The ACIT-Circle-2, Surat V. Shri Rishikumar Khanna, Surat

ITA 2676/AHD/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 50587 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 14-09-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 29-09-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RASESH SHAH
• Keywords: Bogus purchase; Gross profit estimation; Business income
• Section: 143(3); 133(6); 131

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH CAHMEDABAD BEFORE S/SHRI D. K. TYAGI, J.M. AND A. K. GARODIA, A.M. ASSTT. CIT, CIR.2, SURAT. V/S . SHRI RISHIKUMAR KHANNA, PROP. OF M/S JAGDAMBA FABRICS, MALINI WADI NO.2, NR. JANTA DIARY, SALABATPURA, SURAT. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI VINOD TANWANI, SR.DR RESPONDENT BY:- SHRI RASESH SHAH, AR DATE OF HEARING : 14.9.2011. DATE OF PRONOUNCEMENT :16/9/2011. O R D E R PER D. K. TYAGI, JUDICIAL MEMBER. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A) DATED 23/06/2009. THE REVENUE HAS RAISED FOL LOWING GROUND IN THIS APPEAL :- (1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY THE AO OF RS.97,89,487/- ON ACCOUNT OF LOW GROSS PROFIT. ITA NO. ASST. YEAR 2676/AHD/2009 2006-07 ITA NO.2676/AHD/2009 ASST. YEAR 2006-07 2 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS E NGAGED IN THE BUSINESS OF PURCHASE OF GREY CLOTH AND SALE OF FINI SHED GOODS AFTER GETTING PROCESSED THROUGH OUTSIDE PROCESSORS AS WELL AS TRA DING IN GREY CLOTH. THE RETURN OF INCOME WAS FILED DECLARING TOTAL INCOME O F RS.6,56,918/-, ASSESSMENT WAS FINALIZED U/S 143(3) ON 19.12.2008 D ETERMINING TOTAL INCOME AT RS.1,04,46,410/- AFTER MAKING ADDITION ON ACCOUNT OF LOW GP. DURING THE YEAR, THE ASSESSEE HAS SHOWN GROSS PROFI T OF RS.23,48,266/- ON TOTAL SALES OF RS.13,44,15,876/- WHICH COMES TO 1.7 4% AND IN THE IMMEDIATELY PRECEDING YEAR, THE ASSESSEE HAD SHOWN GROSS PROFIT OF RS.19,60,783/- ON TOTAL SALES OF RS.13,36,83,198/- WHICH WAS 1.47%. IN ASST. YEAR 2003-04 THE GP WAS REFLECTED AT 1.782%. THE NET PROFIT IN THE YEAR UNDER CONSIDERATION STANDS AT 0.47%. THE AO HA D MADE AN ADDITION OF RS.97,89,487/- ON ACCOUNT OF LOW GP DISCLOSED ON THE FOLLOWING GROUNDS I) THE ASSESSEE HAD DISCLOSED THE SALES AND GP DURI NG THE YEAR UNDER CONSIDERATION AND IN THE EARLIER YEAR AS UNDER: ASST. YEAR SALES GP % 2006-07 13.44 CR. 23,45,266/- 1.74% 2005-06 13.76 CR. 19,69,883/- 1/47% 2004-05 - - 1.78% II) ON BEING ASKED FOR LOW RATE OF GP DISCLOSED AS COMPARED TO NORMAL RATE OF GP IN THE LINE OF THE BUSINESS OF TH E ASSESSEE, THE ASSESSEE HAS NEITHER FURNISHED THE DETAILS CALLED F OR SUCH AS PURCHASE BILLS, SALES BILLS, STOCK REGISTERS, LEDGE R, CASH AND BANK BOOK, BANK STATEMENT ETC. NOR HAS FURNISHED ANY EXP LANATION FOR LOW RATE OF GP DISCLOSED AS COMPARED TO NORMAL RATE OF GP IN THE LINE OF THE BUSINESS OF THE ASSESSEE. III) THE BOOK RESULT OF THE ASSESSEE IS THUS REJECTED U/ S 145(3) OF THE ACT FOR THE FOLLOWING REASONS :- ITA NO.2676/AHD/2009 ASST. YEAR 2006-07 3 A) THE ASSESSEE HAD IN THE BUSINESS OF PURCHASE OF GRE Y CLOTH AND SELL IT AFTER GETTING PROCESSED THROUGH OUTSIDE PROCESSO RS HAD CREATED AN UNUSUAL LOSS WITH A VIEW TO ADJUST AND REDUCE THE P ROFIT EARNED BY IT FROM TRADING ACTIVITY OF GREY CLOTH. B) WITH REGARD TO SUCH LOSS, ON BEING ASKED THE ASSESS EE HAD SUBMITTED THAT THERE WERE SUBSTANTIAL STOCK WHICH R EMAINED UNSOLD AND HAD BECOME OBSOLETE, WHICH LEADS THEM TO SELL I T AT LOSS, WHICH IS NOT ACCEPTED AS THE ASSESSEE HAD NEGLIGIBLE OPEN ING STOCK OF RS.24,15,800/- FROM WHICH THERE CAN BE NO SUBSTANTI AL OBSOLETE STOCK WHICH THE ASSESSEE HAD CLAIMED TO HAVE SOLD A T LOSS. C) THE ASSESSEE HAD UNDERVALUED ITS CLOSING STOCK AS S EEN FROM THE DETAILS OF CLOSING STOCK FURNISHED WITH THE DETAILS OF CLOSING STOCK SHOWN IN THE AUDIT REPORT. THE ASSESSEE COULD NOT F URNISH ANY BILLS TO SUBSTANTIATE ITS CLAIM THAT STOCK HAD BEEN VALUE D AT COST OR MARKET PRICE WHICHEVER IS LOWER. D) THE ASSESSEE HAD NOT PRODUCED ANY CASH BOOK AND LED GER ALSO DO NOT INCLUDE ANY CASH ACCOUNT WHICH APPEARS TO HAV E BEEN TONED OUT. E) THE ASSESSEE HAS FAILED TO FURNISH THE SALE BILLS T O SUBSTANTIATE ITS CASH SALES. F) THE NOTICES ISSUED U/S 133(6) IN 8 CASES WERE RETUR NED BACK BY THE POSTAL AUTHORITIES WITH THE REMARKS THAT PARTIES A RE NOT AVAILABLE AT THE GIVEN ADDRESSES FROM WHOM THE ASSESSEE HAD CLAI MED TO HAVE MADE PURCHASES OF RS.96,39,758/- AND ON BEING INQUI RIES MADE DIRECTLY FROM THE BANK IN RESPECT OF PAYMENT OF SO- CALLED PURCHASES OF RS.96,39,758/-, IT IS ASCERTAINED THAT THE ASSES SEE HAD ISSUED CHEQUES IN THE NAMES OF NON-EXISTENT PARTIES FOR CR EATING BOGUS PURCHASES. G) THE RATIO OF GP IS ADOPTED @ 9.03% ON THE TURNOVER OF RS.13,44,15,876/- ON THE BASIS OF SUCH GP DISCLOSED BY OTHER FOUR PARTIES IN THE LINE OF BUSINESS OF THE ASSESSEE AND HAS MADE AN ADDITION OF RS.97,89,487/-. 3. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE LD. CIT(A) WHEREIN IT WAS SUBMITTED THAT THE ASSESSEE HAD PROD UCED ALL THE BOOKS OF ITA NO.2676/AHD/2009 ASST. YEAR 2006-07 4 ACCOUNT INCLUDING THE CASH BOOK AND THE PURCHASE AN D THE SALE BILLS BEFORE THE AO, WHO HAD KEPT SUCH RECORDS IN HER CUSTODY FO R SOME DAYS. THEREFORE, HER CLAIM THAT THE PURCHASE AND SALE BIL LS WERE NOT PRODUCED WAS NOT BASED ON FACTS. WITH THE HELP OF THE BOOKS AND BILLS, THE ASSESSEE HAD DULY EXPLAINED THE LOSS SUFFERED ON THE PROCESS ING OF FINISHED GOODS. IN SUPPORT OF THE VALUATION OF CLOSING STOCK, THE A SSESSEE HAD FURNISHED THE SALE BOOKS FOR THE PERIOD 01.04.2006 TO 15.04.2 006, AS ALSO THE PURCHASE BILLS FOR THE MONTH OF FEBRUARY AND MARCH 2006 FOR THE PURPOSE OF JUSTIFYING THE RATES ADOPTED FOR VALUING THE CLO SING STOCK. WHILE THE ASSESSEE HAD VALUED THE CLOSING STOCK AT COST OR MA RKET PRICE WHICHEVER WAS LESSER THE AO VALUED THE STOCK AT AVERAGE COST WHICH WAS NOT JUSTIFIED. THE ASSESSEE HAD ADOPTED THE PRESCRIBED METHOD OF VALUATION AND THEREFORE, IT COULD NOT BE SAID THAT THE CLOSIN G STOCK WAS UNDERVALUED. THE ASSESSEE HAD FILED DETAILED INVENTORIES OF THE GREY AND THE FINISHED GOODS AS ALSO A COPY OF THE SALE BOOK. THE VALUATIO N HAD FALLEN BECAUSE OF THE SIGNIFICANT FLUCTUATIONS IN THE MARKET PRICE OF THE GOODS BECAUSE OF THE CONTINUING CHANGE IN FASHION. THERE WAS NO BASIS FO R THE AO TO COME TO THE CONCLUSION THAT THE ASSESSEE HAD MANIPULATED TH E VALUATION OF THE CLOSING STOCK. THE ASSESSEE FURTHER SUBMITTED THAT THE AO FAILED TO TAKE INTO ACCOUNT THE OPENING AND CLOSING STOCK OF THE F INISHED GOODS. FROM THE SEPARATE TRADING ACCOUNTS FURNISHED BY THE ASSE SSEE BEFORE THE AO WHICH HAS BEEN REPRODUCED ON PAGE-4 OF THE ASSESSME NT ORDER, IT COULD BE SEEN THAT THE GROSS LOSS ON FINISHED GOODS WAS ONLY TO THE EXTENT OF RS.36,49,670/- AND NOT RS.55,90,397/- AS COMPUTED B Y THE AO. SIMPLY BECAUSE THE ASSESSEE HAD INCURRED LOSS ON THE SALE OF FINISHED GOODS IT DID NOT MEAN THAT THE ENTIRE BOOKS OF ACCOUNTS WAS DEFE CTIVE. THE AO FAILED TO BRING ANY MATERIAL ON RECORD TO SHOW THAT EITHER THE LOSS INCURRED WAS BOGUS OR THAT IT HAD BEEN DELIBERATELY INCURRED TO SET OFF THE PROFIT EARNED FROM THE TRADING ACTIVITY. THE BOOKS WERE DULY AUDI TED U/S 44AB OF THE ITA NO.2676/AHD/2009 ASST. YEAR 2006-07 5 ACT. SIMPLY BECAUSE THERE WERE CASH DEPOSITS ONLY O N TWO OCCASIONS, IT DID NOT MEAN THAT THE CASH BOOK WAS DEFECTIVE. THE ASSESSEE HAD MADE CASH SALES ON VERY FEW OCCASIONS. 3.1 WITH REGARD TO THE DISCREPANCY IN THE CASH TRAN SACTIONS WITH M/S AMBICA SILK MILLS TOTALING RS.51,500/-, IT WAS CONT ENDED BY THE ASSESSEE THAT THIS WAS NEVER POINTED OUT TO THE ASSESSEE NOR WAS THE ASSESSEE ASKED TO FURNISH AN EXPLANATION DURING THE ASSESSMENT PRO CEEDINGS. THEREFORE, NO ADVERSE INFERENCE COULD BE DRAWN. THE SUM OF RS. 2 LAKHS WITHDRAWN FROM THE ICICI BANK WAS NOT CREDITED TO THE ASSESSE ES CASH BOOK SINCE, IT WAS PAID TO SMT. VINU KHANNA, THE ASSESSEES WIFE W HICH HAD BEEN DULY CONFIRMED BY HER. IT WAS ARGUED THAT THERE WAS ABSO LUTELY NO DISCREPANCY OR ANY DEFECT IN THE CASH BOOK. 3.2 THE ASSESSEE ALSO SUBMITTED THAT AUDIT REPORT C ONTAINED DETAILS OF ALL PURCHASES BOTH IN TERMS OF QUANTITY AND VALUE. THE PURCHASES WERE MADE BOTH BY CROSSED-CHEQUES AND ACCOUNT-PAYEE CHEQ UES AND DULY REFLECTED IN THE ASSESSEES BANK STATEMENT. THE AO LISTED 10 PARTIES ON WHOM THE NOTICES U/S 133(6) ALLEGEDLY WERE NOT SERV ED. OUT OF THESE TWO HAD SUBSEQUENTLY CONFIRMED THE TRANSACTIONS. ON THE REMAINING EIGHT, MOST OF THE PAYMENTS WERE MADE BY ACCOUNT-PAYEE CHE QUES, WHILE SOME WERE PAID BY CROSSED-CHEQUES WHICH CLEARLY ESTABLIS HED THE EXISTENCE OF SUCH PARTIES. SINCE THE ASSESSEE HAD DEALT WITH SEV ERAL SUCH PARTIES, IT WAS NOT POSSIBLE TO KEEP TRACK OF THEM AFTER SUCH A LON G GAP. THE ASSESSEE HAD UTILIZED THE PURCHASES MADE FROM THE SAID PARTIES I N THE PRODUCTION PROCESS AND HAD SOLD THE FINISHED GOODS. THEREFORE, THE PURCHASES COULD NOT BE DOUBTED, SIMPLY BECAUSE THE ASSESSEE WAS UNA BLE TO FURNISH CONFIRMATIONS FROM SOME OF THE PARTIES, THE ENTIRE PURCHASES COULD NOT BE TREATED AS NOT GENUINE. ITA NO.2676/AHD/2009 ASST. YEAR 2006-07 6 3.3 IN VIEW OF THE SUBMISSIONS OF ASSESSEE, THE LD. CIT(A) CALLED FOR A REMAND REPORT FROM THE AO. AFTER RECEIVING THE REMA ND REPORT OF AO COPY OF THE SAME WAS HANDED OVER THE ASSESSEE FOR R EBUTTAL. THE ASSESSEE REBUTTED THE OBSERVATIONS OF THE AO VIDE HIS LETTER DATED 20.06.2009. ACCORDINGLY, THE LD. CIT(A) DECIDED THE APPEAL ON T HE BASIS OF ASSESSMENT ORDER, THE REMAND REPORT OF AO ON ONE HA ND AND THE WRITTEN SUBMISSIONS OF THE ASSESSEE DATED 30.03.2009 AND 20 .06.2009 ON THE OTHER, WITH THE FOLLOWING OBSERVATIONS :- 6.8 GIVEN THE FACTS AND CIRCUMSTANCES OF THE CASE AS DISCUSSED ABOVE, IT BECOMES ABSOLUTELY CLEAR THAT THERE WAS SIMPLY N O GROUND FOR THE AO TO TREAT THE BOOKS OF ACCOUNT AND THE BOOK RESULTS AS UNRELIABLE. CONSEQUENTLY, THERE WAS NO BASIS FOR THE AO TO REJE CT THE BOOK RESULTS U/S 145(3) OF THE IT ACT. SINCE, THE BOOK RESULTS COULD NOT HAVE BEEN REJECTED, NO ADDITION COULD BE MADE TO THE GROSS PROFIT. THE AO PLACED RELIANCE ON THE GP RATIOS DISCLOSED BY FOUR ENTITIES (PAGE 17). HOWEVER, THERE WAS NO MENTION AS TO HOW SHE OBTAINED SUCH INFORMATION. SH E ALSO FAILED TO CONFRONT THE ASSESSEE WITH SUCH INFORMATION OR TO P ROVIDE AN OPPORTUNITY TO THE ASSESSEE TO REBUT THE SAME. FURTHER THE ASSE SSEE HAD SHOWN GP RATIOS OF 1.782% IN THE ASST. YEAR 2003-04, 1.47% I N THE ASST. YEAR 2005- 06 AND 1.74% DURING THE YEAR UNDER CONSIDERATION. T HERE WAS THUS AN INCREASE IN THE GP RATIO AS COMPARED TO THE IMMEDIA TELY PRECEDING YEAR EVEN THOUGH THERE WAS AN INCREASE IN THE TURNOVER. SINCE GP RATIO IS AN EXPRESSION IN PERCENTAGE TERMS OF THE GROSS PROFIT TO THE TOTAL TURNOVER, WITH AN INCREASE IN THE TURNOVER I.E. THE DENOMINAT OR, THE GP RATIO OUGHT TO HAVE GONE DOWN. THE GP RATIO OF THE COMBINED ACT IVITY OF TOTAL MANUFACTURING AND TRADING EVEN THOUGH THERE WAS LOS S FROM MANUFACTURING ACTIVITY HAD IN FACT SHOWN AN INCREAS E INSPITE OF THE INCREASE IN THE TURNOVER. THE AO APPLIED THE GP RAT IO OF THE TRADING ACTIVITY WHICH WAS 9.03% FOR WHICH THERE WAS SIMPLY NO BASIS. IT IS THUS HELD THAT NOT ONLY WAS THE AO NOT JUSTIFIED IN REJE CTING THE BOOK RESULTS, THERE WAS ALSO NO BASIS FOR MAKING THE ADDITION OF RS.97,89,487/- WHICH WILL STAND DELETED. AGGRIEVED BY THIS ORDER OF THE LD. CIT(A), THE REVE NUE IS IN APPEAL BEFORE THE TRIBUNAL. ITA NO.2676/AHD/2009 ASST. YEAR 2006-07 7 4. THE LD. DR SUBMITTED THAT DURING THE COURSE OF A SSESSMENT PROCEEDINGS, THE AO DID NOT FIND PAGES OF CASH BOOK IN THE LEDGER ACCOUNT FURNISHED BY THE ASSESSEE. LATER ON AO OBSERVED THA T IN CASH BOOK SUBMITTED BY THE ASSESSEE THERE WERE CASH DEPOSITS IN BANK ACCOUNT ONLY ON TWO OCCASIONS. ASSESSEE DEPOSITED THE CASH ON TW O OCCASIONS ONLY BECAUSE OF THE FACT THAT ASSESSEE MADE CASH SALES O NLY ON TWO OCCASIONS AND AMOUNT DEPOSITED IN THE BANK REPRESENTS THE PRO CEEDS OF THE CASH SALES. AO OBSERVED THAT M/S AMBICA SILK MILLS CREDI TED TOTAL RS.51,500/- IN CASH ON DIFFERENT DATES IN THE NAME OF ASSESSEE. BUT THESE ENTRIES WERE NOT FOUND IN THE BOOKS OF ASSESSEE. THE AO ALSO OBS ERVED THAT RS.2,00,000/- WAS WITHDRAWN FROM ICICI BANK FOR PAY MENT TO SMT. BINU KHANNA, WIFE OF ASSESSEE. ASSESSEE DID NOT CREDIT T HIS AMOUNT IN CASH BOOK AS ASSESSEE HAS SHOWN THIS ENTRY IN BANK BOOK BEING CASH WITHDRAWN FOR PURPOSE OF DIRECT PAYMENT TO ASSESSEES WIFE. T HE AO ON THE BASIS OF THESE DISCREPANCIES IN CASH BOOK HAS RIGHTLY REJECT ED THE BOOKS OF ACCOUNTS AS PER HIS FINDINGS IN ASSESSMENT ORDER PA GE 7. DURING THE PROCEEDINGS U/S 133(6) AO OBSERVED THAT IN MOST OF THE CASES CERTAIN PARTIES DID NOT EXIST AT THE GIVEN ADDRESSES AND AL SO ADDRESSES GIVEN COULD NOT BE LOCATED. IN THIS REGARD A SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE. FURTHER AO ASKED ASSESSEE TO PRODUCE CONF IRMATIONS FROM THE PARTIES. THERE ARE ONLY 10 PARTIES WHICH REMAINED U NCONFIRMED AND THE TOTAL OF THE PURCHASES FROM THESE PARTIES COMES TO RS.96,39,758/-. THE ITA NO.2676/AHD/2009 ASST. YEAR 2006-07 8 AO OBSERVED THAT ASSESSEE COULD NOT PRODUCE THESE P ARTIES OR FURNISH EVIDENCES AND THEREFORE HE REJECTED THE BOOKS OF AC COUNTS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO ALSO NOTICE D THAT IN THE BANK STATEMENT CLEARING ENTRIES BORE A SINGLE NAME ARISI NG SUSPICION AS REGARD THE IDENTITY OF THE PAYEE. THE AO WROTE A LETTER TO PNB FOR OBTAINING THE COPIES OF COPIES ISSUED. ON RECEIPT OF THE CHEQUES, AO FOUND THAT THE CHEQUES WERE ENDORSED. THE AO OBSERVED THAT ONE CHE QUE ISSUED IN THE NAME OF PREET POLYSTER WAS NOT DEPOSITED AND ENDORS ED IN FAVOUR OF MUGUTLAL B & SONS. THE AO HOWEVER, OBSERVED THAT AS SESSEE COULD NOT PRODUCE THE PURCHASE BILLS. THE AO ISSUED SUMMONS U /S 131 TO MUGUTLAL B & SONS AND RECORDED THE STATEMENT OF THE MANAGING PARTNER WHO SIGNED ON THE BACK SIDE OF THE CHEQUES. THE AO ISSUED NOTI CE U/S 133(6) TO PREET POLYSTER AND OBTAINED COPY OF ACCOUNT OF ASSESSEE I N THEIR BOOKS. THE AO OBSERVED THAT NO TRANSACTIONS PERTAINING TO CHEQUES PAYMENTS HAVE TAKEN PLACE. THE AO ACCORDINGLY REJECTED THE BOOKS OF ACC OUNTS. VARIOUS DEFECTS FOUND BY AO ARE SUMMARIZED AT PAGE NO.16 OF THE ASSESSMENT ORDER. THE AO ACCORDINGLY REJECTED BOOKS OF ACCOUNT S ON VARIOUS POINTS. THE AO CITED THE CASES OF CERTAIN OTHER PERSONS AND TOOK GP RATIO @ 9.03% ON THE BASIS OF SUCH RATIO EARNED IN CASE OF TRADING OF GREY AND MADE THE ADDITION OF RS.97,89,487/-ON ACCOUNT OF LO W GP. THUS THE LD. DR SUBMITTED THAT THE AO HAS RIGHTLY MADE THE IMPUG NED ADDITION AND ITA NO.2676/AHD/2009 ASST. YEAR 2006-07 9 THE LD. CIT(A) WAS NOT JUSTIFIED IN DELETING THE SA ME. THE ORDER OF LD. CIT(A) BE SET ASIDE AND THAT OF THE AO BE RESTORED. 5. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE RELIED ON THE ORDER OF LD. CIT(A) AND SUBMITTED THAT LD. CIT(A) A FTER CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, HAS RIGHTLY DE LETED THE GP ADDITION MADE BY THE AO. HIS ORDER MAY KINDLY BE UPHELD. 6. WE HAVE HEARD THE PARTIES AND PERUSED THE MATERI AL ON RECORD. WE ARE OF THE CONSIDERED OPINION THAT THERE IS NO INFI RMITY IN THE ORDER OF LD. CIT(A). WE FIND THAT LD. CIT(A) AFTER CONSIDERING T HE FACTS AND CIRCUMSTANCES OF THE CASE, ASSESSMENT ORDER AND SUB MISSIONS OF ASSESSEE HAD CALLED FOR REMAND REPORT FROM THE AO. THE COPY OF REMAND REPORT WAS HANDED OVER TO THE ASSESSEE WHO HAS REBUTTED TH E CONTENTIONS RAISED IN THE REMAND REPORT. THE LD. CIT(A) HELD THAT THER E WAS ABSOLUTELY NO BASIS FOR THE AO TO TREAT THE CLOSING STOCK AS HAVI NG BEEN DELIBERATELY UNDERVALUED TO SHOW A LOWER GP. SUCH OBSERVATION ON THE PART OF THE AO IS SIMPLY NOT ACCEPTABLE, ESPECIALLY WHEN THERE WAS NO EVIDENCE BROUGHT ON RECORD BY HER WHILE ON THE OTHER HAND, THE ASSES SEE HAD CLEARLY SHOWN AND ESTABLISHED WITH THE SALE BILLS OF THE SUBSEQUE NT PERIOD THE RATE(S) THAT HAD BEEN APPLIED FOR VALUING THE CLOSING STOCK. THE LD. CIT(A) STATED THAT IN THE REMAND REPORT, IT WAS OBSERVED BY THE AO THA T THE AR HAD ITA NO.2676/AHD/2009 ASST. YEAR 2006-07 10 FURNISHED COPIES OF THE SALE BILLS OF THE YEAR AS A LSO THE SALE BILLS OF THE MONTH OF APRIL, 2006 ALONG WITH THE PURCHASE BILLS OF FEBRUARY AND MARCH, 2006 IN SUPPORT OF THE RATES ADOPTED IN VALU ING THE CLOSING STOCK. STRANGELY, SHE HAD ALSO OBSERVED AT THE SAME TIME T HAT NO EVIDENCE HAD BEEN FURNISHED BY THE ASSESSEE IN SUPPORT OF THE VA LUE ADOPTED FOR THE OPENING AND CLOSING STOCK OF GREY. THE POINT IS THA T, THE SALE BILLS FURNISHED BY THE ASSESSEE FOR THE MONTH OF APRIL, 2 006 COVERED THE VALUE AND QUANTITY OF BOTH THE GREY AND FINISHED GOODS WH ICH CLEARLY CONTRADICTS THE POSITION TAKEN BY THE AO. THERE WAS NO REASON FOR THE ASSESSEE TO FURNISH ANY EVIDENCE PERTAINING TO THE VALUATION OF OPENING STOCK SINCE, IT WAS THE CLOSING STOCK OF THE IMMEDI ATELY PRECEDING YEAR WHICH HAD BEEN ACCEPTED IN THE YEAR AND WHICH HAD B EEN BROUGHT FORWARD THIS YEAR. ACCORDING TO THE AO TWO CASH DEPOSITS WE RE MADE DURING THE YEAR. THE AO CHOSE TO TREAT THE CASH BOOK AS UNRELI ABLE ON A BASIS OF SUCH OBSERVATION, WITHOUT BRINGING ON RECORD ANY EVIDENC E TO SHOW THAT THE ASSESSEE HAD EFFECTED CASH SALES IN EXCESS OF WHAT HAD BEEN DEPOSITED IN THE BANK ACCOUNT OR ACCOUNTED FOR ELSEWHERE IN THE BOOKS. THE AO ALSO MADE ALLEGATION THAT THE ASSESSEE HAD DELIBERATELY TORN OFF PAGES FROM THE LEDGER, AND HAD INITIALLY NOT PRODUCED THE CASH BOO K. HOWEVER, THE AO FAILED TO TAKE INTO CONSIDERATION THE FACT THAT WHA T THE ASSESSEE HAD PRODUCED WERE COMPUTER PRINT-OUTS WHICH ARE USUALLY IN THE FORM OF CONTINUATION SHEETS THAT HAD BEEN CUT AND SEPARATED TO PREPARE THE FORM OF ITA NO.2676/AHD/2009 ASST. YEAR 2006-07 11 CONTINUATION SHEETS THAT HAD BEEN CUT AND SEPARATED TO PREPARE THE FILE AND THE BOOK. SIMPLY BECAUSE THE CASH BOOK CONSISTED OF ONLY SIX PAGES COULD NOT BE A GROUND FOR THE AO TO REJECT THE ASSESSEES CLAIM. THE CASH BOOK COULD NOT BE EXPECTED TO CONTAIN MORE PAGES THAN WH AT WAS REQUIRED FOR THE WHOLE YEAR. THERE WERE TEN PARTIES ON WHOM THE POSTAL DEPARTMENT COULD NOT SERVE THE NOTICES. OUT OF THE TEN TWO HAD SUBSEQUENTLY CONFIRMED THE TRANSACTIONS. IN THE COURSE OF REMAND PROCEEDINGS THE ASSESSEE FURNISHED BEFORE THE AO LEDGER ACCOUNTS OF REMAINING EIGHT PARTIES WITH PHOTOCOPIES OF RELEVANT PURCHASE BILLS , CARBON COPIES OF CHEQUES ISSUED TO THESE PARTIES ALONG WITH COPIES O F ASSESSEES BANK STATEMENT SHOWING CLEARANCE OF THE CHEQUES. IN REMA ND REPORT THE AO HAS CONFIRMED THE SAME. THE AOS DECISION IN MAKING THE ADDITION IS NOT JUST AND PROPER. IN OUR VIEW, THE LD. CIT(A) HAS DISCUSS ED THE ISSUE IN DETAIL AND GIVEN COGENT REASONS WHILE DELETING THE IMPUGNE D ADDITION. WE FURTHER FIND THAT REVENUE HAS NOT CHALLENGED THE FI NDING OF LD. CIT(A) THAT AO WAS NOT JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNT. WITHOUT CHALLENGING THIS FINDING OF THE LD. CIT(A) GP ADDIT ION MADE BY THE AO CANNOT BE DEFENDED BY THEM. THE LAW IS SETTLED THAT NO GP ADDITION CAN BE MADE WITHOUT REJECTING THE BOOKS OF ACCOUNTS. IN VIEW OF THIS, WE FIND NO INFIRMITY IN THE ORDER OF LD. CIT(A) IN DELETING THE ADDITION OF RS.97,89,487/- AND THE ORDER PASSED BY HIM IS HEREB Y UPHELD. THE GROUND RAISED BY THE REVENUE IS DISMISSED. ITA NO.2676/AHD/2009 ASST. YEAR 2006-07 12 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 16/9 /2011 SD/- SD/- (A. K. GARODIA) (D. K. TYAGI) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD, DATED : 16/9/2011 MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD 1.DATE OF DICTATION 14/9/11. 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING MEMBER 15/9/11. /OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..