The DCIT, Circle-12, Ahmedabad V. M/s. Manish Marketing, Ahmedabad

ITA 1804/AHD/2010

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1160 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 5 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 26-10-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 26-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B P K PANDA
• Assessee Lawyers: S N DIVETIA
• Keywords: Unexplained cash credit; Unexplained expenditure; Business income; Additional evidence
• Section: 145; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH (BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER & SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER) ITA NO: 1804/AHD/2010 & C.O. NO. 212/AHD/10 (ASSESSMENT YEAR: 2007-08) DY. COMMISSIONER OF INCOME-TAX, CIRCLE-12, AHMEDABAD V/S M/S. MANISH MARKETING 10/1, J.J. SUIRATWALA ESTATE, NR. CHAKUDIA MAHADEV, RAKHIAL, AHMEDABAD (APPELLANT) (RESPONDENT) M/S. MANISH MARKETING 10/1, J.J. SUIRATWALA ESTATE, NR. CHAKUDIA MAHADEV, RAKHIAL, AHMEDABAD V/S DY. COMMISSIONER OF INCOME-TAX, CIRCLE-12, AHMEDABAD+ (APPELLANT) (RESPONDENT) PAN: AAIFM3920H APPELLANT BY : SHRI B.P.K. PANDA, SR. D.R . RESPONDENT BY : SHRI S.N. DIVETIA, A.R. ( )/ ORDER DATE OF HEARING : 26-10-2015 DATE OF PRONOUNCEMENT : 20-11-2015 ITA NO 1804/A.1 0 & C.O. NO. 212/A/10 . A.Y. 2007-08 2 PER RAJPAL YADAV: 1. REVENUE IS IN APPEAL BEFORE US AGAINST THE ORDER OF LD. CIT(A)-XX DATED 26 TH FEBRUARY, 2010 PASSED FOR ASSESSMENT YEAR 2007-08. ON RECEIPT OF NOTICE IN THE REVENUES APPEAL, ASSESSEE HAS FILED CROSS OBJECTION BEARING NO. 212/A/2010. 2. FIRST WE TAKE UP THE APPEAL OF REVENUE. THE GROUNDS OF APPEAL TAKEN BY THE REVENUE WERE NOT INCONSONANCE WITH RULE 8 OF ITAT R ULES THEY WERE DECRIPTIVE AND ARGUMENTATIVE IN NATURE. WHEN THESE FACTS WERE POINTED OUT TO THE REVENUE, IT HAD FILED CONCISED GROUNDS OF APPEA L. THE FOLLOWING GROUNDS OF APPEAL PROJECT THE GRIEVANCE OF REVENUE AS UNDER :- 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELE TING THE ADDITIONS ON THE FOLLOWING ISSUES. 2. UNEXPLAINED CASH CREDIT RS. 30,00,000/- AND INTERE ST THEREON OF RS. 1,15,563 /- NOT JUSTIFIED. 3. UNEXPLAINED CASH CREDIT OF RS. 2,00,000/- U/S 68 OF THE ACT IN THE CAPITAL A/C OF PARTNER. 4. EXCESS STOCK RS. 3,51,405/- TREATED AS UNEXPLAINED EXPENDITURE. 5. LOW G.P. RATE OF RS. 9,79,143/- CONSIDERED VIEW THA T THE AO WAS NOT JUSTIFIED IN MAKING THE ADDITION. 6. UNEXPLAINED CASH CREDIT OF RS. 3,00,000/-FURTHER TH E LD CIT(A)-XX HAS ALSO ERRED IN LAW AND ON FACTS IN THE FOLLOWING ISSUES. 7. NOT APPRECIATING THAT THE ONUS WHICH LAY UPON THE A SSESSEE OF ESTABLISHING THE IDENTITY, CREDITWORTHINESS AND THE GENUINENESS OF T HE TRANSACTIONS. 8. THAT THE AO HAS NOT ISSUED ANY SPECIFIC NOTICE FOR VERIFICATION OF CERTAIN POINTS AND CONDITIONS OF SECTION 68 NOT DISCHARGED BY THE ASSE SSEE. 9. THE CIT (A) HAS ADMITTING ADDITION OF EVIDENCE IN P ROVISION OF 46A OF THE I.T. ACT. ITA NO 1804/A.1 0 & C.O. NO. 212/A/10 . A.Y. 2007-08 3 3. GROUND NOS. 1 & 8 ARE BEING TAKEN TOGETHER, BECAU SE THE GRIEVANCE OF REVENUE IN THESE GROUNDS IS THE LD. CIT(A) HAS ERRE D IN DELETING THE ADDITION OF RS. 30,00,000/- AND OF RS. 1,15,563/- BY ADMITTI NG ADDITION EVIDENCE IN VIOLATION OF RULE 46A OF THE INCOME TAX RULES. 4. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS A FIRM ENGAGED IN THE BUSINESS OF WHOLESALE AND RETAIL TRADING OF M.S AND S.S WIEL DING ROADS, PATTA, ETC. IT HAS FILED ITS RETURN OF INCOME ON 25.10.2007 DECLAR ING TOTAL INCOME OF RS. 6,98,402/-. THE CASE OF THE ASSESSEE WAS SELECTED F OR SCRUTINY ASSESSMENT AND A NOTICE U/S. 143(2) OF THE INCOME-TAX ACT WAS ISSUED AND SERVED UPON THE ASSESSEE. ON SCRUTINY OF THE ACCOUNTS, IT REVEA LED THAT ASSESSEE HAS TAKEN UNSECURED LOAN FROM VARIOUS PERSONS. THE LD. ASSESSING OFFICER HAS NOTED THE DETAILS OF 11 INDIVIDUALS FROM WHOM A TOT AL SUM OF RS. 30,00,000/- WAS SHOWN AS RECEIPT BY THE ASSESSEE, THE ASSESSEE HAD PAID AN INTEREST OF RS. 1,15,563/- ON THESE LOANS. THE LD. ASSESSING OF FICER HAS MADE ADDITION OF RS. 30 LACS AND DISALLOWED THE PAYMENT OF INTERE ST ON THE GROUND THAT ASSESSEE COULD NOT PROVE THE IDENTITY OF THE CREDIT ORS THEIR CREDITWORTHINESS AND GENUINENESS OF THE TRANSACTION. 5. ON APPEAL, LD FIRST APPELLATE AUTHORITY HAS CONSIDE RED THE FRESH EVIDENCE AND DELETED THE ADDITION. THE GRIEVANCE OF THE REVE NUE IS THAT THE EVIDENCE CONSIDERED BY THE LD. FIRST APPELLATE AUTHORITY WAS NOT CONFRONTED TO THE ASSESSING OFFICER AND, THEREFORE, THIS EVIDENCE COU LD NOT BE READ BY THE LD. FIRST APPELLATE AUTHORITY. THE LD. COUNSEL FOR THE ASSESSEE ON THE OTHER HAND COULD NOT REBUT THIS CONTENTION OF THE REVENUE . ITA NO 1804/A.1 0 & C.O. NO. 212/A/10 . A.Y. 2007-08 4 6. WITH THE ASSISTANCE OF LEARNED REPRESENTATIVE, WE H AVE GONE THROUGH THE RECORD CAREFULLY. RULE 46A OF THE INCOME-TAX RULES, 1962 HAS A DIRECT BEARING ON THE CONTROVERSY THEREFORE IT IS IMPERATI VE UPON US TO TAKE NOTE OF THIS RULE IT READS AS UNDER: - 46A. (1) THE APPELLANT SHALL NOT BE ENTITLED TO PR ODUCE BEFORE THE [DEPUTY COMMISSIONER (APPEALS)] [OR, AS THE CASE MAY BE, T HE COMMISSIONER (APPEALS)], ANY EVIDENCE, WHETHER ORAL OR DOCUMENTA RY, OTHER THAN THE EVIDENCE PRODUCED BY HIM DURING THE COURSE OF PROCE EDINGS BEFORE THE [ASSESSING OFFICER], EXCEPT IN THE FOLLOWING CIRCUM STANCES, NAMELY : (A) WHERE THE [ASSESSING OFFICER] HAS REFUSED TO ADMIT EVIDENCE W HICH OUGHT TO HAVE BEEN ADMITTED ; OR (B) WHERE THE APPELLANT WAS PREVENTED BY SUFFICIENT CA USE FROM PRODUCING THE EVIDENCE WHICH HE WAS CALLED UPON TO PRODUCE BY THE [ASSESSING OFFICER] ; OR (C) WHERE THE APPELLANT WAS PREVENTED BY SUFFICIENT CAU SE FROM PRODUCING BEFORE THE [ASSESSING OFFICER] ANY EVIDENCE WHICH IS RELEVANT TO ANY GROUND OF APPEAL ; OR (D) WHERE THE [ASSESSING OFFICER] HAS MADE THE ORDER APPEALED AGA INST WITHOUT GIVING SUFFICIENT OPPORTUNITY TO THE APPELL ANT TO ADDUCE EVIDENCE RELEVANT TO ANY GROUND OF APPEAL. (2) NO EVIDENCE SHALL BE ADMITTED UNDER SUB-RULE (1 ) UNLESS THE [DEPUTY COMMISSIONER (APPEALS)] [OR, AS THE CASE MAY BE, T HE COMMISSIONER (APPEALS)] RECORDS IN WRITING THE REASONS FOR ITS A DMISSION. (3) THE [DEPUTY COMMISSIONER (APPEALS)] [OR, AS THE CASE MAY BE, THE COMMISSIONER (APPEALS)] SHALL NOT TAKE INTO ACCOUNT ANY EVIDENCE PRODUCED UNDER SUB-RULE (1) UNLESS THE [ASSESSING OFFICER] HAS BEEN ALLOWED A REASONABLE OPPORTUNITY (A) TO EXAMINE THE EVIDENCE OR DOCUMENT OR TO CROSS- EXAMINE THE WITNESS PRODUCED BY THE APPELLANT, OR (B) TO PRODUCE ANY EVIDE NCE OR DOCUMENT OR ANY WITNESS IN REBUTTAL OF THE ADDITIONAL EVIDENCE PRODUCED BY THE APPELLANT. (4) NOTHING CONTAINED IN THIS RULE SHALL AFFECT THE POWER OF THE [DEPUTY COMMISSIONER (APPEALS)] [OR, AS THE CASE MAY BE, T HE COMMISSIONER (APPEALS)] TO DIRECT THE PRODUCTION OF ANY DOCUMENT , OR THE EXAMINATION OF ANY WITNESS, TO ENABLE HIM TO DISPOSE OF THE APPEAL , OR FOR ANY OTHER ITA NO 1804/A.1 0 & C.O. NO. 212/A/10 . A.Y. 2007-08 5 SUBSTANTIAL CAUSE INCLUDING THE ENHANCEMENT OF THE ASSESSMENT OR PENALTY (WHETHER ON HIS OWN MOTION OR ON THE REQUEST OF THE [ASSESSING OFFICER]) UNDER CLAUSE (A) OF SUB-SECTION (1) OF SECTION 251 OR THE IMPOSITION OF PENALTY UNDER SECTION 271.] 7. A BARE PERUSAL OF THIS RULE INDICATE THAT THE APPEL LANT I.E. ASSESSEE, (BECAUSE IN THE SCHEME OF THE ACT, NO APPEAL IS BEING PROVID ED AT THE END OF REVENUE AGAINST THE ASSESSMENT ORDER BEFORE THE COMMISSIONE R OF INCOME-TAX) SHALL NOT BE ENTITLED TO PRODUCE ANY EVIDENCE BEFORE THE FIRST APPELLATE AUTHORITY EITHER ORAL OR DOCUMENTARY UNLESS THE CONDITIONS EN UMERATED IN CLAUSE A TO D OF SUB RULE 1 EXISTS. UNDER CLAUSE-A, IT HAS BE EN PROVIDED THAT THE ASSESSEE CAN BE PERMITTED TO PRODUCE ADDITIONAL EVI DENCE WHICH OUGHT TO HAVE BEEN ADMITTED BY AO, BUT HE REFUSED TO ADMIT. CLAUSE B PROVIDES THAT ASSESSEE WAS PREVENTED BY SUFFICIENT CAUSE FRO M PRODUCING THE EVIDENCE WHICH WAS CALLED UPON TO PRODUCE BY THE AS SESSING OFFICER, CLAUSE C AND D PROVIDE THAT IF THE ASSESSEE WAS PREVEN TED BY SUFFICIENT CAUSE FROM PRODUCING ANY EVIDENCE WHICH IS RELEVANT TO AN Y GROUND OF APPEAL OR THE ASSESSING OFFICER HAS MADE THE ORDER APPEALED A GAINST WITHOUT GIVING SUFFICIENT OPPORTUNITY TO THE ASSESSEE TO ADDUCE EV IDENCE RELEVANT TO ANY GROUND OF APPEAL, THEN CIT(A) WOULD ADMIT ADDITIONA L EVIDENCE. FOR EXAMPLE, IF ASSESSEE WANTS TO SUBMIT ANY DETAILS IN SUPPORT OF HIS RETURN AND ASSESSING OFFICER REFUSED TO ADMIT SUCH DETAIL THEN ASSESSEE CAN PRODUCE SUCH EVIDENCE AT THE APPELLATE STAGE. SIMILARLY, IF ASSESSING OFFICER HAS CALLED FOR GIVING CERTAIN DETAILS BUT THE ASSESSEE WAS NOT IN A POSITION TO COLLECT THOSE DETAILS BECAUSE OF PAUCITY OF TIME OR FOR ANY OTHER REASON BEING THE DETAILS POSSESSED BY SOME OTHER PERSON THEN ALS O ASSESSEE WILL BE PERMITTED TO PRODUCE ADDITIONAL EVIDENCE. ITA NO 1804/A.1 0 & C.O. NO. 212/A/10 . A.Y. 2007-08 6 8. THE NEXT STEP REQUIRED TO BE FOLLOWED BY THE LD. FI RST APPELLATE AUTHORITY IS THAT THE ADMISSION OF ADDITIONAL EVIDENCE ON THE RE CORD IS BY WAY OF AN ORDER IN WRITING ALONG WITH REASONS FOR ITS ADMISSION. ON CE THE EVIDENCE IS BEING ADMITTED THAN AN OPPORTUNITY TO THE ASSESSEE OFFICE R WOULD BE GRANTED TO REBUT THAT EVIDENCE AS CONTEMPLATED IN SUB RULE 3. SUB RULE 4 IS AN EXPLANATION TO ALL THESE SITUATIONS, THE LD. COMMIS SIONER FOR THE JUST DECISION OF AN APPEAL CAN DIRECT ANY PARTY TO SUBMIT ANY EVI DENCE THAT IS EITHER TO THE ASSESSEE OR TO THE ASSESSING OFFICER. THE COMMENTS OF THE ASSESSING OFFICER IN THAT CASE WOULD NOT BE REQUIRED TO BE CA LLED FOR. IN THE PRESENT CASE, THE PROCEDURE CONTEMPLATED IN RULE 46A HAS NO T BEEN ADHERED TO AT THE END OF LD. FIRST APPELLATE AUTHORITY. THE LD. CIT(A ) HAS NOT PROVIDED OPPORTUNITY OF HEARING TO THE ASSESSING OFFICER HAS CONTEMPLATED IN SUB RULE 3 OF RULE 46A, THE EVIDENCE CANNOT BE USED IN SUPPO RT OF THE REASONING UNLESS SUCH AN OPPORTUNITY IS BEING GIVEN TO THE AS SESSING OFFICER. THEREFORE, WE ALLOW THESE GROUND OF APPEAL AND SET ASIDE THE FINDING OF THE LD. CIT(A). ON THIS ISSUE, THE LD. CIT(A) IS DIRECT ED TO RE-ADJUDICATE THE ISSUE AFRESH AFTER PROVIDING DUE OPPORTUNITY OF HEARING T O BOTH THE PARTIES. 9. GROUND NO. 2, REVENUE HAS CHALLENGED THE DELETION O F RS. 2 LACS WHICH WAS ALSO ADDED WITH THE AID OF SECTION 68. LD. COUNSEL FOR THE ASSESSEE, AT THE OUTSET SUBMITTED THAT THIS CREDIT REPRESENTS THE CO NTRIBUTION BY THE PARTNERS IN THEIR CAPITAL ACCOUNT. LD. FIRST APPELLATE AUTHORIT Y HAS DELETED THIS ADDITION BY OBSERVING AS UNDER:- 5.3 I HAVE CONSIDERED THE CONTENTIONS OF THE LEARNE D COUNSEL FOR THE APPELLANT AND HAVE ALSO CAREFULLY GONE THROUGH THE ASSESSMENT ORDER. T HE APPELLANT HAS FILED THE COPY OF ACKNOWLEDGEMENT OF THE RETURN OF INCOME FOR A.Y. 20 07-08 FILED BY SHRI SUMERMAL MISHRIMAL (P-48A). THEREFORE, RESPECTFULLY FOLLOWIN G THE DECISION OF HON'BLE GUJARAT ITA NO 1804/A.1 0 & C.O. NO. 212/A/10 . A.Y. 2007-08 7 HIGH COURT IN THE CASE OF PANKAJ DYESTUFF INDUSTRIE S AND HON'BLE TRIBUNAL IN THE CASE OF M/S. METAL HOUSE, I HOLD THAT NO ADDITION U/S.68 IN THE CASE OF THE APPELLANT FIRM WAS REQUIRED TO BE MADE AND THE AO IS AT LIBERTY TO EXA MINE THE SAID INVESTMENT IN THE ASSESSMENT OF SHRI SUMERMAL MISHRIMAL. THE ADDITION SO MADE OF RS.2,00,000/- IS HEREBY DELETED. 10. ON DUE CONSIDERATION THE FACTS AND CIRCUMSTANCES O F THE CASE, WE DO NOT FIND ANY ERROR IN THE FINDINGS OF LD. CIT(A), BECAUSE TH ERE IS NO DISPUTE WITH REGARD TO THE IDENTITY OF THE CREDITOR BEING A PART NER IN THE ASSESSEE FIRM. THEY ARE ASSESSABLE TO TAX AND COPIES OF RETURNS AN D THE DETAILS OF PERMANENT ACCOUNT NUMBER HAVE BEEN DISCLOSED. IT IS A CONTRIB UTION TO THE CAPITAL ACCOUNT THEREFORE GENUINENESS CAN ALSO NOT BE DOUBT ED. THE LD. FIRST APPELLATE AUTHORITY HAS ALREADY DIRECTED THE ASSESS ING OFFICER TO EXAMINE THE SAID INVESTMENT IN THE ASSESSMENT OF THE PARTNE R, THE INTEREST OF REVENUE HAS ALREADY BEEN TAKEN CARE BY THE LD. FIRST APPELL ATE AUTHORITY. IN VIEW OF THE ABOVE FACTS, THIS GROUND OF APPEAL IS REJECTED. 11. GROUND NO. 3, IN THIS GROUND OF APPEAL GRIEVANCE OF THE REVENUE IS LD. CIT(A) HAS DELETED THE ADDITION OF RS. 3,51,405/-. 12. THE BRIEF FACTS OF THE CASE ARE THAT ON ANALYSIS OF THE RECORD, LD. ASSESSING OFFICER FOUND THAT GP OF THE ASSESSEE HAS BEEN DCLI NED, HE VERIFIED THE CLOSING STOCK OF THE ASSESSEE. ACCORDING TO THE ASS ESSING OFFICER THE DETAILS OF THE SALES FOR EACH MONTH HAS BEEN PLACED ON RECO RD BY THE ASSESSEE. HE REDUCED THE GP @ 5.66% FROM THE SALE FIGURE AND WOR KED OUT THE STOCK OF GOODS AVAILABLE WITH THE ASSESSEE AT THE END OF EAC H MONTH. ON THE BASIS OF THIS WORKING, HE OBSERVED THAT CLOSING STOCK OF GOO DS AT THE END OF THE YEAR OUGHT TO BE RS. 33, 41,349/- WHEREAS ASSESSEE HAS S HOWN THE VALUE OF RS. ITA NO 1804/A.1 0 & C.O. NO. 212/A/10 . A.Y. 2007-08 8 36,92,754/-. THE LD. ASSESSING OFFICER HAS OBSERVED THAT ASSESSEE HAS DECLARED EXCESS STOCK OF RS. 3,51,405/- , HE DID NO T MAKE SPECIFIC ADDITION OF THIS AMOUNT ON THE GROUND THAT THE ADDITIONS MADE W ITH THE HELP OF SECTION 68, CAN TAKE CARE OF ALLEGED EXCESS STOCK, BECAUSE THE UNEXPLAINED MONEY AVAILABLE WITH THE ASSESSEE CAN BE SOURCE OF INVEST MENT IN EXCESS STOCK. 13. WITH THE ASSISTANCE OF LD. REPRESENTATIVE, WE HAVE GONE THROUGH THE RECORD CAREFULLY. THE VERY WORKING MADE BY THE ASSESSING O FFICER IS NOT A SCIENTIFIC WORKING FOR WORKING OUT THE ALLEGED CLOSING STOCK. THE METHOD ADOPTED BY THE A.O IS THAT HE REDUCED THE SALES BY GP AND WORK ED OUT THE VALUE OF STOCK AT THE END OF A GIVEN MONTH, THE GP CAN NEVER REMAI N STATIC THROUGHOUT THE YEAR. ONCE THE FIRST STEP TAKEN ERRONEOUSLY THEN TH E WRONG RESULT WOULD BE MULTIPLIED. THE LD. FIRST APPELLATE AUTHORITY HAS A PPRECIATED THIS ASPECT AND POINT OUT THAT THE ASSESSEE HAS DEMONSTRATED VARIOU S FACTUAL INACCURACY IN THE WORKING OF THE ASSESSING OFFICER. AFTER GOING T HOUGH THOSE DETAILS LD. CIT(A) HAS HELD THAT THERE IS NO EXCESS STOCK AS AS SUMED BY THE ASSESSING OFFICER. WE DO NOT FIND ANY ERROR IN THE FINDING OF LD. CIT(A) ACCORDINGLY THIS GROUND OF APPEAL IS REJECTED. 14. IN THE NEXT GROUND OF APPEAL GRIEVANCE OF THE REVEN UE IS THAT LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 9,79,143/-. 15. THE BRIEF FACTS OF CASE ARE THAT ASSESSEE HAS DECLA RED TURNOVER OF RS. 10,16,01,682/- IT HAS SHOWN GP AT RS. 45,58,120 WHI CH GIVEN RISE TO GROSS PROFIT RATE OF 4.49%. ACCORDING TO THE ASSESSING OF FICER, THE GP SHOWN BY THE ASSESSEE IS ON THE LOWER SIDE IN COMPARISON TO THE GP SHOWN AT 4.45% IN THE IMMEDIATELY PRECEDING YEAR. THE LD. ASSESSING O FFICER HAS ADOPTED THE ITA NO 1804/A.1 0 & C.O. NO. 212/A/10 . A.Y. 2007-08 9 GP RATE OF 4.45% AND MADE AN ADDITION OF RS. 9,79,1 43/-. ON APPEAL LD. CIT(A) DELETED THE ADDITION BY OBSERVING AS UNDER:- 7.3 I HAVE CONSIDERED THE FINDINGS OF THE AO A ND HAVE ALSO CAREFULLY CONSIDERED THE CONTENTIONS OF THE LEARNED COUNSEL FOR THE APPELLAN T. IT IS NOTICED THAT THERE IS A G.P. FALL BY 0.96% ONLY INASMUCH AS THE APPELLANT HAS DISCLOS ED G.P. AT 4.49% ON THE TOTAL SALES OF RS. 10,16,01,682/- DURING THE YEAR AS AGAINST G. P. AT 5.45% ON TOTAL SALES OF RS.7,48,94,514/- IN THE IMMEDIATELY PRECEDING YEAR. THUS, THERE IS AN INCREASE IN TOTAL TURNOVER BY ABOUT 35% WHEREAS IT HAS DOUBLED AS COM PARED TO THE YEAR PRECEDING TO LAST YEAR. THE APPELLANT HAS TIME AND AGAIN POINTED OUT IN BOTH THE AFORESAID REPLIES THAT IT HAD MAINTAINED DAILY STOCK REGISTER OF ALL THE ITEM S. NO DISCREPANCY OR DEFECT IN THE SAID STOCK REGISTER HAS BEEN FOUND BY THE AO EXCEPT STAT ING THAT BEING COMPUTER PRINT OUT, IT COULD NOT BE RELIED UPON. HOWEVER, THE AO HAS FAILE D TO APPRECIATE THAT IT IS NOT MANDATORY TO MAKE PHYSICAL RECORDING OF DAY-TO-DAY STOCK AND EVEN IF ANY SUCH RECORD IS MAINTAINED, THE SAME COULD BE VERIFIED FROM THE SAL E - PURCHASE INVOICES, DELIVERY CHALLANS AND OTHER PRIMARY RECORDS. UNLESS THERE IS ANY EVIDENCE TO SUGGEST THAT THE STOCK REGISTER IS MANIPULATED OR THERE ARE DEFECTS LIKE, OVER-WRITING, DIFFERENCE IN QUANTITY, ETC., IT COULD NOT BE REJECTED SIMPLY ON THE GROUND THAT IT WAS A COMPUTER PRINT OUT. ITS RELIABILITY HAS TO BE JUDGED FROM PRIMARY RECORD MAINTAINED BY THE APPELLANT BUT IN THE PRESENT CASE, NO SUCH EFFORT HAS BEEN MADE N OR HAS ANY ADVERSE FINDING BEEN GIVEN BY THE AO. THE APPELLANT HAS ALSO GIVEN MONTHLY DET AILS AS POINTED OUT IN THE GROUND OF APPEAL RELATING TO ADDITION IN RESPECT OF EXCESS CL OSING STOCK AND EVEN THE DETAILS OF OPENING AND CLOSING STOCK FURNISHED BY IT RELATES T O THE QUALITY AND QUANTITY AS NOTICED FROM THE DETAILS GIVEN AT PAGE-77 TO 82 OF THE PAPE R BOOK. YET ANOTHER REASON FOR DELETING THIS ADDITION IS THAT THE AO HAS NOT REJEC TED THE BOOKS OF ACCOUNT AND INVOKED THE PROVISIONS OF SECTION 145 AS IT APPEARS FROM PARA.7 OF THE ORDER. THE AO HAS SIMPLY REJECTED THE EXPLANATION FOR FALL IN G.P. RATE AND MADE THE ADDITION WHICH CANNOT BE ACCEPTED BECAUSE SIMPLY FOR THE REASON OF FALL IN G .P. RATE. THE CONTENTION OF THE AO REGARDING DIFFERENCE IN THE VALUATION OF OPENING AN D CLOSING STOCK IN VARIOUS ITEMS LISTED BY HIM COULD NOT BE ACCEPTED FOR THE SIMPLE REASON THAT THE VALUATION OF STOCK DEPENDS UPON THE COST PRICE AND IT WILL NOT BE THE SAME AT BOTH THE TIMES. REFERENCE CAN BE MADE TO THE DECISION OF ITO VS. BOTHRA INTERNATIONAL (11 7 TTJ 672)(JD) WHEREIN IT HAS BEEN ITA NO 1804/A.1 0 & C.O. NO. 212/A/10 . A.Y. 2007-08 10 HELD THAT IN ABSENCE OF ANY MATERIAL ON RECORD TO S UGGEST THAT THERE WAS SUPPRESSION OF INCOME OR THAT THE ASSESSEE CARRIED ON ANY ACTIVITY OUTSIDE THE BOOKS OR DETECTION OF ANY DISCREPANCY OR INCONSISTENCY IN THE BUSINESS TRANSA CTION OF THE ASSESSEE, BOOKS OF ACCOUNT COULD NOT BE REJECTED ON THE GROUND THAT THERE WAS DECLINE IN G.P. RATE AND THAT THE ASSESSEE DID NOT MAINTAIN STOCK REGISTER AND CONSEQ UENTLY, ADDITION MADE BY THE AO CANNOT BE SUSTAINED. UNDER THESE FACTS AND CIRCUMST ANCES OF THE CASE, I AM OF THE CONSIDERED VIEW THAT THE AO WAS NOT JUSTIFIED IN MA KING THE ADDITION OF RS.9,79,143/- TOWARDS LOW G.P. RATE WHICH IS HEREBY DELETED. 16. WITH THE ASSISTANCE OF LD. REPRESENTATIVE, WE HAVE GONE THROUGH THE RECORD CAREFULLY. SECTION 145 IS THE RELEVANT PROVISION FO R THIS ISSUE, THEREFORE, IT IS PERTINENT TO TAKE NOTE OF THIS SECTION. IT READS A S UNDER : 145. (1) INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' OR 'INCOME FROM OTHER SOURCES' SHALL, S UBJECT TO THE PROVISIONS OF SUB- SECTION (2), BE COMPUTED IN ACCORDANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. (2) THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFICI AL GAZETTE FROM TIME TO TIME [ACCOUNTING STANDARDS] TO BE FOLLOWED BY ANY CLASS OF ASSESSEES OR IN RESPECT OF ANY CLASS OF INCOME. (3) WHERE THE ASSESSING OFFICER IS NOT SATISFIED AB OUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, OR WH ERE THE METHOD OF ACCOUNTING PROVIDED IN SUB-SECTION (1) [OR ACCOUNTING STANDARD S AS NOTIFIED UNDER SUB-SECTION (2), HAVE NOT BEEN REGULARLY FOLLOWED BY THE ASSESS EE], THE ASSESSING OFFICER MAY MAKE AN ASSESSMENT IN THE MANNER PROVIDED IN SECTIO N 144.] 17. A BARE READING OF SECTION 145 WOULD REVEAL THAT IT PROVIDE THE MECHANISM HOW TO COMPUTE THE INCOME OF THE ASSESSEE. ACCORDIN G TO SUB-SECTION 1, THE INCOME CHARGEABLE UNDER THE HEAD PROFIT AND GAINS O F BUSINESS OR PROFESSION OR INCOME FROM OTHER SOURCE SHALL BE COMPUTED IN AC CORDANCE WITH THE METHOD OF ACCOUNTANCY EMPLOYED BY AN ASSESSEE REGUL ARLY, SUBJECT TO SUB- SECTION 2 OF SECTION 145 OF THE ACT. SUB-SECTION 2 PROVIDES THAT THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFICIAL GAZETTE FROM TIME TO TIME, THE ITA NO 1804/A.1 0 & C.O. NO. 212/A/10 . A.Y. 2007-08 11 ACCOUNTING STANDARD REQUIRED TO BE FOLLOWED BY ANY CLASS OF ASSESSEE IN RESPECT OF ANY CLASS OF INCOME. THUS, IT INDICATES THAT INCOME HAS TO BE COMPUTED IN ACCORDANCE WITH THE METHOD OF ACCOUNTAN CY FOLLOWED BY AN ASSESSEE I.E. CASH OR MERCANTILE, SUCH METHOD HAS T O BE FOLLOWED KEEPING IN VIEW THE ACCOUNTING STANDARD NOTIFIED BY THE CENTRA L GOVERNMENT FROM TIME TO TIME. SUB CLAUSE 3 PROVIDES A SITUATION, TH AT IS, IF THE ASSESSING OFFICER IS UNABLE TO DEDUCE THE TRUE INCOME. ON THE BASIS OF METHOD OF ACCOUNTANCY FOLLOWED BY AN ASSESSEE THAN HE CAN REJ ECT THE BOOK RESULT AND THE ASSESSEES INCOME ACCORDING TO HIS ESTIMATION O R ACCORDING TO HIS BEST JUDGMENT. THE ASSESSING OFFICER IN THAT CASE IS REQ UIRED TO POINT OUT THE DEFECTS IN THE ACCOUNTS OF ASSESSEE AND REQUIRED TO SEEK EXPLANATION OF THE ASSESSEE QUA THOSE DEFECTS. IF THE ASSESSEE FAILED TO EXPLANATION THE DEFECTS THAN ON THE BASIS OF THE BOOK RESULT, INCOME CANNOT BE DETERMINED AND ASSESSING OFFICER WOULD COMPUTE THE INCOME ACCORDIN G TO HIS ESTIMATION KEEPING IN VIEW THE GUIDING FACTOR FOR ESTIMATING T HE SUCH INCOME. THE FALL IN GP IS ONE CORROBORATIVE FACTOR FOR DOUBTING THE BOOK RESULT BUT IT CANNOT BE A SOLE FACTOR FOR REJECTING THE BOOK RESULT AND ESTIMATING THE INCOME. THE ASSESSING OFFICER FAILED TO POINT OUT THE DEFECTS I N THE BOOKS WHICH HAS CREATED A HURDLED IN HIS WAY TO COMPUTE TRUE INCOME . THEREFORE AFTER LOOKING TO THE FINDINGS OF LD. CIT(A) EXTRACTED (SUPRA), WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL, IT IS REJECTED. 18. IN THE NEXT GROUND, GRIEVANCE OF REVENUE IS LD. CIT (A) HAD DELETED THE ADDITION OF RS. 3 LACS. 19. THE BRIEF FACTS OF THE CASE ARE THAT ON CROSS VERIF ICATION OF ACCOUNTS OF THE ASSESSEE WITH THE BALANCE SHEET IN THE CASE OF PRAK ASH STEEL, FOUND DIFFERENCE ITA NO 1804/A.1 0 & C.O. NO. 212/A/10 . A.Y. 2007-08 12 OF RS. 3 LACS. THE ASSESSEE HAD SHOWN DEBIT BALANC E OF RS. 7,27,851/- IN ITS BOOKS OF ACCOUNTS WHEREAS THE SAID PARTY HAD SHOWN CREDIT BALANCE OF RS. 4,27,851/-. THE ASSESSING OFFICER HAS MADE THE ADDI TION OF THIS DIFFERENCE AT RS. 3 LACS. THE LD. CIT(A) HAS DELETED THE ADDITION BY OBSERVING AS UNDER:- 9.3 AFTER CONSIDERING THE ARGUMENTS OF THE LEARNED COUNSEL AND CLARIFICATION OFFERED, I AM OF THE VIEW THAT THE ADDITION OF RS.3 LACS AS UN EXPLAINED CASH CREDITS IS NOT JUSTIFIED. THE APPELLANT HAS FILED LEDGER ACCOUNT OF M/S. PRAK ASH STEEL FROM ITS OWN BOOKS AS WELL AS OF RIYA MARKETING TO PROVE THAT THE PAYMENT OF R S.3 LACS BY D.D. NO.780800 IF HDFC BANK ON 18-09-06 WAS WRONGLY CREDITED TO THE ACCOUN T OF THE APPELLANT BY M/S. PRAKASH STEEL IN ITS BOOKS WHICH HAD CAUSED THE DIFFERENCE IN THE CLOSING BALANCE. THUS, THERE WAS NO DISCREPANCY AS POINTED OUT BY THE A.O EVEN OTHER WISE WHEN THE PAYMENT IS MADE BY M/S. RIYA MARKETING AND THE TRANSACTION WITH M/S. P RAKASH STEEL PERTAINS TO THE PURCHASES, NO ADDITION COULD BE MADE AS UNEXPLAINED CASH CREDITS IN THE HANDS OF THE APPELLANT. THE ADDITION SO MADE IS HEREBY DELETED. 20. ON DUE CONSIDERATION OF THE FACTS, WE ARE OF THE VI EW THAT LD.CIT(A) HAS RECORDED A FINDING OF FACT. THE REVENUE HAS NOT BR OUGHT ANY MATERIAL TO REBUT THIS FINDING. THE ASSESSEE HAS EXPLAINED THE ALLEGED DISCREPANCY, THEREFORE THIS GROUND OF APPEAL IS REJECTED. 21. AS FAR AS CROSS OBJECTION IS CONCERNED, THE ASSESSE E HAS RAISED 4 GROUNDS OF APPEAL WHICH RELATES TO 2 ISSUES. IN GROUND NO. 1 & 2 IT HAS CHALLENGED CONFIRMATION OF AN ADDITION OF RS. 48,000/- WHICH W AS ADDED ON ACCOUNT OF UNEXPLAINED CREDITS. THE LD COUNSEL FOR THE ASSESS EE DID NOT PRESS THESE GROUNDS OF APPEAL HENCE THESE ARE REJECTED. 22. IN GROUND NO. 3 & 4, THE ASSESSEE HAS CHALLENGED TH E ADDITION OF RS. 1,47,710/-. ITA NO 1804/A.1 0 & C.O. NO. 212/A/10 . A.Y. 2007-08 13 23. THE BRIEF FACTS OF THE CASE ARE THAT IN THE VALUE O F CLOSING STOCK, ASSESSEE DID NOT INCLUDE COMPONENT OF VAT, THE ASSESSING OFFICER HAS OBSERVED THAT SECTION 145A REQUIRES THE ASSESSEE FOR INCLUSION OF VAT ETC. HE ACCORDINGLY MADE AN ADDITION OF RS. 1,47,710/- IN T HE VALUE OF CLOSING STOCK. ON APPEAL LD. CIT(A) HAS CONFIRMED THIS ADDITION BY OBSERVING AS UNDER:- 8.3 I HAVE CAREFULLY GONE THROUGH THE FACTS OF THE CASE, FINDINGS OF THE A.O ON THIS POINT AND THE SUBMISSIONS OF THE APPELLANT AND THE ARGUME NTS PUT FORTH BEFORE ME ON THIS POINT. SECTION 145 A OF THE ACT READS AS UNDER :- 145A. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONT AINED IN SECTION 145, THE VALUATION OF PURCHASE AND SALE OF GOODS AND INVENTORY FOR THE PU RPOSES OF DETERMINING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUS INESS OR PROFESSION' SHALL BE (A) IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGULAR LY EMPLOYED BY THE ASSESSEE; AND (B) FURTHER ADJUSTED TO INCLUDE THE AMOUNT OF ANY TAX, DUTY, CESS OR FEE (BY WHATEVER NAME CALLED) ACTUALLY PAID OR INCURRED BY THE ASSESSEE T O BRING THE GOODS TO THE PLACE OF ITS LOCATION AND CONDITION AS ON THE DATE OF VALUATION. EXPLANATION. FOR THE PURPOSES OF THIS SECTION, ANY TAX, DUTY, CESS OR FEE (BY WHATEVER NAME CALLED) UNDER ANY LAW FOR THE TIME BEING IN FO RCE, SHALL INCLUDE ALL SUCH PAYMENT NOTWITHSTANDING ANY RIGHT ARISING AS A CONSEQUENCE TO SUCH PAYMENT.] FROM THE PERUSAL OF THE PROVISIONS OF SECTION 145A OF THE ACT, IT IS AMPLE CLEAR THAT WHILE MAKING THE VALUATION OF CLOSING STOCK AT THE END OF THE YEAR ANY TAX, DUTY, CESS OR FEE, HAS TO BE INVARIABLY ADDED TO THE VALUE OF CLOSING STOC K AND THIS HAS TO BE LITERALLY FOLLOWED BY THE ASSESSEES OTHERWISE IT WILL GIVE FAIR BOOK R ESULTS AND WILL NOT BE IN THE SPIRIT OF LAW AND THE SPECIFIC PROVISIONS LAID DOWN IN THE ACT. T HE CONTENTION OF THE APPELLANT ON THIS POINT ARE THEREFORE NOT HELD TO BE ACCEPTABLE AND T HEREFORE THE RELEVANT VAT HAS TO BE ADDED IN THE CLOSING STOCK. I THEREFORE HOLD THAT T HE ACTION OF THE A.O. IN DOING SO AND MAKING THE RELEVANT ADDITION IS JUSTIFIED. THE ADDI TION MADE IS THEREBY HEREBY CONFIRMED. 24. WITH THE ASSISTANCE OF LD. REPRESENTATIVE, WE HAVE GONE THROUGH THE RECORD CAREFULLY. WE DO NOT FIND ANY ERROR IN THE FINDING OF LD. CIT(A). WE DIRECT ITA NO 1804/A.1 0 & C.O. NO. 212/A/10 . A.Y. 2007-08 14 THE ASSESSING OFFICER TO GIVE CREDIT OF THIS ENHANC ED VALUE OF CLOSING STOCK IN THE NEXT YEARS OPENING STOCK. WITH THE ABOVE OB SERVATIONS, THESE GROUNDS OF APPEAL ARE REJECTED. 25. IN THE RESULT, APPEAL FILED BY THE REVENUE IS PARTL Y ALLOWED FOR STATISTICAL PURPOSE WHEREAS CROSS OBJECTION FILED BY THE ASSESS EE IS REJECTED. ORDER PRONOUNCED IN OPEN COURT ON 20- 11 - 2015. SD/- SD/- (ANIL CHATURVEDI) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER