ORDER
R. M. MEHTA, A.M. :
This appeal is directed against the order passed by the CIT(A) raising for our consideration two specific issues. The first 4 grounds cover one such issue and that being the addition of Rs. 72,799 to the trading account.
2. The appellant in this case is a registered firm the assessment year involved being 1979-80 with the previous year ending 31st July, 1978. It carries on business in distillation and purchase and sale of Mentha oil. The ITO in the course of the assessment proceedings made the aforesaid addition on the basis of the following facts :
(i) That the assessed had purchased Mentha oil from agriculturists only, but no vouchers in respect of such purchases had been produced;
(ii) The assessed did not maintain any register with regard to the quantity of Mentha grass received for distillation and from which Mentha oil was extracted;
(iii) That in respect of sale of Mentha oil the assessed had produced bill book which was marked as “duplicate”. On verification of some of the bills in the aforesaid duplicate bill book in the bill issued to one Shri Mahfooz Hussain there was a difference in the serial number as also in the description of goods;
(iv) The explanation of the assessed that the original bill book had been lost and a duplicate one had been prepared on the basis of the books of accounts was liable to be rejected since no F.I.R. had been filed reporting the aforesaid loss;
(v) That there was a steep decline in the G.P. rate as compared to the preceding assessment year and the explanations given by the assessed for such a decline were not acceptable and one such being in the direction of contending that the sale price of Mentha oil had gone down at the end of the accounting year whereas the same had been purchased at a higher rate at the beginning of the year;
3. On the basis of the aforesaid facts the ITO estimated the sales at Rs. 20,00,000 as against Rs. 18,50,387 reflected in the books of accounts and applied a G.P. rate of 9.6 per cent as against the book result of 6.44 per cent. It may be mentioned that the G.P. rate in the preceding assessment year was 12.75 per cent. In this way the ITO made an addition of Rs. 72,799 as “extra profit”.
4. On further appeal before the CIT(A) it was contended that the books of accounts had been rejected in a routine manner purely on the basis of surmises and conjectures. It was claimed that the original bill book had been lost in transit and the assessed has no alternative but to prepare a duplicate one with the help of books of accounts. It was further submitted that there was no difference between the bills issued to the parties and the bills in the duplicate book except some minor differences in the description. As regards the decline in the gross profit rate it was contended that the rate of 6.44 per cent was reasonable in view of the decline in the sale price and attention was also invited to the fact that in the immediately succeeding assessment year the G.P. rate was only 2.3 per cent which was accepted by the first appellate authority. The assesseds counsel also took exception to the estimate of sales at Rs. 20,00,000 and attention was invited to the fact that the ITO had not pointed out any “unrecorded sales” whereas the assessed had given complete details of the sales effected by it, on the further ground that the ITO himself had accepted that there was a fluctuation in the selling rate the submission on the part of the assessed was that the rate of 9.6 per cent applied by the ITO was on the higher side.
5. The CIT(A) after considering the aforesaid submissions and examining the material on record at the outset came to the conclusion that the ITO was not justified in challenging the genuineness of the “duplicate” bill book. He, however, rejected the other submissions made during the course of the hearing and proceeded to agree in the ultimate analysis with the view expressed by the ITO on various points examined by him during the course of the assessment proceedings. In other words, the addition of Rs. 72,799 was upheld.
6. The learned counsel for the appellant at the outset reiterated the arguments advanced before the CIT(A). He, however, highlighted the following :
(i) That the duplicate bill book had been accepted as genuine by the CIT(A) and inasmuch as the Department had not filed an appeal to the Tribunal on that score the said finding became final;
(ii) No specific defects had been pointed out by the ITO in the books of accounts and the CIT(A) had gone wrong in confirming the addition made by the ITO purely on surmises and conjectures;
(iii) That the trading account of the assessed squarely revealed that all stock available either in the form of opening stock, and purchases was either reflected in sales or in the closing stock inasmuch as the quantities were also stated;
(iv) That during the assessment year under consideration sales were effected only to 5 main parties some of whom were limited companies and that being the situation it could not be said that any transactions had been effected out side the books of accounts as alleged by the ITO;
(v) There was no finding on the part of the tax authorities to the effect that sales had been suppressed or purchases had been inflated and nor was there any other adverse comment about other items debited in the trading account;
(vi) That the assessed had not purchased grass from agriculturists but what had been purchased was Mentha oil which was extracted by the farmers from the said grass.
(vii) That purchases had been effected from small farmers/agriculturists who did not maintain any records; but the assessed, on the other hand, was keeping complete details of the purchases made in its purchase register;
(viii) That there were complete records maintained by the assessed relating to day-to-day purchases, sales and the closing stock;
(ix) That the business of the assessed ultimately came to be closed in 1985 due to the declining profits from year to year.
(x) That the decline in the gross profit rate was by itself not a sufficient ground to reject books of accounts and make an addition.
7. On the basis of the aforesaid submissions the learned counsel contended that there was no basis whatsoever to maintain any addition in the trading account. In support of his arguments, he placed reliance on the following decisions :
1. Md. Umer vs. CIT (1975) 101 ITR 525 (Pat);
2. International Forest Co. vs. CIT (1975) 101 ITR 721 (J&K);
3. C. M. Francis & Co. (P) Ltd. vs. CIT (1970) 77 ITR 449 (Ker);
4. St. Teresas Oil Mills vs. State of Kerala (1970) 76 ITR 365 (Ker);
5. M. Durai Rai vs. CIT (1972) 83 ITR 484 (Ker); and
6. Tolaram Daga vs. CIT (1966) 59 ITR 632 (Assam).
8. The learned Departmental Representative, on the other hand, supported the orders passed by the CIT(A) and subsequent arguments advanced by him were a reiteration of the reasons recorded by the tax authorities in rejecting the view point canvassed on behalf of the assessed and in making/sustaining the addition.
9. We have examined the rival submissions and have also perused the material on record to which our attention was invited by the parties. The paper-book furnished by the learned counsel for the assessed as also the decisions cited at the bar have also been duly considered. At the outset, we may mention that the G.P. rate cannot remain static and is likely to vary from year to year depending on the facts and circumstances prevailing. In the very case before us the G.P. rate in the preceding assessment year was 12.75 per cent, which we were informed, was accepted by the Department and in the subsequent assessment year, viz., 1980-81 a G.P. rate of 2.3 per cent came to be accepted as a result of the order passed by the AAC and inasmuch as no further appeal was filed to the Tribunal by the Revenue as stated by the learned counsel the said order has become final. Then again we find that the assessed is maintaining regular books of accounts which were get audited from qualified Chartered Accountants. A list of these books is appended on the complication filed by the learned counsel and these include the purchase register in respect of Mentha oil. On the same compilation is enclosed an extract from the purchase register of Mentha oil which gives the date, the opening balance of each date, quantity purchased, the total of each date, sales effected and the balance in stock every day. There is also the undisputed fact that the assesseds duplicate bill book has been found to be genuine by the CIT(A) on close scrutiny and this finding has not been challenged by the Revenue. That apart page 13 of the paper-book shows that sales have been effected to 5 parties out of whom three are limited companies and the details indicate the date, weight and the rate at which the sales had been effected. There is also the unchallenged fact that what the assessed purchased from the farmers was Mentha oil and not grass, the latter being subjected to a distillation treatment before effecting the sales of Mentha oil to the assessed. The authorities below have referred to the non-existence of vouchers pertaining to the purchase of Mentha oil, but as already stated in the preceding paras these purchases are made from small farmers who apparently do not maintain any records or other accounts and are not in a position to issue any vouchers to the assessed. The net effect of the aforesaid discussion is that the addition being based purely on surmises and conjectures without any positive or cogent material being brought on record on the part of the Revenue to prove the fallacy of the arguments advanced on behalf of the assessed we find no good ground to sustain the addition on the facts and circumstances of the case. The same is hereby deleted.
10. In respect of the second issue pertaining to purchase tax of Rs. 13,535 the ITO took note of the fact that the amount pertained to the month of July, 1977 which fell in the preceding assessment year whereas the assessed who was maintaining accounts on the mercantile basis and claimed the same as deduction in the previous year beginning August, 1977 to July, 1978 the assessment year involved being 1979-80. He accordingly rejected the claim for deduction. On the same analogy he also disallowed the claim for deduction on account of interest amounting to Rs. 769 the total addition on both scores coming to a figure of Rs. 14,304.
11. On further appeal before the CIT(A) it was contended that the purchase tax relating to July, 1977 was payable in August, 1977 in accordance with the provisions of the relevant Act and inasmuch as the same had been rightly claimed as deduction in asst. Yr. 1979-80 the same was required to be allowed. As regards the interest amount of Rs. 769 it appears that the assessed did not dispute the same before the CIT(A) and this becomes clear from para 13 of the appellate order. The CIT(A), however, rejected the arguments advanced and referring to the decision of the Hon able Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. vs. CIT (1971) 82 ITR 363 (SC), he rejected the claim for deduction.
12. The learned counsel for the appellant, at the outset, stated that deduction on account of purchase tax had always been claimed on actual payment basis and accepted all along in the past by the tax authorities. He reiterated the arguments advanced before the CIT(A) and that being in the direction of contending that although the amount pertained to July, 1977 the same was statutorily payable by the end of August, 1977 and inasmuch as it had been so paid the same was allowable in asst. yr. 1979-80. The decision of the Hon able Supreme Court in the case of Kedarnath Jute Mfg. Ltd. (supra), according to him, did not apply to the facts of the case.
13. After examining the rival submissions, we are of the view that the issue pertaining to deduction on account of purchase tax would have to be re-examined in the light of the stand taken before us and that being that on payment basis the amount had been allowed as deduction all along in the past. If that be so, then we see no reason why a consistent method adopted all along in the past should be disturbed especially when the Department is not disputing the deduction itself, but it is only the year which is in dispute. In this view of the matter, we set aside the order passed by the CIT(A) and restore the issue back to the file of the ITO for a decision de novo on merits by reference to the past record. He shall, however, do so after giving a reasonable opportunity to the assessed.
14. In the result, the appeal is partly allowed.