Vimal Dairy Ltd., Mehsana V. The ACIT., Mehsana Circle, Mehsana

ITA 596/AHD/2006

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 50575 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 28-06-2011
• Assessment Year: 2000-2001
• Appeal Filed On: 08-03-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K GUPTA
• Assessee Lawyers: P M MEHTA; S N SOPARKAR
• Keywords: Rejection of books of accounts; Unexplained investment; Business income; Assessment record
• Section: 143(3); 69; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI G.D.AGARWAL, VICE-PRESIDENT (AZ) AND SHRI MUKUL KR.SHRAWAT, JUDICIAL MEMBER 1. ITA NO.596/AHD/2006 2. ITA NO.706/AHD/2006 (ASSESSMENT YEAR : 2000-01) 1. VIMAL DAIRY LTD. 31, GIDC ESTATE HIGHWAY, MEHSANA 2. ACIT CEN.CIRCLE-1(2) AHMEDABAD VS. 1. ACIT MEHSANA CIRCLE MEHSANA 2. VIMAL DAIRY LTD. MEHSANA PAN/GIR NO. : AABCV 5434 B ( APPELLANTS ) .. ( RESPONDENTS ) ASSESSEE BY: SHRI S.N. SOPARKAR & SHRI P.M. MEHTA REVENUE BY : SHRI S.K. GUPTA, CIT-D.R. DATE OF HEARING : 28/06/ 2011 DATE OF PRONOUNCEMENT : 30/08/2011 O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THESE CROSS APPEALS HAVE EMANATED FROM THE ORDER LD . CIT(A)-I, AHMEDABAD DATED 06/01/2006 AND FACTS INVOLVED BEI NG IDENTICAL HENCE CONSOLIDATED AND HEREBY DECIDED BY THIS COMMON ORDE R. ITA NO.596/AHD/2006 (BY ASSESSEE) & ITA NO.706/AHD/2006 (BY REVENUE) M/S. VIMAL DAIRY LTD. VS. ACIT ASST.YEAR 2000-01 - 2 - (A) ASSESSEES APPEAL (ITA 596/AHD/2006 ): 2. THE APPELLANT HAS CONCISED THE GROUNDS AND F IRST THREE GROUNDS ARE INTERCONNECTED HENCE TO BE ADJUDICATED AS FOLLOWS : - GROUND NO.1 :- 1. IN LAW AND IN FACTS AND CIRCUMSTANCES OF THE APPELLANTS CASE, THE LD. CIT(A) HAS GROSSLY ERRED IN SUSTAINING THE ADDITION OF RS.1,51,431 OUT OF TOTAL ADDITION OF RS.10,81,622 MADE BY THE ASSESSING OFFI CER ON ACCOUNT OF ALLEGED UNDISCLOSED SALES. GROUND NO.2 :- 2. IN LAW AND IN FACTS AND CIRCUMSTANCES OF THE APPELL ANTS CASE, THE LD. CIT(A) HAS GROSSLY ERRED IN SUSTAININ G THE ADDITION OF RS.33,07,000 BY AFFIRMING REJECTION OF BOOKS OF ACCOUNT AND ON ACCOUNT OF ESTIMATING THE RATE OF GP . GROUND NO.3 :- 3. IN LAW AND IN FACTS AND CIRCUMSTANCES OF THE AP PELLANTS CASE, THE LD. CIT(A) HAS GROSSLY ERRED IN SUSTAININ G A LUMP SUM ADDITION OF RS.5,71,841 OUT OF RS.40,84,575 MADE BY THE ASSESSING OFFICER U/S.69 OF THE I.T.ACT. FACTS : 2.1. AT THE OUT-SET WE HAVE NOTICED THA T THE FIRST APPELLATE AUTHORITY HAS DECIDED ALL THE AFORE TYPED THREE GRO UNDS IN A UNIFORM MANNER BY ADOPTING A GROSS PROFIT RATE TO RESOLVE T HE ISSUES AS RAISED BY THE A.O. THEREFORE, FOR THE SAKE OF CONVENIENCE AND TO KEEP ITA NO.596/AHD/2006 (BY ASSESSEE) & ITA NO.706/AHD/2006 (BY REVENUE) M/S. VIMAL DAIRY LTD. VS. ACIT ASST.YEAR 2000-01 - 3 - BREVITY IN MIND AS ALSO TO AVOID REPETITION IN DEC IDING THESE THREE GROUNDS, WE SHALL HEREIN-BELOW FIRST GROUND-WISE DI SCUSS THE RELEVANT PORTIONS OF THE ASSESSMENT ORDER AND THE O RDER OF THE LD. CIT(A). THEN THE ARGUMENTS OF BOTH THE PARTIES. TH EREAFTER WE SHALL PRONOUNCE OUR CONSOLIDATE DECISION COVERING THESE GROUNDS. IT IS ALSO WORTH TO MENTION AT THE START THAT FEW ABBREVIATIONS ARE USED AS APPLICABLE IN THIS LINE OF BUSINESS VIZ. PASTEURIZED CHILLED WATER (PCW); SOLID NON FAT ( SNF), SKIM MILK POWDER (SMP) . 2.2. FACTS IN SHORT AS PER THE CORRESPONDING A SSESSMENT ORDER PASSED U/S 143(3) DATED 31.3.2003 WERE THAT THE ASSESSEE C OMPANY IS IN DAIRY BUSINESS I.E. PURCHASING MILK, BRINGING TO CHILLING CENTRE , PASTEURISE THE MILK, MANUFACTURE BUTTER/ GHEE/ CREAM AND SALE OF FULL CREAM MILK OR STANDARD MILK OR MILK WITHOUT CREAM I.E. TONED MIL K. THE A.O. HAD ASKED THE ASSESSEE TO FURNISH MONTH-WISE QUANTITATIVE DET AILS OF PURCHASE OF MILK, CONSUMPTION OF MILK, PRODUCTION OF MILK PRODU CT AND SALE OF MILK. THE ASSESSEE WAS ALSO ASKED TO FURNISH QUANTITATIVE DETAILS OF OPENING AND CLOSING STOCK. FROM THE SAID DETAILS FURNISHED BY T HE ASSESSEE IT WAS NOTICED BY THE A.O. THAT THERE WAS A SHORTAGE OF STOCK IN THE MONTH OF OCTOBER 1999. RATHER THE A.O. HAD MADE A CHART OF MONTHWISE CONSUMPTION AND PRODUCTION, REPRODUCED FOR THE SAK E OF COMPLETENESS AS UNDER:- ITA NO.596/AHD/2006 (BY ASSESSEE) & ITA NO.706/AHD/2006 (BY REVENUE) M/S. VIMAL DAIRY LTD. VS. ACIT ASST.YEAR 2000-01 - 4 - SMP OP.STOCK PRODN. SALE CONSUMPN. FOR PRODUCTION OF SMP CL.STOCK 4/99 12,210 1,421,745 1,216,745 205,000 12,210 5/99 1,296,271 1,296,271 0 12,210 6/99 1,561,771 1,561,771 - 12,210 7/99 8/99 1,707,291 1,690,359 1,707,291 1,690,359 - - 12,210 12,210 9/99 10/99 12,120 37,210 1,220,024 1,255,114 1,043,274 915,899 151,750 747,750 12,210 (-)371325 11/99 - 1,834,653 754,653 1,080,000 NIL 12/99 2,278,084 693,084 1,560,000 25,000 1/2000 25,000 2,161,643 841,643 1,320,000 25,000 2/2000 25,000 2,114,722 1,034,722 1,080,000 25,000 3/2000 25,000 1,516,663 982,161 459,500 100,002 20,058,340 13,737,873 6,604,400 2.3. ON THE BASIS OF THIS CHART THE A.O. HAD HEL D THAT EXCESS MILK WAS PRODUCED AND SOLD FOR THE MONTH OF OCTOBER99 WAS 3 ,71,325 KGS. AVERAGE RATE OF MILK WAS ADOPTED AT RS. 11 PER KG. ACCORDING TO HIM AN UNDISCLOSED INVESTMENT WAS MADE IN THE PURCHASE OF MILK AMOUNTING TO RS. 40,84,575/= ( 3,71,325 X 11 ).THIS ADDITION IS CHALLENGED VIDE GROUND NO. 3. ITA NO.596/AHD/2006 (BY ASSESSEE) & ITA NO.706/AHD/2006 (BY REVENUE) M/S. VIMAL DAIRY LTD. VS. ACIT ASST.YEAR 2000-01 - 5 - 3. APROPOS TO GROUND NO.1 , THERE WAS AN OBSERVATION ON THE BASIS OF THE ABOVE CHART OF THE A.O. THAT AS PER THE BOOKS THE CLOSING STOCK SHOWN WAS 1670 KGS IN THE BOOKS, AS AGAINST THAT IT SHOULD BE 1,00,002 KGS., CALCULATED AS PER THE CHART. THE DIFFERENCE IN CLOSING STOCK WAS THUS COMPUTED WAS 98,332 KGS. AND BY APPL YING AVERAGE RATE AT RS.11 PER KG. SUPPRESSION OF SALE WAS HELD AT RS . 10,81,652/-. THE A.O. HAD ALSO REJECTED THE BOOKS OF ACCOUNT BY APPL YING SEC. 145 OF I.T.ACT AND TAXED THE SAID AMOUNT ACCORDINGLY. THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY. 3.1. BEFORE LD. C.I.T(A) IT WAS CONTESTED THAT ON LY GROSS PROFIT RATE COULD BE APPLIED AS DECLARED IN THE BOOKS . BEFORE LD. CIT(A) FIGURES OF GROSS PROFIT WERE INFORMED AS UNDER:- A.Y. 1997-98 10.69 1998-99 10.21 1999-2000 9.38 2000-2001 12.51 2001-2002 12.45 2002-2003 12.84 3.2 ON THE BASIS OF ABOVE INFORMATION LD. CIT(A ) HAS HELD AS UNDER :- IN THE CURRENT ASSESSMENT YEAR A.Y.2000-01, THE AP PELLANT HAS DISCLOSED A GROSS PROFIT RATE OF 12.51% WHEREAS IT COMES TO 19.81% AFTER ADDITIONS IN ASSESSMENT ORDER BY AO . IT WOULD, THEREFORE, BE REASONABLE TO APPLY A GROSS PR OFIT RATE ITA NO.596/AHD/2006 (BY ASSESSEE) & ITA NO.706/AHD/2006 (BY REVENUE) M/S. VIMAL DAIRY LTD. VS. ACIT ASST.YEAR 2000-01 - 6 - BETWEEN 12.51% RETURNED BY THE APPELLANT, AND 19.81 % AFTER ADJUSTING ADDITIONS IN ASSESSMENT ORDER BY AO. HEN CE, A GROSS PROFIT RATE OF 14% IS CONSIDERED REASONABLE. APPLYING THIS G.P. RATE TO UNDISCLOSED SALES OF RS.10,81,622 /- AN ADDITION OF RS.1,51,431/- IS SUSTAINED AND UPHELD. THE BALANCE RS.9,30,191/- IS DELETED. THE APPELLANT PA RTLY SUCCEEDS IN RESPECT OF GROUND OF APPEAL NO.1. AGAINST THE PART RELIEF BOTH THE SIDES ARE IN APPEA L. 4. APROPOS TO GROUND NO.2 , THE AO HAS FIRST DISCUSSED ABOUT THE PROCESSING OF MILK AND QUOTED THAT CREAM IS REMOVED FROM MILK AND WHEN THE CREAM IS TAKEN OUT THERE IS REDUCTION IN V OLUME OF MILK. AS PER AO, THE REDUCTION IN THE VOLUME WAS TO THE EXTE NT OF 15%. THE AO HAS ALSO GIVEN AN EXAMPLE, THAT IF OUT OF 10000KGS . OF MILK THE CREAM IS REMOVED THEN THE LEFT OUT SKIM MILK WOULD BE 8500 KGS. ON THAT BASIS, HE HAS GIVEN A CALCULATION THAT IF THE PRODUCTION O F GHEE, BUTTER, CREAM IS KNOWN THEN THE CORRESPONDING QUANTITY OF MILK REQUI RED FOR THE SAID PRODUCTION COULD BE DETERMINED. THE AOS CALCULAT ION, FOR THE SAKE COMPLETENESS, IS REPRODUCED BELOW:- TOTAL PRODUCTION QUANTITY OF MILK CREAM REQUIRED GHEE 137,841 KGS. 275682 KGS. (CREAM) RUTTER 515, 974 KGS. 644967 KGS. (CREAM) SWEET CREAM 3,837 KGS. 3833 KGS. (CREAM) BUTTER MILK 903992 LTRS. 451996 LTRS. (MILK) 4.1. THEREAFTER, THE AO HAS COMPUTED THE AVAILABILI TY OF MILK FOR SALE AFTER THE PRODUCTION OF GHEE, BUTTER, ETC. IN THE F OLLOWING MANNER:- ITA NO.596/AHD/2006 (BY ASSESSEE) & ITA NO.706/AHD/2006 (BY REVENUE) M/S. VIMAL DAIRY LTD. VS. ACIT ASST.YEAR 2000-01 - 7 - 2.1. FROM THE CHART REPRODUCED ABOVE, IT IS CLEAR THAT THE CREAM REQUIRED FOR THE PRODUCTION OF GHEE, BUTTER AND SWE ET CREAM IS TO THE EXTENT OF 924486 KGS (275682 + 644967 + 3833) A ND THE MILK REQUIRED FOR THE PRODUCTION OF BUTTER MILK IS 45199 6 LTRS. TAKING OUT OF THE CREAM FROM THE MILK REDUCES ITS VOLUME T O THE EXTENT OF 15% IF THE ENTIRE CREAM IS TAKEN OUT FROM THE CHART ABOVE IT CAN BE SEEN THAT ATLEAST THERE IS DEDUCTION OF VOLUME TO T HE EXTENT OF 924482 LTRS I.E. THE QUANTITY OF CREAM REQUIRED FO R PRODUCTION OF GHEE, ETC. SECONDLY, IT IS ALSO CLEAR FROM THE CHA RT ABOVE THAT ATLEAST 451996 LTRS. OF MILK IS REQUIRED FOR PRODU CTION OF BUTTER MILK. THE TOTAL REDUCTION OF VOLUME THEREFORE COME S TO 1376478 LTRS (924482 + 451996). IF THAT IS TAKEN INTO CONS IDERATION THE TOTAL MILK AVAILABLE FOR SALE WILL BE AS BELOW: MILK : PURCHASE 18328720 CONVERSION 1746078 TOTAL 20074798 CONSUMPTION FOR PRODUCTION : S.M.P. 6604000 GHEE, ETC. AS ABOVE 1376478 7980478 AVAILABLE FOR SALE 12094320 ======= 4.2. AS AGAINST THE AVAILABILITY OF MILK FOR SALE O F 12094320 LTRS., THE ASSESSEE HAS SHOWN THE SALES OF 13737973 LTRS. TH E DIFFERENCE BETWEEN THE TWO WAS THUS ARRIVED AT 1643553 LTRS. OUT OF THIS, THE AO HAS REDUCED 371325 LTRS. BEING ALREADY CONSIDERED EARLI ER AND THE EXCESS QUANTITY SOLD WAS COMPUTED AT 1272228 LTRS. THE AO HAS APPLIED THE RATE OF RS.11PER LITER AS A PURCHASE PRICE AND HELD THAT INVESTMENT FOR PURCHASE OF MILK WAS MADE BY THE ASSESSEE OF RS.1,3 9,94,508. THE ASSESSEES MAIN REPLY WAS THAT THE RAW-MILK PURCHASED BY THE ASSESSEE CONTAINED THREE THINGS; I.E. I.E. (I) KG FAT (CONTE NT), (II) SNF (SOLID NON ITA NO.596/AHD/2006 (BY ASSESSEE) & ITA NO.706/AHD/2006 (BY REVENUE) M/S. VIMAL DAIRY LTD. VS. ACIT ASST.YEAR 2000-01 - 8 - FAT) AND (III) WATER. IT WAS EXPLAINED THAT IN THE DAIRY INDUSTRY, THESE THREE CONTENTS ARE NOT CONSTANT. IT WAS ALSO EXPL AINED THAT EVEN THE PRICE OF THE RAW-MILK PURCHASED IS BASED UPON THE PERCENT AGE OF KG.FAT AND KG SNF IN THE MILK. THE ASSESSEE HAS ALSO CONTES TED THAT THE QUANTITATIVE RECORD OF THE MILK AND ALL THE PRODUCT S WAS MAINTAINED BUT IT WAS NOT POSSIBLE TO MAINTAIN ANY RECORD ABOUT THE P ERCENTAGE OF FAT CONTENT AVAILABLE IN THE MILK. EVEN THE AO HAS NOT DENIED THE FACT THAT THE QUANTITATIVE DETAILS AS PER THE SCHEDULE ANNEXED TO THE BALANCE SHEET IN RESPECT OF PURCHASE, CONSUMPTION, SALE AND OPENING / CLOSING STOCK WERE SHOWN ONLY IN LITRES BUT WITH OU T ANY DISTINCTION ABOUT THE QUALITY OF THE MILK. IN REPLY, ASSESSSES SUBMISSION WAS THAT THE QUALITATIVE RECORD WAS NOT FEASIBLE RATHER PRAC TICALLY IMPOSSIBLE. 4.3. AN ANOTHER ARGUMENT OF THE ASSESSEE WAS THA T TO STANDARDIZE THE FAT CONTENT THE ASSESSEE HAD TO ADD PASTEURIZED CHILLED WATER (PCW). THE ASSESSEE HAS PLACED A CALCULATION IN SUPPORT OF THE SAID CONTENTION AND INFORMED THAT 8,02,475 KGS. OF PCW WAS ADDED. THE ASSESSEE HAS ALSO EXPLAINED THAT THE MILK WAS BEING SOLD ON THE BASIS OF THE CREAM CONTAINED AS PER THE FOLLOWING DIFFERENT QUALITIES :- THE MILK IS SOLD ON THE BASIS OF CREAM CONTAINED I N IT, I.E. SR.NO. RATIO QUANTITY 1) WHOLE MILK 6% FAT 72,80,688 LITRES 2) STANDARDISED MILK 4.5% CREAM 32,72,169 LITERS 3) TONED MILK 3% CREAM 15,81,685 LITERS 4) DOUBLE TONED MILK 1.5% 11,42,297 LITERS 5) SKIM MILK NO CREAM 4,61,036 LITERS ITA NO.596/AHD/2006 (BY ASSESSEE) & ITA NO.706/AHD/2006 (BY REVENUE) M/S. VIMAL DAIRY LTD. VS. ACIT ASST.YEAR 2000-01 - 9 - 4.4. BUT THE AO HAS CONCLUDED THAT OUT OF THE TOTA L SALES OF 13737875 LTRS. MORE THAN 50%, I.E. 7280688 LTRS. WAS SOLD AS WHOLE MILK AND THAT IN THE SAID WHOLE MILK THERE WAS NO REMOVAL OF CREAM. AS PER AOS CALCULATION THE BALANCE REMAINED WAS 6457187 LTRS. OUT OF THAT BALANCE, THE STANDARD MILK OR TONED MILK ETC WERE SOLD. TH E AO HAS THEREAFTER, ARRIVED AT THE CONCLUSION THAT THE REMAINING QUANTI TY LEFT WITH THE ASSESSEE WAS ONLY 1438940 LTRS. AS PER AO, OUT OF THE SAID MILK, CREAM TO THE EXTENT OF 3% COULD BE REMOVED AND THE WATER REQUIRED TO STANDARDIZE THE MILK WAS ONLY 43168 LTRS. THE AO H AS ALSO REJECTED THE CLAIM OF THE ASSESSEE THAT PCW ADDED WAS TO THE EXT ENT OF 802457 LTRS. FOR THE PURPOSE OF STANDARDIZATION OF THE MILK. AS PER AOS CALCULATION, THERE WAS EXCESS STOCK OF MILK WHICH WAS NOT DISCLO SED IN THE BOOKS OF ACCOUNT AND SOLD, THEREFORE, THERE WAS UNEXPLAINED INVESTMENT IN THE SAID STOCK. THE CALCULATION OF THE AO IS REPRODUCED BEL OW :- MILK : PURCHASE 18326720 CONVERSION 1746078 TOTAL 20074798 CONSUMPTION FOR PRODUCTION : S.M.P. 6604000 GHEE, ETC. AS ABOVE 1109648 7713648 AVAILABLE FOR SALE 12361156 ====== TOTAL SALES MADE BY THE ASSESSEE 13737973 LITERS LESS ; PURCHASES OUT OF UNDISCLOSED SOURCES AS DISCUSSED IN PARA-2 371325 LITERS 13366648 LITERS LESS : MILK AVAILABLE FOR SALE AS WORKED OUT ABOVE 12361156 LITERS MILK SOLD IN EXCESS OF THE STOCK AVAILABLE 1005492 LITERS ITA NO.596/AHD/2006 (BY ASSESSEE) & ITA NO.706/AHD/2006 (BY REVENUE) M/S. VIMAL DAIRY LTD. VS. ACIT ASST.YEAR 2000-01 - 10 - 4.5. ON THE BASIS OF ABOVE CALCULATION, IT WAS CONC LUDED THAT THE ASSESSEE HAS AFFECTED THE SALES OF MILK WHICH WAS M ORE THAN THE STOCK AVAILABLE, HENCE, THERE WAS AN INVESTMENT IN PURCH ASE OF THE SAID EXCESS MILK SOLD I.E. 1005492 LTRS. BY APPLYING AN AVERAG E RATE OF THE PURCHASE PRICE AT RS.11/- PER LITER THE AMOUNT OF INVESTMENT WAS COMPUTED AT RS.1,10,60,412/- . THE SAID ADDITION WAS CHALLENGE D. 4.6. LD. CIT(A) HAS FIRST REPRODUCED FEW OBSERVATIO NS MADE IN THE ORDER OF THE AO AND THE REPLIES FURNISHED BY THE AS SESSEE. FROM THE SIDE OF THE ASSESSEE THE VEHEMENT CONTENTION WAS THAT TH E AO HAS IGNORED THE FACT THAT PCW WAS ADDED IN THE PROCESS OF MANUFACTURING OF VARIOUS PRODUCTS. THE WATER WAS ADDED AT DIFFERENT STAGES AND THE EXPLANATION OF THE ASSESSEE WAS AS UNDER:- 3.3. THE ASSESSING OFFICER WHILE MAKING THE ADDITI ON AFORESAID HAS NOT ACCEPTED THE CLAIM OF THE ASSESSEE THAT WATER OF 8,02,475 KGS HAVE BEEN USED FOR THE PRODUCTION OF MILK. IN THIS CONNECTION, APPELLANT SUBMITS THAT DETAILED PROCEDURE OF PASTEU RIZATION AND HOW WATER IS REQUIRED AND ADDED AT EVERY STAGE OF PASTEURIZATION. THE APPELLANT PURCHASES MILK FROM VARIOUS VILLAGES AND SUCH MILKS ARE BROUGHT TO CHILLING CENTRE THROUGH MILK VAN/TAN KER. IN THE PROCESS, FIRST OF ALL EVERYDAY CHILLING UNIT IS WAS HED WITH WATER SO MILK OR CREAM IS NOT REMAINED STICK IN THE CHILLING UNIT. FURTHER, VAN OR TANKER OF MILK BROUGHT FROM OUTSIDE IS UNLOA DED IN THE CHILLING UNIT. HOWEVER, MILK VAN OR TANKER IS COLL ECTING MILK FROM VARIOUS PLACES AND SOME OF THE PORTION OF CREAM CON TAINED IN THE MILK IS STICKED IN SIDE THE VAN/TANKER AND TO GET S UCH CREAM TO BE UTILIZED, THE VAN/TANKER IS FLUSHED WITH FORCE OF W ATER. SUCH PROCESS REQUIRES FLUSH OF WATER OF 200 LITERS TO 25 0 LITERS PER TANKER OF 10,000 LITERS AND BY SUCH PROCESS PORTION OF CRE AM STIKCED IN THE VAN INCLUDING WATER IS REMOVED AND ADDED TO MILK IN FLOW. AFTER ITA NO.596/AHD/2006 (BY ASSESSEE) & ITA NO.706/AHD/2006 (BY REVENUE) M/S. VIMAL DAIRY LTD. VS. ACIT ASST.YEAR 2000-01 - 11 - SUCH PROCESS MILK IS TRANSFERRED TO DUCK TANK (UND ERGROUND TANK) FOR STORAGE OF MILK. AT THIS STAGE ALSO WATE R IS REQUIRED TO WASH SUCH TANK SO MILK OR CREAM IS REMAINED UNSTUCK IN THE TANK. DUE TO SUCH PROCESS, WATER IS ADDED TO INFLOW OF MI LK TO THE EXTENT OF 0.5% OF MILK. AFTER COMPLETION OF SUCH PROCESS, PROCEDURE FOR PASTEURIZATION TAKES PLACES AND COMPANY MAKE SUCH P ROCESS TWICE A DAY. IN SUCH A PROCESS, COMPANY REQUIRES WATER T O BE FLUSHED IN THE MACHINERIES IN WHICH MILK IS PASTEURIZED AND EA CH TIME ROUND ABOUT 250 LTRS OF WATER IS FLUSHED IN MACHINERIES T O REMOVE MILK STICKED IN THE PLANT AND AFTER SUCH PROCESS WATER I NCLUDING MILK IN MACHINERY IS ADDED TO MILK OUTFLOW. THE FOLLOWING CHART IS PREPARED ON THE BASIS OF ABOVE FACTS AND HOW MUCH W ATER IS REQUIRED TO BE ADDED FOR PRODUCTION OF MILK IS WORK ED OUT. PARTICULARS WATER REQUIRED IN LITER STAGE 1 WATER IS FLUSHED IN THE MILK VAN/TANKER TO REMOVE MILK STICKED IN VAN. (250 LITERS FOR 10,000 LITERS VAN) (250/10000 X FOR 18328720 LITERS 4,58,218 STAGE 2 0.5% WATER IS ADDED AT DUCKED TANK I.E. 0.5% OF MILK PURCHASED DURING THE YEAR FOR 18328720 LITERS 91,644 STAGE 3 250 LITERS WATER IS REQUIRED IN EACH PROCESS OF PASTEURIZATION AND AS THERE ARE 2 PROCESS EVERYDAY TOTAL WATER REQUIRED IS 250*2*365 DAYS 1,82,500 TOTAL 7,32,362 TOTAL KGS (1 LITER * 1.03) 7,54,333 KGS 3.4. IT CAN BE SEEN THAT WATER IS REQUIRED AT EVERY STAGE OF PASTEURIZATION AND ABOVE WORKING IS MADE ON THE BAS IS OF NORMAL RATIO OF WATER REQUIRED TO BE ADDED IN MILK. ITA NO.596/AHD/2006 (BY ASSESSEE) & ITA NO.706/AHD/2006 (BY REVENUE) M/S. VIMAL DAIRY LTD. VS. ACIT ASST.YEAR 2000-01 - 12 - 4.7. THUS, LD.CIT(A) HAS COMMENTED THAT ON ONE HAND, THE ASSESSEES CLAIM WAS THAT THERE WAS ADDITION OF PCW 802475 KGS ., BUT ON THE OTHER HAND, AS PER AO ONLY 43168 LTRS. CHILLED WATER WAS ADDED . THEREAFTER, THE CIT(A) HAS ALSO TAKEN NOTE OF THE C ERTIFICATES OF CERTAIN EXPERTS. ONE OF SUCH CERTIFICATION IS REPRODUCE D BELOW :- A PERUSAL OF ANNEXURE-D REVEALS THE FOLLOWING CERTIFICATE DATED 29/3/2003 FROM SHRI ASHOKBHAI I.PATEL, CONSULTANT DAIRY INDUSTRY . GENERALLY, PCW IS USED TO LOWER DOWN THE % SNF IN MILK, WHICH IS INCORPORATED DURING THE PROCESS OF PASTEUR IZATION OR AFTER PASTEURIZATION WHICH EVER IS SUITABLE TO THE DAIRY. IF WE WANT TO REDUCE SNF OF MILK FROM 9% TO 8.5% APPROXIMATELY 5.8% OF PCW IS REQUIRED TO BE ADDED I N MILK. 4.8. BEFORE THE CIT(A) A QUANTITATIVE DETAILS OF PU RCHASE OF RAW-MILK AND EXTRACTION OF VARIOUS PRODUCTS AND THE SALE OF MILK DURING THE YEAR WAS PRODUCED . THAT WAS ALSO MENTIONED IN THE ASSES SMENT ORDER. THERE WAS A DISCUSSION OF AN ANOTHER DAIRY CONSULTANT, NAMELY M/S.C.V. ASSOCIATES WHO HAS AGAIN AFFIRMED THAT FOR THE PURPOSE OF REDU CTION OF SNF OF MILK FROM 9% TO 8.5%, THEN APPROXIMATELY 5.8 % PCW IS REQUIRED TO BE ADDED IN THE MILK PURCHASED. IT H AS ALSO BEEN NOTED THAT THE ASSESSEE HAS NOT MAINTAINED ANY RECORD ABOUT TH E CONSUMPTION OF WATER DURING THE PROCESS. AS PER HIS COMMENT, THERE WERE TWO REASONS OF DIFFERENCE, ONE WAS THE ADDITION OF PCW IN THE PRODUCTION PROCESS AND THE OTHER WAS PERCENTAGE OF FAT CONTENTS IN ITA NO.596/AHD/2006 (BY ASSESSEE) & ITA NO.706/AHD/2006 (BY REVENUE) M/S. VIMAL DAIRY LTD. VS. ACIT ASST.YEAR 2000-01 - 13 - THE MILK. CONSIDERING THE OPINION GIVEN BY THE SAID TWO EXP ERTS, LD. CIT(A) WAS OF THE VIEW THAT SINCE THESE TWO FACTORS ARE NOT FIXED, THEREFORE, IT WOULD BE REASONABLE TO APPLY A GROS S PROFIT RATE TO RESOLVE THE DISPUTE. FOR THE YEAR UNDER CONSIDERATION G P WAS 12.5% AS AGAINST THE GP FOR AY 1999-2000 AT 9.3%. THE CIT(A) HAS A DOPTED A GP RATE AT 14% AND PART RELIEF WAS GRANTED IN THE FOLLOWING MA NNER:- IN SHORT, AS AGAINST RS.1,10,60,412/- ADDED AS UND ISCLOSED INVESTMENT UNDER SECTION 69 BY THE AO, A LUMP SUM A DDITION OF RS.33.07 LAKHS IS UPHELD TO THE GROSS PROFIT RETURN ED BY THE APPELLANT. THE LUMPSUM ADDITION WILL ALSO COVER TH E ADDITIONS OF RS.5,71,841/- AND RS.1,51,431/- DISCUSSED AND UPHEL D ELSEWHERE IN THIS APPELLATE ORDER. THE APPELLANT HAS HIMSELF RE TURNED A GROSS PROFIT RATE OF 12.51% FOR A.Y. 2000-01. THIS LUMPS UM ADDITION OF RS.33.07 LAKHS WILL TAKE THE GROSS PROFIT TO 14%. THE APPELLANT, THEREFORE, GETS A RELIEF OF RS.67,53,412/- OUT OF T HE ADDITION OF RS.1,10,60,412/- MADE BY THE AO. HENCE, RS.33.07 L AKHS IS UPHELD, AND THE BALANCE RS.67,53,412/- IS DELETED . GROUND OF APPEAL NO.2 IS PARTLY ALLOWED TO THIS EXTENT. AGAINST THIS PART RELIEF NOW BOTH THE SIDES ARE IN APPEAL BEFORE US. 5. APROPOS TO GROUND NO.3 ON SCRUTINY OF MONTHWISE PURCHASE, CONSUMPTION, PRODUCTION AND SALES OF MILK IT WAS NOTED BY THE AO THAT FOR THE MONTH OF OCTOBER-1999, THERE WAS A DISCREPANCY IN THE SALE OF MILK. FOR THE SAID MONTH EXCESS SALE OF MILK WAS FOUN D BY THE AO TO THE EXTENT 371325 KGS. THE AO WAS OF THE VIE W THAT SKIM MILK IS PRODUCED AFTER THE MILK IS SENT THROUGH THE PROCESS OF PASTEURIZATION. AFTER THAT PROCESS, THE MILK WAS SENT FOR MAKING SK IM MILK POWDER, AS PER AO. HE IS THEREFORE OF THE VIEW THAT WORK-IN- PROGRESS WAS NOT TO BE TAKEN INTO CONSIDERATION. THOUGH THE ASSESSEE HAD PRODUCED MILK ITA NO.596/AHD/2006 (BY ASSESSEE) & ITA NO.706/AHD/2006 (BY REVENUE) M/S. VIMAL DAIRY LTD. VS. ACIT ASST.YEAR 2000-01 - 14 - PURCHASE AND SALE REGISTER, AS ALSO SKIM MILK POWDE R PRODUCTION REGISTER, BUT AS PER AO THOSE TWO REGISTERS DID NOT TALLY. HE HAS ALSO GIVEN A FINDING THAT AT LEAST 10 LITERS OF SKIM MIL K IS REQUIRED TO PRODUCE 1KG.OF SKIM MILK POWER (SMP). HOWEVER, HE HAS AD MITTED THAT CONSUMPTION OF MILK COULD BE MORE THAN 10 LITERS DE PENDING UPON SOLID NON FAT (SNF). FROM THE COPY OF THE ACCOUNT OF VIM AL OIL AND FRUITS LIMITED, IT WAS FOUND THAT THE ASSESSEE HAD SENT 22 2000 LTRS. OF MILK IN THE MONTH OF APRIL-1999 OUT OF WHICH POWDER MANUFAC TURED WAS 20500KGS. AS PER AOS CALCULATION, THE POWDER PR ODUCED WAS 9.23%, THAT MEANS MILK REQUIRED FOR PRODUCTION OF 1KG. OF SMP WAS ALLEGED TO BE 10.82 LITERS. THEN THE AO HAS ALSO MENTIONED TH AT FOR THE MONTH OF SEPTEMBER, THE ASSESSEE HAD SENT 175000 LTRS. OF SK IM MILK OUT OF WHICH SMP PRODUCE WAS 15001 KGS. THAT MEANS 11.53 LITERS OF MILK WAS REQUIRED FOR PRODUCTION OF 1KG. OF POWDER. ON T HE BASIS OF THE SAID MONTH-WISE DISCUSSION, HE HAS ARRIVED AT THE CONCLU SION THAT SALES FOR THE MONTH OF OCTOBER-1999 WERE MORE THAN THE STOCK AVAI LABLE. ACCORDING TO AO, THE DISCREPANCY WAS TO THE EXTENT OF 371325 LTRS. AND BY APPLYING AN AVERAGE RATE OF RS.11/- PER LITER FOR T HE PURCHASE OF MILK, AN AMOUNT OF RS.40,84,575/- WAS HELD AS AN I NVESTMENT FOR PURCHASE AND TAXED U/S.69 OF THE I.T.ACT. THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY. 5.1. WHEN THE MATTER WAS CARRIED BEFORE THE FIRST A PPELLATE AUTHORITY, IT WAS MAINLY CONTESTED THAT THE ENTRIES IN THE BOOKS FOR CONSUMPTION OF MILK FOR SMP WAS MADE IN THE MILK PURCHASE AND SALES REGISTER ON THE DAILY BASIS I.E. ON THE ACTUAL DAY OF DISPATCH FOR PRODUCTION. IT WAS ITA NO.596/AHD/2006 (BY ASSESSEE) & ITA NO.706/AHD/2006 (BY REVENUE) M/S. VIMAL DAIRY LTD. VS. ACIT ASST.YEAR 2000-01 - 15 - ALSO EXPLAINED THAT THE RECEIPT OF MILK FOR SMP AND PRODUCTION OF SMP WAS RECORDED IN SMP PRODUCTION REGISTER ON THE DAY ON WHICH BATCH FOR SMP PRODUCTION IS COMMENCED. BEFORE LD. CIT(A) FEW CHARTS HAVE ALSO BEEN PRODUCED. IT WAS FURTHER EXPLAINED THAT THE ASSESSEE HAS RECORDED THE PURCHASE OF RAW-MILK ON DAILY BASIS. THE MILK IS THEN SENT FOR PASTEURIZATION. AFTER THE PROCESS OF PASTEURIZATION, CLOSING STOCK IS MAINTAINED AS A FINISHED GOODS. THE MILK WHICH WAS NOT PASTEURIZED IS RECORDED AS WORK-IN-PROGRESS. IT WAS EXPLAINED THAT THE MILK WAS SENT FOR MAKING SMP ONLY AFTER THE REM OVAL OF THE CREAM WHEN THE PROCESS OF PASTEURIZATION WAS COMPLETED. THEREFORE, IT WAS EXPLAINED THAT THE WORK-IN-PROGRESS WAS WRONGLY C OMPUTED BY THE AO. FROM THE SIDE OF THE ASSESSEE, A RECONCILIATION CHA RT HAS ALSO BEEN PRODUCED WHICH WAS CONFRONTED TO THE REVENUE DEPART MENT AS WELL. ON DUE CONSIDERATION OF THE RECONCILIATION CHART, A FINDING WAS GIVEN THAT THERE WAS NO DIFFERENCE IN THE QUANTITY OF THE MILK IN THE SAID TWO REGISTERS. RATHER, LD.CIT(A) HAS SAID THAT THERE W AS A CONSIDERABLE LOGIC IN THE CONTENTIONS OF THE ASSESSEE. HE HAS, THEREF ORE, HELD THAT CONSIDERING THE VARIOUS FACTORS, IT COULD BE REASON ABLE TO ADOPT A GROSS PROFIT RATE TO MEET THE ENDS OF JUSTICE. WITH TH E RESULT, LD. CIT(A) HAS APPLIED 14% GP RATE AND A LUMP-SUM ADDITION OF RS.5 ,71,841/- . AGAINST THE PART RELIEF GRANTED BY THE FIRST APPELL ATE AUTHORITY NOW BOTH THE SIDES ARE IN APPEAL. HOWEVER AT PRESEN T WE ARE DEALING WITH THE ASSESSES APPEAL. ARGUMENTS :- 6. FROM THE SIDE OF THE APPELLANT- ASSESSEE LD. SENIOR COUNSEL MR. S.N. SOPARKAR & SRI P.M. MEHTA APPEARED AND STATED FEW BASIC FACTS ITA NO.596/AHD/2006 (BY ASSESSEE) & ITA NO.706/AHD/2006 (BY REVENUE) M/S. VIMAL DAIRY LTD. VS. ACIT ASST.YEAR 2000-01 - 16 - ABOUT THIS BUSINESS THAT THE COMPANY WAS INCORPORAT ED SINCE LONG AND CONTINUOUSLY SUBJECTED TO AUDIT U/S 44AB OF THE ACT. THE ASSESSEE HAS REGULARLY AND SYSTEMATICALLY MAINTAINED QUANTITY RE CORD OF THE PRODUCTION AS ALSO THE STOCK AVAILABLE ON DAY TO DAY BASIS. NO DEFECT WAS FOUND BY THE A.O. IN THE SAID RECORD. HE HAS SIMPLY REJECTED THE METICULOUSLY MAINTAINED RECORD ON PRESUMPTION THAT CERTAIN FIXE D PERCENTAGE OF SKIM MILK IS CONSUMED TO PRODUCE A FIXED QUANTITY OF SK IM MILK POWDER(SMP). LD. A.R. HAS SUBMITTED THAT IT DEPEND S UPON THE QUALITY OF THE MILK PURCHASED. HE HAS SUBMITTED THAT THE QU ALITY OF MILK VARIES FROM ONE SEASON TO ANOTHER SEASON. AS PER HIS ARGUM ENT THE PERCENTAGE OF FAT CONTENTS ARE HIGHER IN SUMMER THAN THE FAT CONT ENTS IN ANY OTHER SEASON. DUE TO THIS REASON THE PRODUCTION OF SMP IS NOT S TATIC AND VARIES FROM THE QUALITY OF THE MILK PROCURED FROM T HE FARMERS. LD. A.R. HAS REFERRED SEVERAL CALCULATIONS AND CHARTS AS REP RODUCED BY THE A.O. AND C.I.T(A) IN THE RESPECTIVE ORDERS. 6.1. IN SUPPORT OF THE ORDER OF THE A.O.,F ROM THE SIDE OF THE REVENUE LD. MR. S.K. GUPTA, CIT-D.R. APPEARED AND C ONTESTED THAT THE A.O. HAD MADE A DETAILED ENQUIRY AND THEREAFTER ARR IVED AT A CONCLUSION THAT THE STOCK WAS NOT CORRECTLY SHOWN HENCE THE VA RIATION WAS TREATED AS SUPPRESSION OF SALES. RECONCILIATIONS AS RELIED UPO N BY LD. A.R. WERE NOT RELIABLE DUE TO THE REASON THAT THE CONSUMPTION OF MILK WAS INCORRECTLY MENTIONED. THE A.O. HAD MADE ENQUIRY ABOUT THE PERC ENTAGE OF PRODUCTION OF SMP FROM SKIM MILK AND THAT WAS MADE THE BASIS FOR THE CALCULATION OF CONSUMPTION SO AS TO ARRIVE AT THE F IGURE OF THE STOCK AVAILABLE AT THE END OF THE ACCOUNTING YEAR. LD. CI T(A) WAS NOT CORRECT IN ITA NO.596/AHD/2006 (BY ASSESSEE) & ITA NO.706/AHD/2006 (BY REVENUE) M/S. VIMAL DAIRY LTD. VS. ACIT ASST.YEAR 2000-01 - 17 - IGNORING THOSE FINDINGS AND ARBITRARILY APPLIED THE G.P. RATE. HE HAS PLEADED TO REVERSE THE APPELLATE ORDER AND AFFIRM T HE ASSESSMENT ORDER. CONCLUSION:- 7. IN RESPECT OF ALL THE THREE GROUNDS WE H AVE HEARD BOTH THE SIDES AT SOME LENGTH. ORDERS OF THE AUTHORITIES BELOW HAVE B EEN CAREFULLY PERUSED. WE HAVE ALSO EXAMINED THE CONTENTS OF THE COMPILATI ON. THE ISSUES RAISED VIDE THESE THREE GROUNDS PLAINLY REVOLVE AR OUND THE FACTS OF THE CASE AND THEREFORE NO LEGAL QUESTION IS REQUIRED TO BE SETTLED. 7.1 IN THE FIRST GROUND THE CONTROVERSY IS ABOUT THE VARIATION IN THE CLOSING STOCK. ON ONE HAND THE A.O. HAD CALCULATE T HE VOLUME OF THE CLOSING STOCK AT 1,00,002 KG., AS PER THE CHART RE PRODUCED ABOVE, HOWEVER ON THE OTHER HAND THE ASSESSEE HAS DECLARED THE CLOSING STOCK OF FINISHED MILK AT 1670 KG. WE MAY LIKE TO MENTION AT THIS START POINT ITSELF THAT NO SPECIFIC JUSTIFICATION OR INSTANC E OF DEFECT WAS POINTED OUT BY THE A.O. TO DISTURB THE CLOSING STOCK DECLARED AT KG.1670/-. THIS IS THE FIRST CONTROVERSY AND TO RESOLVE IT WE HAVE EXA MINED THE CHART OF THE ASSESSEE AND NOTICED THAT THE FINISHED GOODS AND THE WORK-IN- PROGRESS OF MILK WERE SHOWN AT 58,628 LTRS. BY THE ASSESSEE. AS PER ASSESSEES RECORDS THE CLOSING STOCK CONTAINS 1670 KGS. OF FINISHED MILK AND 56,958 LTRS OF RAW MILK, TOTALLING 58,628 LTRS. A MONTH WISE CHART STARTING FROM APRIL 99 TO MARCH2000 IS PLAC ED IN THE COMPILATION, CERTIFIED TO BE PART OF THE ASSESSMENT RECORD, NEED NOT TO BE REPRODUCED FOR THE SAKE OF BREVITY. THROUGH THIS CHART THE ASSESSEE HAS FURNISHED THE MONTHLY PURCHASE OF MILK , SALE OF MILK, CONSUMPTI ON OF MILK AND ITA NO.596/AHD/2006 (BY ASSESSEE) & ITA NO.706/AHD/2006 (BY REVENUE) M/S. VIMAL DAIRY LTD. VS. ACIT ASST.YEAR 2000-01 - 18 - FINALLY THE STOCK OF WORK IN PROGRESS OF THE RAW MI LK + FINISHED MILK. THE A.O. HAS MADE AN ERROR IN UNDERSTANDING THE F. G AS FINISHED GOODS BUT IN FACT IT WAS FINISHED MILK. THE CLOSING STACK OF MILK CONTAINED TWO TYPE OF MILK, I.E., FINISHED MILK AND THE RAW MILK. FURTHER THE ASSESSEE HAS POINTED OUT TWO FALLACIES IN THE SAID CHART OF THE A.O. AS FOLLOWS :- (I) THE ASSESSING OFFICER HAS FAILED TO APPRECIA TE THAT THE OPENING STOCK OF WORK-IN-PROGRESS AND PURCHASE OF M ILK FROM DAY TODAY WHICH GOES PASTEURIZATION HAS TO BE CONSIDERE D FOR WORKING OUT THE STOCK. AS AGAINST THIS THE ASSESSING OFFIC ER HAS WORKED OUT THE STOCK, CONSIDERING PRODUCTION AND CONSUMPTION O F SKIM MILK. (II) AS STATED ABOVE THE ASSESSING OFFICER HAS TAKE N THE CONSUMPTION FOR SKIM MILK POWDER (SMP) FROM SKIM MI LK APPLYING THE STANDARD RATIO OF 10 LTR. OF SKIM MILK FOR 1 KG OF SMP. THUS, HE HAS NOTIONALLY WORKED OUT THE CONSUM PTION FIGURE. AS EXPLAINED IN EARLIER GROUND THERE CANNOT BE ANY SUCH CONSUMPTION OR STANDARD BASIS PARTICULARLY WHEN THE MILK IS AGRICULTURAL PRODUCT AND ITS CONTENTS ARE NOT CONS TANT, IT MAY VARY IN THE FORM OF CREAM, SNF ETC FROM THE PLACE T O PLACE AND TIME TO TIME. IN VIEW OF THE ABOVE POSITION AS EXPLAINED IN EARLI ER GROUND ONE HAS TO TAKE INTO CONSIDERATION OVERALL SITUATION OF OPENING STOCK OF RAW MATERIAL AND WORK-IN-PROGRESS AND THE PURCHASE AS ALSO THE SALES AND CLOSING STOCK OF RAW-MATERIAL AND WORK-IN -PROGRESS. IF THE OVERALL SITUATION IS CONSIDERED AS PER SEPARATE CHART GIVEN IN THE PAPER BOOK FURNISHED EARLIER, BEING ANNEXURE-A, THE STOCK AS ON THE CLOSE OF THE YEAR ACTUALLY WORKS OUT 58628 K GS WHICH IS REFLECTED IN THE BALANCE SHEET BY WAY OF WORK-IN-PR OGRESS AND FINISHED GOODS. HENCE, THERE IS NO SHORTAGE IN STO CK AS ALLEGED BY THE ASSESSING OFFICER. ACCORDINGLY, THERE IS NO SU PPRESSED SALES AS ITA NO.596/AHD/2006 (BY ASSESSEE) & ITA NO.706/AHD/2006 (BY REVENUE) M/S. VIMAL DAIRY LTD. VS. ACIT ASST.YEAR 2000-01 - 19 - WORKED OUT BY THE ASSESSING OFFICER. THE ADDITION, THEREFORE, REQUIRES TO BE DELETED. 7.2. ARGUMENTS ARE THAT THE A.O. HAD PROCEE DED ON A PRESUMPTION THAT A FIXED PERCENTAGE OF SKIM MILK IS CONSUMED TO PRODUCE A FIXED QUANTITY OF SKIM MILK POWDER (SMP). SO THE VEHEMENT CONTENTION RAISED FROM THE SIDE OF THE ASSESSEE IS THAT THERE OUGHT NOT TO BE A FIXED OR STATIC QUANTITY OF PRODUCTION BECAUSE THE PRODUC TION ENTIRELY DEPENDS UPON THE QUALITY OF MILK WHICH IS NOT CONSTANT. IT IS EXPLAINED THAT THE QUALITY OF MILK VARIES FROM SEASON TO SEASON. THE Q UALITY OF MILK IS MEASURED IN TERMS OF FAT CONTENTS PER KG. GOOD QUALITY OF MILK CONTAINS HIGHER PERCENTAGE OF SOLID NON FAT (SNF) PER KG, EXPLAINED TO US. IT IS INFORMED THAT THE PERCENTAGE OF FAT IS HIGHER IN SUMMERS THEN THE FAT CONTENTS IN ANY OTHER SEASON. HENCE IT IS A RGUED THAT DUE THE SAID REASON THE PRODUCTION OF SMP MUST NOT BE STATIC. TH E PRODUCTION RATIO DEPENDS UPON THE QUALITY OF MILK PROCURED FROM THE FARMERS. 7.3. AN ANOTHER POINT HAS BEEN RAISED THAT THE A. O. HAD ARBITRARILY REVERSED THE PRODUCTION CYCLE. TO WORK-OUT THE MONT HLY STOCK , WHAT THE A.O. HAD DONE THAT HE HAS FOUND-OUT FROM THE ASSESS EES RECORD THE QUANTITY OF THE PRODUCTION OF THE PRODUCTS I.E. GHE E, BUTTER ETC. THEN HE HAS OPINED THAT FOR THE PRODUCTION OF THE SAID QUAN TITY OF BUTTER, GHEE ETC. AT LEAST 15% REDUCTION IN THE VOLUME IS EXPECT ED. BUT FACTUALLY IT WAS THE REVERSE CYCLE OF PRODUCTION . THE A.O. HAD PROCEEDED ON PRESUMPTION BECAUSE FAILED TO ANALYZE THE PROCEDUR E OF PRODUCTION. THE MILK IS PROCURED AND THEN THE PASTEURISATION STARTS . THEN THE GHEE/ BUTTER/ CREAM ETC ARE EXTRACTED. THE PRODUCTION RATIO VARIE S FROM ONE LOT OF MILK ITA NO.596/AHD/2006 (BY ASSESSEE) & ITA NO.706/AHD/2006 (BY REVENUE) M/S. VIMAL DAIRY LTD. VS. ACIT ASST.YEAR 2000-01 - 20 - SENT FOR PROCESSING TO ANOTHER LOT OF MILK. THE A.OS HYPOTHESIS APPEARS TO BE INCORRECT THAT THERE IS A UNIFORM PE RCENTAGE OF REDUCTION IN VOLUME. 7.4. AN ANOTHER PRESUMPTION OF THE A.O. WAS THAT FOR THE PRODUCTION OF 1KG. OF S.M.P. THE QUANTITY OF SKIM MILK REQUIRE D WAS 10 LTRS. THE RESULT OF THE SAID PRESUMPTION WAS THAT FOR THE ENT IRE PERIOD OF ONE YEAR THIS FORMULA WAS APPLIED BY THE A.O. AND THUS ARRIV ED AT THE CONCLUSION THAT THE MAJOR QUANTITY OF MILK WAS CONSUMED FOR TH E PRODUCTION OF SMP . AS PER A.OS CALCULATION A SMALLER QUANTITY OF MILK REMAINED AVAILABLE FOR SALE. THAT, IN FACT, WAS THE REASON FOR THE IMP UGNED ADDITION OF ALLEGED SALE OF MILK OUT SIDE THE BOOKS OF ACCOUNTS . TO RESOLVE THIS CONTROVERSY, WE HAVE TO ACTUALLY PONDER UPON ONE QU ESTION THAT WHETHER THE A.O. HAS ANY JUSTIFICATION OR SPECIFIC INFORMAT ION IN HIS POSSESSION THAT FOR ALL THE SEASONS ,THROUGH- OUT THE YEAR, TH ERE WAS A STATIC RATIO OF 1 KG. PRODUCTION OF SMP OUT OF THE CONSUMPTION OF 10 LTRS OF MILK ? ANSWER WAS IN NEGATIVE. IN THE ABSENCE OF ANY INFO RMATION IT CAN BE SAID THAT SUCH AN ASSUMPTION OF THE A.O. WAS MERELY A HY POTHESIS DEVOID OF MERIT. 7.5. AN ARGUMENT IS RESPECT OF THE ABOVE CONTRO VERSY IS WORTH TO MENTION THAT THE APPELLANT IS NOT DEALING IN CHEMIC ALS WHERE OUT OF CHEMICAL REACTIONS A FIXED QUANTITY OF A MANUFACTU RED ARTICLE GENERALLY BEING OBTAINED. THE FINISHED GOODS OF THE ASSESSE E IS NOT A LABORATORY PRODUCT. THE ASSESSEE IS IS DEALING WITH AN AGRICULTURE PROD UCT . MILK IS SUCH AN AGRICULTURE PRODUCT WHICH CAN NOT GIVE A FI XED RESULT IN ALL ITA NO.596/AHD/2006 (BY ASSESSEE) & ITA NO.706/AHD/2006 (BY REVENUE) M/S. VIMAL DAIRY LTD. VS. ACIT ASST.YEAR 2000-01 - 21 - SEASONS. IT VARIES FROM SUMMER TO WINTER. IT IS EXP LAINED THAT IN SUMMER SEASON THE FAT CONTENTS ARE HIGHER THAN THE FAT CON TENTS IN THE RAINY SEASON. LD. ARS CONTENTION APPEARS TO CORRECT FOR THE REASON THAT THE SAID FACT IS AN UNIVERSALLY ACCEPTED PHENOMENA. THE CONTENTS OF SNF ARE NOT A STATIC FIGURE AND VARIES FROM PLACE TO PLACE AND ALSO SEASON TO SEASON. 7.6. THE A.O. HAS ALSO FAULTED IN UNDERSTAN DING THE POSITION OF STOCK AS REFLECTED IN THE BOOKS OF ACCOUNTS. AS PER ASSES SEES RECORD THERE WERE STOCK OF MILK SHOWN AS MILK WORK-IN-PROGRESS AND MILK FINISHED- GOODS. THE A.O. HAS TAKEN THE STOCK OF MILK WORK -IN-PROGRESS ONLY AND IGNORED THE FACT THAT THE STOCK OF MILK FINIS HED-GOODS I.E. 58628 KG. WAS ALSO AVAILABLE FOR THE SALE. THIS MISUNDERS TANDING OF FACTS HAD THUS LED TO THE IMPUGNED ADDITION HENCE THE SAME IS NOT SUSTAINABLE. 8. IN RESPECT OF GROUND NO.2, THE REASON ASSIGNED BY THE A.O. WAS THAT UNVARYINGLY THERE WAS A FIXED REDUCTION OF 15 % IN THE VOLUME OF MILK IN THE PROCESS OF EXTRACTION OF CREAM. STRO NG OBJECTION IN THIS REGARD WAS THAT THE A.O. HAD PROCEEDED MERELY ON SU CH PRESUPPOSITION. RATHER THE A.O. HAD GIVEN A HYPOTHETICAL EXAMPLE TH AT IN CASE 10,000 KG. MILK IS CHURNED AND CREAM IS EXTRACTED THEN THE S KIM MILK LEFT-OUT WOULD BE 8500 KG. FOR THIS ADDITION, AGAIN APPLYING A REVERSE LOGIC THE A.O. HAD OPINED THAT FOR THE PRODUCTION OF THAT MUC H KG. OF GHEE , CREAM, BUTTER ETC. UNIFORMLY A CORRESPONDING QUANT ITY OF MILK WOULD HAVE BEEN UTILISED. THAT LOGIC APPEARS TO BE NOT BA SED UPON ANY ACCEPTED FORMULA. BY APPLYING THE ALLEGED REVERSE LOGIC THE A.O. HAS THUS HELD THAT ITA NO.596/AHD/2006 (BY ASSESSEE) & ITA NO.706/AHD/2006 (BY REVENUE) M/S. VIMAL DAIRY LTD. VS. ACIT ASST.YEAR 2000-01 - 22 - ONLY 1,20,94,320 LTRS. OF MILK WAS AVAILABLE FOR SA LE . BUT AS PER RECORDS THE MILK SOLD WAS 1,37,39,73 LTRS. 8.1. THEREFORE IN RESPECT THIS GROUND THE UND ERLYING ARGUMENT WAS THAT THE MILK HAS THREE INGREDIENTS NAMELY I) KF. FAT, II) SNF, AND III) WATER. THESE THREE CONSTITUENTS OF THE MILK ARE NOT CONS TANT. AS NARRATED ABOVE IT VARIES SEASONALLY. SO THE ARGUMENT IS THAT IN ASSESSEES CONTROL IS TO RECORD THE QUANTITY OF THE MILK PURCHASED AND MI LK SOLD ALONG WITH THE QUANTITY OF GHEE ETC PRODUCED , BUT IT IS NOT FEASI BLE AND EVEN PRACTICABLE TO MAINTAIN LOT WISE QUALITY OF MILK. THE MILK IS C OLLECTED FROM SEVERAL CENTRES FROM THE VILLAGES WHICH GETS MIXED IN THE T ANKERS AND TRANSPORTED TO THE CHILLING CENTRE. EVEN FOR PASTEURISATION THE WHOLE MILK OF DIFFERENT QUALITY GOT MIXED. ON THE BASIS OF THE PERCENTAGE O F KG. FAT OR KG. SNF EACH LOT OF MILK COULD NOT BE SEGREGATED NOR IT WAS OF ANY BUSINESS USE FOR THE ASSESSEE. 8.2. ABOUT THE REJECTION OF THE BOOKS OF ACCOUNT ,AS FAR AS THE RECORDS OF THE ASSESSEE WERE CONCERNED, EVEN THE A. O. HAD NOT DENIED THE FACT THAT AS PER SCHEDULES ANNEXED TO THE BALANCE SHEET , THE QUANTITATIVE DETAILS OF PURCHASE/ SALE/ CONSUMPTION/ PRODUCTION AND DAILY POSITION OF OPENING/ CLOSING STOCK OF MILK WAS FOUND MAINTAINED BY THE ASSESSEE. IT IS NOT THE CASE OF THE REVENUE THAT ANY DISCREPANCY WAS DETECTED THEREIN. IT WAS ALSO NOT THE ALLEGATION OF THE REVENUE THAT ANY UNDISCLOSED SALES / PURCHASES / PRODUCTION / STOCK WAS UNEARTHED DURING THE INVESTIGATION. AUTHORITIES BELOW HAVE INVOKED THE PROVISIONS OF SE C. 145 FOR REJECTION OF BOOKS OF ACCOUNTS. BUT FOR THE INVOCATION OF THE SAID LAW, IT ITA NO.596/AHD/2006 (BY ASSESSEE) & ITA NO.706/AHD/2006 (BY REVENUE) M/S. VIMAL DAIRY LTD. VS. ACIT ASST.YEAR 2000-01 - 23 - IS A MUST THAT SOME SPECIFIC FINDING SHOULD BE RECO RDED ABOUT THE DEFECT FOUND IN THE METHOD OF ACCOUNTING. ASSESSEE HAS UND ISPUTEDLY MAINTAINED THE DATE-WISE RECORD OF PURCHASE OF QUAN TITY OF MILK, QUANTITATIVE DETAILS OF PRODUCTION OF GHEE, BUTTER, CREAM ETC., AND DAILY POSITION OF STOCK OF RAW-MILK AS ALSO FINISHED- MIL K. NO ADVERSE COMMENT WAS MADE ABOUT THE SAID METHOD OF ACCOUNTING REGULA RLY MAINTAINED. IT IS NOT THE CASE OF THE REVENUE THAT SOME WRONG ENTR Y WAS SPOTTED OR THERE WAS A DEPARTURE FROM REGULAR RECOGNISED METHODS. TH AT METHOD OF THE ASSESSEE WAS ACCEPTED IN THE PAST AS ALSO SUBJECTED TO TAX THE INCOME DISCLOSED ON THAT BASIS. IT IS UNSOUND TO SUBSTITUT E BY AN ANOTHER METHOD PROVIDED THERE ARE OVERRIDING COMPELLING REASONS. E VEN THE PROVISO TO THIS SECTION PRECLUDE THE A.O. NOT TO DISCARD THE R EGULAR METHOD ON WHIMS AND FANCIES. A REJECTION SHOULD BE DONE WITH CAUTION AND ONLY ON COGENT EVIDENCE. THOUGH THE A.O. IS EMPOWERED WITH THIS DISCRETION OF REJECTION , BUT MUST BE JUDICIALLY EXERCISED. THE R ATIO OF PROFIT WAS BETTER THAN THE PAST YEARS. AFTER AN OVER ALL DISCUSSION IN THE PRECEDING PARAGRAPHS, WE HEREBY DISAPPROVE THE SAID VIEW OF L D.CIT(A). UNDER THESE CIRCUMSTANCES THERE APPEARED TO BE NO G OOD REASON TO REJECT THE ACCOUNTED VERSION OF THE ASSESSEE BY APPLYING T HE PROVISIONS OF SEC. 145 OF THE ACT. RATHER WE FIND NO RATIONALE OR RAISON DETRE IN THE ASSUMPTION OR CONJECTURE OF THE A.O. HENCE HEREBY O VERRULED. 8.3. AN ANOTHER REASON ASSIGNED BY THE A.O. WAS THAT A LESSER QUANTITY OF PCW WAS ADDED BY THE ASSESSEE. AS PER R ECORDS 8,02,475 LTRS. OF CHILLED WATER ( PCW) WAS ADDED . AS AGAINS T THAT THE A.O.S VERSION WAS THAT ONLY 43,168 LTRS. OF PCW WAS REQUI RED TO BE ADDED AT ITA NO.596/AHD/2006 (BY ASSESSEE) & ITA NO.706/AHD/2006 (BY REVENUE) M/S. VIMAL DAIRY LTD. VS. ACIT ASST.YEAR 2000-01 - 24 - DIFFERENT STAGES OF PROCESSING TO STANDARDISE THE F AT CONTENTS. THE ADMITTED FACTUAL POSITION WAS THAT THE ASSESSEE WAS BUYING THE MILK HAVING SNF CONTENTS RANGING FROM 9% TO 8.5%. THE A SSESSEE WAS ENTAILED TO SALE THE WHOLE MILK HAVING 6% FAT KG . CONTENTS, STANDARD MILK AT 4.5% , TONNED MILK AT 3% ETC. A CHART HA S ALREADY PRODUCED AT PARA 4.3 ABOVE. TO LOWER DOWN THE FAT CONTENTS , AS PER THE CERTIFICATES ISSUED BY THE DAIRY EXPERTS, AT LEAST 5.8% PCW IS R EQUIRED. BUT THE A.O. HAD REJECTED THE SAID FACT OF MIXING OF PCW AND CON CLUDED THAT ONLY 1,23,61,156 LTRS. OF MILK WAS AVAILABLE FOR SALE. A S AGAINST THAT THE MILK SOLD AS RECORDED IN THE BOOKS WAS 1,33,66,648 LITRS . HOWEVER THE BARE FACT WAS THAT THE ALLEGED DISCREPANCY WAS NOT ON AC COUNT OF FAULTY METHOD OF ACCOUNTING OR IT WAS DUE TO SOME CONCEALM ENT OF FIGURES. BUT THE IMPUGNED ALLEGATION WAS BASED UPON A HYPOTHESIS THAT A LESSER QUANTITY OF PCW WAS REQUIRED TO BE ADDED BY THE AS SESSEE, WHICH RESULTED INTO A SMALLER QUANTITY OF MILK LEFT FOR S ALE THEN THE QUANTITY SHOWN IN THE BOOKS. SUCH AN ASSUMPTION OF THE A.O. IS NOT SUSTAINABLE IN THE EYES OF LAW. SUCH A PRESUMPTIVE ADDITION OF RS. 1,10,60,412/- DO NOT WITHSTAND THE TEST OF LEGAL SCRUTINY HENCE DESE RVES TO BE DELETED. 9. THE ADDITION CONTESTED VIDE GROUND NO.3 BASICALLY MADE BY THE A.O. APPEARS TO BE ON SOME TECHNICAL MISCONSTRUCTIO N OF FACTS ABOUT THE PROCESS OF PASTEURISATION . AS PER LD.A.RS EXPLANA TION RAW MILK PURCHASED UNDERWENT THE PROCESS OF PASTEURISATION. THE PASTEURISED MILK IS RECORDED IN THE BOOKS AS FINISHED GOODS ( F.G.) . THE MILK WHICH HAD NOT BEEN PASTEURISED IS RECORDED AS WORK-IN-PROGRESS . THEREAFTER THE CREAM IS EXTRACTED AND THE RESIDUE OF MILK WAS SEN T FOR THE PRODUCTION OF ITA NO.596/AHD/2006 (BY ASSESSEE) & ITA NO.706/AHD/2006 (BY REVENUE) M/S. VIMAL DAIRY LTD. VS. ACIT ASST.YEAR 2000-01 - 25 - SMP. UNDER SOME MISCONCEPTION, THE A.O. HAD APPLIE D A STANDARD FORMULA THAT FOR 1 KG. PRODUCTION OF SMP, THE MILK REQUIRED WAS 10 LTRS. BUT THE GROUND REALITY WAS THAT CONSUMPTION OF MILK DEPENDED UPON THE SNF CONTENTS IS THE MILK PROCURED. THIS ASPECT WAS FORTIFIED BY THE FIGURES ITSELF, AS RECORDED BY THE A.O., THAT AS PE R THE CONTRA ACCOUNTS OF SISTER CONCERN M/S VIMAL OIL & FRUITS LTD., FOR THE MONTH OF APRIL 1999 OUT OF THE 2,22,000 LTRS. OF MILK ; SMP PRODUCED WA S 2,05,000 KG. I.E. 9.23%. SO AS PER A.O. ADMITTEDLY 10.82 LITRES OF MI LK WAS CONSUMED FOR 1 KG. PRODUCTION OF SMP . THE A.O. HAS ALSO QUOTED THAT FOR THE MONTH OF SEPT. 1999 OUT OF 1,7,000 LITRES OF MILK THE PRO DUCTION OF SMP WAS 15001 KGS I.E. 11.53 LITRE OF MILK HAS PRODUCED 1 K G. SMP. SINCE HE HAS PRESUMED THAT FOR 1 KG. SMP PRODUCTION 10 LITRES OF MILK WAS REQUIRED, THEREFORE HE HAS CORRESPONDINGLY ALTERED THE MONTHL Y POSITION OF STOCK AND THEN ARRIVED AT A PRESUMPTIVE FIGURE OF STOCK F OR THE MONTH OF OCTOBER 1999 TO MAKE THE IMPUGNED ADDITION OF RS. 4 0,84,575/-. AS DISCUSSED HEREINABOVE IN DETAIL, THE A.O.S ADOPTIO N OF A FIXED FORMULA OF UTILISATION/ CONSUMPTION OF MILK WAS NOT FACTUALLY ACCEPTABLE HENCE HEREBY DISAPPROVED. THE ASSESSEE HAS EMPHASISED TH AT WHATEVER WAS THE PRODUCTION, THE SAME WAS RECORDED AND THAT THE VARI ATION IN THE PRODUCTION PERCENTAGE OF SMP ITSELF HAS DEMONSTRATE D THAT THERE COULD NOT BE A FIXED QUANTITY OF PRODUCTION OF SMP HOMOGE NEOUSLY. THE RECORDS MAINTAINED IN THE REGULAR COURSE OF BUSINES S HAVE DEMONSTRATED THAT THERE WAS A VARIATION IN THE PERCENTAGE OF PRO DUCTION. WE CAN HENCE CONCLUDE THAT THE SAID EXPLANATION GETS THE STRENGT H FORM THE RECORDS THAT NO STATIC PRODUCTION IS POSSIBLE IN THIS LINE OF BU SINESS. SUCH A PRESUMPTIVE APPROACH OF THE A.O. IS HEREBY DISMISSE D. ITA NO.596/AHD/2006 (BY ASSESSEE) & ITA NO.706/AHD/2006 (BY REVENUE) M/S. VIMAL DAIRY LTD. VS. ACIT ASST.YEAR 2000-01 - 26 - 10. AT THIS JUNCTURE OF WINDING-UP OF THIS JU DGEMENT, IT CAN BE MENTIONED , THAT WE ARE AWARE ABOUT A WELL-KNOWN VE RITY OR A REALITY THAT THE GENERAL OPINION IS THAT THE MILK BY AND LARGE I S ADULTERATED BY WATER. EVEN THE FACTS OF THIS CASE HAVE REVEALED THAT AS M UCH AS 8,02,475 LITRES OF WATER (PCW) WAS ADMITTEDLY ADDED. IT HAS ALSO NO T BEEN DENIED THAT THE MIXING OF WATER IS THE REQUIREMENT OF THE STAND ARDISATION OF MILK. THE ASSESSEE USED TO PROCURE THE MILK WITH THE FAT CO NTENTS RANGING FROM 9% TO 8.5%. BUT DUE TO THE STANDARDISATION NORMS A DAI RY IS REQUIRED TO SALE THE WHOLE MILK WITH 6% FAT. REST OF THE CATEGORY OF MILK SOLD ARE EVEN WITH LESSER % OF SNF CONTENTS, REFER PARA 4.3 SUPRA . IF IT IS SO, THEN THE MIXING OF WATER IS AN ACCEPTED NORM AND NOT A HIDDE N FACT. IT WAS CERTIFIED THAT 5.8% WATER WAS BEING ADDED TO GET TH E DESIRED PERCENTAGE OF SNF. RATHER A SPECIFIC QUESTION WAS ASKED IN THE COURSE OF HEARING ABOUT IT. LD. A.R. HAD QUIPPED THAT ADMITTEDLY SUC H A HUGE QUANTITY OF WATER WAS ADDED BUT SAME WAS DULY REFLECTED IN THE TOTAL SALES WHICH WAS OFFERED FOR TAX. ADDITION OF WATER HAS INCREASED TH E VOLUME OF MILK WHICH WAS SOLD AS PER THE PREVAILING RATE OF MILK A ND THE SAME WAS DULY MADE THE PART OF PROFIT DISCLOSED. THE GROSS PROFIT WAS SHOWN AT 12.51% FOR THE YEAR UNDER CONSIDERATION, BETTER IN COMPARISON TO LAST YEAR G.P. RATE OF 9.38% %. IN SUCH A SITUATION WHEN THIS JUDICIAL FORUM IS CONFINED TO ASSESS THE CORRECT TAXABLE IN COME THEN REST OF THE DISQUIET, AS COMMONLY EXPRESSED, IS OUT OF OUR JUD ICIAL PURVIEW. IT IS EXPECTED TO LIMIT OUR DECISION WITHIN THE SCOPE OF THE STATUTE OF INCOME TAX ACT. THE BOOK RESULT BEING BETTER FOR THE YEAR UNDER CONSIDERATION ITA NO.596/AHD/2006 (BY ASSESSEE) & ITA NO.706/AHD/2006 (BY REVENUE) M/S. VIMAL DAIRY LTD. VS. ACIT ASST.YEAR 2000-01 - 27 - THEREFORE IN THE ABSENCE OF DETECTION OF ANY CONCEA LMENT OR DEFECT IN THE METHOD OF ACCOUNTING THE PROFIT DECLARED IS HEREBY APPROVED. 11. AS FAR AS THE VIEW OF LD. CIT(A) IS CONCERN ED THE SAME WAS NOTHING BUT AN ESTIMATION OF GROSS PROFIT RATE. WHI LE DECIDING ALL THE THREE GROUNDS LD. CIT(A) HAS ADOPTED THE RATE OF PR OFIT AT 14% . THOUGH HE WAS NOT IN AGREEMENT WITH THE VIEW OF THE A.O. Y ET HE HAS APPLIED THE RATE OF GROSS PROFIT RATE ON THE ALLEGED SALES AS D ETERMINED BY THE A.O. THIS CONTRADICTION RATHER INCONSISTENCY HAS FORCED US TO PONDER UPON THE PROBLEM AT A DEEPER LEVEL SO AS TO FIND OUT THE EXA CT NATURE OF THE BUSINESS AND THE AREAS WHERE THE A.O. HAD SUGGESTED TO DISTU RB THE BOOK RESULT. AT LENGTH THE METHOD ADOPTED BY THE ASSESSEE WAS EXAMI NED AND ON THAT BASIS IT CAN BE CONCLUDED THAT THERE WAS NO SCOPE FOR AN ESTIMATION OF GROSS PROFIT FOR THE YEAR UNDER CONSIDERATION. 12. GROUND NO.4 READS AS UNDER: 4. IN LAW AND IN FACTS AND CIRCUMSTANCES OF THE AP PELLANTS CASE, THE LD. CIT(A) HAS GROSSLY ERRED IN CONFIRMIN G THE ACTION OF THE ASSESSING OFFICER OF REJECTING THE AP PELLANTS CLAIM U/S.80-I OF THE ACT. 12.1. IN RESPECT OF THIS GROUND, THE OBSERVATION O F THE LD.CIT(A) WAS AS UNDER:- GROUND OF APPEAL NO.4 RELATES TO THE APPELLANTS C LAIM OF DEDUCTION UNDER SECTION 80-I. THIS CLAIM WAS REJEC TED BY THE AO ON THE GROUND THAT SINCE THE ASSESSEE STARTED TH E ITA NO.596/AHD/2006 (BY ASSESSEE) & ITA NO.706/AHD/2006 (BY REVENUE) M/S. VIMAL DAIRY LTD. VS. ACIT ASST.YEAR 2000-01 - 28 - MANUFACTURING ACTIVITY AFTER 31/3/91, IN F.Y. 95-96 , THE DEDUCTION WAS NOT ADMISSIBLE TO THE ASSESSEE. THE AO ALSO REJECTED THE ASSESSEES CLAIM OF DEDUCTION UNDER S ECTION 80-I SINCE THE APPELLANT HAD NOT SHOWN AS TO HOW THE CON DITIONS LAID DOWN IN SUB-SECTION 2 OF SECTION 80-I WERE SAT ISFIED. THE AO FURTHER HELD THAT SINCE THE ASSESSEE HAD NO POSI TIVE INCOME, AFTER EXCLUDING THE ADDITIONS MADE UNDER SE CTION 69, WHICH WERE TO BE ASSESSED UNDER THE HEAD INCOME FRO M OTHER SOURCES, DEDUCTION UNDER SECTION 80-I WAS NOT ADMI SSIBLE. SINCE THE APPELLANT HAS NOT FILED ANYTHING IN SUPPO RT OF ITS CLAIM OF SECTION 80-I DEDUCTION, THIS GROUND O F APPEAL IS DISMISSED. 12.2. EVEN BEFORE US, THIS GROUND WAS NOT SERIOUS LY CONTESTED AND NO MATERIAL WAS PLACED IN SUPPORT OF THE CLAIM. WE, THEREFORE, UPHOLD THE VIEW OF LD.CIT(A) AND DISMISS THE GROUND. 13. GROUND NO.5 READS AS UNDER: 5. IN LAW AND IN FACTS AND CIRCUMSTANCES OF THE AP PELLANTS CASE, THE LD. CIT(A) HAS GROSSLY ERRED IN TREATING GROUND NO.6 OF THE APPELLANTS APPEAL AS CONSEQUENTIAL IN NATURE, WHEN THE ASSESSEE HAS CHALLENGED THE VERY LEVY OF I NTEREST US.234B AND 234C OF THE ACT. 13.1. THE LEVY OF INTEREST IS CONSEQUENTIAL IN NAT URE NEED NOT TO BE ADJUDICATED AT THIS STAGE. 14. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. (B) REVENUES APPEAL (ITA NO.706/AHD/2006) : 15. GROUNDS RAISED ARE AS UNDER:- ITA NO.596/AHD/2006 (BY ASSESSEE) & ITA NO.706/AHD/2006 (BY REVENUE) M/S. VIMAL DAIRY LTD. VS. ACIT ASST.YEAR 2000-01 - 29 - 1. THE CIT(APPEALS) HAS ERRED IN LAW AND ON FACTS IN DIRECTING TO RESTRICT THE ADDITION OF RS.10,81,622/- MADE ON ACC OUNT OF UNDISCLOSED SALES TO RS.1,51,431/-. 2. THE CIT(APPEALS) HAS ERRED IN LAW AND ON FACTS IN D IRECTING TO RESTRICT THE ADDITION OF RS.40,84,575/- MADE ON ACC OUNT OF UNDISCLOSED INVESTMENT FOR PURCHASE OF MILK, TO RS. 5,71,841/-. 3. THE CIT(APPEALS) HAS ERRED IN LAW AND ON FACTS IN D IRECTING TO RESTRICT THE ADDITION OF RS.1,10,60,412/- MADE ON A CCOUNT OF UNDISCLOSED INVESTMENT IN THE PURCHASE OF MILK, TO RS.33,07,000/- AND FURTHER ALLOWING SET OFF THEREOF AGAINST THE ADDITIONS OF RS.1,51,431/- AND RS.5,71,841/- SUSTAI NED BY HIM ON ACCOUNT OF UNDISCLOSED SALES AND UNDISCLOSED INV ESTMENT IN THE PURCHASE OF MILK RESPECTIVELY. 4. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE A.O. 5. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE CIT( A) BE SET ASIDE AND THAT OF THE A.O. BE RESTORED TO THE ABOVE EXTEN T. 15.1. ALL THESE GROUNDS OF THE REVENUE HAVE ALREA DY BEEN DEALT WITH BY US IN THE FOREGOING PARAGRAPHS. WE HAVE TAKEN A CONSCIENTIOUS VIEW THAT IN THE ABSENCE OF ANY DEFECT IN THE BOOKS OF A CCOUNTS DETECTED BY THE AO, THERE WAS NO SCOPE FOR REJECTION OF BOOKS OF AC COUNTS BY INVOKING THE PROVISIONS OF SECTION 145 OF I.T. ACT. THE C ONSEQUENCE OF THIS VIEW IS THAT THERE WAS NO BASIS LEFT TO ALTER THE PROFIT DISCLOSED BY THE ASSESSEE AS PER THE BOOKS OF ACCOUNT MAINTAINED IN THE REGUL AR COURSE OF BUSINESS. WE HAVE ALSO TAKEN A VIEW THAT THE FIRST APPELLATE AUTHORITY HAS UNIFORMLY ESTIMATED THE GROSS PROFIT AT 14% FOR ALL THE THREE ADDITIONS IN QUESTION. ITA NO.596/AHD/2006 (BY ASSESSEE) & ITA NO.706/AHD/2006 (BY REVENUE) M/S. VIMAL DAIRY LTD. VS. ACIT ASST.YEAR 2000-01 - 30 - MEANING THEREBY THE PART RELIEF GRANTED BY HIM IS H EREBY REVERSED AND THE BOOK RESULT IS THEREFORE AFFIRMED. IN THE RESULT , THESE GROUNDS OF THE REVENUE GET CONSEQUENTLY DISMISSED. 16. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED WHEREAS THE APPEAL OF THE REVENUE IS DISMISSED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 30/ 08 /2011. SD/- SD/- ( G.D. AGARWAL ) ( MUKUL KR. SHRAWAT ) VICE PRESIDENT (AZ) JUDICIAL ME MBER AHMEDABAD; DATED 30 / 08 /2011 T.C. NAIR, SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE. 2. THE DEPARTMENT. 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-I, AHMEDABAD 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD