ACIT, CIR-35, KOLKATA, Kolkata V. Shri Lalit Kumar Khetan, Kolkata

ITA 887/KOL/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 1487 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 17-06-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: R M JAIN
• Keywords: Rejection of books of accounts; Business income; Additional evidence
• Section: 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH A, KOLKATA [BEFORE SHRI P.M. JAGTAP, AM & SHRI S.S. VISWANETHRA RAVI, JM ] I.T.A. NO. 865/KOL/2015 ASSESSMENT YEAR 2010-11 SHRI LALIT KUMAR KHETAN...............................APPELLANT C/O. INDUSTRIAL ASSOCIATES, P-12, NEW HOWRAH BRIDGE, APPROACH ROAD, 6 TH FLOOR KOLKATA 700 001 [PAN: AHLPK 2058 E] JCIT, RANGE 35,....................RESPONDENT AAYAKAR BHAWAN, POORVA, 110, SHANTIPALLY, KOLKATA - 700107 I.T.A. NO. 887/KOL/2015 ASSESSMENT YEAR 2010-11 JCIT, RANGE 35.............................APPELLANT AAYAKAR BHAWAN, POORVA, 110, SHANTIPALLY, KOLKATA - 700107 SHRI LALIT KUMAR KHETAN,...................RESPONDENT C/O. INDUSTRIAL ASSOCIATES, P-12, NEW HOWRAH BRIDGE, APPROACH ROAD, 6 TH FLOOR KOLKATA 700 001 [PAN: AHLPK 2058 E] APPEARANCES BY: SHRI SALLONG YADEN, ADDL. CIT APPEARING ON BEHALF OF THE REVENUE. SHRI R.M. JAIN, FCA APPEARING ON BEHALF OF THE ASSESSEE. DATE OF CONCLUDING THE HEARING : JULY 07, 2017 DATE OF PRONOUNCING THE ORDER : AUGUST 31, 2017 ORDER SHRI P.M. JAGTAP, AM THESE TWO APPEALS, ONE FILED BY THE ASSESSEE BEING ITA NO. 865/KOL/2015 AND THE OTHER FILED BY THE REVENUE BEING ITA NO. 2 I.T.A. NOS. 865 & 887/KOL/2015 LALIT KUMAR KHETAN 887/KOL/2015, ARE CROSS-APPEALS WHICH ARE DIRECTED AGAINST THE ORDER OF LD. CIT (APPEALS) 10, KOLKATA, DATED 30.03.2015. 2. THE MAIN COMMON ISSUE INVOLVED IN THESE APPEALS RELATES TO THE REJECTION OF BOOKS OF ACCOUNTS AND DETERMINATION OF THE INCOME OF THE ASSESSEE FROM BUSINESS ON ESTIMATED BASIS. 3. THE ASSESSEE IN THE PRESENT CASE IS AN INDIVIDUAL WHO IS ENGAGED IN THE BUSINESS OF TRADING IN JUTE AND JUTE GOODS IN THE NAME AND STYLE OF HIS PROPRIETARY CONCERN M/S. INDUSTRIAL ASSOCIATES. A SURVEY OPERATION U/S 133A OF THE ACT WAS CARRIED OUT AT THE BUSINESS PREMISES OF THE ASSESSEE ON 05.03.2010. THEREAFTER THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY THE ASSESSEE ON 28.09.2010 DECLARING A TOTAL INCOME OF RS. 1,02,19,970/-. DURING THE COURSE OF SURVEY, THE EXTRACT OF THE TRIAL BALANCE AND PROFIT & LOSS ACCOUNT FOR THE PERIOD 01.04.2009 TO 05.03.2010 WAS TAKEN FROM THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE ON COMPUTER. AS PER THE TRADING ACCOUNT, THE GROSS PROFIT FOR THE PERIOD 01.04.2009 TO 05.03.2010 WAS REFLECTED AT RS. 6,96,75,365/- AS UNDER: OPENING STOCK RS. 3,54,13,282/- SALE RS. 77,52,09,460/- PURCHASE RS. 67,31,98,431/- CLOSING STOCK RS. 1,00,42,549/- CUSTOM CLEARING RS. 7,43,413/- FREIGHT RS. 62,21,518/- GROSS PROFIT RS. 6,96,75,365/- ------- --------------- ------------------------ RS. 78,52,52,009/- RS. 78,52,09,460/- IMMEDIATELY AFTER SURVEY I.E. ON 10.03.2010, THE ASSESSEE FILED REVISED TRADING ACCOUNT FOR THE PERIOD 01.04.2009 TO 05.03.2010 SHOWING A GROSS PROFIT AT RS. 5.08.78,492/- AS UNDER: 3 I.T.A. NOS. 865 & 887/KOL/2015 LALIT KUMAR KHETAN OPENING STOCK RS. 3,54,13,282/- SALE RS. 77,52,09,460/- PURCHASE RS. 67,31,98,431/- CLOSING STOCK RS. 1,00,42,516/- CUSTOM CLEARING RS. 47,64,950/- FREIGHT RS. 2,09,96,821/- GROSS PROFIT RS. 5,08,78,492/- ------- --------------- ------------------------ RS. 78,52,51,976/- RS. 78,52,51,976/- IN THE TRADING ACCOUNT FILED ALONG WITH THE RETURN OF INCOME, THE GROSS PROFIT FOR THE YEAR 01.04.2009 TO 31.03.2010 WAS SHOWN BY THE ASSESSEE AT RS. 5,33,61,429/- AS UNDER: OPENING STOCK RS. 3,54,13,282/- SALE RS. 1,05,78,02,528/- PURCHASE RS. 96,73,60,137/- CLOSING STOCK RS. 1,1233,461/- CUSTOM CLEARING RS. 50,92,562/- FREIGHT RS. 78,08,576/- GROSS PROFIT RS. 5,33,61,429/- ------- --------------- ------------------------ RS. 1,06,90,35,989/- RS. 1,06,90,35,989/- BY TAKING INTO ACCOUNT THE RELEVANT FIGURES AS APPEARING IN THE TRADING ACCOUNTS OF THE PRE SURVEY PERIOD AND IN THE TRADING ACCOUNT FOR THE YEAR 01.04.2009 TO 31.03.2010 AS FURNISHED BY THE ASSESSEE, THE TRADING ACCOUNT FOR THE POST SURVEY PERIOD 06.03.2009 TO 31.03.2010 WAS PREPARED BY THE AO AS UNDER: OPENING STOCK RS. 1,00,42,516/- SALE RS. 28,25,93,068/- PURCHASE RS. 29,41,61,706/- CLOSING STOCK RS. 1,12,33,461/- CUSTOM CLEARING RS. 3,27,612/- FREIGHT RS. 15,87,061/- ------- --------------- GROSS LOSS RS. 1,22,92,366/- RS. 78,52,52,009/- RS. 30,61,18,895/- 4. FROM THE ANALYSIS OF THE ABOVE TRADING ACCOUNTS, THE AO NOTED THAT THE GROSS PROFIT AS PER THE TRADING ACCOUNT PREPARED AT THE TIME OF 4 I.T.A. NOS. 865 & 887/KOL/2015 LALIT KUMAR KHETAN SURVEY WAS 8.87% WHEREAS THE SAME WAS SHOWN BY THE ASSESSEE IN THE REVISED TRADING ACCOUNT WAS 6.47%. HE ALSO NOTED THAT THERE WAS AN UNUSUAL VARIATION IN THE FREIGHT EXPENSES CLAIMED BY THE ASSESSEE IN THE TRADING ACCOUNTS IN AS MUCH AS THE FREIGHT EXPENSES CLAIMED IN THE REVISED TRADING ACCOUNT PREPARED FOR THE PRE SURVEY PERIOD WERE TO THE TUNE OF RS. 2,09,96,821/- WHILE THE SAME AS SHOWN IN THE FINAL TRADING ACCOUNT FURNISHED BY THE ASSESSEE FOR THE ENTIRE YEAR WERE ONLY TO THE EXTENT OF RS. 78,08,576/-. HE ALSO FOUND THAT THERE WAS A TRADING LOSS OF ABOUT 1.23 CRORES FOR THE PAST SURVEY PERIOD AS REFLECTED IN THE TRADING ACCOUNT PREPARED BY HIM. THE AO HELD THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE THUS WERE NEITHER CORRECT NOR COMPLETE AND AFTER RECORDING HIS DISSATISFACTION IN THIS REGARD, HE REJECTED THE BOOKS OF ACCOUNTS OF THE ASSESSEE. HE THEN PREPARED RECTIFIED TRADING ACCOUNT OF THE ASSESSEE FOR THE PRE SURVEY PERIOD BY ADJUSTING THE FREIGHT EXPENSES WITH THE FIGURES GIVEN BY THE ASSESSEE IN THE REVISED TRADING ACCOUNT WHICH GAVE A GROSS PROFIT RATE OF 8.36% AND BY APPLYING THE SAME AS AGAINST THE GP RATE OF 4.99% DECLARED BY THE ASSESSEE IN THE FINAL TRADING ACCOUNT FOR THE ENTIRE YEAR, THE BUSINESS INCOME OF THE ASSESSEE WAS ESTIMATED BY THE AO WHICH RESULTED IN THE TRADING ADDITION OF RS. 3,60,09,979/- 5. THE TRADING ADDITION MADE BY THE AO WAS CHALLENGED BY THE ASSESSEE IN THE APPEAL FILED BEFORE THE LD. CIT (A). DURING THE COURSE OF APPELLATE PROCEEDING BEFORE THE LD. CIT (A), THE ACTION OF THE AO IN REJECTING THE BOOKS OF ACCOUNTS WAS CHALLENGED BY THE ASSESSEE. IN THIS REGARD ADDITIONAL EVIDENCE WAS FILED BY THE ASSESSEE BEFORE THE LD. CIT (A) TO SHOW THE SYSTEM ON ACCOUNTING OF FREIGHT CHARGES FOLLOWED BY HIM IN ORDER TO EXPLAIN THE VARIATION IN FREIGHT CHARGES AS REFLECTED 5 I.T.A. NOS. 865 & 887/KOL/2015 LALIT KUMAR KHETAN IN THE DIFFERENT TRADING ACCOUNTS. THIS ADDITIONAL EVIDENCE WAS FORWARDED BY THE LD. CIT (A) TO THE AO FOR HIS VERIFICATION AND COMMENTS. ALTHOUGH A REMAND REPORT WAS SUBMITTED BY THE AO TO THE LD. CIT (A), THE SAME, ACCORDING TO THE LD. CIT (A), DID NOT CONTAIN ANY SPECIFIC FINDINGS / OBSERVATIONS ON THE ADDITIONAL EVIDENCE FILED BY THE ASSESSEE AND CONTAINED ONLY THE SAME OBSERVATIONS / FINDINGS AS GIVEN IN THE ASSESSMENT ORDER. DURING THE COURSE OF HEARING BEFORE THE LD. CIT (A), VARIOUS SUBMISSIONS WERE MADE BY THE ASSESSEE IN SUPPORT OF HIS CASE THAT IN THE ABSENCE OF ANY SPECIFIC OR MATERIAL DEFECTS POINTED OUT BY THE AO IN THE BOOKS OF ACCOUNTS, THE REJECTION OF THE SAME WAS NOT JUSTIFIED. AFTER DISCUSSING THESE SUBMISSIONS MADE BY THE ASSESSEE IN THE LIGHT OF FINDINGS / OBSERVATIONS RECORDED BY THE AO IN THE ASSESSMENT ORDER, THE LD. CIT (A) HOWEVER HELD THAT THERE WERE CERTAIN MATERIAL AND SPECIFIC DEFECTS POINTED OUT BY THE AO IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE. THE SAME AS SUMMARISED BY THE LD. CIT (A) IN HIS IMPUGNED ORDER WERE AS UNDER: I. G.P. IN THE POST SURVEY PERIOD AS PER REVISED TRADING ACCOUNT PREPARED BY THE AO IS MINUS 4.18% (PAGE 4). II. GROSS PROFIT UPTO THE DATE OF SURVEY WAS 8.87% WHEREAS AS PER REVISED TRADING ACCOUNT THAT UPTO THE DATE OF SURVEY AS FILED BY THE APPELLANT IS 6.47%. III. CUSTOM CLEARING CHARGES WAS INCREASED BY THE APPELLANT FROM RS. 7,43,413/- TO RS. 47,64,950/-. IV. FREIGHT OF RS. 62,21,518/- WAS INCREASED TO RS. 2,09,96,821/-. V. THE CUSTOM CHARGES WERE FINALLY SHOWN AT RS. 50,92,562/- AND FREIGHT AT RS. 78,08,576/-. VI. THE FREIGHT WAS CLAIMED MORE BY RS. 1,31,88,242/- THAN THE TOTAL EXPENDITURE CLAIMED FOR THE WHOLE YEAR. 6 I.T.A. NOS. 865 & 887/KOL/2015 LALIT KUMAR KHETAN VII. IT IS NOTED THAT LARGE AMOUNTS WERE CLAIMED UNDER THE HEAD COMMISSION AND STITCHING CHARGES UNDER REVISED PROFIT & LOSS ACCOUNT. VIII. IN THE POST SURVEY PERIOD ASSESSEE / APPELLANT SHOWED LOSS OF RS. 1,22,92,366/-. KEEPING IN VIEW THE ABOVE DEFECTS POINTED OUT BY THE AO, THE LD. CIT (A) UPHELD THE ACTION OF THE AO IN REJECTING THE BOOKS OF ACCOUNTS. HE HOWEVER, HELD THAT THE ESTIMATION OF THE INCOME OF THE ASSESSEE AS MADE BY THE AO WAS NOT CORRECT AS THE SAME WAS NOT DONE ON A REASONABLE BASIS. HE HELD THAT THE GP RATE OF 8.36% ADOPTED BY THE AO TO ESTIMATE THE INCOME OF THE ASSESSEE WAS WORKED OUT ON THE BASIS OF TRADING ACCOUNTS PREPARED FROM THE BOOKS OF ACCOUNTS OF THE ASSESSEE WHICH WERE NEITHER CORRECT NOR COMPLETE. 6. IN ORDER TO MAKE FAIR AND REASONABLE ESTIMATE, THE LD. CIT (A) REFERRED TO COMPARATIVE FINANCIAL RESULTS OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION VIS-A-VIS THREE PRECEDING YEARS AND ONE SUCCEEDING YEAR WHICH WERE AS UNDER: A.Y. TURNOVER G.P. GP% NP% NP ASSTT. ADDITION 2007-08 213125862/- 117116564/- 8.03 0.52 1097970/- 2008-09 346863231/- 29448688/- 8.49 0.62 1804236/- SCRUTINY 3,600/- 2009-10 40388776/- 277294889/- 8.49 0.52 1804236/- SCRUTINY 17,236/- 2010-11 1057802528/- 66262571/- 6.26 0.97 10359451 PRESENT APPEAL 2011-12 1231983765/- 95987191/- 9.72 0.96 11776503/- SCRUTINY 61235/- FROM THE ABOVE DETAILS, THE LD. CIT (A) NOTED THAT THE ASSESSEE HAD NEVER DECLARED A NET PROFIT OF MORE THAN 1% AND THE SAME WAS ACCEPTED BY THE AO WITH MINOR ADDITIONS IN A.Y. 2008-09 AND 2009-10 EVEN IN THE SCRUTINY ASSESSMENTS. HE ALSO NOTED THAT EVEN IN THE 7 I.T.A. NOS. 865 & 887/KOL/2015 LALIT KUMAR KHETAN IMMEDIATELY SUCCEEDING YEAR I.E. A.Y. 2011-12, NET PROFIT OF 9.6% WAS DECLARED BY THE ASSESSEE ON THE TURNOVER OF RS. 123 CRORES AND THE SAME WAS ACCEPTED BY THE AO WITH MINOR ADDITION. KEEPING IN VIEW THIS POSITION IN RESPECT OF NET PROFIT DECLARED BY THE ASSESSEE IN THE IMMEDIATELY PRECEDING THREE YEARS AS WELL AS IN THE IMMEDIATELY SUCCEEDING YEAR, THE LD. CIT (A) FOUND IT FAIR AND REASONABLE TO ESTIMATE THE INCOME OF THE ASSESSEE BY APPLYING A NET PROFIT RATE OF 1.5% ON THE TOTAL TURNOVER OF RS. 105 CRORES AND ACCORDINGLY RESTRICTED THE ADDITION OF RS. 3,60,09,979/- MADE BY THE AO TO RS. 53,90,549/-. AGGRIEVED BY THE ORDER OF THE LD. CIT (A), THE REVENUE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL CHALLENGING THE RELIEF OF RS. 3,06,19,430/- ALLOWED BY THE LD. CIT (A) TO THE ASSESSEE WHILE THE ASSESSEE IS IN APPEAL DISPUTING THE ADDITION SUSTAINED BY THE LD. CIT (A) ON THIS ISSUE TO THE EXTENT OF RS. 53,90,549/-. THE ASSESSEE HAS ALSO CHALLENGED THE ORDER OF THE LD. CIT (A) UPHOLDING THE ACTION OF THE AO IN REJECTING HIS BOOKS OF ACCOUNTS. 7. THE LEARNED DR SUBMITTED THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE WERE REJECTED BY THE AO AFTER HAVING FOUND THE SAME TO BE INCORRECT AND UNRELIABLE ON THE BASIS OF ADVERSE FINDINGS OF THE SURVEY OPERATION. HE SUBMITTED THAT EVEN THOUGH THE LD. CIT (A) HAS UPHELD THE ACTION OF THE AO IN REJECTING THE BOOKS OF ACCOUNTS OF THE ASSESSEE ON THE BASIS OF SPECIFIC AND MATERIAL DEFECTS POINTED OUT BY THE AO, HE HAS NOT ACCEPTED THE GP RATE TAKEN BY THE AO TO ESTIMATE THE INCOME OF THE ASSESSEE AND HAS ADOPTED NP RATE INSTEAD OF GP RATE FOR SUCH ESTIMATION. HE CONTENDED THAT THE GP RATE IS THE MORE APPROPRIATE BASIS TO ESTIMATE THE BUSINESS INCOME OF THE ASSESSEE OF TRADING OF JUTE PRODUCTS AND SINCE GP RATE DECLARED BY THE ASSESSEE FOR THE YEAR 8 I.T.A. NOS. 865 & 887/KOL/2015 LALIT KUMAR KHETAN UNDER CONSIDERATION WAS LOWER THAN THE GP RATE DECLARED IN THE EARLIER YEARS, THE TRADING ADDITION MADE BY THE AO BY ESTIMATING THE INCOME OF THE ASSESSEE BY APPLYING GP RATE WAS FULLY JUSTIFIED. HE CONTENDED THAT THE LD. CIT (A), ON THE OTHER HAND HAS APPLIED THE NET PROFIT OF 1.5% TO ESTIMATE THE BUSINESS INCOME OF THE ASSESSEE WITHOUT GIVING ANY BASIS OR REASON. HE ALSO CONTENDED THAT MOST OF THE EXPENSES DEBITED IN THE PROFIT AND LOSS ACCOUNT ARE FIXED IN NATURE HAVING NO DIRECT RELATIONSHIP WITH THE TURNOVER AND THEREFORE GP RATE IS ALWAYS A MORE APPROPRIATE BASIS TO ESTIMATE THE INCOME ESPECIALLY FROM TRADING BUSINESS AS ADOPTED BY THE AO AND NOT THE NP RATE AS ADOPTED BY THE LD. CIT (A). 8. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, SUBMITTED THAT THE SO-CALLED DEFECTS POINTED OUT BY THE AO IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE WERE DULY EXPLAINED AND KEEPING IN VIEW THE EXPLANATION OFFERED BY THE ASSESSEE IN THIS REGARD, THE LD. CIT (A) WAS NOT JUSTIFIED IN UPHOLDING THE ACTION OF THE AO IN REJECTING THE BOOKS OF ACCOUNTS OF THE ASSESSEE. HE CONTENDED THAT THE GP RATE ADOPTED BY THE AO AS BASIS FOR ESTIMATING THE INCOME OF THE ASSESSEE CANNOT BE REGARDED AS APPROPRIATE BECAUSE GOING BY THE GP RATE APPLIED BY THE AO, THE NET PROFIT WOULD BE MORE THAN 4% WHILE THE ASSESSEE HAS ALWAYS DECLARED NET PROFIT OF LESS THAN 1% IN THE EARLIER YEARS WHICH WAS ACCEPTED BY THE AO EVEN IN THIS SCRUTINY ASSESSMENT MADE UNDER SECTION 143(3). HE CONTENDED THAT THE LD. CIT (A) THEREFORE, WAS FULLY JUSTIFIED IN ADOPTING NP RATE AS BASIS TO ESTIMATE THE BUSINESS INCOME OF THE ASSESSEE INSTEAD OF GP RATE ADOPTED BY THE AO. HE CONTENDED THAT THE NP RATE IS ALWAYS MORE CONSISTENT THAN GP RATE, AS THE GP RATE MAY VARY DEPENDING UPON THE PREVAILING MARKET 9 I.T.A. NOS. 865 & 887/KOL/2015 LALIT KUMAR KHETAN CONDITION. HE ALSO CONTENDED THAT WHEN THE NP RATE DECLARED BY THE ASSESSEE IN THE EARLIER YEAR WAS ALWAYS LESS THAN 1%, THE NP RATE OF 1.5% APPLIED BY THE LD. CIT (A) IS EXCESSIVE AND UNREASONABLE. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERVED THAT SPECIFIC AND MATERIAL DEFECTS WERE POINTED OUT BY THE AO IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE ON THE BASIS OF ADVERSE FINDINGS OF THE SURVEY OPERATION AND KEEPING IN VIEW THE SAID DEFECTS WHICH HAVE BEEN SUMMARISED BY THE LD. CIT (A) IN HIS IMPUGNED ORDER, WE FIND OURSELVES IN AGREEMENT WITH THE AUTHORITIES BELOW THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE WERE NEITHER CORRECT NOR COMPLETE AND THE SAME WERE NOT RELIABLE TO ADDUCE THE TRUE AND CORRECT PROFITS OF THE ASSESSEES BUSINESS. WE, THEREFORE, FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE LD. CIT (A) UPHOLDING THE ACTION OF THE AO IN REJECTING THE BOOKS OF ACCOUNTS OF THE ASSESSEE. 10. HAVING HELD THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE ARE RIGHTLY REJECTED BY THE AUTHORITIES BELOW, THE NEXT ISSUE THAT ARISES FOR CONSIDERATION IS RELATING TO THE FAIR AND REASONABLE ESTIMATION OF THE BUSINESS INCOME OF THE ASSESSEE ON THE BASIS OF MATERIAL AVAILABLE ON RECORD AND THE RELEVANT FACTS AND CIRCUMSTANCES OF THE CASE INCLUDING ESPECIALLY THE PAST HISTORY. IN THIS REGARD, IT IS OBSERVED THAT THE BUSINESS INCOME OF THE ASSESSEE WAS ESTIMATED BY THE AO ON THE BASIS OF GP RATE WHILE THE LD. CIT (A) HAS ADOPTED NET PROFIT RATE AS BASIS FOR SUCH ESTIMATION. AS RIGHTLY CONTENDED BY THE LEARNED DR IN THIS REGARD, THE EXPENSES DEBITED IN THE TRADING ACCOUNT ARE FULLY VARIABLE AS THEY VARY DIRECTLY IN PROPORTION TO THE SALES ESPECIALLY IN THE CASE OF 10 I.T.A. NOS. 865 & 887/KOL/2015 LALIT KUMAR KHETAN TRADING BUSINESS WHILE THE EXPENSES DEBITED IN THE PROFIT AND LOSS ACCOUNT ARE EITHER FIXED OR SEMI VARIABLE WHICH DO NOT VARY DIRECTLY IN PROPORTION TO THE SALES. IT THEREFORE, FOLLOWS THAT THE GROSS PROFIT RATE AS REFLECTED IN THE TRADING ACCOUNT IS ALWAYS LIABLE TO BE MORE CONSISTENT OVER THE YEARS THAN THE NP RATE AND THIS BEING SO, THE GROSS PROFIT RATE IS MORE APPROPRIATE OR RELIABLE BASIS TO ESTIMATE THE INCOME OF ANY TRADING BUSINESS THAN THE NET PROFIT RATE. THIS POSITION GETS SUBSTANTIATED EVEN FROM THE FINANCIAL RESULTS OF ASSESSEES OWN CASE AS DECLARED IN THE EARLIER YEARS IN AS MUCH AS THE GP RATE DECLARED BY THE ASSESSEE FOR A.Y. 2007-08 WAS 8.08% WHICH WAS MARGINALLY INCREASED TO 8.49% IN A.Y. 2008-09 AND 2009-10. EVEN IN A.Y. 2011-12, THE GP RATE DECLARED BY THE ASSESSEE WAS 9.72% WHEN THE TURNOVER WAS INCREASED SUBSTANTIALLY TO RS. 123 CRORES. THE NP RATE DECLARED BY THE ASSESSEE IN A.Y. 2007-08, ON THE OTHER HAND, WAS 0.52% WHICH WAS INCREASED BY ABOUT 20% IN A.Y. 2008.09 TO 0.62%. THEREAFTER THE NET PROFIT AGAIN WAS DECREASED BY ABOUT 16% TO 0.52% IN A.Y. 2009-10 WHILE THE SAME WAS INCREASED SUBSTANTIALLY BY ABOUT 84% TO 9.72% IN A.Y. 2011-12. THIS FINANCIAL RESULTS DECLARED IN ASSESSEES OWN CASE CLEARLY SHOW THAT THE NET PROFIT IS GENERALLY VARIABLE WHEREAS THE GROSS PROFIT IS MORE CONSISTENT MAKING IT MORE APPROPRIATE BASIS TO ESTIMATE THE INCOME ESPECIALLY FROM TRADING BUSINESS. 11. THE QUESTION NOW ARISES WHAT IS THE FAIR AND REASONABLE GROSS PROFIT RATE WHICH CAN BE APPLIED TO ESTIMATE THE BUSINESS INCOME OF THE ASSESSEE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. IN THIS REGARD, IT IS OBSERVED THAT THE INCOME OF THE ASSESSEE WAS ESTIMATED BY THE AO BY APPLYING THE GP RATE OF 8.36% WHICH WAS WORKED OUT BY HIM 11 I.T.A. NOS. 865 & 887/KOL/2015 LALIT KUMAR KHETAN AFTER TAKING INTO CONSIDERATION THE TRADING ACCOUNTS FOR THE PRE - SURVEY PERIOD AND POST SURVEY PERIOD. SINCE THE SAID TRADING ACCOUNTS WERE PREPARED ON THE BASIS OF THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE WHICH HAVE BEEN REJECTED BEING INCOMPLETE AND INCORRECT, WE ARE OF THE VIEW THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED TO AGAIN RELY ON THE SAID BOOKS OF ACCOUNTS TO ADOPT THE GP RATE OF 8.36% TO ESTIMATE THE INCOME OF THE ASSESSEE. IN OUR OPINION, IT WOULD BE FAIR AND REASONABLE TO TAKE INTO CONSIDERATION THE GP RATE DECLARED BY THE ASSESSEE IN THE IMMEDIATELY PRECEDING THREE YEARS AND AVERAGE OF SUCH GP RATE CAN BE TAKEN AS THE BASIS TO ESTIMATE THE INCOME OF THE ASSESSEE AFTER GIVING THE ASSESSEE AN OPPORTUNITY TO EXPLAIN THE REASON FOR FALL IN GP RATE IN THE YEAR UNDER CONSIDERATION AND AFTER MAKING ADJUSTMENT IF ANY TO THE AVERAGE GROSS PROFIT RATE AFTER TAKING INTO CONSIDERATION THE EXPLANATION OF THE ASSESSEE. WE, ACCORDINGLY, SET ASIDE THE IMPUGNED ORDER OF THE LD. CIT (A) ON THIS ISSUE AND RESTORE THE MATTER TO THE FILE OF THE AO WITH THE DIRECTION TO DECIDE THE ISSUE RELATING TO THE TRADING ADDITION AFRESH, KEEPING IN VIEW THE OBSERVATIONS RECORDED BY US HERE-IN-ABOVE. 12. AS REGARDS THE OTHER ISSUE RAISED IN THE APPEAL OF THE ASSESSEE RELATING TO THE ADDITION OF RS. 53,200/-, THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT A SUM OF RS. 1205/- WAS DEDUCTED AS TDS FROM THE SAID AMOUNT BY THE CONCERNED PARTY, M/S. TAMILNADU NEWSPRINT AND PAPERS LTD. AND THE ASSESSEE HAS SUBSEQUENTLY RECEIVED THE CERTIFICATE FOR THE SAME. HE HAS SUBMITTED THAT THE AO MAY BE DIRECTED TO VERIFY THE SAID CERTIFICATE AND GIVE APPROPRIATE RELIEF TO THE ASSESSEE. ACCORDINGLY, THIS ISSUE IS RESTORED THE FILE OF THE 12 I.T.A. NOS. 865 & 887/KOL/2015 LALIT KUMAR KHETAN AO FOR GIVING RELIEF TO THE ASSESSEE ON VERIFICATION OF THE RELEVANT TDS CERTIFICATE. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE AS WELL AS THAT OF THE REVENUE ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST AUGUST, 2017. SD/- SD/- (S.S. VISWANETHRA RAVI) (P.M. JAGTAP) (JUDICIAL MEMBER) ACCOUNTANT MEMBER DATED: 31/08/2017 BISWAJIT, SR. P.S. COPY OF ORDER FORWARDED TO: 1. SHRI LALIT KUMAR KHETAN, C/O. INDUSTRIAL ASSOCIATES, P-12, NEW HOWRAH BRIDGE, APPROACH ROAD, 6 TH FLOOR, KOLKATA 700001. 2. JCIT RANGE 35, AAYAKAR BHAWAN POORVA, 110, SHANTIPALLY, KOLKATA 700107. 3. THE CIT(A) 4. THE CIT 5. DR TRUE COPY, BY ORDER, SR. P.S. / H.O.O. ITAT, KOLKATA