Nice Industries, Surat V. The Income tax Officer,Ward-5(3), Surat

ITA 299/AHD/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9725 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 19-08-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 27-01-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R K DHANESTA
• Assessee Lawyers: R N VEPARI
• Keywords: Corroborative evidences
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A AHMEDABAD BEFORE SHRI N.S.SAINI, ACCOUNTANT MEMBER AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER ITA NO.299/AHD/2008 ASSESSMENT YEAR:2004-05 DATE OF HEARING:19.8.10 DRAFTED:20.8.10 M/S. NICE INDUSTRIES, 1/1493-B, SNEHKUNJ BUILDING, 2 ND FLOOR, GORDHANWADA,NANPURA, SURAT PAN NO.AACFN3927D V/S . INCOME TAX OFFICER, WAQRD-5(3), SURAT (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI R.N. VEPARI, AR RESPONDENT BY:- SHRI R.K.DHANESTA, DR O R D E R PER MAHAVIR SINGH JUDICIAL MEMBER:- THIS APPEAL BY THE ASSESSEE IS ARISING OUT OF THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-III, SURAT IN APPEAL NO. CAS-I II/249/06-07 DATED 30-11-2007. THE ASSESSMENT WAS FRAMED BY ITO, WARD-5(3), SURAT U/S143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VI DE HIS ORDER DATED 11-12-2006 FOR ASSESSMENT YEAR 2004-05. 2. THE FIRST ISSUE IN THIS APPEAL OF THE ASSESSEE I S AGAINST THE ORDER OF CIT(A) CONFIRMING THE ACTION OF ASSESSING OFFICER IN REJEC TING THE BOOK RESULTS U/S.145 OF THE ACT. FOR THIS, ASSESSEE HAS RAISED THE FOLLOWING GROUND NO.1 :- (I) REJECTION OF BOOK RESULT: (I) THE LEARNED COMMISSIONER OF INCOME-TAX (A) ERRE D IN CONFIRMING THE REJECTION OF BOOKS BY THE ASSESSING OFFICER, (A) JUST BECAUSE THERE IS FALL IN RATE OF GROSS PRO FIT WHICH WAS EXPLAINED; ITA NO.299/AHD/2008 A.Y 2004-05 M/S. NICE INDUSTRIES V. ITO WD-5(3), SRT PAGE 2 (B) BY NOT CORRECTLY OBSERVING THAT PRODUCTION/CONS UMPTION RECORDS ARE NOT MAINTAINED WHEN ALL SUCH RECORDS ALONG WITH EXC ISE RECORDS WERE PRODUCED AND NO DEFECT NOTICED THEREIN; (C) NOT ACCEPTING COMPARABLE CASE WHEN ASSESSING OF FICER HAS NOT GIVEN ANY COMPARABLE CASE. (II) THE APPELLANT SUBMITS THAT LEARNED COMMISSIONE R OF INCOME-TAX (A) HAS NOT DEALT WITH VARIOUS CONTENTIONS AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE BOOK RESULT HAS BEEN WRONGLY REJECTED. 3. THE BRIEF FACTS ARE THAT ASSESSEE FILED ITS RETU RN OF INCOME ON 25-10-2004 DECLARING NIL TOTAL INCOME. THE ASSESSEES ACCOUNTS ARE AUDITED U/S.44AB AND REPORT IN FORM 3CB AND 3CD WAS FILED SUPPORTED BY TRADING ACCOUNT, PROFIT AND LOSS ACCOUNT AND BALANCE-SHEET. THE ASSESSING OFFICER DU RING THE COURSE OF ASSESSMENT PROCEEDINGS REQUIRED THE ASSESSEE TO FILE VARIOUS D ETAILS AND FROM THE DETAILS AO NOTED THAT GROSS PROFIT RATIO OF THE ASSESSEE-FIRM HAS FALLEN STEEPLY AS COMPARED TO TWO PRECEDING YEARS AND ACCORDINGLY ASSESSEE WAS AS KED TO FURNISHED THE REASONS FOR FALL IN GROSS PROFIT MARGINS ALONG WITH SUPPORT ING EVIDENCES. THE WORKING OF GROSS PROFIT OF TWO PRECEDING YEARS INCLUDING RELEVANT AS SESSMENT YEAR READS AS UNDER:- ASST. YEAR SALES GROSS PROFIT GROSS PROFIT RATE 2002-03 1,74,60,345/- 22,50,405/- 12.19% 2003-04 2,04,10,798/- 20,90,086/- 10.12% 2004-05 1,74,60,345/- 1,42,307/- 0.82% THE ASSESSEE EXPLAINED THE REASONS THAT DUE TO SHIF T IN OFFICE THE PARTNERS COULD NOT PAY ATTENTION TO MANUFACTURING/BUSINESS. IT WAS STA TED THAT FURTHER THE PARTNERS OF THE FIRM HAD NO EXPERIENCE OF SELLING TEXTURISED YARN/T WISTED YARN/DYED YARN/GREY CLOTHES IN SURAT TEXTILE MARKET AND ACCORDINGLY DEPEND UPON COMMISSION AGENTS FOR SELLING THE PRODUCT. IT WAS ALSO STATED THAT THEY HAVE TO C OMPETE WITH THE FACTORIES SITUATED IN UNION TERRITORIES LIKE DAMAN AND SILVASSA, WHO W ERE GETTING POWER @ RS.2.50 PER UNIT, EXTRA SALES TAX EXEMPTION FOR 15 YEARS AND IN COME-TAX EXEMPTION FOR 10 YEARS. HENCE, THEY HAVE TO SELL THE PRODUCT AT MUCH LOWER PRICE IN MARKET THEN THE MARKET PRICE. ACCORDING TO ASSESSEE, LABOUR COST WAS INCRE ASED AS THE GOVERNMENT OF INDIA HAS LEVIED EXCISE DUTY ON TWISTING, TEXTURISING/WEA VING I.E. EVERY STAGE. HE STATED THAT TEXTURISE UNITS, TWISTED YARN MANUFACTURING UN ITS HAD GONE ON STRIKE DURING APRIL03. HENCE, COST OF TEXTURISE YARN, TWISTED YA RN GRAY CLOTH INCREASED AND MARGINS ITA NO.299/AHD/2008 A.Y 2004-05 M/S. NICE INDUSTRIES V. ITO WD-5(3), SRT PAGE 3 ACCORDINGLY DECREASED. THE AO WAS NOT CONVINCED AS THE REPLY WAS GENERAL IN NATURE AND HE FURTHER REQUIRED THE ASSESSEE TO EXPL AIN AS TO WHY THE PROVISION OF SECTION 145 OF THE ACT SHOULD NOT BE INVOKED AS THE BOOK RESULTS ARE NOT TRUE. THE AO HAS NOT ACCEPTED THE EXPLANATION OF THE ASSESSEE AND REJECTED THE BOOK RESULTS BY GIVING FOLLOWING REASONS IN PARA-3.3 OF HIS ASSESSMENT ORDER:- 3.3 THE REPLY OF THE ASSESSEE IS CONSIDERED CAREFU LLY. HOWEVER, THE CONTENTIONS OF THE ASSESSEE CANNOT BE ACCEPTED DUE TO THE FOLLOWING REASONS:- (1) THE EXPLANATION OF THE ASSESSEE IS VAGUE AND GE NERAL IN NATURE AND NOT SUPPORTED D BY ANY EVIDENCE. IN REPLY TO THE RE ASONS FOR FALL IN GROSS PROFIT, THE ASSESSEE-FIRM HAS MERELY SUBMITTE D THE REPLY ON THE BASIS OF THE FIGURES AVAILABLE ON RECORDS I.E. THE RETURN OF INCOME FILED IN THIS OFFICE. THERE ARE NOTHING BUT RATIO ANALYSIS F ROM THE DATA AVAILABLE IN FINANCIAL STATEMENTS FILED WITH THE RETURN OF IN COME. (2) THE ASSESSEE-FIRM HAS STATED THAT THE COST OF PURCH ASE PER KGS. HAS BEEN INCREASED. IT IS PERTINENT TO MENTION HERE THA T THE GROSS PROFIT IS WORKED OUT ON THE BASIS OF CONSUMPTION OF RAW MATER IALS AND NOT ON THE BASIS OF PURCHASE OF RAW MATERIALS BECAUSE CONS UMPTION OF RAW MATERIAL INCLUDED IN THE OPENING STOCK AS WELL AS P URCHASE DURING THE YEAR MINUS CLOSING STOCK. (3) THE ASSESSEE COULD NOT SUBSTANTIATE THAT WHY IT HAS SOLD THE FINISHED GOODS ON LOW PRICE THOUGH THE COST OF FINISHED GOOD S I.E. COST OF RAW MATERIALS AS WELL AS PRODUCTION COST INCREASED DURI NG THE YEAR UNDER CONSIDERATION. (4) DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSEE HAS SUBMITTED THE DETAILS OF MONTH-WISE PRODUCTION AND CONSUMPTION OF ELECTRICITY IN UNITS. ON THE BASIS OF THESE DETAILS , THE CONSUMPTION OF ELECTRICITY WAS COMPARED WITH THE PRODUCTION SHOWN BY THE ASSESSEE- FIRM. ON PERUSAL OF THE DETAILS OF PRODUCTION, IT I S NOTICED THAT THE CONSUMPTION OF ELECTRICITY IN COMPARISON TO THE PRO DUCTION OF 1 KG OF YARN WAS CARRIED IN DIFFERENT MONTHS. MONTH PRODUCTION POWER CONSUMPTION CONSUMPTION OF ELECTRICITY APRIL 2838.960 11010 3.878 0.257 MAY 5926.500 3580 0.604 1.655 JUNE 15567.880 14260 0.915 1,0917 JULY 17847.810 15250 0.854 1,1703 AUGUST 20746.49 15990 0.770 1,2974 SEPT. 23455.150 14520 0.619 1,6153 OCTOBER 18911.590 12570 0.664 1,5045 NOV. 15311.470 13760 0.898 1,1127 DECEMBER 12281.740 13320 1.084 0,9220 JANUARY 13298.650 14050 1.856 0.9465 FEBRUARY 11056.310 12600 1.139 0.8774 MARCH 16666.800 16120 0.967 1.0339 ITA NO.299/AHD/2008 A.Y 2004-05 M/S. NICE INDUSTRIES V. ITO WD-5(3), SRT PAGE 4 ON PERUSAL OF THE DETAILS, IT IS NOTICED THAT THE C ONSUMPTION OF ELECTRICITY FOR PRODUCTION OF 1 KG. OF YARN IS IN THE RANGE OF 0.60 TO 3.87 UNITS. IN THE MONTH OF MAY,2003, THE CONSUMPTION OF ELECTRICI TY IS 0.60 UNITS AS AGAINST THE CONSUMPTION OF 3.87 IN THE MONTH OF APR IL, 2003. THUS, THERE IS AN ABNORMAL VARIATION IN CONSUMPTION OF EL ECTRICITY UNIT AS WORKED OUT ABOVE. THE ABOVE FACTS INDICATE THE POSS IBILITY OF UNACCOUNTED PRODUCTION DUE TO ABNORMAL CONSUMPTION OF ELECTRICITY UNITS. ON THE BASIS OF THE COMPARATIVE CHART GIVEN ABOVE, IT IS EVIDENT THAT IN THE CONSUMPTION OF ELECTRICITY, THERE IS HU GE DIFFERENCE FOR THE PRODUCTION OF FINISHED GOODS. THE ASSESSEES SUBMIS SION IS NOT SUPPORTED BY ANY SUPPORTING EVIDENCES OR ANY CONCRE TE CALCULATIONS. IN FACT, THE ASSESSEE HAS NOTHING TO SAY OR SUBSTANTIA TE IN THIS REGARD. (5) THE ASSESSEE HAS NOT PRODUCED DAY-TO-DAY QUALIT Y YARN PRODUCTION REGISTER AND DAY-TO-DAY STOCK REGISTER. THEREFORE, INVENTORY OF OPENING AND CLOSING STOCK IS ALSO NOT VERIFIABLE. (6) THE ASSESSEE HAS ALSO NOT PROVIDED EVIDENCES OF SOME EXPENSES SUCH AS OCTROI EXPENSES, FREIGHT EXPENSES AND AIR CHARGE S. THE ASSESSING OFFICER ALSO ESTIMATED THE GROSS PROF IT RATE AT 11.15% I.E. AVERAGE OF PRECEDING TWO YEARS. AGGRIEVED AGAINST THE REJECTIO N OF BOOK RESULTS, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO ALSO CONFIRMED THE ACTION OF ASSESSING OFFICER BY GIVING FOLLOWING FINDING IN PAGE-2-3 OF HIS APPELLATE ORDER:- I HAVE CONSIDERED THE SUBMISSIONS AND GONE THROUGH THE DETAILS BEFORE ME. ALTHOUGH, I AM INCLINED TO AGREE WITH THE APPELLANT THAT THERE COULD BE NO RELATION BETWEEN CONSUMPTION OF ELECTRICITY AND PRO DUCTION IN A PARTICULAR MONTH DUE TO VARIOUS FACTORS, IT DOES NOT EXPLAIN T HE FACT THAT THE APPELLANT HAS SHOWN A FALL IN GP OF MORE THAN 11% COMPARED TO LAST YEAR. IN CASE THE SALE PRICE OF FINISHED GOODS WAS LOWER, THE PURCHAS E PRICE OF RAW MATERIAL WOULD ALSO BE LOW. IT DOES NOT MAKE ANY BUSINESS SE NSE TO SELL FINISHED GOODS AT A PRICE WHICH IS LOWER THAN THE COST OF PRODUCTI ON AND NO BUSINESS COULD SURVIVE IN SUCH A SCENARIO. IT IS ALSO SEEN THAT TH E APPELLANT IS NOT MAINTAINING PRODUCTION REGISTER IN THE ABSENCE OF WHICH THE BOO K RESULTS CANNOT BE RELIEF UPON. THE COMPARATIVE CASE OF M/S. FERDIN TEXTURISE RS QUOTED BY THE APPELLANT IN SUPPORT OF ITS CLAIM DOES NOT GIVE THE TRUE AND CORRECT PICTURE, SINCE THERE WOULD BE A NUMBER OF OTHER UNITS IN THE APPELLANTS BUSINESS WHICH ARE MAKING PROFITS OR ELSE THE COMPLETE TEXTURISING INDUSTRY WOULD HAVE CLOSED DON BECAUSE OF THE SO CALLED LOSSES IN BUSINESS. IT IS FURTHER SEEN THAT THE APPELLANT HAS ALSO NOT BEEN ABLE TO PRODUCE EVIDENC ES FOR EXPENSES LIKE OCTROI, FREIGHT ETC. WHICH WOULD SUPPORT EH APPELLA NTS CASE FOR HAVING MADE PURCHASES. IN VIEW OF THIS, THE ASSESSING OFFICER'S ACTION IN AGGRIEVED, NOW ASSESSEE CAME IN SECOND APPEAL BEFOR E US. 4. LD. COUNSEL FOR THE ASSESSEE STATED THAT THE AS SESSEE IS ENGAGED IN THE BUSINESS OF TEXTURISING OF YARN IN ANKLESHWAR AND M ACHINES ARE NEARLY 15 YEARS OLD ITA NO.299/AHD/2008 A.Y 2004-05 M/S. NICE INDUSTRIES V. ITO WD-5(3), SRT PAGE 5 AND IN THIS LINE OF BUSINESS NEWER TECHNOLOGY AND N EW MACHINES WITH HIGHS SPEED HAVE CAME IN LAST 10 YEARS. HE SATED THAT DURING TH E YEAR 2003-04, THERE WAS A BIG STRIKE STARTING FROM APRIL TO MID MAY04, DUE TO LE VY OF EXCISE ON EACH STAGE OF YARN PROCESS, ASSESSEE ALSO AFFECTED BY THAT STRIKE AND VIRTUALLY NO PRODUCTION HAS COME IN THIS STRIKE PERIOD BUT THE FIXED COST LIKE ELECT RICITY, LABOUR COST ETC. THE ASSESSEE HAS TO BEAR. HE STATED THAT DUE TO STRIKE, OBSOLETE TECHNOLOGY, RECESSION AND KEEN COMPETITION IN THE MARKET, ASSESSEES GROSS PROFIT HAS DECLINED CONSIDERABLY. LD. COUNSEL HAS STATED THAT THE ASSESSING OFFICER ERRED IN REJECTING THE BOOKS OF ACCOUNT U/S.145 WITHOUT GIVING SHOW CAUSE NOTICE AND REFERE NCE TO THIS HAS BEEN WRITTEN IN THE ORDER SHEET. LD. COUNSEL FOR THE ASSESSEE STATE D THAT PRODUCTION OF EACH AND EVERY CONFIRMATION OF ACCOUNTS ASKED BY THE ASSESSI NG OFFICER HAS ACCEPTED CONFIRMATION OF ACCOUNTS OF BROKERS TO WHOM, ASSESS EE HAS PAID BROKERAGE, PURCHASE PARTIES, SALES PARTIES ETC. AND NO DIFFERE NCE IN QUANTITY RECORDS HAS BEEN FOUND BY AO. HE STATED THAT PRODUCTION OF ALL THE R ECORDS OF EXCISE DUTY BEFORE AO AS THE ASSESSEE HAS MAINTAINED DIFFERENT REGISTERS LIK E RG-1, DAILY STOCK AND PRODUCTION REGISTER, PLA PERSONAL LEDGER ACCOUNT FO R CLEARANCE OF GOODS AGAINST CASH DUTY PAID, RG-23A PART-I, REGARDING INPUT AND PURCHASE OF MODVAT GOODS, RG-23A PART-II, REGARDING CLEARANCE OF GOODS AGAINS T INPUT MODVAT ETC AS PER RULES OF CENTRAL EXCISE. THE AO HAS MENTIONED THE D AY-TO-DAY PRODUCTION AND STOCK REGISTER HAS NOT BEEN PRODUCED IS NOT TOTALLY WRONG AND HE STATED THAT THOUGH ASSESSEE HAS MAINTAINED RG-1 REGISTER, DAY-TO-DAY S TOCK AND PRODUCTION REGISTER FOR TEXTURISED YARN, TWISTED YARN AND CLOTH AS PER THE PRO FORMA GIVEN EXCISE RULES AND REGISTER IS PRE-AUTHENTICATED BY EXCISE AUTHORI TY. HE FURTHER STATED THAT THE REGISTERS WERE PRODUCED BEFORE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS BUT HE HAS NO MENTIONED ANY CONCRETE REASON FOR REJ ECTING THE BOOKS OF ACCOUNT U/S.2145(3). ANOTHER REASON GIVEN IN THE ORDER IS O F VARIATION IN PRODUCTION VERSUS ELECTRICITY CONSUMPTION, LD. COUNSEL FOR ASSESSEE S TATED THAT GEB IS TAKING METER READING ON THE DATE WHICH IS NEVER BE THE LAST DATE OF THE MONTH AND GEB IS TAKING METERS READING ON DIFFERENT DATES ACCORDING TO THEI R CONVENIENCE, LIKE EITHER 22 ND , 24 TH OF MONTH IN THE MARCH ENDING ITS ASSESSMENT YEAR. THE ASSESSEE HAS GIVEN PRODUCTION AS PER LAST DAY OF MONTH AND AS METER RE ADING DATES ARE DIFFERENT, IT IS VERY FALLACIOUS TO CO-RELATE BOTH THIS THING BUT HA D THE AO GIVEN THE ASSESSEE AN OPPORTUNITY TO EXPLAIN ASSESSEES CASE, IT WOULD HA VE CONVINCED THE AO FULLY. THE ELECTRICITY CONSUMPTION MAY BE TAKEN AS BASE BUT IT CANNOT BE DIRECTLY CO-RELATE WITH ITA NO.299/AHD/2008 A.Y 2004-05 M/S. NICE INDUSTRIES V. ITO WD-5(3), SRT PAGE 6 ACTUAL PRODUCTION, BECAUSE WHAT IS IMPORTANT IS UN INTERRUPTED POWER SUPPLY FOR THE PRODUCTION NOT MERELY UNITS OF CONSUMPTION OF ELECT RICITY BUT ALSO IN THE PRODUCTION OF YARN, HIGHER QUALITY YARN REQUIRE MORE POWER VERSUS LOWER QUALITY YARN REQUIRES LESS POWER UNITS. IF POWER IS NOT OF THE SPECIFIED VOLTA GE MAY BE MACHINE IS WORKING AND CONSUMING POWER BUT ACTUAL PRODUCTION MAY BE DISTUR BED OR IT WILL RESULT IN WASTAGE. HERE ARE MANY SUCH EXAMPLES OF TECHNICAL NATURE BY WHICH POWER CONSUMPTION UNITS CANNOT BE THE BASE FOR REJECTING THE BOOKS OF ACCOU NT. THE ASSESSEE MENTIONED THE REAL REASON IN ANSWERED IN LETTER DATED 24-11-2006 GIVEN TO THE ASSESSING OFFICER, GIVING DETAILED CALCULATION REGARDING COMPARISON BE TWEEN MARGIN OF CURRENT YEAR AS WELL AS LAST YEAR BUT THE AO HAS REJECTED THE FACT OF CASE BY JUST SAYING THAT RATIO ANALYSIS OF THE FIGURES ALREADY ON THE RECORD. THIS CAN NOT BE BASE FOR REJECTION OF BOOKS OF ACCOUNT AND MAKING ADDITION INTO GROSS PRO FIT ON ESTIMATE BASIS. 5. ON THE OTHER HAND, LD. SR-DR RELIED ON THE ASSES SMENT ORDER AS WELL AS THE ORDER OF CIT(A). 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. THE ASSESSEE IS ENGAGED IN THE PROCESS OF YARN IN WHICH INPUT RAW MATERIAL IS POY, WHICH IS MEASURED IN KG. AND OUTPUT IS TEXTURISED YARN MEASURED IN KG. THE ASSESSEE HAS MAINTAINED RECORDS OF QUANTITY OF YARN INCLUDING OPENING STOCK, CLOSING STOCK, PURCHASES, SALES OIL GAIN ETC. WE FIND THAT THE ASSESSEE PRODUCED RECORDS BEFORE THE ASSESSING OFFI CER BUT HE COULD NOT POINT OUT ANY DEFECTS AND EVEN HE COULD NOT FIND THAT IF UNAC COUNTED PRODUCTION AND SALES IS THERE, THEN THERE SHOULD BE CORRESPONDING UNACCOUNT ED PURCHASE ALSO BUT THERE IS NO SUCH FINDING. THE ASSESSEE PURCHASED POY FROM RE PUTED COMPANY LIKE RELIANCE INDUSTRIES LTD, RECRON SYNTHETICS LTD.(RELINACE GR OUP COMPANY), JINDAL POLYESTER LTD., GARDEN SILK MILLS LTD. SURAT TEXTILE MILLS LT D. (GARDEN GROUP COMPANY), NOVA PETROCHEMICALS LTD. CENTURY ENKA LTD. WELSPUN SYNTE X LTD. ETC. BUT THE AO FAILED TO ESTABLISHED ANY UNACCOUNTED PURCHASES. THE ASSESSEE HAD PRODUCED NAME AND ADDRESS OF THE PURCHASE PARTIES, COPIES OF EXCISABL E INVOICES AND NO IRREGULARITIES ARE FOUND IN PURCHASES AND IN SAME MANNER NO IRREGU LARITIES ARE FOUND IN SALES AS WELL IN STOCK STATEMENTS, WHICH ARE TALLYING WITH R ESPECT TO THE VALUE OF PURCHASES AND SALES. WE FIND FROM THE RECORDS THAT THERE IS N O FINDING AS REGARDS TO UNDERSTATEMENT OR OVERSTATEMENT OF STOCK WITH RESPE CT TO VALUE, WHICH HAS BEEN ITA NO.299/AHD/2008 A.Y 2004-05 M/S. NICE INDUSTRIES V. ITO WD-5(3), SRT PAGE 7 FOUND OUT BY THE AO. BOTH INPUT YARN AS WELL AS OUT PUT ARE EXCISABLE COMMODITY AND TAXED ACCORDINGLY AND EVEN EXCISE DEPARTMENT HAS NO T MADE ANY OBSERVATION FOR UNACCOUNTED SALES OR PRODUCTION OR PURCHASES. WITHO UT GIVING ANY FINDING THAT THE ACCOUNT BOOKS ARE UNRELIABLE, INCORRECT OR INCOMPLE TE IT CANNOT REJECT ACCOUNTS. THE REJECTION OF ACCOUNTS IS NOT MATTER TO BE DONE LIGH T HEARTEDLY. WE FURTHER FIND THAT THE ASSESSEE HAS MAINTAINED THE DAY-TO-DAY PRODUCTION R EGISTER AND STOCK REGISTER AS PER THE PRO FORMA GIVEN IN THE CENTRAL EXCISE ACT A ND THE SAME HAS BEEN PRODUCED BEFORE THE ASSESSING OFFICER ALONG WITH BOOKS OF AC COUNT DURING THE COURSE OF ASSESSMENT PROCEEDINGS. IT IS A FACT THAT THE ASSES SEE HAS NOT MAINTAINED QUALITY- WISE REGISTER OF PRODUCTION AND STOCK BUT THE ASSES SEE SUBMITTED THE REASON FOR NOT MAINTAIN QUALITY-WISE REGISTER IS THAT AS THIS ARE NOT REQUIRED BY EXCISE LAWS AND MOREOVER ASSESSEES UNIT IS SMALL SCALE UNIT. FURTH ERMORE, THE EXPENSES OF OCTROI, AIR CHARGES AND FREIGHT ARE PAID BY CHEQUES ONLY AND TH E ASSESSEE DURING THE COURSE OF ASSESSMENT PRODUCED THE LEDGER ACCOUNT AND MONTH-WI SE SUMMARY OF THESE EXPENSES. WE FURTHER FIND THAT THE PRODUCTION DATA HAS BEEN TAKEN BASED ON THE RECORDS OF EXCISE TAKEN AS ON THE LAST DATE OF THE MONTH, WHEREAS ELECTRICITY CONSUMPTION WAS NEVER TAKEN ON THE LAST DATE BY GEB . ACCORDINGLY, WE ARE OF THE VIEW THAT IT IS IMPOSSIBLE TO MATCH MONTH-WISE PROD UCTION VIS--VIS CONSUMPTION OF ELECTRICITY. WE FIND FROM THE FACTS OF THE CASE THA T IN THE MONTH OF APRIL03 TOTAL UNIT CONSUMPTION OF ELECTRICITY IS 11010 UNITS OUT OF WH ICH 450.00 UNITS ARE FOR LIGHTING AND REMAINING 10560.L00 UNITS ARE ONLY FOR PRODUCTION P URPOSES BUT THE TIME PERIOD OF THIS BILLS IS FROM 12-03-2003 TO 32-04-2004, IT IS FOR A ROUND 43 DAYS. ON AN AVERAGE CONSUMPTION OF ELECTRICITY IS TAKEN AS 450 UNITS A DAY THEN OUT OF THESE 10560 UNITS CONSUMPTION, THE ASSESSEE HAS TO REDUCE 5400 UNITS FOR 12 DAYS. WE FIND THAT THE ASSESSING OFFICER HAS MADE THIS ADDITION ON THE BAS IS OF ARITHMETIC ASSUMPTION ONLY AND NO CONCRETE CONCLUSION CAN BE DRAWN OUT OF IT. NOW, WE HAVE TO SEE, WHETHER ON THE BASIS OF THE ABOVE FACTS, BOOK RESULTS CAN BE R EJECTED OR NOT. 7. WE FIND THAT THERE IS NO WHISPER ABOUT THE DEFEC TS IN THE BOOKS OF ACCOUNTS AND THE ASSESSING OFFICER REJECTED THE BOOK RESULTS . IN THE PRESENT CASE, THE ASSESSING OFFICER HAS REJECTED THE BOOK RESULTS BUT FOUND NO DEFECTS IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. IN SUCH A SITUATION, THE QUESTION ARISES IS WHETHER, THE AO IN EXERCISE OF HIS POWERS U/S.145(1) OF THE ACT, IS WHETHER CAN MAKE ESTIMATES WITHOUT PROPER REJECTION OF THE BOOK RESULTS AND WI THOUT FINDING FAULT IN THE BOOKS OF ITA NO.299/AHD/2008 A.Y 2004-05 M/S. NICE INDUSTRIES V. ITO WD-5(3), SRT PAGE 8 ACCOUNT. WE ARE OF THE VIEW THAT THE AO HAS TO GIV E A FINDING OF FACT I.E. WHETHER OR NOT INCOME CAN PROPERLY BE DEDUCED FROM THE ACCOUNT S MAINTAINED BY THE ASSESSEE, EVEN IF THE ACCOUNTS ARE CORRECT AND COMPLETE TO TH E SATISFACTION OF THE ASSESSING OFFICER AND THE INCOME HAS BEEN COMPUTED IN ACCORDA NCE WITH THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. WHAT IS TO BE DETERMINED BY THE ASSESSING OFFICER IN EXERCISE OF HIS POWER IS A QUE STION OF FACT. I.E. WHETHER OR NOT INCOME CHARGEABLE UNDER THE ACT CAN PROPERLY BE DED UCED FROM THE BOOKS OF ACCOUNT, AND HE MUST DECIDE THE QUESTION WITH REFER ENCE TO THE RELEVANT MATERIAL AND IN ACCORDANCE WITH THE CORRECT PRINCIPLES. WE ARE OF THE VIEW THAT THE ASSESSING OFFICER HAS TO EXAMINE THE ACCOUNTS OF ASSESSEE AND HAS TO CONSIDER THE FOLLOWING QUESTIONS:- (I) WHETHER THE ASSESSEE HAS REGULARLY EMPLOYED A M ETHOD OF ACCOUNTING? (II) EVEN IF REGULAR ADOPTION OF A METHOD OF ACCOUN TING IS THERE, WHETHER THE ANNUAL PROFITS CAN PROPERLY BE DEDUCED FROM THE METHOD EMP LOYED? (III) WHETHER THE ACCOUNTS ARE CORRECTLY MAINTAINED ? (IV) WHETHER THE ACCOUNTS MAINTAINED ARE COMPLETE I N THE SENSE THAT THERE IS NO SIGNIFICANT OMISSION THEREIN? IN THAT EVENT, IF THE ASSESSING OFFICERS FINDING O N ALL FOUR COUNTS IS IN THE AFFIRMATIVE, THE ASSESSEES PROFITS ARE TO BE COMPUTED ON THE BA SIS OF THESE ACCOUNTS. WE FIND THAT THE FIRST PROVISO TO SEC. 145(1), OR SECTION 1 45(2), CAN BE INVOKED ONLY IF AND WHERE THE ELEMENTS ATTRACTING EITHER OF THOSE PROVI SIONS ARE FOUND TO EXIST. A CLEAR FINDING TO THAT EFFECT, ALONG WITH THE MATERIALS ON WHICH SUCH FINDING IS BASED, HAS TO BE MADE OUT AND GIVEN BY THE ASSESSING OFFICER. NO ASSESSMENT UNDER THE FIRST PROVISO TO SECTION 145(1) OR UNDER SECTION 145(2) C AN BE SUSTAINED IF THE ASSESSING OFFICER HAS NOT CONSIDERED AND RECORDED A FINDING A GAINST THE ASSESSEE AS TO WHETHER HE HAS BEEN REGULARLY EMPLOYING A METHOD OF ACCOUNTING OR WHETHER HIS INCOME, PROFITS OR GAINS CAN PROPERLY BE DEDUCED FR OM HIS METHOD OF ACCOUNTING IF HE HAS BEEN REGULARLY EMPLOYING A METHOD OF ACCOUNTING OR WHETHER THE ACCOUNTS ARE CORRECT AND COMPLETE. IN THE ABSENCE OF THESE FINDI NGS, THE ASSESSING OFFICER CANNOT MAKE ASSESSMENT BY INVOKING THE PROVISIONS OF SEC. 145(1) OR 145(2) OF THE ACT. IN ITA NO.299/AHD/2008 A.Y 2004-05 M/S. NICE INDUSTRIES V. ITO WD-5(3), SRT PAGE 9 VIEW OF THE FACTS OF THE PRESENT CASE, WE ARE OF TH E VIEW THAT THE ASSESSING OFFICER HAS REJECTED THE BOOK RESULTS OF THE ASSESSEE WITHO UT POINTING OUT ANY DEFECT IN THE BOOKS AND CONSEQUENTIAL ESTIMATION OF PROFIT BY THE ASSESSING OFFICER IS WITHOUT ANY BASIS. ACCORDINGLY, WE ACCEPT THE BOOK RESULTS AND DELETE THE ADDITION. THIS ISSUE OF THE ASSESSEES APPEAL IS ALLOWED. 8. THE NEXT ISSUE IN THIS APPEAL OF THE ASSESSEE IS AGAINST THE ESTIMATION OF GROSS PROFIT, SINCE WE HAVE ACCEPTED THE BOOK RESUL TS THEN THIS ISSUE HAS BECOME ACADEMIC AS THE ADDITION IS ALREADY DELETED. THIS I SSUE OF THE ASSESSEES APPEAL IS ALLOWED. 9. AS REGARDS TO NEXT ISSUE IN RESPECT OF DISALLOWA NCE ON EXPENSES, LD. COUNSEL HAS NOT PRESSED THE SAME, ACCORDINGLY, SAME IS DISM ISSED AS NOT PRESSED. 10. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 17/09/2010 SD/- SD/- (N.S.SAINI) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD, DATED : 17/09/2010 *DKP COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)-III, SURAT 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD