Smt. Gracy Kuthumkal Thomas, Veraval V. The Joint Commissioner of Income Tax, Junagadh Range-1, JUNAGADH

ITA 24/RJT/2013

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8883 (ITAT-RAJKOT)
• Duration Of Justice: 5 year(s) 1 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 30-08-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 28-01-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: MJ RANPURA
• Keywords: Bogus purchase
• Section: 142(1); 80HHC; 145

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL, RAJKOT [CONDUCTED THROUGH E COURT AT AHMEDABAD] BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ./ I TA.NO.37/RJT/2013 ASSTT.YEAR 2009-2010 THE DCIT, CIR.1 JUNAGADH. VS SMT.GRACY KUTHUMKAL THOMAS PROP. OF M/S.JINNY MARINE TRADERS PLOT NO.1306/1311, GIDC ESTATE VERAVAL. ./ I TA.NO.24/RJT/2013 ASSTT.YEAR 2009-2010 SMT.GRACY KUTHUMKAL THOMAS PROP. OF M/S.JINNY MARINE TRADERS PLOT NO.1306/1311, GIDC ESTATE VERAVAL. VS THE DCIT, CIR.1 JUNAGADH. &' / (APPELLANT) () &' / (RESPONDENT) REVENUE BY : SHRI JITENDRA KUMAR, CIT-DR ASSESSEE BY : SHRI M.J. RANPURA, AR / DATE OF HEARING : 05/12/2017 / DATE OF PRONOUNCEMENT: 01/03/2018 *+,/ O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: ASSESSEE AND THE REVENUE ARE IN CROSS-APPEAL BEFORE THE TRIBUNAL AGAINST ORDER OF LD.CIT(A)-IV, RAJKOT DATED 3.12.20 12 PASSED FOR THE ASSTT.YEAR 2009-10. ITA NO.37 AND 24/RJT/2013 2 2. FIRSTLY, WE TAKE APPEAL OF THE REVENUE. REVENUE TOOK FIVE GROUNDS OF APPEAL, BUT SUBSEQUENTLY VIDE LETTER DATED 5.9.2017 . IT HAS REVISED GROUNDS OF APPEAL AND SUCH GROUNDS READ AS UNDER: 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN NOT APPRECIATING THE FACTS THAT THE GP WAS ESTIMATED IN THE CASE OF ASSESSEE ON THE BASIS OF VARIOUS DISCREPANCIES/DEFECTS IDENT IFIED BY THE A.O. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN NOT APPRECIATING THE FACT THAT THE ACTUAL SALE PRICE RE ALIZED BY THE ASSESSEE DID NOT REPRESENT THE TRUE PREVAILING MARKET PRICE AS THE ASSESSEE HAD FACTORED/ INCLUDED HIS DEPB GAINS WHILE DETERMINING HER SELLING PRICE AND IF THE DEPB GAINS IS NOT TAKEN INTO CONSIDERATI ON, THEN THE GP OF THE ASSESSEE WILL BE MEAGER AND NP WILL BE NEGATIVE . 3. ON THE FACTS OF THE CASE AND IN LAW, THE LD. C.I .T.(A) OUGHT TO HAVE UPHELD THE ASSESSMENT ORDER OF THE A.O. 4. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE C IT(A) MAY BE SET ASIDE AND THAT OF THE A.O. BE RESTORED TO THE ABOVE EXTEN T. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL. SHE HAS FILED RETURN OF INCOME ON 25.9.2009 DECLARING TOTAL INCOME AT RS.1,04,47,640/- . CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY A SSESSMENT AND NOTICE UNDER SECTION 143(2) WAS ISSUED AND SERVED UPON THE ASSES SEE. ON SCRUTINY OF THE ACCOUNTS, THE AO FORMED AN OPINION THAT BOOKS OF AC COUNTS OF THE ASSESSEE DESERVES TO BE REJECTED AND HER INCOME IS TO BE EST IMATED ACCORDING TO THE BEST JUDGMENT OF THE AO. BASICALLY, THE LD.AO HAS ASSIG NED FOUR REASONS FOR HARBOURING SUCH BELIEF, VIZ. (A) THE ASSESSEE SHOUL D HAVE VALUED CLOSING STOCK EITHER ON COST PRICE OR MARKET PRICE. SHE HAS VALU ED ON REALIZABLE VALUE OF THE STOCK, (B) PURCHASES ARE MOSTLY FROM UNREGISTERED D EALER, (C) HER YIELD IS AT 45.98% AS AGAINST 52.90% DURING THE PRECEDING YEAR. THE AO ALSO OBSERVED THAT ELECTRICITY CONSUMPTION IN COMPARISON TO OTHER SIMILARLY SITUATED ASSESSEE FOR PROCESSING AND PRESERVATION OF FINISHED GOODS I S MORE. IT IS ALSO IMPORTANT ITA NO.37 AND 24/RJT/2013 3 TO NOTE THAT THE AO FORMED AN OPINION THAT IF DEPB BENEFIT IS BEING EXCLUDED THEN THERE WILL BE FALL IN THE NET PROFIT RATIO SHO WN BY THE ASSESSEE. ACCORDINGLY, HE REJECTED BOOK RESULTS AND ESTIMATED PROFIT. HE MADE ADDITION OF RS.5,97,84,043/-. DISSATISFIED WITH THE ADDITION , ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD.CIT(A). THE LD.CIT(A) DELE TED THIS ADDITION BY OBSERVING AS UNDER: 4.1 I HAVE GONE THROUGH THE ASSESSMENT ORDER AND SUBMISSIONS OF APPELLANT. THE FALL IN GROSS PROFIT AND NET PROFIT IN ITSELF CANNOT BE A REASON TO REJECT THE BOOKS OF ACCOUNT UNLESS SPECIF IC INSTANCES OF BOGUS PURCHASES, EXPENSES AND UNRECORDED SALES AND INSTAN CES OF EXCESS STOCK OR OTHER SUCH SPECIFIC IRREGULARITY IS DETECT ED. A PARTICULAR EXPENDITURE MAY BE DISALLOWABLE AS PER I.T. ACT IF IT IS CAPITAL IN NATURE AND NOT FOR THE PURPOSE OF BUSINESS, HOWEVER, IF IT IS CORRECTLY RECORDED IN BOOKS OF ACCOUNT, THE BOOKS OF ACCOUNT CANNOT BE REJECTED ON THE GROUND OF ITS NON-ALLOW ABILITY UNDER I.T. ACT. THE DEPB SCHEME WAS STARTED SOMEWHERE IN ASSESSMENT YEAR 1998-99. THERE FORE, IT IS POSSIBLE THAT IN EARLY DAYS OF THIS SCHEME, THE BEN EFITS DERIVED FROM SUCH SCHEME WERE A WINDFALL GAIN. HOWEVER, IN A COM PETITIVE MARKET, THE BUSINESS PERSONS SACRIFICE THE PROFIT MARGIN, E SPECIALLY WHEN IT IS A WINDFALL GAIN TO CAPTURE THE MARKET OR TO INCREASE HIS TURNOVER. THIS IS A SIMPLE ECONOMICS AND WHEN ALL BUSINESSPERSONS STA RTED GOING THE SAME, THE BENEFIT OF DEPB, WHICH COULD HAVE BEEN A WINDFALL GAIN IN 1998-99, GRADUALLY BECOMES A PART OF SALE PRICE CON SIDERATION FOR EARNING NORMAL PROFIT IN SUBSEQUENT YEARS. IT IS AG AIN A COINCIDENCE THAT WHEN THE NORMAL FORCES OF ECONOMICS WERE RESPO NSIBLE IN DETERMINING AND REDUCING THE SALE PRICE DUE TO BENE FIT OF DEPB IN SUBSEQUENT YEARS TILL 2004-05, THE DEDUCTION U/S. 8 0HHC WAS ALSO WITHDRAWN FROM THE I.T. ACT. THEREFORE, THE REDUCTI ON IN GP OF THE BUSINESS OF APPELLANT DURING THE PERIOD 1998-99 TO 2004-05 IS APPARENTLY DUE TO ECONOMICS OF SALE PRICE DETERMINA TION AFTER GRADUALLY ABSORBING THE WINDFALL GAIN OF DEPB START ED SINCE 1998-99 RATHER THAN THE WITHDRAWAL OF 80HHC DEDUCTION DURIN G THE SAME PERIOD. I THEREFORE FIND THAT THE GROSS PROFIT OF T HE INITIAL FEW YEARS AFTER THE DEPB SCHEME WAS STARTED IN ASSESSMENT YEA R 1998-99 AND THE GROSS PROFIT OF ASSESSMENT YEAR UNDER APPEAL CA NNOT BE COMPARED TO REACH ANY CONCLUSION OF REJECTION OF BOOKS OF AC COUNT. THE GROSS PROFIT OF THE BUSINESS OF APPELLANT WAS AT 11.68% A ND 11.46% AND NET ITA NO.37 AND 24/RJT/2013 4 PROFIT WAS AT 2% IN ASSESSMENT YEARS 2006-07 AND 20 07-08, WHICH IS A MORE COMPARABLE PERIOD. IN THE ASSESSMENT YEAR UNDE R APPEAL, GROSS PROFIT WAS 13.14% AND NET PROFIT WAS 2.08% AND THER EFORE GP AND NP CERTAINLY CANNOT BE A CRITERIA TO REJECT THE BOOKS OF APPELLANT. ASSESSING OFFICER HAS NOT FOUND OUT ANY EVIDENCE TO PROVE ANY PURCHASE OR EXPENSE AS BOGUS OR INCORRECT. ASSESSING OFFICER HA S ONLY RAISED A SUSPICION THAT THE PURCHASE ARE FROM UNREGISTERED D EALERS THEREFORE THEY MAY BE INCORRECT. ASSESSING OFFICER HAS NOT BR OUGHT OUT ANY EVIDENCE BY EXAMINING THE SUPPLIERS OF GOODS TO REA CH ANY CONCLUSION TO REJECT THE BOOKS OF ACCOUNTS. 4.2 APPELLANT HAS NOT ACCOUNTED FOR THE BODY PARTS OF FISH, WHICH ARE REMOVED DURING PRODUCTION PROCESS. IF, THESE BODY P ARTS ARE FOND TO HAVE MARKET VALUE THAT WOULD BE ANOTHER GROUND TO R EJECT THE BOOKS OF ACCOUNTS. IN CASE OF KESHODWALA FOODS, ASSESSMENT Y EAR 2009-10, IN APPEAL NO.CIT(A)-IV-226/11-12, THE ASSESSING OFFICE R MADE ENQUIRY ABOUT THE DISPOSAL OF WASTE PRODUCT. THE ASSESSING OFFICER FOUND DURING THE REMAND PROCEEDINGS THAT THE MATERIAL WHI CH IS PRODUCED DUE TO BEHEADING, GUTTING, SKINNING, DEBONING ETC. OF T HE BODY OF FISH IS ONLY A WASTAGE AFTER RECORDING THE STATEMENTS OF THE WAS TAGE LIFTER FROM THE PREMISES OF THAT ASSESSEE. THE REMAND REPORT OF THE ASSESSING OFFICER SHOWS THAT THIS MATERIAL WAS LIFTED BY WASTAGE LIFT ER AND WAS NOT WORTH ANYTHING. THIS SHOWS THAT SUCH MATERIAL DOES NOT HA VE ANY MARKET VALUE IN RESPECT OF WHICH ANY SALE SHOULD HAVE BEEN SHOWN. THEREFORE NO ADVERSE VIEW IS TAKEN FOR NON ACCOUNTING OF WAST E MATERIAL BY THE APPELLANT IN ITS BOOKS. THE APPELLANT ALSO SUBMITTE D THE CATEGORY-WISE RAW FISH PURCHASED AND PRODUCTION THERE FROM FOR AS SESSMENT YEAR 2008-09 AND FOR ASSESSMENT YEAR UNDER APPEAL AS UND ER: ASSESSMENT YEAR 2009-10 ITEM PRODUCTION PURCHASE YIELD% SQUIDS 1182700 2196161 53.85 SHRIMPS 930379 2858151 32.55 CUTTLE FISH 1139479 2023661 56.31 OCTOPUS 13417 25636 52.34 3265975 7103608 45.98 ASSESSMENT YEAR 2008-09 ITEM PRODUCTION PURCHASE YIELD% ITA NO.37 AND 24/RJT/2013 5 SQUIDS 760856 1535708 49.54 SHRIMPS 1125443 2519563 44.67 CUTTLE FISH 1138168 1665033 68.36 OCTOPUS 11650 19282 60.42 3036117 5739586 52.90 ON THE BASIS OF MATERIAL MADE AVAILABLE BY APPELLAN T, MATERIAL MADE AVAILABLE IN SIMILAR APPEALS AND THE INFORMATION AV AILABLE IN INTERNET, IT APPEARS THAT THE YIELD OF WHOLE FISH SOLD WITHOUT A NY REMOVAL OF BODY PART MAY BE 100%. THE YIELD OF FISH SOLD AFTER REMO VING THE HEAD AND FINS MAY BE 85%-90%. THE YIELD OF FISH SOLD AFTER F URTHER REMOVING THE INTERNAL ORGANS SUCH AS INTESTINE ETC. MAY BE 65%-7 5%. THE YIELD OF FISH AFTER FURTHER REMOVING SKIN AND BONES MAY BE 4 5%-60%. THERE MAY BE FURTHER LOSS OF WATER AT THE TIME OF FREEZI NG IN THE FORM OF DRIP LOSS AND IN CASE OF SHRIMPS, THIS LOSS IS HIGH ER BECAUSE THE WATER CONTENT IN SHRIMPS IS VERY HIGH. MOREOVER, SAME FIS H MAY BE SOLD AS WHOLE FISH, HEADLESS FISH OR AFTER REMOVAL OF ALL N ON-EDIBLE PARTS. THEREFORE, THE YIELD IN THE SAME FISH MAY VARY FROM 40% TO 100%, IF THE FINAL PRODUCT IS SOLD AS DIFFERENT COMBINATION OF W HOLE, HEADLESS, FILLET (ONLY MEAT) ETC. TO DIFFERENT CUSTOMERS. THEREFORE, IT IS NOT POSSIBLE TO SAY WHETHER THE YIELD SHOWN BY APPELLANT IS CORRECT OR NOT UNLESS THE APPELLANT HAS FOLLOWED A PARTICULAR PROCESS ON A PA RTICULAR FISH. HOWEVER, A YIELD BELOW 40% IN CASE OF MOST OF THE F ISH, AND A YIELD BELOW 35% IN CASE OF SHRIMPS WOULD BE UNUSUAL. IN C ASE OF APPELLANT, THE YIELD IN ALL FISH WAS ABOVE 40% IN ASSESSMENT Y EAR 2008-09 AND ALL BUT IN SHRIMPS WAS ABOVE 40% IN THE ASSESSMENT YEAR UNDER APPEAL. IN CASE OF SHRIMPS THE MINIMUM YIELD MAY BE 35% AND AP PELLANT HAS SHOWN YIELD OF 32.55%. A/R OF APPELLANT HAD SUBMITT ED THAT THE APPELLANT IS SELLING QUALITY PRODUCTS AND THEREFORE LOSSES ON ACCOUNT OF GRADING AND REMOVING DEFECTS IN FINISHED GOODS AS W ELL AS REJECTION FROM RAW MATERIAL ITSELF ARE ALSO PRESENT IN THE BU SINESS OF APPELLANT WHICH ACCOUNT FOR FURTHER LOSS TO MAINTAIN QUALITY PRODUCT. IN VIEW OF THESE FACTS, I FIND THAT NO ADVERSE INFERENCE MAY B E DRAWN IN CASE OF APPELLANT AS YIELD OF NONE OF THE PRODUCTS ARE BEYO ND THE ACCEPTABLE RANGE. 4.3 I FIND THAT THE APPELLANT BOOKS OF EXPORT SALE IN SUBSIDIARY LEDGER BASED ON EXCHANGE RATE AS ON THE DATE OF SALE. IF T HE SALE PROCEEDS ARE REALIZED DURING THE SAME FINANCIAL YEAR, APPELLANT REPLACES THE ACTUAL VALUE REALIZED IN TERMS OF RUPEE IN SALE REGISTER. THERE MAY BE SOME ITA NO.37 AND 24/RJT/2013 6 SALE PROCEEDS, WHICH ARE NOT REALIZED DURING THE SA ME FINANCIAL YEAR. THE A/R OF APPELLANT EXPLAINED THAT THE UNPAID EXPO RT SALES BILLS ON 31ST MARCH ARE MOSTLY PAID BEFORE THE AUDIT OF BOOK S OF ACCOUNT AND THEREFORE THE ACTUAL VALUE REALIZED IN TERMS OF RUP EES AFTER THE MONTH OF MARCH BUT BEFORE THE AUDIT OF BOOKS OF ACCOUNT REPL ACES THE SALE VALUE IN THE BOOKS OF ACCOUNT. IN ONLY THOSE CASES WHERE THE REALIZATION OF SALE PROCEEDS COMES AFTER THE AUDIT, APPELLANT BOOK S THE EXCHANGE RATE FLUCTUATION DIFFERENCE IN SUBSEQUENT YEAR. THE ASSE SSING OFFICER IN THE ASSESSMENT ORDER HAS RECOGNIZED THIS FACT. I FIND T HAT THE GAINS AND LOSSES BECAUSE OF EXCHANGE RATE DIFFERENCE, WHICH A RISE IN SUBSEQUENT FINANCIAL YEAR AT THE TIME OF REALIZATION OF SALE P ROCEEDS, ARE BACKDATED AND INCORPORATED AS PART OF SALE PRICE IN THE BOOKS OR FINANCIAL YEAR UNDER CONSIDERATION. IT IS POSSIBLE THAT THE SALES COULD BE REDUCED OR INCREASED BY SUCH BACKDATING OF LOSS OR GAIN ON FOR EIGN EXCHANGE FLUCTUATION, WHICH ACTUALLY AROSE IN SUBSEQUENT FIN ANCIAL YEAR. HOWEVER, THE GAIN OF ONE FINANCIAL YEAR WOULD BE TH E LOSS OF SUBSEQUENT FINANCIAL YEAR AND OVER THE COMBINED PER IOD OF FINANCIAL YEAR UNDER CONSIDERATION AND SUBSEQUENT FINANCIAL Y EAR THERE WOULD BE NO NET EFFECT ON DETERMINATION OF INCOME. ASSESS ING OFFICER HAS ACCEPTED THE METHOD OF ACCOUNTING OF APPELLANT IN P AST AND APPELLANT IS REGULARLY FOLLOWING THE SAME METHOD OF ACCOUNTING A ND THE ACCOUNTING IS ESSENTIAL MERCANTILE WITH ONLY NOTIONAL ADJUSTME NT OF EXCHANGE PRICE DIFFERENCE BETWEEN TWO FINANCIAL YEARS. I THEREFORE DO NOT FIND THAT CORRECT INCOME CANNOT BE DERIVED FROM THIS METHOD O F ACCOUNTING. MOREOVER, THERE IS NO DETERMINATION OR FINDING BY T HE ASSESSING OFFICER THAT SUCH NOTIONAL ADJUSTMENT HAS RESULTED IN REDUC TION OF INCOME OF APPELLANT FOR THE YEAR UNDER CONSIDERATION. 4.4 ASSESSING OFFICER HAS COMPARED THE ELECTRICITY EXPENDITURE OF RS.2,25,70,017/- OF APPELLANT WITH KESHODWALA FOODS AND TO SHRI PITHAR AND FOUND THAT THE CAPACITY OF APPELLANT WAS SIMILAR TO SHRI PITHAR AND WAS FOLLOWING ALMOST SIMILAR PROCESSING OPERATION BUT THE EXPENDITURE IN THE CASE OF APPELLANT WAS MORE THAN DOUBLE THE EXPENSES SHOWN BY SHRI PITHAR. SIMILARLY THE PRODUCTION OF M /S. KESHODWALA FOODS, IS ALMOST FIVE TIMES BUT THE ELECTRICITY EXP ENDITURE IS LESS THAN THAT SHOWN BY THE APPELLANT. ASSESSING OFFICER STAT ED THAT SUCH ABNORMAL EXPENDITURE WAS NOT EXPLAINED BY APPELLANT WITH CLINCHING EVIDENCE BEYOND ANY DOUBT. DURING THE APPELLATE PRO CEEDINGS, APPELLANT SUBMITTED THE EXPLANATION THAT THE MATERI AL PURCHASED AND PROCESSED DURING THE YEAR UNDER APPEAL WAS 23%-24% MORE THAN WHAT WAS PROCESSED IN EARLIER YEAR. THE INCREASE IN COST OF ELECTRICITY WAS ITA NO.37 AND 24/RJT/2013 7 ONLY 15-16% OVER THE PRECEDING YEAR. I FIND THAT TH E ELECTRICITY COST IS MAINLY INCURRED IN COLD STORAGE OR FOR FREEZING THE FINAL PRODUCT. THE QUANTITY OF MATERIAL PURCHASED IS NOT MATERIAL. IN TERMS OF MATERIAL PRODUCED AND WHICH COULD REQUIRED COLD STORAGE AND FREEZING INCREASED BY 7.5% FROM THE PRECEDING YEAR IN QUANTI TY TERMS. IN ASSESSMENT YEAR 2008-09 ALSO WHEN THERE WAS A DECRE ASE OF ABOUT 6% IN MATERIAL PRODUCED, THERE WAS A DECREASE OF ONLY 1% IN CONSUMPTION OF ELECTRICITY WRT ASSESSMENT YEAR 2007-08. THIS SH OWS THAT A CERTAIN PERCENTAGE OF INFLATION OF ABOUT 6%-8% EVERY YEAR I N THE COST OF ELECTRICITY IS INHERENT. THEREFORE ELECTRICITY CONS UMPTION OF APPELLANT, WHEN COMPARED WITH APPELLANTS OWN CONSUMPTION OF E LECTRICITY OF EARLIER YEARS IS NOT UNREASONABLE. THE CONSUMPTION OF ELECTRICITY WILL DEPEND UPON THE LOWEST TEMPERATURE MAINTAINED FOR F REEZING AND COLD STORAGE AND ALSO WHETHER MECHANIZED PROCESS IS BEIN G USED OR MANUAL LABOUR IS BEING USED. FOR LESSER SPOILAGE OF PRODUC TS AND BETTER QUALITY OF PRODUCT AND DUE TO VERY NATURE OF PRODUCT IT APP EARS THAT APPELLANT REQUIRES MORE EXPENDITURE ON ELECTRICITY THAN OTHER PERSONS IN FISH PROCESSING BUSINESS. SHRI KESHODWALA FOOD IS PRODUC ING LARGE NUMBER OF ITEMS WHICH ARE ALMOST RESALE OF THE ITEM PURCHA SED AS THE YIELD IS 100% IN ALMOST 2/3RD ITEMS PURCHASED BY IT. SUCH IT EMS REQUIRE PROCESSING BY THE PERSONS WHO PURCHASE THEM. APPELL ANT IS PRODUCING MORE THAN 92% OF SUCH PRODUCTS WHICH WOULD HARDLY R EQUIRE ANY FURTHER PROCESSING WHEN SOLD. THEREFORE THE ELECTRI CITY CONSUMPTION IN CASE OF APPELLANT CANNOT BE COMPARED IN THE MANNER ASSESSING OFFICER HAS DONE. MOREOVER, ASSESSING OFFICER HAS NOT ANALY ZED ANY ELECTRICITY BILL OF VOUCHER TO ARRIVE AT SUCH DECISION THAT THE ELECTRICITY EXPENDITURE WAS NOT ACTUALLY INCURRED BY THE APPELLANT AND WAS NOT REVENUE IN NATURE OR WAS PENAL IN NATURE. I FIND THAT NO ADVER SE INFERENCE MAY BE DRAWN FROM THE CONSUMPTION OF ELECTRICITY AFTER CON SIDERING THE ABOVE FACTS, ESPECIALLY FOR REJECTING THE BOOKS OF ACCOUN T. SIMILARLY, ASSESSING OFFICER HAS ALSO MADE REFERENCE TO EXCESSIVE EXPEND ITURE ON CARTAGE INWARD EXPENDITURE, VEHICLE EXPENDITURE, LABOUR CHA RGES, PACKING MATERIAL CHARGES, REPAIR TO BUILDING AND MACHINERY ON HIS OWN PRESUMPTION WITHOUT BRINGING OUT ANY EVIDENCE OR EN QUIRY FROM THE RECIPIENT OF SUCH EXPENDITURES. I FIND THAT NO ADVE RSE INFERENCE MAY BE DRAWN ON ACCOUNT OF SUCH EXPENDITURE AFTER CONSIDER ING THE ABOVE FACTS, ESPECIALLY FOR REJECTING THE BOOKS OF ACCOUN T. 4. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, W E HAVE GONE THROUGH THE RECORD CAREFULLY. SECTION 145 OF THE INCOME TAX AC T IS THE RELEVANT PROVISION ITA NO.37 AND 24/RJT/2013 8 FOR THIS ISSUE, THEREFORE, IT IS PERTINENT TO TAKE NOTE OF THIS SECTION. IT READS AS UNDER : 145. (1) INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' OR 'INCOME FROM OTHER SOURCES' SHALL , SUBJECT TO THE PROVISIONS OF SUB-SECTION (2), BE COMPUTED IN ACCOR DANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. (2) THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFICI AL GAZETTE FROM TIME TO TIME [ACCOUNTING STANDARDS] TO BE FOLLOWED BY ANY CLASS OF ASSESSEES OR IN RESPECT OF ANY CLASS OF INCOME. (3) WHERE THE ASSESSING OFFICER IS NOT SATISFIED AB OUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, OR WH ERE THE METHOD OF ACCOUNTING PROVIDED IN SUB-SECTION (1) [OR ACCOUNTI NG STANDARDS AS NOTIFIED UNDER SUB-SECTION (2), HAVE NOT BEEN REGULARLY FOLL OWED BY THE ASSESSEE], THE ASSESSING OFFICER MAY MAKE AN ASSESSMENT IN THE MAN NER PROVIDED IN SECTION 144.] 5. A BARE READING OF SECTION 145 WOULD REVEAL THAT IT PROVIDE THE MECHANISM HOW TO COMPUTE THE INCOME OF THE ASSESSEE . ACCORDING TO SUB- SECTION 1, THE INCOME CHARGEABLE UNDER THE HEAD PRO FIT AND GAINS OF BUSINESS OR PROFESSION OR INCOME FROM OTHER SOURCE SHALL BE COMPUTED IN ACCORDANCE WITH THE METHOD OF ACCOUNTANCY EMPLOYED BY AN ASSES SEE REGULARLY, SUBJECT TO SUB-SECTION 2 OF SECTION 145 OF THE ACT. SUB-SEC TION 2 PROVIDES THAT THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFICIAL GAZET TE FROM TIME TO TIME, THE ACCOUNTING STANDARD REQUIRED TO BE FOLLOWED BY ANY CLASS OF ASSESSEE IN RESPECT OF ANY CLASS OF INCOME. THUS, IT INDICATES THAT INCOME HAS TO BE COMPUTED IN ACCORDANCE WITH THE METHOD OF ACCOUNTAN CY FOLLOWED BY AN ASSESSEE I.E. CASH OR MERCANTILE, SUCH METHOD HAS T O BE FOLLOWED KEEPING IN VIEW THE ACCOUNTING STANDARD NOTIFIED BY THE CENTRA L GOVERNMENT FROM TIME TO TIME. SUB CLAUSE 3 PROVIDES A SITUATION, THAT IS , IF THE ASSESSING OFFICER IS UNABLE TO DEDUCE THE TRUE INCOME. ON THE BASIS OF M ETHOD OF ACCOUNTANCY FOLLOWED BY AN ASSESSEE THAN HE CAN REJECT THE BOOK RESULT AND THE ASSESSEES ITA NO.37 AND 24/RJT/2013 9 INCOME ACCORDING TO HIS ESTIMATION OR ACCORDING TO HIS BEST JUDGMENT. THE ASSESSING OFFICER IN THAT CASE IS REQUIRED TO POINT OUT THE DEFECTS IN THE ACCOUNTS OF ASSESSEE AND REQUIRED TO SEEK EXPLANATI ON OF THE ASSESSEE QUA THOSE DEFECTS. IF THE ASSESSEE FAILED TO EXPLAIN TH E DEFECTS THAN ON THE BASIS OF THE BOOK RESULT, INCOME CANNOT BE DETERMINED AND AS SESSING OFFICER WOULD COMPUTE THE INCOME ACCORDING TO HIS ESTIMATION KEEP ING IN VIEW THE GUIDING FACTOR FOR ESTIMATING SUCH INCOME. 6. IN THE LIGHT OF THE ABOVE, LET US EXAMINE FACTS OF THE PRESENT CASE. AS OBSERVED EARLIER, THE LD.AO, FOR REJECTING BOOK OF ACCOUNTS OF THE ASSESSEE, HAS BASICALLY ASSIGNED FOUR TO FIVE REASONS. IN HIS FI RST FOLD OF REASONING, HE OBSERVED THAT THE ASSESSEE HAS VALUED THE STOCK AT REALIZABLE VALUE INSTEAD OF MARKET PRICE, ON THE DATE OF VALUATION OR COST PRIC E. AS PER ACCOUNTING NORMS, ASSESSEE TO VALUE HER STOCK EITHER ON MARKET PRICE OR AT COST WHICHEVER IS LOWER. THUS, ACCORDING TO THE AO THE METHOD ADOPTE D BY THE ASSESSEE IS NOT IN ACCORDANCE WITH ACCOUNTING NORMS. AS FAR THIS O BJECTION IS CONCERNED, WE WILL BE DEALING WITH THIS OBJECTION SEPARATELY WHIL E CONSIDERING CROSS-APPEAL OF THE ASSESSEE, BECAUSE, THE LD.CIT(A) HAS HELD TH AT SUFFICIENT REASONS ARE NOT AVAILABLE FOR REJECTING THE BOOK RESULTS. HE INDE PENDENTLY CONFIRMED THE ADDITION OF RS.98,10,499/- ON ACCOUNT OF UNDER VALU ATION OF STOCK WHICH IS BEING AGITATED BY THE ASSESSEE IN HER APPEAL. THIS ONE ASPECT MAY NOT COME IN THE WAY OF AO FROM DEDUCING TRUE INCOME OF THE ASSE SSEE ON THE BASIS OF ACCOUNTS MAINTAINED BY HER. THUS, THIS WILL NOT BE CONSIDERED AS CORROBORATIVE FACTOR FOR REJECTING BOOK RESULTS. T HIS ASPECT CAN BE INDEPENDENTLY TAKEN CARE AS DONE BY THE LD.CIT(A). 7. NEXT REASON ASSIGNED BY THE LD.AO IS THAT LOW YI ELD ACHIEVED BY THE ASSESSEE FROM PROCESSING OF DIFFERENT TYPES OF FISH ES. THIS ASPECT HAS BEEN ITA NO.37 AND 24/RJT/2013 10 DEALT WITH BY THE LD.CIT(A) IN DETAILS IN PARA 4.2 OF THE IMPUGNED ORDER EXTRACTED (SUPRA). THE LD.CIT(A) HAS OBSERVED TH AT SAME FISH WILL BE SOLD AS WHOLE FISH OR HEADLESS FISH OR AFTER REMOVAL OF ALL NON-EDIBLE PARTS. THEREFORE, YIELD IN THE SAME FISH MAY VARY FROM 40% TO 100%. THE LD.CIT(A) HAS VISUALIZED PERCENTAGE OF YIELDS ACCORDING TO THE PR OCESSING NORMS CARRIED OUT ON A PARTICULAR QUALITY OF FISH I.E. WHETHER ITS NO N-EDIBLE PARTS ARE REMOVED OR ONLY HEAD WAS REMOVED OR BONES AND HEADS WERE REMOV ED ETC. CONSIDERING DETAILED ANALYSIS OF DIFFERENT TYPES OF FISHES, THE LD.CIT(A) HAS RECORDED A FINDING THAT IF YIELD IS BELOW 40% AND BELOW 35% IN THE CASE OF SHRIMPS THEN IT WILL BE UNUSUAL. OTHERWISE, IT IS WITHIN THE RA NGE IN THIS LINE OF BUSINESS. YIELD OF THE ASSESSEE IN ALL ASPECT IS MORE 40% IN THE ASSESSMENT YEAR. THE LD.CIT(A) HAS TAKEN NOTE OF YIELD ACHIEVED BY THE A SSESSEE. SUCH DETAILS ARE AVAILABLE ON PAGE NO.25 OF THE CIT(A)S ORDER. AFT ER LOOKING INTO THIS ASPECT, WE ARE OF THE VIEW THAT THERE IS NO FALL IN THE YIE LD ACHIEVED BY THE ASSESSEE IN PROCESSING OF FISHES, AND THIS CANNOT BE USED AS A REASON FOR DOUBTING AUDITED ACCOUNTS OF THE ASSESSEE. 8. NEXT REASON ASSIGNED BY THE AO IS ELECTRICITY CO NSUMPTION IN COMPARISON TO OTHER SIMILARLY SITUATED ASSESSEES. THE LD.CIT(A) HAS RECORDED A FINDING THAT THE AO HAS COMPARED ELECTRICITY CONS UMPTION WITH KESHODWALA FOODS AND SHRI PITHAR. BOTH THESE CONCERNS WERE MO STLY ENGAGED IN THE EXPORT OF FINISHED PRODUCTS. THE LD.CIT(A) HAS HELD THAT KESHODWALA FOODS IS PRODUCING LARGE NUMBER OF ITEMS WHICH ARE ALMOST RE SALE OF ITEMS PURCHASED AS THE YIELD IS 100% IN ALMOST TWO-THIRD ITEMS PURC HASED BY IT. THUS, WHEN AN ASSESSEE PURCHASED FINISHED PRODUCT, THEY COME IN A FROZEN STATE AND THEIR PRESERVATION WOULD NOT REQUIRE MUCH ELECTRICITY IN COMPARISON TO THE PROCESSING ACTIVITIES MAINTAINED BY THE ASSESSEE IN CONVERTING RAW-FISHES INTO FINISHED GOODS, AND THEREAFTER PRESERVING IT. THUS , THE LD.CIT(A) HAS RIGHTLY ITA NO.37 AND 24/RJT/2013 11 OBSERVED THAT THERE IS NO COMPARISON BETWEEN ACTIVI TIES OF THE ASSESSEE VIS-- VIS KESHODWALA FOODS OR SHRI PITHAR. ELECTRICITY C ONSUMPTION OF THESE CONCERNS COULD NOT BE EQUATED WITH THE ASSESSEE. 9. SIMILARLY, AS FAR AS PURCHASES MADE FROM UNREGIS TERED DEALERS ARE CONCERNED FISHES WERE TO BE PROCURED FROM FISHERMEN . OF COURSE, THEY ARE UNREGISTERED DEALERS. THE AO SHOULD HAVE POINTED O UT DEFECTS EITHER IN THE RATES OR INFLATION OF EXPENDITURE. NO SUCH THINGS HAVE BEEN POINTED OUT. HE SIMPLY TOOK THIS REASON IN SWEEPING MANNER. AFTER CONSIDERING THE FINDING OF THE LD.CIT(A), WE ARE OF THE OPINION THAT ACCOUNTS OF THE ASSESSEE ARE AUDITED, SPECIFIC DEFECTS COULD NOT BE POINTED OUT BY THE AO , AND ESTIMATE OF GP ADDITION COULD NOT BE MADE. THE LD.CIT(A) HAS APPR ECIATED ALL THESE ASPECTS IN THE DETAILED FINDING EXTRACTED (SUPRA), AND WE D O NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF THE LD.CIT(A). THE APPEA L OF THE REVENUE IS DEVOID OF ANY MERIT, HENCE, REJECTED. 10. AS FAR AS ASSESSEES APPEAL IS CONCERNED, SHE H AS PLEADED THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING ADDITION OF RS.98 ,10,449/- ON THE ALLEGED ACCOUNT OF UNDERVALUATION OF CLOSING STOCK. THE AS SESSEE HAD FOUR TYPES OF ITEMS IN HER CLOSING STOCK VIZ. SQUIDS, SHRIMPS, CU TTLE FISH, OCTOPUS. SHE HAS VALUED THIS STOCK ACCORDING TO REALIZABLE VALUE. T HE LD.CIT(A) WHILE CONFIRMING THE ADDITION HAS HELD THAT ASSESSEE SHOU LD HAVE VALUED THE STOCK ACCORDING TO MARKET PRICE ON THE DATE OF VALUATION. THE DISCUSSION MADE BY THE LD.CIT(A) IN THIS CONNECTION READS AS UNDER: ..I FIND THAT APPELLANT HAS CONSIDERED RATE OF ABO UT RS.76/KG FOR SQUIDS, RS.116/KG FOR SHRIMPS, RS.95/KG. FOR CUTTLE FISH AND RS.36/KG FOR OCTOPUS FOR VALUATION OF CLOSING STOCK. THESE R ATES ARE MUCH LOWER THAN THE AVERAGE SALE PRICE OF THESE PRODUCTS, I.E. RS.127/KG, RS.171/KG, RS.176/KG AND RS.61/KG RESPECTIVELY AND THEREFORE THE ITA NO.37 AND 24/RJT/2013 12 CLAIM OF APPELLANT THAT THESE PRODUCTS HAVE BEEN VA LUED AT NET REALIZABLE VALUE IS NOT APPARENT AT ALL. THE AVERAG E PURCHASE PRICE OF THESE PRODUCTS AFTER YIELD IS RS.76/KG., RS.146/KG, RS.144/KG AND RS.64/KG RESPECTIVELY. THE AVERAGE PURCHASE PRICE A FTER YIELD IS LESS THAN THE AVERAGE SALE PRICE IN RESPECT OF ALL PRODU CTS. THEREFORE PRESUMING THAT NO MANUFACTURING EXPENSES IS LOADED TO THE COST PRICE OF CLOSING STOCK, STILL, APPELLANT SHOULD HAVE SELECTE D AT LEAST THE AVERAGE PURCHASE PRICE OF THESE PRODUCTS AFTER YIELD FOR VA LUATION OF CLOSING STOCK. THEREFORE I FIND THAT THE VALUATION OF CLOSI NG STOCK SHOULD BE MADE AS UNDER: ITEM CLOSING STOCK QUANTITY (KG.) RATE CONSIDERED BY APPELLANT AMOUNT CORRECT PRICE DIFFERENCE SQUIDS 165948 76 12553711 76 0 SHRIMPS 112285 116 13069514 146 3368550 CUTTLE FISH 129061 95 12313456 144 6323989 OCTOPUS 4915 36 175373 60 117960 412209 38112054 9810499 I THEREFORE CONFIRM THE ADDITION OF RS.98,10,499/- ON ACCOUNT OF UNDERVALUATION OF STOCK. HOWEVER, THIS STOCK WOULD BE OPENING STOCK OF SUBSEQUENT ASSESSMENT YEAR AND APPELLANT MAY CLAIM DEDUCTION IN SUBSEQUENT ASSESSMENT YEAR. 11. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. THERE IS NO DISPUTE WITH REGARD TO THE PROPOSITION THAT THE ASSESSEE WOULD BE REQUIRED TO VALUE CLOSING STOCK E ITHER AT COST OR AT MARKET PRICE WHICHEVER IS LOWER. THE ASSESSEE DID NOT ADO PT COST PRICE. THE ASSESSEE HAS ADOPTED SALE WHICH COULD BE REALIZED OUT OF THE STOCK. BUT WHAT WAS GUIDING FACTOR TO ADOPT RATES. THE LD.CIT(A) HAS O BSERVED THAT DURING THE PERIOD WHEN VALUATION WAS DONE RATES OF THESE ITEMS WERE QUITE DIFFERENT IN THE MARKET. THE LD.CIT(A) MADE REFERENCE TO THOSE RATES IN THE FINDING ITA NO.37 AND 24/RJT/2013 13 EXTRACTED SUPRA, AND THEREAFTER HELD THAT STOCK WAS UNDERVALUED BY A SUM OF RS.98,10,499/-. WE DO NOT FIND ANY ERROR IN THIS F INDING OF THE LD.CIT(A). MORE SO, IT IS A REVENUE NEUTRAL ISSUE BECAUSE WHAT EVER ADDITION IS BEING MADE IN THE CLOSING STOCK, IT WILL BE OPENING STOCK IN T HE NEXT YEAR. IF THE ASSESSEE WOULD FAIL TO REALIZE THE VALUE IN PROPORTION WITH THE VALUATION OF CLOSING STOCK, SHE WILL CLAIM LOSS IN THE NEXT YEAR, AND IF SHE ACQUIRED HIGHER RATE, THEN PROFIT WILL BE MADE. THEREFORE, NO INTERFERENCE IS CALLED FOR IN THE FINDING OF THE LD.CIT(A). GROUND NO.3 IS ACCORDINGLY REJECTED . 12. IN GROUND NO.2 GRIEVANCE OF THE ASSESSEE IS THA T THE LD.CIT(A) HAS ERRED IN CONFIRMING DISALLOWANCE OF RS.6,29,855/- WHICH W AS DISALLOWED OUT OF FOREIGN TOUR EXPENSES. FINDING RECORDED BY THE LD. CIT(A) ON THIS ISSUE IS WORTH TO NOTE. IT READS AS UNDER: 4.6 IN RESPECT OF COMMISSION OF RS.1,05,47,835/-, APPELLANT HAS SUBMITTED THE COPY OF NOTICE DATED 142(1) DATED 06. 07.2011 OF THE ASSESSING OFFICER. IN PARA 6 OF THIS NOTICE, ASSESS ING OFFICER HAD ASKED THAT APPELLANT TO SUBMIT DETAILS AS UNDER: FILE PAYEEWISE DETAILS OF COMMISSION ON SALES EXCE EDING RS.10,000/-. DETAILS LIKE AMOUNT, MODE OF PAYMENT, TDS, SERVICE RENDERED BY THE PAYEE, BASIS OF THE COMMISSION PAID BE MENTIONED. C OPY OF AGREEMENT WITH PAYEE OR ANY OTHER EVIDENCE BE FILED. WHETHER PAYEE IS COVERED BY SEC 40A(2)(B) BE MENTIONED APPELLANT HAD SUBMITTED THE DETAILS VIDE LETTER DAT ED 21.07.2011 WHERE APPELLANT ATTACHED DETAILS OF COMMISSION ON SALES P AID DURING THE YEAR. APPELLANT CLARIFIED THAT NO ONE IS COVERED U/S.40A( 2)(B) OF THE I.T. ACT. THE DETAILS SUBMITTED BY APPELLANT WERE APPARENTLY COPY OF LEDGER ACCOUNT OF COMMISSION ON SALE, COPY OF FORM NO. 1 6A OF TDS ISSUED TO PAYEE WHEREVER TDS WAS DEDUCTED WITH PAN OF PAYE E, COPY OF DEBIT NOTE OF COMMISSION RAISED BY THE PAYEE EXPLAINING T HE PARTICULAR TRANSACTION FOR WHICH THE COMMISSION WAS CHARGED IN THE DEBIT NOTE. I DO NOT FIND ANY REASON AS WHY AFTER SUBMISSION OF T HESE DETAILS THE COMMISSION COULD BE HELD AS DISALLOWABLE. MOREOVER, IN ASSESSMENT ITA NO.37 AND 24/RJT/2013 14 YEAR 2008-09, APPELLANT HAD CLAIMED SIMILAR SALES C OMMISSION EXPENDITURE OF RS.10186988/- WHICH THE ASSESSING OF FICER HAD ALLOWED. THE FOREIGN TOUR EXPENDITURE OF RS.6,29,855/- WAS A LSO CLAIMED BY THE APPELLANT FOR HER SON SHRI KENNY THOMAS AND HIS FAM ILY. THE QUESTION OF ALLOWANCE OF DISALLOWANCE OF AN EXPENDITURE REVE ALED IN THE BOOKS CANNOT BE A REASON TO REJECT THE BOOKS OF ACCOUNT. APPELLANT HAS NOT SUBMITTED NOT SUBMITTED ANY ARGUMENT DURING THE APP ELLATE PROCEEDING ALSO. THE FOREIGN TRAVELLING EXPENDITURE OF RS.6,29 ,855/- FOR APPELLANTS SON AND HIS FAMILY IS APPARENTLY A PLEASURE TRIP AN D PERSONAL IN NATURE. I THEREFORE CONFIRM THE DISALLOWANCE OF RS.6,29,855 /- ON FOREIGN TRAVELLING EXPENDITURE. 13. WITH THE ASSISTANCE OF LD.REPRESENTATIVES, WE H AVE GONE THROUGH THE RECORD CAREFULLY. A PERUSAL OF THE ABOVE WOULD IND ICATE THAT THE LD.CIT(A) HAS RECORDED A CATEGORICAL FINDING THAT EXPENDITURE ON FOREIGN TRAVEL OF ASSESSEES SON WAS NOT FOR THE PURPOSE OF BUSINESS, HENCE, IT COULD NOT BE ALLOWED. BEFORE US, THE ASSESSEE FAILED TO DEMONST RATE BUSINESS EXPEDIENCY WITH REGARD TO THIS EXPENDITURE, AND HOW SHRI KENNY THOMAS AND HIS FAMILY HAVE FULFILLED OBJECTS OF BUSINESS CARRIED OUT BY T HE ASSESSEE. THEREFORE, WE DO NOT FIND ANY REASON TO INTERFERE IN THE FINDING OF THE LD.CIT(A). THIS GROUND OF APPEAL IS REJECTED. 14. GROUND NOS.1 AND 4 ARE GENERAL IN NATURE, WHICH DO NOT CALL FOR RECORDING ANY FINDING, HENCE, THEY ARE REJECTED. AC CORDINGLY, APPEAL OF THE REVENUE AND THE ASSESSEE ARE DEVOID OF MERIT. THEY ARE DISMISSED. 15. IN THE RESULT, APPEALS OF THE REVENUE AND ASSES SEE, BOTH ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON 1 ST MARCH, 2018 AT AHMEDABAD. SD/- SD/- (AMARJIT SINGH) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 01/03/2018