Pr. Commissioner Of Income Tax, Jaipur-3, Statue Circle, C-Scheme, Jaipur v. Sikar & Jhunjhunu Zila Dugdh Utpadak Sahakari Sangh Ltd., Palsana, Sikar Ay 2009-10

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 11 / 2017 Pr. Commissioner of Income Tax, Jaipur-3, Statue Circle, C-Scheme, Jaipur ----Appellant Versus Sikar & Jhunjhunu Zila Dugdh Utpadak Sahakari Sangh Ltd., Palsana, Sikar AY 2009-10 ----Respondent _____________________________________________________ For Appellant(s) : Mr. Daksh Pareek for Mr. Sameer Jain For Respondent(s) : Mr. Aditya Bohra with Ms. Ishita Rawat for Mr. Gunjan Pathak _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYASJudgment 20/11/2017 1.By way of this appeal, the appellant has assailed thejudgment and order of the tribunal whereby tribunal has allowedthe appeal of the assessee and dismissed the appeal of thedepartment. 2.This court while admitting the appeal on 17.1.2017 framed following substantial question of law:- “Whether on the facts and in thecircumstances of the case the Tribunal isjustified in not upholding rejection ofbooks of accounts u/s 145(3) and indeleting the entire trading addition ofRs.3,89,27,189/- ignoring the fact that theassessee had not maintained stockregister of day to day consumption andproduction?” 3.The facts of the case are that the assessee is co-operativesociety engaged in the business of manufacturing and trading ogmilk and milk products and cattle feed. During the year underconsideration, it declared gross profit of Rs.1,24,11,319/- onturnover of Rs.57,04,27,872/- giving a g.p. rate of 2.18% ascompared to gross profit of Rs.4,23,58,013/- on turnover ofRs.42,05,81,622/- giving a g.p. rate of 10.07% in the immediatelypreceding year. The AO in his assessment order observed that thetax auditor in para 28(b) of the tax audit report has observed that“the quantitative details are not available as stated by theauthority related to the manufactured product properly”. Thus, theAO held that assessee has failed to produce the quantitativedetails and stock register before the tax auditor. 3.1Further, the AO stated that the assessee has failed toproduce the quantitative details of day to day consumption of rawmaterial for the purpose of processing the raw milk into variouskinds of milk and milk products and the assessee has acceptedthis fact that such details were not maintained and therefore couldnot be various other dairies at the rates which were much belowthe rate at which the milk was purchased. The assessee had alsoincurred various expenses in the form of transportation etc. Whichresulted in lower realization on sale of milk sold to other dairiesand such realization was lower than even the rate at which themilk had been purchased from various primary societies. The AOfurther observed that the assessee has failed to produce thequantitative details of the milk sold to the other dairies as well as reconciliation of the loose milk consumed as raw material with thefinished products. 4.Counsel for the appellant has taken us to the order of CIT(A)wherein CIT(A) observed as under:- reconciliation of the loose milk consumed as raw material with thefinished products. 4.Counsel for the appellant has taken us to the order of CIT(A)wherein CIT(A) observed as under:- “Considering the overall facts I find thatthe explanation given by the assessee fordecline in the g.p. rate is reasonable. Themain reason for decrease in the g.p. rateis increase in the price of milkprocurement rate from 239.18 per kg fatto 280 per kg fat on which assessee hasno control as the same in decided on thedirection of the State Government. Thisshows increase in purchase price by17.02%. As against this average increasein selling price is 9.4% (5.34+13.46)/2 asper the A/R version. Thus the net fall inthe g.p. rate as a result of increase inpurchase and sale price is 7.8% (17.02-9.4%) which is almost equal to thedecrease in the g.p. rate during the yearby 7.89% (10.07-2.18). However, thisexplanation of the assessee can’t beaccepted in toto as the auditor in the auditreport has qualified the maintenance ofstock register in a proper manner eventhough the discrepancy can’t bequantified. Considering all these facts, Ifind that it would be reasonable and meetthe end of justice if the trading additionmade by the AO is restricted to lump sumtrading addition of Rs.50,00,000/-. As aresult the trading addition to the extent ofRs.50,00,000/- is confirmed and thebalance addition is deleted. This ground ispartly allowed. 4.1Counsel for the appellant contended that tribunal hascommitted serious error in allowing the appeal of the assessee. 5.However, counsel for the respondent Mr. Aditya Bohra hastaken us to the order of the tribunal where tribunal observed as under:- 2.3 The Ld. CIT(A) upheld the rejection ofbooks of accounts. However, she reducedthe trading addition to Rs. 50 lacs. The ld.CIT(A) has given her finding as under: “I have considered the facts of the case,gone through the assessment order andthe submission of the ld. AR. I find that AOhas invoked provision of section 145(3) forthe reason that g.p. rae has sharplydeclined to 2.18% as compated to 10.07%in the last year, the reason given for fall ing.p. rate is that State Government hasconsiderably increased the minimumprocurement price but assessee failed togive any detail regarding the correspondingincrease in the sale price and quantitativedetails of the consumption and productionis not maintained. The ld. AR hassubmitted that the day to day stockrecords are maintained, the quantitativedetails was furnished alongwith the taxaudit report. In these quantitative details,the quantity of purchase/’production isseparately mentioned, assessee has filedthe unit wise quantitative details vide letterdated 19.12.2011 to the AO. Reasons weregiven for decline in the g.p. rate which wason account of increase in the minimumpurchase price of the milk withoutcorresponding increase in the sale rate andtherefore the decline in the g.p. rate is fullyexplained. I find that the auditor in tax audit report incaluse (b) of para 28 reported that thequantitative details are not available asstated by the authority related to themanufactured product properly. Further theday to day details of consumption of theraw material for the purpose of processingthe raw mild into various kind of mild andmilk product was not produced. If theauditor has wrongly reported about thestock register then the certificate from himshould have been obtained which was notdone for reasons best known to theappellant. The maintenance of the I find that the auditor in tax audit report incaluse (b) of para 28 reported that thequantitative details are not available asstated by the authority related to themanufactured product properly. Further theday to day details of consumption of theraw material for the purpose of processingthe raw mild into various kind of mild andmilk product was not produced. If theauditor has wrongly reported about thestock register then the certificate from himshould have been obtained which was notdone for reasons best known to theappellant. The maintenance of the quantitative details is of a greatimportance for verification of the accounts.The various cases referred by the AOsupport the rejection of the books ofaccounts. The various cases referred bythe AO support the rejection of the booksof accounts. Each year is independent yearand principle of res-judicata dows notapply and therefore simply because in A.Y.2008-09 and 2010-11, the assessment isframed u/s 143(3) where books ofaccounts have been accepted does notmean that books of accounts for the yearunder consideration should aso beaccepted. Considering all these facts, therejection of books of accounts made by theAO by applying the provisions of section145(3) is upheld. After rejection of the books of accounts,the question arises to what should be thereasonable g.p. rate in the facts of thepresent case. During the year assesseedeclared g.p. rate of 2.18% as against g.p.rate of 10.07% in the last yer. The AO hasstated taht there is no bar oncorresponding increase in the sale price butfrom the reply of the assessee it is notclear whether such corresponding increasein the sale price have been made or not.On the other hand, the Ld. AR inassessment proceeding as well as inappellate proceeding, filed the justificationfor decrease in the g.p. rate. The mainreason for decrease in the g.p. rateaccording to him is that the Governmenthas increased the milk procurement rate tominimum of Rs.280/- per kg. Of FAT. As aresult, the average rate of milk per kg. Fatwhich was 239.18 has gone up toRs.279.88 per kg fat showing an increaseof 17.02%. As against this, the increase inthe sales rate of the different quality of themilk range from 5.34% to 13.46%. Considering the overall facts I find that theexplanation given by the assessee fordecline in the g.p. rate is reasonable. Themain reason for decrease inthe g.p. rate isincrease in the price of milk procurementrate from Rs.239.18 per kg. Fat to Rs.280/- per kg. Fat on which assessee has nocontrol as the sam is decided on thedirection of the State Government. Thisshows increase in purchase price by 17.02%. As against this average increasein selling price is 9.4% (5.34+13.46)/2 asper the AR version. Thus the net fall in theg.p. rate as a result of increase in purchaseand sale price is 7.89% (10.07-2.18).However this explanation of the assesseecan't be accepted in toto as the auditor inthe audit report has qualified themaintenance of stock register in a propermanner even though the discrepancy can'tbe quantified. Considering all these fact, Ifind that it would be reasonable and meetthe end of justice if the trading additionmade by the AO is restricted to lump sumtrading addition of Rs. 50,00,000/-. As aresult of the trading addition to the extentof Rs.50,00,000/- is confirmed and thebalance addition is deleted. 17.02%. As against this average increasein selling price is 9.4% (5.34+13.46)/2 asper the AR version. Thus the net fall in theg.p. rate as a result of increase in purchaseand sale price is 7.89% (10.07-2.18).However this explanation of the assesseecan't be accepted in toto as the auditor inthe audit report has qualified themaintenance of stock register in a propermanner even though the discrepancy can'tbe quantified. Considering all these fact, Ifind that it would be reasonable and meetthe end of justice if the trading additionmade by the AO is restricted to lump sumtrading addition of Rs. 50,00,000/-. As aresult of the trading addition to the extentof Rs.50,00,000/- is confirmed and thebalance addition is deleted. 2.4 The ld. AR submitted that the assesseehas maintained correct, complete and dayto day books of accounts which are subjectto audit u/s 44AB of the Act. All thepurchase and sales are fully vouched andverifiable. Day to day stock records ismaintained. The quantitative details ofopening stock, purchases, sales and closingstock are maintained. The sam has beenverified by the auditor. No discrepanciesare found by him except stating that stockregister is not properly maintained. Inwhat manner it is not properly maintainedis not specified. In assessment proceeding,the assessee has produced complete booksof accounts along with the quantitativedetails. No discrepancy was found by theAO in the books of accounts produced andthe details furnished by the assessee. Theobservation of the AO that assessee failedto produce quantitative details and stockregister before the tax auditor and thequalitative and quantitative details of themilk sold to other dairies and thereconciliation of loose raw milk consumedvis a vis finished product of different kindof the milk and the milk product isincorrect. This is because the assesseebefore the AO vide letter dated 19.12.2011furnished the quantitative details of milkand ghee and further vide letter dated21.12.2011 submitted the quantitativedetails of the purchase of the milk and saleof milk along with its comparison with thelast year. No discrepancy was found by the AO in the details so furnished. Theassessee has maintained completequantitative details at different plantlocation. It is not the case of the lowerauthorities that any purchase or sale is notrecorded in the books of accounts.Therefore, rejection of the books ofaccounts without finding any specific defecteither in purchase or sales or stockvaluation is unjustified and uncalled for. 2.6 Ld AR further submitted that themanner of maintenance of books ofaccounts and the stock records is same inthe earlier as well as in the subsequentyears. In earlier years as well as insubsequent years, the assessment of theassessee has been completed u/s 143(3)where the books of accounts has beenaccepted. The ld. CIT(A) has not acceptedthis contention of the assessee stating thateach year is independent year and principleof res-judicata does not apply. However inholding so, she failed to consider that whenthe facts are same, the approach should beconsistent. For this, reliance is placed incase of Supreme Court decision in case ofRadha Soami Satsang vs. CIT 193 ITR0321.” 6.In our considered opinion, the view taken by the tribunal isliable to be upheld inasmuch as CIT(A) has not given anyreasonable finding for adding lumpsum amount of Rs.50 lacs. 7.In that view of the matter, the issue is answered in favour ofthe assessee and against the department. 8.The appeal stands dismissed. (VIJAY KUMAR VYAS),J. (K.S. JHAVERI),J. Brijesh 124.