TMI Blog2005 (9) TMI 577X X X X Extracts X X X X X X X X Extracts X X X X ..... worked out to 25.07 per cent. The Assessing Officer observed that in the assessment years 1996-97 and 1997-98, the assessee had shown GP rate of 32.42 per cent and 30.01 per cent, respectively. Thus, he found a substantial fall in the GP rate. He also observed that the account books of the assessee were not supported by day-to-day records of consumption of raw material and production of finished goods, by-products obtained, shortages or wastage resulting in manufacturing process. Even the auditors in the audit report had not mentioned that the stock register had been maintained. He also observed that not even a single kilogram or process loss or wastage was reflected in the quantitative stock details as per column 12 of audit report in Form 3CD enclosed with the return. When the assessee was called upon to explain the reason for the fall in GP rate of 4.32 per cent as compared to last year, the assessee stated that complete manufacturing, stock and production register were maintained which gave a correct picture of the business activities of the assessee. However, the Assessing Officer observed that there was marginal increase in the comparative cost of production, which was subst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 1997-98, respectively. The GP rate for the immediately succeeding assessment year 1999-2000 was declared at 11.45 per cent, which was less than 14 per cent of the GP rate declared in the assessment year under reference. The assessments for the preceding assessment years and subsequent assessment year were completed under section 143(3). Book results were accepted by the Assessing Officer and no addition for the same had been made. Therefore, there was no justification for rejecting the book results and for making the trading addition for the assessment year under reference. It was also pointed out that the Assessing Officer was not correct in observing that the assessee had not maintained complete quantitative details of raw material consumed, items manufactured, process loss, etc. It was submitted that such details formed part of the audit report filed with the return. It was submitted that the production was a continuous process. Such details were duly prepared by the assessee. The learned CIT(A) considered these submissions and observed that the facts of the case were similar to the facts of a sister-concern, i.e. , namely, M/s. Protinkem, Jalandhar, where trading addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mparative cost of production was marginal vis-a-vis increase in sale rate and there was no basis for showing process loss. These findings of the Assessing Officer have not been found correct by the CIT(A). The CIT(A) has clearly mentioned in the impugned order that the assessee had maintained stock register and quantitative details of consumption of raw material along with production of finished goods were made part of the audit report filed with the return of income. Nowhere the Assessing Officer has mentioned that the assessee was asked to produce stock register and the assessee failed to produce the same. On the contrary, statements placed at pp. 20A to 20F clearly show that quantitative details, the working of the cost, valuation of closing stock furnished before the Assessing Officer were part of the return itself. However, no defects therein have been pointed out by the revenue. Besides, the method of valuation of closing stock has not been doubted by the revenue. As regards the fall in the GP rate, the assessee has given proper explanation. Besides the facts placed on record do show that GP rate was 25.29 per cent, 31.93 per cent and 25.60 per cent for the preceding asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igarh Bench in the case of Dy. CIT v. United Vanaspati Ltd. [2005] 275 ITR 124 (TM)(AT). In the case of CIT v. Vikas Chemi Gum India [2005] 276 ITR 32, the Hon ble Punjab Haryana High Court has held that if the Department did not contest the decision of CIT(A) for deleting the addition for the earlier assessment year 1986-87, it could not challenge similar order passed in relation to assessment year 1988-89. No doubt in this case, the order was passed by the CIT(A), but the fact remains that the Department has not made any addition for any of the assessment years, even though GP rate was low and process loss was higher in respect of many other assessment years as compared to the assessment year under reference. Therefore, there is no justification for taking a different view for the assessment year under reference. Taking into account these facts and circumstances of the case and the legal position discussed above, we are of the considered opinion that the CIT(A) was justified in holding that provisions of section 145(3) were not applicable and consequently the trading addition has been rightly deleted. We confirm his order and reject both the grounds of appeal of the rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , which has been consistently followed, and there is no change during the relevant assessment year. Further, the appellant is manufacturing various items and for valuation, the average GP earned in that item have to be applied than overall GP which was adopted by the Assessing Officer to work out the value of the closing stock under these items. By adopting the gross margin figure actually earned by the appellant under these two products it becomes clear that there is no case of undervaluation of the closing stock as made out by the Assessing Officer. The calculation of cost of production were enclosed in the form of schedules with the return of income and the same being in consonance with the method of valuation of the stock regularly followed by the appellant, therefore, the addition of Rs. 32,56,558 made by the Assessing Officer which is without any basis is deleted. There will be no separate relief to the appellant as it is part of the trading addition of Rs. 62,18,003 decided in favour of the appellant." The revenue is aggrieved by the order of the CIT(A). Hence, this appeal before us. 7.2 The learned Departmental Representative heavily relied on the order of the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ittings, tubewell, electrical, scooter, cars, furniture, electric motors, etc. and head-wise details of such expenses were furnished before the Assessing Officer during the course of assessment proceedings. Books of account were produced which contained separate ledger account in respect of each head of such expenses. Even the copies of certain vouchers called for by the Assessing Officer were furnished. The Assessing Officer has not pointed out any specific items, which were not allowable. The reasons for incurring heavy expenses on repair and replacement were also explained due to the fact that the hydrochloric acid had strong corrosive action and its slowly eats the iron metal. It was also submitted that in the assessment years 1995-96, 1996-97, 1997-98 and subsequent assessment year 1999-2000, similar expenses of Rs. 31,22,610, Rs. 24,38,692, Rs. 29,98,869 and Rs. 21,40,692, respectively, were claimed and allowed while completing the assessments for these assessment years under section 143(3) of the Income-tax Act. The learned CIT(A) considered the submissions and restricted the claim ( sic -disallowance) of the assessee to Rs. 35,000 by relying on his order in the case of sist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .38 lakhs to Rs. 31.22 lakhs and expenses of Rs. 21.40 lakhs for the subsequent year had been claimed and allowed by the Assessing Officer at the time of completing assessment for these assessment years under section 143(3). Therefore, the rationale and logic of making disallowance in an isolated assessment year is not clear to us. In any case, similar disallowance of 50 per cent of such expenses incurred in the case of sister-concern, i.e. , M/s. Protinkem was made where similar expenses at the rate of 50 per cent amounting to Rs. 6,12,880 were disallowed. Such disallowance was deleted by the CIT(A). The revenue has not even filed an appeal against the order of the CIT(A) on this issue. Therefore, principle of consistency demands that the revenue should have not contested this issue on identical facts in the present case also. Reliance in this regard is placed on the decision of Hon ble Supreme Court in the case of Berger Paints India Ltd. v. CIT [2004] 266 ITR 99, where it was held that if the Department had accepted the decision in the case of one assessee, the Department could not challenge the same in the case of the other assessee without valid reason. Reliance is also p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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