The Deputy Commissioner of Income tax, Jalandhar V. M/s. Kirandeep Leathers Pvt. Ltd., Jalandhar

ITA 291/ASR/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5801 (ITAT-AMRITSAR)
• Duration Of Justice: 11 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 16-12-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 25-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RAVISH SOOD
• Keywords: Business income; Principle of natural justice; Assessment record
• Section: 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. H.L. KARWA, VICE PRESIDENT AND SH. MEHAR SINGH, ACCOUNTANT MEMBER I.T.A. NO.291(ASR)/2010 ASSESSMENT YEAR:2006-07 THE DY. C.I.T. VS. M/S. KIRANDEEP LEATHERS PVT. L TD. RANGE-1, JALANDHAR. JALANDHAR. (APPELLANT) (RESPONDENT) C.O. NO.17(ASR)/2010 (ARISING OUT OF ITA NO.291/ASR)/2010) ASSESSMENT YEAR : 2006-07 M/S. KIRANDEEP LEATHERS PVT. LTD. VS. THE DY. C.I.T . JALANDHAR. JALANDHAR (APPELLANT (RESPONDENT) DEPARTMENT BY: SH. TARSEM LAL, DR ASSESSEE BY: SH. RAVISH SOOD, ADVOCATE ORDER PER MEHAR SINGH, AM, THE APPEAL FILED BY THE DEPARTMENT AND C.O. FILE D BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE CIT(A), DATE D 29.03.2010, PASSED UNDER SECTION 250(6) OF THE INCOME-TAX ACT, 1961 ( HEREIN AFTER REFERRED TO IN SHORT THE ACT), FOR THE ASSESSMENT YEAR 2006-07. 2. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPE AL: 1. THAT, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A), HAS ERRED IN LAW IN SUSTAINING THE G.P. RAT E 9% AS AGAINST 17% APPLIED BY THE A.O. 2 1.1 WHILE DOING SO, THE LD. CIT(A) FAILED TO APPREC IATE THE FACT THAT THE EXTENT OF G.P. RATE ENJOYED BY THE ASSESSEE IN RESPECT OF COW HIDES WAS COMPUTED AT 35.83% AND THE SAME HAS NOT B EEN CONSIDERED WHILE DECIDING THE APPEAL. NEEDLESS TO SAY PURCHASE OF HIDE AT LOW RATE WILL RESULT IN CORRESPONDING S ALE AND PURCHASE OF HIDE AT HIGHER RATE WILL RESULT IN CORR ESPONDING SALE AT HIGHER RATE BUT G.P. RATE IS TO BE COMPUTED WITH REFERENCE TO SALE OF PARTICULAR ITEM AND IN THE CIRCUMSTANCES, T HE CONTENTION OF THE ASSESSEE WITH REFERENCE TO AVERAGE PURCHASE AND SALE PRICE IS NOT ACCEPTABLE. 1.2. THE LD. CIT(A) FURTHER FAILED TO APPRECIATE TH AT CHEMICAL CONSUMPTION TO HIDE PROCESSED AS INDICATION TO THE FACT THAT THE ASSESSES BOOKS OF ACCOUNT DID NOT REFLECT THE TRUE STATE OF AFFAIRS AND IT WAS THE CASE OF APPLYING G.P. RATE I N THE CASE OF M/S. RAVI TANNERIES ENGAGED IN SIMILAR BUSINESS IN WHOSE CASE G.P. RATE AT 17% FOR THE ASSESSMENT YEAR 2006-07 W AS APPLIED. RELIANCE IS PLACED IN THE CASE OF LAL CHAND WALATI RAM VS. CIT [(1978) 111 ITR 224 (PUN.)] 2 THAT, IT IS PRAYED THAT THE ORDER OF THE LD. CIT( A) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED 3. THAT THE APPELLANT REQUESTS FOR LEAVE TO ADD OR AMEND OR ALTER THE GROUNDS OF APPEAL BEFORE THE APPEAL IS HEARD AN D DISPOSED OF. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE FILED ITS RETURN OF INCOME ON 30.11.2006, DECLARING INCOME AT RS.1, 91,410/- AND THE SAME WAS PROCESSED U/S 143(1) OF THE ACT. LATER ON, THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE DATED 02.11.2007 WAS SERVED ON THE ASSESSEE. STATUTORY NOTICES DATED 15.05.2009 U/S 143(2) AND 142(1) ALON GWITH DETAILED QUESTIONNAIRE WERE ALSO ISSUED. IN RESPONSE TO THAT THE ASSESSEE FILED WRITTEN SUBMISSIONS, WHICH WERE EXAMINED BY THE A.O. THE A. O. COMPARED THE CASE OF THE ASSESSEE WITH THE CASE OF M/S. RAVI TANNERI ES PVT. LTD. KAPURTHALA ROAD, JALANDHAR, FOR THE A.Y. 2006-07, WHERE G.P. RATE @ 17% HAS BEEN APPLIED FOR THE ASSESSMENT YEAR 2006-07. ACCORDING LY, THE A.O. CONSIDERED THE SALES OF THE ASSESSEE AT RS.42824166/- AS REASO NABLE AND APPLIED THE G.P. 3 RATE AT 17%. ON APPEAL, THE LD. CIT(A), SUSTAINED THE G.P. RATE 9% INSTEAD OF 17% APPLIED BY THE A.O. NOW, AGGRIEVED WITH TH E ORDER OF THE CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 4. THE LD. DR, SH. TARSEM LAL, RELIED ON THE ORDE R OF THE ASSESSING OFFICER. 5. THE LD. COUNSEL FOR THE ASSESSEE, SH. RAVISH SOO D, SUPPORTED THE ORDER OF THE CIT(A) AND REITERATED THE SUBMISSIONS MADE BEFORE HIM. 6. WE HAVE HEARD BOTH THE PARTIES AND GIVEN OUR THO UGHTFUL CONSIDERATION TO THE RIVAL SUBMISSIONS, EXAMINED THE FACTS OF THE CASE, EVIDENCE AND MATERIAL PLACED ON RECORD AND ALSO GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. A CAREFUL PERUSAL OF THE IMPUGNED APPELLATE ORDER DATED 29.03.2010, CLEARLY REVEALS THAT THE LD. CIT(A), HAS CONSIDERED AND ADJUDICATED THE ISSUE, IN QUESTION, IN GREATER DETAIL, AFTER APPRECIATION OF THE EVIDENCES AND MATERIAL ON RECORD, AS ALSO THE LEGAL AND FACTUAL POSITION OF THE CASE. NEEDLESS TO SAY THAT THE IMPUGNED APPELLATE ORDER IS WELL REASONED AND BASED ON THE COGENT AND CREDIBLE MATERIAL AND FACTS OF THE CASE. HOWEVE R, IT WOULD PERTINENT TO REPRODUCE ONLY THE CONCLUSIVE PART OF THE DECISION OF THE CIT(A), FOR THE PURPOSE OF PROPER APPRECIATION OF THE SAME: 3. I HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY HAVE GONE THROUGH THE ASSESSMENT RECORDS AND THE VARIOUS DETA ILS SUBMITTED BY THE APPELLANT AND BY THE AO DURING THE APPELLATE PROCEEDINGS. THE AO HAS HELD IN THE ASSESSMENT ORD ER THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE WERE NOT CORRECT OR COMPLETE AND OPEN FOR VERIFICATION AS THE ASSESSE DID NOT MA INTAIN STOCK RECORDS. THE AO HAS NOT POINTED OUT ANY INSTANCE OF PURCHASE OR SALES MADE BY THE ASSESSEE WHICH WERE EITHER UNV ERIFIABLE OR WERE RECORDED DIFFERENTLY FROM THE ACTUAL TRANSACTI ONS ACTUALLY ENTERED INTO BY THE ASSESSEE. I AGREE WITH THE APPE LLANT THAT MERE 4 NON MAINTENANCE OF STOCK REGISTER CANNOT LEAD TO RE JECTION OF THE BOOKS RESULTS AND OF ESTIMATION OF INCOME UNLESS CE RTAIN DEFECTS ARE POINTED OUT IN THE BOOKS OF ACCOUNTS. THIS HAS BEEN HELD IN SEVERAL DECISIONS RELIED UPON BY THE APPELLANT AS W ELL AS IN A RECENT DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. OM OVERSEAS (2008) 173 TAXMAN 185 (P&H). IN THI S DECISION THE HONBLE HIGH COURT UPHELD THE ORDER OF CIT(A) AND ITAT DELETING THE ADDITION ON ACCOUNT OF LOWER GP THAN THE PRECEDING YEAR MADE BY THE AO ONLY FOR THE REASON T HAT STOCK RECORD WAS NOT MAINTAINED. HOWEVER, IN THE PRESENT CASE, IT IS SEEN THAT APART FROM NOT MAINTAINING STOCK REGISTE R THE APPELLANT HAS ALSO FURNISHED THE DETAILS OF OPENING AND CLOSING STOCK . VALUATION OF OPENING AND CLOSING STOCK IS A N IMPORTANT INGREDIENT FOR ASCERTAINING THE PROFITS OF THE BUSI NESS. NORMALLY, THE TRADING ACCOUNT CONSISTS OF THE FOLLOWING ITEMS ; OPENING STOCK, PURCHASES, SALES AND CLOSING STOCK. THE GROS S PROFIT IS ARRIVED AT BY REDUCING THE SUM OF SALES AND CLOSING STOCK FROM THE SUM OF OPENING STOCK AND PURCHASES. EVEN IF THE PURCHASES AND THE SALES ARE FULLY VOUCHED, BUT THE DETAILS OF OPENING STOCK AND /OR THE CLOSING STOCK ARE NOT KNOWN, THE TRADIN G RESULTS OF THE ASSESSEE CANNOT BE VERIFIED. THE ASSESSEE MAY H AVE DIFFICULTY, DUE TO VARIOUS REASONS, IN MAINTAINING STOCK RECORDS. HOWEVER, THE EXERCISE OF VALUING THE CLOSING STOCK IS A NECESSITY FOR DETERMINING THE TRADING PROFIT AND TH E BUSINESS INCOME OF THE ASSESSEES BUSINESS. IN THE CASE OF P .M. MOHAMAD MEERAKHAN 73 ITR 736 (SC), THE HONBLE SUPR EME COURT HAVE HELD THAT AS A NORMAL RULE PROFITS SHOUL D BE ASCERTAINED BY VALUING THE STOCK IN TRADE AT THE BE GINNING AND AT THE END OF THE ACCOUNTING YEAR. IN THE CASE OF A.L. A. FIRM VS. CIT 189 ITR 285 (SC), THE APEX COURT HAD HELD THAT IT WA A SETTLED LAW THAT THE TRUE TRADING RESULT OF A BUSIN ESS FOR AN ACCOUNTING PERIOD COULD NOT BE ASCERTAINED WITHOUT TAKING INTO ACCOUNT THE VALUE OF STOCK-IN-TRADE REMAINING AT TH E END OF THE PERIOD. THE SAME PRINCIPLE WAS ALSO STATED IN THE D ECISION OF HONBLE APEX COURT IN THE CASE OF CIT VS. BRITISH P AINTS INDIA LTD. 188 ITR44 (SC) WHEREIN THE ISSUE OF CORRECT VA LUE OF CLOSING STOCK WAS IN QUESTION. UNLESS THE STOCK AT THE END OF THE YEAR IS PROPERLY DETERMINED AND VALUED, THE CORRECT INCOME OF THE ASSESSEE CANNOT BE DETERMINED OR VERIFIED EVEN IF THE PURCHASES AND SALES ARE VERIFIABLE. PROFIT OF THE A SSESSEE, FOR THE 5 PURPOSE OF INCOME TAX, HAS TO BE ASCERTAINED ON YEA R TO YEAR BASIS FOR THE RELEVANT PREVIOUS YEAR AND THE VALUAT ION OF THE OPENING AND CLOSING STOCK FORM AN IMPORTANT COMPONE NT OF ASCERTAINMENT OF PROFIT OF THE YEAR. 3.1. IN THE PRESENT CASE, IT IS SEEN THAT THE VALUA TION OF CLOSING STOCK WAS NOT PRESENTED BEFORE THE TAX AUDITOR. IT WAS NO T ALSO PRESENTED BEFORE THE AO, EVEN THOUGH SPECIFICALLY A SKED FOR. THE VALUE AND OPENING AND CLOSING STOCKS FORM A PAR T OF THE ACCOUNTS OF THE ASSESSEE. IN MY OPINION, IN THE ABS ENCE OF THE DETAILS AND THE BASIS OF VALUATION OF OPENING AND C LOSING STOCK, THE ACCOUNTS OF THE ASSESSEE CANNOT BE SHOWN TO BE CORRECT. WHILE THE AOS REJECTION OF ACCOUNTS SOLELY FOR THE REASON THAT STOCK RECORDS WERE NOT MAINTAINED MAY NOT BE UPHELD IN LIGHT OF THE DECISIONS OF THE JURISDICTIONAL HIGH COURT IN T HE CASE OF CIT VS. OM OVERSEAS (2008) 173 TAXMAN 185 (P&H), THE SA ME IS LIABLE TO BE UPHELD IN VIEW OF THE SPECIFIC DISCREP ANCY OF NON VERIFICATION OF OPENING AND CLOSING STOCK POINTED O UT BY THE AO IN HIS REMAND REPORT. EVEN IN THE REJOINDER TO THE REMAND REPORT OF THE AO, THE APPELLANT HAS NOT STATED WHY THE DET AILS OF CLOSING STOCK AND OPENING STOCK WERE NOT PROVIDED D URING THE ASSESSMENT PROCEEDINGS. THE FIGURES OF OPENING AND CLOSING STOCK MENTIONED IN THE BOOKS OF ACCOUNTS HAVE A SIG NIFICANT EFFECT ON DETERMINING THE PROFITS OF THE BUSINESS A ND IN THE CASE OF THE APPELLANT THEY ARE NOT VERIFIABLE. 3.2. THE AO HAS RELIED ON SEVERAL JUDICIAL DECISION S IN SUPPORT OF HIS DECISION TO REJECT THE BOOKS OF ACCOUNTS UNDER THES E CIRCUMSTANCES. IN THE DECISIONS RELIED UPON BY THE AO, REJECTION OF BOOK RESULTS HAS BEEN UPHELD IN THE ABSENCE OF S TOCK RECORDS COUPLED WITH OTHER DEFECTS IN THE BOOKS OF ACCOUNTS . THE APPELLANT HAS CONTENDED THAT IT WAS NOT PRACTICABLE TO MAINTAIN THE STOCK REGISTERS AND THAT THE MATTER OF PRACTICE IT WAS CARRYING OUT STOCK TAKING ON LAST DAY OF EVERY FINANCIAL YEA R. IT HAS ALSO BEEN CONTENDED THAT THE PURCHASES AND SALES WERE TO TALLY VERIFIABLE AND HAD BEEN FACTUALLY VERIFIED BY THE A O AND THE GROSS PROFIT RATE OF THE YEAR UNDER CONSIDERATION WERE PROGRESSIVE AS COMPARED TO THE PRECEDING ASSESSMENT YEARS. AS NOTED EARLIER, THOUGH THE PURCHASES AND SALES ARE V ERIFIABLE, THE OPENING AND CLOSING STOCK ARE NOT SO VERIFIABLE IN THE ABSENCE OF DETAILS BEFORE THE AO. I AM, THEREFORE, OF THE OPIN ION THAT IN THE ABSENCE OF DETAILS AND VALUATION OF OPENINGS AND CL OSING STOCK, 6 THE AO WAS JUSTIFIED IN HOLDING THAT THE BOOKS OF A CCOUNTS OF THE ASSESSEE WERE NOT CORRECT AND COMPLETE AND IN R EJECTING THE BOOK RESULTS. 3.3. HOWEVER, HAVING REJECTING THE BOOK RESULTS, IT IS NECESSARY FOR THE AO TO ARRIVE AT A RATIONALE BASIS FOR ESTIMATIN G THE INCOME OF THE ASSESSEE. THE AOS POWERS IN THIS REGARD ARE NOT UNFETTERED, AND THOUGH THERE IS BUND TO BE SOME AMO UNT OF GUESS WORK IN ANY ESTIMATION, THE ESTIMATION SHOULD BE BASED ON SOME MATERIAL. THE AO HAS REFERRED TO THE CONSUMPTI ON OF CHEMICALS PURCHASED BY THE ASSESEE FOR MAKING THE I MPUGNED ADDITION OF RS.37 LACS.. THE AO HAS REFERRED TO THE CONSUMPTION RATIO OF 60% CHEMICALS APPROVED BY HIM IN THE CASE OF M/S. RAVI TANNERIES TO JUSTIFY THE RATIO OF 70% CHEMICAL CONSUMPTION. HOWEVER, AS POINTED OUT BY THE APPELLA NT, THE FACTS IN THE CASE OF RAVI TANNERIES WERE NOT CONFRO NTED TO THE APPELLANT DURING ASSESSMENT PROCEEDINGS TO ENABLE I T TO REBUT THE SAME. THE APPELLANT POINTED OUT THAT THE NATURE OF FINISHED PRODUCTS MANUFACTURED BY IT WAS QUITE DIFFERENT FRO M THOSE MANUFACTURED BY M/S. RAVI TANNERIES. THE NATURE OF THE FINAL PRODUCT BEING DIFFERENT, THE RATIO OF THE CHEMICAL CONSUMPTION COULD OBVIOUSLY DIFFER. AS PER THE AO THE ASSESSEE S PRODUCTS SHOULD BE FETCHING HIGHER PRICE. IT IS NOT SHOWN TH AT THE PER UNIT PRICE OF SALE OF THE SAME PRODUCT BY THE ASSESSEE A RE LOWER THAN ANY COMPARABLE CASE. 3.4. THE AO HAS MENTIONED THE UNUSUALLY HIGH CHEMIC AL CONSUMPTION DERIVED BY HIM FROM THE DETAILS FURNISH ED BY THE ASSESSEE DURING THE ASSTT. PROCEEDINGS. DURING THE ASSESSMENT PROCEEDINGS THE AO HAS CALLED FOR CERTAIN INFORMATI ON OF PURCHASE OF HIDES IN DIFFERENT PRICE RANGES. THE AS SESSEE SUBMITTED THE REQUISITE INFORMATION TO THE AO. THE ASSESSEE SUBMITTED INFORMATION OF PURCHASE OF HIDES OF DIFFE RENT ANIMALS GIVING THE NUMBER OF HIDES PURCHASED AND THE TOTAL AMOUNT INCURRED FOR PURCHASE OF HIDE OF DIFFERENT ANIMALS. THE APPELLANT ALSO FURNISHED DETAILS OF PURCHASE OF HIDES AND SKI NS IN DIFFERENT PRICE RANGE. THE TOTAL OF THESE PURCHASES WORKED OU T TO RS.1,30,80,355/-. THE AO USED THIS FIGURE TO WORK O UT THE PURCHASE OF CHEMICALS FROM THE TOTAL PURCHASES IN T HE TRADING ACCOUNT. THE AO ALSO BIFURCATED THE OPENING AND CLO SING STOCK BETWEEN THAT OF HIDE AND OF CHEMICALS BASED ON THE RATIO OF THE PURCHASES OF CHEMICALS AND HIDE. THE APPELLANT HAS SUBMITTED 7 THAT DUE TO THE MISTAKE OF THE ACCOUNTANT, CERTAIN PURCHASE BILLS OF HIDE REMAINED TO BE INCORPORATED IN THE DETAILS FURNISHED TO THE AO. IN MY OPINION, IN VIEW OF THE FACT THAT THE ACCOUNTANT OF THE APPELLANT WAS NEWLY ENGAGE, THERE COULD BE A GENUINE MISTAKE IN COMPILING THE INFORMATION SINCE ALL THE BILLS OF PURCHASES OF HIDES WOULD HAVE TO BE EXAMINED TO ARR IVE AT THE FIGURE OF PURCHASES OF SKIN/HIDE OF DIFFERENT ANIMA LS AS WELL AS IN DIFFERENT PRICE RANGES. THE TOTAL VALUE OF THE P URCHASES HAS BEEN BIFURCATED IN A DETAILED EXTRACT FROM BOOKS OF ACCOUNTS OF THE ASSESSEE INTO PURCHASES OF HIDES AND CHEMICALS SEPARATELY. COPIES OF ALL THE BILLS OF PURCHASE OF HIDES AND CH EMICALS HAVE BEEN SUBMITTED. THE ORIGINAL BOOKS OF ACCOUNTS AND BILLS HAVE BEEN VERIFIED BY THE AO. THESE BOOKS OF ACCOUNTS AN D BILLS WERE ALSO PRODUCED DURING THE ASSESSMENT PROCEEDIN GS. UNDER THE CIRCUMSTANCES, I AM OF THE OPINION THAT THE VAL UE OF PURCHASES OF HIDES AND CHEMICALS AS SUBMITTED BY TH E APPELLANT DURING THE APPELLATE PROCEEDINGS WHICH HAVE BEEN V ERIFIED ALSO BY THE AO DESERVED TO BE ACCEPTED. AS PER THE REVIS ED DETAILS FURNISHED BY THE APPELLANT AND VERIFIED BY THE AO, THE RATIO OF PURCHASE OF CHEMICALS TO THE PURCHASE OF HIDES WORK S OUT TO 47.94% ON THE SAME BASIS WHICH HAS BEEN ADOPTED BY THE AO IN THE ASSESSMENT ORDER. THIS RATIO IS LESS THAN THE R ATIO OF 60% WHICH HAS BEEN APPLIED BY THE AO IN THE ASSTT. OR DER IN THE CASE OF RAVI TANNERIES AND AS PER THE AO FORMS A BE NCH MARK FOR ESTIMATING EXCESS CHEMICALS HAD BEEN CONSUMED T HAN THAT WARRANTED BY THE FACTS OF GIVEN CASE. BEFORE PARTIN G, I WOULD LIKE TO MENTION THAT THE SO CALLED INADVERTENCE O N THE PART OF APPELLANT HAS LED TO A COMPLETE MISUNDERSTANDING OF THE ACCOUNTS AND OPERATIONS OF THE ASSESSEE BY THE AO W HICH SHOULD NOT HAVE OCCURRED IN THE FIRST PLACE. AT TH E SAME TIME, IT IS SEEN THAT THE AO HAS CHOSEN TO APPLY THE CHEMICA L CONSUMPTION FIGURE IN THE CASE OF RAVI TANNERIES WI THOUT CONFRONTING THE ASSESSEE WITH THE SAME. THOUGH THE AO HAS MENTIONED THAT DEFECTS IN THE ASSESSMENT ORDER CAN BE CURED AT THE LEVEL OF CIT(A), SUCH POWERS OF CIT(A) DO NOT EXTEND TO CORRECTING THE ERRORS IN DENIAL OF NATURAL JUSTICE WHICH CAN BE DONE ONLY AT THE LEVEL OF THE OFFICER PASSING THE O RIGINAL ORDER. 3.5. THE AO HAS MENTIONED IN HIS REPORT DATED 15.3. 2010 THAT THE CLOSING STOCK OF THE ASSESSEE WAS APPARENTLY UNDERV ALUED. THE REASONS FOR HOLDING SO HAVE BEEN MENTIONED IN HIS R EPORT 8 EXTRACTED ABOVE. THE APPELLANT HAS OBJECTED TO THES E COMMENTS OF THE AO ON THE GROUND THAT THE AO HAD ONLY BEEN A SKED TO VERIFY THE GENUINENESS OF PURCHASE BILLS IN THE REM AND PROCEEDINGS. WHILE THE APPELLANTS CONSTERNATION IS UNDERSTANDABLE, THE ENTIRE EXERCISE OF VERIFICATION OF THE PURCHASE BILLS HAS ARISEN ONLY BECAUSE OF WRONG DAT A GIVEN BY THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS WHIC H LED THE AO TO FOCUS ON PARTICULAR ASPECT OF ASSESSMENT. IT IS ALSO A FACT THAT THE ASSESSEE HAS NOT SUBMITTED THE DETAILS OF OPENING AND CLOSING STOCK. UNDER THE CIRCUMSTANCES, I AM OF THE VIEW THAT THE AO WAS WITHIN HIS RIGHTS TO BRING TO THE NOTICE OF UNDERSIGNED ANY MATTER WHICH CAME TO HIS NOTICE DUR ING THE APPELLATE PROCEEDINGS ON EXAMINATION OF THE BOOKS O F ACCOUNTS OF THE ASSESSEE. 3.6. NONETHELESS, THE AO IS SEEN TO HAVE COMPUTED T HE ESTIMATE GROSS PROFIT BY CONSIDERING ONLY THE VALUE OF SALES AT THE PRICE OF RS.71/- PER SQ. FT. AND ABOVE TO ARRIVE AT AVERA GE SALE PRICE OF RS.83.33 PER SQ. FT. THE AO HAS BASED HIS CONCLUSIO N ON DATA GIVEN BY THE ASSESSEE SHOWING THAT PER PIECE PRICE OF PURCHASE OF COW HIDE WAS THE HIGHEST AMONG ALL ANIMALS HIDES PURCHASED THE AO WORKED OUT THE AVERAGE PURCHASE PRICE OF HO W DIE AT RS.27.12 PER SQ. FT BY CONSIDERING RS.22/- SQ. FT O F AVERAGE AREA OF EACH HIDE. AFTER ADDING THE OTHER EXPENSES ON CH EMICALS, WAGES ETC., THE APPROXIMATE COST PER SQ. FT OF COW HIDE HAS BEEN WORKED OUT RS.53.47 PER SQ. FT AND THUS COMPUTED TH E GP RATE AT 35.83%. THE ASSUMPTION THAT ALL THE COW HIDES WERE SOLD AT RATES OF RS.71/- PER SQ. FT OR MORE IS NOT BACKED BY EVIDENCE AND, AS THE ASSESSEE HAS SUBMITTED, THE AVERAGE RAT E FOR SALES THROUGHOUT THE YEAR OF COW LEATHER IS RS.57.32 PER SQ. FT. THE RATE VARIES FROM LOW OF RS.30/- PER SQ. FT. TO HIGH OF R.85/- PER SQ. FT. FURTHER, THE AOS ASSUMPTION THAT 22/- SQ. FT. OF FINISHED LEATHER WAS PRODUCED FROM EACH HIDE DOES NOT APPEAR THE BASED ON ANY CONCRETE EVIDENCE SINCE THE SAME INFORMATION SUBMITTED DURING THE ASSESSMENT PROCEEDINGS IN WHICH THE AVER AGE PRICE OF DIFFERENT KINDS OF ANIMALS SKINS WERE SUBMITTED BY THE APPELLANT, IT WAS MENTIONED THAT THE OUTPUT FROM EA CH HIDE RANGE FROM 4 SQ. FT TO 15 SQ. FT FROM EACH HIDE. EV EN IF 22 SQ.FT PRODUCTION IS TAKEN FROM EACH HIDE, THE AVERAGE SAL E PRICE OF COW SKIN BEING MUCH LOWER, THE COMPUTATION OF AVERA GE GP BY THE AO DOES NOT APPEAR TO BE CORRECT. 9 3.7. HOWEVER, IT IS ALSO A FACT THAT THE APPELLANT DID NOT SUBMIT THE DETAIL AND VALUATION OF CLOSING STOCK DURING THE AS STT. PROCEEDINGS EVEN THOUGH ASKED FOR. DURING THE ASSTT . PROCEEDINGS IN THE CASE OF ASSESSMENT FOR A.Y. 2007 -08 IN THE CASE OF K.K. TANNERS, A SISTER CONCERN OF THE APPEL LANT, THE ASSESSEE SUBMITTED DETAILED LIST AND VALUATION OF B OTH ITS OPENING STOCK AS WELL AS CLOSING STOCK AND RECONCI LED THE ENTIRE QUANTITATIVE PURCHASES, PRODUCTION AND SALES DURING THE YEAR. THIS EXERCISE WAS NOT DONE EVEN IN THE CASE FOR A.Y . 2007-08 DURING THE ASSTT. PROCEEDINGS, WHICH LED TO A SIMIL AR ADDITION OF RS.1.60 CRORES IN THAT CASE BASED ON AN INCORRECT F IGURE OF PURCHASE OF HIDES. AS NOTED EARLIER, IN THE ABSENCE OF DETAILS AND VALUING OF OPENING AND CLOSING STOCK THE ENTRIES IN THIS REGARD IN THE BOOKS OF ACCOUNTS COULD NOT BE VERIFIED AND THE BOOKS OF ACCOUNTS COULD NOT BE HELD TO BE CORRECT AND COMPL ETE. AS PER THE TAX AUDIT REPORT IN FORM 3CD THE DETAILS OF CLO SING STOCK INVENTORIES HAD NOT BEEN PRODUCED BEFORE THE C.A AL SO. NO REASON FOR THE SAME HAS BEEN SUBMITTED BY THE APPEL LANT. IN THE ABSENCE OF QUANTITATIVE PARTICULARS OF OPENING STOC K, IT WOULD NOT BE POSSIBLE FOR THE AO TO EVEN TRY TO RECONCIL E THE OPENING STOCK WITH THE PURCHASES AND CLOSING STOCK AND THER EBY TO VERIFY THE TRADING ACCOUNTS. 3.8. THE AO HA MADE AN ADDITION OF RS.37 LACS BASED ON THE RATIO OF CONSUMPTION OF CHEMICALS WHICH WAS WORKED OUT BY HI M TO AROUND 245%. AFTER VERIFICATION OF BOOKS OF ACCOUNT S, THE RATIO OF CHEMICAL CONSUMPTION WORKS OUT TO APPROXIMATELY 48% IN THE ASSESSMENT ORDER IN THE CASE OF M/S. K.K. TANNE RS FOR THE A.Y. 2007-08, THE AO HAS ACCEPTED CHEMICAL CONSUMP TION RATIO OF AROUND 87%. HENCE, THERE DOES NOT APPEAR T O BE ANY REASON TO SUSTAIN AN ADDITION TO THE TRADING ACCOUN T ON THE BASIS OF THE CHEMICAL CONSUMPTION RATIO. HOWEVER, THE FAC T REMAINS THAT THE ACCOUNT OF THE ASSESSEE ARE UNVERIFIABLE I N THE ABSENCE OF DETAILS OF OPENING STOCK. THE PRESUMPTION THAT T HE ACCOUNTS OF THE ASSESSEE DO NOT REFLECT ITS CORRECT PROFIT A RE SUPPORTED STRONGLY BY THE APPELLANTS RELUCTANCE TO HAVE FURN ISHED THE DETAILS OF THE OPENING AND CLOSING STOCK BEFORE NOT ONLY THE AO BUT ALSO BEFORE THE TAX AUDITOR FOR THE CURRENT ASS ESSMENT YEAR, THOUGH THE SAME WERE SUBMITTED BEFORE THE AO DURIN G THE ASSESSMENT PROCEEDINGS FOR THE ASSESSMENT YEAR 2007 -08. THOUGH THE GP IN THE PRECEDING YEAR IS NORMALLY HEL D IN SUCH 10 CIRCUMSTANCES TO BE A GOOD INDICATOR OF PROFIT OF T HE ASSESSEE, I WOULD FAVOUR ADOPTING THE GP RATE IN THE CASE OF M/ S. K.K. TANNERS FOR THE A.Y. 2007-08 SINCE COMPLETE DETAILS OF OPENINGS AND CLOSING STOCK ALONG WITH RECONCILIATIO N OF PURCHASES AND SALES AS WELL AS PRODUCTION IN QUALIT Y WAS SUBMITTED DURING THE ASSESSMENT PROCEEDINGS FOR THA T ASSESSMENT YEAR. THE ASSESSEE IS BUSINESS SIMILAR TO THAT M/S. K.K. TANNERS AND THE MAIN PERSON RUNNING BOTH THE B USINESS SH. GIRDHARI LAL IS ALSO THE SAME. IN THE CASE OF M /S. K.K. TANNERS IN MY APPELLATE ORDER OF EVEN DATE, IN APPE AL NO.614/08-09/CIT(A)/JAL, I HAVE APPLIED THE GP RATE OF 8.75% UNDER SIMILAR CIRCUMSTANCES. THE TURNOVER IN THE CA SE OF ASSESSEE BEING LOWER, I THINK THAT APPLYING A GP RA TE OF 9% WOULD REFLECT THE INCOME OF THE APPELLANT IN THE PR ESENT ASSESSMENT YEAR MORE ACCURATELY. THE SALES OF THE A SSESSEE ARE RS.4,28,24,121/-. THE ADDITION BY TAKING THE GP RAT IO AT 9% WORKS OUT TO RS.3,42,593/-. THUS, THE ADDITION WHIC H IS SUSTAINED IN PLACE OF RS.37 LACS MADE BY THE AO. TH E APPELLANT GETS RELIEF OF RS.33,57,407/-. GROUND NOS. 1 TO 8 O F APPEAL ARE, THEREFORE, PARTLY ALLOWED. 6.1. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY INFIR MITY IN THE FINDINGS OF THE CIT(A), AS THE SAME ARE BASED ON PROPER APPREC IATION OF THE LEGAL AND FACTUAL POSITION OF THE CASE. ACCORDINGLY, THIS APP EAL OF THE REVENUE IS DISMISSED. 7. IN C.O. NO.17(ASR).2010, THE ONLY EFFECTIVE GROUND RAISED BY THE ASSESSEE, IS AS UNDER: 1. THAT THE CIT(A), JALANDHAR HAD RIGHTLY DELETED THE ADDITION OF RS.33,57,407/- OUT OF A TOTAL ADDITION OF RS.36,00,000/- SO MADE BY THE A.O. BUT HAD HOWEVER ERRED IN SUSTAINING THE BALANCE ADDITION OF RS. 3,4 2,593/- BY ESTIMATING THE G.P. RATE AT 9% AS AGAINST 8.20% AS STOOD DULY REFLECTED BY THE ASSESSEE COMPANY. 11 7.1. SINCE, WE HAVE UPHELD THE VIEW TAKEN BY THE LD . CIT(A), AND DISMISSED THE APPEAL OF THE REVENUE, THE C.O. FIL ED BY THE ASSESSEE NEEDS NO SEPARATE ADJUDICATION, AS IT FALLS IN THE REALM OF ACADEMIC INTEREST. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE A ND C.O. FILED BY THE ASSESSEE STAND DISMISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 8TH JUNE, 2011. SD/- SD/- (H.L. KARWA) (MEHAR SINGH) VICE PRESIDENT ACCOUNTANT MEMBER DATED: 8TH JUNE, 2011 /SKR/ COPY OF THE ORDER IS FORWARDED TO : 1. THE ASSESSEE:M/S. KIRANDEEP LEATHERS PVT. LTD. JALA NDHAR. 2. THE DCIT,R-1, JALANDHAR. 3. THE CIT(A), JLR 4. THE CIT, JLR 5. THE SR DR TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH : AMRITSAR.