The ACIT, Circle 9(1), Hyderabad V. M/s. Sudhakar PVC Products, Nalgonda District

ITA 996/HYD/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5572 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-01-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 23-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P SOMASEKHAR REDDY
• Assessee Lawyers: A V SADASIVA
• Keywords: Gross profit estimation; Business income; Depreciation
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER S.NO. ITA NO. AY APPELLANT RESPONDENT 1 996/H/11 2007-08 ASST. COMMISSIONER OF INCOME-TAX, CIRCLE 9(1), HYDERABAD. M/S SUDHAKAR PV PRODUCTS, SURYAPET, PAN AALFS1886K 2 998/H/11 2007-08 -DO- M/S SUDHAKAR IRRIGATION SYSTEMS (P) LTD., SURPAPET, PAN AAFCS5170B 3 997/H/11 2007-08 -DO- M/S SUDHAKAR PLASTIC LTD., SURYAPET. PAN AADCS4065K REVENUE BY: SHRI P. SOMA SEKHAR REDDY ASSESSEE BY: SRI A.V. SADASIVA DATE OF HEARING: 11/12/2013 DATE OF PRONOUNCEMENT: 09/01/2014 O R D E R PER CHANDRA POOJARI, AM: THESE APPEALS FILED BY REVENUE IN CASE OF DIFFERENT ASSESSEES ARE DIRECTED AGAINST SEPARATE ORDERS OF CIT(A)-VI, HYDERABAD FOR THE ASSESSMENT YEARS 2007-08 SINCE COMMON ISSUES ARE IN VOLVED IN THESE APPEALS, THEY WERE CLUBBED AND HEARD TOGETHER , THEREFORE A COMMON ORDER IS PASSED FOR THE SAKE OF CONVENIENCE. ITA NOS. 996 & 998/HYD/11 IN CASES OF M/S SUDHAKAR PVC PRODUCTS AND M/S SUDHAKAR IRRIGATION SYSTEMS (P) LTD. 2. SINCE THE GROUNDS RAISED BY THE REVENUE IN BOTH THESE APPEALS ARE SIMILAR, FOR CONVENIENCE WE CONSIDER THE ITA N O. 996/H/11. THE GROUNDS IN ITA NO. 996/H/2011 ARE AS FOLLOWS: I.T.A. NOS. 996, 997 & 998/HYD/2011 M/S SUDHAKAR PLASTIC LTD. AND OTHERS 2 1. THE LEARNED CIT(A) ERRED IN HOLDING THAT THE ASSESS ING OFFICER CANNOT INVOKE PROVISION OF SECTION 145(3) E VER WHEN HE IS NOT SATISFIED ABOUT THE CORRECTNESS OR COMPLETEN ESS OF THE ACCOUNTS. 2. THE LEARNED CIT(A) OUGHT TO HAVE TAKEN INTO ACCO UNT THE INCOMPLETENESS OF INFORMATION OF BOOKS AS HIGHLIGHT ED IN THE ASSESSMENT ORDER. 3. THE CIT(A) ACCEPTED THE CONTENTION OF THE ASSESS EE THAT FOR MANY OF THE EARLIER ASSESSMENTS WERE COMPLETED U/S 143(3) AND AOS. HAVE ACCOUNTED THE RETURNS OF THE ASSESSEE FIR M EXCEPT FOR VARIOUS SMALL DISALLOWANCES. THEREFORE, THE CHA IN OF CONSISTENCY CANNOT BE BROKEN IF SUFFICIENT REASON I S NOT ESTABLISHED. HOWEVER, IT IS SEEN THAT THERE ARE SUF FICIENT REASONS TO BREAK THE CONSISTENCY. THE BASIC LEGAL P ROPOSITION IS THAT THERE IS NO RES-JUDICATA FOR MATTER OF FACTS A S WELL AS NO RES-JUDICATA FOR ASSESSMENT OF DIFFERENT ASSESSMENT YEARS. 3. BRIEFLY THE FACTS ARE THAT THE ASSESSEE MANUFACT URES AND SELLS PVC PIPES. FOR AY 2007-08, THE ASSESSEE FILED RETUR N OF INCOME ON 29/10/2007 DECLARING AN INCOME OF RS. 28,07,547/- O N EXAMINATION OF RECORD, THE ASSESSING OFFICER FOUND THAT THERE WAS A DRASTIC FALL IN THE GP RATE AS COMPARED TO EARLIER YEAR AND ALSO SUBSEQ UENT YEAR RESULTS. THEREFORE, THE ASSESSING OFFICER ASKED THE ASSESSEE TO FURNISH THE DETAILS OF INPUT-OUTPUT STATEMENTS AND PRODUCTION SHEETS. SINCE, THE ASSESSEE FAILED TO PRODUCE THE SAID DETA ILS, THE ASSESSING OFFICER AFTER ISSUING NOTICE DATED 18/12/2009, INFO RMED TO THE ASSESSEE THAT ANALYSIS REVEALS THAT THERE IS MARGIN AL INCREASE IN RAW MATERIAL CONSUMPTION COST IN FY 2006-07 COMPARED TO FY 2005-06. IT WAS POINTED OUT BY THE ASSESSING OFFICER THAT INCRE ASE IN SALES IS ONLY ABOUT 8.9% WHEREAS THERE IS A HEAVY DECREASE IN CLO SING STOCK OF ABOUT 48.7%. THE ASSESSING OFFICER WAS OF THE VIEW THAT THIS KIND OF SITUATION IS POSSIBLE ONLY WHEN THE SALE PRICES ARE SLASHED HEAVILY AND HOWEVER, IT WAS OBSERVED THAT IF THE SALES ARE MADE TO SISTER CONCERNS, ASSESSEE WAS ASKED TO FURNISH THE DATA TO JUSTIFY SUCH SALE PRICE. IN THE ABSENCE OF INPUT-OUTPUT OR PRODUCTIO N SHEETS FOR VERIFICATION, THE ASSESSING OFFICER PROPOSED TO REJ ECT THE BOOKS OF ACCOUNT OF THE ASSESSEE. THE ASSESSING OFFICER CONC LUDED THAT THERE IS AN UNEXPLAINED FALL IN GROSS PROFIT RATE AS PER THE FOLLOWING TABLE: I.T.A. NOS. 996, 997 & 998/HYD/2011 M/S SUDHAKAR PLASTIC LTD. AND OTHERS 3 ITEM FY 2003- 04 FY 2004- 05 FY 2005- 06 FY 2006- 07 PVR RESIN PRICE 41529 48405 41329 43106 INCREASE/DECREASE - 17.32% -14.61% 4.3% GP% 12.49 10.84 14.97 8.51 INCREASE/DECREASE - -1.65 4.13 -6.45 4. THE ASSESSING OFFICER OPINED THAT THE GP FOR FIN ANCIAL YEAR 2004- 05 DECREASED WHEN THERE WAS SHARP INCREASE IN THE RESIN PRICE BUT ONLY BY ABOUT 1.65%. HOWEVER, WHEN THERE IS ONLY INCREASE OF 4.3% IN RESIN PRICE DURING FINANCIAL YE AR 2006-07, THE GP SHARPLY FELL BY 6.46% IN FACT LOWER THAN THAT FO R FINANCIAL YEAR 2004-05. 5. ACCORDINGLY, THE ASSESSING OFFICER OBSERVED THAT (I) IN THE SCENARIO OF STANDARD YIELD, SMALL PRICE RISE IN INP UT COST COULD NOT BE THE REASON FOR GP SHORTFALL (II) THAT THE EXCISE AUTHORITIES ARE NOT CONCERNED ABOUT THE INCOME OF THE APPELLANT AND THAT THERE IS SUPPRESSION OF SALES WAS NOTICED DURING SEARCH ULS 132 DONE IN AN EARLIER YEAR IN THE CASE OF THE APPELLANT (III) THAT THE APPELLANT DECLARED GP OF 33% DURING THE NEXT FINANCIAL YEAR ( IV) THAT THE APPELLANT MAKES SALES TO MLS SUDHAKAR MARKETING P L TD WHICH IS A CLOSELY HELD GROUP CONCERN AND THAT THE APPELLANT NEVER SUBMITTED DETAILED DATA ON SALES MADE TO THE CONCER N SO THAT INDEPENDENT VERIFICATION CAN BE DONE WITH SALES MAD E BY THIRD PARTY MANUFACTURERS IN THE INDUSTRY. THE ASSESSING OFFICER FURTHER OPINED THAT IN VIEW OF THE ABOVE, THERE WAS DEFINIT E MANIPULATION BY THE ASSESSEE IN THE SALES OR IN THE CLOSING STOC K TO REDUCE THE G.P. 6. IN VIEW OF THE ABOVE, THE ASSESSING OFFICER NOTE D THAT THERE WAS ABNORMAL DECREASE N GP FOR FINANCIAL YEAR 2006-07 A ND THAT THE SAME WAS NOT EXPLAINED BY THE APPELLANT. IT WAS FUR THER NOTED THAT THERE IS NO MATERIAL CHANGE IN THE MANUFACTURING PR OCESS WHEN COMPARED TO PREVIOUS YEARS AND THAT THERE WERE NO A BNORMAL CONDITIONS IN THE MARKET. ACCORDINGLY, THE ASSESSIN G OFFICER I.T.A. NOS. 996, 997 & 998/HYD/2011 M/S SUDHAKAR PLASTIC LTD. AND OTHERS 4 INFERRED THAT THE POSSIBLE EXPLANATION FOR SUCH RED UCTION IN GP COULD BE ATTRIBUTABLE TO MANIPULATION OF SALE PRICE IN SALES WHICH WERE MOSTLY MADE TO ITS SISTER CONCERN OR SUPPRESSI ON OF CLOSING STOCK AS THERE REDUCTION IN CLOSING STOCK WITHOUT M UCH CHANGE IN THE YIELD. IN VIEW OF THE ABOVE OBSERVATIONS, THE A SSESSING OFFICER PROCEEDED TO REJECT THE BOOK RESULTS OF THE APPELLA NT U/S 145(3) OF THE ACT BEING INCORRECT AND INCOMPLETE AND THE GROS S PROFIT WAS ESTIMATED @ 15% ON THE GROSS SALES ( RS. 2,08,63,291 - RS. 1,18,31,187) RS. 90,32,032 AND ADDED THE SAME TO TH E INCOME ADMITTED BY THE APPELLANT. 7. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE AUTHORIZED REPRESENTATIVE OF THE APPELLANT STRONGLY CONTENDED AGAINST THE OBSERVATIONS MADE BY THE ASSESSING OFFICER IN THE A SSESSMENT ORDER. IT WAS SUBMITTED THAT THE PROFITS DECLARED B Y THE APPELLANT WERE ACCEPTED AS PROPER IN EARLIER YEARS. THE SUBMI SSIONS OF THE APPELLANT ITEM-WISE ARE SUMMARIZED BY THE LEARNED C IT(A) IN THE IMPUGNED ORDER FROM PARA 12 TO 26. THE LEARNED AR A LSO RELIED ON FEW CASE LAWS, WHICH WERE EXTRACTED BY THE CIT(A) I N PARA 27 OF HIS ORDER. 8. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E, THE LEARNED CIT(A) OBSERVED THAT T HE ASSESSING OFFICER IN HIS ANALYSIS FOR REACHING OUT TO THE CONCLUSION THAT THE SHARP F ALL IN GROSS PROFIT WITHOUT ANY CHANGE IN THE METHOD OF ACCOUNTING THAT HAS BEEN REGULARLY FOLLOWED BY THE APPELLANT, TRIED TO PROVE THAT THE ENTIRE BOOKS OF ACCOUNTS MAINTAINED BY THE APPELLANT ARE D EFECTIVE FOR THE LONE REASON. HOWEVER, NOTHING WAS BROUGHT ON RE CORD TO INDICATE THAT THE VOUCHERS IN RESPECT OF PURCHASE O F VARIOUS RAW MATERIALS, SALES, EXPENDITURE ETC WERE DEFECTIVE OR THE MAINTENANCE OF THE BOOKS OF ACCOUNTS BY THE APPELLA NT WAS IN SUCH A FASHION THAT IT COULD NOT REVEAL THE TRUE AN D FAIR PROFITS OF THE APPELLANT. ON THE OTHER HAND, THE APPELLANT CON TENDED THE OBSERVATIONS OF THE ASSESSING OFFICER ON A CONCRETE FOOTING THAT ALL I.T.A. NOS. 996, 997 & 998/HYD/2011 M/S SUDHAKAR PLASTIC LTD. AND OTHERS 5 THE PURCHASES, SALES AND EXPENSES WERE FULLY VOUCHE D AND THAT THE SAME WERE SUBJECTED TO VARIOUS PRE-CHECKS AND P OST-CHECKS BY VARIOUS STATUTORY AUTHORITIES SUCH AS CENTRAL EX CISE, SALES TAX ETC. THE MERE ANALYSIS OF QUANTITATIVE DETAILS AND CONSUMPTION OF RAW MATERIALS AND INCREASE IN PURCHASE PRICE OF RAW MATERIAL COULD NOT DETERMINE THE TRUE AND CORRECT INCOME OF ANY CO NCERN ON THEIR OWN. WHEN THE BUSINESS OF AN ASSESSEE HAS TO BE ANA LYSED, THE TOTAL PICTURE HAS TO BE TAKEN INTO CONSIDERATION AN D NOT THE SINGLE SHOT WHERE IN THE OPINION OF THE ASSESSING OFFICER WENT WRONG. 9. THE CIT(A) NOTED THAT T HE APPELLANTS SUBMISSIONS THAT THE ASSESSING OFFICER FAILED TO NOTE THE IMPACT OF OPEN ING STOCK AND CLOSING STOCK WHERE BOTH RAW MATERIAL AND FINISHED GOODS EXISTS, HAS DEFINITELY GOT SOME FORCE IN IT. ON THE OTHER H AND, THE SISTER CONCERN WITH WHOM THE APPELLANT ENTERED INTO TRANSA CTIONS IS ALSO ASSESSED TO TAX AND THE INCOME RETURNED BY M/S. SUD HAKAR MARKETING AGENCIES PVT. LTD. FOR THE AY 2007-08 HAD BEEN ACCEPTED BY THE ASSESSING OFFICER VIDE ORDER DT. 29.12.2009, A COPY OF WHICH WAS PLACED BEFORE ME BY THE AR OF THE APPELLANT. 10. THE CIT(A) OBSERVED THAT COMING TO THE REJECTIO N OF BOOKS OF ACCOUNTS WITHOUT POINTING OUT ANY SINGLE DEFECT IN MAINTENANCE OF THE SAME, HONBLE ITAT, AHMEDABAD IN THEIR DECISION IN 4 ITR 29 IN THE CASE OF DCIT VS PARAS DYEING AND PRINTING MI LLS P LTD HAD HELD THAT LOW PROFIT IS NEITHER A CIRCUMSTANCE NOR MATERIAL TO JUSTIFY ADDITION TO PROFITS. LOW PROFIT IN A PARTICULAR YEA R BY ITSELF CANNOT BE THE REASON FOR INVOKING THE POWERS OF BEST JUDGE MENT ASSESSMENT WITHOUT SUPPORT OF ANY MATERIAL ON RECOR D. SIMILARLY, HONBLE ITAT, RAJKOT IN THE CASE OF ITO VS GIRISH M MEHTA ( 296 ITR 125) HAD HELD THAT REVENUE MUST PROVE BOOKS OF ACCOUNT N OT RELIABLE AND THAT ONCE THE BOOKS OF ACCOUNTS WERE A UDITED AND WERE SUBJECTED TO SCRUTINY BY OTHER STATUTORY AUTHO RITIES, SIMPLE REJECTION OF THE SAME WITHOUT ANY REASON IS NOT ACC EPTABLE. I.T.A. NOS. 996, 997 & 998/HYD/2011 M/S SUDHAKAR PLASTIC LTD. AND OTHERS 6 11. FURTHER, THE CIT(A) OBSERVED THAT IN THE PRESEN T CASE, THE ASSESSING OFFICER HIMSELF CERTIFIED THAT THE YIELD REMAINED CONSTANT AND IN FACT INCREASED DURING THE PRESENT Y EAR. THE OTHER ATTRIBUTABLES FOR DECREASE IN LOW GP AS SUBMITTED B Y THE APPELLANT HAVE NOT BEEN EXAMINED BY THE ASSESSING OFFICER IN HIS ASSESSMENT E.G. IMPACT OF OPENING STOCK AND CLOSING STOCK. THE QUANTITATIVE DETAILS AVAILABLE WITH HIM HAVE NOT BE EN THOROUGHLY GONE THROUGH AND ON THE OTHER HAND THE SUBMISSIONS OF THE APPELLANT THAT THE AVERAGE PRICE VARIANCE IN PROCUR EMENT OF RAW MATERIALS COULD NOT ALONE BE ATTRIBUTABLE TO THE LO W GROSS PROFIT RATIO. COMING TO THE FINDING OF THE ASSESSING OFFIC ER THAT THE APPELLANT COULD HAVE EITHER MANIPULATED SALES PRICE OR SUPPRESSED CLOSING STOCK CLEARLY INDICATE THAT THE ASSESSING OFFICER IS BLOWING HOT AND COLD AT THE SAME TIME. T HE MERE FACT OF PRICE OF A SIMILAR PRODUCT DOWN LOADED FROM INTERNE T COULD NOT HAVE FORMED THE BASIS FOR SUCH A PRE-DETERMINED APP ROACH BY THE ASSESSING OFFICER. ON THE CONTRAST, THE APPELLANT D EMONSTRATED AS TO HOW THE GROSS PROFIT DECLINE WAS ATTRIBUTABLE TO VARIOUS FACTORS BEING THE OTHER VARIABLES SUCH AS INPUTS, OUTPUTS A ND OTHER ATTRIBUTABLE REMAINING CONSTANT MORE IMPORTANTLY TH E YIELD REMAINING AT A SIMILAR POINT OR AT A SLIGHTLY HIGHE R POINT. 12. IN VIEW OF THE ABOVE OBSERVATIONS, THE CIT(A) H ELD AS UNDER: IN VIEW OF THE ABOVE AND ALSO IN VIEW OF THE JUDICI AL PRONOUNCEMENT IN THE CASE OF DHAKESWARI COTTON MIL LS LTD. VS. CIT (26 ITR 775) THAT 'THE INCOME TAX OFFICER IS NOT ENTITLED TO MAKE A PURE GUESS AND MAKE AN ASSESSMEN T WITHOUT REFERENCE TO ANY EVIDENCE AND MATERIAL AT A LL. THERE MUST BE SOMETHING MORE THAN SUSPICION TO SUPPORT TH E ASSESSMENT. THE SAME PRINCIPLE IS ALSO REITERATED I N THE CASE OF UMACHARAN SHAW & BROS. VS. CIT (37 ITR 71). IT WAS HELD THAT A SUSPICION HOWEVER, STRONG MAY NOT TAKE THE PLACE OF PROOF. THE CONCLUSIONS WHICH ARE BASED ON SURMISES AND THE ASSESSMENT MADE BY THE AO WHICH IS PREDOMINANTLY INFLUENCED BY. SUSPICION IS LIABLE TO SET ASIDE. ' I AM OF THE OPINION THAT MERE SURMISES AND CONJECTU RES I.T.A. NOS. 996, 997 & 998/HYD/2011 M/S SUDHAKAR PLASTIC LTD. AND OTHERS 7 CANNOT BE THE BASIS FOR A PRE-DETERMINED APPROACH L EAVE ALONE A THOROUGH INVESTIGATION FROM THIRD PARTY TRA NSACTIONS BY THE ASSESSING OFFICER. THE AVAILABLE DOCUMENTARY EVIDENCE IN THE FORM OF PURCHASE INVOICE, SALES INV OICE, VARIOUS BILLS AND VOUCHERS HAVE NOT BEEN FOUND DEFE CTIVE BY THE ASSESSING OFFICER AT ANY POINT OF TIME. THE QUA NTITATIVE DETAILS CERTIFIED BY OTHER STATUTORY AUTHORITIES WH ICH ARE ALSO A PART OF THE RECORD HAVE NOT BEEN EXAMINED AND MOR E CONTRASTINGLY REJECTED BY THE ASSESSING OFFICER UND ER THE PRETEXT THAT THE PURPOSE OF OTHER STATUTORY AUTHORI TIES IS NOT TO DETERMINE THE INCOME. IT IS TRUE THAT THE PURPOS E OF VERIFICATION OF QUANTITATIVE DETAILS BY OTHER STATU TORY AUTHORITIES IS PURELY FOR THE PURPOSE OF MANUFACTUR ING PROCESS ONLY, IT IS AN UNDENIABLE FACT THAT THE APP ELLANT COULD NOT HAVE BROUGHT ANYTHING ELSE THAN WHAT HE HAS PRO DUCED AND WHICH WAS SUBJECTED TO TAXATION BY THE OTHER AG ENCIES. IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT TH ERE WERE ANY MATERIAL DEFECTS NOTICED AT THE TIME OF EXAMINATION OF BOOKS OF ACCOUNTS AND ALSO THAT THERE IS ANY CHANGE IN ME THOD OF ACCOUNTING ADOPTED BY THE APPELLANT FROM WHAT WAS R EGULARLY ADOPTED. ACCORDINGLY, I AM OF THE OPINION THAT THE ASSESSING OFFICER CANNOT BLOW HOT AND COLD AT THE SAME TIME A ND THE ONUS CLEARLY LIED ON THE ASSESSING OFFICER TO PROVE THAT THE BOOKS OF ACCOUNTS MAINTAINED BY THE APPELLANT SUFFE RS ANY DEFECTS. IN THE ABSENCE OF ANY DOCUMENTARY EVIDENCE INDICATING ANY LAPSE ON THE PART OF THE APPELLANT I N MAINTENANCE OF BOOKS OF ACCOUNTS WHICH WERE SUBJECT ED TO AUDIT BY STATUTORY AUTHORITIES, I AM OF THE OPINION THAT THE ADDITION MADE BY THE ASSESSING OFFICER TO GROSS PRO FIT ONLY ON THE BASIS OF SURMISES AND CONJECTURES OF LOW GROSS PROFIT COMPARED TO EARLIER YEARS AND SUBSEQUENT YEAR ALSO COULD NOT STAND THE TEST OF LAW LEAVE ALONE HIS OWN LOGIC . ACCORDINGLY, THE ADDITION OF RS. 90,32,032/- MADE B Y THE ASSESSING OFFICER TO THE GROSS PROFIT IS DELETED. 13. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 14. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES , PERUSED THE RECORD AND HAVE GONE THROUGH THE ORDERS OF THE REV ENUE AUTHORITIES. WE FIND THAT THE ASSESSEE PRODUCED BILLS FOR PURCHA SES AND THE SAME ARE FOUND TO BE IN CONFORMITY WITH THE EXCISE AND S ALES TAX RECORDS. WHEN THE AO ASKED THE ASSESSEE TO SUBSTANTIATE ITS CLAIM, THE ASSESSEE VIDE REPLIES ON 29/12/2009 AND 31/12/2009, SUBMITTED AS FOLLOWS: I) ALL THE BILLS FOR PURCHASE WERE FURNISHED FOR VE RIFICATION WHICH I.T.A. NOS. 996, 997 & 998/HYD/2011 M/S SUDHAKAR PLASTIC LTD. AND OTHERS 8 ARE IN CONFORIMITY WITH EXCISE AND SALES TAX RECORD S. II) THAT THE YIELD DURING FY 2005-06 WAS 94.70% WHE REAS THE SAME IN FY 2006-07 IN 96.01%. III) THAT THERE IS VARIATION IN AVERAGE PURCHASE PR ICE OF RESIN BETWEEN FY 2005-06 (RS. 41,329) AND FY 22006-07 (RS . 43,016) IV) THAT MOST OF THE SALES WERE MADE THROUGH ITS SI STER CONCERN SUDHAKAR MARKETING P. LTD. V) THAT THE DECREASE IN RATE WAS ATTRIBUTABLE TO CH ANGES IN SEASONAL DEMANDS. VI) THAT ALL PURCHASES AND SALES WERE FULLY VOUCHE D. VII) THAT THE BILLS RELATING TO PURCHASES AND SALES WERE PRODUCED DURING THE HEARING. VIII) THAT THE SALES/PURCHASES WERE ACCEPTED BY CEN TRAL EXCISE AUTHORITIES ON DAY TO DAY BASIS. IX) THAT IT EMPLOYS ACCEPTED ACCOUNTING STANDARDS. X) THAT THERE IS NO CHANGE IN METHOD OF ACCOUNTING . XI) THAT THE GP FOR FY 2003-04 WAS 12.49% AND 10.84 % IN FY 2004-05, 14.87% IN FY 2005-06 AND 8.51% IN FY 2006- 07. WE ARE OF THE VIEW THAT THE REASONS GIVEN BY THE AO TO REJECT THE DATA PRODUCED ARE INAPPROPRIATE AS THE NON-PRODUCTION O F INPUT-OUTPUT STATEMENTS OR PRODUCTION SHEETS CANNOT BE JUSTIFIED TO REJECT THE BOOKS OF ACCOUNT. THE AO ADMITTED THAT THERE IS INC REASE IN THE COST OF PURCHASES, HOWEVER, HE WAS OF THE OPINION THAT T HE RAISE IN PURCHASE PRICE IS ONLY 3.5% AND THE GP DECREASE BY 6.46%, WHICH IS NOT COMMENSURATE WITH THE RAISE IN THE PURCHASE PRI CE OF RAW MATERIALS. IN OUR VIEW, DECREASE IN GP IS NOT ONLY THE REASON IN PURCHASE PRICE OF RAW MATERIAL, BUT, ALSO OTHER REL ATED EXPENDITURE DEBITED TO THE TRADING ACCOUNT. THE AO SHOULD HAVE CONSIDERED CUMULATIVE EFFECT OF ALL THE FACTORS WHICH RESULTED IN DECREASE IN GP. IN OTHER WORDS, RAW MATERIAL PRICES HAVE BEEN INCRE ASE BUT IN THE SAME PROPORTION SALE PRICE HAS NOT INCREASE. BEING SO, THE AO IS NOT I.T.A. NOS. 996, 997 & 998/HYD/2011 M/S SUDHAKAR PLASTIC LTD. AND OTHERS 9 JUSTIFIED IN MAKING THE ADDITION ON THE BASIS OF LO W GP RATE. MORE SO, ALL PURCHASES AND SALES WERE FULLY VOUCHED AND VERI FIED BY STATUTORY AUDITORS. EVEN THE AO HAS NOT BROUGHT ANY THING ON RECORD TO ESTABLISH THAT THE ASSESSEE HAS DONE LOW BILLING IN SALES TO AVOID TAX. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE OR DER OF THE CIT(A) IN DELETING THE ADDITION MADE BY THE AO ON THIS COUNT AND, THEREFORE, WE UPHOLD THE ORDERS OF THE CIT(A) IN BOTH THE APPEALS . THE GROUNDS RAISED BY REVENUE ON THIS ISSUE ARE DISMISSED. 15. IN THE RESULT ITA NOS. 996 & 998/HYD/2011 ARE D ISMISSED. ITA NO. 997//H/11 IN THE CASE OF M/S SUDHAKAR PLAS TIC LTD., SURYAPET. 16. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 2 . THE LD. CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT ON NON FURNISHING OF CERTAIN INFORMATION NET PROFIT @ 2.31 % OF THE TURNOVER, NET OF ALL EXPENSES, WAS MADE AFTER DETAI LED EXAMINATION/VERIFICATION OF THE INFORMATION FURNISH ED BY THE ASSESSEE. AS HAS BEEN DISCUSSED AT LENGTH IN THE AS SESSMENT ORDER, THE NET PROFIT RATE OF 2.31% WAS ADOPTED AFT ER TAKING INTO COGNIZANCE ALL THE MATERIAL FACTS AND DOCUMENTARY E VIDENCE ADDUCED AT THE STATE OF ASSESSMENT. 3. THE ESTIMATION OF NET PROFIT @ 2.31% IS BASED ON THE NET PROFIT ADMITTED BY THE ASSESSEE FOR THREE YEARS. AS NO SPECIAL CIRCUMSTANCES ARE EXISTED FOR AY 2007-08 THE AVERAG E RATE OF NET PROFIT ADMITTED BY THE ASSESSEE FOR THE ASSESSM ENT YEARS 2005-06, 2006-07 AND 2007-08 WAS TAKEN TO ESTIMATE THE PROFIT FOR ASSESSMENT YEARS 2007-08. 17. BRIEFLY THE FACTS ARE THAT AS COULD BE SEEN F ROM THE ASSESSMENT ORDER, THE ASSESSEE FIRM MANUFACTURES AN D SELLS PVC PIPES. FOR THE ASSESSMENT YEAR 2007-08, IT HAD FILED ITS RETURN ADMITTING INCOME OF RS. 14,26,506. THE CASE WAS SELECTED FOR SCRUTINY AND DURING THE COURSE OF ASSESSMENT PR OCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THERE IS DRASTIC FALL IN GROSS PROFIT AND NET PROFIT RATE COMPARED TO THE EARLIER YEARS RESULTS. THE ASSESSING OFFICER OBSERVED THAT THOUGH THERE IS INCREASE IN I.T.A. NOS. 996, 997 & 998/HYD/2011 M/S SUDHAKAR PLASTIC LTD. AND OTHERS 10 TURN OVER STILL THERE IS DECLINE IN THE GROSS PROFI T AND NET PROFIT RETURNED. IN THIS REGARD THE ASSESSING OFFICER MADE AN ANALYSIS OF GROSS PROFIT AND NET PROFIT REPORTED AND EXPENSES C LAIMED FOR THE EARLIER ASST. YEARS I.E. 2005-06 AND 2006-07. UPON THE ASSESSING OFFICER REQUIRING THE APPELLANT TO SHOW REASONS FOR DECLINE IN RATES OF GROSS PROFIT AND NET PROFIT, THE APPELLANT HAD S UBMITTED THAT THE COST OF RAW MATERIALS CONSUMED DURING THE FINANCIAL YEAR 2006-07 WAS HEAVY AS COMPARED TO THAT IN THE FINANCIAL YEAR 2005-06 AND FURNISHED A QUANTITATIVE DETAIL OF RAW MATERIAL CON SUMPTION AND PRODUCTION. THE APPELLANT FURTHER SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE STOCK RECORDS MAINTAINED BY THEM A RE IN CONFORMITY WITH THE LAW RELATING TO CENTRAL EXCISE. THE APPELLANT FURTHER SUBMITTED THAT THE IMPLICATION AND THE IMPA CT ON THE AVERAGE PURCHASE PRICE FOR THE YEAR ON ACCOUNT OF R AW MATERIAL AS UNDER: AY QUANTITY VALUE (RS.) RAE PER TON 2007-08 3445 147593696 42843 2006-07 3378.53 137487076 40694 THE APPELLANT BEFORE THE AO SUBMITTED THAT THE DIFF ERENCE IN THE AVERAGE PRICE IN BOTH THE YEARS OF INDIGENOUS RAW M ATERIAL WORKS OUT TO RS. 2,149/- WHICH ACCOUNTS FOR GROSS VALUE O F INCREASE IN THE PURCHASE PRICE OF RS. 74,03,305/-. IT HAD BEEN FURTHER SUBMITTED THAT THE PERCENTAGE OF INCREASE IN THE PU RCHASES AS COMPARED WITH THE PERCENTAGE OF INCREASE IN SALE PR ICE IS THEREFORE JUSTIFIED IN ITS CASE. 18. HOWEVER, THE ASSESSING OFFICER IN THE ASSESSMENT ORDER HELD THAT THOUGH THERE IS A MARGINAL FALL IN GP RAT IO, THE NET PROFIT HAD BEEN SHOWN AT AN ABYSMAL LOW RATE OF 0.33% COMPARED TO THAT SHOWN IN THE EARLIER YEARS I.E. ASST. YEAR 200 5-06 AT 3.2% AND ASST. YEAR 2006:07 AT 3.31 % . THE AO HELD EVEN IF THE APPELLANT'S CLAIM OF INCREASE IN THE RAW MATERIAL COST IS ACCEP TED (MANUFACTURING AND TRADING EXPENSES), THE APPELLANT HAD NOT I.T.A. NOS. 996, 997 & 998/HYD/2011 M/S SUDHAKAR PLASTIC LTD. AND OTHERS 11 BROUGHT OUT ANY EVIDENCE ON RECORD TO SHOW THAT THE RE IS NO CORRESPONDING INCREASE IN SALE PRICE. THE AO OBSERV ED THAT THE ACCEPTED AND / OR CARDINAL PRINCIPLE OF TRADE IS WH ENEVER THERE IS AN INCREASE IN THE COST/PURCHASE PRICE, THERE WOULD BE A CORRESPONDING RISE IN THE PRICE OF SALE. THE AO FEL T THAT THE APPELLANT COULD IN NO WAY JUSTIFY ITS CLAIM THAT TH ERE IS INCREASE IN THE COST OF INPUTS WITH THERE BEING NO CORRESPONDIN G RISE IN THE PRICE OF SALE. HE OBSERVED THAT THERE IS NO SIGNIFI CANT INCREASE IN THE EXPENSES VIZ. PERSONNEL COST, ADMINISTRATIVE AN D SELLING EXPENSES, INTEREST AND FINANCE CHARGES ETC. CONSIDE RING THE INCREASE IN TURN OVER REPORTED FROM YEAR TO YEAR. H ENCE THE ASSESSING OFFICER HELD THAT THE STEEP DECLINE IN TH E RATE OF NET PROFIT THEREFORE, CANNOT BE ATTRIBUTED TO THE INCRE ASE IN INPUT COSTS AND CONCLUDED THAT THE NET PROFIT ADMITTED BY THE A PPELLANT IS NOT FREE FROM DOUBT AND DOES NOT REPRESENT THE APPELLAN T'S TRUE AND FAIR PROFITS. THE ASSESSING OFFICER THEREFORE, ARRI VING AT AVERAGE OF NET PROFITS FOR THE ASST. YEARS 2005-06, 2006-07 AN D 2007-08 AT 2.31 % , HAD APPLIED THE SAME AND ARRIVED AT THE NET PROFI T OF RS. 96,65,266/- ON THE TURN OVER OF RS. 41,84,09,775/-. 19. DURING THE COURSE OF APPELLATE PROCEEDINGS, TH E AUTHORIZED REPRESENTATIVE OF THE APPELLANT STRONGLY CONTENDED AGAINST THE OBSERVATIONS MADE BY THE ASSESSING OFFICER IN THE A SSESSMENT ORDER. IT WAS SUBMITTED THAT THE PROFITS DECLARED B Y THE APPELLANT WERE ACCEPTED AS PROPER IN EARLIER YEARS. THE AR SU BMITTED THAT THOUGH NOT STATED THAT THE BOOKS ARE REJECTED, THE AO IMPLIEDLY REJECTED THE BOOKS AND RESORTED TO ESTIMATE THE INC OME @2.31 % OF GROSS SALES OF RS. 41,84,09,775/- WHICH WORKS OUT T O RS 82,71,996/- TO WHICH INCOME FROM OTHER SOURCES OF R S. 1,33,258 HAD BEEN ADDED TO ARRIVE AT THE TOTAL TAXABLE INCOM E OF RS. 97,98,520/- (THE INCOME RETURNED BY THE APPELLANT W AS NOT REDUCED BY THE AO IN ARRIVING AT THE TOTAL TAXABLE INCOME) AS AGAINST THE INCOME RETURNED BY THE APPELLANT OF RS. 14,26,506/- . I.T.A. NOS. 996, 997 & 998/HYD/2011 M/S SUDHAKAR PLASTIC LTD. AND OTHERS 12 20. AFTER SUMMARIZING THE SUBMISSIONS OF THE ASSESS EE FROM PARAS 6 TO 17 OF THE IMPUGNED ORDER, THE CIT(A) OBS ERVED THAT THE ASSESSING OFFICER IN HIS ANALYSIS FOR REACHING OUT TO THE CONCLUSION THAT THE SHARP FALL IN NET PROFIT WITHOUT ANY CHANG E IN THE METHOD OF ACCOUNTING THAT HAS BEEN REGULARLY FOLLOWED BY T HE APPELLANT, TRIED TO PROVE THAT THE ENTIRE BOOKS OF ACCOUNTS MA INTAINED BY THE APPELLANT ARE DEFECTIVE FOR THE LONE REASON. HOWEVE R, NOTHING WAS BROUGHT ON RECORD TO INDICATE THAT THE VOUCHERS IN RESPECT OF PURCHASE OF VARIOUS RAW MATERIALS, SALES, EXPENDITU RE ETC WERE DEFECTIVE OR THE MAINTENANCE OF THE BOOKS OF ACCOUN TS BY THE APPELLANT WAS IN SUCH A FASHION THAT IT COULD NOT R EVEAL THE TRUE AND FAIR PROFITS OF THE APPELLANT. ON THE OTHER HAN D, THE APPELLANT CONTENDED THE OBSERVATIONS OF THE ASSESSING OFFICER ON A CONCRETE FOOTING THAT ALL THE PURCHASES, SALES AND EXPENSES WERE FULLY VOUCHED AND THAT THE SAME WERE SUBJECTED TO VARIOUS PRE-CHECKS AND POST-CHECKS BY VARIOUS STATUTORY AUTHORITIES SU CH AS CENTRAL EXCISE, SALES TAX ETC. THE MERE ANALYSIS OF QUANTIT ATIVE DETAILS AND CONSUMPTION OF RAW MATERIALS AND INCREASE IN PU RCHASE PRICE OF RAW MATERIAL COULD NOT DETERMINE THE TRUE AND CO RRECT INCOME OF ANY CONCERN ON THEIR OWN. WHEN THE BUSINESS OF AN A SSESSEE HAS TO BE ANALYSED, THE TOTAL PICTURE HAS TO BE TAKEN I NTO CONSIDERATION AND NOT THE SINGLE SHOT WHERE IN THE OPINION OF THE ASSESSING OFFICER WENT WRONG. 21. THE CIT(A) NOTED THAT THE APPELLANT'S SUBMISSIO NS THAT THE ASSESSING OFFICER FAILED TO NOTE THE IMPACT OF OPEN ING STOCK AND CLOSING STOCK WHERE BOTH RAW MATERIAL AND FINISHED GOODS EXISTS, HAS DEFINITELY GOT SOME FORCE IN IT. ON THE OTHER H AND, THE SISTER CONCERN WITH WHOM THE APPELLANT ENTERED INTO TRANSA CTIONS IS ALSO ASSESSED TO TAX AND THE INCOME RETURNED BY M/S. SUD HAKAR MARKETING AGENCIES PVT. LTD. FOR THE AY 2007-08 HAD BEEN ACCEPTED BY THE ASSESSING OFFICER VIDE ORDER DT. 29 .12.2009, A I.T.A. NOS. 996, 997 & 998/HYD/2011 M/S SUDHAKAR PLASTIC LTD. AND OTHERS 13 COPY OF WHICH WAS PLACED BEFORE ME BY THE AR OF THE APPELLANT. 22. FURTHER, THE CIT(A) NOTED THAT COMING TO THE RE JECTION OF BOOKS OF ACCOUNTS WITHOUT POINTING OUT ANY SINGLE D EFECT IN MAINTENANCE OF THE SAME, HON'BLE ITAT, AHMEDABAD IN THEIR DECISION IN 4 ITR 29 IN THE CASE OF DCIT VS PARAS D YEING AND PRINTING MILLS P LTD HAD HELD THAT LOW PROFIT IS NE ITHER A CIRCUMSTANCE NOR MATERIAL TO JUSTIFY ADDITION TO PR OFITS. LOW PROFIT IN A PARTICULAR YEAR BY ITSELF CANNOT BE THE REASON FOR INVOKING THE POWERS OF BEST JUDGEMENT ASSESSMENT WITHOUT SUPPORT OF ANY MATERIAL ON RECORD. SIMILARLY, HON'BLE ITAT, RAJKOT IN THE CASE OF ITO VS GIRISH M MEHTA ( 296 ITR 125) HAD HELD THAT REVENUE MUST PROVE BOOKS OF ACCOUNT NOT RELIABLE AND THAT O NCE THE BOOKS OF ACCOUNTS WERE AUDITED AND WERE SUBJECTED TO SCRU TINY BY OTHER STATUTORY AUTHORITIES, SIMPLE REJECTION OF THE SAME WITHOUT ANY REASON IS NOT ACCEPTABLE. 23. THE CIT(A) OBSERVED THAT IN THE PRESENT CASE, T HE ASSESSING OFFICER HIMSELF CERTIFIED THAT THE YIELD REMAINED C ONSTANT DURING THE PRESENT YEAR. THE OTHER ATTRIBUTABLES FOR DECRE ASE IN LOW NP AS SUBMITTED BY THE APPELLANT HAVE NOT BEEN EXAMINE D BY THE ASSESSING OFFICER IN HIS ASSESSMENT E.G. IMPACT OF OPENING STOCK AND CLOSING STOCK, INCREASE IN THE OVER HEADS SUCH AS ADMINISTRATIVE AND SELLING, INTEREST AND FINANCE CH ARGES AND DEPRECIATION. THE QUANTITATIVE DETAILS AVAILABLE WI TH HIM HAVE NOT BEEN THOROUGHLY GONE THROUGH AND ON THE OTHER HAND THE SUBMISSIONS OF THE APPELLANT THAT THE AVERAGE PRICE VARIANCE IN PROCUREMENT OF RAW MATERIALS COULD NOT ALONE BE ATT RIBUTABLE TO THE LOW NET PROFIT RATIO. THE APPELLANT DEMONSTRATE D AS TO HOW THE NET PROFIT DECLINE WAS ATTRIBUTABLE TO VARIOUS FACT ORS BEING THE OTHER VARIABLES SUCH AS INPUTS, OUTPUTS AND OTHER A TTRIBUTABLE. THE ASSESSING OFFICER ON ONE HAND ACCEPTED THE BOOKS OF ACCOUNT, WHICH HAVE BEEN STATUTORILY AUDITED AND SUBJECTED T HE VERIFICATION I.T.A. NOS. 996, 997 & 998/HYD/2011 M/S SUDHAKAR PLASTIC LTD. AND OTHERS 14 BY SALES TAX AND CENTRAL EXCISE AUTHORITIES AND WIT HOUT POINTING OUT ANY SPECIFIC DEFECTS IN THE BOOKS MAINTAINED, C ANNOT HOLD THAT THE NET PROFIT ADMITTED BY THE APPELLANT IS NOT FRE E FROM DOUBT AND DOES NOT REPRESENT THE ASSESSEE'S TRUE AND FAIR PRO FITS. THE OPINION THAT THE NET PROFIT REPORTED BY THE APPELLA NT FOR THE ASST. YEAR UNDER CONSIDERATION DOES NOT REPRESENT ITS TRU E AND FAIR PROFITS FRO BUSINESS IS NOT SUPPORTED BY MAKING ANY SPECIFIC FINDINGS IN THE MANNER OF MAINTENANCE OF BOOKS OF A CCOUNT, SUPPRESSION OF SALES, INFLATION OF EXPENDITURE ETC. THE OVER ALL STUDY OF THE CASE RECORD SHOWS THAT THE APPELLANT H AD PRODUCED ALL THE MATERIAL REQUIRED BY THE ASSESSING OFFICER AND THE ASSESSING OFFICER AFTER ACCEPTING THE BOOKS OF ACCO UNT PRODUCED BEFORE HIM PROCEEDED TO INDIRECTLY REJECT THE SAME WITHOUT QUOTING ANY SPECIFIC GROUNDS FOR HIS REJECTION AND PROCEEDE D TO ESTIMATE THE NET PROFIT. IN VIEW OF THE ABOVE OBSERVATIONS, THE CIT(A) HELD AS FOLLOWS: 22. IN VIEW OF THE ABOVE AND ALSO IN VIEW OF THE J UDICIAL PRONOUNCEMENT IN THE CASE OF DHAKESWARF'COTTON, MI LLS LTD. VS. CIT (26 ITR 775) THAT. 'THE INCOME TAX OFFICER IS NOT ENTITLED TO MAKE A PURE GUESS AND MAKE AN ASSESSMEN T WITHOUT REFERENCE TO ANY EVIDENCE AND MATERIAL AT A LL.THERE MUST BE SOMETHING MORE THAN SUSPICION TO SUPPORT TH E ASSESSMENT. THE SAME PRINCIPLE IS ALSO REITERATED IN THE CASE OF UMACHARAN SHAW & BROS. VS. CIT (37 ITR 271). IT WAS HELD THAT A SUSPICION HOWEVER, STRONG MAY NOT TAKE THE P LACE OF PROOF. THE CONCLUSIONS WHICH ARE BASED ON SURMISES AND CONJECTURES, CANNOT TAKE THE PLACE OF PROOF. THEREF ORE THE ASSESSMENT MADE BY THE AO WHICH IS PREDOMINANTLY IN FLUENCED BY SUSPICION IS LIABLE TO SET ASIDE. ' 23. HON'BE JODHPUR ITAT IN THE CASE OF SHRI GOUTHAM TEXTILES VS ITO ( 72 TTJ 169) HELD THAT IN THE ABSENCE OF SP ECIFIC INSTANCE OF DEFICIENCY IN THE VOUCHERS, BOOKS CANNO T BE REJECTED. THEY OPINED THAT NO SPECIFIC DEFECTS WERE POINTED OUT TO HOW THAT THE BOOKS WERE INCOMPLETE O R INCORRECT IN SUCH A MANNER THAT IT IS IMPOSSIBLE TO DEDUCE THE TRUE AND CORRECT PROFIT, THE BOOKS CANNO T BE REJECTED. 24. HON'BLE ITAT (RAJKOT) IN THE CASE OF ITO VS. GI RISH M. MEHTA ( 296 ITR AT 125) HAVE HELD THAT DURING THE C OURSE OF I.T.A. NOS. 996, 997 & 998/HYD/2011 M/S SUDHAKAR PLASTIC LTD. AND OTHERS 15 HEARING, THE ASSESSEE HAS FURNISHED DAY TO DAY PURC HASES, SALES AND STOCK REGISTER ACCORDING TO WHICH, THE GR OSS PROFIT OF EACH AND EVERY TRANSACTION COULD BE ASCERTAINED. NO DEFECT HAS BEEN POINTED BY THE ASSESSING OFFICER EITHER IN THE BOOKS OF ACCOUNT OR WITH RESPECT TO QUANTITATIV E DETAILS FURNISHED BY THE ASSSSEE, NOR IN THE METHOD OF ACCOUNTING FOLLOWED BY ASSESSEE FOR COMPUTING ITS BUSINESS INCOME. WE ALSO FOUND THAT THE ASSESSEE HAS FURNISHED DAY TO DAY RATE PREVAILING IN THE AHMEDAB AD BULLION MERCHANT ASSOCIATION. DAY TO DAY GOLD AND SILVER BU LLION PURCHASES A DSALES DETAILS AND ALSO DETAILS OF PROF IT AND GROSS PROFIT ON DAY TO DAY BASIS. THE ASSESSING OFFICER WAS UNABLE TO FIND ANYTHING WRONG IN THE IMPUGNED STATEMENT FU RNISHED BEFORE HIM .......... AS PER OUR CONSIDERED VIEW B EFORE REJECTING THE BOOKS OF ACCOUNT, THE DEPARTMENT HAS TO PROVE THAT THE ACCOUNTS ARE UNRELIABLE, INCORRECT OR INCO MPLETE. THE ACCOUNTS REGULARLY MAINTAINED IN THE COURSE OF BUSINESS, DULY AUDITED UNDER THE PROVISIONS OF IT A CT ARE FREE FROM ANY QUALIFICATION BY THE AUDITORS, SHOULD BE TAKEN AS CORRECT UNLESS THERE ARE STRONG AND SUFFICIENT R EASONS TO INDICATE THAT THEY ARE UNRELIABLE. EVENTHOUGH IT IS NOT POSSIBLE TO LAY DOWN THE EXACT CIRCUMSTANCES IN WHI CH ACCOUNTS SHOULD BE REJECTED AS UNRELIABLE OR INCORR ECT, YET THE ACCOUNTS MAY BE REJECTED AS UNRELIABLE IF IMPOR TANT ENTRIES AND TRANSACTIONS ARE OMITTED THEREFROM OR I F PROPER PARTICULARS AND VOUCHERS, BILLS ETC. ARE NOT FORTH COMING OR IF THEY DID NOT INCLUDE ENTRIES RELATING TO PARTICULAR CLASS OF BUSINESS TRANSACTION.' INFERRING THIS JUDGMENT OF T HE HON'BLE RAJKOT ITAT, IT COULD BE SEEN THAT THE ASSESSING OF FICER HAD NOWHERE FOUND ANY DEFECTS IN THE BOOKS OF ACCOUNT MAINTAINED BY THE APPELLANT NOR POINTED OUT ANY DEF ECTS BUT ON THE OTHER HAND HAD ACCEPTED THE SAME AND PROCEED ED TO ESTIMATE THE NET PROFIT WITHOUT CONSIDERING THE REA SONS FOR LOW NET PROFIT RETURNED I.E. THE INCREASE IN OVERHE ADS OF EXPENDITURE ON ADMINISTRATIVE AND FINANCE CHARGES, DEPRECIATION ETC. 25. IN THIS REGARD FURTHER REFERENCE CAN ALSO BE MA DE TO THE DECISION REPORTED IN 113 ITR 389, IN THE CASE OF AD DL.CIT VS. JAY ENGINEERING WORKS LTD.,WHEREIN THE HON'BLE DELHI HIGH COURT HAD OPINED THAT 'THE INCOME-TAX AUTHORIT ES COULD, THEREFORE, COME TO THE CONCLUSION THAT SINCE THE AUDITORS WERE REQUIRED BY THE STATUTE TO FIND OUT I F THE DEDUCTIONS CLAIMED BY THE ASSESSEE IN THEIR BALANCE SHEETS AND PROFIT AND LOSS ACCOUNTS WERE SUPPORTED BY THE RELEVANT ENTRIES IN THEIR ACCOUNT BOOKS, THE AUDITORS MUST H AVE DONE SO AND MUST HAVE FOUND THAT THE ACCOUNT BOOKS SUPPO RTED THE CLAIM FOR DEDUCTIONS, WHEN THE DEDUCTIONS WERE DISALLOWED, BY THE INCOME-TAX OFFICE ON THE GROUND THAT DETAILED INFORMATION REQARDINQ THEM WAS NOT AVAILAB LE, I.T.A. NOS. 996, 997 & 998/HYD/2011 M/S SUDHAKAR PLASTIC LTD. AND OTHERS 16 JUSTICE WAS NOT DONE TO THE ASSESSEE'. 26. I AM OF THE OPINION THAT MERE SURMISES AND CONJ ECTURES CANNOT BE THE BASIS FOR A PRE-DETERMINED APPROACH L EAVE ALONE A THOROUGH INVESTIGATION FROM THIRD PARTY TRA NSACTIONS BY THE ASSESSING OFFICER. THE AVAILABLE DOCUMENTARY EVIDENCE IN THE FORM OF PURCHASE INVOICE, SALES INV OICE, VARIOUS BILLS AND VOUCHERS HAVE NOT BEEN FOUND DEFE CTIVE BY THE ASSESSING OFFICER AT ANY POINT OF TIME. THE QUA NTITATIVE DETAILS CERTIFIED BY OTHER STATUTORY AUTHORITIES WH ICH ARE ALSO A PART OF THE RECORD HAVE NOT BEEN EXAMINED AND MOR E CONTRASTINGLY REJECTED BY THE ASSESSING OFFICER UND ER THE PRETEXT THAT THE PURPOSE OF OTHER STATUTORY AUTHORI TIES IS NOT TO DETERMINE THE INCOME. IT IS TRUE THAT THE PURPOS E OF VERIFICATION OF QUANTITATIVE DETAILS BY OTHER STATU TORY AUTHORITIES IS PURELY FOR THE PURPOSE OF MANUFACTUR ING PROCESS ONLY, IT IS AN UNDENIABLE FACT THAT THE APP ELLANT COULD NOT HAVE BROUGHT ANYTHING ELSE THAN WHAT HE H AS PRODUCED AND WHICH WAS SUBJECTED TO TAXATION BY THE OTHER AGENCIES. IT IS NOT THE CASE OF THE ASSESSING OFFIC ER THAT THERE WERE ANY MATERIAL DEFECTS NOTICED AT THE TIME OF EXAMINATION OF BOOKS OF ACCOUNTS AND ALSO THAT THER E IS ANY CHANGE IN METHOD OF ACCOUNTING ADOPTED BY THE APPEL LANT FROM WHAT WAS REGULARLY ADOPTED. ACCORDINGLY, I AM OF THE OPINION THAT THE ASSESSING OFFICER CANNOT BLOW HOT AND COLD AT THE SAME TIME AND THE ONUS CLEARLY LIED ON THE A SSESSING OFFICER TO PROVE THAT THE BOOKS OF ACCOUNTS MAINTAI NED BY THE APPELLANT SUFFERS ANY DEFECTS. IN THE ABSENCE O F ANY DOCUMENTARY EVIDENCE INDICATING ANY LAPSE ON THE PA RT OF THE APPELLANT IN MAINTENANCE OF BOOKS OF ACCOUNTS W HICH WERE SUBJECTED TO AUDIT BY STATUTORY AUTHORITIES, I AM OF THE OPINION THAT THE ADDITION MADE BY THE ASSESSING OFF ICER TO NET PROFIT ONLY ON THE BASIS OF SURMISES AND CONJEC TURES OF LOW NET PROFIT COMPARED TO EARLIER YEARS COULD NOT STAND THE TEST OF LAW. ACCORDINGLY, THE NET PROFIT ADOPTED BY THE AO AT 2.31% OF THE TURNOVER, NET OF ALL EXPENSES IS HEREB Y DELETED. 24. AGGRIEVED BY THE ORDER OF THE CIT(A) THE REVENU E IS IN APPEAL BEFORE US. 25. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES , PERUSED THE RECORD AND HAVE GONE THROUGH THE ORDERS OF THE REVE NUE AUTHORITIES. THE ASSESSEE EXPLAINED BEFORE US THAT THE NET PROF IT RATE IS 0.33% FOR THE AY UNDER CONSIDERATION AS COMPARED TO 3.31% IN AY 2006-07, HOWEVER, THERE IS NO MUCH CHANGE IN THE GP RATE. TH E FALL IN NET PROFIT I.T.A. NOS. 996, 997 & 998/HYD/2011 M/S SUDHAKAR PLASTIC LTD. AND OTHERS 17 RATE IS ON ACCOUNT OF CUMULATIVE EFFECT IN INCREASE IN PURCHASE PRICE OF RAW MATERIAL AND THERE WAS NO PROPORTIONATE INCR EASE IN THE SALE PRICE AS ALSO THERE IS INCREASE IN THE ADMINISTRATI VE AND SELLING EXPENSES, FINANCE CHARGED AND ALSO DEPRECIATION. WE ARE OF THE VIEW THAT UNLESS AND UNTIL, THE AO BRINGS ON RECORD THAT THE ASSESSEE INFLATED THE EXPENDITURE AND DEBITED TO THE P&L A/C SO AS TO REDUCE THE NET PROFIT, THE AO IS NOT JUSTIFIED IN MAKING T HE ADDITION ON THE REASON OF LOW NET PROFIT RATE. MOREOVER, THE AO HAS NOT REJECTED THE BOOKS OF ACCOUNT AND ALL THE PURCHASE AND SALES EXP ENSES ARE SUPPORTED BY PROPER VOUCHERS AND BILLS, WHICH ARE I N CONFORMITY WITH THE LAW RELATING TO CENTRAL EXCISE ON THE BASIS OF WHICH THE STATISTICAL INFORMATION REQUIRED UNDER SCHEDULE VI OF THE COMPA NIES ACT 1956 WERE PREPARED WHICH WERE IN THE FORM OF NOTES TO AC COUNTS. THE BOOKS OF ACCOUNT OF THE ASSESSEE ARE AUDITED BY STA TUTORY AUDITORS. IN SUCH A SITUATION, THE NET PROFIT RATE REPORTED B Y THE ASSESSEE IS TO BE ACCEPTED AND THE CIT(A) HAS RIGHTLY ACCEPTED THE ARGUMENTS OF THE ASSESSEE AND FINALLY THE CIT(A) AFTER EXAMINING THE ISSUE ELABORATELY WITH CASE LAWS, DELETED THE ADDITION MADE BY THE AO ON THIS COUNT. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDE R OF THE CIT(A) AND THE SAME IS HEREBY UPHELD DISMISSING THE GROUNDS RA ISED BY THE REVENUE. 26. IN THE RESULT, APPEAL IN ITA NO. 997/HYD/2011 I S DISMISSED. 27. TO SUM, ALL THE APPEALS OF REVENUE BEING ITA NO S. 996, 998 & 997/HYD/2011 ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 09/01/2014. SD/- (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED 09/01/2014. KV I.T.A. NOS. 996, 997 & 998/HYD/2011 M/S SUDHAKAR PLASTIC LTD. AND OTHERS 18 COPY FORWARDED TO: 1. ACIT, CIRCLE 9 (1), HYDERABAD, IT TOWERS, AC G UARDS, HYDERABAD. 2. M/S SUDHAKAR PLASTICS LTD., BALARAM THANDA INDU STRIAL ESTATE, SURPYAPET, NALGONDA DISTRICT. 3. CIT(A)-VI, HYDERABAD 4. CIT-VI, HYDERABAD 5. THE DR, ITAT, HYDERABAD