ACIT, Jaipur V. M/S ID. MOHD. NIZAMUDDIN, Jaipur

ITA 258/JPR/2012

• Counselvise Citation: 25823114 RSA 2012
• Duration Of Justice: 1 year(s) 11 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 16-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D C SHARMA
• Assessee Lawyers: MAHENDRA GARGIYEA; S ITA RAM AGARWAL
• Keywords: Gross profit estimation; Rejection of books of accounts; Depreciation
• Section: 143(3); 194C

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH, JAIPUR ( BEFORE SHRI HARI OM MARATHA AND SHRI N.K. SAINI ) ITA NO. 258/JP/2012 ASSESSMENT YEAR: 2008-09 PAN: AAAF 14581 L THE ACIT VS. M/S. ID. MOHD. NIZAMUDDIN CIRCLE-7 SUBHASH BAZAR JAIPUR TONK (APPELLANT) (RESPONDENT) C.O. NO.28/JP/2012 (ARISING OUT OF ITA NO. 258/JP/2012) ASSESSMENT YEAR: 2008-09 PAN: AAAF 14581 L M/S. ID. MOHD. NIZAMUDDIN VS. THE ACIT SUBHASH BAZAR CIRCLE-7 TONK JAIPUR (APPELLANT) (RESPONDENT) DEPARTMENT BY : SHRI D.C. SHARMA ASSESSEE BY : SHRI MAHENDRA GARGIYEA AND S ITA RAM AGARWAL DATE OF HEARING : 16.01.2014. DATE OF PRONOUNCEMENT : 11.03.2014 ORDER PER HARI OM MARATHA, J.M. THE REVENUE HAS FILED AN APPEAL AGAINST THE ORDE R OF THE LD CIT(A)- III, JAIPUR DATED 22-12-2011 FOR THE A.Y. 2008-09. THE ASSESSEE HAS FILED THE CROSS OBJECTION. 2 2. THE REVENUE HAS RAISED THE FOLLOWING GROUND OF A PPEAL:- (I). THE CIT(A) HAS ERRED IN THE FACTS & CIRCUMSTA NCES OF THE CASE AND IN LAW BY RESTRICTING THE G.P. RATE TO 9.5% INSTEAD OF 11.20% AS ESTIMATED BY THE AO AFTER REJECTING BOOKS OF ACCOUN TS U/S 145(3) OF THE I.T.ACT AND THUS RESTRICTING THE G.P. ADDITION TO R S.20,15,810/- INSTEAD OF RS.70,05,050/-. 3. THE ASSESSEE HAS ALSO FILED CROSS OBJECTIONS TAK ING THE FOLLOWING GROUNDS:- 1.1 RS. 20,15,810/- : THE ID. CIT(A) ERRED IN LAW AS WELL AS ON THE FACTS OF THE CASE IN CONFIRMING THE APPLICATION OF SEC.145(3) OF THE ACT. THE PROVISION SO INVOKED AND CONFIRMED BEING CONTRA RY TO THE PROVISIONS OF LAW AND FACTS, THE SAME KINDLY BE QUA SHED. CONSEQUENTLY, SUSTAINED THE TRADING ADDITION OF RS. 20,15,810/- KINDLY BE DELETED IN FULL. ALTERNATIVELY AND WITHOUT PREJUDICE TO ABOVE 1.2 THE ID. CIT(A) FURTHER ERRED IN LAW AS WELL AS ON THE FACTS OF THE CASE IN APPLYING THE GP RATE OF 9.50% AS AGAINST 8. 41% DECLARED BY THE ASSESSEE. HENCE THE GP RATE SO APPLIED AND THER EBY PARTLY SUSTAINING TRADING ADDITION UPTO RS. 20,15,810/- I S TOTALLY CONTRARY TO THE PROVISIONS OF LAW AND FACTS ON THE RECORD AND H ENCE THE ADDITION KINDLY BE DELETED IN FULL. 4. BRIEFLY STATED, THE FACTS ARE THAT THE ASSESSE E IS ENGAGED IN THE BUSINESS OF SALES AND PURCHASE OF TENDU PATTA AND M ANUFACTURING OF BIDIS. THE ASSESSEE HAS THIS YEAR DECLARED GP RATE OF 8.81 % AND NP RATE OF 3.98% ON THE TOTAL TURNOVER OF RS.29,34,84,688/- AS AGAIN ST THE GP RATE OF 11.20% 3 AND NP RATE OF 3.37% ON THE TOTAL TURNOVER OF RS.12 ,73,68,561/- DECLARED IN THE IMMEDIATELY PRECEDING YEAR. DURING THE ASSESSME NT PROCEEDING, THE AO NOTED THAT HUGE LABOUR PAYMENTS WERE MADE BY THE AS SESSEE THROUGH SUPERVISORS, NO DIRECT PAYMENT HAS BEEN MADE. NO TD S WAS DEDUCTED FROM SUCH PAYMENTS. THE ASSESSEE HAS NOT COMPLIED WITH T HE PROVISION OF SEC. XVII- B OF THE ACT, REPORTED BY THE TAX AUDITOR ALS O IN PARA 27 (A). HE ALSO ALLEGED THAT THE ASSESSEE HAS NOT MAINTAINED DAY TO DAY STOCK REGISTER REGARDING TENDU PATTA (PURCHASE & SALES), RAW MATER IAL (PURCHASE, CONSUMPTION), BIDI (PRODUCTION SALES) ETC. THE ASSE SSEE NOT HAVING FULL ADDRESS, FATHER'S NAME, IDENTITY PROOFS REGARDING L ABOUR PAYMENT, IT WAS NOT FULLY VERIFIABLE THAT ASSESSEE HAS INCURRED ACTUAL EXPENSES ON LABOUR PAYMENT. THEREFORE, THE ASSESSEE WAS ASKED VIDE LET TER DATED 22.12.2010 ON THESE ISSUES. IN RESPONSE, THE ASSESSEE MADE FOLLOW ING SUBMISSIONS:- 1. (I). THE ASSESSEE DURING PAST HEARING VEHEMENT LY EXPLAINED THAT THE PLUCKING CHARGES OF TENDU LEAVE ARE FIXED BY THE CONCERNED FOREST AUTHORITIES. IN THE YEAR UNDER ASSTT. RS. 35 0/- PER STANDARD BAG CONTAINING 1000/- BUNDLES (GADDIS) OF TENDU LEAVES WAS FIXED BY GOVT. OF RAJASTHAN & MAHARASTH RA FIXED RS. 690/- PER STANDARD BAG. THE ASSESSEE AS PROOF S UBMITTED COPIES OF WORK ORDERS ISSUED BY OFFICES OF DIFFEREN T FOREST RANGES. THE POINT WAS FURTHER SUBSTANTIATED BY PROC URED LEAVES FROM CONCERNED UNITS OF DIFFERENT RANGES FOR EXAMPL E IN UNIT NO. 51 MANDAWAR OF JHALAWAR 5183.270 STANDARD BAGS WERE PROCURED & AFTER MULTIPLICATION BY RS. 350/- THE PL UCKING COST 4 COMES TO RS. 18,14,145/-. UNIT NO. 78 BAGHER 1630.6 65 STANDARD BAGS MULTIPLIED BY RS. 350/- COMES TO RS. 5,70,733/- WHICH HAVE BEEN DEBITED IN THE PLUCKING A/C & SUBMI TTED ON LAST HEARING DATED 30.11.2010 & IS A PART OF OFFICIAL RE CORD. AS EXPLAINED EARLIER PLUCKING LABOUR IS DIRECTLY PAID TO THE ADIVASI LABOURERS WHO ARE INHABITANTS OF NEARBY KACHI BASTI S IN DENSE FOREST BUT IN ANY NO LEAKAGE IS POSSIBLE AS THE WHO LE PROCESS IS CONDUCTED UNDER THE VIGILANT SUPERVISORS ALSO MONIT ORS PRODUCTIONS & PAYMENT AS EXPLAINED ABOVE. (II) THE PAYMENTS MADE TO SUPERVISORS DOES NOT EXC EED THE PRESCRIBED LIMITS FOR DEDUCTING TDS & AS SUCH DO NOT FALL UNDER THE PROVISIONS OF CHAPTER XVII-B OF THE I.T. ACT, 1961. ATTENTION IS DRAWN TOWARDS PRONOUNCEMENT BY HONBLE ITAT AHMEDABAD-BENCH A(2010) 195 TAXMAN-MAGAZINE 32 HE LD WHERE INDIVIDUAL PAYMENT TO LABOURERS ON DAILY BAS IS WERE NOT EXCEEDING PRESCRIBED LIMITS ASSESSEE WAS NOT LIABLE TO DEDUCT TAX U/S 194C EVEN LABOUR ACTIVITIES WERE ORGANIZED MAINTAINED & CONTROLLED BY ONE PERSON. REGARDING AUDIT REPORT PARA 27 (A) THE ASSESSEE HAD ALREADY CLEARED THE POSITION V IDE PARA 1 OF SUBMISSIONS DATED 21.09.2010 THAT ASSESSEE FEELS SO RRY FOR THE SLIGHT NEGLIGENCE OF THE TAX AUDITORS & INFORMATION AGAINST COLUMN NO. 27(A) OF AUDIT REPORT MAY KINDLY BE READ YES ON THE FACE OF RECORDS. 2. THE HUMBLE ASSESSEE TIME TO TIME DURING ASSTT. H EARINGS PRODUCING RANGE WISE STOCK REGISTERS OF TENDU LEAVES WHERE IN PROPERLY & CONCISELY RECORDED OPENING STOCK IF ANY, PURCHASES ARE PROCURED, SALES & CLOSING STOCK. ZEROX COPIES OF RANGE WISE S TOCK REGISTERS ARE HEREWITH ATTACHED FOR YOUR KIND CONSIDERATION & SAT ISFACTION. LIKEWISE REGISTERS CONCERNED TO TOBACCO & BEEDI PRO DUCTION HAVE ALSO BEEN PRODUCED EARLIER WHICH ARE PRESENTLY AGAI N PRODUCED FOR PERUSAL. 5 3. THE POINT IS MORE OR LESS CONNECTED WITH PARA 1 OF THE SUBMISSIONS. IN SHORT, IT IS AGAIN SUBMITTED THAT THE PLUCKING L ABOUR IS ENGAGED ON PIECE MEAL BASIS WHICH WORK UNDER THE CONTROL & SUP ERVISION OF FOREST DEPARTMENT. MORE, SO THE PAYMENT OF PLUCKING LABOUR IS FULLY PROVED BY THE PROCUREMENT OF TENDU LEAVES IN THE PROPORTIO N OF LABOUR RATE FIXED BY CONCERNED GOVERNMENT FOREST DEPARTMENTS I. E. RS. 350/- PER STANDARD BAG IN RAJASTHAN & RS. 690/- IN MAHARASHTR A. IT IS BEYOND IMAGINATION THAT TENDU LEAVES IN CERTAIN QUANTITY M AY BE PROCURED WITHOUT PAYMENT OF WAGES TO LABOURERS. THEREFORE, R EQUESTED TO KINDLY LOOK OVER THE FACTS, NATURE & CIRCUMSTANCES OF THE CASE WHICH DESERVES POSITIVE APPROACH. 4. REGARDING SELF WRITTEN VOUCHERS & PAYMENTS IN CA SH TO SUPERVISORS & VARIOUS OTHER EXPENSES IT IS SUBMITTED THAT FIRST LY PAYMENTS TO EACH SUPERVISOR IS BELOW THE PRESCRIBED LIMITS UNDER CHA PTER XVII-B OF THE I.T. ACT, 1961. IN THIS REGARD THE ASSESSEE REFERS (2009) 174 TAXMAN 51 (ALL). NISAR BEEDI SIKKA NO. 1 VS. CIT HELD WHE RE THE LABOURERS ARE ILLITERATE, PREPARATION OF SELF MADE VOUCHERS C OULD NOT BE SAID TO BE AGAINST TRADE PRACTICE & METHOD OF ACCOUNTANCY. FURTHER HONBLE ITAT BENCH IN SMT. HEMLATA PATNI VS. ITO (ITA NO. 3 9/JP/2000) DELETED THE ADDITION MADE BY AO ON THE BASIS OF INT ERNAL VOUCHERS. IN THE INSTANT CASE ALSO THE ASSESSEE ON THE LAST HEAR ING HAD SUBMITTED THE COPIES OF HONBLE ITAT JUDGMENTS FOR ASSTT. YEA R 2001-02 & 2003- 04. THE HONBLE TRIBUNAL IN BOTH THE JUDGMENTS CONS ECUTIVELY HELD THAT AO IS NOT JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 145(3) OF THE I.T. ACT & ALSO DELETED THE ADDITIONS. THE VARI OUS HONBLE COURTS HELD THE PRINCIPAL OF CONSISTENCY SHOULD BE FOLLO WED. MODE OF ASSTT. CANT BE CHANGED REASON (2010) 327 ITR 26 ( P&H) CIT V HARIYANA TOURISM CORPORATION LTD. FURTHER HONBLE R AJASTHAN HIGH COURT ALSO HELD THAT ACCEPTED HISTORY OF THE CASE C ANT BE ALTERED 195 (1995) ITR 769 (RAJ.) SARDAR KEHAR SINGH V. CIT. TH E ASSESSEE REPEATEDLY SUBMITTED THAT IN ASSESSEES CASE THERE IS CONSISTENTLY ACCEPTED HISTORY, NO CHANGE IN THE METHODOLOGY OF A CCOUNTS AS SUCH ON THE BASIS ALONE NO ADDITION IS CALLED FOR AS PRE CEDENT SHOULD BE FOLLOWED ONLY SO FAR AS IT MERITS THE PATH OF JUSTI CE. 5. YOUR HONOUR REFERRED THE CASES OF RAINA GARG & S EEMA GARG WHO ARE SAID TO BE DEALING IN TENDU PATTA TRADING. THE CASES OF ABOVE 6 ASSESSEES ARE NOT COMPARABLE AS THE FACTS & MERITS ARE DIFFERENT & FOR FETCHED FROM THE CASE OF ASSESSEE BECAUSE EACH CASE DEPENDS ON ITS PECULIAR FACTS & CIRCUMSTANCES E.G. KIND OF TR ADE, WHETHER MANUFACTURING/PROCESSING OR TRADING, QUANTUM OF TUR NOVER, CIRCUMSTANCES, FLEXIBILITY IS POSSIBLE IN EVERY CAS E. EVEN ONE ADDITIONAL OR DIFFERENT FACT MAY MAKE A WORD OF DIF FERENCE BETWEEN CONCLUSIONS IN CASES. RELIANCE IS PLACED ON (2008) 301 ITR 298 (RAJ.) CIT VS. AKJ GRANITES PVT. LTD. THAT THE OTHER CASE NOT COMPARABLE FOR ADOPTING GROSS PROFIT RATE INSTEAD OF THAT DISCLOSE D IN BOOKS OF ACCOUNTS. THE ASSESSEE HAS ALREADY MENTIONED BEFORE YOUR HONOUR THAT THE FIGURES IF TENDU LEAVES NET PROFIT HAVE BE EN CARRIED TO GENERAL P&L ACCOUNT & IN SUCH CIRCUMSTANCES & THE R ECORDS MAINTAINED BY THE ASSESSEE THE CITED CASES ARE NOT COMPARABLE AT ALL WHICH MAY KINDLY BE CONSIDERED IN THE LIGHT OF TURN OVER WHICH AMOUNTS TO NEARLY 30 CRORES & AFTER REMUNERATION TO PARTNERS & DEPRECIATION ON FIXED ASSETS INCOME RETURNED NEARLY 1.10 CRORES. 6. THE ASSESSEE IN THE SUBMISSIONS DATED 29.10.2010 ON PAGE 2 TABULATED THE FIGURES OF TURNOVER, INCOME RETURNED, GP, NP BEFORE & AFTER REMUNERATION TO THE PARTNERS. FROM THE PERUSA L OF FIGURES IT IS APPARENTLY CLEAR THAT NP (TAXABLE ENTITY) BEFORE & AFTER REMUNERATION TO THE PARTNERS IS BETTER THAN PRECEDING YEAR & MUC H BETTER TO PRECEDING YEARS PRIOR TO PRECEDING YEAR EXCEPT SOLI TARY ASSTT. YEAR 2006-07. VARIOUS AUTHORITIES HAVE HELD LAW IS TRIT E ON THE POINT THAT JUST BECAUSE GP US COMPARATIVELY LOW ADDITION CANT BE SUSTAINED. REFERENCE IS MADE ALUMINUM INDUSTRIES (P) LTD. V C IT (1995) 80 TAXMAN 184 (GAUHATI). FURTHER SIGHT FLUCTUATION IN GP COULD NOT BE CAUSE OF ADDITION BECAUSE IN THE AGE OF COMPETITION GP CANT BE CONSTANT IN EACH YEAR. THE SUBMISSION MADE ON 29.10 .2010 HAS BEEN PARTLY CONSIDERED WHEREAS FULLY DISCUSSED ON PAGE 2 THAT IN ASSESSEES CASE THERE HAS BEEN ACCEPTED HISTORY SINCE LAST NUM BER OF YEAR & GP & NP IS NEVER CONSTANT IN THE TRADE. IN ASSTT. YEAR S 2006-07 & 2007- 08 NO TRADING ADDITION WAS MADE. IF AN OPEN LOOK IS GIVEN TO THE FIGURES OF NP AFTER REMUNERATION TO PARTNERS SINCE ASSTT. YEAR 2001-02 TO THE YEAR OF ASSTT. YOUR HONOUR WOULD CERTAINLY F EEL SATISFIED WITH RESULTS OF THE YEAR UNDER ASSTT: 7 ASSTT. YEAR NP AFTER REMUNERATION 2001-02 0.87% UPHELD BY HONBLE ITAT 2002-03 2.60% 2003-04 1.60% UPHELD BY HONBLE ITAT 2004-05 0.50% 2005-06 2.14% NO TRADING ADDITION 2006-07 4.06% 2007-08 3.37% 2008-09 3.98% DECLARED IN THE YEAR UNDER ASSTT., ASSESSEES TURNOVER JUMPE D NEARLY 2.40 TIMES & SO THE NET TAXABLE INCOME. THE ASSESSEE MAINTAINS COMPLETE SETS OF ACCOUNTS IN HEAD OFFICE & BRANCHES & ALSO FOREST UN ITS FULLY SUPPORTED BY VOUCHERS, RECEIPTS ETC., WHICH HAVE BEEN PRODUCE D BEFORE YOUR HONOUR. HOWEVER, THE AO DID NOT FEEL SATISFIED AND HE HAS REPEATED ALL THE ALLEGATIONS AND FINALLY APPLIED SEC.145(3) OF THE A CT, BY REJECTING THE BOOKS OF ACCOUNTS. FOR MAKING ESTIMATION HE HAS REFERRED TO THE DECISION OF THE CASE OF KANSARA BEARING PVT. LTD. V/S ACIT 270 ITR 235 (RAJ) WHEREIN, IT IS HELD THAT LAST YEAR PROFIT IS THE BEST GUIDE. HE ALSO REFERRED TO THE COMPARABLE CASES OF RAINA GARG 16.13% AND SEEMA GAR G 17.89%. THE GP RATE OF 11.21% WAS FOUND TO BE REASONABLE AND WAS A PPLIED AS AGAINST GP 8 RATE OF 8.81% SHOWN BY THE ASSESSEE ON THE TURNOVE R OF RS. 29,34,84,688/-. ACCORDINGLY, HE HAS MADE A TRADING ADDITION OF RS . 70,05,050/-. 5. WHEN CHALLENGED BY THE ASSESSEE, THE LD. CIT(A) HAS CONFIRMED THE INVOKING OF SEC.145(3) OF THE ACT, ON THE GROUNDS T HAT TO ASCERTAIN THE CORRECTNESS OF THE CONTRADICTORY CLAIMS MADE BY THE AO AND THE ASSESSEE, THE BOOKS OF ACCOUNT FOR THE RELEVANT PERIOD WERE CALLE D FOR AND WERE EXAMINED AND HE NOTED CERTAIN SHORT COMINGS/OMISSIONS VIZ. L ACK OF DIRECT EVIDENCES OF PAYMENT OF LABOUR, STOCK REGISTER WAS NOT FOUND MAI NTAINED IN CHRONOLOGICAL MANNER, SALES BILL WERE FOUND ISSUED PRIOR TO DISPA TCHES SHOWN IN THE STOCK REGISTER ETC. IN VIEW OF THE ABOVE FACTS TOGETHER W ITH THE FACTS THAT IN THE CURRENT YEAR THE GP HAS BEEN SHOWN AT LOWER RATE TH AN THE PREVIOUS YEAR, THEREFORE, THE AO WAS FOUND JUSTIFIED IN INVOKING T HE PROVISION OF SEC. 145(3). IN SUPPORT HE RELIED UPON THE CASES OF RAJE NDRA PRASAD SUBASH CHANDRA 237 CTR 382 (RAJ.), NARSINGH DAS RAMKISHAN PUNGLIA 272 ITR 469 (RAJ.) AND SHRI RAM & CO. -316 ITR 139 (RAJ.). AS REGARDS THE ESTIMATION OF INCOME, HE FOUND THE DECISION OF HON BLE S.C. IN THE CASE OF KANCHWALA GEMS 288 ITR 10, QUITE RELEVANT WHEREIN I T IS HELD THAT THE IF THE REJECTION OF BOOKS IS RESULT OF SEVERAL DEFECTS FOU ND THEREIN THAN THE ESTIMATION OF INCOME EVEN ON GUESS WORK IS JUSTIFIE D. HE ALSO OBSERVED THAT IT IS A SETTLED LAW THAT UNDER SUCH CIRCUMSTANCES, THE PAST HISTORY OF ASSESSEE 9 WOULD BE ONE OF THE MOST RELIABLE GUIDELINE AND DER IVED SUPPORT FROM THE DECISIONS IN THE CASES OF M/S INANI MARBLES 316 ITR 125 (RAJ) AND M/S ACTION ELECTRICALS 258 ITR 188 (DEL). HE FURTHER OB SERVED THAT EACH YEAR IS A SEPARATE YEAR HAVING DIFFERENT CIRCUMSTANCES INVOLV ED THEREIN HENCE, APART FROM THE PAST HISTORY EVEN THE FACTS AND CIRCUMSTAN CES OF THE CURRENT YEAR SHOULD ALSO BE TAKEN INTO CONSIDERATION, WHILE ARRI VING AT ANY PARTICULAR CONCLUSION. HE NOTICED THAT IN THE CURRENT YEAR THE TURNOVER INCREASED FROM RS.12.73 CRORES OF PREVIOUS YEARS TO RS.29.34 CRORE S, WHICH AMOUNTS TO JUMP OF 240% (APPROX), ON THIS ACCOUNT AND ADMITTEDLY TO ACHIEVE THE SUBSTANTIAL HIGHER INCREASE IN TURNOVER, NORMALLY ONE HAS TO CO MPROMISE WITH THE PROFITS. THIS FACT WOULD HAVE PARTIALLY CONTRIBUTED IN THE OVERALL FALL IN GP RATE BY 2.39% IN THE CURRENT YEAR. HENCE, FOR THESE REASONS, THE CURRENT YEAR AND IMMEDIATE PREVIOUS YEAR ARE NOT STRICTLY COMPAR ABLE AS SUCH. HE HELD THAT THE AO STRAIGHT AWAY APPLIED THE GP RATE AT 11 .20% BUT IGNORED THE ABOVE CRUCIAL ASPECT WHICH CERTAINLY HAD A DIRECT B EARING ON THE PROFIT RATION OF THE CURRENT YEAR. FINALLY TO STRIKE A BALANCE, H E APPLIED GP RATE OF 9.50% AND ACCORDINGLY HE PARTLY REDUCED THE TRADING ADDIT ION TO RS.70,05,050/- AS AGAINST THE ADDITION OF RS.70,050,050/- MADE BY THE AO. THE ASSESSEE IS FURTHER AGGRIEVED AND REVENUE IS ALSO AGGRIEVED AGA INST THE REDUCTION OF THIS ADDITION 10 6. BEFORE US, THE LD. AR HAS VEHEMENTLY ARGUED THAT THE APPLICATION OF SEC.145(3) ON THE FACTS OF THE PRESENT CASE WAS NOT WARRANTED IN AS MUCH AS THE ASSESSEE HAS MAINTAINED COMPLETE BOOKS OF ACCOU NT CONSISTING OF CASH BOOK, LEDGER AND JOURNAL, VARIOUS STOCK REGISTERS S HOWING FULL QUANTITATIVE DETAILS ON DAY TO DAY BASIS AND OTHER DETAILS ETC A T EACH WORK STATION (6 UNITS). ALL THE PURCHASES AND SALES ARE FULLY VOUCH ED. ALL THE EXPENSES ARE FULLY SUPPORTED BY VOUCHERS. HE REFERRED TO A DETAI LED LIST OF THE ACCOUNTS PLACED AT PAGE 1 OF THE ASSESSEES PAPER BOOK SHOWI NG THE MAINTENANCE OF ACCOUNTS AND OTHER RECORDS. HE FURTHER SUBMITTED T HAT THE ACCOUNTS WERE SUBJECTED TO TAX AUDIT U/S 44AB AND THE SAME WERE P RODUCED BEFORE THE AO ALSO, ALONG WITH OTHER DETAILS FROM TIME TO TIME. T O MEET WITH AOS OBJECTIONS, HE FURTHER SUBMITTED THAT THE ASSESSEE DID NOT MAINTAIN DAY TO DAY STOCK AND DREW OUR ATTENTION TO PAGES 1, 3 TO 7, 11 1 TO 164 OF THE ASSESSEES PAPER BOOK. WITH REGARD TO VARIOUS OTHER ALLEGATION S, HE REPEATED THE SAME CONTENTIONS AS WERE RAISED BEFORE THE AO AND THE LD . CIT(A) AND ALSO REFERRED TO VARIOUS PAPERS OF THE ASSESSEES PAPER BOOK. AS REGARDS TO THE OBSERVATIONS OF THE LD. CIT(A) HE ALLEGED THAT DETAILED SUBMISSI ONS WERE FILED AT PAGES 227 TO 237 OF THE ASSESSEES PAPER BOOK, CLARIFYING ITS DOUBTS HOWEVER, THE SAME WERE COMPLETELY IGNORED. HE SUBMITTED THAT MINOR I RREGULARITIES, EVEN ASSUMING WERE THERE CANNOT BE MADE A BASIS OF THE R EJECTION OF THE ACCOUNTS 11 AND RELIED UPON THE CASE OF PADAMPATH RAMGOPAL 76 I TR 719 (SC). HE ALSO RELIED UPON THE CASES OF NISAR BIRI SIKKA V/S CIT 1 74 TAXMAN 51(ALL), CIT V/S PARADISE HOLIDAYS (2010) 325 ITR 13 (DEL). FINA LLY, HE PRAYED THAT THE INVOKING OF SEC.145(3) BE HELD INVALID AND CONSEQUE NTLY, THE TRADING ADDITION MADE BY THE AO BE DELETED IN FULL. COMING TO THE ESTIMATION OF INCOME HE FIRSTLY RELIED UPON THE CASES IN CIT VS. GOTAN LIME KHANIZ UDYOG 256 ITR 243 (RAJ) WHEREIN IT HAS BEEN HELD THAT M ERE REJECTION OF BOOKS OF ACCOUNTS NEED NOT NECESSARILY LEAD TO ADDITIONS TO THE RETURNED INCOME AND SUBMITTED THAT IN THE PRESENT CASE, THE AO AND THE LD. CIT(A) HAVE NOT MADE A FAIR ESTIMATION IN CONFORMITY OF THE ABOVE SETTLED JUDICIAL GUIDELINE. THERE WAS NO VALID BASIS OF APPLYING 11.21% OR 9.50%. AS REGA RDS THE REASON BEHIND THE FALL IN THE GP RATE DECLARED, HE FILED DETAILED WRITTEN SUBMISSIONS HENCE, WE FIND IT CONVENIENT TO REPRODUCE THE RELEVANT EXT RACT READING AS UNDER: 11. REASONS OF LOW GP RATE THIS YEAR: THE GP RATE DECREASED FROM 11.21% DECLARED LAST YEAR TO 8.81% DECLARED THIS YEAR. HOW EVER, THERE HAS BEEN VALID REASONS BEHIND SUCH FALL WHICH HAVE NOT BEEN CONSID ERED BY THE AO AND THE CIT(A) AT ALL. FIRSTLY, THE GP/NP RATE IN SUCH CASES IS NORMALLY D IRECTLY AFFECTED BY THE ATMOSPHERE/WEATHER CONDITIONS. THE QUALITY OF LEAVE S DEPENDS ON WEATHER, ATMOSPHERIC CONDITION & ITS PRICES DEPEND ON THE Q UALITY, WHICH IS BEYOND HUMAN CONTROL. OUT OF THE TOTAL TURNOVER OF RS.29.35 CRORES (RS.29 ,34,84,688/-) THE CONTRIBUTION ON ACCOUNT OF SALE OF BIDIS WAS ONLY OF RS.2,92,13, 579/- CONSTITUTING OF 10% (APPROX.) OF THE TOTAL SALE, WHEREAS THE REST OF TH E SALE WAS OF TENDU PATTA. HOWEVER, THERE HAS BEEN A SUBSTANTIAL INCREASE IN THE PURCHASE RATE OF TENDU PATTA ( PURCHASED FROM BETUL MP STATE), WHICH INCREASED FRO M AVERAGE 12 RATE OF RS.1,160/- PER BAG IN THE PRECEDING YEAR (PB 34A) TO RS.2,124/- THIS YEAR I.E. AN INCREASE OF RS.964/- PER BAG OR IN OTHER WORDS, INCREASE OF 83%. HOWEVER, NO CORRESPONDING INCREASE IN SELLING PRICE WAS THERE WHICH INCREASED FROM AVERAGE RATE OF RS.1,540/- PER BAG LAST YEAR (PB 25A) TO RS.2,237/- THIS YEAR I.E. AN INCREASE OF RS.697/- PER BAG ONLY OR I N OTHER WORDS, INCREASE OF 45.25% ONLY FROM LAST YEAR. IN SUPPORT COPIES OF FE W DETAILS OF PURCHASE BILLS (PB 34) AS ALSO THE DETAILS OF SALE BILLS (PB 21-25A) OF THE TWO YEARS ARE ENCLOSED. THE TOTAL TURNOVER OF TENDU PATTA WAS OF RS.26,42,7 1,109/- OUT OF WHICH ALMOST HALF OF THE SALE WAS FROM MP STATE I.E. RS.14,05,57 ,815/-. MOREOVER, IN TENDU PATTA OF MAHARASTRA STATE WHEREIN PURCHASES WERE OF RS.3,40,85,802/- THE ASSESSEE COULD EARN A GP OF 2. 80% ONLY [I.E. SALE RATES OF RS.2,536/- PER BAG LESS PURCHASE RATE OF RS.2,455/- PER BAG]. THIS HAS CONTRIBUTED TO DOWNFALL IN THE GP RATE (PB 26) . THERE WAS NO OPENING AND CLOSING STOCK IN THIS ACCOUNT. FURTHER INSTEAD OF CONSIDERING THE GP RATE, HE PRAY ED TO CONSIDER THE NP RATE, AS WAS DONE ALL ALONG IN THE PAST UPTO THE STAGE OF ITAT. 7. ON THE OTHER HAND, THE LD. DR STRONGLY RELIED ON THE FINDINGS OF THE ASSESSMENT ORDER AND STATED THAT THE LD. CIT(A) IS NOT JUSTIFIED IN PARTLY DELETING THE ADDITION AND STATED THAT THE ADDITION MADE BY THE AO BE RESTORED. 8. WE HAVE CAREFULLY CONSIDERED THE FINDINGS RECORD ED BEFORE THE AUTHORITIES BELOW, THE RIVAL CONTENTIONS OF THE PAR TIES. WE HAVE ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. FIRSTLY, WE DEAL WITH THE CROSS OBJECTIONS FILED BY THE ASSESSEE IN GROUND NO.1.1 WHEREIN THE ASSESSEE HAS CHALLENGED THE INVOCATION AND CONFIRMATION OF THE PROVISIONS O F SEC.145(3) OF THE ACT. 13 THOUGH NO DOUBT THE LD. AR STRONGLY CONTENDED THAT REJECTION OF THE ACCOUNTS IN THE FACTS AND CIRCUMSTANCES OF THE CASE WAS NOT JUSTIFIED HOWEVER, WE CONCUR WITH THE FINDINGS RECORDED BY TH E LD. CIT(A) WHILE CONFIRMING THE REJECTION OF THE ACCOUNTS. DETAILED FINDINGS WERE RECORDED BY THE ASSESSING OFFICER AND THE LD. CIT(A) ON THIS AS PECT HENCE, WITHOUT REPEATING THE SAME, WE HEREBY UPHELD THE APPLICATIO N OF SEC.145(3) OF THE I.T. ACT, 1961. 9. COMING TO THE ESTIMATION, IT IS WELL SETTLED TH AT ONCE ACCOUNT ARE REJECTED, A FAIR ESTIMATION IS REQUIRED TO BE MADE AND IT IS ALSO WELL SETTLED THAT THE FAIR ESTIMATION DOES INCLUDES GUESS WORK. HOWEVER, TO MAKE THE ESTIMATION FAIR AND RATIONAL AND WITH A VIEW TO ELI MINATE ELEMENT OF GUESS WORK, SURMISES AND CONJUNCTURE, THE COURTS HAVE ALS O HELD TO TAKE INTO CONSIDERATION ALL THE RELEVANT MATERIAL, FACTS AND CIRCUMSTANCES, HAVING A DIRECT BEARING OVER THE ESTIMATION. IN ANY CASE, IT HAS TO BE A CUMULATIVE EFFECT OF THE VARIOUS RELEVANT FACTORS. IN THE PRES ENT CASE, THE LD. CIT(A) HAS RIGHTLY CONSIDERED THE FACT THAT THERE HAS BEEN SHA RP INCREASE OF 240% IN THE TURNOVER WHICH HAS INCREASED FROM RS.12.73 CRORES L AST YEAR TO RS.29.34 CRORES THIS YEAR AND TO ACHIEVE SUCH A TREMENDOUS I NCREASE, THE ASSESSEE MUST HAVE COMPROMISED WITH THE MARGINS WHICH CERTAI NLY JUSTIFIES FALL IN THE GP RATE BY 2.39% TO AN EXTENT. ON THIS ACCOUNT WE F IND SUPPORT FROM A 14 DECISION OF HONBLE RAJASTHAN HIGH COURT RENDERED I N THE CASE OF CIT V/S AMRAPALI JEWELS (P) LTD. (2012) 65 DTR 196 (RAJ) WH EREIN ALSO THE DELETION BY THE CIT(A) BASED ON A SHARP INCREASES IN THE TUR NOVER, HAS BEEN AFFIRMED BY THE HONBLE COURT. 10. FURTHER PAST HISTORY HAS BEEN HELD TO BE THE BE ST GUIDE IN THE CASES OF ESTIMATION. THE LD. CIT(A) ALSO HELD THAT THE PAST HISTORY WOULD BE MOST RELIABLE GUIDELINE IN THIS REGARD. HOWEVER, IT APPE ARS THAT THE LD. CIT(A) HAS CONTINUED HARPING UPON THE INCREASE IN TURNOVER AND TAKING THAT FACTOR ALONE HAS ESTIMATED GP RATE AT 9.50% WITHOUT FURTHER LOO KING INTO THE OTHER CONTENTIONS OF THE ASSESSEE AND RELEVANT FACTORS TH OUGH MADE AVAILABLE ON RECORD. HE ALSO DID NOT PROVIDE ANY BASIS AS TO WHY APPLICATION OF GP RATE AT 9.50% WAS JUSTIFIED. IT IS NOTICED THAT THE ASSESSE E HAD PROVIDED SPECIFIC REASONS BECAUSE OF WHICH THE GP RATE DECLARED IN TH IS YEAR HAS COME DOWN TO 8.81% AS AGAINST 11.21% DECLARED IN THE LAST YEAR, WHICH ASPECT, HAS BEEN COMPLETELY IGNORED BY THE LD. CIT(A). IT IS SEEN TH AT OUT OF THE TOTAL TURNOVER RS.29.34 CRORES THE SALE OF BEEDI WAS OF RS.2,92,13 ,579/- WHICH CONSTITUTED 10% ONLY OF THE TOTAL SALE AND REST OF THE SALE WAS ON ACCOUNT OF TENDU PATTA BUT THERE HAS BEEN A SUBSTANTIAL INCREASE IN THE P URCHASE RATE OF TENDU PATTA AS SHOWN BY THE ASSESSEE IN THE COMPARATIVE CHART P LACED BY AT PAGE 34A OF THE ASSESSEES PAPER BOOK, ACCORDING TO WHICH THERE HAS BEEN INCREASE OF 15 RS.964/- PER BAG REGISTERING AN INCREASE OF 83%. ON THE OTHER HAND, HOWEVER, THE CORRESPONDING INCREASE IN SELLING PRIC E WAS ONLY UP TO 45.25% IN AS MUCH AS THE AVERAGE SALE RATE OF RS.1,540/- P ER BAG IN LAST YEAR COULD INCREASE UP TO RS.2,237/- THIS YEAR. THIS IS EVIDEN T FROM A CHART PLACED AT PAGE 25A OF THE ASSESSEES PAPER BOOK ALONG WITH TH E COPIES OF THE PURCHASE BILLS (PB 34) AS ALSO SALE BILLS (PB 21-25A). MOREO VER, IN MAHARASTRA STATE IN THE SUBSTANTIAL PURCHASES OF RS.3,40,85,802/- TH E ASSESSEE COULD EARN A GP OF 2.80% ONLY. THERE WAS NO OPENING AND CLOSING STO CK IN THIS ACCOUNT. THIS IMPLIES THAT THE ASSESSEE COULD EARN VERY LOW MARGI N AS COMPARED TO THE PRECEDING YEAR. 11. WE HAVE FURTHER NOTED THAT IN PAST VARIOUS YEAR S, THE REVENUE ITSELF HAS BEEN APPLYING A FLAT NP RATE AFTER REJECTING TH E ACCOUNTS AND THEREFORE, WHEN THE MATTER IN VARIOUS YEARS REACHED UP TO THE TRIBUNAL, THE TRIBUNAL HAS ALSO ESTIMATED THE INCOME BASED ON THE APPLICATION OF FLAT NP RATE. HENCE, THERE APPEARS NO JUSTIFIABLE REASON NOR THE AUTHORI TIES BELOW HAVE EVER JUSTIFIED, AS TO WHY THIS YEAR THE AO AND LD. CIT(A ) SHOULD HAVE CONSIDERED THE GP RATE ONLY FOR MAKING A COMPARISON WITH PAST YEAR/S. THIS YEAR, THE ASSESSEE DECLARED NP RATE OF 3.90% AS AGAINST 3.37% LAST YEAR. FROM A PERUSAL OF THE COMPARATIVE NP CHART STARTING FROM A .Y.2001-02 TO THE SUBJECTED A.Y.2008-09 AND PERUSAL OF THE VARIOUS IT AT ORDERS PLACED IN THE 16 ASSESSEES PAPER BOOK, IT IS NOTICED THAT THE TRIBU NAL HAS UPHELD EVEN 0.50% IN A.Y.2004-05. FURTHER IN A.YS.2005-06 TO 2007-08 ALTHOUGH ASSESSMENTS WERE COMPLETED UNDER SCRUTINY U/S 143(3) WHEREIN TH E ASSESSEE DECLARED NP RATE RANGING BETWEEN 2% TO 3.40% YET HOWEVER, NO TR ADING ADDITION, APPEARS TO HAVE BEEN MADE. IT IS ALSO NOTICED THAT IN A.Y. 01-02 NP RATE OF 0.87% AND IN A.Y. 03-04 NP RATE AT 1.60% WAS DECLARED AND WAS UPHELD BY THE TRIBUNAL. THIS YEAR, THE ASSESSEE DECLARED NP RATE AT 3.98% WHICH IS CERTAINLY BETTER THAN NP RATE AT 3.37% DECLARED LAS T YEAR. IN A.Y.2006-07 THE ASSESSE ITSELF DECLARED NP RATE AT 4.06% HOWEVER, A BETTER COURSE WOULD BE, IN THE CASE OF FAIR ESTIMATION, TO CONSIDER AN AVER AGE OF 2-3 YEARS OF THE PAST AS AGAINST COMPARING WITH THE IMMEDIATELY PRECEDING YEAR ALONE. IN THE CASE OF M/S SINGHAL BUILDER CONTRACTOR IN ITA NO.904/JP/ 2012 & ITA NO.896/JP/2012 VIDE ORDER DATED 20.08.2013, THE TRI BUNAL HAS TAKEN SIMILAR VIEW. WE FIND THAT IN A.Y.2005-06 TO 2007-08 THE TU RNOVER HAS BEEN ALMOST SIMILAR I.E. RANGING BETWEEN RS.12.50 LACS TO RS.12 .80 LACS AND THEREFORE, IT WOULD BE QUITE REASONABLE TO CONSIDER AVERAGE OF TH E THREE YEARS, WHICH COMES TO 3.19%. AS AGAINST THIS THE ASSESSEE HAS AC HIEVED A TURNOVER OF MORE THAN RS.29 CRORES WITH NP RATE OF 03.98% THIS YEAR. THUS, LOOKING FROM ALL THE ANGLES, IT APPEARS THAT THE RESULTS DE CLARED BY THE ASSESSEE THIS YEAR, ARE CERTAINLY MUCH BETTER THAN THE IMMEDIATEL Y PRECEDING YEAR OR AS 17 COMPARED TO PAST SOME YEARS. THE LD. CIT(A) HOWEVER , HAS COMPLETELY IGNORED SUCH MATERIAL THOUGH WERE AVAILABLE AND BRO UGHT TO HIS NOTICE BY THE ASSESSEE. HIS ESTIMATION WAS SOLELY BASED ON THE IN CREASE IN THE TURNOVER WHICH, IN OUR VIEW WAS JUSTIFIED, HOWEVER, THAT WAS ONLY ONE OF THE RELEVANT FACTORS WHICH ALSO EQUALLY DESERVE CONSIDERATION AN D IT IS A CUMULATIVE EFFECT OF ALL SUCH FACTORS, BASED ON WHICH A CONCLUSION HA S TO BE DRAWN. IN VIEW OF THE ABOVE FACTS AND DISCUSSION, WE FIND NO JUSTIFIC ATION FOR THE LD. CIT(A) YET TO UPHELD THE GP RATE AT 9.50%. WE FIND FORCE I N THE CONTENTION OF THE LD. AR THAT THE AO THOUGH HEAVILY RELIED UPON SOME COMP ARABLE CASES OF RAINA GARG (16.13%) AND SEEMA GARG (17.89%) BUT THERE APP EARS NOTHING TO SHOW THAT THE ASSESSEE WAS EVER CONFRONTED WITH THE NECE SSARY FACTS AND FIGURES OF THESE CASES. THEREFORE, SUCH MATERIAL WHICH WAS NOT CONFRONTED TO THE ASSESSEE COULD NOT BE USED AGAINST THE ASSESSEE. TH EREFORE, THE AO COULD OR SHOULD NOT HAVE DRAWN ANY SUPPORT FROM THESE CASES WHILE MAKING ESTIMATION IN THIS CASE. TAKING A CIRCUMSPECT VIEW OF ALL THE FACTS AND CIRCUMSTANCES, THE MATERIAL PLACED ON RECORD AND TH E RIVAL CONTENTIONS, WE ARE OF THE CONSIDERED OPINION THAT THE NP RATE AS D ECLARED BY THE ASSESSEE AT 3.98% WAS QUITE JUSTIFIED AND ADDITION MADE BY THE AO BY APPLYING GP RATE OF 11.21% AS AGAINST 8.41% DECLARED BY THE ASSESSEE IS NOT JUSTIFIED. THERE WAS ALSO NO JUSTIFICATION FOR THE CIT(A) TO HAVE AP PLIED GP RATE OF 9.50% IN 18 VIEW OF DETAILED DISCUSSION MADE HEREIN ABOVE. HEN CE, THE ADDITION PARTLY SUSTAINED BY THE LD. CIT(A) OF RS.20,15,810/- IS HE REBY DELETED. IN THE RESULT, THIS GROUND TAKEN BY THE REVENUE IS DISMISSED AND C ROSS-OBJECTION OF THE ASSESSEE IS ALLOWED. WE ORDERS ACCORDINGLY. 12. IN THE RESULT, APPEAL OF THE REVENUE IS DISMIS SED AND THE CROSS OBJECTIONS OF THE ASSESSEE STAND PARTLY ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 11-0 3-2014 SD/- SD/- ( N.K. SAINI ) (HARI OM MARATHA ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 11 TH MARCH, 2014 *MISHRA COPY FORWARDED TO :- 1. THE ACIT, CIRCLE-7., JAIPUR 2. M/S. ID. MOHD. NIZAMUDDIN, TONK 3. THE LD.CIT(A) 3. THE LD CIT 4. THE D/R 5. GUARD FILE (ITA NO.258/JP/2012) BY ORDER, AR ITAT, JAIPUR 19 20 21