The Deputy Commissioner of Income tax, Jalandhar V. M/s. K.K. Tanners, Jalandhar

ITA 295/ASR/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5803 (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; Depreciation; Principle of natural justice; Additional depreciation; Assessment record; Set aside
• Section: 142(1); 143(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.295(ASR)/2010 ASSESSMENT YEAR:2006-07 PAN:AAEFK1040Q THE DY. C.I.T. VS. M/S. K.K. TANNERS, RANGE-1, JALANDHAR. JALANDHAR. (APPELLANT) (RESPONDENT) C.O. NO.18(ASR)/2010 (ARISING OUT OF ITA NO.295/ASR)/2010) ASSESSMENT YEAR : 2006-07 M/S.K.K. TANNERS, 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 APPEAL: 2 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 8.75% AS AGAINST 14% APPLIED BY THE A.O. 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 WAS STATED AT G.P. RATE 29% AND CLOSING STOCK WAS REPORTED TO BE SUPPRESSED BY RS.9,17,5000/-, WHICH AMOUNTING TO 21.59% OF THE VALUE DECLARED.. NEEDLESS TO SAY PURCHASE OF HIDE AT LO W RATE WILL RESULT IN CORRESPONDING SALE AND PURCHASE OF HIDE A T HIGHER RATE WILL RESULT IN CORRESPONDING SALE AT HIGHER RATE BU T G.P. RATE IS TO BE COMPUTED WITH REFERENCE TO SALE OF PARTICULAR IT EM WITH REFERENCE OF ITS PURCHASE PLUS INPUTS AND IN THE CI RCUMSTANCES, THE CONTENTION OF THE ASSESSEE WITH REFERENCE TO AV ERAGE PURCHASE OF HIDES AND SALE PRICE OF LEATHER IS WIT HOUT ANY SUBSTANCE AND RATIONAL. 1.2. THE LD. CIT(A) FURTHER FAILED TO APPRECIATE TH AT CHEMICAL CONSUMPTION WAS AN INDICATION ASSESSES BOOKS OF A CCOUNT DID NOT REFLECT THE TRUE STATE OF AFFAIRS AND IT WAS TH E CASE OF APPLYING G.P. RATE IN THE CASE OF M/S. RAVI TANNER IES ENGAGED IN SIMILAR BUSINESS WAS MADE THE BASIS. RELIANCE IS PLACED IN THE CASE OF LAL CHAND WALATI RAM VS. CIT [(1978) 11 1 ITR 224 (PUN.)] 1.3. THAT THE LD. CIT(A) HAS ALSO FAILED TO APPRECI ATE THAT EACH ASSESSMENT YEAR IS AN INDEPENDENT AND, THEREFORE, I NCOME HAS RIGHTLY BEEN ASSESSED CONSIDERING THE FACTS ON RECO RD. RELIANCE IS PLACED IN THE CASE OF CIT VS. KALPETTA ESTATES L TD. (1995) 211 ITR 635, 738 (KE.) 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.8, 51,208/- AND THE SAME WAS PROCESSED U/S 143(1) OF THE ACT ON 20.12.2007. LATER ON, THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE DATED 05.10.2007 W AS SERVED ON THE ASSESSEE. STATUTORY NOTICES DATED 13.05.2008 U/S 14 3(2) AND 142(1) 3 ALONGWITH DETAILED QUESTIONNAIRE WERE ALSO ISSUED. IN RESPONSE TO THAT THE ASSESSEE FILED WRITTEN SUBMISSIONS, WHICH WERE EXAM INED BY THE A.O. THE A.O. COMPARED THE CASE OF THE ASSESSEE WITH THE CA SE OF M/S. RAVI TANNERIES PVT. LTD. KAPURTHALA ROAD, JALANDHAR, FO R THE A.Y. 2006-07, WHERE G.P. RATE @ 17% HAS BEEN APPLIED FOR THE ASS ESSMENT YEAR 2006-07. ACCORDINGLY, THE A.O. BY CONSIDERING THE SALES OF T HE ASSESSEE AT RS.214414633/- AS REASONABLE, APPLIED THE G.P. RAT E AT 14%. ON APPEAL, THE LD. CIT(A), SUSTAINED THE G.P. RATE 9% INSTEAD OF 1 4% APPLIED BY THE A.O. NOW, AGGRIEVED WITH THE ORDER OF THE CIT(A), THE RE VENUE 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, RELIED ON THE ORDER OF THE CIT(A) AND REITERATED THE SUBMISSIONS MADE B EFORE 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 THE RELEVANT PART OF THE DECISION OF THE CIT(A), FOR THE PURPOSE OF PROPER APPRECIATION OF THE SAME: 4 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 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 WAS A 5 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 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 6 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 W ERE 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. A PERUSAL OF THE ASSESSMENT S CASE FOR THE ASSESSMENT YEAR 2007-08 SHOWS THAT THE ASSESSEE SUBMITTED DETAILS OF SOCK AS ON 31.3.2006 BEFORE THE AO AS BE ING STOCK AS ON 1.4.2006. THE DETAILS OF STOCK AS ON 31.3.2007 W ERE ALSO SUBMITTED BEFORE THE AO. A DETAILED RECONCILIATION OF THE QUANTITY OF OPENINGS STOCK OF RAW MATERIAL, PURCHAS E, SALES AND CLOSING STOCK WAS SUBMITTED. IN RESPECT OF CLOSING STOCK ALSO COMPLETE PARTICULARS OF QUANTITY OF OPENING STOCK , PRODUCTION PURCHASES, SALES AND CLOSING STOCK WAS SUBMITTED IN QUANTITY AND VALUE. IN THAT ASSTT. YEAR, THEREFORE, THE AO W AS ABLE TO VERIFY THE TRADING ACCOUNTS OF THE ASSESSEE WITH RE FERENCE OF OPENING SOCK, CLOSING STOCK, PURCHASES AND SALES AN D HE ACCEPTED THE TRADING RESULTS EVEN THOUGH THE CHEMIC AL CONSUMPTION RATIO TO CONSUMPTION OF RAW HIDE WAS 8 6.21%. ON THE OTHER HAND IN THE PRESENT ASSESSMENT YEAR, THE ASSESSEE DID NOT SUBMIT THE DETAILS OF OPENING AND CLOSING STOCK , THOUGH ASKED FOR, AS HAS SUBMITTED THE VALUE OF STOCK AS ON 31.3.2006 DURING THE APPELLATE PROCEEDINGS ONLY IN THE REJOIN DER TO THE AOS COMMENTS. I AM, THEREFORE, OF THE OPINION THAT IN THE ABSENCE OF DETAILS AND VALUATION OF OPENINGS AND CL OSING STOCK, 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 AO HAS REFERRED TO THE CONSUMP TION OF CHEMICALS PURCHASED BY THE ASSESEE FOR MAKING THE I MPUGNED ADDITION OF RS.1.60 CRORE. THE AO HAS REFERRED TO T HE CONSUMPTION RATIO OF 60% CHEMICALS APPROVED BY HIM IN THE CASE OF M/S. RAVI TANNERIES TO JUSTIFY THE RATIO OF 60% CHEMICAL CONSUMPTION. HOWEVER, AS POINTED OUT BY THE APPELLA NT, THE FACTS IN THE CASE OF RAVI TANNERIES WERE NOT CONFRO NTED TO THE 7 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. 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.7,14,38,085/-. 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 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 8 FURNISHED BY THE APPELLANT AND VERIFIED BY THE AO, THE RATIO OF PURCHASE OF CHEMICALS TO THE PURCHASE OF HIDES WORK S OUT TO 51.20% 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 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. THE APPELLANT HAS RELIED ON THE DECISION OF HO NBLE APEX COURT IN THE CASE OF V.K.J BUILDERS AND CONTRACTORS (P) L TD (SUPRA) FOR THE PROPOSITION THAT SINCE THE CLOSING STOCK OF ONE YEAR WAS 9 THE OPENING STOCK OF THE SUCCEEDING YEAR AND THE OP ENING STOCK ON 1.4.2006 HAVING BEEN ACCEPTED IN THE ASSESSMENT YEAR 2007- 08 VIDE ORDER DATED 30.12.2009, THE CLOSING STOCK O F THE PRESENT ASSESSMENT YEAR COULD NOT BE CHANGED. I DO NOT AGRE E WITH THIS CONTENTION OF APPELLANT. WHILE CLOSING STOCK OF ONE IS CERTAINLY THE OPENING STOCK OF THE SUCCEEDING ACCOUNTING YEAR , THE VALUE OF CLOSING STOCK HAS TO BE VERIFIED WITH REFERENCE TO COST OF PURCHASE IN THE PRESENT YEAR WHICH CAN BE EXAMINED PROPERLY IN THE PROCEEDINGS FOR THE PRESENT ASSTT. YEAR ONLY. IF THERE IS CHANGE IN THE VALUE OF CLOSING STOCK BASED ON FINDI NGS IN THE PRESENT ASSESSMENT YEAR, DUE EFFECT WILL BE REQUIRE D TO BE GIVEN IN THE OPENING STOCK OF SUCCEEDING YEAR AS HELD BY THE HONBLE APEX COURT, HELD IN THE CASE OF VKJ BUILDERS AND CO NTRACTORS (P) LTD. (SUPRA) 3.7. NONETHELESS, THE AO IS SEEN TO HAVE NOT CONSID ERED THE ISSUE OF VALUATION OF CLOSING STOCK BY CONSIDERING ALL THE F IGURES OF PURCHASES AND COST OF FINISHED GOODS TO ARRIVE AT HIS CONCLUSION THAT THE CLOSING STOCK OF THE APPELLANT WAS UNDERVA LUED. THE AO HAS STATED THAT SINCE THE COST OF COW HIDE WAS HIGH AS COMPARED TO THAT OF OTHER ANIMALS, ITS COST PRICE PER HIDE W OULD ONLY RANGE FROM RS.651/- PER HIDE UPWARDS. THE APPELLANT HAS SUBMITTED DETAILS OF PURCHASE OF ALL HIDES DURING THE RELEVAN T PREVIOUS YEAR, AS WELL AS THE PURCHASE OF COW HIDES FROM 18. 2.2006 TO 17.3.2006 I.E. TOWARDS THE END OF RELEVANT ACCOUNTI NG YEAR. IT IS SEEN FROM THE DETAILS AND COPIES OF BILLS FURNISHE D THAT COW HIDES HAVE BEEN PURCHASED A HIGH RATES OF UPTO RS.1 704/- PER PC AND HAVE ALSO BEEN PURCHASED AT LOW PRICES OF UP TO RS.175/- PER PC. ON 4.6.2005 THE APPELLANT HAS PURCHASED HI DES FROM THE SAME SUPPLIER AT RATE OF RS.610/-, 350/-, RS.400/- AND 175/- PER PC. COPIES OF ALL THE BILLS OF PURCHASES ARE ON RE CORD. THIS INDICATES THAT EVEN THE RATES FOR COW HIDES CAN VAR Y SIGNIFICANTLY. THE AVERAGE RATE OF PURCHASE OF COW HIDE FOR THE WHOLE YEARS WORKS OUT TO RS.568/- PER PC AND THOSE FOR PURCHASE AT THE END OF THE YEAR RS.414/- PER PC. TH EAOS CONTENTION THEREFORE, THAT PURCHASE OF COW HIDE EX CEEDS RS.651/- PER PC IS ACTUALLY INCORRECT. THE PURCHASE S HAVE APPARENTLY BEEN VERIFIED BY THE AO BY CALLING FOR INFORMATION FROM THE SUPPLIERS. THE AOS BASIS FOR ESTIMATING T HE AVERAGE PRICE OF COW HIDE AT RS.729.30 IS, THUS, INCORRECT. 10 3.8. SIMILARLY, THE AO HAS WORKED OUT THE GP AT THE RATE OF 29% BY CONSIDERING THE AVERAGE SALE PRICE AT RS.84.77 PER SQ. FT. HERE AGAIN THE AO HAS CONSIDERED ONLY SALES MADE @ RS.7 1/- PER SQ. FT AND ABOVE WITHOUT CONSIDERING THE SALE MADE BY T HE ASSESSEE AT LOWER RATE. THE APPELLANT HAS SOLD FINISHED COW LEATHER DURING THE YEAR AT RATES WHICH HAVE VARIED FROM RS.30/- P ER SQ. FT TO RS.90/- PER SQ. FT. AND EVEN MORE. THE RATE OF SALE OF FINISHED COW LEATHER FOR THE LAST FEW SALES MADE DURING THE YEAR VARY FROM RS.60/-PER SQ. FT UPTO RS.65/- PER SQ. FT. FIG URES HAVE TO BE TAKEN IN THEIR ENTIRETY AND CANNOT BE CHOSEN SELECT IVELY WHICH IS LIKELY TO GIVE DISTORTED RESULTS. CONSIDERING THE V ALUE AND RATE OF PURCHASES OF COW HIDES AND SALE PRICES OF FINISHED COW LEATHER SUBMITTED AS PER THE ASSESSEES BOOK, THE VALUE AD OPTED BY THE APPELLANT FOR VALUING THE CLOSING STOCK DOES APPEAR TO BE CORRECT. 3.9. 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 AAPPE LLATE PROCEEDINGS ALSO THE DETAILED LIST AND VALUE OF CLO SING STOCK HAS BEEN SUBMITTED ONLY IN THE REJOINDER TO THE AOS CO MMENTS THE DETAILED LIST AND VALUE OF THE OPENING STOCK FO R THE FINANCIAL YEAR 2005-06 HAS NOT BEEN SUBMITTED AT ALL. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IN THE CASE OF ASSESSMENT FOR A.Y. 2005-06, THE ASSESSEE SUBMITTED DETAILED LIS AND VA LUATION OF BOTH ITS OPENING STOCK AS WELL AS CLOSING STOCK AND RECONCILED THE ENTIRE QUANTITATIVE PURCHASES, PRODUCTION AND S ALES DURING THE YEAR. THIS EXERCISE WAS NOT DONE EVEN IN THE CA SE FOR A.Y. 2005-06 I.E. ASSESSMENT YEAR UNDER APPEAL. AS NOTED EARLIER, IN THE ABSENCE OF DETAILS AND VALUING OF OPENING AND C LOSING STOCK THE ENTRIES IN THIS REGARD IN THE BOOKS OF ACCOUNT S COULD NOT BE VERIFIED AND THE BOOKS OF ACCOUNTS COULD NOT BE HE LD TO BE CORRECT AND COMPLETE. THOUGH THE APPELLANT HAS SUBM ITTED THE DETAILS OF CLOSING STOCK AS ON 31.3.2006 BEFORE THE AO DURING THE ASSESSMENT PROCEEDINGS FOR ASSESSMENT YEAR 2007 -08 AS THE OPENING STOCK ON 1.4.2006, THE AO COULD NOT HAVE VE RIFIED EITHER THE QUANTITY OR THE VALUE OF THIS STOCK SINC E THE MATTER PERTAINED TO THE VALUATION OF CLOSING STOCK IN THE ASSESSMENT YEAR 2006-07. AS PER THE TAX AUDIT REPORT IN FORM 3 CD THE DETAILS OF CLOSING STOCK INVENTORIES HAD NOT BEEN P RODUCED BEFORE THE C.A ALSO. NO REASON FOR THE SAME HAS BEE N SUBMITTED 11 BY THE APPELLANT. IN THE ABSENCE OF QUANTITATIVE PA RTICULARS OF OPENING STOCK, IT WOULD NOT BE POSSIBLE FOR THE AO TO EVEN TRY TO RECONCILE THE OPENING STOCK WITH THE PURCHASES A ND CLOSING STOCK AND THEREBY TO VERIFY THE TRADING ACCOUNTS. 3.10. THE AO HA MADE AN ADDITION OF RS.1.60 CRORE B ASED ON THE RATIO OF CONSUMPTION OF CHEMICALS WHICH WAS WORKED OUT BY HIM TO AROUND 98%. AFTER VERIFICATION OF BOOKS OF ACCOUNTS , THE RATIO OF CHEMICAL CONSUMPTION WORKS OUT TO APPROXIMATELY 51%. IN THE NEXT ASSESSMENT YEAR, THE AO HAS ACCEPTED CHE MICAL CONSUMPTION RATIO OF AROUND 86%. HENCE, THERE DOES NOT APPEAR TO BE ANY REASON TO SUSTAIN AN ADDITION TO THE TRAD ING ACCOUNT ON THE BASIS OF THE CHEMICAL CONSUMPTION RATIO. HOWEVE R, THE FACT REMAINS THAT THE ACCOUNT OF THE ASSESSEE ARE UNVERI FIABLE IN THE ABSENCE OF DETAILS OF OPENING STOCK AND INCOME COUL D BE ESTIMATED UNDER THE CIRCUMSTANCES. THOUGH THE GP RATE IN THE PRECEDING YEARS IS NORMALLY HELD IN SUCH CIRCUMSTAN CES TO BE A GOOD INDICATOR OF PROFITS OF THE ASSESSEE, IN MY OP INION, THE ACCOUNTS OF THE ASSESSEE HAVING BEEN VERIFIED IN TH E SUBSEQUENT YEAR WITH REFERENCE TO OPENING AND CLOSING STOCK, T HE SUBSEQUENT YEARS GP RATIO SHOULD FORM A BETTER GU IDE TO THE CORRECT ESTIMATED INCOME OF THE ASSESSEE. THE PRESU MPTION THAT THE ACCOUNTS OF THE ASSESSEE DO NOT REFLECT ITS COR RECT PROFIT ARE SUPPORTED STRONGLY BY THE APPELLANTS RELUCTANCE TO HAVE FURNISHED THE DETAILS OF THE OPENING AND CLOSING ST OCK BEFORE NOT ONLY THE AO BUT ALSO BEFORE THE TAX AUDITOR FOR THE CURRENT ASSESSMENT YEAR, THOUGH THE SAME WERE SUBMITTED BE FORE THE AO DURING THE ASSESSMENT PROCEEDINGS FOR THE ASSESS MENT YEAR 2007-08. THE GP DECLARED BY THE ASSESSEE IN THE PR ESENT ASSESSMENT YEAR IS STATED TO BE 8.02%. THE GP RATIO ACCEPTED IN THE ASSESSMENT YEAR 2007-08 IS 8.63%. THE VALUE OF SALES IN ASSESSMENT YEAR 2007-08 IS SLIGHTLY HIGHER AS COMPA RED TO THE SALES IN THE PRESENT ASSESSMENT YEAR. UNDER THE CI RCUMSTANCES, I AM OF THE OPINION THAT GP RATE OF 8.75% IN THE PRES ENT ASSESSMENT YEAR WILL INDICATE THE CORRECT INCOME OF THE APPELLANT MORE ACCURATELY. THE SALES OF THE ASSESSE E ARE RS.17,41,28,393/-. THE TRADING ADDITION BY TAKING T HE GP RATIO AT 8.75% WORKS OUT TO RS.12,71,137/-. THIS IS THE A MOUNT OF ADDITION WHICH IS SUSTAINED IN PLACE OF ADDITION OF RS. 1.60 CRORES MADE BY THE AO. THE APPELLANT GETS RELIEF OF RS. 12 1,47,28,863/-. GROUND NOS. 1 TO 8 OF APPEAL, ARE, T HEREFORE, 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.18(ASR).2010, THE ASSESSEE HAS RA ISED FOLLOWING GROUNDS: 1. THAT THE CIT(A), JALANDHAR HAD RIGHTLY DELETED THE ADDITION OF RS.1,60,00,000/- SO MADE BY THEA.O. BU T HAD HOWEVER ERRED IN SUSTAINING THE BALANCE ADDITION OF RS. 12,71,137/- BY ESTIMATING THE G.P. RATE AT 8.75% AS AGAINST 8.02% AS STOOD DULY REFLECTED BY THE ASSESS EE FIRM. 2. THAT THE CIT(A) HAD ERRED IN NOT ALLOWNG THE ST ATUTORY ENTITLEMENT OF THE ASSESSEE FIRM TOWARDS CLAIM OF ADDITIONAL DEPRECIATION AMOUNTING TO RS.3,27,175/ - 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. K.K. TANNERS, JALANDHAR.JALANDHAR . 13 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.