The ITO, Ward-2., Srikakulam v. M/s Kranthi Granites., Tekkali

ITA 644/VIZ/2008 | 2005-2006
Pronouncement Date: 28-01-2010 | Result: Dismissed

Appeal Details

RSA Number 64425314 RSA 2008
Assessee PAN AAGFK2001F
Bench Visakhapatnam
Appeal Number ITA 644/VIZ/2008
Duration Of Justice 1 year(s) 1 month(s) 24 day(s)
Appellant The ITO, Ward-2., Srikakulam
Respondent M/s Kranthi Granites., Tekkali
Appeal Type Income Tax Appeal
Pronouncement Date 28-01-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted DB
Tribunal Order Date 28-01-2010
Assessment Year 2005-2006
Appeal Filed On 04-12-2008
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH: VISAKHAPATNAM BEFORE: SRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SRI B.R. BASKARAN ACCOUNTANT MEMBER I.T.A. NO.644/VIZAG/2008 ASSESSMENT YEAR : 2005-06 ITO WARD-2 SRIKAKULAM VS. KRANTHI GRANITES TEKKALI (APPELLANT) (RESPONDENT) . PAN NO: AAGFK 2001 F APPELLANT BY : SHRI G.S.S. GOPINATH DR RESPONDENT BY : SHRI G.V.N. HARI CA O R D E R PER B..R. BASKARAN ACCOUNTANT MEMBER : 1. THE APPEAL OF THE REVENUE IS DIRECTED AGAINS T THE ORDER DATED 16.10.2008 PASSED BY LD CIT(A)-I VISAKHAPATNAM AND IT RELATES TO THE ASSESSMENT YEAR 2005-06. 2. IN THIS APPEAL THE REVENUE IS ASSAILING THE DECISION OF LD CIT(A) IN CANCELING THE ACTION OF THE AO IN REJECTING THE BOOKS OF ACCO UNT AND CONSEQUENTLY MAKING DISALLOWANCE OF 20% OF THE EXPENSES RELATING TO THE QUARRY DEVELOPMENT AND QUARRY CUTTER PAYMENTS. 3. THE FACTS ARE STATED IN BRIEF. THE ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF EXTRACTION OF GRANITES. DURING THE YEAR UNDER C ONSIDERATION THE ASSESSEE HAS EXTRACTED GRANITE ON ITS OWN FROM ONE QUARRY AND AL SO LET OUT ANOTHER QUARRY TO A PERSON NAMED SHRI V.BABJI RAO FOR A RAISING FEE OF RS.3 000/- PER SQ. METER OF QUARRYING. DURING THE YEAR UNDER CONSIDERATION TH E ASSESSEE ADMITTED A SALES OF RS.5 37 964/- FROM HIS OWN QUARRYING AND ALSO ADMIT TED RAISING CHARGES RECEIPT OF RS.39 77 214/-. SINCE MOST OF THE EXPENSES WERE SU PPORTED BY SELF MADE VOUCHERS AND FURTHER THE ASSESSEE COULD PRODUCE ONL Y FEW EMPLOYEES FOR 2 VERIFICATION THE AO REJECTED THE BOOKS OF ACCOUNT AND PROCEEDED TO ESTIMATE THE PROFIT. THE SEIGNORAGE CHARGES ATTRIBUTABLE TO THE GRANITE EXTRACTED BY THE LESSEE SHRI V.BABJI RAO AMOUNTED TO RS.22 43 785/-. ACCOR DINGLY THE AO ESTIMATED THE INCOME FROM LEASING OUT THE QUARRY AT RS.17 33 429/ -. WITH REGARD TO THE OWN QUARRYING THE AO NOTICED THAT THE ASSESSEE HAD CLA IMED EXPENDITURE TO THE TUNE OF RS.18.62 LAKHS AGAINST THE SALE VALUE OF RS.5.37 LAKHS. HENCE THE AO ESTIMATED THE INCOME FROM OWN QUARRYING AT 5% OF TH E SALES. 4. IN THE APPEAL PREFERRED BY THE ASSESSEE LD CIT(A) CONFIRMED THE ESTIMATE OF INCOME FROM LEASING OUT THE QUARRY. HOWEVER LD CIT(A) DID NOT ACCEPT THE REJECTION OF THE BOOKS OF ACCOUNT FOR THE REASONS R ECORDED IN HIS ORDER AND DIRECTED THE AO TO MAKE A DISALLOWANCE OF 20% OF TH E EXPENSES RELATING TO THE QUARRY DEVELOPMENT CHARGES AND QUARRY CUTTER PAYMEN TS. AGGRIEVED THE REVENUE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD THE PARTIES AND CAREFULLY PERU SED THE RECORD. THE LD CIT(A) CANCELLED THE REJECTION OF BOOKS WITH THE FOLLOWING OBSERVATIONS 4.2 COMING TO THE QUESTION OF EXPENDITURES INCURRE D FOR THE MINING OF GRANITES BY THE APPELLANT FIRM ITSELF THE ASSES SING OFFICER REJECTED THE BOOK RESULTS BASICALLY ON THE GROUND T HAT THE GROSS PROFIT DISCLOSED WAS LOW AND MOST OF THE EXPENDITUR ES WERE SUPPORTED BY SELF-MADE VOUCHERS WHICH WERE NOT AMEN ABLE TO CROSS VERIFICATION. IN THE INSTANT CASE IT IS NOTE D THAT THE APPELLANT FIRM WAS IN THE BUSINESS OF EXTRACTION OF GRANITE S INCE LONG AND BOOKS OF ACCOUNTS WERE REGULARLY MAINTAINED. FOR TH E YEAR UNDER CONSIDERATION ALSO BOOKS OF ACCOUNTS WERE MAINTAIN ED AND THE SAME WERE AUDITED TOO U/S 44AB OF THE ACT. ACCOUNTS REGULARLY MAINTAINED IN THE COURSE OF BUSINESS HAVE TO BE TAK EN AS CORRECT UNLESS THERE ARE STRONG AND SUFFICIENT REASONS TO I NDICATE THAT THEY ARE UNRELIABLE. MOREOVER BEFORE REJECTION OF BOOKS OF ACCOUNTS THE APPELLANT SHOULD BE GIVEN REASONABLE OPPORTUNITY FO R OFFERING EXPLANATIONS REGARDING THE DEFECTS IN THE ACCOUNTS AND ON HIS FAILURE TO SATISFACTORILY EXPLAIN THE DEFECTS THE REJECTION OF BOOKS OF ACCOUNTS COULD BE JUSTIFIED. IN THE INSTANT CASE T HE ASSESSING OFFICER CALLED FOR THE EXPLANATION OF THE APPELLANT REGARDING THE LOW PROFIT BY INDICATING THAT THE GROSS PROFIT ADMITTED IS 5.6% ONLY AS AGAINST 30% TO 35% DECLARED BY OTHER GRANITE OWNERS VIDE LETTER DT. 20-07-2006. IN RESPONSE THE APPELLANT FIRM SUB MITTED THAT THE 3 PROFIT OF 5.6% ADMITTED BY THE APPELLANT IS NET PRO FIT ONLY AND NOT THE GROSS PROFIT. HENCE THE SAME IS NOT COMPARABLE WITH GROSS PROFITS DISCLOSED BY OTHER GRANITE OWNERS. FURTHER IT WAS EXPLAINED THAT COMPARISON BETWEEN QUARRIES OWNED BY THE APPEL LANT AND THE QUARRIES OWNED BY THE OTHERS ARE NOT COMPARABLE AS EACH QUARRY HAS ITS OWN ADVANTAGES AND DISADVANTAGES. IT DEPEND S UPON THE QUALITY OF STONE EXTRACTED FROM THE QUARRIES AND TH E MARKETABILITY OF SUCH STONES. IN THE CASE OF THE APPELLANT THE QUAL ITY WAS NOT GOOD AND THEREFORE THE APPELLANT HAD CONSISTENTLY MADE LOSSES AS EVIDENT FROM EARLIER ASSESSMENT RECORDS WHEREIN LOS SES WERE DETERMINED TO BE CARRIED FORWARD. IN FACT BECAUSE OF THE BAD QUALITY FROM THE SUBSEQUENT YEAR THE APPELLANT FI RM SUSPENDED ITS MINING ACTIVITIES. THE ABOVE EXPLANATION OF THE APP ELLANT IS REASONABLE AND AS PER THE PREVAILING PRACTICES IN T HE TRADE. THEREFORE THE QUESTION OF LOW PROFIT CANNOT BE THE GROUND FOR REJECTION OF BOOKS OF ACCOUNTS. SIMILARLY IN SO FA R AS PAYMENTS TO LABOURERS ARE CONCERNED WHICH WERE MOSTLY BOOKED UN DER THE HEADS QUARRY DEVELOPMENT CHARGES AND QUARRY CUTT ER PAYMENTS THEY HAVE TO BE THROUGH SELF-MADE VOUCHE S ONLY AS THESE LABOURERS WERE ILLITERATE. HENCE THE SAID GR OUND ALSO CANNOT BE THE BASIS FOR REJECTION OF BOOKS OF ACCOUNTS. MO REOVER NO OPPORTUNITY WAS PROVIDED BY THE ASSESSING OFFICER T O THE APPELLANT FIRM BEFORE REJECTION OF BOOKS OF ACCOUNTS WHICH IS NOT PROPER. KEEPING THESE FACTS IN MIND I HAVE NO HESITATION I N CONCLUDING THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN REJECTIN G THE BOOKS OF ACCOUNTS. WE NOTICE THAT THE LD CIT(A) HAS OBJECTIVELY ANALY SED THE FACTUAL BACKGROUND OF THE CASE BEFORE COMING TO THE CONCLUS ION THAT THE REJECTION OF THE BOOKS OF ACCOUNT WAS NOT WARRANTED. AFTER HAVING CO NCLUDED THAT THE REJECTION OF BOOKS OF ACCOUNT WAS NOT JUSTIFIED THE LD CIT(A) H AS ANALYSED VARIOUS EXPENSES CLAIMED BY THE ASSESSEE AND NOTICED THAT THE EXPENS ES INCURRED UNDER THE HEADS SALARIES AND DRIVER BETAS ARE COMMENSURATE WITH THE SIZE OF EMPLOYEES. HE HAS ALSO NOTICED THAT THE EXPENSES ON MACHINERY FUEL AR E SUPPORTED BY THE BILLS. HE HAS ALSO NOTICED THAT EXPENDITURE INCURRED UNDER TH E HEADS SEIGNIORAGE CHARGES AND SALES TAX PAYMENTS ARE STATUTORY PAYMENTS AND D EPRECIATION IS A STATUTORY DEDUCTION AND HENCE THEY ARE ADMISSIBLE. FINALLY T HE LD CIT(A) NOTICED THAT THE EXPENSES CLAIMED UNDER THE HEAD QUARRY DEVELOPMENT CHARGES AND QUARRY CUTTER PAYMENTS ARE NOT AMENABLE FOR CROSS VERIFICA TION AS THEY ARE SUPPORTED BY THE SELF MADE VOUCHERS. IN VIEW OF THIS FACTUAL PO SITION THE LD CIT(A) HAS DIRECTED THE AO TO MAKE A DISALLOWANCE OF 20% OF TH E EXPENSES RELATING TO 4 QUARRY DEVELOPMENT CHARGES AND QUARRY CUTTER PAYMEN TS ON ESTIMATED BASIS. THUS WE NOTICE THAT THE LD CIT(A) HAS COME TO HIS C ONCLUSIONS ON PROPER REASONING AND FURTHER NO MATERIAL WAS PLACED BY THE REVENUE BEFORE US TO CONTRADICT THE DECISION OF LD CIT(A). HENCE WE DO NOT FIND ANY NECESSITY TO INTERFERE WITH THE DECISION OF LD CIT(A) AND ACCORD INGLY WE UPHOLD THE ORDER OF LD CIT(A). 6. IN THE RESULT THE APPEAL FILED BY THE REVEN UE IS DISMISSED. PRONOUNCED ACCORDINGLY ON 28 TH JANUARY 2010. SD/- SD/- (SUNIL KUMAR YADAV) (B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM DATE : 28-01-2010 A COPY OF THIS ORDER IS FORWARDED TO : 01 THE ITO WARD-2 SRIKAKULAM 02 M/S KRANTI GRANITES TEKKALI SRIKAKULAM DISTT. 03 THE CIT (A)-I VISAKHAPATNAM 04 THE CIT-2 VISAKHAPATNAM 05 THE DR ITAT VISAKHAPAATNAM 06 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY ITAT VISAKHAPATNAM BENCH