The ITO, Ward-4, Morbi V. M/s Raiyani Cotton Industries, Morbi

ITA 129/RJT/2016

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 8508 (ITAT-RAJKOT)
• Duration Of Justice: 5 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-08-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 07-07-2021
• Assessment Year: 2011-2012
• Appeal Filed On: 26-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S S RATHI
• Assessee Lawyers: MJ RANPURA
• Keywords: Gross profit estimation; Additional evidence; Bogus loan; Set aside
• Section: 40A(3); 143(3); 80G; 48; 145(3); 22; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT (THROUGH VIRTUAL COURT) BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & MS. MADHUMITA ROY, JUDICIAL MEMBER ./I.T.A NO. 129/RJT/2016 ( / ASSESSMENT YEARS: 2011-12) ITO WARD-4, MORBI / VS. M/S. RAIYANI COTTON INDUSTRIES, A/P NEKNAM, TAL-TANKARA, MORBI-363641 ./ ./PAN/GIR NO. : AAFR9304R ( /APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI S. S. RATHI, SR. DR / RESPONDENT BY : SHRI M. J. RANPURA, AR / DATE OF HEARING 07/07/2021 / DATE OF PRONOUNCEMENT 18/08/2021 !' /O R D E R PER MADHUMITA ROY, JM: THE INSTANT APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 16.02.2016 PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS)- 3, RAJKOT, ARISING OUT OF THE ORDER DATED 28.03.201 4 PASSED BY THE LD. ITO, WARD 5(4), MORBI, UNDER SECTION 143(3) OF THE INC OME TAX ACT, 1961 (HEREINAFTER REFERRED AS TO THE ACT) FOR THE ASSE SSMENT YEAR (A.Y.) 2011-12 WITH THE FOLLOWING GROUNDS:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY THE AO OF RS . 3,812/- ON ACCOUNT OF PERSONAL ELEMENT AT 20% OUT OF THE TELEPHONE EXPENSES. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY THE AO OF RS . 20,730/0 ON ACCOUNT OF PERSONAL ELEMENT AT 20% OUT OF THE TOTAL OFFICE EXP ENSES. ITA NO.129/RJT/2016 A.Y. 2011-12 - 2 - 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY THE AO DISAL LOWING THE ASSESSEES CLAIM OF DEDUCTION U/S. 80G OF RS. 38,795/-. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY THE AO BEING INTEREST RECEIVED FROM PGVCL OF RS. 45,199/-. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY THE AO OF RS . 1,20,20,000/- U/S. 68 ON ACCOUNT OF BOGUS LOANS/DEPOSITS RECEIVED FROM FOUR DIFFERENT PARTIES. 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION U/S. 40A(3) MADE BY AO BEING PURCHASE OF KAPAS FROM DIFFERENT PARTIES OF TOTAL RS. 5,00,000/-. 7. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 41,79,062/- M ADE BY AO ON ACCOUNT OF FALL IN GROSS PROFIT AS COMPARED TO EARLIER YEARS. 8. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN RESTRICTING THE ADDITION MADE BY AO ON ACC OUNT OF PERSONAL ELEMENT AT 20% OUT OF THE VEHICLE EXPENSES TO ONLY 10% OF THE SAME . 9. ANY OTHER GROUND THAT THE REVENUE MAY RAISE BEFO RE OR DURING THE PROCEEDINGS BEFORE THE HONBLE I.T.A.T. 10. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ASSESSMENT ORDER OF THE A.O. 11. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE C.I.T.(A) MAY BE SET ASIDE AND THAT OF THE A.O. BE RESTORED TO THE ABOVE EXTENT. 2. GROUND NO.1:- THIS GROUND RELATES TO DELETION OF ADDITION MADE BY THE LD. AO TO THE TUNE OF RS. 3,812/- ON ACCOUNT OF PER SONAL ELEMENT AT 20% OUT OF THE TELEPHONE EXPENSES. 3. THE FACT CULLED OUT FROM THE RECORDS IS THIS THA T THE LD. AO DISALLOWED RS. 3,812/- BEING 1/5 TH OF THE TELEPHONE EXPENSES INCURRED OF RS. 9,059/-; THE TELEPHONE CONNECTION IS INSTALLED AT THE FACTORY AN D NOT IN THE RESIDENTIAL PREMISES OF THE PARTNERS WHO STAYS AT RAJKOT AND TH EREFORE, ADDITION ON THE PREMISE THAT THE TELEPHONE IS BEING USED BY THE FAM ILY MEMBERS OF THE PARTNERS IS NOT SUSTAINABLE AS OBSERVED BY THE LD. CIT(A) AN D THEREFORE, THE DELETION OF THE SAME IS WITHOUT ANY AMBIGUITY SO AS TO WARRANT INTERFERENCE. WE, ITA NO.129/RJT/2016 A.Y. 2011-12 - 3 - THEREFORE, CONFIRM THE SAME. THIS GROUND OF APPEAL PREFERRED BY THE REVENUE IS, THUS, DISMISSED. 4. GROUND NO.2:- THE LD. AO DISALLOWED 20,730/- ON ACCOUNT OF PERSON AL ELEMENT @ 20% OF THE OFFICE EXPENSES. ACCORDING TO HIM MOST OF THE EXPENSES ARE NOT SUPPORTED BY BILLS/VOUCHERS. FURT HERMORE, SOME OF THE EXPENSES WERE NOT FOR BUSINESS PURPOSES. HOWEVER, NO SUCH ITEM HAS BEEN SEGREGATED BY HIM SO AS TO DETERMINE THE SAME AS EX PENSES OF NON-BUSINESS PURPOSES. IT IS RELEVANT TO MENTION THAT THE TOTAL DELETION OVER OF THE APPELLANT FIRM IS OVER RS. 77.00 CRORES AND THE OFFICE EXPENS ES IS ONLY 1,03,650/- WHICH WAS QUITE REASONABLE. IN FACT, IN THE PREVIOUS FIN ANCIAL YEARS 2009-10 AND 2008-09 THE OFFICE EXPENSES INCURRED WAS OF RS. 1,0 3,825/- AND 1,05,640/- RESPECTIVELY AND THEREFORE, THERE IS NO INCREASE IN EXPENSES AS COMPARED TO THE PREVIOUS YEARS. TAKING INTO CONSIDERATION THE ENTI RE ASPECT OF THE MATTER HOLDING THE DISALLOWANCE OF RS. 20,730/- SIMPLY ON THE BASIS OF SURMISES AND CONJECTURES AND PRESUMPTION ON THE PART OF THE LD. AO IS FOUND TO BE UNJUSTIFIED BY THE LD. CIT(A) AND DELETION THEREOF IS, THEREFORE, ACCORDING TO US IS JUST AND PROPER WITHOUT ANY AMBIGUITY SO AS T O WARRANT INTERFERENCE. THIS GROUND OF APPEAL PREFERRED BY REVENUE IS, THUS, DIS MISSED. 5. GROUND NO.3:- THE ASSESSEE MADE DONATION OF RS. 77,590/- TO ONE NARAYANSWAMY NAIDU CHARITY TRUST FOR EDUCATION, COI MBATORE THROUGH PRECOT MERIDIAN, COIMBATORE. THOUGH THE DETAILS OF THE SAME COULD NOT BE COLLECTED DURING THE ASSESSMENT PROCEEDING AS THE S AID PARTY ALSO HAS TO COLLECT THE SAME FROM THEIR RECORDS OF THE RELEVANT ASSESSM ENT YEAR. HOWEVER, THE LETTER OF THE CONCERNED PARTY ALONG WITH CERTIFICAT E OF RECOGNITION OF THE CONCERNED TRUST UNDER 80G DATED 27.07.2009 HAS BEEN PLACED ON RECORD BY THE ASSESSEE BEFORE THE FIRST APPELLATE AUTHORITY THE V ERACITY OF WHICH WAS NOT CONTRADICTED BY THE LD. AO IN THE REMAND REPORT AS CALLED FOR. HENCE, THE SAME WAS DELETED BY THE LD. CIT(A). UNDER THIS CIR CUMSTANCES, WE DO NOT ITA NO.129/RJT/2016 A.Y. 2011-12 - 4 - FIND ANY AMBIGUITY IN ALLOWING SUCH DEDUCTION UNDER SECTION 80G OF THE ACT BY THE LD. CIT(A) AND HENCE THE SAME IS HEREBY CONF IRMED. THIS GROUND OF APPEAL PREFERRED BY THE REVENUE IS, THUS, DISMISSED . 6. GROUND NO.4:- THIS GROUND RELATES TO ADDITION OF 45,199/- ON THE ALLEGED INTEREST RECEIVED FROM PASCHIM GUJARAT VIJ COMPANY LTD. (PGVCL) BY THE ASSESSEE. IT IS RELEVANT TO MENTION THAT TH E LD. AR AGREED TO SUCH ADDITION. HOWEVER, BEFORE THE FIRST APPELLATE AUTH ORITY THE TRUE FACT AS WAS BROUGHT TO THE NOTICE OF THE LD. CIT(A) TO THIS EFF ECT THAT IN THE F.Y. 2009-10 THE APPELLANT RECEIVED INTEREST OF RS. 5,0221/- FRO M PASCHIM GUJARAT VIJ COMPANY LTD. (PGVCL) FROM WHICH RS. 5,022/- WAS DED UCTED TAX AT SOURCE AND THE BALANCE OF RS. 45,199/- WAS CARRIED OVER TO PREVIOUS YEAR UNDER CONSIDERATION. THUS, IT APPEARS THAT THE SAID RS. 45,199/- WAS NOT THE INTEREST INCOME FROM PGVCL RECEIVED BY THE ASSESSEE DURING T HE YEAR UNDER CONSIDERATION AS OBSERVED BY THE LD. AO. SUCH ADDI TION IS, THEREFORE, INCORRECT AS OF THE CASE MADE OUT BY THE APPELLANT BEFORE THE FIRST APPELLATE AUTHORITY. IN SUPPORT OF THE CLAIM IT HAD RELIED U PON THE JUDGMENTS OF DIFFERENT JUDICIAL FORUM. THE LD. CIT(A) WHILE ADDRESSING THE ISSUE OBSERVED AS FOLLOWS:- 8.2 IN THIS CONNECTION APPELLANT ALSO RELIED ON TH E FOLLOWING JUDICIAL DECISIONS, (A) HONBLE SUPREME COURT IN THE CASE OF NATIONAL T HERMAL POWER CO. LTD. VS. CIT (1998) 229 ITR 383, OBSERVED AS UNDER; THE PURPOSE OF AN ASSESSMENT PROCEEDING BEFORE TH E TAXING AUTHORITIES IS TO ASSESS CORRECTLY THE TAX LIABILITY OF THE ASSESSEE IN ACCORDANCE WITH THE LAW. (B) SIMILARLY, HON'BLE HIGH COURT OF GUJARAT IN THE CASE OF S.S. KOSHTI VS. C/T(2005) 276 ITR 165 (GUJ), LAID DOWN T HE PROPOSITION THAT 'THE AUTHORITIES UNDER THE ACT ARE UNDER AN OBLIGATION T O ACT IN ACCORDANCE WITH LAW. TAX CAN BE COLLECTED ONLY AS PROVIDED UNDER THE ACT. IF AN ASSESSEE, UNDER A MISTAKE, MISCONCEPTION OR IN NOT PROPERLY INSTRUCTED, IS OVE R ASSESSED, THE AUTHORITIES UNDER THE ACT ARE REQUIRED TO ASSIST HIM AND ENSURE THAT ONLY LEGITIMATE TAXES DUE ARE COLLECTED'. ITA NO.129/RJT/2016 A.Y. 2011-12 - 5 - (C) HONBLE APEX COURT IN MALABAR INDUSTRIAL CO. LT D, VS. CIT (2000) 243 ITR S3 (SC) HELD THAT 'THE SCHEME OF THE ACT IS TO LEVY AND COLLECT TAX. IN ACCORDANCE WITH THE PROVISIONS OF THE ACT AND TH IS TASK IS ENTRUSTED TO THE REVENUE. IF DUE TO AN ERRONEOUS ORDER OF THE ITO, T HE REVENUE IS LOSING TAX LAWFULLY PAYABLE BY A PERSON, IT WILL CERTAINLY HE PREJUDICI AL TO THE INTERESTS OF THE REVENUE. ' THE SAME PRINCIPLE APPLIED IF THE ASSESSEE PAID TAX IN EXCESS OF WHAT HE IS LIABLE TO PAY AS PER THE ACT. (D) JUTE CORPORATION OF INDIA LTD. VS. CIT & ANR. ( 1991) 187 ITR 688 (SC); (E) IN THE CASE OF C. PARIKH & CO. VS. CIT (1980) 1 22 ITR 610 (GUJ) THE ASSESSEE WAS ASSESSED U/S. 143(3) ON THE BASIS OF R ETURN FILED. SUBSEQUENTLY, THE ASSESSEE FOUND THAT THERE WERE DISCREPANCIES IN THE BALANCE-SHEET AS A MATTER OF WHICH HE WAS OVER ASSESSED. THE ASSESSEE MADE AN AP PLICATION TO COMMISSIONER OF INCOME TAX U/S.264. CIT HAS REJECTED THE ASSESSE 'S REQUEST. THE MATTER GOES TO GUJARAT HIGH COURT. THE HON'BLE GUJARAT HIGH COURT DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THUS, RELIED UPON JUDICIAL PRONOUNCEMENT NULLIFYIN G THE INCORRECT ASSESSMENT AND TAX LIABILITY ON THE ASSESSEE THEREO N THE DELETION OF ADDITION MADE BY THE LD. CIT(A) IS WITHOUT ANY AMBIGUITY SO AS TO WARRANT INTERFERENCE. THE GROUND OF APPEAL, THUS, FAILS. 7. GROUND NO.5:- THIS GROUND RELATES TO ADDITION OF RS. 1,20,20,000/ - UNDER SECTION 68 OF THE ACT ON ACCOUNT OF BOGUS LOA NS/DEPOSITS RECEIVED FROM FOUR DIFFERENT PARTIES. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS MADE BY THE RESPECTIVE PARTIES, WE HAVE ALSO PERUSED THE RELEVANT MATERIALS AVAILABLE ON RECORD. 9. IT APPEARS FROM THE RECORD AVAILABLE BEFORE US T HAT THE LD. AO HAS CONTRADICTED THESE LOANS AS BOGUS AS THE APPELLANT HAS NOT SUBMITTED THE REQUIRED DETAILS. THE ADDITION MADE BY THE LD. AO ARE IN THE FOLLOWING MANNER:- SR. NO. NAME OF PERSON AMOUNT (RS.) REMARKS 1. M/S. PATEL COTTON INDUSTRIES 25,00,000 SQUARED U P. 2. M/S. D.M.L. WORLD TRADE PVT. 40,00,000 SQUARED U P. ITA NO.129/RJT/2016 A.Y. 2011-12 - 6 - LTD. 3. M/S. KARPASA EXPORT PVT. LTD. 45,00,000 SQUARED UP. 4. SHRI JIVRAJBHAI LAVJIBHAI RAIYANI 10,20,000 OUT STANDING TOTAL 1,20,20,000 DETAILS SUCH AS NAME AND ADDRESS OF THE ABOVE PART IES, CONFIRMATION LETTER, BANK ACCOUNTS/STATEMENTS, PAN, MODE, DATE A ND SOURCE OF INVESTMENT, THEIR ASSESSMENT DETAILS SINCE NOT SUBMITTED BY THE ASSESSEE, THE GENUINENESS OF THE LOAN FUND AND THE CREDITWORTHINESS FROM THE PERSONS FROM WHOM SUCH LOAN HAS BEEN RECEIVED COULD NOT BE VERIFIED BY THE LD. AO AND THE ADDITION WAS, THEREFORE, MADE AGAINST THE ASSESSEE. BEFORE THE FIRST APPELLATE AUTHORITY THE ASSESSEE SUBMITTED THE FOLLOWING:- (A) AS REGARDS CREDIT IN CASE OF PATEL COTTON IND. (SHAPAR), A COPY OF RELEVANT ACCOUNT ALONG WITH CONTRA ACCOUNT IS ATTACHED AT PA GE NO. 38 TO 39. BESIDES, A COPY OF RETURN FOR A.Y.2011-12 ALONG WITH COMPUTATION OF TOTAL INCOME AND A COPY OF PAN CARD IS ATTACHED AT PAGE NO. 40 TO 44. (B) REGARDING CREDIT IN ACCOUNT OF D.M.L. WORLD TR ADE PVT. LTD. WHERE CREDIT ENTRY IS OF R.S. 40,00,000/- DETAILS AS AT (A) ABOV E ARE SUBMITTED AT PAGE NO. 45 TO 47. PAN IS STATED IN COPY OF RETURN. (C) SIMILARLY, COPY OF ACCOUNT OF KARPASA EXPORT P VT. LTD. (RAJKOT) ALONG WITH CONTRA ACCOUNT AND A COPY OF PAN OF KARPASA EXPORT PVT. LTD ARE ATTACHED AT PAGE NO. 48 TO 50. (D) COPY OF ACCOUNT OF JIVRAJBHAI LAVJIHHAI RAIYAN I, AND A COPY OF PAN IS ATTACHED AT PAGE NO.51 TO 52. SHRI JIVRAJHHAI HAS S IGNED THE ACCOUNT I.E. CERTIFIED THE ENTRIES. IT MAY KINDLY HE SEEN THAT THE THERE W AS OPENING BALANCE OF RS. 1,20,000/- AND CREDITS DURING THE YEAR WAS OF RS.9, 00,000/-. 9.2 FURTHER, ALL THE ABOVE LOANS WERE TAKEN/ACCEPTE D THROUGH ACCOUNT PAYEE CHEQUES. THE APPELLANT HAS DISCLOSED THE NAMES OF T HE CREDITORS AND THE NAMES OF THE BANKS ON WHICH THE CHEQUES WERE DRAWN. THE CRED ITORS WERE HAVING BANK ACCOUNTS. HENCE, THEY WERE KNOWN NOT ONLY TO THE BA NK BUT THEY WERE INTRODUCED BY A THIRD PERSON WHO INTRODUCED THEM TO THE BANK. IN VIEW OF THESE FACTS, IT COULD NOT BE SAID THAT THE CREDITORS WERE FICTITIOUS PERSONS. THE APPELLANT THUS DISCHARGED THE PRIMARY ONUS. IN THIS RESPECT COPY OF RELEVANT PAGE S OF BANK STATEMENT IN WHICH CHEQUES WERE DEPOSITED (I.E. KOTAK MAHINDRA BANK'S STATEMENT) ARE ATTACHED HEREWITH AT PAGE NO. 53 TO 56. '(UNQUOTE) 7.9.2 IT IS APPARENT THAT AO HAS NOT FOUND ANY FAUL T ON MERIT IN RESPECT OF THESE LOANS CONFIRMATIONS. IT IS INTERESTING TO NOTE THAT DURING THE REMAND PROCEEDINGS LEDGER A/C STATEMENT, LOAN CONFIRMATION LETTER ALON G WITH PAN NO.' AND ADDRESS AS ITA NO.129/RJT/2016 A.Y. 2011-12 - 7 - WELL AS TELEPHONE NO. AND COPY OF INCOME TAX RETURN WERE SUBMITTED IN RESPECT OF ALL 4 PARTIES TO THE AO, BUT HE STILL WRITES THAT ' ...... NO FURTHER DETAILS HAVE BEEN SUBMITTED. MORE SO EVER HE HAS NOT POINTED OUT THA T AS TO WHAT FURTHER DETAILS DOES THE REQUIRE? THE JCIT, MORBI RANGE HAS ALSO COMMENT ED THAT ..IT IS AN AFTERTHOUGHT AND FABRICATION OF EVIDENCE WHICH MAY NOT BE ALLOWTED TO BE ADMITTED AS ADDITIONAL EVIDENCE. HOWEVER HE HAS NOT ELABORA TED THE REASON FOR REACHING TO SUCH CONCLUSION. THE EVIDENCE HAS ALREADY BEEN ADMI TTED AND THEY ARE SUFFICIENT SO FAR AS DISCHARGING OF ONUS OF THE APPELLANT IS CONC ERNED IN RESPECT OF AN UNSECURED LOAN. THERE IS NO FORCE IN CONTENTION OF A.O. AND J CIT, MORBI RANGE. LEARNED AR HAD ALSO SUBMITTED THE BANK STATEMENT OF THESE CRED ITORS AND COPY OF I.T. RETURNS TO ESTABLISH THEIR CREDITWORTHINESS AND GENUINENESS OF THE LOANS. IN THE FACE OF ALL THESE EVIDENCES, IDENTITY, CREDITWORTHINESS, CAPACITY AS WELL AS GENUINENESS OF THE LOAN TRANSACTION HAVE BEEN ESTABLISHED BY THE APPELLANT. THIS ADDITION IS DELETED AND THE GROUND IS ALLOWED. 10. THE FACTS CULLED OUT FROM THE RECORD IS THIS TH AT THE ABOVE LOANS WERE TAKEN THROUGH ACCOUNT PAYEE CHEQUE. THE NAMES OF T HE CREDITORS AND THE CONCERNED BANKS ON WHICH THE CHEQUES WERE DRAWN IS ALSO AVAILABLE ON RECORD. IT FURTHER APPEARS FROM THE RECORDS THAT THE LD. AO HAS NOT DEMONSTRATED ANY FAULT PER SE ON MERIT IN RESPECT OF THESE LOANS CON FIRMATIONS. DURING THE REMAND PROCEEDINGS THE DETAILS BEING THE LEDGER ACC OUNT STATEMENT, LOAN CONFIRMATION LETTER ALONG WITH PAN NUMBER AND ADDRE SS, THE TELEPHONE NUMBER AND THE COPY OF THE INCOME TAX RETURN IN RES PECT OF THESE FOUR PARTIES THOUGH SUBMITTED, THE LD. AO REJECTED THOSE EVIDENC ES ON THE PLEA OF AFTERTHOUGHT AND FABRICATION OF EVIDENCE. THE LD. CIT(A) TOOK INTO CONSIDERATION THE ENTIRE ASPECT OF THE MATTER IN IT S PROPER PERSPECTIVE AND ADMITTED THOSE EVIDENCES, FURTHER ADMITTING DISCHAR GING OF ONUS OF THE APPELLANT IN RESPECT OF THE SAID UNSECURED LOAN. H E WAS, THEREFORE, SATISFIED AS REGARDS THE CREDITWORTHINESS AND GENUINENESS OF THE LOAN TRANSACTION AND FINALLY DELETED THE ADDITION. AFTER CAREFUL CONSID ERATIONS OF THE RECORDS WE FIND THAT MAJORITY AMOUNT OF LOAN HAS BEEN SQUARED UP. THIS PARTICULAR FACT TRANSCENDS ALL OTHER CONSIDERATIONS. THUS, HAVING REGARDS TO THE ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE WE DO NOT FIND ANY AM BIGUITY IN THE ORDER PASSED BY THE LD. CIT(A) SO AS TO WARRANT INTERFERE NCE. HENCE, THE GROUND OF APPEAL PREFERRED BY THE REVENUE IS FOUND TO BE DEVO ID OF ANY MERIT AND, THUS, DISMISSED. ITA NO.129/RJT/2016 A.Y. 2011-12 - 8 - 11. GROUND NO.6:- THIS GROUND RELATES TO ADDITION OF RS. 5,00,000/- U NDER SECTION 40A(3) BEING PURCHASED OF KAPAS FROM FARMER S. APPLYING THE PROVISION OF SECTION 40A(3) IN RESPECT OF THE CASH PURCHASES OF KAPAS FROM FOUR PERSONS NAMELY KANJIBHAI LAVJIBHAI HUF, ARVIN DBHIA KANJIBHAI HUF, JIVRAJBHAI LAVJIBHAI AND KESHAVJIBHAI LAVJIBHAI-HUF TO THE TUNE OF RS. 1,25,000/-, RS. 1,15,000/-, RS. 1,40,000/- AND RS. 1,20,000/- RESPECTIVELY. THE LD. AO DISALLOWED THE SAME. HOWEVER, THE LD. CIT(A ) TOOK INTO CONSIDERATION THE FOLLOWING THE PROVISION LAID DOWN TO RULE 6DD OF INCOME TAX RULES, 1962 THE LD. CIT(A) CAME TO A FINDING TH AT THE PAYMENT WAS MADE TO THE ABOVE PERSON FOR PURCHASE OF KAPAS WHICH IS AN AGRICULTURAL PRODUCT AND THEREFORE, DISALLOWANCE AS MADE BY THE LD. AO IS SU STAINABLE. WE FIND NO AMBIGUITY IN THE ORDER PASSED BY THE LD. CIT(A) IN DELETING SUCH ADDITION. HENCE, THE SAME IS HEREBY CONFIRMED. 12. GROUND NO.7:- DELETION OF ADDITION OF RS. 41,79,062/- MADE ON ACCOUNT OF FAIL IN GP AS COMPARED TO THE EARLIER YE ARS IS SUBJECT MATTER BEFORE US. 13. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, FR OM THE DETAILS, LEDGER ACCOUNT, REGISTERS ETC. FURNISHED BY THE ASSESSEE , IT WAS FOUND THAT DURING THE A.Y. 2011-12 ASSESSEE HAS SHOWN TOTAL TURNOVER OF R S. 77,20,30,202/- ON WHICH IT HAS EARNED G. P. OF RS. 1,17,24,760/- WHIC H RESULTED IN G. P. MARGIN OF 1.52%. IN THE IMMEDIATELY PRECEDING YEAR ASSESS EES TURNOVER WAS RS. 46,65,35,652/- ON WHICH IT HAS EARNED G. P. OF RS. 1,07,01,064/- WHICH RESULTED IN G. P. MARGIN OF 2.29%. AS SUCH THERE I S FALL IN G. P. MARGIN BY 0.77% WHICH TRANSLATES IN MONETARY TERMS TO RS. 59, 44,623/-. FURTHER, THE YIELD SHOWN BY ASSESSEE DURING THE CURRENT YEAR AND PREVIOUS YEAR IS AS UNDER: A.Y. 2010-11 A.Y. 2011-12 DIFFERENCE COTTON FIBER 35.79% 34.83% -0.96% ITA NO.129/RJT/2016 A.Y. 2011-12 - 9 - COTTON SEED 61.56% 61.28% -0.28% SHORTAGE 2.65% 3.89% +1.24% 14. THE LD. AO ULTIMATELY REJECTED THE BOOKS OF ACC OUNTS AND MADE ADDITION WITH FOLLOWING OBSERVATION: 14.5 THE FACT THAT THERE HAS BEEN A FALL OF 0.77% IN THE GROSS PROFIT RATIO WHEN COMPARED TO THE PRECEDING YEAR AND NO SPECIFIC REAS ONS HAVE BEEN GIVEN NOR ANY EVIDENCES PRODUCED TO SUBSTANTIATE AND JUSTIFY THE FALL IN G.P. PERCENTAGE. HOWEVER, CONSIDERING ASSESSEE FAILURE TO PRODUCE BA SIC DOCUMENT FOR HIS PRODUCTION AND INWARD & OUTWARD REGISTER QUANTITY W ISE AS WELL AS QUALITY WISE, IT IS PRESUMED THAT ASSESSEE IS NOT MAINTAINING INWARD & OUTWARD REGISTER AS REQUIRED. IN ABSENCE OF THE ALL DOCUMENTS / REGIST ERS, THE CORRECT INCOME CANNOT BE DEDUCED LEADING TO INCORRECTNESS, INCOMPLETENESS, U NRELIABILITY AND IN-GENUINENESS OF THE ACCOUNTS. THE G.P. CANNOT BE ACCEPTED BLIND LY. HENCE, AFTER GIVING DUE CONSIDERATION TO THE FACTS AND CIRCUMSTANCE OF THE CASE AND IN THE FITNESS OF THING AND AFTER CONSIDERING REPLY OF THE ASSESSEE AND SHO RTAGE CLAIMED BY THE ASSESSEE. G. P. RATIO IS TAKEN AT 2.06% BEING DIFFERENCE BETW EEN CURRENT YEAR G.P. AND AVERAGE G.P. OF CURRENT YEAR AND LAST TWO YEARS. T HIS G.P. % IS SAME AS G. P. % IN THE CASE OF M/S BHARAT GINNING PRESSING AND OIL IND USTRIES WHOSE TURNOVER IS NEARER TO ASSESSEES TURNOVER. THEREFORE, GROSS PR OFIT IS WORKED OUT TO RS. 1,59,03,822/- (2.06% OF 77,20,30,202). ACCORDINGLY , DIFFERENCE OF RS. 41,79,062/- (1,59,03,822 1,17,24,760) IS ADDED TO TOTAL INCOM E OF ASSESSEE TO COUNTER ANY DISCREPANCIES AND COVER UP LOOP HOLES IF ANY IN EST IMATION OF THE GROSS PROFIT ARRIVED AT BY THE ASSESSEE. 15. BEFORE THE FIRST APPELLATE AUTHORITY THE LD. CO UNSEL HAS SUBMITTED IS AS FOLLOWS:- 2.0 REGARDING THE ADDITION OF RS.41,79,062/- BY REJ ECTING BOOKS OF ACCOUNT U/S. 145(3) AND ESTIMATING GROSS PROFIT AT 2.06% OF TOTA L TURNOVER IT IS FURTHER SUBMITTED AS UNDER FOR YOUR HONOUR'S KIND CONSIDERATION:- 2.1 THE APPELLANT IS ENGAGED IN BUSINESS OF MANUFAC TURING COTTON, COTTON SEED AND COTTON SEED OIL. IN GINNING MILL RAW MATERIAL IS KA PAS. KAPAS IS AGRICULTURE PRODUCE WHICH DEPENDS ON WEATHER, QUALITY OF SOIL, RAIN FAL L ETC. QUALITY OF KAPAS DIFFER YEAR TO YEAR DEPENDING ON WEATHER AND RAINFALL. COTTON A ND COTTON SEED (KAPASIYA) PRODUCED FROM RAW KAPAS. GINNING MILL SOLD, COTTON AND COTTON SEED IN THE MARKET AS ITS FINISHED PRODUCT. THE APPELLANT HAS ALSO OIL MILL SO IT PRODUCED OIL FROM COTTON SEED. COTTON SEED, IS FURTHER PROCESSED IN OIL MILL AND COTTON SEED OIL AND COTTON SEED CAKE PRODUCED FROM IT. THERE IS A SHORTAGE, IN EACH PROCESS OF MANUFACTURING. SO, IN APPELLANT'S CASE SHORTAGE OCCURRED AT TWO ST AGE. FIRST, AT THE STAGE OF PRODUCTION OF COTTON FROM KAPAS AND SECOND AT THE S TAGE OF PRODUCTION OF COTTON SEED OIL FROM COTTON SEED (KAPASIYA). AS SUBMITTED IN OUR WRITTEN SUBMISSION THE MAIN REA SON FOR FALL IN G.P. IS INCREASE IN WESTAGE OF RAW MATERIAL IN PRODUCTION PROCESS DU RING THE YEAR UNDER ITA NO.129/RJT/2016 A.Y. 2011-12 - 10 - CONSIDERATION AS COMPARED TO IMMEDIATE PREVIOUS YEA R. FOLLOWING IS THE CHART SHOWING COMPARISON OF YIELD AND SHORTAGE IN A. Y. 2 011-12 AND A. Y. 2010-11. PARTICULARS ASSESSMENT YEAR 2011-12 2010-11 OPENING STOCK OF KAPAS 218645 316939 PURCHASE DURING THE YEAR 14083174 13082722 CONSUMPTION DURING THE YEAR 14275910 13181016 SALES DURING THE YEAR -- -- CLOSING STOCK 25909 218645 YIELD OF FINISHED GOODS COTTON KAPASIYA 4972956 8747842 4717906 8114468 PERCENTAGE OF YIELD 96.11 97.35 SHORTAGE 3.89 2.65 16. THE LD. CIT(A) DELETED THE ADDITION WITH THE FO LLOWING OBSERVATION:- 7.12.5 I DO NOT FIND ANY DEFECT IN THIS SUBMISSIO N WHICH IS QUIET REASONABLE AND LOGICAL. IT IS APPARENT THAT SEGMENTAL INCREASE IN THE PRODUCTION OF COTTON SEED OIL IS INCREASED ALMOST TWO TIMES. THIS HAD CORRESPONDING LY INCREASED THE SIZE OF THE WASTAGE MARGIN BECAUSE THIS IS THE PROCESS WHERE WA STAGE IS MUCH MORE CONCENTRATED (NATURALLY SO AS IT INVOLVES EXTRACTIO N OF OILS FROM COTTON SEED). THE SEGMENTS VARIATION IN THE PRODUCTION SCHEDULE OF TH E APPELLANT HAD NOT BEEN CONSIDERED BY THE AO AT ALL WHICH IS NOT PROPER. TH IS PECULIAR SHIFT IN THE PRODUCTION PROCESS FOR THE CURRENT YEAR SUFFICIENTLY EXPLAINS THE FALL IN GP. MORE SO EVER THE AO!S ACTION OF SUBSTITUTION OF RESULT BY THIRD PART Y'S RESULT IS TOTALLY UNSUSTAINABLE WHEN THE THIRD PARTY'S RESULTS HAVE NOT BEEN MADE A VAILABLE TO THE APPELLANT IN ORDER TO ACCORD IT OPPORTUNITY TO COMMENT ON THE COMPARIS ON. THE GP ESTIMATION MADE BY AO IS HEREBY DELETED. THIS GROUND IS ALLOWED. THE EXPLANATION FOR FALLING IN G.P. FOR THE PECULI AR SHIFT IN THE PRODUCTION PROCESS FOR THE CURRENT ASSESSMENT YEAR AND THE SEGMENTAL VARIATION OF THE PRODUCTION SCHEDULE OF THE APPELLANT HAS DUL Y BEEN TAKEN CARE OF BY THE LD. CIT(A) AS IT APPEARS FROM THE ORDER IMPUGNED BE FORE US WHICH IN OUR CONSIDERED OPINION HAS BEEN RIGHTLY OBSERVED AND SO AS TO WARRANT ITA NO.129/RJT/2016 A.Y. 2011-12 - 11 - INTERFERENCE. HENCE, THIS GROUND OF APPEAL PREFERR ED BY THE REVENUE IS DISMISSED. 17. GROUND NO.8:- THIS GROUND OF APPEAL RELATES TO RESTRICTION OF ADD ITION MADE BY THE LD. AO ON ACCOUNT OF PERSONAL ELEMENT A T 20% OUT OF THE VEHICLE EXPENSES TO 10% OF THE SAME. 18. THE LD. AO DISALLOWED RS. 73,198/- BEING 20% OF THE VEHICLE EXPENSES FOR PERSONAL USE. THE VEHICLE WAS PRIMARILY USED F OR ATTENDING FACTORY WHICH WAS 40 K.M. FROM APPELLANTS RESIDENTS AND, THEREFO RE, DISALLOWANCE AT 10% OF SUCH EXPENSES AS RESTRICTED BY THE LD. CIT(A) SEEMS TO BE JUSTIFIABLE AND HENCE CONFIRMED. THIS GROUND OF APPEAL PREFERRED B Y THE REVENUE THEREFORE FAILS. 19. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. SD/- SD/- (PRADIP KUMAR KEDIA) (MADHUM ITA ROY) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD: DATED 18/08/2021 TANMAY TRUE COPY / COPY OF ORDER FORWARDED TO:- 1. / REVENUE 2. ! / ASSESSEE 3. #$% & / CONCERNED CIT 4. & - / CIT (A) 5. '( ) **$% , $% , +,! # ! / DR, ITAT, AHMEDABAD 6. ) -. / / GUARD FILE. BY ORDER/ !' , / ( DY./ASSTT.REGISTRAR) ! ' , 0 / ITAT, RAJKOT 1.DATE OF DICTATION ON 27.07.2021&16.08.2021 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING MEMBER 16.08.2021 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 17.08.2021 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR . P.S./P.S 18 .08.2021 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 19 .08.2021 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER THIS ORDER PRONOUNCED IN OPEN COURT ON 18/08/2021