ITO, Malerkotla V. M/s Modi Industries, Malerkotla

ITA 1052/CHANDI/2010

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 4118 (ITAT-CHANDIGARH)
• Duration Of Justice: 8 year(s) 7 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2019
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 04-08-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: MANJIT SINGH
• Keywords: Unexplained cash credit; Income from undisclosed sources; Transactions in derivatives
• Section: 143(3); 133(6); 192; 68

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH B , CHANDIGARH , !' # $ % &' , BEFORE: SHRI SANJAY GARG, JM & SMT.ANNAPURNA GUPTA, AM ./ ITA NO.1052/CHD/2010 / ASSESSMENT YEAR : 2007-08 THE INCOME TAX OFFICER, IV(3), MALERKOTLA. M/S MODI INDS., A-I. INDUSTRIAL AREA, MALERKOTLA. ./PAN NO: AAEFM9478J /APPELLANT /RESPONDENT /ASSESSEE BY : SHRI MANJIT SINGH, SR.DR ! / REVENUE BY : SHRI ASHWANI KUMAR, CA ' # $ /DATE OF HEARING : 09.01.2019 %&'( $ /DATE OF PRONOUNCEMENT: 13.03.2019 /ORDER PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-II, LUDHIANA (IN SHORT CIT(A) DATED 14. 5.2010 PASSED U/S 250(6) OF THE INCOME TAX AT, 1961 (HEREI NAFTER REFERRED TO AS ACT). 2. GROUND NOS.1 AND 2 RAISED BY THE REVENUE, IT WA S POINTED OUT BY THE LD. DR, WERE INTERRELATED RELATI NG TO THE ADDITION TO THE INCOME OF THE ASSESSEE BY THE ASSES SING OFFICER(IN SHORT REFERRED TO AS A.O). BY FIRST RE JECTING THE BOOKS OF ACCOUNT OF THE ASSESSEE U/S 145(3) OF THE ACT ON ACCOUNT OF DISCREPANCIES NOTED THEREIN AND THEREAFT ER APPLYING THE GP RATE OF 16% TO THE ENHANCED GROSS T URNOVER ITA NO.1052/CHD/2010 A.Y.2007-08 2 OF THE ASSESSEE, THUS MAKING ADDITION OF RS.53,56,0 40/- AND FURTHER MAKING ADDITION ON ACCOUNT OF UNACCOUNTED S ALES OF STEEL BILLETS OUTSIDE THE BOOKS OF ACCOUNT OF THE A SSESSEE. THE LD. DR, THEREFORE, TOOK BOTH THE GROUNDS TOGETH ER FOR MAKING HIS ARGUMENTS. 3. BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE A SSESSEE DERIVES INCOME FROM MANUFACTURING & SALE OF LEAF SP RINGS USED IN AUTO INDUSTRIES. DURING ASSESSMENT PROCEEDI NGS THE A.O. NOTED SEVERAL DISCREPANCIES IN THE QUANTITATIV E DETAILS FURNISHED BY THE ASSESSEE OF RAW MATERIAL PURCHASED BY IT AND ALSO NOTED DISCREPANCIES IN THE MANUFACTURING A CCOUNT AND STOCK DETAILS MAINTAINED BY IT, WHICH WERE OUTL INED IN PARAS 3 TO 5 OF THE ASSESSMENT ORDER, THE GIST OF W HICH FINDS MENTION AT PARAS 4.1 AND 4.2 OF THE CIT(A)S ORDER. IN VIEW OF THE SAME, NOT BEING SATISFIED WITH THE CORRECTNE SS AND COMPLETENESS OF THE BOOKS OF ACCOUNT OF THE ASSESSE E, THE SAME WERE REJECTED BY THE A.O. U/S 145(3) OF THE AC T. THEREAFTER THE A.O. NOTED THAT DURING THE RELEVANT PERIOD THE ASSESSEE HAD DEBITED EXPENSES OF RS.46,35,971/- IN THE MANUFACTURING ACCOUNT ON ACCOUNT OF CONSUMPTION OF FURNACE OIL WHILE IN THE PRECEDING YEAR SUCH EXPENS ES WERE OF RS.49,28,410/-, WHEN THE ASSESSEE WAS GETTING CO NVERSION MADE FROM STEEL BILLETS TO FLATS ON JOB WORK BASIS FROM THIRD PARTIES. AS PER THE A.O., THIS CONSUMPTION OF FURNA CE OIL WAS ON THE HIGHER SIDE. AS PER HIM THE PRODUCTION EXPEN SES OF THE ASSESSEE INCREASED TO 13.9% AS AGAINST 7.81% IN THE EARLIER YEAR AND THERE WAS INCREASE OF 100% AS FAR AS ITA NO.1052/CHD/2010 A.Y.2007-08 3 MANUFACTURING EXPENSES WERE CONCERNED. IF THE CREDI T NOTES ISSUED BY THE PRINCIPAL SUPPLIERS OF STEEL BILLETS WERE REDUCED, THE ACTUAL GROSS PROFIT RATE OF THE ASSESS EE CAME DOWN FROM 12% TO 6.86%. AS PER THE A.O., THE NET PR OFIT SHOWN BY THE ASSESSEE FROM SALES OF RS.7.5 CRORES WAS VERY MUCH ON THE LOWER SIDE. HE ACCORDINGLY CONSIDERED G ROSS PROFIT RATE OF 16% TO BE JUSTIFIED AND REASONABLE G ROSS PROFIT RATE. IN VIEW OF THE PROVISIONS OF SECTION 145(3) O F THE ACT HE ENHANCED THE SALE OF THE ASSESSEE TO RS.9,06,62,720/- AND APPLICATION OF GROSS PROFIT RA TE OF 16% ON THESE ENHANCED SALES RESULTED INTO TRADING ADDIT ION OF RS.53,56,040/- WHICH WAS MADE BY HIM TO THE INCOME OF THE ASSESSEE. FURTHER THE A.O. MADE ADDITION OF RS.72,6 2,983/- ON ACCOUNT OF PROFITS FROM ALLEGED UNACCOUNTED SAL E OF STEEL BILLETS. AS PER ASSESSMENT ORDER IN THE QUANTITATIVE DETAILS FILED DURING ASSESSMENT PROCEEDINGS THE ASS ESSEE HAD WORKED OUT BALANCE STOCK OF STEEL BILLETS AS ON 31. 03.2007 AS UNDER:- 1) BILLETS SENT FOR ROLLING 1663.2320 M.TS. 2) OPENING STOCK 109.410 M.TS. TOTAL 1772.640 M.TS. LESS: BILLETS SENT FOR ROLLING 1663.230 M.TS . THE A.O. OBSERVED THAT THE ASSESSEE HAD SHOWN SALE OF BILLETS WEIGHING 61.310 M.TS. HOWEVER THESE SALES W ERE NOT REFLECTED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. AS PER THE A.O., AS THE ASSESSEE HAD NOT DISCLOSED ANY STOCK O F STEEL BILLETS IN THE AUDIT REPORT FILED WITH THE RETURN W HICH MEANT THAT THIS STOCK WAS DISPOSED OFF AFTER CONVERTING I NTO ITA NO.1052/CHD/2010 A.Y.2007-08 4 FINISHED PRODUCTS. THE A.O. FURTHER BROUGHT OUT THA T DURING THE RELEVANT PERIOD THE ASSESSEE HAD RECEIVED STEEL FLATS WEIGHING 106.840 M.TS. WHICH WERE OBTAINED OUT OF UNACCOUNTED STEEL BILLETS WEIGHING 109.260 M.TS. TH E A.O. OBSERVED THAT THOUGH THIS STOCK WAS INCLUDED IN QUA NTITY OF STEEL FLATS RECEIVED AFTER CONVERSION BUT THE SALE PROCEEDS THEREOF HAD NOT BEEN ACCOUNTED FOR BY THE ASSESSEE. HE WORKED OUT THE TOTAL QUANTITY OF FINISHED PRODUCTS OUT OF THE UNACCOUNTED STEEL BILLETS AS UNDER:- BALANCE STOCK OF BILLETS AS SHOWN IN STATEMENT 109.480 MTS. LESS : INVISIBLE LOSS @2.5% 2.735 MTS. 106.675 MTS. ADD STOCKS OBTAINED BY THE ASSESSEE OUT OF LAST YEAR'S STOCK OF STEEL LYING AS WITH RE-ROLLER S 106.840 MTS. TOTAL 213.515 MTS. PERCENTAGE OF FINISHED PRODUCTS OBTAINED BY THE ASSESSEE OUT OF 213.515 MTS. IN TERMS OF STEEL FLAT IN THE RATIO AS SHOWN IN THE STOCK STATEMENT 196.159 M.TS. SALE VALUE OF THE FINISHED PRODUCTS AT AVERAGE SALE VALUE OF RS.37026/- PMT AS CALCULATED BY THE ASSESSEE : RS.72,62,983/- ADDITION OF RS.72,62,983/- WAS THEREFORE MADE BY HI M TO THE INCOME OF THE ASSESSEE. 4. BEFORE THE LD.CIT(A) DETAILED SUBMISSIONS WERE F ILED BY THE ASSESSEE, REPRODUCED AT PARAS 4.5 AND 9.1 OF TH E CIT(A) ORDER. AFTER CONSIDERING WHICH THE CIT(A) DELETED B OTH THE ADDITIONS MADE. 5. DURING THE COURSE OF HEARING BEFORE US, THE LD. DR HEAVILY RELIED UPON ON THE FINDINGS OF THE A.O. VIS -A VIS BOTH THE ISSUES. DRAWING OUR ATTENTION TO THE DISCR EPANCY IN THE BOOKS AS REPRODUCED IN SHORT BY THE CIT(A) A T PARAS ITA NO.1052/CHD/2010 A.Y.2007-08 5 4.1 AND 4.2 OF HIS ORDER, THE LD. DR STATED THAT IN VIEW OF THE SAME, THE A.O. HAD RIGHTLY REJECTED THE BOOKS O F ACCOUNT OF THE ASSESSEE AND MADE ADDITION BY APPLYING GROSS PROFIT RATE OF 16% TO THE ENHANCED TURNOVER OF THE ASSESSE E. OUR ATTENTION WAS DRAWN TO PARAS 4.1 AND 4.2 OF THE CIT (A) ORDER REPRODUCING THE DISCREPANCIES FOUND BY THE A. O. IN THE BOOKS OF ACCOUNT LEADING TO THE REJECTION OF TH E BOOKS AS UNDER: 4.1 BRIEF FACTS OF THE CASE ARE THAT THE APPELLANT D ERIVES INCOME MANUFACTURE SALE OF LEAF SPRINGS USED IN AUTO INDUSTRIES. THE A.O CALLED FOR AND EXAMINED THE QUANTITA TIVE DETAILS IN RESPECT OF THE HEAD OFFICE I.E. UNIT NO.L AND UNIT NO.2 OF THE APPELLANT. FROM THESE DETAILS, THE A.O. NOTED TH AT IN THE OPENING STOCK OF UNIT NO. 2, THE APPELLANT HAD SHOWN QUANTITATIVE DETAILS OF RAW MATERIAL VALUED AT RS.7,73 ,206/- WHEREAS, THE RAW MATERIAL VALUED AT RS.22,15,256/- H AS BEEN SHOWN IN TRANSIT. THE A.O. OBSERVED THAT FROM T HESE DETAILS IT APPEARED THAT EVEN AFTER A PERIOD OF MORE THAN 2 YEARS THESE GOODS WERE STILL IN TRANSIT. HE FURTHER NO TED THAT THE APPELLANT HAD INCLUDED THE VALUE OF GOODS IN TR ANSIT IN THE OPENING STOCK WHEREAS THE WEIGHT OF THE RAW MATE RIAL HAD NOT BEEN TAKEN INTO ACCOUNT IN THE QUANTITATIVE S TOCK DETAILS IN THE AUDIT REPORT FILED WITH THE RETURN O F INCOME. HE FURTHER CAME TO OBSERVE THAT THE APPELLANT HAD O NLY INCLUDED THE AMOUNT OF RS.22,15,256/- IN TERMS OF ITS V ALUE IN THE OPENING STOCK AS ON 01.04.2006 WHEREAS ITS SALE PROCEEDS HAD NOT BEEN ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS. 4.2 THE A.O. FURTHER EXAMINED THE MANUFACTURING ACCOUNT OF THE APPELLANT. THE APPELLANT HAD DECLARED T HE GROSS PROFIT RATE OF 12% ON SALES OF 7,61,95,899/-. OBS ERVING THAT THE APPELLANT SUPPLIED LEAF SPRINGS TO VARIOUS ESTABLISHMENTS ENGAGED IN THE TRANSPORT BUSINESS WIT HIN THE COUNTRY AND THAT THE APPELLANT IS THE MANUFACTURER OF THESE VITAL COMPONENTS USED IN THE AUTO INDUSTRIES INVOLVI NG HIGH TECHNIQUE IN ITS MANUFACTURING PROCESS, HE CONCLUDE D THAT THE MARGIN OF PROFIT OF 12% IN THIS CASE IN ANY CIRC UMSTANCES COULD NOT BE CONSIDERED AS REASONABLE. THE A.O. BROUGHT OUT THE FOLLOWING DETAILED REASONS TO POINT OUT THAT THE S TOCK DETAILS MAINTAINED BY THE APPELLANT WERE DEFECTIVE:- ITA NO.1052/CHD/2010 A.Y.2007-08 6 (I) THE APPELLANT SENT 44.70 M.TS. OF STEEL BILLETS FOR CONVERSION INTO FLATS ON 30.03.2006. AGAINST THIS IT RECEIVED 43.630 M.TS. OF STEEL FLATS ON 11.12.2006. THIS WAS SHOW N IN THE CONSOLIDATED FIGURE OF PURCHASES OF MATERIAL BUT THIS STOCK HAD NOT BEEN TAKEN INTO ACCOUNT. (II) IN THE CURRENT YEAR THE APPELLANT HAD CLAIMED TO HA VE SOLD 61.310 M.TS. OF STEEL BILLETS AND THIS WAS NOT INCLUDED IN THE MONTH-WISE DETAILS OF GOODS SOLD DURING THE YEAR OR THE SALE THEREOF IN THE GROSS TURNOVER. (ILL) THE APPELLANT HAD SENT 1663.230 M.TS. OF STEE L BILLETS FOR CONVERSION TO M/S UPPER INDIA STEEL LTD. AGAINS T WHICH 1637.239 M.TS. STEEL BILLETS WERE RECEIVED WH ICH WERE THE ENTIRE YEAR'S PURCHASES. THOUGH M/S UPPER I NDIA STEEL LTD. HAD SHOWN THE RECEIPT OF 1609.170 M.TS. O F STEELS BILLETS, THE A.O. HIMSELF STATED THAT THE SAID COMP ANY HAD RECONCILED THIS DISCREPANCY IN AN AMENDED STATEMENT. (IV) M/S UPPER INDIA STEEL LTD. HAD SENT A CERTIFIC ATE AS PER WHICH 26.510 M.TS. AND 37.960 M.TS. OF STEEL BILLETS WERE RECEIVED FROM THE APPELLANT ON 26.03.2006 AND 30.03.200 6 RESPECTIVELY WHICH STOCK WAS RETURNED AFTER CONVERS ION IN THE FIRST FORTNIGHT OF APRIL, 2006. AS PER THE A.O., IT WAS NOT CLARIFIED WHY THESE GOODS WERE OMITTED FROM PREVIOUS STATEMENT. HE FURTHER CAME TO OBSERVE THAT THESE DE TAILS PROVED THAT THE APPELLANT WAS HAVING 64.470 M.TS. O F STEEL BILLETS OVER AND ABOVE 44.70 M.TS. STEEL BILL ETS MENTIONED AT SR. NO.L ABOVE WHICH HAVE NOT BEEN ACCOUNTE D FOR BY THE APPELLANT IN ITS BOOKS OF ACCOUNT. (V) STEELS BILLETS WEIGHING 106.840 M.TS. OBTAINED OUT OF LAST YEAR'S STOCK HAD BEEN INCLUDED IN THE CURRENT YEAR PURCHASES BUT NOT INCLUDED IN THE SALES OR CLOSING STOCK OF THE P REVIOUS YEAR. (VI) IN THE STOCK STATEMENT FOR THE ACCOUNTING YEAR 2005-0 6 FILED DURING ASSESSMENT PROCEEDINGS BALANCE STOCK OF ST EEL BILLETS AS ON 31.03.2006 WORKED OUT AT 121.753 M.TS. (ACTUA L FIGURE 105.753) BUT ITS QUANTITY AND VALUE NOT SHOWN IN THE CLOSING STOCK. (VII) IN THE STOCK STATEMENT FOR THE ACCOUNTING YEAR 2006- 07, THE STOCK OF STEEL BILLETS IN HAND AS ON 31.03.200/ SHOWN AT 74.091 M.TS. (ACTUAL FIGURE 48.110 M.TS.) BUT ITS Q UANTITY AND VALUE NOT SHOWN IN THE CLOSING STOCK. (VIII) THE APPELLANT HAD NOT REFLECTED BILLETS WEIGHING 10 9.410 M.TS. VALUED AT RS.22,15,256/- IN THE AUDIT REPORT. IT WAS EXPLAINED BEFORE THE A.O. THAT THE VALUE OF THIS STO CK WAS DULY ADDED IN THE OPENING STOCK AND THAT SUCH CONSIGNMEN T ARE RECORDED IN SEPARATE STOCK REGISTER MAINTAINED. IT WAS ALSO SUBMITTED THAT THERE WAS NO EFFECT IN PROFIT & LOSS ACCOUNT. ITA NO.1052/CHD/2010 A.Y.2007-08 7 HOWEVER, AS PER THE A.O. THIS WAS A CONVENIENT MET HOD FOLLOWED BY THE APPELLANT FOR EFFECTING SALES OUTSID E THE REGULAR BOOKS OF ACCOUNTS. (IX) BEFORE THE A.O., IT WAS STATED BY THE APPELLANT THAT 109.410 M.TS. OF STEEL BILLETS VALUED AT RS. 22,15,256/- SHOWN AS 'GOODS IN TRANSIT' AS ON 31.03.2006 HAD BEEN DELIVE RED TO M/S UPPER INDIA STEEL LTD. ON 25/30.03.2006 FOR CONVERS ION. AS PER THE A.O. THIS WAS MIS-STATEMENT OF FACTS ON RECORD BE CAUSE IN ADDITION TO GOODS IN TRANSIT OF 109.410 M.TS. APPELLANT WAS HAVING 105.753 M.TS. OF STEEL BILLETS AS ON 31.03.2006. THE A.O. THEREFORE CONCLUDED THAT 109.410 M.TS. OF STEEL BILLE TS WERE ACTUAL IN TRANSIT AS ON 31.03.2006 AND RE CEIVED AT APPELLANT'S PREMISES AFTER 31.03.2006. (X) AS PER THE A.O., THE APPELLANT ADMITTED THAT THE WEIGHT OF CLOSING STOCK OF BILLETS WAS NOT TAKEN IN THE STOCK TALLY AND THIS PRACTICE WAS BEING REGULARLY FOLLOWED BY IT. SINCE THE WEIGHT OF STEEL BILLETS WAS NOT SHOWN IN THE CLOSING STOCK, THE A.O . INFERRED THAT THE VALUATION OF THERE WAS ALSO LEFT OUT OF THE TOTAL VALUE OF THE CLOSING STOCK. (XI) FROM THE EXAMINATION OF THE STOCK REGISTER OF UNIT NO.2, THE A.O. FOUND THAT THE APPELLANT CONSUMED 101.262 M.TS . OF CRM STRIPS, ANGEL, SQUARE AND M.S. BAR VALUED AT MORE T HAN RS. 35 LACS APPROX. HOWEVER, THEIR WEIGHT HAD NOT BEEN TAKEN CARE OF IN THE STOCK DETAILS AS PER AUDIT REPORT FILED WITH THE RETURN OF INCOME. (XII) THE A.O. ALSO FOUND THAT IN THE MONTH-WISE DETAI LS OF PURCHASES OF STEEL BILLETS AND FLATS THE TOTAL PURCHASE S HAD BEENSHOWNAT1966.705 M.TS. IN THE UNIT NO.2. HOWEVER , IN THE STOCK DETAILS GIVEN IN THE AUDIT REPORT FILED WITH T HE RETURN OF INCOME THE PURCHASES MADE DURING THE RELEVANT PERIOD HAD BEEN SHOWN AT 1974.254 M.TS. (XIII) FURTHER, AS PER THE ASSESSMENT ORDER THE APPELLANT SENT ENTIRE STOCK OF CURRENT PURCHASES OF STEEL BILLETS OF 1663.230 M.TS. FOR CONVERSION AGAINST WHICH 1637.239 M.TS. S TEEL FLATS WERE RECEIVED, THE BALANCE BEING BURNING LOSS . THE STEEL FLATS OF1637.239 M.TS. ALSO INCLUDED 106.840 M .TS. OUT OF STOCK OF LAST YEAR GIVEN TO THE PROCESSORS. F ROM THIS, THE A.O. OBSERVED THAT THE APPELLANT DISPOSED OFF LAST YEA R'S UNACCOUNTED STOCK IN THE CURRENT YEAR AND STEEL BILLETS OF E QUAL WEIGHT STILL LEFT WITH THE APPELLANT/PROCESSORS. 6. OUR ATTENTION WAS ALSO DRAWN TO PARA 4.4 OF THE ORDER WHEREIN THE BASIS FOR MAKING THE ADDITION BY THE A. O. WAS DISCUSSED BY THE CIT(A) AS UNDER: ITA NO.1052/CHD/2010 A.Y.2007-08 8 4.4 THE A.O. FURTHER NOTED THAT DURING THE RELEVA NT PERIOD THE APPELLANT HAD DEBITED EXPENSES OF RS.46,35,971/- I N THE MANUFACTURING ACCOUNT ON ACCOUNT OF CONSUMPTION OF FURNACE OIL. LAST YEAR SUCH EXPENSES WERE OF RS.49,28,410/-. WHEN THE APPELLANT WAS GETTING CONVERSION MADE FROM STEEL BILLETS TO FLATS ON JOB WORK BASIS FROM THIRD PARTIES, AS P ER THE A.O., THIS CONSUMPTION OF FURNACE OIL WAS ON THE HI GHER SIDE. AS PER HIM THE PRODUCTION EXPENSES OF THE APP ELLANT INCREASED TO 13.9% AS AGAINST 7.81% IN THE EARLIER YEAR AND THERE WAS INCREASE OF 100% AS FAR AS MANUFACTURING EXPENSES WERE CONCERNED. IF THE CREDIT NOTES ISSUED BY THE PRINCIPAL SUPPLIERS OF STEEL BILLETS WERE REDUCED, T HE ACTUAL GROSS PROFIT RATE OF THE APPELLANT CAME DOWN FROM 12 % TO 6.86%. AS PER THE A.O., THE NET PROFIT SHOWN BY THE APPELLANT FROM SALES OF 7.5 CRORES WAS VERY MUCH ON THE LOWER SIDE. HE ACCORDINGLY CONSIDERED GROSS PROFIT RATE OF 16% TO BE JUSTIFIED BEING REASONABLE GROSS PROFIT RATE. IN VIEW OF THE PROVISIONS OF SECTION 145(3) OF THE ACT HE ENHANC ED THE SALE OF THE APPELLANT TO RS.9,06,62,720/- APPL ICATION OF GROSS PROFIT RATE OF 16% ON THESE ENHANCED SALES RE SULTED INTO TRADING ADDITION OF RS.53,56,040/- WHICH WAS MADE B Y HIM TO THE INCOME OF THE APPELLANT. THE LD. DR, RELYING ON THE ABOVE FINDINGS OF THE A O VEHEMENTLY SUPPORTED THE ASSESSMENT ORDER . 7. THE LD. COUNSEL FOR ASSESSEE, ON THE OTHER HAND, STATED THAT THE LD.CIT(A) HAD FOUND EACH AND EVERY DISCREP ANCY POINTED OUT BY THE A.O. TO BE OF NO CONSEQUENCE HAV ING DISCUSSED EACH OF THEM IN HIS ORDER AND HAD, THEREF ORE, RIGHTLY DELETED THE ADDITION SO MADE AFTER DISMISSI NG THE ACT OF THE A.O. OF REJECTING THE BOOKS OF ACCOUNT OF TH E ASSESSEE U/S 145(3) OF THE ACT. OUR ATTENTION WAS DRAWN TO P ARAS 5 TO 8 OF THE CIT(A) ORDER DISCUSSING EACH DISCREPANC Y AS UNDER: 5. I HAVE CAREFULLY CONSIDERED THE CONTENTION OF THE LD COUNSEL FOR THE APPELLANT, SUBMISSIONS OF THE ASSESSIN G OFFICER AND PERUSED THE RELEVANT RECORD. THE A.O. HAS REJECTED THE BOOKS OF THE APPELLANT AND APPLIED THE PROVISIONS OF SECTION 145(3) OF THE ACT ON ACCOUNT OF VARIOUS AL LEGED DISCREPANCIES WHICH HAVE BEEN ALSO BROUGHT OUT IN TH E PRECEDING PARAS OF THIS APPELLATE ORDER. THE FIRST SU CH ITA NO.1052/CHD/2010 A.Y.2007-08 9 OBJECTION OF THE A.O. IS THAT THE APPELLANT HAS INCLU DED THE VALUE OF GOODS IN TRANSIT IN THE OPENING STOCK WHERE AS THE WEIGHT OF RAW-MATERIAL HAS NOT BEEN TAKEN INTO ACCOU NT IN THE QUANTITATIVE STOCK DETAILS IN THE AUDIT REPORT FILED WITH THE RETURN OF INCOME. AS EXPLAINED IN THE WRITTEN SUBMI SSION OF THE ID. COUNSEL, THERE IS NO SUCH DISCREPANCY ON THE BASIS OF WHICH ADVERSE INFERENCE COULD BE DRAWN AGAINST THE APPELLANT. AS FURTHER DISCUSSED IN THE WRITTEN SUBMI SSION, THESE GOODS IN TRANSIT ARE STEEL BILLETS WEIGHTING 44.70 M.TS., 26.510 M.TS. AND 37.960 M.TS. AGGREGATING TO 109.67 M.TS. WHICH WERE THE PURCHASES OF THE IMMEDIATELY PRECEDING YEAR AND SENT TO M/S UPPER INDIA STEEL INDI A LTD. FOR CONVERSION ON 30.03.2006, 26.03.2006 AND 30.03.2 006 RESPECTIVELY. AFTER CONVERSION THE CORRESPONDING STEE LS FLATS WERE RECEIVED DURING THE PERIOD RELEVANT TO ASSESSME NT YEAR UNDER CONSIDERATION. THE STEEL FLATS RECEIVED AFTER CONVERSION DURING THE RELEVANT PERIOD HAVE BEEN SHOW N TO BE DULY CONSUMED DURING THE SAID PERIOD. THE POSITION IS VERIFIABLE FROM THE RECORD INCLUDING THE EXCISE RECOR D MAINTAINED BY THE APPELLANT. THIS IS EXPLAINED IN DETAIL IN THE WRITTEN SUBMISSIONS OF THE ID. COUNSELS WHICH HAV E BEEN REPRODUCED ABOVE. THEREFORE, ONCE THE STEEL FLATS OBTAINED AFTER CONVERSION OF THESE STEEL BILLETS HAV E BEEN DULY ACCOUNTED FOR IN THE SALES/CONSUMPTION OF THE APPELLANT, THERE IS NO GROUND TO DRAW ANY ADVERSE INF ERENCE AGAINST THE APPELLANT IN THIS REGARD. IT MAY ALSO BE MENTIONED THAT THE MANUFACTURING UNITS OF THE APPELLA NT ARE COVERED BY CENTRAL EXCISE, WHEREIN, DAY-TO-DAY DETA ILS OF PURCHASES AND CONSUMPTION OF VARIOUS GOODS ARE MAIN TAINED. STEEL FLATS OBTAINED FROM CONVERSION OF 109.67 M.TS. O F STEEL BILLETS HAVING BEEN DULY ACCOUNTED FOR IN THIS EXCISE RECORD ALSO THERE IS FURTHER NO CAUSE FOR TAKING ANY ADVERS E VIEW ON THIS ISSUE. 5.1 THE NEXT ALLEGATION OF THE A.O. IS THAT SALE PRO CEEDS CORRESPONDING TO THE OPENING STOCK VALUED AT RS.22, 15,256/- MENTIONED ABOVE HAVE NOT BEEN ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS OF THE APPELLANT. THIS IS THE VALUE OF 10 9.67 M.TS. OF STEEL BILLETS WHICH WAS SHOWN IN THE CLOSI NG STOCK OF 31.03.2006 AND OPENING STOCK OF 01.04.2006 AS 'GOODS IN TRANSIT'. AS MENTIONED IN THE PRECEDING PA RAS THIS STOCK WAS SENT TO M/S UPPER INDIA STEEL LTD. FOR CONV ERSION IN THE PRECEDING YEAR AND APPELLANT RECEIVED 106.40 M.T S. OF STEEL FLATS OUT OF THE SAME DURING THE CURRENT YEAR . AS PER THE A.O. THIS IS NOT INCLUDED IN THE SALE VALUE OF 2114.77 1 M.TS. OF FINISHED GOODS. HOWEVER, AS ALREADY DISCUSSED IN T HE PRECEDING PARAS THE STEEL FLATS WEIGHING 106.40 M.TS. CORRESPONDING TO THIS STOCK HAVE BEEN DULY ACCOUNTED FOR IN BOOKS OF THE APPELLANT INCLUDING THE EXCISE RECORD. THEREFORE, THE A.O. CANNOT BE SAID TO BE JUSTIFIED IN OBSERVING THAT THIS DISCREPANCY WAS NOT EXPLAINED. 5.2 THE NEXT POINT RAISED BY THE A.O. IS AGAIN WITH REGARD TO 44.70M.TS. OF STEEL BILLETS SENT FOR CONVERSION I NTO FLATS ON 30.03.2006. THE A.O. HAS TAKEN THE ADVERSE VIEW O F THE FACT THAT WHEREAS IN THE CONSOLIDATED FIGURE OF PURC HASES ITA NO.1052/CHD/2010 A.Y.2007-08 10 THE QUANTITY OF STEEL FLATS RECEIVED AFTER CONVERSI ON WEIGHTING 43.630 M.TS. HAVE BEEN SHOWN AS CURRENT Y EAR PURCHASES THIS HAS NOT BEEN INCLUDED IN THE DETAILS OF MONTH- WISE PURCHASES OF MATERIAL. AS THE A.O. HAS HIMSELF MENTIONED IN PARA 4(1) THE APPELLANT HAS RIGHTLY NO T DONE SO. HOWEVER, THE QUANTITY OF 43.63 M.TS. HAVING BEEN TAK EN INTO ACCOUNT IN THE CONSOLIDATED FIGURE OF PURCHASE S, ITS CONSUMPTION STANDS DULY ACCOUNTED FOR. AS PER THE DET AILS BROUGHT ON RECORD AND THE EXPLANATION GIVEN BY THE ID. COUNSEL IN THE WRITTEN SUBMISSIONS, OUT OF THE STEEL B ILLETS WEIGHING 109.410 M.TS. SENT FOR CONVERSION IN THE IMMEDIATELY PRECEDING YEAR (WHICH INCLUDES THE SAID STO CK OF 44.70 M.TS.) AND 1667.930 M.TS. SENT DURING THE RELEVANT PERIOD THE APPELLANT RECEIVED 1601.849 M.TS. OF STEEL F LATS DURING THE PERIOD RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION. SALES/CONSUMPTION OF THIS MATERIAL HAV ING BEEN DULY SHOWN IN THE BOOKS OF ACCOUNTS OF THE APP ELLANT INCLUDING THE EXCISE RECORD IT CANNOT BE SAID THAT TH E SALES OF 43.63 M.TS. OF STEEL FLATS OBTAINED FROM 43.630 M.TS. OF STEEL BILLETS HAS NOT BEEN ACCOUNTED FOR BY THE APPELLANT. 5.3 THE NEXT OBJECTION OF THE A.O. IS THAT THE SALE OF 61.310 M.TS. OF STEEL BILLETS IS NOT INCLUDED IN THE MO NTH-WISE DETAILS OF GOODS SOLD DURING THE YEAR OR THE SALES TH EREOF IN THE GROSS TURNOVER. BY FILING DETAILS OF MONTH-WISE SA LES DURING THE PERIOD 01.04.2006 TO 31.03.2007 THE APPEL LANT HAS HOWEVER SHOWN THAT BILLETS WEIGHING 61.300 M.TS. W ERE SOLD IN DECEMBER, 2006 FOR RS.13,93,961.50. IN THE WRITT EN SUBMISSIONS OF THE ID. COUNSELS WHICH HAVE BEEN REPRODUC ED ABOVE, IT HAS BEEN EXPLAINED IN DETAIL AS TO HOW TH E PURCHASES OF THIS RAW-MATERIAL BEING 61.300 M.TS. WERE MADE AND HOW THE SALES OF THE SAME WERE MADE. THESE SALES WERE MADE BY THE APPELLANT VIDE BILL NO. 192 DA TED 07.12.2006 AND BILL NO. 216 DATED 31.12.2006 TO M/S SONU FORGINGS, LUDHIANA FOR RS.2,35,949.50 AND FOR RS.11,58,012/- TO M/S EMSON TOOLS MANUFACTURING CORPORATION, LUDHIANA. ALL THESE SALES HAVE BEEN SH OWN TO BE DULY RECORDED IN THE SALES ACCOUNT OF THE APPELLA NT (NET AFTER VAT AND ED). AS FURTHER EXPLAINED IN THE WRITTE N SUBMISSIONS THE A.O. EVEN CALLED FOR INFORMATION U/S 13 3(6) OF THE ACT FROM M/S EMSON TOOLS MANUFACTURING CORP., LUDHIANA. AS PER THE COPY OF ACCOUNT OF THE APPELLANT OBTAINED FROM M/S EMSON TOOLS BY THE A.O. (A COPY OF W HICH HAS BEEN FILED BY THE APPELLANT DURING THE APPEAL PR OCEEDING ALSO) THESE SALES ARE DULY VERIFIABLE. THEREFORE, THIS OBJECTION OF THE A.O. IS ALSO NOT A VALID OBJECTION. 5.4 THE NEXT OBJECTION RAISED BY THE A.O. AS MENTIONED IN THE PRECEDING PARAS NEED NOT BE TAKEN UP HERE BECAUS E THE A.O. HAS HIMSELF MENTIONED AT END OF PARA 4(3) THA T:- M/S UPPER INDIA STEELS HAS RECONCILED THIS DISCREPANCY IN A AMENDED STATEMENT. 5.5 THE A.O. HIMSELF OBSERVING AS ABOVE THIS NEED NOT B E CONSIDERED AS A DISCREPANCY REQUIRED TO BE EXPLAINED. ITA NO.1052/CHD/2010 A.Y.2007-08 11 5.6 THE NEXT DISCREPANCY POINTED OUT BY THE A.O. IS AG AIN WITH REGARD TO THE STEEL BILLETS WEIGHING 64.42 0 M.TS. SENT FOR CONVERSION IN THE IMMEDIATELY PRECED ING YEAR. THIS STOCK IS ALSO INCLUDED IN THE STOCK OF STEEL BIL LETS OF 109.67 M.TS. DISCUSSED IN THE PRECEDING PARAS WHILE DE ALING WITH THE ALLEGED DISCREPANCY OF 44.70 M.TS. OF STEEL BILLE TS. FOR SIMILAR REASONS AS DISCUSSED WHILE DEALING WITH THAT ISSUE, HERE AGAIN THE ADVERSE INFERENCE DRAWN BY TH E A.O. IS NOT SUSTAINABLE. 5.7 THE DISCREPANCY TAKEN UP BY THE A.O. NEXT IN THE ASSESSMENT ORDER IS THAT STEEL BILLETS WEIGHING 106 .40 M.TS. OBTAINED OUT OF LAST YEAR'S STOCK HAD NOT BEEN INCLU DED IN THE CURRENT PURCHASES. AS ALREADY MENTIONED THESE ARE THE STEEL FLATS OBTAINED OUT OF STEEL BILLETS WEIGHING 109.67 M .TS. SENT FOR CONVERSION IN THE IMMEDIATELY PRECEDING YEAR. THE P OSITION WITH REGARD TO THE ENTIRE STEEL FLATS OBTAINED AFTE R CONVERSION OF 109.67 M.TS. OF STEEL BILLETS HAVING ALREADY BEEN SHOW N TO HAVE BEEN CONSUMED/SOLD AS DISCUSSED IN THE PRECEDING PAR AS, AGAIN NO ADVERSE INFERENCE COULD BE DRAWN ON THIS O BJECTION OF THE A.O. 5.8 THE NEXT TWO OBJECTIONS OF THE A.O. ARE THAT STEE L BILLETS SHOWN TO BE AVAILABLE WITH THE APPELLANT AT 121.753 M.TS . AS ON 31.03.2006 AND 74.091 M.TS. AS ON 31.03.2007 HAVE NOT BEEN REFLECTED IN THE CLOSING STOCK OF 31.03.2006 AND CLOSING STOCK OF 31.03.2007 RESPECTIVELY. THESE OBJECTI ONS OF THE A.O., AS EXPLAINED IN THE WRITTEN SUBMISSIONS O F LD. COUNSEL APPEAR TO BE QUITE MISPLACED. DURING APPEAL PROCEEDIN GS DETAILS OF CLOSING STOCK AS ON 31.03.2006 AND 31.03.2007 HA VE BEEN FURNISHED. AS PER THESE DETAILS THE APPELLANT HAS WOR KED OUT THE CLOSING STOCK OF BILLETS AS ON 31.03.2006 AND 31.0 3.2007 AS UNDER:- PARTICULARS/ASSTT. YEAR 31.03.2006 31.03.2007 1.BILLETS SENT FOR ROLLING 770.220 1663.230 ADD: OPENING BALANCE - 109.410 --------------- -------------- TOTAL BILLETS 770.220 1772.640 BILLETS RECEIVED AFTER ROLLING 648.670 1637.239 BALANCE 121.753 135.401 BILLETS SALES - 61.310 BALANCE 121.753 74.091 STOCK IN TRANSIT 109.410 32.665 ----------- ---------- BURNING LOSS 12.343 41.426 FROM THESE DETAILS IT IS AMPLY CLEAR THAT 121.753 M .TS. IS NOT THE CLOSING STOCK OF STEEL BILLETS AS ON 31.03. 2006. RATHER THIS IS JUST AN INTERMITTENT FIGURE WHICH WOR KED OUT FOR CALCULATING THE FINAL POSITION OF CLOSING STOCK OF BILLETS ETC. AS ON 31.03.2006 THE ACTUAL STOCK OF STEEL BILLETS IS 109.410 ITA NO.1052/CHD/2010 A.Y.2007-08 12 MTS. (SHOWN AS 'STOCK IN TRANSIT') WHICH, AS ALREADY DISCUSSED, HAS BEEN DULY ACCOUNTED FOR BOTH IN TERMS OF VALUE AND QUANTITY. THEREFORE, 121.753 M.TS. IS NOT THE C LOSING STOCK OF STEEL BILLETS AS ON 31.03.2006. SIMILARLY, FIGURE OF 74.091 M.TS. DOES NOT REPRESENT THE CLOSING STOCK OF STEEL BI LLETS AS ON 31.03.2007. SUCH CLOSING STOCK IS ONLY OF 32.665 M.T S. WHICH CAME AFTER ACCOUNTING FOR BURNING LOSS OF 41.426 M.TS. THEREFORE HERE ALSO THERE IS NO CASE FOR DRAWING ADV ERSE INFERENCE CONSIDERING THE FIGURE OF 74.091 M.TS. TO BE THE CLOSING STOCK OF STEEL BILLETS AS ON 31.03.2007. THE REFORE BOTH THESE OBJECTIONS OF A.O. ARE FURTHER NOT SUSTA INABLE. 5.9 THE NEXT OBJECTION OF THE A.O. IS ON ACCOUNT OF NON- REFLECTION OF BILLETS WEIGHING 109.410 M.TS. VALUED AT 22,56,215/-. THIS IS AGAIN IN RESPECT OF 109.67 M.T S OF STEEL BILLETS SENT FOR THE CONVERSION IN THE CORRE SPONDING VALUE OF RS.22,15,215/- HAVING BEEN DULY SHOWN IN THE CLOSING STOCK OF THE APPELLANT AS ON 31.03.2006 AND OPENING STOCK AS ON 01.04.2006 AND THE STEEL BILLETS OBTAIN ED AFTER CONVERSION DURING THE RELEVANT PERIOD HAVING BEEN D ULY ACCOUNTED FOR (WHICH IS ALSO DISCUSSED IN THE PRECED ING PARAS) AGAIN THE ACCOUNTS OF THE APPELLANT COULD NOT BE FAU LTED ON THIS GROUND. 5.10 THE A.O. HAS AGAIN REFERRED TO THE STEEL BILLE TS WEIGHING 109.410 M.TS. VALUED AT RS.22,56,215/- SHO WN AS GOODS IN TRANSIT AS ON 31.03.2006. THE POSITION WIT H REGARD TO THIS ISSUE HAVING ALREADY BEEN EXPLAINED IN THE PREC EDING PARAGRAPH THIS NEED NOT BE DISCUSSED AGAIN IN DETAIL HERE. 5.11 FURTHER, I DO NOT AGREE WITH THE A.O. THAT BECA USE WEIGHT OF CLOSING STOCK OF BILLETS IS NOT TAKEN IN THE STOCK TALLY THE VALUATION THEREOF IS LEFT OUT OF THE TOTAL VALUE OF THE C LOSING STOCK ETC. FOR COMING TO SUCH A CONCLUSION THE ENTIRE FA CTUAL POSITION WAS REQUIRED TO BE EXAMINED. IN THE CASE OF THE APPE LLANT THOUGH IN THE DETAILS OF CLOSING STOCK AS ON 31.03.2 006 STEEL BILLETS WEIGHING 109.410 M.TS. HAVE NOT BEEN SHOWN IN QUANTITY IT IS NOT DISPUTED THAT ITS VALUE BEING RS. 22,15,256/- IS VERY MUCH REFLECTED IN THE CLOSING STOCK AND SHOWN AS 'GOODS IN TRANSIT'. THE QUANTITY OF STEEL FLATS OBT AINED FROM CONVERSION OF THIS QUANTITY OF STEEL BILLETS HAVING BE EN SHOWN TO BE DULY ACCOUNTED FOR, AS ALREADY DISCUSSE D, IT IS CLEAR THAT THIS MANNER OF ACCOUNTING FOR BY THE APP ELLANT IS NOT RESULTING INTO ANY UNDER STATEMENT OF INCOME. THEREFORE, HERE AGAIN I AM NOT INCLINED TO AGREE WITH THE A.O. THAT THIS COULD BE TAKEN TO BE A DEFECT RESULTING INTO REJECTI ON OF THE ACCOUNTS OF THE APPELLANT U/S 145(3) OF THE ACT. 5.12 THE NEXT OBJECTION OF THE A.O. IS IN RESPECT O F NOT REFLECTING THE QUALITATIVE DETAILS OF PURCHASES OF CR M STRIPS, ANGLE, SQUARE AND M.S. BAR ETC. 5.13 AS EXPLAINED IN THE WRITTEN SUBMISSIONS OF THE ID. COUNSELS, THESE ARE IN THE NATURE OF CONSUMABLE STO RES. IT IS FURTHER EXPLAINED THAT THE TOTAL CONSUMPTION OF THE SE ITEMS IS 40.682 M.TS. AS AGAINST THAT WRONGLY CONSIDERED BY T HE A.O. ITA NO.1052/CHD/2010 A.Y.2007-08 13 AT 101.262 M.TS. AS RIGHTLY POINTED OUT IN THE WRITTEN SUBMISSIONS OF THE ID. COUNSELS QUANTITATIVE DETAIL S IN RESPECT OF SUCH CONSUMABLE STORES ARE GENERALLY NOT REPORTED IN THE AUDIT REPORT. I AGREE WITH THE ID. COUNSELS THAT JUST B ECAUSE QUANTITATIVE DETAILS IN RESPECT OF THIS CONSUMABLE ST ORE HAS NOT BEEN REFLECTED IN THE AUDIT REPORT NO ADVERSE IN FERENCE COULD BE DRAWN AGAINST THE APPELLANT UNLESS SOME PU RCHASES OF SUCH CONSUMABLE STORES SHOWN TO BE INGENUINE ETC. HOWEVE R IN THE CASE OF THE APPELLANT IT HAS NOT BEEN SHOWN IF ANY PURCHASES OF THESE CONSUMABLE STORES WERE EITHER NON VERIFIABLE OR OTHERWISE INGENUINE. THEREFORE, THE ADVER SE INFERENCE DRAWN AGAINST THE APPELLANT ON ACCOUNT OF J UST NON REFLECTION OF QUANTITATIVE DETAILS OF THESE CONSUMABL E STORES IN THE AUDIT REPORT IS NOT MAINTAINABLE. 6. AS EXPLAINED IN THE WRITTEN SUBMISSIONS OF THE I D. COUNSELS REPRODUCED ABOVE THIS OBSERVATION OF THE A .O. IS ALSO NOT FACTUALLY CORRECT. THE QUANTITY OF 1974.254 M.TS. REPORTED AS PER ANNEXURE 'VHP OF THE AUDIT REPORT OF UNIT NO.2 IS EXPLAINED TO BE CONSISTING OF PURCHASES OF STEEL FLATS AND RECEIPT OF FLATS AFTER CONVERSION FROM REROLLERS I.E . M/S UPPER INDIA STEEL LTD., LUDHIANA (I.E. 337.015 MTS + 1637. 239 M.TS. = 1974.254 M.TS.). QUANTITY OF 1966.705 M.TS IN UNI T 2 REPRESENTS CURRENT PURCHASES OF STEEL FLAT AND BILLE TS FOR TOTAL CONSIDERATION OF RS.4,51,95,687/86 AFTER REDUCING T HE QUANTITY OF CLOSING STOCK OF BILLETS. THIS IS AS PER FOLLOWING DETAILS:- TOTAL PURCHASES OF BILLETS 1663.230 M.TS. TOTAL PURCHASE OF FLAT 337.015 M.TS. LESS CLOSING STOCK SHOWN 32.665 M.TS. APPROX. 1966.705 M.TS. THIS POSITION IS VERY MUCH VERIFIABLE FROM BOOKS OF ACCOUNTS OF THE APPELLANT AND EXCISE REGISTER BEING R EGISTER 23A PART I ETC. THEREFORE, THIS ALLEGED DISCREPANCY POI NTED OUT BY THE A.O. IS NOT SUSTAINABLE. 7. IT MAY BE FURTHER MENTIONED THAT ANY NON ACCOUNTI NG OF SALES BY THE APPELLANT OR INFLATION OF PURCHASES OR EXPENSES WOULD HAVE BROUGHT DOWN THE GROSS PROFIT RATE AND THE NET PROFIT RATE AS PER THE MANUFACTURING AND P&L ACCOUNT OF TH E APPELLANT. ON THE CONTRARY, AS EXPLAINED IN THE WRITTEN SUBMISSIONS REPRODUCED ABOVE, THE BOOK RESULTS OF T HE APPELLANT FOR THE ASSESSMENT YEAR UNDER CONSIDERATI ON ARE RATHER BETTER THAN THE RESULTS IN THE PRECEDING YEA RS. THE GROSS PROFIT RATE OF THE APPELLANT FOR THE ASSESSMENT UNDE R CONSIDERATION BEFORE TRADE DISCOUNT IS SHOWN TO BE 12.01%. THIS IS BETTER THAN SIMILAR G.P. RATE OF 11.35% AND THA T OF 8.47% OBTAINED IN THE A.Y. 2006-07 AND A.Y. 2005-06 RESPECTIVELY. THE ASSESSMENT FOR THE ASSESSMENT YEAR 2005- 06 IN THIS CASE IS SHOWN TO BE COMPLETED U/S 143(3) O F THE ACT WHEREIN SUCH GROSS PROFIT WAS 8.47% ONLY. SIMILAR IS THE POSITION OF G.P. RATE (AFTER TRADE DISCOUNT) AT 6.77% FOR THE ASSESSMENT UNDER CONSIDERATION WHICH IS FAR BETTER THAN THE G.P. RATE OF 0.88% AND OF 5.12% IN THE ASSESSMENT Y EAR 2005- ITA NO.1052/CHD/2010 A.Y.2007-08 14 06 AND 2006-07 RESPECTIVELY. THE POSITION OF NET PRO FIT RATE IS ALSO NOT DIFFERENT. NET PROFIT RATE SHOWN BY THE AP PELLANT FOR THE ASSESSMENT YEAR UNDER CONSIDERATION IS 0.58% WHEREAS TH E NET PROFIT RATE IN THE A.Y. 2006-07 AND A.Y. 2005-06 WAS 0.49% AND 0.27% RESPECTIVELY. THESE RESULTS COUPLED WITH THE EXPLANATION OF THE APPELLANT DISCUSSED ABOVE WITH REG ARD TO VARIOUS ALLEGED DISCREPANCIES POINTED OUT BY THE A. O. FURTHER SHOW THAT THERE IS NO VALID GROUND IN THIS CASE FOR HOLDING THE ACCOUNTS OF THE APPELLANT TO BE DEFECTIVE AND APPLY ING THE PROVISIONS OF SECTION 145(3) OF THE INCOME TAX ACT. IT IS ALSO NOTED THAT WHILE DECIDING THIS ISSUE THE A.O. HAS BEEN IN FLUENCED BY THE FACT THAT THE APPELLANT IS SUPPLYING LEAF SPRINGS T O VARIOUS PARTIES ENGAGED IN TRANSPORT BUSINESS WITHIN THE CO UNTRY AND THAT LEAF SPRINGS MANUFACTURED BY THE APPELLANT IS A VITAL COMPONENT IN THE AUTO INDUSTRY WHICH INVOLVES HIGH TECHNIQUE IN ITS MANUFACTURING PROCESS. AS PER THE A.O. THE MAR GIN OF PROFIT OF 12% UNDER NO CIRCUMSTANCES COULD BE CONSIDERED T O BE REASONABLE IN SUCH A CASE. IN MY OPINION THESE REAS ONS CONSIDERED BY THE A.O. ARE NOT SUSTAINABLE IN THE ABS ENCE OF ANY EVIDENCE THAT THE APPELLANT DID MAKE CERTAIN PUR CHASES OR SALES OUTSIDE THE BOOKS OF ACCOUNTS OR THAT THE PURCHASES/EXPENSES HAVE BEEN INFLATED ETC. ADMITTED LY NO EVIDENCE IN THIS REGARD IS BROUGHT ON RECORD. THE O BSERVATIONS OF THE A.O. WITH REGARD TO INCREASE IN THE MANUFACTURI NG EXPENSES WOULD ALSO NOT HOLD KEEPING IN VIEW THAT TRADING/MANUFACTURING RESULTS FOR THE ASSESSMENT YEA R UNDER CONSIDERATION ARE BETTER THAN SIMILAR RESULTS IN THE PRECEDING YEARS AND FURTHER THERE IS NO EVIDENCE OF ANY EXPEN SES HAVING BEEN INCURRED BY THE APPELLANT TO BE INGENUINE ETC. 8. IN THE VIEW OF DISCUSSIONS I AM NOT INCLINED TO AGREE WITH THE A.O. THAT THE BOOKS OF ACCOUNT OF THE APPELLANT WERE NOT CORRECT OR COMPLETE AND THAT THEREFORE, THE PROVISION S OF SECTION 145(3) WERE APPLICABLE. THEREFORE, COMPUTATIO N OF INCOME BY THE A.O. BY APPLYING THESE PROVISIONS IS HELD TO BE NOT MAINTAINABLE. ACCORDINGLY, ADDITIONS OF RS.53,56,040 /- MADE BY ENHANCING THE TURNOVER AND APPLYING THE G.P. RATE OF 16% IS DELETED. THIS GROUND OF APPEAL IS THEREFORE ALLOWED. 8. OUR ATTENTION WAS ALSO DRAWN TO PARAS 10 TO 10.2 OF THE ORDER DELETING THE ADDITION MADE ON ACCOUNT OF UNACCOUNTED SALES OF STEEL BILLETS AS UNDER: 10. I HAVE CAREFULLY CONSIDERED THE CONTENTION OF TH E LD. COUNSELS FOR THE APPELLANT AND PERUSED THE RELEVANT RECORD. THE OBSERVATION OF THE A.O. THAT ENTRY WITH REGARD T O SALE OF 61.310 M.TS. OF STEEL BILLETS CLAIMED TO BE MADE BY THE APPELLANT DURING THE RELEVANT PERIOD IS NOT REFLECTED IN THE BOOKS OF ACCOUNTS, AS DISCUSSED IN THE PRECEDING PARAS , HAS BEEN FOUND TO BE NOT FACTUALLY CORRECT. THIS ISSUE HAS BEEN EXPLAINED IN DETAIL IN THE WRITTEN SUBMISSIONS OF THE APPELLANT REPRODUCED ABOVE IN RESPECT OF GROUND OF APPEAL NO.4 AND ALSO IN THE DISCUSSIONS MADE WHILE DEALING WIT H THAT ITA NO.1052/CHD/2010 A.Y.2007-08 15 GROUND IN THE PRECEDING PARAS. SALE AND PURCHASE OF T HIS QUANTITY OF STEEL BILLETS IS ALSO SALE OF THE SAME T O ONE PARTY M/S EMSON TOOLS MANUFACTURING CORPORATION WAS SHOWN TO BE EVEN GOT VERIFIED FROM THAT PARTY DIRECTL Y BY THE A.O. THEREFORE NO ADVERSE INFERENCE IS TO BE DRAWN AG AINST THE APPELLANT AND ALSO SALE OF THE SAME TO ONE PART Y M/S EMSON TOOLS MANUFACTURING CORPORATION WAS SHOWN TO BE EVEN GOT VERIFIED FROM THAT PARTY DIRECTLY BY THE A .O. THEREFORE NO ADVERSE INFERENCE IS TO BE DRAWN AGAINST THE APPE LLANT IN RESPECT OF THIS OBSERVATION OF THE A.O. 10.1 WITH REGARD TO THE OBSERVATION THAT THE APPE LLANT HAD NOT ACCOUNTED FOR BILLETS WEIGHING 109.480 M.TS . REFLECTED IN THE CLOSING STOCK OF 31.03.2006 AND STE EL FLATS WEIGHING 106.840 M.TS. RECEIVED AFTER CONVERSION OF THE SAME DURING THE RELEVANT PERIOD AGAIN THIS ALLEGED DISCREPANCY HAS BEEN DISCUSSED IN DETAIL WHILE DEALI NG WITH THE GROUND OF APPEAL NO.4 IN THE PRECEDING PARAS. A S ALREADY DISCUSSED THE STOCK OF 109.480 M.TS. OF STEEL BILLETS AS ON 31.0-3.2006 WERE SHOWN AS GOODS IN TRANSIT IN THE S TOCK POSITION DEPICTED ON 31.03.2006. THIS STOCK WAS SENT TO M/S UPPER INDIA STEEL INDIA, LUDHIANA BY THE APPELLANT IN THE IMMEDIATELY PRECEDING YEAR AND THAT THE STOCK OF STEEL FLATS AFTER CONVERSION WERE RECEIVED DURING THE PERIO D RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION AT 106.675 M.TS. THE DIFFERENCE IN THE TWO FIGURES I.E. 106.675 M.TS. AND 106.840 M.TS HAS BEEN EXPLAINED IN THE SUBMISSIONS OF THE ID. COUNSELS REPRODUCED ABOVE AND WHICH IS ON ACCOU NT OF DIFFERENCE IN THE WEIGHMENT AT THE APPELLANT'S END AN D AT THE END OF M/S UPPER INDIA STEEL LTD. THEREFORE IN VIE W OF THE ABOVE FACTUAL POSITION IT IS QUITE CLEAR THAT BOTH 109.4 80 M.TS. OF STEEL BILLETS AS ON 31.03.2006 AND STEEL FLATS REC EIVED OUT OF THE SAME AT 106.675 M.TS. ARE VERY MUCH RECORDED IN THE BOOKS OF ACCOUNTS. THIS ISSUE HAS ALSO BEEN DISCUSSE D WHILE DEALING WITH THE GROUND OF APPEAL NO.4 WHEREIN IT IS DULY BROUGHT OUT THAT STEEL FLATS OF 106.840 M.TS. HAVE BEEN ENTERED IN THE RELEVANT EXCISE RECORD AFTER BEING RE CEIVED FROM M/S UPPER INDIA STEEL LTD. AND ACCOUNTED FOR IN TH E BOOKS OF ACCOUNTS OF THE APPELLANT. IN VIEW OF THE AB OVE IT IS QUITE CLEAR THAT THE CONCLUSION OF THE A.O. THAT ST EEL FLATS WEIGHING 213.515 M.TS. HAD NOT BEEN ACCOUNTED FOR AND THAT THE GOODS MANUFACTURED OUT OF THE SAME HAD BEEN SOL D BY THE APPELLANT OUTSIDE THE BOOKS OF ACCOUNTS IS COMP LETELY MIS-FOUNDED. AS HAS BEEN EXPLAINED IN DETAIL IN THE WRITTEN SUBMISSIONS OF THE ID. COUNSELS BOTH THE FIGURES OF 106.675 M.TS. AND 106.840 M.TS. ARE IN RESPECT OF THE SAME ST OCK OF STEEL FLATS RECEIVED BY THE APPELLANT DURING THE RELE VANT PERIOD AFTER CONVERSION OF 109.480 M.TS. OF STEEL BIL LETS SENT TO M/S UPPER INDIA STEEL LTD. IN THE IMMEDIATELY PREC EDING YEAR. IN ADDITION TO THE ABOVE FACTUAL POSITION, AS DIS CUSSED WHILE DEALING WITH THE GROUND OF APPEAL NO.4 ABOVE, T HE FACT THAT TRADING/MANUFACTURING RESULTS OF THE APPELLANT ARE BETTER THAN THOSE IN THE PRECEDING YEARS WOULD FURT HER SHOW THAT THERE WERE NO SALES OUTSIDE THE BOOKS OF ACCOU NTS BY UTILIZING THE MATERIAL PURCHASED IN THE BOOKS. THIS I S SO ITA NO.1052/CHD/2010 A.Y.2007-08 16 BECAUSE ANY SUCH ACT WOULD HAVE BROUGHT DOWN THE TRADING RESULTS AND WHICH IS NOT THE POSITION IN THIS CASE. FURTHER, THERE IS NOTHING ON RECORD TO SHOW THAT AP PELLANT DID SELL ANY PRODUCTS OUTSIDE THE BOOKS OF ACCOUNTS. 10.2. KEEPING IN VIEW THE ABOVE DISCUSSED POSITION THE ADDITION OF RS. 72,62,983/- MADE BY THE A.O. CANNOT B E SUSTAINED AND THE SAME IS ACCORDINGLY DELETED. THIS G ROUND OF APPEAL IS THEREFORE ALSO ALLOWED. 9. THE LD. COUNSEL FOR ASSESSEE, THEREFORE, CONTEND ED THAT IN VIEW OF THE DETAILED AND WELL-REASONED ORDER OF THE LD.CIT(A) DEALING WITH EACH AND EVERY FACTUAL CONTE NTION OF THE A.O. AND FINDING THEM TO BE OF NO CONSEQUENCE A ND THE SAME HAVE NOT BEEN CONTROVERTED BY THE LD. DR, THER E WAS NO REASON AT ALL TO INTERFERE IN THE ORDER OF THE C IT(A). 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. AS IS EVIDENT FROM THE ORDER OF THE LD.CIT(A) AS REPRODUCED ABOVE VIS--VIS BOTH THE ISSUES OF ADDITION MADE ON ACCOUNT OF APPLICATION O F GP RATE OF 16% ON ENHANCED TURNOVER AFTER REJECTING BOOKS O F ACCOUNT OF THE ASSESSEE AND ALSO ON ACCOUNT OF UNAC COUNTED SALES OF STEEL BILLETS, THE LD.CIT(A) HAS DEALT WIT H IN DETAIL WITH EACH AND EVERY DISCREPANCY NOTED BY THE A.O. I N HIS ASSESSMENT ORDER AND GIVEN DETAILED REASONS WHY HE FOUND THEM TO BE INCORRECT OR OF NO RELEVANCE OR CONSEQUE NCE. THE LD. DR HAS NOT BEEN ABLE TO POINT OUT ANY INFIRMITY IN THE FACTUAL FINDINGS OF THE LD.CIT(A) WHILE DELETING TH E ABOVE ADDITIONS. IN VIEW OF THE SAME, WE AGREE WITH THE L D. COUNSEL FOR ASSESSEE THAT THE LD.CIT(A) HAS ALLOWED THE ASSESSEES APPEAL BY PASSING A DETAILED AND WELL-RE ASONED ORDER WHICH HAS REMAINED UNCONTROVERTED BEFORE US. WE, TH EREFORE, DO NOT FIND ANY REASON TO INTERFERE IN THE SAME AND TH E SAME IS, ITA NO.1052/CHD/2010 A.Y.2007-08 17 THEREFORE, UPHELD. GROUND OF APPEAL NOS.1 AND 2 RAI SED BY THE REVENUE ARE, THEREFORE, DISMISSED. 11. GROUND OF APPEAL NO.3 RAISED BY THE REVENUE REA DS AS UNDER: 3. THAT THE ID. CIT(A)-2 HAS ERRED IN LAW AND ON FA CTS IN DELETING THE ADDITION OF RS.11,00,200/- ON ACCOUNT OF UNEXPLAINED LOANS/ DEPOSITS AND DISALLOWANCE OF RS. 1,32,384/- ON ACCOUNT OF INTEREST ON UNSECURED LOANS OF RS.11, 00,200/-. 12. THE ABOVE GROUND RELATES TO DELETION OF ADDITIO N MADE ON ACCOUNT OF UNEXPLAINED CASH CREDITS U/S 68 OF TH E ACT. 13. BRIEF FACTS RELATING TO THE ISSUE ARE THAT FROM THE EXAMINATION OF THE INFORMATION FILED WITH RETURN O F INCOME AND THE ACCOUNT BOOKS OF THE ASSESSEE, THE A.O. FOU ND THAT THE ASSESSEE HAD INTRODUCED IN ITS ACCOUNTS UNSECUR ED LOANS AS PER FOLLOWING DETAILS: NAME OF THE PERSON DATE OF DEPOSIT AMOUNT OF UNSECURED LOAN/DEPOSIT (IN RS.) AMIT KUMAR GOYAL (HUF),MLK 19.3.2007 50,000/- AJAY KUMAR GOYAL (HUF),MLK 19.3.2007 89,700/- SANJAY KUMAR GOYAL (HUF),MLK 27.4.2006 10.2.2007 74,000/- 1,95,000/- K.K.GOYAL (HUF).MLK 18.4.2006 31.3.2007 74,000/- 98,000/- NAMIT MODI, MLK 29.7.2006 3.1.2007 1,15,500/- 98,000/- AMIT MODI, MLK 29.7.2006 3.1.2007 1,16,000/- 97,500/- AJAY KUMAR GOYAL.MLK 20.10.2007 95,000/- TOTAL: 11,03,200/- ITA NO.1052/CHD/2010 A.Y.2007-08 18 14. THESE DEPOSITS WERE NOTED BY THE A.O. TO BE OF THE FAMILY MEMBERS OF THE PARTNERS OF THE ASSESSEE FIRM AND ALSO OF SHRI ANIL KUMAR GOYAL, PARTNER. THE A.O. ASKED T HE ASSESSEE TO PROVE THESE CASH CREDITS. THE A.O. NOTE D THAT IN SPITE OF HIS ASKING TO PRODUCE THESE CREDITORS NONE OF THEM WAS PRODUCED BEFORE HIM. THE A.O. FURTHER FOUND THA T THESE AMOUNTS WERE ADVANCED BY THE SAID CREDITORS OUT OF THE ALLEGED COMMODITY PROFITS RECEIVED FROM M/S PRIME COMMODITIES, 78 LAJPAT NAGAR, LUDHIANA AND M/S AJAN TA COMMODITY SERVICES, 320 KIDWAI NAGAR, LUDHIANA. THO UGH EXTRACTS FROM THE BANK ACCOUNTS OF THE DEPOSITORS A ND COPIES OF THEIR PERSONAL ACCOUNTS FROM THE BOOKS OF M/S AJ ANTA COMMODITY SERVICES AND M/S PRIME COMMODITIES IN THE CASE OF FEW DEPOSITORS WERE FILED BEFORE THE A.O., NONE OF THEM IS STATED TO HAVE BEEN PRODUCED FOR VERIFICATION OF TR ANSACTIONS OF LOANS. IT WAS HOWEVER INFORMED TO THE A.O. THAT ALL THESE DEPOSITORS WERE EXISTING INCOME TAX ASSESSEES AND T HAT THEY HAD SUFFICIENT FUNDS IN THEIR NAMES. LATER ON CONFI RMATIONS FROM THESE DEPOSITORS WERE ALSO FILED. THE A.O. OBS ERVED THAT THE ASSESSEE DELIBERATELY OMITTED TO REFER TO THE F ACT THAT THE DEPOSITS IN THE HANDS OF THESE CREDITORS CAME FROM COMMODITY PROFIT. AS PER THE A.O. IN THE CASE OF TH ESE DEPOSITORS THE CREDITS IN THEIR BANK ACCOUNTS HAD A PPEARED ON ACCOUNT OF SO CALLED COMMODITY PROFIT WHICH IN T HE CASE UNDER REFERENCE WAS NOT EXISTING. THE SHARE BROKERS INVOLVED WERE ALSO NOT PRODUCED BEFORE THE A.O. AS PER THE A .O. THE INQUIRIES MADE BY HIM IN RESPECT OF M/S PRIME COMMO DITIES, 78 LAJPAT NAGAR, LUDHIANA ,REVEALED THAT THIS CONCE RN NEVER ITA NO.1052/CHD/2010 A.Y.2007-08 19 EXISTED AT THE GIVEN ADDRESS. THE A.O. ALSO WONDERE D AS TO WHY THE PROPRIETOR/PARTNER OF M/S AJANTA COMMODITY SERVICES SHOULD HAVE ANY HESITATION TO GIVE EVIDENC E BASED ON HIS BOOKS OF ACCOUNTS. THE A.O. CAME TO OBSERVE THAT THE ASSESSEE HAD BEEN REGULARLY AND CONSISTENTLY YEAR A FTER YEAR INTRODUCING IN ITS BOOKS OF ACCOUNTS DEPOSITS IN TH E NAMES OF THE FAMILY MEMBERS OF THE PARTNERS REGULARLY AND IN A PLANNED MANNER TO BUILD UP CAPITAL IN THEIR RESPECT IVE HANDS AND REDUCE THE TAX LIABILITY IN HIS OWN CASE BY PRO VIDING INTEREST ON SUCH LOANS WHICH INVARIABLY CAME FROM S O CALLED COMMODITY PROFIT PROVIDED ETC. THE A.O., THEREFORE, WAS NOT SATISFIED ABOUT THE SOURCES OF DEPOSITS AND THE GEN UINENESS OF THE TRANSACTIONS IN RESPECT OF THESE CREDITS. HE ACCORDINGLY HELD THAT THE TOTAL AMOUNT OF RS.11,00, 200/- MENTIONED ABOVE HAD BEEN DEPOSITED BY THE ASSESSEE OUT OF ITS OWN INCOME FROM UNDISCLOSED SOURCES. THIS AMOUN T WAS, THEREFORE, ADDED TO THE INCOME OF THE ASSESSEE. 15. BEFORE THE LD.CIT(A), DETAILED SUBMISSIONS WERE FILED BY THE ASSESSEE, AFTER CONSIDERING WHICH THE ADDITI ON MADE WAS DELETED HOLDING THAT MERE NON ATTENDANCE OR NON PRODUCTION OF CREDITORS FOR EXAMINATION, IGNORING T HE OTHER EVIDENCE COULD NOT BE THE BASIS FOR NOT ACCEPTING T HE CREDITS. RELEVANT FINDING OF THE CIT(A) AT PARAS 12 TO 12.2 OF THE ORDER OF CIT(A) IS AS UNDER: 12. I HAVE CAREFULLY CONSIDERED THE CONTENTION OF THE ID. COUNSELS FOR THE APPELLANT AND PERUSED THE RELEVANT RECORD. IT IS SEEN THAT IN THIS CASE THE CREDITORS MENTIONED A BOVE ARE EXISTING INCOME TAX ASSESSEES. THE APPELLANT FILED BE FORE THE A.O. THE CONFIRMATIONS FROM THESE CREDITORS AND EXTRA CTS OF THEIR RESPECTIVE BANK ACCOUNTS WERE ALSO FILED. THE A.O. WAS ITA NO.1052/CHD/2010 A.Y.2007-08 20 NOT SATISFIED ABOUT THESE CREDITORS MONTHLY THE GROU ND THAT THEY WERE NOT PRODUCED FOR EXAMINATION. OTHER FACT WH ICH WAS-CONSIDERED ADVERSELY BY THE A.O. WAS THAT BROKER S I.E. M/S AJANTA COMMODITY SERVICES AND M/S PRIME COMMODITIES THROUGH WHOM THE CREDITORS HAD EARNED COMMODITY PROFITS WERE NOT PRODUCED BEFORE THE A.O. HOWEVER, JUST NON-ATTENDANCE OR NON-PRODUCTION OF THE CREDITORS FOR EXAMINATION IGNORING THE OTHER EVIDENCE CO ULD NOT BE MADE THE BASIS FOR NON-ACCEPTING THESE CREDIT S. IT IS PARTICULARLY SO WHERE FALL THESE CREDITORS ARE ADMIT TED TO BE EXISTING INCOME TAX ASSESSEES. IF THESE CREDITORS WE RE NOT PRODUCED BY THE APPELLANT, THEY COULD HAVE BEEN CAL LED BY ISSUING SUMMONS ETC. HOWEVER NON-ATTENDANCE, IN THE F ACE OF THE OTHER EVIDENCE BROUGHT ON RECORD COUPLED WITH THE FACT THAT THEY ARE EXISTING INCOME TAX ASSESSEES, CANNOT BE MADE A VALID GROUND FOR DIS-SATISFACTION ABOUT THE EVIDENCE BROUGHT ON RECORD IN THIS REGARD. THOUGH THE A.O. DID MAKE INQUIRIES IN RESPECT OF THE BROKERS M/S PRIME COMMODITIE S AND THE INQUIRIES ALLEGEDLY REVEALED THAT M/S PRIME COMMODITIES NEVER EXISTED AT BUSINESS ON 31.03.2009 . THE FACT THAT THIS FIRM WAS OPERATING FROM THE GIVEN AD DRESS I.E. 78 LAJPAT NAGAR, LUDHIANA IS FURTHER EVIDENCED FROM TH E FACT THAT RENT FOR THIS PREMISES HAS BEEN PAID BY THE SAID CO NCERN UPTO THE PERIOD OF 31.03.2009. IN THE FACE OF THIS FACTUAL ASPECT I.E. THE SAID CONCERN IS AN EXISTING INCOME TAX ASSESSEE AND THAT IT PAID THE RENT FOR THE SAID PREMISES FOR THE RELEVAN T PERIOD WOULD SHOW THAT THE EXTREME ADVERSE INFERENCE DRAWN BY THE A.O. IN RESPECT OF THIS CONCERN WAS NOT IN ORDER. IN HI S WRITTEN SUBMISSIONS THE ID. COUNSELS HAVE PLACED RELIANCE UPON A NUMBER OF DECISIONS. TAKING INTO ACCOUNT THE EVIDENCE BROUGHT ON RECORD BY THE APPELLANT BEING AFFIDAVITS AND CONFIRMATIONS FROM THE CREDITORS AND COPIES OF THEI R RELEVANT BANK ACCOUNTS AND FURTHER TAKING INTO ACCOUNT THAT ALL THESE CREDITORS ARE EXISTING INCOME TAX ASSESSEES HAVING SUFFICIENT FUNDS IN THEIR NAMES, THE RATIO OF THESE DECISIONS D OES HELP THE CASE OF THE APPELLANT IN RESPECT OF THIS GROUND. 12.1 FURTHER THE FINAL CONCLUSION DRAWN BY THE A.O. IN RESPECT OF THIS ADDITION IS THAT UN-ACCOUNTED INCOME OF THE APPELLANT HAS BEEN INTRODUCED IN THE BOOKS OF THE A PPELLANT IN THE NAMES OF THESE FAMILY MEMBERS AND ITS PARTNERS. IT IS SETTLED POSITION BY NOW THAT SUCH INFERENCE COULD N OT BE DRAWN UNLESS THERE IS EVIDENCE TO ESTABLISH THAT THE SOURC ES OF THE CREDITORS, DEPOSITS FLEW FROM THE APPELLANT ITSELF. THE DECISION OF HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF ARAVALI TRADING CO. (SUPRA) WHICH HAS BEEN REFERRED TO BY THE ID. COUNS ELS IN THE WRITTEN SUBMISSIONS SQUARELY COVERS THE ISSUE IN FA VOUR OF THE APPELLANT. 12.2 KEEPING IN VIEW THE ABOVE DISCUSSED FACTUAL AN D LEGAL POSITION I AM NOT INCLINED TO AGREE WITH THE A.O. T HAT HE HAD SUFFICIENT GROUNDS FOR HIS DISSATISFACTION ABOUT TH E SOURCES OF DEPOSITS AND THE GENUINENESS OF THE TRANSACTIONS IN RESPECT OF ALL THESE CASH CREDITS. THE ADDITION OF RS.11,00,200/- IS THEREFORE DELETED AND THIS GROUND OF APPEAL IS ALLOWED. ITA NO.1052/CHD/2010 A.Y.2007-08 21 16. BEFORE US, THE LD. DR HEAVILY RELIED UPON THE ORDER OF THE A.O. AND POINTED OUT THAT THE CREDITORS HAD CLA IMED THE SOURCE OF THE LOANS GIVEN BY THEM AS BEING FROM COM MODITY PROFITS EARNED FROM M/S PRIME COMMODITIES AND AJANT A COMMODITY SERVICE, WHICH COULD NOT BE PROVED BY THE M BY WAY OF ANY EVIDENCE IN THIS REGARD AND FURTHER THE FACT THAT THESE COMMODITIES SERVICE PROVIDER WERE FOUND NOT E XISTING ON ENQUIRY MADE BY THE A.O. LEND CREDENCE TO THE FI NDING OF THE A.O. THAT THE CREDITS WERE NOT GENUINE. THE LD. DR FURTHER POINTED OUT THAT DESPITE SEVERAL OPPORTUNIT IES GIVEN THE ASSESSEE HAD EVEN FAILED TO PRODUCE THE CREDITO RS FOR EXAMINATION AND CONSIDERING ALL THE ABOVE FACTS THE A.O. HAD RIGHTLY HELD THE SAID CREDITS TO BE UNEXPLAINED AND MADE ADDITION OF THE SAME TO THE INCOME OF THE ASSE SSEE. THE LD. DR FURTHER STATED THAT THE LD.CIT(A) HAS RE LIED UPON THE DECISION OF THE HON'BLE RAJASTHAN HIGH COU RT IN THE CASE OF ARAWALI TRADING COMPANY TO HOLD THAT TH E ISSUE WAS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY T HIS DECISION. IN THIS REGARD, THE LD. DR POINTED OUT TH AT THE HON'BLE APEX COURT HAD LONG BACK SETTLED THE POSITI ON OF LAW VIS--VIS UNEXPLAINED CASH CREDITS THAT THE ONU S RESTED ON THE ASSESSEE TO PROVE THE GENUINENESS OF THE SAM E IN THE CASE OF CIT VS P. MOHANAKALA & ORS.291 ITR 278(SC). 17. THE LD. COUNSEL FOR ASSESSEE, ON THE OTHER HAND , RELIED UPON THE ORDER OF THE CIT(A). 18. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E ORDERS OF THE AUTHORITIES BELOW. THE ISSUE BEFORE U S RELATES ITA NO.1052/CHD/2010 A.Y.2007-08 22 TO GENUINENESS OF THE LOANS SHOWN IN THE BOOKS OF A CCOUNT OF THE ASSESSEE AMOUNTING TO RS.11,00,200/-. IT IS NECESSARY FIRST TO BRING OUT CLEARLY THE FACTS OF T HE CASE. THAT THE ASSESSEE HAD TAKEN LOANS/DEPOSITS FROM THE AFORESTATED PARTIES AMOUNTING IN ALL TO RS.11,00,20 0/- IS NOT DISPUTED. THAT THEY WERE ALL EITHER RELATIVES O F THE PARTNERS OR A PARTNER OF THE ASSESSEE FIRM, IS ALSO NOT DISPUTED. FURTHER WITH RESPECT TO ALL THE ABOVE PAR TIES, THE ASSESSEE ,IN DISCHARGE OF ITS ONUS OF PROVING THE G ENUINENESS OF THE TRANSACTION HAD FILED THE FOLLOWING DOCUMENT S: 1.CONFIRMED COPY OF ACCOUNT OF THE CREDITORS 2.BANK STATEMENT OF THE CREDITORS SHOWING ADVANCE MADE THROUGH BANKING CHANNELS 3.BROKERS NOTE OF PROFIT EARNED ON COMMODITY TRANSACTION BY THE CREDITORS WHICH WAS ATTRIBUTED AS SOURCE OF MAKING THE ADVANCE/LOAN BY THE CREDITORS. 4.COPY OF INCOME TAX RETURN AND COMPUTATION OF INCOME OF THE IMPUGNED YEAR OF THE CREDITORS. 19. THE INITIAL ONUS ON THE ASSESSEE OF PROVING THE GENUINENESS OF THE TRANSACTION STOOD DISCHARGED BY FILING THE ABOVE DOCUMENTS. THE IDENTITY WAS NEVER IN QUESTION AS THE CREDITORS WERE ADMITTEDLY RELATIVES OF PARTNERS OR A PARTNER OF THE ASSESSEE FIRM ITSELF. THE GENUINENESS STOOD ESTABLISHED BY DEMONSTRATING THAT THE TRANSACTION T OOK PLACE THROUGH BANKING CHANNELS. AS FOR CREDITWORTHINESS O F THE CREDITORS, DEMONSTRATION OF THE FACT THAT THE SOURC E OF THE ADVANCE/LOAN WAS COMMODITY PROFIT EARNED BY THE CRE DITORS PROVED THEIR CREDIT WORTHINESS ALSO. 20. THEREAFTER WE FIND THAT INQUIRIES MADE BY THE A O REGARDING THE GENUINENESS OF THE SOURCE /CREDITWORT HINESS OF ITA NO.1052/CHD/2010 A.Y.2007-08 23 THE CREDITORS REVEALED THAT ONE OF THE BROKERS, M/S PRIME COMMODITIES, 78, LAJPAT NAGAR, LUDHIANA, NEVER RESI DED AT THE STATED ADDRESS. VIS A VIS THE OTHER BROKER, M /S AJANTA COMMODITY SERVICES. LUDHIANA, THE A.O. STATED THAT THEY COULD HAVE GIVEN EVIDENCE BASED ON THEIR BOOKS OF A CCOUNTS. MEANING THEREBY THAT EVEN THE SAID BROKER DID NOT C ONFIRM THE TRANSACTION WITH THE CREDITORS. IN THE LIGHT OF THIS INFORMATION REVEALED BY THE INQUIRIES CONDUCTED BY THE AO, THE CREDITWORTHINESS OF THE CREDITORS WAS SHAKEN A ND THUS REMAINED UNPROVED. 21. WE DO NOT FIND ANY MERIT IN THE CONTENTION OF T HE LD.COUNSEL FOR THE ASSESSEE THAT SINCE ALL THE CRED ITORS WERE INCOME TAX ASSESSES AND THEIR RETURNS OF INCOME FOR THE IMPUGNED YEAR WAS FILED THEIR CREDITWORTHINESS STOO D ESTABLISHED. THE REASON BEING THAT THIS FACT ALONE DOES NOT ESTABLISH CREDITWORTHINESS. FROM THE RETURNS FILED OF ALL THE CREDITORS, WE FIND, THAT THEY HAVE ALL SHOWN INCOME FROM INTEREST RECEIVED FROM THE ASSESSEESS FIRM ONLY, WH ICH WE FIND WAS RECEIVED AT THE END OF THE YEAR. THEREFORE THE INCOME REFLECTED IN THE RETURN COULD NOT HAVE POSSI BLY BEEN THE SOURCE OF ADVANCES GIVEN BY THE CREDITORS. ON T HE CONTRARY, WE FIND THAT IMMEDIATELY BEFORE GIVING TH E ADVANCES TO THE ASSESSEE FIRM THERE IS NO OTHER BAL ANCE EXCEPT THAT ON ACCOUNT OF COMMODITY PROFIT EARNED, WHICH ESTABLISHES THAT THE SOURCE OF THE ADVANCES WAS ONL Y COMMODITY PROFIT EARNED BY THE CREDITORS. ITA NO.1052/CHD/2010 A.Y.2007-08 24 22. BEFORE THE LD.CIT(A), WE FIND THAT THE ASSESSEE SUBMITTED IN THE WRITTEN SUBMISSIONS FILED BY IT RE PRODUCED AT PAGE 31 OF THE ORDER, THAT ONE OF THE BROKERS, M /S AJANTA COMMODITY SERVICES, LUDHIANA CONFIRMED COMMODITY TRANSACTIONS ENTERED INTO BY THE FOLLOWING CREDITOR S, VIDE THEIR LETTER DATED 21.12.2009 FILED IN RESPONSE TO INFORMATION SOUGHT BY THE A.O. U/S 133(6) OF THE ACT DATED 17.1 2.2009. 1.AJAY KUMAR GOYAL (HUF) 2.SANJAY KUMAR GOYAL (HUF) 3.ANIL KUMAR GOYAL (HUF) 4.K.K.GOYAL (HUF) 5.NAMIT MODI 23. THIS LETTER WAS REPRODUCED IN THE SUBMISSIONS F ILED. BUT WE FIND THAT THE CIT(A) S FINDING AT PARA 12 O F HIS ORDER TAKES NO COGNIZANCE OF THE SAME. VIS A VIS THE OTH ER BROKER I.E. M/S PRIME COMMODITIES,78, LAJPAT NAGAR, LUDHI ANA, THE LD.CIT (A) HAS STATED AT PARA 12 OF HIS ORDER THAT IT WAS EXPLAINED THAT THIS CONCERN WAS AN EXISTING INCOME TAX ASSESSEE WITH PAN AECPJ2591K,OPERATING FROM ITS STA TED ADDRESS AND HAD CLOSED BUSINESS ON 31.03.2009 WHICH IS EVIDENT FROM THE FACT THAT RENT WAS PAID UPTO THEN. 24. IN THE LIGHT OF THE ABOVE, WE FIND THAT THERE W AS INFORMATION BEFORE THE LD.CIT(A) REGARDING THE GENU INENESS OF THE BROKERS. ONE, HE DID NOT TAKE COGNIZANCE OF, WHILE THE OTHER WAS APPARENTLY INFORMATION STATED TO HIM, WHI CH HE CHOSE TO BELIEVE WITHOUT EITHER VERIFYING HIMSELF, EXERCISING HIS POWERS WHICH ARE CO-TERMINUS WITH THE A.O., OR GETTING THEM VERIFIED BY THE A.O. THE CIT(A)S ORDER DOES NOT FIND MENTION OF ANY SUCH FACT. THEREFORE THOUGH THE A.O. WITH HIS INQUIRY HAD CAST A SHADOW ON THE CREDITWORTHINE SS OF THE ITA NO.1052/CHD/2010 A.Y.2007-08 25 CREDITORS BY REVEALING THAT THE BROKERS, FROM WHOM COMMODITY PROFIT WAS STATED TO HAVE BEEN EARNED BY THE CREDITORS AND WHICH WAS THE SOURCE OF THE LOANS/DEP OSITS GIVEN, EITHER DID NOT EXIST OR DID NOT CONFIRM THE IMPUGNED TRANSACTION, THE LD. CIT(A) HELD THE SAME TO BE GEN UINE WITHOUT ANY COGENT BASIS. IDEALLY THE CIT(A) OUGHT TO HAVE VERIFIED THE TRUTHFULNESS OF THE FACT STATED BY THE ASSESSEE THAT ONE OF THE BROKERS HAD CONFIRMED THE EARNING O F PROFITS BY THE CREDITORS ON COMMODITY TRANSACTIONS UNDERTAK EN THROUGH HIM. THE LD.CIT(A) ALSO SHOULD HAVE ACTED O N THE DETAILS /INFORMATION REGARDING THE PAN OF THE OTHER BROKER AND THAT HE HAD PAID RENT FOR THE PREMISES FROM WHI CH HE WAS OPERATING, CHECKING THE VERACITY OF THE SAME. O NLY ON THE BASIS OF HIS INQUIRY AS AFORESAID COULD HE HAVE THEREAFTER ARRIVED AT ANY CONCLUSION REGARDING THE GENUINENESS OF THE TRANSACTION UNDERTAKEN BY THE CREDITORS WITH THE BR OKERS AND THUS THE CREDITWORTHINESS OF THE CREDITORS. 25. WE HOLD, THEREFORE HOLD THAT THE LD.CIT(A) HAD NO BASIS FOR HOLDING THAT THE TRANSACTION OF ADVANCES RECEI VED FROM THE AFORESTATED PARTIES WAS GENUINE. BUT SINCE THE ASSESSEE, ON ITS PART, HAD SUPPLIED THE NECESSARY INFORMATION REGARDING THE BROKERS, IN THE INTEREST OF JUSTICE WE CONSIDER IT FIT TO RESTORE THE ISSUE BACK TO THE CIT(A) TO V ERIFY AND CONSIDER THE SAME AND THEREAFTER DECIDE THE ISSUE I N ACCORDANCE WITH LAW. WE MAY ADD THAT THE ASSESSEE B E GIVEN DUE OPPORTUNITY OF HEARING IN THIS REGARD. ITA NO.1052/CHD/2010 A.Y.2007-08 26 GROUND OF APPEAL NO.3 IS ALLOWED FOR STATISTICAL PURPOSES. 26. IN THE RESULT, THE APPEAL OF THE REVENUE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- # $ % &' (SANJAY GARG ) (ANNAPURNA GUPTA) / JUDICIAL MEMBER ( / ACCOUNTANT MEMBER *# /DATED: 13 TH MARCH, 2019 * ' * &) *+ ,+ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ' - / CIT 4. ' - ( )/ THE CIT(A) 5. +./ 0 , $ 0 , 123/4 / DR, ITAT, CHANDIGARH 6. /3 5# / GUARD FILE &) ' / BY ORDER, ! / ASSISTANT REGISTRAR