M/s Gian Castings Pvt. Ltd., Mandi Gobindgarh V. DCIT, Patiala

ITA 451/CHANDI/2012

• Counselvise Citation: 45121514 RSA 2012
• Duration Of Justice: 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 18-07-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 23-04-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Bogus purchase; Gross profit estimation; Rejection of books of accounts; Unexplained investment; Opportunity of being heard; Principle of natural justice; Wrong claim; Corroborative evidences
• Section: 145; 144; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A CHANDIGARH BEFORE MS.SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO. 451/CHD/2012 ASSESSMENT YEAR: 2008-09 M/S GIAN CASTINGS P.LTD., V DCIT, CENTRAL CIRCLE, GRAIN MARKET, PATIALA. MANDI GOBINDGARH. PAN: AAACG-6886D (APPELLANT) (RESPONDENT) & ITA 458/CHD/2012 ASSESSMENT YEAR : 2008-09 ACIT,CENTRAL CIRCLE, V M/S GIAN CASTINGS (P) LTD., PATIALA. GRAIN MARKET, MANDI GOBINDGARH. ASSESSEE BY : SHRI ASHWANI KUMAR RESPONDENT : SHRI MANJEET SINGH DATE OF HEARING : 18.07.2012 DATE OF PRONOUNCEMENT : 12.09.2012 ORDER PER MEHAR SINGH, AM THE PRESENT CROSS-APPEALS HAVE BEEN FILED BY THE ASSESSEE AND THE REVENUE RESPECTIVELY, AGAINST THE ORDER DATED 06.02.2012 PASSED BY THE LD. CIT(A) LUDHIANA. 2. THE ASSESSEE IN ITA NO. 451/CHD/2012, HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THAT THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE REJECTION OF BOOKS OF ACCOUNTS U/S 145(3) OF THE I. T. ACT. 2 WHEN THERE IS NO SUCH DEFECT IN THE DULY AUDITED BO OKS OF ACCOUNTS. 2. THAT THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS. 2920176/- ON ACCOUNT OF G.P. RATE I GNORING THAT G.P. RATE IS HIGHER THAN THE PREVIOUS YEAR & I N THE COMPARATIVE CASE CITED, ACTUAL G.P. RATE IS LOWER T HAN THE APPELLANT. OTHERWISE THE HIGHER G.P. IS EXPLAINED W ITH THE EXPENSES CHARGED IN P&L A/C & RESULT IN THE COMPARA TIVE CASE PROFITS ARE LESSER THAN THE APPELLANT, HENCE T HE ADDITION IS LIABLE TO BE DELETED. 3. THAT THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS. 597556/- MADE AN ALLEGED INFLATED P URCHASES WHEN ACTUALLY THERE IS NO SUCH DIFFERENCE & THERE I S WRONG CALCULATION & ON WRONG BASIS. HENCE LIABLE TO BE DE LETED. 4. THAT THE APPELLANT CRAVES LEAVE TO ADD DELETE OR MODIFY ANY GROUND OF APPEAL BEFORE THE SAME IS HEARD OR DI SPOSED OFF. 3. THE REVENUE IN ITA NO. 458/CHD/2012 HAS RAISED T HE FOLLOWING GROUNDS OF APPEAL: 1. THE LD. CIT(A) HAS ERRED BOTH IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.13,39,468/- MADE ON AC COUNT OF DISALLOWANCE OF BOGUS CLAIM OF CENVAT MADE BY THE A SSESSEE ON THE PURCHASE WHICH HAVE BEEN ESTABLISHED AS BOGUS. 2. THE APPELLANT CRAVES LEAVE TO ADD OR AMEND THE G ROUNDS OF APPEAL ON OR BEFORE THE APPEAL IS HEARD AND DISPOSE D OFF. 3 IT IS PRAYED THAT THE ORDER OF THE COMMISSI ONER OF INCOME TAX (APPEALS) BE SET ASIDE AND THAT OF THE AO BE RESTOR ED. 4. IN THE COURSE OF APPELLATE PROCEEDINGS BEFORE US , LD. 'AR' NARRATED BRIEFLY THE FACTUAL MATRIX OF THE CAS E. HE CRYSTALLIZED THE ISSUES, INVOLVED IN THE PRESENT AP PEAL, AS REJECTION OF THE BOOKS OF ACCOUNT U/S 145(3) OF THE ACT, SUBSTITUTION OF HIGHER GP, AND CONSEQUENTLY, ADDITI ON MADE 3 BY THE AO, PURSUANT TO HIGHER GP VIS-A-VIS DISCLOSE D GP BEING LOW. 5. IN RESPECT OF GROUND NO.1, LD. 'AR' CONTENDED TH AT REJECTION OF BOOKS OF ACCOUNT IS NOT JUSTIFIED WITH IN THE MEANING OF SECTION 145(3) OF THE ACT, AS THE AO, HA S FAILED TO DETECT SPECIFIC AND VALID DEFECTS IN THE AUDITED BOOKS OF ACCOUNT, MAINTAINED BY THE ASSESSEE. HE WAS OF THE OPINION THAT MERELY ON THE BASIS OF REPORT FROM EXCISE DEPA RTMENT, THE AO HAS MECHANICALLY REJECTED THE BOOKS OF ACCOU NT AND SUBSEQUENTLY DISPLACED THE DISCLOSED BOOK-VERSION B Y HIGHER G.P. RATE, WITHOUT ANY VALID REASON. LD. 'AR' ALSO REFERRED TO THE PURCHASES MADE BY THE ASSESSEE FROM M/S ROHIT I SPAT (INDIA) AND STATED THAT SUCH PURCHASES WERE DULY SU PPORTED BY BILLS AND OTHER DOCUMENTARY EVIDENCES. 6. LD. 'DR' PLACED RELIANCE ON THE ORDER OF THE CIT (A) AND ASSESSMENT ORDER, PASSED BY THE AO. 7. WE HAVE CAREFULLY PERUSED THE RIVAL SUBMISSIONS, FACTS OF THE CASE AND THE JUDICIAL PRECEDENTS, RELIED UPO N AND PAPER BOOK FILED BY THE APPELLANT. THE BRIEF FACTS OF THE CASE, AS CULLED OUT FROM THE RELEVANT RECORD ARE, T HAT THE APPELLANT IS A PRIVATE LIMITED COMPANY, DERIVING IN COME FROM BUSINESS OF STEEL MANUFACTURING. IT FILED ITS RETURN OF INCOME, ON 28.09.2008 DECLARING INCOME AT RS.23,82, 970/-. THE ASSESSEE IS RUNNING INDUCTION FURNACE FOR MANUFACTURING OF STEEL INGOTS AND IS ALSO ENGAGED I N TRADING OF IRON AND STEEL. THE RAW MATERIAL REQUIRED FOR MANUFACTURING IS DIFFERENT KINDS OF IRON AND STEEL SCRAP AND 4 CONSUMABLE, MAINLY INCLUDE FERRO ALLOYS. THE FINISH ED PRODUCT IS STEEL INGOTS, BESIDES RUNNERS AND RISERS , AS BY- PRODUCTS. 8. IN THE COURSE OF ASSESSMENT PROCEEDINGS, AO OBSE RVED THAT ASSESSEE CLAIMED TO HAVE MADE PURCHASES OF PIG IRON, WEIGHING 497.135 MT, VALUED AT RS.1,03,90,328/-, FR OM M/S ROHIT ISPAT (INDIA), MANDI GOBINDGARH. ENQUIRY BY THE CENTRAL EXCISE AUTHORITY, REVEALED THAT THE CONCERN ROHIT ISPAT (INDIA), INDULGED IN TRADING ACTIVITIES, ONLY ON PAPERS, AS NO ACTUAL TRANSACTIONS WERE UNDERTAKEN BY SUCH C ONCERN. THE AO, RECORDED DETAILED FINDINGS, IN THE ASSESSME NT ORDER IN THE MATTER, AS GIVEN BY THE EXCISE AUTHORITIES. THE AO, HELD AFTER RECORDING DETAILED SUMMARY OF FACTORS TH AT ALLEGED PURCHASES FROM ROHIT ISPAT (INDIA) BY THE ASSESSEE WERE MERE PAPER TRANSACTIONS. THE AO, OPINED THAT THERE COULD BE VARIOUS REASONS, FOR TAKING BOGUS PURCHASE BILLS BY THE ASSESSEE, SUCH AS TO EVADE EXCISE DUTY, PURCHASE CH EAPER IRON, PURCHASE NON-DUTY PAID SCRAP, TO INFLATE ITS COST OF RAW MATERIAL AND TO MANAGE THE BURNING LOSS. THE AO, ON APPRECIATION OF THE FACTUAL MATRIX OF THE CASE, HAV ING REGARD TO THE SUBMISSION FILED BY THE ASSESSEE, AND IN THE LIGHT OF THE INVESTIGATION MADE BY THE CENTRAL EXCISE AUTHOR ITIES, HELD THAT PURCHASES BY THE ASSESSEE FROM ROHIT ISPA T (INDIA) WERE BOGUS PURCHASES. IN VIEW OF THIS, AO REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE, TREATING THE SAME UNRELIABLE AND INCORRECT, WITHIN THE MEANING OF SEC TION 145(3) OF THE ACT, IN VIEW OF THE BOGUS TRANSACTION S OF PURCHASES, NON-MAINTENANCE OF RAW MATERIAL REGISTER FOR PIG 5 IRON AND UNJUSTIFIED BURNING LOSS, EMBEDDED IN THE MANUFACTURING ACCOUNTS OF THE ASSESSEE. 9. LD. CIT(A), ON APPRECIATION OF THE SUBMISSIONS F ILED BY THE ASSESSEE AND CONSIDERING THE JUDICIAL PRECEDENT S CITED THEREIN, UPHELD THE FINDING OF THE AO, IN RESPECT O F REJECTION OF BOOKS OF ACCOUNT U/S 145(3) OF THE ACT. 10. WE HAVE CAREFULLY PERUSED AND CONSIDERED THE RI VAL SUBMISSIONS, FACTS OF THE CASE, PAPER BOOK FILED AN D JUDICIAL PROCEEDINGS RELIED UPON BY THE ASSESSEE. REJECTION OF BOOKS OF ACCOUNT, BY THE AO, HAVING REGARD TO THE BOGUS P URCHASES MADE BY THE ASSESSEE FROM M/S ROHIT ISPAT (INDIA) I S SUFFICIENT, TO RENDER THE BOOKS OF ACCOUNT MAINTAIN ED BY THE ASSESSEE AS INCORRECT AND UNRELIABLE, WITHIN THE ME ANING OF SECTION 145(3) OF THE ACT. IT WAS, FURTHER, OBSERV ED BY THE CIT(A) THAT SUCH APPROACH DEFINITELY MEANS THAT THE BOOKS OF ACCOUNT CANNOT BE TAKEN TO BE RELIABLE, TO WORK OUT THE TRUE PROFITS OF THE APPELLANT. AS SUCH, REJECTION O F BOOKS OF ACCOUNT WAS CONFIRMED BY THE CIT(A). LD. 'AR' PLACE D RELIANCE IN THE CASE OF SANGRUR VANASPATI MILLS LTD . V ASSTT.CIT (SUPRA) AND PERUSAL THEREOF CLEARLY REVEA LS THAT AS FAR AS BOGUS PURCHASES ARE CONCERNED, THE RELIABILI TY, COMPLETENESS AND CORRECTNESS OF THE BOOKS OF ACCOUN T OF THE ASSESSEE CANNOT BE JUSTIFIED BY CITING THE DECISION OF THE CHANDIGARH TRIBUNAL, AS THE SAME HAS BEEN RENDERED ON DIFFERENT FOOTING. 6 11. IN VIEW OF THE ABOVE LEGAL AND FACTUAL DISCUSSI ONS AND ALSO HAVING REGARD TO THE FINDINGS OF THE AO AND CI T(A), THE REJECTION OF BOOKS OF ACCOUNT, WITHIN THE MEANING O F SECTION 145(3) OF THE ACT IS UPHELD. CONSEQUENTLY, THIS GRO UND OF APPEAL OF THE ASSESSEE IS DISMISSED. 12. IN GROUND NO. 2, THE APPELLANT CONTENDED THAT C IT(A) ERRED IN CONFIRMING THE ADDITION OF RS.29,20,176/-, ON ACCOUNT OF GP RATE, IGNORING THE DISCLOSED GP RATE, BEING HIGHER THAN THE PREVIOUS YEARS G.P.RATE AND ALSO H IGHER THAN THE COMPARABLE CASES. IN THE PRESENT CASE, LD . 'AR' PLACED RELIANCE, IN THE CASE OF SANGRUR VANASPATI V ASSTT. CIT (SUPRA), WHEREIN IT HAS BEEN HELD THAT EVEN IF THE BOOK RESULTS ARE REJECTED, THE AO IS DUTY BOUND TO MAKE A FAIR AND REASONABLE ESTIMATE OF INCOME, BASED ON EVIDENC E AND MATERIAL ON RECORD. SIMILAR VIEW HAS BEEN UPHELD BY THE HON'BLE SUPREME COURT IN COMMISSIONER OF SALES TAX V H.M.ESUFALI H.M. ABDULALI 90 ITR (1973) 271 (S.C). 13. LD. 'AR' SUPPORTED HIS CASE, BY PLACING RELIANC E ON PAST HISTORY OF THE CASE AND THE BOOK-VERSION OF THE CUR RENT ASSESSMENT YEAR. HE ALSO CITED THE ASSESSMENT ORDER , IN ASSESSEE'S CASE FOR THE ASSESSMENT YEAR 2006-07, DA TED 6.11.2008, PASSED U/S 143(3) OF THE ACT, WHEREBY DE CLARED GP AT 1.35% HAS BEEN ACCEPTED BY THE AO. IT WAS, F URTHER, POINTED OUT BY THE LD. 'AR' THAT OBSERVATIONS OF TH E AO, IN THE ASSESSMENT ORDER UNDER REFERENCE CLEARLY REVEAL S THAT THE GP SHOWN IS BETTER IN ASSESSMENT YEAR UNDER REF ERENCE. LD. 'AR' FURTHER CONTENDED THAT COMPARABLE CASES RE LIED 7 UPON BY THE AO, AT THE APPELLATE STAGE, ARE IRRELEV ANT AND CANNOT BE USED AGAINST ASSESSEE, AS THE SAME WERE N OT CONFRONTED TO THE ASSESSEE, BEFORE COMPLETION OF TH E ASSESSMENT ORDER, IN QUESTION. HOWEVER, HE ARGUED THAT PROFIT, AFTER WORKING CAPITAL INTEREST PERCENTAGE, IN THE ASSESSEES CASE IS 1.82% WHEREBY IN COMPARABLE CASE OF S.M.ALLOYS AND METAL, IS 1.58%, WHICH IS LOWER THAN THE ASSESSEES CASE. IT WAS ARGUED THAT P.D.ALLOYS PVT . LTD. SUFFERED LOSS, WHICH IS CITED AS ANOTHER COMPARABLE CASE. HE JUSTIFIED THE BOOK VERSION AND GP RATE AS DISCLO SED BY THE APPELLANT, IN VIEW OF THE DETAILS OF PURCHASE-R ATE, AS PRODUCED, IN THE FORM OF CHART, AT PAGE 58, OF THE PAPER BOOK AS REPRODUCED HEREUNDER : GIAN CASTINGS (P) LIMITED, MANDI GOBINDGARH ANALYSIS OF PURCHASE SCRAP (DUTY PAID) FOR THE PERIOD FROM 01.06.2007 TO 31.08.2007 PURCHASES WEIGHT ( IN MT) (1) VALUE ( INCLUDING DUTY) (2) RATE PER MT (3) = (2) /(I) EXCISE DUTY ELEMENT INVOLVED (4) VALUE ( WITHOUT EXCISE DUTY) (5) = (2)-(4) RATE PER MT (6) = (5) /(I) PIG IRON FROM ROHIT ISPAT (INDIA) 497.135 9990700 20097 1339468 8651232 17402 PIG I RON FROM , PARTIES OTHER THAN ROHIT I SPAT ( INDIA) 1644.235 33576150 20421 4595420 28980730 17626 14. LD. 'AR' ALSO REFERRED TO THE DECISION OF RAJAS THAN HIGH COURT IN CIT V GOTAN ALLOYS KHANIJ UDYOG, 256 ITR 2 43 (RAJ) WHEREIN IT HAS BEEN HELD THAT THERE IS NO PROVISION IN THE ACT THAT IF BOOKS ARE REJECTED, ADDITION IS REQUIRE D TO BE MANDATORILY MADE. IT IS, FURTHER, SUBMITTED THAT NO 8 COMPARABLE CASES HAVE BEEN CONFRONTED TO THE APPELL ANT AND DISCUSSED THE SAME IN THE SAID ASSESSMENT ORDER BY THE AO. IT WAS ARGUED THAT NO ADDITION CAN BE MADE ON THE B ASIS OF VAGUE OBSERVATION OF COMPARABLE CASES. THE ASSESSE E ALSO PLACED RELIANCE ON THE DECISIONS WHEREIN IT HAS BEE N HELD THAT NO ADDITION CAN BE MADE WHILE MAKING AN ESTIMA TE, PURELY ON SURMISES AND CONJECTURES, WITHOUT THERE B EING ANY MATERIAL ON RECORD AND WITHOUT CONFRONTING THE SAME TO THE APPELLANT. THE DECISIONS RELIED UPON ARE AS UNDER : - I) GANGA RAM BALMUKAND V CIT (1937) 5 ITR 464 (LAHORE) II) S.VARIAYA REDDY (1960) 38 ITR 52 (KER) III) INTERNATIONAL FOREST CO. V CIT 101 ITR 721 (J&K) 14(I) THE LD. 'AR' ARGUED THAT ADDITION MADE BY TH E AO IS ALSO NOT LEGALLY TENABLE. THE AO, AFTER REJECTION O F THE BOOKS OF ACCOUNT, APPLIED THE GP RATE AT 2.5% AS AGAINST THE DECLARED GP RATE AT 1.71%, ON THE TOTAL TURNOVER OF RS.36,96,42,502/- AND CONSEQUENTLY, MADE AN ADDITIO N OF RS.29,20,176/-. LD. 'AR' STATED THAT GP RATE ADOPT ED BY THE AO, IS FOUNDED ON SURMISES AND CONJECTURES AND NO M ATERIAL HAS BEEN BROUGHT ON RECORD, TO SUPPORT SUCH SUBSTIT UTION OF GP RATE BY THE AO. IT WAS, FURTHER, CONTENDED BY T HE LD. 'AR' THAT THE AO MERELY MADE A GENERAL OBSERVATION OF SO ME COMPARABLE CASES, IN THE ASSESSMENT ORDER, WITHOUT DISCUSSING THE SPECIFIC DETAILS AND BOOK-VERSION OF COMPARABLE CASES RELIED UPON AND ALSO WITHOUT CONFR ONTING THE SAME, TO THE ASSESSEE, BEFORE THE CONCLUSION OF THE 9 ASSESSMENT ORDER. IT IS, SPECIFICALLY, ARGUED BY T HE LD. 'AR' THAT IN THIS CASE, HIGHER GP RATE WAS ADOPTED BY TH E AO, ON THE BASIS OF CERTAIN UNSPECIFIED COMPARABLE CASES, WITHOUT CONFRONTING THE SAME TO THE APPELLANT. SUCH COMPAR ABLE CASES WERE NOT INCORPORATED IN THE ASSESSMENT ORDER AND THE APPLICATION OF MIND BY THE AO IS CONSPICUOUSLY ABSE NT. IT IS, FURTHER, POINTED OUT THAT CONFRONTING SUCH COMPARAB LE CASES, AT THE APPELLATE STAGE BEFORE THE CIT(A), IS AGAINST THE CONCEPT OF NATURAL JUSTICE. THE OPPORTUNITY GRANTED TO THE ASSESSEE BY THE FIRST APPELLATE AUTHORITY, WHICH WA S DENIED BY THE AO, CANNOT CURE A SUBSTANTIVE VIOLATION OF T HE PRINCIPLE OF NATURAL JUSTICE DUE TO NON-PROVIDING O F OPPORTUNITY, BY CONFRONTING THE BOOK-VERSION OF UNS PECIFIED COMPARABLE CASES, TO THE APPELLANT. THE AO, IN THE ASSESSMENT ORDER ADMITTED HIGHER RATE OF GP, IN THE ASSTT. YEAR IN QUESTION, VIS--VIS THE IMMEDIATELY PRECEDI NG ASSESSMENT YEAR. LD. 'AR' REFERRED TO PAGE NO. 33- 35 OF THE PAPER BOOK, ANNEXED TO THE PAPER BOOK, WHICH REPRES ENT ASSESSMENT ORDER, FOR THE ASSESSMENT YEAR, 2006-0 7, IN THE ASSESSEE'S OWN CASE, WHEREBY ASSESSMENT ORDER WAS P ASSED, ON 6.11.2008, U/S 143(3) OF THE ACT, WHEREIN NO ADD ITION, ON ACCOUNT OF LOW GP HAD BEEN MADE, BY THE AO. DURING THE ASSESSMENT YEAR 2006-07, THE ASSESSEE HAD SHOWN GP RATE AT 1.35, ON GROSS TURNOVER OF RS.33,50,44,691/-. L D. 'AR', FURTHER, REFERRED TO PAGES 37-38 AND 42 OF THE PAPE R BOOK. PAGES 36-37 REPRESENT A LETTER ADDRESSED BY THE AS SESSEE, TO THE CIT(A), MENTIONING THAT TWO COMPARABLE CASES PROVIDED BY THE AO TO THE APPELLANT NAMELY S.M. ALL OYS & 10 P.D ALLOYS (P) LTD. LD. 'AR', FURTHER, REFERRED TO PAGE 42 OF THE PAPER BOOK, WHICH IS AN ANNEXURE MARKED AS A WHEREIN PROFIT OF S.M.ALLOYS HAS BEEN SHOWN AT 1.58%. HOWEV ER, IN THE CASE OF P.D ALLOYS (P) LTD. , LOSS HAS BEEN SHO WN FOR THAT ASSESSMENT YEAR. LD. 'AR', FURTHER, REFERRED TO PAG E 58 OF THE PAPER BOOK, TO DEMONSTRATE THAT THE PURCHASES OF PI G IRON FROM ROHIT ISPAT (INDIA) AND FROM OTHER THAN ROHIT ISPAT (INDIA), ARE AT RS.17,402/- AND RS.17,626/- RESPECT IVELY, AS MENTIONED IN COLUMN 6 OF THE CHART. THE LD. 'AR', VEHEMENTLY CONTENDED THAT ADOPTION OF HIGHER GP BY THE AO IS ALSO NOT JUSTIFIED AS THE CENVET CREDIT ENTRY FO R RS.13,39,468/- HAS BEEN REVERSED BY THE ASSESSEE, I N THE BOOKS OF ACCOUNT AND CENTRAL EXCISE RECORDS. CONSE QUENTLY, IT HAD NO EFFECT ON THE PROFITABILITY OF THE ASSESS EE. 15. LD. 'DR', ON THE OTHER HAND, SUPPORTED THE FINDINGS OF THE AO AND CIT(A), ON THE ISSUE IN QUESTION. IT WAS, FURTHER, ARGUED THAT BOTH THE AO AND THE CIT(A), HA VE PASSED DETAILED ORDERS AND ADDITION HAS BEEN CONFIR MED ON THE BASIS OF MATERIAL AVAILABLE IN THE FORM OF COMP ARABLE CASES. 15(I) WE HAVE CAREFULLY PERUSED THE RIVAL SUBMISSIONS, FACTS OF THE CASE, PAPER BOOK FILED BY THE ASSESSEE AND THE JUDICIAL PRECEDENTS, CITED IN THE MATTER. THE AO M ADE AN ADDITION OF RS.29,20,176/-, ON ACCOUNT OF GP, ON TH E GROUND OF BOOK VERSION OF COMPARABLE CASES, INFLATION IN P URCHASES AND BURNING LOSS. FINDINGS OF THE CIT(A), AS CONTAI NED IN PARA 8 ARE REPRODUCED HEREUNDER : 11 8. I HAVE CONSIDERED THE AO'S BASIS FOR ASSESSING THE GP RATE AT 2.5% AND THE ARGUMENTS OF THE AR ON THE ISSUE. AS I HAVE ALREADY HELD THAT THE CASE AGAINST THE ASSESSEE REGARDING MANIPULATION OF THE BOOKS OF ACCOUNTS IN TERMS OF DEBITING BOGUS PURCHASES FROM M/S ROHIT IS PAT HAS BEEN ESTABLISHED BY THE AO AND CONSEQUENTLY THE BOOKS OF ACCOUNTS HA VE BEEN REJECTED, THE ISSUE THAT THE IMPUGNED MANIPULATION HAS LED TO SUPPRESSION OF BOOK PROFITS HAS TO BE ADJUDICATED. THE APPELLANT'S CLAIM THAT THE GP RATE RELIED UPON BY THE ,AO WERE NOT COMPARABLE IS QUITE PLAUSIBLE, EVEN THOUGH THE FACTORS OUT BY THE AR DO NOT ACCOUNT FOR THE SUBSTANTIAL DIFFERENCE IN GP RATES. FURTHER IT NEEDS TO BE APPR ECIATED THAT THE MANIPULATION IN OF BOGUS PURCHASES HAS A DIRECT BEA RING ON THE DETERMINATION OF PROFIT RATE. IT ALSO NEEDS TO BE K EPT IN MIND THAT PROCURING OF BOGUS PURCHASE BILLS HAS A COST WHICH HAS NOT BEEN ACCOUNTED FOR IN THE BOOKS. IT WOULD BE TOO FARFETC HED AN ARGUMENT THAT THE ASSESSEE HAS ENGAGED IN THE FRAUDULENT PRACTICE OF PROCURING BOGUS PURCHASE BILLS IN PLACE OF PURCHASES MADE IN CASH J UST TO BALANCE THE STOCK REGISTER. THIS BEING SO IT WOULD BE FAIR TO HOLD TH AT ESTIMATION OF GP RATE BY THE AO AT 2.5% AS AGAINST THE COMPARABLE CA SES HAVING HIGHER GP RATE IS CORRECT. THE ADDITION MADE ON THIS ACCOUNT IS THEREFORE CONFIRMED. THE AO HAS FURTHER MADE AN ADDITION OF RS. 13,39,46 87- ON ACCOUNT OF BOGUS CENVAT CREDIT. THE AR IN THIS REGARD HAS MADE A CLE AR SUBMISSION BEFORE THE AO THAT THE CENVAT CREDIT HAD NOT BEEN CLAIMED AND WAS NOT PART OF THE PURCHASES DEBITED IN THE PROFIT AND LOSS ACCOUNT. S INCE THE ASSESSEE HAS NOT DEBITED THE IMPUGNED AMOUNT OF RS. 13,39,468/- AS PART OF THE PURCHASES MADE FROM M/S ROHIT ISPAT, THE SAME CAN N OT BE DISALLOWED. THE AO IN THIS REGARD HAS OBSERVED IN THE ASSESSMENT OR DER THAT REVERSAL OF ENTRIES IN EXCISE RECORD ON A SUBSEQUENT DATE WOULD NOT ALTER THE FACT THAT AS THE ASSESSEE ACTUALLY .DERIVED THE BENEFIT ON THE F IRST DAY IT MANUFACTURED AND SOLD THE GOODS AFTER BOOKING THE BOGUS PURCHASES. I DON'T AGREE WITH THE AO'S CONCLUSION AS THE SAID AMOUNT OF CENVAT CREDIT HAS NOT BEEN DEBITED TO P & L ACCOUNT BY THE ASSESSEE AND THEREFORE IT DOES NOT EFFECT THE WORKING OF PROFITABILITY. AS SUCH THE ADDITION OF RS. 13,39 ,468/- IS DIRECTED TO BE DELETED. 15(II) THE AO, HAVING OBSERVED THE PURCHASES MADE BY THE ASSESSEE FROM M/S ROHIT ISPAT (INDIA), AS BOGUS, PR OCEEDED TO ENHANCE THE GP DECLARED BY THE ASSESSEE AT 1.71% TO 2.50% OF THE TOTAL TURNOVER. A BARE PERUSAL OF THE FACT- 12 SITUATION OF THE CASE AND HAVING REGARD TO THE ENTI RETY OF THE CIRCUMSTANCES, THE QUANTUM OF BOGUS PURCHASES MADE BY THE ASSESSEE FROM ROHIT (ISPAT) INDIA CLEARLY BRING S COGENT MATERIAL, IN POSSESSION OF THE AO, TO MAKE VALID AD DITION, TO THE EXTENT OF SUCH BOGUS PURCHASES, AS UNEXPLAINED INVESTMENT, IN SUCH PURCHASES. HOWEVER, THE AO CHO SE NOT TO FOLLOW THIS STRAIGHT AND SIMPLE APPROACH AND PRE FERRED MAKING ADDITION, SOLELY ON THE GROUND OF GP, FOR AN AMOUNT OF RS.29,20,176/-. THE AO, DEEMED IT FIT, TO MAKE ADDITION ON THE GROUND OF ENHANCED GP RATE, AS AGAINST THE D ECLARED GP RATE BY THE APPELLANT. 16. THE CIT(A), WHOSE POWERS ARE CO-TERMINUS WITH T HAT OF THE POWERS OF THE AO, ALSO DIDNT DISTURB THE APPRO ACH ADOPTED BY THE AO, IN THE MATTER. THE CIT(A),MEREL Y UPHELD THE FINDING OF THE AO, IN RESPECT OF ADDITION, MADE ON THE GROUND OF G.P. THE CIT(A), ALSO DEEMED IT FIT NOT T O CONSIDER ENHANCING THE INCOME OF THE APPELLANT BY WAY OF MAK ING ADDITION OF BOGUS PURCHASES, AS UNDISCLOSED INVESTM ENT. IT IS PERTINENT TO MENTION HERE THAT APPELLATE JURISDI CTION OF THE TRIBUNAL IS RESTRICTED TO SUBJECT MATTER OF APP EAL AND SUCH OTHER GROUNDS AS ARE PERMITTED TO BE RAISED. THE WORDS PASS SUCH ORDER AS THE TRIBUNAL THINKS FIT U/S 254(1) OF THE ACT INCLUDE ALL POWERS EXCEPT POWERS OF ENHANCEMENT WHICH ARE CONFERRED ON FIRST APPELLATE AUTHORITY. IN VIEW OF THIS, WE ARE ONLY CONCERNED W ITH AND DEALING WITH THE GROUND OF APPEAL, AS RAISED BY THE APPELLANT, IN THE PRESENT APPEAL. THE ASSESSEE DECL ARED GP RATE AT RS.1.71%, ON THE TOTAL TURNOVER OF RS.36,96 ,42,502/- 13 THE AO, OBSERVED IN PARA 17 OF THE IMPUGNED ASSESSM ENT ORDER, THAT GP RATE DECLARED BY THE ASSESSEE IS BET TER VIS-- VIS THE LAST YEARS GP AT 1.54%, YET THE FACT CANNO T BE DENIED THAT THE SAME COULD STILL BE MORE, HAD THE A SSESSEE NOT RESORTED TO BOGUS TRANSACTIONS. IT IS, FURTHER , OBSERVED BY THE AO THAT GP RATE AT 1.71%, DECLARED BY THE A SSESSEE IS LOWER THAN MOST OF THE COMPARABLE CASES. IN THI S CONTEXT, IT IS PERTINENT TO MENTION HERE THAT NO DETAILS, MU CH LESS THE SPECIFIC DETAILS AND BOOK-VERSIONS OF SUCH COMPARAB LE CASES HAVE BEEN INCORPORATED BY THE AO, IN SAID ASSESSMEN T ORDER. THE AO MERELY MADE A GENERAL AND PASSING ASSERTION, OF CERTAIN UNSPECIFIED COMPARABLE CASES. THEREFORE, T HE LD. 'AR' RIGHTLY POINTED OUT THAT THE BOOK VERSIONS OF SUCH COMPARABLE CASES, WERE NEITHER RECORDED IN THE ASSE SSMENT ORDER, NOR CONFRONTED BY THE AO, TO THE ASSESSEE, B EFORE PASSING THE ASSESSMENT ORDER AND ADOPTING THE ENHAN CED GP RATE AT 2.5% OF THE TOTAL TURNOVER. 17. A PERUSAL OF THE APPELLATE ORDER, PASSED BY THE CIT(A) REVEALS THAT AT THE REQUEST OF THE CIT(A), TWO COMP ARABLE CASES WERE PROVIDED, BY THE AO, TO THE ASSESSEE, NA MELY S.M.ALLOYS AND METALS AND P.D. ALLOYS PVT. LTD. ,TO JUSTIFY ENHANCEMENT, IN THE GP RATE, BY THE AO. THE CIT(A), HAS NOT RECORDED ANY FINDING, AS TO THE EVIDENTIARY VALUE O F SUCH COMPARABLE CASES, PROVIDED AT HIS INSTANCE, BY THE AO TO THE APPELLANT, AT THE APPELLATE STAGE. THE BOOK-VERSIO NS OF SUCH COMPARABLE CASES, AS PROVIDED BY THE AO, AT APPELLA TE STAGE, CIT(A), AFTER CONCLUDING THE ASSESSMENT, IS OF NO L EGAL CONSEQUENCES. IN VIEW OF THIS, THE AO, HAS VIOLATE D THE 14 CONCEPT OF NATURAL JUSTICE, IN NOT CONFRONTING SUCH COMPARABLE CASES, IF ANY, TO THE APPELLANT WHICH WE RE IN THE MIND OF AO, FOR THE PURPOSE OF ENHANCING THE DECLAR ED GP RATE. THERE IS NO DISCERNIBILITY OF SUCH COMPARABLE CASES AND APPLICATION OF MIND BY THE AO, IN THE SAID ASSTT.OR DER. THE HON'BLE SUPREME, COURT, IN THE CASE OF DHAKESHWARI COTTON MILLS LTD. V CIT 26 ITR 775 (S.C) HELD THAT ASSESSE E IS ENTITLED TO BE CONFRONTED, WITH THE BOOK VERSION OF SUCH COMPARABLE CASES, BEFORE THE SAME ARE USED AGAINST THE ASSESSEE BY THE AO. NEEDLESS TO SAY THAT STATUTORY FUNCTION OF AO, BEING QUASI-JUDICIAL AUTHORITY, IN FRAMING T HE ASSESSMENT, IS GOADED AND GUIDED BY JUDICIAL CONSID ERATIONS AND, ACCORDINGLY, MUST CONFORM TO THE RULES OF NATU RAL JUSTICE, AS HELD IN A NUMBER OF CASES. THE AO, MUS T ACT IN ACCORDANCE WITH THE PRINCIPLE OF JUSTICE, EQUITY AN D GOOD CONSCIENCE. THE AO, IS NOT COMPETENT TO RELY ON AN Y EVIDENCE OR ANY FACT, OR MATERIAL, IN DRAWING INFER ENCE WITHOUT FIRST POINTING OUT THE SAME, TO THE ASSESSE E AND GIVING HIM REASONABLE AND PROPER OPPORTUNITY OF MEE TING THE CASE, WHICH IS ULTIMATELY MADE OUT IN THE ASSESSMEN T ORDER. IN THE PRESENT CASE, THE BOOK-VERSIONS OF SUCH COMP ARABLE CASES WERE NOT CONFRONTED TO THE ASSESSEE, BEFORE P ASSING THE IMPUGNED ASSESSMENT ORDER. THE DETAILS OF COMPA RABLE CASES WERE PROVIDED TO THE APPELLANT, AT THE INSTAN CE OF CIT(A), AT THE TIME OF APPELLATE PROCEEDINGS, BEFOR E HIM. SUCH APPROACH OF THE AO, TO SUPPLEMENT CONCLUSIONS, ALREADY RECORDED IN THE COMPLETED ASSESSMENT ORDER IS NOT STATUTORILY TENABLE AND NOT SUPPORTED BY ANY JUDICI AL 15 PRECEDENT. FURTHER, CIT(A), IS ALSO NOT COMPETENT TO AFFORD OPPORTUNITY TO THE ASSESSEE, WHICH WAS DENIED BY TH E AO, BEFORE COMPLETING THE IMPUGNED ASSESSMENT, IN VIEW OF THE SCHEME OF INCOME-TAX ACT AND UNDER GENERAL LAW. THUS, THERE IS FAILURE OF THE AO, TO CONFRONT THE COMPARA BLE CASES, TO THE APPELLANT BEFORE USING THE SAME, FOR DRAWING ADVERSE INFERENCES, AGAINST THE ASSESSEE, WHILE FRAMING THE ASSESSMENT. 18. THE AO IS REQUIRED TO PASS ASSESSMENT ORDER U/S 143(3) OF THE ACT, AFTER CONSIDERING EVIDENCES, AND AFTER TAKING INTO ACCOUNT ALL RELEVANT MATERIALS, WHICH H E HAS GATHERED. THE AO, IN THE PRESENT CASE ENHANCED GP R ATE TO 2.5% OF THE TOTAL TURNOVER VIS--VIS GP DECLARED BY THE ASSESSEE AT 1.71%, WITHOUT BRINGING COGENT AND CRED IBLE MATERIAL ON RECORD, IN THE SHAPE OF PAST HISTORY OF THE CASE, COMPARABLE CASES, IN THE SAME FIELD OR ANY OTHER EV IDENCE, TO SUPPORT CONCLUSIONS. THE AO, IS COMPETENT TO EST IMATE INCOME OF THE ASSESSEE, AFTER REJECTION OF BOOKS OF ACCOUNT, BASED ON FAIRNESS AND RELEVANT MATERIAL BROUGHT ON RECORD. IN MAKING ADDITION, ON ESTIMATE BASIS, IT IS INEVIT ABLE THAT THERE MAY BE SOME GUESS WORK, BUT NOT THE PURE GUES S-WORK. THE AO, WHILE MAKING THE BEST JUDGEMENT ASSESSMENT, NO DOUBT, SHOULD ARRIVE AT HIS CONCLUSION, PURELY ON A RATIONAL BASIS DULY SUPPORTED BY RELEVANT EVIDENCES OR MATER IAL. 19. THE AO, WHILE MAKING THE ADDITION OF RS.29.20.1 76/- ON ACCOUNT OF GP, OBSERVED, IN PARA 17.2 AS AS SUCH, TOTAL ADDITION OF RS.29,20,176/- HAS BEEN MADE TO THE RET URNED 16 INCOME OF THE ASSESSEE WHICH IS DEEMED TO BE INCLUS IVE OF CENVAT DISALLOWANCE OF RS.13,39,468/- AND INFLATION IN PURCHASES ETC. AS INDICATED ABOVE BY WORKING OUT THE NECESSARY ADDITION OF RS.29,20,176/- ON THIS ACCOUN T) FOR WHICH NO SEPARATE ADDITIONS ARE BEING MADE . 19(I) A BARE PERUSAL OF THE ASSESSMENT ORDER AND TH E APPELLATE ORDER, REVEALS THAT COMPARABLE CASES OF S IMILAR TRADE WERE NEITHER DISCUSSED, NOR SPECIFIED IN THE IMPUGNED ASSESSMENT ORDER. THESE COMPARABLE CASES WERE NOT CONFRONTED TO THE ASSESSEE BEFORE USING THE SAME FO R DRAWING ADVERSE INFERENCE AGAINST THE ASSESSEE, IN THE FORM OF GP AT 2.5%. THIS FACTUM STAND ESTABLISHED FROM T HE OBSERVATION OF CIT(A) IN PARA 6 OF HIS ORDER. LD. C IT(A), IN PARA 6, HAS CATEGORICALLY MENTIONED THAT THE AO WAS REQUESTED TO PROVIDE DETAILS OF THE COMPARABLE CASE S, RELIED UPON BY HER, TO ESTIMATE THE GP RATE OF THE APPELLA NT AT 2.5%. THE AO, SUBMITTED THE DETAILS OF COMPARABLE C ASES, VIDE HER LETTER DATED 10.8.2011 , NAMELY S.M.ALLOYS & METALS, MANDI GOBINDGARH AND P.D.ALLOYS, MANDI GOBINDGARH. IN THIS CASE, ASSESSMENT WAS FRAMED U/ S 143(3)/145(3) OF THE ACT, ON 29.12.2010 . IN THIS SPECIFIC CONTEXT, SUCH APPROACH OF THE AO, IN USING MATERIAL OR EVIDENCES, COLLECTED BY WAY OF PRIVATE ENQUIRIES, A GAINST THE ASSESSEE WITHOUT CONFRONTING THE SAME TO THE ASSESS EE, AT THE ASSTT STAGE, VIOLATES THE FUNDAMENTAL RULE OF N ATURAL JUSTICE, EMBEDDED IN THE SCHEME OF INCOME-TAX ACT. THE AO, IS ENTITLED TO MAKE ENQUIRY AS DEEMED FIT, FROM ANY SOURCE, BUT BEFORE UTILIZING THE SAME, FOR THE PURPOSE OF M AKING 17 ASSESSMENT, SUCH INFORMATION MUST BE CONFRONTED TO THE ASSESSEE. THE AO, BEING QUASI-JUDICIAL AUTHORITY, IS EXPECTED TO PROVIDE EFFECTIVE AND REASONABLE OPPORT UNITY TO THE ASSESSEE, TO MEET ITS CASE. THIS PRINCIPLE IS E STABLISHED BY THE DECISION OF THE HON'BLE SUPREME COURT, IN DHAKESHWARI COTTON MILLS LTD. V CIT 26 ITR 775 (S.C ),AND VASANT LAL V CIT 45 ITR 206 (S.C). HOWEVER, THE PRI NCIPLE LAID DOWN BY THE HON'BLE SUPREME COURT, IN THE CASE OF DHAKESHWARI COTTON MILLS LTD. V CIT (SUPRA) WAS APP LIED BY THE HON'BLE SUPREME COURT, IN KISHANCHAND CHELLA RA M V CIT 125 ITR 713 (S.C), WHEREIN AN ASSESSMENT, BASED ON THE RESULT OF PRIVATE ENQUIRIES CONDUCTED BEHIND THE BA CK OF THE ASSESSEE, BUT NOT CONFRONTED TO THE ASSESSEE, WAS S ET ASIDE. THE DECISION OF THE HON'BLE SUPREME COURT, IN THE C ASE OF DHAKESHWARI COTTON MILLS LTD. V CIT (SUPRA) HELD TH AT THE TRIBUNAL VIOLATED CERTAIN FUNDAMENTAL RULES OF JUST ICE IN REACHING ITS CONCLUSION. FIRSTLY, IT DID NOT DISCL OSE TO THE ASSESSEE, WHAT INFORMATION HAD BEEN SUPPLIED TO IT BY THE DEPARTMENTAL REPRESENTATIVE. NEXT, IT DID NOT GIVE ANY OPPORTUNITY TO THE COMPANY, TO REBUT THE MATERIAL, FURNISHED TO IT BY HIM AND LASTLY, IT DECLINED TO TAKE ALL TH E MATERIAL THAT ASSESSEE WANTED TO PRODUCE, IN SUPPORT OF ITS CASE. THE REASON IS THAT THE ASSESSEE HAD NOT HAD A FAIR HEAR ING. ESTIMATE OF GROSS RATE OF PROFIT, ON SALES, BOTH BY THE ITO AND THE TRIBUNAL, SEEMS TO BE BASED ON SURMISES, SU SPICION AND CONJECTURES. IT IS, SOMEWHAT, SURPRISING THAT THE TRIBUNAL TOOK FROM THE REPRESENTATIVE OF THE DEPART MENT, A STATEMENT OF GROSS-PROFIT RATES OF OTHER COTTON MIL LS, WITHOUT 18 SHOWING THAT STATEMENT TO THE ASSESSEE AND WITHOUT GIVING HIM AN OPPORTUNITY, TO SHOW THAT STATEMENT HAD NO RELEVANCY, WHAT-SO-EVER TO THE CASE OF THE MILL IN QUESTION. IN VIEW OF THIS, THE ASSESSMENT IN QUESTION WAS SET ASIDE BY THE HON'BLE SUPREME COURT, ON THE GROUND OF NON-PRO VIDING OF OPPORTUNITY TO THE ASSESSEE, WHILE MAKING ESTIMA TE OF GP ON THE BASIS OF INFORMATION SUPPLIED BY THE DEPARTM ENTAL REPRESENTATIVE. IT IS, FURTHER, ADDED THAT ITO EST IMATED THE GP ON SALES, AT 40% AND TRIBUNAL REDUCED IT TO 35%, BY FOLLOWING THE INFORMATION SUPPLIED BY THE LD. 'DR'. EVEN, IN SUCH A CASE, THE HON'BLE APEX COURT SET ASIDE THE ASSESSMENT AS VIOLATING THE FUNDAMENTAL RULE OF NAT URAL JUSTICE. IN THE PRESENT CASE, THE AO, HAS MERELY R ECORDED PURELY VAGUE AND GENERAL OBSERVATION OF SUCH COMPAR ABLE CASES, IN THE ASSESSMENT ORDER. HENCE, IT IS UNDISP UTED FACT, AS MENTIONED EARLIER, THAT THE ADDITION WAS MADE, O N THE BASIS OF CERTAIN UNSPECIFIED COMPARABLE CASES, WHIC H WERE NOT CONFRONTED, TO THE ASSESSEE, BEFORE COMPLETION OF THE SAID ASSESSMENT. LD. 'AR', REFERRED TO THE SUBMISS ION FILED BY THE APPELLANT BEFORE CIT(A), TO SUPPORT HIS CONT ENTION, IN THE MATTER. A PERUSAL OF SUCH SUBMISSION, AS REPROD UCED BY THE CIT(A), IN HIS ORDER IN PARA 5, REVEALS THAT TH E ASSESSEE APPELLANT PLACED RELIANCE, ON THE FOLLOWING DECISIO NS : I) GANGA RAM BAL MOKAND V CIT (1937) 5 ITR 464 (LAH) II) SHRI S.VEERAIH REDIAR V CIT (1960) 38 ITR 152 (KER) III) CIT V MAHESH CHAND (1939) 199 ITR 247 (ALL) IV) SETH GURMUKH SINGH V CIT (1944) 12 ITR 393 (LAH) V) JOSEPH THOMAS & BROS. V CIT (1968) 62 ITR 528 (AP) 19 VI) INTERNATIONAL FOREST CO. V CIT 101 ITR 72 (J&K) 19(II) IN SUCH CASE LAWS, RELIED UPON BY THE AP PELLANT, BEFORE THE CIT(A), IT IS HELD THAT ESTIMATION CANNO T BE MADE, ON THE BASIS OF MERE SURMISES, CONJECTURES AND IMAG INATION. THE ESTIMATE IS REQUIRED TO BE BASED, ON SOME TANGI BLE MATERIAL AND MUST HAVE NEXUS THERETO. IT IS, FURTHE R, HELD IN SUCH CASES THAT MATERIAL GATHERED AT THE BACK OF TH E ASSESSEE, CANNOT BE USED AGAINST THE ASSESSEE, UNLE SS IT IS CONFRONTED TO THE ASSESSEE. IN THE PRESENT CASE, T HE ENHANCED GP RATE AT 2.5% OF THE TOTAL TURNOVER, HAS BEEN ADOPTED BY THE AO, AFTER REJECTION OF THE BOOKS OF ACCOUNT U/S 145(3) OF THE ACT, WITHOUT FOLLOWING THE RULES OF NATURAL JUSTICE. THE AO, NEVER PROVIDED ANY OPPORTUNITY, T O THE ASSESSEE BEFORE COMPLETING THE ASSESSMENT, IN QUEST ION, IN THE FORM OF PROVIDING THE BOOK VERSIONS OF THE COMP ARABLE CASES, ON WHICH HIGHER GP RATE ADOPTED BY THE AO, I S FOUNDED. IN VIEW OF THIS, IT IS MANIFEST THAT THE A O, WHO IS QUASI-JUDICIAL AUTHORITY, WHILE EXERCISING QUASI-JU DICIAL FUNCTIONS, VIOLATED THE FUNDAMENTAL PRINCIPLE OF JU STICE, EQUITY AND GOOD CONSCIENCE. 20. AFTER REJECTION OF BOOKS OF ACCOUNT U/S 145(3) OF THE ACT, IT IS STATUTORILY INCUMBENT UPON THE AO, TO MA KE AN ASSESSMENT, IN THE MANNER PROVIDED IN SECTION 144 O F THE ACT. SECTION 144 OF THE ACT, WITH HEAD-NOTE AS BES T JUDGEMENT ASSESSMENT, CLEARLY PROVIDES THAT THE AO, AFTER TAKING INTO ACCOUNT, ALL RELEVANT MATERIAL WHICH HE HAS GATHERED, SHALL, AFTER GIVING AN OPPORTUNITY TO THE ASSESSEE 20 OF BEING HEARD, MAKE THE ASSESSMENT OF THE TOTAL I NCOME OR LOSS TO THE BEST OF HIS JUDGEMENT AND DEPARTMENT TH E SUM, PAYABLE BY THE ASSESSEE, ON THE BASIS OF SUCH ASSES SMENT. A BARE PERUSAL OF THE PROVISION OF SECTION 144 READ W ITH SECTION 145 OF THE ACT, CLEARLY REFLECT THE LEGISLA TIVE INTENT THAT AO, CANNOT MAKE ASSESSMENT, WITHOUT PROVIDING PROPER AND REASONABLE OPPORTUNITY TO THE ASSESSEE, IN THE FORM OF CONFRONTING THE MATERIAL, WHICH THE AO INTENDS TO U SE, AGAINST THE ASSESSEE. SUCH STATUTORY LEGISLATIVE I NTENT, IS IN CONSONANCE WITH THE GENERAL RULE OF LAW AND THE UNI VERSALLY ACKNOWLEDGED CONCEPT OF NATURAL JUSTICE, WHEREIN, I NTER-ALIA, IT IS EMBODIED THAT NO-ONE CAN BE CONDEMNED UN-HEAR D. THE ESTIMATE OF GP OR INCOME OF THE ASSESSEE, IS REQUIR ED TO BE FOUNDED ON MATERIAL OR EVIDENCE AND NOT ON ANY IRRE LEVANT MATERIAL CONSIDERATION, SURMISES AND CONJECTURES. THE AO, IS COMPETENT, IN THE ABSENCE OF ANY BETTER EVIDENCE , FALL BACK ON THE ASSESSMENT OF THE LAST PRECEDING YEAR, AS BEST GUIDE, EVEN IF THAT ASSESSMENT HAD BEEN A BEST JUDG EMENT ASSESSMENT. HOWEVER, THE AO, IGNORED PREVIOUS YEAR S RESULT, IN THIS CASE. THE AO, ALSO OBSERVED IN PARA 17 OF THE ASSESSMENT ORDER THAT THE CURRENT YEARS GP RATE AT 1.71% OF THE TOTAL TURNOVER OF RS.36,96,42,502/- IS BETTER V IS--VIS THE GP RATE OF 1.54%, SHOWN BY THE ASSESSEE, IN THE LAST YEAR. IN VIEW OF THIS, THE AO, SHOULD HAVE BEEN GUI DED BY THE BOOK-VERSION OF THE ASSESSEE APPELLANT, AS SHOW N IN THE PREVIOUS YEAR VIS--VIS GP SHOWN IN THE ASSESSMENT YEAR UNDER REFERENCE. 21 21. THE AO, OBSERVED THAT IT IS WELL KNOWN FACT T HAT DUTY, IF SCRAP FROM DEALERS DOING UNACCOUNTED TRADING, IS ALWAYS AVAILABLE AT CHEAPER RATE IN THE MARKET. THE AO, F URTHER, OBSERVED THAT THERE ARE LARGE NUMBER OF VARIABLES, LIKE BURNING LOSS, PRODUCE OF BY-PRODUCTS AND OTHER CONSUMABLES, INVOLVED IN THE PROCESS OF MANUFACTURI NG, AGAINST WHICH INFLATED OR BOGUS PURCHASES CAN EASIL Y BE ADJUSTED. HOWEVER, SUCH GENERAL OBSERVATIONS MADE BY THE AO, REMAINS UNSUPPORTED BY ANY COGENT AND CREDIBLE MATERIAL, BROUGHT ON RECORD. THE AO, FURTHER, GAVE AN EXAMPLE THAT BURNING LOSS IN THIS TYPE OF MANUFACTU RING CAN BE CLAIMED AND JUSTIFIED, WITHIN PERMISSIBLE LIMIT (SAY 2% TO 5%). IN MAJORITY OF CASES, ON VARIOUS GROUNDS, LIK E QUALITY OF RAW MATERIAL, CONDITIONS OF FURNACE ETC., TO HAV E A LARGE MANUFACTURING UNIT, SLIGHT VARIATION AFFECTS PROFIT ABILITY IN A BIG WAY. THE AO, FURTHER OBSERVED THAT IN THE INST ANT CASE, BURNING LOSS AT 4.32% IS RATHER HIGHER THAN THE BUR NING LOSS, NORMALLY CLAIMED BY THE COMPARABLE CASES. THE AO, FAILS TO BRING ANY COMPARABLE CASES, ON THE ISSUE O F BURNING LOSS, TO SUPPORT HER OBSERVATIONS, TREATING THE BUR NING LOSS, CLAIMED BY THE ASSESSEE, AT 4.32%, AS HIGHER. THE OBSERVATION MADE BY THE AO, THAT BURNING LOSS CLAIM ED BY THE ASSESSEE, ON HIGHER SIDE, CONTRADICTS THE OBSER VATION MADE BY THE AO THAT PERMISSIBLE BURNING LOSS RANGES BETWEEN 2 TO 5%, IN SUCH FIELD. IN THE PRESENT CAS E, BURNING LOSS HAS BEEN CLAIMED AS OBSERVED BY THE AO, AT 4.3 2%, WHICH IS IN THE PERMISSIBLE LIMITS, AS RECORDED BY THE AO I.E. 2% TO 5% IN THE ASSESSMENT ORDER. IN VIEW OF THIS, THE 22 GENERAL OBSERVATIONS MADE BY THE AO, WITHOUT SUPPOR TING THE SAME BY RELEVANT MATERIAL, CANNOT STRENGTH THE CASE OF ADOPTION OF HIGHER GP AT 2.5%. 22. THE AO, FURTHER, OBSERVED THAT THE FACT REMAINS THAT ASSESSEE ACTUALLY DERIVED THE BENEFIT, THE FIRST DA Y IT MANUFACTURED AND SOLD THE GOODS, AFTER BOOKING BOGU S PURCHASES AND CONSEQUENTLY, BOGUS CENVET CREDIT, AMOUNTING TO RS.13,39,468/-. THE ADDITION, MADE BY THE AO, IN THIS RESPECT HAS BEEN DELETED BY THE CIT(A). THE CIT(A), OBSERVED THAT THE AO, IN THIS REGARD HAS OB SERVED, IN THE ASSESSMENT ORDER THAT REVERSAL OF ENTRIES, IN E XCISE RECORD, DURING THE YEAR OR NEXT, WOULD NOT ALTER TH E FACT THAT THE ASSESSEE ACTUALLY DERIVED THE BENEFIT, ON THE F IRST DAY IT MANUFACTURED AND SOLD THE GOODS, AFTER BOOKING THE BOGUS PURCHASES. THE CIT(A), GAVE A FINDING THAT THE CON CLUSION OF THE AO IS NOT TENABLE, AS THE AMOUNT OF CENVET CRED IT OF RS.13,39,468/- HAD NOT BEEN DEBITED TO PROFIT & LOS S ACCOUNT BY THE ASSESSEE AND, THEREFORE, IT DOES NOT AFFECT THE WORKING OF PROFITABILITY. ACCORDINGLY, CIT(A) DELETED THE SAID ADDITION. IN VIEW OF THIS AND HAVING REGARD T O THE FACT THAT THE BOGUS CENVET CREDIT HAS BEEN REVERSED BY T HE ASSESSEE APPELLANT, IT WOULD NOT HAVE ANY IMPACT, O N THE PROFITABILITY OF THE ASSESSEE APPELLANT, AS HELD BY THE CIT(A). THEREFORE, THE PERCEPTION OF THE AO THAT PROFIT WOU LD GO UP BY THE AMOUNT OF BENEFIT OF BOGUS CENVET CREDIT, DE RIVED BY THE ASSESSEE, IS NOT TENABLE, HAVING REGARD TO THE FACT- SITUATION OF THE CASE AND FINDINGS OF THE CIT(A). 23 23. THE REJECTION OF BOOKS OF ACCOUNT AND SUBSEQUEN T ASSESSMENT, UNDER THE RELEVANT PROVISIONS OF THE AC T, ARE TWO DISTINCT AND SEPARATE PROCESSES. THE ASSESSMEN T, AFTER REJECTION OF BOOKS OF ACCOUNT, MUST CONFORM TO THE RELEVANT PROVISIONS OF THE ACT AND GENERAL LAW IN THE MATTER . NO ESTIMATE CAN BE MADE WITHOUT BRINGING ANY COGENT AN D CREDIBLE MATERIAL, HAVING NEXUS TO THE ESTIMATE OF INCOME BY THE AO. ONCE, THE BOOKS OF ACCOUNT ARE REJECTED, TH EN PROFIT HAS TO BE ESTIMATED ON THE BASIS OF PROPER MATERIAL AVAILABLE ON RECORD. THERE MUST BE IN EXISTENCE RELEVANT MAT ERIAL OR EVIDENCE, BEING STATUTORY REQUIREMENT, AS CONTEMPLA TED U/S 143 & 144 OF THE ACT, FOR THE AO TO MAKE ESTIMATION OF INCOME. THIS PRINCIPLE OF LAW, IN THE MATTER IS FAI RLY AND RIGHTLY STATED BY THE HON'BLE SUPREME COURT IN THE CASE OF DHAKESHWARI COTTON MILLS (SUPRA), DHIRAJ LAL GIRDHA RI LAL V CIT 26 ITR 736 (S.C), AND CIT V DAULAT RAM RAWATMUL L 87 ITR 349 (S.C). THE SAME PRINCIPLE HAS BEEN LAID DO WN BY THE HON'BLE SUPREME COURT IN THE CASE OF H.M.ESUFAL I ABDULALI (SUPRA). THE METHOD TO BE ADOPTED BY THE AO, MUST BE WHICH IS APPROXIMATELY NEARER TO THE TRUTH, HAVI NG REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 24. IN VIEW OF THE ABOVE LEGAL AND FACTUAL DISCUSSI ONS, IT IS EVIDENT THAT CIT(A), HAS IGNORED THE JUDICIAL PRECE DENTS RELIED UPON BY THE APPELLANT, WHICH ARE RELEVANT TO THE FACTS AND CIRCUMSTANCES OF THE CASE. THE CIT(A), HAS ATT EMPTED TO COMPENSATE THE LACK OF COMPLETE OPPORTUNITY, REQUIR ED TO BE PROVIDED BY THE AO, BEFORE COMPLETION OF THE ASSESS MENT, IN QUESTION. THIS POST-FACTO PROVIDING OF OPPORTUNITY, IN THE 24 SHAPE OF COMPARABLE CASES BY THE CIT(A), IN THE COU RSE OF APPELLATE PROCEEDINGS, WOULD NOT CURE THE FUNDAMENT AL VIOLATION OF THE RULES OF NATURAL JUSTICE BY THE AO . THE AO, HAD ALREADY COMPLETED THE ASSESSMENT, WITHOUT SPECI FYING AND DISCUSSING COMPARABLE CASES, IN THE ASSESSMENT ORDER AND WITHOUT PROVIDING DETAIL OF SUCH CASES TO THE A SSESSEE. IN SUCH A FACT-SITUATION, IT IS NOT POSSIBLE TO DIS COVER THE MENTAL STATE OF AFFAIRS OF THE AO, WHILE MAKING ASS ESSMENT, AS TO WHICH RELEVANT OR IRRELEVANT FACTORS LED TO A DOPT THE GP AT HIGHER PERCENTAGE. NEEDLESS TO SAY THAT PAST RE CORDS IS A RELEVANT FACTOR, IN ESTIMATING INCOME OF THE ASSESS EE. WHERE NO BETTER MATERIAL IS AVAILABLE, PROFITS CAN BE EST IMATED ON THE BASIS OF ANOTHER PERSONS BUSINESS OF SIMILAR K IND, IN THE SAME AREA IN AN EARLIER YEAR. HOWEVER, SUCH DE TAILS OF COMPARABLE CASES, IS REQUIRED TO BE CONFRONTED TO T HE ASSESSEE. THE BASIS OF ESTIMATION OF HIGHER GP IS REQUIRED TO BE MADE KNOWN TO THE ASSESSEE, BEFORE COMPLETION OF ASSESSMENT ORDER AND SUCH FAILURE CANNOT BE COMPENS ATED BY AFFORDING OPPORTUNITY BY CIT(A), AT THE TIME OF APPELLATE STAGE, AS HAS BEEN DONE IN THE PRESENT CASE. 24(I) IT IS UNDISPUTED FACT THAT THE BOOK-VERSION OF COMPARABLE CASES WERE NEITHER CONFRONTED TO THE APP ELLANT NOR INCORPORATED OR DISCUSSED IN THE ASSTT.ORDER IN QUESTION. AT THE INSTANCE OF CIT(A), AT THE APPELL ATE STAGE, AO, FURNISHED DETAILS OF SUCH COMPARABLE CASES. IN THIS SPECIFIC CONTEXT, THE LAW LAID DOWN BY THE HON'BLE SUPREME COURT IN TIN BOX CO. VS CIT (2001) 249 ITR 216 (S.C ) IS UNAMBIGUOUS AND CLEAR. THE HON'BLE SUPREME COURT, HELD 25 THAT LACK OF OPPORTUNITY BEFORE THE AO, CANNOT BE R ECTIFIED BY THE APPELLATE AUTHORITY, BY GIVING SUCH OPPORTUN ITY. THE RIGHT IS FUNDAMENTAL THAT THE FAILURE TO OBSERVE TH E PRINCIPLES OF NATURAL JUSTICE, CANNOT BE MADE GOOD IN APPEAL. THE HON'BLE SUPREME COURT HELD AS HELD, REVERSING THE DECISION OF THE HIGH COURT, THAT ONCE THE TRIBUNAL FOUND THAT INCOME-TAX OFFICER, HAD NOT GIV EN TO THE ASSESSEE PROPER OPPORTUNITY OF BEING HEARD, THAT TH E ASSESSEE COULD HAVE PLACED THE EVIDENCE BEFORE THE APPELLATE AUTHORITY OR BEFORE THE TRIBUNAL WAS REALLY OF NO CONSEQUENCE, FOR IT WAS THE ASSTT. ORDER THAT COUNT ED : THAT ORDER HAD TO BE MADE AFTER THE ASSESSEE HAD BEEN GI VEN A REASONABLE OPPORTUNITY OF BEING HEARD. AS DISCUSSED EARLIER, THE HON'BLE SUPREME COURT IN DHAKESHWARI C OTTON MILLS V CIT (SUPRA) HELD THAT AO MUST OBSERVE THE P RINCIPLE OF NATURAL JUSTICE WHILE MAKING THE ASSESSMENT. TH E PRINCIPLE OF NATURAL JUSTICE IS SO FUNDAMENTAL THAT IT IS NOT TO BE CONSTRUED AS A MERE IDLE FORMALITY. WHERE TH E MATERIAL RELIED UPON ARE NOT ENCLOSED IN A SHOW CAU SE NOTICE, THERE IS NO SUFFICIENT OPPORTUNITY, AS HELD BY THE HON'BLE SUPREME COURT, IN APPROPRIATE AUTHORITY V V IJAY KUMAR SHARMA (2001) 249 ITR 554 (S.C). HAVING REGAR D TO THE ABOVE DISCUSSIONS, THE FINDINGS OF THE CIT(A) C ANNOT BE UPHELD. 25. IN PARA 6 OF THE APPELLATE ORDER, CIT(A) REQUESTED THE AO, TO PROVIDE DETAILS OF THE COMPARABLE CASES, AS RELIED UPON BY HER, TO ESTIMATE GP RATE IN THE APPELLANTS CASE AT 2.5%. ACCORDINGLY, AO SUBMITTED VIDE LETTER DATED 26 18.08.2011, THAT THERE WAS FALL IN GP RATE, FROM 1. 82% IN ASSESSMENT YEAR 2007-08, TO 1.60%, IN ASSESSMENT YE AR 2008-09, IN THE APPELLANTS CASE. SUCH FINDING OF THE AO HAVE BEEN RECORDED BY THE CIT(A), IN PARA 6 OF THE APPELLATE ORDER. HOWEVER, A BARE PERUSAL OF PARA 17 OF THE ASSESSMENT ORDER SHOWS THAT AO CATEGORICALLY ADMITT ED AND RECORDED THEREIN, THE FACTUM THAT GP RATE AT 1.71%, DECLARED BY THE ASSESSEE, IS BETTER THAN ITS PREVIO US YEARS GP RATE, DECLARED AT 1.54%. IN VIEW OF THIS, FINDI NGS OF THE AO ARE SELF-CONTRADICTORY IN NATURE. 25(I) IN PARA 7 OF THE APPELLATE ORDER, THE APPEL LANT FILED DETAILED SUBMISSIONS, SUPPORTING HIS CASE OF HIGHER GP RATE THAN THE GP RATE SHOWN, IN THE TWO COMPARABLE CASES , PROVIDED BY THE AO, TO THE APPELLANT FOR COMMENTS, AT THE APPELLATE STAGE. THE SUBMISSION CONTAINS DETAILED JUSTIFICATION, SUPPORTED BY FACTUAL DETAILS AND CAS E-LAWS TO ESTABLISH THE APPELLANTS CASE, IN TERMS OF GP RATE VIS--VIS THE BOOK-VERSION OF SUCH COMPARABLE CASES. IN PARA 8 OF THE APPELLATE ORDER, LD. CIT(A), ON APPRECIATION OF SUCH SUBMISSIONS AND EXPLANATIONS, FILED BY THE ASSESSEE , ON THE ISSUE OF ITS GP RATE VIS--VIS THE GP RATE OF SUCH COMPARABLE CASES, FOUND THE EXPLANATION AND CLAIM O F THE APPELLANT, AS QUITE PLAUSIBLE. THUS, THE APPELLANT S CLAIM THAT GP RATE RELIED UPON BY THE AO, WERE NOT COMPAR ABLE ONE, WAS FOUND QUITE PLAUSIBLE BY THE CIT(A). CONSEQUENTLY, THE CIT(A) ACCEPTED THE EXPLANATION O F THE ASSESSEE APPELLANT, THAT GP RATE, RELIED UPON BY TH E AO, IS NOT CORRECT. IN THE BACKGROUND OF SUCH FINDINGS, I T IS IN- 27 COMPREHENSIBLE HOW THE LD. CIT(A) UPHELD THE ADDITI ON, ON THE GROUND OF GP RATE APPLIED BY THE AO, BASED ON T HE BOOK-VERSION OF TWO COMPARABLE CASES. THEREFORE, UP HOLDING OF THE ADDITION BY THE CIT(A), BY PLACING RELIANCE ON THE BOOK-VERSION OF TWO COMPARABLE CASES, RUNS CONTRARY TO HIS FINDINGS, ON THE APPELLANTS CLAIM THAT THE GP RATE , RELIED UPON BY THE AO, WERE NOT COMPARABLE, AS QUITE PLAU SIBLE EXPLANATION. IN VIEW OF THIS, THE FINDINGS OF THE CIT(A), UPHOLDING THE ADDITION, ON THE SAME BASIS, WHICH WA S FOUND BY THE CIT(A), AS FACTUALLY NOT TENABLE, RENDERS HI S FINDINGS, UNTENABLE AND SELF-CONTRADICTORY IN NATURE. THE CI T(A), CANNOT JUDICIALLY UPHELD THE ADDITION ON THE FULCRU M OF UNTENABLE FOUNDATION OF BOOK-VERSION OF G.P. RATE O F SUCH COMPARABLE CASES, WHICH WERE FOUND BY HIM, AS INCOMPARABLE ONE. NEEDLESS TO SAY THAT ONLY LIKE M UST BE COMPARED WITH LIKE, FOR THE PURPOSE OF DRAWING MEAN INGFUL, RATIONAL AND VALID CONCLUSIONS, WHICH SHOULD, FURTH ER, BE SUPPORTED BY RELEVANT MATERIAL AND COGENT EVIDENCES . IN THE PRESENT CASE, CIT(A) HAS FAILED TO BRING ON REC ORD, RELEVANT AND CORROBORATIVE EVIDENCES OR MATERIAL, T O SUPPORT HIS FINDINGS, ON THE ISSUE IN QUESTION. THE APPELL ANT, HAD FILED BEFORE THE CIT(A), COMPARATIVE CHART OF GP RA TE OF ITS CONCERN AND THAT OF THE COMPARABLE CASES. SIMILARLY , THE APPELLANT HAS FILED, JUSTIFICATION, IN RESPECT OF P URCHASE RATES, MADE BY THE APPELLANT FROM M/S ROHIT ISPAT ( INDIA) AND OTHER PARTIES. THE LD. CIT(A), HAS FAILED TO R EBUT THE CONTENTION RAISED BY THE APPELLANT, IN THE MATTER. IT IS, PERTINENT TO MENTIONED HERE THAT THE CIT(A), DELETE D THE 28 ADDITION OF RS.13,39,468/-, ON THE GROUND OF REVERS AL OF CENVET CREDIT ENTRIES BY THE APPELLANT. THE AO, MA DE OBSERVATION IN THIS REGARD, THAT REVERSAL OF ENTRIE S, IN EXCISE RECORDS, WOULD NOT ALTER THE FACT THAT THE ASSESSEE ACTUALLY DERIVED BENEFIT, ON THE FIRST DAY, IT MANUFACTURED AND SOLD THE GOODS, AFTER BOOKING THE BOGUS PURCHASES. THE CIT(A), CLEARLY DISAGREED WITH SUCH CONCLUSIONS OF THE AO, ON THE GROUND THAT THE SAID AMOUNT OF CENVET CREDIT HAD NO T BEEN DEBITED, TO THE PROFIT & LOSS ACCOUNT BY THE ASSESS EE AND, THEREFORE, HELD THAT IT DOES NOT AFFECT WORKING OF PROFITABILITY. FURTHER, BOTH LD. CIT(A), AND THE AO , FAILED TO PRIMA-FACIE PROVE THAT BURNING LOSS, AS CLAIMED BY THE ASSESSEE, LED TO UNDER-STATEMENT OF GP. THE AO, RAT HER, TREATED THE BURNING LOSS, CLAIMED BY THE ASSESSEE A T 4.2%, AS WITHIN THE SPECIFIED LIMIT, OF 2% TO 5%, IN VIEW OF THE FINDINGS RECORDED IN PARA 11 OF THE ASSESSMENT ORDE R. BUT, IN THE SAME PARA, THE AO FOUND SUCH CLAIM OF BURNIN G LOSS OF THE APPELLANT, AT 4.32% HIGHER THAN THE BURNING LOSS, ON THE BASIS OF COMPARABLE CASES. HOWEVER, THE AO, FA ILED TO BRING ON RECORD, INSTANCES OF SUCH COMPARABLE CASES , ESTABLISHING THE CONCLUSION OF HIGHER BURNING LOSS, CLAIMED BY THE ASSESSEE. IN VIEW OF THIS, FINDINGS OF THE CIT(A), IN THE MATTER CANNOT BE SUSTAINED. HOWEVER, WE ARE OF THE OPINION THAT AN ADDITION OF RS.4 LACS BE SUSTAINED, WITH A VIEW TO COVER UP LEAKAGE OF REVENUE AND TO MEET THE ENDS OF JUSTICE. 29 26. IN VIEW OF THE ABOVE DISCUSSIONS, THIS GROUND O F APPEAL OF THE APPELLANT IS PARTLY ALLOWED. 27. THE ASSESSEE APPELLANT, IN GROUND NO.3, CHALLEN GED THE CONFIRMATION OF THE ADDITION OF RS.5,97,556/-, MADE BY THE AO ON ACCOUNT OF ALLEGED INFLATED PURCHASES, WHEN A CTUALLY THERE IS NO SUCH DIFFERENCE AND THERE IS WRONG CALC ULATION ON WRONG BASIS. IN THE COURSE OF PRESENT APPELLATE PR OCEEDINGS, LD. 'AR' VEHEMENTLY CONTENDED THAT THE AO HAS NOT M ADE ANY ADDITION, ON THIS ACCOUNT, THOUGH GROUND NO.3 SAYS SO. AS NO ADDITION HAS BEEN MADE BY THE AO, THE CIT(A) IS NOT COMPETENT TO CONFIRM SUCH ADDITION. LD. 'AR', FURT HER, REFERRED TO THE FINDINGS OF THE AO AND ALSO THE COM PUTATION MADE IN THE IMPUGNED ASSESSMENT ORDER. LD. 'DR', O N THE OTHER HAND, PLACED RELIANCE ON THE ORDERS PASSED BY THE LOWER AUTHORITIES. 28. WE HAVE CAREFULLY PERUSED THE RIVAL SUBMISSIONS , FACTS OF THE CASE AND THE RELEVANT RECORDS. THE AO, HAS RECORDED AN OBSERVATION, IN PARA 16 OF THE ASSESSMENT ORDER, IN QUESTION. THE AO OBSERVED, ON THE BASIS OF TOTA L PURCHASES OF 497.135 MT FROM ROHIT ISPAT (INDIA), A T AN AVERAGE RATE OF RS.17,402/- PMT AND ON COMPARISON TO FLAT RATE OF RS.16,200/- PMT DURING JULY,2007 OF N ON-DUTY SCRAP, WORKED OUT THE INFLATION IN PURCHASES AT RS. 1202/- PMT AND TOTAL INFLATION AT RS.5,97,556/-. IT WAS, F URTHER, OBSERVED BY THE AO, THAT SUCH INFLATION IN THE PURC HASES, RELATED TO DULY RECORDED AND ACCOUNTED TRANSACTIONS , WITH A 30 VERIFIABLE DEALER, BUT IN THE CASE OF PURCHASES FRO M A SUPPLIER OF GREY MARKET INVOLVED UNACCOUNTED TRANSA CTIONS, SUCH INFLATORY IMPACT WILL BE MORE PRONOUNCED AND SUBSTANTIAL. THE AO, HAS MADE TOTAL ADDITION OF RS.29,20,176/- WHICH INCLUDED CENVET DISALLOWANCE O F RS.13,39,468/-. IT IS ADDED THAT THE AO, IN PARA 1 3 HAS CLEARLY MADE AN ADDITION OF RS.13,39,468/-, OBSERVI NG THAT CLAIM OF CENVET, ON BOGUS PURCHASES REPRESENTED ASS ESSEE'S SUPPRESSED INCOME AND AS SUCH, ADDITION ONLY ON THI S ACCOUNT WORKS OUT TO RS.13,39,468/-. THE AO EVEN IN ITIATED PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT ON THI S ADDITION. HOWEVER, NO SUCH OPINION HAS BEEN EXPRESS ED OR RECORDED BY THE AO IN PARA 15, WHERE HE WORKED OUT THE INFLATED PURCHASES OF RS.5,97,556/-, WITH AN OBSERV ATION THAT IT WILL HAVE INFLATORY IMPACT. SIMILARLY, IN PARA 17, NO SPECIFIC AMOUNT IN RESPECT OF SUCH INFLATORY PURCHA SES, HAS BEEN ADDED BY THE AO, WHEREAS CENVET DISALLOWANCE O F RS.13,39,468/- HAS BEEN CLEARLY MENTIONED. A PERUS AL OF THE COMPUTATION OF INCOME REVEALS THAT NO ADDITION, ON ACCOUNT OF INFLATORY IMPACT OF PURCHASES, AMOUNTING TO RS.5,97,556/- HAS BEEN MADE IN THE COMPUTATION OF I NCOME. THE FINDINGS OF AO, AS CONTAINED IN PARA 16 OF THE ASSESSMENT ORDER, ARE REPRODUCED HEREUNDER : 16. FROM THE DETAILS GIVEN BY ASSESSEE DURING THE C OURSE OF ASSESSMENT PROCEEDINGS, IT IS NOTICED THAT TOTAL NO N DUTY PAID SCRAP WEIGHING 95,895 MTS HAS BEEN PURCHASED DURING THE Y EAR FOR RS. 15.22.955/- WHICH GIVES AN AVERAGE RATE OF RS. 15.8 81/- PMT, WHEREAS THE ALLEGED PURCHASE OF PIG IRON MADE BY TH E ASSESSEE FROM M/S ROHIT ISPAT OF 497.135 MT GIVES AN AVERAGE PURC HASE PRICE OF RS. 17..402/- PMT, EVEN DURING THE MONTH OF JULY, 2 007 THE AVERAGE PURCHASE PRICE NON DUTY PAID SCRAP SHOWN BY THE ASS ESSEE IS RS.16.200/- PMT. THUS, ONLY ON THIS BASIS, ON TOTAL . PURCHASES OF 31 497,135 MT FROM ROHIT ISPAT AT AN AVERAGE RATE OF R S.17.402/- PMT AND AS COMPARED TO AVERAGE RATE OF RS.16,200/- PMT (DURING JULY, 2007) OF NON DUTY SCRAP, INFLATION IN PURCHASES WOR KS OUT TO RS.1202/- PMT AND TOTAL INFLATION OF RS.5,97,556/- (1202 X 497. 135).. THIS IS AGAIN REITERATED THAT THIS FIGURE OF INFLATED PURCHASE OF RS.5,97,556/- RELATES TO DULY RECORDED AND ACCOU NTED TRANSACTIONS WITH A VERIFIABLE DEALER BUT IN THE CASE OF PURCHAS ES FROM A SUPPLIER OF GREY MARKET, INVOLVED IN UNACCOUNTED TRANSACTION , SUCH INFLATIONARY IMPACT WILL BE MORE PRONOUNCED AND SUB STANTIAL. 29. LD. CIT(A), UPHELD THE ADDITION, AS IS EVIDENT FROM PARA 10 OF THE APPELLATE ORDER, WHICH IS REPRODUCED HERE UNDER : 10. I HAVE CONSIDERED THE AOS LOGIC IN MAKING THE IMPUGNED ADDITION AND THE ARGUMENTS OF THE AR ON THE ISSUE. THE AO HAS BROUGHT ON RECORD CLEAR DISTINCTION BETWEEN THE PUR CHASE RATE OF NON DUTY SCRAP AND THE PURCHASE RATE OF BOGUS PURCHASES MADE FROM M/S ROHIT ISPAT. CONSIDERING THE FACT THAT THE PURCHASE S FROM M/S ROHIT ISPAT HAVE BEEN ESTABLISHED TO BE BOGUS, THE INFLAT ED INVOICING FROM THIS CONCERN IS NOT A MATTER OF SURPRISE. THE ARGUM ENT OF THE AR THAT PIG IRON IS HIGHER QUALITY SCRAP IS NOT LOGICAL ESP ECIALLY IN VIEW OF THE CONSIDERED OPINION OF THE EXCISE AUTHORITY THAT PIG IRON IS NOT THE MATERIAL OF CHOICE FOR PRODUCTION OF STEEL INGOTS. THE ADDITION MADE IS THEREFORE, CONFIRMED . 30. IN VIEW OF THE ABOVE DISCUSSION, IT CAN BE SAID , THE ADDITION NOT MADE BY THE AO, CANNOT BE UPHELD BY TH E CIT(A). ACCORDINGLY, SUCH FINDING OF THE CIT(A) CA NNOT BE UPHELD. 31. GROUND NO.4 IS GENERAL IN NATURE AND NEEDS NO SEPARATE ADJUDICATION. 32. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ITA NO. 458/CHD/2012 (REVENUES APPEAL) 33. THE REVENUE, IN SINGLE AND SUBSTANTIVE GROUND O F APPEAL CONTENDED THAT CIT(A) ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF RS.13,39,468/- MADE ON ACC OUNT OF DISALLOWANCE OF BOGUS PURCHASES OF CENVET, MADE BY THE ASSESSEE, ON THE PURCHASES WHICH HAVE BEEN ESTABLIS HED AS BOGUS. 32 34. IN THE COURSE OF PRESENT APPELLATE PROCEEDINGS, LD. 'DR' SUPPORTED THE ASSESSMENT ORDER, PASSED BY THE AO. LD. 'AR', ON THE OTHER HAND, CONTENDED THAT THE CENVET CREDIT HAS BEEN REVERSED BY THE ASSESSEE AND SUCH FACT WAS BROUGHT TO THE NOTICE OF THE AO AS WELL AS CIT(A). LD. 'AR' SUPPORTED FINDINGS OF THE CIT(A). 34(I) WE HAVE CAREFULLY PERUSED THE RIVAL SUBMISSI ONS, FACTS OF THE CASE AND THE RELEVANT RECORD. THE AO, MADE AN ADDITION OF RS.13,39,468/- ON ACCOUNT OF BOGUS CENV ET CREDIT AVAILED BY THE ASSESSEE. LD. CIT(A) HAS REC ORDED THE CONTENTION OF THE ASSESSEE THAT SUCH CENVET CREDIT HAS BEEN REVERSED IN THE EXCISE RECORD BY THE ASSESSEE DURI NG THE YEAR. HOWEVER, THE AO WAS OF THE OPINION THAT FACT WOULD REMAIN THAT ASSESSEE ACTUALLY DERIVED BENEFIT ON TH E FIRST DAY, IT MANUFACTURED AND SOLD GOODS AFTER TAKING BO GUS PURCHASES. ACCORDINGLY, CLAIM OF CENVET, ON BOGUS PURCHASES REPRESENT ASSESSEE'S SUPPRESSED INCOME AN D AS SUCH, ADDITION HAS BEEN WORKED OUT TO RS.13,39,468/ -. THE AO ALSO INITIATED PENALTY PROCEEDINGS IN RESPECT OF SUCH AMOUNT. THE CIT(A) DELETED THE IMPUGNED ADDITION O N THE GROUND THAT THE SAID AMOUNT OF CENVET CREDIT HAS NO T BEEN DEBITED TO THE PROFIT & LOSS ACCOUNT, BY THE APPELL ANT AND, THEREFORE, IT DOES NOT AFFECT THE WORKING OF PROFIT ABILITY. FINDINGS OF THE CIT(A), AS CONTAINED IN PARA 8, HAV E BEEN REPRODUCED ABOVE, IN THIS ORDER. 33(II) THE FACT OF REVERSAL OF THE IMPUGNED CENVE T CREDIT, IN THE EXCISE RECORDS OR IN THE BOOKS OF AC COUNT OF 33 THE ASSESSEE, REMAINS UNDISPUTED. REVERSAL OF SUCH ENTRY IN EXCISE RECORD, CANNOT BE CONSTRUED IN VACUUM. T HE BENEFIT, ALLEGED TO HAVE BEEN DERIVED BY THE ASSESS EE HAS BEEN NEUTRALIZED BY REVERSAL OF SUCH ENTRIES. IN VI EW OF THIS, WE DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF THE CIT(A) AND CONSEQUENTLY, GROUND OF APPEAL RAISED BY THE RE VENUE, IS DISMISSED. 35. GROUND NOS. 2 & 3, RAISED BY THE REVENUE, ARE G ENERAL IN NATURE AND, HENCE, NEED NO SEPARATE ADJUDICATION . 36. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. 37. RESULTANTLY, APPEAL OF THE ASSESSEE IS PARTLY A LLOWED AND THAT OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH SEPT.,2012. SD/- SD/- (SUSHMA CHOWLA) (MEHAR SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 12 TH SEPT.,2012. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT,DR ASSISTANT REGISTRAR, ITAT CHANDIGARH