The ITO, Ward-2(3), Surat V. Shri Rajeshkumar C.Relan, Surat

ITA 2895/AHD/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 50669 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 10 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 08-09-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 19-10-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RASESH SHAH
• Keywords: Gross profit estimation; Rejection of books of accounts; Business income; Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH AHMEDABAD (BEFORE SHRI G. D. AGARWAL, VP AND SHRI BHAVNESH SA INI, JM) ITA NO.2895/AHD/2009 A. Y.: 2006-07 THE INCOME TAX OFFICER, WARD -2 (3), 1 ST FLOOR, AAYAKAR BHAVAN, MAJURA GATE, SURAT VS SHRI RAJESHKUMAR C. RELAN, PROP. ROOPAM SAREES, 203, ASHOKA TOWER, RING ROAD, SURAT PA NO. AAXPR 7021 H (APPELLANT) (RESPONDENT) C.O. NO.290/AHD/2009 (IN ITA NO.2895/AHD/2009:A.Y.: 2006-07) SHRI RAJESHKUMAR C. RELAN, PROP. ROOPAM SAREES, 203, ASHOKA TOWER, RING ROAD, SURAT VS THE INCOME TAX OFFICER, WARD -2 (3), 1 ST FLOOR, AAYAKAR BHAVAN, MAJURA GATE, SURAT PA NO. AAXPR 7021 H (APPELLANT) (RESPONDENT) DEPARTMENT BY SHRI VINOD TANWANI, SR. DR ASSESSEE BY SHRI RASESH SHAH, AR DATE OF HEARING: 08-09-2011 DATE OF PRONOUNCEMENT:09-09-2011 O R D E R PER BHAVNESH SAINI: THE DEPARTMENTAL APPEAL AS WELL AS THE CROSS OBJECTION BY THE ASSESSEE ARE DIRECTED AG AINST THE ORDER OF ITA NO. 2895/AHD/2009 & C.O. NO. 290/AHD/2009 SHRI RAJESHKUMAR C. RELAN, PROP. ROOPAN SAREES 2 THE LEARNED CIT(A)-II, SURAT DATED 21-07-2009 FOR T HE ASSESSMENT YEAR 2006-07. 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES AND PERUSED THE FINDINGS OF THE AUTHORITIES BELOW. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO PLACED ON RECORD COPY OF THE WRITTEN SUBMISSION FILED BEFORE THE LEARNED CIT(A). BOTH TH E MATTERS ARE DISPOSED OF ISSUE WISE AS UNDER ISSUE NO.1 3. ON GROUND NO.1, THE REVENUE CHALLENGED THE OR DER OF THE LEARNED CIT(A) IN RESTRICTING THE ADDITION MADE BY THE AO O F RS.18,24,272/- ON ACCOUNT OF LOW GROSS PROFIT TO RS.5,41,997/-. TH E ASSESSEE ON GROUND NO.1 OF THE CROSS OBJECTION CHALLENGED THE C ONFIRMING OF ADDITION TO THE EXTENT OF RS.5,41,997/- ON THE SAME ISSUE. 4. THE FACTS ON THIS ISSUE ARE THAT DURING THE YEAR , THE ASSESSEE HAD SHOWN GROSS PROFIT RATIO OF 6.31% ON A TURNOVER OF RS.3.21 CRORES. THE AO EXAMINED THE STOCK REGISTER WHICH WA S MAINTAINED BY THE ASSESSEE ON A DAILY BASIS. ON EXAMINATION OF THE CLOSING STOCK AS RECORDED IN THE STOCK REGISTER AND ITS COMPARISO N WITH THE CLOSING STOCK IN THE AUDIT REPORT/THE AO NOTED CERTAIN DISC REPANCIES, WHICH HE HAS DISCUSSED ON PAGES 3 OF THE ASSESSMENT ORDER. AN ANALYSIS OF THE CLOSING STOCK SHOWN IN THE AUDIT RE PORT, AND ITS COMPARISON WITH THE STOCK BOOK SHOWED THAT THE ASSE SSEE HAD EXCESS STOCK OF 161.75 METERS WITH THE MILLS, WHICH HAD NOT BEEN REFLECTED IN THE STOCK BOOK. THE AO ALSO POINTED OU T CERTAIN OTHER ITA NO. 2895/AHD/2009 & C.O. NO. 290/AHD/2009 SHRI RAJESHKUMAR C. RELAN, PROP. ROOPAN SAREES 3 DISCREPANCIES IN THE STOCK ON CERTAIN DATES, BETWEE N WHAT HAD BEEN SHOWN IN THE STOCK REGISTER AND WHAT ACTUALLY OUGHT TO HAVE BEEN WITH THE MILLS ON THOSE DATES. FURTHER, THE ASSESSEE HAD SHOWN SHORTAGE OF 1% IN EACH AND EVERY LOT OF FINISHED GOODS RECEI VED FROM THE MILLS. THERE WAS ALSO NO CLOSING STOCK OF PACKING MATERIAL S. THE OPENING STOCK AS ON 01-04-2005 WAS OF RS.1,28,693/-. DURIN G THE MONTH OF MARCH 2006, THE ASSESSEE HAD PURCHASED PACKING MATE RIALS WORTH RS.L,98,022/- WHEREAS, IN THE MONTH OF FEBRUARY, 20 06 IT WAS WORTH RS.1,16,593/-. THE PACKING MATERIALS PURCHASED DURI NG MARCH, 2006 WERE 11.29% OF THE TOTAL PURCHASES OF THE YEAR. ON THE OTHER HAND, THE SALES MADE IN THE MONTH OF MARCH, 2006 WERE ONL Y 8.9% OF THE TOTAL SALES. THE AO THEREFORE, TOOK THE VIEW THAT T HERE OUGHT TO HAVE BEEN SOME CLOSING STOCK OF PACKING MATERIALS AS ON 31-03-2006, WHICH THE ASSESSEE HAD NOT SHOWN. THE AO FURTHER OB SERVED THAT THE ASSESSEE HAD CLAIMED SHRINKAGE OF 18.55% WHEREAS, I N THE ASSESSEE'S LINE OF BUSINESS, THE SHRINKAGE OF GREY DURING PROCESSING IN THE MILLS IS USUALLY BETWEEN 10% & 15%. THE SHRI NKAGE SHOWN BY THE ASSESSEE WAS UNUSUALLY HIGH. ACCORDING TO HIM, THE SHRINKAGE SHOULD NOT HAVE BEEN MORE THAN 10% TO15%. SHRINKAGE DEPENDS ON THE QUALITY OF GREY AND THE QUALITY OF FINISH. THE ASSESSEE HOWEVER HAD EXPRESSED HIS INABILITY TO CATEGORIZE / SEGREGA TE THE PURCHASES OF GREY ACCORDING TO QUALITY. THE AO FURTHER NOTED IN SUB-PARA-4.1, VI, AT PAGE-6 OF THE ASSESSMENT ORDER THAT THE ASSESSEE WA S UNABLE TO FURNISH THE BOOKS OF ACCOUNT ALONG WITH THE RELEVAN T BILLS AND VOUCHERS WHICH MEANT THAT THE BOOK RESULTS COULD NO T BE VERIFIED ON THE BASIS OF SUCH FINDINGS AND OBSERVATIONS, THE AO CAME TO THE CONCLUSION THAT THE ASSESSEE'S BOOKS OF ACCOUNT AND THE BOOK RESULTS ITA NO. 2895/AHD/2009 & C.O. NO. 290/AHD/2009 SHRI RAJESHKUMAR C. RELAN, PROP. ROOPAN SAREES 4 WERE NOT VERIFIABLE, AND HENCE, NOT RELIABLE. HE TH EREFORE, REJECTED THE SAME U/S 145(3) OF THE IT ACT. HE THEREFORE, REFERR ED TO THE GROSS PROFIT RATIOS SHOWN BY CERTAIN OTHER CONCERNS WHICH WERE HIGHER THAN SHOWN BY THE ASSESSEE. ACCORDINGLY, THE AO ADOPTED THE GROSS PROFIT RATIO OF 12% AND MADE THE ADDITION OF RS.18,24,272/ - TO THE ASSESSEE'S TOTAL INCOME. 5. THE ADDITION WAS CHALLENGED BEFORE THE LEARNED CIT(A) AND IT WAS CONTENDED BY THE ASSESSEES COUNSEL THAT THE AS SESSEE MAINTAINED COMPLETE BOOKS OF ACCOUNT WHICH WERE AUD ITED U/S 44AB OF THE IT ACT AND THE AUDITED ACCOUNTS ALONG WITH T HE AUDIT REPORT WERE FURNISHED BEFORE THE AO IN COURSE OF THE ASSES SMENT PROCEEDINGS. THE AO REJECTED THE BOOK RESULTS U/S 1 45(3) OF THE IT ACT EVEN THOUGH PROPER EXPLANATION HAD BEEN FURNISH ED WITH REGARD TO EACH AND EVERY ISSUE RAISED BY HIM. HE R AISED THE ISSUE OF NON-MAINTENANCE OF STOCK RECORDS ACCORDING TO QUALI TY. CONSIDERING THE FACT THAT THE ASSESSEE DEALT IN 25 DIFFERENT QU ALITIES OF CLOTHES WHICH WERE FURTHER DIVIDED INTO 70-80 DIFFERENT DESIGNS, IT IS PRACTIC ALLY IMPOSSIBLE TO MAINTAIN QUALITY-WISE RECORD AT EVERY STAGE. THE ASSESSEE HOWEVER, HAD FURNISHED QUANTITY-WISE DETAI LS OF PURCHASES, GREY SENT TO MILLS, FINISHED FABRIC RECEIVED FROM T HE MILLS, SALES AND SALES RETURN ETC. SUCH DETAILS WERE FURNISHED ON MO NTHLY BASIS ALONG WITH A COPY OF THE DAY-TO-DAY STOCK REGISTER. WITH REGARD TO THE DISCREPANCY OF 161.75 METERS AS ON 01-04-2005, IN T HE STOCK OF GREY CLOTH WITH THE MILLS, IT HAS BEEN SUBMITTED THAT TH E GOODS WHICH ARE RECEIVED BACK FROM THE MILLS IS THE NET LENGTH AFTE R DEDUCTION OF SHORTAGE. HENCE, TO CALCULATE THE ACTUAL QUANTITY O F STOCK LYING WITH ITA NO. 2895/AHD/2009 & C.O. NO. 290/AHD/2009 SHRI RAJESHKUMAR C. RELAN, PROP. ROOPAN SAREES 5 THE MILLS, THE GROSS QUANTITY INCLUSIVE OF THE SHOR TAGE SHOULD HAVE BEEN REDUCED. THE AO NOT ONLY MADE AN ERROR IN CALC ULATING SUCH STOCK, HE ALSO FAILED TO MENTION THIS ISSUE IN THE SHOW-CAUSE NOTICE WHICH MEANT THAT THE ASSESSEE WAS DENIED OF AN OPPO RTUNITY TO EXPLAIN THE ALLEGED DISCREPANCY AND CLEAR THE CONFU SION. WITH REGARD TO THE 1% WASTAGE OR SHORTAGE SHOWN IN THE FINISHED GOODS, IT HAS BEEN SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSES SEE THAT IN THE PROCESS OF CUTTING A LUMP OF CLOTH INTO SAREES OF S PECIFIC LENGTH, THERE USUALLY REMAINS A LAST PIECE WHICH IS SHORTER THAN THE REQUIRED LENGTH. IT WAS NOT POSSIBLE TO KEEP A RECORD OF SUCH PIECES , AND THEREFORE, A SHORTAGE OF 1% IS USUALLY CLAIMED WHICH IS MUCH LOW ER THAN THE 2% / 3% NORMALLY CLAIMED BY OTHER BUSINESSPERSONS. AS FO R THE ABSENCE OF PACKING MATERIALS IN THE CLOSING STOCK, IT HAS B EEN SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE ASSESSEE PURCHASED PACKING MATERIALS AS AND WHEN REQUIRED. THIS SAVED EXTRA INVESTMENT AND ALSO SPACE IN THE SHOP PREMISES.AS A RESULT, TH ERE WERE VERY LITTLE PACKING MATERIALS IN HAND AT THE END OF THE YEAR. M UCH OF THE PACKING MATERIALS WERE ALREADY USED UP IN THE FINISHED GOOD S INCLUDED IN CLOSING STOCK. THE AO COMPLETELY MISUNDERST OOD THE NATURE OF THE ASSESSEES BUSINESS AND THE PROCEDURES FOLLO WED. HE THUS ERRONEOUSLY COMPARED THE MONTHLY CONSUMPTION OF PAC KING MATERIAL WITH THE TOTAL SALES OF FINISHED GOODS. THE PACKING MATERIAL EXPENSES DURING THE YEAR WERE 5.47% OF THE TOTAL TURNOVER, A S AGAINST 5.62% IN THE IMMEDIATELY PRECEDING YEAR AND 6.06% THE YEAR B EFORE. WITH REGARD TO THE SHRINKAGE OF 18.55% CLAIMED BY THE AS SESSEE, IT HAS BEEN SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSES SEE THAT SHRINKAGE IN COURSE OF PROCESSING I.E. DYEING AND P RINTING, IS NOT IN ITA NO. 2895/AHD/2009 & C.O. NO. 290/AHD/2009 SHRI RAJESHKUMAR C. RELAN, PROP. ROOPAN SAREES 6 THE CONTROL OF THE ASSESSEE. IT IS ALWAYS IN THE HA NDS OF THE PROCESSORS AND IS EVIDENCED IN THE BILLS RAISED BY THEM. THE LEARNED COUNSEL FOR THE ASSESSEE HAS ENCLOSED COPIES OF SUC H BILLS TO SUPPORT HIS CLAIM IN THIS REGARD. THE SHRINKAGE SHOWN IN TH E EARLIER YEARS HAD BEEN ACCEPTED BY THE DEPARTMENT. WITH REGARD TO THE AO'S OBSERVATION THAT THE BOOKS OF ACCOUNT WERE NOT PROD UCED BY THE ASSESSEE, IT HAS BEEN SUBMITTED THAT BOOKS W ERE DULY PRESENTED BEFORE THE AO FOR VERIFICATION. SINCE, THE AO WAS B USY WITH SOME WORK HE DIRECTED THE INSPECTOR TO VERIFY THE BOOKS. WHEN THE BOOKS WERE PRODUCED BEFORE THE INSPECTOR, HE REQUESTED TH E ASSESSEE TO COME BACK THE NEXT DAY SINCE; HE WAS BUSY WITH SOME REPORT. ON THE NEXT DAY, HE INFORMED THE ASSESSEE THAT HE WOULD IN TIMATE A SUITABLE TIME WHEN THE BOOKS SHOULD BE PRODUCED. NO SUCH INT IMATION WAS SUBSEQUENTLY RECEIVED BY THE ASSESSEE. IT HAS THUS BEEN CONTENDED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE AC TION OF THE AO IN REJECTING THE BOOKS OF ACCOUNT AND IN MAKING THE AD DITION WAS HIGHLY UNJUSTIFIED. THE ASSESSEE RELIED UPON SEVERAL CASE LAWS IN SUPPORT OF THE CONTENTIONS WHICH ARE NOTED IN THE APPELLATE OR DER. 6. THE LEARNED CIT(A) CONSIDERING THE EXPLANATION O F THE ASSESSEE IN THE LIGHT OF THE FINDINGS OF THE AO CON FIRMED THE REJECTION OF THE BOOK RESULTS, HOWEVER, HE HAS REDUCED THE AP PLICATION OF GROSS PROFIT RATIO FROM 12% TO 8% CONSIDERING THE HISTORY OF THE ASSESSEE AND GRANTED PART RELIEF TO THE ASSESSEE. HIS FINDIN GS ARE REPRODUCED AS UNDER: ITA NO. 2895/AHD/2009 & C.O. NO. 290/AHD/2009 SHRI RAJESHKUMAR C. RELAN, PROP. ROOPAN SAREES 7 6. I HAVE CAREFULLY CONSIDERED THE VIEW TAKEN BY T HE AO AS ALSO THE WRITTEN SUBMISSIONS OF THE AR. IT HA S BEEN CONTENDED BY THE AR THAT THE ASSESSEE HAD PRODUCED ALL THE BOOKS OF ACCOUNT FOR VERIFICATION WHEN ASKED TO DO SO BY THE AO. I HAVE DISCUSSED THIS MATTER WITH THE AD DL. CIT RANGE-2, SURAT WHO WAS THE AO. HE HOWEVER, TOTALLY DISMISSED SUCH CLAIM. IN FACT, ACCORDING TO THE AO, THE BOOKS WERE NOT PRODUCED EVEN THOUGH THE ASSESSEE AN D THE AR WERE REPEATEDLY ASKED TO DO SO. NOT ONLY IN THIS PARTICULAR CASE, BUT ALSO IN SEVERAL OTHER CASES, THE AR HAD REFRAINED ON SOME GROUND OR THE OTHER, FROM PRODUCING THE BOOKS OF ACCOUNT. THE CONTENTION OF T HE AO WAS INTIMATED TO THE AR WHO WAS ASKED TO PRODUCE RELEVANT EVIDENCE TO SUPPORT HIS CLAIM THAT: THE BO OKS HAD BEEN PRODUCED BEFORE THE AO DURING THE ASSESSMENT PROCEEDINGS. NOT ONLY IS THERE NO ORDER-SHEET NOTIN G, THERE IS ALSO NO FORWARDING LETTER OR ANY COMMUNICA TION WITH THE AR/ASSESSEE TO SHOW THAT THE BOOKS HAD IND EED BEEN PRODUCED. ALONG WITH THE WRITTEN SUBMISSION, T HE AR HAS FURNISHED THE COPY OF AN AFFIDAVIT [OF THE ASSE SSEE WHICH IS A VERBATIM COPY OF WHAT HAS BEEN STATED BY THE AR IN HIS WRITTEN SUBMISSION. 6.1 FROM THE FACTS AS STATED ABOVE, LIT IS ABSOLUT ELY CLEAR THAT THERE IS SIMPLY NO BASIS FOR THE AR'S CL AIM. SINCE, THE BOOKS OF ACCOUNT WERE NOT PRODUCED, THE ACCOUNTS OF THE ASSESSEE AS ALSO THE VARIOUS CLAIMS MADE, AND THE EXPENSES DEBITED, WERE NOT VERIFIABLE . IN SUCH A SITUATION, I AM OF THE VIEW THAT THE AO WAS FULLY JUSTIFIED IN REJECTING THE BOOK RESULTS. THE AO HAS BROUGHT ON RECORD SEVERAL OTHER GROUNDS ON WHICH HE REJECTE D THE BOOK RESULTS, INCLUDING THE DISCREPANCIES IN STOCK RECORDS AS ALSO THE EXCESSIVE SHRINKAGE CLAIMED BY THE ASSESSEE, THE AO'S ACTION OF REJECTING THE BOOK RES ULTS UNDER THE PROVISIONS OF SECTION 145(3) OF THE IT ACT IS THEREFORE, SUSTAINED. 6.2 AFTER REJECTING THE BOOKS, THE AO ESTIMATED TH E GP RATIO OF THE ASSESSEE AT 12%, WHICH WAS WORKED OUT BY THE AO ON THE BASIS OF THE GP RATIOS ALLEGEDLY DISC LOSED ITA NO. 2895/AHD/2009 & C.O. NO. 290/AHD/2009 SHRI RAJESHKUMAR C. RELAN, PROP. ROOPAN SAREES 8 BY SEVERAL OTHER ASSESSEES, WHO HAVE BEEN LISTED OU T BY THE AO AT PARA-4.3, PAGE-7 OF THE ASSESSMENT ORDER. FIRSTLY, I FIND THAT THE ASSESSEE WAS NOT PROVIDED WITH AN OPPORTUNITY TO CONTEST SUCH AN ACTION OF THE AO OR EVEN TO DISTINGUISH THE FACTS OF THE ASSESSEE'S CASE FROM T HE CASES REFERRED TO BY THE AO. IN APPELLATE PROCEEDIN GS, IT HAS BEEN CONTENDED BY THE AR THAT THE PARTIES WHOSE GP RATIOS HAD BEEN LISTED BY THE AO AND RELIED UPON BY HIM, ARE VERY BIG PARTIES AS COMPARED TO THE ASSESSEE, A ND THEIR GP RATIOS IN ANY CASE WOULD HAVE BEEN MUCH HI GHER THAN THE ASSESSEE'S. ALTHOUGH, THE GP RATIO DISCLOS ED BY THE ASSESSEE IN THE IMMEDIATELY TWO PRECEDING YEARS WAS 6.02% AND 6.32%, AND THE AO'S ACTION OF APPLYING TH E GP RATIO OF 12% MAY NOT HAVE BEEN JUSTIFIED YET, THE G P RATIOS DISCLOSED BY THE ASSESSEE DURING THE CURRENT YEAR AND IN THE IMMEDIATELY TWO PRECEDING YEARS, NEED NOT NECESSARILY HAVE BEEN CORRECT DISCLOSURES MA DE BY THE ASSESSEE. GIVEN SUCH FACTS AND CIRCUMSTANCES O F THE CASE, I AM OF THE CONSIDERED OPINION THAT IT WOUL D MEET THE LENDS OF JUSTICE IF THE GP RATIO OF 8% IS APPLI ED TO THE YEAR'S TURNOVER OF RS.3,20,56,869, WHICH WORKS OUT TO RS.25,64,549 AS AGAINST THE GP OF RS.20,22,552 (6.3 1%) DISCLOSED BY THE ASSESSEE. THE ADDITION THEREFORE W ILL BE LIMITED TO RS. 25,64,549 - RS 20,22,552 = RS.5,41,9 97. THE ASSESSEE WILL GET A RELIEF OF RS. 12,82,275. BOTH THE PARTIES ARE IN APPEAL AGAINST THE ORDER OF THE LEARNED CIT(A) NOTED ABOVE. 7. THE LEARNED DR RELIED UPON THE ORDER OF THE AO A ND HIGHLIGHTED THE REASONS FOR REJECTION OF THE BOOK RESULTS AND S UBMITTED THAT SINCE THERE WERE DISCREPANCIES FOUND IN THE STOCK AND THA T THE ASSESSEE FAILED TO PRODUCE THE BOOKS OF ACCOUNTS, BILLS AND VOUCHERS ETC., THEREFORE, DUE TO NON-PRODUCTION OF BOOKS OF ACCOUN TS AND OTHER DETAILS, THE AO WAS JUSTIFIED IN REJECTING THE BOOK S RESULTS AND THE LEARNED CIT(A) HAS RIGHTLY CONFIRMED THE REJECTION OF THE BOOK RESULTS. ITA NO. 2895/AHD/2009 & C.O. NO. 290/AHD/2009 SHRI RAJESHKUMAR C. RELAN, PROP. ROOPAN SAREES 9 THE LEARNED DR SUBMITTED THAT THE LEARNED CIT(A) SH OULD NOT HAVE REDUCED THE ADDITION. ON THE OTHER HAND, THE LEARNE D COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSEE PRODUCED THE LEDGER ACCOUNTS AND OTHERS BEFORE THE AO WHICH WERE EXAMINED. SINCE THE ASSESSEE IS DEALING IN SAREES AT DIFFERENT SITES, THEREFORE, IT WAS DIFFICULT TO MAINTAIN STOCK REGISTER. HE HAS SUBMITTED THAT BOOK RESULTS OF THE ASSESSEE WAS VERIFIABLE AND THAT IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR THE ASSESSEE HAS SHOWN GROSS PROFIT RATE OF 6.02% AND 6.32%. THEREFORE, IN THE ASSESSMENT YEAR UNDER APPEAL THE GROSS PROFIT RATE SHOWN AT 6.31% IS CLEARLY JUSTIFI ED AND NO ADDITION SHOULD HAVE BEEN MADE. HE HAS SUBMITTED THAT ALL TH E DISCREPANCIES POINTED OUT BY THE AO WERE EXPLAINED AND THE ASSESS EE CARRIED THE BOOKS OF ACCOUNTS TO THE INCOME TAX DEPARTMENT TWIC E BUT THE AO WAS BUSY IN OTHER ASSIGNMENTS. THEREFORE, THE SA ME WAS NOT EXAMINED BY HIM. HE HAS SUBMITTED THAT COMPARAB LE CASE WAS NOT CONFRONTED TO THE ASSESSEE; THEREFORE, HISTORY OF THE ASSESSEE IS THE BEST FOR CONSIDERATION OF THE ABOVE ISSUE. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE FINDINGS OF THE AUTHORITIES BELOW. THE AO HAS GIVEN SEVERAL REASONS TO SHOW THAT THERE WAS DISCREPANCY IN THE STOCK. IT WAS ALSO NOTED BY THE AO THAT THE ASSESSEE WAS UNABLE TO FURNISH THE BOOKS OF ACCOUNTS ALONG WITH THE RELEVANT BILLS AND VOUCHERS , THEREFORE, THE BOOK RESULTS COULD NOT BE SUBJECTED TO VERIFICATION . EVEN, THE LEARNED CIT(A) ALSO CONFIRMED THE FINDINGS OF THE AO THAT T HE BOOKS OF ACCOUNTS AND OTHER DETAILS WERE NOT PRODUCED. IN SU CH ITA NO. 2895/AHD/2009 & C.O. NO. 290/AHD/2009 SHRI RAJESHKUMAR C. RELAN, PROP. ROOPAN SAREES 10 CIRCUMSTANCES, THE LEARNED CIT(A) WAS JUSTIFIED IN CONFIRMING THE REJECTION OF THE BOOK RESULTS IN THE MATTER. NO MAT ERIAL OR EVIDENCE IS PRODUCED BEFORE US TO REBUT THE FINDINGS OF THE AUT HORITIES BELOW AND EVEN DURING THE COURSE OF ARGUMENTS BEFORE US; NO B OOKS OF ACCOUNTS HAVE BEEN PRODUCED FOR EXAMINATION. EVEN, IN GROUND NO.1 OF THE CROSS OBJECTION, THE ASSESSEE HAS NOT CHALLENGED RE JECTION OF THE BOOK RESULTS BY THE AUTHORITIES BELOW. THE ASSESSEE MERELY CLAIMED IN THE CROSS OBJECTION THAT THE LEARNED CIT(A) ERRE D IN CONFIRMING PART OF THE ADDITION ON ACCOUNT OF LOW GROSS PROFIT. IN THE ABSENCE OF ANY CHALLENGED TO THE FINDINGS OF THE AUTHORITIES BELOW REJECTING THE BOOK RESULTS OF THE ASSESSEE AND IN THE ABSENCE OF ANY M ATERIAL ON RECORD FROM THE SIDE OF THE ASSESSEE, WE DO NOT FIND ANY J USTIFICATION TO INTERFERE WITH THE ORDERS OF THE AUTHORITIES BELOW IN REJECTING AND CONFIRMING THE REJECTION OF BOOK RESULTS IN THE MAT TER. HOWEVER, WE FIND THAT THE ADDITION MADE AND CONFIRMED BY THE LE ARNED CIT(A) PARTLY IS ALSO EXCESSIVE AND UNREASONABLE. THE ASSE SSEE HAS SHOWN TURNOVER OF RS.3.21 CRORES IN THE ASSESSMENT YEAR U NDER APPEAL ON WHICH GROSS PROFIT RATE OF 6.31% IS DISCLOSED HAVIN G NET PROFIT RATE OF 1.25%. IN THE PRECEDING ASSESSMENT YEAR 2005-06, TU RNOVER OF THE ASSESSEE WAS RS.2.43 CRORES AND THE ASSESSEE DISCLO SED GROSS PROFIT OF 6.02% AND NET PROFIT OF 1.01%. SIMILARLY, IN THE ASSESSMENT YEAR 2004-05, THE ASSESSEE DISCLOSED TURNOVER OF RS .1.91 CRORES DISCLOSING GROSS PROFIT OF 6.32% AND NET PROFIT AT 1.02%. THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS GOTAN LI ME KHANIJ UDYOG, 256 ITR 243 CONSIDERING THE PROVISIONS OF SE CTION 145(3) OF THE IT ACT HELD THAT MERE REJECTION OF BOOKS OF ACCOUNTS DOES NOT MEAN ADDITION IS TO BE MADE. CONSIDERING THE FACTS AND ITA NO. 2895/AHD/2009 & C.O. NO. 290/AHD/2009 SHRI RAJESHKUMAR C. RELAN, PROP. ROOPAN SAREES 11 CIRCUMSTANCES AND THE HISTORY OF THE ASSESSEE IT WO ULD BE REASONABLE AND PROPER TO HOLD THAT THE GROSS PROFIT RATE APPLI ED BY THE AO AT 12% WAS HIGHLY UNREASONABLE, EXCESSIVE AND EXORBITANT. THE LEARNED CIT(A) THOUGH HAS REDUCED THE APPLICATION OF GROSS PROFIT RATE TO 8%, IN OUR VIEW IT IS STEEL ON EXCESSIVE SIDE. SINCE NO COMPARABLE CASE HAS BEEN CONFRONTED TO THE ASSESSEE, THEREFORE, THE LEARNED CIT(A) DID NOT RIGHTLY TAKE COGNIZANCE OF THE SAME. CONSID ERING THE FACTS AND CIRCUMSTANCES OF THE CASE IN THE LIGHT OF THE ABOVE DISCUSSIONS, WE ARE OF THE VIEW THAT SINCE THE TURNOVER OF THE ASSE SSEE HAS INCREASED SUBSTANTIALLY AS COMPARED TO THE EARLIER YEARS, THE REFORE, ENDS OF JUSTICE WOULD MEET IF THE GROSS PROFIT RATE OF 7% I S APPLIED TO THE TURNOVER DISCLOSED BY THE ASSESSEE AS AGAINST CONFI RMED BY THE LEARNED CIT(A) AT 8%. WE ACCORDINGLY, MODIFY THE O RDER OF THE LEARNED CIT(A) TO THAT EXTENT AND DIRECT THE AUTHOR ITIES BELOW TO APPLY GROSS PROFIT RATE OF 7% AGAINST THE TURNOVER DISCLO SED BY THE ASSESSEE AND COMPUTE THE INCOME OF THE ASSESSEE ACCORDINGLY. IN THE RESULT, GROUND NO.1 OF THE APPEAL OF THE REVENUE IS DISMISS ED AND GROUND NO.1 OF THE CROSS OBJECTION OF THE ASSESSEE IS PART LY ALLOWED. THIS ISSUE IS ACCORDINGLY DECIDED AGAINST THE REVENUE AN D PARTLY IN FAVOUR OF THE ASSESSEE. ISSUE NO.2 9. THE REVENUE ON GROUND NO.2 CHALLENGED THE DELETI ON OF ADDITION OF RS.1,28,693/- ON ACCOUNT OF PRIOR PERIO D EXPENSES. THE AO NOTED THAT THE ASSESSEE HAS MADE PURCHASES OF PA CKING MATERIALS AMOUNTING TO RS.284/- ON 30-04-2005 AND H AD SHOWN BALANCE OF RS.1,28,977/- ON THE SAID DATE. NO OTHER PURCHASES WERE ITA NO. 2895/AHD/2009 & C.O. NO. 290/AHD/2009 SHRI RAJESHKUMAR C. RELAN, PROP. ROOPAN SAREES 12 MADE. THE AO ACCORDINGLY, DISALLOWED RS.1,28,693/- BEING THE ASSESSEE FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT COPY OF THE PACKING MATERIAL EXPENSES ACCOUNT WAS FURNISHED ALONG WITH THE COPIES OF THE BILLS AND THE FIRST PAGE OF THE ACCOUNTS MIGHT HAVE DETACHED. AS A RESU LT, THE AO EXAMINED ONLY PAGE NO.2; THEREFORE, ADDITION IS CLE ARLY UNJUSTIFIED. THE LEARNED CIT(A) NOTED THAT ADDITION IS MADE IN H URRIED MANNER BECAUSE THE FIGURE COULD HAVE BEEN EASILY RECONCILE D BY THE AO. THE LEARNED CIT(A) ALSO NOTED THAT NO OPPORTUNITY WAS G IVEN BEFORE MAKING THE ADDITION AND FURTHER THE AO ACCEPTED THE CONTENTION OF THE ASSESSEE TO BE FACTUALLY CORRECT. THEREFORE, ADDITI ON WAS DELETED. 10. ON CONSIDERATION OF THE RIVAL SUBMISSIONS WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. THE LEARNED CIT(A) NOTED IN THE APPELLATE ORDER THAT HE HAS DISCUSSED THE MATTER WITH THE AO AT THE APPELLATE STAGE AND THEREAFTER IN THE DEC ISION NOTED THAT SINCE THE AO ACCEPTED THE CONTENTION OF THE ASSESSE E TO BE FACTUALLY CORRECT, THEREFORE, ADDITION WAS DELETED. IN THIS V IEW OF THE MATTER, WE DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDER OF THE LEARNED CIT(A) IN DELETING THE ADDITION. THIS GROUND OF APP EAL OF THE REVENUE IS DISMISSED. THIS ISSUE IS DECIDED AGAINST THE REV ENUE. 11. THERE IS NO OTHER ISSUE IN THE DEPARTMENTAL APP EAL. ISSUE NO.3 12. THE ASSESSEE ON GROUND NO.2 OF THE CROSS OBJECT ION CHALLENGED THE ORDER OF THE LEARNED CIT(A) IN PARTL Y CONFIRMING THE ADDITION TO THE EXTENT OF RS.17,866/- OUT OF TOTAL ADDITION OF ITA NO. 2895/AHD/2009 & C.O. NO. 290/AHD/2009 SHRI RAJESHKUMAR C. RELAN, PROP. ROOPAN SAREES 13 RS.25,310/- MADE BY THE AO ON ACCOUNT OF TELEPHONE, TRAVELING, MOTOR CAR EXPENSES AND DEPRECIATION CLAIMED ON MOTO R CAR. THE AO DISALLOWED 20% OUT OF THESE EXPENSES ON ACCOUNT OF ELEMENTS OF PERSONAL USER OF THESE FACILITIES. IN THE ABSENCE O F ANY MATERIAL ON RECORD AND IN THE ABSENCE OF ANY LOG BOOK MAINTAINE D BY THE ASSESSEE FOR USER OF THESE FACILITIES FOR THE PURPO SE OF BUSINESS, WE DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDER OF THE LEARNED CIT(A). THIS GROUND OF THE CROSS OBJECTION OF THE A SSESSEE IS DISMISSED. THIS ISSUE IS DECIDED AGAINST THE ASSESS EE. ISSUE NO.4 13. ON GROUND NO.3 OF THE CROSS OBJECTION THE ASSES SEE CHALLENGED THE CONFIRMATION OF ADDITION OF RS.2,23, 000/- MADE BY THE AO ON ACCOUNT OF LOW HOUSEHOLD WITHDRAWALS. THE AO NOTED THAT THE ASSESSEE HAS SHOWN TOTAL WITHDRAWALS OF RS.77,000/- FOR MEETING HOUSEHOLD EXPENSES FOR THE ENTIRE YEAR. THE ASSESSE E HAS SHOWN INABILITY TO FURNISH BREAK-UP OF ANNUAL HOUSEHOLD E XPENSES. IT WAS SUBMITTED THAT MOBILE PHONE BILL, ELECTRICITY AND T ELEPHONE BILL AND SOCIETY CHARGES HAVE BEEN PAID FROM THE FIRMS ACCO UNTS. THE AO ACCORDINGLY, ESTIMATED HOUSEHOLD EXPENSES OF RS.3,0 0,000/- AND MADE THE ADDITION OF RS.2,23,000/-. THE ADDITION WA S CHALLENGED BEFORE THE LEARNED CIT(A) AND IT WAS SUBMITTED THAT THE ORDER OF THE AO IS ILLOGICAL AND UNREASONABLE. THE FAMILY OF THE ASSESSEE CONSISTS OF HIMSELF, HIS WIFE AND SON AGED 2/3 YEARS. THEIR STANDARD OF LIVING WAS NOT SO HIGH. NO RENT WAS PAYABLE AND NO EXPENSE S WERE INCURRED ON ANY DOMESTIC OR FOREIGN TRAVEL ETC. TOTAL HOUSEH OLD WITHDRAWAL SHOWN BY THE ASSESSEE ARE AT RS.1,17,500/-, BUT THE AO CONSIDERED ITA NO. 2895/AHD/2009 & C.O. NO. 290/AHD/2009 SHRI RAJESHKUMAR C. RELAN, PROP. ROOPAN SAREES 14 ONLY RS.77,000/-. THE LEARNED CIT(A) HOWEVER, DID N OT ACCEPT THE CONTENTION OF THE ASSESSEE AND DISMISSED THE APPEAL OF THE ASSESSEE. THE LEARNED CIT(A) NOTED PER CAPITA INCOM E OF THE PEOPLE AT SURAT AND HIGHER STANDARD OF LIVING AND OTHER FA CTORS TO NOT THAT ADDITION IS JUSTIFIED ON ESTIMATE BASIS AS MADE BY THE AO. 14. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. ON T HE OTHER HAND, THE LEARNED DR RELIED UPON THE ORDERS OF THE AUTHOR ITIES BELOW. 15. ON CONSIDERATION OF THE RIVAL SUBMISSIONS, WE A RE OF THE VIEW THAT ADDITION WAS CORRECTLY MADE ON ACCOUNT OF ESTI MATION OF THE HOUSEHOLD EXPENSES BECAUSE THE ASSESSEE HAS SHOWN I NABILITY TO FURNISH ITEM WISE DETAILS OF HOUSEHOLD EXPENDITURE LIKE ELECTRICITY, EDUCATION AND SOCIETY CHARGES ETC. THE AO ALSO FOUN D THAT THOUGH THE ASSESSEE HAS CLAIMED HOUSEHOLD EXPENSES FOR HIM SELF AT RS.87,500/-, ON EXAMINATION OF CAPITAL ACCOUNT OF T HE ASSESSEE, IT WAS FOUND THAT WITHDRAWAL WAS SHOWN AT RS.47,000/- AND NO OTHER WITHDRAWAL WAS FOUND. THUS, THE WITHDRAWAL OF THE A SSESSEE AND HIS WIFE WERE CORRECTLY TAKEN AT RS.77,000/- AS AGAINST CLAIM OF THE ASSESSEE AT RS.1,17,500/-. SINCE THE ASSESSEE DID N OT FURNISH THE DETAILS BEFORE THE AO, THEREFORE, HOUSEHOLD EXPENSE S WERE RIGHTLY ESTIMATED BY THE AO. HOWEVER, CONSIDERING THE SIZE OF THE FAMILY, I.E. HIMSELF, HIS WIFE AND MINOR CHILD AND THAT THE ASSE SSEE DID NOT PAY RENT FOR RESIDENCE AND NO BIG EXPENSE HAS BEEN INCU RRED, IT WOULD BE REASONABLE AND PROPER TO ESTIMATE THE HOUSEHOLD EXP ENDITURE AT RS.2,00,000/- AS AGAINST RS.3,00,000/- MADE BY THE AO. THE BENEFIT ITA NO. 2895/AHD/2009 & C.O. NO. 290/AHD/2009 SHRI RAJESHKUMAR C. RELAN, PROP. ROOPAN SAREES 15 OF RS.77,000/- IS ALREADY GIVEN, THEREFORE, THE RES ULTANT ADDITION WOULD BE RESTRICTED TO RS.1,23,000/-. IN THE RESULT, THE ORDERS OF THE AUTHORITIES BELOW ARE MODIFIED TO THE ABOVE EXTENT AND THE AO IS DIRECTED TO MAINTAIN ADDITION OF RS.1,23,000/- ON T HIS ISSUE. IN THE RESULT, GROUND NO.3 OF THE CROSS OBJECTION OF THE A SSESSEE IS PARTLY ALLOWED. THIS ISSUE IS DECIDED PARTLY IN FAVOUR OF THE ASSESSEE. 16. THERE IS NO OTHER ISSUE IN THE DEPARTMENTAL APP EAL. 17. IN THE RESULT, THE DEPARTMENTAL APPEAL IS DIS MISSED AND THE CROSS OBJECTION OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (G. D. AGARWAL) VICE PRESIDENT (BHAVNESH SAINI) JUDICIAL MEMBER LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR, ITAT, AHMEDABAD