The ACIT, Vapi Circle, Vapi V. M/s. Alidhara Texspin Engineers, U T OF D & NH

ITA 2358/AHD/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 50905 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 3 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 13-10-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 07-08-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ALOK JOHRI
• Assessee Lawyers: RASESH SHAH
• Keywords: Rejection of books of accounts; Related party transaction; Transfer pricing; Fair market value; Corroborative evidences
• Section: 131; 145; 143(3); 80IB

Judgement Text

, , . .. . . .. . , , , , ! ! ! ! ' '' '# ## # $ $ $ $. .. .% %% % . .. .& & & &, , , , ' ' ' ' % ! % ! % ! % ! IN THE INCOME TAX APPELLATE TRIBUNAL : B BENCH : AHMEDABAD (BEFORE HONBLE SHRI G.D. AGRAWAL, V.P. & HONB LE SHRI T.K. SHARMA, J.M.) # ## #. ITA NO. 2358/AHD./2009 : ()- 2006-07 THE A.C.I.T., VAPI CIRCLE, VAPI -VS- M/S. ALIDHARA TEXSPIN ENGINEERS, DADRA (,- /APPELLANT) (PAN : AAIFA 2434N) ( ./,- /RESPONDENT ) ,- 0 1 % / APPELLANT BY : SHRI ALOK JOHRI, CIT,D.R. ./,- 0 1 % / RESPONDENT BY : SHRI RASESH SHAH, A.R. 23 0 45 / DATE OF HEARING : 13/10/2011 67( 0 45 / DATE OF PRONOUNCEMENT : 16/11/2011 %& %& %& %& / ORDER PER SHRI T.K. SHARMA, JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE IS AGAINST THE OR DER DATED 21-05-2009 OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS), VALSAD DELETING THE DISALLOWANCE OF RS.5,01,77,737/- MADE BY THE AO BY RESTRICTING THE PROFIT AND CONSEQUENTLY REDUCING THE QUANTUM OF DEDUCTION U/S. 80IB OF THE ACT FOR T HE ASSESSMENT YEAR 2006-2007. 2. BRIEFLY STATED, THE FACTS ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING TEXTILE MACHINERY AT ITS FACTORY AT U.T. OF DADRA, NAGAR & HAVELI. THE MAIN ITEM OF MANUFACTURING IS DRAW TEX TURISING MACHINES. IT IS ALSO MANUFACTURING BICONICAL CHEESE WINDER MACHINE ON A VERY SMALL SCALE AND PARTS OF THESE MACHINERY. THE ASSESSEE HAS ALSO CARRIED OUT LABOUR JOBS I.E. MAKING OF VARIOUS MACHINERY PARTS ON BEHALF OF OTHER PARTIES WHERE MA TERIAL IS SUPPLIED BY THE PARTIES. FOR THE ASSESSMENT YEAR UNDER APPEAL, IT FILED THE RETURN OF INCOME ON 31.10.2006 DECLARING TOTAL INCOME OF RS.19,35,980/-. THE AO FR AMED THE ASSESSMENT UNDER SECTION 143(3) ON 26.12.2008 WHEREIN HE RESTRICTED THE DEDUCTION CLAIMED UNDER SECTION 80IB TO RS.15,33,57,689/- AS AGAINST RS.20, 35,17,154/- DECLARED BY THE ITA NO. 2358-AHD-09 2 ASSESSEE. ACCORDING TO AO, THE G.P. DECLARED BY THE ASSESSEE IS HIGH. THEREFORE, HE RE- WORKED OUT THE DEDUCTION UNDER SECTION 80IB AT RS.1 5,33,57,689/- AS UNDER: NET PROFIT AS PER P&L ACCOUNT RS.20,58 ,48,748/- LESS: G.P. SHOWN BY THE ASSESSEE RS.20,35 ,17,154/- ADD: G.P. CALCULATED @30% (0.30X511131389- TOTAL S ALES + LABOUR CHARGES) RS.15,33,39,417/- LESS: BANK FD INTEREST RS. 23,13,322/- TOTAL RS. 15, 33,57,689/- 3. ON APPEAL, IN THE IMPUGNED ORDER, THE LD. CIT(A) HELD THAT THERE IS NO COGENT BASIS FOR CURTAILING DEDUCTION UNDER SECTION 80IB B Y INVOKING PROVISIONS OF SECTION 80-IA(10) OF THE ACT AND THERE IS NO JUSTIFICATION IN ESTIMATING G.P. AT 30%. THE DETAILED REASONING GIVEN BY THE LD. CIT(A) IS CONTA INED IN PARA 7 OF THE IMPUGNED ORDER, WHICH READS AS UNDER: 7. I HAVE CONSIDERED THE REASONS GIVEN BY ASSESSING OF FICER AS ALSO THE SUBMISSIONS OF APPELLANT AFTER CAREFULLY ANALYZING THE SAME, I FIND THAT ASSESSING OFFICER HAS MADE THE ADDITION BY INVOKING PROVISIONS OF SECTION 80IA(10) MAINLY ON THE GROUND THAT ASSESSEE HAS SHO WN MUCH HIGHER PROFITS THAN THAT REPORTED BY OTHER ENTITIES ENGAGED IN SIM ILAR LINE OF BUSINESS &.THAT ASSESSEE HAS NOT MAINTAINED PROPER STOCK RECORDS IN SUPPORT OF VARIOUS STAGES OF MANUFACTURING ACTIVITY. THE ASSESSING OFFICER HA S CONTENDED THAT BOOK RESULTS ARE NOT RELIABLE AS ASSESSEE COULD NOT EXPLAIN AS T O WHICH RAW MATERIAL HAS BEEN USED IN MANUFACTURING OF PARTICULAR MACHINERY. HE HAS ALSO OBSERVED THAT MAJORITY OF ITEMS ARE OUT OF EXCISE PURVIEW & IN RE SPECT OF THE SAME NO STOCK RECORDS HAVE BEEN MAINTAINED. THE ASSESSING OFFICER HAS MADE VARIOUS OTHER OBSERVATIONS IN SUPPORT OF THE CONTENTION THAT BOOK RESULTS ARE NOT RELIABLE. AFTER REFUSING TO ACCEPT THE BOOK RESULTS, HE RESOR TED TO ESTIMATION OF PROFIT AND FOR THAT PURPOSE THE PROVISIONS OF SECTION 80IA(10) HAVE BEEN INVOKED. THESE ISSUES RELATING TO DEFECTS IN THE MAINTENANCE OF RE CORDS AND THE CONSEQUENT ESTIMATION OF PROFIT ARE DISCUSSED HEREAFTER. 7.1 SO FAR AS MAINTENANCE OF STOCK RECORDS ARE CONC ERNED, IT IS CONTENDED BY ASSESSEE THAT PURCHASES OF RAW MATERIALS ON WHICH E XCISE DUTY / CUSTOMS DUTY HAS BEEN PAID COMES TO 74% OF TOTAL PURCHASES & AS SUCH MAJORITY OF THE ITEMS ARE SUBJECT TO EXCISE DUTY FOR WHICH PROPER RECORDS AS PER EXCISE RULES HAVE BEEN MAINTAINED. IT IS SEEN THAT EXCISE RECORDS HAV E ALSO BEEN PRODUCED IN THE COURSE OF ASSESSMENT PROCEEDINGS. FURTHER, SHRI CHA NDRAKANT GONDALIYA IN HIS STATEMENT RECORDED U/S 131 OF THE ACT ALSO MENTIONE D THAT THEY HAVE MAINTAINED RECORDS AS PER THE EXCISE LAW. IT IS ALSO SEEN THAT HE HAS EXPLAINED J IN DETAIL THE ITA NO. 2358-AHD-09 3 ENTIRE MANUFACTURING ACTIVITY AND THE ITEMS OF RAW MATERIALS USED & THE MANNER IN WHICH RECORDS HAVE BEEN MAINTAINED. ALTHO UGH IT IS SEEN THAT ASSESSEE WAS UNABLE TO FILE FLOW CHART OF MATERIALS AS DESIRED BY ASSESSING OFFICER, THE CONTENTION OF ASSESSEE THAT IT IS DIFF ICULT IN THIS LINE OF BUSINESS TO MAINTAIN STOCK RECORDS AS DESIRED BY ASSESSING OFFI CER AS MORE THAN 10,000 ITEMS OF RAW MATERIALS ARE USED IN MANUFACTURING AC TIVITY ALSO CANNOT SIMPLY BE BRUSHED ASIDE. IN THIS LINE OF ENGINEERING INDUSTRY , IT IS PRACTICALLY VERY DIFFICULT TO MAINTAIN RECORDS WHICH INDICATE AS TO WHICH RAW MATERIAL HAS BEEN USED IN MANUFACTURING OF A PARTICULAR FINAL PRODUCT. IT IS ALSO SEEN THAT QUANTITATIVE DETAILS ARE GIVEN IN THE TAX AUDIT REPORT AND IT IS NOT THE CASE WHERE CERTAIN PURCHASES OF RAW MATERIALS HAVE BEEN LEFT OUT TO BE ACCOUNTED IN THE BOOKS OF ACCOUNTS. IT IS FURTHER SEEN THAT QUANTITY DETAILS RELATING TO FINISHED GOODS I.E. YIELD IS ALSO GIVEN IN THE TAX AUDIT REPORT IN ANNE XURE 'B'. IN VIEW OF THESE FACTS & PARTICULARLY CONSIDERING THAT MORE THAN 74% OF IT EMS ARE SUBJECT TO EXCISE DUTY, FROM MATERIALITY POINT OF VIEW, IT CANNOT BE SAID THAT ASSESSEE HAS NOT MAINTAINED PROPER STOCK RECORDS. 7.2 IT APPEARS THAT ASSESSING OFFICER HAS COME TO T HE CONCLUSION RELATING TO NON-MAINTENANCE OF STOCK RECORDS ON THE GROUND THAT WHEN EXCISE RECORDS WERE EXAMINED IT WAS NOTICED THAT ONLY 77 ITEMS WERE FOU ND ALTHOUGH ASSESSEE CONTENDED TO HAVE USED MORE THAN 10,000 ITEMS OF RA W MATERIALS. HOWEVER, HERE IT NEEDS TO BE CONSIDERED THAT ENTRIES IN EXCI SE REGISTERS ARE MADE UNDER THE BROAD HEADS & THE CONTENTION THAT MAJORITY OF I TEMS ARE COVERED UNDER EXCISE CANNOT BE DENIED IN VIEW OF THE FACT THAT PU RCHASE OF EXCISABLE ITEMS CONSTITUTE ABOUT 74% OF TOTAL PURCHASES. IN ANY CAS E, EVEN IF IT IS PRESUMED THAT ASSESSEE HAS NOT MAINTAINED PROPER STOCK RECORDS TO THE SATISFACTION OF ASSESSING OFFICER DEPICTING THE FLOW OF RAW MATERIA LS AND ITS CONVERSION TO FINISHED GOODS & DOCUMENTS AT VARIOUS STAGES OF PRO DUCTION, IN THAT CASE THERE HAS TO BE SOME CORROBORATIVE EVIDENCE ON RECORD WHI CH INDICATES THAT SUCH NON-MAINTENANCE OF RECORDS HAS RESULTED INTO INFLAT ION OF PROFIT. THIS IS MORE SO BECAUSE ASSESSEE HAS GIVEN COMPLETE DETAILS RELATIN G TO VALUATION OF CLOSING STOCK AND ALL THE PURCHASES ARE SUPPORTED BY PROPER BILLS FOR WHICH PAYMENTS HAVE BEEN MADE THROUGH ACCOUNT PAYEE CHEQUES. BESID ES THIS IT IS ALSO SEEN THAT AS COMPARED TO EARLIER YEARS THERE IS NO MAJOR VARIATION IN G.P RATIO AND ALL THESE FACTS GOES CONTRARY TO THE VERSION OF ASS ESSING OFFICER THAT ASSESSEE INFLATED PROFIT BY NOT MAINTAINING PROPER RECORDS. 7.3 IT IS FURTHER SEEN THAT ASSESSEE WAS UNABLE TO GIVE QUANTITY TALLY ON THE BASIS OF WEIGHT OF INPUT AND THE OUTPUT. IN THIS CO NTEXT IT IS AN ADMITTED FACT THAT VARIOUS ITEMS OF RAW MATERIALS USED IN THE MANUFACT URING ACTIVITY HAVE DIFFERENT MEASUREMENT UNITS AS SOME ITEMS ARE MEASURED IN KG. SOME IN NUMBERS, LITRES ETC. THESE FACTORS MAKES QUANTITY TALLY ON THE BASI S OF WEIGHT ALMOST IMPOSSIBLE & HENCE, IN MY CONSIDERED OPINION, ADVERSE INFERENC E DRAWN ON THIS GROUND IS NOT JUSTIFIABLE. AS REGARDS BIFURCATION OF PROFIT F ROM SALE OF MANUFACTURED MACHINERY AND PROFIT DERIVED FROM LABOUR JOB WORK, I AGREE WITH THE CONTENTION OF APPELLANT THAT SUCH BIFURCATION IS NOT POSSIBLE AS BOTH THE ACTIVITIES ARE ITA NO. 2358-AHD-09 4 CARRIED OUT SIMULTANEOUSLY BY UTILIZING COMMON RESO URCES. ALTHOUGH IT IS CORRECT THAT ASSESSEE WAS UNABLE TO FILE CHART SHOW ING COST OF MANUFACTURING OF ONE MACHINE GIVING PART WISE BREAK UP, THE ASSESSEE HAS GIVEN EXPLANATION VIDE LETTER DATED 22/12/2008 FOR WHICH NO COGENT REASONS HAVE BEEN GIVEN FOR REJECTING THE SAME. 7.4 IT IS ALSO SEEN THAT ASSESSING OFFICER HIMSELF OBSERVED THAT WHETHER TRANSACTIONS WITH SISTER CONCERNS ARE JUST AND FAIR IS NOT VERIFIABLE AND WHETHER ANY DIVERSION / DRESSING UP OF PROFIT IS TAKING PLA CE UNDER DISGUISE OF THESE TRANSACTIONS IS NOT VERIFIABLE. THE ABOVE OBSERVATI ON ITSELF MANIFESTS THAT EVEN ASSESSING OFFICER DOES NOT HAVE ANY CONCRETE EVIDEN CE ON RECORD WHICH INDICATES THAT ASSESSEE HAS INFLATED PROFIT BY DOIN G TRANSACTIONS WITH SISTER CONCERNS. IT IS A SETTLED LAW THAT ASSESSMENT CANNO T BE MADE MERELY ON THE BASIS OF PRESUMPTION AND THERE HAS TO BE STRONG EVI DENCE WHICH CORROBORATES THAT BECAUSE PROPER RECORDS HAVE NOT BEEN MAINTAINE D THE SAME HAS RESULTED INTO INFLATION OF PROFIT. 7.5 THE ASSESSING OFFICER HAS ALSO OBSERVED THAT AS SESSEE HAS PURCHASED OLD MACHINERIES FROM M/S GOKULANAND TEXTURISERS PVT. LT D. & IT HAS ALSO SOLD MACHINERIES TO SAID ENTITY. IN THIS REGARD, IT HAS BEEN CONTENDED BY ASSESSEE THAT THEY PURCHASED OLD MACHINERY FROM ABOVE ENTITY AS THE SAME WAS OUTDATED & THE DISMANTLED PARTS OF THE MACHINES WERE USED IN MANUFACTURING PROCESS OF NEW MACHINERIES OF ADVANCED TECHNOLOGY. IT HAS BEEN CONTENDED THAT THE SAME HAVE NOT BEEN RESOLD BY THEM. I ALSO FIND THAT ASSE SSEE HAS AVAILED CENVAT CREDIT ON PURCHASES OF ABOVE MACHINERY & THE SAME I S AVAILABLE ONLY IF PARTS OF SAID MACHINERIES ARE USED IN THE MANUFACTURE OF FIN AL PRODUCT. THE ASSESSEE HAS ALSO PRODUCED RELEVANT COPY OF EXCISE REGISTER RG-23A PART 1 IN SUPPORT OF ITS CONTENTION. THE PARTNER OF THE FIRM SHRI CHANDR AKANT GONDALIYA ALSO EXPLAINED THIS FACT IN HIS STATEMENT RECORDED U/S 1 31 OF THE ACT. THE CONTENTION OF ASSESSING OFFICER THAT ASSESSEE COULD NOT FILE D ETAILS RELATING TO UTILIZATION OF EACH PART OF SAID MACHINE IS CORRECT BUT IN VIEW OF THE ABOVE FACTS, IN MY CONSIDERED OPINION THE CONTENTION OF ASSESSEE THAT IT HAS UTILIZED PARTS OF SAID MACHINERY IN MANUFACTURING ACTIVITY CANNOT BE DENIE D. IN ANY CASE, EVEN IF THE VERSION OF ASSESSING OFFICER THAT MACHINERIES PURCH ASED WERE OF OBSOLETE TECHNOLOGY AND THUS UNUSABLE IN NEW MACHINERY IS AC CEPTED IN THAT CASE, EXPENDITURE CLAIMED TOWARDS PURCHASE OF ABOVE MACHI NERY BECOMES SUBJECT MATTER OF DISALLOWANCE & THE SAME WILL FURTHER INCR EASE PROFIT OF THE ASSESSEE & THEREFORE, THE SAME WILL GO AGAINST HIS VERSION T HAT ASSESSEE INFLATED ITS PROFIT. IT IS ALSO NOT THE CASE THAT SALE OF MACHIN ERIES TO ABOVE ENTITY IS IN EXCESS OF THE MARKET RATE OR THAT EXPENDITURES HAVE BEEN S UPPRESSED. IN VIEW OF THESE FACTS, ADVERSE INFERENCE CANNOT BE DRAWN IN RESPECT OF TRANSACTIONS WITH ABOVE ENTITY. 7.6 AS REGARDS THE CONTENTION THAT ASSESSEE HAS SHO WN TO HAVE MANUFACTURED AND SOLD CERTAIN MACHINERIES IN QUICK SUCCESSION IN THE MONTH OF APRIL 2005, THE ARGUMENT OF APPELLANT IS THAT IT HAS ALREADY SH OWN OPENING WIP OF RS.1.21 ITA NO. 2358-AHD-09 5 CRORES BESIDES MATERIALS LYING WITH JOB WORKERS AT RS.27.84 LACS. THE APPELLANT HAS ALSO FILED CHART SHOWING VALUATION OF SEMI-FINI SHED GOODS AND MATERIAL LYING WITH JOB WORKER WHICH IS REPRODUCED HEREUNDER :- DETAILS OF SEMI FINISHED GOODS AS ON 31-03-05 96 POSITION BIOCONICAL SALE PRICE 771000 LESS: GP 40% 308000 COST 463000 80% COMPLET 370000 312 POSITION DRAW TEXTURISERS SHREE BHAV POLYKNITS PVT. LTD. 9475000 HINGORA INDUSTRIES LTD. 7500000 HINGORA INDUSTRIES LTD. 7500000 COST 24475000 LESS: GP 40% 9790000 14685000 80% COMPLETE 11748000 MATERIAL LYING WITH JOB WORKER 2783563 ------------ TOTAL 14901563 7.7 THE PERUSAL OF ABOVE CHART CLEARLY INDICATES T HAT WIP OF RS.1.21 CRORES AT THE CLOSE OF IMMEDIATELY PRECEDING YEAR IS ALREADY SHOWN & THE SAME PERTAINS TO MACHINERIES WHICH ARE SOLD IN THE BEGINNING OF T HE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER REJECTED THE ABOVE EXPLANATIO N OF ASSESSEE MERELY ON THE GROUND THAT ASSESSEE HAS NOT GIVEN DETAILS AS TO WH AT MATERIAL / PART / SUB- ASSEMBLIES ARE GROUPED IN WIP AND THAT NO FLOW CHAR T OF MATERIALS HAVE BEEN FILED. IN MY CONSIDERED OPINION, NON-FILING OF FLOW CHART FROM RAW MATERIALS TO FINISHED GOODS CANNOT BE THE GROUND FOR NOT ACCEPTI NG THE SUBMISSION OF ASSESSEE THAT WIP PERTAIN TO MACHINERIES SOLD AT TH E BEGINNING OF THE YEAR. IT IS FURTHER SEEN THAT ASSESSEE HAS ARRIVED AT THE VALUA TION OF WIP BY REDUCING G.P MARGIN FROM THE ESTIMATED SALE PRICE OF MACHINERIES AND THUS, THE SAME COVERS ALL THE ITEMS OF COST INVOLVED IN MANUFACTURING OF MACHINERY. THE PARTNER OF THE FIRM SHRI CHANDRAKANT GONDALIYA IN HIS STATEMENT U/ S 131 OF THE ACT ALSO EXPLAINED THAT MANUFACTURING OF 1 MACHINE TAKES ABO UT 1 MONTH IF NOTHING IS THERE IN THE STOCK. HOWEVER, IT IS AGAIN CLEARLY EX PLAINED BY HIM IN HIS STATEMENT THAT THEY GENERALLY MANUFACTURE STANDARD COMPONENTS AND ALSO KEEP RAW MATERIALS IN STOCK SO THAT MANUFACTURING WORK C AN BE COMPLETED EVEN IN 10 ITA NO. 2358-AHD-09 6 DAYS. I AM OF THE OPINION THAT THIS CONTENTION OF A SSESSEE CANNOT BE DENIED AS IT IS APPARENT ON PERUSAL OF AUDITED ACCOUNTS THAT THE RE IS OPENING STOCK OF RAW MATERIALS OF RS.3.44 CRORES COMPRISING OF RAW MATER IALS, INDIGENOUS PARTS AND SEMI-FINISHED GOODS. IN FACT THE BREAK UP OF OPENIN G STOCK INDICATES THAT THERE IS RAW MATERIAL STOCK OF RS.1.96 CRORES. THE ASSESS ING OFFICER HAS ALSO CONTENDED THAT ASSESSEE SHOWED OPENING WIP AS COMPL ETE TO THE EXTENT OF 80% & THEREFORE, BY IMPLICATION BALANCE 20% WORK WAS CO MPLETED IN 20-25 DAYS IN APRIL 2005 WHICH MEANS PRODUCTION OF MACHINE SHOW R EQUIRE 100 TO 125 DAYS. HOWEVER, WHILE MAKING SUCH A CONTENTION, ASSESSING OFFICER FAILED TO CONSIDER THAT MERELY BECAUSE THESE MACHINES WERE DISPATCHED ON 19 TH / 20 TH / 24 TH APRIL 2005 IT DOES NOT MEAN THAT MANUFACTURING WORK CONTI NUED TILL THIS DATE AS DISPATCH OF MACHINERIES ARE MADE AFTER COMPLETION O F VARIOUS FORMALITIES PERTAINING TO SALES. BESIDES THIS THE DATE OF ACTUA L DISPATCH ALSO DEPENDS UPON URGENCY AT THE END OF .BUYERS & THUS, THE CONTENTIO N OF APPELLANT THAT! THERE IS A TIME LAG BETWEEN THE DATE ON WHICH MANUFACTURING WO RK OF MACHINES ARE COMPLETED & THE DATE OF ACTUAL DISPATCH TO THE BUYE RS CANNOT BE RULED OUT. 7.8 AS STATED ABOVE ASSESSEE HAS SHOWN OPENING STO CK OF RAW MATERIALS OF RS.1.96 CRORES BESIDES WIP STOCK OF RS.1.21 CRORES & THUS, ASSESSING OFFICER ERRED IN MAKING COMPARISON OF SALES MADE IN APRIL 2 005 WITH THE FIGURE OF ONLY PURCHASES MADE IN THE MONTH OF APRIL 2005. THE FIGU RE OF OPENING STOCK IS ALSO REQUIRED TO BE TAKEN INTO CONSIDERATION IF SUCH COM PARISON IS TO BE MADE AND THIS IS SO BECAUSE ASSESSEE IS CARRYING ON ITS MANU FACTURING ACTIVITY ON A GOING CONCERN BASIS. 7.9 THE ASSESSING OFFICER HAS ALSO COMMENTED ON TH E LOW MARGIN OF PROFIT BEING SHOWN BY SISTER CONCERNS AS COMPARED TO THE P ROFIT MARGIN SHOWN BY ASSESSEE. HE HAS ALSO COMMENTED THAT ASSESSEE HAS D ONE VARIOUS TRANSACTIONS WITH SISTER CONCERNS FOR WHICH IT IS ALREADY DISCUS SED ABOVE THAT EVEN ASSESSING OFFICER DOES NOT HAVE ANY MATERIAL ON RECORD WHICH INDICATES THAT ANY DRESSING UP / DIVERSION OF PROFIT IS TAKING PLACE UNDER THE DISGUISE OF THESE TRANSACTIONS. HERE, IT IS SEEN THAT ASSESSEE IS ENGAGED IN MANUFA CTURING OF BIG TEXTILE MACHINERIES AND ITS TURNOVER RUNS INTO CRORES OF RU PEES. AS SUCH MERELY BECAUSE ASSESSEE HAS DONE TRANSACTIONS WITH SISTER CONCERNS EITHER BY WAY OF JOB WORK / PURCHASES ETC. IT DOES NOT STRAIGHT AWAY LEAD TO THE PRESUMPTION THAT TRANSACTIONS ARE FICTITIOUS AND ARRANGED IN SUCH A MANNER THAT RESULTED IN MORE PROFIT TO ASSESSEE. THE QUESTION OF DRAWING ADVERSE INFERENCE COULD ARISE IF THERE ARE GENUINE REASONS BASED ON CONCRETE EVIDENC ES WHICH INDICATE THAT TRANSACTIONS ARE NOT DONE AT THE ARMS LENGTH PRICE. IT IS SEEN THAT SISTER CONCERNS ARE INDEPENDENT ENTITIES AND ALL OF THEM A RE ASSESSED TO TAX. BESIDES THIS THE PARTNER OF THE FIRM IN HIS STATEMENT U/S 1 31 OF THE ACT IN REPLY TO Q- 6 & 15 HAS CLEARLY EXPLAINED THE NATURE OF BUSINESS OF VARIOUS SISTER CONCERNS AND THE TRANSACTIONS OF ASSESSEE WITH SAID CONCERNS. TH E NATURE OF BUSINESS OF SISTER CONCERNS VIZ. M/S ALIDHARA ELECTRONICS, M/S ALIDHAR A WARPTEX ENGINEERS & M/S SAROVAR SPINTEX PVT. LTD. IS ALSO DIFFERENT FRO M THAT OF ASSESSEE AS CAN BE SEEN FROM THE FACT THAT BASICALLY THEY ARE MANUFACT URING / SUPPLYING SOME OF THE ITA NO. 2358-AHD-09 7 PARTS / COMPONENTS WHICH ARE USED IN THE MANUFACTUR ING OF TEXTILE MACHINERY BY ASSESSEE. AS SUCH PROFIT MARGINS OF SAID CONCERNS A RE NOT EVEN COMPARABLE WITH THAT OF ASSESSEE. 7.10 THE ASSESSING OFFICER HAS ALSO COMPARED THE PR OFIT MARGIN OF ASSESSEE WITH OTHER ENTITIES VIZ. M/S HIMSON TEXTILE ENGINEE RING INDUSTRIES PVT. LTD., M/S ALIDHARA MACHINES PVT. LTD. & M/S BHAGAT TEXTILE EN GINEERS PVT. LTD. FOR WHICH I AM OF THE OPINION THAT IF ASSESSING OFFICER WANTS TO PLACE RELIANCE UPON SAID CASES IN THAT CASES, IT IS FIRST OF ALL VERY M UCH IMPERATIVE TO SUPPLY COMPLETE DATA OF COMPARABLE CASES TO ASSESSEE. IN T HIS REGARD, THE OBSERVATION OF HONOURABLE SUPREME COURT IN CASE OF DHAKESWARI C OTTON MILLS LTD. V. CIT - 26ITR 775 IS WORTH CONSIDERING:- 'IN THIS CASE THE TRIBUNAL VIOLATED CERTAIN FUNDAME NTAL RULES OF JUSTICE IN REACHING ITS CONCLUSIONS. FIRSTLY, IT DID NOT DISCL OSE TO THE ASSESSEE WHAT INFORMATION HAD BEEN SUPPLIED TO IT BY THE DEPARTME NTAL REPRESENTATIVE. NEXT, IT DID NOT GIVE ANY OPPORTUNITY TO THE COMPANY TO R EBUT THE MATERIAL FURNISHED TO IT BY HIM, AND LASTLY, IT DECLINED TO TAKE ALL THE MATERIAL THAT THE ASSESSEE WANTED TO PRODUCE IN SUPPORT TO ITS CASE. THE RESULT IS TH AT THE ASSESSEE HAD NOT HAD A FAIR HEARING. THE ESTIMATE OF THE GROSS RATE OF PRO FIT ON SALES, BOTH BY THE ITO AND THE TRIBUNAL, SEEMS TO BE BASED ON SURMISES, SU SPICIONS AND CONJECTURES. IT IS SOMEWHAT SURPRISING THAT THE TRIBUNAL TOOK FROM THE REPRESENTATIVE OF THE DEPARTMENT A STATEMENT OF GROSS PROFIT RATES OF OTH ER COTTON MILLS WITHOUT SHOWING THAT STATEMENT TO THE ASSESSEE AND WITHOUT GIVING HIM AN OPPORTUNITY TO SHOW THAT THAT STATEMENT HAD NO RELEVANCE WHATSOEVE R TO THE CASE OF THE MILL IN QUESTION. IT IS NOT KNOWN WHETHER THE MILLS WHICH H AD DISCLOSED THESE RATES WERE SITUATE IN BENGAL OR ELSEWHERE, AND WHETHER THIS MI LLS WERE SIMILARLY SITUATED AND CIRCUMSTANCED. NOT ONLY DID THE TRIBUNAL NOT SH OW THE INFORMATION GIVEN BY THE REPRESENTATIVE OF THE DEPARTMENT TO THE APPE LLANT, BUT IT REFUSED EVEN TO LOOK AT THE TRUNK LOAD OF BOOKS AND PAPERS WHICH AS SESSEE PRODUCED BEFORE THE ACCOUNTANT MEMBER IN HIS CHAMBER. NO HARM WOULD HAV E BEEN DONE IF AFTER NOTICE TO THE DEPARTMENT THE TRUNK HAD BEEN OPENED AND SOME TIME DEVOTED TO SEE WHAT IT CONTAINED. THE ASSESSMENT IN THIS CASE AND IN THE CONNECTED APPEAL, WE ARE TOLD, WAS ABOVE THE FIGURE OF RS. 55 LAKHS A ND IT WAS MEET AND PROPER WHEN DEALING WITH A MATTER OF THIS MAGNITUDE NOT TO EMPLOY UNNECESSARY HASTE AND SHOW IMPATIENCE, PARTICULARLY WHEN IT WAS KNOWN TO THE DEPARTMENT THAT THE BOOKS OF THE ASSESSEE WERE IN THE CUSTODY OF TH E SUB-DIVISIONAL OFFICER. BOTH THE ITO AND THE TRIBUNAL IN ESTIMATING THE GRO SS PROFIT RATE ON SALES DID NOT ACT ON ANY MATERIAL BUT ACTED ON PURE GUESS AND SUSPICION.' 7.11 BESIDES THIS ON PERUSAL OF ABOVE DECISION, IT IS CLEAR THAT ASSESSMENT CANNOT BE MADE MERELY ON THE BASIS OF PRESUMPTION A ND THAT THERE HAS TO BE SOME EVIDENCE OR MATERIAL. THE OBSERVATIONS OF HONO URABLE SUPREME COURT IN THIS REGARD IS REPRODUCED HEREUNDER:- 'THOUGH IT IS AGREEABLE THAT THE ITO IS NOT FETTERE D BY TECHNICAL RULES OF EVIDENCE AND PLEADINGS, AND THAT HE IS ENTITLED TO ACT ON MATERIAL WHICH ITA NO. 2358-AHD-09 8 MAY NOT BE ACCEPTED AS EVIDENCE IN A COURT OF LAW, BUT THERE THE AGREEMENT ENDS; BECAUSE IT IS EQUALLY CLEAR THAT IN MAKING THE ASSESSMENT UNDER SUB-S. (3) OF S. 23, THE ITO IS NO T ENTITLED TO MAKE A PURE GUESS AND MAKE AN ASSESSMENT WITHOUT REFERENCE TO ANY EVIDENCE OR ANY MATERIAL AT ALL. THERE MUST BE SOMETHING MOR E THAN BARE SUSPICION TO SUPPORT THE ASSESSMENT UNDER S. 23(3). ' 7.12 IN THE INSTANT CASE, ASSESSING OFFICER HAS NOT SUPPLIED COMPLETE DATA OF ABOVE UNITS AND AS SUCH PRIMA FACIE RELIANCE CANNOT BE PLACED ON THE SAME FOR MAKING ANY ADDITION. EVEN OTHERWISE ALSO IT IS SEEN THAT THERE IS SIGNIFICANT VARIATION IN PROFIT MARGIN OF ALLEGED COMPARABLE CA SES WHICH CLEARLY INDICATES THAT NO STANDARD PROFIT MARGIN IN THIS LINE OF ACTI VITY CAN BE LAID DOWN. AS REGARDS PROFITABILITY OF M/S ALIDHARA TEXTOOL ENGIN EERING PVT. LTD. THE APPELLANT HAS CONTENDED THAT THERE IS DIFFERENCE IN THE NATURE OF MACHINERIES MANUFACTURED BY SAID ENTITY & THAT MANUFACTURED BY ASSESSEE. IT IS ALSO SEEN THAT SHRI CHANDRAKANTBHAI GONDALIYA IN HIS STATEMEN T U/S 131 OF THE ACT STATED IN REPLY TO Q-10 THAT M/S ALIDHARA TEXTOOL ENGINEER S PVT. LTD. IS MANUFACTURING TEXTURISING MACHINERIES WHICH HAS SHA FT RUNNING AT THE SPEED OF 11000 RPM WHEREAS ASSESSEE IS MANUFACTURING TEXTURI SING MACHINERIES WHICH RUN AT THE SPEED OF 12000 RPM & IN REPLY TO Q-11 HE ALSO EXPLAINED THE NATURE OF CHANGE IN DESIGN WHICH IS REQUIRED TO BE CARRIED OUT TO MAKE SHAFT RUNNING AT 11000 RPM & 12000 RPM. BESIDES THIS THERE IS ALS O A DIFFERENCE IN MODEL AND OTHER FEATURES FOR WHICH BROCHURES OF MACHINERI ES MANUFACTURED BY ASSESSEE AND ABOVE ENTITY WERE ALSO FILED IN THE CO URSE OF ASSESSMENT PROCEEDINGS. ON THE OTHER HAND, IT IS SEEN THAT ASS ESSEE HAS CONSISTENTLY REPORTED G.P MARGIN OF AROUND 40% IN THE EARLIER AS WELL AS SUBSEQUENT YEARS. 7.13 DETAILS RELATING TO G.P MARGINS, TURNOVER, ADV ANCE TAX ETC. FOR VARIOUS YEARS ARE AS UNDER:- ASST. YEAR TURNOVER (RS.) G.P % 80IB EXEMPTION ADVANCE TAX (RS.) 2004-05 54.82 100% NIL 2005-06 130959570 40.07 100% NIL 2006-07 511151292 39.82 100% NIL 2007-08 445054977 37.22 100% NIL 2008 - 09 734005070 39.90 100% NIL 2009-10 972155884 (PROV. FIGURE) 36.57 25% 8.70 CRORES 7.14 IT CAN BE SEEN FROM THE ABOVE CHART THAT ASSES SEE HAS BEEN CONSISTENTLY SHOWING G.P MARGIN OF AROUND 40%. IT IS ALSO RELEVA NT TO MENTION HERE THAT ASSESSMENTS OF EARLIER YEARS ARE ALSO COMPLETED UND ER SCRUTINY & THUS, THE G.P RATE IN PRECEDING YEARS WHICH WERE EVEN HIGHER THAN THE YEAR UNDER CONSIDERATION HAS BEEN ACCEPTED IN SCRUTINY ASSESSM ENTS MADE IN EARLIER YEARS. ITA NO. 2358-AHD-09 9 ALTHOUGH IT IS TRUE THAT PRINCIPLE OF RES-JUDICATA DOES NOT APPLY TO INCOME TAX PROCEEDINGS YET A DIFFERENT VIEW CAN BE TAKEN ONLY IF THERE ARE SIGNIFICANT EVIDENCES WHICH INDICATES THAT WHATEVER IS APPARENT IS NOT REAL. IN THE INSTANT CASE, THE ASSESSING OFFICER HAS EXPRESSED DOUBTS RE LATING TO THE PROFIT MARGIN SHOWN BY ASSESSEE ON THE PRETEXT THAT ASSESSEE HAS DONE VARIOUS TRANSACTIONS WITH SISTER CONCERN AND THE RECORD MAINTENANCE BY A SSESSEE IS VERY MUCH POOR. HOWEVER, IT IS ALREADY DISCUSSED IN DETAIL EARLIER & IS I ALSO VERY MUCH CLEAR ON PERUSAL OF OBSERVATIONS OF HONOURABLE SUPREME COURT IN TTHE DECISION CITED SUPRA THAT IN ABSENCE OF ANY CONCRETE MATERIALS ADD ITION CANNOT! BE MADE ON THE BASIS OF PRESUMPTION. THE ASSESSING OFFICER HAS MADE THE ADDITION BY ESTIMATING THE G.P RATIO AT 30% AS AGAINST G.P OF R S.20,35,17,154/- SHOWN BY ASSESSEE AT THE RATE OF 39.82% BY INVOKING PROVISIO NS OF SECTION 80IB(13) R. W. S 80IA(10) WHICH READS AS UNDER: 'WHERE IT APPEARS TO THE ASSESSING OFFICER THAT, OW ING TO THE CLOSE CONNECTION BETWEEN THE ASSESSEE CARRYING ON THE ELIGIBLE BUSIN ESS TO WHICH THIS SECTION APPLIES AND ANY OTHER PERSON, OR FOR ANY OTHER REAS ON, THE COURSE OF BUSINESS BETWEEN THEM IS SO ARRANGED THAT THE BUSINESS TRANS ACTED BETWEEN THEM PRODUCES TO THE ASSESSEE MORE THAN THE ORDINARY PRO FITS WHICH MIGHT BE EXPECTED TO ARISE IN SUCH ELIGIBLE BUSINESS, THE AS SESSING OFFICER SHALL, IN COMPUTING THE PROFIT AND GAINS OF SUCH ELIGIBLE BUS INESS FOR THE PURPOSES OF THE DEDUCTION UNDER THIS SECTION, TAKE THE AMOUNT OF PR OFITS AS MAY BE REASONABLY DEEMED TO HAVE BEEN DERIVED THEREFROM. 7.14 CAREFUL ANALYSIS OF ABOVE PROVISIONS OF SECTIO N 80IA(10) CLEARLY INDICATES THAT IF THE ASSESSEE HAS CLAIMED INFLATED PROFIT IN THAT CASE IT NATURALLY FOLLOWS THAT THE OTHER ENTITY HAS CLAIMED INFLATED EXPENDITURE. HENCE, THERE SHOULD BE ATLEAST SOME MATERIAL WHICH PROVES THE AB OVE FACT & MERELY BECAUSE THERE IS CLOSE CONNECTION BETWEEN ASSESSEE WITH OTH ER ENTITY ON THE GROUND THAT THEY ARE SISTER CONCERNS, IT DOES NOT IPSO FACTO LE AD TO THE CONCLUSION THAT PROFITS HAVE BEEN INFLATED BY ASSESSEE. IT HAS TO B E PROVED BEYOND ANY DOUBT THAT SUCH TRANSACTIONS HAS RESULTED INTO MORE THAN ORDINARY PROFIT TO ASSESSEE. HOWEVER, AFTER CAREFULLY CONSIDERING THE FACTS OF T HE CASE AND MATERIALS ON RECORD, I AM OF THE CONSIDERED OPINION THAT THERE I S NO COGENT EVIDENCE WHICH INDICATES THAT ASSESSEE HAS INFLATED PROFIT BY ARRA NGING TRANSACTIONS WITH GROUP CONCERNS IN SUCH A MANNER WHICH RESULTS IN HIGHER P ROFIT TO ASSESSEE. IN FACT NOTHING HAS BEEN BROUGHT ON RECORD THAT TRANSACTION S DONE WITH VARIOUS SISTER CONCERNS ARE NOT AT ARMS LENGTH PRICE WHICH RESULTE D IN MORE PROFIT TO ASSESSEE. THE FACT THAT THERE IS NO MATERIAL ON RECORD IS FUR THER CLEAR FROM THE MANNER IN WHICH ESTIMATION OF G.P HAS BEEN MADE. THE ASSESSIN G OFFICER ESTIMATED G.P RATIO OF ASSESSEE OF ENTIRE BUSINESS AT 30% AS AGAI NST G.P RATIO OF AROUND 40% SHOWN BY ASSESSEE AND NO SUPPORTING EVIDENCE IN RES PECT OF SUCH ESTIMATION HAS BEEN BROUGHT ON RECORD. IN OTHER WORDS, THERE I S NO MATERIAL ON RECORD WHICH INDICATES THAT BECAUSE OF TRANSACTIONS WITH S ISTER CONCERNS THE OVERALL G.P RATIO (FOR ENTIRE BUSINESS) OF ASSESSEE IS HIGH ER BY 10%. THEREFORE, IN MY VIEW IT CANNOT BE HELD THAT ASSESSEE HAS ARRANGED T RANSACTIONS WITH SISTER ITA NO. 2358-AHD-09 10 CONCERNS / GROUP CONCERNS IN SUCH A MANNER WHICH RE SULTED IN HIGHER PROFITS TO ASSESSEE. 7.15 IT IS ALREADY DISCUSSED IN DETAIL AS ABOVE THA T ASSESSEE HAS MAINTAINED COMPLETE STOCK DETAILS AS PER EXCISE RULES AND PURC HASE OF EXCISABLE GOODS CONSTITUTE MAJORITY OF PURCHASES. HOWEVER, IT IS TH E CONTENTION OF ASSESSING OFFICER THAT ASSESSEE DOES NOT MAINTAIN STAGE WISE DETAILS OF MANUFACTURING ACTIVITY. EVEN IF FOR THE MOMENT IT IS ASSUMED THAT THERE ARE CERTAIN DEFECTS IN THE MAINTENANCE OF RECORD YET THERE IS NO SUPPORTIN G EVIDENCE WHICH INDICATE THAT PROFIT HAS BEEN INFLATED. IN THIS REGARD, THE OBSERVATIONS OF VARIOUS HIGH COURTS AS REGARDS MAINTENANCE / NON-MAINTENANCE OF STOCK RECORDS AND WHETHER BOOK RESULTS CAN BE REGARDED AS DEFECTIVE O N THIS GROUND ARE REPRODUCED HEREAFTER:- - MALINI RAMJIVAN JAGANNATH V. ACIT - 207 CTR 19 (RAJ ): IN THIS CASE THE OBSERVATIONS OF HONOURABLE COURT A RE AS UNDER:- THE GP IS PRIMARILY RESULT OF EXCESS OF SALES OVER PURCHASES, OPENING STOCK, CLOSING STOCK, THE UNSOLD STOCK AT TWO TERMINALS IS ONLY BALANCING FACTOR. ADMITTEDLY OUT OF THIS FOUR COMPONENTS OF TRADING R ESULT, THERE COULD NOT HAVE BEEN ANY GROUND FOR THE REVENUE TO ARRIVE AT DIFFER ENT RESULT. SO FAR AS CLOSING STOCK IS CONCERNED, INVENTORIES OF EXISTING STOCK W ERE NOT FOUND TO INCORRECT BY THE AO I.E. THAT POSITION OF STOCK AS SHOWN IN THE ACCOUNT BOOKS WAS NOT BE INCORRECT. THERE BEING NO DISPUTE ABOUT THE SALES A ND PURCHASES, NON- MAINTENANCE OF STOCK REGISTER LOST ITS SIGNIFICANCE SO FAR AS ARRIVING AT GP IS CONCERNED. THEREFORE, THE CIT(A) WAS RIGHT IN HIS R EASONING ABOUT ADMITTED STATE OF AFFAIRS. RESORTING TO ESTIMATE OF GP RATE WAS FOUNDED ON NO MATERIAL. IT 'WAS MERELY A CASE OF MAKING CERTAIN ADDITIONS ON T HE BASIS OF CERTAIN DEFECTS POINTED OUT BY THE AO AND WHICH HE HAS SHOWN IN DIF FERENT ACCOUNT BY GIVING MARGIN OF UNVOUCHED EXPENSES.' - ASHOKE REFRACTORIES (P) LTD. V CIT - 279 ITR 457 (CAL): IN THIS CASE THE OBSERVATIONS OF HONOURABLE COURT A RE AS UNDER:- 'ABSENCE OF STOCK REGISTERIN ORDER TO REJECT THE B OOKS OF ACCOUNT, THE AO HAS TO COME TO AN OPINION THAT THE METHOD APPLIED IS SU CH THAT THE INCOME CANNOT PROPERLY BE DEDUCED FROM THE ACCOUNTS SO MAINTAINED IN THE INSTANT CASE IT IS NOT HELD EITHER BY THE AO OR BY THE TRIBUNAL THAT T HE ACCOUNTS MAINTAINED BY THE ASSESSEE WERE NOT CORRECT OR COMPLETE OR THAT I NCOME COULD NOT BE DEDUCED FROM THE BOOKS OF ACCOUNTASSESSEE REGULARLY SUBMIT TED MONTHLY RETURNS TO THE EXCISE AUTHORITY GIVING FULL DESCRIPTION OF GOO DS ON THE BASIS OF BOOKS OF ACCOUNT AND THE SAME WERE VERIFIEDTHERE IS NO ALLE GATION THAT EXCISE DUTY WAS AVOIDEDTHEREFORE, BOOKS OF ACCOUNT COULD NOT B E REJECTED MERELY FOR WANT OF STOCK REGISTER OR FOR FAILURE TO MAINTAIN I TEM-WISE STOCK IN THE STOCK ITA NO. 2358-AHD-09 11 REGISTER WHEN THERE ARE OTHER MATERIALS AVAILABLE F ROM WHICH INCOME COULD BE DEDUCED.' 'RETURNS WERE SUBMITTED TO THE EXCISE AUTHORITY GIV ING FULL DESCRIPTION OF THE] GOODS AND THESE WERE MAINTAINED ON THE BASIS OF THE BOOKS OF ACCOUNT AND WERE VERIFIED. THERE IS NO ALLEGATION THAT EXCISE DUTY W AS AVOIDED. THEREFORE, FROM THESE MATERIALS THE INCOME COULD BE DEDUCED HAVING REGARD TO THE ACCOUNTS REFLECTED IN THE BOOKS OF ACCOUNT. ONLY ON THE GROU ND OF ABSENCE OF THE STOCK REGISTER SO FAR AS THE ASST. YR. 1990-91 IS CONCERN ED, IT CANNOT BE HELD THAT THE ACCOUNTS MAINTAINED ARE SUCH THAT THE INCOME COULD NOT BE DEDUCED, AND THEREFORE, THE BOOKS OF ACCOUNT COULD NOT BE REJECT ED. SO FAR AS THE ASST. YR. 1991-92 IS CONCERNED, IT APPEARS FROM THE ASSESSMEN T ORDER ITSELF THAT THE BOOKS OF ACCOUNT, STOCK BOOK OF RAW MATERIALS AND F INISHED GOODS WERE PRODUCED AND WERE SCRUTINIZED. THERE IS NO FINDING THAT IN THE OPINION OF THE AO, THE METHODS APPLIED WERE SUCH THAT THE INCOME C OULD NOT BE DEDUCED FROM THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE OR THAT THE ACCOUNTS WERE NOT CORRECT OR COMPLETE. WITHOUT A FINDING OR FORMING A N OPINION TO THE EXTENT INDICATED IN EXPRESSED TERMS IN THE SECTION ITSELF, THE BOOKS OF ACCOUNT CANNOT BE REJECTED MERELY IN THE ABSENCE OF STOCK REGISTER OR FAILURE TO MAINTAIN ITEM- WISE STOCK IN THE STOCK REGISTER WHEN THERE WERE OT HER MATERIALS AVAILABLE FROM WHICH INCOME COULD BE DEDUCED. IN A CASE WHERE BOOK S OF ACCOUNTS ARE SO REJECTED WITHOUT THE INGREDIENTS OF S. 145 BEING FU LFILLED, SUCH REJECTION IS PERVERSE AND VOID.' - S. VEERIAH REDDIAR V. CIT-38ITR 152 (KER): IN THIS CASE THE OBSERVATIONS OF HONOURABLE COURT A RE AS UNDER:- COMING TO THE ABSENCE OF A STOCK REGISTER IT HAS TO BE POINTED OUT THAT THIS IS NOT A CASE IN WHICH THE CLOSING STOCK COULD NOT HAV E BEEN ASCERTAINED AT ALL. THERE WAS AN INVENTORY SHOWING THE QUANTITIES OF TH E CLOSING STOCK IN THE HEAD OFFICE AND THE VARIOUS BRANCHES AND ALSO THEIR VALU E. THE CORRECTNESS OR OTHERWISE OF THE INVENTORY COULD EASILY HAVE BEEN A SCERTAINED BY CHECKING IT WITH THE OPENING STOCK, THE PURCHASES, AND THE SALE S, NONE OF WHICH IS NOW QUESTIONED BY THE DEPARTMENT. WHEN THE OPENING STOC K, PURCHASES AND SALES ARE NOT QUESTIONED, IF THERE IS MATERIAL TO SHOW TH E QUANTITY AND VALUE OF THE CLOSING STOCK, THE PROFITS OR LOSS CAN EASILY BE AS CERTAINED, AND SO, THE ABSENCE OF A REGULAR STOCK REGISTER OR A STOCK REGISTER KEP T ACCORDING TO THE GOVERNMENT NOTIFICATION UNDER THE TEXTILE CONTROL REGULATIONS WOULD NOT BE SUFFICIENT GROUND TO REJECT THE ASSESSEE'S METHOD OF ACCOUNTIN G IN SUCH A CASE.' 'HAVING REGARDS TO THE CIRCUMSTANCES OF THE PRESENT CASE NEITHER OF THE REASONS ASSIGNED BY THE IT AUTHORITIES & THE APPELLATE TRIB UNAL, NAMELY, LOW PROFITS AND THE ABSENCE OF VARIETY-WISE OR REGULAR STOCK RE GISTER, WAS MATERIAL ON THE STRENGTH OF WHICH A FINDING UNDER THE PROVISO TO S. 13 COULD BE BASED AND AN ASSESSMENT THEREUNDER COULD BE MADE.' ITA NO. 2358-AHD-09 12 7.16 THE PERUSAL OF ABOVE JUDICIAL PRONOUNCEMENTS C LEARLY INDICATES THAT BOOKS OF ACCOUNTS IN THE INSTANT CASE CANNOT BE REG ARDED AS DEFECTIVE AS ASSESSEE HAS MAINTAINED COMPLETE RECORDS AS PER EXC ISE LAW AND COMPLETE QUANTITY DETAILS RELATING TO EXCISABLE AS WELL AS N ON-EXCISABLE GOODS ARE GIVEN IN TAX AUDIT REPORT. FURTHER, ASSESSEE HAS GIVEN CO MPLETE DETAILS RELATING TO OPENING STOCK, PURCHASES & CLOSING STOCK. RATIO LAI D DOWN IN ABOVE DECISIONS OF VARIOUS HIGH COURTS IS THUS, FULLY APPLICABLE TO THE INSTANT CASE. 7.17 FURTHER, THERE DOES NOT SEEM TO BE ANY JUSTIFI CATION IN ESTIMATION OF PROFIT BY INVOKING ABOVE PROVISIONS OF 80IA(10) ON THE GROUND THAT BOOK RESULTS OF ASSESSEE ARE NOT RELIABLE AS RECORD MAINTENANCE BY ASSESSEE IS VERY MUCH POOR. REJECTION OF BOOK RESULTS BECAUSE OF DEFECTS IN BOOKS OF ACCOUNTS AND THE ADDITION BY INVOKING PROVISIONS OF SECTION 80IA(10) ARE TWO SEPARATE THINGS. IN MY OPINION THE PROVISIONS OF SECTION 80IA(10) CAN B E INVOKED ONLY IF THERE ARE DEFINITE EVIDENCES WHICH INDICATES THAT TRANSACTION S DONE WITH GROUP CONCERNS ARE NOT AT ARMS LENGTH PRICE. FOR THAT PURPOSE COMP ARISON OF PROFITABILITY OF OTHER UNITS CANNOT BE REGARDED AS VALID BASIS FOR C OMING TO THE CONCLUSION THAT SINCE ASSESSEE HAS REPORTED HIGHER PROFITS AS COMPA RED TO ITS COMPETITORS THE PROVISIONS OF SECTION 80IA(10) ARE ATTRACTED. PROFI TABILITY OF VARIOUS UNITS DEPENDS UPON SEVERAL FACTORS WHICH SELDOM REMAIN CO MMON VIS-A-VIS DIFFERENT ENTITIES. AFTER GOING THROUGH THE ENTIRE FACTS & CI RCUMSTANCES OF THE CASE, I AM OF THE CONSIDERED OPINION THAT THERE IS NO COGENT B ASIS FOR CURTAILING DEDUCTION U/S 80IB BY INVOKING PROVISIONS OF SECTION 80IA(10) OF THE ACT & THERE IS NO JUSTIFICATION IN ESTIMATING G.P AT 30%. ACCORDINGLY , ADDITION MADE BY ASSESSING OFFICER IS HEREBY DELETED. 4. AGGRIEVED WITH THE ORDER OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 5. AT THE TIME OF HEARING BEFORE US, SHRI SAMIR TEK RIWAL, SR.D.R., APPEARED ON BEHALF OF THE REVENUE AND TOOK US THROUGH THE VARIO US REASONS RECORDED BY THE AO WHICH CLEARLY INDICATE THAT THE ASSESSEE HAS SHOWN THE EXTRA-ORDINARY PROFIT, AS ENTIRE PROFIT FOR THE YEAR UNDER CONSIDERATION IS EXEMPT F ROM TAX UNDER SECTION 80IB OF THE I.T. ACT, 1961. FROM THE TAX AUDIT REPORT, IT IS CL EAR THAT THE ASSESSEE HAS NOT FURNISHED THE COMPLETE QUANTITATIVE DETAILS, AS PER PARA 28(B ) IN RESPECT OF RAW MATERIALS, FINISHED GOODS AND BY-PRODUCT. THEREFORE, NO QUANTI TATIVE VERIFICATION COULD BE MADE. THE INFORMATION SUBMITTED BY THE ASSESSEE IN SEPARA TE ANNEXURE B WAS AS QUALIFIED AS CERTIFIED BY THE PARTNERS. FOR THIS REASON, VI DE LETTER DATED 01.09.2008, THE AO ASKED THE ASSESSEE TO GIVE DETAILS OF EACH STAGE OF MANUFACTURING AND PROCESS INVOLVED IN THE MANUFACTURING OF PRODUCT. THE ASSESSEE HAS N OT FURNISHED THE COMPLETE DETAILS. ITA NO. 2358-AHD-09 13 IN THE STATEMENT DATED 10.12.2008, SHRI CHANDRAKANT GONDALIA ADMITTED THAT NO STOCK REGISTERS ARE MAINTAINED. AS PER ANSWER TO QUESTIO N NO.13, HE STATED THAT THEY ARE HAVING BIN CARD SYSTEM, THAT IS KEPT ONLY IN RESPEC T OF RAW MATERIALS AND DESTROYED LATER ON, AFTER TALLYING THE MATERIALS USED/ISSUED. HE FURTHER ADMITTED THAT NO RECORD OF ITEM MANUFACTURED IN THE WORKSHOP IS MAIN TAINED. ON THE BASIS OF THESE DISCREPANCIES, HE POINTED OUT THAT BOOKS OF ACCOUNTS OF THE ASSESSEE ARE NOT RELIABLE. IN THE IMPUGNED ORDER, T HE LD. CIT(A) OBSERVED THAT THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE ARE NO T RELIABLE. THE ASSESSEE ENGAGED IN THE IDENTICAL BUSINESS HAS SHOWN GROSS PROFIT PERCE NTAGE BETWEEN 20 TO 25% WHEREAS THE ASSESSEE HAS SHOWN THE SAME AT 40% ONLY BECAUSE ITS ENTIRE PROFIT IS EXEMPT FROM TAX @100%. ON THESE FACTS, THE AO RIGHTLY HELD THAT THE ASSESSEE IS SHOWING EXCESSIVE PROFIT, IT IS ALSO HAVING TRANSACTION WITH SISTER C ONCERN FOR WHICH THE ASSESSEE FAILED TO PROVIDE SUFFICIENT MATERIALS DESCRIPTION (LEAVE ALO NE JUSTIFICATION). THE RECORDS MAINTAINED BY THE ASSESSEE ARE NOT SHOWING THE ACTU AL STATE OF AFFAIRS. THEREFORE, THE AO RIGHTLY ESTIMATED THAT THE PROFIT, WHICH CAN BE REASONABLY DERIVED FROM ELIGIBLE BUSINESS, CANNOT HAVE 30% G.P. THE PROFIT SHOWN BY THE ASSESSEE IS 113% OF HIS OWN GROUP CONCERN DOING SAME BUSINESS I.E. M/S.ALIDHARA TEXTOOL ENGINEERS PVT. LTD. IN THESE CIRCUMSTANCES, THE AO WAS LEGALLY AND FACTUAL LY CORRECT IN CALCULATING THE G.P. AT RS.15,33,39,417/- AS AGAINST G.P. OF RS.20,35,1 7,154/- DECLARED BY THE ASSESSEE. THE AO ACCORDINGLY RESTRICTED THE DEDUCTION UNDER S ECTION 80IB OF THE I.T. ACT, 1961 TO RS.15,33,57,689/-. 5.1 FOR JUSTIFYING REJECTION OF BOOKS OF ACCOUNTS B Y THE AO, THE LD. D.R. RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF S.N.NAMASIVAYAM CHETTIAR VS- CIT REPORTED IN 38 ITR 579 (SC) WHEREIN IT WAS HELD THAT KEEPING OF STOCK REGISTER IS IMPORTANT. THE NON-MAINTENANCE OF STOCK REGISTER CAN JUSTIFY REJECTION OF BOOKS OF ACCOUNTS. 5.2 RELIANCE WAS ALSO PLACED ON THE JUDGEMENT OF HO NBLE SUPREME COURT IN THE CASE OF CIT-VS- MCMILLAN & CO. REPORTED IN 33 ITR 1 82 (SC) WHEREIN IT WAS HELD THAT PROVISO TO SECTION 13 IMPOSE A STATUTORY DUTY ON TH E AO TO EXAMINE IN EACH AND EVERY CASE THE METHOD OF ACCOUNTING AND TO SEE (I) WHETHE R OR NOT IT IS REGULARLY EMPLOYED ITA NO. 2358-AHD-09 14 AND (II) TO DETERMINE WHETHER THE INCOME, PROFITS A ND GAINS CAN PROPERLY BE DEDUCED THEREFROM. 5.3 IN THE PRESENT CASE, THE AO RIGHTLY REJECTED TH E BOOKS OF ACCOUNTS AND ESTIMATED THE CORRECT AMOUNT OF ELIGIBLE PROFIT WHICH CAN BE CLAIMED EXEMPT UNDER SECTION 80IB OF THE I.T. ACT, 1961. 5.4 THE LD. D.R. ALSO RELIED ON THE LATEST DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT & ANR. VS- GLAXO SMITHKLINE ASIA ( P) LTD. REPORTED IN [2010] 195 TAXMAN 35 WHEREIN IN PARA 4, THE HONBLE SUPREME CO URT HELD AS UNDER: 4. IN ORDER TO REDUCE LITIGATION, WE ARE OF THE VIE W THAT CERTAIN PROVISIONS OF THE ACT, LIKE S. 40A(2) AND S. 80-IA(10), NEED TO B E AMENDED EMPOWERING THE AO TO MAKE ADJUSTMENTS TO THE INCOME DECLARED BY TH E ASSESSEE HAVING REGARD TO THE FAIR MARKET VALUE OF THE TRANSACTIONS BETWEE N THE RELATED PARTIES. THE AO MAY THEREAFTER APPLY ANY OF THE GENERALLY ACCEPTED METHODS OF DETERMINATION OF ARM'S LENGTH PRICE, INCLUDING THE METHODS PROVIDED UNDER TRANSFER PRICING REGULATIONS. HOWEVER, IN NUMBER OF MATTERS, WE FIND THAT, MANY A TIMES, THE AO IS CONSTRAINED BY NON-MAINTENANCE OF RELEVANT DO CUMENTS BY THE TAXPAYERS AS, CURRENTLY, THERE IS NO SPECIFIC REQUIREMENT FOR MAINTENANCE OF DOCUMENTS OR GETTING SPECIFIC TRANSFER PRICING AUDIT DONE BY THE TAXPAYERS IN RESPECT OF DOMESTIC TRANSACTIONS BETWEEN THE RELATED PARTIES. ONE OF THE SUGGESTIONS WHICH NEEDS CONSIDERATION IS WHETHER THE LAW SHOULD BE AMENDED TO MAKE IT COMPULSORY FOR THE TAXPAYER TO MAINTAIN BOOKS OF AC COUNTS AND OTHER DOCUMENTS ON THE LINES PRESCRIBED UNDER R. 10D OF T HE IT RULES IN RESPECT OF SUCH DOMESTIC TRANSACTIONS AND WHETHER THE TAXPAYER SHOULD OBTAIN AN AUDIT REPORT FROM HIS CHARTERED ACCOUNTANT SO THAT THE TA XPAYER MAINTAINS PROPER DOCUMENTS AND REQUISITE BOOKS OF ACCOUNTS REFLECTIN G THE TRANSACTIONS BETWEEN RELATED ENTITIES AS AT ARM'S LENGTH PRICE BASED ON GENERALLY ACCEPTED METHODS SPECIFIED UNDER THE TRANSFER PRICING REGULATIONS? 5.5 RELYING ON THE AFORESAID OBSERVATION OF THE HON BLE SUPREME COURT, THE LD. D.R. POINTED OUT THAT THE AUDIT REPORT UNDER SECTIO N 80IB IN THE FORM OF 10CCB, AGAINST COLUMN NO.20, THE AUDITORS HAVE REPORTED TH E TRANSACTIONS WITH THE RELATED CONCERN WITHIN THE MEANING OF SECTION 40A(2)(B). TH ESE TRANSACTIONS ARE REPORTED IN THE SAID AUDIT REPORT. FROM THIS TRANSACTION ALSO, IT CAN BE SEEN THAT THE ASSESSEE IN ORDER TO INFLATE THE PROFIT, UNDER-INVOICED THE TRA NSACTION WITH THE RELATED PARTIES. ITA NO. 2358-AHD-09 15 5.6 FINALLY, THE LD. D.R. SUMMARIZED HIS VARIOUS CO NTENTIONS AND POINTED OUT THAT THE LD. CIT(A), IN THE IMPUGNED ORDER, ALLOWED RELI EF TO THE ASSESSEE (I) WITHOUT CONSIDERING THE FACT THAT THE ASSESSEE HAS SHOWN EX TRA-ORDINARY PROFIT ONLY IN ORDER TO CLAIM BENEFIT OF INCOME EXEMPT FROM TAX UNDER SECTI ON 80IB(10), (II) WITHOUT CONSIDERING THE FACT THAT THE ASSESSEE ENGAGED IN I DENTICAL BUSINESS HAD SHOWN PROFIT PERCENTAGE BETWEEN 20 TO 25% WHEREIN THE ASSESSEE H AS SHOWN THE SAME AT 40% AND (III) WITHOUT CONSIDERING THE FACT THAT MAJORITY OF SALES WERE MADE TO THE ASSOCIATE CONCERN. THEREFORE, PROVISIONS OF SECTION 80IA(10) WERE RIGHTLY INVOKED BY THE AO. 6. ON THE OTHER HAND, SHRI RASESH SHAH, A.R., APPEA RING ON BEHALF OF THE ASSESSEE, VEHEMENTLY SUPPORTED THE ORDER OF THE LD. CIT(A). H E POINTED OUT THAT IN THE IMPUGNED ORDER, THE LD. CIT(A) HAS DEALT WITH EACH AND EVERY CONTENTION OF THE LD. D.R., SUBMISSIONS MADE BY THE ASSESSEE AND THEN CAME TO T HE CONCLUSION THAT PROFIT DECLARED BY THE ASSESSEE IN THE ASSESSMENT YEAR UNDER APPEAL IS FAIR AND REASONABLE, LOOKING TO THE FACTS THAT IN THE ASSESSMENT YEAR UNDER APPEAL, THE G.P. DECLARED IS 39.82%. IN THE ASSESSMENT EYAR 2004-05, IT WAS 54.82%, WHICH HAS B EEN ACCEPTED BY THE AO. HE FURTHER POINTED OUT THAT IN THE ASSESSMENT YEAR 200 9-2010, THE DEDUCTION UNDER SECTION 80IB(10) IS ELIGIBLE TO THE EXTENT OF 25% OF PROFIT AND THE ASSESSEE IN THAT YEAR HAS ALSO DECLARED G.P. AT 36.57%. ALL THESE FIGURES CLEARLY INDICATE THAT G.P. OF 39.82%, DECLARED BY THE ASSESSEE IS FAIR AND REASONABLE. 6.1 WITH REGARD TO TRANSACTION WITH RELATED PARTIES , THE COUNSEL OF THE ASSESSEE PRODUCED THE TAX AUDIT REPORT UNDER SECTION 80IB I N FORM NO.10CCB, FILED WITH THE RETURN OF INCOME. HE POINTED OUT THAT THE CASE OF M /S. ALIDHARA TEXTOOLS ENGINEERS PVT. LTD. IS NOT COVERED UNDER SECTION 40A(2)(B) OF THE INCOME TAX ACT, 1961. IN THE ASSESSMENT YEARS 2004-05 AND 2005-06 ALSO, SIMILAR TYPE OF LABOUR SALES TOOK PLACE. 6.2 THE COUNSEL OF THE ASSESSEE FURTHER POINTED OUT THAT IN THE SCRUTINY ASSESSMENT OF ASSESSMENT YEAR 2004-05 AND 2005-06, NO ADVERSE VIEW WAS TAKEN IN RESPECT OF LABOUR WORK OF ALIDHARA TEXTOOL PVT. LTD. AND TRANS ACTIONS WITH THE OTHER RELATED PARTIES BY RESTRICTING THE PROFIT AND CONSEQUENTLY REDUCING THE QUANTUM OF DEDUCTION ITA NO. 2358-AHD-09 16 UNDER SECTION 80IB OF THE I.T.ACT, 1961. THEREFORE, THE VIEW TAKEN BY THE LD. CIT(A) BE UPHELD. 7. RIVAL SUBMISSIONS WERE CONSIDERED. WE HAVE CAREF ULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IT IS PERTINENT TO NOTE T HAT THE ASSESSEE IS USING MORE THAN 10,000 ITEMS OF RAW MATERIALS. MAJORITY OF THE ITEM S ARE COVERED UNDER EXCISE. ABOUT 74% OF TOTAL PURCHASES ARE EXCISABLE. THEREFORE, EV EN IF THE ASSESSEE HAS NOT MAINTAINED PROPER RECORD, IT HAS MAINTAINED THE BIN CARD, COUPLED WITH THE FACT THAT IN EARLIER TWO ASSESSMENT YEARS, THE G.P. DECLARED WAS MORE THAN THE G.P. DECLARED IN THE ASSESSMENT YEAR UNDER APPEAL, IN OUR OPINION, IT IS NOT PROPER ON THE PART OF THE AO TO REJECT THE BOOKS OF ACCOUNTS AND TO ESTIMATE THE HI GHER MARGIN OF G.P. IN THE ASSESSMENT YEAR 2004-05, THE G.P. DECLARED WAS 54.8 2% AND IN THE ASSESSMENT YEAR 2005-06, IT WAS 40.07% WHEREAS IN THE ASSESSMENT YE AR UNDER APPEAL, IT IS ONLY 39.82%. IN THE EARLIER TWO ASSESSMENT YEARS ALSO, T HE ASSESSEE WAS ALLOWED DEDUCTION UNDER SECTION 80IB(10) @100%. THE ASSESSMENT FOR EA RLIER TWO YEARS WAS ALSO COMPLETED UNDER SECTION 143(3) AND G.P. DECLARED WA S ACCEPTED. IT IS ALSO PERTINENT TO NOTE THAT IN THE ASSESSMENT YEAR 2009-2010, ELIGIBL E DEDUCTION UNDER SECTION 80IB(10) IS ONLY 25%. IN THAT ASSESSMENT YEAR ALSO, THE ASSE SSEE HAS DECLARED G.P. @36.57%. IN PARA 7.13 OF THE IMPUGNED ORDER, THE LD. CIT(A) HAS TABULATED THE G.P. MARGIN, TURNOVER, ADVANCE TAX ETC. PAID IN THE ASSESSMENT Y EARS 2004-05 TO 2009-2010. THIS CHART CLEARLY INDICATES THAT THE ASSESSEE IS CONSIS TENTLY SHOWING G.P. MARGIN IN THE VICINITY OF 40%. 7.1 WITH REGARD TO THE PLEA OF LD. D.R. THAT THE AS SESSEE IS SHOWING EXCESSIVE PROFIT THAN THE G.P. SHOWN BY THE OTHER CONCERN ENGAGED IN SIMILAR BUSINESS FOR THE ASSESSMENT YEAR 2006-07, NAMELY, (I) M/S. AALIDHRA MACHINES PVT. LTD. IS 14.82%, (II) M/S. BHAGAT TEXTILE ENGINEERS IS 22.76% AND (III) M /S. AALIDHRA TEXTILE ENGINEERS PVT. LTD. IS 26.49%. IN OUR OPINION, THESE CASES AR E NOT RELEVANT WHEN THE ASSESSEE ITSELF HAS SHOWN THE G.P. MARGIN OF 40% IN THE IMME DIATELY PRECEDING TWO ASSESSMENT YEARS. IN PARA 6.15 OF THE IMPUGNED ORDER, THE LD. CIT(A) HAS MENTIONED THAT THE ITA NO. 2358-AHD-09 17 ASSESSEE HAS SHOWN THE WORK-IN-PROGRESS OF RS.1,21, 18,000/- AT THE END OF IMMEDIATELY PRECEDING YEAR. THE SALES MADE IN THE M ONTH OF APRIL, 2005 PERTAIN TO MACHINERIES WHICH ARE SOLD IN THE MONTH OF APRIL, 2 005. THE ASSESSEE HAS ALSO FURNISHED THE COMPLETE CHART SHOWING VALUATION OF W ORK-IN-PROGRESS WHICH CATEGORICALLY PROVE THAT MANUFACTURING WORK ACTUALL Y COMMENCED IN THE MONTH OF MARCH, 2005 FOR WHICH WORK-IN-PROGRESS OF RS.1.21 C RORES WAS SHOWN. THE ASSESSEE WAS ALSO MAINTAINING THE BIN CARD FOR MATERIALS ISS UED. IN PARA 6.23, THE LD. CIT(A) HAS MENTIONED THAT THE G.P. RATIO DIFFERED FROM UNI T TO UNIT. IT DEPENDS UPON VARIOUS FACTORS VIZ. BRAND VALUE, EFFICIENCY OF UNITS, QUAL ITY OF MACHINERY USED, CAPITAL STRUCTURE, MANAGEMENT ACUMEN, MARKET RENT, PRODUCTI ON COST ASSOCIATION WITH DESIGN, ETC. THE ASSESSEE HAS MAINTAINED A COMPLETE RECORD , AS PER EXCISE LAW. IN THESE CIRCUMSTANCES, WE ARE ALSO OF THE VIEW THAT THERE I S NO JUSTIFICATION FOR FOR ESTIMATION OF PROFIT BY INVOKING THE PROVISIONS OF SECTION 80I A(10) ON THE GROUND THAT BOOK RESULTS OF THE ASSESSEE ARE NOT RELIABLE, PARTICULA RLY, WHEN IN THE EARLIER TWO ASSESSMENT YEARS, THE G.P. DECLARED BY THE ASSESSEE, WHICH IS MORE THAN THAT IS DECLARED IN THE ASSESSMENT YEAR UNDER APPEAL, HAS BEEN ACCEPTED. TH E PROVISIONS OF SECTION 80IA(10) CAN ONLY BE INVOKED ONLY IF THERE IS A DEFINITE EVI DENCE WHICH INDICATES THAT TRANSACTIONS WITH GROUP CONCERNS ARE NOT AT ARMS LE NGTH PRICE. IN THE ASSESSMENT ORDER, THE AO, NO WHERE, HAS POINTED OUT ANY SIGNIFICANT E VIDENCE, IN THIS REGARD. 7.2 WITHOUT PREJUDICE TO ABOVE, WE ARE OF THE VIEW THAT EVEN IF THE BOOKS OF ACCOUNTS ARE REJECTED, THE AO HAS NO OPTION BUT TO ESTIMATE THE PROFIT ON THE BASIS OF G.P. DECLARED IN THE EARLIER YEARS. THE AVERAGE OF PROFIT DECLARED BY THE ASSESSEE IN THE EARLIER TWO ASSESSMENT YEARS IS MORE THAN 40% WHERE AS THE PROFIT DECLARED IN THE ASSESSMENT YEAR UNDER APPEAL IS 39.82%. FOR THIS RE ASONS ALSO, WE ARE OF THE VIEW THAT THERE IS NO JUSTIFICATION WHATSOEVER FOR ESTIMATING THE G.P. MARGIN AT 30% IGNORING THE HISTORY OF THE G.P. DECLARED BY THE ASSESSEE IN EAR LIER YEARS. FURTHER, THERE IS NO NECESSITY OF COMPARING THE RESULTS OF ASSESSEE WITH OTHER CONCERNS WHEN OWN HISTORY OF THE ASSESSEE IS AVAILABLE. 7.3 TO SUM UP, WE ARE OF THE VIEW THAT IN THE IMPUG NED ORDER, THE LD. CIT(A), AFTER CONSIDERING EACH AND EVERY CONTENTION OF THE AO, CA ME TO THE CONCLUSION THAT THERE IS ITA NO. 2358-AHD-09 18 NO COGENT BASIS FOR CURTAILING DEDUCTION UNDER SECT ION 80IB BY INVOKING PROVISIONS OF SECTION 80IA(10) OF THE ACT AND ESTIMATING G.P. AT 30%. WE, THEREFORE, INCLINE TO UPHOLD THE ORDER OF THE LD. CIT(A). 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. THIS ORDER IS PRONOUNCED ON THE DATE MENTIONED HERE INABOVE. SD/- SD/- (G.D.AGRAWAL) (T.K. SHARMA) VICE PRESIDENT JUDICIAL MEMBER %& %& %& %& 0 00 0 .48 .48 .48 .48 %8(4) %8(4) %8(4) %8(4)- -- - 1. ,- 2. ./,- 3. ## 4 2< 4. 2<- - 5. 8?@ .4 , , A 6. @ CD %& %, / # , A TALUKDAR/ SR. P.S.