M/s. L. Kant Paper Mills Ltd., Kanpur V. DCIT, Kanpur

ITA 114/LKW/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7584 (ITAT-LUCKNOW)
• Duration Of Justice: 2 year(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-03-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 08-02-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 15-02-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Rejection of books of accounts; Business income; Depreciation; Principle of natural justice; Reasonable cause; Block assessment; Capital expenditure
• Section: 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B : LUCKNOW BEFORE SHRI S. K. YADAV, JUDICIAL MEMBER AND SHRI B. R. JAIN, ACCOUNTANT MEMBER I.T.A. NO. 11 4/LKW/10 ASSESSMENT YEAR:200 4 - 200 5 M/S L. KANT PAPER MILLS LTD., VS. DY. C.I.T., 117/H - 2/100, PANDU NAGAR, CENTRAL CIRCLE - V, KANPUR. KANPUR. PAN:AAACC3660Q (APPELLANT) (RESPONDENT) I.T.A. NO. 1 4 1 /LKW/10 ASSESSMENT YEAR:200 4 - 200 5 DY. C.I.T., VS. M/S L. KANT PAPER MILLS LTD., CENTRAL CIRCLE - V, KANPUR. KANPUR. ( APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VIKAS GARG, C.A. RESPONDENT B Y : SHRI JAGDISH, CIT, D.R. DATE OF HEARING :09/02/2012 DATE OF PRONOUNCEMENT : 05/03/2012 ORDER PER B. R. JAIN, A.M.: THESE CROSS APPEALS ARISE FROM THE ORDER DATED 30 / 11 /20 09 OF LEARNED CIT(A) - I, KANPUR. GROUNDS RAISED IN RESPECTIVE APPEALS ARE AS UNDER: I.T.A. NO.114/LKW/10 (ASSESSMENT YEAR 2004 - 2005) 1. BECAUSE THE 'CIT(A)' HAS ERRED IN LAW AND ON FACTS IN COMPUTING THE GROSS PROFIT, SAID TO HAVE BEEN EARNED BY 2 THE APPELLANT IN ITS BUSINESS, AT ` 2,01,79,312 / - , AS PER THE WORKING GIVEN HEREUNDER: - SUPPRESSED SALES AS DISCUSSED ABOVE ` 13,20,75,481 / - TURNOVER DECLARED AS PER BOOKS OF A/C ` 12 , 01 , 65 , 913/ - TOTAL ` 25 , 22 , 41 , 394/ - GROSS PROFIT @ 8% WILL BE ` 2 , 01 , 79 , 312/ - (THE TURNOVER/SALES DECLARED BY THE APPELLANT AS PER BOOKS HAS BEEN INCLUDED FOR THE REASO N THAT WHILE CALCULATING THE SUPPRESSED SALES/UNDISCLOSED PRODUCTION, THE RECONCILIATION HAS BEEN ALLOWED FOR SALES/PRODUCTION APPEARING IN THE BOOKS OF THE APPELLANT) . 2. BECAUSE SHOW CAUSE NOTICE (SCN) AS ISSUED BY THE CENTRAL EXCISE DEPARTMENT, ON THE BASIS OF PAPERS SAID TO HAVE BEEN SEIZED FROM ONE SHRI MUKUL JAIN, COULD NOT HAVE BEEN MADE THE BASIS FOR HOLDING THAT THE APPELLANT HAD SUPPRESSED ITS S ALES, AND IN CLUBBING THE SAME WITH THE TURNOVER OF THE APPELLANT (AS DISCLOSED BY IT, AS PER ITS BOOKS OF ACCOUNT). 3. BECAUSE IN ANY CASE THE AGGREGATE OF 'TURNOVER' AS WORKED OUT BY THE 'CIT(A)' AT ` 25,22,41,394 / - WAS LIABLE TO BE ADJUSTED (DOWNWARDLY) BY A SUM OF ` 1,17,84,114/ - WHICH REPRESENTED THE ELEMENT OF EXCISE DUTY AS STOOD EMBEDDED IN THE APPELLANT'S VERSION OF TURNOVER AS PER ITS BOOKS OF ACCOUNT. 4. BECAUSE APPLICATION OF GP RATE OF 8% TO THE TURNOVER ( WHICH WAS REQUIRED TO BE REVISED DOWNWARDLY BY AFORESAID SUM OF ` 1,17,84,114/ - ) IS WHOLLY ARBITRARY, WITHOUT ANY BASIS WHATSOEVER. 5. BECAUSE THE ORDER PASSED BY THE HON'BLE SETTLEMENT COMMISSION (IN THE APPELLANT'S OWN CASE) FOR THE BLOCK PERIOD ENDING ON 20.11.2002 WAS WHOLLY INAPPLICABLE IN THE YEAR UNDER APPEAL, OWING TO AN ALTOGETHER DIFFERENT PERSPECTIVE AND CHANGE OF CIRCUMSTANCE, AND APPLICATION OF GP RATE OF 8% (BY TAKING THE ORDER OF THE INCOME - TAX SETTLEMENT COMMISSION AS BASE) IS WHOLLY ERRONE OUS. 3 6. BECAUSE ON THE BASIS OF INFORMATION AVAILABLE IN PUBLIC RECORDS, THE APPELLANT HAD GIVEN COMPARABLE GP RATE IN THE SIMILAR TRADE WHICH ARE AS UNDER: - (I) M.S. INGOT 4.01% ( II) PROCESS HOUSE 5.28% (III) PAPER UNIT ( - )3.03% AND LOOKING TO THE SAID COMPARABLE CASES, THE APPLICATION OF GP RATE OF 8% IS WHOLLY ARBITRARY AND UNREASONABLE. 7. BECAUSE WHOLLY WITHOUT PREJUDICE TO THE CONTENTION RAISED IN FOREGOING GROUNDS, WHATEVER MAY BE THE ESTIMATE OF GROSS PROFIT EARNED BY THE APPELLANT I N DIVERSIFIED BUSINESS ACTIVITIES CARRIED ON BY IT, THE SAME WAS LIABLE TO BE TREATED AS FULLY COVERED BY THE INCOME OF ` 2,03,11,345 / - AS HAS BEEN DISCLOSED BY THE APPELLANT IN ITS 'RETURN', UNDER THE HEAD 'REMISSION OF TRADING LIABILITY AND SUNDRY ADV ANCE S FROM CUSTOMERS FORFEITED. 8. BECAUSE THE SAID SUMS AGGREGATING ` 2,03,11,345/ - WHICH REPRESENTED THE SUMS RECEIVED THROUGH CASH AND CHEQUES DURING THE YEAR UNDER APPEAL ITSELF, WERE LIABLE TO BE ADJUSTED AGAINST AND TELESCOPED INTO THE INCOME THAT MAY BE FINALLY DETERMINED AND FOUND TO BE ASSESSABLE IN THE HANDS OF THE APPELLANT, AS ITS BUSINESS INCOME. 9. BECAUSE IN THE EVENT OF REJECTION OF BOOKS OF ACCOUNT, THE TWO ADDITIONS NAMELY; (A) ADDITION ON ACCOUNT OF RECEIPTS BY WAY OF CASH AND CHEQUES AGGREGATING ` 2,03,11,345/ - ; AND (B) O N ACCOUNT OF RE - COMPUTATION OF GROSS PROFIT AS HAS BEEN DONE BY THE 'CIT(A)' AS PER FINDING GIVEN IN PARA 24 OF THE APPELLANT ORDER; 4 COULD NOT HAVE CO - EXISTED AND THE SAME BEING INEXTRICABLY LINKED UP WITH EACH OTHER, ONLY HIGHER OF THE TWO COULD HAVE BEEN TREATED AS INCOME OF THE APPELLANT, UNDER ALL HEADS OF INCOME TAKEN TOGETHER. 10. BECAUSE THE 'CIT(A)' HAS ERRED IN LAW AND ON FACTS IN UPHOLDING A DISALLOW ANCE OF ` 6,06,705 / - , AS HAD BEEN MADE BY THE ASSESSING OFFICER, BY CAPITALIZING SUMS AGGREGATING ` 7,74,674 / - WHICH REPRESENTED THE EXPENSES OF REVENUE NATURE AND INCURRED ON REPAIRS AND RENEWALS. 11. BECAUSE THE ORDER APPEALED AGAINST IS CONTRARY TO THE FACTS, LAW AND PRINCIPLES OF NATURAL JUSTICE. I.T.A. NO.141/LKW/10 (ASSESSMENT YEAR 2004 - 2005) 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT (APPEALS) ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF ` 2,80,86,110/ - (I.E. 15% OF ` 8,72,40,738 / - ) RELATING TO UNACCOUNTED SALES TREATING IT TO BE COVERED BY THE OR DER OF THE HON'BLE SETTLEMENT COMMISSION DATED 3 1/03/2008 FOR THE BLOCK PERIOD ENDING ON 27/11/2002 INSPITE OF THE FACT T HAT SUCH OBSERVATION OF THE CIT (APPEALS) IS NOT BORNE OUT FROM THE FACTS ON RECORD. 2. THE ORDER OF CIT (APPEALS) IS PERVERSE IN AS MUCH THE DECISION IS NOT BASED ON FACTS ON RECORD AS THERE IS NO EVIDENCE TO SUGGEST THAT THE UNACCOUNTED TURNOVER OF ` 18,72,40,738 / - WAS PART OF THE UNACCOUNTED TRANSACTION OF THE BLOCK PERIOD WHICH WAS SUBJECT MATTER OF ORDER U/S.245D(4) OF THE ACT PASSED BY THE INCOME T AX SETTLEMENT COMMISSION. 3. THAT THE ORDER OF THE LD. CIT(APPEALS) - I , KANPUR BEING ERRONEOUS IN LAW AND ON FACTS BE VACATED AND THE ORDER OF THE A.O. BE RESTORED. 4. THAT THE APPELLANT CRAVES LEAVE TO AMEND ANY ONE OR MORE OF THE GROUNDS OF THE APPEAL AS STATED ABOVE AS AND WHEN NEED FOR DOING SO MAY ARISE. 5 2. IN GROUND NO. 3 AND 4 IN ASSESSEES APPEAL THE CHALLENGE IS TO THE WORKING OF THE UNACCOUNTED SALE AT ` 13,20,75,481/ - F OR THE PURPOSE OF APPLICATION OF PROFIT RATE OF 8% ON ESTIMATE BASIS WHEREAS IN GROUND NO. 1 AND 2 IN APPEAL BY REVENUE, THE CHALLENGE I S TO THE DELETION OF ADDITION OF ` 2,80,86,110/ - BEING 15% OF THE TURNOVER OF `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` 3,03,195/ - ON 25/11/2005. THERE, HOWEVER, HAS BEEN A SEARCH BY THE CENTRAL EXCISE AUTHORITIES ON 25/09/2003. ON THE BASIS OF THE SEARCH CARRIED BY THE CENTRAL EXCISE AUTHORITIES, A SHOW CAUSE NOTICE DATED 31/08/2006 WAS ISSUED TO THE ASSESSEE ALLEGING HIM TO BE ENGAGED IN PRODUCTION AND CLEARANCE OF UNACCOUNTED FI NISHED GOODS NAMELY 6 PAPER, MS INGOTS AND PROCESSED FABRICS WITHOUT PAYMENT OF CENTRAL EXCISE DUTY AND ALSO THAT THE ASSESSEE WAS RECEIVING UNACCOUNTED RAW MATERIAL FOR THE PRODUCTION OF THE UNACCOUNTED FINISHED GOODS. DURING THE COURSE OF ASSESSMENT PROCE EDINGS, THE ASSESSING OFFICER, ON THE BASIS OF THE MATERIAL SEIZED BY THE CENTRAL EXCISE DEPARTMENT AND AS A RESULT OF SUBSEQUENT ENQUIRIES GATHER ED THAT TOTAL UNACCOUNTED PRODUCTION WAS ` 37,28,87,218/ - . HE, THEREFORE, ISSUED A SHOW CAUSE NOTICE DATED 2 2/12/006 TO THE ASSESSEE REQUIRING HIM TO EXPLAIN AS TO WHY THE BOOKS OF ACCOUNT MAY NOT BE REJECTED AS PER THE PROVISIONS OF SECTION 145(3) OF THE ACT AND INCOME COMPUTED ACCORDINGLY. IN THE SHOW CAUSE NOTICE IT WAS CLEARLY STATED THAT AS PER THE SHOW CA USE NOTICE ISSUED BY CENTRAL EXCISE DEPARTMENT THE UNACCOUNTED SALES OF THE ASSESSEE ARE ` 37,23,87,218/ - AND ASSESSEE WAS, THEREFORE, REQUIRED TO SHOW AS TO WHY THIS AMOUNT OF ` 37,23,87,218/ - BE NOT ADDED TO HIS INCOME BEING UNACCOUNTED SALES. THE DETAILE D REPLIES FILED BY THE ASSESSEE WERE CONSIDERED AND FOLLOWING FACTS, THAT WERE CONSIDERED RELEVANT TO WORK OUT THE TURNOVER AND GROSS PROFIT THEREON, HAVE BEEN STATED AT INTERNAL PAGE 6 OF THE ASSESSMENT ORDER AS UNDER: (I) AS MENTIONED IN THE SHOW CAUS E DATED 31.08.2006 OF THE CENTRAL EXCISE AUTHORITIES, THE UNACCOUNTED TURNOVER WAS ` 37,23,87,218/ - . THE DISCLOSED TURNOVER WAS ` 12,01,65,913/ - . THEREFORE, THE TOTAL TURNOVER WOULD BE THE TOTAL OF BOTH I.E. ` 49,25,53,131/ - . ACCORDINGLY, THIS IS BEING TAKEN AS THE TOTAL TURNOVER. 7 (II) THE GROSS PROFIT RATE IN THE IMMEDIATELY PRECEDING YEAR WAS 17.49%. THE SEARCH WAS CONDUCTED BY THE INCOME TAX DEPTT. ON 27.11.02. THE ISSUE OF G.P. RATE HAS BEEN DISCUSSED IN THE BLOCK ASSTT. ORDER DATED 22.12.05 AS WELL AFTER TAKING INTO CONSIDERATION THE PAST RECORDS AN D THE SEIZED MATERIAL. THE SAME W A S TAKEN AT 15% IN CASE OF PAPER AND INGOTS AND 50% IN RESPECT OF PROCESS HOUSE. IN THE INSTANT YEAR, MAJOR PART OF SALE IS PAPER, INGOT AND DYED FABRIC. THE JOB WORK IS VERY LO W AS COMPARED TO EARLIER YEARS. THE SALE OF DYED FABRIC WOULD REQUIRE PURCHASE OF GREY FABRIC AS WELL. THEREFORE, THE G.P. RATE FROM PROCESS HOUSE WOULD LOWER THAN 50% AS ESTIMATED IN BLOCK ASSESSMENT FOR PROCESS HOUSE. KEEPING IN VIEW ALL THESE FACTS, IT WOULD BE REASONABLE TO ADOPT THE G.P. RATE OF 15%. 3.1 THE ASSESSING OFFICER THEREAFTER APPLIED 15% PROFIT RATE ON THE TOTAL TURNOVER OF ` 49,25,53,131/ - AND WORKED OUT GROSS PROFIT OF ` 7,38,82,970/ - . SINCE THE ASSESSEE HAS DECLARED GROSS LOSS OF ` 1,14, 42,706/ - , AN ADDITION OF ` 8,53,25,676/ - HAS BEEN MADE TO THE INCOME OF THE ASSESSEE ON ACCOUNT OF SUPPRESSED GROSS PROFIT IN THE RETURNED INCOME OF ` 3,03,195/ - FURNISHED BY THE ASSESSEE AFTER CREDITING TO THE PROFIT & LOSS ACCOUNT THE AMOUNTS IN CASH TREAT ED AS REMISSION OF TRADING LIABILITY AS WELL AS AMOUNTS SHOWN AS CREDITS AND TREATED AS CESSATION OF LIABILITY AS ARE ALSO TREATED AS UNDISCLOSED INCOME EARNED BY WAY OF AFORESAID BUSINESS ACTIVITIES OF THE ASSESSEE BY THE ASSESSING OFFICER IN THE SHOW CAU SE NOTICE / QUESTIONNAIRE DATED 22/12/2006 AND FOUND REPRODUCED AT INTERNAL PAGE 3 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER ALSO MADE DISALLOWANCE OF ` 6,06,705/ - AND ` 4,93,932/ - . THAT BESIDES HE MADE ADDITION OF 8 ` 9,00,000/ - ON ACCOUNT OF UNSECURED LOANS AND THUS COMPUTED TOTAL INCOME AT ` 8,76,29,508/ - FOR THE YEAR UNDER CONSIDERATION. 4. IN APPEAL BEFORE LEARNED CIT(A), THE ASSESSEE MAD E EXHAUSTIVE SUBMISSIONS ASSAILING THAT THE AMOUNT OF TURNOVER TAKEN AT ` 37,23, 87,218/ - IS NOT ENTIRELY THE TURNOVER OF THE IMPUGNED YEAR AS MAJOR PART THEREOF RELATES TO THE PERIOD PRIOR TO 31/03/2005, LARGELY COVERED BY THE BLOCK ASSESSMENT PERIOD FOR 01/04/96 TO 27/11/2002 THAT CAME TO BE SETTLED BY ORDER DATED 31/03/200 8 MADE U/S 245D(4) OF THE ACT BY THE HON'BLE SETTLEMENT COMMISSION, PRINCIPAL BENCH, NEW DELHI. 4.1 THE LEARNED CIT(A) AFTER PERUSAL AND VERIFICATION OF THE SHOW CAUSE NOTICE ISSUED BY THE CENTRAL EXCISE DEPARTMENT AND RELEVANT MATERIAL ON RECORD, FOUND THAT A SUM OF ` 1,24,59,012/ - BEING THE AMOUNT OF A PARALLEL INVOICE FOUND AT THE PREMISES OF SHRI MUKUL JAIN WAS COVERED BY THE MONTHLY SUMMARY DETAILS SEIZED FROM THE FACTORY. HE, THEREFORE, IN ORDER TO AVOID DOUBLE ADDITION, REDUCED ` 1,24,59,012/ - FROM THE AFORES AID UNACCOUNTED SALES AND TOOK THE SAME AT ` 35,99,28,206/ - AS AGAINST ` 37,23,87,218/ - ADOPTED BY THE ASSESSING OFFICER. 4.2 THE LEARNED CIT(A) ALSO FOUND THAT AN AMOUNT OF ` 2,12,74,912/ - TREATED AS UNACCOUNTED SALES AS AFORESAID ALSO INCLUDED AS ASSESSEE S SALES ON THE BASIS OF ORIGINAL SEIZURE MADE BY THE INCOME TAX DEPT IN THE SEARCH HELD ON 27/11/2002 AND WAS A SUBJECT MATTER OF SETTLEMENT BEFORE THE SETTLEMENT 9 COMMISSION AND THUS WERE NOT THE UNACCOUNTED SALES FOR THE FINANCIAL YEAR 2003 - 2004 RELEVANT TO ASSESSMENT YEAR 2004 - 2005 UNDER CONSIDERATION. LIKEWISE UNACCOUNTED SALES OF ` 18,72,40,738/ - OF THE FABRIC RELATED TO THE BLOCK PERIOD PRIOR TO FINANCIAL YEAR 2003 - 2004 AND WERE COVERED BY THE BLOCK ASSESSMENT AND BEING SUBJECT MATTER OF SETTLEMENT BEF ORE THE SETTLEMENT COMMISSION THAT THIS AMOUNT WAS ALSO NOT TREATED AS UNACCOUNTED SALES OF FINANCIAL YEAR 2003 - 2004 . 4.3 THE LEARNED CIT(A) ALSO FOUND THAT AN AMOUNT OF ` 1,93,37,075/ - BORNE OUT FROM CHART NO. C - 6 PREPARED BY SHRI MUKUL JAIN RELATED TO THE PERIOD PRIOR TO FINANCIAL YEAR 2003 - 2004. THE SAME, THEREFORE, COULD NOT BE TAKEN AS SALES OF THE FINANCIAL YEAR 2003 - 2004 RELEVANT TO ASSESSMENT YEAR 2004 - 2005. THE LEARNED CIT(A) ALSO POINTED OUT THAT PRIOR TO FINANCIAL YEAR 2003 - 2004 T HE ASSESSEE WAS ENGAGED IN PROCESSING OF FABRIC AND THE CENTRAL EXCISE DEPARTMENT IN THEIR SHOW CAUSE NOTICE ONLY TOOK NOTIONAL VALUE OF THE SALES FOR A LIMITED PURPOSE OF CHARGING OF EXCISE DUTY WHEREAS THE ASSESSEE WAS MERELY RECEIVING JOB CHARGES THEREO N. HE, THEREFORE, WORKED OUT THE UNACCOUNTED SALES AT ` 13,20,75,481/ - AFTER REDUCING THE AFORESAID SALES SPELT OUT AT PARA 8.2 TO 8.5 OF THE IMPUGNED ORDER AND TABULATED AT INTERNAL PAGE 9 OF HIS ORDER AS UNDER: TOTAL ALLEGED UNACCOUNTED SALE AS PER TH E SHOW CAUSE NOTICE DATED 31/8/2006 ISSUED BY THE EXCISE AUTHORITIES 37,23,87,218 10 LESS: AS GIVEN IN PARA 8.2 1,24,59,012 LESS:AS GIVEN IN PARA 8.3 HEREIN ABOVE 2,12,74,912 LESS:AS GIVEN IN PARA 8.4 HEREIN ABOVE 18,72,40,738 LESS:AS GIVEN IN PARA 8.5 HEREIN ABOVE 1,93,37,075 24,03,11,737 ALLEGED UNACCOUNTED SALE, IF ANY, FOR FINANCIAL YEAR 2003 - 2004 13,20,75,481 4.4 AS REGARDS ISSUE RELATED TO DISCLOSED SALE OF THE ASSESSEE FOR THE PURPOSE OF APPLYING ESTIMATED GROSS PROFIT RATE, THE ASSESSEE SUBMITTED AS UNDER: T HAT THE ASSESSING OFFICER HAS TAKEN THE UNA CCOUNTED SALE AT ` 12,01,65,913/ - ON WHICH HE HAS APPLIED THE ESTIMATED G.P. RATE OF 15%. WHAT HE HAS NOT CONSIDERED IS THAT THE AFORESAID FIGURE OF SALE ALSO INCLUDES THE EXCISE DUTY PAID ON SALE OF THE GOODS. THE EXCISE DUTY PAID ON SALES IS SHOWN IN PROFIT AND LOSS ACCOUN T AT ` 1,17,84,114/ - . IN ESTIMATING THE G.P. ON ACCOUNTED OF SALES, THE EXCISE DUTY INCLUDED THEREIN SHOULD HAVE BEEN EXCLUDED THEREFROM AS ONE CANNOT EARN ANY PROFIT ON TAXES INCLUDED IN THE SALES. THEREFORE ACCOUNTED SALES COULD ONLY BE TAKEN AT ` 10,83,81,799 / - ( ` 12,01,65,913 / - ` 1,17,84,114/ - ). THE ASSESSEES ABOVE SUBMISSION IS SUPPORTED BY THE FOLLOWING DECISIONS: ( I ) HON'BLE HIGH COURT OF PATNA IN THE CASE OF CIT VS. PARECK BROTHERS [1987] 167 ITR 344 (PAT) ( II ) HON'BLE SUPREME COURT IN THE C ASE OF BRIJ BHUSHAN LAL PARDUMAN KUMAR VS. CIT 1978 TAX LR 1346: AIR 1979 SC 209: [1979] 115 ITR 524 (SC). 4.5 THE ASSESSEE ALSO ASSAILED APPLICATION OF GROSS PROFIT RATE OF 15% ADOPTED BY THE ASSESSING OFFICER BEING ARBITRARY, AD HOC AND CONTRARY TO FACTS ON RECORD. IT WAS POINTED OUT THAT THE ASSESSEE IS HAVING GROSS LOSS AND THESE RESULTS ARE VERIFIABLE FROM THE BOOKS OF ACCOUNT. THAT APART, THE SETTLEMENT COMMISSION HAS 11 ADMITTED THE GROSS PROFIT RATE OF 8% AS AGAINST 15% ADOPTED BY THE ASSESSING OFFICER ON THE BASIS OF BLOCK ASSESSMENT THAT CAME TO BE SETTLED U/S 245D(4) OF THE ACT. THE ASSESSEE ALSO INVITED ATTENTION OF LEARNED CIT(A) TO TWO SIGNIFICANT CHANGES THAT HAVE CREPT DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2004 - 2005 WHEN C OMPARED TO IMMEDIATELY PRECEDING YEAR AND ARE FOUND REPRODUCED AT INTERNAL PAGE 11 OF THE IMPUGNED ORDER AS UNDER: (I) THE COMPANY DURING THE PREVIOUS YEAR RELEVANT TO A.Y. 2004 - 2005 RECOMMENCED ITS M.S. INGOT MANUFACTURING UNIT WHICH WAS NOT IN OPERATION DURING THE IMMEDIATELY PRECEDING PREVIOUS YEAR. ( III ) IN THE IMMEDIATELY PRECEDING PREVIOUS YEAR LE. F.Y. 2002 - 2003 THE ASSESSEE COMPANY WAS DYEING FABRIC ON JOB BASIS IN ITS PROCESS HOUSE DIVISION AND EARNING JOB CHARGES THEREON. DURING THE PREVIOUS YEAR RELEVANT TO A. Y. 2004 - 2005 THE COMPANY WAS SELLING PROCESSED FABRIC BY PURCHASING THE RAW MATERIAL (GRAY FABRIC) ON ITS OWN ACCOUNT, THEREFORE APPARENTLY THE TURNOVER INCREASED THOUGH REAL INCOME REDUCED (AS NOT ONLY PRODUCTION DECREASED BUT EARNING PER METER ALSO REDUCED). YOUR KIND SELF WILL APPRECIATE THAT AS A RESULT OF SWITCH TO SALES OF DYED FABRIC THE G.P. RATE IS BOUND TO FALL AS THE DENOMINATOR IN CALCULATING G.P. RATE INCREASES MANIFOLD. 4. 6 RELIANCE WAS PLACED ON THE JUDGMENT BY HON'BLE HIGH COURT OF MYSORE IN THE CASE OF HON'BLE HIGH COURT OF MYSORE IN THE CASE OF P. VENKANNA V. CIT, (1969) 72ITR 328, 330 (MYS) WHEREIN THE HON 'BLE COURT HAS HELD THAT THE OTHER THINGS BEING EQUAL, PROFITS E STIMATED DURING AN EARLIER YEAR MAY, IN A PROPER CASE, GUIDE THE ESTIMATION OF PROFITS OF A SUBSEQUENT YEAR. BUT, THE EARLIER ESTIMATE CAN HAVE RELEVANCE ONLY IF THE CONDITIONS IN WHICH THE BUSINESS ACTIVITY OF THE LATER 12 PERIOD IS CONDUCTED ARE SO SIMILAR TO THOSE OF EARLIER PERIOD THAT IT WOULD BE REASONABLE TO INFER THAT THE PROPORTION BETWEEN THE TURNOVER AND THE PROFITS REMAINS UNALTERED. RELIANCE HAS ALSO BEEN PLACED IN THE CASE OF CIT V. EASTERN COMMERCIAL ENTERPRISES [1995] 210 ITR 103 (CAL) AND V AZHAKKALA ESTATE PVT. LTD. VS. STATE OF KERLA 209 ITR 461 (KER). THE ASSESSEE COMPANY HAS OBTAINED SAME DETAIL RELATING TO OTHER ASSESSEES ENGAGED IN SIMILAR TRADE AND OPERATING IN THE SAME LOCALITY, THE DIFFERENCE BEING THAT THE ASSESSEE COMPANY DEALS I N 3 PRODUCTS WHEREAS THEY DEAL IN ONLY ONE PRODUCT. 4.7 THE APPELLANT ALSO GAVE COMPARABLE CASES WHERE GROSS PROFIT RATE OF 5.31 % IN THE CASE OF FRONT LINE METAL CO. LTD. OF KANPUR WAS ENGAGED IN THE MANUFACTURE OF MS INGOT AND THAT OF PREMIUM SUITINGS PRIVATE LIMITED HAVING PROCESS HOUSE AT KANPUR WHERE GROSS PROFIT RATE OF 5.28% WAS ADMITTED AND THAT OF R. D. PAPER LIMITED, KANPUR WHERE GROSS LOSS OF 3.03% WAS ADMITTED IN THE PAPER UNIT FOR ASSESSMENT YEAR 2004 - 2005 FOR ALL THE AFORESAID ACTIVITIES. R ELEVANT ACCOUNTS AND ASSESSMENT ORDERS WERE ALSO LAID BEFORE LEARNED CIT(A). THE LEARNED CIT(A), HOWEVER, BEING OF THE OPINION THAT THE GROSS PROFIT RATE SHOWN BY THE ASSESSEE AS PER BOOKS OF ACCOUNT IS NOT RELIABLE, EXPRESSED HIS SATISFACTION THAT THE GR OSS PROFIT RATE IN THE CASE OF OTHER CONCERNS CA N BE CONSIDERED FOR AN OBJECTIVE ESTIMATION. HE, HOWEVER, PROCEEDED TO APPLY THE RATE OF 8% ON THE TOTAL TURNOVER BOTH UNDECLARED AS WELL AS DECLARED SALES WHICH WAS EQUAL TO THE RATE APPLIED BY HON'BLE SETT LEMENT COMMISSION IN ITS ORDER U/S 13 245D(4) IN THE EARLIER YEARS AND THUS WORKED OUT THE GROSS PROFIT AT ` 2,01,79,312/ - ON THE UNDECLARED SALES OF ` 13,20,75,421/ - + ` 12,01,65,913/ - BOTH AGGREGATING TO ` 25,22,41,394/ - AND CORRECTED THE ASSESSMENT ACCORDINGLY . 5. THE LEARNED COUNSEL FOR THE ASSESSEE ASSAILING THE DECISION OF THE LEARNED CIT(A) AND PLACING RELIANCE ON THE WRITTEN SUBMISSIONS RUNNING INTO 20 PAGES AND PLACED AT ITS PAPER BOOK FROM PAGE 1 TO 20 AND ALSO THE SHOW CAUSE NOTICE ISSUED BY CENTRAL EX CISE DEPARTMENT AS WELL AS THE ASSESSING AUTHORITY AND OTHER RELEVANT MATERIAL PLACED ON RECORD IN THE PAPER BOOK VOLUME 1,2 AND 3, CONTENDS THAT THE LEARNED CIT(A) HAS ERRED IN INCLUDING THE AMOUNT OF EXCISE DUTY FOR ` 1,17,84,114/ - AS PART OF THE TOTAL DECLARED TURNOVER FOR THE PURPOSE OF APPLYING GROSS PROFIT RATE THEREON . THE EXCISE DUTY COLLECTED ON BEHALF OF THE GOVERNMENT AND PAYMENT OF SUCH DUES SUBSEQUENTLY HAS NO ELEMENT OF PROFIT REQUIRING APPLICATION OF GROSS PROFIT RATE THEREON . THERE CAN BE NO GROSS PROFIT ON THE AMOUNT OF EXCISE DUTY COLLECTED AND PAID BY THE ASSESSEE. RELIANCE HAS BEEN PLACED ON THE JUDGMENT BY HON'BLE HIGH COURT OF PATNA IN THE CASE OF CIT VS. PARECK BROTHERS [1987] 167 ITR 344 (PAT) WHEREIN THE HON'BLE HIGH COURT HAS HE LD AS UNDER: THAT THE FIRST PROVISO TO SECTION 145(1) WAS APPLICABLE IN THE INSTANT CASE. IT WAS ALSO HELD, ON FACTS, THAT THE SALES TAX RECEIVED FROM THE CUSTOMERS WAS INCLUDED IN THE SALE PRICE, HENCE, TO FIND OUT THE REAL GROSS PROFIT, THE SALES TAX AMOUNT HAD TO BE DEDUCTED AND THE BALANCE COULD BE THE GROSS PROFIT. THEREFORE, THE TRIBUNAL 14 WAS NOT JUSTIFIED IN HOLDING THAT THE PROFIT RATE SHOULD BE APPLIED ON THE GROSS TURNOVER INCLUDING THE AMOUNT OF SALES TAX. 5.1 RELIANCE HAS ALSO BEEN PLACED O N THE JUDGMENT BY HON'BLE SU PREME COURT IN THE CASE OF BRIJ BHUSHAN LAL PARDUMAN KUMAR VS. CIT, 115 ITR 524 (SC) WHEREIN THE HON'BLE SUPREME COURT HAS HELD AS UNDER: THAT SINCE IN SUBSTANCE AND IN REALITY THE MATERIALS SUPPLIED BY THE GOVERNMENT ALWAYS REMAINED THE PROPERTY OF THE GOVERNMENT AND THE APPELLANT MERELY HAD CUSTODY AND FIXED OR INCORPORATED THEM INTO THE WORKS, THERE WAS NOT EVEN A THEORETICAL POSSIBILITY OF ANY ELEMENT OF PROFIT BEING INVOLVED IN THE TURNOVER REPRESENTED BY THE COST OF SUCH MATERIALS. THOUGH, ORDINARILY, WHEN A WORKS CONTRACT WAS PUT THROUGH OR COMPLETED BY A CONTRACTOR, PROFIT FROM THE CONTRACT WAS DETERMINED ON THE VALUE OF THE CONTRACT AS A WHOLE AND NOT BY CONSIDERING THE SEVERAL ITEMS THAT WOULD GO TO FORM SUCH VALUE OF CONTRACT, WHEREAS IN THE PRESENT CASE, MATERIALS WERE SUPPLIED AT FIXED RATES BY THE GOVERNMENT TO THE CONTRACTOR SOLELY FOR BEING USED, FIXED OR INCORPORATED IN THE WORKS ON THE TERMS THAT THEY WOULD REMAIN THE PROPERTY OF THE GOVERNMENT AND ANY SURPLUS SHOULD BE RETURNED TO THE GOVERNMENT, THE REAL TOTAL VALUE OF THE ENTIRE CONTRACT WOULD BE THE VALUE MINUS THE COST OF THE MATERIALS SO SUPPLIED. SINCE NO ELEMENT OF PROFIT WAS INVOLVED IN THE TURNOVER REPRESENTED BY THE COST OF THE MATERIALS SUPPLIED BY T HE GOVERNMENT TO THE APPELLANT, THE INCOME OR PROFITS DERIVED BY THE APPELLANT FROM SUCH CONTRACTS HAD TO BE DETERMINED ON THE BASIS OF THE VALUE OF THE CONTRACTS REPRESENTED BY THE CASH PAYMENTS RECEIVED BY THE APPELLANT FROM THE GOVERNMENT EXCLUSIVE OF T HE COST OF MATERIALS RECEIVED FOR BEING USED, FIXED OR INCORPORATED IN THE WORKS. 5.2 IT HAS THEREFORE, BEEN CONTENDED THAT THE TURNOVER ADOPTED FOR THE PURPOSE OF ESTIMATING PROFIT BY APPLYING GROSS PROFIT RATE NEEDS TO BE CORRECTED TO ` 10,83,17,799/ - AS AGAINST ` 12,01,65,913/ - . 15 5.3 ON THE ASPECT OF APPLICATION OF GROSS PROFIT RATE, IT WAS CONTENDED THAT THE GROSS PROFIT RATE APPLIED BY THE LEARNED CIT(A) AT 8% IS EXCESSIVE AND UNREASONABLE AND VITAL FACTS HAVE BEEN IGNORED BY HIM WHICH REQUIRE APPLICA TION OF LOWER PROFIT RATE IN TERMS OF THE COMPARABLE RATE BROUGHT ON RECORD AND SUBSTANTIATED WITH SUFFICIENT MATERIAL BEFORE HIM. EVEN CHANGE IN CIRCUMSTANCES SUCH AS ASSESSEES SWITCHING OVER FROM JOB WORK OF DYEING OF CLOTH TO SALE OF DYED CLOTH HAVING A LARGE DENOMINATOR GIVING UNUSUAL PROFIT RATE HAVE NOT BEEN CONSIDERED IN RIGHT PERSPECTIVE WHILE APPLYING SAME GROSS PROFIT RATE OF 8% SETTLED BY THE SETTLEMENT COMMISSION FOR THE EARLIER PERIOD. THUS, THE CHANGE OF BUSINESS ACTIVITY WARRANTS ESTIMATION OF PROFIT ON THE BASIS OF COMPARABLE GROSS PROFIT RATE AS IS ALSO SHOWN BY THE ASSESSEE IN THE WRITTEN NOTE EX HIBITED WITHIN THE COMPARATIVE CHART RUNNING INTO 4 PAGES BEFORE THE APPELLATE TRIBUNAL . IT, THEREFORE, HAS BEEN CONTENDED THAT ON CONS IDERATION OF THESE MATERIALS ON RECORD, ONLY THE REASONABLE PROFIT NEED TO BE APPLIED FOR ESTIMATING THE INCOME OF THE ASSESSEE AND TELESCOPING OF INCOME SO ESTIMATED IS TO BE GIVEN AGAINST THE AMOUNTS OF CREDIT ENTRIES IN CASH AND CHEQUES SURRENDERED AS R EMISSION OF TRADING LIABILITIES AS WELL AS OTHER LIABILITIES DURING THE YEAR AND TAKEN INTO ACCOUNT FOR COMPUTING THE ASSESSABLE INCOME ALONG WITH ANY OTHER ADDITION THAT HAVE BEEN SUSTAINED IN COMPLETING THE ASSESSMENT. 6. ON THE OTHER HAND, SHRI JAGDISH CIT, D.R. CONTENDS THAT EXCISE DUTY IS A PART OF THE TOTAL TURNOVER AND THE APPELLANT HAS NOT CHALLENGED ACTION OF 16 APPLICATION OF PROVISIONS OF SECTION 145(3) OF THE ACT. IN APPLYING GROSS PROFIT RATE THE TOTAL TURNOVER INCLUDING THE AMOUNT OF EXCISE DUT Y EVEN THOUGH THE SAME MAY NOT HAVE ELEMENT OF PROFIT, HAS TO BE CONSIDERED FOR ESTIMATING INCOME IN THE MANNER AS PROVIDED U/S 144 OF THE ACT. IT, HOWEVER, REMAINS THAT THE LEARNED CIT(A) CORRECTED THE AMOUNT OF UNDECLARED SALE FROM ` 37.23 CRORES TO ` 13.2 0 CRORES, THOUGH IN ITS GROUNDS IN APPEAL THAT DISPUTE HAD BEEN RAISED ONLY TO THE AMOUNT OF ` 18.72 CRORES WITHOUT CONFRONTING THE ASSESSING AUTHORITY AND APPLIED PROFIT RATE OF 8% AS AGAINST 15% TAKEN BY THE ASSESSING OFFICER ON THE BASIS OF PROFIT APPLIE D IN THE IMMEDIATELY PRECEDING YEAR COVERED A BLOCK PERIOD ASSESSMENT OF THE ASSESSEE AND THESE ISSUES HAVE BEEN DULY AGITATED IN DEPARTMENTAL APPEAL GROUND NO. 1 TO 3. HE HAS ALSO PLACED RELIANCE ON THE WRITTEN NOTE FORWARDED BY THE ASSESSING OFFICER AND PLACED BEFORE THE TRIBUNAL WITH RESPECT TO THE ADDITION ON SUPPRESSED GROSS PROFIT. THE SAME READS AS UNDER: THE ASSESSING OFFICER NOTICED THAT THE G.P. RATE OF THE ASSESSEE WAS ( - ) 8.28% FOR A.Y.2002 - 03, 17.49% FOR A.Y.2003 - 04 AND ( - ) 9.52% FOR A.Y.2 004 - 05. THE ASSESSING OFFICER OBSERVED THAT THE TRADING RESULTS WERE ERRATIC AND G.P. AS WELL AS G.P. RATE HAS DECLINED HEAVILY AS COMPARED TO EARLIER YEARS THROUGH THE SALE HAS BEEN PROGRESSIVE. THE ASSESSING OFFICER AFTER GOING THROUGH THE FACTS AND CIR CUMSTANCES, REJECTED THE BOOKS OF ACCOUNTS OF THE ASSESSEE AS PER PROVISIONS OF SECTION 145(3) OF THE IT. ACT, 1961. THE ASSESSING OFFICER HAS WORKED OUT THE UNACCOUNTED TURNOVER AT ` 37,23,87,218/ - ON THE BASIS OF SHOW CAUSE DATED 31.08.2006 OF THE CENTRAL EXCISE AUTHORITIES. THE DISCLOSED TURNOVER WAS ` 12,01,65,913/ - , THEREFORE, THE TOTAL TURNOVER WAS WORKED OUT AT 17 ` 49,25,53,131/ - . THE ASSESSING OFFICER APPLIED THE G.P. RATE OF 15% O N THIS TOTAL TURNOVER AND GROSS PROFIT WAS WORKED OUT AT ` 7,38,82,970/ - . THE ASSESSEE HAS DECLARED GROSS PROFIT AT ( - ) ` 1,14,42,706/ - . ACCORDINGLY, AN ADDITION OF ` 8,53,25,676/ - WAS MADE TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF SUPPRESSED GROSS P ROFIT. THE COMMISSIONER OF INCOME TAX (APPEALS) - L, KANPUR CONSIDERED THE FACTS AND CIRCUMSTANCES OF THE ASSESSEE. VIDE PARA - 12, 13 AND 14, THE LEARNED CIT (A) STATED THAT THE ASSESSING OFFICER HAS SUFFICIENT MATERIAL AND EVIDENCE WHICH SHOW THAT THE UNACC OUNTED PRODUCTION AND UNACCOUNTED SALES WERE AFFECTED BY THE ASSESSEE WHICH WERE UNEARTHED BY THE EXCISE DEPARTMENT. HE ALSO FIND THAT THE REPLIES OF THE APPELLANT WERE VAGUE AND GENERAL AND ASSESSEE HAS NO EXPLANATION FOR UNACCOUNTED SUPPRESSED PRODUCTION /SALES/GROSS PROFITS AS EVIDENCED BY DOCUMENTS AND MATERIAL REFERRED IN THE SHOW CAUSE NOTICE OF EXCISE DEPTT. THE CIT(A) FURTHER STATED THAT ARGUMENTS OF THE ASSESSEE ON THE ISSUE OF SUPPRESSED SALES AND GROSS PROFIT RATE HAVE BEEN CONSIDERED AND IT IS FO UND THAT SUCH ARGUMENTS ARE NOT SUPPORTED BY MATERIAL EVIDENCE AND FACTS OF THE CASE AND DISMISSED THE SUBMISSIONS OF THE ASSESSEE. HE FURTHER OBSERVED THAT THE REJECTION OF BOOKS OF ACCOUNT MADE BY AO IS FULLY JUSTIFIED AND AS PER LAW. HOWEVER, THE LEARN ED CIT (A) HAS WORKED OUT THE AMOUNT OF SUPPRESSED SALES OF ASSESSEE DURING THE YEAR UNDER CONSIDERATION AT ` 3,20,75,481/ - ONLY INSTEAD OF ` 37,23,87,218/ - TAKEN BY ASSESSING OFFICER AFTER EXAMINING THE DOCUMENTS, CALCULATIONS AND VARIOUS ANNEXURES INCLUDING SHOW CAUSE NOTICE AND ITS ANNEXURES, WHICH IS PRIMARY, MATERIAL AND THE BASIS FOR CALCULATION OF SUPPRESSED PRODUCTION/SALE/GROSS PROFIT O F THE ASSESSEE. THE TOTAL SALES AFTER INCLUDING THE TURNOVER DECLARED AS PER BOOKS OF ACCOUNT COMES TO ` 25,22,41,394/ - . CONSIDERING THE FACTS OF THE CASE AND ARGUMENTS OF THE ASSESSEE, THE CIT(A) APPLIED THE GROSS PROFIT RATE OF 8% INSTEAD OF 15% APPLIED BY THE ASSESSING OFFICER AND CALCULATED THE GROSS PROFIT OF ` 2,01,79,312/ - . 7. WE HAVE HEARD THE PARTIES WITH REFERENCE TO MATERIAL ON RECORD AND CASE LAWS BROUGHT TO OUR NOTICE. THE PERUSAL OF THE RECORD REVEALS THAT THE ASSESSING 18 AUTHORITY AS WELL AS LEARNED CIT(A) HAVE ADOPTED THE UNDECLARED SALES FROM THE SHOW CAUSE NOTICE DATED 31/08/2006. NO NEW MATERIAL HAS BEEN TAKEN INTO CONSIDERATION BY LEARNED CIT(A) IN CORRECTING THE AMOUNT OF UNDECLARED SALES OF THE YEAR UNDER CONSIDERA TION FOR THE PURPOSE OF ESTIMATING INCOME OF THE ASSESSEE. THE LEARNED CIT(A) IS FOUND TO HAVE CORRECTED THE AMOUNT OF UNDECLARED SALES WITHIN THE SCOPE OF HIS POWERS AND REACHED A FIGURE OF ` 13,20,75,481/ - AS IS ALSO EVIDENT FROM THE CHART DEPICTED AT I NTERNAL PAGE 9 OF THE IMPUGNED ORDER. IN CORRECTING SUCH AMOUNT OF UNDECLARED SALES HE HAS EXCLUDED THE AMOUNT OF SALES THAT DID NOT PERTAIN TO THE YEAR UNDER CONSIDERATION BUT HAD BEEN SUBJECTED TO TAX IN THE PERIOD PRIOR TO FINANCIAL YEAR 2003 - 2004 RELE VANT TO ASSESSMENT YEAR 2004 - 2005 UNDER CONSIDERATION INCLUDING DUPLICATE ADDITIONS ON ACCOUNT OF PARALLEL INVOICES AS HAS DULY BEEN ELABORATED AND CONSIDERED IN THE IMPUGNED ORDER BY THE LEARNED CIT(A). THE CORRECTION IN AMOUNT OF SALES IS FOUND TO HAVE BEEN CARRIED BY LEARNED CIT(A) AFTER VERIFYING THE CORRECT FACTS HIMSELF AND UPON DUE APPLICATION OF MIND . S UCH CORRECTION IS FOUND MADE ON THE BASIS OF RELEVANT MATERIAL ON RECORD BEFORE HIM . THE REVENUE HOWEVER HAS NOT SHOWN ANY PERVERSITY IN FACTS FOU ND BY LEARNED CIT(A) NOR DID THEY SHOW ANY ERROR OF LAW COMMITTED BY LEARNED CIT(A) IN THAT RESPECT. SINCE EACH YEAR IS A SEPARATE UNIT OF ASSESSMENT FOR COLLECTING CORRECT TAX ON THE INCOME OF THE ASSESSEE AND THERE BEING NO INFIRMITY IN THE DECISION REA CHED BY LEARNED CIT(A) IN CORRECTING THE AMOUNT OF UNDECLARED SALES OF THE YEAR UNDER CONSIDERATION, WE FIND NO REASON TO INTERFERE WITH HIS DECISION IN THAT RE GARD AND 19 FINDING NO MERIT IN THE GROUND S RAISED BY THE REVENUE IN APPEAL IN THAT RESPECT , REJECT THE SAME. 7.1 THE ASSESSEE, HOWEVER, HAS RAISED DISPUTE ON THE QUANTUM OF TURNOVER TAKEN FOR THE PURPOSE OF ESTIMATION OF THE PROFIT ON THE SHORT GROUND THAT THE AMOUNT OF GOVERNMENT DUES BEING EXCISE DUTY OF ` 1,17,84,114/ - DOES NOT HAVE ELEME NT OF PROFIT AND THE SAME CANNOT BE TAKEN AS PART OF THE TURNOVER IN APPLYING GROSS PROFIT RATE THEREON IN ESTIMATING HIS INCOME BY REJECTING ACCOUNTS U/S 145(3) OF THE ACT. THE EXCISE DUTY EVEN THOUGH MAY NOT HAVE ANY ELEMENT OF PROFIT IN VIEW OF THE JU DGMENT BY HON'BLE PATNA HIGH COURT IN THE CASE OF CIT VS. PARECK BROTHERS [1987] 167 ITR 344 (PAT) AS WELL AS APEX COURT IN THE CASE OF BRIJ BHUSHAN LAL PARDUNMAN KUMAR VS. CIT [1978] 115 ITR 524 WHICH WERE THE CASES RELATING TO THE STATUTORY DUES ON ACCO UNT OF SALES TAX , Y ET BEFORE US THE APPELLANT ASSESSEE HAS NOT DEMONSTRATED THAT IN A CASE LIKE THIS WHER E INCOME HAS BEEN ESTIMATED BY APPLICATION OF PROFIT RATE AND SUCH STATUTORY DUES ARE NOT SHOWN TO HAVE BEEN EXCLUDED FROM TOTAL TURNOVER IN EARLIER YE ARS, WHERE ALSO INCOME WAS ESTIMATED BY APPLICATION OF PROFIT RATE AND T HAT APART, THIS BEING A NEW PLEA RAISED BY THE ASSESSEE, WE ARE NOT INCLINED TO INTERFERE IN TOTAL TURNOVER SO ADOPTED FOR THE APPLICATION OF THE GROSS PROFIT RATE BY THE LEARNED CIT(A) . THE GROUND RAISED BY THE ASSESSEE FOR EXCLUDING EXCISE DUTY OF ` 1,17,84,114/ - FROM TURNOVER , THEREFORE, STANDS REJECTED. 20 7.2 IN SO FAR AS THE DISPUTE ON APPLICATION OF GROSS PROFIT RATE, WE FIND THAT THE ASSESSING AUTHORITY HAD APPLIED A GROSS PROFIT RATE OF 15% ON THE TURNOVER OF THE ASSESSEE ON THE BASIS OF BLOCK ASSESSMENT WHICH ITSELF WAS A SUBJECT MATTER OF SETTLEMENT BEFORE THE SETTLEMENT COMMISSION AND AN ORDER U/S 245D(4) OF THE ACT HAS ALSO BEEN PASSED BY APPLYING GROSS PROFIT RATE OF 8%. THE BASIS SO ADOPTED BY THE ASSESSING OFFICER, TH US , NO LONGER REMAINED VALID FOR APPLYING THE SAME GROSS PROFIT RATE TO THE IMPUGNED YEAR AS WELL . THE LEARNED CIT(A), HOWEVER , PROCEEDED TO ADOPT THE GROSS PROFIT RATE OF 8% ON THE TOTAL TURNOVER I.E. DECLARED AND UNDECLARED SALES OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION WHICH WAS A RATE EQUAL TO THE RATE ADOPTED BEFORE THE HON'BLE SETTLEMENT COMMISSION IN THE IMMEDIATELY PRECEDING YEAR. BEFORE THE LEARNED CIT(A) THE ASSESSEE HOWEVER HA S EMPHATICALLY STATED THAT IN THE PERIOD PRIOR TO THE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY HAD UNDERTAKEN JOB WORK IN ITS UNIT OF DYEING HOUSE WHEREAS DURING THE YEAR UNDER CONSIDERATION IT HAS SWITCHED OVER TO THE SALE OF DYED CLOTH. THE ASSESS ING OFFICER IN THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR UNDER CONSIDERATION ITSELF HAS ADMITTED THIS FACT THAT MAJOR PART OF THE SALE IS DYED FABRIC WHEREAS JOB WORK IS VERY LOW AS COMPARED TO EARLIER YEAR. THE FACT OF CHANGE IN BUSINESS ACTIVITIES I S ALSO SPELT OUT FROM THE IMPUGNED ORDER AND THE WRITTEN SUBMISSIONS RUNNING INTO 4 PAGES INCLUDING THE TABLE OF ITEM - WISE TURNOVER AND COMPARABLE GROSS PROFIT RATE PLACED BEFORE US, REVEALS THAT TOTAL TURNOVER OF DYED FABRIC ALONE IS ` 15,09,82,399/ - WHERE AS TOTAL TURNOVER OF PAPER AND INGOT IS ` 4,07,68,061/ - AND ` 4,87,42,820/ - RESPECTIVELY. 21 THUS, OUT OF THE TOTAL TURNOVER OF ` 24,04,93,280/ - BEING NET OF EXCISE DUTY, THE ELEMENT OF TURNOVER OF DYED FABRIC ALONE THAT GOES TO INFLUENCE THE GROSS PROFIT RATE IS ` 15,09,82,399/ - . THE ASSESSING OFFICER HIMSELF IS FOUND TO HAVE DISCOUNTED THE APPLICATION OF GROSS PROFIT RATE FROM 50% IN BLOCK ASSESSMENT PERIOD TO 15% IN THE YEAR UNDER CONSIDERATION ON ACCOUNT OF THE AFORESAID FACTOR BUT THIS RATE OF 15% IN BLOCK PERIOD ADOPTED BY ASSESSING OFFICER STOOD REDUCED TO 8% BY HON'BLE SETTLEMENT COMMISSION . IT, THEREFORE, BECOMES IMPERATIVE THAT THERE BEING A MAJOR CHANGE IN BUSINESS ACTIVITY FROM JOB WORK OF DYED CLOTH TO SALE S OF DYED CLOTH IN THE PERIOD UNDER CONSIDERATION AND KEEPING IN VIEW THE MAGNITUDE OF SUCH TURNOVER, THE LEARNED CIT(A) ONLY EXPRESSED HIS SATISFACTION THAT COMPARATIVE GROSS PROFIT RATE WHICH AS PER ASSESSEES RATE GIVEN IS 5.28% ON DYED FABRIC IS TO BE CONSIDERED FOR OBJECTI VE ESTIMATION BUT CHOSEN TO APPLY 8% GROSS PROFIT RATE WITHOUT ANY JUST AND REASONABLE CAUSE. ESSENTIALLY HAVING REGARD TO THE MATERIAL BROUGHT ON RECORD AND THE FACTS AND CIRCUMSTANCES AS AFORESAID INCLUDING THE COMPARABLE CASES THAT ARE LAID ON R ECORD, IT IS CONSIDERED APPROPRIATE TO APPLY A GROSS PROFIT RATE OF 6% ON THE TURNOVER BOTH DECLARED AND UN DECLARED THAT HAS FINALLY BEEN DETERMINED BY THE LEARNED CIT(A) INCLUSIVE OF AN AMOUNT OF ` 1,17,84,114/ - BEING THE AMOUNT OF EXCISE DUTY TO BE TAKEN AS TURNOVER FOR THE PURPOSE OF APPLYING GROSS PROFIT IN TERMS OF OUR DECISION AS AFORESAID SO THAT THE INCOME SO ESTIMATED IS CORRECTED ACCORDINGLY BY THE ASSESSING AUTHORITY. THE GROUND RAISED IN APPEAL IN THAT REGARD BY REVENUE 22 STANDS REJE CTED AND GROUNDS IN APPEAL RAISED BY ASSESSEE INCLUDING GROUNDS NO. 1 & 2 IN APPEAL STAND PARTLY ALLOWED. 8. GROUNDS NO. 7 TO 9 IN ASSESSEES APPEAL ARE WITH RESPECT OF ALLOWING TELESCOPING OF INCOME INCLUDED AS PART OF PROFITS ON ACCOUNT OF CASH DEPOSIT S AS ADVANCES AND TREATED AS REMISSIONS OF LIABILITY AND ALSO THE AMOUNTS RECEIVED BY CHEQUES AND TREATED AS CESSATION OF LIABILITY AGAINST THE INCOME/ADDITION THAT HAS BEEN SUSTAINED BY APPLICATION OF PROFIT RATE AND ALSO TELESCOPING OF ANY OTHER INCOME F OR WHICH ADDITION IS SUSTAINED. 8.1 HAVING HEARD PARTIES WITH REFERENCE TO MATERIAL ON RECORD AS WELL AS THE WRITTEN SUBMISSIONS BY APPELLANT AS ALSO THE ASSESSING OFFICER HIMSELF HAVING ADMITTED IN THE QUESTIONNAIRE DATED 22/12/2006 REPRODUCED AT INTERNAL PAGE 3 OF THE ASSESSMENT ORDER THAT THE AFORESAID RECEIPTS ARE EARNED BY WAY OF BUSINESS ACTIVITY , THE SAME THUS ARE FOUND TO HAVE A NEXUS WITH THE BUSINESS INCOME ESTIMATED BY APPLICATION OF GR OSS PROFIT RATE. THE TELESCOPING THEREOF ACCORDINGLY, IS DIRECTED TO BE ALLOWED. 9. GROUND NO. 10 IN THE ASSESSEES APPEAL RELATES TO THE CAPITALIZATION OF SUM AGGREGATING TO ` 7,74,674/ - SPENT BY THE ASSESSEE ON REPAIRS AND MAINTENANCE ON WHICH THE ASS ESSING OFFICER ALLOWED DEPRECIATION RESULTING INTO THE NET DISALLOWANCE OF ` 6,06,705/ - AND UPHELD BY THE LEARNED CIT(A). 23 9.1 WE HAVE HEARD THE PARTIES WITH REFERENCE TO MATERIAL ON RECORD INCLUDING THAT CONTAINED AT PAPER BOOK IN VOLUME - 3 PAGE 117 THERE OF. THE ASSESSEE HAS INCURRED EXPENDITURE AS CURRENT REPAIRS O N PARTS AND MOTORS AND ALSO GEAR AND PUMPING MECHANISM WHICH ACT AS A PROPELLER FOR MOVING THE MACHINERY. NO NEW ADVANTAGE OF ENDURING NATURE HAS BEEN OBTAINED BY SUCH CURRENT REPAIRS. HAVING REGARD TO THE PECULIAR FACTS OF THIS CASE AND THE JUDGMENT RENDERED BY HON'BLE MADRAS HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME - TAX VS SREE NARASIMHA TEXTILES (P.) LTD. [1999] 238 ITR 351 (MAD) , THE AFORESAID EXPENDITURE OF ` 7,74,674/ - BEING CURRENT REPAIRS OF THE YEAR UNDER CONSIDERATION COULD NOT BE TREATED AS CAPITAL EXPENDITURE. WE, THEREFORE, SET ASIDE THE ORDER OF LEARNED CIT(A) AND DIRECT THE ASSESSING AUTHORITY TO ALLOW THE SAME AS PER THE CLAIM OF THE ASSESSEE. 10. IN THE RESULT, TH E APPEAL OF THE ASSESSEE STANDS PARTLY ALLOWED AND APPEAL OF THE REVENUE STANDS DISMISSED. ( O RDER PRONOUNCED IN THE OPEN COURT ON 05/03/2012 ) SD/. SD/. ( S. K. YADAV ) ( B. R. JAIN ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 05/03/2012 *SINGH 0802 COPY FORWARDED TO THE: 1. APPELLANT. 2. RESPONDENT. 3. CIT (A) 4. CIT 5. DR. ASSISTANT REGISTRAR