M/s Safari Bikes Ltd., Ludhiana V. JCIT (OSD), Ludhiana

ITA 253/CHANDI/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77128 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 2 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 01-04-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 06-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JYOTI KUMARI
• Keywords: Business income; Income from undisclosed sources; Additional evidence; Capital receipt; Capital expenditure
• Section: 69C; 69

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A, CHANDIGARH BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 253/CHD/2013 ASSESSMENT YEARS : 2009-10 SAFARI BIKES LTD VS. J.C.I.T (OSD) E-650, PHASE V CIRCLE I FOCAL POINT LUDHIANA LUDHIANA AAKCS 5909 D ITA NO. 474/CHD/2013 ASSESSMENT YEARS : 2009-10 D.C.I.T. CIRCLE I VS. SAFARI BIKES LTD LUDHIANA LUDHIANA (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI SUDHIR SEHGAL DEPARTMENT BY: SMT. J YOTI KUMARI DATE OF HEARING 1.5.2014 DATE OF PRONOUNCEMENT 29.5.2014 O R D E R PER T.R. SOOD, A.M THESE APPEALS ARE DIRECTED AGAINST THE ORDER OF LD. CIT(A) DATED 12.2.2013 RAISING COMMON ISSUES BY TH E ASSESSEE AND REVENUE AND THEREFORE SAME WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS COMMON ORDER. ITA NO. 253/CHD/2013 ASSESSEES APPEAL 2. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLO WING GROUNDS: 1 1. (A) THAT THE WORTHY COMMISSIONER OF INCOME TAX (APPEALS)-II, LUDHIANA HAS ERRED IN HOLDING THAT TH E REASONABLE OPPORTUNITY WAS PROVIDED TO THE APPELLANT DURING TH E COURSE OF ASSESSMENT PROCEEDINGS AS PER FINDING GIVEN BY HIM IN PARA 3.4 OF HIS ORDER. (B) THAT THE WORTHY CIT(A) HAS ERRED IN NOT CONSIDE RING THE FACT THAT ON ALL THE DATES AS MENTIONED BY THE LD. ASSESSING OFFICER, THE ASSESSEE HAS BEEN MAKING THE COMPLIANCES, FILING REQUISITE D ETAILS FROM TIME TO 2 TIME AND PHOTO COPIES OF THE IMPOUNDED DOCUMENTS (E XCLUDING THE LIST OF THE STOCK DRAWN AT THE TIME OF SURVEY AND THE ATTEN DANCE CARDS OF THE WORKERS) WERE GIVEN ON 19.12.2011 AND THE VERIFICAT ION STARTED THEREAFTER, ON SOME DATES AND FOR WHICH THE DUE COM PLIANCE WAS MADE. (C) THAT THE WORTHY CIT(A) HAS IGNORED THE FACT THA T SHOW CAUSE NOTICE HAD BEEN ISSUED ON 29.11.2011 AND THE DELAY IN ISSUING THE SHOW CAUSE NOTICE WAS NOT ATTRIBUTABLE TO THE ASSESSEE, SINCE THE PROCESS OF VERIFICATION OF IMPOUNDED DOCUMENTS COULD HAVE BEEN STARTED BY THE LD. ASSESSING OFFICER EARLIER AS WELL AND, THUS, UNDER SUCH CIRCUMSTANCES, THE FINDING OF THE WORTHY CIT(A) IN PARA 3.4 IS TOT ALLY UNJUSTIFIED. (D) THAT THE FINDING OF THE WORTHY CIT(A) IN PARA 3 .4 IS UNJUSTIFIED ALSO FOR THE REASON THAT NEITHER ANY CASE OF NON-CO MPLIANCE OF ANY STATUTORY NOTICE HAS BEEN MADE OUT BY THE LD. ASSES SING OFFICER NOR ANY PENALTY U/S 271(1)(B) HAS BEEN INITIATED / LEVIED B Y THE LD. ASSESSING OFFICER. 2. THAT THE WORTHY CIT(A) HAS ERRED IN HOLDING THAT THE CAPITAL SUBSIDY OF RS. 17,75,000/- AS RECEIVED BY THE APPEL LANT IS A REVENUE RECEIPT, THOUGH, THE WORTHY CIT(A) HAS AGREED THAT AS PER THE SCHEME OF PUNJAB GOVT., IT WAS A CAPITAL SUBSIDY. 3. THAT THE WORTHY CIT(A) HAS ERRED IN CONFIRMING T HE ADDITION OF RS. 80,153/- U/S 36(1)(III) OF THE INCOME TAX ACT, 1961 AS PER FINDING GIVEN IN PARA 7.5 OF HIS ORDER. 4. (A) THAT THE WORTHY CIT(A) HAS ERRED IN CONFIRMI NG THE ADDITION OF RS. 43,69,886/-, OUT OF THE ADDITION OF RS. 86,5 7,239/- AS MADE BY THE LD. ASSESSING OFFICER ON ACCOUNT OF ALLEGED SALARY AND WAGES OUTSIDE THE BOOKS OF ACCOUNTS. (B) THE WORTHY CIT(A) HAS FAILED TO CONSIDER THAT THE WAGES / SALARY OF THE WORKERS HAD BEEN DULY RECORDED IN THE REGULA R BOOKS OF ACCOUNTS AND WHICH WERE VERIFIED BY THE LD. ASSESSING OFFICE R DURING THE COURSE OF REMAND PROCEEDINGS. (C) THAT THE WORTHY CIT(A) HAS FAILED TO CONSIDER THE FACT THAT THE LD. A.O. HAS WRONGLY EXTRAPOLATED THE AMOUNT OF WAGES F OR THE WHOLE YEAR ON THE BASIS OF IMPOUNDED ATTENDANCE CARDS OF TWO M ONTHS I.E. AUGUST & SEPTEMBER, 2008. (D) THAT THE CONFIRMATION OF THE PART ADDITION BY THE WORTHY CIT(A) AND THE MANNER OF CONFIRMING THE SAME IS AGAINST TH E FACTS AND CIRCUMSTANCES OF THE CASE. 5. THAT THE WORTHY CIT(A) HAS ERRED IN CONFIRMING T HE ADDITION OF RS. 2,13,48,943/- AS PER PAGE 47 OF THE ORDER AND WHICH HE HAS PARTLY CONFIRMED BY ADJUDICATING THE GROUND OF APPEAL NO. 7(VII) TO 7 (XI) STARTING FROM PAGE 34 OF THE ORDER AND THE ABOVE CO NFIRMATION OF THE PART ADDITION IS AGAINST THE FACTS AND CIRCUMSTANCES AS UNDER:- (A) THE FINDING OF THE WORTHY CIT(A) REGARDING THE ALLEGED SALES OUTSIDE THE BOOKS OF ACCOUNTS AS GIVEN AT PAGE 45 P ARA (I) IS TOTALLY AGAINST HE FINDING GIVEN IN THE REMAND REPORT OF TH E LD. ASSESSING OFFICER THAT ALL SUCH SALES AS PER C-FORM REGISTER HAD BEEN FOUND TO BE MATCHING WITH THE SALES REFLECTED IN THE BOOKS OF A CCOUNTS WHICH FINDINGS HAVE BEEN REPRODUCED IN PARA 9.6 AT PAGE 40 OF THE ORDER. (B) THE WORTHY CIT(A) HAS ALSO ERRED IN NOT CONSID ERING THE REMAND REPORT WHEREIN, NO OBJECTION HAS BEEN RAISED BY THE LD. ASSESSING OFFICER WITH REGARD TO THE EXPLANATION / EVIDENCE T ENDERED BY THE APPELLANT IN RESPECT OF THE DISCREPANCIES IN THE VA LUATION OF STOCK AS MADE BY THE LD. ASSESSING OFFICER EARLIER WHILE FRA MING THE ASSESSMENT AND THE OBSERVATION OF THE CIT (A) AT PAGE 45 PARA (II) IS AGAINST THE FACTS AND CIRCUMSTANCES OF THE CASE. 3 (C) THE WORTHY CIT(A) HAS ALSO ERRED IN GIVING THE FINDING IN PARA 45 (III) THAT THE APPELLANT HAD DEPLOYED THE LABOUR NO T ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS, WHICH IS CONTRARY TO THE FINDING GIVEN BY THE LD. ASSESSING OFFICER IN THE REMAND REPORT. (D) THE FINDING OF THE WORTHY CIT(A) THAT NO STOCK OF CYCLES WAS LYING IN THE GODOWN IN MADHYA PRADESH AND THE AGREEMENT B ETWEEN THE APPELLANT AND ITS AGENT IS A SHAM ARRANGEMENT, IS A GAINST THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS THE OBSERVATIO N MADE IN THE REMAND REPORT BY THE LD. ASSESSING OFFICER. 6. THAT THE CONFIRMATION OF ADDITION BY ESTIMATING THE SALES AT RS. 8,74,24,010/- BY APPLYING THE G.P. RATE OF 24.42% A ND WORKING OUT THE ALLEGED UNACCOUNTED INCOME OF RS. 2,13,48,943/- IS AGAINST THE FACTS AND CIRCUMSTANCES OF THE CASE. 7. THAT THE WORTHY CIT(A) HAS FAILED TO CONSIDER TH E OBSERVATION AND FINDING OF THE ASSESSING OFFICER IN THE REMAND REPO RT ON THE ISSUE OF VERIFICATION OF C-FORM, ATTENDANCE CARDS AND STOCKS . ITA NO. 474/CHD/2013 REVENUE APPEAL 3 IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLOW ING GROUNDS: I) THAT THE LD. CIT(A) HAS ERRED IN LAW IN RESTRIC TING THE ADDITION FROM RS. 8652339/- TO RS. 4369886/- MADE B Y THE ASSESSING OFFICER U/S 69C INCOME -TAX ACT, 1961. II) THAT THE LD. CIT(A) HAS ERRED IN LAW IN RESTRIC TING THE ADDITION FROM RS. 42309315/- TO RS. 21348943/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF SALES OUTSIDE THE B OOKS OF ACCOUNTS. III) THAT THE ORDER OF THE LD. CIT(A) BE SET ASIDE AND THAT OF ASSESSING OFFICER BE RESTORED. 4 OUT OF ABOVE GROUNDS, THE ASSESSEE DID NOT PRESS GROUND NO. 3 BEFORE US AND THEREFORE SAME IS BEING DISMISS ED AS NOT PRESSED. 5 THE ASSESSEE IN GROUND NO. 1 HAS RAISED A GENERAL ISSUE AGAINST THE OBSERVATION OF THE LD. CIT(A) IN PARA 3 .4 WHICH IS AS UNDER: I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. IT IS APPARENT FROM THE DETAILS OF OPPORTUNITIES PROVIDED BY THE A SSESSING OFFICER THAT SUFFICIENT OPPORTUNITIES WERE PROVIDED TO THE APPELLANT TO SUBMIT EVIDENCE IN SUPPORT OF ITS CONTENTION AND RE QUISITE DETAILS CALLED FOR BY THE ASSESSING OFFICER. THE CONTENTIO N OF THE APPELLANT THAT REASONABLE OPPORTUNITY WAS NOT PROVI DED IS THEREFORE WITHOUT ANY BASIS AND IS NOT SUSTAINABLE. THESE GROUNDS OF APPEAL ARE ACCORDINGLY DISMISSED. 4 IT WAS MAINLY CONTENDED WITH REFERENCE TO PAGE 812 TO 819 WHICH IS A COPY OF THE NOTING SHEET DURING ASSESSME NT PROCEEDINGS THAT THE ASSESSEE HAD MADE APPEARANCE O N WHATEVER DATES GIVEN BY THE ASSESSING OFFICER AND F ILED VARIOUS DETAILS AS CALLED FOR WHICH HAVE ALSO BEEN INCLUDED IN THE PAPER BOOK. IT WAS CONTENDED THAT A SURVEY WAS CON DUCTED IN THE PREMISES OF THE ASSESSEE ON 24.9.2008 BUT VARIO US DOCUMENTS IMPOUNDED DURING SURVEY WERE EXAMINED FRO M 15.12.2011. BEFORE THAT VARIOUS DATES WERE GRANTED TO THE ASSESSEE BUT THE ASSESSING OFFICER DID NOT BOTHER TO LOOK AT THE DOCUMENTS. THE ISSUE REGARDING VALUE OF CLOSIN G STOCK WAS NEVER CONFRONTED TO THE ASSESSEE AND A FINAL QUESTI ONNAIRE WAS ISSUED ON 29.12.2011 AND THE ASSESSEE WAS ASKED TO GIVE RESPONSE ON 30.12.2011. THE ASSESSEE APPEARED AT A BOUT 12 OCLOCK ON 30.12.2011 WITH A REPLY WHICH WAS NOT TA KEN AND THE ASSESSMENT ORDER WAS FINALIZED. THEREFORE FINDING OF THE LD. CIT(A) IS TOTALLY MISCONCEIVED THAT THE ASSESSEE WA S GIVEN SUFFICIENT OPPORTUNITY. 6 ON THE OTHER HAND, THE LD. D.R. FOR THE REVENUE SUBMITTED THAT THE ASSESSEE HAS BEEN PROVIDED ADEQU ATE OPPORTUNITY DURING REMAND PROCEEDINGS WHICH CANNOT BE DENIED NOW. IN ANY CASE THIS ISSUE IS OF ONLY ACADEMIC NA TURE. 7 WE HAVE GONE THROUGH THE RIVAL SUBMISSIONS CAREFU LLY AND FIND THAT THE MAIN GRIEVANCE OF THE ASSESSEE IS THA T THE DOCUMENTS FOUND DURING SEARCH WERE EXAMINED ONLY AF TER 15.12.2011 I.E. AT FAG END OF THE ASSESSMENT AND TH E MAIN ISSUE ON WHICH SUBSTANTIAL ADDITION HAS BEEN MADE I N RESPECT OF VALUE OF CLOSING STOCK LEADING TO THE ADDITION ON ACCOUNT OF UNDISCLOSED SALES, WAS ONLY CONFRONTED TO THE ASSES SEE VERY 5 LATE. HOWEVER, THE LD. COUNSEL FOR THE ASSESSEE ADM ITTED DURING THE HEARING THAT SUFFICIENT OPPORTUNITY WAS GIVEN DURING ASSESSMENT PROCEEDINGS. IN VIEW OF THIS FACT, IN O UR OPINION, THIS GROUND IS ONLY OF ACADEMIC NATURE AND NOTHING TURNS ON AND THEREFORE IT MAY NOT BE APPROPRIATE FOR US TO C OMMENT ON ANY FINDING ON THIS ISSUE. HOWEVER, WE WILL TAKE T HIS OPPORTUNITY TO EMPHASIZE THAT REVENUE HAD CONDUCTED A SURVEY ON 24.9.2008 AND HEARING OF THE CASE ALSO STARTED F ROM 26.8.2010 THEN REVENUE SHOULD HAVE TAKEN CAUTION OF STARTING INVESTIGATION FROM THAT DATE ITSELF. 8 GROUND NO. 2 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS IT WAS NOTICED THAT A SSESSEE HAD RECEIVED A SUBSIDY OF RS. 17,75,000/- WHICH WAS TREATED AS CAPITAL SUBSIDY. THE ASSESSEE WAS ASKED TO JUSTIFY THIS CLAIM. IN RESPONSE IT WAS MAINLY STATED THAT SUBSIDY WAS R ECEIVED BY THE ASSESSEE-COMPANY FROM DIRECTOR OF INDUSTRIES, P UNJAB UNDER INDUSTRIAL POLICY 1996 OF PUNJAB GOVERNMENT. COPY OF SANCTION LETTER ETC. WERE FILED. IT WAS PLEADED THA T SIMILAR SUBSIDY HAS BEEN RECEIVED BY HUNDREDS OF INDUSTRIAL UNITS SET UP IN FOCAL POINT, LUDHIANA WHICH HAS BEEN TREATED AS CAPITAL RECEIPT BY THE DEPARTMENT. IT WAS FURTHER SUBMITTE D THAT SUBSIDY WAS GRANTED BY THE GOVERNMENT OF PUNJAB TO BOOST THE INDUSTRIAL GROWTH. FOR CONSIDERING THE SUBSIDY AS CAPITAL RECEIPT RELIANCE WAS ALSO PLACED ON THE DECISION OF HON'BLE SUPREME COURT IN CASE OF CIT VS. PONNI SUGARS AND C HEMICALS LTD, 306 ITR 392 (S.C). THE ASSESSING OFFICER OBSE RVED THAT IN THE LIGHT OF THE DECISION OF HON'BLE PUNJAB AND HAR YANA HIGH COURT IN CASE OF JAMNADASS RAMESHWARDASS, 21 ITR 1 09 THAT THERE CANNOT BE ANY ESTOPPEL IN SUCH MATTERS, THERE FORE THE 6 REVENUE HAS RIGHT TO INVESTIGATE THE ISSUE IN EACH CASE ON ITS OWN MERITS. THEN THE ASSESSING OFFICER WENT ON TO EXAMINE THE SCHEME AND NOTED THAT THE SCHEME WAS APPLICABLE AT POST PRODUCTION STAGE AND THAT AN INDUSTRY BECOMES ELIGI BLE ONLY AFTER SAME IS STARTED. IT IS ONLY THE MAXIMUM LIMI T WHICH HAS BEEN FIXED WITH REFERENCE TO INVESTMENT OF CAPITAL. THE SCHEME PROVIDED FOR ENTITLEMENT OF 20% OF THE AMOUNT OF IN VESTMENT SUBJECT TO LIMIT OF RS. 30 LAKHS WHICH MEANS THAT T HE AMOUNT WAS GIVEN ON PERCENTAGE BASIS BUT THE SAME WAS NOT TO COMPENSATE CAPITAL EXPENDITURE THE SCHEME WAS APP LICABLE TO WHOLE OF THE STATE AND NOT IN A SPECIFIC AREA. HE FURTHER RELIED ON VARIOUS DECISIONS INCLUDING THE DECISION OF HON'BLE SUPREME COURT IN CASE OF SAHNEY STEEL AND PRESS WOR KS LTD VS. CIT, 228 ITR 253 (S.C) AND HELD THAT SUBSIDY RE CEIVED WAS OF A REVENUE NATURE AND ACCORDINGLY SAME WAS SUBJEC T TO TAX. 9 ON APPEAL BEFORE THE LD. CIT(A) COPY OF THE INDUS TRIAL POLICY WAS FILED AND SUBMISSIONS MADE BEFORE THE AS SESSING OFFICER WERE REITERATED. IT WAS FURTHER POINTED OU T THAT IN PARA 6 OF THE INDUSTRIAL POLICY, IT HAS BEEN CLARIFIED T HAT SUBSIDY IS CAPITAL SUBSIDY. IT WAS ALSO POINTED OUT THAT TH E DECISION OF HON'BLE APEX COURT IN CASE OF SAHNEY STEEL AND PRES S WORKS LTD VS. CIT (SUPRA) HAS ALREADY BEEN DISTINGUISHED BY THE HON'BLE SUPREME COURT IN CASE OF CIT VS. PONNI SUGA RS AND CHEMICALS LTD, (SUPRA) WHEREIN IT HAS BEEN HELD THA T POINT OF RECEIPT OF SUBSIDY IS NOT RELEVANT. 10 THE LD. CIT(A) EXAMINED THE SUBMISSIONS AND AGRE ED WITH THE FINDINGS OF THE ASSESSING OFFICER THAT THE SUBS IDY WAS APPLICABLE IN POST PRODUCTION. IT WAS COMPUTED ON T HE BASIS OF INVESTMENT BUT THAT DOES NOT MEAN IT RELATE TO THE INVESTMENT 7 ETC. THE LD. CIT(A) ALSO RELIED ON VARIOUS DECISIO NS INCLUDING SAHNEY STEEL AND PRESS WORKS LTD VS. CIT (SUPRA), C IT VS. RAJARAM MAIZE PRODUCTS, 251 ITR 427 (S.C) AND CIT V S. ABHISHEK INDUSTRIES, 286 ITR 1. IN THIS BACKGROUND HE DISMISSED THIS GROUND. 11 BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE POIN TED OUT THAT SUBSIDY WAS SANCTIONED IN 1999 BUT WAS RECEIVE D DURING THE YEAR. HE THEN REFERRED TO VARIOUS DOCUMENTS IN CLUDING INDUSTRIAL POLICY AND POINTED OUT THAT ASSESSEE WAS REGISTERED AS A SMALL SCALE INDUSTRY ON 12.11.1998. THE ASSES SEE HAD MADE AN INVESTMENT OF RS. 70.60 LAKHS IN PLANT & MA CHINERY AGAINST WHICH SUBSIDY WAS ALLOWED. HE FURTHER POIN TED OUT THAT DECISION RELIED ON BY THE LD. CIT(A) ARE DISTINGUIS HABLE IN VIEW OF THE DECISION OF HON'BLE SUPREME COURT IN CASE OF CIT VS. PONNI SUGARS AND CHEMICALS LTD, (SUPRA). FURTHER H ON'BLE PUNJAB AND HARYANA HIGH COURT IN A RECENT DECISION IN CASE OF CIT VS. SIYA RAM GARG, 49 DTR PAGE 126 (PH) WHEREIN IT HAS BEEN HELD THAT SUBSIDY RECEIVED BY THE ASSESSEE FOR SETTING UP AGRO BASED INDUSTRY IN BACKWARD AREA IS OF CAPITAL NATURE. AT THIS JUNCTURE THE BENCH POINTED OUT TO THE LD. COUN SEL FOR THE ASSESSEE THAT RECENTLY THE BENCH HAD DELIVERED A DE CISION IN CASE OF VARDHMAN ACRYLICS LTD VS. ADDL CIT, ITA NO. 773/CHD/2012 WHEREIN SUBSIDY WAS HELD TO BE OF REVE NUE NATURE. THE LD. COUNSEL FOR THE ASSESSEE HAD TAKEN A SHORT ADJOURNMENT AND LATER ON POINTED OUT THAT IT HAS DI STINGUISHING FEATURES IN CASE OF VARDHMAN ACRYLICS LTD VS. ADDL CIT (SUPRA). HE SUBMITTED THAT IN CASE OF VARDHMAN ACRYLICS LTD VS. ADDL CIT (SUPRA) THE SUBSIDY WAS RELATED TO SALE TAX SUB SIDY WHICH IS DEFINITELY FOR AUGMENTATION OF PROFITS. FURTHER THERE WERE 8 CERTAIN FEATURES WHICH WERE REQUIRED TO BE COMPLIED AND FEATURES WERE CONTRIBUTION OF 2% OF THE SALES TAX I NCENTIVES AND 3% OF DEFERRED AMOUNT TO GOKUL GRAM YOJNA. IN A NY CASE THE DECISION IN CASE OF VARDHMAN ACRYLICS LTD VS. A DDL CIT (SUPRA) WAS TAKEN BY BENCH ON SIMILAR ISSUE IN ASSE SSEES OWN CASE IN THE EARLIER YEARS. 12 ON THE OTHER HAND, THE LD. D.R. FOR THE REVENUE STRONGLY SUPPORTED THE ORDER OF THE LD. CIT(A) AND SUBMITTED THAT SUBSIDY WAS NOT RESTRICTED TO A PARTICULAR AREA. S HE REFERRED TO VARIOUS OBSERVATIONS BY THE LD. CIT(A) AND SUPPORTE D THE SAME. SHE ALSO RELIED ON THE DECISION OF ABHISHEK INDUSTRIES (SUPRA) AND CIT VS. KISAN SAHKARI CHINI MILLS LTD, 318 ITR 218 (UTTRAKHAND). 13 WE HAVE GONE THROUGH THE RIVAL SUBMISSIONS CAREF ULLY AND FIND FORCE IN THE SUBMISSIONS OF THE LD. COUNSEL FO R THE ASSESSEE. COPY OF INDUSTRIAL SCHEME HAS BEEN FILED AT PAGE 841 TO 862 OF THE PAPER BOOK. IT HAS BEEN STATED I N THE POLICY THAT GOVERNMENT OF PUNJAB HAS FORMULATED NEW INDUST RIAL POLICY 1996 WHICH OFFERS FRESH INCENTIVE FOR THE DEVELOPME NT OF INDUSTRY IN THE STATE OF PUNJAB. OBJECTS OF THE PO LICY ARE AS UNDER: 1 ATTRACTING FRESH INVESTMENT TO FURTHER BOOST THE GROWTH OF INDUSTRY IN THE STATE 2 AVOIDING MULTIPLICITY OF INCENTIVES SO THAT THEY ARE EASY TO INTERPRET AND ADMINISTER 3 OFF-SETTING THE LOCATIONAL DISADVANTGES OF THE ST ATE 4 CREASTING MORE JOB OPPORTUNITIES FOR THE YOUTH IN THE BORDER DISTRICT THR9OUGH INCREASED INVESTMENT IN INDUSTRIA L SECTOR. FROM PAGE 854 ONWARDS A COPY OF THE SCHEME IS ENCLO SED WHICH LAYS DOWN ELIGIBILITY CRITERIA OF THE SUBSIDY AND OTHER PROCEDURAL MATTERS. PARA 6 OF THE SCHEME STARTS AS INCENTIVES 9 TO SMALL SCALE INDUSTRY UNITS AND THEN PARA 6.1 ST ARTS INVESTMENT INCENTIVES (CAPITAL SUBSIDY). THIS ITS ELF SHOWS THAT SUBSIDY WAS FOR TERMED IN THE NATURE OF CAPITAL NAT URE. IN THE ELIGIBILITY CRITERIA IT HAS BEEN PROVIDED TO INCLUD E THE VALUE OF LAND, BUILDING, PLANT & MACHINERY AND OTHER ITEMS A ND VARIOUS CONDITIONS HAVE BEEN LAID DOWN UNDER THE HEAD QUAN TUM OF ENTITLEMENT IT IS MENTIONED THAT IN THE A CATEGOR Y AREA 30% OF FIXED CAPITAL INVESTMENT SUBJECT TO RS. 50 LAKHS AN D IN CASE B CATEGORY AREA 20% OF THE FIXED CAPITAL INVESTMENT S UBJECT TO 30% WAS ELIGIBLE. IN PARA 13 WHICH DEALS WITH INCEN TIVES TO EXPORT ORIENTED UNIT IT IS PROVIDED INTER-ALIA AS U NDER: INCENTIVES TO EXPORT ORIENTED UNIT I) ELIGIBILITY EXPORT ORIENTED UNITS AS DEFINED UNDER RULE 2.22 SH ALL BE ENTITLED TO THE INCENTIVES MENTIONED BELOW: II) INCENTIVES A) INVESTMENT INCENTIVE @ 30% OF FIXED CAPITAL INVE STMENT SUBJECT TO MAXIMUM OF RS. 50 LAKHS IN CASE OF EXPOR T ORIENTED UNITS IN SMALL SCALE SECTOR, WHICH WOULD B E SANCTIONED AS PRESCRIBED UNDER RULE 6.1. HOWEVER, IN CASE OF EXPORT ORIENTED UNITS IN LARGE & MEDIUM SECTOR T HE QUANTUM OF INVESTMENT INCENTIVE SHALL BE AS PER RUL E 6.1(B). FURTHER THE ASSESSEE IS ADMITTEDLY A REGISTERED SMA LL SCALE INDUSTRY AND WAS REGISTERED AS EXPORT ORIENTED UNIT ON 8.6.1999 WHICH BECOMES CLEAR FROM THE CERTIFICATE OF REGISTR ATION PLACED AT PAGE 871 OF PAPER BOOK. PAGE 876 GIVES LIST OF MACHINERY INSTALLED BY THE ASSESSEE. THUS IT BECOMES CLEAR TH AT SUBSIDY WAS PROVIDED TO THE EXPORT ORIENTED UNIT UNDER WHIC H CATEGORY THE ASSESSEE BECAME ELIGIBLE AND SUBSIDY WAS FOR IN STALLATION OF PLANT & MACHINERY WHICH HAS BEEN INSTALLED BY TH E ASSESSEE. 14 THOUGH RECENTLY WE HAVE HELD IN CASE OF VARDHMAN ACRYLICS LTD (SUPRA) WHERE THE ASSESSEE HAS RECEIVE D SALES TAX SUBSIDY FROM THE GOVERNMENT OF GUJARAT THAT SAME IS IN THE 10 NATURE OF REVENUE SUBSIDY BUT THAT DECISION IS DIST INGUISHABLE BECAUSE FIRSTLY NATURE OF THE SUBSIDY DEFINED AS CA PITAL SUBSIDY WHICH WAS GRANTED AGAINST THE INSTALLATION OF PLANT & MACHINERY. IN CASE OF VARDHMAN ACRYLICS LTD (SUPRA ) THE NATURE OF SUBSIDY WAS SALES TAX SUBSIDY WHICH IS PA YABLE FROM YEAR TO YEAR BY WAY OF EXEMPTION FROM SALES TAX WHE REAS IN THE CASE BEFORE US, IT IS ONE TIME INCENTIVE FOR SETTIN G UP OF THE INDUSTRY. THE SUBSIDY HAS BEEN RECEIVED AS PER IND USTRIAL POLICY OF THE GOVERNMENT OF PUNJAB 1996. NO CONDIT IONS WERE IMPOSED BY THE GOVERNMENT OF PUNJAB FOR GRANT OF SU BSIDY EXCEPT FOR INSTALLATION OF PLANT & MACHINERY WHEREA S IN THE SCHEME GIVEN BY GUJARAT GOVERNMENT VARIOUS CONDITIO NS WERE ALSO IMPOSED. THE DECISION IN CASE OF VARDHMAN ACR YLICS LTD (SUPRA) WAS ALSO TAKEN BECAUSE IN THE EARLIER YEARS ON SIMILAR ISSUE, THE ISSUE WAS DECIDED AGAINST THE ASSESSEE W HEREAS IN THE PRESENT CASE, IT IS FIRST TIME THAT THE ISSUE O F SUBSIDY HAS BEEN RAISED. 15 AS FAR AS DECISION RELIED ON BY THE LD. CIT(A) I S CONCERNED, WE ARE OF THE OPINION THAT THE DECISIONS RELIED ON IN CASE OF SAHNEY STEEL AND PRESS WORKS LTD VS. CIT (S UPRA) IS DISTINGUISHABLE BY THE OBSERVATION OF HON'BLE SUPRE ME COURT IN CASE OF CIT VS. PONNI SUGARS AND CHEMICALS LTD, (SU PRA). IT WAS CLEARLY HELD IN THAT CASE THAT MOST IMPORTANT T HING FOR DETERMINATION OF THE NATURE OF SUBSIDY IS THE OBJEC T OF THE SUBSIDY. IT WAS FURTHER OBSERVED THAT POINT OF TIM E OF RECEIPT IS NOT RELEVANT. AS WE HAVE SEEN ABOVE THE OBJECT OF THE SUBSIDY IN THE PRESENT CASE IS TO ENCOURAGE THE SETTING UP OF NEW INDUSTRY IN THE STATE OF PUNJAB. FURTHER THE HON'BL E PUNJAB AND HARYANA HIGH COURT IN CASE OF CIT VS. SIYA RAM GARG (HUF) 11 WHERE THE SUBSIDY WAS RECEIVED FOR SETTING UP OF A GRO INDUSTRY IN THE BACKWARD AREA WAS HELD TO BE OF CAPITAL NATU RE AFTER CONSIDERING VARIOUS DECISIONS INCLUDING THE DECISIO N OF ABHISHEK INDUSTRIES (SUPRA) AND SAHNEY STEEL AND PR ESS WORKS LTD VS. CIT (SUPRA) OF HON'BLE SUPREME COURT. ONLY DISTINGUISHING FEATURE FROM THIS DECISION IS THAT I N THIS CASE SUBSIDY WAS PROVIDED FOR SETTING UP OF INDUSTRY IN THE BACKWARD AREA BUT IN OUR OPINION, THAT IS NOT IMPORTANT BECA USE IF THE GOVERNMENT OF PUNJAB DECIDED TO ENCOURAGE THE INDUS TRY AND PARTICULARLY SMALL SCALE INDUSTRY IN THE WHOLE STAT E THEN NATURE OF SUCH SUBSIDY WOULD NOT CHANGE. IN CASE BEFORE U S, THE SUBSIDY WAS GIVEN IN THE CATEGORY OF SMALL SCALE IN DUSTRY AND UNDER FURTHER SUB HEAD EXPORT ORIENTED UNITS. THE S UBSIDY IS DIRECTLY RELATED TO PLANT & MACHINERY. THEREFORE IN OUR OPINION, IN THIS BACKGROUND THE SUBSIDY IS CLEARLY OF CAPITAL NATURE AND ACCORDINGLY WE SET ASIDE THE ORDER OF TH E LD. CIT(A) AND HOLD THAT SUBSIDY RECEIVED BY THE ASSESSEE FROM GOVERNMENT OF PUNJAB IS IN NATURE OF CAPITAL RECEIP T. 16 NEXT ISSUE RAISED THROUGH GROUND NO. 4 PERTAINS TO ADDITION ON ACCOUNT OF VARIOUS WORKERS EMPLOYED BY THE ASSESSEE. THE ASSESSING OFFICER HAD MADE ADDITION OF RS. 86,57,239/- WHICH HAS BEEN REDUCED BY THE LD. CIT(A ) TO RS. 43,69,886/-. THE ASSESSEE HAS FILED THE APPEAL THR OUGH GROUND NO. 4 FOR THIS ADDITION AND REVENUE HAS CHALLENGED THE ORDER OF THE LD. CIT(A) FOR DELETING THE PART OF THE ADDITIO N. 17 BRIEF FACTS OF THE CASE IN RESPECT OF THIS ISSU E ARE THAT DURING SURVEY EMPLOYEES DRAWING SALARY AND WAGES WE RE PHYSICALLY COUNTED AND IT WAS FOUND THAT 122 PERSO NS WERE PRESENT. UPTO THE DATE OF SURVEY TOTAL SALARY AND WAGES PAID 12 WAS RS. 2281250/- FOR WHICH A LIST HAS BEEN GIVEN B Y THE ASSESSING OFFICER AT PAGE 12 TO 15 OF ASSESSMENT OR DER. ON THE BASIS OF THIS LIST AVERAGE SALARY/WAGES PER PERSON WAS CALCULATED AT RS. 18699/-. FURTHER DURING SURVEY S OME MORE ATTENDANCE CARDS WERE FOUND AND SUCH WORKERS WERE N OT PRESENT. FOR SUCH WORKERS A LIST OF 141 PERSONS HA S BEEN GIVEN AT PAGE 15 TO 18 OF THE ASSESSMENT ORDER. DU RING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER OBSERV ED THAT SALARY AND WAGES WOULD BE ALLOWED FOR THE PERSONS P RESENT AND CALCULATED TOTAL PAYMENT AS UNDER: SALARY/ WAGES PAID AS PER PHYSICAL LIST RS. 22,81,2 50/- NO. OF PERSONS AS PER PHYSICAL LIST 122 AVERAGE SALARY / WAGES AS PER PHYSICAL LIST FOR 5 M ONTHS RS. 18,699/- NO. OF EXCESS WORKERS AS PER ATTENDANCE CARDS 141 AVERAGE SALARY / WAGES RS. 18,699/- SALARY / WAGES PAID AS PER ATTENDANCE CARDS RS. 26, 36,599/- HE FURTHER OBSERVED THAT THE ASSESSEE-COMPANY HAS S HOWN SALARY EXPENSES AT RS. 6217164/- AND WAGES AT RS. 4 565854/- TOTALING TO RS. 1,07,83,080/- WHICH WAS 3.953 TIMES OF THE SALARY AND WATGES AS ON 24.9.2008 AND SHE APPLIED S AME RATIO AND COMPUTED THE DISALLOWANCE AS UNDER: HENCE APPLYING THE SAME RATIO ANNUAL SALARY AND WA GES EXPENSES ON THE BASIS OF NUMBER OF PERSONS FOUND TO BE PHYSICAL LY WORKING AND AS PER ATTENDANCE CARDS COMES TO RS. 1,94,40,257/- (491784 9 X 3.953). THEREFORE EXCESS UNACCOUNTED SALARY PAID OUT OF BOO KS IS RS. 86,57,239/- 18 ON APPEAL IT WAS MAINLY SUBMITTED THAT CERTAIN A TTENDANCE CARDS WERE THERE WHICH WERE CONFRONTED TO THE ASSES SEE ON 29.12.2011 WITHOUT GIVING ANY COPIES, THEREFORE IT WAS NOT POSSIBLE TO GIVE ANY REPLY. STILL THE ASSESSEE HAS GIVEN FOLLOWING REPLY ON 13.12.2011 WHICH IS AS UNDER: II) NOW, WE HAVE RECEIVED THE PHOTOSTAT COPIES ON 1 6.03.2012 AND AFTER PERUSING THE ATTENDANCE CARDS, OUT OF 141 CAR DS, WE HAVE TRIED TO 13 MATCH THE SAME AS PER BOOKS OF ACCOUNTS AND IT HAS BEEN A DIFFICULT TASK, BECAUSE IN SOME OF ATTENDANCE CARDS, NO YEAR HAS BE EN MENTIONED. THEREFORE, THE POSSIBILITIES OF ATTENDANCE CARDS FO R THE EARLIER YEARS CANNOT BE RULED OUT. HOWEVER, ASSUMING THAT TO BE T HE ATTENDANCE CARDS FOR THE FINANCIAL YEAR 2008-09, WE HAVE BEEN ABLE T O RECONCILE THE SAME AND FOR THAT A SEPARATE CHART IS BEING FILED HEREWI TH EXPLAINING THE NATURE EACH AND EVERY CARD. COPY ENCLOSED. III) IT IS BEING CLARIFIED IN THE CHART WHICH IS BE ING FILED HEREWITH THAT MOST OF THE CARDS RELATE TO THE MONTH OF AUGUST, 2 008 AND EVEN SOME OF THE ATTENDANCE CARDS HAVE BEEN REPEATED AND EVEN BY A LOOK AT THE CONDITIONS OF THE CARDS, SOME OF THE CARDS APPEAR T O BE FOR THE EARLIER YEAR. EVEN OTHERWISE, FOR GETTING CERTAIN JOB WORK, WE HAVE ENGAGED CONTRACTORS AS AND WHEN REQUIRED FOR THE PURPOSE OF BUSINESS, WHO WOULD SUPPLY THE LABOUR TO US AND THEIR ATTENDANCE CARDS WERE ALSO FOUND ALONG WITH ATTENDANCE CARDS RELATING TO OUR BUSINES S AND, SUCH PAYMENTS TO THE CONTRACTORS HAVE BEEN MADE FROM THE BOOKS OF ACCOUNTS AFTER DEDUCTING THE TDS, WHEREVER, APPLICABLE, DETAIL OF SUCH PAYMENT TO THE CONTRACTORS FOR DEPLOYMENT OF THE LABOUR IS BEING F ILED HEREWITH FOR THE FINANCIAL YEAR 2008-09. IV) THEREFORE, THE ESTIMATION OF ANY PAYMENT OUTSID E THE BOOKS OF ACCOUNTS ON THE BASIS OF SUCH ATTENDANCE CARDS AS U NACCOUNTED PAYMENT OF SALARY AND WAGES IS WHOLLY UNJUSTIFIED AND THE F ORMULA AS DEVELOPED BY THE ASSESSING OFFICER WILL NOT STAND TO TEST OF EVIDENCE AS FURNISHED BY US. EVEN OTHER WISE, IT MAY BE STATED THAT THE V ERY BASIS OF ESTIMATION IS NOT JUSTIFIED BECAUSE, THE SURVEY WAS CONDUCTED ON 26.09.2008 AND ANY EXPENDITURE U/S 69 C COULD HAVE BEEN ESTIMATED ONLY UPTO THE DATE OF SURVEY AND NOT OF ANY LATER DATE AND THE ASSESSI NG OFFICER IS NOT AN ASTROLOGER TO PREDICT SOMETHING, WHICH HAS NEVER HA PPENED OR WHICH IS NOT GOING TO HAPPEN AND, THEREFORE, THE WHOLE BASIS OF ADDITION MADE BY THE ASSESSING OFFICER IS TOTALLY FAULTY AND DESERVE S TO BE QUASHED. THE ASSESSEE FURTHER REQUESTED FOR ADMISSION OF ADD ITIONAL EVIDENCE WHICH WAS FORWARDED TO THE ASSESSING OFFIC ER AND ASSESSING OFFICER REPORTED THAT ADDITIONAL EVIDENCE SHOULD NOT BE ADMITTED. HOWEVER, CONSIDERING THE FACT THAT THE LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO VERIFY ADDITIONAL EVIDENCE. THE ASSESSING OFFICER VERIFIED ADDITIONAL EVIDENCE AND COMMENTED AS UNDER: (I) DETAILS OF THE WORKERS BEFORE THE ASSESSING O FFICER IT WAS POINTED OUT THAT ATTENDANCE CARDS FOUND AND IMP OUNDED DURING SURVEY PERTAINS TO TWO MONTHS I.E. AUGUST & SEPT, 2008 WHICH MEAN THAT SAME WERE ACCOUNTED TWICE. THE ASS ESSING OFFICER VERIFIED THESE FACTS AND ADMITTED THAT NAME S OF 35 WORKERS HAVE APPEARED TWICE. 14 (II) THE WORKERS BELONGING TO THE CONTRACTOR IT W AS PLEADED BEFORE THE ASSESSING OFFICER THAT OUT OF 141 ABSENT WORKERS IN 13 CASES, WAGES HAVE BEEN PAID TO THE WORKERS THROU GH CONTRACTOR. IT WAS POINTED OUT THAT THESE WORKERS WORKED IN THE PREMISES OF THE ASSESSEE ON BEHALF OF THE CONTRACTO R AND THE COMPANY HAS PAID RS. 543925/- AS POLISHING CHARGES. THE ASSESSEE GAVE THE NAMES OF THE CONTRACTORS FOR WHOM THESE WORKERS WORKED. NO FURTHER COMMENT WAS OFFERED BY THE ASSESSING OFFICER. (III) WORKERS WHOM NO WAGES WERE PAID IT WAS EXPL AINED BEFORE THE ASSESSING OFFICER THAT IN 11 CASES ACTUA LLY NO PAYMENTS HAVE BEEN PAID BECAUSE THOSE WORKERS WORKE D FOR ONLY 2-3 DAYS AND LEFT THE JOB. THE ASSESSING OFFI CER AFTER VERIFICATION COMMENTED THAT AFTER VERIFICATION OF T HESE CASES IT WAS FOUND THAT ATTENDANCE OF THE WORKERS HAVE BEEN MARKED FOR ONLY FEW DAYS AND NO WAGES APPEARS TO HAVE BEEN PAI D IN CASE OF THESE 10 PERONS. (IV) WORKERS WHO LEFT JOB IN AUGUST AND SEPT IT W AS EXPLAINED THAT OUT OF 141 ABSENT WORKERS 12 PERSONS HAD LEFT THE JOB IN THE MONTH OF AUGUST AND SEPT 2008. TO P ROVE THESE THE ASSESSEE FILED THE COPIES OF THE SALARY AND WAG ES REGISTERED FOR AUGUST & SEPT 2008. THE ASSESSING O FFICER OBSERVED THAT VERIFICATION OF THESE REGISTERS SHOW THAT PAYMENTS HAVE BEEN MADE TO THESE WORKERS FOR NUMBER OF DAYS THESE WORKERS HAVE WORKED AS PER ATTENDANCE CARDS. (V) LASTLY IT WAS CONTENDED THAT SALARY WAGES WERE PAID AS PER REGISTER AND FOR THIS ASSESSEE FILED COPIES OF THE SALARY AND WAGES REGISTER. ON THIS ISSUE ALSO NO FURTHER COMM ENTS HAVE 15 BEEN MADE. THIS REPORT WAS GIVEN TO THE ASSESSEE F OR COMMENTS. THE ASSESSEE FURNISHED FOLLOWING COMMENT S: (A) DUPLICATE (35 WORKERS) IT WAS SUBMITTED THAT THE ASSESSING OFFICER HAS ACCEPTED THIS POSITION BECAUS E NO COMMENTS HAVE BEEN GIVEN IN THIS REGARD. (B) WORKERS WORKING UNDER THE CONTRACTOR IT WAS S UBMITTED THAT ALL THE EVIDENCES IN THIS REGARD WERE FURNISHE D BEFORE THE ASSESSING OFFICER AND THE ASSESSING OFFICER HAS SIM PLY NOTED THE SUBMISSIONS AND HAS NOT OFFERED ANY COMMENTS. T HEREFORE THIS PLEA SHOULD BE ACCEPTED. (C) WORKS TO WHOM NO WAGES PAID IN THIS REGARD AL SO IT WAS SUBMITTED THAT NECESSARY EVIDENCE WAS FURNISHED BEF ORE THE ASSESSING OFFICER WHO HAS VERIFIED THE SAME. (D) WORKERS WHO LEFT THE JOB IN AUG & SEPT IT WAS SUBMITTED THAT NECESSARY EVIDENCE WAS FILED BEFORE THE ASSESS ING OFFICER. 19 THE LD. CIT(A) EXAMINED THIS POSITION AND ULTIMA TELY ACCEPTED THE CONTENTION IN RESPECT OF 35 WORKERS T HAT THIS WAS BECAUSE OF DUPLICATION. 13 WORKERS BELONG TO THE C ONTRACTOR AND 10 WORKERS TO WHOM NO SALARY WAS NOT PAID. ACC ORDINGLY HE WORKED OUT THE DISALLOWANCE AS UNDER: SALARY / WAGES PAID AS PER PHYSICAL LIST: RS. 22,81,250/- NO. OF PERSONS AS PER PHYSICAL LIST: 122 AVERAGE SALARY / WAGES AS PER PHYSICAL LIST FOR 5 MONTHS: RS. 18,699/- NO. OF ACTUAL EXCESS WORKERS RE- WORKED OUT: 83 AVERAGE SALARY / WAGES RS. 18,699/- ACTUAL SALARY / WAGES PAID TO 83 ABSENTEES: RS. 15,52,017/- THE TOTAL EXPENDITURE OF SALARY AND WAGES UPTO THE DATE OF SURVEY ACCORDINGLY WORKS OUT TO RS. 38,33,267/- (2281250 + 1552017). M ULTIPLYING THIS WITH THE FACTOR OF 3,953 AS DONE BY THE AO, AND IN VIEW OF T HE REASONS GIVEN BY THE AO AS REFERRED TO IN PARA 8.1 ABOVE, THE TOTAL EXPENDI TURE OF SALARY AND WAGES FOR THE WHOLE YEAR WORKS OUT TO RS. 1,51,52,904/-. AS A GAINST THIS THE APPELLANT HAD SHOWN TOTAL EXPENDITURE ON ACCOUNT OF SALARY AND WA GES AT RS. 1,07,83,018/-. THE EXCESS SALARY AND WAGES PAID OUT OF THE BOOKS O F ACCOUNT ACCORDINGLY 16 WORKS OUT TO RS. 43,69,886/-. THE DISALLOWANCE MADE BY THE AO IS THEREFORE RESTRICTED TO RS. 43,69,886/-. 20 BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUBM ITTED THAT THIS ISSUE WAS CONFRONTED TO THE ASSESSEE FOR FIRST TIME ON 29.12.2001 THOUGH THE ASSESSEE GAVE REPLY ON 30.12. 2011 IT WAS NOT TAKEN BY THE ASSESSING OFFICER AND SENT BY THE SPEED POST. FURTHER DETAILS WERE SUBMITTED BEFORE THE LD . CIT(A) WHO ASKED FOR REMAND REPORT. IT WAS VEHEMENTLY ARGUED THAT READING OF THE CONTENTS OF THE REMAND REPORT WHICH HAS BEEN PRODUCED BY THE LD. CIT(A) WOULD SHOW THAT THE ASSE SSING OFFICER ACCEPTED THE CONTENTIONS BUT STILL THE LD. CIT(A) ACCEPTED THE CONTENTION ONLY IN RESPECT OF 58 WORK ERS. THE OBSERVATION OF FIRST APPELLATE AUTHORITY THAT THE A SSESSEE HAS NO EXPLANATION FOR 83 WORKERS IS NOT CORRECT. THE LD. COUNSEL FOR THE ASSESSEE REFERRED TO THE VARIOUS CONTENTION S MADE BEFORE THE ASSESSING OFFICER AND PARTICULARLY WITH REFERENCE TO WORKERS WHO HAD LEFT THE JOB AND PRODUCTION OF SALA RY AND WAGES REGISTER WOULD SHOW THAT THERE WAS NO WAGES O R SALARY PAID OUTSIDE THE REGISTER. LD. CIT(A) WITHOUT REJE CTING THE RECORD IN THE FORM OF SALARY AND WAGES REGISTER, HA S CONFIRMED THE DISALLOWANCE PARTLY ON THE BASIS OF ASSUMPTION WHICH IS NO JUSTIFIED IN THE EYES OF LAW. 21 ON THE OTHER HAND, THE LD. D.R. FOR THE REVENUE CARRIED US THROUGH THE CONTENTS OF THE ASSESSMENT ORDER AND STRONGLY RELIED ON THE SAME. 22 WE HAVE GONE THROUGH THE RIVAL SUBMISSIONS CAREF ULLY AND FIND THAT THE ASSESSING OFFICER HAS CLEARLY ACCEPTE D THE POSITION IN RESPECT OF DUPLICATION OF ATTENDANCE CARDS IN RE SPECT OF 35 WORKERS BUT STILL HE DID NOT MENTION THAT THIS WAS A MISTAKE. 17 SIMILARLY EVEN AFTER HAVING RECORDS IN RESPECT OF PAYMENT TO CONTRACTOR NO COMMENTS WERE OFFERED. SAME IS THE C ASE WITH REFERENCE TO OTHER POINTS RAISED BY THE ASSESSEE. THOUGH THE LD. CIT(A) HAS ACCEPTED THE DUPLICITY OF ATTENDANCE CARDS IN RESPECT OF 35 PERSONS, THE PAYMENT THROUGH CONTRAC TOR IN CASES OF 13 WORKERS AND NO PAYMENTS IN CASE OF PALT RY ATTENDANCE 10 OUT OF 11 CASES REPORTED BY THE ASSES SEE. HOWEVER, THE LD. CIT(A) MENTIONED THAT 26 PERSONS HAVE LEFT JOB IN THE MONTH OF AUGUST AND 14 IN THE MONTH OF S EPT AND THIS WAS VERIFIED BY THE ASSESSING OFFICER BUT THE SAME DOES NOT EXPLAIN THE DISCREPANCY. WE FAIL TO UNDERSTAND IF THE WORKERS HAVE LEFT AND THAT FACT HAS BEEN VERIFIED THEN HOW IT CAN BE SAID THAT THE ASSESSEE HAS FAILED TO EXPLAIN THE DI SCREPANCY. FINALLY THE ASSESSEE HAS PRODUCED WAGES AND SALARY REGISTER FOR VERIFICATION AND FOR WHICH NO COMMENTS WERE GIV EN AND EVEN THE LD. CIT(A) HAS NOT GIVEN ANY FINDINGS. IN OUR OPINION, THE ASSESSEE HAS SUCCESSFULLY EXPLAINED THE EXISTENCE O F EXTRA ATTENDANCE CARDS IN RESPECT OF THE NUMBER OF THE C ARDS FOUND DURING THE SURVEY BUT HOWEVER, AT THE SAME TIME IF WE CONSIDER THE CASE OF 26 PERSONS WHO HAD LEFT THE JOB IN THE MONTH OF AUGUST AND SEPT 2008 FULL EXPLANATION IS NOT AVAILA BLE. THEREFORE INFLATION OF SALARY AND WAGES CANNOT BE R ULED OUT TOTALLY. CONSIDERING OVERALL EXPLANATION OF THE AS SESSEE AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE OPINION TH AT ENDS OF JUSTICE WOULD MEET IF A DISALLOWANCE OF RS. 8 LAKHS IS MADE IN RESPECT OF INFLATION OF SALARY AND WAGES IN THIS C ASE. THIS PROPOSAL WAS ACCEPTED BY THE LD. COUNSEL FOR THE AS SESSEE AS WELL AS THE MANAGING DIRECTOR OF THE COMPANY WHO WA S PRESENT IN THE COURT, THEREFORE WE SET ASIDE THE ORDER OF T HE LD. CIT(A) 18 AND CONFIRM THE DISALLOWANCE OF RS. 8 LAKHS ON ACCO UNT OF SALARY AND WAGES ON ACCOUNT OF INFLATION OF EXPENSE S, THEREFORE GROUND OF ASSESSEE IN THIS REGARD IS PARTLY ALLOWED AND THAT OF REVENUE IS DISMISSED. 23 GROUNDS NO. 5, 6 & 7 AFTER HEARING BOTH THE PARTIES WE FIND THAT CERTAIN DOCUMENTS CONTAINING DETAILS OF C -FORM WERE IMPOUNDED DURING SURVEY WHICH WAS MARKED AS ANNEXUR E A-II. ACCORDING TO THE ASSESSING OFFICER PURSUANT TO THE ENQUIRIES OF ENTRIES OF ANNEXURE A-11 OF C-FORMS WHICH DID NOT M ATCH WITH THE ENTRIES IN THE LEDGER. THE DETAILS OF C-FORM HAVE BEEN INCORPORATED BY THE ASSESSING OFFICER AT PAGE 19 TO 21 OF THE ASSESSMENT ORDER. THEREFORE THE ASSESSING OFFICER C ONCLUDED THAT THE SALES AMOUNTING TO RS. 18632561/- WERE UNA CCOUNTED SALES. FURTHER VALUATION OF CLOSING STOCK TAKEN DU RING SURVEY ON 24.9.2008 WAS DONE ON THE BASIS OF RATE LIST PRE PARED WITH THE SUPPORT OF THE ACCOUNTANT OF THE ASSESSEE AND F ROM PURCHASE BILLS. THE DETAIL OF VALUATION HAS BEEN INCORPORATED AT PAGE 27 TO 52. ACCORDING TO THE ASSESSING OFFIC ER THE TOTAL CLOSING STOCK AS PER THIS VALUATION WAS RS. 493125 86/- WHEREAS AS PER TRADING ACCOUNT FURNISHED BY THE ASS ESSEE ON THE DATE OF SURVEY, CLOSING STOCK SHOULD BE RS. 796 82674/-. THIS MEANS THERE WAS A SHORTAGE OF CLOSING STOCK TO THE TUNE OF RS. 30370088/-. ACCORDING TO THE ASSESSING OFFICER THIS CLEARLY PROVES THAT THE ASSESSEE HAS INDULGED IN UNACCOUNTE D SALES WHICH IS NOT RECORDED IN THE BOOKS OF ACCOUNTS. AC CORDING TO THE ASSESSING OFFICER THIS WAS FURTHER PROVED BECAU SE ASSESSEE HAD EMPLOYED CERTAIN WORKERS OUTSIDE THE BOOKS OF A CCOUNTS BECAUSE OF AVAILABILITY OF EXTRA ATTENDANCE CARDS. THEREFORE UNACCOUNTED SALES WERE DETERMINED AT WHICH GROSS PR OFIT RATE 19 OF 24.12% FORAY 2009-10 WAS APPLIED. CALCULATION I N THIS REGARDS IS AS UNDER: THE SALES AS PER PROFIT AND LOSS ACCOUNT IS RS. 21 ,59,37,128/- AND THE TOTAL SALARY AND WAGES EXPENSES IS RS. 1,07,83,018/ -. THIS MEANS THAT FOR EVERY ONE RUPEE OF SALARY / WAGES THERE IS SALE S OF RS. 20.02/- AS PER BOOKS. SINCE ACTUAL SALARY AS DISCUSSED IN PARA 9 A BOVE IS RS. 1,94,40,257/-, THEN ACTUAL SALES BY APPLYING THE SA ME RATIO IS RS. 38,91,93,945/-. HENCE SALES OF RS. 17,32,56,817/- ( I.E 389193945 215937128) IS TO BE TREATED AS UNACCOUNTED. THE ASSESSEE HAS SHOWN GROSS PROFIT OF 24.42% FOR T HE A.Y. 2009-10 AND HENCE INCOME OF RS. 4,23,09,315/- (I.E 24.42% O F RS. 17,32,56,817/- ) IS TO BE TREATED AS UNACCOUNTED INCOME OF THE ASS ESSEE. 24 ON APPEAL BEFORE THE LD. CIT(A), IT WAS MAINLY S UBMITTED THAT ANNEXURE A-11 CONTAINED LIST OF C-FORMS WHICH WAS OBTAINED FROM DIFFERENT PARTIES AGAINST WHICH SALES HAVE ALREADY BEEN RECORDED IN THE BOOKS OF ACCOUNTS IN D IFFERENT YEARS. THESE C-FORMS WERE CONFRONTED TO THE ASSESS EE ONLY AT THE FAG END OF THE ASSESSMENT PROCEEDINGS AND THE A SSESSEE HAD REPLIED ON 30.12.2011 AND IT WAS SENT THROUGH S PEED POST. IT WAS FURTHER SUBMITTED THAT 70% OF THE SALE OF TH E ASSESSEE WERE OUTSIDE THE STATE OF PUNJAB AND THEREFORE ASSE SSEE WAS REQUIRED TO OBTAIN C-FORMS WHICH PERTAIN TO VARIOUS PARTIES AND THEREFORE SEPARATE REGISTER WAS BEING MAINTAINED. NORMALLY WHATEVER C-FORMS IS OBTAINED WOULD HAVE BEEN DEFINI TELY RECORDED AND THEREFORE PRESUMPTION SHOULD BE THAT S ALES AGAINST C-FORM HAVE BEEN ACCOUNTED FOR. BUT NEGATI VE PRESUMPTION WAS TAKEN WHICH IS NOT JUSTIFIED. THE ASSESSEE FILED DETAILED RECONCILIATION OF THE C-FORM DETAILS WITH THE ACTUAL SALES FOR A PERIOD OF FOUR YEARS FROM 2004 T O 2008 AND SINCE SAME TALLIED WITH THE SALES MENTIONED IN THE C-FORMS. THEREFORE THIS ASSUMPTION OF UNACCOUNTED SALES ON A CCOUNT OF C-FORMS WAS TOTALLY UNJUSTIFIED. 25 THE ASSESSING OFFICER HAS WORKED OUT UNDER VALUA TION OF THE CLOSING STOCK BUT SUCH UNDER VALUATION WAS ONLY CONFRONTED 20 TO THE ASSESSEE AND THE STOCK LIST WAS GIVEN FOR T HE FIRST TIME ON 16.3.2012. IT WAS POINTED OUT THAT FACTORY OF T HE ASSESSEE WAS SPREAD OVER IN 7000 SQYD AND TURN OVER WAS ABOU T 21.50 CRORES AND THEREFORE IT IS PRACTICALLY IMPOSSIBLE T O COUNT MORE THAN 2000 PARTS OF DIFFERENT SIZES AND SPECIFICATIO NS SCATTERED OVER THE AREA DURING THE COURSE OF SURVEY. THE ASS ESSING OFFICER HAS WRONGLY LINKED THE ISSUE OF UNACCOUNTED SALES WITH THE ATTENDANCE CARDS FOUND DURING SURVEY WHICH HAS ALREADY BEEN RECONCILED. VARIOUS OTHER DISCREPANCIES WERE POINTED OUT. FINALLY IT WAS CONTENDED THAT THE ASSESSEE HA S PARTICIPATED IN A TENDER WITH THE GOVERNMENT OF MAD HYA PRADESH AND ULTIMATELY A CONTRACT WAS SIGNED WITH M ADHYA PRADESH LAGHU UDYOG NIGAM LTD. CENTRAL PROCUREMENT AGENCY OF MADHYA PRADESH GOVERNMENT. THE GOVERNMENT OF MA DHYA PRADESH THROUGH VARIOUS DEPARTMENTS ANNOUNCED SCHEM E OF DISTRIBUTION OF BICYCLES FOR SCHOOL GIRL STUDENTS A S A WELFARE MEASURES AND THIS ORDER WAS PLACED ON THE ASSESSEE FOR THAT PURPOSE. LATER ON BECAUSE OF CHANGED CIRCUMSTANCES THE ORDERS WERE REVISED BY VARIOUS SCHOOLS WHICH WERE N UMBERING NEARLY 2000 IN 48 DISTRICTS OF MADHYA PRADESH. SIN CE BICYCLES WERE SOLD THROUGH DIFFERENT BILLS AND COPIES OF THE SAME WERE ENCLOSED SHOWING THAT SAME HAVE BEEN ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS. ULTIMATELY STOCK AMOUNTING TO R S. 22471842/- WAS NOT LIFTED BY THE MADHYA PRADESH GOV ERNMENT AND SALES TO THIS EXTENT WAS REVERSED DURING THE YE AR IN THE SALES ACCOUNT. SINCE THE ASSESSEE HAD ENTERED INTO CONTRACT FOR SUPPLY OF CYCLES IN THE NEXT YEARS, THEREFORE T HIS STOCK WAS KEPT IN MADHYA PRADESH ONLY AND THAT STOCK WAS VALU ED AT RS. 1,75,00,000/- AFTER REDUCING GROSS PROFIT RATE OF 2 2% THEN TOTAL 21 STOCK WOULD BE RS. 66812586/-. BALANCE OF THE DIFF ERENCE WAS EXPLAINED BY WAY OF DIFFERENCE IN VALUATION. 26 THE LD. CIT(A) SENT THESE SUBMISSIONS TO THE ASS ESSING OFFICER FOR HIS REMAND REPORT. THE ASSESSING OFFIC ER IN TURN FURNISHED HIS COMMENTS ON 22.1.2013. RELEVANT PORTI ON IS AS UNDER: TO PROVE THE CONTENTION THAT ALL THE SALES WHICH HA VE BEEN TREATED AS UNVERIFIED BY THE A.O., THE ASSESSEE HAS FILED COPI ES OF THE LEDGERS ACCOUNTS APPEARING IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE OF THE DIFFERENT PARTIES IN RESPECT OF WHOM SALES HAVE BEE N TREATED AS UNVERIFIED. IN THESE LEDGER ACCOUNTS, THE ASSESSEE HAS SHOWN THE DETAILS OF ISSUE OF PARTICULAR SALE BILLS, AMOUNT INVOLVED AND PAYMENTS RECEIVED IN RESPECT OF THE SAME. THESE LEDGER ACCOUNTS HAVE BEEN EXAMINED WHICH SHOWS THE DETAILS OF BILLS RAISED AND PAYMENT S RECEIVED. THE ASSESSEE HAS ALSO FILED PHOTOCOPIES OF THE RELEVANT C-FORMS WHICH MATCHES WITH THE SALES EFFECTED. IN RESPECT OF UNDER VALUATION OF CLOSING STOCK THE RELEVANT PORTION IS AS UNDER: IN THE WRITTEN SUBMISSIONS THE ASSESSEE HAS CONTEND ED THAT NO COPY OF STOCK LIST WAS GIVEN TO THE ASSESSEE AND IT IS ONLY ON 16.03.2012, THE STOCK LIST WAS GIVEN. IN THIS REGARD, IT IS STATED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ACCOUNTANT OF THE ASSES SEE WHO ATTENDED THE OFFICE FROM TIME TO TIME SUPPLIED THE PURCHASE RATES OF ITEMS AFTER CONSULTING THE PURCHASE BILLS. THESE RATES WERE APP LIED BY THE A.O. TO THE ITEMS OF STOCK INVENTORY. SUCH LISTS BEARING TH E SIGNATURE OF SH. RAJESH KHANNA, ACCUNTANT ARE LYING IN THE ASSESSMEN T FOLDER. FURTHER, OUT OF 1202 ITEMS OF STOCK, THE ASSESSEE D ID NOT AGREE WITH THE VALUATION OF STOCK IN RESPECT OF 248 ITEMS AND WORK ED OUT THE DIFFERENCE OF RS. 1,27,76,887/- IN VALUATION. IN SUPPORT OF IT S CONTENTION, THE ASSESSEE HAS FILED PHOTOCOPIES OF THE PURCHASE BILL S / SALES BILLS. IN THIS REGARD, IT IS SUBMITTED THAT ITEMS DEALT IN BY THE ASSESSEE ARE NUMEROUS AND OF DIFFERENT SIZES. AS SUCH, IT IS VERY DIFFICU LT TO REACH AT CORRECT PRICE OF THE ITEMS. STOCK LYING AT MADHYA PARDESH : IN WRITTEN SUBMISSIONS AT THE APPELLANT STAGE, THE ASSESSEE STATED THAT THE ASSESSEE HAD PARTICIPATED IN A TENDER WITH GOVT . OF MADHYA PARDESH FOR SUPPLY OF BICYCLES. THE ASSESSEE FURTHER CONTEN DED THAT DUE TO REDUCTION IN THE PURCHASE ORDER PLACED BY THE M.P. GOVT., THE BICYCLES SENT TO THE MADHYA PARDESH WERE NOT LIFTED BY THE M .P. GOVT. SINCE THE ASSESSEE WAS HOPING TO GET FURTHER ORDERS FROM M.P. GOVT., THE ASSESSEE DID NOT LIFT THE MATERIAL / BICYCLES AND STOCKED TH E SAME AT MADHYA PARDESH. IN SUPPORT OF THE ABOVE CONTENTION, THE AS SESSEE HAS FILED PHOTOCOPIES OF THE INITIAL ORDERS PLACED BY THE M.P . GOVT., VARIOUS AMENDMENTS REDUCING ORDERS, NEXT YEAR RATE CONTRACT ISSUED WITH M.P. GOVT. & AGREEMENT SIGNED WITH AGENT CUM DISTRIBUTOR AND STOCK AUDIT REPORT FROM CHARTERED ACCOUNTANTS DEPUTED BY THE AS SESSEES BANKERS. THE ASSESSEE HAS ALSO FILED PHOTOCOPIES OF THE SALE BILLS RAISED. IN THIS REGARD, THE MAIN CONTENTION OF THE ASSESSEE IS THAT DUE TO REDUCTION OF SUPPLY ORDERS FROM M.P. GOVT., 12683 B ICYCLES VALUING RS. 2,24,71,842/-. REMAINED UNSOLD AND THE SAME WERE LY ING WITH THE AGENT 22 AT MADHYA PARDESH. IN SUPPORT OF THIS CONTENTION, T HE ASSESSEE HAS FILED A COPY OF THE SETTLEMENT REACHED BETWEEN M/S SAFARI BIKES LIMITED, LUDHIANA & THE AGENT M/S VISHWA KARMA INDUSTRIES, K HANDWA THROUGH ITS PROP. SHRI ASHOK KUMAR MALVIYA. THIS SETTLEMENT IS DATED 18.09.2010. AS PER THIS SETTLEMENT SIGNED BY BOTH THE PARTIES, 126 83 NOS. OF BICYCLES WERE KEPT IN GODOWN IN PERFECT CONDITION VALUING RS . 2,24,71,842/-. THE ASSESSEE HAS ALSO FILED A COMPLETE RECONCILIATI ON CHART SHOWING THE TOTAL ORDERS RECEIVED FROM THE M.P. GOVT., CYCLES S UPPLIED, CYCLES NOT LIFTED BY THE M.P. GOVT. & BALANCE QUANTITY LYING A T MADHYA PARDESH. THE ASSESSEE HAS ALSO FILED RELEVANT DOCUMENTS THROUGH WHICH ORDERS WERE PLACED BY M.P. GOVT. AND SALES BILLS THROUGH WHICH CYCLES WERE SUPPLIED TO M.P. GOVT. THE ASSESSEE HAS ALSO FILED VOUCHER / EVIDENCE THROUGH WHICH THE SALES RETURN WAS SHOWN IN THE BOOKS OF AC COUNTS. HOWEVER, IT IS RELEVANT TO MENTION HERE THAT DURING THE COURSE OF SURVEY PROCEEDINGS, THE ASSESSEE WAS SPECIFICALLY ASKED AS TO WHETHER ANY STOCK BELONGING TO COMPANY WAS LYING ANYWHERE ELSE EXCEPT THE FACTORY PREMISES, THE ASSESSEE SAID NO. THE COMMENTS OF THE ASSESSING OFFICER WERE FORWARDE D FOR ITS COMMENTS AND THE ASSESSEE IN ITS COMMENTS SUBMITTED THAT AS FAR AS UNACCOUNTED SALES PERTAINING TO C-FORMS OF T HE RELEVANT INFORMATION AND RECONCILIATION FILED BEFORE THE ASS ESSING OFFICER WHO HAS VERIFIED THE SAME AND THE ASSESSING OFFICER HAS ALREADY OBSERVED THAT SAME MATCHES WITH THE SALES E FFECTED, HOWEVER, THE ASSESSING OFFICER HAS NOT WITHDRAWN T HIS ADDITION WHICH IS WRONG. IN RESPECT OF SHORTAGE OF STOCK IT WAS STATED AS UNDER: I) EARLIER, THE ASSESSING OFFICER HAD TAKEN INTO CO NSIDERATION THE SHORTAGE OF STOCK TO THE TUNE OF RS. 3,03,70,088/-. NOW, AFTER EXAMINING THE STOCK LIST, WE HAD SUBMITTED THAT CERTAIN STOCK WAS LYING AT MADHYA PRADESH IN RESPECT OF SALES MADE BY US IN THE YEAR ENDING 31.03.2008 AND FOR WHICH, NUMEROUS STATEMENTS / DETAILS, GIVIN G BILLWISE DETAIL OF BICYCLES DISPATCHED TO MADHYA PRADESH, BICYCLES WHI CH WERE ACCEPTED BY THE M.P. GOVT. AND THE BICYCLES WHICH WERE NOT A CCEPTED DUE TO REDUCTION IN THE ORDER AND THESE DETAILS RUN INTO H UNDRED PAGES AND WHICH WERE EXAMINED MINUTELY BY THE ASSESSING OFFIC ER AND, THIS HAS BEEN DICUSSED BY THE ASSESSING OFFICER IN THE REMAN D REPORT AND NO ADVERSE VIEW HAS BEEN DRAWN IN RESPECT OF THE CONTE NTION OF THE ASSESSEE. THE COST PRICE OF THE BICYCLES COMES TO R S. 1,75,00,000/- OUT OF SALES OF RS. RS. 2,24,71,842/- BY REDUCING G.P. OF 22%. II) THUS, THE DIFFERENCE OF RS. 3,03,70,088/- STAND S REDUCED BY RS. 1,75,00,000/- AND THE BALANCE DIFFERENCE REMAIN TO THE TUNE OF RS. 1,28,00,000/- AND FOR THE BALANCE DIFFERENCE, WE HA VE SUBMITTED THAT THE VALUATION OF STOCK IN RESPECT OF 248 ITEMS OUT OF 1 202 ITEMS OF STOCK HAD NOT BEEN DONE CORRECTLY AND FOR WHICH, IT HAS BEEN OBSERVED BY THE ASSESSING OFFICER THAT WE HAVE FILED THE PHOTOSTAT COPIES OF ALL THE PURCHASE AND SALE BILLS AND THEY ARE CONTAINED FROM PAGES 323 TO 414 OF THE PAPER BOOK SUBMITTED BEFORE YOUR GOODSELF ALSO. 23 III) THE OFFICIAL OF THE DEPARTMENT HAD VERIFIED SU CH RATES DURING THE COURSE OF REMAND PROCEEDINGS AND NOTHING ADVERSE HA S BEEN STATED IN THE REMAND REPORT. THEREFORE, FROM THE ABOVE SAID S UBMISSION OF THE ASSESSEE, IT IS CLEAR THAT THE ADDITION AS MADE BY THE ASSESSING OFFICER IS UNJUSTIFIED & SAME MAY, PLEASE BE DELETED. IV) LASTLY, IT MAY BE SUBMITTED THAT THE ASSESSING OFFICER, HAD BASED TO ADDITION ON THE BASIS OF ALLEGED SALES OUTSIDE THE BOOKS OF ACCOUNTS, INFERRED FROM THE C-FORMS REGISTER COUPLED WITH THE ALLEGED SHORTAGE IN STOCK AND ALLEGED EXCESS WORKERS ON THE BASIS OF 14 1 ATTENDANCE CARDS AND FOR WHICH THE ASSESSEE WAS CONFRONTED BY VIRTUE OF THE SHOW CAUSE NOTICE SERVED ON 29 TH OF DECEMBER, 2011 FOR WHICH THE TIME WAS ALLOWED ONLY UPTO 30 TH OF DECEMBER, 2011 AND, THUS, ALLOWING THE ASSESSEE ONLY FEW HOURS TO REPLY TO THE DETAILED AND WHICH WAS TO TALLY UNJUSTIFIED. V) THOUGH, WE HAD TRIED TO FURNISH THE REPLY ON 30 TH OF DECEMBER, 2011 AFTERNOON, BUT THAT REPLY WAS NOT ACCEPTED BY THE A SSESSING OFFICER AND THE ORDER CONTAINING 53 PAGES WAS SERVED UPON THE A SSESSEE ON 30 TH OF DECEMBER, 2011 ITSELF AND, THUS, IT IS PROVED THAT THE ASSESSING OFFICER WAS PRE DETERMINED TO MAKE THE ADDITION, BECAUSE TH AT ORDER COULD NOT HAVE BEEN PREPARED WITHIN A SPAN OF TIME OF FEW HOU RS AND, NOW, SINCE IN THE REMAND PROCEEDINGS, AFTER DETAILED EXAMINATION OF VARIOUS DOCUMENTS AND NUMBER OF HEARINGS WHICH HAD TAKEN PL ACE BEFORE THE ASSESSING OFFICER, THE ASSESSING OFFICER HAS NOT DR AWN ANY ADVERSE INFERENCE IN RESPECT OF ALL THE THREE ISSUES AND, I T IS, THEREFORE, VERY HUMBLY REQUESTED THAT THE ADDITION MADE BY THE ASSE SSING OFFICER ON THE BASIS OF PRESUMPTION AND ASSUMPTION MAY, PLEASE BE DELETED AND OBLIGE. 27 AFTER EXAMINING THESE SUBMISSIONS THE LD. CIT(A) WAS NOT SATISFIED AND THE REASON FOR SAME HAS BEEN GIVEN IN THE FOLLOWING OBSERVATIONS: I) THE COMPARISON OF C-FORM REGISTER IMPOUNDED DUR ING THE COURSE OF SURVEY AND THE LEDGER PRODUCED BY THE APP ELLANT DURING THE COURSE OF ASSESSMENT PROCEEDINGS REVEALED THAT THERE WAS A DISCREPANCY IN THE SALES RECORDED IN THE BOOKS OF A CCOUNTS IN AS MUCH AS SALES AMOUNTING TO RS. 18632561/- SHOWN IN THE C-FORM WAS NOT RECORDED IN THE LEDGER. II) AS PER THE PHYSICAL INVENTORY PREPARED DURING T HE COURSE OF SURVEY, THE TOTAL VALUE OF PHYSICAL STOCK FOUND AT THE TIME OF SURVEY WORKS OUT TO RS. 49312586/- WHILE THE TOTAL VALUE OF STOCK AS PER THE BOOKS OF ACCOUNTS ON THE DATE OF SURVEY IS RS. 79682674/-. III) AS DISCUSSED IN PARA 8 ABOVE, THE APPELLANT WA S SHOWN TO HAVE DEPLOYED LABOUR WHICH WAS NOT ACCOUNTED FOR IN THE ACCOUNTS AND FOR WHICH PAYMENTS WERE NOT BEING RECORDED IN T HE BOOKS OF ACCOUNTS. HOWEVER, THE LD. CIT(A) NOTED THAT SINCE ULTIMATEL Y UNACCOUNTED SALES HAVE BEEN WORKED OUT ON THE BASIS OF SALARY AND WAGES BUT THE TOTAL SALARY AN WAGES HAVE BEEN R EVISED BY HIM THEREFORE HE CORRESPONDINGLY REDUCED THE SALES. ULTIMATELY THE ADDITION ON ACCOUNT OF PROFIT WAS ALSO REDUCED IN FOLLOWING PARA: 24 NOW COMING TO THE ISSUE OF COMPUTATION OF SALES OU TSIDE THE BOOKS OF ACCOUNTS. IN THIS REGARD THE ASSESSING OF FICER HAS COMPUTED THE TOTAL SALES AT RS. 389193945/- ON THE BASIS OF THE SALARY WORKED OUT IN PARA 9.0 OF THE ORDER AT RS. 1 9440257/-. AS DISCUSSED IN PARA 8 ABOVE, THIS SALARY/WAGES HAVE B EEN COMPUTED AT RS. 15152904/-. BASED ON THIS RE-COMPUTATION OF SALARY AND APPLYING THE FORMULA APPLIED BY ASSESSING OFFICER, THE TOTAL SALES WORKS OUT AT RS. 30,33,61,138/-. THE UNACCOUNTED S ALES ACCORDINGLY WORK OUT TO RS. 87424010/- (RS. 30,33,6 1,138/- MINUS RS. 21,59,37,128/-). APPLYING THE GROSS PROFIT RAT E OF 24.42% THE UNACCOUNTED INCOME WORKS OUT TO RS. 21348943/-. TH IS AMOUNT IS HELD TO BE UNACCOUNTED INCOME OF THE APPELLANT FROM UNACCOUNTED SALES. THIS GROUND OF APPEAL IS ACCORDINGLY PARTLY ALLOWED. THE ASSESSEE HAS RAISED GROUND NO. 5, 6 & 7 REGARDI NG ADDITION CONFIRMED BY THE LD. CIT(A) IN RESPECT OF UNDISCLOSED SALES AND REVENUE HAS RAISED GROUND NO. 2 AGAINST P ART OF ADDITION DELETED BY THE LD. CIT(A). 28 BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE REIT ERATED THE SUBMISSIONS MADE BEFORE THE LD. CIT(A). HE FURTHER POINTED OUT THAT UNACCOUNTED SALES WHICH WERE WORKED OUT ON ACC OUNT OF C- FORMS LIST FOUND DURING SURVEY, WAS CONFRONTED TO T HE ASSESSEE FOR THE FIRST TIME ON 29.12.2011. THE ASSESSEE SEN T REPLY ON 30.12.2011 BY SPEED POST. BEFORE THE LD. CIT(A) DET AILED RECONCILIATION OF ACTUAL SALES CONDUCTED IN THE PRE VIOUS YEARS WITH C-FORM WAS FURNISHED. IT WAS SENT FOR THE COM MENTS OF THE ASSESSEE. THESE DETAILS WERE VERIFIED BY THE ASSES SING OFFICER AND ULTIMATELY HE ACCEPTED THE SALES MATCHED WITH T HE C FORMS. IN THIS REGARD HE PARTICULARLY INVITED OUR ATTENTION TO PG 40 OF IMPUGNED ORDER WHEREIN THIS FACT HAS BEEN EXT RACTED FROM THE REMAND REPORT OF ASSESSING OFFICER. DESPITE THE SE COMMENTS, THE LD. CIT(A) AGAIN RECORDED A FINDING T HAT THERE WAS DISCREPANCY WITH REGARD TO SALES IN RELATION TO C-FORMS DURING SURVEY. THIS IS TOTALLY WRONG FINDING AND IN THIS REGARD HE REFERRED TO THE REMAND REPORT AND THE CHART RECO NCILING THE SALE FILED IN THE PAPER BOOK. HE POINTED OUT THAT SALES WERE 25 CONDUCTED IN THE EARLIER YEAR AND C-FORMS WERE OBTA INED LATER WHICH MATCHED WITH THE SALES OF THE ASSESSEE. 29 IN RESPECT OF SECOND ASPECT OF SHORTAGE OF STOCK HE SUBMITTED THAT A SURVEY HAD STARTED ON 26.9.2008 AT ABOUT 1130 AM AND CONTINUED DAY AND NIGHT AND WAS CONCLUDED ON NEXT DAY MORNING AT ABOUT 8 A.M ON 27.9.2008. DURING SU RVEY A STOCK LIST WAS DRAWN AS PER PHYSICAL VERIFICATION C ONSISTING OF 1202 ITEMS BUT NO VALUATION WAS MADE WHICH BECOMES CLEAR FROM COPY OF LIST OF THE STOCK WHICH IS PLACED AT P AGE 925 TO 952 OF PAPER BOOK. IN FACT THE STOCK LIST WITH VAL UATION WAS CONFRONTED TO THE ASSESSEE FOR FIRST TIME ONLY ON 1 6.3.2012. IN FACT NO EFFORT WAS MADE TO VALUE THE STOCK FOR ALMO ST THREE YEARS AND THIS FACT BECOMES CLEAR FROM THE NOTING O F THE ASSESSING OFFICER ON 14.12.2011 WHEREIN IT IS CLEAR LY MENTIONED THAT PROCESS OF VERIFICATION OF IMPOUNDED DOCUMENTS , HAS BEGUN. HE CONTENDED THAT IT WAS NOT PHYSICALLY POSS IBLE TO TAKE STOCK OF MORE THAN 1000 ITEMS IN A FACTORY SPREAD O VER AT ABOUT 7000 SQYD AND THIS BECOMES CLEAR THAT FROM THE FACT THAT MOST OF THE ITEMS TAKEN IN THE STOCK LIST, ARE IN ROUND FIGURES. LATER ON DURING THE ASSESSMENT PROCEEDINGS, THE ACCOUNTAN T WAS ASKED TO GIVE RATES OF VARIOUS ITEMS WITHOUT SPECIF YING THE SIZE AND THE QUALITY OF THE ITEMS AND STOCK HAS BEEN VAL UED ON THE BASIS OF SUCH RATES. IT WAS POINTED OUT THAT THERE CAN BE A DIFFERENCE IN RATES OF VARIOUS ITEMS DEPENDING ON S PECIFICATION SIZE AND STAGE OF PRODUCTION. FOR EXAMPLE A FRAME OF RAW CONDITION MAY COST RS. 200/- AND WITH PHOSPHATE COA TING THE SAME WOULD COST RS. 250/- AND AFTER PAINTING AND FI NISHING OPERATION THIS WILL COST RS. 400/-. THEREFORE EVEN IF THE ITEM REMAIN SAME I.E. FRAME PRICES CAN BE DIFFERENT. WH EN 26 ULTIMATELY LIST WAS CONFRONTED TO THE ASSESSEE, IT WAS POINTED OUT THAT ATLEAST IN CASES OF 248 ITEMS OUT OF TOTAL 1202 ITEMS, THE RATES HAVE NOT BEEN APPLIED CORRECTLY. IN THIS REGARD COPIES OF THE BILLS FOR THE RATES APPLIED BY THE DEPARTMEN T FOR ACTUAL COST FILED BEFORE THE ASSESSING OFFICER DURING ASSE SSMENT PROCEEDINGS AT PAGE 323 TO 414 OF PAPER BOOK. THE A SSESSING OFFICER HAS NOT GIVEN ANY ADVERSE COMMENTS ON THIS AND SIMPLY OBSERVED THAT IT IS DIFFICULT TO REACH AT A CORRECT PRICE. HE CONTENDED THAT WHEN COPIES OF THE BILLS FOR A PARTI CULAR RATE WERE ALSO FIELD THEN HOW IT WAS NOT POSSIBLE FOR TH E ASSESSING OFFICER TO VALUE THE STOCK, IS NOT CLEAR. HE POINT ED OUT THAT ON THIS ACCOUNT THERE IS UNDER VALUATION OF CLOSING ST OCK AMOUNTING TO RS. 12776887/- FOR WHICH DETAILED LIST IS FILED AT PAGE 323 TO 329 OF THE PAPER BOOK. 30 SECOND REASON FOR LOWER STOCK WAS EXPLAINED BEFO RE THE LD. CIT(A) WAS BECAUSE OF THE REASON THAT SAME STOC K WAS LYING AT MADHYA PRADESH WITH THE AGENT, IT WAS POIN TED OUT THAT THE ASSESSEE HAS PARTICIPATED IN TENDER FOR SUPPLY OF BICYCLES BY THE GOVERNMENT OF MADHYA PRADESH AND WAS AWARDED CONTACT AND BICYCLES WERE SUPPLIED. BUT BECAUSE OF VARIOUS REASONS OUT OF TOTAL 269544 BICYCLES, THE STATE GOV ERNMENT OF MADHYA PRADESH REDUCED ORDER FOR 22240 BICYCLES. OU T OF WHICH 9557 BICYCLES WERE BROUGHT BACK TO LUDHIANA A ND BALANCE WAS KEPT IN MADHYA PRADESH BECAUSE GOVERNME NT OF MADHYA PRADESH HAD ASSURED THE ASSESSEE THAT FRESH ORDERS WOULD BE PLACED IN THE NEXT YEAR. IT WAS POINTED O UT THAT ORDER WAS CURTAILED BECAUSE OF VARIOUS REASONS INCLUDING ASSEMBLY ELECTIONS AND THE ORDERS WERE REVISED IN EACH OF TH E DISTRICT, DETAILS FOR WHICH WERE PRODUCED BEFORE THE ASSESSIN G OFFICER 27 DURING REMAND PROCEEDINGS AND COPY OF THE SAME IS P LACED AT PAGES 253 TO 258 OF THE PAPER BOOK. AFTER RECEIVIN G INTIMATION OF REDUCTION OF THE ORDERS OF BICYCLES WHICH WERE L YING AT DIFFERENT PLACES THAT IS WHY VARIOUS BICYCLES IN MA DHYA PRADESH AND ULTIMATELY AN AGREEMENT WAS MADE WITH THE AGENT OF THE ASSESSEE AND THE COPY OF THE AGREEMENT IS PLACED AT PAGE 302 TO 305 OF THE PAPER BOOK. THE AGENT WHO WAS EARLIE R AN ASSOCIATE OF THE ASSESSEE FOR ASSEMBLING BICYCLES I N MADHYA PRADESH, WAS ASKED TO LOOK AFTER THE REMAINING QUAN TITY OF BICYCLES AND KEEPING THE BICYCLES IN SAFE CUSTODY. IN FACT LATER ON BICYCLES WHICH WERE NOT SOLD WERE SHOWN AS SALE S RETURN AND IN THIS REGARD HE REFERRED TO PAGE 301 WHICH IS COPY OF THE SALE ACCOUNT WHICH CLEARLY SHOW ENTRY OF SALES RET URN OF THESE UNSOLD BICYCLES NUMBERING 22240 AMOUNTING TO RS. 22 471842/-. AFTER REDUCING GROSS PROFIT OF 22% THE COST WOULD C OME TO RS. 1,75,00,000/-. THEREFORE IF STOCK LYING AT MADHYA PRADESH ALONG WITH DIFFERENCE IN VALUATION IS CONSIDERED TH EN STOCK WOULD COME TO RS. 30276887/- WHICH WOULD EXPLAIN TH E SHORTAGE IN STOCK. FROM THIS FACT IT BECOMES CLEAR THAT THERE IS NO SHORTAGE OF STOCK AND THERE WAS NO OCCASION TO E STIMATE UNDISCLOSED SALES AND ULTIMATELY APPLICATION OF GRO SS PROFIT RATE. WHILE CONCLUDING HIS ARGUMENT ON THIS ISSUE HE EMPHASIZED THAT THIS ADDITION HAS BEEN MADE PURELY ON CONJECTURES AND SURMISES AND NO EVIDENCE WAS FOUND DURING SURVEY OR SALES OUTSIDE THE BOOKS OF ACCOUNTS. 31 ON THE OTHER HAND, THE LD. D.R. FOR THE REVENUE SUBMITTED THAT THE ASSESSEE WAS SPECIFICALLY ASKED DURING SURVEY THAT WHETHER ANY STOCK WAS LYING ANYWHERE OT HER THAN THE FACTORY PREMISES AND THE ASSESSEE HAS CLEARLY S TATED THAT 28 THERE WAS NO OTHER STOCK EXCEPT FOR WHATEVER WAS LY ING IN THE FACTORY PREMISES. HE ALSO REFERRED TO VARIOUS OBSE RVATIONS OF THE ASSESSING OFFICER AND THE LD. CIT(A) AND STRONG LY SUPPORTED THE ORDERS OF ASSESSING OFFICER AND THE L D. CIT(A) IN THIS REGARD. 32 IN THE REJOINDER THE LD. COUNSEL FOR THE ASSESSE E SUBMITTED THAT FIRSTLY WHEN THE ASSESSEE IS AWAKE F OR WHOLE OF THE NIGHT DURING SURVEY PROCEEDINGS AND IS TREMENDO USLY UNDER PRESSURE, HE MAY REMEMBER CERTAIN FACTS AND MAY BE UNDER WRONG IMPRESSION OF ACTUAL POSITION REGARDING STOCK LYING AT MADHYA PRADESH. IN ANY CASE THE QUESTION WAS WHET HER THERE IS ANY GODOWN AND SINCE THE ASSESSEE HAD NO OTHER G ODOWN IN LUDHIANA AND THEREFORE IT WAS STATED THAT NO STOCK IS IN THE GODOWN. 33 WE HAVE GONE THROUGH THE RIVAL SUBMISSIONS CAREF ULLY AND FIND FORCE IN THE SUBMISSIONS OF THE LD. COUNSEL FO R THE ASSESSEE. FIRST OF ALL IT HAS TO BE NOTED THAT SUR VEY WAS CONDUCTED IN THE PREMISES OF THE ASSESSEE ON 26.9.2 008. THE LIST OF STOCK FILED AT PAGE 925 TO 952 CLEARLY SHOW THAT NO RATE HAS BEEN MENTIONED WHICH MAKES IT CLEAR THAT STOCK WAS NOT VALUED DURING THE SURVEY. NORMALLY THE STOCK SHOUL D HAVE BEEN VALUED DURING THE SURVEY PROCEEDINGS ITSELF. THE A SSESSEE HAS ALLEGED THAT VARIOUS DOCUMENTS FOUND DURING SURVEY WERE NOT LOOKED INTO UPTO 14.12.2011. THIS FACT BECOMES CLE AR FROM THE COPY OF THE NOTING SHEET DATED 15.12.2011 (COPY PLA CED AT PAGE 812 TO 819 OF PAPER BOOK). PROCEEDINGS OF 15.12.20 11 ARE GIVEN AT PAGE 817 WHICH READS AS UNDER: PRESENT FOR THE ASSESSEE : RAJESH KUMAR IN THIS CASE THE BOOKS OF ACCOUNTS ALONG WITH SUPPO RTING DOCUMENTS WERE PRODUCED. THE PROCESS OF VERIFICATIO N OF 29 IMPOUNDED DOCUMENTS WITH BOOKS OF ACCOUNTS WAS STAR TED AND REMAIN INCOMPLETE. ADJOURNED TO 19.12.2011. WE FAIL TO UNDERSTAND WHY THE DEPARTMENT COULD NOT VALUE THE STOCK AND VERIFIED VARIOUS DOCUMENTS FOUND DURING S URVEY FOR ALMOST THREE YEARS. IN FACT BEFORE US, THE LD. COU NSEL FOR THE ASSESSEE ALLEGED THAT REVENUE WAS PRESSURIZING THE ASSESSEE TO MAKE A SURRENDER DURING SURVEY AND SINCE NOTHING WRONG WAS FOUND, THE ASSESSEE REFUSED TO MAKE ANY SURREND ER AND THAT IS WHY THE HIGHPITCHED ADDITIONS HAVE BEEN MAD E. FROM THIS FACT OF NOT MAKING ANY VERIFICATION FOR ALMOST THREE YEARS, WE FIND SOME FORCE IN THESE ALLEGATIONS OF THE ASSE SSEE. 34 CERTAIN OBJECTIONS WERE FILED BEFORE THE LD. CIT (A) REGARDING ESTIMATION OF SALES OUTSIDE THE BOOKS OF ACCOUNTS AND WHEN SAME WERE REMANDED THE VERIFICATION HAS NO T BEEN DONE PROPERLY BY THE ASSESSING OFFICER OR THE LD. C IT(A) HAS NOT GIVEN THE PROPER EFFECT. FOR EXAMPLE IN RESPECT OF BUNDLE OF C-FORMS IT WAS CONTENDED THAT ALL THE C-FORMS HA VE BEEN RECONCILED WITH THE SALES MADE IN THE EARLIER YEARS , THE ASSESSING OFFICER IN THIS REGARD MENTIONED IN THE R EMAND REPORT WHICH HAS BEEN REPRODUCED BY THE LD. CIT(A) IN PARA 9.6 AND THE RELEVANT PORTION READS AS UNDER: TO PROVE THE CONTENTION THAT ALL THE SALES WHICH H AVE BEEN TREATED AS UNVERIFIED BY THE A.O., THE ASSESSEE HAS FILED COPI ES OF THE LEDGERS ACCOUNTS APPEARING IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE OF THE DIFFERENT PARTIES IN RESPECT OF WHOM SALES HAVE BEE N TREATED AS UNVERIFIED. IN THESE LEDGER ACCOUNTS, THE ASSESSEE HAS SHOWN THE DETAILS OF ISSUE OF PARTICULAR SALE BILLS, AMOUNT INVOLVED AND PAYMENTS RECEIVED IN RESPECT OF THE SAME. THESE LEDGER ACCOUNTS HAVE BEEN EXAMINED WHICH SHOWS THE DETAILS OF BILLS RAISED AND PAYMENT S RECEIVED. THE ASSESSEE HAS ALSO FILED PHOTOCOPIES OF THE RELEVANT C-FORMS WHICH MATCHES WITH THE SALES EFFECTED. FROM THE HIGHLIGHTED PORTION IT BECOMES CLEAR THAT FROM THE DETAILS FILED BY THE ASSESSEE, C-FORMS LIST MATCH W ITH THE SALES EFFECTED BY THE ASSESSEE. DESPITE THIS REMAND REPO RT, THE LD. CIT(A) MADE FOLLOWING OBSERVATIONS IN THIS REGARD: 30 I) THE COMPARISON OF C-FORM REGISTER IMPOUNDED DUR ING THE COURSE OF SURVEY AND THE LEDGER PRODUCED BY THE APP ELLANT DURING THE COURSE OF ASSESSMENT PROCEEDINGS REVEALED THAT THERE WAS A DISCREPANCY IN THE SALES RECORDED IN THE BOOKS OF A CCOUNTS IN AS MUCH AS SALES AMOUNTING TO RS. 18632561/- SHOWN IN THE C-FORM WAS NOT RECORDED IN THE LEDGER. WE FAIL TO UNDERSTAND HOW THE LD. CIT(A) CAN MAKE T HIS OBSERVATION DESPITE HAVING RECEIVED REMAND REPORT W HICH STATES THAT C-FORMS LIST MATCHES WITH THE SALES EFF ECTED BY THE ASSESSEE. THIS CLEARLY SHOWS OUR EARLIER DOUBT AS ALLEGED BY THE ASSESSEE THAT THE REVENUE HAS MADE ALL EFFORTS TO MAKE ONLY HIGH-PITCHED ADDITION. 35 THIRDLY WITH RESPECT TO OBJECTION OF THE ASSESSE E IN RESPECT OF VALUATION OF 248 ITEMS THE ASSESSING OFF ICER HAS STATED IN THE REMAND REPORT WHICH HAS BEEN PLACED A T PARA 9.6 IS AS UNDER: FURTHER, OUT OF 1202 ITEMS OF STOCK, THE ASSESSEE DID NOT AGREE WITH THE VALUATION OF STOCK IN RESPECT OF 248 ITEMS AND WORK ED OUT THE DIFFERENCE OF RS. 1,27,76,887/- IN VALUATION. IN SUPPORT OF IT S CONTENTION, THE ASSESSEE HAS FILED PHOTOCOPIES OF THE PURCHASE BILL S / SALES BILLS. IN THIS REGARD, IT IS SUBMITTED THAT ITEMS DEALT IN BY THE ASSESSEE ARE NUMEROUS AND OF DIFFERENT SIZES. AS SUCH, IT IS VERY DIFFICU LT TO REACH AT CORRECT PRICE OF THE ITEMS. WE ARE OF THE OPINION THAT THE ASSESSING OFFICER HA S NOT GIVEN ANY ADVERSE COMMENTS AND SIMPLY BRUSHED ASIDE THE OBJEC TION OF THE ASSESSEE BY STATING THAT ITEM DEALT BY THE ASSESSEE ARE NUMEROUS AND ARE OF DIFFERENT SIZES. THIS IS TOTALLY HIGH H ANDED APPROACH BY THE REVENUE. WHATEVER EVIDENCE IS BEING FILED, IS NOT EXAMINED AND SIMPLY BRUSHED ASIDE. EVEN BEFORE US, THE REVENUE COULD NOT POINT OUT ANY ERROR IN THE VALUATION AND THE DIFFERENCES GIVEN BY THE ASSESSEE AT PAGE 323 TO 329 OF THE PAPER BOOK WHICH WERE FILED BEFORE THE ASSESSING OFFICER DURING ASSESSMENT PROC EEDINGS. THEREFORE IN OUR OPINION, THESE DIFFERENCES AMOUNTI NG TO RS. 12736887/- SHOULD HAVE BEEN ACCEPTED BY THE LD. CIT (A). IF THESE 31 WERE SUPPORTED BY THE COPIES OF BILLS WHICH HAVE BE EN FILED IN THE PAPER BOOK THEN SAME CANNOT BE REJECTED. 36 LASTLY SHORTAGE OF STOCK WAS EXPLAINED BY WAY OF STOCK BEING KEPT IN MADHYA PRADESH. ADMITTEDLY THE ASSES SEE RECEIVED ORDERS FROM GOVERNMENT OF MADHYA PRADESH F OR SUPPLY OF BICYCLES OF VARIOUS SIZES ON ACCOUNT OF V ARIOUS SCHEMES AND ONE SAMPLE ORDER IS PLACED AT PAPER BOO K AT PAGE 230 OF PAPER BOOK. BICYCLES WERE SUPPLIED TO VARIO US OFFICES AS PER THE DIRECTIONS OF THE GOVERNMENT IN VARIOUS LOCATIONS. COPIES OF BILLS ARE PLACED AT PAGE 231 TO 257. THE SE BILLS SHOW THAT BICYCLES HAVE BEEN DELIVERED TO CHIEF EXE CUTIVE OFFICER, JILA, (SATNA), BURHANPUR, SATNA, REWA MORE NA, SEONI AND VARIOUS OTHER LOCTIONS. LATER ON SOME OF THE O RDERS WERE AMENDED AND IN THIS REGARD CERTAIN DOCUMENTS HAVE B EEN FILED AT PAGE 258 TO 300 OF THE PAPER BOOK WHICH ARE THE COPIES OF SUPPLY ORDER AMENDMENT. FOR EXAMPLE AT PAGE 258 T HERE IS SUPPLY ORDER AMENDMENT WHICH SHOWS THAT ORIGINAL OR DER FOR BICYCLES OF LADIES 18 WAS 3054 UNITS WHICH WAS AME NDED TO 2841 UNITS. THE ORIGINAL ORDER WAS INDENT NO. 1683 DARTED 17.7.2007. THUS IT BECOMES CLEAR THAT FROM ORIGINA L ORDER SOME QUANTITY WAS REDUCED. SINCE THE ASSESSEE WAS ASSUR ED OF FURTHER SUPPLY AND FRESH AGREEMENT WAS ENTERED (COP Y OF WHICH IS PLACED AT PAGE 306 TO 310 WHICH IS DATED 2.6.200 8). THEREFORE OBVIOUSLY THE ASSESSEE MAY NOT HAVE PREFE RRED TO BRING BACK ALL THE BICYCLES WHICH WERE EARLIER REDU CED FROM THE ORIGINAL ORDERS. THESE UNSOLD BICYCLES WERE LOCATE D AT VARIOUS PLACES AND THEREFORE THEY HAD TO BE COLLECTED AT O NE PLACE FOR WHICH THE ASSESSEE ENTERED INTO AN AGREEMENT WITH I TS AGENT VISHWAKARAMA INDUSTRIES (COPY OF THIS AGREEMENT IS PLACED AT 32 PAGE 302 TO 304 OF PAPER BOOK). THE AGENT WAS RESP ONSIBLE FOR REMOVAL OF BICYCLES THROUGH THIS SETTLEMENT IT IS S TATED THAT CERTAIN BICYCLES BECAME SURPLUS ON AMENDMENT/REDUCT ION OF THE ORDERS. OUT OF TOTAL 22643 SURPLUS BICYCLES 9557 BI CYCLES REQUIRED REFURNISHING DUE TO MISHANDLING DURING TRA NSPORTATION AND THE SAME WERE RETURNED TO LUDHIANA TO THE ASSES SEE- COMPANY. BALANCE 12683 BICYCLES VALUING RS. 224718 42/- WHICH WERE KEPT IN THE GODOWN FOR SAFE CUSTODY OF T HE AGENT AT MADHYA PRADESH. THE ASSESSING OFFICER OR THE LD. C IT(A) HAVE NOT EXPRESSED ANY DOUBT IN RESPECT OF THIS AGREEME NT. THE ASSESSEE HAS OBTAINED CASH CREDIT FROM BANK AND WAS REQUIRED TO FURNISH STOCK AUDIT REPORT AND THE COPY OF STOCK AUDIT REPORT IS PLACED AT PAGE 317 TO 332 OF THE PAPER BOOK WHIC H CLEARLY SHOW THAT THERE WERE NO DISCREPANCIES. IN ANY CASE THE ASSESSEE HAS ALREADY SHOWN THE SALES RETURN AND PAS SED THE FOLLOWING ENTRIES ON 31.3.2008: DATE JOURNAL VOUCHER NO PARTICULARS AMOUNT 31.3.2008 105 11500 BICYCLES OF 18 @ RS 1766/- PER BICYCLE 20309000 31.3.2008 342 2585 BICYCLES OF 20 @ 1786/- PER BICYCLE AND 6029 BICYCLES OF 18 @ 1766/- PER BICYCLE 15264024 31.3.2008 343 1364 BICYCLES OF 18 @ 1766/- PER BICYCLE AND 721 BICYCLES OF 20 @ 1786/- PER BICYCLE AND 41 BICYCLES OF 22 @ 1950/- PER BICYCLE TOTALING RS. 3776480/- AND 307 BICYCLES FROM TRIBAL WELFARE COMMISSIONER RANCHI @ 2029 PER BICYCLE @ RS. 2029/- PER BICYCLE RS. 622393/- 4398873/- TOTAL 39971897 37 THE REVENUE SHOULD HAVE TAKEN THE BOTHERATION AT LEAST TO VERIFY THE SALE RETURN FIGURES AND THEN TRY TO A SSESS THE 33 STOCK VALUATION. ABOVE FACTS CLEARLY SHOW THAT ALL THE INGREDIENTS BECAUSE OF WHICH THE ASSESSING OFFICER SUSPECTED THAT THE ASSESSEE HAS INDULGED IN UNACCOUNTED SALES , ARE NOT THERE. FIRST INGREDIENT IN THIS REGARD IS IMPOUNDIN G OF LIST OF C- FORM WHICH WAS MATCHED BY THE ASSESSEE WITH THE ACT UAL SALES CONDUCTED IN THE EARLIER YEARS. SECONDLY THERE WAS NO PROPER APPLICATION OF THE RATES FOR WHICH PROPER EVIDENCE WAS FURNISHED AND PROPER OBJECTIONS WERE FILED BEFORE T HE ASSESSING OFFICER WHICH WAS SIMPLY REJECTED BECAUSE SAME WERE NUMEROUS. THIRDLY SOME STOCK WAS LYING IN MAD HYA PRADESH FOR WHICH PROPER EVIDENCE HAS BEEN FILED. ONE MORE ASPECT WAS CONSIDERED FOR DETERMINING OF UNDISCLOSE D SALES AND IT WAS THAT ASSESSEE HAD EMPLOYED MORE WORKERS THEN ACTUALLY SHOWN IN THE BOOKS OF ACCOUNTS AND FOR WHI CH ADDITION OF RS. 86,57,239/- WAS MADE ON THAT ACCOUNT WHICH W AS REDUCED TO RS. 43,69,886/- BY THE LD. CIT(A) BECAU SE HE ACCEPTED THE CONTENTION REGARDING DUPLICATION OF WO RKERS AND CONTRACTOR WORKERS. HOWEVER, WE HAVE ALREADY ADJUD ICATED THIS GROUND IN ABOVE NOTED PARAS AND ADDITION HAS BEEN R EDUCED TO ONLY RS. 8 LAKHS WHICH WAS MADE ONLY ON ESTIMATED B ASIS BY US. THEREFORE THIS FACTOR IS ALSO NOT AVAILABLE FO R THE CONCLUSION THAT THE ASSESSEE HAD UNDISCLOSED SALES. WE ALSO FIND FORCE IN THE SUBMISSION THAT DURING SURVEY PRO CEEDINGS OR OTHERWISE THE REVENUE HAS NOT BROUGHT ANY MATERIAL ON RECORD IN FORM OF ANY SALES BILL OR DIARY NOTINGS THAT SOM E SALES HAVE BEEN CONDUCTED OUTSIDE THE BOOKS OF ACCOUNTS. THER EFORE IN OUR OPINION, THIS ADDITION IS TOTALLY UNCALLED FOR AND ACCORDINGLY WE DELETE THE SAME. THEREFORE THIS GROUND OF ASSES SEE IS ALLOWED AND THE GROUND RAISED BY THE REVENUE IS DIS MISSED. 34 38 IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO. 253/CHD/2013 IS PARTLY ALLOWED AND APPEAL OF THE RE VENUE IN ITA NO. 474/CHD/2013 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29.5.2014 SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 29.5.2014 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/THE DR