Ashirvad Yarns Pvt. Ltd. vs Deputy Commissioner of Income Tax

K.S. Jhaveri, J.—This is an appeal by the appellant-assessee, seeking to challenge the order of the learned ITAT, Ahmedabad Bench ''C'' (for short, ''the Tribunal''), Dated: 21.01.2004, rendered in ITA No. 2110/Ahd/2000 for the A.Y. 1996-97, whereby, the Tribunal dismissed the appeal of the assessee.

The brief facts of the case are that the appellant-assessee filed its return of income for year under consideration on 25.09.1997, declaring loss of Rs. 1,58,970/- along with audited profit & loss account, audit report etc. Pursuant thereto, the assessee was issued notices under Section 143(2) & Section 142(1) of the Income Tax Act, 1961 (for short, ''the Act''). At the end of the assessment proceedings, the concerned AO made certain additions/disallowances. The assessee, therefore, approached the learned CIT(A) against the same. The learned CIT(A), after hearing the parties, dismissed the appeal of the assessee. Being aggrieved with the same, the assessee approached the Tribunal, wherein, the Tribunal passed the impugned order. Hence, the assessee preferred the present appeal.

At the time of admitting the present appeal, this Court framed the following question;

"Whether in the facts and in the circumstances of the case, the Tribunal was justified in law in confirming the disallowance of Rs. 5,33,633/- on the basis adopted by the Assessing Officer of comparing the turn over of the preceding year and the accounting year in question?"

Mr. Shah, learned Advocate for the appellant-assessee, submitted that the Tribunal committed a grave error in dismissing the appeal of the assessee, inasmuch as it failed to appreciate the fact that the books were audited and no defect was found, therein, which would attract the provisions of Section 145 of the Act. He, further, submitted that even for the sake of argument it is believed that Section 145 of the Act is applicable, then, also the gross profit rate of 10.47 percent, which was more than the gross profit rate of the immediately preceding year, i.e. 9.7 percent, ought to have been applied in the case of the assessee. He, then, submitted that the concerned AO did not show even a single case, which can be compared with that of the assessee, for assessing higher gross profit in its case. He, therefore, prayed that the present appeal be allowed.

Mr. Mehta, learned Advocate for the respondent-Revenue, on the other hand, supported the orders passed by both the authorities below and submitted that there being concurrent findings, present appeal be dismissed, as being without merit.

We have heard learned Counsels for the parties and perused the material on record, including the orders passed by the learned CIT(A) and the Tribunal.

From a perusal of the record, it appears that the assessee had provided the complete details of the audited accounts before the Tribunal in a tabular form, which is produced at Page-25 of the Memo of the appeal and reads as under;

From the above, it can be seen that Schedule 17 pertains to Octroi and Power & Fuel charges. Here, it is pertinent to that the assessee had, before the CIT(A), pointed out that the carriage inward expenses of Rs. 4,03,796/- for the year under consideration also included Rs. 3,58,561/- paid by the assessee towards import duty. From the record it also transpires that the assessee had, further, specified before the Tribunal that the raw material consumed during the previous year was ''Nil'', whereas, during the year under consideration, its consumption was 1,57,75,539. The assessee had, further, provided the details of the Octroi duty paid by him by way of account payee cheques, which are produced at Page Nos. 51 to 55 of the memo of the appeal. The details of the expenses incurred by the assessee towards freight import, which is produced in a tabular form at Page-59 of the Memo of the appeal, reads as under;

From a perusal of the order of the CIT(A) it appears that it recorded that, in the case of the assessee, AO found that, though, the rate of turnover indicated a downfall, there was drastic increase in certain expenses, i.e. carriage inward, octroi, postage & telegram etc., which are produced at Page-15 of the Memo of the appeal. The CIT(A), further, recorded that the assessee offered no explanation with regard to the same, and therefore, the concerned AO disallowed the expenses towards the same and made an addition of Rs. 5,33,633/-. We are unable to concur with the aforesaid finding recorded by the CIT(A) and confirmed by the Tribunal for the reason that while taking into account the increase in expenditure with regard to the aforesaid items, the concerned AO, CIT(A) as well as the Tribunal seems to have lost sight of the fact that there was reduction in certain expenses also, viz. Commission and brokerage charges, power and fuel expenses and payment to the employees. Further, it is an admitted position that the details of the accounts provided by the assessee were duly audited. Thus, merely because the assessee could not produce the accounts of the immediately preceding year, which was destroyed in 1998 flood, it cannot be said that the assessee offered no explanation or no evidence in support of his case. On the contrary, the assessee has given the fullest details available with him in respect of profit and loss account for the year under consideration. We are, therefore, of the opinion that the AO was not justified in making the addition of Rs. 5,33,633/- and the CIT(A) as well as the Tribunal erred in confirming the same. This appeal, hence, deserves to be allowed.

In the result, this appeal is Allowed. The order of the Tribunal, Dated: 21.01.2004, is quashed and set aside and we answer the question, i.e. Whether in the facts and in the circumstances of the case, the Tribunal was justified in law in confirming the disallowance of Rs. 5,33,633/- on the basis adopted by the Assessing Officer of comparing the turn over of the preceding year and the accounting year in question?, in Favour of the assessee and Against the Revenue.