M/s. Keshodwala Foods, Veraval V. The Joint Commissioner of Income Tax, Junagadh Range-1, JUNAGADH

ITA 16/RJT/2013

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 9927 (ITAT-RAJKOT)
• Duration Of Justice: 5 year(s) 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 17-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R K SINHA CIT D R
• Assessee Lawyers: DM RINDANI
• Keywords: Bogus purchase; Rejection of books of accounts; Business income; Depreciation; Corroborative evidences
• Section: 143(3); 80HHC; 144

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT L LL LK KK KOZJH OZJH OZJH OZJH OLHE OLHE OLHE OLHE VGEN VGEN VGEN VGEN] YS[KK ] YS[KK ] YS[KK ] YS[KK LNL; ,O LNL; ,O LNL; ,O LNL; ,O EK/ EK/EK/ EK/KQFERK KQFERK KQFERK KQFERK JKW; JKW;JKW; JKW;] U; ] U;] U; ] U;KF KFKF KF;D ;D;D ;D LNL; DS LE{KA LNL; DS LE{KA LNL; DS LE{KA LNL; DS LE{KA BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SMT MADHUMITA ROY, JUDICIAL MEMBER ./ I.T.A. NO.16/RJT/2013 ( / ASSESSMENT YEAR :2009-10) M/S. KESHODWALA FOODS, 305 GIDC INDUSTRIAL ESTATE, SOMNATH ROAD, VERAVAL. / VS. JCIT, JUNAGADH RANGE 1, JUNAGADH. ./ ./ PAN/GIR NO. :AADFK 6651 Q ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI D. M. RINDANI, A.R. ! / RESPONDENT BY : SHRI R. K. SINHA, CIT- D.R. ' #$% ! & / DATE OF HEARING 02/07/2018 '( ! & / DATE OF PRONOUNCEMENT 26/09/2018 )* / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)IV, RAJKOT [CIT(A) IN SHORT] VIDE APPEAL NO.CIT(A)-IV/0 226/11-12 DATED 30.11.2012 ARISING IN THE MATTER OF ASSESSMENT ORDE R PASSED UNDER S.143(3) OF THE INCOME TAX ACT, 1961(HERE-IN-AFTER REFERRED TO AS 'THE ACT') DATED 28.12.2011 RELEVANT TO ASSESSMENT YEAR (AY) 2009-10. - 2 - 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE A RE AS UNDER:- 1. THE COMMISSIONER OF INCOME TAX (APPEALS) - IV, RAJKOT ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER OF REJECTION OF BOOKS OF ACCOUNTS U/S. 145(3) OF THE IT. ACT, 1961. 2. THE COMMISSIONER OF INCOME TAX (APPEALS) - IV , RAJKOT ERRED IN ESTIMATING THE GROSS PROFIT AT 12% AS AGAINST 11 .36% DECLARED BY THE APPELLANT AND THEREBY SUSTAINING AD DITION OF RS.1,00,00,000/- 3. THE COMMISSIONER OF INCOME TAX (APPEALS) - IV , RAJKOT ERRED IN HOLDING THAT THERE WAS SUPPRESSION OF YIELD. 4. THE COMMISSIONER OF INCOME TAX (APPEALS) - IV , RAJKOT ERRED IN HOLDING THAT NON-PRODUCTION OF SOME OF THE CREDI TORS LED TO INFLATION OF PURCHASES. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, WI THDRAW ANY GROUND OF APPEAL ANYTIME UPTO THE HEARING OF THIS APPEAL. 3. THE INTER-CONNECTED ISSUE RAISED BY THE ASSESSEE IS AGAINST THE REJECTION OF THE BOOKS OF ACCOUNTS U/S 145(3) OF TH E ACT AND ESTIMATING THE GROSS PROFIT @12% AGAINST THE GROSS PROFIT DECL ARED BY THE ASSESSEE @11.36% AND SUSTAINING THE ADDITION OF RS.1,00,00,0 00/-. 4. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM AND ENGAGED IN THE MANUFACTURING AND EXPORT OF FISH. TH E ASSESSEE IS ALSO ENGAGED IN THE TRADING BUSINESS OF ONION AND PAPER BOARD. THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION FILED ITS RETURN O F INCOME DECLARING INCOME OF RS. 1,34,93,550/-, WHICH WAS PROCESSED U/ S 143(1) OF THE ACT DATED 7 TH MARCH, 2011. THE AFORESAID TOTAL INCOME WAS DECLAR ED BY THE ASSESSEE AFTER INCLUDING OTHER INCOME AS DETAILED U NDER: - 3 - (A) DEPB ENTITLEMENT SALE RS. 19,45,26,824/- (B) EXCHANGE RATE DIFFERENCE RS. 39,110/- (C) FOREX HEDGING PROFIT RS. 3,34,636/- (D) REMISSION OF LIABILITY RS. 73,725/- (E) INTEREST INCOME RS. 2,25,320/- TOTAL:- RS. 19,51,99,615/- DECLARED GROSS PROFIT IS RS. 18,75,86,634/- (11.69 %) DECLARED NET PROFIT IS RS. 1,54,08,256/- (0.91%) GROSS INCOME AFTER RS. 1,35,19,046/- REMUNERATION TO PARTNERS IS TOTAL TAXABLE INCOME IS RS. 1,34,93,550/- 4.1 THE AO DURING THE ASSESSMENT PROCEEDINGS OBSERV ED CERTAIN FACTS AS DETAILED UNDER: I. IF OTHER INCOME IS EXCLUDED FROM THE TOTAL INCOM E OF THE ASSESSEE THEN THERE WOULD BE A SITUATION OF GROSS L OSS AS WELL AS NET LOSS. THUS, THE AO WAS OF THE VIEW THAT SUCH SITUATION IN THE EXPORT BUSINESS IS VERY MUCH ABNOR MAL. II. THE ASSESSEE HAS SHOWN MAJOR PURCHASES FROM THE UNREGISTERED PARTIES, THEREFORE THE VERACITY OF THE SAME IS NOT VARIABLE. MOREOVER, THE ASSESSEE IS MAINTAINING ONLY INTERNAL VOUCHERS IN RELATION TO SUCH PURCHASES. III. THE ASSESSEE DURING THE YEAR HAS DECLARED YIEL D FROM THE PROCESSING OF THE FISH @74.06% WHEREAS IN THE IMMEDIATELY PRECEDING YEAR THE YIELD WAS DECLARED @100%. FURTHERMORE, THE ASSESSEE HAS NOT SHOWN ANY SALE IN HIS INCOME TAX RETURN ON ACCOUNT OF WASTAGE PROD UCT. IV. THE EXPENSES CLAIMED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAVE INCREASED MANIFOLDS IN COMPARISO N TO THE EARLIER YEARS. V. THE ASSESSEE HAS ALSO NOT MAINTAINED PROPER BOOK S OF ACCOUNTS. - 4 - IN VIEW OF ABOVE, THE AO PROPOSED TO REJECT THE BOO KS OF ACCOUNTS AND ACCORDINGLY A SHOW-CAUSED NOTICE WAS SERVED UPON TH E ASSESSEE. 4.2 IN COMPLIANCE TO IT, THE ASSESSEE SUBMITTED AS UNDER: I. IN THE FISH INDUSTRY THE PURCHASES ARE NORMALLY MADE FROM THE UNREGISTERED PARTIES. IT IS BECAUSE THERE IS NO REQUIREMENT FOR THE PARTIES DEALING IN FISH BUSINES S TO GET REGISTERED EITHER UNDER VAT OR EXCISE ACT. THEREFOR E, THE PURCHASES WERE MADE FROM THE UNREGISTERED PARTIES. HOWEVER, ALL THE INTERNAL PURCHASE BILLS, GENERAL INWARD/OUTWARD REGISTER AND STOCK REGISTERS WERE DU LY MAINTAINED. II. AT THE TIME OF PURCHASE, THE AMOUNT OF DEPB TO BE RECEIVED ON ACCOUNT OF THE EXPORTS HAS BEEN FACTORE D IN DETERMINING THE PURCHASE PRICE OF THE FISH. THE GOV ERNMENT IS PROVIDING DEPB IN RELATION TO EXPORT SO THAT THE PARTIES CAN SALE THEIR PRODUCTS AT THE COMPETITIVE RATE IN THE INTERNATIONAL MARKET. THUS, THE DEPB WAS DIRECTLY L INKED WITH THE PURCHASES OF FISH. THEREFORE, THE INCOME F ROM DEPB CANNOT BE TREATED AS SEPARATE INCOME OVER AND ABOVE THE BUSINESS INCOME OF THE ASSESSEE. III. THERE IS NO STANDARD CRITERION FOR WORKING OUT THE YIELD FROM THE PROCESSING OF FISH. THE YIELD NORMALLY DEP ENDS ON VARIOUS FACTORS SUCH AS PROCESSING CONDITION, QUALI TY AND SIZE OF FISH AND OTHER FACILITIES AVAILABLE WITH TH E ASSESSEE. IV. THE YIELD SHOWN BY THE ASSESSEE IS WITHIN THE P ARAMETER SPECIFIED BY THE INDUSTRY. THEREFORE THERE IS NO QU ESTION OF HAVING ANY DOUBT ON THE YIELD FROM THE PROCESSING O F FISH. - 5 - V. THERE WAS INDEED WASTAGE IN THE PROCESSING OF FI SH. THEREFORE THE YIELD @ 74% WAS DECLARED BUT THERE WA S NO REALIZABLE VALUE OF SUCH WASTAGE. AS SUCH, THE ASSE SSEE HAS INCURRED COST ON GETTING THE WASTAGE REMOVED FROM I TS PROCESSING UNIT BY ARRANGING THE PEOPLE FOR THESE W ORK. VI. THE ASSESSEE ALSO SUBMITTED THAT THE EXPENSES I NCURRED BY IT FOR THE YEAR UNDER CONSIDERATION WERE SIMILAR TO TH E EXPENSES INCURRED IN THE IMMEDIATE PRECEDING ASSESS MENT YEAR. WHEREVER, THERE WAS ANY INCREASE IN THE EXPEN SES BUT THE SAME WAS NORMAL DUE TO INCREASE PRODUCTION LEVE L. VII. THE ASSESSEE HOWEVER SUBMITTED THAT IN RESPECT OF CERTAIN EXPENSES THERE WAS SUBSTANTIAL INCREASE DUE TO UNAV OIDABLE SITUATION. SUCH EXPENSES INCLUDE ELECTRICITY CHARGE S, REPAIR AND MAINTENANCE CHARGES, AND ICE & WATER EXPENSES. 4.3 THE ASSESSEE EXPLAINED THE ABOVE EXPENSES AS UN DER: A. ELECTRICITY CHARGES:- THE ELECTRICITY CHARGES WERE PAID TO THE GOVERNMENT COMPANY. IN FACT THE CHARGES HAVE INCREASED DUE TO THE FACT THAT A N EW PLANT WAS INSTALLED. THERE WAS ALSO HIKE IN THE RATE OF ELECTRICITY CHAR GES. MOREOVER, ELECTRICITY CHARGES CANNOT BE LINKED WITH THE PRODU CTION BECAUSE IT HAS TO BE INCURRED TO KEEP ITS COOLING SYSTEM ON IRRESPECT IVE OF THE QUANTUM OF MATERIALS STORED THEREIN. - 6 - B. REPAIRS AND MAINTENANCE CHARGES:- THESE CHARGES HAVE INCREASED BY ABOUT 43% IN COMPAR ISON TO THE EARLIER YEAR DUE TO THE FACT THAT THERE WAS INCREASED IN CE TP FOR SECOND PLANT. SIMILARLY, THE MAJOR ELECTRICITY CABLE WAS CHANGED AND THEREFORE, AN EXPENSE OF RS.10,00,000/- WAS INCURRED. C. ICE AND WATER CONSUMED CHARGES:- THERE IS INCREASE IN THE TURNOVER BY 33% BUT THERE IS AN INCREASE IN THE EXPENSES OF ICE AND WATER ABOUT 16.30% WHICH IS QUI TE REASONABLE AFTER HAVING REGARD TO THE INCREASE PRODUCTION. 4.4 FOR OTHER EXPENSES, THE ASSESSEE JUSTIFIED THAT THESE WERE INCURRED ONLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS AND NO RELATION WITH THE PRODUCTION CAN BE MADE. 4.5 THERE WAS NO DEFECT IN THE BOOKS OF ACCOUNTS MA INTAINED BY THE ASSESSEE. THE GP RATIO DECLARED BY THE ASSESSEE IS ALMOST AT PAR WITH THE GP RATE DECLARED IN THE PRECEDING YEARS. 4.6 THE INSPECTOR HAS NOT VERIFIED THE FACTS DURING HIS VISIT. THE VISIT OF THE INSPECTOR WAS ONLY FOR TWO AND HALF HOURS. THE INSP ECTOR IN HIS REPORT WRONGLY MENTIONED THAT HE STAYED IN THE FACTORY TO VERIFY TO THE BOOKS OF THE ACCOUNTS OF THE ASSESSEE FOR THE WHOLE DAY. THE ASSESSEE ALSO REQUESTED FOR CROSS EXAMINATION OF THE INSPECTOR OF INCOME TAX. - 7 - 4.7 HOWEVER, THE AO DISREGARDED THE CONTENTION OF T HE ASSESSEE BY OBSERVING AS UNDER:- I. THE PURCHASES SHOWN BY THE ASSESSEE HAS NOTHING TO DO WITH THE DEPB PROVIDED BY THE GOVERNMENT. THEREFORE , THE ARGUMENT OF THE ASSESSEE THAT THE PRICE FOR THE PURCHASE OF THE FISH HAS BEEN FIXED AFTER FACTORING THE AMOU NT OF DEPB IS NOT CORRECT. THEREFORE, THERE IS NO QUESTIO N OF PASSING ON THE DEPB TO THE FISHERMAN. II. THE AO ALSO OBSERVED THAT THE ASSESSEE IN EARLI ER YEAR WAS SHOWING GP @34% BECAUSE IN THOSE YEARS THE INCOME O F THE ASSESSEE WAS EXEMPTED U/S. 80 HHC OF THE ACT. T HUS, THE ARGUMENT OF THE ASSESSEE THAT THE AMOUNT OF DEP B HAS PASSED ON TO THE FISHERMAN WAS REJECTED. III. THE SUDDEN FALL IN THE PRODUCTION/YIELD TO 74% FROM 100% PRODUCTION IN THE IMMEDIATE PRECEDING YEAR IS VERY ABNORMAL AND THE SAME WAS NOT VERIFIABLE FROM THE AVAILABLE RECORDS. IV. THE EXPLANATIONS SUBMITTED BY THE ASSESSEE WERE NOT SUPPORTED ON THE BASIS OF EVIDENCE. V. THE WATER EXPENSES WERE INCURRED BY THE ASSESSEE ON THE PLANT NOT OWNED BY IT. THEREFORE, THESE EXPENSES WE RE NOT VERIFIABLE. VI. THERE WAS INCREASE IN THE PRODUCTION AS WELL AS EXPENSES WHICH RESULTED IN HIGHER AMOUNT OF PROFIT IN ABSOLU TE FIGURE BUT IN TERMS OF PERCENTAGE OF THE PROFIT THERE WAS DECREASE FROM 1.15% TO 0.93% OF THE TOTAL TURNOVER. - 8 - 4.8 IN VIEW OF ABOVE, THE AO WAS OF THE VIEW THAT T HE ASSESSEE HAS SUPPRESSED PRODUCTION AS WELL AS INFLATED EXPENSES. THEREFORE, THE AO REJECTED THE BOOKS OF ACCOUNTS U/S 145(3) OF THE AC T AND ESTIMATED THE PROFIT @1% OF THE TOTAL SALE. THE AO ACCORDINGLY, D ISALLOWED THE LOSS CLAIMED BY IT AND WORKED OUT THE PROFIT BY OBSERVIN G AS UNDER: 5.2 SINCE IT IS CONCLUDED THAT ASSESSEE HAS SUPPRE SSED PRODUCTION AS WELL AS, INFLATE EXPENSES NET PROFIT IS ESTIMATED @1% (IN AD DITION TO DEPB INCOME) ON ESTIMATED SALES RS.1,70,00,00,000/- . NET PROFIT SO ESTIMATED COMES TO RS.1,70,00,000/- AS AGAINST DECL ARED LOSS OF RS.18,17,29,368/-. ACCORDINGLY, AN ADDITION OF RS. 19,87,29,368/- (RS.18,17,29,368/- + RS.170,00,000/-) IS MADE TO DE CLARED INCOME. 5. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL TO LD CI T(A). THE ASSESSEE BEFORE THE LD CIT(A) SUBMITTED THAT THE AO DURING THE ASSESSMENT PROCEEDINGS HAS NOT POINTED OUT A SINGLE INSTANCE OF IRREGULARITY IN THE PURCHASE AND SALES. THUS, THE P URCHASE AND SALES WERE DULY ACCEPTED BY THE AO. 5.1 THE AO HAS NOT CHALLENGED THE METHOD OF ACCOUNT ING FOR PURCHASES, SALES AND RECORDING OF STOCK ETC. THUS, THE METHOD OF ACCOUNTING WAS DULY ACCEPTED. THE METHOD OF ACCOUNT ING ADOPTED BY THE ASSESSEE WAS ALSO ACCEPTED IN EARLIER YEARS. 5.2 FOR THE VERIFICATION OF THE PRODUCTION, THE BIL LS OF PURCHASES WERE PROVIDED TO THE AO ALONG WITH QUANTITY MENTIONED TH EREIN. THUS, THE PRODUCTION WAS VERY MUCH VERIFIABLE BY THE AO. THE YIELD SHOWN BY THE ASSESSEE WAS WITHIN THE STANDARDS AS SPECIFIED/PREV AILING IN THE FISH INDUSTRIES. - 9 - 5.3 ONCE THE BOOKS OF ACCOUNTS WERE REJECTED BY THE AO U/S 145(3) OF THE ACT THEN THE ASSESSMENT SHOULD HAVE BEEN FRAMED U/S 144 OF THE ACT WHEREAS, THE ASSESSEE HAS FRAMED ASSESSMENT UNDER S ECTION 143(3) OF THE ACT. 5.4 THE GP RATIO DECLARED BY IT WAS ALMOST AT PAR W ITH THE PRECEDING YEARS. 5.5 THERE WAS A REDUCTION IN NET PROFIT RATIO DUE T O THE FACT OF HIGHER AMOUNT OF DEPRECIATION CLAIMED ON THE NEW PROCESSIN G PLANT. 5.6 THE AO HAS ACCEPTED THE INCREASE IN PRICE IN RE LATION TO SALES BY 27% BUT DOUBTED ON THE INCREASE OF PURCHASE EXPENSE S BY 21.35% WITHOUT POINTING OUT ANY SPECIFIC DEFECT. THERE IS A DIRECT RELATION BETWEEN THE EXCHANGE RATE AND COST OF PURCHASE PRIC E OF THE FISH. IF THE CHANGE IN EXCHANGE RATE IS FAVOURABLE THEN IT WILL BE REFLECTED IN THE PURCHASE OF FISH AND VICE VERSA. 5.7 THE DEPB IS GIVEN TO THE ASSESSEE IN THE FORM O F INCENTIVE WITH THE SOLE PURPOSE TO GET MORE EXPORT BUSINESS. IT IS NOT GIVEN FOR INCREASE IN THE PROFIT. THERE IS CUT THROAT COMPETITION IN T HE INTERNATIONAL MARKET. THEREFORE, DEPB IS GIVEN SO THAT THE ASSESSEE CAN E XPORT THE GOODS AT THE COMPETITIVE RATE. - 10 - 5.8 THE YIELD ALWAYS DEPENDS UPON THE TYPES OF GOOD S, PROCESSING UNIT AND ACCORDINGLY, THERE IS A VARIATION IN THE O UTPUT OF THE PRODUCTS. 5.9 ALL THE EXPENSES WERE NOT INCREASED DURING THE YEAR UNDER CONSIDERATION IN COMPARISON TO THE EARLIER YEAR BUT SOME EXPENSES WERE ALSO DECREASED IN COMPARISON TO THE EARLIER YEAR. AS SUCH ALL THE EXPENSES WERE DULY SUPPORTED ON THE BASIS OF EVIDEN CES. THEREFORE, THE SAME CANNOT BE REJECTED WITHOUT POINTING OUT ANY DE FECT. 5.10 THE LD CIT(A) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE DELETED THE ADDITION MADE BY THE AO IN PART BY OBSE RVING AS UNDER: 6.1 I HAVE GONE THROUGH THE ASSESSMENT ORDER, SUB MISSION OF APPELLANT AND ASSESSING OFFICER. THE FALL IN GROSS PROFIT AND NET PROFIT IN ITSELF CANNOT BE A REASON TO REJECT THE BOOKS OF ACCOUNT UNLESS SPECIFIC INSTANCES OF BOGUS PURCHASES, EXPENSES AND UNRECORDED SALES AND INSTANCES OF EXCESS STOCK OR OTHER SUCH SPECIFI C IRREGULARITY IS DETECTED. A PARTICULAR EXPENDITURE MAY BE DISALLOWA BLE AS PER I.T.ACT IF IT IS CAPITAL IN NATURE AND NOT FOR THE PURPOSE OF BUSINESS, HOWEVER, IF IT IS CORRECTLY RECORDED IN BOOKS OF ACCOUNT, THE B OOKS OF ACCOUNT CANNOT BE REJECTED ON THE GROUND OF ITS NON-ALLOW A BILITY UNDER I.T.ACT. THE DEPB SCHEME WAS STARTED SOMEWHERE IN ASSESSMENT YEAR 1998- 99. THEREFORE, IT IS POSSIBLE THAT IN EARLY DAYS OF THIS SCHEME, THE BENEFITS DERIVED FROM SUCH SCHEME COULD BE A WINDFA LL GAIN. HOWEVER, IN A COMPETITIVE MARKET, THE BUSINESSMEN SACRIFICES THE PROFIT MARGIN, ESPECIALLY WHEN IT IS A WINDFALL GAIN TO CAPTURE TH E MARKET OR TO INCREASE HIS TURNOVER. THIS IS A SIMPLE ECONOMICS A ND WHEN ALL BUSINESSMEN STARTED DOING THE SAME, THE BENEFIT OF DEPB WHICH COULD HAVE BEEN A WINDFALL GAIN IN 1998-99, GRADUALLY BEC OMES A PART OF SALE PRICE CONSIDERATION FOR EARNING NORMAL PROFIT IN SU BSEQUENT YEARS. IT IS AGAIN A COINCIDENCE THAT WHEN THE NORMAL FORCES OF ECONOMICS WERE RESPONSIBLE IN DETERMINING AND REDUCING THE SALE PR ICE DUE TO BENEFIT OF DEPB IN SUBSEQUENT YEARS TILL 2004-05, THE DEDUC TION U/S 80HHC WAS ALSO WITHDRAWN FROM THE I.T.ACT. THEREFORE, THE REDUCTION IN GP OF THE BUSINESS OF APPELLANT DURING THE PERIOD 1998-99 TO 2004-05 IS - 11 - APPARENTLY DUE TO ECONOMICS OF SALE PRICE DETERMINA TION AFTER GRADUALLY ABSORBING THE WINDFALL GAIN OF DEPB START ED SINCE 1998-99 RATHER THAN THE WITHDRAWAL OF 80HHC DEDUCTION DURIN G THE SAME PERIOD. I THEREFORE FIND THAT THE GROSS PROFIT OF A SSESSMENT YEAR 2000- 01 AND THE GROSS PROFIT OF ASSESSMENT YEAR UNDER AP PEAL CANNOT BE COMPARED TO REACH ANY CONCLUSION OF REJECTION OF BO OKS OF ACCOUNT. THE CONCLUSION REACHED BY THE ASSESSING OFFICER IN RESPECT OF EXCESSIVE EXPENDITURE ON VARIOUS EXPENDITURES IS NO T, BASED ON ANY FINDING THAT APPELLANT HAS NOT INCURRED SUCH EXPEND ITURES OR SUCH EXPENDITURES ARE BOGUS. THESE FINDINGS MAY BE CONSI DERED IN DISALLOWANCE OF CERTAIN EXPENDITURE INDIVIDUALLY BU T ARE NOT MATERIAL IN REJECTING THE BOOKS OF ACCOUNT. THE REPORT OF TH E INSPECTOR IN RESPECT OF USE OF BORE-WELL WATER IS FOR THE PERIOD NOT REL EVANT FOR THE PERIOD UNDER APPEAL. MOREOVER, IF THE POTABLE WATER IS PUR CHASED BY THE APPELLANT AS PER THE NORMS OF MPEDA BECAUSE BORE WA TER IS SALINE THEN IT IS A REQUIREMENT OF APPELLANT'S BUSINESS AN D THEREFORE CANNOT BE CALLED EXCESSIVE AND IN ANY CASE CANNOT BE A GROUND TO REJECT BOOKS OF ACCOUNT. THE INCREASE IN STORES EXPENDITURE FROM RS 2.74 PER KG TO RS.2.99 PER KG IS COMPARABLE WITH NORMAL INCREASE I N COST AND NO ADVERSE INFERENCE MAY BE DRAWN FROM SUCH INCREASE A ND DEFINITELY NOT FOR REJECTING THE BOOKS OF ACCOUNT. THE NOTE AT PAR A 22 OF NOTES ON ACCOUNTS IS AN EXPLANATORY STATEMENT AND NOT AN ADV ERSE AUDIT REMARK HAVING ANY SIGNIFICANT IMPACT ON THE CORRECT NESS OF THE ACCOUNTS OR TRUE AND FAIR VIEW OF THE AFFAIRS OR TH E PROFIT OF THE FIRM. AT TIMES THE BUYERS DEDUCT A SMALL AMOUNT FROM BILLS B UT BECAUSE THE BANKER ISSUES REALISATION CERTIFICATE ON THE BASIS OF OVERALL BALANCE IN THE ACCOUNT OF THE APPELLANT WITH THE BANKER, SUCH SHORT RECEIPT, IF ANY, IN A PARTICULAR CASE COMES TO LIGHT BELATEDLY, HENC E REPORTED LATE. HOWEVER, THE SALES ARE ACCOUNTED FOR FULL VALUE WHE N THE MATERIALS ARE SHIPPED AND THEREFORE THE AUDIT NOTE AT BEST IS A C AUTIONARY NOTE RATHER THAN SHOWING ANY SUCH DEFECT IN BOOKS OF ACCOUNT ON THE BASIS OF WHICH BOOKS OF ACCOUNT MAY BE REJECTED. THE REFERENCE BY THE ASSESSING OFFICER TO REPAIR WORK NECESSITY BY APPELLANT IS A BUSINESS DECISION OF APPELLANT AND APPARENTLY INSIGNIFICANT FOR THE PURP OSE OF REJECTING THE BOOKS OF ACCOUNT. APPELLANT HAD COMMENCED ITS OWN C OLD STORAGE PLANT DURING THE YEAR AND THEREFORE THE ELECTRICITY EXPEN SES INCREASED FROM ABOUT RS. 1.046 CRORE IN PRECEDING YEAR TO RS. 2.08 8 CRORE IN THE YEAR UNDER APPEAL. HOWEVER, APPELLANT WAS EARLIER OUTSOU RCING THE PRODUCTION AND COLD STORAGE, WHICH WAS PERFORMED IN APPELLANT'S OWN PLANT DURING THE YEAR UNDER APPEAL WHICH RESULTED I N REDUCTION OF OUTSOURCED JOB WORK FROM 2.75 CRORE TO RS 2.06 CROR E IN THE YEAR UNDER - 12 - APPEAL. THE INCREASE IN MATERIALS PROCESSED WAS 20. 76% AND PRODUCTION WAS 9.96 %. I FIND THAT NO ADVERSE INFER ENCE MAY BE DRAWN FROM THE CONSUMPTION OF ELECTRICITY AFTER CONSIDERI NG THE REDUCTION IN OUTSOURCED JOB WORK EXPENSES, ESPECIALLY FOR REJECT ING THE BOOKS OF ACCOUNT. THE DECREASE IN YIELD DURING THE YEAR TO 7 4% FROM THE YIELD OF 81%-82% OR EVEN HIGHER YIELD IN EARLIER ASSESSMENT YEARS, MAY BE A REASON FOR INVESTIGATION OF INFLATED PURCHASES AND UNRECORDED SALES AND THEREFORE MAY BE A GROUND TO REJECT THE BOOKS O F ACCOUNTS IF THE INVESTIGATIONS PROVIDE CORROBORATIVE EVIDENCES. THE CORROBORATIVE EVIDENCES MAY BE IN THE FORM OF EXAMINATION OF UNPA ID CREDITORS. IF SUCH CREDITORS ARE NOT IDENTIFIED OR CONFIRMED IT M AY INDICATE INFLATED PURCHASES AND THEREFORE MAY BE A GROUND TO REJECT T HE BOOKS OF ACCOUNTS. SIMILARLY, APPELLANT HAS NOT ACCOUNTED FO R THE BODY PARTS OF FISH, WHICH ARE REMOVED DURING PRODUCTION PROCESS. IF, THESE BODY PARTS ARE FOND TO HAVE MARKET VALUE THAT WOULD BE A NOTHER GROUND TO REJECT THE BOOKS OF ACCOUNTS. THESE ISSUES WERE VER IFIED DURING THE REMAND PROCEEDING BY THE ASSESSING OFFICER AND ARE DISCUSSED IN NEXT PARA. 6.2 THE ASSESSING OFFICER MADE SOME ENQUIRIES DURING THE REMAND PROCEEDINGS AND I BROUGHT OUT SPECIFIC FACTS DISC USSED IN PARA 4. THE ASSESSING OFFICER FOUND DURING THE REMAND PROCEEDIN GS THAT THE MATERIAL WHICH IS PRODUCED DUE TO BEHEADING, GUTTIN G, SKINNING, DEBONING ETC OF THE BODY OF FISH IS ONLY A WASTAGE AFTER RECORDING THE STATEMENTS OF THE WASTAGE LIFTER FROM THE PREMISES OF APPELLANT. THE REMAND REPORT OF THE ASSESSING OFFICER SHOWS THAT T HIS MATERIAL WAS LIFTED BY WASTAGE LIFTER AND WAS NOT WORTH ANYTHING , THIS SHOWS THAT SUCH MATERIAL DOES NOT HAVE ANY MARKET VALUE IN RES PECT OF WHICH ANY SALE SHOULD HAVE BEEN SHOWN. THEREFORE NO ADVERSE V IEW IS TAKEN FOR NON ACCOUNTING OF WASTE MATERIAL BY THE APPELLANT I N ITS BOOKS. THE APPELLANT ALSO SUBMITTED THE CATEGORY-WISE RAW FISH PURCHASED AND PRODUCTION THERE FROM FOR VERAVAL AND MUMBAI UNITS AS UNDER: VERAVAL UNIT ITEM NAME RAW MATERIAL PRODUCTION SALE C/S YIELD TINY 528 2439083 876352 670736 206144 36 RIBBON FISH 85853 1657854 1624697 1710550 0 98 SQUID 130143 1438574 632972 606160 156955 44 LIZARD 269195 1315036 184105 453300 0 14 CROAKER 14996 1124893 1124893 1038526 101363 100 - 13 - CUTTLE FISH 179 1064343 594775 557082 37872 56 SKIPJACK TUNA 61405 943434 943434 1000676 4163 100 KING FISH 192632 880985 704788 897419 0 80 KOOTH 1570 930379 446582 447970 182 48 POMFRATE (S) 74980 803566 803566 724630 153916 100 BABY REEFCOD 32464 599722 566777 545374 53868 95 YELLOW FIN TUNA (V.G 48393 524592 493116 485903 55606 94 B.M.C 125550 299775 299775 425325 0 100 BABY GHOLE 21100 309326 309326 288102 42324 100 KATTI 26100 300945 300945 306360 20685 100 SEERFISH 0 314846 314846 262234 52612 100 SOLE FISH 36780 364701 364701 360120 41361 100 T. T. CROAKER 98322 417126 291988 390310 0 70 BULLEYE 4060 324874 107208 39460 71808 33 B.POMFRET 701 102324 102324 101580 1444 100 HORSE MACKERELL 4241 221700 221700 185050 40891 100 LONG TAIL TUNA 53887 248267 248267 302154 0 100 RED SNAPPER 931 217169 217169 213818 4282 100 SEA BREAM (KISI) 1645 151358 151358 130082 22921 100 EEL FISH 19328 255824 250708 223441 46595 98 BARACUDA 2440 133503 106802 85151 24091 80 OCTOPUS 10159 278411 180967 128417 62710 65 JAPNESETHRED FIN BREAM 0 198386 119032 60122 58910 60 LEATHER JACKET 12839 109484 56931 69770 0 52 MAHIMAHI 4701 265680 119556 123862 395 45 SURAJ 117820 137439 61847 179668 0 45 8/DUCK 7444 1280 1280 1140 7584 100 CH.POMFRET 14819 68231 68231 83050 0 100 CHAKSI 0 5409 540 0 5409 100 CRABE 0 1244 1244 0 1244 100 DORAB 14660 6058 6058 6280 14438 100 EMPORER 26800 85346 85346 72375 39771 100 FLOUNDER 0 34769 34769 23470 11299 100 - 14 - (FARVA) HILSHA 13329 73031 73031 86360 0 100 I/HALIBUT 1180 67 67 0 1247 100 I/HALIBUT 0 670 670 0 670 100 I/MACKEREL 35991 10115 10115 9349 36756 100 INDIAN HALIBUT(HARIY 0 20 20 0 20 100 KUKARIYA 0 60 60 0 60 100 MAGRA 0 3 3 0 3 100 MENDALI 0 560 560 560 0 100 P/EMPORER 0 42707 42707 30989 11718 100 PARA 0 60 60 0 60 100 POPAT 0 1314 1314 0 1314 100 SAKRA 0 1546 1546 0 1546 100 SARDIN 0 1679 1679 0 1679 100 SERI 0 226 226 0 226 100 TRAVALLY 7435 43724 43724 51071 88 100 VARARA 0 2630 2630 0 2630 100 W/SNAPER 1351 20531 20531 14765 7118 100 SHOLE 16890 39174 18804 35550 144 48 CAT FISH 25880 28732 7183 11370 21693 25 LOBSTER 1270 0 0 1270 0 ONION 0 25040 25030 0 25030 100 TOTAL 1619990 18867818 13273801 13440949 1452842 70 MUMBAI UNIT ITEM NAME O/S RAW MATERIAL PRODUCTION SALE C/S YIELD RIBBON FISH/SEER/H- MACKERAL/ 38656 1181483 1158124 1196780 0 98 SILVER/ YELLOW CROAKER 24780 1014580 1014580 1018760 20600 100 LONG TAIL TUNA 0 306201 306201 242474 63727 100 BABYGHOLE 75 53545 53545 53620 0 100 - 15 - KATTI FISH 24 53670 53670 52960 734 100 KING FISH 1921 53439 42751 35316 9356 80 BLOOD RED SNAPPER 2610 24530 24530 27140 0 100 CUTTLE FISH 6934 32191 26906 33840 0 84 MALABAR TRAVEL Y 0 18694 18694 18420 274 100 SILVER POMFRET 6320 23885 23885 28830 1375 100 SOLE FISH 410 18230 18230 18640 0 100 B.M.C. 0 2660 2660 580 2080 100 INDIAN MACKEREL 0 9215 9215 6218 2997 100 BLACK POMFRATE 0 49 49 49 100 TOTAL 81730 2792371 2753040 2733578 101192 99 THE ABOVE LIST IS ARRANGED IN ORDER OF QUANTITY OF FISH OF DIFFERENT VARIETY CONSUMED IN THE BUSINESS OF APPELLANT FOR P RODUCTION. APPELLANT HAS SHOWN AN AVERAGE YIELD OF 99% IN MUMB AI UNIT AND AN AVERAGE YIELD OF ONLY 70% IN VERAVAL UNIT. THE MAIN CONTRIBUTOR TO A LOWER THAN AVERAGE YIELD IN VERAVAL UNIT IS THE PRO CESSING OF TINY, SQUID, LIZARD FISH, CUTTLE FISH, KOOTH, TT CROAKER, AND BULLEYE. IF THESE FISH ARE REMOVED FROM THE ABOVE TABLE, THE AVERAGE YIELD IN OTHER FISH WOULD BE ABOUT 93% IN VERAVAL UNIT WHICH IS WITHIN ACCEPTABLE RANGE. THEREFORE, THE REASON FOR LOWER THAN NORMAL YIELD I N VERAVAL UNIT OF APPELLANT IS MAINLY ON ACCOUNT OF PROCESSING OF THE FISH AS UNDER: ITEM NAME YIELD TINY (SHRIMPS) 36 SQUID (CEPHOLOPODS) 44 LIZARD FISH (FIN FISH) 14 CUTTLE FISH (CEPHOLOPODS) 56 KOOTH (FIN FISH) 48 - 16 - T.T. CROAKER (FIN FISH) 70 BULLEYE (FIN FISH) 33 THE YIELD IN THE PROCESSING OF ABOVE FISH IS RESPON SIBLE FOR OVERALL LOW YIELD IN CASE OF APPELLANT. ASSESSING OFFICER AS WE LL AS APPELLANT BOTH HAVE STATED THAT THE YIELDS OF MPEDA MAY BE APPLIED FOR CORRECT ESTIMATION OF YIELD. HOWEVER, NONE OF THEM COULD PR OVIDE ANY LIST FROM MPEDA. THEREFORE, IN ABSENCE OF ANY FURTHER CLARIFI CATION PROVIDED BY EITHER THE ASSESSING OFFICER OR THE APPELLANT THE A NALYSIS IS MADE BASED ON MATERIAL MADE AVAILABLE BY APPELLANT, MATERIAL M ADE AVAILABLE IN SIMILAR APPEALS AND THE INFORMATION AVAILABLE IN IN TERNET. IT APPEARS THAT THE YIELD OF WHOLE FISH SOLD WITHOUT ANY REMOV AL OF BODY PART MAY BE 100%. THE YIELD OF FISH SOLD AFTER REMOVING THE HEAD AND FINS MAY BE 85%-90%. THE YIELD OF FISH SOLD AFTER FURTHER RE MOVING THE INTERNAL ORGANS SUCH AS INTESTINE ETC MAY BE 65%-75%. THE YI ELD OFFISH AFTER FURTHER REMOVING SKIN AND BONES MAY BE 45%-60%. THE RE MAY BE FURTHER LOSS OF WATER AT THE TIME OF 'FREEZING' IN THE FORM OF DRIP LOSS AND IN CASE OF SHRIMPS, THIS LOSS IS HIGHER BECAUSE THE WATER CONTENT IN SHRIMPS IS VERY HIGH. MOREOVER, SAME FISH MAY BE SO LD AS WHOLE FISH, HEADLESS FISH OR AFTER REMOVAL OF ALL NON-EDIBLE PA RTS. THEREFORE, THE YIELD IN THE SAME FISH MAY VARY FROM 40% TO 100%, I F THE FINAL PRODUCT IS SOLD AS DIFFERENT COMBINATION OF WHOLE, HEADLESS , FILLET (ONLY MEAT) ETC TO DIFFERENT CUSTOMERS. THEREFORE, IT IS NOT PO SSIBLE TO SAY WHETHER THE YIELD SHOWN BY APPELLANT IS CORRECT OR NOT UNLE SS THE APPELLANT HAS FOLLOWED A PARTICULAR PROCESS ON A PARTICULAR FISH. HOWEVER, A YIELD BELOW 40% IN CASE OF MOST OF THE FISH AND IN CASE O F SHRIMPS A YIELD BELOW 35% WOULD BE UNUSUAL. IN CASE OF APPELLANT, T INY IS A SHRIMP AND THEREFORE YIELD OF 36% IS A POSSIBILITY. HOWEVE R, THE YIELD IN CASE OF LIZARD FISH (14%) AND BULLEYE (33%) WHICH ARE NO T IN THE CATEGORY OF SHRIMPS, IS LESS THAN EVEN 40%. SUCH YIELD IS VE RY UNLIKELY EVEN IF THE REMOVAL OF ALL NON EDIBLE BODY PARTS OF FISH IS CONSIDERED. FURTHER, THERE WAS A LONG LIST OF CREDITORS OUT OF WHICH ASS ESSING OFFICER SELECTED 39 CREDITORS AND ISSUED SUMMONS TO THEM FO R VERIFICATION DURING REMAND PROCEEDING. THESE WERE ALL THE CREDIT ORS OF QUITE HIGH AMOUNT AND KREFORE IT WAS NOT POSSIBLE THAT THEY CO ULD HAVE VANISHED AFTER A FEW DEALS WITH THE APPELLANT. OUT OF THESE 39 CREDITORS, 29 CREDITORS CONFIRMED THEIR TRANSACTIONS WITH APPELLA NT AND REMAINING 10 DID NOT APPEAR BEFORE THE ASSESSING OFFICER. ASS ESSING OFFICER ASKED THE APPELLANT TO BRING THEM BEFORE THE ASSESS ING OFFICER FOR EXAMINATION. HOWEVER, NONE OF THEM WERE PRODUCED BY APPELLANT BEFORE THE ASSESSING OFFICER. THE VERIFICATION OF C REDITORS DID NOT BRING OUT ANY UNDISPUTABLE NEGATIVE EVIDENCE AGAINST THE APPELLANT, - 17 - HOWEVER, THE NON PRODUCTION OF REMAINING 10 CREDITO RS BY APPELLANT BEFORE THE ASSESSING OFFICER AFTER THEY DID NOT ATT END BEFORE THE ASSESSING OFFICER DOES NOT ABSOLVE APPELLANT OF ITS OWN OBLIGATION TO PROVE THE CREDITORS CORRECT. I MUST SAY THAT 10 OUT OF 39 CREDITORS WERE NOT PROVED INCORRECT BY THE ASSESSING OFFICER AT TH E SAME TIME THEY WERE ALSO NOT PROVED CORRECT BY THE APPELLANT. IN S UCH A SITUATION, DUE TO EVIDENCES OF YIELD SUPPRESSION, THE NON PRODUCTI ON OF THESE 10 CREDITORS BY APPELLANT BEFORE THE ASSESSING OFFICER GAINS MORE VALUE AND INDICATES THE POSSIBILITY OF INFLATION OF PURCH ASES. I THEREFORE HOLD THAT THE BOOKS OF ACCOUNT OF APPELLANT ARE RIGHTLY REJECTED BY THE ASSESSING OFFICER MAINLY ON ACCOUNT OF YIELD SUPPRE SSION. IN ASSESSMENT YEAR 2008-09, AND EVEN IN EARLIER ASSESS MENT YEARS THE YIELD WAS ABOUT 81%-82% OR MORE. THE YIELD HAS REDU CED TO ABOUT 74% IN THE ASSESSMENT YEAR UNDER APPEAL. NORMALLY, IF THE YIELD GOES DOWN DUE TO SELECTING A NEW FINISHED PRODUCT, WHIC H INCLUDES ANY OR ALL OF YIELD LOSING PROCESSES SUCH AS HEAD REMOVAL, FINS REMOVAL, INTERNAL ORGANS REMOVAL, SKIN REMOVAL, BONE REMOVAL ETC, THE GP DOES NOT VARY BECAUSE THE PRICE OF FINISHED PRODUCT ALSO INCREASES ACCORDINGLY. IN CASE OF APPELLANT, THE GP HAS ALSO REDUCED IN THE ASSESSMENT YEAR UNDER APPEAL IN COMPARISON TO EARLI ER YEARS, WHICH SUPPORTS THE ABOVE EVIDENCES OF YIELD SUPPRESSION A ND SUBSEQUENTLY THE PROFIT SUPPRESSION. ASSESSING OFFICER HAS STATED TH AT THE GP OF THE BUSINESS OF APPELLANT WAS 11.43% IN ASSESSMENT YEAR 2008-09 IN COMPARISON TO GP OF 11.36% IN THE ASSESSMENT YEAR U NDER APPEAL. HOWEVER, CONSIDERING THE EVIDENCE AND QUANTUM OF SU PPRESSION OF YIELD MAINLY IN LIZARD FISH IN THE ASSESSMENT YEAR UNDER APPEAL AND THE FACT THAT APPELLANT COULD NOT PROVE CREDITORS O F ABOUT RS 1.38 CRORE AS GENUINE DURING THE REMAND PROCEEDING, GP SHOULD BE ESTIMATED AT ABOUT 12% INSTEAD OF 11.36% REFLECTED BY THE APPELL ANT. THEREFORE, ON A TURNOVER OF ABOUT RS. 165 CRORE, ESTIMATED ADDITI ON OF RS.1,00,00,000/- IS SUSTAINED. I DIRECT THE ASSESSI NG OFFICER TO REDUCE THE ADDITION FROM RS. 19,87,29,368 TO RS. 1,00,00,0 00/- AND REDUCE THE TOTAL INCOME OF THE APPELLANT ACCORDINGLY. 5. GROUND NO 1 TO 17 OF THE APPEAL OF ASSESSEE ARE PARTLY ALLOWED. 5.11 BEING AGGRIEVED BY THE ORDER OF LD CIT(A) ASSE SSEE IS IN APPEAL BEFORE US. - 18 - 6. THE LD AR BEFORE US FILED A PAPER BOOK WHICH IS RUNNING FROM PAGES 1 TO 146 AND SUBMITTED THAT OUT OF 39 SUNDRY CREDITORS 29 CREDITORS APPEARED BEFORE THE AO WHICH HAVE CONFIRMED THE TRA NSACTION WITH THE ASSESSEE. 6.1 THE ASSESSEE WITH OTHER CREDITORS WAS PURCHASIN G THE GOODS ON REGULAR BASIS AND THE PAYMENT TO THEM HAS BEEN MADE IN THE LATER YEARS. 6.2 THE LD. AR FURTHER SUBMITTED THAT THE AO WAS PR OVIDED WITH THE DETAILS OF ALL THE PURCHASES AND SALES AS WELL AS O PENING STOCK AND CLOSING STOCK AND NO DEFICIENCY WAS POINTED OUT BY THE AO DURING THE ASSESSMENT PROCEEDINGS. 6.3 THE LD AR IN SUPPORT OF HIS CLAIM DREW OUR ATTE NTION ON THE DETAILS OF PURCHASES AND SALES, WHICH ARE PLACED ON PAGES 18-55 AND 71- 89 OF THE PAPER BOOK. 6.4 THE LD AR ALSO FILED THE DETAILS OF THE DAILY S TOCK REGISTER ON THE SAMPLE BASIS IN RESPECT OF CERTAIN FISHES WHICH ARE PLACED ON PAGES 56 TO 59 OF THE PAPER BOOK, WHICH WAS DULY ACCEPTED BY TH E AO DURING THE ASSESSMENT PROCEEDINGS. 6.5 THE LD AR IN FURTHER SUBMITTED THAT THE DETAILS OF THE PAYMENT TO THE SUNDRY CREDITORS WERE DULY SUBMITTED BEFORE THE LD CIT(A). - 19 - 7. ON THE OTHER HAND, THE LD DR SUBMITTED THAT NO S TOCK REGISTER WAS PRODUCED BEFORE THE AO. THEREFORE, THE BOOKS WERE R EJECTED. 7.1 THERE WAS NO PLEA TAKEN BY THE ASSESSEE BEFORE THE LD CIT(A) THAT CREDITORS WERE PAID IN THE SUBSEQUENT YEARS. THE LD DR VEHEMENTLY SUPPORTED THE ORDER OF AUTHORITIES BELOW. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE PRESENT CASE, THE BOOKS OF ACCOUNTS WERE REJECTED BY THE AO ON ACCOUNT OF SEVERAL REASONS WH ICH HAVE ALREADY BEEN DISCUSSED IN THE PRECEDING PARAGRAPH. HOWEVER, THE CIT(A) UPHELD THE ORDER OF THE AO FOR THE REJECTION OF THE BOOKS OF ACCOUNTS DUE TO THE FOLLOWING REASONS: I. THERE WAS VERY LESS YIELD IN THE CASE OF LIZARD FISH AND BULLEYE FISH WHICH IS 14% AND 33% RESPECTIVELY. II. ALL THE SUNDRY CREDITORS DID NOT APPEAR FOR THE IR CONFIRMATION. IN VIEW OF ABOVE, WE DRAW INFERENCE THAT THE BOOKS WERE REJECTED ONLY FOR THE REASONS AS DISCUSSED ABOVE. 8.1 IT IS ALSO PERTINENT TO NOTE THAT THE REVENUE H AS NOT CHALLENGED THE DECISION OF LD. CIT(A) IN THE CASE ON HAND WHICH IM PLIES THAT THE DECISION OF THE LD CIT(A) WAS ACCEPTED BY THE REVEN UE. - 20 - 8.2 THUS, THE CONTROVERSY BEFORE US REVOLVES FOR TH E REJECTION OF THE BOOKS OF ACCOUNTS AND THE ADDITION OF RS. 1 CRORE C ONFIRMED BY THE LD. CIT(A). 8.3 AS FAR AS REJECTION OF THE BOOKS OF ACCOUNT IS CONCERNED, WE NOTE THAT THE LD CIT(A) HAS ACCEPTED ALL THE BOOKS OF AC COUNTS OF THE ASSESSEE EXCEPT THE YIELD IN CASE OF TWO FISHES AS DISCUSSED ABOVE. WE NOTE THAT THE ASSESSEE WAS DEALING INTO VARIETY OF FISHES AND THERE WAS ALSO A SHORT PRODUCTION BUT AS PER THE LD CIT(A) SUCH SHORT PROD UCTION IN RESPECT OF OTHER FISHES WAS WITHIN THE PARAMETER OF THE YIELD RATE SPECIFIED IN THE FISH INDUSTRY. FROM THE ABOVE, WE NOTE THAT THE BUS INESS DONE BY THE ASSESSEE IN CASE OF LIZARD FISH AND BULLEYE FISH WA S NOT SIGNIFICANT ENOUGH. IT WAS REPRESENTING THE NEGLIGIBLE VALUE OF THE TOTAL BUSINESS OF THE ASSESSEE THEREFORE WE ARE OF THE VIEW THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE CANNOT BE REJECTED ON ACCOUNT OF SHORT PRODUCTION/YIELD SHOWN BY THE ASSESSEE IN RESPECT OF TWO FISHES ONLY OUT OF SEVERAL FISHES IN WHICH THE ASSESSEE WAS DEALING. 8.4 WE ALSO NOTE THAT THE CREDITORS WERE ARISING FR OM THE PURCHASES MADE BY THE ASSESSEE WHICH WERE DULY ACCEPTED BY TH E AO WITHOUT POINTING OUT ANY IOTA OF DEFECTS. IN OUR CONSIDERED VIEW, ONCE THE PURCHASES HAS NOT BEEN DISTURBED THUS, THE CREDITOR S ARISING OUT OF SUCH PURCHASES CANNOT BE DISALLOWED MERELY ON THE GROUND THAT THEY FAILED TO APPEAR BEFORE THE AO. THE ASSESSEE ALSO CLAIMED THA T IT WAS PURCHASING FISHES FROM THESE SUNDRY CREDITORS ON REGULAR BASIS . THE DETAILS FURNISHED - 21 - BY THE ASSESSEE HAVE NOT BEEN CHALLENGED BY ANY OF THE AUTHORITIES BELOW DURING THE RELEVANT PROCEEDINGS. 8.5 AFTER CONSIDERING THE FACTS IN TOTALITY, WE ARE OF THE VIEW THAT THE BOOKS OF ACCOUNTS IN THE GIVEN FACTS AND CIRCUMSTAN CES CANNOT BE REJECTED. IN THIS REGARDED, WE FIND SUPPORT AND GUI DANCE FROM THE ORDER OF RAIPUR TRIBUNAL IN THE CASE OF ACIT VS. BALAJEE STRUCTURAL (INDIA) PVT. LTD. IN ITA NO.80/RPR/2013. THE RELEVANT EXTRA CT OF THE ORDER IS REPRODUCED BELOW: THE A.O. HAS NOT COME ACROSS ANY MATERIAL DEFECT I N ACCOUNT SO AS TO HOLD THAT ANY PROFIT HAS BEEN SUPPRESSED. THE APPEL LANT HAS SATISFACTORILY EXPLAINED THAT THERE WAS NO DECLINE IN GP RATE AS ALLEGED BY THE A.O AND THE YIELD WAS ALSO BETTER. THE A.O. HAS NOT BROUGHT ANY MATERIAL ON RECORD TO DISBELIEVE THE BOOK RESULT SH OWN BY THE APPELLANT. IF THERE IS NO SUPPRESSION OF MATERIAL F ACTS, THE AUTHORITY CANNOT EMBARK UPON A SPECULATIVE LENT OF NOTIONAL P ROFITS. THE ASSESSMENT SHOULD BE BASED ON COGENT FACTS AND THER E SUFFICIENT REASONS MUST BE GIVEN TO INDICATE THAT THEY ARE UNR ELIABLE-MERE DISPARITY IN CONSUMPTION OF ELECTRICITY IN CERTAIN MONTHS CANNOT BE THE REASON FOR REJECTION OF ACCOUNTS-SUCH VARIATION CAN BE DUE TO VARIOUS FACTORS BEYOND THE CONTROL OF ASSESSEE-REJECTION, T HEREFORE, NOT JUSTIFIED. THE A.O EXAMINED THE AUDITED BOOKS OF AC COUNT BUT HAD NOT POINTED OUT ANY SPECIFIC DISCREPANCY NOR HAS HE DET ECTED ANY SUPPRESSION IN SALES OR INFLATION IN PURCHASES/EXPE NSES. NO EVIDENCE WHATSOEVER WAS BROUGHT ON RECORD TO PROVE THAT, THE APPELLANT, IN FACT, EARNED MORE THAN THAT RETURNED AS PER THE BOOKS OF ACCOUNT KEPT IN THE REGULAR COURSE OF BUSINESS. THE ASSESSMENT ORDER IS EVIDENCE TO THE FACT THAT THERE WAS NO SPECIFIC FINDING GIVEN BY TH E A.O TO THE EFFECT THAT THE METHOD EMPLOYED BY THE APPELLANT WAS SUCH THAT CORRECT PROFITS COULD NOT BE DEDUCED THERE FROM. IT IS ALSO NOT THE CASE OF THE APPELLANT THAT IT HAS NOT FOLLOWED THE MERCANTILE S YSTEM OF ACCOUNTING. IT IS ALSO NOT THE CASE OF THE APPELLANT THAT IT HA S NOT FOLLOWED ANY PARTICULAR ACCOUNTING STANDARDS WHICH ARE NOTIFIED BY THE CENTRAL GOVERNMENT. - 22 - 6.3 IT IS ALSO NOT IN DISPUTE THAT THE APPELLANT HA S MAINTAINED BOOKS OF ACCOUNT REGULARLY AND THESE ARE DULY AUDITED U/S 44 AB OF THE I.T. ACT AND THE QUANTITATIVE DETAILS WERE PREPARED AND WERE DULY AUDITED. THE VARIATION IN PERCENTAGE OF GP/NP OR PAYMENTS IN CAS H, IN THE ABSENCE ANY COGENT REASONS COULD NOT, BY ITSELF, HAVE BEEN A GROUND TO HOLD THAT PROPER INCOME OF THE APPELLANT CANNOT BE DEDUC ED FROM THE ACCOUNTS MAINTAINED BY IT AND CONSEQUENTLY, COULD N OT HAVE BEEN A GROUND TO REJECT THE ACCOUNTS INVOKING SECTION 145(3) OF THE ACT. THERE IS NO FINDING IN THE ASSESSMENT ORDER OF THE A.O TH AT THE ACTUAL COST OF FINISHED GOODS PURCHASED BY THE APPELLANT WAS LESS THAN WHAT WAS DECLARED IN THE ACCOUNT BOOKS. THERE IS NO FINDING BY THE A.O THAT ACTUAL QUANTITY OF FINISHED GOODS SOLD BY THE APPEL LANT WAS MORE THAN WHAT IT WAS SHOWN IN THE ACCOUNTS BOOKS. THERE IS N O FINDING BY THE A.O THAT THE FINISHED GOODS WERE SOLD BY THE APPELL ANT AT A PRICE HIGHER THAN WHAT WAS DECLARED IN THE ACCOUNT BOOKS. FROM THE TAX AUDIT REPORT, IT IS DISCERNIBLE THAT THE APPELLANT DID MAINTAIN STOCK RECORDS AND THE A.O HAS NOT POINTED OUT ANY INCORRE CTNESS IN THE SAME, I AM OF THE CONSIDERED OPINION THAT MERELY BECAUSE THE QUANTITY OF RAW MATERIAL CONSUMED AND FINISHED GOODS PRODUCED HAVE BEEN QUANTIFIED WITH SOME DEGREE OF ESTIMATION THE BOOKS OF ACCOUNT CANNOT BE SAID TO BE UNRELIABLE OR PRONE TO REJECTION. 8.6 WE ALSO PLACED OUR RELIANCE ON THE JUDGMENT OF AGRA TRIBUNAL IN THE CASE OF ACIT VS. RAVI AGRICULTURAL INDUSTRIES, REPORTED IN 117 ITD 338, WHERE IT WAS HELD AS UNDER: IT WAS APPARENT FROM THE SALES CHART SUBMITTED BY THE ASSESSEE THAT IT HAD SHOWN BETTER PROFIT PERCENTAGE. UNLESS THE DEPA RTMENT HAD SOME MATERIAL TO SHOW THAT THERE WAS SALE OUTSIDE THE BO OKS OF ACCOUNT, IT WAS NOT CORRECT IN REJECTING THE BOOKS OF ACCOUNT M AINTAINED BY THE ASSESSEE. MERE FALL IN THE SALES DID NOT JUSTIFY TH E REJECTION OF THE BOOKS OF ACCOUNT WITHOUT ANY OTHER COGENT MATERIAL. AGAIN , THE COMPUTATION OF THE STOCK DURING THE COURSE OF SURVEY WAS BASED ON CERTAIN ESTIMATIONS, INTERPOLATIONS AND EXTRAPOLATIONS. THA T BY ITSELF DID NOT MEAN THAT THE BOOKS OF ACCOUNT MAINTAINED BY THE AS SESSEE, DULY SUPPORTED BY PURCHASE AND SALE BILLS WHICH WERE PRO DUCED BEFORE THE ASSESSING OFFICER DESERVED REJECTION. THE BLANK BIL LS FOUND IN THE COURSE OF SURVEY IN THE NAME OF PERSONS DOING JOB W ORK DID NOT IN ANY WAY LEAD TO CONCLUSION THAT THE SALES FIGURE DISCLO SED BY THE ASSESSEE REQUIRED TO BE REJECTED. THE REJECTION OF THE BOOKS OF ACCOUNT BY - 23 - INVOKING PROVISIONS OF SECTION 145(3) WAS TOTALLY U NWARRANTED AND COULD NOT BE SUPPORTED IN THE EYES OF LAW. HAVING A CCEPTED THIS, THE ADDITION BASED ON CERTAIN ESTIMATION OF SALES WAS C ORRECTLY DELETED BY THE COMMISSIONER (APPEALS) AS WELL AS BY THE JUDICI AL MEMBER. IN VIEW OF ABOVE, WE HOLD THAT THE BOOKS OF ACCOUNT S CANNOT BE REJECTED IN THE GIVEN FACTS AND CIRCUMSTANCES. 8.7 COMING TO THE ADDITION MADE BY THE LD CIT(A) FO R RS. 1 CRORE ON ACCOUNT OF SHORT YIELD AS WELL AS NON CONFIRMATION OF SUNDRY CREDITORS. IN THIS REGARD, WE NOTE THAT THE SUNDRY CREDITORS C ANNOT BE DISALLOWED WITHOUT DISTURBING THE PURCHASES. IN THE CASE BEFOR E US THERE WAS NO ALLEGATION ABOUT THE GENUINENESS OF THE PURCHASES T HEREFORE IN OUR CONSIDERED VIEW, THE SAME CANNOT BE DISALLOWED. 8.8 AS FOR AS, THE SHORT YIELD IS CONCERNED IN THE CASE OF LIZARD AND BULLEYE FISH, WE NOTE THAT THE SHORT YIELD HAS BEEN SHOWN BY THE ASSESSEE IN COMPARISON TO THE PREVAILING PRODUCTS IN THE FIS H INDUSTRY. THEREFORE, IN OUR CONSIDERED VIEW AT THE MOST THE ADDITION CAN BE SUSTAINED IN THE HANDS OF THE ASSESSEE ON ACCOUNT OF SHORT PRODUCTIO N IN THE CASE OF LIZARD AND BULLEYE FISH WHICH REQUIRES AN ESTIMATE OF THE PROFIT ON REASONABLE BASIS. WE ALSO NOTE THAT THERE WAS NO ALLEGATION OF THE LOWER AUTHORITY THAT THE ASSESSEE HAS EITHER MADE PURCHASES OR SOLD GOODS OUTSIDE THE BOOKS OF ACCOUNTS. THEREFORE, WE DIRECT THE AO TO E STIMATE THE PROFIT ON ACCOUNT OF SHORT PRODUCTION IN CASE OF LIZARD FISH AND BULLEYE FISH. IN THIS REGARD, WE FIND SUPPORT AND GUIDANCE FROM THE JUDGM ENT OF HONBLE - 24 - GUJARAT HIGH COURT IN THE CASE OF CIT VS. PRESIDENT INDUSTRIES REPORTED IN 258 ITR 654WHEREIN, IT WAS HELD AS UNDER: THE AMOUNT OF SALES BY ITSELF CANNOT REPRESENT THE INCOME OF THE ASSESSEE WHO HAS NOT DISCLOSED THE SALES. THE SALES ONLY REPRESENT THE PRICE RECEIVED BY THE SELLER OF THE GOODS FOR THE A CQUISITION OF WHICH IT HAS ALREADY INCURRED THE COST. IT IS THE REALISATIO N OF EXCESS OVER THE COST INCURRED THAT ONLY FORMS PART OF THE PROFIT IN CLUDED IN THE CONSIDERATION OF SALES. THEREFORE, UNLESS THERE IS A FINDING TO THE EFFECT THAT THE INVESTMENT BY WAY OF INCURRING COST IN ACQ UIRING GOODS WHICH HAVE BEEN SOLD HAS BEEN MADE BY THE ASSESSEE AND TH AT HAS ALSO NOT BEEN DISCLOSED, THE QUESTION WHETHER ENTIRE SUM OF UNDISCLOSED SALES PROCEEDS CAN BE TREATED AS INCOME, ANSWERS BY ITSEL F IN THE NEGATIVE. 8.9 AFTER HAVING RELIANCE ON THE AFORESAID JUDGMENT WE DIRECT THE AO TO MAKE THE ADDITION ON THE BASIS OF GROSS PROFIT D ECLARED BY THE ASSESSEE IN EARLIER YEARS AFTER QUANTIFYING THE SHORT PRODUC TION IN THE CASE OF LIZARD AND BULLEYE FISH IN COMPARISON TO THE INDUST RY YIELD. THUS, THE GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 26/09/2018 SD/- SD/- E/KQFERK JKW; E/KQFERK JKW; E/KQFERK JKW; E/KQFERK JKW; OLHE VGEN OLHE VGEN OLHE VGEN OLHE VGEN U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; YKS[KK LN YKS[KK LN YKS[KK LN YKS[KK LNL; L; L; L; (MADHUMITA ROY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 26/09/2018 PRITI YADAV, SR.PS - 25 - / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. + & ' ,& / CONCERNED CIT 4. ' ,& ( ) / THE CIT(A)- IV, RAJKOT. 5. -$./ 0&0# , , /DR,ITAT, RAJKOT 6. /12 3% / GUARD FILE. / BY ORDER, -& 0& //TRUE COPY// / ! '#$ ( DY./ASSTT.REGISTRAR) ! $%! & , / ITAT, RAJKOT 1. DATE OF DICTATION 07/08/2018 (DICTATION PAGES : 12 ) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 19/09/2018 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S 27/09/2018 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S. 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER