DCIT, Bangalore V. Sipani Fibres Limited, Bangalore

ITA 1061/BANG/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 63793 (ITAT-BANGALORE)
• Duration Of Justice: 11 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 01-11-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 11-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: BALRAM R RAO SHRI BIJOY KUM
• Keywords: Search and seizure
• Section: 234B; 145

Judgement Text

PAGE 1 OF 13 ITA NOS.979 & 980/B ANG/2011 & 1060 & 1061/BANG/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH A BEFORE SHRI N BARATHVAJA SANKAR, VICE PRESIDENT AND SHRI GEORGE GEORGE K, J.M ITA NOS.979 & 980/BANG/2011 (ASSESSMENT YEARS 2006-07 & 2007-08) M/S SIPANI FIBRES LTD., NO.309, RAHEJA ARCADE, KORAMANGALA, BANGALORE. PA NO.AAICS3007L VS THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-12(3), BANGALORE. (APPELLANT) (RESPONDENT) ITA NOS.1060 & 1061/BANG/2011 (ASSESSMENT YEARS 2006-07 & 2007-08) (BY REVENUE) DATE OF HEARING : 01.11.2012 DATE OF PRONOUNCEMENT : 09.11.2012 ASSESSEE BY : SHRI BALRAM R RAO, A DVOCATE REVENUE BY : SHRI BIJOY KUMAR PA NDA, ACIT ORD ER PER BENCH : THESE FOUR APPEALS (I) TWO APPEALS OF THE ASSESS EE COMPANY AND (II) ANOTHER TWO APPEALS OF THE REVENUE ARE DIRECTED A GAINST THE ORDERS OF THE CIT (A)-III, BANGALORE, DATED 25.8.2011 AND 30.8.20 11. THE RELEVANT ASSESSMENT YEARS ARE 2006-07 AND 2007-08. PAGE 2 OF 13 ITA NOS.979 & 980/B ANG/2011 & 1060 & 1061/BANG/2011 2 I. ITA NOS. 979 & 980/B/11 AYS 2006-07 & 2007-08 BY THE ASSESSEE: 2. THE ASSESSEE COMPANY HAS RAISED NINE IDENTICAL GROUNDS FOR BOTH THE ASSESSMENT YEARS UNDER DISPUTE. GROUND NO. 9 IS GENERAL IN NATURE AND SINCE NO SPECIFIC ISSUE INVOLVED, IT DOE SNT SURVIVE FOR ADJUDICATION. GROUND NO. 8 IS NOT MAINTAINABLE AS CHARGING OF INTEREST U/S 234B AND 234C OF THE ACT IS MANDATORY AND CONSEQUEN TIAL IN NATURE. THE REMAINING GROUNDS RELATE TO THE FOLLOWING ISSUES, N AMELY: (I) THAT THE CIT (A) ERRED IN UPHOLDING THE REJECTION O F BOOKS OF ACCOUNT U/S 145 OF THE ACT BY THE AO; & (II) THAT THE CIT (A) ERRED IN UPHOLDING THE ESTIMATION OF PROFIT AT 2% AS AGAINST 3% ADOPTED BY THE AO. II. ITA NOS. 1060 & 1061/B/11 AYS 2006-07 & 07-08 BY THE REVENUE: 3. THE REVENUE HAS ALSO RAISED FIVE IDENTICAL GROUNDS FOR THE ASSESSMENT YEARS UNDER CONSIDERATION IN WHICH GROUND NOS.1, 4 & 5 BEING GENERAL IN NATURE, THEY HAVE BECOME INCONSEQUENTIAL. IN THE REMAINING GROUNDS, THE SOLITARY ISSUE RAISED IS THAT THE CIT (A) HAD ERRED IN REDUCING THE PROFIT ESTIMATION FROM 3% TO 2% WITHOU T ANY REASONABLE BASIS. 4. AS THE ISSUES RAISED IN THESE APPEALS WE RE INTER-LINKED PERTAINING TO THE SAME ASSESSEE, FOR THE SAKE OF CL ARITY AND CONVENIENCE, THEY WERE HEARD, CONSIDERED AND DISPOSED OFF IN THIS COMMON ORDER. PAGE 3 OF 13 ITA NOS.979 & 980/B ANG/2011 & 1060 & 1061/BANG/2011 3 5. WE SHALL NOW TAKE UP THE ISSUES RAISED BY TH E ASSESSEE FOR ADJUDICATION. I. ITA NOS. 979 & 980/B/11 AYS 2006-07 & 2007-08 BY THE ASSESSEE: A.Y 2006-07 ITA NO. 979/B/11 - BY THE ASSESSEE: 6. THE ASSESSEE COMPANY [THE ASSESSEE IN SHOR T] IS IN THE BUSINESS OF MANUFACTURE AND SALE OF HDPE WOVEN SACK S. FOR THE AY UNDER CONSIDERATION, THE ASSESSEE ADMITTED THE TOTAL TAXA BLE INCOME OF RS.43,71,400/-. THE ASSESSEE HAD POSTED A TOTAL S ALES TURNOVER OF RS.69.65 CRORES AND ADMITTED A GROSS PROFIT OF RS.11.17 CROR ES AT 16% WHICH INCLUDED RENTAL RECEIPTS OF RS.1.62 LAKHS, LTCG OF RS.37.71 LAKHS AND INTEREST RECEIPTS OF RS.19.83 LAKHS. 6.1. DURING THE COURSE OF ASSESSMENT PROCEEDIN GS, THE AO HAD NOTICED THAT THE ASSESSEE HAD PURCHASED A LAND TO T HE EXTENT OF 2 ACRES AND 35 GUNTAS IN THE OUTSKIRTS OF BANGALORE CITY FOR RS. 5,85,000/-. BEING QUERIED, THE ASSESSEE, ACCORDING TO THE AO, HAD MAI NTAINED THAT THERE WAS NO AGREEMENT TO SELL FOR THE SAID TRANSACTION AS TH E SELLER WAS KNOWN TO THE ASSESSEE, THE REGISTRATION WAS DIRECTLY DONE. HOWE VER, ON FURTHER EXAMINATION OF THE BANK ACCOUNTS OF THE ASSESSEE, T HE AO NOTICED THAT CASH OVER RS.24 CRORES WAS DEPOSITED AT REGULAR INTERVAL S, FOR WHICH, THE ASSESSEE STATED THAT THOSE DEPOSITS WERE OUT OF CASH SALES O F ITS PRODUCTS. 6.2. AFTER MAKING CROSS VERIFICATION OF THE AS SESSEES CLAIM OF CASH SALES OF ITS PRODUCTS WITH HIS [AOS] COUNTER-PARTS AT AH MEDABAD, PAGE 4 OF 13 ITA NOS.979 & 980/B ANG/2011 & 1060 & 1061/BANG/2011 4 THIRUVANANTHAPURAM AND BARODA BY ISSUANCE OF COMMISS IONS U/S 131(D) OF THE ACT, THE AO CAME TO THE CONCLUSION THAT THE CLAIM O F CASH SALES ETC., WAS FALSE AND BOGUS AND, ACCORDINGLY, THE ASSESSEE WAS R EQUIRED TO SUBSTANTIATE ITS ABOVE CLAIM. 6.3. BRUSHING ASIDE THE ASSESSEES CONTENTIONS AS RECORDED IN DETAIL IN THE ASSESSMENT ORDER UNDER CONSIDERATION, THE AO HAD REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE U/S 145 OF THE ACT AND ESTIMATED THE NET PROFIT AT 3% OF THE TOTAL TURNOVER WHICH WORKED OUT TO RS.2.08 CRORES FOR THE FOLLOWING REASONS: (I) THAT THE REPLY GIVEN BY THE ASSESSEE WAS GENERAL IN N ATURE AND, HENCE, CANNOT BE ACCEPTED; (II) THOUGH THE MACHINERY WAS OLD, EXPENSES INCURRED ON MAINTENANCE DURING THE YEAR WAS ONLY RS.22.68 LAKHS W HICH WAS JUST 0.3% OF THE TURNOVER AND, HENCE, THE SAME CANN OT BE THE REASON FOR LOW PROFITABILITY. FURTHER, THERE WERE N O ADDITION TO THE PLANT AND MACHINERY FOR UP-GRADATION; (III) THAT THE ASSESSEES CLAIM THAT THERE WERE MANY COMPA NIES IN THE SAME LINE OF BUSINESS WHICH WERE RUNNING UNDER LOSS AND SOME OF THEM WERE CLOSED DOWN ETC., CANNOT BE ACCEP TED AS THE ASSESSEE WAS (BUSINESS) DOING WELL; (IV) AS THERE WAS A GENERATOR INSTALLED IN THE UNIT, THE UNSCHEDULED POWER CUT CANNOT COME IN THE WAY OF IRREGULAR PRODUC TION; (V) THAT THE INDUSTRY WAS SEASONAL AND PRODUCTION VARIES DEPENDING ON THE DEMAND AND SUPPLY CANNOT BE ACCEPTED AS THE L OWEST SALE WAS RS.3.6 CRORES IN MAY AND THE HIGHEST WAS IN MARC H WHICH WAS RS.7.01 CRORES AND THE MONTHLY AVERAGE BEING RS. 5.5 - 6 CRORES; (VI) THE ASSESSEES CLAIM OF CASH SALES WERE PASSED THRO UGH BOOKS OF ACCOUNTS EXCEPT THE ACCOUNTED SALES THERE WERE NO O THER SALES WAS ALSO REJECTED IN VIEW OF THE FACT THAT THE CUST OMERS IDENTITY WAS NOT PROVED AND THAT THE SALES ACCOUNTED FOR IN THE PAGE 5 OF 13 ITA NOS.979 & 980/B ANG/2011 & 1060 & 1061/BANG/2011 5 BOOKS WERE NOTHING BUT BRINING UNACCOUNTED CASH INT O THE BOOKS AND THE TAXABLE INCOME OFFERED WAS MEAGER FOR A CUR RENT YEAR AND IT WAS ASSESEES BENEFIT TO SHOW IT AS SALES ON LY; & (VII) THAT THE CENTRAL EXCISE & CUSTOMS AUTHORITIES HAVE CONDUCTED RAID ON THE PREMISES AND LEVIED ADDITIONAL DUTY OF R S.50.05 LAKHS. 7. AGGRIEVED, THE ASSESSEE CARRIED THE MA TTER IN APPEAL BEFORE THE CIT (A). DURING THE COURSE OF APPELLATE PROCEE DINGS, THE ASSESSEE HAD SUBMITTED A LENGTHY REBUTTAL TO THE AOS OBSERVATION S IN REJECTING THE BOOKS OF ACCOUNT OF THE ASSESSEE AND ALSO ADOPTING THE NE T PROFIT RATE AT 3% OF THE TOTAL TURNOVER. 7.1. AFTER DULY ANALYZING THE CONTENTIONS OF THE ASSESSEE AS RECORDED IN HIS APPELLATE ORDER UNDER DISPUTE, THE LEARNED CIT (A) HAD REDUCED THE ESTIMATION OF INCOME OF THE ASSESSEE AT 2% INSTEAD OF 3% ADOPTED BY THE AO. THE FINDINGS OF THE CIT (A) TO A RRIVE AT SUCH A CONCLUSION ARE EXTRACTED AS UNDER: 10.0. THOUGH THE INCREASED SALES ARE SHOWN IN THE PROFIT & LOSS A/C WHICH ARE SUBJEC T TO EXCISE DUTY & VAT, AS PER THE FINDINGS OF THE AO THA T THE HIGHER SALE INVOICES TO PARTIES ARE NOT VERIFIA BLE SINCE THE ENQUIRY LETTERS SENT TO THE ASSESSEES CUSTOMERS WHO ARE LOCATED AT VARIOUS PLACES SUCH AS AHMEDABAD, BA RODA, KAKINADA, THIRUVANANTHAURAM, KAPUR AND KOLKATTA ENQUIRING ABOUT THE EXISTENCE, IDENTITY AND GENUINEN ESS OF SALE ARE RETURNED AS UN-SERVED. FURTHER, COMMI SSIONS ISSUED U/S 131(D) TO THE DDIT (INV) OF AHMEDABAD, THIRUVANANTHAPURAM AND BARODA TO ENQUIRY ABOUT THE EXISTENCE OF THE CUSTOMERS OF HE ASSESSEE AND TO RE PORT, BUT, THEY ALSO FOUND THAT NONE OF THE PARTIES ARE IN EXISTENCE AT THE ADDRESSES STATED IN THE INVOICE CO PIES PAGE 6 OF 13 ITA NOS.979 & 980/B ANG/2011 & 1060 & 1061/BANG/2011 6 SENT TO THEM, THEREFORE SALES ARE NOT VERIFIABLE AN D AS SUCH REJECTION OF BOOKS OF ACCOUNT U/S 145 BY THE AO IS JUSTIFIED AND I UPHOLD THE SAME, AS THE SALES ARE N OT VERIFIABLE AND SUPPRESSION CANNOT BE RULED OUT. TH E SAME VIEW WAS EXPRESSED IN THE CASE OF BOMBAY CYCLE STORES COMPANY V. CIT (1958) 33 ITR 13 (BOM) AND ALSO IN TH E CASE OF A MUSA & SONS V. CIT 23 ITR 73 (BOM). 10.1. HOWEVER, WITH REGARD TO THE EXTENT OF INCOME ASSESSED BY THE AO, I FIND THE SAME TO BE ON THE HIG HER SIDE. THE APPELLANT HAS GIVEN AN EXPLANATION BEFOR E THE AO DURING THE COURSE OF ASSESSMENT FOR VARIATION IN PRODUCTION AND SALES THAT RESULTED IN LOWER PERCENT AGE OF PROFITS ON THE SALES THOUGH MAINTENANCE EXPENSES, L ABOUR COST, POWER CONSUMPTION AND ITS COST ARE CONSTANT A ND ARE COMPARABLE WITH THE PREVIOUS YEAR. IN ADDITION TO THE ABOVE, ASSESSEES CLAIM THAT PRICES OF THE PETR OLEUM PRODUCTS ARE INCREASING AND ARE HIGHLY VOLATILE AND IN THIS SCENARIO ASSESSEE WAS UNABLE TO REALIZE HIGHER PRIC ES FROM HIS (SIC) ITS CUSTOMERS AS THE UNIT MAINLY DEPE NDING ON PETROLEUM PRODUCTS IS A GOOD REASON THAT SHOULD HAVE BEEN KEPT IN MIND BY THE AO WHILE ESTIMATION THE TA XABLE INCOME FROM BUSINESS. THEREFORE, ESTIMATION OF TAX ABLE ON THE TURNOVER MADE BY THE AO IS REQUIRED TO BE MODIFIED AND I HOLD THAT THE ESTIMATE OF INCOME AT 2% AS AGAINST 3% DETERMINED BY THE AO WOULD SERVE THE ENDS OF JUSTICE 8. AGGRIEVED, THE ASSESSEE HAS COME UP WITH THE PRESENT APPEAL. DURING THE COURSE OF HEARING, THE LEARNED A R REITE RATED MORE OR LESS WHAT HAS BEEN REPRESENTED BEFORE THE FIRST APPELLATE AUT HORITY. IN FURTHERANCE, THE SUBMISSION MADE BY THE LEARNED AR IS SUMMARIZED AS UNDER: - THAT THE ASSESSEE HAS BEEN MAINTAINING PROPER BOO KS OF ACCOUNTS AS REQUIRED UNDER THE ACT AND ALL THE TRAN SACTIONS PAGE 7 OF 13 ITA NOS.979 & 980/B ANG/2011 & 1060 & 1061/BANG/2011 7 WERE FULLY SUPPORTED BY VOUCHERS AND BILLS; THAT THE ASSESSEES CASE WAS SUBJECTED TO AUDIT U/S 44AB OF THE ACT; - THAT THE SAME SETS OF BOOKS HAVE BEEN SUBJECTED T O ASSESSMENTS BY THE COMMERCIAL-TAX DEPARTMENT AS WELL AS THE CENTRAL EXCISE AUTHORITIES AND THERE WAS NO PRIMA FACIE EVIDENCE WITH JUSTIFIES THE REJECTION OF BOOKS OF A CCOUNT; - THAT THE AO HAD OPINED THAT THE INVESTMENT IN LAN D BY THE ASSESSEE COULD HAVE BEEN FOR A HIGHER FIGURE FOR WH ICH THE ADDITIONAL CONSIDERATION WOULD HAVE BEEN MET OUT OF THE SUPPRESSED INCOME ETC., THAT THIS ALLEGATION OF THE AO HAD NO BASIS AND NO MATERIAL HAD BEEN BROUGHT ON RECORD TO JUSTIFY SUCH ALLEGATION; - THAT THE AO HAD NOT MADE OUT ANY CASE FOR APPLICAT ION OF S. 145 OF THE ACT SINCE THERE WERE NO DISCREPANCIES FO UND IN THE MAINTENANCE OF BOOKS OF ACCOUNT AND, THUS, THE RESO RTING TO ESTIMATE THE PROFIT BY THE AO HAS NO BASIS; - THAT THE AO HAD ERRED IN REFERRING TO THE EXCISE RAID FOR JUSTIFYING THE ESTIMATION WITHOUT APPRECIATING THAT THE ALLEGED RAID HAD NO IMPACT AND THE ORDERS PASSED BY THE CENT RAL EXCISE AUTHORITIES HAVE BEEN QUASHED BY CESTAT; - THAT THE AO ERRED IN COMPARING SOME CASES REFERRE D TO BY HIM FOR COMPARISON IN HIS ORDER WHICH IN FACT WERE NOT IN THE LINE OF BUSINESS AND ALSO THE INSTANCES QUOTED BY H IM WERE INCOMPARABLE; - THAT THE COMPARISON WAS NORMALLY BEING DONE WITH G ROSS PROFIT RATIO AND THE NET PROFIT RATIO VARIOUS EVEN IN TWO SIMILARLY CASES ON ACCOUNT OF VARIOUS EXPENSES WHICH HAD NO D IRECT NEXUS TO THE TRADE AND, THUS, THE AO ERRED TO COMPARE TO THOSE RATIOS TO JUSTIFY HIS ESTIMATION AT 3%; - THAT WHILE COMPARING THE NET PROFIT OF THE ASSESS EE WITH OTHER MANUFACTURERS SUCH AS SRI POLYPACKS, BIG BAGS INDIA PVT. PAGE 8 OF 13 ITA NOS.979 & 980/B ANG/2011 & 1060 & 1061/BANG/2011 8 LTD AND BAJAJ PACK LINE ETC., THE AO HAD FAILED TO REQUIRE THE ASSESSEE TO EXPLAIN OR SHOW-CAUSE AS TO WHY THOSE CO MPANIES PROFITS WERE HIGHER THAN THAT OF THE ASSESSEE AND T HE SAME YARDSTICK CAN NOT BE APPLIED IN THE ASSESSEES CASE; - THAT THE AO HAD FAILED TO FORE-SEE THE LOW PROFIT ABILITY IN THE ASSESSEES CASE, NAMELY: (I) THE MACHINERY IN THE ASSESSEES PREMISES WAS MORE TH AN 20 YEARS OLD WHICH REQUIRES REGULAR MAINTENANCE AND UPKEEP TO RUN FOR CONTINUOUS SHIFTS; (II) INTERMITTENT POWER CUTS WHICH NECESSITATED THE ASSE SSEE TO APPLY GENERATOR TO AUGMENT THE POWER SUPPLY; (III) FREQUENT FAILURE OF POWER SUPPLY HAD AN IMPACT ON TH E MANUFACTURE OF THE PRODUCTS AND ALSO THE NET PROFIT RATIO; (IV) THERE WERE STIFF COMPETITIONS FROM THE SAME LINE OF BUSINESS MANUFACTURERS; (V) THE ENTIRE MANUFACTURE ON INDIGENOUS RAW MATERIALS WERE SUPPLIED BY THE COMPANIES LOCATED AT FAR OFF PLACES PATA AT U.P AND JAMNAGAR, GUJARAT. THIS HAD CONTRIBUTED INCURRING ADDITIONAL COST ON FREIGHT CHARGES; - THAT WITHOUT APPLYING THE ABOVE PARAMETERS TO EACH OF THE COMPARATIVE ORGANIZATIONS, THE AO HAD CHOSEN THE CO MPANIES WHICH WERE NOT THE SIMILAR LINE OF BUSINESS WHOSE P ROFITS WERE HIGHER WHICH CANNOT BE COMPARED WITH THE LINE OF TH E BUSINESS OF THE ASSESSEE AS IT IS ON A DIFFERENT FOOTING; - THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE BALANCE-SHEETS OF THE OTHER MANUFACTURERS OF HDPE W OVEN FABRICS AND SACKS, NAMELY, DECCAN POLYPACKS, NARMADA EXTRUSION LIMITED AND KLENE PAKS LTD HAVE BEEN PROD UCED TO PROVE THAT THEY HAVE ALSO REFLECTED MANUFACTURING LO SSES IN THEIR BALANCE SHEETS; - THAT WITH REGARD TO PURCHASE OF LAND AT A MEAGER COST, IT WAS EXPLAINED AT THE TIME OF ASSESSMENT PROCEEDINGS THA T THE PAGE 9 OF 13 ITA NOS.979 & 980/B ANG/2011 & 1060 & 1061/BANG/2011 9 ASSESSEE HAD TO SPENT A SUBSTANTIAL AMOUNT ON THE L AND FOR CONVERSION AND DEVELOPING INTO AN INDUSTRIAL LAND S INCE THE LAND WAS BARREN UNFIT FOR CULTIVATION AND THAT THE PRICE WAS TO COMMENSURATE TO THE MARKET VALUE PREVAILED AT THAT RELEVANT TIME; - THAT THE AO HAD SUMMARILY REJECTED THE BOOKS OF AC COUNTS AND ARRIVED AT A GROSS PROFIT PERCENTAGE MERELY ON H IS ENQUIRIES THROUGH THE CIB AT VARIOUS PLACES. IN FACT, THE SA LES MADE TO THE PARTIES WHO HAVE GIVEN THEIR ADDRESSES AT THE T IME OF PURCHASING THE MATERIALS FROM THE ASSESSEE WHICH WE RE DULY RECORDED BY THE ASSESSEE ON A BONA FIDE BELIEF IN IT S BOOKS OF ACCOUNT, DOESNT NECESSITATE FOR REJECTION OF THE ENTIRE BOOKS OF ACCOUNT OF THE ASSESSEE. 8.1. IN CONCLUSION, IT WAS PLEADED THAT T HE REJECTION OF BOOK ACCOUNT IS BAD AND THE ESTIMATION OF PROFIT AT 3% ON THE GR OSS SALES BY THE AO WHICH HAS BEEN REDUCED TO 2% BY THE FIRST APPELLATE AUTHOR ITY WAS RATHER EXCESSIVE AND ON THE HIGHER SIDE IN THIS LINE OF BU SINESS. 8.2. ON THE OTHER HAND, THE LEARNED D R H AD FULLY SUPPORTED THE STAND OF THE AO ON THE ISSUE, BUT, FOUND FAULT WITH THE FINDING OF THE CIT (A) IN REDUCING THE ESTIMATION OF THE PROFIT AT 2%. SINCE THE AO HAD ANALYZED THE ISSUE AT LENGTH WITH COMPARABLE CASES T O ARRIVE AT SUCH A CONCLUSION WHICH WAS REASONABLE AND JUSTFIABLE TO E STIMATE THE PROFIT AT 3%, THE LEARNED D R PLEADED THAT THE FINDING OF THE AO REQUIRES TO BE SUSTAINED. 8.3. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUB MISSIONS, PERUSED THE RELEVANT MATERIALS ON RECORD AND ALSO THE DOCUMENTA RY EVIDENCES PRODUCED DURING THE COURSE OF HEARING BY THE LEARNED A R IN T HE SHAPE OF A PAPER BOOK. PAGE 10 OF 13 ITA NOS.979 & 980/ BANG/2011 & 1060 & 1061/BANG/2011 10 8.3.1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS , THE AO NOTICED THAT THE ASSESSEE HAD PURCHASED A LAND, AD-MEASURIN G 2 ACRES AND 35 GUNTAS AT ATTUR VILLAGE OF HOSKOTE FOR A SUM OF RS.5.85 W HICH, ACCORDING TO THE AO, DID NOT REFLECT THE MARKET VALUE. ADMITTEDLY, T HE AO HAD NEITHER BROUGHT ON RECORD ANY EVIDENCE SUCH AS COMPARABLE SA LE INSTANCES IN THE VICINITY NOR MADE ANY ENQUIRIES TO REBUT THE ASSESSEE S ASSERTION. 8.3.2. WITH REGARD TO CASH DEPOSITS TO THE T UNE OF RS.24 CRORES AT REGULAR INTERVALS IN ITS BANK ACCOUNT AND TO VERIFY THE AUTHENTICITY OF THE ASSESSEES CLAIM THAT THOSE CASH DEPOSITS WERE NOTH ING BUT THE CASH SALES OF ITS PRODUCTS AS ACCOUNTED FOR IN ITS BOOKS OF ACCOU NT ETC., THE AO ISSUED COMMISSIONS U/S 131(D) OF THE ACT TO HIS COUNTER-PA RTS AT FAR OFF CITIES LIKE AHMEDABAD, THIRUVANTHAPURAM, BARODA TO MAKE ENQUIRI ES WITH REGARD TO THE ADDRESSES MENTIONED IN THE COPIES OF INVOICES AS TO WHETHER THE ASSESSEE HAD MADE SUCH TRANSACTIONS WITH THEM. THEY HAVE, IN THEIR COMMUNICATIONS, STATED THAT NONE OF THE PURCHASERS EXISTED IN THE A DDRESSES AS APPEARED IN THE INVOICES. SIMILARLY, LETTERS SENT TO VARIOUS OT HER PLACES SUCH AS MADURAI, KANPUR, KAKINADA, DHARMAPURI ETC., HAVE BEEN PROMPT LY RETURNED BY THE POSTAL AUTHORITIES AS UN-SERVED. 8.3.3. TAKING INTO ACCOUNT THE ASSESSEES CONT ENTIONS, ANALYZING THE ISSUE WITH COMPARABLE CASES AND FOR THE DETAILED RE ASONS RECORDED IN HIS ASSESSMENT ORDER, THE AO HAD REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE U/S 145 OF THE ACT AND ADOPTED THE PROFIT OF THE ASSESSEE AT 3% ON GROSS SALES. PAGE 11 OF 13 ITA NOS.979 & 980/ BANG/2011 & 1060 & 1061/BANG/2011 11 8.3.4. ON HIS PART, THE CIT (A) HAD JUSTIFIED THE AOS STAND IN REJECTING THE BOOKS OF ACCOUNT OF THE ASSESSEE U/S 145 OF THE ACT ON THE PREMISE THAT THOUGH THE INCREASED SALES SHOWN IN TH E P & L ACCOUNT WHICH WERE SUBJECTED TO EXCISE DUTY AND VAT, HOWEVER, AS PER THE FINDINGS OF THE AO, THE HIGHER SALE INVOICES TO PARTIES WERE NOT VE RIFIABLE AS NONE OF THE PARTIES WERE IN EXISTENCE IN THE GIVEN ADDRESSES AN D, THUS, THE SUPPRESSION OF SALES CANNOT BE RULED OUT. 8.3.5. HOWEVER, WITH REGARD TO THE ESTIMATION OF PROFIT AT 3% BY THE AO, THE CIT (A) WAS OF THE VIEW THAT IT WAS RATHER ON A HIGHER SIDE, PRIMARILY, IN THE SENSE THAT THE ASSESSEES CONTENTI ON OF VARIATION IN PRODUCTION AND SALES RESULTED IN LOWER PERCENTAGE O F PROFITS WHEN COMPARED TO THE MAINTENANCE EXPENSES, LABOUR COST, POWER CON SUMPTION WERE STABLE WHEN COMPARED WITH THE PREVIOUS YEAR. THESE GROUND R EALITIES, ACCORDING TO THE CIT (A), HAVE NOT BEEN ADDRESSED TO BY THE AO. KEEPING THESE FACTS IN VIEW, THE CIT (A) HAD MODIFIED THE RATIO OF ESTIMAT ION OF INCOME AT 2% AS AGAINST 3% ADOPTED BY THE AO. 8.4. IN AN OVERALL CONSIDERATION OF THE FAC TS AND CIRCUMSTANCES OF THE ISSUE AND ALSO KEEPING THE CONTENTIONS OF THE A SSESSEE, REASONING OF THE AO AS WELL AS THE FINDINGS OF THE CIT (A) IN VIEW, WE DECIDE THE ISSUES RAISED BY THE ASSESSEE AS UNDER: (I) REJECTION OF BOOKS OF ACCOUNT U/S 145 OF THE ACT: AS RIGHTLY HIGHLIGHTED BY THE CIT (A), THE HIGHER SALE INVOICES TO THE VARIOUS PARTIES SPREAD OVER AHMEDABAD, THIRUVAN ANTHAPURAM, BARODA, PAGE 12 OF 13 ITA NOS.979 & 980/ BANG/2011 & 1060 & 1061/BANG/2011 12 MADURAI, DHARMAPURI WERE NOT VERIFIABLE TO ASCERTAI N THE VERACITY OF THE ASSESSEES CLAIM FOR A SIMPLE REASON THAT THE ALLEG ED PARTIES WERE NEITHER TRACEABLE NOR THEIR VERY EXISTENCE IS AT STAKE, WE A RE OF THE CONSIDERED VIEW THAT THE AO WAS FULLY JUSTIFIED IN REJECTING THE BOO KS OF ACCOUNT OF THE ASSESSEE U/S 145 OF THE ACT WHICH HAS BEEN RATIFIED BY THE CIT (A). THIS GROUND OF THE ASSESSEE IS, THEREFORE, DISMISSED. (II) ESTIMATION OF PROFIT AT 2% AS AGAINST 3% ADOPTED BY THE AO: ADMITTEDLY, IT WAS AN UNDISPUTED FACT THAT THERE WAS VARIATION IN PRODUCTION AND SALES WHICH RESULTED IN LOWER PERCEN TAGE OF PROFITS ON SALES EVEN THOUGH THE EXPENSES ON MAINTENANCE, LABOUR WAG ES, POWER CONSUMPTION ETC, WERE CONSTANT WHICH COULD BE COMPARABLE WITH T HE PRECEDING YEAR. THE PRICES OF THE PETROLEUM PRODUCTS WERE ALSO CONSTANT LY SHOWING UPWARD TREND. KEEPING THESE INEVITABLE FACTS IN VIEW, WE ARE OF T HE CONSIDERED VIEW THAT THE ESTIMATION OF PROFIT AT 1.8% ON THE GROSS SALES WOULD BE REASONABLE AND JUSTIFIABLE IN THE GIVEN CIRCUMSTANCES. IT IS ORDE RED ACCORDINGLY. A.Y 2007-08 ITA NO. 980/B/11 - BY THE ASSESSEE: 9. AT THE OUTSET, WE WOULD LIKE TO POINT OU T THAT THE ISSUES RAISED FOR THIS ASSESSMENT YEAR ARE AKIN TO THAT OF THE ISSUES RAISED FOR THE AY 2006- 07 (SUPRA). THUS, THE FINDINGS RECORDED THEREIN AR E HOLD-GOOD FOR THIS ASSESSMENT YEAR AS WELL. IT IS ORDERED ACCORDINGLY. PAGE 13 OF 13 ITA NOS.979 & 980/ BANG/2011 & 1060 & 1061/BANG/2011 13 II. ITA NOS. 1060 & 1061/B/11 AYS 2006-07 & 07-08 BY THE REVENUE: 10. THE SOLITARY GRIEVANCE OF THE REVENUE FOR B OTH THE AYS UNDER CONSIDERATION IS THAT THE CIT (A) HAD ERRED IN REDUCING THE PROFIT ESTIMATION FROM 3% TO 2% WITHOUT ANY REASONABLE BAS IS. 10.1. WE WOULD LIKE TO REITERATE THAT FOR THE REA SONS RECORDED IN THE ASSESSEES APPEALS FOR THE AYS 2006-07 AND 2007-08 (SUPRA) WHEREIN WE HAVE DECIDED TO ESTIMATE THE ASSESSEES PROFIT AT 1.8% ON THE GROSS SALES AS AGAINST 3% AND 2% ADOPTED BY THE AO AND THE CIT (A) RESPECTIVELY. IN A NUT-SHELL, THE REVENUES APPEALS FOR THE AYS 2006-0 7 AND 2007-08 ARE DISMISSED. 11. IN THE RESULT : (I) THE ASSESSEES APPEALS FOR THE AYS 2006-07 AND 2007 -08 ARE PARTLY ALLOWED; & (II) THE REVENUES APPEALS FOR THE AYS 200607 AND 2007- 08 ARE DISMISSED. THE ORDER PRONOUNCED ON THE 9 TH DAY OF NOVEMBER, 2012 AT BANGALORE. SD/- SD/- (N BARATHVAJA SANKAR) (GEORGE GEORGE K) VICE PRESIDENT JUDICIAL MEMBER COPY TO : 1. THE REVENUE 2. THE ASSESSEE 3. THE C IT CONCERNED. 4. THE CIT(A) CONCERNED. 5. DR 6. GF MSP/ BY ORDER SENIOR PRIVATE SECRETARY, ITAT, BAN GALORE.