TaxTMI 
TaxTMI 
2014 (3) TMI 1244
X X X X Extracts X X X X
X X X X Extracts X X X X
....nfirming the application of Sec. 145(3) of the Act. The provision so invoked and confirmed being contrary to the provisions of law and facts, the same kindly be quashed. Consequently, sustained the trading addition of Rs. 20,15,810/- kindly be deleted in full. Alternatively and without prejudice to above 1.2 The Id. CIT(A) further erred in law as well as on the facts of the case in applying the GP rate of 9.50% as against 8.41% declared by the assessee. Hence the GP rate so applied and thereby partly sustaining trading addition upto Rs. 20,15,810/- is totally contrary to the provisions of law and facts on the record and hence the addition kindly be deleted in full." 4. Briefly stated, the facts are that the assessee is engaged in the business of sales and purchase of tendu patta and manufacturing of Bidis. The assessee has this year declared GP rate of 8.81% and NP rate of 3.98% on the total turnover of Rs. 29,34,84,688/- as against the GP rate of 11.20% and NP rate of 3.37% on the total turnover of Rs. 12,73,68,561/- declared in the immediately preceding year. During the assessment proceeding, the AO noted that huge labour payments were made by the assessee th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e organized maintained & controlled by one person. Regarding Audit Report Para 27 (a) the assessee had already cleared the position vide para 1 of submissions dated 21.09.2010 that assessee feels sorry for the slight negligence of the tax auditors & information against column no. 27(a) of audit report may kindly be read 'Yes' on the face of records. 2. The humble assessee time to time during asstt. hearings producing range wise stock registers of Tendu leaves where in properly & concisely recorded opening stock if any, purchases are procured, sales & closing stock. Zerox copies of Range wise stock registers are herewith attached for your kind consideration & satisfaction. Likewise registers concerned to Tobacco & Beedi production have also been produced earlier which are presently again produced for perusal. 3. The point is more or less connected with para 1 of the submissions. In short, it is again submitted that the plucking labour is engaged on piece meal basis which work under the control & supervision of forest department. More, so the payment of plucking labour is fully proved by the procurement of Tendu leaves in the proportion of labour rate fixed by conce....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rd of difference between conclusions in cases. Reliance is placed on (2008) 301 ITR 298 (Raj.) CIT VS. AKJ Granites Pvt. Ltd. that the other case not comparable for adopting gross profit rate instead of that disclosed in Books of Accounts. The assessee has already mentioned before your honour that the figures if Tendu Leaves Net Profit have been carried to general P&L account & in such circumstances & the records maintained by the assessee the cited cases are not comparable at all which may kindly be considered in the light of turnover which amounts to nearly 30 crores & after remuneration to partners & depreciation on fixed assets income returned nearly 1.10 crores. 6. The assessee in the submissions dated 29.10.2010 on page 2 tabulated the figures of turnover, income returned, GP, NP before & after remuneration to the partners. From the perusal of figures it is apparently clear that NP (taxable entity) before & after remuneration to the partners is better than preceding year & much better to preceding years prior to preceding year except solitary asstt. year 2006-07. Various authorities have held "law is trite on the point that just because GP us comparatively low additi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stock register was not found maintained in chronological manner, sales bill were found issued prior to dispatches shown in the stock register etc. In view of the above facts together with the facts that in the current year the GP has been shown at lower rate than the previous year, therefore, the AO was found justified in invoking the provision of Sec. 145(3). In support he relied upon the cases of Rajendra Prasad Subash Chandra 237 CTR 382 (Raj.), Narsingh Das Ramkishan Punglia 272 ITR 469 (Raj.) and Shri Ram & Co. -316 ITR 139 (Raj.). As regards the estimation of income, he found the decision of Hon'ble S.C. in the case of Kanchwala Gems 288 ITR 10, quite relevant wherein it is held that the if the rejection of books is result of several defects found therein than the estimation of income even on guess work is justified. He also observed that it is a settled law that under such circumstances, the past history of assessee would be one of the most reliable guideline and derived support from the decisions in the cases of M/s Inani Marbles 316 ITR 125 (Raj) and M/s Action Electricals 258 ITR 188 (Del). He further observed that each year is a separate year having different circumstanc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....leged that detailed submissions were filed at pages 227 to 237 of the assessee's paper book, clarifying its doubts however, the same were completely ignored. He submitted that minor irregularities, even assuming were there cannot be made a basis of the rejection of the accounts and relied upon the case of Padampath Ramgopal 76 ITR 719 (SC). He also relied upon the cases of Nisar Biri Sikka v/s CIT 174 Taxman 51(All), CIT v/s Paradise Holidays (2010) 325 ITR 13 (Del). Finally, he prayed that the invoking of Sec. 145(3) be held invalid and consequently, the trading addition made by the AO be deleted in full. Coming to the estimation of income he firstly relied upon the cases in CIT vs. Gotan Lime Khaniz Udyog 256 ITR 243 (Raj) wherein it has been held that mere rejection of books of accounts need not necessarily lead to additions to the returned income and submitted that in the present case, the AO and the ld. CIT(A) have not made a fair estimation in conformity of the above settled judicial guideline. There was no valid basis of applying 11.21% or 9.50%. As regards the reason behind the fall in the GP rate declared, he filed detailed written submissions hence, we find it convenient ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d the findings recorded before the authorities below, the rival contentions of the parties. We have also perused the material available on record. Firstly, we deal with the cross objections filed by the assessee in ground No. 1.1 wherein the assessee has challenged the invocation and confirmation of the provisions of Sec. 145(3) of the Act. Though no doubt the ld. AR strongly contended that rejection of the accounts in the facts and circumstances of the case was not justified however, we concur with the findings recorded by the ld. CIT(A) while confirming the rejection of the accounts. Detailed findings were recorded by the assessing officer and the ld. CIT(A) on this aspect hence, without repeating the same, we hereby upheld the application of Sec. 145(3) of the I.T. Act, 1961. 9. Coming to the estimation, it is well settled that once account are rejected, a fair estimation is required to be made and it is also well settled that the fair estimation does includes guess work. However, to make the estimation fair and rational and with a view to eliminate element of guess work, surmises and conjuncture, the Courts have also held to take into consideration all the relevant material,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bills (PB 34) as also sale bills (PB 21-25A). Moreover, in Maharastra State in the substantial purchases of Rs. 3,40,85,802/- the assessee could earn a GP of 2.80% only. There was no opening and closing stock in this account. This implies that the assessee could earn very low margin as compared to the preceding year. 11. We have further noted that in past various years, the Revenue itself has been applying a flat NP rate after rejecting the accounts and therefore, when the matter in various years reached up to the Tribunal, the Tribunal has also estimated the income based on the application of flat NP rate. Hence, there appears no justifiable reason nor the authorities below have ever justified, as to why this year the AO and ld. CIT(A) should have considered the GP rate only for making a comparison with past year/s. This year, the assessee declared NP rate of 3.90% as against 3.37% last year. From a perusal of the comparative NP chart starting from A.Y. 2001-02 to the subjected A.Y. 2008-09 and perusal of the various ITAT orders placed in the assessee's paper book, it is noticed that the Tribunal has upheld even 0.50% in A.Y. 2004-05. Further in A.Ys. 2005-06 to 2007-08 althoug....