ACIT, New Delhi V. Shri Amit Singh, New Delhi

ITA 1270/DEL/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5901 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 2 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2011-2012
• Appeal Filed On: 08-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SHREYA SHARMA
• Keywords: Rejection of books of accounts; Salary income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER & SHRI O.P. KANT, ACCOUNTANT MEMBER I.T.A. NO.1270/DEL/2016 ASSESSMENT YEAR: 2011-12 ACIT, CIRCLE-59(1), NEW DELHI. VS. SHRI AMIT SINGH, 46 VARDAN APR;TMENTS, I.P. EXTN., DELHI. TAN/PAN: BFOPS 4815P (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI ATIQ AHMED, SR.D.R. RESPONDENT BY: SHRI AKASH GARG, ADV. & MS. SHREYA SHARMA, ADV. DATE OF HEARING: 23 05 2018 DATE OF PRONOUNCEMENT: 30 05 2018 O R D E R PER AMIT SHUKLA, J.M.: THE AFORESAID APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE IMPUGNED ORDER DATED 18.12.2015, PASSED BY LD. CIT (APPEALS)-XIX, NEW DELHI FOR THE QUANTUM OF ASS ESSMENT PASSED U/S.143(3) FOR THE ASSESSMENT YEAR 2011-12. IN THE GROUNDS OF APPEAL, THE REVENUE HAS RAISED THE FOLLO WING GROUNDS. 1. THE ORDER OF THE LD. CIT (A) IS BAD IN LAW AND NOT INCONSONANCE WITH THE FACTS OF THE CASE. 2. THE LD. CIT (A) ERRED IN NOT APPRECIATING THE FA CT THAT THE I.T.A. NO.1270/DEL/2016 2 ASSESSEE WAS MAKING PURCHASES FROM RELATED PARTY CO VERED U/S. 40A (2)(B) OF THE I.T. ACT, 1961 AND THE ASSES SEE FAILED TO SATISFY THE ASSESSING OFFICER AS TO WHETHER THE PRI CE PAID FOR THE GOODS PURCHASED FROM M/S MSA ENGINEERING PVT. L TD. WERE AT ARMS LENGTH OR NOT. 3. THE LD. CIT(A) ERRED IN ACCEPTING THE BOOKS OF ACCOUNT BY SETTING ASIDE THE OBSERVATIONS OF THE ASSESSING OFF ICER IN THIS REGARD, ENUMERATED IN PARA 8.1 OF THE ASSESSMENT OR DER. 2. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IS AN I NDIVIDUAL DERIVING SALARY INCOME FROM INDIAMART INTERMESH LT D. IN THE CAPACITY OF DIRECTOR IN THE SAID COMPANY. HE IS ALS O ENGAGED IN THE BUSINESS OF WHOLESALE TRADING OF CASTING, SP ARE PARTS AND OTHER ENGINEERING COMPONENTS UNDER HIS PROPRIET ORSHIP CONCERN, IN THE NAME & STYLE OF, M/S. INTELLIGENT E NGINEERING SOLUTIONS. DURING THE COURSE OF ASSESSMENT PROCEEDI NGS, THE ASSESSEE WAS REQUIRED TO PROVIDE COMPARATIVE ANALYS IS OF THE TRADING RESULTS SHOWN IN HIS PROPRIETORSHIP CONCERN WHICH WAS GIVEN AS UNDER:- PARTICULARS AY 2011-12 AY 2010-11 AY 2009-10 SALES 1,55,39,26,218 84,48,28,218 47,16,22,378 GROSS PROFIT 56,52,808 33,10,627 21,53,890 GP RATIO % 0.36 0.39 0.46 NET PROFIT 31,92,670 9,10,830 4,27,728 NP RATIO % 0.21 0.11 0.09 ASSESSING OFFICER ON THE PERUSAL OF THE TRADING AND THE P&L ACCOUNT OBSERVED THAT NO DIRECT EXPENSES HAS BEEN C LAIMED I.T.A. NO.1270/DEL/2016 3 AND THE GROSS PROFIT OF THE FIRM WAS RS.56,52,808/- AND TOTAL INDIRECT EXPENSES WERE RS.24,60,138/-; AND THE BIGG EST INDIRECT EXPENSE UNDER THE HEAD SALARY AND ALLOWAN CE WAS AT RS.18,25,600/-, RESULTANTLY NET PROFIT WAS ARRIVED AT RS.31,92,670/-. AO FURTHER NOTED THAT ASSESSEE HAS SUNDRY CREDITORS OF RS.28,97,30,221/- AND SUNDRY DEBTORS O F RS.24,60,82,280/-. THE ENTIRE DETAILS OF PURCHASES, SALES, SUNDRY CREDITORS, SUNDRY DEBTORS AND ALL THE MAJOR E XPENSES AS REQUIRED BY THE ASSESSING OFFICER WAS FURNISHED BY THE ASSESSEE ALONGWITH THE COMPLETE SET OF BOOKS OF ACC OUNT. HE ON PERUSAL OF BOOKS AND DETAILS FURNISHED NOTED THA T ASSESSEE HAD MADE PURCHASES ONLY FROM ONE PARTY, NAMELY, M/S . M.S.A. ENGINEERING PVT. LTD. AND HAS MADE SALES TO ONLY ONE PARTY, NAMELY, ENERGO ENGINEERING PROJECTS LTD. THE CONFIRMATION FROM BOTH THE PARTIES, I.E., THE SUNDR Y CREDITORS AND SUNDRY DEBTORS WERE ALSO FILED. THE LEARNED ASS ESSING OFFICER ON THE PERUSAL OF THE DOCUMENTS, NOTED FOLL OWING FACTS:- ASSESSEES TRADING FIRM HAD BEEN MAKING PURCHASES FROM ONLY ONE PARTY AND SELLING TO ONLY ONE PARTY I.E., THERE WAS ONLY ONE SELLER AND ONE BUYER FOR M/S INTELLIGENT INDIA SOLU TIONS. ASSESSEE HAD NOT TAKEN ANY LOAN TO CARRY OUT HIS BU SINESS ACTIVITY. THERE WAS NO INTEREST EXPENSE. NOMINAL BA NK CHARGES OR RS.1,561/- HAD BEEN CLAIMED IN P&L ACCOUNT. ASSESSEE HAD NOT CLAIMED ANY DIRECT EXPANSES NOT EV EN FREIGHT EXPENSES ALTHOUGH ASSESSEE'S PROPRIETORSHIP FIRM IS ENGAGED IN THE BUSINESS OF TRADING ENGINEERING GOOD S. M/S. INTELLIGENT INDIA SOLUTIONS DID NOT MAINTAIN A NY GODOWN I.T.A. NO.1270/DEL/2016 4 TO STOCK ITS GOODS. ONLY MAJOR EXPENSE MADE BY THE ASSESSEE HAS BEEN ON PAYING SALARIES AND FROM THE BASIS OF SUBMISSIONS M ADE BY THE AR IT WAS REVEALED THAT THE SALARY WAS PAID TO 13 PERSONS WITH HIGHEST AMOUNT OF SALARY BEING PAID AT RS. 17. 000/- PER MONTH, TO ONE SHRI AJAY SAHU. ENERGO ENGINEERING PROJECTS LTD. TO WHOM M/S. INTEL LIGENT INDIA SOLUTIONS IS MAKING SALES IN THE CREDITOR IN THE BALANCE SHEET OF THE FIRM AT RS.28,97,30,221 AND M.S.A ENGI NEERING PVT. LTD. FROM WHOM M/S. INTELLIGENT INDIA SOLUTION S PURCHASE ITS GOOD IS ITS DEBTOR AT RS.24,60,82,280/-. THUS, THE ASSESSEES FIRM IS TRADING ON HUGE ADVANCES WHICH I S QUITE UNUSUAL. 3. ASSESSING OFFICER ALSO CARRIED OUT ENQUIRY FROM WHERE HE FOUND THAT ASSESSEE WAS ALSO DIRECTOR IN THE COMPAN Y FROM WHICH HIS FIRM M/S. INTELLIGENT INDIA SOLUTIONS WAS PURCHASING GOODS AND THE SAME FACT HAS NOT BEEN REV EALED IN THE AUDIT REPORT U/S.40A(2)(B). HE ALSO CARRIED OUT INQUIRY THROUGH INSPECTOR AT THE BUSINESS PREMISES OF THE A SSESSEE AND ALSO NOTED THAT NO TRANSPORTATION EXPENSES WERE CLAIMED IN THE ORIGINAL BILL BY THE ASSESSEE. THE DETAILED SHOW CAUSE NOTICE AND INQUIRIES CONDUCTED BY THE ASSESSING OFF ICER HAS BEEN DISCUSSED IN THE IMPUGNED ASSESSMENT ORDER. HO WEVER, THE LEARNED ASSESSING OFFICER AFTER NOTING DOWN THE FOLLOWING FACTS:- I) SH. AMIT SINGH WAS ONE OF THE DIRECTOR OF M.S.A ENGINEERING PVT. LTD FROM WHOM HE IS SOLELY SOURCING THE GOODS AND THIS FACT WAS NOT DISCLOSED IN THE TAX AUDIT REPORT U/S.40A(2 )(B). SINCE I.T.A. NO.1270/DEL/2016 5 ASSESSEE IS AN INTERESTED PARTY COVERED U/S. 40A(2) (B) OF INCOME TAX ACT HE HAS FAILED TO SATISFY THE DEPARTM ENT WHETHER PRICE PAID FOR THE GOODS PURCHASED WERE REASONABLE OR NOT. II) AS EXPLAINED BY THE AR VIDE HIS VARIOUS SUBMISS IONS THAT GOODS ARE DELIVERED DIRECTLY FROM THE SUPPLIER M.S. A ENGINEERING PVT. LTD. TO THE BUYER ENERGO ENGINEERI NG PROJECTS LTD. AND NO TRANSPORTATION CHARGES ARE ALSO CLAIMED NEITHER PARTICULARS OF L/R AND VEHICLE NUMBER OR MODE OF TRANSPORTATION MENTIONED IN THE BILLS WHICH CLEARLY SHOW THAT THIS IS A SHAM TRANSACTION AND MERELY A BOOK ENTRY. III) AR HAS ALSO FAILED TO EXPLAIN OR SPECIFY THE O RIGINATION OF GOODS. AR HAS MERELY STATED THAT THE GOODS ARE ORIG INATED FROM SUPPLIER WHEREAS IT IS CLEARLY INDICATED THAT BY OR IGIN HE WAS ASKED TO PROVIDE THE DETAILS FROM WHERE THE ENGINEE RING GOODS TRADED ARE BEING MANUFACTURED. AR ALSO FAILED TO PR OVIDE A DETAILED NOTE ON THE BUSINESS OF ASSESSEE RIGHT FRO M PURCHASES OF GOODS TO FINAL SALE AND DELIVERY OF GOODS TO THE BUYER. IV) OUT OF THE 13 PEOPLE WORKING FOR ASSESSEE'S FIR M M/S. INTELLIGENT INDIA SOLUTIONS AS SUBMITTED BY THE AR, 6 PERSONS WERE ASKED TO BE PRODUCED BEFORE THE AO BUT IT WAS SUBMITTED BY THE AR THAT 5 OF THEM HAVE LEFT THE ORGANIZATION . THIS SUBMISSION THAT OUT OF 6 PERSONS CALLED BY THE AO 5 HAVE LEFT THE ASSESSEE RAISES SUSPICION THAT WHETHER THESE PE RSONS WERE ACTUALLY EMPLOYED BY THE ASSESSEE OR NOT. MOREOVER WHEN GOODS ARE BEING TRANSPORTED DIRECTLY FROM SELLER TO BUYER THEN WHAT WAS THE NECESSITY TO KEEP 13 EMPLOYEES. NO PRO OF OF IDENTITY WAS PRODUCED TO ESTABLISH THE VALIDITY OF EXISTENCE OF EMPLOYEES. I.T.A. NO.1270/DEL/2016 6 V) REGISTERED ADDRESS OF THE FIRM M/S. INTELLIGENT INDIA SOLUTIONS WHICH IS TRADING IN ENGINEERING GOODS WIT H A TURNOVER OF APPROX. R.S155 CR. TURNED OUT TO BE RESIDENTIAL FLAT WHICH WAS ALSO FOUND TO BE CLOSED FOR 6-7 MONTHS AT THE T IME OF INQUIRY. VI) P & L ACCOUNT OF M/S. INTELLIGENT INDIA SOLUTIO NS DISCLOSED OPENING AND CLOSING STOCKS AT 13,00,540/- AND RS.8, 65,700/- RESPECTIVELY. AS IT HAS BEEN SUBMITTED NO GODOWN IS MAINTAINED BY THE ASSESSEE THEN WHERE WAS THIS STOCK STORED. A R OF THE ASSESSEE HAS FAILED TO GIVE ANY SATISFACTORY REPLY TO THE SAME. OBSERVED THAT THE TRANSACTIONS MADE BY THE ASSESSEE ARE ONLY BOOK ENTRIES AND NOT GENUINE BUSINESS TRANSACTION. AFTER MAKING SUCH AN OBSERVATION, HE HOWEVER ACCEPTED THE ASSESSEES BUSINESS AND HELD THAT IN ASSESSEES LIN E OF BUSINESS NET PROFIT RATE IS GENERALLY 1% TO 2%, ACC ORDINGLY, APPLIED A NET PROFIT RATE OF 1.5% AFTER REJECTING T HE BOOKS OF ACCOUNT U/S.145 AND THEREBY COMPLETED THE ASSESSMEN T AT AN INCOME OF RS.2,37,12,623/-. 4. LD. CIT(A), AFTER CONSIDERING THE ENTIRE FACTS A ND MATERIAL ON RECORD; INQUIRIES CONDUCTED BY THE ASSE SSING OFFICER; AND THE SUBMISSIONS MADE BY THE ASSESSEE H ELD THAT REJECTION OF BOOKS OF ACCOUNT IS UNCALLED FOR, BECA USE IT IS WITHOUT ANY BASIS AND ACCORDINGLY DELETED THE ADDIT ION ON ACCOUNT OF RE-ESTIMATING THE PROFIT @1.5%. HOWEVER, HE HAS MADE ADDITION OF RS.13,81,600/- UNDER THE HEAD SAL ARIES AGAINST WHICH ASSESSEE HAS NOT FILED ANY APPEAL. TH E RELEVANT OBSERVATIONS AND THE FACTS NOTED BY THE LD. CIT (A) FOR COMING I.T.A. NO.1270/DEL/2016 7 TO HIS CONCLUSION IS AS UNDER:- 8. I HAVE GONE THROUGH THE SUBMISSIONS OF THE APPE LLANT AND FACTS OF THE CASE. THE FOLLOWING FACTS EMERGED FROM THE SUBMISSION OF THE ASSESSEE - THE ASSESSEE IS A DIRECTOR IN M/S MSA ENGINEERING P VT. LTD. AND HE IS ALSO PROP. OF M/S. INTELLIGENT ENGINEERIN G SOLUTIONS AND SUPPLIES THE GOODS TO ENERGO ENGINEERING PROJEC TS LTD. THE GOODS WAS NEITHER TRANSPORTED BY HIM NOR HE UNDER T OOK LOADING OR UNLOADING. HE SIMPLY PROCURES ORDER, SOU RCES THE GOODS FROM MSA ENGINEERING PVT. LTD. WHICH ARE TRAN SPORTED BY MSA ENGINEERING PVT. LTD. TO ENERGO ENGINEERING PRO JECTS LTD. SINCE HE IS ONLY PROCURING THE ORDER FOR MSA ENGINE ERING PVT. LTD. WHICH IS SHIPPING THE GOODS, HE DOES NOT MAINT AIN ANY GODOWN. THE ASSESSING OFFICER HAS STATED THAT SINCE THE MSA ENGINEERING PVT. LTD. WAS RELATED PARTY THE TAX AUD ITOR SHOULD HAVE POINTED IT OUT IN TAX AUDIT REPORT U/S.40A(2)( B). THE OBSERVATION OF THE ASSESSING OFFICER IS CORRECT. HO WEVER, THE ASSESSING OFFICER HAS NOT RESORTED TO SECTION 40A ( 2)(B) TO SAY THAT PURCHASES FROM MSA ENGINEERING PVT. LTD. WERE NOT MADE AT ARMS LENGTH. AO STATES THAT THE ASSESSEE HAS NOT CLAIMED ANY TRA NSPORTATION CHARGES FOR DELIVERY FROM MSA ENGINEERING PVT. LTD. TO ENERGO ENGINEERING PROJECTS LTD. AND L/R AND VEHICLE NUMBE R ARE MENTIONED ON THE BILLS WHICH CLEARLY SHOW THAT THIS IS A SHAM TRANSACTION AND MERELY A BOOK ENTRY. HOWEVER THE ASSESSING OFFICER HAD MADE INQUIRIES FROM DEBTORS, CREDITORS, BANK AND EVEN SALES-TAX AUTHORITY AND NOTHING ADVERSE WAS FO UND. IT IS ALSO A FACT THAT SINCE NO TRANSPORT CHARGES WERE CL AIMED BY THE I.T.A. NO.1270/DEL/2016 8 ASSESSEE, IT WAS NOT MATERIAL FOR HIM TO KEEP THE R ECORD OF THE BILLS OR L/R. THE ARGUMENT OF THE ASSESSING OFFICER IS THAT THE A UTHORISED REPRESENTATIVE HAS NOT FILED THE SPECIFIC ORIGIN OF GOODS I.E. PLACE OF THE MANUFACTURE , HE ALSO FAILS TO PROVIDE THE DETAILED NOTE ON THE BUSINESS OF THE ASSESSEE RIGHT FROM THE PURCHASE THE GOODS AND FINALIZING THE SALE . IN MY OPINION SINCE THE ASSESSEE WAS ONLY A TRADER PROCURING ORDER, THE PLA CE OF MANUFACTURE OR ORIGIN OF GOODS WAS NOT IMPORTANT TO HIM, NEITHER TO KNOW THE PROCESS OF MANUFACTURE OR THE P ARTY BY WHOM THE GOODS WERE MANUFACTURE. NOR DOES IT SEEM R ELEVANT FOR THE PURPOSE OF ASSESSMENT, OF A TRADER. THE ASSESSING OFFICER FURTHER POINTED OUT THAT REGI STERED ADDRESS OF THE FIRM WAS A RESIDENTIAL HOUSE. SINCE THE ASSESSEE IS ONLY PROCURING THE ORDERS. THE RESIDENTIAL HOUSE HAS BEEN GIVEN AS THE CORRESPONDENCE ADDRESS, SINCE IT IS NO T THE CASE OF THE A.O THAT IT WAS USED AS GODOWN FOR COMMERCIAL P REMISES. THE LAST ARGUMENT OF THE ASSESSING OFFICER THAT THE BOOKS OF ACCOUNTS SHOWED OPENING AND CLOSING STOCK ALTHOUGH THERE WAS NO GODOWN. THE ASSESSEE HAS EXPLAINED THAT THE STOC K REPRESENTED THE GOODS IN RESPECT OF WHICH THE ORDER S HAVE BEEN RECEIVED AND WHICH WERE IN THE PROCESS OF SUPPLY, H E STATES THAT THE STOCK REPRESENTS THE EARMARKED GOODS IN TH E GODOWN OF THE SUPPLIER WHICH WERE SENT IN THE NEXT YEAR. THE CONCLUSION OF THE ASSESSING OFFICER SHOWS THAT HE HAS CONSIDERED THE ENTIRE TRANSACTIONS AS SHAM. HOWEVER , AFTER REJECTING THE BOOKS, HE ESTIMATED PROFIT AT 1.5%. H E HAS NOT GIVEN ANY BASIS OF REJECTION OF BOOKS OF ACCOUNTS. HE ONLY I.T.A. NO.1270/DEL/2016 9 POINTED OUT THAT THE TRANSACTIONS ARE ONLY BOOK ENT RY AND NOT GENUINE BUSINESS TRANSACTION. IN THIS CONTEST THE F OLLOWING POINTS ARE NEED TO BE CONSIDERED:- I) THE ASSESSEE HAS PROCURED THE GOODS FROM MSA ENG INEERING PVT. LTD. WHICH HAS BEEN VERIFIED BY THE ASSESSING OFFICER. THE GOODS HAVE BEEN SOLD TO ENERGO ENGINEERING PROJECTS LTD. AND THE DEBTORS HAVE BEEN VERIFIED BY THE ASSESSING OFF ICER. THE ASSESSING OFFICER HAS INDEPENDENTLY MADE INQUIRY FR OM THE SALES-TAX DEPARTMENT THAT THE SALES-TAX RETURN HAS BEEN FILED IN RESPECT OF SALES. REGULAR PAYMENTS ARE BEING REC EIVED FROM DEBTORS AND PAYMENTS ARE BEING MADE TO THE SUPPLIER S. THE ASSESSEE HAS MAINTAINED REGULAR STOCK REGISTER. THE PARTIES HAVE CONFIRMED THAT THEY HAVE SUPPLIED THE GOODS AN D PURCHASED THE GOODS. II) THE ASSESSING OFFICER HAS NOT ABLE TO PIN POINT ANY INCRIMINATING FACTS TO JUSTIFY THE REJECTION OF BOO KS OF ACCOUNTS. HE IS BLOWING HOT AND COLD AT THE SAME TIME, BY FIR STLY TREATING THE TRANSACTION AS SHAM AND AT THE SAME TIME, REJEC TING THE BOOKS AND ESTIMATING A HIGHER PROFIT RATE ON THE TU RNOVER DISCLOSED IN THE BOOKS. 9. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE C ASE AND FOLLOWING THE JUDICIAL PRONOUNCEMENT RELIED UPON BY THE ASSESSEE, THE REJECTION OF THE BOOKS OF ACCOUNTS IS UNCALLED FOR AND IS WITHOUT ANY BASIS. THEREFORE, ADDITION ON AC COUNT OF RE- ESTIMATING THE PROFIT @ 1.5% IS DELETED. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS MADE BY TH E PARTIES AND PERUSED THE RELEVANT FINDING IN THE IMP UGNED ORDER. LEARNED DR STRONGLY RELIED UPON THE ORDER OF THE I.T.A. NO.1270/DEL/2016 10 ASSESSING OFFICER AS INCORPORATED ABOVE AND SUBMITT ED THAT AO HAS POINTED OUT MANY FACTORS TO REJECT THE TRADI NG RESULTS AND THEREFORE HE IS JUSTIFIED IN APPLYING HIGHER NET PROFIT RATE. ON THE OTHER HAND, LEARNED COUNSEL FOR THE ASSESSEE , MR. AKARSH GARG SUBMITTED THAT, FIRST OF ALL, THE ASSES SING OFFICER HIMSELF AFTER MAKING VARIOUS OBSERVATIONS THAT VARI OUS TRANSACTIONS UNDERTAKEN BY THE ASSESSEE IS MERELY A BOOK ENTRY BUT ULTIMATELY HAS ACCEPTED THE TRADING AND B USINESS OF THE ASSESSEE AND HAS REJECTED THE BOOKS OF ACCOUNT WITHOUT ASSIGNING ANY COGENT REASONS OR BASIS AND THERE ARB ITRARILY APPLIED NET PROFIT RATE OF 1.5%, DEHORS ANY MATERIAL ON RECORD. ON THE CONTRARY THE ASSESSEES BUSINESS AND TRADING RESULT HAD ALSO BEEN SUBJECT MATTER OF SCRUTINY IN THE EAR LIER ASSESSMENT YEARS AND ASSESSMENT HAVE BEEN COMPLETED U/S.143(3), WHEREIN NOT ONLY THE BOOKS OF ACCOUNT B UT ALSO THE TRADING RESULTS HAVE BEEN ACCEPTED. THE NET PRO FIT FOR THE EARLIER TWO YEARS WERE 0.11% AND 0.09% AND AS COMPA RED TO THAT NET PROFIT OF THIS YEAR SHOWN @ 0.25% IS FAR B ETTER. AO HAS NEITHER SPECIFIED ANY COMPARABLE CASE NOR HAS A SSIGNED ANY REASON AS TO WHY SUCH A HIGHER PROFIT RATE SHOU LD BE APPLIED. REGARDING ALLEGATION U/S.40A(2)(B), HE SUB MITTED THAT ASSESSING OFFICER IS UNABLE TO PINPOINT HOW THE PUR CHASES WERE BOGUS OR MADE FROM THE RELATED PARTY, NAMELY, M/S. MSA ENGINEERING PVT. LTD. WAS AT HIGHER RATE AND OR SALES WERE NOT GENUINE OR MADE AT LOWER RATE. NONE OF THE EXPENDITURE DEBITED IN THE P&L ACCOUNT CAN BE SAID TO BE EXCESSIVE AND WHATEVER HAS FOUND TO BE LITTLE EXCES SIVE I.T.A. NO.1270/DEL/2016 11 SPECIALLY UNDER THE HEAD SALARY THE SAME ALREADY STAND DISALLOWED BY THE LD. CIT(A). NOT ONLY THAT, THE LE ARNED ASSESSING OFFICER HAS MADE INQUIRIES FROM THE SUNDR Y CREDITORS, SUNDRY DEBTORS AND ALSO FROM THE SALES T AX DEPARTMENT TO ASCERTAIN THE CORRECTNESS AND GENUINE NESS OF THE PURCHASES AND SALES AND IN SUCH INQUIRY EVERY TRANSACTION WAS FOUND TO BE CORRECT AND NO OTHER AD VERSE MATERIAL WAS FOUND. THUS, THE FINDING AND OBSERVATI ON OF THE LD. CIT (A) SHOULD BE CONFIRMED. 7. FROM THE BARE READING OF THE ASSESSMENT ORDER, WE FIND THAT THE CASE OF THE ASSESSING OFFICER STARTED FROM A PREMISE THAT SINCE PURCHASES AND SALES HAVE BEEN MADE FROM RELATED PARTY WHICH SHOULD HAVE BEEN DISCLOSED BY THE ASSES SEE IN HIS AUDIT REPORT AND THE GOODS PURCHASED AND THE PRICE PAID WERE REASONABLE OR WERE AT ARMS LENGTH HAS NOT BEEN PRO VED BY THE ASSESSEE. HE THEN PROCEEDED TO DOUBT EVEN THE GENUI NENESS OF THE BUSINESS TRANSACTION ON THE GROUND THAT, FIRSTLY , NO TRANSPORTATION CHARGES HAVE BEEN CLAIMED IN THE BIL L; AND SECONDLY , ASSESSEE COULD NOT PRODUCE THE PERSONS TO WHOM ASSESSEE WAS PAYING SALARY. AFTER HAVING MADE SUCH OBSERVATION, HE SIMPLY SAYS THAT ON THE BASIS OF CO MPARABLES THE GENERAL RATE OF NET PROFIT IN LINE OF ASSESSEE S BUSINESS IS 1% OR 2% AND ACCORDINGLY APPLIED NET PROFIT @ 1.5% OF THE SALES TURNOVER. FROM THE PERUSAL OF THE IMPUGNED OR DERS IT IS SEEN THAT DURING THE COURSE OF THE ASSESSMENT PROCE EDINGS, ENTIRE BOOKS OF ACCOUNT, DETAILS OF PURCHASES, SALE S, SUNDRY I.T.A. NO.1270/DEL/2016 12 CREDITORS, SUNDRY DEBTORS AND OTHER VARIOUS EVIDENC ES WITH REGARD TO EACH AND EVERY ENTRIES MADE IN THE BOOKS OF ACCOUNT WERE PRODUCED WHICH HAS BEEN SUBJECTED TO DETAIL SC RUTINY BY THE AO AND THEREAFTER HE HIMSELF CARRIED OUT INQUIR IES FROM PARTIES TO VERIFY PURCHASE AND SALES. NEITHER ANY D EFECT OR DISCREPANCY HAS BEEN FOUND IN THE BOOKS OF ACCOUNT NOR HAS ANY ADVERSE MATERIAL BEEN GATHERED BY HIM THAT ASSE SSEE WAS EITHER NOT CARRYING OUT ANY BUSINESS OR THE PARTIES HAVE DENIED ANY TRANSACTION. EVEN THE INQUIRY FROM THE S ALES TAX DEPARTMENT NOTHING ADVERSE HAS BEEN FOUND AGAINST T HE ASSESSEE. THOUGH A REFERENCE HAS BEEN MADE WITH REG ARD TO 40A (2)(B) WITH REGARD TO PURCHASES, HOWEVER AO HAS NOT ANALYZED AS TO WHETHER SUCH PURCHASES OR SALES WERE AT ARMS LENGTH OR NOT AND HE HAS NOT EVEN INVOKED THE SAID PROVISION. NOT ONLY THAT, IN THE EARLIER YEARS ALSO ASSESSEE B USINESS AND TRADING RESULT WERE SUBJECTED TO SCRUTINY AND AFTER EXAMINATION ASSESSEES TRADING RESULTS HAVE BEEN AC CEPTED IN THE ASSESSMENT COMPLETED UNDER SECTION 143(3). NO R EASON WHATSOEVER HAS BEEN GIVEN BY THE AO TO POINT ANY DISCREPANCY IN THE TRADING RESULT OR BOOKS EXCEPT F OR STATING THAT SALARY DEBITED IS ON HIGHER SIDE, FOR WHICH AL READY SUBSTANTIAL ADDITION HAS BEEN SUSTAINED BY THE LD. CIT(A). APART FROM THAT WHATEVER OBJECTION AND OBSERVATIONS HAVE BEEN MADE BY THE AO HAS BEEN PROPERLY DEALT WITH BY THE LD. CIT (A), POINT WISE IN HIS ORDER. HENCE WE DO NOT F IND ANY INFIRMITY IN THE OBSERVATION AND FINDING OF THE LD. CIT (A) WHICH IS BASED ON APPRAISAL OF FACTS AND MATERIAL O N RECORD I.T.A. NO.1270/DEL/2016 13 AND ALSO WE DO NOT FIND ANY COGENT REASON GIVEN BY THE LEARNED ASSESSING OFFICER FOR REJECTION OF BOOKS OF ACCOUNT. ACCORDINGLY, WE UPHOLD THE ORDER OF THE LD. CIT (A) THAT NEITHER THE BOOKS OF ACCOUNT CAN BE REJECTED NOR AN Y HIGHER PROFIT RATE CAN BE ESTIMATED. THUS, GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH MAY, 2018. SD/ - SD/ - [O.P. KANT] [AMIT SHUKLA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 30 TH MAY, 2018