Parth Proteins P. Ltd., Dhoraji V. The ACIT, Circle-2, Rajkot

CO 454/RJT/2005

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 0355 (ITAT-RAJKOT)
• Duration Of Justice: 13 year(s) 3 month(s) 18 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 20-11-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 1998-1999
• Appeal Filed On: 02-08-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Bogus purchase; Rejection of books of accounts; Unexplained investment; Unexplained expenditure; Depreciation; Cost of acquisition
• Section: 143(3)

Judgement Text

ACIT, CIRCLE-2, RAJKOT VS. PARTH PROTEINS P. LTD./ITA NO.487 & C.O.NO.454 /RJT/2005/A.Y.1998-99 PAGE 1 OF 25 , , IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT . . , . . , BEFORE SHRI C.M.GARG, JUDICIAL MEMBER AND SHRI O.P.MEENA, ACCOUNTANT MEMBER . . ./I.T.A. NO.487/RJT/2005 /ASSESSMENT YEAR : 1998-99 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-2, RAJKOT. VS. PARTH PROTEINS PVT. LTD., C/O.SHRI GANESH OIL MILL, POWER HOUSE ROAD, DHOAAJI. [PAN: AABCP 2789 D] APPELLANT /RESPONDENT C.O.NO.454/RJT/2005 /ASSESSMENT YEAR : 1998-99 PARTH PROTEINS PVT. LTD., C/O.SHRI GANESH OIL MILL, POWER HOUSE ROAD, DHORAJI. [PAN: AABCP 2789 D] VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-2, RAJKOT. APPELLANT /RESPONDENT /ASSESSEE BY SHRI VIMAL DESAI A.R. /REVENUE BY SHRI JITENDRA KUMAR CIT ( DR ) / DATE OF HEARING: 20 .11. 2018 /PRONOUNCEMENT ON 26 . 1 1 .2018 /O R D E R PER O. P. MEENA, ACCOUTANT MEMBER: 1. THESE CROSS APPEAL FILED BY THE REVENUE AND ASSESSEE ARE DIRECTED AGAINST ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-II, RAJKOT(IN SHORT THE CIT (A)) DATED 16.02.2015 PERTAINING TO ASSESSMENT YEAR 1998-99 WHICH IN TURN HAS ARISEN ACIT, CIRCLE-2, RAJKOT VS. PARTH PROTEINS P. LTD./ITA NO.487 & C.O.NO.454 /RJT/2005/A.Y.1998-99 PAGE 2 OF 25 FROM ORDER PASSED BY THE DEPUTY COMMISSIONER INCOME TAX, CIRCLE-2(1), RAJKOT(IN SHORT THE AO) DATED 13.03.2001 UNDER SECTION 143(3) OF INCOME TAX ACT,1961 (IN SHORT THE ACT). 2. GROUND RAISED BY REVENUE READ AS FOLLOWS: 1. THE LEARNED CIT(A), RAJKOT ERRED IN LAW AND ON FACTS IN DIRECTING TO DELETE THE ADDITION OF RS.1,33,16,112/- MADE ON ACCOUNT OF UNEXPLAINED INVESTMENTS. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING TO DELETE THE ADDITION OF RS.22,04,897/- MADE ON ACCOUNT OF UNDER VALUATION OF CLOSING STOCK. 3. THE LD.CIT(A) RAJKOT HAS FURTHER ERRED IN LAW AND ON FACTS IN DIRECTING TO DELETE THE ADDITION OF RS.8,437/- MADE ON ACCOUNT OF MOTOR CAR EXPENSES AND DEPRECIATION. 4. IT IS THEREFORE, PRAYED THAT THE ORDER OF THE LD. CIT(A)-III RAJKOT MAY BE SET ASIDE AND THAT OF THE A.O. MAY KINDLY BE RESTORED BACK. ITA NO.487/RJT/2005 FOR A.Y. 1998-99 BY REVENUE : 3. GROUND NO.1 TO 4 STATES THAT THE CIT(A), RAJKOT ERRED IN LAW AND ON FACTS IN DIRECTING TO DELETE THE ADDITION OF RS.1,33,16,112/-. 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS RUNNING BUSINESS OF MANUFACTURING, PROCESSING, TRADING, EXPORTING IN RAPE SEED OIL CAKE AND SUCH ALLIED GOODS. THE ASSESSING OFFICER FOUND THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS SHOWN PURCHASE OF 10,631 MT GROUND NUT OIL CAKE FOR TOTAL PURCHASE PRICE OF RS.6,65,80,561/- FROM M/S.SANTOSHI BHANDAR, BERHAMUR, ACIT, CIRCLE-2, RAJKOT VS. PARTH PROTEINS P. LTD./ITA NO.487 & C.O.NO.454 /RJT/2005/A.Y.1998-99 PAGE 3 OF 25 ORISSA. ON ENQUIRIES, HE FOUND THAT M/S.SANTOSHI BHANDAR HAS INDEED NOT SOLD ANY GOODS TO THE ASSESSEE. SEVERAL DEFECTS IN MAINTAINING BOOKS OF ACCOUNTS AS WELL AS AUDIT REPORT 3CD4 AND 3CD5 ARE SIGHED BY DIFFERENT DIRECTORS OF THE COMPANY. THE IMPORTANT DEFECTS POINTED OUT BY THE AO WAS THAT THE GUJARAT ELECTRICITY BOARD (GEB) OFFICIALS ON CHECKING ON 03.01.1998 FOUND THAT THE ASSESSEE WAS INDULGING IN THEFT OF ELECTRICITY FOR WHICH A PENALTY WAS ALSO IMPOSED BY GEB, RAJKOT WHICH PROVED THAT THE ASSESSEE HAS CONSUMED MORE ELECTRICITY FOR PRODUCTION OF MORE GOODS. THEREFORE, THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE WERE REJECTED U/S.145(3) OF THE ACT. AFTER HOLDING THAT THE PURCHASE FROM M/S.SANTOSHI BHANDAR WERE NOT INDEED MADE FROM THE SAID PARTY AND FROM SOME OTHER PARTIES, THE AO DISALLOWED AN AMOUNT OF RS.20,30,568/-. THE AO ALSO HELD THAT SINCE THE PURCHASE CLAIMED TO HAVE BEEN MADE FROM M/S.SANTOSHI BHANDAR WERE NOT INDEED MADE FROM THAT PARTY, IT WOULD HAVE BEEN MADE FROM OTHER PARTY AND THE ASSESSEE WOULD HAVE MADE UNACCOUNTED INVESTMENT IN PURCHASES FROM THIRD PARTY. THE AO ALSO MADE AN ADDITION OF RS.1,33,16,112/- TO THE TOTAL INCOME. 5. BEING AGGRIEVED, THE ASSESSEE HAS FILED THIS APPEAL BEFORE THE LD.CIT(A), WHEREIN DETAILS ARGUMENTS WERE PLACED WHICH HAVE ACIT, CIRCLE-2, RAJKOT VS. PARTH PROTEINS P. LTD./ITA NO.487 & C.O.NO.454 /RJT/2005/A.Y.1998-99 PAGE 4 OF 25 REPRODUCED IN PARA 2.12 AT PAGE 2 TO 12 OF THE APPELLATE ORDER. AFTER EXAMINING THE FACTS OF THE CASE, THE LD.CIT(A) OBSERVED IN PARA 2.2 THAT THE AO HAS DISCUSSED THE REASON FOR REJECTION OF BOOKS OF ACCOUNTS IN DETAILS. THE REASON FOR THE AOS FINDING THAT THE PURCHASES WERE NOT INDEED MADE FROM M/S.SANTOSHI BHANDAR ARE ALSO GIVEN IN DETAILS. THE APPELLANT HAS BROADLY REITERATED THE SAME ARGUMENT WHICH HERE TAKEN BEFORE THE AO THE DETAILS OF ENQUIRIES CONDUCTED BY THE AO AND OTHER AUTHORITIES ARE WELL DESCRIBED IN THE ASSESSMENT ORDER. THE PREPONDERANCE OF THE EVIDENCES AVAILABLE IN APPELLANTS CASE LEAD TO ONLY ONE CONCLUSION THAT THE PURCHASES FROM M/S.SANTOSHI BHANDAR WERE NOT MADE INDEED. 6. IN VIEW OF THESE FINDINGS OF THE AO, THE ACTION FOR REJECTION OF BOOKS OF ACCOUNTS WAS CONFIRMED. SIMILARLY, THE METHOD ADOPTED BY THE AO FOR QUANTIFICATION OF DISALLOWANCE FOR INFLATION OF PURCHASE PRICE AND THE ADDITIONS FOR UNACCOUNTED INVESTMENT FOR PURCHASE WAS NOT FOUND TO BE SCIENTIFIC. THE AO HAS ESTIMATED THE INFLATION PURCHASE PRICE BY TAKING THE AVERAGE COST OF PURCHASE FROM OTHER PARTIES AND HAS WORKED OUT THE UNACCOUNTED INVESTMENT FOR PURCHASE @ 20% OF TOTAL PURCHASES MADE. IN THE ASSESSMENT ORDER, THE AO HAS MENTIONED THAT HE ACIT, CIRCLE-2, RAJKOT VS. PARTH PROTEINS P. LTD./ITA NO.487 & C.O.NO.454 /RJT/2005/A.Y.1998-99 PAGE 5 OF 25 HAS ADOPTED THE 20% RATE FOR UNACCOUNTED INVESTMENT FOR PURCHASES IN VIEW OF THE ORDER OF THE ITAT, AHMEDABAD IN THE CASE OF VIJAY PROTEINS LTD., VS. ACIT FOR A.Y. 1991-92 [1996] 55 TTJ (AHD.). 7. ON CAREFUL CONSIDERATION OF THE ITAT ORDER, IN THE CASE OF VIJAY PROTEINS LTD., (SUPRA) IT WAS FOUND THAT THE ITAT HAD ESTIMATED THE INFLATION OF EXPENDITURE @ 25% OF BOGUS PURCHASES SHOWN FROM 33 PARTIES IN THE SAME ORDER, NO SEPARATE ADDITION WAS CONFIRMED ON ACCOUNT OF UNACCOUNTED INVESTMENT MADE FOR PURCHASE OF SAID GOODS FROM THE THIRD PARTY. THE TRIBUNAL HAS HELD THAT SINCE THE PEAK OF PURCHASE WAS LOWER THAN THE AMOUNT OF DISALLOWANCES MADE FOR INFLATION OF PURCHASE COST, NO SEPARATE ADDITION SHOULD BE MADE FOR UNACCOUNTED INVESTMENT IN PURCHASE FROM THIRD PARTY. THE CIT(A) FURTHER OBSERVED THAT IT IS IMPORTANT TO NOTE THAT THE APPELLANTS CASE IS QUANTIFIED ONLY AT RS.20,30,568/- WHEREAS THE UNACCOUNTED INVESTMENT FOR PURCHASE FROM THIRD PARTY IS QUANTIFIED AT RS.1,33,16,112/- @ 20% TOTAL PURCHASES. IF THE ITATS ORDER IN CASE OF VIJAY PROTEINS LTD., (SUPRA) IS TO BE FOLLOWED THEN THE TOTAL ADDITION IN APPELALNTS CASE ON BOTH COUNT WILL BE ONLY RS.20,30,568 /- FOR THE REASON THAT THE PEAK AMOUNT OF PURCHASE FROM M/S.SANTOSHI BHANDAR WAS ACIT, CIRCLE-2, RAJKOT VS. PARTH PROTEINS P. LTD./ITA NO.487 & C.O.NO.454 /RJT/2005/A.Y.1998-99 PAGE 6 OF 25 AT RS.10,08,844/- (ON 10.05.1997). THE APPELLATE TRIBUNAL HAS ESTIMATED THE INFLATION OF EXPENSES @ 25%. IN THE APPELANTS CASE, THE AO HAS ESTIMATED THE INFLATION OF PURCHASE PRICE AT RS.20,30,568/- AND THE PEAK OF PURCHASE IS LOWER THAN THAT. HOWEVER, ON A STUDY OF APPELLATE TRIBUNALS ORDER IN THE CASE OF VIJAY PROTEINS LTD., FOR A.Y. 1992-93, IT IS FOUND THAT THE TRIBUNAL HAS GIVEN A MORE SCIENTIFIC BASIS THEN METHOD OF ESTIMATION FOR QUANTIFICATION OF INFLATION OF PURCHASE PRICE IN A CASE WHERE IT WAS PROVED THAT THE PARTY FROM WHOM THE PURCHASES WERE CLAIMED WAS A BOGUS SUPPLIER AS IS THE FACTS IN THE APPELLANTS CASE. THE CIT(A) HAS REPRODUCED THE RELEVANT PART OF ITAT AHMEDABAD BENCH ORDER IN THE CASE OF VIJAY PROTEINS LTD., JUNAGADH VS. ACIT, CIRCLE-JUNAGADH IN ITA NO.1453/AHD/1996 FOR A.Y. 1992-93 PASSED 06.10.1997 WHICH WAS REPRODUCED AS PER PARA NO 17 AS UNDER : 17. ACCORDING TO THE LD.COUNSEL FOR THE ASSESSEE THE DISALLOWANCE HAS BEEN MADE ONLY ON ESTIMATE BASIS WITHOUT GOING INTO THE ACTUAL BENEFIT DERIVED BY THE ASSESSEE FROM SUCH UNACCOUNTED PURCHASE OF OIL CAKE AND WITHOUT BRINGING ON RECORD ANY MATERIAL JUSTIFYING DISALLOWANCE OF 25% OF EH PURCHASE PRICE. IT IS, THEREFORE, CONTENDED ON BEHALF OF THE ASSESSEE THAT IT WOULD BE UNFAIR AND UNREASONABLE APPLYING THE FINDINGS GIVEN BY THE TRIBUNAL FOR A.Y.1991-92. WE IN PRINCIPLE AGREE WITH THE PLEADINGS OF THE LD. COUNSEL FOR THE ASSESSEE IN THIS BEHALF. IN OUR CONSIDERED OPINION FOLLOWING FACTORS NEED CONSIDERATION FOR ASCERTAINING THE ACTUAL COSTS OF THE OIL CAKE USED AGAINST THE FAKE BILLS:- (1) AS NOTED ABOVE, THE ASSESSEE COMPANY ITSELF WAS RUNNING OIL MILL. THE OIL CAKE THUS BROUGHT IN AGAINST THE FAKE BILLS, COULD EITHER BE OF ITS OWN GENERATION IN OIL MILL OR ACIT, CIRCLE-2, RAJKOT VS. PARTH PROTEINS P. LTD./ITA NO.487 & C.O.NO.454 /RJT/2005/A.Y.1998-99 PAGE 7 OF 25 PURCHASED LOCALLY FROM OTHER PARTIES WITHOUT BILLING. THE COST OF OIL CAKE FROM ITS OWN OIL MILL OR PREVALENT MARKET RATE AS REPORTED IN THE PAPERS COULD INDICATE THE COST PRICE OF SUCH OIL CAKE. FURTHER THE QUALITY OF OIL CAKE WILL ALSO VARY DEPENDING UPON THE QUALITY OF OIL SEEDS USED. THIS FACTOR HAS TO BE TAKEN INTO CONSIDERATION WHILE ASCERTAINING THE COSTS OF THE OIL CAKE USED; (2) IT COULD ALSO BE CONSIDERED HOW FAR THE PURCHASE PRICE OF OIL CAKE RELATING TO THE SAID FAKE BILLS HAS BEEN INFLATED TO REDUCE THE TAXABLE INCOME. THE ASSESSEE CLAIMED TRANSPORTATION CHARGES AND BROKERAGE ON THE SAID PURCHASES FROM RAJASTHAN BUT THE SAME BEING FOUND NON- GENUINE HAS BEEN DISALLOWED AND THE FINDINGS GIVEN BY THE LOWER AUTHORITIES IN THIS BEHALF HAS ALREADY BEEN CONFIRMED BY US EARLIER. FURTHER THE ASSESSEE IS REQUIRED TO PAY 4% SALES-TAX ON LOCAL PURCHASE OF OIL CAKE BUT IN THE PURCHASE MADE FROM OUTSIDE, THE ASSESSEE WAS REQUIRED TO PAY CST 1% AND THAT WAS INCLUDED IN THE PURCHASE PRICE ITSELF AND NOT CHARGED SEPARATELY. THUS BY RAISING SUCH FAKE BILLS FROM OUTSIDE PARTIES, THE ASSESSEE WAS BENEFITED BY 4% OF THE PURCHASE PRICE IN AVOIDING THE LOCAL SALES-TAX. FURTHER PURCHASE OF OIL CAKE FROM OUTSTATION WOULD INVOLVE ITS PACKING IN GUNNY BAGS. THE GUNNY BAG ACCOMMODATES 60 KG. OF OIL CAKES. THEREFORE, TOTAL NUMBER OF GUNNY BAGS USED IS REQUIRED TO BE ASCERTAINED LOOKING TO THE TOTAL WEIGHT OF THE OIL CAKE INVOLVED AND ITS VALUE AT THE PREVAILING RATE SHALL HAVE TO BE ASCERTAINED. THE PURCHASE PRICE OF OIL CAKE FROM OUT OF STATE WAS INCLUSIVE OF THE COSTS OF SUCH GUNNY BAGS USED IN PACKING OF THE OIL CAKE; (3) SINCE THE SOLVENT PLANT WAS OUT OF MUNICIPAL LIMITS THERE WAS NO OCTROI DUTY PAYABLE ON BRINGING SUCH OIL CAKE IN THE FACTORY; AND (4) ADMITTEDLY THE ASSESSEE PROCURED PURCHASE BILLS IN THE NAMES OF OUTSIDE PARTIES WHEREAS OIL CAKE WAS ACTUALLY PROCURED FROM OTHERS. PROCUREMENT OF SUCH FAKE PURCHASE BILLS ALSO REQUIRED PAYMENT AT % OR 1% OF THE BILL VALUE AND THAT HAS TO BE TAKEN INTO CONSIDERATION WHILE CALCULATING ACTUAL RATE OF PURCHASE PRICE. 8. FURTHER, THE CIT(A) OBSERVED AS UNDER : IN VIEW OF GUIDANCE GIVEN BY THE ITAT ON THE METHOD OF WORKING OUT THE QUANTUM OF INFLATION OF PURCHASE PRICE IN CASE OF BOGUS SUPPLIERS, THE BENEFITS DERIVED BY THE APPELLANT IS WORKED OUT AS UNDER. ACIT, CIRCLE-2, RAJKOT VS. PARTH PROTEINS P. LTD./ITA NO.487 & C.O.NO.454 /RJT/2005/A.Y.1998-99 PAGE 8 OF 25 THE SALES-TAX ON PURCHASES IS CHARGED @2% OF PURCHASE PRICE. THIS FACT IS ASCERTAINED FROM THE BILLS OF OTHER PURCHASES. THE BILLS OF M/S.SANTOSHI BHANDAR ARE F.O.R. THEY DO NOT MENTIONING THE TRANSPORTATION CHARGES, OCTROI AND PACKING MATERIALS CHARGES SEPARATELY. THE PURCHASE PRICE IS INCLUSIVE OF THESE OVERHEADS. THE PRO-RATA QUANTIFICATION ON QUANTITY BASIS FOR THESE OVER HEADS IS NOT POSSIBLE SINCE THE VARIOUS PURCHASES OF THE APPELLANT ARE OF DIFFERENT COMMODITIES SOME SOLIDS, SOME LIQUIDS. IN VIEW OF THIS FACTS, THE PRO- RATA QUANTIFICATION OF TRANSPORTATION EXPENSES IS TO BE DONE IN THE RATIO OF TOTAL PURCHASES DURING THE YEAR AND THE PURCHASES CLAIMED FROM M/S.SANTOSHI BHANDAR. OCTROI IS CHARGABLE @0.25 OF BILL AMOUNT. THE RATES ARE SEEN IN SOME OTHER BILL PRODUCED BY THE APPELLANT. THE PACKING MATERIALS USED FOR PACKING OF GROUNDNUT OIL CAKE ARE OF THE CAPACITY OF 75 PER KG. THE TOTAL NUMBER OF BAGS COMES TO 141747. THE QUANTITATIVE DETAILS OF CLOSING STOCK FILLED WITH THE RETURN OF INCOME SHOWS RATE OF OLD BAGS AT RS..5 PER BAG. THE SAVING ON ACCOUNT OF BAGS IS ESTIMATED AT RS..5 PER BAG. ON BASIS OF THESE PARAMETERS, THE BENEFITS UNDER VARIOUS HEADS ARE QUANTIFIED AS UNDER: 9. THEREFORE, IN THE LIGHT OF GUIDANCE GIVEN BY ITAT ON THE METHOD OF WORKING OUT OF QUANTUM OF INFLATION OF PURCHASE PRICE IN CASE OF BOGUS SUPPLIER THE BENEFIT DERIVED BY THE APPELLANT WAS WORKED OUT AS UNDER : THE TOTAL PURCHASES DURING THE YEAR IS RS.27,42,62,952/-. THE TOTAL PURCHASES FROM M/S.SANTOSHI BHANDAR IS CLAIMED AT RS.6,65,80,561/- WHICH COMES TO 24.27% OF THE TOTAL PURCHASES. THE BENEFITS UNDER VARIOUS HEADS ARE QUANTIFIED AS UNDER: NATURE OF BENEFIT AMOUNT OF BENEFIT SALES-TAX PURCHASE-TAX @2% OF RS.66580561/- RS.1331611/- TRANSPORTATION 24.27% OF TOTAL TRANSPORT EXPENSES RS. 788978/- DEBITED TO P&L A/C. AT RS.3250009/- OCTROI @0.25% OF PURCHASES OF RS.66580561/-. RS. 166451/- PACKING MATERIALS: ACIT, CIRCLE-2, RAJKOT VS. PARTH PROTEINS P. LTD./ITA NO.487 & C.O.NO.454 /RJT/2005/A.Y.1998-99 PAGE 9 OF 25 141747 BAGS @ RS.5/- PER BAG. RS. 708735/- RS.29,95,775/- IN VIEW OF THE ABOVE, THE INFLATION OF PURCHASE PRICE IS QUANTIFIED AT RS.2995775/-. IN VIEW OF THE ABOVE, THE ADDITION ON ACCOUNT OF INFLATION OF PURCHASE PRICE IS INCREASED FROM RS.2030568/- TO RS.29,95,775/-. THE APPEAL IS DISMISSED ON THIS GROUND. 10. THE CIT(A) FURTHER OBSERVED THAT THE ADDITION IN RESPECT OF AMOUNT OF UNACCOUNTED EXPENDITURE MADE FOR PURCHASE OF GROUND NUT OIL CAKE FROM OTHER PARTIES WHICH IS CLAIMED TO BE PURCHASE FROM M/S.SANTOSHI BHANDAR. SINCE THE ISSUE OF TELESCOPING UNACCOUNTED INVESTMENT FOR PURCHASE THAT THE ADDITIONS CONFIRMED FOR INFLATION OF COST OF PURCHASES IS ALSO EXAMINED. THE CIT(A) REFERRED PARA 20.4 OF THE TRIBUNAL ORDER IN THE CASE OF VIJAY PROTEINS LTD., VS. ACIT [1996] 55 TTJ (AHD.) FOR A.Y. 1991- 95 DATED 18.01.1996 AND OBSERVED THAT THE TRIBUNAL HAS WORKED OUT PEAK AMOUNT OF PURCHASES FOR ONE DAY I.E. 18.03.1991. DURING THE APPELLATE PROCEEDINGS, THE AO WAS ASKED TO WORK OUT THE PEAK AMOUNT. THE AO SUBMITTED INSPECTORS REPORT, AFTER EXAMINING THE IMPOUNDED PURCHASE REGISTER THEY HAVE REPORTED THE PEAK AMOUNT OF PURCHASES AT RS.10,08,444/- ON 10.05.1997. THEREFORE, THE CONFIRMED ADDITION OF RS.29,95,775/- FOR INFLATION OF PURCHASE COST IS ABOUT 3 TIMES OF THE PEAK PURCHASE. THE AMOUNT OF ADDITION FOR INFLATION OF PURCHASE COST ADEQUATELY ACIT, CIRCLE-2, RAJKOT VS. PARTH PROTEINS P. LTD./ITA NO.487 & C.O.NO.454 /RJT/2005/A.Y.1998-99 PAGE 10 OF 25 COVERS THE PEAK OF PURCHASES. IN VIEW OF THESE FACTS, THE CIT(A) HAS NOT MADE ANY SEPARATE ADDITION ON ACCOUNT OF UNACCOUNTED INVESTMENT IN PURCHASES, THEREFORE, IT WAS HELD THAT UNACCOUNTED INVESTMENT FOR PURCHASES WAS COVERED BY THE CONFIRMED ADDITION OF RS.29,95,775/- SUSTAINED OUT OF BOGUS PURCHASES AND NO ADDITION WAS REQUIRED TO BE MADE SEPARATELY FOR UNACCOUNTED INVESTMENT IN PURCHASE, ACCORDINGLY THE ADDITION OF RS.1,33,16,112/- MADE ON ACCOUNT OF UNACCOUNTED INVESTMENT FOR PURCHASE WAS DELETED, ACCORDINGLY THIS GROUND APPEAL IS DELETED. 11. BEING AGGRIEVED, THE REVENUE HAS FILED THIS APPEAL BEFORE US CHALLENGING THE DELETION OF ADDITION OF UNACCOUNTED PURCHASES AMOUNTING TO RS.1,33,16,112/- AND CROSS OBJECTION BY THE ASSESSEE CHALLENGING THE ADDITION SUSTAINED BY THE CIT(A) AT RS.29,95,775/-. 12. THE LD.CIT-DR REFERRED THE PAGE 21 TO 25 OF THE ASSESSMENT ORDER WHEREIN THE DEFECTS IN THE BOOKS OF ACCOUNTS POINTED OUT BY THE AO AND BOGUS PURCHASES SHOWN IN THE NAME OF M/S.SANTOSHI BHANDAR, BERHAMUR, ORISSA HAS BEEN DISCUSSED. IT WAS NOTED BY THE AO THAT THE SALES TAX DEPARTMENT OF ORISSA HAS SUBMITTED AN INFORMATION U/S.133(6) OF THE ACT WHICH CLEARLY ACIT, CIRCLE-2, RAJKOT VS. PARTH PROTEINS P. LTD./ITA NO.487 & C.O.NO.454 /RJT/2005/A.Y.1998-99 PAGE 11 OF 25 MENTIONED THAT M/S.SANTOSHI BHANDARS NOT ENTITLED TO DEAL WITH GROUND NUT OIL CAKE FOR RESALE IN ORISSA OR IN COURSE OF INTER- STATE TRADE OR COMMERCE AND ADDRESS OF THIS CONCERN IS NOT THAT WHICH IS MENTIONED BY THE ASSESSEE. THE ENQUIRY CONDUCTED FROM DCIT, BERHAMUR CIRCLE HAS REVEALED THAT M/S.SANTOSHI BHANDAR WAS BEING IN THE BUSINESS OF HARDWARE AND NOT GROUND NUT OIL CAKE OR OIL CAKE. THE TELEPHONE NUMBER GOT PRINTED BY THE ASSESSEE IN THE BILL OF M/S.SANTOSHI BHANDAR IS ALSO FOUND BOGUS. THE INSPECTORS REPORT SUBMITTED BY THE DCIT, BERHAMUR DISTRICT, GANGAM, NOR THERE WAS ANY TRANSPORTER NAMED AS RAIRBA CAREER AT ASKA ROAD BHRHAMUR. IN VIEW OF THESE FACTS COLLECTED BY THE AO, THE DIRECTOR OF THE ASSESSEE COMPANY SHRI PANKAJ B.DAMANI WAS EXAMINED ON OATH 01.03.2000 OF WHICH RELEVANT EXTRACT OF STATEMENT HAS BEEN REPRODUCED BY THE AO AT PAGE 10 & 11 OF THE ASSESSMENT ORDER FROM WHICH IT IS EVIDENT THE DIRECTOR OF THE COMPANY WAS NOT ABLE TO EXPLAIN THE PURCHASES FROM SANTOSHI BHANDAR. THE REPLY WAS TOTALLY MISLEADING AND HAVING ALTERIOR MOTIVE TO DEFRAUD THE REVENUE. IN VIEW OF THESE FACTS, THE AO FOUND THAT THE ASSESSEE HAS NOT MADE ANY PURCHASE FROM M/S.SANTOSHI BHANDAR. THE AO HAS FOUND MANY DEFECTS IN THE MAINTENANCE OF BOOKS OF ACCOUNTS, HENCE THE BOOKS OF ACCOUNTS ACIT, CIRCLE-2, RAJKOT VS. PARTH PROTEINS P. LTD./ITA NO.487 & C.O.NO.454 /RJT/2005/A.Y.1998-99 PAGE 12 OF 25 SO MAINTAINED WAS REJECTED. THE LD.CIT-DR REFERRED THE FINDINGS OF THE CIT(A) AND SUBMITTED THAT THE CIT(A) HAS UPHELD THE REJECTION OF BOOKS OF ACCOUNTS AND ALSO UPHELD THE FINDINGS OF THE AO THAT THE ASSESSEE HAS NOT MADE ANY PURCHASES FROM M/S.SANTOSHI BHANDAR. THEREFORE, PLACING RELIANCE ON THE ORDER OF AO THE LD.CIT-DR CONTENDED THAT THE UNACCOUNTED ADDITION IN PURCHASE @ 20% OF TOTAL PURCHASES CLAIMED TO HAVE BEEN MADE FROM M/S.SANTOSHI BHANDAR IS REQUIRED TO BE UPHELD IN THE LIGHT OF DECISION IN THE CASE OF VIJAY PROTEINS LTD., FOR A.Y. 1991-92. 13. PER CONTRA, THE LD.COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDER OF THE CIT(A). HOWEVER, SUBMITTED THAT THE CIT(A) HAS NOT JUSTIFIED IN CONFIRMING THE ADDITION OF RS.29,75,775/- WHERE THE ASSESSEE HAS SUBMITTED THE EVIDENCES OF PURCHASES THROUGH PROPER FOR, DORAJI. THE PAYMENTS WERE MADE THROUGH ACCOUNT PAYEE CHEQUES THE OIL CAKES WERE PURCHASED FROM ORISSA, I.E. OUT OF GUJARAT ON WHICH NOT PURCHASES TAX WAS LEVIABLE IN THE STATE OF ORISSA. THE COPY OF BILLS OF PURCHASES FROM M/S.SANTOSHI BHANDAR AS WELL AS RECEIPT OF TRANSPORTATION WERE FILED AS SALES TAX REG.NO. THE AO HAS TREATED THE BOGUS PURCHASES WHICH IS ON THE BASIS OF LATER RECEIVED FROM CTO-SALES TAX OFFICE, BERHAMUR. IT IS TO BE NOTED THAT CTO HAS MENTIONED THAT PARTY GENUINE AND ITS SALES ACIT, CIRCLE-2, RAJKOT VS. PARTH PROTEINS P. LTD./ITA NO.487 & C.O.NO.454 /RJT/2005/A.Y.1998-99 PAGE 13 OF 25 TAX ASSESSMENT IS PENDING. IT WAS SUBMITTED THAT THE SALES TAX DEPARTMENT HAS ALSO MADE THE DETAILED VERIFICATION AND ACCEPTED THE GENUINENESS OF THE PURCHASES DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE STATEMENT OF SHRI P.B.DAMANI, DIRECTOR WAS ALSO RECORDED WHEREIN HE HAS CONFIRMED THAT GROUND NUT OIL CAKE HAS BEEN PURCHASED AND PAYMENTS HAVE BEEN MADE BY CHEQUES, HENCE, THE TRANSACTIONS ARE GENUINE. THE CIT(A) HAS WORKED OUT THE INVESTMENT OF PURCHASE PRICE IN TERMS OF BENEFIT DERIVED BY THE APPELLANT OF RS.29,95,775/- AND ALSO ALLOWED THE PEAK AMOUNT OF PURCHASE AT RS.1,10,08,844/- ON THE BASIS OF EXAMINATION OF IMPOUNDED PURCHASE REGISTER AS DESCRIBING AGAINST THE INVESTMENT COST OF PURCHASES WORKED OUT AT RS.29,95,775/-. 14. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD AND CONSIDERED THE RELEVANT FACTS. THE PERUSAL OF THE ASSESSMENT ORDER REVEALS THAT THE AO FOUND THAT THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE WERE DEFECTIVE AS THE AO FOUND THAT THE PRODUCTION REGISTER OF SEGN ON 11.05.1997 ENTRY HAS BEEN ERASED, SIMILARLY, ENTRY DATED 12.05.1997, 13.05.1997 WERE ALSO ERASED. FURTHER, THE PRODUCTION REGISTER ALSO REVEALED THAT AS AGAINST 10000 KG OF SEGN RAW OIL OF WHICH PRODUCTION WAS SHOWN OF 9500 KG WHICH ACIT, CIRCLE-2, RAJKOT VS. PARTH PROTEINS P. LTD./ITA NO.487 & C.O.NO.454 /RJT/2005/A.Y.1998-99 PAGE 14 OF 25 WAS PRIMA-FACIE UNBELIEVABLE, BECAUSE IN NORMAL COURSE PRODUCTION CANNOT BE IN ROUND FIGURE WHICH IS MAJOR DEFECT OF BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE. FURTHER, THE AO ALSO NOTICED THAT REGISTER MAINTAINED BY THE ASSESSEE ARE DEFECTIVE ON WHICH REWRITING AND RE-INDICATING IS APPEARING. FURTHER THE ANNEXURE 3CD4 & 3CD5 WERE ALSO NOT SATISFIED BY THE AUDITORS, SIGNATURE ON THESE ANNEXURE ARE BEARING OF P.B.DAMANI ON BEHALF OF THE COMPANY WHEREAS IN AUDIT AND ITS ANNEXURES SIGNATURE FOR THE DIRECTOR SHRI S.P.DAMANI ALONG WITH SHRI P.P.DAMANI WEE APPEARING. FURTHER, THE PRODUCTION OF ELECTRICITY CONSUMED BY THE ASSESSEE IS MORE AS SHOWN IN THE BOOKS OF ACCOUNTS WHICH EVIDENT FROM THE PENALTY OF RS.31,52,198/- IMPOSED BY GEB. THEREFORE, THE CIT(A) HAS JUSTIFIED IN UPHOLDING THE REJECTION OF BOOKS OF ACCOUNTS ON THE BASIS OF AOS FINDING. WITH REGARD TO PURCHASES FROM M/S.SANTOSHI BHANDAR, IT IS NOTICED FROM THE SALES TAX AUTHORITIES AS WELL AS DCIT, BERHAMUR THAT SAID CONCERN WAS NOT DOING ANY BUSINESS IN OIL CAKE NOR IT WAS FOUND ON THE ADDRESS GIVEN BY THE ASSESSEE, THEREFORE IN THE LIGHT OF PREPONDERANCE OF EVIDENCES AVAILABLE IN THE CASE OF ASSESSEE AND ALSO THE FACT THAT DIRECTOR OF THE ASSESSEE COMPANY WAS NOT ABLE TO EXPLAIN THE PURCHASES ACIT, CIRCLE-2, RAJKOT VS. PARTH PROTEINS P. LTD./ITA NO.487 & C.O.NO.454 /RJT/2005/A.Y.1998-99 PAGE 15 OF 25 FROM M/S.SANTOSHI BHANDAR AND HIS REPLY WHICH HAS BEEN REPRODUCED BY THE AO AT PAGE 10 & 11 OF THE ASSESSMENT ORDER WAS EVASIVE, MISLEADING AND HAVING WITH ALTERIOR MOTIVE. THEREFORE, FINDINGS OF THE CIT(A) THAT THE ASSESSEE HAS NOT MADE ANY PURCHASES FROM M/S.SANTOSHI BHANDAR IS FOUND TO BE CORRECT. ACCORDINGLY, WE CONCURRED THE VIEW TAKEN BY THE LOWER AUTHORITIES. WITH REGARD TO THE PURCHASE OF OGS OF RS.6,65,80,561/- OF 10631.250 KG OF GROUND NUT OIL CAKE CLAIMED TO BE MADE FROM M/S.SANTOSHI BHANDAR ARE NOT FOUND GENUINE. HOWEVER, THE ASSESSEE AS EXPORTED THE GOODS, THEREFORE, THE ASSESSEE MIGHT HAVE PURCHASED THESE GOODS LOCALLY FROM THIRD PARTY. THE AO, THEREFORE, ESTIMATED 20% OF GOODS RS.6,65,80,561/- FOR WHICH WORKED OUT TO RS.1,33,16,115/- AS UNEXPLAINED INVESTMENT AND ADDED THE SAME AS UNDISCLOSED INCOME. THE AO FURTHER QUANTIFIED INVESTMENT IN OF PURCHASES AT RS.20,30,568/- AS UNEXPLAINED EXPENDITURE U/S.69C OF THE ACT IN RESPECT OF THE AFORESAID PURCHASES BY CONSIDERING THE RATE OF 191 PER METRIC TON IN RESPECT OF 10631.250 METRIC TON PURCHASES. HOWEVER, THE CIT(A) FOUND THAT THE METHOD ADOPTED BY THE AO FOR QUANTIFICATION OF DISALLOWANCE FOR INFLATION OF PURCHASE PRICE AND ADDITION FOR UNACCOUNTED INVESTMENT FOR PURCHASES IS NOT ACIT, CIRCLE-2, RAJKOT VS. PARTH PROTEINS P. LTD./ITA NO.487 & C.O.NO.454 /RJT/2005/A.Y.1998-99 PAGE 16 OF 25 SCIENTIFIC. THEREFORE, THE CIT(A) CONSIDERING THE FINDINGS OF ITAT IN THE CASE OF VIJAY PROTEINS(SUPRA) OBSERVED THAT IF 20% OF TOTAL PURCHASES OF RS.1,33,16,112/- IS CONSIDERED THEN THE APPELLANTS ADDITION WOULD BE AT RS.20,30,568/- INCLUDING PEAK AMOUNT, THEREFORE, THE CIT(A) HAS QUANTIFIED THE INVESTMENT IN PURCHASE BY TAKING PURCHASE ADDITIONS @ 20% OF RS.6,65,80,561/- WHICH WORKED OUT AT RS.1,33,16,112/- AND TRANSPORTATION EXPENSES @ 24.27% IN THE RATIO OF TOTAL PURCHASES WITH RESPECT TO TOTAL EXPENSES WHICH WORKED OUT TO RS.7,88,978/-. SIMILARLY OCTROI @ 2.05 OF PURCHASE OF RS.6,65,80,561/- WAS CALCULATED AT RS.1,66,451/- AND PACKING MATERIAL CONSIDERED FOR 5 PER PACK AT RS.7,08,735/-. ACCORDINGLY THE CIT(A) HAS QUANTIFIED INVESTMENT ON PURCHASES PRICE AT RS.29,95,775/- CONSIDERED THE SAME FOR ADDITION AS UNEXPLAINED EXPENDITURE AS AGAINST THE AMOUNT OF RS.20,30,568/- COMPUTED BY THE AO. THE CIT(A) FURTHER OBSERVED THAT IN VIEW OF DECISION OF ITAT IN THE CASE OF VIJAY PROTEINS LTD., FOR AY 1991-92 WHERE THE PEAK AMOUNT OF PURCHASE AT RS.10,08,844/- ON 10.05.1997 IS LESS THAN THE CONFIRMED ADDITION, HENCE, THE TOTAL ADDITION WAS CONFIRMED AT RS.29,95,775/- AND BALANCE ADDITION OUT OF RS.1,33,16,116/- WAS DELETED. WE FIND THAT THESE FINDINGS OF THE CIT(A) ARE CORRECT AS THE CIT(A) HAS ACIT, CIRCLE-2, RAJKOT VS. PARTH PROTEINS P. LTD./ITA NO.487 & C.O.NO.454 /RJT/2005/A.Y.1998-99 PAGE 17 OF 25 CONSIDERED ITS FINDINGS BY FOLLOWING THE DECISION OF TRIBUNAL IN THE CASE OF VIJAY PROTEINS LTD., (SUPRA) AND ALLOWED THE SET OFF OF PEAK AMOUNT WORKED OUT BY THE AO AT RS.10,08,444/-. IN THE LIGHT OF THESE FACTS, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) IN CONFIRMING THE ADDITION AT RS.29,95,75/- AS AGAINST THE ADDITION MADE BY THE AO AT RS.1,33,16,112/-, THEREFORE, THE APPEAL OF THE REVENUE IN RESPECT OF GROUND NO.1 IS DISMISSED. SIMILARLY, THE GROUND NO. 1 TO 3 OF CROSS OBJECTION IN WHICH THE ASSESSEE HAS CHALLENGED THE CONFIRMATION OF ADDITION OF RS.29,95,775/- IS ALSO DISMISSED. IN VIEW OF THE AFORESAID DISCUSSION, WE DO NOT FIND ANY REASON TO DEVIATE WITH THE FINDINGS RECORDED BY THE LD.CIT(A). ACCORDINGLY THE CROSS OBJECTION HAS ALSO DISMISSED. 15. GROUND NO.2 RELATES TO DELETING THE ADDITION OF RS.22,04,897/- MADE ON ACCOUNT UNDER VALUATION OF CLOSING STOCK. 16. BRIEF FACTS OF THE CASE ARE THAT THE AO NOTICED THAT SOME ITEMS OF CLOSING STOCK HAVE BEEN VALUED AT PRICE LOWER THAN COST. AFTER BEING NOT SATISFIED WITH THE EXPLANATION OFFERED BY THE ASSESSEE, THE AO HELD THAT THE CLOSING STOCK WAS UNDERVALUED BY ACIT, CIRCLE-2, RAJKOT VS. PARTH PROTEINS P. LTD./ITA NO.487 & C.O.NO.454 /RJT/2005/A.Y.1998-99 PAGE 18 OF 25 AN AMOUNT OF RS.2,37,66,485/- AND ADDED THE SAME TO TOTAL INCOME. 17. THE ASSESSEE CARRIED THE MATTER BEFORE THE CIT(A) WHEREIN A DETAILED SUBMISSIONS WERE MADE AND IT WAS CONTESTED THAT THE AO HAS NOT CONSIDERED THE GUNNY BAGS AND QUALITY ALLOWANCE DIFFERENCE WHICH WE SEPARATELY IN THE PROFIT AND LOSS ACCOUNT (PLA). THE CIT(A) OBSERVED THAT THE AO HAS TAKEN AVERAGE PRICE ON BASIS OF PURCHASE MADE ON 29.03.1998 FROM M/S.OSWAL OIL MILLS AND ON 27.03.1998 FROM M/S.B.P.SHANTILAL. IT IS CLAIMED THAT THE PURCHASE PRICE INCLUDES CHARGES FOR GUNNY BAGS. FURTHER, THE AO HAS NOT CONSIDERED THE CREDIT RECEIVED FOR SUPPLY OF GOODS OF INFERIOR QUALITY AND WEIGHT DIFFERENCE. ON EXAMINATION OF THESE FACTS, THE CIT(A) NOTED THAT THE VALUE OF GUNNY BAGS AT RS.2242/- TO BE REDUCED FOR PER METRIC TON AND ALSO NOTED THAT THE AMOUNT OF RAPE SHEET DIFFERENCE OF RS.32,912/- RAPE SHEET KHARJAT RS.66,068/- AND RAPE SHEET WEIGHT DIFFERENCE OF RS.1,01,03,376/- AND VALUED GUNNY BAGS OFRS.2242/- WERE NOT CONSIDERED BY THE AO, ACCORDINGLY THE ADDITION OFRS.11,26,513/- IN THE CLOSING STOCK WAS DELETED. THE CIT(A) FURTHER FOUND THAT THE ASSESSEE HAS VALUED GOODS ON BASIS OF COST WHICH IS CORRECT. ACCORDINGLY, ADDITION OF RS.9,85,032/- ON ACCOUNT OF VALUE OF CLOSING STOCK OF ACIT, CIRCLE-2, RAJKOT VS. PARTH PROTEINS P. LTD./ITA NO.487 & C.O.NO.454 /RJT/2005/A.Y.1998-99 PAGE 19 OF 25 GEMDOC WAS HELD TO BE INVALID AND HENCE SAME WAS DELETED. SIMILARLY, THE CIT(A) HAS ALSO DELETED THE ADDITION OF RS.54,992/- UNDER VALUATION OF STOCK IN RESPECT OF EMPTY TINS AT RS.54,992/- AND GROUND NUT CAKE OGS WAS REDUCED FROM RS.5,58,696/- TO RS.4,61,663/- WHEREAS THE ADDITION ON UNDER VALUATION STOCK IN GROUND NUT CAKE WAS ENHANCED FROM RS.41,382/- TO RS.45,520/- AND THE STOCK OF HAXIN OF RS.29,413/- WAS CONFIRMED. IN VIEW OF THESE FACTS THE TOTAL ADDITION ON ACCOUNT OF UNDER VALUATION OF CLOSING STOCK WAS REDUCED FROM 2,27,66,485/- TO RS.5,61,588/-. 18. BEING AGGRIEVED, THE REVENUE HAS FILED THIS APPEAL AGAINST THE DELETION OF CLOSING STOCK OF RS.22,04,897/- OUT OF RS.27,66,485/-. THE LD.CIT-DR HAS HEAVILY RELIED UPON THE ORDERS OF THE AO. 19. PER CONTRA , THE LD.COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDER OF THE CIT(A). 20. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS SEEN THAT THE AO HELD THAT SOME OF THE ITEMS OF CLOSING STOCK HAVE BEEN VALUED AT A PRICE LOWER THAN COST AND ACCORDINGLY WORKED OUT UNDER VALUATION OF CLOSING STOCK AT RS.27,66,485/- AND MADE ADDITION TO THE TOTAL INCOME. ACIT, CIRCLE-2, RAJKOT VS. PARTH PROTEINS P. LTD./ITA NO.487 & C.O.NO.454 /RJT/2005/A.Y.1998-99 PAGE 20 OF 25 HOWEVER, IN APPEAL THE ASSESSEE HAS CLAIMED THAT THE AO HAS NOT CONSIDERED THE GOODS RECEIVED IN GUNNY BAGS WERE INCLUDING COST OF GUNNY BAGS. THE ASSESSEE FOLLOWS THE PRACTICE OF INCREASING THE QUANTITY OF GUNNY BAGS THEREBY INCLUDING THE SAME IN THE STOCK OF GUNNY BAGS, THEREFORE STOCK VALUATION OF DIFFERENT ITEMS NEEDS TO BE DONE EXCLUDING THE VALUE OF GUNNY BAGS FROM THE TOTAL BILL AMOUNT, ACCORDINGLY THE CIT(A) HAS DELETED THE ADDITION IN RESPECT OF GUNNY BAGS AT RS.2242/- WHICH WE FIND IN ORDER. IT WAS FURTHER NOTICED BY THE CIT(A) THAT THE AO HAS TAKEN VALUE OF GOODS TO BE EXPORTED ON THE BASIS OF SALE BILLS ISSUED WHICH IS AGAINST THE BASIC PRINCIPLE ACCOUNTANCY AS THE CLOSING STOCK IS TO BE VALUED. AT COST OR MARKET VALUE WHICHEVER IS LOWER. THE MARKET VALUE IS NOT TO BE ADOPTED AS PER SALE PRICE WHICH INCLUDES PROFIT AND OTHER COST. THEREFORE, THE CIT(A) HAS RIGHTY DELETED THE ADDITION OF RS.9,85,032/- ON ACCOUNT OF VALUE OF CLOSING STOCK OF GROUND NUT, HENCE WE DO NOT FIND ANY INFIRMITY IN DELETION OF THIS ADDITION. SIMILARLY, THE CIT(A) HAS DELETED THE ADDITION OF RS.11,26,513/- OUT OF CLOSING STOCK OF MUSTARD SEED AND RAPE SEED ON THE GROUND THAT THE CLOSING STOCK OF THESE ITEMS HAS BEEN CORRECTLY SHOWN BY THE ASSESSEE. WE HAVE GONE THROUGH THE ORDERS AND THE FINDINGS OF THE LD.CIT(A) AND DO NOT ACIT, CIRCLE-2, RAJKOT VS. PARTH PROTEINS P. LTD./ITA NO.487 & C.O.NO.454 /RJT/2005/A.Y.1998-99 PAGE 21 OF 25 FIND ANY REASON THE INTERFERE WITH THE SAME. SIMILARLY, THE CIT(A) AFTER ANALYSED DETAILS OF EMPTY TINS AND CONFIRMED THE ADDITION OF RS.54,992/- ON ACCOUNT OF VALUATION IN CLOSING STOCK OF EMPTY TINS. WE FURTHER FIND THAT THE AO WORKED OUT CLOSING STOCK OF GROUND NUT CAKE AT RS.41,382/- WHEREAS THE CIT(A) HAS NOTED THAT THIS SHOULD BE AT RS.45,520/-, ACCORDINGLY THE VALUATION IN RESPECT OF THIS ITEM WAS ENHANCED TO RS.45,520/-. SIMILARLY, ADDITION ON GROUND NUT OGS WAS ANALYSED BY THE CIT(A) AND THE STOCK OF SAME WAS DETERMINED AT RS.4,31,663/- AND THE ADDITION OF UNDER VALUATION IN RESPECT OF THESE ITEMS OF THE DIFFERENCE WAS DELETED. SIMILARLY, THE ADDITION OF RS.29,413/- ON ACCOUNT OF UNDER VALUATION IN CLOSING STOCK OF HAXIN WAS CONFIRMED. THUS, WE FIND THAT THE CIT(A) HAS ANALYSED THE SUBMISSIONS OF THE ASSESSEE AS WELL AS FINDINGS OF THE AO AND AFTER ARRIVED AT A FAIR REASONABLE VALUATION OF CLOSING STOCK, HENCE THE FINDINGS OF THE CIT(A) IN REDUCING THE CLOSING STOCK TO RS.5,61,588/- FROM RS.27,66,485/- IS THEREFORE UPHELD. CONSEQUENTLY, GROUND NO.2 OF THE REVENUE APPEAL IS THEREFORE DISMISSED AND RESULTANTLY THE GROUND NO.4 OF THE CROSS OBJECTION IS ALSO TO BE DISMISSED. ACIT, CIRCLE-2, RAJKOT VS. PARTH PROTEINS P. LTD./ITA NO.487 & C.O.NO.454 /RJT/2005/A.Y.1998-99 PAGE 22 OF 25 21. GROUND NO.3 RELATES TO DELETING THE ADDITION OF RS.8,437/- MADE ON ACCOUNT OF MOTOR CAR EXPENSES AND DEPRECIATION. 22. THE LD.CIT-DR HAS RELIED ON THE AO WHEREAS THE LD.COUNSEL FOR THE ASSESSEE HAS SUPPORTED THE ORDER OF THE CIT(A). 23. WE HAVE CONSIDERED THE FACTS AND FIND THAT THE CIT(A) HAS CORRECTLY DELETED THE SAID ADDITION, THEREFORE NO INTERFERENCE IS REQUIRED, ACCORDINGLY, THIS GROUND OF APPEAL IS THEREFORE DISMISSED. 24. IN THE RESULT, APPEAL OF THE REVENUE IN RESPECT OF GROUND NO.1 TO 3 ARE ACCORDINGLY DISMISSED. CROSS OBJECTION NO.457/RJT/2005 AY1998-99 BY ASSESSEE: 25. GROUND NO.1 TO 3 RELATES TO INCREASING ADDITION ON ACCOUNT OF INVESTMENT IN PURCHASE PRICE AT RS.29,95,775/-. 26. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD AND FIND THAT THIS GROUND IN CROSS OBJECTION HAS BEEN COVERED BY THE GROUND NO.1 OF THE APPEAL OF THE REVENUE WHICH WE HAVE DISMISSED, THEREFORE IN THE LIGHT OF FINDINGS GIVEN THEREIN, THESE GROUNDS OF APPEAL 1 TO 3 OF THE ASSESSEE ARE ACCORDINGLY DISMISSED. ACIT, CIRCLE-2, RAJKOT VS. PARTH PROTEINS P. LTD./ITA NO.487 & C.O.NO.454 /RJT/2005/A.Y.1998-99 PAGE 23 OF 25 27. GROUND NO.4 OF THE ASSESSEE RELATES TO CONFIRMING TOTAL ADDITION OF RS.5,61,588/- ON ACCOUNT OF UNDER VALUATION OF STOCK. 28. WE HAVE HEARD THE RIVAL SUBMISSIONS AND FIND THAT THIS GROUND OF ASSESSEE IS COVERED BY THE GROUND NO.2 OF THE REVENUE AS DISCUSSED ABOVE. WE FIND THAT THE CIT(A) RIGHTLY CONFIRMED THE ADDITION OF RS.5,61,58/- ON ACCOUNT OF UNDER VALUATION OF CLOSING STOCK ON THE BASIS OF ANALYSIS AND FINDINGS SUBMITTED BY THE AO, THEREFORE THE FINDINGS GIVEN IN RESPECT OF GROUND NO.2 OF THE APPEAL OF THE REVENUE, THIS GROUND OF APPEAL OF THE ASSESSEE IS ACCORDINGLY DISMISSED. 29. GROUND NO.5 RELATES TO CONFIRMING ADDITION OF RS.32,224/- ON ACCOUNT OF TELEPHONE EXPENSES. 30. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD AND FIND THAT THE CIT(A) HAS OBSERVED THAT THE PERSONAL USE OF TELEPHONE BY DIRECTORS OF THE COMPANY IS IMPERATIVE, FURTHER THE EXPENDITURE IS NEITHER AUTHORIZED BY AGM NOR IS SHOWN AS PERQUISITE IN THE HANDS OF APPELLANT WHEREAS THE LD.COUNSEL RELYING ON THE CASE OF HONBLE GUJARAT HIGH COURT IN THE CASE OF SAYAJI IRON AND ENGINEERING AND COMPANY 253ITR 749 ACIT, CIRCLE-2, RAJKOT VS. PARTH PROTEINS P. LTD./ITA NO.487 & C.O.NO.454 /RJT/2005/A.Y.1998-99 PAGE 24 OF 25 SUBMITTED THAT THE DISALLOWANCE UPHELD BY THE CIT(A) ARE REQUIRED TO BE DELETED, ACCORDINGLY SAME IS DELETED. THEREFORE, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 31. GROUND NO.6 RELATES TO CONFIRMING ADDITION OF RS.16,875/- ON ACCOUNT OF MOTOR CAR EXPENSES AND DEPRECIATION. 32. WE HAVE HEARD THE RIVAL SUBMISSIONS AND THE AO DISALLOWED RS.25,312/- OUT OF MOTOR CAR EXPENSES AND DEPRECIATION. HOWEVER, THE CIT(A) CONFIRMED THE ADDITION TO THE EXPENDITURE OF 1/6 TH TOTAL CAR EXPENSES, ACCORDINGLY, THE DISALLOWANCE OUT OF MOTOR CAR EXPENSES WERE REDUCED FROM RS.25,312/- TO RS.16,875/-. HOWEVER, THE LD.COUNSEL FOR THE ASSESSEE RELYING ON THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF SAYAJI IRON AND ENGINEERING AND COMPANY VS. CIT 253 ITR 749 SUBMITTED THAT NO DISALLOWANCE ON ACCOUNT OF PERSONAL USE CAN BE MADE IN THE CASE OF COMPANY. WE ARE THEREFORE OF THE CONSIDERED OPINION THAT FOLLOWING THE DECISION OF HONBLE GUJARAT HIGH COURT THE DISALLOWANCE UPHELD BY THE CIT(A) ARE REQUIRED TO BE DELETED, ACCORDINGLY SAME IS DELETED. THIS GROUND OF APPEAL OF THE ASSESSEE IS THEREFORE ALLOWED. ACIT, CIRCLE-2, RAJKOT VS. PARTH PROTEINS P. LTD./ITA NO.487 & C.O.NO.454 /RJT/2005/A.Y.1998-99 PAGE 25 OF 25 33. IN THE RESULT, CROSS OBJECTION OF THE ASSESSEE IS PARTLY ALLOWED WHEREAS THE APPEAL OF THE REVENUE IS DISMISSED. 34. THE ORDER PRONOUNCED IN THE OPEN COURT ON 26.11.2018. SD/- SD/- ( .. /C.M. GARG) ( .. / O.P.MEENA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER / RAJKOT, DATED : 26 TH NOVEMBER , 2018/ S.GANGADHARA RAO, SR.PS COPY OF ORDER SENT TO :- 1) ASSESSEE 2) ACIT, CIRCLE-2, RAJKOT 3) CIT-(A)-II, RAJKOT 4) CIT-RAJKOT-II, RAJKOT 5) ITAT (DR) 6) GUARD FILE OF ITAT. BY ORDER / / TRUE COPY / / ASSISTANT REGISTRAR, RAJKOT