Dy.CIT, Circle-3(1), Hyderabad V. M/s Rayalaseema Steel Re-Rolling Mills, Hyderabad

ITA 1054/HYD/2014

• Counselvise Citation: 105422514 RSA 2014
• Duration Of Justice: 1 year(s) 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2015
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 24-09-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 27-05-2014
• Court: TRIBUNAL
• Department Lawyers: RAMAKRISHNA BANDI
• Assessee Lawyers: KISHORE KUMAR KABRA
• Keywords: Gross profit estimation; Rejection of books of accounts; Depreciation; Cost of acquisition

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 1054/HYD/2014 ASSESSMENT YEAR: 2006-07 DY. COMMISSIONER OF INCOME TAX, CIRCLE-3(1), HYDERABAD VS M/S. RAYALASEEMA STEEL RE-ROLLING MILLS, HYDERABAD [PAN: AADFR6518B] (APPELLANT) (RESPONDENT) FOR REVENUE : SHRI RAMA KRISHNA , BANDI, DR FOR ASSESSEE : SHRI KISHORE KUMA R KABRA , AR DATE OF HEARING : 2 4 - 0 9 - 201 5 DATE OF P RONOUNCEMENT : 16 - 1 0 - 2015 O R D E R PER B. RAMAKOTAIAH, A.M. : THIS IS REVENUES APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-IV, HYDERABAD DATED 14-03-2014 ON THE ISSUE OF CANCELLATION OF ESTIMATI ON OF INCOME DONE BY AO AT 1% OF THE TURNOVER. 2. BRIEFLY STATED, ASSESSEE IS IN THE BUSINESS OF S TEEL RE-ROLLING HAS ADMITTED INCOME OF RS. 8,98,710/- FOR THE IMPUG NED ASSESSMENT YEAR. APART FROM MAKING VARIOUS ADDITIO NS, THE ASSESSING OFFICER (AO) REJECTED THE BOOKS OF ACCOUN TS AND I.T.A. NO. 1054/HYD/2014 M/S. RAYALASEEMA STEEL RE-ROLLING MILLS :- 2 -: ESTIMATED THE INCOME OF ASSESSEE AT RS. 55,37,219/- AT 1% OF THE TURNOVER OF ASSESSEE OF RS. 55.37 CRORES. WHILE RE JECTING THE BOOKS OF ACCOUNTS, AO ANALYSED VARIOUS ISSUES WHICH ARE SUMMARIZED BY THE LD. CIT(A) VIDE PARA 5.1 AS UNDER : THE ASSESSING OFFICER MADE THE FOLLOWING OBSERVATIO NS WITH REGARD TO THE APPELLANTS BUSINESS TRANSACTION S AND BOOKS OF ACCOUNT: A. THE GROSS PROFIT RATIO OF THE APPELLANT WAS AS FOLLOWS: AY RATIO 2004-05 7.26% 2005-06 3.49% 2006-07 LOSS B. THE PURCHASES INCLUDED A SUM OF RS.24,32,22,003 FOR 17,278.57 METRIC TONNES AS A BULK PURCHASE FROM RASTRIYA ISPA T NIGAM LTD (RINL). THIS PURCHASE WAS TRANSFERRED TO 12 PARTIES AT THE PURCHASE VALUE ON WHICH NO PROFIT WAS DERIVED. THE APPELLANT EXPLAINED THAT IT HAD ENTERED INTO A CARTEL PURCHASE FROM RINL WHI CH ENABLED THE APPELLANT TO PURCHASE GOODS AT A RATE LOWER THAN MA RKET RATE. THE ASSESSING OFFICER OBSERVED THAT THESE GOODS HAD BEE N PHYSICALLY DELIVERED DIRECTLY TO THE OTHER PARTIES, THAT THE P AYMENT FOR THESE GOODS HAD ALSO BEEN MADE BY THE OTHER PARTIES DIREC TLY TO RINL, THAT IN THE PROCESS THE APPELLANT'S ADMINISTRATIVE EXPEN SES HAD BEEN INCREASED, THAT IT WAS NOT KNOWN WHY THE APPELLANT BECAME THE LEADER OF CARTEL AND WENT OUT OF ITS WAY TO ACCOMMO DATE THE OTHER PARTIES TO ENABLE THEM TO EARN PROFIT WHILE ITSELF MAKING A LOSS. THE ASSESSING OFFICER ALSO OBSERVED THAT IN RECEIPT OF THE PURCHASE BILLS FROM RINL, THE APPELLANT RECORDED THE QUANTITY IN I TS STOCK REGISTER EVEN THOUGH THE GOODS WERE NEVER PHYSICALLY DELIVER ED TO IT, AS A RESULT OF WHICH THE STOCK REGISTER DID NOT GIVE A C ORRECT PICTURE OF THE APPELLANT'S STOCK. C. THE SALES INCLUDED RAW MATERIAL SALES OF RS~10,8 0,30,479 ON WHICH NEGLIGIBLE PROFIT HAD BEEN EARNED. D. THE APPELLANT HAD SOLD PIG IRON AT RATES MUCH LE SS THAN THE RATE AT WHICH IT HAD PURCHASED PIG IRON ON THE SAME DAY. THOUGH THE APPELLANT CLAIMED THAT THIS WAS DONE AS IT NEEDED C ASH ON THAT DAY, I.T.A. NO. 1054/HYD/2014 M/S. RAYALASEEMA STEEL RE-ROLLING MILLS :- 3 -: IT WAS FOUND THAT ALL SUCH SALES WERE CREDIT SALES, LEADING TO THE CONCLUSION THAT THE APPELLANT HAD DELIBERATELY SUPP RESSED THE SALE PRICE TO ARRIVE AT A LOSS. E. THE APPELLANT HAD MADE PURCHASES OF RS.L,61,58,2 26 FROM ITS SISTER CONCERN, M/S. BILASRAIKA SPONGE IRON INDIA P VT LTD. FOR WHICH IT WAS UNABLE TO PRODUCE THE TRANSPORTATION BILLS F OR DELIVERY OF GOODS TO IT. THE ASSESSING OFFICER CONCLUDED THAT T HESE WERE PAPER BILLS WITHOUT DELIVERY OF MATERIAL TO INFLATE THE P URCHASES IN ITS BOOKS. F. THE SERIAL NUMBERS ON SOME OF THE PURCHASE BILLS /TAX INVOICES WERE NOT PRINTED BUT WERE HANDWRITTEN WHICH WAS NOT ALLOWED FOR EXCISABLE GOODS. ONE OF THESE SUPPLIERS, RAYALSEEMA KOGANTI STEELS PVT. LTD HAD EFFECTED SALES TO THE ASSESSEE FROM 10 .40 AM TO 2.50 PFVL VIDE BILL NOS.170 TO 178 AND HAD TRADED ONLY W ITH THE APPELLANT AND NO OTHER PARTY DURING THIS TIME. THE ASSESSING OFFICER ALSO NOTED THAT THERE WAS NO PROOF OF TRANSPORTATION OF MATERIAL TO THE PREMISES OF THE APPELLANT LEADING TO THE CONCLUSION THAT THE PARTY HAD ISSUED ACCOMMODATIVE PURCHASE BILLS WITHOUT ACT UAL DELIVERY OF MATERIAL. G. IN CERTAIN CASES, THREE OF WHICH WERE LISTED BY THE ASSESSING OFFICER, THE SUPPLIERS HAD MADE HUGE PROFITS FROM T HE SALES MADE TO THE APPELLANT AND THE APPELLANT HAD FAILED TO EXPLA IN WHY IT HAD MADE PURCHASES AT SUCH HIGH RATES FROM THESE PARTIE S. H. HUGE UNSECURED LOANS WERE TAKEN BY THE APPELLANT DURING THE YEAR, INCLUDING FROM THE SISTER CONCERN M/S. S.B. S TEEL INDUSTRIES ON WHICH INTEREST OF RS.35,11,557 HAD BEEN PAID. I. THE CASH BOOK AND LEDGER WERE FOUND TO HAVE BEEN WRITTEN IN TWO DIFFERENT HANDWRITINGS ON' THE SAME DAY. IN ONE CAS E, THE ENTRIES WERE MADE AT THE END OF THE FINANCIAL YEAR EVEN THO UGH THE ACCOUNT HAS BEEN CLOSED MUCH EARLIER. J. THE APPELLANT HAD CREDITED A SUM OF RS.2,30,00,0 00 IN ITS CASH BOOK ON 20.04.2005 AS CREDIT BALANCES WRITTEN OFF. A SUM OF RS. 2,25,00,000 WAS TRANSFERRED TO THE TIJORI ACCOUNT O N THE SAME DAY. THE CREDIT ENTRY OF RS.2,30,00,000 HAD BEEN MADE AT THE END OF THE YEAR IN A DIFFERENT HANDWRITINQ. AS AND WHEN THERE WAS A CASH SHORTFALL, THE AMOUNT WAS TRANSFERRED FROM THE TIJO RI ACCOUNT WHICH WAS SQUARED UP AT THE END OF THE YEAR. THOUGH THE S UM OF I.T.A. NO. 1054/HYD/2014 M/S. RAYALASEEMA STEEL RE-ROLLING MILLS :- 4 -: RS.2,30,00,000 HAD BEEN VOLUNTARILY OFFERED BY THE APPELLANT AS CREDIT BALANCES WRITTEN OFF, THIS ACCOMMODATIVE ENT RY WAS MADE AT THE END OF THE YEAR AS THE OPENING AND CLOSING CASH BALANCES WERE NOT WORKED OUT ON A DAILY BASIS AND THE APPELLANT R EALISED AT THE END OF THE FINANCIAL YEAR THAT IT HAD NEGATIVE CASH BALANCE ON THAT DAY. K. THE APPELLANT HAD NOT MAINTAINED ANY SEPARATE TR ADING ACCOUNT AND MANUFACTURING ACCOUNT. THE APPELLANT HAD BOOKED HUGE LOSSES IN ITS MANUFACTURING ACTIVITY FOR WHICH IT HAD SUBM ITTED GENERAL EXPLANATIONS LIKE INCREASE IN PURCHASE COST OF RAW MATERIALS, INCREASE IN POWER CONSUMPTION ETC. THE SALE PRICE P ER UNIT OF QUANTITY SOLD WAS RS.12,959.60 WHEREAS THE COST OF PRODUCTION WAS RS.14,179.66. L. THE APPELLANT HAD CLAIMED A SHORTAGE OF 2,529.65 5 MT. THIS WAS 20% OF THE TOTAL CONSUMPTION AND EXTREMELY HIGH. 3. AO RELIED ON THE FOLLOWING DECISIONS THAT BOOKS OF ACCOUNTS DID NOT REFLECT THE TRUE AND CORRECT STATE OF AFFAI RS AND DESERVES TO BE REJECTED. I. ALLAHABAD GLASS WORKS VS. CIT [42 ITR 439]; II. BHARAT MILK PRODUCTS VS. CIT [128 ITR 682]; III. TITAGHUR PAPER MILLS CO. LTD., VS. STATE OF ORISSA [47 STC 240 (ORISSA)]; IV. K. RAMAKRISHNA RAO VS. STATE OF KARNATAKA [49 STC 275 (KARN)]; V. CST VS. DEVI SARAN LAL PREM CHANDRA TAX LR 3235 (ALL); VI. LUXCO ELECTRONICS VS. CST [48 STC 540 (ALL)]; VII. SATYA NARAIN RASTOGI VS. CST TAX LR (NOC) 224 (A LL); VIII. HUKUM CHAND MAHENDRA KUMAR VS. CST [29 STC 394 (ALL)]; IX. VRAJLAL MANILAL & CO. VS. CIT [92 ITR 287 (MP)]; I.T.A. NO. 1054/HYD/2014 M/S. RAYALASEEMA STEEL RE-ROLLING MILLS :- 5 -: X. P. VENKANNA VS. CIT [72 ITR 328, 330 (MYS)]; XI. STEELSWORTH LTD., VS. CIT [69 ITR 366 (ASSAM)]; AND XII. GOPINATH NAIK VS. CIT [4 ITR 1, 23 (ALL)] 4. ASSESSEE HAS CONTESTED THE ESTIMATION OF INCOME BEFORE THE LD. CIT(A) AND SUBMITTED VARIOUS ISSUES COUNTERING THE OBSERVATIONS OF THE LD. CIT(A) WHICH ARE AGAIN SUMM ARIZED BY THE CIT(A) IN PARA 5.5 AS UNDER: A. THE GP RATIOS ADOPTED BY THE ASSESSING OFFICER FOR THE PRECEDING YEARS WAS INCORRECTLY COMPUTED AND THE CORRECT COMP UTATION WAS AS FOLLOWS: GROSS RECEIPTS AS PER AYS. 2006-07 2005-06 2003-04 GROSS RECEIPTS 499033223 206237468 203062088 GROSS PROFIT 7737433 11752966 10735006 GROSS PROFIT RATIO 1.55 5.70 5.29 GP EXCLUDING INTEREST AND DEPRECIATION 6652117 6908824 7483631 GROSS PROFIT RATIO 1.33 3.35 3.69 NET PROFIT RATIO 0.05 0.51 0.44 B. THE FALL IN GP DURING THE YEAR IN APPEAL' WAS ON ACCOUNT OF NON- INCREMENTAL INCREASE IN THE SALE PRICE OF FINISHED GOODS AS COMPARED TO INCREASE IN COST OF PRODUCTION, USE OF OLD AND O BSOLETE MACHINERY WITH HIGH POWER CONSUMPTION AND OTHER EXPENDITURE. C. THE TURNOVER INCLUDED CARTEL SALES OF RS.24,32,2 2,003 (ON WHICH THERE WAS NO PROFIT) AND SALE OF RAW MATERIAL OF RS .10,80,30,749 (ON WHICH THERE WAS MINIMAL PROFIT). THE TURNOVER AFTER EXCLUDING THESE TWO ITEMS WAS RS.20,24,69,161 ONLY. D. LOWER GROSS PROFIT CANNOT BE A GROUND FOR REJECT ION OF BOOKS. E. THE APPELLANT HAD ENTERED INTO A CARTEL PURCHASE ALONG WITH 12 OTHER PARTIES FOR PURCHASE OF RAW MATERIAL FROM RIN L. WHILE THE SALE INVOICE WAS RAISED IN THE NAME OF THE APPELLANT, TH E CONSIGNEES WERE DIRECTLY MENTIONED IN THE INVOICE ITSELF. THE CARTEL PURCHASE I.T.A. NO. 1054/HYD/2014 M/S. RAYALASEEMA STEEL RE-ROLLING MILLS :- 6 -: ENABLED THE APPELLANT TO AVAIL BENEFIT OF LOWER PRI CE ON ACCOUNT OF LIFTING OF BIG QUANTITY OF STOCKS. THE PAYMENT FOR THE PURCHASE WAS MADE DIRECTLY BY THE 12 CONSIGNEES. DELIVERY WAS AL SO MADE DIRECTLY TO THEM. THE OBSERVATION OF THE ASSESSING OFFICER THAT THE APPELLANT HAD RECORDED THE ENTIRE PURCHASE IN ITS S TOCK REGISTER WAS FACTUALLY INCORRECT. F. NO PROFIT WAS MADE ON CARTEL SALES SINCE SALE IN VOICES WERE RAISED MERELY AS A BALANCING ACCOUNTING ENTRY TO OFFSET TH E PURCHASES AS PER THE INVOICES. G. THE OBSERVATIONS OF THE ASSESSING OFFICER THAT I N THE PROCESS OF MAKING THE CARTEL PURCHASE, THE APPELLANT HAD BOOST ED ITS ADMINISTRATIVE EXPENSES, WAS FACTUALLY INCORRECT SI NCE NO ADDITIONAL ADMINISTRATIVE EXPENSES WERE INCURRED FOR IT. EVEN OTHERWISE THE ADDITIONAL EXPENSES WOULD HAVE BEEN COMPENSATED BY THE LOWER PURCHASE PRICE. H. THE ASSESSING OFFICER HAD OBSERVED THAT THE APPE LLANT HAD SOLD GOODS AT A PRICE LOWER THAN THE PURCHASE PRICE ON A PARTICULAR DAY. MARKET CONDITIONS IN THE TRADE FLUCTUATED NOT ONLY ON A DAILY BASIS BUT ON AN HOURLY BASIS AND IN ANY CASE, NO PART OF THE SALES HAD BEEN MADE TO ANY RELATIVE PARTIES. THE MERE FACT TH AT THE SALES HAD BEEN MADE AT A LOWER RATE DOES NOT LEAD TO A CONCLU SION OF SUPPRESSION OF SALES SINCE THESE WERE BUSINESS DECI SIONS. I. THOUGH THE APPELLANT HAD FAILED TO PRODUCE TRANS PORT BILLS/PROOF OF DELIVERY OF PURCHASES OF RS.1,61,58,226 FROM M/S. B ILASRAIKAS SPONGE IRON INDIA PVT. LTD, THE PURCHASES HAD BEEN RECORDED IN THE STOCK REGISTERS AFTER DELIVERY AT THE FACTORY PREMI SES AND HAD AVAILED CENVAT CREDIT IN RESPECT OF THE EXCISE DUTY PAID ON THE PURCHASE PRICE. THE STOCK / EXCISE REGISTERS WERE V ERIFIED BY THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS . THE GOODS WERE SOLD BY , THE SUPPLIER ON FOR BASIS AND THEREF ORE NO TRANSPORT COSTS WERE INCURRED BY THE APPELLANT. J. THE ASSESSING OFFICER HAD OBSERVED THAT SOME OF THE PURCHASE BILLS DID NOT CONTAIN PRINTED INVOICE SERIAL NUMBER S AND THAT THESE NUMBERS WERE HANDWRITTEN. THERE WAS NO REQUIREMENT UNDER THE EXCISE ACT THAT SALE INVOICES SHOULD CONTAINED PRIN TED SERIAL NUMBERS. ALL THE PURCHASES HAD BEEN ENTERED IN THE STOCK/EXCISE REGISTERS, EXCISE DUTY HAD BEEN PAID ON THEM AND TH E APPELLANT HAD AVAILED CENVAT CREDIT AGAINST THE EXCISE DUTY PAID. K. THE ASSESSING OFFICER HAD OBSERVED THAT ONE OF T HE SUPPLIERS, KOGANTI STEELS PVT LTD (ERRONEOUSLY REFERRED TO AS RAYALSEEMA KOGANTI STEELS PVT LTD) HAD MADE SUPPLIES TO THE AP PELLANT THROUGH A SERIES OF BILL NOS. 170 TO 178 AND HAD NOT HAD AN Y BUSINESS TRANSACTIONS WITH ANY OTHER PARTY DURING THIS PERIO D. THE MANNER IN I.T.A. NO. 1054/HYD/2014 M/S. RAYALASEEMA STEEL RE-ROLLING MILLS :- 7 -: WHICH THE SUPPLIER CARRIED OUT ITS BUSINESS TRANSAC TIONS HAD NO IMPLICATIONS FOR THE APPELLANT'S INCOME TAX ASSESSM ENT. THE GOODS IN QUESTION HAD BEEN ENTERED IN THE EXCISE REGISTER, E XCISE DUTY PAID THEREON AND CENVAT CREDIT AVAILED BY THE APPELLANT AGAINST IT. L. THE ASSESSING OFFICER HAD REFERRED TO THE HIGH M ARGIN OF PROFIT EARNED BY SOME OF THE SUPPLIERS. NONE OF THESE SUP PLIERS WERE RELATED TO THE APPELLANT AND THE MARGIN OF PROFIT O F THE SUPPLIERS WAS NOT A RELEVANT FACTOR TO DECIDE THE GENUINENESS OF THE PURCHASES OR THE RELIABILITY OF THE BOOKS OF ACCOUNT. M. THE APPELLANT HAD PAID INTEREST OF RS.35,11,000 ON UNSECURED LOANS TO THE FOLLOWING PARTIES: INDERKARAN AGARWAL (PATNER) RS.18,76,406 BANKS RS.16,35,151 TOTAL: RS.35,11,557 NO INTEREST WAS PAID ON THE LOAN RECEIVED FROM S.B. STEEL INDUSTRIES. N. THE MERE FACT THAT THE BOOKS OF ACCOUNT HAD BEEN WRITTEN IN TWO DIFFERENT HANDWRITINGS ON THE SAME DAY COULD NOT LE AD TO ANY ADVERSE INFERENCES. THE DIFFERENCE IN HANDWRITING I N THE LEDGER ACCOUNT OF LAKHANI STEEL CORPORATION CAME ABOUT DUE TO THE FACT THAT WHILE PREPARING THE TRIAL BALANCE, IT WAS FOUN D THAT THE ENTRY MADE ON 28.09.1995 HAD NOT BEEN POSTED IN THE LEDGE R AND THEREFORE THE ENTRY WAS MADE AT THE END OF THE YEAR . THE PAYMENT HAD BEEN MADE FOR PURCHASES AND NO CASH OUTFLOW OR INFLOW RESULTED DUE TO THIS ENTRY. O. THE APPELLANT HAD CREDITED A SUM OF RS.2,30,00,0 00 TO ITS CASH BOOK ON 20.04.2005 AND TRANSFERRED A SUM OF RS.2,25 ,OO,000 TO THE TIJORY ACCOUNT ON THE SAME DAY. THE TIJORY ACCO UNT WAS NOTHING BUT CASH KEPT AT RESIDENCE OF THE PARTNERS SINCE IT WAS NOT SAFE TO KEEP THE ENTIRE CASH AT THE BUSINESS PREMISES. AS A ND WHEN REQUIRED, THE REQUISITE AMOUNT WERE CREDITED TO TIJ ORY ACCOUNT AND USED FOR THE BUSINESS. THIS DID NOT LEAD TO A CONCL USION THAT THERE WAS A NEGATIVE CASH BALANCE. P. THERE WAS NO REQUIREMENT IN LAW FOR MAINTENANCE OF SEPARATE TRADING ACCOUNT AND MANUFACTURING ACCOUNT. Q. ALL PURCHASES AND SALES WERE RECORDED IN THE EXC ISE REGISTER WHICH WAS SUBJECT TO AUDIT AND ON WHICH EXCISE WAS PAID AND CENVAT CREDIT CLAIMED. THE OBSERVATION OF THE ASSES SING OFFICER THAT THE APPELLANT HAD SUPPRESSED SALES AND INFLATED EXP ENSE WAS BASED ON SURMISES AND PRESUMPTIONS. I.T.A. NO. 1054/HYD/2014 M/S. RAYALASEEMA STEEL RE-ROLLING MILLS :- 8 -: R.THE SHORTAGE OF 20% IN THE RAW MATERIAL 'VIS-A-VI S THE CONSUMPTION WAS COMPARABLE TO THE SHORTAGE OF 21% IN AY 2005-06 . S. THE APPELLANT HAD VOLUNTARILY CREDITED THE SUM O F RS.2,30,00,000 TO ITS P&L A/C AND THERE WAS NO REASON TO SAY THAT IT WAS UNDISCLOSED INCOME U/S 68. T. THE CASE LAWS CITED BY THE ASSESSING OFFICER WER E DISTINGUISHABLE ON FACTS. 5. AFTER CONSIDERING THE SUBMISSIONS, LD. CIT(A) DI D NOT APPROVE THE REJECTION OF BOOKS OF ACCOUNTS AND ESTIMATION O F INCOME BY STATING AS UNDER: 5.8 I HAVE CONSIDERED THE FACTS ON RECORD AND THE SUBMISSIONS OF THE AR. THE AR HAS POINTED OUT THAT THE NET PROFIT OF THE APPELLANT WAS NOT 0.72% AS PRESUMED BY THE ASSESSING OFFICER FOR THE AY 2005-06 BUT WAS ACTUALLY MUCH LESS AT 0.51% (AND 0. 44% FOR AY. 2004-05) AS 'COMPARED TO 0.05% FOR THE YEAR IN APPE AL. BE THAT AS IT MAY, THE NET PROFIT OF THE APPELLANT IS CONSIDERABL Y LESS THAN THE PROFIT IN THE PRECEDING TWO YEARS EVEN AS PER THE C OMPUTATION FURNISHED BY THE AR. HOWEVER, THE MERE FACT THAT TH E NET PROFIT OF THE APPELLANT IS MUCH LESS THAN THE PRECEDING YEARS CANNOT BY ITSELF BE A REASON FOR REJECTING THE BOOKS OF ACCOUNT. A L OWER PROFIT RATE MAY BE AN INDICATOR OF A DEEPER MALAISE OR IT MAY B E AN INDICATOR OF GENUINE DIFFICULTIES WHICH AN ASSESSEE MAY BE GOING THROUGH OR IT MAY BE AN INDICATOR OF MANIPULATIONS IN THE BOOKS O F ACCOUNT BY AN ASSESSEE WITH A VIEW TO SUPPRESS ITS INCOME. WHAT I S NECESSARY FOR REJECTION OF BOOKS IS TO ESTABLISH THAT THERE WERE SUCH MANIPULATIONS AND THAT THE LOWER PROFIT RATE WAS NOT MERELY DUE T O ADVERSE BUSINESS CONDITIONS. 5.9 THE APPELLANT HAS POINTED OUT THAT A SUBSTANTIA L PORTION OF ITS TURNOVER CONSISTED OF THE CARTEL PURCHASE AND TRADI NG TRANSACTIONS ON WHICH THERE WERE NIL OR NEGLIGIBLE PROFITS. ENTE RING INTO A CARTEL PURCHASE IS A BUSINESS DECISION WHICH CANNOT BE QUE STIONED BY THE ASSESSING OFFICER. THERE IS ALSO NO EVIDENCE OF ANY MAJOR ADDITIONAL ADMINISTRATIVE EXPENSES FOR THIS PURCHASE. SIMILARL Y, THE APPELLANT CANNOT BE FAULTED FOR ENTERING INTO TRADING TRANSAC TIONS WITH NARROW MARGINS. 5.10 THE APPELLANT ALSO CANNOT BE HELD RESPONSIBLE FOR THE MANNER IN WHICH ITS SUPPLIERS CARRIED OUT THEIR BUSINESS. THE ASSESSING OFFICER HAS POINTED OUT THREE SUCH CATEGORIES OF SU PPLIERS. THE FIRST I.T.A. NO. 1054/HYD/2014 M/S. RAYALASEEMA STEEL RE-ROLLING MILLS :- 9 -: RELATES TO PURCHASE BILLS WHICH DO NOT CONTAINED PR INTED SERIAL NUMBERS. AS POINTED OUT BY THE AR, THERE IS NO MAND ATORY REQUIREMENT FOR THE BILL NUMBERS TO BE PRINTED ON T HE BILLS. THERE IS NO PROVISION TO STATE THAT HANDWRITTEN BILL NUMBERS ARE NOT ACCEPTABLE. WHAT IS RELEVANT IS THAT THE PURCHASES WERE DULY ENTERED IN THE STOCK AND EXCISE REGISTERS OF THE AP PELLANT. 5.11 THE SECOND SUCH SET OF TRANSACTIONS RELATES TO KOGANTI STEELS PVT. LTD WHILE THE THIRD RELATES TO PURCHASES WHERE THE SUPPLIERS BOOKED A VERY HIGH MARGIN OF PROFIT. NEITHER OF THE SE PARTIES WERE RELATED TO THE APPELLANT AND THEREFORE THESE ARE NO T CASES OF COLLUSIVE TRANSACTIONS WITH SISTER CONCERNS. IN THE ABSENCE OF ANY EVIDENCE THAT THE APPELLANT HAD ENTERED INTO FRAUDU LENT OR MANIPULATIVE TRANSACTIONS WITH THESE PARTIES, THE M ERE FACT THAT THE SUPPLIERS HAD BOOKED HIGH PROFIT OR HAD TRADED ONLY WITH THE APPELLANT CANNOT BE HELD AGAINST THE APPELLANT, PAR TICULARLY WHEN THE ENTIRE PURCHASES WERE DULY RECORDED IN THE STOC K AND EXCISE REGISTERS. 5.12 THE APPELLANT HAD FAILED NO DOUBT TO PRODUCE T HE TRANSPORTATION BILLS. THE AR HAS CLAIMED THAT THE P URCHASES WERE FOB AND HENCE THERE WAS NO TRANSPORTATION COST. IN THE ABSENCE OF THE BOOKS OF ACCOUNT, IT IS NOT POSSIBLE TO ESTABLI SH THIS CLAIM. HOWEVER, WHAT IS OF RELEVANCE IS WHETHER THE PURCHA SE FROM BILASRAIKAS SPONGE IRON INDIA LTD WAS A GENUINE PUR CHASE. THE FACT THAT THE PURCHASE WAS ENTERED IN THE EXCISE AND IN STOCK REGISTERS INDICATES THAT THEY WERE. 5.13 THE ASSESSING OFFICER HAS REFERRED TO A SOLITA RY INSTANCE OF AN ENTRY BEING MADE IN THE LEDGER ACCOUNT OF LAKHANI S TEEL CORPORATION AT A LATER DATE. THE AR HAS EXPLAINED THAT THE OMIS SION WAS NOTICED WHILE RECONCILING THE ACCOUNTS AND THE ENTRY MADE T HEREAFTER. I FIND THIS EXPLANATION ACCEPTABLE. 5.14 WITH REGARD TO THE TRANSFER OF CASH TO THE TIJ ORY ACCOUNT AND BACK, THE ASSESSINQ OFFICER HAS ACCEPTED THAT THE S UM OF RS.2,25,00,000 WAS TRANSFERRED TO THE TIJORY ACCOUN T ON 20.04.2005 ITSELF FROM THE CASH BOOK. IN EFFECT, THE APPELLANT SPLIT THE CASH BOOK INTO TWO PARTS. I ACCEPT THE APPELLANT'S EXPLANATIO N IN THIS REGARD. 5.15 THE FACTS NARRATED IN THE ASSESSMENT ORDER DO NOT ESTABLISH ANY LACK OF GENUINENESS IN THE PURCHASES MADE OR AN Y EVIDENCE OF SUPPRESSION OF SALES. THE AR ALSO PRODUCED THE EXCI SE REGISTERS FOR VERIFICATION OF THE CLAIMS MADE BY HIM IN HIS SUBMI SSIONS. UNDER I.T.A. NO. 1054/HYD/2014 M/S. RAYALASEEMA STEEL RE-ROLLING MILLS :- 10 - : THE CIRCUMSTANCES, I DO NOT FIND ANY REASON FOR REJ ECTION OF THE BOOKS OF ACCOUNT. THE ESTIMATION OF NET PROFIT AT RS.55, 37,219 IS, THEREFORE, DIRECTED TO BE SET ASIDE. THE SECOND AND THIRD GROUNDS OF APPEAL ARE ALLOWED. 6. LD. DR HAS TAKEN US THROUGH THE DETAILED ORDER O F AO TO SUBMIT THAT AO HAS VALID REASONS FOR REJECTION OF B OOKS AND ESTIMATION OF INCOME IS WARRANTED ON THE FACTS OF T HE CASE. 7. LD. COUNSEL HOWEVER, RELIED ON THE ORDERS OF CIT (A) AND SUBMITTED PARA-WISE OBSERVATIONS, WHICH ARE SIMILAR TO THE SUBMISSIONS MADE BEFORE CIT(A) WHICH ARE EXTRACTED ABOVE. 8. AFTER CONSIDERING THE RIVAL CONTENTIONS AND PERU SING THE SUBMISSIONS MADE ON THIS BEHALF, WE ARE OF THE OPIN ION THAT CIT(A) IS CORRECT IN SETTING ASIDE THE ESTIMATION OF INCOM E. EVEN THOUGH CERTAIN MISTAKES ARE POINTED OUT BY THE AO, IN OUR OPINION, THEY ARE NOT GOOD ENOUGH TO REJECT THE BOOKS OF ACCOUNTS . IN FACT AS CONTESTED BY ASSESSEE, MANY OF THEM ARE CONSIDERED ON WRONG PERCEPTIONS. AO WAS OF THE OPINION THAT THE STOCK PURCHASED WITH CARTEL GROUP ARE ENTERED IN THE STOCK REGISTER, WHE REAS IT WAS FOUND THAT THEY WERE NOT ENTERED IN THE STOCK REGISTER AN D WHAT ASSESSEE HAS ACCOUNTED WAS ONLY ITS SHARE OF PURCHASES THROU GH THE CARTEL. THERE ARE EXPLANATIONS GIVEN BY ASSESSEE FOR SEPARA TE ENTRIES IN DIFFERENT INK AND HOW ASSESSEE HAS SUFFERED LOSSES IN ITS MANUFACTURING ACTIVITY. WITH REFERENCE TO PURCHASE OF GOODS ALSO, SINCE NONE OF THE TRANSACTIONS ARE THERE WITH ANY A SSOCIATE OR GROUP COMPANIES OR FIRMS, AS RIGHTLY POINTED OUT BY THE CIT(A) THE PROFITS EARNED BY THE THIRD PARTIES SHOULD NOT BE B ASIS FOR DISALLOWING COST OF PURCHASE IN ASSESSEES HANDS. BE THAT AS IT MAY, SINCE ASSESSEES BOOKS OF ACCOUNTS ARE MAINTAI NED AND I.T.A. NO. 1054/HYD/2014 M/S. RAYALASEEMA STEEL RE-ROLLING MILLS :- 11 - : AUDITED AND MOST OF THE ADDITIONS ARE MADE ON THE B ASIS OF BOOKS OF ACCOUNTS OTHER THAN THIS ESTIMATION OF INCOME, W E ARE OF THE OPINION THAT REVENUE HAS NOT MADE OUT PROPER CASE F OR REJECTION OF BOOKS OF ACCOUNTS AND ESTIMATING THE INCOME AT 1%. EVEN THE REVENUE IN GROUND NO. 4 ACCEPTS THAT PERCENTAGE OF ESTIMATION OF INCOME DEFERS FROM YEAR TO YEAR DEPENDING ON THE CI RCUMSTANCES OF THE CASE. THIS ALSO INDICATES THAT ASSESSEES BUSI NESS PROFITS OR LOSSES ALSO FLUCTUATE ON YEAR TO YEAR BASIS. THERE IS NO NEED TO REJECT THE BOOKS OF ACCOUNTS WHICH ARE MAINTAINED A ND ON WHICH DEFECTS ARE NOT POINTED OUT SO AS TO REJECT THEM. IN VIEW OF THIS, WE UPHOLD THE ORDER OF CIT(A) AND REJECT THE GROUNDS R AISED BY REVENUE. 9. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH OCTOBER, 2015 SD/- SD/- (P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEM BER HYDERABAD, DATED 16 TH OCTOBER, 2015 TNMM I.T.A. NO. 1054/HYD/2014 M/S. RAYALASEEMA STEEL RE-ROLLING MILLS :- 12 - : COPY TO : 1. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE-3(1), 7 TH FLOOR, B-BLOCK, IT TOWERS, HYDERABAD. 2. M/S. RAYALASEEMA STEEL RE-ROLLING MILLS, 4-1-970 , C-403, 4 TH FLOOR, AHUJA ESTATES, UPASANA BLOCK, ABIDS, H YDERABAD. 3 . CIT (APPEALS) - IV , HYDERABAD. 4. CIT-III, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.