ADDL CIT RG 20(1), MUMBAI V. KING METAL WORKS, MUMBAI

ITA 5507/MUM/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62192 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-04-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 26-03-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 07-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS USHA NAIR
• Assessee Lawyers: DR K SHIVARAM
• Keywords: Opportunity of being heard
• Section: 143(3); 142(1); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEFORE SHRI G.E. VEERABHADRAPPA, HONBLE PRESIDENT AND SHRI V. DURGA RAO, JUDICIAL MEMBER ITA NO. 5507/MUM/2010 ASSESSMENT YEAR : 2007-08 ADDL. COMMISSIONER OF INCOME-TAX, APPELLANT CIRCLE 20(1), 603-PIRAMAL CHAMBERS, PAREL, MUMBAI 400 012. VS. KING METAL WORKS, RESPONDENT A-6, NAND DHAM INDL. ESTATE, MAROL, MAROSHIROAD, ANDHERI (E), MUMBAI 400 059. (PAN AAAFK 4021F) APPELLANT BY : MRS. USHA NAIR RESPONDENT BY : DR. K. SHIVARAM DATE OF HEARING : 27/03/2012 DATE OF PRONOUNCEMENT : 12/04/201 2 ORDER PER V. DURGA RAO, J.M.: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF CIT(A)-31, MUMBAI, PASSED ON 07/04/2010 FOR THE ASS ESSMENT YEAR 2007-08. 2. THE REVENUE HAS RAISED THREE GROUNDS OF APPEAL, THE SUM AND SUBSTANCE OF WHICH IS AGAINST THE ACTION OF THE CIT (A) IN DELETING THE ADDITION OF RS. 2,23,09,138/-. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE FILED ITS RETURN OF INCOME ELECTRICALLY ON 27/10/2007 DECLARI NG TOTAL INCOME OF RS. 5,63,39,180/-, WHICH WAS PROCESSED U/S 143(1) O F THE ACT. SUBSEQUENTLY, THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND ITA NO. 5507/MUM/10 M/S KING METAL WORKS 2 NOTICES U/S 143(2) AND 142(1) WERE ISSUED AND SERVE D ON THE ASSESSEE. IN RESPONSE TO THE SAID NOTICES THE AR OF THE ASSES SEE SUBMITTED VARIOUS DETAILS AND EXPLAINED THE CASE. THE AO NOTE D THAT DURING THE YEAR UNDER CONSIDERATION, ASSESSEE COMPANY ACHIEVED A TOTAL TURNOVER OF RS. 42,15,82,069/- AND EARNED TOTAL GROSS PROFI T OF RS. 9,32,91,128/- GIVING A GROSS PROFIT RATIO OF 22.13 %. TO UNDERSTAND THE ACTUAL MARGIN OF PROFITS, THE AO ASKED THE ASSE SSEE TO FILE SUMMARY OF MONTH-WISE PURCHASE AND SALES AND THE SA ME WERE FILED BY THE ASSESSEE. THE MONTH-WISE DETAILS OF SALE/PUR CHASE WAS EXTRACTED BY THE IN A TABULAR FORM AT PAGE 4 OF HIS ORDER. FROM THE SAID DETAILS, THE AO NOTICED THAT THERE IS HUGE DIF FERENCE IN THE PROFIT MARGINS OF FIRST HALF OF THE YEAR AND THE SECOND HA LF OF THE YEAR. HE FURTHER NOTED THAT DURING THE MONTH OF MARCH, 2007 ITSELF ASSESSEE EARNED A HUGE PROFIT OF RS. 2,03,50,922/- AND IF TH IS PROFIT IS EXCLUDED TO WORK OUT PROFIT MARGIN FOR REST FIVE MONTHS THE GP RATIO WILL FURTHER FALL TO SINGLE DIGIT AT 8.87%. ANOTHER WORKING WAS DONE TO WORK OUT THE PROFIT RATIO AND CLOSING STOCK POSITION AT THE END OF EACH MONTH BY INCLUDING THE OPENING STOCK AVAILABLE AS ON 01/04/0 6 AND THE CHART PREPARED BY THE ASSESSEE TO THIS EFFECT WAS REPRODU CED BY THE AO AT PAGES 5 & 6. ON PERUSAL OF THE SAID CHART, THE AO N OTICED THAT THE OPENING STOCK FIGURE OF RS. 2,41,47,839/- IS PROGRE SSIVELY REDUCED TILL THE MONTH OF SEPTEMBER, 2006, WHERE THE VALUE OF CL OSING STOCK AS ON 30/09/2006 COMES TO RS. 42,83,062/-. THE CLOSING ST OCK AVAILABLE WITH THE ASSESSEE AS ON 31/03/07 IS RS. 1,94,63,404 /-. THE AO WAS OF THE VIEW THAT THE FIGURE OF CLOSING STOCK OF RS. 42,83,062/- AS ON 30/09/06 IS QUITE ABNORMAL FOR THE REASONS, INTER-A LIA THAT THE WORKING OF CLOSING STOCK AS ON 30/09/06 IS DONE BY ADOPTING THE GROSS PROFIT RATIO OF 22.13%, WHICH IS LESS THAN TH E GP RATIO OF TRADING GOODS OF 27.42%. IF THE COMPONENT OF TRADING ITEMS IS HIGHER DURING THE FIRST SIX MONTHS, THE CLOSING STOCK WILL GET FU RTHER REDUCED. THE AO NOTED THAT THE ANALYSIS OF PURCHASE/SALE OF MANU FACTURING GOODS ITA NO. 5507/MUM/10 M/S KING METAL WORKS 3 SHOW ABNORMAL PROFIT. IN THE TRADING GOODS, ASSESSE E HAD EARNED A GROSS PROFIT OF 27.42% WHEREAS IN MANUFACTURED GOOD S THE PROFIT RATIO IS ONLY 15.21%. ASSESSEE ACHIEVED A TURNOVER OF RS. 23,88,70,038/- ON THE EXPORT OF TRADING GOODS WEIGHING 5,94,929.96 KG. (AVERAGE SALE RATE OF RS. 401/- PER KG., AVERAGE PURCHASE RATE OF RS. 291/-) AS AGAINST THE TOTAL TURNOVER OF RS. 18,27,12,031/- ON THE EXPORT OF MANUFACTURING GOODS WEIGHING 7,54,3892.04 KGS. (AVE RAGE SALE RATE OF RS. 242/- PER KG AND AVERAGE PURCHASE RATE OF RS. 2 05/- PER KG.) THE AO OBSERVED THAT THE ABOVE DIFFERENCE IN TURNOVER, G.P. RATIO AND AVERAGE RATE OF PURCHASE AND SALE ARE NOT IN THE TO LERANCE ZONE AND CANNOT BE ACCEPTED BECAUSE OF THE FOLLOWING REASONS :- A) THE ABOVE PROPOSITION SUGGESTS THAT ASSESSEE EAR NED MORE PROFIT ON THE EXPORT OF TRADING OF THE GOODS AS COM PARED TO THE OWN MANUFACTURING. NORMALLY, WHEN THE GOODS ARE BOUGHT FROM OUTSIDE PA RTY, SUCH PERSON WILL RETAIN HIS PROFIT MARGIN LEADING TO LES SER PROFIT MARGINS FOR THE SUBSEQUENT BUYER. HENCE, SUCH GAP I N THE PROFIT RATIOS CANNOT BE ACCEPTED. B) ASSESSEE IS IN THE BUSINESS OF MANUFACTURING OF UTENSILS SINCE 1970 AND IS GOVERNMENT RECOGNIZED EXPORT HOUSE. HAV ING SUCH A WIDE EXPERIENCE PRESUPPOSES THAT ASSESSEE HAS BETTE R QUALITY CONTROL AND EFFICIENT SYSTEM TO REDUCE WASTAGE LEAD ING TO HIGH PROFITS. BUT IN THIS REVERSE HAS HAPPENED. C) HERE WE ARE COMPARING THE GROSS PROFITS OF THE T WO SEGMENTS AND NOT THE NET PROFITS, HENCE THE QUESTION OF ESTA BLISHMENT COSTS DOES NOT COME INTO OPERATION. 4. IN VIEW OF THE ABOVE FACTS, THE AO HELD THAT BOO KS OF ACCOUNT MAINTAINED BY THE ASSESSEE DID NOT REFLECT THE TRUE AFFAIRS OF BUSINESS, HENCE THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESS EE WERE REJECTED AS PER THE PROVISIONS OF SECTION 145 OF THE ACT, FO LLOWING FEW CASE LAWS, MENTIONED AT PAGE 13 OF HIS ORDER. THEREFORE, THE AO ESTIMATED ITA NO. 5507/MUM/10 M/S KING METAL WORKS 4 THE ACTUAL PROFIT ON EXPORT OF MANUFACTURED GOODS A PPLYING THE GP RATIO OF EXPORT OF TRADING GOODS I.E. 27.42% INSTEA D GP DECLARED BY THE ASSESSEE ON THE SAME AT 125.21% OF RS. 2,23,09,13/- AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFOR E THE CIT(A). 5. BEFORE THE CIT(A), THE AR OF THE ASSESSEE SUBMIT TED THAT THE AO IS NOT JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNT ARBITRARILY THE BOOKS OF ACCOUNT WITHOUT POINTING OUT ANY MATERIAL DEFECT AND ALSO WITHOUT AFFORDING ANY OPPORTUNITY OF BEING HEARD TO THE ASS ESSEE. IT WAS FORCIBLY ARGUED THAT NO SHOW CAUSE WAS ISSUED BY TH E AO BEFORE REJECTING THE BOOKS OF ACCOUNT. BESIDES, THE AR HAS ALSO SUBMITTED THAT THE ESTIMATION OF GROSS PROFIT IN CASE OF ITS MANUFACTURING EXPORTS ON THE BASIS OF THE SAME SET OF BOOKS OF ACCOUNT VI DE WHICH GROSS PROFIT IN RESPECT TO ITS TRADING EXPORTS WERE WORKE D OUT PROVED THAT THE AO HIMSELF HAD ADMITTED THE RELIABILITY OF THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE. THEREFORE, THE AO HAD S UBMITTED THAT THE CONTRADICTORY CONCLUSIONS DRAWN BY THE AO TO REJECT THE BOOKS OF ACCOUNT FOR INVOKING THE PROVISIONS OF SECTION 145 AND THEREAFTER, ACCEPTING THE SAME FOR JUSTIFYING HIS APPLICATION O F GP RATIO IN RESPECT OF ITS MANUFACTURING EXPORTS, BASED ON GP SHOWN IN ITS TRADING EXPORTS, PROVED THAT THE AO WAS NOT IN CONSISTENT I N HIS APPROACH OF REJECTING THE BOOKS OF ACCOUNT AND ALSO ESTIMATING THE GP ON AD HOC BASIS. THEREFORE, IT WAS SUBMITTED THAT THE ENTIRE ADDITION MADE ON THIS ACCOUNT MAY BE DELETED. AFTER HEARING THE SUBM ISSIONS OF THE ASSESSEE, THE CIT(A) DISCUSSED AND EXAMINED THE ISS UE ELABORATELY AND HELD AS UNDER:- 3.3. I HAVE CAREFULLY CONSIDERED THE ASSESSMENT OR DER AND THE SUBMISSIONS OF THE AR AS DISCUSSED ABOVE. I HAVE AL SO GONE THROUGH THE PAPER BOOK FURNISHED BY THE WHICH IS PL ACED ON RECORD. AS PER THE UNDISPUTED FACTS BROUGHT ON RECO RD THE LT IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT OF STAINLESS STEEL ALUMINUM UTENSILS AND CUTLERY DURING THE RELE VANT ITA NO. 5507/MUM/10 M/S KING METAL WORKS 5 ASSESSMENT YEAR. THE APPELLANT IS DOING THIS BUSINE SS FROM ITS OWN IN-HOUSE MANUFACTURING AND ON JOB WORK BASIS TH ROUGH CERTAIN OUTSIDE AGENCIES. BESIDES, THE APPELLANT IS ALSO ENGAGED IN THE TRADING OF SIMILAR ITEMS. THE OVERALL GP RAT IO ADMITTEDLY SHOWN BY THE APPELLANT IS 23.32%; WHEREAS, THE GP R ATIO SHOWN IN RESPECT OF TRADING EXPORT IS 27.42% AS AGAINST G P RATIO OF 15.21% SHOWN IN ITS MANUFACTURING EXPORTS. ON ACCOU NT OF THESE FACTS, ACCORDING TO THE AO SINCE THE APPELLANT IS D EALING IN THIS LINE OF BUSINESS FOR MORE THAN. 50 YEARS, THE GROSS MARGIN IN RESPECT OF ITS MANUFACTURING EXPORTS SHOULD HAVE BE EN BETTER THAN THE GROSS PROFIT MARGIN SHOWN IN ITS TRADING EXPORT S. AS AGAINST THE SAME, ACCORDING TO THE AR THE MATERIAL PURCHASE D FOR ITS TRADING EXPORTS ARE PROCURED OUT OF UNORGANIZED SEC TOR WHERE THE COST OF PRODUCTION IS LOWER THAN THE COST OF PRODUC TION INVOLVED IN ITS OWN IN-HOUSE MANUFACTURING WHICH HAS RESULTED I NTO LOWER MARGINS OF GROSS PROFIT IN ITS MANUFACTURING EXPORT S IN COMPARISON TO ITS TRADING EXPORTS. HOWEVER, THIS SU BMISSION OF THE AR IS NOT DISPROVED BY THE AO BY BRINGING ANY S UPPORTING EVIDENCE ON RECORD. 3.3.1. WITH THIS BACKGROUND AND THE FACTS AND CIRC UMSTANCES OF THE CASE, THE REJECTION OF THE BOOKS OF ACCOUNT BY THE AO BY INVOKING THE PROVISIONS OF SECTION 145 OF THE ACT T O MY CONSIDERED OPINION IS UNJUSTIFIED. THE AO HAS NOT POINTED OUT ANY MATERIAL DEFECTS OR DISCREPANCIES IN THE BOOKS OF ACCOUNT MA INTAINED BY THE APPELLANT EXCEPT FOR THE ADMITTED FACT THAT THE APPELLANT HAS NOT MAINTAINED DAY-TO-DAY STOCK REGISTER OR STOCK T ALLY IN RESPECT OF ITS CONSUMPTION OF RAW MATERIAL AND PRODUCTION O F FINISHED GOODS. THIS IS PRIMARILY DUE TO THE FACT THAT THE R AW MATERIAL PURCHASED IS IN WEIGHT WHEREAS THE ITEMS PRODUCED A ND SOLD ARE IN PIECES. THE MAIN GROUNDS OF THE AO FOR REJECTING THE BOOKS OF ACCOUNT ARE AS UNDER: I. THE OVERALL GP RATIO SHOWN BY THE APPELLANT IN I TS FIRST SIX MONTHS OF THE PREVIOUS YEAR ARE COMPARATIVELY HIGHE R THAN THE GP RATIO SHOWN BY THE APPELLANT IN ITS SECOND H ALF OF THE PREVIOUS YEAR, II. THE FIGURE OF CLOSING STOCK AS PER HIS WORKING GIVEN IN PARA 3.3 OF THE ASSESSMENT ORDER AT THE END OF SEPT EMBER, 2006 IS QUITE ABNORMAL PRIMARILY BECAUSE THE CLOSIN G STOCK DISCLOSED IS HARDLY SUFFICIENT FOR FIVE DAYS OF CON SUMPTION AS AGAINST ITS MINIMUM REQUIREMENT OF 21 DAYS, THER EFORE, THE STOCK INVENTORY AS ON 3 0.09.2006 IS ABNORMALLY LOW, ITA NO. 5507/MUM/10 M/S KING METAL WORKS 6 III) NO STOCK REGISTERS ARE MAINTAINED TO DETERMINE THE ACTUAL PRODUCTION BOTH IN QUALITATIVE TERMS, NO REC ORDS ARE MAINTAINED TO PROVE THE QUANTITY OF RAW MATERIAL IS SUED FOR JOB WORK AND WHAT QUALITY OR QUANTITY OF GOODS ARE RECEIVED BACK AND NO RECORDS TO PROVE THE QUANTITATIVE DETAI LS OF RAW MATERIAL ISSUED AN -MANUFACTURE OF GOODS ARE MAINTA INED IN RESPECT OF ITS IN-HOUSE PRODUCTION, IV. THE GENUINENESS OF PURCHASES REFLECTED IN THE B OOKS OF ACCOUNT ARE DOUBTFUL IN AS MUCH AS CERTAIN PURCHASE BILLS OF S.S. PATTA PURCHASED FROM CERTAIN PARTIES OF JODHPU R (RAJASTHAN), IN THE MONTH OF MARCH, 2007, THE PURCH ASE BILLS AND TRANSPORTATION BILLS DO NOT CONTAIN ANY S TAMP OR SIGN WHICH COULD ESTABLISH THAT GOODS WERE IN FACT RECEIVED IN MUMBAI, V. PURCHASE OF S.S.WIRE ON 23.03.2007 VALUED FOR MO RE THAN RS.2 LAKHS IS NEITHER CONSUMED NOT ATTRACTED IN THE CLOSING STOCK AT THE END OF THE RELEVANT PREVIOUS YEAR, AND VI. FROM HIS ANALYSIS IN PARA 3.5.1, THE AO HAS HEL D THAT THE TRADING RESULTS OF MANUFACTURING EXPORTS AND TRADIN G EXPORTS ON ACCOUNT OF TURNOVER, GP AND AVERAGE RATE OF PURCHASE AND SALE ARE NOT IN THE TOLERANCE ZONE. 3.3.2. THEREFORE, ON ACCOUNT OF THESE FACTS THE AO HAS REJECTED THE BOOKS OF ACCOUNT AND THEREAFTER APPLIED THE GP RATIO SHOWN BY THE APPELLANT IN ITS TRADING EXPORTS TO ITS MANU FACTURING EXPORTS FOR MAKING THE GP ADDITION. FROM THESE POIN TS DISCUSSED ABOVE ARISING OUT OF THE ASSESSMENT ORDER, I FIND T HAT THE CONCLUSIONS ARRIVED AT BY THE AO FOR REJECTING THE BOOKS OF ACCOUNT ARE NOT BASED ON THE SPECIFIC DEFECTS OR DI SCREPANCIES FOUND IN THE BOOKS OF ACCOUNT MAINTAINED BY THE APP ELLANT BUT OUT OF HIS OWN PRESUMPTIONS AND ASSUMPTIONS. THE AO FOR THE PURPOSE OF COMPUTING THE CLOSING STOCK AT THE END O F SEPTEMBER, 2006 HAS APPLIED UNIFORM GP RATE OF 22.13% AS DISCU SSED IN PARA 3.3 OF THE ASSESSMENT ORDER. IN THIS REGARD HE HAS ALSO NOT GIVEN THE EFFECT TO DIRECT EXPENSES INVOLVED FOR ARRIVING AT THE CORRECT GP RATIO. THE STOCK POSITION WORKED OUT BY THE AO I S ON HYPOTHETICAL BASIS AND MOREOVER, AS I FIND IN NONE OF THE MONTHS OF THE RELEVANT PREVIOUS YEAR, CLOSING STOCK IS IN NEGATIVE FIGURE. IN THIS REGARD, I FIND CONSIDERABLE MERITS IN OF TH E A}T THAT G.P. RATIO CANNOT BE COMPARED ON PIECEMEAL OR BASIS UNLE SS AND UNTILL CERTAIN GLARING DISCREPANCIES ARE POINTED OUT. ALL THE POINTS OF REJECTION OF BOOKS OF ACCOUNT ARE DULY REBUTTED BY THE AR AS PER ITA NO. 5507/MUM/10 M/S KING METAL WORKS 7 HIS SUBMISSIONS REPRODUCED ABOVE. THEREFORE, THERE IS NO SUFFICIENT REASON FOR THE AO TO REJECT THE BOOKS OF ACCOUNT ON THIS BASIS. THE FINDINGS OF THE AO REGARDING PURCHASE OF SS PATTA AND SS WIRE IS DULY REBUTTED BY THE AO AS PER THE SUBMI SSIONS REPRODUCED ABOVE IN PARA 11 OF HIS WRITTEN SUBMISSI ONS. FROM THE COPY OF PURCHASE REGISTER FOR THE MONTH OF MARCH, 2 007 PRODUCED BY THE AR, NO SUCH PURCHASE OF S.S. WIRE ON 23.0120 07 OF RS. TWO LAKHS ARE RECORDED THEREIN. THE ONLY PURCHASE OF S. S. WIRE MADE ON 26.03.2007 IS FOR RS.B,464 /-. THE FINDINGS OF T HE AO REGARDING THE BILLS OF S.S. PATTA PURCHASED IN THE MONTH OF MARCH, 2007 FROM OUTSIDE PARTIES, TO MY CONSIDERED OPINION IS A GENERAL COMMENT INASMUCH AS THE AO HAS NOT MADE ANY INDEPEN DENT ENQUIRY REGARDING THE GENUINENESS OF THE PURCHASE. EVEN IN THE ASSESSMENT ORDER THE AO HAS NOT POINTED OUT THE SPE CIFIC BILL NUMBER, NAME OF THE PARTY, EXACT QUANTITY AND AMOUN T OF PURCHASE ETC. THEREFORE, UNDER THESE GIVEN FACTS AN D CIRCUMSTANCES OF THE CASE, 1 FIND THAT THE DISCREPA NCIES POINTED OUT BY THE AO ARE NOT A MATERIAL REASONS FOR REJECT ING THE BOOKS OF ACCOUNT OF THE APPELLANT. EVEN, HIS ANALYSIS MAD E IN PARA 3.5.1 ARE PURELY ON PRESUMPTION BASIS, THE AO HIMSE LF HAS ADMITTED THE COMPUTATION OF WEIGHT OF TRADING GOODS ON ASSUMPTION BASIS. THE ESTIMATION OF THE AO ON GUESS WORK AND EXTRAPOLATION TO MY CONSIDERED OPINION CANNOT BE A VALID REASON FOR REJECTION OF BOOKS OF ACCOUNT BY INVOKING THE P ROVISIONS O SECTION 145 OF THE ACT. 3.3.3 THEREFORE, THE ONLY REASON LEFT FOR THE REJEC TION OF BOOKS OF ACCOUNT IS THE NON-MAINTENANCE OF STOCK REGISTER OR DAY TO DAY STOCK TALLY BY THE APPELLANT. HOWEVER, AS DISCUSSED ABOVE THE APPELLANT IS ENGAGED IN THIS BUSINESS FOR THE LAST MORE THAN 50 YEARS AND THROUGHOUT IN ALL THESE YEARS HAS NEVER M AINTAINED THE STOCK REGISTER THE CLOSING STOCK AT THE END OF THE YEAR IS STATED TO BE CONSISTENTLY DISCLOSED BASED ON THE PHYSICAL INV ENTORY TAKEN UNDER THE DIRECT SUPERVISION OF ITS PARTNERS, WHICH IS DULY VERIFIED AND CERTIFIED BY THE PARTNERS. MOREOVER, THE AO HAS NOT FOUND ANY DISCREPANCY IN THE PURCHASES, SALES AND IN THE CONSUMPTION AND PRODUCTION OF THE GOODS MANUFACTURED BY THE APP ELLANT. NO INDEPENDENT OUTSIDE ENQUIRIES WERE CARRIED OUT FOR THIS PURPOSE. NO ON THE SPOT VERIFICATION OF STOCK INVENTORY WAS CARRIED OUT BY THE AO. THEREFORE, MERELY ON THE BASIS OF ASSUMPTIO NS AND PRESUMPTIONS BASIS WITHOUT POINTING OUT ANY SPECIFI C DISCREPANCY IN THE REGULAR MAINTENANCE OF THE BOOKS OF ACCOUNT SO AS TO POINT OUT THAT OF ACCOUNT MAINTAINED ARE NOT DEDUCING THE CORRECT PROFITS OF THE I FIND THAT THE AO IS NOT JUSTIFIED IN REJECTING THE SAME BY INVOKING THE PROVISIONS OF SECTION 145 OF T HE ACT. ITA NO. 5507/MUM/10 M/S KING METAL WORKS 8 3 3 4. BESIDES, AS POINTED OUT BY THE AR, I FIND TH AT UNDER SIMILAR FACTS AND CIRCUMSTANCES, THE BOOKS OF ACCOUNT REJEC TED BY THE AO IN THE CASE OF THE APPELLANT FOR THE AY 2001-02 IS DECIDED IN FAVOUR OF THE APPELLANT BY THE THEN ID. CIT APPEAL VIDE ORDER NO. CIT (A)-XX/IT-37/A.DDL. CIT.RG. 20 (1)/03-04 DATED 28.10.2004. THE CIT APPEAL HAS HELD IN THIS REGARD AS UNDER: I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE. JT IS AN ADMITTED FACT THAT THE APPELLANT FIRM HAS NOT MAINT AINED A/REGISTER OR ANY REGISTER. WHICH WOULD PRECISELY T ABULATE THE CONSUMPTION OF RAW MATERIAL INTO FINISHED PRODUCT. IT HAS BEE,: HELD BY THE HONOURABLE PUNJAB HIGH COURT IN PANDIT BROTHERS VS. CIT REPORTED IN 26 ITR 159 THAT THE FACT THAT THERE IS NO STOCK REGISTER CAN AT BEST CAUTION THE ITO AGAINST THE FA LSITY OF THE RETURN OF INCOME MADE BY THE ASSESSEE. IN OTHER WOR DS, WHILE THE ASSESSING OFFICER CAN INITIATE AN INVESTIGATION, HE CANNOT COME TO THE PRIMA-FADE CONCLUSION THAT THE ACCOUNT BOOKS MU ST BE FALSE IN THE ABSENCE OF THE MAINTENANCE OF STOCK REGISTER. S IMILARLY, THE LION BLE BOMBAY HIGH COURT IN THE CASE OF BOMBAY C YCLE STORES CO. LTD. VS. CIT REPORTED AT 133 ITR 13 HAS HELD T HAT THE ABSENCE OF A STOCK REGISTER ALONE MAY NOT. NECESSAR ILY JUSTIFY THE REJECTION OF ACCOUNTS. HOWEVER, IF THERE ARE OTHER DEFECTS IDENTIFIED BY RITE ASSESSING OFFICER, THEN THAT WOU LD BE SUFFICIENT CAUSE TO APPLY THE PROVISO TO SECTION 13 OF 1922 AC T. THERE ARE SEVERAL OTHER DECISIONS WHICH SUPPORT THE ABOVE, TH ESE DECISIONS THEREFORE LEADS TO THE CONCLUSION THAT ABSENCE OF S TOCK REGISTER IS NOT SUFFICIENT CAUSE FOR REJECTING THE ASESSEES BO OKS OF ACCOUNT. THE ASSESSING OFFICER HAS TO IDENTIFY CERTAIN DEFEC TS WHICH, COUPLED WITH THE ABSENCE OF STOCK REGISTER, WOULD C ONSTITUTE SUFFICIENT GROUND FOR REJECTION OF THE ASSESSEES B OOKS. IN THE PRESENT CASE THE ASSESSING OFFICER HAS NOT IDENTIFI ED ANY DEFECTS WHICH. WOULD JUSTIFY HIS REJECTION OF THE APPELLANT S BOOKS OF ACCOUNT. THERE IS NO POSITIVE CONCLUSION IN THIS RE GARD. IT HAS ALSO TO BE APPRECIATED THAT THE ASSESSEE CONSISTENTLY F OLLOWING THE SAME PRACTICE OVER THE YEARS AND THEREFORE, ONCE TH E DEPARTMENT HAS ACCEPTED THE ASSESSEES TRADING RESULTS OVER TH E YEARS AND THERE IS NO MATERIAL CHANGE IN THE PRESENT YEAR, TH E AO CANNOT REJECT THE BOOKS OF ACCOUNT. ACCORDINGLY, I HOLD TH AT THE REJECTION OF THE BOOKS OF ACCOUNT IN THIS CASE IS NOT WARRANT ED. 3.3.5. THE RELEVANT ORDER OF THE LD. CIT(A) AS DIS CUSSED ABOVE IS DULY ACCEPTED BY THE DEPARTMENT SINCE AS STATED BY THE AR NO FURTHER APPEAL IS FILED AGAINST THE SAID ORDER OF T HE CIT APPEAL BY THE DEPARTMENT. IN ADDITION, I ALSO FIND CONSIDERAB LE MERITS IN THE ARGUMENTS OF THE AR THAT THE RETURNS OF INCOME FILE D BY THE APPELLANT IN ALL ITS PRECEDING ASSESSMENT YEARS HAV E BEEN ITA NO. 5507/MUM/10 M/S KING METAL WORKS 9 ACCEPTED BY THE DEPARTMENT. HE HAS FURNISHED COPIES OF THE ASSESSMENT ORDERS PASSED UNDER SECTION 143(3) IN TH E CASE OF THE ASSESSEE FOR THE AYRS. 2002-03 DATED 31/12/2004, 20 03-04 DATED 23/02/05, 2004-05 DATED 05/12/2006 AND 2005-0 6 DATED 05/06/2007 IN WHICH NO SUCH AD APPELLANT HAS DISCLO SED ITS INCOME BASED ON THE SAME ST OF,A 9UNHLNGMTHOD MORE OVER, THE BOOKS OF ACCOUNT OF THE APPELLANT ARE DULY AUDITED BY THE TAX AUDITORS AS REQUIRED UNDER SECTION 44AB OF THE ACT, IN WHICH NO SUCH DISCREPANCIES OR DEFECTS ARE POINTED OUT BY TH E AUDITORS IT IS ALSO A FACT THAT THE ASSESSEES HOOKS OF ACCOUNT AR E SUBJECT TO THE STATE VAT AUTHORITIES AND FOR THE RELEVANT ASSESSME NT YEAR, THE VAT AUDIT IS ALREADY COMPLETED IN WHICH NO SUCH DEF ECTS OR DISCREPANCIES ARE POINTED OUT THEREFORE, ON ACCOUNT OF THESE SPECIFIC. FATS AVLLABLE IN THE.CASE OF THE APPELLA NT, I FIND THAT THE AO IS NO JUSTIFIED IN REJECTING THE BOOKS OF ACCOUN T OF THE APPELLANT BESIDES, FROM THE G.P. AND N.P CHART FILE D BY THE AR AS REPRODUCED ABOVE IN PARA 3.2.4 (PAGE-13), BOTH N.P. AND G.P. DISCLOSED BY THE APPELLANT FOR THE RELEVANT ASSESSM ENT YEAR ARE FOUND TO BE BETTER OR HIGHER THAN THE G P /N P DISC LOSED IN ITS IMMEDIATELY PRECEDING ASSESSMENT YEARS. ALL THE CAS E LAWS CITED BY THE AO ARE DULY DISTINGUISHED BY THE AR AS DISCU SSED ABOVE. THEREFORE, IN THE LIGHT OF THE ABOVE DISCUSSION, I HOLD THAT THE REJECTION OF BOOKS OF ACCOUNT IN THIS CASE IS NOT W ARRANTED. THIS GROUND OF APPEAL IS THEREFORE ALLOWED. 4. REGARDING, THE ESTIMATION OF GROSS PROFIT IN ITS MANUFACTURING EXPORTS, ON ACCOUNT OF THE ABOVE DISCUSSION. WHILE DECIDING ITS FIRST GROUND OF APPEAL, I M INCLINED TO AGREE. THE COMPARATIVE GP CHART FURNISHED BY THE THAT THE GP IN ITS MANUFACTU RING EXPORT IS QUITE COMPARABLE TO ITS GP SHOWN IN EARLIER AND SU CCEEDING ASSESSMENT YEARS. MOREOVER, FROM THE COMPARATIVE GP CHART OF OTHER CONCERNS DEALING IN THE SAME LINE OF BUSINESS , AS DISCUSSED ABOVE, IT IS NOTICED THAT THE GP SHOWN BY THE APPEL LANT IS REASONABLE AND ACCEPTABLE. IN ANY CASE, IN THE ABSE NCE OF ANY MATERIAL DEFECTS OR DISCREPANCIES IN THE REGULAR MA INTENANCE OF BOOKS OF ACCOUNT, I FIND THAT THE AO IS NOT REASONA BLE IN ESTIMATING THE GP IN ITS MANUFACTURING EXPORT ARBIT RARILY BASED ON GP SHOWN IN ITS TRADING EXPORTS. IN THIS REGARD, I FIND THE EXPLANATION OF THE AR REGARDING THE LOWER COST OF P RODUCTION IN CASE OF MATERIAL PROCURED FOR THE PURPOSE OF TRADIN G EXPORTS RESULTING INTO HIGHER MARGIN OF PROFIT, IS NOT DISP ROVED BY THE AO. MOREOVER, NOTHING IS BROUGHT ON RECORD BY THE AO TH AT THE TRADING RESULTS OF THE APPELLANT IN RESPECT TO ITS MANUFACT URING EXPORT IS IN GENUINE OR BOGUS INASMUCH AS THAT THE APPELLANT HAS EITHER INFLATED ITS PURCHASES OR NOT ACCOUNTED FOR ITS SAL ES OR INFLATED ITS DIRECT EXPENSES, AND THEREFORE, THE AD-HOC ADDITION MADE BY THE ITA NO. 5507/MUM/10 M/S KING METAL WORKS 10 AO TO MY CONSIDERED OPINION IS UNWARRANTED AND UNJU STIFIED. ACCORDINGLY, THE SAME IS DIRECTED TO BE DELETED. TH IS GROUND OF APPEAL IS ALSO ACCORDINGLY ALLOWED. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 6. BEFORE US, THE LEARNED DR BESIDES RELYING UPON T HE ORDER OF THE AO SUBMITTED THAT THE CIT(A) HAS NOT APPRECIATED TH E FACT THAT MAINTENANCE OF STOCK REGISTER AND DAILY PRODUCTION REGISTER AND OTHER RECORDS OF QUANTITIES AND QUALITY OF RAW MATERIAL A ND FINISHED PRODUCTS ARE IMPORTANT AND NECESSARY TO DETERMINE T HE TOTAL INCOME OF THE ASSESSEE, WHICH THE ASSESSEE FAILED TO DO. 7. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE A SSESSEE STRONGLY PLACED RELIANCE ON THE ORDER OF THE CIT(A) AND SUBM ITTED THAT THE AO HAS NOT POINTED OUT ANY SINGLE DEFECT IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AND HENCE HAS MISERABLY FAILED TO ESTABLIS H THE BASIC POINT THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE DO NOT RE FLECT THE TRUE AFFAIRS OF THE BUSINESS. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSE D THE RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELO W. IT IS OBSERVED THAT THE AO REJECTED THE BOOKS OF ACCOUNT OF THE AS SESSEE ON THE GROUND THAT THE ASSESSEE HAS NOT MAINTAINED ANY STO CK REGISTER, DAILY PRODUCTION REGISTER AND OTHER RECORDS OF QUANTITIES AND QUALITY OF RAW MATERIAL AND FINISHED PRODUCTS. THEREAFTER, HE ESTI MATED THE ACTUAL PROFIT ON EXPORT OF MANUFACTURED GOODS, BY TAKING T HE GP RATIO OF EXPORT OF TRADING GOODS I.E. 27.42% IN STEAD OF GP RATIO DECLARED BY THE ASSESSEE ON THE SAME AT 15.21% AND MADE THE ADD ITION OF RS. 2,23,09,138/-. THE CIT(A) FOLLOWING THE DECISION OF HIS PREDECESSOR IN ASSESSEES CASE FOR AY 2001-02, WHEREIN UNDER SIMIL AR FACTS AND ITA NO. 5507/MUM/10 M/S KING METAL WORKS 11 CIRCUMSTANCES, THE BOOKS OF ACCOUNT REJECTED BY THE AO WAS DECIDED IN FAVOUR OF THE ASSESSEE BY THE THEN CIT(A), DELET ED THE ADDITION OF RS. 2,23,09,138/- MADE BY THE AO BY APPLYING HIGHER GROSS PROFIT RATIO TO ESTIMATE THE GROSS PROFIT IN ASSESSEES M ANUFACTURING EXPORTS. WHILE DELETING THE ADDITION MADE BY THE AO , THE CIT(A) HELD THAT NOTHING IS BROUGHT ON RECORD BY THE AO THAT TH E TRADING RESULTS OF THE ASSESSEE IN RESPECT TO ITS MANUFACTURING EXP ORT IS IN-GENUINE OR BOGUS INASMUCH AS THAT THE ASSESSEE HAS EITHER INFL ATED ITS PURCHASES OR NOT ACCOUNTED FOR ITS SALES OR INFLATED ITS DIRE CT EXPENSES AND, THEREFORE, THE AD-HOC ADDITION MADE BY THE AO IS NO T WARRANTED AND UNJUSTIFIED. AS REGARDS THE REJECTION OF BOOKS OF A CCOUNT, THE CIT(A) HELD THAT IN ALL ITS PRECEDING ASSESSMENT YEARS THE RETURNS FILED BY THE ASSESSEE HAVE BEEN ACCEPTED BY THE DEPARTMENT, WHER EIN NO SUCH ADDITIONS ARE MADE ALTHOUGH THE ASSESSEE HAS DISCLO SED ITS INCOME BASED ON THE SAME SET OF ACCOUNTING METHOD. MOREOVE R, THE BOOKS OF ACCOUNT OF THE ASSESSEE ARE DULY AUDITED BY THE TAX AUDITORS AS REQUIRED U/S 44AB OF THE ACT, IN WHICH NO SUCH DISC REPANCIES OR DEFECTS ARE POINTED OUT BY THE AUDITORS. HE FURTHER HELD THAT THE ASSESSEES BOOKS OF ACCOUNT ARE SUBJECT TO THE STAT E VAT AUTHORITIES AND FOR THE RELEVANT ASSESSMENT YEAR, THE VAT AUDIT IS ALREADY COMPLETED IN WHICH NO SUCH DEFECTS OR DISCREPANCIES ARE POINTED OUT. HE, THEREFORE, HELD THAT THE AO IS NOT JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNT. IN VIEW OF THE ABOVE FINDINGS OF THE CI T(A), WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A ) IN DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF DIFFERENCE IN GP RATIO. THEREFORE, WE UPHOLD THE ORDER OF THE CIT(A) ON THI S COUNT AND DISMISS THE GROUNDS RAISED BY THE REVENUE. ITA NO. 5507/MUM/10 M/S KING METAL WORKS 12 9. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. PRONOUNCED IN THE OPEN COURT ON THIS 12 TH DAY OF APRIL, 2012 SD/- SD/- (G.E. VEERABHADRAPPA) ( V. DURGA RAO) PRESIDENT JUDICIAL MEMBER MUMBAI, DATED: 12 TH APRIL, 2012 KV COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, A BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI.