Vipul Tex Fab Pvt. Ltd., Surat V. The ACIT.,Circle-4, Surat

ITA 1106/AHD/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5551 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 3 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 17-05-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 28-03-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JYOTI LAXMI
• Assessee Lawyers: DENNIS CHOKSHI
• Keywords: Gross profit estimation; Rejection of books of accounts; Business income; Income from undisclosed sources
• Section: 133A; 64; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL : D BENCH : A HMEDABA D CAMP AT SURAT (BEFORE HONBLE SHRI T.K. SHARMA, J.M. & HON'BLE SH RI D.C. AGRAWAL , A.M.) I.T.A. NO. 1106/AHD./2008 ASSESSMENT YEAR : 2003-2004 VIPUL TEX FAB PVT. LTD., SURAT -VS.- ASSISTANT COMMISSIONER OF INCOME TAX, (PAN : AAACV 9103 A) CIRCLE-4, SURAT (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI DENNIS CHOKSHI RESPONDENT BY : SMT. JYOTI LAXMI, SR. D.R. O R D E R PER SHRI T.K. SHARMA, JUDICIAL MEMBER : THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE O RDER DATED 23.01.2008 OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-I, SURAT CONFIR MING THE ACTION OF ASSESSING OFFICER REGARDING REJECTION OF BOOKS OF ACCOUNTS UNDER SECT ION 145 OF THE ACT AND UPHOLDING THE ADDITION OF RS.15,88,442/- MADE BY THE ASSESSING OFFICER FOR THE ASSESSMENT YEAR 2003-04. 2. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSEE I S A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF TWISTING OF YARN AND MANUFACTURING AND SALES OF GREY CLOTH. FOR THE ASSESSMENT YEAR UNDER APPEAL, THE ASSESSEE FILED THE RETURN OF INCO ME DECLARING NIL INCOME. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE-COMPANY HAS EARNE D A GROSS PROFIT OF RS.28,31,424/- ON A TOTAL SALES OF RS.2,82,64,097/- WHICH COMES TO 10.02% AS AGAINST GROSS PROFIT OF RS.42,44,192/- ON A TOTAL SALES OF RS.2,71,32,061/-, WHICH COMES TO 15. 64% IN THE IMMEDIATELY PRECEDING YEAR. THUS THERE IS A FALL IN G.P. RATIO BY 5.62% IN THE YEAR UNDER CONSIDERATION. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE BELONG S TO VIPUL GROUP OF CASES. A SURVEY OPERATION UNDER SECTION 133AWAS CARRIED OUT IN THE GROUP CASE ON 25.07.2002. AS A RESULT OF SURVEY SHRI ANIL AGARWAL, DIRECTOR AND THE MAIN PER SON OF THE GROUP ADMITTED RS.2.25 CRORES AS UNACCOUNTED INCOME OF THE GROUP. THIS AMOUNT INCLUD ES RS.5 LACS IN RESPECT OF ASSESSEE- 2 ITA NO. 1106/AHD/2008 COMPANY FOR THE YEAR UNDER CONSIDERATION ON ACCOUNT OF SUNDRY RECEIVABLES AND STORES WHICH IS SHOWN BY THE ASSESSEE IN ITS RETURN OF INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN THE FALL IN GP RATE AS WELL AS JUSTIFICATIO N FOR PAYMENT UNDER SECTION 40A(2)(B) OF THE ACT. TO THIS, THE ASSESSEE VIDE LETTER DATED 28.01.2005 SUBMITTED THAT NO COMPARATIVE FIGURES CAN BE GIVEN FOR THE PAYMENTS MADE UNDER SECTION 40A(2)(B) . WITH REGARD TO FALL IN G.P. ALSO, THE ASSESSING OFFICER IN THE ASSESSMENT ORDER NOTICED V ARIOUS DISCREPANCIES WHICH ARE DISCUSSED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. FINA LLY AFTER CONSIDERING THE VARIOUS DECISIONS ON THE ISSUE, THE ASSESSING OFFICER AS DISCUSSED IN PA RA 10 OF THE ASSESSMENT ORDER MADE THE ADDITION OF RS.15,88,442/-. THE PARA 10 IN PAGES 14 -15 OF THE ASSESSMENT ORDER MADE BY THE ASSESSING OFFICER IS REPRODUCED HEREUNDER :- 10. IN VIEW OF THE ABOVE FACTS AND FINDINGS, THE U NDERSIGNED IS NEITHER SATISFIED ABOUT THE CORRECTNESS AND COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE NOR IN A POSITION TO DEDUCE THE TRUE PROFI TS OF THE BUSINESS OF THE ASSESSEE. FURTHER, THERE IS A FALL IN GP BY 5.62% I N THE YEAR UNDER CONSIDERATION AND WHICH COULD NOT BE EXPLAINED SATI SFACTORILY BY THE ASSESSEE AS DISCUSSED ABOVE. IN SUCH A SITUATION, T HE UNDERSIGNED IS LET WITH NO OPTION BUT TO ESTIMATE THE BOOK RESULT U/S. 145( 3) R.W.S. 144 OF THE INCOME TAX ACT, 1961. THEREFORE, THE BOOK RESULTS O F THE ASSESSEE ARE BEING REJECTED U/S. 145(3) OF THE ACT AND THE ASSESSMENT IS BEING COMPLETED IN THE MANNER PROVIDED U/S. 144 OF THE ACT. FOR MAKING THE BEST JUDGMENT ASSESSMENT, THE LAST YEARS GP RATE IS TAKEN AS THE BASIS AND PROFIT IS BEING DETERMINED AT THE RATE OF 15.64% (LAST YEARS GP) O F THE SALES SHOWN BY THE ASSESSEE. ADMITTEDLY, A NET ADDITION OF 5.62% OF SA LES (RS.2,82,64,097/-) IS BEING MADE WHICH WORKS OUT TO RS.15,88,442/-. THIS ADDITION SHALL ALSO TAKE CARE OF ALL THE DEFECTS OBSERVED IN THE BOOKS OF ACCOUNT. 4. ON APPEAL BEFORE THE LEARNED COMMISSIONER OF INC OME TAX(APPEALS), IT WAS CONTENDED THAT THE ASSESSING OFFICER ASKED THE ASSESSEE TO PR ODUCE DAY-TO-DAY STOCK REGISTER, BUT IT IS NOT UNDERSTOOD AS TO HOW THE STOCK REGISTER WOULD HELP IN PROVING THE PRICE OF GOODS. THE BASIC PURPOSE OF STOCK MAINTENANCE IS TO MAKE QUALITY-WIS E DETAILS OF GOODS. THE PURCHASE AND OTHER DETAILS CAN NEVER PROVE THE GENUINENESS AND PRICE O F GOODS. REGARDING THE MISTAKE OF WORKING OF AVERAGE PRICE OF YARN, THE ASSESSING OFFICER MENTIO NED THAT THE MISTAKE WAS OCCURRED AFTER 10 MONTHS. THE ASSESSEE HAS STATED THAT THE MISTAKE WA S CORRECT WHEN IT WAS BROUGHT TO ITS KNOWLEDGE BY THE ASSESSING OFFICER. WITH RESPECT TO REDUCTION IN SALES PRICE THE ASSESSEE HAS STATED THAT THE ASSESSEE FOLLOWS CODING METHOD AND ALLOTS CODE TO ALL TYPE OF GOODS. IT DOES NOT 3 ITA NO. 1106/AHD/2008 MENTION THE NAME AND QUALITY ON BILL BUT A CODE. IN FACT IT IS THE LATEST TREND OF MODERN WORLD. ALL THE MULTINATIONAL COMPANIES FOLLOW THIS METHOD. IT WAS STATED THAT THE ASSESSEE HAS PROVIDED THE WHOLE LIST OF CODE AND THEIR RESPECTIVE QUALITY WHI CH WAS NOT CONSIDERED BY THE ASSESSING OFFICER. WITH RESPECT TO THE CASH SALES AT THE RATE OF 10/-, THE ASSESSEE REPEATED THAT THIS WAS IN RESPECT OF WASTAGE OF GOODS WHICH WAS SOLD AT LOWER PRICE. FOR THIS VERIFICATION, THE ASSESSEE HAD PRODUCED THE SALES BILLS BEFORE THE ASSESSING OFFIC ER IN RESPECT OF WHICH NO DEFECT HAS BEEN MENTIONED BY HIM. WITH RESPECT TO THE TRANSACTIONS WITH SISTER CONCERN, THE ASSESSEE HAS REPEATED THE SUBMISSION MADE BEFORE THE ASSESSING OFFICER AN D THE SAME IS NOT REPEATED. BEFORE THE ASSESSING OFFICER, THE ASSESSEE CONTENDED THAT BOOK S OF ACCOUNTS CANNOT BE REJECTED. IN SUPPORT OF THIS, RELIANCE WAS PLACED ON THE FOLLOWING DECIS IONS :- (I) ST. TERESAS OIL MILLS [76 ITR 365] (KER.); (II) KHAMBHATTA FAMILY TRUST [62 TTJ 685] (AHD.); (III) S. VEERIAH REDDIAR [38 ITR 152] (KER.); (IV) PANDIT BROS. [26 ITR 159] (PUN.); (V) R.B. BANSILAL ABIRCHAND SPINNING & WEAVING MILL S LTD. [75 ITR 260 (BOM.)]; (VI) ALUMINIUM INDUSTRIES PVT. LTD. [80 TAXMAN 184] (GAU.); (VII) ITO VS.- SATYANARAYAN PAREEK [71 TTJ 997] (G AU.). 5. AFTER CONSIDERING THE AFORESAID SUBMISSIONS OF T HE ASSESSEE, IN THE IMPUGNED ORDER, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) UPHELD THE ACTION OF ASSESSING OFFICER FOR THE DETAILED REASONS GIVEN IN PARA 4.1 TO 4.4, WHICH RE ADS AS UNDER :- 4.1. I HAVE CONSIDERED THE SUBMISSION MADE BY THE APPELLANT AND OBSERVATION OF THE AO. ADMITTEDLY, THE APPELLANT DOES NOT MAINTAIN DAY TO DAY STOCK REGISTER SHOWING QUANTITATIVE DETAILS AS WELL AS QUALITY OF RAW MATERIAL. THE APPELLANT H AS STATED THAT IT HAS MENTIONED THIS IN THE PURCHASE AND SALES BILLS AND THEREFORE QUALITY IS V ERIFIABLE. HOWEVER, THE FACT REMAINS THAT THE APPELLANT HAS NOT MADE ANY EFFORT TO MATCH THE PRIC E ALONG WITH THE QUALITY. THE APPELLANT HAS FAILED TO REBUT THE AO'S ARGUMENT AND SUPPORT ITS C ONTENTION BY TAKING OUT THE QUALITY DETAILS FROM THE CODES AND MATCHING THE SAME WITH THE PURCHASE V ALUE. THE APPELLANT'S CONTENTION THAT PURCHASE OF HIGH QUALITY YARN AND VISCOSE WAS MORE DURING THE YEAR HAS BEEN FOUND TO HE FACTUALLY INCORRECT AS STATED ABOVE. THE APPELLANT'S CONTENTI ON THAT THERE WAS REDUCTION IN SALE PRICE FROM RS.21.96 IN THE CURRENT YEAR TO RS.21.70 IN THE LAS T YEAR REMAINED UNVERIFIED AS THE APPELLANT HAS MADE NO EFFORT TO CORRELATE THE CODES WITH THE RATE S. IN THE ABSENCE OF STOCK REGISTER THE CONTENTION OF THE APPELLANT THAT THE APPELLANT IS FOLLOWING FI FO METHOD FOR VALUATION OF CLOSING STOCK IS ALSO NOT VERIFIABLE. SIMILARLY, IT IS SEEN THAT THE APPE LLANT HAS INDEED ENTERED INTO SEVERAL TRANSACTIONS OF PURCHASE AND SALE WITH SISTER CONCERNS WHERE IT IS SEEN THAT THE SALES HAVE BEEN MADE TO SISTER CONCERN AT RATES WHICH ARE LESS THAN THE RATE AT WH ICH THE SISTER CONCERNS HAVE PURCHASED FROM 4 ITA NO. 1106/AHD/2008 OTHER PARTIES. THE APPELLANT HAS BEEN FOUND TO PURC HASE VARIOUS ITEMS FROM ITS SISTER CONCERNS AT RATES WHICH ARE HIGHER THAN THE RATES AT WHICH THE SISTER CONCERN SOLD MATERIAL TO OTHER PARTIES. THE CONTENTION OF THE APPELLANT THAT THE QUALITY WA S DIFFERENT HAS NOT BEEN SUBSTANTIATED BY IT BY REMOVING THE QUALITY FROM THE CODES AND MATCHING WI TH THE PRICES. AS STATED ABOVE, THE APPELLANT HAS NOT BEEN ABLE TO REBUT MOST OF THE ASSESSING OF FICERS OBJECTIONS MENTIONED IN PARAS 2.6(I) TO 2.6(XII). IN VIEW OF THE ABOVE, 1 AGREE WITH THE AO THAT BOOKS OF ACCOUNTS OF THE APPELLANT ARE NOT PROPERTY MAINTAINED AND TRUE PROFIT CANNOT BE O BTAINED. 4.2. IN TINS REGARD RELIANCE IS PLACED ON THE DECIS ION OF HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF AVDHOSH PRATAPSINGH ABDUL RAHMAN & BROTHERS VS. C1T [210 ITR 406| AND IN THE CASE OF HARI SHANKAR GOPAL HARI VS. CIT [97 1TR 716] ALSO. THE H IGH COURT HAS HELD THAT THE BOOKS OF ACCOUNTS CAN BE REJECTED IF CERTAIN CONDITIONS ARE MET. IN THIS DECISION THE ALLAHABAD HIGH COURT STATED AS UNDER: 'IF IS DIFFICULT TO CATALOGUE THE VARIOUS TYPES OF DEFECTS IN THE ACCOUNT BOOKS OF AN ASSESSEE WHICH MAY RENDER REJECTION OF ACCOUNT BOOK S ON THE GROUND THAT THE ACCOUNTS ARE NOT COMPLETE OR CORRECT FROM WHICH THE CORRECT PROFIT CANNOT BE DEDUCED. WHETHER THE PRESENCE OR THE ABSENCE OF A STOCK REGISTER IS MATE RIAL OR NOT WOULD DEPEND UPON THE TYPE OF THE BUSINESS. IT IS TRUE THAT THE ABSENCE OF A S TOCK REGISTER OR CASH MEMOS IN A GIVEN SITUATION MAY NOT PER SE LEAD TO AN INFERENCE THAT THE ACCOUNTS ARE FALSE OR INCOMPLETE. HOWEVER, WHERE THE ABSENCE OF A STOCK REGISTER, CAS H MEMOS ETC., IS COUPLED WITH OTHER FACTS SUCH AS THAT VOUCHERS IN SUPPORT OF THE EXPEN SES AND PURCHASES MADE ARE NOT FORTHCOMING AND THE PROFITS ARE LOW, IT MAY GIVE RI SE TO A LEGITIMATE INFERENCE THAT ALL IS NOT WELL WITH THE BOOKS AND THE SAME CANNOT BE RELI ED UPON TO ASSESS THE INCOME, PROFITS OR GAINS OF AN ASSESSEE. 4.3 THE VIEW IS ALSO SUPPORTED BY THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF KACHWALA GEMS IN WHICH THE SUPREME COURT STATED AS UNDER :- 'IT IS WELL SETTLED THAT IN A BEST JUDGMENT ASSESSM ENT THERE IS ALWAYS A CERTAIN DEGREE OF GUESS WORK. NO DOUBT SHE AUTHORITIES SHOULD TRY T O MAKE AN HONEST AND FAIR ESTIMATE OF THE INCOME EVEN IN A BEST JUDGMENT ASSESSMENT AND S HOULD NOT ACT TOTALLY ARBITRARILY, BUT THREE IS NECESSARILY SOME AMOUNT OF GUESS WORK INVO LVED IN A BEST JUDGMENT ASSESSMENT. THE A.O. RESORTED TO BEST JUDGMENT OF THE ASSESSEE ON THE FOLLOWING GROUNDS :- (I) THE ASSESSEE HAD NOT MAINTAINED QUANTITATIVE DETAIL S/ STOCK REGISTER; (II) THERE WAS NO EVIDENCE TO VERIFY CLOSING STOCK. (III) THE GENUINENESS OF PURCHASES WAS NOT PROVED WITHOUT ANY DOUBT. ..THERE WAS NO ARBITRARINESS IN THIS CASE IN RESO RTING TO BEST JUDGMENT ASSESSMENT. IT WAS THE ASSESSEE HIMSELF WHO WAS TO BLAME AS HE DID NOT SUBMIT PROPER ACCOUNTS. 4.4. IN VIEW OF THE ABOVE DECISIONS, IT IS CLEAR TH AT THE BOOKS OF ACCOUNTS HAVE BEEN RIGHTLY REJECTED BY THE A.O. AND THE PROFIT HAS BEEN RIGHTL Y ESTIMATED AS PER LAST YEARS GP. HENCE, I AGREE WITH THE A.O. AND THE ADDITION MADE BY THE A. O. IS CONFIRMED. AGGRIEVED BY THE ORDER OF LEARNED COMMISSIONER OF I NCOME TAX(APPEALS), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 6. AT THE TIME OF HEARING BEFORE US, ON BEHALF OF A SSESSEE SHRI DENNIS CHOKSHI, LD. COUNSEL APPEARED AND FILED THE DETAILED SUBMISSIONS. HIS MA IN CONTENTION CAN BE SUMMARIZED AS UNDER :- (A) A BUSINESSMAN IS MORE CONCERNED WITH THE NET HOME TAKE, I.E. NET PROFIT, RATHER THAN ONLY WORRYING ABOUT THE GP MARGIN. IN THE CURR ENT YEAR, THE ASSESSEE HAS ACHIEVED NOT ONLY 5 ITA NO. 1106/AHD/2008 HIGHER NET PROFIT IN QUANTUM BUT ALSO A HIGHER NET PROFIT MARGIN. THEREFORE, WHILE VERIFYING THE BOOKS OF ACCOUNTS, ONE SHOULD KEEP IN MIND WHOLE BO OK RESULTS NOT ONLY THE GROSS PROFIT BUT ALSO THE NET PROFIT HAS ALSO CONSIDERED. (B) THE PROFIT MARGINS OF THE ASSESSEE WERE CONTINU OUSLY REDUCING YEAR-OVER-YEAR ON ACCOUNT OF RECESSIONARY TRENDS AND SEVERE COMPETITION, THE ASSESSEE-COMPANY, THEREFORE, ULTIMATELY CONSTRAINED TO DISCONTINUE ITS MANUFACTURING ACTIVI TY AND ALSO SOLD OUT ITS ENTIRE PLANT AND MACHINERIES DURING THE FINANCIAL YEAR 2006-07, WHIC H SUBSTANTIATES THE FACT THAT THERE WAS GENUINELY A FALL IN THE GROSS PROFIT MARGIN SINCE N O BUSINESSMAN WOULD CLOSE DOWN A PROFITABLE VENTURE. (C) IN THIS CASE, THE ASSESSING OFFICER REJECTED TH E BOOKS OF ACCOUNTS AND MADE THE GROSS PROFIT ADDITION FOR LOW GROSS PROFIT, PRIMARILY ON THE GROUND THAT QUALITY-WISE DAY-TO-DAY STOCK REGISTER AND PRODUCTION REGISTER HAS NOT BEEN MAINT AINED BY THE ASSESSEE-COMPANY. IN THIS REGARD, THE ISSUE IS DIRECTLY COVERED BY THE DECISION OF IT AT IN ASSESSEES OWN CASE IN ITA NOS. 2476 & 2649/AHD/2006, WHICH IS PLACED AT PAGES 15 TO 27 OF THE PAPER BOOK. 7. BEFORE THE ASSESSING OFFICER, THE ASSESSEE SATIS FACTORILY EXPLAINED ALONGWITH DOCUMENTARY EVIDENCES HOW HE FAILED TO APPRECIATE T HE SAME, WHICH IS CONTAINED IN PARA 5.4 AT PAGES 3 TO 10 OF THE PAPER BOOK. FROM THE SUBMISSIO NS AS CONTAINED IN PARA 5.4 OF THE PAPER BOOK, THE LD. COUNSEL OF THE ASSESSEE CONTENDED TH AT EACH OF THE QUERY/ DEFECT AS POINTED OUT BY THE ASSESSING OFFICER WERE SATISFACTORILY EXPLAINED WITH DOCUMENTARY EVIDENCES AND THE ASSESSING OFFICER HAS NOT ACCEPTED THE SAME ON THE GROUND THAT QUALITY-WISE DAY TO DAY STOCK REGISTER HAS NOT BEEN MAINTAINED BY THE ASSESSEE, T HOUGH COMPLETE QUANTITY DETAILS AND INVENTORY RECORDS HAVE BEEN MAINTAINED BY THE ASSESSEE-COMPAN Y. 7.1. NON-MAINTENANCE OF DAY-TO-DAY QUALITY-WISE STO CK REGISTER CANNOT BE A GROUND FOR REJECTING THE REGULAR BOOKS OF ACCOUNTS WHEN COMPLE TE QUANTITY DETAILS AND INVENTORY RECORDS HAVE BEEN MAINTAINED. IN THIS REGARD, RELIANCE WAS PLACED ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS - (I) INSPECTING ASSTT. COMMISSIONER VS.- DINESH TIL ES FACTORY (1988) 37 TAXMAN 357 (AHMEDABAD); 6 ITA NO. 1106/AHD/2008 (II)CIT VS.- VIKRAM PLASTICS & ORS. (1999) 239 I TR 161 (GUJ.); (III) VIMALCHAND JAIN VS.- ACIT (1998) 64 ITD 384 (ITAT, JAIPUR); (IV) S. VEERIAH REDDIAR VS.- CIT (1960) 38 ITR 152 (KER .); (V) PANDIT BROS.- VS.- CIT (1954) 26 ITR 159 (PUNJ.). FINALLY THE LD. COUNSEL OF THE ASSESSEE MADE A PRAY ER THAT BOOK RESULTS BE ACCEPTED THE GROSS PROFIT ADDITION OF RS.15,88,442/- AS MADE BY THE AS SESSING OFFICER BE DELETED FOR THE REASONS, WHICH CAN BE SUMMARIZED HEREUNDER :- THAT EVEN THOUGH THERE IS A FALL IN GROSS PROFIT, T HE APPELLANT HAS ACHIEVED A HIGHER NET PROFIT IN TERMS OF AMOUNT AS ALSO IN PERCENTAGE IN THE CURRENT YEAR AS COMPARED TO THE EARLIER YEAR. THAT THE AVERAGE SALES PRICE IN THE CURRENT YEAR HA S REDUCED AS COMPARED TO THE EARLIER YEAR LEADING TO A FAT! IN THE GROSS MARGIN. THAT THE AVERAGE PURCHASE PRICE OF PRINCIPLE RAW MA TERIAL I.E. YARN HAS INCREASED IN THE CURRENT YEAR AS COMPARED TO THE EARLIER YEAR LEADIN G TO A FAIL IN THE GROSS MARGIN. THAT THE APPELLANT HAS MAINTAINED COMPLETE QUANTITA TIVE RECORDS FOR PURCHASE, PRODUCTION AND SALES AND IN THE LINE OF BUSINESS OF MANUFACTURING OF GREY CLOTH AND TWISTING OF YARN IT IS NOT PRACTICABLE TO MAINTAIN DAY-TO-DAY QUALITY WISE QUANTITATIVE RECORDS. THAT THE INCOME OF RS, 5 LACS DISCLOSED FOR THE CUR RENT YEAR DURING THE COURSE OF SURVEY, FOR DISCREPANCY IN THE AMOUNT OF DEBTORS AND STOCK OF STORES AND SPARES, MAY KINDLY BE CONSIDERED IN COMPUTING THE G,P. THAT EVEN THE ALLEGED DIFFERENCE IN MARKET PRICE OF PURCHASES MADE FROM SISTER CONCERNS AS WORKED OUT BY THE ID. AO IS ONLY 12991/- WHICH C ANNOT BE A GROUND FOR MAKING SUCH HUGE GP ADDITION. THAT THE IMPUGNED ADDITION HAS BEEN MADE ON ERRONEO US INTERPRETATION OF FACTS AND ONLY ON ESTIMATES, CONJECTURES AND SURMISES WITHOUT ANY CORROBORATIVE EVIDENCE. 8. ON THE OTHER HAND, SMT. JYOTI LAXMI, LD. SR. D.R . APPEARING ON BEHALF OF THE REVENUE VEHEMENTLY SUPPORTED THE ORDER OF LEARNED COMMISSIO NER OF INCOME TAX(APPEALS). 9. AFTER HEARING BOTH THE SIDES, WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT THOUGH BEFORE T HE ASSESSING OFFICER, THE ASSESSEE HAS FURNISHED 7 ITA NO. 1106/AHD/2008 EXPLANATION TO THE VARIOUS DEFECTS BUT ON THE FACE OF IT, IT CAN BE SEEN THAT EVERY EXPLANATION DOES NOT APPEAR TO BE REASONABLE, FOR EXAMPLE- THE ASSES SEE HAS SOLD GREY CLOTH OF RS.81,006/- IN CASH @ RS.10/- PER MT., WHEREAS ITS AVERAGE SALES PRICE IS RS.21.78 PER METER. IT IS HIGHLY IMPROBABLE THAT THE ASSESSEE HAS SOLD THE GREY CLOTH AT A PRIC E, WHICH IS LESS THAN 50%. THE GP MARGIN OF THE ASSESSEE IS NOT 50%, THIS CLEARLY INDICATES THAT TH E ASSESSEE HAS SOLD THE GREY CLOTH AT A PRICE, WHICH IS LESS THAN THE COST. IN RESPECT OF OTHER PO INTS ALSO, FROM THE EXPLANATION OF THE ASSESSEE, IT CAN BE SEEN THAT THE ASSESSING OFFICER RIGHTLY REJE CTED THE EXPLANATION AS WELL AS BOOKS OF ACCOUNTS BY INVOKING THE PROVISIONS CONTAINED IN SE CTION 145 OF THE INCOME TAX ACT, 1961. 10. ONCE THE BOOKS OF ACCOUNTS ARE REJECTED, THE AS SESSING OFFICER HAS NO OPTION BUT TO ESTIMATE THE GROSS PROFIT. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER ESTIMATED THE GROSS PROFIT BY APPLYING LAST YEAR GP RATE AND MADE NET ADDITION OF 5.62% OF SALES OF RS.2,82,64,097/-, WHICH WORKS OUT TO RS.15,88,442/-. IN PARA 4 OF THE ASSES SMENT ORDER, THE ASSESSING OFFICER HAS MENTIONED THAT THE ASSESSEE BELONGS TO VIPUL GROUP OF CASES. SURVEY OPERATION UNDER SECTION 133A OF THE ACT WAS CARRIED OUT IN THIS GROUP OF CA SES ON 25.7.2002. AS A RESULT OF SURVEY, SHRI ANIL AGARWAL, DIRECTOR BEING MAIN PERSON OF THE GRO UP ADMITTED RS.2.25 CRORES AS UNACCOUNTED INCOME OF THE GROUP. THIS AMOUNT INCLUDES RS.5,00,0 00/- IN RESPECT OF ASSESSEE-COMPANY FOR THE YEAR UNDER ASSESSMENT ON ACCOUNT OF SUNDRY RECEIVAB LES AND STORES, WHICH IS SHOWN BY THE ASSESSEE IN ITS RETURN OF INCOME UNDER THE HEAD IN COME FROM OTHER SOURCES. IN THESE CIRCUMSTANCES, IT CAN BE SAID THAT THE BOOKS OF ACC OUNTS OF THE ASSESSEE ARE NOT AT ALL RELIABLE. EVEN AFTER CONSIDERING THE VARIOUS EXPLANATIONS INC LUDING THE NET PROFIT EARNED IN THIS YEAR IS SLIGHTLY MORE THAN LAST YEAR, BUT GROSS PROFIT HAS FALLEN SHARPLY, I.E. BY 5.62%. THE SALES FOR THE LAST YEAR WAS RS.2,71,32,061/-, WHEREAS SALES IN TH E ASSESSMENT YEAR UNDER APPEAL IS RS.2,82,64,097/-. THE CONTENTION OF THE ASSESSEE IS THAT THERE IS A RECESSION IN THE MARKET, WHICH CANNOT BE ACCEPTED IF WE LOOK AT THE SALES FIGURES. IT IS NOT KNOWN WHETHER THE NET PROFIT MARGIN IN THE ASSESSMENT YEAR UNDER APPEAL, I.E. 9.40% IS AFTER CONSIDERING THE INCOME OF RS.5 LAKHS DECLARED BY THE ASSESSEE UNDER THE HEAD INCOME FRO M OTHER SOURCES BECAUSE IN THE ASSESSMENT ORDER, NO SUCH ADDITION HAS BEEN MADE BY THE ASSESS ING OFFICER UNDER THE HEAD INCOME FROM OTHER SOURCES. LOOKING TO THE TOTALITY OF THE FACT S AND CIRCUMSTANCES OF THE CASE, IN OUR OPINION, IT WILL MEET THE END OF JUSTICE INSTEAD OF MAKING T HE ADDITION OF RS.15,88,442/- BY APPLYING 5.62% OF SALES. FURTHER A LUMPSUM ADDITION OF RS.5 LAKHS IS MADE TO COVER VARIOUS DEFECTS AND 8 ITA NO. 1106/AHD/2008 DISCREPANCIES NARRATED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. WE ACCORDINGLY DIRECT THE ASSESSING OFFICER TO MAKE LUMPSUM ADDITION OF R S.5,00,000/- ON ACCOUNT OF LOW GROSS PROFIT. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. THE ORDER WAS PRONOUNCED IN THE COURT ON 23.07.201 0 SD/- SD/- (D.C. AGRAWAL) (T.K. SHARMA ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 23/ 07 / 2010 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT. 3) CIT(A) CONCERNED, (4) CIT CONCERNED, (5) D.R., ITAT, AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGI STRAR, ITAT, AHMEDABAD LAHA/SR.P.S.