Anupam Goyal Prop. Ganpati Bricks, SRIGANGANAGAR V. ITO, SRIGANGANAGAR

ITA 242/JODH/2013

• Counselvise Citation: 24223314 RSA 2013
• Duration Of Justice: 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 22-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N A JOSHI
• Assessee Lawyers: NEERAJ CHAWLA
• Keywords: Rejection of books of accounts; Opportunity of being heard; Principle of natural justice
• Section: 142(1); 133(6); 144

Judgement Text

IN THE INCOME TAX APPELALTE TRIBUNAL: JODHPUR BENCH : JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER. ITA NO. 226/JODH/2013 (A.Y. 2009-10) ITO, WARD-2, VS M/S. PRINCE INT. UDHYOG SRIGANGANAGAR. CHAK-2-D BADI, HINDUMALKOTE RAOD, SRIGANGANAGAR. PAN NO. AAAKF05778N ITA NO. 243/JODH/2013 (A.Y. ITA NO. 2009-10) PRINCE ENTT. UDHYOG, VS ITO, WARD-2, VILLAGE 2-D BADI HINDUMALKOT ROAD, SRIGANGANAGAR. SRIGANGANAGAR. PANNO. AAAKFP5778N ITA NO. 242/JODH/2013 (A.Y. 2009-10) ANUPAM GOYAL PROP. VS ITO, WARD-1, 8-9 OFFICERS COLONY, SRIGANGANAGAR. NEAR TEEN PULI, SRIGANGANAGAR. PAN NO. AITPG9755F (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. NEERAJ CHAWLA. DEPARTMENT BY : SH. N.A. JOSHI- DR. DATE OF HEARING : 27/08/2013. DATE OF PRONOUNCEMENT : 30/08/2013. 2 O R D E R PER BENCH : THE ABOVE CAPTIONED APPEALS ARE BEING DECIDED BY A COMMON ORDER FOR THE SAKE OF CONGRUENCE, BREVITY AND CONVE NIENCE. THESE APPEALS WERE HEARD TOGETHER AND ALMOST IDENTICAL IS SUE IS INVOLVED IN THEM. A ITA NOS. 226 & 243/JODH/2013 FOR A.Y. 2009-10. 2. THESE ARE CROSS APPEALS FOR A.Y. 2009-10, FILED AGAINST THE ORDER OF LD. CIT(A), BIKANER, DATED 30/01/2013. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS :- 1. THAT THE A.O. AND THE LD. CIT(A) HAS ERRED IN LA W AND IN FACT WHILE ESTIMATING THE PRODUCTION AT 35 LAKHS BRICKS. 2. THAT THE LD. CIT(A) HAS ERRED IN ESTIMATING THE GROSS PROFIT RATE AT 22%. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DIRECTING THE A.O. TO RESTRICT THE 3 ESTIMATED PRODUCTION OF BRICKS TO 35,00,000 AGAINST 44,49,600/- ESTIMATED BY THE A.O. 2.1 THE FACTS LEADING TO THE ABOVE APPEALS ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF MANUFAC TURING AND SALE OF BRICKS. THE ASSESSEE-FIRM STARTED ITS BUSINESS FROM 27/04/2007, THE DATE ON WHICH IT CAME INTO EXISTENCE AND THIS YEAR WAS ITS SECOND YEAR OF BUSINESS. FOR A.Y. 2009-10 THE ASSESSEE-FIRM FIL ED ITS RETURN OF INCOME (ROI) ON 18/03/2010 DECLARING TOTAL INCOME O F RS. 23,083/-. IN FACT THE TOTAL TURNOVER OF THE YEAR IS RS. 31.77 LA KHS. THE ASSESSEE HAS PAID INTEREST PLUS REMUNERATION TO PARTNERS OF RS. 1,62,689/- AND HAS SHOWN NET PROFIT RATE OF 5.13%. BUT THE A.O. HAS MA DE ASSESSMENT U/S 144 R.W.S. 145(3) OF THE ACT VIDE ORDER DATED 28.11 .2011 ON A TOTAL INCOME OF RS. 50,06,400/-. THE A.O. HAS MADE ADDITI ON MAINLY ON THE GROUNDS OF SUPPRESSION OF PRODUCTION OF BRICKS AND TILES. THE ASSESSEE HAS SHOWN A PRODUCTION OF 27.80 LAKHS OF BRICKS WHE REAS THE A.O. HAS ESTIMATED THE PRODUCTION AT 40.04 LAKHS OF BRICKS A ND 4.45 LAKHS OF TILES. THE BASIS OF THIS ADDITION IS THE AMOUNT OF ROYALTY PAID AND THE EXPENDITURE ON PURCHASE OF CLAY SHOWN BY THE ASSESS EE. THE A.O. HAS GATHERED SOME INFORMATION UNDER THE PROVISION OF SE CTION 133(6) OF THE ACT FROM THE MINING DEPARTMENT. THE A.O. HAS ASSUME D THAT THE TOTAL CLAY PURCHASED DURING THE YEAR HAS BEEN CONSUMED IN ITS ENTIRETY. HE 4 HAS ALSO ESTIMATED SALES PRICE OF BRICKS. THE ASSES SEE HAS SHOWN AVERAGE SALE PRICE OF BRICKS AT RS. 1400/- PER THOU SAND BUT THE A.O. HAS ADOPTED RS. 2600/- PER THOUSAND OF BRICKS. HE H AS FURTHER ADOPTED RATE OF RS. 2600/- PER THOUSAND OF TILES. THE ABOVE RATE OF SALES ARE BASED ON THE RATES OF ANOTHER BRICK-KLIN OWNER. THU S, THE A.O. HAS PASSED HIS ORDER U/S 144 OF THE ACT. THE A.O. HAS A LSO DISALLOWED INTEREST ON CAPITAL OF THE PARTNERS AND THE REMUNER ATION PAID TO THEM. THUS, HE HAS MADE A TOTAL ADDITION OF RS. 50,13,318 /- TO THE RETURNED INCOME. 2.3 AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE LD. CIT(A), WHO HAS REDUCED THIS ADDITION. THE RELEVANT PORTION OF LD. CIT(A)S FINDINGS IS UNDER :- I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SU BMISSION MADE. THE GROUND NO. 1 OF THE APPEAL IS GENERAL IN NATURE AND CONSIDERED WITH OTHER GROUNDS OF APPEAL. GROUND NO. 2 & 3 IS RELATED WITH LEGAL ISSUE RELATING TO APPLICA BILITY OF SEC. 145(3) & 144. THE GROUND RELATING TO REJECTION OF BOOKS OF ACCOUNTS IS REJECTED IN VIEW OF THE SPECIF IC DEFECTS IN THE BOOKS OF ACCOUNTS POINTED OUT BY THE AO AND THE GROUND NOT BEING PRESSING BY THE AR DURING THE APPE LLATE PROCEEDINGS. THUS GROUND NO. 2 IS DECIDED IN FAVOUR OF REVENUE. THE APPELLANT HAS TAKEN ANOTHER LEGAL GROU ND CHALLENGING THE ORDER PASSED UNDER SECTION 144. IN APPEAL 5 NO.265/CIT(A)/BKN/2011-2012 WAS NOT SUCH TYPE OF SITUATION WHEREIN THE APPLICATION OF SECTION 144 IS WARRANTED. APPELLANT HAS FURNISHED FOLLOWING RULING S IN SUPPORT OF HIS CONTENTION:- 1. (2006) 284 ITR 374 (ALL.) MALIK PACKAGING VS. C IT 2. (1983) 144 ITR 452 (MAD) DHANA LAKSHMI PICTURES V CIT 3. (2010) 122 ITD 476 (ASR. ITAT) 4. (2007) 13 SOT 36 (MUM. ITAT) I HAVE RESPECTFULLY CONSIDERED THE ABOVE SAID RULIN GS, THIS LEGAL GROUND OF APPELLANT CHALLENGING THE ADOPTION OF SECTION 144 IS ALSO REJECTED ON THE GROUND THAT THE AO HAS ISSUED NOTICE U/S 142(1) DURING THE ASSESSMENT PROC EEDINGS THUS AS PER PROVISO TO SEC. 144 WHERE NOTICE UNDER SECTION 142(1) IS ISSUED BY THE AO THEN IT SHALL NOT BE NEC ESSARY TO GIVE SUCH OPPORTUNITY OF HEARING. THUS GROUND NO. 3 IS DECIDED IN FAVOUR OF REVENUE. THE GROUND NO. 4 TO 12 IS RELATED WITH THE ESTIMATI ON OF PRODUCTION OF BRICKS AND ESTIMATION OF SALE PRICE O F BRICKS & TILES. AS REGARDS TO THESE GROUNDS FROM THE PERUS AL OF DETAIL ON THE RECORD IT IS SEEN THAT AO HAS MADE TH E ADDITION IN THE ROUTINE AND PERFUNCTORY MANNER. THE LETTER FROM THE MINING DEPARTMENT ONLY CONFIRMS THE PAYMEN T OF ROYALTY & IT DOES NOT MENTION ANYTHING ABOUT THE PRODUCTION OF BRICKS DONE BY THE APPELLANT. ON THE CONTRARY IT SPECIFICALLY STATES THAT AS PER NEW POL ICY DATED 6 10.6.1994 ONLY ROYALTY PER BLOCK IS FIXED DUE TO WH ICH THERE IS NO NECESSITY TO VERIFY THE PRODUCTION ACHI EVED BY THE LICENSE HOLDER. FURTHER AO FAILS TO BRING ON RE CORD ANY OTHER CORROBORATIVE MATERIAL TO JUSTIFY THE ESTIMAT ION OF EXCESS PRODUCTION MADE BY HIM, IN THE ABSENCE OF SU CH MATERIAL THE ESTIMATE WOULD ONLY BE BASED ON CONJEC TURE AND SURMISES. FURTHER PAYMENT OF ROYALTY AND PURCHA SE OF MITTI (CLAY) ITSELF CANNOT DETERMINE THE QUANTUM OF PRODUCTION, THE SAME. HOW MUCH CAPACITY WAS ACTUALL Y UTILIZED BY THE APPELLANT SHOULD HAVE BEEN PROBED F URTHER BY THE AO BUT WAS NOT DONE. NO INSTANCE OF THE SALE OF EXCESS PRODUCTION COULD BE ESTABLISHED BY THE AO. T HE EXPLANATION OF ASSESSEE THAT SOME TIME IT MAY ALSO HAPPENS THAT THE MITTI EXCAVATED FROM SELF LAND DOES NOT SU ITS AND THE BRICK KILN OWNER HAS TO PURCHASE SOME MITTI (SA ND) FROM THE MARKET IS SEEMS TO JUSTIFIED. THIS FACT IS ALSO NOT CONSIDERED BY THE AO. AS FAR ESTIMATE REGARDING ENHANCEMENT OF RATE OF BRICKS FROM 1400 TO 1900 IS CONCERNED THE APPELLANT'S EXPLANATION THAT IN THE M ARKET THERE ARE VARIOUS TYPES OF BRICKS. ONE IS MANUFACTU RED FROM 'GUNA' FUEL ANOTHER IS MANUFACTURED OF 'COAL' FUEL. THE STRENGTH OF THE BRICKS MANUFACTURED OUT OF COAL IS MORE AS COMPARED TO BRICKS MANUFACTURED BY THE GUNA FUEL. THUS GENERALLY RATE OF THE BRICKS MANUFACTURE D BY USING COAL IS ON HIGHER SIDE. THAT EXPLANATION OF T HE ASSESSEE IS NOT CONSIDERED PROPERLY BY THE AO. FURT HER ON SOME OCCASION RATE OF BRICKS IS INCLUSIVE OF TRANSP ORTATION CHARGE THAT IS CALLED F.O.R. AND ON SOME OCCASION T HE SAID 7 CHARGES ARE WITHOUT TRANSPORTATION, BESIDES THIS RA TES OF BRICKS MAY VARY ACCORDING TO THEIR QUALITY. THESE F ACTS ARE NOT CONSIDERED BY THE AO. ACCORDINGLY EXPLANATION O F THE APPELLANT THAT AO HAS ESTIMATED SALE PRICE OF THE B RICKS ARBITRARILY AND WITHOUT ANY BASIS SEEMS TO BE JUSTI FIED. THE APPELLANT HAS RELIED UPON THE FOLLOWING JUDGMENTS:- 1. CIT UDAIPUR VS SURESH MARBLES P. LTD. (2009) TAX WO RLD 108 2. SHYAM LATA KAUSHIK VS. ACIT (2008) 114ITD 305 D ELHI ITAT 3. DCIT VS/ MAHADEO COTTON MILLS 42 TTJ 77. IN VIEW OF FOREGOING, THE ESTIMATION OF EXCESS PROD UCTION & EXCESS SALE PRICE BY THE AO IS HELD TO BE UNJUSTIFI ED. THE SAME CANNOT BE TAKEN INTO FOR CONSIDERATION FOR CAL CULATION OF NET PROFIT. HON'BLE SUPREME COURT IN THE CASE OF KACHWALA GEMS VS. JCIT (2007) 158 TAXMAN 71 (SC) HAS HELD THAT IN THE BEST JUDGMENT ASSESSMENT UNDER SECTION 144, AUTHORITIES CONCERNED SHOULD TRY TO MAKE AN HONEST AND FAIR EST IMATE OF INCOME AND SHOULD NOT ACT TOTALLY ARBITRARILY BU T THERE IS NECESSARILY SOME AMOUNT OF GUESS WORK INVOLVED IN A BEST JUDGMENT ASSESSMENT. ASSESSEE HAS SHOWN TOTAL TURNOVER AT RS. 31.77 LACS AND DECLARED NET PROFIT @ 5.13% BEFORE INTEREST ON CAPI TAL AND PARTNER'S REMUNERATION. IN THE PRECEDING YEAR THE A SSESSEE HAS DECLARED NET PROFIT OF 5.82% SUBJECT TO INTERES T ON CAPITAL & REMUNERATION. 8 HON'BLE JODHPUR TRIBUNAL IN VARIOUS DECISION HAS HE LD THAT FOR ESTIMATION OF PROFIT THE PAST HISTORY OF THE CA SE IS THE BEST GUIDING FACTOR, ACCORDINGLY LOOKING TO THE TOT ALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND CONSIDE RING THE MATERIAL COLLECTED BY THE AO DURING THE ASSESSMENT PROCEEDINGS AND THE SUBMISSION/REPLIES FILED BY THE APPELLANT, IT WAS REASONABLE IF PRODUCTION SHOULD N EAR TO LICENSE SANCTIONED BY THE MINING DEPARTMENT. THEREF ORE, I ESTIMATE TOTAL PRODUCTION OF BRICKS 35,00,000 FOR T HE YEAR UNDER CONSIDERATION. IN THIS TRADE, IT IS FACT THAT THE SALE PRICE OF BR ICKS FLUCTUATED NUMBER OF TIMES IN DIFFERENT SEASON. ONE SIDE THE APPELLANT HAS PRODUCED THE SALE BILL OF MINIMUM RATE TO PROVE THE AVERAGE SALE WHEREAS ON THE OTHER SIDE THE AO TOOK SALE BILL OF MAXIMUM RATE FOR THIS PURPOSE. TO COVER UP ALL THE POSSIBLE LEAKAGE IT IS FAIR AND REASONAB LE TO APPLY GP RATE 22 % ON TOTAL BRICKS OF 35,00,000. TH E BALANCE ADDITION IS DELETED. THE GROUND NO. 13 OF APPEAL IS AGAINST NON DEDUCTIO N OF REMUNERATION AND INTEREST TO PARTNERS FROM THE ESTI MATED PROFIT. THERE IS NO DISCUSSION ON THE ASSESSMENT OR DER. DURING THE COURSE OF APPEAL HEARING THE A/R FOR THE APPELLANT SUBMITTED THAT IT WAS A SETTLED LAW THAT SALARY AND INTEREST TO PARTNERS AS CLAIMED IN THE BOOKS OF ACCOUNTS HAD TO BE ALLOWED FROM THE NET PROFIT ESTI MATED. 9 THE AO DID NOT GIVE ANY REASON FOR MAKING THE DISALLOWANCE. IT WAS PLEADED THAT THE APPELLANT'S C LAIM BE ALLOWED. I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUB MISSIONS MADE. THE SUBMISSION OF THE LD. A.R. IS FOUND TO B E FAIR AND REASONABLE AND IN ACCORDANCE WITH THE SETTLED L EGAL POSITION. THE APPELLANTS CLAIM IS, THEREFORE, ALL OWED. ACCORDINGLY, GROUND NO. 13 IS DECIDED IN FAVOUR OF THE ASSESSEE. 2.4 NOW BOTH THE PARTIES ARE AGGRIEVED. WE HAVE HEA RD RIVAL SUBMISSION AND HAVE CAREFULLY PERUSED THE ENTIRE RE CORD. BOTH PARTIES MORE OR LESS, HAVE TAKEN THEIR ORIGINAL STAND. IT W AS ARGUED BY LD. A.R. THAT THERE IS NO VALID BASIS FOR ESTIMATION OF THE PRODUCTION OF BRICKS AND THE TILES, AND THE ADOPTION OF A DIFFERENT RATE OF SALE. ON THE OTHER HAND, LD. D.R. HAS RELIED ON THE A.OS. ORDER AND H AS DISPUTED THE REDUCTION OF ADDITION BY MAKING SAME REASONS WHICH WERE GIVEN BY LD. A.O. TO MAKE THE IMPUGNED ADDITION. 2.5 IT WAS ARGUED BY LD. A.R. THAT THERE IS NO BASI S FOR MAKING ESTIMATED PRODUCTION AND FOR APPLYING A PARTICULAR PROFIT RATE. HE ARGUED THAT AFTER REJECTION OF THE BOOKS OF ACCOUNT S, IT IS WELL SETTLED LEGAL POSITION THAT EITHER THE PAST HISTORY OF THE ASSESSEE OR THAT OF A 10 COMPARABLE CASE IS RELEVANT. HE HAS STATED THAT IN THE LAST YEAR THE ASSESSEE DISCLOSED N.P. RATE OF 5.82% AS AGAINST 5. 12% IN THIS YEAR. AS PER LD. A.R. AT BEST THE N.P. RATE OF 5.82% CAN BE APPLIED TO THE DECLARED SALES. HE ALSO ARGUED THAT THERE IS NO SUC H SUPPRESSION OF PRODUCTION AND SALES AS HAS BEEN ALLEGED BY THE A.O . 2.6 PER CONTRA LD. D.R. HAS STATED THAT THE A.O. HA S CORRECTLY ESTIMATED PRODUCTION AND SALES AND HE HAS ALSO JUST IFIED THE ENTIRE TRADING ADDITION MADE BY THE A.O. THEREFORE, HE HAS SUPPORTED THE GROUNDS RAISED IN THE REVENUES APPEAL AND HAS CONT ESTED THE GROUNDS RAISED IN ASSESSEES APPEAL. 3. WE HAVE FOUND THAT THE ASSESSEE-FIRM HAS GOT A L ICENCE TO MANUFACTURE BRICKS. THE MINIMUM OF 34.50 LAKHS OF B RICKS CAN BE PRODUCED BY THE ASSESSEE IN ONE YEAR. HOWEVER, THE ASSESSEE HAS SHOWN 27.80 LAKHS OF BRICKS AS PRODUCED IN THIS YEA R. THE A.O. HAS ESTIMATED PRODUCTION AT 44,49,600 BRICKS & TILES. T HE INFORMATION REGARDING PURCHASE OF CLAY ETC AND PAYMENT OF ROYAL TY ETC. ARE NOT SUCH EVIDENCE WHICH CAN BE RELIED ON TO ESTIMATE TH E PRODUCTION IN THE GIVEN FACTS AND THE CIRCUMSTANCES OF THE CASE. AFTE R REJECTION OF BOOKS OF ACCOUNT THE A.O. SHOULD HAVE APPLIED THE RATE DE CLARED AND ACCEPTED IN REGULAR ASSESSMENT IN THE IMMEDIATE PAS T YEAR. THE 11 ASSESSEE HAD DISCLOSED N.P. RATE OF 5.82% IN THE A. Y. 2007-08. AT PAGE 5 OF ASSESSEES PAPER BOOK THE DETAILS OF COMPARABL E RESULTS ARE GIVEN WHICH ARE AS UNDER :- TURN OVER GROSS PROFIT FINANCIAL YEAR 2008-09 7499916 15.50% 2007-08 5885716 15.30% ACCORDINGLY, WE ACCEPT THE SALES / TURNOVER DISCLOS ED BY THE ASSESSEE AND DIRECT THAT N.P. RATE OF 5.82% HAS TO BE APPLIE D TO THE DECLARED SALES SUBJECT TO INTEREST AND REMUNERATION TO THE P ARTNERS AS ALREADY ALLOWED BY THE LD. CIT(A). IN THIS WAY WE PARTLY AL LOW ASSESSEES APPEAL BUT CANNOT ALLOW THE APPEAL OF THE REVENUE. B ITA NO. 242/JODH/2013 (A.Y. 2009-10) THIS APPEAL HAS BEEN FILED BY THE ASSESSEE FOR A.Y. 2009-10 AGAINST THE ORDER OF LD. CIT(A), BIKANER, DATED 22/02/2013. 4. FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEA L : 1. THAT THE A.O. AND THE LD. CIT(A) HAS ERRED IN LA W AND IN FACT WHILE ESTIMATING THE PRODUCTION AT 60 LAKH S BRICKS AND SALE OF 56.25 BRICKS AGAINST PRODUCTION OF 50.9 0 BRICKS AND SALE OF 50.12 LAKHS BRICKS AS SHOWN BY THE ASSE SSEE. 12 2. THAT THE LD. CIT(A) HAS ERRED IN ESTIMATING THE GROSS PROFIT RATE AT 15.58%. 4.1 THE FACTS OF THIS CASE WOULD BECOME CLEAR FROM THE FOLLOWING PORTION MENTIONED AT PAGES 2 TO 8 OF LD. CIT(A)S O RDER :- THE APPELLANT IS AN INDIVIDUAL AND RUNNING A BRICK S KILN AT SRIGANGANAGAR. A RETURN OF INCOME DECLARING TOTAL I NCOME OF RS. 1,49,185/- WAS FILED ALONG WITH AUDIT REPORT . A PERUSAL OF ASSESSMENT ORDER INDICATED THAT ON TURNO VER OF RS. 74,99,916/-, THE APPELLANT HAS DISCLOSED G.P. O F RS. 11,62,575/- GIVING G.P. RATE OF 15.58%.THIS WAS 2ND YEAR OF EXISTENCE OF ASSESSEE'S BUSINESS. IN THE PRECEDING YEAR WHICH WAS 1ST YEAR OF APPELLANT'S BUSINESS, THE APP ELLANT HAS DISCLOSED TURNOVER OF RS. 58,85,716/- GIVING G. P. RATE OF 15.29%. THE ID. AO WAS NOT SATISFIED WITH THE DECLA RED TRADING RESULTS AS THERE WAS NO DAY TO DAY STOCK RE GISTER AND COMPLETE VOUCHERS FOR EXPENSES. IT WAS ALSO NOT ICED THAT NO SEPARATE RECORD FOR GRADE-1 AND GRADE-2 BRI CKS AND TILES MANUFACTURED AND SOLD WAS KEPT AND HENCE TRAD ING RESULTS DECLARED ARE NOT SUBJECT TO COMPLETE VERIFI CATION. OBVIOUSLY SECTION 145(3) WAS APPLIED AND INCOME WAS ESTIMATED. DURING THE COURSE OF ASSESSMENT PROCEEDI NG, THE ID.AO HAS RECORDED STATEMENT OF SH. RAJESH GOYA L, WHO IS WORKING AS MANAGER OF THE BUSINESS AND OBTAINED HIS ADMISSION THAT NO STOCK REGISTER IN MAINTAINED BY T HE APPELLANT. ON A SPECIFIC QUERY ABOUT EXPENDITURE OF RS. 8,60,000/- INCURRED ON PROCURING MITTI(SAND) DEBITE D IN 13 TRADING ACCOUNT, THE MANAGER HAS STATED THAT SAND ( MITTI) IS PURCHASED FROM TROLLY OWNERS AND THERE IS NO FIX ED RATE FOR COST PRICE PAID FOR EACH TROLLY. THE ID. AO NOT SATISFIED WITH SUCH REPLY, RESORTED TO MAKE ESTIMATE OF BRICK S MANUFACTURED, WITHOUT SEEKING ANY FURTHER CLARIFICA TION. ACCORDING TO THE ID. AO AS PER CALCULATION AVAILABL E ON PAGE 3 OF ASSESSMENT ORDER COST OF EACH TROLLY OF SAND I S RS.150/- AND IF RS. 8,60,000/- TOTAL COST OF MITTI IS DIVIDE D BY THE FIGURE, THE NUMBER OF TROLLIES PURCHASED WORKS OUT AT 5733 TROLLIES. THE ID. AO HAS MADE FURTHER ESTIMATE OF 2 000 BRICKS FROM EACH TROLLY OF SAND THUS WORKED OUT TOT AL BRICKS MANUFACTURED FORM 5 73 3 TROLLIES AT 1,14,66,000 AN D HELD TO BE UNRECORDED PRODUCTION OF BRICKS. THE ID. AO G AVE DETAILS OF INCOME COMPUTED ON PAGE 5-6 OF ASSESSMEN T ORDER, ACCORDING TO WHICH TOTAL NO. OF BRICKS MANUF ACTURED WAS WORKED OUT AT 1,65,56,000/- (1,14,66,000+50,90,000).THEREAFTER PROFIT WAS WORKE D OUT AS FOLLOWS :- NO. OF BRICKS SALE RATE SALE COST PROFIT GRADE - I BRICKS 9391920 2142 20117492 12002873 8114619 GRADE - II & 1.535% BRICKS 5478620 1500 8217930 7001676 1216254 RESIDUARY 5% 782660 700 547862 1000239 - 452377 PROFIT 8 8 78496 14 AFTER MAKING DEDUCTION OF RS. 9,98,388/- REPRESENTI NG EXPENSES DEBITED IN P & L ACCOUNT. THE ID. AO WORKE D OUT NET INCOME AT RS. 78,80,108/- AND COMPLETED THE ASSESSMENT ON THIS INCOME AGAINST RETURNED INCOME O F RS. 1,49,185/-. IT IS THIS ADDITION IN TOTAL INCOME WHI CH IS DISPUTED IN THIS APPEAL BEFORE ME. SH. R.N. JANGID, ADVOCATE APPEARING ON BEHALF OF TH E APPELLANT HAS PRESENTED A DETAILED HISTORY OF THE C ASE, NATURE OF BUSINESS AND IRRELEVANT FACTS DISCUSSED B Y THE ID.AO LEADING TO THE IMPUGNED ADDITION. IT IS STATE D THAT THIS WAS 2ND YEAR OF EXISTENCE OF ASSESSEE'S BUSINE SS. IN THE PRECEDING YEAR WHICH WAS 1ST YEAR OF APPELLANT'S BU SINESS ON TURNOVER OF RS. 58,85,716/-, THE APPELLANT HAS D ISCLOSED G.P. RATE OF 15.29% WHICH STANDS ACCEPTED, AS THE C ASE WAS NOT SUBJECTED TO SCRUTINY. THE G.P. RATE DISCLOSED THIS YEAR IS 15.88% WHICH IS SLIGHTLY HIGHER THAN LAST YEAR. THE ID. AO DID NOT FIND A SINGLE BILL OF BRICKS WHICH REMAINED UNRECORDED IN BOOKS. IN SUCH CIRCUMSTANCES THE ID. AO OUGHT TO HAVE ACCEPTED THE TRADING RESULTS. IN SUPP ORT OF THIS ARGUMENT, THE ID. COUNSEL HAS REFERRED SEVERAL JUDICIAL DECISIONS ACCORDING TO WHICH PAST HISTORY OF THE CA SE IS BEST GUIDE FOR DETERMINATION OF INCOME OF A PARTICULAR ASSESSMENT OF AN ASSESSEE. ALTHOUGH THE ACCOUNTS OF THE ASSESSEE WERE AUDITED IT WAS ADMITTED THAT NO STOCK REGISTER IS MAINTAINED AND, THEREFORE, THE ID. COUN SEL OF THE APPELLANT DID NOT DISPUTE APPLICABILITY OF SECT ION 145(3) OF IT ACT, 1961. HOWEVER, HE HAS STRONGLY OB JECTED 15 TO THE METHOD OF WORKING OUT INCOME OF THE ASSESSEE ADOPTED BY THE ID. AO. THE ID. COUNSEL HAS DRAWN MY ATTENTION TOWARDS THE ACTUAL STATE OF AFFAIRS OF TH E APPELLANT. THE APPELLANT'S TOTAL CAPITAL AS ON 31.0 3.2009 WAS RS. 5,67,190/- AND TOTAL TURNOVER FOR THIS YEAR IS RS. 74,99,916/- AGAINST WHICH ID. AO HAS COMPLETED ASSE SSMENT ON TOTAL INCOME OF RS. 78,80,108/- WHICH IS 51 TIME S OF INCOME DECLARED AND CREATED DEMAND OF RS.30,87,970/ - WHICH IS 5 TIMES MORE THAN THE TOTAL CAPITAL OF THE APPELLANT. THESE FIGURES GIVE SUFFICIENT INDICATION THAT THIS WAS A HIGH PITCH ASSESSMENT BASED ON NO EVIDENCE, A S ID.AO HAS NOT FOUND ANY THING INCREMENTING WHICH MAY LEAD TO MAKE SUCH A HEAVY ADDITION IN THE TOTAL INCOME. DURING THE COURSE OF HEARING THE ID. COUNSEL HAS PR ESENTED BEFORE ME A CERTIFICATE FROM ASSTT. MINING ENGINEER , SGNR WHO HAS CERTIFIED THAT THE LICENSE TO INSTALL AND R UN BRICKS KILN WAS GRANTED ON 19.02.2007 AND ROYALTY IS COLLE CTED ASSUMING THE MAXIMUM ANNUAL CAPACITY OF THIS BHATA WILL BE PRODUCTION OF 40,50,000 BRICKS (150X 1000X27). T HE ASSESSEE HAS DISCLOSED TURNOVER 74,99,916 BRICKS WH ICH IS ALMOST TWICE OF ESTIMATE MADE BY THE MINING DEPARTM ENT DESPITE ALL THESE FACTS, THE ID. AO HAS NOT AFFORDE D AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE, NOR HE HAS PROVIDED ANY BASIS OR SOURCE FROM WHICH THE FOUNDAT ION OF SUCH ABNORMAL ESTIMATE WAS LAID. THE ID. AO HAS THU S VIOLATED PRINCIPLES OF NATURAL JUSTICE AND ON THIS BASIS ALONE THE ADDITION MADE WAS SOUGHT TO BE DELETED. 16 THE ID. COUNSEL HAS FURTHER POINTED OUT THAT THE ID . AO OMITTED TO CONSIDER THE FACT THAT SUM OF RS. 8,60,0 00/- DEBITED IN TRADING ACCOUNT UNDER THE HEAD 'MITTI' REPRESENTS COST OF MITTI PURCHASED FROM TROLLY OWNE RS AS WELL AS EXPENDITURE INCURRED ON EXCAVATION OF MITTI FROM ASSESSEE'S OWN LAND FOR WHICH HE HAS OBTAINED LICEN SE. SUCH EXPENSES INCLUDED LABOUR PAYMENTS FOR EXCAVATION, REMOVAL OF OVER HARDEN AND TRANSPORTATION THEREOF, SHIFTING OF EXCAVATED SAND TO THE SITE OF THAPAI. N ON- CONSIDERATION OF THESE FACTS WHICH WERE NECESSARY F OR FRAMING A FAIR AND JUDICIOUS ASSESSMENT HAS LED TO HIGH PITCHED ASSESSMENT APPARENTLY LOOKING TO BE UNJUST AND UNFAIR. THE ADDITION WAS THUS SOUGHT TO BE DELETED. LASTLY, THE ID. COUNSEL OF THE ASSESSEE HAS POINTED OUT THAT (I) NO PURCHASE OF ANY ITEM OUTSIDE BOOKS WAS DETEC TED, (II) NO SALE OF EVEN A SINGLE BRICKS OUTSIDE BOOKS WAS D ETECTED (III) NO COAL WAS CONSUMED DURING THE YEAR AS THE C OAL PURCHASED WAS IN STOCK, (VI) EXPENDITURE ON WATER A ND GUNA (MATERIAL USED FOR BURNING BHATTA) IS FAIRLY REASONABLE LOOKING TO THE NUMBER OF BRICKS MANUFACT URED, (V) THE SO CALLED UNRECORDED SALE PROCEEDS WERE NOT FOUND ANY WHERE IN THE BOOKS OF ACCOUNTS OR IN THE BANK A CCOUNT AND THIS WAS THE 2ND YEAR OF EXISTENCE OF APPELLANT 'S BUSINESS AND SUCH HUGE INCREASE IS BEYOND IMAGINATI ON. WITH THESE FACTS THE ID. COUNSEL HAS ARGUED THAT AD DITION MADE BY THE ID. AO IS WHOLLY UNWARRANTED AND SOUGHT TO BE DELETED. 17 I HAVE CONSIDERED THE WRITTEN SUBMISSION AND ORAL ARGUMENTS MADE BEFORE ME AND HAVE ALSO PERUSED THE RECORD. AFTER DUE CONSIDERATION OF FACTS I FIND THA T THE ID. AO'S ACTION TO MAKE SUCH A HUGE ADDITION WITHOUT PR OVIDING CONVINCING EVIDENCE IS UNSUSTAINABLE. DURING THE CO URSE OF HEARING OF SEVERAL APPEALS RELATING TO BRICKS KILN OWNER I HAVE DISCUSSED AND DEALT WITH SUCH ISSUES IN OTHER CASES TOO. IT IS NOTICED THAT AN AGREEMENT WITH THE INT B HATTA LABOUR UNION IS SIGNED EVERY YEAR IN PRESENCE OF A NOMINEE OF LABOUR COMMISSIONER AND ASSESSEE HAS TO PAY THE LABOUR PAYMENT AS PER TERMS OF THIS AGREEMENT. CONSIDERING THE ABOVE FACTS IT WAS REASONABLE TO ES TIMATE TOTAL PRODUCTION OF BRICKS 6000000 FOR THE YEAR UND ER CONSIDERATION IS WORKED OUT IN FOLLOWING MANNER :- NUMBER OF BRICKS UNITS ESTIMATED 6000000 LESS : - BREAKAGE 5 % ALLOWED BY THE AO 300000 5700000 ADD : - OPENING STOCK 500000 6200000 LESS : - CLOSING STOCK 575000 TOTAL BRICKS SOLD 5625000 THUS, THE SALE OF UNITS OF THE APPELLANT IS CALCULA TED 5625000 UNITS. IN THIS TRADE, IT IS FACT THAT THE S ALE PRICE OF BRICKS FLUCTUATED NUMBER OF TIMES IN DIFFERENT SEAS ON. ONE SIDE THE APPELLANT HAS PRODUCED THE SALE BILL OF MI NIMUM 18 RATE TO PROVE THE AVERAGE SALE WHEREAS ON THE OTHER SIDE THE AO TOOK SALE BILL OF MAXIMUM RATE FOR THIS PURP OSE. THE APPELLANT HAS NOT PROPERLY MAINTAINED RECORDS O F PRODUCTION AS WELL AS QUALITY WISE STOCK. THE DEFEC TS NOTICED IN THE BOOKS OF ACCOUNTS BY THE AO WERE SER IOUS ENOUGH. CONSIDERING THE ENTIRE FACTS AND CIRCUMSTAN CES OF THE CASE AND THE DISCREPANCIES POINTED OUT BY THE A O, TO COVER UP ALL POSSIBLE LEAKAGE OF REVENUE THE AO IS DIRECTED TO APPLY A GROSS PROFIT RATE OF 20 % AGAINST THE 15 .58 % DECLARED BY THE APPELLANT. THE A.O. IS DIRECTED TO RECAST THE TRADING ACCOUNT AND GIVE RELIEF ACCORDINGLY. THE APPEAL IS ALLOWED IN PART AS INDICATED ABOVE. THE OTHER GROUND DO NOT REQUIRE ANY ADJUDICATION IN VIE W OF THE ABOVE DECISION ON GROUND NO. 2 IN THE RESULT THE APPEAL IS PARTLY ALLOWED. 4.2 THE ASSESSEE IS FURTHER AGGRIEVED AND BEFORE US , BOTH PARTIES HAVE REITERATED THEIR EARLIER STAND. AS IS EVIDENT FROM THE ASSESSMENT ORDER, THE A.O. HAS REJECTED THE BOOKS OF ACCOUNT O F THE ASSESSEE AND HAS MADE ESTIMATED ADDITION. THE FACTS, THE EVIDENC E AND THE STAND OF BOTH THE PARTIES ARE MUTATIS MUTANDIS SIMILAR TO TH AT OF THE CASE OF M/S. PRINCE INT UDHYOG (AS ASSESSEE ABOVE). THEREFO RE, WITH SIMILAR REASONING WE HOLD THAT THE A.O. HAS TO APPLY THE RA TE DECLARED BY THIS ASSESSEE WHICH IS BETTER THAN IN THE IMMEDIATELY PA ST YEAR TO THE 19 DECLARED SALES. WE DONT APPROVE OF THE ESTIMATION IN PRODUCTION WHICH IS BASELESS. THE ASSESSEE HAS DECLARED G.P. R ATE OF 15.58% BUT THE LD. CIT(A) HAS APPLIED THE G.P. RATE OF 20%. TH E ASSESSEE HAS DECLARED A G.P. RATE OF 15.58% IN THIS YEAR AS AGAI NST G.P. RATE OF 15.29% DECLARED IN THE LAST YEAR. THUS, THERE IS NO OCCASION TO MAKE ANY FURTHER ADDITION. ACCORDINGLY, WE ALLOW THIS AP PEAL OF THE ASSESSEE. 5. TO SUM UP ITA NO. 226/JODH/2013 FOR A.Y. 2009-10 OF THE REVENUE IS DISMISSED. ITA NO. 243/JODH/2013 A.Y. 2 009-10 IS PARTLY ALLOWED AND ITA NO. 242/JODH/2013 A.Y. 2009-10 IS A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH AUGUST, 2013. SD/- SD/- [N.K. SAINI] [HARI OM MARATHA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 30 TH AUGUST, 2013 VL/ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT BY ORDER 3. THE CIT 4. THE CIT(A) 5. THE DR ASSISTANT REGISTRAR ITAT, JODHPUR