The ACIT, Circle,, v. M/s K.D.M.P. Bulk Carriers,,

ITA 1087/RJT/2004 | 2001-2002
Pronouncement Date: 23-12-2010 | Result: Dismissed

Appeal Details

RSA Number 108724914 RSA 2004
Assessee PAN AADFK8761D
Bench Rajkot
Appeal Number ITA 1087/RJT/2004
Duration Of Justice 6 year(s) 1 day(s)
Appellant The ACIT, Circle,,
Respondent M/s K.D.M.P. Bulk Carriers,,
Appeal Type Income Tax Appeal
Pronouncement Date 23-12-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted DB
Tribunal Order Date 23-12-2010
Assessment Year 2001-2002
Appeal Filed On 22-12-2004
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH RAJKOT BEFORE SHRI A.L. GEHLOT (AM) AND SHRI D.T. GARASIA (JM) I.T.A. NO. 1087/RJT/2004 (ASSESSMENT YEAR 2001-02) ACIT (CIRCLE) VS M/S K.D.M.P. BULK CARRIERS GANDHIDHAM 12 MARITIME HOUSE PLOT NO.9A GANDHIDHAM-KUTCH PAN : AAADFK8761D (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SL MEENA RESPONDENT BY: SHRI KALPESH DOSHI O R D E R A.L. GEHLOT : THIS IS AN APPEAL FILED BY THE REVENU E IS DIRECTED AGAINST THE ORDER DATED 27-09-2004 PASSED BY THE CIT(A)-II RAJKOT FO R THE ASSESSMENT YEAR 2001- 02. THE FOLLOWING EFFECTIVE GROUNDS ARE RAISED IN THE APPEAL: 1. THAT THE LD.CIT(A) HAS ERRED IN LAW AND ON FACT IN DELETING THE ADDITION OF RS.714484/- MADE ON ACCOUNT OF SUPP RESSION OF TRANSPORT RECEIPTS. 2. THAT THE LD.CIT(A) HAS ERRED IN LAW AND ON FACT IN DELETING THE ADDITION OF RS.1829180 MADE ON ACCOUNT OF UNDIS CLOSED COMMISSION INCOME. 3. THAT THE LD.CIT(A) HAS ERRED IN LAW AND ON FACT IN DELETING THE ADDITION OF RS.2769663/- MADE ON ACCOUNT OF VAR IATION IN FREIGHT PAYMENT.. 4. THAT THE LD.CIT(A) HAS ERRED IN LAW AND ON FACT IN DELETING THE ADDITION OF RS. 894417/- MADE ON ACCOUNT OF SHO RTAGES RECOV3ERED BUT NOT DISCLOSED. 5. THAT THE LD.CIT(A) HAS ERRED IN LAW AND ON FACT IN DELETING THE DISALLOWANCE OF RS.4304430/- MADE ON ACCOUNT OF EXCESS CLAIM OF EXPENDITURE IN RESPECT OF OWN TANKE RS (EXCESS SHORTAGES RS.1289664/-; EXCESS TUBE-TYRE EX PENSES OF RS.1000030/-; AND EXCESS TRIP EXPENSES RS.201473 6/-). ITA NO.1087/RJT/2004 2 2. WITH REGARD TO GROUND NO.1 THE ASSESSING OFFICE R MADE ADDITION OF RS.7 14 484 ON ACCOUNT OF ALLEGED SUPPRESSED TRANSP ORT RECEIPT FROM M/S MODI VANASPATI INDUSTRIES. THE ASSESSING OFFICER NOTICE D THAT AS PER THE TDS CERTIFICATE THE TRANSPORT RECEIPTS WERE RS. 87 21 2 62 WHEREAS THE ASSESSEE HAS SHOWN COLLECTION FROM M/S MODI VANASPATI INDUSTRIES AT RS.80 06 778. THE ASSESSING OFFICER MADE THE ADDITION OF THE DIFFEREN TIAL AMOUNT. THE CIT(A) DELETED THE SAID ADDITION AFTER RECORDING THE FACT THAT THERE IS NO DIFFERENCE IN AMOUNTS PAID BY M/S MODI VANASPATI INDUSTRIES AND A MOUNTS CREDITED TO PROFIT & LOSS ACCOUNT BY THE ASSESSEE. IT IS A MATTER OF RE CONCILIATION. THE CIT(A) BEFORE DISALLOWING THE ADDITION CALLED FOR THE REMAND REPO RT FROM THE ASSESSING OFFICER ON THE SUBMISSIONS AND RE-CONCILIATION FURNISHED BY TH E ASSESSEE. THE CIT(A) NOTED THAT THE ASSESSING OFFICER SUBMITTED COMMENT S VIDE HIS LETTER DATED 22-09- 2004 BUT NEITHER IN THE COMMENTS SUBMITTED BY THE A SSESSING OFFICER NOR DURING THE COURSE OF HEARING THE ASSESSING OFFICER HAS SUB MITTED ANYTHING NEW OR CONTRADICTED THE SUBMISSIONS OF THE ASSESSEE. 3. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES RECORD PERUSED. THE CIT(A) HELD THAT IT IS A FACTUAL ASPECT OF THE MATTER AND THE ASSESSEE HAS RECONCILED THE DIFFERENCES BETWEEN THE TDS CERTIFIC ATES AND RECEIPTS RECORDED IN THE BOOKS OF ACCOUNT. THE COPIES OF THE ENTRY-WISE RE-CONCILIATION AND REASONS OF DIFFERENCE FURNISHED BEFORE CIT(A) HAVE BEEN PLACED AT PAPER BOOK PAGES 24 TO 30. THE ASSESSING OFFICER DID NOT CONTROVERT THE R ECONCILIATION IN THE REMAND REPORT FURNISHED BY HIM. AFTER RECONCILIATION AS R ECORDED THE FACTS BY THE CIT(A) THERE IS NO DIFFERENCE AND THEREFORE WE ARE OF THE VIEW THAT NO ADDITION IS WARRANTED. WE THEREFORE FIND THAT THE CIT(A) HAS RIGHTLY DELETED THE SAID ADDITION. 4. GROUND 2 & 3 ARE IN RESPECT OF DELETION OF THE A DDITION OF RS.18 29 180 MADE ON ACCOUNT OF UNDISCLOSED COMMISSION INCOME AN D RS. 27 69 663 MADE ON ACCOUNT OF VARIATION IN THE FREIGHT PAYMENTS. D URING THE ASSESSMENT ITA NO.1087/RJT/2004 3 PROCEEDINGS THE ASSESSING OFFICER ISSUED NOTICES T O 49 PARTIES TO WHOM THE ASSESSEE WAS PLYING TANKERS ON COMMISSION BASIS. F ROM THE REPLIES IN THE FORM OF FREIGHT STATEMENT FILED BY 17 PARTIES THE ASSES SING OFFICER WORKED OUT THAT THEY WERE RECEIVING COMMISSION RANGING FROM 5.5% TO 6% F ROM THE ASSESSEE ON TURNOVER WHEREAS THE ASSESSEE HAD FILED A LIST FROM WHICH THE ASSESSING OFFICER NOTICED THAT THE COMMISSION PAYMENT WAS @3% ON TURN OVER. THE ASSESSING OFFICER ALSO NOTED FROM THE STATEMENT SUBMITTED BY THOSE PARTIES THAT THERE ARE VARIATION IN THE FREIGHT PAYMENTS. THE ASSESSING O FFICER WORKED OUT AN AVERAGE COMMISSION RATE AT 5.72% AND APPLIED IT TO TOTAL TU RNOVER OF THE ASSESSEE AMOUNTING TO RS.6 72 49 402 AND WORKED OUT THE TOTA L COMMISSION INCOME AT RS.38 46 666 AND CONSEQUENTLY MADE AN ADDITION OF R S.18 29 180. 5.1 THE ASSESSING OFFICER HAS ALSO MADE ADDITION OF RS.18 98 799 ON ACCOUNT OF INFLATED EXPENDITURE AND ADDITION OF RS.8 70 86 4 ON ACCOUNT OF UNEXPLAINED EXPENDITURE BEING VARIATION IN FREIGHT AS PER STATE MENT FILED BY THE PARTIES HAS BEEN MADE. 5.2 THE CIT(A) AFTER CONSIDERING ASSESSEES SUBMIS SION AND AFTER CONSIDERING REMAND REPORT FROM THE ASSESSING OFFICE R DELETED THE ADDITION ON THE GROUND THAT AFTER CONSIDERING COPIES OF THE INCOME- TAX RETURNS OF THOSE 17 PARTIES FROM WHOM COMMISSION WAS RECEIVED AND FREIGHT PAID THERE WERE NO DISCREPANCY IN ASSESSEES BOOKS OF ACCOUNT IN RESPE CT OF THOSE 17 PARTIES. THE CIT(A) FURTHER NOTED THAT THE SAID MATERIALS WERE G IVEN TO THE ASSESSING OFFICER TREATING THE SAME AS ADDITIONAL EVIDENCE AND OPPORT UNITY WAS PROVIDED IN ACCORDANCE WITH RULE 46A OF THE I.T. RULES. THE CI T(A) OBSERVED THAT THE ASSESSING OFFICER INSTEAD OF DOING RE-CONCILIATION WENT ON TO ISSUE SUMMONS U/S 131 TO ALL 17 PARTIES ON THE GROUND OF EXAMINING TH EM. THE CIT(A) FURTHER OBSERVED THAT THIS ACTION OF THE ASSESSING OFFICER IS BEYOND HIS JURISDICTION AS NO PROCEEDINGS AS CONTEMPLATED IN SECTION 131 WERE PEN DING BEFORE HIM. IT HAS ALSO BEEN NOTED BY THE CIT(A) THAT DURING THE ASSES SMENT PROCEEDINGS THE ASSESSING OFFICER OBTAINED CERTAIN STATEMENTS FROM THOSE 17 PARTIES WITH REGARD ITA NO.1087/RJT/2004 4 TO THE COMMISSION RECEIPTS AND FREIGHT PAYMENTS BUT THE ASSESSING OFFICER VIOLATED THE PRINCIPLES OF NATURAL JUSTICE BY USING THOSE MATERIALS AND WITHOUT CONFRONTING THEM TO THE ASSESSEE. THE CIT(A) HAS A LSO OBSERVED THAT ON PERUSAL OF RECONCILIATION STATEMENT AND CONFIRMATORY AFFIDA VITS SUBMITTED BY THE PARTIES IT IS CLEAR THAT THE DIFFERENCE AROSE DUE TO ARITHMETI CAL ERRORS MISSING STATEMENTS OF SOME MONTHS AND TRIPS OF YEAR END CONSIDERED IN THE NEXT YEAR. THE CIT(A) HAS FURTHER OBSERVED THAT AS PER INCOME-TAX RECORDS FR EIGHT AND COMMISSION OF THE ASSESSEE AND ALL THE PARTIES ARE EXACTLY MATCHING A ND THERE IS NO DIFFERENCE. AS REGARDS THE INSTANCE OF SMT. SONIAJI NARAYANI GAND HIDHAM THE ASSESSE ESTABLISHED WITH DOCUMENTS THAT THE AMOUNTS OF FREI GHT PAID BY THE ASWSESSEE TO HER IS EXACTLY THE SAME AS MENTIONED IN THE TDS CER TIFICATES AND THE AMOUNTS OF FREIGHT ARE REFLECTED IN HER INCOME-TAX RETURN FOR ASSESSMENT YEAR 2001-02. 6. THE LD.DR SUBMITTED THAT THE CIT(A) WAS INCORREC T IN MAKING RECONCILIATION WHERE THERE WAS NO BOOKS OF ACCOUNT. HE FURTHER SU BMITTED THAT THE CIT(A) HAS DELETED THE SAID ADDITION WITHOUT ALLOWING ASSESSIN G OFFICER TO EXAMINE THOSE PARTIES BY ISSUING SUMMONS U/S 131 OF THE ACT. THE LD.DR SUBMITTED THAT EITHER THE ORDER OF THE ASSESSING OFFICER MAY BE CONFIRMED OR THE MATTER MAY BE SENT BACK TO THE FILE OF THE ASSESSING OFFICER. 7. THE LD.AR ON THE OTHER HAND SUBMITTED THAT THE ASSESSEE HAS EXPLAINED THE DIFFERENCE AND REASONS FOR THE DIFFERENCE WHICH IS ON ACCOUNT OF METHOD OF ACCOUNTING FOLLOWED BY THE PARTIES AND THE ASSESSEE . SOME OF THE PARTIES HAVE ACCOUNTED FOR THE COMMISSION ON CASH BASIS AND SOME OF THEM ON MERCANTILE BASIS. HE FURTHER SUBMITTED THAT THERE WERE ARITHM ETICAL ERROR AND ALSO SOME STATEMENTS WERE MISSING. HOWEVER AT THE END OF TH E YEAR THE GROSS AMOUNT OF THE COMMISSION DULY TALLIED WITH THE COMMISSION ACT UALLY PAID BY ALL THOSE PARTIES. THIS FACT CAN BE VERIFIED FROM THE PROFIT & LOSS AC COUNT OF THOSE PARTIES. 8. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES RECORD PERUSED. THE ASSESSEE FILED INCOME-TAX RETURNS OF ALL 17 PAR TIES FROM WHOM COMMISSION ITA NO.1087/RJT/2004 5 WAS RECEIVED AND FREIGHT PAID TO SUPPORT THE CONTEN TIONS THAT THERE WAS NO DISCREPANCY IN ASSESSEES BOOKS OF ACCOUNT AND THOS E 17 PARTIES WITH REGARD TO THESE TWO HEADS IN THE PROFIT & LOSS ACCOUNT. THE CIT(A) RECORDED THAT THE ASSESSING OFFICER WAS DIRECTED TO EXAMINE THE ABOVE ADDITIONAL EVIDENCE AND RECONCILED THE FIGURES AS CONTAINED IN THOSE EVIDEN CE WITH REFERENCE TO THE CASE RECORD. THE ASSESSING OFFICER INSTEAD OF DOING THE RECONCILIATION WENT ON TO ISSUE SUMMONS U/S 131 TO ALL 17 PARTIES. THE GRIEVANCE O F THE REVENUE THAT THE CIT(A) DID NOT ALLOW THE ASSESSING OFFICER TO EXAMINE THOS E PARTIES BY ISSUING SUMMONS U/S 131. SO FAR AS THE SCOPE AND AMBIT OF SECTION 131 IS CONCERNED IT IS CLEAR FROM THE PLAIN READING OF THE PROVISION ITSELF THAT THE POWERS THEREUNDER CAN BE EXERCISED ONLY FOR THE PURPOSE OF THE ACT. THE E XPRESSION FOR THE PURPOSE OF THE ACT MUST MEAN FOR THE PURPOSE OF PROCEEDING UN DER THE ACT PENDING BEFORE THE CONCERNED AUTHORITIES. SUCH POWER CAN BE EXERC ISED IN CASE WHERE THE ASSESSEE REFUSES OR EVADES TO CO-OPERATE WITH THE D EPARTMENT. BUT WHEN THE ASSESSEE CO-OPERATES WITH THE ASSESSING OFFICER TH E ASSESSING OFFICER HAD NO JURISDICTION TO EXERCISE SUCH POWER. THE POWER U/S 131 IS EXTRAORDINARY POWER OF THE ASSESSING OFFICER AND IT SHOULD BE EXERCISED WI TH CAUTION. IN THE CASE UNDER CONSIDERATION THE CIT(A) HAS DIRECTED THE ASSESSING OFFICER TO VERIFY THE COPIES OF RETURNS OF 17 PARTIES FILED BY THE ASSESSEE BUT THE ASSESSING OFFICER INSTEAD OF VERIFYING THOSE RETURNS STRAIGHTAWAY ISSUED SUMMONS U/S 131 TO ALL THOSE PARTIES WITHOUT RECORDING ANY REASON OR PURPOSE FOR ISSUING SUCH SUMMONS. FROM THE FACTS RECORDED BY THE CIT(A) WE FIND THAT THE ASSES SING OFFICER HAS ISSUED SUMMONS U/S 131 IN ROUTINE MANNER TO ALL 17 PARTIES WITHOUT VERIFYING THE RELEVANT MATERIALS POINTED OUT BY THE CIT(A) IN APPELLATE PR OCEEDINGS. WE THEREFORE FIND THAT THE CIT(A) HAS RIGHTLY OBSERVED THAT THE ACTIO N OF THE ASSESSING OFFICER IS BEYOND HIS JURISDICTION. THE CIT(A) WHILE DELETING THE ADDITION HAS ALSO EXAMINED THE PRINCIPLES OF NATURAL JUSTICE THAT THE ASSESSING OFFICER HAS OBTAINED CERTAIN STATEMENTS FROM 17 PARTIES WITH REGARD TO C OMMISSION RECEIPTS AND FREIGHT PAYMENTS. THESE MATERIALS WERE USED AGAINST THE AS SESSEE WITHOUT PROVIDING OPPORTUNITY OF HEARING TO THE ASSESSEE. IN SUCH CI RCUMSTANCES WE FIND THAT THE CIT(A) HAS RIGHTLY HELD THAT THERE IS VIOLATION OF PRINCIPLES OF NATURAL JUSTICE. WHILE ITA NO.1087/RJT/2004 6 EXAMINING THE MATTER ON MERIT THE CIT(A) FOUND THA T THE PARTIES HAVE FILED RECONCILIATION STATEMENTS AND CONFIRMATORY AFFIDAVI TS FROM WHERE HE FOUND THAT THE DIFFERENT WAS DUE TO ARITHMETICAL ERRORS MISSI NG STATEMENTS OF SOME MONTHS AND TRIPS OF YEAR END CONSIDERED IN THE NEXT YEAR. AS PER INCOME-TAX RECORDS FREIGHT AND COMMISSION OF THE ASSESSEE AND ALL PART IES ARE EXACTLY MATCHING AND THERE WAS NO DIFFERENCE. THE CASE OF THE REVENUE R EGARDING COMMISSION INCOME IS THAT THE ASSESSING OFFICER APPLYING AVERAGE COMM ISSION RATE AT 5.72% MERELY ON THE BASIS THAT SOME PARTIES STATED THAT COMMISSI ON IS GIVEN AT 5.5 TO 6%. THE ASSESSEE FILED AFFIDAVITS OF THOSE PARTIES CONFIRMI NG THE AMOUNT OF COMMISSION PAID BY THEM. THE PARTIES HAVE ALSO CONFIRMED THAT WHILE SUBMITTING THE DETAILS DURING THE COURSE OF ASSESSMENT PROCEEDINGS THEY H AD SUBMITTED OLD FREIGHT STATEMENTS WHERE COMMISSION WAS WORKED OUT AT 6% B UT AFTER THE FINAL NEGOTIATION THE COMMISSION WAS PAID AT 3%. THE COM MISSION INCOME SHOWN BY THE ASSESSEE TALLIES WITH THE COMMISSION EXPENSES S HOWN BY THOSE 17 PARTIES IN THEIR BOOKS OF ACCOUNT. THE ASSESSEE HAS FURNISHED FULL RECONCILIATION AND EXPLAINING THE SAME DIFFERENCES WHICH WAS ON ACCOUN T OF DIFFERENT METHOD OF ACCOUNT FOLLOWED BY THE PARTIES. SIMILAR IS THE PO SITION IN RESPECT OF FREIGHT ADDITION. WE FIND THAT THE FINDING OF THE CIT(A) I S BASED ON MATERIAL FACTS WHICH ARE ON RECORD. THE ASSESSEE HAS MADE RECONCILIATIO NS OF THE DIFFERENCE. THE REVENUE FAILED TO POINT OUT ANY CONTRARY MATERIAL T O THAT. UNDER THE CIRCUMSTANCES WE DO NOT FIND ANY INFIRMITY IN THE O RDER OF CIT(A). THUS GROUNDS 2 & 3 OF THE REVENUE ARE REJECTED. 9. THE FOURTH GROUND IS IN RESPECT OF ADDITION OF R S. 8 94 417 ON ACCOUNT OF SHORTAGE. THE ASSESSING OFFICER MADE AN ADDITION OF RS.8 94 417 BY APPLYING AVERAGE RATE OF 1.33% WORKED OUT ON THE BASIS OF RE PLIES OF 17 PARTIES. ACCORDING TO THE ASSESSING OFFICER THE ASSESSEE HA D RECOVERED THE SHORTAGE FROM PARTIES FROM WHOM THE TRUCKS WERE PLIED ON COM MISSION BASIS NOT DISCLOSED THE SAME AS INCOME BY THE ASSESSEE. THE CIT(A) DEL ETED THE SAID ADDITION ON THE FACT THAT THE ASSESSEE HAD ACCOUNTED FOR FREIGH T NET OF SHORTAGE AND HENCE THE QUESTION OF PASSING ENTRIES OF SHORTAGE DOES NO T ARISE. THE CIT(A) PROVIDED ITA NO.1087/RJT/2004 7 OPPORTUNITY TO ASSESSING OFFICER FOR HIS COMMENTS B UT THE ASSESSING OFFICER WHILE SUBMITTING COMMENTS VIDE LETTER DATED 22-09-2005 DI D NOT POINT OUT ANY CONTRADICTED THE SUBMISSIONS OF THE ASSESSEE. 10. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES RECORD PERUSED. WE FIND THAT THE ASSESSING OFFICER DID NOT APPRECIA TE THE ASSESSEES SYSTEM OF ACCOUNTING OF RECORDING OF FREIGHT INCOME. THE ASS ESSEE HAS ACCOUNTED FREIGHT NET OF SHORTAGE. THEREFORE PASSING OF ENTRY IN BO OKS OF ACCOUNT OF SHORTAGE DOES NOT ARISE. THE ASSESSEE DEMONSTRATED THE SYST EM OF ACCOUNTING BY REFERRING TO VARIOUS PAGES OF THE PAPER BOOK PAGES NO.24 49 46 AND OTHERS. THE CIT(A) FOUND THAT THE SYSTEM OF ACCOUNTING FOLL OWED BY THE ASSESSEE IS SUCH THAT THE FREIGHT INCOME IS ACCOUNTED FOR NET OF SHO RTAGE. THE ASSESSEE HAD FILED NECESSARY RECONCILIATION WHICH IS NOT IN DISPUTE. WE THEREFORE DO NOT FIND ANY ERROR IN THE ORDER OF THE CIT(A). 11. GROUND 5 IS IN RESPECT OF DELETION OF ADDITION MADE BY ASSESSING OFFICER ON ACCOUNT OF EXCESS CLAIM OF EXPENDITURE IN RESPECT O F OWN TANKERS EXCESS SHORTAGE RS.12 89 664; EXCESS TYRE-TUBE EXPENSES RS .10 00 030 AND TRIP EXPENSES RS.20 14 736. APART FROM PLYING TRUCKS ON COMMISSION BASIS THE ASSESSEE WAS HAVING 10 OWN TRUCKS. DURING THE ASSES SMENT PROCEEDINGS THE ASSESSING OFFICER MADE ADDITION OF RS.43 04 430 BY WORKING OUT SHORTAGE TYRE- TUBE AND TRIP EXPENSES IN PERCENTAGE TERMS WITH THE GROSS RECEIPTS FOR EACH TANKER. AFTER TAKING LOWER PERCENTAGE AS BASE FOR ONE TANKER HE DISALLOWED EXCESS EXPENDITURE IN RESPECT OF OTHER TANKERS. TH E ASSESSING OFFICER HAS GIVEN WORKING IN THIS REGARD IN THE FORM OF CHART WHICH I S PLACED AT PAGES 13-15 OF THE ASSESSMENT ORDER WHICH HAS ALSO BEEN REPRODUCED BY THE CIT(A) AT PAGES 9-11 OF HIS ORDER. THE ADDITION MADE BY THE ASSESSING O FFICER HAS BEEN DELETED BY THE CIT(A) BY OBSERVING THAT SUCH EXPENSES DEPENDS UPON VARIOUS FACTORS SUCH AS DISTANCE TOLL TAX TIME TAKEN AND THE PERIOD OF TH E YEAR IN WHICH THE TRIP WAS UNDERTAKEN. THE ASSESSING OFFICER DID NOT CONSIDER THESE FACTORS AND PROCEEDED TO HOLD THAT THE EXPENDITURES WERE INFLATED. THE A PPROACH OF THE ASSESSING ITA NO.1087/RJT/2004 8 OFFICER WAS FOUND TO MECHANICAL. THE ASSESSEE SUBM ITTED BEFORE THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS THAT THE MONTHLY BOOKS GOT DAMAGED IN EARTHQUAKE ON 26-01-2001 AND THEREFORE THE SAME COULD NOT BE PRODUCED. THE ASSESSEE GOT ITS ACCOUNTS RECONSTRUCTED ON THE COMPUTER AND GOT THEM AUDITED AS PER THE INCOME-TAX ACT. THEREFORE THE MANUAL BOOKS OF ACCOUNT COULD NOT BE PRODUCED BEFORE THE ASSESSING OFFICER. THE CIT(A) WHILE DELETING THE ADDITION OBSERVED THAT MERELY NON PRODUCTION O F MMANUAL BOOKS OF ACCOUNT CANNOT BE HELD AGAINST THE ASSESSEE WHEN THE AUDIT REPORT BASED ON RECONSTRUCTED BOOKS OF ACCOUNT HAS BEEN PRODUCED. 12. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF PA RTIES RECORD PERUSED. AS DISCUSSED IN EARLIER GROUNDS THAT THE ASSESSING OFF ICER DID NOT APPRECIATE THE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE THAT THE ASSESSEE HAS ACCOUNTED FOR THE FREIGHT BY NET AMOUNT AND NOT BY GROSS AMOUNT. IN ABSENCE OF THE MANUAL BOOKS OF ACCOUNT THE ASSESSING OFFICER S TRAIGHTAWAY APPLIED MECHANICALLY A FIXED RATE OF PERCENTAGE OF THE EXPE NSES AND CALCULATED THE AMOUNT OF THE DISALLOWANCE. WE FIND THAT THE CIT(A ) HAS RIGHTLY OBSERVED THAT THERE IS NO CO-RELATION BETWEEN THE FREIGHT RECEIVE D AND THE TRIP EXPENSES. THE EXPENDITURE ON TRIPS DEPENDS UPON DISTANCE TRAVEL AND CIRCUMSTANCES OF EACH TRIP. THE ASSESSING OFFICER HAS APPLIED THE FIXED PERCENTAGE OF SHORTAGE AND OTHER EXPENSES ONLY ON THE GROUND THAT THE ASSESSEE FAILED TO PRODUCE THE MANUAL BOOKS OF ACCOUNT WHICH WERE STATED TO BE DAM AGED IN EARTHQUAKE. HOWEVER THE ASSESSEE GOT ITS ACCOUNTS RECONSTRUCTE D ON COMPUTER AND GOT THEM AUDITED AS PER THE PROVISIONS OF THE ACT. THE ASSE SSING OFFICER DID NOT POINT OUT ANY SPECIFIC DEFECT IN THE BOOKS OF ACCOUNT RECONST RUCTED BY THE ASSESSEE ON COMPUTER. THE LD.AR FILED A COMPARATIVE CHART SHOW ING THE NET PROFITS ON DIFFERENT YEAR WHICH READS AS FOLLOWS: PARTICULARS ASSESSMENT YEAR 1999-2000 2000-01 2001-02 2002-03 2003-04 TURNOVER ITA NO.1087/RJT/2004 9 OUTSIDE TANKER 12562149 18559223 67249402 6076230 OWN TANKERS 4125521 6291185.9 19862934 50690703 TOTAL TURNOVER 16687670 24850408.9 87112336 56766933 72184852 NET PROFIT 358014 468995 1168698 363266.99 175869 NET PROFIT RATIO 2.15 1.89 1.34 0.64 0.24 FROM ABOVE TABLE WE FIND THAT THE ASSESSEE HAS SHOW N HAS SOWN A REASONABLE NET PROFIT FOR THE YEAR UNDER CONSIDERATION HOWEVE R AS REGARDS SLIGHT LOWER NET PROFIT RATE DURING THE YEAR REASON STATED BY THE A SSESSEE IS THAT IT IS DUE TO EARTHQUAKE IN JANUARY 2001. THE COMPARATIVE NET P ROFIT RATE SHOWS INCREASED TURNOVER BY 400 TIMES AND THE ASSESSEE CLAIMS THAT IT HAS DONE THE BUSINESS ON TURNOVER BASIS. IN THAT CIRCUMSTANCES THE NET P ROFIT IS BOUND TO BE LOW. AFTER CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTA NCES OF THE CASE WE FIND THAT THE ASSESSING OFFICER CANNOT MAKE ADDITION BY DISALLOWI NG EXPENSES AND TREATING THE SHORTAGE EXCESSIVE MERELY BY APPLYING A MATHEMATICA L FORMULA. WE THEREFORE DO NOT FIND ANY ERROR IN THE ORDER OF THE CIT(A). 13. IN THE RESULT APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 23-12-2010. SD/- SD/- (D.T. GARASIA) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT MEMBER RAJKOT DT : 23 RD DECEMBER 2010 PK/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A)-II RAJKOT BY ORDER 4. THE CIT-I RAJKOT 5. THE DR (TRUE COPY) ASSTT.REGISTRAR ITAT RAJKOT