ACIT, Sikar V. M/S SHRI MODI LEVIGATED KAOLIN P. LTD., Sikar

ITA 877/JPR/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 5312 (ITAT-JAIPUR)
• Duration Of Justice: 4 year(s) 5 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 13-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEENA JEPH JCIT DHK
• Keywords: Additional evidence
• Section: 143(3); 12; 144

Judgement Text

+VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH VKJ-IH-RKSYKUH] U;KF;D LNL; ,OA JH FOE FLAG ;KN O] YS[KK LNL; DS LE{K BEFORE: SHRI R.P. TOLANI, JM & SHRI VIKRAM SINGH YA DAV, AM VK;DJ VIHY LA-@ ITA NO. 877/JP/11 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2008-09 THE ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE, SIKAR CUKE VS. M/S SHRI MODI LEVIGATED KAOLIN PVT. LTD., OPP. RAILWAY STATION, NEEM KA THANA, DIST. SIKAR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AADCS 4521L VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA-@ C.O NO. 84/JP/11 ( ARISING OUT OF ITA NO. 877/JP/11 ) FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2008-09 M/S SHRI MODI LEVIGATED KAOLIN PVT. LTD., OPP. RAILWAY STATION, NEEM KA THANA, DIST. SIKAR. CUKE VS. THE ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE, SIKAR FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI RAJEEV SOGANI (C.A.) JKTLO DH VKSJ LS@ REVENUE BY : SMT. NEENA JEPH (JCIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 09.03.2016 ?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 31 /03/2016. VKNS'K@ ORDER PER SHRI VIKRAM SINGH YADAV, A.M. THIS IS REGARDING APPEAL FILED THE REVENUE AND CROS S OBJECTION BY THE ASSESSEE AGAINST THE ORDER OF CIT(A)-III, JAIPUR W HEREIN THE FOLLOWING GROUNDS OF APPEAL HAS BEEN TAKEN AS UNDER: ITA NO. 877/JP/11 & C.O. NO. 84/JP/11 THE ACIT, CIRCLE, SIKAR VS. M/S SHRI MODI LEVIGATED KAOLIN PVT. LTD.SIKAR 2 REVENUES GROUND OF APPEAL: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE LD. CIT(A)-III HAS PASSED A PERVERSE ORDER IN: (1) IGNORING THE FACT THAT THE AO HAD MADE AN INTELLIG ENT AND WELL GROUNDED ESTIMATE ON THE BASIS OF RELEVANT MATERIAL, SUCH AS THE INPUT-OUTPUT RATIOS OF VARIOUS EXPENSES, IN ESTIMATING THE SALES/TURNOV ER, EVEN WHEN THE CIT(A) HAD UPHELD THE VALIDITY OF ACTION U/S 144 OF THE AC T ON FACTS AND IN LAW. (2) HOLDING THAT THE METHOD ADOPTED BY THE AO TO COMPU TE INCOME U/S 144, WAS ARBITRARY, IMPERFECT AND SPECULATIVE EVEN WHEN THIS WAS NOT EXEMPLIFIED BY THE CIT(A). (3) IGNORING FACT THAT THE AO DID CONSIDER THE PAST HIS TORY OF THE ASSESSEE AS A GUIDING FACTOR, WHEN ESTIMATING THE TURNOVER AND TH E PROPORTION OF EXPENSES TO TURNOVER IN THE CURRENT YEAR AS WELL AS IN THE EARLIER YEARS. (4) IGNORING THE FACT THAT THE ASSESSEE HAD PURCHASED H UGE QUANTITY OF MACHINERY, A REQUISITE AND MEANS FOR THE INCREASED TURNOVER, AND INCURRED EXPENSES ON MINING AND MANUFACTURING WHICH WERE 2.3 4 TIMES MORE THAN SIMILAR EXPENDITURE IN LAST YEAR. (5) IGNORING THE FACT THAT THE EXPENDITURE FOR ROYALTY AND SURFACE RENT PAID AT RS. 28.43 LACS IN THE PREVIOUS YEAR WERE MUCH MORE THAN SIMILAR EXPENDITURE OF RS. 16.90 LACS IN THE EARLIER YEAR, EVEN WHEN TH E SALES/TURNOVER WAS NOT TO THE CORRESPONDING EXTENT. (6) IGNORING THE FACT THAT THE EXPENDITURE FOR WAGES WA SHING PAID AT RS. 68.18 LACS IN THE PREVIOUS YEAR WAS MUCH MORE THAN SIMILA R EXPENDITURE OF RS. 36.66 LACS IN THE EARLIER YEAR EVEN WHEN THE SALES/ TURNOVER WAS NOT TO THE CORRESPONDING EXTENT. (7) IGNORING THE FACT THAT THE EXPENDITURE FOR POWER AN D PLANT PAID AT RS. 18.33 LACS IN THE PREVIOUS YEAR WAS MUCH MORE THAN SIMILA R EXPENDITURE OF RS. 13.06 LACS IN THE EARLIER YEAR EVEN WHEN THE SALES/ TURNOVER WAS NOT TO THE CORRESPONDING EXTENT. (8) NOT UPHOLDING THE RELEVANT AND ANALYTICAL ESTIMATE MADE BY AO AND THEREBY, IN RESTRICTING THE ADDITION FROM RS. 1.45 CRORES TO RS. 20.48 LACS ITA NO. 877/JP/11 & C.O. NO. 84/JP/11 THE ACIT, CIRCLE, SIKAR VS. M/S SHRI MODI LEVIGATED KAOLIN PVT. LTD.SIKAR 3 (9) RESTRICTING THE DISALLOWANCE OF RS. 11,17,600/- TO RS. 45,400/- MADE ON ACCOUNT OF SALES COMMISSION U/S 40(A)(IA) OF IT ACT , 1961 WITHOUT AFFORDING ANY OPPORTUNITY TO THE AO UNDER RULE 46A OF THE IT ACT. ASSESSEES GROUND OF APPEAL IN CROSS OBJECTION: (1) IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE LD. AO IN CO MPLETING THE ASSESSMENT U/S 144 OF THE IT ACT, 1961. THE ACTION OF THE LD. CIT(A) IS ILLEGAL, UNJUSTIFIED, ARBITRARY AND AGAINST THE FA CTS OF THE CASE. RELIEF MAY PLEASE BE GRANTED BY QUASHING THE ORDER PASSED U/S 144 WHICH IS WITHOUT ADEQUATE OPPORTUNITY TO THE ASSESSEE. (2) IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.20,48,270/- OUT OF THE TOTAL ADDITION OF RS. 1,44,90,377/- MADE BY THE LD. AO ON THE ALLEGED GROUND OF SUPPRESSED SALES. THE ACTION OF THE LD. CIT(A) IS ILLEGAL, UNJUSTIFIED ARBITRARY AND AGAINST THE FACTS OF THE CASE. RELIE F MAY PLEASE BE GRANTED BY DELETING THE SAID TRADING ADDITION OF RS. 20,48, 270/-. (3) IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF A SUM OF R S. 45,400/- OUT OF TOTAL DISALLOWANCE OF RS. 11,17,600/- MADE BY LD. A O OUT OF SALES COMMISSION U/S 40(A)(IA). THE ACTION OF THE LD. CI T(A) IS ILLEGAL, UNJUSTIFIED, ARBITRARY AND AGAINST THE FACTS OF THE CASE. RELIEF MAY PLEASE BE GRANTED BY QUASHING THE SAID DISALLOWANCE OF RS. 45,400/-. (4) IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE L D. AO OF THE FOLLOWING EXPENSES: PARTICULARS TOTAL AMOUNT (IN RS.) DISALLOWANCE AMOUNT (IN RS.) REPAIR EXPENSES 2,11,033/ - 31,655/ - MISC. EXPENSES 95,172/- 14,276/- OFFICE EXPENSES 6,17,930/ - 92,690/ - ELECTRICITY EXPENSES 8,45,862/ - 1,28,879/ - TOTAL 17,69,997/ - 2,65,500/ - ITA NO. 877/JP/11 & C.O. NO. 84/JP/11 THE ACIT, CIRCLE, SIKAR VS. M/S SHRI MODI LEVIGATED KAOLIN PVT. LTD.SIKAR 4 THE ACTION OF THE LD. CIT(A) IS ILLEGAL, UNJUSTIFIE D , ARBITRARY AND AGAINST THE FACTS OF THE CASE. RELIEF MAY PLEASE BE GRANTED BY QUASHING THE SAID DISALLOWANCES OF RS. 2,65,600/- 2. FIRSTLY, REGARDING GROUND NO. 1 OF APPELLANTS C ROSS OBJECTION WHERE THE APPELLANT HAD CHALLENGED THE ACTION OF AO IN COMPLE TING THE ASSESSMENT U/S 144 OF THE ACT, THE SAME IS NOT PRESSED DURING THE COUR SE OF HEARING. HENCE, THE SAME IS DISMISSED AS NOT PRESSED. 2.1 REGARDING GROUND NO. 1-8 OF THE REVENUES APPEA L AND GROUND NO. 2 OF APPELLANTS CROSS OBJECTION, BRIEFLY THE FACTS OF T HE CASE ARE THAT THE APPELLANT IS A PRIVATE LIMITED COMPANY, ENGAGED IN MANUFACTURING O F CHINA CLAY FOR PAST SEVERAL YEARS. DURING THE CURRENT YEAR, THE TOTAL TURNOVER OF THE APPELLANT WAS SHOWN AT RS. 7,94,54,854/- WITH DECLARED G.P. OF 3 2.42% ON SUCH SALES. AFTER REDUCING THE INCOME FROM OTHER SOURCES OF RS. 6,5 0,000/- THE REVISED GP RATE WAS WORKED OUT AT 31.6%, WHEREAS IN THE PREVIOUS Y EAR, THE APPELLANT OFFERED THE GP RATE AT 35.7% ON THE TOTAL SALE OF RS. 5,99,85,9 71/-. THE AO OBSERVED THAT AS THE APPELLANT COULD NOT EXPLAIN THE FALL IN GP BY 4 .1% IN THE CURRENT YEAR AND ALSO THAT THEY DID NOT FURNISH THE BOOKS OF ACCOUNTS ET C. FOR VERIFICATION PURPOSES, THUS HE REACHED TO THE CONCLUSION THAT THE FALL IN GP OF THE CURRENT YEAR WAS RESULTANT OF SUPPRESSION OF SALE ON THE PART OF THE APPELLANT. ACCORDINGLY, HE COMPUTED THE QUANTUM OF SUPPRESSION OF SALE OF RS.1 ,44,90,377/- U/S 144 OF THE ACT, BASED ON THE COMPARATIVE FIGURES OF VARIOUS EX PENSES, RELATED TO THE MINING OPERATION OF THE CURRENT YEAR AND OF THE PREVIOUS Y EAR. 2.2 THE LD. AR ARGUED THE MATTER AND PUT FORTH SEVE RAL ARGUMENTS AND REITERATED ITS SUBMISSIONS MADE BEFORE LD CIT(A), W HICH CAN BE SUMMARIZED AS UNDER: I) THE APPELLANT COMPANY WORKS IN AN INDUSTRY, WHIC H IS HEAVILY REGULATED BY EXTERNAL GOVERNMENT AGENCIES LIKE MINING DEPARTMENT AND SALES TAX DEPARTMENT ETC. SEPARATE ASSESSMENTS HAVE BEEN FRA MED BY SUCH DEPARTMENTS FOR THE RELEVANT PERIOD AND NO ADVERSE FINDINGS HAVE BEEN ITA NO. 877/JP/11 & C.O. NO. 84/JP/11 THE ACIT, CIRCLE, SIKAR VS. M/S SHRI MODI LEVIGATED KAOLIN PVT. LTD.SIKAR 5 GIVEN THEREIN, IN RESPECT OF UNACCOUNTED PRODUCTION OF MINERALS AND SALES ETC. II) IT WAS ALSO ARGUED THAT THE AO HAS HASTILY REAC HED TO A CONCLUSION OF EXISTENCE OF UNACCOUNTED SALES, BY ADOPTING SOME RA TIO ANALYSIS, WITHOUT BRINGING ANY RELEVANT EVIDENCES ON RECORD OF SUCH E FFECT. THE PRODUCTS OF THE APPELLANT COMPANY ARE VOLUMINOUS IN NATURE, THE REFORE, FOR SUCH UNACCOUNTED TRANSACTIONS, HEAVY MEANS OF TRANSPORTA TIONS WOULD REQUIRE. HIDING SUCH GLARING ACTIVITY FROM THE VIGIL SQUADS OF THE MINING DEPARTMENT FOR LONGER TIME WOULD BE RATHER IMPOSSIBLE, IN GIVE N CIRCUMSTANCE. IN ABSENCE OF ANY POSITIVE EVIDENCES AGAINST THE APPEL LANT ON THIS ACCOUNT, THE ALLEGED UNACCOUNTED SALES, ARRIVED AT, BY SOLELY ON RATIO ANALYSIS METHOD IS HYPOTHETICAL AND UNJUSTIFIED, AS SUCH. III) THE PAST HISTORY OF THE APPELLANT ALSO SUGGEST S THAT THEY WERE NEVER FOUND INVOLVED IN HAVING UNACCOUNTED SALES, EVER. THUS, IN THE CURRENT YEAR, ARRIVING AT SUCH ADVERSE CONCLUSION, WITHOUT HAVING ANY SOLID BASIS, IS UNCALLED FOR AND UNJUSTIFIED ACT ON THE PART OF THE AO. IV) THE AR ALSO DEALT WITH THE OTHER ASPECT RAISED BY THE AO (I.E. PURCHASES OF ADDITIONAL PLANT & MACHINERY ETC. IN THE CURRENT YE AR) TO COUNTER THE ASSUMPTION OF HAVING UNACCOUNTED OF SALES ON THEIR PART. IT WAS SUBMITTED THAT THE PLANT & MACHINERY RELATED TO PRODUCTION PR OCESS WERE PURCHASED IN THE FAG END OF THE CURRENT YEAR, THUS, HAVING LI TTLE SIGNIFICANCE TO THE PRESENT ISSUE UNDER CONSIDERATION. V) HE ALSO EMPHASIZED THAT THE APPELLANT, BEING A P RIVATE LIMITED COMPANY REQUIRES TO KEEP ELABORATE QUANTITATIVE DETAILS IN RESPECT OF PRODUCTION AND SALE OF FINISHED GOODS AND THE BOOKS OF ACCOUNTS WE RE ALSO AUDITED. THUS WHILE MAKING THE ESTIMATION OF INCOME U/S 144, THE DETAILS AVAILABLE IN SUCH RECORDS SHOULD HAVE BEEN REFERRED TO. HOWEVER, THE AO HAS SIMPLY IGNORED THIS RELEVANT INFORMATION AND ADOPTED AN UNRECOGNIZ ED METHOD TO ESTIMATE THE INCOME U/S 144. ITA NO. 877/JP/11 & C.O. NO. 84/JP/11 THE ACIT, CIRCLE, SIKAR VS. M/S SHRI MODI LEVIGATED KAOLIN PVT. LTD.SIKAR 6 VI) IT WAS FURTHER CONTENDED THAT, WHILE MAKING BES T JUDGEMENT ASSESSMENT THE PAST HISTORY OF THE APPELLANT WAS MOST RELEVANT GUIDING FACTOR, TO ARRIVE AT A REASONABLE AND FAIR ESTIMATION OF INCOME UNDER THE GIVEN CIRCUMSTANCES. THE GROSS PROFIT RATIO AND CORRESPO NDING TURNOVER FOR LAST THREE ASSESSMENT YEARS WERE GIVEN AS UNDER. PARTICULARS A.Y. 2008-09 A.Y.2007-08 A.Y. 2006-07 U /S 143(3) GROSS RECEIPTS 79454854 59955971 49476157 GROSS PROFIT 25760928 21412280 15664550 GROSS PROFIT RATIO 32.42% 35.69% 31.66% THE LD. AR STATED THAT THE G.P. IN THE CURRENT YEAR OF 32.42% IS LOWER THAN THE IMMEDIATE PAST YEAR, BUT THIS WAS DUE TO THE IN CREASE IN TURNOVER INSUBSTANTIAL MANNER. SIMILARLY THE GP IN ABSOLUTE TERMS HAS INCREASED FROM RS. 2.14 CRORES TO RS. 2.57 CRORES IN THE CUR RENT YEAR. HE ALSO POINTED OUT THAT IF THE ADDITION MADE BY THE AO OF RS. 1.4 4 CRORES IS TAKEN INTO CONSIDERATION, THE GP RATIO WOULD COME TO 42.85% WH ICH IS HIGHLY UNREASONABLE AND IMPROBABLE, IN THE RELEVANT INDUST RY. HE ALSO ARGUED THAT IN THE PAST, NO ASSESSMENT AS MADE U/S 144 OF THE A CT IN THE APPELLANT CASE. IN VIEW OF THE ABOVE HISTORY OF THE APPELLANT, THE AO SHOULD HAVE ESTIMATED THE INCOME, IN THE LIGHT OF THE SAME ONLY. VII) WHILE DISCUSSING, THE GUIDING PRINCIPLES FOR B EST JUDGEMENT ASSESSMENT U/S 144, IT WAS ALSO ARGUED THAT THE ESTIMATION OF INCO ME U/S 144, SHOULD BE FAIR AND LINKED WITH THE PREVIOUS HISTORY OF THE A PPELLANT AND ALSO BASED ON THE OTHER RELIABLE AND RELEVANT BASIS, SUCH AS ASSE SSMENT ORDER OF SALES TAX/MINES DEPARTMENTS ETC. HE REFERRED TO VARIOUS DECISIONS WHICH HAVE ITA NO. 877/JP/11 & C.O. NO. 84/JP/11 THE ACIT, CIRCLE, SIKAR VS. M/S SHRI MODI LEVIGATED KAOLIN PVT. LTD.SIKAR 7 LAID DOWN THAT THE GUESS WORK RELATED TO ESTIMATE T HE INCOME U/S 144, SHOULD HAVE REASONABLE LINKS WITH THE AVAILABLE REL EVANT MATERIALS AND ALSO MUST BE AN HONEST APPROACH TO ENSUE THE CORRECT OUT COME THEREOF. IN THE BEST JUDGEMENT ASSESSMENT, THE AO CANNOT ACT ON MER E CONJECTURE OR SUSPICION, BASED ON ADEQUATE RELEVANT MATERIALS. I N THIS REGARD, THE LD. AR RELIED UPON VARIOUS JUDGEMENTS INCLUDING, THE FOLLO WING: A) GANGA PRASAD SHARMA 132 ITR 87 (MP) B) BHUSHANLAL PARDUMAL KUMAR 115 ITR 524 (SC) C) RANICHERRA TEA CO. LTD. 207 ITR 979 ( CAL.) D) STATE OF V.C. VELUKUTTI 60 ITR 239(SC) IN VIEW OF THE ABOVE AND ALSO THE VIEWS UPHELD BY T HE HONBLE COURTS, IT WAS SUBMITTED THAT THE AOS WORKING, ADOPTED TOWARD S THE ESTIMATION OF INCOME U/S 144A IS ARBITRARY AND SPECULATIVE IN NAT URE, THUS THE ADDITION MADE ON SUCH ERRONEOUS BASIS IS DESERVED TO BE REJE CTED, ACCORDINGLY. 2.3 THE LD. DR IS HEARD WHO HAS VEHEMENTLY ARGUED T HE MATTER AND SUBMITTED THAT APPROACH ADOPTED BY THE AO IN ESTIMATING THE V ALUE OF SUPPRESSED SALE IS AN APPROPRIATE AND REASONABLE BASIS WHICH SHOULD BE UP HELD. 2.4 WE HAVE HEARD THE RIVAL CONTENTIONS AND PURSUED THE MATERIAL ON RECORD. THE APPELLANT HAS SHOWN GP RATE OF 32.42% AS COMPAR ED TO 35.7% IN THE PREVIOUS YEAR. THE AO OBSERVED THAT AS THE APPELLANT COULD NOT EXPLAIN THE FALL IN G.P. IN ITA NO. 877/JP/11 & C.O. NO. 84/JP/11 THE ACIT, CIRCLE, SIKAR VS. M/S SHRI MODI LEVIGATED KAOLIN PVT. LTD.SIKAR 8 THE CURRENT YEAR AND ALSO THAT IT DID NOT FURNISH T HE BOOKS OF ACCOUNTS FOR VERIFICATION PURPOSES, HE REACHED THE CONCLUSION TH AT THE FALL IN G.P. OF THE CURRENT YEAR WAS ON ACCOUNT OF SUPPRESSION OF SALES ON THE PART OF THE APPELLANT. ACCORDINGLY, HE COMPUTED THE QUANTUM OF SUPPRESSED SALE OF RS.1,44,90,377/- U/S 144 OF THE ACT BY APPLYING THE SALES EXPENDITURE RA TIO OF THE PREVIOUS YEAR AND APPLYING THE SAME TO CURRENT YEAR EXPENDITURE. THE AO APPLIED THE RATIO OF SALE AND CORRESPONDING DIFFERENT MANUFACTURING EXPENSES OF PREVIOUS YEAR TO THE CURRENT YEAR AND CALCULATED 7 DIFFERENT ESTIMATION OF SALES OF THE APPELLANT. SUBSEQUENTLY, HE TOOK THE AVERAGE OF SUCH 7 ESTIMAT ED SALES TO ARRIVE AT A FINAL BROAD-BASED FIGURE OF THE ESTIMATED SALE OF THE CUR RENT YEAR. EVENTUALLY THE DIFFERENCE IN BETWEEN THE ACTUAL SALES SHOWN BY THE APPELLANT AND SUCH ESTIMATED SALES WAS CONSIDERED AS SUPPRESSED SALES ON THE PAR T OF THE APPELLANT. AS AGAINST THIS, THE LD. CIT(A) HAS COMPARED THE G.P. RATE OF THE PAST YEAR AT 35.69% AS COMPARED TO 32.42% OF THE CURRENT YEAR AND HELD THA T CONSIDERING ALL THE RELEVANT FACTS THE G.P. OF THE CURRENT YEAR CAN BE ESTIMATED AT 35% WHICH WOULD MEET THE END OF THE JUSTICE AND ALSO COVER UP ALL THE DEFICI ENCIES AND OMISSIONS FOUND IN RESPECT OF BOOKS OF ACCOUNTS. 2.5 IF WE WERE TO ANALYSE THE BASIS ADOPTED BY THE AO AS WELL AS BY THE LD. CIT(A), IT IS OBSERVED THAT BOTH THE LOWER AUTHORIT IES HAVE RELIED ON THE ASSESSEES ITA NO. 877/JP/11 & C.O. NO. 84/JP/11 THE ACIT, CIRCLE, SIKAR VS. M/S SHRI MODI LEVIGATED KAOLIN PVT. LTD.SIKAR 9 PAST RECORD OF THE IMMEDIATELY PRECEDING FINANCIAL YEAR WHILE DETERMINING THE ESTIMATES PROFITS OF THE CURRENT YEAR. THE AO HAS APPLIED INDIVIDUAL EXPENSE TO SALE RATIO OF THE VARIOUS EXPENDITURE INCURRED BY T HE APPELLANT WHEREAS THE LD. CIT(A) BY COMPARING THE G.P. RATIO HAS EFFECTIVELY APPLIED THE GROSS OPERATING RATIO. IF WE WERE TO ACCEPT THE METHOD ADOPTED BY THE AO IT WOULD RESULT IN A G.P. RATIO OF 42.85% WHICH SEEM HIGHLY UNREASONABLE VIS--VIS PAST ASSESSMENT HISTORY OF THE ASSESSEE WHERE THE ASSESSEE HAS DISC LOSED 35.69% IN A.Y. 2007-08 AND 31.66% IN A.Y. 2006-07 WHICH HAS BEEN ACCEPTED BY THE REVENUE AUTHORITIES. FURTHER IT IS ALSO NOTED THAT WHOLE BASIS FOR CARRY ING OUT THIS EXERCISE BY THE AO WAS TO FIND REASON FOR THE FALL IN THE G.P. RATE AN D HAVING CONCLUDED THE EXERCISE AND FOUND THE SUPPRESSED SALE FIGURE, THE AO INSTEA D OF APPLYING THE G.P. RATE ON SUCH SUPPRESSED SALES HAS BROUGHT TO TAX THE WHOLE OF THE SUPPRESSED SALE IN THE HANDS OF THE ASSESSEE. WE ARE UNABLE TO ACCEPT SUC H ARBITRARY APPROACH FOLLOWED BY THE AO WHICH HAS NO BASIS TO STAND IN THE EYE OF LAW. WE BELIEVE THAT LD CIT(A) HAS APPLIED A FAIR AND REASONABLE APPROACH WHERE HE HAS COMPARED THE PAST OPERATING RESULTS AT THE ENTITY LEVEL RATHER AT THE INDIVIDUAL EXPENSE LEVEL AND COMPARED THE SAME WITH THE CURRENT YEAR RESULTS. ITA NO. 877/JP/11 & C.O. NO. 84/JP/11 THE ACIT, CIRCLE, SIKAR VS. M/S SHRI MODI LEVIGATED KAOLIN PVT. LTD.SIKAR 10 2.6 WE THEREFORE UPHOLD THE FOLLOWING FINDING OF CI T(A): IN NUT SHELL THE AO HAS SOLELY RELIED UPON A MATHE MATICAL RATIO TO ARRIVE AT A PARTICULAR CONCLUSION. HOWEVER, IT IS FELT THAT TH E APPLICATION OF SUCH MATHEMATICAL RATIO OF PREVIOUS YEAR ON THE CORRESPONDING FIGURE OF CURRENT YEAR TO THE ESTIMATES THE PROBABLE SALE OF CURRENT PERIOD IS ALSO SUBJECT ED TO VARIOUS INHERENT LIMITATIONS AND DEFECTS, WHICH RESTRICT ITS UNIVERSAL APPLICABI LITY IN FINANCIAL MATTERS LIKE THE PRESENT ONE. IN THE INSTANT CASE, THE AO HAS SIMP LY ADOPTED THE ABOVE RATIO ANALYSIS METHOD WITHOUT CONSIDERING THE OTHER RELE VANT DECIDING FACTORS, AFFECTING THE QUANTUM OF THE MANUFACTURING EXPENSES UNDER CO NSIDERATION. THIS IS A KNOWN FACT THAT THE ANY MANUFACTURING AND RELATED E XPENSES DEPEND UPON DIFFERENT VARIABLES, LIKE NATURE OF PRODUCT, RATE/P RICE OF THE RAW MATERIALS OR LABOUR SERVICES INVOLVED, WORKING CONDITIONS AND GO VERNMENT POLICIES ETC. IN RESPECTIVE YEARS. UNTIL AND UNLESS, THESE INFORMAT ION OF THE RELEVANT YEARS ARE TAKEN INTO CONSIDERATION, THE COMPARISON OF SUCH HE ADS/ITEMS OF DIFFERENT PERIODS ARE NOT STRICTLY COMPARABLE , AS SUCH. THE INFEREN CE OF THE EXERCISE CONDUCTED BY THE AO DO PROVIDE BROAD NEGATIVE INDICATION, TOWARD S RELIABILITY ASPECT OF THE BOOKS RESULT OF THE APPELLANT. HOWEVER, IT IS ALSO PERCEIVED THAT DUE TO THE APPARENT LIMITATION OF SUCH EXERCISE, THE OUTCOME O F SAME CANNOT BE SUBSTITUTED, AS IT IS, FOR THE QUANTIFICATION OF SUCH GREY AREA . IN VIEW OF THE ABOVE CONCLUSION, THE ACT OF THE AO, BEING OF SIMILAR NATURE IN THE P RESENT CASE, IS FOUND DEVOID OF ANY MERIT OR JUSTIFICATION UNDER THE GIVEN CIRCUMST ANCES. THUS, THE ADOPTION RESULT OF MATHEMATICAL RATIO OF PY TO CURRENT YEAR, IS HEL D RATHER STRETCHING THE LOGIC BEYOND THE RATIONAL LIMIT AND CANNOT BE UPHELD. ITA NO. 877/JP/11 & C.O. NO. 84/JP/11 THE ACIT, CIRCLE, SIKAR VS. M/S SHRI MODI LEVIGATED KAOLIN PVT. LTD.SIKAR 11 ON THE OTHER HAND, I FOUND FORCE AND LOGIC IN THE APPELLANTS ARGUMENT THAT THEY ARE SUBJECTED TO SCRUTINY OF GOVERNMENT DEPARTMENTS LIKE MINING DEPARTMENT AND SALES TAX DEPARTMENT, AND NO ADVERSE FINDINGS HAVE BEEN GIVEN IN THEIR RESPECTIVE ASSESSMENTS OF THE RELEVANT PERIOD. MOREOVER, THE LD. AR HAS RIGHTLY POINTED OUT THAT THE AO HAS SIMPLY RELIED UPON A SPECULATIVE AN D DEBATABLE EXERCISE, I.R.O. THE IMAGINARY SUPPRESSION OF SALES, RATHER THAN BRINGIN G SOME COGENT EVIDENCES IN THIS REGARD, THE PAST HISTORY OF THE APPELLANT WOULD HAV E ALSO BEEN QUITE RELEVANT, TO THE PRESENT ISSUE WHICH HAS BEEN OVERLOOKED BY TH E AO. IN THIS REGARD, VARIOUS COURTS HAVE HELD THAT THE ESTIMATE OF INCOME, UNDER THE BEST JUDGEMENT ASSESSMENT, SHOULD HAVE FAIR LINKED OR NEXUS WITH T HE AVAILABLE MATERIAL AND INFORMATION RELATED TO THE TAX PAYER. IT IS ALSO D ECIDED BY THE COURTS THAT ONCE THE BOOKS OF ACCOUNTS ARE REJECTED OR AN ASSESSMENT ORD ER IS TO BE PASSED U/S 144 OF THE ACT, THE PAST HISTORY OF THE APPELLANT IS THE M OST RELEVANT GUIDING FACTORS IN THIS REGARD. 2.7 IN THE CONTEXT OF SECTION 144 OF THE ACT, THE E XPRESSION 'TO THE BEST OF HIS JUDGMENT' WAS THE SUBJECT OF JUDICIAL SCRUTINY BY T HE PRIVY COUNCIL IN CASE OF COMMISSIONER OF INCOME-TAX V. LAXMINARAIN BADRIDAS [1937] 5 ITR 170 (PC) WHICH HAS LAID DOWN THE FOLLOWING PROPOSITION OF LAW IN C ONTEXT OF SECTION 23(4) OF THE INCOME TAX ACT, 1922 CORRESPONDING TO SECTION 144 O F THE ACT: THE OFFICER IS TO MAKE AN ASSESSMENT TO THE BEST O F HIS JUDGMENT AGAINST A PERSON WHO IS IN DEFAULT AS REGARDS SUPPLYING INFORMATION. HE 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 AND REPUTE IN REGARD TO THE ASSESSEES CI RCUMSTANCES, AND HIS OWN KNOWLEDGE OF PREVIOUS RETURNS BY AND ASSESSMENTS OF THE ASSESSEE, AND ALL OTHER MATTERS WHICH HE THINKS WILL ASSIST HIM IN ARRIVING AT A FAIR AND PROPER ESTIMATE; AND THOUGH THERE MUST NECESSARILY BE GUESS-WORK IN THE MATTER, IT MUST BE HONEST GUESS-WORK. IN THAT SENSE, TOO, THE ASSESSMENT MUST BE TO SOME EXTENT ARBITRARY. ITA NO. 877/JP/11 & C.O. NO. 84/JP/11 THE ACIT, CIRCLE, SIKAR VS. M/S SHRI MODI LEVIGATED KAOLIN PVT. LTD.SIKAR 12 THE SECTION PLACES THE OFFICER IN THE POSITION OF A PERSON WHOSE DECISION AS TO AMOUNT WAS FINAL AND SUBJECT TO NO APPEAL, BUT WHOS E DECISION IF IT COULD BE SHOWN TO HAVE BEEN ARRIVED AT WITHOUT AN HONEST EXE RCISE OF JUDGMENT, MAY BE REVISED OR REVIEWED BY THE COMMISSIONER UNDER THE P OWERS CONFERRED UPON THAT OFFICIAL BY SECTION 33 OF 1922 ACT. FURTHER, HONBLE SUPREME COURT IN CASE OF BRIJ BHUS HAN LAL PARDUMAN KUMAR VS. COMMISSIONER OF INCOME-TAX [1978] 115 ITR 524 (SC) HAS HELD AS UNDER: SINCE THE LAW RELATING TO 'BEST JUDGMENT ASSESSMEN T' IS THE SAME BOTH IN THE CASE OF INCOME-TAX ASSESSMENT AND SALES TAX ASSESSMENT, THE FOLLOWING OBSERVATIONS OF THIS COURT IN RAGHUBAR MANDAL HARIHAR MANDAL V. STA TE OF BIHAR [1957] 8 STC 770 , 778 (SC), A CASE UNDER THE BIHAR SALES TAX ACT, WOU LD BE MATERIAL: 'NO DOUBT IT IS TRUE THAT WHEN THE RETURNS AND THE BOOKS OF ACCOUNT ARE REJECTED, THE ASSESSING OFFICER MUST MAKE AN ESTIMATE, AND TO THAT EXTENT HE MUST MAKE A GUESS; BUT THE ESTIMATE MUST BE RELATED TO SOME EVI DENCE OR MATERIAL AND IT MUST BE SOMETHING MORE THAN MERE SUSPICION.' AGAIN IN STALE OF KERALA V. C. VELUKUTTY [1966] 60 ITR 239 (SC), WHICH WAS A CASE UNDER THE TRAVANCORE-COCHIN GENERAL SALES TAX ACT, SUBBA RAO J. (AS HE THEN WAS), SPEAKING FOR THIS COURT, OBSERVED AT PAGE 244 OF TH E REPORT THUS: 'THE LIMITS OF THE POWER ARE IMPLICIT IN THE EXPRES SION 'BEST OF HIS JUDGMENT'. JUDGMENT IS A FACULTY TO DECIDE MATTERS WITH WISDOM TRULY AND LEGALLY. JUDGMENT DOES NOT DEPEND UPON THE ARBITRARY CAPRICE OF A JUD GE, BUT ON SETTLED AND INVARIABLE PRINCIPLES OF JUSTICE. THOUGH THERE IS A N ELEMENT OF GUESSWORK IN A 'BEST JUDGMENT ASSESSMENT', IT SHALL NOT BE A WILD ONE, B UT SHALL HAVE A REASONABLE NEXUS TO THE AVAILABLE MATERIAL AND THE CIRCUMSTANC ES OF EACH CASE.' IT WILL APPEAR CLEAR FROM WHAT HAS BEEN SAID ABOVE THAT THE AUTHORITY MAKING A BEST JUDGMENT ASSESSMENT MUST MAKE AN HONEST AND FA IR ESTIMATE OF THE INCOME OF THE ASSESSEE AND THOUGH ARBITRARINESS CANNOT BE AVOIDED IN SUCH ESTIMATE THE SAME MUST NOT BE CAPRICIOUS BUT SHOULD HAVE A REASO NABLE NEXUS TO THE AVAILABLE MATERIAL AND THE CIRCUMSTANCES OF THE CASE. IT IS W ITH REFERENCE TO THESE PRINCIPLES THAT THE QUESTION RAISED BEFORE US WILL HAVE TO BE CONSIDERED AND LOOKING AT IT FROM THAT POINT OF VIEW THE REAL QUESTION IS WHETHER THE TURNOVER REPRESENTED BY THE ITA NO. 877/JP/11 & C.O. NO. 84/JP/11 THE ACIT, CIRCLE, SIKAR VS. M/S SHRI MODI LEVIGATED KAOLIN PVT. LTD.SIKAR 13 COST OF THE STORES/ MATERIAL SUPPLIED BY THE M.E.S. DEPARTMENT INVOLVES ANY ELEMENT OF PROFIT HAVING REGARD TO THE TERMS AND CO NDITIONS ON WHICH SUCH SUPPLY IS MADE? IF IT DOES, THEN THE COST OF SUCH STORES/M ATERIAL WILL HAVE TO BE TAKEN INTO ACCOUNT, BUT IF IT DOES NOT, SUCH COST WILL HAVE TO BE EXCLUDED. THE HIGH COURT OF CALCUTTA IN CASE OF COMMISSIONER OF INCOME-TAX V. RANICHERRA TEA CO. LTD. [1994] 75 TAXMAN 164 (CAL.) HAS HELD A S UNDER: IT WAS NO DOUBT TRUE THAT THE FACTS OF THE INSTANT CASE JUSTIFIED EX PARTE BEST JUDGMENT ASSESSMENT UNDER SECTION 144 BECAUSE OF TH E DEFAULTS COMMITTED BY THE ASSESSEE BUT IN MAKING A 'BEST JUDGMENT ASSESSMENT' , THE ASSESSING OFFICER CANNOT ACT DISHONESTLY OR VINDICTIVELY OR CAPRICIOUSLY BEC AUSE HE MUST EXERCISE THE JUDGMENT IN THE MATTER. IN MAKING A 'BEST JUDGMENT' , THE ASSESSING OFFICER DOES NOT POSSESS ABSOLUTE ARBITRARY AUTHORITY TO ASSESS ANY FIGURE HE LIKES AND ALTHOUGH HE IS NOT BOUND BY STRICT JUDICIAL PRINCIPLES HE SH OULD BE GUIDED BY RULES OF JUSTICE, EQUITY AND GOOD CONSCIENCE. THE LIMITS OF THE POWER OF THE ASSESSING OFFICER ARE IMPLICIT IN THE EXPRESSION 'BEST OF THE JUDGMENT'. THOUGH THERE IS AN ELEMENT OF GUESS WORK IN A 'BEST JUDGMENT ASSESSMENT', IT SHAL L NOT BE A WILD ONE BUT SHALL HAVE REASONABLE NEXUS TO THE AVAILABLE MATERIAL AND THE CIRCUMSTANCES OF EACH CASE. 2.8 IN LIGHT OF ABOVE PROPOSITION OF LAW AND FACTS OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT THE APPROACH FOLLOWED BY THE A O IS DEVOID OF ANY RATIONAL, FAIR OR EVEN MATHEMATICAL BASIS FOR DETERMINING THE FIGURE OF SUPPRESSED SALES AND THE RESULTANT PROFITS. SECONDLY, WHAT HAS TO BE BR OUGHT TO TAX IS THE AMOUNT OF PROFIT AND NOT THE WHOLE OF THE SALES WHICH HAS BEE N ESTIMATED. THE APPROACH ADOPTED BY LD CIT(A) IS FAIR AND REASONABLE AND HAS MORE RATIONAL BASIS WITH THE ASSESSEES LINE OF BUSINESS AND PAST HISTORY. WE A CCORDINGLY, CONFIRM THE FINDINGS AND ORDER OF LD CIT(A). HENCE, GROUND NO. 1-8 OF T HE REVENUES APPEAL AND GROUND NO. 2 OF APPELLANTS CROSS OBJECTION ARE DISMISSED. ITA NO. 877/JP/11 & C.O. NO. 84/JP/11 THE ACIT, CIRCLE, SIKAR VS. M/S SHRI MODI LEVIGATED KAOLIN PVT. LTD.SIKAR 14 3. REGARDING GROUND NO. 9 OF THE REVENUES APPEAL, THE REVENUE HAS CHALLENGED NON-AVAILABILITY OF OPPORTUNITY TO EXAMINE THE ADDI TIONAL EVIDENCE REGARDING DEDUCTION OF TDS ON SALES COMMISSIONS AND CORRESPON DING DISALLOWANCE U/S 40(A)(IA) OF THE ACT. FROM PERUSAL OF LD CIT(A)S ORDER, IT IS NOTED THAT THOUGH HE HAS EXAMINED THE ADDITIONAL EVIDENCE SUBMITTED BY T HE APPELLANT DURING THE COURSE OF APPELLATE PROCEEDINGS, NO REMAND REPORT W AS CALLED FROM THE AO AND HENCE, THE REVENUE IS CORRECT IN ITS CONTENTION THA T THE PROVISIONS OF RULE 46A HAS NOT BEEN ADHERED TO. WE ACCORDINGLY SET ASIDE THIS MATTER TO THE FILE OF LD CIT(A) TO DECIDE THE MATTER A FRESH AS PER LAW AFTER ALLOW ING REVENUE AN OPPORTUNITY TO EXAMINE THE ADDITIONAL EVIDENCE AND ALLOWING APPELL ANT TO SUBMIT ANY REJOINDER IN THAT REGARD. HENCE, THIS GROUND OF REVENUE IS ALLO WED FOR STATISTICAL PURPOSES. 4. REGARDING GROUND NO. 3 OF APPELLANTS CROSS OBJE CTION, THE SAME WAS NOT PRESSED DURING THE COURSE OF HEARING. HENCE, THE S AME IS DISMISSED AS NOT PRESSED. 5. REGARDING GROUND NO. 4 OF APPELLANTS CROSS OBJE CTION, WE FIND THAT LD CIT(A) WAS RIGHT IN CONFIRMING THE DISALLOWANCE IN ABSENCE OF SUPPORTING DETAILS AND DOCUMENTATION WHICH THE APPELLANT FAILED TO FURNISH . IN LIGHT OF SAME, WE DISMISS THIS GROUND OF APPELLANTS CROSS OBJECTION. THE APPEAL FILED BY THE DEPARTMENT AND CROSS OBJECT IONS OF THE APPELLANT ARE DECIDED ACCORDINGLY. ORDER PRONOUNCED IN THE OPEN COURT ON 31/0 3/2016. SD/- SD/- (R.P. TOLANI) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER ITA NO. 877/JP/11 & C.O. NO. 84/JP/11 THE ACIT, CIRCLE, SIKAR VS. M/S SHRI MODI LEVIGATED KAOLIN PVT. LTD.SIKAR 15 JAIPUR DATED:- 31 / 03 /2016 PILLAI VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- THE ACIT, CIRCLE, SIKAR 2. THE RESPONDENT- M/S SHRI MODI LEVIGATED KAOLIN PVT. LTD. SIKAR 3. THE CIT(A) III, JAIPUR 4. THE CIT-III, JAIPUR 5. THE DR, ITAT, JAIPUR 6. GUARD FILE (ITA NO 877/JP/11 & CO NO. 84/JP/11) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR