TaxTMI 
TaxTMI 
2010 (2) TMI 953
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....Surat ought to have upheld the order of the Assessing Officer to that extent. 3. It is, therefore, prayed that the orders of the learned Commissioner of Income-tax (Appeals) may be set aside and that of the Assessing Officer may be restored to the above extent." 2. Adverting first to ground No. 1 in the appeal, the facts, in brief, as per relevant orders are that a return declaring income of Rs. 16,97,979 filed on 28-11-2003 by the assessee, engaged in the business of dyeing and printing of art silk cloth on job work basis after being processed on 22-12-2003 under section 143(1) of the Income-tax Act, 1961 (hereinafter referred to as the "Act") was taken up for scrutiny with the issue of notice under section 143(2) of the Act. During the course of assessment proceedings, the Assessing Officer (Assessing Officer in short) noticed that the assessee had shown gross profit (GP) rate of 7.56 per cent on total receipts of Rs. 6.04 crores. To a query by the Assessing Officer, seeking monthly quantitative details, though the assessee furnished details of production, dispatch and major inputs in terms of value, they did not furnish any details in terms of quantity nor the audit report men....
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....Officer, the assessee submitted vide letter dated 17-3-2006 that they were maintaining all the relevant registers under the central excise laws and monthly figures of production, dispatch and Cenvat availed of and utilised plus duty payment were submitted to the Excise Department under monthly RT-12 Form. Since they had reflected gross profit at 7.56 per cent and net profit at 2.84 per cent while the processing depended upon quality of cloth and size and weight of the processing as also on printing the processing volume depended and number of colours to be printed on fabrics, no adverse inference could be drawn when the assessee was maintaining books of account. Moreover, the life of the stenter machine and printing machine was also a key factor and the machineries installed in their factory being 15-18 years' old, the output could not be compared with the output on new machines. Besides, processing output also depended upon the skill of the technical staff available in the factory and the market demand. It was stated that the demand is not constant on all the days of the year. Therefore, one cannot generalise the output of a processing house, the assessee argued. However, the Asse....
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....case of Samir Diamonds Exports (P.) Ltd. case (supra), relied upon by the Assessing Officer. After considering the submissions of the assessee, the learned Commissioner of Income-tax (Appeals) accepted the claim of the assessee in respect of rejection of book results in the following terms : "2.3 I have considered the submissions made by the appellant and observations of the Assessing Officer. The Assessing Officer has mainly rejected the books of account because the assessee is engaged in the manufacturing business and the assessee has not been maintaining quantitative consumption of raw material on day-to-day basis or even monthly basis. The Assessing Officer has stated that it is difficult for him to verify the consumption of raw material with respect to the quality of cloth processed and hence the expenses are not fully verifiable with respect to the production. The Assessing Officer has relied on the decision of the Income-tax Appellate Tribunal in the case of Samir Diamonds Exports (P.) Ltd. [1999] 71 ITD 75 (Mum.) wherein the Hon'ble Income-tax Appellate Tribunal has stated that as per the requirements of business the assessee would be maintaining the details as is required....
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....and the same cannot be relied upon to assess the income, profits or gains of an assessee.' In the present case the profits of the current year are comparable to last year as discussed above. The turnover, net profit and gross profit are all higher than last year. The Assessing Officer has not been able to bring on record enough material to reject the books of account. The quantitative stock register is important for a manufacturing industry but since the gross profit and net profit are higher, the books of account cannot be rejected unless some specific defect is brought on record like unaccounted sales or expenditure. Hence the action of the Assessing Officer to reject the books of account is not correct and hence this ground of appeal is allowed." 9. As regards addition of Rs. 31,68,116, the learned Commissioner of Income-tax (Appeals), for the reasons mentioned in paragraphs 3.1 to 3.9 of his order held in the following terms : "3.9 I have considered the submissions made by the appellant and observation of the Assessing Officer. The arguments of the Assessing Officer are not correct as explained by the appellant and as discussed in the above paragraphs. The calculations of th....
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....er stenter per day of a better quality fabric can be estimated at 35,000 metres per day and for lower quality it can be estimated at 50,000 per day. The Assessing Officer has estimated the production at the rate of 35,000 metres per day per stenter. No basis has been given by the Assessing Officer for adopting the same except saying that it is common knowledge. No such addition can be made unless there is a basis which can stand the test of law and it is based on some documentary evidence or it is based on survey conducted at the premises of the assessee or it is based on actual facts and not simply on theoretical basis. The Assessing Officer has further argued that the mill must have worked at least 75 per cent of its installed capacity. Even this comparison is ad hoc without any basis. The Assessing Officer has not stated as to why he has taken 75 per cent and not 70 per cent or 80 per cent. The figure is not based on any survey or any technical report or any documentation. Therefore the production worked out by the Assessing Officer of 1.64 crore metres is hypothetical and ad hoc. Further it is seen that the Assessing Officer has estimated the net profit at 3.52 per cent based o....
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....es." 12. The revenue is now in appeal before us against the aforesaid findings of the learned Commissioner of Income-tax (Appeals). The learned Departmental representative while carrying us through the impugned order contended that the assessee did not produce books of account either before the Assessing Officer or the learned Commissioner of Income-tax (Appeals) nor submitted month-wise quantitative tally and details of consumption. While relying upon decisions in the case of Omax Shoe Factory v. CIT [2006] 281 ITR 268 (All.) and Narsinghdas Ramakishan Pungaliya v. Asstt CIT [2005] 272 ITR 467 (Raj.), the learned Departmental representative submitted that the Assessing Officer rightly rejected the books of account. She further pointed out that the learned Commissioner of Income-tax (Appeals) did not controvert the findings of the Assessing Officer. RG-1 register is for production of goods and not for consumption of any raw material. On the other hand, learned authorised representative on behalf of the assessee pointed out that their unit was running 24 hours and raw material being utilised in small quantity, the records were not possible to be maintained. Since their turnov....
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....94] 210 ITR 406 (All.), concluded that the Assessing Officer has not been able to bring on record enough material to reject the books of account. Though the quantitative stock register was important for a manufacturing industry but since the net profit was higher, the books of account could not be rejected unless some specific defects were brought on record like unaccounted sales or expenditure, the learned Commissioner of Income-tax (Appeals) observed. Therefore, the action of the Assessing Officer to reject the books of account was not upheld and consequently addition of Rs. 31,68,116 was deleted. The learned Commissioner of Income-tax (Appeals) further concluded that the entire addition of Rs. 22,11,192 made as production outside the books of account was based totally on hypothesis and not on any documentary evidence or any material found from any sources. Accordingly, this addition was also deleted along with addition on account of work-in-progress, being based on average production of the whole year and not on the basis of actual production for the first five days of the subsequent accounting year. Considering the facts and circumstances of the case, we are of the opinio....
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....at the Assessing Officer is not fettered by any technical rules of evidence and pleadings, and he is entitled to act on material which is not acceptable in evidence in a court of law, but while making the assessment under the principles of best judgment, the Income-tax Officer is not entitled to make a pure guess without reference to any evidence or material. There must be something than a mere suspicion to support the assessment. Low profit in a particular year in itself cannot be a ground for invoking the powers of best judgment assessment without the support of any material on record. The hon'ble Gujarat High Court in the case of CIT v. Amitbhai Gunvantbhai [1981] 129 ITR 573 held that if there was no challenge to the transaction represented in the books then it is not open to the revenue to contend that what is shown by the entries is not the real state of affairs. Secondly, even if for some reason, the books are rejected it is not open to the Assessing Officer to make any addition on estimate basis or on pure guess work. No specific discrepancies or defects in the books of account of the assessee have been pointed out before us nor was any material brought to our notice to est....