IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA I.T.A No. 12 of 2004. Reserved on : 12.10.2009 Date of decision: 21.10.2009 Commissioner of Income Tax, Shimla …. Appellant Versus M/s.United Vanaspati Ltd. ….. Respondent Coram:` The Hon’ble Mr. Justice Deepak Gupta, J. The Hon’ble Mr.Justice V.K.Ahuja, J. Whether approved for reporting? No For the appellant: Mr.Vinay Kuthiala, Advocate For the respondent: Mr.D.Dadwal, Advocate. _____________________________________________________ Deepak Gupta, J.(Oral) No substantial question of law was framed while admitting this appeal though, the revenue in its appeal has framed a number of substantial questions of law. The only substantial question of law which arises in the present case is whether in the facts and circumstances of the case, the learned Assessing Officer was justified in making a best judgment assessment. 2 Briefly stated the facts of the case are that the assessee is carrying on the business of manufacture and sale of Vanaspati Ghee. The Assessing Officer on scrutiny of the accounts of the assessee found that the rate of gross profit (GP) disclosed by the assessee for the assessment year 1989-90 was 3.73% on sales of Rs.66.53 lacs. The Assessing Officer considered this rate to be very low when compared to the assessment years 1986-87 and 1987-88 when the gross profit was 7.46% and 4.14% respectively. He accordingly issued notice to the assessee why addition should not be made on account of fall in the rate of gross profit. The Assessing Officer after taking into consideration all relevant factors including increase in the production came to the conclusion that the gross profit rate had fallen inordinately. He came to the conclusion that despite opportunities given, the assessee had not produced the relevant books of accounts before him and made addition of Rs.96,09,720/-. The assessee challenged the above order in the appeal before the Commissioner of Income Tax (Appeals), Shimla. According to the assessee, the fall in G.P and higher cost of production was due to the fact that the raw material was not available in the State of Himachal 3 Pradesh and was brought from outside the State leading to higher carriage cost. The electricity charges and cost of other material had also increased. The assessee explained that regular accounts were maintained and the unit was subject to central excise. The Excise Authorities were making regular checks with regard to purchases, consumption and production. According to the assessee, the gross profit had not been constant and had varied from 2% to 7%. The production can vary keeping in view the nature of the raw material used. It was further contented on behalf of the assessee that the books of accounts were produced before the Assessing Officer from time to time. Books of accounts were produced at the camp at Chandigarh and also at Solan. The CIT accepted the appeal of the assessee and deleted the additions made. The revenue filed an appeal before the Income Tax Appellate Tribunal. There was a difference between two members and the following question was referred to the Third Member:- “Whether on the facts and in the circumstances of the case, trading addition of Rs.96,09,720/- made by the Assessing Officer and deleted by the Commissioner of Income Tax (Appeals) should be sustained or deleted?” 4 The Third Member agreed with the Vice President and, therefore, the appeal was dismissed and decided in favour of the assessee. The assessee produced before the Revenue Authorities the records relating to the subsequent assessment years which showed that in the subsequent years, the GP rate varied from 4.24% to 4.37%. In the year in question, the GP rate was 3.37%. If depreciation claimed is excluded then the GP rate would work out to 4.14%. The Tribunal came to the conclusion that the percentage of production of oil vis-à-vis., the consumption of raw material, electricity and coal is less than the earlier assessment years. The question which arises is whether the assessee had furnished a reasonable explanation for the decrease in production or not. Variation in consumption and production from year to year is not unreasonable in the facts of the case. The main ground is whether the Assessing Officer could have made best assessment or not. The Tribunal has come to the conclusion that the books of accounts and records were produced before the Assessing Officer. The Assessing Officer held camp at Chandigarh on 28.2.1992. 5 According to the Assessing Officer, at this stage, only part of the record was produced and thereafter, proceedings were closed. However, the fact remains that on 3.3.1992 the assessee produced voluminous records including books of accounts before the Assessing Officer who refused to take the same into consideration on the ground that the proceedings had been closed on 28.2.1992. The assessment order was passed on 25.3.1992. When the hearing took place on 28.2.1992 the entire record was not produced. Even if the proceedings had been closed, the Assessing Officer should not have rejected the prayer of the assessee to examine the books on 3.3.1992. A mere delay of three days did not justify the action of the Assessing Officer in not taking into consideration the records later produced. The Tribunal also came to the conclusion that the decrease in production and lower G.P rate was on account of various factors including the fact that nature of raw material was different. The production of Vanaspati is linked to the nature of the edible oil used to produce it. The Tribunal accepted the reasoning given by the CIT that since non-conventional oil was used, the 6 production of Vanaspati vis-à-vis. the input used would go down. This is a pure finding of fact which we cannot interfere in the present proceedings. It is not disputed that the books of accounts were properly maintained by the assessee and were duly supported by regularly maintained consumption and production registers duly checked by the excise authorities. Mere two days delay in production of the books of accounts would not justify the Assessing Officer in rejecting the same and, therefore, no case was made out for making assessment on best judgment basis. In view of the above discussion, we answer the question in favour of the assessee and against the revenue. The appeal is accordingly rejected. No order as to costs. ( Deepak Gupta ) Judge October 21, 2009 (V.K.Ahuja) (m) Judge