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TMI Blog2015 (1) TMI 689X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit shown in the assessment year under dispute. The assessee's turnover in the assessment year under dispute was to the tune of Rs. 34,63,55,301/- and gross profit @8.15% on such turnover was shown at Rs. 2,82,59,178/-. Considering the rate of G.P. of immediately preceding assessment year 2008-09, the AO resorted to an estimated rate of gross profit @ 20.89% on the turnover shown by the assessee and arrived at the quantum of gross profit in the sum of Rs. 7,23,53,622/- which has resulted in an addition of the difference in the sum of Rs. 4,40,94,444/- [Rs.7,23,53,622 - Rs. 2,82,59,178]. 4.1. The reason for framing the assessment u/s 144 of the IT Act is that books of accounts were not made available by the assessee. In this regard the AO noted that the present activity of this company had ceased due to taking over of the possession of the unit by the lending company i.e. Punjab national Bank, Medinipur branch and the unit remained under closure. AO further noted that no books of account can be examined even by issuing summons u/s 131 of the Act to the lending bank. AO noted that no books of accounts were made available by them. 4.2. Against the above order the assessee appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment year is 2.5 times more than that recorded in that year. Further, it is an accepted proposition that where turnover is enhanced, gross profit has to be sacrificed to an extent. The turnover for the assessment year under dispute was to the tune of Rs. 34,63,55,301/-, which was more than 2.5 times in comparison to earlier year's figure of only Rs. 13,02,12,946/- and the quantum of gross profit rose to Rs. 2,82,59,178/- during the year under consideration in comparison to earlier year's G.P. in the sum of Rs. 2,72,08,542/-. Therefore, applying such proposition to the facts of the instant case, the fall in G.P. rate seems to be in tune with the circumstances. Further, there is no other comparable case brought on record by the AO to justify his estimate. Therefore, it emerges that when the turnover is not disputed and expenses incurred for achieving such turnover are also not disputed, then the gross profit declared by the appellant on such turnover can never be doubted. Estimate of G.P. made by the AO should be on plausible reasons backed by evidence, which is glaringly missing in the instant case. However, in such circumstances, although the submission of the A/R is pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... control of the assessee. Hence AO cannot draw adverse inference against the assessee and make higher assessment which is more than 250% of the declared amount. The ld. Counsel submitted that the assessee's return and profit disclosed was duly supported by auditors report. The assessee had duly maintained books of accounts. Such books of accounts were duly audited both under the provision of section 227 (4A) of the Companies Act, 1956 as well as under the provisions of section 44AB of the I.T.Act and there were no adverse remarks by the auditors. Complete quantitative tally was provided in accounts as well as Tax Audit report. In that situation the ld.counsel pleaded that there was no reason for the AO to doubt the veracity of the book results declared by the assessee. In this regard the ld. Counsel of the assessee placed reliance upon the decision of the Hon'ble Delhi High Court in the case of Addl.CIT vs Jay Engineering Works Ltd. 113 ITR 389 (Del) and the Tribunal's decision in the case of Eagle Synthetics (P) Ltd. Vs ITO 8 ITR(Trib.)211 (Ahd) The ld. Counsel further submitted that the assessee has duly explained the reason of it fall in gross profit to the AO and ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee is also running a rice mill and the profit declared by it compares favourably in comparison with the units in the industry and as such he submitted that the gross profit declared by the assessee at 8.15% should be confirmed. 6. The ld. DR, on the other hand, relied upon the orders of the AO and the ld. CIT(A). 7. We have carefully considered the submissions and perused the records. First of all we find that in the grounds raised the revenue has agitated the ld. CIT(A) has erred in reducing the gross profit from 20.89% to adopted in assessment to 8.15% . We find that this is factually incorrect. It is the assessee which has disclosed the turn over of gross profit at 8.15% and the ld. CIT(A) had reduced the estimate of gross profit from 20.89% adopted by the AO to 10%. 7.1. Now we are adjudicating the issues. We note that the assessee is running a rice mill. The assessee has disclosed gross profit of 8.15%. The assessee's return and profit was duly supported by auditors report. The accounts of the assessee were duly audited and no adverse inference was drawn by the auditor. The books of accounts could not be produced before the AO as the assessee's unit had bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Indian Evidence Act for the purpose of making an order of assessment. The courts often take judicial notice of certain facts which need not be proved, while administrative and quasi-judicial authorities can take "official notice" of wider varieties of facts which need not be proved before them. Thus, not only in respect of the relevancy but also in respect of proof the material which can be taken into consideration by the ITO and other authorities under the Act is far wider than the evidence which is strictly relevant and admissible under the Evidence Act. Under Section 34 of the Indian Evidence Act, account books maintained in the regular course of business are evidence after the relevant entries are proved by oral evidence or are admitted. The ITO, however, have to deal with such numerous cases of assessment that they can accept as correct books of account maintained in regular course of business without such a formal proof. In the instant case, the relevant books of account in which detailed information as to the expenses which were claimed as deductions for the assessment years 1962-63 and 1963-64 were destroyed by fire. Under the Indian Evidence Act secondary evidence of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erence from the same. Since the evidence in income-tax proceedings need not consist necessarily of evidence admissible under the Evidence Act but may consist of other material which has a probative value, the Tribunal was justified in taking such material into account. It could not, therefore, be said that the decision of the Tribunal was not based on any evidence. On the contrary, it was based on evidence meaning thereby that it was based on relevant material which can be considered in the income-tax proceedings. The appeal was dismissed, accordingly." Similar view was expressed by the Tribunal in the case of Eagle Synthetics (P)Ltd (supra). In this case it was held that in case of loss of books of accounts due to flood, assessment has to be framed on the basis of audited financial statements and in absence of any adverse reporting in those statements, impugned addition made on account of fall in gross profit ratio was to be deleted. 7.2. When we examine the present case on the touch stone of the above decisions we find that analogy can be drawn in this case. In this case also non production of books of accounts was not due to any fault of the assessee. In such situation when bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in absolute terms had increased from Rs. 1,76,60,614 to Rs. 2,04,11,863. Thus by lowering its rate the assessee was able to substantially increase the turn over which also resulted in increase in gross profit. In this view of the matter also the gross profit disclosed by the assessee cannot be said to be unacceptable. In this regard it is also to be noted that despite its efforts the assessee could not repay its lenders and ultimately had become defunct and the unit was taken over by the bank. In the background and aforesaid discussion in our considered opinion the estimation of gross profit by the AO @ 20.89% of the turn over was not at all justified. Hence the ld. CIT(A)'s rejection of the assessment made by the AO is fully justified. 7.4. Now as regards the estimation made by the ld. CIT(A) which is at 10% we find that the ld. CIT(A) has accepted the submission of the assessee and has found that there is no basis for the estimate made by the AO. He has held that the estimation is highly capricious and the ld.CIT(A) has held that it would meet the ends of justice if the gross profit for the assessment year under dispute is taken at 10%. In this regard, it is the pleading of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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