Ratan Industries Pvt Ltd., Agra V. A.C.I.T.4, Agra

ITA 97/AGR/2005

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 0375 (ITAT-AGRA)
• Duration Of Justice: 14 year(s) 2 month(s) 21 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 16-05-2019
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2001-2002
• Appeal Filed On: 25-02-2005
• Court: TRIBUNAL
• Keywords: Gross profit estimation; Unexplained expenditure; Business income; Salary income; Opportunity of being heard; Deemed to accrue or arise in india; Difference of opinion; Set aside
• Section: 69C; 133A; 69B; 250; 69; 145; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, AGRA BENCH, AGRA BEFORE SHRI P.K. BANSAL, ACCOUNTANT MEMBER AND SHRI H.S. SIDHU, JUDICIAL MEMBER ITA NO. 95/AGRA/2005 ASSTT. YEAR : 2001-02 A.C.I.T. 4(1), AGRA. VS. M/S. RATAN INDUSTRIES (P) LTD., 10/22, KATRA WAZIR KHAN, HATHRAS ROAD, AGRA. ITA NO. 97/AGRA/2005 ASSTT. YEAR : 2001-02 M/S. RATAN INDUSTRIES (P) LTD., VS. A.C.I.T. 4(1 ), AGRA. 10/22, KATRA WAZIR KHAN, HATHRAS ROAD, AGRA. (PAN AABCR 5436 K) (APPELLANT) (RESPONDENT) FOR REVENUE : SHRI VINOD KUMAR, JR. D.R. FOR ASSESSEE : NONE ORDER PER P.K. BANSAL, A.M. : THERE BEING DIFFERENCE OF OPINION BETWEEN BOTH MEM BERS CONSTITUTING THE BENCH, FIVE QUESTIONS IN RELATION TO THE MATTER WERE REFERRED T O THE THIRD MEMBER BY HONBLE PRESIDENT U/S. 255(4) OF THE INCOME-TAX ACT. THE THIRD MEMBER VIDE HIS OPINION DATED 23.11.2010 CONCURRED WITH DECISION REACHED BY THE LEARNED ACCOUNTANT MEM BER ON QUESTION NO. 1 ARISING OUT OF REVENUES GROUND NO. 1 & 3 AND ON QUESTION NO.3 ARI SING OUT OF REVENUES GROUND NO. 4 WHEREAS HE AGREED WITH THE DECISION OF LEARNED JUDI CIAL MEMBER ON QUESTION NO. 2 ARISING OUT OF REVENUES GROUND NO.2 AND ON QUESTION NO. 4 & 5 ARI SING OUT OF ASSESSEES GROUNDS NOS.1, 3 TO 6 AND REVENUES GROUNDS NOS. 8 & 9. THUS, ON THE BA SIS OF MAJORITY OF OPINION, GROUNDS NOS.1, 2 3, 8 & 9 RAISED BY REVENUE AND GROUND NOS. 3 TO 6 R AISED BY ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. GROUND NO. 2 RAISED BY REVENUE IS ALLOWED . GROUND NO. 4 RAISED BY REVENUE AND GROUND NO. 1 RAISED BY ASSESSEE ARE DISMISSED. 2. IN THE RESULT, BOTH THE APPEALS OF REVENUE AND T HE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON 21.01.11 . SD/- SD/- (H.S. SIDHU) (P.K. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 21 ST JANUARY, 2011 *AKS/- COPY OF THE ORDER FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) BY ORDER 4. CIT, CONCERNED 5. DR, ITAT, AGRA 6. GUARD FILE ASSISTANT REGISTRAR TRUE COPY 3 IN THE INCOME TAX APPELLATE TRIBUNAL, AGRA BENCH, AGRA BEFORE SHRI P.K. BANSAL, ACCOUNTANT MEMBER (AS THIRD MEMBER) ITA NO. 95/AGRA/2005 ASSTT. YEAR : 2001-02 A.C.I.T. 4(1), AGRA. VS. M/S. RATAN INDUSTRIES (P) LTD., 10/22, KATRA WAZIR KHAN, HATHRAS ROAD, AGRA. ITA NO. 97/AGRA/2005 ASSTT. YEAR : 2001-02 M/S. RATAN INDUSTRIES (P) LTD., VS. A.C.I.T. 4(1 ), AGRA. 10/22, KATRA WAZIR KHAN, HATHRAS ROAD, AGRA. (PAN AABCR 5436 K) (APPELLANT) (RESPONDENT) FOR REVENUE : SHRI M.K. SRIVASTAVA, SR. D.R. FOR ASSESSEE : SHRI R.K. JAIN, C.A. ORDER FOLLOWING QUESTIONS ON DIFFERENCE OF OPINION BETWE EN THE LEARNED ACCOUNTANT MEMBER AND THE LEARNED JUDICIAL MEMBER WERE REFERRED TO ME BY HONBLE PRESIDENT U/S. 254(4) OF THE INCOME-TAX ACT : (I). ON THE FACTS AND CIRCUMSTANCES, WHETHER THERE IS JUSTIFICATION TO SET ASIDE THE DECISION OF LD. CIT(APPEALS) WITH REGARD TO ACCEPTA NCE OF VALUATION OF UNDECLARED STOCK OF SCRAP FOUND AT THE TIME OF SURVEY FOR PASSING A SPEAKING ORDER THEREON OR THAT THE VALUES ADOPTED @ RS.7000/- PER M.T. TAKEN BY THE AS SESSING OFFICER IS TO BE RESTORED. (II). ON THE FACTS AND FINDINGS WHETHER THE LD. JUD ICIAL MEMBER IS JUSTIFIED IN HER DECISION TO DIRECT LD. CIT(APPEALS) TO ADDRESS ON G ROUND NO.2 IN APPEAL BY REVENUE AS THE SAME STANDS COVERED BY THE DIRECTIONS GIVEN BY HER IN ASSESSEES APPEAL OR THAT THE 4 DECISION REACHED BY THE LD. ACCOUNTANT MEMBER IN RE JECTING THE SAID GROUND IN APPEAL BY REVENUE UPHOLDING DECISION OF LD. CIT(APPEALS) TO A CCEPT SURRENDERED INCOME AS ASSESSEES BUSINESS INCOME IS A CORRECT AND JUSTIFI ED DECISION. (III). WHETHER ON THE FACTS AND FINDINGS AND IN VIE W OF DECISION OF LD. JUDICIAL MEMBER AT PARA 25 OF THE ORDER TO RESTORE THE ISSUE TO LD. CIT(APPEALS) AND AT PARA 30 TO ALLOW THE SAME GROUND NO. 4 IN APPEAL BY REVENUE, IS IT P ROPER TO UPHOLD HER BOTH THESE DECISIONS OR THAT THE DECISION TAKEN BY THE LD. ACC OUNTANT MEMBER TO REJECT GROUND NO. 4 IN APPEAL BY REVENUE TO WORK OUT SEPARATE PROFIT ON SALE OF SCRAP FOR ASSESSMENT AS INCOME IS A CORRECT AND JUSTIFIED DECISION? (IV). WHETHER ON THE FACTS & FINDINGS AND IN LAW, T HE DECISION TO RESTORE THE MATTER TO THE LD. CIT(APPEALS) TO WORK OUT AFRESH THE CLAIM A ND ADDITION OF EXCESSIVE WASTAGE WHICH ARE DEEMED AS SALES WITH REFERENCE TO LIMITED DIRECTIONS OR THAT NO SUCH SEPARATE ADDITION ON TRADING ACCOUNT CAN BE MADE FOR ALLEGED EXCESSIVE CONSUMPTION / WASTAGE THAT ARE DEEMED AS SALES AND ONLY PROFIT THEREON CA N BE ADDED AS DIRECTED BY THE LEARNED ACCOUNTANT MEMBER. (V). WHETHER ON THE FACTS AND IN LAW, THE LD. JUDIC IAL MEMBER IS JUSTIFIED IN DIRECTING TO APPLY A NET PROFIT RATE ON THE BASIS OF IMMEDIAT ELY PRECEDING YEAR ON THE SALES ESTIMATED OR THAT THERE IS NO JUSTIFICATION UNDER T HE PECULIAR FACTS TO APPLY NET PROFIT RATE ON THAT BASIS BUT TO ESTIMATE INCOME WITH REFERENCE TO RELEVANT MATERIAL ON RECORD IN THE MANNER AS PROVIDED U/S. 144 OF THE ACT. 2. ALTHOUGH BOTH THE MEMBERS HAVE MENTIONED THE BRI EF FACTS IN RESPECT OF THE CROSS APPEALS FILED BY THE ASSESSEE AS WELL AS THE REVENUE AND AL L THESE QUESTIONS ARISE OUT OF THE VARIOUS GROUNDS TAKEN IN THE APPEALS FILED BY THE REVENUE A S WELL AS THE ASSESSEE, YET FOR DISPOSING OF THE QUESTIONS REFERRED TO ME, IT IS NECESSARY FOR ME TO REFER TO THE BRIEF FACTS OF THE CASE EVEN AT THE COST OF REPETITION. 5 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAS DERIVED INCOME FROM MANUFACTURING AND TRADING OF ADV HUBS, CRANK SHAFTS AND INGOTS. DURIN G THE YEAR UNDER CONSIDERATION, THE ASSESSEE RETURNED NIL INCOME AFTER CLAIMING DEPRECI ATION AT RS.8,37,871/-. THERE HAD BEEN A SURVEY CONDUCTED U/S. 133A OF THE INCOME-TAX ACT ON 25.09.2000 IN THE CASE OF THE ASSESSEE. DURING THE COURSE OF SURVEY, THE VALUE OF THE TOTAL STOCK FOUND ON THE DATE OF SURVEY WAS WORKED OUT AT RS.59,84,000/- ON THE BASIS OF THE RATE DIFF ERENCE OF THE VARIOUS ITEMS INVENTORIZED BY THE SURVEY PARTY. THE FINISHED GOODS WERE VALUED AT RS. 19,55,000/- AND RAW MATERIAL WAS VALUED AT RS.40,29,000/-. DURING THE COURSE OF SURVEY, THE AS SESSEE SURRENDERED A SUM OF RS.22,00,000/- AS HIS ADDITIONAL INCOME ON THE DATE OF SURVEY DUE TO DISCREPANCIES FOUND IN THE STOCK. THE ASSESSEE HAD CREDITED THIS ADDITIONAL INCOME IN THE PROFIT A ND LOSS ACCOUNT AND SHOWN A NET LOSS OF RS.3,71,404/- IN THE PROFIT AND LOSS ACCOUNT. THE A SSESSING OFFICER NOTED THAT THERE WAS UNACCOUNTED STOCK TO THE EXTENT OF RS.30,00,357/- F OUND DURING THE COURSE OF SURVEY WHILE THE ASSESSEE SURRENDERED RS.22,00,000/- ONLY. THE VALUE OF RS.30,00,357/- HAS BEEN RE-WORKED OUT BY THE ASSESSING OFFICER ON THE BASIS OF MATERIAL A S SPECIFIED UNDER PAGE 4 OF THE ASSESSMENT ORDER. HE ALSO NOTED THAT THE BOOKS OF ACCOUNT WERE NOT MAINTAINED ON DAY-TO-DAY BASIS AND THE CASH BOOK WAS WRITTEN ONLY UPTO 22.09.2000. THE ASS ESSEE, EVEN THOUGH ACCEPTED DURING THE COURSE OF SURVEY THAT SOME OF THE PURCHASES AND EXP ENSES HAVE BEEN INCURRED BETWEEN 22.09.2000 TO THE DATE OF SURVEY, BUT THESE ITEMS C OULD NOT BE ENTERED. IT WAS ALSO NOTED THAT THERE WERE VARIATIONS IN THE ITEMS OF THE CLOSING S TOCK AS ON 31.03.2000 VIS--VIS OPENING STOCK AS ON 01.04.2000. IT WAS ALSO NOTICED THAT ON CONSU MPTION OF 3200.116 M.T. OF RAW MATERIAL, WASTAGE WAS SHOWN AT 454.155 M.T. WHICH GIVES THE P ERCENTAGE OF WASTAGE AT 14.20% WHILE NORMAL WASTAGE IN THIS LINE OF BUSINESS IS BETWEEN 7% AND 10% MAINLY DUE TO BURNING LOSS. DUE TO THESE DISCREPANCIES, THE ASSESSING OFFICER REJEC TED THE BOOKS OF ACCOUNT OF THE ASSESSEE U/S. 6 145(3). THE ASSESSEE HAS DECLARED THE SALES AT RS.4 ,51,76,535/- WHICH WERE ESTIMATED BY THE ASSESSING OFFICER AT RS.5,00,00,000/-, AS IN THE IM MEDIATELY PRECEDING YEAR, THE ASSESSEE MADE SALES AT RS.5,77,78,286/-. THE ASSESSING OFFICER AL SO NOTED THAT THE ASSESSEE HAS SHOWN LOSS AT RS.9,24,763/- WHILE IN THE PRECEDING YEAR HE HAS SH OWN G.P. @ 1.69% AND THE ASSESSEE COULD NOT PROVE THE FALL IN G.P. THE ASSESSING OFFICER, AFTER NOTING THAT THE ASSESSEE HAS SHOWN NET PROFIT IN THE PRECEDING YEAR @ 0.43%, APPLIED THE SAME NET PR OFIT RATE TO THE ESTIMATED SALES OF RS.5,00,00,000/- AND WORKED OUT NET PROFIT AT RS.2, 15,000/-. SEPARATE ADDITION IN RESPECT OF INVESTMENT IN UNACCOUNTED STOCK WERE MADE U/S. 69 O F THE ACT FOR RS.30,00,357/- ALONGWITH OTHER DISALLOWANCES AND ADDITIONS IN RESPECT OF EXCESSIVE WASTAGE ETC. 4. THE QUESTION NO. 1 RELATES TO THE VALUATION OF U NACCOUNTED STOCK OF SCRAP FOUND AT THE TIME OF SURVEY. THIS ARISES OUT OF THE GROUND NO.1 & 3 OF THE REVENUES APPEAL. THE LEARNED ACCOUNTANT MEMBER HAS RESTORED THE ISSUE TO THE FIL E OF LEARNED CIT(A) WHILE THE LEARNED JUDICIAL MEMBER HAS SET ASIDE THE ORDER OF THE LD. CIT(A) DELETING THE ADDITION MADE BY THE ASSESSING OFFICER AND RESTORED HIS ORDER. 5. THE LEARNED A.R. BEFORE ME VEHEMENTLY CONTENDED THAT THE ASSESSEE HAS SURRENDERED A SUM OF RS.22,00,000/- DURING THE COURSE OF SURVEY B Y VALUING THE EXCESSIVE SCRAP @ RS.5000/- PER M.T. MY ATTENTION WAS DRAWN TOWARDS PAGE NO. 34 AND 36 OF FIRST PAPER BOOK AND IT WAS POINTED OUT THAT THE AVERAGE RATE ON THE BASIS OF P URCHASE OF SCRAP COMES TO RS.4593.55 PER M.T. THE RATES OF THE SCARP DEPEND ON THE QUALITY OF THE SCARP. 90% OF THE SCRAP IS PURCHASED AT THE RATE BELOW RS.5,000/- PER M.T. IT IS ONLY 2 M.T. SC RAP WHICH WAS PURCHASED @ RS.7000/- PER M.T. WHICH WAS EXCEPTIONAL RATE AND WAS ONLY 5% OF THE TOTAL PURCHASES. THE TOTAL SCRAP PURCHASED DURING THE YEAR WAS 68.040 M.T. AND THE T OTAL VALUE OF THE PURCHASE WAS RS.3,12,545/- 7 THE AVERAGE OF WHICH COMES TO RS.4593.55 PER M.T. T HE ASSESSEE AT THE TIME OF SURVEY AGREED AT A VALUATION AT THE RATE OF RS.5000/- PER M.T. JUST TO SETTLE THE ISSUE. THE SURVEY PARTY HAS ALSO VALUED THE UNACCOUNTED SCRAP @ RS.5000/- PER M.T.. THUS, A SUM OF RS.22,00,000/- WAS SURRENDERED BY THE ASSESSEE WHICH WAS CREDITED TO T HE PROFIT AND LOSS ACCOUNT. THE ASSESSING OFFICER HAS VALUED IT AT THE RATE OF RS.7,000/- PER M.T. THE VALUE OF THE UNACCOUNTED SCRAP WAS RS.20,00,000/- WHICH WAS INCLUDED IN THE AMOUNT OF RS.22,00,000/- SURRENDERED BY THE ASSESSEE. THUS, THE ASSESSING OFFICER VALUED THE SCRAP MORE B Y RS.8,00,000/-. MY ATTENTION WAS ALSO INVITED TOWARDS THE COPIES OF THE PURCHASE BILLS OF THE SCRAP WHICH ARE AVAILABLE AT PAGE 1 TO 11 OF THE PAPER BOOK. THUS, IT WAS CONTENDED THAT THE LEA RNED JUDICIAL MEMBER WAS NOT CORRECT IN LAW IN SETTING-ASIDE THE ORDER OF LD. CIT(A) AND RESTOR ING THE ORDER OF THE ASSESSING OFFICER. 6. THE LEARNED DR, ON THE OTHER HAD, RELIED ON THE DECISION OF THE LEARNED JUDICIAL MEMBER. 7. I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSION S ALONGWITH THE ORDER OF BOTH THE LEARNED MEMBERS. IN MY OPINION, THE LEARNED ASSESSING OFFIC ER WAS NOT CORRECT IN LAW IN VALUING THE UNACCOUNTED SCRAP @ RS.7000/- PER M.T. MERELY ON TH E BASIS OF PURCHASE OF 2.070 M.T. OF SCRAP. THE ASSESSEE HAS SUBMITTED ALL THE PURCHASE BILLS I N RESPECT OF THE SCRAP FROM 01.04.2000 TO 25.09.2000. THE AVERAGE RATE OF THE SCRAP VARY FROM RS.4337.46 PER M.T. TO RS.7,000/- PER M.T. THE AVERAGE OF ALL THE PURCHASES COMES TO RS.4593.5 5 PER M.T. THE LEARNED ACCOUNTANT MEMBER, IN MY OPINION, HAS CORRECTLY OBSERVED THAT THE LEARNED CIT(A) DID NOT RECORD REASONS FOR REACHING A CONCLUSION THAT THE VALUATION OF EXC ESS STOCK AS SHOW BY THE ASSESSEE IN RETURN AT RS.22,00,000/-, WAS NOT JUSTIFIED. THIS IS THE FACT THAT THE ASSESEE HAS PLACED SUFFICIENT MATERIAL FOR WORKING OUT THE AVERAGE RATE OF EXCESS STOCK OF SCRAP AT RS.4593/- PER M.T. THE LEARNED CIT(A) HAS ALSO CALLED FOR THE REMAND REPORT FROM T HE ASSESSING OFFICER ON SUCH EVIDENCES. 8 THESE EVIDENCES WERE NOT PRODUCED BY THE ASSESSEE B EFORE THE ASSESSING OFFICER. THE ASSESSING OFFICER SUPPORTED THE RATE OF RS.7000/- PER M.T., B UT DID NOT MAKE ANY ADVERSE COMMENT ON THE EVIDENCES FILED BY THE ASSESSEE BEFORE THE CIT(A). THE SURVEY TEAM HAS ALSO WORKED OUT THE VALUE OF THE EXCESSIVE STOCK OF SCRAP @ RS.5000/- P ER M.T. AFTER HAVING PHYSICAL VERIFICATION. THE ASSESSING OFFICER, IN MY OPINION, COULD NOT HAV E VALUED THE UNACCOUNTED SCRAP @ RS.7000/- PER M.T. MERELY ON THE BASIS OF ONE PURCHASE OF 2.0 0 M.T. THE LEARNED CIT(A), THEREFORE, SHOULD HAVE VERIFIED THE SURVEY REPORT AND HAVE ANALYSED A S TO WHAT IS THE BASIS ADOPTED BY THE ASSESSING OFFICER DIFFERING WITH THE SURVEY REPORT. THEREFORE, UNDER THESE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE, I HAVE TO AGREE WITH THE LEARNED ACCOUNTANT MEMBER, AS HE HAS RESTORED THE ISSUE TO THE FILE OF THE CIT(A) EVEN T HOUGH I NOTED THAT THERE IS SUFFICIENT MATERIAL AND EVIDENCE PRODUCED BY THE ASSESSEE TO PROVE THAT THE AVERAGE RATE OF SCARP IS RS.4593/- PER M.T. AS A THIRD MEMBER, MY JURISDICTION IS LIMITED ONLY TO AGREE WITH ONE MEMBER OR TO DISAGREE WITH THE OTHER MEMBER. I, THEREFORE, ANSWE R THE FIRST QUESTION AGREEING WITH THE LEARNED ACCOUNTANT MEMBER SETTING ASIDE THE ORDER OF THE LD . CIT(A) AND RESTORING THE ISSUE OF VALUATION OF SCRAP TO THE FILE OF THE CIT(A) FOR PASSING A SP EAKING ORDER THEREON. 8. THE SECOND QUESTION REFERRED TO ME IS WHETHER TH E AMOUNT SURRENDERED BY THE ASSESSEE IN RESPECT OF EXCESS STOCK FOUND DURING THE COURSE OF SURVEY BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS OR AS INCOME FROM OTHER SOURCES. T HE LEARNED JUDICIAL MEMBER HAS HELD THAT THE INCOME IN RESPECT OF DISCREPANCIES IN THE STOCK BE ASSESSED AS INCOME FROM OTHER SOURCES WHILE THE LEARNED ACCOUNTANT MEMBER HAS HELD THAT T HE INCOME SO SURRENDERED SHOULD BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS. 9 9. THE LEARNED A.R. BEFORE US SUPPORTED THE ORDER O F THE LEARNED ACCOUNTANT MEMBER WHILE THE LD. DR SUPPORTED THE ORDER OF THE LEARNED JUDIC IAL MEMBER. THE LEARNED DR RELIED ON THE ORDER OF THE GUJRAT HIGH COURT IN THE CASE OF FAKIR MOHMED HAJI HASAN VS. CIT, 247 ITR 290 (GUJ) AND CONTENDED THAT DURING THE COURSE OF SURVE Y UNACCOUNTED STOCK WAS FOUND WITH THE ASSESSEE. THE ADDITION RELATE TO THE INVESTMENT MAD E IN SUCH UNDISCLOSED STOCK U/S. 69 OF THE INCOME TAX ACT. HE VEHEMENTLY CONTENDED THAT GUJRAT HIGH COURT HAS CLEARLY LAID DOWN THAT DEEMED INCOME WHICH ARE COVERED UNDER THE PROVISION S OF SECTIONS 69, 69A, 69B AND 69C CANNOT BE ASSESSED UNDER THE HEAD PROFITS AND GAIN S FROM BUSINESS OR PROFESSION. THIS CAN BE ASSESSED ONLY UNDER THE HEAD INCOME FROM OTHER SOU RCES. 10. I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS ALONGWITH THE ORDER OF THE LEARNED JUDICIAL MEMBER AND THAT OF THE LEARNED ACCOUNTANT MEMBER. THE LEARNED ACCOUNTANT MEMBER TREATED THE ASSESSEES DECLARATION OF INCOME ON ACC OUNT OF UNDECLARED STOCK AS HIS BUSINESS AND THEREFORE, DID NOT FIND ANY FACTUAL OR LEGAL INFIRM ITY IN THE DECISION OF THE CIT(A) IN THIS REGARD. HIS REASONING FOR ARRIVING AT THIS FINDING IS THAT THE ASSESSEE ADMITTED THE EXCESS STOCK FOUND AT THE TIME OF SURVEY AND SURRENDERED THE SAME AS INCO ME FROM BUSINESS. HE OBSERVED THAT THE ASSESSING OFFICER HAS ADMITTED THAT THE EXCESS STOC K OF 250 M.T. REPRESENTS THE EXCESS PRODUCTION/SALE WHICH HAS NOT BEEN ACCOUNTED FOR BY THE ASSESSEE IN THE BOOKS AND, THEREFORE, THE ASSESSEE WAS JUSTIFIED IN TELESCOPING THE AMOUNT AG AINST THE SURRENDERED INCOME OF RS.22,00,000/- AS HIS BUSINESS INCOME AND FACTUALLY THIS REPRESENTS THE SECRETE PROFITS OF THE BUSINESS OF THE ASSESSEE. THE ASSESSEE IN HIS OPINI ON EXPLAINED THE NATURE AND SOURCE OF UNDISCLOSED STOCK AS HIS BUSINESS INCOME AND, THERE FORE, THE CIT(A) AFTER APPRECIATION OF FACTS TOOK THE VIEW THAT THIS INCOME HAS TO BE ASSESSED U NDER THE HEAD INCOME FROM BUSINESS. THE 10 LEARNED JUDICIAL MEMBER, ON THE OTHER HAND, WAS OF THE VIEW THAT THE UNACCOUNTED STOCK SURRENDERED BY THE ASSESSEE WAS NOT IN HIS BOOKS OF ACCOUNT. THE ASSESSEE WAS NOT MAINTAINING THE REGULAR BOOKS OF ACCOUNT. THE INCOME SO SURREND ERED CANNOT BE THE INCOME WHICH CAN BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS OR PR OFESSION. THIS IS AN UNDISPUTED FACT THAT THERE WAS DEFICIENCY FOUND IN THE INVENTORY OF THE ASSESSEE DURING THE COURSE OF SURVEY. THE SURVEY PARTY HAS VALUED THE STOCK. THE ASSESSEE HAS SURRENDERED THE INVENTORY FOR RS.22,00,000/-. THE INCOME SO SURRENDERED IS DEEMED TO BE THE INCOM E OF THE ASSESSEE U/S. 69 OF THE INCOME-TAX ACT, AS THE ASSESSEE COULD NOT PROVE THE NATURE AND SOURCE OF INVESTMENT MADE IN THE INVENTORY. I HAVE GONE THROUGH THE DECISION OF HONBLE GUJRAJ HI GH COURT IN THE CASE OF FAKIR MOHMED HAJI HASAN VS. CIT(SUPRA). IN THIS DECISION WHEN THE ADD ITION WAS MADE IN RESPECT TO THE UNEXPLAINED GOLD ON THE QUESTION WHETHER THE INCOME CAN BE ASSE SSED UNDER THE HEAD INCOME FROM BUSINESS OR INCOME FROM OTHER SOURCES, THE HONBLE HIGH COUR T HAS HELD AS UNDER : 6. UNDER S. 4 OF THE IT ACT, INCOME-TAX IS TO BE C HARGED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT IN RESPECT OF THE TO TAL INCOME OF THE PREVIOUS YEAR OF EVERY PERSON. AS PROVIDED BY S. 5, TOTAL INCOME OF ANY PREVIOUS YEAR OF A PERSON WOULD, INTER ALIA, INCLUDE ALL INCOME FROM WHATEVER SOURCE DERIVED WHICH IS RECEIVED OR IS DEEMED TO BE RECEIVED BY SUCH PERSON , SUBJECT TO THE PROVISIONS OF THE ACT. IT WILL BE SEEN FROM S. 69A OF THE ACT THA T WHERE THE BULLION, JEWELLERY OR OTHER VALUABLE ARTICLE IS NOT RECORDED IN THE BOOKS OF ACCOUNTS AND THERE IS NO EXPLANATION ABOUT THE NATURE AND SOURCE OF ITS ACQU ISITION, OR THE EXPLANATION IS NOT SATISFACTORY, THE VALUE THEREOF MAY BE DEEMED T O BE THE INCOME OF THE ASSESSEE OF THE FINANCIAL YEAR IMMEDIATELY PRECEDING THE ASS ESSMENT YEAR IN WHICH THE ASSESSEE IS FOUND TO BE THE OWNER OF SUCH BULLION, ETC. 6.1 THE SCHEME OF SS. 69, 69A, 69B AND 69C WOULD SH OW THAT IN CASES WHERE THE NATURE AND SOURCE OF INVESTMENTS MADE BY THE ASSESSEE OR THE NATURE AND SOURCE OF ACQUISITION OF MONEY, BULLION, ETC. O WNED BY THE ASSESSEE OR THE SOURCE OF EXPENDITURE INCURRED BY THE ASSESSEE ARE NOT EXPLAINED AT ALL, OR NOT SATISFACTORILY EXPLAINED, THEN, THE VALUE OF SUCH I NVESTMENTS AND MONEY, OR VALUE OF ARTICLES NOT RECORDED IN THE BOOKS OF ACCOUNTS O R THE UNEXPLAINED EXPENDITURE MAY BE DEEMED TO BE THE INCOME OF SUCH ASSESSEE. IT FOLLOWS THAT THE MOMENT A SATISFACTORY EXPLANATION IS GIVEN ABOUT SUCH NATURE AND SOURCE BY THE ASSESSEE, THEN THE SOURCE WOULD STAND DISCLOSED AND WILL, THE REFORE, BE KNOWN AND THE INCOME WOULD BE TREATED UNDER THE APPROPRIATE HEAD OF INCOME FOR ASSESSMENT AS 11 PER THE PROVISIONS OF THE ACT. HOWEVER, WHEN THESE PROVISIONS APPLY BECAUSE NO SOURCE IS DISCLOSED AT ALL ON THE BASIS OF WHICH TH E INCOME CAN BE CLASSIFIED UNDER ONE OF THE HEADS OF INCOME UNDER S. 14 OF THE ACT, IT WOULD NOT BE POSSIBLE TO CLASSIFY SUCH DEEMED INCOME UNDER ANY OF THESE HEAD S INCLUDING INCOME FROM 'OTHER SOURCES' WHICH HAVE TO BE SOURCES KNOWN OR E XPLAINED. WHEN THE INCOME CANNOT BE SO CLASSIFIED UNDER ANYONE OF THE HEADS O F INCOME UNDER S. 14, IT FOLLOWS THAT THE QUESTION OF GIVING ANY DEDUCTIONS UNDER TH E PROVISIONS WHICH CORRESPOND TO SUCH HEADS OF INCOME WILL NOT ARISE. IF IT IS PO SSIBLE TO PEG THE INCOME UNDER ANYONE OF THOSE HEADS BY VIRTUE OF A SATISFACTORY E XPLANATION BEING GIVEN, THEN THESE PROVISIONS OF S. 69, 69A, 69B AND 69C WILL NO T APPLY, IN WHICH EVENT, THE PROVISIONS REGARDING DEDUCTIONS, ETC. APPLICABLE TO THE RELEVANT HEAD OF INCOME UNDER WHICH SUCH INCOME FALLS WILL AUTOMATICALLY BE ATTRACTED. 6.2. THE OPENING WORDS OF S. 14 'SAVE AS OTHERWISE PROVIDED BY THIS ACT' CLEARLY LEAVE SCOPE FOR 'DEEMED INCOME' OF THE NATU RE COVERED UNDER THE SCHEME OF SS. 69, 69A, 69B AND 69C BEING TREATED SEPARATEL Y, BECAUSE SUCH DEEMED INCOME IS NOT INCOME FROM SALARY, HOUSE PROPERTY, P ROFITS AND GAINS OF BUSINESS OR PROFESSION, OR CAPITAL GAINS, NOR IS IT INCOME FROM 'OTHER SOURCES' BECAUSE THE PROVISIONS OF SS. 69, 69A, 69B AND 69C TREAT UNEXPL AINED INVESTMENTS, UNEXPLAINED MONEY, BULLION, ETC. AND UNEXPLAINED EX PENDITURE AS DEEMED INCOME WHERE THE NATURE AND SOURCE OF INVESTMENT, ACQUISIT ION OR EXPENDITURE, AS THE CASE MAY BE, HAVE NOT BEEN EXPLAINED OR SATISFACTORILY E XPLAINED. THEREFORE, IN THESE CASES, THE SOURCE NOT BEING KNOWN, SUCH DEEMED INCO ME WILL NOT FALL EVEN UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. THEREFORE, TH E CORRESPONDING DEDUCTIONS, WHICH ARE APPLICABLE TO THE INCOMES UNDER ANY OF TH ESE VARIOUS HEADS, WILL NOT BE ATTRACTED IN CASE OF DEEMED INCOMES WHICH ARE COVER ED UNDER THE PROVISIONS OF SS. 69, 69A, 69B AND 69C OF THE ACT IN VIEW OF THE SCHE ME OF THOSE PROVISIONS. 7. IT IS, THEREFORE, CLEAR THAT, WHEN THE INVESTMEN T IN OR ACQUISITION OF GOLD, WHICH WAS RECOVERED FROM THE ASSESSEE WAS NOT RECOR DED IN THE BOOKS OF ACCOUNTS AND THE ASSESSEE OFFERED NO EXPLANATION ABOUT THE N ATURE AND SOURCE OF SUCH INVESTMENT OR ACQUISITION AND THE VALUE OF SUCH GOL D WAS NOT RECORDED IN THE BOOKS OF ACCOUNTS, NOR THE NATURE AND SOURCE OF ITS ACQUISITION EXPLAINED, THERE COULD ARISE NO QUESTION OF TREATING THE VALUE OF SU CH GOLD, WHICH WAS DEEMED TO BE THE INCOME OF THE ASSESSEE, AS A DEDUCTIBLE TRAD ING LOSS ON ITS CONFISCATION, BECAUSE, SUCH DEEMED INCOME DID NOT FALL UNDER THE HEAD OF INCOME 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. 11. FROM THE PERUSAL OF THE SAID JUDGMENT, IT IS AP PARENT THAT THE HONBLE GUJRAT HIGH COURT HAS CATEGORICALLY HELD THAT THE UNDISCLOSED INVESTM ENTS WHICH ARE DEEMED TO BE THE INCOME OF ASSESSEE IN ACCORDANCE WITH THE PROVISIONS OF SECTI ON 69, 69A, 69B AND 69C, CANNOT BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION . THIS INCOME HAS TO BE ASSESSED UNDER THE 12 HEAD INCOME FROM OTHER SOURCES. NO CONTRARY DECIS ION HAS BEEN BROUGHT TO OUR KNOWLEDGE BY THE LEARNED AR EVEN THOUGH SUFFICIENT OPPORTUNITY W AS PROVIDED TO THE LEARNED AR. IN VIEW OF THE DECISION OF THE GUJRAT HIGH COURT, I AM OF THE VIEW THAT THE INCOME IN RESPECT OF DEFICIENCY IN THE INVENTORY HAS TO BE ASSESSED AS INCOME FROM OTHER SOURCES, NOT UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION. WHILE COMPUTING THE TOTAL INCOME, THIS INCOME HAS TO BE SEPARATELY ADDED IN THE TOTAL INCOME AND CANNOT BE SHOWN BY CREDITING IN THE PROFIT AND LOSS ACCOUNT. TO THAT EXTENT, I AGREE WITH THE VIEW TAKE N BY THE LEARNED JUDICIAL MEMBER. THIS ANSWERS THE QUESTION NO. (II) REFERRED TO ME. 12. THE QUESTION NO.3 REFERRED TO ME ARISE OUT OF T HE GROUND NO.4 TAKEN BY THE REVENUE IN ITS APPEAL CLAIMING THAT SEPARATE PROFIT ON SALE OF SCR AP BE WORKED OUT AND ADDED TO THE INCOME OF THE ASSESSEE INSTEAD OF WORKING OUT THE COMPOSITE I NCOME FROM BOTH THE MANUFACTURING OF THE GOODS AND SALE OF SCRAP AS BUSINESS PROFIT. THE LD. JUDICIAL MEMBER ALLOWED THE GROUND OF APPEAL OF THE REVENUE UNDER PARA 30 OF HIS ORDER WHILE THE LEARNED ACCOUNTANT MEMBER DISMISSED THE GROUND TAKEN BY THE REVENUE. 13. I HEARD THE RIVAL SUBMISSIONS AND CAREFULLY CON SIDERED THE SAME ALONGWITH THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THAT OF THE LEARNE D JUDICIAL MEMBER AND LEARNED ACCOUNTANT MEMBER. I NOTED FROM THE ASSESSMENT ORDER THAT THE ASSESSING OFFICER HAS NOT MADE ANY SEPARATE ADDITION ESTIMATED AS PROFIT ON THE SALE OF EXCESS STOCK OF THE SCRAP FOUND DURING THE COURSE OF SURVEY AND SURRENDERED BY THE ASSESSEE. THE ASSESSI NG OFFICER REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE. THE REJECTION OF BOOKS OF ACCOUNT WAS CONFIRMED BY THE CIT(A) AS WELL AS BY THE ORDERS OF BOTH THE MEMBERS ON WHICH THERE IS NO DIS PUTE. THE ASSESSING OFFICER AFTER REJECTING 13 THE BOOKS OF ACCOUNT ESTIMATED THE SALES AT RS.5.00 CRORES AND APPLIED A NET PROFIT @ 0.43% AND WORKED OUT THE NET PROFIT AT RS.2,15,000/- BUT IN C OMPUTATION SHOWN RS. 2,45,000/- EVEN THOUGH THE ASSESSEE HAS CLAIMED IN ITS INCOME-TAX RETURN N ET LOSS AFTER CREDITING IN THE PROFIT AND LOSS ACCOUNT THE SURRENDERED AMOUNT OF RS.22,00,000/- ON ACCOUNT OF EXCESS SCRAP FOUND DURING THE COURSE OF SURVEY. THE ASSESSING OFFICER DID NOT AGR EE WITH THE WASTAGE SHOWN BY THE ASSESSEE AND MADE A SEPARATE ADDITION ON ACCOUNT OF EXCESS W ASTAGE. HE ALSO MADE SEPARATE ADDITION IN RESPECT OF UNACCOUNTED EXCESS SCRAP U/S. 69 SURREND ERED BY THE ASSESSEE VALUING @ RS.5000/- PER M.T., BUT THE ASSESSING OFFICER VALUED IT FOR RS.30 ,00,357/-. THUS, I NOTED THAT THE ADDITION U/S. 69 IN RESPECT OF INVESTMENT MADE IN THE EXCESS SCRA P FOUND, WAS MADE SEPARATELY BUT NO ADDITION HAS BEEN MADE IN RESPECT TO THE PROFIT BEING EARNED ON THE SALE OF SCRAP SEPARATELY. THE ASSESSING OFFICER HAS ESTIMATED THE SALES UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE AT RS.5.00 CRORES. THE SALES SO ESTIMATED, IN MY OPINION, WOULD HAVE T AKEN BOTH THE ACTIVITIES OF MANUFACTURING AS WELL AS TRADING OF THE SCRAP AND OTHER GOODS DEALT BY THE ASSESSEE. SINE NO SEPARATE ADDITION WAS EVER MADE BY THE ASSESSING OFFICER AND EVEN THE CIT (A) HAS NOT ALSO ENHANCED THE ASSESSMENT IN THIS REGARD, THEREFORE, IN MY OPINION, THE GROUND N O.4 TAKEN BY THE REVENUE DOES NOT EMANATE FROM THE ORDER OF THE CIT(A). IN MY OPINION, THE DE PARTMENT CANNOT RAISE THIS GROUND OF APPEAL AT THIS STAGE BEFORE THE TRIBUNAL WHEN NO SUCH ADDITIO N HAS SEPARATELY BEEN MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. I DO NOT AGREE WIT H THE LEARNED JUDICIAL MEMBER WHILE ALLOWING THE GROUND NO.4 OF THE REVENUES APPEAL. IN MY OPIN ION, THE LEARNED ACCOUNTANT MEMBER HAS RIGHTLY DISMISSED THE GROUND NO.4 OF REVENUES APPE AL IN HIS CONCLUSION. ACCORDINGLY, I AGREE WITH THE LEARNED ACCOUNTANT MEMBER SO FAR AS THE QU ESTION NO. 3 IS CONCERNED AND I AM OF THE VIEW THAT THE GROUND NO. 4 IN REVENUES APPEAL HAS TO BE DISMISSED BEING INFRUCTUOUS AND NOT BEING ARISEN OUT OF THE ORDER OF CIT(A). 14 14. QUESTIONS NO. 4 AS WELL AS 5 REFERRED TO ME HAV E ARISEN OUT OF GROUND NO. 3 TO 6 OF ASSESSEES APPEAL AND GROUND NO. 8 & 9 OF REVENUES APPEAL. GROUND NO. 3 TO 6 OF ASSESSEES APPEAL RELATE TO THE WASTAGE DUE TO MELTING LOSS WH ILE GROUNDS NOS. 8 & 9 OF REVENUES APPEAL RELATE TO THE ESTIMATION OF THE GROSS PROFIT RATE O N THE ESTIMATED SALES AFTER ACCEPTING THE ADDITIONAL POWER CHARGES INCURRED BY THE ASSESSEE D URING THE YEAR TO THE EXTENT OF RS.11,00,000/-. THE LEARNED JUDICIAL MEMBER AND LEARNED ACCOUNTANT MEMBER HAVE RESTORED THE ISSUE TO THE FILE OF THE CIT(A). WHILE RESTORING THE ISSUE TO THE FIL E OF THE CIT(A), THE LEARNED ACCOUNTANT MEMBER GAVE CERTAIN DIRECTIONS. THE LEARNED JUDICIA L MEMBER ALSO DIRECTED WITH REGARD TO THE NET PROFIT RATE ON THE TRADING RESULT TO APPLY THE SAME RATE AS HAS BEEN WORKED OUT IN THE IMMEDIATELY PRECEDING YEAR IN THE PECULIAR FACTS AN D CIRCUMSTANCES OF THE CASE WHILE THE LEARNED ACCOUNTANT MEMBER DIRECTED THE QUANTUM OF THE SALE TO BE ESTIMATED AFRESH BY CONSIDERING THE MELTING LOSS AND OXIDATION FACTORS ETC. IN THE RIGH T PERSPECTIVE. HE FURTHER DIRECTED THAT THE CIT(A) WILL CONSIDER THE IMPACT OF THE SURRENDERED BUSINESS INCOME ON THE PROFIT THAT MAY BE WORKED OUT BY PRESENT FACTS OF THE YEAR UNDER CONSI DERATION SUCH AS INCREASE IN POWER TARIFF, FIXED WAGES BILLS, HIGHER EXPENDITURE ON POWER AND ELECTRICITY, RISE IN COST OF PRODUCTION AND OTHER SELLING ADMINISTRATION AND FINANCE EXPENSES A ND NOT TO APPLY THE NET PROFIT RATE OF EARLIER YEAR AS IN HIS OPINION, THE SAME COULD NOT FORM A B ASIS UNDER THE FATS SITUATION OF THE YEAR UNDER CONSIDERATION. 15. I HEARD THE RIVAL SUBMISSIONS AND CAREFULLY CON SIDERED THE SAME. I NOTED THAT THE ASSESSING OFFICER IN THIS CASE MADE THE ADDITION ON ACCOUNT OF NET PROFIT BY ESTIMATING IT @ .43% ON ESTIMATED SALES OF RS.5.00 CRORES AT RS.2,1 5,000/- (EVEN THOUGH IN THE COMPUTATION, 15 FIGURE HAS BEEN TAKEN AT RS.2,45,000/-). ALONGWITH THIS, THE ASSESSING OFFICER MADE THE ADDITION ON ACCOUNT OF EXCESS WASTAGE AT RS.6,72,200/-. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS SHOWN WASTAGE @ 14.2% WHILE THE SAME WAS ALLOWED @ 10%. THUS, THE ASSESSING OFFICER NOTED THAT THERE WAS EXCESS WASTAGE TO THE EXTENT OF 134. 44 MT WHICH WAS VALUED @ RS.5000/- PER M.T. THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A) AND BEFORE THE CIT(A) HE INITIALLY CONTENDED THAT THERE WAS GROSS LOSS DUE TO THE INCR EASED COST OF RAW MATERIAL, HIGHER POWER CHARGES AND CHANGE IN PRODUCT MIX. IT WAS ALSO CONT ENDED THAT THE POWER CHARGES HAD INCREASED CONSIDERABLY, BUT SUBSEQUENTLY HE GAVE THE CONTENTI ON THAT THERE IS INCREASE IN THE COST OF RAW MATERIAL AND CHANGE IN PRODUCT MIX. THE CIT (APPEAL S) SUSTAINED THE ADDITION TO THE EXTENT OF RS.14,60,000/- BY OBSERVING AS UNDER : THUS, NOW THE ONLY REASON GIVEN BY THE ASSESSEE FO R THE FALL IN THE GROSS PROFIT RATHER INCURRING OF THE GROSS LOSS, IS THE ENHANCED POWER CHARGES. IT IS SEEN THAT IN REAL TERMS THE ASSESSEE HAS SHOWN THE POWER CHARGES HIGH ER BY ABOUT RS. 32 LACS AS COMPARED TO THE PRECEDING YEAR. THOUGH IN ,TERMS OF RUPEES T HE POWER CHARGES IN THE YEAR UNDER REFERENCE ARE LOWER AS COMPARED TO THE PRECEDING YE AR BUT AFTER CONSIDERING THE FALL IN PRODUCTION, THE SAME ARE IN EFFECT HIGHER BY ABOUT RS.32 LACS. FOR THIS INCREASE, ONE OF THE REASONS GIVEN BY THE APPELLANT IS THE ENHANCED POWE R TARIFF WHICH ,WAS INCREASED FROM SEPTEMBER, 2000. THE AR IN HIS SUBMISSIONS DATED 08 .12.2004 HAS MENTIONED THAT BECAUSE OF THE INCREASED TARIFF, ADDITIONAL AMOUNT OF RS.11 . 06 LACS HAD TO BE PAID. THIS FACT COULD NOT HE CONTROVERTED BY THE AO ALSO. THIS BEING THE POSITION, TO THIS EXTENT, THE APPELLANT'S EXPLANATION REGARDING LOWER GROSS PROFIT RATE /GROS S LOSS DESERVES TO BE ACCEPTED. HOWEVER, AFTER GIVING CREDIT OF RS.11 LACS THERE IS STILL A GAP OF RS.21 LACS FOR THE ENHANCED POWER CHARGES AND CONSEQUENTLY THE GROSS L OSS OF RS.22,54,763/- [RS.33.54.73/- (-) RS.LL,OO,OOO/]. FOR THIS INCREASE IN POWER CHARGES AND CONSEQUENTLY THE GROSS LOSS THE APPELLANT COULD NOT GIVE ANY SATISFACTORY REPLY NOR COULD IT PRODUCE ANY EVIDENCE IN SUPPORT OF THE CLAIM. THE ONLY EXPLANATION GIVEN BY THE AR WAS THAT THE SAME WAS ON ACCOUNT OF LOWER PRODUCTION. IN MY OPINION, THIS EX PLANATION CANNOT BE ACCEPTED. EVEN IF THERE WAS LOWER PRODUCTION, THE SAME WOULD NOT JUST IFY THE ENHANCED POWER CHARGES OF ABOUT RS.22 LACS NOR DOES IT JUSTIFY THE GROSS LOSS OF MORE THAN RS.22 LACS. IT IS NOT THAT IN PAST, THE PRODUCTION HAS NOT VARIED. IT HAS NOT BEE N SHOWN BY THE APPELLANT THAT IN PAST ALSO ON ACCOUNT OF LOWER PRODUCTION, THE ASSESSEE H AD 10 INCUR GROSS LOSS. IT IS RATHER SEEN THAT IN ASSESSMENT YEAR 1999-2000 ALSO, THE ASSESSE E HAD SHOWN THE PRODUCTION AT 2772 MT AS AGAINST 2530 MT IN THIS YEAR AND HAD STILL SH OWN GROSS PROFIT RATE OF 2.58% AND NOT GROSS LOSS. THIS SHOWS THAT THE LOWER PRODUCTIO N DOES NOT ADVERSELY EFFECT THE TRADING RESULT AND CERTAINLY NOT TO THE EXTENT AS CLAIMED I N THIS YEAR. THESE FACTS SUPPORT THE AO'S OBSERVATION THAT THE BOOK RESULTS SHOWN BY THE ASSE SSEE DO NOT REFLECT THE CORRECT PICTURE 16 AND THE ASSESSEE HAD INDULGED IN UNACCOUNTED PRODUC TION/SALES. THE CASE CAN BE SEEN FROM ANOTHER ANGLE ALSO. AS M ENTIONED ABOVE, THE ASSESSEE HAS SHOWN THE WASTAGE OF 669.710 MT WHICH IS ABOUT 21% OF THE TOTAL CONSUMPTION OF 3200 MT : IN MY OPINION, THE AO HAS RIGHTLY OBSERVED THAT THE WASTAGE CLAIMED BY THE ASSESSEE IS ABNORMAL. HIS VIEW IS SUPPORTED BY AN A RTICLE PUBLISHED ON SPONGE IRON INDUSTRIES IN INDIA IN IRON & STEEL REVIEW, NOVEMBER 2004. IN THIS ARTICLE, ON PA GE 36 IT IS CLEARLY MENTIONED THAT IN TERMS OF QUALITY AND PROD UCTIVITY USE OF SPONGE IRON AS COLD CHARGE IS MORE ADVANTAGEOUS. HOWEVER, SPONGE IRON G IVES A LOWER YIELD COMPARED TO PIG IRON/SCRAP. THE ARTICLE FURTHER STATES THAT THE USE OF SPONGE IRON/DRI IN ELECTRIC ARC FURNACE VARIES IN THE RANGE OF 83% TO 89% WHILE THE YIELD FROM SCRAP IS AROUND 93% TO 94%. AS THIS ARTICLE CLEARLY STATES THAT THE YIELD FROM SPONGE IRON IS 83% TO 89% WHILE FROM PIG IRON THE SAME IS 93% TO 94%, THE AR 'S CONTENTION THAT THE AO HAS NOT CORRECTLY UNDERSTOOD THE ARTICLE DOES NOT APPEAR TO BE CORREC T. SIMILARLY, THE AUTHORISED PERSON OF PROCESS & PRODUCT DEVELOPMENT CENTRE WHOSE REPORT WAS SUBMITT ED BY THE APPELLANT, IN HIS STATEMENT GIVEN BEFORE THE AO HAS STATED THAT T HE CERTIFICATE WAS GIVEN ON THE BASIS OF THE QUALITY OF THE SCRAP GIVEN FOR TESTING IT IS SE EN THAT THIS PERSON IN THE STATEMENT HAS STATED THAT IF THE PRODUCT MIX IS OF PIG IRON/IRON SCRAP THEN THE WASTAGE IS 8% TO 10% AND IF THE SPONGE IRON IS USED THEN THE SAME IS ABOUT 15% AND ANOTHER 2% TO 3% OXIDATION LOSS IS THERE. WHEN HE WAS ASKED AS TO WHEN THE WAS TAGE IS OF THIS MAGNITUDE THEN HOW THE CERTIFICATE OF 21% WAS GIVEN BY HINT, IT WAS STATED THAT 15% OLD IRON SCRAP INCLUDED SOME IRON AND STEEL DUST BECAUSE OF WHICH THE WASTAGE WA S ABOVE THE NORMAL WASTAGE. IN MY OPINION, FROM THESE FACTS, IT CAN BE SAFELY CONCLUD ED THAT WHILE IN THE SPONGE IRON THE WASTAGE IS BETWEEN 15% TO 18% IN PIG IRON/IRON SCRAP WASTAGE IS AROUND 8% TO 10%. IF ILL PRODUCT MIX BOTH THE ITEMS ARE USED THEN THE AV ERAGE WASTAGE WOULD BE AROUND IO% TO 12% IT IS SEEN THAT THE APPELLANT IN THE YEAR UNDER REFERENCE HAS USED 54% OF PIG IRON/IRON SCRAP AND 46% OF SPONGE IRON MEANING THEREBY BOTH THE ITEMS HAVE BEEN USED ALMOST IN THE SAME PROPORTION THIS BEING THE POSITI ON, TAKING A LIBERAL VIEW THE AVERAGE WASTAGE OF 13% SEEMS TO BE REASONABLE IN THE APPELLANT 'S CASE IN THIS YEAR. AS IN THE PRECEDING YEAR, THE CASE WAS NOT SCRUTINIZED AND TH E WASTAGE WAS NOT EXAMINED BY THE DEPARTMENT. THE SAME CANNOT BE TAKEN AS PRECEDENCE OR AN ACCEPTED POSITION BY THE DEPARTMENT. THUS, IF THE AVERAGE WASTAGE OF 13% IS ACCEPTED THEN ON THE TOTAL CONSUMPTION OF 3200 MT THE WASTAGE COMES TO 416 MTR AS AGAINST 669.710 MT [ CLAIMED BY THE ASSESSEE. THE EXCESS WASTAGE CLAIMED BY THE ASSESSEE COMES TO ABOUT 254 MT. AS RIGHTLY STATED BY THE AO IN THE REMAND REPORT DATED 01.12.2004, THIS EXCESS WASTAGE OF 254 MT REPRESENTS THE EXCESS PRODUCTION/SALE WHICH HAS NOT BEEN ACCOUNTED FOR BY THE ASSESSEE IN THE BOOKS. IT IS SEEN THAT THE AVERAGE SELLING RATE OF FINISHED GOODS COMES TO RS.LL,500/- PMT AS CAN BE SEEN FROM SCHEDULE H TO THE BALANCE SHEET. IF THIS RATE IS APPLIED (EXCLUDING EXCISE DUTY) ON THE EXCESS PRODU CTION OF 254 MT THEN THE UNRECORDED SALES COME TO RS.29,21,OOO/-. IN MY OPINION, THIS AMOUNT IS REQUI RED TO BE ADDED IN THE MANUFACTURING AND TRADING ACCOUNT OF THE ASSESSEE. IF THIS AMOUNT IS ADDED THEN THE GROSS LOSS IN THE MANUFACTURING BUSINESS IS REDUCED TO RS .4,33,763/- [RS.33,54,763/-- (-) RS.29.21,OOO/-]. THUS, EVEN AFTER THIS ADDITION, TH ERE I S A GROSS LOSS OF RS.4,33,763/- IN THE MANUFACTURING ACCOUNT. IN MY OPINION .AFTER CON SIDERING THE ADDITIONAL POWER CHARGES OF RS. 11 LACS, WHICH HAVE BEEN ACCEPTED BY ME ABOVE IN ,REAL TERMS THERE IS NOW A GROSS PROFIT OFRS.6,66,237/- [RS.11, 00, 0001- (-) RS. 4,33,763/- IN THE MANUFACTURING ACCOUNT WHICH ON THE SALES OF RS.4,01,097,534 (RS.3 ,71,86,534/- + 29,21,000) COMES TO 1.66% AND COMPARE WELL WITH THE TRADING RESULTS SHOWN BY THE ASSESSEE IN EARLIER YEAR(S). 17 IN VIEW OF THE ABOVE DISCUSSION, 1 AM OF THE OPINIO N THAT IT WOULD BE JUST AND FAIR IF A TRADING ADDITION OF RS. 29,21,000/- IS MADE IN THE APPELLANT'S CASE. DURING THE APPELLATE PROCEEDINGS, THE AR, HOWEVER, CONTENDED THAT SINCE THE ASSESSEE HAD SURRENDERED RS. 22 LACS ON ACCOUNT OF EXCESS STOCK, TELESCOPING OF THE TRAD ING ADDITION IS REQUIRED TO BE ALLOWED TO THE APPELLANT. I FIND FORCE IN THE AFORESAID SUBMIS SIONS OF THE AR. HOWEVER, TELESCOPING OF THE TRADING ADDITION CAN BE ALLOWED ONLY FOR THE PR E SURVEY PERIOD I.E. APRIL, 2000 TO THE DATE OF SURVEY. IT IS SEEN THAT TILL THE DATE OF SURVEY THE CONSUMPTION O F RAW MATERIAL AND OUT PUT WERE 1543 MT AND 1251 MT, AND IN THE POST SURVEY PERIOD, THE SAME WERE 15 92 MT AND 1278 MT: IT CAN THUS BE SEEN THAT THE CONSUMPTION AND PR ODUCTION WERE ALMOST THE SAME IN BOTH THE PERIODS. CONSEQUENTLY 50% OF THE ABOVE TRA DING ADDITION CAN BE HELD TO BE PERTAINING TO THE SURVEY PERIOD AND TO THIS EXTENT ONLY THE SAME CON BE TELESCOPED AGAINST THE EXCESS STOCK SURRENDERED BY THE ASSESSEE. THUS, OUT OF THE TOTAL ADDITION OF R.29,21,000/-, ADDITION TO THE EXTENT OF RS.I4,60,500/- WOULD STAND TELESCOPED AGAINST THE SURRENDER OF RS. 22 LACS MADE BY THE ASSESSEE AND THE REMAINING AMOUNT OF RS. 14,60,000/- WOULD BE FURTHER ADDED IN THE INCOME OF THE ASSESSEE. THESE GROUNDS OF ' APPEAL ARE, THEREFORE, DISPOSED OF ACCORDINGLY. ' 16. BOTH THE ASSESSEE AS WELL AS THE REVENUE CAME I N APPEAL BEFORE THE TRIBUNAL. THE LEARNED JUDICIAL MEMBER RESTORED THIS ISSUE BACK TO THE FIL E OF CIT(A) BY OBSERVING AS UNDER : 25. A PERUSAL OF THE LINE OF ARGUMENT INITIALLY TAK EN BY THE ASSESSEE AND SUBSEQUENTLY ABANDONED IN REGARD TO THE APPLICATION OF RATES AND THE LOSS CLAIMED BY IT, IT IS SEEN THAT THE ASSESSEE HAD GIVEN UP THE ARGUMENT S OF THE INCREASE IN COST OF RAW MATERIAL AND CHANGE IN PRODUCT MIX AND HAS CONFINED HIS ARGUMENTS TO THE INCREASE IN POWER EXPENSES. IN VIEW OF THE FACT THAT THE ASSESS EE HAS CLAIMED HIGHER WASTAGE AND IN VIEW OF GROUND NO.4, 7, 8 AND 9 OF THE REVENUE WE C ONSIDER IT APPROPRIATE IN THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE WHERE THE BOOKS OF ACCOUNTS CANNOT BE RELIED UPON IN REGARD TO THE AMOUNT OF WASTAGE AND FINISHED PRODUC TS SOLD SINCE THE CONSUMPTION OF ELECTRICITY IS ONE OF THE DIRECT COSTS WHICH WOULD IMPACT THE PRODUCTION WE CONSIDER IT APPROPRIATE TO RESTORE THIS ISSUE BACK TO THE FILE OF THE CIT(A) WHO SHALL EXAMINE THE ISSUE IN THE LIGHT OF THE PAST HISTORY IN REGARD TO ELECT RICAL CONSUMPTION AND ALSO GIVE A SPECIFIC FINDING AS TO THE SPECIFIC INCREASE IN ELECTRIC TAR IFF RATE WHICH MAY HAVE A BEARING ON THIS ISSUE ALSO AS SUCH BY THIS THE AMOUNT OF WASTAGE AN D THE UTILISATION OF THE SAME FOR PRODUCING FINISHED GOODS AND THE ADDITION IN THE TR ADING RESULT WHICH MAY SO WARRANT WOULD BE ACCORDINGLY SO CONSIDERED ON WHICH ASPECT BOTH THE ASSESSEE AND THE DEPARTMENT ARE AGGRIEVED. 26. IN REGARD TO THE WASTAGE CLAIMED BY THE ASSESSE E IT IS SEEN THAT THE REPORT OF THE AUTHORIZED PERSON OF PROCESS AND PRODUCT DEVELO PMENT CENTRE, MR. JOSHI CERTIFYING WASTAGE OF 21 % HAS BEEN CONSIDERED TO BE NOT RELEV ANT IN VIEW OF THE FACT THAT IT WAS BASED ON A SPECIFIC PRODUCT MIX WHICH WAS GIVEN BY THE ASSESSEE THE SAID PERSON'S STATEMENT AS PER THE MATERIAL AVAILABLE ON RECORD A ND FOUND DISCUSSED ON PAGE 17 OF THE IMPUGNED ORDER. THE STATEMENT HAS BEEN RECORDED WHE REIN MR. JOSHI HAS STATED THAT IN THE PRODUCT MIX OF PIG IRON AND IRON SCRAP THE WAST AGE IS 8% TO 10% AND IF SPONGE IRON IS USED THEN THE WASTAGE IS ABOUT 15% APART FROM 2% - 3% OF OXIDATION LOSS. THE CERTIFICATE OF 21 % WAS GIVEN BY HIM IN VIEW OF THE FACT THAT IN THE SA MPLE GIVEN TO HIM 18 15% OLD IRON SCRAP WHICH INCLUDED SOME IRON AND STE EL DUST ALSO AS SUCH THE WASTAGE CERTIFIED BY HIM OF THE SAMPLE WAS MUCH ABOVE THE N ORMAL WASTAGE. IT IS SEEN THAT THE AO. HAS TAKEN COGNIZANCE OF THE FACT THAT THE WASTA GE IN THIS LINE OF BUSINESS WAS GENERALLY 7% TO 10% AND CIT(A) HAS GIVEN A FINDING THAT IN THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS USED 54% OF PIG IRON/IRON SCRAP AN D 46% OF SMALL IRON IN THE CIRCUMSTANCES TAKING A LIBERAL VIEW HE HAS TAKEN AV ERAGE WASTAGE OF 13% . 27. ACCORDINGLY, ON CONSIDERING THE FACTS AVAILABLE AND THE POINT AT ISSUE IT IS SEEN THAT THE CONSUMPTION OF ELECTRICITY IN THE YEA R UNDER CONSIDERATION WHICH ISSUE HAS BEEN RESTORED FOR VERIFICATION MAY ALSO HAVE A HEAR ING ON THE AMOUNT OF FINISHED PRODUCTS PRODUCED BY THE ASSESSEE THEREBY THE AMOUNT AVAILAB LE FOR WASTAGE WOULD ALSO BE AFFECTED. ACCORDINGLY, WE DO NOT GIVE ANY FINDING O N THIS ASPECT AND RESTORE THIS ISSUE ALSO BACK TO THE FILE OF THE CIT)A) WHO MAY EXAMINE THE ISSUE FROM THE PERSPECTIVE OF THE ASSESSEE IN REGARD TO INCREASE IN THE ELECTRICITY T ARIFF AND THE EXPENSES ON ACCOUNT OF CONSUMPTION OF ELECTRICITY AND MAY ALSO TAKE INTO C ONSIDERATION THE WASTAGE CLAIMED BY THE ASSESSEE CONSIDERING THE PAST HISTORY OF THE AS SESSEE THE SPECIFIC FACTS ON RECORD AND A COMPARISON IN THIS LINE OF BUSINESS WITH OTHER IDEN TICALLY SITUATED PERSONS USING IN SPONGE IRON/DRL PIG IRON IN ELECTRIC ARC FURNACE. 28. IN REGARD TO THE N.P. RATE ON THE TRADING RES ULT WHICH HAS BEEN TAKEN IN THE IMMEDIATELY PRECEDING A Y. IN THE PECULIAR FACTS AND CIRCUMSTANCES THE CIT( A) SHALL APPLY THE SAME RATE. 17. THE LEARNED ACCOUNTANT MEMBER ALSO RESTORED THE ISSUE TO THE FILE OF THE CIT(A) WITH THE FOLLOWING DIRECTIONS : 15. AFTER HEARING THE PARTIES AND CAREFUL PERUSAL OF MATERIAL ON RECORD, IT IS FOUND THAT THE ACTION TO REJECT ACCOU NTS BY INVOKING PROVISIONS OF SECTION 145 OF THE ACT STANDS CONFIRMED. HAVING REJ ECTED THE ACCOUNTS, SUB- SECTION (3) OF SECTION 145 OF THE ACT REQUIRES AN A SSESSING OFFICER TO MAKE AN ASSESSMENT IN THE MANNER PROVIDED UNDER SECTION 144 OF THE ACT. THE PROCEDURE PRESCRIBED U/S. 144 OF THE ACT IS THAT THE ASSESSIN G OFFICER, AFTER TAKING INTO ACCOUNT ALL RELEVANT MATERIAL WHICH HAS BEEN GATHER ED AND AFTER GIVING ASSESSEE AN OPPORTUNITY OF BEING HEARD SHALL MAKE THE ASSESS MENT OF TOTAL INCOME OR LOSS TO BEST OF HIS JUDGMENT AND DETERMINE THE SUM PAYABLE BY THE ASSESSEE ON THE BASIS OF SUCH ASSESSMENT. IN THE PRESENT CASE IN APPEAL, IF THE ASSESSEE HAD OBJECTED TO THE ADDITIONS MADE AND ASSESSMENT OF INCOME, THE LD . CIT(APPEALS) OUGHT TO HAVE CORRECTED THAT BY MAKING A REASONED ORDER ON THE PO INTS OR BASIS WHAT HE HONESTLY BELIEVED TO BE A FAIR ESTIMATE OF INCOME OF THE ASS ESSEE AFTER TAKING INTO CONSIDERATION THE RELEVANT MATERIAL THAT HAD COME ON HIS RECORD. THE ID. CIT(APPEALS), HOWEVER DID NOT GIVE ANY REASON OR BASIS NOT TO ACCEPT THE ESTIMATI ON OF INCOME MADE BY THE ASSESSING OFFICER BY ESTIMATING SALES OR APPLICATION OF NET P ROFIT RATE APPLIED BY HIM. NOR DID HE GIVE ANY REASON FOR NOT ACCEPTING THE PLEA OF THE A PPELLANT THAT THE ESTIMATION SO MADE HAS NO RATIONALE AND THIS BEING AN ABNORMAL YEAR, N ET PROFIT RATE ON THE BASIS OF EARLIER YEAR'S PROFIT RATE COULD NOT BE APPLIED FOR DETERMI NATION OF HIS INCOME FOR THE YEAR UNDER CONSIDERATION. THE LD. CIT(APPEALS) ALSO DID NOT SH OW AS TO WHY THE ENTIRE AMOUNT OF ALLEGED SALE OF EXCESS WASTAGE CLAIMED NEEDS TO BE ADDED AND NOT THE ESTIMATED PROFIT 19 EMBEDDED IN SALES FOR WHICH NET PROFIT RATE WAS ADO PTED AND A SEPARATE GROUNDS NO.6 & 7 IN THAT RESPECT HAD ALSO BEEN TAKEN BY THE ASSESS EE IN APPEAL BEFORE HIM. IT IS ALSO EVIDENT FROM RECORD THAT THE QUANTITY WEIGHING 3200 M.T. OF THE MATERIAL ON WHICH EXCESSIVE WASTAGE HAS BEEN WORKED IS AVAILABLE OUT OF RECORDED PURCHASES AND REVENUE HAS NOWHERE DOUBTED NOR RECORDED A FINDING ABOUT SU PPRESSION OF INVESTMENT IN SUCH CONSUMPTION OF GOODS WHICH ARE DEEMED AS SALES ON A CCOUNT OF EXCESSIVE CLAIM OF WASTAGE WORKED OUT AT 254 M.T. BY LD. CIT(APPEALS) AS AGAINST THE QUANTITY OF 134.44 M.T. CALCULATED BY THE ASSESSING OFFICER. UNDER THE PECULIAR FACTS THE ENTIRE AMOUNT OF SUCH SALES COULD NOT HAVE BEEN ADDED AS INCOME OF T HE ASSESSEE THOUGH THE SAME COULD HAVE BEEN TAKEN AS A BASIS FOR ESTIMATING REASONABL E AMOUNT OF TOTAL SALES OF THE BUSINESS FOR APPLYING A PROFIT/LOSS RATE THEREON OR ASSESSIN G INCOME OR LOSS OF THE YEAR UNDER CONSIDERATION, AS THERE IS NO MATERIAL OR FINDING O N RECORD ABOUT SUPPRESSION OF INVESTMENT IN ACQUIRING THE GOODS WHICH ARE SUBJECT MATTER OF SUCH DEEMED SALES. THIS VIEW ALSO FINDS SUPPORT FROM THE JUDGMENT RENDERED BY HON 'BLE HIGH COURT OF GUJRAT IN CIT VS. PRESIDENT INDUSTRIES (2002) 258 ITR 654 (GU J.). KEEPING IN VIEW THE ENTIRE CONSPECTUS OF THE CASE, THE SEPARATE TRADING ADDITI ON OFRS.29,21,000/- SO MADE IS HEREBY DIRECTED TO BE DELETED, EVEN THOUGH THE ACTION TO A LLOW TELESCOPING OF BUSINESS INCOME UPTO THE DATE OF SURVEY AGAINST SURRENDERED INCOME OF RS.22,00,000/- IN PRINCIPLE IS NEITHER DISPUTED BY LD. DEPARTMENTAL REPRESENTATIVE NOR FOUND ERRONEOUS. THE CONSEQUENT ADDITION OF RS.14,60,500/DIRECTED TO BE MADE BY LD. CIT(APPEALS) ON THAT ACCOUNT IS ALSO DIRECTED TO BE DELETED AND THE ISSU E OF ESTIMATING INCOME IS RESTORED BACK TO THE FILE OF LD. CIT(APPEALS) SO THAT WHEN THE MA TTER GOES BACK TO HIM, HE ONLY ADOPTS REASONABLE AMOUNT OF SALES AS AGAINST THE ESTIMATES OF RS.5,00,00,000/- MADE BY THE ASSESSING OFFICER. NEEDLESS TO ADD THE QUANTUM OF S ALES ESTIMATED ON ACCOUNT OF EXCESS CLAIM OF WASTAGE SHALL HAVE TO BE WORKED OUT AFRESH BY CONSIDERING THE MELTING LOSS AND OXIDATION FACTOR ETC. IN THE RIGHT PERSPECTIVE. HE SHALL ALSO CONSIDER THE IMPACT OF SURRENDERED BUSINESS INCOME ON THE NET PROFIT THAT MAY BE WORKED OUT BY APPRAISING FACTS OF THE YEAR UNDER CONSIDERATION SUCH AS INCREASE IN POWER TARIFF, FIXED WAGE BILL, HIGHER EXPENDITURE ON POWER AND ELECTRICITY, RISE IN COST OF PRODUCTION AND OTHER SELLING ADMINISTRATION AND FINANCE EXPENSES AND NOT TO APPL Y THE NET PROFIT RATE OF EARLIER YEAR AS THE SAME COULD NOT FORM A BASIS UNDER THE FACT-SITU ATION OF THE YEAR UNDER CONSIDERATION. THE PARTIES SHALL BE AFFORDED A REASONABLE AND EFFE CTIVE OPPORTUNITY OF BEING HEARD SO THAT RELIABLE EVIDENCE IN SUPPORT OF THEIR CLAIM IS ADDUCED BY THEM BEFORE HE TAKES DECISION IN ACCORDANCE WITH LAW FOR ESTIMATING TOTA L INCOME OR LOSS OF THE YEAR UNDER CONSIDERATION WITH REFERENCE TO RELEVANT MATERIAL O N RECORD AS ENVISAGED BY THE PROVISIONS OF SECTION 144 OF THE ACT. ACCORDINGLY, GROUND NO. 1 IN APPEAL BY ASSESSEE STANDS ALLOWED AND GROUNDS NOS. 3 TO 6 IN THAT APPE AL STAND ALLOWED FOR STATISTICAL PURPOSES ONLY. CONSEQUENT TO THIS, GROUNDS NOS. 5 T O 10 IN REVENUE'S APPEAL ARE ALSO ALLOWED FOR STATISTICAL PURPOSES ONLY. 18. THIS IS A FACT THAT THE ACTION OF THE ASSESSING OFFICER REJECTING THE BOOKS OF ACCOUNT BY INVOKING THE PROVISIONS OF SECTION 145(3) GOT CONFI RMED. SECTION 145(3) OF THE INCOME TAX ACT EMPOWERS THE ASSESSING OFFICER TO MAKE THE ASSESSME NT IN THE MANNER PROVIDED U/S. 144 IF THE ASSESSING OFFICER IS NOT SATISFIED ABOUT THE CORREC TNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE OR WHERE THE METHOD OF ACCOUNTING PROVIDED IN SUB-SEC. (1) OR ACCOUNTING STANDARD AS 20 NOTIFIED IN SUB-SEC.(2) HAS NOT BEEN REGULARLY FOLL OWED BY THE ASSESSEE. THIS SECTION REQUIRES THE ASSESSING OFFICER TO MAKE THE ASSESSMENT DETERMININ G TOTAL INCOME OR LOSS OF THE ASSESSEE TO THE BEST OF HIS JUDGMENT AFTER GIVING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WHILE MAKING THE ASSESSMENT IT IS INCUMBENT UPON THE ASSESSING OFFIC ER TO TAKE INTO ACCOUNT ALL THE RELEVANT MATERIAL, WHICH THE ASSESSING OFFICER HAS GATHERED. THERE IS DIFFERENCE BETWEEN THE ASSESSMENT MADE ON THE BASIS OF ASSESSEES ACCOUNTS AND THAT M ADE ON BEST JUDGMENT BASIS. THE HONBLE SUPREME COURT HAS CATEGORICALLY LAID DOWN IN THE CA SE OF STATE OF ORISA VS. MAHARAJA SHRI B.P. SINGH DEO, 76 ITR 690 (SC), THAT THE MERE FACT THAT THE MATERIAL PLACED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER IS UNRELIABLE, DOES NOT EMPOW ER THE OFFICER TO MAKE AN ARBITRARY ORDER. THE POWER TO MAKE THE BEST JUDGMENT ASSESSMENT IS NOT A RBITRARY ONE. THE ASSESSING OFFICER IN MAKING A BEST JUDGMENT ASSESSMENT DOES NOT POSSESS ABSOLUTE ARBITRARY AUTHORITY TO ASSESS THE INCOME AT ANY FIGURE AS HE LIKES. ALTHOUGH HE IS NO T BOUND BY STRICT JUDICIAL PRINCIPLES, HE SHOULD BE GUIDED BY THE RULES OF JUSTICE, EQUITY AND GOOD CONSCIENCE. THE ASSESSING OFFICER MUST NOT ACT DISHONESTLY OR VINDICTIVELY OR CAPRICIOUSLY BEC AUSE HE MUST EXERCISE JUDGMENT IN THE MATTER. HE MUST MAKE WHAT HE HONESTLY BELIEVES TO BE FAIR E STIMATE OF THE PROPER FIGURE OF ASSESSMENT, AND FOR THIS PURPOSE HE MUST BE ABLE TO TAKE INTO C ONSIDERATION LOCAL KNOWLEDGE AND REPUTE IN REGARD TO THE ASSESSEES CIRCUMSTANCES, AND HIS OWN KNOWLEDGE OF PREVIOUS RETURNS BY AND ASSESSMENTS OF THE ASSESSEE AND ALL OTHER MATTERS W HICH HE THINKS WILL ASSIST HIM IN ARRIVING AT A FAIR AND PROPER ESTIMATE; AND THOUGH THERE MUST NEC ESSARILY BE GUESS-WORK IN THE MATTER, IT MUST BE HONEST GUESS-WORK. THERE IS NOTHING IN SECTION 1 44 FOR HOLDING AN ASSESSMENT MADE BY AN OFFICER U/S. 144 WITHOUT CONDUCTING A LOCAL ENQUIRY AND WITHOUT RECORDING THE DETAILS AND RESULTS OF THAT ENQUIRY CANNOT HAVE BEEN MADE TO THE BEST O F HIS JUDGMENT WITHIN THE MEANING OF THAT SECTION. THE BEST JUDGMENT IS TO BE BASED ON A FAIR AND PROPER ESTIMATE OF ASSESSEES INCOME AND 21 THE INFERENCE TO BE DRAWN FROM THE AVAILABLE MATERI AL SHOULD BE PROPERLY INFERABLE INFERENCE. THE ASSESSMENT IS TO BE BASED ON MATERIAL TO THE EXTENT TO WHICH THE MATERIALS ARE DISCOVERED. THIS CLEARLY SUPPOSES THE ASSESSING OFFICER SHOULD MAKE AN INTELLIGENT WELL-GROUNDED ESTIMATE. SUCH ESTIMATE MUST BE BASED ON ADEQUATE AND RELEVANT MAT ERIAL. WHAT IS IRRELEVANT MATERIAL DEPENDS ON THE FACTS AND CIRCUMSTANCES OF THE CASE. IN MY OPIN ION, THE EARLIER YEARS RESULTS OF ASSESSEES BUSINESS ARE THE RELEVANT MATERIAL UNTIL AD UNLESS IT IS PROVED OTHERWISE. IF THE NATURE OF THE BUSINESS OF THE ASSESSEE IS SAME UNDER THE ORDINARY CIRCUMSTANCES, IT IS PRESUMED THAT THE RESULT OF THE BUSINESS OF THE ASSESSEE WILL REMAIN THE SAM E UNDER THE NORMAL CIRCUMSTANCES. THE AUTHORITIES BELOW HAVE GIVEN SUFFICIENT OPPORTUNITY TO THE ASSESSEE SO FAR THE APPLICATION OF THE NET PROFIT RATE IS CONCERNED. THE LD. AR COULD NOT PRODUCE ANY EVIDENCE NEITHER BEFORE US NOR BEFORE THE AUTHORITIES BELOW WHY THE NET PROFIT AS HAS BEEN ACHIEVED BY THE ASSESSEE IN THE EARLIER YEAR COULD NOT BE APPLIED TO THE CURRENT YEAR. THE ONLY ARGUMENT OF THE ASSESSEE RELATE TO THE INCREASE IN THE POWER EXPENSES AND HIGHER WASTAGE. EXCEPT THESE TWO ATTRIBUTES, IN MY OPINION, THERE IS NOTHING WRONG IN DIRECTING THE CIT(A) WHIL E RESTORING THE MATTER TO HIS FILE ON THESE ISSUES THAT THE NET PROFIT RATE HAS TO BE APPLIED A S HAS BEEN TAKEN IN THE PRECEDING ASSESSMENT YEAR AS THE NET PROFIT RATE OF OTHER EARLIER YEARS WERE NOT GIVEN BY THE ASSESSEE. TO THAT EXTENT I AGREE WITH THE VIEW OF THE LD. JUDICIAL MEMBER, AS IN MY OPINION THE NET PROFIT RATE ACHIEVED IN THE IMMEDIATELY PRECEDING YEAR WILL BE THE RELEVANT MAT ERIAL ON RECORD ON THE PECULIAR FACTS OF THIS CASE. I DO AGREE WITH THE JUDICIAL MEMBER THAT THE CONSUMPTION OF THE ELECTRICITY WILL HAVE DIRECT BEARING ON THE COST OF THE PRODUCTION. SIMILARLY, T HE CLAIM OF WASTAGE BY THE ASSESSEE IN THE EARLIER YEARS WILL ALSO BE A RELEVANT FACTOR TO DEC IDE WHAT WASTAGE SHOULD BE ALLOWED TO THE ASSESSEE KEEPING IN VIEW THE NATURE OF THE BUSINESS OF THE ASSESSEE AND OTHER IDENTICALLY SITUATED UNITS CONSUMING THE SPONGE IRON AND PIG IRON IN ELE CTRICAL FURNACE. ONCE THE HIGHER WASTAGE ARE 22 RECORDED, THE NATURAL INFERENCE WILL BE THAT THERE WILL BE EXCESS PRODUCTION, WHICH NOT BEING ACCOUNTED FOR, WOULD HAVE BEEN SOLD OUTSIDE THE BOO KS OF ACCOUNT BY THE ASSESSEE. TO THE EXTENT THERE IS PRODUCTION ON ACCOUNT OF EXCESS WASTAGE, I N MY OPINION, THE SALE CONSIDERATION WORKED OUT ON SUCH EXCESS PRODUCTION HAS TO BE ADDED SEPAR ATELY SINCE THE ASSESSEE HAS SURRENDERED THE EXCESS SCRAP STOCK. THERE IS NOTHING WRONG IN TELES COPING THE TRADING ADDITION SO ALLOWED TO THE EXTENT OF THE ADDITIONS MADE ON ACCOUNT OF INVESTME NT IN EXCESS STOCK AS ON THE DATE OF SURVEY. I, THEREFORE, AGREE WITH THE ORDER OF THE LD. JUDICIAL MEMBER ON BOTH THE QUESTIONS. ACCORDINGLY, I HOLD THAT UNDER THE FACTS AND CIRCUMSTANCES, THE IS SUE RELATING TO THE CONSUMPTION OF ELECTRICITY AND WASTAGE ON ACCOUNT OF CONSUMPTION OF RAW MATERI AL IS RESTORED TO THE FILE OF THE CIT(A) AND SEPARATE ADDITION ON TRADING ACCOUNT CAN BE MADE FO R THE EXCESS CONSUMPTION/WASTAGE OF RAW MATERIAL AS DEEMED SALES. IN RESPECT OF QUESTION NO .5, IN MY OPINION, THERE IS NOTHING WRONG IN THE DIRECTION GIVEN TO THE LD. CIT(A) TO WORK OUT T HE NET PROFIT BY APPLYING A RATE AS HAS BEEN TAKEN IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 19. NOW, THE MATTER SHALL GO TO THE REGULAR BENCH. SD/- (P.K. BANSAL) ACCOUNTANT MEMBER DATED: 23 RD NOVEMBER, 2010 *AKS/-