M/s. Indo German Fabs, Amritsar. V. Asstt. Commissioner of Income-tax, Amritsar.

ITA 162/ASR/2015

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3721 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 8 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 14-09-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 26-03-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: P N ARORA ADV SH RAHUL DHAWAN
• Keywords: Gross profit estimation; Rejection of books of accounts; Unexplained expenditure; Question of law
• Section: 143(3); 142(1); 234B; 145

Judgement Text

IN THE INCOME TAX APPELLATE TR IBUNAL AMRITSAR BENCH; AMRITSAR BEFORE SH.T.S. KAPOOR, ACCOUNTANT MEMBER AND SH.N.K.CHOUDHRY, JUDICIAL MEMBER I.T.A. NO.162(ASR)/2015 ASSESSMENT YEAR: 2005-06 M/S. INDO GERMAN FABS. OPP. TARN TARAN BYE PASS ROAD, G.T. ROAD, JANDIALA, AMRITSAR. PAN:AAAF16308M VS. ACIT, CIRCLE-IV, AMRITSAR. (APPELLANT) (RESPONDENT) APPELLANT BY: SH. P. N. ARORA (ADV.) RESPONDENT BY: SH. RAHUL DHAWAN (DR) DATE OF HEARING: 14.09.2016 DATE OF PRONOU NCEMENT: 30.11.2016 ORDER PER N. K. CHOUDHRY (JM): THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A)-2 AMRITSAR, DATED 12.12.2014 FOR ASST. YEAR: 2005-06. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF A PPEAL. (I) THAT THE ASSESSMENT ORDER AS WELL AS THE ORDE R OF THE LD. CIT(APPEALS) ARE BOTH AGAINST THE FACTS OF THE CASE & UNTENABLE IN LAW. (II) THAT THE ASSESSING OFFICER HAS GROSSLY ERRED IN REJECTING THE TRADING ACCOUNT AND THEREBY MAKING AN ADDITION OF R S.29,80,453/- IN THE TRADING ACCOUNT. FURTHER, THE LD. C1T (APPEA LS) HAS GROSSLY ERRED IN CONFIRMING THE SAME WITHOUT APPLYING HIS M IND AND WITHOUT APPRECIATING THE ARGUMENTS AND WRITTEN SUBM ISSIONS MADE BEFORE HIM FROM TIME TO TIME. (III) THAT THE AUTHORITIES BELOW DID NOT APPRECI ATE THAT THERE WAS NO ERROR IN THE BOOKS OF ACCOUNTS. STOCK TALLY WAS DULY MAINTAINED AND THE ACCOUNT-BOOKS WERE SUBJECT TO AUDIT. NO OMI SSION OR COMMISSION HAS BEEN POINTED OUT EXCEPT THE SO-CALLE D FALL IN THE RATE OF PROFIT. AS SUCH THE LD. CIT (APPEALS) WAS N OT JUSTIFIED IN CONFIRMING THE SAME. THAT THE BOOKS OF ACCOUNTS HAV E ALWAYS BEEN ACCEPTED IN THE PAST AS WELL AS IN THE SUBSEQUENT Y EARS AND THERE I TA NO.162(ASR)/2015 AS ST. YEAR: 2005-06 2 WAS NO REASON FOR THE AO TO REJECT THE TRADING RESU LTS AND THEREBY APPLYING A RATE OF PROFIT @ 23% ON THE SALES OF RS. 7.46,14,076/-. THE SALES AS WELL AS THE G.P SHOWN BY THE ASSESSEE SHOULD HAVE BEEN ACCEPTED AND THE LD. CIT(APPEALS) SHOULD HAVE DELETED THE WHOLE ADDITION. ALTERNATIVELY THE ADDITION MADE IS VERY HIGH & EXCESSIVE. (IV) THAT INTEREST CHARGED UNDER SECTION 234B OF T HE INCOME-TAX ACT, 1961, IS NOT AT ALL CALLED FOR AND THE SAME SH OULD HAVE DELETED. ALTERNATIVELY THE INTEREST CHARGED UNDER S ECTION 234B OF THE INCOME-TAX ACT, 1961 IS VERY HIGH AND EXCESSIVE . 3. THE BRIEF FACTS OF THE CASE AS NOTED IN THE ASSESS MENT ORDER ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM AND ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF MINK BLANKETS. THE RETURN O F INCOME WAS FILED BY THE ASSESSEE ON 21.10.2005 DECLARING AN INCOME O F RS.8,76,843/-. THE CASE WAS SELECTED FOR SCRUTINY AS A SURVEY HAD BEEN CONDUCED AT THE PREMISES OF ASSESSEE ON 22.12.2004. CONSEQUENTL Y, THE ASSESSEE HAD DISCLOSED AN ADDITIONAL INCOME OF RS.8,00,000/- ON ACCOUNT OF UNACCOUNTED EXPENDITURE AND ADVANCES SHOWN TO HAVE BEEN MADE TO STAFF AND DEPOSITS IN EMPLOYEES ACCOUNT. NOTICE U/S . 143(2) OF I.T. ACT WAS ISSUED ON 31.01.2006 AND SERVED ON ASSESSEE ON 05.02.2006. THEREAFTER, NOTICE U/S. 142(1) AND QUESTIONNAIRE WE RE ISSUED TO THE ASSESSEE ON 15.01.2007. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSEE FURNISHED THE DETAILS OF SALES OF BLANKETS PARTY WI SE, HOWEVER THE AO HAS NOT ACCEPTED THE BOOKS OF ACCOUNTS OF THE ASSES SEE DUE TO THE REASON THE ASSESSEE HAS NOT MAINTAINED BOOKS OF ACC OUNTS CORRECTLY AND THERE ARE DISCREPANCIES IN THE STOCK POSITION A ND THE ACCOUNTING METHOD OF THE ASSESSEE WHICH IS ALSO NOT IN CONSONA NCE WITH SECTION 145A OF THE ACT. THUS THE PROVISION OF SECTION 145( 3) INVOKED AND ACCORDINGLY BOOKS OF ACCOUNTS WERE REJECTED AND THE GROSS PROFIT OF THE ASSESSEE WAS WORKED OUT ON ESTIMATED BASIS @ 23%. I TA NO.162(ASR)/2015 AS ST. YEAR: 2005-06 3 4. ON APPEAL FILED BY THE ASSESSEE, THE LD. CIT (A) HA S ALSO UPHELD THAT ACTION OF THE A.O BY OBSERVING AS UNDER: 6. I HAVE GONE THROUGH THE ASSESSEES SUBMISSION A ND ASSESSMENT ORDER OF THE AO IN THIS REGARD. THE ASSESSEE HAS RA ISED 4 GROUNDS OF APPEAL INTER-ALIA CHALLENGING REJECTION OF BOOKS OF ACCOUNT AND APPLYING GROSS PROFIT @ 23. THE SURVEY WAS CONDUCTED AT-THE ASSESSEES PREMISES ON 22.12.2004 AND IN CONSEQUENCES THEREOF THE ASSES SEE HAD DISCLOSED AN ADDITIONAL INCOME OF RS. 8 LACS ON ACCOUNT OF UN ACCOUNTED EXPENDITURE AND ADVANCES SHOWN TO HAVE BEEN MADE TO STAFF. THE ASSESSEE HAS SHOWN GROSS PROFIT OF 19.74 % AS COMPA RED TO 27.02% FOR ASSESSMENT ORDER 2004-05 AND 27.66% FOR ASSESSMENT YEAR 2003-04. DURING ASSESSMENT PROCEEDINGS, THE ASSESSEE HAD BEE N ASKED TO PRODUCE GROSS PROFIT COMPUTATION FOR THE PERIOD UP TO THE DATE OF SURVEY AND FOR THE PERIOD POST SURVEY AND IN THE POST SURV EY PERIOD THE GP RATE COMPUTED BY THE ASSESSEE WAS ONLY 7.73% AND THE ASS ESSEE EXPLAINED THE SAME BY STATING THAT NEARLY 50 PER CENT OF THE PERIOD IN POST SURVEY WAS OFF SEASON AND 90 PER CENT OF THE ANNUAL PRODUC TION WAS DONE IN FIRST PERIOD AND ONLY 10 PER CENT WAS DONE IN SECON D PERIOD, WHILE THE FIX OVER HEADS LIKE ELECTRICITY AND SALARY REMAINING TH E SAME. IT WAS FOUND DURING SURVEY THAT ASSESSEE WAS NOT MAINTAINING ANY STOCK REGISTER SHOWING DAY TO DAY PRODUCTION AND EVEN DURING SURVE Y ASSESSEE WAS ABLE TO PROVIDE ONLY A TENTATIVE STOCK DETAIL. EVEN ON THE DATE OF SURVEY STOCK WAS SHOWN AT RS.1,80,00,000/- BUT DURING ASSE SSMENT PROCEEDING STOCK AT DATE OF SURVEY WAS TAKEN BY THE ASSESSEE A T RS.1,70,00,000/- HIMSELF. THUS ASSESSEES BOOKS OF ACCOUNT WERE NOT CORRECT FROM WHICH PROFIT CAN BE COMPUTED OF THE BUSINESS IN RELIABLE MANNER. IT HAS BEEN HELD BY VARIOUS COURTS THAT THE DISCLOSURE MADE DUR ING SURVEY ITSELF MEANS THAT BOOKS OF ACCOUNT OF THE ASSESSEE ARE NOT CORRECT AND RELIABLE. THE ASSESSEE HAS TAKEN PLEA THAT DURING THE YEAR PU RCHASE PRICE OF YARN HAS GONE UP AND THERE WAS DECREASE IN THE SALE PRIC E OF BLANKET PER UNIT, HOWEVER, ASSESSEE HAS NOT PRODUCED ANY DAY TO DAY P RODUCTION REGISTER IN THIS REGARD. THE AO TRIED TO COMPUTE CLOSING STO CK OF BLANKET ON THE BASIS OF AVERAGE YIELD OF EACH BLANKET PRODUCTION. THE ASSESSEE HAS SUBMITTED DETAILS OF PRODUCTION IN WHICH CONSOLIDAT ED DETAILS OF BLANKET PRODUCTION HAS BEEN ON PAGE 20-21 OF THE PAPER BOOK . HOWEVER, SIMILAR DETAILS FOR EARLIER YEARS WERE NOT PRODUCED WHEN AS SESSEE HAS SHOWN GP OF MORE THAN 27 PER CENT. IT IS SEEN FROM THESE PAGES THAT ASSESSEE HAS SHOWN AROUND 1 PER CENT WASTAGE IN WEAVING I.E. 3932 KG ON 406685 KG CONSUMPTION OF YARN. THE ASSESSEE HAS SHO WN 15.5 PER CENT LOSS ON MANUFACTURING OF BLANKETS IN THE FORM OF CU TTING, DROPPING AND FLYING WASTES. THE ASSESSEE HAS SHOWN 62597 KG LOSS IN PRODUCTION OF BLANKETS ON 402753 KG CONSUMPTION OF WEAVED MATERIA L (I.E. AFTER WEAVING OF BLANKETS FROM YARN). THIS HUGE LOSS OF MATERIAL DURING MANUFACTURING PROCESS IS NOT VERIFIABLE IN ABSENCE OF DAY TO DAY PRODUCTION REGISTER AND STOCK REGISTER. THE ASSESSE E HAS ALSO NOT I TA NO.162(ASR)/2015 AS ST. YEAR: 2005-06 4 SUBMITTED PRODUCTION SUMMARY FOR ASSESSMENT YEAR 20 03-04 AND 2004- 05 WITH WHICH IT CAN BE COMPARED. IN VIEW OF ABOVE, AO WAS JUSTIFIED IN REJECTING BOOKS OF ACCOUNT OF THE ASSESSEE U/S 145 OF THE INCOME TAX ACT IN ABSENCE OF PRODUCTION REGISTER, STOCK REGISTER A ND EARLIER YEARS. ONLY SOME ANALYSIS CAN BE MADE FROM THESE FIGURES. THUS, IT CAN BE SEEN FROM ABOVE DETAILS THAT ASSESSEE HAS SHOWN WEAVING LOSS OF 1 PER CENT AND PRODUCTION LOSS OF 15.5 PERCENT, WHICH MEANS TOTAL MANUFACTURING LOSS OF AROUND 16.5 PERCENT. TO COVER THIS PRODUCTION LOSS FROM THE FINISHED GOODS, THE PRICE GOODS SHOULD BE AT LEAST 16.5 PER CENT MORE THAN THE PURCHASE PRICE OF YARN CONSUMED DURING THE YEAR. IN ABOVE CALCULATION OTHER MANUFACTURING-EXPENSES, ELECTRICITY AND CHEMI CALS HAVE NOT BEEN TAKEN INTO ACCOUNT IF ONE TAKES INTO ACCOUNT THESE EXPENSES GP WILL GO UP BY ANOTHER 4-5 PER CENT. THUS, A GP OF MORE THAN 20 PER CENT WILL BE REQUIRED TO COVER THESE EXPENSES WHICH SHOWS THAT G P OF 27 PER CENT IN EARLIER YEAR WAS CORRECT AS TO COVER LOSSES/EXPENSE S AND SOME NOMINAL PROFIT. IN VIEW OF SAME IT IS VERY CLEAR THAT DAY T O DAY PRODUCTION REGISTER IS REQUIRED TO ASCERTAIN THESE LOSSES IN PRODUCTION AS IF THESE LOSSES ARE REDUCED BY 5 PER CENT, WHICH WILL MEAN 5 PER CENT A DDITIONAL PRODUCTION I.E. 5 PER CENT ADDITIONAL SALE TO THE ASSESSEE. IT IS CLEAR FROM ABOVE ANALYSIS THAT ASSESSEE HAS SHOWN LOWER GP DURING TH E YEAR BY INFLATING PRODUCTION LOSSES AND THUS YIELD IN HIS BUSINESS. T HE ASSESSEE HAS - DELIBERATELY NOT SUBMITTED THESE DETAILS FOR EARLIE R YEAR AS WELL. IN THE TAX AUDIT REPORT IT IS CLEARLY MENTIONED THAT NO ST OCK REGISTER ARE BEING MAINTAINED IN COLUMN 28B OF THE SAID REPORT. IT IS FURTHER STATED THAT STOCK IN HAND AT THE CLOSING OF THE YEAR IS AS PER STATEMENT OF MANAGEMENT OF STOCK PHYSICALLY TAKEN BY THE YEAR EN D. THE ASSESSEE HAS NOT FURNISHED ANY DETAILS IN TAX AUDIT REPORT O F QUANTITIES DETAILS WHICH INCLUDES YIELD OF FINISHED PRODUCTION ETC. TH ERE ALL COLOUMNS ARE BLANK AND DOES NOT REVEAL ANY INFORMATION AND IT FU RTHER SHOWN THAT MANUFACTURING PRODUCTION DATA HAS NOT BEEN SUBJECTE D TO AUDITED BY STATUTORY AUDITOR. IN VIEW OF ABOVE, THE AO HAS RIG HTLY REJECTED THE BOOKS OF ACCOUNT AND HAS ESTIMATED INCOME AT 23 PER CENT IN THIS REGARD. THE ACTION OF THE AO IS UP HELD AND APPEAL IS DISMISSED . 5. FEELING AGGRIEVED BY THE ORDER OF LD. CIT(A), THE ASSESSEE FILED THE INSTANT APPEAL WHICH IS UNDER CONSIDERATION. 6. AT THE OUTSET, THE LD. AR SUBMITTED THAT THE ASSES SING OFFICER HAS GROSSLY ERRED IN REJECTING THE TRADING ACCOUNT AND THEREBY MAKING AN ADDITION OF RS.29,80,453/- IN THE TRADING ACCOUNT A ND THE LD. CIT(A) ALSO GROSSLY ERRED IN CONFIRMING THE SAME WITHOUT A PPLYING HIS MIND I TA NO.162(ASR)/2015 AS ST. YEAR: 2005-06 5 AND WITHOUT APPRECIATING THE ARGUMENTS AND WRITTEN SUBMISSIONS MADE BEFORE HIM FROM TIME TO TIME. IT WAS ALSO ARGUED TH AT BOTH THE AUTHORITIES BELOW FAILED TO APPRECIATE THAT THERE W AS NO ERROR IN THE BOOKS OF ACCOUNT BECAUSE STOCK TALLY WAS DULY MAINT AINED AND THE ACCOUNT -BOOKS WERE SUBJECT TO AUDIT. NO OMISSION O R COMMISSION HAS BEEN POINTED OUT EXCEPT THE SO-CALLED FALL IN THE R ATE OF PROFIT. AS SUCH THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE SAME. THAT THE BOOKS OF ACCOUNTS HAVE ALWAYS BEEN ACCEPTED IN THE PAST A S WELL AS IN THE SUBSEQUENT YEARS AND THERE WAS NO REASON FOR THE AO TO REJECT THE TRADING RESULTS AND THEREBY APPLYING A RATE OF PROF IT @ 23% ON THE SALES OF RS.7,46,14,076/-. THE SALES AS WELL AS THE G.P S HOWN BY THE ASSESSEE SHOULD HAVE BEEN ACCEPTED AND THE LD. CIT( A) SHOULD HAVE DELETED THE WHOLE ADDITION. ALTERNATIVELY THE ADDIT ION MADE IS VERY HIGH & EXCESSIVE AND SHOULD HAVE BEEN ACCEPTED AND FINAL LY ALTERNATIVELY ARGUED THAT ADDITION MADE IS VERY HIGH & EXCESSIVE. FURTHER, IT WAS ALSO ARGUED THE INTEREST CHARGED U /S 234B OF THE INCOME TAX ACT, 1961, IS NOT AT ALL CALLED FOR AND THE SAME SHOULD HAVE DELETED. ALTERNATIVELY THE INTEREST CHARGED U/S 234 B OF THE INCOME-TAX ACT, 1961 IS VERY HIGH AND EXCESSIVE. THE LD. AR AL SO RELIED UPON THE JUDGMENTS MENTIONED BELOW AND SUBMITTED THAT THE JU DGMENTS ARE DIRECTLY AND SQUARELY APPLICABLE TO THE FACTS OF TH E CASE, THEREFORE, THE ORDER PASSED BY THE LD. CIT(A) IS LIABLE TO BE DISM ISSED BEING PERVERSE, ILLOGICAL, UNWARRANTED AND UNCALLED FOR AS PER JUDG MENTS RELIED UPON BY THE ASSESSEE. (I.) INTERNATIONAL FOREST CO. VS. CIT, 101 ITR 0721 (J&K) (II) CIT VS. MAHESH CHAND 199 ITR 0247 (ALLAHABAD) (III) M. DURAI RAJ VS. CIT 83 ITR 0484 (KERLA) (IV.) PANDIT BROS. VS. CIT 26 ITR 0159 (P&H) (V) ACIT VS. MAHESH T. PATODIA 79 ITD 0040(ITAT, PU NE BENCH) I TA NO.162(ASR)/2015 AS ST. YEAR: 2005-06 6 7. ON THE CONTRARY, IT WAS ARGUED BY THE LD. D.R. THAT AUTHORITIES BELOW DULY CONSIDERED THE FACTS AND CIRCUMSTANCES O F THE CASE AND ALSO ANALYZED THE LEGAL PROVISIONS AND LAW SETTLED BY TH E HIGHER COURTS WHILE DETERMINING THE LIABILITY. IT WAS FURTHER ARGUED TH AT THE AO RIGHTLY REJECTED THE BOOKS OF ACCOUNT BECAUSE THERE WAS STE EP DECLINE OF G.P. RATE AND IN ABSENCE OF COMPLETE RECORDS, THE AO WAS CORRECT BY APPLYING A REASONABLE G.P RATE. FURTHER, IT WAS ARG UED THAT IN VIEW OF THE NON-MAINTENANCE OF RECORD OF PURCHASE, NON-AVAI LABILITY OF SALES AND ESPECIALLY IN ABSENCE OF STOCK REGISTER AND LOW PROFIT/G.P RATE, THE AUTHORITIES BELOW HAVE TAKEN POSSIBLE VIEW, THEREFO RE, THE PETITIONER IS NOT ENTITLED FOR ANY KIND OF RELIEF AS PRAYED FOR. IT WAS FURTHER ARGUED BY THE LD. DR THAT IN ORDER TO CHECK VERACITY OF GROSS PROFIT AS DISCLOSED BY THE ASSESSEE, MAINTENANCE OF STOCK REGISTER WAS NEC ESSARY AND EVEN OTHERWISE NO SATISFACTORY EXPLANATION HAD BEEN FURN ISHED BY THE ASSESSEE FOR NON-MAINTAINING THE STOCK REGISTER, TH EREFORE, THE ORDER PASSED BY THE AUTHORITIES BELOW DOES NOT DESERVE TO BE INTERFERED BY THIS HONBLE TRIBUNAL. WITH REGARD TO THE UN-REASONABILITY OF G.P RATE APP LIED BY THE AO AND CONFIRMED BY THE LD. CIT(A), IT WAS ARGUED BY T HE LD. DR THAT THE LD. AO HAS RIGHTLY APPLIED THE G.P RATE @ 23% WHICH IS AT THE LOWEST IN COMPARISON TO THE PREVIOUS YEARS , IT CANNOT BE DET ERMINED AS HIGHER SIDE, THEREFORE, THE GROUND TAKEN BY ASSESSEE DOES NOT INSPIRE CONFIDENCE AND NOT TENABLE. THE LD. DR ALSO SUBMITTED THAT CASES RELIED UPON BY THE LD. AR ARE FACTUALLY DIFFERENT AND EVEN OTHERWISE NOT OF T HE JURISDICTIONAL HIGH COURT HENCE, THE SAME CANNOT BE APPLIED TO THE PECU LIAR FACTS OF THE INSTANT CASE. IT WAS FURTHER SUBMITTED THAT THE JUR ISDICTIONAL HIGH COURT IN CASES TITLED AS (A ) HARISH AHUJA VS. COMMISSIONER OF INCOME TAX 93 CCH 0239 PHHC (B) BRIJ MOHAN BANSAL VS. INCOME TAX OFFICER 74 I TA NO.162(ASR)/2015 AS ST. YEAR: 2005-06 7 CCH 0887 PHHC. WHILE DEALING WITH SAME SITUATION , CONCLUDED THAT IN ABSENCE OF STOCK REGISTER, VIEW TAKEN BY THE AUTHOR ITIES BELOW IS A RIGHT POSSIBLE VIEW, THEREFORE, DOES NOT DESERVES TO BE I NTERFERED WITH AS NO SUBSTANTIAL QUESTION OF LAW ARISES. 8. WE HAVE GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE AND MINUTELY PERUSED THE RELEVANT RECORDS AND ALSO CONSIDERED THE SUBMISSIONS MADE BY THE PARTIES ORALLY AS WELL AS W RITTEN, WE FEEL IT APPROPRIATE TO TAKE UP ALL THE ISSUES SIMULTANEOUSL Y TO DECIDE THE INSTANT APPEAL. FROM THE RECORDS, IT REVEALS THAT THE ASSESSEE HAS ATTEMPTED TO SHOW THAT IT HAS PRODUCED MORE BLANKETS POST SURVEY BUT THE SAME ARE OF 2.08 KG AS AGAINST THE NORMAL WEIGHT OF 2.56 KG, WHEN TAKEN FOR THE WHOLE YEAR, AND THE AVERAGE WEIGHT OF 2.6 KG TAKEN FOR THE PRE-SURVEY PERIOD. IT IS ALSO REVEALED THAT THE ASSESSEE HAS S OLD MORE BLANKETS DURING THE PEAK SUMMER SEASON THAN DURING THE WINTE R MONTHS. THEREFORE, CLAIM OF THE ASSESSEE FAILS ON THE PROBA BILITIES OF HUMAN EXPECTATION. THE AVERAGE PRICE OF 151955 BLANKETS S OLD BEFORE SURVEY IS COMING TO RS.452/- PER PIECE WHILE THE AVERAGE PRIC E OF 10158 BLANKETS SOLD AFTER SURVEY IS COMING TO RS.580/- PER PIECE, THEREBY SHOWING THAT THERE WAS NO REASON FOR THE GROSS PROFIT TO COME DO WN POST SURVEY BECAUSE THE ASSESSEE SEEMS TO HAVE GOT A GOOD BARGA IN FOR HIS BLANKETS POST SURVEY. FURTHER THE ELECTRICITY EXPENSES, DYES AND CHEMICA LS AND PACKING MATERIAL PURCHASED AND FREIGHT IN THE MONTH S OF JANUARY TO MARCH RAISE SERIOUS DOUBTS ABOUT THE CLAIMS OF LOW PRODUCTION POST SURVEY BY THE ASSESSEE. THIS IS BECAUSE THE ELECTRI CITY EXPENSES FOR THE MONTHS OF JAN-MARCH ARE MUCH MORE WHEN THE PRODUCTI ON AS WELL AS THE SALE WAS LESS THAN THE ELECTRICITY EXPENSES FOR THE MONTHS OF APRIL- JULY WHEN IT IS CLAIMED THE PRODUCTION AS WELL AS S ALES IS MORE. AS I TA NO.162(ASR)/2015 AS ST. YEAR: 2005-06 8 THERE WAS DISCREPANCIES IN THE STOCK POSITION AND T HE ACCOUNTING METHOD OF THE ASSESSEE WHICH IS NOT IN CONSONANCE W ITH SEC.145A OF THE ACT. THEREFORE, THE AUTHOURIES BELOW INDEPENDEN TLY SATISFIED IN REJECTION OF BOOKS OF ACCOUNTS AND TO WORK OUT G.P OF THE ASSESSEE ON ESTIMATE BASIS. IT IS UNDISPUTED FACT THAT SURVEY WAS CONDUCTED AT THE ASSESSEE PREMISES ON 22.12.2004 AND IN PURSUANCE THEREOF, TH E ASSESSEE HAD DISCLOSED AN ADDITIONAL INCOME OF RS.8 LACS ON ACCO UNT OF UNACCOUNTED EXPENDITURE AND ADVANCES SHOWN TO HAVE BEEN MADE TO STAFF. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE HAD BEEN A SKED TO PRODUCE GROSS PROFIT COMPUTATION FOR THE PERIOD UP TO THE D ATE OF SURVEY AND FOR THE PERIOD POST SURVEY AND IN THE POST SURVEY PERI OD, THE G.P RATE COMPUTED BY THE ASSESSEE WAS ONLY 7.73% AND THE ASS ESSEE HAD EXPLAINED THAT NEARLY 50 PER CENT OF THE PERIOD IN POST SURVEY WAS OFF SEASON AND 90 PER CENT OF THE ANNUAL PRODUCTION WAS DONE IN THE FIRST PERIOD AND ONLY 10 PER CENT WAS DONE IN THE SECOND PERIOD, WHILE THE FIX OVER HEADS LIKE ELECTRICITY AND SALARY REMAINING TH E SAME. IT IS ALSO UNDISPUTED FACT THAT THE ASSESSEE WAS NO T MAINTAINING ANY STOCK REGISTER SHOWING DAY TO DAY PRODUCTION AN D EVEN DURING SURVEY, THE ASSESSEE WAS ONLY ABLE TO PROVIDE ONLY A TENTATIVE STOCK DETAIL AND ON THE DATE OF SURVEY STOCK WAS SHOWN AT RS.1,80,00,000/- BUT DURING ASSESSMENT PROCEEDING, STOCK AT DATE OF SURVEY WAS TAKEN BY THE ASSESSEE AT RS.1,70,00,000/- HIMSELF, THEREF ORE, THE AO RIGHTLY CONCLUDED THAT ASSESSEES BOOKS OF ACCOUNT WERE NOT CORRECT FROM WHICH PROFIT CAN BE COMPUTED OF THE BUSINESS IN REL IABLE MANNER. WITH REGARD TO THE CONTENTION OF THE ASSESSEE THAT DURING THE YEAR, PURCHASE PRICE OF YARN HAS GONE UP AND THERE WAS DECREASE IN THE SALE PRICE OF BLANKET PER UNIT, THE ASSESSEE FAILE D TO PRODUCE ANY DAY TO DAY PRODUCTION REGISTER IN THIS REGARD. THE A.O TRI ED TO COMPUTE CLOSING I TA NO.162(ASR)/2015 AS ST. YEAR: 2005-06 9 STOCK OF BLANKET ON THE BASIS OF AVERAGE YIELD OF E ACH BLANKET PRODUCTION. THE ASSESSEE HAD SUBMITTED DETAILS OF P RODUCTION IN WHICH CONSOLIDATED DETAILS OF BLANKET PRODUCTION HAVE BEE N GIVEN, HOWEVER, FROM THE FACTS SUBMITTED BY THE ASSESSEE, AS THE AS SESSEE CLAIMED HUGE LOSSES OF MATERIAL DURING MANUFACTURING PROCESS, IN FACT THE SAME WERE NOT VERIFIABLE IN ABSENCE OF DAY TO DAY PRODUCTION REGISTER AND STOCK REGISTER, EVEN OTHERWISE THE ASSESSEE ALSO FAILED T O PRODUCE PRODUCTION SUMMARY FOR ASST. YEAR: 2003-04 AND 2004-05 WITH WH ICH IT CAN BE COMPARED. THEREFORE, ON THE CUMULATIVE EFFECTS, THE AO WAS JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNT OF THE ASSESSEE IN T HE ABSENCE OF PRODUCTION REGISTER, STOCK REGISTER AND DETAILS OF EARLIER YEARS, AND ALSO DISCREPANCIES IN THE ACCOUNTS. EVEN OTHERWISE IN THE TAX AUDIT REPORT, IT IS CLEA RLY MENTION THAT NO STOCK REGISTERS ARE BEING MAINTAINED IN COLUMN 2 8B OF THE YEAR AS PER STATEMENT OF MANAGEMENT OF STOCK PHYSICALLY TAK EN BY THE YEAR END AND THE ASSESSEE HAS NOT FURNISHED ANY DETAILS IN T AX AUDIT REPORT AS QUANTITATIVE DETAILS WHICH INCLUDES YIELD OF FINISH ED PRODUCTION ETC. THESE ALL COLUMNS ARE BLANK AND DOES NOT REVEAL ANY INFORMATION AND IT FURTHER SHOWN THAT MANUFACTURING PRODUCTION DATA HA S NOT BEEN SUBJECTED TO AUDITED BY STATUTORY AUDITOR. THEREFOR E, ON THE AFORESAID CONSIDERATION AND ANALYZATION, THE WE ARE OF THE CO NSIDERED OPINION THAT BOTH THE AUTHORITIES BELOW RIGHTLY REJECTED TH E TRADING ACCOUNT AS WELL AS BOOKS OF ACCOUNTS AS THERE WAS ERROR IN BOO KS OF ACCOUNT AND IN OUR CONSIDER OPINION THE BOOKS OF ACCOUNT SIMPLY SU BJECTED TO AUDIT DOES NOT AUTHENTICATE ITS GENUINENESS AND UN-ERRED AND THE ACCEPTANCE OF BOOKS OF ACCOUNT IN THE PAST AS WELL AS SUBSEQUE NT YEARS DOES NOT MEAN THAT BLINDLY IT CAN BE ACCEPTED IN THE RELEVAN T YEAR IF THERE IS DEFECTS AND ERROR REVEALED OR OCCURRED DURING THE S URVEY AND EXAMINATION. I TA NO.162(ASR)/2015 AS ST. YEAR: 2005-06 10 WITH REGARD TO THE JUDGMENTS RELIED UPON BY THE LD . AR, AS HE HAS EMPHASIZED THAT ITEM WISE STOCK REGISTER MAINTAININ G IS NOT COMPULSORY AND MERELY ON THE BASIS OF NON-MAINTENANCE OF STOCK REGISTER, IT CANNOT BE INFERRED THAT THE ACCOUNT BOOKS ARE FALSE AND ME RE LOW PROFIT BY ITSELF CANNOT JUSTIFY ADDITION AS G.P RATE DEPENDS ON MANUFACTURES AND SAME CANNOT BE REMAINED CONSTANT FROM YEAR TO YEAR. WE HAVE GONE THROUGH THE JUDGMENT RELIED UPON BY T HE ASSESSEE, IN OUR CONSIDERED OPINION, ONCE THERE ARE DIRECT JU DGMENTS HAVING BEEN PASSED BY THE JURISDICTIONAL HIGH COURT WHICH ARE D IRECTLY AND SQUARELY APPLICABLE TO THE FACTS OF THE INSTANT CASE THEN TH E JUDGMENTS WHICH ARE FACTUALLY DISSIMILAR TO THE PECULIAR FACTS OF THE C ASE ARE NOT RELEVANT TO BE APPLIED BECAUSE IN THE INSTANT CASE , JUDGMENTS RELIED UPON BY THE REVENUE DEPARTMENT ARE SQUARELY AND DIRECTLY COVERI NG THE ISSUES IN CONTROVERSY. FOR THE SAKE OF CONVENIENCE, BREVITY A ND CLARITY, THE RELEVANT OBSERVATIONS OF THE JURISDICTIONAL HIGH CO URT ARE REPRODUCED HERE IN BELOW. HARISH AHUJA VS. COMMISSIONER OF INCOME TAX (4) AFTER HEARING LEARNED COUNSEL FOR THE ASSESSEE AND PERUSING THE RECORD, WE DO NOT FIND ANY SUBSTANCE IN THE ARGUMEN T RAISED BY THE LEARNED COUNSEL. THE ASSESSING OFFICER PASSED THE A SSESSMENT ORDER UNDER SECTION 143(3) OF THE ACT BY APPLYING GP RATE OF 10% ON GROSS SALES OF RS. 11.74 CRORES AFTER REJECTING THE BOOKS OF ACCOUNT UNDER SECTION 145(3) OF THE ACT ON THE GROUND THAT NO STO CK REGISTER WAS MAINTAINED BY THE ASSESSEE AND, THUS, MADE AN ADDIT ION OF RS.41,09,728/- TO THE TOTAL RETURNED INCOME. THE CI T(A) HELD THAT THE FIGURE OF CLOSING STOCK DECLARED BY THE ASSESSEE IN THE PROFIT AND LOSS ACCOUNT WAS NOT VERIFIABLE IN THE ABSENCE OF STOCK REGISTER AND SO THE GP RATE WAS NOT VERIFIABLE AND ACCORDINGLY RESTRICT ED THE GP RATE TO 9% AND UPHELD THE REJECTION OF BOOKS OF ACCOUNT. TH E TRIBUNAL WHILE UPHOLDING THE ORDERS OF THE ASSESSING OFFICER AS WE LL AS THE CIT(A) QUA REJECTION OF BOOKS OF ACCOUNT, ESTIMATED THE GP RATE AT 8% INSTEAD OF 9% AS ORDERED BY THE CIT(A). (5) THE ASSESSEE WAS TRADING IN THE ITEMS OF WELL ESTAB LISHED COMPANIES AND IS ALSO A WHOLESALER C&F AGENT. IN ORDER TO CHE CK VERACITY OF THE GROSS PROFIT DISCLOSED BY THE ASSESSEE, MAINTENANCE OF STOCK REGISTER BY THE ASSESSEE WAS ESSENTIAL. THE ASSESSING OFFICE R HAD COMPARED THE GROSS PROFIT RATE OF THE ASSESSEE VIZ-A-VIZ OTH ER SIMILAR CONCERNS. NO SATISFACTORY EXPLANATION HAD BEEN FURNISHED BY T HE ASSESSEE FOR NOT MAINTAINING THE STOCK REGISTER. THE REJECTION O F BOOKS OF ACCOUNT OF I TA NO.162(ASR)/2015 AS ST. YEAR: 2005-06 11 THE ASSESSEE BY THE ASSESSING OFFICER WAS, THUS, JU STIFIED. THE RELEVANT FINDINGS RECORDED BY THE TRIBUNAL READ AS UNDER:- '7. ON CONSIDERATION OF THE RIVAL SUBMISSIONS, WE A RE OF THE VIEW REJECTION OF THE BOOKS OF ACCOUNT IS JUSTIFIED IN T HE MATTER. THE ASSESSING OFFICER HAS VERIFIED THE GP RATE OF DIFFE RENT CONCERNS AND FOUND ASSESSEE HAS BEEN DECLARING DIFFERENT GP, THOUGH SAME CALCULATION WAS FOUND TO BE DEFECTIVE BY ID. CIT (A PPEALS) BUT THE FACT REMAINS THAT THERE WAS A VARIATION IN THE GP R ATE AND FURTHER, ASSESSEE HAS NOT MAINTAINED ANY STOCK REGISTER, THE REFORE THE VERIFICATION OF THE PROPER GROSS PROFIT COULD NOT B E DONE BY THE ASSESSING OFFICER. THE VALUATION OF THE CLOSING STO CK WAS THUS, NOT VERIFIABLE. IT WAS ALSO FOUND THAT ASSESSEE IS TRAD ING IN THE ITEMS OF WELL ESTABLISHED COMPANIES AND IS A WHOLESALER/C &F AGENT. THEREFORE, STOCK REGISTER SHOULD HAVE BEEN MAINTAIN ED BY ASSESSEE. THEREFORE, CONSIDERING THE OBJECTIONS RAI SED BY THE ASSESSING OFFICER, THE REJECTION OF BOOKS OF ACCOUN T IS JUSTIFIED. WE, THEREFORE, CONFIRM THE ORDERS OF THE AUTHORITIES BE LOW IN REJECTING THE BOOKS OF ACCOUNT OF THE ASSESSEE. HOWEVER, CONS IDERING THE HISTORY OF THE ASSESSEE IN WHICH THE ASSESSEE HAS D ECLARED LESSER GROSS PROFIT AND ACCEPTED BY THE DEPARTMENT, IT WOU LD BE REASONABLE AND PROPER TO DIRECT THE AUTHORITIES BEL OW TO APPLY GROSS PROFIT RATE OF 8% INSTEAD OF 9% APPLIED BY TH E ID. CIT(APPEALS). THE ORDERS OF AUTHORITIES BELOW TO TH AT EXTENT ARE MODIFIED AND IT IS DIRECTED THAT INCOME OF THE ASSE SSEE BE COMPUTED BY APPLYING GP RATE OF 8% INSTEAD OF 9% AP PLIED BY THE ID. CIT (APPEALS).' (6) NOW ADVERTING TO THE JUDGMENTS IN PANDIT BROTHERS, ASHOKE REFRACTORIES PVT. LTD. AND SMT. POONAM RANI'S CASES (SUPRA) RELIED UPON BY THE LEARNED COUNSEL FOR THE APPELLAN T, IT MAY BE NOTICED THAT THE PRINCIPLE OF LAW ENUNCIATED THEREIN, IS WE LL RECOGNIZED, HOWEVER, BEING BASED ON INDIVIDUAL FACT SITUATION I NVOLVED THEREIN WOULD BE OF NO HELP TO THE CASE OF THE ASSESSEE. IN VIEW OF THE FINDINGS NOTICED HEREINBEFORE, NO BENEFIT CAN BE DE RIVED BY THE ASSESSEE FROM THE AFORESAID PRONOUNCEMENTS. (7) IN VIEW OF THE ABOVE, NO SUBSTANTIAL QUESTION OF LA W ARISES IN THIS APPEAL. ACCORDINGLY/FINDING NO MERIT IN THE INSTANT APPEAL, THE SAME IS HEREBY DISMISSED. BRIJ MOHAN BANSAL VS. INCOME TAX OFFICER 4. ON APPEAL, THE CIT(A) PARTLY ACCEPTED THE CLAIM OF THE ASSESSEE BY REDUCING THE GP RATE FROM 10 PER CENT TO 8.53 PER C ENT FOR TRADING TURNOVER AND FROM 6.5 PER CENT TO 5.5 PER CENT ON S ALE OF WOODEN CRATES APART FROM RELIEF OF RS.5,000 EACH IN THE MA TTER OF DISALLOWANCE OF LABOUR CHARGES AND DIESEL EXPENSES. THE TRIBUNAL UPHELD THE ORDER OF CIT(A) ON THE GROUNDS : A) FAILURE OF THE ASSESSEE TO MAINTAIN RECORD OF PURC HASES, B) ABSENCE OF VERIFIABILITY OF THE SALE, I TA NO.162(ASR)/2015 AS ST. YEAR: 2005-06 12 C) ABSENCE OF STOCK REGISTER, D) LOW PROFIT, AND E) LOW GP RATE. 5. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE VIEW TAKEN BY THE TRIBUNAL WAS ERRONEOUS AND SUBSTANTIAL QUESTION S OF LAW ARISE FROM THE ORDER OF THE TRIBUNAL WHICH ARE REQUIRED T O BE GONE INTO BY THIS COURT. 6. LEARNED COUNSEL FOR THE REVENUE OPPOSED THE SUBMI SSIONS PARTICULARLY BY POINTING OUT THAT IN THE GROUNDS OF APPEAL RAISED BEFORE THE TRIBUNAL, REJECTION OF BOOKS OF ACCOUNT WAS NOT CHALLENGED; TURNOVER OF THE ASSESSEE HAD INCREASED COMPARED TO THE LAST YEAR; DUE OPPORTUNITY HAD BEEN GIVEN TO THE AS SESSEE; THERE ARE VALID REASONS FOR ASSESSMENT. 7. AFTER HEARING LEARNED COUNSEL FOR THE PARTIES, WE ARE OF THE VIEW THAT NO SUBSTANTIAL QUESTION OF LAW ARISES ON THE FINDIN GS RECORDED AND THE ORDER OF THE TRIBUNAL DOES NOT CALL FOR ANY INT ERFERENCE. THE VIEW TAKEN BY THE AUTHORITIES BELOW IS A POSSIBLE VIEW O N APPRECIATION OF MATERIAL ON RECORD. HENCE, WE ARE OF THE CONSIDERED OPINION THAT THE AU THORITIES BELOW RIGHTLY REJECTED THE BOOKS OF ACCOUNT ON THE REASONS STATED ABOVE AND ANALYZED IN OUR ORDER. HOWEVER, AS IT WAS ALTER NATIVELY ARGUED BY THE LD. AR THAT THE ADDITION MADE IS VERY HIGH AND EXCESSIVE WHILE APPLYING THE G.P RATE CONSIDERING THE PREVIOUS YEAR S AS WELL AS SUBSEQUENT YEARS AND THE DATA IS ALSO AVAILABLE ON RECORD. IN OUR CONSIDERED OPINION, THE JUSTICE WOULD BE MET IF G.P RATE CAN BE APPLIED @ 21.5% INSTEAD OF 23% AS APPLIED BY THE A.O BECAUS E ON THE DATE OF SURVEY, STOCK WAS SHOWN AT RS.1,80,00,000/- BUT DUR ING THE ASSESSMENT PROCEEDINGS STOCK ON THE DATE OF SURVEY WAS TAKEN BY THE ASSESSEE AT RS.1,70,00,000/- HIMSELF. WHILE CONSIDE RING THE OPENING STOCK OF YARN AS WELL AS OPENING STOCK OF FINISHED BLANKET, THE ASSESSING OFFICER CONSIDERED THE TENTATIVE STOCK OF FINISHED GOODS @ RS.107% AS AGAINST RS.96% UNIT CLAIMED BY THE ASSESSEE AND ALS O CONCLUDED THAT COST HAS INCREASED DURING THE RELEVANT YEAR FROM 10 ,72,123/-. THUS, WE ARE OF THE CONSIDERED OPINION THAT CONSIDERING THE AVERAGE G.P RATE OF THE PREVIOUS YEARS, IT WOULD BE REASONABLE AND PROP ER TO APPLY G.P RATE AT 21.5% INSTEAD OF 23%, HENCE, WE DIRECT THE ASSES SING OFFICER TO APPLY G.P RATE @ 21.5%. I TA NO.162(ASR)/2015 AS ST. YEAR: 2005-06 13 DETERMINATION OF INTEREST TO BE CHARGED IS INCIDEN TAL AND CONSEQUENTIAL TO THE ASSESSMENT ORDER HENCE DOES NO T REQUIRE INFERENCE BY THIS TRIBUNAL. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 30. 11. 2016 SD/- SD/- (T. S. KAPOOR) (N.K.CHOUDHRY) ACCOUNTANT MEMBER JUDICIA L MEMBER DATED: 30.11.2016. /PK/ PS. COPY OF THE ORDER FORWARDED TO: (1) THE ASSESSEE: (2) THE (3) THE CIT(A), (4) THE CIT, (5) THE SR DR, I.T.A.T., TRUE COPY BY ORDER