1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR J U D G M E N T INCOME TAX APPEAL NO.162/2010 COMMISSIONER OF INCOME TAX -I, JODHPUR Vs. M/S. BALAR FABRICS PVT. LTD. Date of Judgment : 15.12.2010 HON'BLE MR. JUSTICE A.M. SAPRE HON'BLE MR. JUSTICE C.M. TOTLA Mr. M.R. Singhvi, for the appellant. BY THE COURT : (PER HON'BLE SAPRE,J.) This is an appeal filed by the Commissioner of Income Tax under Section 260-A of the Income Tax Act against an order dated 31.05.2010 passed by I.T.A.T., Jodhpur Bench, Jodhpur (for short called Tribunal) in I.T.A. No.277/JU/2009 for the period AY 2005-06. 2. The dispute relates to Assessment year 2005- 2006.The assessee (respondent) is engaged in the business of manufacturing and processing of cloth. Their accounts are audited as required under Section 44 AB of the Act. 3. The dispute arose as to what should be the % of the gross profit that should be applied on the turn over of the assessee for the year under consideration. The A.O. invoked the provisions of Section 145(3) ibid and added a sum of Rs.1,50,000/- in lumpsum and accordingly worked out the taxing liability. The assesee filed an appeal before the Commissioner of Appeals and it is in this appeal; the Commissioner of Appeals invoked the provisions of Section 251(2) ibid against the Assessee and enhanced the addition made by AO. It is against this order; the assessee felt aggrieved and filed further appeal before the Tribunal. By 2 impugned order, the Tribunal allowed the assessee’s appeal and set aside the order passed by Commissioner of Appeals and restored that of the Assessing Officer. It is against this order, the Commissioner of Income Tax has felt aggrieved and filed this appeal under section 260-A of the Act. 4. This is what the Tribunal while allowing assessee’s appeal held in para 6 of the impugned order: “We have heard the parties and have carefully perused the entire material on record. The assessee has maintained proper books of account supported by all the vouchers of purchase, sale and expenses etc. The accounts of the assessee are duly audited u/s. 44AB of the Act. The auditors of assessee have reported quantitative tally with respect to principal items of raw material as well as the finished goods dealt by the assessee. No discrepancy therein has been found nor pointed out by the Assessing Officer. The ld. CIT(A) also did not find any discrepancy therein. The assessee did not maintain day-to- day quantitative details of consumable items such as colours, chemicals and fuels etc. only, but had maintained proper vouchers thereof, which are fully vouched. Neither the Assessing Officer nor the ld. CIT(A) have pointed out any excessive consumption of such consumable stores in comparison to the consumption made by the assessee in earlier years. The cost of production has increased due to rise in cost of raw materials but assessee did not increase sale price of its products corresponding to increase in raw material cost in order to achieve higher turnover. The assessee's turnover has tremendously increased from 24.69 crores to Rs.41.59 crores in the year under consideration and the Assessing Officer himself has taken notice of this substantial increase in turnover. The 3 assessee, in fact, is found to have disclosed reasonable profits. The Assessing Officer made an adhoc addition of Rs.1,50,000/- only to cover up all possible leakages of revenue in the trading, but did not make any addition for the reason that there is fall in the gross profit rate or that the accounts of the assessee suffer from discrepancies or defects requiring the estimation of income in the manner as provided u/s. 144 of the Act, even though, technically, the provisions of section 145(3) of the Act have been invoked by him. Since the fall in G.P. has duly been explained and the ld. CIT(A) did not find any defect or incorrectness in explanation given by the assessee in that regard and considering the peculiar fact that there is tremendous increase in turnover for the year under consideration, the ld. CIT(A) even though had powers u/s. 251(2) of the Act to change the basis and manner applied by Assessing Officer, in terms of the decision of Hon'ble Allahabad High Court in the case of Pearey Lal Shukla of Cawnpore, in re (1942) 10 ITR 239 (All), could not do so in the present case in appeal as the reasonable profits were deduced from the accounts maintained by the assessee in the regular course of its business and, thus, the issue needs to be answered favourable to the appellant in view of the judgment of Hon'ble Rajasthan High Court in the case of CIT vs. Gotam Lime Khanji Udyog (supra). The ld. CIT(A), thus, without application of his mind to the peculiar facts of this case committed error of fact in rejecting the explanation of the assessee with respect to fall in gross profit. Application of rate of gross profit of immediately preceding year was thus, neither warranted nor justified under the peculiar facts and circumstances of 4 the case. We, therefore, set aside his decision for application of gross profit rate of 3.50% on the declared turnover of Rs.41,59,14,752/- on past years' basis resulting into enhancement of income as such and allow the ground raised in appeal by the assessee.” 5. Mere perusal of para 6 would go to show that Tribunal has gone into the facts and then accepted the factual explanation offered by the assessee as to why and on what basis and for what reason their turn over was increased and why a particular % G.P rate was applied. This in our opinion does not involve any substantial question of law. Since the Tribunal examined the whole issue on facts and came to a conclusion that the reasons assigned by the assessee are plausible, there was no occasion for the Commissioner of Appeals to have invoked the provisions of Section 251(2) and made further additions. This Court in an appeal filed under Section 260-A ibid cannot examine the correctness of factual findings recorded by the Tribunal. It is not permissible because it does not involve any issue of law much less substantial question of law. 6. Though learned counsel for the appellant tried to press in service submissions but in our view the submissions are mostly on facts and hence we are not impressed with such submissions. 7. In view of foregoing discussion, we find no merit in the appeal which does not involve any substantial question of law within the meaning of section 260-A ibid . The appeal thus fails and is hereby dismissed in limini. No costs. [C.M. Totla ], J. [A .M. Sapre],J. /Anil/