PUNJAB HIDE COMPANY, AMRITSAR V. INCOME TAX OFFICER WARD 3 (3), AMRITSAR

ITA 190/ASR/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 6250 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 23 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 29-04-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 10-01-2019
• Assessment Year: 2014-2015
• Appeal Filed On: 06-04-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: P N ARORA
• Keywords: Gross profit estimation; Rejection of books of accounts; Cost of acquisition
• Section: 143(3); 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR. BEFORE SH. SANJAY ARORA, ACCOUNTANT MEMBER AND SH. N. K. CHOUDHRY, JUDICIAL MEMBER I.T.A. NO. 190/ASR/2018 ASSE SSMENT YEAR: 2014-15 PUNJAB HIDE COMPANY, 307, HIDE MARKET, AMRITSAR-143001, PUNJAB [PAN: AAEFP 6654P] VS. INCOME TAX OFFICER, WARD-3(3), AMRITSAR, PUNJAB (APPELLANT) (RESPONDENT) APPELLANT BY : SH. P. N. ARORA (ADV.) RESPONDENT BY: SH. CHARAN DASS (D.R.) DATE OF HEARING: 10.01.2019 DATE OF PRONOUNCEMENT: 25.02.201 9 ORDER PER SANJAY ARORA, AM: THIS IS AN APPEAL BY THE ASSESSEE AGITATING THE ORD ER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-1, AMRITSAR (CITA) FOR SH ORT) DATED 15.01.2018, DISMISSING THE ASSESSEES APPEAL CONTESTING ITS AS SESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) DA TED 29.12.2016 FOR ASSESSMENT YEAR (A.Y.) 2014-15. 2. THE ASSESSEE, A PARTNERSHIP FIRM, IS A DEALER IN HIDES AND SKINS, ALSO PROCESSING AND FINISHING THEM, I.E., BESIDES TRADIN G THEREIN. THE ASSESSING OFFICER (AO) REJECTED THE ASSESSEES ACCOUNTS OBSERVING THE FOLLOWING DEFECTS THEREIN: 05. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE ASSESSEE. THE FOLLOWING DEFECTS ARE FOUND IN THE BOOKS OF ACCOUNT OF THE ASSESSEE IS AS UNDER:- ITA NO. 190/ASR/2018 (AY 2014-15) PUNJAB HIDE COMPANY V. ITO 2 (I) SEPARATE DETAILS OF PURCHASES, SALES AND CLOSING ST OCK FOR HEAD OFFICE AND BRANCHES ARE NOT MAINTAINED. (II) ASSESSEE FIRM PURCHASES HIDES AND SKINS OF DIFFEREN T ANIMALS SUCH AS COWS, GOATS, BUFFALOS ETC., WHICH HAVE DIFFERENT PURCHASE AND SA LE RATES BUT NO SEPARATE RECORDS ARE MAINTAINED. (III) NO RECORD IS MAINTAINED AS TO HOW MUCH RAW HIDE AND SKIN WAS SOLD AND HOW MUCH WAS SOLD AFTER PROCESSING. (IV) A LARGE PART OF PURCHASES OF HIDES/SKINS OF THE ASS ESSEE IS NOT SUPPORTED BY BILLS BUT MERELY BY SELF-PREPARED VOUCHERS ON WHICH ONLY NAME OF SELLER IS MENTIONED. PAYMENTS FOR THESE PURCHASES HAVE ALSO BEEN MADE IN CASH. THEREFORE, NEITHER QUANTITY PURCHASED NOR RATES OF PURCHASE CAN BE VER IFIED. (V) IN THE VALUATION OF STOCK, ONLY PIECES ARE MENTIONE D BUT NO DISTINCTION AS TO THE QUALITY OR TO WHICH ANIMAL IT BELONGS AND NO JUSTIFICATION TO THE RATES APPLIED TO STOCK IN HAND. (VI) SOME OF THE EXPENSES CLAIMED BY THE ASSESSEE ARE SU PPORTED ONLY BY SELF-PREPARED VOUCHERS AND ARE PAID IN CASH FOR EXAMPLE: WAGES, P URCHASE OF HIDES, FIREWOOD, FUEL ETC. THE ASSESSEE HAS FAILED TO SUBSTANTIATE HIS CO NTENTIONS. THEREFORE, IT IS NOT POSSIBLE TO VERIFY THE GENUINENESS / CORRECTNESS OF GROSS PROFIT RATE DECLARED BY THE ASSESSEE. AND, ESTIMATED THE ASSESSEES GROSS PROFIT (GP) RAT E, DISCLOSED AT 6.68% FOR THE CURRENT YEAR, AT THE AVERAGE OF THE IMMEDIATELY TWO PRECEDING YEARS, I.E., ASSESSMENT YEARS (AYS.) 2012-13 AND 2013-14, I.E., AT RS.8.45% . THE SAME STANDS CONFIRMED IN FIRST APPEAL FOR PRINCIPALLY THE SAME REASONS; THE RELEVANT PART OF THE IMPUGNED ORDER READING AS UNDER: THE FIRMS DEALS IN PURCHASE OF RAW HIDES AND SKINS AND SELLS IT BOTH IN RAW FORM AND IN PROCESSED FORM AFTER PROCESSING THESE. IT PURCHASES HIDES AND SKINS OF DIFFERENT ANIMALS SUCH AS COWS, GOATS, BUFFALOS ETC., WHICH HAVE DIFFERENT PURCHASE AND SALE RATES. BUT THE APPELLANT WAS FOUND TO HAVE MAINTAINED NO SEPARATE RECORDS IN RESPECT OF EACH TYPE. FURTHER, NO RECORD WAS MAINTAINED OF AS TO HOW MANY OF THE HIDES AND S KINS WERE SOLD RAW AND HOW MANY WERE SOLD AFTER PROCESSING. IN THE VALUATION OF STOCK, O NLY THE NUMBER OF PIECES IS MENTIONED BUT NO TYPE OR QUALITY OF SKIN/HIDE IS MENTIONED. FOR E XAMPLE: MALL ACCOUNT (2) UNIT : PIECES DATE OPENING PURCHASES SALES CLOSING . 01.04.2013 62226 - 40 62186 ITA NO. 190/ASR/2018 (AY 2014-15) PUNJAB HIDE COMPANY V. ITO 3 06.04.2013 61100 - 438 60662 08.04.2013 60662 1374 - 62036 09.04.2013 62036 2500 2982 61554 10.04.2013 61554 924 - 62478 31.03.2014 73117 243 - 73360 APPARENTLY, IN THE ABSENCE OF PARTICULARS MENTIONIN G TYPE AND QUALITY OF HIDES/SKINS, MERE NUMBER OF THE SAME IS NOT ENOUGH TO VERIFY THE GROS S PROFIT/VALUATION OF STOCK ADOPTED BY THE APPELLANT. FURTHER, A LARGE PART OF PURCHASES OF HI DES/SKINS WAS FOUND SUPPORTED ONLY BY SELF- PREPARED VOUCHERS ON WHICH ONLY NAME OF THE SELLER HAD BEEN MENTIONED. PAYMENTS FOR THESE PURCHASES WERE ALSO MADE LARGELY IN CASH. A LARGE P ART OF THE WAGES, PURCHASE OF HIDES, FIREWOOD, FUEL ETC HAD BEEN PAID IN CASH. UPON DUE CONSIDERATION OF THE ABOVE, IT IS HELD THA T LD A.O WAS JUSTIFIED TO HOLD THAT IT WAS NOT POSSIB LE TO VERIFY THE GENUINENESS/CORRECTNESS OF GROSS PROFIT RATE DECLARED BY THE ASSESSEE FROM ITS BOOKS OF ACCOUNTS . THE TRADING RESULTS/ BOOKS OF ACCOUNTS WERE RIGHTLY REJECTED BY LD. AO U /S. 145(3) OF THE ACT. THE APPLICATION OF PROVISION OF SECTION 145(3) IS UPHELD. GROUNDS OF APPEAL 6 AND 7 ARE DISMISSED. HAVING REJECTED THE BOOKS OF ACCOUNTS / TRADING RES ULTS, THE AO IS ENTITLED TO ESTIMATE THE INCOME OF THE APPELLANT AS IF IT WERE AN ASSESSMENT U/S 144 OF THE ACT. ONLY THE ESTIMATE HAS TO BE REASONABLE AND BASED UPON MATERIAL ON RECORD. LD. AO HAS ESTIMATED THE G.P. RATE AT 8.45% AS AGAINST THE G.P. RATE OF 6.68% DECLARED BY THE APPELLANT ON THE BASIS OF THE AVERAGE OF THE G.P. RATES OF 9.22% AND 7.69% DECLARED BY TH E APPELLANT IN THE TWO PRECEDING A.YRS. 2012-13 AND 2013-14. THE MAIN ARGUMENT OF LD. AR DURING APPEAL IS THAT T HE G.P. RATE WAS LOW DURING THE CURRENT YEAR AS THERE WAS SUBSTANTIA L INCREASE IN SALES AND THAT BOTH G.P. & N.P. IN MONEY TERMS ARE MORE THAN THOSE OF EARLIER YEARS. SALES DURING THE YEAR WERE RS. 16.69 CRORE AS AGAINST 12.50 CRORE AND 14.25 CRORE IN A.Y. 2012-13 AND 2013-14 RESPECTIVELY. REFERENCE WAS MADE TO ASSESSMENT COMP LETED U/S 143(3) OF THE ACT FOR A.Y. 2007-08 IN THE CASE OF THE APPELLANT WHERE G.P. RAT E OF 6.30% WAS ACCEPTED. I HAVE CONSIDERED THE ISSUE. THE HISTORY OF GP RATE DECLARED BY AN ASSESSEE ITSELF IN OTHER YEARS IS ONE OF THE REASONABLE CRITERIA FOR ESTIMAT ING PROFITS U/S. 145(3) OF THE ACT. LD. AO HAS APPLIED NP RATE OF 8.45% WHICH IS THE AVERAGE O F THE GP RATES DECLARED BY THE APPELLANT ITA NO. 190/ASR/2018 (AY 2014-15) PUNJAB HIDE COMPANY V. ITO 4 IN THE TWO PRECEDING A.YRS. 2012-13 AND 2013-14. TH E SAME CANNOT BE CALLED UNREASONABLE OR EXCESSIVE IN ANY MANNER. A REFERENCE TO THE GP R ATES MENTIONED BY THE APPELLANT IN THE WRITTEN SUBMISSIONS ABOVE SHOWS THAT THE GP RATE DE CLARED IN THE TWO SUCCEEDING YEARS TOO IS MORE THAN 8.45%. IT IS 8.72% IN A.Y. 15-16 AND AS H IGH AS 13.89% IN A.Y. 16-17 THOUGH THE TURNOVER IN THESE YEARS WAS MUCH LOWER. DURING THE YEAR UNDER APPEAL, THE APPELLANT HAD HIGHER TURNOVER, BUT IT DOES NOT NECESSARILY IMPLY OR JUSTIFY LOWER GP. APART FROM MAKING A GENERAL STATEMENT, THE APPELLANT HAS NOT BROUGHT AN Y MATERIAL ON RECORD TO SUBSTANTIATE ITS EXPLANATION. AN INCREASE IN TURNOVER CAN ALSO BESTO W THE BENEFITS OF ECONOMIES OF SCALE. KEEPING IN VIEW THE TOTALITY OF ABOVE FACTS, THE AD DITION OF RS. 29,54,717/- MADE BY LD AO IS UPHELD. GROUNDS OF APPEAL 3, 4, 5 AND 9 ARE DISMISSED. AGGRIEVED, THE ASSESSEE IS IN SECOND APPEAL. 3. BEFORE US, IT WAS EXPLAINED THAT IT WAS INCORREC T TO SAY THAT THE ASSESSEE HAS NOT MAINTAINED PROPER RECORDS. ON BEING QUESTIONED BY THE BENCH ABOUT THE NON MAINTENANCE OF STOCK SEPARATELY FOR DIFFERENT TYPES AND VARIETIES OF SKINS AND HIDES, I.E., OF COWS, GOATS AND BUFFALOES, DEALT IN, AS ST ATED BY THE REVENUE AUTHORITIES, THE LD. COUNSEL FOR THE ASSESSEE, SH. ARORA, WOULD EXPL AIN THAT THE ASSESSEE DEALS IN ONLY TWO VARIETIES, I.E., HIDES WHICH ARE OF COWS AND BUFFALOES, AND SKINS, WHICH ARE OF CALVES, TERMED AS MALL, WHICH ARE ACCOUNTE D FOR SEPARATELY. THE DIFFERENCE IN PRICES IS ON ACCOUNT OF SOME DIFFERENCE IN QUALI TY, WHICH IS BOUND TO OBTAIN. THE STOCK IS VALUED ON FIRST-IN-FIRST-OUT (FIFO) BASIS, AS APPLIED TO THE UNITS IN WHICH THE GOODS ARE PURCHASED AND SOLD, I.E., PIECES. THE PURCHASES IN CASH ARE FROM UNREGISTERED DEALERS, WHICH IS AN INCIDENT OF THE T RADE, ALSO PREVALENT IN EARLIER YEARS, WITH REFERENCE TO THE GROSS PROFIT RATE FOR WHICH THE ASSESSEES GP RATE (FOR THE CURRENT YEAR) STANDS BENCH MARKED. SIMILARLY, P URCHASE OF FUEL AND FIREWOOD IS AGAIN LARGELY FROM UNREGISTERED DEALERS, WHICH BY I TSELF DOES NOT MEAN THAT THE PURCHASE IS NOT GENUINE OR, IN ANY CASE, EXCESSIVE. NO SPECIFIC DEFECTS, THUS, STAND ITA NO. 190/ASR/2018 (AY 2014-15) PUNJAB HIDE COMPANY V. ITO 5 POINTED OUT OR, IN ANY CASE, HOLD. THE INVOCATION O F SECTION 145(3) IN THE INSTANT CASE IS NOT MAINTAINABLE; IT BEING EVEN OTHERWISE W ELL-SETTLED THAT THE SAME SHALL NOT FOLLOW MERELY ON A DECLINE IN THE GP RATE, WHIC H IS NOT A CONSTANT AND, GOVERNED BY MARKET FORCES, IS BOUND TO VARY FROM YE AR TO YEAR, AS HAS INDEED HAPPENED IN THE ASSESSEES CASE, RANGING FROM AS LO W AS 6.30% (FOR AY 2007-08), ACCEPTED U/S. 143(3), TO AS HIGH AS 13.89% (FOR AY 2016-17) (REFER TABLE AT PG. 6 OF THE IMPUGNED ORDER). THE LD. DEPARTMENTAL REPRESENTATIVE (DR), SH. CHARA N DASS, WOULD, ON THE OTHER HAND, DRAW OUR ATTENTION TO COLUMNS 11 AND 35 OF THE TAX AUDIT REPORT DATED 24.08.2014 FOR THE RELEVANT YEAR (AT PB PGS.78-93), WHICH IS REPRODUCED AS UNDER: FORM NO. 3CD [SEE RULE 6G(2)] STATEMENT OF PARTICULARS REQUIRED TO BE FURNISHED UNDER SECTION 44AB OF THE INCOME-TAX ACT, 1961 PART B 11. (A) WHETHER BOOKS OF ACCOUNT ARE PRESCRIBED UND ER SECTION 44AA, IF YES, LIST OF BOOKS SO PRESCRIBED. NO (B) LIST OF BOOKS OF ACCOUNT MAINTAINED AND THE ADD RESS AT WHICH THE BOOKS OF ACCOUNTS ARE KEPT. (IN CASE BOOK S OF ACCOUNT ARE MAINTAINED IN A COMPUTER SYSTEM, MENTIO NED THE BOOKS OF ACCOUNT GENERATED BY SUCH COMPUTER SYSTEM. IF THE BOOKS OF ACCOUNTS ARE NOT KEPT AT ONE LOCATION, PLE ASE FURNISH THE ADDRESSES OF LOCATIONS ALONG WITH THE DETAILS O F BOOKS OF ACCOUNTS MAINTAINED AT EACH LOCATION.) CASH BOOK, LEDGER, JOURNAL, 307, HIDE MARKET, AMRITSAR 35. (A) IN THE CASE OF A TRADING CONCERN, GIVE QUAN TITATIVE DETAILS OF PRINCIPAL ITEMS OF GOODS TRADED: (I) OPENING STOCK; (II) PURCHASES DURING THE PREVIOUS YEAR (III) SALE DURING THE PREVIOUS YEAR; (IV) CLOSING STOCK; (V) SHORTAGE/EXCESS, IF ANY. THE ASSESSEE FIRM HAS NOT PRODUCED STOCK REGISTERS BEFORE US. STOCKS IN HAND ARE STATED TO BE PHYSICALLY TAKEN UP BY THE MANAGEMENT AT YEAR ITA NO. 190/ASR/2018 (AY 2014-15) PUNJAB HIDE COMPANY V. ITO 6 END. (B) IN THE CASE OF MANUFACTURING CONCERN, GIVE QUAN TITATIVE DETAILS OF THE PRINCIPAL ITEMS OF RAW MATERIALS, FI NISHED PRODUCTS AND BY-PRODUCTS: N.A. NO RELIANCE, THEREFORE, HE WOULD ADD, COULD BE PLAC ED ON THE STOCK REGISTER AS PRODUCED BEFORE THE AO DURING THE ASSESSMENT PROCEE DINGS, BEING NOT MAINTAINED IN THE REGULAR COURSE OF BUSINESS. SH. ARORA, ON BE ING QUESTIONED IN THE MATTER, COULD NOT FURNISH ANY SATISFACTORY REPLY, ONLY STAT ING THAT THE STOCK REGISTER, THOUGH MAINTAINED, WAS NOT PRODUCED BEFORE THE AUDITOR, FO R WHICH (NON-PRODUCTION), AGAIN, HE COULD NOT STATE ANY PLAUSIBLE REASON. HE WAS ALSO UNABLE TO EXPLAIN AS TO WHY, THEN, THE STOCK AS AT THE YEAR-END WAS PHYSICA LLY DETERMINED, I.E., WHEN THE STOCK REGISTER HAD INDEED BEEN MAINTAINED. RATHER, THE PHYSICAL STOCK TAKING, WHERE SO, COULD IN THAT CASE ONLY BE TOWARD CONFIRMING TH E BOOK FIGURES, NOT DISCLOSED (TO THE AUDITOR), MAKING ADJUSTMENTS FOR ANY VARIANCES, IF ANY. CONTINUING FURTHER, SH, DASS WOULD SUBMIT THAT THE PURCHASES OF HIDES AND S KINS TO A LARGE EXTENT IN CASH ARE NOT DENIED OR SHOWN TO BE NOT SO. THE SAME, AS WELL AS OTHER EXPENDITURE STATED BY THE AO AS INCURRED THUS, MAKES THE SAME UNVERIFI ABLE, CONSTITUTING A SUBSTANTIAL DEFECT. AS REGARDS THE ESTIMATION, THE SAME IS INDE ED REASONABLE AS IT IS BASED ON THE ASSESSEES OWN DISCLOSED RESULTS FOR THE PRECED ING TWO YEARS. 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. THE APPEAL, THOUGH RAISING SEVERAL GROUNDS, DISPUTES THE INVOCA TION OF SECTION 145(3) AND THE CONCOMITANT ESTIMATION OF INCOME. THE GROUND TOWARD LEVY OF MANDATORY INTEREST U/S. 234B, BEING EVEN OTHERWISE COMPENSATORY AND CO NSEQUENTIAL, WAS NOT PRESSED. 4.1 THE FIRST THING TO CONSIDER IS IF THE ASSESSEE S BOOKS OF ACCOUNT AS MAINTAINED SATISFY THE TEST OF SECTION 145(3), I.E., ARE CORRE CT AND COMPLETE, FROM WHICH THE TRUE OR CORRECT INCOME OF THE ASSESSEES BUSINESS CAN BE DEDUCED. THIS IS AS, WHERE SO, ITA NO. 190/ASR/2018 (AY 2014-15) PUNJAB HIDE COMPANY V. ITO 7 THE BOOK RESULTS CANNOT BE DISTURBED. THIS ALSO AGR EES WITH, AND IS IN CONSONANCE WITH THE PROPOSITION WHICH SH. ARORA WAS AT PAINS T O EMPHASIZE DURING HEARING, AND ALSO CLARIFIED PER SEVERAL DECISIONS, THAT LOW PROFIT CANNOT, BY ITSELF, FORM THE BASIS FOR THE REJECTION OF THE ACCOUNTS. WE MAY THO UGH CLARIFY THAT IN THE PRESENT CASE, AS WOULD BE APPARENT, THE REVENUE AUTHORITIES HAVE NOT FOUND THE ASSESSEES ACCOUNTS AS NOT RELIABLE ON THAT BASIS, EVEN AS THE SAME, AND AS INDEED OUGHT TO BE THE CASE, THAT DOES FORM THE STARTING POINT OF THE ENQUIRY IN THE MATTER. ON THE MERITS OF THE INVOCATION OF SECTION 145(3) BY THE R EVENUE, WHICH FORMS THE SUBSTANCE OF THE ASSESSEES GRIEVANCE BEFORE US, OU R FIRST OBSERVATION IN THE MATTER IS WHETHER THE STOCK REGISTER AS PRODUCED IN THE AS SESSMENT PROCEEDINGS COULD BE SAID TO BE A RECORD MAINTAINED BY THE ASSESSEE IN T HE REGULAR COURSE OF ITS BUSINESS, AND ON WHICH, THEREFORE, RELIANCE COULD BE PLACED I N VIEW OF SECTION 34 OF THE INDIAN EVIDENCE ACT, 1872. IN OUR VIEW, CLEARLY NOT . COLUMN 11(A) OF THE AUDITORS REPORT MENTIONS THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE-AUDITEE, I.E., CASH-BOOK, JOURNAL AND LEDGER. AGAIN, AT COLUMN 35, WHERE THE ASSESSEE IS REQUIRED TO FURNISH THE QUANTITATIVE DETAILS AS PER THE AUDITED ACCOUNTS, THE AUDITOR ISSUES, AND RIGHTLY SO, A DISCLAIMER, I.E., IN VIEW OF NO QUANTITATIVE DETAILS FURNISHED BEFORE AND, THEREFORE, AUDITED BY, HIM, FURTHER CLA RIFYING THAT THE CLOSING STOCK IS AS PER THE STOCK CERTIFIED BY THE MANAGEMENT, STATED T O BE PHYSICALLY TAKEN BY IT. WHY WAS THE RECORD NOT MAINTAINED OR, IF MAINTAINED, AS CLAIMED BY SH. ARORA BEFORE US, NOT PRODUCED BEFORE THE AUDITOR, REMAINS UNANSWERED . WHY, ONE MAY ASK, SHOULD THE ASSESSEE NOT DISCLOSE THE CORRECT POSITION TO T HE AUDITOR, TO WHICH AGAIN THERE IS NO ANSWER . THE OBSERVATIONS BY THE AUDITOR AT COLUMN 35 OF H IS REPORT ARE IN THE NATURE OF A DISCLAIMER, TO WHICH DUE CREDENCE, BEIN G AN EXPERT, HAS TO BE GIVEN IN VIEW OF SECTION 45 OF THE EVIDENCE ACT. THE PHYSICA L STOCK TAKING, AS AFORE-NOTED, CONFIRMS THE ABSENCE OF THE STOCK REGISTER IN-AS-MU CH AS IN THAT CASE THE SAME WOULD ONLY BE A CONFIRMATORY EXERCISE, AND THE STOC K FIGURES ADOPTED AS PER THE ITA NO. 190/ASR/2018 (AY 2014-15) PUNJAB HIDE COMPANY V. ITO 8 RECORDS MAINTAINED, DULY AUDITED. WHY, PHYSICAL STO CK TAKING, WHERE STOCK RECORDS ARE MAINTAINED, BEING ESSENTIALLY A VERIFICATION EX ERCISE, COULD BE UNDERTAKEN AT ANY TIME DURING THE YEAR, I.E., PERIODICALLY, MAKIN G ADJUSTMENTS FOR THE VARIANCES, IF ANY, OBSERVED, WHICH WE FIND AS ABSENT. AS REGARDS THE OBJECTION BY SH. ARORA THAT NO CREDENCE COULD BE GIVEN TO THE AUDITORS REPORT IN-AS-MUCH AS THIS WAS A NEW POINT RAISED BY THE LD. DR, NOT RAISED BY THE REVEN UE AUTHORITIES, THE SAME ONLY NEEDS TO BE STATED TO BE REJECTED. THE MATERIAL TO WHICH OUR ATTENTION STANDS DRAWN BY THE LD. DR IS ON RECORD; BEING A DOCUMENT FURNIS HED BY THE ASSESSEE ITSELF, I.E., ITS AUDITED ACCOUNTS OF WHICH THE AUDITORS REPO RT IS A PART, AND WHICH IN FACT IT CLAIMS TO BE CORRECT AND COMPLETE AND, THEREFORE, L IABLE TO BE ACCEPTED AS SUCH. EVEN OTHERWISE, TAX PROCEEDINGS ARE NOT ADVERSARIAL PROCEEDINGS OR IN THE NATURE OF A LIS ( S.S. GADGIL V. LAL & CO. [1964] 53 ITR 231 (SC); DEEPAK AGRO FOODS V. STATE OF RAJASTHAN (IN CA NOS. 4327-29 OF 2008, DATED 11.07.2008). TH E APPELLATE PROCEEDINGS, IT IS WELL-SETTLED, ARE A CONTINUATION OF THE ASSESSMENT PROCEEDINGS, WHICH ARE NOT, STRICTLY SPEAKING, IN THE NATURE OF JUDICIAL PROCEEDINGS, BUT ONLY TOWARD MAKING ADJUSTMENT/S TO THE ASSESSEES RETURN ED INCOME; THE WHOLE PREMISE OF THE EXERCISE BEING TO ARRIVE AT HIS CORRECT TOTA L INCOME LIABLE TO TAX UNDER THE ACT. THE PLEA OF THE LD. DR IS ONLY IN FURTHERANCE OF THE REVENUES CASE THAT THE ASSESSEES ACCOUNTS, AS MAINTAINED, ARE NOT CORRECT AND COMPLETE AND, THEREFORE, CANNOT BE REGARDED AS RELIABLE, I.E., TO YIELD ITS CORRECT INCOME, SO AS TO BE RELIED UPON FOR THE PURPOSE. WHY, COUNSELS FOR THE ASSESSE ES, DAY IN AND DAY OUT, ASSUME ARGUMENTS IN DEFENCE OR IN FURTHERANCE OF THE ASSES SEES CASE BEFORE US. THERE IS, FURTHER, NO LIMITATION IN THE POWER OF THE TRIBUNAL IN THIS REGARD, CASE LAW ON WHICH IS LEGION, AND FOR WHICH WE MAY, AS AN EXAMPLE, REF ER TO THE DECISION IN HUKUMCHAND MILLS LTD. V. CIT [1967] 63 ITR 232 (SC), THE FACTS OF WHICH ARE ALS O TELLING, WHEREIN THE APEX COURT CLARIFIED THAT EVEN RULES 11 & 27 OF THE INCOME TAX (APPELLATE TRIBUNAL) RULES, 1963 (THE RULES) ARE NOT EXHAUSTIVE OF THE ITA NO. 190/ASR/2018 (AY 2014-15) PUNJAB HIDE COMPANY V. ITO 9 POWERS OF THE TRIBUNAL. THE OBJECTION RAISED IS WHO LLY WITHOUT BASIS, BOTH ON FACTS AND IN LAW. HOW, IN THE ABSENCE OF STOCK RECORDS, D OES THE ASSESSEE CLOSE ITS ACCOUNTS FOR AN ACCOUNT PERIOD, TO ARRIVE AT THE CO RRECT OPERATING INCOME FOR THE SAID PERIOD? THE SAME IS AN INTEGRAL PART OF ACCOUN TS, ENSURING THAT ALL THAT IS TRADED IN IS TAKEN INTO ACCOUNT AND PROPERLY VALUED IN ARR IVING AT THE PROFIT OR LOSS FOR THE YEAR. REFERENCE IN THIS REGARD MAY BE MADE TO SOME DECISIONS BY THE APEX COURT, AS CIT V. MCMILLAN & CO . [1958] 33 ITR 182 (SC); NAMASIVAYAM CHETTIAR (S.N.) V. CIT [1960] 38 ITR 579 (SC); CHHABILDAS TRIBHUVANDAS SHAH V. CIT [1966] 59 ITR 733 (SC). 4.2 WE MAY, WITHOUT PREJUDICE, ALSO CONSIDER THE AS SESSEES CASE ON THE BASIS OF THE UNAUDITED STOCK RECORD AS PRODUCED IN THE ASSES SMENT PROCEEDINGS, EVEN THOUGH NOT MAINTAINED IN THE REGULAR COURSE OF BUSINESS. T HOUGH, STRICTLY SPEAKING, NOT REQUIRED TO DO SO IN VIEW OF OUR OBSERVATIONS AT PA RA 4.1, WE DO SO ONLY FOR THE SAKE OF COMPLETENESS OF OUR ORDER. THE REVENUES OBJECTI ON, WHICH MEETS OUR APPROVAL, AS ALSO OBSERVED DURING HEARING, IS TWO-FOLD. ONE, THAT THE STOCK REGISTER IS NOT MAINTAINED WITH REFERENCE TO THE TYPE OR QUALITY OF THE SKIN/HIDE BEING PURCHASED OR SOLD. TWO, THE SAME DOES NOT REFLECT IF THE SAME IS RAW, PROCESSED (SEMI-FINISHED) OR FINISHED. THIS IS APPARENT FROM THE STOCK DETAIL S FURNISHED (PB PGS. 32-63). THE LATTER TWO CATEGORIES, I.E., FINISHED AND SEMI-FINI SHED, SHOULD WITHOUT DOUBT INCLUDE THE COMPONENT OF VALUE ADDITION, WHICH IT D OES NOT, BEING VALUED AT PURCHASE COST, AS EXPLAINED TO US DURING HEARING, W HICH IS CLEARLY INCORRECT (REFER: CIT V. BRITISH PAINTS INDIA LTD . [1991] 188 ITR 44 (SC)). THIS MAY RESULT IN AN INCREASE IN STOCK VALUATION AND, THUS, PROFIT, TO T HAT EXTENT. WE SHALL REFER TO THIS ASPECT LATER. THE BASIC DEFECT, HOWEVER, IS THAT TH E ASSESSEE DOES NOT RECORD AND, ACCORDINGLY, ITS ACCOUNTS DO NOT REFLECT THE DIFFER ENT TYPES AND VARIETIES OF HIDES AND SKINS BEING BOUGHT AND SOLD, WHICH HAVE BEEN, A S ADMITTED BEFORE US, CLUBBED ITA NO. 190/ASR/2018 (AY 2014-15) PUNJAB HIDE COMPANY V. ITO 10 INTO ONE UNIFORM CLASS FOR THAT OF COWS/BUFFALOES ( HIDE) AND OF CALF (MALL). THE WIDE VARIATION IN THE COST THEREOF, I.E., FROM BILL TO BILL, FOR EACH CATEGORY, AS REVEALED ON THE PERUSAL OF THE VALUATION DETAILS DU RING HEARING, BEARS OUT THE REVENUES CLAIM, I.E., THAT THE SAME IS NOT A PROPE R RECORD. TO EXEMPLIFY, THE COST PRICE OF 3493 BASIS OF HIDES AT THE JALANDHAR UNIT (VALUED AT RS.3,40,900/-) IS AS UNDER (PB PGS. 7, 8): DETAILS OF CLOSING STOCK AS ON 31-03-2014 PCS. AMOUNT (AS) RATE 630 88200 140.0 1136 1374 56 121.0 942 75360 80.0 785 39884 50.8 3493 340900 97.6 HOW COULD THE SAME, VARYING SO WIDELY IN COST PRICE , BE REGARDED AS ONE, SINGLE ITEM TO BE GROUPED TOGETHER, AND THE QUANTITY OBTAI NING AT THE YEAR-END VALUED ON FIFO BASIS ? THE DIFFERENCE BECOMES ALL THE MORE ACUTE WHEN SE EN IN THE CONTEXT, AS IT HAS TO BE FOR CORRECT APPRECIATION, OF THE FA CT THAT THE GP RATE, SIGNIFYING THE DIFFERENCE IN THE PURCHASE AND SALE RATES, VARIES O VER A RANGE; THE 10 YEAR PERIOD ENDING WITH THE CURRENT YEAR WITNESSING A LOW OF 6. 30% (AY 2007-08) AND A HIGH OF 11.82% (FOR AY 2009-10) (REFER TABLE AT PAGE 6 O F THE APPELLATE ORDER). A GOOD BOUGHT AT RS.50 APIECE WOULD STAND TO BE SOLD FOR A PRICE, DEPENDING ON THE FLUCTUATION OF THE MARKET PRICE THAT TOO OVER A 1 0 YEAR PERIOD, BETWEEN THE EXTREMES OF RS. 53 AND RS. 57. IN FACT, BEING A PER ISHABLE PRODUCT, AS ALSO EMPHASIZED BY SH. ARORA DURING HEARING, THE SAME CA NNOT BE WITHHELD TO CAPITALIZE ITA NO. 190/ASR/2018 (AY 2014-15) PUNJAB HIDE COMPANY V. ITO 11 ON THE INCREASE IN THE MARKET PRICE, EVEN IF IMMINE NT, AND HAS TO BE SOLD WITHOUT DELAY, LEST IT LOOSES ITS VALUE. THE DIFFERENT PIE CES CONSTITUTING THE CLOSING STOCK OF HIDE (AS ABOVE), THUS, CANNOT BE REGARDED AS ONE IT EM, TO BE VALUED ON THE BASIS OF THE LAST PURCHASE PRICE, AS THE FIFO METHOD (OF VAL UATION) SIGNIFIES. THE VARIATION IN COST OF DIFFERENT PIECES OF MALL (676) AND HIDE (159) IN ANOTHER UNIT, IS NO LESS WIDE, BEING AS UNDER (PB PGS. 7, 9): CATEGORY PCS/RATE LOW (L) HIGH (H) AVERAGE RATIO (L:H) MALL 676 45 700 367.9 1:15 HIDE 159 1231 4900 2177.5 1:4 THIS IS DESPITE THE FACT THAT THE PIECES IN STOCK A T THE YEAR-END WOULD REPRESENT THE PURCHASE OVER A VERY SMALL PERIOD OF TIME; THE RELE VANT PURCHASE FOR THE YEAR BEING AT 80,906 AND 37,483 PIECES FOR MALL AND HIDE RESPE CTIVELY (PB PG. 31). THE DIFFERENCE IN THE COST PRICE FOR THE PURCHASES DURI NG THE YEAR WOULD, THEREFORE, ONLY BE MORE, IF NOT MUCH MORE. IN FACT, A MUCH LOW DIFF ERENCE (VARIATION) WOULD OUST THE ASSESSEES CASE OF THE ITEM, FOR WHICH THE QUAN TITATIVE RECORD IS BEING MAINTAINED, I.E., ASSUMING SO, ARE OF COMPARABLE PR ODUCTS OR REPRESENT A UNIFORM CATEGORY. MERELY CATEGORIZING IT AS HIDE OR MALL (C ALF SKIN) IS NOT ENOUGH, WHICH ONLY DESCRIBES IT GENERICALLY. AS OBSERVED BY THE B ENCH DURING HEARING, A PERSON DEALING IN COTTON (SAY), QUALITIES OF WHICH IN THE MARKET VARY FROM LESS THAN RS. 100 PER METRE TO AS HIGH AS RS. 1000 PER METRE (IF NOT MORE), CANNOT POSSIBLY CONTEND OF IT AS CONSTITUTING ONE SINGLE ITEM, VALUING CLOS ING STOCK AS PER THE QUANTITY (METRES OF CLOTH) REFLECTED IN THE STOCK REGISTER O N A PARTICULAR (FIFO, LIFO OR EVEN AVERAGE) BASIS. EXAMPLES COULD BE MULTIPLIED. THE O NLY ALLOWANCE THAT COULD BE MADE FOR THE VARIATION IN THE PRICE, I.E., INCREASE OR DECREASE THEREIN, IS FOR THE SAME QUALITY OR TYPE OF SKIN/HIDE. IN THIS REGARD, I T NEEDS TO BE APPRECIATED THAT A STOCK REGISTER BASED ON ACTUALS, I.E., THE SAME BAS IS ON WHICH A PARTICULAR SKIN/HIDE ITA NO. 190/ASR/2018 (AY 2014-15) PUNJAB HIDE COMPANY V. ITO 12 IS PURCHASED OR SOLD IN THE MARKET BY THE PEOPLE DE ALING THEREIN, COULD BE SAID TO BE A PROPER RECORD THEREOF. THERE IS, AFTER ALL, CLEAR LY, A DISTINCTION BETWEEN A SKIN/HIDE BEING PURCHASED FOR RS.45, WITH THAT FOR RS. 60 OR RS. 65 (SAY), WHILE IN THE INSTANT CASE THE SAME GOES UP TO RS. 700/- (AGAIN, IN A SMA LL SAMPLE SIZE OF THAT CONSTITUTING THE CLOSING STOCK, VALUED ON THE BASIS OF LAST PURCHASES). THEIR SALE PRICE, WHICH IS AGAIN MARKET DRIVEN, WOULD AGAIN ST AND TO BE DETERMINED ACCORDINGLY; THERE BEING ESSENTIALLY NO DIFFERENCE IN THE NATURE OF A PURCHASE AND SALE TRANSACTION ONE MANS PURCHASE IS ANOTHERS SALE. ON WHAT BASIS, FOR EXAMPLE, A GOOD IS PURCHASED FOR RS.50 (SAY), AS AG AINST ANOTHER FOR RS.80 OR RS.120 OR RS.150, AND SO ON; THE DIFFERENCES BEING IN FACT EVEN HIGHER ? THE DIFFERENCE BECOMES ALL THE MORE PRONOUNCED WHEN JUX TAPOSED WITH THE FACT THAT THE MARKET PRICE, INCLUDING THAT DUE TO VALUE ADDITION ON ACCOUNT OF PROCESSING, VARIES GENERALLY BETWEEN 7% TO 10%. THE MARKET PRICE CANNOT EXPLAIN THE DIFFERENCE, AS THE GOOD BOUGHT FOR RS. 50 IS BEING SOLD FOR RS. 55 (SAY), WHILE ANOTHER IS, AT THE SAME TIME BEING BOUGHT AT RS. 80/- OR HIGHER. ON BE ING ASKED DURING HEARING IF THE WEIGHT WAS ALSO ONE OF THE DETERMINANTS (OF PRICE), SH. ARORA WOULD, WITHOUT GIVING A FIRM OR STRAIGHT ANSWER, STATE THAT THE SA ME IS NOT RELEVANT AS THE SKIN/HIDE IS BOTH PURCHASED AND SOLD IN UNITS OF PIECES. CLEA RLY, THEREFORE, THE SAME WOULD INCLUDE THE WEIGHT OF THE PIECE AS WELL. THAT IS, T HE DIFFERENCE IN THE UNIT PRICE IS ALSO DUE TO ITS WEIGHT, AS IT DOES GET MANIFEST TH EREIN, GETTING REFLECTED IN THE PRICE, BEING SOLD AS SUCH, I.E., AS ONE, INDIVISIBLE UNIT. THIS, HOWEVER, WOULD CONSTITUTE A FLAW IN BOOK-KEEPING AS THE PIECES ARE ACTUALLY BOU GHT AND SOLD DISTINCTLY, ON THE BASIS OF THEIR CHARACTERISTICS, INCLUDING WEIGHT, A ND CANNOT BE UNITIZED, AS DONE, AND THE PIECES HELD IN STOCK AT THE YEAR-END, REGARDED AS THOSE BOUGHT LATEST. A SIMPLE EXERCISE WOULD DEMONSTRATE THE SAID FLAW. THE PIECE S ARE BOUGHT AT RS. 40/- AND RS. 100/- (SAY). THE FORMER IS SOLD FOR RS. 45/- (S AY). HOWEVER, IF BOUGHT LATER THAN THE OTHER PIECE, IT IS THE LATTER PIECE WHICH WOULD GET INCLUDED IN THE STOCK, YIELDING ITA NO. 190/ASR/2018 (AY 2014-15) PUNJAB HIDE COMPANY V. ITO 13 A LOSS OF RS. 55/- AS AGAINST AN ACTUAL PROFIT OF R S. 5/-. IT COULD BE THE OTHER WAY ROUND AS WELL, AGAIN LEADING TO AN INCORRECT RESULT . THIS IS FURTHER ASSUMING PROPER ACCOUNTING OF ALL THE GOODS PURCHASED AND SOLD DURI NG THE YEAR. NO DOUBT, THE ASSESSEE WAS UNABLE TO RECONCILE THE AVERAGE DISCLO SED GROSS PROFIT WITH THE DIFFERENCE IN THE PURCHASE AND SALE RATES; IT ARGUI NG FOR THE DECLINE IN THE GROSS PROFIT FOR THE YEAR TO BE DUE TO THE VARIATION THER EIN, WHEN ASKED TO DO SO DURING HEARING, GIVING INSTEAD FOUR SETS OF PRICE DIFFEREN CES AND, THEREFORE, PROFIT (PB PGS. 179-180). 4.3 THE OTHER ISSUE QUA THE ASSESSEES ACCOUNTING OBSERVED BY US IS THE NO N- REFLECTION OF THE STAGE OF PROCESSING AT WHICH THE GOODS ARE STATIONED AT ANY GIVEN POINT OF TIME AND, THUS, AT THE END OF THE ACCOUNT PERIOD. THE SAME GETS MANIFEST IN THE AUDITORS REPORT (COL. 35(A) (& (B)) REGARDING THE ASSESSEE AS A TRADING CONCERN , SO THAT IT SELLS WHAT IT PURCHASES, WITHOUT ANY P ROCESSING, EVEN AS THE ASSESSEE ADMITTEDLY HAS A FINISHING UNIT AS WELL AS A LEATHER DIVISION. FURTHER, AND WHICH ALSO AGREES WITH OUR FINDING OF THE ASSESSEE REGARDING ALL ITS PURCHASES AND SALES AS OF ONE UNIFORM CLASS A SINGLE GOOD, INDE PENDENT OF THE SPECIFIC CHARACTERISTICS OF EACH UNIT, IS THE LACK OF THE BA SIS ON WHICH THE PIECES ARE TRANSFERRED FROM ONE UNIT (DIVISION) TO ANOTHER. TH E TRANSFER BEING UNIT SPECIFIC, AND NOT IN THE ORDER OF THEIR PURCHASE, THERE IS NO BAS IS TO IDENTIFY THE UNITS TRANSFERRED. FURTHER STILL, THE CONCOMITANT OF THE ASSESSEE BEIN G A TRADING CONCERN IS THAT THE PROCESSED AND SEMI-PROCESSED PIECES AS AT THE YEAR- END, AS ALSO AFORE-NOTED WITH REFERENCE TO THE DECISION IN BRITISH PAINTS INDIA LTD . (SUPRA), ARE VALUED AT THE COST OF PURCHASE, I.E., WITHOUT VALUE ADDITION. 4.4 THE AFORE-DISCUSSED TWO DEFECTS IN THE ASSESSEE S ACCOUNTS OBSERVED BY THE REVENUE ARE, THUS, ON EXAMINATION, FOUND VALID. SEC TION 145(3) STANDS, ITA NO. 190/ASR/2018 (AY 2014-15) PUNJAB HIDE COMPANY V. ITO 14 ACCORDINGLY, RIGHTLY INVOKED BY THE REVENUE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. WE ARE NOT INCLINED TO PURSUE THE OTHER GROUN DS TAKEN BY IT FOR APPLYING SECTION 145(3), VIZ. A LARGE PART OF THE PURCHASES, AND ALSO EXPENSES ON WAGES AND FUEL, ARE NOT VERIFIABLE. THE ASSESSEE HAS, ON A SU GGESTION BY THE BENCH, BIFURCATED ITS PURCHASES FROM REGISTERED AND UN- REGISTERED D EALERS, WITH A VIEW TO SHOW THAT THE PURCHASE RATES FROM UNREGISTERED DEALERS ARE CO MPARABLE WITH THAT FROM THE REGISTERED DEALERS (PB PG. 182-183). THE SAME WOULD REQUIRE VERIFICATION, AS WOULD THE CLAIM OF THE SAID EXPENSES BEING PROPERLY VOUCH ED. AS WE HAVE ALREADY UPHELD THE INVOCATION OF SECTION 145(3), WE DO NOT THINK I T NECESSARY TO GET THE DATA FURNISHED IN SUPPORT OF ITS CASE, AS WELL AS THE O THER CLAIMS, VERIFIED. 4.5 THE NEXT QUESTION BEFORE US IS THE ESTIMATION O F THE ASSESSEES GROSS PROFIT (MARGIN); THE SAME WORKING TO RS.36.59 APIECE (RS.1 ,11,47,744/304682 PCS. PB PGS. 95, 27) OR AT 6.68% FOR THE YEAR. THE SAME HAS BEEN ESTIMATED AT 8.45% (OR RS.46.30 PER PIECE), BY AVERAGING THE GP RATES FOR THE IMMEDIATELY TWO PRECEDING YEARS, I.E., AYS. 2012-13 AND 2013-14, THE SAME BEI NG ALSO, AS OBSERVED BY THE LD. CIT(A), LOWER THAN THE GP RATE DISCLOSED FOR THE SU CCEEDING TWO YEARS, I.E., 8.72% (FOR AY 2015-16) AND 13.89% (FOR AY 2016-17), I.E., AT AN AVERAGE OF 11.305%. THE SAME IS THEREFORE ONLY TO BE REGARDED AS REASON ABLE. THE SAME MERITS OUR APPROVAL, BEING IN CONFORMITY WITH THE PRINCIPLES G UIDING THE SAME, I.E., BY TAKING ALL THE RELEVANT MATERIAL, AS GATHERED, I.E., WHICH HAS A NEXUS OR BEARING IN THE MATTER, INTO ACCOUNT, AND REASONABLE, AND FOR WHICH REFERENCE IS MADE TO THE DECISION IN KACHWALA GEMS V. JT. CIT [2007] 288 ITR 10 (SC), ALSO RELIED UPON BY THE LD. DR BEFORE US; CST V. H.M. ESUF ALI, H.M. ABDUL ALI [1973] 90 ITR 271 (SC). CONTINUING FURTHER, AS AFORE-OBSERVED, THE CL OSING STOCK OF THE FINISHING UNIT AND THE LEATHER DIVISION IS VALUED AT PURCHASE COST (PB PG. 7, 8, 10-11), I.E., WITHOUT INCLUDING THE CONVERSION COST. THE SAME, AS DEBITED TO THE TRADING ACCOUNT FOR THE ITA NO. 190/ASR/2018 (AY 2014-15) PUNJAB HIDE COMPANY V. ITO 15 YEAR, IS AT RS.123.304 LACS (PB PG. 195). AVERAGING THE SAME OVER THE 99,962 (95,474 + 4,488) PIECES INCLUDED IN THESE CATEGORIE S DURING THE YEAR (PB PGS. 28,29), GIVES A UNIT COST OF RS.123.35 PER PIECE. A PPLYING THE SAME ON 76,853 (73,360 + 3,493) PIECES IN STOCK AT THE YEAR-END, W HICH OUGHT TO BE THE CASE, THEIR VALUE WOULD INCREASE BY RS.94,79,818, INCREASING TH E GROSS PROFIT FOR THE YEAR TO RS.2,06,27,562, I.E., AT 12.36%. IT COULD BE ARGUED THAT THE VALUE OF THE PROCESSED AND SEMI-PROCESSED GOODS IN OPENING STOCK MUST BE S IMILARLY VALUED. THIS IS AS, UNLESS THERE IS A CHANGE IN THE METHOD OF VALUATION OF STOCK DURING THE YEAR, THE INVENTORY AS AT THE BEGINNING AND THE END MUST BE V ALUED ON THE SAME BASIS. THE COUNTER ARGUMENT COULD BE OF THE CLOSING STOCK FOR ONE YEAR BEING THE OPENING STOCK FOR THE FOLLOWING YEAR. THE SAME CARRIES AN O MINOUS CONSEQUENCE OF AN INCREASE IN THE GROSS PROFIT FOR THE YEAR BY RS. 94 .80 LACS. THE POINT, HOWEVER, SOUGHT TO BE BROUGHT FORTH BY HIGHLIGHTING THE UNDE R-VALUATION OF THE CLOSING STOCK OF THE TWO UNITS IS THE UNDER REPORTING OF PROFIT ( PER THE P&L ACCOUNT) AND, TWO, ITS EXTENT. THE TRADING ACCOUNT IS DEBITED ONLY WITH TH E UNDERVALUED OPENING STOCK. THE SAME (65,644 PIECES) WOULD ON SALE THEREFORE YI ELD A HIGHER PROFIT, SO THAT THE BOOK RESULT WOULD YIELD A GROSS PROFIT OF 12.4%. UN DER-VALUATION OF CLOSING STOCK ONLY OPERATES TO ABSORB THIS ADDITIONAL PROFIT. FUR THER, THE CONVERSION COST IS ONLY DISTRIBUTED ON THE UNITS PROCESSED DURING THE YEAR, I.E., AS INCLUDED IN THAT CATEGORY. THE SAME HAS TO BE THEREFORE INCLUDED IN THE VALUE OF THE CLOSING STOCK IF THE PROFIT IS NOT TO BE UNDER-REPORTED. THE GROSS PROFIT AS PE R BOOKS, EVEN ASSUMING A CORRECT VALUATION OF RAW MATERIAL, OR THE RAW MATERIAL COST OF THE PROCESSED GOODS, GETS JUSTIFIED AT RS.206.27 LACS. IF THE UNDER-VALUATION IN THE OPENING STOCK IS TO BE SIMILARLY TAKEN INTO ACCOUNT FOR DETERMINING THE PR OFIT FOR THE YEAR, THE DATA ON THE CONVERSION COST FOR THE PRECEDING YEAR WOULD BE REQ UIRED. FOR THE SAKE OF DISCUSSION, ASSUMING A 20% INCREASE THEREIN, I.E., FOR THE CURRENT YEAR VIS-A-VIS THE PRECEDING YEAR, YIELDS A PER UNIT COST OF RS.102.80 , WHICH RESULTS IN A NET INCREASE ITA NO. 190/ASR/2018 (AY 2014-15) PUNJAB HIDE COMPANY V. ITO 16 IN THE GROSS PROFIT BY RS.30,01,615 (94,79,818 64 ,78,203), OR AT 8.48%, I.E., VERY CLOSE TO DO THAT ESTIMATED. WE MAY HASTEN TO ADD TH AT WE ARE NOT IN ANY MANNER SUGGESTING AN INCREASE IN OR DISTURBING THE VALUATI ON OF THE CLOSING STOCK; THE SAME HAVING PENALTY IMPLICATIONS AS WELL, BUT ONLY THAT, OTHER THINGS BEING EQUAL, AN INCREASE TO THIS EXTENT GETS VALIDATED. THAT IS TO SAY, THAT THE PROFIT AS ESTIMATED BY THE REVENUE IS REASONABLE AND MERITS BEING UPHELD. 4.6 THE ASSESSEE HAS IN JUSTIFICATION OF THE FALL IN TH E GROSS PROFIT, CLAIMED INCREASE IN TURNOVER FOR THE YEAR, I.E., RS.1669 LA CS, AS AGAINST RS.1425 LACS FOR AY 2013-14, AS THE REASON. WE ARE UNABLE TO UNDERSTAND THE BASIS OF THE SAID ARGUMENT. BY OWN ADMISSION AND, IN FACT, CASE, THE PURCHASE A ND SALE RATES, THE DIFFERENCE BETWEEN WHICH YIELDS THE GROSS MARGIN, ARE MARKET D RIVEN AND, THEREFORE, THE GROSS PROFIT STANDS TO VARY FROM YEAR TO YEAR. WHAT VALUE , THEN, THE RELIANCE ON THE LOWER GROSS PROFIT FOR AY 2007-08, EVEN AS THE PRINCIPLE OF RES JUDICATA IS NOT APPLICABLE TO PROCEEDINGS UNDER THE ACT. IT IS, WE MAY CLARIFY , NOT THE UNACCEPTABILITY OF THIS ARGUMENT, BUT THE ABSENCE OF PROPER ACCOUNTING, SO THAT THE BOOKS OF ACCOUNT HAVE BEEN FOUND AS NOT CORRECT AND COMPLETE AND, THEREFO RE, NOT RELIABLE FOR DEDUCING THE TRUE INCOME OF THE BUSINESS, THAT FORMS THE BASIS O F THE INVOCATION OF S. 145(3) IN THE PRESENT CASE. THE MARKET PRICE HAS APPARENTLY N OTHING TO DO WITH THE ASSESSEES SALE, WHICH COULD ALSO INCREASE IN NOMINAL TERMS, I .E., WITHOUT AN ACTUAL INCREASE IN QUANTITY (VOLUME) OF THE SALE, AS IN FACT IS THE PO SITION IN THE PRESENT CASE; THE SALE FOR THE CURRENT YEAR, AT 3,04,682 PIECES (PB PG. 27 ), BEING IN FACT LOWER THAN THAT FOR THE PRECEDING YEAR (AY 2013-14) (3,83,467 PIECE S/PB PG. 26). RATHER, AN INCREASE IN THE TURNOVER, AS OBSERVED BY THE LD. CI T(A), HAS GENERALLY A POSITIVE IMPACT ON MARGIN IN VIEW OF ECONOMIES OF SCALE. THE ASSESSEE IS NOT SELLING ANY BRANDED PRODUCT, WHEREIN, TO BEAT THE COMPETITION, IT LOWERS ITS PRICE TO GAIN IN TERMS OF MARKET SHARE. ON THE CONTRARY, THE SALE PR ICE FOR THE YEAR IS AT AN INCREASE, ITA NO. 190/ASR/2018 (AY 2014-15) PUNJAB HIDE COMPANY V. ITO 17 AS IS THE PURCHASE PRICE, WITH REFERENCE TO THAT FO R THE IMMEDIATELY PRECEDING YEAR (PB PGS. 24-27). AGAIN, THE ASSESSEES ARGUMENT IS CONTRADICTED BY ITS OWN RECORD OF THE GROSS PROFIT, VIZ. FOR AY 2009-10 (SALE: RS. 927.55 LACS), AT 11.82%, BEING HIGHER THAN THAT FOR AY 2008-09, AT 9.33% (SALE: RS .908.92 LACS). 4.7 THE ASSESSEEE HAS PLACED A NUMBER OF DECISION IN ITS COMPILATION, WITHOUT REFERRING TO THOSE DECISIONS DURING HEARING. THE SA ME WERE ACCORDINGLY NOT PERUSED DURING HEARING NOR, CONSEQUENTLY, RESPONDED TO BY T HE OTHER SIDE. THE SAME, ACCORDINGLY, ARE NOT CONSIDERED PART OF THE RECORD AS ALSO, FOR THE SAME REASON, ARE THE OTHER PAPERS OF THE PAPER-BOOK, IN TERMS OF R ULE 18(6) OF THE RULES. THE SAME HAVE YET BEEN PERUSED. THE DECISIONS (AS IN DY. CIT V. VISHWANATH PRASAD GUPTA [2011] 10 TAXMANN.COM 74 (JAB. TM)) TO THE EFFECT THAT LOW PROFIT CANNOT BE REGARDED AS A DEFECT PER SE , SO AS TO VALIDATE OR FORM A BASIS FOR APPLYING SE C. 145(3), STATE A WELL-ACCEPTED POSITION OF LAW. SIMI LARLY, THE PROPOSITION THAT THE BOOKS OF ACCOUNT CANNOT BE REJECTED WITHOUT SPECIFY ING DEFECTS, AS ALSO CLARIFIED IN CIT V. OM OVERSEAS [2009] 315 ITR 185 (P&H), IS, AGAIN, WELL-SETTLED. AS, HOWEVER, A READING OF THE FOREGOING WOULD REVEAL, T HE SAID PRINCIPLES HAVE NOT BEEN VIOLATED IN THE INSTANT CASE. THE ISSUE ARISING IN THE INSTANT CASE IS PRIMARILY FACTUAL. THAT IS, WHETHER THE ASSESSEES ACCOUNTS, AS MAINTA INED, ARE CORRECT AND COMPLETE, FOR THE TRUE INCOME OF ITS BUSINESS TO BE DEDUCED THERE-FROM, WHICH IS THE PREMISE OF SECTION 145(3). THE SAME IS A MATTER OF FACT, AS INDEED CLARIFIED IN OM OVERSEAS (SUPRA), SO THAT OUR DECISION IS BASED PRINCIPALLY ON FINDINGS OF FACT (PARAS 4.1 THRO 4.3 OF THIS ORDER). THIS, THEN, MEETS THE DECISIONS CITED TOWARD THE SAID PRINCIPLES. THE DECISION IN VISHWANATH PRASAD GUPTA (SUPRA) IS NOT APPLICABLE EVEN ON FACTS. THE TRIBUNALS DECISION IN THAT CASE RESTS ON THE A UDITORS REPORT, WHILE IN THE INSTANT CASE THE RELEVANT BOOKS OF ACCOUNT HAVE ADMITTEDLY NOT BEEN PRODUCED BEFORE THE AUDITOR (REFER PARA 4.1). THERE IS, HOWEVER, ONE DE CISION IN THE COMPILATION THAT ITA NO. 190/ASR/2018 (AY 2014-15) PUNJAB HIDE COMPANY V. ITO 18 MAY REQUIRE BEING DISCUSSED, THOUGH NOT OBLIGED TO IN VIEW OF NON-REFERENCE THERETO DURING HEARING, I.E., BALBIR KAUR V. ITO (IN ITA NO. 151/ASR/2016, DATED 23.05.2016). IT IS SAID THAT IN-AS-MUCH AS THE OBLI GATION OF THE AO IS TO ASSESS THE NET INCOME OF THE BUSINESS, ACCOUNTS OF WHICH ARE R EJECTED, THE ADDITION BY ESTIMATING A HIGHER GROSS PROFIT IS NOT TENABLE. WE ARE, AGAIN, UNABLE TO UNDERSTAND THE BASIS OF THE SAID ARGUMENT. THE AO, WHERE HE DI STURBS THE ASSESSEES GROSS PROFIT UPON INVOKING 145(3), IS ONLY STATING THAT H E IS NOT SATISFIED WITH THE ASSESSEES TRADING RESULTS, AS DISCLOSED. WHICH COU LD BE, AS INDEED IT IS MOST LIKELY TO BE, FOR THE REASON THAT HE FINDS, AS IN THE PRES ENT CASE, THE ACCOUNTS AS NOT CORRECT AND COMPLETE IN-SO-FAR AS THEY RELATE TO THE MANNER OF ACCOUNTING FOR THE VARIOUS DIRECT COSTS AND REVENUES THAT GO INTO THE WORKING OF THE GROSS PROFIT. NET PROFIT CANNOT BE COMPUTED OR ARRIVED AT INDEPENDENT OF OR DE HORS THE GROSS PROFIT, BEING ONLY DERIVED THERE-FROM. THE AO MAY ALSO ESTIMATE S OME INDIRECT COSTS AND/OR REVENUES AS WELL, I.E., ALONG WITH ESTIMATING THE G ROSS PROFIT; THE WHOLE PURPORT BEING TO ESTIMATE THOSE AREAS OF INCOME DETERMINATI ON FOR WHICH THE ASSESSEES ACCOUNTS ARE NOT REGARDED AS RELIABLE. AT THE SAME TIME, HE, FINDING NO DEFECT THEREIN, MAY NOT CONSIDER IT NECESSARY TO DISTURB T HE INDIRECT INCOME/COST. HOW, THEREFORE, WE WONDER, THE INVOCATION OF SEC. 145(3) BE IMPUGNED ON THE BASIS THAT THE ASSESSEES INCOME IS ESTIMATED BY ESTIMATING TH E GROSS PROFIT ALONE, ALLOWING OTHER COSTS AND REVENUES AS CLAIMED? THERE ARE DECI SIONS GALORE WHERE INCOME ESTIMATED THUS, HAVE BEEN UPHELD. WHY, IN KACHWALA GEMS (SUPRA) AND, TO CITE ANOTHER EXAMPLE, IN HARISH AHUJA V. CIT BY THE HONBLE JURISDICTIONAL HIGH COURT (IN ITA NO. 196 OF 2015, DATED 24/8/2015), THE INCO ME WAS ESTIMATED THUS. 4.8 WE DECIDE ACCORDINGLY. ITA NO. 190/ASR/2018 (AY 2014-15) PUNJAB HIDE COMPANY V. ITO 19 5. IN THE RESULT, THE ASSESSEES APPEAL IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON FEBRUARY 25, 2019 SD/- SD/- (N. K. CHOUDHRY) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 25.02.2019 /GP/SR PS. COPY OF THE ORDER FORWARDED TO: (1) THE APPELLANT: PUNJAB HIDE CO., 307, HIDE M ARKET, AMRITSAR-143001, PB. (2) THE RESPONDENT: INCOME TAX OFFICER, WARD 3( 3), AMRITSAR, PUNJAB (3) THE CIT(APPEALS)-1, AMRITSAR (4) THE CIT CONCERNED (5) THE SR. DR, I.T.A.T. TRUE COPY BY ORDER