ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1, Kota V. SHIV EDIBLES LTD., Kota

ITA 479/JPR/2019

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 0094 (ITAT-JAIPUR)
• Duration Of Justice: 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2019
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2015-2016
• Appeal Filed On: 05-04-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Gross profit estimation; Period of limitation; Question of law; Reasonable cause; Set aside
• Section: 145; 13; 145(3); 20

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCH A, JAIPUR JH FOT; IKY JKWO] U;KF;D LNL; ,O A JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM VK;DJ VIHY LA- @ ITA NO. 479/JP/2019 FU/KZKJ.K O'K Z @ ASSESSMENT YEARS : 2015-16. THE ACIT, CIRCLE 1, KOTA. CUKE VS. M/S. SHIV EDIBLES LIMITED, 237/A, TALWANDI, KOTA. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO. AAICS 0274 K VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT C.O. NO. 22/JP/2019 (ARISING OUT OF VK;DJ VIHY LA- @ ITA NO. 479/JP/2019) FU/KZKJ.K O'K Z @ ASSESSMENT YEARS : 2015-16. M/S. SHIV EDIBLES LIMITED, 237/A, TALWANDI, KOTA. CUKE VS. THE ACIT, CIRCLE 1, KOTA. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO. AAICS 0274 K VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS@ REVENUE BY : SHRI B.K. GUPTA (CIT) FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI MAHENDRA GARGIEYA (ADVOCATE) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 05.12.2019 ?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 09/12/2019. VKNS'K@ ORDER PER VIJAY PAL RAO, J.M. THIS APPEAL BY THE REVENUE AND CROSS OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 11.01.2019 OF LD. CIT (A), KOTA FOR THE ASSESSMENT YEAR 2015-16. THERE IS A DELAY OF 144 DAYS IN FILING THE CROSS OBJECTION BY THE ASSESSEE, 2 ITA NO. 479/JP/2019 & C.O. NO. 22/JP/2019 M/S. SHIV EDIBLES LIMITED, KOTA. THEREFORE THE MAINTAINABILITY OF THE CROSS OBJECTIO N FILED BY THE ASSESSEE IS TAKEN UP FIRST. 2. THE LD. A/R OF THE ASSESSEE HAS SUBMITTED THAT T HE DIRECTOR OF THE ASSESSEE COMPANY, WHO WAS HANDLING THE TAX MATTERS WAS NOT F ULLY AWARE OF ITS RIGHT TO FILE THE CROSS OBJECTION AND REMAINED UNDER THE IMPRESSI ON THAT THE ASSESSEE HAS ALREADY SUCCEEDED IN THE FIRST APPEAL AND HENCE NO FURTHER ACTION WAS REQUIRED. THUS THE LD. A/R HAS CONTENDED THAT THE DIRECTOR HAS NEI THER CONTACTED OR SOUGHT THE ADVICE OF HIS REGULAR TAX CONSULTANTS NOR HE HAS DE CIDED TO FILE THE CROSS OBJECTION WITHIN THE PERIOD OF LIMITATION. SUBSEQUENTLY WHEN THE POWER OF ATTORNEY WAS GIVEN TO THE COUNSEL TO DEFEND THE APPEAL FILED BY THE RE VENUE, HE HAS ADVISED THE ASSESSEE TO FILE THE CROSS OBJECTION AND ACCORDINGL Y THE CROSS OBJECTION WAS FILED BY THE ASSESSEE BELATEDLY. THE LD. A/R HAS RELIED UPO N THE DECISION OF HONBLE SUPREME COURT IN CASE OF COLLECTOR LAND ACQUISITION VS. MST . KATIJI & OTHERS, 167 ITR 471 (SC) AND SUBMITTED THAT THE DELAY IN FILING THE CROSS OB JECTION IS NEITHER INTENTIONAL NOR WILLFUL AND THEREFORE THE SAME MAY BE CONDONED. 3. ON THE OTHER HAND, THE LD. D/R HAS OBJECTED TO T HE MAINTAINABILITY OF THE CROSS OBJECTION FILED BY THE ASSESSEE AND CONTENDED THAT ONCE THE ASSESSEE WAS SATISFIED WITH THE IMPUGNED ORDER OF THE LD. CIT (A), THEN FI LING THE CROSS OBJECTION AFTER THE ASSESSEE WAS PROCEEDED EX PARTE IS NOTHING BUT AN A FTER-THOUGHT. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS THE RELEVANT MATERIAL ON RECORD. ON CAREFUL PERUSAL OF THE RECORD, WE FIND T HAT WHEN THE APPEAL OF THE REVENUE WAS LISTED FOR HEARING ON 30 TH SEPTEMBER, 2019 ONE SHRI ROHIT FROM THE OFFICE OF MAHENDRA GARGIEYA & ASSOCIATES, ADVOCATES HAS APPEARED ON BEHALF OF THE ASSESSEE. HOWEVER, NO POWER OF ATTORNEY OR AUTHORIT Y LETTER WAS FILED ON RECORD TO 3 ITA NO. 479/JP/2019 & C.O. NO. 22/JP/2019 M/S. SHIV EDIBLES LIMITED, KOTA. REPRESENT THE ASSESSEE. THE HEARING WAS THEN ADJOU RNED TO 04.11.2019 WITH THE DIRECTION TO FILE THE POWER OF ATTORNEY ON BEHALF O F THE ASSESSEE. THEREAFTER, THE APPEAL OF THE REVENUE WAS LISTED FOR HEARING ON 04. 11.2019 AND A REQUEST FOR ADJOURNMENT OF HEARING WAS FILED BY SHRI MAHENDRA G ARGIEYA, ADVOCATE. ON THE SAID DATE ALSO ONE SHRI ROHIT FROM THE OFFICE OF SHRI MA HENDRA GARGIEYA & ASSOCIATES, ADVOCATES APPEARED. HOWEVER, IN THE ABSENCE OF POW ER OF ATTORNEY OR AUTHORITY LETTER IN FAVOUR OF SHRI MAHENDRA GARGIEYA, ADVOCAT E OR ANY OTHER REPRESENTATIVE, THE SAID REQUEST OF ADJOURNMENT OF HEARING WAS REJE CTED AND CONSEQUENTLY THE ASSESSEE WAS PROCEEDED EX PARTE. THE MATTER WAS AD JOURNED TO 14 TH NOVEMBER, 2019 FOR EX PARTE FINAL ARGUMENTS. IN THE MEANTIME , AFTER THE ASSESSEE RESPONDENT WAS PROCEEDED EX PARTE, THE ASSESSEE HAS FILED THE POWER OF ATTORNEY IN FAVOUR OF M/S. MAHENDRA GARGIEYA & ASSOCIATES AS WELL AS CROS S OBJECTION ON 15.11.2019. THEREAFTER, THE MATTER WAS AGAIN ADJOURNED ON THE R EQUEST OF THE LD. A/R OF THE ASSESSEE ON THREE OCCASIONS AND FINALLY IT WAS FIXE D FOR EX PARTE ARGUMENTS ON 5 TH DECEMBER, 2019. IN THESE CIRCUMSTANCES WHEN THE AS SESSEE WAS ALREADY PROCEEDED AGAINST EX PARTE AND THE MATTER WAS FIXED FOR EX PA RTE ARGUMENTS, THE ASSESSEE COULD ONLY PARTICIPATE IN THE PROCEEDINGS FOR WHICH THE MATTER WAS FIXED. HENCE EXCEPT THE ARGUMENTS ON THE APPEAL OF THE REVENUE, THE ASSESSEE CANNOT BE ALLOWED TO FILE ANY PLEADINGS OR CROSS OBJECTION WITHOUT SE TTING ASIDE THE ORDER DATED 4 TH NOVEMBER, 2019 WHEREBY THE ASSESSEE WAS PROCEEDED E X PARTE. DESPITE SUFFICIENT TIME AVAILED BY THE ASSESSEE AND ADJOURNMENT TAKEN BY THE LD. A/R OF THE ASSESSEE, THE ASSESSEE DID NOT TAKE ANY STEP FOR SETTING ASID E THE EX PARTE ORDER DATED 4 TH NOVEMBER, 2019. FURTHER, THE ASSESSEE HAS DECIDED TO FILE THE CROSS OBJECTION ONLY AFTER THE ASSESSEE WAS PROCEEDED EX PARTE. THEREFO RE, IN THESE FACTS AND 4 ITA NO. 479/JP/2019 & C.O. NO. 22/JP/2019 M/S. SHIV EDIBLES LIMITED, KOTA. CIRCUMSTANCES WE ARE NOT CONVINCED WITH THE EXPLANA TION FOR CAUSE OF DELAY IN FILING THE CROSS OBJECTION AS THE ASSESSEE WAS OTHERWISE N OT ALLOWED TO GO BEHIND THE STAGE OF PROCEEDINGS FIXED FOR THE DAY. HENCE IN TH E FACTS AND CIRCUMSTANCES OF THE CASE, THE CROSS OBJECTION FILED BY THE ASSESSEE IS DISMISSED BEING NOT MAINTAINABLE AS WELL AS BARRED BY LIMITATION. 5. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF CASE, THE LD. CIT (A) HAS ERRED IN DELETING ADDITION OF RS. 1,88,80,279/- OUT OF TOTAL ADDITION OF RS. 2,88,55,077/- MADE BY THE AO AFTER REJECTING OF BOOKS OF ACCOUNTS U/S 145(3) WITHOUT APPRECIATING T HE FACTS DISCUSSED BY THE A.O IN THE ASSESSMENT ORDER. 2. THE APPELLANT CRAVES LIBERTY TO RAISE ADDITIONAL GROUND AND TO MODIFY/AMEND THE GROUND OF APPEAL AT THE TIME OF HE ARING. 6. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PROCESSING OF OIL SEEDS AND REFINING OF CRUDE OIL FOR EDIBLE USE. THE ASSE SSEE HAS FILED ITS RETURN OF INCOME ON 30 TH SEPTEMBER, 2015 DECLARING TOTAL INCOME OF RS. 4,26 ,55,330/-. DURING THE SCRUTINY ASSESSMENT, THE AO NOTED THAT THE ASSESSEE HAS SHOWN GP AT 2.57% ON TOTAL TURNOVER OF RS. 496,84,95,171/- AS AGAINST TH E GP @ 3.16% DECLARED FOR THE ASSESSMENT YEAR 2014-15. THE AO PROCEEDED TO EXAMI NE THE REASONS OF LOW GP DECLARED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDE RATION. HE HAS ALSO ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE ASKING AS TO WHY THE B OOKS OF ACCOUNT OF THE ASSESSEE SHOULD NOT BE REJECTED. FINALLY, THE AO REJECTED T HE BOOKS OF ACCOUNT OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE HAS NOT MA INTAINED QUALITY-WISE STOCK REGISTER AND CONSEQUENTLY THE VALUE OF THE CLOSING STOCK CANNOT BE ASCERTAINED CORRECTLY AND GENUINENESS OF THE PROFIT SHOWN BY TH E ASSESSEE IN ITS BOOKS OF 5 ITA NO. 479/JP/2019 & C.O. NO. 22/JP/2019 M/S. SHIV EDIBLES LIMITED, KOTA. ACCOUNT ARE NOT VERIFIABLE. THE AO HAS ALSO CITED THE REASONS OF REJECTION OF BOOKS OF ACCOUNT THAT VARIOUS EXPENSES CLAIMED BY THE ASS ESSEE ARE NOT SUBJECT TO VERIFICATION FOR WANT OF PROPER VOUCHERS AND ALSO D UE TO CASH PAYMENTS OF THESE EXPENSES. AFTER REJECTION OF BOOKS OF ACCOUNT, THE AO HAS ESTIMATED THE INCOME OF THE ASSESSEE BY APPLYING AVERAGE GP OF THREE YEARS WHICH INCLUDES PRECEDING TWO YEARS AND CURRENT YEAR. THUS APPLYING THE AVERAGE GP @ 3.03%, THE AO HAS ESTIMATED THE INCOME OF THE ASSESSEE RESULTING IN A N ADDITION OF RS. 2,28,55,077/-. THE ASSESSEE CHALLENGED THE ACTION OF THE AO BEFORE THE LD. CIT (A). SO FAR AS THE ISSUE OF REJECTION OF BOOKS OF ACCOUNT, THE LD. CIT (A) HAS UPHELD THE ACTION OF THE AO REJECTING THE BOOKS OF ACCOUNT UNDER SECTION 145 (3) OF THE ACT. AS REGARDS THE TRADING ADDITION, THE LD. CIT (A) HAS NOT ACCEPTED THE ESTIMATION OF INCOME BY THE AO BY APPLYING GP RATE AT 3.03% AND ACCEPTED THE GP DECLARED BY THE ASSESSEE AS REASONABLE EXCEPT SOME ADDITION ON ACCOUNT OF DISCR EPANCIES POINTED OUT IN THE ACCOUNTS WHICH HAS RESULTED ADDITION @ 0.08%. THUS THE LD. CIT (A) HAS APPLIED THE GP AT 2.65% AS AGAINST THE DECLARED GP OF 2.57% OF THE ASSESSEE. CONSEQUENTLY, MADE THE ADDITION TO THE EXTENT OF RS. 39,74,797/- AS AGAINST THE ADDITION OF RS. 2,28,55,077/- MADE BY THE AO. AGGRIEVED BY THE IMP UGNED ORDER OF THE LD. CIT (A), THE REVENUE HAS FILED THE PRESENT APPEAL. 7. BEFORE US, THE LD. D/R HAS SUBMITTED THAT AFTER REJECTION OF BOOKS OF ACCOUNT UNDER SECTION 145(3), THE AO OUGHT TO HAVE FRAMED T HE ASSESSMENT ON THE BASIS OF BEST JUDGMENT AND ESTIMATED THE INCOME OF THE ASSES SEE ON SOME PROPER AND REASONABLE BASIS. HE HAS FURTHER CONTENDED THAT IT IS SETTLED PROPOSITION OF LAW THAT THE PAST HISTORY OF GP DECLARED BY THE ASSESSEE IS REASONABLE AND PROPER GUIDANCE FOR ESTIMATING THE INCOME. THE AO HAS EVEN WORKED O UT THE AVERAGE GP BY INCLUDING 6 ITA NO. 479/JP/2019 & C.O. NO. 22/JP/2019 M/S. SHIV EDIBLES LIMITED, KOTA. THE GP DECLARED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION WHICH HAS THE EFFECT OF REDUCING THE AVERAGE GP. THUS THE GP RAT E ADOPTED BY THE AO FOR ESTIMATION OF INCOME IS VERY REASONABLE AND PROPER AND RATHER LESS THAN THE AVERAGE OF THE PRECEDING YEARS GP DECLARED BY THE ASSESSEE. HE HAS REFERRED TO THE COMPARATIVE DETAILS OF GP DECLARED BY THE ASSESSEE FOR LAST 4 YEARS AND SUBMITTED THAT IF THE AVERAGE OF THE LAST 4 YEARS IS COMPUTED , IT WILL BE MORE THAN 4% WHEREAS THE AO HAS APPLIED ONLY 3.03%. THUS THE LD. D/R HA S CONTENDED THAT THE LD. CIT (A) HAS DELETED THE ADDITION WITHOUT GIVING A FINDING A S TO HOW THE GP DECLARED BY THE ASSESSEE IS REASONABLE FOR ESTIMATION OF INCOME WHI LE FRAMING THE BEST JUDGMENT ASSESSMENT AFTER REJECTION OF BOOKS OF ACCOUNT. HE HAS RELIED UPON THE ORDER OF THE AO. 8. ON THE OTHER HAND, THE LD. A/R OF THE ASSESSEE H AS SUBMITTED THAT EVEN AFTER REJECTION OF BOOKS OF ACCOUNT UNDER SECTION 145(3), IT IS NOT MANDATORY ON THE PART OF THE AO TO MAKE THE TRADING ADDITION BUT THE AO H AS TO MAKE AN HONEST ESTIMATION OF INCOME KEEPING IN VIEW THE MATERIAL AVAILABLE ON RECORD, LOCAL KNOWLEDGE AND REPUTE OF THE ASSESSEE. IN SUPPORT OF HIS CONTENTI ON, HE HAS RELIED UPON THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN CASE OF CIT VS. GOTAN LIME KHANIZ UDYOG, 256 ITR 243 (RAJ.). THUS THE LD. A/R HAS SUBMITTED THA T MERE REJECTION OF BOOKS OF ACCOUNT NEED NOT NECESSARILY LEAD TO ADDITION TO TH E RETURNED INCOME. THE LD. A/R HAS FURTHER CONTENDED THAT THERE ARE VARIOUS REASON S FOR DECLARING LOW GP AS IT HAS BEEN CONSISTENTLY DECLARING FOR LAST FEW YEARS DUE TO THE MARKET CONDITIONS AND FLUCTUATIONS OF PRICE OF RAW MATERIAL AS WELL AS FI NISHED GOODS. HE HAS FURTHER CONTENDED THAT DUE TO RECESSION IN THE INTERNATIONA L MARKET AND SLUGGISH ECONOMIC CONDITIONS THERE IS FALL IN GROSS MARGIN OF AGRICUL TURE PRODUCTS WHICH HAS RESULTED 7 ITA NO. 479/JP/2019 & C.O. NO. 22/JP/2019 M/S. SHIV EDIBLES LIMITED, KOTA. DECLINE IN GP RATE. THUS THE LD. A/R HAS CONTENDED THAT WITHOUT CONSIDERING THE SURROUNDING CIRCUMSTANCES AND REASONS FOR DECLINE I N THE GP RATE, THE ADDITION MADE BY THE AO IS HIGHLY ARBITRARY AND NOT JUSTIFIED. T HE SLUGGISH DEMAND OF THE PRODUCTS IS FACED BY THE INDUSTRY AS A WHOLE WHERE THE DEMAN D FROM THE FOREIGN MARKET IS SUBSTANTIALLY REDUCED. THEREFORE, UNDER THESE ECON OMIC CONDITIONS AND BACKGROUND, THERE IS A DROP IN THE TURNOVER OF THE ASSESSEE AS WELL AS THE GP. ON THE CONTRARY, THERE IS AN INCREASE IN THE COST OF RAW MATERIAL AN D COST OF MANUFACTURING IN COMPARISON TO THE PRECEDING YEARS WHICH HAS DIRECTL Y AFFECTED THE REDUCTION OF GP FOR THE YEAR UNDER CONSIDERATION. THUS THE LD. A/ R HAS SUBMITTED THAT THE LD. CIT (A) HAS RIGHTLY ACCEPTED THE REASONS FOR DECLINE IN THE GP RATE AND ACCEPTED THE GP DECLARED BY THE ASSESSEE AS REASONABLE. HE HAS SUP PORTED THE IMPUGNED ORDER OF THE LD. CIT (A). 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. THE ISSUE OF REJECTION OF BOOKS OF ACCOUN T BY INVOKING THE PROVISIONS OF SECTION 145(3) BY THE AO IS NOT BEFORE US IN THE PR ESENT APPEAL OF THE REVENUE AS THE LD. CIT (A) HAS UPHELD THE REJECTION OF BOOKS O F ACCOUNT. FURTHER, WE FIND THAT THE LD. CIT (A) WHILE SUSTAINING THE PART ADDITION HAS GIVEN THE FINDING THAT IT WOULD CONSIDER AN INCREASE IN THE GP JUST ON THE BASIS OF DISCREPANCIES POINTED OUT IN THE ACCOUNTS AND NOT FOR ANY OTHER REASONS UP BY 0.08%. ONCE THE SAID FINDING OF THE LD. CIT (A) IS NOT IN DISPUTE, THEN THE DISCREPANCY WHICH WAS DETECTED BY THE AO AND ALSO TAKEN AS THE BASIS OF INCREASING THE GP BY THE LD. CIT (A) IS NOT UNDER CHALLENGE BY THE ASSESSEE THEN THE DISCREPANCIES AS POINTED O UT BY THE AO AND LD. CIT (A) ARE SUFFICIENT FOR LEADING TO THE CONCLUSION THAT THE B OOK RESULTS OF THE ASSESSEE ARE NOT PRESENTING A CORRECT STATE OF AFFAIRS AND BUSINESS RESULTS. SINCE THE ISSUE IS NOT 8 ITA NO. 479/JP/2019 & C.O. NO. 22/JP/2019 M/S. SHIV EDIBLES LIMITED, KOTA. INVOLVED IN THIS APPEAL THEREFORE, WE DO NOT GO INT O THE MERITS OF THE REJECTION OF BOOKS OF ACCOUNT. THUS AFTER THE REJECTION OF BOOKS OF ACCOUNT, THE AO IS DUTY BOUND TO FRAME THE ASSESSMENT ON BEST JUDGMENT UNDER THE PROVISIONS OF SECTION 145(3) READ WITH SECTION 144 OF THE IT ACT. IT IS SETTLED PROPOSITION OF LAW THAT THE BEST JUDGMENT ASSESSMENT HAS TO BE FRAMED BY CONSIDERING THE MATERIAL ON RECORD AND THE INCOME HAS TO BE ESTIMATED ON A REASONABLE AND PROPER BASIS. THERE ARE SERIES OF BINDING PRECEDENTS ON THIS POINT WHEREIN THE HON BLE JURISDICTIONAL HIGH COURT HAS HELD THAT AFTER REJECTION OF BOOKS OF ACCOUNT THE I NCOME OF THE ASSESSEE IS REQUIRED TO BE ESTIMATED ON A REASONABLE AND PROPER BASIS AN D PAST HISTORY OF THE GP DECLARED BY THE ASSESSEE IS CONSIDERED AS A REASONA BLE AND PROPER GUIDANCE FOR ESTIMATION OF INCOME. THE HONBLE JURISDICTIONAL H IGH COURT IN CASE OF CIT VS. GUPTA KN CONSTRUCTIONS, 371 ITR 325 (RAJ.) HAS HELD IN PA RA 9 TO 11 AND 18 AS UNDER :- 9. IN OUR VIEW, NO SUBSTANTIAL QUESTION OF LAW CAN BE SAID TO ARISE OUT OF THE IMPUGNED ORDER AS IT IS ESSENTIALLY A FINDIN G OF FACT BY THE TWO APPELLATE AUTHORITIES. IT IS ADMITTED FACT THAT THE PROVISIONS OF SECTION 145(3) OF THE ACT HAVE RIGHTLY BEEN INVOKED BY THE ASSESSING OFFICER SO ALSO UPHELD BY THE APPELLATE AUTHORITIES BUT IN A CASE WHERE THE PROVISIONS OF SECTION 145(3) ARE INVOKED, ONE HAS T O CONSIDER EITHER THE PAST HISTORY OF THE ASSESSEE OR HISTORY OF SIMILARL Y SITUATED OTHER BUSINESSMEN/TRADERS. HOWEVER, ON A PERUSAL OF THE A SSESSMENT ORDER, WE NOTICE THAT THE ASSESSING OFFICER IS ABSOLUTELY SILENT AS TO JUSTIFYING THE NET PROFIT RATE TO THE EXTENT OF 13.7 PER CENT, WHETHER THE ADDITION/DISALLOWANCE MADE BY THE ASSESSING OFFICER CAN BE SAID TO BE APPROPRIATE. THE ASSESSMENT ORDER IS TOTALLY SILENT ABOUT SIMILARLY SITUATED OTHER TRADERS/BUSINESSMEN SHOWING THE NET PROFIT OVER AND ABOVE WHAT THE ASSESSEE HAD SHOWN AND COMPARED BY T HE ASSESSING OFFICER AND NO EVIDENCE HAS BEEN BROUGHT ON RECORD AS TO HOW THE ASSESSING OFFICER WAS JUSTIFIED IN APPLYING THE NET PROFIT RATE AT 13.7 PER CENT. IN OUR VIEW, WHILE COMPARING WITH THE PAS T HISTORY, IF THE RESULTS ARE FAIR AND REASONABLE THEN INVARIABLY NO ADDITION NEED TO BE MADE. IT WOULD BE APPROPRIATE TO REPRODUCE THE TRAD ING RESULTS OF THE ASSESSEE FOR THE YEAR UNDER APPEAL INCLUDING THE LA ST FIVE YEARS, WHICH READS AS UNDER : 9 ITA NO. 479/JP/2019 & C.O. NO. 22/JP/2019 M/S. SHIV EDIBLES LIMITED, KOTA. YEAR TURNOVER NP DECLARED PERCENTAGE OF NP DECLARED PERCENTAGE APPLIED IN ASSESSMENT DONE BY AO APPEAL EFFECT 2009-10 123257523 6629223 5.38 13.7 5.78 BY AD HOC ADD OF RS. 5 LAKHS 2008-09 106227305 5338548 5.02 5.02 ACCEPTED WITHOUT SCRUTINY 2007-08 48834743 2389297 5.10 5.10 ACCEPTED WITHOUT SCRUTINY 2006-07 21090878 1056688 5.01 6 5% BY ITAT 2005-06 12632146 471641 3.73 6 5% BY ITAT 2004-05 24003129 852775 3.55 8 5% BY ITAT 10. ON A PERUSAL OF THE ABOVE, IT IS APPARENT THAT OUT OF THE PAST FIVE ASSESSMENT YEARS IN THREE OF THE ASSESSMENT YEARS, I.E. , 2004-05, 2005-06, 2006-07, THE MATTER TRAVELLED UP TO THE STAGE OF THE TRIBUNAL WH ERE THE TRIBUNAL APPLIED THE RATE OF 5 PER CENT. COMPARED WITH THE SAID FACT, IN THE PRESENT ASSESSMENT YEAR THOUGH THE CONTRACT RECEIPTS HAVE SHARPLY INCREASED FROM RS. 10.60 CRORES TO RS. 12.32 CRORES IN THE IMMEDIATE PAST ASSESSMENT Y EAR AT THE SAME TIME THE NET PROFIT HAS INCREASED FROM 5.02 PER CENT. TO 5.3 8 PER CENT. OR NOW AS PER THE ORDER OF THE TRIBUNAL IT CAN BE SAID TO BE RAISED A T 5.78 PER CENT. WITH THE ADDITION OF RS. 5 LAKHS SUSTAINED. 11. THOUGH THE ARGUMENT OF THE LEARNED OFFICER OF THE REVENUE CAN BE SAID TO BE PROPER AND JUSTIFIED THAT IN A CASE WHERE THE AS SESSEE MANIPULATES THE ACCOUNTS BY KEEPING THE PROFIT MARGINS COMMENSURATE WITH THE PAST ASSESSMENT YEARS OR SLIGHTLY INCREASES AND THAT ITS ELF BY A LARGE CANNOT BE A BASIS FOR ACCEPTANCE OF THE RESULTS. BUT, IN THE FA CE OF THE SAID FACTS, IF IT IS FOR THE ASSESSING OFFICER TO BRING ON RECORD SOME CONCR ETE MATERIAL/EVIDENCE TO MAKE A PROPER ADDITION. WE HAVE ALREADY NOTICED HER EINABOVE THAT THE ASSESSING OFFICER HAS MERELY DISALLOWED 20 PER CENT . OR 10 PER CENT., AS THE CASE MAY BE, OUT OF THE VARIOUS EXPENSES, WHICH, IN OUR VIEW, IS NOT PROPER AND HE HAD TO BRING ON RECORD JUSTIFIABLE BASIS FOR MAK ING OF AN ADDITION AND BRING ON RECORD SOME EVIDENCE FOR MAKING OF ADDITION. 18. THIS COURT IN THE CASE OF CIT V. INANI MARBLES (P.) LTD. [2009] 316 ITR 125/[2008] 175 TAXMAN 56 (RAJ.) AND ALSO THE DELHI HIGH COURT IN THE CASE OF ACTION ELECTRICALS V. DY. CIT [2002] 258 ITR 188/[2003] 132 TAXMAN 640 HAVE OBSERVED THAT THE PAST HISTORY OF THE ASSESSEE WOULD BE ONE OF THE RELIABLE GUIDELINES TO MAKE OR NOT TO MAKE ANY ESTI MATION/ADDITION. WE HAVE ALREADY REFERRED TO HEREINABOVE THAT THE ASSESSING OFFICER HAS FAILED TO BRING ON RECORD ANY COMPARABLE CASE SO AS TO JUSTIFY ANY ESTIMATION/ADDITION, THE ADDITION HAS BEEN DELETED BY THE COMMISSIONER OF IN COME-TAX (APPEALS) AS WELL AS UPHELD BY THE INCOME-TAX APPELLATE TRIBUNAL . 10 ITA NO. 479/JP/2019 & C.O. NO. 22/JP/2019 M/S. SHIV EDIBLES LIMITED, KOTA. SIMILAR VIEW HAS BEEN TAKEN BY THE HONBLE JURISDIC TIONAL HIGH COURT IN CASE OF CLARITY GOLD PVT. LTD. VS. PRINCIPAL CIT, 102 TAXMA NN.COM 421. IN THE CASE OF ASSESSEE, THE AO HAS TAKEN THE AVERAGE GP BY CONSID ERING THE GP DECLARED BY THE ASSESSEE FOR THE ASSESSMENT YEARS 2013-14 TO 15-16 AS UNDER :- A.Y. G.P. RATE 2013 - 14 3.38% 2014 - 15 3.16% 2015 - 16 2.57% TOTAL 9.11 AVERAGE 9.11/3 3.03% THUS THE AO HAS WORKED OUT THE GP FOR 3 YEARS INCLU DING THE YEAR UNDER CONSIDERATION WHEREIN THE ASSESSEE HAS DECLARED LES S GP AND THE INCLUSION OF THE CURRENT YEARS GP IN WORKING OUT THE AVERAGE GP HAS RESULTED LESS AVERAGE GP AS AGAINST THE AVERAGE GP FOR THE PRECEDING YEARS EXCL UDING THE CURRENT YEAR. WE FURTHER NOTE THAT FOR THE PRECEDING 4 YEARS THE GP RATE DECLARED BY THE ASSESSEE ARE AS UNDER :- ASSESSMENT YEAR G.P. RATE 2011 - 12 4.96% 2012 - 13 4.56% 2013 - 14 3.38% 2014 - 15 3.16% THUS THE AVERAGE GP RATE DECLARED IN THE PRECEDING 4 YEARS COMES TO 4.015%. THE AO HAS APPLIED ONLY GP RATE AT 3.03%. THE LD. CIT (A) WHILE DELETING THE ADDITION MADE BY THE AO HAS GIVEN ITS REASONING AS UNDER :- 11 ITA NO. 479/JP/2019 & C.O. NO. 22/JP/2019 M/S. SHIV EDIBLES LIMITED, KOTA. HOWEVER, IT IS WELL KNOWN THAT IN THE CASE OF BES T JUDGEMENT WHERE RESORT IS TAKEN TO SECTION 144, THE ASSESSING OFFICER EXER CISING HIS JURISDICTION CANNOT ACT ARBITRARILY OR CAPRICIOUSLY. THE ASSESSM ENT MUST PROCEED ON JUDICIAL CONSIDERATIONS IN THE LIGHT OF RELEVANT MA TERIAL THAT MAY BE BROUGHT ON RECORD. THE HONBLE ALLAHABAD HIGH COURT IN THE CAS E OF CIT VS. SURJEETSINGH MAHESHKUMAR (1994) 210 ITR 83 HAS HELD THAT IN EVER Y CASE OF BEST JUDGEMENT, THE ELEMENT OF GUESS WORK CANNOT BE ELIM INATED SO LONG AS BEST JUDGEMENT HAS A NEXUS WITH MATERIAL ON RECORD AND D ISCRETION IN THAT BEHALF HAS NOT BEEN EXERCISED ARBITRARILY OR CAPRICIOUSLY. IN THE PRESENT CASE FROM THE DETAILS OF THE FACTS B ROUGHT ON RECORD, IT IS OBSERVED THAT THE WHILE THE ASSESSEES G.P. RATE IS LOWER AS COMPARED TO 2 PRECEDING YEARS, THERE IS ALSO A SUBSTANTIAL DECREA SE IN TURNOVER AS COMPARED TO THE IMMEDIATELY PRECEDING YEAR (A.Y. 2014-15). THE A.O. HAS REACHED HIS CONCLUSION OF ESTIMATING T HE G.P. RATE IN THIS CASE BY TAKING AVERAGE OF THREE YEARS, OUT OF WHICH THE IMMEDIATELY PRECEDING TWO YEARS WERE YEARS OF HIGHER PROFITABILITY. THERE ARE CYCLES OF UPS AND DOWNS IN VARIOUS SECTORS OF ECONOMY AND IT IS IMPORTANT FOR THE OFFICER TO EXAMINE THIS ISSUE. A FALL IN GP FOR THE ASSESSEE MAY BE COUPLED WITH A GENERAL RECESSION IN THAT SECTOR AND HENCE PROFITS OF ALL THE PEERS M AY HAVE DIPPED. SIMILARLY, THE YEAR MAY REPRESENT AN EXCEPTIONAL YEAR WHEREIN ALL THE PEERS HAVE MADE EXCEPTIONAL PROFITS. HENCE, WHILE EXAMINING GROSS M ARGINS, THE ASSESSING OFFICER SHOULD NOT ONLY COMPARE THE PAST MARGINS OF THE ASSESSEE BUT ALSO THE CURRENT YEAR MARGINS OF OTHER ASSESSEES ENGAGED IN SIMILAR BUSINESS. THIS WOULD GIVE AN INSIGHT INTO THE ACTUAL PROFIT MARGIN S DURING THE YEAR UNDER REFERENCE AND WOULD BE A CORRECT GUIDE FOR ESTIMATI ON OF PROFITS. IT HAS TO BE NOTED THAT A MINOR ADDITION TO THE PERCENTAGE POINT WITHOUT ACTUAL BASIS FOR THE FINDING CAN MAKE A HUGE DIFFERENCE IN REAL TERM S. HENCE I DO NOT AGREE WITH THE ESTIMATED INCREASE IN G.P. RATE TO 3.03% IN THE ASSESSEES CASE AS AGAINST 2.57% SHOWN BY THE ASSES SEE. NO BUSINESS CAN HAVE A MINIMUM THRESHOLD G.P EVERY YEAR JUST TO SAT ISFY THE WHIMS OF THE 12 ITA NO. 479/JP/2019 & C.O. NO. 22/JP/2019 M/S. SHIV EDIBLES LIMITED, KOTA. ASSESSING OFFICER. THE WORKING OF THE A.O. IS MORE THEORETICAL AND MATHEMATICAL THAN COGENT OR REAL. LOOKING TO THE TOTALITY OF FACTS INVOLVED IN THE CA SE, I WOULD CONSIDER AN INCREASE IN THE G.P. JUST ON THE BASIS OF THE DISCR EPANCIES POINTED OUT IN THE ACCOUNTS, AND NOT FOR ANY OTHER REASON UP BY 0.08% TO 2.65%. THE ADDITION CONFIRMED WILL BE OF RS. 39,74,797/-. THE BALANCE A DDITION OF RS. 1,88,80,279/- IS ACCORDINGLY DIRECTED TO BE DELETED . THUS THE LD. CIT (A) HAS DISCUSSED THE GENERAL PRIN CIPLES FOR ESTIMATING THE INCOME BY APPLYING THE G.P. RATE AND ALSO STATED SOME POSS IBLE CIRCUMSTANCES UNDER WHICH THE PROFIT MARGIN CAN BE DECLINED. THERE IS NO QUA RREL ON THE POINT THAT THE REJECTION OF BOOKS OF ACCOUNT UNDER SECTION 145(3) WOULD NOT IPSO FACTO LEAD TO AN ADDITION IF THE GP DECLARED BY THE ASSESSEE IS EITHER BETTER TH AN THE PAST HISTORY OF THE GP DECLARED OR IN LINE WITH THE PAST HISTORY. HOWEVER, IN THE CASE IN HAND, THE GP DECLARED BY THE ASSESSEE IS NEITHER IN LINE WITH TH E PAST HISTORY NOR IT CAN BE CONSIDERED AS BETTER OR REASONABLE IN COMPARISON TO THE PAST HISTORY OF GP DECLARED BY THE ASSESSEE. IT IS PERTINENT TO NOTE THAT IN T HE ABSENCE OF SPECIFIC EXCEPTIONAL CIRCUMSTANCES OR ADVERSE ECONOMIC CONDITION HAVING IMPACT ON THE TRADING RESULT OF THE ASSESSEE, A GENERAL CONTENTION CANNOT BE ACCEPT ED AS A REASONABLE CAUSE FOR SUCH DECLINE. HOWEVER, EXCEPT THE SPECULATIVE SITU ATIONS WHICH MAY REPRESENT AN EXCEPTIONAL YEAR OR CYCLES OF UPS AND DOWNS IN VARI OUS SECTORS OF ECONOMY, THE LD. CIT (A) HAS NEITHER CONSIDERED THE RELEVANT SPECIFI C FACTS HAVING INFLUENCED TO THE BUSINESS/TRADING OF THE ASSESSEE AS WELL AS BUSINES S RESULTS OF THE ASSESSEE. THEREFORE, ALL THESE REASONS WHICH ARE GENERAL SPEC ULATION AND POSSIBILITIES CANNOT BE CONSIDERED AS FINDING OF FACT. ONCE THE AO IS B OUND TO ESTIMATE THE INCOME, THEN 13 ITA NO. 479/JP/2019 & C.O. NO. 22/JP/2019 M/S. SHIV EDIBLES LIMITED, KOTA. THE PAST HISTORY OF THE ASSESSEE IS REGARDED AS A P ROPER AND REASONABLE BASIS FOR ESTIMATION OF INCOME. ACCORDINGLY, IN VIEW OF THE A BOVE FACTS AND CIRCUMSTANCES AS WELL AS THE BINDING PRECEDENTS, WE SET ASIDE THE IM PUGNED ORDER OF THE LD. CIT (A) QUA THIS ISSUE AND RESTORE THE ORDER OF THE AO. 10. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED AND CROSS OBJECTION OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 09/12/2019 . SD/- SD/- FOE FLAG ;KNO FOT; IKY JKWO (VIKRAM SINGH YADAV) (VIJAY PAL RAO) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 09/12/2019. DAS/ VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT-THE ACIT, CIRCLE-1, KOTA. 2. IZR;FKHZ@ THE RESPONDENT-M/S. SHIV EDIBLES LTD., KOTA. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE {ITA NO. 479/JP/2019 & CO 22/JP/2019} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR