The ITO, Ward-5(1), Ahmedabad V. M/s. Navil Laboratories Pvt.Ltd., Ahmedabad

ITA 292/AHD/2011

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 5123 (ITAT-AHMEDABAD)
• Duration Of Justice: 8 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-02-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 13-07-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 03-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: M K PATEL
• Keywords: Gross profit estimation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ./ITA NO. 292/AHD/2011 ( / ASSESSMENT YEAR : 2007-08) THE ITO WARD-5(1) AHMEDABAD / VS. M/S NAVIL LABORATORIES PVT.LTD. 10/12, GIDC PHASE-I, VATVA AHMEDABAD-382 445 ./ ./ PAN/GIR NO. : AAACN 6592 M ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI VINOD TANWANI, SR.DR / RESPONDENT BY : SHRI M.K. PATEL, AR / DATE OF HEARING 10/01/2019 !'# / DATE OF PRONOUNCEMENT 04/02/2019 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)XI, AHMEDABAD [CIT(A) IN SHORT] VIDE APPEAL NO.CIT(A)-X I/988/2009-10 DATED 18/11/2010 ARISING IN THE ASSESSMENT ORDER PASSED UNDER S.143(3) R.W.S.144(1)(B) OF THE INCOME TAX ACT, 1961(HERE-IN -AFTER REFERRED TO AS 'THE ACT') DATED 07/12/2009 RELEVANT TO ASSESSMENT YEAR (AY) 2007- 08. 2. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPE AL:- ITA NO.292/AHD/2011 ITO VS. M/S.NAVIL LABORATORIES PVT.LTD. ASS T.YEAR 2007-08 - 2 - 1. THE LD.COMMISSIONER OF INCOME TAX (A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF 1,90,23,678/- MADE ON ACCOUNT OF DIFFERENCE OF JOB-WORK. 2. THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF 1,60,23,176/- MADE ON ACCOUNT OF SUPPRESSED PRODUCTION. 3. THE LD.COMMISSIONER OF INCOME TAX (A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF 3,52,600/- IN RESPECT OF LOW GP. 4. THE LD.COMMISSIONER OF INCOME TAX (A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF 1,07,220/- FOR UNDER- VALUATION OF CLOSING STOCK. 5. THE LD.COMMISSIONER OF INCOME TAX(A) HAS ERRED IN L AW AND ON FACTS OF THE CASE IN DIRECTING THE AO TO VERIFY THE CONTENTION FO ASSESSEE AND TO MODIFY THE ASSESSMENT ORDER, IN CON TRAVENTION OF SEC.251 OF THE I.T.ACT, IN RESPECT OF THE FOLLOW ING ISSUES: 1) ADDITION OF 99,800/- BEING SUPPRESSED SALES OF INJECTIONS. 2) ADDITION OF 28,67,000/- BEING SUPPRESSED SALES OF OINTMENT. 3) ADDITION OF 7,67,028/- BEING SUPPRESSED CLOSING STOCK. 4) ADDITION OF 1,81,133/- BEING FREIGHT REIMBURSEMENT EXPENSES. 5) ADDITION OF 13,55,474/- BEING DISALLOWANCE U/S.40(A)(IA). 3. THE 1 ST ISSUE RAISED BY THE REVENUE IS THAT THE LD.CIT (A) ERRED IN DELETING THE ADDITION MADE BY THE AO FOR RS. 1,90,2 3,678/- ON ACCOUNT OF THE DIFFERENCE IN THE JOB WORK. 4. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IN THE PRESENT CASE IS A PRIVATE LTD COMPANY AND ENGAGED IN THE MANUFACTURIN G BUSINESS OF PHARMACEUTICAL PRODUCTS. THE ASSESSEE IN THE YEAR U NDER CONSIDERATION HAS SHOWN GROSS SALES AMOUNTING TO RS. 2,29,65,518/ -, RE-SALE (R.M. & ITA NO.292/AHD/2011 ITO VS. M/S.NAVIL LABORATORIES PVT.LTD. ASS T.YEAR 2007-08 - 3 - P.M.) OF RS. 13,84,700/- AND THE JOB WORK CHARGES O F RS. 29,70,886/- ONLY. 4.1. AS PER THE ASSESSEE, IT HAS DONE THE JOB WO RK OF THE EXCISABLE GOODS ON CONTRACT BASIS AMOUNTING TO RS. 7,60,94,713/- IN THE YEAR UNDER CONSIDERATION. THE ASSESSEE AGAINST SUCH JOB WORK H AS SHOWN GROSS JOB WORK INCOME OF RS. 29,70,886/-ONLY. THE ASSESSEE AL SO SUBMITTED THAT IT HAS TO MAINTAIN THE GROSS VALUE OF JOB WORK DONE ON THE EXCISABLE GOODS UNDER THE EXCISE LAW. AS SUCH THE ASSESSEE CLAIMED THAT THE VALUE OF THE JOB WORK IS NOT THE TURNOVER OF THE ASSESSEE. 4.2. HOWEVER, THE AO FOUND THAT THE TOTAL TUR NOVER OF THE ASSESSEE AS PER EXCISE RECORDS COMES TO RS. 10,20,31,117/- ONLY . THUS THE AO OBSERVED A DIFFERENCE OF RS. 7,60,94,713/- {(10,20, 31,117.00 (2,29,65,518.00 + 29,70,886.00)} BETWEEN THE TURNOV ER DISCLOSED BY THE ASSESSEE IN ITS AUDITED FINANCIAL STATEMENTS AND EX CISE RECORDS MAINTAINED BY IT. ACCORDINGLY, THE AO WAS OF THE VIEW THAT THE ASSESSEE HAS CONCEALED THE JOB WORK OF RS. 7,60,94,713/-ONLY. TH E AO FURTHER NOTED THAT SUCH JOB WORK COULD NOT BE DONE WITHOUT INCURR ING THE CORRESPONDING EXPENSES. THEREFORE, THE AO WORKED OUT A SUM OF RS. 1,90,23,678/- BEING 25% OF RS. 7,60,94,713/- AS CONCEALED JOB WOR K INCOME OF THE ASSESSEE. THUS THE AO MADE THE ADDITION OF RS. 1,90 ,23,678/- TO THE TOTAL INCOME OF THE ASSESSEE. 5. THE AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO TH E LD.CIT(A). THE ASSESSEE BEFORE THE LD. CIT (A) SUBMITTED THAT IT H AD DONE THE JOB WORK ITA NO.292/AHD/2011 ITO VS. M/S.NAVIL LABORATORIES PVT.LTD. ASS T.YEAR 2007-08 - 4 - IN THE YEAR UNDER CONSIDERATION ON THE LOAN LICENSE BASIS. THIS FACT WAS DULY DISCLOSED IN THE EXCISE RETURN FILED BY THE AS SESSEE. THE ASSESSEE FURTHER SUBMITTED THAT THE PROVISIONS OF THE EXCISE ACT REQUIRE TO SHOW THE CLEARANCE OF ALL THE GOODS MANUFACTURED BY IT F OR ITSELF OR ON A JOB WORK BASIS. THUS THE ASSESSEE ONLY RECEIVES THE JOB WORK CHARGES ON THE GOODS MANUFACTURED BY IT ON BEHALF OF OUTSIDE PARTI ES WHICH HAS BEEN DULY DISCLOSED IN THE INCOME TAX RETURN. 6. THE LD.CIT(A) AFTER CONSIDERING THE SUBMISSI ON OF THE ASSESSEE, DELETED THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER: 6.2. I HAVE CONSIDERED THE SUBMISSIONS MADE BY T HE A. R. OF THE APPELLANT AND THE OBSERVATIONS OF THE ASSESS ING OFFICER IN THE ASSESSMENT ORDER. THE APPELLANT IS A MANUFACTURER O F PHARMACEUTICAL PRODUCTS. BESIDES OWN MANUFACTURE, I T UNDERTAKES MANUFACTURE OF PHARMACEUTICAL PRODUCTS BY WAY OF JO B-WORK FROM LOAN-LICENSEES. THE CENTRAL EXCISE RETURN FILED BY IT SHOWS TOTAL VALUE OF THE PRODUCTS CLEARED AT RS. 10,20,31,117/- . OUT OF THIS RS. 3,89 , 96,579/- WAS THE VALUE OF OWN PRODUCTS, AND THE VAL UE OF PRODUCTS OF LOAN-LICENSEES IS RS. 6,30,34,358/-. O N BEING ASKED DURING THE COURSE OF APPELLATE PROCEEDINGS [WITHIN THE TERMS OF RULE 46A(4)], CERTIFICATE DATED 02-11-2010 FROM M/S . C. PATEL & CO. C.AS (WHO AUDITED THE APPELLANT'S BOOKS OF AC COUNTS U/S. 44AB) WAS FILED AFFIRMING THE SAID STATE OF AFFAIRS . APPELLANT'S SALES DURING THE YEAR WERE TO THE TUNE OF RS. 2,29, 65,518/-. JOB WORK INCOME OF RS. 29,70,886/- WAS ADMITTED BY, THE APPELLANT. APPELLANT'S BOOKS OF ACCOUNTS ARE AUDITED U/S. 44AB OF THE ACT. 6.2.1. A.O. PROPOSED TO ADOPT THE ASSESSABLE VALUE OF PRODUCTS CLEARED (INCLUDING THE ASSESSABLE VALUE OF PRODUCTS OF LOAN-LICENSEES) AS SALES OF THE APPELLANT. AS SEEN FROM THE RELEVANT PARAS OF THE ASSESSMENT ORDER REPRODUCED ABOVE, AP PELLANT EXPLAINED THAT THE ASSESSABLE VALUE OF PRODUCTS (AS PER CENTRAL ITA NO.292/AHD/2011 ITO VS. M/S.NAVIL LABORATORIES PVT.LTD. ASS T.YEAR 2007-08 - 5 - EXCISE DEPARTMENT'S NOTIFICATION : 8/2003-C.E DATED 01-MAR.- 2003) CAN NEVER BE EQUATED WITH SALES. BESIDES IT W AS EXPLAINED THAT THE PRODUCTS OF LOAN-LICENSEES DO NOT BELONG T O THE APPELLANT. THE JOB-WORK CHARGES RECEIVED FROM LOAN-LICENSEES O F RS.29,70,886/- IS ALREADY CREDITED TO THE P & L A/C . 6.2.2. AS SEEN FROM THE JUDGMENTS IN THE CASES OF INDICA LABORATORIES PVT. LTD. VS. UOI - 1990 (50) E.L.T. 2 10 (GUJ. H.C.) AND ASHOK PHARMACEUTICALS VS. COMMISSIONER OF CENTR AL EXCISE - 2004 (169) E.LT.103 (TRIBUNAL - CHENNAI), IT IS AN ESTABLISHED TRADE PRACTICE THAT BESIDES OWN MANUFACTURE, ONE CA N PERMIT LOAN- LICENSEES TO MANUFACTURE PHARMACEUTICALS IN ONE'S F ACTORY. SUCH TRADE-PRACTICE IS CONTEMPLATED AND PERMITTED UNDER RULES 69A AND 74B OF THE DRUGS AND COSMETICS RULES, 1945. HOWEVER , OWNER OF THE FACTORY IS TO MAINTAIN THE NECESSARY RECORDS AN D PAY THE CENTRAL EXCISE DUTY ON THE ASSESSABLE VALUE OF THE ENTIRE MANUFACTURED GOODS CLEARED (INCLUDING THOSE OF LOAN -LICENSEES, WHO WILL BE REIMBURSING THE DUTY TO THE OWNER OF TH E FACTORY). 6.2.3. GIVEN THE SETTLED AND ESTABLISHED LEGAL PO SITION AND TRADE PRACTICES IN THIS REGARD, THE A. O. IN THE IN STANT CASE WENT ON TO HOLD THAT ASSESSABLE VALUE FOR CENTRAL EXCISE PU RPOSES IS SYNONYMOUS WITH SALES AND WENT ON FURTHER TO HOLD T HE VALUE OF THE PRODUCTS OF LOAN-LICENSEES AS SALES OF THE APPELLAN T AND ESTIMATED 25% OF THE ASSESSABLE VALUE AS INCOME OF THE APPELL ANT. THESE ARE THE TWIN FATAL FLAWS IN THE A.O'S FINDINGS. IN THE PROCESS, HE COMPLETELY IGNORED THE DETAILED AND REPEATED EXPLAN ATION OFFERED BY THE APPELLANT (AND REPRODUCED IN THE ASSESSMENT AS STATED EARLIER IN THIS ORDER). I FIND THE ENTIRE APPROACH OF THE A. O. TO BE WEIRD AND CALLOUS. A.O. HAS NOT BROUGHT ON RECORD A NY MATERIAL TO SAY THAT THE APPELLANT'S CONTENTIONS ARE INCORRECT; OR THAT THE LOAN- LICENSEES ARE DUMMIES OF THE APPELLANT. THE ADDITIO N IS NOT AT ALL BASED ON ANY OUTSIDE INQUIRES - EITHER WITH THE CEN TRAL EXCISE DEPARTMENT OR WITH THE LOAN-LICENSEES OR WITH THE P URCHASERS OF THE PRODUCTS. AS EMERGES FROM THE ASSESSMENT ORDER, THE A.O. FOR THE REASONS BEST KNOWN TO HIM IGNORED THE FACTS OF THE CASE AND THE APPELLANT'S EXPLANATION. HE INDULGED IN SOME FICTIT IOUS ARITHMETICAL EXERCISE TO MAKE THE ADDITION. IN FACT THE EXCISE ITA NO.292/AHD/2011 ITO VS. M/S.NAVIL LABORATORIES PVT.LTD. ASS T.YEAR 2007-08 - 6 - RETURNS FILED BY THE APPELLANT IN E.R.-1 (THE VERY BASIS ON WHICH THE ADDITION CAME TO BE MADE) SHOW THAT THE APPELLANT I S (BESIDE BEING A MANUFACTURER) ENGAGED IN DOING JOB-WORK OF LOAN-L ICENSEES. 6.2.4. IN THE LIGHT OF THE ABOVE DISCUSSION, I HOLD THAT THE ADDITION OF RS. 1,90,23,378/- IS ENTIRELY UNWARRANT ED. IT IS DELETED. THIS GROUND OF APPEAL IS ALLOWED. 7. BEING AGGRIEVED BY THE ORDER OF THE LD.CIT (A), REVENUE IS IN APPEAL BEFORE US. THE LD. DR BEFORE US VEHEMENTLY S UPPORTED THE ORDER OF THE AO. 8. ON THE OTHER HAND, THE LD. AR BEFORE US FILE D A PAPER BOOK RUNNING FROM PAGES 1 TO 330 AND REITERATED THE SUBMISSIONS AS MADE BEFORE THE AUTHORITIES BELOW. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE AO NO TICED THE DIFFERENCE BETWEEN THE TURNOVER SHOWN BY THE ASSESSEE IN THE F INANCIAL STATEMENTS AND TURNOVER SHOWN IN THE EXCISE RECORDS AMOUNTING TO RS. 7,60,94,713/- WHICH WAS TREATED AS UNDISCLOSED JOB WORK CARRIED O UT BY THE ASSESSEE. ACCORDINGLY, THE AO WORKED OUT THE ELEMENT OF PROFI T IN SUCH JOB WORK AT RS. 1,90,23,678/- BEING @ 25% OF RS. 7,60,95,713 /- AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 9.1. HOWEVER, THE LD.CIT (A) DELETED THE ADDIT ION MADE BY THE AO BY OBSERVING THAT THERE WAS NO CONCEALED JOB WORK AS A LLEGED BY THE AO. ITA NO.292/AHD/2011 ITO VS. M/S.NAVIL LABORATORIES PVT.LTD. ASS T.YEAR 2007-08 - 7 - NOW THE ISSUE BEFORE US ARISES FOR OUR ADJUDICATION WHETHER THE ASSESSEE HAS CONCEALED ITS JOB WORK INCOME IN THE GIVEN FACT S AND CIRCUMSTANCES. IN THIS REGARD, WE FIND THAT THE ADDITION WAS MADE BY THE AO MERELY ON THE BASIS OF THE DIFFERENCE OF SALES SHOWN BY THE A SSESSEE IN ITS BOOKS AND THE EXCISE RECORDS. THERE WAS NO OTHER MATERIAL AVA ILABLE WITH THE AO SUGGESTING THAT THE ASSESSEE HAS CARRIED OUT ANY JO B ACTIVITY OUTSIDE THE BOOKS OF ACCOUNTS. 9.2. THE ASSESSEE IN SUPPORT OF HIS CLAIM THAT IT HAS CARRIED OUT THE JOB WORK ON BEHALF OF OTHER PARTIES HAS FILED THE EXCIS E RETURNS, PRODUCTION REGISTERS, VAT RETURNS, STOCK REGISTERS, DECLARATIO N FILED TO THE EXCISE AUTHORITIES, TDS CERTIFICATE ISSUED BY THE LOAN LIC ENSE PARTY. ALL THESE DOCUMENTS ARE AVAILABLE ON RECORD. BUT THE AO HAS N OT POINTED OUT ANY DEFECT IN SUCH DOCUMENTS. 9.3. THE AO WAS VERY MUCH EMPOWERED TO TAKE THE CONFIRMATION FROM THE LOAN LICENSE PARTY UNDER SECTION 131/133(6) OF THE ACT, BUT HE FAILED TO EXERCISE HIS POWERS GIVEN UNDER THE STATUTE. 9.4. THE LD. DR BEFORE US HAS NOT BROUGHT ANYTHI NG CONTRARY TO THE FINDING OF LD. CIT(A). ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF THE LD. CIT(A). HENCE, T HE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. ITA NO.292/AHD/2011 ITO VS. M/S.NAVIL LABORATORIES PVT.LTD. ASS T.YEAR 2007-08 - 8 - 10. THE 2 ND ISSUE RAISED BY THE REVENUE IS THAT THE LD.CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE AO FOR RS. 1,60,2 3,176/- ON ACCOUNT OF SUPPRESSED PRODUCTION. 11. THE AO DURING THE ASSESSMENT PROCEEDINGS FOU ND THE DIFFERENCE BETWEEN THE PRODUCTION OF THE GOODS IN THE EXCISE R ECORDS VIS-A-VIS IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE AS DETAILED UNDER : PRODUCTION OF TABLETS AND CAPSULES SHOWN IN EXCISE RETURN 2,87,91,668 NOS. PRODUCTION OF TABLETS AND CAPSULES SHOWN IN BOOKS O F ACCOUNTS 1,32,35,186 NOS . DIFFERENCE 1,55,56,482 NOS 11.1. THE DIFFERENCE ABOVE IN THE PRODUCTION WAS DETERMINED AT RS.1,60,23,176/- AND THE SAME WAS ADDED TO THE TOTA L INCOME OF THE ASSESSEE. 12. THE AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LD.CIT(A). THE ASSESSEE BEFORE THE LD. CIT(A) SUBMITTED THAT THE D IFFERENCE IN THE PRODUCTION IS ARISING ON ACCOUNT OF THE JOB WORK CA RRIED OUT BY IT DURING THE YEAR ON LOAN LICENSE BASIS. AS SUCH THERE WAS N O PRODUCTION OF THE GOODS WHICH WAS NOT RECORDED IN THE BOOKS OF ACCOUN TS. 13. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSI ON OF THE ASSESSEE DELETED THE ADDITION MADE BY HIM BY OBSERVING AS UN DER: 7.2. I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE A.R. OF THE APPELLANT AND THE OBSERVATIONS OF THE ASSESSING OFF ICER IN THE ASSESSMENT ORDER. ITA NO.292/AHD/2011 ITO VS. M/S.NAVIL LABORATORIES PVT.LTD. ASS T.YEAR 2007-08 - 9 - 7.2.1. AS SEEN FROM RELEVANT PARAS OF THE ASSESSMEN T ORDER REPRODUCED ABOVE, ONCE AGAIN THE A.O. TURNED A BLIN D EYE AND DEAF EAR TO THE FACTS AND TO THE EXPLANATION GIVEN BY TH E APPELLANT. HE TREATED THE PRODUCTION OF TABLETS AND CAPSULES OF L OAN-LICENSEES TO BE THE PRODUCTION OF APPELLANT. HAVING MADE THE AD DITION ON THE TOTAL ASSESSABLE VALUE OF PRODUCTS CLEARED, A.O. FU RTHER COMPOUNDED THE ERROR BY MAKING THIS ADDITION ON QUA NTITATIVE BASIS OF TABLETS AND CAPSULES. IN VIEW OF MY FINDI NG AT PARAS 6.2. TO 6.2.4 ABOVE, I HOLD THAT THIS ADDITION OF RS.1,6 0,23,176/- IS EXTREMELY UNWARRANTED. IT IS DELETED. THIS GROUND OF APPEAL IS ALLOWED. 14. BEING AGGRIEVED BY THE ORDER OF THE LD.CIT ( A), REVENUE IS IN APPEAL BEFORE US. THE LD. DR BEFORE US VEHEMENTLY SUPPORTED THE ORDER OF THE AO. 15. ON THE OTHER HAND, THE LD. AR BEFORE US RE ITERATED THE SUBMISSIONS AS MADE BEFORE THE LD.CIT (A). 16. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERU SED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET, WE NOTE THAT TH E AO OBSERVED THE DIFFERENCE IN THE PRODUCTION DUE TO THE JOB WORK CA RRIED OUT BY THE ASSESSEE DURING THE YEAR. WE HAVE ALREADY ADJUDICAT ED THE SIMILAR GROUND OF THE REVENUE VIDE PARAGRAPH NUMBERS 9 TO 9.4 OF T HIS ORDER. THE REASONING GIVEN IN GROUND NO. 1 OF THE REVENUE AS D ISCUSSED ABOVE WILL ALSO BE APPLIED TO THIS GROUND AS WELL WITH FULL ST RENGTH. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A ). HENCE, THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. ITA NO.292/AHD/2011 ITO VS. M/S.NAVIL LABORATORIES PVT.LTD. ASS T.YEAR 2007-08 - 10 - 17. THE 3 RD ISSUE RAISED BY THE REVENUE IS THAT THE LD.CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE AO FOR RS. 3,52,6 00/- ON ACCOUNT OF LOWER GP RATIO. 18. THE AO DURING THE ASSESSMENT PROCEEDINGS F OUND THAT THE ASSESSEE HAS SHOWN GROSS PROFIT RATIO AT THE RATE OF 23.71% OF ITS TURNOVER AMOUNTING TO RS. 2,73,21,104/- WHICH WORKS OUT AT RS. 64,77,675/-ONLY. AS PER THE AO, THE ASSESSEE HAS SHOWN LOW GP RATIO. ACCORDINGLY, THE AO HAS TAKEN THE GP RATIO AT THE RATE OF 25% AND DE TERMINED THE GROSS PROFIT AT RS. 68,30,280/-ONLY. THUS THE DIFFERENCE OF RS. 3,52,600/- (68,30,280 64,77,675) ON ACCOUNT OF LOW GP RATIO WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 19. THE AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LD.CIT(A) WHO HAVE DELETED THE ADDITION MADE BY THE AO BY OBSERVI NG AS UNDER: 11.2. I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE A.R. OF THE APPELLANT AND THE OBSERVATIONS OF THE ASSESSING OFF ICER IN THE ASSESSMENT ORDER. A.O. HAS NOT MENTIOEND ANY BASIS G.P. IN COMPARABLE CASES T ESTIMATE G.P. @ 25% AS AGAINST 23.71% ADMITTED BY THE APPELLANT. FURTHER IT IS SEEN THAT THE G.P. IN THEIMMEDIATELY PRECEDING A.Y. 2006-07 WAS ONLY 22.5 % (AS AGAINST G.P. OF 23.71% ADMITTED DURING THE YEAR). HENCE, THE ADDITION IS NOT SUSTAINABLE. IT IS DELETED. THIS GROUND OF APPEAL IS ALLOWED. ITA NO.292/AHD/2011 ITO VS. M/S.NAVIL LABORATORIES PVT.LTD. ASS T.YEAR 2007-08 - 11 - 20. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT( A), REVENUE IS IN APPEAL BEFORE US. BOTH THE LD. DR AND THE AR BEFORE US VEHEMENTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW AS FAV ORABLE TO THEM. 21. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH T HE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT C ASE, THE AO HAS ESTIMATED THE GROSS PROFIT AT THE RATE OF 25% WITHO UT ADDUCING ANY REASON THEREON. IN OUR CONSIDERED VIEW IF THE AO WAS NOT S ATISFIED WITH THE GROSS PROFIT RATIO SHOWN BY THE ASSESSEE, THEN HE SHOULD HAVE REFERRED THE GROSS PROFIT DECLARED IN THE EARLIER AND SUBSEQUENT ASSES SMENT YEAR. WE FIND THAT THE ASSESSEE IN EARLIER YEARS HAS SHOWN THE GP LESS THAN 25% OF THE TURNOVER. THE NECESSARY DETAILS OF THE GP RATIOS AR E PLACED ON PAGE 130 OF THE PAPER BOOK. BUT THE AO HAS NOT MADE ANY REFE RENCE TO THE GP RATIO DECLARED BY THE ASSESSEE IN EARLIER ASSESSMENT YEAR S. THEREFORE WE ARE OF THE VIEW THAT THE GP RATIO TAKEN BY THE AO IS BASED ON HIS SURMISE AND CONJECTURE. THUS WE DO NOT FIND ANY REASON TO DISTU RB THE FINDING OF THE LD.CIT (A). HENCE THE GROUND OF APPEAL OF THE REVEN UE IS DISMISSED. 22. THE 4 TH ISSUE RAISED BY THE REVENUE IS THAT THE LD.CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE AO FOR RS. 1,07,2 20/- ON ACCOUNT OF UNDERVALUATION OF CLOSING STOCK. 23. THE AO DURING THE ASSESSMENT YEAR FOUND THAT THE ASSESSEE HAS SHOWN ITS OPENING STOCK AT THE RATE OF RS. 0.34 PER TABLET AMOUNTING TO RS. 6,34,312/-ONLY. THE AO FURTHER OBSERVED THAT TH E ASSESSEE HAD SHOWN CLOSING STOCK AT RS. 0.26 PER TABLET AMOUNTING TO R S. 3,53,201/-ONLY. THE ITA NO.292/AHD/2011 ITO VS. M/S.NAVIL LABORATORIES PVT.LTD. ASS T.YEAR 2007-08 - 12 - AO FOUND THE DIFFERENCE OF RS. 0.08 PER TABLET BETW EEN THE OPENING AND CLOSING STOCK VALUATION. AS PER THE AO, THE ASSESSE E SHOULD HAVE VALUED THE CLOSING INVENTORY AT THE RATE OF 0.34 PER TABLE T ONLY. THUS THE AO WORKED OUT THE DIFFERENCE OF RS. 1,07,220/- ON ACCO UNT OF UNDERVALUATION OF CLOSING STOCK AND ADDED TO THE TOTAL INCOME OF T HE ASSESSEE. 24. THE AGGRIEVED ASSESSEE PREFERRED AN APPEAL T O THE LD. CIT(A) WHO DELETED THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER: 12.2. I HAVE CONSIDERED THE SUBMISSIONS MADE B Y THE A.R. OF THE APPELLANT AND THE OBSERVATIONS OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. THE VALUATION OF CLOSING STOCK B Y THE APPELLANT (AT COST OR MARKET PRICE WHICHEVER IS LOWER) CANNOT BE FAULTED. ADDITION IS UNWARRANTED. IT IS DELETED. THIS GROU ND OF APPEAL IS ALLOWED. 25. BEING AGGRIEVED BY THE ORDER OF THE LD.CIT( A), REVENUE IS IN APPEAL BEFORE US. BOTH THE LD. DR AND THE AR BEFORE US VEHEMENTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW AS FAV ORABLE TO THEM. 26. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERU SED THE MATERIALS AVAILABLE ON RECORD. THE ACCOUNTING STANDARD 2 ISSU ED BY THE ICAI REQUIRES THE ASSESSEE TO SHOW CLOSING STOCK EITHER ON COST OR MARKET VALUE WHICHEVER IS LESS. THE AO IN THE CASE ON HAND HAS R EJECTED THE VALUATION DONE BY THE ASSESSEE WITHOUT ADDUCING ANY REASON TH EREON. THE LD. DR BEFORE US HAS ALSO NOT BROUGHT ANYTHING ON RECORD C ONTRARY TO THE FINDING OF THE LD.CIT (A). HENCE WE DO NOT FIND ANY REASON TO DISTURB THE FINDING ITA NO.292/AHD/2011 ITO VS. M/S.NAVIL LABORATORIES PVT.LTD. ASS T.YEAR 2007-08 - 13 - OF THE LD.CIT (A). HENCE THE GROUND OF APPEAL OF TH E REVENUE IS DISMISSED. 27. THE LAST ISSUE RAISED BY THE REVENUE IS THAT THE LD.CIT(A) ERRED IN CONTRAVENING THE PROVISIONS OF SECTION 251 OF THE A CT BY DIRECTING THE AO TO VERIFY THE CONTENTION OF THE ASSESSEE. 28. THE AO DURING THE ASSESSMENT PROCEEDINGS HAS MADE THE DISALLOWANCE/ ADDITION OF THE CERTAIN ITEMS/EXPENSE S AS DETAILED UNDER: 1) ADDITION OF RS. 99,800/- BEING SUPPRESSED SALES OF INJECTIONS. 2) ADDITION OF RS. 28,67,000/- BEING SUPPRESSED SALES OF OINTMENT. 3) ADDITION OF RS. 7,67,028/- BEING SUPPRESSED CLOSING STOCK. 4) ADDITION OF RS. 1,81,333/- BEING FREIGHT REIMBURSEM ENT EXPENSES. 5) ADDITION OF RS. 13,55,474/- BEING DISALLOWANCE U/S 40(A)(IA). 29. THE ABOVE DISALLOWANCES/ ADDITIONS WERE ADD ED TO THE TOTAL INCOME OF THE ASSESSEE. 30. THE AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LD.CIT(A), WHO HAS REMITTED THE MATTER BACK TO THE AO TO ADJUDICAT E THE MATTER OF FRESH AFTER VERIFYING THE CONTENTION OF THE ASSESSEE. ITA NO.292/AHD/2011 ITO VS. M/S.NAVIL LABORATORIES PVT.LTD. ASS T.YEAR 2007-08 - 14 - 31. BEING AGGRIEVED BY THE ORDER OF THE LD.CIT(A) , REVENUE IS IN APPEAL BEFORE US. THE LD. DR BEFORE US VEHEMENTLY S UPPORTED THE ORDER OF THE AO. ON THE OTHER HAND THE LD. AR BEFORE US S UBMITTED THAT THE AO IN GIVING EFFECT ORDER TO THE DIRECTION OF THE LD.C IT (A) HAS DELETED THE ADDITION VIDE ORDER DATED 9 TH JUNE 2011. THEREFORE, THE LD. AR CLAIMED THAT THE GROUND OF APPEAL OF THE REVENUE BECOMES IN FRUCTUOUS. THE LD. AR VEHEMENTLY SUPPORTED THE ORDER OF THE LD.CIT (A) . 32. WE HAVE HEARD THE RIVAL CONTENTIONS AND PER USED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET, WE NOTE THAT TH E LD. CIT (A) HAS NOT RESTORED THE MATTER FOR FRESH ADJUDICATION. BUT IT WAS RESTORED TO THE AO TO ADJUDICATE THE ISSUES WITH THE DIRECTION. THEREF ORE, WE HOLD THAT THERE WAS NOT BLANKET DIRECTION PROVIDED TO THE AO WHICH IS IN CONTRAVENTION TO THE PROVISIONS OF SECTION 251 OF THE ACT. 32.1. IN ADDITION TO THE ABOVE, WE ALSO NOTE THAT THE AO IN GIVING EFFECT ORDER TO THE LD.CIT (A) DIRECTION HAS DELETED THE A DDITION IN ITS ORDER DATED 9 TH JUNE 2011. THE COPY OF THE ORDER IS PLACED ON RECO RD. THUS WE ARE OF THE VIEW THAT ONCE ADDITION DELETED BY AO, T HERE REMAINS NO GRIEVANCE TO THE AO. ACCORDINGLY, THE GROUND OF APP EAL FILED BY THE REVENUE DOES NOT REQUIRE TO BE ADJUDICATED SEPARATE LY. AS SUCH THE GROUND OF APPEAL OF THE REVENUE AS DISCUSSED ABOVE BECOMES INFRUCTUOUS. ACCORDINGLY, THE GROUND OF APPEAL OF T HE REVENUE IS DISMISSED. ITA NO.292/AHD/2011 ITO VS. M/S.NAVIL LABORATORIES PVT.LTD. ASS T.YEAR 2007-08 - 15 - 32.2. THE OTHER GROUNDS RAISED BY THE REVENUE ARE GENERAL NATURE AND DO NOT REQUIRE ANY SEPARATE ADJUDICATION. 33. IN THE RESULT, THE APPEAL OF THE REVENUE IS D ISMISSED. THIS ORDER PRONOUNCED IN OPEN COURT ON 4/02/2019 SD/- SD/- ( RAJPAL YADAV ) ( WASEEM AHMED ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 4/02/2019 &.., .(.. / T.C. NAIR, SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. )*+ , / CONCERNED CIT 4. , ( ) / THE CIT(A)-XI, AHMEDABAD 5. /01 ((*+ , *+# , ) / DR, ITAT, AHMEDABAD 6. 145 6 / GUARD FILE. / BY ORDER, / ( //TRUE COPY// / ( DY./ASSTT.REGISTRAR) $%, / ITAT, AHMEDABAD 1. DATE OF DICTATION 30.1.2019 (WORD PROCESSED BY HON BLE AM IN HIS COMPUTER) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 30.1.2019 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.5.2.19 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 5.2.19 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER