M/s Shubham Cotton Mills Pvt. Ltd., Ellenabad V. DCIT, Circle, Sirsa

ITA 1416/CHANDI/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 3349 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 11 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2015-2016
• Appeal Filed On: 05-11-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Rejection of books of accounts; Capital asset; Depreciation; Charitable institution; Opportunity of being heard; Additional evidence; Cost of acquisition; Wrong claim; Commercial expediency; Capital Gains; Bogus
• Section: 143(3); 133A; 234B; 143(1); 201; 139(1); 44AB; 48; 72; 13; 145(3); 22; 20

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BE NCH B, CHANDIGARH (VIRTUAL COURT) .., ! '# .. , $ %& BEFORE: SHRI. N.K.SAINI, VP & SHRI , R.L. NEGI, JM ITA NO. 1416/CHD/2019 ASSESSMENT YEAR : 2015-16 M/S SHUBHAM COTTON MILLS(P) LTD. NOHAR ROAD, ELLENABAD THE DY. CIT CIRCLE, SIRSA PAN NO: AAICS6150J APPELLANT RESPONDENT !' ASSESSEE BY : SHRI GAUTAM JAIN, ADVOCATE SHRI LALIT MOHAN, CA #!' REVENUE BY : SHRI ASHOK KUMAR, ADDL. CIT $ %! & DATE OF HEARING : 04/08/2021 '()*! & DATE OF PRONOUNCEMENT : 11/10/2021 %'/ ORDER PER N.K. SAINI, VICE PRESIDENT THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DT. 01/08/2019 OF THE LD. CIT(A)-5, LUDHIANA. 2. FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEA L: 1. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS)-5, LUDHIANA HAS ERRED BOTH IN LAW AND ON FACTS IN UPHOLDING THE DET ERMINATION OF TOTAL INCOME OF THE APPELLANT AT RS. 1,31,72,653/- AS AGAINST DECLA RED INCOME OF RS. 39,73,110/- IN AN ORDER OF ASSESSMENT 29.12.2017 UNDER SECTION 143 (3) OF THE ACT. 2. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) HAS ALSO ERRED BOTH IN LAW AND ON FACT IN MAKING AN ADDITION OF RS . 91,99,543/- BY APPLYING GP RATE OF 2.75% ON TRADING IN GUAR GAM IN THE INSTANT YEAR. 2.1 THAT WHILE CONFIRMING THE ADDITION, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS OVERLOOKED RELEVANT EVIDENCE PLAC ED ON RECORD AND, DRAWN FACTUALLY INCORRECT AND LEGALLY UNSUSTAINABLE INFER ENCES BASED ON IRRELEVANT AND EXTRANEOUS CONSIDERATIONS AND THUS, ADDITION SUSTAI NED IS WHOLLY UNWARRANTED AND NOT IN ACCORDANCE WITH LAW. 2 2.2 THAT WHILE CONFIRMING THE ADDITION THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ALSO ERRED BOTH IN LAW AND ON FAC TS IN UPHOLDING THE REJECTION THE TRADING RESULTS MADE BY INVOKING SECTION 145(3) OF THE ACT. 2.3 THAT ADVERSE INFERENCE DRAWN BY THE LEARNED AUT HORITIES BELOW PRIMARILY ON THE GROUND THAT PURCHASE PRICES ARE AT DIFFERENT RATES SO AS TO ALLEGE THAT THERE IS INFLATED PURCHASE PRICE AND LIKEWISE EVEN THE SELLING RATES ARE AGAINST NORMAL PRACTICE AND ARE ERRATIC IS BASED ON FACTUAL LY MISCONCEIVED ASSUMPTION AND PRESUMPTION LEGALLY INCORRECT PROPOSITION AND T HEREFORE UNSUSTAINABLE. 2.4 THAT EVEN OTHERWISE THE ADDITION SUSTAINED IS B ASED ON INHERENT CONTRADICTORY ASSUMPTIONS SINCE THE LEARNED ASSESSI NG OFFICER HAS ACCEPTED THE TRADING RESULTS WHILE COMPUTING THE INCOME AND YET MADE THE IMPUGNED ADDITION WHICH IS ENTIRELY ILLOGICAL, ILLEGAL AND I NVALID. 3. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) HAS FURTHER ERRED BOTH IN LAW AND ON FACTS IN UPHOLDING THE LEVY OF I NTEREST UNDER SECTION 234 OF THE ACT AND U/S 234B OF THE ACT WHICH ARE NOT LEVIABLE ON THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLANT COMPANY. 3. GRIEVANCE OF THE ASSESSEE VIDE GROUND NO. 1 TO 2 .4 RELATES TO THE SUSTENANCE OF ADDITION OF RS. 91,99,543/- MADE BY T HE A.O. BY APPLYING THE G.P RATE. 4. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE E-FILED ITS RETURN OF INCOME ON 19/09/2015 DECLARING AN INCOME OF RS. 39,73,110/ - WHICH WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961 (H EREINAFTER REFERRED TO AS ACT) AT THE RETURNED INCOME. IN THIS CASE A SURVE Y OPERATION UNDER SECTION 133A OF THE ACT WAS CONDUCTED ON 18/11/2014, THEREF ORE THE CASE WAS SELECTED FOR COMPULSORY SCRUTINY. 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. NOTICED THAT THE ASSESSEE HAD SHOWN TAXABLE INCOME OF RS. 39,73,110/ -. HOWEVER AT THE TIME OF SURVEY THE ASSESSEE OFFERED AN ADDITIONAL INCOME OF RS. 1,05,19,500/-. WHEN CONFRONTED WHY RETURNED INCOME WAS LOWER THAN THE S URRENDERED INCOME, THE ASSESSEE SUBMITTED AS UNDER: 'THAT AT THE TIME OF SURVEY SELLING PRICE OF GUWAR GUM WAS RS. 14.500/- PER OTLS, WHICH HAS BEEN REDUCED TO RS. 11,700/- PER OTLS WITH IN ONE MONTH OF SURVEY. COMPANY HAS 5173.67 QTL STOCK OF GUWAR GUM AND 1385 8.05 QTL GUWAR AT THE TIME OF SURVEY. FROM CRUSHING OF 13858.05 QTL GUWAR 4630 QTLS GUWAR GUM WAS MANUFACTURED. DUE TO RECESSION IN MAR KET AVERAGE 3 REALIZATION OF GUWAR GUM WAS RS. 13071.63 PER QTL. UPTO 18.12.2014. IN ADDITION TO THE ABOVE SUBMISSION ASSESSEE'S COUNSEL HAS EXPL AINED THAT PRICES OF GUWAR GUM WAS ON DECLINED SUBSTANTIALLY AFTER THE DATE OF SURVEY AND HAS BEEN REDUCED TO RS. 8525/- AT THE END OF THE YEAR. HE FU RTHER EXPLAINED THAT THE PRICES OF OTHER COMMODITIES MANUFACTURED BY THE COMPANY HA S ALSO DECLINE AS COMPARED TO PREVIOUS YEAR 5.1 THE A.O. DID NOT ACCEPT THE ABOVE SUBMISSIONS O F THE ASSESSEE BY OBSERVING THAT THE ASSESSEE HAD SHOWN HIGHER PURCHA SE PRICE IN RESPECT TO SOME COMMODITIES AGAINST THE MARKET PRICE AND HAD S HOWN LOWER SALE VALUE AS COMPARED TO MARKET PRICE. HE FURTHER OBSERVED THAT THE G.P RATE HAD DECLINED TO 2.35% IN COMPARISON TO 2.98% SHOWN IN THE LAST Y EAR AND THAT THE DECREASE IN G.P RATE HAD BEEN SHOWN BY THE ASSESSEE EVEN AFTER CONSIDERING THE FINDINGS OF THE SURVEY IN RESPECT OF UNACCOUNTED STOCK FOUND DU RING THE COURSE OF SURVEY AND AGAINST THE INCREASE IN G.P RATE WHICH SHOULD H AVE HAPPENED AS A RESULT OF UNACCOUNTED STOCK. THE A.O. ALSO OBSERVED THAT THE ASSESSEE GROSSLY MANIPULATED ITS BOOKS TO REDUCE THE G.P RATE EVEN B ELOW THE LAST YEAR G.P RATE AND THAT THE RATIONALE GIVEN BY THE ASSESSEE FOR DE CREASE IN RATE OF GUWAR GUM DID NOT SEEM TO HOLD GOOD AS IN THE SUCCEEDING YEAR THE ASSESSEE HAD SHOWN G.P RATE OF 3.48%. THE A.O. POINTED OUT THAT THE DI SCREPANCY HAD BEEN FOUND IN RESPECT OF PURCHASE AND SALE BILLS SUBMITTED BY THE ASSESSEE. ACCORDINGLY, A SHOW CAUSE LETTER FOR REJECTION OF BOOKS OF ACCOUNT S WAS ISSUED TO THE ASSESSEE WHO WAS REQUIRED TO SUBMIT REPLY BY 26/12/2017. 5.2. IN RESPONSE, THE ASSESSEE SUBMITTED THAT THE B OOKS OF ACCOUNT HAD BEEN RIGHTLY MAINTAINED, ACCOUNTING STANDARD WERE FOLLOW ED AND THE BOOKS WERE AUDITED. IN RESPECT OF RATE OF COMMODITIES, THE ASS ESSEE SUBMITTED THAT IT HAD BEEN IN ACCORDANCE WITH ACCOUNTING STANDARD AND HAS BEEN AUDITED BY THE CHARTERED ACCOUNTANT. IT WAS FURTHER SUBMITTED THAT IN RESPECT OF SOME ITEMS I.E; COTTON, COTTON SEED, KHAL BINOLA, GUWAR GIRI RATES HAD DECREASED. 5.3 THE A.O. AFTER CONSIDERING THE SUBMISSIONS OF T HE ASSESSEE OBSERVED THAT THE BILLS SUBMITTED DURING THE COURSE OF ASSESSMENT PROCEEDINGS REVEALED THAT 4 PURCHASES HAD BEEN TAKEN AT HIGHER RATE IN COMPARIS ON TO MARKET RATE. HE POINTED OUT THAT MARKET RATE CAPTURED FROM E-NET SI TE I.E; AGRO MARKET WAS AT RS. 3720/- ON 20/12/2014, WHEREAS THE ASSESSEE PURCHASE D GUAR @ RS. 4263/- & RS. 4296/- FROM M/S RAM LAL & COMPANY AND RS. 4281/- ON THE SAME DATE FROM M/S ELLENABAD TRADING COMPANY. HE ALSO POINTED OUT THAT THE MAXIMUM RATE FROM E-NET SITE WAS RS. 4325/- IN RESPECT OF SIMILAR MAN DI I.E; ELLENABAD, WHICH GAVE AVERAGE RATE OF RS. 4023/-. THUS THE ASSESSEE HAD B EEN SHOWING HIGHER PURCHASE PRICE POST SURVEY THAN THE MARKET PRICE. THE A.O. P OINTED OUT CERTAIN DISCREPANCIES IN THE RATE FROM DIFFERENT PARTIES ON THE SAME DATE WHICH READ AS UNDER: SR. NO NAME OF PARTY FROM WHOM PURCHASE DATE OF PURCHASE RATE ITEM 1 M/S MADAN LAI KUNJI LAI, ELLENABAD 22.12.2014 425 0/- GUWAR 2 M/S HARI SINGH NARINDER SINGH, ELLENABAD 22.12.20 14 4096/- GUWAR 3 SHREE SHIV TRADING CO. ELLENABAD 22.12.2014 4406/ - GUWAR 4 M/S BHIKHA RAM RAKESH KUMAR, ELLENABAD 22.12.2014 4400/- GUWAR 5 BHAMBHUTRADING CO. ELLENABAD 14.03.2015 3636/- GUWAR 6 M/S CHANNMAL LILADHAR, ELLENABAD 14.03.2015 3621/ - GUWAR 7 TALWARIA COMMISSION SHOP, ELLENABAD 14.03.2015 37 00/- GUWAR THE A.O. ALSO POINTED OUT CERTAIN DISCREPANCIES IN RESPECT OF SALE BILLS BY OBSERVING IN PARA 3.4 & 3.5 OF THE ASSESSMENT ORDER AS UNDER: 3.4, SIMILARLY, DISCREPANCIES HAVE BEEN OBSERVED IN RESPECT OF SALES BILL ALSO, FOR INSTANCE, ON 21.11.2014 SALES OF GUWAR GIRI HAVE BE EN SHOWN AT RS. 13,500/- TO ONE PARTY, RS. 14,125/- TO ANOTHER PARTY AND RS. 14 ,200/- TO THIRD PARTY. SIMILARLY, ON 15.12.2014, 18.12.2014,08.01.2015, 24.01.2015, 29.0 1.2015, 07.02.2015, 14.03.2015 ETC. DIFFERENT SELLING RATES HAVE BEEN SHOWN FOR DI FFERENT PARTIES. THIS IS AGAINST THE NORMAL MARKET PRACTICE AS THE RATE FOR A DAY IS MAR KET DRIVEN AND REMAINS CONSTANT FOR A DAY. 3.5 MOREOVER, AGAINST THE RATIONALE OF THE ASSESSEE THAT PRICES OF GUWAR WERE FALLING, PERUSAL OF SALES LEDGER SHOWS THAT PRICES HAVE BEEN SHOWN TO BE ERRATIC. FOR INSTANCE, RATE OF GUWAR ON 19.11.2014 HAS BEEN SHOWN TO BE RS. 14250/-, WHICH DECREASED ON 20.11.2014 TO RS. 13700/-, BUT A GAIN INCREASED ON 26.11.2014 TO RS. 14360/-, FALLING AGAIN ON 18.12.2014 TO RS. 11750/-, RISING AGAIN ON 26.12.2014 TO RS. 12800/-, THEREAFTER DECREASING ON 10.01.2015 TO RS. 9500/-, RISING AGAIN ON 28.1.2015 TO RS. 11350/-. THUS, THE SELLING PRICE H AS BEEN SHOWN TO BE ERRATIC AND THERE HAS NOT BEEN A CONSTANT DECLINE. 5 THE A.O. DID NOT ACCEPT THIS EXPLANATION OF THE ASS ESSEE THAT THE DECREASE IN PRICE OF GUWAR, POST SURVEY HAD IMPACT ON THE BUSINESS OF THE ASSESSEE BY OBSERVING THAT THE G.P RATE IN THE SUCC EEDING ASSESSMENT YEAR 2016-17 WAS AT 3.48% AS AGAINST G.P RATE OF 2.98% F OR THE ASSESSMENT YEAR UNDER CONSIDERATION I.E; 2014-15. 5.4 THE A.O. ALSO OBSERVED THAT THERE WERE HUGE VAR IATION IN PURCHASE PRICE VIS A VIS SALE PRICE OF GUWAR CHURI WHICH YIELDED P ROFIT BEFORE SURVEY BUT RESULTED LOSS IN POST SURVEY. THE A.O. POINTED OUT THAT THE ASSESSEE WAS HAVING CLOSING STOCK OF RS. 13,07,33,970/- AS ON 31/03/2015 AS AGA INST THE OPENING STOCK OF RS. 7,59,98,548/- AS ON 01/04/2014. THUS THERE WAS INCR EASE OF STOCK BY RS. 5,47,35,422/- AND THE MAJOR COMPONENT WAS OF GUWAR GIRI AMOUNTING TO RS. 5,55,09,557/-. HE ALSO POINTED OUT THAT VALUE OF ST OCK ON THE DATE OF SURVEY I.E; 18/11/2014 WAS AT RS. 12,88,17,570/- WHICH INCLUDED STOCK OF GUWAR UNIT OF RS. 10,65,88,165/- AND THE VALUATION OF STOCK WAS DONE AT THE COST OR NET RECEIVABLE VALUE WHICHEVER WAS LOWER. HE THEREFORE WAS OF THE VIEW THAT THE DECLINE IN PROFIT COULD NOT BE ATTRIBUTED TO THE DECLINE IN MA RKET RATE AS INCREASE IN STOCK DURING THE FINANCIAL YEAR AS WELL AS DURING THE PER IOD POST SURVEY INDICATED THAT THE ASSESSEE MAINLY CONSUMED THE STOCK ON IMMEDIATE BASIS . THE A.O. REJECTED THE BOOKS OF ACCOUNT BY INVOKING THE PROVISIONS OF SECTION 145(3) OF THE ACT BY OBSERVING THAT THE ASSESSEE HAD MANIPULATED ITS BOO KS OF ACCOUNT TO OFFSET THE FINDINGS OF THE SURVEY AND TO REDUCE ITS TAXABLE IN COME. THE A.O. MADE THE ADDITION OF RS. 91,99,543/- BY OBSERVING IN PARA 4. 1 OF THE ASSESSMENT ORDER DT. 29/12/2017 WHICH READ AS UNDER: A.Y. TURNOVER G.P. RATE (RS.) (%) 2013-14 232,89,76,881 2.36 2014-15 275,90,17,151 2.98 2015-16 231,89,87,327 2016-17 144,51,53,735 3.48 CONSIDERING THE TREND OF GP BEING 2.36% FOR A.Y. 20 13-14, 2.98% FOR A.Y. 2014-15 AND 3.48% FOR A.Y. 2016-17, GP RATE OF 2.75% IS HEL D FOR A.Y. 2015-16. THUS, ON A 6 TURNOVER OF RS. 231,89,87,327/-, CONSIDERING GP RAT E OF 2.75%, GROSS PROFIT IS ARRIVED AT RS. 6,37,72,151/-. IT MAY BE APPRECIATED THAT GP RATE AS PER INCREASING TREND COMES TO AROUND 3.2%-3.25%. HOWEVER, IT IS ACCEPTED THAT THERE HAS BEEN A DECLINE IN THE PRICES OF GUWAR AFTER 2013, THEREFOR E BEING REASONABLE, GP IS ESTIMATED AT 2.75%. THUS, THERE IS AN ADDITION OF R S. 91,99,543/-TO THE INCOME OF THE ASSESSEE. 6. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED AS UNDER: SUB: IN THE MATTER OF M/S SHUBHAM COTTON MILLS (P) LTD, APPEAL NO. 187/ROT/IT/CIT(A)-5/LDH/2018-19 ASSESSMENT YEAR: 20 15-16 IN THE PENDING APPELLATE PROCEEDINGS, THE APPELLANT RESPECTFULLY SEEKS TO SUBMIT AS UNDER: 1. GROUNDS 1 TO 4 OF GROUNDS OF APPEAL RELATE TO ADDITION OF RS. 91,99,543/- BY APPLYING GP RATE OF 2.75% ON TRADING IN GUAR GUM IN THE INSTANT YEAR. 2. THE BASIS OF ADDITION IS AS UNDER: SR. NO. PARTICULARS AS PER ASSESSEE AS PER ASSESSING OFFICER* I) SALE 231,89,87,327 231,89,87,327 II) G.P. RATE 2.35% 2.75% III) GROSS PROFIT (IN RS.) 5,45,72,609 6,37,72,151 IV) ADDITION 91,99,543 (6,37,72,151 - 5,45,72,609) 2.1 THE BASIS OF G.P. RATE ADOPTED BY THE LEARNED A SSESSING OFFICER IS AS UNDER: SR. ASSESSMENT TURNOVER G. P. RATE NO. YEAR I) 2013-14 232,89,76,881 2.36% II) 2014-15 275,90,17,151 2.98% HI) 2015-16 231,89,87,327 IV) 2016-17 144,51,53,735 3.48% 2.3 THE LEARNED ASSESSING OFFICER HAS HOWEVER STATED THA T GP RATE AS PER INCREASING TREND COMES TO AROUND 3.2%-3.25%. HOWEVE R IT IS ACCEPTED THAT THERE HAS BEEN A DECLINE IN THE PRICES OF GUWAR AFTER 201 3. THEREFORE BEING REASONABLE GP IS ESTIMATED AT 2.75%. 2.4 IT IS SUBMITTED THAT LEARNED ASSESSING OFFICER WHILE MAKING THE ABOVE ADDITION HAS ALSO REJECTED THE BOOKS U/S 145(3) OF THE ACT. 7 2.5 IT IS SUBMITTED THAT LEARNED ASSESSING OFFICER HAS I NVOKED THE AFORESAID PROVISION ON THE FOLLOWING BASIS: I) THAT PURCHASES HAVE BEEN TAKEN AT HIGHER RATE IN COMPARISON TO MARKET RATE AS TABULATED HEREUNDER; SR. NO. NAME OF PARTY DATE RATE PER QTL. A. AS PER BOOKS OF ASSESSEE I) MANI RAM MOHAN LAI 20.12.2014 4263 II) RAM LAI AND COMPANY 20.12.2014 4281 B. AS PER E-NET SITE I.E. AGRO MARKET MINIMUM RATE 3720 MAXIMUM RATE 4325 II) THAT ON A SINGLE DAY, PURCHASES MADE FROM SAME MANDI HAVE BEEN SHOWN AS DIFFERENT RATES AS TABULATED HEREUNDER; SR. NO. NA ME OF PARTY FROM WHOM PURCHASES DATE 'OF PURCHASE RATE ITEM I) MANI RAM MOHAN LAI 22.12.2014 4250/- GUWAR II) M/S HARI SINGH NARINDER SINGH, ELLENABAD 22.12.2014 4096/- GUWAR III) SHREE SHIV TRADING CO. ELLENABAD 22.12.2014 4406/- GUWAR IV) M/S BHI KHA RAM RAKESH KUMAR, ELLENABAD 22.12.2014 4400/- GUWAR V) BHAMBHU TRADING CO., ELLENABAD 14.03.2015 3636/- GUWAR VI) M/S CHANNMAL LILADHAR, ELLENABAD 14.03.2015 3621/- GUWAR VII) TALWARIA COMMISSION SHOP, ELLENABAD 14.03.2015 3700/- GUWAR III) DISCREPANCIES HAVE BEEN OBSERVED IN RESPECT OF SALES BILL ALSO IN AS MUCH ON ONE DAY DIFFERENT SELLING RATES HAVE BEEN SHOWN FOR DIFFERENT PARTIES: SR. NO. DATE RATE ITEM I) 21.11.2014 13,500/- GUWAR GIRI II) 21.11.2014 14,125/- GUWAR GIRI III) 21.11.2014 14,200/- GUWAR GIRI NOTE; IT HAS BEEN STATED THAT SIMILAR TREND WAS ALS O ON 26.11.2014, 15.12.2014, 18.12.2014, 8.1.2015, 24.1.2015, 29.1.2015, 7.2.201 5, 25.2.2015 AND 14.3.2015 8 IV) THE RATIONALE OF THE ASSESSEE THAT PRICES OF GU WAR WERE FALLING; WHEREAS PERUSAL OF SALES LEDGER SHOWS THAT PRICES HAVE BEEN SHOWN TO BE ERRATIC SR. NO. DATE RATE I) 19.11.2014 14,250/- II) 20.11.2014 13,700/- III) 26.11.2014 14,360/- IV) 18.12.2014 11,750/- V) 26.12.2014 12,800/- VI) 10.01.2015 9,500/- VII) 28.01.2015 11,350/- V) THAT VERSION OF DECREASE IN PRICE OF GUWAR POST SURVEY AND ITS IMPACT ON BUSINESS OF ASSESSEE DOES NOT HOLD MERIT FOR ANOTHE R REASON THAT AS TABULATED HEREUNDER: SR. NO. ASSESSMENT YEAR G.P. I) 2016-17 3.48% II) 2014-15 2.98% THUS STRANGELY THERE HAVE BEEN A LOSS' IN THE BUSIN ESS ONLY FOR A LIMITED PERIOD FROM 19.11.2014 TO 31.3.2015 I.E. THE PERIOD POST SURVEY . VI) COMPARISON OF AVERAGE RATES PRE AND POST SURVEY IN RESPECT OF PURCHASE AND SALE OF GWAR CHURI ALSO REVEALS DISCREPANCIES; SR. NO. PARTICULARS RATE PRE- SURVEY RATE POST- SURVEY CHANGE AS NOTED BY AO I) PURCHASE 1080/- 2215/- 100% INCREASE II) SALE 1353/- 1639/- 20% INCREASE VIII) THAT ASSESSEE HAS MANIPULATED ITS BOOKS TO OF FSET THE INCOME SURRENDERED DURING THE COURSE OF SURVEY. THE LEARNED ASSESSING OFFICER HAS NOTED AS UNDER: TABLE I SR. NO. PARTICULARS OPENING STOCK CLOSING STOCK INCREASE IN STOCK I) STOCK (TOTAL) 7,59,98,548 13,07,33,970 5,47,35,4 22 II) STOCK INCLUDES GUWAR GIRI 12,29,50,576 5,55,09,557 TABLE II SR. NO. PARTICULARS OPENING STOCK ON THE DATE OF SURVEY I.E. 18.11.2014 INCREASE IN STOCK I) STOCK (TOTAL) 7,59,98,548 12,88,17,570 528,19,02 2 II) STOCK INCLUDES GUWAR GIRI 10,65,88,165 THAT FURTHER LEARNED ASSESSING OFFICER HAS OBSERVED AS UNDER: 9 'AS MENTIONED IN THE AUDITED BOOKS, VALUATION OF ST OCK IN RESPECT OF FINISHED GOODS AND WORK-IN-PROGRESS IN DONE AT THE COST OR N RV WHICHEVER IS LOWER. THUS, IT IS OBSERVED THAT DECLINE IN PROFIT CANNOT BE ATTRIB UTED TO THE DECLINE IN MARKET RATES, AS INCREASE IN STOCK DURING THE FINANCIAL YE AR, AS WELL AS DURING THE PERIOD POST SURVEY, INDICATES THAT THE ASSESSEE HAS MAINLY CONSUMED THE STOCK ON IMMEDIATE BASIS. WHEN THE STOCK IS CONSUMED ON IMME DIATE BASIS, THERE CANNOT BE A SUBSTANTIAL LOSS IN A SHORT PERIOD OF 4 MONTHS POST SURVEY. THIS CONFIRMS THAT THE ASSESSEE HAS MANIPULATED ITS BOOKS TO OFFSET TH E INCOME SURRENDERED DURING THE COURSE OF SURVEY.' 3 AT THE OUTSET IT IS RESPECTFULLY SUBMITTED THAT A DDITION MADE IS ON FUNDAMENTAL MISCONCEPTION OF FACTS AND CIRCUMSTANCES OF APPELLA NT COMPANY AND STATUTORY PROVISION OF LAW. 3.1 THE APPELLANT COMPANY DURING THE INSTANT YEAR H AD MADE SALES OF RS. 231,89,87,327/- WHICH ARE DISCLOSED IN AUDITED FINA NCIAL STATEMENT ( PAGE 71 OF PAPER BOOK), BEING PART OF THE BALANCE SHEET FURNIS HED BY THE APPELLANT COMPANY FOR THE INSTANT ASSESSMENT YEAR. 3.2 IT IS SUBMITTED THAT LEARNED ASSESSING OFFICER H AS ERRONEOUSLY HOLD THAT PURCHASES HAVE BEEN TAKEN AT HIGHER RATE IN COMPARI SON TO MARKET RATE; AND LESS GROSS PROFIT IS SHOWN BY THE APPELLANT COMPANY. IT IS RESPECTFULLY SUBMITTED THAT GROSS PROFIT IS LOW DUE TO HEAVY RECESSION IN GUAR GUM INDUSTRY; AND THEREFORE, THERE IS LOW REALIZATION ON TURNOVER. IT IS SUBMITT ED THAT CLOSING STOCK AS ON 18.11.2014 (ON THE DATE OF SURVEY) WAS AS UNDER : SR. NO. PRODUCT QUANTITY (IN QTL.) RATE AS ON DATE OF SURVEY AMOUNT I) GUAR GUM 5173.67 14500 7,50,18,215 II) GUAR GUM (CRUSHED AFTER POST SURVEY FROM STOCK OF GUAR SEED ON THE DATE OF SURVEY 13858.05 QTL.) 4630.00 14500 6,71,35,000 TOTAL 9803.67 14,21,53,215 3.3 IT IS SUBMITTED THAT AFTER POST SURVEY SUBSEQUE NT SALE REALIZATION OF GUAR GUM WAS AS UNDER: SR. NO. PERIOD WEIGHT (IN QTLS) AMOUNT AVERAGE RATE I) 18.11.2014 TO 30.11.2014 4172.00 5,86,34,800.00 14054.36 II) 01.12.2014 TO 31.12.2014 8456.00 10,47,27,980.00 12385.05 III) 01.01.2015 TO 31.01.2015 7882.10 8,98,94,790.00 11404.93 IV) 01.02.2015 TO 9197.60 8,62,79,460.00 9380.65 10 28.02.2015 V) 01.03.2015 TO 31.03.2015 11193.60 9,84,81,196.00 8797.99 TOTAL 40901.30 43,80,18,226.00 10709.15 EVIDENCE (PAGES OF PAPER BOOK) I) COPY OF SALE REGISTER OF GUAR GUM OF THE APPELLANT COMPANY (97- 118) II) COPY OF INVOICES (119-154) III) COPY OF AUDITED FINANCIAL STATEMENT OF THE APPELLAN T COMPANY (57 READ WITH 71) IV) COPY OF BANK STATEMENT OF THE APPELLANT COMPANY (600-830) V) COPY OF ASSESSMENT ORDER UNDER SUB SECTION (3) OF S ECTION 15 OF HVAT ACT 2003 (163-165) 3.4 FROM THE PERUSAL OF TABULATION ABOVE, IT IS EVI DENT THAT SELLING PRICES OF GUAR GUM WERE CONTINUOUSLY FALLING AFTER POST SURVEY; AN D THEREFORE THERE IS NO BASIS TO REJECT THE BOOKS OF ACCOUNTS U/S 145(3) OF THE ACT. 3.5 IT IS SUBMITTED THAT ABOVE SUBMISSION IS ALSO F ORTIFIED BY TABULAR CHART TABULATED HEREUNDER: I. IT IS SUBMITTED THAT SALE REALIZATION OF GUAR G UM IN THE PRECEDING YEARS WAS AS UNDER: SR. NO. ASSESSMENT YEAR WEIGHT (IN QTLS) AMOUNT AVERAGE RATE I) 2012-13 61250.30 112,39,69,126 18350.43 II) 2013-14 38725.26 134,07,74,670 34,622.74 HI) 2014-15 100990.80 179,09,33,200 17733.63 II. IT IS SUBMITTED THAT PURCHASE COST OF GUAR SEED IN THE PRECEDING YEARS WAS AS UNDER: SR. NO. ASSESSMENT YEAR WEIGHT (IN QTLS) AMOUNT AVERAGE RATE I) 2012-13 187627.58 110,40,02,920 5884.01 II) 2013-14 127788.11 145,98,31,366 7780.47 III) 2014-15 344485.01 207,06,67,668 6010.91 III. IT IS SUBMITTED THAT SALE REALIZATION OF GUAR GUM IN THE INSTANT YEAR IS AS UNDER: SR. NO. PERIOD WEIGHT (IN QTLS) AMOUNT AVERAGE RATE I) PRE SURVEY UPTO 17.11.2014 69165.15 105,05,70,605 15189.31 II) POST SURVEY (18.11 .2014 40397.30 43,10,88,226 10671.21 11 TO 31.03.2015) TOTAL 109562.45 148,16,58,831 13523.42 IV. IT IS SUBMITTED THAT PURCHASE COST OF GUAR SEED IN THE INSTANT YEAR IS AS UNDER: SR. NO. PERIOD WEIGHT (IN QTLS) AMOUNT AVERAGE RATE I) PRE SURVEY UPTO 17.11.2014 222729.85 117,74,31,254 5286 II) POST SURVEY (18.11.2014 TO 31.03.2015) 132562.92 55,11,24,464 4157 TOTAL 355292.77 172,85,55,719.52 4865 4 IT IS SUBMITTED THAT THE ENTIRE PURCHASES OF GUAR SEED ARE DULY RECORDED IN THE PURCHASE REGISTER PLACED AT PAGES 196 TO 496 OF PAPER BOOK AND THE ENTIRE PURCHASES HAVE BEEN ACCEPTED BY THE VAT DEPARTMENT. IT IS SUBMITTED THAT , FINDING OF THE LEARNED ASSESSING OFFICER THAT THERE IS THE VARIATION OF MORE THAN RS. 300 IN RESPECT OF PURCHASE OF SAME ITEM FROM SAME MANDI, O N SAME DATE IS MISCONCEIVED. IT IS SUBMITTED THAT THE PURCHASES AR E MADE THROUGH AUCTION IN MANDI FROM VARIOUS UN-RELATED PARTIES. THE AUCTION IS MONITOR BY THE MARKET COMMITTEE. ELLENABAD. WHICH IS CONTROLLED BV THE HA RVANA GOVERNMENT. IT IS SUBMITTED THAT PRICES OF GUAR ARE DEPEND ON THE QUA LITY OF GUWAR . IT IS SUBMITTED THAT GUWAR HAS ALSO BEEN PURCHASED ON DIFFERENT RAT ES ON THE SAME DATE IN PRE SURVEY PERIOD. THE DETAILS OF SOME OF PURCHASES ON THE SAME DATE ARE AS UNDER: SR. NO. DATE MAXIMUM RATE (PER QTL.) (A) MINIMUM RATE (PER QTI.)(B) DIFFERENCE C=(A-B) I) 01.04.2014 4579 4171 408 II) 05.04.2014 4440 4241 199 III) 11.04.2014 4384 3825 559 IV) 05.05.2014 5384 5186 198 V) 08.05.2014 5164 4665 499 VI) 21.05.2014 4979 4688 291 VII) 23.05.2014 5120 4930 190 VIII) 29.05.2014 4985 4685 300 IX) 03.06.2014 4900 4581 319 X) 06.06.2014 4912 4615 297- XI 16.06.2014 4940 4681 259 XII) 23.06.2014 5149 4636 513 XIII) 27.06.2014 5459 5246 213 4.1 FROM THE PERUSAL OF TABULATION ABOVE IT IS SUBM ITTED THAT THERE ARE NO PARAMETER OF FIXED PRICE OF COMMODITY IN THE SAME D ATE. IT IS SUBMITTED THAT EVEN THE LEARNED ASSESSING OFFICER, HIMSELF ADMITTED THAT WHILE QUOTING THE MARKET RATE CAPTURED FROM E-NET SITE I.E. AGRO MARKET RATE ADMI TTED THAT MINIMUM RATE IS RS. - 3720/- PER QTL. AND MAXIMUM RATE IS RS. 4325/- PER QTLS. INFACT ABOVE SUBMISSION IS ALSO SUPPORTED BY CERTIFICATE FROM OFFICE OF MARKET COMMITTEE, ELLENABAD (SIRSA) 12 PLACED AT PAGES 831 TO 834 OF PAPER BOOK. IT IS ALSO SUBMITTED THAT AFTER POST SURVEY APPELLANT COMPANY PURCHASED GUAR SEED AT MAR KET PRICE. THE DETAIL OF PURCHASES AFTER POST SURVEY IS AS UNDER: SR. NO PERIOD WEIGHT (IN QTLS) AMOUNT AVERAGE RATE I) 18.11.2014 TO 30.11.2014 13413.61 6,41,58,607.00 4783.10 II) 01.12.2014 TO 31.12.2014 19549.13 8,91,72,688.00 4561.47 III) 01.01.2015 TO 31.01.2015 18636.85 8,22,00,193.00 4410.63 IV) 01.02.2015 TO 28.02.2015 27038.12 10,41,21,892.00 3850.93 V) 01.03.2015 TO 31.03.2015 34609.92 13,01,00,766.00 3759.06 TOTAL 113247.63 46,97,54,146.00 4148.03 EVIDENCE (PAGES OF PAPER BOOK) I) COPY OF PURCHASE REGISTER OF GUAR SEED OF THE APPEL LANT COMPANY (196-496) II) COPY OF AUDITED FINANCIAL STATEMENT OF THE APPELLAN T COMPANY (71) III) COPY OF BANK STATEMENT OF THE APPELLANT COMPANY (600-830) IV) COPY OF ASSESSMENT ORDER UNDER SUB SECTION (3) OF SECTION 15 OF HVAT ACT 2003 (163-165) 4.2 IT IS SUBMITTED THAT APPELLANT COMPANY HAD ALSO PURCHASED THROUGH AUCTION IN MANDI ELLENABAD FROM VARIOUS UN-RELATED PARTIES: SR. NO. PERIOD WEIGHT (IN QTLS.) AMOUNT AVERAGE RATE BEFORE MANDI EXPS. AFTER MANDI EXPS. BEFORE MANDI EXPS. AFTER MANDI EXP. I) 18.11.2014 TO 30.11.2014 3054.50 1,39,18,089.00 1,43,00,015.00 4556.59 4681. 62 II) 01.12.2014 TO 31.12.2014 7926.08 3,41,56,296.00 3,50,94,463.00 4309.36 4427. 72 III) 01.01.2015 TO 31.01.2015 4276.00 1,80,65,967.00 1,85,64,095.00 ' 4224.97 434 1.46 IV) 01.02.2015 TO 28.02.2015 3765.00 1,40,57,850.00 1,44,49,570.00 3733.82 3837. 87 V) 01.03.2015 TO 31.03.2015 1285.50 45,79,550.00 47,07,575.00 3562.47 3662.06 TOTAL 20307.08 8,47,77,752.00 8,71,15,718.00 4174.79 4289.92 5 IT IS SUBMITTED THAT FOLLOWING FINDINGS OF LEARNE D ASSESSING OFFICER IS ALSO INCORRECT AND, MISCONCEIVED: 13 'IN RESPECT OF GUWAR CHURI WHICH IS PURCHASED AS WE LL AS SOLD BY THE ASSESSEE, AGAINST MORE THAN 100% INCREASE IN PURCHASE RATE PO ST SURVEY (FROM RS. 1080/-PRE SURVEY TO RS. 2215/- POST SURVEY), THERE HAS BEEN O NLY 20% INCREASE IN SELLING RATE (FROM RS. 1353/- TO 1639/-)'. 5.1 IT IS SUBMITTED THAT THERE ARE TWO BY- PRODUCTS MANUFACTURED BY THE APPELLANT COMPANY I.E. GUAR CHURI AND GUAR KORMA. THE OBSERVA TION OF LEARNED ASSESSING OFFICER IS MISCONCEIVED THAT GUAR CHURI IS PURCHASE OF RS. 2215/- PER QTL. IN POST SURVEY PERIOD. INFACT APPELLANT COMPANY ONLY PURCHA SED GUAR KORMA IN THE MONTH OF MARCH' 2015. THERE IS NO PURCHASE OF GUAR KORMA AND GUAR CHURI IN ANY OTHER MONTH IN THE YEAR. PRICE OF GUAR KORMA WAS HI GHER IN COMPARISON TO GUAR CHURI IN THE INSTANT YEAR. THE LEARNED ASSESSING OF FICER HAS APPLIED JOINT AVERAGE RATE OF GUWAR CHURI AND GUWAR KORMA. BOTH ARE DIFF ERENT AND DISTINGUISHED PRODUCTS. THE DETAILS OF PURCHASE AND SALES OF BOTH THE PRODUCTS ARE AS UNDER: I) PURCHASED OF GUAR KORMA FROM 18.11.2014 TO 31.03 .2015 SR. NO. PERIOD WEIGHT (IN QTLS) AMOUNT AVERAGE RATE I) 18.11.2014 TO 30.11.2014 0 0 0 II) 01.12.2014 TO 31.12.2014 0 0 0 III) 01.01.2015 TO 31.01.2015 0 0 0 IV) 01.02.2015 TO 28.02.2015 0 0 0 V) 01.03.2015 TO 31.03.2015 2206 44,43,290 2215 TOTAL 2206 44,43,290 2215 II) SALE OF GUAR KORMA FROM 18.11.2014 TO 31.03.201 5 SR. NO. PERIOD WEIGHT (IN QTLS) AMOUNT AVERAGE RATE I) 18.11.2014 TO 30.11.2014 4454.50 61,81,993.00 1387.81 II) 01.12.2014 TO 31.12.2014 10708.45 1,71,89,957.00 1605.27 III) 01.01.2015 TO 31.01.2015 10632.45 1,97,86,546.00 1860.96 IV) 01.02.2015 TO 28.02.2015 9377.20 1,85,27,809.00 1975.84 V) 01.03.2015 TO 9052.10 2,03,79,357.00 2251.34 14 31.03.2015 TOTAL 44224.70 8,20,65,662.00 1855.65 III) SALE OF GUAR CHURI FROM 18.11.2014 TO 31.03.20 15 SR. NO. PERIOD WEIGHT (IN QTLS) AMOUNT AVERAGE RATE I) 18.11.2014 TO 30.11.2014 5240.15 5542361.00 1057.67 II) 01.12.2014 TO 31.12.2014 11769.28 13347725.00 1134.12 I') 01.01.2015 TO 31.01.2015 9676.93 14066820.00 1453.64 IV) 01.02.2015 TO 28.02.2015 10332.70 16460884.00 1593.09 V) 01.03.2015 TO 31.03.2015 11894.87 21202569.00 1782.50 TOTAL 48913.93 70620359.00 1443.36 5.2 IN VIEW OF ABOVE, IT IS SUBMITTED THAT GUAR KOR MA PURCHASED IN MARCH 2015 OF RS. 2215 PER QTL WAS SOLD IN MARCH 2015 OF RS. 2251 .34 PER QTL,; AND THEREFORE THERE WAS HIGHER REALIZATION; 6.1 IT WAS FURTHER SUBMITTED THAT THE ASSESSEE MAIN TAINED THE PROPER BOOKS OF ACCOUNTS WHICH WERE DULY AUDITED UNDER SECTION 44AB OF THE ACT AND THE QUANTITATIVE DETAILS WERE SUMMARIZED, THERE WERE SA LES OF RS. 231.89 CRORES AND PURCHASES OF RS. 213.82 CRORES. IT WAS STATED THAT THERE WAS NO DIRECT EVIDENCE TO DISPUTE OR DENY ANY OF THE TRANSACTION, THE BILL S WERE FURNISHED DURING THE COURSE OF ASSESSMENT PROCEEDINGS. 6.2 IT WAS FURTHER SUBMITTED THAT THE ASSESSEE, ON THE BASIS OF THE BOOKS OF ACCOUNT DECLARED NET PROFIT AS PER P&L ACCOUNT AT R S. 28,66,228/- AND SUCH PROFIT HAD BEEN ACCEPTED AS SUCH, THE PURCHASES WER E DULY SUPPORTED BY THE BILLS AND VOUCHERS AND THE TRADING RESULT HAD BEEN ACCEPTED IN THE PRECEDING YEARS UNDER SECTION 143(3) OF THE ACT. THE G.P. RAT E DECLARED BY THE ASSESSEE WAS AT 2.88% AND 2.36% IN THE A.Y. 2012-13 AND 2013 -14 RESPECTIVELY WHEREAS 15 THE G.P RATE FOR THE YEAR UNDER CONSIDERATION WAS A T 2.98%. THEREFORE THE A.O. WAS UNJUSTIFIED IN INVOKING THE PROVISIONS OF SECTI ON 145(3) OF THE ACT. THE RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: CIT VS. EXCEL INDUSTRIES LTD. 358 ITR 295 (SC) S.N. NAMASIVAYAM CHETTIAL VS. CIT 38 ITR 579 (SC) CIT VS. PARADISE HOLDIAYS 325 ITR 13 (DEL) CIT VS. M/S RICE INDIA EXPORTS PVT. LTD. IN ITA NO. 999/2010 DATED 03.08.2010 CIT VS. SMT. POONAM RANI 326 ITR 223 (DEL) CIT VS. JAS JACK ELEGANCE EXPORTS 324 ITR 95 ITO VS. SOMSONS & CO., 148 TAXMAN 21 (ASR) (MAG) PANDIT BORS. VS. CIT 26 ITR 159 (PUNJ) S. VEERIAH REDDIAR VS. CIT 38 ITR 152 (KER) P. VENKANNA VS. CIT 72 ITR 328 (MYS) R.V.S. AND SONS DAIRY FARM VS. CIT 257 ITR 764 (MAD ) CIT VS. SUPERIOR CRAFTS IN ITA NO. 244/2009, 547/20 11, 548/2011 AND 615/2011(DEL) DT. 06/03/2012 CIT VS. JACKSONS HOUSE 198 TAXMAN 385 (DEL) CIT VS. WINNER CONSTRUCTIONS (P) LTD. IN ITA NO. 79 6/2011(DEL) DT. 03/05/2012 LUNAR ELECTRICALS VS. ACIT IN ITA NO. 195/2006(DEL) DT. 22/03/2012 UMA CHARAN SHAW & BROS. CO. VS. CIT 37 ITR 271 (SC) OMAR SALAY MOHAMMAD SAIT VS. CIT 37 ITR 151 (SC) DHIRAJLAL GIRDHARILAL VS. CIT, BOMBAY 26 ITR 736 (S C) DHAKESHWARI COTTON MILLS LTD. VS. CIT 26 ITR 775 (S C) LAL CHAND BHAGAT AMBICA RAM VS. CIT 37 ITR 288 CIT VS. GENESIS COMMET (P) LTD. 163 TAXMAN 482 (DEL ) NATHU RAM PREM CHAND VS. CIT 49 ITR 561 (ALL) EMC MACHINE WORKS VS. CIT 49 ITR 650 (ALL) CIT VS. ORISSA CORPORATION (P) LTD. 159 ITR 78 (SC) STATE OF ORISSA VS. MAHARAJA SHRI B.P. SINGH DEO 76 ITR 690(SC) STATE OF KERALA VS. C. VELUKUTTY 60 ITR 239 (SC) KACHWALA GERMS VS. CIT 288 ITR 10 (SC) 16 6.3 THE ASSESSEE ALSO SUBMITTED TO THE LD. CIT(A) T HAT THE REPLIES WERE FURNISHED TO THE A.O. DURING THE COURSE OF ASSESSME NT PROCEEDINGS. THE SAID SUBMISSION OF THE ASSESSEE HAS BEEN INCORPORATED BY THE LD. CIT(A) AT PAGE NO. 18 TO 21 OF THE IMPUGNED ORDER WHICH IS REPRODUCED VERBATIM AS UNDER: I) REPLY DATED 15.11.2017 (PAGE OF PAPER BOOK) '1. JUSTIFICATION OF G.P./N.P. RATIO ASSESS IS RUNNING AGRO BASED INDUSTRY AND PRICES OF FINISHED GOODS AND RAW MATERIAL FLUCTUATES ON DAY TO DAY BASIS. THESE PRIC ES DEPENDS UPON THE DEMAND AND SUPPLY IN INDIA AS WELL AS IN ABROAD. FU RTHER DURING THE YEAR UNDER CONSIDERATION THE PRICES OF GUWAR, GUWAR GIRI , CHURI AND KORMA HAVE BEEN SMASHED DOWN. COMPLETE QUANTITATIVE RECORDS OF RAW MATERIAL AND FINISHED GOODS HAVE BEEN KEPT. ALL THE PURCHASES AR E MADE ON COMPETITIVE PRICES. FURTHER ALL THE PURCHASES, SALES AND EXPENS ES ARE FULLY SUPPORTED BY EVIDENCES, THEREFORE DECLARED G.P/N.P SHOULD BE ACC EPTED. ALSO G.P RATIO IS BETTER THAN FROM THE PREVIOUS YEAR. 2 . JUSTIFICATION OF YIELD YIELD SHOWN BY THE ASSESSEE IS NOT LOW AT ALL. DURI NG THE YEAR UNDER CONSIDERATION YIELD WAS GENERALLY LOW IN. THE AREA. ASSESSEE UNIT IS AGRO BASED INDUSTRY AND QUALITY OF RAW MATERIALS FOUND TO VARY FROM YEAR TO YEAR AND AREA TO AREA. QUALITY OF RAW MATERIAL IS AFFECTED BY SO MANY REASONS PREVAILING DURING THE PERIOD OF RIPPING OF CROP. YIELD IS EFFE CTED BY THE QUALITY OF RAW MATERIAL CRUSHED/GINNED AND SO MANY OTHER REASONS S UCH AS PURCHASE RATES OF RAW MATERIAL FROM VARIOUS SHOPS IN THE MARKET BY VARIOUS DELIVERY CLERKS INVOLVED IN THE PROCESS OF PURCHASES, PERIOD AND DU RATION OF CRUSHING/GINNING PROCESS, EXTENT OF MOISTURE IN THE RAW MATERIAL AND LAST BUT NOT THE LEAST CONDITION OF PLANT 8 B MACHINERY. YIELD OF RAW MATERIAL VARY YEAR TO YEAR, AREA TO AREA AND EVEN WITHIN THE SAME AREA DEPENDING UPO N VARIOUS CONDITIONS. FURTHER ALL THE PURCHASES/SALES ARE FULLY SUPPORTED BY PURCHASE/SALES BILLS AND COMPLETE QUANTITY RECORDS OF GOODS PURCHASED, MANUF ACTURED AND SOLD HAVE BEEN KEPT BY THE ASSESSEE. KEEPING IN VIEW THE ABOV E FACTS, YIELD SHOWN BY THE ASSESSEE SHOULD BE ACCEPTED. FURTHER DURING THE YEAR YIELD OF FINISHED GOODS ARE ALSO BETTER AS COMPARED TO THE PREVIOUS Y EAR.' II) ANOTHER REPLY DATED 8.12.2017 (PAGES OF PAPER BOOK) THAT ON 19/09/2015, THE ASSESSEE HAD FURNISHED A RE TURN OF INCOME DECLARING AN INCOME OF RS. 39,73,107/- FOR THE FINANCIAL YEAR 2014-15 RELEVANT TO ASSESSMENT YEAR 2015-16. THAT PERUSAL OF THE RETURN OF INCOME WOULD SHOW THA T THE ASSESSEE HAD OFFERED A SUM OF RS. 1,05,19,500/- AS INCOME FROM BUSINESS ON ACCOUNT OF STATEMENT MADE IN THE COURSE OF SURVEY UNDER SECTION 133A OF THE ACT. IT IS THUS SUBMITTED 17 THAT THE ENTIRE SUM DECLARED AS INCOME HAS BEEN OFF ERED TO TAX SEPARATELY IN THE PROFIT & LOSS ACCOUNT FURNISHED ALONGWITH RETUR N OF INCOME. 3. IT IS SUBMITTED THAT IF THE AFORESAID SUM IS EXC LUDED FROM PROFIT 8 B LOSS ACCOUNT, THE REVISED PROFIT 8 B L OSS ACCOUNT IS AS UNDER: NET PROFIT AS PER PROFIT 8 B L OSS ACCOUNT 2866228 LESS: INCOME SURRENDER CREDITED TO P 8 B L A/C -10519500 NET LOSS -7653272 4. AS A RESULT, THE REVISED COMPUTATION OF INCOME W OULD BE AS UNDER: NET LOSS AS PER PROFIT 8 B L OSS ACCOUNT 7653272 LESS: DEPRECIATION AS PER COMPANIES ACT -3189699 NET LOSS 4463573 ADD. DEPRECIATION AS PER I.T. TAX 2082820 6546393 5. IT IS SUBMITTED THAT THE ASSESSEE HAS LED COMPLE TE EVIDENCE TO SUPPORT EACH AND EVERY ITEMS OF THE AFORESAID REVISED PROFIT AND LOSS ACCOUNT AND REVISED COMPUTATION OF INCOME WHICH SHOWS A LOSS OF RS.65,4 6,393/-. IT IS SUBMITTED THAT IF THERE IS A LOSS OF RS.65,46,393/- WHICH IS DULY VER IFIABLE AND FOUND TO BE CORRECT AFTER DUE EXAMINATION THEN, THERE REMAINS NO JUSTIF ICATION TO SUGGEST THAT THIS LOSS IS NOT ELIGIBLE FOR SET OFF AGAINST THE INCOME OFFE RED IN THE COURSE OF SURVEY UNDER SECTION 133A OF THE ACT AND SEPARATELY DISCLOSED IN THE PROFIT AND LOSS ACCOUNT FOR THE INSTANT ASSESSMENT YEAR. IT IS SUBMITTED TH AT THE AFORESAID SET OFF OF LOSS IS IN ACCORDANCE WITH SECTION 70 OF THE ACT. SECTION 70 O F THE ACT PROVIDES AS UNDER: 'SET OFF OF LOSS FROM ONE SOURCE AGAINST INCOME FRO M ANOTHER SOURCE UNDER THE SAME HEAD OF INCOME. '70.(1) SAVE AS OTHERWISE PROVIDED 7 IN THIS ACT, WHERE THE NET RESULT FOR ANY ASSESSMENT YEAR IN RESPECT OF ANY SOURCE FALLING UN DER ANY HEAD OF INCOME, OTHER THAN ' CAPITAL GAINS', IS A LOSS, THE ASSESSEE SHAL L BE ENTITLED TO HAVE THE AMOUNT OF SUCH LOSS SET OFF AGAINST HIS INCOME FROM ANY OT HER SOURCE UNDER THE SAME HEAD. (2) WHERE THE RESULT OF THE COMPUTATION MADE FOR ANY AS SESSMENT YEAR UNDER SECTIONS 48 TO 55 IN RESPECT OF ANY SHORT-TERM CAPI TAL ASSET IS A LOSS, THE ASSESSEE SHALL BE ENTITLED TO HAVE THE AMOUNT OF SUCH LOSS SET OFF AGAINST THE - INCOME, IF ANY, AS ARRIVED AT UNDER A SIMILAR COMPU TATION MADE FOR THE ASSESSMENT YEAR IN RESPECT OF ANY OTHER CAPITAL ASS ET. (3) WHERE THE RESULT OF THE COMPUTATION MADE FOR ANY AS SESSMENT YEAR UNDER SECTION 48 TO 55 IN RESPECT OF ANY CAPITAL ASSET (O THER THAN A SHORT-TERM CAPITAL ASSET) IS A LOSS, THE ASSESSEE SHALL BE ENTITLED TO HAVE THE AMOUNT OF SUCH LOSS SET OFF AGAINST THE INCOME, IF ANY, AS ARRIVED AT UNDER A SIMILAR COMPUTATION MADE FOR 18 THE ASSESSMENT YEAR IN RESPECT OF ANY OTHER CAPITAL ASSET NOT* BEING A SHORT TERM CAPITAL ASSET.' 6. IT IS SUBMITTED THAT THERE IS NO RESTRICTION FOR SET OFF OF INCOME AND LOSS UNDER THE SAME HEAD AS INCOME UNDER THE HEAD FROM BUSINESS OR PROFESSION AND THEREFORE, SINCE SET OFF OF LOSS OF RS. 65,46,393/- IS ELIGIBL E UNDER SECTION 70 OF THE ACT AGAINST INCOME OF RS. 105,19,500/-, THEREFORE, THE INCOME D ECLARED BY THE ASSESSEE OF RS. 39,73,107/- IN THE RETURN OF INCOME FILED IN SECTIO N 139(1) OF THE ACT MAY KINDLY BE ACCEPTED AS SUCH. SHOULD YOUR GOODSELF REQUIRE ANY FURTHER EVIDENCE TO VERIFY THE CLAIM MADE BY THE ASSESSEE EITHER IN RESPECT OF LOSS OR IN RESPECT OF INCOME DECLARED, THE ASSESSEE STILL READY TO FURNISH THE S AME. IT IS SUBMITTED THAT ASSESSEE HAS PLACED ON RECORD EVERYTHING FOR YOUR KIND PERUS AL. THE ASSESSEE HASTENS TO ADD HERE THAT YOUR GOODSELF IS AWARE THAT THERE WAS A LOSS IN THE MANUFACTURING OF GUWAR GUM. IT IS SUBMITTED THAT AT THE TIME OF S URVEY SELLING PRICE OF PRICE OF GUWAR GUM WAS RS. 14500/- PER QTLS. WHICH HAS BEEN REDUCED TO RS. 11700/- PER QTL. WITHIN ONE MONTH OF SURVEY, COMPANY HAS 5173.6 7 QTL STOCK OF GUWAR GUM AND 13858.05 QTLS. GUWAR AT THE TIME OF SURVEY. FRO M CRUSHING OF 13858.05 GUWAR ABOUT 4630 QTLS, GUWAR GUM WAS MANUFACTURED. DUE TO RECESSION IN MARKET AVERAGE REALIZATION OF GUWAR GUM WAS RS. 13071.63 P ER QTL. UPTO 18.12.2014. THE ABOVE FACTS ARE ALSO VERIFIABLE FROM THE SALES BILL S, COPIES OF WHICH ARE ENCLOSED. IT IS SUBMITTED THAT THE TRANSACTIONS OF THE ASSESS EE ARE WITH IDENTIFIABLE AND VERIFIABLE PARTIES WHOSE NAMES AND ADDRESSES HAVE A LSO BEEN PLACED ON RECORD AND CONFIRMATIONS HAVE ALSO BEEN PLACED ON RECORD. YOU ARE THEREFORE, REQUESTED TO KINDLY ACCEPT THE INCOME DECLARED AND DRAW NO ADVERSE INFERENCE ' 11 IN VIEW OF THE AFORESAID, IT IS SUBMITTED THAT, THE LEARNED ASSESSING OFFICER HAS PROCEEDED MECHANICALLY TO REJECT THE BOOKS OF ACCOU NTS AND, MAKE THE IMPUGNED ADDITION. 12 GROUND NO. 4 OF THE GROUNDS OF APPEAL RELATES TO DENIAL OF FAIR AND PROPER OPPORTUNITY OF BEING HEARD AND AS SUCH, THE INCOME SO DETERMINED IN AN ARBITRARY MANNER AND ON TOTALLY UNJUSTIFIABLE, WHIM SICAL, SUBJECTIVE AND IRRELEVANT CONSIDERATION WHICH IS NOT IN ACCORDANCE WITH LAW. THE APPELLANT HAS ALREADY SUBMITTED ABOVE THAT THE LEARNED ASSESSING OFFICER H AS PROCEEDED IN AN ARBITRARY MANNER AND MADE THE HIGHLY SUBJECTIVE ADDITION IN T HE IMPUGNED ORDER OF ASSESSMENT AND THEREFORE, MAY KINDLY BE DELETED. 13 GROUND NO 5 OF GROUNDS OF APPEAL RELATES TO LEVY OF INTEREST U/S 234B OF THE ACT AND U/S 234C OF THE ACT IS NOT LEVIABLE ON THE FACTS OF THE CASE. 14 IN VIEW OF THE AFORESAID SUBMISSION, IT IS THEREFOR E PRAYED THAT IT BE HELD THAT ADDITION MADE BY THE LEARNED ASSESSING OFFICER ALONG WITH INTEREST LEVIED MAY KINDLY BE DELETED AND APPEAL OF THE APPELLANT COMPA NY MAY BE ALLOWED. SHOULD YOUR GOODSELF REQUIRE ANY FURTHER INFORMATIO N, THE APPELLANT COMPANY SHALL BE TOO WILLING TO FURNISH THE SAME.' 6.4 THE LD. CIT(A) FORWARDED THE SUBMISSIONS OF THE ASSESSEE TO THE A.O. FOR HIS COMMENTS. IN RESPONSE THE A.O. REPORTED AS UNDER: 19 2. IN THIS CONNECTION, IT IS SUBMITTED THAT SURVEY OPERATION WAS CONDUCTED ON 18- 11-2014 AND ADDITIONAL INCOME OF RS. 1,05,19,500/- WAS OFFERED BY THE ASSESSEE, WHEREAS ASSESSEE FLIED RETURN OF INCOME DECLARING A N INCOME OF RS, 39,73,110/- UNDER THE HEAD 'INCOME FROM BUSINESS OR PROFESSION' ON 19-09-2015. SUBSEQUENTLY, ASSESSMENT WAS COMPLETED U/S 143(3) ON 29-12-2017 A T AN INCOME OF RS. 1,31,72,653/-. DURING THE ASSESSMENT PROCEEDINGS IT WAS NOTICED FROM THE BOOKS OF THE ASSESSEE COMPANY THAT ASSESSEE HAS SHOWN HIGHER PURCHASE PRICE IN RESPECT OF SOME COMMODITIES AGAINST THE MARKET PRICE. SIMIL ARLY, ASSESSEE COMPANY HAS SHOWN LOWER SALES VALUE AS COMPARED TO MARKET PRICE . MOREOVER, THE GP RATE HAS ALSO BEEN SHOWN TO HAVE DECLINED BY 0.63% TO 2.35% THIS YEAR IN COMPARISON TO 2.98% SHOWN LAST YEAR. THIS DECREASE IN GP HAS BEEN SHOWN EVEN AFTER CONSIDERING-THE FINDINGS.- OF- THE SURVEY IN RESPEC T OF UNACCOUNTED STOCK FOUND DURING THE COURSE OF SURVEY. THUS, AGAINST THE INCR EASE IN GP WHICH SHOULD HAVE HAPPENED AS A RESULT OF UNACCOUNTED STOCK, THE ASSE SSEE HAS GROSSLY MANIPULATED ITS BOOKS TO REDUCE THE GP EVEN BELOW T HE LAST YEAR GP, THE RATIONALE GIVEN BY THE ASSESSEE OF DECREASE IN RATE S OF GUAR GAM DOES NOT SEEM TO HOLD GOOD AS IN THE NEXT YEAR I.E. A.Y. 2016-17 ASSESSEE HAS SHOWN GP OF 3.48%. FURTHER, A LARGE NUMBER OF DISCREPANCIES HAVE BEEN FOUND IN RESPECT OF PURCHASE AND SALE BILLS SUBMITTED BY THE ASSESSEE DURING ASS ESSMENT PROCEEDINGS. 3. IN VIEW OF THE DISCREPANCIES DETAILED IN THE ASS ESSMENT ORDER, IT WAS HELD THAT THE ASSESSEE HAD MANIPULATED ITS BOOKS TO OFFSET TH E FINDING OF SURVEY AND TO REDUCE ITS TAXABLE INCOME. AS GROSS DISCREPANCIES W ERE OBSERVED, THE BOOKS OF ACCOUNTS WERE REJECTED UNDER SECTION 145(3) OF INCO ME TAX ACT 1961. 4. CONSIDERING THE TREND OF GP BEING 2.36% FOR ASSESSM ENT YEAR 2013-14, 2.98% FOR ASSESSMENT YEAR 2014-15 AND 3.48% FOR ASSESSMENT YE AR 2016-17, GP RATE OF 2.75% WAS HELD FOR ASSESSMENT YEAR 2015-16. THUS, ON A TU RNOVER OF RS. 231,89,87,327/-, CONSIDERING GP RATE OF GROSS PROFIT WAS ARRIVED AT RS. 6,37,72,151/-. IT MAY BE APPRECIATED THAT GP RATE AS PER INCREASING TRAIN CO MES TO AROUND 3.2% - 3.25%. HOWEVER, IT WAS ACCEPTED THAT THERE HAS BEEN A DECL INE IN THE PRICES OF GUWAR AFTER 2013, THEREFORE BEING REASONABLE, GP WAS ESTI MATED AT 2.75%. THUS, THERE WAS AN ADDITION OF RS. 91,99,543/- TO THE INCOME OF THE ASSESSEE. 5. NOT SATISFIED WITH THE ABOVE ADDITIONS, THE ASSESSE E IS BEFORE YOUR GOODSELF IN APPEAL UNDER CONSIDERATION. THE ASSESSEE HAS SUBMIT TED THE ADDITIONAL EVIDENCE I.E. 'GUAR RATE GIVEN BY MARKET COMMITTEE, ELLENABA D' BEFORE YOUR GOODSELF. IN THE ADDITIONAL EVIDENCE ASSESSEE HAS SUBMITTED RATE OF GUAR FOR THE PERIOD 18-11- 2014 TO 31-03-*2015. PERUSAL OF THE RATE LIST SUBMI TTED BY THE ASSESSEE REVEALS THAT MARKET RATE MENTIONED IN THE LIST ON 22-12-2014 FRO M RS. 3951/- TO 4421/-, BUT THE ASSESSEE HAD PURCHASED ALL THE GUAR AT HIGHER RATE. IT IS NOT POSSIBLE THAT ASSESSEE HAD NOT PURCHASED GUAR AT A LOW RATE I.E. 3951/- ON 22-12-2014, WHEREAS ASSESSEE HAD PURCHASED GUAR @ RS. 4250/-, RS. 4096/-, RS. 44 06/- & RS. 4400/- ON 22-12-2014. SIMILARLY, FOR 14-03-2015, MARKET RATES SUBMITTED B Y THE ASSESSEE SHOWS VARIATION IN SALE FROM RS. 2500/- TO RS. 3700/-, AVERAGE BEING R S. 3100/-, WHEREAS PURCHASE AS MENTIONED IN PARA 3.3 OF ASSESSMENT ORDER REVEALS O F PURCHASE RATE AT RS. 3636/-, RS. 3621/- AND RS. 3700/-. FROM THESE 2 DAYS TRANSA CTIONS, IT IS CLEAR THAT ASSESSEE HAD SHOWN PURCHASES OF GUAR AT A HIGH RATE TO REDUC E ITS TAXABLE INCOME. THUS, APART FROM DISCREPANCIES NOTED IN ASSESSMENT ORDER IN RESPECT OF SALES, VARIATION IN RATES, ETC., THE ASSESSEE HAS ALSO BEEN SHOWING HIGHER PURCHASE PRICE POST SURVEY THAN THE AVERAGE MARKET PRICE ON THE SAME DA TE. 20 6. IN VIEW OF THE ABOVE FACTS, IT IS REQUESTED THAT THE APPEAL OF THE ASSESSEE BE DISMISSED 6.5 THE AFORESAID REPORT OF THE A.O. WAS PROVIDED T O THE ASSESSEE FOR ITS COMMENTS. IN RESPONSE THE ASSESSEE SUBMITTED IN THE REJOINDER AS UNDER: 1. THE SOLITARY ISSUE INVOLVED IN THE INSTANT APPEAL R ELATES TO ADDITION OF RS. 91,99,543/- BY APPLYING GP RATE OF 2.75% ON DECLARI NG TURNOVER BY THE APPELLANT COMPANY. 2. IT IS SUBMITTED THAT THE APPELLANT HAD FILED WRITTE N SUBMISSIONS DATED 20.2.2019 SUBMITTING THAT THE AFORESAID ADDITION MA DE BY REJECTING THE BOOKS OF ACCOUNTS U/S 145(3) OF THE ACT WAS FACTUALLY AND LE GALLY MISCONCEIVED AND WHOLLY UNTENABLE. IT WAS SUBMITTED THAT THE LEARNED ASSESSING OFFICER HAS NOT POINTED OUT ANY DEFECT IN THE BOOKS OF ACCOUNTS MAI NTAINED BY THE APPELLANT COMPANY. IT WAS ALSO SUBMITTED THAT THE BOOKS OF AC COUNTS HAD DULY AUDITED BOTH UNDER THE COMPANY'S ACT AND UNDER INCOME TAX A CT, 1961 AND THEREFORE IN ABSENCE OF ANY DEFECT THE REJECTIONS OF BOOKS OF AC COUNTS WAS PATENTLY ILLEGAL AND UNTENABLE. 2.1 APART FROM THE ABOVE IT WAS ALSO SUBMITTED THAT VARIATIONS IN THE TRANSACTIONS UNDERTAKEN BY THE COMPANY IN THE ORDINARY COURSE OF ITS BUSINESS WITH INDEPENDENT PARTIES IN RESPECT OF WHICH NO MATERIAL HAS BEEN PLACED ON RECORD OR INVESTIGATIONS CARRIED OUT SO AS TO ALLEGE THAT SUCH TRANSACTIONS ARE EITHER FABRICATED OR MANIPULATED OR ARE COLLUSIVE TRANSACT IONS IN ANY FORMED MANNER OR OTHERWISE THE LEARNED ASSESSING OFFICER WAS HIGHLY U NJUSTIFIED AND ENTIRELY INCORRECT IN LAW TO REJECT THE BOOKS OF ACCOUNT U/S 145(3) OF THE ACT AND MAKE THE IMPUGNED ADDITION. 3 IT IS SUBMITTED THAT EVEN OTHERWISE INDEPENDENTLY THE APPELLANT HAD ESTABLISHED THAT EACH OF THE BASIS STATED IN THE IM PUGNED ORDER WERE FACTUALLY AND LEGALLY INCORRECT MISPLACED AND THEREFORE COULD NOT HAVE BEEN MADE AGAINST IT TO MAKE THE INSTANT ADDITION. 3.1 APART FROM THE ABOVE THE APPELLANT ALSO PLACED ON R ECORD 3 PAPER BOOKS COMPRISING OF 846 SHEETS AND APPLICATION FOR ADMISS ION OF ADDITIONAL EVIDENCE UNDER RULE 46A OF THE RULES. 3.2 IT IS SUBMITTED IN THE AFORESAID APPLICATION THE AP PELLANT HAD SUPPORT ADMISSIONS OF THE RATES PROVIDED BY THE MARKET COMM ITTEE TO SUPPORT THE TRANSACTIONS UNDERTAKEN BY THE APPELLANT IN THE ORD INARY COURSE OF BUSINESS WITH INDEPENDENT PARTIES IN RESPECT OF WHICH NO ADVERSE MATERIAL HAS EITHER BEEN GATHERED OR PLACED ON RECORD WERE OTHERWISE TO ADD ARMS LENGTH AND THEREFORE OUGHT TO HAVE BEEN ACCEPTED AS SUCH. 3.3 A COPY OF THE AFORESAID WAS FORWARDED. 4 IT IS SUBMITTED A SEPARATE LETTER WAS SUBMITTED T O THE DEPUTY COMMISSIONER OF INCOME TAX, SIRSA FOR FORWARDING THE COPY OF THE ADDITIONAL EVIDENCE FURNISHED UNDER RULE 46A OF THE RULES APART FROM THE PAPER BO OKS AS PLACED ON RECORD. 4.1 IT IS SUBMITTED THAT THE LEARNED ASSESSING OFFICER H AS NOW FORWARDED HIS REMAND REPORT DATED 18.3.2019 / 4.4.2019 SERVED ON THE ASSESSEE ON 18.6.2019. 21 4.2 IT IS SUBMITTED THAT THE LEARNED ASSESSING OFFIC ER IN THE AFORESAID REMAND REPORT HAS NOT OBJECTED TO THE ADMISSION OF ADDITIO NAL EVIDENCE UNDER RULE 46A OF THE INCOME TAX RULES, 1961 AND THEREFORE HAVING NOT SO DONE IT IS PRAYED THAT THE ADDITIONAL EVIDENCE AS FURNISHED MAY KINDLY BE ADMITTED UNDER RULE 46A OF THE RULES 1962 IN TERMS OF THE APPLICATION FILED BY THE APPELLANT COMPANY. ON MERITS PERUSAL OF THE COMMENTS OF THE LEARNED ASSES SING OFFICER WOULD SHOW THAT THE LEARNED ASSESSING OFFICER HAS OBSERVED THAT IN V IEW OF THE FINDINGS IN THE ORDER OF ASSESSMENT THE LEARNED ASSESSING OFFICER BOTH IN THE ORDER OF THE ASSESSMENT AND NOW IN THE REMAND REPORT HAD REJECTED THE BOOKS OF ACCOUNTS U/S 145(3) OF THE ACT AND MADE AN ADDITION OF RS. 91,99,543/- TO THE INCOME OF THE APPELLANT COMPANY. HE HAS SUBMITTED THAT THE RECORDINGS TO TH E ADDITIONAL EVIDENCE, THE MARKET RATE OF THE GUWAR ON 22.12.2014 WAS RS. 3,95 1/- PER QUINTAL TO RS. 4,421/- PER QUINTAL. HE HAS ALLEGED THAT THOUGH THE LOWEST RATE WAS 3,951/- PER QUINTAL ON 22.12.2014 BUT ASSESSEE HAD PURCHASED THE GUWAR AT HIGHER RATES OF RS. 4,250/-, 4,096/-, 4,406/- AND RS. 4,400/- PER QUINTAL ACCORD ING TO HIM THE AFORESAID TRANSACTIONS SHOULD HAVE BEEN UNDERTAKEN AT THE LOW EST RATE THOUGH IT DOES NOT DISPUTE THAT THE RATES ON WHICH APPELLANT HAD UNDER TAKEN TRANSACTIONS WERE WITHIN PREVAILING MARKET PRICE ON THE SAID DATE EVE N AS PER THE RATES QUOTED BY MARKET COMMITTEE ELLENABAD. THE RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: DALMIA CEMENT (P) LTD. VS. CIT 254 ITR 377 (DEL) S.A. BUILDERS LTD. 288 ITR 1 (SC) 6.6 THE LD. CIT AFTER CONSIDERING THE SUBMISSIONS O F THE ASSESSEE AND REMAND REPORT OF THE A.O. SUSTAINED THE ADDITION BY OBSERV ING AS UNDER: THE FACTS OF THE CASE, THE BASIS OF ADDITION MADE B Y THE AO AFTER REJECTION OF BOOKS OF ACCOUNTS AND THE ARGUMENTS OF THE AR DURIN G THE COURSE OF APPELLATE PROCEEDINGS HAVE BEEN CONSIDERED. THE AR HAS CONTEN DED THAT THE AO HAS ERRONEOUSLY HELD THAT THE PURCHASES HAVE BEEN TAKEN AT HIGHER RATE AS COMPARISON TO MARKET RATE. AS PER THE AR, THE LOW G P IS DUE TO RECESSION IN GUWARGUM INDUSTRY AND ALL THE PURCHASES WERE DULY R ECORDED IN THE PURCHASE REGISTER, DEBITED IN THE BOOKS OF ACCOUNTS AND SUBM ITTED THAT THERE IS NO PARAMETER OF FIXED PRICE OF COMMODITY ON THE SAME D ATE. AS PER THE AR, THE PURCHASES ARE DULY SUPPORT BY BILLS AND VOUCHERS FR OM IDENTIFIABLE PARTIES. THE AR CONTENDED THAT THE AO HAS NOT POINTED OUT ANY SPECIF IC DEFECT OR DISCREPANCY IN THE ACCOUNT BOOKS MAINTAINED BY THE APPELLANT CO MPANY. IT IS ALSO SUBMITTED THAT THERE IS NO BASIS FOR GP RATE ADOPTED AT 2.75% BY THE AO. THE AR HAS ARGUED THAT FALL IN GP ONLY CANNOT BE THE REASON FOR REJEC TING THE BOOKS AND THE AO HAS NOT POINTED OUT ANY DEFECT IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE COMPANY WHICH WERE DULY AUDITED UNDER THE COMPANIES ACT AND INCOME TAX ACT. IT IS ALSO SUBMITTED THAT VARIOUS TRANSACTIONS WERE UNDERTAKEN BY THE ASSESSEE COMPANY IN THE ORDINARY COURSE OF ITS BUSINESS. THE AR PLACED RELIANCE ON THE ORDER OF HON'BLE DELHI HIGH COURT IN THE CASE OF DA LMIA CEMENT (P.) LTD. VS. CIT 254 ITR 377 AND SUBMITTED THAT THE FINDINGS HAVE BE EN UPHELD BY THE APEX COURT IN THE CASE OF S. A. BUILDERS LTD. 288 ITR 1. THE A R HAS REPRODUCED THE OBSERVATIONS 22 WHEREBY IT WAS HELD THAT THE AUTHORITIES MUST NOT L OOK AT THE MATTER FROM THEIR POINT OF VIEW BUT THAT OF A PRUDENT BUSINESSMAN. IT WAS ALSO HELD THAT THE FUNDS WERE TRANSFERRED TO SISTER CONCERN FROM THE POINT O F VIEW OF COMMERCIAL EXPEDIENCY AND NOT FROM THE POINT OF VIEW WHETHER T HE AMOUNT WAS ADVANCED FOR EARNING PROFITS. HOWEVER IN THE PRESENT CASE, B OTH THESE ELEMENTS ARE MISSING AND THE ARGUMENT ABOUT 'DECISION AS A PRUDENT BUSIN ESSMAN' IS NOT APPLICABLE AS THE ASSESSEE HAS SHOWN PURCHASES AT A HIGHER RATE A ND SALE AT A LOWER RATE WHICH NO PRUDENT BUSINESSMAN WOULD UNDERTAKE. ALSO, NO CO MMERCIAL EXPEDIENCY INVOLVEMENTS, HAVE BEEN REFLECTED IN THE ACTIONS OF THE COMPANY WITH THE PARTIES WHO ARE STATED/ACCEPTED TO BE INDEPENDENT ENTITIES. THUS, THE CASE LAWS RELIED UPON BY THE AR IS OTNOHELP AS THE FACTS OF THE PRE SENT CASE ARE TOTALLY DIFFERENT FROM THE FACTS IN THE CASE OF S.A. BUILDERS LTD. OR M/S. DALMIA CEMENTS (P.) LTD. THE AO HAS MENTIONED ABOUT THE PREVAILING MARKET RATE IN THE REMAND REPORT SUBMITTED IN RESPONSE TO ADDITIONAL EVIDENCE FILED BY THE ASSESSEE COMPANY DURING THE APPELLATE PROCEEDINGS WHICH INDICATE THA T THE ALLEGED TRANSACTIONS UNDERTAKEN BY THE ASSESSEE WERE NOT GENUINE AND THE LOSS BOOKED WAS A BOGUS CLAIM, WITH A VIEW TO REDUCE THE TAX INCIDENCE AND AVOID PAYMENT OF DUE TAXES. ANOTHER ARGUMENT OF THE AR IS THAT THE PURCHASE RAT E WERE HIGHER BECAUSE SUPERIOR QUALITY WAS PURCHASED BY THE ASSESSEE. IF, THIS ARGUMENT IS ACCEPTED, THEN IT IS ALSO TRUE THAT THE SUPERIOR QUALITY WILL FETCH BETTER RATES ON SALE AND NOT LOWER RATE AS CLAIMED BY THE ASSESSEE. IT IS ALSO RELEVANT TO NOTE THAT THERE WAS A SURVEY OPERATION CONDUCTED IN THIS CASE ON 18.11.2014 AND THE AO HAS MENTIONED THAT THE ASSESSEE OFFERED AN ADDITIONAL INCOME OF RS. 1,05,19,500/- ON ACCOUNT O F DISCREPANCIES NOTICED DURING THE SURVEY OPERATIONS. HOWEVER, AT THE TIME OF FILING THE RETURN ON 19.09.2015, THE ASSESSEE DECLARED AN INCOME OF RS. 39,73,110/- UNDER THE HEAD 'INCOME FROM BUSINESS & PROFESSION'. THIS WAS MUCH LOWER THAN EVEN THE SURRENDER MADE DURING THE SURVEY. DURING THE ASSESSMENT, IT W AS NOTICED FROM THE BOOKS THAT THE ASSESSEE HAS SHOWN PURCHASES AT HIGHER PRI CE IN RESPECT OF SOME COMMODITIES AGAINST THE PREVAILING MARKET RATE, SIM ILARLY THE ASSESSEE HAS SHOWN SALE AT LOWER PRICE AS COMPARE TO MARKET RATE AND T HUS THE GP RATE HAS BEEN SHOWN TO HAVE DECLINED BY 0.63% (I.E. 2.3% THIS YEA R AS COMPARE TO 2.98% SHOWN IN LAST YEAR). IT IS ALSO RELEVANT THAT THIS DECLIN E HAS BEEN SHOWN EVEN AFTER CONSIDERING THE FINDINGS OF THE SURVEY IN RESPECT O F UNACCOUNTED STOCK FOUND DURING THE COURSE OF SURVEY. IN THE NORMAL COURSE, THE GP SHOULD HAVE INCREASED AS A RESULT OF UNACCOUNTED STOCK FOUND DURING THE S URVEY AND SURRENDER MADE BY THE ASSESSEE ON THIS ACCOUNT BUT THE ASSESSEE HAS G ROSSLY MANIPULATED ITS BOOKS TO REDUCE THE GP RATE EVEN BELOW LAST YEAR'S FIGURE . THE REASONS GIVEN BY THE ASSESSEE FOR DECREASE IN GP RATE ON ACCOUNT OF FALL IN RATE OF GUWARGUM DOES NOT SEEM TO HOLD GOOD AS IN THE NEXT YEAR (I.E. ASSESSM ENT YEAR 2016-17) THE ASSESSEE HAS SHOWN GP RATE OF 3.48%. THE AO ALSO MENTIONED TH AT NUMBERS OF DISCREPANCIES WERE FOUND IN RESPECT OF PURCHASE & S ALE BILLS SUBMITTED DURING THE ASSESSMENT PROCEEDINGS AND IN VIEW OF THESE, IT WAS HELD THAT THE ASSESSEE HAS MANIPULATED ITS BOOKS TO OFFSET THE FINDINGS OF THE SURVEY AND TO REDUCE ITS TAX LIABILITY. IN VIEW OF THESE FINDINGS> THE ACTION OF THE AO IN REJECTING THE BOOKS OF ACCOUNTS U/S 145(3) IS JUSTIFIED. IT IS ALSO RELEVA NT TO NOTE THAT THE GP RATES FOR ASSESSMENT YEAR 2013-14, 2014-15 AND 2016-17, DECLA RED BY THE ASSESSEE COMPANY ITSELF ARE 2.36%, 2.98% AND 3.48% RESPECTIV ELY AND BY FOLLOWING THE TREND, THE AO WAS REASONABLE IN APPLYING THE GP RATE OF 2.75% FOR ASSESSMENT YEAR 2015-16 UNDER CONSIDERATION. THE AO IN THE REMA ND REPORT HAS DULY EXPLAINED HOW THE ASSESSEE HAS TAKEN ONLY THE HIGHE R RATE OF PURCHASES OUT OF GUWAR RATE GIVEN BY MARKET COMMITTEE, ELLENABAD' O N A PARTICULAR DAY WHICH 23 HAS VIDE VARIATION. SIMILARLY, THE SALES HAVE BEEN SHOWN ON A LOWER RATE. NO PRUDENT BUSINESSMAN WILL SELL THE HIGH QUALITY PROD UCTS (PURCHASED AT A HIGHER RATE) AT LOWER RATE BECAUSE THE BETTER QUALITY SHOU LD GIVE BETTER RATES AT THE TIME OF SALE ALSO. THE AO HAS DULY BROUGHT ON RECORD THAT THE ASSESSEE HAS MANIPULATED ITS ACCOUNTS TO SHOW LOSS ONLY FOR A LI MITED PERIOD FROM 19.11.2014 TO 31.03.2015 I.E. 'ONLY DURING THE LIMITED POST SURVE Y PERIOD' OF THE FINANCIAL YEAR 2014-15 RELEVANT TO ASSESSMENT YEAR 2016-17 WHEN TH ERE WAS NO SUCH LOSS EITHER IN THE PAST (I.E. ASSESSMENT YEAR 2014-15 WHERE GP RAT E OF 2.98% WAS DECLARED BY THE ASSESSEE) OR IN THE FUTURE (I.E. ASSESSMENT YEA R 2016-17 WHEN THE GP RATE DECLARED BY THE ASSESSEE WAS 3.48%). THE AO HAS RIGH TLY MENTIONED THAT THESE FACTS CONFIRMED THAT THE ASSESSEE HAS MANIPULATED I TS BOOKS OF ACCOUNTS TO OFFSET THE INCOME SURRENDERED DURING THE COURSE OF SURVEY U/S 133A WHEN DISCREPANCIES WERE FOUND INCLUDING THE UNACCOUNTED STOCK. THE FAC T THAT UNACCOUNTED STOCK WAS FOUND DURING THE COURSE OF SURVEY U/S 133A NEGA TE THE CLAIM OF THE ASSESSEE THAT PURCHASES ARE PROPER LY RECORDED IN THE BOOKS OF ACCOUNTS AND ALSO NEGATE THE CLAIM THAT THE BOOKS O F ACCOUNTS OF THE ASSESSEE GIVE A TRUE AND FAIR PICTURE OF AFFAIRS OF THE BUSI NESS OF THE ASSESSEE. THE FINDINGS OF THE SURVEY U/S 133A CAST DOUBT ABOUT THE CORRECT NESS AND COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE AND HENCE THE AO WAS RIGHT IN REJECTING THE BOOKS BY INVOKING THE PROVISION OF SECTION 145(3) OF THE INC OME TAX ACT, 1961 AFTER GIVING A SHOW CAUSE TO THE ASSESSEE FOR REJECTION OF BOOKS O F ACCOUNTS. THE AO WAS ALSO RIGHT IN ADOPTING THE GP RATE OF 2.75% WHICH GIVES THE NORMAL BUSINESS PROFITS SHOWN YEAR AFTER YEAR OTHER THAN THE SURRENDERED IN COME ADMITTED DURING THE SURVEY U/S 133A OF THE ACT, IN RESPECT OF FINANCIAL YEAR 2014-15 RELEVANT TO ASSESSMENT YEAR 2015-16. IN THE GIVEN CIRCUMSTANCES , THE RESULTS OF THE ASSESSEE FOR OTHER YEARS ARE THE MOST APPROPRIATE COMPARABLE WHICH CAN BE APPLIED TO ARRIVE AT THE INCOME OF THE YEAR UNDER CONSIDERATIO N SINCE THE OTHER FACTORS WILL REMAINS THE SAME YEAR AFTER YEAR. IT IS ALSO IMPORT ANT TO MENTION THAT THE AR HAS NOT DENIED THE FACT OF SURVEY U/S 133A AND THE FIND INGS THAT THE EXCESS STOCK WAS NOTICED DURING THE COURSE OF SURVEY WHICH WAS NOT F OUND RECORDED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. FURTHER, NOTHING HAS B EEN BROUGHT ON RECORD THAT THE ASSESSEE HAS NOT MADE THE SURRENDER OF RS. 1,05 ,19,500/- ON THE BASIS OF DISCREPANCIES FOUND DURING THE COURSE OF SURVEY U/S 133A. ONCE, A SURRENDER WAS MADE, WHICH WAS NOT RETRACTED LATER O N, THE ASSESSEE SHOULD HAVE HONORED THE SAME AND PAID THE TAXES INSTEAD OF SHOW ING LOSS DURING THE POST SURVEY PERIOD TO SET-OFF THE SURRENDER WITH A VIEW TO AVOID PAYMENT OF TAXES. WHEN THERE WAS NO LOSS EITHER IN PAST OR IN FUTURE, THEN THE LOSS ONLY SHOWN DURING THE POST SURVEY PERIOD IS CERTAINLY DOUBTFUL AS NOT ED BY THE AO ALSO. UNDER THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN VIEW OF THE DISCUSSION ABOVE, THE ACTION OF THE AO IN REJECTING THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND COMPUTING THE PROFIT AFTER APPLYING GP RATE OF 2.75 % (ON THE BASIS OF GP RATES DECLARED BY THE ASSESSEE DURING THE PRECEDING AND S UCCEEDING YEAR AND ALSO TAKING INTO CONSIDERATION THE SURRENDER OF RS. 1,05 ,19,500/- MADE BY THE ASSESSEE DURING SURVEY U/S 133A OF THE ACT) IS FOUND SUSTAIN ABLE HENCE CONFIRMED. 7. NOW THE ASSESSEE IS IN APPEAL. 7.1. THE LD. COUNSEL FOR THE ASSESSEE REITERATED TH E SUBMISSIONS MADE BEFORE THE AUTHORITIES AND FURTHER SUBMITTED THAT AT THE T IME OF SURVEY SELLING PRICE OF 24 GUWAR GUM WAS RS. 14500/- PER QUINTAL WHICH HAD BEE N REDUCED TO RS. 11,700/- PER QUINTAL WITHIN ONE MONTH OF SURVEY, DUE TO RECE SSION IN MARKET AVERAGE REALIZATION PRICE OF GUWAR GUM WAS RS. 13071.63 PER QUINTAL UPTO 18/12/2014 I.E; THE DATE OF THE SURVEY. 7.2 IT WAS FURTHER SUBMITTED THAT ALL THE DETAILS W ERE FURNISHED TO THE A.O. EXPLAINING THE REASONS FOR DECLINING IN PRICES WHIC H RESULTED LOWER VALUATION OF THE STOCK WHICH WAS BEYOND THE CONTROL OF THE ASSES SEE, SINCE THERE WAS FLUCTUATION OF PRICE IN THE MARKET. IT WAS FURTHER SUBMITTED THAT THE A.O. ALTHOUGH COMPARED THE MARKET RATE WITH THE PURCHASE RATE FRO M THREE FIRMS BUT THERE WAS NO FINDINGS THAT THERE WAS ANY COLLUSION. IT WAS AL SO SUBMITTED THAT THE A.O. ALTHOUGH QUOTED DIFFERENT RATES OF DIFFERENT PARTIE S BUT NO VERIFICATION WAS MADE AS TO WHETHER THE SAID RATES OF GUWAR WERE FOR THE SAME QUALITY, REFERENCE WAS MADE TO PARA 3.3 OF THE ASSESSMENT ORDER WHEREIN TH E A.O. MENTIONED THE PURCHASE RATES FROM DIFFERENT PARTIES. IT WAS STATE D THAT NO SPECIFIC DEFECT WAS POINTED OUT IN THE BOOKS OF ACCOUNT AND WHEN THERE WAS FLUCTUATION IN PRICES, THE G.P. RATE OF DIFFERENT YEARS HAD NO RELEVANCE. IT WAS SUBMITTED THAT THE A.O. WHILE ADOPTING THE G.P. RATE OF 2.75% HAD NOT GIVEN ANY COGENT REASON AND THE ESTIMATE OF THE G.P. RATE WAS WITHOUT ANY BASIS . IT WAS CONTENDED THAT THE A.O. HAD ACCEPTED THE DECLINE IN THE RATE AND THERE WAS NO REASON TO DOUBT THE G.P. RATE OF 2.35% DECLARED BY THE ASSESSEE ON THE BASIS OF BOOKS OF ACCOUNT IN WHICH NO SPECIFIC DEFECT WAS POINTED OUT . 7.3 IT WAS FURTHER SUBMITTED THAT THE ASSESSEE VIDE LETTER DT. 08/12/2017 EXPLAINED TO THE A.O. THAT DUE TO RECESSION IN THE MARKET AVERAGE REALIZATION RATE OF GUWAR GUM CAME TO RS 13071.63 PER QUINTAL U P TO THE DATE OF SURVEY ON 18/12/2014 AND THE SAID FACT WAS VERIFIABLE FROM TH E SALE BILLS, COPIES OF WHICH WERE FURNISHED TO THE A.O. AND THE TRANSACTIONS OF THE ASSESSEE WERE WITH THE IDENTIFIABLE AND VERIFIABLE PARTIES WHOSE NAMES AND ADDRESSES HAD BEEN PLACED ON RECORD ALONGWITH VALUATION RECEIVED FROM THEM, HOWEVER, THE A.O. HAD NOT TAKEN ANY STEP FOR VERIFICATION. THE LD. CO UNSEL FOR THE ASSESEE 25 SUBMITTED THAT THERE WERE FLUCTUATION IN THE RATE O F GUWAR GUM, A REFERENCE WAS MADE TO PAGE NO. 831 TO 834 OF THE ASSESSEES COMPI LATION WHICH ARE THE COPIES OF THE CERTIFICATES ISSUED BY THE MARKET COM MITTEE, ELLENABAD, DISTRICT SIRSA, SHOWING THE DIFFERENCE IN THE RATES ON VARIO US DATES WHICH CLEARLY ESTABLISHED THAT THE RATES WERE FLUCTUATING AND WER E NOT CONSTANT. IT WAS POINTED OUT THAT ON THE SAID CERTIFICATES FURNISHED TO THE A.O. BY THE ASSESSEE THERE WAS NO ADVERSE COMMENTS. 7.4 IT WAS SUBMITTED THAT THE AVERAGE RATE OF GUWAR GUM DURING THE ASSESSMENT YEAR 2013-14 WAS RS. 34622.74 WHICH CAM E DOWN TO RS. 17,733.63 DURING THE A.Y. 2014-15 AND DURING THE PERIOD 01/03 /2015 TO 31/03/2015 IT WAS RS. 8797.99. THE SAID FLUCTUATION IN THE RATE WAS BEYON D THE CONTROL OF THE ASSESSEE. THE LD. COUNSEL FOR THE ASSESSEE FURNISHED THE CHAR T SHOWING DETAILS OF THE PURCHASES ON DIFFERENT DATES WHICH READS AS UNDER: SR. DATE MAXIMUM RATE MINIMUM RATE DIFFERENCE NO. (PER QTL.) (A) (PER QTL.) (B) C=(A-B) I) 01.04.2014 4579 4171 408 II) 05.04.2014 4440 4241 199 III) 11.04.2014 4384 3825 559 IV) 05.05.2014 5384 5186 198 V) 08.05.2014 5164 4665 499 VI) 21.05.2014 4979 4688 291 VII) 23.05.2014 5120 4930 190 VIII) 29.05.2014 4985 4685 300 IX) 03.06.2014 4900 4581 319 X) 06.06.2014 4912 4615 297 XI) 16.06.2014 4940 4681 259 XII) 23.06.2014 5149 4636 513 XIII) 27.06.2014 5459 5246 213 7.5 IT WAS CONTENDED THAT ALL THE PURCHASE WERE MAD E THROUGH AUCTION IN THE MARKET FROM VARIOUS UNRELATED PARTIES AND THE SAID AUCTION WAS MONITORED BY THE MARKET COMMITTEE WHICH IS CONTROLLED BY THE HAR YANA GOVERNMENT AND THE PRICE DEPENDS ON THE QUALITY OF GUWAR. IT WAS STATE D THAT EVEN THE A.O. HIMSELF ADMITTED WHILE QUOTING MARKET RATE CAPTURED FROM E- NET SITE I.E; AGRO MARKET 26 RATE, THAT THE MINIMUM RATE WAS RS. 3720/- PER QUIN TAL AND THE MAXIMUM RATE WAS RS. 4325/- PER QUINTAL. THE ASSESSEE DREW OUR A TTENTION TOWARDS PAGE NO. 196 TO 496 OF THE ASSESSEES PAPER BOOK WHICH ARE THE COPIES OF PURCHASE REGISTER OF GUAR SEED AND SUBMITTED THAT THE SAME WERE FURNISHED TO THE A.O. IN WHICH NO SHORT COMINGS WAS POINTED OUT. 7.6 IT WAS CONTENDED THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURING OF COTTON SEED, OIL CAKE, GUAR GIRI, GUAR CHURI AND KORMA ETC FOR LAST PRECEDING 11 YEARS AND MAINTAINED IN THE COURS E OF ITS BUSINESS FOLLOWING BOOKS OF ACCOUNTS: A) CASH BOOK B) JOURNAL C) LEDGER D) PURCHASE BOOK E) SALE BOOK F) BANK BOOK G) STOCK REGISTER 7.7 IT WAS FURTHER STATED THAT THE BOOKS OF ACCOUNT S WERE DULY, AUDITED UNDER SECTION 44AB OF THE ACT AND THE QUANTITATIVE DETAIL S IS PLACED AT PAGE NO. 16 OF THE ASSESSEES PAPER BOOK. IT WAS SUBMITTED THAT TH E A.O. ACCEPTED THE SALE OF RS. 231.89 CRORES AND PURCHASES OF RS. 213.82 CRORE S WHICH ARE RECORDED IN THE BOOKS OF ACCOUNT AND THE ASSESSEE HAD DECLARED NET PROFIT OF RS. 2866228/- IN ITS BOOKS OF ACCOUNT WHICH HAS NOT BEEN DOUBTED, THE PU RCHASES SHOWN BY THE ASSESSEE WERE SUPPORTED BY THE BILLS & VOUCHERS, TH E TRADING RESULTS AS PER FOLLOWING DETAILS WERE ACCEPTED IN THE PRECEDING YE AR: SR.NO. ASSESSMENT YEAR G.P. DECLARED BY ASSESSEE(IN RS.) G.P. (IN %) ASSESSMENT U/S I) 2012-13 5,24,15,963/- 2.88 143(3) II) 2013-14 5,48,73,714/- 2.36 143(3) III) 2014-15 8,23,51,135/- 2.98 143(3) 27 THEREFORE THE A.O. WAS NOT JUSTIFIED IN REJECTING T HE BOOKS OF ACCOUNT AND MAKING THE ARBITRARY ADDITION ON THE BASIS OF PRESU MPTION AND THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ACTION OF THE A.O. THE RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: CIT VS. EXCEL INDUSTRIES LTD. 358 ITR 295 (SC) PARASHURAM POTTERY WORKS LTD. VS. ITO [1977] 106 ITR 1 (SC) CIT VS. BERGER PAINTS 266 ITR 99(SC) UOI VS. KUOMIDINI NARAYANA DALAL AND ANOTHER 249 IT R 219 (SC) UOI VS. SATISH PANNA LAL SHAH 249 ITR 221 (SC) CIT VS. J.K CHARITABLE TRUST 308 ITR 161 (SC) S.N. NAMASIVAYAM CHETTIAL VS. CIT 38 ITR 579 (SC) CIT VS. PARADISE HOLIDAYS 325 ITR 13 (DEL) CIT VS. M/S RICE INDIA EXPORTS PVT. LTD. IN ITA NO. 999/2010 DT. 03/08/2010 CIT VS. SMT. POONAM RANI 326 ITR 223 (DEL) CIT VS. JAS JACK ELEGANCE EXPORTS 324 ITR 95 (DEL) ITO VS. SOMSONS & CO. 148 TAXMAN 21 (ASR)(MAG) PANDIT BROS VS. CIT 26 ITR 159 (PUNJ) S. VEERIAH REDDIAR VS. CIT 38 ITR 152 (KER) P. VENKANNA VS. CIT 72 ITR 328 (MYS) R.V.S AND SONS DAIRY FARM VS. CIT 257 ITR 764 (MAD) CIT VS. SUPERIOR CRAFTS IN ITA NO. 244/2009, 547/20 11, 548/2011 AND 615/2011(DEL) DT. 06/03/2012 CIT VS. JACKSONS HOUSE 198 TAXMAN 385 (DEL) CIT VS. WINNER CONSTRUCTIONS (P) LTD. IN ITA NO. 79 6/2011(DEL) DT. 03/05/2012 LUNAR ELECTRICALS VS. ACIT IN ITA NO. 195/2006(DEL) DT. 2/03/2012 UMA CHARAN SHAW & BROS. CO. VS. CIT 37 ITR 271 (SC ) OMAR SALAY MOHAMMAD SAIT VS. CIT 37 ITR 151 (SC) DHIRAJLAL GIRDHARILAL VS. CIT, BOMBAY 26 ITR 736 (S C) DHAKESHWARI COTTON MILLS LTD. VS. CIT 26 ITR 775 (S C) LAL CHAND BHAGAT AMBICA RAM VS. CIT 37 ITR 288 CIT VS. GENESIS COMMET (P) LTD. 163 TAXMAN 482 (DEL ) NATHU RAM PREM CHAND VS. CIT 49 ITR 561 (ALL) EMC MACHINE WORKS VS. CIT REPORTED IN 49 ITR 650 (A LL) CIT VS. JITIN GUPTA DECIDED ON 03.03.2009 CIT VS. ORISSA CORPN(P) LTD. 159 ITR 78 (SC) 28 STATE OF ORISSA VS. MAHARAJA SHRI B.P. SINGH DEO 76 ITR 690 (SC) STATE OF KERALA VS. C. VELUKUTTY 60 ITR 239 (SC) KACHWALA GEMS VS. CIT 288 ITR 10 (SC) 8. IN HIS RIVAL SUBMISSIONS THE LD. DR STRONGLY SUP PORTED THE ORDERS OF THE AUTHORITIES BELOW AND REITERATED THE OBSERVATIONS M ADE IN THEIR RESPECTIVE ORDERS. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE HAD SHOWN THE LOSS ONLY IN THE POST SURVEY PERIOD, THEREFORE THE RESULT DECLARED B Y THE ASSESSEE WERE DOUBTFUL AND THE A.O. RIGHTLY REJECTED THE BOOKS OF ACCOUNT. IT WAS ALSO SUBMITTED THAT THE A.O. WAS FAIR ENOUGH TO ESTIMATE THE G.P. RATE AT 2.75% EVEN WHEN THE ASSESSEE ITSELF HAS SHOWN THE G.P. RATE OF 2.98% IN THE PRECEDING YEAR. ACCORDINGLY IT WAS SUBMITTED THAT THE ADDITION MADE BY THE A.O. WAS RIGHTLY SUSTAINED BY THE LD. CIT(A). 9. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CASE IT IS NOT IN DISPUTE THAT THE ASSESSEE MAINTAINED PROPER BOOK S OF ACCOUNT DURING THE REGULAR COURSE OF ITS BUSINESS, THE SAID BOOKS OF A CCOUNTS WERE DULY AUDITED AND NO SPECIFIC DEFECT WAS POINTED OUT THEREIN. THE A.O ., ONLY ON THIS BASIS THAT THE ASSESSEE HAD SHOWN LESSER G.P. RATE IN THE POST SUR VEY PERIOD DOUBTED THE BOOKS OF ACCOUNT AND REJECTED THE SAME BY INVOKING THE PR OVISIONS OF SECTION 145(3) OF THE ACT. HOWEVER NO SPECIFIC DEFECT WAS POINTED OUT IN BOOKS OF ACCOUNT RELATING TO PURCHASES OR SALES. IT IS ALSO NOT BROU GHT ON RECORD THAT THE PURCHASES SHOWN BY THE ASSESSEE WERE INFLATED OR THE SALES DI SCLOSED WERE SUPPRESSED EVEN THE METHOD OF ACCOUNTING APPLIED BY THE ASSESS EE YEAR TO YEAR CONSISTENTLY WAS NOT DOUBTED. THE A.O. HIMSELF TABU LATED THE TURNOVER AND G.P. RATE IN PARA 4.5 OF THE ASSESSMENT ORDER WHICH CLEA RLY SHOWS THAT THE G.P. RATE FOR THE A.Y. 2013-14 & 2014-15 WAS AT 2.76% AND 2.9 8% RESPECTIVELY WHICH CLEARLY SHOWS THAT THE G.P. RATE WAS NOT CONSTANT YEAR TO Y EAR, EVEN IN THE SUCCEEDING YEAR I.E; A.Y. 2016-17 THE G.P. RATE WAS AT 3.48% W HICH CLEARLY ESTABLISHED THAT THERE WERE FLUCTUATION IN THE G.P. RATE WHICH DEPEN DED UPON THE MARKET RATE OF 29 PURCHASES & SALES AND THE A.O. HIMSELF ADMITTED THA T THERE WERE FLUCTUATION IN THE RATES OF PURCHASES MADE FROM DIFFERENT PARTIES BY THE ASSESSEE. THE SAID FACTS HAVE BEEN MENTIONED IN PARA 3.3 OF THE ASSESS MENT ORDER. IN THE INSTANT CASE THE A.O. NEITHER POINTED OUT ANY SPECIFIC DEFE CT IN THE PURCHASE AND SALE NOR THE YIELD DECLARED BY THE ASSESSEE WAS DOUBTED. SO THERE WAS NO REASON TO REJECT THE BOOKS OF ACCOUNT SIMPLY ON THIS BASIS TH AT THERE WAS DECLINE IN THE PROFIT POST SURVEY. 9.1 ON A SIMILAR ISSUE THE HON'BLE JURISDICTIONAL H IGH COURT IN THE CASE OF PANDIT BROS VS. CIT, DELHI(SUPRA) HELD AS UNDER: THE ASSESSEE CARRYING ON A BUSINESS RETURNED AN I NCOME AND FILED A STATEMENT OF PROFIT AND LOSS. THE INCOME-TAX OFFICER HOWEVER ADDED A CE RTAIN SUM TO THE PROFIT AS GIVEN BY THE ASSESSEE ON THE GROUND THAT THE PROFIT DISCLOSE D BY HIM WAS LOW AND THERE WAS NO STOCK REGISTER. THE ASSESSEE MAINTAINED REGULAR ACC OUNTS OF HIS PURCHASES AND SALES AND THE INCOME-TAX OFFICER DID NOT SAY THAT THE METHOD EMPLOYED BY THE ASSESSEE WAS SUCH THAT IN HIS OPINION THE INCOME, PROFITS AND GAINS COULD NOT PROPERLY BE DEDUCED THEREFROM. HELD, THAT THERE WAS NO DEFINITE FINDI NG BY THE INCOME-TAX OFFICER THAT THE CASE FELL WITHIN THE PROVISO TO SECTION 13. EVEN IF SUCH FINDING WERE TO BE IMPLIED FROM HIS ORDER IT COULD NOT BE SAID THAT THERE WAS MATERIAL BEFORE HIM WHICH WOULD ENABLE HIM TO COME TO SUCH A FINDING. THE FACT THAT THE PROFITS A PPEARED TO HIM TO BE INSUFFICIENT AND THE FACT THAT NO STOCK REGISTER WAS MAINTAINED BY THE A SSESSEE WERE NOT MATERIALS UPON WHICH SUCH A FINDING COULD BE GIVEN, BUT THEY WERE CIRCUM STANCES WHICH MIGHT PROVOKE AN ENQUIRY. THE INCOME-TAX OFFICER MUST DISCOVER EVIDE NCE OR MATERIAL ALIUNDE BEFORE HE COULD GIVE SUCH A FINDING. IN INCREASING THE TAXABL E INCOME THE INCOME-TAX OFFICER DID NOT ADOPT ANY METHOD OR BASIS AND HE WAS NOT ACTING ACC ORDING TO THE PROVISIONS OF THE STATUTE. 9.2 SIMILARLY HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. PARADISE HOLIDAYS (SUPRA) HELD AS UNDER: THAT THE QUESTION AS TO WHETHER THE ACCOUNTS PRO DUCED BY THE ASSESSEE WERE DEFECTIVE / INCOMPLETE OR NOT WAS A QUESTION OF FACT. THE CO MMISSIONER(APPEALS) AS WELL AS THE TRIBUNAL HAD FOUND THAT THE ACCOUNTS MAINTAINED BY THE ASSESSEE WERE NEITHER DEFECTIVE NOR INCOMPLETE. EVEN THE ASSESSING OFFICER HAD NOT FOUND ANY FAULT AS SUCH WITH THE SYSTEM OF ACCOUNTING BEING FOLLOWED BY THE ASSESSEE. THE T RIBUNAL WHICH WAS THE FINAL FACT FINDING AUTHORITY HAD HELD THAT CONSIDERING THE NATURE OF T HE BUSINESS OF THE ASSESSEE, IT WAS NOT OBLIGATORY TO ENTER INTO A FORMAL AGREEMENT WITH TH E FOREIGN PRINCIPAL. HENCE, NON PRODUCTION OF FORMAL AGREEMENTS WITH THE FOREIGN PR INCIPALS WOULD NOT RENDER THE ACCOUNTS OF THE ASSESSEE INCOMPLETE AND WOULD NOT G IVE JUSTIFICATION TO THE ASSESSING OFFICER TO REJECT THEM UNDER SECTION 145(3) OF THE ACT. SIMILARLY, THE EXPLANATION GIVEN BY THE ASSESSEE FOR THE TOUR EXPENSES NOT RECONCILING WITH THE TOUR ITINERARY HAVING BEEN ACCEPTED, BOTH BY THE COMMISSIONER (APPEALS) AS WEL L AS BY THE TRIBUNAL, THE ACCOUNTS OF THE ASSESSEE COULD NOT BE SAID TO BE DEFECTIVE ON T HIS GROUND AND, THEREFORE, COULD NOT HAVE BEEN REJECTED. IF ANY PARTICULAR EXPENSE CLAIM ED BY THE ASSESSEE REMAINED UNVERIFIED, THE ASSESSING OFFICER COULD HAVE DISALL OWED THAT PARTICULAR EXPENSE. BUT, THAT 30 BY ITSELF COULD NOT BE A GROUND FOR REJECTION OF AC COUNTS AS A WHOLE UNDER SECTION 145(3) OF THE ACT. SINCE THE FINDING OF FACT RECORDED BY THE TRIBUNAL WAS NOT PERVERSE NO INTERFERENCE WAS NEEDED. 9.3 SIMILAR VIEW HAS BEEN TAKEN BY THE HON'BLE DELH I HIGH COURT IN THE CASE OF CIT VS. SMT. POONAM RANI (SUPRA) HELD AS UNDER: THAT THE ASSESSING OFFICER HAD NOT POINTED OUT A NY PARTICULAR DEFECT OR DISCREPANCY IN THE ACCOUNT BOOKS MAINTAINED BY THE ASSESSEE. THE A SSESSING OFFICER HAD NO MATERIAL BEFORE HIM TO TREAT THE ACCOUNTS OF THE ASSESSEE AS DEFECTIVE OR INCOMPLETE. THE ASSESSING OFFICER HAD NO MATERIAL BEFORE HIM ON THE BASIS OF WHICH IT COULD BE SAID THAT THE WEIGHT OF THE WIRE DID NOT INCREASE EVEN MARGINALLY DURING THE PROCESS OF ENAMELLING. THEREFORE, HE HAD NO JUSTIFICATION IN LAW TO REJECT THE EXPLAN ATION GIVEN BY THE ASSESSEE IN THIS REGARD. THE FALL IN GROSS PROFIT RATIO, IN THE ABSENCE OF A NY COGENT REASONS COULD NOT BY ITSELF BE A GROUND TO HOLD THAT PROPER INCOME OF THE ASSESSEE C OULD NOT BE DEDUCTED FROM THE ACCOUNTS MAINTAINED BY THE ASSESSEE AND CONSEQUENTL Y, COULD NOT HAVE BEEN A GROUND TO REJECT THE ACCOUNTS INVOKING SECTION 145(3) OF T HE ACT. THERE WAS NO FINDING THAT THE ACTUAL COST OF THE RAW MATERIAL OR THE ACTUAL COST OF PROCESSING CARRIED OUT PURCHASED BY THE ASSESSEE WAS LESS THAN WHAT WAS DECLARED IN THE ACCOUNT BOOKS. THERE WAS NO FINDING BY THE ASSESSING OFFICER THAT THE ACTUAL QUANTITY O F THE FINISHED PRODUCT PRODUCED BY THE ASSESSEE WAS MORE THAN WHAT IT WAS SHOWN IN THE ACC OUNT BOOKS OR THAT THE FINISHED PRODUCT WAS SOLD BY THE ASSESSEE AT A PRICE HIGHER THAN WHAT WAS DECLARED IN THE ACCOUNT BOOKS. IN THESE CIRCUMSTANCES, THE COMMISSI ONER (APPEALS) AND THE TRIBUNAL WERE JUSTIFIED IN HOLDING THAT THE ASSESSING OFFICE R COULD NOT HAVE INCREASED THE GROSS PROFIT RATIO MERELY BECAUSE IT WAS LOW AS COMPARED TO THE GROSS PROFIT RATIO OF THE PRECEDING YEAR. IF THE STOCK REGISTER WAS NOT MAINTAINED BY T HE ASSESSEE THAT MAY PUT THE ASSESSING OFFICER ON GUARD AGAINST THE FALSITY OF THE RETURN MADE BY THE ASSESSEE AND PERSUADE HIM TO CAREFULLY SCRUTINIZE THE ACCOUNT BOOKS OF THE AS SESSEE. BUT THE ABSENCE OF ONE REGISTER ALONE DID NOT AMOUNT TO SUCH A MATERIAL AS WOULD LE AD TO THE CONCLUSION THAT THE ACCOUNT BOOKS WERE INCOMPLETE OR INACCURATE. SIMILARLY, A L OW RATE OF GROSS PROFIT, IN THE ABSENCE OF ANY MATERIAL POINTING TOWARDS FALSEHOOD OF THE ACCO UNT BOOKS, COULD NOT BY ITSELF BE A GROUND TO REJECT THE ACCOUNT BOOKS UNDER SECTION 14 5(3) OF THE ACT. 9.4 IN THE PRESENT CASE ALSO THE ASSESSEE MAINTAINE D PROPER BOOKS OF ACCOUNT WHICH WERE AUDITED AND NO DEFECT WAS POINTE D OUT IN THOSE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE IN REGULAR COURS E OF ITS BUSINESS, NO DISCREPANCY WAS FOUND IN THE METHOD OF ACCOUNTING F OLLOWED BY THE ASSESSEE CONSISTENTLY. IT WAS NOT A CASE OF THE A.O. THAT TH E PURCHASE WERE INFLATED OR THE SALE WERE SUPPRESSED AND EVEN NO INSTANCE WAS POINT ED OUT THAT EITHER THE SALE OR PURCHASE WERE WITHOUT ANY SALE BILL / PURCHASE B ILL, THE EXPENSES INCURRED BY THE ASSESSEE WERE ALSO ACCEPTED, EVEN THE YIELD DEC LARED BY THE ASSESSEE WAS NOT DOUBTED AND NO DIFFERENCE WAS POINTED OUT IN TH E QUANTITATIVE DETAILS RELATING TO THE PURCHASES AND SALES. HOWEVER, THE A .O. DOUBTED THE G.P. RATE ONLY ON THIS BASIS THAT THERE WAS FLUCTUATION IN TH E RATES OF PURCHASES. 31 9.5 AS REGARDS TO THE FLUCTUATION IN THE PURCHASE R ATE OF THE GUAR THE ASSESSEE FURNISHED THE EXPLANATION BEFORE THE A.O. WHICH WAS NOT REBUTTED. THE SAID EXPLANATION WAS SUPPORTED BY THE CERTIFICATE GIVEN BY THE MARKET COMMITTEE, ELLENABAD DISTRICT SIRSA. THEREFORE ONLY ON THIS BA SIS THAT THERE WAS SOME REDUCTION IN THE G.P. RATE FOR THE YEAR UNDER SECTI ON IN COMPARISON TO THE SUCCEEDING YEAR, THE REJECTION OF THE BOOKS OF ACCO UNT UNDER SECTION 143(3) OF THE ACT AND WORKING OUT OF THE INCOME BY APPLYING T HE G.P. RATE WAS NOT JUSTIFIED. WE THEREFORE KEEPING IN VIEW THE FACTS O F THIS CASE AS DISCUSSED HEREIN ABOVE AND THE RATIO LAID DOWN IN THE AFORESAID REFE RRED TO CASES, DELETE THE IMPUGNED ADDITION MADE BY THE A.O. AND SUSTAINED BY THE LD. CIT(A). 10. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED . (ORDER PRONOUNCED IN THE OPEN COURT ON 11/10/2021) SD/- SD/- .. .., (R.L. NEGI ) ( N.K. SAIN I) $ %&/ JUDICIAL MEMBER ! / VICE PRESIDENT AG DATE: 11/10/2021 (+! ,-.- COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. $ / CIT 4. $ / 01 THE CIT(A) 5. -2 45&456789 DR, ITAT, CHANDIGARH 6. 8:% GUARD FILE (+ $ BY ORDER, ; # ASSISTANT REGISTRAR