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Judgment
Dr. Satish Chandra, J.—This appeal u/s 260-A of the Income Tax Act has been filed against the order and judgment dated 17.01.2002 passed by the Income Tax Appellate Tribunal, Lucknow in I.T.A. No. 450 (Alld.) of 1994.
On 17.03.2010, a Coordinate Bench of this Court has admitted the present appeal on the following substantial questions of law:
Whether the Tribunal has committed substantial illegality by not considering the grounds raised by the appellant in terms of objection filed before the Assessment Authority?
Whether the Tribunal has committed substantial illegality by relying upon the material of assessment of previous year though, no reliance could have been placed on the material of assessment of previous year?
The brief facts of the case are that the assessee is a registered firm and engaged in manufacturing and sale of Khandsari sugar. During the assessment year under consideration, the assessee filed return of income showing total loss of Rs. 2,92,480/=. During scrutiny, the A.O. found that during assessment year under consideration, the G.P. rate was shown at Rs. 16.20% in comparison to last year, where it was 33.44%. Further, the A.O. found that there were various discrepancies in the books of accounts such as no proper vouchers were maintained, no stock register for gunny bags, diesal consumption as well as consumable stores like sulpher, salt and lime etc. were not open for proper verification. In these circumstances, the A.O. has applied section 145(2) of the I.T. Act and rejected the books of accounts. Finally, the A.O. estimated the sale and also estimated the G.P. rate on the basis of immediate previous year and applied G.P. rate @ of 27% and made the addition of Rs. 8,70,365/=.
The said addition was confirmed not only by CIT(A) but also by the Tribunal. Still not being satisfied the assessee is before this Court.
In the back drops, Sri S.M.K. Chaudhary, learned senior counsel for assessee-appellant submits that during the assessment year under consideration, the G.P. rate was shown 16.20% in comparison to last year, where it was 33.44%. He further submits that the lower authorities have not considered the explanation of the assessee pertaining to the cost of production and the average selling price. He submits that the A.O. has relied on the previous record and the gross profit rate of the last year. No reliance could have been placed on the material of the previous assessment year, so the order passed by the Tribunal is totally illegal and invalid.
According to the learned counsel for assessee-appellant, for the assessment year 1991-92, production cost increased to Rs. 612.49 in comparison to the earlier year, where it was 539.42. Thus, there was a difference of Rs. 73.07, which comes to 13.54% increase. Similarly, the sale price had also increased during the assessment year under consideration to Rs. 721.26 in comparison to last year, where it was 689.67% and difference was only Rs. 31.59, which comes to 4.58% per quintal. Thus, he submits that the production cost increased about three items against the sale price. In these circumstances, no addition can be made by the A.O. pertaining to the G. P. rate without assigned any reason. For the purpose, he relied on the ratio laid down in the case of Mangalore Ganesh Beedi Works Vs. The Commissioner of Income Tax, Mysore and Another, , where Hon''ble Supreme Court has observed as under:-
Recording of reasons is a part of fair procedure. Reasons are the harbinger between the mind of the maker of the decision in the controversy and the decision or conclusion arrived at. They substitute subjectivity with objectivity. Failure to give reasons amounts to denial of justice.
Learned counsel for appellant has relied the ratio laid down in the case of Ambika Oil and Ganesh Mills vs. income tax officer-cum-Assessing officer, (2005) ITR 274 231 (Punjab & Haryana), where it was observed that no appeal can be dismissed without assigning any reason whatsoever. The Hon''ble Court has observed as under:-
Every judicial and quasi-judicial authority/body must record reasons in support of its conclusion indicating the application of mind by the presiding officer to the points raised by the aggrieved party.
He also relied the ratio laid down in the following cases:
Shivsagar Veg. Restaurant Vs. Asstt. Commissioner of Income Tax, 24(2) and Another, ;
Commissioner of Income Tax Vs. Dunlop India Ltd., ; and
Malani Ramjivan Jagannath Vs. Assistant Commissioner of Income Tax,
Lastly, he made a request that the impugned order passed by the Tribunal may kindly be set aside.
On the other hand, Sri D.D. Chopra, learned counsel for the Department supported the order of the lower authority as well as the impugned order passed by the Tribunal. He submits that the books of account were not properly maintained by the assessee. The verification of vouchers was not possible specially pertaining to the consumable items. In these circumstances, the A.O. was not having any option except to reject the books of accounts, so the A.O. has rightly applied Section 145(2) of the income tax Act and estimated the sale as well as the G.P. rate. The G.P. rate is based on last year gross profit and is lesser to last year.
We have heard both the parties at length and gone through the materials available on record.
For the assessment year under consideration, the assessee has shown the G.P. rate 16.20% as against 33.44% in the previous assessment year. Thus, during the assessment year under consideration, the G.P. rate was low. The CIT(A) discussed the facts and circumstances pertaining to the manufacturing cost and selling price. The A.O. has taken the G.P. rate @ 27% on the estimated sale, which is lower in comparison to earlier year i.e. 33.44%. When the books of accounts were not properly maintained and the vouchers pertaining to the consumable items were not available for verification, then we find justification for rejection of the books of accounts by the A.O. Once the books of accounts rejected, then there is no option before the A.O. except to estimat the sale and G.P. rate which he determined by taking by comparative figure of the assessee for the previous assessment year. The Tribunal has already given the partial relief and in the facts and circumstances of the case, there is no scope to give any further relief specially when the estimation is a question of fact. The Tribunal is a final fact finding authority as per the ratio laid down in the case of Kamala Ganapathy Subramaniam and Another Vs. Controller of Estate Duty, .
In the instant case, the addition is made on the estimate basis, which is a question of fact as per ratio laid down in the case of Utkal Road Lines Vs. Registrar, Income Tax Appellate Tribunal and Others, , wherein it was observed that the application of G.P. rate on estimate basis is a question of fact. The Hon''ble Supreme Court in the case of Commissioner of Income Tax Vs. Indo Nippon Chemicals Co. Ltd., observed that valuation of raw material for the purpose of tax on estimate basis is a question of fact. Similar views were expressed in the following cases:
Biraj Kavar Galada, rep. by her L/R M.C. Galada .;
Sanjay Oilcake Industries Vs. Commissioner of Income Tax, ;
Shri Ram Jhanwar Lal Vs. ITO and Others, ;
Zora Singh Vs. Commissioner of Income Tax, ;
Bharat Hari Singhania vs. CWT 1994 suppl.(3) SCC 46;
Amar Singh Vs. Union of India (UOI) and Others, ; and
Brij Lal and Others Vs. Commissioner of Income Tax, Jalandhar, .
In view of above, no substantial question of law is emerging from the impugned order. Hence, we find no reason to interfere with the impugned order passed by the Tribunal which is hereby sustained along with reasons mentioned therein.
Answer to both the substantial questions of law is in favour of the revenue and against the assessee.
The appeal is dismissed. No cost.