Ita/63/2011 Of Sidhant Leather Exports Pvt. Ltd v. Commissioner Of Income Tax, Kolkata-Iv, Kolkata

O - 94 IN THE HIGH COURT AT CALCUTTASpecial Jurisdiction (Income Tax)ORIGINAL SIDE ITA/63/2011 SIDHANT LEATHER EXPORTS PVT. LTD. -Versus- COMMISSIONER OF INCOME TAX, KOLKATA- IV Appearance:Mr. J.P. Khaitan, Sr. Adv.Ms. Swapna Das, Adv.Mrs. Anupa Banerjee, Adv....for the appellant. Mr. Tilak Mitra, Adv.. . .for the respondent. BEFORE: The Hon’ble JUSTICE T.S. SIVAGNANAM -And- The Hon’ble JUSTICE HIRANMAY BHATTACHARYYA Date : 17[th] February, 2023The Court : This appeal by the assessee under Section260A of the Income Tax Act (the ‘Act’ in brevity) is directedagainst the order dated 31[st] August, 2010 passed by the Income TaxAppellate Tribunal, B - Bench, Kolkata (the ‘Tribunal’) in ITANo.63/Kol/2010 for the assessment year 2006-07. This appeal was admitted on 25[th] January, 2011 on thefollowing substantial questions of law: “(a) Whether the Tribunal below committed substantialerror of law in ignoring the evidence as regardsleather consumption and production of finished goodsin its record and also forming part of the assessmentrecord which was before the Commissioner of Income Tax(Appeals) on the ground of non-submission of suchevidence before the Commissioner of Income Tax(Appeals) which was unnecessary.(b) Whether the Tribunal below committed substantialerror of law in estimating the production/sale offinished goods on the basis of its order forassessment year 2004-05, which is the subject matterof challenge before this Court in ITA No. 781 of 2008,and its purported finding as regards unrecordedproduction/sale of finished goods and sustained inaddition to Rs. 1,12,09,000/- on account of leatherconsumption are perverse.(c) Whether the Tribunal below committed substantialerror of law in upholding the disallowance of Rs.8,86,381/- out of expenditure on repairs andmaintenance made upon comparison of expenditure underthe head for the preceding year and the turnoverfigures for the two years without identifying anydefect in the books of accounts, bills and vouchersproduced in support of the expenditure and itspurported findings in that regard are arbitrary andperverse.”We have heard Mr. J.P. Khaitan, learned senior standingcounsel, assisted by Ms. Swapna Das and Mrs. Anupa Banerjee, learned advocates for the appellant/assessee and Mr. Tilak Mitra,learned counsel appearing for the respondent/revenue. The assessee is engaged in the business of manufacture andexport of leather goods for the assessment year underconsideration. The assessee filed its return of income on 30[th]November, 2006 disclosing a total income of Rs.24,14,440/-. Thereturn was processed and the case was selected for scrutiny. Theassessee produced various details including the quantitativedetails of stock of finished leather and raw material consumptionof the same and details of production. After analysing the detailsand documents produced, the assessing officer was of the primafacie opinion that there is a discrepancy and irregularity inrespect of consumption of finished leather and resultantproduction of finished goods. Accordingly, a show cause noticedated 28[th] November, 2008was issued to the assessee. The assesseewith regard to the quantitative details of stock stated that theconsumption of raw materials depends on the quality of leatheritems produced. Further, it was stated that during the year underreview, mostly old stocks have been used, most of the itemsproduced are of various shapes in which case there was heavywastage. The assessing officer as could be seen from theassessment order dated 30[th] December, 2008 does not examine thedocuments and details furnished by the assessee but largely wasguided by the figures relating to the leather consumption during the last three previous years starting from 2002-03 to 2003-05.Considering those details, the assessing officer has embarked upona fact finding exercise of his own accord and has arrived at afigure and has come to a conclusion based on such figure thatcertain quantity of production of goods has not been disclosed inthe books as well as the sale price of the same and, therefore, itis held that such production is outside the regular books ofaccounts of the assessee. Accordingly, a sum of Rs.3,55,67,235/-was added to the total income of the assessee. The assessee carried the matter on appeal contending that theassessing officer was not justified in alleging undisclosed stockwithout any materials or evidence to support the said allegation.The CIT(A) considered the case of the assessee along with theassessment records and held that no details have been produced bythe assessee with regard to the quantity of the leather consumed.The assessee carried the matter on appeal to the learned tribunal.The learned tribunal called for the assessment records as well asthe records of the CIT(A) but, however, concurred with the CIT(A)on the ground that the assessee has not produced any evidence fromwhich the yielded figure as well as the figure of wastage could beworked out. In our considered view, a fundamental error has creptin during the course of the assessment proceedings as pointed outearlier in response to the show cause notice dated 28[th] November,2008 with regard to the quantitative details of stock. The assessee’s specific case was that from the materials alreadyproduced before the assessing officer it is clear that theconsumption of raw materials would depend on the quality ofleather and items produced and that during the year under reviewthey had used old stock and most of the items are small things ofvarious shapes in which case there was heavy wastage. If suchstand of the assessee is not disputed by the assessing officerthat the assessee had produced details including quantitativedetails of stock of finished leather and raw materials consumptionof the same and details of production, the assessing officer wasduty bound to examine those details and documents and come to aconclusion. However, those details have been brushed aside andwhat derived in the mind of the assessing officer were the figuresfor the three earlier assessment years. This, in our opinion,could not have been done by the assessing officer ignoring thematerials and documents produced by the assessee about assessmentyear under consideration. The CIT(A) also committed a similar error in not adverting tothe records which are germane to the assessment year underconsideration and largely swayed by the opinion of the assessingofficer who committed an error by determining the quantity ofwastage based on the production figures for the previous year.There is nothing on record to indicate that there was suppressionof materials by the assessee nor there is anything to indicate The CIT(A) also committed a similar error in not adverting tothe records which are germane to the assessment year underconsideration and largely swayed by the opinion of the assessingofficer who committed an error by determining the quantity ofwastage based on the production figures for the previous year.There is nothing on record to indicate that there was suppressionof materials by the assessee nor there is anything to indicate that the wastage as mentioned by the assessee for the year underconsideration could not have been shown and those figures wereneither examined nor rejected. One more important factor whichneeds to be taken note is that before the CIT(A) the assesseeplaced bunch of documents which were comparative chart of grossprofits for the assessment years 2004-05 to 2007-08. It alsoproduced the consumption report style-wise showing particulars ofconsumption of different types of products. The list of differenttypes of articles producing during the assessment years 2005-06 to2007-08 was also furnished along with the summary of export sales.Thus, if according to the assessee, different types of articlesare produced for each assessment year which largely depends uponthe orders which were placed by the assessee by overseascustomers, the assessing officer was bound to consider thosedetails as it is elementary principle that each assessment year isan independent unit. The learned tribunal also ignored this factand was persuaded by the opinion drawn by the CIT(A) which hadapproved the estimationdone by the assessing officer purely basedupon the figures for the earlier assessment years and not inrespect of the assessment year under consideration. It might havebeen a different case had the details and documents furnished bythe assessee been examined and found to be incorrect or otherwiseand thereafter the assessing officer embarked upon a fact findingexercise by referring to the facts and figures for the earlier assessment year, it would have been another matter. However, thespecific case of the assessee is that in none of the two yearsidentical products have been manufactured and exported and,therefore, an independent examination of the goods ought to havebeen done by the assessing officer which the assessee was notnoticed by CIT(A) or by the learned tribunal. Thus, the firstissue which has been raised in substantial question of law (a) hasto be necessarily answered in favour of the assessee. The other two substantial questions of law (b) and (c) arealso relatable to the same approach of the assessing officer aswell as the CIT(A) and the learned tribunal. Once again, the twoauthorities and the tribunal state that there was nothing onrecord. However, the documents clearly show the details of repairsand maintenance have been clearly listed before the CIT(A) and,thus, if the facts relevant for the assessment year underconsideration had been considered, such an error would not haveoccurred. In fact, the learned tribunal in its order records thatthe assessment records as well as the records of the CIT(A) werecalled for. Having done so, the tribunal does not record anyfinding on such records and details and documents produced by theassessee at the very inception during the course of scrutinyassessment. It proceeds to say that there is no evidence beforethe authorities below. This finding is factually incorrect andshould be termed to be a perverse finding. For all the above reasons, we are of the considered view thatthe learned Tribunal committed an error in affirming the orderpassed by the CIT(A). In the result, the appeal filed by the assessee is allowed and the substantial questions oflaw are answered in favour of the assessee. . In the second substantial question of law there is areference to the appeal filed by the assessee in ITA 781/2008 forthe assessment year 2004-05. This appeal was allowed by this Courtby judgment dated 7[th] February, 2023. (T.S. SIVAGNANAM, J.) (HIRANMAY BHATTACHARYYA, J.) S Das/s.chandra