Nukala Rama Krishna, Eluru V. THE DCIT, CENTRAL CIRCLE-2, Visakhapatnam

ITA 191/VIZ/2014

• Counselvise Citation: [2016] 130 COUNSELVISE.COM (IT) 9888 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 05-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S RAVI SANKAR NARAYAN
• Keywords: Gross profit estimation; Rejection of books of accounts; Cost of acquisition; Corroborative evidences
• Section: 142(1); 145; 144

Judgement Text

ITA NOS.179&180/VIZAG/2014 M/S. VISAKHA WIRE ROPES LTD., VISAKHAPATNAM 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , 7 . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NO.179/VIZAG/2014 ( / ASSESSMENT YEAR: 2007-08) M/S. VISAKHA WIRE ROPES LTD., VISAKHAPATNAM VS. ACIT, RANGE - 4, VISAKHAPATNAM [PAN: AAACV7326F ] ( % / APPELLANT) ( &'% / RESPONDENT) ./I.T.A.NO.180/VIZAG/2014 ( / ASSESSMENT YEAR: 2009-10) M/S. VISAKHA WIRE ROPES LTD., VISAKHAPATNAM VS. DCIT, CIRCLE - 4(1), VISAKHAPATNAM ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI G.V.N. HARI, AR / RESPONDENT BY : SHRI S. RAVI SANKAR NARAYAN, DR / DATE OF HEARING : 22.08.2016 / DATE OF PRONOUNCEMENT : 16.09.2016 ITA NOS.179&180/VIZAG/2014 M/S. VISAKHA WIRE ROPES LTD., VISAKHAPATNAM 2 / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: THESE APPEALS FILED BY THE ASSESSEE ARE DIRECTED A GAINST SEPARATE, BUT IDENTICAL ORDERS OF CIT(A), VISAKHAPATNAM DATED 20.2.2014 FOR THE ASSESSMENT YEARS 2007-08 & 2009-10. SINCE, THE FACT S ARE IDENTICAL AND ISSUES ARE COMMON, THEY ARE HEARD TOGETHER AND DISP OSED OFF, BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS A PUBLIC LIMITED COMPANY, WHICH IS ENGAGED IN THE BUSINESS OF MANUFA CTURE OF STEEL WIRE, STRANDED WIRE AND WIRE ROPE, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2007-08 ON 29.10.2007 DECLARING TOT AL INCOME OF ` 1,57,62,430/-. THE RETURN WAS PROCESSED U/S 143(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED AS 'THE ACT'). SUBSE QUENTLY, THE CASE HAS BEEN SELECTED FOR SCRUTINY AND ACCORDINGLY, NOTICES U/S 143(2) & 142(1) OF THE ACT WERE ISSUED. IN RESPONSE TO NOTICES, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE APPEARED FROM TIME T O TIME AND FILED DETAILS AND PRODUCED BOOKS OF ACCOUNTS. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT STOCK REGISTERS MAINTAINED BY THE ASSESSEE ARE NOT SUSCEPTIBLE FOR VERIFICATION, THEREFORE, ISSUED A N OTICE AND ASKED TO ITA NOS.179&180/VIZAG/2014 M/S. VISAKHA WIRE ROPES LTD., VISAKHAPATNAM 3 FURNISH COMPLETE DETAILS OF QUANTITATIVE DETAILS OF MAJOR RAW MATERIALS PURCHASED, CONSUMPTION OF RAW MATERIALS AND FURNISH ED GOODS PRODUCED. IN RESPONSE TO SHOW CAUSE NOTICE, THE ASS ESSEE HAS FURNISHED DETAILS OF STOCK ALONG WITH CENTRAL EXCISE RECORDS. AS PER THE INFORMATION FURNISHED BY THE ASSESSEE, THE ASSESSEE HAS DISCLOSED CLOSING STOCK OF STEEL WIRE ROPE OF 1,196.79 MT WHI CH WAS VALUED AT ` 2,89,54,890/-. THE ASSESSEE HAS ADOPTED COST METHOD TO VALUE RAW MATERIAL, STORES, SPARES AND CONSUMABLES NET OF EXC ISE DUTY, AND FINISHED GOODS/WORK IN PROGRESS ARE VALUED AT FACTO RY COST. SIMILARLY, FINISHED GOOD IS VALUED AT LOWER OF ESTIMATED COST OR NOT REALIZABLE VALUE EXCLUSIVE OF EXCISE DUTY. THE A.O. OBSERVED FROM TH E BOOKS OF ACCOUNTS, THE ASSESSEE HAS CLAIMED PRODUCTION LOSS OF 192.144 MT WHICH WORKS OUT TO 1.47% OF THE RAW MATERIALS CONSUMED. THE A .O. FURTHER OBSERVED THAT THE PRODUCTION LOSS CLAIMED BY THE AS SESSEE FOR THE YEAR UNDER CONSIDERATION WHEN COMPARED TO PREVIOUS FINAN CIAL YEAR IS EXCESSIVE, THEREFORE, ASKED TO FURNISH DETAILS OF P RODUCTION LOSS ARRIVED ALONG WITH BOOKS OF ACCOUNTS. THE ASSESSEE VIDE IT S REPLY SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION, THE CLEAN ING OF WIRE ROPE WAS DONE THROUGH INTRODUCTION OF MECHANICAL DE-SCALING PROCESS OF WIRE ROPES WHICH INVOLVED MANY PROCESS INCLUDING DE-SCAL ING, BOREX CUTTING, WIRE DRAWING, WIND STRANDING AND ROPE CLOSING. IN THE PROCESS OF ITA NOS.179&180/VIZAG/2014 M/S. VISAKHA WIRE ROPES LTD., VISAKHAPATNAM 4 MANUFACTURE, INVISIBLE AND IRRECOVERABLE LOSSES IS HIGH WHICH CANNOT BE COLLECTED AS SCRAP AS LIKE IN THE EARLIER PROCESS O F MANUAL DE-SCALING OF WIRE ROPES. IN THE MECHANICAL PROCESS OF DE-SCALIN G OF WIRE ROPES, THERE ARE SOME INVISIBLE AND IRRECOVERABLE LOSSES, PARTIC ULARLY IN THE FORM OF RUST ARISING IN THE DE-SCALING PROCESS, WHICH CANNO T BE MEASURED AND COLLECTED AS SCRAP. THEREFORE, THE PRODUCTION LOSS FOR THE YEAR UNDER CONSIDERATION IS HIGHER WHEN COMPARED TO THE PREVIO US FINANCIAL YEAR. THE ASSESSEE FURTHER SUBMITTED THAT IT IS COMMON IN THIS LINE OF INDUSTRY THAT PRODUCTION LOSS IS ARISES BECAUSE OF VARIOUS P ROCESS OF CUTTING STEEL RODS AND WIRE INTO SMALLER SIZES. TO SUPPORT HIS A RGUMENTS, FURNISHED A WRITE UP PUBLISHED BY THE WIRE ASSOCIATION INTERNAT IONAL INC., USA WHICH SAYS THAT THE AMOUNT OF LOSS ON THESE RODS MAY BE A PPROXIMATELY 1% OR MORE BY WEIGHT. THEREFORE, THE PRODUCTION LOSS CLA IMED BY THE ASSESSEE IS WITHIN THE PRESCRIBED NORMS AND ALSO SUPPORTED B Y STOCK REGISTERS CANNOT BE DISTURBED. 4. SIMILARLY, THE A.O. OBSERVED THAT GROSS PROFIT D ECLARED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION IS SUBSTA NTIALLY LESS THAN THE GROSS PROFIT DECLARED FOR THE PREVIOUS FINANCIAL YE AR. THE A.O. FURTHER OBSERVED THAT THE ASSESSEE HAS DECLARED GROSS PROFI T OF 9.3% ON A GROSS TURNOVER OF ` 42,98,18,151/-, WHEREAS THE GROSS PROFIT FOR THE CORRESPONDING PREVIOUS YEAR IS 17.22% ON A TOTAL TU RNOVER OF ` ITA NOS.179&180/VIZAG/2014 M/S. VISAKHA WIRE ROPES LTD., VISAKHAPATNAM 5 24,94,25,704/-, THEREFORE, ISSUED A NOTICE AND ASKE D TO JUSTIFY THE REDUCTION IN GROSS PROFIT FOR THE YEAR UNDER CONSID ERATION. IN RESPONSE TO NOTICE, THE ASSESSEE SUBMITTED THAT DURING THE Y EAR UNDER CONSIDERATION, THE INPUT COST OF RAW MATERIALS HAS BEEN INCREASED AND THE SALE PRICE WAS REDUCED, WHICH IS THE MAIN REASO N FOR REDUCTION IN GROSS PROFIT. THE ASSESSEE FURTHER SUBMITTED THAT PERCENTAGE OF GROSS PROFIT DEPENDS UPON VARIOUS FACTORS SUCH AS COST OF INPUT RAW MATERIALS, TYPE OF PRODUCTS MANUFACTURED, PRODUCT MIX AND SELL ING PRICE. IT HAS MAINTAINED BOOKS OF ACCOUNTS ALONG WITH STOCK REGIS TERS, WHICH WAS SUBMITTED TO THE CENTRAL EXCISE DEPARTMENT ON QUART ERLY BASIS AND THE CENTRAL EXCISE DEPARTMENT HAS NOT POINTED OUT ANY D ISCREPANCY IN THE STOCK REGISTERS, THEREFORE, THERE IS NO REASON FOR DOUBTING GROSS PROFIT DECLARED FOR THE YEAR UNDER CONSIDERATION. THE ASS ESSEE FURTHER SUBMITTED THAT ITS BOOKS OF ACCOUNTS ARE AUDITED U/ S 44AB OF THE ACT AND THE AUDITOR HAS ISSUED AUDIT REPORT, WHEREIN THE AU DITOR HAS NOT POINTED OUT ANY DISCREPANCIES IN STOCK REGISTERS AND VALUAT ION OF STOCK, THEREFORE, THE GROSS PROFIT DECLARED FOR THE YEAR C ANNOT BE ALTERED. 5. THE A.O. AFTER CONSIDERING THE EXPLANATION FURNI SHED BY THE ASSESSEE, HELD THAT THE ASSESSEE HAS FAILED TO SUBM IT DETAILS WITH REGARD TO VALUATION OF CLOSING STOCK OF STEEL WIRE ROPE. T HE A.O. FURTHER OBSERVED THAT THE ASSESSEE HAS NOT FURNISHED CLOSIN G STOCK DETAILS OF RAW ITA NOS.179&180/VIZAG/2014 M/S. VISAKHA WIRE ROPES LTD., VISAKHAPATNAM 6 MATERIALS ITEM-WISE AND RATE-WISE AND ALSO FAILED T O TAKE PHYSICAL INVENTORY OF CLOSING STOCK AT THE END OF THE FINANC IAL YEAR. THEREFORE, OPINED THAT THE STOCK REGISTER MAINTAINED BY THE AS SESSEE ARE NOT GIVING TRUE AND CORRECT POSITION OF QUANTITATIVE DETAILS A ND VALUATION OF CLOSING STOCKS, AND HENCE, REJECTED VALUATION OF CLOSING ST OCK DETERMINED BY THE ASSESSEE AND RE-WORKED CLOSING STOCK OF RAW MATERIA LS AT THE END OF THE YEAR BY ADOPTING AVERAGE PRICE OF STEEL ROD PURCHAS ED FOR THE MONTH OF MARCH AND DETERMINED CLOSING STOCK VALUE OF ` 2,95,04,212/- AS AGAINST THE VALUE DECLARED BY THE ASSESSEE OF ` 2,89,54,819/- AND ARRIVED AT A DIFFERENCE OF ` 5,49,395/-. AS REGARDS THE PRODUCTION LOSS, THE A. O. OBSERVED THAT AFTER VERIFICATION OF STOCK REGISTER FURNISHED BY THE ASSESSEE AND ALSO AFTER ANALYZING MONTH-WISE PURCHA SE AND SALES, IT WAS NOTICED THAT STOCK REGISTER MAINTAINED BY THE ASSES SEE ARE NOT DEPICTING CORRECT POSITION OF CLOSING STOCK OF THE ASSESSEE F OR THE YEAR UNDER CONSIDERATION. THE A.O. FURTHER OBSERVED THAT STOCK REGISTER MAINTAINED BY THE ASSESSEE IS HAVING LOT OF DISCREPANCIES. AS PER THE STOCK REGISTERS, ON ANALYSIS OF MONTH WISE PRODUCTION LOS S, THE ASSESSEE HAS DECLARED HUGE PRODUCTION LOSS OF 1 TO 10% IN FEW MO NTHS AND IN SOME OF THE MONTHS, THE ASSESSEES PRODUCTION LOSSES IS NEGATIVE. IN SOME OF THE MONTHS, THE PRODUCTION LOSS WAS MORE THAN THE M ATERIAL USED FOR THE PURPOSE OF PRODUCTION AND IN SOME MONTHS, PRODUCTIO N LOSS IS ITA NOS.179&180/VIZAG/2014 M/S. VISAKHA WIRE ROPES LTD., VISAKHAPATNAM 7 SUBSTANTIALLY HIGH, THEREFORE, THE ASSESSEES CONTE NTION THAT DUE TO CHANGE OF TECHNOLOGY IN CLEANING WIRE ROPES AND SWI TCH OVER TO MECHANICAL DE-SCALING PROCESS RESULTED IN PRODUCTIO N LOSS IS FAR FROM TRUTH AND CANNOT BE RELIED UPON. THE A.O. FURTHER O BSERVED THAT AS ADMITTED BY THE ASSESSEE, WHICH WAS SUPPORTED BY TH E WIRE ASSOCIATION INTERNATIONAL INC., THE PRODUCTION LOSS IN THIS IND USTRY IS VARYING FROM 1% OR MORE BY WEIGHT. SINCE, THE STOCK REGISTER MAINT AINED BY THE ASSESSEE ARE NOT SUSCEPTIBLE FOR VERIFICATION, REJECTED PROD UCTION LOSS CLAIMED BY THE ASSESSEE AND ESTIMATED PRODUCTION LOSS OF 1% ON TOTAL RAW MATERIAL CONSUMED AND ARRIVED AT A PRODUCTION LOSS OF 130.05 8 MT, AS AGAINST THE PRODUCTION LOSS CLAIMED BY THE ASSESSEE OF 192 .144 MT AND QUANTIFIED DIFFERENCE OF 62.09 MT OF PRODUCTION LOS S WHICH WORKS OUT TO ` 17,80,230/- WHICH WAS ADDED BACK TO THE TOTAL INCO ME OF THE ASSESSEE. 6. SIMILARLY, THE A.O. OBSERVED THAT GROSS PROFIT D ECLARED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION IS SUBSTA NTIALLY LESS THAN THE GROSS PROFIT DECLARED FOR THE PREVIOUS FINANCIAL YE AR. THE ASSESSEE HAS FAILED TO ADDUCE ANY REASONS FOR DECLARING LOW GROS S PROFIT. THOUGH ASSESSEE CLAIMS THAT THE REASON FOR REDUCTION IN GR OSS PROFIT IS DUE TO INCREASE IN THE COST OF RAW MATERIALS AND DECREASE IN THE COST OF FINAL PRODUCTS, THE ASSESSEE HAS FAILED TO SUBSTANTIATE T HE REDUCTION IN GROSS ITA NOS.179&180/VIZAG/2014 M/S. VISAKHA WIRE ROPES LTD., VISAKHAPATNAM 8 PROFIT WITH NECESSARY EVIDENCES. SINCE, THE STOCK REGISTER MAINTAINED BY THE ASSESSEE ARE NOT SHOWING TRUE AND CORRECT POSIT ION OF MOVEMENT OF STOCKS AND ALSO THE ASSESSEE HAS FAILED TO TAKE PHY SICAL INVENTORY OF CLOSING STOCK AT THE END OF THE YEAR, THE CORRECT G ROSS PROFIT CANNOT BE DETERMINED BASED ON SUCH BOOKS OF ACCOUNTS, WITH T HESE OBSERVATIONS, REJECTED BOOKS OF ACCOUNTS AND ESTIMATED GROSS PROF IT BY TAKING INTO ACCOUNT AVERAGE GROSS PROFIT OF 3 FINANCIAL YEARS WHICH WORKS OUT TO 12.59% AND APPLIED THE AVERAGE GROSS PROFIT RATE TO THE TOTAL TURNOVER AND DETERMINED GROSS PROFIT OF ` 5,41,14,105/- AS AGAINST GROSS PROFIT OF ` 4,02,67,547/- ADMITTED BY THE ASSESSEE. THE DIFFE RENCE OF ` 1,38,46,558/- HAS BEEN CONSIDERED AS SUPPRESSED GRO SS PROFIT AND AFTER REDUCING ADDITIONS MADE TOWARDS DIFFERENCE IN VALUA TION OF CLOSING STOCK OF ` 5,49,345/- AND ADDITIONS TOWARDS PRODUCTION LOSS O F ` 17,80,230/-, THE REMAINING AMOUNT OF ` 1,15,16,933/- HAS BEEN ADDED TO THE TOTAL INCOME OF THE ASSESSEE TOWARDS DIFFERENCE IN GROSS PROFIT. 7. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE AS SESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE A.O. AS REGARDS ADDITIO NS TOWARDS VALUATION OF CLOSING STOCK, THE ASSESSEE SUBMITTED THAT THE A.O. WAS ERRED IN WORKING OUT CLOSING STOCK OF RAW MATERIALS BY TAKING INTO ACCOUNT AVERAGE PRICE OF RAW MATERIALS PURCHASED FO R THE MONTH OF ITA NOS.179&180/VIZAG/2014 M/S. VISAKHA WIRE ROPES LTD., VISAKHAPATNAM 9 MARCH WITHOUT POINTING OUT ANY DEFECTS IN THE STOCK REGISTERS AND ALSO MANUFACTURING EXPENSES INCURRED BY THE ASSESSEE. T HE ASSESSEE FURTHER SUBMITTED THAT THE A.O. HAS TAKEN AVERAGE PRICE OF RAW MATERIALS AS AGAINST THE COST PRICE METHOD ON FIFO BASIS ADOPTED BY THE ASSESSEE TO VALUE THE CLOSING STOCK. AS REGARDS THE ADDITIONS TOWARDS PRODUCTION LOSSES, THE ASSESSEE SUBMITTED THAT THE A.O. WAS ER RED IN ESTIMATING PRODUCTION LOSS AT 1% WITHOUT POINTING OUT ANY DEFE CTS IN THE STOCK REGISTER MAINTAINED BY THE ASSESSEE. THE ASSESSEE FURTHER SUBMITTED THAT THE A.O. HAS ANALYZED MONTH-WISE CONSUMPTION O F RAW MATERIALS WITHOUT TAKING INTO ACCOUNT WORK IN PROGRESS AVAILA BLE AT SHOP FLOOR WHICH IS THE REASON FOR EXCESS/SHORTAGE OF PRODUCTI ON LOSSES IN FEW MONTHS. THE FACT IS THAT THE ASSESSEE IS MAINTAINI NG STOCK REGISTERS AS PER THE CENTRAL EXCISE RULES, WHICH WAS PRODUCED BE FORE THE CENTRAL EXCISE AUTHORITIES ON QUARTERLY BASIS AND THE STOCK REGISTERS MAINTAINED BY THE ASSESSEE IS NOT HAVING ANY DEFECTS. THE A.O . WITHOUT POINTING OUT SPECIFIC DEFECTS IN THE BOOKS OF ACCOUNTS, RESO RTED TO ESTIMATION OF PRODUCTION LOSSES IGNORING COMPLETE DETAILS FILED B Y THE ASSESSEE SUCH AS CENTRAL EXCISE RECORDS AND STOCK REGISTERS. SIMILAR LY, AS REGARDS THE ADDITIONS TOWARDS GROSS PROFIT, THE ASSESSEE SUBMIT TED THAT THE A.O. WAS COMPLETELY ERRED IN REJECTING BOOKS OF ACCOUNTS WIT HOUT POINTING OUT ANY SPECIFIC DEFECTS IN THE BOOKS OF ACCOUNTS AND ESTIM ATION OF GROSS PROFIT ITA NOS.179&180/VIZAG/2014 M/S. VISAKHA WIRE ROPES LTD., VISAKHAPATNAM 10 BY TAKING INTO AVERAGE GROSS PROFIT OF 3 FINANCIAL YEARS. THE ASSESSEE FURTHER SUBMITTED THAT THE A.O. WAS ERRED IN ESTIMA TION OF GROSS PROFIT, AS THE BOOKS OF ACCOUNTS OF THE ASSESSEE ARE AUDITE D BY AN ACCOUNTANT UNDER THE PROVISIONS OF SECTION 44AB OF THE ACT AND THE AUDITOR ISSUED TAX AUDIT REPORT WITH NIL COMMENTS ON STOCK BOOKS M AINTAINED BY THE ASSESSEE WHICH CLEARLY SHOWS THAT THE BOOKS OF ACCO UNTS MAINTAINED BY THE ASSESSEE ARE TRUE AND CORRECT AND THE A.O. HAS NO REASONS TO DOUBT THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE. T HE ASSESSEE FURTHER SUBMITTED THAT IT IS NOT A CASE OF A.O. THAT THE AS SESSEE HAS INFLATED PURCHASE COST OR INFLATED MANUFACTURING EXPENSES TO REDUCE THE PROFIT. THE A.O. HAS ACCEPTED EXPENDITURE CLAIMED BY THE AS SESSEE AND ALSO PURCHASE OF RAW MATERIALS. ONCE THE BOOKS OF ACCOUN TS HAVE BEEN ACCEPTED, THERE IS NO REASON FOR THE A.O. TO DOUBT THE GROSS PROFIT DECLARED FOR THE YEAR. 8. THE CIT(A) AFTER CONSIDERING THE EXPLANATIONS FU RNISHED BY THE ASSESSEE, HELD THAT THE ASSESSEE HAS NOT DEMONSTRAT ED WITH EVIDENCES THE VALUE ADOPTED BY THE A.O. IS WRONG. THE A.O. H AS ADOPTED AVERAGE PRICE OF MARCH PURCHASES TO VALUE THE CLOSING STOCK OF RAW MATERIALS. THE ASSESSEE HAS FAILED TO FURNISH BREAKUP DETAILS OF CLOSING STOCK OF RAW MATERIALS WITH REFERENCE TO RATES TO JUSTIFY ADOPTI NG DIFFERENTIAL RATES. SINCE THE ASSESSEE HAS FAILED TO FURNISH BREAKUP OF RAW MATERIALS, THE ITA NOS.179&180/VIZAG/2014 M/S. VISAKHA WIRE ROPES LTD., VISAKHAPATNAM 11 A.O. WAS RIGHT IN TAKING AVERAGE PRICE OF RAW MATER IALS PURCHASED FOR THE MONTH OF MARCH TO VALUE THE CLOSING STOCK OF RAW MA TERIALS FOR THE YEAR END. AS REGARDS THE ADDITIONS TOWARDS PRODUCTION L OSS, THE CIT(A) OBSERVED THAT THE ASSESSEE HAS FAILED TO EXPLAIN TH E PRODUCTION LOSS WITH NECESSARY EVIDENCES. THOUGH ASSESSEE EXPLAINED REA SONS FOR INCREASE IN PRODUCTION LOSS, THE REASONS GIVEN BY THE ASSESS EE THAT THE PRODUCTION LOSS HAS BEEN INCREASED DUE TO SWITCH OV ER OF MECHANICAL DE- SCALING PROCESS FROM EARLIER PROCESS OF HYDRAULIC B ATH AND PICKLING CANNOT BE ACCEPTED FOR THE REASON THAT ONCE THE PRO DUCTION PROCESS HAS BEEN SWITCHED OVER FROM MANUAL TO MECHANICAL, NORMA LLY THE PRODUCTION LOSS SHOULD COME DOWN. HOWEVER, THE ASSESSEE CLAIM S HIGHER PRODUCTION LOSS DUE TO SWITCHING OVER TO MECHANICAL PROCESS OF MANUFACTURING WHICH IS QUITE OPPOSITE TO NORMAL PRE CEDENT OF REDUCTION IN PRODUCTION LOSS, THEREFORE, THE REASON GIVEN BY THE ASSESSEE IS NOT ACCEPTABLE. THE CIT(A) FURTHER OBSERVED THAT THE A .O. HAS POINTED OUT VARIOUS DISCREPANCIES IN THE BOOKS OF ACCOUNTS MAIN TAINED BY THE ASSESSEE, WHICH WAS NOT EXPLAINED BY THE ASSESSEE, THEREFORE, THE STOCK BOOKS MAINTAINED BY THE ASSESSEE CANNOT BE RELIED UPON TO CONSIDER PRODUCTION LOSS. THE CIT(A) FURTHER OBSERVED THAT AS CLAIMED BY THE ASSESSEE, THE AVERAGE PRODUCTION LOSS IN THIS INDUS TRY IS 1% OR MORE BY WEIGHT AS SUGGESTED BY THE WIRE ASSOCIATION INTERNA TIONAL INC., WITH ITA NOS.179&180/VIZAG/2014 M/S. VISAKHA WIRE ROPES LTD., VISAKHAPATNAM 12 THESE OBSERVATIONS, HELD THAT THE A.O. HAS RIGHTLY ESTIMATED PRODUCTION LOSS OF 1%, HOWEVER, RE-QUANTIFIED THE PRODUCTION L OSS OF ` 18,01,632/- AS AGAINST THE ADDITIONS MADE BY THE A.O. OF ` 17,80,230/-. 9. AS REGARDS THE ADDITIONS TOWARDS GROSS PROFIT, T HE CIT(A) OBSERVED THAT THE ASSESSEE HAS FAILED TO EXPLAIN REDUCTION I N GROSS PROFIT WITH NECESSARY EVIDENCES. THE STOCK REGISTER MAINTAINED BY THE ASSESSEE ARE NOT GIVING TRUE AND CORRECT POSITION OF MOVEMENT OF STOCK AND VALUATION OF CLOSING STOCK. THE A.O. HAS POINTED OUT NUMBER OF DISCREPANCIES IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE, A S PER WHICH THE ASSESSEES PRODUCTION LOSS VARIES FROM 1% TO 10% IN SOME MONTHS AND IN SOME MONTHS, THE PRODUCTION LOSS IS OVER AND ABO VE THE RAW MATERIALS ISSUED FOR PRODUCTION. THOUGH ASSESSEE CLAIMS TO H AVE EXPLAINED THE REASONS FOR VARIANCE IN PRODUCTION LOSS DUE TO NON- CONSIDERATION OF STOCK AVAILABLE AT SHOP FLOOR, THE ASSESSEE HAS FAILED TO CONVINCE THE AVAILABILITY OF WORK IN PROGRESS IN THE SHOP FLOOR. THE CIT(A) FURTHER OBSERVED THAT THE ASSESSEE HAS CLAIMED STOCK TO THE TUNE OF 121.407 MT AT THE SHOP FLOOR AS ON 1.4.2006, BUT THE FINANCIAL STATEMENT SHOWED SUCH POSITION TO BE NIL AS ON 31.3.2006. SIMILARLY , THE ASSESSEE HAS CLAIMED STOCK AT THE SHOP FLOOR TO THE TUNE OF 168. 864 MT FOR THE MONTH OF MARCH, 2007 BUT HAS NOT ADMITTED ANY CLOSING STO CK OF WORK IN PROGRESS IN THE FINANCIAL STATEMENTS. NO SUCH ENTR Y FOR STOCK IN SHOP ITA NOS.179&180/VIZAG/2014 M/S. VISAKHA WIRE ROPES LTD., VISAKHAPATNAM 13 FLOOR WAS FOUND RECORDED IN THE STOCK REGISTER FOR ANY OF THE MONTHS. WITH THESE OBSERVATIONS, HOLD THAT THE A.O. HAS RIGH TLY ESTIMATED GROSS PROFIT ON AN AVERAGE OF 12.59% TAKING THE GROSS PRO FIT POSITION OF LAST 3 YEARS. HOWEVER, FROM THE DETAILS FILED, IT IS NOTE D THAT THE A.O. IS NOT JUSTIFIED IN ADOPTING SUCH GROSS PROFIT RATE ON THE GROSS SALES OF ` 42,98,18,151/- AS THE GROSS SALES CONSIDERED BY THE A.O. IS INCLUSIVE OF EXCISE DUTY PAYABLE TO THE GOVERNMENT, AS SUCH GROS S PROFIT CANNOT BE ESTIMATED ON EXCISE DUTY COMPONENT, WITH THESE OBSE RVATIONS, DIRECTED THE A.O. TO RE-COMPUTE GROSS PROFIT BY EXCLUDING EX CISE DUTY COMPONENT INCLUDED IN THE GROSS SALES. AGGRIEVED BY THE CIT( A) ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. 10. THE ASSESSEE HAS FILED COMMON GROUNDS FOR BOTH THE ASSESSMENT YEARS. FROM THESE GROUNDS OF APPEAL, THE ASSESSEE H AS AGITATED 3 ISSUES I.E. (1) ADDITIONS TOWARDS ALLEGED SHORT VALUATION OF CLOSING STOCK (2) ADDITIONS TOWARDS DISALLOWANCE OF EXCESS PRODUCTION LOSS OF ` 17,80,230/- (3) ADDITIONS TOWARDS ALLEGED LOW GROSS PROFIT ADMITTED BY THE ASSESSEE. 11. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERAT ION IS ADDITIONS TOWARDS ALLEGED SHORT VALUATION OF CLOSING STOCK. T HE A.O. MADE ADDITIONS TOWARDS SHORT VALUATION OF CLOSING STOCK BY TAKING INTO ACCOUNT AVERAGE PRICE OF RAW MATERIALS PURCHASED FOR THE MO NTH OF MARCH TO ITA NOS.179&180/VIZAG/2014 M/S. VISAKHA WIRE ROPES LTD., VISAKHAPATNAM 14 DETERMINE THE VALUE OF CLOSING STOCK HELD AT THE EN D OF THE FINANCIAL YEAR. THE A.O. WAS OF THE OPINION THAT THE STOCK R EGISTERS MAINTAINED BY THE ASSESSEE ARE NOT SUSCEPTIBLE FOR VERIFICATION A ND THE STOCK REGISTERS ARE FOUND WITH NUMBER OF DISCREPANCIES, THEREFORE, REJECTED STOCK REGISTERS MAINTAINED BY THE ASSESSEE. THE A.O. HAS ANALYZED MONTH- WISE CONSUMPTION OF RAW MATERIALS AND PRODUCTION OF FINISHED GOODS. ACCORDING TO THE A.O., THE ASSESSEES STOCK REGISTE RS ARE NOT SHOWING TRUE AND CORRECT POSITION OF MOVEMENT OF STOCK AND VALUATION OF CLOSING STOCK. IT IS THE CONTENTION OF THE ASSESSEE THAT I T HAS MAINTAINED STOCK REGISTERS IN ACCORDANCE WITH THE CENTRAL EXCISE RUL ES, WHICH WAS AUDITED BY AN AUDITOR AND THE AUDITOR HAS NOT POINTED OUT A NY DISCREPANCIES IN THE BOOKS OF ACCOUNTS, THEREFORE, THE A.O. WAS NOT CORRECT IN ADOPTING AVERAGE PRICE OF RAW MATERIALS PURCHASED FOR THE MO NTH OF MARCH TO DETERMINE THE CLOSING STOCK. THE ASSESSEE FURTHER CONTENDED THAT IT IS FOLLOWING COST PRICE METHOD NET OF EXCISE DUTIES FO R DETERMINING VALUE OF CLOSING STOCK OF RAW MATERIALS, THEREFORE, THE A.O. WITHOUT POINTING OUT ANY DISCREPANCIES IN THE STOCK REGISTERS IGNORED TH E METHOD OF VALUATION ADOPTED BY THE ASSESSEE CONSISTENTLY FOR THE PAST S EVERAL YEARS AND TAKEN AVERAGE PRICE OF RAW MATERIALS WHICH IS NOT C ORRECT. WE FIND FORCE IN THE ARGUMENTS OF THE ASSESSEE FOR THE REASON THA T THE A.O. HAS NOT POINTED OUT ANY DISCREPANCIES IN THE BOOKS OF ACCOU NTS, EXCEPT STATING ITA NOS.179&180/VIZAG/2014 M/S. VISAKHA WIRE ROPES LTD., VISAKHAPATNAM 15 THAT THERE IS A VARIANCE IN PRODUCTION LOSS IN FEW MONTHS AND IN FEW MONTHS THE PRODUCTION LOSS IS EVEN MORE THAN THE RA W MATERIALS ISSUED FOR PRODUCTION. ON VERIFICATION OF THE DETAILS FUR NISHED BY THE ASSESSEE, WE FIND THAT WHILE ANALYZING THE CLOSING STOCK DETA ILS, THE A.O. HAS TAKEN RAW MATERIALS ISSUED FOR PRODUCTION AND GOODS MANUF ACTURED FOR THE PARTICULAR MONTH WITHOUT CONSIDERING BROUGHT FORWAR D STOCK AVAILABLE AT SHOP FLOOR, WHICH IS THE REASON FOR ARRIVING AT A S HORTAGE/EXCESS PRODUCTION LOSS ON MONTHLY BASIS. THEREFORE, WE AR E OF THE OPINION THAT WHEN THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESS EE ARE ACCEPTED WITHOUT ANY DISCREPANCIES, THE A.O. WAS NOT CORRECT IN TINKERING WITH THE METHOD OF CLOSING STOCK ADOPTED BY THE ASSESSEE TO DETERMINE THE VALUE OF CLOSING STOCK OF RAW MATERIALS. HENCE, WE ARE O F THE VIEW THAT THE A.O. WAS COMPLETELY ERRED IN ADOPTING AVERAGE PRICE METHOD TO DETERMINE THE CLOSING STOCK AS AGAINST THE CONSISTE NT METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE I.E. COST PRICE METHOD TO DETERMINE THE CLOSING STOCK. HENCE, WE DIRECT THE A.O. TO DE LETE ADDITIONS MADE TOWARDS SHORT VALUATION OF CLOSING STOCK. 12. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS ADDITIONS TOWARDS ALLEGED EXCESS PRODUCTION LOSS. THE A.O. M ADE ADDITIONS OF ` 17,18,230/- TOWARDS EXCESS PRODUCTION LOSS BY STATI NG THAT THE ASSESSEE HAS CLAIMED EXCESSIVE PRODUCTION LOSS WHEN COMPARED TO PREVIOUS ITA NOS.179&180/VIZAG/2014 M/S. VISAKHA WIRE ROPES LTD., VISAKHAPATNAM 16 FINANCIAL YEAR. ACCORDING TO THE A.O., THE PRODUCT ION LOSS FOR THE PREVIOUS FINANCIAL YEAR IS +1.381 MT, WHEREAS FOR T HE CURRENT YEAR, THE PRODUCTION LOSS IS -192.144 MT. THE A.O. WAS OF TH E OPINION THAT THE STOCK REGISTERS MAINTAINED BY THE ASSESSEE ARE NOT SHOWING TRUE AND CORRECT MOVEMENT OF STOCK AND VALUATION OF CLOSING STOCK. AS PER ANALYSIS PROVIDED BY THE A.O. IN HIS ORDER, IN SOME OF THE MONTHS THE PRODUCTION LOSS IS 1.69% TO 11.91% AND IN SOME OF T HE MONTHS, THE PRODUCTION IS EXCESS PRODUCTION THAN THE MATERIAL U SED FOR PRODUCTION. THE A.O. ANALYZED MONTH-WISE CONSUMPTION OF RAW MAT ERIALS AND PRODUCTION OF FINISHED GOODS TO ARRIVE AT A CONCLUS ION THAT PRODUCTION LOSS CLAIMED BY THE ASSESSEE IS INCONSISTENT WITH T HE PRODUCTION LOSS ULTIMATELY ARRIVED AT THE END OF THE FINANCIAL YEAR , THEREFORE, WAS OF THE OPINION THAT THE STOCK BOOKS ARE NOT DEPICTING TRUE AND CORRECT PICTURE AND HENCE, REJECTED BOOKS OF ACCOUNTS AND ESTIMATED PRODUCTION LOSS BASED ON ASSESSEES OWN SUBMISSION WHICH IS SUPPORT ED BY THE WIRE ASSOCIATION INTERNATIONAL INC., WHEREIN THE ARTICLE PUBLISHED BY THE ASSOCIATION SHOWS THAT PRODUCTION LOSS IN THIS INDU STRY IS 1% OR MORE BY WEIGHT. 13. IT IS THE CONTENTION OF THE ASSESSEE THAT IT HA S MAINTAINED REGULAR STOCK REGISTERS IN ACCORDANCE WITH THE CENTRAL EXCI SE RULES, WHICH WERE FURNISHED TO THE CENTRAL EXCISE AUTHORITIES ON QUAR TERLY BASIS AND THE ITA NOS.179&180/VIZAG/2014 M/S. VISAKHA WIRE ROPES LTD., VISAKHAPATNAM 17 CENTRAL EXCISE AUTHORITIES HAVE ACCEPTED QUANTITATI VE DETAILS WITHOUT ANY MODIFICATION. THE ASSESSEE FURTHER CONTENDED THAT I TS BOOKS OF ACCOUNTS WERE AUDITED UNDER THE PROVISIONS OF SECTION 44AB O F THE ACT. THE AUDITOR AUDITED THE BOOKS OF ACCOUNTS ISSUED TAX AU DIT REPORT IN FORM NO.3CB & 3CD WITHOUT ANY COMMENTS ON THE BOOKS OF A CCOUNTS OR STOCK REGISTERS MAINTAINED BY THE ASSESSEE. THE ASSESSEE HAS FURNISHED COMPLETE DETAILS OF QUANTITATIVE DETAILS OF RAW MAT ERIALS PURCHASED, CONSUMPTION OF RAW MATERIALS AND PRODUCTION OF FINI SHED GOODS WHICH IS CONSISTENT WITH THE BOOKS OF ACCOUNTS MAINTAINED UN DER THE PROVISIONS OF CENTRAL EXCISE RULES. THE A.O., WITHOUT POINTIN G OUT ANY ERRORS IN THE BOOKS OF ACCOUNTS, BASED ON HIS OWN ANALYSIS OF CON SUMPTION OF RAW MATERIALS COME TO THE CONCLUSION THAT THE STOCK REG ISTER MAINTAINED BY THE ASSESSEE ARE NOT SHOWING TRUE AND CORRECT POSIT ION OF STOCK. 14. HAVING HEARD BOTH THE PARTIES, WE FIND FORCE IN THE ARGUMENTS OF THE ASSESSEE FOR THE REASON THAT THE ASSESSEE HAS M AINTAINED STOCK REGISTERS IN ACCORDANCE WITH THE PROVISIONS OF CENT RAL EXCISE RULES AND FURNISHED SUCH STOCK REGISTERS ON QUARTERLY BASIS T O THE CENTRAL EXCISE AUTHORITIES WHICH WERE ACCEPTED WITHOUT ANY MODIFIC ATIONS. WE FURTHER NOTICED THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE WERE AUDITED UNDER THE PROVISIONS OF SECTION 44AB OF THE ACT AND THE Q UANTITATIVE DETAILS AS REQUIRED BY CLAUSE 28(B) OF FORM NO.3CD REGARDING R AW MATERIALS AND ITA NOS.179&180/VIZAG/2014 M/S. VISAKHA WIRE ROPES LTD., VISAKHAPATNAM 18 FINISHED GOODS WERE PREPARED AND AUDITED BY CERTIFI ED ACCOUNTANT AND WERE ENCLOSED WITH FORM NO.3CD WHICH HAD BEEN PLACE D ON RECORD, BUT THE ASSESSING OFFICER ANALYZED THE CONSUMPTION OF R AW MATERIALS IN HIS OWN WISDOM WHICH IN OUR OPINION IS NOT CORRECT FOR THE REASON THAT THE A.O. HAS ANALYZED CONSUMPTION OF RAW MATERIALS ON M ONTHLY BASIS WITHOUT TAKING INTO ACCOUNT THE OPENING STOCK AND C LOSING STOCK AVAILABLE AT SHOP FLOOR WHICH IS ESSENTIAL TO ARRIVE AT PRODU CTION LOSS. THOUGH THE A.O. ANALYSED RAW MATERIALS CONSUMPTION ACCORDING T O HIS OWN METHOD, THE METHOD FOLLOWED BY THE A.O. IS INCONSISTENT WIT H THE ACCEPTED PRINCIPLES OF CALCULATION OF PRODUCTION LOSS, THERE FORE, IN OUR CONSIDERED VIEW, THE A.O. HAS COMPLETELY ERRED IN COMING TO TH E CONCLUSION THAT THE STOCK REGISTERS MAINTAINED BY THE ASSESSEE ARE NOT SHOWING TRUE AND CORRECT PICTURES, WHEN THE ASSESSEE HAS CLEARLY DEM ONSTRATED WITH NECESSARY EVIDENCE THAT THE STOCK FIGURES DECLARED IN THE FINANCIAL STATEMENTS ARE TALLIED WITH THE STOCK REGISTERS MAI NTAINED IN ACCORDANCE WITH THE CENTRAL EXCISE RULES. THE A.O. AFTER ANAL YZING RAW MATERIALS, FAILED TO ARRIVE AT A CORRECT FIGURE OF PRODUCTION LOSS INSTEAD, PROCEEDED WITH ESTIMATION OF PRODUCTION LOSS BASED ON CERTAIN ARTICLES PUBLISHED IN SOME MAGAZINE WHICH IS NOT A BINDING NATURE, IGNORI NG THE STOCK REGISTERS FURNISHED BY THE ASSESSEE WHICH ARE APPRO VED BY ANOTHER AUTHORITY OF THE REVENUE DEPARTMENT AND ALSO CERTIF IED BY A CERTIFIED ITA NOS.179&180/VIZAG/2014 M/S. VISAKHA WIRE ROPES LTD., VISAKHAPATNAM 19 ACCOUNTANT UNDER THE PROVISIONS OF INCOME TAX ACT, 1961. THEREFORE, WE ARE OF THE VIEW THAT THE PRODUCTION LOSS ESTIMAT ED BY THE A.O. IS NOT CORRECT AND ACCORDINGLY, WE DIRECT THE A.O. TO DELE TE ADDITIONS MADE TOWARDS PRODUCTION LOSS. 15. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS ADDITION TOWARDS ALLEGED LOW GROSS PROFIT. THE A.O. MADE ADD ITION OF ` 1,15,16,933/- TOWARDS LOW GROSS PROFIT BY TAKING IN TO ACCOUNT AVERAGE GROSS PROFIT OF LAST 3 FINANCIAL YEARS AND APPLIED ON THE TOTAL TURNOVER OF THE ASSESSEE FOR THE CURRENT FINANCIAL YEAR. THE A .O. HAS GIVEN HIS OWN REASONS FOR APPLYING AVERAGE GROSS PROFIT. ACCORDI NG TO THE A.O., STOCK REGISTERS MAINTAINED BY THE ASSESSEE ARE NOT SHOWIN G TRUE AND CORRECT MOVEMENT OF STOCK AND VALUATION OF CLOSING STOCK. T HE A.O. HAS GIVEN HIS OWN ANALYSIS OF CONSUMPTION OF RAW MATERIALS WH ICH IS THE VERY BASIS FOR REJECTION OF BOOKS OF ACCOUNTS AND ESTIMATION O F GROSS PROFIT. IT IS THE CONTENTION OF THE ASSESSEE THAT THE GROSS PROFI T DEPENDS UPON VARIOUS FACTORS SUCH AS INCREASE IN COST OF RAW MAT ERIALS AND PROCESSING EXPENDITURE, REDUCTION IN THE PRICE OF FINISHED PRO DUCTS AND ALSO CHANGE IN THE PRODUCTION PATTERN OF THE ASSESSEE. THE ASS ESSEE FURTHER CONTENTED THAT DURING THE CURRENT FINANCIAL YEAR TH ERE WERE SUBSTANTIAL INCREASE IN THE PRICES OF WIRE ROPES, WHICH IS THE MAJOR RAW MATERIALS USED FOR PRODUCTION OF FINISHED PRODUCTS, THEREFORE , THIS IS ONE OF THE ITA NOS.179&180/VIZAG/2014 M/S. VISAKHA WIRE ROPES LTD., VISAKHAPATNAM 20 REASONS FOR SLIGHT REDUCTION IN GROSS PROFIT FOR TH E CURRENT FINANCIAL YEAR. THE ASSESSEE FURTHER SUBMITTED THAT ACTUAL GROSS PR OFIT DEPENDS ON A HOST OF VARIABLE FACTORS SUCH AS DEMAND FOR VARIOUS PRODUCTS, THE PRODUCT MIX, MARKET CONDITIONS, COMPETITION FACTORS , COST OF INPUTS, ETC. THE ASSESSING OFFICER DID NOT GO INTO ANY OF THESE ASPECTS, DETERMINED GROSS PROFIT ON SURMISES AND CONJECTURES ON ARBITRA RY BASIS WITHOUT POINTING OUT ANY DEFECTS IN THE BOOKS OF ACCOUNTS O R STOCK REGISTERS. THE ASSESSEE FURTHER CONTENDED THAT DUE TO INCREASE IN PRICES OF RAW MATERIALS, THE AVERAGE COST OF RAW MATERIALS HAS BE EN INCREASED ABOUT 15% WHEN COMPARED TO THE PREVIOUS FINANCIAL YEAR. THE AFORESAID RELEVANT FACTORS HAVE BEEN TOTALLY IGNORED BY THE A .O. AND PROCEED WITH ESTIMATION OF GROSS PROFIT BY TAKING INTO AVERAGE G ROSS PROFIT OF LAST 3 FINANCIAL YEARS, WHICH IS TOTALLY ARBITRARY AND UNW ARRANTED. IT IS FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAS ACCEPTED C OST OF RAW MATERIALS AND EXPENSES SHOWN AND NOTHING CONTRARY HAS BEEN BR OUGHT ON RECORD EITHER BY WAY OF INFLATION OF PURCHASES OR EXPENDIT URE TO MANIPULATE THE GROSS PROFIT. SINCE THE SALES AS WELL AS THE COST OF EXPENSES HAVE BEEN ACCEPTED BY THE A.O. AS PER THE BOOKS OF ACCOUNTS, THERE IS ABSOLUTE NO SCOPE TO WORK OUT THE GROSS PROFIT ON A DIFFERENT O R ESTIMATED BASIS. 16. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE ITA NOS.179&180/VIZAG/2014 M/S. VISAKHA WIRE ROPES LTD., VISAKHAPATNAM 21 A.O. ESTIMATED GROSS PROFIT @ 12.59% BY TAKING 3 YE ARS AVERAGE GROSS PROFIT DECLARED BY THE ASSESSEE. ACCORDING TO THE A .O., THE STOCK REGISTERS MAINTAINED BY THE ASSESSEE ARE NOT SHOWIN G TRUE AND CORRECT MOVEMENT OF STOCK AND VALUATION OF CLOSING STOCK. T HE A.O. HAS ANALYZED MONTH WISE CONSUMPTION OF RAW MATERIALS AN D PRODUCTION OF FINISHED GOODS. ACCORDING TO THE A.O., THE PRODUCT ION LOSS DECLARED BY THE ASSESSEE VARIES FROM MONTH TO MONTH FROM 1.59% TO 11.61% WHICH IS CONTRARY TO THE STANDARD PRODUCTION LOSS DECLARE D BY THE WIRE MANUFACTURERS ASSOCIATION INC.,. AS PER THE ASSOCI ATION BULLETIN, THE PRODUCTION LOSS IN THIS INDUSTRY IS ABOUT 1% AND MO RE BY WEIGHT, AS AGAINST THIS, THE ASSESSEE HAS DECLARED A PRODUCTIO N LOSS OF 11.61% ON FEW MONTHS WHICH IS QUITE ABNORMAL CANNOT BE ACCEPT ED. THE ASSESSEE CONTENDS THAT ITS STOCK REGISTERS MAINTAINED ARE IN ACCORDANCE WITH THE CENTRAL EXCISE RULES, WHICH IS FURNISHED TO THE CEN TRAL EXCISE AUTHORITIES ON QUARTERLY BASIS AND ALSO ITS BOOKS OF ACCOUNTS A RE AUDITED UNDER THE PROVISIONS OF SECTION 44AB OF THE ACT, WHEREIN THE TAX AUDITOR HAS CERTIFIED THAT THE BOOKS OF ACCOUNTS ARE DEPICTING TRUE AND CORRECT FINANCIAL POSITION OF THE ASSESSEE. THE ASSESSEE F URTHER CONTENDED THAT IT HAS FURNISHED QUANTITATIVE DETAILS OF RAW MATERI ALS CONSUMED AND PRODUCTION OF FURNISHED GOODS AS REQUIRED UNDER CLA USE 28(B) OF FORM NO.3CD WHICH IS CONSISTENT WITH THE STOCK REGISTER MAINTAINED IN ITA NOS.179&180/VIZAG/2014 M/S. VISAKHA WIRE ROPES LTD., VISAKHAPATNAM 22 ACCORDANCE WITH THE CENTRAL EXCISE RULES. THEREFORE , THE A.O. IS INCORRECT IN REJECTION OF BOOKS OF ACCOUNTS AND ESTIMATION OF GROSS PROFIT BY TAKING INTO AVERAGE OF GROSS PROFIT OF LAST 3 YEARS. 17. WE FIND FORCE IN THE ARGUMENTS OF THE ASSESSEE F OR THE REASON THAT THE ACTUAL GROSS PROFIT DEPENDS ON A HOST OF VARIAB LE FACTORS SUCH AS DEMAND FOR VARIOUS PRODUCTS, THE PRODUCT MIX, MARKE T CONDITIONS, COMPETITION FACTORS, COST OF INPUT RAW MATERIALS AN D SELLING PRICE OF THE FINISHED PRODUCTS. THE ASSESSEE HAS MAINTAINED REG ULAR BOOKS OF ACCOUNTS ALONG WITH STOCK REGISTERS AS REQUIRED UND ER CENTRAL EXCISE RULES. THE A.O. HAS NOT POINTED OUT ANY ERRORS IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE OR IN THE STOCK REGISTER S TO ARRIVE AT A CONCLUSION THAT THE STOCK REGISTER MAINTAINED BY TH E ASSESSEE ARE NOT SHOWING TRUE AND CORRECT POSITION OF CLOSING STOCK OR CONSUMPTION OF RAW MATERIALS. THE BASIS FOR THE A.O. TO ARRIVE AT A C ONCLUSION TO REJECT THE BOOKS OF ACCOUNTS IS THAT HE HAD ANALYZED CONSUMPTI ON OF RAW MATERIALS AND PRODUCTION OF FINISHED GOODS ON MONTHLY BASIS I N HIS OWN WISDOM AND QUANTIFIED PRODUCTION LOSS WHICH IS MORE IN FE W MONTHS. BASED ON SUCH ANALYSIS OF RAW MATERIALS, THE A.O. COME TO TH E CONCLUSION THAT IT IS IMPOSSIBLE TO COMPUTE TRUE AND CORRECT PROFIT OF TH E ASSESSEE FROM THE BOOKS OF ACCOUNTS AND HENCE REJECTED BOOKS OF ACCOU NTS UNDER THE ITA NOS.179&180/VIZAG/2014 M/S. VISAKHA WIRE ROPES LTD., VISAKHAPATNAM 23 PROVISIONS OF SECTION 145 OF THE ACT AND ESTIMATED GROSS PROFIT BY TAKING INTO ACCOUNT LAST 3 YEARS AVERAGE GROSS PROFIT DECL ARED BY THE ASSESSEE. 18. THE ASSESSING OFFICER HAS NOT POINTED OUT ANY P ARTICULAR DEFECT OR DISCREPANCY IN THE ACCOUNT BOOKS MAINTAINED BY THE ASSESSEE. THOUGH, THE A.O. ANALYZED CONSUMPTION OF RAW MATERIALS, FAI LED TO COME TO THE CONCLUSION THAT WHAT IS THE EXACT AMOUNT OF PRODUCT ION LOSS WHEN COMPARED TO THE PRODUCTION LOSS DECLARED BY THE ASS ESSEE, WHICH IS SUPPORTED BY STOCK REGISTERS. ON THE OTHER HAND, T HE ASSESSEE CLEARLY DEMONSTRATED BEFORE THE AUTHORITIES WITH NECESSARY EVIDENCE, SUCH AS STOCK RECORDS MAINTAINED IN ACCORDANCE WITH CENTRAL EXCISE RULES AND CLARIFIED THAT THE CLOSING STOCK DETAILS DECLARED I N ITS FINANCIAL STATEMENTS ARE CONSISTENT WITH THE STOCK REGISTER. THE ASSESS EE ALSO PROVED THAT THE A.O. HAS NOT POINTED OUT ANY SPECIFIC DEFECT IN THE FINANCIAL BOOKS OF ACCOUNT OR IN THE STOCK REGISTERS BY WAY OF INFLATI ON OF PURCHASES OR EXPENDITURE TO MANIPULATE THE GROSS PROFIT. THE AS SESSEE HAS FURNISHED COMPLETE DETAILS OF QUANTITATIVE DETAILS OF RAW MAT ERIALS WHICH WERE REPRODUCED IN THE TAX AUDIT REPORT CLAUSE 28(B), WH EREIN THE TAX AUDITOR HAS CERTIFIED THAT THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE ARE SHOWING TRUE AND CORRECT FINANCIAL POSITION OF THE ASSESSEE FOR THE RELEVANT PERIOD. THE ASSESSEE ALSO EXPLAINED THE R EASONS FOR REDUCTION IN GROSS PROFIT BEFORE THE A.O. THAT DURING THE CUR RENT FINANCIAL YEAR ITA NOS.179&180/VIZAG/2014 M/S. VISAKHA WIRE ROPES LTD., VISAKHAPATNAM 24 THERE IS INCREASE IN COST OF RAW MATERIALS, WHICH I S ONE OF THE REASONS FOR SLIGHT REDUCTION IN GROSS PROFIT. 19. THE FALL IN THE GROSS PROFIT RATIO COULD BE FOR VARIOUS REASONS SUCH AS INCREASE IN THE COST OF RAW MATERIALS, DECREASE IN THE MARKET PRICE OF FINISHED PRODUCTS, INCREASE IN THE COST OF PROCESSI NG BY THE ASSESSEE, ETC. THERE WAS NO FINDING THAT THE ACTUAL COST OF THE RAW MATERIAL PURCHASED BY THE ASSESSEE WAS LESS THAN WHAT WAS DE CLARED IN THE ACCOUNT BOOKS. THERE WAS NO FINDING THAT THE ACTUA L COST OF PROCESSING CARRIED OUT BY THE ASSESSEE WAS LESS THAN WHAT WAS DECLARED IN ITS ACCOUNT BOOKS. NO PARTICULAR EXPENDITURE SHOWN IN THE ACCOUNT BOOKS HAD BEEN DISALLOWED BY THE A.O. THERE WAS NO FINDI NG BY THE A.O. THAT THE ACTUAL QUANTITY OF FINISHED PRODUCTS PRODUCED B Y THE ASSESSEE WAS MORE THAN WHAT WAS SHOWN IN THE ACCOUNT BOOKS. THE RE WAS NO FINDING THAT THE ASSESSEE HAD MADE ANY SUCH SALE OF THE FIN ISHED PRODUCTS WHICH WAS NOT REFLECTED IN THE BOOKS OF ACCOUNTS. THERE WAS NO FINDING BY THE A.O. THAT THE FINISHED PRODUCTS WERE SOLD BY THE ASSESSEE AT A PRICE HIGHER THAN WHAT WAS DECLARED IN THE ACCOUNT BOOKS. UNLESS THE A.O. POINT OUTS ANY OF THESE ASPECTS IN HIS VERIFIC ATION, CANNOT COME TO THE CONCLUSION ON THE BASIS OF INCORRECT ESTIMATION OF FACTS IGNORING EVIDENCES FILED BY THE ASSESSEE TO ARRIVE AT A CONC LUSION THAT THE BOOKS ITA NOS.179&180/VIZAG/2014 M/S. VISAKHA WIRE ROPES LTD., VISAKHAPATNAM 25 OF ACCOUNTS MAINTAINED BY THE ASSESSEE ARE NOT SHOW ING TRUE AND CORRECT POSITION. 20. IT IS PERTINENT TO DISCUSS THE CASE LAW RELIED UPON BY THE ASSESSEE. THE ASSESSEE RELIED UPON THE DECISION OF HIGH COURT OF DELHI, IN THE CASE OF CIT VS. SMT. POONAM RANI (2010) 326 ITR 223. TH E HONBLE HIGH COURT OF DELHI UNDER SIMILAR CIRCUMSTANCES HELD AS UNDER: THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFA CTURING COPPER WIRES. FOR THE RELEVANT ASSESSMENT YEAR, SHE FILED A RETURN DECLARING GROSS PROFIT AT THE RATE OF 1.4 PER CENT AGAINST GROSS PR OFIT RATE OF 5.91 PER CENT FOR THE PRECEDING YEAR. ON BEING ASKED, THE ASSESSE E ATTRIBUTED THE FALL IN GROSS PROFIT RATE TO THE INCREASE IN THE PURCHASE P RICE. THE ASSESSING OFFICER REJECTED THE EXPLANATION GIVEN BY THE ASSES SEE ON THE GROUND THAT NO SUPPORTING EVIDENCE WAS PRODUCED TO SHOW INCREAS E IN THE PURCHASE PRICE AND DECREASE IN SALES. HE ALSO NOTICED THAT T HE WEIGHT OF FINISHED PRODUCTS DECLARED BY THE ASSESSEE WAS MORE THAN THE WEIGHT OF RAW MATERIALS. WHEN ASKED TO EXPLAIN, THE ASSESSEE SUBM ITTED THAT AFTER DRAWING WIRE, THE PROCESS WENT ON TO PUT THE WIRE F OR ENAMELLING, AS A RESULT OF WHICH THE WEIGHT OF THE WIRE INCREASED BY 2-3 PER CENT. THE ASSESSING OFFICER FELT THAT IN THE ABSENCE OF ADEQU ATE SUPPORTING EVIDENCE, THE EXPLANATION GIVEN BY THE ASSESSEE COU LD NOT BE ACCEPTED. HE, THEREFORE, REJECTED THE ACCOUNT BOOKS OF THE AS SESSEE UNDER SECTION 145(3) AND ESTIMATED INCOME BY APPLYING THE GROSS P ROFIT RATE OF THE PRECEDING ASSESSMENT YEAR. ON APPEAL, THE COMMISSIO NER (APPEALS) NOTED THAT THE ASSESSEE HAD FURNISHED COMPLETE DETAILS, I NCLUDING COMPARATIVE DETAILS IN RESPECT OF PURCHASE OF RAW MATERIALS AND MANUFACTURE OF COPPER WIRES AS WELL AS IN RESPECT OF SALE DURING THE YEAR IN QUESTION AS COMPARED TO THE EARLIER YEARS. HE ALSO TOOK NOTE OF THE. FAC T THAT THE ASSESSEE WAS DULY REGISTERED UNDER THE CENTRAL EXCISE ACT AND WA S MAINTAINING PROPER QUANTITATIVE DETAILS IN THE PRESCRIBED MANNER AND, THEREFORE, HELD THAT THE ASSESSEE HAD ADOPTED CONSISTENT AND REGULAR METHOD OF ACCOUNTING AND VALUATION OF THE STOCK DURING THE YEAR IN QUESTION AS WAS DONE BY HER IN THE PRECEDING YEARS. HE, ACCORDINGLY, HELD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNT AND IN APPLYING THE ENHANCED GROSS PROFIT RATIO. THE TRIBUNAL DISMISSED THE REVENUE'S APPEAL, HOLDING THAT SINCE NO DEFECTS IN THE ACCOUNT BOOKS WERE POINTED OUT, THE ACCOUNTS COULD NOT HAVE BEEN REJECTED AND NO ADDITI ON COULD SECTION 145(3) PROVIDES FOR ASSESSMENT IN THE MANNER PRESCR IBED IN SECTION 144 WHERE THE ASSESSING OFFICER IS NOT SATISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE OR WHE RE EITHER THE METHOD OF ACCOUNTING PROVIDED IN SUB-SECTION (1) OR THE AC COUNTING STANDARDS AS ITA NOS.179&180/VIZAG/2014 M/S. VISAKHA WIRE ROPES LTD., VISAKHAPATNAM 26 NOTIFIED UNDER SUB-SECTION (2) HAS BEEN REGULARLY F OLLOWED BY THE ASSESSEE. IT WAS NOT THE CASE OF THE REVENUE THAT TH E ASSESSEE HAD NOT FOLLOWED EITHER CASH OR MERCANTILE SYSTEM OF ACCOUN TING. IT WAS ALSO NOT THE CASE OF THE REVENUE THAT THE CENTRAL GOVERNMENT HAD NOTIFIED ANY PARTICULAR ACCOUNTING STANDARD TO BE FOLLOWED BY TO UR OPERATORS. HENCE, THE SECOND PART OF SUB-SECTION (3) OF SECTION 145 W OULD NOT APPLY TO THE INSTANT CASE. [PARA 5] THE ASSESSING OFFICER HAD NOT POINTED OUT ANY PARTI CULAR DEFECT OR DISCREPANCY IN THE ACCOUNT BOOKS MAINTAINED BY THE ASSESSEE. DURING THE COURSE OF HEARING BEFORE THE COMMISSIONER (APPEALS) , IT WAS POINTED OUT BY THE ASSESSEE THAT HER ACCOUNT BOOKS WERE DULY AU DITED UNDER SECTION 44AB OF THE CENTRAL EXCISE ACT AND THE QUANTITATIVE DETAILS AS REQUIRED BY CLAUSE 28(B) OF FORM NO. 3CD REGARDING RAW MATERIAL AND FINISHED PRODUCTS (I.E., OPENING STOCK OF RAW MATERIAL, RAW MATERIAL ISSUED TO PRODUCTION DEPARTMENT, RAW MATERIAL CONSUMED AND CL OSING STOCK OF RAW MATERIAL, OPENING STOCK OF FINISHED GOODS, FINISHED GOODS PRODUCED DURING THE YEAR, FINISHED GOODS SOLD AND CLOSING STOCK OF FINISHED GOODS) WERE PREPARED AND AUDITED CERTIFIED ACCOUNTANT AND WERE ENCLOSED WITH FORM NO. 3CD WHICH HAD BEEN PLACED ON RECORD, BUT THE AS SESSING OFFICER HAD IGNORED THE FACTUAL FIGURES, BOTH IN QUALITATIVE AN D QUANTITATIVE TERMS, ENCLOSED WITH THE RETURN AND FILED DURING THE COURS E OF ASSESSMENT PROCEEDINGS. IT WAS FOR THAT REASON THAT THE COMMIS SIONER (APPEALS) WAS SATISFIED THAT THE ASSESSEE HAD FURNISHED COMPLETE DETAILS, INCLUDING QUANTITATIVE DETAILS IN RESPECT OF PURCHASE OF RAW MATERIAL, MANUFACTURE OF COPPER WIRE AND SALE OF THE FINISHED PRODUCTS. IN T HOSE CIRCUMSTANCES, THE ACCOUNTS MAINTAINED BY THE ASSESSEE COULD NOT HAVE BEEN SAID TO BE INCOMPLETE OR INACCURATE. IN FACT, THE ASSESSING OF FICER HAD NO MATERIAL BEFORE HIM TO TREAT THE ACCOUNTS OF THE ASSESSEE AS DEFECTIVE OR INCOMPLETE. [PARA 6] AS REGARDS THE MARGINAL INCREASE IN THE WEIGHT OF T HE FINISHED PRODUCT, THE EXPLANATION GIVEN BY THE ASSESSEE HAD BEEN ACCEPTED NOT ONLY BY THE COMMISSIONER (APPEALS) BUT ALSO BY THE TRIBUNAL. TH E ASSESSING OFFICER HAD NO MATERIAL BEFORE HIM ON THE BASIS OF WHICH IT COULD BE SAID THAT THE WEIGHT OF THE WIRE DID NOT INCREASE EVEN MARGINALLY DURING THE PROCESS OF ENAMELLING. THEREFORE, HE HAD NO JUSTIFICATION, IN LA IN REJECTING THE EXPLANATION GIVEN BY THE ASSESSEE IN THAT REGARD TH E FALL IN GROSS PROFIT RATIO, IN THE ABSENCE OF ANY COGENT REASONS COULD N OT, BY ITSELF, HAVE BEEN A GROUND TO HOLD THAT PROPER INCOME OF THE ASSESSEE COULD NOT BE DEDUCED FROM THE ACCOUNTS MAINTAINED BY HER AND, CO NSEQUENTLY, COULD NOT HAVE BEEN A GROUND TO REJECT THE ACCOUNTS BY IN VOKING SECTION 145(3). [PARA 8] THE FALL IN THE GROSS PROFIT RATIO COULD BE FOR VAR IOUS REASONS SUCH AS INCREASE IN THE COST OF RAW MATERIAL, DECREASE IN T HE MARKET PRICE OF FINISHED PRODUCT, INCREASE IN THE COST OF PROCESSIN G BY THE ASSESSEE, ETC. THERE WAS NO FINDING THAT THE ACTUAL COST OF THE RA W MATERIAL PURCHASED ITA NOS.179&180/VIZAG/2014 M/S. VISAKHA WIRE ROPES LTD., VISAKHAPATNAM 27 BY THE ASSESSEE WAS LESS THAN WHAT WAS DECLARED IN THE ACCOUNT BOOKS. THERE WAS NO FINDING THAT THE ACTUAL COST OF PROCES SING CARRIED OUT BY THE ASSESSEE WAS LESS THAN WHAT HAD BEEN DECLARED IN HE R ACCOUNT BOOKS. NO PARTICULAR EXPENDITURE SHOWN IN THE ACCOUNT BOOKS H AD BEEN DISALLOWED BY THE ASSESSING OFFICER. THERE WAS NO FINDING BY THE ASSESSING OFFICER THAT THE ACTUAL QUANTITY OF FINISHED PRODUCTS PRODUCED B Y THE ASSESSEE WAS MORE THAN WHAT WAS SHOWN IN THE ACCOUNT BOOKS. THER E WAS NO FINDING THAT THE ASSESSEE HAD MADE ANY SUCH SALE OF THE FIN ISHED PRODUCTS WHICH WAS NOT REFLECTED IN THE ACCOUNT BOOKS. THERE WAS N O FINDING BY THE ASSESSING OFFICER THAT THE FINISHED PRODUCTS WERE S OLD BY THE ASSESSEE AT A PRICE HIGHER THAN WHAT WAS DECLARED IN THE ACCOUNT BOOKS. IN THOSE CIRCUMSTANCES, THE COMMISSIONER (APPEALS) AND THE T RIBUNAL WERE JUSTIFIED IN HOLDING THAT THE ASSESSING OFFICER COU LD NOT HAVE INCREASED THE GROSS PROFIT RATIO MERELY BECAUSE IT WAS LOW AS COM PARED TO THE GROSS PROFIT RATIO OF THE PRECEDING YEAR. [PARA 9] THE REVENUE CONTENDED THAT THE ASSESSEE WAS NOT MAI NTAINING THE DAILY STOCK REGISTER. HOWEVER, NO SUCH FINDING WAS FOUND IN THE ASSESSMENT ORDER. ON THE OTHER HAND, THE ASSESSEE HAD SUBMITTE D BEFORE THE COMMISSIONER (APPEALS) THAT FORM NO. 3CD CONTAINING ALL THE QUANTITATIVE DETAILS IN RESPECT OF RAW MATERIALS AS WELL AS THE FINISHED GOODS AND DULY AUDITED BY THE CERTIFIED ACCOUNTANT HAD BEEN PLACED ON RECORD, BUT THE ASSESSING OFFICER IGNORED THOSE ACTUAL FIGURES ENCL OSED WITH THE RETURN. IN ANY CASE, THERE IS NO STATUTORY PROVISION TINDER TH E INCOME-TAX REGIME REQUIRING THE ASSESSEE TO MAINTAIN THE DAILY STOCK REGISTER. HENCE, EVEN IF NO SUCH REGISTER WAS BEING MAINTAINED BY THE ASSESS EE, THAT; BY ITSELF, WOULD NOT LEAD TO THE INFERENCE THAT IT WAS NOT POS SIBLE TO DEDUCE THE TRUE INCOME OF THE ASSESSEE FROM THE ACCOUNTS MAINTAINED BY HER; NOR THE ACCOUNTS COULD BE SAID TO BE DEFECTIVE OR INCOMPLET E FOR THAT REASON ALONE. IF THE STOCK REGISTER IS NOT MAINTAINED BY TH E ASSESSEE, THAT MAY PUT THE ASSESSING OFFICER ON GUARD AGAINST THE FALS ITY OF THE RETURN MADE BY THE ASSESSEE AND PERSUADE HIM TO CAREFULLY SCRUT INIZE THE ACCOUNT BOOKS OF THE ASSESSEE, BUT THE ABSENCE OF ONE REGIS TER ALONE DOES NOT AMOUNT TO SUCH A MATERIAL LEADING TO THE CONCLUSION THAT THE ACCOUNT BOOKS WERE INCOMPLETE OR INACCURATE. SIMILARLY, IF THE RATE OF GROSS PROFIT DECLARED BY THE ASSESSEE IN A PARTICULAR PERIOD IS LOWER AS COMPARED TO THE GROSS PROFIT DECLARED BY HIM IN THEPRECEDING YE AR, THAT MAY ALERT THE ASSESSING OFFICER AND SERVE AS A WARNING TO HIM TO LOOK INTO THE ACCOUNTS MORE CAREFULLY AND TO LOOK FOR SOME MATERIAL WHICH COULD LEAD TO THE CONCLUSION THAT THE ACCOUNTS MAINTAINED BY THE ASSE SSEE WERE NOT CORRECT, BUT A LOW RATE OF GROSS PROFIT; IN THE ABSENCE OF A NY MATERIAL POINTING TOWARDS FALSEHOOD OF THE ACCOUNT BOOKS, CANNOT, BY ITSELF, BE A GROUND TO REJECT THE ACCOUNT BOOKS UNDER SECTION 145(3). [PAR A 10] IN ANY CASE, THE QUESTION WHETHER FALL IN GROSS PROF IT STOOD EXPLAINED BY THE ASSESSEE OR NOT WAS A QUESTION OF FACT. BOTH, T HE TRIBUNAL AND THE COMMISSIONER (APPEALS), HAVING ACCEPTED THE EXPLANA TION GIVEN BY THE ASSESSEE AND THE FINDING OF FACT RECORDED BY THEM H AVING NOT BEEN SHOWN ITA NOS.179&180/VIZAG/2014 M/S. VISAKHA WIRE ROPES LTD., VISAKHAPATNAM 28 TO BE PERVERSE IN ANY MANNER, NO SUBSTANTIAL QUESTI ON OF LAW AROSE IN THE INSTANT CASE AND THE APPEAL WAS, ACCORDINGLY, TO BE DISMISSED. 21. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO FOLLOWING THE RATIO OF THE CASE LAWS DISCUSSED ABOV E, WE ARE OF THE OPINION THAT THE A.O. WAS INCORRECT IN ESTIMATING G ROSS PROFIT BY TAKING IN TO ACCOUNT AVERAGE OF LAST 3 YEARS GROSS PROFIT DEC LARED BY THE ASSESSEE, WITHOUT POINTING OUT ANY SPECIFIC ERROR OR DEFECT I N THE FINANCIAL BOOKS OF ACCOUNTS OR STOCK REGISTERS MAINTAINED BY THE ASSES SEE. THE ASSESSEE, ON THE OTHER HAND CLEARLY DEMONSTRATED WITH EVIDENC ES THAT THE QUANTITATIVE DETAILS FURNISHED BY THE ASSESSEE ARE CONSISTENT WITH THE STOCK REGISTERS MAINTAINED IN ACCORDANCE WITH THE C ENTRAL EXCISE RULES. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE A .O. WAS ERRED IN ESTIMATING THE GROSS PROFIT. HENCE, WE DIRECT THE A.O. TO DELETE ADDITIONS MADE TOWARDS ALLEGED LOW GROSS PROFIT. 22. IN THE RESULT, THE APPEALS FILED BY THE ASSESSE E IN ITA NOS.179 & 180/VIZAG/2014 ARE ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 16 TH SEPT16. SD/- SD/- ( . ) ( . ) (V. DURGA RAO) (G. MANJUNATHA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 16.09.2016 VG/SPS ITA NOS.179&180/VIZAG/2014 M/S. VISAKHA WIRE ROPES LTD., VISAKHAPATNAM 29 )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT M/S. VISAKHA WIRE ROPES LTD., D. NO.15&16, AUTONAGAR, VIAKHAPATNAM 2. / THE RESPONDENT THE ACIT, RANGE-4, VISAKHAPATNA M 3. / THE RESPONDENT THE DCIT, CIRCLE-4(1), VISAKHAP ATNAM 4. + / THE CIT-2, VISAKHAPATNAM 5. + ( ) / THE CIT (A), VISAKHAPATNAM 6. # . , . , # / DR, ITAT, VISAKHAPATNAM 7 . / GUARD FILE / BY ORDER // TRUE COPY // 12 . (SR.PRIVATE SECRETARY) . , # / ITAT, VISAKHAPATNAM