Sitalamata Rice Mill Pvt. Ltd., Kolkata V. ACIT, Circle-2, Midnapore, Paschim Medinipur

CO 105/KOL/2014

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 0249 (ITAT-KOLKATA)
• Duration Of Justice: 27 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 01-01-2015
• Appeal Filed By: Assessee
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 05-12-2014
• Court: TRIBUNAL
• Department Lawyers: M M GHOSH
• Keywords: Question of law
• Section: 142(1); 131; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOLKATA [BEFORE SHRI MAHAVIR SINGH, JM & SHRI SHAMIM YAHYA AM ] I.T.A NO.2317/KOL/2013 ASSESSMENT YEAR: 2009 - 2010 A.C.I.T.,CIRCLE - 2 , VS. M/S.S I TALAMATA RICE MILL PVT.LTD. MIDNAPORE PASCHIM MEDINI PUR. (APPELLANT) ( RESPONDENT) (PAN: AAICS 5008 H) C.O.NO.105/KOL/2014 (A/O I.T.A NO.2317/KOL/2013 ASSESSMENT YEAR: 2009 - 10 M/S. SITALAMATA RICE MILL PVT.LTD. VS. A.C.I.T., CIRCLE - 2, PASCHIM MEDINIPUR MEDINIPUR ( CROSS OBJECTOR ) ( RESPONDENT) (PAN: AAICS 5008 H) FOR THE DEPARTMENT : SHRI M.M.GHOSH, JCIT FOR THE ASSESSEE : SHRI SOMNATH GHOSH, ADVOCATE DATE OF HEARING : 18 .12 .2014 . DATE OF PRONOUNCEMENT: 01/01/2015. ORDER PER SHRI SHAMIM YAHYA, AM : THIS APPEAL BY THE REVENUE AND CROS S OBJECTI ON BY THE ASSESSEE EMANATE OUT OF THE ORDER OF CIT(A) - XXXVI, KOLKATA DATED 19.06.2013 AND PERTAIN TO ASSESSMENT YEAR 2009 - 10. 2. IN THE REVENUE S APPEAL THE ISSUE RAISED IS THAT THE LD. CIT(A) ERRED IN REDUCING THE RATE OF GROSS PROFIT FROM 2 0.89% ADOPTED IN ASSESSMENT, TO 8.15% OF TURNOVER. 3. THE ISSUE RAISED IN THE CROSS OBJECTION IS THAT THE LD. CIT(A)ERRED IN UPHOLDING THE ESTIMATE ON ACCOUNT OF GROSS PROFIT TO THE EXTENT OF 10% . ITA NO. 2317/K/2013 & C.O.105/ KOL/2013 M/S. SITALAMATA RICE MILL PVT.LTD. A.YR. 2009 - 10 2 4 . THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE WAS A PRIVATE LIMITED COMPANY WHICH WAS ENGAGED IN THE BUSINESS OF RICE MILLING. THE IMPUGNED ASSESSMENT WAS FRAMED U/S 144 OF THE ACT. THE AO IN THE SAID ASSESSMENT MADE AN ADDITION OF RS.4,40,94,444/ - ALLEGING LOWER RATE OF GROSS PROFIT SHOWN IN THE ASSESSME NT YEAR UNDER DISPUTE. THE ASSESSEE S TURNOVER IN THE ASSESSMENT YEAR UNDER DISPUTE WAS TO THE TUNE OF RS.34,63,55,301/ - AND GROSS PROFIT @8.15% ON SUCH TURNOVER WAS SHOWN AT RS.2,82,59,178/ - . CONSIDERING THE RATE OF G.P. OF IMMEDIATELY PRECEDING ASSESSM ENT YEAR 2008 - 09, THE AO RESORTED TO AN ESTIMATED RATE OF GROSS PROFIT @ 20.89% ON THE TURNOVER SHOWN BY THE ASSESSEE AND ARRIVED AT THE QUANTUM OF GROSS PROFIT IN THE SUM OF RS.7,23,53,622/ - WHICH HAS RESULTED IN AN ADDITION OF THE DIFFERENCE IN THE SUM O F RS.4,40,94,444/ - [RS.7,23,53,622 RS.2,82,59,178]. 4 .1. THE REASON FOR FRAMING THE ASSESSMENT U/S 144 OF THE IT ACT IS THAT BOOKS OF ACCOUNTS WERE NOT MADE AVAILABLE BY THE ASSESSEE. IN THIS REGARD THE AO NOTED THAT THE PRESENT ACTIVITY OF THIS COMPANY HAD CEASED DUE TO TAKING OVER OF THE POSSESSION OF THE UNIT BY THE LENDING COMPANY I.E. PUNJAB NATIONAL BANK, MEDINIPUR BRANCH AND THE UNIT REMAINED UNDER CLOSURE. AO FURTHER NOTED THAT NO BOOKS OF ACCOUNT CAN BE EXAMINED EVEN BY ISSUING SUMMONS U/S 131 O F THE ACT TO THE LENDING BANK. AO NOTED THAT NO BOOKS OF ACCOUNTS WERE MADE AVAILABLE BY THEM. 4 .2. AGAINST THE ABOVE ORDER THE ASSESSEE APPEALED BEFORE THE LD. CIT(A). THE ASSESSEE MADE ELABORATE SUBMISSIONS BEFORE THE LD. CIT(A). CONSIDERING THE ASSESSE E S SUBMISSIONS THE LD. CIT(A) HELD AS UNDER : - THE ARGUMENTS CANVASSED ON BEHALF OF THE APPELLANT HAVE BEEN CONSIDERED CAREFULLY IN LIGHT OF THE MATERIALS ADDUCED ON RECORD. IT IS OBSERVED THAT THE APPELLANT BECAME DEFUNCT SINCE 2010 FOR ITS INABILITY TO REPAY THE BANK LOAN, THE FACTORY AND OFFICE PREMISES OF THE COMPANY AND THE ENTIRE ASSETS THEREIN HAD BEEN SEIZED AND REMAINED UNDER THE POSSESSION OF LENDING BANK, PUNJAB NATIONAL BANK, MIDNAPORE. IT HAS BEEN CONTENDED THAT NO NOTICE U/S 143(2) WAS ISSU ED OR SERVED ON THE APPELLANT. PRIMA FACIE, IT APPEARS THAT THE SUBMISSION OF THE A/R IS FORCEFUL. FURTHER, IT IS OBSERVED THAT NO NOTICE U/S 142(1) OR EVEN ASSESSMENT ORDER PASSED U/S 144 OF THE ACT FOR THE ASSESSMENT YEAR UNDER DISPUTE COULD BE RECEIVED BY THE APPELLANT. FROM THE ASSESSMENT ORDER ITSELF IT IS EVIDENT THAT EVEN BY ISSUING SUMMONS U/S131 OF THE ACT TO THE SAID LENDING BANK, NO BOOKS OF ACCOUNT OF THE APPELLANT WAS PRODUCED BEFORE THE AO. THEREAFTER, THE AO DID NOT PURSUE THE MATTER FURTHER. IN SUCH CIRCUMSTANCES, THERE WAS HARDLY ANY SCOPE FOR THE AO TO VERIFY THE BOOKS OF ACCOUNT AND OTHER CONSEQUENTIAL INFORMATION/DETAILS TO ITA NO. 2317/K/2013 & C.O.105/ KOL/2013 M/S. SITALAMATA RICE MILL PVT.LTD. A.YR. 2009 - 10 3 EXAMINE THE FALL IN RATE OF G.P. IT THUS GOES TO ESTABLISH THAT THE AO RESORTED TO AN ESTIMATE WITHOUT ESTABLISHING ANY RATIONALE TO DETERMINE THE RATE OF G.P. FOR THE ASSESSMENT YEAR UNDER DISPUTE. 7.1. ON PERUSAL OF THE ASSESSMENT ORDER IT IS SEEN THAT THE AO DID NOT DISPUTE THE TURNOVER SHOWN BY THE APPELLANT OR THE OTHER INCIDENTAL EXPENDITURE INCURRED FOR EFFECTIN G SUCH TURNOVER TO THE EXTENT OF RS.34,63,55,301/ - . THEREFORE, IT CAN BE SAID THAT THE TURNOVER AND EXPENDITURE INCURRED DURING THE ASSESSMENT YEAR UNDER DISPUTE WERE NOT DOUBTED BY THE AO. HIS ONLY GRIEVANCE WAS THAT THE RATE OF G.P. IN THE CONCERNED ASSE SSMENT YEAR WAS LOW IN COMPARISON TO THE IMMEDIATELY EARLIER ASSESSMENT YEAR. HE HAS NOT EVEN DISCUSSED ANYTHING IN THE ASSESSMENT ORDER OR GIVEN ANY ACCEPTABLE REASON FOR ADOPTING THE G.P.RATE OF EARLIER YEAR AND APPLICATION OF THE SAME IN THE IMPUGNED AS SESSMENT YEAR WHEN ADMITTEDLY THE AO DID NOT DISPUTE THE FACTUAL POSITION AS EXPLAINED BY THE APPELLANT. IN FACT, THE SITUATION PREVALENT IN THE ASSESSMENT YEAR 2008 - 09 IS THOROUGHLY DISTINGUISHABLE AS THE TURNOVER IN THE IMPUGNED ASSESSMENT YEAR IS 2.5 TI MES MORE THAN THAT RECORDED IN THAT YEAR. FURTHER, IT IS AN ACCEPTED PROPOSITION THAT WHERE TURNOVER IS ENHANCED, GROSS PROFIT HAS TO BE SACRIFICED TO AN EXTENT. THE TURNOVER FOR THE ASSESSMENT YEAR UNDER DISPUTE WAS TO THE TUNE OF RS.34,63,55,301/ - , WHICH WAS MORE THAN 2.5 TIMES IN COMPARISON TO EARLIER YEAR S FIGURE OF ONLY RS.13,02,12,946/ - AND THE QUANTUM OF GROSS PROFIT ROSE TO RS.2,82,59,178/ - DURING THE YEAR UNDER CONSIDERATION IN COMPARISON TO EARLIER YEAR S G.P. IN THE SUM OF RS.2,72,08,542/ - . THER EFORE, APPLYING SUCH PROPOSITION TO THE FACTS OF THE INSTANT CASE, THE FALL IN G.P. RATE SEEMS TO BE IN TUNE WITH THE CIRCUMSTANCES. FURTHER, THERE IS NO OTHER COMPARABLE CASE BROUGHT ON RECORD BY THE AO TO JUSTIFY HIS ESTIMATE. THEREFORE, IT EMERGES THAT WHEN THE TURNOVER IS NOT DISPUTED AND EXPENSES INCURRED FOR ACHIEVING SUCH TURNOVER ARE ALSO NOT DISPUTED, THEN THE GROSS PROFIT DECLARED BY THE APPELLANT ON SUCH TURNOVER CAN NEVER BE DOUBTED. ESTIMATE OF G.P. MADE BY THE AO SHOULD BE ON PLAUSIBLE REASONS BACKED BY EVIDENCE, WHICH IS GLARINGLY MISSING IN THE INSTANT CASE. HOWEVER, IN SUCH CIRCUMSTANCES, ALTHOUGH THE SUBMISSION OF THE A/R IS PLAUSIBLE ABOUT LOW RATE OF G.P. IN THE IMPUGNED ASSESSMENT YEAR IN COMPARISON TO IMMEDIATELY EARLIER ASSESSMENT YEAR , BUT THE UNDISPUTED FACTS REMAIN THAT THE BOOKS OF ACCOUNTS WERE NOT AVAILABLE TO THE AO AND THE ITEMS OF EXPENDITURE COULD NOT BE VERIFIED. THE ENTIRE THING IS BASED ON ESTIMATE. IT IS WELL - SETTLED IN THE CASE OF KACHWALA GEMS VS JCIT (2006) 288 ITR 10 ( SC) THAT IN A BEST JUDGMENT ASSESSMENT, THERE IS ALWAYS A CERTAIN DEGREE OF GUESS WORK. NO DOUBT, THE AUTHORITIES CONCERNED SHOULD TRY TO MAKE AN HONEST AND FAIR ESTIMATE OF THE INCOME EVEN IN A BEST JUDGMENT ASSESSMENT, AND SHOULD NOT ACT TOTALLY ARBITRAR ILY. AS STATED ABOVE, IN THE INSTANT CASE, I FIND NO BASIS FOR THE ESTIMATE AS MADE BY THE AO. IN FACT, THE ESTIMATE IS THOROUGHLY CAPRICIOUS. THE ADDITION OF INCOME BY WAY OF GROSS PROFIT IS NOT A CONCOMITANT OF THE REJECTION OF BOOKS OF ACCOUNT. THEREFOR E, CONSIDERING THE AFFAIRS OF THE INSTANT CASE, HUGE TURNOVER AND HIGHER QUANTUM OF GROSS PROFIT IN COMPARISON TO EARLIER ASSESSMENT YEAR, IN MY CONSIDERED OPINION, IT WOULD MEET THE ENDS OF JUSTICE IF THE RATE OF G.P. FOR THE ASSESSMENT YEAR UNDER DISPUTE ON THE TURNOVER SHOWN AND ACCEPTED BY THE AO IS TAKEN @10%. I, THEREFORE, DIRECT THE AO TO TAKE G.P. @10% ON THE ADMITTED TURNOVER INSTEAD AND PLACE OF 8.15% DISCLOSED BY THE APPELLANT AND DETERMINE THE INCOME ACCORDINGLY. AGAINST THE ABOVE ORDER THE RE VENUE AND THE ASSESSEE ARE IN APPEAL BEFORE US. ITA NO. 2317/K/2013 & C.O.105/ KOL/2013 M/S. SITALAMATA RICE MILL PVT.LTD. A.YR. 2009 - 10 4 5 . THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD NOT BEEN ABLE TO PRODUCE BOOKS OF ACCOUNT AS THE PRESENT ACTIVITY OF THE COMPANY HAD BEEN CEASED DUE TO TAKING OVER OF THE POSSESSION OF THE UNIT BY THE LENDING INSTITUTION I.E. PUNJAB NATIONAL BANK, MEDINIPUR BRANCH AND THE UNIT REMAINED UNDER CLOSURE. THE LD. COUNSEL SUBMITTED THAT THIS FACT HAS BEEN DULY NOTED BY THE AO IN THE ASSESSMENT ORDER. THE LD. COUNSEL SUBMITTED THAT WHEN THE ENTIRE UNIT IS UNDER POSSESSION OF THE LENDING INSTITUTION INCLUDING THE BOOKS OF ACCOUNT THERETO THE ASSESSEE WAS NOT AT ALL IN A POSITION TO PRODUCE BOOKS OF ACCOUNTS AS REQUIRED BY THE AO. THE LD. COUNSEL FURTHER SUBMITTED THAT AO HAS HIMSELF NOTED THAT AO HA S ISSUED SUMMONS U/S 131 TO THE LENDING BANK AND STILL NO BOOKS OF ACCOUNT CAN BE MADE AVAILABLE BY THEM. IN THIS VIEW OF THE MATTER THE LD. COUNSEL PLEADED THAT PRODUCTION OF BOOKS OF ACCOUNT BY THE ASSESSEE BEFORE THE AO WAS BEYOND THE CONTROL OF THE ASS ESSEE. HENCE AO CANNOT DRAW ADVERSE INFERE NCE AGAINST THE ASSESSEE AND MAK E HIGHER A SSESSMENT WHICH IS MORE THAN 250 % OF THE DECLARED AMOUNT. THE LD. COUNSEL SUBMITTED THAT THE ASSESSEE S RETURN AND PROFIT DISCLOSED WAS DULY SUPPORTED BY AUDITORS REPORT. T HE ASSESSEE HAD DULY MAINTAINED BOOKS OF ACCOUNTS. SUCH BOOKS OF ACCOUNTS WERE DULY AUDITED BOTH UNDER THE PROVISION OF SECTION 227 (4A) OF THE COMPANIES ACT, 1956 AS WELL AS UNDER THE PROVISIONS OF SECTION 44AB OF THE I.T.ACT AND THERE WERE NO ADVERSE REM ARKS BY THE AUDITORS. COMPLETE QUANTITATIVE TALLY WAS PROVIDED IN ACCOUNTS AS WELL AS TAX AUDIT REPORT. IN THAT SITUATION THE LD.COUNSEL PLEADED THAT THERE WAS NO REASON FOR THE AO TO DOUBT THE VERACITY OF THE BOOK RESULTS DECLARED BY THE ASSESSEE. IN THIS REGARD THE LD. COUNSEL OF THE ASSESSEE PLACED RELIANCE UPON THE DECISION OF THE HON BLE DELHI HIGH COURT IN THE CASE OF ADDL.CIT VS JAY ENGINEERING WORKS LTD. 113 ITR 389 (DEL) AND THE TRIBUNAL S DECISION IN THE CASE OF EAGLE SYNTHETICS (P) LTD. VS ITO 8 ITR(TRIB.)211 (AHD) THE LD. COUNSEL FURTHER SUBMITTED THAT THE ASSESSEE HAS DULY EXPLAINED THE REASON OF IT FALL IN GROSS PROFIT TO THE AO AND HAS ALSO SUBMITTED COMPARATIVE RECONCILIATION. THE LD. COUNSEL SUBMITTED THAT THE FALL IN THE GROSS PROFIT BEING PRIMARILY DUE TO THE INCREASE IN THE COST OF RAW MATERIAL AND ITS CONSUMPTION WHICH HAD RISEN TO THE EXTENT OF 14.24%. IN THIS REGARD THE LD. COUNSEL DREW OUR ATTENTION TO THE COMPARATIVE STUDY WITH THE PRECEDING ASSESSMENT YEAR FILED BEFORE THE AO AT PAGE 10 OF THE PAPER BOOK PRODUCED BEFORE US. THE LD. COUNSEL FURTHER ITA NO. 2317/K/2013 & C.O.105/ KOL/2013 M/S. SITALAMATA RICE MILL PVT.LTD. A.YR. 2009 - 10 5 SUBMITTED THAT THE ASSESSE WAS OPERATING IN A VERY COMPETITIVE MARKET. THE ASSESSEE HAD TO RESORT TO UNDER CUTTING IN THE SALE PRICE AS A RESULT OF WHICH THE TURN OVER OF THE COMPANY DURING THE PRECEDING YEAR WHICH WAS ONLY RS.13,02,12,946/ - INCREASED TO RS.34,63,55,301/ - IN THE PRESENT ASSESSMENT YEAR. THE LD. COUNSEL SUBMITTED THAT IT WAS DUE TO SUCH EFFORT BY THE ASSESSEE THAT G ROSS PROFIT IN ABSOLUTE TERMS INCREASED BY RS.10,50,636/ - FRO M THE PRECEDING ASSESSMENT YEARS. THE LD. COUNSEL FURTHER SUBMITTED THAT DESPITE THE BEST EFFORTS OF THE ASSESSEE COMPANY IT STILL COULD NOT REPAY THE BANK LO AN AND BECA ME DEFUNCT. SINCE 2010 THE OFFICE PREMISES AND THE FAC TORY OF THE COMPANY AND THE ASSET S THEREIN WERE SEIZED AND REMAINED IN THE POSSESSION OF THE LENDING BANK. THE LD. ,COUNSEL FURTHER SUBMITTED THAT THE AO HAS MADE THE ADDITION WITHOUT BRINGING ON RECORD ANY COGENT EVIDENCE REGARDING THE LEVEL OF PROFIT PREVAILING IN THE INDUSTRY IN WHICH THE ASSESSEE WAS OPERATING. IN THIS REGARD THE LD. COUNSEL SUBMITTED BEFORE US THE DIAGNOSTIC STUDY REPORT OF RICE MILLING INDUSTRY DEVELOPED UNDER CLUSTER DEVELOPMENT PROGRAMME, GOVT. OF INDIA, MINISTRY OF SMALL SCALE INDUSTRY DATED 16.12.2003. IN THIS R EPORT OF THE VALUE ANALYSIS OF RICE MILLING UNIT , THE GROSS PROFIT WAS ESTIMATED AT 7.5%. THE LD. COUNSEL FURTHER REFERRED TO THE DECISION OF HON BLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF FATHUDHINGA RICE MILLS VS CIT 307 ITR 343. THE LD. COUNSEL S UBMITTED THAT THIS CASE WAS ALSO WITH REFERENCE TO THE CASE OF RICE MILL . THE LD. COUNSEL SUBMITTED THAT IN THIS CASE THE ASSESSEE HAS CLAIMED GROSS PROFIT RATE AT 2.80% BUT ON THE PREMISE THAT BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE DI D NOT CORRECTLY REFLECT THE TRANSACTIONS OF BUSINESS, T HE GROSS PROFIT WAS ESTIMATED AT 4.28% BY THE REVENUE AND THE SAME WAS UPHELD BY THE TRIBUNAL AND THE HON BLE PUNJAB AND HARYANA HIGH COURT . B Y WAY OF THIS EXAMPLE THE LD COUNSEL PLEADED THAT THE ASSESSEE IS ALSO R UNNING A RICE MILL AND THE PROFIT DECLARED BY IT COMPARES FAVOURABLY IN COMPARISON WITH THE UNITS IN THE INDUSTRY AND AS SUCH HE SUBMITTED THAT THE GROSS PR OFIT DECLARED BY THE ASSESSEE AT 8.15% SHOULD BE CONFIRMED. 6 . THE LD. DR, ON THE OTHER HAND, RELI ED UPON THE ORDERS OF THE AO AND THE LD. CIT(A). ITA NO. 2317/K/2013 & C.O.105/ KOL/2013 M/S. SITALAMATA RICE MILL PVT.LTD. A.YR. 2009 - 10 6 7 . WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUSED THE RECORDS. FIRST OF ALL WE FIND THAT IN THE GROUNDS RAISED THE REVENUE HAS AGITATED THE LD. CIT(A) HAS ERRED IN REDUCING THE GROSS PROFIT FROM 2 0.89% TO ADOPTED IN ASSESSMENT TO 8.15% . WE FIND THAT THIS IS FACTUALLY INCORRECT. IT IS THE ASSESSEE WHICH HAS DISCLOSED THE TURN OVER OF GROSS PROFIT AT 8.15% AND THE LD. CIT(A) HAD REDUCED THE ESTIMATE OF GROSS PROFIT FROM 20.89% ADOPTED BY THE AO TO 1 0%. 7 .1. NOW WE ARE ADJUDICATING THE ISSUES. WE NOTE THAT THE ASSESSEE IS RUNNING A RICE MILL. THE ASSESSEE HAS DISCLOSED GROSS PROFIT OF 8.15%. THE ASSESSEE S RETURN AND PROFIT WAS DULY SUPPORTED BY AUDITORS REPORT. THE ACCOUNTS OF THE ASSESSEE WERE DULY AUDITED AND NO ADVERSE INFERENCE WAS DRAWN BY THE AUDITOR. THE BOOKS OF ACCOUNTS COULD NOT BE PRODUCED BEFORE THE AO AS THE ASSESSEE S UNIT HAD BEEN TAKEN OVER BY THE LENDING INSTITUTION . T HE ENTIRE UNIT INCLUDING ITS ASSETS AND THE BOOKS OF ACCOUNTS WERE IN THE POSSESSION OF THE BANK. THE AO WAS DULY AWARE OF THIS FACT. THE AO HAS ALSO ISSUED NOTICE U/S 131 OF THE ACT TO THE LENDING BANK BUT DESPITE THAT THEY HAVE NOT PRODUCED THE NECESSARY BOOKS OF ACCOUNTS. IN SUCH A SITUATION IN OUR CONSIDERED OPINION ADVERSE INFERENCE CANNOT BE DRAWN AGAINST THE ASSESSEE ON THE GROUND THAT BOOKS OF ACCOUNTS WERE NOT PRODUCED BY THE ASSESSEE. AS APPARENT FROM THE UNDISPUTED FACT S NARRATED ABOVE THE ASSESSEE C OULD NOT HAVE BEEN ASKED TO PERFORM AN IMPOSSIBLE TASK . W HEN T HE ASSESSEE S BOOKS OF ACCOUNTS WERE IN THE POSSESSION OF THE LENDING BANK AND THE SAID BANK HAD NOT PRODUCED THIS BOOKS OF ACCOUNTS TO THE AO DESPITE THE AO ISSUING NOTICE U/S 131 THE ASSESSEE COULD NOT BE SAID TO HAVE FAILED TO PRODUCE THE BOOKS OF ACCOU NTS. IN SUCH A SITUATION WE NOTE THAT THE DECISION OF THE HON BLE DELHI HIGH COURT IN THE CASE OF ADDL.CIT VS JAY ENGINEERING WORKS LTD. SUPRA IS GERMANE. IN THE SAID CASE THE BOOKS OF ACCOUNTS OF THE ASSESSEE COMPANY WERE DESTROYED IN FIRE. THE ISSUE ARO SE AS TO WHETHER AUDITED ACCOUNTS AND THE AUDITORS REPORT WOULD BE TAKEN AS SUPPORTIVE OF THE RESULTS DECLARED BY THE ASSESSEE. THE HON BLE HIGH COURT ANSWERED THE ISSUE IN FAVOUR OF THE ASSESSEE. WE MAY GAINFULLY REFER TO THE RELEVANT PORTION IN THE SAID ORDER IN THE HEAD NOTES AS UNDER : - THE ITO AND CERTAIN OTHER AUTHORITY FUNCTIONING UNDER THE ACT HAVE A DUAL CHARACTER: THEY ARE BOTH AGENCIES OF INVESTIGATION MADE INTO THE INCOMES OF ASSESSEES AND THEY ARE ALSO QUASI - JUDICIAL AUTHORITIES ASSESSING THE LIABILITIES OF THE ASSESSEES TO PAYMENT OF ITA NO. 2317/K/2013 & C.O.105/ KOL/2013 M/S. SITALAMATA RICE MILL PVT.LTD. A.YR. 2009 - 10 7 INCOME - TAX. UNDER SECTION 142(2), THE ITO MAY MAKE SUCH ENQUIRY AS HE CONSIDERS NECESSARY FOR THE PURPOSE OF OBTAINING FULL INFORMATION IN RESPECT OF THE INCOME OR LOSS OF AN ASSESSEE. UNDER SECTION 143(3), THE IT O DO ES NOT ONLY HEAR SUCH EVIDENCE AS THE ASSESSEE MAY PRODUCE OR AS HE MAY REQUIRE TO BE PRODUCED, BUT ALSO TAKES INTO CONSIDERATION ALL RELEVANT MATERIAL WHICH HE HAS GATHERED FOR THE PURPOSE OF MAKING AN ASSESSMENT. WHILE THE WORD EVIDENCE MAY RECAL L THE ORAL AND DOCUMENTARY EVIDENCE AS MAY BE ADMISSIBLE UNDER THE INDIAN EVIDENCE ACT, THE USE OF THE WORD MATERIAL SHOWS THAT THE ITO NOT BEING A COURT CAN RELY UPON MATERIAL WHICH MAY NOT BE STRICTLY EVIDENCE ADMISSIBLE UNDER THE INDIAN EVIDENCE ACT F OR THE PURPOSE OF MAKING AN ORDER OF ASSESSMENT. THE COURTS OFTEN TAKE JUDICIAL NOTICE OF CERTAIN FACTS WHICH NEED NOT BE PROVED, WHILE ADMINISTRATIVE AND QUASI - JUDICIAL AUTHORITIES CAN TAKE OFFICIAL NOTICE OF WIDER VARIETIES OF FACTS WHICH NEED NOT BE P ROVED BEFORE THEM. THUS, NOT ONLY IN RESPECT OF THE RELEVANCY BUT ALSO IN RESPECT OF PROOF THE MATERIAL WHICH CAN BE TAKEN INTO CONSIDERATION BY THE ITO AND OTHER AUTHORITIES UNDER THE ACT IS FAR WIDER THAN THE EVIDENCE WHICH IS STRICTLY RELEVANT AND ADMIS SIBLE UNDER THE EVIDENCE ACT. UNDER SECTION 34 OF THE INDIAN EVIDENCE ACT, ACCOUNT BOOKS MAINTAINED IN THE REGULAR COURSE OF BUSINESS ARE EVIDENCE AFTER THE RELEVANT ENTRIES ARE PROVED BY ORAL EVIDENCE OR ARE ADMITTED. THE ITO, HOWEVER, HAVE TO DEAL WITH S UCH NUMEROUS CASES OF ASSESSMENT THAT THEY CAN ACCEPT AS CORRECT BOOKS OF ACCOUNT MAINTAINED IN REGULAR COURSE OF BUSINESS WITHOUT SUCH A FORMAL PROOF. IN THE INSTANT CASE, THE RELEVANT BOOKS OF ACCOUNT IN WHICH DETAILED INFORMATION AS TO THE EXPENSES WHI CH WERE CLAIMED AS DEDUCTIONS FOR THE ASSESSMENT YEARS 1962 - 63 AND 1963 - 64 WERE DESTROYED BY FIRE. UNDER THE INDIAN EVIDENCE ACT SECONDARY EVIDENCE OF THE CONTENTS OF THESE ACCOUNT BOOKS WOULD HAVE TO BE ADDUCED IF THEY WERE TO BE USED TO PROVE ANY FACT. T HE EXTERNAL AUDITORS OF THE ASSESSEE COMPANIES HAD, HOWEVER, MADE THEIR ANNUAL REPORTS UNDER SECTION 227(2) OF THE COMPANIES ACT, 1956, TO THE MEMBERS OF THE COMPANY ON THE ACCOUNTS EXAMINED BY THEM AND ON THE BALANCE - SHEETS AND PROFIT AND LOSS ACCOUNTS FO R THOSE TWO YEARS. THOSE REPORTS DID NOT DOUBT THE CORRECTNESS OF THE EXPENSES, DEDUCTIONS OF WHICH WERE CLAIMED BY THE ASSESSEES. UNLIKE THE PROOF REQUIRED OF SUCH REPORTS AS ALSO OF THE ACCOUNT BOOKS UNDER THE INDIAN EVIDENCE ACT, IT IS QUITE COMPETENT F OR THE INCOME - TAX AUTHORITIES NOT ONLY TO ACCEPT THE AUDITORS REPORT, BUT ALSO TO DRAW THE PROPER INFERENCE FROM THE SAME. THE INCOME - TAX AUTHORITIES COULD, THEREFORE, COME TO THE CONCLUSION THAT SINCE THE AUDITORS WERE REQUIRED BY THE STATUTE TO FIND OUT IF THE DEDUCTIONS CLAIMED BY THE ASSESSEES IN THEIR BALANCE - SHEETS AND PROFIT AND LOSS ACCOUNTS WERE SUPPORTED BY THE RELEVANT ENTRIES IN THEIR ACCOUNT BOOKS, THE AUDITORS MUST HAVE DONE SO AND MUST HAVE FOUND THAT THE ACCOUNT BOOKS SUPPORTED THE CLAIMS F OR DEDUCTIONS, WHEN THE DEDUCTIONS WERE DISALLOWED, BY THE ITO ON THE GROUND THAT DETAILED INFORMATION REGARDING THEM WAS NOT AVAILABLE, JUSTICE WAS NOT DONE TO THE ASSESSEES. IT WAS NOT POSSIBLE FOR THE ASSESSEES TO PRODUCE THE ORIGINAL ACCOUNT BOOKS, WHI CH WERE DESTROYED IN FIRE. THERE WAS, HOWEVER, OTHER MATERIAL MAINLY CONSISTING OF THE AUDITORS REPORTS FROM WHICH IT COULD BE INFERRED THAT THE DEDUCTIONS WERE PROPERLY SUPPORTED BY THE RELEVANT ENTRIES IN THE ACCOUNT BOOKS. IN A SENSE IT MAY BE A QUEST ION OF LAW AS TO WHAT THE MEANING OF MATERIAL IS AND WHETHER THE AUDITORS REPORTS WERE MATERIAL. BUT THE QUESTION OF LAW IS WELL SETTLED AND IS NOT CAPABLE OF BEING DISPUTED AND DOES NOT, THEREFORE, CALL FOR REFERENCE. THE TRIBUNAL HAD STATED THAT, THOUG H, ORDINARILY, THE ADJUSTMENTS RELATING TO EXPENSES SHOULD HAVE BEEN MADE BY THE ASSESSEES IN THE ACCOUNTS OF THE YEAR TO WHICH THE ADJUSTMENTS RELATE AND NOT IN A SUBSEQUENT YEAR, IT IS OFTEN INEVITABLE THAT SUCH ADJUSTMENTS RELATING TO EARLIER YEARS HAVE TO BE MADE IN SUBSEQUENT YEARS. THIS IS SPECIALLY SO, WHEN THE BUSINESS, AS OF THE ASSESSEES, IS OF GIANT PROPORTIONS AND THE ITA NO. 2317/K/2013 & C.O.105/ KOL/2013 M/S. SITALAMATA RICE MILL PVT.LTD. A.YR. 2009 - 10 8 BRANCHES ARE FURFLUNG. THE TRIBUNAL HAD ALSO VERY PROPERLY RELIED UPON THE AUDITORS REPORTS TO DRAW THE PROPER INFEREN CE FROM THE SAME. SINCE THE EVIDENCE IN INCOME - TAX PROCEEDINGS NEED NOT CONSIST NECESSARILY OF EVIDENCE ADMISSIBLE UNDER THE EVIDENCE ACT BUT MAY CONSIST OF OTHER MATERIAL WHICH HAS A PROBATIVE VALUE, THE TRIBUNAL WAS JUSTIFIED IN TAKING SUCH MATERIAL INTO ACCOUNT. I T COULD NOT, THEREFORE, BE SAID THAT THE DECISION OF THE TRIBUNAL WAS NOT BASED ON ANY EVIDENCE. ON THE CONTRARY, IT WAS BASED ON EVIDENCE MEANING THEREBY THAT IT WAS BASED ON RELEVANT MATERIAL WHICH CAN BE CONSIDERED IN THE INCOME - TAX PROCEEDINGS. THE APP EAL WAS DISMISSED, ACCORDINGLY. SIMILAR VI EW WAS EXPRESSED BY THE TRIBUNAL IN THE CASE OF EAGLE SYNTHETICS (P)LTD (SUPRA). IN THIS CASE IT WAS HELD THAT IN CASE OF LOSS OF BOOKS OF ACCOUNTS DUE TO FLOOD, ASSESSMENT HAS TO BE FRAMED ON THE BASIS OF AUDITE D FINANCIAL STATEMENTS AND IN ABSENCE OF ANY ADVERSE REPORTING IN THOSE STATEMENTS, IMPUGNED ADDITION MADE ON ACCOUNT OF FALL IN GROSS PROFIT RATIO WAS TO BE DELETED. 7 .2. WHEN WE EXAMINE THE PRESENT CASE ON THE TOUCH STONE OF THE ABOVE DECISIONS WE FIND THAT ANALOGY CAN BE DRAWN IN THIS CASE. IN THIS CASE ALSO NON PRODUCTION OF BOOKS OF ACCOUNTS WAS NOT DUE TO ANY FAULT OF THE ASSESSEE. IN SUCH SITUATION WHEN BOOKS OF ACCOUNTS ARE NOT AVAILABLE AS HE LD BY THE HON BLE DELHI COURT ABOVE THE EVIDENCE IN THE SHAPE OF AUDITORS REPORT CAN BE RELIED UPON BY THE INCOME TAX AUTHORITIES. IT HAS ALREADY BEEN FOUND ABOVE THAT IT WAS NOT POSSIBLE FOR THE ASSESSEE TO PRODUCE THE BOOKS OF ACC OUNTS SINCE THE SAME WAS IN POSSESSION OF THE LENDING BANK WHO DID NOT PRODUC E THE SAME BEFORE THE AO DESPITE NOTICE U/S 131 ISSUED. FROM THE OTHER MATERIAL WHICH WERE SUPPORTED BY THE AUDITORS REPORT FROM WHICH IT CAN BE INFERRED THAT GROSS PROFIT DECLARED BY THE ASSESSEE WAS SUPPORTED BY THE ENTRIES IN THE BOOKS OF ACCOUNTS AND T HE CONCERNED PAPERS. HENCE IN VIEW OF THE ABOVE PRECEDENTS ALSO WE FIND THAT DISREGARD OF TH E ASSESSEE S AUDITED ACCOUNTS IS NOT JUSTIFIED AND SUCH A HIGH PITCHED ASSESSMENT IN COMPLETE DISREGARD OF GROSS PROFIT DI SCLOSED IN THE AUDITED ACCOUNTS IS NOT SU STAINABLE. 7 .3. NOW WHEN THE BOOKS OF ACCOUNTS ARE NOT AVAILABLE AND ESTIMATING THE GROSS PROFIT IS TO BE RESORTED TO THE SITUATION PREVAILING IN THE INDUSTRY HAS TO BE TAKEN IN ACCOUNT. IT HAS BEEN BROUGHT OUT BY THE LD. COUNSEL OF THE ASSESSEE THAT IN T HE REPORT OF GOVT. OF INDIA, MINISTRY OF SMALL SCALE INDUS TRY IN THE RICE MILL INDUSTRY THE AVERAGE ITA NO. 2317/K/2013 & C.O.105/ KOL/2013 M/S. SITALAMATA RICE MILL PVT.LTD. A.YR. 2009 - 10 9 GROSS PROFIT ON SALES WAS CONSIDERED AT 7.5%. SIMILARLY IN THE CASE OF FATHUD H INGA RICE MILLS (SUPRA) HON BLE PUNJAB & HARYANA HIGH COURT HAS AFFIRMED THE GROSS PROFIT OF 4.2%. IN THIS VIEW OF THE MATTER ALSO THE PROFIT DECLARED BY THE ASSESSEE CANNOT BE SAID TO BE LOWER THAN PREVAILING IN THE INDUSTRY. NOW WE COME TO THE FACT THAT THE ASSESSEE HAS DISCLOSED HIGHER GROSS PROFIT IN THE PRECEDING ASSESSMENT Y EAR. IN THIS REGARD IT IS THE SUBMISSION OF THE ASSESSEE S COUNSEL WHICH WAS ALSO BROUGHT BEFORE THE AUTHORITIES BELOW THAT THERE WAS INCREASE IN THE COST OF RAW MATERIAL WHICH WAS TO THE EXTENT OF 14.25%. THE ASSESSEE HAS DULY SUBMITTED A COMPARATIVE STU DY OF PERFORMANCE IN THE CURRENT AND PRECEDING ASSESSMENT YEAR BEFORE THE AO. IT IS A SUBMISSION OF THE ASSESSEE THAT BECAUSE OF THE HUGELY COMPETITIVE MARKET THE ASSESSEE HAD TO RESORT TO UNDER CUTTING IN SALE PRICE AS A RESULT OF THIS THE ASSESSEE WAS A B LE TO INCREASE THE TURN OVER FRO M RS.13,02,13,946/ - IN THE PRECEDING ASSESSMENT YEAR TO RS.34,63,55,301/ - IN THE CURRENT ASSESSMENT YEAR. THE GROSS PROFIT IN ABSOLUTE TERMS HAD INCREASED TO RS.2 , 56 , 14 ,905 FROM RS. 2 , 41 , 92,857 AND THE NET PROFIT IN ABSOLUT E TERMS HAD INCREASED FROM RS.1,76,60,614 TO RS. 2,04,11,863. THUS BY LOWERING ITS RATE T HE ASSESSEE WAS ABLE TO SUBSTANTIALLY INCREASE THE TURN OVER WHICH ALSO RESUL TED IN INCREASE IN GROSS PROFIT. IN THIS VIEW OF THE MATTER ALSO THE GROSS PROFIT DISCLOSED BY THE ASSESSEE CANNOT BE SAID TO BE UNACCEPTABLE . IN THIS REGARD IT IS ALSO TO BE NOTED THAT DESPITE ITS EFFORTS THE ASSESSEE COULD NOT REPAY ITS LENDERS AND ULTIMATELY HAD BECOME DEFUNCT AND THE UNIT WAS TAKEN OVER BY THE BANK. IN THE BACKGROUND AND AFO RESAID DISCUSSION IN OUR CONSIDERED OPINION THE ESTIMATION OF GROSS PROFIT BY THE AO @ 20.89% OF THE TURN OVER WAS NOT AT ALL JUSTIFIED. HENCE THE LD. CIT(A) S REJECTION OF THE ASSESSMENT MADE BY THE AO IS FULLY JUSTIFIED. 7 .4. NOW AS REGARDS THE ESTIMA TION MADE BY THE LD. CIT(A) WHICH IS AT 10% WE FIND THAT THE LD. CIT(A) HAS ACCEPTED THE SUBMISSION OF THE ASSESSEE AND HAS FOUND THAT THERE IS NO BASIS FOR THE ESTIMATE MADE BY THE AO. HE HAS HELD THAT THE ESTIMATION IS HIGHLY CAPRICIOUS AND THE LD.CIT(A ) HAS HELD THAT IT WOULD MEET THE ENDS OF JUSTICE IF THE GROSS PROFIT FOR THE ASSESSMENT YEAR UNDER DISPUTE IS TAKEN AT 10%. IN THIS REGARD, IT IS THE PLEADING OF LD.COUNSEL OF THE ASSESSEE THAT THERE IS NO BASIS WHATSOEVER FOR THE LD. CIT(A) TO ADOPT GROS S PROFIT AT 10%. THE RESULTS DECLARED BY THE ASSESSEE ARE ITA NO. 2317/K/2013 & C.O.105/ KOL/2013 M/S. SITALAMATA RICE MILL PVT.LTD. A.YR. 2009 - 10 10 SUPPORTED BY AUDITED ACCOUNTS AND AUDITORS REPORT. THE PROFIT DECLARED IS COMPATIBLE WITH THE PREVAILING INDUSTRY NORMS. NON PRODUCTION OF BOOKS OF ACCOUNTS WAS BEYOND THE CONTROL OF THE AS SESSEE. T HE REASON FOR DECREASE IN GROSS PROFIT RATES HAS BEEN DULY EXPLAINED BY THE ASSESSEE. THERE HAS BEEN SUBSTANTIAL INCREASE IN THE PROFITS IN ABSOLUTE TERMS AS COMPARED TO PRECEDING ASSESSMENT YEAR. IN THIS VIEW OF THE MATTER IN OUR CONSIDERED OPINION THE RE SULT DECLARED BY THE ASSESSEE CAN BE ACCEPTED SUBJECT TO MINOR ADJUSTMENT . ACCORDINGLY WE HOLD THAT GROSS PRO FITS DECLARED BY THE ASSESSEE SHOULD BE TAKEN AT 8.50% WHICH WOULD MEET THE ENDS OF JUSTICE . THE LD.COUNSEL OF THE ASSESSEE FAIRLY ACCEPTED THIS P ROPOSITION. ACCORDINGLY THE APPEAL FILED BY THE REVENUE STAND DISMISSED AND THE CROSS OBJECTION FILED BY THE ASSESSEE STAND PARTLY ALLOWED. 9. IN THE RESULT THE APPEAL FILED BY THE REVENUE STAND DISMISSED AND THE CROSS OBJECTION FILED BY THE ASSESSEE STAN D PARTLY ALLOWED. ORDE R PRONOUNCED IN THE COURT ON 0 1/01/2015. SD/ - SD/ - [ MAHAVIR SINGH ] [SHAMIM YAHYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 01/01/2015. R.G.(.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . M/S. SITALAMATA RICE MILL PVT. LTD., DIRECTOR : SOMNATH GUIN, KHARAGP UR MALGUDAM, KHARAGPUR - 721 301, DIST.PASCHIM MEDINIPUR, W.B. 2 A.C.I.T , CIRCLE - 2 , MIDNAPORE. 3 . CIT(A) - XXXVI, KOLKATA 4. CIT - KOLKATA. 5. CIT - DR, KOLKATA BENCHES, KOLKATA TRUE COPY, BY ORDER, DEPUTY /ASST. REGISTRAR , ITAT, KOLKATA BENCHES ITA NO. 2317/K/2013 & C.O.105/ KOL/2013 M/S. SITALAMATA RICE MILL PVT.LTD. A.YR. 2009 - 10 11