Chandrakanta Dyeing And Printing ... vs Department Of Income Tax

IN THE INCOME TAX APPELLATE TRIBUNAL " D " BENCH, AHMEDABAD (BEFORE SHRI SHAILENDRA Kr. YADAV, J.M. & SHRI ANIL CHATURVEDI, A.M.)

I.T. A. No. 2223/AHD/2011 (Assessment Year: 2006-07)

The I.T.O., Ward-6(1), V/S M/s. Chandrakanta Dyeing Surat. and Printing Mills, 197, Bhestan, Opp: Octroi Naka Udhana Navsari Road, Surat. (Appellant) (Respondent)

PAN: AABFC7198J

Appellant by : Smt. Sonia Kumar, Sr. D.R. Respondent by : None

(आदे श)/ORDER

Date of hearing : 21-04-2015 Date of Pronouncement : 30 -04-2015

PER SHRI ANIL CHATURVEDI,A.M.

1. This appeal filed by the Revenue is against the order of CIT(A)-IV, Surat dated 31.05.2011 for A.Y. 2006-07.

2. On the date of hearing, none appeared on behalf of the Assessee and therefore we proceed to decide the appeal ex-parte qua the Assessee and on the basis of material available on record.

3. The relevant facts as culled out from the material on record are as under.

2 ITA No 2223/AHD/2011 . A.Y. 2006-07

4. Assessee is a partnership firm stated to be engaged in the business of Dying and Printing of Grey Fabrics on job work basis. Assessee filed its return of income for A.Y. 2006-07 on 31.12.2006 declaring total income at Rs. Nil. The case was selected for scrutiny and thereafter the assessment was framed under section 143(3) vide order dated 22.12.2008 and the total income was determined at Rs. 83,100/-. Aggrieved by the order of A.O., Assessee carried the matter before ld. CIT(A) who vide order dated 31.05.2011 allowed the appeal of the Assessee. Aggrieved by the aforesaid order of ld. CIT(A), Revenue is now in appeal before us and has raised the following ground;-

1. On the facts and in the circumstances of the case and in law, the CIT(A)-IV, Surat has erred in deleting the addition of Rs.8,67,106/- made by the Assessing Officer on account of low GP.

2. On the facts and in the circumstances of the case and in law, the CIT(A)-IV, Surat has erred in deleting the addition of Rs.3,00,000/- made by the Assessing Officer on account of unexplained cash credit u/s.68 of the I.T. Act.

3. On the facts and in the circumstances of the case and in law, the CIT(A)-IV, Surat has erred in deleting the addition of Rs.1,68,431/- made by the Assessing Officer out of the interest expenses to the extent of utilization of the interest bearing fund to giving interest free loan.

4. On the facts and in the circumstances of the case and in law, the CIT(A)-IV, Surat has erred in deleting the addition of Rs.81,364/- made by the Assessing Officer on account of unreconcile difference in the balance of the creditors

5. 1st ground is with respect to addition made on account of low gross profit.

6. During the course of assessment proceedings, A.O noticed that there was fall in gross profit from 20.25% in A.Y. 2005-06 to 11.91% in A.Y. 06-07. The Assessee was therefore asked to justify the fall in GP to which Assessee interalia submitted that due to incurring of heavy losses, the mill was completely closed down since December, 2005 and main reason for losses was not getting sufficient grey fabrics which resulted into higher production 3 ITA No 2223/AHD/2011 . A.Y. 2006-07 cost. The submission of the Assessee was not found acceptable to the A.O. A.O also noted that for the month of January though the Assessee has shown production of 1,75,446 meter of grey but there was no consumption of colors and chemicals and of coal and lignite. He was therefore of the view that the books of accounts are not complete and correct. He also noticed that Assessee had not maintained day to day stock register as well as consumption record of basic raw material colors and chemicals. He was therefore of the view that the submission of the Assessee of fall in gross profit cannot be verified. He therefore rejected the books of accounts. He thereafter on the basis of average of gross profits from A.Y. 2004-05 to A.Y. 2006-07 determined the gross profit for the year under consideration at 16.84% and made an addition of Rs. 8,67,106/-. Aggrieved by the order of A.O., Assessee carried the matter before ld. CIT(A) who after considering the submissions of the Assessee deleted the addition by holding as under:-

5. I have gone through the facts of the case. It has not been shown by the A.O. that the method of accounting adopted by the appellant was one which was not regularly followed. No specific defects in the books have been pointed out. The reason for production and consumption of electricity being at variance has been duly explained by the appellant. The points raised by the A.O. in his show cause have been duly explained and the A.O has not been able to show that the explanations are false. In my opinion, there was no reason to reject the books of accounts and estimate income of the appellant.

The addition made is therefore deleted. This ground is allowed.

7. Aggrieved by the aforesaid order of ld. CIT(A), Revenue is now in appeal before us.

8. Before us, ld. D.R. supported the order of A.O.

9. We have heard the ld. D.R. and perused the material on record. We find that ld. CIT(A) while deleting the addition has noted that no specific defects in 4 ITA No 2223/AHD/2011 . A.Y. 2006-07 the books of accounts was pointed by the A.O and the variance in the consumption of electricity and production was duly explained by the Assessee, the explanation of the Assessee was not found to be false. He therefore deleted the addition. Before us, Revenue has not brought any material on record to controvert the findings of ld. CIT(A), we therefore find no reason to interfere with the order of ld. CIT(A) and thus this ground of Revenue is dismissed.

10. 2nd ground is with respect to addition of Rs. 3,00,000/- on account of unexplained cash credits u/s. 68.

11. During the course of assessment proceedings, A.O noticed that Assessee had taken unsecured loan aggregating to Rs. 3,00,000/- from 3 parties namely Abha Polymers (Rs. 50,000), B.R. Nagarshi (Rs. 1,50,000/-) and Shalibhadra Synthetics (Rs. 1,00,000/-). The Assessee was asked to explain the nature and source of credit A.O noticed that in response to the summons issued to the parties, the parties had only submitted confirmation but no details regarding genuineness of transaction, capacity to lend was proved. He was therefore of the view that the cash credits of Rs. 3,00,000/-have remained unproved and accordingly considered the aggregate amount of Rs. 3,00,000/- as unexplained u/s. 68 of the Act. Aggrieved by the order of A.O., Assessee carried the matter before ld. CIT(A) who after considering the submissions of the Assessee deleted the addition by holding as under:-

7. I have gone through the facts of the case. Confirmations with PAN were submitted by the appellant. The loans had been received by cheque. The creditors were assessed to tax.

The transactions were confirmed independently by the loan creditors to the A.O. Under these circumstances, the loans cannot be held as unexplained. No addition .u/s. 68 was warranted. The addition made is deleted. This ground is allowed.

5 ITA No 2223/AHD/2011 . A.Y. 2006-07

12. Aggrieved by the aforesaid order of ld. CIT(A), Revenue is now in appeal before us.

13. Before us, ld. D.R. supported the order of A.O.

14. We have heard the ld. D.R. and perused the material on record. We find that ld. CIT(A) while deleting the addition has noted that the loans were received by cheque, the creditors were assessed to tax, the transactions were confirmed independently by the loan creditors and confirmations with PAN numbers were submitted by the Assessee. Before us, Revenue has not brought any material on record to controvert the findings of ld. CIT(A). We therefore find no reason to interfere with the order of ld. CIT(A) and thus this ground of Revenue is dismissed.

15. 3rd ground is with respect to addition on account of interest expenses.

16. During the course of assessment proceedings, A.O noticed that Assessee has claimed interest expenses of Rs. 18,14,370/- and at the same time Assessee had also advanced money to various parties (listed at page 17 & 18) aggregating to Rs. 9,35,729/- on which no interest was charged to the Assessee. A.O was of the view that in the absence of any evidence or details about the nature of advance, the type of business relationship and the reason for advancing interest free advances, the interest expense cannot be allowed as interest bearing funds were diverted for interest free advance without any business purpose. He accordingly worked out the interest on the amount advanced by the Assessee at 18% and the interest of Rs. 1,68,431/- was disallowed by him. Aggrieved by the order of A.O., Assessee carried the 6 ITA No 2223/AHD/2011 . A.Y. 2006-07 matter before ld. CIT(A) who after considering the submissions of the Assessee deleted the addition by holding as under:-

10.1. In view of the submissions of the appellant during the course of appeal proceedings, and the accompanying supporting, it is held that the advances were given for business purposes. Even otherwise, since the appellant had funds in the nature of partners capital in excess of the funds advanced interest free, no disallowance could be made. The addition made is deleted. This ground is allowed.

17. Aggrieved by the aforesaid order of ld. CIT(A), Revenue is now in appeal before us.

18. Before us, ld. D.R. supported the order of A.O.

19. We have heard the ld. D.R. and perused the material on record. We find that ld. CIT(A) while deleting the addition has noted that the advances were given for business purposes and were out of the partners capital which were interest free in nature. Before us, Revenue has not brought any material on record to controvert the findings of ld. CIT(A). We therefore find no reason to interfere with the order of ld. CIT(A) and thus this ground of Revenue is dismissed.

20. 4th ground is with respect to addition of Rs. 81,364 on account of unreconciled difference in the balance of creditors.

21. During the course of assessment proceedings, A.O noticed that the balances of creditors shown by the Assessee in respect of 4 parties (listed at page 17) did not tally with the contra accounts. He also noticed that Assessee was unable to reconcile the differences. He therefore considered the difference between the balances shown by the Assessee and the contra accounts

7 ITA No 2223/AHD/2011 . A.Y. 2006-07 aggregating to Rs. 81,364 and made its addition. Aggrieved by the order of A.O., Assessee carried the matter before ld. CIT(A) who after considering the submissions of the Assessee deleted the addition by holding as under:-

8. Ground no. 4 is against the A.O making an addition of Rs. 63,492/- on account of difference in balance of creditors. The A.O obtained information u/s. 133(6) which show that there was difference in closing balance of M/s. Shreeji International, M/s. Sharda Processors and M/s. Rajkunwar Fashions. It was explained by the appellant that the mismatch was on account of rate difference. According to the A.O. no debit/ credit notes were produced. He therefore considered the accounts as unreconciled and made the addition. During the course of appeal proceedings, it was submitted that the three parties were debtors of the appellant and not creditors as mentioned by the A.O. and that the accounts had been reconciled by the appellant vide his letter dated 22.12.2008 before the A.O. It was explained that short amount of balance shown as payable by the debtor to the appellant was a loss and not income. In view of the fact that the parties were debtors and not creditors, any short payment would result in a loss to the appellant and therefore cannot be added as income. Even otherwise the accounts have been reconciled. The addition is deleted. This ground is allowed.

9. Ground No.5 is against the A.O. making an addition of Rs. 17,872/- in respect of difference in balance of M/s. Kusum Dye-chem. The A.O. found difference in closing balance in the account of M/s. Kusum Dye-chem, a creditor, as reflected in the books of the appellant and as obtained u/s. 133(6). He therefore made an addition of Rs. 17,872/-. During the course of appeal proceedings, it was submitted by the appellant that the A.O. had not asked them to explain the difference in the account of M/s. Kusum Dye-chem. It was explained that the difference arose due to difference in opening balance of Rs. 17,084/- and therefore pertained to preceding year in which it had already been added in assessment and confirmed by the CIT(Appeals). It was submitted that the balance amount of Rs.788/- can also be reconciled, if appellant is provided with the copy of account obtained by the A.O. u/s. 133(6). Since the difference to the extent of Rs. 17,084/- pertained to earlier years and has already been added to the income in A.Y. 2005-06, addition to this extent was not warranted. As regards balance amount of Rs.788/- is concerned, it is also deleted considering the fact that the A.O. did not provide' the appellant with the copy of accounts or an opportunity to reconcile the said account. The addition of Rs. 17,872/- is therefore deleted. This ground is allowed

22. Aggrieved by the aforesaid order of ld. CIT(A), Revenue is now in appeal before us.

23. Before us, ld. D.R. supported the order of A.O. 8 ITA No 2223/AHD/2011 . A.Y. 2006-07

24. We have heard the ld. D.R. and perused the material on record. We find that ld. CIT(A) has noted that the 3 parties were debtors of the Assessee and not creditors and that any short payment would result into loss to the Assessee. With respect to difference in balance of Kusum Dyechem, CIT(A) has noted that the difference arose due to opening balance and pertained to preceding year and it was already added in assessment and also confirmed by ld. CIT(A) and for the balance amount of Rs. 788/-, A.O did not provide opportunity to Assessee to reconcile the difference. Before us, Revenue has not brought any material on record to controvert the findings of ld. CIT(A), we therefore find no reason to interfere with the order of ld. CIT(A) and thus this ground of Revenue is dismissed.

25. In the result, the appeal of Revenue is dismissed.

Order pronounced in Open Court on 30 - 04 - 2015.

Sd/- Sd/- (SHAILENDRA Kr. YADAV) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad. TRUE COPY Rajesh

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