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TMI Blog2019 (3) TMI 685X X X X Extracts X X X X X X X X Extracts X X X X ..... r head office and branches are not maintained. (ii) Assessee firm purchases hides and skins of different animals such as cows, goats, buffalos etc., which have different purchase and sale rates but no separate records are maintained. (iii) No record is maintained as to how much raw hide and skin was sold and how much was sold after processing. (iv) A large part of purchases of hides/skins of the assessee is not supported by bills but merely by self-prepared vouchers on which only name of seller is mentioned. Payments for these purchases have also been made in cash. Therefore, neither quantity purchased nor rates of purchase can be verified. (v) In the valuation of stock, only pieces are mentioned but no distinction as to the quality or to which animal it belongs and no justification to the rates applied to stock in hand. (vi) Some of the expenses claimed by the assessee are supported only by self-prepared vouchers and are paid in cash for example: wages, purchase of hides, firewood, fuel etc. the assessee has failed to substantiate his contentions. Therefore, it is not possible to verify the genuineness / correctness of gross profit rate declared by the assessee. And, es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le and based upon material on record. Ld. AO has estimated the G.P. rate at 8.45% as against the G.P. rate of 6.68% declared by the appellant on the basis of the average of the G.P. rates of 9.22% and 7.69% declared by the appellant in the two preceding A.Yrs. 2012-13 and 2013-14. The main argument of Ld. AR during appeal is that the G.P. rate was low during the current year as there was substantial increase in sales and that both G.P. & N.P. in money terms are more than those of earlier years. Sales during the year were Rs. 16.69 Crore as against 12.50 crore and 14.25 crore in A.Y. 2012-13 and 2013-14 respectively. Reference was made to assessment completed u/s 143(3) of the Act for A.Y. 2007-08 in the case of the appellant where G.P. rate of 6.30% was accepted. I have considered the issue. The history of GP rate declared by an assessee itself in other years is one of the reasonable criteria for estimating profits u/s. 145(3) of the Act. Ld. AO has applied NP rate of 8.45% which is the average of the GP rates declared by the appellant in the two preceding A.Yrs. 2012-13 and 2013-14. The same cannot be called unreasonable or excessive in any manner. A reference to the GP rates men ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0% (for AY 2007-08), accepted u/s. 143(3), to as high as 13.89% (for AY 2016-17) (refer table at pg. 6 of the impugned order). The ld. Departmental Representative (DR), Sh. Charan Dass, would, on the other hand, draw our attention to columns 11 and 35 of the tax audit report dated 24.08.2014 for the relevant year (at PB pgs.78-93), which is reproduced as under: FORM NO. 3CD [See Rule 6G(2)] STATEMENT OF PARTICULARS REQUIRED TO BE FURNISHED UNDER SECTION 44AB OF THE INCOME-TAX ACT, 1961 PART - B 11. (a) Whether books of account are prescribed under section 44AA, if yes, list of books so prescribed. NO (b) List of books of account maintained and the address at which the books of accounts are kept. (In case books of account are maintained in a computer system, mentioned the books of account generated by such computer system. If the books of accounts are not kept at one location, please furnish the addresses of locations along with the details of books of accounts maintained at each location.) CASH BOOK, LEDGER, JOURNAL, 307, HIDE MARKET, AMRITSAR 35. (a) In the case of a trading concern, give quantitative details of principal items of goods traded: (i) Opening stock; (ii) P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r several decisions, that low profit cannot, by itself, form the basis for the rejection of the accounts. We may though clarify that in the present case, as would be apparent, the Revenue authorities have not found the assessee's accounts as not reliable on that basis, even as the same, and as indeed ought to be the case, that does form the starting point of the enquiry in the matter. On the merits of the invocation of section 145(3) by the Revenue, which forms the substance of the assessee's grievance before us, our first observation in the matter is whether the stock register as produced in the assessment proceedings could be said to be a record maintained by the assessee in the regular course of its' business, and on which, therefore, reliance could be placed in view of section 34 of the Indian Evidence Act, 1872. In our view, clearly not. Column 11(a) of the Auditors' Report mentions the books of account maintained by the assessee-auditee, i.e., Cash-book, Journal and Ledger. Again, at Column 35, where the assessee is required to furnish the quantitative details as per the audited accounts, the Auditor issues, and rightly so, a disclaimer, i.e., in view of no quantitative detai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, cannot be regarded as reliable, i.e., to yield it's correct income, so as to be relied upon for the purpose. Why, counsels for the assessees, day in and day out, assume arguments in defence or in furtherance of the assessee's case before us. There is, further, no limitation in the power of the Tribunal in this regard, case law on which is legion, and for which we may, as an example, refer to the decision in Hukumchand Mills Ltd. v. CIT [1967] 63 ITR 232 (SC), the facts of which are also telling, wherein the Apex Court clarified that even rules 11 & 27 of the Income Tax (Appellate Tribunal) Rules, 1963 ('the Rules') are not exhaustive of the powers of the tribunal. The objection raised is wholly without basis, both on facts and in law. How, in the absence of stock records, does the assessee close it's accounts for an account period, to arrive at the correct operating income for the said period? The same is an integral part of accounts, ensuring that all that is traded in is taken into account and properly valued in arriving at the profit or loss for the year. Reference in this regard may be made to some decisions by the Apex Court, as CIT v. McMillan & Co. [1958] 33 ITR 182 (SC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation, of the fact that the GP rate, signifying the difference in the purchase and sale rates, varies over a range; the 10 year period ending with the current year witnessing a low of 6.30% (AY 2007-08) and a high of 11.82% (for AY 2009-10) (refer table at page 6 of the appellate order). A good bought at Rs. 50 apiece would stand to be sold for a price, depending on the fluctuation of the market price - that too over a 10 year period, between the extremes of Rs. 53 and Rs. 57. In fact, being a perishable product, as also emphasized by Sh. Arora during hearing, the same cannot be withheld to capitalize on the increase in the market price, even if imminent, and has to be sold without delay, lest it looses its' value. The different pieces constituting the closing stock of hide (as above), thus, cannot be regarded as one item, to be valued on the basis of the last purchase price, as the FIFO method (of valuation) signifies. The variation in cost of different pieces of Mall (676) and hide (159) in another unit, is no less wide, being as under (PB pgs. 7, 9): Category Pcs/Rate Low (L) High (H) Average Ratio (L:H) Mall 676 45 700 367.9 1:15 Hide 159 1231 4900 2177.5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tween 7% to 10%. The market price cannot explain the difference, as the good bought for Rs. 50 is being sold for Rs. 55 (say), while another is, at the same time being bought at Rs. 80/- or higher. On being asked during hearing if the weight was also one of the determinants (of price), Sh. Arora would, without giving a firm or straight answer, state that the same is not relevant as the skin/hide is both purchased and sold in units of pieces. Clearly, therefore, the same would include the weight of the piece as well. That is, the difference in the unit price is also due to its' weight, as it does get manifest therein, getting reflected in the price, being sold as such, i.e., as one, indivisible unit. This, however, would constitute a flaw in book-keeping as the pieces are actually bought and sold distinctly, on the basis of their characteristics, including weight, and cannot be unitized, as done, and the pieces held in stock at the year-end, regarded as those bought latest. A simple exercise would demonstrate the said flaw. The pieces are bought at Rs. 40/- and Rs. 100/- (say). The former is sold for Rs. 45/- (say). However, if bought later than the other piece, it is the latter pie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he purchase rates from unregistered dealers are comparable with that from the registered dealers (PB pg. 182-183). The same would require verification, as would the claim of the said expenses being properly vouched. As we have already upheld the invocation of section 145(3), we do not think it necessary to get the data furnished in support of its' case, as well as the other claims, verified. 4.5 The next question before us is the estimation of the assessee's gross profit (margin); the same working to Rs. 36.59 apiece (Rs.1,11,47,744/304682 pcs. - PB pgs. 95, 27) or at 6.68% for the year. The same has been estimated at 8.45% (or Rs. 46.30 per piece), by averaging the GP rates for the immediately two preceding years, i.e., AYs. 2012-13 and 2013-14, the same being also, as observed by the ld. CIT(A), lower than the GP rate disclosed for the succeeding two years, i.e., 8.72% (for AY 2015-16) and 13.89% (for AY 2016-17), i.e., at an average of 11.305%. The same is therefore only to be regarded as reasonable. The same merits our approval, being in conformity with the principles guiding the same, i.e., by taking all the relevant material, as gathered, i.e., which has a nexus or bearing i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into account for determining the profit for the year, the data on the conversion cost for the preceding year would be required. For the sake of discussion, assuming a 20% increase therein, i.e., for the current year vis-a-vis the preceding year, yields a per unit cost of Rs. 102.80, which results in a net increase in the gross profit by Rs. 30,01,615 (94,79,818 - 64,78,203), or at 8.48%, i.e., very close to do that estimated. We may hasten to add that we are not in any manner suggesting an increase in or disturbing the valuation of the closing stock; the same having penalty implications as well, but only that, other things being equal, an increase to this extent gets validated. That is to say, that the profit as estimated by the Revenue is reasonable and merits being upheld. 4.6 The assessee has in justification of the fall in the gross profit, claimed increase in turnover for the year, i.e., Rs. 1669 lacs, as against Rs. 1425 lacs for AY 2013-14, as the reason. We are unable to understand the basis of the said argument. By own admission and, in fact, case, the purchase and sale rates, the difference between which yields the gross margin, are market driven and, therefore, the gros ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verseas [2009] 315 ITR 185 (P&H), is, again, well-settled. As, however, a reading of the foregoing would reveal, the said principles have not been violated in the instant case. The issue arising in the instant case is primarily factual. That is, whether the assessee's accounts, as maintained, are correct and complete, for the true income of its' business to be deduced there-from, which is the premise of section 145(3). The same is a matter of fact, as indeed clarified in Om Overseas (supra), so that our decision is based principally on findings of fact (paras 4.1 thro' 4.3 of this order). This, then, meets the decisions cited toward the said principles. The decision in Vishwanath Prasad Gupta (supra) is not applicable even on facts. The tribunal's decision in that case rests on the auditor's report, while in the instant case the relevant books of account have admittedly not been produced before the Auditor (refer para 4.1). There is, however, one decision in the compilation that may require being discussed, though not obliged to in view of non-reference thereto during hearing, i.e., Balbir Kaur v. ITO (in ITA No. 151/Asr/2016, dated 23.05.2016). It is said that in-as-much as the ob ..... X X X X Extracts X X X X X X X X Extracts X X X X
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