The ACIT, Circle-4, Surat V. M/s. Sumilon Plastics Pvt. Ltd., Surat

ITA 4244/AHD/2007

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9742 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 9 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 15-09-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 03-12-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K M SHAH
• Keywords: Business income
• Section: 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH AHMEDABAD (BEFORE S/SHRI G. D. AGARWAL, VP AND BHAVNESH SAINI , JM) ITA NO.4244/AHD/2007 A. Y.: 2004-05 THE A. C. I. T., CIRCLE-4, ROOM NO.223,AAYAKAR BHAVAN, MAJURA GATE, SURAT VS M/S. SUMILON PLASTICS PVT. LTD., 6/121/ VARIGINIWADI, DELHIGATE, SURAT PA NO. AADCS 3959 E (APPELLANT) (RESPONDENT) C.O. NO.19/AHD/2008 (IN ITA NO.4244/AHD/2007) M/S. SUMAN PLASTICS PVT. LTD., 6/121/ VARIGINIWADI, DELHIGATE, SURAT VS THE A. C. I. T., CIRCLE-4, ROOM NO.223,AAYAKAR BHAVAN, MAJURA GATE, SURAT PA NO. AADCS 3959 E (CROSS OBJECTOR) (RESPONDENT) DEPARTMENT BY SHRI K. M. SHAH, DR ASSESSEE BY SHRI KETAN JAGIRDAR, AR O R D E R PER BHAVNESH SAINI: THE DEPARTMENTAL APPEAL AND THE CROSS OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINST ORDE R OF THE LEARNED CIT(A)-I, SURAT DATED 17-09-2007 FOR ASSESSMENT YEA R 2004-05. 2. THE DEPARTMENTAL APPEAL IS FILED ON THE FOLLOWIN G GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF CASE A ND IN LAW, THE LEARNED CIT(A)-I, SURAT HAS ERRED IN RESTR ICTING THE ADDITION MADE BY THE A. O., ON GROSS PROFIT AT 18.05% AMOUNTING TO RS.1479000/- AS AGAINST THE GROSS PROFIT ESTIMATED AT 30.81% AMOUNTING TO RS.38,25,997/- BY THE A. O. THUS, THE LEARNED CIT(A ) HAS GIVEN THE RELIEF OF RS.23,46,997/- TO THE ASSES SEE. ITA NO.4244/AHD/2007 AND C. O. NO.19/AHD/2008 M/S. SUMILON PLASTICS PVT. LTD. 2 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A)-I, SURAT OUGHT TO HAVE UPHO LD THE ORDER OF THE ASSESSING OFFICER, IN ALL RESPECT . 3. THE CROSS OBJECTION BY THE ASSESSEE IS FILED ON THE FOLLOWING GROUNDS: 1. THE LD. CIT APPEALS (I), SURAT HAS ERRED IN CON FIRMING DECISION OF THE A. O. TO REJECT BOOKS OF ACCOUNTS A ND BOOK RESULTS U/S. 145(3) AND ESTIMATING GROSS PROFIT AT 18.05% AS AGAINST ACTUAL GROSS PROFIT OF 10.09% AMOUNTING TO RS.18,69,191/- AS PER BOOKS OF ACCOUNTS BY AVERAGIN G GROSS PROFIT OF A. Y. 2002-03, 2003-04 AND REDUCING THE S AME BY MARGIN OF 1.21%. CONSEQUENTLY CONFIRMING ADDITION O F RS.14,79,000/- TO TOTAL RETURNED INCOME INSPTIE OF FOLLOWING FACTS AND CIRCUMSTANCES: (I) ALL THE BOOKS OF ACCOUNTS AND RECORDS ARE PROPE RLY MAINTAINED AND AUDITED AS PER PROVISIONS OF INCOME TAX ACT, 1961 AND COMPANIES ACT, 1956. THE AUDITOR HAS NOT M ADE ANY QUALIFICATORY REMARK. THE A. O. HAS NOT POINTED OUT ANY DEFECTS, DISCREPANCIES, ERRORS OR OMISSIONS IN THE SAID ACCOUNTS. (II) A LIST OF ALL SUPPLIERS AND CUSTOMERS WITH FUL L ADDRESSES WAS FURNISHED TO THE A. O. FOR VERIFICATION. THE A. O. HAS NOT PREFERRED TO VERIFY ANY OF THE SUPPLIERS OR CUSTOME RS. (III) CASH SALES IS ONLY RS.5.34% OF SALES AS AGAIN ST 15 20% AS OBSERVED BY THE A.O. (IV) QUANTITATIVE RECORDS ARE DULY MAINTAINED. (V) SALES INCREASED BY 257% FROM A. Y. 2002-03 TO A . Y. 2003-04 AND FURTHER INCREASED BY 79% IN A. Y. 2004- 05. EXPORT SALES REDUCED BY 69% IN A. Y. 2003-04 AND FU RTHER REDUCED TO NIL IN A. Y. 2004-05. (V) IF AMOUNT OF SALE OF A. Y. 2004-05 IS CONVERTED AT AVERAGE RATE OF SALE OF A. Y. 2003-04 GROSS PROFIT SHOWS INCREASE OF 2.92%. ITA NO.4244/AHD/2007 AND C. O. NO.19/AHD/2008 M/S. SUMILON PLASTICS PVT. LTD. 3 4. WE HAVE HEARD LEARNED REPRESENTATIVES OF BOTH TH E PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES AND CONSIDERED THE MATERIAL AVAILABLE ON RECORD. 5. THE FACTS OF THE CASE ARE THAT IN THE ASSESSMENT ORDER THE AO STATED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF METALLIC JARI, KASAB, IMITATION JARI AND METALLIC Y ARN. THE AO FURTHER NOTICED THAT GROSS PROFIT HAS BEEN DECREASING SUBST ANTIALLY OVER THE LAST THREE YEARS DETAILS OF WHICH ARE AS UNDER: A. Y. 2002-03 GP RATE 44.68% A. Y. 2003-04 GP RATE 16.94% A. Y. 2004-05 GP RATE 10.09% IN VIEW OF THE ABOVE, THE AO ASKED THE ASSESSEE TO EXPLAIN THE HUGE FALL IN GP RATE. THE AO ALSO NOTICED THAT THE AVERAGE CO ST OF PRODUCTION AND AVERAGE COST OF CONSUMPTION OF RAW MATERIAL INCREAS ED FROM RS.188.26 PER KG. IN THE A. Y. 2003-04 TO RS.197.3 KGS. IN TH E CURRENT YEAR WHEREAS THE SALE PRICE HAS DECREASED FROM RS.260.12 KG. IN THE LAST YEAR TO RS.250.5 KG. IN THE CURRENT YEAR. THE AO ASKED THE ASSESSEE TO EXPLAIN THE REASON FOR THIS. THE AO ALSO NOTICED FROM THE S ALE BILLS THAT IMITATION JARI HAS BEEN SOLD AT DIFFERENT RATES AND THEREFORE , HE ASKED THE ASSESSEE TO EXPLAIN THE SAME. THE DETAILS ARE GIVEN IN THE T ABLE REPRODUCED BY THE AO ON PAGE 3 OF THE ASSESSMENT ORDER WHICH IS AS UN DER: INVOICE NO. DESCRIPTION RATE (RS.) 145 20.8.2003 IMITATION JARI 210 146 21.8.2003 DO 270 148 22.8.2003 DO 300 150 2.8.2003 DO 425 151 22.8.2003 DO 400 156 27.8.2003 DO 260 163 1.9.2003 METALLIC JARI KASAB 270 164 1.9.2003 DO 230 165 1.9.2003 METALLIC YARN 260 166 5.9.2003 DO 170 ITA NO.4244/AHD/2007 AND C. O. NO.19/AHD/2008 M/S. SUMILON PLASTICS PVT. LTD. 4 THE AO FURTHER NOTICED THAT ALTHOUGH THE ASSESSEE S TATED THAT THE RATES WERE DIFFERENT BECAUSE THE QUALITY WAS DIFFERENT BU T WHEN IT WAS ASKED WHETHER AY QUALITATIVE RECORDS ARE KEPT FOR CHARGI NG DIFFERENT RATES, THE ASSESSEE ADMITTED THAT O QUALITY FOR DIFFERENT PROD UCTS MANUFACTURED AND SOLD ARE KEPT BY THE ASSESSEE. THE AO ALSO ASKED TH E ASSESSEE TO EXPLAIN THE FACT THAT THE AVERAGE COST OF RAW MATERIAL HAS INCREASED FROM 188.26 PER KG. IN THE LAST YEAR TO RS.197.3 PER KG. IN THE CURRENT YEAR WHEREAS THE SALE PRICE HAS DECREASED FROM 260.12 PER KG. IN THE LAST YEAR TO RS.250.5 PER KG. IN THE CURRENT YEAR. THE ASSESSEE EXPLAINED VIDE LETTER DATED 20-11-2006 THAT IN A. Y. 2002-03 AND 2003-04 THE ASSESSEE COMPANY HAD SOLD 86% AND 34% RESPECTIVELY IN THE EX PORT MARKET WHEREAS IN THE CURRENT YEAR THE ENTIRE SALE IS IN T HE DOMESTIC MARKET. WITH RESPECT TO THE MAINTENANCE OF REGISTER AS PER QUALITY THE ASSESSEE STATED THAT PRACTICALLY IT IS NOT POSSIBLE TO MAINT AIN QUALITY-WISE RECORD AS THERE CAN BY NUMBER OF QUALITY CRITERIA VARIATIO NS AND THEREFORE THE PRICES MENTIONED IN THE TABLE ARE ON ACCOUNT OF DIF FERENT IN QUALITIES OF PRODUCTS SOLD. IT WAS EXPLAINED THAT THE INCREASE I N COST OF RAW MATERIAL WAS BECAUSE OF INCREASE IN GENERAL RAW MATERIAL PRI CES AND THE DECREASE IN AVERAGE SALE PRICES IS BECAUSE THERE WAS NO EXPO RT IN THE CURRENT YEAR AS COMPARED TO LAST YEAR. THE SALE PRICE IS DIFFERE NT BECAUSE VARIOUS QUALITIES DEPEND UPON LENGTH, THICKNESS, LACQUERING , COLOUR SHADES ETC. THE ASSESSEE STATED THAT SINCE NO DEFECTS HAVE BEEN FOUND IN THE BOOKS OF ACCOUNTS AND THEREFORE SHOULD NOT BE REJECTED. T HE AO DID NOT ACCEPT THE ABOVE EXPLANATION AND STATED THAT THE ASSESSEE HAS MAINTAINED ITS BOOKS OF ACCOUNTS IN SUCH WAY THAT VERIFICATION OF SALE PRICE IS NOT POSSIBLE. THE ASSESSEE WAS NOT MENTIONING QUALITATI VE DETAILS IN THE SALES BILLS SO THAT THE PRICE MENTIONED IN THE BILL WAS N OT SUBJECT TO VERIFICATION. THE AO STATED THAT THE SALE BILLS SHO W THAT ASSESSEE HAS SOLD PRODUCTS AS WHOLESALER. THIS IS NOT A CASE OF RETAI LER AND HENCE THE ARGUMENT OF THE ASSESSEE THAT QUALITY-WISE REGISTER IS NOT POSSIBLE IS NOT ACCEPTABLE. THE AO FURTHER STATED THAT ASSESSEE IS NOT MAINTAINING DAY TO ITA NO.4244/AHD/2007 AND C. O. NO.19/AHD/2008 M/S. SUMILON PLASTICS PVT. LTD. 5 DAY CONSUMPTION AND PRODUCTION AND NO QUALITY DETAI LS OF VARIOUS PRODUCTS HAS BEEN MAINTAINED. THE AO RELIED ON VARI OUS DECISIONS FOR REJECTING THE BOOKS OF ACCOUNTS. IN THE CASE OF BHA RAT MILK PRODUCTS 81 ITR 609, THE HONBLE BOMBAY HIGH COURT STATED THAT DAY TO DAY MANUFACTURING AND PRODUCTION OF ACCOUNT IF NOT MAIN TAINED CAN BE A GOOD REASON FOR REJECTION OF ACCOUNTS. THE AO HAS A LSO RELIED ON VARIOUS OTHER DECISIONS IN THIS REGARD. THE AO THEREFORE, R EJECTED TH4E BOOKS OF ACCOUNT FOR NON-MAINTENANCE OF QUALITY-WISE DETAILS AND ALSO FOR NON- MAINTENANCE OF DAY TO DAY STOCK REGISTER ACCOUNT CO UPLED WITH THE FACT THE GP HAS STEEPLY DECLINED. THE AO ADOPTED THE AV ERAGE GP OF LAST TWO YEARS AND MADE THE ADDITION BY ADOPTING THE GP RATE OF 30.81% AS AGAINST 10.09% SHOWN IN THE CURRENT YEAR. CONSEQUEN TLY THE AO MADE THE ADDITION OF RS.38,25,997/-. 6. THE ADDITION WAS CHALLENGED BEFORE THE LEARNED C IT(A) AND DURING THE APPELLATE PROCEEDINGS THE ASSESSEE REITERATED T HE SUBMISSIONS MADE IN THE EARLIER YEARS AND HAS STATED THAT THE WORKIN G OF GROSS PROFIT RATE BY THE AO WAS INCORRECT. THE CORRECT WORKING OF GROSS PROFIT RATE AFTER REDUCING THE OTHER INCOME I.E. DEPB LICENCE INCOME, DUTY DRAWBACK AND LEAVE AND LICENSE FEE ARE AS UNDER: 1) FOR ASSESSMENT YEAR 2002-03 GROSS PROFIT RATE WAS 2 4.57% ON SALES OF RS.2.00 CRORES OUT OF WHICH EXPORT SALE WAS RS.1.71 CRORES AND DOMESTIC SALE WAS RS.28.93 LACS. 2) FOR ASSESSMENT YEAR 2003-04 THE GROSS PROFIT RATE W AS 13.96% ON SALES OF RS.1.57 CRORES CONSISTING OF EXP ORT SALES OF RS.53.63 LACS AND DOMESTIC SALES OF RS.1.03 CROR ES. 3) FOR THE CURRENT YEAR THE CURRENT YEAR THE GROSS PRO FIT RATE WAS 10.05 ON TOTAL SALES OF RS.1.84 CRORES CONSISTI NG OF ONLY DOMESTIC SALES. ITA NO.4244/AHD/2007 AND C. O. NO.19/AHD/2008 M/S. SUMILON PLASTICS PVT. LTD. 6 IT HAS BEEN STATED THAT THE AO HAD CONSIDERED EXPOR T INCENTIVE AND LICENSE FEE ALSO FOR CALCULATING THE GROSS PROFIT R ATE WHICH SHOWS VERY HIGH MARGIN OF GROSS PROFIT RATE. IT WAS FURTHER STATED THAT CONSEQUENT TO REDUCTION IN EXPORT SALES GROSS PROFIT MARTIN OF TH E COMPANY HAS ALSO REDUCED AS EXPORT REALIZATION WAS FAR BETTER THAN D OMESTIC SALES AND THAT THE ASSESSEE COMPANY HAS TRIED TO MAINTAIN THE TOTA L SALES BY INCREASING DOMESTIC SALES AT LOWER MARGIN. THE ASSESSEE FURTHE R STATED THAT INCREASE IN PRICE OF RAW MATERIAL IS THE FACTOR BEYOND THE C ONTROL OF THE ASSESSEE AND HAS LED TO DECREASE IN GROSS PROFIT RATE. THE A SSESSEE FURTHER STATED THAT GROSS PROFIT MARGIN IN EARLIER YEAR WAS HIGH B ECAUSE THE ASSESSEE COMPANY WAS ENJOYING ALMOST MONOPOLISTIC POSITION W HEREAS NOW THERE WERE MANY SMALL SCALE INDUSTRIES WHO HAVE STARTED M ANUFACTURING SIMILAR GOODS. THE ASSESSEE HAS STATED THAT DURING THE ASSESSMENT YEAR 2005-06 AND 2006-07 THE GROSS PROFIT RATE HAS FURTH ER DECREASED IN VIEW OF THIS COMPETITION. THE ASSESSEE HAS RELIED UPON T HE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. V IKRAM PLASTICS AND OTHERS 239 ITR 161 TO CONTEND THAT WHERE THERE ARE NO DISCREPANCIES AND DEFECTS IN BOOKS OF ACCOUNTS, THE SAME CANNOT BE RE JECTED IF THEY ARE MAINTAINED IN THE REGULAR COURSE OF BUSINESS. THE A SSESSEE HAS ALSO RELIED ON VARIOUS OTHER DECISIONS IN SUPPORT OF ITS CONTENTION. 7. THE LEARNED CIT(A) CONSIDERING THE SUBMISSIONS O F THE ASSESSEE AND THE MATERIAL ON RECORD DELETED THE PART ADDITIO N. HIS FINDINGS IN PARA 2.5 AND 2.6 IN THE IMPUGNED ORDER ARE REPRODUCED AS UNDER: 2.5. I HAVE CONSIDERED THE CONSIDERED THE SUBMISSI ON MADE BY THE APPELLANT AND OBSERVATION OF THE AO. THE COR RECT GP AFTER REDUCING THE OTHER INCOME VIZ. EXPORT INCENTI VES IS 24.57% FOR AY 2002-03 AND 13.96% FOR AY 2003-04. TH E APPELLANT HAS ADMITTEDLY NOT MAINTAINED DAY TO DAY STOCK REGISTER AND ALSO HAS NOT MAINTAINED ANY QUANTITY-W ISE QUALITY DETAILS. IT IS ALSO ADMITTED THAT THAT GP R ATE HAS FALLEN SUBSTANTIALLY WHICH THE ASSESSEE TRIED TO EXPLAIN B Y SAYING THAT THE COST OF RAW MATERIAL HAS INCREASED, COMPET ITION HAS ITA NO.4244/AHD/2007 AND C. O. NO.19/AHD/2008 M/S. SUMILON PLASTICS PVT. LTD. 7 INCREASED AND EXPORT SALES HAVE BEEN STOPPED. THE F ACT REMAINS THAT ABSENCE OF SOCK REGISTER, QUALITY DETA ILS COUPLED WITH T4HE FALL IN GP IS SUFFICIENT TO REJECT THE BO OKS OF ACCOUNTS IN VIEW OF THE DECISION OF SUPREME COURT IN THE CAS E OF KACHWALA GEMS VS. JCIT [288 ITR 10}. THEREFORE, THE BOOKS OF ACCOUNTS HAVE BEEN RIGHTLY REJECTED BY THE AO. IN T HIS CASE THE HONBLE SUPREME COURT HAS STATED AS UNDER IT IS WELL SETTLED THAT IN A BEST JUDGEMENT THERE IS ALWAYS A CERTAIN DEGREE OF GUESS WORK. NO DOUBT THE AUTHORITIES SHOULD TRY TO MAKE AN HONEST AND FAIR ESTIMATE OF THE INCOME EVEN IN A BEST JUDGEMENT ASSESSMENT AND SHOULD NOT ACT TOTALLY ARBITRARILY, BUT THERE IS NECESSARILY SOME AMOUNT OF GUESS WORK INVOLVED IN A BEST JUDGEMENT ASSESSMENT. THE AO RESTORED TO BEST JUDGEMENT OF THE ASSESSEE O N THE FOLLOWING GROUNDS: I) THE ASSESSEE HAD NOT MAINTAINED QUANTITATIVE DETAILS/STOCK REGISTER; II) THERE WAS NO EVIDENCE TO VERIFY CLOSING STOCK; III) THE GENUINENESS OF PURCHASES WAS NOT PROVED WITHOUT ANY DOUBT. THERE WAS NO ARBITRARINESS IN THIS CASE IN RESOR TING TO BEST JUDGEMENT ASSESSMENT. IT WAS THE ASSESSEE HIMSELF WHO WAS TO BLAME AS HE DID NOT SUBMIT PROPE R ACCOUNTS. 2.6 IN VIEW OF THE ABOVE CONSIDERING THE FACT THAT THE GP RATE HAS DECREASE COUPLED WITH THE FACT THAT DAY TO DAY STOCK REGISTER HAS NOT BEEN MAINTAINED AND QUALITY DETAIL S HAVE NOT BEEN MAINTAINED, THE BOOKS OF ACCOUNTS HAVE RIGHTLY REJECTED BY THE AO. HOWEVER, THE AVERAGE GP RATE OF THE LAST TWO YEARS HAS BEEN WRONGLY TAKEN BY THE AO AT 30%. AFTER REMO VING THE OTHER I0NCOME FROM A. Y. 2002-03 AND 2003-04 THE A VERAGE GP RATE IS 19.26%. THE ASSESSEE HAS HIMSELF SHOWN T HE GP RATE OF 10.05% AND HENCE THERE IS A FALL IN THE GP RATE BY 9.121%. CONSIDERING THE EFFECT OF COMPETITION, INCR EASE IN THE RATE OF RAW MATERIAL AS WELL AS STOPPAGE OF EXPORTS , IT WOULD BE FAIR IF THE GP RATE IS INCREASED BY 8% INSTEAD O F 9.21% BY GIVING A MARGIN OF ABOUT 1.21% IN VIEW OF THE ABOVE REASONS. THEREFORE THE ADDITION OF RS.38,25,997/- IS RESTRIC TED TO RS.14,79,000/-. THIS GROUND OF APPEAL IS THEREFORE PARTLY ALLOWED. ITA NO.4244/AHD/2007 AND C. O. NO.19/AHD/2008 M/S. SUMILON PLASTICS PVT. LTD. 8 8. THE REVENUE AS WELL AS THE ASSESSEE ARE AGGRIEVE D AGAINST THE ORDER OF THE LEARNED CIT(A) ON THE GROUNDS MENTIONED ABOV E. 9. THE LEARNED DR RELIED UPON THE ORDER OF THE AO A ND SUBMITTED THAT THERE WAS A FALL IN GROSS PROFIT RATE AS COMPARED T O EARLIER YEARS. AVERAGE COST OF PRODUCTION AND AVERAGE COST OF CONSUMPTION OF RAW MATERIAL INCREASED FROM THE EARLIER YEARS, HOWEVER, THE SALE PRICE HAVE DECREASED. THE LEARNED DR ALSO SUBMITTED THAT SALE PRICE HAVE DIFFERENT RATES AND SPECIFIC SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESS EE TO EXPLAIN THE ISSUE BUT THE ASSESSEE FAILED TO EXPLAIN THE SAME. THE LEARNED DR FURTHER SUBMITTED THAT NO DAY TO DAY SOCK REGISTER HAS BEEN MAINTAINED AND THAT BOOKS OF ACCOUNT ARE NOT MAINTAINED ON QUALITY WISE DETAILS WHICH IS IMPORTANT IN THE CASE OF THE ASSESSEE BEING DEALING IN ARTIFICIAL JARI. THE LEARNED DR, THEREFORE, SUBMITTED THAT THE LEARNED C IT(A) SHOULD NOT HAVE DELETED EVEN THE PART ADDITION. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BE FORE THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSEE HAS PRODUCED COMPLETE BOOKS OF ACCOUNT INCLUDING BILLS AND VOUCHERS WHICH HAVE BEE N EXAMINED BY THE AO AND NO SPECIFIC DEFECTS HAVE BEEN POINTED OUT IN THE MAINTENANCE OF THE BOOKS OF ACCOUNT. THE ASSESSEE IS DEALING IN AR TIFICIAL JARI AND SEVERAL TYPES OF QUALITY OF MATERIAL HAVE BEEN USED IN THE BUSINESS. THEREFORE, PURCHASE AND SALES DEPENDED UPON THE THICKNESS AND QUALITY OF THE RAW MATERIALS AND SALE RATES ARE ALSO FIXED ACCORDING T O THE QUALITY. HE HAS SUBMITTED THAT QUANTITATIVE DETAILS ARE MAINTAINED AND FILED IN THE AUDITED REPORT (PB-34). HE HAS SUBMITTED THAT COMPL ETE DETAILS OF THE PURCHASES IN KILOGRAM AND VALUE HAVE BEEN MAINTAINE D AND PRODUCED BEFORE THE AO. COPIES OF THE SAME ARE FILED IN THE PAPER BOOK FROM PB-40 ONWARDS. THE DETAILS OF SALES ARE ALSO MAINTAINED P ARTY WISE AND IN AMOUNT COPIES OF WHICH ARE FILED AT PB-49 ONWARDS. THE ASSESSEE MAINTAINED LIST OF THE STOCK AND ALSO MAINTAINED CO MPUTERIZED STOCK REGISTER OF RAW MATERIAL AND FINISHED GOODS, QUANT ITY DETAILS WITH DAILY ITA NO.4244/AHD/2007 AND C. O. NO.19/AHD/2008 M/S. SUMILON PLASTICS PVT. LTD. 9 REGISTER COPIES OF WHICH ARE FILED AT PB-61 TO 91 O F THE PAPER BOOK. THE LEARNED COUNSEL FOR THE ASSESSEE REFERRED TO PB-35 AND 36 WHICH ARE THE DETAILS OF GROSS PROFIT WORKING AND SUBMITTED IN PR ECEDING ASSESSMENT YEAR 2002-03 THE ASSESSEE APART FROM DOMESTIC SALES HAVE EXPORT SALES ON WHICH GROSS PROFIT RATE OF 24.57% HAS BEEN SHOWN AND IN THAT YEAR THERE WAS SUBSTANTIAL EXPORT SALES AND DOMESTIC SAL E WAS VERY SMALL. IN THE ASSESSMENT YEAR 2003-04, THE GROSS PROFIT RATE WAS 13.96% ON THE TOTAL SALES WHICH CONTAINED DOMESTIC AND EXPORT SAL ES. HOWEVER, IN THE ASSESSMENT YEAR UNDER APPEAL 2004-05, THE ASSESSEE HAS ONLY DOMESTIC SALES ON WHICH GROSS PROFIT RATE OF 10.05% HAS BEEN SHOWN. THERE WERE NO EXPORT SALES. HE HAS, THEREFORE, SUBMITTED THAT THERE IS A CHANGE IN THE CIRCUMSTANCES AS COMPARED TO THE EARLIER YEARS. THEREFORE, AVERAGE GROSS PROFIT RATE SHOULD NOT HAVE BEEN APPLIED IN T HE MATTER, OR CONSIDERING THE EARLIER HISTORY OF THE ASSESSEE. TH E LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CORRECT WORKING OF THE GROSS PROFIT SHOULD HAVE BEEN AFTER REDUCING THE OTHER INCOME MA INLY DEPB LICENSE INCOME, DUTY DRAW BACK AND LEAVE AND LICENSE FEES. HE HAS SUBMITTED THAT IF THE SAME ARE TAKEN INTO CONSIDERATION, THE AIO HAS APPLIED AVERAGE GROSS PROFIT RATE 10.11% (PB-35) AS AGAINST SHOWN BY THE ASSESSEE AT 10.05%. THE LEARNED COUNSEL FOR THE ASS ESSEE SUBMITTED THAT THE AUTHORITIES BELOW SHOULD NOT HAVE REJECTED THE BOOK RESULTS OF THE ASSESSEE AND SHOULD NOT HAVE MADE THE ADDITION. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND TH E MATERIALS AVAILABLE ON RECORD. THE ASSESSEE HAS GIVEN DETAILS OF SALES FOR THE ASSESSMENT YEAR UNDER APPEAL AND THE PRECEDING ASSE SSMENT YEAR ALONG WITH COMPUTATION OF GROSS PROFIT RATE AT PAGES 35 A ND 36 OF THE PAPER BOOK. IN THE ASSESSMENT YEAR UNDER APPEAL, THE ASSE SSEE HAS NOT MADE ANY EXPORT SALES. HOWEVER, IN THE PRECEDING ASSESSM ENT YEARS 2002-03 AND 2003-04, THE ASSESSEE MADE SUBSTANTIAL EXPORT S ALES. THE ASSESSEE HAS ALSO SHOWN OTHER INCOME AND ACCORDING TO THE AS SESSEE IF THE OTHER ITA NO.4244/AHD/2007 AND C. O. NO.19/AHD/2008 M/S. SUMILON PLASTICS PVT. LTD. 10 INCOME ARE EXCLUDED FROM CALCULATION OF THE GROSS P ROFIT RATE ON THE DOMESTIC SALES, THE GROSS PROFIT RATE APPLIED BY TH E ASSESSEE WOULD BE MORE THAN AS NOTED BY THE AO. WE, THEREFORE, FIND T HAT EXPLANATION OF THE ASSESSEE IS CORRECT THAT THERE IS A CHANGE IN THE C IRCUMSTANCES AS COMPARED TO THE PRECEDING ASSESSMENT YEARS IN WHICH THE ASSESSEE MADE DOMESTIC SALES WHICH ARE HIGHER IN THE ASSESSMENT Y EAR UNDER APPEAL. HOWEVER, THERE WAS NO EXPORT SALE IN THE ASSESSMENT YEAR UNDER APPEAL WHICH HAS BEEN MADE IN THE EARLIER YEARS. IF THE OT HER INCOME IS EXCLUDED, THE GROSS PROFIT RATE OF THE ASSESSEE WOU LD COME AT 10.05% AND IN THE PRECEDING ASSESSMENT YEAR 2003-04, IT WOULD BE ABOUT 13.96%. THERE IS NO SUBSTANTIAL VARIATION IN THE GROSS PROF IT RATE AS COMPARED WITH THE IMMEDIATE PRECEDING ASSESSMENT YEAR. THE A SSESSEE ALSO EXPLAINED THAT COMPLETE DETAILS OF PURCHASES, SALES AND STOCK HAVE BEEN MAINTAINED. THE AO HAS NOT FOUND ANY PURCHASES OR S ALES MADE BY THE ASSESSEE OUTSIDE THE BOOKS OF ACCOUNT. THE ASSESSEE ALSO MAINTAINED COMPLETE DETAILS OF RAW MATERIALS AND FINISHED GOOD S QUALITY WISE WITH DAILY REGISTER COPIES OF WHICH ARE FILED IN THE PAP ER BOOK FROM PAGES 61 TO 91. THE ASSESSEE ALSO EXPLAINED THAT SEVERAL QUALIT Y ITEMS ARE USED IN THE BUSINESS OF THE ASSESSEE; THEREFORE, THERE ARE VARI ATIONS IN THE PURCHASES AND SALES RATES. THE ASSESSEE MAINTAINED COMPLETE B OOKS OF ACCOUNT WHICH HAVE BEEN PRODUCED BEFORE THE AO IN WHICH NO SPECIFIC DEFECTS HAVE BEEN POINTED OUT BY THE AO. THE ASSESSEE IN TH E AUDIT REPORT MAINTAINED COMPLETE QUANTITATIVE DETAILS IN KILOGRA M OF ALL THE ITEMS USED IN THE BUSINESS COPY OF WHICH IS FILED AT PB-3 4. THE LEARNED DR ALSO POINTED OUT FROM THE ASSESSMENT ORDER THAT APPROXIM ATELY CASH SALES OF 15 TO 20% ARE EFFECTED WHICH ARE NON-VERIFIABLE. HO WEVER, WE MAY MENTION THAT HONBLE BOMBAY HIGH COURT IN THE CASE OF JESSARAM FETEHCHAND (R.B.) (SUGAR DEPT.) VS CIT 75 ITR 33 HE LD THAT NON- INCLUSION OF ADDRESS OF CUSTOMERS IN RESPECT OF CAS H TRANSACTIONS CANNOT BE A BASIS OF REJECTION OF BOOKS OF ACCOUNT. IT WAS ALSO HELD THAT THERE WAS NO NECESSITY FOR ASSESSEE TO MAINTAI N THE ADDRESSES ITA NO.4244/AHD/2007 AND C. O. NO.19/AHD/2008 M/S. SUMILON PLASTICS PVT. LTD. 11 OF THE CUSTOMERS AND FAILURE TO MAINTAIN THE SAME O R TO SUPPLY THEM AS AND WHEN CALLED FOR CANNOT GIVE RISE TO SUS PICION WITH REGARD TO GENUINENESS OF THE TRANSACTION . THE ABOVE DECISION OF THE HONBLE BOMBAY HIGH COURT WAS FOLLOWED BY THE HONB LE KERALA HIGH COURT IN THE CASE OF M. DURAI RAJ VS CIT 83 ITR 484 . THEREFORE, THE ABOVE OBJECTION OF THE LEARNED DR IS NOT SIGNIFICAN T THAT THE ASSESSEE MADE CASH SALES WHICH ARE NON-VERIFIABLE. THOUGH, T HE ASSESSEE DID NOT MAINTAIN DAY TO DAY STOCK REGISTER BUT QUANTITATIVE DETAILS HAVE BEEN MENTIONED IN THE AUDIT REPORT IN THE PRESCRIBED FOR M. THE AO HAS NOT POINTED OUT IF THE ASSESSEE HAS MADE ANY SALES, PUR CHASES OUTSIDE THE BOOKS OF ACCOUNT. IT IS ALSO NOT POINTED OUT IF THE ASSESSEE HAS INFLATED THE EXPENSES. ACCORDING TO THE EXPLANATION OF THE A SSESSEE COMPLETE BOOKS OF ACCOUNT HAVE BEEN MAINTAINED IN THE SAME P ATTERN AS HAVE BEEN MAINTAINED IN THE EARLIER YEARS. THE ASSESSEE EXPLA INED ALL THE POINTS RAISED BY THE AO. THOUGH THE ASSESSEE MAINTAINED PR OPER BOOKS OF ACCOUNT AND THE AO HAS NOT BROUGHT ANYTHING ON RECO RD TO SHOW THAT THE BOOKS OF ACCOUNT WERE INCORRECT OR INCOMPLETE AND T HAT NO PROFIT COULD BE DEDUCED THERE FROM. HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS SMT. POONAM RANI 326 ITR 223 HELD AS UNDER: DURING THE COURSE OF ARGUMENTS BEFORE US, IT WAS SUBMITTED BY THE LEARNED COUNSEL FOR THE APPELLANT THAT THE ASSESSEE WAS NOT MAINTAINING THE DAILY STOCK REGISTER. WE, HOWEVER, FIND NO SUCH FINDING IN THE ASSESSMENT ORDER. ON THE OTHER HAND, WE NOTE THAT T HE ASSESSEE HAD SUBMITTED BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS) THAT FORM NO.3 CONTAINING ALL QUANTITATIVE DETAILS IN RESPECT OF RAW MATERIALS AS WELL AS THE FINISHED GOODS, DULY AUDITED BY THE CERTIFIE D ACCOUNTANT HAD BEEN PLACED ON RECORD, BUT, THE ASSESSING OFFICER IGNORED THOSE ACTUAL FIGURES ENCL OSED WITH THE RETURN. IN ANY CASE, NO STATUTORY PROVISIO N UNDER THE INCOME-TAX REGIME REQUIRING THE ASSESSEE TO MAINTAIN THE DAILY STOCK REGISTER HAS BEEN BROUGHT TO OUR NOTICE. HENCE, EVEN IF NO SUCH REGISTER BEING MAINTAINED BY THE ASSESSEE AS IS CONTENDED BY THE ITA NO.4244/AHD/2007 AND C. O. NO.19/AHD/2008 M/S. SUMILON PLASTICS PVT. LTD. 12 LEARNED COUNSEL FOR THE APPELLANT, THAT BY ITSELF D OES NOT LEAD TO THE INFERENCE THAT IT WAS NOT POSSIBLE TO DEDUCE THE TRUE INCOME OF THE ASSESSEE FROM THE ACCOUNTS MAINTAINED BY HER, NOR CAN THE ACCOUNTS BE SAID TO BE DEFECTIVE OR INCOMPLETE FOR THIS REASON ALONE. IF STOCK REGISTER IS NOT MAINTAINED BY THE ASSESSEE THAT MAY PUT THE ASSESSING OFFICER ON GUARD AGAINST TH4E FALSITY OF THE RETURN MADE BY THE ASSESSEE AND PERS UADE HIM TO CAREFULLY SCRUTINIZE THE ACCOUNT BOOKS OF TH E ASSESSEE. BUT THE ABSENCE OF ONE REGISTER ALONE DOE S NOT AMOUNT TO SUCH A MATERIAL AS WOULD LEAD TO THE CONCLUSION THAT THE ACCOUNT BOOKS WERE INCOMPLETE O R INACCURATE. SIMILARLY, IF THE RATE OF GROSS PROFIT DECLARED BY THE ASSESSEE IN A PARTICULAR PERIOD IS LOWER AS COMPARED TO THE GROSS PROFIT DECLARED BY HIM IN THE PRECEDING YEAR, THAT MAY ALERT THE ASSESSING OFFICE R AND SERVE AS A WARNING TO HIM, TO LOOK INTO THE ACCOUNTS MORE CAREFULLY AND TO LOOK FOR SOME MATERI AL WHICH COULD LEAD TO THE CONCLUSION THAT ACCOUNTS MAINTAINED BY THE ASSESSEE WERE NOT CORRECT. BUT, A LOW RATE OF GROSS PROFIT, IN THE ABSENCE OF ANY MATERIA L POINTING TOWARDS FALSEHOOD OF THE ACCOUNT BOOKS, CANNOT BY ITSELF BE A GROUND TO REJECT THE ACCOUNT BOOKS UNDER SECTION 145(3) OF THE ACT. HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS RAJNI KANT DAVE 281 ITR 6 HELD AS UNDER: HELD, THAT THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE WERE NOT FOUND INCOMPLETE OR INCORRECT AND IT HAD ALSO NOT BEEN HELD THAT THE METHOD ADOPTED BY T HE ASSESSEE WAS SUCH BY WHICH THE CORRECT INCOME COULD NOT BE DEDUCED. HENCE THE PROVISIONS OF SECTION 145 (1) OF THE ACT HAD WRONGLY BEEN INVOKED. THE TRIBUNAL W AS ALSO RIGHT IN HOLDING THAT WHERE THE PROPER BOOKS O F ACCOUNT AND DOCUMENTS HAVE BEEN MAINTAINED UNDER RULE 6F OF THE INCOME-TAX RULES, THE INCOME CAN PROPERLY BE DEDUCED THEREFROM AND THE PROVISIONS OF SECTION 145(1) OF THE ACT COULD NOT BE INVOKED. THE ACCOUNTS COULD NOT BE REJECTED. HONBLE RAJASTHAN HIGH COURT IN THE CASE OF GOTAN L IME KHANIJ UDHYOG 256 ITR 243 HELD THAT MERE REJECTION OF BOOKS OF ACCOUNT DOES NOT MEAN ADDITION HAS TO BE NECESSARILY MADE. ITA NO.4244/AHD/2007 AND C. O. NO.19/AHD/2008 M/S. SUMILON PLASTICS PVT. LTD. 13 CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF T HE SUBMISSIONS OF THE PARTIES AND THE FINDINGS OF THE AUTHORITIES BELOW, IT IS CLEAR THAT THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE WAS NOT FOUND TO BE INCORRECT OR INCOMPLETE AND IT HAS ALSO NOT BEEN HE LD THAT THE METHOD ADOPTED BY THE ASSESSEE WAS SUCH BY WHICH THE CORRE CT INCOME COULD NOT BE DEDUCED. THE AO HAS NOT BROUGHT ANY OTHER MATERI AL AGAINST THE ASSESSEE FOR REJECTION OF THE BOOK RESULTS. THE CAS H SALES MADE TO THE CUSTOMERS BY ITSELF IS NO GROUND FOR REJECTION OF B OOK RESULTS. CONSIDERING THE ABOVE CIRCUMSTANCES, WE DO NOT FIND IT TO BE A FIT CASE FOR REJECTION OF THE BOOK RESULTS OR TO MAKE ADDITION BY APPLYING AV ERAGE GROSS PROFIT RATE. WE ACCORDINGLY, SET ASIDE THE ORDERS OF THE A UTHORITIES BELOW AND DELETE THE ENTIRE ADDITION. 11. IN THE RESULT, THE DEPARTMENTAL APPEAL IS DISMI SSED AND THE CROSS OBJECTION OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 17-09-2010 SD/- SD/- (G. D. AGARWAL) VICE PRESIDENT (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 17-09-2010 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR, ITAT, AHMEDABAD