M/s. Khanij Excavations, Ahmedabad V. The Dy.CIT.,(OSD)Circle-9, Ahmedabad

ITA 3419/AHD/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60438 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 02-05-2012
• Assessment Year: 1996-1997
• Appeal Filed On: 29-12-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: U S BHATI SHRI SAMIR TEKRIWAL
• Keywords: Reopening of assessment; Rejection of books of accounts; Depreciation; Question of law; Validity of assessment; Assessment record; Reason to believe; Reassessment proceedings
• Section: 40A(3); 147; 145; 148

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD , .. , '# ' $ BEFORE SHRI MUKUL KR.SHRAWAT, JUDICIAL MEMBER AND SHRI T.R. MEENA, ACCOUNTANT MEMBER APPEAL(S) BY SL. NO(S). ITA NO(S) ASSESSMENT YEAR(S) APPELLANT (S) RESPONDENT(S) 1. 3419/AHD/2009 1996-97 M/S.KHANIJ EXCAVATIONS 25, SOMNATHNAGAR SOCIETY NARANPURA CHAR RASTA AHMEDABAD PAN: AGCPP 9230 F DY.CIT (OSD) CIRCLE-9 AHMEDABAD 2. 3348/AHD/2009 1996-97 REVENUE ASSESSEE 3. 3431/AHD/2009 1998-99 REVENUE ASSESSEE ASSESSEE(S) BY : SHRI U.S. BHATI REVENUE BY : SHRI SAMIR TEKRIWAL, SR.D.R. %& ' #/ // / DATE OF HEARING : 02/05/2012 )*+ ' # / DATE OF PRONOUNCEMENT : 25/5/12 ',/ O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : FOR AY 1996-97, CROSS APPEALS HAVE BEEN FILED BY B OTH THE SIDES ARISING FROM THE ORDER OF CIT(A)-XIV AHMEDABAD, DAT ED 28/10/2009. FOR A.Y. 1998-99, REVENUE IS IN APPEAL ARISING FROM THE ORDER OF CIT(A)-XIV, AHMEDABAD DATED 27/10/2009. APPEALS FO R AYS 1996-97 ARE HEREBY DECIDED AS FOLLOWS:- [A] ASSESSEES APPEAL, ITA NO.3419/AHD/2009 A.Y. 1996 -97 2. GROUND NOS.1, 2 & 3 RAISED BY THE ASSESSEE ARE AS FOLLOWS:- ITA NO.3419/AHD/2009 (BY ASSESSEE) & ITA NOS.3348 & 3431/AHD/2009(BY REVENUE) M/S.KHANIJ EXCAVATIONS VS. DCIT ASST.YEARS - 1996-97 & 1998-99 - 2 - 1.0 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) ERRED IN LAW AND ON FACTS IN DISMISSING THE GROUND RELATING TO REOPENING OF ASSESSMENT U/S.147 OF THE INCOME TAX A CT , 1961. THE LD. CIT(APPEALS0 HAS FAILED TO APPRECIAT E THAT SHEET ON WHICH REASONS WERE RECORDED AND COMMUNICAT ED TO THE APPELLANT WAS WITHOUT ANY DATE OF THE RECORDING OF REASONS. 2.0. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) FU RTHER ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THE F ACT THAT THE REASONS RECORDED DID NOT GIVE RISE TO A BONA FI DE BELIEF THAT ANY INCOME FOR THE A.YR.1996-97 HAD ESCAPED TH E ASSESSMENT AND THEREFORE THE NOTICE U/S.148 WAS INV ALID AND BAD IN LAW. 3.0 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ER RED IN LAW AND ON FACTS IN HOLDING THAT THE GROUND RELATIN G TO PRELIMINARY OBJECTION TAKEN BY THE APPELLANT IS NOT MAINTAINABLE. 2.1. AT PRESENT, THE ASSESSMENT ORDER CHALLENGED BEFORE US IS PASSED U/S.143(3) R.W.S. 254 OF IT ACT DATED 26/12/2008. WE HAVE BEEN INFORMED THAT THE RESPECTED ITAT VIDE ORDER DATED 11/4/2007 [IN ITA NOS.1835 & 1836/AHD/2003 FOR AYS 1996-97 & 1998-99 ] HAS SET ASIDE THE ISSUE OF REOPENING OF ASSESSMENT BACK TO THE FI LE OF AO WITH THE DIRECTION TO PROVIDE THE REASON RECORDED FOR REOPENING OF THE ASSESSMENT. IN THIS CONTEXT, OUR ATTENTION WAS DR AWN ON PARAGRAPH NOS.2 & 5 OF THE SAID ORDER OF THE TRIBUNAL; REPRODUCED B ELOW:- 2. SINCE BOTH THESE GROUNDS ARE INTERCONNECTED, TH EY ARE BEING DISPOSED OFF TOGETHER FOR THE SAKE OF CONVENIENCE. THE GRIEVANCE OF THE ASSESSEE IN THE ABOVE GROUNDS OF APPEAL IS T HAT THE AO DID NOT SUPPLY COPIES OF THE REASONS RECORDED EVEN WHEN SPECIFICALLY ITA NO.3419/AHD/2009 (BY ASSESSEE) & ITA NOS.3348 & 3431/AHD/2009(BY REVENUE) M/S.KHANIJ EXCAVATIONS VS. DCIT ASST.YEARS - 1996-97 & 1998-99 - 3 - WAS ASKED FOR FROM THE A.O. THE CONTENTION OF THE ASSESSEE IS THAT AN AMENDMENT WAS MADE FROM 1-4-1989 TO SECTION 148 OF THE INCOME TAX ACT AND SECTION 148(2) WAS INTRODUCED WH ICH PROVIDES THAT BEFORE ISSUE OF NOTICE UNDER THE SECTION THE A O SHALL RECORD HIS REASONS FOR DOING SO. SINCE THE AO DID NOT PRO VIDE THE ASSESSEE WITH THE REASONS RECORDED, FOLLOWING THE D ECISION OF THE SUPREME COURT IN GKN DRIVESHAFTS (INDIA) LTD. VS IT O AND OTHERS [259 ITR 19 (SC)] THE MATTER SHOULD BE RESTORED BAC K TO THE FILE OF THE AO TO REFRAME OF THE ASSESSMENT AFTER SUPPLYIN G THE COPY OF REASONS RECORDED AND MEETING THE OBJECTIONS THAT MA Y BE RAISED BY THE ASSESSEE. 5. WE ARE OF THE CONSIDERED OPINION THAT WHEN THE ASSESSEE DENYING THE SUPPLY OF THE REASONS FOR REOPENING OF THE ASSESSMENT IT IS FOR THE REVENUE TO SHOW THAT THE REASONS FOR REOPENING THE ASSESSMENT WERE GIVEN TO THE ASSESSEE. AS THE REVE NUE HAS FAILED TO SHOW THAT THE REASONS FOR REOPENING THE ASSESSME NT WERE SUPPLIED TO THE ASSESSEE RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF GKN DRIVESHAFT S (INDIA) LTD.(SUPRA), WE SET ASIDE THE ORDER OF THE AO AND THE CIT(A) AND REMAND THE MATTER BACK TO THE FILE OF THE AO AND D IRECT HIM TO REDO THE ASSESSMENT AFRESH AFTER SUPPLYING COPY OF THE REASONS RECORDED BEFORE ISSUE OF NOTICE U/S.148 TO THE ASSE SSEE AND AFTER MEETING THE OBJECTIONS THAT MAY BE RAISED BY THE AS SESSEE. WITH THESE DIRECTIONS THE APPEALS OF THE ASSESSEE ARE AL LOWED. 3. IN CONSEQUENCE THEREUPON, THE REASONS SO RECORDE D WERE SUPPLIED. 3.1. LD.AR HAS DRAWN OUR ATTENTION ON THE REASONS R ECORDED PLACED IN THE PAPER BOOK, REPRODUCED BELOW:- RECORDING OF REASONS FOR ISSUE OF NOTICE U/S.148 I N THE CASE OF M/S.KHANIJ EXCAVATORS FOR A.Y. 96-97 ITA NO.3419/AHD/2009 (BY ASSESSEE) & ITA NOS.3348 & 3431/AHD/2009(BY REVENUE) M/S.KHANIJ EXCAVATIONS VS. DCIT ASST.YEARS - 1996-97 & 1998-99 - 4 - DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR A.Y. 97-98 IN THE CASE OF ASSESSEE, FOLLOWING OBSERVATION WAS MADE IN THE OFFICE NOTE TO ASSESSMENT ORDER: EXPENDITURE OF RS.7,14,970/- IS CLAIMED BY THE ASSE SSEE ON ACCOUNT OF SUB-CONTRACT GIVEN TO M/S.YOGIJI CONSTRU CTION CO. IT IS SEEN FROM THE COPY OF ACCOUNT THAT THE PAYMENTS ARE MADE THROUGH CHEQUE AND IN CASH. ON THE BASIS OF THE ADDRESS FU RNISHED BY THE ASSESSEE LETTER U/S.133(6) OF THE ACT WAS ISSUED TO THE PARTY ON 30/09/99 ASKING TO FURNISH THE DETAILS OF THE TRANS ACTIONS ENTERED IN TO WITH THE ASSESSEE. HOWEVER, NO REPLY WAS RECEIV ED. ANOTHER LETTER WAS ISSUED ON 26/11/99 BUT NO REPLY WAS RECE IVED. SUMMONS U/S.131 OF THE ACT WERE ISSUED TO THE PARTY FOR FUR NISHING THE DETAILS. IN RESPONSE TO THE SUMMONS THE PARTY ATTE NDED AND FILED THE DETAILS. IT IS SEEN THAT THE TRANSACTION OF T HE ASSESSEE WITH THE PARTY TALLIES TO THE EXTENT OF THE AMOUNT OF BILL AND THE PAYMENTS MADE BY THE ASSESSEE. HOWEVER, THE OPENING BALANCE DOES NOT TALLY. IT IS ALSO SEEN THAT THE PARTY HAS CLOSED THE ACCOUNT AT THE YEAR END BY TRANSFERRING THE BALANCE OF RS.84960/- TO THE DISCOUNT ACCOUNT WHILE IN THE BOOKS OF THE ASSESSEE A BALANCE OF RS.29,320/- IS SHOWN AS OUTSTANDING. SINCE THE EXPENDITURE CLAIMED BY THE ASSESSEE AND THE PAYMENT MADE DURING THE YEAR TALLIES NO ADDITION IS MADE IN THE CURRENT YEAR. H OWEVER THE ASSESSMENT FOR A.Y. 1996-97 IS REQUIRED TO BE REOPE NED WHICH IS BEING REOPENED SEPARATELY. ON THE BASIS OF ABOVE, I HAVE REASON TO BELIEVE THA T INCOME CHARGEABLE TO TAX FOR A.Y. 96-97 HAS ESCAPED ASSESS MENT AND THEREFORE, THE ASSESSMENT IS REQUIRED TO BE RE-OPEN ED AS PER THE PROVISIONS OF SECTION 147 OF THE ACT. ISSUE NOTICE U/S.148 OF THE ACT. 3.2. FURTHER, OUR ATTENTION WAS DRAWN THAT THE ENTIRE PORTION OF REASONS RECORDED IN FACT PERTAINED TO THE A.Y. 1997 -98 AND NOT FOR A.Y. 1996-97. ON THE LAST LINE OF THE PARAGRAPH IT WAS SIMPLY REFERRED THAT THE RE-ASSESSMENT FOR A.Y. 1996-97, BE REOPENE D. IT IS THEREFORE ITA NO.3419/AHD/2009 (BY ASSESSEE) & ITA NOS.3348 & 3431/AHD/2009(BY REVENUE) M/S.KHANIJ EXCAVATIONS VS. DCIT ASST.YEARS - 1996-97 & 1998-99 - 5 - CONTESTED THAT SINCE THERE WAS NO SPECIFIC REASON A SSIGNED FOR REOPENING OF THE ASSESSMENT FOR A.Y. 1996-97, THEN THE ENTIRE REOPENING PROCEEDINGS WERE BASELESS AND AGAINST THE PROVISION S OF THE LAW. LD.AR MR.U.S.BHATI HAS PLACED RELIANCE ON BAKULBHAI RAMANLAL PATEL VS. ITO REPORTED AT 56 DTR 212(GUJ.) AND ITAT AHMEDABAD BENCH A IN THE CASE OF SHRI MAHENDRAKUMAR K.PATEL VS. ITO BEARING ITA NO.1954/AHD/2007 FOR A.Y. 2002-03, DATED 13/08/2010 . 4. FROM THE SIDE OF THE REVENUE, LD.SR.DR MR.SAMIR TEKRIWAL OBJECTED THE ARGUMENTS OF THE ASSESSEE AND PLEADED THAT THE REASONS RECORDED WERE NOW GIVEN TO THE ASSESSEE IN THE LI GHT OF THE DIRECTIONS OF THE HONBLE TRIBUNAL, THEREFORE IN THIS REGARD THE GRIEVANCE OF THE ASSESSEE STOOD REDRESSED. REFERRING REASON FOR ISS UANCE OF NOTICE U/S.148, AS PLACED ON PAGE 18 OF THE PAPER-BOOK, LD.DR HAS M ENTIONED THAT IN RESPECT OF THE ACCOUNT OF M/S.YOGIJI CONSTRUCTION C OMPANY THERE WAS A DISCREPANCY AND THAT DISCREPANCY WAS DULY COMMUNICA TED TO THE ASSESSEE, HOWEVER, REMAINED UNEXPLAINED, HENCE IT W AS DECIDED TO REOPEN THE ASSESSMENT FOR THE YEAR UNDER CONSIDERATION. HE HAS ALSO ARGUED THAT THERE WAS SOME MATERIAL WHICH WAS MADE THE BASIS FO R REOPENING OF THE ASSESSMENT. THE REOPENING WAS WITHIN 4 YEARS OF TH E ASSESSMENT YEAR, HENCE WITHIN THE JURISDICTION OF AO. RELIANCE WERE PLACED ON RAYMOND WOOLEN MILLS 236 ITR 34 (SC) AND KALYANJI MAVAJI & CO. 102 ITR 287 (SC). APART FROM THE ABOVE CONTENTION, LD.DR HAS ALSO POINTED OUT THAT AS PER THE FIRST ORDER PASSED U/S.143(3) R.W.S .147 DATED 19/03/2002 FOR A.Y.1996-97, IT WAS CLEARLY MENTIONED BY THE AO THAT THE COPY OF REASONS RECORDED WERE SUPPLIED TO THE ASSESSEE. HE HAS THEREFORE PLEADED ITA NO.3419/AHD/2009 (BY ASSESSEE) & ITA NOS.3348 & 3431/AHD/2009(BY REVENUE) M/S.KHANIJ EXCAVATIONS VS. DCIT ASST.YEARS - 1996-97 & 1998-99 - 6 - THAT THE FACTS WERE WRONGLY REPRESENTED BEFORE THE HONBLE ITAT, HENCE UNDER WRONG IMPRESSION, THE MATTER WAS RESTORED BAC K TO THE FILE OF THE AO WITH THE DIRECTION TO GIVE THE COPY OF THE REASO NS RECORDED TO THE ASSESSEE. AT THAT JUNCTURE OF HIS ARGUMENT, WE HAV E MADE AN OBSERVATION FROM THE BENCH THAT BE THAT AS IT WAS, AFTER THE SP ECIFIC DIRECTIONS OF THE TRIBUNAL TO SUPPLY THE COPY OF THE REASONS RECORDED , WHETHER GIVEN EARLIER OR NOT, THIS ARGUMENT HAS BECOME REDUNDANT. MOREOVER, LD.AR HAS ALSO CONTESTED THAT AT THAT POINT OF TIME THE ASSES SEE HAS DEMONSTRATED TO THE TRIBUNAL THAT NO REASONS WERE IN FACT HANDED OV ER TO THE ASSESSEE, ON THE OTHER HAND, REVENUE COULD NOT BE IN A POSITION TO ESTABLISH THAT REASONS RECORDED WERE ACTUALLY GIVEN TO THE ASSES SEE. 5. WE HAVE HEARD BOTH THE SIDES AT SOME LENGTH. ON CAREFUL EXAMINATION OF THE CONTENTS OF PAGE 18, IT IS EVIDE NT THAT THE TRANSACTION WHICH WAS RECORDED IN THE MAIN PARAGRAPH DID NOT RE LATE TO THE A.Y. 1996-97, THE YEAR WHICH WAS REOPENED AND NOW UNDER THIS APPEAL. RATHER, AS PER THE BALANCE-SHEET FOR THE ACCOUNTING PERIOD ENDED ON 31 ST OF MARCH-1997, THE OUTSTANDING BALANCE OF YOGI CONS TRUCTION CO. WAS RECORDED AT RS.29,320/-. MEANING THEREBY, PRESUMABL Y HAD THERE WAS ANY DISCREPANCY, THAT TOO HAD ITS EFFECT FOR A.Y. 1997- 98. THIS AMOUNT WAS ALLEGED TO HAVE BEEN WRONGLY TAXED FOR A.Y. 1996-97 IN THE IMPUGNED ORDER THOUGH THE SAID CLOSING BALANCE DID NOT BELON G TO THE ACCOUNTING PERIOD AS ALSO THE YEAR UNDER CONSIDERATION. IN T HAT PARAGRAPH, WE HAVE ALSO NOTICED THAT THE REVENUE DEPARTMENT HAS ISSUED NOTICE U/S.133(6) OF IT ACT BUT IT WAS DATED 30/09/1999. LATER ON, AN AN OTHER NOTICE WAS ISSUED ON 26/11/1999 AND SUMMONS U/S.131 WERE ISSUE D TO THE PARTY TO ITA NO.3419/AHD/2009 (BY ASSESSEE) & ITA NOS.3348 & 3431/AHD/2009(BY REVENUE) M/S.KHANIJ EXCAVATIONS VS. DCIT ASST.YEARS - 1996-97 & 1998-99 - 7 - FURNISH THE DETAILS. AS ADMITTED IN THE SAID PARAG RAPH, IN RESPONSE TO THE SUMMONS THE SAID PARTY HAD ATTENDED AND FILED THE D ETAILS. ON THAT BASIS, IT WAS OBSERVED BY THE AO THAT THE TRANSACTION OF T HE ASSESSEE WITH THE SAID PARTY HAD TALLIED TO THE EXTENT OF THE AMOUNT OF THE BILL AND THE PAYMENTS MADE BY THE ASSESSEE, HOWEVER, THE OPENING BALANCE DID NOT TALLY . THUS FOR THE PURPOSE OF REOPENING APPARENTLY, AS ALSO ON THE FACE OF IT, IT WAS THAT BASIS WHICH RELATED TO THE ASSESSMENT RECORD FOR A.Y.1997-98. BECAUSE IN THE BEGINNING OF THE IMPUG NED ORDER ITSELF, THE AO HAS CLARIFIED THAT DURING THE COURSE OF ASSESSME NT PROCEEDINGS FOR A.Y. 1997-98 CERTAIN OBSERVATIONS WERE MADE IN THE OFFICE NOTE TO THAT ASSESSMENT ORDER. FOR THE ACCOUNTING PERIOD ENDED ON 31/03/1996, THE CLOSING BALANCE SHOWN IN THE BOOKS OF ACCOUNT UNDER THE HEAD CURRENT LIABILITIES AND PROVISIONS FOR THE ACCOUNT OF M/S. YOGI CONSTRUCTION CO. WAS AT RS.36,500/-. EVEN THE ADDITION WHICH WAS M ADE ON THIS ACCOUNT OF DISCREPANCY IN THE BALANCES OF THE M/S.YOGI CONS TRUCTION CO. IN THE FIRST ROUND OF ASSESSMENT ORDER DATED 19/03/2002 WA S ONLY OF RS.29,320/- THAT TOO IT WAS NOT FOR A.Y. 1996-97 BUT THAT BALAN CE WAS AS ON 31/03/1997. IN THESE CIRCUMSTANCES, WHETHER THE AP PROACH OF THE AO WAS CORRECT THAT HE HAD JUDICIOUSLY SATISFIED HIMSELF T HAT THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR THE YE AR UNDER CONSIDERATION? EVEN FROM THE WORDINGS OF THE REA SONS RECORDED, IT WAS NOT EVIDENT THAT WHAT WAS THE EXACT REASON TO BELIE VE ABOUT WHICH PARTICULAR INCOME CHARGEABLE TO TAX HAD ESCAPED THE ASSESSMENT FOR THE ASSESSMENT YEAR IN QUESTION. FOR INVOKING THE PRO VISIONS OF SECTION 147 OF THE ACT, SOME SPECIFIC INFORMATION, EITHER IN PO SSESSION, OR SHOULD BE BROUGHT TO THE NOTICE OF AO SUBSEQUENTLY AND ON THA T BASIS THE AO HAS ITA NO.3419/AHD/2009 (BY ASSESSEE) & ITA NOS.3348 & 3431/AHD/2009(BY REVENUE) M/S.KHANIJ EXCAVATIONS VS. DCIT ASST.YEARS - 1996-97 & 1998-99 - 8 - GOOD REASON TO BELIEF THAT THE INCOME HAS ESCAPED. ON PLAIN READING OF THE IMPUGNED REASONS RECORDED, NO SUCH BELIEF APPEA RS TO HAVE BEEN RECORDED BY THE AO. RATHER, ON READING THE REASONS RECORDED IN ITS ENTIRETY, THERE WAS NOTHING WHATSOEVER TO INDICATE AS TO WHICH WAS THE INCOME THAT HAD NOT BEEN DISCLOSED BY THE ASSESSEE OR WHAT WAS THE INCOME CHARGEABLE TO TAX WHICH HAD IN FACT ESCAPED ASSESSMENT. FROM THE ENTIRE TENOR OF THE REASONS RECORDED, IT APPEAR S THAT ON THE BASIS OF ALLEGED DISCREPANCY IN THE OPENING AND THE CLOSING BALANCES THE AO HAS BELIEVED THAT SOME INCOME HAS ESCAPED THE ASSESSMEN T. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF BAKULBHAI RAMANLAL PATEL(SUPRA) HAS MADE AN OBSERVATION AS FOLLOWS:- 20. READING THE REASONS RECORDED IN THEIR ENTIRETY , THERE IS NOTHING WHATSOEVER TO INDICATE AS TO WHICH IS THE I NCOME THAT HAS NOT BEEN DISCLOSED BY THE PETITIONER OR THAT ANY IN COME CHARGEABLE TO TAX HAS IN FACT ESCAPED ASSESSMENT. THE ENTIRE T ENOR OF THE REASONS RECORDED INDICATES THAT ON THE BASIS OF SOM E UNSUBSTANTIATED AND VAGUE INFORMATION, THE AO HAS R EOPENED THE ASSESSMENT FOR THE PURPOSE OF MAKING A ROVING AND FISHING INQUIRY TO VERIFY AS TO WHETHER ANY INCOME HAS IN FACT ESCA PED ASSESSMENT WHICH FACT IS BORNE OUT FROM THE REASONS RECORDED, WHEREIN THE AO HAS CATEGORICALLY RECORDED THUS : 'I N VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE, DETAILED INVESTIGATION/ VERIFICATION IS REQUIRED AND IT IS ALSO REQUIRED TO BRING THE ASSESSEE IN TAX NET.' INSOFAR AS BRINGING THE ASSESSEE IN TH E TAX NET IS CONCERNED, THE PETITIONER ADMITTEDLY HAS FILED RETU RN OF INCOME AND HAS BEEN ASSESSED IN RESPECT THEREOF, THE PETITIONE R IS, THEREFORE, ALREADY WITHIN THE TAX NET. SINCE THE REASONS RECOR DED DO NOT REFLECT THE REQUISITE BELIEF THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT, THE BASIC REQUIREMENTS OF S. 14 7 OF THE ACT HAVE NOT BEEN SATISFIED. ITA NO.3419/AHD/2009 (BY ASSESSEE) & ITA NOS.3348 & 3431/AHD/2009(BY REVENUE) M/S.KHANIJ EXCAVATIONS VS. DCIT ASST.YEARS - 1996-97 & 1998-99 - 9 - 5.1. EVEN IN THE PRESENT CASE, RETURN OF INCOME WAS FILED ON 30/10/1996 DECLARING AN INCOME OF RS.2,96,890/-. THE ADDITION HAS BEEN MADE ON ACCOUNT OF ESTIMATION OF GP AND ALSO IN RESPECT OF CASH CREDIT U/S.68 OF IT ACT. THE ADDITIONS, THEREFORE, WERE MADE ON THE BA SIS OF THE ENQUIRIES MADE DURING REASSESSMENT PROCEEDINGS APART FROM THE REASONS RECORDED. THE HONBLE GUJARAT HIGH COURT, IN THIS REGARD HAS HELD THAT IF THE REASSESSMENT IS FOR THE PURPOSE FOR MAKING A ROVING AND FISHING ENQUIRY SO AS TO KNOW WHETHER SOME INCOME HAS ESCAPED ASSES SMENT, THEN SUCH PROCEEDINGS CANNOT BE VALIDATED. SUCH APPROACH OF T HE AO GIVES AN INDICATION THAT THE AO MIGHT HAVE REASON TO SUSPECT BUT DID NOT HAVE REASON TO BELIEVE THAT AN INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. THERE SHOULD BE SOME MATERIAL ON RECOR D BASED UPON WHICH THE AO HAD A SPECIFIC BELIEF THAT A PARTICULAR INCO ME CHARGEABLE TO TAX HAD IN FACT ESCAPED THE ASSESSMENT FOR A PARTICULA R ASSESSMENT YEAR. 6. AS FAR AS THE CASE LAWS CITED FROM THE SIDE OF THE REVENUE ARE CONCERNED, I.E. THE DECISION OF RAYMOND WOOLEN MILLS (SUPRA), THE QUESTION WAS THAT IN DETERMINING WHETHER COMMENCEME NT OF RE- ASSESSMENT PROCEEDINGS WAS VALID, IT HAS ONLY TO BE SEEN THAT THERE WAS PRIMA-FACIE SOME MATERIAL ON THE BASIS OF WHICH DEP ARTMENT COULD REOPEN THE CASE. THE COURT WAS OF THE VIEW THAT SUFFICIEN CY OR CORRECTNESS OF THE MATERIAL IS NOT A THING TO BE CONSIDERED AT THAT ST AGE. BUT THOSE FINDINGS WERE ON THE BASIS OF THE FACTS THAT THE ASSESSEE WA S CHARGING TO ITS PROFIT & LOSS ACCOUNT, FISCAL DUTIES PAID DURING TH E YEAR AS WELL AS LABOUR CHARGES, POWER, FUEL, WAGES, ETC. HOWEVER, WHILE V ALUING ITS CLOSING STOCK THE ELEMENTS OF FISCAL DUTY AND OTHER DIRECT MANUFACTURING COST ITA NO.3419/AHD/2009 (BY ASSESSEE) & ITA NOS.3348 & 3431/AHD/2009(BY REVENUE) M/S.KHANIJ EXCAVATIONS VS. DCIT ASST.YEARS - 1996-97 & 1998-99 - 10 - WERE NOT INCLUDED. THAT RESULTED IN UNDERVALUATION OF INVENTORIES AND THEREFORE UNDER STATEMENT OF PROFITS. THAT INFORMA TION WAS OBTAINED BY THE REVENUE IN A SUBSEQUENT ASSESSMENT PROCEEDING. ON THOSE FACTS THE COMMENCEMENT OF REASSESSMENT PROCEEDINGS WAS HELD A S VALID. IN CONTRAST, IN THE PRESENT CASE NOW BEFORE US THE INF ORMATION WHICH WAS MADE THE BASIS FOR REASSESSMENT, ITSELF WAS NOT A L OGICAL BASIS; RATHER PRIMA-FACIE DID NOT RELATE TO THE ASSESSMENT YEAR W HICH WAS REOPENED. THE MATERIAL, WHICH IS REFERRED BY THE HONBLE SUPR EME COURT, SHOULD BE OF SUCH NATURE SO THAT PRIMA-FACIE AN OPINION CAN B E FOUND FOR REOPENING OF THE ASSESSMENT. UNDISPUTEDLY, IN THE LIGHT OF TH IS VERDICT THE SUFFICIENCY AND THE CORRECTNESS OF THE MATERIAL ARE NOT TO BE CONSIDERED BUT THIS STAGE COME A LITTLE LATER BECAUSE PRIOR TO THIS STAGE AO IS REQUIRED TO FORM AN OPINION THAT THERE IS A MATERIAL RELATED TO THE YEAR UNDER CONSIDERATION. IN THE PRESENT CASE, AS PER THE RE ASONS RECORDED THE AO WAS NOT EVEN CONVINCED THAT THE MATERIAL ON WHICH H E HAD PLACED RELIANCE WAS IN FACT RELATED TO THE ASSESSMENT YEAR IN QUEST ION. LD.DR HAS ALSO PLACED RELIANCE ON KALYANJI MAVJI & CO.(SUPRA) AND IN THAT DECISION THE REASSESSMENT WAS WITHIN FOUR YEARS AND THE HONBLE COURT HAS SAID THAT THE WORD INFORMATION IS OF THE WIDEST AMPLITUDE A ND COMPREHENDS A VARIETY OF FACTORS. IMMEDIATELY THEREAFTER THE COU RT HAS SAID, QUOTE THE WORD INFORMATION IN SECTION 34(1)(B) IS OF THE WIDEST AMPLITUDE AND COMPREHENDS A VARIETY OF FACTORS. NEVERTHELESS, TH E POWER UNDER SECTION 34(1)(B), HOWEVER WIDE IT MAY BE, IS NOT PLENARY BE CAUSE THE DISCRETION OF THE INCOME-TAX OFFICER IS CONTROLLED BY THE WORDS REASON TO BELIEVE. INFORMATION MAY COME FROM EXTERNAL SOURCES OR EVEN FROM THE MATERIALS ALREADY ON RECORD OR MAY BE DERIVED FROM THE DISCOV ERY OF NEW AND ITA NO.3419/AHD/2009 (BY ASSESSEE) & ITA NOS.3348 & 3431/AHD/2009(BY REVENUE) M/S.KHANIJ EXCAVATIONS VS. DCIT ASST.YEARS - 1996-97 & 1998-99 - 11 - IMPORTANT MATTER OR FRESH FACTS. SECTION 34(1)(B) WOULD APPLY TO THE FOLLOWING CATEGORIES OF CASES: (1) WHERE THE IN FORMATION IS AS TO THE TRUE AND CORRECT STATE OF THE LAW DERIVED FROM RELE VANT JUDICIAL DECISIONS; (2) WHERE IN THE ORIGINAL ASSESSMENT THE INCOME LI ABLE TO TAX HAS ESCAPED ASSESSMENT DUE TO OVERSIGHT, INADVERTENCE OR A MIST AKE COMMITTED BY THE INCOME-TAX OFFICER; (3) WHERE THE INFORMATION IS DERIVED FROM AN EXTERNAL SOURCE OF ANY KIND: SUCH EXTERNAL SOURCE W OULD INCLUDE DISCOVERY OF NEW AND IMPORTANT MATTERS OR KNOWLEDGE OF FRESH FACTS WHICH WERE NOT PRESENT AT THE TIME OF ORIGINAL ASSE SSMENT; AND (4) WHERE THE INFORMATION MAY BE OBTAINED EVEN FROM THE RECOR D OF THE ORIGINAL ASSESSMENT FROM AN INVESTIGATION OF THE MATERIALS O N THE RECORD OR THE FACTS DISCLOSED THEREBY OR FROM OTHER ENQUIRY OR RE SEARCH INTO FACTS OR LAW. UNQUOTE. ON THE BASIS OF ABOVE CRITERIA WHICH IS E NUMERATED BY THE HONBLE SUPREME COURT, WE ARE NOT OF THE OPINIO N THAT EITHER OF THE SITUATION WOULD NOT COVER OR APPROVE THE REOPENING OF THE ASSESSMENT. INTERESTINGLY THE SAID SINGLE BASIS WAS AB-INITIIO NOT SUSTAINABLE IN THE EYES OF LAW AND THEREFORE HIS JURISDICTION OF REOPE NING STOPS AT THAT STAGE. FOR THIS LEGAL PROPOSITION WE PLACE RELIANCE ON CIT VS.SHRI RAM SINGH 217 CTR 345(RAJ.) RELEVANT PARAGRAPH IS REPRODUCED BELOW: 25. THE PRECISE QUESTION, THUS REQUIRING TO BE CON SIDERED IS, AS TO WHETHER, THE CONJUNCTIVE WORD USED, BEING ' AND ', USED BETWEEN THE EXPRESSION ' SUCH INCOME ' AND ' ALSO ANY OTHER INCOME CHARGEABLE TO TAX, WHICH HAS ESCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE SUBSEQUENT LY IN THE COURSE OF THE PROCEEDINGS UNDER S. 147 ' IS REQUIRED TO BE GIVEN ITS DUE, OR IS REQUIRED T O BE IGNORED, OR IS REQUIRED TO BE INTERPRETED AS ' OR '. OBVIOUSLY BECAUSE, IF IT IS TO BE INTERPRETED AS 'OR', THEN THE LANGUAGE WOULD REA D AS UNDER: '147. IF THE AO HAS REASON TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR, HE MAY, SUBJECT TO THE PROVISIONS OF SS. 148 TO 153, ASSESS OR REASSESS SUCH INCOME OR ALSO ANY OTHER INCOME CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESSMENT AND WHICH COMES TO HIS ITA NO.3419/AHD/2009 (BY ASSESSEE) & ITA NOS.3348 & 3431/AHD/2009(BY REVENUE) M/S.KHANIJ EXCAVATIONS VS. DCIT ASST.YEARS - 1996-97 & 1998-99 - 12 - NOTICE SUBSEQUENTLY IN THE COURSE OF THE PROCEEDING S UNDER THIS SECTION, OR RE- COMPUTE THE LOSS OR THE DEPRECIATION ALLOWANCE OR A NY OTHER ALLOWANCE, AS THE CASE MAY BE, FOR THE ASSESSMENT YEAR CONCERNED (HER EAFTER IN THIS SECTION AND IN SS. 148 TO 153 REFERRED TO AS THE RELEVANT ASSES SMENT YEAR).' 32. THE RESULT OF THE AFORESAID DISCUSSION IS, THA T THE QUESTION FRAMED, IN THE ORDER DT. 23RD MAY, 2006, IS REQUIRED TO BE, AND IS , ANSWERED IN THE MANNER, THAT THE TRIBUNAL WAS NOT JUSTIFIED IN HOLDING, THA T THE PROCEEDINGS FOR REASSESSMENT UNDER S. 148/147 WERE INITIATED BY THE AO, ON NON- EXISTING FACTS, BECAUSE ULTIMATELY THE ASSESSEE HAS BEEN ABL E TO EXPLAIN THE INCOME, WHICH WAS BELIEVED TO HAVE BEEN ESCAPED ASSESSMENT, WAS EXPLAINABLE. IT IS FURTHER HELD, THAT THE AO WAS JUSTIFIED IN INITIATI NG THE PROCEEDINGS UNDER S. 147/148, BUT THEN, ONCE HE CAME TO THE CONCLUSION, THAT THE INCOME, WITH RESPECT TO WHICH HE HAD ENTERTAINED 'REASON TO BELI EVE' TO HAVE ESCAPED ASSESSMENT, WAS FOUND TO HAVE BEEN EXPLAINED, HIS J URISDICTION CAME TO A STOP AT THAT, AND HE DID NOT CONTINUE TO POSSESS JURISDI CTION, TO PUT TO TAX, ANY OTHER INCOME, WHICH SUBSEQUENTLY CAME TO HIS NOTICE, IN T HE COURSE OF THE PROCEEDINGS, WHICH WERE FOUND BY HIM, TO HAVE ESCAP ED ASSESSMENT. ON DUE CONSIDERATION OF THE ENTIRETY OF THE FACTS A ND THE CASE LAWS DISCUSSED HEREIN ABOVE, WE THEREFORE HOLD THAT THE REOPENING WAS BAD IN LAW, HENCE QUASHED. 7. GROUNDS NOS.4,5 & 6 RAISED BY THE ASSESSEE ARE AS FOLLOWS:- 4.0 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ER RED IN LAW AND ON FACTS IN HOLDING THE FINDING OF THE LD.A .O. REGARDING THE REJECTION OF THE BOOKS OF ACCOUNTS OF THE APPELLANT. 5.0 THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) ERR ED IN LAW AND ON FACTS IN CONFIRMING THE G.P. ADDITION TO THE EXTENT OF RS.9,59,003/-. 6.0 THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) ERR ED IN LAW AND ON FACTS IN CONFIRMING THE ADDITION OF RS.2 9,320/- U/S.41(1) OF THE I.T. ACT, 1961. 7.1. GROUND NOS.4 & 5 ARE NOT PRESSED BY THE LD.COUNSEL FOR THE ASSESSEE, HENCE THE SAME ARE DISMISSED AS SUCH. ITA NO.3419/AHD/2009 (BY ASSESSEE) & ITA NOS.3348 & 3431/AHD/2009(BY REVENUE) M/S.KHANIJ EXCAVATIONS VS. DCIT ASST.YEARS - 1996-97 & 1998-99 - 13 - 7.2. APROPOS TO GROUND NO.6, THE ASSESSEE HAS SUBMITTED BEFORE AO DURING SET ASIDE ASSESSMENT PROCEEDINGS THAT THE AM OUNT OF RS.29,320/- HAD ACTUALLY BEEN PAID BY THE ASSESSEE IN SUBSEQUEN T YEAR. IN THIS REGARD, OUR ATTENTION WAS DRAWN ON PAGE 50 OF THE PAPER-BOO K CONTAINING THE ASSESSMENT ORDER PASSED IN THE FIRST ROUND OF PROCE EDINGS DATED 19/03/2002, WHEREIN THE DISCUSSION WAS HELD AS UNDE R:- 7. DURING THE COURSE OF ASSESSMENT PROC OF A.Y. 19 97-98 INQUIRIES WERE CARRIED OUT IN RESPECT OF TRANSACTIO NS MADE WITH M/S.YOGIJI CONSTRUCTION CO. ON THE BASIS OF THESE INQUIRIES IT WAS NOTICED THAT THE TRANSACTIONS OF THE ASSESSEE FIRM WITH THAT PARTY TALLIED TO THE EXTENT AMOUNT OF BILL AND PAYMENTS M ADE BY THE ASSESSEE DURING THE FY RELEVANT TO AY 1997-98 ONLY . HOWEVER, THE OPENING BALANCE DID NOT TALLIED AND IT WAS NOTI CED THAT THE PARTY HAD CLOSED THE ACCOUNT AT THE YEAR-END BY TRA NSFERRING THE BALANCE OF RS.84,960/- TO DISCOUNT ACCOUNT. ON THE OTHER HAND THE BOOKS OF ACCOUNT OF THE ASSESSEE FIRM SHOWED OUTST ANDING BALANCE OF RS.29,320/-. IT WAS NOTICED THAT THE ASSESSEE F IRM HAD FAILED TO REDUCE ITS EXPENSES BY AN AMOUNT OF RS.29,320/-, WH ICH WAS DONE BY M/S.YOGIJI CONSTRUCTION CO. IN ITS BOOKS OF ACCO UNTS. IN VIEW OF THE ABOVE I MAKE AN ADDITION OF RS.29,320/- ON A CCOUNT OF EXCESSIVE PURCHASE SHOWN BY IT DURING THE YEAR UNDE R CONSIDERATION. 7.3. THE SAID PARTY MIGHT HAVE CLOSED THE ACCOUN T BY TRANSFERRING THE OUTSTANDING BALANCE BUT THE SAID UNILATERAL ACTION ON THE PART OF THE SAID PARTY, NAMELY, M/S.YOGIJI CONSTRUCTION CO. COULD NO T BE SAID TO BE BINDING ON THE ASSESSEE. THERE IS ONE MORE POSS IBILITY THAT THE ACCOUNT WITH THE SAID PARTY MIGHT HAVE BEEN SETTLED IN THE SUBSEQUENT YEARS BUT FOR THE YEAR UNDER CONSIDERATION IT COULD NOT BE HE LD WITH CERTAINTY THAT ITA NO.3419/AHD/2009 (BY ASSESSEE) & ITA NOS.3348 & 3431/AHD/2009(BY REVENUE) M/S.KHANIJ EXCAVATIONS VS. DCIT ASST.YEARS - 1996-97 & 1998-99 - 14 - THERE WAS CESSATION OF LIABILITY AS FAR AS THE ASSE SSEE IS CONCERNED. SINCE IT WAS NOT JUSTIFIABLE TO HOLD WITH CERTAINTY THAT THE LIABILITY HAD CEASED TO EXIST FOR THE YEAR UNDER CONSIDERATION, HENCE IT WA S WRONG ON THE PART OF THE AO TO ALLEGE THAT THE ASSESSEE HAD FAILED TO RE DUCE ITS EXPENSES. WE THEREFORE DISAPPROVE SUCH A PRESUMPTIVE ADDITION. THEREFORE, WE HEREBY DIRECT TO DELETE THE ADDITION. THEREFORE ON THE BOTH THE COUNTS, FIRST, THAT THE REOPENING WAS BAD IN LAW AND, SECOND, ON MERIT S THE ADDITION WAS ALSO UNCALLED HENCE DELETED. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. 7.4 BEFORE WE PROCEED TO DECIDE THE MERITS OF TH E ADDITION FOR A.Y. 1996-97 IT IS WORTH TO MENTION THAT ALTHOUGH WE HAV E INVALIDATED THE REOPENING BUT FOR THE SAKE OF COMPLETENESS, AS ALSO SUGGESTED BY SOME HONBLE COURTS TO ADJUDICATE THE MERITS AS WELL TO AVOID FUTURE LITIGATION IN CASE THE VIEW ON THE VALIDITY GETS REVERSED , WE HEREIN BELOW PROCEED TO DECIDE THE MERITS OF THE QUANTUM ADDITIONS. THI S APPROACH IS NOT UNPRECEDENTED BECAUSE IN THE CASE OF CIT VS. UTTAM CHAND NAHAR 274 ITR 376 ( RAJ.) AN OBSERVATION HAS BEEN MADE THAT T HE TRIBUNAL HAVING NOT RESTED ITS DECISION SOLELY ON THE BASIS OF INVA LIDITY OF THE PROCEEDINGS U/S 147/148 BUT ALSO DECIDED THE APPEAL ON MERITS O F THE ASSESSMENT THEN THE LEGAL QUESTION OF VALIDITY OF ASSESSMENT HAS BE COME ACADEMIC. [B] REVENUES APPEAL, ITA NO.3348/AHD/2009 - A.Y.1996- 97 8. GROUND NO.1 READS AS UNDER:- 1. THE LD. COMMISSIONER OF INCOME-TAX(A)-XV, AHME DABAD HAS ERRED IN LAW AND ON FACTS IN ALLOWING RELIEF OF RS.11,83,341/- OUT OF ADDITION MADE BY REJECTING O F BOOKS OF ACCOUNTS AND DIRECTING THE ASSESSING OFFICER TO ESTIMATE GROSS PROFIT @ 22% BY ADOPTING THE AVERAGE GROSS PROFIT OF ITA NO.3419/AHD/2009 (BY ASSESSEE) & ITA NOS.3348 & 3431/AHD/2009(BY REVENUE) M/S.KHANIJ EXCAVATIONS VS. DCIT ASST.YEARS - 1996-97 & 1998-99 - 15 - LAST SIX YEARS AS AGAINST 30% ESTIMATED BY THE ASSE SSING OFFICER. 8.1. AT THE OUTSET, IT IS WORTH TO MENTION THAT A LTHOUGH WE HAVE HELD HEREINABOVE THAT THE REOPENING WAS BAD IN LAW, IN C ONSEQUENCE THEREOF THE QUESTION OF GP ADDITION AS RAISED BY THE REVENU E DO NOT SURVIVE. HOWEVER, FOR THE SAKE OF COMPLETENESS AS ALSO TO CO VER THE APPEAL FOR A.Y. 1998-99, WE HAVE THOUGHT IT PROPER TO SEE THE MERITS IN RESPECT OF THE GP ADDITION WHICH WAS RAISED BY THE REVENUE BEF ORE US. THE ASSESSEE-FIRM IS IN THE BUSINESS OF EARTH EXCAVATIO N. THE TOTAL LABOUR RECEIPTS WERE DISCLOSED AT RS.1,48,45,243/ - AND THE GP SHOWN BY THE ASSESSEE WAS AT RS.23,11,228/ -, THEREFORE THE RATE OF GROSS PROFIT WAS 15.56% AS AGAINST THE GROSS PROFIT RATE SHOWN IN THE PAST AT 20.54%. A QUERY WAS RAISED AND IN COMPLIANCE IT WAS SUBMITTED AS UNDER:- BRIEF SUMMARY : IT WAS POINTED OUT THAT THE PROFI T WOULD VARY DEPENDING UPON THE NATURE OF THE WORK, SITE OF THE WORK AND THE TERMS AND CONDITIONS OF THE WORK UNDERTAKEN. IN TH IS CONNECTION, IT WAS ALSO POINTED OUT THAT THE A.YR. 1994-95 WAS THE SOLITARY YEAR IN WHICH THE FIRM COULD EARN COMPARATIVELY BETTER P ROFITS BECAUSE MAJOR RECEIPTS WERE FOR LABOUR WORK DONE BY HIRING OUT THE EXCAVATORS TO OTHERS. THE FIRM HAD NOT UNDERTAKEN CONSTRUCTION WORK AS SUCH THIS YEAR I.E. F.YR. 1993-94 RELEVANT TO THE ASSESSMENT YEAR 1994-95 IN WHICH GROSS PROFIT SHOWN WAS NEARLY 30%. IT WAS FURTHER POINTED OUT THAT DURING THE YE AR UNDER CONSIDERATION, THE FIRM HAD TO GET CERTAIN WORKS DO NE FROM OUTSIDERS AND THE JOB WORK PAYMENTS WORKED OUT TO R S.17,94,265/-; FURTHER DRILLING AND BLASTING EXPENSES TO THE EXTEN T OF RS.10,89,382/- HAD TO BE INCURRED IN THIS YEAR. TH EN MATERIAL FOR SPECIAL JOB-WORK HAD TO BE PURCHASED THIS YEAR AT A COST OF RS.14,24,894/-. IF WE CONSIDER THESE THREE ITEMS O F EXTRA EXPENDITURE SEPARATELY THIS YEAR, THEN THE GROSS PR OFIT THIS WOULD ITA NO.3419/AHD/2009 (BY ASSESSEE) & ITA NOS.3348 & 3431/AHD/2009(BY REVENUE) M/S.KHANIJ EXCAVATIONS VS. DCIT ASST.YEARS - 1996-97 & 1998-99 - 16 - WORK OUT TO ABOUT 40% THIS YEAR AS COMPARED TO THE GROSS PROFIT SHOWN AT 29.9% AND 20.54% SHOWN IN PRECEDING TWO Y EARS. ALONG WITH THIS LETTER THE FIRM HAD SUBMITTED COMPA RATIVE POSITION OF RECEIPTS AND ITEMS OF EXPENDITURE FOR THE A.YRS. 1994-95, 1996- 97, 1998-99 AND 1999-2000 SO THAT THE REASONS FOR V ARIATIONS IN G.P. FROM YEAR TO YEAR COULD BE APPRECIATED BY THE A.O. UNFORTUNATELY, THIS EXPLANATION WAS NOT TAKEN INTO CONSIDERATION BY THE THEN A.O. WHILE PASSING THE ASSESSMENT ORDER FOR ALL THESE YEARS IN WHICH THE BOOK RESULT WAS REJECTED AND G.P . WAS ESTIMATED @ 30% ON THE RECEIPTS SHOWN BY THE FIRM. 8.2. HOWEVER, THE AO WAS NOT CONVINCED AND HE HAS ADOPTED THE GP RATIO AT 30%, WHICH WAS WORKED OUT AT RS.44,53,572/- BY APPLYING THE SAID RATIO ON THE TOTAL RECEIPTS OF RS.1,48,45,243/ -. AS AGAINST THAT, THE GP SHOWN BY THE ASSESSEE WAS ONLY RS.23,11,228/-, T HEREFORE THE DIFFERENCE OF RS.21,42,344/- WAS TAXED. 9. WHEN THE MATTER WAS CARRIED BEFORE THE FIRST AP PELLATE AUTHORITY, AN AVERAGE GP OF LAST SIX ASSESSMENT YEARS AT 22.02% WAS APPLIED BY THE CIT(A) AND CORRESPONDING RELIEF WAS GRANTED AS UNDE R:- 14. AFTER GOING THROUGH THE MATERIAL PLACED ON RE CORD I AM OF THE VIEW THAT THE AO DID NOT TAKE UP THE ASSESSMEN T IN THE RIGHT EARNEST AS IT SHOULD HAVE BEEN, THIS IS TRUE THAT H E DID NOT ASK FOR ANY SPECIFIC DETAIL FROM THE APPELLANT. THE AO HA S MECHANICALLY REPRODUCED THE REPLY OF THE APPELLANT IN HIS ORDER AND HAS NOT REBUTTED IT IN ANY WAY. HE HAS NEITHER ASKED FOR A NY DETAILS AND HAS NEITHER MADE ANY VERIFICATIONS OR INQUIRIES. G P RATE OF 30% HAS BEEN APPLIED IN A VERY CASUAL MANNER. THOUGH T HE APPELLANT HAS EXPLAINED THE REASONS FOR VARIATION IN ITS GP B UT NOTHING HAS BEEN SAID TO COUNTER THE REPLY. AFTER GOING THROUGH RIVAL SUBMISSIONS I AM OF THE V IEW THAT BILLS ETC. OF CASH EXPENSES TOTALING TO RS.15,31,845 SHOU LD HAVE BEEN ITA NO.3419/AHD/2009 (BY ASSESSEE) & ITA NOS.3348 & 3431/AHD/2009(BY REVENUE) M/S.KHANIJ EXCAVATIONS VS. DCIT ASST.YEARS - 1996-97 & 1998-99 - 17 - PRODUCED WHEN THE APPELLANT IN ITS REPLY DATED 9.12 .2008 HAD ITSELF PRESUMED THAT THE AO WOULD PROCEED ON THE SAME LIN ES AS HE DID IN THE ORIGINAL ASSESSMENT. IN THE PRESENT APPELLA TE PROCEEDINGS ALSO VIDE ORDER SHEET NOTING DATED 6.10.2009 THE BI LLS WERE REQUIRED TO BE PRODUCED BY 27.10.2009 BUT ON THIS D ATE THEY WERE NOT PRODUCED. THE LD.AR DID APPEAR WITH XEROX COPI ES OF SOME BILLS SHOWING THE DATES OF THE YEARS 1993,1994, 199 5, BUT THESE WERE NOT ACCEPTED BY THIS OFFICE BECAUSE THEY WERE NOT CERTIFIED AND WERE NEITHER COMPLETE. THE AR CONTENDED THAT THESE WERE NOT COMPLETE BILLS. THEREFORE, IN THIS BACKGROUND THE AR WAS REQUIRED TO ANSWER WHY SHOULD THE BOOKS OF ACCOUNTS NOT BE REJECTED. IN RESPONSE THE AR STATED THAT THE APPE LLANT HAD SHOWN REASONABLE GP BUT HE COULD NOT GIVE ANY CONVINCING REASON FOR NOT PRODUCING ALL THE BILLS WITH RESPECT TO WHICH C ASH PAYMENTS OF RS.15,31,845 HAD BEEN MADE. I WOULD THEREFORE UPHO LD REJECTION OF BOOKS OF ACCOUNTS AS THE APPELLANT DESPITE BEING GIVEN OPPORTUNITIES COULD NOT PRODUCE/SUBMIT COMPLETE BIL LS WITH RESPECT TO AFOREMENTIONED CASH PAYMENTS (DISCUSSED IN DETAI L IN PARA 3 OF ORIGINAL ASSESSMENT ORDER DATED 19.3.2002). IN THE INTEREST OF JUSTICE GP RATE OF 22.02% IS APPLIED ON RECEIPTS O F RS.1,48,45,243, WHICH IS AVERAGE OF GP SHOWN BY TH E APPELLANT IN THE FOLLOWING 6 ASSESSMENT YEARS: ASST.YEAR GP RATE AY 1994-95 29.95 AY 1995-96 20.54 AY 1996-97 15.57 AY 1997-98 18.85 AY 1998-99 20.89 AY 1999-2000 26.33 ACCORDINGLY THE GROSS PROFIT WORKS OUT TO RS.32,68, 922 (22.02% OF RS.1,48,45,243). THE APPELLANT HAS ALREADY SHOWN GROSS PROFIT AT 15.56% WHICH COMES TO RS.23,09,919. THE GP ADDITIO N THUS WORKS OUT TO RS.9,59,003 (RS.32,68,922 RS.23,09,9 19). THE APPELLANT GETS RELIEF OF RS.11,83,341 (RS.21,42,344 RS.9,59,003). ITA NO.3419/AHD/2009 (BY ASSESSEE) & ITA NOS.3348 & 3431/AHD/2009(BY REVENUE) M/S.KHANIJ EXCAVATIONS VS. DCIT ASST.YEARS - 1996-97 & 1998-99 - 18 - 10. FROM THE SIDE OF THE REVENUE, LD.SR.DR MR.SAMIR TEKRIWAL HAS CONTESTED THAT THE GP ADDITION WAS MADE PRIMARILY O N THE GROUND THAT THE ASSESSEE HAD FAILED TO FURNISH THE COMPLETE DETAILS . THE AO NOTICED THAT PAYMENTS MADE TO LABORERS WERE THROUGH BEARER CHEQUES. THE IMPUGNED ADDITION OF GP, IN THE OPINION OF LD.DR WA S THEREFORE, ON ACCOUNT OF INFRINGEMENT OF THE PROVISIONS OF SECTIO N 40A(3) OF IT ACT AS WELL. 11. HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES, WE HAVE NOTICED THAT THE ASSESSEE HAD FILED AUDIT REPORT OF ITS ACCOUNTS U/S.44AB OF IT ACT. THERE WAS NO PARTICULAR FINDINGS OF THE AO I N RESPECT OF ANY DEFECT FOUND IN THE SAID AUDITED ACCOUNTS OR IN THE BOOKS OF ACCOUNTS. AS FAR AS THE DETAILS OF THE IMPUGNED EXPENDITURE IS CONCERNE D, IT IS EVIDENT FROM PAGE NOS.5 & 6 OF CIT(A) THAT THE REQUISITE PARTY-WISE DETAILS WAS VERY MUCH ON RECORD. IT IS ALSO EVIDENT THAT ALTHOUGH T HE AO HAD EXPRESSED THE VIOLATION OF THE PROVISIONS OF SECTION 40A(3) O F IT ACT, BUT HE HAS ONLY OPTED TO ADOPT GP RATE ADDITION. THE AO WAS NOT SURE ABOUT THE NATURE OF ADDITION WHETHER TO BE MADE U/S.40A(3) OR THE CASE QUALIFIES FOR GP ADDITION. IT IS ALSO TRUE THAT THERE WAS NO INV OCATION OF THE PROVISIONS OF SECTION 145 OF IT ACT. IN THE CASE OF MADNANI CONSTRUCTION CORPORATION P.LTD. VS. CIT REPORTED AT 296 ITR 45 ( GAUHATI), WHEREIN VIDE PARAGRAPH NOS.8 & 9 HELD AS UNDER:- 8. A DIVISION BENCH OF THIS COURT IN ALUMINIUM IND USTRIES (P) LTD. VS. CIT (IT REF. NO. 12 OF 1990) OBSERVED THAT A LOWER RATE OF GROSS PROFIT DECLARED BY THE ASSESSEE AS COMPARED TO THE PREVIOU S YEAR WOULD NOT IN ITSELF BE SUFFICIENT TO JUSTIFY ANY ADDITION. THE M ERE FACT THAT THE PERCENTAGE OF LOSS OR GROSS PROFIT IS HIGH OR LOW I N A PARTICULAR YEAR DOES NOT NECESSARILY LEAD TO INFERENCE THAT THERE H AS BEEN SUPPRESSION. ITA NO.3419/AHD/2009 (BY ASSESSEE) & ITA NOS.3348 & 3431/AHD/2009(BY REVENUE) M/S.KHANIJ EXCAVATIONS VS. DCIT ASST.YEARS - 1996-97 & 1998-99 - 19 - LOW PROFIT IS NEITHER A CIRCUMSTANCE OR MATERIAL TO JUSTIFY ADDITION OF PROFITS. WE HAVE TAKEN INTO CONSIDERATION THE JUDGM ENTS IN DHAKESWARI COTTON MILLS LTD. VS. CIT (1954) 26 ITR 775 (SC), R AGHUBIR MANDAL HARIKAR MANDAL VS. STATE OF BIHAR (1957) 8 STC 770 (SC), STATE OF KERALA VS. C. VELUKUTTY (1966) 60 ITR 239 (SC), STA TE OF ORISSA VS. MAHARAJA SHRI B.P. SINGH DEO (1970) 76 ITR 690 (SC) , BRIJ BHUSHAN LAL PARDUMAN KUMAR VS. CIT 1978 CTR (SC) 134 : (197 8) 115 ITR 524 (SC), CHOUTHMAL AGARWALLA VS. CIT (1962) 46 ITR 262 (ASSAM), R.V.S. & SONS DAIRY FARM VS. CIT (2002) 177 CTR (MAD) 40 : (2002) 257 ITR 764 (MAD), INTERNATIONAL FOREST CO. VS. CIT 1975 CT R (J&K) 88 : (1975) 101 ITR 721 (J&K), M. DURAI RAJ VS. CIT (197 2) 83 ITR 484 (KER), RAMCHANDRA RAMNIVAS VS. STATE OF ORISSA (197 0) 25 STC 501 (ORISSA), ACTION ELECTRICALS VS. DY. CIT (2003) 180 CTR (DEL) 62 : (2002) 258 ITR 188 (DEL) AND KAMAL KUMAR SAHARIA VS . CIT (1996) 130 CTR (GAU) 290 : (1995) 216 ITR 217 (GAU) RELIED UPON BY MR. JOSHI, LEARNED SENIOR COUNSEL. THE RATIO THAT CAN B E CULLED OUT FROM THE AFORESAID JUDGMENTS IS THAT THE ITO IS NOT FETTERED BY ANY TECHNICAL RULES OF EVIDENCE AND PLEADINGS, AND HE IS ENTITLED TO AC T ON MATERIAL WHICH ARE NOT ACCEPTABLE IN EVIDENCE IN A COURT OF LAW, B UT WHILE MAKING THE ASSESSMENT UNDER THE PRINCIPLES OF BEST JUDGMENT, T HE ITO IS NOT ENTITLED TO MAKE A PURE GUESS WITHOUT REFERENCE TO ANY EVIDE NCE OR MATERIAL. THERE MUST BE SOMETHING MORE THAN A MERE SUSPICION TO SUPPORT THE ASSESSMENT. HE MUST TAKE INTO CONSIDERATION LOCAL I NFORMATION AND REPUTE IN REGARD TO THE ASSESSEES CIRCUMSTANCES, AND HIS OWN KNOWLEDGE OF PREVIOUS RETURNS AND OF OTHER MATTERS NECESSARY TO ASSIST HIM IN ARRIVING AT A FAIR AND PROPER ESTIMATE. LOW PROFIT IN A PARTICULAR YEAR IS ITSELF CANNOT BE A GROUND FOR INVOKING THE POWERS OF BEST JUDGMENT ASSESSMENT WITHOUT SUPPORT OF ANY MATERIAL ON RECORD. THE SYSTEM OF ACCOUNTING ADOPTED BY THE ASSESSEE CANNOT BE REJECTED ON THE GROUND THAT THE GROSS PROFITS WERE LOW AND COMPARED UNFAVOURABLE WITH THOSE OF OTHERS. IT IS SETTLED LAW THAT THE TAX AUT HORITIES HAVING RELIED ON ONE PART OF THE TRANSACTIONS CANNOT REJECT THE OTHE R PART. IN THE INSTANT CASE, THE AO ADOPTED THE P&L A/C FOR THE PRECEDING YEAR AND, YET, BORNE A DOUBT ABOUT THE OTHER PART. THIS APPEARS TO BE A CASE OF MERE SUSPICION. WITHOUT RECORDING A FINDING THAT THE VOU CHERS IN REGARD TO PURCHASE OF RAW MATERIALS HAVE BEEN MANIPULATED OR OTHERWISE NOT ACCEPTABLE, THE AO OUGHT NOT TO HAVE GONE FOR BEST JUDGMENT. IT IS WELL KNOWN THAT IN CASE OF TRANSACTIONS IN CASH, THE PUR CHASER AND THE SELLER OFTEN DO NOT BOTHER TO KEEP DETAILS OF THEIR IDENTI TY. THE AUTHORITIES BELOW WERE OBLIVIOUS OF THE GROUND REALITIES. ITA NO.3419/AHD/2009 (BY ASSESSEE) & ITA NOS.3348 & 3431/AHD/2009(BY REVENUE) M/S.KHANIJ EXCAVATIONS VS. DCIT ASST.YEARS - 1996-97 & 1998-99 - 20 - 9. WE HAVE ALSO CONSIDERED THE JUDGMENTS IN CIT VS. BRITSH PAINTS INDIA LTD. (1991) 91 CTR (SC) 108 : (1991) 188 ITR 44 (SC ), CHHABILDAS TRIBHUVANDAS SHAH VS. CIT (1966) 59 ITR 733 (SC) AN D S.N. VADHYAR & SONS VS. CIT (1990) 183 ITR 550 (KER), RELIED UPO N BY MR. U. BHUYAN, LEARNED COUNSEL FOR THE REVENUE. THE ISSUES DECIDED IN THESE JUDGMENTS ARE NOT BASED ON IDENTICAL FACT. IN THE I NSTANT CASE, THE QUESTION IS WHETHER THE REJECTION OF THE BOOKS OF A CCOUNT BY THE AO AND COMPUTATION OF NET PROFIT AS PER BEST JUDGMENT IS I N TUNE WITH THE PRINCIPLES OF BEST JUDGMENT ASSESSMENT. IN THE INST ANT CASE, AS HAS BEEN POINTED OUT HEREINABOVE, THE AO ABRUPTLY CAME TO A CONCLUSION THAT THE ACCOUNTS DO NOT DISCLOSE CORRECTLY THE TRANSACTIONS IN RESPECT OF PURCHASE OF RAW MATERIALS WITHOUT ANY ENQUIRY AS TO WHETHER SUCH MATERIALS COMMENSURATE WITH THE VOLUME OF THE WORKS DONE. FAILURE OF THE ASSESSEE TO GIVE DETAILS OF THE SUNDRY CREDITOR S MAY BE A GROUND FOR RAISING SUSPICION, BUT SUSPICION ALONE IS NOT ENOUG H FOR INVOKING THE POWERS OF BEST JUDGMENT ASSESSMENT WITHOUT THE SUPP ORT OF THE MATERIALS. THE AO RELIED UPON A PART OF A TRANSACTI ON FOR THE PRECEDING YEAR WHILE REJECTING THE OTHER. THIS IS NOT PERMISS IBLE IN LAW. WITHOUT POINTING OUT ANY ERROR IN THE P&L A/C AND THE AUDIT ED REPORT, THE POWERS OF BEST JUDGMENT ASSESSMENT COULD NOT BE INV OKED. THE PRINCIPLES OF BEST JUDGMENT ASSESSMENT DO NOT APPEA R TO HAVE BEEN FOLLOWED BY THE AO. THE LEARNED TRIBUNAL REDUCED TH E RATE OF PROFIT FROM 8 PER CENT TO 6 PER CENT MERELY ON SUSPICION. IN THE GIVEN CIRCUMSTANCES, THE QUESTION FORMULATED HAS TO BE RE GARDED AS A QUESTION OF LAW. 11.1. WE ARE THEREFORE OF THE VIEW THAT IN THE ABSE NCE OF ANY SPECIFIC ADVERSE MATERIAL ON RECORD, THE AO WAS NOT JUSTIFIE D IN APPLYING AN AD- HOC GROSS PROFIT RATE WHICH WAS RIGHTLY REDUCED BY LD.CIT(A). IT IS ALSO WORTH TO MENTION THAT THE ASSESSEE HAS NOT CHALLENG ED THE REDUCTION IN GP RATIO AS DONE BY THE AO FROM 30% TO 22.2%. IN THE RESULT, WE HEREBY CONFIRM THE VIEW TAKEN BY THE LD.CIT(A) AND REJECT THIS GROUND OF THE REVENUE. ( C ) REVENUES APPEAL, ITA NO.3431/AHD/2009 A.Y . 1998-99 12. GROUND NO.1 READS AS UNDER:- ITA NO.3419/AHD/2009 (BY ASSESSEE) & ITA NOS.3348 & 3431/AHD/2009(BY REVENUE) M/S.KHANIJ EXCAVATIONS VS. DCIT ASST.YEARS - 1996-97 & 1998-99 - 21 - 1) THE LD. COMMISSIONER OF INCOME-TAX(A)-XV, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN ALLOWING RELIEF OF RS.8,08,203/- OUT OF ADDITION MADE BY REJECTING OF BOOKS OF ACCOUNTS AND DIRECTING THE ASSESSING OFFICER TO ESTIMATE GROSS PROFIT @ 20.89% INSTEAD OF 30% TAKEN BY THE ASSESSING OFFICER. 12.1. AS PER THE ASSESSMENT ORDER PASSED U/S.143(3) R.W.S.254 OF THE IT ACT DATED 26/12/2008, IT WAS NOTED BY THE AO THAT T HE ASSESSEE-FIRM IS ENGAGED DURING THE YEAR IN THE BUSINESS OF EXCAVATION ON CONTRACT BASIS FOR DIFFERENT PARTIES. THE AO HAS REPRODUCED THE REPLY OF THE ASSESSEE AND ALMOST IN IDENTICAL MANNER APPLIED THE GP RATIO AT 30% FOR THE YEAR UNDER CONSIDERATION AS WELL. THE MATTER WAS CARR IED BEFORE THE FIRST APPELLATE AUTHORITY WHO HAS HELD AS UNDER:- AFTER GOING THROUGH RIVAL SUBMISSIONS THE AO IS D IRECTED TO DELETE GP ADDITION BECAUSE HE HAS NOT POINTED OUT SINGLE DEFECT IN THE BOOKS OF ACCOUNT IN THE YEAR UNDER CONSIDERATIO N. IT IS WELL KNOW THAT EACH YEAR FOR INCOME TAX PURPOSES IS A SE PARATE YEAR AND THE AO COULD NOT HAVE PASTED THE STAND TAKEN B Y HIM IN AY 1996-97 MECHANICALLY IN AY 1998-99 ALSO. SURPRISI NGLY THE AO HAS NEITHER BOTHERED TO ISSUE A SHOW CAUSE NOTICE B EFORE REJECTING THE ACCOUNTS OF THE APPELLANT FIRM. APPLICATION OF GP RATE AT 30% ON RECEIPTS HAS BEEN MADE BY THE AO WITHOUT BRINGI NG ANY MATERIAL ON RECORD TO JUSTIFY IT, WITHOUT EVEN CARI NG TO MENTION THAT HE IS APPLYING 30% RATE AS AGAINST 20.89% GP RATE SHOWN BY THE ASSESSEE. 13. IN THE LIGHT OF THE FOREGOING DISCUSSION, WE AR E NOT INCLINED TO DISTURB THE FINDING ON FACTS GIVEN BY LD.CIT(A), SP ECIALLY WHEN THE ASSESSEE HAS NOT CHALLENGED THOSE FINDINGS. IN THE RESULT, PART RELIEF GRANTED BY LD.CIT(A) IS CONFIRMED AND REVENUES APP EAL FOR A.Y. 1998- 99 IS DISMISSED. ITA NO.3419/AHD/2009 (BY ASSESSEE) & ITA NOS.3348 & 3431/AHD/2009(BY REVENUE) M/S.KHANIJ EXCAVATIONS VS. DCIT ASST.YEARS - 1996-97 & 1998-99 - 22 - 14. AS A RESULT, WE SUMMARIZE THE RESULT AS UNDER:- (1) ASSESSEES APPEAL IN ITA NO.3419/AHD/2009IS P ARTLY ALLOWED. (2) REVENUES APPEAL IN ITA NO.3348/AHD/2009 IS D ISMISSED. (3) REVENUES APPEAL IN ITA NO.3431/AHD/2009 IS D ISMISSED. SD/- SD/- ( .. ) ( ) '# ( T.R. MEENA ) ( MUKUL KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL ME MBER AHMEDABAD; DATED 25/ 5 /2012 ..%, .%../ T.C. NAIR, SR. PS ', ' -. /'.+ ', ' -. /'.+ ', ' -. /'.+ ', ' -. /'.+/ COPY OF THE ORDER FORWARDED TO : 1. 01 / THE APPELLANT 2. -201 / THE RESPONDENT. 3. 3 / CONCERNED CIT 4. 3() / THE CIT(A)-XV, AHMEDABAD 5. .67 -% , , / DR, ITAT, AHMEDABAD 6. 78 9& / GUARD FILE. ',% ',% ',% ',% / BY ORDER, 2. - //TRUE COPY// : :: :/ // / ; ; ; ; ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD 1. DATE OF DICTATION..3.5.12 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 3.5.12 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S25.5.12 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 25.5.12 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 9. DATE OF DESPATCH OF THE ORDER