DCIT, Bangalore V. M/s Sudarshan Silks, Bangalore

ITA 1225/BANG/2011

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8501 (ITAT-BANGALORE)
• Duration Of Justice: 5 year(s) 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 13-02-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 08-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: H N KHINCHA
• Keywords: Business income; Search and seizure; Validity of assessment; Reason to believe
• Section: 143(3); 153A; 32; 37; 132; 12; 28; 10; 2; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B BEFORE S HRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ITA NO./C.O. NO. & ASST. YEAR APPE LLANT RESPONDENT 1225/BANG/2011 2007 - 08 DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 2(1), BANGALORE. M/S. SUDARSHAN SILKS, NO.231, CHICKPET, KRISHNA MARKET, BANGALORE - 53 PAN AAIFS 9663D C.O. NO.54/BANG/2012 (IN IT A NO. 1225/BANG/11) M/S. SUDARSHAN SILKS, KRISHNA MARKET, BANGALORE - 53 DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 2(1), BANGALORE. 122 6 /BANG/2011 2008 - 09 DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 2(1), BANGALORE. M/S. SUDARSHAN SILKS, KRISHNA MARKET, BANGALORE - 53 C.O. NO.55/BANG/ 2012 (IN ITA NO. 1226/BANG/11) M/S. SUDARSHAN SILKS, KRISHNA MARKET, BANGALORE - 53 DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 2(1), BANGALORE. 122 7 /BANG/2011 200 7 - 08 DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 2(1), BANGALORE. M/S. SUDARSHAN PARADIS E , KRISHNA MARKET, BANGALORE - 53 PAN AAIFS 9195E C.O. NO.56/BANG/2012 (IN ITA NO. 1227/BANG/11) M/S. SUDARSHAN PARADISE , KRISHNA MARKET, BANGALORE - 53 DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 2(1), BANGALORE. 2 IT A NO S . 1225 TO 1228 /BANG/201 1 & C.O. NOS. 54 TO 57/BANG/2012 122 8 /BANG/2011 200 7 - 08 DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 2(1), BANGALORE. M/S. SUDARSHAN SILK S PALACE & SUDARSHAN JEWELLERS, NO.173, HOTEL SAMRAT, RESIDENCY COMPLEX, SC ROAD, SESHADRIPURAM, BANGALORE. PAN AAZFS 0639J C.O. NO.57/BANG/2012 (IN ITA NO. 1228/BANG/11) M/S. SUDARSHAN S ILK S PALACE & SUDARSHAN JEWELLERS, SESHADRIPURAM, BANGALORE. DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 2(1), BANGALORE. APPELLANT/REVENUE BY : MS. NEERA MALHOTRA, CIT (DR) (ITAT) - 2, BENGALURU. CROSS OBJECTOR / ASSESSEE BY : SHRI H. N. KHINCHA, C .A. DATE OF H EARING : 14.02.2017. DATE OF P RONOUNCEMENT : .03 .201 7 . O R D E R PER BENCH : THESE FOUR APPEALS BY THE REVENUE AND EQUAL NUMBER OF CROSS OBJECTIONS BY THE ASSESSEE ARE PERTAINING TO THREE CONNECTED ASSESSEES ARISING FROM THE ASSESSMENTS FRAMED IN PURSUANT TO SEARCH AND SEIZURE ACTION UNDER SECTION 132 OF THE INCOME TAX ACT, 1961 (IN SHORT 'THE ACT'). IN CASE OF S UDARSHAN SILKS THERE ARE TWO APPEALS BY THE REVENUE AND THE RESPECTIVE CROSS OBJECTIONS BY THE ASSESSEE DIRECTED AGAINST THE 3 IT A NO S . 1225 TO 1228 /BANG/201 1 & C.O. NOS. 54 TO 57/BANG/2012 COMPOSITE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) DT.26.09.2011 FOR THE ASSESSMENT YEARS 2007 - 08 AND 2008 - 09. IN CASE OF M/S . SUDARSHAN PARADISE , SUDARSHAN SILK S PALACE AND SUDARSHAN JEWELLERS , THE APPEALS AND RESPECTIVE CROSS OBJECTIONS ARE DIRECTED AGAINST TWO SEPARATE ORDERS OF CIT (APPEALS) BOTH DT.26.09.2011 FOR THE ASSESSMENT YEAR 2007 - 08. 2. BRIEF BACKGROUND OF TH E CASE IS THAT A SEARCH UNDER SECTION 132 OF THE ACT HAS BEEN CONDUCTED IN THE CASES OF ASSESSEES ON 11.10.2007. DURING THE COURSE OF SEARCH VARIOUS DOCUMENTS WERE FOUND AND SEIZED FROM THE PREMISES OF THE ASSESSEE FIRM. NOTICES UNDER SECTION 153A OF TH E ACT WERE ISSUED CALLING FOR RETURN OF INCOME. THE ASSESSEES FILED THEIR RETURNS OF INCOME INCLUDING THE AMOUNT WHICH WAS DECLARED DURING THE SEARCH. THE ASSESSING OFFICER FR A MED THE ASSESSMENT UNDER SECTION 143(3) R.W.S. 1 5 3A OF THE ACT. 3. FIRST WE TAKE UP THE APPEALS IN CASE OF SUDARSHAN SILKS FOR ASSESSMENT YEAR 2007 - 08 IN ITA NO.1225/BANG/2011 WHEREIN THE REVENUE HAS RAISED THE FOLLOWING GROUNDS : 4 IT A NO S . 1225 TO 1228 /BANG/201 1 & C.O. NOS. 54 TO 57/BANG/2012 4. THE ASSESSING OFFICER NOTICED THAT THERE WAS A DIFFERENCE BETWEEN THE SALES FIGURE MAIN TAINED IN TALLY PACKAGE AND VASTRA PACKAGE. THE ASSESSING OFFICER HELD THAT THE ASSESSEE WAS IN THE HABIT OF POSTING SALES FROM VASTRA PACKAGE TO TALLY PACKAGE NOT ON THE SAME DAY WHEN THE TRANSACTIONS TAKES PLACE BUT ONLY AFTER A FORTNIGHT OR EVEN BEYOND THAT PERIOD. THE ASSESSING OFFICER RECORDED THAT THE PARTNERS OF THE ASSESSEE - FIRM HAD ADMITTED THAT FOR THE PURPOSE OF PREPARATION OF ACCOUNTS SALES FIGURES REFLECTED IN TALLY PACKAGE WERE USED AND NOT FIGURES OF VASTRA PACKAGE. THE ASSESSEE EXPLAINED THE DIFFERENCE IN THE SALES FIGURES OF TWO ACCOUNTING PACKAGES IS DUE TO THE RETURN OF GOODS OR EXCHANGE OF GOODS WHICH WERE TAKEN TO THE TALLY PACKAGE. THE ASSESSING OFFICER DID NOT ACCEPT THE EXPLANATION OF THE ASSESSEE AND HELD THAT THE DIFFERENCE IN THESE TWO PACKAGES SHOWN BY THE ASSESSEE REPRESENT THE UNDISCLOSED SALES AND HENCE UNDISCLOSED INCOME. THE ASSESSING OFFICER CALCULATED 5 IT A NO S . 1225 TO 1228 /BANG/201 1 & C.O. NOS. 54 TO 57/BANG/2012 THE QUANTUM OF DIFFERENCE BY TAKING THE FIGURES OF 27 DAYS RANDOM SAMPLE AND THEN EXTRAPOLATED THE SAID AMOUNT OF DIFF ERENCE FOR 3 65 DAYS TO WORK OUT THE TOTAL DIFFERENCE AT RS.1,47,56,382. 5. FURTHER THE ASSESSING OFFICER HELD THAT SALES ARE FULLY REFLECTED IN VASTRA PACKAGE AND THE ASSESSEE HAS REDUCED THE SALES RETURN FROM THE TOTAL SALES AND THIS FIGURE IS POS TED ON TALLY PACKAGE. SINCE THE ASSESSEE IS USING THE TALLY SALES FOR PREPARATION OF BOOKS OF ACCOUNTS AND FOR FILING THE RETURN OF INCOME, THE ASSESSING OFFICER HELD THAT SALES RETURNED WERE USED IN BALANCING THE FIGURE AND ACCORDINGLY THE ASSESSING OFF ICER WAS OF THE VIEW THAT SALES RETURNED OF THE RESPECTIVE YEARS IS UNDISCLOSED SALES. THE ASSESSING OFFICER ACCORDINGLY WORKED OUT DIFFERENCE BETWEEN THE TOTAL SALES RECORDED IN THE TALLY PACKAGE AND VASTRA PACKAGE AT RS.41,43,545 AND HELD THE SAME AS UN DISCLOSED SALES WHICH CONSTITUTES UNDISCLOSED INCOME TO BE ADDED TO THE INCOME OF THE ASSESSEE. 6 . ON APPEAL, THE CIT (APPEALS) THOUGH CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER BY COMPUTING THE DIFFERENCE BETWEEN THE TWO ACCOUNTING SOFTWAR E BASED ON THE FIGURE OF DIFFERENCE ON 27 RANDOM DAYS WHICH WAS EXTRAPOLATED TO 365 DAYS TOTAL AMOUNTING TO RS.1,47,56,382 HOWEVER , THE CIT (APPEALS) WAS OF THE VIEW THAT THE SECOND ADDITION ON 6 IT A NO S . 1225 TO 1228 /BANG/201 1 & C.O. NOS. 54 TO 57/BANG/2012 ACCOUNT OF UNDISCLOSED SALES OF RS.41,43,545 IS NOT CORRECT AS IT WAS ALREADY CONSIDERED BY TAKING THE DIFFERENTIAL FIGURE OF RS.1 ,47,56,382. THUS THE REVENUE I S AGGRIEVED BY THE IMPUGNED ORDER OF THE CIT (APPEALS). FURTHER THE CIT (APPEALS) HAS RESTRICTED THE ADDITION OF UNDISCLOSED INCOME BY TAKING THE GROSS PROF IT AT 15% IN RESPECT OF THE TOTAL AMOUNT ADDED BY THE ASSESSING OFFICER. THUS THE CIT (APPEALS) HAS COMPUTED THE UNDISCLOSED INCOME ON ACCOUNT OF UNACCOUNTED SALES @ 15% OF RS.1,47,56,382 AMOUNTING TO RS.22,13,457. THE SECOND GRIEVANCE OF THE REVENUE IS T HE FINDING OF THE CIT (APPEALS) WHEREBY THE ADDITION WAS RESTRICTED, ONLY TO RS.22,13,457 BEING GROSS PROFIT @ 15% IN RESPECT OF ENTIRE AMOUNT OF UNACCOUNTED SALES. 7. AT THE OUTSET, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS RAISED OBJEC TION OF MAINTAINABILITY OF APPEAL OF THE REVENUE DUE TO THE REASON THAT GROUNDS RAISED BY THE REVENU E IN THIS APPEAL DO NOT EMANATE FROM THE IMPUGNED ORDER OF THE CIT (APPEALS). HE HAS POINTED OUT THA T THE ASSESSING OFFICER MADE ADDITION ON ACCOUNT OF UNA CCOUNTED SALES DUE TO THE DIFFERENCE OF SALES SHOWN IN THE VASTRA PACKAGE AND TALLY ACCOUNTING PACKAGE. THEREFORE THERE IS NO ISSUE OF ANY UNACCOUNTED SALES RECORDED IN THE ALLEGED DIARY AS THE GROUNDS RAISED BY 7 IT A NO S . 1225 TO 1228 /BANG/201 1 & C.O. NOS. 54 TO 57/BANG/2012 THE REVENUE. THE CIT (APPEALS) HAS DECIDE D THE ISSUE BY CONSIDERING THE RECORD AS PER THE TWO ACCOUNTING SOFTWARE AND THE ALLEGED DIARY IS NOT AT ALL RELEVANT FOR THE ISSUE INVOLVED IN THIS APPEAL. 8. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT THE ASSESSME NT IN ALL THESE CASES WERE COMPLETED UNDER SECTION 153A AND ON THE BASIS OF THE MATERIAL FOUND DURING THE SEARCH. A DIARY WAS ALSO FOUND DURING THE SEARCH IN WHICH UNACCOUNTED SALES WERE RECORDED IN THE CODED FORM. THEREFORE ALL THESE CASES ARE ARISING O UT OF THE SAME SEARCH AND SEIZURE ACTION AND PERTAINS TO THE GROUP CONCERNS OF THE ASSESSEE. THE ORDER OF THE CIT (APPEALS) IS A COMPOSITE ORDER FOR BOTH THE YEARS AND THEREFORE THE GROUNDS RAISED IN THIS APPEAL ARE ARISING FROM THE IMPUGNED ORDER OF THE CIT (APPEALS). 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. WE FIND THAT WHILE COMPLETING THE ASSESSMENT OF THIS YEAR THE ADDITION WAS MADE BY THE ASSESSING OFFICER DUE TO UNACCOUNTED SALES BEING THE DIFFER ENCE IN THE SALES RECORDED IN VASTRA AND TALLY ACCOUNTING SOFTWARE. THERE IS NO AMBIGUITY IN THE FACTS THAT THE DIARY FOUND AND SEIZED DURING THE SEARCH AND SEIZURE ACTION CONTAINS THE SALES IN THE CASE OF TWO OTHER GROUP CONCERNS AND NOT IN RESPECT OF TH IS 8 IT A NO S . 1225 TO 1228 /BANG/201 1 & C.O. NOS. 54 TO 57/BANG/2012 ASSESSEE FOR THE YEAR UNDER CONSIDERATION. THUS THE ENTRIES IN THE DIARY ARE NOT AT ALL RELEVANT OR CONNECTED WITH THE ISSUE OF UNACCOUNTED SALES OF THE ASSESSEE VIZ. SUDARSHAN SILKS FOR THE YEAR UNDER CONSIDERATION. HENCE IT IS A CLEAR CASE OF BAD D RAFTING OF GROUNDS RAISED BY THE REVENUE IN THIS APPEAL WITHOUT APPLICATION OF MIND. HOWEVER, THE CRUX OF THE ISSUE IN THE MATTER IS ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF UNACCOUNTED SALES DUE TO THE DIFFERENCE BETWEEN THE TWO ACCOUNTING SO FTWARE MAINTAINED BY THE ASSESSEE WHICH WAS RESTRICTED BY THE CIT (APPEALS) AND CONSEQUENTLY GRANTED SUBSTANTIAL RELIEF TO THE ASSESSEE. THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDER OF THE CIT (APPEALS) TO THE EXTENT WHICH RELATES TO THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF UNACCOUNTED SALES. THEREFORE THE LANGUAGE OF GROUNDS DUE TO BAD DRAFTING IS NOT SO RELEVANT TO REJECT THE APPEAL OF THE REVENUE WHEN THERE IS NO AMBIGUITY ABOUT THE ISSUE INVOLVED IN THE MATTER. ACCORDINGLY WE REJEC T THE OBJECTIONS RAISED BY THE LEARNED AUTHORISED REPRESENTATIVE AND PROPOSE TO ADJUDICATE THE ISSUE ON MERITS. 10. THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS REFERRED TO THE STATEMENTS RECORDED UNDER SECTION 132(4) OF THE PARTNERS OF THE ASSESSEE A ND SUBMITTED THAT THE ASSESSEE HAS SHOWN AS SALES RETURN AND 9 IT A NO S . 1225 TO 1228 /BANG/201 1 & C.O. NOS. 54 TO 57/BANG/2012 CREDIT NOTES IN THE NAME OF BUYER AND FINAL NET AMOUNT WAS TRANSFERRED TO TALLY PACKAGE. THEREFORE THERE IS AN OVERALL DIFFERENCE ON ACCOUNT OF THE SALES RETURN OF RS.41,43,545 WHICH WAS ADDED BY THE ASSESSING OFFICER AS UNACCOUNTED SALES. THIS UNACCOUNTED SALES IS OVER AND ABOVE DIFFERENCE FOUND BY THE ASSESSING OFFICER IN THE SALES RECORDED IN VASTRA AND TALLY ACCOUNTING SOFTWARE. THUS THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS CONTENDED TH AT THESE TWO AMOUNTS OF UNACCOUNTED SALES ARE INDEPENDENT AND SEPARATE WHICH WERE CONSIDERED BY THE CIT (APPEALS) AS PART OF THE HIGHER AMOUNT OF RS.1,47,56,382. FURTHER THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS CONTENDED THAT THE CIT (APPEALS) HAS ADOP TED GROSS PROFIT RATE @ 15% WHEREAS FOR UNACCOUNTED SALES NO EXPENDITURE CAN BE ALLOWED AS THE ASSESSEE HAS BOOKED ALL THE EXPENDITURE IN THE BOOKS OF ACCOUNTS. THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS CONTENDED THAT THE CIT (APPEALS) HAS FURTHER GRANT ED TELESCOPING SETTING OF AGAINST THE ASSETS FOUND DURING THE SEARCH AND OFFERED TO TAX WITHOUT ESTABLISHING THE FACT THAT THE INCOME FROM UNACCOUNTED SALES HAS BEEN UTILIZED BY THE ASSESSEE FOR PURCHASE OF THOSE ASSETS. THUS THE LEARNED DEPARTMENTAL RE PRESENTATIVE HAS 10 IT A NO S . 1225 TO 1228 /BANG/201 1 & C.O. NOS. 54 TO 57/BANG/2012 SUBMITTED THAT THE IMPUGNED ORDER OF THE CIT (APPEALS) BE REVERSED AND THAT OF ASSESSING OFFICER BE RESTORED. 11. ON THE OTHER HAND, THE LEARNED AUTHORISED REPRESENTATIVE HAS SUPPORTED THE ORDER OF THE CIT (APPEALS) AND SUBMITTED THAT THE VASTRA PACKAGE WAS NEWLY INTRODUCED AND IT WAS BEING JUST CHECK ED FOR PATTERN UNDERSTANDING OF SOFTWARE PROGRAMME YET TO BE INSTALLED. THE ACTUAL FIGURES WERE ENTERED IN THE TALLY PACKAGE WHICH ARE CORRECT AND GENUINE. EVEN OTHERWISE ONCE THE ASSESSI NG OFFICER HAD COMPUTED THE UNACCOUNTED SALES BY TAKING THE DIFFERENCE IN THE SALES RECORDED ON 27 DAYS RANDOM SAMPLE AND EXTRAPOLATED TO THE ENTIRE YEAR THEN NO FURTHER ADDITION CAN BE MADE ON ACCOUNT OF UNACCOUNTED SALES DUE TO THE OVERALL DIFFEREN C E BET WEEN THE SALES RECORDED IN THE VASTRA PACKAGE AND TALLY PACKAGE. FURTHER THE ENTIRE UNACCOUNTED SALES CANNOT BE TREATED AS INCOME OF THE ASSESSEE AS THERE IS CORRESPONDING PURCHASES WITHOUT WHICH NO SALES CAN BE EFFECTED. THEREFORE THE ADDITION IN ANY CAS E CAN BE ONLY THE GROSS PROFIT ON UNACCOUNTED SALES. HOWEVER, THE RATE ADOPTED BY THE CIT (APPEALS) IS WITHOUT ANY BASIS AS HE HAS IGNORED THE AVERAGE GROSS PROFIT RATIO OF THE ASSESSEE. THE ASSESSEE HAS RAISED TH IS ISSUE IN THE CROSS OBJECTION. FURTHER THE LEARNED AUTHORISED 11 IT A NO S . 1225 TO 1228 /BANG/201 1 & C.O. NOS. 54 TO 57/BANG/2012 REPRESENTATIVE HAS SUBMITTED THAT WHEN THE ASSESSEE HAS OFFERED THE INCOME DUE TO VARIOUS ASSETS FOUND DURING THE SEARCH THEN THE INCOME ON ACCOUNT OF UNACCOUNTED SALES HAS TO BE SET OFF AGAINST THE UNDISCLOSED INCOME OFFERED BY THE ASSESSEE. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE THAT IN NORMAL COURSE THERE CANNOT BE NY VARIANCE IN THE DAILY SALES RECORDED IN VASTRA AND TALLY ACCOUNTING SOFTWARE. THE PARTNERS OF THE ASSESSEE FIRM ADMITTED THE DIFFERENCE IN THE SALES IN THESE TWO ACCOUNT SOFTWARE. THE SALES RECORDED IN VASTRA WAS FOUND MORE ON CERTAIN DAYS THEN IT WAS RECORDED IN TALLY. THE ASSESSING OFFICER TOOK THE DIFFERENCE OF SALES OF 27 DAYS ON SAMPLE BA SIS AND THEN EXTRAPOLATED THE SAID AMOUNT FOR THE WHOLE YEAR. THUS THE ASSESSING OFFICER COMPUTED THE UNACCOUNTED SALES DUE TO DIFFERENCE IN THE AMOUNTS OF SALES UNDER REPORTED IN TALLY IN COMPARISON TO THE VASTRA AT RS.1,47,56,382 FOR THE ASSESSMENT YEAR 2007 - 08. FURTHER THE ASSESSING OFFICER NOTED THAT THERE IS OVERALL DIFFERENCE IN THE SALES OF VASTRA AND TALLY ACCOUNTING SOFTWARE OF RS.41,43,545. THE ASSESSING OFFICER MADE THE ADDITION OF BOTH THE AMOUNTS. THE CIT (APPEALS) FOUND THAT WHEN THE DIFFE RENCE OFRS.1,47,56,382 WAS ADDED ON ACCOUNT OF 12 IT A NO S . 1225 TO 1228 /BANG/201 1 & C.O. NOS. 54 TO 57/BANG/2012 UNACCOUNTED SALES THEN A FURTHER ADDITION DUE TO TOTAL DIFFERENCE IN THE SALES SHOWN IN THESE TWO ACCOUNTING SOFTWARE IS NOT JUSTIFIED. THE CIT (APPEALS) THEN ADOPTED THE GROSS PROFIT RATE AT 15% AS INCOME TO BE ASSESSED INSTEAD OF THE ENTIRE AMOUNT OF UNACCOUNTED SALES. THE RELEVANT FINDING OF THE CIT (APPEALS) IN PARA 4.2.3 IS AS UNDER : 13 IT A NO S . 1225 TO 1228 /BANG/201 1 & C.O. NOS. 54 TO 57/BANG/2012 14 IT A NO S . 1225 TO 1228 /BANG/201 1 & C.O. NOS. 54 TO 57/BANG/2012 15 IT A NO S . 1225 TO 1228 /BANG/201 1 & C.O. NOS. 54 TO 57/BANG/2012 THUS IT IS CLEAR THAT WHEN THE DIFFERENCE IN THE SALES RECORDED IN TWO ACCOUNTING SOFTWARE WAS COMPU TED BY THE ASSESSING OFFICER AT RS.1,47,56,382 THEN THE OVERALL DIFFERENCE OF THE TOTAL SALES AS PER THE TWO ACCOUNTING SOFTWARE CANNOT BE FURTHER ADDED TO THE LARGER DIFFERENCE AS COMPUTED BY THE ASSESSING OFFICER. FURTHER WE AGREE WITH THE VIEW OF THE C IT (APPEALS) THAT THE ENTIRE UNACCOUNTED SALES CANNOT BE TREATED AS INCOME BUT ONLY THE GROSS PROFIT ON THE SAID SALES HAS TO BE ADDED IN THE INCOME OF THE ASSESSEE. THE LOGIC BEHIND THE GROSS PROFIT RATE IS THAT NO SALES IS POSSIBLE WITHOUT CORRESPONDING PURCHASES AND THEREFORE THE ENTIRE UNACCOUNTED SALES CANNOT BE TREATED AS INCOME BUT ON LY THE PROFIT ELEMENT IN SUCH TRANSACTION HAS TO BE ADDED AS INCOME. 13. AS REGARDS, THE TELESCOPING ADJUSTMENT AGAINST THE AMOUNT OFFERED BY THE ASSESSEE TO TAX, WE WILL DEAL WITH THIS ISSUE WHILE CONSIDERING THE OTHER APPEALS. 14. FOR ASSESSMENT YEAR 2008 - 09, T HE REVENUE HAS RAISED THE FOLLOWING GROUNDS : 16 IT A NO S . 1225 TO 1228 /BANG/201 1 & C.O. NOS. 54 TO 57/BANG/2012 15. GROUND NOS.1, 2 & 5 ARE IDENTICAL TO THE GROUNDS RAISED FOR THE ASSESSMENT YEAR 2007 - 08 . IN VIEW OF OUR FINDINGS FOR THE ASSESSMENT YEAR 2007 - 08 ON THIS ISSUE, THE GROUND NOS.1, 2 & 5 STANDS DISMISSED. 16. GROUND NOS.3 & 4 ARE REGARDING THE ADDITION ON ACCOUNT OF UNACCOUNTED SALES RECORDED IN THE SEIZED DIARY IN CODED FORM. 17. D URING THE COURSE OF SEARCH A DIARY WAS FOUND WHICH WAS SEIZED AND INVENTORISED AS A/SSP/2. THE ENTRIES IN THE DIARY HAVE BEEN MADE BY SRI J.R.SRINIVAS, PARTNER OF M/S. SUDARSHAN SILKS. THESE ENTRIES HAVE BEEN MADE IN THE CODED FORM BY USING ENGLISH ALPHA BETS LIKE SA, S, K,CH, GR, G, ETC. WRITTEN ON THE LEFT SIDE AND ALPHABETS LIKE M, N, O, P ETC HAVE BEEN WRITTEN ON THE RIGHT SIDE OF THE PAGE OF THE DIARY. THE ALPHABETS M N O P Q R S T U V HAVE BEEN USED TO DENOTE THE NO.1, 2, 3, 4, 5, 6, 7, 8, 9, 0. TH E DIARY NOTING IN CODED FORM HAS BEEN ACCEPTED BY THE PARTNER OF 17 IT A NO S . 1225 TO 1228 /BANG/201 1 & C.O. NOS. 54 TO 57/BANG/2012 THE ASSESSEE F IRM AND ACCORDINGLY THE CODES WERE TRANSCRIPTED IN THE NUMERICAL DIGITS. THERE IS NO DISPUTE REGARDING THE MEANING OF THE CODED LANGUAGE USED IN THE DIARY FOR UNACCOUNTED SALE S RECORDED AS PARTNER OF THE FIRM ADMITTED THE SAME IN THE STATEMENT RECORDED UNDER SECTION 132(4) OF THE ACT. THE ASSESSING OFFICER ADDED AN AMOUNT OF RS.1,66,17,396 ON ACCOUNT OF UNACCOUNTED SALES RECORDED IN THE SEIZED DIARY. THIS ADDITION WAS MADE B Y THE ASSESSING OFFICER OVER AND ABOVE THE ADDITION ON ACCOUNT OF UNACCOUNTED SALES BEING DIFFERENCE BETWEEN VASTRA AND TALLY SOFTWARE. ON APPEAL, THE CIT (APPEALS) HELD THAT THE UNACCOUNTED SALES RECORDED IN THE DIARY IS PART OF THE UNACCOUNTED SALES CAL CULATED DUE TO DIFFERENCE IN THE TWO ACCOUNTING SOFTWARE OF RS.1,93,54,147. HENCE THE CIT (APPEALS) DIRECTED THE ASSESSING OFFICER TO ADOPT THE HIGHER OF THE TWO FIGURES BEING RS.1,93,54,147 AS UNACCOUNTED SALES FOR THE YEAR. THE CIT (APPEALS) THEN RESTR ICTED THE ADDITION ON THE SAID AMOUNT BY APPLYING GROSS PROFIT @ 15 % INSTEAD OF FULL AMOUNT ADDED BY THE ASSESSING OFFICER. 18. BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT THE CIT (APPEALS) HAS DELETED THE ADDITION ON ACCOUNT O F UNACCOUNTED SALES RECORDED IN THE DIARY WITHUT VERIFYING THE FACT THAT THE 18 IT A NO S . 1225 TO 1228 /BANG/201 1 & C.O. NOS. 54 TO 57/BANG/2012 SALES RECORDED IN THE DIARY IS ALSO RECORDED IN THE VASTRA PACKAGE. THUS THE FINDING OF CIT (APPEALS) IS NOT BASED ON EVIDENCE BUT ONLY ACCEPTING TH E SUBMISSIONS OF THE ASSESSEE. SH E HAS RELIED UPON THE ORDER OF THE ASSESSING OFFICER. 19. ON THE OTHER HAND, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT WHEN UNACCOUNTED SALES FOUND IN THE VASTRA PACKAGE IS HIGHER THAN THE SALES RECORDED IN THE DIARY T HEN IT IS PART OF THE UNACCOUNTED SALES FOUND IN THE VASTRA PACKAGE. THE ASSESSING OFFICER MADE DOUBLE ADDITION BY TAKING THESE TWO AMOUNTS SEPARATELY WHEREAS THE FACT IS THAT HIGHER OF THE TWO CAN BE CONSIDERED AND NOT BOTH. HE HAS SUPPORTED THE FINDING OF THE CIT (APPEALS). 20. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. THE ASSESSING OFFICER MADE AN ADDITION OF RS.1,93,54,147 ON ACCOUNT OF UNACCOUNTED SALES FOUND DUE TO THE DIFFERENCE BETWEEN THE VASTRA AND TALLY ACCOUNTING SOFTWARE AND FURTHER MADE AN ADDITION OF RS.1,66,17,396 ON ACCOUNT OF SALES RECORDED IN THE SEIZED DIARY IN CODED FORM. THE QUESTION ARISES BEFORE US IS WHETHER UNACCOUNTED SALES RECORDED IN THE SEIZED DIARY IS INDEPENDENT SALES OVER AND ABOVE THE SALES RECORDED IN THE VASTRA ACCOUNTING SOFTWARE OR IT IS 19 IT A NO S . 1225 TO 1228 /BANG/201 1 & C.O. NOS. 54 TO 57/BANG/2012 PART OF THE SALES RECORDED IN THE VASTRA ACCOUNTING SOFTWARE. WE FIND THAT NEITHER THE ASSESSING OFFICER NOR THE CIT (APPEALS) HAS EXAMINED THIS FACT FROM ANY RECORD OR EVIDENCE. THE C IT (APPEALS) DECIDED THIS ISSUE AT PAGE 30 AS UNDER : THUS IT IS CLE A R THAT THE FINDING OF THE CIT (APPEALS) IS BASED ON ASSUMPTION OF FACTS AND NOT ON THE EXAMINATION OF RELEVANT RECORD OR EVIDENCE. IT IS PERTINENT TO NOTE THAT TO ASCERTAIN THE FACT WHETHER SALES RECORDED IN THE SEIZED DIARY IS ALSO TAKEN TO THE VASTRA SOFTWARE ATLEAST 20 IT A NO S . 1225 TO 1228 /BANG/201 1 & C.O. NOS. 54 TO 57/BANG/2012 THE DATE - WISE FIGURE OF SALES IS REQUIRED TO BE COMPARED AND IN CASE THE AMOUNT OF SALE ON A PARTICULAR DATE IS MATCHED AS RECORDED IN THE VASTRA THEN TO THAT EXTENT T HE SALES WHICH IS COMMON AS RECORDED IN BOTH THE DIARY AND VASTRA SOFTWARE SHOULD BE TREATED AS PART OF THE SALES RECORDED IN THE VASTRA SOFTWARE. SINCE THE RELEVANT FACTS AND RECORD HAS NOT BEEN EXAMINED BY THE AUTHORITIES BELOW THEREFORE WE SET ASIDE TH IS ISSUE TO THE RECORD OF THE ASSESSING OFFICER FOR FRESH VERIFICATION AND ADJUDICATION IN THE LIGHT OF ABOVE OBSERVATIONS. 21. AS REGARDS THE ADDITION OF GROSS PROFIT INSTEAD OF TOTAL AMOUNT, WE HAVE ALREADY CONCURRED WITH THE VIEW OF THE CIT (APPEAL S) ON THIS ISSUE. ACCORDINGLY, THE SAID ISSUE STANDS DECIDED AGAINST THE REVENUE. 22. THE NEXT ISSUE RAISED BY THE REVENUE IS REGARDING ADJUSTMENT ALLOWED BY THE CIT (APPEALS) OF DEFICIENT STOCK OF ONE CONCERN AGAINST THE EXCESS STOCK OF THE OTHER CONCERN AND FURTHER THE DEFICIENT STOCK WAS CONSIDERED BY THE CIT (APPEALS) AS PART OF THE UNACCOUNTED SALES COMPUTED DUE TO DIFFERENCE BETWEEN TALLY AND VASTRA ACCOUNTING SOFTWARE. 23. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. THE ASSESSING OFFICER MADE SEPARATE ADDITION ON 21 IT A NO S . 1225 TO 1228 /BANG/201 1 & C.O. NOS. 54 TO 57/BANG/2012 ACCOUNT OF DEFICIENT STOCK BY ADOPTED GROSS PROFIT @ 17%. THE CIT (APPEALS) HELD THAT UNACCOUNTED SALES DUE TO DEFICIENT PHYSICAL STOCK FOUND DURING THE SEARCH ACTION IS PART OF THE UNAC COUNTED SALES AS COMPUTED BY TAKING THE DIFFERENCE BETWEEN THE VASTRA AND TALLY ACCOUNTING SOFTWARE DUE TO RETURNS OF SALES NOT SHO WN IN THE TALLY PACKAGE. THUS IT IS CLEAR THAT THE UNACCOUNTED SALES DUE TO DIFFERENCE IN THE TWO ACCOUNTING SOFTWARE PACKA GES CANNOT RESULT IN DEFICIENT OF PHYSICAL STOCK. THEREFORE THE ADDITION ON ACCOUNT OF DEFICIENT STOCK FOUND DURING THE SEARCH HAS TO BE SEPARATELY CONSIDERED AND CANNOT BE CONSIDERED AS PART OF UNACCOUNTED SALES RECORDED IN VASTRA PACKAGE. AS REGARDS TH E ADJUSTMENT OF DEFICIENT STOCK OF ONE ENTITY AGAINST THE EXCESS STOCK OF ANOTHER ENTITY , IN THE ABSENCE OF ANY RELEVANT RECORD TO SHOW THE TRANSFER OF STOCK OF SAME ARTICLE FROM ONE UNIT TO ANOTHER UNIT, IT CANNOT BE ADJUSTED BY CLUBBING THE STOCK OF DI FFERENT UNITS. FURTHER THE ACCOUNTS OF THESE UNITS/FIRMS ARE SEPARATELY MAINTAINED AND THEREFORE WE ARE OF THE CONSIDERED VIEW THAT THE CIT (APPEALS) HAS DECIDED THIS ISSUE BY IGNORING THE CRUCIAL AND RELEVANT FACTS AND ASPECTS. ACCORDINGLY WE DECIDE THI S ISSUE IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. 22 IT A NO S . 1225 TO 1228 /BANG/201 1 & C.O. NOS. 54 TO 57/BANG/2012 24. THE NEXT ISSUE RAISED BY THE REVENUE IS REGARDING DELETION OF ADDITION ON ACCOUNT OF UNACCOUNTED SALES TO THE EXTENT OF THE UNACCOUNTED ASSETS OFFERED TO TAX BY THE ASSESSEE. THE ASSESSIN G OFFICER NOTED THAT THE ASSESSEE HAS DECLARED A SUM OF RS.3,04,25,500 UNDER VARIOUS HEADS. THE DETAILS OF WHICH ARE AS UNDER : THE ASSESSEE AND ITS GROUP CONCERNS OFFERED TOTAL AMOUNT TO TAX OF RS.3,04,25,500 OUT OF WHICH THE AMOUNTS CONSIDERED I N THE HAND OF THE PARTNER OF RS.55,29,600 A SUM OF TOTAL OF THE AMOUNTS OFFERED UNDER THE HEAD C AND E . FURTHER A SUM OF RS.50,00,000 HAS BEEN OFFERED IN THE HANDS OF M/S. SUDARSHAN SILK PALACE AND SUDARSHAN JEWELLERY FOR THE ASSESSMENT YEAR 2007 - 08. THE BALANCE RS.1,98,95,000 WAS TO BE OFFERED TO TAX IN THE HANDS OF THE ASSESSEE. THE ASSESSEE HAS OFFERED RS.2 CRORES 23 IT A NO S . 1225 TO 1228 /BANG/201 1 & C.O. NOS. 54 TO 57/BANG/2012 IN THE RETURN OF INCOME WHICH WAS SEPARATELY ASSESSED BY THE ASSESSING OFFICER. 25. BEFORE THE CIT (APPEALS) THE ASSESSEE CONTEN DED THAT IT HAS OFFERED RS.3,04,25,500 IN THEIR GROUP INCLUDING RS.2 CRORES IN HANDS OF THE ASSESSEE - CONCERN AND THEREFORE THERE WAS NO NEED TO ADD THE OTHER AMOUNTS ON ACCOUNT OF UNACCOUNTED SALES. BY CONSIDERING THIS CONTENTION OF THE ASSESSEE, THE CIT (APPEALS) HELD THAT WHEN THE ASSESSEE HAS OFFERED RS.2 CRORES TO TAX ON ACCOUNT OF UNACCOUNTED ASSETS THEN A SEPARATE ADDITION ON ACCOUNT OF EXCESS ASSETS CANNOT BE MADE TO THAT EXTENT. 26. WE HAVE HEARD THE LEARNED DEPARTMENTAL REPRESENTATIVE AS WEL L AS LEARNED AUTHORISED REPRESENTATIVE AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE AMOUNTS OFFERED TO TAX BY THE ASSESSEE AS WELL AS THE ADDITIONS MADE BY THE ASSESSING OFFICER UNDER DIFFERENT HEADS ARE NOT IN DISPUTE. THE CIT (APP EALS) HAS CONSIDERED THIS ISSUE AS UNDER : 24 IT A NO S . 1225 TO 1228 /BANG/201 1 & C.O. NOS. 54 TO 57/BANG/2012 WHICH ARE PART OF THE ABOVE SUM OF RS.2 CRORES SHALL BE TAKENOUT AND REMOVED. 25 IT A NO S . 1225 TO 1228 /BANG/201 1 & C.O. NOS. 54 TO 57/BANG/2012 THUS WE FIND THAT APART FROM THE AMOUNT OF RS.2 CRORES OFFERED BY THE ASSESSEE, THE ASSESSING OFFICER HAS ALSO MADE AN ADDITION O F AN EQUAL AMOUNT OF RS.2 CRORES SEPARATELY UNDER VARIOUS HEADS AS EXCESS STOCK, DEFICIENT STOCK, EXCESS BILLING EXPENSES ETC. THUS THE ASSESSING OFFICER APART FROM RS.2 CRORES OFFERED BY THE ASSESSEE HAS ALSO COMPUTED 26 IT A NO S . 1225 TO 1228 /BANG/201 1 & C.O. NOS. 54 TO 57/BANG/2012 UNDISCLOSED INCOME UNDER THE SAME HE AD FOR WHICH THE ASSESSEE OFFERED THIS INCOME OF RS.2 CRORES. THEREFORE WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF THE CIT (APPEALS) QUA THIS ISSUE. IT IS DECIDED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. ITA NOS.1227 & 1228/BANG/2011 . 27. THE REVENUE HAS RAISED COMMON GROUNDS IN THESE TWO APPEALS AS UNDER : 1. WHETHER CIT (APPEALS) WAS CORRECT IN HOLDING THAT THE UNACCOUNTED SALES AS PER VASTRA PACKAGE WAS THE SAME WAS THE UNACCOUNTED SALES AS PER SEIZED DIARY. 2. WHETHER CIT (APPEALS) WAS CORRECT IN HOLDING THAT THE UNACCOUNTED SALES RECORDED IN THE SEIZED DIARY WERE THE SAME AS THE DIFFERENCE BETWEEN THE TOTAL SALES AS PER VASTRA PACKAGE AND TALLY ACCOUNTS. 28. THE ONLY ISSUE RAISED BY THE REVENUE IN THESE APPEALS I S REGARDING THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF UNACCOUNTED SALES DUE TO DIFFERENCE IN VASTRA PACKAGE & TALLY PACKAGE AND FURTHER THE UNACCOUNTED SALES AS RECORDED IN THE SEIZED DIARY WHICH WAS RESTRICTED BY THE CIT (APPEALS) ONLY TO T HE HIGHER AMOUNT OF UNACCOUNTED SALES AS PER VASTRA PACKAGE. 29. WE HAVE HEARD THE LEARNED DEPARTMENTAL REPRESENTATIVE AS WELL AS LEARNED AUTHORISED REPRESENTATIVE AND CONSIDERED THE RELEVANT 27 IT A NO S . 1225 TO 1228 /BANG/201 1 & C.O. NOS. 54 TO 57/BANG/2012 MATERIAL ON RECORD. THIS ISSUE IN THESE TWO APPEALS IS CO MMON AS IN THE APPEAL NO.1226/BANG/2011 OF REVENUE AND IN VIEW OF OUR FINDING ON THIS ISSUE, WE SET ASIDE THIS ISSUE TO THE RECORD OF THE ASSESSING OFFICER FOR CONDUCTING PROPER VERIFICATION OF THE RECORD TO ASCERTAIN WHETHER DAY TO DAY SALE RECORDED IN TH E DIARY IS MATCHING WITH THE SALES RECORDED IN THE VAS T RA PACKAGE. C.O. NOS. 54 TO 57/BANG/2012 30. IN THE C.O. 54/BANG/2012, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS : 28 IT A NO S . 1225 TO 1228 /BANG/201 1 & C.O. NOS. 54 TO 57/BANG/2012 31. GROUND NO.1 IS GENERAL IN NATURE AND DOES NOT REQUIRE ANY SPECI FIC ADJUDICATION. 32. GROUND NO.2 IS REGARDING THE GROSS PROFIT AT 15% ADOPTED BY THE CIT (APPEALS). THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT THE CIT (APPEALS) HAS ADOPTED THE GROSS PROFIT RATE AT 15% OF SALE INSTEAD OF THE AVERAGE GROSS PROFIT FOR THE PRECEDING YEAR WHICH SHOULD BE CONSIDERED FOR THE PURPOSE OF ADDITION. IN SUPPORT OF HIS CONTENTION, HE HAS RELIED UPON THE FOLLOWING DECISIONS : A ) CIT VS. PRESIDENT INDUSTRIES 258 ITR 654 B ) MAN M OHAN SADANI VS.CIT 304 IT R 52 C ) CIT VS. SAMEER SYNTHETIC MILLS 326 ITR 399 29 IT A NO S . 1225 TO 1228 /BANG/201 1 & C.O. NOS. 54 TO 57/BANG/2012 D ) ORDER DT.14.12.2012 IN THE CASE OF DCIT VS. M EENU ELECTRIC CO. ITA NOS.728 TO 732/BANG/2011. THUS THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THE RATE OF PROFIT SHOULD HAVE BEEN AVERAGE RATE AS AD MITTED BY THE ASSESSEE FOR THE EARLIER ASSESSMENT YEAR. HE HAS REFERRED TO THE AVERAGE RATE OF THREE ENTITIES AND SUBMITTED THAT IN EACH CASE THE AVERAGE RATE OF GROSS PROFIT AS WELL AS NET PROFIT HAS TO BE CONSIDERED FOR THE PURPOSE OF ADDITION ON ACCOUN T OF UNACCOUNTED SALES. 33. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT WHEN GROSS PROFIT IS TO BE CONSIDERED AS INCOME THEN NO FURTHER DEDUCTION IS ALLOW ABLE IN RESPECT OF UNACCOUNTED SALES AS THE ENTIRE OTHER EXPEND ITURE HAS ALREADY BEEN BOOKED BY THE ASSESSEE AND DEBI TED TO THE PROFIT AND LOSS ACCOUNT. FURTHER THE ASSESSEE HAS NOT BROUGHT ANY EVIDENCE TO HAVE INCURRED ANY EXPENDITURE WHICH IS NOT CLAIMED IN THE BOOKS OF ACCOUNTS. THEREFORE THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS CONTENDED THAT WHEN THE SALES ARE NOT ACCOUNTED IN THE BOOKS OF ACCOUNTS THEN NO FURTHER CLAIM OF EXPENDITURE CAN BE ALLOWED AGAINST SUCH SALE. 30 IT A NO S . 1225 TO 1228 /BANG/201 1 & C.O. NOS. 54 TO 57/BANG/2012 34. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. THE ISSUE IS REGARDING ASSESSMENT OF INCOME IN RESPECT OF UNACCOUNTED SALES. THE CIT (APPEALS) HAS ADOPTED GROSS PROFIT AS INCOME IN RESPECT OF UNACCOUNTED SALES WHICH HAS BEEN CLAIMED BY THE ASSESSEE THAT ONLY NET PROFIT HAS TO BE CONSIDERED AS INCOME O F THE ASSESSEE. IT IS PERTINENT TO NOTE THAT IN THE CASE OF UNACCOUNTED SALES THE ONLY CORRESPONDING EXPENDITURE FOR WHICH NO EVIDENCE OR EXPLANATION IS REQUIRED IS PURCHASES. THEREFORE THE GROSS PROFIT IS CONSIDERED AS INCOME IN RESPECT OF UNACCOUNTED S ALES AND NO FURTHER DEDUCTION CAN BE ALLOWED AGAINST SUCH INCOME WHEN THE ASSESSEE HAS NOT BROUGHT OUT A CASE THAT APART FROM THE PURCHASES ANY OTHER EXPENDITURE HAS BEEN INCURRED WHICH HAS NOT BEEN CLAIMED IN THE BOOKS OF ACCOUNTS. THE REASON BEHIND ADO PTING THE GROSS PROFIT IN RESPECT OF UNACCOUNTED SALES IS THAT THE OTHER GENERAL EXPENSES HAVE BEEN CLAIMED IN THE BOOKS OF ACCOUNTS. THUS IN THE ABSENCE OF ANY SPECIFIC EXPENSES INCURRED BY THE ASSESSEE IN RESPECT OF UNACCOUNTED SALES EXCEPT THE CORRESPO NDING PURCHASES THE GROSS PROFIT OF SUCH SALE HAS TO BE CONSIDERED AS INCOME OF THE ASSESSEE. HENCE WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF CIT (APPEALS) QUA THIS ISSUE. 31 IT A NO S . 1225 TO 1228 /BANG/201 1 & C.O. NOS. 54 TO 57/BANG/2012 35. AS REGARDS THE RATE OF GROSS PROFIT ADOPTED BY THE CIT (APPEAL S), WE FIND THAT THE CIT (APPEALS) HAS TAKEN THE GROSS PROFIT RATE AT 15% B Y CONSIDERING THE GROSS PROFIT DECLARED BY THE ASSESSEE DURING THE ASSESSMENT YEAR 2001 - 02. W E FIND THAT THE ASSESSEE HAS FURNISHED THE DETAILS OF GROSS PROFIT FOR THE LAST 8 YEARS WHEREAS THE CIT (APPEALS) HAS ADOPTED THE HIGHEST RATE DECLARED BY THE ASSESSEE DURING THE ASSESSMENT YEAR 2001 - 02. THIS APPROACH OF THE CIT (APPEALS) IS NOT JUSTIFIED WHEN THE ADDITION IS MADE FOR THE ASSESSMENT YEARS 2007 - 08 AND 2008 - 09 THEN EITHER THE LATEST GROSS PROFIT DECLARED BY THE ASSESSEE IN THE PRECEDING YEAR OF THE RELEVANT ASSESSMENT YEAR OR THE AVERAGE OF ALL THE ASSESSMENT YEARS OF DECLARED GROSS PROFIT TO BE TAKEN INTO CONSIDERATION. ACCORDINGLY, WE ARE OF THE CONSIDERED OPINION THAT AVER AGE GROSS PROFIT RATE WOULD BE MORE APPROPRIATE AND REASONABLE IN STEAD OF ADOPTING THE HIGHEST GROSS PROFIT WHICH IS ALSO NOT THE RECENT OR CONTEMPORANEOUS GROSS PROFIT DECLARED BY THE ASSESSEE. HENCE WE SET ASIDE THIS ISSUE FOR LIMITED PURPOSE OF ADOPTI NG THE AVERAGE GROSS PROFIT AS INCOME IN RESPECT OF UNACCOUNTED SALES. 36. THOUGH THE ASSESSEE HAS RAISED GROUND NO.3, HOWEVER NEITHER ANY ARGUMENTS WERE ADVANCED BY THE ASSESSEE NOR IT WAS PRESSED DURING THE 32 IT A NO S . 1225 TO 1228 /BANG/201 1 & C.O. NOS. 54 TO 57/BANG/2012 COURSE OF HEARING THEREFORE WE DISMISS GRO UND NO.3 OF THE C.O. 54/BANG/2012 AS NOT PRESSED. C.O. NO.55/BANG/2012 37. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN THE C.O. : 38. GROUND NO.1 IS GENERAL IN NATURE AND DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION. 33 IT A NO S . 1225 TO 1228 /BANG/201 1 & C.O. NOS. 54 TO 57/BANG/2012 39. GROUND NOS.2 & 3 AR E IDENTICAL TO THAT OF THE ISSUE RAISED IN THE C.O. 54, IN VIEW OF OUR FINDINGS IN RESPECT OF THESE GROUNDS, GROUND NO.2 STANDS DISMISSED AND GROUND NO.3 IS SET ASIDE TO THE RECORD OF THE ASSESSING OFFICER FOR TAKING THE AVERAGE GROSS PROFIT IN RESPECT OF UNACCOUNTED SALES/EXCESS STOCK. C.O. NOS.56 & 57/BANG/2012 40. IN C.O. NOS.56&57/BANG/2012, THE ASSESSEE HAS RAISED COMMON GROUNDS EXCEPT THE QUANTUM INVOLVED. THE GROUNDS RAISED IN C.O. NO.56/BANG/2012 ARE AS UNDER : 34 IT A NO S . 1225 TO 1228 /BANG/201 1 & C.O. NOS. 54 TO 57/BANG/2012 41. GROUND NOS.1 & 2 ARE REGARDING VALIDITY OF ASSESSMENT. THE LEARNED AUTHORISED REPRESENTATIVE HAS SUBMITTED THAT ALL THE THREE ENTITIES WERE MERGED W.E.F. 1.4.2007 AS RECORDED BY THE ASSESSING OFFICER AND CIT (APPEALS) IN THE IMPUGNED ORDER. THEREFORE THE ASSESSMENT FRAME D ON NON - EXISTING PERSON IS BAD IN LAW. HE HAS CONTENDED THAT EVEN WARRANT CANNOT BE ISSUED AND EXECUTED AGAINST THE NON - EXISING PERSON WHEN ALL THE THREE PARTNERSHIP FIRMS WERE MERGED W.E.F. 1.4.2007. IN SUPPORT OF HIS CONTENTION, HE HAS RELIED UPON TH E FOLLOWING DECISIONS : I) SLOCUN INVESTMENT PVT. LTD. VS. DCIT 106 ITD 1 (DEL) II) CIT VS. RAKESH KUMAR , MURKESH KUMAR 313 ITR 505 (P&H) 42. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT SINCE THIS ISSUE HAS NOT HAS BE EN RAISED BEFORE THE 35 IT A NO S . 1225 TO 1228 /BANG/201 1 & C.O. NOS. 54 TO 57/BANG/2012 AUTHORITIES BELOW THEREFORE THE ASSESSEE IS SEEKING PERMISSION TO RAISE THIS ISSUE BEFORE THE TRIBUNAL AS IT GOES TO THE ROOT OF THE MATTER. IN SUPPORT OF HIS CONTENTION, THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF NTPC LTD. VS. CIT 229 ITR 383 (SC) . 43. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT THE ASSESSEE HAS RAISED NO OBJECTION EITHER BEFORE THE ASSESSING OFFICER OR BEFORE THE CIT (APPEALS) . E VEN THE ASSESSEE HAS PARTICIPATED IN THE ASSESSMENT PROCEEDINGS WITHOUT POINTING OUT THE FACT THAT THE ASSESSEE ENTITY IS NO MORE IN EXISTENT. THUS WHEN THIS FACT WAS NOT RAISED BEFORE THE AUTHORITIES BELOW, THE ASSESSEE CANNOT BE ALLOWED TO SET UP A NEW CASE AT THIS STAGE. 44. WE H AVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. IT WAS STATED BY THE ASSESSEE THAT ALL THREE PARTNERSHIP FIRMS WERE MERGED AS M/S. SUNDHARAM SILKS PURCHASED THE BUSINESS OF OTHER ENTITIES NAMELY M/S. SUNDHARAM SILK PALACE & SUDARSHAN JEWELLERS AND SUNDHARAM PARADISE AS ON GOING CONCERNS. HOWEVER IT IS NOT THE CASE OF THE ASSESSEE THAT THESE TWO PARTNERSHIP FIRMS WERE DISSOLVED ON 1.4.2007 AND ACCOUNTS OF THE PARTNERS WERE SETTLED. FURTHER THE PARTNERSHIP FIRMS FILED THEI R RETURN OF INCOME IN 36 IT A NO S . 1225 TO 1228 /BANG/201 1 & C.O. NOS. 54 TO 57/BANG/2012 RESPONSE TO THE NOTICE UNDER SECTION 153A INDEPENDENTLY AND UNDER SEPARATE PANS. THE ASSESSING OFFICER HAD ACTED UPON THE RETURN OF INCOME FILED BY THESE ASSESSEE - FIRMS AND IN THE ABSENCE OF ANY OBJECTIONS OR CLAIM THAT THESE PARTNE RSHIP FIRMS WERE DISSOLVED, THE ASSESSING OFFICER HAD NO OCCASION OR REASON TO BELIEVE THAT THEY WERE NOT IN EXISTENT. FURTHER WHATEVER DOCUMENT WAS FOUND/PRODUCED WAS THE SALE AGREEMENT WHEREBY THE BUSINESS OF OTHER TWO PARTNERSHIP FIRMS WAS AGREED TO BE PURCHASED BY M/S. SUDARSHAN SILKS. EVEN IF IT IS ACCEPTED THAT THE BUSINESS OF THESE TWO PARTNERSHIP FIRMS WAS PURCHASED BY M/S. SUDARSHAN SILKS, IT WOULD NOT AMOUNT TO DISSOLUTION OF THESE PARTNERSHIP FIRMS AND THEREFORE THE EXISTENCE OF THE FIRM CA NNOT BE DISPUTED MERELY BECAUSE THE BUSINESS WAS ACQUIRED BY THE OTHER PARTNERSHIP FIRMS . T HUS IN THE ABSENCE OF THE DISSOLUTION OF THESE FIRMS AND FURTHER THE SEPARATE AND INDEPENDENT RETURNS OF INCOME WERE FILED BY THE SE FIRMS UNDER SEPARATE PANS T HE AS SESSMENT FRAMED BY THE ASSESSING OFFICER ACTING ON THE RETURN OF INCOME FILED BY THE ASSESSEE CANNOT BE HELD AS INVALID. HENCE WE REJECT THIS ADDITIONAL GROUND RAISED BY THE ASSESSEE. 45. GROUND NO.3 IS REGARDING THE GROSS PROFIT @ 15% ADOPTED BY THE CIT (APPEALS). THIS ISSUE IS COMMON FOR THE C.O. NO.54/BANG/2012. IN VIEW 37 IT A NO S . 1225 TO 1228 /BANG/201 1 & C.O. NOS. 54 TO 57/BANG/2012 OF OUR FINDING ON THIS ISSUE, WE DIRECT THE ASSESSING OFFICER TO TAKE THE AVERAGE GROSS PROFIT RATE FOR COMPUTING THE INCOME IN RESPECT OF UNACCOUNTED SALES. 46. IN THE RESULT , THE APPEALS AS WELL AS CROSS OBJECTIONS ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 15TH DAY OF MAR., 201 7 . SD/ - ( S. JAYARAMAN ) ACCOUNTANT MEMBER SD/ - ( VIJAY PAL RAO ) JUDICIAL MEMBER BANGALORE, DT. 15 .03.2017. *REDDY GP COPY TO : 1 . APPELLANT 2 . RESPONDENT 3 . C.I.T. 4 . CIT(A) 5 . DR, ITAT, BANGALORE. 6 . GUARD FILE. ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL BANGALORE.