The DCIT, Circle 2, RAJKOT-GUJARAT v. M/s Rajmoti Industries, RAJKOT-GUJARAT

ITA 512/RJT/2008 | 2004-2005
Pronouncement Date: 30-09-2011 | Result: Dismissed

Appeal Details

RSA Number 51224914 RSA 2008
Assessee PAN AAKFS6930M
Bench Rajkot
Appeal Number ITA 512/RJT/2008
Duration Of Justice 3 year(s) 17 day(s)
Appellant The DCIT, Circle 2, RAJKOT-GUJARAT
Respondent M/s Rajmoti Industries, RAJKOT-GUJARAT
Appeal Type Income Tax Appeal
Pronouncement Date 30-09-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted DB
Tribunal Order Date 30-09-2011
Date Of Final Hearing 29-08-2011
Next Hearing Date 29-08-2011
Assessment Year 2004-2005
Appeal Filed On 12-09-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH RAJKOT BEFORE SHRI A.L. GEHLOT (AM) AND SHRI N.R.S. GANESA N (JM) I.T.A. NO.424/RJT/2008 (ASSESSMENT YEAR 2004-05) M/S RAJMOTI INDUSTRIES VS THE ACIT CIRCLE-3 BHAVNAGAR ROAD RAJKOT RAJKOT PAN : AAKFS6930M (APPELLANT) (RESPONDENT) I.T.A. NO.512/RJT/2008 (ASSESSMENT YEAR 2004-05) THE DY.CIT CIR.2 VS M/S RAJMOTI INDUSTRIES RAJKOT RAJKOT (APPELLANT) (RESPONDENT) DATE OF HEARING : 29-08-2011 DATE OF PRONOUNCEMENT : -09-2011 ASSESSEE BY : SHRI RANJIT LALCHANDANI REVENUE BY : SHRI MK SINGH O R D E R PER AL GEHLOT AM THESE ARE CROSS APPEALS AND ARISE OUT OF ORDER OF CIT(A)-III RAJKOT DATED 30-06-2008 FOR THE ASSESSMENT YEAR 2004-05. THE GR OUNDS TAKEN BY THE RESPECTIVE PARTIES ARE AS UNDER: ASSESSEES GROUNDS OF APPEAL THE ASSESSEE HAS FILED REVISED GROUNDS OF APPEAL D URING THE COURSE OF HEARING WHICH ARE AS FOLLOWS: ITA NO.424 & 512/RJT/2008 2 1. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) ERRED IN UPHOLDING THE ADDITION TO THE EXTENT OF RS.94 312/- . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE ADDI TION OF RS.94 312/- IS UNWARRANTED AND UNJUSTIFIED. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN UPHOLDING THE ADDITION ON ACCOUNT OF AMOUNTS RECEIV ED FROM THE FOLLOWING DEPOSITORS. 1. DR MANORAMA SHAH RS.1 00 000 2. DEEPALI R GANDHI RS. 23 000 3. VIJAY MAGANLAL MEHTA RS. 14 000 4. SHRADDHA A MEHTA RS. 30 000 5. RADHABEN A MEHTA RS. 20 000 6. MAGANLAL K MEHTA RS. 14 000 7. PREETIBEN KOTHARI RS. 25 000 (CORRECT AMOUNT IS RS.2 50 000) 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST AMOUNTING T O RS.69 003/- ON THE CASH CREDITS ADDED IN THE INCOME OF THE APPELLA NT. REVENUES GROUNDS OF APPEAL (I) THE LD.CIT(A()-III RAJKOT HAS ERRED IN LAW AN D ON FACTS IN RESTRICTING THE ADDITION TO RS.94 312 INSTEAD OF RS.46 00 137/- MADE ON ACCOUNT OF LOW GROSS PROFIT. (II) THE LD.CIT(A)-III RAJKOT HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE MADE ON ACCOUNT OF EXCESS IVE INTEREST OF RS.1 36 735/-. 2. THE BACKGROUND OF THE CASE ARE THAT IN AN EARLIE R ROUND THESE APPEALS HAVE BEEN DECIDED BY THE TRIBUNAL VIDE ORDER DATED 24-07-2009. SUBSEQUENTLY THE ASSESSEE FILED MISCELLANEOUS APPLICATION NO.625 /RJT/2009 WHICH HAS BEEN PARTLY ALLOWED VIDE ORDER DATED 16-10-2009. THE RE VENUE TOO HAD FILED ITA NO.424 & 512/RJT/2008 3 MISCELLANEOUS APPLICATION IN MA NO.36/RJT/2010 WHIC H WAS ALLOWED AND BOTH THESE APPEALS WERE RECALLED VIDE ORDER DATED 24-07- 2009. THESE APPEALS HAVE THUS BEEN REFIXED FOR FRESH DISPOSAL. 3. FIRST GROUND IN BOTH THE APPEALS IS COMMON AND P ERTAINS TO ADDITION ON ACCOUNT OF GROSS PROFIT. THE BRIEF FACTS ARE THAT THE ASSESSEE WHO IS ENGAGED IN MANUFACTURE OF GROUND NUT OIL REFINED OIL COTTON SEED OIL AND ITS ALLIED PRODUCT HAS FILED ITS RETURN OF INCOME ON 28-10-2004 DECLAR ING TOTAL INCOME AT NIL. IN THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTIC ED THAT THERE WAS FALL IN GROSS PROFIT RATE BY 0.502%. THE JT.CIT SUO MOTU CALLED FOR THE RECORDS AND EXAMINED THE CASE RECORDS AND ISSUED DIRECTIONS U/S 144A OF THE ACT. KEEPING IN VIEW THE DIRECTIONS ISSUED U/S 144A OF THE ACT THE ASSESSING OFFICER AFTER EXAMINATION OBSERVED THAT THE ASSESSEE WAS NOT ABLE TO EXPLAIN THE VARIATION IN THE PERCENTAGE OF YIELD MONTH-WISE NEITHER BEFORE T HE ASSESSING OFFICER NOR BEFORE THE JT.CIT DURING THE COURSE OF PROCEEDINGS U/S 144A OF THE ACT. ACCORDINGLY HE HELD THAT THE RESULTS OF THE BOOKS O F ACCOUNT CANNOT BE ACCEPTED. THE ASSESSING OFFICER THEREFORE REJECTED THE BOOK S OF ACCOUNT UNDER THE PROVISIONS OF SECTION 145(3) OF THE ACT. FURTHER AFTER CONSIDERING ASSESSEES SUBMISSION AND AFTER CONSIDERING THE BOOK RESULTS I N OTHER SIMILAR CASES ADOPTED THE GROSS PROFIT RATE AT 1.25% AS AGAINST GROSS PRO FIT RATE OF 1.028% SHOWN BY THE ASSESSEE. ACCORDINGLY THE ADDITION OF RS.46 00 13 7 WAS WORKED OUT AND ADDED THE SAME TO THE TOTAL INCOME. 4. THE ASSESSEE FILED APPEAL BEFORE CIT(A) AND FILE D SOME ADDITIONAL EVIDENCES WHICH INCLUDED A RECONCILIATION CHART WH ICH WAS SENT TO THE ASSESSING ITA NO.424 & 512/RJT/2008 4 OFFICER FOR HIS COMMENTS U/R 46A OF THE IT RULES. THE ASSESSING OFFICER SUBMITTED A REMAND REPORT DATED 17-06-2008 WHEREIN IT IS STAT ED THAT THE PERCENTAGE OF YIELD OF GROUND NUT OIL SHOWN BY THE ASSESSEE STILL VARIED FROM 20.37% TO 49.61% AND THERE WAS DISCREPANCY OF 29.27% IN THE YIELD OF GROUND NUT OIL WHICH WAS NOT TENABLE. THE ASSESSING OFFICER ALSO SUBMITTED THAT ON VERIFICATION OF THE CHART FURNISHED BY THE ASSESSEE AND THE AUDIT REPORT THER E IS A DIFFERENCE IN FIGURE SHOWN AS PER THE CHART AND AS PER THE AUDIT REPORT. THE ASSESSING OFFICER FURTHER SUBMITTED THAT THE BOOKS OF ACCOUNT HAVE RIGHTLY BE EN REJECTED AND THE GROSS HAS RIGHTLY BEEN ADOPTED AT 1.25% WHICH WAS QUITE FAIR AND REASONABLE. 5. THE CIT(A) AFTER CONSIDERING ASSESSEES SUBMISS IONS INCLUDING COMPARATIVE POSITION OF GROSS PROFIT FOR EARLIER YE AR HELD THAT THE ASSESSEE HAS FURNISHED ALL THE DETAILS BEFORE THE ASSESSING OFFI CER AND HAS ALSO FURNISHED EXPLANATION THAT WERE CALLED FOR. THE CIT(A) NOTI CED THAT THE YIELD OF GROUND NUT OIL DEPENDED UPON TYPES OF GROUND NUT USED IN MANUF ACTURING PROCESS. THE QUALITY OF GROUND NUT IS IMPORTANT IN THIS REGARD A ND GROUND NUT BEING AGRICULTURAL PRODUCE THERE IS NO FIXED CRITERION ABOUT THE PERC ENTAGE OF YIELD THAT COULD BE ACHIEVED. IN CASE OF AGRICULTURAL PRODUCE THERE I S ALWAYS SCOPE FOR VARIATION IN THE YIELD DUE TO QUALITY OF RAW MATERIALS USED. AS REGARDS THE DISCREPANCIES IN THE YIELD POSITION THE CIT(A) HELD THAT THE ASSESS EE HAS REASONABLY EXPLAINED THE REASON FOR YIELD IN THE MONTH OF SEPTEMBER BECA USE PRODUCTION IN THAT MONTH STARTED FROM 16 TH SEPTEMBER AND SOME OF THE YIELDS WERE REFLECTED I N THE SUBSEQUENT MONTH. THERE IS ALSO SOME WORK-IN-PROGR ESS REMAINING IN THE PRODUCTION CYCLE WHICH IS ONE DAY IN CASE OF GROU ND NUT OIL AND TWO DAYS IN ITA NO.424 & 512/RJT/2008 5 CASE OF COTTON SEED OIL AND REFINED GROUND NUT OIL. THEREFORE IT WAS NOT POSSIBLE TO WORK OUT THE PROPER YIELD OF EACH OF THE MANUFAC TURING ITEM. THE CIT(A) WAS OF THE VIEW THAT THE AVERAGE YIELD AT THE END OF TH E YEAR IS THE BEST INDICATION OF THE YIELD ACHIEVED IN A YEAR. THE CIT(A) AGREED WI TH THE SUBMISSIONS OF THE ASSESSEE THAT IN THE MONTH OF MARCH THERE WAS MORE YIELD . THE ASSESSEE EXPLAINED THAT IN THE MONTH OF MARCH THE FACTORY W AS ON PIECE-MEAL AND SINCE THE UNIT WAS CLOSED AND THE OIL REMAINING IN THE UN IT WAS RECOVERED WHICH RESULTED IN MORE YIELD. IT WAS ALSO EXPLAINED THAT THE DIFFERENCE IN CONSUMPTION OF GROUND NUT IS BECAUSE THE QUANTITY DETAILS ARE M AINTAINED IN TERMS OF BAGS AND DUE TO THE WEIGHT OF BAG THERE WAS MINOR DIFFERENCE . WITH REGARD TO THE DIFFERENCE AS PER THE FIGURE SHOWN AUDIT REPORT AS THAT SHOWN IN CONSUMPTION CHART IT WAS EXPLAINED THAT THE DIFFERENCE CLAIMED ON ACCOUNT OF MINOR DIFFERENCE ON ESTIMATION OF WEIGHT OF BAGS. THE ASSESSEE IN SUPPORT OF HIS CLAIM SUBMITTED THE DETAILS OF MONTH-WISE CONSUMPTION OF ELECTRICIT Y AND PRODUCTION. IT WAS EXPLAINED BY THE ASSESSEE THAT IN THE ASSESSMENT YE AR 2002-03 THE GROSS PROFIT WAS HIGH AT 11.64% AS IN THAT YEAR TRADING ACTIVITY WAS MORE WHEREAS IN OTHER YEARS THE GROSS PROFIT SHOWN DEPENDED ON THE PRODUC TION WHICH ALWAYS VARIED BECAUSE IN SOME YEARS THERE IS TRADING OR MANUFACTU RING EITHER IN GROUND NUT OIL OR COTTON SEED OIL HENCE THE PERCENTAGE GROSS PRO FIT OF ANY INDEPENDENT YEAR CANNOT BE COMPARED WITH THE OTHER. THE ASSESSEE HA D ALSO FILED A COMPARATIVE CHART OF FIGURES OF COST OF PURCHASES OF RAW MATERI ALS AND SALE OF FINISHED GOODS IN SUPPORT OF THE CLAIM THAT THERE ARE SATISFACTORY REASON TO SHOW FOR THE FALL IN GROSS PROFIT. THE CIT(A) REPRODUCED THE TABLE IN T HIS REGARD ON PAGE 15 OF HIS ITA NO.424 & 512/RJT/2008 6 ORDER AND ON ANALYSIS OF THE SAID CHART HE FOUND T HAT THERE WAS INCREASE IN THE PURCHASE PRICE BY RS.3.85 PER KG IN CASE OF GROUND NUT AND RS.2.63 PER KG IN CASE OF COTTON SEED. THE CIT(A) ALSO FOUND THAT TH ERE WAS INCREASE IN PURCHASE PRICE OF PACKING MATERIALS I.E. RS.6.59 IN CASE OF 15 KG TIN AND RS.1.50 IN CASE OF 5 LITRES TIN. WHEREAS THE REALIZATION OF SALES HA S GONE DOWN BY RS.4.69 PER KG IN CASE OF GROUND NUT OIL WHICH WAS THE MAJOR COMPONE NT OF SALES THE CIT(A) FOUND. THE CIT(A) FOUND THAT IN COTTON SEED OIL AN D REFINED OIL THERE WAS SLIGHT GAIN IN THE SALES REALIZATION BY RS.1 BUT THIS INCR EASE HAS BEEN SET OFF BY LESS SALE REALIZATION OF SALES OF RS.4.69 PER KG IN CASE OF GROUND NUT OIL. ON THE BASIS OF FACTS AND FIGURES THE CIT(A) FOUND THAT THE ASS ESSEE HAS REASONABLY EXPLAINED THE REASONS FOR FALL IN GROSS PROFIT. AC CORDINGLY THE CIT(A) HELD THAT THE ESTIMATION MADE BY THE ASSESSING OFFICER CANNOT BE UPHELD. HOWEVER HE FOUND THAT THE ASSESSEE HAD FAILED TO EXPLAIN 4 998 KGS IN GROUND NUT CONSUMPTION ACCOUNT THE VALUE OF WHICH ON AVERAGE RATE OF RS.18.87% STOOD AT RS.94 312. THEREFORE THE CIT(A) WAS OF THE VIEW T HAT THE ADDITION TO THE EXTENT OF RS.94 312 WAS WARRANTED. ACCORDINGLY HE SUSTAI NED THE ADDITION TO THE EXTENT OF RS.94 312 AND THE REMAINING AMOUNT OF RS.45 05 8 25 WAS DELETED. 6. THE ASSESSEE IS IN APPEAL AGAINST THE ADDITION O F RS.94 312 SUSTAINED BY THE CIT(A) WHEREAS THE REVENUE IS IN APPEAL AGAINS T THE DELETION OF ADDITION OF RS. 45 05 825.. 7. THE LD.AR SUBMITTED THAT THE ASSESSEE HAS OIL MI LL REFINERY AND REPACKING DEPARTMENT. DURING THE YEAR THE ASSESSEE HAS MANU FACTURED REFINED GROUND NUT OIL AND COTTON SEED OIL. THE TURNOVER WAS OVER RS. 200 CRORES DURING THE YEAR AS ITA NO.424 & 512/RJT/2008 7 AGAINST THE TURN OVER OF RS.137 CRORES IN THE IMMED IATELY PRECEDING YEAR. THE LD.AR SUBMITTED THAT THE JT.CIT OWN HIS OWN HAS CA LLED FOR THE RECORD AND GAVE DIRECTIONS U/S 144A. HOWEVER THERE WAS NO REFEREN CE MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER IN THIS REGARD. T HE ASSESSING OFFICER DID NOT PROFIT REASONABLE OPPORTUNITY OF HEARING TO SUBMIT THE DETAILED EXPLANATION AND THE RECONCILIATION STATEMENTS IN RESPECT OF MONTHLY YIELD OBTAINED BY THE ASSESSEE WHICH HAD ULTIMATELY BEEN FILED BEFORE TH E CIT(A). THE CIT(A) HAS REPRODUCED THE SAME IN HIS ORDER ON PAGES 4-9. THE LD.AR SUBMITTED THAT THE MONTHLY YIELD CHART WAS PREPARED ON THE BASIS OF ST OCK REGISTER. THE LD.AR SUBMITTED THAT THERE IS NO DIFFERENCE AS PER THE CH ART AND THE WORKING MADE BY THE ASSESSING OFFICER. THE LD.AR SUBMITTED THAT TH E ASSESSING OFFICER WITHOUT APPRECIATING THE COMPLETE FACTS MADE THE ADDITION. THE LD.AR SUBMITTED THAT THE ASSESSEES OIL MILL IS SUBJECT TO VERIFICATION BY C IVIL SUPPLIES AUTHORITY AND THEY HAVE NEVER FOUND ANY DISCREPANCY IN THE STOCK OR PR ODUCTION. THE LD.AR SUBMITTED THAT THE ASSESSEE HAS EXPLAINED AS BELOW THE REASONS FOR FALL IN GROSS PROFIT WHICH HAS ALSO BEEN STATED BY THE CIT(A) IN HIS ORDER ON PAGES 9-10: 1) IN THIS YEAR OUR SALES HAS INCREASED TO RS.2072 133866/- AS COMPARED TO LAST YEAR RS.1371849304/-. 2) THE COST OF RAW MATERIAL HAS GONE UP THIS YEAR. THE COMPARATIVE FIGURES ARE AS PER SEPARATE CHART ATTAC HED. 3) THE SALE PRICE OF FINISHED PRODUCTS IN SOME CASE S HAS GONE DOWN AND IN SOME CASES IT HAS NOT INCREASED TO THE EXTENT OF INCREASE IN THE COST PRICE. ITA NO.424 & 512/RJT/2008 8 4) THE PRICE OF PACKING MATERIAL HAS ALSO GONE UP. 5) WE MAY POINT OUT THAT WE MAINTAIN FULL QUANTITY DETAILS OF OPENING STOCK PURCHASES CONSUMPTION AND CLOSING ST OCK. THESE ARE SUBJECT TO CHECK BY THE CIVIL SUPPLIES AUTHORIT IES. THEY HAVE NOT FOUND ANY VARIATION IN STOCK OR PRODUCTION. 6) PLEASE FIND ENCLOSED HEREWITH COMPARABLE CASE REGARDING GROSS PROFIT I.E. M/S KANERIYA OIL INDUST RIES RAJKOT WHERE THE TURN OVER IS PRACTICALLY SAME TO US. THE Y HAVE TRADING LOSS. 7) MOREOVER IN OUR TYPE OF BUSINESS YIELD IS IMPORT ANT DECIDING FACTOR REGARDING RESULT AND IS BEING CONSIDERED. Y IELD CHARTS HAVE ALREADY BEEN SUBMITTED. THEREFORE THE G.P. / N.P. CANNOT BE STATIC AND IT MAY CHANGE FROM YEAR TO YEAR DEPENDING ON SE VERAL FACTORS. PLEASE FIND ENCLOSED COMPARATIVE CHART OF YIELD WIT H OTHER CASES. OUR YIELD IS BETTER THAN OTHERS. THE LD. AR FURTHER SUBMITTED THAT THE ASSESSING OFF ICER DID NOT FIND ANY DEFECT IN THE BOOKS OF ACCOUNT. IT IS ALSO THE SUBMISSION OF THE LD.AR THAT ADDITION MADE BY THE ASSESSING OFFICER IS BASED ON SURMISES AS TH E ASSESSING OFFICER DID NOT TAKE ANY EXPERT OPINION IN THIS REGARD. THE YIELD DEPENDS UPON VARIOUS FACTORS LIKE QUALITY OF GOODS THAT HAVE BEEN CRUSHED THE T IME OF PURCHASE THE FFA CONTENT IN THE SEED WHETHER THERE WAS SINGLE CRUSH ING OR DOUBLE CRUSHING WHETHER THE GOODS WERE PURCHASED WITH QUALITY GUARA NTEE OR WERE PURCHASED FROM MARKETING YARD WHERE THERE IS NO QUALITY GUARA NTEE. THE LD.AR SUBMITTED THAT THE ASSESSEE MAINTAINED REGULAR BOOKS OF ACCOU NT WHICH ARE DULY AUDITED AND SUPPORTED BY QUANTITATIVE DETAILS. ITA NO.424 & 512/RJT/2008 9 8. THE LD.DR ON THE OTHER HAND RELIED UPON THE ORD ER OF THE ASSESSING OFFICER AND SUBMITTED THAT THE ASSESSEE HAS FAILED TO EXPLA IN THE REASONS OF THE LOW YIELD AND GROSS PROFIT. HE FURTHER SUBMITTED THAT THE AS SESSING OFFICER AND THE JCIT HAVE NOTICED VARIOUS DEFECTS IN BOOKS OF ACCOUNT. THEREFORE THE ASSESSING OFFICER HAS RIGHTLY REJECTED THE BOOKS OF ACCOUNT U /S 145(3) OF THE ACT. THE LD.DR SUBMITTED THAT THE ASSESSING OFFICER HAS ADOPTED TH E GROSS PROFIT RATE AT 1.25% AFTER CONSIDERING ALL FACTORS AND AFTER CONSIDERING THE GROSS PROFIT DECLARED IN SIMILAR CASES. 9. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES RECORD PERUSED. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND THE ASSESSING OFFICER STARTED HIS EXAMINATION ON THE BASIS OF LOW GROSS P ROFIT DECLARATION BY THE ASSESSEE. DURING THE COURSE OF ASSESSMENT PROCEEDI NGS THE ASSESSMENT RECORD OF THE ASSESSEE WAS CALLED FOR BY THE JCIT O N HIS OWN AND ISSUED DIRECTIONS U/S 144A OF THE ACT. THE FINDING OF THE ASSESSING OFFICER IS BASICALLY ON THE DIRECTION OF THE JCIT. THE CIT(A) HAS EXAMINED THE ISSUE IN DETAIL CONSIDERING THE MONTH-WISE YIELD CHART OF DIFFERENT PRODUCTS I.E. GROUND NUT OIL COTTON SEED OIL AND GROUND NUT REFINED OIL. THE CI T(A) CALLED FOR THE REMAND REPORT FROM THE ASSESSING OFFICER. IN THE REMAND R EPORT THE OBJECTION OF THE ASSESSING OFFICER WAS THAT THERE WAS VARIATION IN T HE PERCENTAGE OF YIELD OF GROUND NUT OIL AT 20.37% TO 49.61%. IN REPLY TO TH AT THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS GIVEN THE REASONS FOR VARIATION IN THE YIELD. IT WAS ALSO EXPLAINED THAT THE YIELD IN SEPTEMBER IS LOW SINCE THE PRODUCTION STARTED ON 16 TH OF SEPTEMBER AND THERE WAS CONTINUATION OF PRODUCTI ON. THE ASSESSEE IN ITA NO.424 & 512/RJT/2008 10 SUPPORT OF HIS CONTENTION HAS SUBMITTED THE COMPARA TIVE POSITION CHART OF RAW MATERIAL CRUSHED WHICH HAS BEEN NOTED BY THE CIT(A) ON PAGE 11 WHICH SHOWS THAT ON 28 TH SEPTEMBER THE RAW MATERIAL CRUSHED WAS 1258 BAGS ON 29 TH SEPTEMBER IT WAS 1292 BAGS AND ON 30 TH SEPTEMBER IT WAS 1641 BAGS. THE PRODUCTION THEREFORE HAS TO COME IN THE NEXT MONT H; AND HENCE IT WAS NOT PRACTICAL OR POSSIBLE TO WORK OUT THE CONSUMPTION O F A PARTICULAR DAY OR A PARTICULAR MONTH IN ARITHMETICAL TERMS. WE FIND T HAT THE VARIATION NOTED BY THE ASSESSING OFFICER HAS BEEN SATISFACTORILY EXPLAINED BY THE ASSESSEE AS HAS BEEN NOTED BY THE CIT(A) IN HIS ORDER ON PAGES 11 & 12. THE ASSESSEE HAS JUSTIFIED HIS MONTHLY YIELD CHART BY PRODUCING SUPPORTING EVI DENCE OF ELECTRICITY CONSUMPTION ON MONTH TO MONTH BASIS. THE ASSESSEE HAS ALSO EXPLAINED THE FALL IN GROSS PROFIT THAT CONSIDERING THE NATURE OF ASSE SSEES BUSINESS THE GROSS PROFIT IS BOUND TO VARY. THE ASSESSEES ACTIVITIES WERE N OT ONLY MANUFACTURING BUT ALSO TRADING. IN THE ASSESSMENT YEAR 2002-03 THE GROSS PROFIT WAS MORE AS IN THAT YEAR TRADING ACTIVITY WAS MORE IN COMPARISON TO OTH ER YEARS. THE ASSESSEE HAS ALSO FURNISHED COMPARATIVE FIGURE OF DIFFERENT RAW MATERIALS TO SUPPORT THE FACT THAT PURCHASE PRICE OF GROUND NUT AND COTTON SEED A ND PACKING MATERIALS WERE INCREASED AND THERE WAS NO INCREASE IN THE CORRESPO NDING RATES IN SALE PRICE AND UNDER SUCH A SITUATION THE GROSS PROFIT IS BOUND T O BE LOW. AFTER CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE WE FIND THAT THE ASSESSING OFFICER HAS FAILED TO POINT OUT ANY SPECIFIC DEFECT IN THE BOOKS OF ACCOU NT BASED ON WHICH THE BOOKS OF ACCOUNT CAN BE REJECTED. HOWEVER EVEN IF THE C ONTENTION OF THE ASSESSING OFFICER IS ACCEPTED THAT SECTION 145(3) CAN BE INVO KED AS INCOME OF THE ASSESSEE ITA NO.424 & 512/RJT/2008 11 CANNOT BE PROPERLY DEDUCED WE FIND THAT WHATEVER M AY BE THE SHORTCOMINGS NOTED BY THE ASSESSING OFFICER THE ASSESSEE HAS SU CCESSFULLY EXPLAINED THE SAME WITH FACTS AND FIGURES DULY SUPPORTED BY COGEN T MATERIAL. THE ASSESSEE HAS EXPLAINED THE REASONS OF LOW GROSS PROFIT BY GI VING THE COMPARATIVE POSITION OF THE RAW MATERIAL WHICH WAS INCREASED WITHOUT COR RESPONDING INCREASE IN THE SALE PRICE. THE CIT(A) SUSTAINED THE ADDITION OF R S.94 312 ON THE GROUND THAT THE ASSESSEE COULD NOT SATISFACTORILY EXPLAIN THE R EASONS FOR THE DIFFERENCE OF 4 998 KGS OF GROUND NUT SHOWN IN THE AUDIT REPORT A ND THAT SHOWN IN THE CONSUMPTION CHART. THE EXPLANATION OF THE ASSESSEE WAS THAT SUCH MINOR DIFFERENCE WAS ON ACCOUNT OF ESTIMATION OF WEIGHT O F BAGS I.E. THE PACKING MATERIAL. THE TURNOVER OF THE ASSESSEE FOR THE YEA R UNDER CONSIDERATION WAS RS.207 21 33 866 AND THE DIFFERENCE NOTICED BY THE CIT(A) IS 4 998 KGS IN GROUND NUT CONSUMPTION ACCOUNT IN COMPARISON OF FIGURES SH OWN IN THE AUDIT REPORT AND THE YIELD CHART FILED BY THE ASSESSEE. THE YIELD C HART FILED BY THE ASSESSEE WHICH HAS BEEN ACCEPTED BY THE CIT(A) AND THE EXPLANATION OF THE ASSESSEE THAT THE DIFFERENCE WAS ON ACCOUNT OF WEIGHT OF BAGS CANNOT BE SET SIDE CONSIDERING THE TURNOVER OF THE ASSESSEE. WE ARE THEREFORE OF TH E CONSIDERED VIEW THAT THE CIT(A) IS NOT CORRECT IN SUSTAINING THE ADDITION OF RS.94 312 ON THIS ACCOUNT THE ADDITION SUSTAINED BY THE CIT(A) OF RS.94 312 IS HE REBY DELETED. 10. THE SECOND GROUND RAISED BY THE ASSESSEE IN ITS APPEAL IS IN RESPECT OF ADDITION ON ACCOUNT OF AMOUNT RECEIVED FROM DEPOSIT ORS. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS FAILED TO PROVE THE IDENTITY CREDITWORTHINESS OF THE TRANSACTION TO THE EXTENT OF RS.4 76 000. THE ASSESSING OFFICER ACCORDINGLY ITA NO.424 & 512/RJT/2008 12 MADE THE ADDITION U/S 68 OF THE ACT. THE CIT(A) DE LETED THE ADDITION OF RS. 25 000 IN RESPECT OF BHAVIK ASHWIN PATDIA ON THE GR OUND THAT THERE WAS AN OLD OPENING BALANCE AND THE SOURCE WAS EXPLAINED AS GIF T. THE CIT(A) CONFIRMED THE ADDITION OF THE REMAINING ADDITION ON THE GROUND TH AT THE ASSESSEE HAS FAILED TO DISCHARGE THE BURDEN AND FAILED TO PROVE THE CREDIT WORTHINESS OF THE DEPOSITORS. 11. THE LD.AR SUBMITTED THAT RS.1 LAKH IS RECEIVED FROM DR MANORAMA SHAH. THE LD.AR SUBMITTED THAT THE ASSESSEE HAS FILED CON FIRMATION LETTER PERMANDENT ACCOUNT NUMBER COPY OF ACCOUNT FROM ASSESSEE BOOKS OF ACCOUNT AND COPY OF BANK STATEMENT. THE LD.AR SUBMITTED THAT THE ASSES SING OFFICER MADE THE ADDITION MERELY ON THE GROUND THAT THE ASSESSEE HAS GIVEN PERMANENT ACCOUNT NUMBER BUT NO COPY OF RETURN OF INCOME HAS BEEN FIL ED TO PROVE THE SOURCE. AS REGARDS RS.2 50 000 IN RESPECT OF PRITIBEN R KOTHAR I THE LD.AR SUBMITTED THAT IN THIS CASE ALSO THE ASSESSEE HAS FILED CONFIRMATION LETTER PERMANENT ACCOUNT NUMBER AND COPY OF BANK STATEMENT. THE ASSESSING O FFICER MADE THE ADDITION MERELY ON THE GROUND THAT NO RETURN HAS BEEN FILED. IN RESPECT OF OTHER ADDITIONS THE LD.AR SUBMITTED THAT THE ASSESSEE HAS FILED ONL Y CONFIRMATIONS. THE LD.DR ON THE OTHER HAND RELIED UPON THE ORDER OF THE ASS ESSING OFFICER. 12. WE HAVE HEARD THE LD.REPRESENTATIVES OF THE PAR TIES RECORD PERUSED. WE FIND THAT IN RESPECT OF PRITIBEN R KOTHARI THE ASS ESSEE HAS FILED CONFIRMATION AND PERMANENT ACCOUNT NUMBER. THE AMOUNT WAS RECEIVED THROUGH BANKING CHANNEL. THE ASSESSEE HAS ALSO DEDUCTED TAX AT SOU RCE ON ACCOUNT OF INTEREST PAYMENT. THE ASSESSEE HAS ALSO FILED COPY OF BANK ACCOUNT OF THE DEPOSITORS WHICH HAS BEEN PLACED AT PAGES 110 & 111 OF THE PAP ER BOOK. ON PERUSAL OF THE ITA NO.424 & 512/RJT/2008 13 BANK ACCOUNT WE NOTICED THAT THERE ARE SUFFICIENT T URNOVER IN THE BANK ACCOUNT AS BALANCE BROUGHT FORWARD IN THAT ACCOUNT IS RS.2 90 198. CONSIDERING THESE FACTS AND CONSIDERING THE FACT THAT ASSESSEE HAS FURNISHE D THE PERMANENT ACCOUNT NUMBER OF THE DEPOSITORS IT CANNOT BE HELD THAT TH E ASSESSEE HAS FAILED TO PROVE THE IDENTITY AND CREDITWORTHINESS OF THE DEPOSITORS . FROM THE BANK ACCOUNT THE CREDITWORTHINESS OF THE DEPOSITORS IS CLEARLY ESTAB LISHED. THEREFORE WE DO NOT FIND ANY JUSTIFICATION IN MAKING THE ADDITION OF RS .2 50 000 IN RESPECT OF PRITIBEN R KOTHARI. IN THE CASE OF DR MANORAMA SHAH WE FIND T HAT THE ASSESSEE HAS FILED THE CONFIRMATION ALONGWITH PERMANENT ACCOUNT NUMBER . THE ASSESSEE HAS ALSO FILED COPY OF BANK ACCOUNT WHICH HAS BEEN PLACED AT PAGE 85 OF THE PAPER BOOK. ON PERUSAL OF THE BANK ACCOUNT WE NOTICE THAT THERE IS A TURNOVER OF THE TRANSACTION E.G. ON 05-10-2000 TWO WITHDRAWALS OF RS.2 60 000 AND ON 14-10- 2003 THERE IS DEPOSIT OF RS.1 92 322. THESE ENTRIE S SUPPORT THE FACTS OF ASSESSEES CONTENTION THAT THE DEPOSITOR WAS HAVING CREDITWORTHINESS. WE THEREFORE FIND THAT THE CIT(A) IS NOT CORRECT IN H OLDING THAT THE ASSESSEE FAILED TO PROVE THE CREDITWORTHINESS OF DR MANORAMA SHAH. IN ADDITION TO THESE FACTS WHEN THE ASSESSEE HAS FURNISHED THE PERMANENT ACCOU NT NUMBER THE ONUS IS ON THE ASSESSING OFFICER TO EXAMINE FURTHER AND BRING OUT THE FACTS AND MATERIAL TO PROVE OTHERWISE. SINCE THERE IS NO FURTHER EXAMINA TION BY THE ASSESSING OFFICER WE ARE OF THE CONSIDERED VIEW THAT THIS ADDITION OF RS.1 LAKH IS NOT SUSTAINABLE. THEREFORE THE SAME IS DELETED. 12.1 IN RESPECT OF OTHER ADDITIONS OF RS.23 000 IN THE NAME OF DEEPALI R GANDHI; RS. 14 000 IN THE NAME OF VIJAYABEN M MEHTA; RS.30 000 IN THE NAME OF ITA NO.424 & 512/RJT/2008 14 SHRADDHA A MEHTA; RS. 20 000 IN THE NAME OF RADHABE N A MEHTA; RS.14 000 IN THE NAME OF MAGANLAL K MEHTA WE FIND THAT THE ASSES SEE HAS SIMPLY FILED CONFIRMATION AND NO OTHER DETAILS SUCH AS PERMANENT ACCOUNT NUMBER OR BANK ACCOUNT WERE FURNISHED. WE THEREFORE FIND THAT T HE CIT(A) HAS RIGHTLY SUSTAINED THESE ADDITIONS AS THE ASSESSEE HAS FAILED TO PROVE THE CREDITWORTHINESS OF THESE DEPOSITORS. 12.2 IN THE LIGHT OF THE ABOVE THE ADDITION TO THE EXTENT OF RS.3 50 000 IS DELETED AND THE BALANCE ADDITION OF RS.1 01 000 IS CONFIRMED. 13. THE THIRD GROUND RAISED BY THE ASSESSEE IN ITS APPEAL IS IN RESPECT OF DISALLOWANCE OF INTEREST AMOUNTING TO RS.69 003. T HE ASSESSING OFFICER HAS ALSO DISALLOWED INTEREST ON THE DEPOSITS OF WHICH ADDITI ON HAS BEEN MADE. WE FIND THAT THIS GROUND IS CONSEQUENTIAL TO OUR FINDING AT PARAGRAPHS 12 TO 12.2. THEREFORE IN VIEW OF OUR DECISION ABOVE THE ISSUE IS RESTORED TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER IS DIRECT ED TO RECALCULATE THE DISALLOWANCE IN THE LIGHT OF OUR DECISION ABOVE AND ALLOW CONSEQUENTIAL RELIEF. 14. THE OTHER GROUND RAISED BY THE REVENUE IN ITS A PPEAL PERTAINS TO DELETION OF INTEREST DISALLOWED. THE ASSESSING OFFICER HAS MADE ADDITION OF RS.1 36 735 ON ACCOUNT OF EXCESSIVE INTEREST BY NOTICING THAT T HE ASSESSEE HAS PAID INTEREST @21% TO CREDITORS WHEREAS IN THE OPEN MARKET RATE T HE RATE OF INTEREST IS AROUND 15-16%. THE ASSESSING OFFICER WAS OF THE VIEW THAT 18% OF INTEREST IS REASONABLE. HE ACCORDINGLY RECALCULATED THE AMOUNT OF DISALLOWANCE AND THE EXCESSIVE INTEREST AS PER THE ASSESSING OFFICER AT 3% WAS DISALLOWED WHICH ITA NO.424 & 512/RJT/2008 15 RESULTED IN ADDITION OF RS.1 36 737. THE CIT(A) DE LETED THE ADDITION ON THE GROUND THAT PAYMENT OF INTEREST AT 21% IS REASONABL E AND THE ASSESSEE WAS PAYING THE SAME RATE OF INTEREST SINCE LONG. THE C IT(A) HAS ALSO OBSERVED THAT 21% INTEREST WAS PAID IN VIEW OF THE COMMERCIAL EXP EDIENCY. 15. AFTER HEARING THE LEARNED REPRESENTATIVE OF THE PARTIES WE FIND THAT 21% INTEREST WAS PAID BY THE ASSESSEE IN EARLIER YEAR A LSO AND CONSIDERING THE PREVAILING RATE OF INTEREST IN THE OPEN MARKET IT W AS REASONABLE RATE OF INTEREST AND IN THE LIGHT OF THAT WE CONFIRMED THE ORDER OF CIT(A) ON THE ISSUE. 16. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AND THE APPEAL FILED BY THE REVENUE IS DISMISSED. SD/- SD/- (N.R.S. GANESAN) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT MEMBER RAJKOT DT : SEPTEMBER 2011 PK/- ORDER PRONOUNCED IN THE OPEN COURT ON 30-09-2011. SD/- SD/- JM AM COPY TO: 1. ASSESSEE 2. REVENUE 3. THE CIT(A)-III RAJKOT 4. THE CIT-II RAJKOT 5. THE DR I.T.A.T. RAJKOT (TRUE COPY) BY ORDER ASSTT.REGISTRAR ITAT RAJKOT ITA NO.424 & 512/RJT/2008 16 ITA NO.424 & 512/RJT/2008 17 1. DATE OF DICTATION : 13-09-2011 2. DATE OF PLACING THE DRAFT : 3. DATE OF APPROVAL OF DRAFT : 4. DATE OF RETURN FROM JM : 5. DATE OF PRONOUNCEMENT : 6. DATE OF SENDING TO BENCH CLERK : 7. DATE OF RECEIPT BY BENCH CLERK : 8. DATE OF PLACING IT FOR ENDORSEMENT: 9. DATE OF ENDORSEMENT : 10. DATE OF DISPATCH :