Sri Vishnu Bhagwan Garg, CHENNAI V. ACIT, CHENNAI

CO 2/CHNY/2014

• Counselvise Citation: [2014] 122 COUNSELVISE.COM (IT) 9669 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 25 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 03-06-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 09-01-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S SENDAMARAI KANNAN
• Assessee Lawyers: SHAJI P JACOB ADDITIONAL LD
• Keywords: Unexplained cash credit; Gift; Income from undisclosed sources; Opportunity of being heard; Deemed dividend
• Section: 143(3); 68

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . , ! , ' # BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ./ I.T.A.NO.2107/MDS./2013 ( / ASSESSMENT YEAR :2009-10 ) & C.O. NO.02/MDS./2014 THE ASSISTANT COMMISSIONER OF INCOME TAX, BUSINESS CIRCLE VI, CHENNAI. VS. SHRI VISHNU BHAGWAN GARG, 45/17,G.A.ROAD,OLD WASHERMENPET, CHENNAI 600 021. PAN AADPV 6771 A ( !$ / APPELLANT ) ( %&!$ / RESPONDENT/ CROSS OBJECTOR ) / APPELLANT BY : SHRI SHAJI P.JACOB, ADDITIONAL LD. CIT DR. / RESPONDENT BY : SHRI S.SENDAMARAI KANNAN, ADVOCATE / DATE OF HEARING : 04.04.2014 ! /DATE OF PRONOUNCEMENT : 03.06.2014 ' / O R D E R PER A.MOHAN ALANKAMONY , ACCOUNTANT MEMBER: THIS APPEAL AND CROSS OBJECTIONS ARE FILED BY THE REVENUE & THE ASSESSEE RESPECTIVELY, AGGRIEVED BY THE ORDER O F THE LEARNED ITA NO.2107/MDS/13 2 CIT(A)-II, CHENNAI DATED 07.08.2013 IN ITA NO.150/ 13-14 PASSED U/S. 143(3) READ WITH SECTION 250 OF THE ACT FOR TH E ASSESSMENT YEAR 2009-10 . 2. THE REVENUE HAS RAISED FOUR ELABORATE GROUNDS IN ITS APPEAL WHEREAS THE CRUXES OF THE ISSUE ARE THAT:- (I) THE LD. CIT (A) HAD ERRED IN DELETING THE DISA LLOWANCE MADE BY THE LD. ASSESSING OFFICER ON ACCOUNT OF UNACCOUN TED PURCHASES FOR ` 10,90,90,450/- AND UNACCOUNTED SALE ` 2,33,10,808/- (II) THE LD. CIT (A) HAD ERRED IN GIVING A PARTIAL RELIEF OF ` 4 LAKHS TO THE ASSESSEE IN RESPECT OF ADDITION MADE BY THE LD. ASSESSING OFFICER U/S. 68 TOWARDS UNEXPLAINED CREDI TS. 2.1. THE ASSESSEE HAS RAISED THREE ELABORATE GROUN DS IN ITS CROSS OBJECTIONS, HOWEVER THE CRUX OF THE TWIN ISSUES ARE AS FOLLOWS:- ITA NO.2107/MDS/13 3 (I) THE LD. CIT (A) HAD ERRED IN CONFIRMING THE SUM OF ` 12,57,576/- OUT OF AGGREGATE AMOUNT OF ADDITION MAD E BY THE LD. ASSESSING OFFICER FOR ` 16,57,576/- ON ACCOUNT OF UNACCOUNTED CASH CREDITS U/S. 68 OF THE ACT THEREBY ONLY RELIEF OF RS. 4,00,000/- TO THE ASSESSEE. (II) THE LD. CIT (A) HAD ERRED IN CONFIRMING THE A DDITION OF ` 3,64,878/- U/S. 2(22)(E) OF THE ACT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASS ESSEE IS AN INDIVIDUAL, ENGAGED IN THE BUSINESS OF TRADING IN IRON AND STEEL, FILED HIS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2009-1 0 ON 31.08.2009 ADMITTING AN INCOME OF ` 11,67,720/-. INITIALLY THE RETURN WAS PROCESSED U/S. 143(1) ON 25.02.2011. SUBSEQUENTLY THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND ASSESSMENT WAS COMPLETED U/S. 143(3) OF THE ACT ON 30.12.2011 WHEREIN THE LD . ASSESSING OFFICER MADE SEVERAL ADDITIONS VIZ., ` 10,90,90,540/- TOWARDS UNACCOUNTED PURCHASES, ` 2,33,10,808/- TOWARDS UNACCOUNTED SALES, ` 16,57,576/- TOWARDS SALE PROCEEDS OF GOLD JEWELLERY U/S. 68 OF THE ACT AND ` 3,64,878/- U/S. 2(22)(E) OF THE ACT. ON APPEAL BEF ORE THE ITA NO.2107/MDS/13 4 LD. CIT (A), THE ADDITION WITH RESPECT TO UNACCOUNT ED PURCHASE AND SALES WERE DELETED WHILE AS ` 4 LAKHS RELIEF WAS GIVEN FOR THE ADDITION MADE U/S. 68 OF THE ACT AND THE ADDITION MADE U/S. 2(22)(E) OF THE ACT FOR RS. 3,64,878/- WAS CONFIRMED. 3. REVENUES APPEAL:- 3.1. GROUND 1:- ADDITION ON ACCOUNT OF UNACCOUNTED PURCHASE OF ` `` ` 10,90,90,540/- AND UNACCOUNTED SALES OF ` `` ` 2,33,10,808/- . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS REQUESTED TO FURNISH DETAILS OF ITEM-WISE OPENI NG STOCK, CLOSING STOCK, PURCHASES AND SALES. HOWEVER, THE ASSESSEE D ID NOT COMPLY WITH THE SAME AS OBSERVED BY THE LD. ASSESSING OFFI CER IN HIS ORDER. SUBSEQUENTLY THE ASSESSEE HAD FURNISHED THE INVOICE S FOR THE PURCHASES AND THE SALES EFFECTED BY HIM FOR THE REL EVANT ASSESSMENT YEAR. THEREAFTER THE LD. ASSESSING OFFICER MADE TH E FOLLOWING COMPUTATION FOR ARRIVING AT THE UNACCOUNTED PURCHAS ES & SALES BASED ON THE SALES AND PURCHASE INVOICES SUBMITTED BY THE ASSESSEE AND THE DETAILS OF THE STOCK REPORTED IN FORM 3CD OF TH E AUDIT REPORT. THE SAME IS SUMMARIZED HEREIN BELOW FOR REFERENCE:- ITA NO.2107/MDS/13 5 A. COMPUTATION OF UNACCOUNTED PURCHASES A B C D E F G H I PARTICULA RS ( IN METRIC TONS) OPENING STOCK AS PER FORM 3CD PURCHASE INVOICE PRODUCED BY ASSESSEE SALES INVOICE PRODUCED BY ASSESSEE CLOSING STOCK AS COMPUTED BY AO (B+C-D) CLOSING STOCK AS PER FORM 3CD AGGREGATE UNACCOUNTED PURCHASES IN METRIC TONS COMPUTED BY AO (E+F)/(F-E) RATE PER METRIC TON IN RS. VALUE OF UNACCOUNTED PURCHASE COMPUTED BY AO (G X H) IN RS. MS PLATE 972.54 6792.09 8849.246 (-) 1084.616 2187.191 3271.80 R/O 3271 20,000/- 6,54,20,000 MS ANGLE 259.28 1804.48 1327.66 (+)736.10 969.59 233.49 R/O 233 18,000/- 41,94,000/- MS CHANNEL 534.05 2180.195 3132.29 (-) 418.045 528.29 946.335 R/O 945 18,000/- 1,70,10,000 TMT BARS 5.8 683.2 884.96 (-) 195.96 524.51 720.47 R/O 719.69 16,000/- 1,15,15,040/- MS PLATES 59.23 83.51 154.72 (-) 11.98 32.43 44.41 R/O 44 15,000/- 6,60,000/- MS SQUARES 20.465 5.09 547.77 (-) 522.215 NIL R/O 522 17,000/- 88,74,000 MS WIRE COILS NIL NIL 40.5 NIL NIL 40.5 35,000/- 14,17,500/- TOTAL TOTAL UNACCOUNTED PURCHASES 10,90,90,540 B. COMPUTATION OF UNACCOUNTED SALES A B C D E F G H I PARTICULARS ( IN METRIC TONS) OPENING STOCK AS PER FORM 3CD PURCHASES INVOICE PRODUCED BY ASSESSEE SALES INVOICE PRODUCED BY ASSESSEE CLOSING STOCK AS COMPUTED BY AO (B+C-D) CLOSING STOCK AS PER FORM 3CD AGGREGATE UNACCOUNTED SALES IN METRIC TONS COMPUTED BY AO (E-F) RATE PER METRIC TON IN RS. VALUE OF UNACCOUNTED SALES COMPUTED BY AO (G X H) IN RS. MS BEAM 335.11 3293.91 2146.78 1482.24 935.23 547.01 R/O 559 17,000 93,50,000 CR SHEETS 156.15 717.729 200.5 673.379 NIL 673.379 R/O 673 15,000 1,00,95,000 MS SCRAP 1178.1 2 1584.487 2079.071 683.536 617.597 65.939 R/O 66 6,000 3,96,000 M.S. ROUNDS 54.095 151.46 55.05 150.505 140.27 10.23 R/O 10 19,800 1,98,000 H.R. NON STEEL ALLOYS NIL 22.36 NIL 22.36 NIL 22.36 25,000 5,59,000 DEF JOINT NIL 25.4 NIL 25.4 25.4 25.4 18,000 4,57,200 COBBLE PLATE NIL 15.465 NIL 15.465 15.465 15.465 20,000 3,09,300 ERW PIPE NIL 15.48 NIL 15.48 15.48 15.48 R/O 15 18,720 2,80,808 STEEL SLAB NON-ALLOY NIL 66.62 NIL 66.62 66.62 66.62 25,000 16,65,500 TOTAL TOTAL UNACCOUNTED SALES 2,33,10,808 ITA NO.2107/MDS/13 6 FURTHER ON SCRUTINIZING THE STOCK REGISTER, THE LD. ASSESSING OFFICER CAME TO A CONCLUSION THAT THE ASSESSEE HAD INCREASE D THE VALUE OF STOCK IN THE INWARD STOCK COLUMN AND DECREASES THE VALUE IN THE OUTWARD STOCK COLUMN WITHOUT ACTUAL PURCHASE AND SA LES AND THEREBY INFLATING THE VALUE OF THE CLOSING STOCK WHICH ULTI MATELY RESULTED IN SUPPRESSION OF SALES. BEFORE THE LD. CIT (A) THE A SSESSEE HAD MADE THE FOLLOWING SUBMISSIONS:- I) LD. ASSESSING OFFICER HAD COMPUTED THE UNACCOUN TED PURCHASES IN THE CATEGORY OF M.S PLATES TWICE. THE RE WERE MANY SALES INVOICE WHICH DESCRIBES THE PRODUCT SOLD AS IRON AND STEEL, HOWEVER FOR THE ITEMS PURCHASED S UCH CLASSIFICATION WAS NOT MADE. THIS WOULD HAVE RESUL TED NOT TAKING INTO ACCOUNT SOME OF THE PURCHASE INVOICES O R MIXED UP WITH OTHER CATEGORY OF PURCHASES. II) THE ASSESSEE HAD PRODUCED ALL THE PURCHASE AND SALES INVOICE ALONG WITH BOOKS OF ACCOUNTS WHICH INCLUDED THE PURCHASE & SALES REGISTER FOR THE ASSESSMENT YEAR 2 009-10 WHEREIN ALL THE DETAILS OF PURCHASES AS WELL AS SAL ES IN TERMS OF QUANTITY AND VALUE WERE CLEARLY RECORDED. ITA NO.2107/MDS/13 7 III) THE ASSESSEE HAD ALSO SUBMITTED THE RECONCILI ATION STATEMENT OF PURCHASE AND SALES WHICH HAD TALLIED W ITH THE BOOKS OF ACCOUNTS BEFORE THE LD. CIT (A). IV) THE ASSESSEE IS A TRADER OF DIFFERENT CATEGORI ES OF IRON AND STEEL PRODUCTS CONSISTING OF MANY ITEMS OF DIFFEREN T NOMENCLATURE. V) THE ASSESSEE HAD PURCHASES AND SOLD THE PRODU CTS IN METRIC TONS WHEREAS THE PURCHASED ITEMS ARE NAMED DIFFERENTLY IN THE TRADING CIRCLE WHILE AS THE RETA ILED ITEMS ARE UNDERSTOOD BY DIFFERENT NAMES BY THE GENERAL PUBLIC . THESE ARE DUE TO THE FOLLOWING FACTORS:- A) THE BASIC REASON FOR THE DISPARITY OF NAMES WA S DUE TO THE FACT THAT THE PRODUCTS PURCHASED BY THE ASSESSEE WE RE HEAVY IN WEIGHT AS WELL AS LARGE IN SIZE AND OF VAR IOUS SHAPES AND ARE USUALLY DUMPED IN VARIOUS PLACE IN T HE OPEN SPACE OR GODOWN. THE SPECIFIC DESCRIPTION OF THE GO ODS AS STATED IN THE PURCHASE INVOICE WILL NOT BE DETERMIN ABLE OR TRACEABLE IN THE SALES INVOICE BECAUSE THE BUYER MA Y REQUIRE THE PRODUCT TO BE NAMED TO BE MENTIONED IN THE ITA NO.2107/MDS/13 8 MANNER WHAT HE KNOWS AND FURTHER THE PRODUCTS PURCH ASED BY THE ASSESSEE ARE PRONE TO GAS CUTTING ACTIVITIES SO AS TO ENABLE THE BUYER TO USE IF FOR HIS/HER/THEIR SPECIF IC REQUIREMENTS. ONCE GAS CUTTING IS DONE THE NOMENCLA TURE OF MAIN PRODUCT AS WELL AS THE RESIDUE WILL CHANGE AND WILL BE NAMED AS IS UNDERSTOOD IN THE MARKET. B) WHEN A CHANNEL, BEAM OR AN ANGLE, IS CUT FROM BOTH SIDES, THE RESIDUE WILL BECOME A PLATE OR A FLAT OR SCRAP. THUS, IT WOULD BE PRACTICALLY NOT POSSIBLE TO NAME AN ITEM I N THE SALES INVOICE AS REFERRED TO IN THE PURCHASE INVOIC E BECAUSE THE CHANNEL/BEAM/ANGEL MAY BE SOLD AS PLATE/FLAT OR SCRAP OR JUST AN IRON & STEEL PRODUCT. C) THE IRON AND STEEL PRODUCTS LIKE PLATE, SHEETS, ANGELS, CHANNELS, BEAM, FLAT, ROUNDS, PIPE & TMT ETC., BY I TS VERY NATURE ARE PRONE TO ACCUMULATE RUST AND PARTICULARL Y WHEN THEY ARE DUMPED IN OPEN AREA AND VULNERABLE TO THE PREVALENT CLIMATIC CONDITIONS, AND THEREFORE WOULD SOMETIMES BE SOLD AS A SCRAP OR AS IRON & STEEL ACC ORDING TO THE CONDITIONS OF THE PRODUCTS. ITA NO.2107/MDS/13 9 D) MOREOVER THE IRON AND STEEL PRODUCTS PURCHASED SUCH AS MATE, BEAM, ANGLE, CHANNEL, ROUNDS ETC., MAY CONTAI N FEW DEFECTIVE STOCK WITH RESPECT TO QUALITY AND OR SHAP E, CHEMICAL PROPERTY, ETC., THEN THE SAME MAY HAVE TO BE SOLD AS SCRAP OR AS AN IRON & STEEL MATERIAL. E) SIMILARLY A COBBLE PLATE CAN BE SOLD EITHER AS A PLATE OR AS A SCRAP OR AS IRON & STEEL. F) A STEEL PIPE WHEN CUT INTO TWO PIECES LENGTH WI SE THE RESIDUE WHEN STRAIGHTENED MAY BE SOLD AS A PLATE O R AS A SHEET OR AS A FLAT OR A PIPE OR AS SCRAP OR AS IRO N & STEEL. G) THE SCRAP MATERIALS WHICH CONSISTS OF SO MANY M IXED PRODUCTS OF IRON & STEEL MATERIALS SUCH AS PLATE, S HEET, ANGELS, CHANNELS, BEAMS, FLATS, ROUNDS, ETC., WHEN SEGREGATED, SOME GOOD MATERIALS MAY BE FOUND WHICH ARE SOLD IN THE MARKET AS PER THE PRODUCT SPECIFICATION FOR GETTING BETTER REALIZATION VALUE. H) ANY TYPE OF SHEETS WHETHER HR OR CR, HAT ROLLED STEEL PLATES, NON ALLOY STEEL PLATES, COIL CUT PLATES, HS MP, PMP, MIXED PLATE, PLATE CUTTINGS, SHEET CUTTINGS, CHEQUE RED ITA NO.2107/MDS/13 10 PLATES CAN BE SOLD AS PER THEIR SPECIFICATION OR AS PLATES OR AS SHEETS. I) A SLAB MATERIAL ALSO CAN BE SOLD AS PLATES OR A S A SLAB OR AS SCRAP OR AS IRON & STEEL. J) TMT, TD BARD, ROUNDS, BLACK ROUND, WIRE ROD COIL ARE OF THE SAME AND SIMILAR CATEGORY. H) SQUARE, RE BARS, FLATS, BLACK FLATS, MS FLATS, H R FLATS ARE OF THE SAME & SIMILAR CATEGORY. L) A PLATE WHEN CUT INTO SMALL WIDTH AS PER THE REQ UIREMENT OF THE BUYER MAY BE CALLED AS FLAT, PLATE OR IRON & ST EEL MATERIAL. M) A PLATE WHEN FOUND WITH ANY CRACK/CUT/DOUBLE, T HE DEFECTIVE PART HAS TO BE APPROPRIATELY CUT FOR GETTING GOOD S ALEABLE PRICE. IN SUCH EXERCISE THE DESCRIPTION OF THE MAT ERIALS WILL CHANGE. VI) THE DETAILS OF OPENING STOCK, PURCHASES & SALES AS PER THE AUDIT REPORT, AS PER BOOKS AND AS PER THE OBSERVATI ONS OF LD. ASSESSING OFFICER VIDE NOTICE DATED 24.12.2011 WERE AS ITA NO.2107/MDS/13 11 FOLLOWS FROM WHICH IT IS EVIDENT THAT THERE WERE NO UNACCOUNTED PURCHASES AND SALES: PARTICULARS AS PER AUDIT REPORT AS PER BOOKS AS PER NOTICE DT. 24.12.11 OPENING STOCK 3574.720 MTS 3574.720 MTS 3574.720 MT S PURCHASES 29974.753 MTS 21056.513 MTS 18061.231 MTS SALES 28859.038 MTS 19832.594 MTS 19418.567MTS VII) THE ASSESSING OFFICER HAD IGNORED THE RECONC ILIATION STATEMENT SUBMITTED BY THE ASSESSEE AND WITHOUT GIV ING SUFFICIENT OPPORTUNITY OF BEING HEARD, HAD COMPLETE D THE ASSESSMENT. FURTHER, ONLY TWO DAYS TIME WERE GRANTE D TO FURNISH THE REPLY TO THE DETAILED QUESTIONNAIRE ISS UED BY THE LD. ASSESSING OFFICER VIDE LETTER DATED 24.12.2011. VII) THE LD. ASSESSING OFFICER HAD ALSO NOT TAKEN I NTO CONSIDERATION OF THE SALES & PURCHASE INVOICES OF MANY MONTHS ESP ECIALLY DURING THE MONTH OF FEBRUARY AND MARCH OF 2009. THI S WAS EVIDENT FROM THE SALES AND PURCHASE REGISTERS CONTA INING 106 & 66 PAGES RESPECTIVELY. ITA NO.2107/MDS/13 12 IX) IN THE REMAND REPORT PROCEEDINGS ALSO, THE LD . ASSESSING OFFICER HAD SIMPLY RELIED UPON HIS EARLIER ORDER WI THOUT PERUSING THE MATERIALS SUBMITTED BY THE ASSESSEE. 3.1.1. THE LD. CIT (A) AFTER EXAMINING THE FACTS O F THE CASE AND EXAMINING THE RELEVANT RECORDS PRODUCED BEFORE HIM, DELETED THE ADDITIONS MADE ON ACCOUNT OF UNACCOUNTED PURCHASES FOR ` 10,90,90,450/- AND UNACCOUNTED SALES FOR ` 2,33,10,808/- BY OBSERVING AS UNDER:- I HAVE CONSIDERED THE ABOVE SUBMISSIONS OF THE ASS ESSEE AS WELL AS THE CONTENTS OF THE ASSESSMENT ORDER AND THE REMAND REPORT. THE ASSESSEE HAD BEEN MAINTAINING THE REGULAR BOOKS OF ACCOUNT, INCLUDING THE PURCHASE REGISTER AND SALES REGISTER. THE ASSESSEES PURCHA SE REGISTER CONTAINS THE DETAILS OF DAILY (DATE-WISE) PURCHASES MADE. THES E DETAILS INCLUDE THE FULL PARTICULARS OF THE PARTIES FROM WHOM THE PURCHASES ARE MADE, INVOICE NUMBERS, QUANTITY PURCHASED AND VALUE OF PURCHASES. THE VALUE OF THE PURCHASES ARE AGAIN CLASSIFIED INTO THE GROSS PURCH ASE VALUE, PURCHASES AGAINST C-FORM, 4% VAT PURCHASES, VAT INPUT, LOADI NG/UNLOADING CHARGES, GAS CUTTING CHARGES ETC. SIMILARLY, SALES REGISTER CONTAINS THE DETAILS OF DAILY (DATE-WISE) SALES MADE. THESE DET AILS INCLUDE THE FULL PARTICULARS OF THE PARTIES TO WHOM THE SALES ARE MA DE, INVOICE NUMBERS, ITA NO.2107/MDS/13 13 QUANTITY SOLD AND VALUE OF SALES. THE VALUE OF THE SALES ARE AGAIN CLASSIFIED INTO THE GROSS SALE VALUE, 4% VAT OUTPUT, LOADING/U NLOADING CHARGES, WEIGHMENT CHARGES ETC. THE PURCHASE AND THE SALES R EGISTERS ALSO CONTAINED THE MONTHLY TOTALS OF THE PURCHASES (OR S ALES, AS THE CASE MAY BE) AT THE END OF THE EACH MONTH IN TERMS OF QUANTI TY AS WELL AS THE VALUE. THOUGH THE ABOVE PURCHASE REGISTER AND THE SALES REGISTER DO NOT CONTAIN THE CUMULATIVE TOTALS OF THE ENTIRE YEAR, T HE MONTHLY TOTALS OF EACH MONTH CAN BE ADDED TO ARRIVE AT THE TOTAL PURCHASES AND THE SALES OF THE YEAR, BOTH IN TERMS OF QUANTITY AS WELL AS THE VALU ES. THE DETAILS OF PURCHASE AND SALES REGISTER (AS CONTAINED IN THE MO NTH OF APRIL, 2008, AS AN EXAMPLE), THE ANNUAL TOTALS OF THE PURCHASES AND TH E SALES, AS TOTALED FROM THE MONTHLY TOTALS OF THE PURCHASE REGISTER AND THE SALES REGISTER, AND THEIR RECONCILIATIONS, ARE REPRODUCED AS UNDER: ---- ----- ------ ----- ---- ------- ------ - --- -- ETC. THUS, THE ABOVE CLEARLY SHOWS THAT THE ACTUAL QUANT ITIES OF IRON AND STEEL PURCHASED AND SOLD BY THE ASSESSEE DURING THE FINAN CIAL YEAR 2008-09 ARE 21,056.513 METRIC TONNES (OR MTS) AND 19,832.594 MT S RESPECTIVELY. THESE DETAILS ARE CLEARLY AVAILABLE IN THE PURCHASE AND SALES REGISTERS MAINTAINED IN THE REGULAR COURSE OF BUSINESS ON DAY -TO-DAY BASIS. FURTHER THESE REGISTERS ARE PART OF THE REGULAR BOOKS FOUND BY THE AO AT THE TIME OF SURVEY. ALSO, THESE ARE THE BOOKS, WHICH WERE SUBJ ECTED TO AUDIT UNDER ITA NO.2107/MDS/13 14 SECTION 44AB OF THE ACT (AS COULD BE SEEN FROM THE AUDITORS TICK MARKS IN THESE REGISTERS) AND BASED ON WHICH FORM NO.3CD WAS PREPARED AND RETURN OF INCOME OF THE A.Y 2009-10 WAS ALSO FILED MUCH BEFORE THE DATE OF SURVEY. HENCE IT IS NOT EVEN POSSIBLE TO CONSIDER THAT THE SAID PURCHASE AND SALES REGISTERS ARE FABRICATED /MANIPULATED SUB SEQUENTLY TO SUIT THE ASSESSEES REQUIREMENTS. THEREFORE, THE ABOVE PURC HASE AND SALES REGISTERS FOUND AT THE TIME OF SURVEY ARE TO BE CON SIDERED AS REGULAR AND GENUINE BOOKS OF ACCOUNTS. IT IS ALSO IMPORTANT TO MENTION HERE THAT THE ABO VE PURCHASE AND SALES REGISTERS ARE MAINTAINED ON DAY-TO-DAY BASIS. ALL THE PURCHASE AND SALES ARE RECORDED IN THESE REGISTERS ON BILL-BY-BILL B ASIS GIVING THE DETAILS OF THE QUANTITY PURCHASES/SOLD AND IT S VALUE. THEREFORE A LL THE PURCHASES AND SALES CAN BE CROSS VERIFIED WITH THE ACTUAL PURCHAS E AND SALES INVOICES. HOWEVER, THE AO HAS NOT POINTED OUT OR FOUND THAT A NY OF THE PURCHASE/SALES INVOICES ARE NOT FURNISHED OR MISSIN G. THE AO HAS ONLY TRIED TO SEGREGATE THE PURCHASES AND THE SALES BASE D ON TYPE OF PRODUCT (I.E PRODUCT-WISE) AND ARRIVED AT A DIFFERENT FIGURE OF TOTAL OF PURCHASES AND SALES, BASED ON SUCH PRODUCT-WISE SEGREGATION. THE AO, THOUGH TOTALED THE PURCHASES AND SALES AT A DIFFERENT FIGURE, HAS NOT SPECIFIED AS TO HOW THE DIFFERENCE IS ARRIVED AT. ON THE OTHER HAND, THE ASSESSEE BEFORE THE UNDERSI GNED FURNISHED THE QUANTITY RECONCILIATION OF THE PURCHASES AND SALES, WHICH IS TALLYING WITH THE ITA NO.2107/MDS/13 15 FIGURES MENTIONED IN THE PURCHASE AND SALES REGISTE RS. EVEN THE AO, IN HIS REMAND REPORT, WHEN THE ABOVE QUANTITY RECONCILIATI ON OF PURCHASES AND SALES ARE FORWARDED TO HIM, COULD NOT FOUND ANY DIS CREPANCIES IN THE SAID RECONCILIATION. AS STATED BY THE ASSESSEE, THE NOMENCLATURE OF T HE PRODUCTS DEALT WITH BY HIM KEEPS ON CHANGING FROM TIME TO TIME FOR VARI OUS REASONS. FIRSTLY, THE NOMENCLATURE USED IN THE PURCHASE INVOICES AND THE SALES INVOICES NEED NOT BE ONE AND THE SAME. THOUGH THE ASSESSEES SUP PLIERS NORMALLY USE THE PRODUCT NAME IN THEIR INVOICES, THE SALES INVOI CES BY THE ASSESSEE CONTAIN A DIFFERENT NAME, DEPENDING UPON THE CONVEN IENCE. MANY A TIME IN IRON AND STEEL PRODUCTS, THE SAME PRODUCT CAN BE CA LLED BY DIFFERENT NAMES. FOR EXAMPLE, MS SQUARES AND/OR MS ROUNDS CAN ALSO B E CALLED AS MS RODS, AND VICE VERSA. ALSO, IF NOMENCLATURE IS NOT SO IMPORTANT, THE PRODUCT CAN SIMPLY BE CALLED AS IRON AND STEEL ONLY, A GE NERAL NAME COMMONLY USED IN THE TRADE. FURTHER, IN A RETAIL BUSINESS, I F AN END CUSTOMER PURCHASES DIFFERENT TYPES OF PRODUCTS AND ALL THE P RODUCTS HAVE THE SAME VALUE (OR NEGOTIATED FOR A COMMON VALUE) THE SALES INVOICE WILL NORMALLY BE PREPARED SHOWING THE PRODUCT AS IRON AND STEEL ON LY FOR THE SAKE OF CONVENIENCE. IN FACT, FROM SOME OF THE COPIES OF T HE SALES INVOICES FURNISHED BY THE ASSESSEE, IT IS SEEN THAT THERE AR E SEVERAL SUCH SALES (BY THE ASSESSEE) INVOICES WHERE THE PRODUCT MENTIONED AS IRON AND STEEL ONLY. HOWEVER, THE AOS LIST OF SALES (WHILE RECON CILING THE DATA PRODUCT- ITA NO.2107/MDS/13 16 WISES) DOES NOT CONTAIN THE SALES UNDER THE CATEGOR Y OF IRON AND STEEL. IN OTHER WORDS, THE SALE UNDER THE CATEGORY OF IRON A ND STEEL WAS TOTALLY IGNORED BY THE AO. THUS, WHEN THERE ARE SALES UNDER THE NOMENCLATURE OF IRON AND STEEL, AS FOUND IN THE SALES INVOICES, A S TO HOW THE AO TOTALLY IGNORED THE SAME IN HIS SEGREGATION LIST OF SALES. SOME TIMES, THE PRODUCTS ARE CUT INTO VARIOUS TYPE S AND SIZES BY THE ASSESSEE DEPENDING UPON THE REQUIREMENTS OF THE CUS TOMERS. THIS FACT IS EVIDENT FROM THE GAS CUTTING CHARGES INCURRED (AS D EBITED IN THE P&L ACCOUNT) OF RS.6,92,876/- DURING THE YEAR. IN THE PROCESS, SOMETIMES THE PRODUCTS GETS CONVERTED INTO ANOTHER TYPE AND ALSO RESULTS IN GENERATION OF SCRAP MATERIAL, WHICH IS SOLD UNDER A DIFFERENT NOM ENCLATURE, MS SCRAP. THUS, THE PRODUCT PURCHASED UNDER ONE NOMENCLATU RE IS NOT SOLD UNDER THE SAME NOMENCLATURE BY THE ASSESSEE. IN OTHER WO RDS, MANY A TIME, THE IRON AND STEEL PRODUCTS PURCHASED UNDER ONE CLASS IFICATION IS SOLD UNDER DIFFERENT CLASSIFICATION. THIS IS THE PRECISE REAS ON WHY THE SALES ARE ARRIVED AT EXCESS UNDER SOME PRODUCTS AND LESSER UNDER SOME OTHER PRODUCTS. THEREFORE, SEGREGATION OF THE IRON AND STEEL PURCHA SES AND SALES BASED ON THE TYPE OF PRODUCT MENTIONED IN THE PURCHASE AND/O R SALES INVOICES CAN ONLY LEAD TO A DISTORTED PICTURE OF THE FACTS. HENC E, NO ADVERSE INFERENCES CAN BE DRAWN BASED ON SUCH SEGREGATION. THE NEXT DISCREPANCY IS BETWEEN THE QUANTITATIVE DETAILS OF PURCHASES, SALES AND THE CLOSING STOCK FOUND IN THE BOOKS OF A CCOUNTS (I.E. PURCHASE ITA NO.2107/MDS/13 17 REGISTER AND THE SALES REGISTER) AND THOSE REFLECTE D IN THE FORM NO.3CD REPORT ENCLOSED ALONG WITH THE RETURN OF INCOME. AS MENTIONED IN THE FOREGOING PARAGRAPHS, THE QUANTITATIVE DETAILS OF O PENING STOCK, PURCHASES, SALES AND THE CLOSING STOCK, AS PER THE BOOKS OF AC COUNTS (AS COMPUTED BY AO) ARE 3,574.720 MTS, 21,056.473 MTS, 19,832.594 M TS AND 4,798.599 MTS RESPECTIVELY. WHEREAS, THE CORRESPONDING FIGURES GI VEN IN THE FORM NO.3CD ENCLOSED ALONG WITH THE RETURN OF INCOME, RESPECTIV ELY, ARE 3,574.720 MTS, 29,974.753 MTS, 28,859.038 MTS AND 4,690.435 MTS. THUS, THOUGH THERE IS NO DIFFERENCE IN THE QUANTITY OF THE OPENING STOCK AS ON 01.04.2008, THERE ARE SUBSTANTIAL VARIATIONS IN THE QUANTITATIVE DETA ILS OF PURCHASES, SALES AND THE CLOSING STOCK, AS UNDER:- PARTICULARS AS PER THE 3CD (44AB) REPORT FILED IN THE RETURN AS PER THE BOOKS OF ACCOUNTS AT THE TIME OF SURVEY DIFFERENCE OPENING STOCK 3,574.720 MTS 3,574.720 MTS PURCHASES 29,974.753 MTS 21,056.473 MTS 8,918.280 M TS SALES 28,859.038 MTS 19,832.594 MTS 9,026.444 MTS CLOSING STOCK 4,690.435 MTS 4,798.599 MTS (-)108.16 4 MTS THE ASSESSEE BEFORE THE UNDERSIGNED AS WELL AS BEFO RE THE AO EXPLAINED THAT HE WAS HAVING TWO GODOWNS AND THE STOCK MOVEME NT FROM ONE GODOWN TO THE OTHER I.E. INWARD AND THE OUTWARD MOVEMENTS OF THE STOCK FROM ONE GODOWN TO THE OTHER WAS ALSO TAKEN INTO ACCOUNT WHILE ARR IVING AT THE TOTAL PURCHASES AND SALES IN THE 3CD REPORT. HENCE, THERE WAS A VARIATI ON, THE ASSESSEE EXPLAINED. ITA NO.2107/MDS/13 18 IN THIS REGARD, THE ASSESSEE ALSO FURNISHED THE REC ONCILIATION (AS FILED BEFORE THE AO ON 23.12.2011) AS UNDER: PARTICULARS QUANTITY (MTS) OPENING STOCK (A) 3574.720 PAGE NO.1 INWARDS 21056.513 CREDIT NOTE -85.470 PAGE NO.145,172 CREDIT NOTE(APPEARING ON BOTH SIDE) -28.700 PAGE NO.131,147,156,184 STOCK JOURNAL 9095.144 PAGE NO.164,211,226 SHORTAGE 22.734 TOTAL INWARDS (B) 29974.753 OUTWARDS SALES 19832.594 CREDIT NOTE (APPEARING ON BOTH SIDES) -28.700 STOCK JOURNAL 9095.144 PAGE NO.164,211,226 TOTAL OUTWARDS(C) 28859.038 CLOSING STOCK (A+B-C) 4690.435 PAGE NO.226 THE AUDITORS IN THEIR 3CD REPORT CLEARLY MENTIONED THAT THE QUANTITATIVE FIGURES ARE THE PURCHASES AND SALES DURING THE FINANCIAL YEAR. THE WORDS LIKE INWARDS OR OUTWARDS ARE TOTALLY MISS ING IN THE 3CD REPORT. FURTHER, WHEN THE ASSESSEES PURCHASE AND SALES REGISTERS, W HICH ARE SUBJECTED TO AUDITING UNDER SECTION.44AB OF THE ACT AND BASED ON WHICH THE ANNUAL ACCOUNTS OF THE ASSESSEE ARE PREPARED, CLEARLY CONTAINED TH E DETAILS OF PURCHASES AND SALES MADE DURING THE FINANCIAL YEAR, THERE IS NO R EASON FOR THE AUDITORS TO ARRIVE AT DIFFERENT FIGURES IN THE 3CD REPORT. THUS, THE A SSESSEES RECONCILIATION AND EXPLANATIONS REGARDING THE QUANTITATIVE DETAILS OF PURCHASES, SALES AND THE ITA NO.2107/MDS/13 19 CLOSING STOCK FOUND IN THE BOOKS OF ACCOUNTS VIS-- VIS THE FORM NO.3CD IS NOT CONVINCING. IN ANY CASE, THE ASSESSEE HAS BEEN MAINTAINING TH E REGULAR BOOKS OF ACCOUNTS, INCLUDING THE PURCHASE AND SALES REGISTER S. IN FACT, THESE BOOKS OF ACCOUNTS WERE FOUND BY THE AO AT THE TIME OF SURVEY ITSELF. THESE ARE THE BOOKS OF ACCOUNTS WHICH ARE SUBJECTED TO COMPULSORY AUDIT ING UNDER SECTION.44AB OF THE ACT AND BASED ON SUCH AUDITING ONLY THE ANNUAL ACCOUNTS OF THE ASSESSEE ARE PREPARED, INCLUDING THE FORM NO.3CD AND FILED THE R ETURN OF INCOME OF A.Y 2009- 10 MUCH BEFORE THE DATE OF SURVEY. IT IS ALSO IMPO RTANT TO MENTION HERE THAT THE PURCHASE AND SALES REGISTERS FOUND AT THE TIME OF T HE SURVEY ARE THE ACTUAL BOOKS, WHICH ARE SUBJECT TO AUDITING, AS IS EVIDENT FROM THE AUDITORS TYPICAL TICK MARKS FOUND IN THESE REGISTERS. FURTHER, THE VALUE S OF THE PURCHASES AND THE SALES FOUND IN THE THESE PURCHASE REGISTER AND THE SALES REGISTER ARE ALSO TALLYING WITH THE AMOUNTS SHOWN IN THE P&L ACCOUNT. THUS, W HEN THE VALUES OF THE PURCHASES AND SALES SHOWN IN THE SAID PURCHASE AND SALES REGISTERS ARE TALLYING WITH THE AMOUNTS SHOWN IN THE P&L ACCOUNT, THE QUAN TITATIVE DETAILS FOUND IN THE SAID REGISTERS SHOULD ALSO BE TREATED AS GENUINE. T HEREFORE, THE QUANTITATIVE DETAILS FOUND IN THESE PURCHASE AND SALES REGISTERS ARE CONSIDERED AS GENUINE AND TRUE FIGURES. THE QUANTITATIVE DETAILS OF PURC HASES, SALES AND THE CLOSING STOCK REFLECTED IN THE FORM NO.3CD CAN, AT THE MAXI MUM, BE CONSIDERED AS A MISTAKE COMMITTED BY THE AUDITORS. THUS, SINCE THE RE ARE REGULAR PURCHASE AND SALES REGISTERS MAINTAINED BY THE ASSESSEE GIVING DAY-WISE AND BILL-BY-BILL ITA NO.2107/MDS/13 20 DETAILS OF PURCHASE AND SALES, BOTH IN TERMS OF QUA NTITY AND VALUES, AND ALL THE PURCHASES AND SALES ARE FULLY SUPPORTED BY PROPER I NVOICES, THE QUANTITATIVE DETAILS OF PURCHASES AND SALES FOUND IN THE SAID PU RCHASE AND SALES REGISTERS ARE TO BE TAKEN AS THE BASIS FOR ARRIVING AT THE UNACCO UNTED PURCHASE OR SALES, IF ANY. IN ANY CASE, AS DETAILED ABOVE, AOS CALCULATION OF PRODUCT-WISE PURCHASES AND SALES AND ARRIVING AT THE DIFFERENCES IN THE PURCHASES AND SALES IS NOT JUSTIFIED. HENCE, THE A.OS ESTIMATION OF UNACC OUNTED PURCHASES AND SALES, IS ALSO NO JUSTIFIED. IN VIEW OF THESE OBSERVATIONS A ND REASONS, THE AOS ACTION OF ESTIMATING THE UNACCOUNTED PURCHASES OF RS.10,90,90 ,450/- AND UNACCOUNTED SALES OF RS.2,33,10,808/- AND TREATING THEM AS UNAC COUNTED INCOME OF THE ASSESSEE, IS NOT JUSTIFIED AND HENCE DELETED. THE A SSESSEE SUCCEEDS IN HIS APPEALS IN THIS REGARD. 3.1.2. BEFORE US THE LD. A.R. REITERATED THE ARGUM ENTS MADE BEFORE THE REVENUE ON BOTH THE OCCASIONS AND FURTHE R ALONG WITH WRITTEN SUBMISSIONS SUBMITTED THREE VOLUMINOUS PAPE R BOOKS AND PRAYED THAT THE ORDER OF THE LD. CIT (A) MAY BE CON FIRMED WITH RESPECT TO THE DELETION OF THE ADDITIONS MADE ON AC COUNT OF UNACCOUNTED PURCHASES AND SALES. LD. D.R ON THE OT HER HAND RELIED ON THE ORDER OF THE LD. ASSESSING OFFICER. ITA NO.2107/MDS/13 21 3.1.3. WE HAVE HEARD BOTH THE PARTIES AND CAREFULL Y PERUSED THE PAPER BOOKS AND WRITTEN SUBMISSIONS AND OTHER RELEV ANT MATERIALS PRODUCED BEFORE US. THE LD. ASSESSING OFFICER HAS WORKED OUT THE UNACCOUNTED PURCHASES AND SALES BY ONLY TAKING INTO ACCOUNT OF THE AVAILABLE PURCHASE INVOICES AND SALES INVOICES, AND FORM 3CD PRODUCED BEFORE HIM. THIS METHOD OF COMPUTATION AD OPTED BY THE LD. ASSESSING OFFICER WILL NOT CORRECTLY REFLECT TH E UNACCOUNTED PURCHASES AND SALES MADE BY THE ASSESSEE DUE TO THE FOLLOWING REASONS:- I) THE AGGREGATE VALUE MENTIONED IN THE PURCHASE INVOICES AND SALES INVOICES ARE NOT RECONCILED WITH THE TOTAL PU RCHASES AND SALES REFLECTED IN THE PROFIT AND LOSS STATEMENT OF THE ASSESSEE. THEREFORE, THERE IS EVERY POSSIBILITY FOR OMISSION OF PURCHASE INVOICES AND SALES INVOICES. ON SUCH OMISSION, THE CORRECT QUANTITATIVE DETAILS OF STOCK CANNOT BE COMPUTED. II) FOR DETERMINING THE ACCURATE STOCK OF VARIOUS ITEMS, THE QUANTITATIVE DETAILS OF ALL THE PURCHASE INVOICES A ND SALES INVOICES AND OPENING STOCK HAVE TO BE CORRECTLY TAB ULATED. ITA NO.2107/MDS/13 22 SUCH EXERCISE IS NOT MADE BY THE AO WHICH WILL RESU LT IN INCORRECT DETERMINATION OF UNACCOUNTED PURCHASE AND SALES. III) IF THERE ARE DEFECTS IN THE STOCK DETAILS REF LECTED IN THE FORM 3CD, THE ENTIRE WORKING OF THE AO WILL BE ERRONEOUS . IV) THE ASSESSEE HAD CONTENDED BEFORE THE REVENUE THAT THE DETAILS MENTIONED IN PURCHASE INVOICES FOR THE PROD UCTS PURCHASED WERE NOT IDENTICALLY STATED IN THE SALES INVOICE BECAUSE THE PARTICULARS MENTIONED IN THE SALES INVO ICE ARE BY THE NAMES OF THE PRODUCTS GENERALLY UNDERSTOOD BY T HE GENERAL PUBLIC AND THE PARTICULARS MENTIONED IN THE PURCHAS E INVOICE ARE AS UNDERSTOOD IN THE TRADING CIRCLE. THIS FACTOR HA S NOT BEEN EXAMINED BY THE LD. ASSESSING OFFICER AND NO EFFORT WAS TAKEN TO MATCH THE PRODUCTS ITEM WISE IN THE STOCK STATEM ENT. THEREFORE, THE COMPUTATION MADE BY THE AO CANNOT BE RELIED UPON. V) THE NATURE OF TRADING ACTIVITY OF THE ASSESSEE IS SELLING CHANNELS, BEAMS ETC., AFTER CUTTING THEM FROM BOTH SIDES ACCORDING TO THE REQUIREMENT OF THE BUYER. THEREFOR E, THE PRODUCTS PURCHASED BY THE ASSESSEE ARE NOT SOLD IN THE SAME ITA NO.2107/MDS/13 23 FORM. THESE ASPECTS ARE ALSO NOT TAKEN INTO CONSI DERATION BY THE LD. ASSESSING OFFICER AS IT APPEARS FROM HIS CO MPUTATION. 3.1.4. FURTHER THE LD. CIT (A) WHILE DELETING TH E ADDITION HAD EXAMINED THE ISSUE IN DETAIL AFTER OBTAINING REMAND REPORT FROM THE LD. A.O AND HAD CATEGORICALLY MADE THE FOLLOWING FI NDINGS WHICH CANNOT BE BRUSHED ASIDE:- (I) THE ASSESSEE HAS MAINTAINED REGULAR BOOKS OF A CCOUNTS INCLUDING PURCHASE AND SALES REGISTERS. (II) THE PURCHASE REGISTERS CONTAINS THE DETAILS OF DAILY DATE WISE PURCHASE MADE, FULL PARTICULARS OF PARTIES FROM WHO M PURCHASES WERE MADE, INVOICE NUMBERS, QUANTITY PURCHASED AND VALUE OF PURCHASES. THE VALUE OF PURCHASES WERE CLASSIFIED INTO THE GRO SS PURCHASE VALUE, PURCHASE AGAINST C FORMS, 4% VAT PURCHASES, VAT IN PUT, LOADING AND UNLOADING CHARGES, GAS CUTTING CHARGES ETC. (III) SIMILARLY SALES REGISTERS CONTAINS THE DETAI LS OF DATE WISE SALES MADE, FULL PARTICULARS OF THE PARTIES TO WHOM THE S ALES WERE MADE, INVOICE NUMBERS, QUANTITY SOLD AND VALUE OF SALES. THE VALUES OF THE ITA NO.2107/MDS/13 24 SAME ARE AGAIN CLASSIFIED INTO GROSS SALE VALUE, 4% VAT, LOADING AND UNLOADING CHARGES, WEIGHMENT CHARGES ETC. (IV) THOUGH THE ABOVE PURCHASE REGISTER AND THE SAL ES REGISTER DO NOT CONTAIN THE CUMULATIVE TOTALS OF THE ENTIRE YEAR, T HE MONTHLY TOTALS OF EACH MONTH CAN BE ADDED TO ARRIVE AT THE TOTAL PURC HASES AND THE SALES OF THE YEAR, BOTH IN TERMS OF QUANTITY AS WEL L AS THE VALUES. (V) PURCHASE AND SALES REGISTERS FOR THE MONTH OF APRIL 2008 WERE EXAMINED AND RECONCILED; VI) AFTER RECONCILIATION IT WAS FOUND THAT ACTUAL Q UANTITY OF IRON AND STEEL PURCHASES AND SOLD BY THE ASSESSEE DURING THE F.Y 2008-09 ARE 21,056.513 METRIC TONNS (OR MTS) AND 19,832.594 MT S RESPECTIVELY, WHICH ARE AS PER THE PURCHASE AND S ALES REGISTERS MAINTAINED BY THE ASSESSEE IN THE REGULAR COURSE OF BUSINESS ON DAY- TO-DAY BASIS. THESE REGISTERS ARE THE REGULAR BOOK S OF THE ASSESSEE WHICH WERE FOUND AT THE TIME OF SURVEY AND WERE SUB JECTED TO AUDIT UNDER SECTION 44AB OF THE ACT AND RETURN OF INCOME OF THE A.Y 2009- 10 WAS FILED MUCH BEFORE THE DATE OF SURVEY. HENCE IT IS NOT EVEN POSSIBLE TO CONSIDER THAT THE SAID PURCHASE AND SAL ES REGISTERS ARE FABRICATED /MANIPULATED SUBSEQUENTLY TO SUIT THE AS SESSEES ITA NO.2107/MDS/13 25 REQUIREMENTS. THEREFORE, THE ABOVE PURCHASE AND SA LES REGISTERS FOUND AT THE TIME OF SURVEY ARE TO BE CONSIDERED AS REGULAR AND GENUINE BOOKS OF ACCOUNTS. VII) ALL THE PURCHASE AND SALES ARE RECORDED IN TH ESE REGISTERS ON BILL-BY-BILL BASIS GIVING THE DETAIL OF THE QUANT ITY PURCHASES/SOLD AND ITS VALUE. THEREFORE ALL THE PURCHASES AND SALES CA N BE CROSS VERIFIED WITH THE ACTUAL PURCHASE AND SALES INVOICES. HOWEV ER, THE AO HAS NOT POINTED OUT OR FOUND ANY OF THE PURCHASE/SALES INVOICES AS MISSING. VIII) THE AO HAS ONLY TRIED TO SEGREGATE THE PURC HASES AND THE SALES BASED ON THE TYPE OF PRODUCT (I.E. PRODUCT-WI SE) AND ARRIVED AT A DIFFERENT FIGURE OF TOTAL OF PURCHASES AND SAL ES, BASED ON SUCH PRODUCT-WISE SEGREGATION. THE AO, THOUGH TOTALED TH E PURCHASES AND SALES AT A DIFFERENT FIGURE, HAS NOT SPECIFIED AS TO HOW THE DIFFERENCE IS ARRIVED AT. IX) THE ASSESSEE HAS FURNISHED QUANTITY RECONCILIA TION OF THE PURCHASES AND SALES, WHICH IS TALLYING WITH THE FIG URES MENTIONED IN THE PURCHASE AND SALES REGISTERS. THE A.O IN HIS REMAND REPORT, EVEN AFTER EXAMINING THE RECONCILIATION STATEMENT O F PURCHASES AND ITA NO.2107/MDS/13 26 SALES WHICH WERE FORWARDED TO HIM, COULD NOT FIND A NY DISCREPANCIES. X) THOUGH THE ASSESSEES SUPPLIERS NORMALLY USE THE PRODUCT NAME IN THEIR INVOICES AS UNDERSTOOD IN THE TRADING CIRCLE WHILE AS THE SALES INVOICES OF THE ASSESSEE MENTIONS A DIFFE RENT NAME, DEPENDING UPON THE CHARACTERISTIC OF THE PRODUCT SI NCE IT HAS UNDERGONE A CHANGE. MANY A TIME IN THE BUSINESS OF IRON AND STEEL PRODUCTS, THE SAME PRODUCT MAY BE CALLED BY DIFFERE NT NAMES. FOR EXAMPLE, MS SQUARES AND/OR MS ROUNDS CAN ALSO BE CA LLED AS MS RODS, AND VICE VERSA AND IF THE NOMENCLATURE IS NOT SO IMPORTANT, THE PRODUCT MAY SIMPLY BE CALLED AS IRON AND STEEL BEING A GENERAL NAME COMMONLY USED IN THE TRADE. XI) FROM SOME OF THE COPIES OF THE SALES INVOICES FURNI SHED BY THE ASSESSEE, IT IS SEEN THAT THERE ARE SEVERAL SUC H SALES INVOICES WHERE THE PRODUCT ARE MENTIONED AS IRON AND STEEL ONLY. HOWEVER, THE AOS LIST OF SALES (WHILE RECONCILING) THE DATA PRODUCT- WISES DOES NOT CONTAIN THE SALES UNDER THE CATEGORY OF IRON AND STEEL. IN OTHER WORDS, THE SALE UNDER THE CATEGOR Y OF IRON AND STEEL WAS TOTALLY IGNORED BY THE AO. ITA NO.2107/MDS/13 27 XII) THE FACT THAT THE PRODUCTS ARE BEING CUT INTO VARIO US TYPES AND SIZED, DEPENDING UPON THE REQUIREMENTS OF THE CUSTO MERS, IS EVIDENT FROM THE GAS CUTTING CHARGES OF ` 6,92,876/-DEBITED TO THE P&L ACCOUNT OF THE ASSESSEE. THUS IN SUCH PROCESS OCCAS IONALLY THE PRODUCTS GETS CONVERTED INTO ANOTHER CATEGORY AND A LSO RESULTS IN GENERATION OF SCRAP MATERIAL WHICH ARE SOLD UNDER D IFFERENT NOMENCLATURE AS MS SCRAP. XIII) REGARDING DISCREPANCY BETWEEN THE QUANTITATIVE DET AILS OF PURCHASES, SALES AND THE CLOSING STOCK FOUND IN THE BOOKS OF ACCOUNTS (I.E. PURCHASE REGISTER AND THE SALES REGI STER) AND THOSE REFLECTED IN THE FORM NO.3CD REPORT ENCLOSED ALONG WITH THE RETURN OF INCOME, THE QUANTITATIVE DETAILS OF OPENING STOCK, PURCHASES, SALES AND THE CLOSING STOCK, AS PER THE BOOKS OF ACCOUNTS AND AS PER FORM NO.3CD ARE AS UNDER:- PARTICULARS AS PER FORM NO. 3CD AS PER THE BOOKS OF ACCOUNTS DIFFERENCE OPENING STOCK 3,574.720 MTS 3,574.720 MTS NIL PURCHASES 29,974.753 MTS 21,056.473 MTS 8,918.280 M TS SALES 28,859.038 MTS 19,832.594 MTS 9,026.444 MTS CLOSING STOCK 4,690.435 MTS 4,798.599 MTS (-)108.16 4 MTS IXV) THOUGH THERE IS NO DIFFERENCE IN THE QUANTIT Y OF THE OPENING STOCK AS ON 01.04.2008, THERE ARE SUBSTANTIAL DIFFE RENCE IN THE ITA NO.2107/MDS/13 28 QUANTITATIVE DETAILS OF PURCHASES, SALES AND THE CL OSING STOCK. THE ASSESSEE HAS EXPLAINED BEFORE THE UNDERSIGNED AS WE LL AS BEFORE THE AO THAT HE WAS HAVING TWO GODOWNS AND THE STOCK MOVEMENT FROM ONE GODOWN TO THE OTHER I.E. INWARD AND THE OU TWARD MOVEMENTS OF THE STOCK FROM ONE GODOWN TO THE OTHER WAS ALSO TAKEN INTO ACCOUNT WHILE ARRIVING AT THE TOTAL PURC HASES AND SALES IN THE 3CD REPORT. HENCE, THERE WAS A VARIATION. IN TH IS REGARD THE ASSESSEE HAD FURNISHED THE RECONCILIATION (AS FILED BEFORE THE AO ON 23.12.2011) AS UNDER:- PARTICULARS QUANTITY (MTS) OPENING STOCK (A) 3574.720 PAGE NO.1 INWARDS 21056.513 CREDIT NOTE -85.470 PAGE NO.145,172 CREDIT NOTE(APPEARING ON BOTH SIDE) -28.700 PAGE NO.131,147,156,184 STOCK JOURNAL 9095.144 PAGE NO.164,211,226 SHORTAGE 22.734 TOTAL INWARDS (B) 29974.753 OUTWARDS SALES 19832.594 CREDIT NOTE (APPEARING ON BOTH SIDES) -28.700 STOCK JOURNAL 9095.144 PAGE NO.164,211,226 TOTAL OUTWARDS(C) 28859.038 CLOSING STOCK (A+B-C) 4690.435 PAGE NO.226 ITA NO.2107/MDS/13 29 XV) THE AUDITORS IN THEIR FORM3CD REPORT CLEARLY M ENTIONED THAT THE QUANTITATIVE FIGURES ARE THE PURCHASES AND SALES DURING THE FINANCIAL YEAR. THE WORDS LIKE INWARDS OR OUTWAR DS ARE TOTALLY MISSING IN THE 3CD REPORT. FURTHER, WHEN THE ASSESS EES PURCHASE AND SALES REGISTERS, WHICH ARE SUBJECTED TO AUDITIN G UNDER SECTION.44AB OF THE ACT AND BASED ON WHICH THE ANNU AL ACCOUNTS OF THE ASSESSEE ARE PREPARED, CLEARLY CONTAINED THE D ETAILS OF PURCHASES AND SALES MADE DURING THE FINANCIAL YEAR, THERE IS NO REASON FOR THE AUDITORS TO ARRIVE AT DIFFERENT FIGU RES IN THE 3CD REPORT. THUS, THE ASSESSEES RECONCILIATION AND EXPLANATION S REGARDING THE QUANTITATIVE DETAILS OF PURCHASES, SALES AND THE CL OSING STOCK FOUND IN THE BOOKS OF ACCOUNTS VIS--VIS THE FORM NO.3CD IS NOT CONVINCING. XVI) THE ASSESSEE HAS BEEN MAINTAINING THE REGULA R BOOKS OF ACCOUNTS, INCLUDING THE PURCHASE AND SALES REGISTER S. IN FACT, THESE BOOKS OF ACCOUNTS WERE FOUND BY THE AO AT THE TIME OF SURVEY ITSELF. THESE ARE THE BOOKS OF ACCOUNTS WHICH ARE SUBJECTED TO COMPULSORY AUDITING UNDER SECTION.44AB OF THE ACT AND BASED ON SUCH AUDITING ONLY THE ANNUAL ACCOUNTS OF THE ASSESSEE ARE PREPAR ED, INCLUDING THE ITA NO.2107/MDS/13 30 FORM NO.3CD AND FILED THE RETURN OF INCOME OF A.Y 2 009-10. THE PURCHASE AND SALES REGISTERS WHICH ARE SUBJECT TO A UDITING, AS IS EVIDENT FROM THE AUDITORS TYPICAL TICK MARKS FOU ND IN THESE REGISTERS. FURTHER, THE VALUES OF THE PURCHASES AND THE SALES FOUND IN THE PURCHASE REGISTER AND THE SALES REGISTER ARE ALSO T ALLYING WITH THE AMOUNTS SHOWN IN THE P&L ACCOUNT. THUS, WHEN THE V ALUES OF THE PURCHASES AND SALES SHOWN IN THE SAID PURCHASE AND SALES REGISTERS ARE TALLYING WITH THE AMOUNTS SHOWN IN THE P&L ACCO UNT, THE QUANTITATIVE DETAILS FOUND IN THE SAID REGISTERS SH OULD ALSO BE TREATED AS GENUINE. THEREFORE, THE QUANTITATIVE DETAILS FOU ND IN THESE PURCHASE AND SALES REGISTERS ARE CONSIDERED AS GENU INE AND TRUE FIGURES. THE QUANTITATIVE DETAILS OF PURCHASES, SA LES AND THE CLOSING STOCK REFLECTED IN THE FORM NO.3CD CAN, AT THE MAXI MUM, BE CONSIDERED AS A MISTAKE COMMITTED BY THE AUDITORS. THUS, SINCE THERE ARE REGULAR PURCHASE AND SALES REGISTERS MAIN TAINED BY THE ASSESSEE GIVING DAY-WISE AND BILL-BY-BILL DETAI LS OF PURCHASE AND SALES, BOTH IN TERMS OF QUANTITY AND VALUES, AND AL L THE PURCHASES AND SALES FOUND IN THE SAID REGISTERS ARE TO BE TAKEN A S THE BASIS FOR ARRIVING AT THE UNACCOUNTED PURCHASE OR SALES, IF A NY. ITA NO.2107/MDS/13 31 XVII) AOS CALCULATION OF PRODUCT-WISE PURCHASES AND SALES AND ARRIVING AT THE DIFFERENCES IN THE PURCHASES AND SA LES IS NOT JUSTIFIED. HENCE, THE A.OS ESTIMATION OF UNACCOUNTED PURCHASE S AND SALES, IS ALSO NO JUSTIFIED. IN VIEW OF THESE OBSERVATIONS A ND REASONS, THE AOS ACTION OF ESTIMATING THE UNACCOUNTED PURCHASES OF R S.10,90,90,450/- AND UNACCOUNTED SALES OF RS.2,33,10,808/- AND TREAT ING THEM AS UNACCOUNTED INCOME OF THE ASSESSEE, IS NOT JUSTIFIE D AND HENCE DELETED. 3.1.5. FROM THE ABOVE FINDING OF THE LD.CIT (A) W HICH COULD NOT BE SUCCESSFULLY CONTROVERTED BY THE LD .D.R AND FRO M OUR DISCUSSIONS IN PARA 3.1.3 IT IS APPARENT THAT THE COMPUTATION M ADE BY THE LD. ASSESSING OFFICER WITH RESPECT TO UNACCOUNTED PURCH ASES OF ` 10,90,90,450/- AND UNACCOUNTED SALES OF ` 2,33,10,808/- IS ERRONEOUS AND ADDITION MADE BASED ON THE SAME DESER VES TO BE DELETED. IT IS ALSO PERTINENT TO MENTION THAT OTHE R THAN THE ERRONEOUS COMPUTATIONS MADE BY THE LD. ASSESSING OFFICER TAKI NG INTO ACCOUNT OF THE INCOMPLETE DATA OF PURCHASES AND SALES INVOI CES, NO OTHER MATERIALS WERE BROUGHT ON RECORD TO ESTABLISH THAT THERE WERE ITA NO.2107/MDS/13 32 UNACCOUNTED PURCHASES AND SALES MADE BY THE ASSESSE E. MOREOVER THE SUBMISSIONS OF THE ASSESSEE HAS NOT BEEN DEALT WITH BY THE LD. A.O, HOWEVER LD. LD. CIT (A) HAS CONSIDERED AND EXA MINED THE SAME WHILE ARRIVING AT HIS DECISION. THEREFORE, WE DO NOT HAVE ANY HESITATION TO CONFIRM THE ORDER OF THE LD. CIT (A) ON THIS ISSUE. ACCORDINGLY, BOTH THE ADDITIONS MADE TOWARDS UNACCO UNTED PURCHASES OF ` 10,90,90,450/- AND UNACCOUNTED SALES OF 2,33,10,808/- STANDS TO BE DELETED. 3.2. GROUND NO.2:- PARTIAL RELIEF OF RS.4 LAKHS GIVEN TO UNEXPLAINED CREDITS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS OBSERVED BY THE LD. ASSESSING OFFICER THAT THE ASSESSEE HAD CRE DITED AN AMOUNT OF ` 16,57,576/- TOWARDS THE SALE PROCEEDS OF GOLD JEWE LLERY. WHEN QUERIED, THE ASSESSEE DID NOT FURNISH ANY EVIDENCE FOR SALE OF GOLD JEWELLERY. ON VERIFYING THE WT RETURN FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2005-06 IT WAS OBSERVED THAT THE AS SESSEE HAD DECLARED GOLD JEWELRY OF 1,836 GRAMS AND SILVER JEW ELRY 2850 GRAMS. IT WAS FURTHER OBSERVED THAT THE ASSESSEE HAD SOLD THE GOLD JEWELLERY ITA NO.2107/MDS/13 33 OF 1505 GRAMS DURING THE ASSESSMENT YEAR 2006-07 AN D BALANCED AVAILABLE STOCK WITH ASSESSEE WAS ONLY 331 GRAMS. SINCE THE ASSESSEE HAD NOT FURNISHED ANY FURTHER EXPLANATION, THE LD. ASSESSING OFFICER HAD MADE THE ADDITION OF ` 16,57,576/- U/S. 68 OF THE ACT. ON APPEAL THE LD. CIT (A) GRACIOUSLY GAV E RELIEF OF ` 4 LAKHS TAKING INTO CONSIDERATION OF 331 GRAMS OF GOLD AVAI LABLE WITH THE ASSESSEE FOR SALE AFTER DISBELIEVING THE CONTENTION OF THE ASSESSEE THAT THE ASSESSEE HAD RECEIVED GIFT OF GOLD JEWELLE RY FROM RELATIVES ADDING TO HIS STOCK OF GOLD. THE REVENUE AGGRIEVED BY THE ORDER OF THE LD. CIT (A) IS IN APPEAL BEFORE US. AFTER EXAM INING THE FACTS OF THE CASE AND HEARING BOTH THE PARTIES WE DO NOT FIN D ANY MERIT IN THE ARGUMENT OF THE ASSESSEE THAT THE ASSESSEE HAD RECE IVED GIFTS FROM THE RELATIVES WHICH WAS SOLD TO DIFFERENT PARTIES I N THE STATE OF HARYANA. AS POINTED OUT BY THE LD. CIT (A), THE GI FT RECEIVED BY THE ASSESSEE WAS NOT DECLARED EITHER IN THE RETURN OF I NCOME OR IN THE WEALTH TAX RETURN. HOWEVER SINCE THE ASSESSEE WAS IN POSSESSION OF 331 GMS OF GOLD WHICH IS ACCEPTED BY THE REVENUE W E ARE OF THE CONSIDERED OPINION THAT THE LD. CIT (A) HAS JUDICIO USLY DECIDED THE ISSUE BY GRACIOUSLY GRANTING RELIEF OF ` 4 LAKHS TO THE ASSESSEE. ITA NO.2107/MDS/13 34 THEREFORE, THIS GROUND RAISED BY THE REVENUE IS DIS MISSED AND THE ORDER OF THE LD. CIT (A) IS CONFIRMED. CROSS OBJECTIONS OF THE ASSESSEE: 4. GROUND NO.1:- THE LD. CIT (A) HAD ERRED IN CONFIRMING THE SUM OF ` `` ` 12,57,576/- OUT OF AGGREGATE ADDITION MADE BY THE L D. ASSESSING OFFICER FOR ` `` ` 16,57,576/- ON ACCOUNT OF UNACCOUNTED CASH CREDITS U/S. 68 OF THE ACT. SINCE WE HAVE DISMISSED THE REVENUES APPEAL AND CONFIRMED THE ORDER OF THE LD. CIT (A) ON THIS ISSUE, CONSEQU ENTLY THE ASSESSEES CROSS OBJECTION ALSO STANDS DISMISSED. I T IS ORDERED ACCORDINGLY. 4.1. GROUND NO.2:- THE LD. CIT (A) HAD ERRED IN CONFIRMING THE ADDITION OF ` `` ` 3,64,878/- U/S. 2(22)(E) OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE L D. ASSESSING OFFICER OBSERVED THAT THE ASSESSEE IS A S UBSTANTIAL SHARE HOLDER OF M/S SHRI GANGADEVI LOGISTICS PVT LTD. IT WAS FURTHER NOTICED THAT THE ASSESSEE HAD RECEIVED AN AMOUNT OF ` 54,00,461/- FROM ITA NO.2107/MDS/13 35 MR.PRAVIN GARG AND ` 98,32,473/- FROM MS. KAVITA GARG. IT WAS FURTHER NOTICED THAT THE BOTH MR.PRAVIN GARG AND M S. KAVITA GARG HAD RECEIVED AN AMOUNT OF ` 45 LAKHS & ` 44 LAKHS RESPECTIVELY FROM M/S SHRI GANGADEVI LOGISTICS PVT LTD THE COMPANY IN WHICH THE ASSESSEE IS A SUBSTANTIAL SHARE HOLDER. THEREFORE, THE LD. ASSESSING OFFICER INVOKED THE PROVISIONS OF SECTION 2(22)(E) AND ADDED ` 3,64,878/- TO THE INCOME OF THE ASSESSEE BEING TH E RESERVES AND SURPLUS AVAILABLE WITH THE COMPANY M/S SHRI GANGAD EVI LOGISTICS PVT LTD., CONSIDERING THE MODUS OPERANDI OF THE ASSESS EE AS AN ATTEMPT TO WEAN OUT OF THE CLUTCHES OF THE PROVISIONS OF S EC.2(22)(E) OF THE ACT BY ADOPTING SUCH A COLORABLE DEVICE. BEFORE TH E LD. CIT (A), THE ASSESSEE FURTHER SUBMITTED THAT 85,000 SHARES WERE HELD BY MS. URVI GARG (MINOR) WHILE AS THE ASSESSEE HAD HELD ONLY 10 ,000 SHARES IN M/S SHRI GANGADEVI LOGISTICS PVT LTD. IT WAS THERE FORE PLEADED THAT PROVISIONS OF SEC. 2(22)(E) WOULD NOT BE APPLICABLE IN THE CASE OF ASSESSEE BECAUSE THE ASSESSEE IS NOT A SUBSTANTIAL SHARE HOLDER IN THE COMPANY. HOWEVER, THE LD. CIT (A) CONFIRMED THE ORDER OF THE LD. ASSESSING OFFICER BY OBSERVING AS FOLLOWS:- ITA NO.2107/MDS/13 36 THUS, IN EITHER OF THE CASES, I.E., EITHER ON 28.1 1.2008 (THE DATE ON WHICH THE ASSESSEE RECEIVED THE LOANS THROUGH THE RELATIV ES) OR AS ON 31.3.2009, THE TOTAL SHARES HELD BY THE ASSESSEE IN THE COMPANY IS MORE THAN 10% OF THE TOTAL SHARES ISSUED BY THE COM PANY. FURTHER, IT WAS THE ASSESSEE WHO INVESTED IN THE SHARES AND THE NAMES OF THE PERSONS MENTIONED IN THE BENEFICIAL INTEREST COLU MN ARE MINORS AND HENCE SUCH MINORS CANNOT BE TREATED AS DIFFERENT PE RSONS FOR THE PURPOSE OF SEC.2(22)(E) OF THE ACT. THEREFORE, THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT IS APPLICABLE TO THE FACTS OF T HE ASSESSEES CASE. THE A.O IS THEREFORE, RIGHTLY INVOKED THE PROVISION S 2(22)(E) OF THE ACT AND TREATED THE LOANS AS DEEMED DIVIDENDS. HENCE TH E ACTION OF THE AO IS JUSTIFIED AND THE ADDITION OF DEEMED DIVIDENDS O F ` 3,64,878/- IS CONFIRMED. 5. THE LD. A.R. REITERATED HIS SUBMISSIONS MADE BE FORE THE LD. CIT (A) AND THE LD. ASSESSING OFFICER WHILE AS LD . D.R. RELIED ON THE ORDERS OF THE REVENUE. AFTER HEARING BOTH THE SIDE S, WE ALSO FIND THAT THE ASSESSEE HAD BEEN INDULGING IN FORMULATING COLO RABLE DEVICE IN ORDER TO ESCAPE THE CLUTCHES OF THE ACT AND AVOID P AYMENT OF TAX. THE FACTS SHOW THAT THE ASSESSEE IS A SUBSTANTIAL S HARE HOLDER IN THE COMPANY - M/S SHRI GANGADEVI LOGISTICS PVT LTD., AN D IN ORDER TO CIRCUMVENT THE PROVISIONS OF SEC.2(22)(E) OF THE AC T, THE ASSESSEE ITA NO.2107/MDS/13 37 HAD MADE GIFT DECLARATION IN THE NAME OF HIS GRAND CHILDREN. FURTHER, HE HAS ALSO MADE A DEVICE BY DIRECTING THE COMPANY TO ADVANCE LOAN TO MR.PRAVIN GARG AND MS. KAVITA GARG WHO INSTANTLY ADVANCED THE LOAN TO THE ASSESSEE. IF SUCH PRACTICE IS RECOGNIZE D, THEN THE PURPOSE OF ENACTMENT OF THE PROVISIONS SEC. 2(22) (E) OF TH E ACT WILL BE DEFEATED AND RENDER THE SAME AS REDUNDANT. IN SUCH CIRCUMSTANCES, THE DECISION CITED BY THE LD. A.R. WOULD NOT BE APP LICABLE. THEREFORE, WE DO NOT HAVE ANY HESITATION TO CONFIRM THE ORDERS OF THE LD. ASSESSING OFFICER AND LD. CIT (A) ON THIS ISSUE. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS D ISMISSED AND CROSS OBJECTION OF THE ASSESSEE IS ALSO DISMISSED. ORDER PRONOUNCED ON 3 RD JUNE, 2014. SD/- SD/- ( VIKAS AWASTHY ) ( A.MOHAN ALANKAMONY ) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 3 RD JUNE,2014. K S SUNDARAM. COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE ITA NO.2107/MDS/13 38