Gulsan Prints Pvt.Ltd.,, Surat v. The Income tax Officer,Ward-1(2),, Surat

ITA 4381/AHD/2007 | 2004-2005
Pronouncement Date: 30-07-2010 | Result: Partly Allowed

Appeal Details

RSA Number 438120514 RSA 2007
Assessee PAN AAACG8635L
Bench Ahmedabad
Appeal Number ITA 4381/AHD/2007
Duration Of Justice 2 year(s) 7 month(s) 19 day(s)
Appellant Gulsan Prints Pvt.Ltd.,, Surat
Respondent The Income tax Officer,Ward-1(2),, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 30-07-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted D
Tribunal Order Date 30-07-2010
Date Of Final Hearing 20-05-2010
Next Hearing Date 20-05-2010
Assessment Year 2004-2005
Appeal Filed On 11-12-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL : D BENCH : A HMEDABA D CAMP AT SURAT (BEFORE HONBLE SHRI T.K. SHARMA J.M. & HON'BLE SH RI D.C. AGRAWAL A.M.) I.T.A. NO. 4381/AHD./2007 ASSESSMENT YEAR : 2004-2005 M/S. GULSHAN PRINTS PVT. LTD. SURAT -VS.- INCOME TAX OFFICER WARD-1(2) SURAT (PAN : AAACG 8635 L) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MEHUL SHAH RESPONDENT BY : SMT. JYOTI LAXMI SR. D .R. O R D E R PER SHRI T.K. SHARMA JUDICIAL MEMBER : THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE O RDER DATED 16.10.2007 OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-I SURAT FOR TH E ASSESSMENT YEAR 2004-05. VARIOUS GROUNDS RAISED BY THE ASSESSEE IN THIS APPEAL ARE A S UNDER :_ (1) ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AS WE LL AS LAW ON THE SUBJECT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN REJECTING TH E BOOKS OF ACCOUNTS U/S. 145(3) OF THE ACT. (2) ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AS WE LL AS LAW ON THE SUBJECT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN MAKING ADDIT ION OF RS.38 55 735/- ON ACCOUNT OF ALLEGED LOW GROSS PROFIT. (3) ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AS WE LL AS LAW ON THE SUBJECT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN CHARGING INT EREST U/S. 234B OF THE ACT. 2. BRIEF FACTS OF THIS CASE ARE THAT THE ASSESSEE-C OMPANY IS ENGAGED IN THE BUSINESS OF PROCESS WORK OF DYEING AND PRINTING OF CLOTH ON JOB WORK BASIS. FOR THE ASSESSMENT YEAR UNDER APPEAL IT FILED THE RETURN OF INCOME DECLARING NIL INCOME. THIS RETURN OF INCOME WAS ACCOMPANIED BY AUDITED FINAL ACCOUNTS ALONGWITH AUD IT REPORT IN FORM NO. 3CA AND 3CD AS REQUIRED UNDER SECTION 44AB OF THE INCOME TAX ACT 1961. THE INDUSTRIAL UNIT OF THE ASSESSEE- 2 ITA NO. 4381/AHD/2007 COMPANY IS SITUATED AT 254-255B GIDC PANDESARA S URAT. IT RECEIVED GREY CLOTH FROM VARIOUS PARTIES I.E. TRADERS FROM MARKET FOR DYEING AND PR INTING IN THE PROCESS MILL OF THE ASSESSEE. THE ASSESSEE-COMPANY RECEIVED JOB CHARGES AGAINST PROCE SSING OF CLOTH FROM PARTIES. DURING THE FINANCIAL YEAR RELEVANT TO THE YEAR UNDER ASSESSMEN T THE ASSESSEE HAS SHOWN RECEIPT OF PROCESSING CHARGES OF RS.12 57 74 217/-. ON PROCESSING OF 2 16 81 079.30 METERS OF CLOTH AND DECLARED GROSS PROFIT AT RS.93 75 713/- AT THE RATIO OF 7.45 % AND DECLARED NET PROFIT OF @ 0.71% AS AGAINST WHICH IN THE IMMEDIATE PRECEDING YEAR THE ASSESSEE HAS SHOWN RECEIPT OFPROCESSING CHARGES OF RS.7 50 60 756/- ON PROCESSING OF 9637743 METERS OF CLOTH DECLARED GROSS PROFIT OF RS.79 09 934/- AT THE RATIO OF 10.52% AND DECLARED NET PROFIT @ 1.43%. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER ASKED THE ASSESSEE TO FURNISH THE REASONS FOR FALL IN G.P. RATIO. THE REA SONS WERE FURNISHED BY THE ASSESSEE WHICH ARE REPRODUCED BY THE ASSESSING OFFICER AT PARA 3.2 ON PAGES 7 TO 17 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER WAS NOT SATISFIED BY THE REPLY OF THE ASSESSEE. THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNTS UNDER SECTION 145(3) AND MADE ADDITION OF RS.38 55 735/- BY ADOPTING G.P. RATIO OF 10.52% AS DECLARED IN THE LAST YEAR. THIS IS MENTIONED IN PARA 3.3 ON PAGES 17 TO 26 OF THE ASSESSMENT ORDER. 4. BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(AP PEALS) THE ASSESSEE FILED THE DETAILED PAPER BOOK CONTAINING VARIOUS CHARTS FOR C OMPARISON OF EXPENSES WITH LAST YEAR AND ALSO VARIOUS EVIDENCES WHICH WERE FILED BEFORE THE ASSES SING OFFICER. AFTER CONSIDERING THE SAME THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) CONFIRM ED THE ADDITION BY GIVING FINDINGS AT PARA 2.8 ON PAGES 8 TO 11 OF HIS IMPUGNED ORDER. IN THE IMPUGNED ORDER THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ALSO MADE ENHAN CEMENT OF INCOME UNDER SECTION 251(2) AMOUNTING TO RS.86 07 591/- ON ACCOUNT OF PAYMENT O F WATER CHARGES. THE DETAIL OF THIS ADDITION IS THAT SURAT MUNICIPAL AUTHORITY LEVIED WATER CHAR GES PERTAINING TO SEVERAL YEARS. THE BILL AMOUNT FOR THE ASSESSMENT YEAR 2000-01 TO 2004-05 W AS RS.86 07 591/-. THE ASSESSEE DEBITED 10% OF THE SAME AMOUNTING TO RS.8 60 759/- IN THE P REVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL. THE LEARNED COMMISSIONER OF INCOME TA X(APPEALS) DISALLOWED THE SAME BUT MADE NO SEPARATE ADDITION ON THE GROUND THAT ASSESS ING OFFICER WILL ALLOW THE TELESCOPIC OF RS.8 60 759/- AGAINST G.P. ADDITION OF RS.38 55 735 /- WHICH IS SEPARATELY CONFIRMED BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IN THE IMPUGNED ORDER. AGGRIEVED WITH THE 3 ITA NO. 4381/AHD/2007 VIEW TAKEN BY THE LEARNED COMMISSIONER OF INCOME TA X(APPEALS) THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5. AT THE TIME OF HEARING ON BEHALF OF ASSESSEE SH RI MEHUL SHAH LD. COUNSEL APPEARED AND FILED A PAPER BOOK CONTAINING 83 PAGES WHICH INTE R ALIA INCLUDES WRITTEN SUBMISSIONS FILED BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEA LS) ALONGWITH COMPARATIVE CHART SHOWING (I) VARIOUS EXPENSES AS PERCENTAGE OF SALES (II) SALES VALUE AND AVERAGE JOB RATE CHARGED PER METER (III) MONTH-WISE SALES (IV) INCREASE IN RATE OF COLOUR AND CHEMICAL EXPENS ES (V) UTILIZATION OF COAL AND AVERAGE RATE OF COAL FO R PURCHASES FROM GMDC AS WELL AS IMPORTED COAL (VI) INCREASE IN RATE OF DIESEL (VII) EXPENSES ON ACCOUNT OF CONSUMPTION OF STORES AND SPARES (VIII) TRACING RATE (IX) RATE OF BOLTING CLOTH (X) INCREASE IN AVERAGE RATE OF BLACK GREY CLOTH. IN THE PAPER BOOK A CHART IS ALSO ENCLOSED SHOWING SALARY PAID TO SUPERVISORY AND ADMINISTRATIVE DURING THE YEAR UNDER APPEAL LEDGER ACCOUNT OF WAT ER CHARGES AND TAX AUDIT REPORT UNDER SECTION 44AB OF THE ACT ALONGWITH AUDITED FINANCIAL STATEME NTS. LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT RATE OF G.P. AS SHOWN IN THE AUDIT REPORT OF T HE COMPANY FOR THE YEAR UNDER CONSIDERATION AND EARLIER YEARS IS AS UNDER :- AY 2001-2002 2002-2003 2003-2004 2004-2005 TOTAL JOB WORK 87519198 63772131 76002676 12 57 74 217 GROSS PROFIT 8335747 9654182 8732378 1 22 84 016 PERCENTAGE 9.52 15.13 11.49 9.76 4 ITA NO. 4381/AHD/2007 5.1. FROM THE ABOVE CHART THE LD. COUNSEL OF THE A SSESSEE POINTED OUT THAT IT SHOULD BE NOTED THAT TOTAL JOB WORK RECEIPTS WERE BOOSTED IN THE YE AR UNDER CONSIDERATION BY ALMOST 65% FROM JUST PRECEDING ASSESSMENT YEARS. THE ACHIEVEMENT BE COMES MORE SIGNIFICANT IF CONSIDERED WITH THEN MARKET CONDITIONS AND COMPETITION AND THE RATE OF G.P. SHOWN BY THE OTHER COMPANIES ENGAGED IN THE SAME LINE OF BUSINESS. HE SUBMITTED THAT ECONOMISTS ALWAYS SUPPORT THE THEORY THAT MORE TURNOVER YIELDS LESS MARGIN AND LESS TURN OVER YIELDS MORE MARGIN. THE LD. COUNSEL OF THE ASSESSEE FURTHER POINTED OUT THAT IN THE ASSESS MENT YEAR 2001-02 THE G.P. RATE WAS 9.52% WHEN TURNOVER WAS RS.8 75 19 198/-. IN THE ASSESSME NT YEARS 2002-03 & 2003-04 WHEN THE TURNOVER WAS LESS G.P. WAS MORE. THIS IS EVIDENT F ROM THE AFORESAID TABLE. THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THERE IS NO JUSTIFICATION F OR REJECTING THE BOOKS OF ACCOUNTS MERELY ON THE GROUND THAT G.P. DECLARED IN THE ASSESSMENT YEAR IS LESS THAN IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. CONTINUING HIS ARGUMENT HE SUBMIT TED THAT DURING THE YEAR UNDER APPEAL COST OF RAW MATERIAL WAS INCREASED IN COMPARISON TO EARL IER YEARS WHICH IS EVIDENT FROM THE FOLLOWING :- A.Y. 2003-04 % A.Y. 2004-05 % TOTAL SALES 7 50 60 756 12 57 74 217 COST OF RAW MATERIAL & CONSUMED 3 31 57 632 44.17 7 10 13 810 56.46 MATERIAL PURCHASE 13 13 658 1.75 48 44 602 3.85 MANUFACTURING EXPENSES 3 27 99 008 43.70 3 78 46 670 30.09 TOTAL EXPENSES 6 72 70 298 89.62 11 37 05 082 90.40 5.2. ON THE BASIS OF ABOVE CHART THE LD. COUNSEL O F THE ASSESSEE POINTED OUT THAT TOTAL MANUFACTURING EXPENSES WERE REDUCED FROM 43.70% TO 30.09% WHEREAS COST OF RAW MATERIAL AND PURCHASE OF RAW MATERIAL WAS INCREASED FROM 44.17% TO 56.46% AND 1.75% TO 3.85% RESPECTIVELY. WITH REGARD TO COST OF VARIOUS RAW MA TERIALS THE LD. COUNSEL OF THE ASSESSEE DREW OUR ATTENTION TO VARIOUS COMPARATIVE CHARTS AND SEV ERAL VOUCHERS OF PURCHASES OF COLOUR & CHEMICAL COAL AND WATER ETC. HE SUBMITTED THAT IN THE ASSESSMENT YEAR UNDER APPEAL THE ASSESSEE 5 ITA NO. 4381/AHD/2007 INCURRED MORE COST WITH REGARD TO ALMOST ALL RAW MA TERIALS IN COMPARISON TO EARLIER YEAR WHICH PROVE THE GENUINENESS OF RATE OF GROSS PROFIT DECLA RED BY THE ASSESSEE. 5.3. WITH REGARD TO MAINTENANCE OF DAY-TO-DAY STOCK THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT IT IS NOT POSSIBLE TO MAINTAIN DAY-TO-DAY CONS UMPTION OF STOCK. THIS POLICY WAS ADOPTED BY THE ASSESSEE-COMPANY SINCE ITS INCEPTION. IN THE LA ST YEAR ALSO NO DAY-TO-DAY STOCK CONSUMPTION RECORD WAS MAINTAINED DESPITE THAT CORRECT PROFIT W AS ADDUCED FROM THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE. IN SUPPORT OF THIS REL IANCE WAS PLACED ON THE FOLLOWING DECISIONS :- (I) MR. DURAJ RAJ VS.- CIT [1972] 83 ITR 484 (KER. ); (II) GEROGE COMMEN VS.- COMMR. OF AGRL. IT (1964) 52 ITR 977 (KER.); (III) SMT. SATINDERJIT KAUR VS.- ITO (1995) 52 TT J (CHD.) 388; (IV) ITO VS.- L.B. SHAH & CO. (1988) 31 TTJ (AHD. ) 216; (V) VIJAYA TRADERS VS.- CIT (1969) 74 ITR 279 (MY S.); (VI) ITO VS.- RUPAL CHEM DYES & METAL SALTS CORP. (1992) 42 TTJ (AHD.) 245; (VII) IAC VS.- USHNAKMAL MADANLAL (1989) 34 TTJ ( DEL.) 8; (VIII) GEETANJALI WOOLEN PVT. LTD. VS.- ACIT (199 4) 50 TTJ (AHD.) 19; (IX)HYNOUP FOOD & OIL IND. LTD. VS.- ACIT (1993) 47 TTJ (AHD.) 556. 5.4. WITH REGARD TO FALL IN G.P. THE LD. COUNSEL O F THE ASSESSEE MADE FURTHER SUBMISSIONS :- (I) IN THIS YEAR ASSESSEE SUBSTANTIALLY CHANGED THE PRODUCTION MIX. IN THIS YEAR ALTHOUGH THE TURNOVER OF ASSESSEE HAS INCREASED BY 1.7 TIMES BUT THE AVERAGE JOB CHARGES DECREASED TO RS 5.25 PER METER AS AGAINST R S.8.12 PER METER LAST YEAR THIS IS BECAUSE THIS YEAR ONLY PROCESSING OF DYEING WORK WAS CARRIED OUT FOR MOST OF THE JOB IN CASER OF DYEING JOB OF PROCESSING THE UNIT EARNS LOW GROSS PROFIT MARGIN. (II) BECAUSE OF INCREASE IN JOB CHARGES THE ASSESSE E HAS TO CONSUME MORE COAL COMPARE LAST YEAR. ASSESSEE HAS ASSESSED QUOTA WITH GMDC WAS EXHAUSTED AND HE HAD TO MAKE IMPORT OF COAL SUBSTANTIALLY. THE AV ERAGE RATE OF IMPORTED COAL IS RS 2038.11 COMPARE TO QUOTA COAL AT RS 767.45 SO AS SESSEE INCURRED AMOUNT OF RS 83 38 627/- AS COMPARED TO RS 16 83 112/- INCURR ED IN LAST YEAR THE INCREASE IN PRODUCTION IS ONLY 1.7 TIMES SO AS PER LAST YEAR PRICE ASSESSEE HAS TO INCUR COAL CHARGES OF AROUND RS 28 LAKHS BUT HE INCURRED AMOUN T OF RS 83 38 627/- SO MORE THAN RS 50 LAKHS WAS ON ACCOUNT OF INCREASE IN COAL EXPENSES WHICH CONTRIBUTE FOR LOW GROSS PROFIT RATIO. 6 ITA NO. 4381/AHD/2007 (III) ASSESSEE HAD ALSO TO BEAR THE INCREASE M PRIC E OF DIESEL STORES & SPARES TRACING BOLTING CLOTH ETC BUT THE ADDITION CAN BE EXPLAINED ONLY ON ACCOUNT OF THE INCREASE M THE COAL CHARGES. (IV) ALTHOUGH NO DAY TO DAY STOCK REGISTER IS MAI NTAINED IN REGARD TO RAW MATERIAL BUT DETAIL STOCK WAS TAKEN WITH REGARD LO EACH ITEM OF MATERIAL AND PROJECTING ITEM DESCRIPTION QUALITY QUANTITY RAT E ALL THE PURCHASE OF RAW MATERIAL ARE SUPPORTED BY VOUCHERS AND BILLS THE PA YMENT OF RAW MATERIALS ARE PAID THROUGH ACCOUNT PAYEE CHEQUE AND ASSESSING OFF ICER HAS NOT DOUBTED ANY PURCHASE OF THE RAW MATERIAL IN THE INVOICE FOR THE PURCHASE OF RAW MATERIAL THE DESCRIPTION AND QUANTITY OF THE MATERIAL PURCHASED ARE MENTIONED ASSESSING OFFICER HAS NEVER DOUBTED THAT ANY ITEM OF PURCHASE WHICH REMAIN UNCONSUMED WAS TAKEN INTO CLOSING STOCK. 5.5. WITH REGARD TO ENHANCEMENT OF RS.8 60 759/- MA DE BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) THE LD. COUNSEL OF THE ASSESSE E SUBMITTED THAT THE ASSESSEE-COMPANY INCURRED THE ADDITIONAL WATER CHARGES EXPENSES FOR LESS CONSUMPTION OF WATER. THAT SURAT MUNICIPAL CORPORATION HAS ISSUED BILL OF RS 86 07 5 91/- ON 17.12.2003 FOR PAYMENT OF WATER CHARGES LEVIED FOR LESS CONSUMPTION OF WATER FROM T HE 65% OF QUOTA ALLOTTED FOR VARIOUS PREVIOUS YEARS THE ISSUE WAS CRUCIAL AND AFFECTED ALMOST ALL THE PROCESS HOUSES HENCE THE SAME WAS TAKEN UP BY THE ASSOCIATION OF PROCESS HOUSES AND IT WAS AGREED UPON TO DEPOSIT 10% OF THE BILL IMMEDIATELY WITHOUT ANY DISPUTE FOR THE REMAINING A MOUNT LEGAL ACTION WAS TAKEN WHICH IS STILL PENDING BEFORE HONOURABLE COURT AS PER MERCANTILE S YSTEM OF ACCOUNTING INSTEAD OF 10% FULL AMOUNT OF RS 36 07 591/- IS ALLOWABLE IN VIEW OF DE CISION OF SUPREME COURT IN CASE OF KEDARNALH JUT MFG. CO LTD V/S CIT (1971) 62 ITR 363 (SC). HOWEVER ASSESSEE CLAIMED ONLY 10% OF EXPENDITURE BEING AMOUNT DEPOSITED WITH SMC PENDING OUTCOME OF THE LEGAL ACTION HOWEVER LD CIT(A) DIDN'T GRANT DEDUCTION OF THIS EX PENDITURE AND HE ENHANCED THE INCOME TO BY RS 8 60 759 AS PER HIS FINDINGS AL PARA NO. 4.2 & 4 .3 (PAGE NO 13 TO 15) OF THE APPELLATE ORDER. HOWEVER HE HAS TELESCOPED THIS ADDITION WITH GROSS PROFIT ADDITION IF THE WATER CHARGES OF RS 8 60 759/- IS HELD TO BE ALLOWABLE IN EARLIER YEARS IT DOESN'T MAKE ANY DIFFERENCE AS IN EARLIER YEARS THERE WAS LOSS AND SO MORE LOSS IS AVAILABLE FOR SET OFF IN THIS YEAR SO EFFECT WOULD BE NEUTRALIZE. 6. ON THE OTHER HAND SMT. JYOTI LAXMI LD. SR. D.R . APPEARING ON BEHALF OF THE REVENUE VEHEMENTLY SUPPORTED THE ORDER OF LEARNED COMMISSIO NER OF INCOME TAX(APPEALS). THE LD. D.R. POINTED OUT THAT THIS YEAR GP RATE HAD DECREASED BY 3.07% AS COMPARED TO LAST YEAR. THE NET 7 ITA NO. 4381/AHD/2007 PROFIT RATE HAD BECOME HALF OF LAST YEAR. HE POINTE D OUT THAT NO PRUDENT BUSINESS MAN WILL INCREASE THE TURNOVER WHICH RESULTED REDUCTION OF NET PROFIT. THE MARGIN OF PROFIT CAN BE REDUCED ONLY WHEN ONE EARNS MORE NET PROFIT. THE LD. D.R. F URTHER POINTED OUT THAT IN THE IMPUGNED ORDER THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AFT ER CONSIDERING THE SAME UPHELD THE ACTION OF ASSESSING OFFICER REGARDING REJECTION OF BOOKS O F ACCOUNTS WITH ADOPTION OF G.P. AND ESTIMATED IN THE GROSS PROFIT THEREFORE THE VIEW TAKEN BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) BE UPHELD. 6.1. WITH REGARD TO ENHANCEMENT MADE BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) THE LD. D.R. POINTED OUT THAT THE EXP ENSES PERTAINED TO EARLIER YEARS THEREFORE THESE CANNOT BE ALLOWED IN THE ASSESSMENT YEAR UNDE R APPEAL. SHE FURTHER SUBMITTED THAT SHE HAS NO OBJECTION IF TELESCOPIC EFFECT IS GIVEN AS IS D ONE BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). 7. HAVING HEARD BOTH THE SIDES WE HAVE CAREFULLY G ONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT IN THE ASSESSME NT YEAR UNDER APPEAL THE ASSESSEE HAS SUBSTANTIALLY CHANGED THE PRODUCTION MIX. THOUGH TH E TURNOVER OF THE ASSESSEE HAS INCREASED BY 1.7 TIMES BUT THE AVERAGE JOB CHARGES DECREASED TO RS.5.25 PER METER AS AGAINST RS.8.12 PER METER LAST YEAR. THIS IS ONE OF THE MAIN FACTOR FOR REDUCTION IN THE G.P. IT IS ALSO TRUE THAT THE ASSESSEE HAS NOT MAINTAINED DAY-TO-DAY CONSUMPTION OF STOCK BUT THIS POLICY WAS ADOPTED BY THE ASSESSEE IN THE EARLIER YEARS ALSO. IN THE ASSESSME NT ORDER THE ASSESSING OFFICER HAS NOT FOUND ANY DEFECT OR DISCREPANCY IN THE JOB WORK CHARGES A ND PURCHASE BILLS. THE MERE FACT THAT THE LETTERS WRITTEN BY THE ASSESSING OFFICER UNDER SECT ION 133(6) OF THE INCOME TAX ACT WERE RECEIVED UNSERVED IS NO GROUND TO PRESUME THAT THE RE IS A DISCREPANCY IN THE ACCOUNTS MAINTAINED BY THE ASSESSEE. IN THESE CIRCUMSTANCES VARIOUS OB SERVATIONS MADE BY THE ASSESSING OFFICER FOR REJECTING THE BOOKS OF ACCOUNTS ARE OF GENERAL NATU RE. WE THEREFORE DELETE THE ADDITION OF RS.38 55 735/- ON ACCOUNT OF LOW G.P. MADE BY THE A SSESSING OFFICER. 7.1. NOW COMING TO THE ENHANCEMENT OF RS.8 60 759/- MADE BY THE ASSESSING OFFICER WE ARE OF THE VIEW THAT THIS PERTAINED TO EARLIER YEARS. I N THE IMPUGNED ORDER THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS PROPOSED TO MAKE THIS EN HANCEMENT FOR THE DETAILED REASONS GIVEN IN PARA 4.3 WHICH READS AS UNDER :- 8 ITA NO. 4381/AHD/2007 4.3. AS REGARDS RELIANCE ON VARIOUS CASE LAWS BY T HE APPELLANT IT IS STATED THAT I HAVE GONE THROUGH THE DECISION OF SUP REME COURT IN THE CASE OF KEDARNATH JUTE MANUFACTURING (SUPRA) THE FA CTS IN THAT CASE ARE ENTIRELY DIFFERENT. AS FAR AS THE RATIO OF THE DECI SION OF THE HON'BLE SUPREME COURT IS CONCERNED IT GOES AGAINST THE ASS ESSEE. THE LIABILITY AROSE IN THE YEAR IN WHICH THE WATER WAS USED AND H ENCE ALL THIS EXPENSES ARE EARLIER YEAR EXPENSES. IN THE CASE OF SAURASHTRA CEMENT AND CHEMICALS (SUPRA) THE HON'BLE GUJARAT HIGH COU RT STATED THAT THE A.O. CANNOT DISALLOW EARLIER YEARS EXPENSES SIMPLY WITHOUT GOING INTO THE FACT OF CRYSTALLIZATION. ACCORDING TO THE HON'B LE HIGH COURT IF THE CRYSTALLIZATION OF THESE EXPENSES IS IN THE CURRENT YEAR THEN THEY HAVE TO BE ALLOWED. I AGREE WITH THE DECISION OF THE HON'BL E GUJARAT HIGH COURT. FROM THE ABOVE FACTS IT IS CLEAR THAT ONLY T HE DEMAND NOTICE HAS BEEN GIVEN BY SMC IN THE CURRENT YEAR. THESE EXPENS ES HAVE NOT BEEN CRYSTALLIZED DURING THE CURRENT YEAR AND THEY CANNO T BE ALLOWED. EVEN THE CURRENT YEAR LIABILITY ALTHOUGH ALLOWABLE HAS N OT BEEN CLAIMED BY THE ASSESSEE BY DEBITING THE P&L A/C. THIS LIABILIT Y HAS ALSO BEEN FULLY DISPUTED AND ONLY AD HOC PAYMENT HAS BEEN MADE BY T HE ASSESSEE TO SMC. HENCE THIS DECISION OF THE HON'BLE GUJARAT HIG H COURT IS NOT APPLICABLE IN THE CASE OF THE ASSESSEE. THE DECISIO N OF THE HON'BLE COURTS IN THE CASE OF NATHMAL TOLARAM (SUPRA) AND A SKA COOPERATIVE SUGAR INDUSTRIES LTD. (SUPRA) SAY THE SAME THING AN D HENCE THEY ARE NOT DISCUSSED SEPARATELY. THEREFORE THIS AMOUNT OF RS. 8 60 759/- IS DISALLOWED. HOWEVER SINCE THIS FORMS PART OF GROSS PROFIT ADDITION MADE BY THE A.O. BECAUSE WATER CHARGES ARE MANUFACT URING EXPENSES NO SEPARATE ADDITION IS TO BE MADE ON THIS ACCOUNT. HENCE THE INCOME IS ENHANCED BY RS.8 60 759/- ON THIS ACCOUNT BUT A TELESCOPIC EFFECT IS GIVEN IN GROSS PROFIT RATE AND HENCE NO SEPARATE AD DITION IS MADE. 7.2. ADMITTEDLY IT APPEARS THAT THE ASSESSEE WAS U SING LESS AMOUNT OF WATER THAN THE INSTALLED CAPACITY. THEREFORE AS PER THE AGREEMENT ON ACCRUA L BASIS THE ASSESSEE SHOULD HAVE CLAIMED THE WATER CHARGES BY DEBITING IN THE PROFIT & LOSS A/C. FROM YEAR TO YEAR BASIS. MERELY BECAUSE THE BILLING SECTION OF SURAT MUNICIPAL CORPORATION MADE A MISTAKE AND BILLED THE ASSESSEE AS PER THE ACTUAL USAGE DOES NOT MEAN THAT THE LIABILITY OF TH E ASSESSEE AS PER THE AGREEMENT DID NOT ACCRUE IN THE EARLIER YEARS. IN VIEW OF THIS WE ARE OF TH E VIEW THAT ENHANCEMENT OF RS.8 60 759/- IN THE ASSESSMENT YEAR UNDER APPEAL WAS CORRECTLY MADE BY THE ASSESSING OFFICER. IN THE IMPUGNED ORDER THE LEARNED COMMISSIONER OF INCOME TAX(APPEA LS) HAS ALLOWED THE TELESCOPIC ADDITION FROM GROSS PROFIT ADDITION SUSTAINED BY HIM. SINCE WE HAVE DELETED THE GROSS PROFIT ADDITION (SUPRA) THE ADDITION OF RS.8 60 759/- IS RESTORED. 8. TO SUM UP THE GROSS PROFIT ADDITION OF RS.38 55 735/- IS DELETED AND WATER CHARGES PERTAINING TO EARLIER YEARS AMOUNTING TO RS.8 60 75 9/- IS DISALLOWED. THUS INSTEAD OF MAKING 9 ITA NO. 4381/AHD/2007 GROSS PROFIT ADDITION THE ASSESSING OFFICER IS DIR ECTED TO DISALLOW WATER CHARGES AMOUNTING TO RS.8 60 759/- AND RE-COMPUTE THE INCOME OF THE ASSE SSEE ACCORDINGLY. 9. GROUND NO. 3 IS AGAINST LEVY OF INTEREST UNDER S ECTION 234B OF THE INCOME TAX ACT. LEVY OF INTEREST UNDER THIS SECTION IS MANDATORY. ACCORD INGLY ASSESSING OFFICER IS DIRECTED TO ALLOW THE CONSEQUENTIAL RELIEF IN LEVY OF INTEREST UNDER THIS SECTION. 10. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. THE ORDER WAS PRONOUNCED IN THE COURT ON 30.07.201 0 SD/- SD/- (D.C. AGRAWAL) (T.K. SHARMA ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 30/ 07 / 2010 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT. 3) CIT(A) CONCERNED (4) CIT CONCERNED (5) D.R. ITAT AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGI STRAR ITAT AHMEDABAD LAHA/SR.P.S.