIT(A) has erred in law and facts in confirming the action of ld.AO in making a disallowance of Rs.1,17,909/- towards additional depreciation on plant and machinery on the ground that the conditions required for claiming additional depreciation are not fulfilled. The disallowance confirmed by the ld.CIT(A) being erroneous in facts and in law is prayed to be deleted."

11. The learned counsel for the assessee submitted that the additional depreciation was allowable to the addition made in the plant & machinery. The learned DR relies on the orders of the AO. We have considered rival submissions. We find that there is no material on record on behalf of the assessee to show that the machinery during the year was new and expenditure made by the assessee was not in the form of repairs and maintenance of old machinery or addition thereto. In these facts, we hold that no interference in the order of the CIT(A) is called for, which is confirmed and the ground no.1 of the CO of the assessee is dismissed.

12. The ground no.2 of the assessee's CO is as under:

"2. On the facts and circumstances of the case, the ld.CIT(A) has erred in law and facts in confirming the action of the ld.AO in making a disallowance of Rs.16,75,000/- towards deemed dividend when in fact, the deemed dividend works out to Rs.15,44,232/-. The disallowance confirmed by the ld.CIT(A) being erroneous in facts and in law is prayed to be deleted."

13. We heard both the parties. For reasons recorded while disposing of the ground no.2 of the Revenue's appeal in the case of the assessee for the relevant -6- ITA No.3329/Ahd/2010 with CO No.14/Ahd/2011 and IT(SS)A No.751, 752 and 753/Ahd/2010

Asstt.Year 2007-08 in the foregoing paras of this order, we hold that there is no merit in the ground no.2 of the CO of the assessee, which is accordingly dismissed.

IT(SS)A.No.751, 752 and 753/Ahd/2010 - Asstt.Year 2000-01, 2004-05 and 2005-06 (Assessee's Appeals):

14. Identical ground of the appeal of the assessee in all these three appeals is as under:

"1. The ld.CIT(A) has erred in law and in fact in confirming the action of the ld.AO in levying penalty u/s.271(1)(c) of [Rs.21,000/- for A.Y.2000- 01, Rs.1,00,000/- for A.Y.2004-05 and Rs.8,45,000/- for A.Y.2005-06] in complete disregard of law and the facts and, thus, the penalty of [Rs.21,000/- for A.Y.2000-01, Rs.1,00,000/- for A.Y.2004-05 and Rs.8,45,000/- for A.Y.2005-06] is prayed to be cancelled."

15. The learned counsel for the assessee submitted that the additional amount of income was disclosed in the return filed after search under the provision of section 153A of the Act. The penalty under section 271(1)(c) of the Act was levied on account of additional income disclosed by the assessee in the returns filed under section 153A of the Act. He submitted that the CIT(A) has dismissed the appeal of the assessee by following the decision of the Third Member of the jurisdictional Ahmedabad Tribunal in ACIT Vs. Kirit Dahyabhai Patel, (2009) 129 ITD 159(Ahd)(TM). He submitted that this decision has been reversed in appeal by the Hon'ble Gujarat High Court in Kirit Dahyabhai Patel Vs. ACIT in Tax Appeal No.1181, 1182 and 1185 of 2010 order dated 3.12.2014. He submitted that the decision of Hon'ble jurisdictional High Court is binding, and therefore, the penalty should be cancelled. The learned DR has relied on the order of the AO.

16. We have considered rival submission and perused the orders of the AO and the CIT(A), and also the decision of the Hon'ble jurisdictional High Court

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in Kirit Dahyabhai Patel Vs. ACIT (supra). We find that the issue of levy of penalty under section 271(1)(c) of the Act on the additional income offered after the search, in the return filed under section 153A of the Act, is covered with the decision of the Hon'ble jurisdictional High Court in Kirit Dahyabhai Patel Vs. ACIT (supra) wherein held that in view of specific provision of section 153A of the Act, the return of income filed in response to notice under section 153A of the IT, Act is to be considered as return filed under section 139 of the Act, as the AO has made assessment on the said return and therefore, the return is to be considered for the purpose of penalty under section 271(1)(c) of the Act, and the penalty is to be levied as income assessed over and above the income returned under section 153A, if any. The learned DR could not controvert that the ratio of the decision of the Hon'ble jurisdictional High Court in this case is applicable to the facts of the case of the assessee. In these facts, respectfully following the decision of the Hon'ble jurisdictional High Court in Kirit Dahyabhai Patel Vs. ACIT (supra), the issue is decided in favour of the assessee and the penalty levied under section 271(1)(c) of the Act for all three assessment years are cancelled, and the ground of the appeal of the assessee for all these three assessment years are allowed.

17. In the result, the appeal of the Revenue for the Asstt.Year 2007-08 is partly allowed and the CO of the assessee for Asstt.Year 2007-08 is dismissed. The appeals of the assessee for the Asstt.Years 2000-01, 2004-05 and 2005-06 are allowed.

Order pronounced in Open Court on the date mentioned hereinabove.

Sd/- Sd/- एन. एन.एस. (एन एस. सैनी /N.S.SAINI) (जी. जी.सी. सी.गु ा/G.C. GUPTA) लेखा सदःय /ACCOUNTANT MEMBER उपा!य" /VICE-PRESIDENT

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