The ACIT, Circle-7, Ahmedabad V. V.R. Tetiles, Ahmedabad

ITA 1163/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 8771 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 17-03-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 16-03-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHELLEY JINDAL
• Keywords: Unexplained investment; Business income; Income from undisclosed sources; Search and seizure
• Section: 133A; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI, JM AND D. C. AGRAWAL , AM) ITA NO. 949/AHD/2007 A. Y.: 2003-04 M/S. V. R. TEXTILES, 162, SAIJPUR GOPALPUR, PIRANA ROAD, PIPLAJ, AHMEDABAD PA NO. AACFV 2919 H VS THE J. C. I. T.(OSD), CIRCLE-7, AHMEDABAD (APPELLANT) (RESPONDENT) ITA NO. 1163/AHD/2007 A. Y.: 2003-04 THE A. C. I. T., CIRCLE-7, 2 ND FLOOR, NAVJIVAN TRUST BULDG, OFF. ASHRAM ROAD, AHMEDABAD VS M/S. V. R. TEXTILES, 162, SAIJPUR GOPALPUR, PIRANA ROAD, PIPLAJ, AHMEDABAD PA NO. AACFV 2919 H (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI SAKAR SHARMA, AR DEPARTMENT BY SHRI SHELLEY8 JINDAL, DR O R D E R PER BHAVNESH SAINI: BOTH THESE CROSS APPEALS ARE DIRECTED AGAINST ORDER OF THE CIT(A)- XIII, AHMEDABAD DATED 26-12-2006 FOR THE ASSESSMENT YEAR 2003-04. 2. THE ASSESSEE IN ITS APPEAL HAS RAISED THE FOLLOW ING GROUND: 1. THE LEARNED CIT(APPEALS) ERRED ON FACTS AND IN LAW IN SUSTAINING THE ADDITION OF RS.63,88,777/- OUT OF TH E ADDITION OF RS.4,58,56,874/-. 3. THE REVENUE IN THEIR APPEAL HAS RAISED THE FOLLO WING GROUNDS: 1. THE LD. COMMISSIONER OF INCOME TAX (A) XIII, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN REDUCING THE ADDITION MADE ON ACCOUNT OF UNACCOUNTED SALE OF ITA NO.949 AND 1163/AHD/2007 M/S. V. R. TEXTILES 2 MAN MADE FABRICS FROM RS.4,58,56,874/- TO RS.63,88,777/-. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. COMMISSIONER OF INCOME TAX (A) XIII, AHMEDABA D OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 4. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND C ONSIDERED THE MATERIAL AVAILABLE ON RECORD. 5. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSE SSEE FILED RETURN OF INCOME AT RS.19,45,850/- AND THE ASSESSMENT HAS BEE N COMPLETED AT RS.4,78,01,723/-. THE ASSESSEE IS ENGAGED IN THE BU SINESS OF MANUFACTURING AND SALE OF CLOTHES MAINLY OF MAN MAD E FABRICS. SURVEY U/S 133A OF THE IT ACT WAS CARRIED OUT IN THIS CASE ON 20-01-2003. THE INVENTORY OF THE CASH AS WELL AS OF THE PHYSICAL ST OCK AVAILABLE WAS PREPARED. THE ASSESSEE WAS FOUND TO BE HAVING ACTUA L STOCK OF GOODS WORTH RS.75,00,114/- AS PER THE BOOKS OF ACCOUNT WH EREAS THE STOCK PHYSICALLY FOUND WAS VALUED AT RS.73,47,458/-. THE STOCK PHYSICALLY FOUND WAS THUS SHORT BY RS.1,52,656/-. THE ASSESSEE WAS ALSO FOUND TO HAVE MADE UNEXPLAINED INVESTMENT IN PLANT AND MACHI NERY WORTH RS.3,50,000/- AND ITS FACTORY BUILDING ALSO TO THE EXTENT OF RS.6,00,000/-. EXCESS CASH OF RS.4,00,000/- WAS ALS O FOUND. THE ASSESSEE DECLARED ADDITIONAL INCOME OF RS.15,02,656 /- IN THE RETURN OF INCOME ON ACCOUNT OF ABOVE INVESTMENTS, SHORTAGE ST OCK AND EXCESS CASH. PRIOR TO THE DATE OF SURVEY BY THE INCOME TAX DEPARTMENT, A RAID WAS CONDUCTED BY CENTRAL EXCISE DEPARTMENT AT THE F ACTORY PREMISES OF THE ASSESSEE ON 09-01-2003. THE EXCISE OFFICIALS AP PEARS TO HAVE PREPARED STOCK INVENTORY OF PROCESSED MAN MADE FABR ICS AND HAVE ALSO MADE COMPARISON OF THE STOCK PHYSICALLY AVAILABLE W ITHY THAT OF THE STOCK AVAILABILITY AS RECORDED BY THE ASSESSEE IN ITS EXC ISE RECORDS. ON THE BASIS OF SUCH COMPARISON, THE EXCISE OFFICIALS HAVE PREPARED A ANNEXURE ITA NO.949 AND 1163/AHD/2007 M/S. V. R. TEXTILES 3 MARKED AS B IN WHICH STOCK TO THE EXTENT OF 4,20,39 5 L. METRES VALUED AT RS.58,85,530/- HAS BEEN RECORDED, TO BE SHORT WHICH ACCORDING TO THE EXCISE OFFICIALS HAS BEEN SOLD BY THE ASSESSEE WITH OUT PAYING ANY EXCISE DUTY THEREON. ANOTHER INVENTORY OF THE STOCK WHICH WAS ALSO SOLD BY THE ASSESSEE DURING THE PERIOD 19 TH DECEMBER, 2002 TO 8 TH JANUARY, 2003 WAS ALSO PREPARED WHICH WAS MARKED AS ANNEXURE D, 2 6,44,904 L. METRES OF MAN MADE FABRICS VALUED AT RS.3,26,29,295 /- WAS ALSO TO BE SOLD BY THE ASSESSEE WITHOUT RECORDING ITS SALE IN THE BOOKS OF ACCOUNT SO AS TO EVADE PAYMENT OF EXCISE DUTY. ANOTHER INVENTO RY MARKED AS ANNEXURE C WAS ALSO PREPARED BY THE EXCISE AUTHORIT IES IN WHICH 21,65,77 L. METRES OF PROCESSED MAN MADE FABRICS VA LUED AT RS.25,98,924/- WAS FOUND TO BE IN EXCESS IN COMPARI SON TO ITS AVAILABILITY AS PER THE BOOKS OF ACCOUNT. DURING TH E COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAS DI SCLOSED ITS TOTAL SALES OF RS.12,09,98,328/- WHEREAS THE TURNOVER OF THE SA LES SHOWN TO THE SALES TAX DEPARTMENT WAS RS.10,98,21,717/-. THOUGH THE SALES RECORDED BY THE ASSESSEE FOR THE PURPOSE OF INCOME TAX WERE MORE THAN AS COMPARED TO THE DISCLOSED TO THE SALES TAX DEPARTME NT, THE AO TREATED IT AS DEFECT IN THE BOOKS OF ACCOUNT SO AS TO APPLY TH E PROVISIONS OF SECTION 145 OF THE IT ACT. THE AO HAS ALSO OBSERVED THAT BE CAUSE OF DISCREPANCIES NOTICED DURING THE COURSE OF SURVEY B Y INCOME TAX DEPARTMENT ON ACCOUNT OF WHICH THE ASSESSEE DISCLOS ED ADDITIONAL INCOME OF RS.15,02,656/-, BOOKS OF ACCOUNT MAINTAIN ED BY THE ASSESSEE WOULD NOT DISCLOSE TRUE AND CORRECT AFFAIRS OF ITS BUSINESS. THE AO ALSO REFERRED TO THE PANCHNAMA PREPARED BY EXCISE AUTHOR ITIES IN WHICH ASSESSEE WAS FOUND TO HAVE MADE UNACCOUNTED SALES O F RS.3,86,14,825/- ( RS.58,85,530/- PLUS RS.3,27,29,295/- ). SIMULTANE OUSLY, EXCESS STOCK OF RS.25,98,924/- WAS ALSO DISCOVERED. THEREFORE, A O ASKED THE ASSESSEE WHY THE TOTAL OF THE ABOVE AMOUNTS OF 3 ANNEXURE TO TALING TO RS.4,12,13,749/- BE NOT TREATED AS ITS UNACCOUNTED SALES AND GROSS PROFIT RATE BE NOT APPLIED. THE ASSESSEE FILED DETA ILED REPLY BEFORE THE AO ITA NO.949 AND 1163/AHD/2007 M/S. V. R. TEXTILES 4 WHICH IS INCORPORATED IN THE IMPUGNED ORDER IN WHIC H IT WAS BRIEFLY EXPLAINED BY THE ASSESSEE THAT THE ASSESSEE FIRM IS IN EXISTENCE FOR LAST MORE THAN 8 YEARS AND DOING THE MANUFACTURING ACTIV ITIES AND THERE IS NO CHANGE IN THE PRODUCTION. ALL EXCISE DUTIES ARE PAI D AND PROPER RECORDS ARE MAINTAINED. IN ORDER TO BUY PEACE OF MIND AND T O REMAIN IN THE BUSINESS AND DUE TO THREAT AND HARASSMENT THE ASSES SEE PAID EXCISE DUTY TO THE CENTRAL EXCISE AUTHORITIES. IT WAS SUBM ITTED DURING THE AFORESAID PERIOD OF ELEVEN HOURS IT WAS NOT PRACTIC ALLY POSSIBLE TO MEASURE THE CLOTHES IN THE FACTORY OF THE ASSESSEE AND THAT NO OTHER ADVERSE MATERIAL WAS FOUND AGAINST THE ASSESSEE. TH ERE IS AN INCREASE IN THE GROSS PROFIT RATE FROM 5.04% TO 6.09%. THEREFOR E, NO ADDITION IS TO BE MADE ON THE BASIS OF THIRD PARTY DOCUMENTS. IT WAS ALSO EXPLAINED THAT THE ASSESSEE WAS NOT ALLOWED ANY CROSS EXAMINATION OF THE DOCUMENTS PREPARED BY EXCISE AUTHORITIES. THE ASSESSEE IN THE LAST SUBMITTED THAT SINCE THE MATTER IS SETTLED AND NO ABNORMAL PROFIT COULD BE EARNED, THEREFORE, NO FURTHER ADDITION COULD BE MADE. 6. THE EXPLANATION OF THE ASSESSEE WAS NOT ACCEPTED BY THE AO BECAUSE OF THE DISCREPANCIES NOTED DURING THE COURS E OF SURVEY BY THE INCOME TAX DEPARTMENT. THE AO ALSO NOTED THAT SEARC H WAS CONDUCTED BY EXCISE DEPARTMENT WHO HAVE DISCOVERED THAT THE ASSE SSEE WAS INDULGING IN LARGE SCALE EVASION OF EXCISE DUTY BY CLANDESTIN E MANUFACTURING AND REMOVAL OF THE EXCISABLE GOODS WITHOUT ENTERING THE M INTO THE BOOKS OF ACCOUNT. IT WAS ALSO NOTED THAT THE ASSESSEE HAS AC CEPTED ADDITIONAL LIABILITY OF EXCISE DUTY OF RS.41,37,302/- BEFORE T HE EXCISE AUTHORITIES IN RESPECT OF THE GOODS WHICH HAVE BEEN SOLD WITHOUT RECORDING THE SAME AS PER THE ANNEXURE PREPARED BY THE EXCISE OFFICIALS. THE AO ACCORDINGLY REJECTED THE BOOK RESULTS AND THE ENTIRE AMOUNT OF UNDISCLOSED SALES SO WORKED OUT AT RS.4,58,56,874/- WAS TREATED AS UNACC OUNTED INCOME OF THE ASSESSEE INSTEAD OF APPLYING GROSS PROFIT RATE OF 6.09% ON SUCH UNACCOUNTED SALES AS WAS ORIGINALLY PROPOSED BY THE AO. FOR EXCESS ITA NO.949 AND 1163/AHD/2007 M/S. V. R. TEXTILES 5 STOCK VALUED AT RS.25,98,924/- AS PER ANNEXURE PREP ARED BY THE EXCISE AUTHORITIES THE AO NOTED THAT TELESCOPING EFFECT WA S GIVEN SO AS TO APPLY UNACCOUNTED RECEIPTS TO THE EXTENT OF UNACCOUNTED E XCESS STOCK PHYSICALLY FOUND BY EXCISE AUTHORITIES FOR WHICH NO SEPARATE ADDITION WAS MADE BY THE AO. ULTIMATELY, ADDITION WAS MADE ON AC COUNT OF SALES MADE OUTSIDE THE BOOKS OF ACCOUNT IN A SUM OF RS.4, 58,56,874/- BEING UNACCOUNTED INCOME OF THE ASSESSEE. 7. THE ADDITION WAS CHALLENGED BEFORE THE LEARNED C IT(A) AND SAME SUBMISSIONS WERE REITERATED BEFORE HIM. IT WAS EXPL AINED THAT THE MAIN PLAN IS THAT EXCISE AUTHORITIES WITH A VIEW TO EXTR ACT DUTY CONCOCTED THE EVIDENCE AND OTHER MATERIALS TO PROVE THE EVASION O F EXCISE DUTY. IT WAS SUBMITTED THAT THERE COULD NOT BE ANY SUCH EXCESS S ALES MADE OUTSIDE THE RECORD AND THERE IS NO CHANGE IN ELECTRIC CONSU MPTION. NO VARIATION IS NOTED AND THAT GROSS PROFIT RATE OF THE ASSESSEE IS ENHANCED. IT WAS SUBMITTED THAT INITIALLY THE AO PROPOSED TO MAKE AD DITION BY APPLYING GROSS PROFIT RATE OF 6.09% BUT ULTIMATELY TREATED T HE ENTIRE UNACCOUNTED SALES AS PROFIT OF THE ASSESSEE. IT WAS SUBMITTED T HAT ADDITION OF RS.4,58,56,874/- IS UNJUSTIFIED BECAUSE THE FIGURES OF UNRECORDED SALES WORKED OUT BY THE EXCISE AUTHORITIES ARE AT RS.3,86 ,14,825/-. THEREFORE, FURTHER ADDITION IS CLEARLY UNJUSTIFIED. IT WAS FUR THER SUBMITTED THAT IF AT ALL ANY ADDITION IS TO BE MADE, THE SAME IS TO BE R ESTRICTED TO THE APPLICATION OF GROSS PROFIT RATE AT 6.09% ONLY AS P ROPOSED BY THE AO AGAINST UNRECORDED SALES. IT WAS FURTHER SUBMITTED THAT VALUE OF THE CLOTHES WHICH WAS PHYSICALLY AVAILABLE AS PER ANNEX URE B AND CLAIMED TO BE SOLD AS PER ANNEXURE D WORKS OUT TO RS.25,37,331 /- AND SINCE IT IS ALREADY TAKEN INTO CONSIDERATION OUT OF UNACCOUNTED STOCK, THE ADDITION TO THAT EXTENT SHOULD HAVE BEEN DELETED. IT WAS, TH EREFORE, SUBMITTED THAT NO ADDITION SHOULD BE MADE IN DUPLICATE. IT WAS FUR THER SUBMITTED THAT ENTIRE AMOUNT OF UNDISCLOSED SALES CANNOT BE ADDED AND THE ASSESSEE RELIED UPON SEVERAL DECISIONS OF THE TRIBUNAL IN SU PPORT OF THE SAME AS ITA NO.949 AND 1163/AHD/2007 M/S. V. R. TEXTILES 6 WELL AS THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS PRESIDENT INDUSTRIES LTD. 258 CTR 372 (GUJ). 8. THE LEARNED CIT(A) CONSIDERING THE SUBMISSIONS O F THE ASSESSEE AND THE MATERIAL ON RECORD RESTRICTED THE ADDITION TO THE EXTENT OF RS.63,88,777/- AND DELETED THE REMAINING ADDITION. THE ASSESSEE IS IN APPEAL CHALLENGING THE ADDITION OF RS.63,88,777/- A ND THE REVENUE IS IN APPEAL CHALLENGING THE DELETION OF THE REMAINING AD DITION. THE FINDINGS OF THE LEARNED CIT(A) IN PARA 3.1 TO 3.12 ARE REPRODUC ED AS UNDER FOR THE SAKE OF CONVENIENCE: 3.1 IN ORDER TO DECIDE THE VARIOUS ISSUES INVOLV ED IN THE PRESENT APPEAL, I HAVE CAREFULLY PERUSED THE AS SESSMENT ORDER OF THE ASSESSING OFFICER AND HAVE ALSO DELIBE RATED UPON THE VARIOUS ARGUMENTS TAKEN BY THE AUTHORISED REPRESENTATIVES. IN SO FAR AS THEIR CONTENTION REGA RDING THE REJECTION OF THE BOOKS OF ACCOUNTS BY THE ID. ASSES SING OFFICER IS CONCERNED, THE SAME IS LIABLE TO BE REJECTED AS IT DOES NOT APPEAL TO ANY REASON. SURVEY U/S. 133 A OF THE ACT WAS CONDUCTED IN THIS CASE ON 20TH OF JANUARY, 2003. TH E INVENTORY OF CASH AS WELL AS OF THE STOCK PHYSICALL Y AVAILABLE WAS PREPARED. THE APPELLANT WAS FOUND TO BE IN PHYS ICAL POSSESSION OF STOCK VALUED AT RS.73,47,458/- AS AGA INST THE AVAILABILITY OF SUCH STOCK TO THE VALUE OF RS.75,00 ,114/- AS PER THEIR BOOKS OF ACCOUNTS. THE STOCK PHYSICALLY FOUND WAS THUS SHORT BY RS.1,52,656/-. EXCESS CASH OF RS. 4 LACS W AS ALSO FOUND AS A RESULT OF SURVEY. THE APPELLANT WAS ALSO FOUND TO HAVE MADE UNEXPLAINED INVESTMENTS OF RS.3,50,000/- AND OF RS. 6 LACS IN PLANT & MACHINERY AND FACTORY BUILDIN G RESPECTIVELY. ALL THESE DISCREPANCIES WERE DULY CON FRONTED TO THE APPELLANT WHO IN TURN VOLUNTEERED TO DISCLOSE A DDITIONAL INCOME OF RS. 15,02,656/- TO COVER UP THE SAME. IT IS ALSO A MATTER OF RECORD THAT PRIOR TO THE DATE OF SURVEY B Y THE INCOME- TAX DEPARTMENT, A RAID WAS CONDUCTED BY THE CENTRAL EXCISE DEPARTMENT AT THEIR FACTORY PREMISES ON 09/1/2003. IT WAS DISCOVERED THAT THE APPELLANT WAS INDULGING IN THE LARGE SCALE OF EVASION OF CENTRAL EXCISE DUTY BY CLANDESTINE MA NUFACTURE AND REMOVAL OF THE EXCISABLE GOODS WITHOUT ROUTING THEM THROUGH ITS BOOKS OF ACCOUNTS. ALL THESE FACTORS TA KEN TOGETHER WOULD LEAD TO THE ONLY POSSIBLE INFERENCE THAT THE TRADING RESULTS DECLARED BY THE APPELLANT IN THE NORMAL COU RSE OF ITS ITA NO.949 AND 1163/AHD/2007 M/S. V. R. TEXTILES 7 BUSINESS WERE NOT RELIABLE AND CORRECT. ALL THESE D ISCREPANCIES ARE THUS SUFFICIENT IN THEMSELVES TO JUSTIFY THE AC TION OF THE ASSESSING OFFICER IN REJECTING THE BOOKS OF ACCOUNT S OF THE APPELLANT U/S. 145 OF THE ACT. 3.2 THE ID. AUTHORISED REPRESENTATIVES HAVE SUBMITTED THAT THE EXCISE OFFICIALS HAVE CONCOCTED ALL THE EVIDENCES AND OTHER MATERIAL SO THAT THE APPELLANT COULD BE HELD GUILTY FOR EVASION OF EXCISE DUTY. THEY HAVE F OCUSSED THEIR ARGUMENTS TO STRESS UPON THE FACT THAT IT WAS PHYSICALLY NOT POSSIBLE TO MANUFACTURE 32,65,676 L. MTRS. OF C LOTH WITHIN A SHORT SPAN OF TIME DURING 18TH DECEMBER, 2002 TO 9TH JANUARY, 2003. ACCORDING TO THE AUTHORISED REPRESEN TATIVES, THE MANUFACTURING CAPACITY OF THEIR UNIT WAS OF 7 L AC METRES PER MONTH ON AN AVERAGE AND THEREFORE, SUCH A VAST QUANTITY OF CLOTH RUNNING INTO LACS OF METRES COULD NOT BE M ANUFACTURED WITHIN SUCH A SHORT PERIOD. THEIR OTHER ARGUMENT IS THAT ALL THE MANUFACTURING EXPENSES INCLUDING PARTICULARLY THE E LECTRIC CONSUMPTION, HAVE REMAINED COMMENSURATE TO THE QUAN TITY OF CLOTH MANUFACTURED AT 82,45,245 L.MTRS WHICH IS DUL Y SHOWN IN THEIR BOOKS OF ACCOUNTS. IT IS ALSO POINTED OUT THAT NO EVIDENCE OF ANY UNACCOUNTED SALES EITHER IN THE SHA PE OF SALE INVOICES OR DELIVERY CHALLANS ETC WERE FOUND NOR AN Y EVIDENCE RELATING TO THE ALLEGED RECEIPT OF CASH AGAINST SUC H UNACCOUNTED TRANSACTIONS WAS FOUND BY THE SEARCH PA RTY. ALL THESE ARGUMENTS ARE ADVANCED TO IMPRESS UPON THEIR POINT THAT THE APPELLANT DID NOT INDULGE IN ANY KIND OF T AX EVASION AS ALLEGED AND THEY WERE FORCIBLY MADE TO PAY THE UNWARRANTED EXCISE DUTY TO WHICH THE APPELLANT UNFO RTUNATELY HAD TO AGREE IN ORDER TO AVOID FURTHER HARASSMENT A T THE HANDS OF THE EXCISE OFFICIALS. 3.3 THESE ARGUMENT OF THE AUTHORISED REPRESENTATIVES THAT THERE WAS NO ATTEMPT ON THE PA RT OF THE APPELLANT TO EVADE ANY PAYMENT OF EXCISE DUTY AND I T WAS FORCIBLY EXTRACTED, THESE DO NOT APPEAR TO BE ACCEP TABLE ON THE FACE OF IT. THE APPELLANT WAS SUBJECTED TO A SEARCH OPERATION BY THE CENTRAL EXCISE AUTHORITIES ON 09/1/2003. IN ORDER TO PROVE THAT THE APPELLANT WAS INDULGING IN UN-RECORD ED SALE TRANSACTIONS OF ITS MANUFACTURED CLOTH, THE SEARCH PARTY HAS PREPARED DETAILED INVENTORIES OF NOT ONLY OF THE ST OCKS AVAILABLE BUT ALSO OF VARIOUS OTHER DOCUMENTS WHICH HAVE DULY BEEN CONFRONTED TO THE APPELLANT BY WAY OF A SHOW C AUSE NOTICE. THE INVENTORY OF STOCK HAS BEEN PREPARED IN THE PRESENCE OF SHRI SURESH C. SHARMA WHO WAS ONE OF TH E ITA NO.949 AND 1163/AHD/2007 M/S. V. R. TEXTILES 8 PARTNERS AND OTHER WITNESSES. IN ORDER TO CORROBORA TE THE ALLEGATION THAT THE APPELLANT FIRM WAS INDULGING IN UN- ACCOUNTED SALES, THE EXCISE AUTHORITIES HAVE RECORD ED THE STATEMENTS OF VARIOUS PERSONS WHO WERE IN ONE WAY O R THE OTHER FOUND ASSOCIATED WITH THE WORKING OF THE APPE LLANT FIRM. THE STATEMENT OF SHRI FAREEDBHAI IBRAHIMBHAI SHEIK WHO HAPPENED TO BE THE FOLDING AND PACKING CONTRACTOR O F THE APPELLANT WAS RECORDED. ANOTHER STATEMENT OF SHRI V INOD GOVINDBHAI PATEL, EXCISE IN-CHARGE OF THE APPELLANT FIRM WAS RECORDED. THE STATEMENT OF SHRI BODURAM JODARAM YAD AV WHO HAPPENED TO BE THE MANAGER OF THE NATIONAL TRANSPOR T CORPORATION WHICH USED TO TRANSPORT THE GOODS MANUF ACTURED BY THE APPELLANT FROM ITS FACTORY PREMISES TO OUTSI DE DESTINATIONS WAS ALSO RECORDED. ALL THESE PERSONS H AVE CONFIRMED THE MODUS OPERANDI OF THE APPELLANT FIRM BY WHICH IT USED TO SUPPRESS ITS PRODUCTION AND ALSO TO SELL SUCH PRODUCTION WITHOUT MAKING ITS ENTRIES IN THEIR BOOK S OF ACCOUNTS. ALL THESE FACTORS CLUBBED TOGETHER WOULD UNDOUBTEDLY LEAVE ANYONE WITH THE IMPRESSION THAT E VERYTHING WAS NOT RIGHT AT THE END OF THE APPELLANT. AT THE SAME TIME, THERE ARE CERTAIN FACTS POINTED O UT BY THE ID. AUTHORISED REPRESENTATIVES WHICH HOWEVER LE AD TO MANY QUESTIONS UNANSWERED E.G. THE EXCESS PRODUCTIO N OF 32,65,676 L. METRES OF CLOTH HAS BEEN REPORTED BY T HE EXCISE AUTHORITIES FOR THE PERIOD 18TH DECEMBER, 2002 TO 9 TH JANUARY, 2003 WHEREAS NO SUCH ABNORMALITY IN THE PRODUCTION HAS BEEN POINTED OUT FOR THE PERIOD EARL IER TO AND SUBSEQUENT TO THE DATE OF THEIR SEARCH. THE PRODUCT ION CAPACITY OF THE PLANT IS ADMITTEDLY OF 7 LACS METRE S PER MONTH ON AN AVERAGE AND IT IS NOT UNDERSTOOD AS TO HOW TH E APPELLANT COULD MANUFACTURE SUCH A HUGE QUANTITY OF CLOTH DURING SUCH A SHORT SPAN OF TIME WHICH IN THE NORMA L COURSE, COULD HAVE BEEN MANUFACTURED OVER A PERIOD OF 5 MON THS OR SO. NO EXTRA CONSUMPTION OF OTHER INPUTS LIKE COLOU RS, CHEMICALS, STORES AND PARTICULARLY THE POWER CONSUM PTION HAS BEEN DETECTED BY THE EXCISE OFFICIALS SO AS TO LINK IT UP WITH THE UN-RECORDED PRODUCTION. IT IS ALSO STRANGE TO F IND THAT NO EVIDENCE OF UN-RECORDED SALES IN THE SHAPE OF SALE BILLS/VOUCHERS WAS FOUND NOR ANY UNACCOUNTED CASH W AS FOUND IN THE CUSTODY OF THE APPELLANT. SINCE THE AD MITTED CAPACITY OF CLOTH WAS OF 7 LACS METRES PER MONTH ON AN AVERAGE, THE PRODUCTION OF 32,65,676 L. METRES OF U N-REPORTED CLOTH CANNOT POSSIBLY BE RELATED ONLY TO THE PERIOD RUNNING FROM 19 TH OF DECEMBER 02 TO 8 TH OF JANUARY 03. THE ONLY ITA NO.949 AND 1163/AHD/2007 M/S. V. R. TEXTILES 9 POSSIBILITY SEEMS TO BE THAT THE APPELLANT WAS SYST EMATICALLY INDULGING IN UNRECORDED PRODUCTION OVER A LONG PERI OD OF TIME WHICH WAS FOUND ACCUMULATED AT THE TIME OF SEARCH B Y THE EXCISE OFFICIALS. 3.4 I WOULD FIRST ADDRESS TO THE ISSUE WHETHER TH E ADDITION OF RS.4,58,56,874/- AS MADE BY THE ASSESSI NG OFFICER WAS JUSTIFIED IN THIS CASE OR NOT. AS IS ME NTIONED EARLIER, THE EXCISE OFFICIALS HAD TAKEN THE INVENTO RY OF 4,28,395 L. MTRS. OF MAN MADE FABRICS VALUED AT RS. 58,85,53 0/- AS PER ANNEXURE-B. ANOTHER INVENTORY OF 26,44,904 L. MTRS OF FABRICS VALUED AT RS.3,27,29,295/- WAS PREPARED AS PER ANNE XURE - 'D'. APPARENTLY LOOKING AT THESE INVENTORIES, ONE W OULD FIND THAT DIFFERENT VARIETIES OF CLOTH ARE MENTIONED WIT H THEIR LOT NUMBERS AND THEIR SALE VALUE ALSO VARIES FROM ONE I TEM TO THE ANOTHER DEPENDING UPON THE QUALITY OF THE FABRICS. THE SALE VALUE OF THE ITEMS MENTIONED IN THESE INVENTORIES A PPEARS TO HAVE BEEN ADOPTED ON THE BASIS OF THEIR ACTUAL SALE RATES. AT THE TIME OF FRAMING THE ASSESSMENT HOWEVER, THE ASS ESSING OFFICER HAS ALTOGETHER IGNORED THE VALUE OF STOCK S O TAKEN BY THE EXCISE OFFICIALS. THE ASSESSING OFFICER HAS PRO CEEDED TO SUBSTITUTE HER OWN VALUATION BY TAKING THE DECLARED TURNOVER OF RS. 12,33,64,251/- OF THE APPELLANT WHICH HAS BE EN DIVIDED BY 82,45,245 L. MTRS OF CLOTH MANUFACTURED DURING T HE YEAR THEREBY YIELDING AN AVERAGE SALE RATE OF RS. 14.96 PER L. METRE. THE AVERAGE SALE RATE OF RS. 14.96 PER L. ME TRE HAS FURTHER BEEN UNIFORMLY APPLIED TO 30,65,299 L. MTRS . OF UNACCOUNTED SALES AS WERE QUANTIFIED BY THE EXCISE OFFICIALS AS PER THEIR INVENTORIES PREPARED AS PER ANNEXURES B & D. HI THIS MANNER, THE VALUE OF UNACCOUNTED SALES HAS BEE N HIKED TO RS. 4,58,56,874/- BY THE ID. ASSESSING OFFICER. 3.5 IN MY CONSIDERED OPINION, THE ASSESSING OFFIC ER WAS NOT JUSTIFIED TO SUBSTITUTE ITS OWN SALE PRICE AND APPLY THE SAME UNIFORMLY TO ALL THE ITEMS OF STOCK IRRESP ECTIVE OF THEIR QUALITY AND MEASUREMENTS ESPECIALLY WHEN THE RECORD ED SALE PRICE WAS NEVER A MATTER OF DISCUSSION IN THE ENTIR E ASSESSMENT PROCEEDINGS. THE ASSESSING OFFICER WAS O BLIGED TO TAKE THE UNACCOUNTED SALE VALUE AS WAS WORKED OUT B Y THE EXCISE OFFICIALS ON THE SPOT GIVING DESCRIPTION OF DIFFERENT VARIETIES OF CLOTH ALONGWITH THE SALE PRICE ATTACHE D TO EACH ONE OF THEM. HAD THE ASSESSING OFFICER RESTRICTED HERSE LF TO THE SALE PRICE OF RS.3,86,14,825/- AS WAS WORKED OUT BY THE EXCISE OFFICIALS, THERE WAS NO NEED FOR HER TO MAKE UN- WARRANTED ADDITION OF THE BALANCE AMOUNT OF RS.72,4 2,049/-. ITA NO.949 AND 1163/AHD/2007 M/S. V. R. TEXTILES 10 THE ADDITION TO THE EXTENT OF RS.72,42,049/- ( RS. 4,58,56,874- 3,86,14,825/- ) THUS GOES OFF ST RAIGHT AWAY. 3.6 THE NEXT QUESTION WOULD REVOLVE AROUND THE IS SUE AS TO WHAT TREATMENT SHOULD BE GIVEN TO THE UN-RECO RDED SALES OF RS.3,86,14,825/- ( RS.58,85,530/- + RS3,27,29,29 5/-). IN SO FAR AS THE UN-RECORDED SALES OF 4,28,395 L. METR ES OF CLOTH VALUED AT RS.58,85,530/- ARE CONCERNED, THESE HAVE BEEN WORKED OUT ON THE BASIS OF STOCK PHYSICALLY FOUND V IS-A-VIS ITS AVAILABILITY IN THE STOCK RECORDS MAINTAINED IN THE BOOKS OF ACCOUNTS. AFTER MAKING SUCH COMPARISON, THE STOCK P HYSICALLY WHEREVER FOUND TO BE SHORT IN COMPARISON TO ITS AVA ILABILITY IN THE STOCK REGISTER, HAS BEEN TREATED TO BE SOLD OUT SIDE THE BOOKS OF ACCOUNTS. IN THIS VIEW OF THE MATTER, THE INVESTMENT IN ACQUIRING THESE STOCKS HAS UNDOUBTEDLY COME FROM TH E DECLARED SOURCES OF THE APPELLANT. IN OTHER WORDS, THE ENTIRE AMOUNT OF UN-RECORDED SALES OF RS.58,85,530/- CANNO T BE ADDED AS THEIR INCOME AND ONLY THE PROFIT ELEMENT I NVOLVED THEREIN NEEDS TO BE TAXED AFTER APPLYING THE GROSS PROFIT AT THE RATE OF 6.09% ON SUCH SALES. THE ADDITION OF RS.3, 58,428/- I.E. RS.58,85,530/- DIVIDED BY 100 X 6.09% IS THUS LIABLE TO BE SUSTAINED AND BALANCE AMOUNT OF RS. 55,27,102/- IS DELETED. 3.7 THE NEXT ISSUE RELATES TO THE TREATMENT TO BE GIVEN TO UN-RECORDED SALES OF RS.3,27,29,295/- AS PER A NNEXURE-D OF THE EXCISE OFFICIALS. THE AUTHORISED REPRESENTAT IVES HAVE SUBMITTED THAT THE AMOUNT OF RS.25,37,331/- IS LIAB LE TO BE REDUCED OUT OF THE AMOUNT OF RS.3,27,29,295/- BECAU SE THE SAME HAS BEEN SOLD OUT OF THE ACCOUNTED FOR STOCKS OF RS.58,85,530/-. THE DETAILS OF THE LOT NUMBERS, DET AILS OF THE QUANTITY AVAILABLE IN ANNEXURE-B AND SHOWN TO BE SO LD OUTSIDE THE BOOKS AS PER ANNEXURE-D ARE GIVEN IN PA RA 2.5 ABOVE. AS PER THESE DETAILS, 2,08,030 L. METRES OF CLOTH VALUED AT RS.25,37,331/- IS STATED TO BE WRONGLY TAKEN AS SOLD OUTSIDE THE BOOKS OF ACCOUNTS IN ANNEXURE D BECAUSE THE SAME QUANTITY OF STOCK WAS AVAILABLE IN THE STOCK R EGISTER WHOSE COMPARISON WAS MADE IN ANNEXURE-B. THIS ARGUMENT OF THE AUTHORISED REPRESENTATIVES IS PRACTICALLY NOT ACCEPTABLE FOR THE SIMPLE REASON TH AT THERE IS NO EVIDENCE TO SUPPORT THEIR CLAIM THAT WHATEVER SA LES ARE SHOWN IN COL. NO. 4 OF THE CHART OR ARE INCLUDED IN ANNEXURE -D WERE MADE ONLY OUT OF THE STOCK AVAILABLE AS PER AN NEXURE-B AND ARE SHOWN IN COL. NO.5 OF THE CHART. THE EXCISE OFFICIALS HAVE GIVEN COMPLETE DESCRIPTION OF THE CLOTH, ITS T RADE NAME ITA NO.949 AND 1163/AHD/2007 M/S. V. R. TEXTILES 11 ALONGWITH ITS SALE PRICE WHEREAS THE DETAILS PROVID ED BY THE AUTHORISED REPRESENTATIVES IN THE CHART UNDER CONSI DERATION ARE INCONSISTENT IN AS MUCH AS THAT THE QUANTITY ME NTIONED IN COL. NO.5 DOES NOT TALLY WITH THE SAME QUANTITY SHO WN IN COL. NO.4. APPARENTLY LOOKING, THE FIGURES GIVEN IN COL. NO. 4 AND 5 DO NOT SHOW ANY CORRELATION IN BETWEEN THEMSELVES. IN THE ABSENCE OF ANY COGENT EVIDENCE TO PROVE THAT THERE WAS A DIRECT LINK BETWEEN THE STOCK AVAILABILITY AS PER C OL. NO. 5 WITH THAT OF THE SALES SHOWN IN COL. NO.4, NO SUCH CREDI T OF ACCOUNTED STOCK AS IS DEMANDED BY THE ID. AUTHORISE D REPRESENTATIVE, CAN BE GRANTED. 3.8 THE AUTHORISED REPRESENTATIVES HAVE ALSO POINTED OUT THAT THERE WAS A DUPLICATION OF CERTAIN AMOUNTS OF SALES AS ACCORDING TO THEM, THE SAME ALLEGED UN-REC ORDED SALES HAVE BEEN TAKEN TWICE SIMULTANEOUSLY IN ANNEX URE-B AS WELL AS IN ANNEXURE-D. THE AUTHORISED REPRESENTATIV ES HAVE POINTED OUT WITH THE HELP OF THE CHART REPRODUCED I N PARA 2.6 ABOVE THAT 41,756 L. MTRS OF CLOTH VALUED AT RS.5,1 6,559/- HAS BEEN DOUBLY ADDED AS UN-RECORDED SALES. 3.9 AFTER HAVING GONE THROUGH THE DETAILS GIVEN I N THE CHART SO REPRODUCED IN PARA 2.6 OF THE ORDER, THE C ONTENTION OF THE AUTHORISED REPRESENTATIVES THAT 41,756 L. MTRS OF CLOTH HAS BEEN ACCOUNTED FOR TWICE, IS FOUND TO BE CORREC T. THERE ARE ONLY T ENTRIES WHICH HAVE BEEN REPEATED IN BOTH THE ANNEXURES. AS IS MENTIONED EARLIER, THE SHORTAGE OF STOCK WHICH IS HELD TO BE SOLD OUTSIDE THE BOOKS AS PER A NNEXURE-B WAS WORKED OUT IN COMPARISON TO ITS AVAILABILITY AS PER THE BOOKS OF ACCOUNTS. ON SUCH COMPARISON, 41,756 L. MT RS OF CLOTH MENTIONED AT SR. NO. 67, 108, 131 AND 133 OF ANNEXURE- B WAS FOUND TO BE SHORT IN COMPARISON TO ITS AVAILA BILITY IN THE BOOKS OF ACCOUNTS. THE SAME AMOUNT WAS CONSEQUENTLY TAKEN TO BE THE UN-RECORDED SALES IN ANNEXURE-B. WHILE CA LCULATING THE LOT NUMBERS 511, 521, 524 AND 527 APPEARING AT SR. NO. 39, 44, 47 AND 50 OF ANNEXURE-D, 41,759 L. METRES O F CLOTH HAS AGAIN BEEN TAKEN TO BE SOLD OUTSIDE THE BOOKS O F ACCOUNTS. THIS HAS DEFINITELY RESULTED INTO A DOUBL E ADDITION TO THE EXTENT OF ITS VALUE AT RS.5,16,559/-. THE APPEL LANT IS THUS ENTITLED TO THE BENEFIT OF RS.5,16,559/- WHICH LEAV ES THE BALANCE OF UNRECORDED SALES AT RS.3,22,12,736/- ( RS.3,27,29,295/- MINUS RS5,16,559/-). 3.10 THE NEXT ISSUE WHICH REQUIRES CONSIDERATION IS WHETHER THE TOTAL AMOUNT OF RS.3,22,12,736/- IS REQ UIRED TO BE ITA NO.949 AND 1163/AHD/2007 M/S. V. R. TEXTILES 12 TREATED AS INCOME OF THE APPELLANT AS IS DONE BY TH E ID. ASSESSING OFFICER OR ONLY THE GROSS PROFIT AT THE R ATE OF 6.9% IS TO BE TAKEN AS THE INCOME ELEMENT AS IS SUBMITTED B Y THE ID. AUTHORISED REPRESENTATIVES WITH THE HELP OF VARIOUS CASE LAWS. IN MY CONSIDERED OPINION, NEITHER THE ENTIRE AMOUNT OF SALES CAN BE THE INCOME NOR THE GROSS PROFIT ONLY W OULD BE THE INCOME OUT OF THESE UN-RECORDED SALES. I HAVE ALREA DY OBSERVED IN PARA 3.3 ABOVE THAT THE APPELLANT WAS SYSTEMATICALLY INDULGING IN UN-RECORDED PRODUCTION OVER A LONG PERIOD TO TIME. IN VIEW OF THIS BACKGROUND, THE ELE MENT OF INVESTMENT INVOLVED IN SUCH UN-RECORDED SALES BECOM ES A VERY MATERIAL FACT. THE APPELLANT HAS RECORDED TURNOVER OF RS.12,33,64,251/- AND IN ORDER TO ACHIEVE SUCH TURN OVER, THE FOLLOWING FUNDS HAVE BEEN EMPLOYED: RS. I) FIXED CAPITAL 10,000/- II) CURRENT A/C. OF PARTNERS' CAPITAL 21, 80,248/- III) SECURED LOANS 10,83,435/- IV) UNSECURED LOANS L68.80.081/- TOTAL 2,01,53,764/- THE APPELLANT HAS THUS EMPLOYED RECORDED FUNDS OF RS.2,01,53,764/- IN ORDER TO ACHIEVE THE RECORDED T URNOVER OF RS.12,33,64,251/-. THE RATIO OF FUNDS EMPLOYED VIS- A-VIS THE TOTAL TURNOVER COMES TO 16.33%. HI THIS MANNER, IN ORDER TO ACHIEVE THE TURNOVER OF RS.3,22,12,736/- , THE APPE LLANT MAY REQUIRE A MINIMUM CAPITAL INVESTMENT OF RS.52,60,34 0/- I.E. ( 16.33% X RS.3,22,12,736/- DIVIDED BY 100). THE ADDI TION OF RS.52,60,340/- IS THUS REQUIRED TO BE SUSTAINED ON THIS SCORE. THE ENTIRE AMOUNT OF UNRECORDED SALES OF RS.3,22,12,736/-WERE FOUND TO BE SOLD WITHOUT ANY R ECORDS AND THEREFORE , THE PROFIT ELEMENT INVOLVED THEREIN AT THE RATE OF 6.09% TOTALING TO RS.19,61,755/- IS SEPARATELY R EQUIRED TO BE ADDED. TOTAL ADDITION OF RS.72,22,095/- ( RS.52, 60,340/- + RS.19,61,755/-) IS THUS REQUIRED TO BE MADE ON THIS ACCOUNT. 3.11 IT IS A MATTER OF RECORD THAT EXCESS STOCK O F 2,16,577 L. MTRS OF CLOTH VALUED AT RS.25,98,924/- WAS ALSO FOUND BY THE EXCISE AUTHORITIES. THE ASSESSING OFFI CER HAS NOT ADDED THE SAME ON THE GROUND THAT THE SAID INVESTME NT OF UNACCOUNTED STOCK WAS AVAILABLE TO THE APPELLANT IN THE SHAPE OF UNACCOUNTED RECEIPTS RUNNING INTO CRORES OF RUPE ES. THE ASSESSING OFFICER HAS ALLOWED THE TELESCOPING EFFEC T OF ITA NO.949 AND 1163/AHD/2007 M/S. V. R. TEXTILES 13 APPLICATION OF UNACCOUNTED RECEIPTS VIS-A-VIS THE I NVESTMENT IN EXCESS STOCK OF RS.25,98,924/-. THERE IS NO NEED FO R MY INTERVENTION IN THIS REGARD BECAUSE THE TELESCOPING EFFECT HAS RIGHTLY BEEN GIVEN BY THE ID. ASSESSING OFFICER KEE PING INTO ACCOUNT THE AVAILABILITY OF MASSIVE UNACCOUNTED REC EIPTS IN THE HANDS OF THE APPELLANT AS ON THE DATE OF SEARCH BY THE EXCISE AUTHORITIES. IT IS FURTHER NOTICED THAT AS ON 20/1/2003 WHEN THE SURVEY U/S. 133 A WAS CONDUCTED BY THE INCOME-TAX DEPARTMENT, NO SUCH EXCESS STOCK WAS PHYSICALLY FOU ND. THE APPELLANT WAS RATHER FOUND TO BE HAVING SHORT STOCK OF RS1,52,656/-. SINCE THE EXCESS STOCK UNDER CONSIDER ATION WAS NOT FOUND TO BE IN THE PHYSICAL POSSESSION OF THE A PPELLANT ON 20/1/2003, THE SAME IS PRESUMED TO HAVE BEEN SOLD D URING THE INTERVENING PERIOD BECAUSE SUCH STOCK WAS VERY WELL IN EXISTENCE AS ON 09 TH OF JANUARY, 2003. THE PROFIT ELEMENT AT THE RATE OF 6.09% ON SUCH SALES OF RS.25,98,924/- W OULD WORK OUT TO RS.1,58,274/-. IT IS ALSO A MATTER OF RECORD THAT THE APPELLANT WAS FOUND TO BE HAVING EXCESS CASH OF RS. 4 LACS AS ON 20/1/2003 WHICH HAS BEEN OFFERED TO TAX, NO SEPA RATE ADDITION OF RS.1,58,274/- IS THEREFORE PROPOSED BEC AUSE THE EXCESS CASH TO THAT EXTENT CAN BE ATTRIBUTED TO THE SALES OF THESE UNACCOUNTED STOCKS. IN OTHER WORDS, THE TELES COPING EFFECT OF RS.1,58,274/- IS GIVEN AGAINST THE DISCLO SED EXCESS CASH OF RS.4 LACS AND THIS LEAVES THE BALANCE CASH OF RS.2,41,746/- WITH THE APPELLANT. 3.12 IN ADDITION TO THIS EXCESS CASH, THE APPELLA NT HAS DISCLOSED UNDECLARED INVESTMENT OF RS. 9,50,000/- A LLEGEDLY MADE IN ITS PLANT & MACHINERY AND FACTORY BUILDIN G AS ON THE DATE OF SURVEY. KEEPING INTO CONSIDERATION THE FACT THAT THE APPELLANT HAS PAID TAXES ON INCOME REPRESENTING UNE XPLAINED INVESTMENT OF RS.9,50,000/- IN THE ASSETS AND EXCES S CASH OF RS.4,00,000/- OUT OF WHICH CREDIT OF RS.1,58,274/- HAS ALREADY BEEN GIVEN , IT WOULD BE FAIR AND REASONABL E TO ALLOW THE CREDIT OF THIS DECLARED INCOME AGAINST THE UNAC COUNTED RECEIPTS OF RS.75,80,523/- AVAILABLE WITH THE APPEL LANT AS ON 09/1/2003. IT MAY BE MENTIONED HERE THAT THE UNACCO UNTED RECEIPTS OF RS.75,80,523/- ARE THE TOTAL SUM OF ADD ITIONS AS ARE DISCUSSED IN PARA 3.6 AND 3.10 ABOVE. AFTER SET TING OFF THE DECLARED INCOME OF RS.11,91,746/- ( RS.6,00,000 + 3 ,50,000 + 2,41,746 ) AGAINST THE UNACCOUNTED RECEIPTS OF RS.75,80,523/- , THE BALANCE ADDITION OF RS.63,88,7 77/- IS ITA NO.949 AND 1163/AHD/2007 M/S. V. R. TEXTILES 14 REQUIRED TO BE MADE IN THIS CASE. TO SUM UP, THE AD DITION TO THE EXTENT OF RS.63,88,777/- IS CONFIRMED. 9. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THA T ENTIRE UNACCOUNTED SALES CANNOT BE THE PROFIT OF THE ASSES SEE. THEREFORE, LEARNED CIT(A) RIGHTLY APPLIED GROSS PROFIT RATE OF 6.09% FOR THE PURPOSE OF CALCULATING THE UNDISCLOSED INCOME OF THE ASSESSEE. HE HAS HOWEVER, SUBMITTED THAT THE ASSESSEE SHALL HAVE TO BE GIVEN SET OFF OF RS.25,37,331/- OUT OF THE TOTAL UNDISCLOSED SALES W ORKED OUT BY EXCISE AUTHORITIES. HE HAS SUBMITTED THAT THE ASSESSEE IS ENTITLED FOR SET OFF OF THIS AMOUNT BECAUSE IT WAS ALREADY TAKEN INTO ACCOU NT FOR STOCK AND THE SALES. HE HAS SUBMITTED THAT IT IS A DUPLICATE ADDI TION. 10. ON THE OTHER HAND, THE LEARNED DR RELIED UPON T HE ORDER OF THE AO AND SUBMITTED THAT THE LEARNED CIT(A) WHILE WORKING OUT VARIOUS ADDITION HAS NOT GIVEN OPPORTUNITY TO THE AO AND WRONGLY RED UCED THE ADDITIONS. THE LEARNED DR SUBMITTED THAT ADDITION IS MAINLY MA DE ON ACCOUNT OF THE RECORD PREPARED BY EXCISE AUTHORITIES WHICH HAS NOT BEEN DISPUTED BY THE ASSESSEE BECAUSE THE ASSESSEE ULTIMATELY PAID T HE TAX TO THE EXCISE AUTHORITIES. THE LEARNED DR SUBMITTED THAT ASSESSEE IS NOT ENTITLED FOR ANY SET OFF OF RS.25,37,331/- OUT OF THE UNDISCLOSE D SALES WORKED OUT BY EXCISE AUTHORITIES BECAUSE THE ASSESSEE ACCEPTED TH E ENTIRE FIGURES PREPARED BY EXCISE AUTHORITIES. THE LEARNED DR FURT HER SUBMITTED THAT THE LEARNED CIT(A) WAS NOT JUSTIFIED IN ALLOWING SE T OFF OF THE DECLARED INCOME OF RS.11,91,746/- ON ACCOUNT OF UNEXPLAINED INVESTMENTS MADE IN THE PLANT AND MACHINERY, FACTORY BUILDING AND TH E EXCESS CASH FOUND AT THE TIME OF SURVEY BECAUSE THE ASSESSEE NEVER CL AIMED THAT UNACCOUNTED INVESTMENTS IN THE ABOVE PROPERTIES HAV E BEEN MADE OUT OF THE INCOME EARNED ON ACCOUNT OF UNDISCLOSED SALES A S CONSIDERED BY THE EXCISE AUTHORITIES. THE LEARNED DR, THEREFORE, SUBM ITTED THAT THE SET OFF ALLOWED BY THE LEARNED CIT(A) SHOULD BE WITHDRAWN. ITA NO.949 AND 1163/AHD/2007 M/S. V. R. TEXTILES 15 11. THE LEARNED COUNSEL FOR THE ASSESSEE IN THE REJ OINDER ADMITTED THAT THE ASSESSEE SETTLED THE MATTER WITH THE EXCISE AUT HORITIES BY WAY OF SETTLEMENT AND PAID THE EXCISE DUTY FOR THE ENTIRE UNACCOUNTED SALES. HE HAS SUBMITTED THAT THE ASSESSEE IS ENTITLED FOR SET OFF OF THE DECLARED AMOUNT OF RS.11,91,746/- BECAUSE IT WAS THE INVESTM ENT MADE OUT OF THE PROFIT EARNED ON ACCOUNT OF UNDISCLOSED INCOME BY W AY OF MAKING SALES OUTSIDE THE BOOKS OF ACCOUNT. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND MA TERIAL ON RECORD VERY CAREFULLY. THERE IS NO DISPUTE ABOUT THE DISCR EPANCIES NOTED DURING THE COURSE OF SURVEY BY INCOME TAX DEPARTMENT. THE ASSESSEE SURRENDERED ADDITIONAL INCOME OF RS.15,02,656/- ON ACCOUNT OF SHORTAGE STOCK AND UNACCOUNTED INVESTMENTS MADE IN PLANT AND MACHINERY, BUILDING AND EXCESS CASH FOUND DURING THE COURSE OF SURVEY BY INCOME TAX DEPARTMENT. THE ASSESSEE HAS NOT PLACED ANY MAT ERIAL ON RECORD TO SHOW THAT IF THE ASSESSEE MADE ANY CLAIM BEFORE THE INCOME TAX AUTHORITIES EITHER AT THE TIME OF SURVEY OR AT THE STAGE OF ASSESSMENT PROCEEDINGS THAT THE ADDITIONAL INCOME SO DECLARED WAS ON ACCOUNT OF UNACCOUNTED PROFITS EARNED ON BEING SALES MADE OUTS IDE BOOKS OF ACCOUNT AS NOTICED THE EXCISE AUTHORITIES. THE ASSE SSEE HAS NOT DISPUTED THE UNACCOUNTED SALES FOUND BY THE EXCISE AUTHORITI ES OUTSIDE THE BOOKS OF ACCOUNT WITHOUT PAYING ANY EXCISE DUTY. THE ASSE SSEE ADMITTEDLY PAID THE EXCISE DUTY TO THE EXCISE AUTHORITIES AS PER TH EIR ANNEXURE PREPARED DURING THE COURSE OF RAID BY THE EXCISE AUTHORITIES . SINCE THE RECORD OF THE EXCISE AUTHORITIES HAVE NOT BEEN DISPUTED BY TH E ASSESSEE, THEREFORE, AT THIS STAGE IT IS DIFFICULT TO BELIEVE THAT RS.25 ,37,331/- WAS A DUPLICATE ADDITION AS ARGUED BY THE LEARNED COUNSEL FOR THE A SSESSEE. SINCE THE FINDINGS OF THE AO ARE BASED UPON THE RECORD PREPAR ED BY THE EXCISE AUTHORITIES WHICH HAS NOT BEEN DISPUTED BY THE ASSE SSEE, THEREFORE, THE FINAL FIGURE GIVEN BY EXCISE AUTHORITIES SHOWING UN DISCLOSED SALES MADE BY THE ASSESSEE OUTSIDE THE BOOKS OF ACCOUNT WITHOU T PAYING EXCISE DUTY ITA NO.949 AND 1163/AHD/2007 M/S. V. R. TEXTILES 16 CANNOT BE DISPUTED AT THIS STAGE. THE ASSESSEE IS, THEREFORE, NOT ENTITLED FOR ANY SET OFF AS CLAIMED BY LEARNED COUNSEL FOR T HE ASSESSEE. THE EXCISE AUTHORITIES HAVE NOTED THAT THE ASSESSEE HAS MADE U NACCOUNTED SALES OF RS.3,86,14,825/- (RS.58,85,530/- PLUS RS.3,27,29,29 5/-). THE AO WITHOUT ANY BASIS PRESUMED HIGHER SALES MADE OUTSID E THE BOOKS OF ACCOUNT. THE LEARNED CIT(A) WAS, THEREFORE, JUSTIFI ED IN TAKING THE FIGURE OF UNACCOUNTED SALES COMPUTED BY THE EXCISE AUTHORI TIES AS AGAINST THE FIGURE TAKEN BY THE AO. SINCE THE AO HIMSELF HAS NO T MADE ANY ADDITION ON ACCOUNT OF EXCESS STOCK OF RS.25,98,924/- AS THE TELESCOPING EFFECT IS GIVEN TO THE ASSESSEE, THEREFORE, SUCH MATERIAL CAN NOT BE USED AGAINST THE ASSESSEE FOR THE PURPOSE OF ENHANCING THE UNACC OUNTED SALES. IT IS SETTLED LAW THAT THE ENTIRE UNDISCLOSED SALES COULD NOT BE TREATED AS PROFIT OF THE ASSESSEE. WE RELY UPON THE DECISION OF HONB LE GUJARAT HIGH COURT IN THE CASE OF CIT VS PRESIDENT INDUSTRIES LTD. 258 ITR (GUJ) 654 IN WHICH IT WAS HELD THAT ADDITION CANNOT BE OF ENTIR E UNDISCLOSED SALE PROCEEDS. ONLY THE PROFIT EMBEDDED IN SALE PROCEEDS CAN BE TAXED. THE LEARNED CIT(A) WAS, THEREFORE, JUSTIFIED IN APPLYIN G GROSS PROFIT RATE AGAINST UNACCOUNTED SALES FOR THE PURPOSE OF MAKING THE ADDITION ON ACCOUNT OF UNDISCLOSED INCOME OF THE ASSESSEE. SIMI LARLY, LEARNED CIT(A) WAS JUSTIFIED IN CONSIDERING THE ISSUE OF DEPLOYMEN T OF MINIMUM CAPITAL INVESTMENTS FOR THE PURPOSE OF MAKING AND ROTATING THE SALES OUTSIDE THE BOOKS OF ACCOUNT. THESE FACTS ARE SUFFICIENT TO HOL D THAT THE BOOK RESULTS OF THE ASSESSEE WERE NOT RELIABLE AND HAVE RIGHTLY BEEN REJECTED BY THE AUTHORITIES BELOW. REJECTION OF BOOK RESULTS IS ALS O NOT DISPUTED BY THE ASSESSEE. THE LEARNED COUNSEL FOR THE ASSESSEE HAS NOT POINTED OUT ANY ERROR IN THE FINDINGS OF THE LEARNED CIT(A) TO THAT EXTENT. CONSIDERING THE FACTS AND CIRCUMSTANCES NOTED ABOVE, WE ARE OF THE VIEW THAT THE LEARNED CIT(A) WAS JUSTIFIED IN APPLYING GROSS PROFIT RATE AS AGAINST UNDISCLOSED SALES MADE BY THE ASSESSEE FOR THE PURPOSE OF MAKIN G THE ADDITION AGAINST THE ASSESSEE. TO THAT EXTENT THE FINDINGS O F THE LEARNED CIT(A) ARE MAINTAINED. ITA NO.949 AND 1163/AHD/2007 M/S. V. R. TEXTILES 17 13. THE LEARNED CIT(A) ON PROPER APPRECIATION OF FA CTS AND MATERIAL ON RECORD RIGHTLY CAME TO THE CONCLUSION IN MAKING ADD ITION ON ACCOUNT OF PROFIT EARNED ON UNDISCLOSED SALES. THE AO ALSO PRO POSED TO MAKE ADDITION INITIALLY ON THE SAME LINE BUT THE AO CHAN GED HIS MIND LATER ON AND TREATED THE ENTIRE UNDISCLOSED SALES AS UNDISCL OSED INCOME OF THE ASSESSEE. THEREFORE, THERE WAS NO NEED TO GIVE ANY FURTHER OPPORTUNITY TO THE AO WITH REGARD TO THE CALCULATION OF THE UNDISC LOSED INCOME OF THE ASSESSEE. WE ACCORDINGLY, DO NOT FIND ANY MERIT IN THE CONTENTION OF THE LEARNED DR. THE SAME IS ACCORDINGLY REJECTED 14. HOWEVER, WE MAY NOTE THAT THE LEARNED CIT(A) HA S GIVEN SET OFF OF DISCLOSED INCOME OF RS.11,91,746/- TO THE ASSESSEE WHILE CALCULATING UNDISCLOSED INCOME OF THE ASSESSEE. THE SET OFF GIV EN BY THE LEARNED CIT(A) PERTAIN TO THE UNACCOUNTED INVESTMENTS MADE IN PLANT AND MACHINERY, BUILDING, EXCESS CASH AND SHORTAGE OF SO CK OF WHICH THE ASSESSEE INDEPENDENTLY DISCLOSED ADDITIONAL INCOME OF RS.15,02,656/-. THE ASSESSEE NEVER MADE ANY CLAIM BEFORE THE INCOME TAX AUTHORITIES OR BEFORE THE EXCISE AUTHORITIES THAT THE AMOUNTS EARN ED ON ACCOUNT OF UNDISCLOSED SALES MADE OUTSIDE THE BOOKS OF ACCOUNT HAVE BEEN INVESTED IN THE ABOVE PROPERTIES. IN THE ABSENCE OF ANY EVID ENCE ON RECORD, OR ANY NEXUS BETWEEN UNACCOUNTED PROFIT EARNED BY THE ASSE SSEE AND THE INVESTMENT MADE IN THE PROPERTIES OUTSIDE THE BOOKS OF ACCOUNT, IT IS DIFFICULT TO BELIEVE THAT THE UNACCOUNTED PROFIT EA RNED ON ACCOUNT OF SALES MADE OUTSIDE THE BOOKS OF ACCOUNT AS NOTICED BY THE EXCISE AUTHORITIES WAS THE SAME AMOUNT INVESTED IN PROPERTIES. THE DEC ISION IN THE CASE OF R. K. SYNTHETICS 81 TTJ 909 RELIED UPON BY THE LEAR NED COUNSEL FOR THE ASSESSEE IS CLEARLY DISTINGUISHABLE ON FACTS. 15. IT MAY ALSO BE NOTED THAT THE ASSESSEE DECLARE D ADDITIONAL INCOME ON THE ABOVE PROPERTIES AND IN CASE ANY SET OFF OF UNDISCLOSED INCOME IS GIVEN TO THE ASSESSEE AGAINST UNDISCLOSED INVESTMEN TS, IT WOULD AMOUNT ITA NO.949 AND 1163/AHD/2007 M/S. V. R. TEXTILES 18 TO REDUCING THE ADDITIONAL INCOME DECLARED BY THE A SSESSEE. IT MAY ALSO BE NOTED THAT THE ASSESSEE CLAIMED SET OFF WHICH AR E NOT PART OF THE RECORD OF EXCISE DEPARTMENT ON THE BASIS OF WHICH T HE ENTIRE ADDITION IS MADE. THE ADDITION MADE BY THE AO ON THE BASIS OF R ECORD PREPARED BY EXCISE DEPARTMENT IS THE INDEPENDENT ADDITION WHICH HAS NO CO-RELATION WITH THE SURVEY CONDUCTED BY INCOME TAX DEPARTMENT. THEREFORE, THE LEARNED CIT(A) WAS NOT JUSTIFIED IN GIVING SET OFF OF RS.11,91,746/- TO THE ASSESSEE. WE ACCORDINGLY, SET ASIDE THE ORDER OF TH E LEARNED CIT(A) TO THAT EXTENT AND DIRECT THAT NO SUCH BENEFIT OF SET OFF O F RS.11,91,746/- BE GIVEN TO THE ASSESSEE. 16. CONSIDERING THE ABOVE DISCUSSIONS, WE DISMISS T HE APPEAL OF THE ASSESSEE AND PARTLY ALLOW THE APPEAL OF THE REVENUE AS INDICATED ABOVE. 17. AS A RESULT, THE APPEAL OF THE ASSESSEE IS DISM ISSED AND THE DEPARTMENTAL APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED ON 22-03-2010. SD/- SD/- (D. C. AGRAWAL) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 22-03-2010 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR, ITAT, AHMEDABAD