Ideal Industrial Explosives Ltd, Hyderabad v. DCIT, Hyderabad

ITA 199/HYD/2009 | 2003-2004
Pronouncement Date: 18-02-2010 | Result: Partly Allowed

Appeal Details

RSA Number 19922514 RSA 2009
Bench Hyderabad
Appeal Number ITA 199/HYD/2009
Duration Of Justice 2 year(s) 6 day(s)
Appellant Ideal Industrial Explosives Ltd, Hyderabad
Respondent DCIT, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 18-02-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 18-02-2010
Date Of Final Hearing 02-02-2010
Next Hearing Date 02-02-2010
Assessment Year 2003-2004
Appeal Filed On 12-02-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B HYDERABAD BEFORE SHRI N.R.S.GANESAN JUDICIAL MEMBER AND SHRI AKBER BASHA ACCOUNTANT MEMBER ITA NO.198 & 199/HYD/09 : ASST. YEARS:200 2-03 AND 2003-04 IDEAL INDUSTRIAL EXPLOSIVES LTD. SECUNDERABAD. (APPELLANT) VS DCIT CIR-2(1) HYDERABAD. (RESPONDENT) APPELLANT BY : SRI S.K.PISSAY CA RESPONDENT BY : SMT.NIVEDITA BISWAS DR O R D E R PER AKBER BASHA ACCOUNTANT MEMBER THESE TWO APPEALS PREFERRED BY THE ASSESSEE ARE DIRECTED AGAINST THE COMMON ORDER OF THE CIT(A) III HYDERABAD DT.21-1-2009 PERTAINING TO THE ASSESSMENT YEARS 2002-03 AND 2003-04 R ESPECTIVELY. SINCE ISSUES INVOLVED IN THESE APPEALS ARE COMMON TO BOTH THE YEARS UNDER APPEAL THE SAME ARE HEARD TOGETHER AND DISPOSE D OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSMENT FOR THE ASSESSMENT YEAR 2002-03 WAS COMPLETED ON 25-1-2005 MAKIN G AN ADDITION OF RS.30 83 327 ON ACCOUNT OF UNEXPLAINED LIA BILITIES SHOWN AT THE END OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. THE SAME WAS CONSIDERED BY THE ASSESSING OFFI CER AS UNEXPLAINED CASH CREDITS U/S 68 OF THE INCOME TAX ACT 1 961 (THE ACT). 2 AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER THE ASSESSE E WENT IN APPEAL BEFORE THE CIT(A) AND THE LATTER HELD THAT T HE AFORESAID ADDITION CANNOT BE SUSTAINED LEGALLY. HENCE AFTER EXAMINING TH E MANUFACTURING EXPENSES THE CIT(A) HELD THAT THE SAME ARE EXCESSIVE AND INFLATED. HE THEREFORE DISALLOWED SUCH EXPENSES TO THE EXTENT OF RS.2 0 90 607 VIDE HIS ORDER. IN THE FURTHER APPEAL BEFORE THE TRIBUNA L BY THE ASSESSEE THIS TRIBUNAL HELD THAT THE CIT(A) CHANGED THE BASIS OF ADDITION WITHOUT GIVING AN OPPORTUNITY OF HEARING TO THE ASSESSEE AND RE STORED THE MATTER TO THE FILE OF THE CIT(A) TO DECIDE THE ISSUE AFRESH A FTER GIVING SUFFICIENT OPPORTUNITY OF HEARING TO THE ASSESSEE. THE CIT(A) IN COMPLIANCE OF THE DIRECTIONS OF THE TRIBUNAL PASSED AN ORDER DT.21- 1-2009 DIRECTING THE ASSESSING OFFICER TO ALLOW MANUFACTURING EXPENSES AT 7. 25% OF NET SALES FOR ASSESSMENT YEAR 2002-03 AND 7.50% OF NET SALES FO R ASSESSMENT YEAR 2003-04 RESPECTIVELY. FURTHER AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. 3. THE LEARNED COUNSEL FOR THE ASSESSEE FILED WRITTEN SUB MISSIONS AND SUBMITTED THAT THE ACCOUNTS OF THE ASSESSEE ARE DULY AUDITE D. THE ASSESSEE MANUFACTURED THE PRODUCTS WHICH ARE NOT SALEABLE ACR OSS THE COUNTER AND SOLD ONLY TO THE PERSONS HAVING THE PERMIT FROM CHIEF CONTROLLER OF EXPLOSIVES. THE ASSESSEE MAINTAINED PROPER MUSTER ROLL FOR THE CASUAL LABOUR ENGAGED AND THE WAGES REGISTERS ARE MA INTAINED AS PER NORMS. THE ASSESSEE COULD NOT PRODUCE THE LABOUR CO NTRACTOR BEFORE THE ASSESSING OFFICER IN WHOSE NAME THE OUTSTANDING AMOUNT WAS SHOWN AT THE END OF THE PREVIOUS YEAR RELEVANT TO THE YEAR UNDER APPEAL BECAUSE THEY WERE NO MORE IN THE SERVICE OF THE ASSESSEE CO MPANY. HOWEVER THE AMOUNTS WERE PAID TO THE CONTRACTOR IN THE SUBSEQUENT YEAR AND TAX WAS DEDUCTED AT SOURCE ON SUCH PAYMENT. THE REASON FOR 3 FALL IN GROSS PROFIT WAS DUE TO THE LOW SELLING PRICE OF THE PRODUCT. HE SUBMITTED A CHART SHOWING THE DETAILS OF THE SALES PROD UCTION OVERHEAD ETC. AND SUBMITTED THAT THE PERCENTAGE OF GROSS LABOUR EXPENSES TO MANUFACTURING EXPENSES PER TON HAS GONE DOWN FROM 3.19 % IN 2001-02 TO 3% IN 2003-04. THEREFORE THERE WAS NO INFLATION OF MANUFACTURING EXPENSES AS ALLEGED BY THE CIT (A). THE CIT (A) HAS NO T CONSIDERED THE ENTIRE DATA SUBMITTED BUT HAD SELECTIVELY CONSIDERED PA RT OF THE DATA SUBMITTED TO ARRIVE AT HIS CONCLUSION. BECAUSE OF THE SE RIOUS LABOUR PROBLEMS RESULTING IN UNION BEING SET UP THE ASSESSEE COMP ANY STARTED ENGAGING CASUAL LABOUR. THE COST OF LABOUR PER TON OF G OODS MANUFACTURED SHOULD HAVE BEEN CONSIDERED AS THE TOTAL O F BOTH DIRECT AND CASUAL LABOUR AND NOT SEPARATELY AS IS DONE BY THE C IT(A). IT IS FURTHER SUBMITTED THAT THERE IS NO COGENT BASIS FOR ES TIMATING THE MANUFACTURING EXPENSES AT PERCENTAGE OF NET SALES WHEN FULL DETAILS ARE AVAILABLE. HENCE THE DISALLOWANCE OF EXPENDITURE ON ACCO UNT OF MANUFACTURING EXPENSES IS NOT CORRECT IN THE CIRCUMSTANCES OF THE CASE. 4. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 5. WE HAVE HEARD BOTH SIDES AND PERUSED THE MATERIAL O N RECORD. WE FIND THAT THE CIT(A) OBSERVED IN HIS ORDER AFTER ANA LYZING THE DATA SUBMITTED BY THE ASSESSEE FINDINGS OF THE ASSESSING OFFICER THAT THE OUTSTANDING LIABILITIES SHOWN IN THE NAME OF THE LABOU R CONTRACTOR AND GENUINENESS OF THE PAYMENT MADE TO LABOUR CONTRACTOR COU LD NOT BE PROVED BY THE ASSESSEE. HE HELD THAT THERE IS A CLEAR CASE OF INFLATION OF EXPENSES AND CONSEQUENT DISALLOWANCE OF PART OF THE EXPE NDITURE IS REQUIRED. AT THE SAME TIME THE CIT(A) INSTEAD OF D ISALLOWING THE 4 MANUFACTURING EXPENSES TO SOME EXTENT RELATED THE MAN UFACTURING EXPENSES TO THE NET SALES AND ALLOWED CERTAIN PERCENTAGE OF MANUFACTURING EXPENSES TO NET SALES. IN OUR CONSIDERED O PINION THE METHOD FOLLOWED BY THE CIT(A) IN DISALLOWING THE EXP ENDITURE SEEMS TO BE ON WRONG LINES. HAD THE CIT(A) DOUBTED THE GENUIN ENESS OF THE EXPENDITURE HE COULD HAVE DISALLOWED CERTAIN PERCENTA GE OF EXPENDITURE RELATABLE TO THE MANUFACTURING ACTIVITY ST RAIGHTAWAY INSTEAD OF LINKING THE DISALLOWANCE TO THE NET SALES. WE FIND THAT THE PERCENTAGE OF GROSS LABOUR EXPENSES TO MANUFACTURING COST PER TON HAS REALLY COME DOWN FROM 3.19% TO 3% IN ASSESSMENT YEAR 2003-04. THE CIT(A) IS NOT CORRECT IN ESTIMATING THE MANUFACTURING EXPENSES AT P ERCENTAGE OF NET SALES WHEN THE DISPUTE IS RELATED TO LABOUR PAYMEN TS AND NOT THE MANUFACTURING EXPENSES. AT THE SAME TIME THE ASSESSEE HAS NOT PROVED THE GENUINENESS OF THE LABOUR PAYMENT BEYOND DOUBT BE FORE THE LOWER AUTHORITIES AS POINTED OUT BY THE CIT (A) IN HIS ORDER . IN VIEW OF THIS IN OUR CONSIDERED OPINION 10% OF THE LABOUR PAYMENT IS TO BE DISALLOWED FOR BOTH THE YEARS UNDER APPEAL. HENCE WE DIRECT THE ASSESSING OFFICER TO RECOMPUTE THE ALLOWABLE LABOUR PAYMENT AND DISALLO W 10% OF THE LABOUR PAYMENT ACCORDINGLY. 6. IN THE RESULT BOTH THE APPEALS BY THE ASSESSEE ARE PA RTLY ALLOWED. ORDER WAS PRONOUNCED IN THE OPEN COURT ON 18 -2-2010 SD/- (N.R.S.GANESAN) SD/- (AKBER BASHA) JUDICIAL MEMBER ACCOUNTANT MEMBER DT/- 18TH FEB. 2010. 5 COPY FORWARDED TO: 1. M/S PISSAY & COMPANY CHARTERED ACCOUNTANTS 5-8-548 ABID ROAD HYDERABAD. 2. DCIT CIR-2(1) IT TOWERS AC GUARDS HYDERABAD. 3. CIT AP HYDERABAD. 4. CIT (A) III HYDERABAD. 5. THE D.R. ITAT HYDERABAD. *VNR