ITO, Jaipur V. M/S KALA COLOUR LAB P. LTD., Jaipur

ITA 669/JPR/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1547 (ITAT-JAIPUR)
• Duration Of Justice: 6 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 10-07-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A K KHANDELWAL; ROSHANTA MEENA
• Keywords: Gross profit estimation; Rejection of books of accounts
• Section: 145; 144

Judgement Text

1 ITA 669-12 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH : A JAIPUR. BEFORE SHRI B.R. MITTAL AND SHRI B.R. JAIN ITA NO. 669/JP/2012 ASSTT. YEAR : 2007-08. THE INCOME-TAX OFFICER, VS. M/S. KALA COLOUR LAB PVT. LTD., WARD 1(2), JAIPUR. 1340, MANIHARION KA RASTA, KISHANPOLE BAZAR, JAIPUR. (APPELLANT) (RESPONDENT) APPELLANT BY : MS ROSHANTA MEENA & SHRI AK KHANDELWAL RESPONDENT BY : SHRI PC PARWAL DATE OF HEARING : 17.01.2013. DATE OF PRONOUNCEMENT : 23.01.2013 ORDER PER B.R. JAIN, A.M. THIS APPEAL BY REVENUE AGAINST THE ORDER DATED 23. 04.2012 OF LD. CIT (A)-III, JAIPUR RAISES THE FOLLOWING GROUNDS :- WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT (A) IS JUSTIFIED IN :- (I) REDUCING THE TRADING ADDITION TO RS. 3,00,000/- AGAINST RS. 29,96,101/- MADE BY THE A.O. WITHOUT APPRECIATING T HE FACT THAT THE DAY TO DAY STOCK REGISTER OF CONSUMPTION OF PAPER IS NOT B EING MAINTAINED BY THE ASSESSEE, (II) RESTRICTING THE TRADING WITHOUT APPRECIATING T HE FACT THAT THE ASSESSEE COULD NOT PRODUCE DETAIL OF DIFFERENT SIZE PHOTOGRAPHS DEVELOPED DETAIL OF NO. OF PHOTOS DEVELOPED, VARIATION OF RAT ES AS COMPARED TO MARKET RATE. 2 2. BRIEFLY THE FACTS ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PHOTOGRAPHY, PHOTO PROCESSORS, DEALING IN CAMERAS, FILMS, ALBUMS, COLOUR PACKS, PHOTO PAPERS, RELATED ACCESSORIES AND EQUIPMENTS. THE AS SESSEE RETURNED NIL INCOME FROM THE AFORESAID BUSINESS. THE ASSESSEE HAS DECLARED JOB RECEIPTS OF RS. 2,18,54,696/- AS AGAINST JOB RECEIPTS OF RS. 2,32,18,140/- IN THE IMMEDIATEL Y PRECEDING YEAR AND SALES OF ST PAID GOODS OF RS. 6,55,487/- AGAINST SALE OF RS. 13,17,4 87/- IN THE IMMEDIATELY PRECEDING YEAR. THE PHOTOGRAPHY JOB WORK RECEIPTS COMPRISED OF THE FOLLOWING :- JOB PROCESSING RS. 2,08,17,128/- PHOTOGRAPHY RS. 8,77,347/- VIDEOGRAPHY RS. 1,60,221/- 2.1. THE ASSESSING OFFICER ON PERUSAL OF AUDITED AC COUNTS AND DOCUMENTS ENCLOSED WITH THE RETURN, NOTICED THAT THERE IS A FALL IN BO TH JOB RECEIPTS AS WELL AS SALES DISCLOSED BY THE ASSESSEE RESULTING INTO NIL INCOME DECLARED BY HIM FOR THE YEAR UNDER CONSIDERATION WHEN COMPARED TO THE RESULTS OF THE I MMEDIATELY PRECEDING YEAR. THE AUDITED ACCOUNTS ALSO REVEALED THAT THE FOLLOWING I NFORMATION HAS NOT BEEN MAINTAINED BY THE ASSESSEE :- (I) TOTAL NUMBER OF PHOTOS DEVELOPED (II) TOTAL MEASUREMENT OF PHOTOS DEVELOPED (III) YIELD WITH REFERENCE TO TOTAL PAPER UTILIZED (IV) DAY TO DAY STOCK CONSUMPTION OF RAW MATERIAL AND WASTAGE, IF ANY. HE, THEREFORE, ISSUED A DETAILED SHOW CAUSE NOTICE AS IS ALSO REPRODUCED IN THE ASSESSMENT ORDER FROM PAGES 3 TO 5 AND REQUIRED TO EXPLAIN AS TO WHY THE BOOKS OF ACCOUNTS BE NOT REJECTED BY INVOKING THE PROVISIONS OF SECTION 145( 3) OF THE ACT AND INCOME ESTIMATED BY APPLYING APPROPRIATE RATE PER SQ. METER OF PAPER CO NSUMPTION FOR CALCULATING JOB RECEIPTS ACCORDINGLY. THE ASSESSEE ALSO FURNISHED A DETAILE D REPLY VIDE LETTER DATED 24.12.2009 WHICH HAS ALSO BEEN REPRODUCED FROM INTERNAL PAGES 5 TO 15 OF THE ASSESSMENT ORDER. THE 3 ASSESSING OFFICER AFTER CONSIDERING THE REPLY OF TH E ASSESSEE AND ANALYZING VARIOUS DOCUMENTS FILED AS WELL AS RELIED UPON BY THE ASSES SEE WAS OF THE OPINION THAT THE ASSESSEE HAS NOT DECLARED ITS RECEIPTS FULLY AND PR OPERLY AND THE RESULT DECLARED CANNOT BE RELIED UPON FOR THE FOLLOWING REASONS :- (I) IT IS FOUND THAT THE ASSESSEE USED THE FOLLOW ING QUALITIES OF PAPER FOR THE PURPOSE OF PRINTING OF PHOTOS : (I) FUJI (II) MITSUIBISHI (III) KEMTECK (IV) PROFESSIONAL (V) KONICA (II) THE PURCHASES COST OF PAPER VARIES FROM QUALIT Y TO QUALITY AND FROM COMPANY TO COMPANY. THE ASSESSEE HAS NOT FURNISHED THE QUALITY WISE AND QUANTITY WISE DETAILS IN RESPECT OF OPENING STOCK, CONSUMPTION AND CLOSING STOCK, THOUGH IT HAD FURNISHED SUMMARY OF COMBINED QUANTIT Y OF OPENING STOCK, PURCHASES AND CLOSING STOCK. NO DETAIL OF CONSUMPTI ON WAS FURNISHED. THEREFORE, FROM THE DETAILS AVAILABLE IT WAS FOUND THAT THE TO TAL RECEIPTS FROM THE JOB WORK IS NOT SUBJECTED TO ANY SORT OF VERIFICATION. (III) THE CRUCIAL DATA REGARDING THE QUALITY AND QU ANTITY OF PAPER USED FOR PRINTING OF PHOTOGRAPHS AND THE REALIZATION FROM EA CH JOB WORK WAS NOT MADE AVAILABLE. BESIDES, THE ASSESSEE COMPANY HAS ALSO N OT MADE AVAILABLE THE RECEIPTS FROM CUSTOMERS PREPARED ON SPECIAL OUTDOOR SHOOTING ON THE OCCASION OF MARRIAGE AND OTHER SPECIAL FUNCTIONS. (IV) THE ARGUMENT OF THE A/R THAT THE PROVISIONS OF SECTION 145(3) ARE NOT APPLICABLE AS THE ASSESSEE DECLARED BETTER G.P. RAT E COMPARES TO PRECEDING YEARS IS NOT TENABLE. IT WAS CATEGORICALLY MENTIONED IN THE AUDIT REPORT THAT THE ASSESSEE COMPANY DID NOT MAINTAIN STOCK REGISTER AND FURTHER DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE A/R WAS UNABLE TO PROVID E THE DETAIL OF CONSUMPTION OF PAPER ROLL ON DAY TO DAY BASIS AND THE NUMBER OF PHOTOS DEVELOPED. THIS CLEARLY SHOWS THAT THE ASSESSEE COMPANY DOES NOT HAVE ANY R ECORD TO PROVE THAT THE ACTUAL 4 NUMBERS OF PHOTOS DEVELOPED. THE JOB RECEIPTS OF TH E ASSESSEE COMPANY DEPEND UPON THE NUMBER OF PHOTOS DEVELOPED. WHEN THE PRIMA RY RECORD IS NOT AVAILABLE, THE JOB RECEIPTS SHOWN BY THE ASSESSEE COMPANY CANN OT BE RELIED UPON. (VS) THE A/R OF THE ASSESSEE DID NOT POINT OUT ANY DEFECTS IN THE WORKING OF CONSUMPTION OF PAPER IN TERMS OF PER SQ. CM. THE FIGURE OF CONSUMPTION WAS DERIVED BY THE FIGURES MADE AVAILABLE BY THE A/R OF THE ASSESSEE. THE OBJECTION RAISED BY THE A/R IN HIS REPLY IS NOT TENABLE. (VI) THE A/R SUBMITTED THAT DEVELOPMENT OF PHOTO S OF SIZE 4 X 6 AND 5 X 7 ARE AROUND 80% AND OTHERS ARE ONLY 20%. BUT THE A/R DID NOT FURNISH ANY FIGURE OF A PARTICULAR SIZE OF PHOTOGRAPH DEVELOPED BY THE ASSESSEE COMPANY. THEREFORE, THE ABOVE FIGURES MENTIONED IN THE REPLY ARE ESTIMATED AND THE SAME CANNOT BE RELIED UPON. (VII) THE A/R FURTHER SUBMITTED THAT THE JOB WORK O F NON-AMATEUR TYPE IS AROUND 95% AND FURTHER OBJECTED THE WORKING OF AVER AGE RATE. THE PLEA OF THE A/R IS NOT TENABLE AS THERE IS NO RECORD AVAILABLE WITH THE ASSESSEE COMPANY THAT PROVES THAT THE WORKING OF NON-AMATEUR WORK IS AROU ND 95%. THE AVERAGE RATE OF NON-AMATEUR WORK WAS WORKED OUT AT 1.64 PAISE PER S Q. CM. AND THE AMATEUR WORK AT 2.39 PAISE PER SQ. CM. THE CHART GIVEN BY THE A/ R IN HIS REPLY ALSO CONFIRM THIS. THE WORKING GIVEN BY THE A/R AS PER WEIGHTED AVERAG E COMES TO 1.69 PAISE PER SQ. CM. WHEREAS THE AVERAGE RATE COMES TO 1.77 PAIS E PER SQ. CM. CONSIDERING THE JOB RECEIPTS SHOWN IN THE I.T. RETURN AND THE CONSU MPTION OF PAPERS SHOWN BY THE ASSESSEE. THEREFORE THE WORKING OF WEIGHTED AVERAGE GIVEN BY THE A/R IS FAULTY AND BIASED AND THE SAME IS LIABLE TO BE REJECTED. (VIII) THE A/R FURTHER GIVEN A CHART IN HIS REPLY R EGARDING CONSUMPTION OF PAPERS AND SUBMITTED THAT 5 WIDTH PAPER CAN BE USA BLE ONLY FOR 5 X 7 SIZE AND 6 WIDTH PAPER IS USABLE FOR 4 X 6 SIZE AND FURTHER S UBMITTED THAT THE 80% PHOTOGRAPHS ARE OF THESE TWO TYPES AND THEREFORE SI MPLE AVERAGE OF RATES OF ALL THE SIZE ARE NOT RELEVANT. THIS ARGUMENT OF THE A/R IS NOT ACCEPTABLE. THE CONSUMPTION 5 PAPER ROLL IS AROUND 19% WHEREAS THE ABOVE SIZE PHOTOGRAPH TAKEN FOR RATE PURPOSE AS 1/6 OR 16.67%. THUS THE W EIGHTAGE GIVEN TO 5X7 SIZE PHOTO IS ALMOST SAME. ANOTHER ARGUMENT OF THE A/R T HAT FROM THE 6 WIDTH PAPER 5 ONLY PHOTO OF SIZE 4X6 IS DEVELOPED IS NOT TENABLE AS THE SIZE 6X8 CAN ALSO BE DEVELOPED FROM THIS PAPER ROLL. IT WAS FURTHER NOTI CED THAT THE CONSUMPTION OF8 WIDTH ROLL IS AROUND 12% AND FROM THIS TYPE OF WIDT H PHOTOGRAPH OF 4 X 6 CAN ALSO BE DEVELOPED. AS THE A/R WAS UNABLE TO PROVIDE THE DETAILS OF DIFFERENT SIZE OF PHOTO DEVELOPED THE ABOVE ARGUMENT IS NOT ACCEPT ED. (IX) THE A/R FURTHER SUBMITTED THAT THE BUSINESS OF GOYAL COLOR LAB IS NOT COMPARABLE TO THE CASE OF THE ASSESSEE COMPANY ON A CCOUNT OF VOLUME OF BUSINESS, TECHNOLOGY, BRAND NAME, AND GIVING COMMIS SION BY GOYAL COLOUR LAB ETC. THE COMPARISON GIVEN BY THE A/R IS NOT SUPPOR TED BY ANY AUTHENTIC EVIDENCE. AS FAR AS TECHNOLOGY IS CONCERNED THE ASS ESSEE COMPANY HAS PURCHASED NEW MACHINES IN RECENT YEARS AND THE ASSESSEE COMPA NY IS ALSO A BRAND NAME. THE VOLUME AND BRANCHES OF THE ASSESSEE COMPANY IS LOW COMPARED TO GOYAL C\COLOR LAB BUT IT DOES NOT AFFECT THE EFFICIENCY AND THE R ATE CHARGE FOR JOB WORK. ANOTHER ARGUMENT OF THE A/R THAT M/S. GOYAL COLUR LAB IS CH ARGING HIGHER RATES AND THEN ALLOWING SALES COMMISSION AND INCENTIVES TO THE EXT ENT OF 20% IS NOT TENABLE. THE RATES IN THE CASE OF THE ASSESSEE COMPANY WAS TAKEN AS PROVIDED IN INVOICES WHEREIN THERE WAS NO MENTION OF NAMES AND ADDRESS O F THE CUSTOMERS. THEREFORE, THESE RATES WERE NOT SUBJECT TO VERIFICATION WHEREA S THE RATE LIST OF M/S. GOYAL COLOR LAB IS A PRINTED DOCUMENT I.E. AVAILABLE IN I TS EVERY BRANCH. (X) THE A/R FURTHER SUBMITTED THAT THE PAPER IS WAS TED ON ACCOUNT OF LOADING-UNLOADING, PAPER SETTING, POWER CUT, MISHAN DLING AND NEGLIGENCE ETC. THE A/R DID NOT PROVIDE ANY DETAIL OF WASTAGE OF DIFFER ENT SIZE OF PAPER ROLL. IN THE ANNEXURE G OF THE AUDIT REPORT THERE WAS NO MENTION OF WASTAGE OF PAPERS, THEREFORE IT CANNOT BE SAID THAT HOW MUCH PAPER WAS WASTED DURING THE PROCESS. 3. IN VIEW OF THE AFORESAID DISCUSSION, IT WAS HELD THAT THE CONSUMPTION OF PAPERS, QUANTITY OF DEVELOPMENT OF PHOTOS ARE NOT PROPERLY MAINTAINED BY THE ASSESSEE COMPANY. IT WAS FOUND FROM THE REPLY OF THE ASSESSEE ITSELF THAT THERE IS NO DAY TO DAY STOCK REGISTER FOR THE PURCHASES, CONSUMPTION OF INPUT MATERIAL, T HE STOCK POSITION AND THE RECEIPTS ON 6 DAY TO DAY BASIS. WHEN THE ASSESSEE HAS NOT MAINTAI NED REASONABLE RECORDS/REGISTER BY ADOPTING SYSTEMATIC AND SCIENTIFIC METHOD ON CHRONO LOGICAL ORDER ON DAY TO DAY BASIS, THE NATURAL CONCLUSION WOULD BE THAT THE CORRECTNESS AN D COMPLETENESS OF THE ACCOUNTS IS NOT VERIFIABLE. SIMILARLY, WHEN THE ASSESSEE HAS NOT K EPT ANY RECORD TO SHOW AS TO WHAT AMOUNT THE ASSESSEE HAS EXPENDED FOR MAKING A CORRE SPONDING INCOME, THE PROFITABILITY AGAINST ANY PARTICULAR SALE/SERVICE CANNOT BE WORKE D OUT. THERE ARE SUFFICIENT REASONS TO CONCLUDE THAT ASSESSEES ACCOUNTS ARE NOT CORRECT A ND COMPLETE. PROVISIONS OF SECTION 145(3) ARE, THEREFORE, CLEARLY APPLICABLE IN THIS C ASE. BESIDES, IT IS HELD IN VARIOUS DECISIONS THAT NON-MAINTENANCE OF STOCK REGISTER CO UPLED WITH LOW GROSS PROFIT IS SUFFICIENT REASON FOR REJECTING THE BOOKS OF ACCOUN T. THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF KANCHWALA GEMS IS SQUARELY APP LICABLE IN THIS CASE. THEREFORE, IN VIEW OF THE ABOVE THE PROVISIONS OF SECTION 145(3) HAVE BEEN INVOKED AND THE BOOKS OF ACCOUNTS STOOD REJECTED. 4. AFTER REJECTING THE ACCOUNTS, THE ASSESSING OFFI CER ESTIMATED CONSUMPTION OF PAPERS FOR PHOTO PRINTING AND JOB RECEIPTS FOR THE REASONING GIVEN HEREUNDER :- (A) I HAVE MADE AN ATTEMPT TO ANALYSE THE INFORMA TION FURNISHED BY THE ASSESSEE TO ASCERTAIN THE QUANTITY (VOLUME/AREA) OF PAPER CONSUMED FOR PRINTING OF PHOTOGRAPHS. DETAILED WORKING IN THIS REGARD IS GI VEN IN ANNEXURE A ATTACHED, WHICH FORMS PART OF THIS ORDER. IT IS ALSO FOUND FR OM THIS WORKING THAT ALL THE THREE QUALITIES OF PAPER TAKEN TOGETHER, THE ASSESSEE HAS CONSUMED 1,17,59,61,900 SQ. CMS. OF PAPERS FOR PRINTING OF PHOTOS DURING THE YE AR. (B) THOUGH THE ESTIMATED QUANTITY OF PAPER CONSUMED CAN EASILY BE DIRECTLY WORKED OUT AS ABOVE (FROM THE OPENING STOC K, PURCHASES AND CLOSING 7 STOCK) THE ACTUAL RECEIPTS CAN BE WORKED OUT ONLY W HEN THE ACTUAL QUANTITY OF QUALITY WISE AND SIZE WISE PHOTOS PRINTED AND THE R ATE FOR SUCH PRINTING ARE AVAILABLE. THE ASSESSEE COMPANY HAS ADMITTED THAT I T IS NOT IN A POSITION TO SUPPLY THE DETAILS OF THE SIZES AND QUALITY OF THE PHOTOS PRINTED. TO OVERCOME THIS SITUATION THE ONLY ALTERNATIVE AVAILABLE IS TO WORK OUT THE RATE PER SQ. CENTIMETERS CHARGED BY THE ASSESSEE AS REFLECTED IN THE PRICE L IST OF EARLIER YEAR SUPPLIED BY THE ASSESSEE. (C) CONSIDERING THE FACT THAT THE ASSESSEE HAS NOT FURNISHED THE QUANTITY OF THE QUALITY-WISE AND SIZE-WISE PHOTOS PRINTED, I HA VE O OTHER ALTERNATIVE BUT TO ESTIMATE THE PRICE PER SQ. CMS. TO ENSURE THAT THE ESTIMATE MORE REASONABLE AND JUDICIAL, I PROPOSE TO ESTIMATE 2.25 PAISE PER SQ. CMS. AS THE MINIMUM LOWER RATE THAT WOULD HAVE REALIZED BY THE ASSESSEE. BASED ON THIS PROPOSED ESTIMATE OF AVERAGE PRICE OF 2.25 PAISE PER SQ. CMS., THE MINIM UM ESTIMATED RECEIPTS FOR 1,17,59,61,900 SQ. CMS OF PAPER FOR THE WHOLE YEAR WAS WORKED OUT AT RS. 2,64,59,143/- (1175961900 X 0.0225) AS SUMMARIZED B ELOW :- (D) REGARDING ASSESSEES SUBMISSION THAT ASSESSEES PROCESS OF PHOTO PRINTING INVOICES PROCESS LOSS OF PAPERS, WASTAGE O F RAW MATERIAL DUE TO BAD HANDLING/POWER FAILURE, IT MAY BE STATED THAT THE A SSESSEE HAS NOT ADDUCED ANY EVIDENCE OR DATA WITH REGARD TO WASTAGE OF PAPER DU E TO THESE REASONS. HOWEVER, TO MEET THE END OF JUSTICE AND TO COVER UP THE LOSS , IF ANY, OF PAPER DUE TO FREE SERVICE, PROCESS LOSS ETC., AND DISCOUNT TO PROFESS IONAL CUSTOMERS, I CONSIDER IT PROPER TO ALLOW DEDUCTION OF 10% FROM THE ESTIMATED RECEIPT OF S. 2,64,59,143/-. 8 (E) THUS AFTER TAKING INTO CONSIDERATION THE TOTALI TY OF THE FACTS OF THE CASE AS DISCUSSED ABOVE, I FIND IT FAIR AND REASONABLE T O ESTIMATE THE RECEIPT FROM THE JOB WORK AT RS. 2,38,13,229/- (2,64,59,143 26,45, 914). THE ASSESSEE COMPANY HAS SHOWN GROSS RECEIPTS OF RS. 2,08,17,127/- FROM JOB PROCESSING. THEREFORE, AN ADDITION OF RS. 29,96,101/- (2,38,13,229 2,08,17, 128/-) HAS BEEN MADE ON ACCOUNT OF TRADING ADDITION. 5. THE LD. CIT (A) VIDE PARA 2.3.2. OF THE IMPUGNED ORDER FOUND THAT THE DISCREPANCIES/OMISSIONS AS POINTED OUT BY THE ASSES SING OFFICER ARE SPECIFIC AND SERIOUS IN NATURE AND, THEREFORE, APPLICATION OF SECTION 14 5(3) OF THE ACT IN THE APPELLANTS CASE BEFORE HIM WERE FOUND IN ORDER AND STOOD UPHELD ACC ORDINGLY. IN SO FAR AS ESTIMATION OF INCOME IS CONCERNED, THE LD. CIT (A) CONSIDERING TH E APPELLATE ORDER FOR A.Y. 2005-06 IN ASSESSEES OWN CASE AND ASSUMPTION OF SALE REALIZAT ION AT 2.25 PAISE PER SQ. CM. WAS CONSIDERED AS BASED ONLY ON ASSUMPTION AND PRESUMPT ION PARTICULARLY SO WHEN THE CASE OF M/S. GOYAL COLOR LAB IS NOT FOUND RELEVANT AS THE S IZE OF BUSINESS AND OTHER RELATED FACTORS WERE QUITE DIFFERENT. HE, THEREFORE, OPINE D THAT THE ESTIMATION OF THE INCOME OF THE APPELLANT UNDER SECTION 145(3) IS BASED ON SURM ISES AND CONJECTURES AND IS ARBITRARY IN NATURE AND HELD THE SAME AS UNTENABLE UNDER THE GIV EN CIRCUMSTANCES. THE LD. CIT (A) THEREAFTER HAVING REGARD TO THE JUDGMENT BY APEX CO URT IN THE CASE OF KANCHWALA GEMS, 288 ITR 10 (SC) WHERE IT IS HELD THAT IF THE REJECT ION OF BOOKS IS RESULT OF SEVERAL DEFECTS FOUND IN THE BOOKS, THE ESTIMATION OF INCOME EVEN O N GUESS WORK IS JUSTIFIED. HE, THEREFORE, OPINED THAT THE ASSESSING OFFICER SHOULD HAVE BASED HIS GUESS WORK ON REASONABLE CRITERIA AND APPLIED GP RATE HAVING REGA RD TO THE JUDGMENT BY HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF M/S. INANI MARB LES, 316 ITR 125 (RAJ.) AND HON'BLE 9 DELHI HIGH COURT IN CASE OF M/S. ACTION ELECTRICALS , 258 ITR 188 (DEL.). IN THE RESULT, THE LD. CIT (A) CONSIDERING THAT THE ASSESSEE HAS D ISCLOSED A BETTER GP RATE OF 41.37% AS COMPARED TO 38% IN THE IMMEDIATELY PRECEDING YEAR, CHOSEN TO RESTRICT THE TRADING ADDITION AT ADHOC AMOUNT OF RS. 3.00 LACS WHICH WAS FOUND ESSENTIAL IN THIS CASE. 6. THE LD. D/R ON THE OTHER HAND, ASSAILING THE IMP UGNED ORDER CONTENDS THAT THE LD. CIT (A) HAS ADMITTED THAT THERE ARE SERIOUS DEF ECTS IN THE ACCOUNTS AND REJECTION OF ACCOUNTS MADE BY THE ASSESSING OFFICER IS FOR VALID REASONS. THAT BEING SO, IT WAS WITHIN THE COMPETENCE OF THE ASSESSING OFFICER TO HAVE EST IMATED THE INCOME. THE LD. ASSESSING AUTHORITY CAN BE SAID TO HAVE ESTIMATED T HE INCOME BY JUDICIOUS AND REASONABLE MANNER. HE HAS WORKED OUT UNDER-STATEMEN T OF JOB RECEIPTS BY THE ASSESSEE AS THE CONSUMPTION OF PAPER CLAIMED BY THE ASSESSEE WA S NOT VERIFIABLE VIS--VIS THE OPENING STOCK, PURCHASES AND CLOSING STOCK. THE LD. CIT (A ) IS ALSO NOT JUSTIFIED IN SAYING THAT THE CASE OF M/S. GOYAL COLOR LAB IS NOT COMPARABLE AS THE FACTS ITSELF SUGGEST THAT THE JOB CHARGES OF MAJOR PORTION OF BUSINESS ARE MATERIALLY THE SAME IN BOTH THE CASES. THE LD. CIT (A) AFTER HAVING AGREED THAT IN ESTIMATION OF I NCOME SOME GUESS WORK IS JUSTIFIED IN THE LIGHT OF SUPREME COURT DECISION IN THE CASE OF KANCHWALA GEMS (SUPRA), HE WAS NOT JUSTIFIED TO REDUCE THE ADDITION TO AN ADHOC AMOUNT OF RS. 3.00 LACS ONLY. HIS ORDER, THEREFORE, NEEDS TO BE SET ASIDE AND THAT OF THE AS SESSING OFFICER BE RESTORED. 7. ASSESSEES COUNSEL ORALLY AS WELL AS IN WRITTEN SUBMISSION HAS STATED AS UNDER :- (I) AT THE OUTSET, IT MAY BE POINTED OUT THAT ASSES SING OFFICER HAS ESTIMATED THE RECEIPT OF THE ASSESSEE BY PRESUMING THE AVERAG E RATE OF DIFFERENT SIZE OF PHOTOGRAPHS AT 2.25 PAISE/SQ. COM. THERE IS NO BASI S FOR THE SAME. IT IS ONLY HIS OWN PRESUMPTIONS & ASSUMPTIONS. ASSESSEE HAS SPECIF ICALLY POINTED OUT THAT 10 DIFFERENT SIZE OF ROLLS IS USED IN DIFFERENT SIZE O F PHOTOGRAPHS. 82.39%OF THE ROLLS CONSUMED IS FOR 4 X 6 INCHES & 5 X 7 INCHES SIZ ES. FURTHER, ASSESSEE IS MAINLY WORKING FOR THE PROFESSIONAL PHOTOGRAPHERS (I.E. NO N AMATEUR) WHERE THE RATE IS LESSER THAN THE RATE THAT IS CHARGED FROM WALK-IN-C USTOMER (I.E. AMATEUR). ON THIS BASIS, THE AVERAGE RATE WORKS OUT AT 1.696 PER SQ. CM AS AGAINST 1.77 PAISE/SQ. CM. DECLARED BY THE ASSESSEE. THIS FACT IS NOT CONSIDE RED BY THE ASSESSING OFFICER SIMPLY BY SAYING THAT ASSESSEE HAS NOT FURNISHED AN Y FIGURE OF PARTICULAR SIZE OF PHOTOGRAPHS DEVELOPED BY THE ASSESSEE. HE ALSO OBS ERVED THAT WORKING OF WEIGHTED AVERAGE GIVEN BY THE ASSESSEE AT 1.69 PAIS E/SQ. CM IS FAULTY SINCE ASSESSEE HIMSELF HAS SHOWN THE AVERAGE AT 1.77 PAIS E/SQ. CM. IGNORING THAT THIS WORKING IS MORE NEAR TO ACCURACY THAN THE WORKING O F THE ASSESSING OFFICER. THEREFORE, THE AVERAGE RATE OF 2.25 PAISE/SQ. CM. T AKEN BY THE ASSESSING OFFICER IS RATHER FAULTY, UNRELIABLE, UNAUTHENTIC AND BASED ON HIS OWN ASSUMPTIONS & PRESUMPTIONS. (II) IT MAY BE NOTED THAT ONCE BOOKS ARE REJECTED, THE ASSESSMENT IS TO BE MADE IN THE MANNER PROVIDED U/S 144 I.E. BEST JUDGMENT A SSESSMENT. IN MAKING A BEST JUDGMENT ASSESSMENT, THE ASSESSING OFFICER MUST NOT ACT DISHONESTLY OR VINDICTIVELY OR CAPRICIOUSLY BECAUSE HE MUST EXERCI SE JUDGMENT IN THE MATTER. HE MUST MAKE WHAT HE HONESTLY BELIEVES TO BE A FAIR ES TIMATE OF THE PROPER FIGURE OF ASSESSMENT AND FOR THIS PURPOSE HE MUST BE ABLE TO TAKE INTO CONSIDERATION LOCAL KNOWLEDGE & REPUTE IN REGARD TO THE ASSESSEES CIRC UMSTANCES & HIS OWN KNOWLEDGE OF THE PREVIOUS RETURNS & ASSESSMENT OF T HE ASSESSEE & ALL OTHER MATTERS WHICH HE THINKS WILL ASSIST HIM IN ARRIVING AT A FAIR & PROPER ESTIMATE & 11 THOUGH THERE MUST NECESSARILY THE GUESS WORK IN THE MATTER, IT MUST BE A HONEST GUESS WORK (CIT VS. LAXMI NARAYAN BADRIDAS 5 ITR 1 70, 180 (PC). IN MAKING BEST JUDGMENT ASSESSMENT, THE ASSESSING OFFICER DOE S NOT POSSESS ABSOLUTELY ARBITRARY AUTHORITY TO ASSESS AT ANY FIGURE HE LIKE S & THAT ALTHOUGH HE IS NOT BOUND BY THE STRICT JUDICIAL PRINCIPLES, HE SHOULD BE GUI DED BY RULES OF JUSTICE, EQUITY & GOOD CONSCIOUS. (III) IN THIS BACKGROUND, IF THE PAST HISTORY OF TH E ASSESSEE IS CONSIDERED, IT CAN BE NOTED THAT IN A.Y. 02-03, ASSESSING OFFICER ON T HE BASIS OF THE PAPER CONSUMPTION COMPUTED THE RECEIPT AT RS. 3.03 CRORES , ON THE BASIS OF CHEMICAL CONSUMPTION AT RS. 3.86 CRORES & ON THE BASIS OF PO WER CONSUMPTION AT RS. 3.23 CRORES & ON THAT BASIS ESTIMATED THE RECEIPTS AT RS . 3 CRORES AS AGAINST RS. 2.53 CRORES DECLARED BY THE ASSESSEE. ON THIS ESTIMATED RECEIPTS, HE APPLIED G.P. RATE OF 24% RESULTING INTO TRADING ADDITION OF RS. 312,42,7 70/-. THIS WAS REDUCED BY CIT (A) TO RS. 3,50,000/-. HON'BLE ITAT AFTER CONSIDERI NG THE ENTIRE FACTS OF THE CASE IN PARA 8 OF ITS ORDER OBSERVED THAT IN THE ABSENCE OF STOCK REGISTER ACCOUNTS CANNOT BE SAID TO BE INCORRECT & FOR THAT REASON SE CTION 145(3) CANNOT BE APPLIED. THEREAFTER, REFERRING TO THE VARIOUS DECISIONS AND CONSIDERING THAT GP RATE DECLARED IS BETTER AS COMPARED TO THE LAST YEAR DEL ETED THE ENTIRE ADDITION. AGAIN IN A.Y. 05-06, TRADING ADDITION MADE BY APPLYING A HIG HER GP RATE ON ESTIMATED RECEIPT WAS DELETED BY CIT (A). THUS, IN THE PAST, ADDITION MADE TO THE TRADING RESULTS HAS BEEN DELETED. ASSESSING OFFICER, HAS, T HEREFORE, DEVISED A NEW METHOD FOR MAKING THE ADDITION BY ESTIMATING A HIGHER RECE IPT ON THE BASIS OF PAPER CONSUMPTION AND MAKING THE ADDITION FOR THE DIFFERE NCE WHEREAS IN A.Y. 02-03, 12 ON THAT BASIS, HE APPLIED THE G.P. RATE. THIS ITSEL F SHOWS THAT ASSESSING OFFICER HAS NOT ACTED FAIRLY BY IGNORING THE PREVIOUS RETURNS A ND THE ASSESSMENTS OF THE ASSESSEE. IN THESE CIRCUMSTANCES, THE ADDITION MADE BY THE ASSESSING OFFICER IS ARBITRARY WHICH HAS BEEN CORRECTLY REDUCED BY CIT ( A) BY CONSIDERING THE PAST HISTORY AND TO COVER ANY LEAKAGE OF INCOME DUE TO S HORTCOMINGS IN THE BOOKS. (IV) IT MAY BE SUBMITTED THAT ONLY BECAUSE ASSESSEE HAS NOT MAINTAINED THE RECORDS OF THE NUMBER OF PHOTOS DEVELOPED, MEASUREM ENT OF PHOTOS DEVELOPED, YIELD WITH REFERENCE TO PAPER UTILIZED AND DAY TO D AY STOCK CONSUMPTION RECORDS CANNOT BE A BASIS FOR ESTIMATING A HIGHER RECEIPT W HEN NO ONE IN THIS LINE OF BUSINESS MAINTAIN SUCH RECORDS. IN THESE CIRCUMSTAN CES, ONLY THE PAST RESULTS IS THE BEST GUIDE FOR MAKING THE BEST JUDGMENT ASSESSMENT AS HELD IN THE FOLLOWING CASES :- (A) CIT VS. INANI MARBLES PVT. LTD. 316 ITR 125 (RAJ.HC) IN THIS CASE, ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNTS FOR VALID REASONS, INVOKED SECTION145 AND MADE ASSESSMENT BY APPLYING GP RATE OF 15% ON THE SALES DISCLOSED BY ASSESSEE. TRIBUNAL HELD THA T IN THE ABSENCE OF ANY CHANGE IN FACTUAL POSITION NORMALLY THE PROFIT RATE DECLARED AND ACCEPTED IN PRECEDING YEAR, CONSTITUTES A GOOD BASIS FOR WORKING OUT THE GROSS PROFIT. ACCORDINGLY, IT APPLIED GP RATE DECLARED AND ACCEPTED AT 2.51% IN EARLIER Y EAR. HON'BLE HIGH COURT HELD THAT AS THE GP RATE OF 2.51% WAS APPLIED IN A.Y. 9 9-00 & THAT HAVING BEEN UPHELD BY THE TRIBUNAL, THE ORDER OF THE TRIBUNAL F OR A.Y. 00-01 WAS JUSTIFIED. 13 (B) MALANI RAMJIVAN JAGANNATH VS. ACIT 207 CTR ( RAJ.) 19 / 316 ITR 120 . IN EACH TRADING ACCOUNT, ONLY FOUR ENTRIES WERE TH ERE OF OPENING STOCK AND PURCHASES ON DEBIT SIDE, SALES AND CLOSING STOCK ON CREDIT SIDE. THE QUANTUM AND VALUE OF PURCHASES AND SALES HAD NOT BEEN IN DISPUT E IN AS MUCH AS THEY WERE HELD TO BE FULLY VOUCHED. VALUE OF OPENING STOCK ALSO CA NNOT BE DISPUTED AS IT CAME FROM CLOSING STOCK OF PREVIOUS YEAR. THE INVENTORI ES OF CLOSING STOCK WERE ALSO NOT FOUND TO BE INCORRECT. THAT IS TO SAY ACTUAL ST OCK POSITION WAS NOT IN DISPUTE. THE PREVIOUS YEARS BOOKS OF ACCOUNTS WERE NOT FOUN D TO BE INCORRECT. IN THE FACE OF THESE UNDISPUTED FACTS AND CIRCUMSTANCES, THE TR IBUNAL COULD NOT HAVE INTERFERED WITH THE ORDER OF CIT (A). IN DOING SO, IT HAD IGNORED ALL ADMITTED FACTS IN THE FACE OF WHICH THERE WAS NO OCCASION FOR THE ASSESSING OFFICER TO HAVE RESORTED TO ESTIMATE METHOD. THERE BEING NO DISPUTE ABOUT THE SALES AND PURCHASES, NON MAINTENANCE OF STOCK REGISTER LOST I TS SIGNIFICANCE SO FAR AS ARRIVING AT GP RATE IS CONCERNED. THEREFORE THE CIT (A) WAS RIGHT IN HIS REASONING ABOUT ADMITTED STATE OF AFFAIRS, RESORTING TO ESTIMATE OF GP RATE WAS FOUND ON NO MATERIALITY. MERE DEVIATION IN GP RATE CANNOT BE A GROUND FOR REJECTING BOOKS OF ACCOUNTS AND ENTERING REALM OF ESTIMATE AND GUESS W ORK. LOWER GP RATE SHOWN IN THE BOOKS OF ACCOUNTS DURING CURRENT YEAR AND FALL IN GP RATE WAS JUSTIFIED AND ALSO ADMITTED BY THE AO AS WELL AS CIT (A) AS WELL AS THE TRIBUNAL. THEREFORE FALL IN GP RATE LOST ITS SIGNIFICANCE. HAVING ACCEPTED T HE REASON FOR FALL IN GP RATE NAMELY STIFF COMPETITION IN MARKET AND ALSO THAT HU GE LOSS CAUSED IN PARTICULAR TRANSACTION, NEITHER THE REJECTION OF BOOKS OF ACCO UNTS WAS JUSTIFIED NOR RESORTS TO SUBSTITUTION OF ESTIMATE GP BY RULE OF THUMB MERELY FOR MAKING CERTAIN ADDITIONS. 14 THEREFORE, THE FINDINGS ARRIVED AT BY THE TRIBUNALS SUFFERS FROM BASIC DEFECT OF NOT APPLYING HIS MIND TO THE EXISTING MATERIAL WHICH WE RE RELEVANT AND WENT TO THE ROOT OF THE MATTER. WHEN ALL THE DATA AND ENTRIES M ADE IN THE TRADING ACCOUNT WERE NOT FOUND TO BE INCORRECT IN ANY MANNER, THERE COUL D NOT HAVE BEEN ANY OTHER RESULT EXCEPT WHAT HAS BEEN SHOWN BY THE ASSESSEE I N THE BOOKS OF ACCOUNTS. THEREFORE, THE ORDER OF THE TRIBUNAL CANNOT BE SUST AINED. (C) CIT VS. GOTAN LIME KHANIZ UDYOG 256 ITR 243 (RAJ.) WHERE IT WAS HELD THAT MERE REJECTION OF BOOKS OF ACCOUNTS BY RESORTING TO SECTION145 DID NOT NECESSARILY LEAD TO THE ADDITION TO THE RETURNED INCOME OR A DIFFERENT FIGURE OF INCOME. HENCE SIMPLY BECAUSE SE CTION 145 IS APPLICABLE SHOULD NOT BE A CRITERIA FOR MAKING TRADING ADDITION MORE PARTICULARLY WHEN PURCHASES AND SALES ARE FULLY VOUCHED AND NO DISCREPANCIES AS SUC H WAS FOUND IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE. (D) NEW PLAZA RESTAURANT VS. ITO 309 ITR 259 (HP ) EVEN WHILE MAKING AN ESTIMATION THE ASSESSING OFFI CER MUST FOLLOW SOME PRINCIPLES. THE ESTIMATION CANNOT BE AR BITRARY OR CAPRICIOUS. THE ASSESSING OFFICER IS BOUND TO FOLLOW THE SAME YARDS TICK FOR SIMILAR SORTS OFR BUSINESSES. IT IS NO DOUBT TRUE THAT QUESTION AS TO WHETHER THE ESTIMATION MADE BY THE ASSESSING OFFICER IS CORRECT OR NOT IS NORMALLY TREATED AS A QUESTION OF FACT. HOWEVER, WHEN THE CONCERNED AUTHORITY DOES NOT FOLL OW A UNIFORM PRACTICE AND APPLIES DIFFERENT YARDSTICKS IN SIMILAR CASES, THEN SUCH ACTION IS HIT BY ARTICLE 14 OF CONSTITUTION & BECOMES ARBITRARY & CAPRICIOUS. (E) CIT VS. PAWAN KUMAR 316 ITR 324 (P&H) 15 (F) HON'BLE SUPREME COURT IN CST VS. H.M. ESUFALI 90 ITR 271, 277 HAS ALSO HELD THAT THE ASSESSING AUTHORITY WHILE MA KING THE BEST JUDGMENT ASSESSMENT SHOULD ARRIVE AT ITS CONCLUSION WITHOUT ANY BIAS AND ON RATIONAL BASIS. THE AUTHORITY SHOULD NOT BE VINDICTIVE OR CAPRICIOU S. IF ESTIMATE MADE BY THE ASSESSING OFFICER IS A BONAFIDE ESTIMATE AND IS BAS ED ON A RATIONAL BASIS, THE FACT THAT THERE IS NO GOOD PROOF IN SUPPORT OF THAT ESTI MATE IS IMMATERIAL. PRIMA FACIE, THE ASSESSING OFFICER IS THE BEST JUDGE OF THE SITU ATION. IT IS HIS BEST JUDGMENT AND NOT OF ANYONE ELSE. THE HIGH COURT COULD NOT SUBSTI TUTE ITS BEST JUDGMENT FOR THAT OF THE ASSESSING OFFICER. IN CASE OF BEST JUDGMENT ASSESSMENT, THE COURT WILL HAVE TO FIRST SEE WHETHER THE ACCOUNTS MAINTAINED B Y THE ASSESSEE WERE RIGHTLY REJECTED AS UNRELIABLE. IF THEY COME TO THE CONCLU SION THAT THEY WERE RIGHTLY REJECTED, THE NEXT QUESTION THAT ARISES FOR CONSIDE RATION IS WHETHER THE BASIS ADOPTED IN ESTIMATING THE TURNOVER HAS REASONABLE N EXUS WITH THE ESTIMATE MADE. IF THE BASIS ADOPTED IS HELD TO BE A RELEVANT BASIS , EVEN THOUGH THE COURTS MAY THINK IT IS NOT THE MOST APPROPRIATE BASIS, THE EST IMATE MADE BY THE ASSESSING OFFICER CANNOT BE DISTURBED. (V) IN THE PRESENT CASE, ASSESSING OFFICER HAS EST IMATED THE RECEIPT BY ASSUMING THE RATE AT 2.25 PAISE/SQ. CM. OF THE ROLL CONSUMED. THERE IS NO RATIONAL BASIS FOR THE SAME AS EXPLAINED SUPRA. FURTHER, THE BASIS ADOPTED IS NOT A RELEVANT BASIS SINCE THE DIFFERENT SIZES OF PHOTOGRAPHS HAS DIFFERENT RATES & ALL PHOTOGRAPHS ARE NOT OF THE SAME SIZE. IT IS FOR THIS REASON THA T CIT (A) HAS RIGHTLY HELD THAT THE BASIS OF SALES REALIZATION AT 2.25 PAISE/SQ. CM. IS WITHOUT ANY BASIS & THEREFORE, HE HAS RIGHTLY HELD THAT ASSESSING OFFICERS METHOD OF ESTIMATING THE INCOME IS BASED 16 ON SURMISES, CONJECTURES, ARBITRARY & UNTENABLE UND ER THE GIVEN CIRCUMSTANCES. WITH THIS FINDING, HE BASED ON THE PAST HISTORY & C ONSIDERING THE SHORTCOMINGS IN THE BOOKS OF ACCOUNTS HAS SUSTAINED TRADING ADDITIO N OF RS. 3 LACS WHICH IS GUIDED BY RULES OF JUSTICE, EQUITY & GOOD CONSCIENCE AS AL SO BASED ON THE PAST ASSESSMENT OF THE ASSESSEE. (VI) IN VIEW OF ABOVE, THE ORDER OF CIT (A) BE UPHE LD BY DISMISSING THE GROUNDS OF THE DEPARTMENT. 8. WE HAVE HEARD PARTIES WITH REFERENCE TO MATERIAL ON RECORD AS WELL AS CASE LAWS BROUGHT TO OUR NOTICE. ADMITTEDLY, THE ASSESSEES ACCOUNTS SUFFERED FROM SERIOUS DEFECTS. THE ASSESSEE HAS NOT FURNISHED QUALITY-WISE AND QUA NTITY-WISE DETAILS IN RESPECT OF OPENING STOCK, CONSUMPTION AND CLOSING STOCK OF PAP ER. THE ASSESSEE HAS ALSO NOT MADE AVAILABLE THE RECEIPTS FROM THE CUSTOMERS ON ACCOUN T OF SPECIAL OUT-DOOR SHOOTING ON ACCOUNT OF MARRIAGE AND OTHER SPECIAL FUNCTIONS. TH E DAY TO DAY CONSUMPTION OF PAPER, THE STOCK POSITION AS WELL AS RECEIPTS ON DAY TO DA Y BASIS WERE THUS NOT VERIFIABLE. THE ASSESSING OFFICER HAS REACHED A FINDING THAT THE AC COUNTS OF THE ASSESSEE ARE NOT CORRECT AND COMPLETE AND CORRECT PROFITS THEREFROM CANNOT B E DEDUCED. HE, THEREFORE, HAVING REGARD TO THE JUDGMENT OF APEX COURT IN THE CASE OF KANCHWALA GEMS VS. JCIT (SUPRA) PROCEEDED TO REJECT THE ACCOUNTS BY APPLICATION OF PROVISIONS OF SECTION 145(3) OF THE ACT. THE ASSESSING OFFICER THUS HAS GIVEN COGENT REASONS FOR REJECTING THE BOOK RESULTS OF THE ASSESSEE. THESE FINDINGS ARE NOT SHOWN TO BE PERVE RSE ON FACTS. THE LD. CIT (A) CAME TO THE CONCLUSION THAT THE ACCOUNTS WERE RIGHTLY REJEC TED BY THE ASSESSING AUTHORITY. THE ASSESSEE IS NEITHER IN APPEAL NOR IN CROSS OBJECTIO N AGAINST REJECTION OF ACCOUNTS BY APPLICATION OF SECTION 145(3) OF THE ACT. THE APEX COURT IN THE CASE OF COMMISSIONER OF 17 SALES TAX VS. HM ESUFALI (1973) 90 ITR 271 (SC) AT PAGE 277 AS ALSO RELIED BY THE RESPONDENT, HAS HELD THAT IF THE ACCOUNTS WERE FOUN D RIGHTLY REJECTED, THE NEXT QUESTION FOR CONSIDERATION IS WHETHER THE BASIS ADOPTED IN ESTIM ATING THE TURNOVER HAS REASONABLE NEXUS WITH THE ESTIMATE MADE AND IN CASE THE BASIS ADOPTED ARE HELD TO BE RELEVANT BASIS THEN THE ESTIMATE MADE BY THE ASSESSING AUTHORITY C ANNOT BE DISTURBED. THE RELEVANT PORTION AT PAGE 277 OF THE REPORT IS REPRODUCED AS UNDER :- THE ASSESSING AUTHORITY WHILE MAKING THE ' BEST JUDGMENT ' ASSESSMENT, NO DOUBT, SHOULD ARRIVE AT ITS CONCLUSION WITHOUT ANY BIAS AND ON RATIONAL BASIS. THAT AUTHORITY SHOULD NOT BE VINDICTIVE OR C APRICIOUS. IF THE ESTIMATE MADE BY THE ASSESSING AUTHORITY IS A BONA FIDE EST IMATE AND IS BASED ON A RATIONAL BASIS, THE FACT THAT THERE IS NO GOOD PRO OF IN SUPPORT OF THAT ESTIMATE IS IMMATERIAL. PRIMA FACIE, THE ASSESSING AUTHORITY IS THE BEST JUDGE OF THE SITUATION. IT IS HIS ' BEST JUDGMENT ' AND NOT OF ANYONE ELSE. THE HIGH COURT COULD NOT SUBSTITUTE ITS ' BEST JUD GMENT ' FOR THAT OF THE ASSESSING AUTHORITY. IN THE CASE OF ' BEST JUDGMEN T ' ASSESSMENTS, THE COURTS WILL HAVE TO FIRST SEE WHETHER THE ACCOUNTS MAINTAINED BY THE ASSESSEE WERE RIGHTLY REJECTED AS UNRELIABLE. IF T HEY COME TO THE CONCLUSION THAT THEY WERE RIGHTLY REJECTED, THE NE XT QUESTION THAT ARISES FOR CONSIDERATION IS WHETHER THE BASIS ADOPTED IN ESTI MATING THE TURNOVER HAS REASONABLE NEXUS WITH THE ESTIMATE MADE. IF THE BA SIS ADOPTED IS HELD TO BE A RELEVANT BASIS EVEN THOUGH THE COURTS MAY THI NK THAT IT IS NOT THE MOST APPROPRIATE BASIS, THE ESTIMATE MADE BY THE ASSESS ING AUTHORITY CANNOT BE DISTURBED. 8.1. AGAIN IN KANCHWALA GEMS VS. JCIT (2007) 288 IT R 10 (SC) AT PAGE 14 THE APEX COURT HAVE LAID DOWN THAT THE AUTHORITIES CONCERNED SHOULD TRY TO MAKE AN HONEST AND FAIR ESTIMATE OF THE INCOME EVEN IN A BEST JUDGMENT ASSE SSMENT AND SHOULD NOT ACT TOTALLY 18 ARBITRARILY, BUT THERE IS NECESSARILY SOME AMOUNT O F GUESS WORK INVOLVED IN A BEST JUDGMENT ASSESSMENT AS THE ASSESSEE HIMSELF IS TO B E BLAMED AS HE DID NOT SUBMIT PROPER ACCOUNTS. THE RELEVANT PARAGRAPH IS REPRODUCED AT UNDER :- IT IS WELL-SETTLED THAT IN A BEST JUDGMENT ASSESSM ENT THERE IS ALWAYS A CERTAIN DEGREE OF GUESS WORK. NO DOUBT TH E AUTHORITIES CONCERNED SHOULD TRY TO MAKE AN HONEST AND FAIR ES TIMATE OF THE INCOME EVEN IN A BEST JUDGMENT ASSESSMENT, AND SHOULD NOT ACT TOTALLY ARBITRARILY, BUT THERE IS NECESSARILY SOME AMOUNT OF GUESS WORK INVOLVED IN A BEST JUDGMENT ASSESSMENT, AND IT IS THE ASSESSEE HIMSEL F WHO IS TO BLAME AS HE DID NOT SUBMIT PROPER ACCOUNTS. IN OUR OPINION THE RE WAS NO ARBITRARINESS IN THE PRESENT CASE ON THE PART OF THE INCOME-TAX AUTHORITIES. THUS, THERE IS NO FORCE IN THIS APPEAL, AND IT IS DISMISSED ACCOR DINGLY. NO COSTS. 8.2. IN THE JUDGMENT BY THE HON'BLE JURISDICTIONAL HIGH COURT IN CASE OF CIT VS. INANI MARBLES, 316 ITR 215 (RAJ.) IT HAS BEEN OBSERVED TH AT THE LD. CIT (A) AS WELL AS THE APPELLATE TRIBUNAL IN THE ABSENCE OF ANY CHANGE IN THE FACTUAL POSITION HAVE DIRECTED TO APPLY THE PROFIT RATE DECLARED AS ACCEPTED IN THE P RECEDING YEAR AND THE HON'BLE HIGH COURT ON THESE FINDINGS DID NOT FIND ORDER OF APPEL LATE TRIBUNAL VITIATED IN ANY MANNER. 8.3. IN THE CASE OF MALANI RAMJIVAN JAGANNATH VS. A CIT, 316 ITR 120 (RAJ.), THE HON'BLE JURISDICTIONAL HIGH COURT HELD THAT THE MER E DEVIATION IN GP RATE CANNOT BE A GROUND FOR REJECTING BOOKS OF ACCOUNT AND ENTERING INTO REALM OF ESTIMATE AND GUESS WORK. IT, THEREFORE, SET ASIDE THE ORDER OF APPELL ATE TRIBUNAL AND SUSTAINED THE ORDER OF LD. CIT (A) WHICH WAS FOUND CORRECT IN THAT RESPECT . 8.4. THE JUDGMENT IN THE CASE OF CIT VS. GOTAN LIME KHANIZ UDYOG, 256 ITR 243 (RAJ.), THE HON'BLE RAJASTHAN HIGH COURT HAS HELD T HAT MERE REJECTION OF BOOKS OF ACCOUNT 19 BY RESORTING TO SECTION 145 DID NOT NECESSARILY LEA D TO THE ADDITION TO THE RETURNED INCOME OR A DIFFERENT FIGURE OF INCOME. 9. IN THE PRESENT CASE IN APPEAL AND CONSIDERING TH E RATIO AS LAID DOWN IN VARIOUS JUDGMENTS CONSIDERED BY THE ASSESSING AUTHORITY, TH E LD. CIT (A) AS WELL AS THOSE LAID BEFORE US THROUGH WRITTEN SUBMISSION BY THE ASSESSE ES COUNSEL AND CONSIDERING THE PECULIAR FACT THAT THE ASSESSEES BOOKS OF ACCOUNT SUFFERED FROM SERIOUS DEFECTS, THE ASSESSING OFFICER IS FOUND TO HAVE ACTED WITHIN THE SCOPE OF HIS POWERS IN ESTIMATING THE JOB RECEIPTS IN A BEST JUDGMENT MANNER AS IS ALSO P ROVIDED UNDER SECTION 145(3) OF THE ACT. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICE R AT INTERNAL PAGE 3 HAS GIVEN THE RATES FOR DIFFERENT SIZES OF PHOTOGRAPHS CHARGED BY THE A SSESSEE AS UNDER :- SIZE (IN INCHES) SIZE (IN SQ.CMS) RATE OF AMATEUR WORK RATE OF NON- AMATEUR WORK AVERAGE RATE (IN PAISE) PER SQ. CM. 4 X 6 155 RS. 3.50 RS. 2.50 1.94 5 X 7 226 RS. 5.50 RS. 3.60 2.01 6 X 8 309 RS. 8.00 RS. 6.00 2.27 8 X 10 516 RS. 12.00 RS. 8.00 1.94 8 X 12 619 RS. 15.00 RS. 10.00 2.02 10 X 12 774 RS. 18.00 RS. 12.00 1.94 HE HAS ALSO GIVEN RATE PER SQ. CMS. IN THE CASE OF ANOTHER CONCERN M/S. GOYAL COLOR LAB AT INTERNAL PAGE 4 OF THE ASSESSMENT ORDER AS UNDER :- 20 C.D PRINT NEGATIVE PRINT --------------------------------------------------- ------------------------------------ SIZE (IN AREA GLOSSY MATT. GLOSSY MATT AVERAGE RATE INCHES) IN SQ. CMS (IN PAISE) PER SQ. CM --------------------------------------------------- --------------------------------------------------- ------ 4X6 155 - - 280 325 1.95 5X7 226 - - 425 500 2.04 6X8 309 - - 800 900 2.74 8X10 516 - - 1800 2000 3.68 8X12 619 1100 1200 2000 2200 2.62 10X12 774 2000 2100 3000 3300 3.35 THE RESPONDENT IN ITS SUBMISSION BEFORE US AS WELL AS BEFORE THE ASSESSMENT AUTHORITY AS IS REVEALED FROM INTERNAL PAGE 10 OF THE ASSESSMENT ORDER HAS ADMITTED THAT THE USE OF PAPER ROLL ACCORDING TO SIZE OF PHOTOGRAPH OF 5 X 7 AND 4 X 6 AMOUNTS TO 82.39% OF THE TOTAL CONSUMPTION OF THE ROLLS CONSUMED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. THE AVERAGE RATE IN RESPECT OF THE PHOTOGRAPHS OF 4 X 6 OF 155 SQ. CMS OF SIZE, THE ASSESSEE HAS CHARGED AVERAGE RATE OF 1 .94 PAISE PER SQ. CM. AS AGAINST 1.95 PAISE PER SQ. CM. CHARGED BY M/S. GOYAL COLOR LAB. LIKEWISE, IN THE CASE OF SIZE OF 5 X 7 CONVERTED TO 226 SQ. CMS. SIZE THE ASSESSEE HAS CHARGED AN AVERAGE RATE OF 2.01 PAISE PER SQ. CM WHEREAS M/S. GOYAL COLOR LAB FOR THE SIM ILAR SIZE IS SHOWN TO HAVE CHARGED RS. 2.04 PAISE PER SQ. CM. THE FACT OF THE MATTER T HUS IS THAT THE RATE OF BOTH THESE SIZES WHICH ACCOUNTS FOR 82.39% OF ASSESSEES BUSINESS IS MATERIALLY THE SAME AS THAT ARE CHARGED BY M/S. GOYAL COLOR LAB. IT, THEREFORE, CAN NOT BE SAID THAT THE CASE OF M/S. GOYAL COLOR LAB IS NOT COMPARABLE. IN SO FAR AS THE RATE S CHARGED IN RESPECT OF OTHER SIZE OF PHOTOGRAPHS BY THE ASSESSEE, THE SAME ARE EXORBITAN TLY LOW WHEN COMPARED TO THE RATE OF M/S. GOYAL COLOR LAB. THE ASSESSING AUTHORITY, THE REFORE, CONSIDERING THE NATURE OF BUSINESS AND OTHER FACTORS AND FACILITY AS IS AVAIL ABLE IN THE CASE OF COMPARABLE CASE HAD 21 GIVEN SUFFICIENT MARGIN AND ADOPTED A LOWER AVERAGE RATE OF 2.25 PAISE PER SQ. CM. ONLY AS AGAINST AVERAGE RATE OF 2.73 PAISE PER SQ. CM CALCU LATED IN THE CASE OF M/S. GOYAL COLOR LAB. ON THE SAME BASIS. NOT ONLY THIS, FROM THE EST IMATED RATE OF 2.25 PAISE WHICH INVOLVED SOME GUESS WORK, THE ASSESSING OFFICER FUR THER GAVE A DISCOUNT OF 10% FOR LOSS OF PAPER DUE TO FREE SERVICE, PROCESS LOSS ETC. AND DISCOUNT TO PROFESSIONAL CUSTOMERS WHICH IN OTHER WORDS, THE ESTIMATED RATE HAS FURTHE R BEEN SCALED DOWN FROM 2.25 PAISE PER SQ. CM. TO 2.03 PAISE PER SQ. CM. ONLY FOR EST IMATING THE JOB RECEIPTS RECEIVED BY THE ASSESSEE. THE ASSESSEE NEITHER BEFORE THE ASSESSIN G AUTHORITY NOR BEFORE THIS TRIBUNAL HAS SHOWN AS TO HOW HE HAS ACCOUNTED FOR ANY WASTAG E OF THE PAPER WHICH HE OTHERWISE CONTENDED IN THE PLEADINGS BEFORE THE LOWER AUTHORI TIES. THE PERUSAL OF ASSESSMENT ORDER ALSO REVEALS THAT ASSESSEE HIMSELF HAS MADE TACIT A DMISSION THAT IN VIEW OF THE SUBMISSION IF THE ESTIMATE OF JOB RECEIPTS IS TO BE MADE THEN AVERAGE JOB WORK RATE SHOULD BE APPLIED CONSIDERING THE WEIGHTED AVERAGED OF JOB WORK RATE ON THE SPECIFIC SIZE OF PAPER WHICH CAN BE USED FOR PARTICULAR SIZE OF PHOTOGRAPHY. IT WAS ALSO CONTENDED THAT AVERAGE RATE CANNOT BE APPLIED ON TOTALITY BASIS. STILL IF THE AVERAGE RATE IS TO BE APPLIED ON TOTAL CONSUMPTION OF PAPER, THEN IT SHOULD BE AVERAGE RAT E OF 4 X 6 AND 5 X 7 OF THE PAPER INSTEAD OF AVERAGE OF ALL SIZES BECAUSE MORE THEN 8 0% WORKING IS OF THESE TWO SIZES. EVEN THOUGH THERE IS TACIT ADMISSION BY THE ASSESSE E FOR MAKING ESTIMATION OF JOB RECEIPTS YET THERE IS NO FORCE FOUND IN HIS PLEA TO APPLY SE LECTIVELY THE AVERAGE RATE ONLY ON TWO SIZES IN DIVORCE TO THE OTHER SIZE OF PAPERS/PHOTOG RAPHY WHERE IT HAS CHARGED EXORBITANTLY LOW PRICE AND SHOWN HIGHER CONSUMPTION OF PAPER WIT HOUT PROPERLY RENDERING CORRECT AND COMPLETE ACCOUNT THEREOF. EVEN THE ASSESSEES HISTO RY OF EARLIER YEARS COULD NOT BE TAKEN AS RELEVANT AS IN THOSE YEARS THE REJECTION OF ACCO UNTS BY THE APPELLATE TRIBUNAL WAS NOT 22 UPHELD INCLUDING ASSESSMENT YEAR 2002-03 AND THE CA SE OF M/S. GOYAL COLOR LAB WAS ALSO NOT FOUND COMPARABLE IN THE EARLIER YEARS ASSESSMEN T BY THE APPELLATE AUTHORITY. THESE FACTS IN THIS YEAR ARE TOTALLY IN VARIANCE AND THE ASSESSMENT OF EACH YEAR IS TO BE TAKEN AS A SEPARATE AND INDEPENDENT UNIT FOR DETERMINING HIS T AX LIABILITY. THE ASSESSING OFFICER THUS IS FOUND TO HAVE CONSIDERED ALL ASPECTS OF THE MATTER INCLUDING THE PAST HISTORY AND COMPARABLE CASE AS WELL AS PECULIAR FACTS OF THIS C ASE FOR THE YEAR UNDER CONSIDERATION, ON WHICH WE HAVE ALSO APPLIED OUR MIND CAREFULLY. THE ASSESSING OFFICER IS NOT FOUND TO HAVE RESORTED TO ESTIMATE ARBITRARILY NOR IS SHOWN TO HAVE ACTED WITH ANY BIAS. HE HAS ALSO NOT ACTED VINDICTIVELY OR CAPRICIOUSLY IN MAKING TH E ESTIMATE. THERE IS A RATIONAL IN MAKING THE ESTIMATE OF JOB RECEIPTS WHICH ARE RELEV ANT TO THE MATERIAL ON RECORD. THE LD. CIT (A), HOWEVER, REJECTED THE ESTIMATE OF JOB RECE IPTS WITHOUT ANY SOUND REASONS AND RECORDED FINDINGS CONTRARY TO FACTS ON RECORD IN SA YING THAT THE ESTIMATION IS BASED ON SURMISES AND CONJECTURES. WE, THEREFORE, SET ASIDE SUCH FINDINGS. WE ALSO DO NOT FIND ANY RATIONAL OR REASONABLENESS IN REDUCING ADDITION OF RS. 29,96,101/- TO AN ADHOC ADDITION OF RS. 3 LAKHS BY HIM AS THE SAME DOES NOT HAVE ANY SO UND AND REASONABLE BASIS. IN THE ENTIRE CONSPECTUS OF THIS CASE AND AS THERE IS A RA TIONAL AND REASONABLENESS IN RESORTING TO THE ESTIMATION OF CONTRACT RECEIPTS BY THE ASSESSIN G AUTHORITY, THE RESULTANT ADDITIONAL GROSS RECEIPTS OF RS. 29,96,101/- AS HAS BEEN WORKE D OUT BY THE ASSESSING AUTHORITY ARE HEREBY UPHELD. THE SAME, HOWEVER, CANNOT BE ADDE D ENTIRELY AS INCOME OF THE ASSESSEE AS THEY ARE NOT FOUND TO BE SUPPRESSED RECEIPTS OF ASSESSEE FOR THE IMPUGNED YEAR. THE ASSESSEE HAS ALSO CLAIMED TO HAVE ACCOUNTED FOR ALL THE PURCHASES AGAINST SUCH UNDER- STATEMENT OF RECEIPTS AND THE ASSESSING AUTHORITY H AS GIVEN NO ADVERSE COMMENTS THEREON. 23 IT WOULD BE FAIR AND REASONABLE TO APPLY THE SAME G ROSS PROFIT RATE OF 41.37% ON SUCH ADDITIONAL RECEIPTS OF RS. 29,96,101/- WHICH WORKS OUT TO AN ADDITION OF RS. 12,39,487/- AS AGAINST THE TOTAL ADDITION OF RS. 29,96,101/- MA DE BY THE ASSESSING AUTHORITY. THE ORDER OF LD. CIT (A) IS ACCORDINGLY MODIFIED AND GR OUND IN APPEAL RAISED BY REVENUE STANDS PARTLY ALLOWED. IN THE RESULT, APPEAL IS PARTLY ALLOWED AS ANNOUNC ED IN THE OPEN COURT ON 23.1.2013 SD/- SD/- ( B.R. MITTAL ) ( B. R. JAIN ) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR, DATED : 23/01/2013. D/- COPY FORWARDED TO :- THE ITO WARD 1(2), JAIPUR. M/S. KALA COLOR LAB PVT. LTD., JAIPUR. THE CIT (A) THE CIT THE D/R GUARD FILE (ITA NO. 660/JP/2012) BY ORDER, AR ITAT JAIPUR.