DCIT, Lucknow V. M/s. Shimla Food & Flavours, Lucknow

ITA 463/LKW/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 9069 (ITAT-LUCKNOW)
• Duration Of Justice: 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 09-03-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 29-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANADI VERMA
• Assessee Lawyers: YOGESH AGARWAL
• Keywords: Rejection of books of accounts; Business income; Principle of natural justice; Onus to prove; Documents seized
• Section: 153A; 132; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B : LUCKNOW BEFORE SHRI H. L. KARWA, HONBLE VICE PRESIDENT AND SHRI N. K. SAINI, ACCOUNTANT MEMBER I.T.A. NO.463/LUC/10 ASSESSMENT YEAR:2006-2007 DY. C. I. T., VS. M/S SHIMLA FOOD & FLAVOURS, CENTRAL CIRCLE-I, 30-C, DATIYA HOUSE, LUCKNOW. KHURSHED BAGH, LUCKNOW. PAN:AAXFS1612H (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI ANADI VERMA, D. R. RESPONDENT BY: SHRI YOGESH AGARWAL, ADV. ORDER PER N. K. SAINI: THIS IS AN APPEAL FILED BY THE DEPARTMENT AGAINST T HE ORDER DATED 02/03/2010 OF CIT(A)-III, LUCKNOW RELEVANT TO ASSES SMENT YEAR 2006-2007. THE ONLY GRIEVANCE OF THE DEPARTMENT IN THIS APPEAL RELATES TO THE DELETION OF ADDITION OF ` 9,44,666/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF GROSS PROFIT. 2. THE FACTS RELATED TO THIS ISSUE, IN BRIEF, ARE T HAT A SEARCH & SEIZURE OPERATION U/S 132 OF THE I.T. ACT, 1961 WAS CONDUCT ED ON 09/03/2007 AT THE BUSINESS PREMISES OF THE ASSESSEE. SUBSEQUENT UPON THE SEARCH OPERATION A NOTICE U/S 153A OF THE I.T. ACT WAS ISS UED TO THE ASSESSEE 2 CALLING FOR RETURN OF INCOME FOR THE RELEVANT ASSES SMENT YEAR. THE ASSESSEE, VIDE LETTER DATED 07/10/2008 SUBMITTED TH AT THE RETURN OF INCOME ORIGINALLY FILED ON 31/10/2006 FOR THE ASSESSMENT Y EAR 2006-2007 DECLARING TOTAL INCOME OF ` 16,70,950/- MAY BE TREATED AS RETURN FILED IN RESPO NSE TO NOTICE U/S 153A OF THE I.T. ACT. HOWEVER, THE ASSE SSING OFFICER MADE THE IMPUGNED ADDITION AFTER REJECTING THE BOOKS OF ACCO UNT. THE ASSESSING OFFICER APPLIED THE GROSS PROFIT RATE OF 10.5% AS A GAINST THE GROSS PROFIT RATE OF 8.10% SHOWN BY THE ASSESSEE ON THE SALES OF `41 ,79,713/- WHICH RESULTED IN AN ADDITION OF ` 9,94,666/-. THE OBSERVATIONS MADE BY THE ASSESSING OFFICER WHILE MAKING THE ABOVE ADDITION I N PARA 3 OF THE ASSESSMENT ORDER DATED 31/12/2008 WERE AS UNDER: 3. EXAMINATION OF SEIZED MATERIAL OF PARTY NO-2, AT BK (1) S.NO-13 REVEALED THAT SHOW CAUSE NOTICES WERE ISSUE D BY THE DIRECTORATE GENERAL OF CENTRAL EXCISE INTELLIGE NCE, KANPUR, TO THE M/S SHIMLA FOOD AND FLAVOURS ON THE BASIS OF SEARCH OPERATIONS CARRIED OUT BY THE DGCEI ON THE G ROUP PREMISES INCLUDING THE PREMISES OF M/S SHIMLA FOOD AND FLAVOURS ON 01.06.2004. THE ASSESSEE, WAS, THEREAFT ER CONFRONTED ON THE FINDINGS OF THE SEARCH PROCEEDING S OF THE CENTRAL EXCISE DEPARTMENT VIDE SHOW CAUSE ISSUED TO HIM ON 01.12.08 AND FINALLY VIDE THE FINAL SHOW CAUSE ISSU ED ON 11.12.2008. THUS, THE EXAMINATION OF THE SHOW CAUSE NOTICE REFE RRED TO ABOVE LEADS TO THE FOLLOWING CONCLUSIONS, AS DISCUS SED BELOW: I. DURING THE SEARCH OF DGCEI, KANPUR SPECIFICALLY QUANTIFIED DETAILS OF UNACCOUNTED AND UNRECORDED PURCHASES BY THE ASSESSEE WERE REVEALED. 3 II. DURING THE SEARCH OF DGCEI, KANPUR SPECIFICALLY QUANTIFIED DETAILS OF UNACCOUNTED AND UNRECORDED SALES BY THE ASSESSEE TO M/S HIMACHAL MARKETING WERE REVEALED. III. THE C.E. DEPARTMENT HAS ASSESSED THAT THE PRODUCTION CAPACITY OF THE ASSESSEE IS MUCH ABOVE THE FIGURES SHOWN BY HIM IN HIS STATUTORY RECORDS. AS PER THE STATEMENT OF SH. SHANKAR LAL SAHU, THE AUTHORISED REPRESENTATIVE OF SHIMLA FOOD AND FLAVOURS, THE C.E. DEPARTMENT ESTIMATED THE PRODUCTION CAPACITY OF THE ASSESSEE TO BE 12,96,000 POUCHES PER PACKING MACHINE INSTALLED IN THE FACTORY PER MONTH. THE CE DEPARTMENT HAS FURTHER QUANTIFIED THAT AS PER THE DETAILS OF CLANDESTINE CLEARANCES AS PER THE TRANSPORTERS DOCUMENTS SEIZED DURING THE SEARCH THE PRODUCTION DURING THE PERIOD FROM JANUARY'04 TO MARCH'04 TO BE 3,92,13,000. THIS IS A CLEAR AND UNDENIABLE EVIDENCE OF SUPPRESSION OF PRODUCTION AND SALES BY THE ASSESSEE. IV. THE PARA 26 OF THE SHOW CAUSE ALSO SHOWS THAT A DEFINITE NEXUS EXITS BETWEEN THE DIFFERENT MANUFACTURING UNITS AND TRADING UNITS OF GOMTI GUTKHA. M/S SHIMLA FOOD AND FLAVOURS IS THE MANUFACTURING UNIT IN WHICH SH. ASHOK GUPTA AND SMT PUSHPA GUPTA ARE PARTNERS, AND, THE ENTIRE SALES OF THE ASSESSEE WERE TO M/S HIMACHAL MARKETING, WHICH IS THE PROPRIETORSHIP CONCERN OF SH. RAJESH GUPTA, WHO IS THE BROTHER OF ASHOK GUPTA, THE MANAGING PARTNER OF THE M/S SHIMLA FOOD AND FLAVOURS. IT WAS ACTUALLY SEEN THAT THE FAMILY OF SH. RAJESH GUPTA AND HIS BROTHERS WERE SOLELY RESPONSIBLE FOR MANAGING THE SALE/PURCHASE AND MARKETING ACTIVITIES. ACTUALLY, THEY HAVE FORMED A NEXUS, AND HAVE BEEN ENGAGED IN SYSTEMATIC AND ORGANIZED UNACCOUNTED PURCHASE, SALE AND MARKETING OF 'GOMTI' BRAND GUTKHA EVADING EXCISE DUTY. 4 V. DURING THE COURSE OF THE SEARCH, THE DGCEI HAS ACTUALLY COVERED ALL THE PARTIES INVOLVED IN THIS UNACCOUNTED BUSINESS OF 'GOMTI GUTKHA' AND ON THE BASIS OF DOCUMENTS SEIZED FROM THE CONCERNED TRANSPORTERS AND ALSO FROM THE TRADING PREMISES OF M/S CHAUDHARY DEENANATH AND SONS, GONDA AND M/S GUPTA KIRANA STORES, COLEGANJ, GONDA, IT IS HEREBY REVEALED THAT THE ASSESSEE WAS ACTUALLY MANUFACTURING AND CLEARING GOODS WITHOUT PAYING DUTIES WITHOUT ANY INVOICES AND IN SOME CASES ISSUING FAKE INVOICES, WHICH WERE BEING DESTROYED LATER ON. IT IS REVEALED FROM THE ABOVE DISCUSSION THAT THE A SSESSEE IS ACTUALLY INDULGED IN LARGE SCALE MANUFACTURE AND SA LES SUPPRESSION THROUGH ORGANIZED AND SYSTEMATIC PRODUC TION AND SALE OF GOMTI GUTKHA THROUGH THE NEXUS ESTABLISHED BETWEEN THE MANUFACTURING AND TRADING UNITS, TRANSPORTERS A ND FINALLY THE BUYERS. THEREFORE, THE SALE DECLARED BY THE ASS ESSEE IS NOT THE TRUE DECLARATION OF THE ACTUAL SALES OF THE ASSESSEE. IT MAY ALSO BE NOTED THAT NO EVIDENCE/BILLS/VOUCHERS W HATSOEVER HAVE BEEN PRODUCED IN SUPPORT OF EXPENSES DEBITED B Y THE ASSESSEE IN HIS P&L ACCOUNT DURING THE EXAMINATION OF SEIZED MATERIAL. THEREFORE, SINCE THE ONUS TO PROVE THE GE NUINENESS OF THESE EXPENSES LIES WITH THE ASSESSEE ONLY, REPE ATED OPPORTUNITIES, VIDE SHOW CAUSE DATED 01.12.08 AND 11.12.2008, WAS ACCORDED TO PRODUCE THE ABOVE DETAI LS. HOWEVER, TILL DATE THE ASSESSEE HAS NOT PRODUCED TH E DETAILS AS REQUISITIONED. THEREFORE, IN THE LIGHT OF ABOVE FINDINGS, THE ASSE SSEE WAS REQUIRED TO EXPLAIN THE DISCREPANCIES AS PER THE SH OW CAUSE OF THE DGCEI, KANPUR AND WAS ISSUED SHOW CAUSE TO EXPL AIN THE DECLINE IN G. P. AND AS TO WHY THE BOOKS OF ACCOUNT S OF M/S SHIMLA FOOD AND FLAVOURS SHOULD NOT BE REJECTED U/S 145(3) OF THE IT ACT AND GROSS PROFIT OF THE ASSESSEE CALCULA TED ON THE BASIS OF MATERIAL ON RECORD. THE ASSESSEE HAS STATE D IN HIS FINAL REPLY TO THE SHOW CAUSE THAT THE DECLINE IN G .P IS DUE TO EXCESS EXCISE DUTY PAID. HOWEVER, THE REPLY IS NEI THER SUPPORTED BY THE ACTUAL FACTS OF THE CASE, NOR CAN PAYMENT OF 5 REGULAR EXCISE DUTIES LEAD TO DECLINE IN G.P SUCH S UBSTANTIALLY. IN VIEW OF ALL THE FACTS AND CIRCUMSTANCES OF THE C ASE NARRATED ABOVE, I HEREBY ARRIVE AT THE CONCLUSION THAT THE T RADING RESULTS DECLARED BY THE ASSESSEE ARE NOT ACCEPTABLE, AND, T HEREFORE, I REJECT THE BOOKS OF ACCOUNTS OF THE ASSESSEE U/S 14 5(3) OF THE IT ACT. THE GROSS PROFIT OF THE ASSESSEE IS BEING C OMPUTED AS HEREUNDER: THE G.P. RATE DECLARED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION CAN NOT BE ACCEPTED SINCE THERE IS NO AUTHENTICITY OF THE BOOKS OF ACCOUNTS OF THE ASSESS EE. IT IS ALSO SEEN THAT THE G.P RATE DECLARED HAS SUBSTANTIALLY R EDUCED DURING THE YEAR, WHICH IS UNSUBSTANTIATED WITH ANY VALID JUSTIFICATION. FURTHER, AS POINTED OUT EARLIER, THE EXPENSES DEBITED IN THE P& L ACCOUNT HAVE REMAINED UNVERIFIA BLE DURING THE COURSE OF EXAMINATION OF SEIZED MATERIAL AND FI NAL ASSESSMENT PROCEEDINGS OF THE CASE. THE GROSS PROFI T OF THE ASSESSEE IS CALCULATED, AS HEREUNDER, TAKING REASON ABLE GP RATE OF 10.5 %, CONSIDERING ALL THE FACTS OF THE CA SE AND THE G.P SHOWN BY THE ASSESSEE IN PREVIOUS YEARS : GP ON TOTAL SALES OF THE ASSESSEE @10.5% 41,79,713 /- GP SHOWN BY THE ASSESSEE IN ITR 31,85,047/- DIFFERENCE IN GP TO BE ADDED BACK 9,94,666/- PENALTY PROCEEDINGS U/S 271(1)(C) OF THE I T ACT HA S BEEN INITIATED SEPARATELY FOR THIS PURPOSE. ADD: ` 9,94,666/- 3. THE ASSESSEE CARRIED THE MATTER TO LEARNED CIT(A ) AND SUBMITTED THAT THE ASSESSING OFFICER REJECTED THE BOOK RESULT S ON THE BASIS OF SHOW CAUSE NOTICE OF DGCEI, KANPUR WHICH WAS NOT RELATED TO THE ASSESSMENT YEAR UNDER CONSIDERATION AND THE BOOKS OF ACCOUNT W ERE DULY AUDITED BY THE AUDITORS AND THAT THE ASSESSING OFFICER HAD NOT POINTED OUT ANY DEFECTS IN THE BOOKS OF ACCOUNT. THE LEARNED CIT (A) ASKED THE REMAND REPORT 6 FROM THE ASSESSING OFFICER WHO, IN HIS REMAND REPOR T DATED 05/06/2009, REPEATED THE SAME OBSERVATIONS AS WERE GIVEN IN THE ASSESSMENT ORDER. THE ASSESSING OFFICER ALSO STATED THAT THE GROSS PR OFIT RATE OF 10.5% HAD BEEN APPLIED LOOKING TO THE GROSS PROFIT RATES OF T HE EARLIER YEARS AND THAT THE ASSESSEE HAD NOT FURNISHED ALL THE BILLS AND VO UCHERS FOR EXPENSES. THE ASSESSEE IN THE REJOINDER, SUBMITTED TO THE LEA RNED CIT (A) THAT THE BOOKS OF ACCOUNTS, BILLS AND VOUCHERS WERE SEIZED B Y THE DEPARTMENT AND DURING THE EXAMINATION OF ALL SEIZED MATERIAL, EACH AND EVERY TRANSACTION WAS FULLY EXPLAINED. THEREFORE, THE ASSESSING OFFI CER COULD NOT POINT OUT ANY SINGLE DEFECT IN THE BOOKS OF ACCOUNT. IN THE FURTHER REMAND REPORT DATED 06/01/2010, THE ASSESSING OFFICER HAS GIVEN T HE SAME OBSERVATION AS WAS GIVEN IN THE EARLIER REPORT. THE ASSESSEE, IN HIS REJOINDER, SUBMITTED TO THE LEARNED CIT (A) AS UNDER: IT IS FURTHER SUBMITTED BEFORE YOUR HONOUR THA T LD. A.O. IN HER REMAND REPORT DATED 06.01.2010 HAS ACCE PTED THAT THE BOOKS OF ACCOUNTS ARE SEIZED WITH THE DEPARTMEN T BUT THE VOUCHERS RELATED TO THE EXPENSES DEBITED IN THE PRO FIT AND LOSS ACCOUNT WERE NOT PRODUCED. THE LEARNED AO FAILED TO POINT OUT ANY DEFECTS/ MISTAKES IN THE TRADING ACCO UNTS, THEREFORE THE REJECTION OF BOOKS OF ACCOUNTS U/S 14 5(3) OF THE IT ACT, IS NOT JUSTIFIED AND AGAINST THE NATURAL JU STICE AND FAIR PLAY. FURTHER THAT AO IN HER RR AT PAGE NO. 1 LAST LINE A ND AT PAGE NO. 2 PARA 1 HAS SAID THAT 'THE ASSESSEE HAS NOT PR ODUCED BILLS AND VOUCHERS IN SUPPORT OF EXPENSES DEBITED B Y THE 7 ASSESSEE IN HIS PROFIT & LOSS ACCOUNT DURING THE EX AMINATION OF SEIZED MATERIAL. OUR SUBMISSION IS THAT NON VERIFICATION OF BILLS AN D VOUCHERS OF EXPENSES COULD NOT IN ANY WAY AFFECT THE TRADING RE SULTS OF THE ASSESSEE. FURTHER THAT IN THIS CONNECTION THIS IS SUBMITTED B EFORE YOUR HONOUR THAT BOOKS OF ACCOUNTS, BILLS AND VOUCHERS W ERE SEIZED BY THE DEPARTMENT AND DURING THE EXAMINATION OF SEI ZED MATERIAL EACH AND EVERY TRANSACTION WAS FULLY EXPLA INED. IN THE EXAMINATION LD. AO COULD NOT FIND OUT ANY SINGL E DEFECT IN BOOKS OF ACCOUNT AND VOUCHERS. THEREFORE THE REJECT ION OF BOOK RESULTS IS AGAINST THE NATURAL JUSTICE AND FAI R PLAY. IT IS FURTHER SUBMITTED BEFORE YOUR HONOUR THAT THE ASSESSMENT CANNOT BE COMPLETED ON PRESUMPTION BASIS BECAUSE TH E ASSESSMENT WAS COMPLETED U/S L43(3)/153A AND NOT U/ S 144 OF THE I.T. ACT, 1961. IT IS FURTHER SUBMITTED BEFORE YOUR HONOUR THAT THE CASHBOOK, LEDGERS, STOCK REGISTERS OF THE APPELLANT FIRM WERE SEIZED DURING THE SEARCH PROCEEDINGS AND STILL ARE IN POSSESSION OF DEPARTMENT AND LD. AO COULD NOT POINT OUT ANY MISTAKES, IRREGULARITIES, DISCREPANCIES, IN THE REG ULAR BOOKS OF ACCOUNT, THEREFORE, YOUR HONOUR IS PRAYED THAT THE ADDITION MADE BY LD. AO MAY KINDLY BE DELETED. THIS IS FURTHER SUBMITTED BEFORE YOUR HONOUR THAT T HE BOOKS OF A/C, BILLS VOUCHERS WERE ALREADY SEIZED BY THE DEPA RTMENT AND SAME WERE FULLY EXPLAINED DURING THE EXAMINATION OF SEIZED MATERIAL AND NO DISCREPANCIES WERE POINTED OUT. IT IS FURTHER SUBMITTED BEFORE YOUR HONOUR THAT HON 'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. LUDHIAN A STEEL ROLLING MILLS LTD. 166 TAXMAN 20 HAS HELD THAT IN T HE ABSENCE OF DISCREPANCIES IN MAINTENANCE OF ACCOUNTS, THE RE JECTION OF BOOK RESULTS U/S 145(3) IS NOT JUSTIFIED. 8 FURTHER THAT THE GROSS PROFIT OF LAST YEARS IS AS U NDER: A.Y. SALE G.P. G.P.% 2004-05 5557500.00 628660.26 11.30 2005-06 31702467.00 3221875.01 10.16% 2006-07 39806795.40 3185047.51 8.10% FURTHER THAT THE MRP OF OUTPUT PRODUCT IS REMAKING THE SAME DURING ALL THESE PERIOD HOWEVER THE COST OF PRODUCT ION IS ESCALATING THEREFORE THE GROSS PROFIT IS FALLING CO NTINUOUSLY AND THAT THE MANUFACTURING UNIT OF THE ASSESSEE IS A NE W ONE THEREFORE IT ALWAYS TAKES SOME TIME TO GET THE GROS S PROFIT ESTABLISHED AT ANY LEAVE. WE PRAY BEFORE YOUR HONOUR TO KINDLY CONSIDER OUR S UBMISSION AND KINDLY DELETE THE ADDITION MADE BY THE LEARNED ASSESSING OFFICER. 3.1 THE LEARNED CIT(A), AFTER CONSIDERING THE SUBMI SSIONS OF THE ASSESSEE, OBSERVED THAT THE ASSESSING OFFICER HAS M ADE ADDITION AFTER REJECTING BOOKS OF ACCOUNTS U/S 145(3) OF THE I.T. ACT ON THE BASIS OF SHOW CAUSE NOTICE ISSUED BY DGCEI, KANPUR WHO CARRIED OU T ACTION OF SEARCH ON 01/06//2004. HE FURTHER OBSERVED THAT IN THE SHOW CAUSE NOTICE THE PERIOD COVERED PERTAIN TO ASSESSMENT YEAR 2005-06 AND EARL IER YEARS, THEREFORE THE SHOW CAUSE NOTICE OF DGCEI, KANPUR WAS NOT RELA TED TO THE YEAR UNDER CONSIDERATION AND THE A.O. HAD FAILED TO POINT OUT ANY DEFECT IN BOOKS OF ACCOUNT. HE FURTHER OBSERVED THAT THE I.T. DEPARTM ENT CARRIED OUT SEARCH ON 09/03/2007 AT THE PREMISES OF THE ASSESSEE AND D OCUMENTS HAD BEEN SEIZED. HOWEVER, THE A.O. HAD NOT BROUGHT ANYTHING FROM THE SEIZED 9 MATERIAL RELATING TO THE RELEVANT PERIOD TO SHOW TH AT THERE WAS ANY DEFECT IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE. THE LEARNED CIT (A) WAS OF THE VIEW THAT THE REJECTION OF BOOKS OF ACCO UNTS WITHOUT SPECIFYING ANY DEFECT IN THE BOOKS FOR THE RELEVANT PERIOD AND BASING ON SHOW CAUSE NOTICE OF DGCEI, KANPUR RELEVANT TO ASSESSMENT YEAR 2005-06 AND EARLIER YEARS, WOULD NOT BE JUSTIFIED. ACCORDING TO THE LE ARNED CIT (A), THE ASSESSING OFFICER HAD ADOPTED HIGHER G.P. RATE ONLY ON ESTIMATION BASIS WITHOUT BRINGING ANY MATERIAL FACT ON RECORD, THERE FORE, THE ADDITION WAS NOT JUSTIFIED. HE, ACCORDINGLY DELETED THE ADDITION MA DE BY THE ASSESSING OFFICER. NOW THE DEPARTMENT IS IN APPEAL. 4. THE LEARNED D. R. STRONGLY SUPPORTED THE ORDER O F THE ASSESSING OFFICER AND FURTHER SUBMITTED THAT THERE WAS DECLIN E IN THE GROSS PROFIT RATE OF THE ASSESSEE IN COMPARISON TO THE EARLIER YEAR, THEREFORE, THE ASSESSING OFFICER RIGHTLY ESTIMATED THE GROSS PROFIT RATE AND MADE THE ADDITION WHILE THE LEARNED CIT (A), WITHOUT APPRECIATING THE FACT, WAS NOT JUSTIFIED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER . 5. IN HIS RIVAL SUBMISSIONS THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORIT IES BELOW AND FURTHER SUBMITTED THAT THE BOOKS OF ACCOUNT WERE IN POSSESS ION OF THE DEPARTMENT AND THE ASSESSING OFFICER DID NOT POINT OUT ANY MIS TAKE IN THOSE BOOKS OF 10 ACCOUNT, THEREFORE, WITHOUT POINTING OUT ANY DEFECT IN THE BOOKS OF ACCOUNT, THE PROVISION OF SECTION 145(3) OF THE I.T. ACT WER E WRONGLY INVOKED BY THE ASSESSING OFFICER. HE FURTHER SUBMITTED THAT THE A SSESSING OFFICER, WHILE ESTIMATING THE GROSS PROFIT RATE OF 10.5%, NEITHER CONSIDERED THE EXPLANATION OF THE ASSESSEE NOR POINTED OUT ANY COM PARABLE CASE AND MADE THE ADDITION ON THE BASIS OF SURMISES AND CONJ ECTURES WHICH HAS RIGHTLY BEEN DELETED BY THE LEARNED CIT (A). 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CAR EFULLY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IT A PPEARS THAT IN THE INSTANT CASE THE ASSESSING OFFICER REJECTED THE BOOKS OF AC COUNT MAINTAINED BY THE ASSESSEE IN REGULAR COURSE OF BUSINESS, ONLY ON THE BASIS OF SHOW CAUSE NOTICE ISSUED BY DGCEI, KANPUR. THE SAID SHO W CAUSE NOTICE RELEVANT TO ASSESSMENT YEAR 2005-2006 WAS ISSUED SU BSEQUENT TO THE SEARCH ACTION CARRIED ON 01/06/2004. THE SAID SHOW CAUSE NOTICE WAS RELATED TO THE EARLIER YEARS AND NOT THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER ALTHOUGH OBSERVED THAT THE ASSESS EE DID NOT PRODUCE THE BOOKS OF ACCOUNT, HOWEVER, HE IGNORED THIS FACT THAT THE BOOKS OF ACCOUNT ALONG WITH THE BILLS AND VOUCHERS WERE SEIZ ED AND WERE ALREADY IN POSSESSION OF THE DEPARTMENT, IN THE SAID BOOKS OF ACCOUNT, THE ASSESSING OFFICER DID NOT POINT OUT ANY DEFECT. IN THE INSTA NT CASE, THERE WAS DECLINE 11 IN THE GROSS PROFIT RATE OF THE ASSESSEE IN THE YEA R UNDER CONSIDERATION IN COMPARISON TO THE EARLIER YEARS THEREFORE, THE GROS S PROFIT RATE FOR THE YEAR UNDER CONSIDERATION WAS AT 8.1% WHILE IN THE EARLIE R YEAR IT WAS AT 10.16%. THE EXPLANATION OF THE ASSESSEE WAS THAT THE MINIMU M RETAIL PRICE OF THE FINISHED PRODUCT WAS SAME IN ALL THESE PERIODS HOWE VER, COST OF PRODUCTION WAS ESCALATING, THEREFORE, THE GROSS PROFIT RATE WA S FALLING CONTINUOUSLY. THIS EXPLANATION WAS NOT ACCEPTED BY THE ASSESSING OFFICER HOWEVER, NO REASON WAS GIVEN FOR NON ACCEPTANCE OF THE SAID EXP LANATION. IT IS ALSO NOTICED THAT THE TURNOVER OF THE ASSESSEE FOR THE Y EAR UNDER CONSIDERATION WAS AT ` 39.80 LACS IN COMPARISON TO THE TURNOVER OF EARLIER YEAR AT ` 31.70 LACS WHICH CLEARLY SHOWS THAT THERE WAS INCREASE OF ABOUT 25% IN THE TURNOVER. GENERALLY IN SUCH TYPE OF CASES WHEN INC REASE IN TURNOVER IS THERE, THERE MAY BE CHANCES OF DECLINE IN THE GROSS PROFIT RATE. THE SAID FACT HAS ALSO NOT BEEN CONSIDERED BY THE ASSESSING OFFICER. FURTHERMORE, THE GROSS PROFIT RATE APPLIED BY THE ASSESSING OFFI CER AT 10.50% WAS WITHOUT ANY BASIS AND NOTHING WAS BROUGHT ON RECORD THAT THE BOOK RESULT SHOWN BY THE ASSESSEE WERE INFLATED PARTICULARLY WH EN NO DEFECT WAS POINTED OUT BY THE ASSESSING OFFICER IN THE BOOKS O F ACCOUNT WHICH WERE ALREADY IN THE POSSESSION OF THE DEPARTMENT. IN TH E INSTANT CASE, THE ASSESSING OFFICER NEITHER FOUND ANY SUPPRESSED SALE NOR INFLATED PURCHASE AND IT WAS ALSO NOT POINTED OUT THAT THE ASSESSEE I NCURRED ANY EXPENDITURE 12 WHICH WAS NOT FOR THE BUSINESS PURPOSES. THEREFORE , CONSIDERING THE TOTALITY OF THE FACTS, WE ARE OF THE VIEW THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNT WITHOUT SPECIFYING ANY DEFECT IN THOSE BOOKS AND APPLYING THE GROSS PROFIT RATE OF 1 0.5% AS AGAINST THE GROSS PROFIT RATE SHOWN BY THE ASSESSEE AT 8.10%. IN THAT VIEW OF THE MATTER, WE ARE OF THE VIEW THAT THE LEARNED CIT (A) WAS FULLY JUSTIFIED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER . ACCORDINGLY, WE DO NOT SEE ANY MERIT IN THIS APPEAL OF THE DEPARTMENT. 7. IN THE RESULT, THE APPEAL IS DISMISSED. (THE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 14/0 3/2011) SD/. SD/. ( H. L. KARWA ) (N. K. SAINI) VICE PRESIDENT ACCOUNTANT MEMBER DATED: 14/03/2011 *SINGH COPY FORWARDED TO THE: 1. APPELLANT. 2. RESPONDENT. 3. CIT (A) 4. CIT 5. DR. ASSISTANT REGISTRAR