Sumilon Tex Pvt.Ltd.,, Surat v. The ACIT.,Circle-4,, Surat

ITA 4498/AHD/2007 | 2004-2005
Pronouncement Date: 31-01-2011 | Result: Allowed

Appeal Details

RSA Number 449820514 RSA 2007
Assessee PAN AADCS3655M
Bench Ahmedabad
Appeal Number ITA 4498/AHD/2007
Duration Of Justice 3 year(s) 1 month(s) 7 day(s)
Appellant Sumilon Tex Pvt.Ltd.,, Surat
Respondent The ACIT.,Circle-4,, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 31-01-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted D
Tribunal Order Date 31-01-2011
Date Of Final Hearing 19-01-2011
Next Hearing Date 19-01-2011
Assessment Year 2004-2005
Appeal Filed On 24-12-2007
Judgment Text
IN THE IN THE IN THE IN THE INCOME TAX APPELLATE TRIBUNAL INCOME TAX APPELLATE TRIBUNAL INCOME TAX APPELLATE TRIBUNAL INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH AHMEDABAD BENCH AHMEDABAD BENCH AHMEDABAD BENCH D DD D BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI T.K.SHARMA T.K.SHARMA T.K.SHARMA T.K.SHARMA JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER AND AND AND AND SHRI N.S. SAINI SHRI N.S. SAINI SHRI N.S. SAINI SHRI N.S. SAINI ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE OF HEARING: 19-1-11 DRAFTED ON: 25-1-11 ITA NO.4498/AHD/2007 ASSESSMENT YEAR : 2004-05 SUMILON TEX PVT. LTD. VERAGINI WADI DELHIGATE SURAT. VS. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-4 AAYAKAR BHAVAN MAJURA GATE SURAT. PAN/GIR NO. :AADCS 3655M (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI K.S. JAGIRDAR. RESPONDENT BY: SHRI SANJAY RAI SR. D.R. O R D E R O R D E R O R D E R O R D E R PER N.S.SAINI ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST T HE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-I SURAT DAT ED 16-10-2007. 2. THE ASSESSEE HAS TAKEN FOLLOWING GROUNDS OF APPE AL:- 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN UPHOLDING THE DECISION OF THE ASSESSING OFFICER THA T BOOK RESULTS ARE LIABLE TO BE REJECTED UNDER SECTION 145(3) AND THAT THE GROSS PROFIT IS RIGHTLY ESTIMATED BY THE ASSESSING OFFICE R ON 34.90% AGAINST 11.33% SHOWN BY THE ASSESSEE AND AGAINST AC CEPTANCE OF 21.38% OF GROSS PROFIT LAST YEAR I.E. ASSESSMENT YEAR 2004- 05. (I) IN ASSESSMENT YEAR 2004-05 THE DIFFERENCE BETWEEN AVERAGE SALE PER KG. AND AVERAGE COST PRICE PER KG. WAS `.4 4/- AGAINST `.78/- IN ASSESSMENT YEAR 2003-04. (II) IN THIS YEAR THERE WAS FALL IN LOCAL PRICES IN COMP ARISON TO PRIOR YEARS. (III) IF THE AVERAGE OF JOB WORK IN TOTAL TURNOVER IS HIG HER THAN PERCENTAGE OF PRODUCTION THEN GROSS PROFIT PERCENTA GE OF TOTAL TURNOVER IS HIGHER BUT IF THE JOB WORK PERCENTAGE I S LOWER THEN GROSS PROFIT ON TOTAL TURNOVER IS LOWER BECAUSE JOB WORK BRINGS - 2 - HIGHER GROSS PROFIT THAN MANUFACTURING GROSS PROFIT AS THE FOLLOWING FIGURES SHOWS: A.Y. MFG. IN TOTAL TURNOVER. JOB WORK IN TOTAL TURNOVER. JOB WORK CHARGES IN TOTAL G.P. %. GROSS PROFIT ON JOB WORK CHARGES. MFG. GROSS PROFIT TOTAL GROSS PROFIT % ON TOTAL TURNOVER. 2002-03 20.81% 79.19% 48.43% 58.91% 8.54% 48.43 % 2003-04 88.32% 11.68% 21.38% 51.35% 17.42% 21.38% 2004-05 98.11% 1.89% 11.33% 53.36% 10.52% 11.33 % (IV) A HAD NEAR MONOPOLY IN EARLIER YEARS WHEREAS SLOW LY AD GRADUALLY MANY SSSIS HAVE COME INTO THIS INDUSTRY W HICH STARTED EATING INTO PROFIT MARGIN. (V) ONLY 4.35% SALES IS IN CASH. (VI) SALES TAX DEPARTMENT HAS ACCEPTED THE BOOK RESULTS. (VII) BOOKS ARE AUDITED. (VIII) AGAINST THE TOTAL TURNOVER OF `.1 16 99 253/- THE T URNOVER HAS INCREASED TO `.2 41 76 879/- I.E. INCREASE OF APPRO XIMATELY 110%. (IX) THE LIST OF FULL ADDRESSES OF ALL THE PURCHASERS AM OUNTING TO `.2 37 20 019/- WAS PROVIDED TO THE ASSESSING OFFIC ER AND LIKEWISE THE LIST OF THE PARTIES FROM WHOM THE ASSE SSEE MADE PURCHASES AND THE FULL ADDRESSES OF THE PARTIES WHO SUPPLIED THE GOODS TO THE ASSESSEE WAS ALSO PROVIDED. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS DE CIDED THE ISSUE BY OBSERVING AS UNDER:- 2.1 IN THE ASSESSMENT ORDER THE LEARNED ASSESSING OFFICER HAS STATED THAT THE ASSESSEE FILED THE RETURN DECLARING TOTAL INCOME OF `.10 22 970/- ON 31.10.2004. THE ASSESSEE IS ENGAGE D IN THE BUSINESS OF MANUFACTURING OF METALLIC YARN AND KASAB. THE LE ARNED ASSESSING OFFICER FURTHER STATED THAT THE GROSS PROFIT RATIO IN THE LAST THREE YEARS IS AS UNDER:- A.Y. 2002-03 48.42% A.Y. 2003-04 21.38% A.Y. 2004-05(CURRENT YEAR) 11.33% 2.2 THE LEARNED ASSESSING OFFICER ASKED THE ASSESSE E TO EXPLAIN THE REASON FOR FALL IN GP RATE. WHEN THE LEARNED ASSESS ING OFFICER DID NOT RECEIVE A SATISFACTORY REPLY HE ISSUED A SHOW-CAUSE NOTICE MAKING VARIOUS OBSERVATIONS REGARDING THE BOOKS OF ACCOUNT S. IN BRIEF THE FORMATTED: LINE SPACING: SINGLE FORMATTED: LINE SPACING: SINGLE - 3 - OBSERVATIONS OF THE LEARNED ASSESSING OFFICER MADE IN THE SHOW CAUSE NOTICE ARE AS UNDER: FROM THE SALE BILLS THE LEARNED ASSESSING OFFICER N OTICED THAT THE ASSESSEE HAD SOLD THE FOLLOWING GOODS AT DIFFERENT PRICES DURING THE MONTH OF AUGUST ITSELF. INVOICE NO. DESCRIPTION RATE (`.) 125 - 6-8-2003 IMITATION JARI 180 128 - 4-8-2003 -DO- 210 131 -16-8-2003 -DO- 340 132 -16-8-2003 -DO- 315 135 -20-8-2003 -DO- 151 146 - 28-8-2003 -DO- 200 126 - 6-8-2003 JARI KASAB 250 127 6-8-2003 -DO- 255 137 22-8-2003 -DO- 270 138 22-8-2003 -DO- 260 THE ASSESSEE HAD EXPLAINED THAT THESE RATES WERE DI FFERENT BECAUSE THE QUALITY WAS DIFFERENT. THE LEARNED ASSESSING OF FICER POINTED OUT THAT FROM THE BILL ITSELF QUALITY WAS NOT POSSIBLE TO BE FOUND AND ON BEING ASKED WHETHER QUALITATIVE RECORDS WERE MAINTA INED THE ASSESSEE HAD DURING THE ASSESSMENT PROCEEDINGS STAT ED THAT NO SUCH QUALITATIVE DETAILS OF DIFFERENT PRODUCTS MANUFACTU RED AND SOLD WERE KEPT BY THE ASSESSEE. THE LEARNED ASSESSING OFFICER STATED THAT THE AVERAGE SALE PRICE DURING THE YEAR WAS 216 PER KG. WHEREAS THE AVERAGE SALE PRICE IN THE LAST YEAR WAS `.243/- PER KG. HOWEVER THE AVERAGE COST OF RAW MATERIAL CONSUMED IS `.172 PER KG. DURING THE YEAR WHEN THE AVERAGE SALE PRICE IS LESS BUT THE AV ERAGE COST OF RAW MATERIAL CONSUMED WAS `.165 PER KG. IN THE LAST YEA R WHEN THE AVERAGE SALE PRICE WAS MORE. 2.3 THE LEARNED ASSESSING OFFICER POINTED OUT THAT THERE WAS NO CONVINCING REPLY AND SINCE THE QUALITATIVE RECORDS WERE NOT MAINTAINED THE DRASTIC FALL IN GP RATE WAS NOT EXPL AINED. THE LEARNED ASSESSING OFFICER THEREFORE ASKED WHY THE BOOKS OF ACCOUNTS BE NOT REJECTED AND GP BE NOT ESTIMATED ON GP RATE OF EARL IER YEARS. THE ASSESSEE REPLIED THAT THE COMPANY MANUFACTURED VARI OUS QUALITIES IN ALL PRODUCTS. THESE QUALITIES WERE SOLD AT VARIOUS RATES AT COST OF PRODUCTS AS WELL AS PER THE REGULAR PRICE. THERE AR E NUMBER OF QUALITIES WHICH ARE PRODUCED BY THE COMPANIES TO CA TER TO THE MARKET DEMAND AND IT IS PRACTICALLY NOT POSSIBLE TO MAINTA IN QUALITY-WISE RECORDS AS THERE CAN BE NO QUALITY CRITERIA VARIATI ONS. THE ASSESSEE EXPLAINED THAT THE DIFFERENT RATES MENTIONED IN THE TABLE BY THE FORMATTED: LINE SPACING: SINGLE FORMATTED: LINE SPACING: SINGLE - 4 - LEARNED ASSESSING OFFICER IN THE MONTH OF AUGUST 20 03 WERE DUE TO DIFFERENCE IN QUALITY SOLD. REGARDING HIGHER COST O F CONSUMPTION THAN LAST YEAR THE ASSESSEE STATED THAT THE INCREASE IN COST OF RAW MATERIAL CONSUMED WAS DUE TO GENERAL INCREASE IN RAW MATERIA L PRICES AND THE COMPANY DOES NOT HAVE ANY CONTROL OVER RAW MATERIAL PRICES. THE DECREASE IN AVERAGE SALE PRICE WAS BECAUSE THE COMP ANY WAS NOT ABLE TO EXPORT DUE TO GENERAL RECESSION AND ALSO BE CAUSE OF FALL IN PRICES IN THE EXPORT MARKET. IN THE LOCAL MARKET AL SO THE PRICES HAVE REDUCED. THE ASSESSEE STATED BEFORE THE LEARNED ASS ESSING OFFICER THAT THE BOOKS OF ACCOUNTS AND RECORDS HAVE BEEN DU LY AUDITED BY THE CHARTERED ACCOUNTANT AND THEREFORE THEY SHOULD NOT BE REJECTED. IT WAS SUBMITTED BY THE ASSESSEE THAT DIFFERENCE IN PR ICE VARIATION IN SALES DOES NOT MAKE THE ACCOUNTS DOUBTFUL. THE ASSE SSEE ISSUED PROPER BILLS TO THE CUSTOMERS AND SALES TAX COLLECT ED HAS BEEN PAID TO THE AUTHORITIES. THE ASSESSEE RELIED ON THE DECISIO N OF HONBLE GUJARAT HIGH COURT IN THE CASE OF VIKRAM PLASTICS & OTHERS [239 ITR 161] TO SAY THAT IF THERE WAS NO DISCREPANCY OR DEFECT IN T HE BOOKS OF ACCOUNTS AND IF THEY ARE REGULARLY MAINTAINED THEN SECTION 145(3) CANNOT BE INVOKED TO REJECT THE BOOKS OF ACCOUNTS. IT WAS STATED THAT THE ITAT AHMEDABAD HAS ALSO GIVEN A SIMILAR RATIO IN THE CASE OF ITO VS. RUPAL CAMDYES AND METAL SALTS. 2.4 THE LEARNED ASSESSING OFFICER DID NOT ACCEPT TH E ABOVE EXPLANATION BECAUSE BY NOT MENTIONING THE QUALITY D ETAILS IN THE SALE BILLS AND NOT MAINTAINING THE RECORDS QUALITY-WISE IT WAS NOT POSSIBLE TO VERIFY THE PURCHASE AND SALE AS WELL AS VARIATIO N OF CLOSING STOCK. SINCE THE GP RATE HAD SUBSTANTIALLY DECLINED AND TH E NON-MAINTENANCE OF QUALITY DETAILS THE BOOK RESULT COULD NOT BE MUC H VERIFIED. THE LEARNED ASSESSING OFFICER FURTHER STATED THAT VARIO US SALES BILLS SHOWED THAT THE ASSESSEE HAD SOLD THE PRODUCTS IN F AIRLY BULK QUANTITY AND THEREFORE QUALITY DETAILS COULD HAVE BEEN EASIL Y MENTIONED. THE LEARNED ASSESSING OFFICER THEREFORE STATED THAT THE COMPANY DOES NOT HAVE ANY MECHANISM WHEREBY RESULTS CAN BE VERIFIED. WITH REGARD TO THE DECREASE IN AVERAGE SALE PRICE THE ASSESSEE ATT RIBUTED IT TO NO EXPORT DURING THE CURRENT YEAR AND LOWER AVERAGE PR ICE IN LOCAL MARKET. THE ASSESSEE FAILED TO GIVE ANY DOCUMENTARY EVIDENCE TO SUPPORT ITS CONTENTION THAT THERE WAS INDEED LOWERI NG OF PRICE IN THE LOCAL MARKET. THE LEARNED ASSESSING OFFICER STATED THAT THE ASSESSEE DOES NOT MAINTAIN DAY TO DAY CONSUMPTION AND PRODUC TION REGISTER AND NO QUALITY-WISE DETAILS FOR VARIOUS PRODUCTS AR E MENTIONED FOR THE GOODS MANUFACTURED. HE THEREFORE RELIED ON VARIOU S JUDICIAL PRONOUNCEMENTS WHICH ARE AS UNDER:- I) DAY TO DAY MANUFACTURING AND PRODUCTION OF ACCOU NT NOT MAINTAINED. BHARAT MILK PRODUCTS VS. CIT 81 ITR-609 (BOM.) II) NO DAY TO DAY CONSUMPTION REGISTER OR PRODUCTI ON REGISTER IS MAINTAINED. - 5 - STEELWORTH LTD. VS. CIT 69 ITR-366 (GAU.) III) DAY TO DAY MANUFACTURING ACCOUNT QUANTITATIVE CONSUMPTION ACCOUNT NOT MAINTAINED. B.N. MAHESHWARI VS. CIT 210 ITR 438 (BOM.) IV) SOME SALES ARE VERIFIABLE BUT NOT ALL. BOMBAY CYCLES STORES VS. CIT 33 ITR-13 (BOM) V) DHONDIRAM DALICHAND VS. CIT 81 ITR 609 (BOM.) VI) GHANSHYAMDAS PARMANAND VS. CIT 211 ITR 79 (NAG) VII) AMIYA KUMAR ROY & BROS VS. CIT TAX LAW REPORT 616 (CAL) 2.5 IN VIEW OF THE ABOVE THE LEARNED ASSESSING OFFI CER REJECTED THE BOOKS OF ACCOUNTS AND STATED THAT THE GP RATE SHOWN BY THE ASSESSEE OVER A PERIOD OF LAST THREE YEARS PRESENTS A PICTUR E OF PHENOMENAL FALL EVEN THOUGH THE MANUFACTURING ACTIVITY REMAINED THE SAME. IT INDICATES SYSTEMATIC EFFORT TO BRING DOWN ITS TAX L IABILITY. ACCORDING TO THE LEARNED ASSESSING OFFICER THIS LINE OF BUSINESS INVOLVES VALUE ADDITION AND THEREFORE THERE IS HANDSOME PROFIT MAR GIN. NON- MAINTENANCE OF QUALITY-WISE DETAILS AND DAY TO DAY STOCK REGISTER COUPLED WITH THE HUGE FALL IN GP RATE ARE FATAL DEF ECTS FOUND IN THE BOOKS OF ACCOUNTS. HENCE THE LEARNED ASSESSING OFFI CER INVOKED THE PROVISIONS OF SECTION 145(3) AND REJECTED THE BOOKS AND ADOPTED THE AVERAGE GP RATE OF MINIMUM LAST TWO YEARS WHICH AMO UNTED TO 34.9%. THE LEARNED ASSESSING OFFICER THEREFORE MADE AN ADDITION OF RS.56 99 172/-. 3.1 DURING THE APPELLATE PROCEEDINGS THE APPELLANTH AS REPEATED MOST OF THE SUBMISSION MADE BEFORE THE LEARNED ASSE SSING OFFICER AND HENCE THE SAME ARE NOT DISCUSSED AGAIN. THE ASS ESSEE FURTHER STATED THAT TO ESTABLISH CORRECTNESS OF SALES THEY HAD PRODUCED A LIST OF PARTIES WITH ADDRESS TO WHOM THE ASSESSEE HAD SO LD ITS PRODUCTS DURING THE YEAR. THE LEARNED ASSESSING OFFICER COUL D HAVE RESORTED TO CROSS-VERIFICATION OF ALL THE PARTIES. IT WAS ALSO STATED THAT THE ASSESSEE HAS BEEN MAINTAINED QUALITY-WISE RECORDS. HOWEVER RATE- WISE QUALITY-WISE RECORDS ARE PRACTICALLY NOT POSSI BLE IN ANY KIND OF BUSINESS. IT WAS STATED THAT THEY HAVE PRODUCED QUA NTITY ACCOUNT OF INITIATION JARI JARI KASAB AND METALLIC YARN SEPAR ATELY. HOWEVER EVEN IN ONE PRODUCT THERE IS RANGE OF QUALITY DEPENDING UPON COLOURS LUSTURED THICKNESS LACQUERING SHEDS EVENNESS F ASTNESS ETC. IT WAS STATED THAT A LIST OF EXPENSES WAS ALSO GIVEN AND N O DISCREPANCY HAS BEEN FOUND BY THE LEARNED ASSESSING OFFICER. IT WAS STATED THAT THE CONCLUSION OF THE LEARNED ASSESSING OFFICER THAT QU ALITY-WISE DAY TO FORMATTED: LINE SPACING: SINGLE FORMATTED: LINE SPACING: SINGLE - 6 - DAY REGISTER IS NOT MAINTAINED IS ERRONEOUS BECAUSE THE ASSESSEE COMPANY HAS COMPUTERIZED DATA BASE TO DERIVE QUANTI TY OF PRODUCT ON BROAD CLASSIFICATION. THE FALL IN GP MARGIN OF THE ASSESSEE COMPANY IS MOSTLY DUE TO STEEP REDUCTION IN JOB WORK PRODUCT A ND CONSEQUENT REDUCTION IN JOB CHARGES AND INCREASING OWN MANUFAC TURING FOR SALE. IN ASSESSMENT YEAR 2002-03 THE MANUFACTURING PRODUCT W AS 20.81% WHILE JOB PRODUCTION WAS 79.19% WHEREAS THE SAID RA TIO WAS 98.11% FOR OWN MANUFACTURING AND 1.8% FOR JOB PRODUCTION D URING THE CURRENT YEAR. SO JOB WORK PRODUCTION GENERATING HIGH REVENU E AND HIGHER MARGIN OF THE ASSESSEE COMPANY WAS SUBSTANTIALLY RE DUCED. IT WAS FURTHER STATED THAT IN ASSESSMENT YEAR 2002-03 JOB WORK GROSS PROFIT MARGIN WAS 58.91% AND IT CONTRIBUTED 79.19% OF BUSI NESS WHILE IN ASSESSMENT YEAR 2004-05 JOB WORK GROSS PROFIT MARGI N WAS REDUCED TO 53.36%. IT WOULD CONTRIBUTE 1.89% OF THE BUSINES S ONLY. IT WAS STATED THAT THE LEARNED ASSESSING OFFICER HAS NOT D ISPUTED THE BUSINESS MIX OF THE ASSESSEE. THE MANUFACTURING AVE RAGE GROSS PROFIT OF LAST TWO YEARS ASSESSMENT YEAR 2002-03 AND ASSES SMENT YEAR 2003-04 WAS 12.98% WHILE FOR ASSESSMENT YEAR 2004-0 5 IT WAS 10.52%.THEREFORE THE FALL WAS ONLY 2.46%. IT WAS FU RTHER STATED THAT IN THE EARLIER YEARS THE ASSESSEE WAS ENJOYING MONOPOL ISTIC POSITION AND IT DERIVED BENEFITS ON ACCOUNT OF EARLY ENTRANCE IN THE INDUSTRY WHEREAS NOW MANY SMALL SCALE INDUSTRIES HAVE STARTE D MANUFACTURING SIMILAR PRODUCTS AND THEREFORE MARGINS HAVE REDUCED SUBSTANTIALLY. THE APPELLANT HAS FURTHER RELIED ON VARIOUS DECISIO NS TO SAY THAT SINCE THERE HAS BEEN NO SUBSTANTIAL DEFECTS FOUND IN THE BOOKS OF ACCOUNTS THE SAME SHOULD NOT BE REJECTED. 3.2 THE APPELLANT HAS REBUTTED THE DECISIONS MENTIO NED BY THE LEARNED ASSESSING OFFICER AS UNDER: I) BHARAT MILK PRODUCTS VS. CIT [128 ITR 682] BOO KS OF ACCOUNTS WERE REJECTED IN THAT CASE BECAUSE THE PURCHASE AND CASH SALES WERE NOT VERIFIABLE AND DAY TO DAY PRODUCTION AND MANUFACTURING REGISTER WERE NOT KEPT. ACCORDING TO THE ASSESSEE IT HAS MAINTAINED SALE PURCHASE AND PRODU CTION REGISTER WHICH ARE DULY VERIFIABLE. II) STEEL WORTH LTD. VS. CIT [691 ITR 366] (GAU) THE FACTS OF THIS CASE ARE ENTIRELY DIFFERENT FROM THE ASSESSEE CASE. III) B.N. MAHESHWARI VS. CIT [210 ITR 438] (BOM.) THERE SEEMS TO BE CITATION ERROR AND HENCE CASE IS NOT TRACEABLE. IV) BOMBAY CYCLE STORES VS. CIT [33 ITR 13] (BOM) IN THIS CASE QUANTITY ACCOUNT WAS MAINTAINED AND S ALE OF ONE OF THE BRANCHES WERE NOT ASCERTAINABLE. - 7 - V) DHONDIRAM DALICHAND VS. CIT [ 81 ITR 609] (BOM.) IN THIS CASE THE UNEXPLAINED BALANCE SHEET DIFFERE NCE WAS THERE AND THEREFORE ASSESSEE HAD MADE FALSE CLAIM REGARDI NG THE NATURE OF BUSINESS ACTIVITY. VI) GHANSHYAMDAS PARMANAND VS. CIT [21 ITR 79] (NAG ) IN THIS CASE OF THE ASSESSEE PROPER QUANTITY ACCOU NT WAS NOT PREPARED. VII) AMIYA KUMAR ROY & BROS VS. CIT (TAX LR 616] (C AL.) IN THIS CASE QUANTITY ACCOUNT WAS NOT AVAILABLE. 3.3. THE APPELLANT HAS RELIED ON VARIOUS DECISIONS WHICH ARE AS UNDER:- I) CIT VS. VIKRAM PLASTIC & OTHERS [239 ITR 161] (GUJ. ) TO SAY THAT IF THERE ARE NO DISCREPANCY OR DEFECT POINTED OUT IN T HE BOOKS OF ACCOUNTS AND IF THERE IS NO MATERIAL BROUGHT ON REC ORD THAT PURCHASES AND EXPENSES WERE INFLATED OR SALES SUPPR ESSED THEN BOOKS OF ACCOUNTS CANNOT BE REJECTED. II) ITO/ACIT VS. RUPAL CHEM DYES & METAL SALTS [42 TTJ] (AHD) 245 IN THIS CASE THE ITAT STATED THAT THE ITO HAD NOT P OINTED OUT ANY SPECIFIC INSTANCE OR DISCREPANCY OR MANIPULATION OF BOOKS OF ACCOUNTS. III) ITO VS. L.B. SHAH & CO. [31 TTJ] (AMD) 216. IN THIS CASE THE ITAT STATED THAT THE ABSENCE OF ST OCK REGISTER DOES NOT ASSUME MUCH IMPORTANCE. THE APPELLANT HAS ALSO RELIED ON SEVERAL DECISIONS TO THE SAME EFFECT AND HENCE THEY ARE NOT QUOTED AGAIN. 3.4 THE ASSESSEE HAS STATED THAT THE MAIN REASON FO R FALL IN TOTAL GP RATE ARE:- I) FALL IN JOB WORK PRODUCTION WHICH CONTRIBUTED MA JOR PORTION IN PROFITABILITY. II) FALL IN JOB WORK RATES. III) FALL IN AVERAGE SALES REALIZATION. - 8 - IV) RISE IN RAW MATERIAL PRICES. 4.1. I HAVE CONSIDERED THE SUBMISSION MADE BY THE APPELLANT AND OBSERVATION OF THE LEARNED ASSESSING OFFICER. ADMIT TEDLY THE APPELLANT HAS ONLY MAINTAINED REGISTER OF QUANTITY WHERE PRODUCT CLASSIFICATION AS PER QUALITY HAS BEEN MAINTAINED. ADMITTEDLY THE DAY TO DAY CONSUMPTION REGISTER FOR MANUFACTURING HAS N OT BEEN MAINTAINED. IN THE SALES BILLS THE QUALITY HAS NOT BEEN MAINTAINED AND HENCE SALE PRICES ARE NOT VERIFIABLE. IN THE ABSENC E OF PROPER QUALITY- WISE STOCK REGISTER THE CLOSING STOCK IS ALSO NOT V ERIFIABLE. THE GP RATE HAS DECREASED SUBSTANTIALLY FROM EARLIER YEAR THE R EASON FOR WHICH IS GIVEN THAT THE JOB WORK HAS DECREASED WHEREAS OWN M ANUFACTURING HAS INCREASED AND THE GP RATE OF MANUFACTURING IS L ESS THAN THE GP RATE OF JOB WORK. THE APPELLANT HAS NOT SUBSTANTIAT ED THE SAME WITH ANY EVIDENCE AS TO WHY THE JOB WORK GP WAS MORE THA N THE MANUFACTURING GP. THE HONBLE SUPREME COURT IN THE CASE OF KACHWALA GEMS VS. JCIT [288 ITR 10] HAS STATED AS U NDER:- IT IS WELL SETTLED THAT IN A BEST JUDGMENT THERE IS ALWAYS A CERTAIN DEGREE OF GUESS WORK. NO DOUBT THE AUTHORIT IES SHOULD TRY TO MAKE AN HONEST AND FAIR ESTIMATE OF THE INCO ME EVEN IN A BEST JUDGMENT ASSESSMENT AND SHOULD NOT ACT TOTALLY ARBITRARILY BUT THERE IS NECESSARILY SOME AMOUNT OF GUESS WORK INVOLVED IN A BEST JUDGMENT ASSESSMENT. THE LEARNED ASSESSING OFFICER RESTORED TO BEST JUDG MENT OF THE ASSESSEE ON THE FOLLOWING GROUNDS : I) THE ASSESSEE HAD NOT MAINTAINED QUANTITATIVE DETAILS/STOCK REGISTER; II) THERE WAS NO EVIDENCE TO VERIFY CLOSING STOCK; III) THE GENUINENESS OF PURCHASES WAS NOT PROVED WITHOUT ANY DOUBT. . THERE WAS NO ARBITRARINESS IN THIS CASE IN RESOR TING TO BEST JUDGMENT ASSESSMENT. IT WAS THE ASSESSEE HIMSELF WH O WAS TO BLAME AS HE DID NOT SUBMIT PROPER ACCOUNTS. 4.2. FURTHER IN THE CASE OF AVDHESH PRATAPSINGH ABD UL RAHMAN & BROTHERS VS. CIT [210 ITR 406] AND IN THE CASE OF HARI SHANKAR GOPAL HARI VS. CIT [97 ITR 716] THE HONBLE ALLAHA BAD HIGH COURT HAS STATED AS UNDER: IT IS DIFFICULT TO CATALOGUE THE VARIOUS TYPES OF D EFECTS IN THE ACCOUNT BOOKS OF AN ASSESSEE WHICH MAY RENDER REJEC TION OF ACCOUNT BOOKS ON THE GROUND THAT THE ACCOUNTS ARE N OT COMPLETE OR CORRECT FROM WHICH THE CORRECT PROFIT C ANNOT BE FORMATTED: LINE SPACING: SINGLE FORMATTED: INDENT: LEFT: 1' LINE SPACING: SINGLE - 9 - DEDUCED. WHETHER THE PRESENCE OR THE ABSENCE OF A S TOCK REGISTER IS MATERIAL OR NOT WOULD DEPEND UPON THE T YPE OF THE BUSINESS. IT IS TRUE THAT THE ABSENCE OF A STOCK RE GISTER OR CASH MEMOS IN A GIVEN SITUATION MAY NOT PER SE LEAD TO A N INFERENCE THAT THE ACCOUNTS ARE FALSE OR INCOMPLETE. HOWEVER WHERE THE ABSENCE OF A STOCK REGISTER CASH MEMOS ETC. IS C OUPLED WITH OTHER FACTS SUCH AS THAT VOUCHERS IN SUPPORT OF THE EXPENSES AND PURCHASES MADE ARE NOT FORTHCOMING AND THE PROF ITS ARE LOW IT MAY GIVE RISE TO A LEGITIMATE INFERENCE THA T ALL IS NOT WELL WITH THE BOOKS AND THE SAME CANNOT BE RELIED UPON T O ASSESS THE INCOME PROFITS OR GAINS OF AN ASSESSEE. 4.3. FROM THE ABOVE IT IS SEEN THAT THERE IS SUBSTA NTIAL FALL IN GP RATE AND IF THE BOOKS OF ACCOUNTS ARE MAINTAINED IN SUCH A MANNER THAT PROFIT CANNOT BE PROPERLY ARRIVED THEN THE BOOKS OF ACCOUNTS CAN BE REJECTED. IN THE PRESENT CASE QUANT ITATIVE RECORDS IS NOT MAINTAINED AS PER QUALITY AND HENCE NEITHER THE SALES NOR THE CLOSING STOCK IS VERIFIABLE. THE DECI SION OF THE ITAT AND GUJARAT HIGH COURT MENTIONED ABOVE BY THE APPEL LANT DO NOT COME TO ITS HELP IN VIEW OF THE ABOVE FACTS AND DECISION OF HONBLE SUPREME COURT IN THE CASE OF KACHWALA GEMS (SUPRA). HENCE THE ACTION OF THE LEARNED ASSESSING OFFICER F OR REJECTING THE BOOKS OF ACCOUNTS AND ADOPTING THE AVERAGE GP R ATE OF LAST TWO YEARS IS CONFIRMED. THEREFORE ALL THE GROUNDS O F APPEAL ARE DISMISSED. 13 4 . THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSE SSEE SUBMITTED IN EXACTLY THE SAME FACTS AND CIRCUMSTANCES OF THE CAS E THE TRIBUNAL IN THE CASE OF M/S SUMILON PLASTICS PVT. LTD. A GROUP CON CERN OF THE ASSESSEE IN ITA NO.4244/AHD/2007 WITH C.O.NO.19/AHD/2008 VIDE O RDER DATED 17-9- 2010 DELETED THE ADDITION. HENCE FOLLOWING THE SAID ORDER THE APPEAL OF THE ASSESSEE SHOULD BE ALLOWED. 14 5 . THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). 6 15 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED T HE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD. WE FIND THAT THE TRIBUNAL IN THE CASE OF M/S. SIMILON PLASTCIS LTD. (SUPRA) HAS HELD AS UNDER:- 4. WE HAVE HEARD LEARNED REPRESENTATIVES OF BOTH THE PARTIES PERUSED THE FINDINGS OF THE AUTHORITIES AND CONSIDERED T HE MATERIAL AVAILABLE ON RECORD. FORMATTED: INDENT: LEFT: 1' LINE SPACING: SINGLE FORMATTED: LINE SPACING: SINGLE - 10 - 5. THE FACTS OF THE CASE ARE THAT IN THE ASSESSMENT ORDER THE AO STATED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS O F MANUFACTURING OF METALLIC JARI KASAB IMITATION JARI AND METALLIC YARN. THE A O FURTHER NOTICED THAT GROSS PROFIT HAS BEEN DECREASING SUBSTANT IALLY OVER THE LAST THREE YEARS DETAILS OF WHICH ARE AS UNDER: A. Y. 2002-03 GP RATE 44.68% A. Y. 2003-04 GP RATE 16.94% A. Y. 2004-05 GP RATE 10.09% IN VIEW OF THE ABOVE THE AO ASKED THE ASSESSEE TO E XPLAIN THE HUGE FALL IN GP RATE. THE AO ALSO NOTICED THAT THE AVERAGE COST OF PRODUCTION AND AVERAGE COST OF CONSUMPTION OF RAW MATERIAL INCREASED FROM RS.188.26 PER KG. IN THE A. Y. 2003-04 TO RS.197.3 KGS. IN TH E CURRENT YEAR WHEREAS THE SALE PRICE HAS DECREASED FROM RS.260.12 K G. IN THE LAST YEAR TO RS.250.5 KG. IN THE CURRENT YEAR. THE AO ASK ED THE ASSESSEE TO EXPLAIN THE REASON FOR THIS. THE AO ALSO NOTICED FROM T HE SALE BILLS THAT IMITATION JARI HAS BEEN SOLD AT DIFFERENT RATES AND THER EFORE HE ASKED THE ASSESSEE TO EXPLAIN THE SAME. THE DETAILS ARE GIVE N IN THE TABLE REPRODUCED BY THE AO ON PAGE 3 OF THE ASSESSMENT OR DER WHICH IS AS UNDER: INVOICE NO. DESCRIPTION RATE (RS.) 145 20.8.2003 IMITATION JARI 210 146 21.8.2003 DO 270 148 22.8.2003 DO 300 150 2.8.2003 DO 425 151 22.8.2003 DO 400 156 27.8.2003 DO 260 163 1.9.2003 METALLIC JARI KASAB 270 164 1.9.2003 DO 230 165 1.9.2003 METALLIC YARN 260 166 5.9.2003 DO 170 THE AO FURTHER NOTICED THAT ALTHOUGH THE ASSESSEE ST ATED THAT THE RATES WERE DIFFERENT BECAUSE THE QUALITY WAS DIFFERENT BUT W HEN IT WAS ASKED WHETHER AY QUALITATIVE RECORDS ARE KEPT FOR CHARGING DIFFERENT RATES THE ASSESSEE ADMITTED THAT O QUALITY FOR DIFFERENT PRODUCT S MANUFACTURED AND SOLD ARE KEPT BY THE ASSESSEE. THE AO ALSO ASKED THE ASSESSEE TO EXPLAIN THE FACT THAT THE AVERAGE COST OF RAW MATERI AL HAS INCREASED FROM 188.26 PER KG. IN THE LAST YEAR TO RS.197.3 PER KG. IN THE CURRENT YEAR WHEREAS THE SALE PRICE HAS DECREASED FROM 260.12 PER KG. IN THE LAST YEAR TO RS.250.5 PER KG. IN THE CURRENT YEAR. THE A SSESSEE EXPLAINED VIDE LETTER DATED 20-11-2006 THAT IN A. Y. 2002-03 AN D 2003-04 THE ASSESSEE COMPANY HAD SOLD 86% AND 34% RESPECTIVELY IN THE EXPORT MARKET WHEREAS IN THE CURRENT YEAR THE ENTIRE SALE IS IN THE DOMESTIC MARKET. WITH RESPECT TO THE MAINTENANCE OF REGISTER A S PER QUALITY THE ASSESSEE STATED THAT PRACTICALLY IT IS NOT POSSIBLE TO MA INTAIN QUALITY- FORMATTED: LINE SPACING: SINGLE FORMATTED: LINE SPACING: SINGLE FORMATTED: LINE SPACING: SINGLE - 11 - WISE RECORD AS THERE CAN BY NUMBER OF QUALITY CRITERIA VARIATIONS AND THEREFORE THE PRICES MENTIONED IN THE TABLE ARE ON ACC OUNT OF DIFFERENT IN QUALITIES OF PRODUCTS SOLD. IT WAS EXPLAINED THAT THE INCR EASE IN COST OF RAW MATERIAL WAS BECAUSE OF INCREASE IN GENERAL RAW MA TERIAL PRICES AND THE DECREASE IN AVERAGE SALE PRICES IS BECAUSE THERE WA S NO EXPORT IN THE CURRENT YEAR AS COMPARED TO LAST YEAR. THE SALE PRICE IS DIFFERENT BECAUSE VARIOUS QUALITIES DEPEND UPON LENGTH THICKNESS LACQUERING COLOUR SHADES ETC. THE ASSESSEE STATED THAT SINCE NO DEFECTS HAVE BEEN FOUND IN THE BOOKS OF ACCOUNTS AND THEREFORE SHOULD NOT BE REJECTED. THE AO DID NOT ACCEPT THE ABOVE EXPLANATION AND STATE D THAT THE ASSESSEE HAS MAINTAINED ITS BOOKS OF ACCOUNTS IN SUCH WAY THAT VERIFICATION OF SALE PRICE IS NOT POSSIBLE. THE ASSESSEE WA S NOT MENTIONING QUALITATIVE DETAILS IN THE SALES BILLS SO THAT THE PRICE MENTIONED IN THE BILL WAS NOT SUBJECT TO VERIFICATION. TH E AO STATED THAT THE SALE BILLS SHOW THAT ASSESSEE HAS SOLD PRODUCTS AS WHOLESALER. THIS IS NOT A CASE OF RETAILER AND HENCE THE ARGUMENT OF TH E ASSESSEE THAT QUALITY-WISE REGISTER IS NOT POSSIBLE IS NOT ACCEPTABLE. THE AO FURTHER STATED THAT ASSESSEE IS NOT MAINTAINING DAY TO DAY C ONSUMPTION AND PRODUCTION AND NO QUALITY DETAILS OF VARIOUS PRODUCTS HAS BEEN MAINTAINED. THE AO RELIED ON VARIOUS DECISIONS FOR REJECT ING THE BOOKS OF ACCOUNTS. IN THE CASE OF BHARAT MILK PRODUCTS 81 ITR 609 THE HONBLE BOMBAY HIGH COURT STATED THAT DAY TO DAY MANUFACTUR ING AND PRODUCTION OF ACCOUNT IF NOT MAINTAINED CAN BE A GOOD REASON FOR REJECTION OF ACCOUNTS. THE AO HAS ALSO RELIED ON VARIOUS OTHER DECISIONS IN THIS REGARD. THE AO THEREFORE REJECTED TH4E BOOKS OF ACCOUNT FOR NON- MAINTENANCE OF QUALITY-WISE DETAILS AND ALSO FOR NON-MAINT ENANCE OF DAY TO DAY STOCK REGISTER ACCOUNT COUPLED WITH THE FAC T THE GP HAS STEEPLY DECLINED. THE AO ADOPTED THE AVERAGE GP OF LAST TWO YEARS AND MADE THE ADDITION BY ADOPTING THE GP RATE OF 30.81% A S AGAINST 10.09% SHOWN IN THE CURRENT YEAR. CONSEQUENTLY THE AO MADE THE ADDITION OF RS.38 25 997/-. 6. THE ADDITION WAS CHALLENGED BEFORE THE LEARNED CIT(A) AND DURING THE APPELLATE PROCEEDINGS THE ASSESSEE REITERATED THE SUBMISSIONS MADE IN THE EARLIER YEARS AND HAS STATED THAT THE WORKING O F GROSS PROFIT RATE BY THE AO WAS INCORRECT. THE CORRECT WORKING OF GROS S PROFIT RATE AFTER REDUCING THE OTHER INCOME I.E. DEPB LICENCE INCOME DU TY DRAWBACK AND LEAVE AND LICENSE FEE ARE AS UNDER: 1) FOR ASSESSMENT YEAR 2002-03 GROSS PROFIT RATE WAS 24 .57% ON SALES OF RS.2.00 CRORES OUT OF WHICH EXPORT SALE WAS RS .1.71 CRORES AND DOMESTIC SALE WAS RS.28.93 LACS. 2) FOR ASSESSMENT YEAR 2003-04 THE GROSS PROFIT RATE WA S 13.96% ON SALES OF RS.1.57 CRORES CONSISTING OF EXPORT SALES OF RS.53.63 LACS AND DOMESTIC SALES OF RS.1.03 CRORES. 3) FOR THE CURRENT YEAR THE CURRENT YEAR THE GROSS PRO FIT RATE WAS 10.05 ON TOTAL SALES OF RS.1.84 CRORES CONSISTING OF O NLY DOMESTIC SALES. FORMATTED: LINE SPACING: SINGLE FORMATTED: LINE SPACING: SINGLE - 12 - IT HAS BEEN STATED THAT THE AO HAD CONSIDERED EXPOR T INCENTIVE AND LICENSE FEE ALSO FOR CALCULATING THE GROSS PROFIT RATE W HICH SHOWS VERY HIGH MARGIN OF GROSS PROFIT RATE. IT WAS FURTHER STATE D THAT CONSEQUENT TO REDUCTION IN EXPORT SALES GROSS PROFIT MARTIN OF THE CO MPANY HAS ALSO REDUCED AS EXPORT REALIZATION WAS FAR BETTER THAN DOME STIC SALES AND THAT THE ASSESSEE COMPANY HAS TRIED TO MAINTAIN THE TOTAL SALES BY INCREASING DOMESTIC SALES AT LOWER MARGIN. THE ASSESSEE FURTHER STATED THAT INCREASE IN PRICE OF RAW MATERIAL IS THE FACTOR BE YOND THE CONTROL OF THE ASSESSEE AND HAS LED TO DECREASE IN GROSS PROFIT RATE. THE ASSESSEE FURTHER STATED THAT GROSS PROFIT MARGIN IN EARLIER YEA R WAS HIGH BECAUSE THE ASSESSEE COMPANY WAS ENJOYING ALMOST MONOPOLISTIC PO SITION WHEREAS NOW THERE WERE MANY SMALL SCALE INDUSTRIES WHO HAVE STARTED MANUFACTURING SIMILAR GOODS. THE ASSESSEE HAS STATED THAT DURING THE ASSESSMENT YEAR 2005-06 AND 2006-07 THE GROSS PROFIT RATE HAS FURTHER DECREASED IN VIEW OF THIS COMPETITION. THE ASSESSEE HAS RELIED UPON THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. VIKRAM PLASTICS AND OTHERS 239 ITR 161 TO CONTEND THAT WHERE THERE ARE NO DISCREPANCIES AND DEFECTS IN BOOKS OF ACCOUNTS THE SA ME CANNOT BE REJECTED IF THEY ARE MAINTAINED IN THE REGULAR COURSE OF BUSINESS. THE ASSESSEE HAS ALSO RELIED ON VARIOUS OTHER DECISIONS IN SU PPORT OF ITS CONTENTION. 7. THE LEARNED CIT (A) CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE MATERIAL ON RECORD DELETED THE PART ADDITION. HIS FINDI NGS IN PARA 2.5 AND 2.6 IN THE IMPUGNED ORDER ARE REPRODUCED AS UNDER: 2.5. I HAVE CONSIDERED THE CONSIDERED THE SUBMISSI ON MADE BY THE APPELLANT AND OBSERVATION OF THE AO. THE CORRECT GP AFTER REDUCING THE OTHER INCOME VIZ. EXPORT INCENTIVES IS 24.57% FOR AY 2002-03 AND 13.96% FOR AY 2003-04. THE APPELLANT HAS ADMITTEDLY NOT MAINTAINED DAY TO DAY STOCK REGISTER AND ALSO H AS NOT MAINTAINED ANY QUANTITY-WISE QUALITY DETAILS. IT IS ALSO ADMITTED THAT THAT GP RATE HAS FALLEN SUBSTANTIALLY WHICH TH E ASSESSEE TRIED TO EXPLAIN BY SAYING THAT THE COST OF RAW MATERIAL HAS INCREASED COMPETITION HAS INCREASED AND EXPORT SALES HAVE BEEN STOPPED. THE FACT REMAINS THAT ABSENCE OF SOCK REGISTER QUALITY DETAILS COUPLED WITH T4HE FALL IN GP IS SUFFICIENT TO REJECT THE BO OKS OF ACCOUNTS IN VIEW OF THE DECISION OF SUPREME COURT IN THE CASE O F KACHWALA GEMS VS. JCIT [288 ITR 10}. THEREFORE THE BOOKS OF AC COUNTS HAVE BEEN RIGHTLY REJECTED BY THE AO. IN THIS CASE THE HO NBLE SUPREME COURT HAS STATED AS UNDER IT IS WELL SETTLED THAT IN A BEST JUDGEMENT THERE IS ALWAYS A CERTAIN DEGREE OF GUESS WORK. NO DOUBT THE AUTHORIT IES SHOULD TRY TO MAKE AN HONEST AND FAIR ESTIMATE OF T HE INCOME EVEN IN A BEST JUDGEMENT ASSESSMENT AND SHOULD NOT ACT TOTALLY ARBITRARILY BUT THERE IS NECESSARILY SOME A MOUNT OF GUESS WORK INVOLVED IN A BEST JUDGEMENT ASSESSMENT. FORMATTED: LINE SPACING: SINGLE FORMATTED: INDENT: LEFT: 0' - 13 - THE AO RESTORED TO BEST JUDGEMENT OF THE ASSESSEE O N THE FOLLOWING GROUNDS: I) THE ASSESSEE HAD NOT MAINTAINED QUANTITATIVE DETAILS/STOCK REGISTER; II) THERE WAS NO EVIDENCE TO VERIFY CLOSING STOCK; III) THE GENUINENESS OF PURCHASES WAS NOT PROVED WITHOUT ANY DOUBT. THERE WAS NO ARBITRARINESS IN THIS CASE IN RESOR TING TO BEST JUDGEMENT ASSESSMENT. IT WAS THE ASSESSEE HIMSE LF WHO WAS TO BLAME AS HE DID NOT SUBMIT PROPER ACCOUNTS. 2.6 IN VIEW OF THE ABOVE CONSIDERING THE FACT THAT T HE GP RATE HAS DECREASE COUPLED WITH THE FACT THAT DAY TO DAY STOC K REGISTER HAS NOT BEEN MAINTAINED AND QUALITY DETAILS HAVE NOT BE EN MAINTAINED THE BOOKS OF ACCOUNTS HAVE RIGHTLY REJECTED BY THE AO . HOWEVER THE AVERAGE GP RATE OF THE LAST TWO YEARS HAS BEEN WRON GLY TAKEN BY THE AO AT 30%. AFTER REMOVING THE OTHER I0NCOME FROM A. Y. 2002- 03 AND 2003-04 THE AVERAGE GP RATE IS 19.26%. THE AS SESSEE HAS HIMSELF SHOWN THE GP RATE OF 10.05% AND HENCE THERE IS A FALL IN THE GP RATE BY 9.121%. CONSIDERING THE EFFECT OF COMP ETITION INCREASE IN THE RATE OF RAW MATERIAL AS WELL AS STO PPAGE OF EXPORTS IT WOULD BE FAIR IF THE GP RATE IS INCREASED BY 8% INSTEAD OF 9.21% BY GIVING A MARGIN OF ABOUT 1.21% IN VIEW OF THE AB OVE REASONS. THEREFORE THE ADDITION OF RS.38 25 997/- IS RESTRICT ED TO RS.14 79 000/-. THIS GROUND OF APPEAL IS THEREFORE PART LY ALLOWED. 8. THE REVENUE AS WELL AS THE ASSESSEE ARE AGGRIEVED AGAINST THE ORDER OF THE LEARNED CIT(A) ON THE GROUNDS MENTIONED ABOVE. 9. THE LEARNED DR RELIED UPON THE ORDER OF THE AO AND SUBMITTED THAT THERE WAS A FALL IN GROSS PROFIT RATE AS COMPARED TO E ARLIER YEARS. AVERAGE COST OF PRODUCTION AND AVERAGE COST OF CONSUMPTION OF RAW MATERIAL INCREASED FROM THE EARLIER YEARS HOWEVER THE SALE PRICE HAVE DECREAS ED. THE LEARNED DR ALSO SUBMITTED THAT SALE PRICE HAVE DIFFERENT RATES AND SPE CIFIC SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE TO EXPLAIN THE ISSUE BUT T HE ASSESSEE FAILED TO EXPLAIN THE SAME. THE LEARNED DR FURTHER SUBMITTED THA T NO DAY TO DAY SOCK REGISTER HAS BEEN MAINTAINED AND THAT BOOKS OF ACCOU NT ARE NOT MAINTAINED ON QUALITY WISE DETAILS WHICH IS IMPORTANT IN THE CASE OF T HE ASSESSEE BEING DEALING IN ARTIFICIAL JARI. THE LEARNED DR THEREFORE S UBMITTED THAT THE LEARNED CIT (A) SHOULD NOT HAVE DELETED EVEN THE PART ADDITION. ON T HE OTHER HAND THE FORMATTED: INDENT: LEFT: 0' FORMATTED: INDENT: LEFT: 0' - 14 - LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISS IONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSEE HAS P RODUCED COMPLETE BOOKS OF ACCOUNT INCLUDING BILLS AND VOUCHERS WHICH HAVE BEEN EXAMINED BY THE AO AND NO SPECIFIC DEFECTS HAVE BEEN POINTED OUT I N THE MAINTENANCE OF THE BOOKS OF ACCOUNT. THE ASSESSEE IS DEALING IN ARTIF ICIAL JARI AND SEVERAL TYPES OF QUALITY OF MATERIAL HAVE BEEN USED IN THE BUSINESS. THEREFORE PURCHASE AND SALES DEPENDED UPON THE THICKNESS AND QUALITY OF THE RA W MATERIALS AND SALE RATES ARE ALSO FIXED ACCORDING TO THE QUALITY. HE HAS SU BMITTED THAT QUANTITATIVE DETAILS ARE MAINTAINED AND FILED IN THE AUDIT ED REPORT (PB-34). HE HAS SUBMITTED THAT COMPLETE DETAILS OF THE PURCHASES IN KILOGRAM AND VALUE HAVE BEEN MAINTAINED AND PRODUCED BEFORE THE AO. COP IES OF THE SAME ARE FILED IN THE PAPER BOOK FROM PB-40 ONWARDS. THE DETAILS OF SALES ARE ALSO MAINTAINED PARTY WISE AND IN AMOUNT COPIES OF WHICH ARE FILED AT PB-49 ONWARDS. THE ASSESSEE MAINTAINED LIST OF THE STOCK AND ALSO MAINTAINED COMPUTERIZED STOCK REGISTER OF RAW MATERIAL AND FINISHE D GOODS QUANTITY DETAILS WITH DAILY REGISTER COPIES OF WHICH ARE FILED AT PB- 61 TO 91 OF THE PAPER BOOK. THE LEARNED COUNSEL FOR THE ASSESSEE REFERRED T O PB-35 AND 36 WHICH ARE THE DETAILS OF GROSS PROFIT WORKING AND SUBMITTED IN PRECEDING ASSESSMENT YEAR 2002-03 THE ASSESSEE APART FROM DOMESTIC SALES H AVE EXPORT SALES ON WHICH GROSS PROFIT RATE OF 24.57% HAS BEEN SHOWN AND IN THAT YEAR THERE WAS SUBSTANTIAL EXPORT SALES AND DOMESTIC SALE WAS VERY SMA LL. IN THE ASSESSMENT YEAR 2003-04 THE GROSS PROFIT RATE WAS 13.96% ON TH E TOTAL SALES WHICH CONTAINED DOMESTIC AND EXPORT SALES. HOWEVER IN THE A SSESSMENT YEAR UNDER APPEAL 2004-05 THE ASSESSEE HAS ONLY DOMESTIC SALES O N WHICH GROSS PROFIT RATE OF 10.05% HAS BEEN SHOWN. THERE WERE NO EXPORT SALES. HE HAS THEREFORE SUBMITTED THAT THERE IS A CHANGE IN THE CIRCUMSTANCES AS COMPARED TO THE EARLIER YEARS. THEREFORE AVERAGE GROSS PROFIT RATE SH OULD NOT HAVE BEEN APPLIED IN THE MATTER OR CONSIDERING THE EARLIER HISTORY OF TH E ASSESSEE. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CORRECT W ORKING OF THE GROSS PROFIT SHOULD HAVE BEEN AFTER REDUCING THE OTHER INCOME MA INLY DEPB LICENSE INCOME DUTY DRAW BACK AND LEAVE AND LICENSE FEES. HE H AS SUBMITTED THAT IF THE SAME ARE TAKEN INTO CONSIDERATION THE AIO HAS AP PLIED AVERAGE GROSS PROFIT RATE 10.11% (PB-35) AS AGAINST SHOWN BY THE AS SESSEE AT 10.05%. THE - 15 - LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AU THORITIES BELOW SHOULD NOT HAVE REJECTED THE BOOK RESULTS OF THE ASSESSEE A ND SHOULD NOT HAVE MADE THE ADDITION. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE MA TERIALS AVAILABLE ON RECORD. THE ASSESSEE HAS GIVEN DETAILS OF SALES FOR THE ASSESSMENT YEAR UNDER APPEAL AND THE PRECEDING ASSESSMENT YEAR ALONG WITH COMPUTATION OF GROSS PROFIT RATE AT PAGES 35 AND 36 OF THE PAPER BO OK. IN THE ASSESSMENT YEAR UNDER APPEAL THE ASSESSEE HAS NOT MADE ANY EXPORT SALES. HOWEVER IN THE PRECEDING ASSESSMENT YEARS 2002-03 AND 2003-04 THE ASSESSEE MADE SUBSTANTIAL EXPORT SALES. THE ASSESSEE HAS ALSO SHOWN OTHER INCOME AND ACCORDING TO THE ASSESSEE IF THE OTHER INCOME ARE EXC LUDED FROM CALCULATION OF THE GROSS PROFIT RATE ON THE DOMESTIC SALES THE GROSS PROFIT RATE APPLIED BY THE ASSESSEE WOULD BE MORE THAN AS NOTED BY THE AO. WE THEREFORE FIND THAT EXPLANATION OF THE ASSESSEE IS CORRECT THAT THERE IS A CHANGE IN THE CIRCUMSTANCES AS COMPARED TO THE PRECEDING ASSESSMENT YEARS IN WHICH THE ASSESSEE MADE DOMESTIC SALES WHICH ARE HIGHER IN THE ASS ESSMENT YEAR UNDER APPEAL. HOWEVER THERE WAS NO EXPORT SALE IN THE ASS ESSMENT YEAR UNDER APPEAL WHICH HAS BEEN MADE IN THE EARLIER YEARS. IF THE OTHER INCOME IS EXCLUDED THE GROSS PROFIT RATE OF THE ASSESSEE WOULD C OME AT 10.05% AND IN THE PRECEDING ASSESSMENT YEAR 2003-04 IT WOULD BE A BOUT 13.96%. THERE IS NO SUBSTANTIAL VARIATION IN THE GROSS PROFIT RATE AS C OMPARED WITH THE IMMEDIATE PRECEDING ASSESSMENT YEAR. THE ASSESSEE ALSO EXPLAINED THAT COMPLETE DETAILS OF PURCHASES SALES AND STOCK HAVE BEE N MAINTAINED. THE AO HAS NOT FOUND ANY PURCHASES OR SALES MADE BY THE ASS ESSEE OUTSIDE THE BOOKS OF ACCOUNT. THE ASSESSEE ALSO MAINTAINED COMPLETE DET AILS OF RAW MATERIALS AND FINISHED GOODS QUALITY WISE WITH DAILY REGISTER COPIES OF WHICH ARE FILED IN THE PAPER BOOK FROM PAGES 61 TO 91. THE ASSESSEE ALS O EXPLAINED THAT SEVERAL QUALITY ITEMS ARE USED IN THE BUSINESS OF THE ASSESSEE ; THEREFORE THERE ARE VARIATIONS IN THE PURCHASES AND SALES RATES. THE ASSE SSEE MAINTAINED COMPLETE BOOKS OF ACCOUNT WHICH HAVE BEEN PRODUCED BE FORE THE AO IN WHICH NO SPECIFIC DEFECTS HAVE BEEN POINTED OUT BY THE AO. THE ASSESSEE IN THE AUDIT REPORT MAINTAINED COMPLETE QUANTITATIVE DETAILS IN KILOGRAM OF ALL THE ITEMS USED IN THE BUSINESS COPY OF WHICH IS FILED AT PB-34. TH E LEARNED DR ALSO FORMATTED: INDENT: LEFT: 0' - 16 - POINTED OUT FROM THE ASSESSMENT ORDER THAT APPROXIMAT ELY CASH SALES OF 15 TO 20% ARE EFFECTED WHICH ARE NON-VERIFIABLE. HOWEVER W E MAY MENTION THAT HONBLE BOMBAY HIGH COURT IN THE CASE OF JESSARAM FET EHCHAND (R.B.) (SUGAR DEPT.) VS CIT 75 ITR 33 HELD THAT NON-INCLUSION OF ADDRESS OF CUSTOMERS IN RESPECT OF CASH TRANSACTIONS CANNOT BE A BASIS O F REJECTION OF BOOKS OF ACCOUNT. IT WAS ALSO HELD THAT THERE WAS NO NECESSI TY FOR ASSESSEE TO MAINTAIN THE ADDRESSES OF THE CUSTOMERS AND FAILURE TO MAINTAIN THE SAME OR TO SUPPLY THEM AS AND WHEN CALLED FOR CANNO T GIVE RISE TO SUSPICION WITH REGARD TO GENUINENESS OF THE TRANSAC TION . THE ABOVE DECISION OF THE HONBLE BOMBAY HIGH COURT WAS FOLLOWED B Y THE HONBLE KERALA HIGH COURT IN THE CASE OF M. DURAI RAJ VS CIT 83 IT R 484. THEREFORE THE ABOVE OBJECTION OF THE LEARNED DR IS NOT SIGNIFICANT THA T THE ASSESSEE MADE CASH SALES WHICH ARE NON-VERIFIABLE. THOUGH THE ASSESS EE DID NOT MAINTAIN DAY TO DAY STOCK REGISTER BUT QUANTITATIVE DETAILS HAVE BEEN MENTIONED IN THE AUDIT REPORT IN THE PRESCRIBED FORM. THE AO HAS NOT P OINTED OUT IF THE ASSESSEE HAS MADE ANY SALES PURCHASES OUTSIDE THE BO OKS OF ACCOUNT. IT IS ALSO NOT POINTED OUT IF THE ASSESSEE HAS INFLATED THE EXPENSES. ACCORDING TO THE EXPLANATION OF THE ASSESSEE COMPLETE BOOKS OF ACCOUNT HAVE BEEN MAINTAINED IN THE SAME PATTERN AS HAVE BEEN MAINTAINED IN THE E ARLIER YEARS. THE ASSESSEE EXPLAINED ALL THE POINTS RAISED BY THE AO. TH OUGH THE ASSESSEE MAINTAINED PROPER BOOKS OF ACCOUNT AND THE AO HAS NO T BROUGHT ANYTHING ON RECORD TO SHOW THAT THE BOOKS OF ACCOUNT WERE INCOR RECT OR INCOMPLETE AND THAT NO PROFIT COULD BE DEDUCED THERE FROM. HONBLE DE LHI HIGH COURT IN THE CASE OF CIT VS SMT. POONAM RANI 326 ITR 223 HELD AS UNDER: DURING THE COURSE OF ARGUMENTS BEFORE US IT WAS S UBMITTED BY THE LEARNED COUNSEL FOR THE APPELLANT THAT THE A SSESSEE WAS NOT MAINTAINING THE DAILY STOCK REGISTER. WE H OWEVER FIND NO SUCH FINDING IN THE ASSESSMENT ORDER. ON TH E OTHER HAND WE NOTE THAT THE ASSESSEE HAD SUBMITTED BEFOR E THE COMMISSIONER OF INCOME-TAX (APPEALS) THAT FORM NO.3 CONTAINING ALL QUANTITATIVE DETAILS IN RESPECT OF R AW MATERIALS AS WELL AS THE FINISHED GOODS DULY AUDIT ED BY THE CERTIFIED ACCOUNTANT HAD BEEN PLACED ON RECORD BUT THE ASSESSING OFFICER IGNORED THOSE ACTUAL FIGURES ENCL OSED WITH THE RETURN. IN ANY CASE NO STATUTORY PROVISION UND ER THE INCOME-TAX REGIME REQUIRING THE ASSESSEE TO MAINTAI N THE DAILY STOCK REGISTER HAS BEEN BROUGHT TO OUR NOTICE . HENCE - 17 - EVEN IF NO SUCH REGISTER BEING MAINTAINED BY THE AS SESSEE AS IS CONTENDED BY THE LEARNED COUNSEL FOR THE APPELLA NT THAT BY ITSELF DOES NOT LEAD TO THE INFERENCE THAT IT WA S NOT POSSIBLE TO DEDUCE THE TRUE INCOME OF THE ASSESSEE FROM THE ACCOUNTS MAINTAINED BY HER NOR CAN THE ACCOUNTS BE SAID TO BE DEFECTIVE OR INCOMPLETE FOR THIS REASON ALONE. I F STOCK REGISTER IS NOT MAINTAINED BY THE ASSESSEE THAT MAY PUT THE ASSESSING OFFICER ON GUARD AGAINST TH4E FALSITY OF THE RETURN MADE BY THE ASSESSEE AND PERSUADE HIM TO CAREFULLY SCRUTINIZE THE ACCOUNT BOOKS OF THE ASSESSEE. BUT T HE ABSENCE OF ONE REGISTER ALONE DOES NOT AMOUNT TO SU CH A MATERIAL AS WOULD LEAD TO THE CONCLUSION THAT THE A CCOUNT BOOKS WERE INCOMPLETE OR INACCURATE. SIMILARLY IF THE RATE OF GROSS PROFIT DECLARED BY THE ASSESSEE IN A PARTICUL AR PERIOD IS LOWER AS COMPARED TO THE GROSS PROFIT DECLARED B Y HIM IN THE PRECEDING YEAR THAT MAY ALERT THE ASSESSING OF FICER AND SERVE AS A WARNING TO HIM TO LOOK INTO THE ACCOUNT S MORE CAREFULLY AND TO LOOK FOR SOME MATERIAL WHICH COULD LEAD TO THE CONCLUSION THAT ACCOUNTS MAINTAINED BY THE ASSE SSEE WERE NOT CORRECT. BUT A LOW RATE OF GROSS PROFIT IN THE ABSENCE OF ANY MATERIAL POINTING TOWARDS FALSEHOOD OF THE ACCOUNT BOOKS CANNOT BY ITSELF BE A GROUND TO REJE CT THE ACCOUNT BOOKS UNDER SECTION 145(3) OF THE ACT. HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS RAJN I KANT DAVE 281 ITR 6 HELD AS UNDER: HELD THAT THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE WERE NOT FOUND INCOMPLETE OR INCORRECT AND IT HAD A LSO NOT BEEN HELD THAT THE METHOD ADOPTED BY THE ASSESSEE W AS SUCH BY WHICH THE CORRECT INCOME COULD NOT BE DEDUCED. H ENCE THE PROVISIONS OF SECTION 145(1) OF THE ACT HAD WRONGLY BEEN INVOKED. THE TRIBUNAL WAS ALSO RIGHT IN HOLDING THA T WHERE THE PROPER BOOKS OF ACCOUNT AND DOCUMENTS HAVE BEEN MAINTAINED UNDER RULE 6F OF THE INCOME-TAX RULES T HE INCOME CAN PROPERLY BE DEDUCED THEREFROM AND THE PROVISIONS OF SECTION 145(1) OF THE ACT COULD NOT B E INVOKED. THE ACCOUNTS COULD NOT BE REJECTED. HONBLE RAJASTHAN HIGH COURT IN THE CASE OF GOTAN LIM E KHANIJ UDHYOG 256 ITR 243 HELD THAT MERE REJECTION OF BOOKS OF ACCOUNT DOES NOT MEAN ADDITION HAS TO BE NECESSARILY MADE. 11. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF THE SUBMISSIONS OF THE PARTIES AND THE FINDINGS OF THE AUTHORITIES BELOW IT IS C LEAR THAT THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE WAS NOT FOUND TO BE INCORRECT OR FORMATTED: INDENT: FIRST LINE: 0' - 18 - INCOMPLETE AND IT HAS ALSO NOT BEEN HELD THAT THE METHOD ADOPTED BY THE ASSESSEE WAS SUCH BY WHICH THE CORRECT INCOME COULD N OT BE DEDUCED. THE AO HAS NOT BROUGHT ANY OTHER MATERIAL AGAINST THE ASSESSE E FOR REJECTION OF THE BOOK RESULTS. THE CASH SALES MADE TO THE CUSTOMERS BY ITSELF IS NO GROUND FOR REJECTION OF BOOK RESULTS. CONSIDERING THE ABOVE CIRCUM STANCES WE DO NOT FIND IT TO BE A FIT CASE FOR REJECTION OF THE BOOK RESULTS O R TO MAKE ADDITION BY APPLYING AVERAGE GROSS PROFIT RATE. WE ACCORDINGLY SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ENTIRE ADDITION. 12. WE FIND THAT IN THE INSTANT CASE ALSO THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF METALLIC YARN JARI AND KASAB AND H AS SHOWN GROSS PROFIT AS UNDER:- OF A.Y. 2002-03 48.42% A.Y. 2003-04 21.38% A.Y. 2004-05(CURRENT YEAR) 11.33% 13. WE ALSO FIND THAT IN THE CASE OF M/S. SUMILON PLAST IC PVT. LTD. (SUPRA) THE TRIBUNAL ACCEPTED THE GROSS PROFIT SHOWN IN ASSES SMENT YEAR 2004-05 AT 10.09%. IN THE CASE OF THE PRESENT ASSESSEE THE GRO SS PROFIT RATE SHOWN IN THE PRESENT YEAR IS 11.33% WHICH IS HIGHER THAN THE PROFIT ACCEPTED BY THE TRIBUNAL IN THE CASE OF M/S. SUMILON PLASTIC PVT. LTD. (SUPRA). FURTHER THE LEARNED DEPARTMENTAL REPRESENTATIVE COULD NOT SHOW ANY GOOD REASON AS TO WHY THE ORDER OF THE TRIBUNAL IN THE CASE OF M/S. SUMILO N PLASTIC PVT. LTD. (SUPRA) SHOULD NOT BE FOLLOWED IN THE CASE OF THE PRESE NT ASSESSEE AND ALSO COULD NOT BRING MATERIAL ON RECORD TO SHOW THAT THE AB OVE QUOTED ORDER OF THE TRIBUNAL WAS REVERSED IN APPEAL BY A HIGHER QUORUM. TH EREFORE FACTS BEING IDENTICAL RESPECTFULLY FOLLOWING THE PRECEDENT WE SET ASI DE THE ORDERS OF THE LOWER AUTHORITIES AND DELETE THE ENTIRE ADDITION. 14. IN THE THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED. FORMATTED: INDENT: FIRST LINE: 0' FORMATTED: INDENT: FIRST LINE: 0' - 19 - ORDER SIGNED DATED AND PRONOUNCED IN THE COURT ON 31 ST DAY OF JANUARY 2011. SD/- SD/- ( T.K. SHARMA ) ( T.K. SHARMA ) ( T.K. SHARMA ) ( T.K. SHARMA ) ( N.S. SAINI ) ( N.S. SAINI ) ( N.S. SAINI ) ( N.S. SAINI ) JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATED: AHMEDABAD 31 ST DAY OF JANUARY 2011. COMPILED AND COMPARED BY : PATKI - 20 - COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)- 5. THE DR AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER //TRUE COPY// (DY./ASSTT.REGISTRAR) ITAT AHMEDABAD DATE INITIALS 1. DRAFT DICTATED ON - 28-1-2011 -------------- ------------------- 2. DRAFT PLACED BEFORE AUTHORITY 28 - 1 - 2011 ------------- ------------------- 3. DRAFT PROPOSED & PLACED 28 - 1 - 2011 ------------- ------------------- JM BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED 31 - 1 - 2011 ------------- -- ---------------- - JM/AM BY SECOND MEMBER 5. APPROVED DRAFT COMES TO P.S 31 - 1 - 2011 -------------- -------------------- 6. KEPT FOR PRONOUNCEMENT ON 31 - 1 - 2011 -------------- -------------------- 7. FILE SENT TO THE BENCH CLERK 31 - 1 - 2011 -------------- -------------------- 8. DATE ON WHICH FILE GOES TO THE ---------------- -------------------- 9. DATE OF DISPATCH OF ORDER ---------------- -- -------------------