M/s. Kwality Silk Processors Pvt.Ltd., Surat V. The Income tax Officer,Ward-1(3), Surat

ITA 1415/AHD/2009

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9681 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 year(s) 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 24-11-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 04-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAMES KURIAN SR DR
• Assessee Lawyers: SAPNESH SHETH
• Keywords: Gross profit estimation; Unexplained investment; Depreciation; Corroborative evidences; Unabsorbed depreciation
• Section: 142(1); 133(6); 144

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD . . , , BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI MAHAVIR PRASAD, JUDICIAL MEMBER ./ I.T.A. 4NO.1415/AHD/2009 ( / ASSESSMENT YEAR : 2005-06) M/S. KWALITY SILK PROCESSORS PVT. LTD. PLOT NO.53/54, UDHYOG NAGAR, UDHANA, SURAT. / VS. ITO/ WARD-1(3)SRT ./ ./ PAN/GIR NO. :AABCK 0033 H ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI SAPNESH SHETH, A.R. / RESPONDENT BY : SHRI JAMES KURIAN, SR,D.R. / DATE OF HEARING 24/11/2016 / DATE OF PRONOUNCEMENT 23/12/2016 / O R D E R PER SHRI MAHAVIR PRASAD, JUDICIAL MEMBER : THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD.COMMISSIONER OF INCOME TAX(APPEALS)-I, SURAT, DATED 26/03/2009 FOR THE ASSESSMENT YEAR (AY) 2005-06 AND FOLLOWING GROUNDS HAVE BEEN TAKEN: (I ). ON FACTS AND IN CIRCUMSTANCES OF THE CASE AS WELL AS THE LAW ON SUBJECT THE LD.CIT(A) HAS GRIEVOUSLY ERRED IN ACCEPTING THE REJECTION OF THE BOOKS OF ACCOUNT U/S. 145(3) OF THE ACT WITHOUT ANY DEFECTS IN STATUTORY RECORDS FOUND BY ASSESSING OFFICER AND DISREGARDING THE FACTS OF INCREASE IN GROSS PROFIT. THE TRADING RESULTS BE ACCEPTED. (II). ON FACTS AND IN CIRCUMSTANCES OF THE CASE AS WELL AS THE LAW ON SUBJECT THE LD.CIT(A) HAS GRIEVOUSLY ERRED IN CONFIRMING THE ADDITION OF RS.3,66,478/- FOR WORK-IN PROGRESS MADE BY ASSESSING OFFICER WITHOUT APPRECIATING THE FACTS OF QUANTITY OF COLOUR-CHEMICALS AND OTHER RAW MATERIALS ON CLOTH IN PROGRESS INCLUDED IN CLOSING STOCK OF RAW MATERIAL. THE LD.CIT(A) FURTHER ERRED IN NOT ITA NO. 1415/AHD/09 M/S KWALITY SILK PROCESSOR PVT. LTD VS.ITO ASST.YEAR 2005-06 - 2 - ALLOWING SIMILAR DEDUCTION FOR OPENING WORK-IN PROGRESS AS WELL AS CARRY FORWARD OF CLOSING WORK-IN PROGRESS AS WELL AS CARRY FORWARD OF CLOSING WORK- IN PROGRESS OF RS.3,66,478/- TO SUBSEQUENT YEAR. THE ADDITION OF RS.3,66,478/- BE DELETED. (III). ON FACTS AND IN CIRCUMSTANCES OF THE CASE AS WELL AS THE LAW ON SUBJECT THE LD.CIT(A) HAS GRIEVOUSLY ERRED IN CONFIRMING THE ADDITION OF RS.2,07,812/- FOR GROSS PROFIT MADE BY ASSESSING OFFICER BY COMPARING GROSS PROFIT WITH A.Y. 2003/04 INSTEAD OF A.Y. 2004/05 WHICH WAS LOWER THAT GROSS PROFIT OF A.Y. 2005/06. THE ADDITION OF RS.2,07,812/- BE DELETED. (IV). ON FACTS AND IN CIRCUMSTANCES OF THE CASE AS WELL AS THE LAW ON SUBJECT THE LD.CIT(A) HAS GRIEVOUSLY ERRED IN CONFIRMING THE ADDITION OF RS.59,96,790/- MADE BY ASSESSING OFFICER BY ASSUMING ON SUPERFLUOUS PRESUMPTIONS OF ALLEGED UNACCOUNTED PURCHASES OF GREY CLOTH OF 3,47,130 MTS. WITHOUT ANY EVIDENCES OF PURCHASES, FACTS OF ONLY JOB WORK DONE BY APPELLANT, NO CROSS EXAMINATION OF JOB WORK CUSTOMERS, UNACCOUNTED JOB WORK DONE BY SOME CUSTOMERS, EXCISE RECORDS AND INVOICES OF CENVAT CREDIT AVAILED BY CUSTOMERS, REMAND REPORT FROM ASSESSING OFFICER WHEREIN THE PARTIES ACCEPTED THE OWNERSHIP OF GREY CLOTH BEFORE ASSESSING OFFICER. THE ADDITION OF RS.59,96,790/- SHOULD THEREFORE BE DELETED. (V). ON FACTS AND IN CIRCUMSTANCES OF THE CASE AS WELL AS THE LAW ON SUBJECT THE LD.CIT(A) HAS GRIEVOUSLY ERRED IN CONFIRMING THE ADDITION OF RS.17,97,813/- MADE BY ASSESSING OFFICER ON ACCOUNT OF JOB RECEIPTS BY DISREGARDING BLEACHING WORK AND ASSUMING WITHOUT EVIDENCE THAT APPELLANT CARRIED PRINTING JOB WORK, REMAND REPORT FROM ASSESSING OFFICER SUBMITTED AFTER VERIFICATION OF PARTIES ACCEPTING HAVING DONE JOB WORK OF BLEACH STAGE. ON EVIDENCE OF BLEACHING WORK AS PER RECORDS THE ADDITIONS OF RS.17,97,813/- BE DELETED. 2. THE FACTS OF THE CASE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF DYEING & PRINTING OF GREY CLOTHS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS SHOWN TURNOVER OF RS.5,61,64,324/- AS AGAINST THE TURNOVER OF RS.4,11,55,697/- DURING PRECEDING YEAR. THE G.P. RATIO SHOWN AT 18.63% AS AGAINST THE GP RATIO OF 12.91% DURING THE PRECEDING YEAR. FURTHER, A NOTICE U/S. 142(1) ALONG WITH QUESTIONNAIRE WERE ISSUED ON 11.01.2007 WHICH WAS DULY SERVED THROUGH RPAD. IN RESPONSE, SHRI AVAKASH C. JARIWALA, C.A. FROM AVAKASH C. JARIWALA & CO., CHARTERED ACCOUNTANTS, AN AUTHORIZED REPRESENTATIVE OF THE ASSESSEE ITA NO. 1415/AHD/09 M/S KWALITY SILK PROCESSOR PVT. LTD VS.ITO ASST.YEAR 2005-06 - 3 - COMPANY AND SHRI ASHOK KAPADIA, ACCOUNTANT, ATTENDED ON BEHALF OF THE ASSESSEE COMPANY AND FILED PART OF REQUIRED DETAILS. THE CASE WAS DISCUSSED WITH THEM AND THE ASSESSMENT IS FINALIZED SUBJECT TO THE FOLLOWING REMARKS:- A : BOOK RESULT REJECTED U/S 145(3) OF THE IT ACT:- 3. DURING THE COURSE OF HEARING DATED 15.10.2007, THE ISSUE WAS DISCUSSED IN CONNECTION TO VALUATION OF WORK IN PROGRESS AND NOTICED THAT THE ASSESSEE COMPANY HAS NOT SHOWN ITS WORK IN PROGRESS WHICH IS ESSENTIAL TO DETERMINE THE CORRECT PROFIT OF THE YEAR UNDER CONSIDERATION. THE FINISHED GOODS LYING IN THE GODOWN OR FACTORY PREMISES ON 31.03.2005 AND THE GOODS LYING AT VARIOUS STAGE OF PROCESSING SUCH AS BLEACHING, DYEING, PRINTING ETC. AS WELL AS GOODS LYING ON MACHINERIES ARE HAVING SUBSTANTIAL ELEMENT OF COLOUR CHEMICALS, LABOUR, GAS AND COAL CHARGES, ELECTRICITY CHARGES ETC. WHICH DEFINITELY CARRY CERTAIN ELEMENT OF COST INCURRED. THE COLOUR CHEMICAL, COAL LIGNITE, GAS, DIESEL WHICH WAS AVAILABLE IN STORE HAVE BEEN CONSIDERED AND THE VALUE HAVE BEEN SHOWN AS CLOSING STOCK BUT THE VALUE OF COLOUR CHEMICAL, COAL LIGNITE, GAS, DIESEL ETC. INCURRED ON AFORESAID GOODS AND LYING IN THE FACTORY PREMISES BUT NO WHERE THE COST ATTRIBUTED THEREON HAVE BEEN SHOWN. HOW THE BOOK RESULTS SHOWN BY THE ASSESSEE COMPANY COULD BE CONSIDERED CORRECT. THE ELEMENT OF PROFIT IN WORK IN PROGRESS HAS DEFINITELY BEEN REMAINED FOR CONSIDERATION OF CURRENT YEAR PROFIT TO THIS EXTENT. 4. IT WAS NOTICED WHILE VERIFYING THE DISPATCHED QUANTITY SHOWN IN BOOKS OF ACCOUNTS AND THE DISPATCHED QUANTITY SHOWN IN RG-1 REGISTER MAINTAINED FOR THE PURPOSE OF EXCISE RECORD AND CONSIDERED IT CORRECT PART ITA NO. 1415/AHD/09 M/S KWALITY SILK PROCESSOR PVT. LTD VS.ITO ASST.YEAR 2005-06 - 4 - OF BOOKS OF ACCOUNTS THAT THERE WAS HUGE DIFFERENCE IN CERTAIN MONTHS. THE XEROX COPY OF RG-1 REGISTER WAS OBTAINED DURING THE COURSE OF HEARING DATED 15.10.2007 AND COMPARED WITH THE DATA PROVIDED OUT OF BOOKS OF ACCOUNTS BY THE ASSESSEE COMPANY AND FOUND VAST DIFFERENCE, THE CHART SHOWING DIFFERENCE OF DISPATCHED QUANTITY IN RG-1 REGISTER AND IN BOOKS OF ACCOUNTS IS MENTIONED HEREUNDER:- MONTH/YEAR QUANTITY OF CLOTH PROCESSED MTRS. AS PER RG- 1 REGISTER DIFFERENCE APRIL, 2004 455152.00 436830 18322.00 MAY, 2004 422168.25 427138 4969.75 JUNE, 2004 329463.00 355868 26405.00 JULY, 2004 672100.00 415448 256652.00 AUGUST , 2004 973103.75 455395 517708.75 SEP, 2004 580114.25 576777 3337.25 OCT, 2004 871267.75 871609 341.25 NOV, 2004 837905.50 838088 182.50 DEC, 2004 838642.75 838643 0.25 JAN, 2005 837945.25 837945 0.25 FEB, 2004 736961.00 736964 3.00 MARCH, 2004 612409.25 612409 0.25 THE ATTENTION OF THE ASSESSEE COMPANY WAS DRAWN TO THIS ASPECT VIDE T HIS OFFICE LETTER DATED 23.11.2007 AND REQUIRING IT TO EXPLAIN THE DIFFERENCE. IN RESPONSE, THE AR OF THE ASSESSEE COMPANY CLEARLY DENIED THE DIFFERENCE, EXCEPT IN THE MONTH OF JULY, 2004 AND AUGUST, 2004 WHICH WAS EXPLAINED THAT THE GREY ITA NO. 1415/AHD/09 M/S KWALITY SILK PROCESSOR PVT. LTD VS.ITO ASST.YEAR 2005-06 - 5 - RECEIVED FOR PROCESSING AFTER THE ABOLITION OF EXCISE FROM THE INDUSTRY HAVE NOT BEEN TAKEN INTO ACCOUNT IN RG-1 REGISTER. THE REPLY OF THE ASSESSEE COMPANY IS REPRODUCED HEREUNDER FOR READY REFERENCE:- THE COMPLETE MOVEMENT OF FINISHED FABRICS HAS BEEN GIVEN AS UNDER: MONTH OPENING STOCK QUANTITY MFG. AS PER QUANTITY CLEARED AS QUANTITY DELIVERED DIFFERENCE RG-1 PER RG-1 AS PER BOOK APRIL. 2004 13,088.00 4,36,850.00 4,49,938.00 4,55,152.00 5,214.00 MAY. 2004 0.00 4,27,138.00 4,22,170.00 4,22,168.25 1.75 JUNE.2004 4,968.00 3,55,868.00 3,31,971.00 3,29,463.00 (2,508.00) JULY.2004 28,865.00 4,15448.00 4,44,233.00 6,72,100.00 2,27,867.00 AUGUST, 2004 0.00 4,55,395.00 4,55,395.00 9,73,103.75 5,17,708.00 SEPTEMBER, 04 0.00 5,76,777.00 5,76,777.00 5,80,114.25 3,337.25 OCTOBER, 2004 0.00 8,71,609.00 8,71,609.00 8,71,267.75 341.25 NOVEMBER, 2004 0. 00 8,38,088.00 8,38,088.00 8,37,945.50 (142.50) DECEMBER, 2004 0.00 8,38,643.00 8,38,643.00 8,38,642.75 (0.25) JANUARY, 2005 0.00 8,37,945.00 8,37,945.00 8,37,945.25 0.25 FEBRUARY, 2005 0.00 7,36,964.00 7,36,964.00 7,36,961.00 (3.00) MARCH, 2005 0.00 6,12,409.00 6,12,409.00 6,12,409.25 0.25 'THERE IS NO MUCH DIFFERENCE IN THE METERS DELIVERED AS PER SALES BOOKS AND AS PER PRODUCTION REGISTER EXCEPT IN THE MONTH OF JULY, 2004 AND AUGUST, 2004. WE HAVE ALREADY SUBMITTED OUR REPLY IN THIS MATTER. WE ARE HEREWITH ONCE AGAIN ATTACHED FOR YOUR KIND PERUSAL. PREVIOUSLY WE HAVE ALSO ATTACHED ITA NO. 1415/AHD/09 M/S KWALITY SILK PROCESSOR PVT. LTD VS.ITO ASST.YEAR 2005-06 - 6 - THE RELEVANT NOTIFICATIONS ISSUED BY THE EXCISE DEPARTMENT FOR YOUR KIND REFERENCE AND FOR OUR JUSTIFICATION OF NONE TALLYING OF QUANTITY. THE DIFFERENCE IN THE DELIVERED METER IN THE MONTH OF JULY, 2004 AND AUGUST, 2004 IS ONLY DUE TO GREY RECEIVED FOR THE PROCESS AFTER THE ABOLITION OF EXCISE IN THE INDUSTRY. TO JUSTIFY THE SAME WE CAN PRODUCE THE INVOICES OF THOSE MONTHS WHERE THE LOT NO. HAS BEEN REFLECTED WHICH ARE AFTER THE ABOLITION OF EXCISE DUTY AND CAN BE VERIFIED FROM THE LOT REGISTER MAINTAINED UP TO THE DATE OF EXCISE.' ON GOING THROUGH THE ABOVE REPLY, IT IS NOT UNDERSTOOD HOW THE AR OF ASSESSES COMPANY SIMPLY ACCEPTED DIFFERENCE IN THE MONTH OF JULY, 2004 AND AUGUST, 2004 WHEREAS THE QUANTITATIVE DIFFERENCE HAS ALREADY BEEN SHOWN IN THE MONTH OF APRIL, 2004 BY 5214 MTS., IN THE MONTH OF SEPT., 2004 BY 3337.25 MTS., IN THE MONTH OF OCTOBER, 2004 BY 341.25 MTS. EXCESS IN BOOKS OF ACCOUNTS IN COMPARISON TO RG-1 REGISTER. IN THE SAME FASHION THE DIFFERENCE IS QUITE VISIBLE IN THE MONTH OF JUNE, 2004 BY 2508 KGS. AND IN THE MONTH OF NOVEMBER, 2004 BY 142.50 KGS IN THE RG- L REGISTER IN, COMPARISON TO BOOKS OF ACCOUNTS. HOWEVER, THE AR IGNORED ALL THESE DIFFERENCES AND SIMPLY TAKEN INTO ACCOUNT THAT THE HUGE DIFFERENCE WORKED OUT IN THE MONTH OF JULY, AND AUGUST, 2004. FURTHER, THE AR OF THE ASSESSEE COMPANY ARGUED THAT THE GREY RECEIVED AFTER THE ABOLITION OF EXCISE HAVE NOT BEEN TAKEN INTO CONSIDERATION IN RG-1 REGISTER IS ALSO NOT CORRECT STATEMENT. IF IT IS SO, HOW THE QUANTITY COULD BE TALLIED IN THE MONTH OF DECEMBER ONWARDS. IT SHOWS THAT THE QUANTITY WAS TAKEN INTO ACCOUNT IN THE RG-1 REGISTER CONSISTENTLY IN THE ENTIRE YEAR. IT IS DIFFERENT ASPECT THAT THE QUANTITY SHOWN THEREIN IS NOT VERIFIABLE WITH THE BOOKS OF ACCOUNTS WHICH INDICATED SERIOUS DEFECTS IN THE MAINTENANCE OF BOOKS OF ACCOUNTS. IT BECAME MORE SERIOUS WHEN THE ASSESSEE COMPANY HAS FAILED TO EXPLAINED THE DIFFERENCE IN ITS BOOKS OF ACCOUNTS AND ITA NO. 1415/AHD/09 M/S KWALITY SILK PROCESSOR PVT. LTD VS.ITO ASST.YEAR 2005-06 - 7 - SUBSIDIARY RECORD. THE BOOK RESULT ARRIVED OUT OF THESE BOOKS COULD NOT BE CONSIDERED GENUINE AND CORRECT. IT ALSO INDICATED THE POSSIBILITY OF SUPPRESSION OF PRODUCTION. 5. DURING THE COURSE OF VERIFICATION OF SALE REGISTER, IT WAS NOTICED THAT AFTER SERIAL INVOICE NO. 1962 DATED 05.08.2004, THE SERIAL INVOICE NO.1629/E DATED 06.08.2004 WAS MENTIONED. HOW IS IT POSSIBLE? HOW COULD SR.1629 COMES AFTER 1962. WITH THE GAP OF SOME INVOICES ISSUED, SERIAL NO.1963 STARTED ON 06.08.2004. THE BREAK IN SR. NO. OF INVOICES ISSUED CREATED SUSPICION AND DOUBT. IT BECAME MORE DOUBTFUL WHEN SR. NO. INSERTED IN REGULAR SERIES HAVE BEEN FOUND @ RS.1.60 PER METER ONLY. ALL THESE INVOICES FOUND UNDER DOUBT; HAVE BEEN CLAIMED AS BLEACHING CHARGES BILLS. THE ASSESSEE COMPANY CLAIMED THAT IT HAD CARRIED OUT BLEACHING PROCESSING IN THE CASE OF SOME PARTIES BY CHARGING RS.1.60 PER METER, WHEREAS NO SUCH BLEACHING PROCESS HAVE EVER BEEN CARRIED OUT BY THE COMPANY IN ITS ENTIRE CAREER TO TILL DATE. THE ASSESSEE COMPANY HAS BEEN DEALING IN PRINTING JOB WORK NOT DEALING IN PART PROCESSING SUCH AS BLEACHING, WASHING, DYEING, FINISHING ETC. ACCORDINGLY, SOME PARTIES TO WHOM SUCH INVOICES HAVE BEEN ISSUED; WERE EXAMINED U/S. 133(6) OF THE IT. ACT. THE OUTCOME REVEALED THAT NO SUCH BILLS HAVE BEEN FOUND ENTERED IN THE CONTRA BOOKS OF ACCOUNTS. FOR EXAMPLE, COPY OF ACCOUNTS OF (I) POND'S INTERNATIONAL DID NOT SHOW BILL NO.L629/E, (II) POND'S SAREES ALSO DID NOT SHOW BILL NO.L630/E, (III) SHEELA ENTERPRISE ALSO DID NOT SHOW BILL N0.1734/E. THE RANDOM INQUIRIES PROVED THAT THE ASSESSEE COMPANY PREPARED BILLS IN THE NAME OF THESE PARTIES BUT NO ACTUAL TRANSACTION WAS MADE. THE ISSUE WAS TAKEN FOR FURTHER VERIFICATION, AND THE DETAILED DISCUSSION HAS BEEN MADE IN SUBSEQUENT PARA. IN VIEW OF ITA NO. 1415/AHD/09 M/S KWALITY SILK PROCESSOR PVT. LTD VS.ITO ASST.YEAR 2005-06 - 8 - ABOVE DISCUSSION, IT BECAME CLEAR THAT THE BOOK RESULT SHOWN BY THE ASSESSEE COMPANY IS NOT RELIABLE AND ALSO NOT ACCEPTABLE. THE BOOKS RESULT HAS TO BE REJECTED BY INVOKING PROVISIONS OF SECTION 145(3) OF THE IT ACT. 6. BEFORE REJECTING BOOK RESULT, IT IS MORE RELEVANT TO DISCUSS REGARDING DAY TO DAY MAINTENANCE OF STOCK REGISTER WHICH WAS NOT FOUND IN THE CASE OF THE ASSESSEE COMPANY. IT WAS SPECIFICALLY REQUESTED VIDE PARA-14 OF THIS OFFICE LETTER DATED 11.01.2007 TO PROVIDE BRIEF NOTE ON METHOD OF MAINTENANCE OF STOCK AND ALSO REQUESTED TO PROVIDE QUANTITATIVE DETAILS OF VARIOUS STOCKS. THE RELEVANT PARA IS RE-PRODUCED HEREUNDER FOR READY REFERENCE:- PLEASE PROVIDE A BRIEF NOTE ON METHOD OF MAINTENANCE OF STOCK. WHETHER DAY- TO-DAY STOCK REGISTER/RECORD IS MAINTAINED? IF YES, PLEASE FURNISH A COPY OPENING AND CLOSING INVENTORY OF STOCK IN THE FOLLOWING FORMAT SR. NO. NATURE/DESCRIPTION OF STOCK QUANTITY RATE VALUE BASIS OF VALUATION. IF STOCK DETAILS ARE NOT MAINTAINED, PLEASE STATE IN WHAT MANNER STOCK RECORDS ARE MAINTAINED AND WHETHER THEY ARE VERIFIABLE, VIS-A-VIS PURCHASE/CONSUMPTION? IN RESPONSE, THE AR OF THE ASSESSEE COMPANY SUBMITTED ASSESSEE IS NOT MAINTAIINING DAY TO DAY STOCK RECORDS. ASSESSEE IS TAKING PHYSICAL STOCK OF FIRST DAY EVERY MONTH. THIS STOCK TAKING REFLECTS CLOSING STOCK OF EACH MONTH. WE HAVE ENCLOSED THE OPENING AND CLOSING INVENTORY OF THE STOCK AS PER THE PROFORMA. STOCK HAS BEEN VALUED AT COST OR MARKET PRICE WHICHEVER IS LESS. STOCK IS MAINLY OF COLOUR CHEMICAL USED IN THE PRODUCTION. ITA NO. 1415/AHD/09 M/S KWALITY SILK PROCESSOR PVT. LTD VS.ITO ASST.YEAR 2005-06 - 9 - ON GOING THROUGH THE ABOVE REPLY, IT BECAME CLEAR THAT THE ASSESSEE COMPANY HAS NOT MAINTAINED DAY TO DAY STOCK REGISTER. THE NON MAINTENANCE OF STOCK REGISTER IS A DEFECT WITHIN THE MEANING OF SECTION 145(3) OF THE IT ACT. IN THIS CONNECTION THE UNDERSIGNED PLACES RELIANCE ON THE DECISION OF THE APEX COURT GIVEN IN THE CASE OF S.N. NAMASIVAYAM CHETTIAR AS REPORTED IN 38 ITR 579. IN THIS CASE IT WAS HELD THAT: 'THE KEEPING OF A STOCK REGISTER IS OF GREAT IMPORTANCE BECAUSE THAT IS A MEANS OF VERIFYING THE ASSESSEE'S ACCOUNTS BY HAVING A 'QUANTITATIVE TALLY'. IF, AFTER TAKING INTO ACCOUNT ALL THE MATERIALS INCLUDING THE WANT OF A STOCK REGISTER, IT IS FOUND THAT FROM THE METHOD OF ACCOUNTING THE CORRECT PROFITS OF THE BUSINESS ARE NOT DEDUCTIBLE , THE OPERATION OF THE PROVISO TO SECTION 13 OF THE INCOME-TAX ACT WOULD BE ATTRACTED. THE INCOME-TAX OFFICER, EVEN IF HE ACCEPTS THE ASSESSEE'S METHOD OF ACCOUNTING, IS NOT BOUND BY THE FIGURE OF PROFITS SHOWN IN THE ACCOUNTS. IT IS FOR THE-INCOME-TAX AUTHORITIES TO CONSIDER THE MATERIAL WHICH IS PLACED BEFORE THEM AND, IF, AFTER TAKING INTO ACCOUNT IN ANY CASE THE ABSENCE OF A STOCK REGISTER COUPLED WITH OTHER MATERIALS THEY ARE OF THE OPINION THAT CORRECT PROFITS AND GAINS CANNOT BE DEDUCED, THEN THEY WOULD BE JUSTIFIED IN APPLYING THE PROVISO TO SECTION 13.' FURTHER, THE RELIANCE CAN ALSO BE PLACED ON THE DECISION GIVEN BY THE HON. SUPREME COURT IN THE CASE OF BRITISH PAINTS AS REPORTED IN 186 ITR 44. IN THIS CASE, THE APEX COURT HAS CLEARLY HELD THAT IF, AFTER TAKING INTO ACCOUNT THE ABSENCE OF A STOCK REGISTER COUPLED WITH OTHER MATERIALS THE AO IS OF THE OPINION THAT CORRECT PROFITS AND GAINS CANNOT BE DEDUCED, THEN HE WOULD BE JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 145. 7. IT IS ALSO NOTICED FROM THE INVENTORY SHOWN IN BALANCE-SHEET THAT THE ASSESSEE COMPANY HAS SHOWN CLOSING STOCK OF COLOUR CHEMICAL ONLY, WHAT ABOUT OTHER STOCK SUCH AS COAL/LIGNITE, DIESEL/GAS, OTHER SPARES AND MATERIAL I.E. BACK-GREY, MILLGIN, SPARE PARTS ETC. WHETHER THE ASSESSEE ITA NO. 1415/AHD/09 M/S KWALITY SILK PROCESSOR PVT. LTD VS.ITO ASST.YEAR 2005-06 - 10 - COMPANY WAS NOT HAVING STOCK OF THOSE ITEMS AS ON 31.03.2005. IT WOULD BE HIGHLY IMPOSSIBLE IN RUNNING BUSINESS OF THE ASSESSEE COMPANY, HOWEVER, THE VALUE OF THESE ITEMS HAVE NOT BEEN SHOWN IN THE BOOKS OF ACCOUNTS. IN THIS WAY, THE ASSESSEE COMPANY MUST HAVE SUPPRESSED CERTAIN ELEMENT OF PROFIT. FURTHER, THE BOOK RESULT SHOWN BY THE ASSESSEE COMPANY, IN ANY CASE, COULD NOT SHOW CORRECT PROFIT FOR THE YEAR UNDER CONSIDERATION. THE ASSESSEE COMPANY FURTHER REQUESTED VIDE PARA-5 OF THIS OFFICE LETTER DATED 5.10.2007 AND ASKED TO PROVIDE MONTHLY CHART OF PRODUCTION AND PROVIDE MONTHLY CHART OF ELECTRICITY CONSUMED, COLOUR CHEMICAL, GAS, COAL CONSUMED. IF THE VARIANCE NOTED MORE THAN 20% IN COMPARISON TO OTHER MONTHS, THE EXPLANATION MAY PLEASE BE SUBMITTED. IN RESPONSE, THE ASSESSEE COMPANY REITERATE VIDE PARA-9 OF ITS LETTER DATED 19.10.2007 THAT THE COMPANY HAS NOT MAINTAINED QUANTITATIVE RECORDS IN THE CASE OF COLOR CHEMICALS, ONLY PHYSICAL STOCK WAS TAKEN AT THE END OF THE YEAR. IT IS IMPORTANT TO MENTION HERE THAT THE ASSESSEE COMPANY HAS MADE DIFFERENT STATEMENT IN THIS REGARD, WHILE MAKING REPLY DATED 22.06.2007, IT WAS STATED PARA-14 THAT THE COMPANY TAKES PHYSICAL STOCK AS ON THE FIRST DAY OF THE MONTH BUT WHILE MAKING REPLY VIDE PARA- 10 OF ITS LETTER DATED 19.10.2007 THAT THE COMPANY HAS TAKEN PHYSICAL STOCK AT THE END OF THE YEAR ONLY. IT ALSO RAISED QUESTION MARK ON THE RELIABILITY OF THE BOOKS OF ACCOUNT AS WELL AS BOOK RESULT. HOWEVER, THE ASSESSEE COMPANY IT SELF PROVIDED MONTHLY STATEMENT OF PRODUCTION AND PROVIDED DATA OF PER METER CONSUMPTION OF ELECTRIC, COAL AND GAS WHICH IS REPRODUCED HEREUNDER FOR READY REFERENCE. ITA NO. 1415/AHD/09 M/S KWALITY SILK PROCESSOR PVT. LTD VS.ITO ASST.YEAR 2005-06 - 11 - MONTH PRODUCTION PER MT. ELEC. CONSUMPTION IN UNIT PER MT. COAL IN KG. PER MT. GAS IN UNIT APRIL, 2004 455152.00 0.149 0.111 0.128 MAY, 2004 422168.25 0.156 0.264 0.140 JUNE, 2004 329463.00 0.153 0.121 0.184 JULY, 2004 672100.00 0.124 0.000 0.087 AUG, 2004 973103.00 0.108 0.250 0.110 SEP, 2004 580114.25 0.132 0.374 0.101 OCT, 2004 871267.75 0.119 0.401 0.083 NOV, 2004 837905.50 0.113 0.380 0.070 DEC, 2004 838642.75 0.148 0.438 0.092 JAN, 2005 837945.25 0.144 0.453 0.079 FEB, 2005 736961.00 0.116 0.460 0.092 MARCH, 2004 612409.25 0.123 0.391 0.094 0.124 0.315 THE ASSESSEE COMPANY HAS MADE EXPLANATION IN VARIANCE AS UNDER:- 'EXPLANATION FOR THE DIFFERENCE IN MONTHLY COSTING OF FUEL. THE LIGNITE IS AVAILABLE WAS ON BASIS OF QUOTA ALLOTTED BY G.M.D.C. IN CASE OF GAS WE HAVE TO UTILIZE THE MINIMUM OF 80% OF HOUR CONTRACTED QUANTITY. IF WE UTILIZE LESS THAN 80% OF THE CONTRACTED QUANTITY, WE HAVE TO PAY THE FULL CHARGES OF THE 80% OF THE QUANTITY. IF WE AVAIL MORE THAN CONTRACTED QUANTITY, WE HAVE TO PAY PREMIUM CHARGES ON THE CONTRACTED RATE. IN OUR CASE BECAUSE WE HAVE THE FACILITY TO USE EITHER GAS OR COAL IN OUR BOILER, WE UTILIZE THE FACILITY TO BALANCE THE SHORTAGE OF LIGNITE, COAL BY UTILIZING MORE QUANTITY OF GAS EVEN BY PAYING PREMIUM CHARGES. IN THE CASE OF OFF SEASON WE STORED THE LIGNITE COAL AND UTILIZED THE GAS SO THAT WE CAN UTILIZE 80% MINIMUM CONTRACTED QUANTITY OF GAS EVEN THE AVAILABILITY OF LIGNITE IS SERIOUSLY AFFECTED DURING THE PERIOD OF HEAVY RAINS AS IT IS SUPPLIED FROM THE OPEN MINES LOOKING TO ALL THESE FACTORS, WE HAVE TO BALANCE THE UTILIZATION OF GAS AND LIGNITE TO RUN OUR FACTORY. ANOTHER FACTOR IS THAT LIGNITE CAN BE STORED FOR UTILIZED IN THE MONSOON PERIOD WHILE GAS CONSUMPTION SHOWN IS THE ACTUAL CONSUMPTION PATTERN. HENCE, THE COST OF FUEL HAS TO BE CALCULATED BASED ON MIXED UTILIZATION OF BOTH GAS AND LIGNITE IN THE VARIFICATION MAY ALSO OCCURRED BECAUSE THE COST OF GAS IS CALCULATED ON ACTUAL UTILIZATION , WHILE THE COST OF LIGNITE BASED ON PURCHASED PRICE. EXPLANATION FOR THE DIFFERENCE IN MONTHLY COSTING OF COLOUR CHEMICALS AS WE ARE NOT MAINTAINING THE STOCK RECORD OF THE COLOUR CHEMICALS, WE HAVE TO MADE PURCHASE AS AND WHEN CIRCUMSTANCES ARISE AND AT ANY PRICE ITA NO. 1415/AHD/09 M/S KWALITY SILK PROCESSOR PVT. LTD VS.ITO ASST.YEAR 2005-06 - 12 - PREVALING IN THE MARKET AT THAT TIME. OTHER POINT IS THAT DIFFERENT QUALITY CONSUMED DIFFERENT COMPOSITION OF COLOR CHEMICALS SO THE COSTING DIFFERS DURING THE COMPARISON OF THE MONTH-WISE COSTING OF COLOUR CHEMICALS.OTHER POINT IS THAT THIS COSTING RELATES WITH PURCHASE PRICE AND NOT WITH ACTUAL CONSUMPTION AS WE ARE NOT MAINTAINING THE DAY TO DAY RECORDS OF STOCK. ON GOING THROUGH THE ABOVE EXPLANATIONS, IT IS NOTICED THAT THE ASSESSEE ITSELF SUGGESTED TO WORK OUT COST PER METER ON COMBINED CONSUMPTION OF COAL AND GAS BECAUSE THE COMPANY HAVE USED THEM SUBSTITUTE OF EACH OTHER. FIRST OF ALL, THE ARGUMENT IS NOT FOUND ACCEPTABLE AS COAL AND GAS HAVE BEEN UTILIZED AS SUBSTITUTE OF EACH OTHER BECAUSE SOME MACHINERIES CAN ONLY BE OPERATED THROUGH GAS AND SOME THROUGH COAL SECONDLY, THE ARGUMENT TO TREAT BOTH COMBINED AND COMPARE WITH THE PRODUCTION WAS AVAILABLE WITH THE ASSESSEE, HOWEVER, NO SUCH COMPARISON WAS MADE BUT SUGGESTED. EVEN THE SUGGESTION IS ACCEPTED, IT CAN ONLY BE COMPARED OUT OF VALUE PAID FOR CONSUMPTION OF BOTH ITEMS. HOWEVER, THE COMPARISON ITSELF SHOWS STILL DISCREPANCY BETWEEN ONE MONTH TO ANOTHER MONTH. AS REGARDS EXPLANATION OFFERED IN CONNECTION TO CONSUMPTION OF COLOUR CHEMICAL IS ALSO NOT ACCEPTABLE BECAUSE NEITHER THE ASSESSEE HAS PROVIDED MONTHLY QUANTITY NOR PROVIDED MONTHLY PER METER COST ARRIVED IN DIFFERENT MONTHS. IN VIEW OF ABOVE DISCUSSION, IT BECAME CLEAR THE ASSESSEE COMPANY HAS NOT PROVIDED QUANTITATIVE DETAILS AND NOT OFFERED SATISFACTORILY EXPLANATION IN CONNECTION TO DIFFERENCE IN CONSUMPTION OF COAL, GAS, ELECTRICITY IN DIFFERENT MONTHS. IF WE GO BY ABOVE CHART, IT CAN BE SEEN THAT THE ASSESSEE COMPANY COULD GET 1 METER PRODUCTION BY USING 0.108 UNITS ELECTRICITY IN THE MONTH OF AUGUST, 2004 WHEREAS THE COMPANY HAS CLAIMED ELECTRICITY CONSUMPTION FOR 1 METER AT 0.156 IN THE MONTH OF ITA NO. 1415/AHD/09 M/S KWALITY SILK PROCESSOR PVT. LTD VS.ITO ASST.YEAR 2005-06 - 13 - MAY, 2004 WHICH IS ALMOST 1 1 /2 TIMES IN COMPARISON TO AUGUST, 2004, HOWEVER, NO SATISFACTORILY EXPLANATION HAVE BEEN PROVIDED, IN THE CIRCUMSTANCES, HOW COULD THE BOOK RESULT BE ACCEPTED AS CORRECT. 8. APART FROM THE ABOVE, THERE WAS OTHER MISTAKES HAVE ALSO BEEN NOTICED IN THE DETAILS PROVIDED ON DIFFERENT DATES. FOR EXAMPLE THE ASSESSEE COMPANY PROVIDED SALE REGISTER FOR THE MONTH OF AUGUST, 2004 WHEREIR DISPUTED INVOICES OF BLEACHING CHARGES HAVE BEEN CLAIMED, SHOWS 'E' SUFFIXED INVOICES TOTAL QUANTITY AT 347130 METERS WHEREAS THE SEPARATE LIST PROVIDED OF THE SAME INVOICES THROUGH THE ACCOUNTANT ON 28.12.2007 SHOWS TOTAL QUANTITY AT 345804 METERS . IT IS ALSO NOTICED FROM THE ANNEXURE '3' TO AUDIT REPORT IN FORM NO.3CD THAT DUE DATES IN THE CASE OF EPF IN MONTHS STATED FROM SEPTEMBER, 2004 TO MARCH, 2005 HAVE WRONGLY BEEN MENTIONED. THE PRESENTATION OF DATA AND REPORTING BOTH ARE FOUND DOUBTFUL WHICH ALSO INDICATED UNRELIABILITY OF BOOKS OF ACCOUNTS. TO SUM UP ALL DISCREPANCIES AND DEFECTS POINTED OUT ABOVE, THE BOOK RESULT SHOWN BY THE ASSESSEE COMPANY IS NOT RELIABLE AND ACCEPTABLE. ACCORDINGLY, THE SAME IS HEREBY REJECTED BY INVOKING PROVISION OF SECTION 145(3) OF THE I.T. ACT AND THE ASSESSMENT IS FINALIZED IN THE MANNER PRESCRIBED U/S. 144 OF THE IT. ACT. AS FAR AS BOOK RESULT IS CONCERNED SUBJECT TO THE FOLLOWING REMARKS. B. V ALUATION OF CLOSING STOCK OF WORK-IN-PROGRESS 9. ON VERIFICATION OF SCHEDULE-G TO THE BALANCE-SHEET ENCLOSED WITH THE RETURN OF INCOME FILED, IT IS NOTICED THAT THE ASSESSEE COMPANY HAS SHOWN CLOSING STOCK OF COLOUR CHEMICAL AS UNDER:- . INVENTORIES:- COLOUR& CHEMICALS RS. 25,93,529 ITA NO. 1415/AHD/09 M/S KWALITY SILK PROCESSOR PVT. LTD VS.ITO ASST.YEAR 2005-06 - 14 - ON PERUSAL OF THE INVENTORY OF CLOSING STOCK FURNISHED BY THE ASSESSEE, IT IS SEEN THAT THE ASSESSEE HAS NOT SHOWN CLOSING STOCK OF WORK- IN-PROGRESS. IT IS PERTINENT TO MENTION HERE THAT THE FABRIC UNDER PROCESS BEARS PART OF EXPENSES INCURRED ON ACCOUNT OF COLOUR, CHEMICALS, WAGES, POWER AND FUEL, ETC. THEREFORE, ON 31.03.2005, THE FABRICS UNDER PROCESS CARRY SUCH EXPENDITURES WHICH FORMS PART OF CLOSING STOCK OF WIP. 10. IN THIS CONTEXT, RELIANCE IS PLACED UPON THE HON'BLE SUPREME COURT'S DECISION IN THE CASE OF CIT VS. BRITISH PAINTS INDIA LTD REPORTED IN 188 ITR 44. THE HON'BLE SUPREME COURT HAS HELD ASUNDER:- 'IT IS NOT ONLY THE RIGHT, BUT THE DUTY OF THE ASSESSING OFFICER TO CONSIDER WHETHER OR NOT THE BOOKS DISCLOSE THE TRUE STATE OF ACCOUNTS AND THE CORRECT INCOME CAN BE DEDUCED THERE FROM. IT IS INCORRECT TO SAY THAT THE OFFICER IS BOUND TO ACCEPT THE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE THE CORRECTNESS OF WHICH HAD NOT BEEN QUESTIONED IN THE PAST. THERE IS NO ESTOPPEL IN THESE MATTERS AND THE OFFICER IS NOT BOUND BY THE METHOD FOLLOWED IN THE EARLIER YEARS'. THEREFORE, THE VALUE OF CLOSING STOCK OF WIP HAS TO BE WORKED OUT AND ADDED TO THE TOTAL INCOME. THE ASSESSEE COMPANY WAS SPECIFICALLY ASKED VIDE PARA-8 OF THIS OFFICE LETTER DATED 23.11.2007 TO PROVIDE DETAIL OF WORK IN PROGRESS. THE RELEVANT PORTION IS REPRODUCED HEREUNDER :- IT IS NOTICED FROM VALUATION OF STOCK THAT YOU HAVE NOT' SHOWN VALUE OF WORK IN PROGRESS, WHY THE WORK IN PROGRESS SHOULD NOT BE DETERMINED ON THE BASIS OF DATA MADE AVAILABLE ON RECORD. IF YOU HAVE ANY YOUR OWN WORKING, THE SAME PLEASE BE FURNISHED WITH YOUR ARGUMENTS AND EVIDENCES OTHERWISE 7 DAYS PRODUCTION WILL BE CONSIDERED SPAN OF FINISHED PRODUCTION AND VALUATION OF WORK IN PROGRESS WILL BE MADE. ITA NO. 1415/AHD/09 M/S KWALITY SILK PROCESSOR PVT. LTD VS.ITO ASST.YEAR 2005-06 - 15 - IN RESPONSE, THE ASSESSEE COMPANY ADMITTED THAT THE VALUATION OF WORK-IN-PROGRESS WAS NOT MADE AND SHOWN IN THE RETURN OF INCOME. HOWEVER, THE ASSESSEE COMPANY ITSELF WORKED OUT VALUE OF WORK IN PROGRESS BY TAKING ITS OWN FORMULA. THE RELEVANT REPLY IS MADE AVAILABLE HEREUNDER FOR READY REFERENCE:- WE HAVE NOT TAKEN THE WORK IN PROGRESS IN THE VALUATION OF CLOSING STOCK AS WE HAVE MAINLY THE STOCK OF COLOUR CHEMICALS IN THE FACTORY. STOCK OF COLOUR CHEMICALS IS MAINLY IN DRUM AND ON THE MACHINES. THE TOTAL STOCK POSITION IN COMPARE TO THE BUSINESS ACTIVITY IS VERY LESS. WE ARE FOLLOWING THIS METHOD OF VALUING THE STOCK SINCE LONG RATHER FROM THE INCEPTION OF THE MILL ABOUT 26 YEARS BACK. YOUR HONOR, AS PER YOUR REQUIREMENTS WE HAVE MADE VALUATION OF WORK IN PROGRESSES UNDER. WE HAVE SUBMITTED THE LOT REGISTER AS ON DATE OF 31.03.2004 WHERE IT REFLECTS THAT ISSUED GREY QUANTITY FOR THE PRODUCTION IS OF 1,97,261 MTS. GREY QUANTITY ISSUED FOR PRODUCTION 1,97,261 MTS LESS : SHRINKAGE @ 15% 29,589 MTS NET QUANTITY 1,67,672 MTS AVERAGE RATE OF JOB CHARGES IS RS. 6.88 LESS: G.P, @ 18.63% RS. 1.28 NET RATE COST OF GOODS RS. 5.60 50% OF COST OF GOODS RS. 2.80 2.80 VALUATION OF CLOSING STOCK ON 1,67,672MTS. @ RS. 2.80 AMOUNT OF CLOSING STOCK IS WORKED OUT AT RS. 4,69,481.60 WE CANNOT CONSIDER THE 7 DAYS PRODUCTION FOR THE PURPOSE OF THE VALUATION OF CLOSING STOCK. AS MANY TIMES WE RECEIVED THE GOODS, IN THE FIRST WEEK OF MONTH OF APRIL AND WHICH IS DISPATCHED IN THE SAME WEEK. ANOTHER MAIN REASON IS THAT THE GREY FABRICS WHICH IS LYING IN THE GODOWN AT THE END OF THE YEAR WHICH IS ISSUED IN THE PRODUCTION IN THE FIRST WEEK OF APRIL AND CLEARED IN THE SAME WEEK. DUE TO THESE TWO REASONS WE ARE OF THE OPINION FOR THE VALUATION OF CLOSING STOCK ON THE BASIS OF ABOVE CALCULATION. FOR THE JUSTIFICATION IN THIS POINT WE HAVE ATTACHED LOT REGISTER OF APRIL, 2005 FOR YOUR KIND CONSIDERATION WHERE IT IS CLEARLY REFLECTED THAT GREY CLOTH RECEIVED IN THE FIRST WEEK OF THE MONTH OF APRIL AND WHICH IS DISPATCHED IN THE SAME WEEK. WE HAVE ALSO ITA NO. 1415/AHD/09 M/S KWALITY SILK PROCESSOR PVT. LTD VS.ITO ASST.YEAR 2005-06 - 16 - HIGHLIGHTED FEW OF THE INSTANCES FOR YOUR READILY REFERENCE. OTHER SUCH TRANSACTIONS ARE O THERE.' 11. THE ASSESSEE COMPANY HAS RELIED UPON ITS LOT REGISTER WHICH IS FOUND CORRECT WHILE VERIFYING THE INVOICES ISSUED BY SUFFIX 'E' IN THE MONTH OF AUGUST-2004 AND WITHIN THE REGULAR SERIES OF INVOICES. THE QUANTITY OF GRAY WORKED OUT BY THE ASSESSEE IS NOT TAKEN BASE EVEN IT COMES MORE, BOOK RESULT OF THE ASSESSEE COMPANY HAS ALREADY BEEN REJECTED BY INVOKING PROVISION OF SECTION 145(3) OF THE IT. ACT, ACCORDINGLY, THE ISSUE IS DETERMINED IN THE MANNER PRESCRIBED U/S 144 OF THE I.T. ACT. THE ASSESSEE PROCESSED 8167232.75 METERS DURING THE YEAR UNDER CONSIDERATION. TAKING INTO CONSIDERATION 26 DAYS AS WORKING DAYS PER MONTH, THE TOTAL OF THE YEAR WORKS OUT TO 312 DAYS, THE AVERAGE OF PROCESS OF CLOTH PER DAY WORKED OUT TO 26177 METERS. IT IS COMMON KNOWLEDGE THAT TO COMPLETE A CIRCLE OF PROCESS IN TEXTILE PROCESSING UNIT, IT TAKES AT LEAST FIVE DAYS. THEREFORE, A LOT OF GREY CLOTH PUT TO PROCESS ON FIRST DAY COMES OUT ON 6 TH DAY DULY PROCESSED. THEREFORE, IT CAN BE HELD THAT THE ASSESSEE MUST FIVE DAYS WORK-IN-PROCESS AS ON 31.03.2005. THIS WORKS OUT TO 26177 METERS X 5 DAYS = 130885 METERS. THE AVERAGE COST OF PROCESSING CHARGES PER METER WORKS OUT AT RS.5.6/- (GROSS RECEIPTS - GROSS PROFIT = COST METER PROCESSED = 56164324.31 - 10462080.32 = 45702244/8167232.75 = 5.6). CONSIDERING THE VARIOUS STAGES OF PROCESS, IT WOULD BE REASONABLE TO ADOPT 50% I.E. RS.2.8/- PER METER FOR ARRIVING AT VALUE OF WORK-IN-PROCESS. THEREFORE, THE CLOSING STOCK OF WORK-IN-PROCESS IN THIS CASE IS WORKED OUT AT RS. 3,66,478/- (130885 METERS X RS.2.8 = 3,66,478/-). SINCE THE ASSESSEE HAS NOT SHOWN THE CLOSING STOCK OF WIP AND PROFIT TO THAT EXTENT IS SUPPRESSED, IT IS NECESSARY TO ADD THE WORK-IN- ITA NO. 1415/AHD/09 M/S KWALITY SILK PROCESSOR PVT. LTD VS.ITO ASST.YEAR 2005-06 - 17 - PROGRESS TO ARRIVE AT THE CORRECT PROFIT OF THE BUSINESS OF THE ASSESSEE. THEREFORE, THE WORK-IN-PROGRESS OF RS. 3,66,478/- AS WORKED OUT ABOVE IS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. SINCE THE ASSESSEE COMPANY HAS FURNISHED ITS INACCURATE PARTICULARS OF INCOME, THE PENALTY PROCEEDINGS U/S. 271(1) (C) R.W. EXPLANATION 1 THERETO IS INITIATED. 12. THE ASSESSEE COMPANY HAS PROPOSED SUPPRESSED VALUE OF WORK IN PROGRESS AT RS. 4, 69,481. 60 BUT THE SAME HAS BEEN WORKED OUT ON THE BASIS OF LOT REGISTER AND OTHER SUBSIDIARY RECORD WHICH WAS NOT FOUND CORRECT AND RELIABLE IN CONNECTION TO VERIFICATION OF OTHER ISSUES, ACCORDINGLY, THE VALUE OF WORK IN PROGRESS PROPOSED BY THE ASSESSEE IS NOT ACCEPTED EVEN THOUGH THE SAME IS MORE THAN THE VALUE OF WIP DETERMINED BY THIS OFFICE ABOVE I.E. RS. 3,66,4787-. C. LOW GROSS PROFIT RATIO 13. THE ASSESSEE COMPANY HAS PROVIDED COMPARATIVE CHART OF GROSS PROFIT AS UNDER. A.Y. 2003-04 2004-05 2005-06 G.P. 19.65% 12.91% 18.63% TURNOVER 5,52,11,454 4,11,55,697 5,61,64,324 IT CAN BE SEEN FROM THE ABOVE CHART OF GROSS PROFIT SUBMITTED BY THE ASSESSEE COMPANY THAT THE GROSS PROFIT HAS BEEN FALLEN DOWN IN COMPARISON TO A.Y. 2003-04 I.E. FROM 19.65% TO 18.63%. THE ASSESSEE COMPANY WAS SPECIFICALLY ASKED VIDE PARA-10 OF THIS OFFICE LETTER DATED 5.10.2007 TO GIVE THE REASON FOR FALL IN GP IN COMPARISON TO EARLIER YEARS WITH SUPPORTING EVIDENCES. IN RESPONSE, THE ASSESSEE COMPANY SUBMITTED THAT THE FACTORY OF THE ASSESSEE COMPANY WAS COLLAPSED IN THE MONTH OF ITA NO. 1415/AHD/09 M/S KWALITY SILK PROCESSOR PVT. LTD VS.ITO ASST.YEAR 2005-06 - 18 - AUGUST, 2004 SO THAT THE GP OF THE ASSESSEE COMPANY WAS LOWER THAN AVERAGE MAINTAINED FROM LAST THREE YEARS. THE ARGUMENT ITSELF IS NOT FACTUALLY CORRECT BECAUSE THE GP RATIO SHOWN FOR THE YEAR UNDER CONSIDERATION HAS BEEN FALLEN DOWN BY 1.02% IN COMPARISON TO A.Y. 2003-04. THE COMPARISON FROM PREVIOUS YEAR I.E. 2004-05 COULD NOT BE MADE BECAUSE THAT WAS THE EXCEPTIONAL YEAR WHEN FACTORY WAS COLLAPSED. NO SATISFACTORY EXPLANATION WAS PROVIDED BY THE ASSESSEE COMPANY. ACCORDINGLY, ONCE AGAIN THIS ISSUE WAS RAISED VIDE PARA-9 OF THIS OFFICE LETTER DATED 23.11.2007. IN RESPONSE THE ASSESSEE COMPANY SUBMITTED AS UNDER: ' OUR G.P. REDUCED IN THE YEAR 2004-05 IS DUE TO EXCISE EXPENSES OF RS.7,10,524/- HAS BEEN DEBITED TO PROFIT & LOSS ACCOUNT. THIS EXPENSE IS TO BE INCURRED DUE TO SURRENDER OF THE EXCISE LICENSE AND SHORT OF CENVAT CREDIT ON CLEARANCE OF EXCISABLE GOODS.' THE CLARIFICATION MADE BY THE ASSESSEE COMPANY ABOVE IN CONNECTION TO FALL G.P. FROM A.Y. 2003-04 IN COMPARISON TO THE YEAR UNDER CONSIDERATION IS NOT ACCEPTABLE BECAUSE THE ENTRY PASSED IN PROFIT & LOSS ACCOUNT COULD NOT AFFECT GROSS PROFIT. THE BOOK RESULT OF THE ASSESSEE COMPANY HAS ALREADY BEEN REJECTED BY INVOKING PROVISION OF SECTION 145(3) OF THE I.T. ACT, ACCORDINGLY, THE ISSUE IS DETERMINED IN THE MANNER PRESCRIBED U/S 144 OF THE I.T. ACT. IN THIS CONNECTION RELIANCE IS PLACED ON A JUDGMENT OF THE PUNJAB & HARYANA HIGH COURT GIVEN IN THE CASE OF SHRI SURINDER KUMAR CHARANJEET KUMAR AS REPORTED IN 282 ITR 78. IN THIS CASE, THE COURT HAS HELD THAT LOW GROSS PROFIT COUPLED WITH OTHER RELEVANT CIRCUMSTANCES LIKE NON MAINTENANCE OF STOCK REGISTER COUPLED WITH OTHER IRREGULARITIES IS SUFFICIENT GROUND FOR DETERMINING THE INCOME ITA NO. 1415/AHD/09 M/S KWALITY SILK PROCESSOR PVT. LTD VS.ITO ASST.YEAR 2005-06 - 19 - ON THE BASIS OF GP DECLARED IN THE PRECEDING YEAR. IN VIEW OF THE ABOVE FACTS, THE GP OF THE A.Y. 2003-04 OF THE ASSESSEE IS TAKEN BASE FOR THE YEAR UNDER CONSIDERATION BECAUSE IMMEDIATE PREVIOUS YEAR G.P. WAS ABNORMAL AS ADMITTED BY THE ASSESSEE ITSELF. THE G.P. IS DETERMINED AT 119.65% AS SHOWN IN THE A.Y. 2003-04 FOR THE YEAR UNDER CONSIDERATION, THE GROSS PROFIT COMES BY APPLYING THIS RATE OF RS. 1,10,36,290/- WHEREAS THE ASSESSEE COMPANY ITSELF HAS SHOWN GROSS PROFIT RS. 1,04,62,000/-. THE DIFFERENCE BETWEEN THE TWO I.E. RS. 5,74,290/- IS THEREFORE, REQUIRED TO BE ADDED TO THE TOTAL INCOME OF THE ASSESSEE COMPANY BUT THE SEPARATE ADDITION ON ACCOUNT OF VALUATION OF WIP HAS BEEN MADE OF RS. 3,66,478/- WHICH ULTIMATELY FORM THE PART OF GROSS PROFIT, ACCORDINGLY, THE DIFFERENCE OF RS. 2,07,812/- IS TREATED SUPPRESSION OF GROSS PROFIT AS DISCUSSED ABOVE. SINCE THE ASSESSEE COMPANY HAS FURNISHED ITS INACCURATE PARTICULARS OF INCOME, THE PENALTY PROCEEDINGS U/S. 271(1) (C) R.W. EXPLANATION 1 THERETO IS INITIATED. D. PROCESSING OF GREY CLOTH UNDER INVOICE OF BLEACHING CHARGES: 14. ON VERIFICATION OF SALE REGISTER, IT WAS NOTICED THAT AFTER SERIAL INVOICE NO. 1962 DATED 05.08.2004, THE SERIAL INVOICE NO. 1629/E DATED 06.08.2004 WAS MENTIONED WHICH WAS NOT ROUTINELY POSSIBLE. THE SR. NO.1629 COMES AFTER 1962 NOT BEFORE IT AS CLAIMED BY THE ASSESSEE COMPANY. WITH THE GAP OF SOME INVOICES ISSUED, SERIAL NO. 1963 STARTED ON 06.08.2004. NATURALLY, THE BREAK IN SR. NO. OF INVOICES ISSUED CREATED SUSPICION. IT BECAME MORE DOUBTFUL WHEN SR. NO. INSERTED IN REGULAR SERIES, HAVE BEEN FOUND @ RS.1.60 PER METER ONLY IN THE FORM ITA NO. 1415/AHD/09 M/S KWALITY SILK PROCESSOR PVT. LTD VS.ITO ASST.YEAR 2005-06 - 20 - OF BLEACHING CHARGES WHEREAS OTHER INVOICES WERE CLAIMED AS PRINTING CHARGES HAVING VALUE PER METER FROM RS. 6 TO 10 AND EVEN MORE. THE ASSESSEE COMPANY HAS BEEN DEALING IN PRINTING JOB WORK NOT DEALING IN PART PROCESSING SUCH AS BLEACHING, WASHING, DYEING, FINISHING ETC. INTERESTINGLY, THE CLAIM OF BLEACHING CHARGES WERE MADE IN THE MONTH OF AGUST-2004 ONLY. THE INVOICES ISSUED UNDER THIS CATEGORY WITH SPECIFIC MODUS OPERENDI BY SUFFIXING 'E' AFTER THE INVOICE NUMBER. FOR EXAMPLE- 1629/E, 1889/E ETC. THE FOLLOWING INVOICES WERE ISSUED DURING THE YEAR UNDER CONSIDERATION IN THIS MODUS OPERENDI. SR.NO. DATE INVOICE NO. NAME OF THE PARTY QTY. RATE AMOUNT RS. 1. 06.08.2004 1629/E PONDS INTERNATIONAL 653.00 6062.00 1.60 1.60 10744 2. 06.08.2004 1630/E PONDS SAREES 1977.00 1.60 3163 3. 06.08.2004 1631/E ANIL SILK MILLS 417.00 1650.00 1287.00 1.60 1.60 1.60 5366 4. 06.08.2004 1632/E ANIL SILK MILLS 4768.00 1.60 7629 5. 06.08.2004 1633/E ANIL SILK MILLS 5887.00 1.60 9419 6. 06.08.2004 1634/E ANIL SILK MILLS 6728.00 1.60 10765 7. 06.08.2004 1635/E ANIL SILK MILLS 6471.00 1.60 10354 8. 06.08.2004 1636/E ANIL SILK MILLS 6815.00 1.60 10904 9. 06.08.2004 1637/E ANIL SILK MILLS 5648.00 1.60 9037 10. 07.08.2004 1638/E ANIL SILK MILLS 3952.00 1.60 6323 11. 07.08.2004 1639/E ANIL SILK MILLS 5657.00 1.60 9051 12. 07.08.2004 1640/E SHUBH CREATION 2902.00 1.60 4643 13. 07.08.2004 1641/E SHUBH CREATION 1594.00 1943.00 1.60 5659 14. 07.08.2004 1642/E SHUBH CREATION 5207.00 1.60 8331 15. 07.08.2004 1643/E SHUBH CREATION 4272.00 1.60 6835 16. 07.08.2004 1644/E SHUBH CREATION 5322.00 1.60 8515 17. 07.08.2004 1645/E SHUBH CREATION 4787.00 1.60 7659 18. 07.08.2004 1646/E SHUBH CREATION 5661.00 1.60 9058 19. 07.08.2004 1647/E SHUBH CREATION 5484.00 1.60 8774 20. 09.08.2004 1658/E RANI SATI SILK MILLS 5430.00 1.60 8688 21. 09.08.2004 1659/E RANI SATI SILK MILLS 1680.00 1.60 2688 22. 10.08.2004 1670/E VIVALON SILK MILLS 5539.00 1.60 8862 ITA NO. 1415/AHD/09 M/S KWALITY SILK PROCESSOR PVT. LTD VS.ITO ASST.YEAR 2005-06 - 21 - 23. 10.08.2004 1671/E VIVALON SILK MILLS 6445.00 1.60 10312 24. 10.08.2004 1672/E VIVALON SILK MILLS 4372.00 1.60 6995 25. 10.08.2004 1673/E BALAJI INTERNATIONAL 1288.00 1.60 2061 26. 10.08.2004 1674/E SHANKESHWAR PRINTS 720.00 1.60 1152 27. 10.08.2004 1675/E SUKH SHANTI TAXTILES 578.00 1025.00 2981.00 1.60 7334 28. 11.08.2004 1684/E SHUBHAM SAREES 2611.00 1.60 4178 29. 11.08.2004 1685/E SUBHAM SAREES 990.00 1.60 1584 30. 11.08.2004 1686/E M. RAKESH KUMAR 1129.00 1.60 1806 31. 11.08.2004 1687/E MAYUR FABRIC 1051.00 1054.00 1.60 3368 32. 11.08.2004 1688/E SHUBHAM PRINTS 1133.00 1.60 1813 33. 11.08.2004 1689/E PAVITRA SILK MILLS 2299.00 1.60 3678 34. 11.08.2004 1690/E PAVITRA SILK MILLS 719.00 1.60 1150 35. 11.08.2004 1691/E SUKH SHANTI TEXTILES 5279.00 1.60 8446 36. 11.08.2004 1692/E HEM TEX SAREES 3450.00 1.60 5520 37. 11.08.2004 1693/E DOLLY TEX 5992.00 1.60 9299 38. 11.08.2004 1694/E DOLLY TEX 6383.00 1.60 9907 39. 11.08.2004 1695/E DOLLY TEX 5653.00 1.60 8774 40. 11.08.2004 1696/E DOLLY TEX 6292.00 1.60 9764 41. 11.08.2004 1697/E DOLLY TEX 6341.00 1.60 9842 42. 11.08.2004 1698/E DOLLY TEX 2213.00 1.60 3392 43. 18.08.2004 1731/E SANKATMOCHAN TEXTILES 346.00 1.60 554 44. 18.08.2004 1732/E AMBAJI TEXTILES 534.00 1.60 853 45. 18.08.2004 1733/E ANJALI TEX PRINTS 1103.00 1.60 1765 46. 18.08.2004 1734/E SHEELA ENTERPRISE 1143.00 1.60 1829 47. 18.08.2004 1735/E TARIKA PRINTS 1139.00 1.60 1822 48. 18.08.2004 1737/E MAMTA PRINT 3085.00 1.60 4936 49. 18.08.2004 1738/E JAIN FASHION 1088.00 1.60 1741 50. 18.08.2004 1739/E MUKESH SILK MILLS 1662.00 1.60 2659 51. 19.08.2004 1740/E BABAJI INTERNATION 1454.00 1.60 2326 52. 19.08.2004 1741/E SAMRIDDHI SAREES 563.00 1.60 901 53. 19.08.2004 1742/E SHAKTI PRINTS 732.00 1.60 1171 54. 19.08.2004 1743/E DIPTI PRINTS 6735.00 1.60 10776 55. 19.08.2004 1744/E DIPTI PRINTS 5944.00 1.60 9510 56. 19.08.2004 1749/E DIPTI PRINTS 2998.00 2705.00 1.60 9125 ITA NO. 1415/AHD/09 M/S KWALITY SILK PROCESSOR PVT. LTD VS.ITO ASST.YEAR 2005-06 - 22 - 57. 19.08.2004 1750/E DIPTI PRINTS 1053.00 1183.00 1.60 3578 58. 19.08.2004 1751/E HEMTEX INTERNATIONAL 559.00 1.60 894 59. 19.08.2004 1752/E SUKH SHANTI TAXTILES 767.00 2109.00 1.60 4602 60. 19.08.2004 1753/E ANIL SILK MILLS 640.00 1.60 1024 61. 19.08.2004 1754/E SHUBH CREATION 162.00 1.60 259 62. 19.08.2004 1755/E ANKIT SYNDICATE 5028.00 1.60 8045 63. 19.08.2004 1756/E ANKIT SYNDICATE 3839.00 1.60 6142 64. 19.08.2004 1757/E RANI SATI SILK MILLS 965.00 1.60 1544 65. 19.08.2004 1758/E DADIMA FASHION PVT.LTD. 365.00 1.60 584 66. 20.08.2004 1765/E SHRI NAHAR SAREES 2099.00 1.60 3358 67. 20.08.2004 1766/E VIRLON SILK MILLS 565.00 1.60 900 68. 20.08.2004 1767/E BABILON TEXTILES 368.00 352.00 1.60 1152 69. 20.08.2004 1768/E SHUBH CREATION 1024.00 396.00 1.60 2272 70. 20.08.2004 1769/E MANU FABRICS 736.00 1.60 1178 71. 20.08.2004 1770/E ASHWIN SHANTILAL SHAH & CO. 878.00 1.60 1002 72. 20.08.2004 1771/E ANKITA EXPORTS 1080.00 1.60 20745 73. 20.08.2004 1772/E K K TEX 1190.00 1.60 1904 74. 20.08.2004 1773/E DIPTI PRINTS 6418.00 1.60 10269 75. 20.08.2004 1774/E DIPTI PRINTS 1623.00 1.60 2597 76. 21.08.2004 1779/E DIPTI PRINTS 6376.00 1.60 10202 77. 21.08.2004 1780/E DIPTI PRINTS 5418.00 1.60 8669 78. 21.08.2004 1781/E JAIN PRINTS 6377.00 1.60 18476 79. 21.08.2004 1782/E JAIN PRINTS 2157.00 1.60 6184 80. 23.08.2004 1783/E DIPTI PRINTS 4381.00 1.60 7010 81. 23.08.2004 1784/E SAMRIDHI SAREES 559.00 1.60 894 82. 23.08.2004 1785/E RASHMI PRINTS 1058.00 1.60 1693 83. 23.08.2004 1786/E ANIL SILK MILLS 1064.00 368.00 1.60 2291 84. 23.08.2004 1787/E JAIN FASHION 520.00 1.60 832 85. 23.08.2004 1788/E SHANKESHWAR PRINTS 377.00 1.60 603 86. 23.08.2004 1789/E SURUCHI PRINTS 348.00 374.00 1.60 1155 87. 23.08.2004 1790/E SHOBHIT TEXTILES 694.00 1.60 500 88. 23.08.2004 1791/E INDER SILK MILLS 1090.00 1.60 1744 89. 23.08.2004 1792/E AASHIRWAD 1326.00 1.60 2122 ITA NO. 1415/AHD/09 M/S KWALITY SILK PROCESSOR PVT. LTD VS.ITO ASST.YEAR 2005-06 - 23 - CREATION 90. 24.08.2004 1804/E MANISH TEXTILES 3338.00 4.33 14454 91. 24.08.2004 1805/E MANISH TEXTILES 75.00 3.24 243 92. 24.08.2004 1806/E MANISH TEXTILES 1403.50 3.24 4547 93. 24.08.2004 1807/E MANISH TEXTILES 100.00 4.33 433 94. 24.08.2004 1808/E MANISH TEXTILES 1455.00 2.97 4320 95. 24.08.2004 1809/E MANISH TEXTILES 667.00 6.49 4329 96. 24.08.2004 1810/E MANISH TEXTILES 1188.00 2.97 0 97. 24.08.2004 1811/E MANISH TEXTILES 96.00 4.32 415 98. 24.08.2004 1812/E MANISH TEXTILES 85.00 2.97 252 99. 24.08.2004 1813/E MANISH TEXTILES 92.00 3.78 348 100. 24.08.2004 1814/E VISHAL SILK MILLS 3174.00 1.60 5078 101. 24.08.2004 1815/E REETEX 2118.00 1.60 3389 102. 24.08.2004 1816/E REETEX 1124.00 1.60 1798 103. 24.08.2004 1817/E BHARATI SILK MILLS 3116.00 1.60 4986 104. 24.08.2004 1818/E R TEX SYNTHETICS 1820.00 1.60 2912 105. 25.08.2004 1822/E BHARTI PRINTS 726.50 7.00 5086 106. 25.08.2004 1823/E BHARTI PRINTS 733.00 7.00 5131 107. 25.08.2004 1824/E SHRI NAHAR SAREES 709.50 10.00 7095 108. 25.08.2004 1829/E MEHUL SAREES 354.00 9.00 3186 109. 26.08.2004 1832/E MAMTA PRINTS 723.00 10.00 7230 110. 27.08.2004 1833/E MANU FABRICS 347.00 10.00 3470 111. 27.08.2004 1834/E K K TEX 1009.50 7.00 6784 112. 27.08.2004 1835/E RAJESH ENTERPRISES 393.00 6.50 2475 113. 27.08.2004 1837/E SAMRIDHI SAREES 180.00 7.00 1260 114. 27.08.2004 1838/E SABRANG SAREES 145.00 7.00 1015 115. 27.08.2004 1839/E SHUBH CREATION 212.00 7.00 1484 116. 27.08.2004 1840/E JAIN FASHION 644.00 7.00 4508 117. 27.08.2004 1841/E SHOBHIT TEXTILES 361.00 7.00 127 118. 27.08.2004 1842/E SHRUCHI PRINTS 370.00 7.00 2590 119. 27.08.2004 1843/E JAIN PRINTS 1010.00 7.00 8656 120. 27.08.2004 1844/E VIMALNATH TEXTILES 696.00 7.00 4872 121. 27.08.2004 1845/E SHILA ENTERPRISE 1232.00 1.60 1971 122. 27.08.2004 1846/E ANKIT SYNDICATE 2141.00 1.60 3426 123. 27.08.2004 1847/E DIPTI PRINTS 632.00 1.60 1011 124. 27.08.2004 1848/E BABILON SILKS 1010.00 7.00 7070 125. 27.08.2004 1849/E JAIN FASHION 498.00 7.00 3486 126. 27.08.2004 1850/E ST CORPORATION 544.00 7.00 0 127. 27.08.2004 1860/E SARASWATI SILK MILLS 1156.00 1.60 1850 128. 27.08.2004 1861/E SHAKTI PRINTS 362.00 1.60 579 129. 27.08.2004 1862/E VINNER SILK FABRICS 362.00 1.60 58 130. 27.08.2004 1863/E SHRI NAHAR SAREES 6417.00 1.60 10267 ITA NO. 1415/AHD/09 M/S KWALITY SILK PROCESSOR PVT. LTD VS.ITO ASST.YEAR 2005-06 - 24 - 131. 27.08.2004 1864/E SHRI NAHAR SAREES 6458.00 1.60 10333 132. 28.08.2004 1865/E SHRI NAHAR SAREES 6324.00 1.60 10118 133. 28.08.2004 1866/E SHRI NAHAR SAREES 6459.00 1.60 10334 134. 28.08.2004 1867/E SHRI NAHAR SAREES 3240.00 1.60 5184 135. 28.08.2004 1878/E MUKESH SILK MILLS 336.00 7.00 2352 136. 28.08.2004 1879/E VIMALNATH TEXTILES 736.00 7.00 5152 137. 28.08.2004 1883/E BANSI SYNFAB 501.00 7.00 317 138. 28.08.2004 1884/E VIMALNATH TEXTILES 729.00 7.00 5103 139. 31.08.2004 1885/E SARASWATI SILK MILLS 299.00 7.00 2093 140. 31.08.2004 1886/E NIL FAB 987.00 7.00 6909 141. 31.08.2004 1887/E KHODRDIA SILK MILLS 596.00 7.00 4000 142. 31.08.2004 1888/E BANSI SYNFAB 2072.00 7.00 13923 143. 31.08.2004 1889/E SHRI NAHAR SAREES 671.00 7.00 4697 347130.00 689940 15. DURING THE COURSE OF HEARING, THE ASSESSEE COMPANY WAS ASKED TO PRODUCE MONTHLY CHART OF JOB RECEIPT, PRODUCTION, SALES ETC. IN QUANTITY. THE ASSESSEE COMPANY PROVIDED MONTHLY CHART OF JOB RECEIPTS, PRODUCTION AND SALES IN QUANTITY BUT IT WAS NOTICED OUT OF THE SAID QUANTITATIVE DETAILS THAT THE ASSESSEE COMPANY HAS SHOWN QUANTITY OF PRODUCTION 345812.75 MTS. IN THE MONTH OF AUGUST, 2004 UNDER STARS, I.E. * 345812.75 * OTHER THAN THE PRODUCTION QUANTITY OF 627291 MTS. TO EXPLAIN THE MEANING OF A STAR, THE ASSESSEE COMPANY PLACED THE NOTE UNDER THE CHART * AFTER 9.07.2004 CLEARANCE WERE EXCISE DUTY FREE (EXEMPTION). IT WAS NOT - UNDERSTOOD WHY THE ASSESSEE COMPANY CLAIMED PRODUCTION SEPARATELY IN THE MONTH OF AUGUST, 2004 AT 345812.75 METERS OTHER THAN REGULAR PRODUCTION. THE CHART SUBMITTED BY THE ASSESSEE COMPANY IS ENCLOSED AS ANNEXURE-A TO THE PART OF THIS ORDER FOR BETTER UNDERSTANDING. NATURALLY, THE ISSUE WAS RAISED BEFORE THE AR OF THE ASSESSEE COMPANY AND REQUESTED HIM TO PRODUCE RELEVANT RECORD SUCH AS JOB INVOICES SINCE REGISTER ETC. ON GOING THROUGH THE SALES REGISTER, IT WAS NOTICED THAT THE ASSESSEE COMPANY BREAK THE SR. NO. 1962 AND STARTED SR. NO. 1629/E ON ITA NO. 1415/AHD/09 M/S KWALITY SILK PROCESSOR PVT. LTD VS.ITO ASST.YEAR 2005-06 - 25 - 6.08.2004 AND SO ON TILL SR. NO. 1637/E, DATED 6.08.2004 AND THEN CONTINUE SR.NO.1963, DATED 06.08.2004. IN OTHER WORDS 09(NINE) BILLS STARTING FROM 1629 TO 1637 HAVE BEEN ENTERED BETWEEN REGULAR SR.NO1962 AND SR. NO. 1963. THE AR OF THE ASSESSEE COMPANY FURNISHED EXPLANATION IN THIS REGARD SEPARATELY. THE EXPLANATION SUBMITTED IS REPRODUCED HEREUNDER FOR READY REFERENCE:- 'THE DELIVERY OF PROCESS FABRICS WHICH WERE STARTED TO THE TRADERS ON OR AFTER 10 TH JULY, 2004, WHERE UNDER TWO CATEGORIES NAMELY PROCESS FABRICS ON WHICH MADVAT/CENVAT CREDIT AVAILED BEFORE 9 TH JULY 2004 AND SECONDLY PROCESS FABRICS ON WHICH MADVAT/CENVAT CREDIT WAS NOT AVAILED WHICH WERE RECEIVED BY US A GREY FROM AFTER 9 TH JULY 2004. THE EXCISE WAS PAYABLE ON THE DELIVERY OF PROCESS FABRICS OF THE FIRST CATEGORY WHILE NO EXCISE WAS PAYABLE ON THE SECOND CATEGORY. HENCE FOR THE FIRST CATEGORY, AS PER THE EXCISE ACT, WE WERE REQUIRED TO PREPARE THE PRESCRIBED INVOICES UNDER RULE 52A AND 173 G. WHILE FOR THE DELIVERY OF SECOND CATEGORY WE WERE TO REQUIRE TO PREPARE THE COMMERCIAL INVOICE FOR OUR JOB CHARGES. FOR SIMPLIFICATION OF OUR ACCOUNTING PURPOSE TO RECOVER THE CHARGES AS PER THE INVOICES PREPARED FOR THE BOTH CATEGORIES WE ADOPTED THE METHOD THAT FOR FIRST CATEGORY, THAT IS IN WHICH WAS EXCISE TO BE PAID, WE PREPARED COMMERCIAL INVOICE ALSO, SO THE AMOUNT OF JOB CHARGES DUE TO US FROM THE TRADERS. HENCE, FOR FIRST CATEGORY THE INVOICE WAS PREPARED AS PRESCRIBE BY THE EXCISE ACT, AND THE OTHER COMMERCIAL INVOICE FOR THE SOME GOODS WAS PREPARED FOR OUR ACCOUNTING PURPOSES. THE EXCISE INVOICE ON 10 TH JULY, 2004 WAS PREPARED WITH THE ACTUAL SERIAL NUMBER THAT IS INVOICE NO. 1286 THE COMMERCIAL INVOICE PREPARED FOR THE SOME GOODS ON THE SOME DATE FOR ACCOUNT PURPOSES WAS TO BE NUMBERED THE SAME THAT IS NO. 1286, JUST TO MAINTAIN HARMONY. HOWEVER, DUE TO MISCOMMUNICATION, BETWEEN THE EXCISE CLERK AND THE ACCOUNT CLERK THE SAME WAS NUMBERED AS 1288. HENCE, WHEN THE EXCISE INVOICE WERE PREPARED AFTER THE FIRST INVOICE MENTION ABOVE AND CORRESPONDING COMMERCIAL INVOICE WERE PREPARED FOR THE SAME LOT, THE DIFFERENCE IN NUMBERED OF INVOICES FOLLOWED THE SAME PATTERN ITA NO. 1415/AHD/09 M/S KWALITY SILK PROCESSOR PVT. LTD VS.ITO ASST.YEAR 2005-06 - 26 - E.G. EXCISE INVOICE NO. 1343 AND COMMERCIAL INVOICE NO. 1345. THERE AFTER THE DELIVERY OF THE PROCESS FABRICS RECEIVED AFTER 9 TH JULY 2004 AND AFTERWARD ON WHICH CENVAT CREDIT WAS NOT AVAILED WAS ALSO STARTED AND THE COMMERCIAL INVOICE WERE GIVEN THE RUNNING NUMBERS FROM THIS DATE BECAUSE OF THE MIXED DELIVERY OF EXCISABLE GOODS AND NON-EXCISABLE GOODS. HOWEVER THE GOODS WHICH WERE EXCISABLE, THE INVOICES UNDER EXCISE ACT, WERE ALSO PREPARED WITH THE RUNNING NUMBERS OF EXCISE BILLS BUT THE COMMERCIAL INVOICES PREPARED AGAINST THOSE EXCISE INVOICES WERE GIVEN THE RUNNING NUMBERS OF THE COMMERCIAL SERIES. DUE TO THIS THE DIFFERENCE OF THE EXCISE INVOICE NUMBER AND THE COMMERCIAL INVOICE NUMBER PREPARED FOR THE SAME GOODS STARTED SHOWING THE DIFFERENT NUMBERS, E.G. THE GOODS DELIVERED UNDER THE EXCISE INVOICE NUMBER 1343, THE COMMERCIAL INVOICE WAS NUMBERED 1345 AFTERWARD FIVE LOT UNDER COMMERCIAL INVOICE NO.1346, 1347, 1348,1349 AND 1350 WERE DELIVERED WHICH WERE NON EXCISABLE. AFTERWARD UNDER THE EXCISE INVOICE NUMBER 1344 THE EXCISABLE GOODS WERE DELIVERED AND THE CORRESPONDING COMMERCIAL INVOICE RUNNING NUMBER 1351. AS DESCRIBED ABOVE EXAMPLE, THE DIFFERENCE OF SERIAL NO. BETWEEN THE EXCISE INVOICE AND COMMERCIAL INVOICE NO WERE SAME LOTS STARTED DIFFERING MORE AND MORE BECAUSE THE DELIVERY OF THE NON EXCISABLE GOODS ALONG WITH THE EXCISABLE GOODS AFTERWARD. IT WAS VERY DIFFICULT FOR US TO CONTINUE SUCH TYPE OF MIXED DELIVERY UNDER THE BOTH CATEGORIES AND WE DECIDED THAT THE GOODS WHICH WERE LYING WITH US AN WHICH CENVAT CREDIT WAS AVAIL SHOULD BE DELIVERED TO THE TRADERS BEFORE 31 ST AUGUST, 2004 AND THE EXCISE LICENSE THEN TO BE SURRENDER THE EXCISE AUTHORITIES. HENCE, WE APPROACHED THOSE CUSTOMERS WHOSE EXCISABLE GOODS, WAS WITH US IN STOCK, TO GIVE US THE PROGRAMMED EITHER FOR THE DYEING OR PRINTING. THOSE CUSTOMERS WHO GIVE THE PROGRAMMED, WE DELIVERED THE GOODS BY INVOICING AS PER THE PRACTICED DESCRIBE ABOVE. THE GOODS WHICH REMAIN WITH US FOR WHICH NO PROGRAMMED WAS GIVEN BY THE CUSTOMERS, WE DELIVERED THEM TO GOODS IN THE EXISTING BLEACHED STAGE CHARGING THEM THE COST OF BLEACHING AS OUR JOB CHARGES. FOR THESE GOODS WE PREPARED THE EXCISE INVOICES AND THE REQUIRED EXCISE DUTY WERE ALSO BEING PAID. THE SAME GOODS WERE DELIVERED TO THE OWNERS WITH THE EXCISE INVOICES ONLY. 16. AS FAR AS EXCISE ABOLITION AND NOTIFICATION ISSUED BY THE GOVT. ARE CONCERNED, THERE WAS NO MEANING TO BREAK THE REGULAR SERIES AND INSERT NEW NUMBER BETWEEN REGULAR SR. NO. FOR EXCISABLE GOODS. ITA NO. 1415/AHD/09 M/S KWALITY SILK PROCESSOR PVT. LTD VS.ITO ASST.YEAR 2005-06 - 27 - HOWEVER, THE NUMBERING DEFECT COULD BE IGNORED BUT THE OTHER FACTS RELATED WITH THESE DISPUTED INVOICES BECAME MORE INTERESTING AND DOUBTFUL. ON GOING THROUGH THESE INVOICES WHICH ARE SUFFIXED BY 'E' IN THE BOOKS OF ACCOUNTS, IT WAS NOTICED THAT INVOICE NUMBER PLACED ON INVOICE PERFORMA DID NOT CONTAIN SUFFIXED 'E'. IT MEANS THE ASSESSEE COMPANY ISSUED INVOICE NUMBER 1962 ON 5.08.2004 AND INVOICE NUMBER 1629 ISSUED ON 6.08.2004 WHICH IS HIGHLY IMPOSSIBLE. FURTHER, IT WAS ALSO NOTICED THAT THESE BILLS ARE PREPARED BY JOB CHARGES @ RS.1.60 PER METER, WHEREAS OTHER BILLS HAVE BEEN ISSUED @ RS.6, RS.9, RS.10, ETC. ON FURTHER VERIFICATION, IT WAS NOTICED THAT ALL SUCH BILLS CLAIMED FOR JOB CHARGES OF BLEACHING OF CLOTH. IT BECAME DOUBTFUL WHEN THE ASSESSEE COMPANY HAS NEVER CARRIED OUT SUCH JOB WORK EITHER IN PAST OR IN FUTURE TILL DATE. THE ARGUMENT HAS BEEN PLACED BY THE ASSESSEE COMPANY IN ABOVE EXPLANATION THAT THE ASSESSEE COMPANY DECIDED TO DELIVER GOODS TO ITS TRADERS BEFORE 31.08.2004 AND DECIDED TO SURRENDER ITS EXCISE LICENSE. HENCE, THE ASSESSEE COMPANY APPROACHED THOSE CUSTOMERS, WHOSE EXCISABLE GOODS LYING WITH THE ASSESSEE COMPANY AND REQUESTED THEM TO EITHER GIVE PRINTING PROGRAMME OR TAKE THEIR GOODS BACK IN THE EXISTING BLEACHED STAGE. INTERESTINGLY, THE CUSTOMER AGREED AND THE ASSESSEE COMPANY DISPATCHED GOODS BY CHARGING BLEACHING EXPENSES @ RS.1.60 AND CLEARED ENTIRE STOCK IN THE MONTH OF AUGUST, 2004 ITSELF. THE QUANTITY WHICH HAVE BEEN CLAIMED TO BE BLEACHED AND DISPATCHED IS NOT FOUND CONVINCING. ACCORDINGLY, THIS OFFICE HAS CARRIED OUT INQUIRIES U/S 133(6) OF THE IT ACT IN SOME CASES AND CALLED FOR CONTRA COPY OF ACCOUNT. IN RESPONSE, THE REPLY RECEIVED FROM THREE PARTIES, VIZ. POND'S INTERNATIONAL, POND'S SAREES, (I) POND'S INTERNATIONAL DID NOT SHOWN BILL NO,1629/E, (II) ITA NO. 1415/AHD/09 M/S KWALITY SILK PROCESSOR PVT. LTD VS.ITO ASST.YEAR 2005-06 - 28 - POND'S SAREES AND SHEELA ENTERPRISE. ON GOING THROUGH THE CONTRA COPY OF ACCOUNT SUBMITTED BY THESE PARTIES, THE BILLS ISSUED BY THE ASSESSEE COMPANY CLAIMING OF BLEACHING CHARGES @ RS.1.60 HAVE NOT BEEN FOUND ENTERED IN RESPECTIVE COPY OF ACCOUNT. POND'S INTERNATIONAL DID NOT SHOW BILL NO.1629/E, (II) POND'S SAREES ALSO DID NOT SHOW BILL NO.1630/E, (ILI) SHEELA ENTERPRISE ALSO DID NOT SHOW BILL NO.1734/E. UNDER THE CIRCUMSTANCES, THIS OFFICE HAS ISSUED SHOW CAUSE LETTER 23.11.2007 AND REQUESTED THE ASSESSEE COMPANY TO CLARIFY WHETHER IT HAS CARRIED OUT BLEACHING JOB WORK OR OTHER PART JOB WORK IN PAST. TO WHOM THE QUANTITY OF GRAY CLOTH CLAIMED TO BE BLEACHED PERTAINED. THE RELEVANT PARA OF THE SHOW CAUSE IS REPRODUCED HEREUNDER FOR READY REFERENCE:- DURING THE COURSE OF VERIFICATION OF SALE REGISTER, IT WAS NOTICED THAT AFTER SERIAL INVOICE NO. 1962 DATED 05.08.2004, SERIAL INVOICE NO.- 1629/E DATED 06.08.2004 AND SO ON TILL SERIAL INVOICE NO. WAS ISSUED ON 06.08.2004 THEN CONTINUES SERIAL NO. 1963 STARTED ON 06.08.2004 FOR ITSELF. IT IS ALSO NOTICED THAT THE INVOICE SERIAL NUMBER SUFFIXED BY 'E' CLAIMED TO BE ISSUED BY BREAKING THE RUNNING SERIAL NUMBER AND ALL THESE INVOICES WERE CLAIMED OF RS. 1.60 PER METER PROCESSING CHARGES WHICH HAVE BEEN CLAIMED AS BLEACHING CHARGES DURING THE COURSE OF HEARING. ACCORDINGLY, SOME PARTIES TO WHOM SUCH INVOICES HAVE BEEN ISSUED WERE EXAMINED U/S. 133(6) OF THE I.T. ACT. THE OUTCOME REVEALS THAT NO SUCH BILLS HAVE BEEN FOUND ENTERED IN THE CONTRA BOOKS OF ACCOUNTS. FOR EXAMPLE, COPY OF ACCOUNTS OF (I) POND'S INTERNATIONAL DID NOT SHOWN BILL NO.1629/E, (II) POND'S SAREES ALSO DID NOT SHOWN BILL NO.L630/E, (III) SHEELA ENTERPRISE ALSO DID NOT SHOWN BILL NO&.1734/E. THE RANDOM INQUIRIES PROVED THAT YOU HAVE PREPARED BILLS IN THE NAME OF THESE PARTIES BUT NO ACTUAL TRANSACTION WAS MADE. 3. IN VIEW OF ABOVE FINDINGS YOU ARE HEREBY ASKED TO EXPLAIN FOLLOWING POINTS AND REQUESTED TO SUBMIT, FOLLOWING DETAILS. (I)FROM STARTING OF BUSINESS ACTIVITIES TO TILL DATE, WHETHER THE COMPANY HAS CARRIED OUT BLEACHING JOB WORK OR OTHER PART JOB WORK, THE DETAILS OF SUCH ITA NO. 1415/AHD/09 M/S KWALITY SILK PROCESSOR PVT. LTD VS.ITO ASST.YEAR 2005-06 - 29 - JOB WORK MAY PLEASE BE INTIMATED ALONGWITH EVIDENCES AND RELEVANT COPY OF ACCOUNT. (II) TO WHOM THE QUANTITY OF GRAY CLOTH CLAIMED IN THESE BILLS IS PERTAINED WHEN CLAIMED PARTIES ARE NOT OWING UP THE SAME. (HI) PLEASE PRODUCE ALL OTHER PARTIES ALONGWITH THEIR PURCHASE REGISTER/SALE REGISTER AND PURCHASE BILLS/SALE BILLS FOR VERIFICATION OF YOUR CLAIM. (IV)PLEASE PRODUCE COPY OF ACCOUNTS OF ALL PARTIES CLAIMED FOR BLEACHING JOB WORK. 4. SINCE THE MATTER IS TIME BARRING, YOUR PROMPT REPLY IS NEEDED. IF YOU FAIL TO DO SO, THE ENTIRE GRAY CLOTH INVOLVED IN BLEACHING JOB BILLING WILL BE CONSIDERED YOUR UNEXPLAINED INVESTMENT AND THE PRINTING JOB CHARGE WILL BE CONSIDERED AND THE SALE CONSIDERATION WILL BE TREATED YOUR UNDISCLOSED INCOME.' 17. IN RESPONSE, THE ASSESSEE COMPANY FILED ITS WRITTEN SUBMISSION DATED 29.11.2007 AND SUBMITTED DETAILS OF ABOVE THREE PARTIES WITH DETAILED CHART OF ITS LOT REGISTER AND CLAIMED THAT THE ABOVE THREE PARTIES HAVE PROVIDED GRAY CLOTH FOR PROCESSING AND THE SAME WAS PRINTED IN MOST OF THE CASES BUT SOME QUANTITY WAS BLEACHED AND DISPATCHED TO THESE PARTIES UNDER EXCISABLE DISPATCHED. THE RELEVANT REPLY OF THE ASSESSEE COMPANY IS REPRODUCED HEREUNDER FOR BETTER UNDERSTANDING. 'WE ARE HEREWITH SUBMITTING OUR POINT WISE EXPLANATIONS WITH NECESSARY DOCUMENTS IN RESPONSE TO YOUR SHOW CAUSE NOTICE. (1) AS PER THE RANDOM INQUIRIES MADE FROM YOUR OFFICE U/S. 133(6) OF THE INCOME TAX ACT, 1961, YOU HAVE SAID THAT THE TRANSACTIONS INVOLVING BILLING 'E' SUFFIX WITH THE BILL NO. ARE NOT GENUINE AND NO SUCH TRANSACTIONS WAS MADE. WE HAVE TO SAY THAT ACTUAL PROCESS OF BLEACH HAS BEEN MADE IN OUR MILL AND WE HAVE DONE THIS PROCESS GENUINELY AND DELIVERED THE GOODS THE PARTIES. WE HAVE ACCOUNTED SUCH BILLS IN OUR BOOKS AND SHOWN CORRECT PICTURE OF BOOKS ITA NO. 1415/AHD/09 M/S KWALITY SILK PROCESSOR PVT. LTD VS.ITO ASST.YEAR 2005-06 - 30 - OF ACCOUNT AND PROFIT. WE ARE NOT AWARE OF THE POSITION OF BOOKS OF ACCOUNTS OF SUCH PARTIES. IN VIEW OF ABOVE STATEMENT WE ARE HEREBY GIVE OUR EXPLANATION AS ASKED BY YOU IN PARA 3 AS FOLLOWS. (2) (I) OUR ROUTINE ACTIVITY IS OF DYEING & PRINTING ON GREY CLOTH ON JOB WORK BASIS. OUR ROUTINE ACTIVITY IS NOT OF BLEACHING JOB WORK. WE HAVE DELIVERED BLEACHED MATERIAL IS MUCH HIGHER THAN USUAL DYED OR BLEACHED MATERIAL BECAUSE IN THIS MONTH WE WANTED TO DELIVERED ALL THE FABRICS ON WHICH WE HAVE TAKEN CENVAT AND TO SURRENDER OUR EXCISE LICENSE. HENCE WE INQUIRED OUR TRADERS WHOSE BLEACHED CENVAT WAS AVAILED EITHER TO GIVE THE PRINTING PROGRAMMED OR TO TAKE BACK THE BLEACHED FABRICS WHICH WAS LYING IN STOCK. (II) AS PER YOUR POINT OWNERSHIP OF GREY CLOTH IS IN THE CONTROVERSY, WE HAVE TO SAY THAT OWNERSHIP OF THE GREY CLOTH IS OF THE PARTY. WE HAVE TAKEN CENVAT OF SUCH BILLS IN OUR EXCISE RECORDS AND THE PARTY HAS SUBMITTED TO US EXCISE INVOICE OF GREY DOTH WITH THEIR CHALLAN DULY ENDORSED BY THEM. WE HAVE TAKEN IT UNDER ONE LOT NO. AND WHICH IS DULY REGISTERED UNDER OUR LOT REGISTER. WE HAVE PROCESSED PART OF THE GREY CLOTH AND ALSO SEND PART OF THE GOODS WITH ONLY BLEACHED IN THE ABSENCE OF PROGRAM OF THE PARTY FOR THE PROCESSING OF GREY CLOTH. YOU HAVE RAISED THIS QUESTION ON THE BASIS OF THE INFORMATION GATHERED BY YOUR HONORS FROM THE SUBMISSION RECEIVED FROM THE PARTY U/S, 133(6) OF THE INCOME TAX ACT, 1961. WE ARE HEREWITH SUBMITTING THE EXACT DETAILS OF ALL THE 3 PARTIES OF THE INVOICES MARKED 'E' FROM THE RECEIPT OF THE GOODS TO DELIVERY OF THE GOODS AND UNDER THE COMPEL CIRCUMSTANCES. (A) PONDS INTERNATIONAL: INVOICES NO.1629/E: - THIS INVOICE COVERS SIX LOT NOS. PARTYS CHALLAN NO & DATE METERS CENVAT INVOICE NO. & DATE LOT NO. & DATE AS PER LOT REGISTER METERS AS PER LOT REGISTER DATE OF DISPATCH INVOICE NO. DELIVERED METER NATURE OF PROCESS 361 * 28.01.2004 1393.00 * 152 30.01.04 4696 30.01.04 1393.00 30.04.04 06.08.04 445 1629/E 524.00 653.00 PADDING DISCHARGE BLEACHED ITA NO. 1415/AHD/09 M/S KWALITY SILK PROCESSOR PVT. LTD VS.ITO ASST.YEAR 2005-06 - 31 - 362 28.01.04 1249.00 33 28.01.04 4697 30.04.04 1249.00 06.08.04 1629/E 1124.00 BLEACHED 401 16.02.04 1376.50 170 16.02.04 5024 17.02.04 1376.50 06.08.04 1629/E 1169.00 BLEACHED 411 20.02.04 1423.75 1229 20.02.04 5103 23.02.04 1423.75 06.08.04 1629/E 1280.00 BLEACHED 411 20.02.04 1388.50 1229 20.02.04 5104 23.02.04 1388.50 06.08.04 1629/E 1221.00 BLEACHED 417 ** 23.02.04 1409.25 1253 ** 23.02.04 5137 24.02.04 1409.25 06.08.04 1629/E 1268.00 BLEACHED 418 ** 23.02.04 1362.00 1253 ** 23.02.04 5138 24.02.04 1362.00 09.06.04 12.06.04 940 958 730.00 335.00 PRINTED PRINTED (B) PONDS SAREES: INVOICES NO. 1630/E THIS INVOICE COVERS TWO LOT NOS. PARTYS CHALLAN NO & DATE METERS CENVAT INVOICE NO. & DATE LOT NO. & DATE AS PER LOT REGISTER METERS AS PER LOT REGISTER DATE OF DISPATCH INVOICE NO. DELIVERED METER NATURE OF PROCESS 101 23.02.04 1330.50 1254 23.02.04 5139 24.02.04 1330.50 06.08.04 1630/E 1201.00 BLEACHED * 20.02.04 1299.00 1230 23.02.04 5106 23.02.04 1299.00 10.07.04 06.08.04 1287 1630/E 415.00 776.00 PADDING DISCHARGE BLEACHED (C). SHILA ENTERPRISE : INVOICES NO. 1734/E: - THIS INVOICE COVERS ONE LOT NO. PARTYS CHALLAN NO & DATE METERS CENVAT INVOICE NO. & DATE LOT NO. & DATE AS PER LOT REGISTER METERS AS PER LOT REGISTER DATE OF DISPATCH INVOICE NO. DELIVERED METER NATURE OF PROCESS 65 * 13.12.03 3752.00 1005 12.12.03 108 12.12.03 107 12.12.03 3772 15.12.03 1348.75 1136.75 1266.50 15.05.04 20.05.04 29.05.04 12.06.04 18.08.04 752 811 850 953 1734/E 752.25 372.50 690.00 340.00 1143.00 LIGHT PRINT LIGHT PRINT LIGHT PRINT LIGHT PRINT BLEACHED REMARKS: * MEANS LOT DELIVERED IN PARTS, ONE IN BLEACHED PROCESS AND OTHER PART IS PRINTING (FULLY) PROCESSED. ' ** ' MEANS CENVAT CREDIT INVOICES IS COMMON FOR TWO LOTS & IN TWO INWARD CHALLAN WHILE DIVIDED ONE CHALLAN IN BLEACHED & OTHER IN PRINTED (FULLY) PROCESSED. AS PER THE ABOVE TABULAR FORM, IT IS CLEARED THAT ALL THE LOTS WERE VERY OLD. PART OF THE LOTS ARE FULLY PROCESSED (I,E. PRINTED) AND ONLY PART OF THE GOODS IS DISPATCHED TO THE PARTY IN SEMI PROCESSED FORM (I.E. BLEACHED) ITA NO. 1415/AHD/09 M/S KWALITY SILK PROCESSOR PVT. LTD VS.ITO ASST.YEAR 2005-06 - 32 - THOUGH THE MATERIAL, WE HAVE RECEIVED IS VERY OLD AND WE HAVE NOT RECEIVED THE PROGRAM FOR PRINTING AND WE WANTED TO SURRENDER OUR EXCISE LICENSE, WE HAVE ASKED THE PARTIES TO GIVE PROGRAM FOR PRINTING AND HENCE WE HAVE NOT RECEIVED THE PROGRAM WE COMPELLED TO DISPATCH IT IN SEMI PROCESS I.E. BLEACHED. WE ARE HEREWITH ENCLOSE THE XEROX COPIES OF (I) PARTY GREY CHALLANS,(II) CENVAT INVOICE, (III) DELIVERY INVOICE AND (IV) ABSTRACT OF LOT REGISTER. (III) THERE ARE ABOUT 45 TO 50 PARTIES. SIR, WE CANNOT PRODUCE ALL THE PARTIES WITH THE REQUIRED DOCUMENTS BEFORE YOU DUE TO THE TIME CONSTRAINT. AS PER THE REQUIREMENT FOR THE VERIFICATION OF OUR CLAIM REGARDING GENUINENESS OF OUR TRANSACTIONS WE CAN PRODUCE THE DETAILS AS GIVEN IN THE POINT NO. (II) WHICH INCLUDES GREY CHALLAN OF THE PARTIES, CENVAT INVOICES ETC. (IV) WE ARE HEREWITH ENCLOSING COPY OF ACCOUNTS OF ALL THE PARTIES CLAIMED FOR BLEACHING JOB WORK. (3) WE ARE ONLY JOB WORKER OF DYEING & PRINTING OF GREY CLOTHS. WE HAVE NOT MADE ANY PURCHASED NOR SALE OF GREY CLOTH OR PROCESSED COTH IN PAST OR IN PRECEDING YEAR. WE ARE ONLY THE TRUSTEE OF THE GOODS SUPPLIED BY THE PARTY FOR THE JOB WORK. AS PER THE TABULAR FORM GIVEN ABOVE FOR ALL THE 3 PARTIES AND SUPPORTED DOCUMENTS ENCLOSED CLEARLY SHOWS THAT THE OWNER OF THE GOODS IS THE PARTY ITSELF AND NOT US. THE PARTY HAS DELIVERED THE GREY GOODS THROUGH THEIR CHALLANS ALONG WITH THE PROOF OF THEIR PURCHASE I.E. SELF AUTHENTICATED THE GREY PURCHASED CENVAT INVOICE, BY WHICH WE ENTITLED TO GET CENVAT CREDIT FOR THE EXCISE PURPOSE, WHICH REVEALS THAT WE HAD NOT PURCHASED OR SALE THE GOODS. SO THAT THIS IS NOT OUR UNEXPLAINED OR UNDISCLOSED INCOME.' 18. ON GOING THROUGH THE ABOVE REPLY, IT CAN EASILY BE SEEN THAT MOST OF THE GRAY WAS VERY OLD WHICH HAVE BEEN CLAIMED UNDER BLEACHING INVOICES. WHEN THE ASSESSEE COMPANY BROUGHT SUCH FACTS FOR CONSIDERATION, IT BECAME RELEVANT TO EXAMINE THIS TRANSACTION IN DETAIL. IN VIEW OF ABOVE, ALL THREE PARTIES HAVE BEEN SUMMONED U/S 131(1) OF THE IT ACT AND PROVIDED THEM THE DETAILS OF THE ASSESSEE COMPANY AS DISCUSSED ITA NO. 1415/AHD/09 M/S KWALITY SILK PROCESSOR PVT. LTD VS.ITO ASST.YEAR 2005-06 - 33 - ABOVE. THESE THREE CONCERNS HAVE BEEN REQUESTED TO CLARIFY THEIR STAND AFTER GOING THROUGH THE GRAY CHALLANS CLAIMED TO BE ISSUED BY THEM ALONG WITH GRAY PURCHASED BILLS. IN RESPONSE, M/S. PONDS INTERNATIONAL AND M/S. PONDS SAREES HAVE MADE THEIR WRITTEN SUBMISSION IN FOLLOWING MANNER :- 'THIS HAS REFERENCE TO PERSONAL HEARING UNDERSIGNED HAD WITH YOUR GOODSELF IN RESPONSE TO YOUR SUMMONS IN THE CAPTIONED MATTER WHEREIN YOUR GOODSELF HAD SHOWN COPY OF CERTAIN CHALLANS AND BILLS FURNISHED BY YOUR ASSESSEE CLAIMING THAT OUR TWO GROUP COMPANIES NAMELY PONDS INTERNATIONAL AND POND SAREES HAVE GOT PROCESS OF BLEACHING ON GREY CLOTH VIDE THEIR VARIOUS INVOICES.- IN RESPONSE TO IT WE HAVE TO STATE AS FOLLOWS : 1. WE ARE ENGAGED IN BUSINESS OF SALE OF SARESS, WE GIVE GREY CLOTH TO MILLS FOR GETTING IT PROCESSED FOR FINISHED GOODS I.E. SAREES AND NOT FOR THE ANY INTERMEDIARY PROCESS SUCH AS BLEACHING. WE HAVE NEVER EVER SOLD A BLEACHED CLOTH IN OUR LIFE SPAN OF THE SUBJECT FIRMS. THEREFORE CLAIM OF YOUR ASSESSEE THAT WE HAVE GOT ANY GREY CLOTH BLEACHED IS ABSOLUTELY ERRONEOUS AND WITHOUT ANY BASIS. 2. TRIE SUBJECT INVOICES FOR BLEACHING PROCESS PRODUCED BEFORE US MENTIONING OUR NAME DO NOT PERTAIN TO US AS WE HAVE NEVER SENT GREY CLOTH FOR SUCH PROCESS TO THEM AND WE HAVE NOT GOT SUCH PROCESS DONE FROM THEM AT ANYTIME. 3. WE CONFIRM ONLY THOSE TRANSACTION DETAIL OF WHICH HAVE ALREADY BEEN SUBMITTED BY US VIDE OUR EARLIER LETTERS. 4. MOREOVER YOUR ASSESSEE IS CORRELATING SUBJECT INVOICES TO CHALLAN PERTAINING TO THE MONTH OF JANUARY, 2003 AND FEBRUARY, 2003 I.E. ALMOST 6 MONTHS PRIOR TO THE DATE OF INVOICES PRODUCED BY THEM WHICH IS ILLOGICAL AND APPARENTLY INCORRECT SINCE BLEACHING IS VERY PRIMARY PROCESS AND IT CANNOT TAKE SUCH LONG TIME OF 6 MONTHS. THIS ITSELF SHOWS THAT SAID INVOICES ARE NOT RELATED TO ANY GREY CLOTH SENT BY US.' ITA NO. 1415/AHD/09 M/S KWALITY SILK PROCESSOR PVT. LTD VS.ITO ASST.YEAR 2005-06 - 34 - IN THE SAME MANNER SHEELA ENTERPRISE HAS ALSO CLARIFIED ITS STAND IN FOLLOWING MANNER. 'WITH REFERENCE TO THE ABOVE YOUR HONOUR HAS ASKED SOME DETAILS IN PERSON, MY EXPLANATION/SUBMISSION IN THIS REGARD IS AS UNDER. THAT I AM DEALING & TRADING IN CLOTH. GREY CLOTH PURCHASE AND SALE THE SAME AFTER MADE PROCESSED THEREON. DURING THE YEAR SUCH TRANSACTION HAVE BEEN ENTERED WITH M/S. KWALITY SILK MILLS PVT. LTD., WHO'S ACCOUNT FOR THE PERIOD FROM 01.04.2004 TO 31.03.2005 RELEVANT TO THE ASSESSMENT YEAR 2005- 2006 IS AS PER THE COPY OF ACCOUNT FILED ALONG WITH BANK STATEMENT AND INVOICES. SUCH SUBMISSION IN PURSUANCE TO NOTICE U/S 133(6) HAS BEEN MADE ON 28.110.2007. THAT YOUR GOOD SELF HAS SHOWN THE DISCREPANCY I.E. BILL ISSUED BY KWALITY SILK MILLS, BILL NO. 1734 DATED 18/08/2004 TO SHEELA ENTERPRISE. THAT I HEREBY SAID THAT THIS BILL IS NOT PERTAIN TO ME, HOWEVER THE CHALLAN NO.65, DATED 13/12/2003 PRODUCED BY KWALITY SILK MILLS IS FOR OTHER GOOD WHICH IN DUE COURSE GIVEN FOR PROCESS. ' 19. THE ABOVE REPLIES RECEIVED FROM THREE PARTIES CLARIFIED THAT THE ASSESSEE COMPANY MISLEADING THE FACTS AND PRESENTED IN THE MANNER SO THAT IT COULD JUSTIFY ITS CLAIM. NOW, THIS OFFICE DECIDED TO MAKE FURTHER INQUIRIES U/S 133(6) OF THE IT ACT AND ISSUED LETTER TO M/S, RASHMI PRINTS, M/S. HEMTEX INTERNATIONAL, M/S. ASHWIN SHANTILAL SHAH & CO., M/S. NAHAR SAREES, M/S. DOLLYTEX, M/S. SHREENATH SAREES, M/S. JAIN PRINTS, M/S. MANISH TEXTILES, M/S. ANIL SILK MILLS ETC. IT WAS NOTICED THAT THE NOTICES ISSUED U/S 133(6) OF THE IT ACT IN THE CASE OF M/S. DOLLYTEX, M/S. SHREENATH SAREES AND M/S. NAHAR SAREES HAVE BEEN RETURNED BY THE POSTAL AUTHORITIES. THE SAME FACTS HAVE BEEN BROUGHT TO THE NOTICE OF THE AR OF THE ASSESSEE COMPANY DURING THE COURSE OF HEARING DATED 10.12.2007. APART FROM THIS, THE REPLY, RECEIVED FROM M/S. ANIL SILK MILLS AND M/S. SUBH CREATION HAVE BEEN SHOWN TO THE AR OF THE ASSESSEE COMPANY AND REQUESTED HIM TO GIVE HIS COMMENTS THEREON BECAUSE BOTH OF THE CONCERNS ITA NO. 1415/AHD/09 M/S KWALITY SILK PROCESSOR PVT. LTD VS.ITO ASST.YEAR 2005-06 - 35 - HAVE NOT BEEN SHOWN INVOICES CLAIMED TO BE ISSUED BY THE ASSESSEE COMPANY TO THEM @ RS.1.60 FOR BLEACHING OF GOODS. MEANWHILE THE REPLY RECEIVED FROM SHEELA ENTERPRISES AS DISCUSSED AND REPRODUCED ABOVE WAS PROVIDED TO THE AR OF THE ASSESSEE COMPANY ON 20.12.2007 AND REQUESTED HIM TO CLARIFY THE CONTENTS AND CLARIFY THE STAND OF THE ASSESSEE COMPANY. IT IS INTERESTING TO MENTION HERE THAT THIS OFFICE HAS SPECIFICALLY REQUESTED VIDE PARA-3 (III) AND (IV) OF LETTER DATED 23.11.2007 TO PRODUCE ALL PARTIES ALONG WITH THEIR PURCHASE/REGISTER/SALE REGISTER, AND PURCHASE BILLS/SALE BILLS FOR VERIFICATION, OF ASSESSEE'S CLAIM. IT WAS ALSO REQUESTED TO PRODUCE COPIES OF ACCOUNTS FROM ALL PARTIES CLAIMED FOR BLEACHING JOB WORK. HOWEVER, NO PARTY OUT OF CLAIM OF BLEACHING CHARGES HAVE BEEN PRODUCED TILL THE DATE OF PASSING OF ORDER AND NO COPY OF ACCOUNT OUT OF BLEACHING CHARGES PARTIES HAVE BEEN FURNISHED BUT THE COPY OF ACCOUNT APPEARING IN ITS BOOKS OF ACCOUNTS HAVE BEEN SUBMITTED. ON THE CONTRARY THIS OFFICE HAS MADE AVAILABLE COPY OF ACCOUNT OF M/S. SUBH CREATION, M/S. ANIL SILK MILLS, JAIN PRINTS AND M/S. ASHWIN SHANTILAL SHAH & CO. WHEREIN NO SUCH BILLS I.E. BLEACHING BILLS WERE FOUND ENTERED AS CLAIMED BY THE ASSESSEE COMPANY. IF ONE OR TWO PARTIES HAVE NOT SHOWN THESE BILLS THEN THE ONUS MAY BE CONSIDERED IN QUESTION OR DOUBTFUL BUT IN THE CASE OF THE ASSESSEE ALMOST ALL PARTIES HAS DENIED FOR BLEACHING LOB WORK AND ALSO DENIED FOR SENDING RELEVANT GRAY TO THE ASSESSEE COMPANY. 20. IT IS ALSO INTERESTING TO MENTION HERE THAT THE ASSESSEE COMPANY IS MAKING REPLY WHENEVER IT WAS ASKED BUT NOT MAKING ANY SUE MOTTO EFFORTS TO PROVE GENUINENESS AND CORRECTNESS OF ITS CLAIM. WHATEVER REPLY SUBMITTED SO FAR, ARE OUT OF ITS BOOKS OF ACCOUNTS ONLY. NO THIRD PARTY CONFIRMATION OR EVIDENCES HAVE BEEN FURNISHED IN SUPPORT OF ITS CLAIM. ITA NO. 1415/AHD/09 M/S KWALITY SILK PROCESSOR PVT. LTD VS.ITO ASST.YEAR 2005-06 - 36 - THE ASSESSEE COMPANY MADE ANOTHER REPLY VIDE ITS LETTER DATED 27.12.2007 AT THE ALMOST END OF THE TIME BARRING DATE OF THE ASSESSMENT PROCEEDINGS AND REQUESTED THAT WE WOULD LIKE TO CROSS-EXAMINE THE PARTIES WITH THEIR RECORDS. WOULD IT BE POSSIBLE WITHIN THREE DAYS INCLUDING TWO HOLIDAYS TO MAKE AVAILABLE ALL THESE PARTIES FOR CROSS- EXAMINATION. IT IS NOT UNDERSTOOD, WHY THE ASSESSEE COMPANY HAS NOT RAISED THIS ASPECT WHEN FIRST SHOW CAUSE HAS ALREADY BEEN ISSUED ON 23.11.2007, WHEREIN IT WAS SPECIFICALLY ASKED THAT THE UNVERIFIABLE TRANSACTION LEAD IN UNACCOUNTED PURCHASE OF GREY VIDE PARA-4. IT IS FURTHER ASKED TO THIS OFFICE TO INTIMATE THE NAME OF OTHER PARTIES WHO DENIED THE OWNERSHIP OF GOODS. IT IS STILL NOT UNDERSTOOD, THE ASSESSEE COMPANY IS WAITING FOR THE OUTCOME OF INQUIRIES BUT NOT INTERESTED IN JUSTIFYING ITS, CLAIM. WHETHER IT IS DUTY OF THE DEPARTMENT TO MAKE INQUIRY, GET ADVERSE OUTCOME, INTIMATE THE ASSESSEE COMPANY FOR COMMENT. WHETHER IT IS NOT DUTY OF THE ASSESSEE COMPANY TO PROVE GENUINENESS AND CORRECTNESS OF ITS CLAIM. THE RELEVANT PORTION OF THE ASSESSEE'S LETTER DATED 27.12.2007 IS REPRODUCED HEREUNDER FOR READY REFERENCE :- 'WE WERE IN RECEIPT OF THE PHOTOCOPY OF THE REPLY BY M/S. SHEELA ENTERPRISE DT.14-12-2007. IN OUR REPLY WE WISH TO DRAW YOUR ATTENTION TO OUR LETTER DATED. NOVEMBER 29, 2007. ON PAGE NO.3 WE HAVE GIVEN THE DETAILS OF PARTY'S CHALLAN NO.65 DT. 13- 12-03. THE PARTY HAD SENT 3752 METERS OF GREY CLOTH UNDER THIS CHALLAN NO.65 WE HAVE GIVEN FULL DETAILS OF THE DISPATCHES OF FABRICS TO THE PARTY UNDER FIVE INVOICES BEARING NOS. 752, 811, 850, 953 AND 1734/E. THE PARTY HAD GIVEN THE PRINTING INSTRUCTIONS FOR DIFFERENT FOUR DESIGNS WIRTH THE APPROXIMATE QUANTITY OF METERS WHICH WERE DISPATCHED TO THE PARTY UNDER FIRST FOUR INVOICES. THE BALANCE 1143 METERS WERE SENT TO THE PARTY VIDE BILL NO. 1734/E DT. 18-8-2004 IN BLEACHED UNFINISHED CONDITION AS THE PARTY COULD NOT GIVE THE PRINTING PROGRAMME IN TIME AS EXPLAINED EARLIER. ITA NO. 1415/AHD/09 M/S KWALITY SILK PROCESSOR PVT. LTD VS.ITO ASST.YEAR 2005-06 - 37 - THE PARTY STATES THAT THE BILL NO. 1734/E DTD. 18-8-2004 DOES NOT RELATE TO CHALLAN NO.65 DTD.13-12-2003 AND THAT IT RELATES TO SOME OTHER GOODS GIVEN TO US FOR PROCESS. THE PARTY DOES NOT REFUSE THAT IT HAS NOT SENT GREY GOODS FOR PROCESS TO US UNDER CHALLAN NO. 65 DT. 13.12,2003. BUT PARTY STATES THAT THE SAME HAS BEEN RECEIVED BY THEM UNDER SOME DIFFERENT INVOICES. IN THE CIRCUMSTANCES WE WISH TO ASK THE PARTY TO PRODUCE ALL OUR INVOICES UNDER WHICH THE PARTY HAS RECEIVED THE GOODS FROM US AGAINST THE PARTY CHALLAN NO. 65 DT. 13-12-2003. WE MAY BRING TO YOUR KIND ATTENTION THAT IN OUR INVOICES WE MENTION THE PARTY NOS. UNDER WHICH THEY SENT GREY GOODS TO US FOR PROCESS. HENCE WE WOULD LIKE TO CROSS-EXAMINE THE PARTY WITH THEIR RECORDS OF OUT INVOICES AND OUT STATEMENT OF INVOICES FOR THE CHALLAN NO. 65 DT. 13-12-2003. THIS WOULD TOTALLY CLARIFY THE MATTER. WE ALSO WISH TO REQUEST YOU THAT IF ANY OTHER PARTY'S WHO HAVE EITHER DENIED THE OWNERSHIP OF THE GOODS FOR WHICH WE HAVE SUBMITTED THEIR CHALLANS WITH CENVAT INVOICES ENDORSED IN OUR FAVOUR OR HAVE REFUSED TO RECEIVE THE GOODS EITHER PRINTED OR, BLEACHED UNFINISHED UNDER INVOICES MENTIONED BY US, THESE PARTY'S MAY ALSO BE CALLED FOR CROSS-EXAMINATION WITH THEIR DOCUMENTS/INVOICES UNDER WHICH WE HAVE CLAIMED TO DISPATCH GOODS TO THE PARTY. THE ASSESSEE COMPANY IS JUST TRYING TO AVOID ITS DUTY AND FAILED TO DISCHARGE ONUS LIES WITH IT. HOWEVER, THIS OFFICE DEPUTED INSPECTOR OF THIS WARD TO FIND OUT CORRECTNESS OF THE CLAIM AND VERIFIED THE REMAINING PARTIES, I.E. OTHER THAN NOTICES ISSUED U/S 133(6) OF THE IT ACT AS DISCUSSED ABOVE BUT NO PARTY WAS FOUND AT THE GIVEN ADDRESS. THE ASSESSEE COMPANY HAS ALREADY BEEN REPEATEDLY REQUESTED TO FILE CONFIRMATION OF ALL PARTIES FALLS UNDER INVOICES @ RS.1.60 PER METER AND IN SR. NO. INVOICES SUFFIXED 'E' BUT NO EFFORTS IN THIS REGARD WAS MADE BY THE ASSESSEE COMPANY. ITA NO. 1415/AHD/09 M/S KWALITY SILK PROCESSOR PVT. LTD VS.ITO ASST.YEAR 2005-06 - 38 - 21. UNDER THE ABOVE CIRCUMSTANCES, THIS OFFICE HAS NOT LEFT ANY OPTION TO DECIDE THE CLAIM OF THE ASSESSEE COMPANY OTHERWISE BECAUSE MOST OF THE PARTIES CLAIMED UNDER BLEACHING INVOICES HAVE NOT BEEN CONFIRMED THESE TRANSACTIONS. THE QUESTION AROSE WHEN THESE PARTIES DENIED FOR BLEACHING JOB WORK THEN THE GRAY QUANTITY CLAIMED UNDER BLEACHING INVOICES BECAME OWNERLESS WHICH COULD NOT BE POSSIBLE. ACCORDINGLY, THE RESPONSIBILITY OF GRAY QUANTITY WAS LYING WITH THE ASSESSEE COMPANY EITHER TO PROVE THAT THE SAME BELONGS TO OTHERS OR PROVIDE THE SOURCE THEREOF. THIS ISSUE HAD ALREADY BEEN BROUGHT TO THE NOTICE OF THE ASSESSEE COMPANY VIDE PARA-4 OF THIS OFFICE'S SHOW CAUSE LETTER DATED 23.11.2007 AND GOT AWARE OF THE FACT THE UNEXPLAINED QUANTITY OF GRAY WILL BE CONSIDERED ASSESSEE'S OWN UNEXPLAINED INVESTMENT AND THE PRINTING JOB CHARGES WILL BE CONSIDERED ITS UNDISCLOSED INCOME. HOWEVER, THE ASSESSEE COMPANY HAS NOT TAKEN DUE CARE THOUGH THE ADEQUATE TIME HAVE BEEN PROVIDED. 22. IN VIEW OF ABOVE DISCUSSION, IT BECAME CLEAR THAT THE ASSESSEE COMPANY ITSELF PROCURED GRAY CLOTH AND CLAIMED IN THE NAMES OF VARIOUS PARTIES, PROCESSED THE SAME AND DISPATCHED BY PREPARING BLEACHING BILLS FOR ACCOUNTING PURPOSE. IN THIS WAY, IT HAS SUPPRESSED PRINTING JOB CHARGES ALSO. THE ASSESSEE COMPANY ISSUED INVOICES IN THE NAME OF VARIOUS PARTIES AS SHOWN IN ABOVE CHART, THE TOTAL QUANTITY OF FINISHED GOODS HAVE BEEN CLAIMED AT 347130 METERS. OUT OF THE SAME, ONLY ONE PARTY I.E. M/S. MANISH TEXTILES HAS SHOWN BILL N0.1804/E TO 1813/E, EXCEPT BILL NO.1810/E WHICH INCLUDED 7311.5 METERS. THE SET OFF OF SAID QUANTITY IS ALLOWED BECAUSE THE RECEIVING PARTY ADMITTED THE OWNERSHIP ON THE ITA NO. 1415/AHD/09 M/S KWALITY SILK PROCESSOR PVT. LTD VS.ITO ASST.YEAR 2005-06 - 39 - RELEVANT GREY. AFTER TAKING SET OFF OF 7311.5 METERS, THE QUANTITY OF FINISHED GOODS COMES TO 339818.5 METERS. THE ASSESSEE COMPANY HAS FAILED TO PROVE THE OWNERSHIP OF RELEVANT GREY OF 339818.5 METERS FINISHED GOODS. IF WE TREAT 15% REASONABLE SHORTAGE FOR MAKING FINISHED GOODS, THE GREY QUANTITY INVOLVED IN FINISHED GOODS COMES TO 399786 METERS. IN ABSENCE OF ANY CLAIM FROM THE PARTIES CLAIMED IN THE BILLS, THE RELEVANT GREY HAS BEEN TAKEN INTO ACCOUNT OF THE ASSESSEE COMPANY. THE POSSIBILITY OF UNACCOUNTED GREY CANNOT BE RULED OUT BECAUSE THE ASSESSEE GROUP IS ALSO INVOLVED IN TRADING OF GREY. THE VALUE OF UNACCOUNTED GREY IS DETERMINED BY TAKING REASONABLE MARKET RATE AT RS.15 PER METER. THE VALUE INVESTED BY THE ASSESSEE COMPANY IS DETERMINED AT RS. 59,96,790/- (399786 X 15). THE SAID VALUE IS ADDED TO THE TOTAL INCOME OF THE ASSESSEE COMPANY BEING UNEXPLAINED INVESTMENT IN GREY. SINCE THE ASSESSEE COMPANY HAS CONCEALED ITS PARTICULARS OF INCOME, THE PENALTY PROCEEDINGS U/S. 271(1) (C) R.W. EXPLANATION 1 THERETO IS INITIATED. E : SUPRESSION OF JOB RECEIPTS: 23. APART FROM THE ABOVE, THE ASSESSEE COMPANY CLAIMED PROCESS CHARGES @ RS.1.60 PER METER IN CONNECTION TO TOTAL METERS, I.E. 347130 METERS EXCEPT METERS FALLS BEFORE SR. NO.90 TO 99 = 8499.5 METERS, SR. NO.105 TO 120 = 8613.5 METERS, SR. NO.124 TO 126 = 2052 METERS AND SR.NO.139 TO 147 = 6927 METERS, WHICH AGGREGATED TO 26092 METERS. THE REMAINING METERS, I.E. 321038 HAVE BEEN CLAIMED @ RS.1.60 PER METER WHICH IS NOT ACCEPTABLE BECAUSE THE ASSESSEE COMPANY HAS NEVER DID SUCH JOB WORK EITHER IN PAST OR IN FUTURE FROM THIS ASSESSMENT YEAR. THE ASSESSEE HAS SUPPRESSED JOB CHARGES BY CLAIMING BLEACHING CHARGES WHICH ITA NO. 1415/AHD/09 M/S KWALITY SILK PROCESSOR PVT. LTD VS.ITO ASST.YEAR 2005-06 - 40 - HAVE NOT BEEN PROVED IN FIELD INQUIRIES. FURTHER, THE ASSESSEE COMPANY HAS ALSO NOT PROVED BLEACHING JOB CHARGES WAS ACTUALLY CARRIED OUT BY IT. IN THE CIRCUMSTANCES, THE QUANTITY INVOLVED IN BLEACHING INVOICES @ RS.1.60 PER METER IS NOT ACCEPTED AND TREATED THE SAME QUANTITY OF PRINTING JOB WORK. THE ASSESSEE COMPANY ITSELF HAS SHOWN AVERAGE PER METER JOB CHARGES RS. 5.60 PER METER, ACCORDINGLY, THE SAME RATE IS APPLIED FOR THE INVOICES QUANTITY CLAIMED UNDER RS.1.60 PER METER WHICH COMES TO RS. 17,97,813/-(321038 METERS X RS.5.60). THE SAME AMOUNT IS TREATED SUPPRESSION OF JOB RECEIPT BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION, THE SAME I.E. RS. 17,97,813/- IS ADDED TO THE TOTAL INCOME OF THE ASSESSEE COMPANY. SINCE THE ASSESSEE COMPANY HAS CONCEALED ITS PARTICULARS OF INCOME, THE PENALTY PROCEEDINGS U/S. 271(1) (C) R.W. EXPLANATION 1 THERETO IS INITIATED. F. DISALLOWANCE OF INCOME TAX EXPENS ES . 24. ON GOING THROUGH THE SCHEDULE 3 TO THE PROFIT AND LOSS ACCOUNT ENCLOSED WITH THE RETURN OF INCOME FILED, IT WAS NOTICED THAT THE ASSESSEE COMPANY HAS CLAIMED INCOME TAX EXPENSES OF RS.3,63,009/- UNDER THE HEAD OF SALES AND ADMINISTRATION EXPENSES. FURTHER, IT HAS ALSO FOUND .THAT THE SAID EXPENSES HAS NOT BEEN ADDED BACK IN ITS COMPUTATION OF INCOME ACCORDINGLY, THIS OFFICE HAS DRAWN ATTENTION TOWARDS THIS CLAIM VIDE PARA 10 OF THIS OFFICE LETTER DATED 23.11.2007 AND ASKED THE ASSESSEE, HOW THIS EXPENSE IS ALLOWABLE? IT IS FURTHER ASKED AS TO WHY THE SAME SHOULD NOT BE DISALLOWED. IN RESPONSE, THE A.R. OF THE ASSESSEE ADMITTED HIS MISTAKE AND REQUESTED TO DISALLOWED THE SAME. IN VIEW OF ABOVE DISCUSSION, THE INCOME TAX EXPENSES I.E. RS.3,63,009/- WHICH ARE NOT ALLOWABLE HOWEVER ITA NO. 1415/AHD/09 M/S KWALITY SILK PROCESSOR PVT. LTD VS.ITO ASST.YEAR 2005-06 - 41 - CLAIMED BY THE ASSESSEE, ARE DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE COMPANY. SINCE THE ASSESSEE COMPANY HAS FURNISHED ICCURATE PARTICULARS OF INCOME, THE PENALTY PROCEEDINGS U/S. 271(1) (C) READ WITH EXPLANATION 1 THERETO IS INITIATED. 25. SUBJECT TO ABOVE REMARKS, THE TOTAL INCOME OF THE ASSESSEE IS COMPUTED AS UNDER:- INCOME FROM BUSINESS & PROFESSION NET LOSS AS PER PROFIT & LOSS ACCOUNT (-)5,33,669 ADD: DISALLOWANCE/ADDITION DEPRECIATION CONSIDERED SEPARATELY 39,50,767 TOTAL: 44,84,436 ADD: ADDITIONS/DISALLOWANCES AS DISCUSSED ABOVE 1) ON ACCOUNT OF VALUATION OF WIP AS PER PARA-B OF THE ORDER. 3,66,478 2) ON ACCOUNT OF LOW GP AS PER PARA- C OF THE ORDER 2,07,812 3) ON ACCOUNT OF INVESTMENT IN GREY AS DISCUSSED IN PARA-D OF THE ORDER. 59,96,790 4) ON ACCOUNT OF SUPPRESSION OF JOB CHARGES AS PER PARA-E OF THE ORDER 17,97,813 5) ON ACCOUNT OF DISALLOWANCE OF EXPENSES AS PER PARA-F OF THE ORDER. 3,63,009 1,32,16,338 LESS: DEPRECIATION AS PER I.T. ACT 38,85,572 TOTAL INCOME 93,30,766 LESS: CARRY FORWARD UNABSORBED DEPRECIATION FOR A.Y. 1995-96 HAS BEEN SET OFF. LESS: CARRY FORWARD UNABSORBED DEPRECIATION FOR A.Y. 1995-96. 8,63,061 A.Y. 1996-97 12,03,242 A.Y. 1999-00 4,43,902 A.Y. 2001-02 3,36,902 A.Y. 2002-03 1,57,327 A.Y. 2004-05 24,43,673 54,48,107 ITA NO. 1415/AHD/09 M/S KWALITY SILK PROCESSOR PVT. LTD VS.ITO ASST.YEAR 2005-06 - 42 - TOTAL TAXABLE INCOME 38,82,659 OR SAY 38,82,660 FINALLY, TOTAL INCOME WERE ASSESSED BY THE A.O. RS.38,82,660/- 26. AGAINST THE SAID APPEAL ASSESSEE PREFERRED FIRST STATUTORY APPEAL BEFORE THE LD.CIT(A) WHO DISMISSED THE APPEAL OF THE ASSESSEE. 27. WE HAVE GONE THROUGH THE RELEVANT RECORD AND IMPUGNED ORDER IN GROUND NO.1 LD.A.O. HAS COMPARED TO CHARGES SHOWING THE DIFFERENCE IN THE STOCK AND A.O. ALSO OBSERVED THAT ASSESSEE HAS NOT MAINTAINED DAY- TO-DAY COLOUR RAW MATERIAL AND VARIOUS OTHER RAW MATERIAL BUT ASSESSEE STATED THAT REJECTION OF BOOKS OF ACCOUNT IS BAD IN LAW IN VIEW OF THE DECISIONS AS REPORTED IN 80-ITR-78, 123-ITR-513, 83-ITR-484, 26-ITR- 159 & 38-ITR-152 AND ALSO ARGUED THAT WHEN BOOKS OF ACCOUNTS ARE REJECTED ONLY ADDITION CAN BE MADE ON ACCOUNT OF GROSS PROFIT AND NO OTHER ADDITION CAN BE MADE AND FURTHER STATED THE APPELLANT HAS MAINTAINED ITS BOOKS OF ACCOUNT REGULARLY AND PROPERLY. IN VIEW OF THE SEVERAL CITATIONS HAVE BEEN QUOTED BY THE LD.A.R. WHO DECIDED, THIS MATTER IN GROUND NO.1 IN FAVOUR OF THE ASSESSEE. 28. GROUND NO. 2 IS NOT PRESSED BY THE ASSESSEE. 29. GROUND NO. 3 IS REGARDING ADDITION OF RS.2,07,812/-BY ESTIMATING THE GROSS PROFIT AND A.O. HAS STATED IN THIS ALREADY BEEN REJECTED AND G.P. RATE DURING THE YEAR 18.63% ON TOTAL TURNOVER OF RS.5.61 CRORES WHEREAS THE G.P. RATE IN THE LAST YEAR WAS AT 12.91% ON A TOTAL TURNOVER OF RS.4.11 CRORES BUT THE G.P. RATE IN THE YEAR 2003-04 WAS 19.65% ON TOTAL TURNOVER OF RS.5.52 CRORE. THE A.O. COMPARED THE G.P. RATE AND STATED THAT THERE IS A FALL OF ABOUT 1.02%. BUT APPELLANT STATED THAT G.P. RATE IS HIGHER THAN THE LAST YEAR AND HENCE THE ADDITION SHOULD NOT BE MADE. THE A.O. HAS NOT ITA NO. 1415/AHD/09 M/S KWALITY SILK PROCESSOR PVT. LTD VS.ITO ASST.YEAR 2005-06 - 43 - POINTED OUT ANY SPECIFIC BILL/VOUCHER OF COAL PURCHASE, ELECTRICITY AND GAS AS EXCESSIVE EXPENDITURE AND ALSO STATED THAT DUE TO SHORT FALL IN CENVAT CREDIT WAS RS.7,10,524/-. IN OUR OPINION LD.A.O. AND CIT(A) DUE TO HAVE THE BILLS/VOUCHER OF RAW MATERIAL AND PURCHASE ELECTRICITY AND GAS ETC WHICH THERE HAVE BEEN FAILED TO DO SO IN THE RESULT GROUND NO.3 ALLOW IN FAVOUR OF THE ASSESSEE. SO FAR GROUND NO.4 & 5 ARE CONCERNED REGARDING ADDITION OF RS.59,96,790/- ON ACCOUNT OF UNACCOUNTED PURCHASES OF GREY CLOTH OF 347130 METERS AND GROUND NO.5 IS REGARDING ADDITION OF RS.17,97,813/- ON ACCOUNT OF ALLEGED SUPPRESSION OF JOB CHARGES ON ALLEGED PROCESSING OF RS.321038 METERS. REGARDING THE SAME ASSESSEE COMPANY HAS PRINTING JOB WORK, AND NOT DEALING IN PART PROCESSING SUCH AS BLEACHING, WASHING, DYEING, FINISHING ETC. 30. ASSESSEE IS MERELY IN DEALING JOB WORK AND NOT IN MANUFACTURING AND IN SUPPORT OF ITS CONTENTION ASSESSEE FILED A DETAILED CHART AND FURTHER STATED THAT THE CUSTOMER PURCHASE GREY CLOTH FROM WEAVERS, PAID CENVAT CREDIT AGAINST EXCISE PAYABLE ON GREY CLOTH FOR THE PARITIES OF CUSTOMER AS TO SUBMIT THE INVOICE OF GREY CLOTH PURCHASE BY THEM FROM THE CENVAT DULY BY TRADERS AND THREE CUSTOMER HAD INVOICE IN THEIR NAME WHICH WAS OVER LOOKED BY THE LD.ASSESSING OFFICER. CUSTOMER HAS SUBMITTED THE NOTICE GREY CLOTH PURCHASE BY THEM STANDING IN THEIR NAME FOR THE PURPOSE OF EXCISE PRESENTED BY SUCH INVOICE AND REGARDED IN LAW OF REGISTER APPELLANT IS OVER OF THE CLOTH AND APPELLANT ALSO SUBMITTED THAT AO OUGHT AS TO WHY THESE INVOICES ARE ALLOWED REGARDED AS THE PURCHASE OF THESE IT IS FOR THIS PURPOSE A CROSS VERIFICATION FOR WHICH GRANTED BY THE ASSESSING OFFICER. ITA NO. 1415/AHD/09 M/S KWALITY SILK PROCESSOR PVT. LTD VS.ITO ASST.YEAR 2005-06 - 44 - 31. IN OUR OPINION LD. AO OUGHT TO HAVE VERIFY THE INVOICES WHICH HE HAS BEEN FAILED TO DO SO AND APPELLANT HAS SUBMITTED NECESSARY DOCUMENT IN SUPPORT OF HIS CONTENTION, THEREFORE IN VIEW OF THE ABOVE OBSERVATION GROUND NO.4 AND 5 ARE ALSO ALLOWED. 32. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 23/12/2016 SD/- SD/- . . ( ) ( ) ( N.K. BILLAIYA ) ( MAHAVIR PRASAD ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 23/12/2016 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A)-I, SURAT 5. , , / DR, ITAT, AHMEDABAD 6. / GUARD FILE. / BY ORDER, //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD TRUE COPY