Totla Wires Pvt.Ltd.,, Ahmedabad vs Department Of Income Tax

1. आयकर अपील सं./I.T.A.No.2454/Ahd/2011-A.Y.2006-07 2. आयकर अपील सं./I.T.A.No.2431/Ahd/2011-A.Y.2006-07 1. The ITO बनाम/ 1.Totla Wires Pvt.Ltd. Ward-8(1) Vs. 3 r d Floor, Krishna Complex Ahmedabad Opp. Bala Hanuman Mandir Gandhi Road Ahmedabad-380 001

2. Totla Wires Pvt.Ltd. 2.The Income Tax Officer Ahmedabad-380 001 Ward-8(1),Ahmedabad थायी ले खा सं . /जीआइआर सं . / PAN/GIR No. : AABCT 8074 B (अपीलाथ% /Appellants) .. (&'यथ% / Respondents)

Revenue by : Shri Nimesh Yadav, Sr.DR Assessee by : -None-

ु वाई क* तार+ख / सन Date of Hearing 19/03/2015 घोषणा क* तार+ख /Date of Pronounce ment 27/03/2015

आदे श / O R D E R

PER SHRI KUL BHARAT, JUDICIAL MEMBER :

These cross-appeals by the Revenue and the Assessee are directed against the order of the Ld.Commissioner of Income Tax(Appeals)-XIV, Ahmedabad ('CIT(A)' in short) dated 04/07/2011 pertaining to Assessment Year (AY) 2006-07.

ITA No.2454/Ahd/2011 (By Revenue) and ITA No.2431/Ahd/2011(Assessee ) Income Tax Officer vs. Totla Wires Pvt.Ltd.

Asst.Year - 2006-07 (cross-appeals) -2-

2. No one appeared on behalf of assessee. Notice of hearing was sent to the assessee fixing the date for hearing of the appeal on 19/03/2015 by Regd.Post AD [ RG 26683606 3 IN - as per evidence on record] which has been returned by the postal authorities with remarks "Left". Since no new address has been furnished by the assessee, therefore it is presumed that notice is duly served, hence the appeals were taken up for hearing in the absence of the assessee.

3. First, we take up the Revenue's appeal in ITA No.2454/Ahd/2011 for AY 2006-07. The Revenue has raised the following grounds of appeal:-

1. The Ld.Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in restricting the addition made to the extent of Rs.14,78,543/- as against the addition of Rs.50,00,000/- made by the Assessing Officer on account of G.P.

2. The Ld.Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the disallowance of Rs.2,08,802/- made by the Assessing Officer on account of commission expenses.

3. The Ld.Commissioner of Income-tax(Appeals)-XIV, Ahmedabad has erred in law and on facts in admitting additional evidences in violation of Rule 46A.

4. On the facts and in the circumstances of the case, the Ld.Commissioner of Income-Tax(Appeals)-XIV, Ahmedabad ought to have upheld the order of the Assessing Officer.

5. It is therefore, prayed that the order of the Ld.Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad may be set-aside and that of the order of the Assessing Officer be restored.

ITA No.2454/Ahd/2011 (By Revenue) and ITA No.2431/Ahd/2011(Assessee ) Income Tax Officer vs. Totla Wires Pvt.Ltd.

Asst.Year - 2006-07 (cross-appeals) -3-

3.1. Briefly stated facts are that the case of the assessee was picked up for scrutiny assessment and the assessment u/s.143(3) of the Income Tax Act,1961 (hereinafter referred to as "the Act") was framed vide order dated 05/02/2008, thereby the Assessing Officer (AO in short) made addition on account of fall in GP amounting to Rs.50 lacs and addition made on account of disallowance of commission expenses amounting to Rs.2,08,802/-. Aggrieved by the assessment order, the assessee preferred an appeal before the ld.CIT(A), who after considering the submissions of the assessee restricted the addition made on account of fall in GP to Rs.14,78,543/- as against the addition of Rs.50 lacs made by the AO and deleted the addition of Rs.2,08,802/- made on account of disallowance of commission expenses.

4. First ground is against in restricting the addition made to the extent of Rs.14,78,543/-. The ld.Sr.DR supported the order of the AO and submitted that the ld.CIT(A) was not justified in deleting the addition. He submitted that the AO has pointed out that there was a steep fall in GP from 10.78% in the preceding year to 3.62% in the year under consideration.

5. We have heard the ld.Sr.DR, perused the material available on record and gone through the orders of the authorities below. We find that ITA No.2454/Ahd/2011 (By Revenue) and ITA No.2431/Ahd/2011(Assessee ) Income Tax Officer vs. Totla Wires Pvt.Ltd.

Asst.Year - 2006-07 (cross-appeals) -4-

the ld.CIT(A), after considering the submissions, has decided this issue by observing as under:-

"4,4 Decision:

I have carefully perused the assessment order and the written submission filed by the Id.AR of the appellant. The appellant has disputed the addition on account of G. P. rate and also the disallowance of commission expenses by way of one single ground of appeal. Since the issues are different, these are being dealt separately for the sake of clarity and convenience.

(a) Addition on account of Gross Profit:

It is seen from the assessment order that the Assessing Officer has rejected the book result of the assessee by invoking the provisions of Section 145(3) of the I, T, Act, After rejection of books of account, he made an estimated addition of Rs.50 lacs in respect of gross profit of the appellant as he did not find the G. P. rate to be reasonable. The Assessing Officer has given cogent reasons for rejection of books of accounts. The rejection of books of accounts was, therefore, proper and is upheld.

Regarding the issue of reasonableness of estimated addition, it has been submitted by the appellant during the course of appellate proceedings through his written submissions as well as oral arguments before the undersigned that the A, O. was not justified in doing the same. The main points of various submissions made by him during the course of appellate proceedings are summarized as under:

(i) The appellant has submitted quantify details of each items purchased and sold by him.

(ii) The quantity and value wise comparison of previous year with supporting evidence has also been submitted.

(iii) Copies of all purchase bills and sale bills have been furnished.

(iv) The appellant was dealing in fourteen different items out of which the main items were cables and wires, Insulated scrap and copper scrap. The profit margin in each item of scrap is different.

(v) There is a huge increase in turnover as compared to previous year and, therefore, the G. P. rate was bound to go down. The turnover this year was Rs.10.15 crore as against Rs.2.16 crore in the last year.

(vi) Since the appellant has dealt in different items of scrap, this year the G. P. ratio was not comparable with the preceding year.

ITA No.2454/Ahd/2011 (By Revenue) and ITA No.2431/Ahd/2011(Assessee ) Income Tax Officer vs. Totla Wires Pvt.Ltd.

Asst.Year - 2006-07 (cross-appeals) -5-

(vii) The appellant made sales on consignment to consignment basis, and therefore, yielded low G, P.

(viii) The G. P, rate was higher in A. Y. 2005-06 (13.73%) on account of high G. P. rate in a single transaction.

(ix) In respect of insulated scrap, if FIFO method is applied the G. P. rate would be high. However, if LOT to LOT method is applied, as the appellant has sold the scrap on lot basis in almost all transactions, there would be no difference in GP.

Apart from the above points, the appellant has made general submissions regarding acceptance of G, P. rate shown by him. The general submissions have been reproduced in the earlier part of this order, the appellant has also submitted charts showing working of G. P. rate by FIFO method and LOT to LOT method for A. Y, 2005-06 and the present A. Y. An examination of the various items of sale made by the appellant during the year, it is observed that the following main items have been sold by him during the year.

Sl.No. Items A.Y. 2006-07 A.Y. 2005-06 Quantity Sale value Quantity Sale value (Rs.) (Rs.) 1. Cables and 456361 1,97,13,230 5,54,846 1,54,49,900 wire(Mtrs) 2. Insulated scrap 233668 3,83,65,589 35,995 53,45,839 3. Copper scrap 135932 3,58,30,749 NIL NIL 4. Aluminium scrap 41420 49,52,783 NIL NIL 5. LDP Granules 20680 10,44,306 NIL NIL 6. Copper Insulated 3548 9,04,740 NIL NIL cable scrap

Besides this, there are several other items but the sale value is below Rs. 5 lacs and, therefore, the same are not mentioned above as it will not affect the computation of G. P.

Out of the above items, the items which were common in earlier years were items at Sl. No.1 & SI. No. 2 i.e. cables and wires (Mtrs.) and Insulated scrap. The A. O, in his remand report has also pointed out that there Is a steep decline in respect of G. P. in the trading of insulated wires from 8.3% to 1.66% i.e. by about 7%. Similarly, there was a decline of G. P. of cables and wires (Mtrs.) by 2%. The overall G. P. rate shown by the appellant in the present year was 3.62% as against 10.78% in the preceding year.

ITA No.2454/Ahd/2011 (By Revenue) and ITA No.2431/Ahd/2011(Assessee ) Income Tax Officer vs. Totla Wires Pvt.Ltd.

Asst.Year - 2006-07 (cross-appeals) -6-

After considering the above facts, written submission by the appellant and the remand report of the A. O., I am of the opinion that the assessing Officer was not justified in making an estimated addition of Rs.50 lacs. It would have been proper had the A. O. made analysis of various data / information in respect of sale of different varieties of scrap submitted by the appellant during the course of assessment proceedings. Any addition on lumpsum basis by rejecting the books of accounts defeats the very purpose of rejecting the books of accounts. In this case, sufficient information in respect of items of purchase and sale has been submitted by the appellant and, therefore, the addition should be based on the specific information. As is clear from the above table, that the main item which has resulted in decline of G. P, for the current year is insulated scrap. The submission of the appellant that the G, P. rate should be taken on LOT to LOT basis as it gives a clear picture of the profit margin of the appellant has some force. However, the comparison of the G. P. rate of two years cannot be made on LOT to LOT basis as it will not give proper result. There is a force in the appellant's submission that the quality of scrap varies from year to year and it cannot be strictly compared with the earlier years and on account of huge increase in turnover, the G, P. rate cannot be as high as in the previous year. It was also pointed out by the appellant that there was high profit margin in one transaction. As per the FIFO method, the G. P. rate in respect of insulated scrap for A. Y. 2005-06 was 7.65% whereas for A. Y. 2006-07, it was 1.11%, However, by LOT to LOT method, the G. P. rate for last year was 3.26% as against 1.66% for the present year. After considering all the facts, and circumstances, it would meet the ends of justice if G, P. rate for the current year is taken @ 5%. The appellant has already shown a G. P. rate of 1.66%. Accordingly, the addition @ 3.34% of the G. P. which works out to Rs.12,81,410/- is sustained in respect of insulated scrap.

The other major items of scrap which can be compared with the figures of previous year is cables and wires mtrs. There is a decline of about 2% in the present year. There is a force in the appellant's submission that the quality of scrap varies from year to year and it cannot be strictly compared with the earlier years. However, since the appellant has not been able to correctly furnish the. details of opening stock, closing stock and such other details has been mentioned by the A. O. in the assessment order, the G. P. shown by the appellant cannot be accepted. Considering all the facts and circumstances, it would be judicious to make an addition on account of decline of G. P. rate by increasing the G. P. by 1%. After applying this rate to ITA No.2454/Ahd/2011 (By Revenue) and ITA No.2431/Ahd/2011(Assessee ) Income Tax Officer vs. Totla Wires Pvt.Ltd.

Asst.Year - 2006-07 (cross-appeals) -7- the sale of the present year, the addition on this account comes to Rs.1,97,134/-.

Accordingly, an addition of Rs.12,81,41/- & Rs.1,97,134/- totaling to Rs.14,78,543/- is sustained as against the addition of Rs.50 lacs made by the A. O."

5.1. From the above finding of the ld.CIT(A), it is evident that the same is based on sound reasoning and material placed before him. The ld.Sr.DR could not controvert the finding by placing any contrary material on record. Moreover, the Assessing Officer has not given any basis for estimating the profit on lump sum basis. Therefore, we do not see any reason to interfere into the finding of the ld.CIT(A), same is hereby upheld.

6. Ground No.2 is against the deletion of disallowance of Rs.2,08,802/- made by the AO on account of commission expenses. The ld.Sr.DR supported the order of the AO and submitted that the ld.CIT(A) was not justified in deleting the addition.

7. We have heard the ld.Sr.DR, perused the material available on record and gone through the orders of the authorities below. We find that the ld.CIT(A) has given a finding on fact, which reads as under:-

"4.4 (b) Disallowance Commission expenses:

ITA No.2454/Ahd/2011 (By Revenue) and ITA No.2431/Ahd/2011(Assessee ) Income Tax Officer vs. Totla Wires Pvt.Ltd.

Asst.Year - 2006-07 (cross-appeals) -8-

The A. O. had made an addition of Rs.2,08,802/- as the appellant could not furnish complete name and address of the persons to whom above commission was paid. It has been submitted by the appellant that the TDS has been made u/s. 194H and copies of Form 60A was also filed by him before the A. O. He has given complete details mentioning the Address, PAN and the amount of commission paid to 3 persons. The A. O. in his remand report has not given any comments on the information submitted by the appellant. Since, the appellant has given necessary details for verification of commission expenses such as name and address of the person, PAN, confirmation of the person as well as Form 16A which was issued to the person to whom the commission was paid, the A. O. was not justified in disallowing the commission. The addition made is accordingly deleted."

7.1. The above finding on fact is not controverted by the Revenue by placing any material on record. Therefore, we do not see any reason to interfere with the order of the ld.CIT(A), same is hereby upheld. Thus, this ground Revenue's appeal is rejected.

8. Ground No.3 is against in admitting the additional evidences in violation of Rule 46A. The ld.Sr.DR submitted that the ld.CIT(A) has admitted the additional evidences.

8.1. We have heard the ld.Sr.DR. However, ld.Sr.DR could not point out what were the additional evidences which were admitted by the ld.CIT(A). Therefore, we do not see any reason to interfere with the order of the ld.CIT(A). Thus, this ground of Revenue's appeal is rejected.

9. Ground Nos. 4 & 5 are general in nature which require no independent adjudication.

ITA No.2454/Ahd/2011 (By Revenue) and ITA No.2431/Ahd/2011(Assessee ) Income Tax Officer vs. Totla Wires Pvt.Ltd.

Asst.Year - 2006-07 (cross-appeals) -9-

10. As a result, Revenue's appeal in ITA No.2454/Ahd/2011 is dismissed.

11. Now, we take up the Assessee's appeal in ITA No.2431/Ahd/2011 for AY 2006-07. The solitary ground raised by the assessee reads as under:-

1. The learned CIT(A) erred in confirming the addition of Rs.14,78,543/- (12,81,410/- & 1,97,134/-) in respect of GP, which is requested to be deleted.

11.1 The ld.Sr.DR supported the orders of the authorities below.

11.2. We have heard the ld.Sr.DR, perused the material available on record and gone through the orders of the authorities below. We find that the appeal of the assessee is barred by 3 days and no petition for condonation of delay has been filed. However, in the interest of justice, the delay is condoned and we proceed to adjudicate the ground raised in assessee's appeal.

12. In the Revenue's appeal(supra), we have upheld the finding of the ld.CIT(A). For the same reasoning, we do not find any merit into the ground raised by the assessee. Therefore, this ground of assessee's appeal is rejected.

ITA No.2454/Ahd/2011 (By Revenue) and ITA No.2431/Ahd/2011(Assessee ) Income Tax Officer vs. Totla Wires Pvt.Ltd.

Asst.Year - 2006-07 (cross-appeals)

- 10 -

13. In the combined result, the appeal of the Revenue and the appeal of the Assessee both are dismissed.

Order pronounced in the Court on Friday, the 27th day of March, 2015 at Ahmedabad.

Sd/- Sd/- (जी.डी.अ वाल) (कुल भारत) उपा य या यक सद य ( G.D. AGARWAL ) ( KUL BHARAT ) VICE PRESIDENT (AZ) JUDICIAL MEMBER Ahmedabad; Dated 27/ 03 /2015 ट+.सी.नायर, व. न.स./T.C. NAIR, Sr. PS आदे श क !त#ल$प अ%े$षत/Copy of the Order forwarded to : 1. अपीलाथ% / The Appellant 2. &'यथ% / The Respondent. 3. संबं5धत आयकर आयु7त / Concerned CIT

4. आयकर आयु7त(अपील) / The CIT(A)-XIV, Ahmedabad

5. 8वभागीय & त न5ध, आयकर अपील+य अ5धकरण, अहमदाबाद / DR, ITAT, Ahmedabad

6. गाड; फाईल / Guard file.

आदे शानुसार/ BY ORDER,

स'या8पत & त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad

1. Date of dictation .. 20.3.15(dictation-pad 9- pages attached at the end of this File)

2. Date on which the typed draft is placed before the Dictating Member ..23.3.15

3. Other Member...

4. Date on which the approved draft comes to the Sr.P.S./P.S.................

5. Date on which the fair order is placed before the Dictating Member for pronouncement......

6. Date on which the fair order comes back to the Sr.P.S./P.S.......27.3.15

7. Date on which the file goes to the Bench Clerk.....................27.3.15

8. Date on which the file goes to the Head Clerk..........................................

9. The date on which the file goes to the Assistant Registrar for signature on the order..........................

10. Date of Despatch of the Order..................