Anthony F.R. Madasser, Jalandhar V. The Income-tax Officer, Jalandhar

ITA 251/ASR/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8835 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 9 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-02-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 02-02-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 25-04-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R K SHARDA
• Keywords: Gross profit estimation; Rejection of books of accounts; Business income
• Section: 143(3); 133(6); 147; 69; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH; AMRITSAR BEFORE SH. A.D. JAIN, JUDICIAL MEMBER AND SH. T.S. KAPOOR, ACCOUNTANT MEMBER ITA NOS. 251, 252 & 253 (ASR)/2014 ASSESSMENT YEARS:2008-09, 2009-10 & 2010-11 PAN: APQPM9874B ANTHONY F R MADASSER VS. INCOME TAX OFFICER, PROP. M/S. NAVJEEVAN ENTERPRISES, WARD-2(3), JALAN DHAR. G-12, GURU GOBIND SINGH COLONY, JALANDHAR. (APPELLANT) (RESPONDENT) ITA NOS. 346, 347 & 348 (ASR)/2014 ASSESSMENT YEARS:2008-09, 2009-10 & 2010-11 PAN: APQPM9874B INCOME TAX OFFICER, VS. ANTHONY F R MADASSER WARD-2(3), JALANDHAR. PROP. M/S. NAVJEEVAN ENTERP RISES, G-12, GURU GOBIND SINGH COLONY, JALANDHAR. (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. SUDHIR SEHGAL, DEPARTMENT BY:SH. R.K. SHARDA, DR DATE OF HEARING: 02/02/2016 DATE OF PRONOUNCEMENT:17/02/2016 ORDER PER T.S. KAPOOR, AM THIS IS A GROUP OF SIX APPEALS THREE FILED BY TH E ASSESSEE AND THREE FILED BY THE REVENUE FOR THE ASSESSMENT YEAR S 2008-09 TO 2010-11 RESPECTIVELY AGAINST THE SEPARATE ORDERS OF LD. CIT (A), JALANDHAR DATED 17.04.2013, 24.1.2012 & 17.04.2013 RESPECTIVELY. TH E GROUNDS OF APPEAL TAKEN BY THE ASSESSEE AS WELL AS BY THE REVENUE ARE REPRODUCED BELOW: ITA NOS. 251 TO 253(ASR)/2014 ITA NO.346 TO 348(ASR)/2014 2 2. IN ITA NO. 251(ASR)/2014 FOR THE AY 2008-09, T HE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS: 1. THAT THE LD. CIT(A) HAS ERRED IN UPHOLDING THE ADDITION OF RS.6,89,222/- AS PER PARA 6.7 OF THE ORDER OUT OF A DDITION OF RS.77,77,943/- MADE BY THE AO BY APPLYING THE GROSS PROFIT @ 39.78% ON COST OF SALE OF RS.1,65,55,114/- AND G. P. @ 15.43% ON COST OF SALE OF RS.30,20,520/- ON ESTIMAT ION WITHOUT POINTING ANY DISCREPANCY. 2. THAT THE LD. CIT(A) HAS ERRED IN GIVING HIS FIND INGS ABOUT THE REJECTING OF BOOKS OF ACCOUNTS, WHEREAS, IN FACT, NO BOOKS OF ACCOUNTS WERE REJECTED BY THE AO AND THE CIT(A) OUT TO HAVE NOT GIVEN THE FINDING WITHOUT CONFRONTING THE SAME TO THE ASSESSEE. 3. THAT THE LD. CIT(A) HAS ERRED DRAWING PRESUMPTIO NS /ASSUMPTION WHILE SUSTAINING THE ADDITION. 4. THAT THE ADDITION HAS BEEN MADE AGAINST THE FACT S AND CIRCUMSTANCES OF THE CASE AND SUBMISSIONS MADE DURI NG THE COURSE OF HEARING HAVE NOT BEEN CONSIDERED PROPERLY . 3. IN ITA NO. 252(ASR)/2014 FOR THE AY 2009-10, T HE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS: 1. THAT THE LD. CIT(A) HAS ERRED IN UPHOLDING THE ADDITION OF RS.1,46,69,660/- AS PER PARA 6.11 OF THE ORDER O UT OF ADDITION OF RS.2,55,92,341/- MADE BY THE AO BY APPL YING THE GROSS PROFIT @ 38.23% ON COST OF SALE OF RS.5,32,29 ,279/- AND G.P. @ 16.5% ON COST OF SALE OF RS.1,02,14,439/ - ON ESTIMATION WITHOUT POINTING ANY DISCREPANCY. 2. THAT THE LD. CIT(A) HAS ERRED IN GIVING HIS FIND INGS ABOUT THE REJECTING OF BOOKS OF ACCOUNTS, WHEREAS, IN FACT, NO BOOKS OF ACCOUNTS WERE REJECTED BY THE AO AND THE CIT(A) OUT TO HAVE NOT GIVEN THE FINDING WITHOUT CONFRONTING THE SAME TO THE ASSESSEE. 3. THAT THE LD. CIT(A) HAS ERRED DRAWING PRESUMPTIO NS /ASSUMPTION WHILE SUSTAINING THE ADDITION. ITA NOS. 251 TO 253(ASR)/2014 ITA NO.346 TO 348(ASR)/2014 3 4. THAT THE ADDITION HAS BEEN MADE AGAINST THE FACT S AND CIRCUMSTANCES OF THE CASE AND SUBMISSIONS MADE DURI NG THE COURSE OF HEARING HAVE NOT BEEN CONSIDERED PROPERLY . 4. IN ITA NO. 253(ASR)/2014 FOR THE AY 2010-11, T HE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS: 1. THAT THE LD. CIT(A) HAS ERRED IN UPHOLDING THE A DDITION OF RS.1,29,51,351/- AS PER PARA 6.11 OF THE ORDER OUT OF ADDITION OF RS.2,93,92,479/- MADE BY THE AO BY APPL YING THE GROSS PROFIT @ 45.91% ON COST OF SALE OF RS.6,01,24 ,283/- AND G.P. @ 16.5% ON COST OF SALE OF RS.1,48,43,651/ - ON ESTIMATION WITHOUT POINTING ANY DISCREPANCY. 2. THAT THE LD. CIT(A) HAS ERRED IN GIVING HIS FIND INGS ABOUT THE REJECTING OF BOOKS OF ACCOUNTS, WHEREAS, IN FACT, NO BOOKS OF ACCOUNTS WERE REJECTED BY THE AO AND THE CIT(A) OUT TO HAVE NOT GIVEN THE FINDING WITHOUT CONFRONTING THE SAME TO THE ASSESSEE. 3. THAT THE LD. CIT(A) HAS ERRED DRAWING PRESUMPTIO NS /ASSUMPTION WHILE SUSTAINING THE ADDITION. 4. THAT THE ADDITION HAS BEEN MADE AGAINST THE FACT S AND CIRCUMSTANCES OF THE CASE AND SUBMISSIONS MADE DURI NG THE COURSE OF HEARING HAVE NOT BEEN CONSIDERED PROPERLY . 5. IN ITA NO.346(ASR)/2014 FOR THE AY 2008-09, TH E REVENUE HAS TAKEN THE FOLLOWING GROUNDS: 1. THAT, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW IN REDUCING THE TRADING ADDITION FROM RS.77,77,943/- TO RS.6,89,222/- RIGHTLY MADE B Y THE AO AFTER REJECTING THE BOOKS OF ACCOUNT OF THE ASSE SSEE. 2. THAT IT IS PRAYED THAT THE ORDER OF THE LD. CIT( A) BE SET ASIDE AND THAT OF THE AO RESTORED. 6. IN ITA NO.347(ASR)/2014 FOR THE AY 2009-10, TH E REVENUE HAS TAKEN THE FOLLOWING GROUNDS: 1. THAT, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW IN REDUCING THE TRADING ADDITION ITA NOS. 251 TO 253(ASR)/2014 ITA NO.346 TO 348(ASR)/2014 4 FROM RS.2,55,92,341/- TO RS.1,46,69,660/- RIGHTLY M ADE BY THE AO AFTER REJECTING THE BOOKS OF ACCOUNT OF THE ASSESSEE. 2. THAT IT IS PRAYED THAT THE ORDER OF THE LD. CIT( A) BE SET ASIDE AND THAT OF THE AO RESTORED. 7. IN ITA NO.348(ASR)/2014 FOR THE AY 2010-11, TH E REVENUE HAS TAKEN THE FOLLOWING GROUNDS: 1. THAT, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW IN REDUCING THE TRADING ADDITION FROM RS.2,93,92,47,9/- TO RS.1,29,51,351/- RIGHTLY MADE BY THE AO AFTER REJECTING THE BOOKS OF ACCOUNT OF THE ASSESSEE. 2. THAT IT IS PRAYED THAT THE ORDER OF THE LD. CIT( A) BE SET ASIDE AND THAT OF THE AO RESTORED. 8. THE BRIEF FACTS OF THE CASE AS NOTED IN THE ASS ESSMENT ORDER FOR THE AY 2009-10 ARE THAT THE ASSESSEE IS AN INDIVIDU AL AND IS DERIVING INCOME FROM RETAIL SALE OF SCHOOL BOOKS AND STATIO NERY ITEMS. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY FOR THE A SSESSMENT YEAR 2009- 10. FROM THE COPIES OF THE AUDITED ACCOUNTS FILED B Y THE ASSESSEE ALONGWITH THE RETURN OF INCOME, THE AO OBSERVED TH AT THE GROSS PROFIT DECLARED BY THE ASSESSEE WAS 2.40% ONLY. THE AO HEL D THAT THE GROSS PROFIT RATE DECLARED BY THE ASSESSEE WAS QUIET LOW, AS IN SUCH ITEMS THE RETAIL MARGIN IS MORE THAN 20%. THE AO FURTHER OBSE RVED THAT THE ASSESSEE HAD MADE CASH DEPOSIT TOTALING RS.16,04,50 0/- IN SAVING BANK A/C NO. 71510137597 WITH THE STANDARD CHARTERED BAN K, JALANDHAR. THE AO OBSERVED THAT THIS S.B. A/C WAS NOT DISCLOS ED IN THE BALANCE SHEET OF THE ASSESSEE AND DURING ASSESSMENT PROCEE DINGS, THE ASSESSEE WAS CONFRONTED WITH THIS BANK ACCOUNT AND WAS ASKED TO EXPLAIN THE ITA NOS. 251 TO 253(ASR)/2014 ITA NO.346 TO 348(ASR)/2014 5 SOURCE OF DEPOSIT OF CASH. IN RESPONSE, THE ASSESSE E VIDE REPLY 08.12.2011 SUBMITTED THAT MOST OF THE TRANSACTIONS IN THE SAID ACCOUNT WERE REVERSAL OF AMOUNT OF EARLIER WITHDRAWALS, BU T TO BUY PEACE OF MIND, PART OF THE AMOUNT DEPOSITED MAY BE TREATED A S HIS SALES NOT RECORDED IN THE BOOKS OF ACCOUNT AND THE GROSS P ROFIT MAY BE CHARGED AND THE PEAK PERIOD AMOUNT MAY BE TREATED AS INVEST MENT. THE AO, THEN, POINTED OUT TO THE ASSESSEE THAT THE SAID BAN K ACCOUNT WAS NOT PART OF HIS BOOKS OF ACCOUNT WHICH HAD BEEN AUDITED AND THERE WERE HARDLY ANY DEPOSIT IN THE SAID ACCOUNT, WHICH CAN B E LINKED TO ANY OF THE EARLIER WITHDRAWALS AND MOREOVER, THE WHOLE OF CAS H DEPOSITS HAD BEEN UTILIZED IN MAKING INVESTMENT IN MUTUAL FUNDS. IN RESPONSE, VIDE REPLY DATED 22.12.2011, THE ASSESSEE SUBMITTED THAT THE S AID BANK ACCOUNT CANNOT BE DISCLOSED IN THE BOOKS OF ACCOUNT BY THE ACCOUNTANT AND THE SAID BANK ACCOUNT WAS RELATED TO HIS BUSINESS SINCE HE WAS NOT HAVING ANY OTHER SOURCE OF INCOME EXCEPT TRADING IN SCHOO L BOOKS AND STATIONERY. THE AO OBSERVED THAT ALL THE PURCHASES MADE BY THE ASSESSEE WERE FOUND RECORDED IN THE BOOKS OF ACCOUNT. THEREF ORE, HE HELD THAT EVEN IF THE ASSESSEES VERSION IS ACCEPTED, THE AMO UNT WAS TAXABLE U/S 69 OF THE ACT AND IF THE ASSESSEES VERSION REGARDING THE SOURCE OF THESE DEPOSITS IS CONSIDERED CORRECT THEN IT BECOMES TAXA BLE AS THE ASSESSEES BUSINESS INCOME. 9. DURING THE ASSESSMENT PROCEEDINGS, THE AO FURTH ER OBSERVED THAT BESIDES SALE OF BOOKS AND STATIONERY, THE ASSESSEE WAS SUPPLYING ITA NOS. 251 TO 253(ASR)/2014 ITA NO.346 TO 348(ASR)/2014 6 STATIONERY ITEMS, SCHOOL BAGS, NECK-TIES ETC., TO V ARIOUS SCHOOLS AND FROM THE SALE BILLS, HE OBSERVED THAT THE ITEMS WERE SOL D AT MRP PRICES. FROM THE PERUSAL OF PURCHASE BILLS, THE AO FURTHER OBSER VED THAT THE BILLS WERE PREPARED BY SELLER AT MRP PRICES BUT AT THE END DI SCOUNT RANGING FROM 25% TO 40% WAS ALLOWED. THEREFORE, THE AO HELD THAT THE ASSESSEE MUST BE EARNING PROFIT MARGIN ATLEAST 30% ON SALE OF BOO KS AND FOR REMAINING ITEMS OF STATIONERY, SCHOOL BAGS AND NECK-TIES, THE PROFIT MARGIN MUST BE RANGING FROM 35% TO 80%. 10. FROM THE ABOVE FACTS, THE AO HELD THAT AGAINST THE PROFIT MARGIN OF 30%, THE ASSESSEE HAD DECLARED GROSS PROFIT MARGIN OF 2.40% ONLY ON THE SALES. DURING THE PERUSAL OF PURCHASE BILLS, THE AO OBSERVED THAT ALL THE PURCHASES WERE FOUND TO BE RECORDED IN THE BOOKS OF ACCOUNT AND THEREFORE, HE HELD THAT ONLY POSSIBLE REASON FOR LO W GROSS PROFIT AS PER BOOKS WAS THAT THE ENTIRE SALES HAD NOT BEEN RECOR DED IN THE BOOKS OF ACCOUNT. THE AO HELD THAT SINCE THE ASSESSEE WAS N OT MAINTAINING QUANTITY-WISE REGISTER, THEREFORE, THERE CANNOT BE ANY CHECK TO VERIFY WHETHER ALL THE SALES HAVE BEEN DULY ACCOUNTED FOR OR NOT. HE HELD THAT SINCE THE ASSESSEE HAD ALREADY ADMITTED THAT PART O F UNACCOUNTED SALES WERE DEPOSITED IN THE S.B. A/C, THEREFORE, HE HELD THAT IT IS AN ADMISSION BY THE ASSESSEE THAT THE SALES WERE NOT FULLY RECO RDED. THEREFORE, HE HELD THAT SINCE THE MARGIN OF PROFIT ON ALL ITEMS TRADED BY THE ASSESSEE WAS NOT LESS THAN 30% ON SALE, WHICH WORKED OUT TO BE 4 2.86% ON THE COST OF GOODS. THE AO, THEN, CONFRONTED THIS ISSUE TO THE A SSESSEE AND IN REPLY ITA NOS. 251 TO 253(ASR)/2014 ITA NO.346 TO 348(ASR)/2014 7 THE ASSESSEE SUBMITTED THAT HE WAS ALSO DISTRIBUTIN G A FEW SETS FREE OF COST TO THE POOR STUDENTS AND SUBMITTED THAT SELF P REPARED DETAILS. THE AO OBSERVED THAT NO EVIDENCE REGARDING DISTRIBUTION OF FREE BOOKS WAS FILED BY THE ASSESSEE AND FURTHER HELD THAT THE AS SESSEE IS RECEIVING FREE SAMPLES FROM PUBLISHERS ALSO. THEREFORE, THE CLAIM OF FREE DISTRIBUTION OF BOOKS WAS SET OFF AGAINST FREE SAMPLES FROM PUBLISH ERS. HE, THEREFORE, HELD THAT IT WAS A CLEAR CASE OF SUPPRESSION OF SA LES AND AS SUCH HE HELD THAT SALE FIGURE DEPICTED IN TRADING ACCOUNT WAS N OT RELIABLE AND TO THIS EXTENT THE BOOKS OF ACCOUNT WERE NOT RELIABLE. THER EAFTER, THE AO CALCULATED THE COST OF GOODS SOLD ON THE BASIS OF F IGURES DECLARED BY THE ASSESSEE IN THE AUDITED BOOKS OF ACCOUNT AND ESTIMA TED GP @ 42.8% ON THIS COST AND AFTER REDUCING THE GROSS PROFIT DECLA RED BY THE ASSESSEE, MADE THE ADDITION OF THE BALANCE AMOUNT. 11. THE AO, HOWEVER, DID NOT MAKE ANY SEPARATE ADDI TION FOR CASH DEPOSITS IN THE BANK AS HE HELD THAT THIS WAS COVER ED IN THE TRADING ADDITION. 12. IN VIEW OF THESE FACTS, THE ASSESSMENT FOR THE AY 2008-09 & 2010- 11 WAS ALSO REOPENED AS AO HAD OBSERVED THAT IN EA RLIER YEAR AND SUBSEQUENT YEAR ALSO, THE ASSESSEE HAD MADE DEPOSIT S IN THE BANK ACCOUNT AND IN THESE ASSESSMENT YEARS ON THE SAME BASIS APPLIED G.P. RATES AND MADE THE ADDITION ON ACCOUNT OF DIFFEREN CE IN GROSS PROFIT. ITA NOS. 251 TO 253(ASR)/2014 ITA NO.346 TO 348(ASR)/2014 8 13. FOR THE ASSESSMENT YEAR 2010-11, THE PROCEEDIN GS U/S 147/148 WERE DROPPED AS ASSESSEE BROUGHT TO THE NOTICE OF A SSESSING OFFICER THAT REGULAR PROCEEDINGS WERE ALREADY INITIATED IN THIS YEAR. HOWEVER, ADDITION WAS MADE IN REGULAR PROCEEDINGS U/S 143(3) OF THE A CT. 14. AGGRIEVED WITH THE ORDERS, THE ASSESSEE FILED A PPEALS BEFORE THE LD. CIT(A) ALONGWITH VARIOUS SUBMISSIONS. THE LD. CIT( A) AFTER RECORDING THE SUBMISSIONS OF THE ASSESSEE AND AFTER RECORDING THE COMPLETE BREAK-UP OF PURCHASES MADE BY THE ASSESSEE DURING THE THREE YE ARS AND ALSO NOTING DOWN THE DISCOUNT RECEIVED BY THE ASSESSEE AND AFT ER OBTAINING REMAND REPORTS PARTLY ALLOWED THE RELIEF TO THE ASSESSEE B Y RECORDING SIMILAR FINDINGS IN ALL THE THREE YEARS. FOR THE SAKE OF CO MPLETENESS, THE FINDINGS OF THE LD. CIT(A) IN ASSESSMENT YEAR 2009-10 ARE RE PRODUCED AS UNDER: 6.8 I HAVE CONSIDERED THE OBSERVATIONS OF THE ASSE SSING OFFICER-AS MADE BY HIM IN THE ASSESSMENT ORDER AS WELL AS IN T HE REMAND REPORTS. I HAVE ALSO CONSIDERED THE WRITTEN SUBMISS ION OF THE ASSESSEE AS WELL AS HIS COUNTER COMMENTS ON THE REP ORT OF THE ASSESSING OFFICER. I HAVE FURTHER CONSIDERED THE JU DICIAL PRONOUNCEMENTS RELIED UPON BY THE ASSESSEE ON THE I SSUE UNDER REFERENCE AS WELL AS OTHER MATERIAL BROUGHT ON REC ORD. ON CAREFUL CONSIDERATION OF THE ASSESSMENT ORDER, IT HAS BEEN NOTICED THAT THE ASSESSING OFFICER HAS MADE THE IMPUGNED ADDITION AF TER REJECTING THE BOOKS RESULTS DECLARED BY THE ASSESSEE AS THE A SSESSEE HAS ADMITTED MADE SALES OUTSIDE THE BOOKS OF ACCOUNT AN D HAS NOT ADMITTEDLY MAINTAIN QUANTITATIVE STOCK RECORDS. WHI LE MAKING THE TRADING ADDITION UNDER REFERENCE, THE ASSESSING OFF ICER HAS APPLIED GROSS PROFIT RATE OF 42.80% ON THE COST OF SALES WH ICH HAVE BEEN WORKED OUT IN THE ASSESSMENT ORDER. THE LD.AR OF TH E ASSESSEE HAS VEHEMENTLY ARGUED THAT THE ASSESSING OFFICER HAS NO T CONSIDERED HIS SUBMISSION MADE DURING THE COURSE OF ASSESSMENT PRO CEEDING S WITH REGARD TO DISTRIBUTION OF FREE/DISCOUNTED BOOKS TO POOR STUDENTS AND GIVING OF FREE BOOKS TO TEACHERS. ACCORDING TO THE ASSESSEE, HIS MARGIN OF PROFIT RANGES FROM 0% TO 50% AND NOT FROM 25% TO 80% AS ALLEGED BY THE ASSESSING OFFICER AS HE IS ALSO GIVI NG BOOKS OF ACCOUNT ITA NOS. 251 TO 253(ASR)/2014 ITA NO.346 TO 348(ASR)/2014 9 FREE OF COST OR AT A HEAVY DISCOUNT TO THE POOR STU DENTS AS AND WHEN A REQUEST COME FROM ANY SCHOOL. TO SUPPORT HIS CONT ENTION., THE LEARNED AR OF THE ASSESSEE ALSO FILED SOME COPIES O F LETTERS FROM SOME SCHOOLS VIDE WHICH BOOKS OF ACCOUNT HAVE BEEN DEMANDED FREE COST OR AT 50% DISCOUNT FOR DISTRIBUTION TO THE POO R STUDENTS. IT HAS ALSO BEEN SUBMITTED THAT THE ASSESSEE IS ALSO GIVIN G BOOKS FREE OF COST TO THE TEACHERS OF THE SCHOOL. IT HAS AGAIN BE EN SUBMITTED THAT THE ASSESSING OFFICE PICKED UP THE SALE BILLS ACCOR DING TO HIS SWEET WILL TO SHOW THAT THE ASSESSEE ITEMS. THE LD.AR OF THE ASSESSEE SUBMITTED DETAILS (IN THE PAPER BOOK) WITH REGARD T O WHOLE OF THE PURCHASES ON WHICH HE EARNED DISCOUNT AT DIFFERENT RATES. THE PURCHASES ON WHICH DISCOUNT HAS BEEN EARNED AT DIFF ERENT RATES ARE STATED TO BE AS UNDER:- S. NO OF THE PAPER BOOK GIVING DETAILS OF PURCHASES PURCHASE (IN RS.) DISCOUNT RATE (IN%) DISCOUNT (IN RS.) NET AMOUNT OF PURCHASES (IN RS.) 50 11860 10% 1186 10674 52 15206843 15% 2281026 12925817 55 3577274 20% 715455 2861820 58 TO 60 28727838 25% 7184060 21543779 63 8934727 30% 2680418 6254309 66 1149579 33% 379361 770218 69 & 70 9336382 35% 32677734 6068649 73 &74 14282013 40% 5712805 8569208 80 336500 50% 168250 168250 TOTAL 82539586 22829750 59709836 83 TO 85 11455914 NIL NIL 11455914 GRAND TOTAL 93995497 22829750 71165750 6.9 I HAVE AGAIN CONSIDERED THE ASSESSMENT ORDER AND SUBMISSION OF THE ASSESSEE CAREFULLY AND I DO NOT ENTIRELY AGR EE WITH THE SUBMISSION OF THE ASSESSEE. FROM THE ABOVE CHART AV ERAGE DISCOUNT RECEIVED ON GROSS PURCHASES OF RS.8,25,39,586/-(EXC LUDING THE PURCHASE ON WHICH THE ASSESSEE HAS NOT GOT ANY DISC OUNT) WORKS ITA NOS. 251 TO 253(ASR)/2014 ITA NO.346 TO 348(ASR)/2014 10 OUT TO BE 27.66% [(RS.22829750/- DIVIDED BY 8253958 6/-)X100] AND THE AVERAGE DISCOUNT ON TOTAL GROSS PURCHASES OF RS .9,39,95,497/- )INCLUDING THE PURCHASES ON WHICH THE ASSESSEE HAS NOT RECEIVED ANY DISCOUNT) WORKS OUT TO BE 24-29%[ RS.22829750/- DIVIDED BY 93995497/-X 100]. WHEREAS THE AVERAGE DISCOUNT RECE IVED ON NET PURCHASES OF RS.5,97,09,836/-(EXCLUDING PURCHASES O N WHICH THE ASSESSEE HAS NOT GOT ANY DISCOUNT) WORKS OUT TO BE 38.23% [ RS.22829750/- DIVIDED BY 59709836/- X 10] AND THE A VERAGE DISCOUNT ON TOTAL NET PURCHASES OF RS.7,11,65,750(I NCLUDING THE PURCHASES ON WHICH THE ASSESSEE HAS NOT RECEIVED AN Y DISCOUNT) WORKS OUT TO BE 32.08%[(RS.22829750/- DIVIDED BY 71 165750/-) X100]. IT MEANS, THE ASSESSEE HAS AT LEAST GOT PROF IT @ 38.32 ON THE COST OF SALE OF GOODS(OUT OF OPENING STOCK AND PURC HASES MADE DURING THE YEAR) WHICH HAVE BEEN SOLD DURING THE YE AR UNDER CONSIDERATION. AS THE ASSESSEE HAS HIMSELF ADMITTED TO HAVE SOLD THE GOODS, ON WHICH NO DISCOUNT HAS BEEN RECEIVED T O BE AT A PROFIT MARGIN OF 15% TO 18% THE PROFIT MARGIN OF THE ASSES SEE IS REQUIRED TO BE INCREASED BY THE AMOUNT OF GROSS PROFIT ON THE S ALE OF BOOKS AND OTHER STATIONARY ITEMS ARE NOT BEING SOLD BY THE AS SESSEE AT MRP. IT IS ALSO A FACT THAT THE ASSESSEE HAS NOT MAINTAINED QUANTITATIVE STOCK RECORDS. IT IS AGAIN FACT THAT HE QUANTITATIV E DETAILS OF OPENING AND CLOSING STOCK HAVE ALSO NOT BEEN FURNISHED BY T HE ASSESSEE EITHER DURING ASSESSMENT PROCEEDINGS OR DURING APPE LLATE PROCEEDINGS. IN THESE FACTS AND IN THE CIRCUMSTANCE S OF THE CASE, I AGREE WITH THE OPINION OF THE ASSESSING OFFICER THA T THE BOOKS RESULTS SHOWN BY THE ASSESSEE ARE NOT RELIABLE MORE PARTIC ULARLY IN VIEW OF THE FACT THAT THE ASSESSEE HAS HIMSELF ADMITTED TO HAVE MADE SALES OUTSIDE THE BOOKS RESULTS IS UPHELD . I ALSO DO NOT AGREE WITH THE SUBMISSIONS OF THE LD. AR OF THE ASSESSEE THAT THE ASSESSING OFFICER HAS NOT REJECTED THE BOOKS OF ACCOUNT OF THE ASSESS EE. IN MY OPINION, THE ASSESSING OFFICER HAS REJECTED THE BOOKS OF ACC OUNT OF THE ASSESSEE. IN MY OPINION, THE ASSESSING OFFICER HAS REJECTED THE BOOKS OF ACCOUNT WHEN HE HAS SPECIFICALLY HELD THAT THE BOOKS RESULTS DECLARED BY THE ASSESSEE ARE NOT RELIABLE. WHILE REJECTING THE BOOKS OF ACCOUNT, THE ASSESSING OFFICER HAS ALSO SP ECIFICALLY BROUGHT ON RECORD THAT ALL THE SALES ARE NOT RECORDED IN TH E BOOKS, QUANTITATIVE DETAILS WITH RESPECT TO PURCHASES AND SALE HAVE NOT BEEN KEPT AND QUANTITATIVE DETAILS OF OPENING &, C LOSING STOCK HAVE NOT BEEN FILED AND TRUE PROFIT ON THE SALES IS NOT BEING DECLARED. IN VIEW OF ALL THESE DEFECTS POINTED OUT BY THE ASSESS ING OFFICER, HIS ACTION, WITH REGARD TO REJECTION OF BOOKS OF ACCOUN T IS UPHELD. 6.10 AS ALL THE SALES MADE BY THE ASSESSEE ARE ADM ITTEDLY NOT RECORDED IN THE BOOKS OF ACCOUNT AND PURCHASES ARE FULLY RECORDED, I ALSO UPHOLD THE DECISION OF THE ASSESSING OFFICER WITH REGARD TO CALCULATION OF GROSS PROFIT BY WORKING OUT COST OF SALES AND APPLYING ITA NOS. 251 TO 253(ASR)/2014 ITA NO.346 TO 348(ASR)/2014 11 GROSS PROFIT MARGIN THEREON. HOWEVER, I HAVE NOTICE D THAT THE GROSS PROFIT MARGIN WORKED OUT BY THE ASSESSING OFFICER I S LITTLE BIT ON THE HIGHER SIDE AS HE HAS NOT WORKED OUT THE GROSS PROF IT MARGIN BY TAKING INTO ACCOUNT THE ENTIRE DISCOUNT RECEIVED B Y THE ASSESSEE FROM THE SELLERS OF BOOKS AND OTHER STATIONARY ITEM S. FROM THE ABOVE CHART, IT IS CLEAR THAT THE ASSESSEE EARNED GROSS P ROFIT MARGIN OF AT LEAST 38.23% ON NET PURCHASES OF RS.5,97,09,836/-(E XCLUDING GOODS ON WHICH NO DISCOUNT WAS RECEIVED). THEREFORE, THE GROSS PROFIT MARGIN OF 38.23% IS REQUIRED TO BE APPLIED TO THE C OST OF SALES TO WORK OUT THE GROSS PROFIT EARNED BY THE ASSESSEE ON THE GOODS WHICH HAVE BEEN SOLD DURING THE YEAR ON WHICH THE ASSESSE E GOT DISCOUNT RANGING FROM 10% TO 50% AS AGAINST GROSS PROFIT RAT E APPLIED BY THE ASSESSING OFFICER AT 42.8% ON ENTIRE COST OF SALES. AS THE ASSESSEE HAS HIMSELF ADMITTED THAT THE GOODS ON WHICH NO DIS COUNT HAS BEEN RECEIVED ARE SOLD AT A PROFIT MARGIN OF 15% TO 18%, THE GROSS PROFIT ON SUCH COST OF SALES WILL BE CALCULATED AT THE AVE RAGE PROFIT MARGIN OF 16.5 %. AS THE ASSESSING OFFICER HAS NOT COMMENT ED ADVERSELY DURING THE COURSE OF REMAND/ APPELLATE PROCEEDINGS AND HAS NOT REBUTTED THE EVIDENCE BROUGHT ON RECORD WITH REGARD TO THE DISCOUNT ALLOWED BY THE ASSESSEE ON THE SALE OF BOOKS TO POO R STUDENTS ON THE RECOMMENDATION OF THE SCHOOLS AND WITH REGARD TO FR EE SUPPLY OF BOOKS TO TEACHERS, THE ENTIRE CLAIM OF DISCOUNT ALL OWED BY THE ASSESSEE IS ALSO REQUIRED TO BE CONSIDERED WHILE WO RKING OUT UNDISCLOSED INCOME/PROFITS OF THE ASSESSEE. KEEPING IN VIEW THE ABOVE DISCUSSION, THE UNDISCLOSED GROSS PROFIT EARN ED BY THE ASSESSEE IS WORKED OUT AS UNDER:- TOTAL PURCHASES(NET OF DISCOUNT)MADE BY THE ASSESSE E. RS,7,11,65,750/- PURCHASES ON WHICH NO DISCOUNT WAS RECEIVED RS.1,14,55,914/- (16.1%) PURCHASES ON WHICH ASSESSEE GOT DISCOUNT RS.5,97,09,836/- RANGING FROM 10% TO 50% (83.9%) TOTAL PURCHASES(NET OF DISCOUNT) ACCOUNTED FOR IN T HE BOOKS OF ACCOUNT RS.7,11,65,750/- TOTAL COST OF SALES AS WORKED OUT BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER RS.6,3 4,43,718/- IN THE ABSENCE OF ANY QUANTITATIVE DETAILS, IT IS P RESUMED THAT OUT OF GOODS VALUING AT RS.6,34,43,718/-, THE ASSESSEE SOLD 83.9 % OF GOODS ON WHICH HE GOT DISCOUNT AND 16.1% OF GOODS ON WHICH HE DID NOT GET ANY DISCOUNT. 83.9% OF COST OF SALES OF GOODS RS.5 ,32,29,279/- 16.1% OF COST OF SALES OF GOODS RS.1,02,14, 439/- TOTAL COST OF SALES RS.6,34,43,718/- ITA NOS. 251 TO 253(ASR)/2014 ITA NO.346 TO 348(ASR)/2014 12 GROSS PROFIT @ 38.23 % ON COST OF SALES OF RS.5,3,2 9,279 RS.2,03,49,553/- GROSS PROFIT @16.5% ON COST OF SALES OF RS.1,02,14, 439 RS.16,85,382/- TOTAL GROSS PROFIT EARNED BY THE ASSESSEE RS.2,20,34,935/- LESS: DISCOUNT ALLOWED BY THE ASSESSEE RS.58 ,03,705/- BALANCE GROSS PROFIT RS. 1,62,31,230/- LESS: GROSS PROFIT DECLARED BY THE ASSESSEE RS.15,61,570/- UNDISCLOSED GROSS PROFIT EARNED BY THE ASSESSEE 1,4 6,69,660/- 6.11. I HAVE ALSO GONE THROUGH THE JUDICIAL PRONOUNCEMEN T S RELIED UPON BY THE ASSESSEE AND A, OF THE CONSIDERED OPINI ON THAT NONE OF THE CASE LAWS RELIED UPON BY THE LD. ARS OF THE ASS ESSEE HAVE SIMILAR FACTS AS THAT OF THE CASE OF THE ASSESSEE. MOREOVER, THE ASSESSING OFFICER HAS REJECTED THE BOOKS OF ACCOUNT BY POINTING OUT SPECIFIC DEFECT. IN VIEW OF THE ABOVE OF THE ABOVE STATED FACT AND IN THE CIRCUMSTANCES OF THE CASE, THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF UNDISCLOSED PROFITS IS RESTRI CTED TO RS.1,46,69,660/- AND BALANCE ADDITION IS DIRECTED T O BE DELETED. IN NUTSHELL, THE ASSESSEE WILL THUS GET A RELIEF OF RS .1,09,22,681/- [RS.2,55,92,343/-(-)RS.1,46,69,660/-] OUT OF TOTAL OF RS.2,55,92,341/- IN THE RESULT, GROUND NO.02 OF APP EAL TAKEN BY THE ASSESSEE IS PARTY ALLOWED. 15. AGGRIEVED WITH THE ORDER OF THE LD. CIT(A), BO TH THE PARTIES ARE IN APPEALS BEFORE US. 16. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THOUGH THE LD. CIT(A) HAS ALLOWED PART RELIEF, ON THE BASIS OF CE RTAIN CALCULATIONS BUT WHILE SUSTAINING THE ADDITION, HE HAS ADOPTED HIGHE ST PERCENTAGE OF GROSS PROFIT CALCULATED ON THE BASIS OF NET PURCHASES. TH E LD. COUNSEL FURTHER SUBMITTED THAT THE LD. CIT(A) HIMSELF WAS CONFUSE D IN CHOOSING THE GROSS PROFIT RATIO WHICH HE HAD CALCULATED ON THREE DIFFERENT BASIS BASED ON DIFFERENT PERMUTATIONS AND COMBINATIONS AND APPL IED HIGHEST RATE WHICH IS INCORRECT AS HE SHOULD HAVE APPLIED THE G P RATIO ON THE SALES ITA NOS. 251 TO 253(ASR)/2014 ITA NO.346 TO 348(ASR)/2014 13 DECLARED BY THE ASSESSEE AND SHOULD ALSO HAVE GIVEN THE BENEFIT OF WASTAGE OUT OF GROSS PURCHASES AS THE NATURE OF BUS INESS OF ASSESSEE IS SUCH THAT SIGNIFICANT AMOUNT IS LOST DUE TO WASTAG E, TRANSPORTATION OF BOOKS AND STATIONERY FROM FAR OFF PLACES. THE LD . COUNSEL SUBMITTED THAT DUE TO CHANGES IN THE SYLLABUS, THE UNSOLD BOO KS DID NOT CARRY ANY VALUE. THEREFORE, THE ASSESSEE SHOULD HAVE BEEN GIV EN BENEFIT OF WASTAGE, DAMAGE AND LOSS IN TRANSPORTATION ETC.. THE LD. COU NSEL FURTHER SUBMITTED THAT THE AO ON THE BASIS OF TEST CHECK O F A FEW ITEMS HAD ARRIVED AT HUGE GROSS PROFIT RATE OF 42.8% WHICH I S ABSURD AS NO SUCH BUSINESS CAN GIVE THIS HUGE PROFIT MARGIN. THE LD. COUNSEL SUBMITTED THAT THE AO SHOULD HAVE APPLIED GROSS PROFIT RATIO ON SA LES WHICH HE HAS CALCULATED ON THE GROSS PURCHASES. THE LD. COUNSE L IN THIS RESPECT FILED THREE CHARTS RELATING TO THREE YEARS, WHEREIN DETAI LED CALCULATION OF GROSS PROFIT ON THE BASIS OF SALES DECLARED BY THE ASSESS EE WERE WORKED OUT. HE SUBMITTED THAT THE CALCULATION OF GROSS PROFIT ON S ALES WAS CORRECT METHOD AND IF THE GROSS PROFIT RATIO IS APPLIED O N THE SALES, AND THE ASSESSEE IS GIVEN BENEFIT OF WASTAGE @ 10% OF PURCH ASES THERE WILL NOT BE ANY SUPPRESSION OF GROSS PROFIT. THEREFORE, HE ARGU ED THAT THE LD. CIT(A) HAS WRONGLY SUSTAINED THE ADDITIONS. ARGUING UPON THE LEGAL ISSUE TAKEN IN HIS APPEAL AS GROUND NO.2, THE LD. COUNSEL SUBMI TTED THAT THE AO HAD NOT REJECTED THE BOOKS OF ACCOUNT U/S 145(3) OF TH E ACT AND HE HAD HELD ONLY IN A CASUAL MANNER THAT TRADING ACCOUNT WAS NOT RELIABLE AND THEN HE ESTIMATED THE PROFIT WITHOUT TAKING INTO CONSIDE RATION ANY COMPARABLE ITA NOS. 251 TO 253(ASR)/2014 ITA NO.346 TO 348(ASR)/2014 14 CASE. HE SUBMITTED THAT NO SPECIFIC DEFECTS IN THE BOOKS OF ACCOUNT WERE POINTED OUT IN THE DAY TO DAY MAINTENANCE OF THE BO OKS AND THEREFORE, THERE WAS NO JUSTIFICATION OF APPLICATION F 42.8% O F GROSS PROFIT BY THE AO. RELIANCE IN THIS RESPECT WAS PLACED ON THE FOL LOWING CASE LAW: I) CIT VS. OM OVERSEAS, 315 ITR 185 (P&H) II) RAJ & SAN DEEPS LTD. VS. ACIT, ITA NO.1853/CHD/ 1992, ITAT, CHANDIGARH BENCH, CHANDIGHARH. III) PYARELAL MITTAL VS. ACIT, 291 ITR 214 (GAUHATI ) IV) CIT VS. R.K.RICE MILLS, 319 ITR 173 (P&H) V) BABU JEWELLERS VS. ITO, ITA NO.126/CHD/2011, ITA T, CHANDIGARH BENCH. 17. THE LD. COUNSEL FOR THE ASSESSEE FURTHER RELIED ON THE JUDGMENTS WHICH WERE RELIED UPON BEFORE THE LD. CIT(A) IN THI S RESPECT. 18. INVITING OUR ATTENTION TO THE LEGAL ISSUE IN TH E ASSESSMENT YEAR 2008-09, THE LD. COUNSEL SUBMITTED THAT ASSESSMENT IN THIS YEAR WAS ILLEGAL AND VOID AB-INITIO AS NO ADDITION WAS MADE ON THE BASIS OF WHICH THE CASE OF THE ASSESSEE WAS REOPENED. THE LD. COUN SEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS TAKEN THIS GROUND A S AN ADDITIONAL GROUND AND SINCE IT WAS A LEGAL ISSUE, THEREFORE, T HE ASSESSEE WAS ENTITLED TO RAISE THIS GROUND AT THIS STAGE. RELIANCE IN TH IS RESPECT WAS PLACED ON THE JUDGMENT OF HONBLE SUPREME COURT, IN THE CASE OF NATIONAL THERMAL POWER CO. LTD. VS. CIT, 229 ITR 83 (SC). AFTER NOTI NG DOWN THE OBJECTIONS OF THE LD. DR, THIS GROUND OF APPEAL BEING LEGAL IN NATURE WAS ADMITTED. THE LD. COUNSEL INVITED OUR ATTENTION TO THE COPY OF REASONS RECORDED ITA NOS. 251 TO 253(ASR)/2014 ITA NO.346 TO 348(ASR)/2014 15 PLACED AT PB-108 AND SUBMITTED THAT THE CASE OF THE ASSESSEE FOR THE AY 2008-09 WAS REOPENED, WHILE FINALIZING THE ASSESSME NT FOR THE AY 2009- 10. THE AO HAD NOTED IN THAT YEAR THAT CERTAIN CASH DEPOSITS IN THE BANK ACCOUNT IN AY 2008-09 WERE ALSO MADE AND THEREFORE HE REOPENED THE CASE. THE LD. COUNSEL SUBMITTED THAT THE AO HAD NOT MADE ANY ADDITION ON THIS ACCOUNT AND NEITHER THERE IS ANY MENTION B Y THE AO THAT THIS ADDITION IS COVERED BY TRADING ADDITION AS MENTIONE D BY THE AO IN THE ASSESSMENT YEAR 2009-10. THEREFORE, HE ARGUED THAT THE ASSESSMENT IN THIS YEAR WAS BAD AS IN ABSENCE OF NON-ADDITIONS O N SUCH ITEMS FOR WHICH ASSESSMENT WAS REOPENED, NO OTHER ADDITION WA S SUSTAINABLE IN LAW AS HELD BY THE HONBLE DELHI HIGH COURT IN THE CASE OF RANABAXY LABORATORIES LTD. VS. CIT, 336 ITR 136 (DELHI) 19. THE LD. DR, ON THE OTHER HAND, SUBMITTED THAT T HE ASSESSEE HAD NOT FILED ANY DETAILS REGARDING HIS CLAIM THAT G.P. RATE OF 42.8% WAS ONLY WITH RESPECT TO A VIEW ITEMS AND THEREFORE, THE AO HAS RIGHTLY APPLIED GP. RATIO. INVITING OUR ATTENTION TO THE ASSESSMEN T ORDER PASSED BY THE AO FOR THE AY 2008-09, THE LD. DR SUBMITTED THAT TH E AO HAD MADE DETAILED CALCULATIONS FOR ARRIVING AT THE GROSS PR OFIT RATE APPLIED BY HIM. THEREFORE, THE LD. DR HEAVILY PLACED RELIANCE ON TH E ORDER OF THE A.O. 20. AS REGARDS THE REVENUES APPEAL, THE LD. DR SUB MITTED THAT THE LD. CIT(A) HAS WRONGLY ALLOWED THE RELIEF TO THE ASSESS EE, AS THE CLAIM OF FREE DISTRIBUTION OF BOOKS WAS AFTER-THOUGHT. ITA NOS. 251 TO 253(ASR)/2014 ITA NO.346 TO 348(ASR)/2014 16 21. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, HEAVILY PLACED RELIANCE ON THE ORDER OF THE CIT(A) AND SUBMITTED THAT THE DETAILED SUBMISSIONS AS FILED BEFORE THE CIT(A) WERE FORWARD ED TO THE AO AND THE AO IN HIS REPLY HAD NOT COMMENTED UPON THE DOCUMENT S AS HE HELD THAT ALL DOCUMENTS WERE EXAMINED DURING ASSESSMENT PROCE EDINGS AND IN THIS RESPECT OUR ATTENTION WAS INVITED TO PB-92, 106 & 8 1 RESPECTIVELY WHERE THE REMAND REPORTS OF THE AO WERE PLACED FOR ALL TH E THREE YEARS.. 22. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE T HROUGH THE MATERIAL PLACED ON RECORD. WE FIND THAT THE ASSESSE E HAS TAKEN A JURISDICTIONAL ISSUE IN THE AY 2008-09 BY WAY OF A N ADDITIONAL GROUND, WHICH DURING THE COURSE OF HEARING BEFORE US, WAS R EVISED AND WHICH READS AS UNDER: THAT THE ASSESSMENT HAVING BEEN REOPENED U/S 148 O N THE BASIS OF CASH DEPOSIT OF RS.5,45,980/- IN THE BANK ACCOUN T WITH STANDARD CHARTERED BANK, JALANDHAR IN THE NAME OF T HE ASSESSEE BUT NO ADDITION HAVING BEEN MADE FOR THE SAME BY T HE AO THUS, NO INCOME AS A MATTER OF FACT HAVING ESCAPED ASSES SMENT, IT WAS NOT OPEN TO THE AO TO INDEPENDENTLY ASSES SOME OTHE R INCOME, WHICH IS NOT PART OF THE REASON RECORDED U/S 148 B Y THE A.O. 23. THE REASONS RECORDED FOR REOPENING OF THE CASE FOR THE AY 2008-09 ARE PLACED AT PB 108, WHICH FOR THE SAKE OF COMPLET ENESS ARE REPRODUCED BELOW: DURING THE COURSE OF ASSESSMENT PROCEEDINGS IN THE CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2009-10, AN AIR IN FORMATION OF ITA NOS. 251 TO 253(ASR)/2014 ITA NO.346 TO 348(ASR)/2014 17 CASH DEPOSITS OF RS.16,52,000/- IN ACCOUNT NO. 715- 1-0137597 WITH STANDARD CHARTERED BANK, JALANDHAR WAS RECEIVE D. SUBSEQUENTLY VIDE LETTER DATED 22.12/2011 THE ASSES SEE ADMITTED THAT THE DEPOSITS IN THE SAID BANK ACCOUNT WERE UNA CCOUNTED AND WERE THE PROCEEDS OF UNACCOUNTED SALES. SUBSEQUENTL Y, ASSESSMENT WAS COMPLETED FOR THE AY 2009-10 BY UTIL ISING THIS AIR INFORMATION & ADDITION AMOUNTING TO RS.2,55,92,341/ - WAS DONE. 2. FROM THE BANK STATEMENT OBTAINED FROM THE BANK O F THE SAME ACCOUNT, IT IS SEEN THAT CASH AMOUNTING TO RS. 5,45,980/- HAS BEEN DEPOSITED FOR AY 2008-09 ALSO. SINCE, IT H AS ALREADY BEEN ADMITTED BY THE ASSESSEE THAT THE DEPOSITS IN THIS BANK ACCOUNT IS ACTUALLY UNACCOUNTED SALE PROCEEDS, I HAVE REAS ON TO BELIEVE THAT INCOME CHARGEABLE TO TAX ON ACCOUNT OF UNACCOU NTED SALES, HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTIO N 147 OF THE INCOME TAX ACT, 1961. ISSUE NOTICE U/S 148. 24. FROM THE ABOVE REASONS RECORDED, WE FIND THAT T HE CASE OF THE ASSESSEE WAS REOPENED ON ACCOUNT OF AN AIR INFORMAT ION REGARDING THE FACTUM THAT THE ASSESSEE HAD DEPOSITED CERTAIN CASH IN HIS BANK ACCOUNT WITH THE STANDARD CHARTERED BANK, JALANDHAR. THE AS SESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS IN THE AY 2009-10 HAD ADMITTED THAT PART CASH OF DEPOSIT IN THE BANK ACCOUNT REPRESENTE D UNACCOUNTED SALES. THE AO HAD OBSERVED THAT A PART OF CASH DEPOSIT WAS ALSO DEPOSITED IN AY 2008-09. THEREFORE, HE REOPENED THE ASSESSMENT FOR AY 2008-09 WHILE FINALISING THE ASSESSMENT ORDER FOR THE AY 2009-10 , THE AO MADE TRADING ADDITION OF RS.2,55,92,341/- BUT DID NOT MAKE SEPAR ATE ADDITION FOR CASH DEPOSITED IN THE BANK ACCOUNT, AS HE HELD THAT TRAD ING ADDITION MADE BY HIM COVERED THE CASH DEPOSIT IN THE BANK. HOWEVER, WHILE FINALIZING THE ASSESSMENT FOR ASST.YEAR 2008-09, THE AO RECORDED T HE FOLLOWING FINDINGS. ITA NOS. 251 TO 253(ASR)/2014 ITA NO.346 TO 348(ASR)/2014 18 1. BACK GROUND:- DURING THE COURSE OF ASSESSMENT PROCEEDINGS IN THE SCRUTINY CASE OF THE ASSESSEE FOR THE ASSESSMEN T YEAR 2009-10, AN AIR INFORMATION OF THE CASH DEPOSITS OF RS.16,52 ,000/- IN ASSESSEES SAVING BANK ACCOUNT NO.715-1-013759-7 WI TH STANDARD CHARTERED BANK, JALANDHAR WAS RECEIVED. DURING THE COURSE OF ASSESSMENT PROCEEDINGS VIDE LETTER DATED 20.L2.2011 , ASSESSEE ADMITTED THAT THE SOURCE OF DEPOSITS IN THE SAID BA NK ACCOUNT WERE UNACCOUNTED AND WERE THE PROCEEDS OF UNACCOUNTED SA LES OF HIS PROPRIETARY CONCERN M/S NAVJEEVAN ENTERPRISES . KEEPING IN VIEW THE FACTS THE FACTS/INFORMATION ON RECORD VIDE ORDER DA TED 30.12.2011. ASSESSMENT WAS COMPLETED FOR THE ASSESSMENT YEAR 20 09-10. ADDITION AMOUNTING TO RS.2,55,92,341/- WAS MADE PRI MARILY ON THE BASIS OF AIR INFORMATION W.R.T CASH DEPOSITS IN THE SAVING BANK ACCOUNT. FROM THE BANK STATEMENT OBTAINED FROM THE BANK OF THE SAME ACCOUNT, IT IS SEEN THAT CASH AMOUNTING TO RS. 5,45,980/- HAS BEEN DEPOSITED DURING FINANCIAL YEAR 2007-08 RELEVA NT TO ASSESSMENT YEAR 2008-09 ALSO. SINCE, IT HAS ALREADY BEEN ADMITTED BY THE ASSESSEE THAT THE SOURCE OF DEPOSITS IN THIS BANK ACCOUNT IS ACTUALLY UNACCOUNTED SALE PROCEEDS OF HIS BUSINESS OF TRADING IN BOOKS/STATIONARY ITEMS . NOTICE U/S 147/148 OF THE INCOME TAX ACT,1961 DATED 08.02.2012 WAS ISSUED AFTER RECORDIN G THE REASONS FOR THE SAME. THE SAID NOTICE STANDS DULY SERVED UP ON ASSESSEE ON 09.02.2012. FROM THE ABOVE FINDINGS, WE NOTE THAT HE DID MENTIO N THE FACT OF DEPOSIT OF CASH AMOUNTING TO RS.5,45,980/- IN THE AY 2008-0 9 AND HE HAS HELD THAT SINCE THE ASSESSEE HAD ALREADY ADMITTED THAT THE SOURCE OF DEPOSIT IN THE BANK ACCOUNT IS UNACCOUNTED SALE PROCEEDS, T HEREFORE, HE MADE THE TRADING ADDITION IGNORING CASH DEPOSIT AS HE H AD ALREADY OBSERVED ITA NOS. 251 TO 253(ASR)/2014 ITA NO.346 TO 348(ASR)/2014 19 THAT THE CASH DEPOSIT REPRESENTED UNACCOUNTED SALE PROCEEDS. THEREFORE, WE DO NOT SEE ANY FORCE IN THE ARGUMENTS OF THE LD. COUNSEL THAT SINCE HE HAD NOT MADE THE ADDITION OF CASH DEPOSIT, NO OTHER ADDITION CAN BE MADE. IN VIEW OF THE ABOVE, ADDITIONAL GROUND TAKE N BY THE ASSESSEE IS DISMISSED. 25. AS REGARDS THE LEGAL GROUND TAKEN BY THE ASSES SEE IN THREE APPEALS REGARDING REJECTION OF BOOKS OF ACCOUNT, WE FIND TH AT THE AO ON THE BASIS OF GROSS PROFIT RATIO DECLARED BY THE ASSESSEE AND ON THE BASIS OF CASH DEPOSIT IN THE BANK ACCOUNT HAD HELD THE SALE FIGUR ES NOT TO BE RELIABLE BUT HE HAD ACCEPTED ALL OTHER FIGURES OF TRADING AN D PROFIT & LOSS ACCOUNT AND RATHER HE HAS CALCULATED THE SUPPRESSION IN GR OSS PROFIT ON THE BASIS OF OPENING AND CLOSING STOCK AND ON THE BASIS OF P URCHASES AS DECLARED BY THE ASSESSEE. 26. THE CONTENTION OF THE LD. COUNSEL THAT SINCE TH E AO HAD NOT REJECTED THE BOOKS OF ACCOUNT, THEREFORE, HE SHOULD NOT HAVE ESTIMATED THE INCOME OF THE ASSESSEE BY APPLYING GROSS PROFI T RATIO WHEREAS WE FIND THAT THE AO HAS CLEARLY ESTABLISHED SUPPRESSION OF SALES AND ASSESSEE HIMSELF HAD ADMITTED THAT PART OF DEPOSITS IN THE B ANK ACCOUNT WERE ON ACCOUNT OF UNACCOUNTED ALES. THEREFORE, THE SALE FI GURES WERE NOT RELIABLE AND THEREFORE, THE AO HAS REJECTED THE SALE FIGURES AND HAD CALCULATED THE COST OF GOODS SOLD FROM THE SAME FIGURES OF OPE NING STOCK AND PURCHASES AS SUBMITTED BY THE ASSESSEE. WE FIND TH AT ASSESSING OFFICER HAS NOWHERE REJECTED THE BOOKS OF ACCOUNTS AND IN F ACT HE HAS RELIED ITA NOS. 251 TO 253(ASR)/2014 ITA NO.346 TO 348(ASR)/2014 20 UPON THE SAME FIGURES OF OPENING STOCK, PURCHASES, AND CLOSING STOCK TO CALCULATE COST OF GOODS SOLD ON ACCEPTED ACCOUNTING PRINCIPLES AND THEREFORE CONTENTION OF THE LD. COUNSEL THAT INCOME WAS ESTIMATED WITHOUT REJECTION OF BOOKS OF ACCOUNTS DOES NOT HOL D GROUND AS INCOME OF ASSESSEE WAS NOT ESTIMATED AND IT WAS CALCULATED ON LY ON THE BASIS OF SAME FIGURES FROM TRADING ACCOUNT SUBMITTED BY ASSE SSEE. ON THE OTHER HAND WE FURTHER FIND THAT LD. CIT(A) HAS RECORDED A FINDING THAT BOOKS OF ACCOUNTS WERE REJECTED WHICH IS NOT A CORRECT FINDI NGS. HOWEVER, SINCE WE HAVE HELD THAT INCOME WAS NOT JUST ESTIMATED BUT WA S CALCULATED ON THE BASIS OF FIGURES SUBMITTED BY ASSESSEE HIMSELF THER EFORE, THIS GROUND OF APPEAL HAS BECOME A NON-ISSUE AND THEREFORE IS NOT BEING ADJUDICATED. 27. NOW COMING TO THE MERITS OF THE CASE, WE FIND T HAT IT IS A FACT THAT THE ASSESSEE HAD NOT RECORDED A PART OF SALE IN THE REGULAR BOOKS OF ACCOUNTS AS HE HAS ALREADY ADMITTED THAT PART OF SA LE PROCEEDS WERE DEPOSITED IN THE BANK. THEREFORE, THE AO AND THE LD . CIT(A) HAS RIGHTLY NOT CONSIDERED THE FIGURE OF SALES FOR ARRIVING AT THE COST OF GOODS SOLD. HOWEVER, THE AUTHORITIES BELOW HAVE RIGHTLY ESTIMAT ED THE CALCULATION OF COST OF GOODS SOLD ON THE BASIS OF FIGURES PROVIDE D BY THE ASSESSEE IN HIS TRADING ACCOUNT. THE AUTHORITIES BELOW COMPLETELY VERIFIED THE PURCHASES AFTER CALLING INFORMATION U/S 133(6) FROM THE VARIO US SUPPLIERS OF THE ASSESSEE AND FROM WHERE THE ASSESSEE WAS GETTING DI SCOUNT ALSO. BY COMPLETING THE ASSESSMENT, THE AO DID NOT ALLOW BEN EFIT OF FREE DISTRIBUTION OF STATIONERY AND BOOKS WHICH THE ASSE SSEE HAD CLAIMED AND ITA NOS. 251 TO 253(ASR)/2014 ITA NO.346 TO 348(ASR)/2014 21 WHICH WAS ONE OF THE REASONS FOR LOW GROSS PROFIT R ATIO. BEFORE THE LD. CIT(A) COMPLETE DETAILS ALONGWITH CONFIRMATIONS FRO M PRINCIPALS OF VARIOUS SCHOOLS ALONGWITH DETAILS OF BOOKS DISTRIBU TED FREE OF COST WERE FILED WHICH WERE FORWARDED TO THE AO ALSO. THE LD. CIT(A) AFTER OBTAINING THE REMAND REPORT FROM THE AO HAD FOUND THE CLAIM OF THE ASSESSEE AS GENUINE AND THEREFORE, HE RIGHTLY ALLOWED THE RELIE F TO THE ASSESSEE ON ACCOUNT OF FREE DISTRIBUTION OF BOOKS/DISCOUNT ALLO WED BY ASSESSEE. THIS IS THE ONLY GRIEVANCE RAISED BY THE REVENUE BUT WHI CH IN OUR OPINION HAS BEEN RIGHTLY ALLOWED BY LD. CIT(A) AS AO DID NOT RA ISE ANY OBJECTIONS ON MERITS DURING REMAND PROCEEDINGS. IN VIEW OF THE AB OVE GROUNDS OF APPEAL TAKEN BY REVENUE ARE DISMISSED. 28. NOW COMING TO APPEALS FRILLED BY ASSESSEE. THE LD. CIT(A) CALCULATED SUPPRESSION IN GROSS PROFITS BY APPLYIN G THE HIGHEST GROSS PROFIT RATIO. WE ARE IN AGREEMENT WITH FINDINGS OF THE LD. CIT(A) SO FAR AS METHOD OF CALCULATION OF SUPPRESSION IN GROSS PROF IT IS CONCERNED, HOWEVER, WE ARE NOT IN AGREEMENT WITH THE LD. CIT(A ) WHERE HE APPLIED THE HIGHEST PERCENTAGE OF GROSS PROFIT RATIO OUT OF THREE PERCENTAGES WORKED OUT BY HIM. WE FIND THAT THE RESULTS ARRIVED AT BY APPLYING GROSS PROFIT RATIO RELIED UPON BY LD. CIT(A), DO NOT DEP ICT A FAIR AND TRUE PICTURE AS BY APPLYING EXORBITANT RATE OF GROSS PROFIT, T HE FIGURES ARRIVED AT BY THE LD. CIT(A) ARE ABSURD. THE CORRECT GROSS PROFI T RATIO WORKED OUT BY THE LD. CIT(A) ON THE BASIS OF GROSS DISCOUNT RECEI VED BY THE ASSESSEE AS ITA NOS. 251 TO 253(ASR)/2014 ITA NO.346 TO 348(ASR)/2014 22 COMPARED TO GROSS PURCHASES MADE BY THE ASSESSEE SH OULD HAVE BEEN APPLIED AND THE APPLICATION OF THIS GROSS PROFIT RA TIO IS IN CONSONANCE WITH THE FINDINGS OF THE AO, WHICH HE HAD MADE IN THE BEGINNING OF THE ASSESSMENT ORDER FOR AY 2009-10, WHERE HE HAS HELD THAT RATE OF PROFIT IN THIS TRADE IS MORE THAN 20%. THE GROSS PROFIT RATIO CALCULATED ON THE BASIS OF GROSS DISCOUNT AND GROSS PURCHASES IS TABU LATED AS BELOW. 2008-09 25.17% 2009-10 24.29% 2010-11 26.09% THE CONTENTION OF THE LD. COUNSEL THAT GROSS PROFI T RATIO WITH RESPECT TO SALES SHOULD HAVE BEEN APPLIED WHILE WORKING OUT SU PPRESSION IN THE GROSS PROFIT DOES NOT CARRY ANY FORCE AS THE SALE F IGURE IN THE TRADING ACCOUNT ITSELF WAS NOT RELIABLE. THEREFORE, ANY WOR KING WITH RESPECT TO SALE WILL NOT GIVE FAIR RESULTS. MOREOVER, THE ARGU MENT OF THE LD. COUNSEL THAT ASSESSEE BE ALLOWED RELIEF ON ACCOUNT OF WAST AGE ETC. EQUIVALENT TO 10% OF PURCHASE ALSO DO NOT CARRY ANY FORCE IN VIEW OF THE FACT THAT METHOD OF VALUATION OF STOCK AS ADOPTED BY THE ASSE SSEE AND AS NOTED IN AUDIT REPORT IS COST OR MARKET PRICE, WHICHEVER IS LESS. THEREFORE, THE DETERIORATION IN VALUE OF STOCK IF ANY ON ACCOUNT O F CHANGE IN SYLLABUS/WASTAGE MUST ALREADY HAVE BEEN TAKEN INTO ACCOUNT WHILE VALUING THE STOCK AT MARKET PRICES AS APPARENTLY MA RKET VALUE OF SUCH STOCK WOULD HAVE BEEN LOWER THAN THE COST PRICE. I N VIEW OF THE ABOVE, THESE TWO ARGUMENTS OF THE LD. COUNSEL ARE REJECTED AND THE FORMULA ADOPTED BY THE LD. CIT(A) IS UPHELD SUBJECT TO APP LICATION OF GROSS PROFIT ITA NOS. 251 TO 253(ASR)/2014 ITA NO.346 TO 348(ASR)/2014 23 RATE WORKED OUT BY HIM. THE SUPPRESSION OF GROSS PR OFIT IN VARIOUS YEARS BY APPLYING GROSS PROFIT RATIO BASED UPON GROSS PUR CHASES AND GROSS DISCOUNT FOR THREE YEARS IS WORKED OUT AS UNDER: ASST. YEAR 2008-09 TOTAL PURCHASES MADE BY THE ASSESSEE. RS.3,24,13,274/- PURCHASES ON WHICH NO DISCOUNT WAS RECEIVED RS.5002821/- (15.43%) PURCHASES ON WHICH ASSESSEE GOT DISCOUNT RS.2,74,10,454/- RANGING FROM 10% TO 50% (84.57%) TOTAL PURCHASES ACCOUNTED FOR IN THE BOOKS OF ACCOU NT RS.3,24,13,274/- TOTAL COST OF SALES AS WORKED OUT BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER RS.1,95,75,634/- IN THE ABSENCE OF ANY QUANTITATIVE DETAILS, IT IS P RESUMED THAT OUT OF GOODS VALUING AT RS.1,95,75,634/-/-, THE ASSESSEE SOLD 84.57% OF GOOD S ON WHICH HE GOT DISCOUNT AND 15.43% OF GOODS ON WHICH HE DID NOT GET ANY DISCOUN T. 84.57 COST OF SALES OF GOODS RS. 1,65,55,114/- 15.43% COST OF SALES OF GOODS RS.30,20,520/- TOTAL COST OF SALES RS.1,95,75,634/- GROSS PROFIT @ 25.17% ON COST OF SALES OF RS.1,65,55 ,114/- RS.4166922/- GROSS PROFIT @15.43% ON COST OF SALES OF RS.30,20,52 0/- RS.4,66,066/- TOTAL GROSS PROFIT EARNED BY THE ASSESSEE RS.46,32,988/- LESS: DISCOUNT ALLOWED BY THE ASSESSEE RS.6025710/- BALANCE GROSS PROFIT (-) RS.13,92,721/- LESS: GROSS PROFIT DECLARED BY THE ASSESSEE RS.3,36,758/- UNDISCLOSED GROSS PROFIT EARNED BY THE ASSESSEE RS. NIL AS G.P DECLARED BY ASSESSEE IS MORE THAN FIGURE CALCULATED ABOVE. ASST. YEAR 2009-10 TOTAL PURCHASES MADE BY THE ASSESSEE. RS.7,11,65,750/- PURCHASES ON WHICH NO DISCOUNT WAS RECEIVED RS.1,14,55,914/- (16.1%) PURCHASES ON WHICH ASSESSEE GOT DISCOUNT RS.5,97,09,836/- RANGING FROM 10% TO 50% (83.9%) TOTAL PURCHASES ACCOUNTED FOR IN THE BOOKS OF ACCOU NT RS.7,11,65,750/- TOTAL COST OF SALES AS WORKED OUT BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER RS.6,34,43,718/- ITA NOS. 251 TO 253(ASR)/2014 ITA NO.346 TO 348(ASR)/2014 24 IN THE ABSENCE OF ANY QUANTITATIVE DETAILS, IT IS P RESUMED THAT OUT OF GOODS VALUING AT RS.6,34,43,718/-, THE ASSESSEE SOLD 83.9% OF GOODS O N WHICH HE GOT DISCOUNT AND 16.1% OF GOODS ON WHICH HE DID NOT GET ANY DISCOUNT. 83.9% OF COST OF SALES OF GOODS RS.5,32 ,29,279/- 16.1% OF COST OF SALES OF GOODS RS.1,02, 14,439/- TOTAL COST OF SALES RS.6,34,43,718/- GROSS PROFIT @ 24.29 % ON COST OF SALES OF RS.5,32,2 9,279/- RS.1,29,29,392/- GROSS PROFIT @16.5% ON COST OF SALES OF RS.1,02,14,4 39/- RS.16,85,382/- TOTAL GROSS PROFIT EARNED BY THE ASSESSEE RS.1,4614774/- LESS: DISCOUNT ALLOWED BY THE ASSESSEE RS.5803705/- BALANCE GROSS PROFIT RS.8811069/- LESS: GROSS PROFIT DECLARED BY THE ASSESSEE RS.15,61,570/- UNDISCLOSED GROSS PROFIT EARNED BY THE ASSESSEE RS.72,49,498/- ASST. YEAR 2010-11 TOTAL PURCHASES MADE BY THE ASSESSEE. RS.7,26,90,516/- PURCHASES ON WHICH NO DISCOUNT WAS RECEIVED RS.1,44,04,845/- (19.8%) PURCHASES ON WHICH ASSESSEE GOT DISCOUNT RS. 58285671/- RANGING FROM 10% TO 50% (80.2%) TOTAL PURCHASES ACCOUNTED FOR IN THE BOOKS OF ACCO UNT RS.7,26,90,516/- TOTAL COST OF SALES AS WORKED OUT BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER RS .7,49,67,934/- IN THE ABSENCE OF ANY QUANTITATIVE DETAILS, IT IS P RESUMED THAT OUT OF GOODS VALUING AT RS.74967934/-, THE ASSESSEE SOLD 83.9% OF GOODS ON W HICH HE GOT DISCOUNT AND 19.8% OF GOODS ON WHICH HE DID NOT GET ANY DISCOUNT. 80.2% OF COST OF SALES OF GOODS RS.6 0124283/- 19.8% OF COST OF SALES OF GOODS RS.1,4843651/- TOTAL COST OF SALES RS.74967934/- GROSS PROFIT @ 26.09 % ON COST OF SALES OF RS.601242 83 RS.15686425/- GROSS PROFIT @16.5% ON COST OF SALES OF RS.14843651 RS.2449202/- TOTAL GROSS PROFIT EARNED BY THE ASSESSEE RS.18135627/- LESS: DISCOUNT ALLOWED BY THE ASSESSEE RS.14407113/- BALANCE GROSS PROFIT RS. 3728514/- LESS: GROSS PROFIT DECLARED BY THE ASSESSEE RS.2693796/- UNDISCLOSED GROSS PROFIT EARNED BY THE ASSESSEE RS.1034718/- ITA NOS. 251 TO 253(ASR)/2014 ITA NO.346 TO 348(ASR)/2014 25 THE ORDERS OF LEARNED CIT(A) ARE MODIFIED TO THE EX TENT STATED ABOVE AND ADDITIONS ARE RESTRICTED TO THE AMOUNTS OF UNDISCLO SED GROSS PROFIT AS CALCULATED ABOVE. IN VIEW OF THE ABOVE THE APPEALS FILED BY ASSESSEE ARE PARTLY ALLOWED. 29. IN NUTSHELL THE APPEALS FILED BY THE ASSESSEE A RE PARTLY ALLOWED WHERE AS THE APPEALS FILED BY THE REVENUE ARE DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 17/02/2016. SD/- SD/- (A.D. JAIN) (T.S. KAPOOR) JUDICIAL MEMBER A CCOUNTANT MEMBER DATED:17/02/2016 /SKR/ COPY OF ORDER FORWARDED TO: 1. THE ASSESSEE 2. THE ITO 3. THE CIT(A), 4. THE CIT, 5. THE SR. DR, ITAT, ASR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH: AMRITSAR.