The ITO, Ward-2(1),, Surat v. M/s. Indoken Industries, Surat

ITA 4013/AHD/2008 | 2005-2006
Pronouncement Date: 29-01-2010 | Result: Dismissed

Appeal Details

RSA Number 401320514 RSA 2008
Assessee PAN AAAFI6552P
Bench Ahmedabad
Appeal Number ITA 4013/AHD/2008
Duration Of Justice 1 year(s) 1 month(s) 17 day(s)
Appellant The ITO, Ward-2(1),, Surat
Respondent M/s. Indoken Industries, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 29-01-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted D
Tribunal Order Date 29-01-2010
Date Of Final Hearing 21-01-2010
Next Hearing Date 21-01-2010
Assessment Year 2005-2006
Appeal Filed On 12-12-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE SHRI BHAVNESH SAINI JM & SHRI A.N. PAHUJA AM I.T.A. NO.4013/AHD/2008 (ASSESSMENT YEAR 2005-06) ITO WARD-.2(1) VS M/S INDOKEN INDUSTRIES ROOM NO.116 1 ST FLOOR PLOT NO.10-21A ROAD NO.4 AAYKAR BHAVAN MAJURA GATE UDYOGNAGAR UDHNA SURAT SURAT [PAN : AAAFI 6552P] (APPELLANT) (RESPONDENT) C.O. 17/AHD/2009 (ARISING OUT OF I.T.A. NO.4013/AHD/2008) (ASSESSMENT YEAR 2005-06) M/S INDOKEN INDUSTRIES VS ITO WARD-2(1) SURAT SURAT (CROSS-OBJECTOR) (RESPONDENT) REVENUE BY : SHRI CK MISHRA DR ASSESSEE BY : SHRI JP SHAH AR O R D E R AN PAHUJA : THIS APPEAL BY THE REVENUE AND THE CROSS-OBJECTION BY THE ASSESSEE AGAINST AN ORDER DATED 12-09-2008 OF THE L D.CIT(A)-II SURAT RAISE THE FOLLOWING GROUNDS: I.T.A. NO.4013/AHD/2008 [1] ON THE FACT AND CIRCUMSTANCES OF THE CASE AND IN LA W THE LEARNED CIT(A)-II SURAT HAS ERRED IN HOLDING THAT THE A.O. HAD MADE THE ADDITION OF RS.3 63 606/- ON ACCOUNT O F LOW GROSS PROFIT FOR NON-MAINTENANCE OF STOCK REGISTER BUT THE ASSESSEE COULD NOT BE EXPECTED TO MAINTAIN ITS BOOK S OF ACCOUNTS AS PER THE REQUIREMENT OF THE DEPARTMENT THE LD.CIT(A) HAS NOT APPRECIATED THE FACT THAT STOCK IS AN IMPORTANT INGREDIENT AND WITHOUT ASCERTAINING PROPE R STOCK AND IN ABSENCE OF MAINTENANCE OF STOCK REGISTER A TRUE INCOME OF THE ASSESSEE CANNOT BE ASCERTAINED FROM T HE BOOKS OF ACCOUNTS. ITA NO.4013/AHD/2008 CO 17/AHD/2009 2 [2] ON THE FACT AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LEARNED CIT(A)-II SURAT HAS ERRED IN HOLDING THAT NO ADDITION COULD BE MADE ON THE GROUND OF DISCREPANCY IN MONTH TO MONTH PRODUCTION/ SALE AND ANNUAL CONSUMPTION / PRO DUCTION CANNOT BE IGNORED. THE LD. CIT(A) HAS NOT APPRECIA TED THE FACTS THAT WITHOUT CONSUMPTION OF YARN IT CANNOT B E POSSIBLE TO MAKE THE PRODUCTION OF GREY CLOTH AND IN THE MON TH OF OCTOBER 2004 THERE WAS A NEGATIVE STOCK OF YARN WHICH COULD NOT BE EXPLAINED BY THE ASSESSEE INSPITE OF S PECIFIC REQUEST MADE BY THE A.O. TO HIM. [3] ON THE FACT AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LEARNED CIT(A)-II SURAT HAS ERRED IN HOLDING THAT NO ADVERSE INFERENCE CAN BE DRAWN ONLY BECAUSE OF ANY PRODUCTI ON OF GREY WAS NOT SHOWN IN THE RESPECTIVE MONTH. THE LD .CIT(A) HAS NOT APPRECIATED THE FACT THAT THE ASSESSEE HAD CLAIMED TO HAVE CONSUMED ELECTRICITY IN THE MONTHS OF DECEM BER 2004 FEBRUARY 2005 AND MARCH 2005 BUT NO PRODUCT ION IS SHOWN BY THE ASSESSEE AND NO EXPLANATION WAS OFFERE D BY THE ASSESSEE INSPITE OF SPECIFIC REQUEST MADE TO HI M BY THE A.O. DURING THE COURSE OF ASSESSMENT PROCEEDINGS F OR NOT SHOWING PRODUCTION IN THE SAID MONTHS. [4] ON THE FACT AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LEARNED CIT(A)-II SURAT HAS ERRED IN DELETING THE ADDITIONS MADE BY THE A.O. (1) ON ACCOUNT OF LOW GROSS PROFIT: RS.3 63 606/- (2) ON ACCOUNT OF UNEXPLAINED PRODUCTION RS.6 81 7 34/- (3) ON ACCOUNT OF SUPPRESSION OF PRODUCTION RS.4 1 6 712/- [5] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LEARNED CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESS ING OFFICER ON THIS ISSUE. [6] IT IS THEREFORE PRAYED THAT THE ORDER OF THE CIT(A) BE SET ASIDE AND THAT THE ORDER OF THE ASSESSING OFFICER BE REST ORED. C.O. NO.17/AHD/2009 (1) THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S)-II SURAT (HEREINAFTER REFERRED TO AS THE LEARNED COMMI SSIONER OF INCOME TAX (APPEALS)-II SURAT I.E. THE LD.CIT( A)) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANC E OF A POTION OF THE OFFICE EXPENSES TO THE TUNE OF RS.3 1 47/- ON THE GROUND OF ALLEGED NON-PRODUCTION OF BILLS / VOUCHER S. ITA NO.4013/AHD/2008 CO 17/AHD/2009 3 (2) THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE OF A PORTION OF THE VEHICLE INSURANCE VEHICLE AND TELEPHONE EXPENDITURE AND DEPRECIATION ON VEHIC LES TO THE TUNE OF RS.11 520/- ON THE GROUND OF ALLEGED PE RSONAL USE. (3) THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE OF INTEREST EXPENSES TO THE TUNE OF RS.` 67 003/- ON ACCOUNT OF ALLEGED DIVERSION OF IN TEREST BEARING FUNDS. (4) IT IS THEREFORE PRAYED THAT ALL THE ABOVE DET AILED RELIEFS GRANTED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) MAY PLEASE BE SUSTAINED. (5) THE RESPONDENT PRAYS FOR GRANTING SUCH OTHER RE LIEF/S AS MAY BE DEEME3D JUST AND PROPER BY YOUR HONOURS CONSIDERING THE FACTUAL AND LEGAL ASPECTS OF THE CA SE OF THE RESPONDENT. (6) THE RESPONDENT CRAVES LEAVE TO ADD AMEND ALTE R DELETE SUBSTITUTE OR MODIFY ANY OF ALL THE GROUNDS OF CROS S OBJECTION. 2. ADVERTING FIRST TO GROUNDS NOS.1 TO 4 IN THE APP EAL OF THE REVENUE FACTS IN BRIEF AS PER RELEVANT ORDERS ARE THAT RETURN DECLA RING INCOME OF RS.22 490/- FILED ON 31.10.2005 BY THE ASSESSEE MANUFACTURING ART SI LK CLOTH AND YARN AFTER BEING PROCESSED U/S 143(1) OF THE INCOME-TAX ACT 1961[HER EINAFTER REFERRED TO AS THE ACT] WAS TAKEN UP FOR SCRUTINY WITH THE ISSUE OF NOTICE U/S 143(2) OF THE ACT ON 13.10.2006.DURING THE COURSE OF ASSESSMENT PROCEEDI NGS THE ASSESSING OFFICER[AO IN SHORT] NOTICED THAT GROSS PROFIT DISC LOSED BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION WAS 14.24% AS AGAINST 14.0 2% IN THE IMMEDIATELY PRECEDING YEAR. TO A QUERY BY THE AO SEEKING DETA ILS REGARDING MONTHWISE PRODUCTION OF GREY CLOTH VIS--VIS ELECTRICITY CON SUMPTION THE ASSESSEE VIDE LETTERS DATED 27-06-2007 & 01-10-2007 SUBMITTED TH E FOLLOWING DETAILS: MONTH BILL AMOUNT BILL AMOUNT AS PER LETTER DATED AS PER LETTER DATED 27.6.2007 1.10.2007 APRIL 2004 109067 105897 ITA NO.4013/AHD/2008 CO 17/AHD/2009 4 MAY 2004 153271 119717 JUNE 2004 178275 113777 JULY 2004 126748 65194 AUGUST 2004 104898 111251 SEPTEMBER 2004 36855 130384 OCTOBER 2004 37185 251180 NOVEMBER 2004 51073 83514 DECEMBER 2004 46364 18501 JANUARY 2005 52054 0 FEBRUARY 2005 37228 12810 MARCH 2005 37331 7452 TOTAL 970349 49328 2.1 ON VERIFICATION OF BOOKS OF ACCOUNTS THE AO FOUND THAT THE ASSESSEE WAS NOT MAINTAINING ANY DAY-TO-DAY QUALITY WISE STO CK REGISTER WHILE THE YARN PURCHASE REGISTER DID NOT MENTION QUALITY OF YARN N OR THE ASSESSEE WAS FOUND TO BE MAINTAINING INTERNAL VOUCHERS UNDER WHICH MATERI AL/ITEMS WERE BEING TRANSFERRED FROM ONE CONCERN TO ANOTHER FOR JOB WOR K OR WHEN THE FINISHED PRODUCTS WERE RECEIVED. IN THE STOCK REGISTER ONLY RECEIPTS WERE FOUND TO BE RECORDED AND NOT DESPATCHES. ACCORDINGLY THE AO CO NCLUDED THAT CORRECT STOCK POSITION COULD NOT BE DEDUCED. THE AO FURTHER NOTI CED THAT THE EXPENSES ON WAGES AND TRANSPORTATION AS PER THE WAGE VOUCHERS AND TEMPO VOUCHERS MAINTAINED BY THE ASSESSEE WERE NOT COMMENSURATE WI TH THE PRODUCTION AND TRANSPORTATION OF MATERIAL. EVEN THE SALE BILLS DI D NOT CONTAIN PROPER NARRATION AND MERELY MENTIONED GREY FABRICS NOR THE QUALITY OF FABRIC WAS MENTIONED THEREIN . 2.2 SUBSEQUENTLY VIDE LETTER DATED 15-09-200 7 THE ASSESSEE ALSO SUBMITTED COPIES OF ELECTRICITY BILLS OF SISTER CONCERNS VIZ. M/S DESAI TEXTILES AND M/S NASU TEX .IT WAS POINTED OUT THAT THE ELECTRIC METERS W ERE JOINTLY USED BY THE FOUR SISTER CONCERNS RUNNING FROM THE SAME PREMISES. TH E AO OBSERVED THAT IT WAS NOT KNOWN AS TO HOW ELECTRIC BILL AND ELECTRIC CONS UMPTION WAS ALLOCATED AMONGST VARIOUS CONCERNS. BESIDES THE AO ALSO NOTICED UNE XPLAINED PRODUCTION AND SUPPRESSED PRODUCTION FOR WHICH SEPARATE ADDITIONS HAVE BEEN MADE. IN THE LIGHT OF THESE FACTS THE AO SHOWCAUSED THE ASSESSEE AS T O WHY THE TRADING RESULTS BE ITA NO.4013/AHD/2008 CO 17/AHD/2009 5 NOT REJECTED HAVING RECOURSE TO PROVISIONS OF SECT ION 145(3) OF THE ACT AND THE GROSS PROFIT BE ESTIMATED AT 18.32% AS ESTIMATED I N THE ASSESSMENT ORDER OF A SISTER CONCERN M/S NASU TEX. IN RESPONSE DESPITE SEEKING ADJOURNMENT THE ASSESSEE DID NOT FURNISH ANY REPLY. ACCORDINGLY R ELYING UPON THE DECISIONS IN THE CASE OF JAMNA DAS RAMESHWAR DAS VS. CIT (1952) 21 I TR 109 (PUNJ); CIT VS BRITISH PAINTS INDIA LTD (1991) 188 ITR 182 (SC); C IT VS MC.MILAN & CO (1958) 33 ITR 182 (SC) S.N. NAMASIVAYAM CHETTIAR VS CIT 3 8 ITR 579 (SC); AND DHONDIRAM DALICHAND VS CIT 81 ITR 609 (BOM) THE AO REJECTED THE BOOK RESULTS AND ADDED AN AMOUNT OF RS. 3 63 606/- APPLYING GP RATE OF 18.32% TO THE DISCLOSED SALES. 3. BESIDES THE AO ON VERIFICATION OF MONTH-WISE PU RCHASE SALE & CONSUMPTION OF YARN VIS-A-VIS MONTH-WISE PRODUCTION OF GREY CLOTH NOTICED THAT IN THE MONTH OF OCTOBER 2004 THE ASSESSEE PRODUCED 2 5 627 METRES OF GREY CLOTH FOR WHICH THERE WAS NO CONSUMPTION OF MATERIAL. SI NCE THE ASSESSEE DID NOT EXPLAIN THE SAID DISCREPANCY THE AO ADDED AN AMOUN T OF RS. 6 81 934 ADOPTING AVERAGE SALE RATE OF 26.61 PER METRE . 4. THE AO FURTHER NOTICED THAT IN THE MONTHS OF DEC EMBER 2004 FEBRUARY 2005 AND MARCH 2005 THE ASSESSEE REFLECTED ELECTRI CITY CONSUMPTION OF 4 190 UNITS 2 660UNITS AND 1480 UNITS RESPECTIVELY FOR W HICH CORRESPONDING PRODUCTION WAS NOT SHOWN. IN THE ABSENCE OF ANY EXPLANATION THE AO ADDED AN AMOUNT OF RS.4 16 712 ADOPTING AVERAGE SALE RATE OF RS.2 611 PER METRE ON UNACCOUNTED PRODUCTION OF 15660 METRES COMPUTED ON THE BASIS OF AVERAGE PRODUCTION OF 1.88 METRES PER UNIT OF ELECTRIC CONSUMPTION. 5. ON APPEAL WHILE REITERATING THEIR CONTENTIONS B EFORE THE AO THE ASSESSEE SUBMITTED THAT SINCE THE ASSESSEE HAD BEEN USING EL ECTRIC CONNECTIONS OF ITS THREE SISTER CONCERNS ALSO AND BILLS WERE DEBITED C ORRESPONDING TO THE PRODUCTION IN EACH OF THESE CONCERNS THE DIFFERENCE IN ELECT RICITY EXPENSES AS FURNISHED BY THE ASSESSEE ON TWO DIFFERENT OCCASIONS WAS ON ESTI MATE BASIS AND MAY BE ITA NO.4013/AHD/2008 CO 17/AHD/2009 6 IGNORED. AS REGARDS QUALITY OF YARN NOT RECORDED I N THE PURCHASE REGISTER THE ASSESSEE PLEADED THAT THE QUALITY WAS MENTIONED ON PURCHASE BILLS AND CHALLANS WHILE FOR TRANSPORTATION OF MATERIAL FROM ONE CONC ERN TO ANOTHER CONCERN CHALLANS WERE KEPT IN THE RECORD. THE AO DID NOT C ITE A SINGLE INSTANCE WHEN THE FINISHED PRODUCTS WERE DIRECTLY DESPATCHED FROM THE PREMISES OF THE SISTER CONCERNS THE ASSESSEE PLEADED.IT WAS FURTHER SUBMI TTED THAT AT THE TIME OF SALE THE REQUISITE BILLS AND CHALLANS WERE DULY PREPARED AND SENT ALONG WITH THE GOODS TO THE CUSTOMERS. THE AO DID NOT POINT OUT A SINGL E INSTANCE WHERE CONSUMPTION OF RAW MATERIAL WAS RECORDED AT A LATER STAGE AFTER PROCESSED GOODS HAD BEEN RECEIVED BACK FROM THE SISTER CONCERNS. SINCE THER E WERE NO SUPPRESSION OF PRODUCTION OR UNEXPLAINED PRODUCTION THE AO WAS NO T JUSTIFIED IN REJECTING THE BOOK RESULTS AND MAKING TRADING ADDITION OF RS. 3 6 3 606/- OR FOR UNRECORDED PRODUCTION OF RS.6 81 934/- AND RS.4 16 712/-. IN T HE LIGHT OF THESE SUBMISSIONS THE LEARNED CIT(A) CONCLUDED AS UNDER: 11. I HAVE CAREFULLY CONSIDERED THE DETAILED OBSER VATIONS OF THE AO AS RECORDED IN THE BODY OF THE ASSESSMENT ORDER AS ALSO THE SUBMISSIONS OF THE AR. AT THE VERY OUTSET I MUST ADMIT THAT I DO NOT FIND ANY REASONABLE GROUND OR BASIS FOR THE AO TO HAVE REJECTED THE BOOK RESULTS. TO BEGIN WITH IN PARA-8.2 THE AO POINTED OUT CERTAIN SO-CALLED DISCREPANCIES AND DEFECTS IN THE ACCOUNTS. ONE OF THE MAIN ISSUES WAS THAT THE ASSESSEE DID NOT MAINT AIN ANY DAY-TO- DAY STOCK REGISTER ON THE BASIS OF THE QUALITY OF V ARIOUS ITEMS DEALT IN. WELL THE ASSESSEE COULD NOT BE EXPECTED TO MA INTAIN ITS ACCOUNTS AND BOOKS AS PER THE REQUIREMENTS OF THE D EPARTMENT. AS LONG AS THE ASSESSEE HAD MAINTAINED ITS BOOKS UN DER THE PROVISIONS OF THE COMPANIES ACT THE INCOME-TAX AC T AND THE GUIDELINES OF THE ICAI AND UNTIL SOME DEFECT WAS F OUND IN THE ACCOUNTS THE BOOKS COULD NOT BE REJECTED. WITH RE GARD TO THE MAINTAINING OF VOUCHERS OF GOODS TRANSPORTED TO AND FRO THE PREMISES OF THE ASSESSEE FOR PURPOSES OF JOB-WORK IT WAS CLEARLY EXPLAINED BY THE ASSESSEE THAT CHALLANS WERE INDEED PREPARED WHEN THE MATERIALS WERE SENT FOR JOB-WORK AND ON C OMPLETION OF THE JOB-WORK THE PARTY WHICH IN THIS CASE WAS A SI STER CONCERN HAD ALSO PREPARED SIMILAR CHALLANS. WHAT THE AO TERMED AS THE STOCK REGISTER WAS THE PURCHASE REGISTER WHICH MEANT THA T ONLY THE INCOMINGS WOULD BE RECORDED IN SUCH A REGISTER AND THERE COULD BE NO SCOPE FOR RECORDING ANY OUTGOINGS. FURTHER THE OBSERVATION OF THE AO THAT THE WAGES WERE NOT COMMENSURATE WITH TH E PRODUCTION ITA NO.4013/AHD/2008 CO 17/AHD/2009 7 AND THE TEMPO VOUCHERS NOT COMMENSURATE WITH THE TR ANSPORT OF MATERIALS IT WAS NOT PROPERLY EXPLAINED AS TO WHAT WAS THE BASIS OF SUCH OBSERVATION AND WHAT THE AO MEANT BY SUCH OBS ERVATION. SIMILARLY THE SALE BILLS COULD NOT BE EXPECTED TO HAVE ANY DETAIL OF THE QUALITY AS SUCH ESPECIALLY WHEN THEY WERE CL EARLY MENTIONED IN THE CHALLANS. IT WAS HOWEVER EXPLAINED THAT THE QUALITY OF YARN WAS MENTIONED PROPERLY IN THE PURCHASE BILLS. 11.1 FROM THE DISCUSSIONS ABOVE IT WOULD CLEARLY A PPEAR THAT THE AO WAS NOT JUSTIFIED IN REJECTING THE BOOK RESULTS. THE DEFECTS AND DISCREPANCIES WHICH WERE POINTED OUT BY HIM HAVE B EEN FULLY REBUTTED BY THE AR WHO HAS MADE A VERY DETAILED SU BMISSION. IT IS THEREFORE HELD THAT THE REJECTION OF THE BOOKS OF A CCOUNT U/S 145(3) OF THE ACT WAS NOT JUSTIFIED. CONSEQUENTLY THE AD DITION OF THE SUM OF RS.3 63 606 WAS NOT WARRANTED. THE AO IS DIRECT ED TO DELETE THE SAME. 11.2 AS REGARDS THE ADDITIONS ON ACCOUNT OF UNRECOR DED / UNEXPLAINED PRODUCTION OF RS.6 81 934 AND RS.4 16 7 12 THE AO MADE THE FIRST ADDITION ON THE GROUND THAT EVEN THO UGH THERE WAS NO CONSUMPTION OF YARN IN THE MONTH OF OCTOBER 200 4 THERE WAS A PRODUCTION OF 25 627 METERS OF CLOTH WHICH HE TREA TED AS UNDISCLOSED PRODUCTION. FIRSTLY WHEN THE PRODUCTIO N HAD BEEN SHOWN IN BOOKS IT COULD NOT BE TREATED AS EITHER UN ACCOUNTED OR UNDISCLOSED. SECONDLY IT HAS BEEN SUBMITTED BY TH E AR THAT THE CONSUMPTION OF YARN HAD BY MISTAKE NOT BEEN RECORDE D DURING THE SAID MONTH. HOWEVER THERE WAS CONSISTENCY IN THE YEARLY CONSUMPTION OF YARN AND THE TOTAL PRODUCTION OF CLO TH THE FIGURES OF WHICH HAD BEEN VERIFIED BY THE AUDITORS. I AM OF T HE VIEW THAT DISCREPANCIES FROM MONTH TO MONTH COULD NOT BE TAKE N AS A GROUND AND THE ANNUAL CONSUMPTION AND PRODUCTION FIGURES B E IGNORED SIMPLY TO MAKE AN ADDITION. IT IS ALSO AN IMPORTAN T POINT THAT IF THE ADDITION OF RS.6 81 934 IS TO BE SUSTAINED THEN THE YIELD WOULD ABNORMALLY INCREASE TO 107.43% AS AGAINST 98.32% SH OWN BY THE ASSESSEE WHICH IS IN KEEPING WITH THE STANDARD YIEL D OBTAINED BY OTHERS IN THE SAME BUSINESS. THE YIELD CAN NEVER E XCEED 100% OF THE YARN UTILIZED OR CONSUMED. THEREFORE THE YIEL D THAT WOULD WORK OUT TO 107.43% PROVIDES A CLEAR INDICATION THAT THE RE WAS SIMPLY NO BASIS FOR ANY ADDITION TO BE MADE IN THIS REGARD. 11.3 SIMILAR IS THE CASE OF THE ADDITION OF RS.4 16 712 ON ACCOUNT OF UNDISCLOSED PRODUCTION. THE AO MADE THIS ADDITI ON BECAUSE DURING THE MONTHS OF DECEMBER 2004 FEBRUARY AND MA RCH 2005 NO PRODUCTION WAS SHOWN EVEN THOUGH ELECTRICITY WAS CONSUMED. THE EXPLANATION PROVIDED BY THE AR IS THAT DURING T HE SAID MONTH THE ASSESSEE WAS ENGAGED ONLY IN THE TWISTING OF YA RN AND THERE ITA NO.4013/AHD/2008 CO 17/AHD/2009 8 WAS NO MANUFACTURE OF GREY. THIS CLAIM IS SUBSTANTI ATED BY THE SALE BILLS WHICH SHOWED THE SALE OF ONLY TWISTED YARN. THEREFORE NO ADVERSE INFERENCE COULD BE DRAWN SIMPLY BECAUSE NO PRODUCTION OF GREY WAS SHOWN DURING THESE MONTHS. IN ANY CASE I F THE AOS POSITION WAS TO BE SUSTAINED ONCE AGAIN THE YIELD W OULD JUMP RIDICULOUSLY TO 114.93% WHICH SIMPLY COULD NOT BE T HE CASE AND WHICH IN TURN POINTS TO THE FACT THAT THE FINDINGS REGARDING THE UNDISCLOSED AND UNACCOUNTED PRODUCTION WAS NOT REAL LY BASED ON ANY SOLID FOUNDATION OR FINDING OF IRREFUTABLE FACT S. UNDER SUCH FACT SAND CIRCUMSTANCES OF THE CASE IT IS CLEARLY ESTABL ISHED THAT THERE WAS NO CASE FOR MAKING ANY ADDITION ON ACCOUNT OF U NDISCLOSED PRODUCTION. THE ADDITION OF RS.6 81 934 AND RS.4 1 6 712 IS THEREFORE DELETED. 6. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED DR WHI LE CARRYING US THROUGH THE IMPUGNED ORDERS SUPPORTED THE ORDER OF THE AO A ND THE LEARNED AR ON BEHALF OF THE ASSESSEE RELIED UPON THE FINDINGS OF THE LD.CIT(A). 7. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. UNDISPUTEDLY THE GP RATE YEAR IN THE YEAR UNDER CO NSIDERATION WAS 14.24% AS AGAINST 14.02% IN THE IMMEDIATELY PRECEDING YEAR. W E ARE OF THE OPINION THAT 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 ACCOUNTS ARE NOT COMPLETE FROM WHICH THE CORRECT PROFIT CANN OT BE DEDUCED.WHETHER PRESENCE OR ABSENCE OF STOCK REGISTER IS MATERIAL O R 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 SALES MADE WHICH NOT BEING PROVED TO BE GENUINE AND PROFIT BEING LOW OR LOSS MAY GIV E RISE TO LEGITIMATE INFERENCE THAT ALL IS NOT WELL WITH THE BOOKS AND THE SAME CA NNOT BE ALLOWED TO ASSESSEE THE INCOME PROFITS OR GAINS . SUCH IS NOT THE SITUATION IN THE INSTANT CASE . WE FIND FROM THE IMPUGNED ORDER THAT THE LD. CIT(A) FOUND THAT THE STOCK REGISTER STATED BY THE AO WAS ACTUALLY PURCHASE REGISTER WHILE THE SO CALLED DEFECTS AND ITA NO.4013/AHD/2008 CO 17/AHD/2009 9 DISCREPANCIES POINTED OUT BY THE AO IN THE ASSESSME NT ORDER WERE REBUTTED BY THE ASSESSEE BEFORE THE LEARNED CIT(A). THE LEARNE D CIT(A) NOTICED THAT THE ASSESSEE MAINTAINED THE RELEVANT BOOKS OF ACCOUNT AND VOUCHERS IN ACCORDANCE WITH GUIDELINES OF THE ICAI AND NO DEFEC TS WAS POINTED OUT BY THE AO IN THOSE BOOKS. EVEN THE VOUCHERS RELATING TO TRAN SPORT OF MATERIAL FOR THE PURPOSE OF JOB WORK WERE SENT UNDER THE CHALLANS PR EPARED BY THE ASSESSEE. IN THE INCOMING RAW MATERIAL REGISTER THE ASSESSEE CO ULD NOT BE EXPECTED TO RECORD ANY OUTGOINGS WHILE THERE WAS NO BASIS IN CONCLUDIN G THAT THE WAGES PAID BY THE ASSESSEE OR PAYMENT TO TEMPO DRIVERS WERE NOT COMME NSURATE WITH THE PRODUCTION OR TRANSPORT OF MATERIAL THE LD. CIT(A) OBSERVED. THE LD. DR APPEARING BEFORE US DID NOT REFER US TO ANY MATERIA L CONTROVERTING THE AFORESAID FINDINGS OF FACTS RECORDED BY THE LD. CIT(A). EVEN OTHERWISE IN THEIR GROUND OF APPEAL THE REVENUE DID NOT DISPUTE THE FINDINGS OF THE LD. CIT(A) THAT THE REJECTION OF BOOKS OF ACCOUNT U/S 145(3) OF THE ACT WAS NOT JUSTIFIED. IN THE FACTS AND CIRCUMSTANCES OF THE CASE WE ARE OF THE OPINIO N THAT THERE WAS NO GROUND FOR REJECTING THE BOOK RESULTS AND MAKING ANY TRADI NG ADDITION. AS REGARDS ADDITION OF RS.6 81 934 ON ACCOUNT OF UNACCOUNTED PRODUCTION DUE TO REASONS THAT THERE WAS NO CONSUMPTION OF YARN IN CERTAIN MO NTHS THE LD. CIT(A) FOUND THAT IF ADDITION WAS TO BE SUSTAINED YIELD WOULD B E ABNORMALLY HIGH AS 107.43% AS AGAINST 98.32% SHOWN BY THE ASSESSEE WHILE IN RE SPECT OF ADDITION OF RS.4 16 712 THE LEARNED CIT(A) CONCLUDED THAT THE ASSESSEE WAS ENGAGED IN TWISTING OF YARN AND THERE WAS NO MANUFACTURE OF GR EY CLOTH AS EVIDENT FROM SALE BILLS. CONSEQUENTLY SIMPLY BECAUSE NO PRODUCTION OF GREY CLOTH WAS SHOWN DURING THE MONTHS OF DECEMBER 2004 FEBRUARY 2005 AND MARCH 2005 WHILE ELECTRICITY WAS CONSUMED NO ADDITION COULD BE MADE . MERELY BECAUSE OF DISPARITY IN THE CONSUMPTION OF ELECTRICITY WITHOUT ANY SUPPORTING MATERIAL WOULD NOT JUSTIFY THE REJECTION OF ACCOUNTS AS HELD IN T HE JUDGMENT OF HONBLEKERALA HIGH COURT IN THE CASE OF ST. TERESA'S OIL MILLS V. STATE OF KERALA [1970] 76 ITR 365 AND THE JUDGMENT OF HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF N. RAJA PULLAIAH V. DY. CIT [1969] 73 ITR 224 . IN SHYAM RICE MILLS V. CST [1988] UPTC 375 (ALL.) IT WAS HELD THUS: ITA NO.4013/AHD/2008 CO 17/AHD/2009 10 'CONSUMPTION OF ELECTRICITY DISPROPORTIONATE TO PRODUCTION - BY ITSELF NO GROU ND FOR REJECTING ACCOUNT BOOKS.' 7.1 A SIMILAR VIEW HAS BEEN TAKEN IN THE CASE OF CS T V. V.B.M. MALVIYA INDUSTRIES [1988] UPTC 372 (AIL). EVEN OTHERWISE I F ADDITION IS SUSTAINED YIELD WOULD JUMP TO 114.93% DUE TO SAID ADDITION THE LD. CIT(A) CONCLUDED. HERE AGAIN THE LD. DR DID NOT REFER US TO ANY MATERIAL CONTROVERTING THESE FINDINGS OF THE LEARNED CIT(A). IN FACT WHILE MAKING TRADING ADDITION THE AO HIMSELF ACCEPTED THE TOTAL TURNOVER OF RS.89 04 632/- SHOWN BY THE ASSESSEE. HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. AMITBHAI GUNWANTBHAI 129 ITR 573 HELD THAT IF THERE WAS NO CHALLENGE TO THE TRANSACT IONS REPRESENTED IN THE BOOKS THEN IT IS NOT OPEN TO REVENUE TO CONTEND THAT WHAT IS SHOWN BY THE ENTRIES IS NOT THE REAL STATE OF AFFAIRS. SECONDLY EVEN IF FOR S OME REASON THE BOOKS ARE REJECTED IT IS NOT OPEN TO THE AO TO MAKE ANY ADDIT ION ON ESTIMATE BASIS OR ON PURE GUESS WORK. IN THE CASE UNDER CONSIDERATION TH E APPARENT STATE OF THINGS IS THAT THE AMOUNTS CREDITED IN THE BOOKS OF ACCOUNTS WERE ON ACCOUNT OF THE TURNOVER. THE BURDEN OF SHOWING THAT THE APPARENT S TATE OF AFFAIRS IS NOT THE REAL ONE IS VERY HEAVY ON THE DEPARTMENT [BEDI & CO. PVT . LTD. VS. CIT144 ITR 352(KARN) AFFIRMED BY HONBLE SUPREME COURT IN 230 ITR 580] AND NO OTHER MATERIAL HAS BEEN PLACED BEFORE US TO DOUBT THE NA TURE OF THE TRANSACTIONS RECORDED IN THE BOOKS. AS POINTED OUT BY THE LD. CI T(A) NO SPECIFIC DISCREPANCIES OR DEFECTS IN THE BOOKS OF ACCOUNT OF THE ASSESSEE HAVE BEEN POINTED OUT NOR EVEN BEFORE US NOR WAS ANY MATER IAL BROUGHT TO OUR NOTICE TO ESTABLISH THAT PURCHASES WERE INFLATED OR RECEIPTS SUPPRESSED. IN THESE CIRCUMSTANCES THERE WAS NO JUSTIFICATION IN INVOK ING THE PROVISIONS OF SECTION 145 OF THE ACT [ VIKRAM PLASTICS 239 ITR 161(GUJ). 8. IN VIEW OF THE FOREGOING ESPECIALLY WHEN THERE I S NO MATERIAL BEFORE US FOR TAKING A DIFFERENT VIEW IN THE MATTER WE ARE NOT I NCLINED TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). THEREFORE GROUND NOS. 1 TO 4 IN THE APPEAL OF THE REVENUE ARE DISMISSED. ITA NO.4013/AHD/2008 CO 17/AHD/2009 11 9. NOW ADVERTING TO THE GROUNDS RAISED IN THE CROS S OBJECTION AT THE OUTSET THE LEARNED AR ON BEHALF OF THE ASSESSEE DID NOT PR ESS GROUND NOS. 1 & 2 IN THE CROSS OBJECTION. THEREFORE THESE GROUNDS ARE DISM ISSED AS SUCH. 10. AS REGARDS GROUND NO.3 RELATING TO DISALLOWANCE OF INTEREST EXPENSES THE AO NOTICED FROM SCHEDULE 8 OF THE BALANCE-SHEET THA T THE FOLLOWING AMOUNTS WERE OUTSTANDING FROM THE CREDITORS: A.R. DESAI HUF : 369145/- A.R. DESAI : 409030/- CHEAN BHAI DESAI : 511000/- NIMISHA P DESAI : 21500/- PANKAJ A DESAI HUF : 20000/- SHREENATHJI TEXTILES : 92102/- SINCE THE ASSESSEE DID NOT CHARGE ANY INTEREST FROM THE AFORESAID PARTIES WHILE THE ASSESSEE WAS PAYING INTEREST ON UNSECURED LOANS AS WELL AS ON LOANS FROM THE BANKS THE AO SHOWCAUSED THE ASSESSEE AS TO WHY INTEREST AT THE PREVAILING RATE OF 12% ON THE AFORESAID OUTSTANDING AMOUNTS BE NOT ADDED TO THE TOTAL INCOME OF THE ASSESSEE. IN RESPONSE DESPITE SEEKI NG ADJOURNMENT THE ASSESSEE DID NOT SUBMIT ANY REPLY. ACCORDINGLY TH E AO ADDED AN AMOUNT OF RS. 1 67 0003 COMPUTED @12% PER ANNUM ON THE AFORESAID OUTSTANDING AMOUNT. 11. ON APPEAL THE ASSESSEE CONTENDED THAT SHRI AR DESAI AND SHRI CHETAN DESAI WERE PARTNERS OF THE ASSESSEE FIRM AND AS PER THE TERMS OF THE PARTNERSHIP DEED INTEREST WAS NOT PAYABLE TO THE PARTNERS ON TH EIR CREDIT BALANCES WITH THE FIRM NOR WAS CHARGEABLE ON ANY DEBIT BALALNCE. SIN CE NO INTEREST WAS CREDITED IN THE PARTNERS ACCOUNT NO INTEREST WAS CHARGED TO T HESE PARTNERS ON THEIR DEBIT BALANCES. SINCE THE ASSESSEE HAD SUFFICIENT BALANC E IN THE CAPITAL BROUGHT IN BY THE PARTNERS THERE WAS NO GROUND FOR MAKING ANY AD DITION. INTER-ALIA THE ASSESSEE RELIED ON THE FINDINGS OF THE ITAT IN THE CASE OF TORRENT FINANCIERS VS ACIT 73 TTJ 624 (AHD). IN THE LIGHT OF THESE SUBMI SSIONS THE LEARNED CIT(A) ITA NO.4013/AHD/2008 CO 17/AHD/2009 12 CONCLUDED THAT THE DOCUMENTARY EVIDENCE ACCOMPANIED WITH THE WRITTEN SUBMISSIONS FILED BY THE LEARNED AR COULD NOT BE AD MITTED SINCE THE ASSESSEE DID NOT FURNISH ANY EXPLANATION OR DOCUMENT BEFORE THE AO NOR ANY REASONS WERE GIVEN FOR NOT SUBMITTING THESE DOCUMENTS BEFOR E THE AO. ACCORDINGLY WITHOUT RECORDING ANY FINDINGS ON MERIT OF THE DISA LLOWANCE THE LEARNED CIT(A) REJECTED THE GROUND RAISED BY THE ASSESSEE IN THE FOLLOWING TERMS: 7. I HAVE CAREFULLY CONSIDERED THE FINDINGS AND TH E CONCLUSION OF THE AO AS ALSO THE WRITTEN SUBMISSIONS OF THE AR AND THE ACCOMPANYING DOCUMENTARY EVIDENCES WHICH IT MUST B E CLEARLY NOTED THAT WERE NOT FURNISHED BEFORE THE AO IN COUR SE OF THE ASSESSMENT PROCEEDINGS. NOT TO SPEAK OF THE DOCUME NTS NO EXPLANATION WAS FURNISHED EITHER. IN APPELLATE PRO CEEDINGS THE AR HAS NOT ONLY ATTEMPTED TO PROVIDE A DETAILED EXPLAN ATION BUT HAS ALSO FURNISHED DETAILS OF CAPITAL ACCOUNTS AND ALSO THE SOURCES OF THE INTEREST-FREE FUNDS ETC. NO EXPLANATION HAS HO WEVER BEEN FURNISHED AS TO WHY THESE EVIDENCES HAD NOT BEEN FU RNISHED BEFORE THE AO. ALONG WITH THE ACCOUNT STATEMENTS THE AR H AS ALSO FURNISHED COPIES OF THE BANK BOOK AND HAS ARGUED TH AT MOST OF THE ADVANCES WERE GIVEN OUT OF SALE PROCEEDS ON DIFFERE NT DATES. UNFORTUNATELY SUCH EXPLANATION AND EVIDENCES CANNO T BE ADMITTED AT THIS STAGE SINCE THE ASSESSEES CASE IS NOT COV ERED BY ANY OF THE EXCEPTIONS PROVIDED IN CLAUSES (A) (B) (C) AN D (D) TO RULE 46A(1) OF THE IT RULES. THIS RULE CLEARLY DEBARS T HE ASSESSEE FROM FURNISHING ANY EVIDENCE IN APPELLATE PROCEEDINGS UN LESS THE CASE IS COVERED BY THE EXCEPTIONS PROVIDED UNDER THE SAID C LAUSES. AS RECORDED BY THE AO IN RESPONSE TO THE QUERIES RAISE D BY HIM THE ASSESSEE HAD ONLY FURNISHED COPIES OF LEDGER ACCOUN TS VIDE ITS LETTER DATED 01-10-2007. WHEN THE AO ISSUED A SHOW -CAUSE NOTICE THE ASSESSEE VIDE LETTER DATED 05-11-2007 SOUGHT A DJOURNMENT AND ON ITS REQUEST THE NEXT HEARING WAS FIXED ON 1 5-11-2007. ON THIS DAY NEITHER DID ANY ONE APPEAR ON BEHALF OF TH E ASSESSEE NOR WAS ANY ADJOURNMENT SOUGHT NOR WAS ANY EXPLANATION OR EVIDENCE FURNISHED. THE EVIDENCE NOW FURNISHED BY THE AR IS NOT ADMITTED AND CONSEQUENTLY THE EXPLANATION FURNISHED BECOMES REDUNDANT. IN TAKING THIS POSITION RELIANCE IS PLACED ON THE F OLLOWING CASES: (I) BARODA ACETATES V/S ITO (1994) 46 ITD 556 (AHD) (II) MRS JYOTSNA SURI V/S CIT (1997) 61 ITD 139 (DE L) (III) DCIT V/S NEW MANAS TEA ESTATE (P) LTD (2000) 73 ITD 157 TN) (IV) KESHAV MILLS CO LTD V/S CIT (1965) 56 ITR 365 (SC) (V) TARA DEVI GOENKA V/S CIT (1980) 122 ITR 14 (CAL ) ITA NO.4013/AHD/2008 CO 17/AHD/2009 13 (VI) CIT V/S VALIMOHMED AHMEDBHAI (1982) 134/214 (G UJ) 7.1 ON THE BASIS OF THE DISCUSSION ABOVE THE AOS A CTION IS UPHELD AND THE DISALLOWANCE OF THE SUM OF RS.1 67 0003 IS CONFIRMED. 12. THE ASSESSEE NOW IN THE CROSS OBJECTION DISPUTING THE AFORESAID FINDINGS OF THE LEARNED CIT(A).HE LEARNED AR ON BEHALF OF TH E ASSESSEE CONTENDED THAT THE DOCUMENTS ENCLOSED WITH THE WRITTEN SUBMISSIONS FILED BEFORE THE CIT(A) WERE IN FACT ENCLOSED WITH THE RETURN OF INCOME A ND NO ADDITIONAL EVIDENCE WAS FILED BEFORE THE LEARNED CIT(A). THEREFORE THE LE ARNED CIT(A) WAS NOT JUSTIFIED IN UPHOLDING THE ADDITION ON THE GROUND THAT ADDITIONA L EVIDENCE COULD NOT BE ENTERTAINED. ON THE OTHER HAND THE LEARNED DR SUP PORTED THE FINDINGS OF THE LEARNED CIT(A). 13. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. WE FIND FROM THE IMPUGNED ORDER THAT THE LEARNED CI T(A) HAS NOT RECORDED ANY FINDINGS ON THE MERIT OF THE DISALLOWANCE NOR THE A SSESSEE FURNISHED ANY REPLY BEFORE THE AO DESPITE SUFFICIENT OPPORTUNITY PROVID ED.. SINCE THE DOCUMENTS PLACED BEFORE THE LEARNED CIT(A) BY THE ASSESSEE AR E STATED TO HAVE BEEN ENCLOSED WITH THE RETURN APPARENTLY THE LEARNED C IT(A) WITHOUT VERIFYING THIS ASSERTION WAS NOT JUSTIFIED IN UPHOLDING THE ADDIT ION ON THE GROUND THAT THESE DOCUMENTS WERE NOT PLACED BEFORE THE AO. IN THESE CIRCUMSTANCES IN THE INTEREST OF JUSTICE WE CONSIDER IT FAIR AND AAPROP RIATE TO VACATE THE FINDINGS OF THE LEARNED CIT(A) AND RESTORE THE MATTER TO HIS FILE W ITH THE DIRECTIONS TO EXAMINE THE CLAIM OF THE ASSESSEE AS TO WHETHER OR NOT THES E DOCUMENTS ANNEXED WITH THE WRITTEN SUBMISSIONS FILED BEFORE HIM WERE ENCL OSED WITH THE RETURN AND THEREAFTER DISPOSE OF THE MATTER IN ACCORDANCE WIT H LAW AFTER ALLOWING SUFFICIENT OPPORTUNITY TO BOTH THE PARTIES. WITH THESE DIRECT IONS GROUND NO. 3 IN THE CROSS OBJECTION IS DISPOSED OF. 14. GROUND NOS. 5 & 6 IN THE APPEAL OF THE REVENUE AND GROUND NOS. 4 & 5 IN THE CO BEING GENERAL IN NATURE DO NOT REQUIRE ANY SEPARATE ADJUDICATION WHILE ITA NO.4013/AHD/2008 CO 17/AHD/2009 14 NO ADDITIONAL GROUND HAVING BEEN RAISED IN TERMS OF RESIDUARY GROUND NO. 6 IN THE CO ALL THESE GROUNDS ARE DISMISSED. 15. IN THE RESULT APPEAL FILED BY THE REVENUE IS DISMISSED WHILE THE CROSS OBJECTION OF THE ASSESSEE IS PARTLY ALLOWED FOR STA TISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 29 TH DAY OF JANUARY 2010. SD/- SD/- (BHAVNESH SAINI) ( A.N. PAHUJA ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD DATED: 29TH JANUARY 2010 PK/- COPY TO: 1. THE ASSESSEE 2. ITO WARD-.2(1) ROOM NO.116 1 ST FLOOR AAYKAR BHAVAN MAJURA GATE SURAT 3. CIT(A)-II SURAT 4. CIT-I SURAT 5. DR D BENCH BY ORDER DEPUTY REGISTRAR ITAT AHMEDABAD