The ITO, Ward-5(3), Ahmedabad V. Roselab Ltd., Ahmedabad

ITA 3798/AHD/2008

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6573 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 5 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 23-03-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 21-11-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: A L THAKKAR
• Keywords: Rejection of books of accounts; Unexplained investment; Capital asset; Depreciation; Principle of natural justice; Corroborative evidences
• Section: 69; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'A' BEFORE SHRI MUKUL SHRAWAT,JM & SHRI A N PAHUJA,AM ITA NO.3798/AHD/2008 (ASSESSMENT YEAR:-2005-06) INCOME-TAX OFFICER, WARD- 5(3), 2 ND FLOOR, CU SHAH BUILDING, ASHRAM ROAD, AHMEDABAD V/S ROSELABS LIMITED, 123/1, SADIRAM ESTATE, SAIJPUR GOPALPUR, PIRANA ROAD, AHMEDABAD PAN: AAACR 7291 M [APPELLANT] [RESPONDENT] REVENUE BY :- SHRI K MADHUSUDAN, DR ASSESSEE BY:- SHRI A L THAKKAR, AR O R D E R A N PAHUJA: THIS APPEAL BY THE REVENUE AGAINST AN ORDER DATED 26- 09-2008 OF THE LD. CIT(APPEALS)-XI, AHMEDABAD, FOR THE ASSESSMENT YEAR 2005-06, RAISES THE FOLLOWING GROUNDS:- 1 THE LD. COMMISSIONER OF INCOME TAX (A)-XI, AHMEDABA D HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE O F RS.14,77,851/- ON ACCOUNT OF FALL IN GROSS PROFIT. 2 THE LD. COMMISSIONER OF INCOME TAX (A)-XI, AHMEDA BAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE O F RS.35,440/- ON ACCOUNT OF UNEXPLAINED INVESTMENT U/S. 68 OF THE I. T. ACT. 3 THE LD. COMMISSIONER OF INCOME TAX (A)-XL, AHMEDA BAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE O F RS.61,747/- OUT OF REPAIRS & MAINTENANCE EXPENDITURE WHICH IS BEING CAPITAL IN NATURE, AFTER ALLOWING DEPRECIATION OF RS.6,860/-. 4 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LD. COMMISSIONER OF INCOME TAX (A)-XI, AHMEDABAD OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 5 IT IS THEREFORE PRAYED THAT THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (A)-XI, AHMEDABAD MAY BE SET ASIDE AND T HAT OF THE ASSESSING OFFICER BE RESTORED. 2. ADVERTING FIRST TO GROUND NOS.1 & 2 IN THE APPEA L, FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN DECLA RING NIL INCOME FILED 2 ITA NO.3798/AHD/2008 2 ON 31-10-2005 BY THE ASSESSEE, MANUFACTURING DYES A ND CHEMICALS, AFTER BEING PROCESSED ON 28.8.2006 U/S 143(1) OF TH E INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS THE ACT], W AS SELECTED FOR SCRUTINY WITH THE ISSUE OF NOTICE U/S 143(2) OF THE ACT ON 19.10.2006. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSING OFFICER[AO IN SHORT] NOTICED THAT THE ASSESSEE HAD SHOWN GROSS PROFIT[GP] @ 2.72% ON TOTAL TURNOVER OF RS.1,95,02, 208/- AS AGAINST GP @ 8.47% ON TURNOVER OF RS.2,22,26,333/-IN THE P RECEDING YEAR.IF COMMISSION WAS EXCLUDED, GP RATE WORKED OUT TO 0.42 % IN THE YEAR UNDER CONSIDERATION VIS-A-VIS 10.39% IN THE PRECE DING YEAR. THE AO FURTHER NOTICED ON VERIFICATION OF DETAILS / BOOKS OF ACCOUNTS THAT THE ASSESSEE DID NOT SHOW CERTAIN GOODS IN ITS CLOSING STOCK AS ON 31- 03-2005 IN ITS BOOKS OF ACCOUNTS WHILE THESE WERE DECLARED AS CLOSING STOCK IN THE MONTHLY STOCK STATEMENT SUBMIT TED TO THE BANK FOR THE MONTH OF MARCH, 2005. MOST OF THE CASH / BA NK VOUCHERS WERE WITHOUT ANY SUPPORTING EVIDENCE AND DEFECTIVE TOO. IN THE LIGHT OF THE THESE DISCREPANCIES, THE AO ASKED THE ASSESSEE TO SHOW CAUSE AS TO WHY ITS BOOKS OF ACCOUNTS SHOULD NOT BE REJECTED U/S 145(3) OF THE ACT AND WHY GP @ 8% ON TURNOVER OF RS.1,95,02,208/- BE NOT ADOPTED. THE RELEVANT EXTRACT OF THE SAID SHOW CAUS E NOTICE READS AS UNDER:- 'ON VERIFICATION OF THE BOOKS OF ACCOUN TS PRODUCED, FOLLOWING DISCREPANCIES / DEFECTS ARE NOTICED: I) ON VERIFICATION OF CASH /BANK VOUCHERS FILE PROD UCED, IT IS NOTICED THAT SAID VOUCHERS ARE PRINTED. IN MOST OF THE VOUC HERS, THERE ARE NO SIGNATURE ON THE SPACE OF PREPARED BY / CHECKED BY, RECEIVER SIGNATURE AND AUTHORIZED SIGNATORY. FOR EXAMPLE, SUCH TYPE OF BILLS ARE AS UNDER: DATE ACCOUNT AMOUNT 31/12/2004 POSTAGE EXP. 4-47 31/12/2004 OFFICE EXP. 67 23/12/2004 OFFICE EXP. 14-10 31/12/2004 TRANSPORT 282 3 ITA NO.3798/AHD/2008 3 NO SUPPORTING EVIDENCES ARE FOUND THERE IN RESPECT OF MAJOR PART OF EXPENSES VOUCHERS. IN ABSENCE OF THE SAME, THE EXPE NSES ARE NOT VERIFIABLE.' II) IT IS ALSO NOTICED THAT YOU HAVE SHOWN GP FOR T HE CURRENT YEAR AT 2.75% AS AGAINST 8.47% IN THE IMMEDIATE PRECEDING Y EAR. AND IF OTHER INCOME IS EXCLUDED THEN GP FOR THE CURRENT YEAR AND PREVIOUS YEAR COMES TO 0.42% AND 10.39% RESPECTIVELY. YOU HAVE FAILED T O JUSTIFY THE DRASTIC FALL IN GP. III) IT IS FURTHER NOTICED ON VERIFICATION OF STOCK STATEMENT SUBMITTED BEFORE THE BANK FOR THE MONTH OF MARCH, 2005 THAT F OLLOWING GOODS ARE SHOWN IN CLOSING STOCK AS ON 31/03/2005 WHICH WAS N OT REFLECTED IN THE CLOSING STOCK AS PER BOOKS. ITEM KGS RATE VALUE RS. SALT 15870 0.85 13490 SODA BI CARBONATE 1450 11 15950 GOLD YELLOW GOK 50 120 6000 ON BEING ASKED FOR YOU HAVE FAILED TO EXPLAIN WHY S AID GOODS ARE NOT REFLECTED IN YOUR CLOSING STOCK AS PER BOOKS. IV) IT IS ALSO FOUND THAT DURING THE YEAR UNDER CON SIDERATION, YOUR TOTAL TURN OVER IS RS.1,95,02,208 AND IN IMMEDIATE PRECED ING YEAR, THE SAME WAS RS.2,22,26,333. HOWEVER, AGAINST THIS REDUCED T URN OVER, YOU HAVE SHOWN RAW MATERIAL CONSUMPTION AT RS.1,72,17,9576 A GAINST RS.1,58,08,767 IN EARLIER YEAR WHICH WAS NOT PROPER LY EXPLAINED. V) CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE C ASE IN ENTIRELY, I AM OF THE VIEW THAT THE ACCOUNTS MAINTAINED BY YOU ARE NOT CORRECT / COMPLETE TO MY SATISFACTION AND ALSO THE METHOD OF ACCOUNTING BEING EMPLOYED BY YOU IS SUCH THAT IN MY OPINION, YOUR IN COME CAN NOT BE PROPERLY DEDUCED FROM SUCH ACCOUNTS MAINTAINED BY Y OU. HENCE, AFTER DUE CONSIDERATION, I PROPOSE TO REJECT THE BOOKS OF ACC OUNTS BY INVOKING PROVISIONS OF SECTION 145(3) OF THE ACT ON ABOVE GR OUNDS. I, THEREFORE, INTEND TO ESTIMATE GP @ 8% ON TURN OVER OF RS.1,95, 02,208. THE SAME IS WORKED OUT AT RS.15,60,177 SINCE YOU HAVE ALREADY S HOWN GP OF RS.82,326 AFTER EXCLUDING OTHER INCOME, BALANCE AMO UNT OF RS.14,77,851 IS HEREBY PROPOSED TO BE ADDED IN YOUR TOTAL INCOME . PLEASE OFFER YOUR EXPLANATION, IF ANY IN THE MATTER ALONG WITH SUPPOR TING EVIDENCE.' 4 ITA NO.3798/AHD/2008 4 2.1 IN RESPONSE TO THE AFORESAID SHOWCAUSE NOTICE, THE ASSESSEE IN HIS WRITTEN SUBMISSIONS MENTIONED THAT GP RATE D ECLINED DUE TO INCREASE IN THE COST OF NCB BY 55.56%. BENZYL CHLOR IDE BY 32.69% , LIQUID BROMINE BY 21.75% AND ALUMINUM INGOTS BY 5.81%, WI THOUT ANY CORRESPONDING INCREASE IN THE SALE PRICE OF THE FINISHED PRODUCTS AS ALSO DUE TO DECLINE IN THE PERCENTAGE OF YIELD. THE PERCENTAGE OF YIELD DURING THE YEAR UNDER CONSIDERATION WAS LESSER THAN LAST YEAR BECAUSE IN CERTAIN BATCHE S OF PRODUCTION, DUE TO CHEMICAL REACTION IN THE PROCESS, RESULTED IN DECOM POSITION AND HENCE THERE WAS NO MARKETABLE FINISHED PRODUCT. WHILE REFERRING TO THE BATCH REGISTER, EXCISE REGISTER WHICH CONTAIN THE DAY TO DAY DETAILS OF TH E CONSUMPTION OF RAW MATERIAL, DAY TO DAY PRODUCTION OF THE DIFFERENT PRODUCTS PRO DUCED, DAY TO DAY SALE OF THE DIFFERENT ITEMS SOLD ETC. AND SUBMITTING THAT COMP LETE QUANTITY RECORDS WERE BEING MAINTAINED AND THERE WAS NO INSTANCE OF INFL ATION OF RAW MATERIAL OR SUPPRESSION OF RECEIPTS, THE ASSESSEE CONTENDED THA T THERE IS NO JUSTIFICATION FOR ESTIMATING THE PROFITS. IT WAS POINTED OUT THAT DUE TO CHANGE IN THE BUSINESS PATTERN FROM MANUFACTURING SALES TO TRADIN G SALES, THE RATE DIFFERENCE RECEIVED AND COMMISSION INCOME WERE INTI MATELY AND CLOSELY RELATED TO THE BUSINESS ACTIVITY OF THE COM PANY. VIDE THEIR FURTHER SUBMISSION DATED 04/10/2007, THE ASSESSEE REITERATED INCREASE IN THE AVERAGE PRICE OF RAW MATERIAL AND SUBMITTED THE FOLLOWING COMPARISON: ITEM 2005-06 2004-05 PERCENTAGE INCREASE ALUMINIUM INGOTS 91.00 86.00 5.81% LIQUID BROMINE 88.88 73.00 21.75% NCB 56.00 36.00 55.56% BENZOYL CHLORIDE 69.00 52.00 32.69% IN NUTSHELL, THE ASSESSEE CONTENDED THAT NO ADVERSE INFERENCE SHOULD BE DRAWN .HOWEVER, THE AO DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE DID NO T PRODUCE ANY 5 ITA NO.3798/AHD/2008 5 DOCUMENTARY EVIDENCE IN SUPPORT OF INCREASE IN COS T OF INPUTS . REGARDING ITEMS OF STOCK MENTIONED IN THE STOCK STA TEMENT SUBMITTED TO THE BANK AUTHORITIES FOR THE MONTH OF MARCH, 2005 A ND WHICH WERE NOT REFLECTED IN THE CLOSING STOCK AS PER BOOKS AS ON 31/03/2005, TH E AO DID NOT ACCEPT THE CONTENTIONS OF THE ASSESSEE THAT THE STOCK RS.24, 55,740 SHOWN IN THE BOOKS OF ACCOUNTS WAS HIGHER AS COMPARED TO THE STOCK OF RS. 21,89,849 SUBMITTED TO THE BANK AND THAT THESE STATEMENTS WERE PREPARED IN H ASTE . IN VIEW OF THESE DISCREPANCIES VIZ. SUPPRESSION OF CLOSING STOCK AND CERTAIN EXPENSES BEING NOT VERIFIABLE ETC. AND THEREBEING NO COGENT EVIDENCE IN SUPPORT OF REASONS FOR STEEP FALL IN GP RATE, THE AO WHILE RELYING UPON TH E DECISIONS IN CIT VS. BRITISH PAINTS INDIA LTD. [1991] 188 ITR 44 (SC), CIT V. A . KRISHNASWAMI MUDALIAR [1964] 53 ITR 122,128, CIT V. MCMILLAN AND CO. [1958] 33 ITR 182 ,AND AWADES PRATAP SINGH ABDUL REHMAN & BROS. V. CIT [1994] 76 TAXMAN 106 (ALL.) REJECTED THE BOOK RESULTS WHILE INVOKING THE PROVISIONS OF S EC. 145(3) OF THE ACT AND ESTIMATED THE GP @ 8% OF THE TOTAL TURNOVER OF RS. 1,95,02,208/-,RESULTING IN ADDITION OF RS. 14,77,851/-. INTER ALIA, WHILE REL YING UPON DECISIONS IN S. MURUGAPPA CHETTIAR V. CIT [1988] 174 ITR 245 (KER.) ,SWADESHI COTTON MILLS CO. LTD. V. CIT [1989] 180 ITR 651 (AL L.),CIT V. ASHOK TEXTILES (P.) LTD. [1983] 141 ITR 785 (KER),DHANSIR AM AGARWALA V. CIT 201 ITR 192 (GAUHATI) AND KAILA SWEET SUPPLIER V. CIT [1998] 100 TAXMAN 59 (ALL), THE AO ADDED AN AMOUNT OF RS.3 5,440/- ON ACCOUNT OF EXCESS STOCK SHOWN TO THE BANK, U/S 69 OF THE ACT. 3. ON APPEAL, THE LEARNED CIT(A) ADJUDICATED THE I SSUES OF TRADING ADDITION AS UNDER:- 5.1. THE SUBMISSIONS MADE BY THE A. R. OF THE APPE LLANT HAVE BEEN PERUSED. THE DECISIONS, REFERRED AS ABOVE, WHICH AR E RELIED UPON BY THE A. R. OF THE APPELLANT AND THE OBSERVATIONS OF THE ASS ESSING OFFICER IN THE ASSESSMENT ORDER HAS ALSO BEEN EXAMINED. 5.1.2. IT IS SEEN THAT THE A0 HAS NOTICED A FALL IN G. P. COMPARED TO PREVIOUS YEARS. THE APPELLANT IS SEEN TO HAVE EXPLA INED THE REASONS FOR FALL OF G. P. THE MAIN REASON STATED TO HAVE BEEN B ECAUSE OF THE INCREASE OF RAW MATERIALS AND THERE IS NO CORRESPONDING INCR EASE IN SALES PRICE. THE APPELLANT APPEARS TO HAVE EXPLAINED WITH THE HELP O F PURCHASE BILLS, BOOKS OF ACCOUNTS, VOUCHERS ETC. IT IS ALSO SEEN TO HAVE PLEADED THAT THE 6 ITA NO.3798/AHD/2008 6 APPELLANT IS SUBJECTED TO EXCISE DUTY AND THE AUTHO RITIES CONCERNED HAVE MONITORED THE MANUFACTURING ACTIVITY AND SALES, HEN CE, THE APPELLANT HAD NO SCOPE TO INDULGE IN SELLING AT HIGH PRICES. FURT HER, IT IS SEEN TO HAVE PLEADED THAT THE APPELLANT'S BOOKS OF ACCOUNTS ARE AUDITED, AS PER COMPANIES ACT AND INCOME-TAX AS WELL, HENCE, MAKING ADDITION ON ACCOUNT OF G. P. IS NOT FAIR. 5.1.3. THE AO HAS NOT ACCEPTED THE PLEA OF THE APPE LLANT AND HE HAS MADE G. P. ADDITION STATING THAT HE HAD FOUND CERTAIN EX PENSES WHICH ARE NOT SUPPORTED BY PROPER VOUCHERS. 5.1.4 FROM THE AO'S OBSERVATIONS, IT IS SEEN THAT T HE AO HAS FOUND POSTAGE EXPENSES OF RS.447/-, OFFICE EXPENSES OF RS .67/- AND RS.1,410/- AND TRANSPORT EXPENSES OF RS.282/- ARE NOT SUPPORTE D BY PROPER VOUCHERS. HE ALSO FOUND THAT THE STOCK REPORTED TO BANK FOR L OANS PURPOSE IS LESSER THAN STOCK FOUND AS PER BOOKS BY RS.35.440/-. THERE FORE, HE HAS COME TO THE CONCLUSION THAT THE BOOKS RESULTS CANNOT BE ACC EPTED AND HENCE, THE APPELLANT'S G. P. IS ESTIMATED AT 8% ON TURNOVERS A DMITTED. 5.1.5 HAVING VERIFIED THE FACTS AND CIRCUMSTANCES O F THE CASE, I FIND THAT REASONS QUOTED AS ABOVE CANNOT CERTAIN LEAD TO A CO NCLUSION THAT THE APPELLANT HAS SUPPRESSED SALES AND THEREBY GROSS PR OFIT. THEREFORE, I AM OF THE VIEW THAT THE EXPENSES STATED TO' HAVE BEEN CLAIMED WITHOUT PROPER VOUCHERS ARE VERY INSIGNIFICANT GOING BY ITS NATURE AND QUANTUM OF AMOUNT CLAIMED. THE VARIATION IN STOCK BETWEEN WHAT IS SHO WN TO BANK AND AS PER THE ACTUAL STOCK ALSO DOES NOT HOLD VALID REASON SI NCE THE STOCK SHOWN TO BANK ARE NOT AS PER THOROUGH INVENTORY TAKEN. THERE FORE, IN VIEW OF ABOVE, I FIND THAT G. P. ADDITION CANNOT BE SUSTAINED. ACC ORDINGLY, THIS GROUND OF APPEAL IS ALLOWED. 3.1 AS REGARDS ADDITION ON ACCOUNT OF UNDISCLOS ED STOCK, THE LD. CIT(A) DELETED THE ADDITION ,HOLDING AS UNDER : 6.1.2 AS IT COULD BE SEEN FROM THE APPEL LANT'S SUBMISSION THAT THE STOCK REPORTED TO BANK IS ONLY ON ESTIMATION BASIS BY TAK ING MAIN ITEMS OF STOCK INTO ACCOUNT. MAY BE IF SMALLER ITEMS ARE ALSO TAKEN INT O ACCOUNT, THE SAME COULD HAVE BEEN TALLIED WITH STOCK AVAILABLE IN THE BOOKS OF ACCOUNTS. THE STOCK VARIATION IS VERY SMALL, WHICH CAN HAPPEN IF THE ST OCK IS NOT INVENTORISED. THE STOCK REPORTED IS LESSER THAN WHAT APPEARS IN BOOKS OF ACCOUNTS. HOWEVER, THE STOCK STATEMENT GIVEN TO BANK WHICH IS A THIRD PART Y CANNOT BE A CORRECT THAN WHAT IS APPEARING IN BOOKS OF ACCOUNTS. THE AO, HOWEVER, HAS NOT ESTABLISHED THE FACT THAT THE REPORT GIVEN TO BANK IS ACTUALLY INVENTORI ED AND THAT IS A CORRECT STATEMENT. THEREFORE, I FIND THAT THE ADDITION MADE ON ALLEGED VARIATION IS NOT SUSTAINED. 4. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST T HE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED DR WHIL E SUPPORTING THE 7 ITA NO.3798/AHD/2008 7 ORDER OF THE AO CONTENDED THAT THE LD. CIT(A) DID N OT RECORD ANY FINDINGS ON THE FACTS FOUND BY THE AO IN THE IMPUGN ED ORDER NOR RECORDED HIS FINDINGS ON THE REJECTION OF BOOKS OF ACCOUNTS BY THE AO . THERE IS NOT A WHISPER IN THE IMPUGNED ORDER A S TO HOW AND TO WHAT EXTENT THE INCREASE IN COST OF INPUTS AFFECTE D THE GP NOR ANY SUCH WORKING APPEARS TO HAVE BEEN SUBMITTED BEFORE THE AO OR THE LD. CIT(A) AND EVEN NOW.IN THESE CIRCUMSTANCES, THE LD. CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION TO TRADING R ESULTS. AS REGARDS ADDITION U/S 69 OF THE ACT, THE LD. DR POINTED OUT THAT THE LD. CIT(A) HAS NOT ADDUCED ANY REASONS AS TO HOW THE ADDITION IS ESTIMATED, WHEN SPECIFIC ITEMS OF STOCK WERE FOUND TO BE NOT RECODED IN THE BOOKS. HE ADDED THAT ORDER OF THE LD. CIT(A) IS CRY PTIC AND NON SPEAKING AND THEREFORE, DESERVES TO BE SET ASIDE. 4.1 ON THE OTHER HAND, THE LEARNED AR ON BEHALF O F THE ASSESSEE WHILE CARRYING US THROUGH THE IMPUGNED ORDER AND RE LEVANT PAGES OF THE PAPER BOOK SUPPORTED THE FINDINGS OF THE LEARNE D CIT(A). HE ADDED THAT THE RELEVANT PURCHASE BILLS IN SUPPORT OF INCREASE IN COST OF RAW MATERIAL WERE SUBMITTED BEFORE THE AO. AS REGARDS THREE ITEMS OF STOCK NOT HAVING BEEN RECORDED IN THE BOO KS, THE LD. AR SUBMITTED THAT THIS WAS A BONAFIDE ERROR . HE ADDE D THAT THE ORDER OF THE LD. CIT(A) IS SPEAKING ONE DULY SUPPORTED BY TH E REASONS. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. INDISPUTABLY, THE GROSS POFIT HAS DECLIN ED IN THE YEAR VIS- A-VIS TRADING RESULTS OF THE PRECEDING YEAR. ACCORD ING TO THE AO, THE ASSESSEE HAD SHOWN GP @ 2.72% ON TOTAL TURNOVER OF RS.1,95,02,208/- IN THE YEAR UNDER CONSIDERATION AS AGAINST GP @ 8.47% ON TURNOVER OF RS.2,22,26,333/-IN THE PRECED ING YEAR AND IF COMMISSION WAS EXCLUDED, GP RATE WORKED OUT TO 0.42 % IN THE YEAR UNDER CONSIDERATION VIS-A-VIS 10.39% IN THE PRECE DING YEAR. AS PER FINDINGS IN THE ASSESSMENT ORDER, THE ASSESSE DID N OT SUBSTANTIATE THE FALL IN GP WITH ANY DOCUMENTARY EVIDENCE .ON THE OTHER HAND , THE ASSESSE CLAIMED BEFORE THE LD. CIT(A) THAT THEY HAD SUBMITTED SOME OF THE PURCHASE BILLS OF RAW 8 ITA NO.3798/AHD/2008 8 MATERIAL[PAGE 28 TO 38 OF THE PAPER BOOK] FOR THE Y EAR UNDER CONSIDERATION AND THE PRECEDING YEAR. IN ANY CASE, THE LD. CIT(A) DI D NOT RECORD ANY FINDINGS IN THE IMPUGNED ORDER AS TO THE EXTENT OF IMPACT OF INCREA SE IN COST OF RAW MATERIAL ON THE GP RATE OR DECLINE IN YIELD . A MERE GLANCE AT THE IMPUGNED ORDER REVEALS THAT THE LD. CIT(A) DID NOT EVEN WHISPER IN THE IMPUGNED ORDER ON THE FINDINGS OF THE AO, REJEC TING THE BOOK RESULTS, INVOKING THE PROVISIONS OF SECTION 145 OF THE ACT NOR THE LD. CIT(A) BROUGHT OUT THE EXTENT TO WHICH GROSS PROFI T WAS AFFECTED DUE TO INCREASE IN COST OF INPUTS. EVEN NO SUCH WORKING HAS BEEN PLACED BEFORE US. AS REGARDS SPECIFIC ITEMS OF STOCK SHOWN IN THE STOCK STATEMENT SUBMITTED TO THE BANK FOR THE MONTH OF MA RCH,2005 , THE LD. CIT(A) DELETED THE ADDITION OF RS. 35,440/-ON THE G ROUND THAT THE SAME IS ESTIMATED AND THAT THE AO DID NOT ESTABLI SH THE FACT THAT THE REPORT GIVEN TO BANK WAS ACTUALLY INVENTORIED A ND WAS A CORRECT STATEMENT. WE FIND THAT THE AO POINTED OUT SPECIFI C QUANTITY OF ITEMS OF STOCK MENTIONED IN THE STOCK STATEMENT S UBMITTED TO THE BANK, WHICH WERE NOT RECORDED IN THE BOOKS OF ACCOU NT. THE LD. CIT(A) DID NOT EVEN ATTEMPT TO ASCERTAIN AS TO WHEN THESE ITEMS OF STOCK WERE PURCHASED NOR THE LD. AR PLACED ANY SUCH MATERIAL BEFORE US. WE ARE NOT ABLE TO UNDERSTAND AS TO HOW THE ADDITION IS ESTIMATED, WHEN THE SPECIFIC QUANTITY OF ITEMS LIK E SALT, SODA BI CARBONATE AND GOLD YELLOW GOK NOT RECORDED IN THE B OOKS WERE POINTED OUT BY THE AO IN THE ASSESSMENT ORDER. THE ONUS WAS ON THE ASSESSE TO ESTABLISH THAT THEY HAD INDEED PURCHASED THESE ITEMS AND THEREAFTER, RECORDED IN THEIR BOOKS OF ACCOUNT . MOREOVER, THE LD. CIT(A) DID NOT RECORD HIS FINDINGS AS TO WHETHER OR NOT DECISIONS RELIED UPON BY THE AO OR THE ASSESSE WERE APPLICABL E IN THE FACTS AND CIRCUMSTANCES OF THE CASE UNDER CONSIDERATION. NO DOUBT THE AO/CIT(A) ARE REQUIRED TO MAKE AN HONEST AND FAIR E STIMATE OF THE INCOME EVEN IN A BEST JUDGMENT ASSESSMENT AND SHOULD NOT ACT TO TALLY ARBITRARILY, BUT THERE IS NECESSARILY SOME AMOUNT OF GUESS WORK INVOLVED IN A BEST JUDGMENT ASSESSMENT, AND IT IS THE ASSESSEE HIMSELF WHO IS TO BLAME AS H E DID NOT SUBMIT PROPER ACCOUNTS AND DETAILS.[ KACHWALA GEMS VS JCIT, 288 I TR 10 (2007)(SC) ]. IN 9 ITA NO.3798/AHD/2008 9 THE INSTANT CASE BEFORE US, THE IMPUGNED ORDER REVE ALS THAT THE ORDER PASSED BY THE LD. CIT(A) IS CRYPTIC AND GROSSLY VI OLATIVE OF ONE OF THE FACETS OF THE RULES OF NATURAL JUSTICE, NAMELY, THAT EVERY JUDICI AL/QUASI-JUDICIAL BODY/AUTHORITY MUST PASS REASONED ORDER, WHICH SHOULD REFLECT APPL ICATION OF MIND BY THE CONCERNED AUTHORITY TO THE ISSUES/POINTS RAISED BEF ORE IT. THE APPLICATION OF MIND TO THE MATERIAL FACTS AND THE ARGUMENTS SHOULD MANI FEST ITSELF IN THE ORDER. SECTION 250(6) OF THE INCOME TAX ACT ,1961 MANDATES THAT THE ORDER OF THE CIT(A) WHILE DISPOSING OF THE APPEAL SHALL BE IN WR ITING AND SHALL STATE THE POINTS FOR DETERMINATION, THE DECISION THEREON AND THE REA SON FOR THE DECISION. THE REQUIREMENT OF RECORDING OF REASONS AND COMMUNICATI ON THEREOF HAS BEEN READ AS AN INTEGRAL PART OF THE CONCEPT OF FAIR PROCEDUR E. THE REQUIREMENT OF RECORDING OF REASONS BY THE QUASI-JUDICIAL AUTHORITIES IS AN IMPORTANT SAFEGUARD TO ENSURE OBSERVANCE OF THE RULE OF LAW. IT INTRODUCES CLARIT Y, CHECKS THE INTRODUCTION OF EXTRANEOUS OR IRRELEVANT CONSIDERATIONS AND MINIMIZ ES ARBITRARINESS IN THE DECISION-MAKING PROCESS. WE MAY REITERATE THAT A D ECISION DOES NOT MERELY MEAN THE CONCLUSION. IT EMBRACES WITHIN ITS FOLD THE REASONS FORMING BASIS FOR THE CONCLUSION.[MUKHTIAR SINGH VS. STATE OF PUNJAB, (1995)1SCC 760(SC)]. IN THESE CIRCUMSTANCES, ESPECIALLY WHEN THE LD. CIT(A) HAVE NOT RECORDED ANY FINDINGS ON THE CONCLUSION OF THE AO ,REJECTING THE BOOK RESULTS, INVOKING THE PROVISIONS OF SEC. 145 OF THE ACT NOR BROUGHT OUT THE EXTENT TO WHICH GROSS PROFIT WAS AFFECTED DUE TO INCREASE IN AFORESAID ITEMS OF RAW MATERIAL OR AS TO WHEN THE AFORESAID ITEMS LIKE SALT, SODA BI CARBONATE AND GOLD YELLOW GOK WERE PURCHASED AND ON WHAT BASIS THESE W ERE SHOWN IN THE STOCK STATEMENT SUBMITTED TO THE BANK AND ALSO DID NOT E VEN EXAMINE THE APPLICABILITY OF PROVISIONS OF SEC. 69 OF THE ACT INVOKED BY THE AO , WE CONSIDER IT FAIR AND APPROPRIATE TO RESTORE THE ISSUES RELATING TO T HE AFORESAID TWO ADDITIONS TO THE FILE OF THE LD. CIT(A) WITH THE DI RECTIONS TO READJUDICATE THESE ISSUES IN THE LIGHT OF OUR AFORE SAID OBSERVATIONS AFTER ALLOWING SUFFICIENT OPPORTUNITY TO BOTH THE P ARTIES AND THEREAFTER, PASS A SPEAKING ORDER, RECORDING, INTER ALIA , HIS SPECIFIC FINDINGS AS TO WHETHER OR NOT INGREDIENTS OF SEC . 145 AND SEC. 69 OF THE ACT WERE FULFILLED. WITH THESE DIRECTIONS, GROUND NOS.1 & 2 IN THE APPEAL ARE DISPOSED OF 10 ITA NO.3798/AHD/2008 10 6. GROUND NO.3 RELATES TO AN ADDITION OF RS.61,7 47/- OUT OF REPAIRS AND MAINTENANCE EXPENDITURE. THE AO NOTICED ON VERIFICATION OF PROFIT AND LOSS ACCOUNT THAT THE ASSESSEE CLAIM ED AN AMOUNT OF RS.2,61,763 UNDER THE HEAD REPAIRS AND MAINTENANCE, WHICH INCLUDED AN AMOUNT OF RS.68,607/- TOWARDS BUILDING REPAIRS. TO A QUERY BY THE AO, THE ASSESSE SUBMITTED THAT THE EX PENDITURE IN QUESTION RELATED TO NORMAL CURRENT REPAIRS TO THE E XISTING BUILDING AND WAS REVENUE IN NATURE. HOWEVER, THE AO HELD OT HERWISE AND TREATED THE AMOUNT CAPITAL IN NATURE, RESULTING IN DISALLOWANCE OF RS.61,747/- AFTER ALLOWING DEPRECIATION OF RS.6,860 /-. 7. ON APPEAL, THE LD. CIT(A) DELETED THE ADDITION I N THE FOLLOWING TERMS:- 7.1.2. IT IS SEEN THAT THE EXPENDITURE INCURRED FO R REPAIRS ON BUILDING IS ONLY AT RS.68,607/-. BY LOOKING AT QUANTUM OF EXPENDITUR E, IT CANNOT BE SAID THAT ANY BUILDING PROPERTY CAN BE CONSTRUCTED WITH THAT AMOUNT IN VIEW OF THE HEAVY CEMENT, STEEL PRICES AND ALSO LABOUR CHARGES. AT MOST THE ABOVE SAID EXPENSES COULD BE ONLY TOWARDS REPAIR WORKS. H OWEVER, IT IS NOT BROUGHT OUT WHETHER ANY PROPERTY AS SUCH IS CONSTRU CTED WITH THAT EXPENDITURE TO TREAT THE SAME AS A CAPITAL EXPENDIT URE. THEREFORE, I AM OF THE VIEW THAT THE DISALLOWANCE MADE IS NOT WARRANTE D. HENCE, THE SAME IS DELETED. 8. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINS T THE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED DR SUPP ORTED THE ORDER OF THE AO WHILE THE LEARNED AR ON BEHALF OF THE AS SESSEE RELIED ON THE FINDINGS OF THE LEARNED CIT(A). 9. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. AS IS APPARENT FROM THE AFORESAID FACTS, THE AO DID NOT BRING OUT AS TO WHETHER ANY NEW CONSTRUCTION WAS UN DERTAKEN WITH MATERIAL COSTING RS.68,607/- NOR AS TO HOW THE EXP ENDITURE HAD CERTAINLY SECURED TO THE ASSESSEE AN ADVANTAGE OF A VERY ENDURING BENEFIT . IN OUR OPINION ' CURRENT REPAIRS ' INCLU DES REPAIRS FOR ORDINARY WEAR AND TEAR, AND THOSE WHICH WERE NEEDED FOR THE MAINTENANCE OF THE BUILDING. THE LEGISLATURE HAS US ED DIFFERENT 11 ITA NO.3798/AHD/2008 11 LANGUAGE IN THE PROVISIONS OF S. 30(A)(I) AND 30(A) (II). IN GIRDHARI DASS AND SONS V. CIT [1976] 105 ITR 339 (ALL), IT W AS HELD THAT EXPENDITURE INCURRED BY AN ASSESSEE ON RENOVATING, FURNISHING OR REMODELLING OF A BUSINESS PREMISES CAN BE ALLOWED A S A DEDUCTION IF THE EXPENDITURE IS NOT OF A CAPITAL NATURE. WHEN AN OWNER INCURS EXPENDITURE ON ADDITIONS OR ALTERATIONS IN A BUILDI NG WHICH ENHANCES ITS VALUE, THE EXPENDITURE CAN BE OF A CAPITAL NATU RE. BUT, IF A TENANT INCURS AN EXPENDITURE ON A RENTED BUILDING FOR ITS RENOVATION OR ALTERATION, HE DOES NOT ACQUIRE ANY CAPITAL ASSET, BECAUSE THE BUILDING DOES NOT BELONG TO HIM. ORDINARILY, SUCH A N EXPENDITURE WILL BE OF A REVENUE NATURE, AND THAT TO HOLD OTHERWISE WOULD AMOUNT TO DENYING HIM THE BENEFIT OF DEDUCTION OF THE EXPENDI TURE AT ALL BECAUSE HE WILL NOT BE ENTITLED TO ANY DEPRECIATION ALLOWANCE. IN THE INSTANT CASE, THE AO HAS NOWHERE CONCLUDED THAT REP AIRS HAVE ENHANCED THE VALUE OF BUILDING OR BROUGHT AN ENDURI NG BENEFIT TO THE ASSESSEE. SINCE THE REVENUE DID NOT PLACE ANY MATER IAL BEFORE US SO AS TO ENABLE US TO TAKE A DIFFERENT VIEW IN THE MATTER, WE ARE NOT INCLINED TO INTERFERE WITH THE CONCLUSION OF THE LD . CIT(A). IN THESE CIRCUMSTANCES, WE HAVE NO ALTERNATIVE BUT TO UPHOLD THE FINDINGS OF THE LD. CIT(A). THEREFORE, GROUND NO.3 IN THE APPEA L IS DISMISSED. 10 GROUND NOS.4 & 5 BEING MERE PRAYER AND ARE GENER AL IN NATURE NOR ANY SUBMISSIONS HAVING BEEN MADE BEFORE US ON T HESE GROUNDS, DO NOT REQUIRE ANY SEPARATE ADJUDICATION AND ARE, T HEREFORE, DISMISSED . 11. NO OTHER PLEA OR ARGUMENT WAS MADE BEFORE US. 12 ITA NO.3798/AHD/2008 12 12. IN THE RESULT, APPEAL IS PARTLY ALLOWED, BUT FO R STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT TODAY ON 20-05-2011 SD/- SD/- (MUKUL SHRAWAT) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATED : 20-05-2011 COPY OF THE ORDER FORWARDED TO: 1. ROSELABS LIMITED, 123/1, SADIRAM ESTATE, SAIJPUR GOPALPUR, PIRANA ROAD, AHMEDABAD 2. ITO, WARD-5(3), AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-XI, AHMEDABAD 5. DR, ITAT, AHMEDABAD BENCH-A, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD