Senior India (P) Ltd., Delhi V. DCIT, New Delhi

ITA 4522/DEL/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77565 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 5 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-04-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2008-2009
• Appeal Filed On: 10-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAMESH CHANDRA
• Assessee Lawyers: C S AGGARWAL; R P MALL
• Keywords: Gross profit estimation; Rejection of books of accounts; Transfer pricing; Business expenditure; Search and seizure
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : G : NEW DELHI BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ITA NO.4522/DEL/2011 ASSESSMENT YEAR : 2008-09 SENIOR INDIA (P) LTD., 1568, CHURCH ROAD, KASHMERE GATE, DELHI. PAN : AAAC12419N VS. DCIT, CIRCLE-8(1), NEW DELHI. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI C.S. AGGARWAL, SR. ADVOCATE & SHRI R.P. MALL DEPARTMENT BY : S HRI RAMESH CHANDRA, CIT, DR ORDER PER A.D. JAIN, JUDICIAL MEMBER: THIS IS ASSESSEES APPEAL FOR ASSESSMENT YEAR 2008-09 AGAINST THE ORDER DATED 26.07.2011, PASSED BY THE LD. CIT (A)-XI, NEW DELHI, TAKING THE FOLLOWING GROUNDS:- 1. THAT THE IMPUGNED ORDER OF LD CIT(A) SUSTAINING TH E ADDITIONS AND DISALLOWANCES MADE AND THE FINDINGS RECORDED BY THE L D AO IS ERRONEOUS BOTH ON FACTS AND IN LAW AND THUS THE ADVERSE FINDINGS RECORDED BY THE LD AO AND LD CIT(A) DESERVES TO BE SE T ASIDE, SO WELL THE ADDITIONS SUSTAINED TO THE TOTAL INCOME DECLARED BY THE ASSESSEE COMPANY. 2. THAT LEARNED CIT(A) HAS FURTHER ERRED BOTH ON FACTS AND IN LAW IN UPHOLDING AN ADDITION MADE BY THE LD AO OF RS. 3,71,2 5,681/- IN THE 2 IT A NO.4522/DEL/2011 TRADING ACCOUNT. IN DOING SO, THE LD CIT(A) HAS FAILED TO COMPREHEND THE FACTUAL SUBSTRATUM OF THE CASE AND THE EVIDENCE PLACE D BY THE ASSESSEE IN SUPPORT THAT THE ADDITION MADE BY THE ID AO WAS BASED ON THEORETICAL AND NON EXISTENT GROUND AND WERE NOT ONLY ARBITRARY BUT WERE BASED ON UNWARRANTED ASSUMPTIONS AND PRESUMPTIO NS. 2.1 THAT LD CIT(A) HAS FAILED TO COMPREHEND THAT BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE (WHICH ADMITTEDLY WERE PROD UCED BEFORE THE AO), COULD NOT HAVE BEEN REJECTED AS NO DEFECT WAS FOUND IN THE BOOKS OF ACCOUNTS REGULARLY MAINTAINED BY THE ASSESSEE IN THE NORMAL COURSE OF BUSINESS, OTHER THAN THAT THERE WAS A FALL I N THE AVERAGE RATE OF PROFIT. 2.2 THAT LD CIT(A) HAS ERRED IN FAILING TO APPRECIA TE THAT THE ASSESSEE IS MAINTAINING THE BOOKS OF ACCOUNTS IN ACCORDANCE WITH THE PROVISIONS OF THE ACT AND NO DEFECT HAVE BEEN FOUND THEREIN AND THA T THE ACCOUNTS HAVE BEEN MAINTAINED AS WERE MAINTAINED IN EA RLIER ASSESSMENT YEARS, WHICH HAS BEEN ACCEPTED AND AS SUCH , THE REJECTION OF BOOKS OF ACCOUNTS IS WHOLLY UNWARRANTED AND UNJUSTI FIED. 2.3 THAT THE LD CIT(A) HAS FAILED TO APPRECIATE THAT THE A DVERSE COMMENTS OF THE LD ASSESSING OFFICER THAT 'ASSESSEE HAS NOT GIVEN ANY BREAKUP OR DETAIL OF METERWISE PRODUCTION VIS-A-VIS C ONSUMPTION OF POWER & FUEL AND NUMBER WISE PRODUCTION VIS-A-VIS C ONSUMPTION OF POWER & FUEL' CANNOT BE REGARDED ANY VALID BASIS TO R EJECT THE BOOKS OF ACCOUNTS OR TO REJECT THE RESULTS DERIVED FROM SUCH BOO KS OF ACCOUNTS, SINCE NEITHER SUCH DETAILS ARE POSSIBLE TO BE MAINTAINE D NOR ARE REQUIRED TO BE MAINTAINED IN LAW. 2.4 THAT THE LD CIT(A), WHILE CONFIRMING THE ADDITION M ADE BY THE LD AO, HAS FAILED TO APPRECIATE THAT ALL WHAT THE LD AO HAS DONE IS, THAT HE HAD ENHANCED THE DECLARED OP RATE BY 7% AND FURTHER PR OCEEDED TO MAKE DISALLOWANCES OF EXPENSES WITHOUT SPECIFYING OR IDENTIFYING ANY EXPENSES OR EVEN HEAD OF THE EXPENDITURE, WHICH WAS S TATED TO BE FROM P&L ACCOUNT INCLUDING MANUFACTURING AND TRADING A CCOUNT. SUCH AN APPROACH IS CONTRARY TO LAW, AS IT IS CONTRADICTORY I N NATURE AND THUS THE ORDER IS VITIATED IN LAW AS THE SAME IS BASED ON N ON APPLICATION OF MIND. 2.5 CIT(A) HAS FAILED TO APPRECIATE THAT LD AO HIMSELF HAS NOT DOUBTED THE INCURRING OF EXPENDITURE ON POWER AND FUEL AND HAS NEITHER IDENTIFIED A SINGLE EXPENDITURE WHICH CAN BE SAID TO HAVE NOT BEEN INCURRED BY THE ASSESSEE, AS SUCH, ENHANCEMENT O F GROSS PROFIT BY 7% IS HIGHLY ARBITRARY AND UNJUSTIFIED IN LAW. 2.6 THAT VARIOUS OTHER OBSERVATIONS MADE IN THE ORDER O F ASSESSMENT ARE BASED ON FACTUALINACCURACIES AND ARE I N DISREGARD OF SUBMISSIONS MADE BY THE ASSESSEE WHICH ARE SUPPORTED BY NECESSARY EVIDENCE AND MATERIAL. 3 IT A NO.4522/DEL/2011 2.7 THAT THE LEARNED CIT(A) HAS FAILED TO APPRECIATE TH AT THE ASSESSEE HAD ADMITTEDLY PRODUCED THE BOOKS OF ACCOUNTS ON 18.10.2010 AND HAD ALSO PRODUCED THEM ON 18.10.2010. IN THE ABSENCE OF ANY ENDORSEMENT IN THE ORDER SHEET ENTRY OF NON PRODUCTION OF BOOKS OF ACCOUNT ON 18.10.2010, THUS CAN NOT BE VALIDLY ALLEGED AND THUS THE FINDINGS OF THE AO AND CIT(A) WER E ERRONEOUS BOTH ON FACTS AND IN LAW. 2.8 THAT WITHOUT PREJUDICE TO EACH OF THE AFORESAID GROU NDS THE CIT(A) HAS FAILED TO APPRECIATE EVEN IF IT IS HELD TH AT THE DECLARED RESULTS COULD NOT BE ACCEPTED THEN ONLY A NET PROFIT RATE COULD BE ESTIMATED AND THE INCOME COULD NOT BE ENHANCED BY ENHA NCING THE GROSS PROFIT RATE. 3. THAT THE LD CIT(A) HAS ERRED ON FACTS AND IN LAW IN CONFIRMING A DISALLOWANCE OF RS 35,98,902/- OUT OF EXPENSES CLAIM ED OF RS. 1,02,59,968/- BEING WARRANTY EXPENSES 'CLAIMED BY THE APPELLANT. THAT WHILE UPHOLDING THE DISALLOWANCE OF RS 35,98,902 /-, LD CIT(A) HAS FAILED TO APPRECIATE THAT THE APPELLANT HAD CREATED THE PRO VISION ON THE BASIS OF PAST HISTORY AND WAS BASED ON A SCIENTIFIC A ND RELIABLE METHOD AND AS SUCH, THE DISALLOWANCE SUSTAINED BY THE LD CIT( A) DESERVES TO BE DELETED. THE SAID PROVISION MADE WAS TOWARDS ACCRU ED AND ASCERTAINED LIABILITY OUGHT TO HAVE BEEN HELD ALLOWABLE AS SUCH. 4. THAT THE LD CIT(A) HAS ERRED ON FACTS AND IN LAW I N CONFIRMING DISALLOWANCE OF RS.52,11,793 BEING AMOUNT OF EXPENDI TURE INCURRED ON SALES COMMISSION EXPENSES. THE LD CIT(A) FAILED TO A PPRECIATE THAT THE LD AO HAD MADE THE DISALLOWANCE ONLY FOR THE YEAR WI THOUT PROVIDING TO THE APPELLANT SUFFICIENT MEANINGFUL AND PROPER OPPORTUN ITY OF BEING HEARD AND DIRECTING THE ASSESSEE TO PRODUCE ANY FURTHER SPECIFIC MATERIAL OR EVIDENCE. 4.1 THAT LD CIT(A) HAS ERRED IN FAILING TO APPRECIATE THAT ASSESSEE HAD FURNISHED THE COMPLETE DETAILS ALONGWITH THE NAME OF THE PERSONS AND HAS ALSO FILED THE CONFIRMATIONS OF THE PERSONS TO WHOM SUCH SALES COMMISSION HAD BEEN PAID AS SUCH, UPHOLDING THE DISA LLOWANCE OF SALES COMMISSION EXPENSES WAS HIGHLY UNJUSTIFIED AND WAS UNWARRANTED BOTH IN LAW AND ON FACTS. 2. AS PER THE MATERIAL ON RECORD, THE ASSESSEE, A PRIVA TE LIMITED COMPANY INCORPORATED ON 01.10.1996 UNDER THE COMPANIES ACT, 1956, IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF AUTOMOTIVE F LEXIBLE EXHAUST CONNECTORS AND STAINLESS STEEL FLEXIBLE HOSES WITH BRAID . THE SAID PRODUCTS ARE EXPORTED BY IT TO ITS ASSOCIATED ENTERPRISES AND ARE ALSO LOCALLY SUPPLIED TO VARIOUS `ORIGINAL MANUFACTURERS OF EQUIPMENT IN I NDIA. 4 IT A NO.4522/DEL/2011 3. GROUND NO.1 IS GENERAL IN NATURE. 4. APROPOS GROUND NO. 2, ON 29.9.08, THE ASSESSEE COMPAN Y FILED ITS RETURN OF INCOME, WHEREIN INCOME FOR THE CURRENT YE AR WAS DECLARED AT RS. 3,54,56,540/-. ON 11.02.2010, A NOTICE UNDER SECTION 143(2) OF THE INCOME TAX ACT ALONG WITH A QUESTIONNAIRE UNDER SECTION 142( 1) OF THE ACT WAS ISSUED TO THE ASSESSEE. IN RESPONSE TO THE AFORESAID QUESTION NAIRE, THE ASSESSEE, IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, FURNISH ED REPLIES DATED 2.3.10, 12.4.10 AND 14.5.10, ENCLOSING VARIOUS DETAILS AS REQUIRED AS PER THE QUESTIONNAIRE. ON 8.7.10, THE AO RAISED FURTH ER QUERIES. IN RESPONSE TO THE AFORESAID QUERIES, THE ASSESSEE FURNISHED REPLIES DA TED 28.7.10, 16.8.10, 1.9.10 AND 8.10.10, ENCLOSING THE VARIOUS DE TAILS AS WERE REQUIRED AS PER THE QUERIES RAISED BY THE AO. ON 13.10.10, THE AO ISSUED A SHOW CAUSE NOTICE. IN RESPONSE TO THE AFORESAID SHOW CAUSE NOT ICE, ASSESSEE FURNISHED REPLIES DATED 1.11.10 AND 18.11.10. 5. ON 13.6.11, THE AO FRAMED THE ORDER OF THE ASSESSME NT AT AN INCOME OF RS. 8,80,53,982/-, AS AGAINST THE RETURNED INCOME O F RS. 3,54,56,540/-, MAKING, INTER ALIA, THE FOLLOWING ADDITIONS/DISALLOWA NCES: ADDITION/ DISALLOWANCE MADE AMOUNT (RS) TRADING ADDITIONS 3,71,25,681 WARRANTY EXPENSES 1,02,59,968 SALES COMMISSION 52,11,793 TOTAL 5,25,97,442 6. VIDE THE IMPUGNED ORDER DATED 26.7.11, THE LD. C IT(A) DISPOSED OF THE APPEAL OF THE ASSESSEE, SUSTAINING THE ADDITION OF RS. 3,7 1,25,681/- MADE TO THE ASSESSEES DECLARED TRADING RESULTS. 7. THE LD. COUNSEL FOR THE ASSESSEE, VIDE HIS ARGUMENTS A ND THE WRITTEN SUBMISSIONS FILED, HAS CONTENDED THAT THE ASSESSEE IS ENGAGE D IN THE BUSINESS OF MANUFACTURING OF AUTOMOTIVE FLEXIBLE EXHAU ST CONNECTORS AND STAINLESS STEEL FLEXIBLE HOSES WITH BRAID; THAT DURING THE COURSE OF THE 5 IT A NO.4522/DEL/2011 ASSESSMENT PROCEEDINGS, THE AO HAD, ON 28.07.2010 DIRECT ED THE ASSESSEE COMPANY TO FURNISH DETAILS OF MONTH-WISE PRODUCTION A ND CONSUMPTION OF POWER AND IN COMPLIANCE THERETO, THE SAME WERE FURNI SHED AS PER ANNEXURES 2 AND 3 OF SUBMISSIONS DATED 16.08.2010; THAT THE AO H AD ALSO DIRECTED THE ASSESSEE COMPANY TO PROVIDE DETAILS OF GROSS PROFIT RATE A ND NET PROFIT RATE, WHICH WERE FURNISHED ON 16.08.2010; THAT THEREAFTER, BASED ON THE AFORESAID DATA, THE AO, BY A NOTICE DATED 13.10.2010, OBSERVED THAT THERE WAS NO MATCH BETWEEN THE CONSUMPTION OF POWER & FUEL AND TH E PRODUCTION, WHICH WAS AGAINST THE BASIC PREMISE OF THE INPUT-OUTPUT THEO RY AND THAT SO, THE ASSESSEE WAS BEING SHOW CAUSED AS TO WHY THE BOOKS OF ACCOUN T SHOULD NOT BE REJECTED AND PROFIT BE ATTRIBUTED ACCORDINGLY; T HAT THE ASSESSEE COMPANY, ON RECEIPT OF THE AFORESAID SHOW CAUSE NOTICE, BY ITS SUBMISSIONS DATED 18.11.2010, STATED THAT: YOUR GOODSELF HAS RAISED A QUERY THAT THERE IS NO MATC H BETWEEN CONSUMPTION OF POWER & FUEL AND PRODUCTION. F URTHER, YOUR GOODSELF HAS ASKED THE ASSESSEE TO SHOW CAUSE WHY BOO KS OF ACCOUNTS SHOULD NOT BE REJECTED ON THIS PREMISES. WE WISH TO SUBMIT THAT ONE TO ONE MATCH BETWEEN CONSUMPTI ON OF POWER/FUEL AND PRODUCTION OF GOODS IS NOT POSSIBLE D UE TO INHERENT NATURE OF PRODUCTS MANUFACTURED, PROCESS/TIME INVOLVED IN MANUFACTURING, PROCESS OF RAISING INVOICES BY ELECTRI CITY AUTHORITIES AND VARIOUS OTHER FACTORS BEYOND THE CONTROL OF THE ASSESSEE . THESE REASONS ARE EXPLAINED BELOW IN DETAILS: A) THE ASSESSEE HAD SUBMITTED DETAILS OF MONTH WISE PRODU CTION VIDE SUBMISSION LETTER DATED AUGUST 16, 2010. THE SAME ARE ATTACHED HEREWITH FOR REFERENCE AS ANNEXURE 1. FROM THE DETAILS SUBMITTED IT CAN BE SEEN THAT PRODUCTION FOR SOM E PRODUCTS IS MEASURED IN NUMBER OF UNITS MANUFACTURED W HILE FOR OTHERS IT IS MEASURED IN METERS MANUFACTURED. THE UNIT USED FOR MEASURING QUANTITY OF DIFFERENT KIND OF PRODU CTS IS DIFFERENT. HOWEVER, WHILE MAKING A COMPARISON WITH PO WER CONSUMPTION AND FUEL COST IN THE ABOVE REFERRED NOTICE , QUANTITY OF ALL THE PRODUCTS MANUFACTURED HAS BEEN ADDED TOGETHER. THIS RENDERS THE MONTHLY DATA INCOMPARABLE. B) FURTHER, IN THE ABOVE REFERRED SHOW CAUSE NOTICE PRODU CTION OF FINISHED GOODS IS COMPARED WITH POWER AND FUEL EX PENSES. THE APPELLANT EXPLAINED THAT THERE IS ALWAYS STOCK OF UNFINISHED GOODS/WORK IN PROGRESS (WIP) AT THE END OF THE 6 IT A NO.4522/DEL/2011 MONTH. POWER AND FUEL EXPENSES ARE ALSO INCURRED ON SUCH WIP. THE VOLUME OF WIP AT THE END OF EACH MONTH WILL ALSO AFFECT THE POWER AND FUEL EXPENSES AS THE VOLUME OF WI P AT THE END OF A MONTH VARIES ON MONTH TO MONTH BASIS. HENCE , DIRECT COMPARISON OF POWER AND FUEL EXPENSES WITH NUM BER OF UNITS MANUFACTURES IS NOT CORRECT. C) WE WISH TO STATE THAT POWER CONSUMPTION FOR DIFFERENT KIND S OF PRODUCTS IS DIFFERENT. SOME PRODUCTS MANUFACTURED BY THE ASSESSEE CONSUME MORE UNITS OF POWER THAN OTHER PRODU CTS MANUFACTURED BY THE ASSESSEE. THEREFORE, CONSUMPTION OF POWER AND FUEL EXPENSES I N A MONTH LARGELY DEPENDS ON THE QUANTITIES IN WHICH EACH G OOD IS MANUFACTURED. IF IN A PERIOD, PRODUCTS WHICH CONS UME MORE POWER ARE MANUFACTURED IN LARGER QUANTITIES THAN TH E PRODUCTS WHICH CONSUME LESS POWER, THE POWER AND FUEL EXPENSES SHALL BE HIGHER. IRRESPECTIVE OF THE TOTAL QUA NTITIES OF ALL THE PRODUCTS MANUFACTURED, NUMBER OF POWER UNIT S CONSUMED IN A MONTH DEPENDS LARGELY ON THE TYPE OF PRODUCTS MANUFACTURED. FOR INSTANCE, MANUFACTURE OF CORRUGATED ASSEMBLIES RE QUIRES TIG WELDING PROCESS AT HIGH VOLTAGE AND HENCE, CONSU MES MORE POWER WHICH IS ALMOST 100% MORE POWER AS COMPAR ED TO OTHER PRODUCTS. THEREFORE, ADDING MONTHLY PRODUCTION QUANTITY OF ALL TH E PRODUCTS AND COMPARING IT WITH MONTHLY POWER AND FUEL EXPENSES DOES NOT PROVIDE THE CORRECT VIEW. D) AS STATED ABOVE, THE ASSESSEE MANUFACTURES DIFFERENT KIN DS OF PRODUCTS. SOME PRODUCTS ARE MANUFACTURED AS INDIVI DUAL PARTS WHILE SOME PRODUCTS ARE USED AS ATTACHMENTS IN MAKING OTHER LARGER PARTS LIKE HOSE ASSEMBLIES. SOME ATTACHMENTS TO HOSE ASSEMBLIES ARE OF SUCH NATURE, THAT THE Y CAN BE EITHER MANUFACTURED IN ITS OWN FACTORY BY THE APPELLANT OR CAN BE BOUGHT FROM EXTERNAL MARKET VENDO RS ACCORDING TO THE REQUIRED SPECIFICATION. IN ANY PERIOD, WHERE SUCH ATTACHMENTS ARE PROCURED F ROM EXTERNAL VENDORS, THE POWER CONSUMPTION SHALL BE LOWE R AS COMPARED TO THE PERIOD IN WHICH SUCH ATTACHMENTS ARE MANUFACTURED INTERNALLY. E) THE ASSESSEE HAD SUBMITTED DETAILS OF MONTH WISE POWER AND FUEL EXPENSES VIDE SUBMISSION LETTER DATED AUGUST 16, 2010. 7 IT A NO.4522/DEL/2011 FROM THE SUBMISSIONS IT CAN BE SEEN THAT ELECTRICITY EXP ENSES ARE PAID TO DAKSHIN HARYANA BIJLI VITRAN NIGAM LTD. (D HBVN). DHBVN IS A DIVISION OF HARYANA STATE ELECTRICITY BOARD (HSEB) AND A WHOLLY STATE OWNED CORPORATION. COPIES OF ALL THE INVOICES RECEIVED FROM DHBVN HAVE ALREADY BEEN SUBM ITTED VIDE SUBMISSION LETTER DATED AUGUST 16, 2010. ALL THE PAYMENTS HAVE BEEN MADE BY THE ASSESSEE VIDE ACCOUNT PAYEE CHEQUES. ALL THE POWER EXPENDITURE HAS B EEN DULY VOUCHED FOR AND RECORDED IN THE BOOKS OF ACCOUN TS. F) COMPARISON OF POWER EXPENSES WITH PRODUCTION AS MADE IN THE ABOVE REFERRED NOTICE IS NOT CORRECT DUE TO ANOTHER REASON. DHBVN INVOICE IS NORMALLY FROM MID OF MONTH TO MID OF NEXT MONTH. THE PERIOD OF INVOICING ALSO CHANGES FREQUENTLY AS CAN BE OBSERVED FROM THE DETAILS FILED. THEREFORE, COMPARISON OF POWER EXPENSES WITH PRODUCT ION ON THE BASIS OF POWER INVOICES IS NOT CORRECT. G) OTHER POWER AND FUEL EXPENSES COMPRISE OF DIESEL EXP ENSES FOR GENERATORS USED IN THE FACTORY OF THE ASSESSEE. TH E ASSESSEE HAS INSTALLED HIGH POWER GENERATORS IN ITS F ACTORY TO RUN ITS PRODUCTION ACTIVITIES IN CASE OF POWER CUTS AN D POWER FAILURES. COST OF OWN GENERATION OF POWER THROUGH GE NERATORS IS HIGHER THAN THE COST OF POWER SUPPLIED BY DHBVN. IT IS ALMOST 1.5 TIMES THE COST OF POWER SUPPLIED BY DHBVN. HENCE, IN A MONTH WHEN DHBVN POWER SUPPLY IS LESS, P OWER AND FUEL EXPENSES WILL INCREASE IRRESPECTIVE OF INC REASE IN PRODUCTION. HENCE, THESE EXPENSES CANNOT BE CORRELATE D DIRECTLY IN PROPORTION TO PRODUCTION. H) THE DIESEL USED TO RUN THESE GENERATORS IS PURCHASED F ROM EXTERNAL VENDORS. ALL THE PAYMENTS TO DIESEL VENDORS A RE MADE THROUGH ACCOUNT PAYEE CHEQUES. ALL THE EXPENSES H AVE BEEN DULY VOUCHED FOR AND RECORDED IN THE BOOKS OF ACCOUNTS. IN VIEW OF THE ABOVE DISCUSSIONS, YOUR GOODSELF SHAL L APPRECIATE THAT THE VARIATION IN CONSUMPTION OF POWER AND FUEL IN IS DUE TO VARIOUS REASONS BEYOND THE CONTROL OF THE ASSESSEE. 8. THE LD. COUNSEL FOR THE ASSESSEE FURTHER CONTENDED BE FORE US THAT IN PARA 5 OF THE AFORESAID SUBMISSION DATED 18.11.2010 (P AGE 116 OF THE APB), IT WAS FURTHER SUBMITTED BEFORE THE AO AS UNDER: COMPLETE BOOKS OF ACCOUNTS ARE PRODUCED FOR YOUR VER IFICATION. SINCE THE SUPPORTING VOUCHERS AND INVOICES ARE VERY VO LUMINOUS, 8 IT A NO.4522/DEL/2011 THE SAME CAN BE PRODUCED FOR VERIFICATION ON TEST CHE CK BASIS AS DESIRED. 9. IT WAS FURTHER STATED THAT HOWEVER, THE AO, IN THE ORDER OF ASSESSMENT, OBSERVED THAT THE GROSS PROFIT AND NET PROFIT OF THE A SSESSEE FOR THE INSTANT ASSESSMENT YEAR WAS 22% AND 5% RESPECTIVELY, AND FOR THE IMMEDIATELY PRECEDING YEAR, THE SAME WAS 29% AND 6%, RESPECTIVELY; THAT DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE, VIDE ITS SUBMISSIONS DATED 01.11.2010 (APB 110-111), FURNISHED ITS EXPLANATION I N RESPECT OF THE FALL IN GROSS PROFIT, AS FOLLOWS: 1. COMPARISON OF GROSS PROFIT RATE AND NET PROFIT RATE FOR LAST THREE YEARS AND REASON IN VARIATION OF THE SAME. COMPARATIVE CHART OF GROSS PROFIT RATE AND NET PROFIT RA TES HAS BEEN ENCLOSED FOR YOUR REFERENCE (ANNEXURE 1). THE FALL IN GROSS PROFIT RATE AS COMPARED TO PREVIOUS YEARSIS MAINLY DUE TO INCREASE IN COST OF PRODUCTION. THE COST OF PRINCIP AL RAW MATERIALS HAS STEADILY INCREASEDOVER PREVIOUS THREE YEARS WITHO UT A CORRESPONDING INCREASE IN THE SELLING PRICES. A COMP ARATIVE CHART SHOWING COST PRICES OF PRINCIPAL RAW MATERIAL FOR LA ST THREE YEARS HAS BEEN ENCLOSED FOR REFERENCE (ANNEXURE 2). COPIES OF INVOICES FOR LAST THREE YEARS OF PRINCIPAL RAW MATERIALS HAVE ALSO BEE N ENCLOSED ON SAMPLE BASIS FOR AS EVIDENCE. AS STATED ABOVE, THE PRICES OF ASSESSEES PRODUCTS DI D NOT INCREASE IN CORRESPONDENCE WITH INCREASE IN PRICES OF RAW MATERI ALS, IN DOMESTIC AS WELL AS INTERNATIONAL MARKETS DUE TO GLOBAL RECESSIONA RY PRESSURES AND INCREASING COMPETITION FROM CHINESE MANUFACTURERS. A COMPARATIVE CHART SHOWING SELLING PRICES OF PRINCIPAL GOODS IS E NCLOSED FOR REFERENCE (ANNEXURE 3). COPIES OF INVOICES FOR LAST THREE YEARS OF PRINCIPAL CUSTOMERS HAVE ALSO BEEN ENCLOSED ON SAMPLE BASIS FO R AS EVIDENCE. THE ABOVE COMPARISONS AND SUPPORTING DOCUMENTS SHOW TH AT THE FALL IN GROSS PROFIT RATE IS DUE TO NORMAL BUSINESS CONDITIONS . WE FURTHER WISH TO SUBMIT THAT ALL THE PURCHASES AND SALE S ARE MADE FROM/TO WELL ESTABLISHED PARTIES AND ALL THE PAYMENTS/RE CEIPTS ARE THROUGH ACCOUNT PAYEE CHEQUES. 10. IT HAS BEEN FURTHER STATED THAT DESPITE THE SUBMISSIONS O F THE ASSESSEE AND DOCUMENTARY EVIDENCE PLACED ON RECORD, THE AO W RONGLY HELD THAT SINCE 9 IT A NO.4522/DEL/2011 THE ASSESSEE HAD NOT MAINTAINED THE BOOKS OF ACCOUNT AS PER SECTION 209(1)(D) OF THE COMPANIES ACT, 1956, SINCE THE BOOKS OF ACCOUNT WERE NOT PRODUCED FOR VERIFICATION, SINCE THERE WAS INCREASE IN THE MANUFACTURING EXPENSES FROM RS. 4,94,48,811/- TO RS. 5,07,87,651/- AN D ALSO UNDER THE HEAD EMPLOYEES REMUNERATION & BENEFIT FROM RS. 4,71,2 4,704/- TO RS. 5,08,65,913/- AND THERE WAS FALL IN GROSS PROFIT RATE, THE BOOKS OF ACCOUNT WERE BEING REJECTED BY INVOKING SECTION 145 OF THE A CT; THAT IT WAS AS SUCH, THAT THE AO WRONGLY MADE AN ADDITION OF RS. 3,71,25, 681/- BY INCREASING THE GROSS PROFIT RATE @ 7%; THAT THE ALLEGATION IS THAT TH E ASSESSEE COMPANY HAS NOT MAINTAINED BOOKS OF ACCOUNT AS PER SECTION 209(1)( D) OF THE COMPANIES ACT, AND NOT THAT NO BOOKS OF ACCOUNT, AS MAINTAINED, WERE PRODUCED; THAT THE AO COULD HAVE REACHED A CONCLUSION THAT THE BOOK S OF ACCOUNT HAD NOT BEEN MAINTAINED AS PER SECTION 209(1)(D) OF THE COMP ANIES ACT ONLY WHEN HE HAD SEEN THE BOOKS OF ACCOUNT, AND NOT OTHERWISE; T HAT THE LD. CIT(A) WRONGLY UPHELD SUCH FINDING OF THE AO ON THE GROUND THAT SINCE THE AO HAD APPLIED THE PRINCIPLE OF PROPORTIONALITY, THE ASSESSMEN T ORDER DID NOT REQUIRE ANY INTERFERENCE; THAT THIS WAS DONE WITHOUT APPRECI ATING THE SUBMISSIONS OF THE ASSESSEE; THAT THE OBSERVATION OF THE AO AND UPHOLDI NG OF THIS OBSERVATION BY THE LEARNED CIT(A), THAT THE ASSESSEE HAD NOT PRODUCED ITS BOOKS OF ACCOUNT, IS FACTUALLY INCORRECT AND CONTRARY TO THE MATERIAL ON RECORD; THAT ON 18.11.10, THE ASSESSEE HAD DULY FURNISH ED ITS WRITTEN SUBMISSIONS (APB 112-116) BEFORE THE AO; THAT ON THE SAI D DATE, AUTHORIZED REPRESENTATIVES OF THE ASSESSEE, ALONG WITH ONE OF THE DI RECTORS OF THE COMPANY, HAD ATTENDED THE PROCEEDINGS BEFORE THE AO, AND HAD PRODUCED THE COMPLETE BOOKS OF ACCOUNT FOR VERIFICATION; THAT IT HAD BEEN FURTHER SUBMITTED BEFORE THE AO, THAT SINCE THE SUPPORTING VOU CHERS AND INVOICES WERE VERY VOLUMINOUS IN NATURE, IT WAS NOT PRACTICALL Y FEASIBLE TO PRODUCE ALL OF THEM; THAT HOWEVER, THE ASSESSEE HAD OFFERED TO PRODUCE THE DESIRED VOUCHERS AND INVOICES FOR VERIFICATION PURPOSES ON A TE ST CHECK BASIS; THAT THE AO IGNORED THE FACT THAT THE ASSESSEE HAD ACTUALLY SO PRODUCED ITS BOOKS OF ACCOUNT AND HAD FURTHER SO OFFERED TO PRODU CE THE DESIRED 10 I TA NO.4522/DEL/2011 VOUCHERS AND INVOICES FOR VERIFICATION ON A TEST CHECK BASIS; THAT IN FACT, THE AO HAS, ON THE ONE HAND, HELD THAT THE BOOKS MAINTAIN ED BY THE ASSESSEE COULD NOT BE RELIED UPON, AND ON THE OTHER HAND, SHE HAS HELD THAT BOOKS OF ACCOUNT WERE NOT PRODUCED; THAT IF THE BOOKS OF ACCO UNT WERE NOT PRODUCED, THERE WAS NO OCCASION TO HOLD THAT THE BOOKS OF ACCOU NT OF THE ASSESSEE COULD NOT BE RELIED ON; THAT SO, THESE OBSERVATIONS ARE MUTUALLY CONTRADICTORY; THAT HAD THE ASSESSEE NOT PRODUCED THE B OOKS OF ACCOUNT BEFORE HER, THE AO WOULD HAVE RECORDED SO IN THE ORD ER SHEET ON THE RELEVANT DATE OF HEARING, I.E., ON 18.11.2010, WHER EAS NO SUCH ENTRY STANDS MADE; THAT IT IS NOT COMPREHENDIBLE THAT WHEN THE B OOKS OF ACCOUNT ARE BEING REGULARLY MAINTAINED BY THE ASSESSEE AND THEY HA VE BEEN PRODUCED FOR ALL THE PRECEDING YEARS SINCE A.Y. 2004-05, THE A SSESSEE WOULD NOT HAVE PRODUCED THEM BEFORE THE AO THIS YEAR; THAT THOUGH T HE ASSESSMENT PROCEEDINGS WERE INITIATED ON 11.2.10, THROUGHOUT, T ILL THE PASSING OF THE ASSESSMENT ORDER, THERE WAS NO SUCH ALLEGATION OF NON PRO DUCTION OF BOOKS OF ACCOUNT; THAT DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE HAD FURNISHED AS MANY AS NINE REPLIES BEFORE THE AO, I.E., REPLIES DATED 2.3.10, 12.4.10, 14.5.10, 28.7.10, 16.8.10, 1.9.10, 8.10.10 , 1.11.10 AND 18.11.10 AND HAD ENCLOSED ALL THE RELEVANT DOCUMENTS AND EVID ENCE, AS REQUIRED BY THE AO VIDE NOTICES DATED 11.2.10 AND 13.10.10; THAT IT IS ALSO NOT THE CASE OF THE AO THAT THE ASSESSEE HAD NOT COMPLIED WITH THE N OTICES ISSUED BY HIM, OR THAT IT HAD NOT COOPERATED IN THE COURSE OF THE ASSESSMENT PROCEEDINGS; THAT AFTER THE RECEIPT OF THE NOTICE DA TED 13.10.10, THROUGH WHICH, THE ASSESSEE WAS REQUIRED TO PRODUCE ITS BOOKS OF ACCOUNT, THE ASSESSEE DULY FURNISHED ITS REPLY DATED 01.11.10 AND THER EAFTER, ON 18.11.10, IT FURNISHED ITS FURTHER REPLY AND ALSO PROD UCED THE COMPLETE BOOKS OF ACCOUNT; THAT THEREAFTER, THE ASSESSEE WAS NEVER CALLED UPON BY THE AO TO PRODUCE THE BOOKS OF ACCOUNT; THAT SINCE TH E ASSESSEE HAD DULY COMPLIED WITH ALL THE NOTICES ISSUED BY THE AO AND HAD ALSO FURNISHED THE RELEVANT DOCUMENTS AS CALLED FOR, THE STATEMENT OF TH E ASSESSEE, MADE VIDE ITS SUBMISSION DATED 18.11.10, WHEREBY IT HAD SUBMITTED THAT THE BOOKS OF 11 I TA NO.4522/DEL/2011 ACCOUNT WERE PRODUCED, CANNOT BE DOUBTED; THAT IN THE PROCEEDIN GS BEFORE THE CIT(A) TOO, THE ASSESSEE ONCE AGAIN FURNISHED THE BO OKS OF ACCOUNT; THAT HOWEVER, THE SAME WERE NOT ACCEPTED BY THE CIT(A) AN D HE MERELY UPHELD THE FINDINGS OF THE AO WRONGLY; THAT IN SUPPORT OF TH IS FACTUAL ASPECT, THE ASSESSEE WAS FURNISHING AN AFFIDAVIT OF SHRI NARESH AGGARW AL, CFO AND DIRECTOR OF THE ASSESSEE COMPANY UNDER RULE 10 OF THE INCOME TAX APPELLATE TRIBUNAL RULES; THAT ASSESSEE HAS MAINTAINED CO MPLETE BOOKS OF ACCOUNT AND ALL THE BOOKS OF ACCOUNT MAINTAINED BY T HE ASSESSEE WOULD BE PRODUCED, IF SO REQUIRED, FOR THE PERUSAL OF THIS TRIB UNAL; THAT THE ASSESSEES BOOKS OF ACCOUNT FOR THE YEAR UNDER CONSIDERATION HAD BEEN DULY PREPARED BY THE ASSESSEE IN ACCORDANCE WITH ALL APPLICABLE ACCOU NTING STANDARDS; THAT SUCH BOOKS OF ACCOUNT PREPARED BY THE ASSESSEE HAVE BEEN DULY AUDITED BY A FIRM OF CHARTERED ACCOUNTANTS; THAT IN THE AUDITORS REPORT FOR THE RELEVANT YEAR, PREPARED AS PER THE COMPANIES (AUD ITORS REPORT) ORDER, 2003, THE INDEPENDENT STATUTORY AUDITORS HAVE EXPRESSED THEIR OPINION WITH REFERENCE TO THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE; THAT ON PAGE 4 OF THE AUDIT REPORT, IT HAS BEEN OPINED BY THE AUD ITORS AS UNDER: 6. THE COMPANY HAS MAINTAINED PROPER RECORDS OF ITS INVENTORIES. THE DISCREPANCIES BETWEEN THE STOCKS THAT HAVE BEEN PHYSICAL LY VERIFIED AND BOOK STOCKS WERE NOT MATERIAL AND HAVE BEEN PROPE RLY DEALT WITH IN THE BOOKS OF ACCOUNT.; THAT FURTHER, AT PAGE 6 OF THE REPORT, THE AUDITORS HAVE OPINED AS UNDER: B) IN OUR OPINION, PROPER BOOKS OF ACCOUNT AS REQUI RED BY LAW HAVE BEEN KEPT BY THE COMPANY SO FAR AS APPEARS FROM OUR E XAMINATION OF THOSE BOOKS; C) THE BALANCE SHEET, PROFIT & LOSS ACCOUNT AND CASH FLOW STATEMENT DEALT WITH BY THIS REPORT, ARE IN AGREEMENT WITH THE BOOKS OF ACCOUNT; D) EXCEPT FOR ACCOUNTING STANDARD 17 ON SEGMENT REPORTI NG, THE BALANCE SHEET, PROFIT AND LOSS ACCOUNT AND CASH FLOW S TATEMENT DEALT WITH BY THIS REPORT COMPLY WITH THE ACCOUNTING STANDARDS R EFERRED TO IN SUB-SECTION (3C) OF SECTION 211 OF THE COMPANIES ACT, 1956.; 12 I TA NO.4522/DEL/2011 THAT AS-17, AS NOTED IN THE AUDITORS REPORT, RELATES TO THE ACCOUNTING STANDARD WHICH IS IN RELATION TO REPORTING OF SEGMENT AL DATA IN THE FINANCIAL STATEMENTS; THAT THIS ACCOUNTING STANDARD DOES NOT, IN ANY WAY, AFFECT THE WAY THE BOOKS OF ACCOUNT ARE MAINTAINED, OR THE INCO ME IS COMPUTED; THAT ANNEXURE A (APB 60) OF THE AUDITORS REPORT (APB 41- 96) U/S 44AB OF THE ACT PROVIDES THE LIST OF BOOKS OF ACCOUNT MAINTAINED, WHIC H WERE DULY EXAMINED BY THEM; THAT SO, THERE CAN BE NO DOUBT REGARDING TH E MAINTENANCE, COMPLETENESS AND ACCURACY OF THE BOOKS OF ACCOUNT MAIN TAINED BY THE ASSESSEE; THAT HOWEVER, IGNORING ALL THE ABOVE FACTS PLA CED ON RECORD BY THE ASSESSEE, THE AO MERELY WRONGLY RELIED ONLY ON THE FOLL OWING OBSERVATION OF THE AUDITORS: 13. ACCORDING TO THE INFORMATION AND EXPLANATIONS GIVE N TO US, THE COMPANY HAS NOT MAINTAINED THE PRESCRIBED BOOKS OF ACC OUNT AND RECORDS PURSUANT TO THE RULES MADE BY THE CENTRAL GOVER NMENT FOR THE MAINTENANCE OF COST RECORDS UNDER SECTION 209(1)(D) OF THE COMPANIES ACT, 1956 THE MANUFACTURE OF AUTOMOTIVE COMPONENTS.; THAT THE ABOVE OBSERVATION DOES NOT RELATE TO THE MA INTENANCE OF BOOKS OF ACCOUNT FOR THE PURPOSE OF COMPUTING INCOME, RATHER IT IS ONLY WITH RELATION TO MAINTENANCE OF COST RECORDS, WHICH ARE NOT RELATED TO THE BOOKS OF ACCOUNT FOR COMPUTING PROFITS AND INCOME OF THE ASSESSEE ; THAT WITHOUT UNDERSTANDING THE NATURE OF ABOVE REFERRED OBSERVATIO N OF THE AUDITORS, THE AO HAS ERRONEOUSLY CONCLUDED THAT THE PROFITS SHOWN BY THE ASSESSEE IN THE PRESENT ASSESSMENT YEAR CANNOT BE ACCEPTED; THAT SINCE TH E ASSESSEE HAS MAINTAINED COMPLETE BOOKS OF ACCOUNT AS PER THE ACCOU NTING STANDARDS AND THIS FACT HAS ALSO BEEN CERTIFIED BY THE AUDITORS, THE COMPLETENESS OF THE ASSESSEES BOOKS OF ACCOUNT CANNOT BE CALLED IN QUESTION; THAT THE JUDICIAL PRONOUNCEMENTS RELIED UPON BY THE AO DO NOT APPLY TO THE ASSESSEES CASE, AS THE FACTS OF THE ASSESSEES CASE ARE ENTIRELY DIFFERENT; THAT AS REGARDS THE OBSERVATION OF THE AO THAT THE ASSESSEES CONSUMPTION OF P OWER AND FUEL IS NOT COMMENSURATE WITH ITS PRODUCTION, IT IS SUBMITTED: A) THAT PRODUCTION FOR SOME PRODUCTS IS MEASURED IN NUMB ER OF UNITS MANUFACTURED, WHILE FOR OTHERS, IT IS MEASURED IN METE RS. THE UNIT USED 13 I TA NO.4522/DEL/2011 FOR MEASURING QUANTITY OF DIFFERENT KIND OF PRODUCTS I S DIFFERENT. HOWEVER, PERUSAL OF THE SHOW CAUSE NOTICE REVEALS TH AT WHILE MAKING A COMPARISON WITH POWER CONSUMPTION AND FUEL COST, QUANTI TY OF ALL THE PRODUCTS MANUFACTURED HAS BEEN ADDED TOGETHER BY THE AO. THIS RENDERS THE MONTHLY DATA INCOMPARABLE. B) THAT THERE ALWAYS REMAINS SOME STOCK OF UNFINISHED GOO DS/WORK IN PROGRESS (WIP) AT THE END OF THE MONTH. POWER AND FUEL EXPENSES ARE ALSO INCURRED ON SUCH WIP. THE VOLUME OF THE WIP AT THE END OF EACH MONTH WILL ALSO AFFECT THE POWER AND FUEL EXPENSES, A S THE VOLUME OF THE WIP AT THE END OF A MONTH VARIES FROM MONTH TO MONTH. HENCE, DIRECT COMPARISON OF POWER AND FUEL EXPENSES WITH THE NUMBER OF UNITS MANUFACTURED IS NOT CORRECT. C) THAT POWER CONSUMPTION FOR DIFFERENT KINDS OF PRODUCTS IS DIFFERENT. SOME PRODUCTS MANUFACTURED BY THE ASSESSEE CONSUME MO RE UNITS OF POWER THAN OTHER PRODUCTS MANUFACTURED BY THE ASSESSEE. FOR EXAMPLE, HOSE ASSEMBLY HAS MORE WIELDING PROCESS AN D AS SUCH, IT CONSUMES MORE POWER AS COMPARED TO THAT REQUIRED FOR THE OTHER PRODUCTS MANUFACTURED. THEREFORE, CONSUMPTION OF POWER AND FUEL EXPENSES IN A MONTH LARGELY DEPENDS ON THE QUANTITIES IN WHICH EACH PRODUCT IS MANUFACTURED. IF DURING A PERIOD, PRODUCTS WHICH CONSUME MORE POWER ARE MANUFACTURED IN LARGER QUANTITIES THAN TH E PRODUCTS WHICH CONSUME LESS POWER, THE POWER AND FUEL EXPENSE S SHALL BE HIGHER. IRRESPECTIVE OF THE TOTAL QUANTITIES OF ALL THE PR ODUCTS MANUFACTURED, THE NUMBER OF UNITS OF POWER CONSUMED IN A MONTH DEPENDS LARGELY ON THE TYPE OF THE PRODUCTS MANUFACTURED . FOR INSTANCE, MANUFACTURE OF CORRUGATED ASSEMBLIES REQUIRE S TIG WELDING PROCESS AT HIGH VOLTAGE AND HENCE, IT CONSUMES MORE P OWER, WHICH IS ALMOST 100% MORE POWER AS COMPARED TO OTHER PRODUCTS. T HEREFORE, ADDING THE MONTHLY PRODUCTION QUANTITY OF ALL THE PRODUCTS AND COMPARING IT WITH THE OVERALL MONTHLY POWER AND FUEL EX PENSES DOES NOT PROVIDE THE CORRECT VIEW. D) THAT THE ASSESSEE MANUFACTURES DIFFERENT KINDS OF PRODU CTS. SOME PRODUCTS ARE MANUFACTURED AS INDIVIDUAL PARTS, WHILE S OME ARE USED AS ATTACHMENTS IN MAKING OTHER LARGER PARTS LIKE HOSE ASSEM BLIES. SOME ATTACHMENTS TO HOSE ASSEMBLIES ARE OF SUCH NATURE, THAT THE Y CAN BE EITHER MANUFACTURED IN ITS OWN FACTORY BY THE ASSESSEE, OR THEY CAN BE BOUGHT FROM EXTERNAL MARKET VENDORS, ACCORDING TO THE R EQUIRED SPECIFICATION. IN ANY PERIOD, WHERE SUCH ATTACHMENTS AR E PROCURED FROM EXTERNAL VENDORS, THE POWER CONSUMPTION SHALL BE LOWER AS COMPARED TO THE PERIOD IN WHICH SUCH ATTACHMENTS ARE MAN UFACTURED INTERNALLY. E) THAT ELECTRICITY EXPENSES ARE PAID TO DAKSHIN HARYANA BIJLIVITRAN NIGAM LTD. (DHBVN). DHBVN IS A DIVISION OF HARYANA STATE ELE CTRICITY BOARD (HSEB) AND A WHOLLY STATE OWNED CORPORATION. ALL THE P AYMENTS HAVE 14 I TA NO.4522/DEL/2011 BEEN MADE BY THE ASSESSEE VIDE ACCOUNT PAYEE CHEQUES. ALL THE POWER EXPENDITURE HAS BEEN DULY VOUCHED FOR AND RECORDED I N THE BOOKS OF ACCOUNT. COPIES OF ALL THE INVOICES RECEIVED FROM DHB VN HAD BEEN SUBMITTED TO THE AO VIDE WRITTEN SUBMISSIONS DATED 16.8.1 0. F) COMPARISON OF POWER EXPENSES WITH PRODUCTION, AS MADE BY THE AO, IS NOT CORRECT DUE TO THE REASON THAT A DHBVN INVOICE IS NOR MALLY FROM MID OF A MONTH TO MID OF THE NEXT MONTH. THEREFORE, COMP ARISON OF POWER EXPENSES WITH PRODUCTION ON THE BASIS OF POWER I NVOICES IS NOT CORRECT. G) OTHER POWER AND FUEL EXPENSES COMPRISE OF DIESEL EXP ENSES FOR GENERATORS USED IN THE FACTORY OF THE ASSESSEE. THE AS SESSEE HAS INSTALLED HIGH POWER GENERATORS IN ITS FACTORY TO RUN I TS PRODUCTION ACTIVITIES IN CASE OF POWER CUTS AND POWER FAILURES. COST OF OWN GENERATION OF POWER THROUGH GENERATORS IS HIGHER THAN THE COST OF POWER SUPPLIED BY DHBVN. IT IS ALMOST 1.5 TIMES THE COS T OF POWER SUPPLIED BY DHBVN. HENCE, IN A MONTH WHEN DHBVN POWE R SUPPLY IS LESS, POWER AND FUEL EXPENSES WILL INCREASE, IRRESP ECTIVE OF THE INCREASE IN PRODUCTION. HENCE, THESE EXPENSES CANNOT BE CORREL ATED DIRECTLY IN PROPORTION TO PRODUCTION. THE DIESEL USED TO RUN THESE GENERATORS IS PURCHASED FROM EXTERNAL VENDORS. ALL THE PAYMENTS TO DI ESEL VENDORS ARE MADE THROUGH ACCOUNT PAYEE CHEQUES. ALL THE EXPENS ES HAVE BEEN DULY VOUCHED FOR AND RECORDED IN THE BOOKS OF ACCOUN T OF THE ASSESSEE.; THAT AS SUCH, THE OBSERVATION OF THE AO THAT THE POWER AND FUEL EXPENSES ARE NOT COMMENSURATE WITH THE PRODUCTION IS WHOLLY UNJUSTI FIED; THAT IN RESPECT OF THE POWER AND FUEL EXPENSES, THE ASSESSEE HAS PRODUCED COMPLETE BILLS AND VOUCHERS AND NO DISCREPANCY WHAT SO EVER HAS BEEN RECORDED BY THE AO WITH REGARD TO THE INCURRENCE OF THE EXPENDITURE; T HAT WITHOUT PREJUDICE, THERE IS NO EXCESSIVE CONSUMPTION OF THE POWER AND FUEL ; THAT MERELY BECAUSE EXPENDITURE ON POWER AND FUEL IS HIGHER, THIS CANNOT BE A GROUND FOR REJECTION OF THE BOOKS OF ACCOUNT, AS HELD IN THE CASE OF ST. TERESAS OIL MILLS VS. STATE OF KERALA, 76 ITR 365 (KER); THAT THE AO HAS REJECTED THE BOOKS OF ACCOUNT AND HAS PROCEEDED TO MAKE A HEAVY ADDITION A RBITRARILY BY INCREASING THE GROSS PROFIT RATE BY 7%, BEING THE DIF FERENCE IN THE GROSS PROFIT RATE OF THE ASSESSMENT YEAR IN QUESTION AND THAT OF THE PRECEDING ASSESSMENT YEAR; THAT THE AO HAS NOT BROUGHT ON RECORD ANY REASON OR FACT AS TO HOW THIS CONCLUSION WAS DRAWN AND THE ADDITION H AS BEEN MADE PURELY 15 I TA NO.4522/DEL/2011 ON CONJECTURES AND SURMISES, WITHOUT ANY BASIS WHATSOEVER; THAT IT IS ALSO NOT THE CASE OF THE AO THAT THE ASSESSEE HAS MADE ANY SALE OUTSIDE THE BOOKS, OR HAS SUPPRESSED THE SALES; THAT MERE LOW GROSS PROF IT IS NOT A GROUND FOR REJECTION OF THE BOOKS OF ACCOUNT, AS HELD IN THE CASE OF CIT VS POONAM RANI, 326 ITR 223 (DEL); THAT THE AO FOUND THAT THE NET PROFIT OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HAD FALLEN FRO M 6% TO 5%, AS AGAINST THAT OF THE PRECEDING YEAR AND PROCEEDED TO FRAME THE ASSESSMENT BY ENHANCING THE GROSS PROFIT BY 7%, AS THE GROSS PROFIT OF THE ASSESSEE FOR THE INSTANT ASSESSMENT YEAR, WHICH WAS DECLARED AT 22% HA D FALLEN BY 7% AS COMPARED TO THE PREVIOUS ASSESSMENT YEAR, IN WHICH YEAR, IT WAS DECLARED AT 29%; THAT LIKE HAS TO BE COMPARED WITH LIKE; THAT IN OTHER WORDS, IF THE AO WAS TO ENHANCE THE GROSS PROFIT AND COMPUTE INCOME ON THE BASIS OF THE GP, INSTEAD OF NET PROFIT, SHE COULD HAVE HELD THAT THE D EFICIT OF 7% WARRANTS AN ADDITION; THAT HOWEVER, IN THE INSTANT CASE, BY MAKIN G AN ADDITION OF 7% TO THE GROSS PROFIT, SHE ENHANCED THE NET PROFIT FROM 5% TO 12%; THAT IN FACT, THE QUESTION IS AS TO WHETHER THE MARGIN OF 12% OF NET PROFIT CAN BE SAID TO BE CORRECT; THAT THE DECLARED PROFIT MARGIN IS 5% AS AGAINST 6% IN THE PRECEDING ASSESSMENT YEAR AND 5% FOR THE YEAR ENDED 31 .03.2006; THAT IN THE ASSESSEES OWN CASE, IN AY 2006-07, TRADING ADDITIONS WERE MADE BY THE AO ON THE BASIS OF DIFFERENCE IN GROSS PROFIT RATE FROM PRECEDING YEARS; THAT THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) AND THE TRADING ADDITIONS WERE DELETED IN FULL; THAT SUBSEQUENTLY, T HE REVENUE FILED AN APPEAL BEFORE THE ITAT, WHICH WAS DISMISSED VIDE ORDER DATED 2 1.4.10.(APB 177- 181) HOLDING THAT THE AO HAD FAILED TO BRING ANY PLAUSIBLE REASON FOR REPLACING THE GP SHOWN BY THE ASSESSEE WITHOUT POINTING OUT ANY DISCREPANCY IN THE PURCHASES OF RAW MATERIALS AND SALES, OPENING STOCK OR CLOSING STOCK AND WITHOUT POINTING OUT ANY DEFECT IN THE BOOKS OF ACCOUNT OF THE ASSESSEE; ; THAT IN THE INSTANT CASE, THE AO HAS RECORDED THAT SI NCE THERE WAS INCREASE IN THE MANUFACTURING EXPENSES FROM RS. 4,94 ,48,811/- TO RS. 5,07,87,651/- AND ALSO UNDER THE HEAD OF EMPLOYEES R EMUNERATION & BENEFIT FROM RS. 4,71,24,704/- TO RS. 5,08,65,913/- AND THERE WAS FALL IN GROSS PROFIT, 16 I TA NO.4522/DEL/2011 THE BOOKS OF ACCOUNT COULD NOT BE ACCEPTED; THAT IN RECORDING THE AFORESAID FINDING, SHE HAS FAILED TO CONSIDER THAT THE MATERIAL COST OF THE MAIN INPUT (APB 365), I.E., OF COIL AND WIRE HAD INCREASED BY M ORE THAN 15% AND 22%, RESPECTIVELY, WHEREAS INCREASE IN THE MANUFACTURING EX PENSES WAS ONLY OF 2.7% AND INCREASE IN EMPLOYEE COST WAS ONLY OF 7.95%, AS COMPARED TO THE PREVIOUS YEAR; THAT IF THE AFORESAID FACTS ARE TAKEN INTO CONSIDERATION, THE FALL IN GROSS PROFIT WOULD BE JUSTIFIED; THAT IN THE PRESE NT CASE ALSO, THE AO DID NOT RAISE ANY QUERY REGARDING THE PURCHASE VALUE OF R AW MATERIALS FROM ANY OF THE PARTIES FROM WHOM PURCHASES WERE MADE, NOR DID THE AO ASK ANY QUESTION REGARDING THE SALES VALUE OF THE PRODUCTS SOLD TO ANY OF THE PARTIES, NOR WAS SHE ABLE TO POINT OUT ANY DEFECT IN THE BOOKS OF ACCOUNT OF THE ASSESSEE; THAT IN STATE OF ORISSA V. MAHARAJAH SHRI B.P . SINGH DEO, 76 ITR 690 (SC), IT WAS HELD THAT WHERE THE AO CONSIDERS THE MATERIAL PLACED BEFORE HIM BY AN ASSESSEE AS NOT RELIABLE, HE CANNOT PROCEED TO MAKE AN ARBITRARY ASSESSMENT AND IF THE AO THINKS THAT THE PROFITS SHOWN BY THE ASSESSEE ARE NOT ACCEPTABLE, IT IS FOR THE TAXING AUTHORITY TO P ROVE THAT THE ASSESSEE HAD MADE MORE PROFITS AND THEN, THE AO HAS TO RELATE HIS ESTIMATE TO SOME EVIDENCE OR MATERIAL ON RECORD; THAT RELIANCE IN TH IS REGARD WAS ALSO BEING PLACED ON INTERNATIONAL FOREST CO. V. CIT, 101 ITR 721 (SC), DHAKESWARI COTTON MILLS LTD. V. CIT, 26 ITR 775 (SC) AND DHI RAJLAL GIRDHARILAL V COMMISSIONER OF INCOME TAX, 26 ITR 736 (SC); THAT TH E AO HAS MADE AN ADDITION OF RS. 3,71,25,681/- AND HAS RELIED UPON SECT ION 145 OF THE ACT TO ENHANCE THE GROSS PROFIT BY 7%; THAT IN DOING SO, HE HAS COMPARED THE AVERAGE RATE OF GROSS PROFIT, INSTEAD OF AVERAGE NET R ATE OF PROFIT; THAT IF TRADING RESULTS ARE TO BE REJECTED AND THE AO IS TO EST IMATE THE INCOME OF THE ASSESSEE TO THE BEST OF HIS JUDGMENT, IT IS ONLY NET PROFI T RATE AND NOT GROSS PROFIT RATE WHICH IS REQUIRED TO BE COMPARED; THAT I N CASE IT IS HELD THAT THE AO COULD ADOPT THE GROSS PROFIT RATE TO BE A VALID BASIS, HE W OULD BE ACCEPTING THE EXPENDITURE DEBITED IN THE PROFIT AND LOSS ACCOUNT, WHICH, OBVIOUSLY, IS BASED ON THE BOOKS OF ACCOUNT; THAT THIS W OULD BE CONTRARY TO THE THEORY OF REJECTION OF BOOKS OF ACCOUNT; THAT IT IS NOT POSSIBLE TO HOLD THAT 17 I TA NO.4522/DEL/2011 THE BOOKS OF ACCOUNT ARE PARTIALLY CORRECT AND PARTI ALLY INCORRECT; THAT FURTHER, THE AO HAS NOT ENHANCED THE TURNOVER AND HAS ACCEPTE D THE DISCLOSED TURNOVER, BUT HAS APPLIED THE GROSS PROFIT RATE ON THE DECLARED TURNOVER; THAT THIS ONLY MEANS THAT THERE IS NO DISPUTE ABOUT THE DECL ARED TURNOVER; THAT FURTHER, THE AO HAS ONLY DISPUTED THE EXCESSIVENESS OF T HE EXPENDITURE INCURRED ON POWER AND FUEL, BUT WITHOUT DISPUTING TH AT SUCH AN EXPENDITURE HAS BEEN INCURRED, WHICH EXPENDITURE, IN HER OPINION, I S EXCESSIVE WHEN COMPARED TO THE PRODUCTION; THAT THE TOTAL EXPENDIT URE INCURRED ON POWER AND FUEL IN THE INSTANT YEAR AGGREGATES TO RS. 81,53,9 42/- (APB 261), WHEREAS IN THE PRECEDING YEAR, SUCH EXPENDITURE INCUR RED AMOUNTED TO RS. 72,45,660/- (APB 261); THAT HOWEVER, THE AO HAS NOT DISPUTED THE INCURRENCE OF THE EXPENDITURE, EITHER IN RESPECT OF POWER AND F UEL, OR UNDER ANY OTHER HEAD; THAT ALL THAT HAS BEEN STATED IS THAT THERE IS NO MATCH BETWEEN THE PRODUCTION AND THE CONSUMPTION OF POWER AND FUEL; TH AT FURTHER, THE AO HAS ADMITTED THAT THE ELECTRICITY EXPENSES HAVE BEEN INCU RRED IN RESPECT OF THE ELECTRICITY BILLS PAID; THAT LIKEWISE, SHE HAS ALSO ADMI TTED THAT THE DEPARTMENT DOES NOT INTEND TO DISPUTE THE STATEMENT OF THE ASSESSEE THAT THE DIESEL USED TO RUN GENERATORS WAS PURCHASED FROM EXTERNAL VEND ORS; THAT THEREFORE, THE APPROACH OF THE AO IS HIGHLY ARBITRARY AND ERRON EOUS IN LAW, BEING PERVERSE; THAT IT IS NOT A CASE WHERE THE AO HAS DISPUTE D THE COST OF THE EXPENDITURE INCURRED IN RESPECT OF THE POWER AND FUE L, OR UNDER ANY OTHER HEAD OF EXPENDITURE; THAT HAD THERE BEEN ANY MISMATC H BETWEEN THE PRODUCTION AND THE CONSUMPTION OF FUEL, OBVIOUSLY THE EXPENDITURE INCURRED WOULD HAVE BEEN FOUND TO BE DISPROPORTIONATE, EITHER IN TERMS OF VALUE, OR OTHERWISE, AND LIKEWISE, OF THE PRODUCTION; THAT IN F ACT, ONCE THE AO HAS APPLIED THE GROSS PROFIT RATE ON THE DECLARED TURNOVE R, IT BECOMES ABSOLUTELY EVIDENT THAT THE AO ACCEPTS THE FIGURE OF TURNOVER AND THEREBY, THE PRODUCTION, AS DECLARED BY THE ASSESSEE, TO BE CORRECT AND THUS NO ADDITION COULD HAVE BEEN ATTEMPTED BY HER; THAT THUS, THE BASI S OF MAKING THE AFORESAID ADDITION BY THE AO BY ENHANCING THE GROSS PR OFIT RATE IS HIGHLY UNJUSTIFIED; THAT THE AVERAGE RATE OF GROSS PROFIT HAD FALLEN ON ACCOUNT OF 18 I TA NO.4522/DEL/2011 SUBSTANTIAL INCREASE IN THE COST OF RAW MATERIAL, AS WAS EXPLAINED BEFORE THE AO IN THE ASSESSEES WRITTEN SUBMISSIONS DATED 1.11.10 (APB 110); THAT THE AO HAS NOT DISPUTED THE AFORESAID SUBMISSION OR THE FACT THAT THE COST OF RAW MATERIAL HAD SUBSTANTIALLY INCREASED, WHICH FACT IS FU LLY SUPPORTED BY VOUCHERS AND ALL THE PAYMENTS HAVE BEEN MADE BY ACCOU NT PAYEE CHEQUES; THAT THERE IS NO FINDING BY THE AO THAT THE COST OF T HE RAW MATERIAL, AS REFLECTED IN THE BOOKS OF ACCOUNT, WAS EITHER INFLATE D, OR UNVERIFIABLE; THAT THEREFORE, THE AO HAS GROSSLY ERRED IN MAKING THE AFOR ESAID ADDITION; AND THAT IN CASE THE TRIBUNAL IS OF THE OPINION THAT THE BOOKS OF ACCOUNT NEED TO BE RE-EXAMINED IN THE LIGHT OF THE OBSERVATIONS OF TH E AOS COMMENTS, IN THE ASSESSMENT ORDER, THE ASSESSEE WILL HAVE NO OBJECTION TO HA VE THE SAME RE- EXAMINED BY THE AO. 11. ON THE OTHER HAND, THE LD. DR, VIDE WRITTEN SUBMISSION S DATED 25.2.13 (APB 137-140) HAS CONTENDED, INTER ALIA, THAT THE AO HAD SPECIFICALLY ASKED THE ASSESSEE VIDE NOTICES DATED 23.9.09 AND 8.7.10 TO PR ODUCE THE BOOKS OF ACCOUNT, DOCUMENTS AND OTHER EVIDENCE IN SUPPORT OF T HE RETURN OF INCOME FILED; HOWEVER, THE ASSESSEE FAILED TO DO SO; THAT THE O RDER SHEET OF THE AO CLEARLY SHOWS THAT AT LEAST THE BOOKS OF ACCOUNT WERE N OT SHOWN TO THE AO AND HAD IT BEEN OTHERWISE, THERE WOULD HAVE BEEN A R ECORDING/ENTRY TO THAT EFFECT IN THE ORDER SHEET; THAT EVEN IF FOR ARGUMEN T SAKE IT IS PRESUMED THAT THE BOOKS WERE CARRIED AND PRODUCED BY THE ASSESSEE, WHEN THE ASSESSEE WAS ASKED TO SIGN THE ORDER SHEET, IT COULD HAVE BEEN Q UALIFIED TO THAT EFFECT; THAT THE ABSENCE OF SUCH A QUALIFICATION SHOWS THAT BOO KS OF ACCOUNT WERE NEVER PRODUCED BEFORE THE AO; THAT THE AFFIDAVITS FI LED BEFORE THE TRIBUNAL ON BEHALF OF THE DEPARTMENT ALSO GO TO SHOW THAT THE BOO KS OF ACCOUNT WERE NOT PRODUCED; THAT THE AFFIDAVIT FILED BY SHRI NARESH AG GARWAL ON BEHALF OF THE ASSESSEE NEEDS TO BE REJECTED, SINCE THE HEARINGS BEFORE T HE AO WERE ATTENDED BY HIM ALONG WITH MANJU BHARADWAJ AND KART IK BANSAL, WHEREAS THE AFFIDAVIT HAS BEEN FILED ONLY BY HIM; THAT MOREOVE R, THE AFFIDAVIT OF SHRI NARESH AGGARWAL WAS FILED FOR THE FIRST TIME ONLY BEFO RE THE TRIBUNAL AND NO 19 I TA NO.4522/DEL/2011 SUCH AFFIDAVIT WAS FILED BEFORE THE LD. CIT (A), DISCL OSING THAT THE CONTENTS OF SUCH AFFIDAVIT ARE MERELY AN AFTERTHOUGHT; THAT NO SU CH AFFIDAVIT WAS FILED BEFORE THE LD. CIT (A) DUE TO THE APPREHENSION OF BE ING CAUGHT BY THE CIT (A), WHOSE POWERS INCLUDE THE POWER OF EXAMINING THE DEPONENT AND THE POWER TO PROSECUTE FOR MAKING A FALSE STATEMENT, UNDER THE IPC; THAT EVEN THE AUDIT REPORT OF THE ASSESSEE STATES THAT ACCORDING TO THE INFORMATION AND EXPLANATIONS GIVEN TO THE AUDITORS, THE ASSESSEE COMPANY HAD NOT MAINTAINED THE PRESCRIBED BOOKS OF ACCOUNT AND RECORD S PURSUANT TO THE RULES MADE BY THE CENTRAL GOVERNMENT FOR THE MAINTEN ANCE OF COST RECORDS U/S 201 (1) (D) OF THE COMPANIES ACT, 1956, FOR THE M ANUFACTURE OF AUTOMOTIVE COMPONENTS; THAT THIS FURTHER PROVES THAT B OOKS OF ACCOUNT, WHICH WERE NOT EVEN MAINTAINED BY THE ASSESSEE, HAD NOT BEEN PRODUCED BEFORE THE AO; THAT FURTHER, PRESUMING, THOUGH NOT A DMITTING, THAT THE BOOKS WERE MAINTAINED AND PRODUCED BEFORE THE AO, THEY COULD WELL HAVE BEEN PRODUCED BEFORE THE CIT (A) ALSO, TO REBUT THE FINDI NGS OF THE AO; THAT THERE IS NOTHING ON RECORD SHOWING ANY ATTEMPT/PROPOSAL BY T HE ASSESSEE TO PRODUCE THEM EVEN BEFORE THE CIT (A); THAT T HE CONTENTION OF THE ASSESSEE THAT DESPITE DOUBTING THE POWER CONSUMPTION, THE AO DOES N OT DISTURB THE TURNOVER IS ALSO OF NO HELP, BECAUSE THERE WAS NO SUCH MATERIAL AVAILABLE WITH THE AO TO IN ANY WAY DOUBT THE SUPPRESSION OF TURNOVER; THAT WHEN IT WAS SO, THE QU ESTION OF DOUBTING THE TURNOVER BY THE AO WOULD NOT HAVE ARIS EN; THAT FURTHER, THE ASSESSEE HAS FAILED TO APPRECIATE THAT T HERE WAS NO QUESTION OF DOUBTING THE GENUINENESS OF THE POWER B ILLS BECAUSE THEY WERE RAISED BY THE GOVERNMENT DEPARTMENTS ONLY ; THAT SINCE THERE WERE VAST VARIATIONS IN THE CONSUMPTION PATTER N INFERENCE OF MANIPULATIONS WITHIN THE BOOKS BY THE ASSESSEE O NLY WAS THE MOST REASONABLE LOGICAL INFERENCE WHICH THE AO COULD H AVE DRAWN; THAT ANOTHER ARGUMENT OF THE ASSESSEE HAS BE EN THAT THE ACTION OF THE AO FOR REJECTING THE BOOKS OF ACCOUNT OR THE BOOK RESULTS, INTER ALIA, ON THE GROUND OF FAILURE OF THE ASSESSEE TO 20 I TA NO.4522/DEL/2011 FURNISH MONTHLY DATA IN TERMS OF CONSUMPTION OF POWE R IN TERMS OF UNITS AND THE PRODUCTION IN TERMS OF METERS WAS N OT JUSTIFIED, BECAUSE THE AO FAILED TO APPRECIATE THAT THE ITEMS BE ING PRODUCED WERE OF MULTIPLE TYPES, OF WHICH, A FEW WERE I N TERMS OF UNITS, WHILE THE OTHER WERE IN TERMS OF METERAGE, THA T THUS, ASSESSEE SAYS THAT FROM THE UNCOMPARABLE DATA NOTHIN G COULD HAVE BEEN INFERRED BY THE AO AND THAT WHEN IT IS SO , THIS CANNOT BE A GROUND FOR REJECTION OF BOOKS; THAT IN THE SAME BREATH, IT HAS BEEN AVERRED BY THE ASSESSEE, THAT THERE IS NO CO-RELA TION BETWEEN THE PRODUCTION AND THE ELECTRICITY CONSUMPTIO N; THAT IN THIS CONNECTION, THE ASSESSMENT ORDER SHOWS THAT SUCH A CONTENTION WAS NEVER ADVANCED BY THE ASSESSEE BEFORE THE AO, WHICH OUGHT TO NAVE BEEN DONE, ESPECIALLY WHEN THE AO HAD SPECIFICALLY ASKED FOR EXPLANATION ABOUT THE VAST VA RIATIONS IN THE TRADING RESULTS IN REFERENCE TO THE PRECEDING YEARS; THAT IN PARA 3.1(A) OF THE ASSESSMENT ORDER, THE AO HAS CLEARLY PO INTED OUT ABOUT THE FAILURE OF THE ASSESSEE TO GIVE THE BREAK UP OR DETAILS OF METER WISE PRODUCTION VIS-A-VIS THE CONSUMPTION OF POWE R AND FUEL AND NUMBER WISE PRODUCTION VIS-A-VIS THE CONSUMPTION OF POWER AND FUEL; THAT WHEN ORIGINAIIY THIS CONTENTION WAS N OT ADVANCED, NO COGNIZANCE THEREOF CAN BE TAKEN NOW AS IT IS JUST AN AFTERTHOUGHT; THAT THE ASSESSEE CONTENDS THAT THE AS PECT OF POWER CONSUMPTION IS THE ONLY REASON GIVEN BY THE AO FOR REJECTING THE BOOKS; THAT IN THIS CONNECTION, ASSESSMEN T ORDER SHOWS THAT PRIMARILY, THE FACTORS WHICH PROMPTED THE A O TO REJECT THE BOOK RESULTS AND TO APPLY THE GP RATE, HIKING IT BY 7%, WERE (A) MISMATCH BETWEEN MONTH WISE PRODUCTION, CONSUMPTIO N OF RAW MATERIAL, POWER AND FUEL AND THE RESULTANT PRODU CTION, (B) NON-FURNISHING OF DETAILS OF WIP & UNFINISHED GOODS PRODUCED, (C) VAST VARIATIONS BETWEEN THE PRODUCTION AND CONSUMPTI ON, (D) NON-FURNISHING OF DETAILS AS TO WHICH ITEMS CONSUME LESS POWER 21 I TA NO.4522/DEL/2011 VIS-A-VIS OTHER ITEMS, WHICH HAS TO BE THERE IN ANY IN DUSTRIAL ACTIVITY, (E) NON-FURNISHING OF DETAILS OF PRODUCTS MA NUFACTURED AS INDIVIDUAL PARTS AND AS USED AS ATTACHMENTS IN MAKIN G OTHER LARGER PARTS, (F) SHARP FALL IN GP & NP, RESPECTIVELY, OF 7% &1 % AS COMPARED TO THE LAST YEAR, (G) FAILURE TO FILE SPECIF IC DETAILS TO PROVE AS TO HOW THE COST OF PRODUCTION INCREASED AND THERE WAS NO CORRESPONDING INCREASE IN SALE PRICE, (H) FAILURE TO PRODUCE BOOKS AND BILLS IN SUPPORT OF THE FIGURES QUOTED, (I ) NON- MAINTENANCE OF PRESCRIBED BOOKS/COST RECORDS, ETC., AS RE QUIRED UNDER SECTION 209(1)(D) OF THE COMPANIES ACT, 1956 REG ARDING THE MANUFACTURE OF AUTOMOTIVE COMPONENTS AND (J) SHARP INCREASE IN THE MANUFACTURING EXPENSES AND EXPENSES UNDER THE HE AD OF EMPLOYEE REMUNERATION & BENEFIT; THAT IT WAS IN THE LIGHT OF ALL THE ABOVE REASONS AND NOT JUST ON THE BASIS OF CONSU MPTION OF POWER, THAT DRAWING SUPPORT FROM VARIOUS SQUARELY AP PLICABLE JUDICIAL DECISIONS, THE AO RIGHTLY INVOKED SECTION 145 OF THE ACT & REJECTED THE BOOKS AND HIKED THE GP BY 7%; THAT IT W AS RESULTANTLY, THAT THE AO MADE DISALLOWANCE OF EXPEN SES TO THE EQUIVALENT EXTENT AMOUNTING TO RS.3,71,25,681 OUT O F THE MANUFACTURING AND TRADING A/C; THAT THE EXPLANATION OF THE ASSESSEE THAT DESPITE THERE BEING INCREASE IN COST OF PRODUCTION, THERE HAS NOT BEEN ANY CORRESPONDING INCREASE IN TH E SALE PRICE WAS FOUND TO BE TOO GENERAL TO EXPLAIN SUCH A DRAST IC FALL; THAT R EGARDING THE CONTENTION PUT FORTH THAT THE AO ON TH E ONE HAND DOUBTS MANUFACTURING RESULTS BUT MAKES ADDITION OUT OF THE P & L A/C, THE AO WAS DOUBTING NOT ONLY THE CORRECTNESS OF THE MANUFACTURED ITEMS, BUT ALSO OF THE P & L A/C COMPRISI NG OF THE TRADING AND MANUFACTURING A/ C; THAT ON THE ARGUMENT THAT NO NOTICE WAS GIVEN TO THE ASSESSEE TO PRODUCE BOOKS OF ACCOUNT, IT IS THE ASSESSEE'S SELF-DESTRUCTIVE ARGUMENT, BECAUSE O N THE ONE HAND, IT IS CONTENDED THAT NO SUCH NOTICE WAS GIVEN, WH ILE ON THE 22 I TA NO.4522/DEL/2011 OTHER, IT SAYS THAT THE BOOKS WERE PRODUCED; THAT WHI LE CONTENDING SO, THE ASSESSEE FORGETS TO APPRECIATE THA T THE BOOKS COULD NOT HAVE BEEN PRODUCED, UNLESS THERE WAS A REQUIREMENT/NOTICE FROM AO TO THAT EFFECT; THAT FURTH ER, THE ASSESSEE FAILS TO APPRECIATE THAT WHEN, AS OBSERVED BY THE AUDITORS IN THEIR AUDIT REPORT, CERTAIN IMPORTANT MA NUFACTURING RECORDS WERE NOT MAINTAINED AT ALL, IT WAS IMPOSSIBLE FOR THE ASSESSEE TO PRODUCE THE NON-EXISTENT RECORDS BEFORE TH E AO; THAT WHILE CONTENDING THAT IF THE BOOKS WERE NOT THERE A ND WERE NOT PRODUCED, HOW IT WOULD HAVE BEEN POSSIBLE FOR THE AO TO REJECT THEM AND THAT TOO WITHOUT SEEING THEM, THE ASSESSEE FAILS TO APPRECIATE THAT THE CONTENTION OF THE AO HAS BEEN THA T CERTAIN RECORDS, AS OBSERVED BY THE AUDITORS ALSO, WERE NOT AT ALL MAINTAINED AND HENCE, THEY WERE NOT PRODUCED AND THAT ACCORDINGLY, WHATEVER BOOKS WERE MAINTAINED BY THE AS SESSEE, ON THE BASIS OF WHICH TRADING RESULTS WERE ARRIVED A T, WERE CLEARLY DEFECTIVE AND UNRELIABLE; THAT THIS IS WHY THOSE BOO KS, WHICH WERE NOT EVEN SHOWN TO THE AO, WERE TO BE REJECTED, AS A LO GICAL DEDUCTION AND THAT NON PRODUCTION OF THE BOOKS BEFORE THE AO WAS A GOOD ENOUGH REASON FOR THE AO TO REJECT BOOK R ESULTS BECAUSE THEY, I.E., THE RESULTS, WERE NOT VERIFIABLE; THAT ALL THE ARGUMENTS RAISED BEFORE THE TRIBUNAL WERE TAKEN BY TH E ASSESSEE BEFORE THE AO AND THEN BEFORE THE LD. CIT (A) ALSO; THAT THE C IT (A), AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, DID NOT FIND T HE EXPLANATION OF THE ASSESSEE TO BE CONVINCING AND, ACCORDINGLY, RIGHTLY UPH ELD THE ORDER OF THE AO; THAT THE ASSESSEE HAS NOT BEEN ABLE TO EFFECTIVELY REFUTE THE DETAILED OBSERVATIONS MADE BY THE AO; THAT THE ASSESSEE HAS ALSO NOT BEEN ABLE TO REBUT THE CATEGORICAL FINDINGS OF FACT RECORDED BY T HE LD. CIT (A) IN RIGHTLY UPHOLDING THE ASSESSMENT ORDER ON THIS ISSUE; THAT IT HAS BEEN SPECIFICALLY NOTED IN THE ORDER UNDER APPEAL THAT IN SPITE OF REP EATED REQUESTS BY THE AO, THE ASSESSEE HAD NOT PRODUCED ITS BOOKS OF ACCOUNT FOR PH YSICAL VERIFICATION 23 I TA NO.4522/DEL/2011 AND AS SUCH, IT WAS NOT POSSIBLE TO VERIFY THE CLAIM M ADE BY THE ASSESSEE; THAT THE LD. CIT (A) HAS RIGHTLY HELD THAT THE ASSESSEE FAILED TO EXPLAIN BEFORE THE AO THE REASON FOR SUCH LOW GP AND THAT IN THE ABSE NCE OF PRODUCTION OF BOOKS OF ACCOUNT, THE EXPLANATION OF THE ASSESSEE HAD RI GHTLY BEEN REJECTED BY THE AO; THAT FURTHER, THERE IS ALSO NO REBUTTAL TO THE LD. CIT (A)S OBSERVATION THAT NO MATERIAL WAS PLACED ON RECORD BY THE ASSESSEE TO SHOW THAT IT HAD BEEN PREJUDICED BY THE ESTIMATION OF GP MADE BY THE AO; AND THAT THE ASSESSEE HAS ALSO NOT BEEN ABLE TO REBUT THE FIN DING OF THE LD. CIT (A) THAT THE PRINCIPLE OF PROPORTIONALITY WAS APPLIE D BY THE AO BY MAKING A DETAILED DISCUSSION. 12. APROPOS THE AFFIDAVIT FILED BY THE ASSESSEE, I.E., THE AFFIDAVIT (APB 69- 70) OF SHRI NARESH AGGARWAL, CFO AND DIRECTOR OF THE ASSESSEE COMPANY, WHEREIN, IT HAS BEEN STATED ON OATH THAT ALONG WITH V ARIOUS REPLIES FILED BY THE ASSESSEE BEFORE THE AO, THE ASSESSEE HAD ENCLOSED ALL T HE RELEVANT DOCUMENTS AND EVIDENCE AS REQUIRED BY THE AO AND HAD PRODUCED COMPLETE BOOKS OF ACCOUNT FOR PERUSAL AND VERIFICATION BY THE AO AND THAT THE OBSERVATION OF THE AO THAT NO BOOKS/BILLS/VOUCHERS WERE EVER PRODUCED, WAS FACTUALLY INCORRECT AS THE ASSESSEE HAD PRODUCED COMPLET E BOOKS OF ACCOUNT BEFORE THE AO ON 18.11.2010 AND THAT THOUGH THE ASSESSE E CARRIED THE BOOKS OF ACCOUNT EVEN BEFORE THE CIT (A) FOR HIS PERUSAL AN D VERIFICATION, THE CIT (A) DID NOT LOOK INTO THESE BOOKS OF ACCOUNT AND DECIDED THE APPEAL FILED ON THE BASIS OF WRITTEN SUBMISSIONS FILED BY THE ASSESSEE, THE LD. D R FILED LETTER (APB 77A) DATED 6.7.12, SUBMITTING A DOCUMENT (APB 7 7B) DATED 5.7.12 AS AFFIDAVIT OF MS NISHTHA TIWARI, DY. COMMISSIONER OF INC OME-TAX, CIRCLE 8 (1), NEW DELHI (THE AO IN THIS CASE), STATING, INTER ALIA, THAT NO BOOKS/BILLS/VOUCHERS WERE EVER PRODUCED IN THE COURSE OF ASSESSMENT PROCEEDINGS. 24 I TA NO.4522/DEL/2011 13. IN RESPONSE TO THE ABOVE DOCUMENT, THE ASSESSEE FILED REJ OINDER (APB 78-83), OBJECTING THAT THE SAID PURPORTED AFFIDAVIT IS NEITHER VERIFIED, NOR NOTARIZED AND SO, IT IS NOT ADMISSIBLE AS EVIDENCE. 14. LATER, THE DEPARTMENT FILED ANOTHER DOCUMENT (APB 1 23-124), DATED 3.10.12, STATED TO BE AN AFFIDAVIT OF SHRI ARKENDRA SINGH, ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE 8 (1), NEW DELHI, STATING THAT AS MENTIONED IN THE ASSESSMENT ORDER DATED 10.12.2010, THE ASSESSEE WAS REQUESTED TO PRODUCE BOOKS OF ACCOUNT AND BILLS IN SUPP ORT OF FIGURES QUOTED BY IT; THAT IN RESPONSE, THE ASSESSEE HAD IN LETTER DATED 18.11.10 STATED THAT COMPLETE BOOKS OF ACCOUNT WERE PRODUCED FOR THE AOS VERIFICATION; AND THAT HOWEVER, NO SUCH BOOKS/BILLS/VOUCHERS WERE PRODUCED DU RING THE COURSE OF ASSESSMENT PROCEEDINGS. 15. THE LD. DR HAS CONTENDED VIDE ORAL SUBMISSIONS AND WR ITTEN SUBMISSIONS (SUPRA) DATED 25.2.13 THAT THE AFFIDAVIT FI LED BY THE ASSESSEE HAS BEEN FILED UNDER RULE 10 OF THE INCOME-TAX APPEL LATE TRIBUNAL RULES; THAT THE SAID RULES DO NOT DEFINE AN AFFIDAVIT AND HENCE, WHAT MAY BE AN AFFIDAVIT UNDER ORDER XIX RULE 3 OF THE CPC, IS NOT RELEVANT; THAT THEREFORE, THE ASSESSEES CONTENTION THAT THE AFFIDAVIT FILED BY THE DE PARTMENT ARE NOT IN ACCORDANCE WITH ORDER XIX, RULE 3 OF THE CPC, IS NOT SUSTAINABLE; THAT EVEN OTHERWISE, BOTH THE AFFIDAVITS FILED BY THE REVENUE A RE STRICTLY IN ACCORDANCE WITH THE REQUIREMENTS OF ORDER XIX, RULE 3 CPC; THAT THE AFFIDAVIT OF THE AO, MS NISHTHA TIWARI, CONTAINS VERIFICATION ON THE BASIS O F PERSONAL KNOWLEDGE; THAT THE AFFIDAVIT OF SHRI ARKENDRA SINGH, APART FR OM BEING NOTARIZED, DISCLOSES THE SOURCE OF VERIFICATION, AS DISCLOSED IN THE AFFIDAVIT ITSELF; THAT AN AFFIDAVIT CAN BE EITHER ON OATH, OR AS AN AFFIRMATIO N; THAT BOTH THE AFFIDAVITS FILED BY THE DEPARTMENT ARE ON AFFIRMATION BEFORE T HE TRIBUNAL, WHICH HAS THE AUTHORITY TO ADMINISTER SUCH OATH/AFFIRMATION AND SO, JUST BECAUSE THE AFFIDAVITS DO NOT SPECIFICALLY MENTION THE WORD OATH , THEY CANNOT BE DISCARDED; THAT SECTION 8 OF THE NOTARIES ACT, 1952 D EFINES THE FUNCTION OF A 25 I TA NO.4522/DEL/2011 NOTARY TO BE TO ADMINISTER OATH TO, OR TAKE AFFIDAVI T FROM ANY PERSON; THAT SINCE THE AFFIDAVIT OF SHRI ARKENDRA SINGH WAS FILED BEFORE A NOTARY, IT IS EVIDENT THAT WITHOUT ADMINISTERING OATH, WHICH COULD BE ORAL, OR IN WRITING, THE NOTARY WOULD NOT HAVE TAKEN THE AFFIDAVIT; THAT BY VIRTUE OF SECTION 8 (E) OF THE NOTARIES ACT, A PRESUMPTION OF ADMINISTRATION O F OATH IS ATTACHED TO AN AFFIDAVIT, WHEN IT STANDS DULY NOTARIZED; THAT SO, TH E ASSESSEES CONTENTION THAT THE AFFIDAVIT, NOT BEING ON OATH, IS NOT ACCEPT ABLE, NEEDS TO BE REJECTED; THAT FURTHER, AS PER SECTION 4 OF THE OATHS ACT, 196 9, AN OATH OR AFFIRMATION IS TO BE MADE BY WITNESSES AND INTERPRETERS OF QUESTIONS PUT TO AN EVIDENCE GIVEN BY WITNESSES; THAT SINCE THE AO HERSELF ACTED IN A JUDICIAL CAPACITY AND EVEN BY VIRTUE OF THE PROVISIONS OF SECTION 4 OF THE OATHS ACT, THERE WAS NO REQUIREMENT FOR HER TO MAKE OATH OR AFFIRMATION; TH AT OTHERWISE TOO, IF THE AFFIDAVITS FILED ARE NOT TAKEN TO BE AFFIDAVITS ON OA TH, THERE WAS NO REQUIREMENT OF FILING SUCH AFFIDAVITS; AND THAT SO, TH E OBJECTION RAISED BY THE ASSESSEE BE REJECTED. 16. THE ASSESSEE HAS FILED REJOINDER SUBMISSIONS (APB 125-136), WHEREIN IT HAS BEEN CONTENDED, INTER ALIA, THAT THE DOCUMENT FI LED IN SUBSTITUTION OF THE PURPORTED AFFIDAVIT OF MS NISHTHA TIWARI, AO, I.E., THE PURPORTED AFFIDAVIT OF SHRI ARKENDRA SINGH, ACIT, CIRCLE 8 (1), NEW DELHI, IS ALSO NOT AN AFFIDAVIT INASMUCH AS THE SAME, LIKE THE PURPORTED AFFIDAVIT OF MS NISHTHA TIWARI, AO, IS NOT VERIFIED; THAT IN THE ABSENCE OF VERIFICATION, THIS DOCUMENT IS A MERE STATEMENT; THAT HOWEVER, SUCH STATEMENT, AS IS EVIDENT F ROM THE CONTENTS OF THE DOCUMENT, IS NOT BASED EITHER ON PERSONAL KNOWLED GE, OR ON ANY MATERIAL PLACED ON RECORD; THAT IT IS NOT A SWORN DOCUMENT AND IT HAS MERELY BEEN ATTESTED BY A NOTARY WITHOUT ANY ONE HAVING VERIFIED THE DEPONENT BEFORE THE NOTARY; THAT MOREOVER, THE STATEMENT MADE IN THE ALL EGED AFFIDAVIT IS NOT BY THE PERSON WHO HAD FRAMED THE ASSESSMENT; THAT SHRI ARK ENDRA SINGH CANNOT MAKE A STATEMENT IN RESPECT OF A MATTER WHICH COULD N OT HAVE BEEN IN HIS PERSONAL KNOWLEDGE; THAT WHAT THE BASIS OF THE STATEME NT IS, HAS NOT BEEN STATED THEREIN AND IT HAS BEEN ONLY STATED THAT THE STA TEMENT MADE IS AS PER 26 I TA NO.4522/DEL/2011 THE ORDER OF ASSESSMENT; THAT APROPOS THE OBJECTION OF THE LD. DR THAT AN AFFIDAVIT UNDER RULE 10 OF THE ITAT RULES CAN BE A M ERE SWORN STATEMENT, DUE TO WHICH, THE AFFIDAVIT FILED CANNOT BE DISREGAR DED, SINCE THE ITAT RULES DO NOT DEFINE AN AFFIDAVIT AND ORDER XIX, RULE 3 OF THE CPC HAS NO RELEVANCE, IT REMAINS UNDENIED THAT THE AFFIDAVIT HAS NOT BEEN V ERIFIED; THAT FOR A DOCUMENT TO BE TAKEN TO BE IN THE NATURE OF AN AFFI DAVIT, IT IS NECESSARY THAT THE STATEMENT SWORN THEREIN MUST BE VERIFIED; THAT FUR THER, RULE 10 OF THE ITAT RULES SPECIFICALLY STATES THAT THE AFFIDAVIT TO BE FILED HAS TO BE A DULY SWORN AFFIDAVIT; THAT THIS IS ENTIRELY IN KEEPING WIT H THE REQUIREMENT OF ORDER XIX, RULE 3, CPC; THAT AN AFFIDAVIT SHOULD BE VERIF IED BY EXPRESSLY STATING AS TO WHICH PART THEREOF IS TRUE TO THE PERSONAL KNOWLED GE OF THE DEPONENT AND WHICH IS TRUE ON THE BASIS OF INFORMATION; THAT AN AFF IDAVIT SERVES AS EVIDENCE IN THE ABSENCE OF ANY OTHER EVIDENCE; THAT IN THE PR ESENT CASE, THERE IS NO EVIDENCE TO SUPPORT THE CONTENTION OF THE DEPARTMENT THAT THE BOOKS OF ACCOUNT WERE NOT PRODUCED BEFORE THE AO BY THE ASSESSEE ; AND THAT IN SUCH A SCENARIO, THE AFFIDAVIT FILED BY THE ASSESSEE CAN ONLY BE REBUTTED BY A COUNTER AFFIDAVIT, WHEREAS THE DOCUMENTS FILED BY THE DEPARTMENT ARE NO AFFIDAVIT IN THE EYE OF LAW. 17. THE ASSESSEE HAS FILED FURTHER WRITTEN SUBMISSIONS (APB 141- 164), WHICH ARE IN REJOINDER TO THE DEPARTMENTS WRITTEN SU BMISSIONS (SUPRA) DATED 25.2.13. IT HAS BEEN CONTENDED, INTER ALIA, THAT IT IS INCORRECT TO STATE THAT THE PROVISIONS OF ORDER XIX RULE 3, CPC HAVE BEEN COMPLI ED WITH; THAT THE AFFIDAVIT OF MS NISHTHA TIWARI IS NEITHER NOTARIZED N OR VERIFIED; THAT THE AFFIDAVIT OF SHRI ARKENDRA SINGH ALSO DOES NOT CONTAI N VERIFICATION; THAT RULE 10 OF THE ITAT RULES ONLY PROVIDES THAT A FACT WHICH IS NOT BORNE OUT OR IS CONTRARY TO THE RECORD CAN BE PROVED ON AFFIDAVIT; THAT HOWEVER, THE SAID RULE DOES NOT PROVIDE AS TO WHO CAN STATE ON AFFIDAVIT AND AS TO HOW A STATEMENT SHOULD BE GIVEN ON AFFIDAVIT; THAT IT IS INC ORRECT THAT THE RECORD DOES NOT SHOW THE PRODUCTION OF BOOKS OF ACCOUNT BY TH E ASSESSEE BEFORE THE AO; THAT THE ASSESSEES WRITTEN SUBMISSIONS DATED 18.11.10 BEFORE THE AO 27 I TA NO.4522/DEL/2011 BELIE THIS; AND THAT SECTION 4 OF THE OATHS ACT PROVI DES THAT OATHS OR AFFIRMATIONS SHALL BE MADE BY ALL WITNESSES, INTERPRETE RS AND JURORS; AND THAT IT DOES NOT PROVIDE THAT JURORS CANNOT SWEAR ON OATH. 18. WE HAVE HEARD THE PARTIES ON THIS ISSUE AND HAVE EXAMIN ED THE MATERIAL PLACED ON RECORD WITH REGARD THERETO. APRO POS THE AFFIDAVITS FILED BEFORE US BY BOTH THE PARTIES, IT IS NOTED THAT AS COR RECTLY CONTENDED ON BEHALF OF THE ASSESSEE, THE AFFIDAVIT OF MS NISHTHA TIWAR I, AO AND SHRI ARKENDRA SINGH, ACIT, ARE BOTH NOT AFFIDAVITS IN THE EYE OF LAW. THE AFFIDAVIT OF MS NISHTHA TIWARI WAS NEITHER VERIFIED, NOR NOTARIZ ED. BOTH THESE REQUIREMENTS HAVE BEEN HELD TO BE THE SINE QUA NON FOR A VALID AFFIDAVIT IN STATE OF BOMBAY VS. PURUSHOTTAM JOG NAIK AIR 1952 S C 317 AND IN AKK NAMBIAR VS. UOI AND ANOTHER, AIR 1970 SC 652. THE A FFIDAVIT OF SHRI ARKENDRA SINGH, THOUGH IT IS NOTARIZED, IT DOES NOT C ONTAIN ANY VERIFICATION. THERE IS NO MERIT IN THE DEPARTMENTS CONTENTION THAT THE ASSESSEES OBJECTIONS IN THIS REGARD ARE MERELY TECHNICAL OBJECT IONS. THERE IS ALSO NO MERIT IN THE DEPARTMENTS SUBMISSION THAT IN THE FACE O F RULE 10 OF THE ITAT RULES, ORDER XIX RULE 3, CPC CANNOT BE TAKEN RECOURSE TO. RULE 10 OF THE ITAT RULES PROVIDES THAT WHERE A FACT WHICH CANNOT BE BORNE OUT BY OR IS CONTRARY TO THE RECORD ALLEGED, IT SHALL BE STATED CL EARLY AND CONCISELY AND SUPPORTED BY A SWORN AFFIDAVIT. IT DOES NOT DILATE UPO N AS TO WHAT AN AFFIDAVIT IS. THAT BEING SO, THE RELEVANT PROVISIONS OF THE CPC, I.E., ORDER XIX, RULE 3 THEREOF NEEDS MUST BE RESORTED TO. 19. SO FAR AS REGARDS THE ISSUE OF VERIFICATION, IN AKK NA MBIAR VS. UOI AND ANOTHER (SUPRA) AND IN VIRENDRA VS. JAGJIWAN 1974 S C 1957, IT HAS BEEN HELD THAT THE REASONS FOR VERIFICATION OF AFFIDAVITS ARE TO ENABLE THE COURT TO FIND OUT WHICH FACTS CAN BE SAID TO BE PROVED ON THE AFFID AVIT EVIDENCE OF RIVAL PARTIES; THAT THE IMPORTANCE OF VERIFICATION IS TO T EST THE GENUINENESS AND AUTHENTICITY OF THE ALLEGATIONS AND ALSO TO MAKE THE DEPONENT RESPONSIBLE FOR THE ALLEGATIONS; THAT IN ESSENCE, VERIFICATION IS REQUI RED TO ENABLE THE COURT TO 28 I TA NO.4522/DEL/2011 FIND OUT AS TO WHETHER IT WILL BE SAFE TO ACT ON SUCH AFFIDAVIT EVIDENCE. IN SUBAL VS. S, AIR 1952 SC 255, IT HAS BEEN HELD THAT AFFIDAVITS NOT PROPERLY VERIFIED WILL BE REJECTED AND THAT IN THE ABSENCE OF PROPER VERIFICATION, AFFIDAVITS CANNOT BE ADMITTED IN EVIDENCE. NO DECISI ON TO THE CONTRARY HAS BEEN CITED BEFORE US BY THE DEPARTMENT. THEN, IN D. N. GUPTA VS. JASWANT, AIR 1982 DELHI 250, IT HAS BEEN HELD THAT WHERE AN A FFIDAVIT IS NOT PROPERLY VERIFIED, IT CANNOT BE ALLOWED TO BE AMENDED, BUT T HE DEPONENT MAY BE ALLOWED AN OPPORTUNITY TO FILE ANOTHER AFFIDAVIT. I N THE PRESENT CASE, ACCORDINGLY, SINCE THE AFFIDAVIT OF MS NISHTHA TIWARI DID NOT CONTAIN ANY VERIFICATION, THE DEPARTMENT WAS ALLOWED AN OPPORTUN ITY TO FILE HER FRESH AFFIDAVIT. HOWEVER, THE AFFIDAVIT FILED THE SECOND T IME ROUND IS NOT OF THE DEPONENT IN THE FIRST AFFIDAVIT, I.E., THE AO. FURT HER, THIS SECOND AFFIDAVIT ALSO DOES NOT CONTAIN ANY VERIFICATION. 20. APROPOS THE DEPARTMENTS RELIANCE ON SECTION 4 OF TH E OATHS ACT, 1969, THE SAID PROVISION READS AS FOLLOWS:- 4. OATHS OR AFFIRMATIONS TO BE MADE BY WITNESSES, INTE RPRETERS AND JURORS. (1) OATHS OR AFFIRMATIONS SHALL BE MADE BY THE FOLLOWING PERSONS, NAMELY:- (A) ALL WITNESSES, THAT IS TO SAY, ALL PERSONS WHO MAY LAWF ULLY BE EXAMINED, OR GIVE, OR BE REQUIRED TO GIVE, EVIDEN CE BY OR BEFORE ANY COURT OR PERSON HAVING BY LAW OR CONS ENT OF PARTIES AUTHORITY TO EXAMINE SUCH PERSONS OR TO RECEIVE EVIDENCE; (B) INTERPRETERS OF QUESTIONS PUT TO, AND EVIDENCE GIVEN BY , WITNESSES; AND (C) JURORS; 21. IT IS CLEAR FROM THE AFORESAID SECTION 4 OF THE OATHS ACT, THAT IT DOES NOT PROVIDE THAT JURORS CANNOT SWEAR ON OATH. LIKEWISE, SE CTION 4 OF THE OATHS ACT ALSO DOES NOT SAY THAT AN AO CANNOT, OR SHOULD NOT, MAKE AFFIRMATIONS ON OATH BY FILING AN AFFIDAVIT. 29 I TA NO.4522/DEL/2011 22. REGARDING THE DEPARTMENTS FURTHER CONTENTION THAT A N AFFIDAVIT CAN EITHER BE ON OATH OR AS AN AFFIRMATION AND THAT BOTH THE AFFIDAVITS FILED ON BEHALF OF THE DEPARTMENT ARE ON AFFIRMATION BEFORE THE TRIBUNAL, WHICH HAS THE AUTHORITY TO ADMINISTER SUCH OATH/AFFIRMATION AND SO, THESE AFFIDAVITS CANNOT BE REJECTED, IN THE PRESENT CASE, NEITHER OF T HE AFFIDAVITS FILED BY THE DEPARTMENT ARE STATEMENTS ON OATH. THEY ALSO CONTAIN N O VERIFICATION. IT IS ALSO INCORRECT TO STATE THAT SINCE THE TRIBUNAL HAS THE AUTHORITY TO ADMINISTER SUCH OATH/AFFIRMATION, THE AFFIDAVIT CANNOT BE REJEC TED. IT IS TRITE THAT ALL AFFIDAVITS NEED MUST BE DULY VERIFIED, AS OBSERVED IN T HE DECISIONS NOTED HEREINABOVE. 23. FURTHER, THE RELIANCE OF THE DEPARTMENT ON SECTION 8 OF THE NOTARIES ACT, 1952 IS ALSO OUT OF CONTEXT. THE SAID PROVISION NO WHERE PROVIDES THAT AN AFFIDAVIT WITHOUT VERIFICATION IS A VALID AFFIDAVIT. 24. FOR THE ABOVE REASONS, NEITHER OF THE AFFIDAVITS FILED BY THE DEPARTMENT BEFORE US ARE AFFIDAVITS IN THE EYE OF LAW AND THE SAME CANNOT BE READ IN EVIDENCE. 25. NOW, ADDRESSING THE QUESTION OF PRODUCTION OF THE BOOK S OF ACCOUNT BY THE ASSESSEE BEFORE THE AO, THE INTRINSIC MUTUAL CONTRAD ICTION BETWEEN THE OBSERVATIONS MADE BY THE AO IN THE ASSESSMENT ORDER WITH REGARD TO THIS ASPECT HAS BEEN NOTED ABOVE. DESPITE THIS GLARING CONTR ADICTION, THE SAME WAS NOT TAKEN NOTE OF BY THE LD. CIT (A) AND THE CIT (A) MERELY WENT BY THE ASSESSMENT ORDER AS IT IS, ILLEGALLY UPHOLDING THE ADDIT ION MADE. 26. BE THAT AS IT MAY, IT IS SEEN THAT THE ASSESSMENT ORDER DO ES NOT TAKE INTO CONSIDERATION THE CONTENTIONS RAISED BEFORE US BY THE ASSESSEE, WHICH HAVE REPEATEDLY BEEN STATED TO HAVE SPECIFICALLY BEE N TAKEN BEFORE THE AO. IT HAS BEEN CONTENDED THAT THE AO HAS ONLY REFERRED T O THE MONTHWISE PRODUCTION VIS-A-VIS THE CONSUMPTION OF POWER AND FUE L AND HELD THAT THERE IS NO MATCH OF THE CONSUMPTION OF POWER AND FUEL WITH T HE PRODUCTION. IT HAS 30 I TA NO.4522/DEL/2011 BEEN SUBMITTED THAT WHILE DOING SO, THE AO DID NOT TA KE INTO CONSIDERATION THE FACT THAT FLEXIBLE CORRUGATED ASSEMBLIES AND AUTOM OTIVE EXHAUST CONNECTORS ARE MANUFACTURED IN NUMBERS AND, AS SUCH, TH EIR PRODUCTION WAS ALSO RECORDED IN NUMBERS. IT HAS BEEN SUBMITTED THAT FL EXIBLE CORRUGATED METAL HOSES AND WIRE BRADING ARE MANUFACTURED LENGTHW ISE AND THEREFORE, THEY ARE RECORDED IN TERMS OF METRES. IT HAS BEEN CON TENDED THAT AS SUCH, SINCE THESE ITEMS HAVE NO CO-RELATION INTER SE, THE NUMBER OF UNITS MANUFACTURED AND THE LENGTHS ADOPTED TOGETHER CANNOT MATCH THE CONSUMPTION OF POWER AND FUEL AND ELECTRICITY. IN TH IS REGARD, RG-1, I.E., THE RECORD OF FINISHED GOODS AND RG-23, I.E., THE RECORD OF INPUT WERE PRODUCED TO SHOW THAT THE ITEMS MANUFACTURED ARE EXCISABLE GOOD S AND A COMPLETE RECORD OF THE MANUFACTURE THEREOF IS MAINTAINED BY T HE ASSESSEE. 27. THE RESPONSE OF THE DEPARTMENT IN THIS REGARD IS THAT I N PARA 3.1 (A) OF THE ASSESSMENT ORDER, IT HAS BEEN OBSERVED THAT THE ASSESSEE FAILED TO GIVE THE BREAK UP OR DETAILS OF METREWISE PRODUCTION VIS-A- VIS THE CONSUMPTION OF POWER AND FUEL AND NUMBERWISE PRODUCTION VIS-A-VIS CO NSUMPTION OF POWER AND FUEL. 28. WE FIND THAT IN THE ASSESSMENT ORDER, THE AO HAS NOT DE ALT WITH THE AFORESAID CONTENTIONS OF THE ASSESSEE. IT IS PERTINENT TO REITERATE HERE THAT IT WAS VIDE ORDER SHEET NOTING DATED 28.7.10, THAT DETA ILS OF MONTHLY PRODUCTION AND OF MONTHLY POWER CONSUMPTION WERE ASKE D FOR BY THE AO FROM THE ASSESSEE. VIDE ORDER SHEET NOTING DATED 17.8.1 0, THE AO NOTED THAT REPLY TO THE ABOVE QUERIES WAS FILED ON BEHALF OF THE ASSESSEE. THE LD. CIT (A) HAS ALSO NOT TAKEN NOTE OF THIS ASPECT OF THE MAT TER AND HAS NOT RECORDED ANY FINDING WITH REGARD THERETO. 29. FURTHER, AS CORRECTLY POINTED OUT ON BEHALF OF THE A SSESSEE, THE AO HAS ACCEPTED BOTH - THE FIGURES OF PRODUCTION OF THE ASSESSE E AND THOSE OF ITS CONSUMPTION OF POWER AND FUEL. IN THIS REGARD, THE ASSE SSEE MADE SUBMISSIONS BEFORE THE AO VIDE ITS REPLIES DATED 16.08.10 , 1.11.10 AND 31 I TA NO.4522/DEL/2011 18.11.10 AND ALSO BEFORE THE LD. CIT (A) (APB 345-34 8). THE DETAILS OF POWER AND FUEL CONSUMED IN EACH MONTH ARE AT APB 117-120, THE DETAILS OF POWER AND FUEL FOR THE LAST FIVE YEARS ARE AT APB 202 AND T HE DETAILS OF POWER AND FUEL CONSUMPTION ARE AT APB 366. 30. SO FAR AS REGARDS THE AOS OBSERVATION THAT THE ASSESSEE HA S NOT GIVEN ANY BREAK UP OR DETAIL OF METREWISE PRODUCTION VIS- A-VIS CONSUMPTION OF POWER AND FUEL AND NUMBERWISE PRODUCTION VIS-A-VIS CON SUMPTION OF POWER AND FUEL, WITH NO DETAIL IN RESPECT OF BIFURCATION O F MONTHLY PRODUCTION OF GOODS WHICH CONSUMES LESS POWER AND ALL THOSE WHICH CON SUME MORE POWER HAS BEEN FURNISHED, OR OF MANUFACTURED ALL INDIVIDUAL PARTS AND PRODUCTS USED AS ATTACHMENT AND ALL DETAILS OF WIP AND UNFINISHE D GOODS PRODUCED, THE ASSESSEES REPLY IS CONTAINED IN ITS REPLY DATED 18.11 .10. THESE SUBMISSIONS WERE ALSO FILED BEFORE THE LD. CIT (A). THE DETAILS OF POWER AND FUEL PER MONTH AND FOR THE LAST FIVE YEARS AND OF F UEL CONSUMED AND PERCENTAGE TO THE COST OF THE SALES OF THE ASSESSEE HAVE A LSO BEEN FILED, AS NOTED ABOVE. THE CONTENTION IS THAT IT IS NOT POSSIBLE TO DEDUCE AS TO WHICH PRODUCT CONSUMES MORE ELECTRICITY THAN THE OTHERS AND THAT IN THE ABSENCE OF SEPARATE METERS OF CONSUMPTION OF ELECTRICITY VIS-A -VIS PRODUCTION OF DIFFERENT ITEMS, SUCH DETAILS ARE NOT POSSIBLE TO BE MAI NTAINED. THE ASSESSEE MAINTAINS THAT THE ITEMS MANUFACTURED IN EACH MONTH A RE NOT MANUFACTURED IN THE SAME VOLUME AND QUANTITY AND SHOW THE CONSUMPT ION OF POWER AND FUEL VIS-A-VIS THE ITEMS MANUFACTURED WOULD BE MORE, OR LESS, DEPENDING ON THE PRODUCTION. IT HAS ALSO BEEN STATED THAT LEGALLY , THE ASSESSEE IS NOT REQUIRED TO MAINTAIN A RECORD INDICATING AS TO WHICH PRODUCT CONSUMES MORE ELECTRICITY AND WHICH PRODUCT REQUIRES LESS ELECTRICIT Y; AND THAT ALSO, THIS HAS NOTHING TO DO WITH THE METHOD OF ACCOUNTING, WHICH IS THE SAME EMPLOYED BY THE ASSESSEE AS DONE BY IT FROM ITS VERY INCEPTION AND IN WHICH METHOD, NO DEFECT HAS EVER BEEN FOUND BY THE DEPARTMENT. 32 I TA NO.4522/DEL/2011 31. THESE SUBMISSIONS OF THE ASSESSEE, MADE BEFORE THE AO, HAVE ALSO NOT ATTRACTED ANY FINDING IN THE ASSESSMENT ORDER, EVEN THO UGH THE AO OBSERVES THAT : THE DEPARTMENT DOES NOT INTEND TO DISPUTE THE STATEMENT OF THE ASSESSEE THAT IT HAS MADE ELECTRICITY BILL PAYMENT 32. THERE IS ALSO NO FINDING RECORDED IN THIS REGARD BY TH E LD. CIT (A) TOO. 33. TO THE AOS OBJECTION THAT THERE IS NO CO-RELATION BE TWEEN THE FALL IN GP AND NP RATIO WITH THE BUSINESS EXPENSES, AGAIN, THE ASSESSE ES ELOQUENT REPLIES DATED 1.11.10 AND 18.11.10 CONTAINED ITS SUBMI SSIONS MADE. SIMILAR SUBMISSIONS WERE MADE BEFORE THE LD. CIT (A) ALSO. IT HA S BEEN STATED THAT THE MATERIAL COST OF THE MAIN INPUT, I.E., COIL AND WIRE, STOOD INCREASED BY ABOUT 15% AND 22%, RESPECTIVELY, ON ACCOUNT OF MARKE T CONDITIONS, WHEREAS INCREASE IN THE MANUFACTURING EXPENSES WAS ONLY OF 2.7% AND THAT THE INCREASE IN EMPLOYEE COST WAS ONLY OF 7.9%, AS COMPARED TO THE PRECEDING YEAR AND IF THIS IS TAKEN INTO CONSIDERATION, THE FALL IN GROSS PROFIT STANDS EXPLAINED; THAT FOR ASSESSMENT YEAR 2005-06, THE GP WAS 37%, AND IT FELL TO 29% FOR ASSESSMENT YEAR 2007-08, WHICH WAS ACCEPTED; THA T THE NET PROFIT RATE ALSO FELL TO 5% FOR ASSESSMENT YEAR 2006-07 FROM 9% FOR ASSESSMENT YEAR 2005-06 AND THE AOS ADDITION ON THIS ACCOUNT WA S DELETED BY THE CIT (A), WHICH DELETION WAS UPHELD BY THE TRIBUNAL. 34. AGAIN, THESE SUBMISSIONS OF THE ASSESSEE WERE NOT TAKEN INTO ACCOUNT BY THE AO AND THE LD. CIT (A) ALSO DID NOT COMMENT O N THE SAME. THIS, DESPITE THE FACT THAT NEITHER THE PURCHASE VALUE OF T HE RAW MATERIALS, NOR THE SALES VALUE OF THE PRODUCTS SOLD WERE DISPUTED BY THE AO . 35. IN THE ABOVE VIEW OF THE MATTER, IT IS DEEMED APPROP RIATE THAT IN THE INTEREST OF JUSTICE SINCE THE REAL ISSUE INVOLVED IS THE DETERMINATION OF THE CORRECT INCOME OF THE ASSESSEE, THE MATTER BE REMITTED TO THE FILE OF THE AO TO BE DECIDED AFRESH IN ACCORDANCE WITH LAW, ON AFF ORDING DUE OPPORTUNITY OF 33 I TA NO.4522/DEL/2011 HEARING TO THE ASSESSEE AND ON EXAMINING THE BOOKS OF ACCOUNT OF THE ASSESSEE. THE ASSESSEE, NO DOUBT, SHALL COOPERATE IN THE PR OCEEDINGS BEFORE THE AO. THE ASSESSEE SHALL BE FREE TO RAISE ALL POSSIBLE P LEAS, AS AVAILABLE TO IT UNDER THE LAW ON THIS ISSUE AND TO PLACE ALL RELEVA NT MATERIAL BEFORE THE AO, INCLUDING ITS BOOKS OF ACCOUNT. 36. SINCE THE ISSUE CONCERNING GROUND NO.2 IS REMITTED TO THE FILE OF THE AO, AS ABOVE, THE ISSUES PERTAINING TO GROUND NOS.3 AND 4 ARE ALSO REMITTED TO THE FILE OF THE AO FOR DECISION AFRESH, AS DIRECTED TO BE DONE FOR GROUND NO.2 ABOVE. THESE ISSUES ALSO RELATE DIRECTLY WITH THE B OOKS OF ACCOUNT OF THE ASSESSEE. IN THE FACE OF THE CONTROVERSY AS TO WHETHER T HE BOOKS OF ACCOUNT WERE, IN FACT, PRODUCED BY THE ASSESSEE BEFORE THE AO O R NOT, WHICH IS THE MATTER PERTAINING TO GROUND NO.2, BESIDES THE RELEVAN T ADDITION MADE, ARGUMENTS ON GROUND NOS.3 AND 4 WERE NOT HEARD. THESE GROUNDS HAVING BEEN ADMITTED BY US, THE ABOVE DIRECTIONS GIVEN BY US REGARDING GROUND NO.2 SHALL EQUALLY APPLY TO THE FRESH PROCEEDINGS BEFO RE THE AO, CONCERNING GROUND NOS.3 AND 4 AND THE ASSESSEE SHALL BE AT LIBERTY TO PLACE ALL RELEVANT MATERIAL AND EVIDENCE BEFORE THE AO, INCLUDING THE BOOKS OF ACCOUNT. ALL PLEAS AVAILABLE TO THE ASSESSEE UNDER THE LAW QUA THESE I SSUES WILL ALSO BE ALLOWED TO BE RAISED. 37. IN THE RESULT, FOR STATISTICAL PURPOSES, THE ASSESSEES APPEA L IS TREATED AS ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 09.04.201 4. SD/- SD/- [S HAMIM YAHYA ] [A.D. JAIN] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED, 09.04.2014. DK 34 I TA NO.4522/DEL/2011 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.