M/s Rawalpindi Stationers, Patiala V. JCIT, Patiala

ITA 189/CHANDI/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86135 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 year(s) 11 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 20-01-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 18-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Assessee Lawyers: RAKESH JAIN
• Keywords: Rejection of books of accounts; Unexplained investment; Business income
• Section: 143(3); 142(1); 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.R.SOOD, ACCOUNTANT MEMBER ITA NO. 189/CHD/2011 ASSESSMENT YEAR : 2007-08 M/S RAWALPINDI STATIONERS, VS. THE J.C.I.T., 22 NO. PHATAK, PATIALA RANGE, PATIALA. PATIALA. PAN: AABFR7889M AND ITA NO. 162/CHD/2011 ASSESSMENT YEAR : 2007-08 THE A.C.I.T., VS. M/S RAWALPINDI STATIONERS, PATIALA RANGE, 22 NO. PHATAK, PATIALA. PATIALA. PAN: AABFR7889M (APPELLANT) (RESPONDENT) ASSESSEE BY : S/SHRI GURJEET SINGH & RAKESH JAIN DEPARTMENT BY : SHRI MANJIT SINGH, DR DATE OF HEARING : 20.01.2015 DATE OF PRONOUNCEMENT : 23.01.2015 O R D E R PER BHAVNESH SAINI, J.M. : BOTH THE CROSS APPEALS ARE DIRECTED AGAINST THE ORD ER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS), PATIA LA DATED 15.12.2010 FOR ASSESSMENT YEAR 2007-08. 2. THE ASSESSEE HAS FILED THE APPEAL ON THE FOLLOWI NG GROUNDS OF APPEAL : 2 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, I) THE LD. C.I.T. (APPEALS) HAS ERRED IN PARTLY SUS TAINING THE ADDITION OUT OF THAT MADE BY A.O. ON ACCOUNT OF PRO FIT OF RS. 6,25, 000/- ON UNACCOUNTED SALES ALLEGEDLY MADE TO THE STUDENTS OF LADY FATIMA SCHOOL, BY UPHOLDING THE REJECTION OF BOOKS OF ACCOUNT. II) WHILE DOING SO, HE ALSO ERRED IN DIRECTING THE A .O. TO CALCULATE THE ALLEGED UNACCOUNTED SALES BY APPLYING G.P. RATE OF 20%. 2. THE LD. C.I.T. (APPEALS) HAS FURTHER ERRED IN ADOPTIN G THE G.P. RATE OF 20% IN RESPECT OF THE SALES MADE BY THE APPELLAN T, AS AGAINST 13% DECLARED BY IT. 3. THE LD. C.I.T. (APPEALS) HAS ALSO ERRED IN SUSTA INING THE ADDITION OF RS.66,672/- IN RESPECT OF ALLEGED RECEIPT OF BINDIN G CHARGES. 3. THE REVENUE HAS FILED THE APPEAL ON THE FOLLOWIN G GROUND OF APPEAL : 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.14,58,540/ -, MADE BY THE AO ON A/C OF UNEXPLAINED INVESTMENT TOWARDS UNACCOUNTED PURCHASES, WITHOUT APPRECIATING THAT THE ASSESSEE HAD FAILED TO EITHER PROVE AS TO WHERE THE SAID PURCHASES HAD BEEN RE CORDED OR FILE ANY QUANTITATIVE TALLY OF SALES/PURCHASES OR ANY STOCK REGISTER. 4. THE REVENUE HAS ALSO RAISED ADDITIONAL GROUND OF APPEAL CHALLENGING THE ORDER OF THE LEARNED CIT (APPEALS) IN DIRECTING THE ASSESSING OFFICER TO CALCULATE THE UNACCOUNTED SALES BY REDUCING GP RATE OF 30% TO 20%. 5. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES AND PERUSED THE MATERIAL ON RECORD. BOTH THE PARTIES HAVE ALSO ARGUED ON ADDITIONAL GROUND OF APPEAL WIT HOUT ANY OBJECTION. 3 6. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E HAD FILED HIS RETURN OF INCOME ON 29.10.07 SHOWING AN INCOME OF RS.6,09,040/-. THE CASE WAS SELECTED UNDER SCRUTINY BY ISSUING NOTICES UNDER SECTIONS 142(1) & 143(2) AND ASSESSMENT WAS FRAMED ON 24.12.2009. THE ASSESSEE F IRM DEALS IN TRADING OF BOOKS AND STATIONERY ITEMS HAVI NG TWO PARTNERS. IN THE COURSE OF ASSESSMENT, THE ASSESSI NG OFFICER NOTICED THAT THERE WERE CERTAIN DISCREPANCIES IN TH E BOOKS OF ACCOUNTS LIKE CASH MEMOS WHICH WERE NOT ISSUED ON A REGULAR BASIS BY THE ASSESSEE, CASH MEMOS DID NOT CONTAIN F ULL DETAILS OF BOOKS SOLD, CONSOLIDATED CASH MEMOS WERE ISSUED FOR CASH SALES MADE TO DIFFERENT CUSTOMERS DURING THE WHOLE DAY ETC. FOR ALL THIS THE TRADING ACCOUNT COULD NOT BE RELIE D UPON. ALSO THE ASSESSEE HAD NOT GIVEN INFORMATION /DOCUME NTS IN RESPECT OF THE FOLLOWING: A) SALE BILLS/VOUCHERS FOR THE PERIOD FROM 1.4.06 T O 31.3.2007. B) LIST OF TEXT BOOKS FOR EACH CLASS I.E. FROM NUR SERY TO CLASS 10 FOR PERIOD 1.4.06 TO 31.3.07. LIST FOR THE PRESENT FINANCIAL YEAR WAS ALSO NOT GIVEN. C) NO PRICE PER SET OF BOOKS IN RESPECT OF EACH CLA SS WAS FURNISHED. 7. FURTHER, THE A.O. DOUBTED THAT NO STOCK REGISTER WAS MAINTAINED BY THE ASSESSEE AS REQUIRED UNDER SECTIO N 44AA(C) OF THE ACT R.W.R. 6F OF INCOME TAX RULES. THE TRUE STATE OF AFFAIRS OF THE BUSINESS COULD NOT BE KNOWN FROM SUC H SET OF BOOKS. HE STATED THAT ONE OF THE PARTNERS' STATEMEN T WHEN RECORDED ADMITTED THAT MAJOR SALE OF BOOKS WAS MADE IN THE 4 MONTHS OF MARCH AND APRIL. HOWEVER, IN THE INVENTOR Y OF CLOSING STOCK AS ON 31.3.2007 FURNISHED BY THE ASSE SSEE NO STOCK OF BOOKS SOLD TO STUDENTS OF LADY FATIMA SCHO OL WERE SHOWN. AS PER THE STATEMENTS OF PARENTS OF THE STU DENTS STUDYING IN LADY FATIMA SCHOOL RECORDED UNDER SECTI ON 131 OF THE ACT, MOST OF THEM ADMITTED THAT BOOKS WERE PURC HASED FROM THE ASSESSEE IN CASH FOR WHICH NO CASH MEMOS W ERE ISSUED AND NO DISCOUNT WAS GIVEN. IN VIEW OF THIS POSITION, THE ASSESSEES CLAIM THAT THE DISCOUNT OF 22 TO 23% WAS USUALLY GIVEN ON SALES PROVED TO BE FALSE. THE AC ADEMIC BOOKS THAT WERE SOLD IN BOUND FORM TO THE STUDENTS FOR WHICH BINDING CHARGES WAS RECOVERED BY THE ASSESSEE, BUT NO SUCH INCOME WAS SHOWN IN THE BOOKS OF ACCOUNTS. THE ASSE SSING OFFICER STATED THAT NO CASH MEMOS / SALE BILLS WERE ISSUED TO ANY STUDENT. USUALLY, ALL THE STUDENTS OF LADY FA TIMA SCHOOL WERE TOLD BY THE SCHOOL MANAGEMENT TO BUY BOOKS FRO M THE ASSESSEE'S SHOP. MOST OF THE PARENTS EXAMINED UNDER SECTION 131 OF THE ACT ADMITTED THAT ALMOST ALL THE BOOKS O F ALL THE CLASSES OF THE SCHOOL WERE ALWAYS PURCHASED FROM TH E ASSESSEES SHOP. THE STATEMENT OF SUKHWINDER SINGH, BOOK BINDER RECORDED U/S 131 SHOWED THAT HE HAD UNDERTAK EN THE BINDING JOB FOR 4500 BOOKS (APPROX) AND FOR WHICH H E CHARGED A RATE OF RS. 2 TO RS. 2.50 PER BOOK DURING THE REL EVANT YEAR. HOWEVER, NO EXPENSES WERE DEBITED TO PROFIT AND LOS S ACCOUNT. THE PARENTS OF LADY FATIMA SCHOOL ADMITTE D THAT RS. 60 TO RS. 70 PER STUDENT WERE PAID AS BINDING C HARGES AND THE ASSESSING OFFICER HELD THAT NO SUCH INCOME HAS BEEN SHOWN IN THE PROFIT AND LOSS ACCOUNT. ON THE OTHER HAND THE 5 ASSESSEE HAD STATED THAT DISCOUNT OF ABOUT 30% IS G IVEN BY THE PUBLISHERS / DISTRIBUTORS ON PURCHASES MADE BY THE ASSESSEE. IN TURN, THE ASSESSEE GAVE TO THE CUSTOM ERS 20 TO 23 % DISCOUNT ON SALES. THIS ALL RESULTED IN A G.P . RATE OF 12% TO 13%. IN THE CASH MEMOS/ SALE BILLS SHOWN TO THE ASSESSING OFFICER NO DISCOUNT WAS MENTIONED. NO N AMES OF CUSTOMERS OR PERSONS TO WHOM DISCOUNTS WERE GIVEN W ERE FURNISHED. IN THESE CIRCUMSTANCES, THE ASSESSING OF FICER HAS STATED THAT THE G.P. SHOULD BE 30% AND NOT 12 TO 13 % SHOWN BY THE ASSESSEE. FURTHER, THE ASSESSEE HAS ALSO N OT SHOWN SALE OF SCHOOL BAGS, WATER BOTTLES, TIFFINS ETC. AN D THEY WERE NOT RECORDED IN THE BOOKS OF ACCOUNTS. THE ASSESSIN G OFFICER CONCLUDED THAT AS PER INFORMATION FROM THE SCHOOL T HERE WERE 1389 STUDENTS ON ROLLS IN DIFFERENT CLASSES AND IF BOOKS WERE PURCHASED @ RS.2000/- PER SET THE UNACCOUNTED SALES OF THE ASSESSEE FIRM WOULD BE RS.27,78,000/-. AFTER APPLY ING A G.P. RATE OF 30% THE UNACCOUNTED G.P. WOULD BE RS. 8,33, 400/-. FURTHER, ASSESSING OFFICER ALSO STATED THAT UNEXPL AINED INVESTMENT IN PURCHASES AFTER APPLYING A G.P. RATE OF 30% ON RS. 27,78,000!- WOULD TOTAL TO RS. I9,44,600/-. HE ALSO PROPOSED ADDITION OF RS. 12,88,502/- ON ACCOUNT OF SUPPRESSION OF G.P. (I.E. 30% ON SALES OF 75,79,490 /-) EQUAL TO RS. 22,73,826/- MINUS G.P. ALREADY SHOWN BY THE ASS ESSEE OF RS. 9,85,324/- LEAVING A BALANCE OF RS.12,88,502/-. THIS WAS TREATED AS THE SUPPRESSED G.P. TO BE ADDED TO THE I NCOME. 8. THE ASSESSEE IN THE COURSE OF ASSESSMENT PROCEED INGS HAD RAISED THE CONTENTIONS THAT THE CASH MEMOS WERE 6 MAINTAINED ON A REGULAR BASIS THOUGH SOME OF THEM D ID NOT CONTAIN DESCRIPTION OF THE ITEMS SOLD. IT WAS ALS O ADMITTED THAT CONSOLIDATED CASH MEMOS AT TIMES WERE ISSUED W HEN CUSTOMERS DID NOT WAIT FOR CASH MEMOS. IN A FEW CA SES THE CASH MEMOS WERE ISSUED. THE SALE BILLS/ VOUCHERS FOR THE PERIOD 1.4.2006 TO 31.3.2007 HAD BEEN PRODUCED FOR INSPECTION BUT WERE IMPOUNDED BY THE ASSESSING OFFI CER. THE LIST OF TEXT BOOKS FROM PRE-NURSERY TO CLASS 10 COU LD NOT BE PRODUCED BECAUSE THEY WERE NOT PREPARED BY THE ASSE SSEE AND EACH SCHOOL PRESCRIBES ITS OWN BOOKS. THE PRICE C HARGED FOR THE DIFFERENT TEXT BOOKS DEPENDS UPON THE NUMBER OF BOOKS AND OTHER STATIONERY ITEMS PURCHASED BY THE CUSTOME RS. NO FIXED PRICE LIST WAS AVAILABLE. THE ASSESSEE ALSO ADMITTED THAT NO STOCK REGISTER WAS MAINTAINED BECAUSE THE B USINESS WAS OF A SMALL RETAIL SHOP DEALING IN OVER 1500 ITE MS. THERE WAS NO PRACTICE IN THIS TYPE OF TRADING TO MAINTAIN SUCH A REGISTER. THE CLOSING INVENTORY AS ON 31.3.2007 S UBMITTED DID REFLECT THE BOOKS OF LADY FATIMA SCHOOL AS ALSO OF OTHER SCHOOLS. THE STATEMENTS OF PARENTS OF STUDENTS OF LADY FATIMA SCHOOL WERE RECORDED AT THE BACK OF THE ASSE SSEE AND OUT OF THE 15 PARENTS THE STATEMENTS OF ONLY 3 SPEC IFICALLY STATED THAT THEY HAD RECEIVED CASH MEMOS AT THE TIM E OF PURCHASE OF BOOKS/STATIONERY ITEMS. ALMOST ALL OF THE PARENTS IN THEIR STATEMENTS STATED THAT THEY PURCHA SED BOOKS ALONG WITH OTHER STATIONERY ITEMS FOR PRICES RANGIN G FROM RS. 800 TO RS. 2000/- THE ASSESSEE ALSO STATED THAT BINDING WORK WAS NOT DONE BY THEM. THE CUSTOMERS WERE REF ERRED TO THE BINDER, HIS ADDRESS WAS GIVEN AND BINDING WORK WAS GOT 7 DONE BY THEM AT THEIR OWN LEVEL. OUT OF RS. 44.61 LAC SALE OF BOOKS DURING THE YEAR ONLY BOOKS WORTH RS. 10.46 LA CS WERE SOLD TO SCHOOLS AND INSTITUTIONS. SUCH SALES WERE GENERALLY FOR LOW MARGINS. THE MAJOR RETAIL SALES WERE OF R S. 34.15 LACS WHICH WERE SOLD FOR LESSOR MARGINS. THE ASSE SSEE AGITATED THAT THERE WAS NO JUSTIFICATION FOR ADOPTI NG G.P. RATE OF 30% AGAINST THE ASSESSEE'S 13%. HE FURTHER STATE D THAT BOOKS OF ACCOUNTS WERE IN ORDER AND IT WAS WRONG ON THE PART OF THE ASSESSING OFFICER TO PRESUME THAT ALL THE STUDENTS OF LADY FATIMA SCHOOL MADE PURCHASES FROM THE ASSESSEE ONLY. THE PERSONS WHOSE STATEMENTS HAD BEEN RECORDED ADMI TTED THAT THE PRICE RANGES FOR SALE OF BOOKS VARIES FROM RS. 800 TO RS. 2000 INCLUDING STATIONERY AND OTHER ITEMS. HOWEVER, THE ASSESSING OFFICER REJECTED ALL THESE CONTENTIONS A ND MADE THE IMPUGNED ADDITIONS AS MENTIONED SUPRA. 9. IN HIS WRITTEN SUBMISSIONS DATED 23.09.2010 AND 21.10.2010 THE LEARNED COUNSEL FOR ASSESSEE HAS STA TED THAT IN ORDER TO EFFICIENTLY HANDLE THE RUSH OF CUSTOMER S IN THE BEGINNING OF THE ACADEMIC SESSION THE ASSESSEE PREP ARED COMBINATIONS OF ACADEMIC BOOKS OF EVERY CLASS AND K EPT THEM READY IN SETS AND CONSEQUENTLY SALES WERE RECORDED AS ' SET OF BOOKS FOR CLASS 10' ETC. FOR PETTY SALES MADE DUR ING THE DAY THE ASSESSEE PREPARED CONSOLIDATED CASH MEMOS AT TH E END OF THE DAY. HE FURTHER STATED THAT STATEMENTS HAD BEE N RECORDED AT THE BACK OF THE ASSESSEE AND NO OCCASION WAS GIV EN TO CROSS EXAMINE THEM. HE STATED THAT THERE IS NO REQUIREME NT OF LAW TO RECORD DETAILS OF PURCHASERS WHILE MAKING SALES IN CASH TO 8 THE STUDENTS OF LADY FATIMA SCHOOL. THE CASH MEMOS ISSUED DID NOT MENTION DETAILS AND THE PERSONS WHOSE STATE MENTS WERE RECORDED UNDER SECTION 131 OF THE ACT ALSO ADM ITTED THIS FACT. THERE WAS NO REQUIREMENT OF LAW TO MAINTAIN A STOCK REGISTER. HE STATES THAT IN THE CLOSING STOCK AS O N 31.3.2007 THE BOOKS OF CBSE ARE AVAILABLE IN THE STOCK AND TH ERE ARE NO SPECIFIC BOOKS OF ANY ONE SCHOOL. DETAILS OF ALL SUCH BOOKS WERE PRODUCED BEFORE THE ASSESSING OFFICER WHO HAS NOT POINTED OUT ANY DISCREPANCY IN THE COURSE OF ASSESS MENT PROCEEDINGS. IT IS WRONG TO PRESUME THAT ALL THE STUDENTS OF LADY FATIMA SCHOOL PURCHASED ACADEMIC BOOKS AND STA TIONERY ITEMS ONLY FROM THE ASSESSEE. FURTHER HE STATES T HAT IN THE SUMMONS ISSUED TO THE PERSONS WHOSE STATEMENTS HAVE BEEN RECORDED THERE IS NO REFERENCE TO THE PROCEEDINGS G OING ON IN THE CASE OF THE ASSESSEE FIRM. ON THE OTHER HAND THE ASSESSING OFFICER HAD CONDUCTED FISHING ENQUIRIES A ND THE STATEMENTS RECORDED HAVE NO EVIDENTIARY VALUE. TH E COUNSEL HAS VEHEMENTLY CONTESTED THAT ASSESSING OFFICER HAS WRONGLY STATED THAT SALES WERE NOT MADE FOR CERTAIN PERIODS WHILE IN HIS CASE ALL SALES HAVE BEEN PROPERLY RECORDED IN T HE BOOKS OF ACCOUNTS. HE HAS RELIED ON THE FOLLOWING JUDGEMEN TS: I) SRULAKHA BANERJEE VS. CIT'(1963), 49 ITR 112 (SC ) II) JESSARAM PATCH CHAND V CIT, BOMBAY II, 75 ITR 3 3 III) DURAI RAJ V CIT, ERNAKULAM, 324 ITR 95(DEL) IV) CIT V JAS JACK ELEGANCE EXPORTS, 324 ITR 95 (DE L) V) GM BREWARIES & OTHER VS. UOI & OTHERS, 241 ITR 446(BOM) VI) MUKUND V. KAPADIA V ITO, 82 ITD 489 VII) CIT V RAM DASS MOTOR TRANSPORT, 238 ITR 177 (A .P.) 9 10. ON THE REQUEST OF THE LEARNED COUNSEL FOR ASSES SEE THE ASSESSING OFFICER WAS DIRECTED TO VERIFY THE CORREC TION OF CERTAIN CASH SALES MADE AND RECORDED IN RESPECT OF PERIOD MENTIONED AT PAGES 30 AND 31 OF THE ASSESSMENT ORDE R. THE ASSESSING OFFICERS ASSERTIONS AS CONTAINED IN THE ASSESSMENT ORDER WERE THAT NO SALES FOR CERTAIN PERIOD OR CASH MEMOS BEING AVAILABLE WERE MADE. THE LEARNED CIT (APPEAL S) RECORDED THAT TILL THE PASSING OF THE IMPUGNED ORDE R THE ASSESSING OFFICER HAS NOT SENT A REPORT TO THAT EFF ECT. THE LEARNED CIT (APPEALS), THEREFORE, DECIDED THE APPEA L OF THE ASSESSEE. THE FINDINGS OF THE LEARNED CIT (APPEA LS) WITH REGARD TO REJECTION OF BOOKS OF ACCOUNT AND APPLICA TION OF LOWER GP RATE IN PARAS 4.6 TO 4.9 OF THE APPELLATE ORDER ARE REPRODUCED AS UNDER : 4.6. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND FROM THE RIVAL CONTENTIONS OF BOTH THE A.O. IN HIS VARIOUS REMAND REPORTS AND THE CONTENTIONS OF THE COUNSEL IN HIS WRITTEN SUBMISSIO NS FILED ON VARIOUS DATES, IT IS CLEAR THAT THE APPELLANT HAS NOT MAINTAINED THE BOOKS OF ACCOUNTS AND OTHER RELEVANT DOCUMENTS AS ARE REQUIRED TO BE DO NE. HE HAS ADMITTED THAT NO STOCK REGISTER WAS MAINTAINED FOR BOOKS AND STATIONERY ITEMS. THE PRESENCE OR ABSENCE OF STOCK REGISTER IS ONE OF THE RELEVANT ASPECTS TO BE TAKEN INTO ACCOUNT IN CONSIDERING THE ACCEPTABILITY OF TH E BOOK RESULTS AS HELD IN CIT VS. PARECK BROS. (1987) 167 ITR 344 (PATNA). FURT HER, THE ABSENCE OF THE STOCK REGISTER IS ONE OF THE MATERIAL GROUNDS FOR R EJECTION OF THE BOOKS AS HELD IN CIT VS. BRITISH PAINTS INDIA LTD. (1999) 188 ITR 44 (SC). IT IS CORRECT TO SAY THAT IT WAS NOT POSSIBLE FOR THE A.O. TO DEDU CE THE TRUE PROFITS OF THE BUSINESS AND PROFESSION CARRIED ON BY THE APPELLANT F ROM THE STATE OF AFFAIRS PREVAILING AND THAT TOO WITHOUT A STOCK REGISTER. THE BOOKS OF ACCOUNTS BEING IN SUCH A STATE THE A.O. WAS WITHIN HIS RIGHTS NOT TO ACCEPT THE FIGURES RETURNED. IT IS INCUMBENT ON THE APPELLANT TO SHOW THAT THE FIRM MAINTAINS ALL THE NECESSARY DETAILS OF ALL THE SALES WHICH ARE VERIFIABLE AND CORRECTLY RECORDED. WHEN THE SALES MADE TO STUDENTS OF LADY F ATIMA SCHOOL DO NOT FIND PROPER MENTION IN THE CASH MEMOS OR SALE VOUCHERS AS POINTED OUT BY 10 THE A.O. THEN THERE IS A STRONG PRESUMPTION TO SHOW THAT THE RECORDS ARE NOT CORRECT. WHEN A PORTION OF THE SALES ARE NOT VERIFI ABLE FROM THE BOOKS OF ACCOUNTS IT CAN BE SAFELY SAID THAT THE A.O. HAS RI GHTLY REJECTED THE BOOKS OF ACCOUNTS. WHEN THERE IS SUPPRESSION OF SALES THEN TH E BOOKS OF ACCOUNTS CAN BE REJECTED AND INCOME ESTIMATED AS HELD IN LADHA TRADERS VS. CIT ( 2004) 269 ITR 183 ( MP). IN ALL THE FACTORS AND CIR CUMSTANCES THAT HAVE BEEN MENTIONED BY THE A.O. IT IS CLEAR THAT ALL WAS NOT WELL WITH THE BOOKS OF ACCOUNTS. AS PER A.O.'S ORDER THERE APPEARS TO B E A STRONG CASE REGARDING SUPPRESSION OF G.P. AND THEREFORE, THE BO OKS OF ACCOUNTS HAVE BEEN RIGHTLY REJECTED. THE A.O. COULD NOT PROPERLY DEDUCE THE INCOME AND PROFITS FROM SUCH ACCOUNTS. THE BOOK RESULTS WERE T OTALLY INADEQUATE FOR WHICH SUFFICIENT OPPORTUNITIES WERE PROVIDED BY THE A.O. AS MENTIONED IN HIS ASSESSMENT ORDER. THERE HAVE BEEN UNACCOUNTED SA LES TO THE STUDENTS OF LADY FATIMA SCHOOL AND NOT RECORDED IN THE BOOKS OF ACCOUNTS. THE BOOKS HAVE BEEN RIGHTLY REJECTED. THE A.O. DREW A REASONA BLE INFERENCE THAT 1389 STUDENTS OF VARIOUS CLASSES OF LADY FATIMA SCHOOL D URING THE F.Y. 2006-07 PURCHASED BOOKS FROM THE APPELLANT FIRM FOR PRICE O F RS. 1500 PER STUDENT. THE TOTAL SALES OF BOOKS/STATIONERY TO THESE STUDEN TS SHOULD BE RS. 2O,83,5OO/- (1389 X 1500 ) . THE A.O. HAS FURTHER A PPLIED A G.P. RATE OF 30% ON SUCH SALES TO DETERMINE THE FIGURE OF 6,25,050 /-WHICH HAS BEEN ADDED TO THE INCOME. 4.7 ON THE PERUSAL OF ASSESSMENT ORDER AND CONTENTIONS O F BOTH SIDES IT IS SEEN THAT A.O. HAS NOWHERE JUSTIFIED THE BASIS OF ADOPTING G.P. RATE OF 30 % AGAINST 13 % SHOWN BY THE APPELLANT. NO COM PARABLE CASE HAVE BEEN CITED. IN THE CIRCUMSTANCES OF THE CASE AN D LOOKING TO THE TYPE OF RETAIL TRADE DONE BY THE APPELLANT AND PAST HISTORY SHOWING HIS G.P. RESULTS IT WOULD BE BEST IF G.P. RATE OF 20% IS APPLIED IN THIS CASE. THE APPELLANT HAS BEEN SHOWING G.P. RATE RANGIN G FROM 13% IN F.Y. 06-07& 07-08 TO 14.98 % IN F.Y. 05-06. 4.8 THE A.O. IS DIRECTED TO CALCULATE THE UNACCOUNTED SALES AFTER APPLYING THIS G.P. RATE. 4.9 THE A.O. IS DIRECTED TO WORKOUT UNACCOUNTED SALES ON THIS BASIS. 11. THE ASSESSEE FURTHER CHALLENGED THE ORDER OF TH E ASSESSING OFFICER BEFORE THE LEARNED CIT (APPEALS) FOR MAKING 11 ADDITION OF RS.20,83,500/- ON ACCOUNT OF UNEXPLAINE D INVESTMENTS IN PURCHASE OF BOOKS AND STATIONERY. T HE ASSESSING OFFICER IN HIS ORDER HAS CALCULATED THAT ON GROSS SALES MADE TO THE STUDENTS OF LADY FATIMA SCHOOL, T HE ASSESSEE FIRM HAD NOT ACCOUNTED FOR SALES OF RS.20, 83,500/- AND BY APPLYING PROFIT RATE OF 30%, HE ESTIMATED TH E UNACCOUNTED INVESTMENT ON THE PURCHASES AT RS.14,,5 8,450/-. THE ASSESSEE SUBMITTED BEFORE THE LEARNED CIT (APPE ALS) THAT THERE IS A WRONG PRESUMPTION ON THE PART OF THE ASS ESSING OFFICER BECAUSE NO SEPARATE INVESTMENT FOR PURCHASE OF BOOKS WAS MADE BY THE ASSESSEE. THERE IS NO SOURCE TO J USTIFY THE ADDITION. THE ASSESSEE HAD DISPUTED THE UNACCOUNT ED SALES COMPUTED BY THE ASSESSING OFFICER. THEREFORE, THE RE IS NO QUESTION OF UNEXPLAINED INVESTMENT TOWARDS PURCHASE S. THE PURCHASES ARE RECORDED IN THE BOOKS OF ACCOUNT AND THE ASSESSING OFFICER HAS NOT DETECTED ANY UNACCOUNTED PURCHASES WHICH ARE NOT ACCOUNTED FOR IN THE BOOKS OF ACCOUNT. THE ASSESSEE PRODUCED MONTH-WISE CHART O F THE SALES AND PURCHASE OF GOODS AND THE MAJOR PURCHASES HAVE BEEN MADE IN THE MONTH OF JANUARY AND FEBRUARY, 200 7 WHILE MAXIMUM SALES HAVE BEEN MADE IN THE MONTH OF MARCH AND APRIL, 2007. IN THE MONTH-WISE TRADING ACCOUNT P RODUCED BY THE ASSESSEE, IT WAS SEEN THAT THE OPENING AND CLOS ING STOCKS FOR EACH MONTH HAVE BEEN MORE OR LESS THE SAME FROM APRIL TO DECEMBER, 2006. IN THE MONTHS OF FEBRUARY AND MAR CH, 2007 THE OPENING STOCK AND CLOSING STOCK FIGURES HAVE JU MPED SUBSTANTIALLY. IN MARCH, 2007 THE OPENING STOCK SHOWN IS RS.67,35,306/-, WHILE CLOSING STOCK IS SHOWN AT 12 RS.49,12,854/-. IF THE FIGURES OF THE TRADING AC COUNT FOR JANUARY, FEBRUARY AND MARCH ARE TAKEN INTO CONSIDER ATION, THEN THE FINDING OF THE ASSESSING OFFICER THAT THE MAJOR SALES HAVE BEEN MADE IN THE MONTHS OF MARCH AND APRIL PRO VES TO BE CORRECT AND CORRESPONDINGLY MAJOR PURCHASES HAVE BE EN MADE IN THE MONTHS OF JANUARY AND FEBRUARY, 2007, WHICH IS SUPPORTED BY STOCK POSITION. THE LEARNED CIT (APPE ALS), THEREFORE, NOTED THAT SINCE NECESSARY RELIEF ON ACC OUNT OF UNACCOUNTED SALES HAVE BEEN GIVEN TO THE ASSESSEE F IRM BY ADOPTING GP RATE OF 20%, THE ASSESSING OFFICER HIMS ELF HAS RECORDED THAT MOST OF THE SALES HAVE BEEN MADE IN T HE MONTHS OF MARCH AND APRIL OF THE YEAR AND THEY ACCOUNTED F OR 2/3 RD OF THE ENTIRE SALES, HOWEVER, THE ASSESSING OFFICER HA S TAKEN THE ENTIRE PURCHASES AND SALES OF THE WHOLE YEAR TO DET ERMINE THE UNEXPLAINED INVESTMENT. THE CONTENTION OF THE ASS ESSEE WAS FOUND TO BE CORRECT THAT NO SEPARATE ADDITION IS RE QUIRED ON ACCOUNT OF UNEXPLAINED INVESTMENT BECAUSE THE SAME IS COVERED IN THE STOCKS AVAILABLE AND SHOWN IN THE BO OKS. THE LEARNED CIT (APPEALS), THEREFORE, HELD THAT NO SEPA RATE ADDITION IS REQUIRED TO BE MADE FOR UNEXPLAINED INV ESTMENT AND ACCORDINGLY, THE ASSESSING OFFICER WAS DIRECTED TO ALLOW CONSEQUENTIAL RELIEF TO THE ASSESSEE FOR THE YEAR U NDER CONSIDERATION IN VIEW OF THE FINDING OF THE LEARNED CIT (APPEALS) THAT GP RATE OF 20% BE ADOPTED ON THE SAL ES OF RS.20,83,500/-. HENCE THE ADDITION WAS DELETED. 12. THE ISSUE OF SUPPRESSION OF GP IS FURTHER CONSI DERED BY THE LEARNED CIT (APPEALS). THE ASSESSING OFFICER NOTED THAT 13 THE ASSESSEE HAS SHOWN SALES OF RS.75,79,419/- RECO RDED IN THE BOOKS OF ACCOUNT AND HAD SHOWN GP OF RS.9,85,32 4/-, WHICH GIVES RATE OF 13%. GP RATE OF 30% WAS APPLI ED ON THE SALES TO ARRIVE AT THE GP OF RS.22,73,826/-. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD ALREADY SHOW N GP OF RS.9,85,324/-. THEREFORE, THERE WAS SUPPRESSION O F GP TO THE EXTENT OF RS.12,88,502/-. THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER HAS NOT BROUGHT ANY MATERIAL ON R ECORD TO JUSTIFY ENHANCEMENT IN THE GP. THE LEARNED CIT ( APPEALS) FURTHER DIRECTED TO ADOPT GP RATE OF 20% AND DIRECT ED THE ASSESSING OFFICER TO WORK OUT THE ADDITION ACCORDIN GLY. THE LEARNED CIT (APPEALS) ALSO EXAMINED THE ISSUE OF IN COME EARNED FROM BINDING WORK. THE ASSESSING OFFICER I N HIS ORDER HAS STATED THAT HE HAS EXAMINED THE BOOK BINDER SHR I SUKHWINDER SINGH AND DIFFERENT PARENTS OF THE STUDE NTS UNDER SECTION 131 OF THE ACT AND DISCOVERED THAT THE ASSE SSEE HAS EARNED RS.60 TO 70 PER STUDENT ON ACCOUNT OF BINDIN G CHARGES OF RS.2 TO RS.2.50 RECOVERED FROM THE STUDENTS. TH E ASSESSING OFFICER ADDED SUM OF RS.66,672/- FOR 1389 STUDENTS @ RS.2 PER BOOK AND @ RS.60 PER STUDENT TO DETERMINE THE I NCOME. THE LEARNED CIT (APPEALS) CONFIRMED THE ADDITION. THE LEARNED CIT (APPEALS) ACCORDINGLY ALLOWED THE APPEA L OF THE ASSESSEE PARTLY. 13. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FIRST ISSUE IS WITH REGARD TO REJECTION OF THE BOOKS OF ACCOUNT. THE ASSESSING OFFICER AND LEARNED CIT (APPEALS) HAVE RECORDED SEVERAL FACTS F OR REJECTION 14 OF THE BOOKS OF ACCOUNT. IT WAS FOUND THAT THE AS SESSEE HAS NOT MAINTAINED THE BOOKS OF ACCOUNT AND OTHER DOCUM ENTS AS REQUIRED BY LAW. IT WAS ADMITTED FACT THAT NO STO CK REGISTER WAS MAINTAINED IN THE BOOKS AND STATIONERY ITEMS WH ICH IS RELEVANT FOR THE PURPOSE OF DETERMINING THE CORRECT INCOME OF THE ASSESSEE. IT WAS ALSO FOUND THAT NO SALES HAV E BEEN RECORDED IN RESPECT OF SALES MADE TO STUDENTS OF LA DY FATIMA SCHOOL. SEVERAL OTHER SHORTCOMINGS WERE ALSO NOTE D WHICH CLEARLY SUPPORT THE FINDING OF THE AUTHORITIES BELO W THAT THE BOOK RESULTS HAVE BEEN CORRECTLY REJECTED BY THE AS SESSING OFFICER. DURING THE COURSE OF ARGUMENTS, THE LEAR NED COUNSEL FOR ASSESSEE WAS NOT ABLE TO CONTRADICT THE FINDING OF FACT RECORDED BY THE AUTHORITIES BELOW FOR REJECTION OF THE BOOKS OF ACCOUNT. AFTER BRIEF ARGUMENTS, THE LEARNED COUNS EL FOR ASSESSEE SUBMITTED THAT THE BOOKS OF ACCOUNT HAVE B EEN CORRECTLY REJECTED BY THE AUTHORITIES BELOW. IN V IEW OF THE FINDING OF FACT RECORDED BY THE AUTHORITIES BELOW A ND SUBMISSIONS OF THE ASSESSEE, WE ARE OF THE VIEW THA T THE BOOKS OF ACCOUNT OF THE ASSESSEE HAVE BEEN CORRECTLY REJE CTED BY THE AUTHORITIES BELOW. THEREFORE, THIS GROUND OF APPE AL OF THE ASSESSEE IS DISMISSED. 14. THE OTHER ISSUE IS APPLICATION OF REASONABLE PR OFIT RATE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. THE ASSE SSEE HAS SHOWN GP RATE OF 13%, HOWEVER, THE ASSESSING OFFICE R HAS APPLIED THE GP RATE OF 30% FOR THE PURPOSE OF MAKIN G THE ADDITION ON THE SALES DECLARED AS WELL AS THE SALES MADE TO THE STUDENTS OF LADY FATIMA SCHOOL. THE LEARNED CIT ( APPEALS) 15 CONSIDERING THE HISTORY OF THE ASSESSEE THAT LOWER PROFIT RATE HAVE BEEN SHOWN, DIRECTED TO APPLY PROFIT RATE OF 2 0%. THE ASSESSEE IN THE PAPER BOOK HAS GIVEN HISTORY OF THE PROFIT RATE DECLARED IN THE PRECEDING ASSESSMENT YEARS. AT P AGE 33 IT HAS DISCLOSED PROFIT RATE OF 14.48% IN ASSESSMENT Y EAR 2004- 05, WHICH IS ACCEPTED BY THE ASSESSING OFFICER IN T HE REGULAR ASSESSMENT UNDER SECTION 143(3) OF THE ACT. COPY OF THE ASSESSMENT ORDER DATED 13.12.2006 IS FILED AT PAGE 187 OF THE PAPER BOOK. IN ASSESSMENT YEAR 2005-06 THE ASSESS EE HAS DECLARED PROFIT RATE OF 14.98% AND IN ASSESSMENT YE AR 2006- 07 HE HAS DECLARED GP RATE OF 13%. IT IS, THEREFO RE, CLEAR THAT IN THE EARLIER YEARS THE ASSESSEE HAS BEEN SHO WING PROFIT RATE RANGING FROM 13% TO 14.98%, ETC. THE LEARNED CIT (APPEALS) HAS SPECIFICALLY NOTED THAT THE ASSESSING OFFICER HAS NO JUSTIFIED BASIS FOR ADOPTING GP RATE OF 30% AS A GAINST 13% SHOWN BY THE ASSESSEE. IT WAS ALSO FOUND THAT NO COMPARABLE CASES HAVE BEEN CITED BY THE ASSESSING OFFICER. I N VIEW OF THE FINDING GIVEN BY THE LEARNED CIT (APPEALS), IT IS C LEAR THAT EVEN THE LEARNED CIT (APPEALS) HAS NOT GIVEN ANY BA SIS AS TO HOW HE HAS ADOPTED 20% OF GP RATE FOR THE PURPOSE O F SUSTAINING THE ADDITION. IT IS WELL SETTLED LAW T HAT WHILE COMPUTING THE REASONABLE PROFIT RATE OF THE ASSESSE E, THE HISTORY OF THE ASSESSEE SHALL HAVE TO BE CONSIDERED IN THE LIGHT OF THE COMPARABLE CASES. SINCE NO COMPARABLE CAS E IS CITED BY THE ASSESSING OFFICER, THEREFORE, HISTORY OF THE ASSESSEE WOULD CLEARLY SUGGEST THAT IT HAS BEEN DECLARING GP RATE OF 13% TO 14.98% IN THE PRECEDING YEARS. THEREFORE, C ONSIDERING THE HISTORY OF THE ASSESSEE AND THAT THE LOWER PROF IT RATE HAVE 16 BEEN ACCEPTED BY THE ASSESSING OFFICER IN EARLIER Y EARS UNDER SECTION 143(3) OF THE ACT, IT WOULD BE REASONABLE A ND PROPER TO ESTIMATE THE PROFIT RATE OF THE ASSESSEE BY APPLYIN G PROFIT RATE OF 15% ON ALL THE ADDITIONS MADE AND SUSTAINED BY T HE LEARNED CIT (APPEALS). THE ASSESSING OFFICER IS, THEREFOR E, DIRECTED TO CALCULATE THE PROFIT BY APPLYING GP RATE OF 15%. I T WOULD APPLY TO THE UNACCOUNTED SALES MADE TO THE STUDENTS OF LADY FATIMA SCHOOL AS WELL AS THE SUPPRESSED PROFIT ADDI TION MADE BY THE ASSESSING OFFICER BY APPLYING HIGHER PROFIT RATE IN THE SALES DECLARED BY THE ASSESSEE. THE ASSESSING OFF ICER, THEREFORE, WILL CALCULATE THE PROFIT BY APPLYING PR OFIT RATE OF 15% ON UNACCOUNTED SALES MADE TO STUDENTS OF LADY F ATIMA SCHOOL AS WELL AS THE DECLARED SALES SHOWN IN THE P ROFIT & LOSS ACCOUNT. 15. IN THE RESULT, THE GROUNDS OF APPEAL OF THE ASS ESSEE ARE PARTLY ALLOWED AND ADDITIONAL GROUND OF DEPARTMENTA L APPEAL IS REJECTED. 16. THE OTHER ISSUE IS WITH REGARD TO ADDITION OF R S.66,672/- ON ACCOUNT OF BINDING CHARGES. THE FINDING OF FAC T RECORDED BY THE ASSESSING OFFICER IS BASED ON STATEMENT OF B OOK BINDER SHRI SUKHWINDER SINGH AND DIFFERENT PARENTS OF THE STUDENTS. THE ASSESSEE HAS NOT PRODUCED ANY MATERIAL TO CONTR ADICT THE FINDINGS OF THE AUTHORITIES BELOW THAT NO BINDING C HARGES HAVE BEEN RECEIVED. THEREFORE, IN THE ABSENCE OF ANY E VIDENCE ON RECORD IN FAVOUR OF THE ASSESSEE THE ADDITION OF RS .66,672/- IS MAINTAINED AND THIS GROUND OF APPEAL OF THE ASSESSE E IS DISMISSED. 17 17. NOW WE TAKE UP THE GROUND OF APPEAL RAISED BY T HE REVENUE IN MAKING ADDITION OF RS.14,58,450/-. THE ASSESSING OFFICER MERELY COMPUTING THE GROSS SALES MADE TO TH E STUDENTS OF LADY FATIMA SCHOOL AT RS.20,83,500/- BY APPLYING GP RATE OF 30% CALCULATED THE UNEXPLAINED INVESTMENT IN A S UM OF RS.14,58,450/-. THE ASSESSEE SUBMITTED BEFORE THE LEARNED CIT (APPEALS) THAT NO SEPARATE ADDITION IS REQUIRED . THE LEARNED CIT (APPEALS) CONSIDERING THE EXPLANATION O F THE ASSESSEE AND MATERIAL ON RECORD DELETED THE ADDITIO N. IT IS A MATTER OF RECORD THAT THE ASSESSEE DISPUTED THE UNA CCOUNTED SALES BEFORE THE ASSESSING OFFICER AND NO MATERIAL WAS FOUND AGAINST THE ASSESSEE TO PROVE THAT THE ASSESSEE MAD E ANY UNACCOUNTED PURCHASES. IN THE ABSENCE OF ANY MATE RIAL ON RECORD IT IS DIFFICULT TO BELIEVE THAT THE ASSESSEE MADE SALES OUT OF UNRECORDED PURCHASES. THE ASSESSEE PRODUCE D MONTH- WISE CHART OF THE SALES AND PURCHASES OF THE GOODS BEFORE THE LEARNED CIT (APPEALS) TO SHOW THAT THE MAXIMUM SALE S WERE MADE IN THE MONTH OF MARCH AND APRIL AND ACCORDINGL Y, MAJOR PURCHASES HAVE BEEN MADE IN THE MONTHS OF JANUARY A ND FEBRUARY, 2007. IT WAS, THEREFORE, FOUND THAT THE OPENING AND CLOSING STOCK OF THE ASSESSEE HAVE THE SAME FIG URE WHICH WERE ACCOUNTED FOR. THE ASSESSING OFFICER HIMSELF HAS FOUND THAT MOST OF THE SALES HAVE BEEN MADE IN THE PERIOD OF MARCH AND APRIL OF THE YEAR AND THE ASSESSEE HAS RECORDED 2/3 RD OF THE ENTIRE SALES. DESPITE THESE FINDINGS, THE ASSE SSING OFFICER HAS TAKEN ENTIRE PURCHASES AND SALES OF THE WHOLE Y EAR TO DETERMINE THE UNEXPLAINED INVESTMENT. THE LEARNED CIT (APPEALS), THEREFORE, ON PROPER APPRECIATION OF THE FACTS AND 18 MATERIAL ON RECORD CORRECTLY NOTED THAT NO SEPARATE ADDITION IS REQUIRED AGAINST THE ASSESSEE ON ACCOUNT OF UNEXPLA INED PURCHASES. IN THE ABSENCE OF ANY MATERIAL ON RECO RD AGAINST THE ASSESSEE TO PROVE THAT THE ASSESSEE HAS MADE UN EXPLAINED PURCHASES, THE LEARNED CIT (APPEALS) WAS JUSTIFIED IN DELETING THE SEPARATE ADDITION ON ACCOUNT OF UNEXPLAINED INV ESTMENT IN PURCHASES. THIS GROUND OF APPEAL OF THE DEPARTMEN T HAS THUS NO MERIT AND IS ACCORDINGLY DISMISSED. 18. THE ABOVE FINDINGS WOULD COVER UP ALL THE GROUN DS OF APPEAL OF THE ASSESSEE AND THE SOLE GROUND OF THE R EVENUE ALONGWITH ADDITIONAL GROUND OF APPEAL RAISED BY THE REVENUE. 19. NO OTHER POINT IS ARGUED OR PRESSED. 20. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 23 RD DAY OF JANUARY, 2015. SD/- SD/- (T.R.SOOD) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 23 RD JANUARY, 2015 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH