Luthara Dyeing & Printing Mills, Surat V. The ACIT., Circle-1, Surat

ITA 500/AHD/2007

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6689 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 2 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 27-04-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 02-02-2007
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: H P MEENA
• Assessee Lawyers: J P SHAH
• Keywords: Bogus purchase; Rejection of books of accounts; Additional evidence
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH AHMEDABAD (BEFORE S/SHRI G. D. AGARWAL, VP AND BHAVNESH SAINI , JM) ITA NO.500 AND 3880/AHD/2007 A. Y.: 2003-04 AND 2004-05 LUTHRA DYEING & PRINTING MILLS, PROP. LUTHRA CHEM TEX INDUSTRIES PVT. 252/2, GIDC, PANDESARA, SURAT VS THE A. C. I. T., CIRCLE1, SURAT PA NO. AAACK 4038 Q (APPELLANT) (RESPONDENT) ITA NO.514 AND 3875/AHD/2007 A.Y.: 2003-04 AND 2004-05 THE D. C. I. T., CIRCLE1, ROOM NO.108, AAYAKAR BHAVAN, MAJURA GATE SURAT VS LUTHRA DYEING & PRINTING MILLS, PROP. LUTHRA CHEM TEX INDUSTRIES PVT. 252/2, GIDC, PANDESARA, SURAT PA NO. AAACK 4038 Q (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI J. P. SHAH, AR DEPARTMENT BY SHRI H. P. MEENA, SR. DR O R D E R PER BHAVNESH SAINI: ALL THE ABOVE CROSS APPEALS ARE DIRECTED AGAINST DIFFERENT ORDERS OF THE LEARNED CI T(A)-I, SURAT DATED 29-11-2006 FOR ASSESSMENT YEAR 2003-04 AND DATED 14 -08-2007 FOR ITA NO.500, 514, 3875 AND 3880/AHD/2007 LUTHAR DYEING & PRINTING MILLS 2 ASSESSMENT YEAR 2004-05. SINCE THE ISSUES ARE SAME IN ALL THE APPEALS, THEREFORE, ALL THE APPEALS WERE HEARD TOGE THER AND WE DISPOSE OF THE SAME THROUGH THIS COMMON CONSOLIDATE D ORDER. ITA NO.500/AHD/2007 (ASSESSEES APPEAL) ITA NO.514/AHD/2007 (DEPARTMENTAL APPEAL) A.Y.:2003-04 2. THE ASSESSEE IN ITS APPEAL CHALLENGED THE REJECT ION OF BOOKS OF ACCOUNTS, ADDITION OF RS.46,85,104/- ON ACCOUNT OF UNDER-VALUATION OF WORK IN PROGRESS, ADDITION ON ACCOUNT OF GROSS PROF IT OF RS.30,87,500/- , ADDITION OF RS.38,22,720/- ON ACCOUNT OF PRODUCTI ON OUTSIDE THE BOOKS OF ACCOUNTS AND DISALLOWANCE OF EXPENDITURE O N PURCHASE OF RS.32,450/- BEING BOGUS. THE REVENUE IN ITS APPEAL CHALLENGED THE DELETION OF ADDITIONS OF RS.30,87,300/- ON ACCOUNT OF GROSS PROFIT, RS.38,22,720/- ON ACCOUNT OF PRODUCTION OUTSIDE THE BOOKS OF ACCOUNTS AND RS.32,450/- ON ACCOUNT OF BOGUS PURCHA SES. 3. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE AO S TATED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROCESSING O F FABRICS I.E. DYEING AND PRINTING ON JOB WORK BASIS. DURING THE Y EAR, THE JOB RECEIPTS ARE SHOWN AT RS.11.26 CRORES AND GROSS PRO FIT RATE AT 13.43% AS COMPARED TO LAST YEARS JOB RECEIPTS OF RS.7,74, 00,000/- AND GROSS PROFIT RATE OF 16.17%. THE AO STATED THAT THE ASSES SEE HAS SHOWN CLOSING STOCK OF WORK IN PROGRESS OF RS.29.49 LACS WHICH CONSISTED OF COST OF COLOR CHEMICALS ON THE FABRICS LYING ON THE MACHINES WHICH HAD BEEN RECEIVED ON JOB WORK BASIS. THE ASSESSEE H OWEVER, COULD NOT SATISFACTORILY EXPLAIN COMPUTATION OF ITS VALUA TION. THE FIGURES SHOWN BY THE ASSESSEE COULD NOT BE SUBJECTED TO VER IFICATION. NO ITA NO.500, 514, 3875 AND 3880/AHD/2007 LUTHAR DYEING & PRINTING MILLS 3 BASIS WAS GIVEN FOR ADOPTING THE VALUATION OF WORK IN PROGRESS WHICH WAS FOUND TO BE ON APPROXIMATE BASIS. THE AO STATED THAT HE WOULD LIKE TO SEE THE BASIC RECORD LIKE JOB CARDS SO THAT HE COULD FIND THE EXACT LENGTH OF FABRICS THAT WERE LYING ON VARIOUS STAGES OF THE MACHINES. THE ASSESSEE STATED THAT IT WAS NOT PRACT ICALLY POSSIBLE TO MAINTAIN QUANTITATIVE STOCK OF FABRICS AT EACH STAG E OF THE PROCESS. THE ASSESSEE CONTENDED THAT AT THE END OF THE YEAR TOTAL STOCK OF GREY FABRICS AT VARIOUS STAGES WAS PHYSICALLY TAKEN . SINCE THE JOB CARDS AND PHYSICAL INVENTORY TAKEN AT THE END OF TH E YEAR WERE INTERNAL RECORDS THEY HAVE NOT BEEN PRESERVED AND H ENCE, THE ASSESSEE DID NOT PRODUCE ANY RECORD TO SHOW HOW THE FIGURES MENTIONED AT VARIOUS STAGES WERE GIVEN. THE AO DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE BECAUSE THE BASIC RECORD S MAINTAINED FOR WORK IN PROGRESS HAVE BEEN DESTROYED AND THAT WORK IN PROGRESS IS TAKEN ON APPROXIMATE BASIS. SHOW-CAUSE NOTICE WAS I SSUED TO THE ASSESSEE AS TO WHY BOOK RESULTS BE NOT REJECTED. TH E ASSESSEE SIMILARLY STATED THAT SAME METHOD OF ACCOUNTING WAS ADOPTED IN THE PAST BUT THE JOB CARDS AND THE PHYSICAL INVENTORY H AVE NOT BEEN PRESERVED AND QUANTITY OF WORK IN PROGRESS IS TAKEN ON THE BASIS OF EXPERIENCE OF LAST YEAR. THE AO DID NOT ACCEPT THE EXPLANATION OF THE ASSESSEE BECAUSE BOTH THE RECORDS WERE NECESSARY FO R VALUATION, WHICH HAVE BEEN FOUND TO BE DESTROYED. THE AO, THER EFORE, NOTED THAT BOOKS OF ACCOUNTS OF THE ASSESSEE CANNOT BE AC CEPTED AND HE RELIED UPON THE DECISION OF THE HONBLE SUPREME COU RT IN THE CASE OF BRITISH PAINTS LTD. VS CIT 188 ITR 44 AND THE DECIS ION OF THE ITAT MUMBAI BENCH IN THE CASE OF SAMEER DIAMONDS EXPORTS LTD. 71 ITD 75. THE AO STATED THAT IT IS THE RESPONSIBILITY OF THE ASSESSEE TO SHOW ITA NO.500, 514, 3875 AND 3880/AHD/2007 LUTHAR DYEING & PRINTING MILLS 4 CORRECT CLOSING STOCK WITHOUT WHICH TRUE PROFIT CAN NOT BE OBTAINED. BOOK RESULTS WERE ACCORDINGLY REJECTED U/S 145 OF T HE IT ACT. FURTHER, IT WAS FOUND THAT GROSS PROFIT RATE HAS FALLEN BY 2 .74%. THE AO ALSO NOTED THAT THERE IS NO WAY FOR HIM TO VERIFY THE CO RRECTNESS OF THE CLAIM OF THE ASSESSEE THAT DETAILS OF WORK IN PROGR ESS ARE CORRECT. THE SAME ARE ALSO NOT SUPPORTED BY ANY EVIDENCE. THE AO ALSO STATED THAT IN SOME OF THE PROCESS HOUSES ASSESSED BY HIM NAMELY PARAS PRINT AND PARAS DYEING & PRINTING LTD., BOTH THESE COMPANIES HAVE VALUED WORK IN PROGRESS AT 50% OF THE TOTAL COST. T HE REASON BEING GIVEN FOR 50% IS THAT THE FABRIC WHICH HAS JUST BEE N INTRODUCED WOULD NOT BE HAVING ANY COST OR VERY MINIMAL COST OF COLO R CHEMICALS, LABOUR ETC. WHEREAS THE FABRICS AT THE END OF THE PROCESS WOULD HAVING FULL COST OF COLOR AND CHEMICALS AND LABOUR ETC. IN VIEW OF THESE REASONING, THE AO HAS STATED THAT SINCE NEITHER THE RATES NOR THE QUANTITY OF CLOTH ARE RELIABLE, THEREFORE, THE AO E STIMATED THE VALUE OF WORK IN PROGRESS AND SAME WAS VALUED AT RS.76,29,72 1/- AS AGAINST THE FIGURE OF RS.29,44,617/- AND ACCORDINGLY ADDITI ON OF RS.46,85,104/- WAS MADE ON ACCOUNT OF UNDER-VALUATI ON OF WORK IN PROGRESS. THE ASSESSEE CHALLENGED THE ADDITION BEFO RE THE LEARNED CIT(A) AND SAME SUBMISSIONS WERE REITERATED AND IT WAS ALSO EXPLAINED THAT ONCE BOOKS OF ACCOUNTS ARE REJECTED AND GROSS PROFIT IS ESTIMATED NO FURTHER ADDITION IS REQUIRED. IT WAS A LSO SUBMITTED THAT THERE WAS NO BASIS FOR MAKING THE ADDITION. THE ASS ESSEE ALSO PRAYED FOR ADMISSION OF ADDITIONAL EVIDENCE IN THE FORM OF COPY OF JOB CARD. BUT IT WAS NOT EXPLAINED WHY SUCH ADDITIONAL EVIDENCE WAS SOUGHT TO BE ADMITTED. IT WAS FOUND IN THE SAMPLE J OB CARD GIVEN BY THE ASSESSEE THAT COMPLETE RECORDS ARE MAINTAINED I N THE SAME LIKE ITA NO.500, 514, 3875 AND 3880/AHD/2007 LUTHAR DYEING & PRINTING MILLS 5 NAME OF PARTIES, LOT NUMBER, LENGTH OF GREY CLOTH, QUALITY, STYLE, CARD NUMBER, SHADES, BLEACHING METERS, FINISHED METERS, COLOR AND SIGNATURE ETC. BUT THE SAME HAVE BEEN DESTROYED WHI CH WAS THE GOOD EVIDENCE IN THE CASE OF THE ASSESSEE. THE ASSESSEE ALSO CHALLENGED THE ADOPTION OF VALUATION OF WORK IN PROGRESS AT 50 %. THE LEARNED CIT(A) HOWEVER, JUSTIFIED THE REJECTION OF THE BOOK S OF ACCOUNTS IN VIEW OF THE ABOVE DEFECTS AND DESTRUCTION OF PRIMAR Y RECORDS I.E. JOB CARDS AND PHYSICAL INVENTORY AND ALSO NOTED THAT GR OSS PROFIT RATE HAS ALSO FALLEN, THEREFORE, ADDITION WAS CONFIRMED ON A CCOUNT OF WORK IN PROGRESS. 3.1 THE AO FURTHER STATED THAT BOOKS OF ACCOUNTS OF THE ASSESSEE ARE NOT RELIABLE BECAUSE OF THE REASONS STATED ABOV E AND ALSO MADE SEPARATE ADDITION ON ACCOUNT OF FALL IN GROSS PROFI T AND MADE ADDITION OF RS.30,87,500/- BY ENHANCING THE GROSS PROFIT RAT E. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT ONCE ADDITION FOR WO RK IN PROGRESS IS MADE WHICH IS HIGHER, NO SEPARATE ADDITION OF GROSS PROFIT SHOULD BE MADE. THE LEARNED CIT(A) ON PRINCIPLE ACCEPTED THAT BOOKS OF ACCOUNTS HAVE BEEN RIGHTLY REJECTED AND GROSS PROFI T ADDITION HAS BEEN RIGHTLY MADE. BUT HE AGREED WITH THE CONTENTIO N OF THE ASSESSEE THAT ONCE HIGHER ADDITION ON ACCOUNT OF WORK IN PRO GRESS AND GP IS MADE , IT WOULD TAKE CARE OF ADDITION ON ACCOUNT OF GROSS PRO FIT RATE. SAME WERE DIRECTED TO BE DELETED. 3.2 WITH REGARD TO ADDITION ON ACCOUNT OF PRODUCTIO N OUTSIDE THE BOOKS OF ACCOUNTS, THE AO BRIEFLY NOTED THE CAPACIT Y OF THE MACHINES OF THE ASSESSEE FOR DOING THE PRODUCTION AND CONSID ERING THE ITA NO.500, 514, 3875 AND 3880/AHD/2007 LUTHAR DYEING & PRINTING MILLS 6 BACKGROUND AND FACTS NOTED ABOVE, PRESUMED THAT THE ASSESSEE HAS INDULGED IN PRODUCTION OUTSIDE THE BOOKS OF ACCOUNT S. THE AO ON ASSUMPTION NOTED THAT THE ASSESSEE MADE PRODUCTION OUTSIDE THE BOOKS OF ACCOUNTS AND EARNED PROFIT AND ACCORDINGLY MADE ADDITION OF RS.38,22,720/-. THIS ADDITION WAS ALSO CHALLENGED B EFORE THE LEARNED CIT(A) AND IT WAS SUBMITTED THAT THE ADDITION IS MA DE WITHOUT ANY BASIS AND PURELY ON THEORETICAL BASIS. THE LEARNED CIT(A) ACCEPTED THE CONTENTION OF THE ASSESSEE THAT ADDITION IS MAD E ON THIS ISSUE PURELY ON THEORETICAL BASIS WITHOUT HAVING ANY EVID ENCE ON RECORD. THE LEARNED CIT(A) CONSIDERING THE ADDITION MADE ON ACCOUNT OF WORK IN PROGRESS ALSO DELETED THE SAME ADDITION ON ACCOU NT OF PRODUCTION OUTSIDE THE BOOKS OF ACCOUNTS. 3.3 AS REGARDS BOGUS PURCHASES OF RS.32,450/-. IT W AS NOTED THAT THE ASSESSEE MADE PURCHASES FROM M/S. PUNITA CORPOR ATION WHICH WAS FOUND TO BE INDULGED IN ISSUE OF FAKE BILLS. AD DITION WAS ACCORDINGLY MADE. THE LEARNED CIT(A) NOTED THAT SIN CE BOOKS OF ACCOUNTS HAVE BEEN REJECTED AND ADDITION IS ALREADY MADE, THEREFORE, THIS SMALL AMOUNT WAS ALSO COVERED BY ADDITION SUST AINED BY HIM. 3.4 IN THE CRUX OF THE FINDINGS, THE LEARNED CIT(A ) SUSTAINED THE ADDITION OF RS.46,85,104/- ON ACCOUNT OF UNDER-VALU ATION OF THE WORK IN PROGRESS AND NOTED THAT THE OTHER ADDITION ON AC COUNT OF GROSS PROFIT, PRODUCTION OUTSIDE THE BOOKS OF ACCOUNTS AN D BOGUS PURCHASES WOULD BE COVERED BY THE SAME ADDITION AND ACCORDING LY DELETED THE REMAINING THREE ADDITIONS. ITA NO.500, 514, 3875 AND 3880/AHD/2007 LUTHAR DYEING & PRINTING MILLS 7 4. THE ASSESSEE IS IN APPEAL ON THE GROUNDS MENTION ED ABOVE AND CHALLENGING THE ADDITIONS ON ACCOUNT OF WORK IN PROGRESS MAINLY. THE REVENUE IS IN APPEAL CHALLENGING THE DELETION O F THE OTHER ADDITIONS ON ACCOUNT OF GROSS PROFIT, PRODUCTION OU TSIDE THE BOOKS OF ACCOUNTS AND BOGUS PURCHASES. 5. THE LEARNED DR RELIED UPON THE ORDER OF THE AO. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE VERY FAI RLY SUBMITTED THAT THE BASIC RECORD I.E. JOB CARD AND PHYSICAL INVENTO RY RECORDS HAVE BEEN DESTROYED, THEREFORE, BOOK RESULTS HAVE BEEN R IGHTLY REJECTED IN THE MATTER. HE HAS SUBMITTED THAT THE ASSESSEE IN PRINCIPLE DID NOT DISPUTE REJECTION OF THE BOOKS OF ACCOUNTS. THE LEA RNED COUNSEL FOR THE ASSESSEE HOWEVER, SUBMITTED THAT BOOK RESULTS O F THE ASSESSEE ON THE SAME PATTERN HAVE BEEN ACCEPTED IN THE EARLI ER AS WELL AS IN THE SUBSEQUENT PERIOD BUT THE FACTS NOTED BY THE AU THORITIES BELOW HAVE NOT BEEN DISPUTED. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT ONCE ADDITION ON ACCOUNT OF WORK IN PROGRESS IS MADE WHICH IS HIGHER TO THE OTHER ADDITION, THE LEA RNED CIT(A) RIGHTLY DELETED THE REMAINING ADDITIONS ON ACCOUNT OF GROSS PROFIT, PRODUCTION OUTSIDE THE BOOKS OF ACCOUNTS AND BOGUS PURCHASES BECAUSE THE SAME WOULD BE COVERED BY THE ADDITION O N ACCOUNT OF ADDITION MADE FOR WORK IN PROGRESS. THE LEARNED COU NSEL FOR THE ASSESSEE ALSO SUBMITTED THAT THERE WAS NO BASIS FOR MAKING THE ADDITION FOR PRODUCTION OUTSIDE THE BOOKS OF ACCOUN TS. ITA NO.500, 514, 3875 AND 3880/AHD/2007 LUTHAR DYEING & PRINTING MILLS 8 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND MAT ERIAL ON RECORD. THE FACTS NOTED BY THE AUTHORITIES BELOW HA VE NOT BEEN DISPUTED BY BOTH THE PARTIES. IT WOULD, THEREFORE, SHOW THAT THERE IS A FALL IN GROSS PROFIT RATE IN THE ASSESSMENT YEAR UN DER APPEAL AS COMPARED TO THE EARLIER YEARS. THE ASSESSEE FAILED TO EXPLAIN THE CORRECT VALUATION OF WORK IN PROGRESS. NO EVIDENCE OR MATERIAL WAS PRODUCED BEFORE THE AUTHORITIES BELOW TO GET THE VE RIFICATION OF THE VALUATION OF THE WORK IN PROGRESS. THE ASSESSEE EXP LAINED THAT JOB CARDS WERE MAINTAINED ALONG WITH PHYSICAL INVENTORY TAKEN AT THE END OF THE YEAR WHICH SUPPORTS THE VALUATION OF WORK IN PROGRESS OF THE ASSESSEE BUT THE SAME HAD BEEN DESTROYED. THUS, NO PRIMARY RECORD SUPPORTING THE VALUATION OF THE WORK IN PROGRESS HA S BEEN PRODUCED BEFORE THE AUTHORITIES BELOW. IT WAS ALSO ADMITTED THAT IT WAS NOT PRACTICALLY POSSIBLE TO MAINTAIN QUANTITATIVE STOCK REGISTER OF FABRICS AT EACH STAGE OF PROCESS. IT IS ALSO NOT IN DISPUTE TH AT IT WAS THE RESPONSIBILITY OF THE ASSESSEE TO SHOW THE CORRECT VALUATION OF THE CLOSING STOCK AND WORK IN PROGRESS OTHERWISE IT WOU LD AFFECT THE PROFIT OF THE ASSESSEE. SINCE, NO PRIMARY RECORDS WERE PRO DUCED, THEREFORE, THE AO WAS JUSTIFIED IN HOLDING THAT THE CORRECT VA LUATION OF THE CLOSING STOCK AND TRUE PROFIT CANNOT BE ASCERTAINED. THE SU BMISSION OF THE ASSESSEE WAS THUS FOUND TO BE NOT RELIABLE. THE DEC ISIONS QUOTED BY THE AO SUPPORT THE CASE OF THE REVENUE. THUS, NEITH ER THE RATE NOT THE QUANTITY OF CLOTH COULD BE SUBJECTED TO VERIFICATIO N. THE AO, IN THE ABSENCE OF RELIABLE AND COGENT EVIDENCE ON RECORD C ORRECTLY APPLIED THE COMPARABLE CASE IN ORDER TO MADE ESTIMATE OF TH E WORK IN PROGRESS. THOUGH, SOME PAPER BOOKS HAVE BEEN FILED BY THE ASSESSEE, BUT NONE OF THE DOCUMENTS HAS BEEN REFERR ED TO OR RELIED ITA NO.500, 514, 3875 AND 3880/AHD/2007 LUTHAR DYEING & PRINTING MILLS 9 UPON DURING THE COURSE OF ARGUMENTS. NO MATERIAL IS POINTED OUT TO REBUT THE FINDINGS OF THE AUTHORITIES BELOW WITH RE GARD TO VALUATION OF WORK IN PROGRESS. IN PRINCIPLE, THE LEARNED COUNSEL FOR THE ASSESSEE DID NOT DISPUTE REJECTION OF BOOKS OF ACCOUNTS BY T HE AUTHORITIES BELOW. CONSIDERING THE TOTALITY OF THE FACTS AND CI RCUMSTANCES NOTED ABOVE, IT IS CLEAR THAT THE ASSESSEE DESTROYED ALL BASIC RECORDS AND WHATEVER RECORD WAS PRODUCED WAS NOT SUFFICIENT TO SUPPORT THE EXPLANATION OF THE ASSESSEE. THE AUTHORITIES BELOW WERE, THEREFORE, JUSTIFIED IN HOLDING THAT CORRECT PROFIT OF THE ASS ESSEE COULD NOT BE WORKED OUT ON THE BASIS OF THE BOOKS OF ACCOUNTS PR ODUCED BEFORE THEM. REJECTION OF THE BOOKS OF ACCOUNTS IS, THEREF ORE, JUSTIFIED IN THE MATTER. THE ADDITION MADE ON ACCOUNT OF WORK IN PRO GRESS IN A SUM OF RS.46,85,104/- IS JUSTIFIED. THE SAME ADDITION IS C ONFIRMED AND THESE GROUNDS OF APPEAL OF THE ASSESSEE ARE DISMISSED. HO WEVER, CONSIDERING THE OTHER ADDITIONS ON ACCOUNT OF GROSS PROFIT, BOGUS PURCHASES AND PRODUCTION OUTSIDE THE BOOKS OF ACCOU NTS, WE ARE OF THE VIEW THAT THE LEARNED CIT(A) RIGHTLY DELETED TH E SAME ADDITIONS BECAUSE THE ADDITION MADE ON ACCOUNT OF UNDER-VALUA TION ON ACCOUNT OF WORK IN PROGRESS WOULD TAKE CARE OF ALL THESE AD DITIONS. THE ADDITION OF GROSS PROFIT WOULD BE PART OF REJECTION OF BOOKS OF ACCOUNTS ON THE BASIS OF WHICH HIGHER ADDITION IS ALREADY MA DE ON ACCOUNT OF WORK IN PROGRESS. WITH REGARD TO THE ADDITION ON AC COUNT OF PRODUCTION OUTSIDE THE BOOKS OF ACCOUNTS, THE LEARNED CIT(A) R IGHTLY NOTED THAT THE SAME ADDITION IS MADE ON THEORETICAL BASIS WITH OUT ANY EVIDENCE. THE AO PRESUMED ON THE BASIS OF THE CAPACITY OF THE MACHINES OF THE ASSESSEE THAT ASSESSEE MIGHT HAVE PRODUCED MORE ART ICLES AND SOLD THE SAME. SUCH FINDINGS HAVE NO BASIS OR EVIDENCE O N RECORD TO ITA NO.500, 514, 3875 AND 3880/AHD/2007 LUTHAR DYEING & PRINTING MILLS 10 JUSTIFY THE FINDINGS OF THE AO. THE AO MERELY ON TH E BASIS OF REJECTION OF BOOKS OF ACCOUNTS PRESUMED CERTAIN FACTS WITHOUT ANY MATERIAL OR EVIDENCE IN SUPPORT OF THE SAME, THEREFORE, SUCH AD DITION CANNOT BE SUSTAINED. THE ADDITION WAS, THEREFORE RIGHTLY DELE TED BY THE LEARNED CIT(A). FURTHER, SMALL ADDITION ON ACCOUNT OF BOGUS PURCHASES WOULD ALSO BE COVERED BY THE ADDITION MADE ON ACCOUNT OF UNDER-VALUATION OF WORK IN PROGRESS AND WAS RIGHTLY DELETED BY THE LEARNED CIT(A). CONSIDERING THE FACTS AND CIRCUMSTANCES NOTED ABOVE , WE DO NOT FIND ANY MERIT IN BOTH THE CROSS APPEALS. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT(A) IN MAINTAINING THE ADDI TION ON ACCOUNT OF WORK IN PROGRESS AND DELETING THE OTHER ADDITIONS. 9. IN THE RESULT, BOTH THE CROSS APPEALS ARE DISMIS SED. ITA NO.3875/AHD/2007 (DEPARTMENTAL APPEAL) ITA NO.3880/AHD/2007 (ASSESSEES APPEAL) A. Y.:2004-05 10. THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES SUBMITTED THAT THE ISSUES ARE SAME IN BOTH THE APPEALS AND THE ORD ER IN ASSESSMENT YEAR 2003-04 MAY BE FOLLOWED AND HIGHER OF THE ADDI TIONS MAY BE CONFIRMED. 11. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE AO BY REJECTING THE BOOKS OF ACCOUNTS ON THE SAME REASONS OF FALL IN GR OSS PROFIT AND ADDITIONS ON ACCOUNT OF WORK IN PROGRESS REJECTED T HE BOOK RESULTS AND MADE ADDITION OF RS.48,65,461/- ON ACCOUNT OF F ALL IN GROSS PROFIT AND FURTHER MADE ADDITION OF RS.3,33,276/- ON ACCOU NT OF CLOSING STOCK OF WORK IN PROGRESS. ITA NO.500, 514, 3875 AND 3880/AHD/2007 LUTHAR DYEING & PRINTING MILLS 11 12. THE REVENUE RAISED THE FOLLOWING GROUND OF APPE AL: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRED IN ALLOWING THE FULL CREDIT OF CLOSING STOCK OF WORK IN PROGRESS IN A. Y. 2003-04 OUT OF RS.46,85,104/- AS OPENING STOCK OF WORK IN PROGRESS FOR A. Y. 2004-05, BECAUSE, THE ADDITION OF RS.46,85,10 4/- CONFIRMED IN A. Y. 2003-04 CONSISTED OF ADDITION OF RS.30,87,500/- ON ACCOUNT OF FALL IN G.P. AND ADDIT ION ON ACCOUNT OF WORK IN PROGRESS RS.15,97,604/- AND, THU S, NO CREDIT FOR THE ADDITION OF RS.30,87,500/- MADE ON A CCOUNT OF FALL IN G. P. IS ALLOWABLE AS OPENING STOCK OF W ORK IN PROGRESS IN A. Y. 2004-05. 13. THE ASSESSEE IN ITS APPEAL CHALLENGED THE REJEC TION OF BOOKS OF ACCOUNTS AND ALSO CHALLENGED BOTH THE ADDITIONS ON ACCOUNT OF GROSS PROFIT AND UNDERVALUATION OF WORK IN PROGRESS. 14. ON CONSIDERATION OF THE SUBMISSIONS OF THE PART IES, WE DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDER OF THE LEARNED CIT(A). WITH REGARD TO THE DEPARTMENTAL APPEAL, THE LEARNED CIT(A) NOTED THAT NO FULL CREDIT OF CLOSING STOCK OF WORK IN PROGRESS FOR THE PRECEDING ASSESSMENT YEAR 2003-04 HAS BEEN GIVEN OUT OF RS.46 ,85,104/- FOR WHICH ADDITION IS NOW CONFIRMED IN ASSESSMENT YEAR 2003-04. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT SUCH BENEF IT SHALL HAVE TO BE GIVEN IN THE SUBSEQUENT YEAR. THE LEARNED CIT(A) AC CEPTED THE CONTENTION OF THE ASSESSEE AND ALLOWED THE APPEAL O F THE ASSESSEE. IT WOULD, THEREFORE, SHOW THAT ONCE THE ADDITION ON AC COUNT OF WORK IN PROGRESS IS MADE IN ASSESSMENT YEAR 2003-04, IT WOU LD ENHANCE THE VALUATION OF THE OPENING STOCK IN THE NEXT YEAR I.E . ASSESSMENT YEAR 2004-05. THE AUTHORITIES BELOW SHALL HAVE TO GIVE E FFECT TO THE SAME. ITA NO.500, 514, 3875 AND 3880/AHD/2007 LUTHAR DYEING & PRINTING MILLS 12 THEREFORE, THERE IS NO INFIRMITY IN THE ORDER OF TH E LEARNED CIT(A) IN GIVING RELIEF TO THE ASSESSEE. THE DEPARTMENTAL APP EAL IS ACCORDINGLY DISMISSED. 15. IN SO FAR AS THE APPEAL OF THE ASSESSEE IS CONC ERNED, WE FIND THAT FACTS ARE SAME AS IS CONSIDERED IN ASSESSMENT YEAR 2003-04. THERE IS A FALL IN GROSS PROFIT RATE IN THE ASSESSM ENT YEAR UNDER APPEAL ALSO AND THE ADDITION ON ACCOUNT OF WORK IN PROGRESS IS ALSO MADE. THE LEARNED CIT(A) FOLLOWING THE ORDER FOR AS SESSMENT YEAR 2003-04 DISMISSED THE APPEAL OF THE ASSESSEE. SINCE THE ISSUES ARE SAME AS IS CONSIDERED IN ASSESSMENT YEAR 2003-04, B Y FOLLOWING THE SAME DECISIONS FOR THE SAME YEAR, WE DO NOT FIND AN Y INFIRMITY IN THE ORDER OF THE LEARNED CIT(A) IN REJECTING THE BOOK R ESULTS AND CONFIRM BOTH THE ADDITIONS. HOWEVER, IN THIS ASSESSMENT YEA R, ADDITION ON ACCOUNT OF GROSS PROFIT IS HIGHER AS COMPARED TO WO RK IN PROGRESS; THEREFORE, NO SEPARATE ADDITION ON ACCOUNT OF WORK IN PROGRESS SHALL BE MADE BECAUSE THE GROSS PROFIT ADDITION WOULD TAK E CARE OF THE SAME. IN PRINCIPLE, SEPARATE ADDITION OF RS.3,33,72 6/- IS DELETED. IT WOULD MEAN THAT ADDITION ON ACCOUNT OF GROSS PROFIT OF RS.48,65,461/- IS CONFIRMED. IN THE RESULT, DEPARTMENTAL APPEAL IS DISMISSED AND THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ITA NO.500, 514, 3875 AND 3880/AHD/2007 LUTHAR DYEING & PRINTING MILLS 13 17. IN THE RESULT, BOTH THE DEPARTMENTAL APPEALS AR E DISMISSED. THE APPEAL OF THE ASSESSEE IN ASSESSMENT YEAR 2003- 04 IS DISMISSED. HOWEVER, THE APPEAL OF THE ASSESSEE IN A SSESSMENT YEAR 2004-05 IS PARTLY ALLOWED. ORDER PRONOUNCED ON 29-04-2011. SD/- SD/- (G. D. AGARWAL) VICE PRESIDENT (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 29-04-2010 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR, ITAT, AHMEDABAD