ASST CIT 27(1), MUMBAI V. GEM CORPORATON, MUMBAI

ITA 1740/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8342 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 10-01-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 25-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H M WANARE
• Assessee Lawyers: R S KHANDELWAL
• Keywords: Rejection of books of accounts; Peak credit; Cost of acquisition
• Section: 143(3); 142(1)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI . . , , BEFORE SHRI C.N. PRASAD , JM AND SHRI RAJESH KUMAR , AM ITA NO . 1740 / MUM/ 20 1 5 ( / ASSESSMENT YEA R : 20 11 - 12 ) THE ASSTT. COMMISSIONER OF INCOME TAX - 2 7(1), ROOM NO. 411 , 4 TH FLOOR, TOWER NO.6, VASHI RAILWAY STATION COMPLEX, VASHI, NAVI MUMBAI - 400703 / VS. M/S GEM CORPORATION, 703, RAMESHWAR, NEELKA NTH VALLY, NEAR RAJAWADI, GHATKOPAR (E), MUMBAI - 400077 ITA NO. 2127/ MUM/ 2015 ( / ASSESSMENT YEA R : 2011 - 12 ) M/S GEM CORPORATION, MUMBAI - 400077 / VS. JT. COMMISSIONER OF INCOME TAX - 22 (1) , ROOM NO. 4 TH FLOOR, TOWER NO.6, VASHI RAILWAY STATION CMPL. , VASHI, NAVI MUMBAI - 400703 ./ PAN : AAAFG5630Q ( / APPELLANT) : ( / RESPONDENT ) / REVENUE BY : SHRI H M WANARE / ASSESSEE BY : SHRI R S KHANDELWAL / DATE OF HEARING : 10 .1 .2 017 / DATE OF PRONOUNCEMENT : 27. 2. 201 7 2 ITA NO. 2127 /M/201 5 AND ITA NO.1740/M/2015 / O R D E R PER RAJESH KUMAR, A. M: THESE ARE THE CROSS APPEALS FILED BY THE RESPECTIVE PARTIES AND DIRECTED AGAINST THE ORDER DATED 30.1.2015 PASSED BY THE LD.CIT(A) - 25 , MUMBAI FOR THE ASSESSMENT YEAR 2011 - 12 . THESE A PPEALS WERE CLUBBED TOGETHER, HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. 2. FIRST WE SHALL TAKE UP THE APPEAL FILED BY THE ASSESSEE BEARING ITA NO. 2127 / MUM/201 5 : 3. THE ISSUE RAISED IN THE FIRST GROUNDS OF APPEAL IS AGAINST THE UPHOLDING THE DECISION OF THE AO TAKING THE LOSS IN ALMOND TRADE AT NIL AS AGAINST ACTUAL LOSS OF RS.3,03,51,447/ - BY IGNORING THE FACTS THAT THE ASSESSEES BOOKS OF ACCO UNTS WERE DULY AUDITED AND SIMILAR BOOK RESULT S WERE ACCEPTED BY THE REVENUE IN THE PAST. THE ISSUE RAISED IN THE GROUNDS OF APPEAL NO.2 IS AGAINST THE SUSTAINING THE ADDITION OF RS.90,06,530/ - ON ACCOUNT OF GROSS PROFIT IN ADDITION TO DISALLOWANCE OF GR OSS LOSS OF RS.3,03,51,447/ - WHICH IS HIGHLY EXCESSIVE AND UNJUSTIFIED AS IN THE WHOLESALE TRADING OF ALMOND GROSS PROFIT MARGIN WAS NEVER 12.00%. 3 ITA NO. 2127 /M/201 5 AND ITA NO.1740/M/2015 4. FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 30. 0 9.2011 DECLARING TOTAL INCO ME OF RS.95,05,145/ - WHICH WAS PROCESSED UNDER SECTION 143(1) OF THE ACT. SUBSEQUENTLY, THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND STATUTORY NOTICES WERE ISSUED UNDER SECTION 143(2) AND 142(1) OF THE ACT AND SERVED UPON THE ASSESSEE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED ON THE BASIS OF REPLY FILED BY THE ASSESSEE THAT GP RATE ON CHEMICALS TRADING WAS 21.14 % WHEREAS ON THE ALMONDS TRADING THE ASSESSEE DECLARED GROSS LOSS OF 21.26% AND OVERALL AVERAGE NET PROFIT RATE WAS 7.5%. THE AO NOTED THAT THE ASSESSEE HAS MADE HUGE LOSSES IN THE ALMONDS TRADING BY SELLING THE PRODUCT BELOW THE COST PRICE. THE AO ALSO REQUESTED THE ASSESSEE TO SUBMIT THE AVERAGE COST OF PURCHASE OF ALMOND VIS - - VIS AVERAGE COST OF PURCHASE AND B IFURCATED AND QUANTIFIED THE SALES OF ALMOND BELOW AND ABOVE T HE AVERAGE PRICE. BELOW AVERAGE PRICE RATE WORKED OUT BY THE AO AT RS.325/ - PER KG FOR 346405 KG ON WHICH THE AO ESTIMATED 8% GP RATE CALCULATING THE GP AT RS.90,06,530/ - AND AS REGARD T HE SALES MADE ABOVE AVERAGE PRICE THE AO CALCULATED THE GP RATE BY TAKING THE AVERAGE COST TO THE AVERAGE SALES RATE WHICH WORKED OUT TO 13.65% AND AFTER ALLOWING THE ALLOWANCE AT 1.65% FROM THE GROSS PROFIT RATE , THE ESTIMATED GP RATE WAS CALC ULATED AT RS.12.00% WHICH COMES TO RS.73,15,854/ - THEREBY MAKING TOTAL ADDITION ON ACCOUNT OF GROSS PROFIT ON SALE OF ALMONDS SOLD BELOW AND ABOVE AVERAGE 4 ITA NO. 2127 /M/201 5 AND ITA NO.1740/M/2015 PRICE AT RS. 1,63,22,384/ - BY REJECTING THE GROSS LOSS OF RS.3,0 3 ,51,447/ - AS SHOWN BY THE AS SESSEE WHICH WAS ADJUSTED AGAINST THE POSITIVE PROFIT IN THE CHEMICAL DIVISION. THUS, THE AO MADE TOTAL ADDITION OF RS.4,66,73,831/ - . AGGRIEVED BY THE ORDER OF THE AO PASSED UNDER SECTION 143(3) DATED 20.2.2014 BY DETERMINING THE TOTAL INCOME AT RS. 5,73,50,030/ - BY MAKING OTHER ADDITIONS ALSO. 5. IN THE APPELLATE PROCEEDINGS, THE LD.CIT(A) , AFTER CONSIDERING THE DETAIL ED SUBMISSIONS AND CONTENTIONS RAISED BY THE ASSESSEE , DISMISSED THE APPEAL OF THE ASSESSEE BY OBSERVING AND HOLDING AS UNDER : 5.14 IN THE INSTANT APPEAL, THE ASSESSEE HAS ALSO IN ITS GROUNDS STATED THT THE ASSESSING OFFICER HAS ERRED IN DISALLOWING THE LOSS AT RS.3,03,51,447/ - INSTEAD OF LOSS OF RS.34,52,447/ - . TO UNDERSTAND THIS, I HAVE DULY GONE THROUGH THE GROUNDS, FACTS AND SUBM ISSIONS OF THE APPELLANT WHICH WERE FILED DURING THE APPELLATE PROCEEDINGS. THE APPELLANT HAS STATED ITS ARGUMENTS AS BELOW: 4. CONTENTIONS: AT THE OUTSET WE WOULD LIKE TO BRING TO YOUR NOTICE THAT HE POSITION WAS DIFFERENT IN EARLIER YEARS. IN THE EA RLIER YEARS I.E. AY 09 - 10 APPELLANT HAD DEPOSITED CASH SUMS IN THE SAME BANK ACCOUNTS BUT WERE LATER ON TRANSFERRED BY CHEQUE TO THE BANK ACCOUNT OF M/ S. GEM CORPORATION. (EMPHASIS IS PLACED ON THE ORDER OF A Y. 09 - 10 AND AY. 10 - 11 ENCLOSED AS 'ANNEXURE ET ). IN THE RELEVANT ASSESSMENT YEAR, THE AMOUNT HAS NOT BEEN TRANSFERRED TO THE BANK ACCOUNT OF THE APPELLANT AND WAS DIRECTLY ADDED TO THE SALES BY THE LD. A. O. AS BEING ACCEPTED BY THE MANAGING PARTNER OF THE APPELLANT, MR. BHARAT SHAH IN HIS STATEMENT . 5 ITA NO. 2127 /M/201 5 AND ITA NO.1740/M/2015 TO GIVE THE EFFECT OF THIS, THE LD. A 0. HAS CALCULATED THE REVISED PROFIT OF THE APPELLANT BY CONSIDERING THE ENTIRE CASH DEPOSIT AS SALES AND HAS BEEN ADDED TO THE LOSS OF THE APPELLANT WHICH IS NOT ARGUED BY THE APPELLANT AS BEING DULY ACCEPTED BY T HE MANAGING PARTNER IN HIS STATEMENT. 4.1 THE LD. A O. IN HIS ORDER HAS ALSO MENTIONED ABOUT THE ACTUAL LOSS AFTER TAKING INTO CONSIDERATION THE ADDITIONAL AMOUNT OF SALES. IN PARA 4.6 OF THE ORDER, THE A O STATES AS BELOW: 'IN VIEW OF THE ABOVE, IT IS OBSERVED THAT IN THE CASE OF ALMONDS BUSINESS, THE ASSESSEE HAS INCURRED GREAT LOSS OF RS. 3, 03, 51,447/ - . THIS LOSS HAS BEEN INCURRED ON ACCOUNT OF DEPOSITING THE CASH SALES RECEIPTS IN BENAMI ACCOUNTS. HOWEVER, IF THE ABOVE CASH SALES RECEIPTS AMOUNTIN G TO RS.2, 68,99, 000/ - ARE CONSIDERED, THEN ALSO THERE IS LOSS OF RS.34,52,447/ - . THE ASSESSEE WAS THEREFORE ASKED TO FURNISH REASONS FOR NEGATIVE GROSS PROFIT. ' 4.2 IF WE GO BY THE A O.'S VERSION OF THE ABOVE PARA, IT CAN EASILY BE CONSTRUED THAT THE LD. A O. HAS GONE FURTHER AND ASKED TO FURNISH REASONS FOR NEGATIVE GROSS PROFIT OF RS.34,52,447/ - . IN CASE, THE APPELLANT WOULD HAVE EARNED GROSS PROFIT BY ADDING UP UNACCOUNTED PORTION OF SALES, THE LD. AO. WOULD NOT HAVE ASKED FOR FURNISHING ANY REASON OR DOUBT THE P ROFITABILITY.' 5.15 THE APPELLANT IN ITS FURTHER SUBMISSION DATED 28.10.2014 SUBMITTED AS UND ER WHICH IS CAREFULLY PERUSED: ' WE WOULD LIKE TO STATE THAT THE LD. A. O. HAS ERRED IN PARA 4.19 OF HIS ORDER WHICH IS REPRODUCED FOR YOUR HONOU R: 'THE GROSS PROFIT ADDITION ON SALE OF ALMONDS SOLD BELOW AVERAGE PRICE AND ABOVE AVERAGE PRICE THUS COMES TO RS. 1,63,22,384/ - . THE ASSESSEE HAS SHOWN A LOSS OF RS.3,03,51,447/ - ON SALE OF ALMONDS INSTEAD OF PROFIT. THIS LOSS IS NULLIFIED AND POSITIV E PROFIT OF RS. 1,63,22,384/ - IS ARRIVED AS DISCUSSED ABOVE. THIS MAKES THE ADDITION TO THE TOTAL INCOME OF THE ASSESSEE TO BE AT RS.4,66,73,831/ - .' THE LD. A.O. IN PARA 4.6 HAS MENTIONED ABOUT THE ACTUAL LOSS AFTER TAKING INTO CONSIDERATION THE ADDITION AL AMOUNT OF SALES. PARA 4.6 OF THE ORDER IS REPRODUCED AS BELOW: 6 ITA NO. 2127 /M/201 5 AND ITA NO.1740/M/2015 'IN VIEW OF THE ABOVE, IT IS OBSERVED THAT IN THE CASE OF ALMONDS BUSINESS, THE ASSESSEE HAS INCURRED GREAT LOSS OF RS.3,03,51,447/ - . THIS LOSS HAS BEEN INCURRED ON ACCOUNT OF DEPOSITING T HE CASH SALES RECEIPTS IN BENAMI ACCOUNTS. HOWEVER, IF THE ABOVE CASH SALES RECEIPTS AMOUNTING TO RS.2,68,99, 000/ - ARE CONSIDERED, THEN ALSO THERE IS LOSS OF RS. 34,52,447/ - .' 5.16 THE APPELLANT HAS FURTHER CONTENDED THAT A.O SHOULD HAVE DISALLOWED THE LOSS RS.34,52,447/ - FOR WHICH IT IS SUBMITTED AS UNDER: ' 6. SUBJECT TO ABOVE REMARKS AND THE DATA AVAILABLE ON RECORD, THE TAXABLE INCOME OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2011 - 12 IS COMPUTED AS UNDER: IN RS. TOTAL INCOME AS PER COMPUTATION 95,05,145 ADDITION OF GP AS DISCUSSED IN PARA 4 OF THE ORDER 4,66,73,831 ADDITION AS DISCUSSED IN PARA 5 OF THE ORDER 11,71,055 TOTAL TAXABLE INCOME 5,73,50,031 ROUNDED OF U/S 288A 5,73,50,030 FROM ABOVE, IT CAN BE SEEN THAT THE ADDITION A S PER PARA 4 IS RS. 4,66,73,831/ - . THE AO HAS ARRIVED ON THIS FIGURE AS GIVEN BELOW: IN RS. ADDITION OF 8% GP 9 0,06,530 ADDITION OF 12% GP 73,15,854 DISALLOWANCE OF LOSS 3,03,51,447 TOTAL 4,66,73,831 FROM THE ABOVE FACTS IT CAN BE OBSERVED THAT THE LD. AO HAS REJECTED THE BOOK OF ACCOUNTS AND HAS HIMSELF GIVEN A CLEAR CUT FINDING THAT THE LOSS ON SALE OF ALMONDS IS RS.34,52,447/ - ONLY AND HENCE WHILE COMPUTING THE ADDITION ON ACCOUNT OF ALMONDS IN PARA 6 OF THE ORDER, IT WOULD BE FAIR AND LO GICAL TO TAKE THE FIGURE OF RS.34,52,447/ - . IF THE ABOVE EFFECT IS GIVEN IN THE COMPUTATION ON THE BASIS OF FINDINGS OF THE AO, THE ADDITION ON ACCOUNT OF PARA 4 WOULD BE AS UNDER: 7 ITA NO. 2127 /M/201 5 AND ITA NO.1740/M/2015 IN RS. ADDITION OF 8% GP 90,06,530 ADDITION OF 12% GP 73,15,854 D ISALLOWANCE OF LOSS 34,52,447 TOTAL 1,97,74,831/ - IT IS THEREFORE SUBMITTED THAT THE LD. A. 0. HAS BASED H IS COMPUTATION. WITHOUT APPRECIATING PROPER FACTS AND FINDINGS FOUND DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS. HE HIMSELF HAS ACCEPTED TH AT THE ACTUAL LOSS IS ONLY RS.34,53,447/- IN PARA 4.6 OF THE ORDER. HE NOW CANNOT SUO MOTO ADD RS. 3,03,51,447/ - AFTER GIVING EFFECT OF CASH SALES. HENCE, THE LD. A. O. HAS ERRED IN COMPUTING THE PROFITS AND DISALLOWED A WRONG FIGURE. THE LEARNED AO SHOULD HAVE ADDED BACK THE LOSS ON ACCOUNT OF ALMONDS AT RS. 34,52,447/ - AS AGAINST RS. 3,03,51,447/ - . IT IS THEREFORE PRAYED THAT THE ADDITION MADE BY THE LD. A.O. SHOULD BE DELETED.' 5.18 I HAVE GONE THROUGH THE CONTENTION OF THE APPELLANT AS WELL AS CAREFUL LY PERUSED THE ORDER OF THE A.O. THE UNDISPUTED FACT REMAINS THAT DURING THE YEAR UNDER CONSIDERATION THE APPELLANT HAS SHOWN LOSS OF RS.3,03,51,447/ - . IT IS ALSO NOT IN DISPUTE THAT THIS LOSS IS ATTRIBUTABLE TO UNACCOUNTED SALES IN CASH MADE BY THE PARTNE RS, WHICH ARE NOT REFLECTED IN THE BOOKS OF ACCOUNTS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS ALSO FOUND THAT CASH OF RS.2,68,99, 000/ - WAS DEPOSITED IN THE BANK ACCOUNT OF PARTNERS WHICH IS NOTHING BUT THE AMOUNTS OF SALE RECEIPTS OF ALMONDS PE RTAINING THE APPELLANT FIRM. IT IS, THEREFORE, CLEAR THAT THE APPELLANT HAS SHOWN LOSS ON ACCOUNT OF TRADING IN ALMONDS WHICH IS NOTHING BUT AN OUTCOME OF SUPPRESSED SALES. AS REGARDS, SUCH SUPPRESSED SALES, THE ASSESSEE HAS N OT PRODUCED ANY EVIDENCE IN TH E FORM OF PARTY WISE DETAILS OF SUCH SALES OR FOR THAT MATTE R ANY SALE INVOICES MADE EITHER BY THE APPELLANT FIRM OR BY ITS PARTNERS. HENCE, IT IS ABSOLUTELY UNCLEAR AND NOT PROVED BY EVIDENCE THAT THE SALES AMOUNTS OF RS.2,68,99, 000/ - WAS ONLY THE SALES A ND THERE WERE NO OTHER RECEIPTS IN CASH APA RT FROM DEPOSITS MADE IN THE PARTNERS' ACCOUNTS OF APPELLANT FIRM. SINCE THE BOOKS OF ACCOUNTS WERE NOT RECEIVABLE IN VIEW OF THE CATEGORICAL FINDINGS OF SUPPRESSED SALE, T HE A.O HAS RIGHTLY REJECTED THE BOOKS OF ACCOUNTS. ONCE THE BOOKS OF 8 ITA NO. 2127 /M/201 5 AND ITA NO.1740/M/2015 ACCOUNTS ARE SO REJECTED, THE A.O AFTER CONSIDERING THE VARIOUS ASPECT MAY ESTIMATE THE INCOME WHIC H HAS BEEN DONE BY THE A.O IN THIS CASE. HOWEVER, LOOKING INTO THE FACTS OF THE CASE, IT IS SEEN THAT THE A.O HAS ESTIMATED THE I NCOME NOT ONLY ON THE SALES MADE BELOW COST B UT ALSO SALES WHICH WERE MADE ABOVE THE COST PRICE. IN THE PRECEDING PREVIOUS YEAR, THE C IT(A) HAS DELETED THE ADDITION MADE IN RESPECT OF THOSE SALES WHICH WERE MADE ABO VE THE COST WHEREAS SHE HAS CONFIRMED TH E ADDITION WITH REGARD TO ADDITION IN RESPE CT SALES MADE BELOW THE COST. I AM IN AGREEMENT WITH MY PREDECESSOR AND FOLLOWING THE S AME, I UPHOLD THE ADDITION MADE BY A.O ON THE GROSS PROFIT ADDITION OF 8% WITH REGAR D TO SALES MADE BELOW THE COST. THEREFORE , WHEN THE INCOME HAS BEEN ESTIMATED AT POSITIVE FIGURE, IT WOULD AUTOMATICALLY LEAD TO THE CONCLUSION THAT THE ENTIRE LOS S CLAIMED BY THE ASSESSEE SHOULD BE IGNORED I.E. THE SAME SHOULD BE ADDED TO THE INCORR ECT TO NULLIFY SUCH LOSSES. THE APPELLANT'S AR GUMENT THAT IT SHOULD BE RESTRICTED TO RS.34,52,447 J - IS MISPLACED AND NOT TENABLE BOTH ON FACTS OF THE INSTANT CASE AND IN LAW, PRECISELY BECAUSE THIS LOSS IN RESPECT OF ALMOND BUSINESS OF RS.3,03,51,447 / - HAS ALREADY BEEN SET OFF AGAINST THE PROFIT OF CHEMICAL BUSINESS BY THE APPELLANT ITSELF WHI LE WORKING OUT ITS NET PROFIT OF RS.95,05,145J - SHOWN IN ITS RETURN OF INCOME FOR THE YE AR UNDER CONSIDERATION. IN VIEW OF THE ABOVE, I DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE A.O. THE ADDITION OF RS.3,03 ,51,447 J - IS CONFIRMED. THIS GROUND IS ACCORDING LY DISMISSED 6 . AT THE OUTSET, THE LD.AR SUBMITTED THAT THE ISSUE RAISED IN THE PRESENT APPEAL STANDS FULLY COVERED BY THE DECISION OF THE CO - ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN I. T.A. NOS.7099/MUM/2013(AY - 2009 - 10) ORDER DATED 13.3.2015 WHEREIN THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. THE LD. AR THEREFORE PRAYED THAT BY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE (SUPRA), THE IS SUE BE DECIDED IN FAVOUR OF THE ASSESSEE FOR WHICH THE LD.DR DID NOT OBJECT. 9 ITA NO. 2127 /M/201 5 AND ITA NO.1740/M/2015 7 . HEARD BOTH THE PARTIES PERUSED THE MATERIAL PLACED BEFORE US INCLUDING THE IMPUGNED ORDERS AND CASE LAW RELIED UPON BY THE ASSESSEE. WE FIND THAT IN THE EARLIER YEAR THE SIMI LAR ISSUE WAS INVOLVED WHEREIN THE ADDITION S WERE MADE BY REJECTING THE BOOKS OF ACCOUNT BY INVOKING T HE PROVISIONS OF SECTION 145(3) OF THE ACT AND APPLYING GP RATE TO ESTIMATE THE INCOME OF THE ASSESSEE . WE FIND THAT THE ISSUE RAISED BY THE ASSESSEE IN THE PRESENT CASE IS MATERIALLY SAME AND STANDS COVERED BY THE ASSESSEES OWN CASE (SUPRA) . F OR THE SAKE OF BREVITY WE REPRODUCE THE RELEVANT PORTION OF THE ORDER AS UNDER : 3. WE HEARD THE PARTIES AND PERUSED THE RECORD. THE ASSESSEE FIRM IS ENGAGE D IN THE BUSINESS OF IMPORTING AND DEALING IN CHEMICALS AND ALMONDS. THE ASSESSEE IMPORTS CHEMICALS NAMED DITOMITE, SILICA AND AEROSIL. IT ALSO IMPORTS SHELLED AND UNSHELLED ALMONDS FROM USA, BESIDES SOURCING THE ALMONDS LOCALLY ALSO. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO RECEIVED INFORMATION FROM THE DESIGNATED OFFICER, INVESTIGATION WING TO THE EFFECT THAT THE BANK ACCOUNTS HAVE BEEN OPENED IN THE NAME OF MRS. ARUNA H DOSHI AND SIX OTHERS WITH M/S JANAKALYAN SAHAKARI BANK LTD. THE AGGREG ATE AMOUNT OF DEPOSITS MADE IN THESE SIX BANK ACCOUNTS DURING THE YEAR UNDER CONSIDERATION WAS RS.3.35 CRORES. THESE DEPOSITS WERE FOUND TRANSFERRED TO ANOTHER ACCOUNT OPENED IN THE NAME OF M/S SAMEER & CO. IN THE ACCOUNT OF M/S SAMEER & CO ALSO, CASH DE POSITS TO THE TUNE OF RS.1.11 CRORES WAS FOUND DEPOSITED. THUS THE AGGREGATE AMOUNT OF RS.4.46 CRORES (RS.3.35 CRORES + RS.1.11 CRORES) WAS FOUND DEPOSITED IN THE BANK ACCOUNT OF M/S SAMEER & CO AND THE SAME WAS FOUND TRANSFERRED TO THE ACCOUNT OF THE ASSE SSEE. WHEN THE DETAILS ABOUT DEPOSITS MADE IN THE ABOVE SAID BANK ACCOUNTS WERE ENQUIRED, THE ASSESSEE OWNED UP THESE BANK ACCOUNTS AND FURTHER SUBMITTED THAT THE CASH DEPOSITS WERE MADE OUT OF PROCEEDS RECEIVED FROM CASH SALES, I.E., THE ASSESSEE EXPLAIN ED THAT ENTIRE CASH DEPOSITS REPRESENTS THE SALES ALREADY ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS. THE ASSESSING OFFICER ALSO VERIFIED THE BOOKS OF ACCOUNT AND NOTICED THAT THE CHEQUES 10 ITA NO. 2127 /M/201 5 AND ITA NO.1740/M/2015 RECEIVED FROM M/S SAMEER & CO. WERE FOUND CREDITED IN THE ACCOUNTS OF D IFFERENT DEBTORS TO WHOM SALES HAD ALREADY BEEN MADE. ACCORDINGLY, THE AO ACCEPTED THE ABOVE SAID EXPLANATIONS OF THE ASSESSEE AND HENCE HE DID NOT MAKE ANY FURTHER ADDITION ON CASH DEPOSITS MADE BY THE ASSESSEE ON OTHERS BANK ACCOUNT. FOR THE SAKE OF CO NVENIENCE, WE EXTRACT BELOW PARAGRAPH 7.1 OF THE ASSESSMENT ORDER. 7.1. I HAVE GONE THROUGH THE SUBMISSIONS OF THE ASSESSEE AND THE FACTS ON RECORD. AS ALREADY BROUGHT OUT IN THIS ORDER THE ASSESSEE'S OFFER OF 4% EXTRA G.P ON ALMOND SALES OF RS.4,46,81,77 8/ - IS NOT ACCEPTED. THE GROSS PROFIT MARGIN ON THE ENTIRE SALE OF ALMONDS @ 16.05% HAS BEEN CONSIDERED IN THIS ORDER AS AGAINST THE LOSS OF RS.4,07,29,717/ - OR ABOUT SHOWN BY THE ASSESSEE. THE GROSS PROFIT MARGIN CONSIDERED AT 16.05% ALSO COVERS THE CASH SALES AND THE DIFFERENCE IN THE GROSS PROFIT IS REFLECTED IN THE COMPUTATION OF INCOME OF THE ASSESSEE MADE IN THIS ORDER. THE GROSS PROFIT MARGIN CONSIDERED IN THE ORDER HAS BEEN BASED ON THE SALES FIGURE OF RS.22,58,94,971/ - ON ALMONDS AND THE SALES AMO UNT REALIZED CONTAINED NOT ONLY THE AMOUNTS RECEIVED THROUGH THE BANK BUT ALSO SUBSTANTIAL CASH SALES. THE ASSESSEE HAD SHOWN ALMOND SALES FOR THE ENTIRE PERIOD OF THE PREVIOUS YEAR AND ITS CASH SALES ALSO CONSIDERED IN THE ORDER FOR FORMING PART OF THE G. P ESTIMATED ON SALE. SINCE THE G.P ESTIMATED AND CASH SALES HAVE BEEN CLOSELY INTERLINKED AND IN THE ABSENCE OF ANY ADDITIONAL INFORMATION, NO FURTHER ADDITION ON CASH DEPOSITS MADE BY THE ASSESSEE ON OTHERS BANKS AS DISCUSSED IS MADE IN THIS ORDER. 4. HOWEVER, THE AO PROCEEDED TO EXAMINE THE SALES DETAILS REPORTED BY THE ASSESSEE. THE AO CALLED FOR ITEM - WISE SALES BREAK - UP FROM THE ASSESSEE. SINCE THE ASSESSEE FAILED TO FURNISH THE DETAILS, THE AO PROCEEDED TO COMPUTE THE GROSS PROFIT ARISING ON SALE O F EACH PRODUCT DEALT BY THE ASSESSEE. THE AO COMPUTED THE RATE OF GROSS PROFIT ARISING FROM SALE OF DIATOMITE AND SILICA/AEROSIL AT 27.71% AND 27.20 % RESPECTIVELY. IN MONEY TERMS, THE AGGREGATE AMOUNT OF GROSS PROFIT THAT AROSE FROM SALE OF DIATOMITE AND SILICA/AEROSIL WORKED OUT TO RS.7.53 CRORES. HOWEVER, THE ASSESSEE HAD DISCLOSED GROSS PROFIT OF RS.3.13 CRORES, WHICH MEANS THAT THE ASSESSEE HAD DECLARED GROSS 11 ITA NO. 2127 /M/201 5 AND ITA NO.1740/M/2015 LOSS ON SALE OF ALMONDS. THE AO NOTICED FROM THE SALES BILLS OF ALMONDS THAT THE SALES HAVE B EEN MADE TO PARTIES, WHO COULD NOT BE IDENTIFIED. HENCE THE AO TOOK THE VIEW THAT THE SALES SHOWN AGAINST THE NON - EXISTENT PARTIES ARE NOT RELIABLE AND SO ALSO THE GROSS PROFIT SHOWN AGAINST THOSE SALES ALSO. THE AO ALSO VERIFIED THE SALES EFFECTED ON 7.1 .2009 AND ALSO THE RELATED PURCHASES AND NOTICED THAT THE G.P ON THE SAME WORKED OUT TO 16.05%. ACCORDINGLY, THE AO TOOK THE VIEW THAT THE GROSS LOSS (STATED AS NEGATIVE GROSS PROFIT BY THE AO) REPORTED BY THE ASSESSEE IS NOT UNACCEPTABLE FOR THE FOLLOW ING REASONS: - (I) ASSESSEE HAS SHOWN SALES IN ALMONDS IN FICTITIOUS NAMES AS ADMITTED BY THE PARTNER HIMSELF AND THOSE SALES CANNOT BE HELD AS GENUINE. (II) BULK QUANTITY OF SALES HAS BEEN SHOWN BY ASSESSEE AT VERY CHEAP RATE OF RS.50 TO RS.60 PER K G IN SEVERAL, BILLS (WHICH CONSTITUTE HARDLY 15% TO 20% OF THE SALE PRICE OF ALMOND AT MARKET RATES) IS NOT RELIABLE. FROM THE SAME LOT OF PURCHASE, ASSESSEE HAS SHOWN SALES TO OTHERS AT MARKET RATE WHICH SHOWS THAT THE SALES SHOWN AT VERY CHEAP RATES HAS NOT BEEN GENUINE. THE SALE CLAIMS TO THESE PARTIES AT THE LOW RATES HAVE BEEN MADE UP BY ASSESSEE FOR CREATING THE NEGATIVE G.P OR LOSS. (III) AS MENTIONED EARLIER, THE ASSESSEE CONTINUED TO RESIST THE REQUEST FOR FURNISHING THE DATA OF SALES TURNOVER O F ALMONDS CONTAINED IN THE OVERALL SALES TURNOVER SHOWN IN THE TRADING ACCOUNT. THE SALE TURNOVER OF ALMONDS WORKED OUT SUBSEQUENTLY AND HAS SUBSTANTIAL NEGATIVE G.P OR LOSS. THIS FACT HAS COME TO LIGHT AFTER COMPLETION OF THE VERIFICATION CARRIED OUT BY T HIS OFFICE ON THE MAIN ITEMS OF TRADE VIZ. 'DIATOMITE' AND 'SILICA/AEROSIL'. THE SALE TURNOVER OF ALMOND HAS BEEN INDIRECTLY ARRIVED AT AFTER REDUCING THE SALES TURNOVER OF THESE TWO ITEMS FROM THE TOTAL TURNOVER DECLARED BY THE ASSESSEE. (IV) THE ACTUAL SALES MADE BY THE ASSESSEE COULD HAVE BEEN AT MARKET RATE SOLD AT A PROFIT TO PERSONS OTHER THAN DISCLOSED IN THOSE CASES OF CLAIM OF SALES AT VERY LOW RATE. THIS HAS RESULTED IN THE SUPPRESSION OF ACTUAL PROFIT. (V) THE 'MODUS OPERANDI' ADOPTED BY THE A SSESSEE HAS BEEN THAT THE REAL PROFIT FROM ALMOND HAS BEEN SUPPRESSED AND SHOWN AS LOSS TO REDUCE THE IMPACT ON OVERALL G.P OF THE SUPER PROFIT EARNED BY IT FROM THE SALE OF 'DIATOMITE' AND 'SILICA/AEROSIL'. THIS HAS RESULTED IN OVERALL G.P MARGIN GETTING REDUCED TO 7.25%. 12 ITA NO. 2127 /M/201 5 AND ITA NO.1740/M/2015 ACCORDINGLY, THE AO COMPUTED THE SALE VALUE OF ALMONDS BY GROSSING UP THE PURCHASE COST OF ALMOND BY 16.05%. ACCORDINGLY, THE AO REWORKED THE GROSS SALES ARISING ON SALE OF ALL GOODS AT RS.50.05 CRORES. SINCE THE ASSESSEE HAD DISCLOSE D THE GROSS SALES AT RS.42.72 CRORES, THE AO HELD THE DIFFERENCE AMOUNT OF RS.7.33 CRORES (50.05 LESS 42.72) WOULD INCREASE THE PROFIT OF THE ASSESSEE. 5. THE ASSESSEE CONTENDED BEFORE THE AO THAT THE ASSESSING OFFICER HAS ARRIVED AT THE CONCLUSION THAT THE GROSS PROFIT ON SALE OF ALMONDS WAS 16.05% BY TAKING FEW SALE BILLS AND IT WAS NOT TO CORRECT TO PRESUME THAT THE SAME RATE OF GROSS PROFIT WOULD BE REALIZED THROUGHOUT THE YEAR ON THE ENTIRE QUANTITY OF PURCHASES. THE ASSESSEE SUBMITTED THAT IT HAD I NCURRED LOSS ON SALE OF SUB - STANDARD QUALITY ALMONDS. IT FURTHER SUBMITTED THAT THE OVERALL G.P RATE REPORTED BY IT IS COMPARABLE WITH THE EARLIER YEARS. THE AO NOTICED THAT THE LOSS HAS BEEN INCURRED BY SELLING ALMONDS AT VERY LOW RATE OF RS.50/ - TO RS.60 / - PER KG AND FURTHER HE DID NOT ACCEPT THE CLAIM THE SUB - STANDARD QUALITY ITEMS WERE SOLD AT LOW RATES. THE AO TOOK THE VIEW THAT THE ASSESSEE SHOULD HAVE RETURNED THE SUB - STANDARD QUALITY ITEMS TO THE SUPPLIER. THE AO ALSO NOTICED THAT THE ASSESSEE HAS I MPORTED THE ALMONDS FROM A SISTER CONCERN AND HENCE THE PAYMENT OF HIGHER PURCHASE COST ON SUB - STANDARD ITEMS WOULD ATTRACT DISALLOWANCE U/S 40A(2)(B) OF THE ACT. THE AO ALSO EXAMINED SOME MORE SALE BILLS AND NOTICED THAT THE G.P RATE THEREON WAS IN THE R ANGE OF 8.74% TO 39.47%. HENCE THE AO TOOK THE VIEW THAT THE G.P. RATE OF 16.05% DETERMINED BY HIM WAS REASONABLE. ACCORDINGLY, THE AO ASSESSED THE DIFFERENCE IN SALES (COULD ALSO BE TAKEN AS DIFFERENCE IN GROSS PROFIT) OF RS.7.33 CRORES AS INCOME OF THE ASSESSEE. 6. IN THE APPELLATE PROCEEDINGS, THE LD.CIT(A) TOOK THE VIEW THAT THE PEAK AMOUNT OF CASH DEPOSITS MADE IN THE SEVEN BANK ACCOUNTS /CHEQUE RECEIPTS FROM THE ACCOUNT OF M/S SAMEER & CO. HAS TO BE ASSESSED AS INCOME OF THE ASSESSEE. THE LD CIT(A ) WORKED OUT THE PEAK CREDIT AT RS.45,01,668/ - AND HELD THE SAME TO BE THE INCOME OF THE ASSESSEE. BEFORE THE LD CIT(A), THE ASSESSEE SUBMITTED THE DETAILS OF SALES EFFECTED AT LESSER THAN THE COST OF PURCHASE. HENCE THE LD. CIT(A) TOOK THE VIEW THAT THE CLAIM OF LOSS SHOULD BE IGNORED. THE COST OF PURCHASES OF ALMONDS WHICH WERE SOLD AT LOSS WORKED OUT TO RS.14.21 CRORES. SINCE THE ASSESSEE HAD DECLARED PROFIT AT AN AVERAGE RATE OF 7.5% IN THE EARLIER YEARS, THE LD CIT(A) HELD THAT THE GROSS PROFIT SHO ULD BE ESTIMATED @ 8% ON THE COST OF PURCHASE OF 14.21 13 ITA NO. 2127 /M/201 5 AND ITA NO.1740/M/2015 CRORES, CITED ABOVE. ACCORDINGLY HE ESTIMATED THE PROFIT AT RS.1,13,69,590/ - AND DIRECTED THE AO TO ASSESS THE SAME ALONG WITH THE PEAK CREDIT OF RS.45,01,668/ - REFERRED ABOVE, IN THE PLACE OF RS.7.33 CRORES ASSESSED BY THE AO. 7. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF LD CIT(A) IN ENHANCING THE INCOME BY PEAK CREDIT AMOUNT OF RS.45,01,668/ - AND ALSO IN CONFIRMING THE GROSS PROFIT ADDITION BY RS.1,13,69,590/ - . 8. THE REVENUE IS AGGRIEVED BY THE DECISION OF LD.CIT(A) IN REDUCING THE GROSS PROFIT ADDITION MADE BY THE AO. 9. BEFORE US, THE LD A.R SUBMITTED THAT THE ALMOND IS A PERISHABLE EDIBLE PRODUCT AND IS LIABLE TO BE DAMAGED BY IMPROPER HANDLING AND STORAGE, TEMPERATURE VARIATIONS, H UMIDITY VARIATION, EFFLUX OF TIME AND BY DAMAGE THROUGH INSECTS/INFECTIONS. THE ALMONDS ARE IMPORTED FROM USA AND THE TIME TAKEN FOR TRANSPORT OF ALMONDS FROM THE GODOWN OF THE SUPPLIER TO THE GODOWN OF THE ASSESSEE WOULD BE CONSIDERABLE AND SOMETIMES, IT WOULD TAKE MORE TIME DUE TO OPERATIONAL PROBLEMS, LIKE DELAYS IN LOADING INTO CONTAINERS, THE TRANSPORTATION DELAY CAUSED BY PROBLEMS OF SHIPS, THE DELAY IN GETTING BERTH IN THE PORT ETC. DURING THE COURSE OF TRANSPORTATION, THE PRODUCTS MAY LEAD TO INFEST ATIONS. DUE TO DELAY, THE INFECTIONS WOULD SPREAD TO GOOD ALMONDS ALSO. THE ASSESSEE HAS TO NECESSARILY EXAMINE THE QUALITY OF THE ALMONDS AND SORT/SEGREGATE THE SAME ACCORDING TO ITS SIZE, QUALITY, BROKEN ONE (CHIPPED, SCRATCHED, BROKEN) ETC. THE INFESTED ALMONDS ARE SUBJECTED TO FUMIGATION PROCESS BEFORE SELLING THE SAME IN THE MARKET. HENCE, THE SELLING PRICE OF ALMONDS WOULD DEPEND UPON ALL THESE FACTORS. FURTHER, THE ASSESSEE HAS SOLD BOTH SHELLED AND IN - SHELL ALMONDS DURING THE YEAR UNDER CONSIDE RATION. THE IN - SHELL ALMONDS COMMAND LOW PRICE WHEN COMPARED TO THE SHELLED ALMONDS. FURTHER, THE PRICE OF THE ALMONDS WOULD ALSO BE NOT STATIC AND THE SAME WOULD VARY ACCORDING TO THE MARKET CONDITIONS. ACCORDINGLY HE SUBMITTED THAT THE ASSESSEE, AS A B USINESS MAN, WOULD BE SELLING THE ALMONDS AT VARIOUS RATES IN ORDER TO MINIMIZE THE LOSS, SO THAT IN AVERAGE HE MAKES PROFIT ON SALE OF ALL PRODUCTS DEALT BY HIM. THE ASSESSEE WOULD TEND TO MAKE MORE LOSS IF IT HOLDS THE PRODUCTS. HE SUBMITTED THAT THE A BOVE SAID PRACTICE IS THE NORMAL TRADE PRACTICE ADOPTED IN ALMOST ALL KINDS OF TRADES. ACCORDINGLY HE SUBMITTED THAT TAX AUTHORITIES ARE NOT JUSTIFIED IN PRESUMING THAT THE ASSESSEE HAS TO REALIZE SAME RATE OF GROSS PROFIT ON SALE OF ENTIRE QUANTITY OF PUR CHASE, WHICH IS TOTALLY AGAINST THE NORMAL TRADING CONDITIONS. 14 ITA NO. 2127 /M/201 5 AND ITA NO.1740/M/2015 10. THE LD A.R FURTHER SUBMITTED THAT THE FLUCTUATIONS IN CURRENCY RATE WOULD ALSO AFFECT THE MARGINS REALIZED ON SALE OF ALMONDS. FURTHER, THE ASSESSEE IS IN WHOLESALE TRADE AND HENCE THE MARGIN REALIZED BY THE ASSESSEE WOULD ALWAYS BE LOWER DUE TO HIGH VOLUME OF SALES. HE FURTHER SUBMITTED THAT THE AO HAS HELD THAT PURCHASES ARE COVERED BY THE PROVISIONS OF SEC. 40A(2)(B) OF THE ACT. HOWEVER, THE AO HAS NOT GIVEN A FINDING THAT THE PURCH ASE PRICES PAID ARE IN EXCESS OF MARKET VALUE. ON ONE HAND, THE AO HAS DISBELIEVED THE SELLING PRICE BY ACCEPTING THE PURCHASE PRICE AND ACCORDINGLY COMPUTED THE GROSS PROFIT, AND ON THE OTHER HAND, HE IS ENTERTAINING THE VIEW THAT THE PURCHASE PRICES ARE ON THE HIGHER SIDE. ACCORDINGLY, HE SUBMITTED THAT THERE WAS INCONSISTENCY IN THE APPROACH OF THE AO. HE FURTHER SUBMITTED THAT THE AO WAS NOT JUSTIFIED IN HOLDING THAT THE ASSESSEE SHOULD HAVE RETURNED BACK THE SUB - STANDARD ITEMS TO THE SUPPLIER. HE S UBMITTED THAT THE AO IS NOT ENTITLED TO STEP INTO THE SHOES OF BUSINESSMAN AND EXPECT THE BUSINESS TO CONDUCT THE BUSINESS IN A PARTICULAR MANNER. HE SUBMITTED THAT THE AO HAS FAILED TO NOTICE THAT THE COST OF TRANSPORTATION OF SUB - STANDARD ITEMS TO USA WO ULD BE MORE AND FURTHER IT WOULD NOT BE POSSIBLE TO SEND THE INFESTED ITEMS TO THAT COUNTRY, AS THE FOOD PRODUCTS ARE REQUIRED TO COMPLY WITH STRINGENT NORMS. ACCORDINGLY HE SUBMITTED THAT THE AO HAS REJECTED THE BOOK RESULTS WITHOUT PROVING WITH ANY TANG ENT MATERIAL THAT THE ASSESSEE HAS REALLY SHOWN BOGUS LOSS IN THE BOOKS OF ACCOUNT. ACCORDINGLY HE SUBMITTED THAT THE AO HAS PROCEEDED TO ESTIMATE THE GROSS PROFIT ON SALE OF ALMONDS ONLY ON PRESUMPTIONS AND ON SURMISES AND CONJECTURES. HENCE THE ENTIRE ADDITION IS LIABLE TO BE DELETED. 11. THE LD A.R SUBMITTED THAT THE LD CIT(A) HAS ACCEPTED THE FACT THAT THE AVERAGE RATE OF GROSS PROFIT CANNOT BE APPLIED ON ENTIRE SALE VALUE OF ALMONDS. ACCORDINGLY HE HELD THAT THE SALES MADE ABOVE THE PURCHASE COST SHOULD NOT BE DISTURBED. HOWEVER, HE HAS REJECTED THE LOSS MADE ON SALE OF ALMONDS AND ESTIMATED THE PROFIT AT 8% OF THE PURCHASE COST. HE SUBMITTED THAT THE LD CIT(A) HAS ALSO TAKEN THE VIEW THAT THE ASSESSEE COULD NOT HAVE MADE LOSS, WITHOUT BRINGI NG ANY MATERIAL ON RECORD. ACCORDINGLY HE SUBMITTED THAT THE ADDITION SUSTAINED BY LD CIT(A) IS ALSO LIABLE TO BE DELETED. 12. THE LD A.R SUBMITTED THAT THE AO HAS ACCEPTED THE FACT THAT THE CASH DEPOSITS MADE INTO THE BANK ACCOUNTS OF SIX PERSONS AND M/S SAMEER & CO. HAVE COME FROM THE CASH SALES MADE BY THE ASSESSEE AND HENCE HE DID NOT MAKE ANY ADDITION. THE LD CIT(A) ALSO ACCEPTED THIS FACT, BUT HE HAS TAKEN THE VIEW THAT THE ASSESSEE HAS GAINED BY 15 ITA NO. 2127 /M/201 5 AND ITA NO.1740/M/2015 ROUTING THE CASH THROUGH THE BANK ACCOUNTS. ACCO RDINGLY, THE LD CIT(A) HAS COMPUTED THE PEAK CREDIT AND HELD THE SAME TO THE INCOME OF THE ASSESSEE. THE LD A.R SUBMITTED THAT THE ASSESSEE HAS ACCOUNTED FOR ALL THE SALES IN ITS BOOKS OF ACCOUNT. ONLY THE CASH AMOUNT HAS BEEN DEPOSITED INTO THE ABOVE SA ID BANK ACCOUNTS AND THEY HAVE BEEN RECEIVED BY WAY OF CHEQUES. HENCE, THE PROCEDURE ADOPTED BY THE ASSESSEE WOULD NOT GIVE RISE TO ANY INCOME ELEMENT AND HENCE THE LD CIT(A) WAS NOT JUSTIFIED IN HOLDING THAT THE PEAK CREDIT REPRESENTS INCOME OF THE ASSES SEE. HE FURTHER SUBMITTED THAT THE THEORY OF PEAK CREDIT IS APPLIED ONLY IN RESPECT OF UNACCOUNTED TRANSACTIONS, WHERE AS IN THE INSTANT CASE, THE ASSESSEE HAS ACCOUNTED THE SALES. 13. ON THE CONTRARY, THE LD D.R PLACED STRONG RELIANCE ON THE ASSESSME NT ORDER. HE SUBMITTED THAT THE ASSESSEE HAS CLAIMED TO HAVE INCURRED GROSS LOSS ON SALE OF ALMOND AND THE SAID CLAIM WAS NOT PRIMA FACIE ACCEPTABLE. HENCE, THE AO HAS COMPUTED THE GROSS PROFIT REALIZED ON SALE OF OTHER PRODUCTS AND NOTICED THAT THE ASSE SSEE HAS SOLD THE ALMONDS AT VERY LOW PRICE, WHICH IS NOT BELIEVABLE. HE SUBMITTED THAT THE ASSESSING OFFICER HAS CONSIDERED CERTAIN INSTANCES OF SALES ON TEST CHECK BASIS AND HAS NOTICED THAT THE ASSESSEE HAS ACTUALLY MADE PROFITS ON SALE OF ALMONDS. ON THE BASIS OF THOSE SALE INVOICES, THE AO HAS COME TO THE CONCLUSION THAT THE AVERAGE RATE OF GROSS PROFIT WAS 16.05% OF PURCHASE VALUE. HENCE THE AO REJECTED THE CLAIM OF LOSS AND ACCORDINGLY COMPUTED THE GROSS PROFIT ON SALE OF ALMONDS. HE FURTHER SUBM ITTED THAT THE AO HAS GIVEN PROPER REASONS TO REJECT THE BOOK RESULTS AND FOR THE GROSS PROFIT RATE ADOPTED BY HIM. HENCE THE LD CIT(A) WAS NOT JUSTIFIED IN REDUCING THE ADDITION MADE BY THE AO. 14. ON CONSIDERATION OF ENTIRE SPECTRUM OF THE MATTER, WE ARE OF THE VIEW THAT THERE IS MERIT IN THE CONTENTIONS OF THE ASSESSEE. BEFORE US, THE ASSESSEE HAS FURNISHED THE ORDER OF ASSESSMENT OF TAX MADE UNDER MVAT ACT (VALUE ADDED TAX SALES TAX). WE NOTICE THAT THE COMMERCIAL TAX AUTHORITIES HAVE ACCEPTED T HE TURNOVER REPORTED BY THE ASSESSEE. WHEN THE AUTHORITIES WHO ARE MAINLY CONCERNED WITH THE AMOUNT OF TURNOVER/ SALES HAVE ACCEPTED, THEN, PRIMA FACIE, THE ACCOUNTS APPEAR TO BE CORRECT. HOWEVER, ACCORDING TO THE AO, THE ASSESSEE HAS MADE GROSS LOSS O N SALE OF ALMONDS. WHEN WE EXAMINE THE ASSESSMENT ORDER, WE NOTICE THAT THE ASSESSING OFFICER HAS DERIVED THE AMOUNT OF GROSS PROFIT REALIZED ON SALE OF CHEMICAL ITEMS LIKE DIATOMITE, SILICA/AEROSIL BY MAKING HIS OWN CALCULATIONS, SINCE THE 16 ITA NO. 2127 /M/201 5 AND ITA NO.1740/M/2015 ASSESSEE HAS E XPRESSED ITS INABILITY TO FURNISH SEPARATE TRADING ACCOUNT FOR EACH OF THE PRODUCTS. WE NOTICE THAT THE AVERAGE GROSS PROFIT RATE WAS COMPUTED AS 27.71% AND 27.20% ON SALE OF DIATOMITE AND SILICA/AEROSIL RESPECTIVELY. IT IS PERTINENT TO NOTE THAT THERE I S NOTHING ON RECORD TO SHOW THAT THE ABOVE SAID COMPUTATION OF GROSS PROFIT WAS ACCEPTED BY THE ASSESSEE. THE AO HAS TAKEN SWORN STATEMENT FROM ONE OF THE PARTNERS OF THE FIRM. IN QUESTION NO.31 ALSO, THE AO HAS MADE CERTAIN COMPUTATION OF GROSS PROFIT I N RESPECT OF SOME OF THE BILLS. WE NOTICE THAT THE GROSS PROFIT RATE COMPUTED FOR DITOMITE WAS 19.76% IN ONE INSTANCE AND 54% IN ANOTHER INSTANCE. THE GROSS PROFIT RATE COMPUTED FOR AEROSIL WAS 3.18% IN ONE INSTANCE AND 15.31% IN ANOTHER INSTANCE. THE G ROSS PROFIT RATE COMPUTED FOR SHELLED DIAMONDS WAS IN THE RANGE OF 7.17% TO 10%. THUS IT IS SEEN THAT HUGE VARIATION IN THE GROSS PROFIT RATE REALIZED BY THE ASSESSEE IN VARIOUS PRODUCTS AND IT VINDICATES THE CONTENTION OF THE ASSESSEE THAT THE G.P. RATE WOULD BE DEPENDENT UPON VARIOUS FACTORS. 15. THE ASSESSING OFFICER HAS ARRIVED AT THE CONCLUSION THAT THE ASSESSEE HAS INCURRED GROSS LOSS ON SALE OF ALMONDS, SINCE HE HAD COMPUTED THE GROSS PROFIT REALIZED ON CHEMICAL ITEMS AT A HUGE FIGURE. THUS THE GROSS PROFIT OF ALL THE PRODUCTS WOULD BE DEPENDENT UPON EACH OTHER UNDER THIS METHOD OF COMPUTATION, I.E., IF THE GROSS PROFIT FROM CHEMICALS IS REDUCED, THEN THE GROSS PROFIT ON ALMONDS WILL GO UP. HENCE, UNLESS IT IS SHOWN THAT THE GROSS PROFIT COMPUT ED BY THE AO FROM CHEMICAL SALES IS AN AUTHENTICATED ONE, IN OUR VIEW, ONE CANNOT ACCEPT HIS CONCLUSIONS. 16. WE HAVE NOTICED THAT THE AO HAS APPLIED THE AVERAGE GROSS PROFIT RATE OF 16.05% ON THE ENTIRE COST OF PURCHASE OF ALMONDS. HOWEVER, THE LD C IT(A) HAS NOTICED THAT THE ASSESSEE HAS INCURRED LOSS ONLY ON THE PURCHASES MADE TO THE EXTENT OF RS.14.21 CRORES. THUS, THE REMAINING SALES HAVE BEEN MADE ABOVE THE PURCHASE COST. HENCE, THE LD CIT(A) HAS TAKEN THE VIEW THAT THE ESTIMATED GROSS PROFIT R ATE SHOULD BE APPLIED ONLY THE ABOVE SAID PURCHASES OF RS.14.21 CRORES. IN OUR OPINION, THIS APPROACH OF THE LD CIT(A) APPEARS TO BE REASONABLE ONE., I.E., WHEN THE AO IS SUSPECTING ABOUT THE CLAIM OF LOSS ON SALE OF ALMONDS, THERE IS NO REASON TO DISTURB THE SALES MADE WITH PROFIT. HENCE, IN OUR VIEW, THE AO WAS NOT JUSTIFIED IN APPLYING THE GROSS PROFIT RATE ON ENTIRE COST OF PURCHASE OF ALMONDS AND TO THAT EXTENT THE VIEW OF THE LD CIT(A) STANDS JUSTIFIED. AT THE SAME TIME, THE CONTENTION OF THE ASSES SEE WAS THAT THE LD CIT(A) WAS ALSO NOT JUSTIFIED IN ESTIMATING 17 ITA NO. 2127 /M/201 5 AND ITA NO.1740/M/2015 THE GROSS PROFIT ON RS.14.21 CRORES WITHOUT BRINGING ANY MATERIAL ON RECORD TO DISBELIEVE THE BOOKS OF ACCOUNTS OF THE ASSESSEE. 17. HENCE, THE QUESTION AS TO WHETHER THE TAX AUTHORITIES ARE JUSTIFIED IN REJECTING THE BOOK RESULTS WOULD STILL REMAINS TO BE ADDRESSED. A PERUSAL OF THE ASSESSMENT ORDER WOULD SHOW THAT THE ASSESSING OFFICER HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW THAT THE SALES MADE AT BELOW THE COST PRICE WERE NOT CORRE CT. WE NOTICE THAT THE AO HAS SIMPLY PROCEEDED TO MAKE COMPUTATIONS ON THE BASIS OF BOOK RESULTS ONLY. IT CAN BE SEEN THAT THE AO DID NOT USE ANY OUTSIDE MATERIAL/INFORMATION IN THIS REGARD. THUS, IT IS SEEN THAT THE ASSESSING OFFICER DID NOT MAKE ANY T HIRD PARTY ENQUIRIES OR ANY OTHER MATERIAL ON RECORD TO DISPROVE THE BOOK RESULTS. MORE PARTICULARLY, THE CLAIMS OF THE ASSESSEE THAT THE ALMONDS ARE PERISHABLE PRODUCTS AND SUBJECT TO VAGARIES OF WEATHER, SUBJECT TO BREAKAGE AND OTHER LOSS, LIABLE TO INF ESTED ETC. AND HENCE WOULD RESULT IN REDUCTION OF QUALITY WERE NOT DISPROVED. THE AO HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW THAT THE PRODUCTS WERE RECEIVED FROM USA IN PERFECT QUALITY AND HENCE THE CLAIM OF THE ASSESSEE WAS WRONG. THUS, IN OUR VI EW, THE AO HAS COMPLETELY FAILED TO DISPROVE THE CLAIM OF THE ASSESSEE THAT IT HAS TO SELL ALMONDS AT LOWER THAN THE COST RATE DUE TO SUB - STANDARD QUALITY. UNDER THESE SET OF FACTS, IN OUR VIEW, THE AO HAS PROCEEDED TO REJECT THE BOOK RESULTS ONLY ON THE BASIS OF SURMISES AND CONJECTURES. IT IS A WELL SETTLED PROPOSITION THAT THE SUSPICION, HOWSOEVER STRONG IT MAY BE, CANNOT JUSTIFY THE ACTION OF THE ASSESSING OFFICER. HENCE, IN OUR VIEW, THERE IS NO ENOUGH MATERIAL ON RECORD TO WARRANT OR JUSTIFY THE AC TION OF REJECTION OF BOOK RESULTS. ACCORDINGLY WE ARE OF THE VIEW THAT THE LD CIT(A) WAS NOT JUSTIFIED IN UPHOLDING THE ACTION OF REJECTION OF BOOK RESULTS. 18. THE VIEW EXPRESSED BY THE AO ON APPLICATION OF SEC. 40A(2)(B), IN OUR VIEW, WAS NOT CORRE CT, SINCE THE ASSESSING OFFICER HAS NOT PROVED BY WAY OF ANY MATERIAL THAT THE PURCHASE PRICE PAID BY THE ASSESSEE IN EXCESS OF MARKET RATES. 19. SINCE, WE HAVE SET ASIDE THE DECISION OF THE TAX AUTHORITIES ON REJECTION OF BOOK RESULTS, THE CONSEQUENT ES TIMATE OF GROSS PROFIT IS ALSO LIABLE TO REJECTED. THE LD A.R ALSO POINTED OUT THAT THE GROSS PROFIT RATE DECLARED BY THE ASSESSEE IN THE EARLIER YEARS HAS BEEN ACCEPTED. WE HAVE EARLIER NOTICED THAT THE TAX AUTHORITIES HAVE PROCEEDED TO COMPUTE THE GROS S PROFIT ON PRESUMPTIVE BASIS WITHOUT BRINGING ANY 18 ITA NO. 2127 /M/201 5 AND ITA NO.1740/M/2015 MATERIAL ON RECORD. WE HAVE ALSO NOTICED THAT THE CLAIM OF SALE OF SUB - STANDARD QUALITY OF ALMONDS HAS NOT BEEN DISPROVED. THOUGH IT IS STATED THAT THE ASSESSEE HAS SOLD TO NON - EXISTANT PARTIES, YET THE BILLS RELATING TO CASH SALES GENERALLY DO NOT BEAR THE ADDRESS OF THE BUYERS. HENCE, THE SAME CANNOT BE A GROUND TO REJECT THE CLAIM OF THE ASSESSEE. ACCORDINGLY, WE ARE OF THE VIEW THAT THERE IS NO MATERIAL ON RECORD TO REJECT THE CLAIM OF SALES MADE AT LOWER THAN THE COST PRICE. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD CIT(A) ON THE ISSUE RELATING TO ADDITION OF GROSS PROFIT AND DIRECT THE AO TO DELETE THE ADDITION MADE ON ACCOUNT OF DIFFERENCE IN GROSS PROFIT/SALES AMOUNT. FROM THE FACTS BEFORE U S, WE FIND THAT THE FACTS INVOLVED IN THE ABOVE DECISION OF THE CO - ORDINATE BENCH OF THE TRIBUNAL ARE MATERIALLY SIMILAR AS IN THE PRESENT CASE BEFORE US. WE, THEREFORE RESPECTFULLY FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH OF THE TRIBUNAL SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT THE AO TO DELETE THE ADDITION. ITA NO.1740/MUM/2015 8 . THE GROUND RAISED BY THE REVENUE IN THIS APPEAL READS AS UNDER : ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN NOT TAKING INT O CONSIDERATION THE GROSS PROFIT ON THE TRANSACTIONS OF PURCHASE AND SALE OF ALMONDS, WHICH HAVE BEEN RESULTED IN A PROFIT THEREBY ALLOWING EXCESS RELIEF TO THE ASSESSEE 9 . WE HAVE ALREADY DISCUSSED THE ISSUE ON THE SAME SUBJECT IN THE APPEAL FILED BY TH E ASSESSEE IN ITA NO 2127/MUM/2015 (SUPRA) AND DECIDED IN FAVOUR OF THE ASSESSEE . THEREFORE, THE ISSUE RAISED BY THE REVENUE IN THIS APPEAL STANDS COVERED AGAINST THE REVENUE AND HENCE DISMISSED. 19 ITA NO. 2127 /M/201 5 AND ITA NO.1740/M/2015 10. IN THE RESULTS , THE APPEAL OF THE ASSESSEE IS ALLOWED AND THAT OF REVENUE STANDS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 27TH FEBRUARY , 2017. S D SD ( C.N. PRASAD ) ( RAJESH KUMAR) / J UDICIAL MEMBER / A CCOUNTANT MEMBER MUMBAI ; DATED : 27. 2 .2017 SRL,SR.PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESP ONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORD ER, T RUE COPY / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI