ACIT, Jaipur V. SHREE BALAJI INDUSTRIES, Jaipur

ITA 756/JPR/2012

• Counselvise Citation: 75623114 RSA 2012
• Duration Of Justice: 3 year(s) 1 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 07-09-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJ MEHRA
• Assessee Lawyers: FAZLUR RAHMAN
• Keywords: Rejection of books of accounts; Business income; Opportunity of being heard; Question of law
• Section: 143(3); 244A; 142(1); 145

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH VKJ-IH-RKSYKUH] U;KF;D LNL; ,OA JH VH-VKJ-EHUK] YS[KK LNL; DS LE{K BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM VK;DJ VIHY LA-@ ITA NO. 756/JP/2012 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2009-10 . THE ASSTT. COMMISSIONER OF INCOME-TAX, CIRCLE-7, JAIPUR. CUKE VS. M/S. SHREE BALAJI INDUSTRIES, F-79, INDUSTRIAL AREA, NEWAI, TONK. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO. AAXFS 4654 B. VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA-@ ITA NO. 635/JP/2012 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2009-10 . M/S. SHREE BALAJI INDUSTRIES F-79, INDUSTRIAL AREA, NEWAI, TONK. CUKE VS. THE ASSTT. COMMISSIONER OF INCOME-TAX, CIRCLE-7, JAIPUR. VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS@ REVENUE BY : SHRI RAJ MEHRA (JCIT) FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI MAHENDRA GARGIEYA (ADVOCATE) & SHRI FAZLUR RAHMAN (ADVOCATE) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 09.10.2015. ?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 09/10/2015. 2 ITA NOS. 756 & 635/JP/2012 A.Y. 2009-10. ACIT VS. M/S. SHREE BALAJI INDUSTRIES, TONK. VKNS'K@ ORDER PER SHRI T.R. MEENA, A.M. THESE ARE TWO CROSS APPEALS FILED BY THE REVENUE AND ASSESSEE EMANATING FROM THE ORDER OF LD. CIT (A)-III, JAIPUR DATED 12.0 6.2012 FOR THE A.Y. 2009-10. THE EFFECTIVE GROUNDS RAISED IN THE APPEALS ARE AS U NDER :- ITA NO. 756/JP/2012 (REVENUES APPEAL) : (1) THE CIT (A) HAS ERRED IN THE FACTS & CIRCUMSTAN CES OF THE CASE IN RESTRICTING THE TRADING ADDITION OF RS. 46,15,414/- MADE BY THE AO TO RS. 6,37,073/- EVEN WHILE UPHOLDING THE PROVISIONS OF S ECTION 145(3), AS APPLICABLE. (2) THE CIT (A) HAS ERRED IN HOLDING THAT THE G.P. RATE OF 4.85% WOULD SUFFICE, EVEN WHEN THE G.P. RATE OF 6.08% APPLIED B Y THE A.O. WAS ON THE BASIS OF THE PAST HISTORY OF THE APPELLANT. (3) THE CIT (A) HAS ERRED IN ASSUMING THAT THE G.P. RATE OF 4.85%, ADOPTED BY HIM WAS JUSTIFIED AND WAS IN PROPORTION TO THE I NCREASE IN TURNOVER. ITA NO. 635/JP/2012 (ASSESSEES APPEAL) : (1) THE IMPUGNED ADDITIONS AND DISALLOWANCES MADE I N THE ORDER U/S 143(3) OF THE ACT DATED 14.11.2011 ARE BAD IN LAW AND ON F ACTS OF THE CASE, FOR WANT OF JURISDICTION AND VARIOUS OTHER REASONS AND HENCE THE SAME KINDLY BE DELETED. (2.1) RS. 6,37,073/-: THE LD. CIT (A) ERRED IN LAW AS WELL AS ON THE FACTS OF THE CASE IN CONFIRMING THE APPLICATION OF SEC. 145(3). THE PROVISION SO INVOKED AND CONFIRMED BY THE CIT (A) BEING CONTRARY TO THE PROVISIONS OF LAW AND FACTS, THE SAME MAY KINDLY BE QUASHED. CONSEQUENTLY THE TRADING ADDITION OF RS. 6,37,073/- MAY KINDLY BE DELETED IN FULL. ALTERNATIVELY AND WITHOUT PREJUDICE TO ABOVE 3 ITA NOS. 756 & 635/JP/2012 A.Y. 2009-10. ACIT VS. M/S. SHREE BALAJI INDUSTRIES, TONK. (2.2) THE LD. CIT (A) FURTHER ERRED IN LAW AS WELL AS ON THE FACTS OF THE CASE IN DIRECTING TO APPLY GP RATE OF 4.85% (6.08% APPLIED BY THE AO) AS AGAINST 4.65% DECLARED BY THE ASSESSEE AND THUS, THEREBY CO NFIRMING TRADING ADDITION OF RS. 6,37,073/-. THE ADDITION SO MADE AN D PARTLY CONFIRMED BY THE LD. CIT (A) BEING TOTALLY CONTRARY TO THE PROVI SIONS OF LAW AND FACTS OF THE CASE, KINDLY BE DELETED IN FULL. (3) RS. 20,235/- : THE LD. CIT (A) ERRED IN LAW AS WELL AS ON THE FACTS OF THE CASE IN CONFIRMING DISALLOWANCES OF THE FOLLOWING E XPENSES CLAIMED BY THE ASSESSEE :- S.NO. HEAD OF EXPENSES EXPENSES CLAIMED BY THE ASSESSEE DISALLOWED BY THE AO SUSTAIN ED BY THE LD. CIT(A) 3.1 MACHINE MAINTENANCE EXPENSES RS. 1,43,762/ - 10% OF TOTAL EXPENSES RS.2,02,351/- 10% OF TOTAL EXPENSES RS.2,02,351/- 3.2 MILL EXPENSES RS. 46,364/ - 3.3 TELEPHONE EXPENSES RS. 12,225/ - TOTAL : RS. 2,02,351/ - RS. 20,235/ - RS. 20,235/ - THE DISALLOWANCE SO MADE AND CONFIRMED BY THE LD. C IT (A) IS CONTRARY TO THE PROVISIONS OF LAW AND FACTS OF THE CASE. HENCE, THE SAME KINDLY BE DELETED IN FULL. (4) THE LD. AO FURTHER ERRED IN LAW AS WELL AS ON T HE FACTS OF THE CASE IN CHARGING INTEREST U/S 234B, 234C & 234D OF THE ACT AND AS ALSO IN WITHDRAWING OF INTEREST U/S 244A OF THE ACT. THE AP PELLANT TOTALLY DENIES ITS LIABILITY OF CHARGING AND WITHDRAWAL OF ANY SUC H INTEREST. THE INTEREST SO CHARGED/WITHDRAWN, BEING CONTRARY TO THE PROVISIONS OF LAW AND FACTS, KINDLY BE DELETED IN FULL. 2. GROUND NO. 1 OF THE ASSESSEE WAS NOT PRESSED BY THE LD. A/R. HENCE THE SAME IS DISMISSED AS NOT PRESSED. 3. GROUND NOS. 1, 2 & 3 OF THE REVENUE ARE AGAINST RESTRICTING THE TRADING ADDITION OF RS. 46,15,414/- TO RS. 6,37,073/- EVEN WHILE UPH OLDING THE PROVISIONS OF SECTION 4 ITA NOS. 756 & 635/JP/2012 A.Y. 2009-10. ACIT VS. M/S. SHREE BALAJI INDUSTRIES, TONK. 145(3) AND GROUND NO. 2 OF THE ASSESSEE IS AGAINST CONFIRMING THE APPLICATION OF SECTION 145(3) AND CONFIRMING THE ADDITION OF RS. 6 ,37,073/-. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF EDIBLE OIL. RETURN FOR THE YEAR UNDER CONSIDERATION WAS FILED ON 28.09.2009 DECLARING TOTAL INCOME OF RS. 4 2,82,240/- WITH THE ITO TONK. THE RETURN WAS PROCESSED UNDER SECTION 143(1) OF THE IT ACT. THE CASE WAS PICKED UP FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) WAS ISSUED ON 15.09.2010 WHICH WAS DULY SERVED. FURTHER CASE WAS TRANSFERRED TO ACIT, CIRC LE-7, JAIPUR. A FRESH NOTICE UNDER SECTION 143(2) WAS ISSUED ON 13.06.2011 AND SENT TO THE ASSESSEE BY REGISTERED POST AND ALSO NOTICE UNDER SECTION 142(1) WAS ISSUED ALO NG WITH QUESTIONNAIRE. IN RESPONSE TO NOTICE, SHRI SHYAM LAL JAIN, CA ATTENDED THE AS SESSMENT PROCEEDINGS FROM TIME TO TIME AND FURNISHED THE REQUIRED INFORMATION WHICH W ERE PLACED ON RECORD. 4.1. THE AO OBSERVED THAT DURING THE YEAR UNDER CON SIDERATION THE ASSESSEE HAD SHOWN GROSS PROFIT OF RS. 1,50,49,886/-ON A TOTAL T URNOVER OF RS. 32,34,42,445/- GIVING A GP RATE OF 4.65% WHICH IS LOWER THAN THE RATE OF 4.85% AND 6.08% DECLARED IN TWO EARLIER YEARS RESPECTIVELY. THEREFORE, THE AO GAVE REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE ON THIS ISSUE. THE ASSESSEE A LSO RESPONDED TO THE QUERY LETTER VIDE ITS LETTER DATED 09.08.2011 WHICH HAS BEEN REP RODUCED BY THE AO ON PAGES 2 & 3 OF HER ORDER. AFTER CONSIDERING THE ASSESSEES REP LY, THE AO HELD THAT ASSESSEE HAS FAILED TO BRING ANY EVIDENCE TO PROVE THAT THE PRIC ES OF TIN HAD RISEN TO THAT EXTENT. FURTHER, HE REPRODUCED THE EMPTY TIN ACCOUNT AS UND ER :- 5 ITA NOS. 756 & 635/JP/2012 A.Y. 2009-10. ACIT VS. M/S. SHREE BALAJI INDUSTRIES, TONK. PARTICULAR QTY.(KG) AMOUNT PARTICULARS QTY.(KG.) AMOUNT TO OPENING STOCK TO PURCHASE 4,789 2,35,332 2,34,944.00 1,43,35,514.03 BY SALE BY TRF. TO MUSTARD A/C BY CLOSING STOCK 945 2,38,394 782 9,450.00 1,45,09,445.54 51,562.49 TOTAL 2,40,121.00 1,45,70,458.03 TOTAL 2,40,121.00 1,45,70,458.03 HE CONCLUDED THAT ASSESSEE HAD OPENING STOCK OF 478 9 TINS AT A PRICE OF RS. 49.05 AT THE BEGINNING OF THE YEAR. PURCHASES WERE MADE AT R S. 46.45 BY THE ASSESSEE DURING THE YEAR. HOWEVER, THE ASSESSEE ALSO SOLD 945 TINS FOR RS. 9,450/- @ RS. 10/- WHICH DEFIES ALL LOGICS OF COMMERCIAL PRUDENCE, SPECIALLY CONSIDERING THE NATURE OF TINS BEING NON-PERISHABLE AND A RISING TREND IN PRICES OF THE TINS. THE AO HELD THAT THIS WAS THE MANIPULATION OF ACCOUNTS TO THAT EXTENT. ASSESSEE SOLD THE TINS AT A VERY NOMINAL PRICE. THE ASSESSEE HAD ALSO SOLD OIL AND IN TIN OF RS. 22 ,14,36,683/- AND THE REMAINING SALES OF RS. 9,67,91,839/- WERE INDEPENDENT OF THE COST P RICE OF THE TIN. THEREFORE, ASSESSEES REPLY THAT THE PRICE OF TIN INCREASED WA S NOT FOUND CONVINCING TO THE AO. THE ASSESSEE WAS SPECIFICALLY REQUIRED TO PRODUCE B OOKS OF ACCOUNT AND TO FURNISH DETAILS/DOCUMENTS, PRODUCTION REGISTER/MANUFACTURIN G REGISTER/STOCK REGISTER CONTAINING DAY-TO-DAY DETAILS OF ITS PRODUCTION ACTIVITIES SUC H AS DETAILS OF INPUT, OUTPUT, SHORTAGE, ETC. THE AO POINTED OUT FOLLOWING DEFECTS IN THE BO OKS OF ACCOUNTS :- (1) THE PRODUCTION REGISTER/MANUFACTURING REGISTER DOES NOT CONTAIN ANY DAY TO DAY DETAIL FOR SHORTAGE OF VARIOUS LOTS AND IN ABSENCE OF THIS RECORD, VERIFICATION OF YIELD WAS NOT POSSIBLE. 6 ITA NOS. 756 & 635/JP/2012 A.Y. 2009-10. ACIT VS. M/S. SHREE BALAJI INDUSTRIES, TONK. (2) THE STOCK REGISTER AND PRODUCTION REGISTER WERE NOT MAINTAINED SEPARATELY FOR DIFFERENT QUALITIES OF SEEDS. IN ABS ENCE OF VERIFICATION OF QUALITY OF SEEDS THE ACTUAL ANALYSIS OF YIELD OF OI L WAS NOT POSSIBLE. (3) THE ASSESSEE HAD FAILED TO JUSTIFY THE NIL QUANTITY OF RAW MATERIAL UNDER PROCESS ON EACH WORKING DAY IN THE PRODUCTION REGIS TER. SOME OF THE RAW MATERIAL DEFINITELY MUST HAVE REMAINED UNDER PR OCESS IN THE MACHINES, BUT IN THE PRODUCTION REGISTER, THE ENTIR E QUANTITY OF RAW MATERIAL HAD BEEN SHOWN AS CRUSHED. THEREFORE THE F IGURES ADOPTED IN THE PRODUCTION REGISTER ARE FICTION INSTEAD OF BEIN G ACTUAL. (4) THE INVENTORY OF STORES AS WELL AS CONSUMPTION OF I T HAD NOT BEEN MAINTAINED ON DAY TO DAY BASIS. (5) THE ASSESSEE HAD NOT MAINTAINED ANY INCOMING AND OU T GOING REGISTER FOR PRODUCTION FOR VERIFICATION OF THE PRODUCTION W HICH IS NECESSARY TO MAINTAIN IN MANUFACTURING UNITS FOR RECEIPT AND DIS PATCH OF RAW MATERIAL/FINISHED GOODS. 4.2. THE ASSESSEE WAS ALSO ASKED TO GIVE THE MONTH- WISE ELECTRICITY CONSUMPTION AND MONTH-WISE PRODUCTION OF OIL WHICH WAS SUBMITTED BY THE ASSESSEE AND REPRODUCED BY THE AO AT PAGE 6 OF HER ORDER AS UNDER :- MONTH E LECTRICITY CONSUMPTION KWH PRODUCTION RATIO APRIL 109584 210495 1:2 MAY 106974 243335 1:2.5 JUNE 137202 306900 1:2.5 JULY 104187 168925 1:1.6 AUGUST 101 490 213424 1:2.5 SEPTEMBER 79662 113462 1:1.4 OCTOBER 112848 216408 1:2 NOVEMBER 106893 148910 1:1.4 DECEMBER 99297 147275 1:1.6 JANUARY 105540 254051 1:2.5 FEBRUARY 96123 244613 1:3.3 MARCH 186312 432502 1:2.5 7 ITA NOS. 756 & 635/JP/2012 A.Y. 2009-10. ACIT VS. M/S. SHREE BALAJI INDUSTRIES, TONK. 4.3. ON VERIFICATION OF ABOVE CHART, THE AO FOUND C HANGING RATIOS BETWEEN ELECTRICITY CONSUMPTION AND PRODUCTION. THEREFORE, ASSESSEE WAS ASKED TO EXPLAIN CHANGING RATIOS VIDE ORDER SHEET ENTRY DATED 19.10.2011. THE ASSESS EE SUBMITTED THE REPLY WHICH HAS ALSO BEEN REPRODUCED BY THE AO ON PAGES 6, 7, 8, 9 & 10 OF HER ORDER. AFTER CONSIDERING THE ASSESSEES REPLY, THE AO HELD THAT THE RATIOS WERE TOO ELASTIC TO MEET THE REASONS PROVIDED BY THE ASSESSEE. THE REASONS PROVIDED ARE MORE GENERAL IN NATURE. THE ASSESSEES ARGUMENT THAT SOMETIMES MACH INES WERE RUNNING NEGLIGENTLY BY THE EMPLOYEES WAS NOT FOUND ACCEPTABLE TO HER. THE CONTENTION OF INCREASED MOISTURE CAUSE INCREASED CONSUMPTION OF POWER WAS ALSO NOT A CCEPTABLE TO THE AO AS PRODUCTION WAS MORE IN AUGUST COMPARED TO JULY. THEREFORE, HE INVOKED THE PROVISIONS OF SECTION 145(3) OF THE IT ACT AND GP RATE OF 6.08% HAS BEEN APPLIED TO THE SALES. THUS A TRADING ADDITION OF RS. 46,15,414/- WAS MADE TO THE INCOME OF THE ASSESSEE. 5. BEING AGGRIEVED BY THE ORDER OF AO, ASSESSEE CAR RIED THE MATTER BEFORE LD. CIT (A) WHO HAD ALLOWED THE APPEAL PARTLY BY UPHOLDING THE REJECTION OF BOOKS OF ACCOUNT UNDER SECTION 145(3) AS UNDER :- 2.3. I HAVE CAREFULLY EXAMINED THE FINDINGS OF TH E AO AND THE SUBMISSION MADE BY THE LD. A/R, TOWARDS THE ISSUE U NDER CONSIDERATION. THE ADMITTED FACTS, IN THIS REGARD, ARE THAT IN THE CURRENT YEAR THE APPELLANT HAS SHOWN GP RATE 4.65% ON THE TOTAL SALE OF RS. 33.34 CRORES. THE COMPARATIVE CHART OF THE SIMILAR TRENDS IN THE EARLIER YEARS IS BEING DISCUSSED, AS UNDER :- 8 ITA NOS. 756 & 635/JP/2012 A.Y. 2009-10. ACIT VS. M/S. SHREE BALAJI INDUSTRIES, TONK. S.NO. A.Y. TURNOVER GP RATIO 1. 2009 - 10 (CURRENT YEAR) 32,34,42,445 4.65% 2 2008 - 09 30,46,92,247 4.85% 3 2007 - 08 27,77,31,293 6.08% FROM THE ABOVE INFORMATION, IT IS APPARENT THAT THE ASSESSEE HAS SHOWN LOWER GP IN THE CURRENT YEAR, WHILE ACHIEVING THE H IGHER TURNOVER, AS SUCH. DURING THE ASSESSMENT PROCEEDING, CERTAIN INCRIMINA TING ASPECTS, LIKE NON- MAINTENANCE OF STOCK REGISTER OF RAW MATERIAL AND F INISHED PRODUCTS, NON- MAINTENANCE OF INVENTORY OF STORES AND ITS CONSUMPT ION DETAILS AND ALSO OF WIP AND PRODUCTION DETAILS, VARIATION IN THE AVERAG E CONSUMPTION OF ELECTRICITY, ETC., WERE OBSERVED BY THE AO. ACCORDI NGLY, HE ESTIMATED THE GP RATE 6.08% U/S 145(3) OF THE ACT, WHILE FOLLOWIN G THE PAST HISTORY (I.E. A.Y. 2007-08) OF THE PROFIT RATIO OF THE APPELLANT, AS DISCUSSED ABOVE. HOWEVER, THE LD. AR SUBMITTED THAT THE ASSESSEE MAI NTAINS PROPER BOOKS OF ACCOUNTS, STOCK REGISTER AND THE REQUISITE RECOR DS WITH DETAILS TOWARDS THE PURCHASE AND SALE, WHICH WERE PRODUCED BEFORE A O ALSO. REGARDING THE OTHER ADVERSE OBSERVATIONS OF THE AO, THE LD. A /R SUBMITTED THAT THERE ARE VALID REASONS FOR VARIATION IN POWER CONSUMPTIO N VIZ. PRODUCTION PATTERN AND SUCH MINOR IRREGULARITIES CAN NOT BECOM E THE BASIS OF REJECTION OF BOOKS OF ACCOUNTS. SIMILARLY, HE JUSTI FIED THE LOWER GP IN THE CURRENT YEAR, WHILE STATING THAT THE MANUFACTURING COST HAS INCREASED AND HAVING MORE SHARE OF TRADING ACTIVITY IN COMPARE OF MANUFACTURING OF GOODS IN CURRENT YEAR ETC. IT WAS FURTHER ARGUED T HAT THE AOS STAND OF ADOPTING THE GP OF A.Y. 2007-08 (6.08%) AND NOT IMM EDIATE PRECEDING YEAR I.E. A.Y. 2008-09 (4.85% IS ALSO NOT JUSTIFIED , UNDER THE GIVEN CIRCUMSTANCES. THUS, IT WAS SUBMITTED THAT THE REJE CTION OF BOOKS OF ACCOUNTS, BASED ON THE ABOVE FACTS, IS TOTALLY UNJU STIFIED. 2.3.1. AS FAR AS THE REJECTION OF BOOK RESULT IS CO NCERNED, IN VIEW OF THE FACTS THAT THE GP, IN THE CURRENT YEAR, HAS BEEN SH OWN AT LOWER SIDE AND 9 ITA NOS. 756 & 635/JP/2012 A.Y. 2009-10. ACIT VS. M/S. SHREE BALAJI INDUSTRIES, TONK. ALSO THE SEVERAL SERIOUS DEFECTS POINTED OUT, I.R.O ., BOOKS OF ACCOUNTS, AS DISCUSSED ABOVE, THE AO IS FOUND JUSTIFIED IN INVOK ING THE PROVISION OF SEC. 145(3), UNDER SUCH CIRCUMSTANCES. IN SIMILAR SITUAT ION, THE COURTS HAVE OPINED THAT THE REJECTION OF BOOKS U/S 145 IS VALID AND PROPER ON THE PART OF THE AO. THE ABOVE VIEWS ARE ECHOED IN FOLLOWING CASE LAWS 1) SHRI RAM & CO. 316 ITR 139 (RAJ.) 2) GISHARAM TODARMAL 196 ITR 329 (RAJ.) 3) RAJENDRA PRASAD SUBASH CHANDRA 237 CTR 382 ( RAJ.) ACCORDINGLY THE APPLICATION OF SEC. 145(3) OF THE A CT IS HELD AS VALID AND JUSTIFIED. MOREOVER, IT IS ALSO FELT THAT THE CASE LAWS RELIED UPON BY THE APPELLANT ARE HAVING DIFFERENT FACTS THEN OF THE AP PELLANTS, THEREFORE, THE SAME ARE HELD NOT RELEVANT IN THE PRESENT PROCEEDIN G. 2.3.2. REGARDING THE ESTIMATION OF INCOME U/S 145(3 ), IT IS A SETTLED LAW THAT UNDER SUCH CIRCUMSTANCES, THE PAST HISTORY OF APPELLANT WOULD BE ONE OF THE MOST RELIABLE GUIDELINE, IN THIS REGARD, SUB JECT TO THE CIRCUMSTANCES PREVAILED IN THE RELEVANT YEARS. THE SIMILAR VIEWS ARE ALSO EXPRESSED IN THE FOLLOWING DECISIONS :- 1. M/S. INANI MARBLES 316 ITR 125 (RAJ.H.C.) 2. M/S. ACTION ELECTRICALS 258 ITR 188 (DEL.H.C.) IN THE LIGHT OF THE RATIO OF THE ABOVE DECISIONS, I T IS ALMOST SETTLED LAW THAT THE INCOME OF THE ASSESSEE U/S 145(3) IS TO BE ESTI MATED ON THE BASIS OF THE PAST TREND SHOWN, IN THIS REGARD. ACCORDINGLY, IT IS FELT THAT THE GP RATIO OF THE IMMEDIATE PREVIOUS YEAR I.E. A.Y. 2008 -09 WOULD HAVE BEEN MOST RELEVANT, IN THIS REGARD. HOWEVER, IN THE PRES ENT CASE, IT CAN BE SEEN THAT THE AO HAS ADOPTED THE GP RATIO OF ANOTHER A.Y . OF THE PAST I.E. 2007-08, APPARENTLY WITHOUT ASSIGNING ANY REASON TH ERETO, THEREFORE, PRIME-FACIE THE SAME CANNOT BE APPRECIATED, AS SUCH . MOREOVER, OTHERWISE 10 ITA NOS. 756 & 635/JP/2012 A.Y. 2009-10. ACIT VS. M/S. SHREE BALAJI INDUSTRIES, TONK. ALSO, IT IS FELT THAT AS EACH YEAR IS A SEPARATE YE AR, HAVING DIFFERENT CIRCUMSTANCES INVOLVED THEREIN, THUS, WHILE ADOPTIN G THE PAST HISTORY OF THE APPELLANT, EVEN THE FACTS AND CIRCUMSTANCES OF THE CURRENT YEAR SHOULD ALSO BE TAKEN INTO CONSIDERATION, BEFORE ARRIVING A T ANY PARTICULAR CONCLUSION ON THIS ACCOUNT. AS OBSERVED, IN THE A.Y . 2007-08, TAKEN AS A BASE BY THE AO TO ESTIMATE THE INCOME U/S 145(3) OF THE ACT, THE APPELLANT HAS OFFERED GP RATE AT 6.08%, ALBEIT ON T HE LOWER TURNOVER OF RS. 27.77 CRORES ONLY. HOWEVER, WHILE FOLLOWING THE PRINCIPLE OF THE PAST HISTORY, IT APPEARS THAT THE AO HAS, MECHANICALLY A PPLIED THE ABOVE PAST GP RATIO, EVEN THE ASSESSEE HAS ACHIEVED HIGHER TUR NOVER, IN CURRENT YEAR, (I.E. MORE THAN 18% THAN THE PREVIOUS YEAR). THUS, IT IS EVIDENT THAT THE AO HAS SIMPLY IGNORED THE CRUCIAL ASPECT THAT AS TH E TURNOVER OF THE APPELLANT HAS REASONABLY INCREASED IN THE CURRENT Y EAR, THEREFORE, THE FALL IN GP, TO SOME EXTENT IS QUITE NATURAL AND UNDERSTA NDABLE UNDER THE GIVEN CIRCUMSTANCES. THUS THE ACT OF THE AO IS ALSO FOUND NOT FULLY JUSTIFIED FOR THE AFORESAID REASONS, AS SUCH. IN THE LIGHT OF THE ABOVE FACTS, IN MY CONSIDERED VIEW, TO ESTIMATE THE INCOME OF THE ASSE SSEE, IN THE CURRENT YEAR, THE ADOPTION OF GP @ 4.85% OF THE IMMEDIATE P REVIOUS YEAR (A.Y. 2008-09) WOULD BE FAIR AND REASONABLE TO MEET BOTH ENDS OF THE JUSTICE. ACCORDINGLY, THE AO IS DIRECTED TO RESTRICT THE EST IMATION OF INCOME U/S 145(3), BY ADOPTING THE GP RATE AT 4.85% INSTEAD OF 6.08%, AS APPLIED IN THE IMPUGNED ORDER. IN VIEW OF THE ABOVE, THE CORRE SPONDING REVISED TRADING ADDITION HAS BEEN WORKED OUT AS UNDER :- 1 2 3 4 5 SL.NO. TOTAL TURNOVER GP OFFERED @ 4.65% REVISED GP ESTIMATED @ 4.85% DIFFERENCE/ADDITION CONFIRMED (S.NO. 4-3) 1 RS. 32,34,42,445 RS.15049886 RS. 15686959 RS. 637073 IN THE LIGHT OF THE ABOVE WORKING, THE TRADING ADDI TION U/S 145(3) OF THE ACT, IS RESTRICTED RS. 6,37,073/- IN PLACE OF RS. 4 6,15,414/- AS ESTIMATED 11 ITA NOS. 756 & 635/JP/2012 A.Y. 2009-10. ACIT VS. M/S. SHREE BALAJI INDUSTRIES, TONK. BY THE AO IN THE IMPUGNED ORDER. CONSEQUENTLY, THIS GROUND OF APPEAL IS PARTLY ALLOWED. 6. NOW BOTH THE PARTIES ARE BEFORE US. THE LD. D/R SUPPORTED THE ORDER OF THE AO AND ARGUED THAT THE LD. CIT (A) HAD CONFIRMED THE I NVOCATION OF PROVISIONS OF SECTION 145(3) RESTRICTING THE GP RATE @ 4.85% WITHOUT ASSI GNING ANY MEANINGFUL REASON. 6.1. AT THE OUTSET, THE LD. A/R OF THE ASSESSEE SUB MITTED THAT THE ASSESSEE HAD FOLLOWED METHOD OF ACCOUNTING REGULARLY FOLLOWED BY THE ASSESSEE. THERE IS NO CHANGE IN THE ACCOUNTING SYSTEM DURING THE YEAR UNDER CONS IDERATION. HOWEVER, THE AO POINTED OUT CERTAIN DEFICIENCIES AND INVOKED PROVISIONS OF SECTION 145(3). THE AO CANNOT REJECT THE BOOK RESULTS IN ABSENCE OF QUANTITATIVE AND QUA LITATIVE DETAIL ON DAY TO DAY BASIS IN FORMAL REGISTER AND VARIATION IN POWER CONSUMPTION - PRODUCTION RATIO. THE APPELLANT HAD MAINTAINED ALL THE BOOKS OF ACCOUNT CONSISTING OF CASH BOOK, LEDGER, QUANTITATIVE DETAILS OF OPENING STOCK AND CLOSING STOCK AND STOC K/PRODUCTION REGISTER. THE ENTIRE PURCHASES AND SALES AND EXPENSES ARE FULLY VOUCHED. THE BOOKS OF ACCOUNTS WERE AUDITED UNDER SECTION 44AB OF THE IT ACT WHICH WERE PRODUCED BEFORE THE AO AS WELL AS BEFORE THE LD. CIT (A). THEREFORE, HE REQUESTED TO ACCEPT THE BOOK RESULT. THE LD. A/R PLACED RELIANCE ON THE DECISIONS IN THE CASES OF IT O VS. ARUN OIL INDUSTRIES, 23 TTJ 378 (JP)(TM), AMBALAL MANOHAR SINGH VS. ITO, 27 TW 280 (JP) AND ACIT VS. SHIV AGREVO LTD.,123 TTJ 416 (JP). HE FURTHER RELIED ON THE D ECISION IN THE CASE OF TRIVENI PHARMA VS. ITO, 85 TTJ 950 (JP)(TM) WHEREIN IT HAS BEEN HE LD THAT APPELLANT HAD MAINTAINED COMPLETE LEDGER ACCOUNTS OF PURCHASES AND SALES AND HAVING FILED RETURN WITH TAX AUDIT REPORT CONTAINING QUANTITY DETAILS OPENING STOCK, P URCHASES, SALES AND CLOSING STOCK, 12 ITA NOS. 756 & 635/JP/2012 A.Y. 2009-10. ACIT VS. M/S. SHREE BALAJI INDUSTRIES, TONK. THERE WAS NO WARRANT FOR REJECTION OF BOOKS ON THE GROUND THAT THEY WERE INCORRECT OR INCOMPLETE OR NOT SUBJECT TO VERIFICATION. THE LD. A/R ALSO MADE ARGUMENT PARA- WISE/ALLEGATION-WISE ON DEFICIENCY. HE REFERRED PA GES 21-26 OF THE PAPER BOOK AND ARGUED THAT ASSESSEE HAS MAINTAINED REGISTER SHOWIN G PRODUCTION AND STOCK OF THE RAW MATERIAL, FINISHED GOODS ETC. WHICH HAS BEEN PRODU CED BEFORE THE AO. FURTHER IT HAS BEEN ARGUED THAT IN THE LINE OF MUSTARD OIL BUSINES S QUALITY-WISE STOCK MAINTENANCE IS NOT POSSIBLE AND IS NOT A PRACTICE. HE FURTHER SUB MITTED THAT THERE MAY BE VARIETY OF REASONS WHICH MAY HAVE CONTRIBUTED TO THE INCREASED POWER CONSUMPTION. HOWEVER, THIS IS COMPLETELY BEYOND HUMAN CONTROL TO MAINTAIN THE SAME RATIO OF POWER CONSUMPTION. THERE IS NO STANDARDIZED FORMULA ALSO BE ANY GOVERNMENT/SEMI GOVT. AGENCIES OR OTHER ORGANIZATION PRESCRIBING STANDARD RATIO OF POWER CONSUMPTION UNIT VIZ-A-VIZ CONSUMPTION OF SEEDS. THE ASSESSEE WAS R UNNING ITS MANUAL EXPELLER IN VARIOUS SHIFTS FROM MORNING TO LATE NIGHT. THE INCR EASED MOISTURE IS ONE OF THE REASONS TO USE MORE POWER CONSUMPTION. IT IS SEEN THAT WHE N NEW CROPS COMES IN THE MARKET MORE MOISTURE IN SEEDS ARE FOUND. IN THIS REGARD H E PLACED RELIANCE ON THE DECISION IN THE CASE OF PREM CABLES (P) LTD. VS. ACIT (1996) 54 TTJ 421 (JP). ON DISCREPANCY IN PRODUCTION AND CONSUMPTION OF ELECTRICITY, HE PLACE D RELIANCE ON THE DECISION IN THE CASE OF DCIT VS. MAHADEO COTTON MILLS LTD. (1992) 42 TTJ 77 (JP). ON ELECTRICITY CONSUMPTION ST. TERESAS OIL MILLS VS. STATE OF K ERALA (1970) 76 ITR 365(KER.). ON UNRELIABILITY, INCORRECTNESS OR INCOMPLETENESS OF B OOKS OF ACCOUNT, ALSO REFERRED DECISION IN THE CASE OF ITO VS. SATYANARAYAN PAREEK, 71 TTJ 997 (GAU.) AND VISHAL PAPER INDUSTRIES VS. JCIT, (2013) 21 ITR (TRIB) 220 (CHA NDIGARH). THEREFORE, THE AO WAS 13 ITA NOS. 756 & 635/JP/2012 A.Y. 2009-10. ACIT VS. M/S. SHREE BALAJI INDUSTRIES, TONK. WRONG TO INVOKE THE PROVISIONS OF SECTION 145(3) AN D REJECTING THE BOOK RESULT. THE TIN PRICE WORKED OUT BY THE AO WAS MIS-CONCEIVED AND AL SO APPLIED WITHOUT CONFRONTING TO THE ASSESSEE. THERE ARE MANY REASONS TO DAMAGE THE TINS AND SELLING IT IN THE FORM OF SCRAP. THE ASSESSEES BOOKS WERE NEVER REJECTED EAR LIER. MINOR IRREGULARITY IN THE BOOKS OF ACCOUNT CANNOT BE A BASIS FOR REJECTION AS HELD IN THE CASE OF PADAMPATH RAMGOPAL, 76 ITR 719 (SC). IN GROUP CASE ALSO, IN THE CASE O F PADAM CHAND JAIN FOR A.Y. 2005- 06, THE BOOKS OF ACCOUNTS WERE REJECTED ON THE SAME REASONING. HOWEVER, THE LD. CIT (A) HAS REVERSE THE ORDER OF AO DATED 15.01.2010 IN APPEAL NO. 442/07-08 AND THERE IS NO FURTHER APPEAL. THE LD. CIT (A) HAS ALSO NOT AP PRECIATED THE FACT PROPERLY AND JUDICIOUSLY. THE CASE LAW CITED BY THE LD. CIT (A) ALSO DISTINGUISHABLE. WHATEVER CASE LAWS REFERRED BY LD. CIT (A) WERE DECIDED BY THE JU RISDICTIONAL HIGH COURT BY NOT TREATING THE QUESTION OF LAW BUT WAS FINDING OF FAC T. THEREFORE, HE REQUESTED TO QUASH THE ORDER OF LD. CIT (A) ON SECTION 145(3). 6.2. ON MERIT, THE LD. A/R SUBMITTED THAT IT IS NOT NECESSARY THAT ANY REJECTION WOULD RESULT IN ADDITION AS HELD BY JURISDICTIONAL HIGH C OURT IN THE CASE OF CIT VS. GOTTON LIME KHANIZ UDYOG, 256 ITR 243. THERE IS A SOLID REASON IN DECLINING THE GP. THE ASSESSEE HAS MAINTAINED DAY TO DAY RECORD OF CONSUMPTION AND PRODUCTION AND PROFIT OF OIL MILLS DEPENDS ON VARIOUS FACTORS LIKE PRODUCTION, PURCHAS E OF RAW MATERIAL, PERCENTAGE OF YIELD, QUALITY OF SEEDS. HE FURTHER EXPLAINED THE REASONS FOR INCREASE IN THE PURCHASE PRICE OF TIN AND ARGUED THAT ASSESSEE HAS INCURRED EXTRA COST OF RS. 35,73,526/- WHICH WAS 1.11% OF GP. CORRESPONDINGLY THE SALE PRICE OF OIL HAD NOT INCREASED. THE ANOTHER REASON TO DECLINE GP WAS THAT THE SALES HAVE GONE U P COMPARED TO PRECEDING YEAR. 14 ITA NOS. 756 & 635/JP/2012 A.Y. 2009-10. ACIT VS. M/S. SHREE BALAJI INDUSTRIES, TONK. FURTHER THE APPELLANT PURCHASED OIL 3 TIMES HIGHER TO PRECEDING YEAR FOR TRADING. IT IS UNDISPUTED FACT THAT MARGIN IN MANUFACTURING IS MOR E THAN TRADING OF OIL. THE ASSESSEE HAS DECLARED YIELD PERCENTAGE BETTER DURING THE YEA R COMPARED TO PRECEDING YEAR. THEREFORE, HE REQUESTED TO ACCEPT THE BOOK RESULTS. 7. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE AO POINTED OUT VARIOUS DEFICIENCIES IN THE BOOKS OF AC COUNT AND RAW MATERIAL PURCHASE AND PRODUCTION RATIOS WITH ELECTRICITY. THE APPELLANT H AD SHOWN GP RATE @ 4.65% ON THE TOTAL SALES OF RS. 33.34 CRORES WHICH HAS BEEN GONE DOWN DURING THE YEAR COMPARED TO PRECEDING YEAR. UNDER THE SIMILAR FACTS AND CIRCUMS TANCES, VARIOUS COURTS HAVE HELD REJECTION OF BOOK RESULTS UNDER SECTION 145(3) IS J USTIFIED. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT WHATEVER DEFECTS POINTED OUT B Y THE AO ARE SUFFICIENT TO REJECT THE BOOK RESULTS. THE LD. CIT (A) PLACING RELIANCE ON THE JURISDICTIONAL HIGH COURT DECISIONS IN THE CASES OF SHRI RAM & CO. (316 ITR 139 (RAJ.), GISHARAM TODARMAL, 196 ITR 329 (RAJ.) AND RAJENDRA PRASAD SUBASH CHANDRA, 237 CTR 382 (RAJ.) CONFIRMED THE ACTION OF THE AO IN REJECTING THE BOOKS OF ACCOUNT UNDER S ECTION 145 OF THE IT ACT. THE LD. CIT (A) ALSO OBSERVED THAT THE CASE LAWS RELIED UPON BY THE ASSESSEE ARE ON DIFFERENT FACTS THAN THE FACTS INVOLVED IN THE CASE OF ASSESSEE, AC CORDINGLY HE HELD THAT THESE CASES ARE NOT RELEVANT IN THE PRESENT CASE. 7.1. HOWEVER, AS REGARDS ESTIMATION OF INCOME U/S 1 45(3), THE LD. CIT (A) OBSERVED THAT IT IS A SETTLED LAW THAT UNDER SUCH CIRCUMSTAN CES, THE PAST HISTORY OF THE APPELLANT IS THE BEST GUIDE TO ESTIMATE THE INCOME, SUBJECT T O THE CIRCUMSTANCES PREVAILED IN THE RELEVANT YEARS. SIMILAR VIEWS ARE EXPRESSED IN THE CASES OF M/S. INANI MARBLES, 316 ITR 15 ITA NOS. 756 & 635/JP/2012 A.Y. 2009-10. ACIT VS. M/S. SHREE BALAJI INDUSTRIES, TONK. 125 (RAJ.HC) AND M/S. ACTION ELECTRICALS, 258 ITR 18 8 (DEL. HC). IN THE LIGHT OF ABOVE DECISIONS, THE INCOME OF THE ASSESSEE IS TO BE ESTI MATED U/S 145(3) ON THE BASIS OF PAST TREND SHOWN. ACCORDINGLY G.P. RATIO SHOWN IN THE IM MEDIATE PREVIOUS YEAR I.E. A.Y. 2008-09 WOULD HAVE BEEN MOST RELEVANT. HOWEVER, IN THIS CASE THE AO HAS ADOPTED THE GP RATIO OF A.Y. 2007-08 WITHOUT ASSIGNING ANY REAS ON THERETO, THEREFORE, PRIME-FACIE THE SAME CANNOT BE APPRECIATED AS SUCH. THE LD. CIT (A) ALSO CONSIDERED THAT THE TURNOVER OF THE APPELLANT HAS REASONABLY INCREASED DURING THE YEAR UNDER CONSIDERATION, THEREFORE, THE FALL IN GP TO SOME EXTENT IS QUITE N ATURAL AND UNDERSTANDABLE. TAKING INTO CONSIDERATION ALL THE ABOVE FACTS AND CIRCUMSTANCES , THE LD. CIT (A) ADOPTED THE GP RATIO @ 4.85% INSTEAD OF 6.08% APPLIED BY THE AO, T HEREBY RESTRICTING THE TRADING ADDITION TO RS. 6,37,073/- IN PLACE OF RS. 46,15,41 4/- AS ESTIMATED BY THE AO. TAKING INTO CONSIDERATION OVER ALL ASPECTS OF THE CASE, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT (A). THE GP RATE OF 4.85% ADOPTED BY THE LD . CIT (A) IS REASONBLE ON THE BASIS OF PAST HISTORY OF THE ASSESSEE. THEREFORE, NO INTE RFERENCE IS CALLED IN THE TRADING ADDITION SUSTAINED BY LD. CIT (A). 8. GROUND NO. 3 OF THE ASSESSEE RELATES TO DISALLOW ANCE OF EXPENSES INCURRED OF RS. 20,235/-. THE ASSESSEE CLAIMED DEDUCTION OF RS. 2, 02,351/- ON ACCOUNT OF EXPENSES INCURRED UNDER THE HEAD MACHINE MAINTENANCE (RS. 1, 43,762/-), MILL EXPENSES (RS. 46,364/-) AND TELEPHONE EXPENSES (RS. 12,225/-). T HE AUTHORITIES BELOW HAVE DISALLOWED THE EXPENSES @ 10% ON THE GROUND THAT TH E ASSESSEE WAS NOT HAVING PROPER BILLS AND VOUCHER OR TO COVER THE ELEMENT OF PERSONAL USAGES, INVOLVED IN EXPENSES RELATED TO TELEPHONE FACILITIES ETC. TAKI NG INTO CONSIDERATION THE NATURE OF 16 ITA NOS. 756 & 635/JP/2012 A.Y. 2009-10. ACIT VS. M/S. SHREE BALAJI INDUSTRIES, TONK. EXPENSES, A LUMP SUM DISALLOWANCE OF RS. 10,000/- I S CONFIRMED. THUS THE ASSESSEE WILL GET RELIEF OF RS. 10,235/-. 9. GROUND NO. 4 RELATES TO CHARGING OF INTEREST U/S 234B, 234C AND 234D OF THE IT ACT AND WITHDRAWAL OF INTEREST U/S 244A. THIS GROU ND BEING CONSEQUENTIAL IN NATURE, NECESSARY RELIEF MAY BE GIVEN ACCORDINGLY. 10. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALL OWED AND REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 9.10.2015. SD/- SD/- VKJ-IH-RKSYKUH VH-VKJ-EHUK (R.P.TOLANI) (T.R. MEENA) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 9/10/2015 DAS/ VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE ACIT, CIRCLE-7, JAIPUR. 2. IZR;FKHZ @ THE RESPONDENT : M/S. SHREE BALAJI INDUSTRIES, JAIP UR. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 756 & 635/JP/2013) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR 17 ITA NOS. 756 & 635/JP/2012 A.Y. 2009-10. ACIT VS. M/S. SHREE BALAJI INDUSTRIES, TONK.