Shri Deepak Bhawnani, JODHPUR V. ACIT, JODHPUR

ITA 130/JODH/2013

• Counselvise Citation: 13023314 RSA 2013
• Duration Of Justice: 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 28-08-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 08-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N A JOSHI
• Keywords: Gross profit estimation; Rejection of books of accounts; Depreciation; Search and seizure; Principle of natural justice; Question of law
• Section: 143(3); 11A; 234B; 145; 139

Judgement Text

IN THE INCOME TAX APPELALTE TRIBUNAL: JODHPUR BENCH : JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER. ITA NO. 128/JODH/2013 (A.Y. 2009-10) SHRI VIJAY BHAVNANI VS ACIT, CENTRAL CIRCLE-2, C/O. B.M. KOTHARI & CO., JODHPUR. 947, 11 TH D ROAD, SARDARPURA, JODHPUR. PAN NO. ADOPB3517A ITA NO. 129/JODH/2013 (A.Y. ITA NO. 2009-10) SHRI PRAKASH BHAVNANI VS ACIT, CENTRAL CIRCLW-2, C/O. B.M. KOTHARI & CO., JODHPUR. 947, 11 TH D ROAD, SARDARPURA, JODHPUR. PANNO. ADEPB1073B ITA NO. 130/JODH/2013 (A.Y. 2009-10) SHRI DEEPAK BHAVNANI VS ACIT, CENTRAL CIRCLE-2, C/O. B.M. KOTHARI & CO., JODHPUR. 947, 11 TH D ROAD, SARDARPURA, JODHPUR. PAN NO. ADOPB3516B (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. AMIT KOTHARI. DEPARTMENT BY : SH. N.A. JOSHI- DR. 2 DATE OF HEARING : 28/08/2013. DATE OF PRONOUNCEMENT : 30/08/2013. O R D E R PER BENCH : THE ABOVE CAPTIONED APPEALS ARE BEING DECIDED BY A COMMON ORDER. A ITA NO. 128/JODH/2013 (A.Y. 2009-10) IN THE CASE OF SHRI VIJAY BHAVNANI VS. ACIT. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS THE PROPRIETOR OF M/S. MAHESH STEELS, JODHPUR. HE DERIV ES INCOME FROM BUSINESS AND FROM OTHER SOURCES. FOR A.Y. 2009-10 H E FILED RETURN OF INCOME (ROI) ON 09/09/2011 DECLARING TOTAL INCOME O F RS. 6,26,020/-. THE ASSESSMENT WAS MADE U/S 143(3) ON 19/12/2011 AT A TOTAL INCOME OF RS. 44,72,690/-. IN ARRIVING AT THE ABOVE INCOME , THE A.O. HAS MADE THE FOLLOWING ADDITIONS- TOTAL INCOME AS PER RETURN RS. 6,26,020/- ADDITION ON ACCOUNT OF AGRICULTURAL INCOME RS. 7, 86,000/- ADDITION ON ACCOUNT OF DISALLOWANCE U/S 80IA RS. 2 7,95,079/- ADDITION ON ACCOUNT OF HOUSEHOLD WITHDRAWALS RS. 2, 40,000/- ADDITION ON DISALLOWANCE OF EXPENSES RS. 25,59 1/- TOTAL INCOME RS. 44,72,690/- 3 3 AGGRIEVED THE ASSESSEE FILED APPEAL AND LD. CIT(A ) HAS DELETED ADDITION OF RS. 27,95,079/-, AND OF RS. 2,40,000/- BUT HAS SUSTAINED ADDITIONS MADE ON ACCOUNT OF DISALLOWANCE OF AGRICU LTURAL INCOME OF RS. 7,86,000/- AND ADDITION OF RS. 25,591/- MADE ON ACCOUNT OF DISALLOWANCE OF EXPENSES. THE ASSESSEE IS FURTHER A GGRIEVED AND AHS FILED SECOND APPEAL BY RAISING THE FOLLOWING GROUND S :- 1. THE LD. CIT(A) HAS ERRED IN SUSTAINING THE ORDE R PASSED BY THE A.O. WHICH IS BAD IN LAW, BAD ON FACT S, CONTRARY TO THE PRINCIPLES OF NATURAL JUSTICE AND E VIDENCE EXISTING ON RECORDS 2. THE LD. CIT(A) HAS ERRED IN SUSTAINING THE ADDIT ION OF RS. 7,86,000/- ON ACCOUNT OF AGRICULTURAL INCOME SH OWN BY THE ASSESSEE. THE ADDITION IS CONTRARY TO THE FACT S, MATERIAL AND EVIDENCE EXISTING ON RECORDS AND IS AL SO CONTRARY TO THE PAST HISTORY 3. THE LD. CIT(A) HAS ERRED IN CONFIRMING THE FINDI NG OF THE A.O. THAT CREDIT ALLOWED BY WIND MILL SUPPLIER SUZLON PVT. LTD OUGHT TO HAVE BEEN PROPORTIONATELY BIFURCA TED IN EARLIER YEARS ALSO. SUCH FINDINGS ARE PATENTLY WRON G AS EFFECT OF CREDIT NOTE CAN BE ALLOWED ONLY WHEN IT I S ACCEPTED BY THE OTHER PARTY. 4 4. THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADHOC DISALLOWANCE OF RS. 25,591/- OUT OF EXPENSES CLAIME D BY THE ASSESSEE. 5. THE INTEREST CHARGED U/S 234B AND 234C IS BAD IN LAW AND ON FACTS. 6. THE APPELLANT PRAYED FOR SUITABLE COSTS. 7. THE APPELLANT CRAVES LIBERTY TO ADDITION, AMEND, ALTER AND MODIFY ANY OF THE GROUND OF APPEAL ON OR BEFORE ITS HEARING BEFORE YOUR HONOUR. 4. WE HAVE HEARD RIVAL SUBMISSIONS AND HAVE CAREFUL LY PERUSED THE ENTIRE RECORD. IN THIS APPEAL GROUND NO. 1, 6 AND 7 ARE FORMAL AND DONT REQUIRE ANY SPECIFIC ADJUDICATION. GROUND NO. (5) IS REGARDING CHARGING OF INTEREST U/S 234 AND 234. THE CHARGING OF INTEREST UNDER ABOVE SECTIONS BEING MANDATORY ONLY CONSEQUENTIAL R ELIEF CAN BE ALLOWED. THEREFORE, WE DISMISS GROUND NOS. 1, 5, 6 AND 7 OF THIS APPEAL. ONLY GROUND NO. 2, 3 AND 4 SURVIVE FOR ADJU DICATION. 5. THE FACTS APROPOS GROUND NO. (2) ARE THAT THE DU RING THIS YEAR THE ASSESSEE HAS DISCLOSED AGRICULTURAL INCOME OF RS. 7 ,86,000/- TO PROVE THIS CLAIM THE ASSESSEE FILED COPIES OF KHASRA GIRD AWARI IN RESPECT OF LAND IN KHASRA NO. 150/1, (AREA 52 BIGHAS) SITUATED IN THE REVENUE 5 ESTATE OF VILLAGE MANAKLOO. THE ASSESSEE IS JOINT O WNER OF THIS LAND ALONGWITH SHRI VIJAY BHAWNANI. THE ASSESSEE ALSO PR ODUCED PROOF REGARDING GROWING OF CROPS OF BAJARI, RAIDA, JEERA, GAJAR. BUT THE A.O. WANTED THE ASSESSEE TO FURNISH PROOF OF INCOME BY S HOWING SALES VOUCHERS ETC. HOWEVER, THE ASSESSEE STATED THAT USU ALLY AND GENERALLY PER BIGHA INCOME OF RS. 1260/- IN ONE YEAR IS REASO NABLE AND MAY BE ACCEPTED. BUT FOR WANT OF PROOF OF INCOME THE A.O. DECLINED TO ACCEPT THIS CLAIM AND HAS ADDED THE ENTIRE INCOME SHOWN AS AGRICULTURAL ONE. ALMOST ON SIMILAR REASONS THE LD. CIT(A) HAS ALSO C ONFIRMED THIS ADDITION. NOW, THE ASSESSEE IS FURTHER AGGRIEVED. 6 BEFORE US BOTH PARTIES HAVE MAINTAINED THEIR ORIG INAL STAND. THE LD. A.R. FURTHER SUBMITTED THAT IN EARLIER ASSESSME NT YEAR I.E., A.Y. 2007-08 THE A.O. HIMSELF HAS ACCEPTED AGRICULTURAL INCOME SHOWN BY THE ASSESSEE AT RS. 14,02,902/- FROM THE VERY SAME AGRICULTURAL LAND. HE HAS PRODUCED A COPY OF THE ASSESSMENT ORDER DATE D 23/01/2008 PASSED IN A.Y. 2007-08. WE HAVE EXAMINED THIS ORDER AND ARE CONVINCED THAT WITHOUT ANY CHANGE IN THE POSITION T HE A.O. CANNOT DEVIATE FROM ONE FINDING AND HAS TO CONSISTENTLY FO LLOW THE SAME. THE SUBMISSION OF LD. D.R. THAT EACH ASSESSMENT YEAR IS SEPARATE IS WELL TAKEN BUT THE LAW DEMANDS CONSISTENCY ON IDENTICAL FACTS. MOREOVER, THE A.O. HAS NOT DISPUTED THE LAND HOLDING BY THE A SSESSEE. THE 6 REVENUE DOCUMENTS ALSO CONFIRM NOT ONLY THE OWNERSH IP OF AGRICULTURAL LAND BUT EVEN CULTIVATION OF THE VARIOUS COSTLY CRO PS. THE INCOME PER BIGHA IS REASONABLE, THEREFORE, WE HAVE TO ALLOW TH IS GROUND OF APPEAL AND HAVE BE DELETE THE ADDITION OF RS. 7,86,000/- B Y ACCEPTING IT AS A AGRICULTURAL INCOME WHICH IS NOT TAXABLE UNDER LAW. 7. THE FACTS APROPOS GROUND NO. (3) OF THIS APPEAL ARE THAT THE ASSESSEE HAS SHOWN WIND MILL WDV OPENING BALANCE OF RS. 19,03,556/- AND HAS DEDUCED AN AMOUNT OF RS. 15 LAKHS FROM IT. THIS AMOUNT HAS BEEN ALLOWED AS DEDUCTION DURING THIS YEAR BY M/S. SUZLON ENERGY LTD. FROM WHOM THE WINDMILL WAS PURCHASED. ACCORDING TO THE A.O. THIS AMOUNT OF RS. 15 LAKH SHOULD HAVE BEEN REDUCED FROM THE COST OF THE WINDMILL IN THE YEAR IN WHICH IT WAS PURCHASED AND INSTALLED. THEREFORE, HE HAS NOT ACCEPTED THIS SORT OF ACTION OF THE ASSESSEE AND WITH THE ABOVE OBSERVATIONS ALTHOUGH HE HAS NOT MAD E A SEPARATE ADDITION OF THIS AMOUNT. 8. THE LD. CIT(A) HAS ALSO NOT FOUND ANY INFIRMITY IN THIS FINDING OF THE A.O. HE HAS REASONED THAT THE RECEIPT OF RS. 1 5 LAKH ON ACCOUNT OF REDUCTION IN COST OF THE MILL PERTAINS TO THE PERIO D WHEN THE PLANT AND MACHINERY WAS EARLIER PURCHASED. THE ASSESSEE IS FU RTHER AGGRIEVED. 7 9. AFTER HEARING BOTH SIDES, WE ARE OF THE CONSIDER ED OPINION THAT THE ASSESSEE HAS SUBMITTED A COPY OF ACCOUNT OF M/S . SUZLONA ENERGY LTD. AS APPEARING IN THE BOOKS OF THE ASSESSEE, WHI CH SHOWS THAT A SUM OF RS. 15 LAKH WAS DEBITED IN THE ACCOUNT IN SATISF ACTION OF CLAIM FOR REDUCTION IN THE COST OF WIND MILL SUPPLIED BY THEM . WHEN MILL WAS SUPPLIED THE SUPPLIER HAD ASSURED THAT THE ELECTRIC ITY BOARD WILL PAY HIGHER RATES BUT THIS DID NOT MATERIALIZE. AFTER AS SESSEES CONTINUAL PERSUASION SUZLON ENERGY LTD. GAVE A REBATE OF RS. 15 LAKHS TOWARDS THE COST. IN THESE CIRCUMSTANCES AND IN THE LIGHT O F THE ABOVE STATED UNDISPUTED FACTS IN OUR CONSIDERED OPINION THERE IS NO FALLACY IN THE ACTION OF THE ASSESSEE. RATHER, THE IMPUGNED OBSERV ATION OF LD. A.O. WOULD OPEN A PANDORAS BOX AND IT WOULD NOT SUBSERV E ANY CAUSE OF THE REVENUE. IT WILL NOT MADE ANY EFFECT ON TAXABILITY BUT IT WOULD CREATE AN UNWORKABLE SITUATION. THIS HAS NOT RESULTED IN A NY LOSS OF REVENUE AND, THEREFORE, WE EXPUNGE THIS IMPUGNED OBSERVATIO N MADE BY THE A.O. AND CONFIRMED BY LD. CIT(A). THEREFORE, WE ALL OW GROUND NO. (3) OF THIS APPEAL. 10. THE FACTS APROPOS GROUND NO. (4) ARE THAT THE A .O. HAS DISALLOWED 20% OF THE TOTAL MISCELLANEOUS EXPENSES WHICH COMES TO RS. 25,591/-. THE PARA 9 OF LD. CIT(A)S ORDER IS AS UNDER :- 8 MISCELLANEOUS DISALLOWANCE : DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS CLAIMED DEPRECIATION ON MOTOR CARS OF RS. 48,565/-, PETROL EXPENSES OF RS. 21,361 /- AND TELEPHONE EXPENSES OF RS. 58,030/- IN HIS PROPRIETA RY CONCERN. PERSONAL USE OF THESE EXPENSES CANNOT BE RULED OUT. THE ASSESSEE WAS GIVEN SHOW CAUSE REGARDING THE 20% DI SALLOWANCE BUT HE HAS NOT FURNISHED ANY SATISFACTORY EXPLANATI ON. THEREFORE, 1/5 TH PORTION OF THE SAME I.E. RS. 25,591/- IS DISALLOWED AND ADDED TO THE TOTAL INCOME. 11. AFTER HEARING BOTH SIDES WE FURTHER REDUCE THES E EXPENSES TO 10% ONLY AND REDUCE THIS ADDITION TO JUST HALF. THEREFO RE, WE PARTLY ALLOW THIS GROUND. 12. IN THE RESULT, THIS APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED. B ITA NO. 129/JODH/2013 (A.Y. 2009-10) IN THE CASE OF SHRI PRAKASH BHAVNANII VS ACIT. THIS APPEAL, FOR A.Y. 2009-10, IS DIRECTED AGAINST THE ORDER OF LD. CIT(A), CENTRAL CIRCLE-2, JODHPUR, DATED 28/02/2013 . IN THIS APPEAL FOLLOWING GROUNDS HAVE BEEN RAISED :- 9 1. THE LD. CIT(A) HAS ERRED IN SUSTAINING THE ORDE R PASSED BY THE A.O. WHICH IS BAD IN LAW, BAD ON FACT S, CONTRARY TO THE PRINCIPLES OF NATURAL JUSTICE AND E VIDENCE EXISTING ON RECORDS. 2. THE LD. CIT(A) HAS ERRED IN SUSTAINING THE ADDIT ION OF RS. 1,39,700/- ON ACCOUNT OF AGRICULTURAL INCOME SH OWN BY THE ASSESSEE. THE ADDITION IS CONTRARY TO THE FACT S, MATERIAL AND EVIDENCE EXISTING ON RECORDS AND IS AL SO CONTRARY TO THE PAST HISTORY 3. THE LD. CIT(A) HAS ERRED IN DISALLOWING THE CLAI M FOR GRANT OF DEDUCTION AMOUNTING TO RS. 27,61,140/- U/S 80IA IN RELATION TO WIND MILL INSTALLED BY THE ASSESSEE. THE DENIAL OF DEDUCTION IS CONTRARY TO THE PROVISIONS O F LAW, CONTRARY TO PRINCIPLES OF NATURAL JUSTICE AND CONTR ARY TO FACTS, MATERIAL AND EVIDENCE EXISTING ON RECORD. T HE ADDITION SUSTAINED ON OTHER GROUNDS NOT TAKEN BY TH E A.O. WAS ALSO NOT JUSTIFIED. 4. THE LD. CIT(A) HAS ERRED IN CONFIRMING THE FINDI NG OF THE A.O. THAT CREDIT ALLOWED BY WIND MILL SUPPLIER SUZLON PVT. LTD OUGHT TO HAVE BEEN PROPORTIONATELY BIFURCA TED IN EARLIER YEARS ALSO. SUCH FINDINGS ARE PATENTLY WRON G AS EFFECT OF CREDIT NOTE CAN BE ALLOWED ONLY WHEN IT I S ACCEPTED BY THE OTHER PARTY. 10 5. THE INTEREST CHARGED U/S 234B AND 234C IS BAD IN LAW AND ON FACTS. 6. THE APPELLANT PRAYED FOR SUITABLE COSTS. 7. THE APPELLANT CRAVES LIBERTY TO ADDITION, AMEND, ALTER AND MODIFY ANY OF THE GROUND OF APPEAL ON OR BEFORE ITS HEARING BEFORE YOUR HONOUR. 13. WE HAVE HEARD RIVAL SUBMISSIONS. GROUND NO. 1, 6 AND 7 ARE FORMAL. GROUND NO. (5) IS REGARDING CHARGING OF INT EREST U/S 234 AND 234C OF THE ACT. THE CHARGING OF INTEREST IS MANDAT ORY BUT ONLY CONSEQUENTIAL RELIEF CAN BE ALLOWED. ACCORDINGLY, G ROUND NO. 1, 5, 6, 7 OF THIS APPEAL STAND DISMISSED. 14. THE FACTS OF GROUND NO. (2) ARE SIMILAR TO THE FACTS OF GROUND NO. (2) IN EARLIER APPEAL. THE FACTS, EVIDENCE AND THE ARGUMENTS OF BOTH THE PARTNERS BEING SAME AND SIMILAR ON THIS ISSUE, WE ALLOW THIS GROUND IN FAVOUR OF THE ASSESSEE AND DELETE ADDITION OF RS . 1,39,700/- ADDED ON ACCOUNT OF AGRICULTURAL INCOME CLAIMED BUT NOT B ELIEVED BY A.O. 15. THE FACTS APROPOS GROUND NO. (3) OF THIS APPEAL ARE THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS CLAIM ED DEDUCTION OF RS. 27,61,140/- U/S 80IA OF THE ACT IN RESPECT OF POWER GENERATION INCOME 11 BY SETTING UP OF THE WIND MILL. THE ASSESSEE HAD IN STALLED FIRST WIND MILL IN THE YEAR 2005 AND CLAIMED DEPRECIATION. THE ASSESSEE DID NOT HAVE ANY POSITIVE INCOME SO HE DID NOT CLAIM DEDUCT ION U/S 80IA IN THE EARLIER YEARS THERE BEING LOSS. THIS CLAIM HAS BEEN MADE FOR THE FIRST TIME IN THIS YEAR. THIS CLAIM HAS BEEN DENIED BECAU SE THE COMPANY WHO HAS SET UP THE WIND-MILL HAS BEEN RUNNING THE S AME. IN OUR OPINION, THIS IS NOT A VALID REASON FOR THE DENIAL OF CLAIM OF DEDUCTION U/S 80IA. UNDISPUTEDLY, THE ASSESSEE IS THE OWNER O F THIS WIND-MILL. THE ASSESSEE HAS BEEN OPERATING THIS MILL, MAY BE T HROUGH ANYBODY, BUT HE BECOMES ENTITLED TO THE BENEFIT OF SECTION 8 0IA. THIS ACTION OF THE A.O. AS WELL AS THAT OF LD. CIT(A) CANNOT BE UP HELD. WE UPSET THEIR FINDINGS AND HOLD THAT THE ASSESSEE FULFILLS ALL TH E CONDITIONS OF SECTION 80IA AND THUS IS ENTITLED TO THIS DEDUCTION. UNDER IDENTICAL FACTS AND CIRCUMSTANCES, THE SAME A.O. HAS ALLOWED SIMILAR CL AIMS IN THE CASES OF VIJAY BHAVNANI AND SHRI PRAKASH BHAVNANI FOR A.Y . 2010-11, THE COPIES OF THESE ORDER ARE ENCLOSED AT PAGES 53 TO 5 6 OF THE PAPER BOOK. ACCORDINGLY, WE DO NOT APPROVE OF THIS ACTION OF LD . CIT(A) AND ALLOW GROUND NO. (3) OF THIS APPEAL. 12 16. THE FACTS APROPOS GROUND NO. (4) HAS TO BE ALLO WED WITH THE SAME REASONS AS WE HAVE ALLOWED IN THE CASE OF SHRI VIJA Y BHAWNANI, AS ABOVE. THE CREDIT GIVEN BY THE SUPPLIER OF THE WIND MILL HAS TO BE CONSIDERED IN THE YEAR OF RECEIPT OF THE REBATE. 17. IN THE RESULT, THIS APPEAL IS PARTLY ALLOWED. C ITA NO. 130/JODH/2013 A.Y. 2009-10 IN THE CASE OF SHRI DEEPAK BHAWNANI VS ACIT. 19. THIS APPEAL OF THE ASSESSEE FOR A.Y. 2009-10 IS DIRECTED AGAINST THE ORDER OF LD. CIT(A), JAIPUR, DATED 28/02/2013. FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL :- 1. THE LD. CIT(A) HAS ERRED IN SUSTAINING THE ORDE R PASSED BY THE A.O. WHICH IS BAD IN LAW, BAD ON FACT S, CONTRARY TO THE PRINCIPLES OF NATURAL JUSTICE AND E VIDENCE EXISTING ON RECORDS 2. THE LD. CIT(A) HAS ERRED IN SUSTAINING THE ADDIT ION OF RS. 1,52,300/- ON ACCOUNT OF AGRICULTURAL INCOME SH OWN BY THE ASSESSEE. THE ADDITION IS CONTRARY TO THE FACTS , MATERIAL AND EVIDENCE EXISTING ON RECORDS AND IS AL SO CONTRARY TO THE PAST HISTORY. 13 3. THE LD. CIT(A) HAS ERRED IN DISALLOWING THE CLAI M FOR GRANT OF DEDUCTION AMOUNTING TO RS. 27,61,140/- U/S 80IA IN RELATION TO WIND MILL INSTALLED BY THE ASSESSEE. THE DENIAL OF DEDUCTION IS CONTRARY TO THE PROVISIONS O F LAW, CONTRARY TO PRINCIPLES OF NATURAL JUSTICE AND CONTR ARY TO FACTS, MATERIAL AND EVIDENCE EXISTING ON RECORD. T HE ADDITION SUSTAINED ON OTHER GROUNDS NOT TAKEN BY TH E A.O. WAS ALSO NOT JUSTIFIED. 4. THE LD. CIT(A) HAS ERRED IN CONFIRMING THE FINDI NG OF THE A.O. THAT CREDIT ALLOWED BY WIND MILL SUPPLIER SUZLON PVT. LTD OUGHT TO HAVE BEEN PROPORTIONATELY BIFURCA TED IN EARLIER YEARS ALSO. SUCH FINDINGS ARE PATENTLY WRON G AS EFFECT OF CREDIT NOTE CAN BE ALLOWED ONLY WHEN IT I S ACCEPTED BY THE OTHER PARTY. 5. THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADHOC DISALLOWANCE OF RS. 42,256/- OUT OF EXPENSES CLAIME D BY THE ASSESSEE. 6. THE LD. CIT(A) ERRED IN SUSTAINING THE TRADING A DDITION OF RS. 5,00,000/-. THE ADDITION SO SUSTAINED IS BA D IN LAW AND BAD ON FACTS. THE REJECTION OF BOOKS SUSTAINED IS ALSO BAD IN LAW AND BAD ON FACTS. 7. THE INTEREST CHARGED U/S 234B AND 234C IS BAD IN LAW AND ON FACTS. 8. THE APPELLANT PRAYED FOR SUITABLE COSTS. 14 20. WE HAVE HEARD RIVAL SUBMISSIONS. GROUND NO. (1) & (8) ARE GENERAL IN NATURE. 21. GROUND NO. 2, 3, 4 AND 5 ARE EXACTLY IDENTICAL TO THE GROUND IN EARLIER APPEALS. THEIR FACTS, EVIDENCES, ARGUMENTS OF THE PARTIES ARE MUTATIS MUTANDIS IDENTICAL EXCEPT FOR THE AMOUNTS O F CLAIMS INVOLVED THERE. THEREFORE, WE DECIDE THEM WITH SIMILAR REASO NING IN THE FAVOUR OF THE ASSESSEE. WE ORDER TO DELETE ADDITION OF RS. 1,52,300/- (CLAIM OF AGRICULTURE INCOME) VIDE GROUND NO. (2), CLAIM OF R S. 25,39,895/- U/S 80IA IN RELATION TO WIND MILL INSTALLED BY THE ASSE SSEE (VIDE GROUND NO. 3), EXPUNGE THE OBSERVATIONS ASSAILED VIDE GROUND N O. (4) AND REDUCE THE ADHOC DISALLOWANCE ON ACCOUNT OF PERSONAL USER TO 10% INSTEAD OF 20% AND REDUCED THE ADDITION TO JUST HALF AND PARTL Y ALLOWED GROUND NO. 5. 22. THE FACTS APROPOS GROUND NO. (6) OF THIS APPEAL ARE THAT THE A.O. HAS INVOKED THE PROVISIONS OF SECTION 145(3) AND AF TER REJECTING THE BOOKS OF ACCOUNT HAS MADE AD HOC ADDITION OF RS. 5 LAKH. THE ASSESSEE HAS SHOWN G.P. RATE OF 2.48% AS COMPARED TO 3.99% I N THE A.Y. 2008-09. TO FURTHER EXPLAIN THE FACTS WE WOULD LIKE TO EXTRA CT PARA 10 OF CIT(A)S ORDER AT PAGE 23 ONWARDS, AS UNDER : 15 10. GROUND NOS 7 & 8 ARE AGAINST REJECTION OF BOOK S OF ACCOUNT BY INVOKING SECTION 145(3) AND AGAINST THE ADDITION OF RS. 5 LAKHS IN THE DECLARED TRADING ADDITION. TRADING RESULTS : ON EXAMINATION OF ACCOUNTS, IT IS NOTICED THAT THE ASSESSEE HAS SHOWN GROSS PROFIT LOWER @ 2 .48% AS COMPARED TO 3.99% AND 4.99% SHOWN IN THE EARLIER YE ARS AY 2008-09 & AY 2007-08 RESPECTIVELY. ON CALLING FOR T HE EXPLANATION THE ASSESSES HAS FAILED TO JUSTIFY THE FALL IN GP. FURTHER, IT IS NOTICED IN THE AUDIT REPORT COL. 11 (A) OF FORM NO. 3CD THE AUDITOR HAS STATED 'GENERALLY MERCANTIL E SYSTEM OF ACCOUNTING IS FOLLOWED. THE ASSESSEE HAS NOT FURNISHED THE DETAILS OF THESE SPECIFIC TRANSACTION S. THEREFORE, A SHOW CAUSE NOTICE WAS ISSUED ON 07.12. 2011 AS TO WHY THE HOOKS OF ACCOUNT SHOULD NOT BE REJECTED U/S 145(3) AND GP BE ESTIMATED REASONABLY. IN REPLY THE ASSESSEE HAS SUBMITTED THAT THERE ARE CERTAIN SMALL AND NON MATERIAL AMOUNTS WHICH DOES NOT AFFEC T THE TRUE AND FAIR VIEW OF ACCOUNTS. REGARDING THE DECLI NE IN GP, THE ASSESSEE HAS STATED THAT THE PRICES OF THE GOODS TRADED ARE VERY FLUCTUATING AND THERE ARE FREQUENT CHANGES IN THE RATES OF GOODS TRADED. BUT THE ASSESSEE HAS FAILED TO FURNISH ANY DETAILS OF THESE ITEM AND ANY DOCUMENTA RY EVIDENCE TO SUBSTANTIATE THE DECLINE IN GP. FURTHER , THE ASSESSEE DOES NOT MAINTAIN DAY TO DAY DETAILS OF ST OCK AND THE STOCK REGISTER HAS NOT BEEN FURNISHED DURING TH E COURSE OF ASSESSMENT PROCEEDINGS. THUS, THE ASSESSEE'S, BO OKS OF 16 ACCOUNTS DOES NOT PRESENT TRUE & FAIR PICTURE OF HI S AFFAIRS AND HENCE THE SAME CANNOT BE RELIED UP. THEREFORE, THE SAME ARE BEING REJECTED U/S 145(3) OF THE IT. ACT. IF THE GP RATE OF LAST YEAR I.E. 3.99% IS APPLIED TO THE CURR ENT YEAR, CONSEQUENTLY GROSS PROFIT COMES TO RS. 1,89,39,390/ -, 3.99% OF RS. 47,46,71,410/- WHEREAS THE ASSESSEE HAS SHOW N GROSS PROFIT OF RS. 1,17,96,387/-. THE DIFFERENCE IN TRAD ING RESULTS COMES TO RS. 71,43,003/. HOWEVER, CONSIDERI NG THE REPLY OF THE ASSESSEE, THE PRICES OF THE GOODS TRAD ED BEING VERY FLUCTUATING, CHANGE IN THE RATES OF GOODS TRAD ED AND BEING FAIR & REASONABLE A LUMP SUM TRADING ADDITION OF RS. 5,00,000/- IS BEING MADE TO THE TOTAL INCOME OF THE ASSESSEE.' 10.3 DURING THE APPELLATE PROCEEDINGS, THE APPELLAN T HAS FILED WRITTEN SUBMISSION AS UNDER AND ARGUED THE AP PEAL ON THE SAME LINES. THE AO HAS DISCUSSED THIS POINT IN PARA 8 ON PAGE 5 AND 6 OF THE IMPUGNED ASSESSMENT ORDER. THE ASSESSEE SUBMITTED INTER-ALIA THE FOLLOWING DETAILS IN SUPPORT OF THE CORRECTNESS OF THE TRADING RESULTS : A. LETTER DT. 10TH OCT 2011 IN WHICH IT WAS MENTIONED THAT THE ASSESSEE IS MAINTAINING REGU LAR BOOKS OF ACCOUNTS WHICH ARE DULY SUPPORTED BY REGULAR BILLS AND VOUCHERS. THE ENTIRE SALES AND PURCHASES ARE FULLY VERIFIABLE. THE ASSESSEE I S ALSO MAINTAINING COMPLETE QUANTITATIVE DETAILS. THE TRADING RESULTS SHOWN BY THE ASSESSEE HAVE ALWAYS 17 BEEN ACCEPTED AS TRUE AND CORRECT. THE ASSESSEE ALS O GAVE A GP CHART IN WHICH THE REASONS FOR DECLINING GP RATE WERE ALSO EXPLAINED. THE TURNOVER DURING THE YEAR UNDER CONSIDERATION SUBSTANTIALLY INCREASED TO RS. 47,46,71,410/- AS AGAINST TURNOVER OF 32,97,90,085/- IN AY 2008-09 AND TURNOVER OF RS. 18,51,91,854/- IN AY 2007-08. THE OTHER REASONS FOR DECLINING GP RATE. HOWEVER IT WAS SUBMITTED THAT TH E TRADER IS INTERESTED IN MAXIMIZING THE QUANTUM OF H IS NET PROFIT, WHICH HAS INCREASED SUBSTANTIALLY IN TH E YEAR UNDER CONSIDERATION. IT WAS ALSO EXPLAINED THA T THE CORRECTNESS OF THE TRADING RESULTS SUPPORTED BY AUDITED BOOKS OF ACCOUNTS HAVE BEEN ACCEPTED BY THE SALES TAX AUTHORITIES ALSO. B. LETTER DT. 13.10.2011. IN THIS LETTER IT WAS STATED THAT MONTHWISE DETAILS OF OPENING STOCK, PURCHASES, SALES AND CLOSING STOCK AS REQUIRED BY T HE AO WERE DULY SUBMITTED DURING THE COURSE OF THE HEARING THE BOOKS OF ACCOUNTS, PURC HASE VOUCHERS AND SALE VOUCHERS WERE PRODUCED FOR VERIFICATION OF THE AO. THE AO HAS FAILED TO POINT OUT ANY MISTAKE OR DISCREPANCY IN THE DETAILS AND DOCUMENTS SUBMITTED IN SUPPORT OF THE CORRECTNESS O F THE DECLARED TRADING RESULT. 18 C. LETTER DT. 16.12.2011 WAS ALSO SUBMITTED IN WHIC H VARIOUS JUDGMENTS WERE CITED BEFORE THE AO TO SUPPORT THE CONTENTION THAT CORRECTNESS OF THE REGULAR BOOKS OF ACCOUNTS CANNOT BE VALIDLY REJECTE D U/S 145(3) ON THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE. IT WAS FURTHER REPEATED THAT THE CORRECTNESS OF THE DECLARED GROSS PROFIT WAS ALWAYS ACCEPTED IN ALL PAST ASSESSMENTS MADE U/S 153A/143(3). THE CORRECTNESS OF THE REGULAR BOOKS OF ACCOUNTS AN D DECLARED GROSS PROFIT DESERVES ACCEPTANCE INTER-ALIA IN VIEW OF THE FOLLOWING FACTS: A. THE SAME IS SUPPORTED BY REGULAR BOOKS OF ACCOUN TS. B. THE ENTIRE PURCHASE AND SALE ARE SUPPORTED BY VOUCHERS. C. COMPLETE QUANTITATIVE DETAILS WERE MAINTAINED. D. THE MONTHLY DETAILS OF PURCHASES AND SALES ETC. WERE DULY SUBMITTED. E. CORRECTNESS OF DECLARED TRADING RESULT IS SUPPOR TED BY AUDITED STATEMENTS AND AUDITORS REPORT. F. THE CORRECTNESS OF DECLARED TRADING RE SULTS ACCEPTED BY SALES TAX AUTHORITIES. 19 G. EXPLANATIONS WERE GIVEN FOR DECLINE IN GP RATE, WHICH HAVE NOT BEEN FOUND TO BE UNTRUE BY THE AO. H. THE TRADING RESULTS HAVE ALWAYS BEEN ACCEPTED IN ASSESSMENT'S FOR PAST SEVERAL YEARS MADE U/S 153A/ 143(3). YOUR KIND ATTENTION IS INVITED TOWARDS THE FOLLOWIN G JUDGMENTS, WHICH SUPPORTS OUR PRAYER FOR ACCEPTAN CE OF THE DECLARED TRADING RESULTS : (I) HOTEL HILTONE (P) LTD. V/S. ASSISTANT COM MISSIONER OF INCOME-TAX (2005) 97TTJ(JD) 969 AT PAGE 973 'AO HAVING NOT POINTED OUT ANY DEFECT I N THE BOOKS OF ACCOUNT OF THE ASSESSEE-HOTEL, HE WAS NOT JUSTIFIED IN REJECTING THE BOOK RESULTS BY COMPARIN G HIS OWN STANDARD RESULTS WITH THOSE DECLARED BY THE ASSESSE E 'WHEN NONE OF THE REASONS RECORDED BY THE AO FOR REJECTIO N OF BOOK RESULTS EXISTS AND GP DECLARED BY THE ASSESSEE IN THE RELEVANT YEAR WAS HIGHER THAN THAT OF THE PRECEDING YEARS.' (II) CIT V. GOTAN LIME KANIJ UDYOG REPORTED I N (2001) 169 CTR (RAJ) 318 IN WHICH IT HAS BEEN HELD AS UNDE R: EVEN IN CASES WHERE REJECTIONS OF BOOKS HAVE BEEN MADE ON SOME TECHNICAL REASONS, IT DOES NOT FOLLOW THAT SOME ADDITION IS TO BE MADE. AT PAGE 320: CONCLUSION: 20 'MERE REJECTION OF BOOKS OF ACCOUNTS BY RESORTING T O S. 145 NEED NOT NECESSARILY LEAD TO ADDITIONS TO THE RETUR NED INCOME OR A DIFFERENT FIGURE OF INCOME, FINDING OF TRIBUNAL DELETING THE ENTIRE TRADING ADDITION NOTWITHSTANDIN G THE REJECTION OF ASSESSEE'S BOOKS OF ACCOUNT WAS A FIND ING OF FACT AND THE SAME COULD NOT BE SAID TO BE ERRONEOUS . ' (III) CIT V/S. SANJAY OIL CAKE INDUSTRIES (2005) 19 7 CTR (GUJ) 520 AT PAGE 522 'ASSESSING OFFICER HAVING NOT POINTED O UT ANY SPECIFIC OMISSION SUPPRESSION IN THE ASSESSEE 'S BO OKS OF ACCOUNT NOR THE EXCISE OR SALES-TAX AUTHORITIES HAV ING FOUND ANY DISCREPANCY OR IRREGULARITY IN THE MAINTE NANCE OF STOCK AND RECORDS, ADDITION MADE ON ACCOUNT OF SUPP RESSED PRODUCTION/SALES OF OIL AND OILCAKES COULD NOT BE SUSTAINED.' (IV) CIT V/S UTTAM CHUNA PATHAR UDHYAG (2001) 116 T AXMAN 524(RAJ.). 'REFERENCE- QUESTIONS OF FACT- REJECTION OF ACCOUNT S. WHETHER IN PARTICULAR FACTS AND CIRCUMSTANCES BOOKS OF ACCOUNTS COULD HAVE BEEN REJECTED OR NOT IS A FINDI NG A FACT NOT GIVING RISE TO A QUESTION OF LAW- THIS IS MORE SO WHEN NO PERVERSITY HAS BEEN SHOWN IN SUCH FINDINGS. 21 PARA 2. CONCLUSION WHETHER THE PARTICULAR FACTS AND CIRCUMSTANCES BOOK S OF ACCOUNTS COULD HAVE BEEN REJECTED OR NOT IS A FINDI NG A FACT NOT GIVING RISE TO A QUESTION OF LAW MORE SO WHEN N O PERVERSITY HAS BEEN SHOWN IN SUCH FINDING.' THE DECISION OF THE TRIBUNAL IN THE CASE OF UTTAM C HUNA PATHAN UDYOG V/S ITO REPORTED IN 59 TTJ (JP) 76 3 = 65 ITD 460, WHICH HAS BEEN APPROVED AND CONFIRMED B Y THE HON'BLE HIGH COURT IN THE ABOVE REFERRED JUDGMENT H AS HELD AS UNDER:- ' HELD IN THE ASSESSMENT PROCESS, WHEN THE AO IS SCRUTINIZING THE ACCOUNT BOOKS, HE HAS TO DO SO OBJECTIVELY AND JUDICIOUSLY. HIS PRIME DUTY UNDER T HE ACT IS TO ASSESSEE THE REAL INCOME AS PER THE PROVISIONS OF THE ACT AND LEVY TAX THEREON. THESE, THAT IS, THE PRIME OBJECT OF THE ACT AND THE PRIME DUTY OF THE AO THEREUNDER, ARE SO ELEMENTARY TO THE PROCESS OF ASSESSMENT THAT IT HARDLY NEEDS ELABORATION. WHERE ACCOUNTS ARE MAINTAINED BY AN ASSESSEE, THE PROCESS OF DETERMINING THE INCOME WOULD START FROM THE INCOME AS REFLECTED BY THE BOOKS, AND THEN ADJUSTMENTS THERETO WILL BE MADE AS PER THE PROVISIONS OF ;THE ACT. SINCE INCOME REFLEC TED BY THE BOOKS IS THE STARTING POINT, IT IS ABSOLUTEL Y IMPERATIVE THAT THE BOOKS ARE RELIABLE. THE 22 PERCEPTION OF RELIABILITY VARIES FROM PERSON TO PERSON, AND THE REASONS TO CONSIDER THE BOOKS RELIABLE OR OTHERWISE. THE WORD 'RELIABLE' MEANS DEPENDABLE OR ONE WHICH IS TRUSTWORTHY OR ONE WHICH IS WORTHY OF CONFIDENCE. THERE CANNOT BE A STANDARD TO MEASURE RELIABILITY AND, IT DEPENDS UPON ONE'S PERCEPTION. PERCEPTION, THROUGH A VARIABLE FACTOR, IN MATTERS OF JUDGING A STATE OF AFFAIRS, PARTICULARLY IN A TAXING STATUTE, SHOULD CONFORM TO COMMONSEN.SE, CUSTOM, USAGE, ETHOS, ECONOMIC UPLIFTMENT, DEVELOPMENT OF PROFESSIONAL ATTITUDE, HUMAN PROBABILITIES AND SIMILAR SUCH FACTORS. P.A. ABDUL MUTHALIF ROUTHER VS ITO (1976) 102 ITR 694 (KER) APPLIED. IN ONE OF THE WAGES REGISTER (TUDWAI REGISTER), ATTENDANCE OF WORKERS HAD BEEN SHOWN ON 29TH FEB., 1993, AND 30TH FEB., 1993. THE EXPLANATION OF THE ASSESSEE WAS THAT THE SAID REGISTER WAS MAINTAINED TO COMPLY WITH LABOUR LAWS AND THE SAME WERE MAINTAINED BY THE GROUP LEADER OF THE WORKERS WHO ARE ILLITERATE PERSONS. THE ACTUAL PAYMENT OF WAGES IS BASED ON THE QUANTITY WORKED UPON WHICH IS EASILY VERIFIABLE FROM OTHER RECORDS. THE EXPLANATION IS QUITE PLAUSIBLE. NOT ONLY THAT, IF THE AO WAS NOT CONVINCED BY THE EXPLANATION, IT WAS NOT THAT HE WA S HELPLESS. HE COULD HAVE VERIFIED THE PAYMENT OF WAGES FROM OTHER RELEVANT RECORDS. THE ASSESSEE DID 23 OFFER THEM FOR VERIFICATION, BUT THE AO CHOSE TO OVERPLAY WITH THE DATES OF 29' AND 30TH- FEBRUARY. ANOTHER OBSERVATION BY THE AO WAS THAT NO WORKER HAS SIGNED THE REGISTER BUT ALL OF THEM PUT THEIR THUMB IMPRESSIONS. IN ANY CASE, IF THE AO COULD NOT BELIEVE THIS, HE SHOULD HAVE ASKED THE ASSESSEE TO PRODUCE SOME OF THE WORKERS BEFORE HIM FOR CROSS- VERIFICATION. THE THIRD REASON GIVEN BY THE AO IS T HAT VOUCHERS RELATING TO TRANSPORT CHARGES WERE INTERNA L VOUCHERS. HOWEVER, HE HAS NOT GIVEN ANY SPECIFIC REASON AS TO HOW THESE VOUCHERS ARE BOGUS. THEY MAY BE INTERNAL VOUCHERS YET THEY CAN BE RELIED UPON DEPENDING UPON THE BASIS OF THEIR PREPARATION AND CROSS-VERIFYING THOSE BASIS FROM OTHER RELEVANT RECORDS. THUS SUCH VAGUE AND BALD STATEMENT DO NOT RENDER THE BOOKS INCOMPLETE AND INCORRECT. SIMPLY, A FEW CLERICAL ERRORS, LACK OF SOME VOUCHERS, NON- MAINTENANCE OF A PARTICULAR RECORD, DOES NOT PER SE RENDER THE ACCOUNTS INCORRECT. IN SPITE OF THESE DEFECTS, THE PROFITS MAY BE DEDUCTIBLE. THUS, BEFOR E INVOKING THE PROVISIONS OFS. 145(2), IT IS THE DUTY OF THE AO TO SHOW HOW, BECAUSE THESE DEFECTS, CORRECT PROFITS ARE NOT DEDUCTIBLE, AND CORRECT BOOKS OF ACCOUNT DO NOT MEAN THAT IT SHOULD BE CORRECT TO EVERY PIE, OR , THAT EACH AND EVERY RECORD OUGHT TO HAVE BEEN MAINTAINED WITH ZERO ERROR. IT IS A TALL ORDER TO EXPECT SUCH STATE OF AFFAIRS AND ONLY A UTOPIST IS ENTITLED TO HAVE SUCH EXPECTATION. CORRE CT 24 BOOKS OF ACCOUNT HAS TO BE UNDERSTOOD AS FAIRLY CORRECT. IN SUCH CASES, IT IS MORE APPROPRIATE TO M AKE LEGITIMATE DISALLOWANCES, RATHER THAN REJECT THE BOOKS WHOLEHOG. PROFITS DEDUCED FROM SUCH FAIRLY CORRECT BOOKS RE NEARER TO REAL INCOME LIABLE TO TA X THAN THE INCOME DETERMINED BY WILD ESTIMATES. THUS, IN THE INSTATE CASE, NONE OF THE REASONS MENTIONED BY THE AO ARE SUCH WHICH COULD HAVE SHAKEN THE CONFIDENCE OF A PERSON WITH AVERAGE WISDOM, IN THE BOOKS MAINTAINED BY THE ASSESSES. THE PROVISIONS OF S. 145(2) ARE WRONGLY INVOKED.' (V) DCIT V/S ASHOK KUMAR GULSHAN RAI AND PARTY. 33 TAX WORLD 202 (JP) IT WAS INTER ALIA HELD THAT TRADING ADDITION CANNOT BE MADE IGNORING PAST HISTORY OF THE CASE AN D WITHOUT QUOTING COMPARABLE CASES. (VI) J.C. SHARMA V/S ITO. 33 TAX WORLD 80 IT WAS HE LD THAT SECTION 145 CANNOT JUSTIFIABLY BE INVOKED IN A CASE WHERE NO SPECIFIC DEFECT HAVE BEEN FOUND IN THE ACCOUNT B OOKS. (VII) DCIT V/S SHREE HARI INDUSTRIES. 34 TAX WORLD 37 (JP) IT WAS HELD, THAT TRADING ADDITION CANNOT JUSTIFIABLY BE MADE WITHOUT POINTING OUT DEFECTS IN THE ACCOUNT BOOKS A ND WITHOUT APPLYING THE PROVISIONS OF SECTION 145 OF T HE ACT. (VIII) SUNIL DYE CHEM. LTD. V/S DCIT 35 TAX WORLD 1 05 IT WAS HELD AS UNDER : 25 THAT PROVISIONS OF SECTION 145(2) CANNOT BE APPLIE D SIMPLY FOR THE REASON OF FALL IN YIELD AND NOT INCLUDING OVER HEAD EXPENSES IN THE VALUATION OF WO RK IN PROGRESS. IT WAS FURTHER HELD THAT AO HAS NOT BROUGHT ANY MATERIAL ON RECORD TO INDICATE THE SALE OF FINISHED PRODUCTS OUT OF BOOKS. THE TRIBUNAL UPHELD THAT DECISION OF THE CIT(A) OF DELETING THE ENTIRE TRADING ADDITION. (IX) JCLTV/S KIRAN UDHOG. 34 TAX WORLD 80.(ITAT - J P.) 'HELD, THAT BOOK OF ACCOUNTS CANNOT BE REJECTED WIT HOUT SPECIFIC DEFECTS THEREIN.' (X) ST. TERESA'S OIL MILLS V/S. STATE OF KERALA (1970) 76 ITR 365 (KER) 'ACCOUNTS REGULARLY MAINTAINED IN THE COURSE OF BUSINESS HAVE TO BE TAKEN AS CORRECT UNLESS THERE A RE STRONG AND SUFFICIENT REASONS TO INDICATE THAT THEY ARE UNRELIABLE. THE DEPARTMENT HAS TO PROVE SATISFACTORILY THAT THE ACCOUNT BOOKS ARE UNRELIABL E, INCORRECT OR INCOMPLETE BEFORE IT CAN REJECT THE ACCOUNTS. REJECTION OF ACCOUNTS SHOULD NOT BE DONE LIGHT-HEATEDLY. THOUGH IT MAY NOT BE POSSIBLE TO LA Y DOWN THE EXACT CIRCUMSTANCES IN WHICH THE ACCOUNTS SHOULD BE REJECTED AS UNRELIABLE OR INCORRECT, THE ACCOUNTS MAY BE REJECTED AS UNRELIABLE IF IMPORTANT 26 TRANSACTIONS ARE OMITTED THEREFROM OR IF PROPER PARTICULARS AND VOUCHERS ARE NOT FORTHCOMING OR IF THEY DO NOT INCLUDE ENTRIES RELATING TO A PARTICULA R CLASS OF BUSINESS. THE ASSESSES SHOULD BE GIVEN REASONABLE OPPORTUNITY FOR OFFERING EXPLANATIONS REGARDING THE DEFECTS IN THE ACCOUNTS AND, ON HIS FAILURE TO SATISFACTORILY EXPLAIN THE DEFECTS, THE DEPARTMENT WOULD BE JUSTIFIED IN REJECTING THE ACCOUNTS. THE REJECTION OF ACCOUNTS AND ASSESSMENT TO THE BEST OF JUDGMENT ARE TWO DISTINCT AND SEPARA TE PROCESSES... THE MERE FACT THAT THERE WAS WIDE DISPARITY IN THE CONSUMPTION OF ELECTRICITY WOULD NOT JUSTIFY THE REJECTION OF THE ACCOUNTS WITHOUT ANY OTHER SUPPORTING CIRCUMSTANCE, BECAUSE SUCH VARIATION COULD BE DUE TO VARIOUS FACTORS OUTSIDE THE CONTROL OF THE ASSESSEE.' (XI) DCIT V/S. UNITED VANASPATI LTD. (2004) 88 ITD 323 (CHD.)(TM). AT PAGE 349 JUDGMENT OF PANDIT BROS. V/S. CIT (1954 ) 26 ITR 159 RELIED. AT PAGE 349 R.B. BANSILAL ABHIRCHAND SPG. AND WVG. MILLS (1970) 75 ITR 260 (BOM) RELIED. AT PAGE 349 JHANDU MAL TARACHAND RICE MILLS 73 ITR 192 27 (PUNJAB) AT PAGE 350 RELYING UPON SEETHARAMA MINING COMPANY V/S. CIT (1968) 68 ITR 1 (AP) (SHORT NOTES) - IT WAS HEL D THAT DOUBTING INSPECTION OF ROYALTY REGISTER WAS ARBITRA RY AND CAPRICIOUS. PARA 27 ON PAGE 350 MOTIPUR SUGAR FACTOR (P) LTD. V /S. CIT 95 ITR 401 (PAT) - RELEVANCE AND SIGNIFICANCE OF ST ATUTORY REGISTERS AND ACCEPTANCE BY OTHER AUTHORITIES, AUDI TOR'S REPORT ETC., ACCEPTED. SHANKER RICE AND COMPANY V/S. ITO (2000) 72 ITD 139 (AMRITSAR) SB RELIED IN PARA 28 AT PAGE 351 (VII) SIGNIFICANCE OF TAX AUDIT EXPLAINED IN BOARD' S CIRCULAR NO. 387 DT. 6.7.1984 IN PARA 17.2 PUBLISHED IN (198 5) 152 ITR (ST) 12. (VIII) PUSHPANJALI DYEING & PRINTING MILLS (P) LTD. V/S. JOINT COMMISSIONER OF INCOME-TAX(2002) 72 TTJ (AHD) 886. TAX AUDIT U/S. 44AB AND FAILURE TO POINT OUT ANY SP ECIFIC DEFECT JUSTIFIES DELETION OF TOTAL ADDITION OF RS. 41,27,406/- MADE IN THE DECLARED TRADING RESULTS. 28 (XII) PAST HISTORY MOST SIGNIFICANT AND RELEVANT CONSISTENT ACCEPTANCE OF BOOKS OF ACCOUNTS AND DECL ARED ROOM RENT RECEIPTS AND RESTAURANT BILLS FOR LAST MO RE THAN 20 YEARS JUSTIFIES ASSESSEE'S PRAYER FOR ACCEPTANCE OF DECLARED RESULTS, PARTICULARLY WHEN NO SPECIFIC INS TANCE OF UNACCOUNTED RECEIPT/SALE OR UNDERSTATEMENT THEREOF WAS FOUND DESPITE THOROUGH CHECKING OF GRC, BILL AND AL L OTHER RECORD. KINDLY REFER UCO BANK V/S. CIT (1999) 240 I TR 355 (SC) AT PAGE 367. (XIII) TRIVENI PHARMA V/S. ITO (2005) 92 ITD 125 (J M) (JP) - WHERE AUDITORS GAVE Q TALLY IN TAX AUDIT REPORT AND MONTHLY STOCK DETAILS WERE FURNISHED BEFORE THE DEPARTMENTAL AUTHORITIES, THE REJECTION OF BOOKS WE RE HELD TO BE INVALID. GIST OF JUDGMENTS RELATING TO I NVALIDITY OF ADDITIONS MADE IN THE DECLARED TRADING RESULTS W ITHOUT POINTING OUT SPECIFIC MISTAKES AND DISCREPANCIES. (XIV) R.M.P. PERIANNA PILLAI & CO. VS. COMMISSIONE R OF INCOME TAX (1961)42ITR370(MAD) : (1961) TAX 14(3)-5 98. NEITHER THE AAC NOR THE TRIBUNAL FOUND THAT ANY ENT RY IN THE ACCOUNT BOOKS, EITHER SALE OR PURCHASE, WAS UNT RUE. THERE WAS NO FINDING, THAT THE PURCHASES WERE INFLA TED OR THE SALES WERE SUPPRESSED. THOUGH IN THE ORDER OF T HE TRIBUNAL THERE WAS A REMARK THAT ALL THE PURCHASES HAD NOT 29 BEEN PROPERLY VOUCHED FOR, THAT APPARENTLY WAS NOT THE REAL BASIS FOR REJECTING THE ACCOUNTS. THE TRIBUNAL OBVIOUSLY REALIZED THE IMPOSSIBILITY OF INDEPENDENT SALE VOUCHERS TO SUPPORT THE BOUGHT NOTES. THERE WAS THE REFORE NOTHING TO SHOW THAT THE ACCOUNTS OF THE ASSESSEE W ERE NOT CORRECT. IT IS TRUE THAT THE ASSESSEE DID NOT MAINT AIN ALL THROUGH THE YEAR A SEPARATE VARIETY WISE STOCK ACCO UNT EITHER ON THE BASIS OF COUNTS OF YAM, OR PRICES OR CLASSES OF GOODS. THE ABSENCE OF SUCH STOCK BOOKS DID NOT PREV ENT THE ACCEPTANCE OF THE BOOK RESULTS IN THE PREVIOUS ASSE SSMENT YEAR. THE ABSENCE OF STOCK BOOK OR A SERIES OF A ST OCK BOOK DOES NOT APPEAR TO HAVE BEEN THE REAL BASIS FOR REJ ECTING THE BOOKS RESULTS. THAT THE GROSS PROFITS DISCLOSED BY THE ASSESSEE'S ACCOUNTS WERE LOW BY ITSELF WAS NOT ENOU GH TO REJECT THE SYSTEM OF ACCOUNTS MAINTAINED BY THE ASS ESSEE. LOW GROSS PROFITS SHOULD CERTAINLY PUT THE DEPARTME NT ON ENQUIRY TO VERIFY IF THE ENTRIES IN THE ACCOUNT BOO KS WERE SPURIOUS, OR TO VERIFY IF THE SYSTEM OF ACCOUNTS IT SELF WAS DEFECTIVE. WHICH MADE IT IMPOSSIBLE TO ACCEPT THE B OOK RESULTS AS DISCLOSING THE TRUE PROFITS OF THE ASSES SEE. IN OTHER WORDS, ON THE ONLY GROUND THAT THE GROSS PROF ITS WERE LOW AND COMPARED UNFAVORABLY WITH THOSE OF OTHERS, THE SYSTEM OF ACCOUNTING ADOPTED BY AN ASSESSEE CANNOT BE REJECTED. WHAT THE PROVISO TO S. 13 REQUIRES IS THA T THE SYSTEM OF ACCOUNTING ADOPTED BY THE ASSESSEE IS DEFECTIVE. 30 (XV) SHANKER RICE CO. V/S ITO. (2000) 67 TTJ (ASR) (SB) 84: (2000) 72 ITD 139 (ASR)(SB) = 249 ITR (AT) (SB) 44 THE FOLLOWING FACTS EMERGING FROM THE RECORD ARE NOT CHALLENGED BY REVENUE (I) REGULAR BOOKS OF ACCOUNTS ARE MAINTAINED AND ARE DULY AUDITED BY CHARTERED ACCOUNTANTS, (2) STATUTORY REGISTERS PRESCRIBED BY THE GOVERNMENT ARE MAINTAINED AND THESE ARE PERIODICALLY SUBJECTED TO CHECK BY THE DEPARTMENT OF FOOD & CIVIL SUPPLIES. THESE REGISTER S ARE (I) REGISTER SHOWING PURCHASES, RECEIPTS AND DISPOSAL OF PADDY; (II) MILLING REGISTER; AND (III) RICE REGISTER; (3) PURCHASES AND SALES ARE REGUED BY THE RELEVANT PROVISIONS OF THE PUNJAB AGRICULTURAL MARKETS ACT, 1961; (4) PADDY IS LIABLE TO PURCHASE TAX UNDER THE PUNJAB CENTRAL SALES TAX ACT AND THE PURCHASES MADE HAVE BEEN DULY ACCEPTED BY THE EXCISE &, TAXATION DEPT, GOVERNMENT OF PUNJAB. THE TAX AUTHORITIES HAVE CLEARLY IGNORED THE AFORESAID FACTS AND PROCEEDED TO REJECT THE BOOKS OF ACCOUNTS ON GROUNDS WHICH ARE NOT VALID AND SOME OF THESE AR E CLEARLY IN THE REALM OF SURMISES AND CONJECTURES. CONCLUSION ASSESSEE A RICE SELLER, MAINTAINING REGULAR BOOKS O F ACCOUNT DULY AUDITED, MAINTAINING STATUTORY REGISTERS, ITS PURCHASES AND SALES HAVING BEEN DULY ACCEPTED BY THE EXCISE & TAXATION DEPARTMENT, ITS ACCOUNTS COULD NOT HAVE BEEN REJECTED. 31 (XVI) DEPUTY COMMISSION OF INCOME TAX VS. MEWAR TEXTILES MILES LTD ITD, JAIPUR BENCH (1998) 64 TTJ (JP) 502 CONCLUSION TRADING ADDITIONS CANNOT BE MADE BY IGNORING THE BO OK RESULTS IF THE BOOKS OF ACCOUNTS ARE NOT REJECTED O R DEFECTS ARE NOT POINTED OUT BY THE A. O. (XVII) MOTIPUR SUGAR FACTORY (P) LTD., VS. COMMISSI ONER OF INCOME TAX (1974) 95 (ITR) 401 (PAT) CONCLUSION THE ACCOUNTS BOOKS CANNOT BE REJECTED SIMPLY BECAUS E PURCHASE WERE NOT PRODUCED. AS PURCHASES ARE NOT PR IMARY EVIDENCE OF ACTUAL PURCHASE, REJECTION OF BOOKS IS NOT JUSTIFIED. (XVIII) JHANDU MAL TARA CHAND RICE MILLS VS. COMMIS SIONER OF INCOME TAX (1969) 73 ITR 192 (P&H) THE MILLING OF PADDY AND THE SALE OF RICE WERE CONT ROLLED UNDER THE ESSENTIAL SUPPLIES ACT AND THE STOCKS IN THE POSSESSION OF RICE DEALERS AND MILLERS WERE FROM TI ME TO TIME CHECKED BY THE FOOD AND CIVIL SUPPLIES DEPARTM ENT. THE DISTRICT FOOD AND SUPPLIES CONTROLLER HAD GIVEN HIS CERTIFICATE, WHICH SHOWED THAT THE DEPARTMENT DID N OT DOUBT THE CORRECTNESS OF THE ACCOUNTS MAINTAINED BY THE ASSESSEE FIRM. THE ITO IN SUCH A CASE SHOULD HAVE B EEN 32 SLOW TO DISBELIEVE THE ACCOUNTS MAINTAINED BY THE A SSESSEE FIRM UNLESS VERY STRONG EVIDENCE WAS AVAILABLE TO H IM TO PROVE THAT THE ACCOUNTS MAINTAINED WERE FALSE AND D ID NOT EXHIBIT THE CORRECT POSITION. CONCLUSION IN ABSENCE OF ANY FINDING THAT PROFITS COULD NOT BE DEDUCED FROM METHOD OF ACCOUNTING, ACCOUNTS COULD NOT BE RE JECTED MERELY ON THE GROUND OF SLIGHTLY LOWER YIELD THAN COMPARABLE CASES AND NON-MAINTENANCE OF DAY TO DAY DRYAGE REGISTER; ARBITRARY ADDITION NOT JUSTIFIED. (XXI) MALANI RAMJEEVAN JAGANNATH V/S ACIT. (2007) 2 07 CTR (RAJ.) 19. IN THIS CASE IT WAS HELD THAT SINCE NEITHER OPENING STOCK NOR PURCHASES NOR SALES SHOWN BY THE ASSESSEE WAS DISTU RBED HENCE, NO ADDITION IN THE GROSS PROFIT CAN BE VALID LY MADE. IN THE PRESENT CASE THE AO HAS NOT DISPUTED THE COR RECTNESS OF OPENING STOCK, PURCHASES, SALES OR CLOSING STOCK . THE GROSS PROFIT IS ONLY A RESULTANT FIGURE, WHICH CANN OT BE DISTURBED WITHOUT CHALLENGING ANY OF THOSE ITEMS AP PEARING IN THE TRADING ACCOUNT AND SUCH A CHALLENGE CAN BE VALIDLY MADE ONLY BY POINTING OUT SPECIFIC MISTAKES OR DISCREPANCIES IN THE REGULAR BOOKS OF ACCOUNTS AND VOUCHERS PRODUCED BEFORE THE AO. IN VIEW OF THE AFORESAID FA CTS AND CIRCUMSTANCES THE LD. A.R. PRAYED THAT THE ADHOC AD DITION 33 OF RS. 5,00,000/- MADE IN THE DECLARED TRADING RESU LTS MAY KINDLY BE CANCELLED AND THE AO MAY BE DIRECTED TO A CCEPT THE CORRECTNESS OF THE REGULAR AND AUDITED BOOKS OF ACCOUNTS. 23. AFTER CONSIDERING THE RIVAL SUBMISSIONS, THE L D. CIT(A) HAS HELD AS UNDER: I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT AS ALSO THE FINDINGS OF THE AO. IT MAY BE NOTED THAT THE AO HAS MAINLY REJECTED THE BOOKS OF ACCOUN TS ON ACCOUNTS OF THE REASONS THAT THE GP RATE SHOWN BY T HE APPELLANT DECREASED TO 2.48% AS COMPARED TO 3.99% I N THE IMMEDIATE PRECEDING A.Y. AND 4.99% IN A.Y. 2007-08. THE AO ALSO MENTIONED THAT ASSESSEE HAS NOT PRODUCED TH E STOCK REGISTER AND QUANTITATIVE DETAILS DURING THE COURSE OF ASSESSMENT PROCEEDINGS. IT IS ALSO STATED THAT IN T HE AUDIT REPORT IN COLUMN NO. 11A THE AUDITORS HAVE ALSO MEN TIONED THAT 'GENERALLY MERCANTILE SYSTEM IS FOLLOWED' AND THE ASSESSEE HAS NOT FURNISHED THE DETAIL OF THESE SPEC IFIC TRANSACTIONS. IN VIEW OF THESE DEFECTS THE AO APPLI ED PROVISIONS OF SEC. 145(3) AND ACCORDINGLY MADE LUMP -SUM TRADING ADDITION OF RS. 5 LACS. THE APPELLANT'S CAS E IS THAT THE ENTIRE PURCHASES AND SALES ARE FULLY VOUCHED AN D DECLARED GP IS SUPPORTED BY THE BOOKS OF ACCOUNTS. THE CORRECTNESS OF THE TRADING RESULTS ARE ALSO STATED TO BE ACCEPTED BY THE SALES TAX AUTHORITY AND THE AO FAIL ED TO POINT OUT ANY SINGLE MISTAKE OR DISCREPANCY IN THE BOOKS OF 34 ACCOUNTS PRODUCED BEFORE HIM ON SEVERAL OCCASIONS. AS REGARDS DECREASED IN GP RATE FROM 3.99% IN A.Y. 200 8-09 AND 4.99% IN A.Y. 2007-08 TO 2.48% IN A.Y. UNDER CONSIDERATION, IT WAS ALSO STATED THAT THE PRICES O F GOODS TRADED ARE VERY FLUCTUATING AND THE FREQUENT CHANGE S IN THE RATES OF GOODS SO TRADED GENERALLY AFFECT THE G P RATE. IT WAS ALSO CONTENDED THERE CAN BE ANY REASON FOR D ECLINE OF GP RATE. IT IS CONTENDED THAT THE AO HAS NOT SPE CIFICALLY DISTURBED OR DOUBTED THE FIGURE OF OPENING STOCK PURCHASES, SALES AND CLOSING STOCK AND THE GP IS ON LY THE RESULTANT FIGURE OF AFORESAID FOUR ITEMS. IT IS CON TENDED THAT SUCH MEAGER VARIATIONS IN THE GP RATE IS BOUND TO OCCUR FROM YEAR TO YEAR. IN SUPPORT OF HIS CONTENTI ON THE APPELLANT HAS ALSO RELIED UPON VARIOUS CASE LAWS. ON CONSIDERATION OF ALL RELEVANT FACTS IT MAY BE NO TED THAT THERE IS NO DISPUTE THAT THE APPELLANT IS NOT MAINT AINING ANY STOCK REGISTER AND QUANTITATIVE DETAILS OF PRIN CIPAL ITEMS OF TRADING ARE NOT MAINTAINED OR AVAILABLE. S UCH SHORTCOMINGS ARE EVEN POINTED OUT BY THE STATUTORY AUDITORS. IN THIS BACKGROUND THOUGH IT IS CORRECT T HAT THE AO HAS NOT POINTED OUT ANY VITAL DEFECT IN THE BOOK S OF ACCOUNTS BUT ABSENCE OF MAINTENANCE OF STOCK REGIST ER AND QUANTITATIVE DETAILS OF MAJOR TRADING ITEMS ARE ALS O DEFINITELY VALID DEFECTS OF THE BOOKS OF ACCOUNTS A ND THEREFORE IT CANNOT BE SAID THAT THE BOOKS OF ACCOU NTS OF THE APPELLANT ARE TRUE AND COMPLETE. IT MAY BE MENT IONED THAT THE HONBLE SUPREME COURT IN THE CASE OF S.N. 35 NANASIVAYM CHETTIAR VS. CIT 38 ITR 579 HAS HELD THA T KEEPING OF STOCK REGISTER IS DEFINITELY OF GREAT IM PORTANCE FOR VERIFICATION OF THE ACCOUNTS MAINTAINED BY THE ASSESSEE. FURTHER NON MAINTENANCE OF STOCK REGISTER , QUANTITATIVE DETAILS OF MAJOR ITEMS OF TRADING ACCO UNT MAY JUSTIFY APPLICATION OF PROVISIONS OF SEC. 145(3). R ELIANCE IS PLACED ON THE FOLLOWING CASE LAWS: I) RAJASTHAN COMMERCIAL HOUSE VS. DCIT (200 4) 86 TTJ 851 ITAT, JODHPUR II) VIJAY TRADERS VS. CIT (1969) 74 ITR 279 III) AMIYA KUMAR ROYS & BROS. V. CIT (1994) 2 06 ITR 306 THEREFORE AS FAR AS THE FINDING OF THE AO AS REGARD S REJECTIONS OF BOOKS OF ACCOUNTS I DO NOT FIND ANY F AULT AND ACTION OF THE AO IS CONFIRMED. AS REGARDS ESTIMATION OF PROFIT, AFTER INVOKING THE PROVISIONS OF SEC. 145(3) OF IT ACT, IT MAY BE STAT ED THAT IT IS A SETTLED LAW THAT EVEN AFTER INVOKING THE PROVI SIONS OF SEC. 145(3), THE AO IS NOT EMPOWERED TO ASSESS THE INCOME AT WHATEVER FIGURES HE WANTS AND THE AO IS SUPPOSED TO MAKE AN HONEST ESTIMATION EITHER BASED ON THE PAST HISTORY OF THE APPELLANT'S OWN CASE OR ON THE BASIS OF ANY COMPARABLE CASE. FOR SUCH PROPOSITION RELIANCE IS P LACED ON THE FOLLOWING CASE LAWS: 36 I) M/S BRIJBHUSHAN LAI PRADHUMAN KUAMR VS. CIT, 115 ITR 524 II) SHREE SHANKAR KHANDSARI SUGAR MILLS VS. CIT, 193 ITR 669 III) CIT VS DR. A.P. BAHEL 2 DTR 387 (RAJ) IV) CIT VS. SURESH MARBLES PVT. LTD. 18 DTR 118 (RAJ) V) SHRI RAM JHANWAR VS. ITO 98 TTJ, ITAT, J ODHPUR VI) AJAY GOYAL VS. ITO 99 TTJ, ITAT, JODHPUR IT IS TO BE EXAMINED AS TO WHETHER WITH THE ADDITIO N OF RS. 5 LACS THE RESULTANT GP RATE WAS BROADLY SIMILAR TO THE GP RATE SHOWN BY THE APPELLANT IN EARLIER YEARS OR NOT . IT MAY BE NOTED THAT THE APPELLANT HAS SHOWN GP OF RS. 11796387/- ON THE TOTAL SALES/ TURNOVER OF RS. 4746 71410/- AND WITH THE ADDITION OF RS. 5 LACS, THE GP IS ARRI VED AT RS. 12296387/- AND THE GP RATE IS ACCORDINGLY ARRIVED A T 2.59%. IT MAY FURTHER BE NOTED THAT EVEN AFTER ADDITION OF RS. 5 LACS THE GP WHICH IS ARRIVED AT 2.59% IS COMPARATIV ELY LOW IN COMPARISON TO GP OF 3.99% IN THE IMMEDIATELY PRE CEDING YEAR. THEREFORE THE GP RATE APPLIED BY THE AO EVEN CONSIDERING THE APPELLANT'S OWN CASE OF IMMEDIATE PRECEDING YEAR IS QUITE FAIR AND REASONABLE. KEEPIN G IN VIEW OF THESE FACTS AS ALSO THE NATURE OF DEFECTS P OINTED OUT BY THE AO THE ADDITION MADE BY THE AO AMOUNTING TO RS. 5 LACS DESERVES TO BE CONFIRMED. THE ADDITION M ADE BY THE AO IS ACCORDINGLY CONFIRMED. THE GROUND OF APPE AL IS DISMISSED. 37 24. NOW, THE ASSESSEE IS FURTHER AGGRIEVED. BOTH TH E PARTIES HAVE MAINTAINED THEIR ORIGINAL STAND BEFORE US. IN SO FA R AS ADHOC ADDITION OF RS. 5 LAKH IS CONCERNED, WE CANNOT APPROVE SUCH AD HOC ADDITION. THE ASSESSEE HAS EXPLAINED THE REASONS FOR DECLINE IN T HE G.P. RATE. THE TURNOVER IN THIS YEAR HAS VERY SUBSTANTIALLY INCREA SED TO RS. 47,46,71,410/- AS AGAINST THE TURNOVER OF RS. 32,97 ,90,085/- IN THE A.Y. 2008-09. WE HAVE FOUND THAT EXCEPT FOR THE SMA LL DECLINE OF THE G.P. RATE THE A.O. HAS NOT POINTED OUT ANY DEFECT M UCH LESS ANY MATERIAL DEFECT IN THE BOOKS OF THE ACCOUNTS OF THE ASSESSEE, THEREFORE, THE BOOKS HAVE BEEN WRONGLY REJECTED. HE NCE, WE ALLOW THE TRADING RESULT AS HAS BEEN DISCLOSED BY THE ASSESSE E AND DELETE THE ADDITION OF RS. 5 LAKH MADE ON AD HOC BASIS. THEREF ORE, WE ALLOW GROUND NO. (6) OF THIS APPEAL. 24. IN THE RESULT, THIS APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED. 25. TO SUM UP, ALL THESE APPEALS IN ITA NOS. 128, 1 29 AND 130/JODH/2013 ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH AUGUST, 2013. SD/- SD/- [N.K. SAINI] [HARI OM MARATHA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 30 TH AUGUST, 2013 38 VL/ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT BY ORDER 3. THE CIT 4. THE CIT(A) 5. THE DR ASSISTANT REGISTRAR ITAT, JODHPUR