M/s. Deepkala Silk Palace, Ahmedabad V. The ACIT, Circle-10, Ahmedabad

ITA 134/AHD/2016

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 8310 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 1 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-03-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 19-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: L P JAIN DATES OF HEARING OF
• Keywords: Gross profit estimation; Rejection of books of accounts; Business income
• Section: 133A; 44AB; 13; 131; 145; 132

Judgement Text

M/S DEEPKALA SILK PALACE ITA NO. 134/AHD/2016 PAGE 1 OF 10 IN THE INCOME TAX APPELLATE TRIBUNAL, AHMEDABAD C BENCH, AHMEDABAD [ CORAM : HON BLE JUSTICE P . P BHAT, PRESIDENT AND PRAMOD KUMAR, VP ] ITA NO . 134 / AHD / 2016 ASSESSMENT YEAR : 2011 - 12 DEEPKALA SILK PALACE ............. APPELLANT CHINUBHAI CENTRE, ASHRAM ROAD, AHMEDABAD 380009 [ PAN : AACFD1669C ] VS ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE - 10 AHMEDABAD ....... RESPONDENT APPEARANCES BY RAJESH C . SHAH FOR THE APPELLANT L . P JAIN FOR THE RESPONDENT DATES OF HEARING OF THE APPEAL : DECEMBER 20 TH , 2019 DATE OF PRONOUNCING THIS ORDER : MARCH 12 TH , 2020 O R D E R PER BENCH : 1 . THIS APPEAL CHALLENGES CORRECTNESS OF THE ORDER DATED 18 TH DECEMBER 2015, PASSED BY THE LEARNED CIT ( A ) IN THE MATTER OF ASSESSMENT UNDER SECTION 143 ( 3 ) OF THE INCOME TAX ACT 1961, FOR THE ASSESSMENT YEAR 2011 - 12 . M/S DEEPKALA SILK PALACE ITA NO. 134/AHD/2016 PAGE 2 OF 10 2 . GRIEVANCES RAISED BY THE APPELLANT ARE AS FOLLOWS :- 1 . ( A ) THAT THE C . 1 . T .( APPEALS ) ERRED IN CONFIRMING THE REJECTION OF THE BOOKS OF ACCOUNT U / S 145 OF THE I . T . ACT AND ESTIMATION OF THE GROSS PROFIT@23 % BY THE A . O . WITHOUT POINTING OUT AS TO HOW THE PRE - CONDITIONS LAID DOWN UNDER THE SAID SECTION ARE FULFILLED . IT IS SUBMITTED THAT THE APPELLAN T HAS MAINTAINED COMPLETE AND CORRECT BOOKS OF ACCOUNT ( QUANTITATIVE RECORDS ARE NEITHER MANDATORY NOR FORM PART OF THE BOOKS OF ACCOUNT ) SUPPORTED BY ALL PURCHASE BILLS, SALES BILLS, BILLS AND VOUCHERS FOR THE OTHER EXPENSES, VALUATION OF CLOSING STOCK ON THE BASIS OF THE ACTUAL PHYSICAL VERIFICATION AND NOT ON AN ESTIMATED BASIS AS IS CANVASSED BY THE A . O . ; AS PER THE PAST PRACTICE DULY ACCEPTED IN SCRUTINY ASSESSMENTS AND WHICH ARE ALSO DULY AUDITED U / S 44AB OF THE I . T . ACT, FOLLOWED THE MERCANTILE SYST EM OF ACCOUNTING, STOCK VALUATION METHOD AND THE NOTIFIED ACCOUNTING STANDARDS REGULARLY AND CONSISTENTLY . IT IS, THEREFORE, SUBMITTED THAT ON THE FACTS OF THE CASE EXPLAINED IN THE STATEMENT OF FACTS READ WITH THE JUDICIAL DECISIONS CITED IN THE STATEMENT OF FACTS, THE REJECTION OF BOOKS OF ACCOUNT U / S 145 BE HELD TO BE BAD - IN - LAW AND THAT THE A . 0 . BE DIRECTED TO ACCEPT THE BOOKS OF ACCOUNT AND THE BOOK RESULT, TOO AND THATTHE ADDITION OF RS . 1285510 MADE BY HIM BE DELETED . 2 . ( A ) THAT THE C . I . T ( APPEALS ) FURTHER ERED IN MAKING AN ADDITION OF RS . 3672277 ON THE GROUND OF ALLEGED DISCREPANCY IN STOCK FOUND AT THE TIME OF THE SURVEY ON 29 / 30 - 10 - 2010 WITHOUT PRODUCING ANY EVIDENCE IN SUPPORT OF THE FACT THAT THE STOCK SHOULD HAVE BEEN OF RS . 5,05,24,099 MERELY ON THE BASIS OF THE MISCONVCEIVED STATEMENT OF A PARTNER DURING THE COURSE OF SURVEY VU / S 133A ( 3 ) WHICH HAS NO EVIDENTIARY VALUE . IT IS SUBMITTED THAT THE AUTHORISED OFFICER ERRED IN APPLYING THE G . P OF 21 . 38 % PERTAINING TO THE ENTIRE F . Y 2009 - 10 FOR DERI VING THE BOOK STOCK AS ON 29 - 10 - 2010 WITHOUT CONSIDERING THE EFFECT OF THE SPECIAL DISCOUNT OF RS . 4196655 OFFERED DURING THE ANNUAL SALE DURING THE PERIOD 8 - 7 - 2010 TO 15 - 8 - 2010 AND, THEREFORE, THE ACTUAL G . P EARNED DURING THE PERIOD PRIOR TO 29 - 10 - 2010 WA S BOUND TO BE LESS THAN THE G . P FOR THE ENTIRE F . Y 2009 - 10 AS EXPLAINED IN THE STATEMENT OF FACTS . IT IS SUBMITTED THAT THE G . P FOR THE F . Y 2010 - 11 IS BETTER AT 21 . 70 % THATN THE GP OF 21 . 38 % FOR THE F . Y 2009 - 10 . IT IS, THEREFORE, SUBMITTED THAT THE ADDITION OF RS . 3672277 IS ABSOLUTELY UNCALLED FOR, ARBITRARY AND UNJUSTIFIED AND ACCORDINGLY, THE SAME BE DELETED . WITHOUT PREJUDICE TO THE ABOVE, IT IS SUBMITTED THAT IF AT ALL THE ADDITION IS TO BE MADE ON ACCOUNT OF THE ALLEGED STOCK DISCREPANCY, THE SAME CAN BE MADE TO THE EXTENT OF RS . 796884 ONLY, BEINGGP @21 . 70 % OF RS . 3672277 AND, THEREFORE, THE ADDITION DESERVES TO THE REDUCED TO RS . 796884 AND THAT THE ASSESSMENT BE DIRECTED TO BE MODIFIED ACCORDINGLY . 3 . WITHOUT PREJUDICE TO THE GROUND NO . 1 AND 2, IT IS SUBMITTED THAT IF THEGP IS ESTIMATED, NO OTHER ADDITION CAN BE MADE ON THE GROUND OF ALLEED SHORTAGE OF STOCK M/S DEEPKALA SILK PALACE ITA NO. 134/AHD/2016 PAGE 3 OF 10 DERIVED DURING THE SURVEY . IT IS, THEREFORE, SUBMITTED THAT IF AT ALL THE GP ADDITION IS TO BE RETAINED FOR ANY REASON, THE ADDITIO N OF RS . 3672277 / RS . 796884 MADE / RETAINED ON ACCOUNT OF THE ALLEGED SHORTAGE OF STOCK BE DELETED IN ANY CASE AND THAT THE ASSESSMENT BE DIRECTED TO BE MODIFIED ACCORDINGLY AND NOT OTHER WAY ROUND AS HAS BEEN DIRECTED BY THE CIT ( A ). 3 . TO ADJUDICATE ON THIS APPEAL, ONLY A FEW MATERIALS FACTS NEED TO BE TAKE NOTE OF . THE ASSESSEE BEFORE US IS A TRADER IN SAREES AND DRESS MATERIALS . THE ASSESSEE WAS SUBJECTED TO A SURVERY UNDER SECTION 133A OF THE ACT, ON 29 TH OCTOBER 2010 . DURING THIS SURVEY, THE STOCK FOUND IN THE ASSESSEE S PREMISES, AS PER PRICE TAG THEREON, WAS OF RS . 5,95,92,829 /-. AFTER TAKING INTO ACCOUNT GP @12 . 38 % , IT S VALUE WAS TAKEN AT RS . 4,68,51,882 /-. IT WAS ALSO NOTED THAT AS PER THE BOOKS, THE VALUE OF STOCK WS RS . 5,05,24,099 /-. IT WAS IN THIS BACKDROP THAT DURING THE SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS PUT TO NOTICE AS TO WHY, THE DIFFERENCE, BETWEEN THE PHYSICAL STOCK FOUND VIS - - VIS STOCK AS PER BOOKS, WHICH WORKED OUT TO RS . 36,72,277 /- NOT BE ADDED AS SALE OUTSIDE THE BOOKS OF ACCOUNTS . THE EXPLANATION FURNISHED BY THE ASSESSE HAS BEEN WELL NOTED BY THE ASSESSING OFFICER AS FOLLOWS :- 7 . 1 IN RESPONSE THERETO, THE ASSESSEE VIDE REPLY DTD . 13 . 03 . 2013 CONTENDED THAT, IN CONTINUATION OF OUR SUBMISSIONS DT . 20 - 1 - 2014, WE WOULD LIKE TO SUBMIT THE FOLLOWING ALSO AS REGARDS THE ALLEGED DISCREPANCY FOUND IN THE STOCK, ON VERIFICATION OF SOME OF THEPAPERS OF THE SURVEY AVAILABLE WITH THE ASSESSEE AND SOME XEROX PROVIDED, WE FIND THATWHILE WORKING OUT THE DERIVED BOOK STOCK AT T HE TIME OF SURVEY, THE ACTUAL G . P . OF THE LASTFULL YEAR VIZ . 21 . 38 % WAS DEDUCTED FROM THE TOTAL SALES VALUE OF RS . 484226963 ( VIDEANS . 10 OF STATEMENT DT . 29 - 10 - 2010 BUT AS PER THE TRIAL BALANCE AS ON 29 - 10 - 2010 GIVENDURING THE SURVEY - RS . 48688903 ) DURING THE PERIOD 1 - 4 - 2010 TO 29 - 10 - 2010 AND THUSTHE COST OF SALES THEREOF WAS ARRIVED AT RS . 38073279 ALTHOUGH THERE WAS NO EVIDENCE TO SHOW THAT THE G . P . REALIZED DURING THE PERIOD 1 - 4 - 2010 TO 29 - 10 - 2010 WAS THE SAME AS IN THE LAST YEAR VIZ . 21 . 38 %. THIS WAS A CRUDE METHOD ADOPTED IN THE ABSENCE OF AN Y OTHER BASIS WITHOUT APPRECIATING THE ACTUAL REALITY THAT THERE WAS A 'DISCOUNT SALE' DURINGTHE PERIOD 5 - 7 - 2010 TO 31 - 7 - 2010 WHERE THE SALES IS MADE BY OFFERING A SPECIAL DISCOUNT . MOREOVER, THE SALES AND TH E COMPOSITION OF SALES IS NOT UNIFORM DURING THE ENTIRE YEAR ANDTHE MARGIN IS ALSO NOT UNIFORM IN RESPECT OF ALL THE VARIETIES AND RANGES . IT WILL ALSO NOT BEOUT OF PLACE TO STATE THAT THE G . P . DURING THE PERIOD AFTER OCTOBER IS ALWAYS HIGHER ON ACCOUNT OF THE FESTIVAL BUYING, MARRIAGE SEASON AND NON - RESIDENT M/S DEEPKALA SILK PALACE ITA NO. 134/AHD/2016 PAGE 4 OF 10 BUYING WHERE THE SALESREALIZATION AND MARGIN ARE BOTH HIGHER . MOREOVER, DURING THIS PERIOD, THERE IS NO ' DISCOUNT SALE' AND, THEREFORE, THERE IS NO QUESTION OF OFFERING HIGH DISCOUNT . THIS WILLNATURALLY RESULT IN THE ACTUAL G . P . BEING LOWER FOR THE PERIOD UPTO THE DATE OF SURVEY THANTHE G . P . FOR THE ENTIRE PREVIOUS YEAR . WE HAVE GONE THROUGH THE BOOKS OF ACCOUNT ANDOTHER RECORDS FOR THE PERIOD 1 - 4 - 2010 TO 29 - 10 - 2010 AND WE FIND THAT THE ASSESSEE HASGIVEN A SPECIAL DISCOUNT AGGREGATING TO RS . 41,96,655 IN THIS PERIOD AND THEREAFTER THE NETSALES OF RS . 4,86,88,903 WAS REFLECTED IN THE TRIAL BALANCE AS ON 29 - 10 - 2010 GENERATEDFROM THE SYSTEM AT THE TIME OF THE SURVEY . THIS SPECIAL DISCOUNT COMES TO 8 . 62 % OF RS . 4,86,88,903 . WE ARE SUBMITTING HEREWITH THE FRESH TRADING ACCOUNT FOR THIS PERIOD ON THEBASIS OF THE T . B . AS ON 29 - 10 - 2010 GIVEN TO THE AUTHORIZED OFFICER REFLECTING THE G . P . OF 13 . 42 %. IT WILL, THEREFORE, BE APPRECIATED THAT IF G . P . % AGE OF LAST FULL YEA R VIZ . 21 . 38 % IS APPLIED TO THIS LIMITED PERIOD ALSO IGNORING THIS FACT THAT DURING THIS PERIOD, ON ACCOUNTOF THE 'SALE' FALLING WITHIN THIS PERIOD, HUGE DISCOUNT OF RS . 41,96,655 WAS OFFERED TO THECUSTOMERS WHICH IS SUPPORTED BY THE BOOKS OF ACCOUNT AND OTH ER RECORDS INCLUDING THEBILLS, IT WILL GIVE ABSOLUTELY WRONG FIGURES OF COST OF SALES ON LOWER SIDE DURING THISPERIOD AND, THEREFORE, THE DERIVED STOCK WILL BE MUCH HIGHER THAN THE ACTUAL PHYSICALSTOCK . ONE CANNOT PUT THE FIGURE OF G . P . AND THAN ARRIVE AT THE STOCK . ON THE CONTRARY,STOCK IS REQUIRED TO BE TAKEN PHYSICALLY FIRST AND THAN THE G . P . IS REQUIRED TO BE WORKEDOUT ON THE BASIS OF THE SAME . WE ARE SUBMITTING HEREWITH THE DETAILS OF SUCH DISCOUNTOFFERED TO THE CUSTOMERS . IN VIEW OF THIS, THE ACTUAL G . P . DURING THIS PERIOD COULD NOT BETHE SAME AS IN THE LAST FULL YEAR BUT THE SAME IS LIKELY TO BE AFFECTED BY SUCH HEAVYDISCOUNT OF 8 . 62 % AS SHOWN ABOVE . IN VIEW OF THIS, IT IS ABSOLUTELY WRONG AND FALLACIOUSTO ASSUME THAT THE DERIVED STOCK SHOULD HAVE BEE N RS . 50524099 AND SINCE THE ACTUALSTOCK FOUND PHYSICALLY ON 29 - 10 - 2010 WAS RS . 46851882, THERE WAS A SHORTAGE OF STOCKBY RS . 3672277 . IT IS IMPORTANT TO NOTE THAT DURING THE COURSE OF THE SURVEY NOTHING WAS FOUND TO SHOW THAT THE ASSESSEE WAS INDULGING IN ANY INCRIMINATING PRACTICES LIKEUNACCOUNTED PURCHASE, SALES OR EXPENSES . THE SHORTAGE IN STOCK CAN OCCUR ONLY IF THEASSESSEE HAS INDULGED IN UNACCOUNTED SALES . THE ASSESSEE HAS BEEN RUNNING A RETAIL SHO PTHROUGH MORE THAN 35 EMPLOYEES AND, THEREFORE, IT IS ALSO NOT POSSIBLE TO INDULGE IN UNACCOUNTED SALES . THEREFORE, IN THE ABSENCE OF UNCCOUNTED SALES FOUND DURING THESURVEY, THE AFORESAID EXPLANATION DESERVES TO BE ACCEPTED AND NO ADDITION CAN BEMADE IN RESPECT OF THE ALLEGED AND SO CALLED SHORTAGE OF RS . 3672277 IN STOCK WORKEDOUT AT THE TIME OF SURVEY BY FOLLOWING A VERY CRUDE, IMPRACTICAL AND WRONG METHOD, WHICH MAY KINDLY BE NOTED . 7 . 2 WITHOUT PREJUDICE TO THE ABOVE, WE HAVE ALSO TO SUBMIT THAT EVEN IF IT IS ASSUMED FOR THE MOMENT WITHOUT ACCEPTING IT THAT THERE WAS A SHORTAGE OF STOCK, THE ENTIRE SHORTAGECANNOT BE ADDED TO THE TOTAL INCOME BUT ONLY THE PROFIT THAT MIGHT HAVE BEEN EARND . THEREON CAN BE ADDED TO THE TOTAL INCOME AS PER THE JUDICIAL DECISI ONS RENDERED SO FAR . KINDLY, THEREFORE, RESTRICT THE ADDITION TO THIS EXTENT AND OBLIGE . M/S DEEPKALA SILK PALACE ITA NO. 134/AHD/2016 PAGE 5 OF 10 7 . 3 KINDLY REFER TO THE STATEMENT RECORDED ON 29 - 10 - 2010 DURING THE COURSE OF THE SURVEY . IN THIS REGARD, WE HAVE TO SUBMIT THAT UNDER THE PROVISIONS OF SECTION 133A, THERE IS NOPOWER GIVEN TO THE AUTHORISED OFFICER TO RECORD A STATEMENT ON OATH AS IN THE CASE OF ASEARCH U / S 132 / 132 ( 4 ) OF THE ACT . IN VIEW OF THIS, SUCH STATEMENT IS WITHOUT ANY LEGALSANCTITY AND, THEREFORE, CANNOT BE USED AT ALL AGAINST THE ASSESSEE . IT IS EXPLAINED BY THEASSESSEE THAT DURING THE PERIOD 1 - 4 - 2009 TO 29 - 10 - 2010, THERE WAS ALSO A 'DISCOUNT SALE'WHERE SPECIAL DISCOUNT WAS OFFERED WHICH RESULTS IN LOWER G . P . IN SPITE OF THIS, THEAUTHORIZED OFFICER HAD DERIVED THE STOCK BY APPLYING THE G . P . OF 2 1 . 38 % FOR THE ENTIRELAST YEAR IGNORING THE DISCOUNTS SO OFFERED AND THE ASSESSEE WAS MISGUIDED TO BELIEVE THATTHERE MIGHT HAVE BEEN UNACCOUNTED SALES AND THE READINESS TO PAY TAX ON RS . 785347 WAS EXTRACTED / RECORDED WHICH IS STRONGLY DENIED FOR THE REASONS EXPLAINED HEREINBEFORE . AS A MATTER OF FACT, THE AUTHORISED OFFICER HAS NO POWERS TO RECORD ANY DISCLOSURE OF INCOMEDURING THE COURSE OF THE SURVEY . 7 . 4 IT WILL ALSO NOT BE OUT OF PLACE TO STATE THAT THE PERUSAL OF THE ENTIRE YEAR'S TRADINGACCOUNT FOR THE F . Y . 2010 - 11 SHOWS THAT THE G . P . WAS 21 . 70 % WHICH IS SLIGHTLY BETTER THAN THEG . P . OF 21 . 38 % IN THE F . Y . 2009 - 10 . IN VIEW OF THIS ALSO, THE BOOK RESULT DESERVES TO BEACCEPTED EVEN THOUGH SOME SHORTAGE IN STOCK WAS WORKED OUT DURING THE SURVEY BY THEAUTHORIS EDOMFFICER BY FOLLOWING WRONG AND CRUDE METHOD WITHOUT APPRECIATING THE REALITY OFFACTS AND THE REASONS EXPLAINED HEREINBEFORE . 4 . THE ASSESSING OFFICE, HOWEVER, REJECTED THE SAID EXPLANATION AND OBSERVED AS FOLLOWS :- 8 . 1 . ON VERIFICATION OF RECORDS IT IS SEEN THAT G . P . OF THE FIRM IS ALMOST MAINTAINED IN EVERY YEAR WITH THE SLIGHT DIFFERENCE WHICH IS ALSO ACCEPTED BY THE ASSESSEE IN HIS REPLY . DURING THE SURVEY WHILE COMPUTING UNACCOUNTED STOCK G . P . 21 . 38 % OF F . Y . 2009 - 10 WAS CONSIDERED WHICH WAS VERY MUCH FAIR METHOD ADOPTED BY THE DEPARTMENT . ASSESSEE HAS NOT MAINTAINED ANY STOCK REGISTER SO THAT DIFFERENCE CANNOT BE DERIVED ON THE BASE OF THE SAME . THUS, OPTION LEFT WITH THE DEPARTMENT WAS ONLY DEDUCTION OF G . P . FROM THE TOTAL SALE . IT SHOULD ALSO BE NOT ED DOWN THAT WHILE RECORDING STATEMENT U / S 131 OF SHREE PRAGNESHBHAIDEEPAKBHAI SHAH HE WAS ASKED IN QUE . NO . 10 THAT YOU ARE NOT MAINTAINING STOCK REGISTER THAN HOW WOULD YOU DERIVED THE STOCK AS ON TODAY? IN REPLY OF THE SAME HE SAID THAT AS ON TODAY I HAVE OPENING STOCK + PURCHASE IS RS . 8,91,35,300 AND SALES IS RS . 4,84,26,963 /- AND DURING LAST F . Y . 2009 - 10 OUR GROSS PROFIT WAS OF RS . 21 . 38 % AND IF SAME IS CONSIDERED AS ON TODAY AND IF THE SUM OF OPENING STOCK + PURCHASE + G . P . DEDUCTED FROM THE TOTAL VALUE OF SALES THEN MY STOCK AS ON TODAY CAN BE DERIVED . HE ALSO STATED THAT EXCEPT THIS I HAVE NOT ANY OTHER OPTIONAL METHOD ON THE BASE OF THE SAME VALUE OF THE STOCK AS ON TODAY CAN BE DERIVED . HERE, ASSESSEE HIMSELF HAS ACCEPTED THAT THE METHOD TO DERIVED UN ACCOUNTED STOCK ADOPTED BY DEPARTMENT WAS APPROPRIATE AND HE HAS ALSO NOT SUGGESTED ANY OPTIONAL METHOD AND M/S DEEPKALA SILK PALACE ITA NO. 134/AHD/2016 PAGE 6 OF 10 ALSO NO RAISED ANY OBJECTION DURING THE SURVEY . HENCE, WHATEVER METHOD WAS ADOPTED FOR COMPUTING UNACCOUNTED STOCK BY DEPARTMENT, ASSESSEE WAS AGREED WITH THE SAME . 8 . 2 DURING THE SURVEY STATEMENT OF ONE OF THE PARTNER OF M / S / DEEPKALA SILK PALACE SHREE PRAGNESHBHAI SHAH WAS RECORDED . THOUGH SURVEY WAS DONE U / S 133A BUT STATEMENT WAS RECORDED U / S 131 OF THE I . T . ACT . AND SAME HAS LEGAL SANCTITY AND HENCE, IT CAN BE USED AGAINST THE ASSESSEE . DURING THE SURVEY AUTHORIZED OFFICER HAS USED THE POWER TO DERIVED UNACCOUNTED STOCK IN FAIR MANNER WHICH WAS ACCEPTED BY ASSESSEE HIMSELF AND AT THE RESULT ASSESSEE WAS AGREED TO PAY TAX OF RS . 7,85,347 /- ON THE SAME . WHICH WAS ADMITTED IN THE STATEMENT PARTANER SHREE PRAGNESHBHAI HIMSELF THAT THE STOCK DIFFERENCE OF RS . 36,72,277 /- IS MY UNACCOUNTED SALES AND IF IT WILL BE INCLUDED IN MY INCOME THAN I WILL PAY TAX THEREON . 8 . 3 THE FACT SHOULD ALSO BE CONSIDER ED THAT WHILE THE PROCEEDING OF THE SURVEY U / S 133A IF THE AUTHORIZED OFFICER DO NOT FIND ANY EVIDENCE REGARDING UNACCOUNTED SALE THEN IT CANNOT BE PRESUMED THAT SALE OF THE ASSESSEE IS GENUINE BECAUSE IT IS UP TO ASSESSEE HOW TO DO OR BY WHAT METHOD TO SA LE OUT OF BOOKS OF ACCOUNTS BUT ONCE THE UNACCOUNTED STOCK HAS BEEN FOUND THAN IT CAN BE PRESUMED THAT ASSESSEE IS INDULGED IN THE PRACTICE OF SALES OUT OF BOOKS OF ACCOUNT UNTIL AND UNLESS ASSESSEE FURNISHED ANY GENUINE REASON REGARDING THE SAME . THIS PRA CTICE HAS NO RELATION WITH THE NUMBER OF EMPLOYEES WORKING WITH THE FIRM AT ALL . WITH THE REFERENCE OF REASONS QUOTED ABOVE CONTENTIONS OF THE ASSESSEE CANNOT BE ACCEPTED AND TOTAL VALUE OF RS . 36,72,277 /- HAS BEEN ADDED TO THE TOTAL INCOME OF THE ASSESSEE TREATING THE SAME AS UNACCOUNTED SALES OR SALES OUT OF BOOKS OF ACCOUNTS . PENALTY PROCEEDINGS U / S . 271 ( 1 )( C ) ARE ALSO SEPARATELY INITIATED FOR CONCEALMENT / FURNISHING OF INACCURATE PARTICULARS OF INCOME . ( ADDITION : 36,72,277 /) 5 . ACCORDING LY , AN ADDITION OF RS . 36,72,277 /- WAS MADE BY THE ASSESSING OFFICER . 6 . IN THESE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER ALSO NOTED THAT THE ASSESSEE HAS NOT MAINTAINED PROPER SOTCK RECORDS ON DAY TO DAY BASIS . HE WAS OF THE VIEW THAT IN THE ABSENCE OF SUCH RECORDS, IT WAS OPEN TO THE ASSESSING OFFICE STO RESPECT THE BOOKS OF ACCOUNTS AS PER SECTION 145 ( 3 ). HE REJECTED THE BOOKS OF ACCOUNTS AND PROCEEDED TO ADOPT 23 % AS REASONABLE GP , AS AGAINST 21 . 70 % DISCLOSED BY THE ASSESSEE . ACCORDINGLY, ANOTHE R ADDITION OF RS . 12,85,510 /- WAS ALSO MADE TO THE RETURNED INCOME . M/S DEEPKALA SILK PALACE ITA NO. 134/AHD/2016 PAGE 7 OF 10 7 . AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT ( A ) , BUT WITHOUT MUCH SUCCESS . WHILE LEARNED CIT ( A ) DID NOT UPHOLD THE ADDITION ON ACCOUNT OF LOW GP, AS IT WAS TREATED AS SUBSUMED IN STOCK SOLD OUTSIDE BOOKS CONFIRMED THE ADDITION ON ACCOUNT OF STOCK ALLEGED TO HAVE BEEN SOLD OUTSIDE BOOKS ON THE BASIS OF, INTER ALIA, THE FOLLOWING REASONING : - 4 . 6 . THE APPELLANT HAS FURTHER CONTENDED THAT IN THE ABSENCE OF THE QUANTITATIVE RECORDS THE BOOK STOCK WAS DERIVED AT RS . 5,05,24,099 /- BY APPLYING THE G . P . OF 21 . 38 % FOR THE PREVIOUS YEAR TO THE TOTAL SALES UP TO THE DATE OF THE SURVEY ON PRESUMPTIVE BASIS WITHOUT APPRECIATING THE FACTS THAT THE APPELLANT HAVE CONDUCTED AN ANNUAL SALE DURING THE MONTH OF JULY WHICH WAS EXTENDED TO AUGUST, 2010 . IT IS FURTHER CONTENDED THAT THE AO HAS APPLIED THE G . P . OF 21 . 38 % WITHOUT TAKING INTO CONSIDERATION SPECIAL DISCOUNT ALLO WED TO THE CUSTOMERS DURING THE PERIOD UP TO THE DATE OF SURVEY . 4 . 2 THERE IS NO DISPUTE THAT ASSESSEE IS NOT MAINTAINING DAY TO DAY STOCK REGISTER . DURING THE COURSE OF SURVEY THE AO HAS DERIVED AT BOOK STOCK AS PER THE METHOD MENTIONED BY THE ASSESSEE I N THE STATEMENT . THERE WAS A DIFFERENCE IN THE STOCK FOUND AT THE TIME OF SURVEY AND THE STOCK AS PER BOOKS OF ACCOUNTS WHICH WAS ALSO OFFERED BY THE ASSESSEE FOR THE TAXATION . IT IS ALSO PERTINENT TO MENTION HERE THAT THE AO HAS APPLIED THE G . P . AT 21 . 38 % AS SUGGESTED BY THE ASSESSEE DURING THE COURSE OF SURVEY . THIS IS THE G . P . SHOWN BY THE ASSESSEE IN THE PRECEDING FINANCIAL YEAR . AS PER THE TREND OF G . P . IN THE PRECEDING YEARS, IN THE CURRENT FINANCIAL YEAR G . P . MUST BE HIGHER THAN THIS . THEREFORE, THE CONTENTION OF THE APPELLANT THAT FOR THE CALCULATION OF BOOK STOCK G . P . WAS TAKEN AT HIGHER RATE IS NOT CORRECT . CONSIDERING ALL THESE FACTS, THE ADDITION MADE BY THE A . O . ON ACCOUNT OF UNACCOUNTED SALES IS JUSTIFIED AND THE SAME IS CONFIRMED . 8 . IN PRINC IPLE, HOWEVER, HE CONFIRMED THE ADDITION ON ACCOUNT OF LOW GP BY OBSERVING AS FOLLOWS :- 3 . 4 . DURING THE COURSE OF APPELLATE PROCEEDINGS, THE APPELLANT HAS MAINLY CONTENDEDTHAT HE HAS BEEN MAINTAINING COMPLETE AND CORRECT BOOKS OF ACCOUNT AND OTHER RECORDSW HICH ARE DULY AUDITED U / S . 44AB OF THE ACT AND WHICH HAVE BEEN DULY ACCEPTED ALL ALONGTHE PAST EVEN THE SCRUTINY ASSESSMENTS . THEREFORE, THE AO HAS ERRED IN REJECTING THE BOOK RESULTS . THE APPELLANT HAS FURTHER CONTENDED THAT THE AO HAS NOT POINTED OUT ANY SPECIFICDISCREPANCIES, OMISSION OR MISTAKE IN RESPECT OF THE PURCHASE BILLS AND SALE BILLS OREXPENSES ON SUCH VERIFICATION AND THERE IS NO ALLEGATION THE BOOKS M/S DEEPKALA SILK PALACE ITA NO. 134/AHD/2016 PAGE 8 OF 10 OF ACCOUNTS ARE EITHERINCORRECT OR INCOMPLETE . THE APPELLANT HAS RELIED ON FOLLOWING DECISIONS : - 1 . C . I . T . V . VIKRAM PLASTICS & OTHERS239 ITR 161 ( GUJ ) 2 . MADNANI CONSTRUCTION CORPORATION LTD . V . C . I . T . 296 ITR 45 ( GAU ) 3 . BASTIRAMNARAYANDAS V . C . I . T . 210 ITR 439 ( BOM ) 4 . ALLUMINIUM INDUSTRIES LTD . V . C . I . T . 80 TAXMAN 184 ( GAU ) 5 . DCIT V . PARAS DYEING &PTG . MILLS P . LTD . - 4 ITR ( TRIB ) 29 ( AHD ) THE DECISIONS RELIED UPON BY THE APPELLANT HAVE HELD THAT THE BOOK RESULTS CANNOTBE REJECTED IF THE AO HAS NOT POINED OUT ANY MISTAKE IN THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE . IN THE PRESENT CAS E, THE FACTS ARE COMPLETELY DIFFERENT . THE AO HAS POINTED OUT THE SPECIFIC IN THE MAINTENANCE OF BOOKS OF ACCOUNTS . THE ASSESSEE IS NOT MAINTAINING DAY - TO - DAY STOCK REGISTER AND VALUE OF STOCK IN TRADE IS TAKNE ON ESTIMATED BASIS ONLY . THIS FACT IS FURTHER CONFIRMED BY THE AUDIT REPORT FURNISHED ALONGWITH THE RETURN OF INCOME AND THE FINDINGS OF THE SURVEY PROCEEDINGS . CONSIDERING ALLTHESE FACTS THE AO HAS RIGHTLY REJECTED THE BOOK RESULT OF THE ASSESSEE . NOW THE QUESTIONREMAINS REGARDING THE ESTIMATION OF THE G . P . THE AO HAS TAKEN THE G . P . AT 23 % INSTEADOF 21 . 70 % SHOWN BY THE APPELLANT ON THE BASIS OF THE PROFIT SHOWN BY THE ASSESSEE INPRECEDING YEARS . THE ASSESSING OFFICER HAS CONSIDERED THE PATTERN OF GROSS PROFIT INPRECEDING YEARS IN THE ASSESSEE'S OWN C ASE . THE AO HAS TAKEN A REASONABLE G . P . AND HEHAS NOT ESTIMATED G . P . AT A VERY HIGH AND UNREASONABLE RATE . THEREFORE, THE ADDITIONMADE BY THE A . O . AFTER ESTIMATING THE G . P . IS CORRECT AND JUSTIFIED AND THE SAME ISCONFIRMED . 9 . AGGRIEVED BY THE STAND SO TAK EN BY THE CIT ( A ) , THE ASSESSEE IS IN FURTHER APPEAL BEFORE US . 10 . WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION . 11 . SO FAR AS REJECTION OF BOOKS ON ACCOUNT OF ABSENCE OF DAY TO DAY RECORDS IS CONCERNED, WE FIND THAT, AS HELD BY HON BLE DELHI HIGH COURT IN THE CASE OF CIT VS POONAM RANI [( 2010 ) 326 ITR 223 ( DEL )] , IF STOCK REGISTER IS NOT MAINTAINED BY THE ASSESSEE THAT MAY PUT THE ASSESSING OFFICER O N GUARD AGAINST THE FALSITY OF THE RETURN MADE BY THE ASSESSEE AND PERSUADE HIM TO CAREFULLY SCRUTINIZE THE BOOKS OF ACCOUNTS OF THE ASSESSEE, BUT THE ABSENCE OF ONE REGISTER ALONE DOES NOT AMOUNT TO SUCH A MATERIAL AS WOULD LEAD TO THE CONCLUSION THAT BOO KS OF ACCOUNTS WERE M/S DEEPKALA SILK PALACE ITA NO. 134/AHD/2016 PAGE 9 OF 10 INCOMPLETE OR INACCURATE . WE HAVE NOTED THAT ALL OTHER FIGURES, EXCEPT THE PROFIT RATE, ARE TAKEN FROM THE BOOKS OF ACCOUNTS . IN THE LIGHT OF THESE DISCUSSIONS, WE ARE OF THE CONSIDERED VIEW THAT REJECTION OF BOOKS OF ACCOUNTS IS WHO LLY UNSUSTAINABLE BASIS . COMING TO THE ADDITION ON ACCOUNT OF ALLEGED SALE OUTSIDE THE BOOKS , WE FIND THAT THE SOLE BASIS FOR THE IMPUGNED ADDITION IS A MEMORANDUM ACCOUNT PREPARED ON THE BASIS OF ESTIMATING CLOSING STOCK AND ADOPTING THE AVERAGE GROSS P ROFIT RATE . T HERE IS AN INHERENT F ALLACY IN THIS APPROACH INASMUCH AS GROSS PROFIT RATE OF A PRODUCT LIKE TRADITIONAL SAREES AND SUCH DRESS MATERIAL, WHICH HAS A PEAK DEMAND ONLY IN THE WEDDING SEASON AND IS SOLD AT HEAVY DISCOUNT IN LEAN PERIODS SEASON, W ILL BE STATIC IN ALL THE TWELVE MONTHS . THE VERY COMPUTATION OF CLOSING STOCK AS PER BOOKS OF ACCOUNTS IN THIS CASE . THUS, PROCEEDS ON THE BASIS OF SWEEPING GENERALIZATIONS OF A STATIC GP RATE ALL OVER THE YEAR . THE AUTHORITIES BELOW HAVE ALSO BRUSHED ASIDE THE CLAIM OF THE ASSESSEE THAT TOTAL DISCOUNT OF RS . 41,96,655 /- ON NET SALES OF RS . 4,86,88,885 /- DURING 01 . 04 . 2020 TO 29 . 10 . 2010 WAS PAID BY THE ASSESSEE PARTICULARLY IN DISCOUNT SALE SEASON OF JULY AND AUGUST . OBVIOUSLY, THE GP RATE IN DISCOU NT SALE SEASON , WHICH FELL IN THE PERIOD OF THE YEAR BEFORE THE DATE OF SURVEY ON 30 . 10 . 2010, CANNOT BE THE SAME AS THE PERIOD OF WEDDING SEASON WHICH FELL IN THE PERIOD OF THE YEAR AFTER THE DATE OF SURVEY . 12 . IN VIEW OF THE ABOVE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, WE DEEM IT FIT AND PROPER TO DELETE THE ADDITION OF RS . 36,22,277 . ON ACCOUNT OF SALE OUTSIDE BOOKS OF ACCOUNTS . 13 . WE MAY ALSO ADD THAT, IN ANY EVENT, THE BOOKS OF ACCOUNTS AT THE TIME OF SURVEY WERE FOUND TO BE IN ORDER, THE CASH BALANCE DULY TALL I ED AND NO INATING MATERIALWAS FOUND . GIVERN THESE FACTS,IN ANY EVENT, THE INTERENCE ABOUT UNACCOUNTED SALES DOES NOT APPEAL TO US . 14 . GROUND NOS 1 AND 2 ARE THUS ALLOWED, AND GROUND NO 3 IS RENDERED INFRUCTUOS . M/S DEEPKALA SILK PALACE ITA NO. 134/AHD/2016 PAGE 10 OF 10 15 . IN THE RESULT, THE APPEAL IS ALLOWED IN THE TERMS INDICATED ABOVE . ORDER P RONOUNCED UNDER, RULE 34(4) OF THE INCOME TAX (APPELLATE TRIBUNAL) RULES, 1962, BY PLACING THE DETAILS ON THE NOTICE BOARD. SD/ - SD/ - JUSTIC E P . P BHATT PRAMOD KUMAR ( PRESIDENT ) ( VICE PRESIDENT ) AHMEDABAD , DATED 12 TH OF MARCH , 2020 COPIES TO : ( 1 ) THE APPELLANT ( 2 ) THE RESPONDENT ( 3 ) CIT ( 4 ) CIT ( A ) ( 5 ) DR ( 6 ) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD