Wonder Packaging Industries, Ahmedabad V. The Income Tax Officer, Ward-3, Mehsana

ITA 1284/AHD/2015

• Counselvise Citation: [2019] 111 COUNSELVISE.COM (IT) 7974 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 24-10-2019
• Assessment Year: 2010-2011
• Appeal Filed On: 13-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: L P JAIN
• Keywords: Rejection of books of accounts; Business income; Search and seizure; Additional evidence; Question of law; Corroborative evidences; Retraction; Borrowed satisfaction
• Section: 201; 44AB; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH (BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER & SHRI WASEEM AHMED, ACCOUNTANT MEMBER) ITA. NO: 1284/AHD/2015 (ASSESSMENT YEAR: 2010-11) WONDER PACKAGING INDUSTRIES 12/A MILKAMDAR SOCIETY, OPP. SHREENAGAR SOCIETY, TAL: KALOL, DIST- GANDHINAGAR V/S INCOME TAX OFFICER, WARD- 3, MEHSANA (APPELLANT) (RESPONDENT) PAN: AAAFW 9438P APPELLANT BY : SHRI U.S. BHATI WITH SHRI ABHIMANY U SINGH BHATI RESPONDENT BY : SHRI L. P. JAIN, SR. D.R. ( )/ ORDER DATE OF HEARING : 24 -10-201 9 DATE OF PRONOUNCEMENT : 19 -12-2019 PER MAHAVIR PRASAD, JUDICIAL MEMBER 1. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE LD. CIT(A), GANDHINAGAR, AHMEDABAD DATED 23.02.2015 PE RTAINING TO A.Y. 2010- 11 AND ASSESSEE HAS TAKEN FOLLOWING GROUNDS OF APPE AL: ITA NO. 1284 /AHD/2015 . A.Y. 2010-11 2 1.0 THE LEARNED COMMISSIONER OF INCOME-TAX (APPE ALS) ERRED IN LAW AND ON FACTS IN CONFIRMING THE G.P. ADDITION AMOUNTING TO RS.43, 04,550/- MADE BY THE ID. A.O; AFTER APPLYING G.P. RATE @16% ON ADDITIONAL ESTIMAT ED SUPPRESSED TURNOVER AMOUNTING TO RS. 1,75,84,211/- MERELY ON THE BASIS OF RESTRICTED STATEMENT OF THE PARTNER OF THE APPELLANT FIRM BEFORE THE CENTRAL EX CISE OFFICERS, WITHOUT CONDUCTING ANY ENQUIRY AND INVESTIGATION IN THE MAT TER. 2.0 WITHOUT PREJUDICE TO THE ABOVE GROUND NO.1.0 , THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) FURTHER ERRED IN LAW AND ON FA CTS IN NOT ALLOWING SET-OFF OF TURNOVER AMOUNTING TO RS.1,76,08,572/- DECLARED BY M/S R.K. TRADERS, A PROPRIETARY CONCERN OF SHRI RANJITSINH. K. RATHOD B EFORE THE INCOME TAX DEPARTMENT ON THE BASIS OF AUDITED ACCOUNTS. THIS T ANTAMOUNT TO DOUBLE ADDITION OF G.P. IN RESPECT OF THE ABOVE TURNOVER. 3.0 THE LEARNED COMMISSIONER OF INCOME-TAX (APPE ALS) FURTHER ERRED IN LAW AND ON FACTS IN ENHANCING THE G.P. ADDITION BY RS.9,46, 831/- ON THE BASIS OF THE ORDER OF- THE ADDITIONAL COMMISSIONER, CENTRAL EXCISE, AH MEDABAD-III DATED 28TH MAY, 2014 IN WHICH THE TURNOVER WAS DETERMINED AT RS.4,9 9,40,070/- INSTEAD OF RS.4,40,22,376/- WITHOUT CONDUCTING ANY FURTHER ENQ UIRY AND INVESTIGATION IN THE MATTER. 4.0 WITHOUT PREJUDICE TO THE ABOVE GROUND NO. 2. 0, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) FURTHER ERRED IN LAW AND FA CTS IN NOT APPRECIATING THE FACT THAT THE CORRECT G.P. RATE AS PER AUDITED ACCOUNTS OF THE APPELLANT FIRM DECLARED WAS 13.87% AND NOT MERELY 10.45% AS ADOPTED BY THE ID. A.O. AND HENCE THE G.P. ADDITION OUGHT TO BE LIMITED TO RS.43,55,417/- INST EAD OF RS.52,51,411/-, ON THE GROUND THAT THIS ISSUE WAS NOT RAISED IN THE GROUND S OF APPEAL. 5.0 THE LEARNED COMMISSIONER OF INCOME-TAX (APPE ALS) THEREFORE ERRED IN LAW AND FACTS IN CONFIRMING THE G.P. ADDITION AT A DIFF ERENTIAL RATE OF 5.55% (16.00% - 10.45%) INSTEAD OF 2.13% (16.00%-13.87%). 6.0 THE LEARNED COMMISSIONER OF INCOME-TAX (A PPEALS) ERRED IN LAW AND ON FACTS IN SUMMARILY REJECTING THE GROUND OF APPEAL RELATING TO ADDITION OF RS. 1,23,450/- BEING DIFFERENCE IN VALUATION OF CLOSING STOCK. 2. BUT OUT OF THE SIX GROUNDS, GROUND NO. 6 HAS NOT BE EN PRESSED BY THE LD. A.R. 3. FACTS OF THE CASE ARE AS EMANATED FROM THE ASSESSME NT ORDER: ITA NO. 1284 /AHD/2015 . A.Y. 2010-11 3 'IN THIS CASE, DURING THE COURSE OF ROAD PATROLLING CONDUCTED BY THE OFFICERS OF CENTRAL EXCISE (PREVENTIVE), AHMEDABAD-LL! ON 18.12 .2010 A TEMPO HAVING REGISTRATION NO, GJ-18-T-20S5 WAS INTERCEPTED FOR T HE VERIFICATION OF BILLS COVERING THE GOODS LOADED IN THE SAID TEMPO. ON EXAMINATION OF THE DRIVER OF THE TEMPO IT IS REVEALED THAT THE GOODS HAD BEEN LOADED FROM THE FACTORY PREMISES OF M/S.WONDER PACKAGING INDUSTRIES, PLOT NO. C/L/B, 51 2/13 PHASE-!, G1DC, CHHATRAL, TAL: KALOI, DIST GANDHINAGAR ( ASSESSEE H EREIN) UNDER THE INVOICE NO.215 DATED 18.12.2010. THE CENTRAL EXCISE PARTY THEN VIS ITED THE FACTORY PREMISES OF THE ASSESSEE I.E., M/S.WONDER PACKAGING INDUSTRIES AND ON EXAMINATION OF THE PARTNER, SHRI RANJITSINGH K, RATHOD, IT IS REVEALED THAT THE SAID GOODS HAD BEEN CLEARED WITHOUT PAYING CENTRAL EXCISE DUTY MANUFACT URED BY M/S. WONDER PACKAGING INDUSTRIES. THESE FACTS WERE DULY AFFIRME D BY THE PARTNER, SHRI RANJITSINGH K. RATHOD IN A STATEMENT RECORDED U/S. 14 OF THE CENTRAL EXCISE ACT. 4. REJECTION OF BOOKS OF ACCOUNTS U/S. 145: 4.1 AS STATED HEREINABOVE THE ASSESSEE FIRM IS ENGA GED IN THE BUSINESS OF MANUFACTURING CORRUGATED BOXES AND FILED ITS RETURN OF INCOME SHOWING TOTAL INCOME AT RS.2,97,514/- ON A GROSS TURNOVER OF RS. 340.17 LAKHS DURING THE YEAR UNDER REFERENCE. DURING THE COURSE OF ASSESSMENT PR OCEEDINGS, THE ASSESSEE FIRM WAS ASKED TO PRODUCE THE BOOKS OF ACCOUNTS AND OTHE R SUPPORTING EVIDENCES IN RESPECT OF THE INCOME RETURNED BY IT. ON PERUSAL OF THE AUDITED ACCOUNTS (BOOKS OF ACCOUN TS) AND OTHER DETAILS PRODUCED, IT IS NOTICED THAT THE ASSESSEE HAS NOT S HOWN ANY SALES TO M/S, R.K. TRADERS, A SISTER CONCERN RUN BY ONE OF THE PARTNER , SHRI RANJITSINGH K. RATHOD. IT IS PERTINENT TO MENTION HERE THAT THE GOODS MANUFAC TURED BY THE ASSESSEE FIRM ARE EXCISABLE GOODS UNDER THE CENTRAL EXCISE ACT AN D THE ASSESSEE IS REQUIRED TO PAY THE EXCISE DUTY AS PER THE CENTRAL EXCISE ACT. ASSESSEE FIRM HAS SHOWN IN ITS BOOKS OF ACCOUNTS JOB WORK CARRIED OUT ON BEHALF OF THE SISTER CONCERN, M/S. R.K. TRADERS, TO THE TUNE OF ABOUT RS, 78 LAKHS ONLY. NO ENTRY OF SALES WAS EVER REFLECTED IN THE BOOKS OF ACCOUNTS MAINTAINED BY TH E ASSESSEE FIRM FOR THE YEAR ITA NO. 1284 /AHD/2015 . A.Y. 2010-11 4 UNDER REFERENCE. IN VIEW OF THE ABOVE FACTUAL FACTS AND TAKING COGNIZANCE TO THE SURVEY CARRIED OUT BY THE PREVENTIVE WING OF CENTRA L EXCISE DEPARTMENT WHEREIN THE ASSESSEE HAD CATEGORICALLY ACCEPTED FOR THE PRE VIOUS YEAR RELEVANT TO THE A.Y. 2010-11 THE PARTNERS OF THE ASSESSEE FIRM HAD AGREE D THAT THE SALES MADE TO SISTER CONCERN, M/S. R.K. TRADERS WERE NOT REFLECTE D IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE FIRM AND IT PERTAINS TO SUPPRESSI ON OF SALE BY THE ASSESSEE FIRM, IN VIEW OF THE ABOVE DISCLOSURE MADE ON OATH BY THE PARTNER OF THE FIRM, SHRI RANJITSINGH K. RATHOD BEFORE THE CENTRAL EXCISE AUT HORITIES, MORE PARTICULARLY, THE FACT THAT NO SALES TO M/S, R.K. TRADERS WERE REFLEC TED IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE FIRM, THE BOOK RESULTS S HOWN BY THE ASSESSEE FIRM FOR THE YEAR UNDER ASSESSMENT IS NOT ACCEPTABLE. FURTHER, IT IS ALSO NOTICED THAT THE ASSESSEE HAS N OT PROPERLY VALUED THE CLOSING STOCK OF FINISHED GOODS. FOR EXAMPLE, THE OPENING S TOCK OF FINISHED GOODS WERE VALUED AT RS.13,25 PER NUMBER WHEREAS THE FINISHED GOODS WERE VALUED AT RS. 12.25 PER NUMBER FOR CLOSING STOCK PURPOSE. NO EXPL ANATION WHATSOEVER WAS GIVEN FOR ADOPTING THE VALUE BELOW THE COST INCURRE D BY THE ASSESSEE, IN VIEW OF THIS DISCREPANCY IN ADOPTING THE VALUE OF CLOSING S TOCK, THE BOOK RESULTS DECLARED BY THE ASSESSEE IS NOT ACCEPTABLE. FURTHER, ON PERUSAL OF THE BOOKS OF ACCOUNTS AND AU DITED PROFIT & LOSS ACCOUNT FOR THE YEAR UNDER ASSESSMENT, IT IS NOTICED THAT THE A SSESSEE HAS SHOWN THE GROSS TURNOVER AT RS.340.17 LAKHS ON WHICH GROSS PROFIT C OMES TO RS.27.39 LAKHS I.E. 10.4594 WHEREAS THE GROSS PROFIT RATE DISCLOSED BY THE ASSESSEE ITSELF FOR THE PREVIOUS YEAR I.E. A.Y. 2009-10 COMES TO 15.62%. TH E FALL IN G.P. DISCLOSED FOR THE YEAR UNDER CONSIDERATION IS VERY STEEP COMPARED TO THE IMMEDIATE PRECEDING YEAR. NO CLARIFICATION OR EXPLANATION WAS APPENDED TO THE AUDITED ACCOUNTS FOR THE STEEP FALL IN GROSS PROFIT FOR THE YEAR UNDER A SSESSMENT. CONSIDERING ALL THE ABOVE DISCREPANCIES AS POINTED OUT ABOVE, THE BOOKS RESULTS AS SHOWN BY THE ASSESSEE FIRM ARE NOT ACCEPTABLE. THEREFORE, A DETA ILED SHOW CAUSE NOTICE WAS ISSUED VIDE THIS OFFICE SHOW CAUSE NOTICE NO. ITO/M HN/WARD-3/WPI-SHOW ITA NO. 1284 /AHD/2015 . A.Y. 2010-11 5 CAUSE/2011-12 DATED 18.03,2012 UPON THE ASSESSEE FI RM ON 18.3.2012 ITSELF, WHICH WAS DULY SERVED. THE RELEVANT PORTION OF THE SHOW CAUSE NOTICE IS REPRODUCED HEREUNDER: '2. YOU ARE AWARE THAT IN YOUR CASE, THE CENTRAL EXC ISE DEPARTMENT HAS CARRIED OUT A SEARCH ON 18.12.2010, AS PER THE PRELIMINARY SEIZURE REPORT NO. AE- 2N0.08/2010-11 (F.NO. IV/16-65/PI/HQ/10-LL-GR-VL/14 37) DATED 27/12/2010, THE SUPERINTENDENT (PREV.) CENTRAL EXCISE, AHMEDABAD-LL ! HAS REPORTED THAT DURING THE COURSE OF ROAD PATROLLING BY THE OFFICERS OF CE NTRAL EXCISE (PREV.) AHMEDABAD- LLL, A TEMPO HAVING REGISTRATION NO,GJ-18-T-2Q85 WA S INTERCEPTED FOR THE VERIFICATION OF BILLS COVERING THE GOODS LOADED IN THE SAID TEMPO, IT IS ALSO REPORTED THAT THE TEMPO HAD BEEN LOADED FROM THE FA CTORY PREMISES OF M/S WONDER PACKAGING INDUSTRIES, ASSESSEE FIRM HEREIN, UNDER THE INVOICE NO. 215 DATED 18/12/2010. IT IS ALSO REPORTED THAT THE ASSE SSEE FIRM IS EVADING CENTRAL EXCISE DUTY BY SUPPRESSION AND CLEARED UNDER THE IN VOICE OF M/S. BLUE STAR PACKAGING INDUSTRIES AND M/S, R.K. TRADERS. THE PRO DUCTION OF CORRUGATED BOXES MANUFACTURED BY M/S. WONDER PACKAGING INDUSTRIES WA S NOT BEING ACCOUNTED IN THE REGULAR BOOKS OF ACCOUNTS, AND CLEARED UNDER TH E INVOICES OF M/S, BLUE STAR PACKAGING AND M/S R.K. TRADERS. IT IS FURTHER REPOR TED THAT IN THE STATEMENT DATED 18/12/2010 RECORDED U/S.14 OF THE CENTRA! EXC ISE ACT, SHRI RANJITSINGH K. RATHOD (AT PRESENT PROP, OF M/S. WONDER PACKAGING I NDUSTRIES) CONFIRMED THAT HE EVADED THE PAYMENT OF CENTRAL EXCISE DUTY BY CLEARI NG THEIR EXCISABLE GOODS UNDER THE COVER OF TWO FIRMS, VIZ. M/S. BLUE STAR P ACKAGING INDUSTRIES AND M/S.R.K. TRADERS. SHRI RANJITSINGH RATHOD ALSO CONF ESSED IN THE STATEMENT THAT PACKING MATERIAL VALUED AT RS.15,92,574/- RS.72,S5, 935/- AND RS.93,26,633/- RESPECTIVE!Y PERTAINING TO THE YEAR 2007-08, 2008-0 9 AND 2009-10 IN THE STATEMENT GIVEN BY SHRI RANJITSINGH K. RATHOD, THE PARTNER IN THE FIRM DURING THE YEAR UNDER CONSIDERATION, HE ACCEPTED THAT EXCISE D UTY LIABILITY ON THE VALUE OF RS.82,57,578/- (RS.1,75,84,211 - RS.93,26,633) BEIN G SALE VALUE OF CORRUGATED BOXES BY M/S. WONDER PACKAGING INDUSTRIES 2.1 SINCE M/S. WONDER PACKAGING ITA NO. 1284 /AHD/2015 . A.Y. 2010-11 6 INDUSTRIES WAS PARTNERSHIP FIRM DURING THE FINANCIA L PERIOD COVERED IN THE ABOVE SEARCH ACTION I.E. 2009-10, WHICH IS RELEVANT TOA.Y . 2010-11, THE SALES OF RS. 93,26,633/-AND RS.82,57,578/- ARE THE SALE MADE BY THE ASSESSES FIRM TO M/S. R.K.TRADERS, PROPRIETARY CONCERN OF SHRI RANJITSING H RATHOD. THUS, THERE IS SUPPRESSION OF SALES BY THE ASSESSES FIRM OF RS. 1, 75,84,211/-DURING THE YEAR UNDER CONSIDERATION. 2.2 THE GROSS PROFIT DISCLOSED DURING THE YEAR UNDE R CONSIDERATION IS RS.27.39 LAKHS WHICH IS 10.45% AS AGAINST GROSS PROFIT AT 15 .62% SHOWN IN THE IMMEDIATELY PRECEDING YEAR. THUS, THERE IS A FALL IN THE GROSS PROFIT RATIO DURING THE YEAR. 2.3 ON EXAMINATION OF DETAILS FIIED IN RESPECT OF O PENING AND DOSING STOCK OF FINISHED GOODS, IT IS SEEN THAT RATE WAS QUOTED RS. 12.25 PER NO. IN RESPECT OF CLOSING STOCK AS AGAINST COST SHOWN AT RS.13.25 IN RESPECT OF OPENING STOCK AT RS. 13.25, FOR THE QUANTITY OF 123450 NOS. PLEASE EXPLA IN WITH DOCUMENTARY EVIDENCE. IN VIEW OF THE ABOVE DISCREPANCIES, THE CORRECTNESS AND COMPLETENESS OF THE ACCOUNTS OF THE FIRM IS NOT SATISFACTORY. THEREFORE , YOU ARE HEREBY SHOW CAUSED AS TO WHY BOOK PROFIT SHOWN DURING THE YEAR UNDER CONS IDERATION SHOULD NOT BE REJECTED U/S. 145(3} OF THE !. T. ACT, 1961.' IN RESPONSE TO THE SHOW CAUSE NOTICE, ASSESSEE S TATED VIDE SUBMISSION DT.25.3.2013 ASUNDER: IT IS TRUE THAT CENTRAL EXCISE DEPARTMENT HAD DONE SEARCH IN OUR PREMISES BUT STILL NOW THEY COULD NOT FIND ANY EVASION IN OUR FIRM IN FACT THEY HAD NOT ISSUED ANY SHOW CAUSE NOTICE AGAINST US. AND WE REQUEST YOUR H ONOUR NOT TO CONSIDER ANY ITEMS SHOWN BY CENTRAL EXCISE DEPARTMENT, BECAUSE I T IS NOT PROVE BY THEM. IT IS ONLY IMAGINARY - ASSUMPTION OF DEPARTMENT. WE REQUE ST YOUR HONOUR TO ASSESS OUR CASE AT YOUR OWN SIGHT NOT ON THE WAY OF CENTRA ! EXCISE, IN A RECENT CASE OF HIGH COURT IN THE CASE OF FUTURE CERAMICS PVT LTD. VS. STATE OF GUJ'ARAT THROUGH SECRETARY SPECIAL CIVIL APPLICATION NO.6500 OF 2012 . HONOURABLE HIGH COURT HAD ITA NO. 1284 /AHD/2015 . A.Y. 2010-11 7 DRAWN ATTENTION THAT CENTRAL EXCISE OND VAT DEPARTM ENT ARE BOTH SEPARATELY ENTITY AND NOT TO TAKE ANY DECISION OF ANY ONES DEP ARTMENTS VIEW. OUR WONDER PACKING INDUSTRIES HOD DONE JOB WORK OF R.K. TRADERS PAPER WAS PURCHASED BY R.K. TRADERS OND SEND ALL THE MATERIAL S TO WONDER PACKING INDUSTRIES AND R.K. TRADERS WAS CLOSED IN THE YEAR 2009-10 AND AFTER WARDS BLUE STAR PACKING HAD DONE WORK WITH WONDER PACKING INDU STRIES. CENTRAL EXCISE DEPARTMENT HAD NOT TAKEN ANY DECISION ABOUT EVASION ONLY THEY HAD SEND YOU CALCULATION ONLY BUT NOT TAKEN ANY ORDER. OUR R.K. TRADERS HAD SHOWN TURNOVER ABOUT 1.76 LAKH S WE HAVE ALSO FILED AUDIT REPORT AND STATEMENT OF INCOME AND RETURN FILED REC EIPT AT THE TIME OF ASSESSING OF WONDER PACKING. WE HAVE MADE JOB WORK OF R.K.TRADERS AND WHEN CENTR AL EXCISE DEPARTMENT HAD CAUGHT VEHICLE WHICH WAS CARRYING GOODS OF R.K. TRA DERS AND WITH SALES BILL OF R.K. TRADERS WAS THERE AND R,,K. TRADERS HAS NOT LIABILI TY AF CENTRA! EXCISE BECAUSE R.K. TRADERS HAS NOT CHARGED EXCISE DUTY ON SALES B ILL, IN FACT WE HAD NOT EVASION OF ANY TAX LIABILITY. 2.1 IT IS NOT TRUE THAT WE HAVE NOT SUPPRESSION OF SALE IN R.K. TRADERS, WE HAVE ATTACHED AUDITED BALANCE-SHEET OF R.K. TRADERS IN W HICH WE HAVE SHOWN ALL THE TURNOVER WHICH WAS ABOVE 1.76 LAKHS. 2.2 DECREASED IN GROSS PROFIT RATIO: AS PER OUR TRADING ACCOUNT OUR G.P. % OF THIS YEAR I.E. 10.45% AND LAST YEAR IT WAS 15.62% AND IT WAS OUR FIRST YEAR OF THE COMPANY. OU T GP% IS DECREASED HAVE SUBMITTED DOUR SALES AND PURCHASED BILLS TO YOU. ON GOING THROUGH THE SAME IT IS SEEN THAT OUR SALES SIDE I.E. OUR PURCHASERS OF GOODS ARE FIXED WE ARE MANUFACTURING OF CORRUGATED BOXES, WHICH ARE FIXED IN SIZE AND COST. NORMALLY WE HAVE TO DO SOME ORAL CON TRACT WITH THE PARTIES THAT DURING THE YEAR WE WILL SUBMIT CORRUGATED BOXES AT FIXED PRICES, DURING THE YEAR WE HAVE TO PURCHASE PAPERS AND OTHER ITEMS AT HIGHE R PRICE WE ARE HEREWITH SUBMITTED TO YOU OUR OPENING PURCHASED BILLS AND EN DING PURCHASED BILLS SO PRICE ITA NO. 1284 /AHD/2015 . A.Y. 2010-11 8 ARE HIGH, AND OUR4 SALES PRICE ARE FIXED WE HAVE NO CONTROL OVER RAW MATERIALS PRICES AND OUR SALES PRICE ARE FIXED SO NATURALLY O UR GP BECOME LOW AS PER COMPARE TO INDUSTRIAL MARKET OUR GP% IS NOT SO LOW AS MARKET CONDITION IS APPLY. OUR FALL IS ABUT 5.17% IT IS A REASONABLE FALL AS W E HAVE NO CONTROL OVER SALE AND PURCHASED RATES. PLEASE ACCEPT IT, 2.3 WE HAVE SHOWN OPENING AND CLOSING STOCK OF RAW- MATERIALS AND FINISHED GOODS IN A CORRECT WAY BECAUSE WE HAVE TO PURCHASE RAW MATERIALS IN KILOS QUANTITY AND CONVERTED IN CORRUGATED BOXES IN NOS. AND WE HAVE TO SALE IN NO, SO WE HAVE SHOWN BOTH ITEMS SEPARATELY IN OUR CLOSING AND OPENING STOCK AND FINISHED GOODS IN OUR BUSINESS CUSTOM AND NORMALLY ALL CORRUGATED BOXES INDUSTRY SHOWN IT IN THIS MANNER. PLEASE ACCEPT IT AND NOT T O REJECT OUR BOOKS OF ACCOUNT U/S. 145(3) OF THE IT ACT.' I HAVE CAREFULLY CONSIDERED THE SUBMISSION FURNISHE D IN THIS REGARD. BUT THE SAME IS NOT FOUND ACCEPTABLE. BEFORE CONCLUDING THE ARGU MENTS FOR REJECTION OF BOOKS OF ACCOUNT I WOULD LIKE TO STATE AT THE COST OF REP ETITION THAT IN THIS CASE AS MENTIONED IN THE PRECEDING PARAGRAPHS, THERE WAS SU RVEY/SEARCH OPERATION BY THE PREVENTIVE WING OF CENTRAL EXCISE DEPARTMENT, A HMEDABAD AT THE BUSINESS PREMISES OF THE ASSESSEE FIRM ON 18.12.2010, DURING THE COURSE OF SAID OPERATION, SHRI RANJITSINGH K. RATHOD, PARTNER OF THE ASSESSEE FIRM, HAS CONFIRMED THAT THE ASSESSEE FIRM HAD EVADED THE PAYMENT OF EXCISE DUTY BY CLEARING THE EXCISABLE GOODS WITHOUT PAYMENT OF CENTRAL EXCISE DUTY AND AC CORDINGLY HANDED OVER TWO CHEQUES AMOUNTING TO RS.5 LAKHS TOWARDS THE CENTRAL EXCISE DUTY LIABILITY ON THE DAY OF THE PROCEEDINGS ITSELF. THIS VIEW OF SHRI RA NJITSINGH K. RATHOD WAS AGAIN CONFIRMED BY HIM IN THE STATEMENT RECORDED U/S. 14 OF THE CENTRAL EXCISE ACT, 1944 ON 21.01.2011. FURTHER, DETAILED STATEMENT OF SHRI RANJITSINGH K, RATHOD, PARTNER OF THE ASSESSEE FIRM, WAS ALSO RECORDED U/S . 4 OF THE CENTRAL EXCISE ACT, 1944 ON 24.12.2010 BY THE CENTRA! EXCISE AUTHORITIE S WHEREIN SHRI RANJITSINGH K. RATHOD HAS GIVEN DETAILED WORKING OF SALES MADE TO M/S. R.K. TRADERS DURING THE PERIOD FROM APRIL, 2009 TO DECEMBER, 2009, THE TOTA L SALES SHOWN IN THE ITA NO. 1284 /AHD/2015 . A.Y. 2010-11 9 STATEMENT COMES TO RS. 1,75,84,211/- COMPRISING OF PACKING MATERIALS, PACKING TOOLS PURCHASED AND CORRUGATED BOXES MANUFACTURED B Y THE ASSESSEE FIRM, M/S.WONDER PACKAGING INDUSTRIES. SHRI RATHOD FURTHE R ELABORATED THAT OUT OF TOTAL SALES, 60% PERTAINS TO CORRUGATED BOXES AND A BOUT 40% PERTAINS TO TRADING SUCH AS PACKING MATERIALS AND PACKING TOOLS. HE FUR THER CLARIFIED IN THE STATEMENT THAT CORRUGATED BOXES VALUED AT RS.1,05,50,526/- HA S BEEN CLEARED WITHOUT PAYMENT OF EXCISE DUTY. 4.2 AS REGARDS THE UNDER VALUATION OF CLOSING STOCK OF FINISHED GOODS, THE ASSESSEE HAS BEEN GRANTED OPPORTUNITY BY WAY OF SHO W CAUSE NOTICE A? REPRODUCED ABOVE, TO CLARIFY THE DISCREPANCY IN THE VALUATION OF CLOSING STOCK OF FINISHED GOODS. ASSESSEE ADVANCED SUBMISSION IN THI S REGARD, THE SAME HAD BEEN REPRODUCED ABOVE IN THE PART OF SUBMISSION AT PARA. 2.3. THE SUBMISSION IN THIS REGARD HAS BEEN CAREFULLY CONSIDERED, BUT THE SAME IS NOT ALSO ACCEPTABLE. THE VALUATION ADOPTED BY THE ASSESSEE IN RESPECT OF FIN ISHED GOODS IS NOT ACCEPTABLE AND, THEREFORE, REJECTED. 4.3 THE NEXT GROUND RELATES TO THE STEEP FALL IN GR OSS PROFIT. HERE ALSO, THE ASSESSEE HAS BEEN GRANTED SPECIFIC OPPORTUNITY TO W HICH ASSESSEE STATED AS UNDER, AS REPRODUCED ABOVE IN THE ASSESSEE'S SUBMIS SION VIDE PARA 2.2. THE SUBMISSION GIVEN BY THE ASSESSEE HAS BEEN CAREFULLY CONSIDERED. HOWEVER, THE SAME IS ALSO NOT FOUND ACCEPTABLE. HERE 1 WOULD LIK E TO STATE THAT DURING THE YEAR UNDER ASSESSMENT THE ASSESSEE HAS SHOWN THE GROSS P ROFIT AT 10.45% WHEREAS FOR THE IMMEDIATE PRECEDING YEAR GROSS-PROFIT DISCLOSED BY THE ASSESSEE FIRM WAS 15.62%. THE CLARIFICATION AND EXPLANATION IS NOT EV EN CONVINCING FOR THE SAME. 4.4 CONSIDERING THE SUPPRESSION OF SALES AS ACCEPTE D AND AGREED BY THE PARTNER SHRI RANJITSINGH K. RATHOD COUPLED WITH THE STEEP F ALL IN GROSS PROFIT FOR THE YEAR UNDER REFERENCE, 1 AM SATISFIED THAT THE GROSS PROF IT SHOWN BY THE ASSESSEE FIRM FOR THE YEAR UNDER ASSESSMENT IS NOT ACCEPTABLE. CO NSIDERING THE SUPPRESSION OF SALES AS AGREED AND ACCEPTED BY THE ASSESSEE AND AS DISCUSSED HEREIN ABOVE AND TAKING INTO ACCOUNT THE UNDER VALUATION OF CLOSING STOCK OF FINISHED GOODS AND THE ITA NO. 1284 /AHD/2015 . A.Y. 2010-11 10 GROSS PROFIT DISCLOSED FOR THE IMMEDIATE PRECEDING YEAR, I ADOPT THE GROSS PROFIT FOR THE YEAR UNDER ASSESSMENT AT 16% AS AGAINST 10, 45 % AS DISCLOSED BY THE ASSESSEE. CONSIDERING ALL THE ABOVE FACTS AND CIRCU MSTANCES OF THE CASE, 1 AM SATISFIED THAT THAT THE BOOKS OF ACCOUNT ARE NOT CO MPLETE AND CORRECT FROM WHICH THE CORRECT PROFIT CANNOT BE DEDUCED. ACCORDINGLY, I HEREBY REJECT THE BOOKS RESULTS SHOWN BY THE ASSESSEE U/S. 145(3} OF THE IT ACT. THIS VIEW IS ALSO SUPPORTED BY THE DECISION OF HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF AWADHESH PRATAP SINGH ABDUL REHRNAN & BROS V. CIT - 201 !TR 406 (ALL). AS DISCUSSED IN THE PRECEDING PARAGRAPHS, ONCE THE BOOKS RESULT IS REJECTED, THE GROSS PROFIT FOR THE YEAR UNDER ASSESSMENT IS WORKE D OUT AS UNDER: DURING THE YEAR UNDER ASSESSMENT, THE ASSESSEE HAS SHOWN THE G ROSS TURNOVER AT RS. 340.17 LAKHS. OVER AND ABOVE, THE ASSESSEE HAS CATEGORICAL LY ADMITTED THAT THE ASSESSEE HAD SUPPRESSED THE PRODUCTION AND MADE SALES OUT OF BOOKS TO M/S. R.K. TRADERS. THE TOTAL SALES EFFECTED TO M/S. R.K. TRADERS AS AD MITTED BY THE ASSESSEE COMES TO RS.1,75,84,211/-. OUT OF TOTAL SALES, AS PER THE BOOKS OF ACCOUNTS MAINTAINED Y THE ASSESSEE, ASSESSEE HAS CARRIED OUT JOB WORK ON BEHALF OF M/S. R, K. TRADERS TO THE TUNE OF RS.75,79,032/-, CONSIDERING THE ABOVE J OB WORK SALES REFLECTED IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE, THE T OTAL UNACCOUNTED SALES EFFECTED TO M/S, R. K, TRADERS IS WORKED OUT AT RS. 1,00,05,179/- (RS,1,75,84,211 - RS.75,79,032/-) FOR THE YEAR UNDER ASSESSMENT. 5.2 AGAINST THE ABOVE CONTENTION OF THE AO, APP ELLANT DURING THE COURSE OF APPELLATE PROCEEDINGS ARGUED BEFORE ME AS UNDER: '2.0 THE OBSERVATIONS MADE AND REASONING GIVEN BY TH E LEARNED ASSESSING OFFICER FOR THE ABOVE ADDITION CAN BE SUMMARIZED AS UNDER:- {3} THE CENTRAL EXCISE DEPARTMENT HAD CARRIED OUT S EARCH ACTION AT THE PREMISES OF THE ASSESSEE FIRM ON 18TH DECEMBER, 2010 AND IT WAS FOUND THAT THE ASSESSEE FIRM HAD RESORTED TO CLEAR DUTIABLE GOODS WITHOUT P AYMENT OF EXCISE DUTY BY USING THE NAME OF M/S R.K. TRADERS, A PROPRIETARY C ONCERN OF SHRI RANJITSINH K. RATHOD, ONE OF THE PARTNERS OF THE ASSESSEE FIRM. S HRI RATHOD IN HIS STATEMENT ITA NO. 1284 /AHD/2015 . A.Y. 2010-11 11 DATED 24TH DECEMBER, 2010 HAD ADMITTED ABOUT CLEARI NG CORRUGATED BOXES WITHOUT PAYMENT OF DUTY. (B) IT WAS ALSO NOTICED DURING THE COURSE OF ASSESS MENT PROCEEDINGS THAT THE ASSESSEE FIRM THOUGH VALUED ITS OPENING STOCK @RS.L 3.25 PER PIECE WHILE THE CLOSING STOCK WAS VALUED BY ADOPTING VALUE @ RS.12. 25 PER PIECE WITHOUT ASSIGNING ANY PLAUSIBLE REASON. (C) THERE WAS STEEP FALL IN G.P. DURING THE YEAR. L AST YEAR G.P. WAS DECLARED @ 15.62% WHILE FOR THE YEAR UNDER CONSIDERATION THE S AME WAS DECLARED @ 10,45%. NO PLAUSIBLE REASON FOR FALL OF G.P. WAS GIVEN. (D) IN VIEW OF THE ABOVE, THE BOOKS OF ACCOUNT OF T HE ASSESSEE FIRM WERE REJECTED AND G.P.@16% WAS APPLIED ON TURNOVER OF RS,4/40,22, 376/-[RS.3,4Q,17,197 AS PER BOOKS OF ACCOUNT OF THE ASSESSEE FIRM AND RS.L, 00,05,179/-AS PER SALES OF CORRUGATED BOXES BY M/S R,K. TRADERS] SUBMISSION OF THE APPELLANT: 3,0 AS PER THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ABOVE ADDITION OF RS.43,04,550/- CANNOT BE JUSTIFIED IN VIEW OF THE F OLLOWING PARA WISE REASONS: - (A) THE APPELLANT FIRM IS A PARTNERSHIP FIRM C ONSISTING OF SHRI VISHNUBHAI PATEL AND SHRI RANJITSINH K, RATHOD. THE ABOVE FIRM CEASE D TO BE PARTNERSHIP FIRM W.E.F. 31ST MARCH, 2010. A TEMPO CARRYING GOODS ALLEGEDLY FROM THE PREMISES OF THE APPELLANT FIRM WAS INTERCEPTED BY THE CENTRAL EXCIS E AUTHORITIES ON IS1 DECEMBER, 2010. THE SEARCH AND SEIZURE OPERATIONS AND SUBSEQU ENT INVESTIGATION WERE LAUNCHED BY THE CENTRAL EXCISE DEPARTMENT AGAINST T HE APPELLANT FIRM PURSUANT TO THE ABOVE INTERCEPTION, EXCEPT BALD STATEMENTS O F SHRI RANJITSINH K. RATHOD, PARTNER OF THE APPELLANT FIRM, NOT AN IOTA OF EVIDE NCE INDICATING CLANDESTINE CLEARANCE OF GOODS BY THE APPELLANT FIRM WAS FOUND BY THE DEPARTMENT EVEN AFTER EXTENSIVE SEARCHES. IT MAY BE NOTED THAT THE STATEM ENTS OF SHRI RANJITSINH K. RATHOD WERE RECORDED WITH PERSUASION, AS WELL AS HE WAS NOT IN SOUND MIND DUE TO IILNESS AT THAT TIME, AND ACCORDINGLY SAME WERE REBUTTED BY HIM VIDE HIS RETRACTION LETTER DATED 20 ' APRIL, 2011, A COPY OF THE SAME IS ENCLOSED HEREWITH ITA NO. 1284 /AHD/2015 . A.Y. 2010-11 12 VIDE ANNEXURE-A. IT IS SETTLED POSITION OF THE LAW THAT A RETRACTED STATEMENT, CANNOT BE RELIED UPON IN ABSENCE OF OTHER CORROBORA TIVE EVIDENCES. (B) M/S R.K. TRADERS, A PROPRIETARY CONCERN OF SHRI RANJITSINH K. RATHOD HAD DECLARED A TURNOVER OF RS.1,76,08,572/- DURING THE FINANCIAL YEAR 2009-10 RELEVANT TO THE ASSESSMENT YEAR 2010-11 IN THE RETU RN OF INCOME FILED ON 25*' FEBRUARY, 2011 WITH THE INCOME TAX DEPARTMENT. KIND LY REFER TO ANNEXURE-B, THE ABOVE RETURN WAS DULY SUPPORTED BY THE TAX AUDIT RE PORT DATED 24T'1 SEPTEMBER, 2010. A COPY OF TAX AUDIT REPORT ALONG-WITH RELEVAN T BALANCE SHEET & PROFIT & LOSS ACCOUNT IS ENCLOSED HEREWITH VIDE ANNEXURE-C. IT WAS ALSO SUBMITTED BEFORE THE CENTRAL EXCISE AUTHORITIES DURING THE COURSE OF INVESTIGATION BY THEM THAT M/'S R.K. TRADERS HAD GOT CORRUGATED BOXES MANUFACT URED FROM M/S POPULAR PACKAGING, WHICH IS A CONCERN REGISTERED UNDER THE CENTRAL EXCISE ON JOB WORK BASIS. IT WAS ALSO SHOWN THAT PAYMENT OF JOB WORK T O M/S POPULAR PACKAGING WAS MADE THROUGH CHEQUES. EVER? COPIES OF BILLS AND CHE QUES WERE SUBMITTED BEFORE THE CENTRAL EXCISE DEPARTMENT, IN VIEW OF THE ABOVE FACTS IT IS NOT PROPER ON THE PART OF THE ID, A,O. TO CLUB THE TURNOVER OF M/S R. K. TRADERS (WHICH IS SOLE PROPRIETORSHIP FIRM OF SHRI RANJITSINH K. RATHOD} W ITH THE APPELLANT. FIRM (WHICH IS A PARTNERSHIP FIRM OF S/SHRI VISHNUBHAI PATEL AND R ANJITSINH K. RATHOD}. (C) MOREOVER, THE TURNOVER OF THE APPELLANT FIRM AS ADOPTED BY THE ID. A.O. AMOUNTING TO RS.3,40,17,197/- CONSISTS OF JOB WORK AMOUNTING TO RS.78,LL,089/- CARRIED OUT BY THE APPELLANT FIRM ON BEHALF OF M/S R.K, TRADERS AND OTHERS, IT IS MATTER OF COMMON SENSE THAT G.P. RATE ON SALES CANN OT BE APPLIED TO THE AMOUNT OF JOB WORK. (D) THE ID. A.O, DID' NOT FIND ANY DEFECT IN THE BO OKS OF ACCOUNT OF THE APPELLANT FIRM, WHICH ARE DUTY AUDITED UNDER THE PROVISIONS O F SECTION 44AB OF THE INCOME TAX ACT, 1961 AND HENCE THE SAME CANNOT BE REJECTED IN ORDER TO APPLY G.P, RATE IN VIEW OF THE NUMEROUS DECISIONS, HOWEVER, A FEW D ECISIONS ARE GIVEN HEREUNDER : - CIT VS. WINNER CONSTRUCTION PVT. LTD. 2012 81 CCH 0 91 DEL HC ITA NO. 1284 /AHD/2015 . A.Y. 2010-11 13 ACCOUNTS REJECTION OF BOOKS OF ACCOUNTS AO REJECT S THE BOOKS OF ACCOUNTS OF THE ASSESSEE ON THE GROUND THAT THE NET PROFIT DECL ARED BY THE ASSESSES WAS LOW, IN COMPARISON WITH OTHERS IN THE SOME LINE OF BUSIN ESS- AO A/SO HELD THAI THE PROJECT WISE BOOKS OF ACCOUNTS WERE NOT PRODUCED, C LOSING STOCK WAS NOT PROPERLY DISCLOSED AND THAT THERE WERE UNACCOUNTED OUTSTANDI NG BALANCE AND MADE ADDITION TO THE INCOME OF THE ASSESSES CIT(A) DELE TES THE ADDITION MADE BY THE AO ON THE GROUND THAT THERE WAS NO JUSTIFICATION OF THE AO TO DRAW ADVERSE INFERENCE AND TO REJECT THE BOOKS OF ACCOUNT TO MAK E ESTIMATE IN RESPECT OF TRADING RESULTS FURTHER, AS THE ACCOUNTS WERE MAIN TAINED IN CONFORMITY WITH THE PAST HISTORY AND IN THE ABSENCE OF ANY SPECIFIC MISTAKE OR IRREGULARITY, THERE WAS NO GROUND TO DISPUTE CORRECTNESS OF TRADING RES ULTS ON THE BASIS OF THIS ISSUE FINDINGS RECORDED BY THE CIT(A) WAS AFFIRMED BY THE TRIBUNAL HELD, LOW GROSS OR NET PROFIT MAY BE A GROUND OR REASON TO CO NDUCT A DETAILED AND THOROUGH INVESTIGATION AND VERIFICATION, BUT ON STAND-ALONE BASIS CANNOT BE A GROUND FOR REJECTING THE BOOKS SYSTEM OF ACCOUNTING ADOPTED B Y AN ASSESSEE CANNOT BE /'EJECTED ON THE GROUND THAT THE GROSS PROFIT DISCL OSED IN THE BOOKS WAS LOW, IN COMPARISON WITH OTHERS IN THE SAME LINE OF BUSINESS LOW PROFIT WITH OTHER DEFECT CAN JUSTIFY REJECTION OF BOOKS OTHER FINDIN GS RECORDED BY THE APPELLATE AUTHORITY IN RESPECT OF PROJECT WISE BOOKS OF ACCOU NTS, CLOSING STOCK AND UNACCOUNTED OUTSTANDING BALANCE ARE FACTUAL AND REV ENUE HAS NOT BEEN ABLE TO SHOW ON WHAT BASIS OR REASON THE SAME CAN BE CHALLE NGED/ QUESTIONEDTHE QUESTION OF LAW IS ANSWERED AGAINST THE APPELLANT R EVENUE AND IN FAVOUR OF THE ASSESSEE CIT VS. VIJAY CONSTRUCTIONS [2007] 162 TAXMANN 34 ( ALL) ACCOUNTS REJECTIONESTIMATION OF PROFIT RATE RATE OF PROFIT CANNOT BE ASSUMED MERELY ON ASSUMPTIONS, SURMISES AND CONJECT URES IN CASE THE BOOKS OF ACCOUNT ARE REJECTED, ONUS LIES ON THE AO TO DETERM INE THE RATE OF PROFIT ON CONSIDERATION OF MATERIAL WHICH MAY BE BROUGHT BEFO RE HIM AND ON MAKING SUCH ENQUIRY WHICH MAY BE NECESSARY SINCE THE AO, CIT(A ) AS ALSO THE TRIBUNAL HAVE ITA NO. 1284 /AHD/2015 . A.Y. 2010-11 14 NOT RECORDED ANY FINDING BASED ON ANY MATERIAL TO A RRIVE AT THE APPROPRIATE RATE OF PROFIT IN THE CASE OF ASSESSEE CONTRACTOR, AND T HE RATES OF PROFIT APPLIED BY THESE AUTHORITIES ARE BASED MERELY ON SURMISES AND CONJECTURES, SAME CANNOT BE SUSTAINED MATTER IS REMANDED TO THE AO TO REDETERM INE THE APPROPRIATE RATE OF PROFIT ON THE BASIS OF EVIDENCE/MATERIAL ON RECORD AFTER AFFORDING OPPORTUNITY OF HEARING TO THE PARTIES. INDWELL CONSTRUCTION VS. CIT 232 ITR 776 (AP) INCOME ADDITION REJECTION OF BOOKS REVENUE CANNO T RELY ON SAME BOOKS FOR ADDITION OF EXPENDITURE SHOWN IN P & L A/C BOO KS OF ASSESSEE CONTRACTOR REJECTED AND INCOME ESTIMATED DEDUCTIONS REFERRED TO UNDER S, 29 ARE DEEMED TO HAVE BEEN TAKEN INTO ACCOUNT WHILE MAKING ESTIMA TE INCLUDING DISALLOWANCE UNDER S. 40~SEPARATE ADDITION IN RESPECT OF INTERES T AND SALARY PAID TO PARTNERS THEREFORE, NOT JUSTIFIED FEJ THE ID. A.O. HAD MADE ADDITION IN THE CASE BY A PPLYING G.P. MERELY ON THE BASIS OF INFORMATION RECEIVED FROM THE CENTRAL EXCI SE DEPORTMENT. HE HAD NEITHER INDEPENDENTLY VERIFIED OR CONFIRMED THE INFORMATION NOR CONDUCTED HIS OWN INVESTIGATIONS IN THE MATTER IN ORDER TO FIND OUT T RUTH. THE ADJUDICATION ORDER PASSED ON 28UL MAY, 2014 FA COPY OF WHICH, IS ENCLO SED HEREWITH VIDE ANNEXURE- D) IN THE CASE OF THE APPELLANT FIRM WHERE THE ID. AUTHORITY HAD CLUBBED THE CLEARANCE FROM M/S: R.K, TRADERS AND THE APPELLANT FIRM HAS BEEN CHALLENGED BY WAY OF APPEAL BEFORE THE ID. COMMISSIONER (APPEALS) ON 20LL: AUGUST, 2014 { A COPY OF THE SAME IS ENCLOSED HEREWITH VIDE ANNEXURE -E ) AND SAME IS PENDING FOR ADJUDICATION, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE APPELLANT EXPECT A FAVOURABLE OUTCOME FROM THE ADJUDICATING OFFICER. I N VIEW OF THE ABOVE POSITION, YOUR HONOUR IS REQUESTED TO KINDLY KEEP THIS APPEAL PENDING TIL! THE DISPOSAL OF APPEAL BY COMMISSIONER (APPEALS), CENTRAL EXCISE DE PARTMENT. ' 5.3 I HAVE CONSIDERED THE FACTS OF THE CASE, AS SESSMENT ORDER AND THE SUBMISSION MADE BY THE APPELLANT, ITA NO. 1284 /AHD/2015 . A.Y. 2010-11 15 DURING THE COURSE OF SAID OPERATION, SHRI RANJITSIN GH K, RATHOD, PARTNER OF THE ASSESSEE FIRM, HAS CONFIRMED THAT THE ASSESSEE FIRM HAD EVADED THE PAYMENT OF EXCISE DUTY BY CLEARING THE EXCISABLE GOODS WITHOUT PAYMENT OF CENTRAL EXCISE DUTY AND ACCORDINGLY HANDED OVER TWO CHEQUES AMOUNT ING TO RS,5 LAKHS TOWARDS THE CENTRAL EXCISE DUTY LIABILITY ON THE DAY OF THE PROCEEDINGS ITSELF SURVEY/SEARCH OPERATION BY THE PREVENTIVE WING OF CENTRAL EXCISE DEPARTMENT, AHMEDABAD AT THE BUSINESS PREMISES OF THE ASSESSEE FIRM ON 13,12 ,2010. THIS VIEW OF SHRI RANJITSINGH K. RATHOD WAS AGAIN CONFIRMED BY HIM IN THE STATEMENT RECORDED U/S, 14 OF THE CENTRAL EXCISE ACT, 1944 ON 21.01,2011. F URTHER, DETAILED STATEMENT OF SHRI RANJITSINGH K. RATHOD, PARTNER OF THE ASSESSEE FIRM, WAS ALSO RECORDED U/S. 4 OF THE CENTRAL EXCISE ACT, 1944 ON 24.12,2010 BY TH E CENTRAL EXCISE AUTHORITIES WHEREIN SHRI RANJITSINGH K. RATHOD HAS GIVEN DETAIL ED WORKING OF SALES MADE TO M/S. R.K. TRADERS DURING THE PERIOD FROM APRIL, 200 9 TO DECEMBER, 2009. THE TOTAL SALES SHOWN IN THE STATEMENT COMES TO RS. 1,7 5,84,211/- COMPRISING OF PACKING MATERIALS, PACKING TOOLS PURCHASED AND CORR UGATED BOXES MANUFACTURED BY THE ASSESSEE FIRM, M/S.WONDER PACKAGING INDUSTRI ES. SHRI RATHOD FURTHER ELABORATED THAT OUT OF TOTAL SALES, 60% PERTAINS TO CORRUGATED BOXES AND ABOUT 40% PERTAINS TO TRADING SUCH AS PACKING MATERIALS A ND PACKING TOOLS. HE FURTHER CLARIFIED IN THE STATEMENT THAT CORRUGATED BOXES VA LUED AT RS.1,05,50,526/- HAS BEEN CLEARED WITHOUT PAYMENT OF EXCISE DUTY. AS REGARDS THE UNDER VALUATION OF CLOSING STOCK OF FINISHED GOODS, THE ASSESSEE HAS BEEN GRANTED OPPORTUNITY BY WAY OF SHOW CAUSE N OTICE AS REPRODUCED ABOVE, TO CLARIFY THE DISCREPANCY IN THE VALUATION OF CLOS ING STOCK OF FINISHED GOODS, THE VALUATION ADOPTED BY THE ASSESSEE IN RESPECT OF FIN ISHED GOODS WAS NOT ACCEPTED AND REJECTED. AS REGARDS THE STEEP FALL IN GROSS PROFIT, AO DID N OT ACCEPT THE CONTENTION OF THE ASSESSEE AS HE NOTICED THAT DURING THE YEAR UNDER A PPEAL, APPELLANT HAD SHOWN GROSS PROFIT AT 10.45% WHEREAS IN THE IMMEDIATE PRE CEDING YEAR, GROSS PROFIT DISCLOSED BY THE ASSESSEE FIRM WAS 15.62%. THE CLAR IFICATION AND EXPLANATION IS ITA NO. 1284 /AHD/2015 . A.Y. 2010-11 16 NOT EVEN CONVINCING FOR THE SAME. THE AO WAS SATISF IED THAT THE BOOKS OF ACCOUNT WERE NOT COMPLETE AND CORRECT FROM WHICH THE CORREC T PROFIT CANNOT BE DEDUCED, ACCORDINGLY, AO REJECTED THE BOOKS RESULTS SHOWN BY THE APPELLANT U/S, 145(3) OF THE IT ACT RELYING ON THE DECISION OF HON'BSE ALLAH ABAD HIGH COURT IN THE CASE OF AWADHESH PRATAP SINGH ABDUL REHMAN & BROS V. CIT - 201 ITR 406 (ALL), AGAINST THE ABOVE CONTENTION OF THE AO, APPELLANT H AS ARGUED THAT A.O. HAD MADE ADDITION IN THE CASE OF THE APPELLANT BY APPLY ING G.P. MERELY ON THE BASIS OF INFORMATION RECEIVED FROM THE CENTRAL EXCISE DEPART MENT. HE HAD NEITHER INDEPENDENTLY VERIFIED OR CONFIRMED THE INFORMATION NOR CONDUCTED HIS OWN INVESTIGATIONS IN THE MATTER IN ORDER TO FIND OUT T RUTH. APPELLANT STATES THAT IT HAD FILED APPEAL AGAINST THE ORDER OF THE EXCISE DEPART MENT AND EXPECTED A FAVOURABLE OUTCOME. FURTHER, APPELLANT HAS CONTENDE D THAT M/S R. K. TRADERS IS A PROPRIETARY CONCERN OF SHRI RANJITSINH K. RATHOD HA D'DECLARED A TURNOVER OF RS.1,76,08,572/- DURING THE FINANCIAL YEAR 2009-10 RELEVANT TO THE ASSESSMENT YEAR 2010-11 IN THE RETURN OF INCOME FILED ON 25TH FEBRUARY, 2011 WHICH WAS DULY SUPPORTED BY THE TAX AUDIT REPORT DATED 24TH SEPTEM BER, 2010. FURTHER, IT IS ARGUED THAT THE TURNOVER OF THE APPELLANT FIRM AS A DOPTED BY THE AO AMOUNTING TO RS.3,4Q,17,197/- CONSISTS OF JOB WORK, AMOUNTING TO RS.78,11,089/- CARRIED OUT BY THE APPELLANT FIRM ON BEHALF OF M/S R, K. TRADER S AND OTHERS, IT IS MATTER OF COMMON SENSE THAT G.P. RATE ON SALES CANNOT BE APPL IED TO THE AMOUNT OF JOB WORK, IT IS ALSO CONTENDED THAT AO DID NOT FIND ANY DEFECT IN THE BOOKS OF ACCOUNT OF THE APPELLANT FIRM, WHICH ARE DUTY AUDITED UNDER THE PROVISIONS OF SECTION 44AB OF THE INCOME TAX ACT, 1961 AND HENCE THE SAME CANNOT BE REJECTED IN ORDER TO APPLY G.P. RATE IN VIEW OF THE NUMEROUS DE CISIONS, AND ALSO NO INDEPENDENT ENQUIRIES WERE CONDUCTED BY THE AO, SIN CE THE EXCISE DEPARTMENT HAS FINALIZED THE PROCEEDINGS OF EXCISE EVASION BY FOLLOWING DUE PROCEDURE RESULTING INTO INCREASING THE EVADED TURNOVER, I AM OF THE OPINION THAT THE AO HAS RIGHTLY ESTIMATED THE GROSS PROFIT ON THE CORRECT T URNOVER ON THE BASIS OF REPORT RJY THE EXCISE DEPARTMENT. MOREOVER, THE TURNOVER O F THE APPELLANT TERMED BY THE ITA NO. 1284 /AHD/2015 . A.Y. 2010-11 17 EXCISE AUTHORITIES WAS MORE THAN THE TURNOVER ADOPT ED BY THE AO AFTER FINALIZATION OF THE ASSESSMENT PROCEEDINGS. AFTER CONSIDERING THE ABOVE REPLY OF THE APPELLANT, VIDE ORDER SHEET ENTRY DATED 06/02/2015, APPELLANT WAS SHOW CAUSED AS TO WHY GP ADDITION MADE BY THE AO AMOUNTING TO RS.43,04,550/- SHOULD NOT BE ENHANCED TO RS.52,51,411/- AS THE AO HAD TAKEN THE TURNOVER OF THE APPELLANT AT RS.4,40, 22,376/- INSTEAD OF RS.4,99,40,070/- AS DETERMINED BY THE ADDI, COMMISS IONER OF CENTRA! EXCISE, AHMEDABAD-II! VIDE HIS ORDER DATED 28/5/2014 FOR TH E PURPOSE OF APPLICATION OF GROSS PROFIT @ 16%. APPELLANT IN RESPONSE, VIDE SET TER DATED 19/2/2015 CONTENDED AS UNDER: 'KINDLY REFER TO THE APPELLATE PROCEEDINGS TAKEN PLA CE BEFORE YOUR HONOUR ON 6TH FEBRUARY,, 2015 IN CONNECTION WITH THE APPEAL FILED BY THE ABOVE NAMED APPELLANT. YOUR HONOUR HAS TAKEN ON RECORDS OUR SUB MISSIONS DATED 6TH'FEBRUARY, 2015 AND PROVIDED US AN OPPORTUNITY TO SHOW CAUSE, WHY G.P. ADDITION MADE BY THE ID. A.O. AMOUNTING TO RS.43,04 ,550/- SHOULD NOT BE ENHANCED TO RS.52,51,411/- BECAUSE THE ID. A.O, HAD TAKEN THE TURNOVER OF THE APPELLANT FIRM AT RS.4,40,22,376/-INSTEAD OF RS.4,9 9,40,070/-, AS DETERMINED BY THE ADDITIONAL COMMISSIONER OF CENTRAL EXCISE, AHME DABAD-III VIDE HIS ADJUDICATION ORDER DATED 28TH MAY, 2014, FOR THE PU RPOSE OF APPLICATION OF G.P. @ 16%. IN THIS CONNECTION, THE APPELLANT FIRM WAS D IRECTED TO SUBMIT ITS REPLY ON OR BEFORE 19TH FEBRUARY, 2015. WE ARE GRATEFUL TO Y OUR HONOUR FOR PROVIDING THIS OPPORTUNITY TO US AND ACCORDINGLY AS PER INSTRUCTIO N OF OUR ABOVE NAMED CLIENTS, WE WOULD LIKE TO SUBMIT AS UNDER: - (1) THE AMOUNT OF TOTAL TURNOVER ARRIVED AT BY THE ADDITIONAL COMMISSIONER OF CENTRAL EXCISE; AHMEDABAD-III IS ON THE BASIS OF CO NJECTURE AND SURMISES. IT WAS AN ESTIMATED IMAGINARY FIGURE NOT BACKED BY ANY EVI DENCE, THE ADJUDICATING AUTHORITY HAD FAILED TO CONSIDER THAT EVEN M/S R.K. TRADERS HAD GOT JOB WORK DONE ITA NO. 1284 /AHD/2015 . A.Y. 2010-11 18 FROM M/S POPULAR PACKAGING AND THEREFORE AT LEAST T HE TURNOVER OF M/S R.K.TRADERS OUGHT TO BE REDUCED FROM THE ABOVE AMOU NT. MOREOVER, THE ADJUDICATING ORDER DATED 28TH MAY, 2014 IS NOT A FI NAL ORDER BECAUSE IT IS CHALLENGED BY THE APPELLANT FIRM BEFORE THE COMRNIS SIONER-(APPEALS),CENTRAL EXCISE, AHMEDABAD VIDE APPEAL MEMO DATED 20TH AUGUS T, 2014 AND A COPY OF THE ABOVE APPEAL MEMO HAD ALREADY BEEN PLACED ON RE CORD VIDE ANNEXURE-E TO OUR SUBMISSIONS DATED 6TH FEBRUARY, 2015. IN VIEW O F THE ABOVE POSITION, YOUR HONOUR IS REQUESTED TO KINDLY KEEP THESE APPELLATE PROCEEDINGS IN ABEYANCE TILL THE DISPOSAL OF THE ABOVE APPEAL BY THE COMMISSIONE R (APPEALS), CENTRAL EXCISE, AHMEDABAD, (2) WITHOUT PREJUDICE TO THE ABOVE, AN ADDITION OF RS. 52,51,411/- ON ACCOUNT OF LOW G.P, IS NOT JUSTIFIED IN THE FACTS AND CIRCUMST ANCES OF THIS CASE EVEN AFTER ASSUMING THAT THE TOTAL TURNOVER OF THE APPELLANT F IRM WAS RS. 4,99,4Q,Q7Q/- BECAUSE OF THE FOLLOWING REASONS:- (A) FOR MAKING ADDITION OF RS.43,04,550/- THE ID. A .O. HAD APPLIED 16% G.P. RATE ON TURNOVER OF RS.4,40,22,376/- AND REDUCED FROM TH E RESULTANT FIGURE AN AMOUNT OF RS,27,39,000/- BEING G.P. DECLARED BY THE APPELL ANT FIRM @10.45%. HOWEVER, IT IS IMPORTANT TO SUBMIT THAT THE ABOVE DECLARATION O F G.P, @10.45% WAS NOT CORRECT. (B) THE ABOVE G.P. @1Q.45% WAS WORKED OUT AS UNDER AFTER CASTING A TRADING ACCOUNT FROM THE FIGURES FROM THE AUDITED ACCOUNTS : PARTICULARS AMOUNT PARTICULARS AMOUNT TO OPENING STOCK 1,58,98,790 BY SALES 2,62,06,108 TO PURCHASES 2,86,05,265 BY OTHER INCOME 78,11,089 TO MANUFACTU RING 28,54,801 27,39,388 BY CLOSING STOCK 1,60,81,047 ITA NO. 1284 /AHD/2015 . A.Y. 2010-11 19 EXPENSES TO GROSS PROFIT TOTAL 5,00,98,244 TOTAL 5,00,98,244 HENCE, THE G.P.RATE = 27,39,388/2,62,06,108X100-10. 45% HOWEVER, THERE WAS A MISTAKE IN RESPECT OF EXPENSES DEBITED IN RESPECT OF 'FREIGHT EXPENSES' UNDER THE HEAD 'MANUFACTURING EX PENSE' (SCHEDULE-11 OF THE AUDITED BALANCE SHEET AS AT 31S: MARCH, 2010 ENCLOS ED HEREWITH VIDE' ANNEXURE- H). IT MAY BE SUBMITTED THAT THE TOTAL FREIGHT EXPE NSES DEBITED AMOUNTING TO RS,9,79,169/- AISO INCLUDED FREIGHT OUTWARD EXPENSE S AMOUNTING TO RS. 7,88,507/-. FREIGHT OUTWARD EXPENSES BEING PAID IN RESPECT OF FINISHED GOODS COULD NOT FORM PART OF TRADING ACCOUNT. THEREFORE T HESE EXPENSES ARE REQUIRED TO BE EXCLUDED FROM TRADING ACCOUNT. MOREOVER, A SUM O F RS.1,07,099/- BEING DEPOSIT TO LJGVCL HAD ALSO BEEN DEBITED AS 'FACTORY ELECTRICITY'EXPENSES' UNDER THE HEAD 'MANUFACTURING EXPENSES'. THE ABOVE AMOUNT HAD BEEN ALREADY DISALLOWED BY THE ID, A.O. BEING NOT REVENUE EXPEND ITURE AND HENCE SAME IS ALSO REQUIRED TO BE EXCLUDED WHILE WORKING OUT THE CORRE CT FIGURE OF GROSS PROFIT. (D) THE COPIES OF LEDGER ACCOUNT OF FREIGHT EXPENSE S (BIFURCATED IN FREIGHT INWARD AND FREIGHT OUTWARD) ALONG-WITH VOUCHERS/ SUPPORTIN G ARE PLACED HEREUNDER FOR VERIFICATION BY YOUR HONOUR VIDE ANNEXURE-I. 'THIS ACCOUNT AND VOUCHERS ARE PART OF AUDITED BOOKS OF ACCOUNT AND AS THE BOOKS OF ACC OUNTS AND VOUCHERS WERE BEING PRODUCED DURING THE COURSE OF ASSESSMENT PROC EEDINGS BEFORE THE ID. A.O; HENCE THESE ARE NOT ADDITIONAL EVIDENCE AS LAID DOW N BY THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT Y/S K.K.S.S. LEATHER PROCE SSORS (P. ) LTD. 292 ITR.669 (MAD) WHERE IT WAS HELD THAT VERIFICATION OF REGULA R ACCOUNTS CANNOT BE CONSIDERED AS APPRAISAL OF ADDITIONAL EVIDENCE AND IT DOES NOT AMOUNT TO VIOLATION OF RULE 46A(3). A COPY OF THE ABOVE DECIS ION IS ENCLOSED HEREWITH. ITA NO. 1284 /AHD/2015 . A.Y. 2010-11 20 (E) WITHOUT PREJUDICE TO THE ABOVE SUBMISSIONS IN A BOVE PARA (D), EVEN IF THE VERIFICATION OF FREIGHT ACCOUNT IS CONSIDERED AS SU BMISSION OF ADDITIONAL EVIDENCE EVEN THEN THE SAME ARE ADMISSIBLE BECAUSE THEY GO T O THE ROOT OF THE MATTER IN RESPECT TO ADJUDICATION OF G.P. ISSUE. THE ABOVE MI STAKE IN. ACCOUNTS COULD NOT BE POINTED OUT BY THE ID. I.T.P. OF THE APPELLANT FIRM DURING THE ASSESSMENT PROCEEDINGS BECAUSE OF HIS FAILURE TO ANALYZE VARIO US COMPONENTS OF MANUFACTURING EXPENSES AND PAUCITY OF TIME. IT IS S ETTLED POSITION OF THE LAW THAT AN ASSESSEE SHOULD NOT SUFFER BECAUSE OF A MISTAKE MADE BY HIS COUNSEL. THE PARTNERS OF THE APPELLANT FIRM BEING NET FULLY CONV ERSANT WITH THE ACCOUNTS AND INCOME TAX PROCEEDINGS THEIR FAITH ON THEIR COUNSEL WAS JUSTIFIED AND CANNOT BE SAID TO UNREASONABLE. THEREFORE, THESE NEW EVIDENCE S AS ADDUCED BEFORE YOUR HONOUR NOW ARE ADMISSIBLE IN EVIDENCE IN VIEW OF TH E FOLLONG DECISIONS:- B.L. CHOUDHARY V/S CIT 105 ITR 37(ORI) ' SECTION 250(4) OF THE INCOME-TAX ACT, CONFERS JURI SDICTION ON THE AAC TO MAKE SUCH ENQUIRY AS HE DEEMS FIT THIS PROVISION SEEMS T O BE BASED ON THE FACT THAT BEFORE THE AAC THERE IS GENERALLY NO OPPOSITE PARTY . THE APPELLATE AUTHORITY HIMSELF IS THE DEPARTMENTAL AUTHORITY REPRESENTING THE REVENUE. THEREFORE,, HE HAS BEEN INVESTED WITH THE POWER OF MAKING FURTHER ENQUIRY. HE DOES NOT EXCEED HIS JURISDICTION IF HE ASKS OR ALLOWS THE ASSESSEE TO PRODUCE OR FILE ADDITIONAL PAPERS OR ADDITIONAL EVIDENCES,' K. MOHAMMED V/S.ITO 107 ITR 808 (KER) 'UNLESS REQUEST FOR PRODUCTION OF ADDITIONAL EVIDENC E BY ASSESSEE, IS LACKING IN BONA FIDES OR SMACKS OF DILATORY TACTICS, AAC IS NO T JUSTIFIED IN REFUSING TO ADMIT SUCH EVIDENCE. PAREKH AUTOMOBILES VS. ITO 68 TT3(RAJKOT)722 'ASSESSES WAS PREVENTED BY ITS CHARTERD ACCOUNTANT FORM APPEARING BEFORE THE A.O. ANC THUS IT COULD NOT PRODUCE THE NECESSARY EV IDENCE BEFORE HIM- CIT(A) SHOULD HAVE ADMITTED THE FRESH EVIDENCE PRODUCED BE FORE HIM IN THE APPEAL AND SHOULD HAVE MADE FURTHER ENQUIRIES BEFORE PASSING THE ORDER- APPEAL RESTORED ITA NO. 1284 /AHD/2015 . A.Y. 2010-11 21 BACK TO THE FILE OF THE CIT(A) WITH DIRECTION TO AD MIT THE NEW EVIDENCE AND PASS A SPEAKING ORDER. ' I.T.O (EXEMPTION) V/S BAJORIAFOUNDATION 71 TTJ (CA L) 343 'IF PRIMA FADE AN INFORMATION IS NECESSARY TO-EXAMI NE THE CLAIM OF THE ASSESSES, CIT(A) SHOULD CONSIDER THE NECESSARY EVIDENCE IN EX ERCISE OF HIS POWERS UNDER SUB-SECTIONS (4) AND (5) OF SECTION 250, CIT(A) IS NOT DENUDED OF HIS POWERS TO DO SO BECAUSE OF PROVISIONS OF RULE 46A.' IN THESE CIRC UMSTANCES, IT IS QUITE MANIFEST THAT THE APPELLANT FIRM WAS PREVENTED BY SUFFICIENT CAUSE FOR NOT PRODUCING THE NECESSARY EVIDENCES AND OTHER DOCUMENTS BEFORE THE ID. A.O. AND HENCE, THESE DOCUMENTS NOW BEING FURNISHED IN SUPPORT OF GROUND NO. 3.0 OF THE APPEAL MAY KINDLY ADMITTED. WE EXPECT THAT YOUR HONOUR WOULD FIND THE ABOVE SUB MISSIONS IN ORDER TO ALLOW THE APPEAL OF THE APPELLANT IN RESPECT OF ALL THE G ROUNDS RAISED IN THE APPEAL MEMO ' 4. AND LD. A.O. MADE AN ADDITION OF RS. 48,20,531/-. 5. AGAINST THE SAID ORDER, ASSESSEE PREFERRED FIRST ST ATUTORY APPEAL BEFORE THE LD. CIT(A) WHO DISMISSED THE APPEAL OF THE ASSESSEE. 6. NOW ASSESSEE HAS COME BEFORE US. 7. AT THE OUTSET, LD. A.R. STATED THAT LD. CIT(APPEALS -I), CENTRAL EXCISE, AHMEDABAD GIVEN RELIEF TO THE ASSESSEE AND THEREAFT ER THE APPEAL WAS FILED BY THE CENTRAL EXCISE DEPARTMENT BEFORE THE CESTAT. BU T TRIBUNAL DISMISSED THE APPEAL OF THE REVENUE ON THE BASIS OF LOW TAX EFFEC T AND COPY OF BOTH THE ORDER HAVE BEEN FILED BY THE ASSESSEE. SINCE ADDITI ON HAS BEEN MADE ON THE BASIS OF BORROWED SATISFACTION FROM THE CENTRAL EXC ISE DEPARTMENT AND NOW ITA NO. 1284 /AHD/2015 . A.Y. 2010-11 22 RELIEF HAS BEEN GRANTED TO THE ASSESSEE BY THE COMM ISSIONER OF CENTRAL EXCISE AND APPEAL OF THE REVENUE HAS BEEN DISMISSED BY THE CESTAT. NOW NOTHING REMAINS AGAINST THE APPELLANT. 8. IN VIEW OF THE ABOVE, WE ALLOW THE APPEAL OF THE AS SESSEE. 9. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLO WED. ORDER PRONOUNCED IN OPEN COURT ON 19- 12 - 2019 SD/- SD/- (WASEEM AHMED) (MAHAVIR PRASAD) ACCOUNTANT MEMBER TRUE COPY JUDICIAL MEMBER AHMEDABAD: DATED 19/12/2019 RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD