Arihant Pumps Pvt. Ltd., Palanpur V. The ACIT, B.K.Circle, Palanpur

CO 21/AHD/2015

• Counselvise Citation: [2017] 123 COUNSELVISE.COM (IT) 3112 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 15 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 18-09-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 02-02-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Gross profit estimation; Rejection of books of accounts; Business income

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD , , BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER ./ I.T.A. NO.3341/AHD/2014 AND CROSS OBJECTION NO.21/AHD/2015 ( / ASSESSMENT YEAR : 2010-11) ACIT B.K. CIRCLE PALANPUR / VS. M/S.ARIHANT PUMPS PVT.LTD. DEESA HIGHWAY PALANPUR # ./ ./ PAN/GIR NO. : AABCA 6444 J ( #& / APPELLANT ) .. ( '#& / RESPONDENT & CROSS OBJECTOR ) #&( / APPELLANT BY : SHRI RAJDEEP SINGH, SR.DR '#& )( / RESPONDENT BY : -NONE- *+ ), / DATE OF HEARING 08/09/2017 -./0 ), / DATE OF PRONOUNCEMENT 18/09/2017 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEAL HAS BEEN DIRECTED BY THE REV ENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-X X, AHMEDABAD [CIT(A) IN SHORT] DATED 09/09/2014 FOR THE ASSESSMENT YEAR (AY) 2010-11 FOR GRANTING RELIEF TOWARDS ADDITION ON ACC OUNT OF LOW GP ITA NO.3341/AHD /2014 & CO NO.21/AHD/2015 (ASSESSEE) ACIT VS. ARIHANT PUMPS P LTD. ASST.YEAR 2010-11 - 2 - AMOUNTING TO RS.23,78,128/-. THE ASSESSEE HAS ALS O FILED CROSS OBJECTION IN REVENUES APPEAL WHEREBY ADDITION OF R S.3 LAKHS ON ACCOUNT OF LOW GP SUSTAINED BY THE CIT(A)HAS BEEN C HALLENGED. 2. NONE ATTENDED FOR THE ASSESSEE. IT IS SEEN FR OM THE RECORD THAT NOTICE OF HEARING WAS PROPERLY SERVED ON THE ASSESS EE. THE MATTER IS ACCORDINGLY PROCEEDED EX-PARTE QUA THE ASSESSEE. 3. THE LD.DR FOR THE REVENUE RELIED UPON THE ORDER OF THE AO AND SUBMITTED THAT THE ASSESSEE DID NOT JUSTIFY THE FAL L IN GP SATISFACTORILY AND THEREFORE THE ADDITION MADE BY THE ASSESSING OFFICE R (AO) HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE WAS FAIR AND JUST. HE THEREFORE SOUGHT REVERSAL OF THE ORDER OF THE CIT(A). 4. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MAD E ON BEHALF OF THE REVENUE AND PERUSED THE ASSESSMENT ORDER AND AL SO THE ORDER OF THE CIT(A) RENDERED ON THE ISSUE. THE AO IN THE COURSE OF THE SCRUTINY ASSESSMENT OBSERVED FALL IN GROSS PROFIT (GP) RATIO BY 2.06% IN COMPARISON WITH GP IN THE IMMEDIATE PRECEDING FINAN CIAL YEAR (FY) 2008-09. THE AO ACCORDINGLY HAVING REGARD TO THE S UBMISSIONS OF THE ASSESSEE PROCEEDED TO MAKE ADDITION TO THE EXTENT O F 1.06% OF FALL IN GP AS UNREASONABLE AND ACCEPTED BALANCE FALL OF 1% IN GP. THE AO ACCORDINGLY COMPUTED AN ADDITION OF RS.26,78,128/- ON ACCOUNT OF ITA NO.3341/AHD /2014 & CO NO.21/AHD/2015 (ASSESSEE) ACIT VS. ARIHANT PUMPS P LTD. ASST.YEAR 2010-11 - 3 - UNEXPLAINED FALL IN GP. THE ASSESSEE CARRIED THE M ATTER BEFORE THE CIT(A). BEFORE THE CIT(A), THE ASSESSEE DREW ATTEN TION TO SEVERAL VITAL FACTS BY WAY OF WRITTEN SUBMISSION AS NOTED BY THE CIT(A) AS UNDER:- 3.2. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE APPELLANT FILED WRITTEN SUBMISSION DTD. 20.06.2014 AS UNDER:- ' 3.0 ADDITION ON ACCOUNT OF LOW G.P. OF RS.26,78,1 28/- 3.1 THE FIRST EFFECTIVE GROUND OF APPEAL RELATES TO THE ADDITION OF RS.26,78,128/-ON ACCOUNT OF ADDITION @ 1.06% OF SALES DUE TO LOW G.P . THE AO HAS OBSERVED THAT ' REDUCTION OF GP % OF SALES BY 2.06% AS COMPARED TO F.Y.2008-09 IS SIGNIFICANT AND CANNOT BE ACCEPTABLE FULLY. LOOKING AT THE SUBMISSI ON AND REASONS RECORDED UP TO 1% OF G.P. REDUCTION IS ACCEPTABLE. ON THIS ACCOUNT AN ADDITION OF RS.26,78,128/- IS ADDED BY INCREASING G.P. FROM 13.39% TO 14.45% ON S ALES OF RS.25,16,25,815/- .PENALTY PROCEEDINGS IS INITIATED U/S 271(1)(C) FOR CONCEALING OF INCOME AND/OR FURNISHING OF INACCURATE PARTICULARS THEREOF. ' 3.2 THE APPELLANT BEGS TO SUBMIT THAT THE IMPUGN ED ADDITION OF RS.26,78,128/- ON ACCOUNT OF LOW G.P.IS WHOLLY UNJUSTIFIED & FAR FROM LAW BECAUSE (I) THE ACCOUNTS OF THE ASSESSEE BEING A COMPANY IS SUBJECTED TO STATUT ORY AS WELL AS TAX AUDIT AND ITS BOOKS ARE DULY AUDITED AND THE SAME IS NOT REJECTED BY THE AO AND THE AO HAS NOT FOUND ANY INDEPENDENT EVIDENCE OR PAPER TO PROVE TH AT THE G.P. SHOWN BY THE ASSESSEE IS LOW IN COMPARISON WITH OTHER INSTANCES FROM THE COMPARABLE CASES. THE ADDITION MADE ENTIRELY ON ESTIMATED BASIS. THERE IS NO SCIENTIFIC LOGIC OF SUCH A VAGUE ESTIMATION. ON THE CONTRARY, THE ASSESSEE VIDE ITS REPLY DT. 19-03-2013 HAS GIVEN DETAILED EXPLANATION AND REASONS FOR FALL OF GP MAR GINALLY AND INCREASE IN THE CONSUMPTION OF RAW MATERIALS. THE COPY OF THE SAID REPLY IS ENCLOSED. EXHIBIT-1. FURTHER THE APPELLANT WOULD LIKE TO SUBMIT THAT THE RE WAS SOME CALCULATION ERROR IN GP WORKING FURNISHED TO THE A. O. AND AS PER CORREC TED WORKING THE ACTUAL FALL IN GP WAS ONLY 1.52% ONLY AND NOT 2.06%.THE CORRECTED WOR KING IS ENCLOSED WITH EXHIBIT-I, (II) THE AO HAS COMPLETELY IGNORED THE F ACT THAT THE GROUP COMPANY IS A SICK UNIT FACING ACUTE SHORTAGE OF FUNDS AND ITS LO AN ACCOUNTS WITH CONSORTIUM OF BANKERS ALSO BECAME NPA AND THE BANKERS HAVE FILED RECOVERY SUIT IN DRT AND THEREFORE THE COMPANY HAS LOST ITS GOODWILL IN THE MARKET AND IT HAS TO SALE GOODS ITA NO.3341/AHD /2014 & CO NO.21/AHD/2015 (ASSESSEE) ACIT VS. ARIHANT PUMPS P LTD. ASST.YEAR 2010-11 - 4 - WITH DISCOUNTED RATES TO SUSTAIN IN THE MARKET. IN SUCH A GRAVE SITUATION, WHEN THE COMPANY ITSELF STRUGGLED HARD FOR ITS SURVIVAL, THE MARGINAL FALL IN GP OR MARGINAL INCREASE IN RAW MATERIAL CONSUMPTION IS NATURAL AND THE APPELLANT HAS FULLY EXPLAINED THE VARIOUS REASONS FOR SUCH A FALL IN PROFIT BY GI VING ELABORATE SUBMISSION AND EVIDENCES BUT THE AO HAS TOTALLY OVERLOOKED THE FAC TS AND PASSED THE ORDER WITH A PREJUDICIAL STATE OF MIND AND WITHOUT ANY LOGIC. HE HAS ONLY APPLIED MATHEMATICAL CALCULATIONS AND PASSED THE ORDER IN WRONG AND UNLA WFUL BELIEF THAT THE TRADING RESULTS SHOULD BE THE SAME OVER THE YEARS AND THERE IS NO SCOPE FOR ANY VARIATIONS WHICH CAN HAPPEN DUE TO VARIOUS REASONS BEYOND OUR CONTROL. IN THE PRESENT CASE, THERE WAS A MARGINAL FALL IN GP AND MARGINAL INCREA SE IN R.M. CONSUMPTION AND THE APPELLANT HAS GIVEN DETAILED SUBMISSION FOR THE SAM E WHICH WAS ENTIRELY IGNORED BY THE AO AND HAS PASSED THE ORDER WITH PREJUDICIAL MI ND AND WITHOUT ANY BASE PURELY ON ESTIMATED BASIS. IN A CASE DECIDED BY THE TRIBUN AL IN ITO V. GIRISH M MEHTA [2008] 296 ITR (AT) 125 (RAJKOT), IT WAS POINTED OU T, THAT THE PRE-CONDITION FOR ESTIMATING BUSINESS INCOME OF THE ASSESSEE, WHERE A N ASSESSEE KEEPS ACCOUNTS IS THAT THE ASSESSEE'S BOOKS SHOULD HAVE BEEN FOUND TO BE U NRELIABLE OR OTHERWISE NOT CAPABLE OF PROVING THE ASSESSEE'S INCOME. WITHOUT T HIS FIRST STEP, THE FACT THAT THE GROSS PROFIT IS LOW CANNOT BY ITSELF BE A GROUND FO R TAKING A VIEW THAT IT IS OPEN TO THE ASSESSING OFFICER TO MAKE GOOD THE ALLEGED DEFICIEN CY IN GROSS PROFIT. IN CIT V. PARADISE HOLIDAYS [2010] 325 ITR 13 (DELHI), THE HO N 'BLE DELHI HIGH COURT HAS HELD THAT IF ACCOUNTS WHICH ARE REGULARLY MAINTAINE D IN THE COURSE OF BUSINESS AND ARE DULY AUDITED, FREE FROM ANY QUALIFICATION BY TH E AUDITORS, SHOULD NORMALLY BE TAKEN AS CORRECT UNLESS THERE ARE ADEQUATE REASONS TO INDICATE THAT THEY ARE INCORRECT OR UNRELIABLE. THE ONUS IS UPON THE REVENUE TO SHOW THAT EITHER THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE WERE INCORRECT OR INCOMP LETE OR THAT THE METHOD OF ACCOUNTING ADOPTED BY HIM WAS SUCH THAT TRUE PROFIT S OF THE ASSESSEE CANNOT BE DEDUCED THEREFROM. IN ITS JUDGEMENT BY HON'BLE AHME DABAD ITAT IN THE CASE OF SIDDHI ENTERPRISE VS DEPT. OF INCOME-TAX IN ITA NO. 1431/AHD/2012, HAS HELD THAT IT IS SETTLED PROPOSITION OF LAW THAT FOR REJECTION OF BOOKS OF ACCOUNTS, THE AO IS REQUIRED TO DEMONSTRATE SPECIFIC DEFECTS IN THE BOO KS OF ACCOUNTS PRODUCED BY THE ASSESSEE AND ALSO AS TO HOW THE BOOKS OF ACCOUNTS P RODUCED BY THE ASSESSEE IS NOT GIVING CLEAR PICTURE OF THE PROFIT EARNED FROM THE BUSINESS ACTIVITY. IN THE ABSENCE OF SUCH FINDING, WE ARE OF THE VIEW THAT BOOKS OF ACCO UNTS CANNOT BE REJECTED AND THE ADDITION CANNOT BE SUSTAINED ON THE BASIS OF SUCH R EJECTION OF BOOKS OF ACCOUNTS. IN VIEW OF ABOVE FACTS OF THE CASE IT IS HUMBLY P REYED THAT THE ENTIRE ADDITION OF RS.26,78,128/- MADE BY AO BE DELETED. ITA NO.3341/AHD /2014 & CO NO.21/AHD/2015 (ASSESSEE) ACIT VS. ARIHANT PUMPS P LTD. ASST.YEAR 2010-11 - 5 - 4.0 THE COPY OF THE AUDITED BALANCESHEET ALONGWITH TAX AUDIT REPORT FOR THE F.Y.2009-2010 IS ALSO ENCLOSED IN EXHIBIT-2. 5. IN THE LIGHT OF THE SUBMISSIONS MADE, THE CIT(A) GRANTED SUBSTANTIAL RELIEF TO THE TUNE OF RS.23,78,128/- TO THE ASSESSEE AND CONFIRMED A LUMP SUM ADDITION OF RS.3 LAKHS ON THE GROUND THAT THE ASSESSEE DOES NOT MAINTAIN STOCK REGISTER AND OBSER VE CONSUMPTION OF RAW-MATERIAL AND PRODUCTION OF FINISHED-GOODS AND W IP ARE NOT OPEN FOR VERIFICATION. IT WILL BE PERTINENT TO REPRODUCE TH E OPERATIVE PARA OF THE CIT(A) WHICH READS AS UNDER:- DECISION: 3.3. I HAVE CONSIDERED THE FACTS OF THE CASE AND SU BMISSION MADE BY THE APPELLANT. IN THIS CASE, THE AO HAS MADE THE ADDITION OF RS.26,78 ,128/- ON ACCOUNT OF LOW G.P. SHOWN IN THE YEAR UNDER CONSIDERATION. IT HAS BEEN NOTICED THAT BEFORE THE A.O. THE G.P. @13.39% ON SALES OF RS.25.16CRORES HAS BEEN SH OWN AS AGAINST THE G.P. RATE OF THE IMMEDIATELY PRECEDING YEAR AT 15.45%. SO THERE WAS FALL OF 2.06% IN THE G.P. RATE OF THE YEAR UNDER CONSIDERATION FOR WHICH THE APPELLANT HAS GIVEN THE REASONS OF DECLINE TO THE A.O. HAVING CONSIDERED THE REASONS F OR FALL IN G.P, THE AO GRANTED THE FALL OF 1% AS REASONABLE BY GIVING CREDIT THEREOF A ND FOR THE BALANCE REDUCTION OF G.P. @1.06% (2.06% (-) 1%) THE ADDITION OF RS.26,76 ,128 WAS MADE. THE MAIN CONTENTION OF THE APPELLANT WAS THAT DUE TO HUGE SH ORTAGE OF WORKING CAPITAL FUND THE COMPANY WAS STRUGGLING TO PAY ITS CREDITORS AND BAN KERS AND THE PAYMENTS TO THE CREDITORS WERE NOT MADE IN TIME AND THEN STOPPED OR DELAYED IN SUPPLYING IN MATERIAL WHICH HAS RESULTED IN VERY LATE DELIVERY OF THE MAT ERIAL. DUE TO LOSS OF GOODWILL IN THE MARKET, THE DEALERS OF THE APPELLANT WERE FORCED TO BUY PRODUCTS FROM OTHER SUPPLIERS IN THE MARKET. THEREFORE TO PROTECT AND SUSTAIN THE POSITION IN THE MARKET APPELLANT HAVE TO SOLD THE GOODS AT REDUCED SALE RATE TO THE EXISTING CUSTOMERS WHICH HAS AFFECTED THEIR GROSS MARGIN ADVERSELY. A COMPARATIV E CHART OF THE SALE PRICE COMPARISON FOR MAJOR PRODUCTS WAS ALSO SUBMITTED TO THE A.O. THROUGH EXHIBIT TO HIS SUBMISSION LETTER DTD. 19.3.2013. FURTHER DUE TO GU ARANTOR IN THE OTHER GROUP COMPANY NAMELY M/S.AROMA HIGH TECH LTD. THE BANKERS AND SECURED CREDITORS HAVE ITA NO.3341/AHD /2014 & CO NO.21/AHD/2015 (ASSESSEE) ACIT VS. ARIHANT PUMPS P LTD. ASST.YEAR 2010-11 - 6 - FILED THEIR RECOVERY SUIT IN DRT AHMEDABAD AND ALSO SERVED POSSESSION NOTICE UNDER SECURITIZATION ACT. 3.4. FURTHER THE APPELLANT ALSO CONTENDED THAT THE BOOKS OF ACCOUNTS OF THE APPELLANT COMPANY WERE SUBJECTED TO STATUTORY AS WELL AS TAX AUDIT AND THE SAME HAVE NOT BEEN REJECTED BY THE A.O. INVOKING THE PROVISIONS OF SEC TION 145(3) OF I.T. ACT BY SPECIFYING THE DEFECTS THEREIN. IT WAS ALSO CONTENDED THAT THE AO HAS NOT FOUND OUT ANY INDEPENDENT EVIDENCE OR INFORMATION TO PROVE SUCH A N ALLEGATION THAT THE APPELLANT HAS MADE THE SALES OUTSIDE THE BOOKS OF ACCOUNTS. I T WAS ALSO PLEADED THAT THE APPELLANT VIDE ITS REPLY DTD. 19.3.2013 HAS GIVEN T HE DETAILED EXPLANATION AND REASONS FOR FALL IN G.P. RATE WHICH HAS BEEN IGNORED BY THE A.O. IT HAS ALSO BEEN ARGUED BEFORE THE A.O. THAT THE APPELLANT HAD BECOME A SIC K UNIT FACING ACUTE SHORTAGE OF FUNDS AND ITS LOAN ACCOUNTS WITH CONSORTIUM OF BANK ERS ALSO BECAME NPA AND THE BANKERS HAVE FILED RECOVERY SUIT IN DRT AND THEY HA VE ALSO ASSIGNED THE DEBT OF THE COMPANY IN FAVOUR OF ASSET RECONSTRUCTION COMPANY N AMELY ARSEG INDIA LTD. SO IN SUCH SITUATION WHEN THE COMPANY ITSELF WAS STRUGGLI NG HARD FOR ITS SURVIVAL THE MARGINAL FALL IN G.P. OR MARGINAL INCREASE IN RAW M ATERIAL CONSUMPTION WAS NATURAL OF WHICH REASONS HAVE BEEN FULLY EXPLAINED TO THE A .O. BY IGNORING THE SAME THE A.O. HAS APPLIED MATHEMATICAL FORMULA AND PASSED THE ORD ER IN WRONG AND UNLAWFUL BELIEF THAT THE TRADING RESULT SHOULD BE THE SAME OVER THE YEARS AND THERE WAS NO SCOPE FOR ANY VARIATION WHICH COULD HAPPEN DUE TO VARIOUS REA SONS BEYOND THE CONTROL. 3.5. IN VIEW OF THE ABOVE, THE APPELLANT CONTE NDED THAT THE AO HAS CONSIDERED THE PLEA THAT SALES HAVE BEEN MADE ON REDUCED RATES BUT IT HAS NOT BEEN FULLY ACCEPTED. HE HAS NOT ACTED IN A LAWFUL AND JUDICIOUS MANNER B Y MAKING SUCH A BIG ASSESSMENT. HE HAS RELIED UPON THE DECISION OF HON'BLE ITAT, RA JKOT BENCH IN THE CASE OF ITO VS. GIRISH M. MEHTA (2008) 296ITR (AT) 125 WHEREBY IT H AS BEEN POINTED OUT THAT PRE- CONDITIONS FOR ESTIMATING BUSINESS INCOME OF THE AS SESSEE WAS THAT THE BOOKS OF ACCOUNTS SHOULD HAVE BEEN FOUND TO BE UNRELIABLE OR OTHERWISE NOT CAPABLE OF PROVING THE ASSESSED INCOME. WITHOUT THIS FIRST S TEP THE FACT THAT GROSS PROFIT IS LOW CANNOT BY ITSELF BE A GROUND FOR TAKING A VIEW THAT IT IS OPEN TO THE AO TO MAKE GOOD THE ALLEGED DEFICIENCY IN GROSS PROFIT. FURTHER HE HAS RELIED UPON THE JUDGMENT OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. PAR ADISE HOLIDAYS (2010) 325 ITR 13 WHEREBY IT HAS BEEN HELD THAT IF ACCOUNTS WHICH ARE REGULARLY MAINTAINED IN THE COURSE OF BUSINESS AND ARE DULY OMITTED FREE FROM A NY CLARIFICATION BY THE AUDITORS SHOULD NORMALLY BE TAKEN AS CORRECT UNLESS THERE AR E ADEQUATE REASONS TO INDICATE THAT THEY ARE INCORRECT OR UNRELIABLE. THUS ONUS IS UPON THE REVENUE TO SHOW THAT EITHER THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSE SSEE WERE INCORRECT OR INCOMPLETE OR THAT THE METHOD OF ACCOUNTING ADOPTED BY HIM WAS SUCH THAT TRUE PROFITS OF THE ITA NO.3341/AHD /2014 & CO NO.21/AHD/2015 (ASSESSEE) ACIT VS. ARIHANT PUMPS P LTD. ASST.YEAR 2010-11 - 7 - ASSESSEE CANNOT BE DEDUCED THEREFROM. FURTHER HON' BLE ITAT, AHMEDABAD BENCH IN THE CASE OF SIDDHI ENTERPRISES VS. DEPARTMENT OF IN COME-TAX IN ITA NO.L431/AHD/2012 HAS HELD THAT IT IS A SETTLED PROP OSITION OF LAW THAT FOR REJECTION OF BOOKS OF ACCOUNTS THE AO IS REQUIRED TO DEMONSTRATE SPECIFIC DEFECTS IN THE BOOKS OF ACCOUNTS PRODUCED BY THE ASSESSEE AND ALSO HOW THE BOOKS OF ACCOUNTS PRODUCED BY THE ASSESSEE AND ALSO HOW THE BOOKS OF ACCOUNTS PRO DUCED BY THE ASSESSEE IS NOT GIVING CLEAR PICTURE OF THE PROFITS EARNED FROM THE BUSINESS ACTIVITY. IN THE ABSENCE OF SUCH FINDING THE BOOKS OF ACCOUNTS COULD NOT BE REJ ECTED AND THE ADDITION CANNOT BE SUSTAINED ON THE BASIS OF SUCH REJECTION OF BOOKS O F ACCOUNTS. 3.6. IN VIEW OF THE AFORESAID DISCUSSION, IT IS APP ARENT THAT THE ADDITION HAS BEEN MADE BY THE A.O. ON ESTIMATE BASIS ONLY. IT HAS BEE N ARGUED THAT THE G.P. WORKING AVAILABLE WITH THE A.O. WAS NOT CORRECT. IN THE YEA R UNDER CONSIDERATION THE G.P. WAS AT 13.93% AS AGAINST THE G.P. RATE IN THE IMMEDIATE LY PRECEDING YEAR AT 15.45%. THUS THERE WAS FALL IN THE G.P. RATE BY 1.52% ONLY AND NOT 2.06%. THE DETAILS OF THE G.P. WORKING IS AS UNDER:- PARTICULARS F.Y. 2008-09 F.Y. 2009-10 SALES 177770202 253230963 INCREASE/DECREASE IN STOCK OF SEMI FINISHED & FINISHED GOODS -11103576 -3568292 TOTAL(A) 166666626 249662671 OP. STOCK OF RAW MATERIAL 33565122 44222551 PURCHASE OF RAW MATERIALS & TRADING GOODS 149852864 221727455 LESS: CLOSING STOCK OF R.M. 44222551 51574285 NET CONSUMPTION OF R.M. - TOTAL (B) 139195435 214375721 GROSS PROFIT (A -B) 27471191 35286950 G.P % TO SALES 15.45 13.93 ITA NO.3341/AHD /2014 & CO NO.21/AHD/2015 (ASSESSEE) ACIT VS. ARIHANT PUMPS P LTD. ASST.YEAR 2010-11 - 8 - 3.7. MOREOVER, BECAUSE OF THE SICK UNIT AND DUE TO SHORTAGE OF FUNDS THE APPELLANT HAD TO MAKE THE PURCHASES AT HIGHER RATES TO GET TH E CREDIT FROM THE SUPPLIERS. THEREFORE, THIS HAS ALSO RESULTED INTO THE FALL IN THE GROSS MARGIN. THE AO HAS NOT POINTED OUT ANY SIMILAR INSTANCE SAYING THE UNACCOU NTED PURCHASES OR RECORDED SALES AFFECTED BY THE APPELLANT. EVEN IT HAS NOT BEEN POI NTED OUT ANY DEFECTS IN THE BOOKS OF ACCOUNTS AND THAT IS WHY THE BOOK RESULTS HAVE BEEN ACCEPTED AND NO REJECTION OF BOOKS OF ACCOUNTS U/S.145 HAS BEEN MADE. THE A. O. HAS MADE THE G.P. ADDITION OF 1.06% BY GRANTING THE RELIEF O 1% BUT AFTER CONSIDE RING THE DIFFERENTIAL AFORESAID G.P. RATES I.E. 1.52% AND AFTER GRANTING THE AO'S R ELIEF AT 1% THE ADDITION TO 0.52% REMAINS AS PER THE AO'S WORKING ITSELF. SINCE THE B OOK RESULTS HAVE NOT BEEN DISTURBED BY THE A.O. BY INVOKING THE PROVISIONS OF SECTION 1 45(3) OF THE I.T. ACT THUS THE HUGE ADDITION ON ACCOUNT OF G.P. RATE MADE IS NOT AS PER THE PROVISIONS OF LAW. BUT IT IS ALSO THE FACT THAT THE APPELLANT HAS NOT MAINTAINED THE DAILY STOCK REGISTER FOR EACH OF THE RAW MATERIAL ITEMS CONSUMED AND FINISHED GOODS PRODUCED AND THEREFORE POSSIBILITIES OF LEAKAGE OF REVENUE CANNOT BE RULED OUT, MORE PARTICULARLY THERE EXISTED THE FALL IN G.P. RATE. 3.8. THEREFORE IN VIEW OF THE ABOVE DISCUSSION, IT WOULD BE REASONABLE TO MAKE A LUMP SUM ADDITION OF RS.3,00,000/- AS AGAINST THE ADDITI ON MADE BY THE A.O BY REJECTING THE BOOKS OF ACCOUNTS AS THE CONSUMPTION OF RAW-MAT ERIAL AND PRODUCTION OF FINISHED GOODS AND WIP ARE NOT OPEN FOR VERIFICATION DUE TO NON- MAINTENANCE OF DAILY STOCK REGISTERS. THUS THE ADDITION TO THE EXTENT OF RS.3, 00,000/- IS CONFIRMED. THUS THE APPELLANT GETS THE PART RELIEF ON THIS ISSUE. GROUN D OF APPELLANT IS PARTLY ALLOWED. 6. ON PERUSAL, WE FIND THAT THE CIT(A) HAS GIVEN DU E WEIGHTAGE TO THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE. THE CIT(A) TOOK NOTE OF THE FACT THAT THE ASSESSEE WAS UNDERGOING FINANC IAL CRUNCH WHICH RESULTED IN INCREASED COST OF PRODUCTION. THE CIT( A) ALSO OBSERVED THAT NO SPECIFIC DEFECT PER SE WAS FOUND IN THE BOOKS OF ACCOUNTS PRODUCED BY THE ASSESSEE TOGETHER WITH DOCUMENTARY EVIDENCES TO WARRANT EXORBITANT ADDITION TOWARDS FALL IN GP. IT WAS ALSO NOTICED T HAT ACTUAL FALL IN GP WAS ONLY 1.52% AS AGAINST 2.06% NOTED BY THE AO. ON PE RUSAL OF THE ITA NO.3341/AHD /2014 & CO NO.21/AHD/2015 (ASSESSEE) ACIT VS. ARIHANT PUMPS P LTD. ASST.YEAR 2010-11 - 9 - REASONING GIVEN BY THE CIT(A) AS NOTED ABOVE, WE AR E IN AGREEMENT WITH THE VIEW OF THE CIT(A) THAT VAGUE ESTIMATION ON AC COUNT OF FALL IN GP OF SUCH MAGNITUDE IS NOT WARRANTED IN THE GIVEN FACTS. THE CIT(A) IN OUR VIEW HAS RIGHTLY DELETED THE MAJOR ADDITIONS ON ACC OUNT OF FALL IN GP. A TOKEN ADDITION OF RS.3 LAKHS ON ACCOUNT OF NON-AVAI LABILITY OF MOVEMENT OF STOCKS NON-PROVISION OF STOCK REGISTER IS ALSO N OT PERCEIVED BY US TO BE CONTRARY TO THE FACTS SITUATION. THEREFORE, WE UPH OLD THE ORDER OF THE CIT(A) IN TOTO AND DECLINE TO INTERFERE THEREWITH. 7. IN THE RESULT, APPEAL OF THE REVENUE AS WELL AS CROSS OBJECTION FILED BY THE ASSESSEE ARE DISMISSED. THIS ORDER PRONOUNCED IN OPEN COURT ON 18/ 09 /2017 SD/- SD/- ( ) ( ) ( MAHAVIR PRASAD ) ( PRADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 18/ 09 /2017 4..*,.*../ T.C. NAIR, SR. PS ITA NO.3341/AHD /2014 & CO NO.21/AHD/2015 (ASSESSEE) ACIT VS. ARIHANT PUMPS P LTD. ASST.YEAR 2010-11 - 10 - !'#$#! / COPY OF THE ORDER FORWARDED TO : 1. #& / THE APPELLANT 2. '#& / THE RESPONDENT. 3. 567, 8, / CONCERNED CIT 4. 8, ( ) / THE CIT(A)-XX, AHMEDABAD 5. 9:;,*67 , 67 0 , 5 / DR, ITAT, AHMEDABAD 6. ;<+ / GUARD FILE. / BY ORDER, '9,, //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 13.9.17 (DICTATION-PAD 7- PAGES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 13.9.17 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.18.9.17 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 18.9.17 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER