The DCITNavsari Circle, Navsari V. Shree Vignahar Rice Mill, Navsari

ITA 2127/AHD/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 50508 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 1 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 24-08-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 03-07-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ABHIJIT KUMAR N
• Keywords: Additional evidence; Corroborative evidences
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'A' BEFORE SHRI T K SHARMA, JUDICIAL MEMBER AND SHRI A N PAHUJA, ACCOUNTANT MEMBER ITA NO.2127/AHD/2009 (ASSESSMENT YEAR:-2006-07) DEPUTY COMMISSIONER OF INCOME-TAX, NAVSARI CIRCLE, NAVSARI V/S M/S SHREE VIGHNAHAR RICE MILL, NEAR RAILWAY STATION, AT & PO. RANKUWA, TAL. CHIKHLI, TAL. NAVSARI PAN: AACFV 1105 B [APPELLANT] [RESPONDENT] APPELLANT BY :- SHRI ABHIJIT KUMAR N, DR RESPONDENT BY:- SMT. URVASHI SHODHAN, AR DATE OF HEARING:- 24-08-2011 DATE OF PRONOUNCEMENT:- 26 -08-2011 O R D E R A N PAHUJA: THIS APPEAL BY THE REVENUE AGAINST AN ORDER DATED 23-03-2009 OF THE LD. CIT(APPEALS), VALSAD, FOR TH E ASSESSMENT YEAR 2006-07, RAISES THE FOLLOWING GROUNDS:- [1] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW , THE HONBLE CIT(A) ERRED IN DELETING THE ADDITION OF RS. 53,88,802/- MADE ON ACCOUNT OF UNDERSTATEMENT OF YIELD FOR RICE. [2] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE CIT(A) ERRED TO ACCEPT THE AVERAGE YIELD OF RICE SHOWN BY THE ASSESSEE EVEN THOUGH THERE THE YIELD OF RICE OF EACH MONTH WAS TREMENDOUSLY INCREASED/DECREASED TREND AND THE ASSESSEE FAIL ED TO JUSTIFY THE SAME. [3] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE CIT(A) ERRED IN NOT EXERCISING POWERS AS PROVIDE D UNDER RULE 46A(3) SINCE THE AO WAS NOT AFFORDED AN OPPORTUNI TY TO COUNTER THE ARGUMENT PUT FOURTH BEFORE HIM WHICH WAS NEVER CONT ENDED DURING THE COURSE OF ASSESSMENT PROCEEDINGS. [4] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE CIT(A) EARED IN DELETING THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE OUT OF SALARY AND WAGES, MOTOR POWER AND D IESEL EXPENSES EVEN THOUGH THE ASSESSEE COULD NOT SUBSTANTIATE ITS CLAIM OF EXPENSES WITH COGENT EVIDENCE. 2 ITA NO.2127/AHD/2009 [5] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ADDITION MADE BY THE A.O. [6] IT IS, THEREFORE, PRAYED TO SET ASIDE THE ORDER PASSE D BY THE CIT(A) AND THAT OF THE ORDER PASSED BY THE AO BE RESTORED. [7] THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND ANY GROUNDS OF APPEAL. 2 ADVERTING FIRST TO GROUND NOS.1 TO 3 IN THE APPEA L, FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN DECL ARING LOSS OF RS.5,24,536/- FILED ON 31-12-2006 BY THE ASSESSEE, ENGAGED IN MILLING PADDY AND PRODUCING RICE AND ITS BYE PRODU CTS, AFTER BEING PROCESSED ON 09-01-2007 U/S 143(1) OF THE INCOME-TA X ACT, 1961 [HEREINAFTER REFERRED TO AS THE ACT], WAS SELECTE D FOR SCRUTINY WITH THE SERVICE OF A NOTICE U/S 143(2) OF THE ACT ON 11 -10-2007.DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER [AO IN SHORT] NOTICED THAT THE ASSESSEE REFLECTED YIEL D OF RICE AT 31.59%, BROKEN RICE AT 33.71% AND KUSHI AT 11.35% .THE AO W AS OF THE OPINION THAT THE YIELD OF RICE SHOWN BY THE ASSESS EE WAS VERY LOW IN COMPARISON TO YIELD SHOWN BY THE OTHER RICE MILLER S IN THE AREA. WHILE EXPLAINING THE PROCESS OF PRODUCING RICE, THE AO POINTED OUT THAT PADDY CONTAINS APPROXIMATELY 72% RICE, 5% BRAN AND 22% HUSK AND THE RECOVERY OF RICE RANGES BETWEEN 67 TO 68%. THE NORMAL ACCEPTED RECOVERY OF RICE BRAN VARIED BETWEEN 7 TO 8% AND THE BALANCE 25% PADDY HUSK, WAS UTILIZED BY SUGAR MILL S AND DISTILLERIES AS A FUEL. THE ACTUAL QUANTITY AND SALE PRICE OF TH E HUSK WAS NOT PROPERLY DISCLOSED AND GENERALLY THE SALE PRICE DEC LARED BY THE RICE MILLERS WAS MUCH LOWER. SINCE YIELD REFLECTED BY TH E ASSESSEE WAS LOW, THE AO ASKED THE ASSESSEE VIDE QUESTIONNAIRE D ATED 20/10/2008 AND SHOW CAUSE NOTICE DATED 24/11/2008 T O FURNISH THE ITEM-WISE QUANTITATIVE DETAILS OF RAW MATERIALS, FI NISHED GOODS AND BYE PRODUCTS ALONG WITH SHORTAGE AND YIELD. IN RESP ONSE, THE ASSESSEE FURNISHED DETAILS, REVEALING AVERAGE YIELD OF RICE @ 31.59%, BROKEN RICE @ 33.71% AND KUSHI @11.35%. OVE RALL YIELD 3 ITA NO.2127/AHD/2009 OF MAIN PRODUCT AND BYE PRODUCTS VIZ. RICE, VATLA ( BROKEN RICE), AND KUSHI WAS SHOWN @ 76.64%. WHILE REFERRING TO FOLLOW ING MONTH WISE WORKING OF YIELD OF RICE AND BYE PRODUCTS FURNISHED BY THE ASSESSEE MONTH PRODUCTION MILLING RICE BROKEN RICE (PONIA / VATLA) KUSHI SHORT AGE MONTH L Y YIELD QTY- % QTY. % QTY. % % % APRIL' 05 988.10 320.50 32.44 319.00 32.28 104.40 10.57 0.10 75.29 MAY -- -- -- -- -- - _ JUNE -- -- -- -- -- JULY -- -- -- -- -- AUG. -- -- ' -- -- -- -- -- SEP. 485.10 330,00 68.03 19.00 3.92 26.75 5.51 5.17 77.46 OCT. 11473.02 3806.25 33.18 3447.95 30.05 1369.10 11.93 75.16 NOV. 10498.97 2651.50 25.25 3219.75 30.67 1124.20 10.71 0.02 66.63 DEC, 11038.14 3206.50 29.05 4625.00 41.90 1379.30 12.50 0.04 83.45 JAN' 06 10252.63 3091.50 30.15 3243.00 31.63 1156.10 11.28 0.30 73.06 FEB. 10676.15 3275.00 30.68 3698.00 34.64 1109.40 10.39 75.71 MARCH 70414.73 3037.50 43.30 2471,00 35.23 815.85 11.63 4.01 90.16 62426.84 19718.75 31.59 21042.70 33.71 7085.10 11.35 0.55 76.64 THE AO OBSERVED THAT IN THE MONTH OF SEPTEMBER, TH E YIELD OF RICE WAS AT 68.03% AND BROKEN RICE AT 3.92% WHILE IN THE IMMEDIATE SUCCEEDING MONTH, THE YIELD OF RICE AND BROKEN RICE WAS SHOWN 33.18% AND 30.05% RESPECTIVELY AND IN THE LAST MONT H OF THE YEAR, THE YIELDS OF BOTH PRODUCTS WAS SHOWN 43.30% AND 35 .23% RESPECTIVELY AND COMBINED YIELD @ 78.53%. WHILE REF ERRING TO 4 ITA NO.2127/AHD/2009 FOLLOWING DETAILS OF YIELD SHOWN BY THE ASSESSEE VI S-A-VIS OTHER MILLERS NAME OF ASSESSEE NAME MAIN PRODUCT AND BY BYPRODUCT PERCENTAG E OF YIELD SHOWN RICE BROKEN RICE (PONIA VATLA) COMBI NED YIELD OF R ICE & BROKEN RICE KUSKI YIELD SHOWN BY THE ASSESSEE 31.59 33.71 65.30 11.35 76.64% YIELD SHOWN BY THE OTHER RICE MILLER NILABEN P. GANDHI PROP, OF SIDDHNATH TRADERS (CHIKHLI) 57.57 12.01 69.58 6.18 75.76% JINDAL RICE MILL 52.66 15.03 67.69 12.49 80.18% AGRAWAL AGRO FOOD PRODUCTS 52.93 13.79 67.72 10.87 77.60% ADVANCE RICE MILL 51.03 17.13 68.16 8.97 72.19% SHREE NAVSARI KHEDUT SAHAKARI SOCIETY LTD. 54.54 12.57 67.11 8.44 75.55 THE AO SHOWCAUSED THE ASSESSEE AS TO WHY YIELD OF MAIN PRODUCT AND BYPRODUCTS (RICE & BROKEN RICE) SHOULD NOT BE A DOPTED ON THE BASIS OF YIELD REFLECTED BY OTHER RICE MILLERS IN T HE AREA. HOWEVER, THE ASSESSEE DID NOT RESPOND TO THE SHOWCAUSE NOTIC E. ACCORDINGLY, 5 ITA NO.2127/AHD/2009 WHILE REFERRING TO DECISION IN SUMATI DAYAL VS. CIT ,214 ITR 801 (SC), THE AO CONCLUDED AS UNDER: [3.13] KEEPING IN MIND THAT THE ASSESSEE FAILED TO PR OVE THE CORRECTNESS OF ITS PRODUCTION RESULT OF MAIN PRODUCT WITH SUPPORTING DO CUMENTARY EVIDENCE, IT IS HELD THAT THE ASSESSEE HAS SUPPRESSED YIELD OF RICE WHICH FETCHES HIGHER INCOME. IT IS FURTHER HELD THAT THE YIE LD OF BROKEN RICE (PONIA/VATLA) WAS INFLATED TO COMPENSATE THE UNDERSTA TEMENT OF YIELD OF RICE. AS SUCH, THE YIELD OF RICE AS SHOWN BY THE ASSESSEE IS NOT ACCEPTED DESPITE THE FACT THAT THE OVER ALL YIELD SHOWN BY THE ASSESSEE IS REASONABLE. SINCE THE ASSESSEE FAILED TO FURNISH COMPARATI VE RESULT OF YIELD OF SIMILAR CASE, THE YIELD OF RICE AND BROKEN RICE (PONIA/VATLA) IS ESTIMATED ON THE BASIS OF THE YIELD DECLARED BY THE OTH ER RICE MILLER AS MENTIONED IN PARA NO.6. IN THE CASE OF SMT. NILABEN P . GANDHI PROP, OF SIDDHNATH TRADERS, CHIKHLI, THE YIELD OF RICE WAS SHOWN @ 57.57%, BROKEN RICE 12.01, KUSKI AT 6.18 AND OVERALL YIELD WAS AT 75.7 6% EVEN THOUGH THE YEAR AS CONSIDERED WAS THE FIRST YEAR OF HER BUSINESS. IN T HE CASE OF AGRAWAL AGRO FOOD PRODUCTS, THE YIELD OF RICE WAS SHOWN AT 52.93%, BROKEN RICE AT 13.79%, KUSKI AT 10.87% AND OVERALL YIELD AT 77.60%. SIMILAR IS THE POSITION IN OTHER TWO CASES LEAVING MINOR DEFICIT. AFTER CONSIDERING ALL THE SOUNDING CIRCUMSTANCES AND FACTS, THE YI ELD AS SHOWN BY AGRAWAL AGRO FOOD PRODUCTS WAS ADOPTED IN THE CASE OF ASSESSEE AND UNDERSTATEMENT OF YIELD OF RICE WORKED OUT HEREUNDER: SR. NO. ITEM OF PRODUCTS YIELD SHOWN BY AGRAWAL AGRO FOOD PRODUCTS YIELD SHOWN BY THE ASSESSEE UNDER STATEMENT OF YIELD 1 RICE 52.93 31.59 (-) 21.34% 2 BROKEN RICE (PONIA/VATLA) 13.79 33.71 (+) 19.92% 3 KUSHKI 10.87 11.35 (+) 0.48% [3.14] UNDERSTATEMENT OF YIELD (I) RICE BY (-) 21.34% IT IS OBSERVED FROM THE FOREGONE PARAS THAT THE ASSESSEE HAS UNDERSTATED THE YIELD OF RICE BY 21/34% IN COMPARISON TO YIELD SHOW N BY THE OTHER RICE MILLER OF THIS LOCALITY, QUANTIFIED IN WEIGHT AT 1332 3.78 QUINTALS, VALUED AT RS.1,73,20,914/- (A), 13.00/- PER KG. (AVERAGE SALE PR ICE). THE ASSESSEE DID NOT OFFER ANY EXPLANATION IN THIS REGARD WITH COG ENT EVIDENCE. 6 ITA NO.2127/AHD/2009 (II) BROKEN RICE/PONIA/VATLA) BY (+) 19.92% IT IS GENERAL PRACTICE IN THIS LINE OF BUSINESS THAT THE MANIPULATION OF THE YIELD IS EXERCISED BY INFLATING THE YIELD OF BYPRODUCTS AND COMPENSATING THE SAME BY SUPPRESSING THE MAIN PRODUCTS WHICH FETCHES THE HIG HER RATES WITH INTENTION TO REDUCE THE PROFITS. IN THIS INSTANT CASE, THE ASSESSEE HAS INFLATED THE YIELD OF BROKEN RICE (PONIA/VATIA) BY 19 .92% QUANTIFIED IN WEIGHT AT 12434.04 QUINTALS, VALUED AT RS.1,18,12,388 /- @ 9.50/- PER KG. (AVERAGE SALE PRICE). IT LEADS TO BELIEVE THAT THE EXCE SS YIELD SHOWN IN BROKEN RICE (PONIA/VTLA) IS COMPENSATED IN UNDERSTATEMENT OF YIELD OF RICE. THE UNDERSTATEMENT IN YIELD OF RICE IS WORKED OUT BASED ON THE YIELD SHOWN BY THE OTHER RICE MILLER, WHICH INCLUDES THE INFLA TION OF YIELD IN BROKEN RICE (PONIA/VATLA). SINCE THE ASSESSEE HAS COMPENSATED THE YIELD OF RICE BY INFLATING YIELD OF BROKEN RICE (PONIA/VATLA ), THE VALUE OF BROKEN RICE AS WORKED OUT ABOVE IS SET OFF AGAINST THE VALUE OF UNDERSTATEMENT OF YIELD OF RICE AS WORKED OUT ABOVE. (III) KUSHKI INFLATED BY (+) 0.48% SIMILARLY, THE ASSESSEE HAS INFLATED THE YIELD OF KUSHKI B Y 0.48% QUANTIFIED IN WEIGHT AT 299.31 QUINTALS, VALUED AT RS.1,19,724/- @ 4/- PER KG. (AVERAGE SALES PRICE). SINCE THE ASSESSEE HAS COMPENSATED THE YIELD OF RICE BY INFLATING YIELD OF KUSKI, THE VALUE OF KUSKI AS W ORKED OUT ABOVE IS SET OFF AGAINST THE VALUE OF UNDERSTATEMENT OF YIELD OF RICE AS WORKED OUT ABOVE. [3.15] AS DISCUSSED ABOVE THAT THE MANIPULATION OF THE Y IELD IS EXERCISED BY INFLATING THE YIELD OF BY-PRODUCTS AND COMPENSATING THE SAME BY SUPPRESSING THE MAIN PRODUCTS WHICH FETCHES THE HIGHER RATE S WITH INTENTION TO REDUCE THE PROFITS, THE VALUE OF INFLAT ED YIELD OF BROKEN RICE AND KUSKI ARE SET OFF AGAINST THE VALUE OF SUPPRESSED YIEL D OF RICE. THE REMAINING VALUE OF SUPPRESSED YIELD OF RICE WORKED OUT T O RS.53,88,802/- [17320914 11812388 119724]. SINCE THE ASSESSEE HAS AL READY ACCOUNTED FOR ALL THE EXPENSES IN ITS BOOKS OF ACCOUNT, THE ENTIRE VALUE OF SUPPRESSED YIELD OF RICE OF RS.53,88,802/- IS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 3. ON APPEAL, THE LEARNED CIT(A) DELETED THE ADDITI ON IN THE FOLLOWING TERMS:- 5.3 I HAVE CONSIDERED THE ASSESSMENT ORDER AS WELL AS THE DETAILED SUBMISSION OF THE AR. IT IS SEEN FROM THE ASSESSMENT ORDER T HAT THE AO STATED THAT HE HAD ISSUED A SHOW CAUSE NOTICE DATED 22-12 -2008 AND IN RESPONSE TO THAT THE-APPELLANT HAD NOT RESPONDED. TH E APPELLANT STATED THAT THE SAID NOTICE WAS RECEIVED ON 29-12-2008 AND HE HAD SUBMITTED A REPLY TO THE SAID NOTICE. THE RELEVANT PARA 4 OF THE SAI D NOTICE RELATED TO 7 ITA NO.2127/AHD/2009 THE ADDITION UNDER THIS GROUND IS REPRODUCED HEREINB ELOW FROM THE COPY OF THE SAID NOTICE FILED BY THE APPELLANT. ..... YOU WERE ASKED TO FURNISH COMPARATIVE DETAILS OF YIELD OF MAIN PRODUCT AND BYPRODUCTS (ITEM WISE RICE, VATLA / KANKI, MEN DA KUSKI, KUSKI, KUSKO ETC.) FOR THE LAST THREE YEARS. HOWEVER YOU HAVE FURNI SHED THE DETAILS OF YIELD FOR THE YEAR UNDER CONSIDERATION ONLY. VERIFICATION OF YIELD AS SHOWN, IT IS NOTICED THAT THE YIELD OF RICE WAS SHOWN AT 31.59% ONLY. THE YIELD OF RICE WAS SHOWN BY YOU IS TOO LOW IN COMPARISON TO OTHER RICE MILLER OF THIS AREA. PLEASE EXPLAIN AS TO WHY YIELD OF M AIN PRODUCT AND BY PRODUCTS IN YOUR CASE SHOULD NOT BE ADOPTED ON THE BASIS O F OTHER MILLS OF SIMILAR LOCALITY..... IT IS SEEN FROM THE NOTICE THAT THE AO HAS SIMPLY MENTION ED THAT THE YIELD OF THE APPELLANT WAS TOO LOW IN COMPARISON TO OTHER RI CE MILLERS OF THIS AREA BUT HE HAS NOT MENTIONED ANY THING ABOUT THE RELEVANT DATA AS WELL AS YIELD OF THE OTHER RICE MILLERS. ALSO THE SAID NOTICE DOE S NOT INDICATE ANY INTENTION OF THE AO TO SUGGEST THAT THE APPELLANT HAD NOT MAINTAINED CORRECT AND COMPLETE BOOKS OF ACCOUNTS AND THE METHOD OF ACCO UNTING WAS SUCH THAT IT WAS NOT POSSIBLE TO DEDUCE THE CORRECT AM OUNT OF PROFIT. IT IS ALSO SEEN FROM THE ASSESSMENT ORDER THAT THE APPELLANT HAD PRODUCED ALL THE BOOKS OF ACCOUNTS ALONGWITH OTHER DETAILS INCLUDING QU ANTITATIVE INFORMATION AND THE AO HIMSELF HAS ADMITTED THAT THE BOOKS OF ACCOUNTS PRODUCED WERE EXAMINED ON TEST CHECK BASIS. HOWEVER, THE A O HAS NOT POINTED OUT ANY DEFECT IN THE BOOKS OF ACCOUNTS AND HAS NOT INVOKED THE PROVISIONS OF SECTION 145 OF THE ACT TO JUSTIFY HIS ACTION FOR ESTIMATION OF YIELD. SECTION 145 WOULD BE ATTRACTED ONLY TO A CASE WHE RE EITHER THE ACCOUNTS ARE NOT CORRECT OR COMPLETE TO THE SATISFACTION OF THE AO OR THE METHOD OF ACCOUNTING EMPLOYED IS SUCH THAT IN THE OPINIO N OF THE AO, THE INCOME OF THE ASSESSEE COULD NOT BE PROPERLY DEDUCED FROM SUCH ACCOUNTS MAINTAINED BY THE ASSESSEE. IT IS SEEN FROM THE ENTI RE ASSESSMENT ORDER THAT THE AO HAD NOT FOUND ANY SALES OUTSI DE THE BOOKS OF ACCOUNTS OR HAD NOT FOUND ANY INSTANCE WHERE THE HEAD RICE WAS SOLD AS BROKEN RICE AND HE HAD ALSO NOT GIVEN ANY CLEAR FINDI NG TO SUGGEST THAT THE ACCOUNTS WERE NOT CORRECTLY AND COMPLETELY MAINTAINED . THE PRESUMPTION OF THE AO THAT BY SHOWING LOW YIELD OF RICE, THE APPELLANT MIGHT HAVE SOLD THE SAME AS BROKEN RICE TO REDUCE THE PRO FIT IS TOTALLY UNSUPPORTED BY ANY MATERIAL OR EVIDENCE AND MORE PARTICUL ARLY TOTALLY IRRELEVANT WHEN HE HIMSELF STATED THAT THE APPELLANT H AD PRODUCED BOOKS OF ACCOUNTS AND OTHER DETAILS WHICH WERE VERIFIED BY HIM ON TEST CHECK BASIS. IT IS SEEN THAT THE AO ACTED HYPOTHETICALLY AND PRESUMED ON HIS OWN THAT THE APPELLANT MIGHT HAVE REDUCED PROFIT BY SHOWING LOW YIELD OF RICE AND SELLING THE SAME AS BROKEN RICE WITHOUT ADVANCING A SINGLE INSTANCE OF SUCH SALE BY THE APPELLANT. I ALSO FOUND FORCE IN THE ARG UMENTS OF THE AR THAT THE AO HAS NOT GIVEN ANY DATA OR INFORMATION OF OTHER MILLERS WITH WHOM THE APPELLANT'S CASE WAS COMPARED WITH. I ALSO FOUND FORCE IN THE ARGUMENTS OF THE AR THAT THE MAIN REASON FOR LOW YIELD OF THE APPELLANT WAS THE FACT THAT HE WAS A MANUFACTURER OF GRADED RICE W HEREAS THE OTHER MANUFACTURERS AS QUOTED BY THE AO WERE NOT MANUFACTURERS OF GRADED 8 ITA NO.2127/AHD/2009 RICE. THE AO HAS NOT EXAMINED THIS CRUCIAL ASPECT AND VERY CASUALLY COMPARED THE YIELD OF ALL OTHER CASES WITH THAT OF THE APPELLANT. IT IS SEEN FROM THE ASSESSMENT ORDER AS WELL AS THE SUBMISSION THAT TH E APPELLANT HAD FURNISHED COMPLETE QUANTITATIVE DETAILS AND HAD MA INTAINED COMPLETE BOOKS OF ACCOUNTS AND QUANTITATIVE RECORDS AND THE BOOKS O F ACCOUNTS WERE ALSO EXAMINED U/S. 44AB OF THE ACT. IT IS ALSO SEEN T HAT THE APPELLANT HAD SHOWN THE YIELD CONSISTENTLY AT THE SAME LEVEL AND THE GROSS PROFIT MARGIN WAS ALSO MORE OR LESS COMPARABLE WITH THE PERFORM ANCE OF EARLIER YEARS. IT IS ALSO SEEN THAT THE APPELLANT HAD SHOWN TWO DIFFERENT QUALITIES OF BROKEN RICE AND THE HIGH QUALITY BROKEN RICE CALLED PONI YA WAS SOLD IN A RANGE OF RS.800/- TO RS.925/- WHERE AS THE LOW QUALITY OF BROKEN RICE CALLED VATLA WAS SOLD BETWEEN RS.600/- TO RS.740/- DURING THE YEAR UNDER APPEAL. SUCH TYPE OF CLASSIFICATION OF DIFFERENT BY PRODUCTS AND OT HER RELEVANT INFORMATION OF SALE VALUE OF HIGH QUALITY OF GRADED R ICE IN CASES OF OTHER MILLERS IS GLARINGLY MISSING IN THE ASSESSMENT ORDER. THIS CLE ARLY SHOWS THAT THE AO MADE THE COMPARISON VERY CASUALLY, WITHOUT VERI FYING DIFFERENT FACTORS AFFECTING THE YIELD OF DIFFERENT MILLERS WHICH SUG GESTS THAT THE YIELD HAS BEEN ESTIMATED BY THE AO ON SURMISES AND CONJECTURES AND IT IS NOT BASED ON ANY MATERIAL OR ANY COGENT EVIDENCE ON RECORD. IT IS ALSO TRUE THAT RICE MILLING IS AN AGRO BASED INDUSTRY AND THERE AR E SO MANY FACTORS AFFECTING THE YIELD RIGHT FROM PURCHASE OF RAW MATERIAL TILL THE FINAL PRODUCTION. THE STANDARD ADOPTED BY THE AO BY COMPARING THE CASE OF THE APPELLANT WITH THE CASES OF OTHER MILLERS WITHOUT LOOKI NG INTO THE DETAILED PRODUCTION PROCESS OF EACH OF THESE MILLERS, WITHOUT CON SIDERING THEIR LOCATIONS, CUSTOMERS, QUALITY OF PADDY AND OTHER OUTPUTS E TC. IS ARBITRARY. IT IS SEEN IN THE CASE OF THE APPELLANT THAT THEIR ACCOUNTS W ERE AUDITED U/S. 44AB OF THE ACT, THEY HAD MAINTAINED QUANTITATIVE RECO RDS OF PURCHASE, SALES AND PRODUCTION, THEIR YIELD RATIO OF LAST FIVE YEARS WAS FAVORABLY COMPARABLE AND ALMOST AT THE SAME LEVEL AND THE AO HAS N OT POINTED OUT ANY DEFECTS IN THE ACCOUNTS AND OTHER RECORDS MAINTAINE D BY THE ASSESSEE AND THEREFORE, THE RATIO OF HON'BLE AMRITSAR BENCH OF IT AT IN THE CASE OF SHANKAR RICE CO. (SUPRA) IS APPLICABLE TO THE FACTS OF T HE APPELLANT. CONSIDERING ALL THESE FACTS, SUBMISSION OF THE APPELLANT AND VARIOUS CASE LAWS CITED BY THE APPELLANT I FIND THAT THE ACTION OF T HE AO TO ESTIMATE THE YIELD WITHOUT POINTING OUT ANY DEFECTS IN THE BOOKS OF A CCOUNTS, WITHOUT ANALYZING THE FACTS OF DIFFERENT COMPARABLE CASES WITH T HAT OF THE APPELLANT AS WELL AS WITHOUT ADVANCING ANY COGENT EVIDENCE FROM MATER IALS ON RECORD, IS TOTALLY UNJUSTIFIABLE AND THEREFORE, I DIRE CT THE AO TO DELETE THE ADDITION OF RS.53,88,802/- ON ACCOUNT OF UNDERSTATED Y IELD OF RICE. IN THE RESULT THIS GROUND NO. 2 STANDS ALLOWED. 4. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST T HE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED DR SUPP ORTED THE FINDINGS OF THE AO WHILE THE LEARNED AR ON BEHALF OF THE ASSESSEE SUPPORTED THE IMPUGNED ORDER AND RELIED UPON THE D ECISION DATED 31-10-2008 OF THE ITAT AHMEDABAD BENCH-A IN THE CAS ES OF ITO VS. 9 ITA NO.2127/AHD/2009 M/S KAILASH POWA MILL, NAVSARI, AND OTHERS IN ITA N O.1960 TO1971, 1976TO1989 & 2006-2008/AHD/2008. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE AFORESAID DECISION. AS IS APPARE NT FROM THE FACTS NARRATED IN THE IMPUGNED ORDERS, THE AO NOWHERE RECORDED ANY FINDING THAT THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE WERE INCORRECT, RENDERING IT IMPOSSIBLE TO DEDUCE THE PROFIT AND DESPITE THAT HE PRO CEEDED TO ESTIMATE THE YIELD, INVOKING THE PRINCIPLES OF BEST JUDGMENT. THE L D. CIT(A),ON THE OTHER HAND, OBSERVED THAT THE MAIN REASON FOR LOW YIELD OF THE AP PELLANT WAS THE FACT THAT HE WAS A MANUFACTURER OF GRADED RICE WHEREAS THE OTHER M ANUFACTURERS AS QUOTED BY THE AO WERE NOT MANUFACTURERS OF GRADED RICE . THE AO MADE THE COMPARISON VERY CASUALLY, WITHOUT VERIFYING DIFFERENT FACTORS AFF ECTING THE YIELD OF DIFFERENT MILLERS AND IS NOT BASED ON ANY MATERIAL OR ANY COGEN T EVIDENCE ON RECORD. THE STANDARD ADOPTED BY THE AO BY COMPARING THE CASE OF THE APPELLANT WITH THE CASES OF OTHER MILLERS WITHOUT LOOKING INTO THE DETAILED PRODUCTION PROCESS OF EACH OF THESE MILLERS, WITHOUT CONSIDERING THEIR LOCATIONS, CUST OMERS, QUALITY OF PADDY AND OTHER OUTPUTS ETC. IS ARBITRARY, THE LD. CIT(A) A DDED. ACCORDINGLY, THE LD. CIT(A) CONCLUDED THAT THE ACTION OF THE AO TO ESTIMATE THE YIELD WITHOUT POINTING OUT ANY DEFECTS IN THE BOOKS OF ACCOUNTS, WITHOUT ANALYZ ING THE FACTS OF DIFFERENT COMPARABLE CASES WITH THAT OF THE ASSESSEE, IS TOTALLY UNJU STIFIABLE AND THEREFORE, DELETED THE ADDITION. THE REVENUE HAVE NOT PLACED BE FORE US ANY MATERIAL, CONTROVERTING THESE FINDINGS OF FACTS RECORDED BY THE LD. CIT(A). EVEN IN RESPONSE TO A SPECIFIC QUERY BY THE BENCH, THE LD. DR DID NOT PO INT OUT ANY MATERIAL ,WHICH WAS ADMITTED BY THE LD. CIT(A) BY WAY OF ADDITIONAL EVIDENCE NOR POINTED OUT ANY DEFECTS IN THE BOOKS, NOTICED BY THE AO. IN THE ABSENCE OF ANY MATERIAL DEFECTS IN THE BOOKS OF ACCOUNTS, AUDITED RESULTS COULD NOT BE REJ ECTED. HONBLE GAUHATI HIGH COURT IN ALUMINIUM INDUSTRIES (P) LTD. V. CIT ( I.T.R. NO. 12 OF 1990) OBSERVED THAT A LOWER RATE OF GROSS PROFIT DECLARED BY THE ASSESSEE AS COMPARED TO THE PREVIOUS YEAR, WOULD NOT IN ITSELF BE SUFFICIENT TO JUSTIFY ANY ADDITION. THE MERE FACT THAT THE PERCENTAGE OF LOSS OR GROSS PROFIT IS HIGH OR LOW IN A PARTICULAR YEAR DOES NOT NECESSARILY LEAD TO INFERENCE THAT THERE HAS BEEN SUPPRESSION. LOW PROFIT OR LOWER YIELD IS NEITHER A CIRCUMSTANCE OR MATER IAL TO JUSTIFY ADDITION OF 10 ITA NO.2127/AHD/2009 PROFITS. THE RATIO OF THE JUDGMENTS IN DHAKESWARI COT TON MILLS LTD. V. CIT [1954] 26 ITR 775 (SC); RAGHUBIR MANDAL HARIHAR MANDAL V. STATE OF B IHAR [1957] 8 STC 770 (SC); STATE OF KERALA V. C. VELUKUTTY [1966] 60 ITR 239 (SC); STATE OF ORISSA V. MAHARAJA SHRI B.P. SINGH DEO [1970] 76 ITR 690 (SC); BRIJ BHUSAN LAL PARDUMAN KUMAR V. CIT [1978] 115 ITR 524 (SC); CHOUTHMAL AGARWALLA V. CIT [1962] 46 ITR 262 (ASSAM); R.V.S. AND SONS DAIRY FARM V. CIT [2002] 257 ITR 764 (MAD); INTERNATIONAL FOREST CO. V. CIT [1975] 101 ITR 721 (J & K) ; M. DURAI RAJ V. CIT [1972] 83 ITR 484 (KER); RAMCHANDRA RAMNIVAS V. STATE OF ORISSA [1970] 25 STC 501 (ORISSA); ACTION ELECTRICALS V. DEPUTY CIT [2002] 258 ITR 188 (DELHI) AND KAMAL KUMAR SAHARIA V. CIT [1995] 216 ITR 217 (GAUHATI) INDICATE THAT THE AO IS NOT FETTERED BY ANY TECHNICAL RULES OF EVIDENCE AND PLEADINGS, AND HE IS ENTITLED TO ACT ON MATERIAL WHICH ARE NOT ACCEPTA BLE IN EVIDENCE IN A COURT OF LAW, BUT WHILE MAKING THE ASSESSMENT UNDER THE PRINCIPLE S OF BEST JUDGMENT, THE INCOME-TAX OFFICER IS NOT ENTITLED TO MAKE A PURE GUESS W ITHOUT REFERENCE TO ANY EVIDENCE OR MATERIAL. THERE MUST BE SOMETHING MORE THA N A MERE SUSPICION TO SUPPORT THE ASSESSMENT. LOW PROFIT IN A PARTICULAR YEAR IN ITSELF CANNOT BE A GROUND FOR INVOKING THE POWERS OF BEST JUDGMENT ASSESSMEN T WITHOUT SUPPORT OF ANY MATERIAL ON RECORD. 5.1 IN THE CASE OF M/S KAILASH POWA MILL, NAVSARI , AND OTHERS(SUPRA), WHILE ADJUDICATING A SIMILAR ISSUE, A CO-ORDINATE BENCH RELIED ON DECISIONS IN PANDIT BROS. V. CIT(1954) 26 IT R 159 (P & H) SHANKAR RICE CO. VS. ITO,72 ITD 139(ASR)(SB) IN CONCLUD ING THAT REJECTION OF BOOK RESULTS WITHOUT POINTING OUT ANY DEFECTS IN BOOKS OF ACCOUNTS, COULD NOT BE SUSTAINED. 5.2 THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. AMITBHAI GUNWANTBHAI, 129 ITR 573 HELD THAT IF THERE WAS NO CH ALLENGE TO THE TRANSACTIONS REPRESENTED IN THE BOOKS THEN IT IS NOT OPEN TO REVENUE TO CONTEND THAT WHAT IS SHOWN BY THE ENTRIES IS NOT THE REAL STATE OF AFFAIRS. SECONDLY, EVEN IF FOR SOME REASON, THE BOOKS ARE REJECTED IT IS NOT OPEN TO THE AO TO MAKE ANY ADDITION ON ESTIMATE BASIS OR ON PURE GUESS WORK. SINCE THE REVENUE HAVE NOT REFERRED US TO ANY MATERIAL CONTRARY TO THE AFORESAID FINDINGS O F THE LD. CIT(A), WE ARE OPINION 11 ITA NO.2127/AHD/2009 THAT THE AO WAS NOT JUSTIFIED IN REJECTING THE BOOK RESU LTS AND ADD AN ESTIMATED AMOUNT . HONBLE J & K HIGH COURT IN THE CASE OF INTER NATIONAL FOREST CO. V. CIT [1975] 101 ITR 721 HELD THAT IN THE CASE OF A FOREST COUPE, MERE LOW YIEL D OF OUT- TURN COMPARED TO EARLIER YEARS WAS NOT SUFFICIENT TO MA KE AN ADDITION. IF THERE WAS NO CHALLENGE TO THE TRANSACTIONS REPRESENTED IN THE BOOKS, THEN IT IS NOT OPEN TO REVENUE TO CONTEND THAT WHAT IS SHOWN BY THE ENTRIES IS N OT THE REAL STATE OF AFFAIRS. IN THE LIGHT OF AFORESAID OBSERVATIONS OF THE HONBLE JURISDICTIONAL HIGH COURT, CONSIDERING THE FACTS AND CIRCUMSTANCES IN THE INSTAN T CASE, WE DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF THE LEARNED CIT(A) AND ACCORDINGLY, GROUND NOS 1 TO 3 IN THE APPEAL OF THE REVENUE ARE REJECTED. 6. GROUND NO.4 IN THE APPEAL RELATES TO DISALLOWANC E OUT OF SALARY AND WAGES, MOTOR POWER AND DIESEL EXPENSES ETC.. ON VERIFICATION OF TRADING ACCOUNT AND REFERRING TO FOLLOWING COMPARIS ON OF EXPENSES AY 2004-05 AY 2005-06 SALARY & WAGES 416885 451000 MOTOR POWER 341480 278318 TRANSPORTATION CHARGES 1064746 2201239 LABOUR CHARGES 525037 1496465 DIESEL EXPENSES 896193 988589 FACTORY EXPENSES 28376 75880 SHIP TRANSPORTATION CHARGES 24500 47293 GENERATOR REPAIRING & MAINTENANCE EXPENSES 25917 37746 TOTAL 5576530 THE AO OBSERVED THAT THE ABOVE EXPENSES INCREASED DISPROPORTIONATELY EVEN THOUGH TURNOVER AS WELL AS PURCHASES DECLINED CONSIDERABLY VIS--VIS RESULTS OF THE PREC EDING YEAR. ACCORDINGLY, THE ASSESSEE WAS SHOWCAUSED AS TO WHY DISPROPORTIONATE EXPENSES SHOULD NOT BE DISALLOWED. HOWEVER, THE ASSESSEE DID NOT RESPOND TO THE SHOW CAUSE NOTICE N OR SUBMITTED ANY SUPPORTING DOCUMENTARY EVIDENCE TO SUBSTANTIATE ITS CLAIM OF ABOVE EXPENSES. ACCORDINGLY, WHILE REFERRING TO DEC ISIONS IN LAXMI RATAN COTTON MILLS CO. LTD. VS. CIT 73 ITR 634 (SC) ;CIT VS. 12 ITA NO.2127/AHD/2009 SWADESHI COTTON MILLS CO. LTD 63 ITR 57, 60 (SC), CIT V CHANDRAVILAS HOTEL, 164 ITR 102 (GUJ.);CIT V SHAHIB AUG ENTREPRENEURS (P.) LTD., 215 ITR 810; CIT VS. INDU STRIAL DEVELOPMENT CORPORATION OF ORISSA LTD. 249 ITR 401 (ORS.) AND CIT VS. UDAIPUR MINERAL DEVELOPMENT SYNDICATE P. LTD.,2 69 ITR 263 (RAJ) , THE AO DISALLOWED 10% OF THE AGGREGATE EXPENSES OF RS.5576530/- ,RESULTING IN ADDITION OF RS.5,57,653/-. 7. ON APPEAL, THE LEARNED CIT(A) REDUCED THE DISAL LOWANCE TO 10% OF RS.38,58,623/- IN THE FOLLOWING TERMS:- 7.3 I HAVE CONSIDERED THE ASSESSMENT ORDER AS WELL THE SUBM ISSION OF THE AR. IT IS SEEN THAT THE VARIATION IN SALARY AND WA GES EXPENSES WAS A NORMAL VARIATION WHERE THE AMOUNT HAS INCREASED FROM R S.4,16,885/- TO RS.4,51,000/- WHICH IS LESS THAN 10% WHICH CAN BE ATTRIBU TABLE TO NORMAL INCREMENT IN SALARY OF EMPLOYEES. IT IS ALSO TRUE THAT THE AMOUNT OF MOTOR POWER EXPENSES HAS IN FACT REDUCED FROM RS.3,41,480/- T O RS.2,78,318/-. ALSO THE VARIATION IN DIESEL EXPENSES IS ABOUT 10% FROM R S.8,96,193/- TO RS.9,88,589/- AND I FIND SOME FORCE IN THE ARGUMENT OF THE AR THAT THE PRICE OF PETROLEUM PRODUCTS HAD INCREASED IN EARLIER YEA RS. THEREFORE, I FIND SOME JUSTIFICATION IN VARIATION OF EXPENSES UNDER TH ESE THREE HEADS. HOWEVER, APART FROM THESE THREE HEADS, THE FLUCTUATION FOUND UNDER OTHER HEADS ARE DISPROPORTIONATELY HIGH AND IT IS SEEN FROM T HE ASSESSMENT ORDER AS WELL AS THE SUBMISSION OF THE AR THAT THE APP ELLANT HAS FAILED TO PROVIDE PROPER JUSTIFICATION IN RESPECT OF VARIATION UN DER THESE HEADS OF EXPENSES WITH SUPPORTING EVIDENCES. SUCH MANIFOLD RISE WITH OUT JUSTIFIABLE EVIDENCES CANNOT BE ACCEPTED AND THEREFORE, I AGREE WITH THE ACTION OF THE AO TO DISALLOW SOME PART OF SUCH EXPENSES. I AM THEREF ORE OF THE OPINION THAT THE DISALLOWANCE AT 10% OUT OF UNDER MENTIONED H EADS OF EXPENSES WOULD BE JUSTIFIABLE. PARTICULARS RS. TRANSPORTATION CHARGES 2201239 LABOUR CHARGES 1496465 I FACTORY EXPENSES 75880 13 ITA NO.2127/AHD/2009 SHIP TRANSPORTATION CHARGES 47293 GENERATOR REPAIRING & MAINTENANCE EXPENSES 37746 TOTAL 3858623 I THEREFORE DIRECT THE AO TO MAKE ADDITION OF RS.3,85, 862/- BEING 10% OF RS.38,58,623/- AS AGAINST THE ADDITION OF RS.5,57,653/ - MADE BY THE AO. THUS THIS GROUND OF APPEAL IS PARTLY ALLOWED. 8. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED DR SUPP ORTED THE FINDINGS OF THE AO WHILE THE LEARNED AR ON BEHALF O F THE ASSESSEE SUPPORTED THE CONCLUSION OF THE LD. CIT(A) 9. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. THE LD. CIT(A) REDUCED TO THE DISALLOWANCE TO 10% OF A PORTION OF THE EXPENSES WHILE HOLDING THAT VARIATION IN SALARY AND WA GES EXPENSES WAS DUE TO NORMAL INCREMENT IN SALARY OF EMPLOYEES AND THE MOTOR POWER EXPENSES IN FACT REDUCED FROM RS.3,41,480/- TO RS.2,78,318/-. THE DIESEL EXPENSES INCREASED BY ABOUT 10% FROM RS.8,96,193/- TO RS.9,88,589/- DUE TO INCREASE IN THE PRICE OF PETROLEUM PRODUCTS .ACCORDINGLY, THE LD. CIT(A) DELETE D THE DISALLOWANCE OF EXPENSES UNDER THESE THREE HEADS. SINCE THE AO MADE AN ESTIMATED DISALLOWANCE OF 20% OF THE EXPENSES WHILE THE LD. CIT(A ) REDUCED THE ESTIMATE TO 10% OF EXPENSES EXCEPT UNDER AFORESAID THREE HEADS AND THE LD. DR DID NOT PLACE ANY MATERIAL BEFORE US SO AS TO ENABLE US TO TAK E A DIFFERENT VIEW IN THE MATTER, WE DO NOT FIND ANY INFIRMITY IN THE APPROACH OF THE LD. CIT(APPEALS), RESTRICTING THE DISALLOWANCE TO 10% OF THE AFORESAID EXP ENSES. IN VIEW THEREOF, GROUND NO.4 IN THE APPEAL IS DISMISSED. 14 ITA NO.2127/AHD/2009 10. GROUND NOS.5 AND 6 BEING MERE PRAYER NOR ANY SU BMISSIONS HAVING BEEN MADE ON THESE GROUNDS, DO NOT REQUIRE A NY SEPARATE ADJUDICATION WHILE NO ADDITIONAL GROUND HAVING BEEN RAISED BEFORE US IN TERMS OF RESIDUARY GROUND NO. 7 IN THE APPEAL, A LL THESE GROUNDS ARE, THEREFORE, DISMISSED. 11 IN THE RESULT, APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE COURT TODAY ON 26-08-2011 SD/- SD/- ( T K SHARMA ) JUDICIAL MEMBER ( A N PAHUJA ) ACCOUNTANT MEMBER DATED : 26-08-2011 COPY OF THE ORDER FORWARDED TO: 1. M/S SHREE VIGHNAHAR RICE MILL, NEAR RAILWAY STAT ION, AT & PO. RANKUWA, TAL. CHIKHLI, TAL. NAVSARI 2. DEPUTY COMMISSIONER OF INCOME-TAX, NAVSARI CIRC LE, NAVSARI 3. CIT CONCERNED 4. CIT(A), VALSAD 5. DR, ITAT, AHMEDABAD BENCH-A, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD