High Court Of Bombay
CIT vs. Ghodawat Pan Masala Products (P) Ltd.
S.H. Kapadia & A.P. Shah, JJ.
IT Appeal No. 73 of 2000
21st February, 2000
R.V. Desai with J.P. Deodhar, for the Appellant : S.N. Inamdar with Pramod Vaidya, for the Respondent
BY THE COURT :
This appeal is preferred against the decision of the Tribunal whereby the Tribunal deleted the addition made under Chapter XIV-B of the IT Act, 1961.
The facts giving rise to this appeal, briefly, are as follows : During the course of search, stock worth Rs. 1,32,52,685 was found in the factory/business premises of the assessee. The stock consisted of raw material and finished products. The assessee stated in reply that it was not maintaining the record of daily consumption of raw material and finished goods as it was not possible to do so after 1995. The AO recast the trading account and by applying a gross profit rate of 15 per cent came to the conclusion that the closing stock should have been Rs. 2,05,90,919 as against the stock of Rs. 1,38,14,855. This gross profit rate was arrived at on the basis of the rate being shown at 15 per cent for 1st April, 1995, to 27th Sept., 1995. Being aggrieved by the order of the AO, the appeal was preferred to the appellate authority. The appellate authority dismissed the appeal. Being aggrieved by the said order, the matter was carried in appeal to the Tribunal. On the facts, the Tribunal found that there was no justification for recasting the trading account by applying the rate of 15 per cent and thereby working out the estimated figure of stock at Rs. 2,05,90,919 as against stock of Rs. 1,38,14,855 actually found during the course of search action. The Tribunal found that the rate of 15 per cent was excessive. The Tribunal also found that in the course of the second addition of Rs. 12,64,746 it has been held by the AO that there is an excess of stock which he did on a pure estimate basis. Thus, the Tribunal found that the AOâs order was self-contradictory and, accordingly, the Tribunal deleted the additions made under Chapter XIV-B of the IT Act.
Mr. Desai, learned counsel appearing on behalf of the Department, contended that the Tribunal erred in deleting the addition. He contended that during the course of search, stock worth Rs. 1,32,52,685 came to be detected. He further contended that in respect of the period 1st April, 1995 up to 27th Sept., 1995, the tentative trading account prepared by the assessee shows that the gross profit rate applied was 15 per cent and if that rate is taken into account, then the closing stock figure should be Rs. 2,05,90,919 and not Rs. 1,38,14,855. It was urged on behalf of the Department that under the above circumstances, the AO was right in making the above additions.
We do not find any merit in the said contention. Firstly, the block assessment is for the period 1984 to 1995.One fails to understand as to whether the AO was justified in applying the gross profit rate of 15 per cent only on the basis that the tentative trading account for part-period of 1st April, 1995, to 27th Sept., 1995, was arrived at by applying the gross profit rate of 15 per cent. The AO has not at all considered as to what was the average gross profit rate during the period 1984 to 1995. Secondly, the assessee had contended before the AO that on account of acute competition, the gross profit rate could not be applied at 18 per cent. This fact has not been appreciated by the AO in its proper context. Thirdly, it may also be mentioned that although under Chapter XIV-B, the AO is entitled to take into account the estimate, particularly when documentary evidence was not forthcoming, an arbitrary method cannot be applied. There is no material to indicate that the gross profit rate of 15 per cent was the basis for the entire period 1984 to 1995. In the circumstances, an excessive rate of gross profit was applied to arrive at the conclusion that the closing stock was suppressed. Lastly, as pointed out by the Tribunal, in the matter of the second addition, the AO has worked out the said addition on the basis of excess of stock which finding is contrary to the finding of the AO while computing the closing stock. Under the above circumstances, the Tribunal was right in allowing the appeal.
In the circumstances, no substantial question of law arises. The appeal is dismissed.
[Citation : 250 ITR 570]