Paras Prints Pvt.Ltd.,, Surat v. The ACIT., Circle-1,, Surat

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A AHMEDABAD BEFORE SHRI MAHAVIR SINGH JUDICIAL MEMBER AND SHRI D. C. AGRAWAL ACCOUNTANT MEMBER ITA NO.415 & 513/AHD/2007 ASSESSMENT YEAR:2003-04 DATE OF HEARING:3.5.10 DRAFTED:3.5.10 PARAS PRINTS PVT. LTD. 276 GIDC PANDESARA SURAT PAN NO.AABCP3787H DY. COMMISSIONER OF INCOME-TAX CIRCLE-1 SURAT V/S . V/S . ACIT CIRCLE-1 ROOM NO.108 1 ST FLOOR AAYKAR BHAWAN MAJURAGATE SURAT-395 007 PARAS PRINTS PVT. LTD. 276 GIDC PANDESARA SURAT (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- SHRI RAMESH GOYAL AR REVENUE BY:- SHRI ABHIJEET KUMAR NABKHADH SR-DR O R D E R PER MAHAVIR SINGH JUDICIAL MEMBER:- THESE CROSS APPEALS ARE ARISING OUT OF THE ORDER O F COMMISSIONER OF INCOME- TAX (APPEALS)-I SURAT IN APPEAL NO.CAS-I/35/06-07 DATED 29-11-2006. THE ASSESSMENT WAS FRAMED BY THE ASSTT. COMMISSIONER OF INCOME-TAX CIRCLE-1 SURAT U/S.143(3) OF THE INCOME-TAX ACT 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 17-03-2006 FOR ASSESSMENT YEAR 2003-04. FIRST WE WILL TAKE REVENUES APPEAL ITA NO.513/AHD/ 2007. 2. THE FIRST ISSUE IN THIS APPEAL OF REVENUE IS AGA INST THE ORDER OF CIT(A) DELETING THE ADDITION MADE ON ACCOUNT OF EXCESS OF JOB-CHARGES EXPENSES AND ALSO ITA NO.415 & 513/AHD/2007 A.Y. 2003-04 PARAS PRINTS PVT. LTD. V. ACIT CIR-1 SURAT PAGE 2 WORKED OUT NET PROFIT AT 3.52% THEREBY MAKING ADDI TION OF RS.64 94 756/-. FOR THIS THE REVENUE HAS RAISED THE FOLLOWING GROUND NO.1 :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.64 99 756/- MADE ON ACCOUNT OF DEVISE WITH THE SISTER CONCERN TO CONCEAL REAL I NCOME AND RS.22 11 192/- MADE ON ACCOUNT OF PRODUCTION OUTSIDE THE BOOKS OF ACCOUNT MADE DULY AFTER REJECTING THE BOOK RESULT AND RESORTING TO THE PREV ISIONS OF SECTION 145(3) OF THE I.T. ACT. 3. AT THE OUTSET LD. COUNSEL FOR THE ASSESSEE SHRI RAMESH GAYAL FILED COPY OF TRIBUNALS ORDER IN THE CASE OF ASSESSEES SISTER C ONCERN IN DCIT V. PARAS DYG. & PRINTING MILLS PVT. LTD. IN ITA NO.512/AHD/2007 DATED 26-02-2010 AND STATED THAT EXACTLY ON SAME ISSUE THE TRIBUNAL EXACTLY ON SIMI LAR FACTS DELETED ADDITION. ON THE OTHER HAND LD. SR-DR SHRI ABHIJET KUMAR NABKHADH SUPPORTED THE ORDER OF ASSESSING OFFICER. 4. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE T HAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DYEING AND PRINTING OF ART SILK CLOTH ON JOB-WORK BASIS. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS ALSO STAR TED EXPORT BUSINESS OF FABRICS AND DISCLOSED EXPORT OF RS.4.65 CRORES DOMESTIC SA LE OF RS.17 97 LAKH AND PROCESSING CHARGES OF RS.6.37 CRORES. THE GROSS PRO FIT HAS BEEN SHOWN AT RS.1.08 CRORES @ 9.25%. THE ASSESSING OFFICER DURING THE CO URSE OF ASSESSMENT PROCEEDINGS REQUIRED THE ASSESSEE TO SUBMIT MONTHLY QUANTITATIVE INPUT AND OUTPUTS FOR THE YEAR UNDER CONSIDERATION WHICH WAS NOT GIV EN. ACCORDING TO THE AO THE ASSESSEE HAS NOT GIVEN QUANTITATIVE TALLY EVEN IN R ESPECT OF PRINCIPAL ITEMS OF RAW MATERIALS MENTIONED AT SR. NO.28(B) OF TAX AUDIT RE PORT. THE AO POINTED OUT THAT THE ASSESSEE HAS GIVEN DETAILS OF PRODUCTION DISPATCH AND MAJOR INPUTS IN TERMS OF VALUE BUT NOT IN TERMS OF QUANTITY AND MOREOVER THE DETAI LS GIVEN ARE IN RESPECT OF PURCHASE VALUE BUT NOT IN RESPECT OF QUALITY OF CONSUMPTION. IN VIEW OF THIS REASON THE AO CAME TO THE CONCLUSION THAT NO QUANTITATIVE DETAILS HAS BEEN GIVEN BY THE ASSESSEE AND FURTHER NOTED THAT SUCH DETAILS ARE GENERALLY M AINTAINED IN THIS LINE OF BUSINESS OTHERWISE THERE WOULD BE NO QUALITY CONTROL AS WELL CHECK ON CONSUMPTION. THE AO WAS OF THE VIEW THAT THE ASSESSEE HAS WITHHELD THE BASIC RECORDS AND DATA REGARDING CONSUMPTION OF COLOUR COAL FUEL MANPOWER ETC. AN D THE CLAIMS OF THESE EXPENSES ITA NO.415 & 513/AHD/2007 A.Y. 2003-04 PARAS PRINTS PVT. LTD. V. ACIT CIR-1 SURAT PAGE 3 ARE RUNNING IN CRORES OF RUPEES AND ACCORDINGLY TH E REASONABLENESS OF CLAIM OF THESE EXPENSES WITH THAT OF QUALITY AND QUANTITY OF CLOTH PROCESSES AND WITH RESPECT TO THE RATE OF JOB CHARGES CHARGED IS NOT VERIFIABL E. HE CAME TO CONCLUSION THAT THE ASSESSEE HAS BEEN FOUND INVOLVED IN SHOWING BOGUS P URCHASES OF COLOUR CHEMICALS FROM PUJA DYECHEM AMOUNTING TO RS.2 84 050/-. THE A O THEREAFTER HAS PREPARED A TABLE ON PAGE-4 OF THE ASSESSMENT ORDER ACCORDING T O WHICH THE JOB CHARGED HAVE VARIED FROM AS LOW AS RS.5.10 PER MT. TO AS HIGH AS RS.9.49 PER MT. THE COST OF COLOURE CHEMICALS CONSUMED PER MT OF CLOTH PROCESSE D ALSO VARIES FROM AS LOW AS RS.1.01 PER MT. TO AS HIGH AS RS.6.36 PER MT. THE V ARIATION OF COST OF COAL FUEL POWER AND GAS CONSUMED PER MT. OF CLOTH PROCESSED H AS ALSO VARIED FROM AS LOW AS RS.1.82 PER MT. TO AS HIGH AS RS.5.86 PER MT. THE W AGES CLAIMED PER MT. OF CLOTH PROCESSED HAS SIMILARLY VARIED FROM AS LOW AS RS.1. 07 PER MT. TO AS HIGH AS RS.1.44 PER MT. THE AO HAS STATED THAT THE FIGURES IN THE T ABLES ARE THAT OF PURCHASES BECAUSE THE ASSESSEE HAS NOT GIVEN FIGURES OF CONSU MPTION IN QUANTITY. IT HAS BEEN STATED THAT PURCHASES FIGURES ARE TAKEN AS CONSUMPT ION FIGURE ON OVERALL BASIS SINCE THE OPENING STOCK AND CLOSING STOCK ARE ALMOST SIMI LAR AND HENCE THE FIGURE OF PURCHASE FOR THE ENTIRE YEAR CAN BE TAKEN AS CONSUM PTION FIGURES. ACCORDING TO THE AO THE VARIATION IN VARIOUS MONTHS IS TOO MUCH AND THE SAME HAS NOT BEEN EXPLAINED BY THE ASSESSEE. THE AO HAS FURTHER OBSER VED ON PAGE-5 IN PARA 4.1.9 THAT ASSESSEE HAS ON THE ONE HAND INCURRED LOSSES A T HOME BUT HAS ALLOWED PROCESSING CHARGES AT A TREMENDOUSLY HIGH RATE OF R S.20 IN THE MONTH OF MARCH TO A SPECIFIED PERSONS COVERED UNDER THE PROVISIONS OF S ECTION 40A(2)(B) NAMELY M/S. PARAS DYEING AND PRINTING MILLS. ACCORDING TO THE A O THE FIGURES OF FEB. & MAR. IN THE TABLE ON PAGE 4 SHOW THAT THERE IS EXCESSIVE CO NSUMPTION OF COLOUR AND CHEMICALS AS WELL AS CONSUMPTION OF COAL AND FUEL E TC. THE RATE OF WAGES PER MT. IS ALSO VERY HIGH COMPARED TO OTHER MONTHS. IT HAS BEE N STATED THE ASSESSEE HAS ACTUALLY INCURRED A TOTAL EXPENSES OF RS.13.66 PER MT. IN THE MONTH OF FEB. WHEREAS IT HAS CHARGED ONLY RS.8.14 AS JOBS CHARGES ON AN A VERAGE BASIS IN THE MONTH OF FEB. SIMILARLY IN THE MONTH OF MAR. ALTHOUGH THE J OB-CHARGES ARE RS.5.10 PER MT. BUT THE EXPENSES INCURRED ARE RS.12.43 PER MT. THEREFOR E IN TABLE B ON PAGE-5 THE AO HAS COMPUTED THE EXCESS OF EXPENSES INCURRED OVER T HE JOB CHARGES RECEIVED BY THE ASSESSEE. AS PER THE A.O THE TOTAL EXPENSES INCURRE D IN THE MONTH OF FEB. & MARCH ARE RS.62 31 772/- IN EXCESS OF THE JOB CHARGES REC EIVED. HENCE ACCORDINGLY TO THE AO THE ASSESSEE HAS BOOKED A LOSS OF RS.62 31 772/- IN THE MONTH OF FEB. & ITA NO.415 & 513/AHD/2007 A.Y. 2003-04 PARAS PRINTS PVT. LTD. V. ACIT CIR-1 SURAT PAGE 4 MAR03. ACCORDINGLY TO THE AO THIS LOSS IS UNEXPLAI NABLE AND HENCE BY REJECTING THE BOOKS OF ACCOUNT FOR NON-PRODUCTION OF BASIC RECORD S OF QUANTITATIVE CONSUMPTION OF COLOURE CHEMICALS COAL GAS ETC. THE AO HAS DISALL OWED THIS LOSS OF RS.62 31 772/-. THE AO HAS FURTHER STATED THAT THIS LOSS HAS BEEN I NCURRED ON PROCESSING OF 9 72 315 MT. OF CLOTH ON WHICH THE LOSS HAS ALREADY BEEN DIS ALLOWED BUT THE ASSESSEE MUST HAVE EARNED NET PROFIT IN THE SAME RATIO AS IN THE EARLIER MONTHS. THEREFORE IT HAS FURTHER BEEN STATED BY THE AO THAT THE GROSS RECEIP TS FOR THE FIRST ELEVEN MONTHS ON AN AVERAGE IS WORKED OUT AT RS.7.83. THE NET PROFIT RATIO HAS NOT BEEN GIVEN BY THE ASSESSEE AND THEREFORE AS SHOWN BY AAKRUTI DYEING A ND PRINTING MILLS PVT. LTD. THE NET PROFIT RATIO IS TAKEN AT 3.52% AND THE NET PROF IT IS WORKED OUT AT RS.2 67 984/-. IN VIEW OF THIS REASON THE TOTAL ADDITION MADE BY AO IS RS.64 99 756/- 5. AGGRIEVED AGAINST THE ACTION OF THE ASSESSING O FFICER THE ASSESSEE PREFERRED APPEAL BEFORE CIT(A). THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE AND DELETED THE ADDITION BY GIVING FOLLOWING FINDINGS IN PARA-3.9 TO 3.11 OF HIS APPELLATE ORDER:- 3.9 I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE APPELLANT AND OBSERVATIONS OF THE A.O. THE AO HAS MAINLY REJECTED THE BOOKS OF ACCOUNTS BECAUSE THE ASSESSEE IS ENGAGED IN HE MANUFACTURING BUSINESS AND THE ASSESSEE HAS NOT BEEN MAINTAINING QUANTITATIVE CONS UMPTION OF RAW MATERIAL ON DAY TO DAY BASIS OR EVEN MONTHLY BASIS. THE A.O HAS STATED THAT IT IS DIFFICULT FOR HIM TO VERIFY THE CONSUMPTION OF RAW MATERIAL WITH RESPECT TO THE QUALITY OF CLOTH PROCESSED AND HENCE THE EXPENSES A RE NOT FULLY VERIFIABLE WITH RESPECT TO THE PRODUCTION. THE A.O HAS RELIED ON TH E DECISION OF ITAT IN THE CASE OF SAMEER DIAMONDS (SUPRA) WHEREIN THE HONBLE ITAT HAS STATED THAT AS PER THE REQUIREMENTS OF BUSINESS THE ASSESSEE WO ULD BE MAINTAINING THE DETAILS AS IS REQUIRED BY THE A.O AND SINCE THE SAM E ARE NOT BEING GIVEN THE A.O WAS JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNT S. THE APPELLANT HAS ARGUED THAT SUCH DETAILS ARE NOT MAINTAINED AS THE COLOURE AND CHEMICALS ARE ISSUED IN SMALL QUANTITY AND HENCE IT IS DIFFICULT TO MAIN TAIN THE DETAILS. THE APPELLANT HAS ALSO ARGUED THAT NO DEFECTS HAVE BEEN POINTED O UT IN THE BOOKS OF ACCOUNTS AND HENCE BOOKS OF ACCOUNTS CANNOT BE REJE CTED. 3.10 THE APPELLANT HAS RELIED ON THE CASE OF VIKRAM PLASTIC AND OTHERS (SUPRA) WHEREIN THE HONBLE GUJARAT HIGH COURT STAT ED THAT IF THE METHOD OF ACCOUNTING EMPLOYED BY THE ASSESSEE WAS ABLE TO GIV E TRUE PROFITS THEN THE PROVISIONS OF SECTION 145(2) SHOULD NOT BE INVOKED. IN THE PRESENT CASE IT IS SEEN THAT THE ASSESSEE IS A MANUFACTURING COMPANY A LTHOUGH IT HAS NOT MAINTAINED ANY QUANTITATIVE DETAILS AND HENCE IT IS DIFFICULT TO VERIFY THE CORRECTNESS OF CLAIMS MADE BY THE ASSESSEE BUT STIL L THE FACT REMAINS THAT BOTH N.P. RATE AND G.P RATE ARE HIGHER THAN LAST YE AR. IN THE CASE OF PUSHPANJALI DYEING & PRINTING MILLS PVT. LTD. (SUPR A) THE HONBLE ITAT STATED THAT THE REASONS FOR LOW G.P AND EXCESS EXPENDITURE OF ELECTRICITY HAS BEEN ITA NO.415 & 513/AHD/2007 A.Y. 2003-04 PARAS PRINTS PVT. LTD. V. ACIT CIR-1 SURAT PAGE 5 SATISFACTORILY EXPLAINED AND THEREFORE MERELY LOW Y IELD DID NOT WARRANT REJECTION OF BOOKS OF ACCOUNTS. THE DECISION OF HON BLE ALLAHABAD HIGH COURT IN THE CASE OF AVDHESH PRATAP SINGH ABDUL REHMAN AN D BROTHERS VS. CIT [210 ITR 406] IS SQUARELY APPLICABLE. IN THIS CASE THE HONBLE COURT OBSERVED AS UNDER:- IT IS DIFFICULT TO CATALOGUE THE VARIOUS TYPES OF DEFECTS IN THE ACCOUNT BOOKS OF AN ASSESSEE WHICH MAY RENDER REJECTION OF ACCOUNT BOOKS ON THE GROUND THAT THE ACCOUNTS ARE NOT COMPLETE OR CO RRECT FROM WHICH THE CORRECT PROFIT CANNOT BE DEDUCED. WHETHER THE P RESENCE OR THE ABSENCE OF A STOCK REGISTER IS MATERIAL OR NOT WOUL D DEPEND UPON THE TYPE OF THE BUSINESS. IT IS TRUE THAT THE ABSENCE O F A STOCK REGISTER OR CASH MEMOS IN A GIVEN SITUATION MAY NOT PER SE LEAD TO AN INFERENCE THAT THE ACCOUNTS ARE FALSE OR INCOMPLETE. HOWEVER WHERE THE ABSENCE OF A STOCK REGISTER CASH MEMOS. ETC. IS COUPLED W ITH OTHER FACTS SUCH AS THAT VOUCHERS IN SUPPORT OF THE EXPENSES AND PUR CHASES MADE ARE NO FORTHCOMING AND THE PROFITS ARE LOW IT MAY GIVE RISE TO A LEGITIMATE INFERENCE THAT ALL IS NOT WELL WITH THE BOOKS AND T HE SAME CANNOT BE RELIED UPON TO ASSESSEE THE INCOME PROFITS OR GAIN S OF AN ASSESSEE. IN THE PRESENT CASE THE PROFIT OF THE CURRENT YEAR ARE COMPARABLE TO LAST YEAR AS DISCUSSED ABOVE. THE TURNOVER N.P. AND G.P ARE ALL HIGHER THAN LAST YEAR. THE A.O HAS NOT BEEN ABLE TO BRING ON RECORD ENOUGH MATERIAL TO REJECT THE BOOKS OF ACCOUNTS. THE QUANTITATIVE STOCK REGISTER IS IMPORTANT FOR A MANUFACTURING INDUSTRY BUT SINCE THE G.P. AND N.P. ARE HIGHER THE BOOKS OF ACCOUNTS CANNOT BE REJECTED UNLESS SOME SPECIFIC DE FEAT IS BROUGHT ON RECORD LIKE UNACCOUNTED SALES OR EXPENDITURE. HENCE THE A CTION OF THE A.O TO REJECT THE BOOKS OF ACCOUNTS IS NOT CORRECT AND HENCE THIS GROUND OF APPEAL IS ALLOWED. 3.11 IT IS FURTHER SEEN THAT THE ARGUMENTS OF THE A .O ARE NOT CORRECT AS EXPLAINED BY THE APPELLANT AND AS DISCUSSED IN THE ABOVE PARAGRAPHS. THE CALCULATIONS OF THE A.O ARE WRONG AND CANNOT BE MAD E THE BASIS OF DISALLOWANCE FOR THE FOLLOWING REASONS:- AS STATED BY THE APPELLANT THE RESULTS ARE BETTER THAT LAST YEAR. THE TURNOVER GP RATE AND N.P RATE ALL ARE HIGHER THAN LAST YEAR. THE LOSS COMPUTATION IS WRONG BECAUSE THE A.O HAS N OT CONSIDERED THE COST OF CLOTH PROCESSED IN HOUSE FOR EXPORT AND ALSO EFFECT OF CLOSING STOCK OF COLOUR CHEMICAL AND WORK-IN-PROGRE SS OF PROCESSED CLOTH. NO DEFECT HAS BEEN POINTED OUT IN TERMS OF UNACCOUN TED SALES OR PURCHASES OR EXPENSES. ALTHOUGH NOT KEEPING THE QUA NTITATIVE STOCK REGISTER IS A SERIOUS DEFECT BUT AS STATED BY THE H ONBLE HIGH COURT IN THE CASE OF AVDHESH PRATAP SINGH (SUPRA) TOTALITY O F FACTORS AS STATED ABOVE NEITHER WARRANTS REJECTION OF BOOKS OF ACCOUN TS NOR WARRANTS THE ABOVE ADDITION. ITA NO.415 & 513/AHD/2007 A.Y. 2003-04 PARAS PRINTS PVT. LTD. V. ACIT CIR-1 SURAT PAGE 6 IN VIEW OF THESE REASONS THE ARGUMENT OF THE APPELL ANT IS ACCEPTABLE AND THE ADDITION MADE BY THE AO IS DELETED. THIS GROUND OF APPEAL IS THEREFORE ALLOWED. AND FURTHER THE CIT(A) HAS ALSO DELETED THE ADDITIO N MADE BY THE ASSESSING OFFICER ON ACCOUNT OF PRODUCTION OUTSIDE THE BOOKS OF ACCOU NT BY GIVING FOLLOWING FINDINGS IN PARA-4.4 OF HIS APPELLATE ORDER:- 4.4 I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE APPELLANT AND OBSERVATION OF THE A.O IT IS SEEN THAT THE A.O HAS MADE THIS ADDITIONS BY SAYING THAT IT IS COMMON KNOWLEDGE THAT THE PRODUCT ION PER STENTER PER DAY OF A BETTER QUALITY FABRIC CAN BE ESTIMATED AT 35 000 METRES PER DAY AND FOR LOWER QUALITY IT CAN BE ESTIMATED AT 50 000 METRES PER DAY. THE A.O HAS ESTIMATED THE PRODUCTION AT THE RATE OF 35 000 METR ES PER DAY PER STENTER. NO BASIS HAS BEEN GIVEN BY THE A.O FOR ADOPTING THE SA ME EXCEPT SAYING THAT IT IS COMMON KNOWLEDGE. NO SUCH ADDITION CAN BE MADE UNLE SS THERE IS A BASIS WHICH CAN STAND THE TEST OF LAW AND IT IS BASED ON SOME DOCUMENTARY EVIDENCE OR IT IS BASED ON SURVEY CONDUCTED AT THE PREMISES OF THE ASSESSEE OR IT IS BASED ON ACTUAL FACTS AND NOT SIMPLY ON TH EORETICAL BASIS. THE A.O HAS FURTHER ARGUED THAT THE MILL MUST HAVE WORKED AT LE AST 75% OF ITS INSTALLED CAPACITY. EVEN THIS COMPARISON IS ADHOC WITHOUT ANY BASIS. THE A.O HAS NOT STATED AS TO WHY HE HAS TAKEN 75% AND NOT 70% OR 80 %. THE FIGURE IS NOT BASED ON ANY SURVEY OR ANY TECHNICAL REPORT OR ANY DOCUMENTATION. THEREFORE THE PRODUCTION WORKED OUT BY THE A.O OF 1.64 CRORE METRES IS HYPOTHETICAL AND ADHOC. FURTHER IT IS SEEN THAT THE A.O HAS ESTIMATE D THE N.P AT 3.52% BASED ON THE PROFIT ESTIMATED IN THE CASE OF AAKRUTI DYEI NG & PRINTING MILLS LTD. WITHOUT GIVING ANY OPPORTUNITY TO THE ASSESSEE FOR EXPLAINING AS TO WHY SUCH METHOD CANNOT BE ADOPTED. THE A.O HAS NOWHERE IN TH E ASSESSMENT ORDER COMPARED THE ENVIRONMENT/CIRCUMSTANCES/TYPE OF CLOT H PROCESSED/TYPE OF EXPENSES INCURRED/WAGES ETC. PAID BY OTHER ASSESSEE OR AAKRUTI DYEING AND PRINTING MILLS LTD. WITHOUT SUCH COMPARISON THE A.O CANNOT ADOPT THE FIGURE FROM ONE ASSESSEE TO THE OTHER ASSESSEE. THEREFORE THE ENTIRE ADDITION OF RS.22 11 192/- MADE AS PRODUCTION OUTSIDE THE BOOKS OF ACCOUNTS IS BASED TOTALLY ON HYPOTHESIS AND THEORY. IT IS NOT BASED O N ANY DOCUMENTARY EVIDENCE OR ANY SURVEY REPORT OR ANY MATERIAL FOUND FROM ANY SOURCES. HENCE THIS ADDITION IS DELETED AND THE GROUND OF APPEAL IS ALL OWED. 6. WE FIND THAT THE TRIBUNAL EXACTLY ON SIMILAR FAC TS HAS CONSIDERED THE SAME ISSUE IN ITA NO.512/AHD/2007 FOR ASSESSMENT YEAR 2003-04 IN THE CASE OF DCIT V. PARAS DYG & PRINTING MILLS PVT. LTD. DATED 26-02-2010 AND ALLOWED THE CLAIM OF THE ASSESSEE BY HOLDING IN PARA-5 TO 5.3 AS UNDER:- 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE DECISIONS RELIED UPON. UNDISPUTEDLY THE G P RATE YEAR IN THE YEAR UNDER CONSIDERATION WAS 7.56% AS AGAINST 8.56% IN T HE IMMEDIATELY ITA NO.415 & 513/AHD/2007 A.Y. 2003-04 PARAS PRINTS PVT. LTD. V. ACIT CIR-1 SURAT PAGE 7 PRECEDING YEAR WHILE NET PROFIT RATE INCREASED TO 2 .8% AS AGAINST 1.7% IN THE PRECEDING YEAR. THE ASSESSEE ATTRIBUTED INCREASE IN TURNOVER AND COST OF INPUTS AS THE REASONS FOR FALL IN GP RATE. THE AO R EJECTED THE BOOK RESULTS AND MADE ESTIMATED ADDITION SINCE THE ASSESSEE WAS NOT MAINTAINING DAY-TO-DAY CONSUMPTION RECORDS EVEN WHEN NO DEFECTS WERE NOTI CED IN THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE. THOUGH THE LD. DR CONTENDED THAT BOOKS OF ACCOUNT WERE NOT PRODUCED BEFORE THE AO W E FIND FROM PARA 2 OF THE ASSESSMENT ORDER THAT BOOKS WERE PRODUCED BEFORE TH E AO AND WERE ALSO TEST CHECKED. THE CIT(A) CONSIDERING THE TOTALITY O F FACTS AND CIRCUMSTANCES OF THE CASE AND RELYING UPON DECISION IN THE CASE OF A VDESH PRATAP SINGH ABDUL REHMAN AND BROTHERS (SUPRA) CONCLUDED THAT THE AO H AS NOT BEEN ABLE TO BRING ON RECORD ENOUGH MATERIAL TO REJECT THE BOOKS OF ACCOUNT. THOUGH THE QUANTITATIVE STOCK REGISTER WAS IMPORTANT FOR A MAN UFACTURING INDUSTRY BUT SINCE THE NP WAS HIGHER THE BOOKS OF ACCOUNT COULD NOT BE REJECTED UNLESS SOME SPECIFIC DEFECTS WERE BROUGHT ON RECORD LIKE U NACCOUNTED SALES OR EXPENDITURE THE CIT(A) OBSERVED. THEREFORE THE AC TION OF THE A.O TO REJECT THE BOOKS OF ACCOUNT WAS NOT UPHELD AND CONSEQUENTL Y ADDITION OF RS.31 68 116/- WAS DELETED. THE CIT(A) FURTHER CONC LUDED THAT TH9E ENTIRE ADDITION OF RS.22 11 192/- MADE AS PRODUCTION OUTSI DE THE BOOKS OF ACCOUNT WAS BASED TOTALLY ON HYPOTHESIS AND NOT ON ANY DOCU MENTARY EVIDENCE OR ANY MATERIAL FOUND FROM ANY SOURCES. ACCORDINGLY THIS ADDITION WAS ALSO DELETED ALONG WITH ADDITION ON ACCOUNT OF WORK-IN-PROGRESS BEING BASED ON AVERAGE PRODUCTION OF THE WHOLE YEAR AND NOT ON THE BASIS O F ACTUAL PRODUCTION FOR THE FIRST FIVE DAYS OF THE SUBSEQUENT ACCOUNTING YEAR. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE WE ARE OF THE OPINION TH AT IT IS DIFFICULT TO CATALOGUE VARIOUS TYPES OF DEFECTS IN THE ACCOUNT BOOKS OF AN ASSESSEE WHICH MAY RENDER REJECTION OF ACCOUNTS ON THE GROUND THAT ACC OUNTS ARE NOT COMPLETE FROM WHICH THE CORRECT PROFIT CANNOT BE DEDUCED. WH ETHER PRESENCE OR ABSENCE OF STOCK REGISTER IS MATERIAL OR NOT WOULD DEPEND UPON THE TYPE OF BUSINESS? IT IS TRUE THAT ABSENCE OF STOCK REGISTER OR CASH MEMOS IN A GIVEN SITUATION MAY NOT PER SE LEAD TO AN INFERENCE THAT ACCOUNTS ARE FALSE OR INCOMPLETE. HOWEVER WHERE THE ABSENCE OF STOCK REG ISTER CASH MEMOS ETC. IS COUPLED WITH OTHER FACTORS LIKE PURCHASE AND SAL ES MADE WHICH NOT BEING PROVED TO BE GENUINE AND PROFIT BEING LOW OR LOSS MAY GIVE RISE TO LEGITIMATE INFERENCE THAT ALL IS NOT WELL WITH THE BOOKS AND T HE SAME CANNOT BE ALLOWED TO ASSESSEE THE INCOME PROFITS OR GAINS. SUCH IS NOT THE SITUATION IN THE INSTANT CASE. WE FIND FROM THE IMPUGNED ORDERS THAT THE AO DID NOT POINT OUT ANY DEFECTS IN THE BOOKS OF ACCOUNT WHILE IGNORING THE BOOK RESULTS NOR BROUGHT ANY MATERIAL ON RECORD REGARDING THE GENUINENESS OF EXPENDITURE ON ACCOUNT OF COLOUR CHEMICAL POWER COAL GAS ETC. HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF ALUMINIUM INDUSTRIES (P) LTD. V CIT (19 90) ITR 12 OBSERVED THAT A LOWER RATE OF GP DECLARED BY THE ASSESSEE AS COMPAR ED TO THE PREVIOUS YEAR WOULD NOT IN ITSELF BE SUFFICIENT TO JUSTIFY ANY AD DITION. THE MERE FACT THAT THE PERCENTAGE OF LOSS OR GROSS PROFIT IS HIGH OR LOW I N A PARTICULAR YEAR DOES NOT NECESSARILY LEAD TO INFERENCE THAT THERE HAS BEEN S UPPRESSION. LOW PROFIT IS NEITHER A CIRCUMSTANCE NOR MATERIAL TO JUSTIFY ADDI TION OF PROFITS. THE RATIO OF THE JUDGEMENTS IN THE CASE OF DHAKESHWARI COTTON MI LLS. LTD. V CIT (1954) 26 ITR 775 (SC); RAGHUBIR MANDAL HARIHAR MANDAL V. STA TE OF BIHAR (1997) 8 STC 770 (SC); STATE OF KERALA V. C.VELUKUTTY (1966) 60 ITR 239 (SC); STATE OF ORISSA V. MAHARAJA SHRI B.P. SINGH DEO (1970) 76 ITR 690 (SC); BRIJ ITA NO.415 & 513/AHD/2007 A.Y. 2003-04 PARAS PRINTS PVT. LTD. V. ACIT CIR-1 SURAT PAGE 8 BHUSAN LAL PARDUMAN KUMAR V. CIT (1978) 115 ITR 524 (SC); CHOUTHMAL AGARWALLA V. CIT (1992) 46 ITR 262 (ASSSAM); R.V.S. AND SONS DAIRY FARM V. CIT (2002) 257 ITR (MAD); INTERNATIONAL FOREST CO. V. CIT (1975) 101 ITR 721 (J & K); M. DURAI RAJ V. CIT (1972) 83 ITR 484 (KER); RAMCHANDRA RAMNIVAS V. STATE OF ORISSA (1970) 25 STC 501 (ORIS SA) ACTION ELECTRICALS V. DCIT (2002) 258 ITR 188 (DEL) AND KAMAL KUMAR SAHAR IA V CIT (1995) 216 ITR 217 (GAU0 INDICATE THAT THE ASSESSING OFFICER I S NOT FETTERED BY ANY TECHNICAL RULES OF EVIDENCE AND PLEADINGS AND HE I S ENTITLED TO ACT ON MATERIAL WHICH ARE NOT ACCEPTABLE IN EVIDENCE IN A COURT OF LAW BUT WHILE MAKING THE ASSESSMENT UNDER THE PRINCIPLES OF BEST JUDGMENT T HE ITO IS NOT ENTITLED TO MAKE A PURE GUESS WITHOUT REFERENCE TO ANY EVIDENCE OR MATERIAL. THERE MUST BE SOMETHING MORE THAN A MERE SUSPICION TO SUPPORT THE ASSESSMENT. LOW PROFIT IN A PARTICULAR YEAR IN ITSELF CANNOT BE A G ROUND FOR INVOKING THE POWERS OF BEST JUDGMENT ASSESSMENT WITHOUT SUPPORT OF ANY MATERIAL ON RECORD. THE HONBLE GUJART HIGH COURT IN THE CASE OF CIT V. AMI TBHAI GUNWANTBHAI 129 ITR 573 (GUJ) HELD THAT IF THERE WAS NO CHALLENGE T O THE TRANSACTIONS REPRESENTED IN THE BOOKS THEN IT IS NOT OPEN TO REV ENUE TO CONTEND THAT WHAT IS SHOWN BY THE ENTRIES IS NOT THE REAL STATE OF AFFAI RS. SECONDLY EVEN IF FOR SOME REASON THE BOOKS ARE REJECTED IT IS NOT OPEN TO TH E AO TO MAKE ANY ADDITION ON ESTIMATE BASIS OR ON PURE GUESS WORK. NO SPECIFI C DISCREPANCIES OR DEFECTS IN THE BOOKS OF ACCOUNT OF THE ASSESSEE HAVE BEEN P OINTED OUT BEFORE US NOR WAS ANY MATERIAL BROUGHT TO OUR NOTICE TO ESTABLISH THAT PURCHASES WERE INFLATED OR RECEIPTS SUPPRESSED. THOUGH THE LD. DR RELIED UPON TWO DECISIONS IN THE CASE OF OMAX SHOE FACTORY (SUPRA) AND NARSIN GHDAS RAMAKISHAN PUNGALLYA (SUPRA) HE DID NOT DEMONSTRATE AS TO HOW THESE DECISIONS ARE APPLICABLE TO THE FACTS OF THE CASE UNDER CONSIDERA TION. THESE DECISIONS WERE RENDERED ON DIFFERENT FACTS AND CONSEQUENTLY ARE NO T RELEVANT TO THE FACTS OF THE CASE UNDER CONSIDERATION. EVEN IT WAS NOT STATE D AS TO HOW THE FACTS OBTAINING IN THE CASE OF M/S. AKRUTI DYEING & PRINT ING MILLS PVT. LTD. WERE PARALLEL TO THE FACTS IN THE INSTANT CASE WHILE ADO PTING THEIR NET PROFIT RATE. IN THESE CIRCUMSTANCES WE ARE OPINION THAT THERE WAS NO JUSTIFICATION IN INVOKING HE PROVISIONS OF SECTION 145 OF THE ACT [VIKRAM PLA STICS 239 ITR 161 (GUJ)]. IF THERE WAS NO CHALLENGE TO THE TRANSACTIONS REPRE SENTED IN THE BOOKS THEN IT IS NOT OPEN TO REVENUE TO CONTEND THAT WHAT IS SHOW N BY THE ENTRIES IS NOT THE REAL STATE OF AFFAIRS. IN THE LIGHT OF THESE OBSERV ATIONS OF THE HONBLE JURISDICTIONAL HIGH COURT WE UPHOLD THE FINDINGS OF CIT(A) IN HOLDING THAT THERE WAS NO BASIS FOR REJECTION OF BOOKS OF ACCOUNT. 5.1 AS REGARDS ADDITION OF RS.31 68 116/- MADE BY T HE AO IN CONSEQUENCE OF REJECTION OF BOOKS OF ACCOUNT WE FIND THAT BOTH TH E TURNOVER AND NET PROFIT RATE HAD INCREASED SUBSTANTIALLY WHILE THE GP DECLINED M ARGINALLY. THE CIT(A) FOUND THAT THE CALCULATIONS MADE BY THE AO WERE WRO NG BECAUSE THOUGH THE AO REDUCED THE RECEIPT FROM SISTER CONCERN HE DID NOT REDUCE THE CORRESPONDING COST NOR CONSIDERED THE EFFECT OF OPE NING AND CLOSING STOCK OF WORK-IN-PROGRESS AND RAW MATERIAL. AFTER CONSIDERIN G THAT LOSS REDUCED TO RS.7.33 LAKH BY TAKING THE COST OF GOODS PROCESSED FOR SISTER CONCERN ON PROPORTIONATE BASIS. SINCE THE JOB CHARGES OF SISTE R CONCERN WERE MUCH HIGHER AS ADMITTED BY AO AT RS.22/- PER MT. COMPARED TO AV ERAGE OF RS.7.45 PER MT THE CIT(A) CONCLUDED THAT COST OF PROCESSING SAME C OULD NOT BE TAKEN ON PROPORTIONATE BASIS. MOREOVER IF GP RATE WAS TAKEN AT 8% THE COST OF SUCH ITA NO.415 & 513/AHD/2007 A.Y. 2003-04 PARAS PRINTS PVT. LTD. V. ACIT CIR-1 SURAT PAGE 9 PROCESSING FOR SISTER CONCERN WOULD BE RS.20/- AND THERE WOULD BE NO LOSS FOR PROCESSING DONE FOR OTHER PARTIES. IN THE LIGHT OF THESE UNDISPUTED FINDINGS ESPECIALLY WHEN THE LD. DR DID NOT POINT OUT ANY DE FECT IN THE BOOKS OF ACCOUNT NOR REFERRED BEFORE US ANY MATERIAL FOR TAK ING A DIFFERENT VIEW IN THE MATTER WE ARE NOT INCLINED TO INTERFERE WITH THE F INDINGS OF CIT(A). 5.2 AS REGARDS TO ADDITION OF RS.28 62 745/- ON THE BASIS OF ESTIMATED PRODUCTION ON THE STENTER MACHINES WE FIND THAT TH E CIT(A) CONCLUDED THAT THERE WAS NO BASIS FOR SUCH ADDITION. WE FIND THAT THERE IS NO MATERIAL ON RECORD FOR ESTIMATING THE PRODUCTION NOR THERE IS A NY MATERIAL TO SHOW THAT THE ASSESSEE SOLD ANY PRODUCTION OUTSIDE THE BOOKS OF A CCOUNT. IN THE ABSENCE OF ANY MATERIAL EVIDENCING THAT THE ASSESSEE ACTUALLY PRODUCED MORE MATERIAL EVIDENCING THAT THE ASSESSEE ACTUALLY PRODUCED MORE MATERIAL THAN REFLECTED IN THE BOOKS OF ACCOUNT WE HAVE NO BASIS TO TAKE A DIFFERENT VIEW IN THE MATTER. FOR THIS VIEW WE ARE SUPPORTED BY THE DECI SION DATED 26-10-2007 OF A CO-ORDINATE BENCH IN THE CASE OF AKRUTI DYEING & PR INTING MILLS PVT. LTD. (SUPRA) WHEREIN ON SIMILAR FACTS ADDITION WAS DEL ETED. LIKEWISE ADDITION ON ACCOUNT OF WORK-IN-PROGRESS HAS RIGHTLY BEEN DELETE D BY CIT(A) BEING NO T BASED ON ACTUAL PRODUCTION. IN THE FACTS AND CIRCUM STANCES OF THE CASE WE ARE OF THE OPINION THAT THERE WAS NO GROUND FOR REJ ECTING THE BOOK RESULTS AND MAKING ANY TRADING ADDITION. SINCE NO SPECIFIC DISC REPANCIES OR DEFECTS IN THE BOOKS OF ACCOUNT OF THE ASSESSEE HAVE BEEN POINTED OUT BEFORE US NOR WAS ANY MATERIAL BROUGHT TO OUR NOTICE TO ESTABLISH THA T PURCHASES OR EXPENSES WERE INFLATED OR RECEIPTS SUPPRESSED THERE WAS NO JUSTIFICATION IN INVOKING THE PROVISIONS OF SECTION 145 OF THE ACT [VIKRAM PLASTI CS 239 ITR 161 (GUJ)] 5.3 IN VIEW OF THE FOREGOING ESPECIALLY WHEN THERE IS NO MATERIAL BEFORE US FOR TAKING A DIFFERENT VIEW IN THE MATTER WE ARE NOT I NCLINED TO INTERFERE WITH THE FINDINGS OF THE CIT(A). THEREFORE GROUND NO.1 IN T HE APPEAL OF THE REVENUE IS DISMISSED. 7. WE FIND FROM THE FACTS OF THE PRESENT CASE AND T HE CASE OF PARAS DYG & PRINTING MILLS PVT. LTD. (SUPRA) THAT THE FACTS ARE EXACTLY IDENTICAL AND THE ISSUE IS EXACTLY SAME WHERE THE ISSUE OF DEVISE LASS AND AD DITION ON THE BASIS OF PRODUCTION OUTSIDE THE BOOKS OF ACCOUNT AS WELL AS ADDITION FO R UNDER-VALUATION OF CLOSING STOCK OF WORK-IN-PROGRESS AFTER REJECTING BOOK RESULTS H AVE BEEN DEALT BY THE TRIBUNAL AND ALLOWED IN FAVOUR OF THE ASSESSEE. RESPECTFULLY FOL LOWING THE TRIBUNALS DECISION AND TAKING A CONSISTENT VIEW WE UPHOLD THE ORDER OF CI T(A) DELETING THE ADDITION. THIS ISSUE OF THE REVENUES APPEAL IS DISMISSED. 8. THE NEXT COMMON ISSUE IN BOTH APPEALS OF ASSESSE E IN ITA NO.415/AHD/2007 AND REVENUES APPEAL IN ITA NO.513/AHD/2007 IS REGARDING THE CONFIRMATION OF ITA NO.415 & 513/AHD/2007 A.Y. 2003-04 PARAS PRINTS PVT. LTD. V. ACIT CIR-1 SURAT PAGE 10 ADDITION OF BOGUS PURCHASES AND ALSO DIRECTING THE ASSESSING OFFICER TO VERIFY THE INCLUSION OF BOGUS PURCHASES OF RS.85 250/- OUT OF THE TOTAL BOGUS PURCHASES CONFIRMED AT RS.2 84 050/-. FOR THIS ASSESSEE HAS RAISED THE FOLLOWING GROUND NO.2 :- (2) ON THE FACTS OF THE CASE THE LEARNED COMMISSI ONER (APPEALS) I SURAT HAS ERRED IN CONFIRMING THE ADDITION OF RS.2 84 050 ON ACCOUNT OF ALLEGED BOGUS PURCHASE. AND REVENUE HAS RAISED THE FOLLOWING GROUND NO.2 AS UNDER:- 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED CIT[A] HAS ERRED IN DIRECTING THE A.O TO VERIFY THE FACT ABOUT INCLUSION OF BOGUS PURCHASES OF RS.85 250/- IN THE CLOSING STOCK WHEN THE LD. CIT(A) HAS DULY CONFIRMED THE PURCHASES AS BOGUS AND THEREFORE SUCH PURCHASES CAN NOT BE PART OF CLOSING STOCK. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSI NG OFFICER HAS MADE ADDITION OF BOGUS PURCHASES AS REGARDS TO PURCHASES OF COLOUR C HEMICALS FROM M/S POOJA DYECHEM AMOUNTING TO RS.2 84 050/-. THE ASSESSING OFFICER NOTED THAT M/S. POOJA DYECHEM WAS INDULGING IN ISSUING FAKE SALE BILLS TO THE TEXTILE PROCESSING UNITS. THE CONTENTION OF THE ASSESSEE BEFORE THE LOWER AUTHORI TIES WAS THAT THE MATERIAL HAS BEEN RECEIVED AND THE PAYMENTS HAVE BEEN MADE BY AC COUNT PAYEE CHEQUES AND THIS PARTY ARE REGULAR INCOME-TAX-ASSESSEE. THE AS SESSEE ALSO SUBMITTED COPIES OF SALE BILLS TO THE AO BUT THE AO HAS NOT ACCEPTED TH E EXPLANATION OF THE ASSESSEE BY STATING THAT THE INQUIRIES CONDUCTED CLEARLY REVEAL ED THAT M/S. POOJA DYECHEM IS ISSUING FAKE SALE BILLS AND THERE IS NO GENUINE PUR CHASE BY THE ASSESSEE. WE FIND THAT THE CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESS EE VIDE PARA-5.3 OF HIS APPELLATE ORDER AS UNDER:- 5.3 I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE APPELLANT AND OBSERVATION OF THE A.O. I AGREE WITH THE APPELLANT. PUJA DYECHEM HAS BEEN FOUND TO BE NON-EXISTENT BOGUS FIRM RUN BY A PERSON MERELY AS A BANK ACCOUNT FOR GIVING BILLS OF PURCHASES. THIS WAS FOUND DURIN G THE COURSE OF INQUIRY AND SEARCH AND SEIZURE ACTION ON ROHIT PANWALA. THEREFO RE THE ACTION OF THE A.O TO DISALLOW THE PURCHASES OF RS.2 84 050/- IS CONFI RMED. HOWEVER SINCE SOME OF THE ITEMS OF THIS PURCHASE ARE SHOWN IN CLOSING STOCK THE A.O IS DIRECTED TO VERIFY THIS FACT AND IF IT IS SO THE CLOSING STOCK WILL BE REDUCED BY THAT AMOUNT WHICH WILL EFFECT THE OPENING STOCK OF NEXT YEAR AL SO. IN VIEW OF THE ABOVE THIS GROUND OF APPEAL IS PARTLY ALLOWED. ITA NO.415 & 513/AHD/2007 A.Y. 2003-04 PARAS PRINTS PVT. LTD. V. ACIT CIR-1 SURAT PAGE 11 IN VIEW OF THE ABOVE FACTS THE CIT(A) HAS DIRECTED THE ASSESSING OFFICER TO VERIFY THE PURCHASES AS SOME OF THE ITEMS ARE SHOWN AS CLOSING STOCK WE FIND NO INFIRMITY IN THE DIRECTIONS OF CIT(A) BUT WE FURTHER DIRECT THE ASSESSING OFFICER TO VERIFY THE PURCHASES AND IN CASE THE ASSESSEE IS ABLE TO ESTAB LISH THE PURCHASES THE ASSESSEES CLAIM CAN BE ALLOWED OTHERWISE NOT. THI S COMMON ISSUE IS ALLOWED FOR STATISTICAL PURPOSES. 10. IN THE RESULT BOTH THE APPEALS ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 14/05/2010 SD/- SD/- (D.C.AGRAWAL) (MAHAVI R SINGH) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD DATED : 14/05/2010 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)-I SURAT 4. THE CIT CONCERNS. 5. THE DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD