ACIT, Cuttack V. M/s Khandelwal Steet & Pipes, Bhubaneswar

ITA 434/CTK/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61557 (ITAT-CUTTACK)
• Duration Of Justice: 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-04-2012
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 14-03-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 21-10-2011
• Court: TRIBUNAL
• Keywords: Gross profit estimation; Business income; Assessment record

Judgement Text

IN THE INC O ME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE : SHRI K.K.GUPTA, AM , AND SHRI K.S.S.PRASAD RAO, JM ITA NO. 434/CTK/2011 AND C.O.NO.28/CTK/2011 (ASSESSMENT YEAR 2007 - 08) (C.O. FILED BY THE ASSESSEE) ASST.COMMISSIONE R OF INCOME - TAX , CIRCLE 2(1), BHUBANESWAR. VERSUS M/S.KHAN D ELWAL STEEL & PIPES, PLOT 614, BOMIOKHAL, CUTTACK ROAD, BHUBANESWAR 10 PAN:AAGFK 7718 R (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI A.BHATTACHARJEE, DR FOR THE RESPONDENT SHRI B.PANDA/S.S HARMA, ARS DATE OF HEARING : 14.03.2012 DATE OF PRONOUNCEMENT : 02.04.2012 ORDER SHRI K.S.S.PRASAD RAO, JM : THE REVENUE HAS FILED THE APPEAL AGAINST THE ORDER DT.21.07.2011 OF THE COMMISSIONER OF INCOME - TAX (APPEALS) FOR THE ASSESSMENT YEAR 20 07 - 08 ON THE SOLE ISSUE RELATING TO DELETION OF THE ADDITION OF 71,71,715 MADE BY THE ASSESSING OFFICER ON ACCOUNT OF LOW GROSS PROFIT. THE ASSESSEE HAS FILED THE CROSS OBJECTION SUPPORTING THE IMPUGNED ORDER OF THE LEARNED CIT(A) TO THE EXTENT THE REVENUE IS IN APPEAL. THE ASSESSEE HAS ALSO TAKEN A GROUND IN THE CR OSS OBJECTION STATING THAT THE LEARNED CIT(A) SHOULD HAVE ALLOWED THE EXPENSES OF 70,000 CLAIMED UNDER DIFFERENT HEADS OF EXPENSES BUT AT THE TIME OF HEARING BEFORE US, THE LEARNED AR OF THE ASSESSEE DID NOT PRESS THE SAME AND AS SUCH, THE SAID GROUND IS DISMISSED AS NOT PRESSED. 2. THE RELEVANT FACTS ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN TRADING ACTIVITIES OF PVC AND STEEL PIPES AND POLES. THE ASSESSEE FILED ITS RETURN ON 17.10.2007 SHOWING TOTAL INCOME AT 4,95,837. THE CASE WAS SELECT ED FOR SCRUTINY ASSESSMENT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER FOUND THAT AS AGAINST GROSS SALES OF 11,67,02,890 THE GROSS PROFIT HAS BEEN SHOWN AT 45,85,309.78 WHICH IN PERCENTAGE IS 3.93%. A SURVEY U/S.133A WAS CONDUC TED ON 21.12.2009 IN THE ITA NO.434/CTK/2011 AND C.O.NO.28/CTK/2011 2 OFFICE AS WELL AS IN THE GO - DOWN PREMISES OF T HE ASSESSEE FIRM. DURING THE COURSE OF SURVEY, A PRINT OUT OF TRADING AND P & L ACCOUNT FOR THE FINANCIAL YEAR 2009 - 10 (AS ON 30.11.2009) WAS TAKEN FROM THE COMPUTER SYSTEM OF THE ASSES SEE FIRM, WHICH DEPICTS THE GROSS PROFIT @ 15.21% BEING 1,94,18,166.67 ON GROSS SALES OF BOTH WHOLESALE AND RETAIL SALE OF 12,76,80,400. CONSIDERING THIS PERCENTAGE OF PROFIT IN THE FINANCIAL YEAR 2009 - 10,THE ASSESSING OFFICER WAS OF THE VIEW THAT THE PROFIT @3.93% DISCLOSED BY THE ASSESSEE IN THE ASSESSMENT YEAR 2007 - 08 THAT IS THE ASSESSMENT YEAR UNDER CONSIDERATION IS LOW. THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN SUCH LOW PROFIT. AFTER CONSIDERING THE EXPLANATION OF THE ASSESSEE AND ON VER IFYING CERTAIN DETAILS OF PURCHASE BILLS AND WHOLESALE INVOICES, THE ASSESSING OFFICER FOUND THE ASSESSEE TO HAVE EARNED PROFIT MARGIN IN THE RANGE OF 6.55% TO 8.07%. THE ASSESSING OFFICER FURTHER OBSERVED THAT IN COURSE OF SURVEY OPERATION, BESIDES COMPUT ERIZED PURCHASE AND SALES DETAILS, IT WAS FOUND THAT THE ASSESSEE FIRM HAS MAINTAINED MANUALLY PURCHASE REGISTER AND SALE REGISTER. ON VERIFICATION OF THE SAME, IT WAS NOTICED THAT THE ASSESSEE FIRM HAS NOT SHOWN THE PURCHASE OF GOODS WORTH 31,76,305 AND SALES OF GOODS WORTH OF 43,91,704 DURING THE YEAR. TH E ASSESSING OFFICER OBSERVED THAT THE ASSESSEE COULD NOT EXPLAIN THE DIFFERENCE OF 8,69,635 (I.E., THE DIFFERENCE OF THE CONSIGNMENT SALES OF 35,22,069 AS AGAINST DIFFERENCE NOTICED ON SALES AT 43,91,704). THEREFORE HE DETERMINED THE TOTAL SALES AT 11,75,75,72,525 AS AGAINST THE DISCLOSED SALES AT 11,67,02,890. THEREAFTER, ON THE OBSERVATION THAT THE ASSESSEE FIRM HAS SUPPRESSED THE GROSS PROFIT MARGIN AND COULD NOT PRODUCE THE RETAIL INVOICES FOR VERIFICATION/EXAMINATION, THE ASSESSING OFFICER ES TIMATED THE GROSS PROFIT @10% ON THE TOTAL SALES OF 11,75,72,525, WHICH RESULTED IN ADDITION OF 71,71,215 TO THE TOTAL INCOME. ITA NO.434/CTK/2011 AND C.O.NO.28/CTK/2011 3 3. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). THE LEARNED CIT(A) DELETED THE ADDITION OF 8,69,635 MADE O N ACCOUNT OF ALLEGED SUPPRESSION OF SALES. HE FURTHER DELETED THE ADDITION OF 71,71,215 MADE ON THE GROUND OF LOW PROFIT AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AS WELL AS THE REMAND REPORT AND ALSO CONSIDERING THE GROSS PROFIT DISCLOSED BY THE ASSESSEE IN THE PRECEDING AND SUCCEEDING AYS . AGAINST SUCH DELETION OF THE ADDITION OF 71,71,215 THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AND THE ASSESSEE HAS FILED THE CROSS OBJECTION SUPPORTING THE SAME. 4. THE LEARNED DR VEHEMENTLY CONTENDED BEFO RE US THAT WHEN THE VOUCHERS PRODUCED BEFORE THE ASSESSING OFFICER SHOWED THAT THE REAL PROFIT MARGIN WAS HIGHER THAN DISCLOSED AND WHEN THE ASSESSING OFFICER IN THE REMAND REPORT MENTIONED THAT THE ACCOUNTS PRODUCED BY THE ASSESSEE WERE NOT RELIABLE, THE LEARNED CIT(A) IS NOT JUSTIFIED IN DELETING THE ADDITION OF 71,71,215 MADE BY THE ASSESSING OFFICER ON ACCOUNT OF GROSS PROFIT. THE LEARNED AR OF THE ASSESSEE, ON THE OTHER HAND, SUPPORTED THE IMPUGNED ORDER OF THE LEARNED CIT(A) BY REITERATING THE CONTE NTIONS AS WERE MADE BEFORE THE AUTHORITIES BELOW. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ONLY DISPUTE RAISED BY THE REVENUE IS AGAINST DELETION OF ADDITION OF 71,71,215 MADE ON ACCOUNT OF LOW PROFIT. AS NOTICED EARLIER, THE ASSESSING OFFICER HAS ADOPTED 10% PROFIT ON THE ESTIMATED SALES OF 11,75,72,525 (WHICH INCLUDES 8,69,635 ADDED TO THE DISCLOSED SALES ON ACCOUNT OF SUPPRESSED SALES). WHILE DEALING WITH THIS ISSUE I.E., THE ADDITION OF 8,69,635 TO THE DISCLOSED SALES, THE LEARNED CIT(A) HAS RELIED ON THE REMAND REPORT OF THE ASSESSING OFFICER, WHEN HE REPORTED THAT THE EXPLANATION OF THE A.R. REGARDING DISCREPANCY IN FIGURES OF PURCHASES AND SALES MENTIONED IN THE ASSESSMENT ORDER WAS VERIFIED WI TH REFERENCE TO THE ITA NO.434/CTK/2011 AND C.O.NO.28/CTK/2011 4 ASSESSMENT RECORD, SURVEY RECORDS, VAT RETURNS AND CONSIGNMENT SALES ACCOUNTS AND THE DISCREPANCY APPEARS TO BE EXPLAINED FULLY. FURTHER, THE ASSESSING OFFICER IN THE REMAND REPORT REPORTED THAT THE SALES AND PURCHASES FIGURES FOR F.Y. 2006 - 07 IN THE IMP0UNDED CD CONTAINING COMPUTERIZED TALLY BACK UP WITH IDENTIFICATION MARK KSP - 7 WERE FOUND TO BE MATCHING WITH THE SALES AND PURCHASES FIGURES GIVEN IN THE TRADING & P & L ACCOUNT OF THE RETURN. NOTHING CONTRARY TO SUCH REPORT OF THE ASS ESSING OFFICER ON REMAND, HAS BEEN BROUGHT ON RECORD BY THE DEPARTMENT BEFORE US. THEREFORE, CONSIDERING THE SAME, WE DO NOT FIND ANY INFIRMITY IN THE IMPUGNED ORDER OF THE LEARNED CIT(A) IN DELETING THE ADDITION OF 8,69,635 MADE BY THE ASSESSING OFFICER ALLEGING SUPPRESSION OF SALES. 6. NOW COMING TO THE ESTIMATION OF PROFIT AS ADOPTED BY THE ASSESSING OFFICER AT 10% OF THE SALES , WE FIND THAT THE ASSESSING OFFICER BASED ON THE P & L ACCOUNT FOR THE PERIOD FROM 1.4 .2009 TO 30.11.2009 (QUOTED IN THE ASSESSMENT ORDER) WORKED OUT THE GROSS PROFIT AT 15.21% AND IN VIEW OF THIS, HE CONSIDERED THE GROSS PROFIT DISCLOSED BY THE ASSESSEE AT 3.93% DURING THE ASSESSMENT YEAR UNDER CONSIDERATION TO BE LOW. FURTHER, HE OBSERVED THAT THE GROSS PROFIT MARGIN OF THE ASSESSEE RANGES FROM 6.55% TO 8.07% ON VERIFICATION OF PURCHASE BILLS OF M/S. HARIYANA IRON WORKS (P) LTD., AND SALES THEREOF. IN APPEAL, THE LEARNED CIT(A) DEALT WITH THE ISSUE ELABORATELY IN P ARAGRAPHS 8.18 TO 8.29 O F THE CIT(A) S ORDER ARE RELEVANT, WHICH ARE REPRODUCED AS UNDER : 8.18 . NOW LET US EXAMINE THE MATTER OF ENHANCEMENT OF GROSS PROFIT. THE TRADING AND PROFIT & LOSS A/C AS NOTED IN THE ASSESSMENT ORDER RELATES TO THE PERIOD 01.04.2009 TO 30.11.2009. THI S WOULD RELATE THE F.Y. 2009 - 10 RELEVANT TO THE A.Y. 2010 - 11. IT IS NOT UNDERSTOOD HOW THE SAID FIGURES WILL BE RELEVANT TO THE A.Y. 2007 - 08. THE VERY FOUNDATION ON WHICH THE AO PROCEEDED TO ENHANCE THE GROSS PROFIT IS NOT CORRECT AS THE SAID FIGURE RELATE S TO A.Y. 2010 - 11. EACH ASSESSMENT YEAR IS A ITA NO.434/CTK/2011 AND C.O.NO.28/CTK/2011 5 SEPARATE YEAR AND FIGURES FOR ONE YEAR CANNOT BE IMPORTED TO ANOTHER YEAR. 8.19 . EVEN IN THE ABOVE MENTIONED P & L A/C BOTH THE OPENING STOCK AND THE CLOSING STOCK IS TAKEN AT 1,79,07,500 . THIS IS PATENTLY ABSURD. THE CLOSING STOCK CANNOT REMAIN CONSTANT. THIS MATTER WAS EXAMINED BY THE AO DURING THE REMAND PROCEEDINGS. THE AO HAS REPORTED IN THE REMAND REPORT THAT THE VALUATION OF THE CLOSING STOCK COULD NOT BE MADE ON ACCOUNT OF CERTAIN DIFFICULTIES. IN OR DER TO ARRIVE AT THE CORRECT GROSS PROFIT IT IS IMPERATIVE THAT CLOSING STOCK BE DETERMINED ACCURATELY. IN THE ABSENCE OF THE ACCURATE CLOSING STOCK, THE ENTIRE CALCULATION HAS BECOME MEANINGLESS AND AN EXERCISE IN FUTILITY. 8.20 . THE AO HAS ALSO NOT TAK EN INTO ACCOUNT THE LARGE NUMBER OF EXPENDITURE VOUCHERS NOT POSTED IN THE TALLY SYSTEM. IT WAS SPECIFICALLY DEPOSED BY THE ACCOUNTANT U/S.131 OF THE ACT DT.23.12.2009 THAT THE PURCHASES HAVE BEEN ENTERED UP TO 09.11.2009 WHEREAS THE SALES HAVE BEEN ENTERE D UP TO 30.11.2009. OBVIOUSLY BASED ON SUCH INCOMPLETE ENTRY, NO ACCURATE DETERMINATION OF GROSS PROFIT CAN BE ARRIVED AT. 8.21 . THE CONTROVERSY WHETHER THE APPELLANT IS A WHOLESALER OR RETAILER IS MEANINGLESS BECAUSE THE PROFITS OF THE BUSINESS IS TO BE ARRIVED AT IN ACCORDANCE WITH THE AUDITED BOOKS OF ACCOUNTS. I N THE REMAND PROCEEDINGS THE AO HAS EXAMINED THE GROSS PROFIT RATE OF 26 SAMPLE CASES SUBMITTED BY THE APPELLANT DURING THE ASSESSMENT PROCEEDINGS. IN ACCORDANCE WITH THE REQUISITION OF THE AO THE APPELLANT PRODUCED PHOTO COPIES OF ENTRY TAX RETURNS, BILLS OF TRANSPORT CHARGES AND VOUCHERS OF UNLOADING CHARGES ETC. FOR THE 26 CASES. THE AO HAS EXAMINED THE SAME. THE AO HAS NOT MENTIONED ANY SPECIFIC DEFECT IN THE CLAIM. INSTEAD A VAGUE AND GENER AL SUBMISSION IS GIVEN THAT IN SOME CASES THE TRANSPORT BILLS CANNOT BE RELATED TO THE PARTICULAR PURCHASE INVOICE. SUCH GENERAL OBSERVATIONS DO NOT RENDER THE ACCOUNTS OF THE APPELLANT DEFECTIVE. THE AO HAS NOT GIVEN ANY REQUEST REGARDING SUSTENANCE OF EN HANCEMENT OF GROSS PROFIT IN THE REMAND REPORT. THIS IS BECAUSE THE AO HAS NOT BEEN ABLE TO GIVE ANY ADVERSE FINDING REGARDING THE ACCOUNTS OF THE APPELLANT. 8.22 . IN ACCORDANCE WITH SECTION 145(3) OF THE ACT THE AO CAN TAKE RESORT TO ESTIMATION OF THE P ROFIT WHERE HE IS NOT SATISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE. NO SUCH CASE HAS BEEN MADE OUT AGAINST THE APPELLANT. THE ACCOUNTS OF THE APPELLANT ARE AUDITED IN ACCORDANCE WITH SECTION 44AB OF THE ACT. THE AO HAS NO T BEEN ABLE TO POINT OUT ITA NO.434/CTK/2011 AND C.O.NO.28/CTK/2011 6 ANY DEFECT IN THE ACCOUNTS TO WARRANT INVOCATION OF SECTION 145(3) OF THE ACT. IT IS TRITE LAW THAT WITHOUT REJECTING THE BOOKS OF ACCOUNTS, THE PROFIT OF THE APPELLANT CANNOT BE ESTIMATED. 8.23 . IN THE WRITTEN SUBMISSION THE APP ELLANT HAS FILED THE PERCENTAGE OF GROSS PROFIT FROM A.Y. 2005 - 06 TO 2009 - 10 IN ACCORDANCE WITH DULY AUDITED ACCOUNTS U/S.44AB OF THE ACT. THIS ISSUE WAS ALSO REMANDED TO THE AO AND THE AO HAS NOT FOUND ANYTHING ADVERSE REGARDING THIS. 8.24 . THE RATE OF GROSS PROFIT FOR THESE YEARS AS SUBMITTED BY THE APPELLANT IS AS UNDER: - THE AVERAGE GROSS PROFIT MARGIN IN THE ABOVE FIVE YEARS COMES TO 3.75% . 8.25 . AS CAN BE SEEN FROM THE ABOVE TABLE THE APPELLANTS GROSS PROFIT FOR THIS YEAR IS IN NO WAY LESS T HAN THE AVERAGE GROSS PROFIT OF FIVE YEARS. THE AO HAS NOT GIVEN ANY COMPARABLE CASE IN WHICH GROSS PROFIT OF 10% IS SHOWN. THE CALCULATION OF GROSS PROFIT AT 10% IS PURELY BASED ON SURMISES AND CON4ECTURES AND THE SAME IS NOT SUSTAINABLE IN THE EYES OF LA W. 8 .26 . IN SAOJI(K.T.) VS. CIT1 165 ITR 397 THE HONBLE NAGPUR BENCH OF BOMBAY HIGH COURT HAD OCCASION TO EXAMINE THE ISSUE OF ESTIMATION OF GROSS PROFIT AND ADDITION CONSEQUENT THEREUPON. THE COURT HAS CLEARLY HELD AS UNDER:SHRI THAKKAR, LEARNED COUNS EL FOR THE ASSESSEE APPLICANT, HAS SUBMITTED BEFORE US, AND IN OUR JUDGMENT RIGHTLY, THAT THIS IS A CASE OF TOTAL NON APPLICATION OF MIND TO THE RELEVANT MATERIAL ON RECORD AND THAT THE DECISION OF CONFIRMING GROSS PROFIT RATE AT 12% IS CONTRARY TO THE EVI DENCE. HE ALSO MADE A CORRECT GRIEVANCE THAT THE REHEARING WAS TREATED MERELY AS FORMALITY. NEITHER THE POINTS URGED NOR THE DOCUMENTS PRODUCED FIND EVEN A P ASSING, REFERENCE IN THE ORDER PASSED BY THE TRIBUNAL. AT FIRST BLUSH, THE QUESTION WOULD APPEAR TO BE A PURE QUESTION OF FACT, BUT, HAVING REGARD TO THE PECULIAR SITUATION TO WHICH WE HAVE MADE A REFERENCE, IT SEEMS TO US THAT THE ADDITION ION THE BASIS O F 12% GROSS PROFIT RATE AMOUNTING TO RS. 4,917 WAS DEMONSTRABLY FOR NO REASON, ITA NO.434/CTK/2011 AND C.O.NO.28/CTK/2011 7 UNDER THE CIRCUMSTANCES, WE ANSWER THE QUESTION IN THE AFFIRMATIVE AND IN FAVOUR OF THE ASSESSEE. THIS CLEARLY SHOWS THAT ESTIMATION OF GROSS PROFIT WITHOUT ANY VALID BASIS IS NOT SUSTAINABLE IN THE EYES OF LAW. 8.27 . IN ALUMINUM INDUSTRIES PVT. LTD. VS. CIT, 80 TAXMAN 184, THE HONBLE GOWAHATI HIGH COURT HAS CLEARLY HELD THAT HOWEVER, IN THE ASSESSMENT ORDERS THE ITO DID NOT SAY A WORD ABOUT SUCH DEFECTS, MUCH LESS SERIOUS DEFECTS IN THE MAINTENANCE OF BOOKS OF ACCOUNTS OF THE ASSESSEE. NO FINDING WAS RECORDED BY THE ITO ON THAT POINT. THE MERE FACT THAT THERE WA S A LESSER RATE OF GROSS PROFIT DECLARED BY AN ASSESSEE AS COMPARED TO THE PREVIOUS YEAR WOULD NOT BY ITSELF BE SU FFICIENT TO JUSTIFY THE ADDITION. THIS CASE RELIED ON BY THE APPELLANT CLEARLY SUPPORTS THE GROUND OF APPEAL TAKEN BY THE APPELLANT. 8.28 . IN THE CASE OF CIT VS. EASTERN COMMERCIAL ENTERPRISES, 210 ITR 103, CALCUTTA IT WAS HELD THAT COMPARISON WITH COMP ARABLE CASES IS REQUIRED. THE HONBLE COURT HAS CLEARLY HELD THAT, THEREFORE , IT IS THE DUTY OF THE ASSESSING OFFICER TO COUNTER THE COMPARATIVE STATEMENT CITED BY THE ASSESSEE BEFORE HE CAN HAVE THE OPTION TO ESTIMATE THE GROSS PROFIT. AGAIN, IT IS THE CO MPARATIVE INSTANCE THAT ALONE CAN BE THE FOUNDATION OF SUCH ESTIMATE IN CASE THE ACCOUNTS ARE REALLY FOUND TO BE UNRELIABLE AND REQUIRING TO BE REJECTED. 8.29 . THE ABOVE CASE LAWS RELIED BY THE APPELLANT DO SUPPORT THE CASE OF THE APPELLANT. THE ACCOUNT S CANNOT BE REJECTED WITHOUT POINTING ANY SPECIFIC DEFECTS THEREIN. IT IS TRITE LAW THAT THE COMPUTATION OF INCOME OF THE APPELLANT IS TO BE DONE IN ACCORDANCE WITH THE AUDITED ACCOUNTS, UNLESS IT IS PROVED THAT ACCOUNTS OF THE APPELLANT ARE INCOMPLETE OR UNRELIABLE. THE AO HAS NOT MADE OUT ANY SUCH CASE AS IS DEAR FROM THE DISCUSSION ABOVE. NO COMPARABLE CASE HAS BEEN CITED BY THE AO . THE AVERAGE OF GROSS PROFIT MARGIN FOR FIVE YEARS FROM 2005 - 06 TO 2009 - 10 COMES TO 3.75%. NEITHER DURING THE ASSESSMENT PRO CEEDINGS NOR DURING THE REMAND PROCEEDINGS THE AO HAS BEEN ABLE TO BRING OUT SPECIFIC DEFECTS IN THE ACCOUNTS SO AS TO CALL FOR REJECTION OF THE ACCOUNTS. IN FACT THERE IS NO WHISPER REGARDING THE INCOMPLETENESS OR UNRELIABILITY OF THE ACCOUNTS EITHER IN T HE ASSESSMENT ORDER IN THE REMAND REPORT. IN VIEW OF THE ABOV E, I DO NOT FIND ANY MERIT IN AO S ACTION IN ESTIMATING THE GROSS PROFIT AT 10% WITHOUT REJECTING THE BOOKS OF ACCOUNTS IN ACCORDANCE WITH SECTION 145(3) OF THE ACT. THE ESTIMATION OF THE GROSS P ROFIT IS BASED ON SURMISES AND CONJECTURES. THE AO IS NOT FREE TO ASSESS ITA NO.434/CTK/2011 AND C.O.NO.28/CTK/2011 8 THE APPELLANT ON ANY FIGURE HE LIKES. THE AO HAS CLEARLY EXCEEDED THE JURISDICTION AND MANDATE OF THE ACT. O N THE OTHER HAND THE APPELLANT HAS BEEN ABLE TO PROVE THAT THE GROSS PROFIT IS BASED ON AUDITED BOOKS OF ACCOUNTS AND COMPARES FAVOURABLY WITH THE AVERAGE GROSS PROFIT FOR FIVE YEARS. THE APPELLANT HAS ALSO CITED COURT CASES WHICH SUPPORTS THE GROUND. IN VIEW OF THIS, I FIND SUFFICIENT MERIT IN THE SUBMISSION OF THE APPELLANT AS STATED ABOVE. ACCORDINGLY, ADDITION OF 71,71,215 IS DELETED AND GROUND NO.1 OF THE APPEAL IS ALLOWED. ANALYZING THE IMPUGNED ORDERS OF THE DEPARTMENTAL AUTHORITIES, WE FIND THAT LEARNED CIT(A) HAS DECIDED THE ISSUE AFTER CONSIDERING VARIOUS ASPECTS OF THE CASE AND ALSO CONSIDERED THE VIEWS OF THE ASSESSING OFFICER AND ALSO THE VIEWS IN THE REMAND REPORT BESIDES BOMBAY HIGH COURT, NAGPUIR BENCH STATED IN THE IMPUGNED ORDER. . HE HAS OBSERVED THAT THE ACCOUNTS OF THE ASSESSEE ARE AUDITED IN ACCORDANCE WITH SECTION 44AB AND THE ASSESSING OFFICER HAS NOT BEEN ABLE TO POINT OUT ANY DEFECT IN THE ACCOUNTS TO WARRANT I NVOCATION OF SECTION 145(3) OF THE ACT. THE LEARNED CIT(A) HAS CONSIDERED THE GROSS PROFITS FOR THE AYS 2005 - 06, 2006 - 07, 2007 - 08, 2008 - 09 AND 2009 - 10 WHICH AVERAGE GROSS PROFIT MARGIN IN THESE FIVE YEARS COMES TO 3.75%.THE ASSESSING OFFICER HAS NOT GIVEN ANY COMPARABLE CASE SO AS TO ESTIMATE THE GROSS PROFIT AT A HIGHER RATE. FOR THE REASONS RECORDED BY THE LEARNED CIT(A) , AS QUOTED ABOVE, WE DO NOT FIND ANY REASON FOR INTERFERENCE OF THE SAME IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT ON RECORD BY THE D EPARTMENT BEFORE THE TRIBUNAL. WE UPHOLD THE SAME AND DISMISS THE ISSUE RAISED BY THE DEPARTMENT IN THIS REGARD. 7. IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS DISMISSED AND THE CROSS OBJECTION FILED BY THE ASSESSEE IS PARTLY ALLOWED. S D/ - S D/ - (K.K.G UPTA) ACCOUNTANT MEMBER ( K.S.S.PRASAD RAO) JUDICIAL MEMBER DATE: 02.04.2012 H.K.PADHEE, SENIOR PRIVATE SECRETARY. ITA NO.434/CTK/2011 AND C.O.NO.28/CTK/2011 9 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT: ASST.COMMISSIONER OF INCOME - T AX , CIRCLE 2(1), BHUBANESWAR. 2. THE RESPONDENT: M/S.KHANDELWAL STEEL & PIPES, PLOT 614, BOMIOKHAL,CUTTACK ROAD, BHUBANESWAR 10 3. THE CIT, 4. THE CIT(A), 5. THE DR, CUTTACK 6. GUARD FILE (IN DUPLICATE) TRUE COPY, BY ORDER, SENIOR PRIVATE SECRETARY.