Megha Chem Industries, Ahmedabad vs Department Of Income Tax

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

I.T. A. No.2964/AHD/2011 (Assessment Year: 2007-08)

Asstt. CIT, Circle-6, V/S M/s. Megha Chem Industries, Ahmedabad Plot NO. 8, Phase-II, GIDC, Vatva, Ahmedabad

(Appellant) (Respondent)

PAN: AAIFM1621R

Appellant by : Shri Roop Chand, Sr. D.R Respondent by : Smt. Urvashi Shodhan, A.R.

(आदे श)/ORDER

Date of hearing : 08-04-2015 Date of Pronouncement : 24 -04-2015

PER SHRI ANIL CHATURVEDI,A.M.

1. This appeal filed by the Revenue is against the order of CIT(A)-XI, Ahmedabad dated 2.09.2011 for A.Y. 2007-08.

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

3. Assessee is a partnership firm stated to be engaged in the business of Manufacturing of Chemicals. Assessee filed its return of income for A.Y. 2007-08 on 31.10.2007 declaring total income of Rs. 20,23,170/-. The case was selected for scrutiny and thereafter the assessment was framed under 2 ITA No 2964/AHD/2011 . A.Y. 2007-08 section 143(3) vide order dated 27.11.2009 and the total income was determined at Rs. 32,07,350/-. Aggrieved by the order of A.O., Assessee carried the matter before ld. CIT(A) who vide order dated 02.09.2011 granted substantial relief to the Assessee. Aggrieved by the aforesaid order of ld. CIT(A), Revenue is now in appeal before us and has raised the following grounds;-

1. The Ld. Commissioner of Income tax (A) has erred in law and on facts in deleting the addition of Rs.11,31,576/- made on account of low gross profit.

2. The Ld. Commissioner of Income tax (A) has erred in law and on facts in observing that the Assessee had produced the Stock Register before the Assessing Officer, though no such Register was produced either before the Auditor or the Assessing Officer.

3. On the facts and circumstances of the case, the Ld. Commissioner of Income tax (A) ought to have upheld the order of the Assessing Officer.

4. It is, therefore, prayed that the order of the Ld. Commissioner of Income tax (A) may be set-aside and that of the Assessing Officer be restored.

4. Before us, ld. D.R. submitted that the only issue is with respect to the deletion of addition made on account of low gross profit.

5. During the course of assessment proceedings, A.O noticed that Assessee has declared gross profit @ 16.17% as against the G.P of 22.52% in the immediate preceding year. The Assessee was therefore asked to justify the fall in G.P to which Assessee interalia submitted that the main reason for fall in G.P was due to increase in turnover and the increase in the cost of raw materials. The submissions of the Assessee was not found acceptable to the A.O for the reason that Assessee had not maintained stock register for different type of re-agents/chemicals required for manufacturing and register for its consumption and therefore according to the A.O, the quantum of closing stock was also not verifiable. He was also of the view that in the absence of production register/manufacturing register, the actual 3 ITA No 2964/AHD/2011 . A.Y. 2007-08 consumption of the re-agents and chemicals and cost of finished goods and work in progress was not verifiable. He further noticed that Assessee has claimed expenses on account of shipping expenses, freight, octroi, exchange rate, documents clearance and loading and unloading expenses aggregating to Rs. 28,55,802/- and that the Assessee had not considered the aforesaid expenses while valuing the closing stock of raw materials and therefore according to him there was a possibility of leakage of gross profit. He thereafter relying on the decision of Hon'ble Apex Court in the case of S.N. Namashivayam Chettiar 38 ITR 579 and in the case of CIT vs. A. Krishnaswami Mudaliar 53 ITR 122 rejected the books of accounts and the book results of the Assessee. He thereafter enhanced the gross profit by 0.5% of the turnover and the additional gross profit was thus worked out at Rs. 11,31,576/- and the same was added to the total income. 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 made by A.O by holding as under:-

3.4 I have carefully considered the facts of the case. I have also gone through the assessment order and the submissions of the A.R. It is seen that the entire argument of the Assessing Officer is revolving around the fact that stock register as well as quantitative tallies are not maintained. The Assessing Officer had already acknowledged in para 1 of the assessment order that the stock register was presented for verification before him. It is also a matter of record that the quantitative tallies was filed by the assessee vide its letter dated 12-10-2009 and the same is also acknowledged in the assessment order. The Assessing Officer has not found out any material defects in these documents.

Accordingly, the Assessing Officer's conclusion that the books of accounts are not reliable, is untenable. The Assesisng Officer has placed reliance on the case of S.N. Namashivayam Chettiar (supra) and CIT Vs. A. Krishnaswami Mudaliar (supra). I have gone through these cases and these cases have been delivered with a specific finding that stock register and quantitative tallies are not maintained. This is not the case in the instant case. In the instant case, stock register and quantitative tallies has been filed before the Assessing Officer. Accordingly, the ratio of these case laws will not apply in the case of the assessee.

3.5 The Assessing Officer has also mentioned that expenses like shipping expenses, freight, octroi, exchange rate, document clearance and loading & unloading has not been 4 ITA No 2964/AHD/2011 . A.Y. 2007-08 considered for the valuation of raw material in the closing stock. As discussed in the preceding para expenses like shipping expenses, exchange rate, document clearance and loading and unloading pertains to sales and accordingly there is no question of apportioning these expenses for valuation of raw material. The freight and octroi expenses are already accounted for the valuation of closing stock. In view these conclusion of the Assessing Officer is untenable.

3.6 The appellant has placed reliance on the cases of CIT Vs. Vikram Plastics (supra) and Ashoke Refractories P. Ltd. Vs. CIT(supra). It is clearly held in these cases that without finding material defects in the stock register or the books of accounts, the books cannot be rejected. Since the Assessing Officer has not pointed out material defects in the books of accounts, accordingly in my considered view the ratio of these cases will benefit the case of the assessee.

3.7 In view of the above facts, I am of the considered view that the books of accounts were rejected without finding material defects in the books of accounts. There is no ground for making addition of Rs.11,31,576/- by enhancing gross profit by 5%. In view of it, A.O. is directed to delete addition of Rs.11,31,576/-. This ground of appeal is allowed

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

7. Before us, ld. D.R. supported the order of A.O. and on the other hand ld. A.R. submitted that Assessee has maintained the necessary records prescribed by Excise authorities and therefore the contention of the A.O of non maintenance of records was factually incorrect. She thus supported the order of ld. CIT(A).

8. We have heard the rival submissions and perused the material on record. Ld. CIT(A) while deleting the addition has noted that the stock register was presented for verification before A.O and the A.O has not found any material defects in the documents submitted by the Assessee. Ld. CIT(A) has further held that the case laws relied upon by A.O for making additions are not applicable to the present facts because the Assessee has maintained stock register and quantitative details tallies. With respect to the expenses like shipping expenses, exchange rate, documents clearance and loading and 5 ITA No 2964/AHD/2011 . A.Y. 2007-08 unloading charges, ld. CIT(A) has given a finding that it pertains to sales and therefore there was no question of apportioning the aforesaid expenses for valuation of raw material and further the freight and octroi expenses have already been considered while valuing closing stock. Before us, Revenue has not brought any material on record to controvert the findings of ld. CIT(A) and in view of the aforesaid facts, we find no reason to interfere with the order of ld. CIT(A) and thus the grounds of Revenue are dismissed.

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

Order pronounced in Open Court on 24 - 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