# M/S Deepak Rugs,Bhadohi v. Commissioner of Income Tax,Varanasi

- **Citation:** (2019) 1 ILRA 478
- **Court:** High Court of Judicature at Allahabad
- **Decided:** 2019-07-12
- **Case number:** Income Tax Appeal No.50 of 2009
- **Bench:** Bharati Sapru, Vivek Varma
- **Source:** https://unisonlegal.in/judgment/allahabad-high-court/m-s-deepak-rugs-bhadohi-v-commissioner-of-income-tax-varanasi-44496
- **Pages:** 10

## Headnote

A. Income Tax Act, 1961: Sections
143(2), 142(1), 144, 145(3), 251, 260-AIn exercise of powers u/s 260A, the
finding of fact of the Tribunal cannot be
disturbed.

The Assessing Officer noticed that the weaving
charges manufacturing expenses were not
verifiable and the gross profit rate had gone
down considerably as compared to the
preceding years. Assessing Officer applied the
provisions of S.145(3) and adopted a higher
GP rate (15%). CIT (A) rejected the appeal and
enhanced the GP rate (to 23.01%). Tribunal
dismissed the appeal. Dismissing the present
appeal, the High Court

No question of law may arise against
enhancement in estimation as it would
remain a finding of fact, as long as it is
based on cogent material and evidence.
1 All. M/S Deepak Rugs, Vs. Commissioner of Income Tax, Varanasi
479
Precedent followed:-

## Text

478 INDIAN LAW REPORTS ALLAHABAD SERIES
(A) and the Tribunal in depth and have
categorically recorded finding of fact, for
which no interference is required in this
appeal.

28. Thus, argument of the counsel
for assessee cannot be accepted so as to
restrict the power of Commissioner
(Appeals) on the ground of new source of
income, as Section 251 clearly envisages
the power of the appellate authority for
considering and deciding any material
arising out of proceedings in which order
appealed against was passed. In the
present case, all the materials looked upon
by the appellate authority was before the
assessing
authority,
as
such
the
Commissioner
(Appeals)
rightly
proceeded to decide the same as it arose
out of the proceedings of assessment.

29. The Apex Court has also
affirmed that power of Commissioner
(Appeals) cannot be restricted and in the
case of Jute Corporation of India Ltd.
(supra) held that the power of the
Commissioner
(Appeals)
being
coterminous with that of the Income Tax
Officer, he can do what the Income Tax
Officer do and further the section also
empowers him to direct the Assessing
Officer to do what he had failed to do.
The power of the Commissioner is not
bridled in any way and the language of
the section is plain and simple.

30.

Having
considered
the
material on record and the law laid
down by the Apex Court in regard to
the power of Commissioner (Appeals)
exercisable under Section 251 of the
Act, we are of the considered opinion
that the order of the Tribunal needs no
interference and the appeal of the
assessee is dismissed.

31. The questions of law are,
therefore, answered in favour of the
Revenue and against the Assessee.
--------
APPELLATE JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 12.07.2019

BEFORE
THE HON'BLE BHARATI SAPRU, J.
THE HON'BLE VIVEK VARMA, J.

Income Tax Appeal No.50 of 2009

M/S Deepak Rugs,Bhadohi ...Appellant
Versus
Commissioner of Income Tax,Varanasi
 ...Respondent

Counsel for the Appellant:
Sri Shambhu Chopra, Sri Arun Pratap
Singh, Sri Rishi Raj Kapoor, Sri Nikhil
Agarwal, Sri Kushagra Srivastava.

Counsel for the Respondent:
C.S.C., I.T., Sri Ashish Agarwal.

A. Income Tax Act, 1961: Sections
143(2), 142(1), 144, 145(3), 251, 260-AIn exercise of powers u/s 260A, the
finding of fact of the Tribunal cannot be
disturbed.

The Assessing Officer noticed that the weaving
charges manufacturing expenses were not
verifiable and the gross profit rate had gone
down considerably as compared to the
preceding years. Assessing Officer applied the
provisions of S.145(3) and adopted a higher
GP rate (15%). CIT (A) rejected the appeal and
enhanced the GP rate (to 23.01%). Tribunal
dismissed the appeal. Dismissing the present
appeal, the High Court

No question of law may arise against
enhancement in estimation as it would
remain a finding of fact, as long as it is
based on cogent material and evidence.
1 All. M/S Deepak Rugs, Vs. Commissioner of Income Tax, Varanasi
479
Precedent followed:-
1. M/s Kachwala Gems, Jaipur Vs. Joint
Commissioner of Income Tax, (2007) 288 ITR
10 (SC) (Para 37)

2. Shri Venkateswar Sugar Mills Vs. CIT, 2012
341 ITR 588 (Alld.) (Para 38)

3. M. Janardhana Rao Vs. Joint CIT, (2005)
273 ITR 50 (SC) (Para 42)
Precedent distinguished: -
1. M/s Kaka Carpets Vs. Commissioner of
Income Tax, Varanasi, Income Tax Appeal NO.
8 of 2008 (Para 36)
Appeal against order 16.3.2009 by ITAT,
Allahabad Bench for AY 2004-05 (E-4)

(Delivered by Hon'ble Vivek Varma J.)

1. The present appeal has been filed
by the assessee under Section 260-A of
the Income Tax Act. 1961 (hereinafter
referred to as 'the Act') against the order
of the Income Tax Appellate Tribunal,
Allahabad Bench dated 16.3.2009 for the
Assessment Year 2004-05, by which
Tribunal dismissed assessee's appeal and
confirmed the order dated 4.9.2006
passed by Commissioner of Income Tax
(Appeals) Varanasi.

2. The Commissioner of Income Tax
(Appeals), Varanasi, by order dated
4.09.2006 enhanced the addition by
estimating the gross profit at 23.01 % and
accordingly sustained the addition of Rs.
1,32,02,572/- which includes the addition
made by Assessing Officer vide order
dated 13.02.2006.

3. The instant appeal was admitted
on the following questions of law:

1. Whether, the Income Tax
Appellate Tribunal was legally justified in
upholding the application of Section
145(3) of the Income Tax Act, 1961,
upholding the rejection of books of
account, and application of hypothecated
G.P. Rate of 23.01 % as enhanced by the
Commissioner of Income Tax (Appeals)?

2. Whether the Income Tax
Appellate Tribunal as well as learned
Commissioner of Income Tax (Appeal)
were legally justified in giving their new
reasoning for justifying the application of
Section 145(3) of the Income Tax Act, 1961
for upholding the rejection of books of
account, contrary to the findings and
conclusions mentioned by the assessing
authority in paras 4.1, 4.II, 4.III, 4.IV and
4.V of the assessment order wherein the
assessing authority has recorded positive
findings in favour of the appellant for fall of
GP rate in the current year, even though
applying hypothetical GP rate at 15 %?

3. Whether, the Income Tax
Appellate Tribunal was legally justified in
upholding the order of lower authorities
and addition of Rs. 1,32,02,742/- towards
trading profit merely on the basis of
surmises and conjectures, ignoring the
cogent material on record such as
comparative chart, fall in rupee value, etc.
and even though no defects were pointed
out in the books of account and other
records maintained by the appellant and
produced before the assessing authority?

4. Whether, the fall in GP rate
as declared by the appellant at 14.52%
being comparable to the rate in the
industry, the addition of trading profits of
RS. 1,32,02,742 for the year under
consideration is legally sustainable?

4. The assessee is a firm and is
engaged in business of manufacture and
export of woolen carpet rugs. It filed its
return of income showing income at Rs
480 INDIAN LAW REPORTS ALLAHABAD SERIES
86,19,540/- for the assessment year 200405. The case of the assessee was selected
for scrutiny and thereafter notices under
section 143(2)/142(1) of the Act were
issued.

5. The accountant of the assessee
firm and its counsel appeared before the
assessing officer and produced cash book,
ledger account, journal book, purchase
and sale registers, stock register, bills,
vouchers etc.

6.

The Assessing Officer on
examination of records found that sales and
purchase was satisfactory. However, on
verification, he noticed that the weaving
charges and manufacturing expenses were
not verifiable as per record of the assessee
and the gross profit rate for assessment year
2004-05 has gone down considerably as
compared to the preceding assessment years
i.e. 2002-03 and 2003-04.

7. The Assessing Officer required
the assessee to explain the fall in Gross
Profit rate and also the non verifiable
nature of weaving charges and other
manufacturing expenses and why books
of account may not be rejected by
invoking the provisions of section 145(3)
of the Act.

8. The assessee stated that the fall in
G.P. Rate is mainly attributable to increase in
cost of raw material, secondly the sale price
has gone down as compared to the previous
assessment years and the cost of the labour
charges (weaving charges payment) paid to
weavers and production expenses has
increased in the said assessment year.

9. The Assessing Officer after
considering the reply of the assessee and after
perusing the account books of the assessee
came to the conclusion that verifiability of
books of account is not possible in the absence
of
supporting
documents,
even
the
trading/manufacturing result shown by the
assessee is not acceptable as such the
assessing officer applied the provisions of
section 145(3) of the Act and rejected the
books of the assessee. He adopted G.P. Rate
@15% instead of 14.52% as disclosed by the
assessee. Accordingly the extra profit was
worked out at Rs 7,42,607/-and the same was
added to the income of the assessee. Apart
from this addition various other additions on
account of disallowance of travelling and
conveyance expense, disallowance of printing
and stationary expenses, disallowance of
general expenses and disallowance of other
expenses.

10. Thereafter the Assessing Officer
made an assesment vide Assessment order
dated 13.02.06 and came to the following
conclusion.

" III. On verification of weaving
charges payment, it is seen that the
payment of Rs. 4,22,48,507 are made to
weavers/weavers
contractor
after
deducting tax at source and total of
deduction of tax was Rs. 8,49,906, many
of weaver/weaver contractor, as per TDS
deduction list, are assessed to tax and
have been allotted PAN, however, in some
of cases PAN have not been quoted. No
doubt as far as the genuineness of the
person is concerned, the person with the
PAN number can be said to be verifiable
but as in the maximum no. of weavers
cases, they are not maintaining their own
books so cross verifiability of correctness
of weaving charges is not possible. In
some of the weavers cases total payment
of 5,89,324 have been made as weaving
charges without any deduction of taxes as
most of payment were below Rs. 20,000/-
1 All. M/S Deepak Rugs, Vs. Commissioner of Income Tax, Varanasi
481
as the addresses of these persons are not
complete so verifiability of weaving
charges is not possible. Similarly in the
case of manufacturing expenses case it
cannot be said to be fully verifiable. In
view of these facts applicability of Section
145(3) cannot be ruled out.

IV. The assessee has maintained
purchase/ manufacturing and sale register,
stock register but in view of nature and work
of the industry and maintenance of assessee's
own accounts, the stock position and
consumption of raw material and cost there
upon can not be correctly deduced as piece
to piece manufacture, consumption, cost,
sale etc is not co-relatable from the books
kept by the assessee, so consumption as well
as stock cannot be said fully verifiable.
Hence applicability of Section 145(3) on this
score also cannot be denied. "

11 . The Assessing Officer, thus
computed and assessed the income of the
assessee at Rs 92,52,420/-

12. The assessee aggrieved by the
additions made in the assessment order dated
13.02.2006 challenged the same by filing
appeal before the CIT (A). In that appeal the
books of account were again examined by
the first appellate authority. The CIT(A) vide
order dated 04.09.16 rejected the appeal of
the assessee and upheld the invocation of the
provisions of section 145(3) of the Act,
rejecting the books of account. However, he
enhanced the addition by estimating the
gross profit @23.01%, after considering the
past history of the assessee and for this
purpose the CIT (A) compared the G.P. Rate
of the assessee of the last 5 assesment years
and adopted the average of gross profit rate
of last two assessment years. The CIT (A)
also confirmed and upheld the various other
disallownces made by the Assessing Officer.

13. The assessee challenged the
order of the CIT(A) before the Income
Tax
Appellate
Tribunal,
Allahabad
Bench, Allahabad. The Tribunal vide
order dated 16.03.2009 dismissed the
appeal
filed
by
the
assessee
and
confirmed the order passed the CIT (A).

14. Hence, the present appeal, at the
instance of the assessee.

15. Heard Sri Kushagra Srivastava
holding brief of Sri Rishi Raj Kapoor,
learned counsel for the appellant and Sri
Ashish Agarwal, learned counsel for the
revenue.

16. It is contended by learned counsel
for the appellant that the Tribunal as well as
the lower authorities have erred in law as
well as on facts in upholding the rejection of
book of accounts and application of Section
145(3) of the Income Tax Act. The assessing
authority had found that the assessee had
maintained purchase/manufacturing register,
sale register and stock register. He also
submitted that in case the Assessing Officer,
CIT(A) or Tribunal doubted the transactions
carried out by the assessee regarding the
payment of weaving charges they should
have summoned the persons/weavers in
question. Without summoning those persons,
tax liability could not be fastened on the
assessee on presumptions and conjectures.

17. It is further submitted, that there
was no suppression in sales/purchase
order or of raw materials nor excess raw
material had been found in assessee's case
to assume hypothecated GP rate of 23.01
% as assessed by the Commissioner of
Income Tax (Appeal) and upheld by the
Income Tax Appellate Tribunal. Learned
counsel for the assessee relied upon the
judgement of this court in the case of M/s
482 INDIAN LAW REPORTS ALLAHABAD SERIES
Kaka Carpets vs Commissioner of Income
Tax, Varanasi, Income Tax Appeal No. 8
of 2008, delivered on 28.04.08.

18. To the contrary, learned counsel
for the revenue submitted that books of
account were not properly maintained by
the appellant-assessee which were rightly
rejected by the Assessing Officer by
invoking provisions of Section 145(3) of
the Act. The CIT (Appeals) not only
confirmed the action of the assessing
officer but also enhanced the GP rate
from 15 % to 23.01 %. and there is no
apparent error either on the part of the
learned Tribunal or in the order passed by
the authorities below.

19. It is further submitted that the
maximum number of weavers could not be
verified in absence of necessary details
being furnished by the assessee. Regarding
correctness of weaving charges and further
the stock position and consumption of raw
materials and cost thereupon cannot be
correctly deducted as piece to piece
manufacture, consumption, cost, sales was
also not correlated from the books of
account. He also submitted that in
maximum number of cases neither PAN
was provided nor the address of the
weavers
were
disclosed.
As
such
genuineness of the transaction cannot be
established. The Commissioner of Income
Tax (A) after giving a detailed notice for
the enhancement of Income, in accordance
with law enhanced the income of the
assessee. The finding of fact recorded by
the Assessing Officer and CIT(A) on
examination of books of account and other
details produced by the assessee would
show that the assessee had failed to prove
genuineness of the weaving charges, thus
the order of Tribunal is wholly just. In any
case, the said order records a finding of
fact based on appraisal of evidence and
therefore warrants no interference by this
Court. There is no substantial question of
Law involved,

20. We have considered the rival
submissions made by learned counsel for
the parties and perused the material on
record.

21. The assessee during the
Assessment year 2004-05 has shown his
income from manufacture and export of
carpets. The comparative trading chart for
the year in dispute as well as the
preceding year is quoted below:

Assessmen
t Year
Sales Gross
Profit
GP
Ratio
2002-03

9199
1908
2416793
4.22
26.27%

2003-04
1044
8553
1
2104898
5.80
20.14 %
2004-05
1555
5511
2
2259065
9.63
14.52 %

22. The above chart shows the fall in
GP ratio with reference to previous years,
which was due to increase in cost of raw
material, as per assessee. To verify the
fall in GP rate, the Assessing Officer
examined the books of account and found
that the sale and purchase were found
verifiable. However, on verification of
weaving charges payment, it was found
that although payment of Rs, 4,22,48,507
was disclosed to have been made to
weavers after deducting tax at source
however,
only
some
of
the
weavers/contractors
had
permanent
account number. About half of them, no
permanent account number was available.
1 All. M/S Deepak Rugs, Vs. Commissioner of Income Tax, Varanasi
483
Total deduction of tax was Rs. 8,49,906,
but in case of some of the weavers total
payment of Rs. 589324 had been made as
weaving charges without any deduction of
tax at source. As the addresses of these
persons were not complete, verification of
weaving
charges
was
not
possible.
Similarly in the case of manufacturing
expenses, it could not be fully verified.
The Assessing Officer recorded that the
stock position and consumption of raw
material and cost thereof cannot be
correctly deduced as piece to piece
manufacture, consumption, cost, sales is
not correlated from the books kept by the
assessee and therefore, in view of the
unverifiability of the same with reference
to the records of the recipients and non
maintenance of proper stock records, the
AO has invoked the provisions of Section
145(3) of the Act, 1961 and thereafter
estimated the GP rate at 15 % as against
the 14.52 %.

23. It may be stated here that section
145 (3) of the Act, provides that where
the Assessing Officer is not satisfied
about the correctness or completeness of
the accounts of the assessee or where
method of accounting or accounting
standards under subsection (2) have not
been regularly followed by the assessee,
The
Assessing
officer
may
make
assessment in the manner provided under
section 144 of the Income Tax Act.

24. The order of Assessing Officer
was challenged in Appeal before the
CIT(A). The Commissioner (Appeals)
called for the books of account at the
appellate stage and examined the same
and noted that the assesse has debited an
amount of Rs 4,28,37,831/- towards
weaving charges, Rs 99,20,335 towards
repairing charges and Rs 29,38, 933/-
towards finishing charges. All these
payments had been made in cash. Thus
the CIT(A) recorded that there was
substantial increase in expenses towards
the weaving and repairing, incurred in cash,
as per the assessee, but the assessee failed to
provide the details justifying the payment in
cash towards the said charges. The CIT(A)
had also taken note of the fact that there is
decline in the cost of raw materials as
compared to earlier years. On account of the
said unexplained expenses, there is increase
in total expenses which resulted in the
decrease of the gross profit. He held that the
expenses so made, are not verifiable and they
are made through self made vouchers. He
also recorded that the identity of the weavers
could not be established and they could not
be contacted and therefore payments made to
them cannot be verified. The systematic
stock register was not maintained. On being
satisfied,
the
first
appellate
authority
enhanced the addition by estimating the
gross profit at 23.01 % and accordingly
sustained the addition of Rs. 1,32,02,572/-
which includes the addition made by
Assessing Officer vide order dated 4.9.2006,
after confirming the rejection of the books of
account in absence of production of any
qualitative details either in assessment
proceeding or before it.

25. Being aggrieved, the assessee
carried the matter to the Tribunal. The
Tribunal confirmed the rejection of books
of accounts and recorded the finding to
the effect that the assessee has failed to
get the weaving charges, manufacturing
expenses verified as the addressees of
many weavers were incomplete and
consumption as well as stock could not be
fully verified. It also noticed that there
was a change in the method of recording
payment of weaving charges, repairing
charges and finishing charges. The
484 INDIAN LAW REPORTS ALLAHABAD SERIES
accounts were opened and the payments
had been rooted to the accounts of the
weavers/contractOrs. Thus, it concluded
that there is an element of non-genuine
expenses. It also took note that there is
decline in the cost of raw materials as
compared to earlier years. The stock
register was not properly maintained and
as such it was not possible to ascertain the
quantitative details of stock, cost as per
unit.

26. Tribunal also noted that the
assessee
has
failed
to
explain
satisfactorily before it as to what was the
reason for decline in the gross profit rate
and
increase
in
the
manufacturing
expenses and in absence of any reliable
material on record, learned Tribunal did
not interfere in the findings arrived at by
the authorities below and held that the
authorities
below
were
justified
in
rejecting the book result of the assessee
under Section 145(3) of the Act.

27. The Tribunal has recorded
categorical finding that the assessee has
failed to prove genuineness of weaving
charges and no explanation was given as
to why weaving charges were kept
outstanding in the books of account for
years together and even the complete
addresses of the weavers were not
furnished. Apart from this, a finding has
been recorded that in case of half of the
weavers no PAN number was provided
before the authorities.

28. In the instant case, the burden to
establish the identity of the weavers and
the genuineness of the transaction rested
on the assessee, which was never
discharged. Thus upon failure to disclose
and establish the identity, an adverse
inference has been recorded.

29. The assessee having not led any
evidence in the proceedings before the
authorities below could not derive any
benefit that the Assessing officer and
CIT(A) did not summon the weavers.
Once the identity of the weavers was not
established the assessee could not in any
case claim to establish the genuineness of
the transaction. Therefore, the objection
raised by the counsel for the assessee as to
summoning the persons in question is
largely inconsequential.

30. Section 251 of the Income Tax
Act provides for the powers of the
Commissioner (Appeals). Clause (a) of
subsection (1) of section 251 provides that
the Commissioner (Appeal) may confirm,
reduce, enhance or annul the assessment.

31. Sub section (2) of section 251
provides that the Commissioner(Appeals)
shall not enhance an assessment unless
the appellant has had a reasonable
opportunity of showing case against such
enhancement. In the instant case , a show
cause notice dated 17.07.2006 was sent
and after having considered the reply of
the asseseee, the CIT(A) considered the
previous history of the assessee and
concluded that the observation of the
Assessing Officer was not based on past
record and held that the past history
proved that the appellant had disclosed
G.P. Rate of 26.27% and 20.14% in the
preceding years . The CIT (A) also
concluded that the books of accounts are
to be rejected being defective and on
account
of
non-verifiability
of
the
expenses.

32. So far as the enhancement of the
gross profit rate from 14.52 % to 23.01 %
by the CIT (Appeals) was concerned,
Tribunal held that the CIT (Appeals) was
1 All. M/S Deepak Rugs, Vs. Commissioner of Income Tax, Varanasi
485
right in estimating the gross profit rate on
the basis of the previous history of the
assessee
particularly
when
huge
manufacturing
expenses
have
been
claimed by the assessee.

33. The assessee has given details of
sales for the assessment year under appeal
and the preceding assessment years along
with computation of gross profit rate but
the Assessing Officer rejected books of
account
on
the
ground
of
non
maintenance of stock records and the
CIT(A) on appeal has sustained the
rejection of books of account of the
assessee for want of stock records.
Therefore, the findings of CIT(A) on the
said point cannot be said to be faulted
with when the assessee failed to explain
the reason for non maintenance of the
stock register and also made a bald
statement that it is practically not possible
for assessee to maintain stock register.
The appellant-assessee failed to submit
any cogent explanation.

34. Whether the books of account were
being properly maintained or not, whether all
the entries about the sale transactions therein
were made or not, whether stock register was
being maintained properly or not, are all
questions of fact. The main issue with regard
to weaving charges, the same remained
unverified on account of non furnishing of
necessary details of the weavers by the
assessee. In such circumstances, the Tribunal
has come to a conclusion that the assessing
officer, has, rightly invoked the provisions of
Section 145(3) of the Act and rejected the
books of account. This action of the
assessing officer has been upheld on the
factual satisfaction so recorded, not only by
CIT (Appeals) but also by the ITAT. The
Tribunal has noted the findings of CIT
(Appeal) in para 4 of its judgment.

35. The Tribunal has further
recorded that the assessee did not bring on
record any material or evidence to
contradict the findings of the lower
authorities and has failed to explain
satisfactorily before the Tribunal as to
what was the reason for decline in the
gross
profit
rate
and
increase
in
manufacturing expenses. The rejection of
books of account is based on due
application of mind to relevant facts. It is
not based on surmises and conjectures.
Detailed reasoning has been recorded by
the authorities for the said rejection.

36. The judgement relied upon by
the assessee in the case of M/s Kaka
Carpets vs Commissioner of Income Tax,
Varanasi, Income Tax Appeal No. 8 of
2008, delivered on 28.04.08 is not
applicable to the facts of the present case
as in present case, the rejection of books
of account had arisen because the assessee
could not produce the details of the
weavers to whom heavy payments had
been made, whereas in the case of Kaka
Carpets (supra) that assessee had placed
on record individual affidavits of the
weavers to whom it had made payments.

37. In this regard, we find that the
Hon'ble Supreme Court in the case of M/S
Kachwala
Gems,
Jaipur
Vs
Joint
Commissioner of Income Tax reported
in (2007) 288 ITR 10 (SC), has held as
follows.

It is well settled that in a best
judgement assessment there is always a
certain degree of guess work. No doubt
the authorities concerned should try to
make an honest and fair estimate of the
income
even
in
a
best
judgment
assessment, and should not act totally
arbitrarily, but there is necessary some
486 INDIAN LAW REPORTS ALLAHABAD SERIES
amount of guess work involved in a best
judgment assessment, and it is the assesee
himself who is to blame as he did not
submit proper accounts. In our opinion
there was no arbitrariness in the present
case
on
the
part
of
Income-Tax
authorities. Thus, there is no force in this
appeal, and it is dismissed accordingly.
No costs.

38. In the case of Shri Venkateswar
sugar mills V/s CIT (2012) 341 ITR 588
(AllD). In paragraph no. 12, 13 and 14 it
has been laid down as follows.

12. For the assessment year under
consideration, the assessee has shown the G.P.
Rate 16.20 per cent, as against 33.44 percent. In
the previous assessment year. Thus, during the
assessment year under consideration, the G.P.
Rate was low. The commissioner of Income- tax
(Appeals) discussed the facts and circumstances
pertaining to the manufacturing cost and selling
price. The Assessing Officer has taken the G.P.
rate at 27 percent. When the books of account
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 Assessing Officer Once the
books of account rejected, then there is no option
before the Assessing Officer except to estimate
the sale and G.P. Rate which he determined by
taking by taking by comparative figure of the
assessee for the previous assessment year. The
Tribunal has already given the partial relief 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
SubramaniumV. CED (2002) 253 ITR 692 (SC).

13. In the instant case, the addition
is made on the estimate basis, which is a
question of fact as per the ratio laid down in the
case of Utkal Road Lines v. Registrar, ITAT
(2011) 336 ITR 149 (Orissa), 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 CIT v. Indo
Nippon Chemicals Co. Ltd. (2003 261 ITR 275
(SC) 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:

1. New Plaza Restaurant v. ITO
(2009) 309 ITR 259 (HP) :

2. Sanjay Oilcake Industries v.
CIT (2009) 316 ITR 274 (Guj):

3. Shri Ram Jhanwar Lal V.ITO
(2010) 321 ITR 400 (Raj).

4. Zora Singh v. CIT (2008) 296
ITR 104 (P&H):

5. Bharat Hari Singhania v.
CWT (!(($) 207 ITR 1 (SC) ; (1994)
Suppl. (3) SCC 46;

6.
CIT
v.
Green
world
Corporation (2009) 314 ITR 81 (SC) ;
(2009) 7 SCC 69 ; and

7. Brij Lala v. CIT (2010) 328
ITR $&& (SC); (2011) 1 SCC 1.

14. In view of the 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.

39. We have also gone through the,
findings arrived at by the Tribunal as well
as by the CIT (Appeals) and find that
under the circumstances, the AO was right in
invoking the provisions of Section 145(3) in
rejecting the book result and estimating the
gross profit. The assessee could not lead any
evidence to the satisfaction of the AO to prove
its genuineness. As regards the adoption of
gross profit rate @23.01% the Tribunal has
1 All. Commissioner of Income Tax, Kanpur Vs. M/s Kesarwani Sheetalaya
487
upheld the reasoning given by the CIT(A)
wherein the CIT(A) has taken the average of
the gross profit rate of the two preceding
assessment years after considering the previous
history of the assessee. On this issue, we find
that the finding recorded by the Tribunal is a
concluded finding of fact recorded on the basis
of material and evidence on record and
warrants no interference.

40. The law as to what amounts to
substantial question of law is also well settled.
It has been emphasized that the finding of fact
recorded by the AO or the first appellate
authority or the Tribunal cannot be disturbed
by the High Court in exercise of powers under
Section 260-A of the Act unless such finding
is perverse or is such which no person of
reasonable prudence could arrive at in the
given facts of the case.

41. Undisputedly the powers of First
Appellate Authority in matters of assessment
are co-extensive with the Assessing Authority,
in so far as the CIT (A) had issued a notice
and thereafter made the enhancement on the
basis of relevant material, no question of law
may arise against such estimation as it would
remain a finding of fact. In so far as the
enhancement made by the CIT (A) is based
on cogent material and evidence, the said
finding does not suffer from any error of Law.

42. In M. Janardhana Rao Vs
Joint CIT, reported in (2005) 273 ITR
50 (SC), the Hon'ble Supreme Court held
that in the exercise of the powers under
Section 260-A of the Act, the findings of
fact of the Tribunal cannot be disturbed.
The Hon'ble Court held as follows.

14. Without insisting on the
statement of substantial question of law in the
memorandum of appeal and formulating the
same at the time of admission, the High Court
is not empowered to generally decide the
appeal under Section 260A without adhering to
the procedure prescribed under Section 260A.
Further, the High Court must make every effort
to distinguish between a question of law and a
substantial question of law. In exercise of
powers under Section 260A, the findings of fact
of the Tribunal cannot be disturbed. It has to be
kept in mind that the right of appeal is neither a
natural nor an inherent right attached to the
litigation. Being a substantive statutory right, it
has to be regulated in accordance with law in
force at the relevant time. The conditions
mentioned in Section 260A must be strictly
fulfilled before an appeal can be maintained
under Section 260A. Such appeal cannot be
decided on merely equitable grounds.
 (emphasis supplied)

43. Thus, we do not find any infirmity in
the order of the Tribunal. The findings recorded
by it are clearly findings of fact based on
material evidence. In view of the above we
answer the question no. 1, 2, 3 and 4 in favour
of revenue and against the assessee.

44. The appeal is dismissed. No
costs.
---------
APPELLATE JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 20.08.2019

BEFORE
THE HON'BLE BHARATI SAPRU, J.
THE HON'BLE ROHIT RANJAN AGARWAL, J.

INCOME TAX APPEAL No.58 of 2013

Commissioner of Income Tax,Kanpur
 ... Appellant
Versus
M/s Kesarwani Sheetalaya ...Respondent

Counsel for the Appellant:
Sri Krishna Agrawal,C.S.C., Sri Manu
Ghildyal , Sri Dhananjay Awasthi.