The ACIT, Vijayawada V. Sri Thatavarthi Ramesh Babu, Vijayawada

ITA 28/VIZ/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 6483 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 10 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-12-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 12-01-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K C DAS
• Keywords: Unexplained investment; Business income; Onus to prove

Judgement Text

ITA NO.28/VIZAG/2015 THATAVARTHI RAMESH BABU, KANURU, VIJAYAWADA 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . . # % , ' BEFORE SHRI D. MANMOHAN, VICE PRESIDENT & SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ./I.T.A.NO.28/VIZAG/2015 ( / ASSESSMENT YEAR: 2011-12) ACIT, CIRCLE - 3(1), VIJAYAWADA THATAVARTHI RAMESH BABU KANURU, VIJAYAWADA [PAN NO. ABJPT8291L ] ( ) / APPELLANT) ( *+) / RESPONDENT) / APPELLANT BY : SHRI K.C. DAS, DR / RESPONDENT BY : SHRI C. SUBRAHMANYAM, AR / DATE OF HEARING : 04.12.2017 / DATE OF PRONOUNCEMENT : 08.12.2017 / O R D E R PER D. MANMOHAN, VICE PRESIDENT: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST OR DER PASSED BY THE CIT(A), VIJAYAWADA AND IT PERTAINS TO THE AS SESSMENT YEAR 2011- 12. FOLLOWING GROUNDS WERE URGED BY THE REVENUE: 1. THE ORDER OF THE LD.. CIT(A) IS ERRONEOUS ON FACTS AND IN CIRCUMSTANCES OF THE CASE. ITA NO.28/VIZAG/2015 THATAVARTHI RAMESH BABU, KANURU, VIJAYAWADA 2 2. THE LD.. CIT(A) ERRED IN OBSERVING THAT THERE IS NO EVLDENCE TO SHOW THAT THE BANK AUTHORITIES HAD ACTUALLY VERIFIE D THE STOCK IGNORING THE CERTIFICATION GIVEN BY THE BANK AUTHOR ITIES THAT THE STOCK IS SUBJECTED TO RANDOM VERIFICATION AT REGULA R INTERVALS. 3. THE LD. CIT(A) IGNORED THE FACT THAT THERE IS NO ST OCK REGISTER AND THIS FACT WAS CERTIFIED BY THE AUDITOR IN HIS A UDIT REPORT AND SIMPLY SHIFTED THE ONUS TO PROVE THE UNACCOUNTE D STOCK TO THE AO. 4. THE LD. CIT(A) OUGHT TO HAVE CONSIDERED THE RATIO O F THE DECISIONS OF THE HON'BLE SUPREME COURT IN THE CASE OF CHUHARMAL VS.CIT (1988) 172 ITR 250 (SC) AND HON'BL E HIGH COURT OF MADRAS IN THE CASE OF COIMBATORE SPG. & WV G. CO. LTD. VS. CIT (1974) 93 ITR 375 (MAD). 5. THE LD. CIT(A) FAILED TO TAKE COGNIZANCE OF THE FAC T THAT ASSESSEE DID NOT BRING ANY DIRECT OR CIRCUMSTANTIAL EVIDENCE TO PROVE THAT THE STATEMENTS GIVEN TO THE BANKS ARE MOTIVATED. 6. THE LD. CIT(A) OUGHT TO HAVE CONFIRMED THE ADDITION OF UNACCOUNTED INVESTMENT IN STOCK OF RS.23,59,339 FOR THE REASONS ELABORATELY DISCUSSED IN THE STATEMENT OF FACTS. 7. THE LD. CIT(A) OUGHT TO HAVE SUSTAINED THE ADDITION OF RS.2,74,153 AND RS.8,69,416 TOWARDS SUPPRESSION IN GROSS PROFIT SINCE AO HAS FOLLOWED WELL ESTABLISHED PROCEDURE IN ADOPTING THE AVERAGE OF GROSS PROFIT. 2. AT THE OUTSET, IT MAY BE NOTICED THAT UNDER RULE 8 OF THE APPELLATE TRIBUNAL RULES, 1962 THE PARTIES TO THE DISPUTE HAV E TO FILE THE GROUNDS BY MAKING THEM CONCISE. IN OTHER WORDS, THEY SHOUL D NOT BE ARGUMENTATIVE. QUOTING OF CASE LAW AND REFERRING T O FACTS IN DETAIL, MORE PARTICULARLY FILING STATEMENT OF FACTS BEFORE THE TRIBUNAL IS CONTRARY TO THE SAID RULE. FORM 35 EARMARKS SPACE FOR STAT EMENT OF FACTS WHEREAS THERE IS NO SUCH MENTION IN FORM 36, ESSENT IALLY ON ACCOUNT OF THE FACT THAT THE ASSESSING OFFICER, WHO IS THE ADJ UDICATING AUTHORITY HAD ITA NO.28/VIZAG/2015 THATAVARTHI RAMESH BABU, KANURU, VIJAYAWADA 3 ALREADY TAKEN INTO CONSIDERATION ALL THE FACTS AND THEY WOULD BE RECORDED COPIOUSLY IN THE ASSESSMENT ORDER AND HENC E IT NEED NOT BE ELABORATED AGAIN. BEFORE THE QUASI-JUDICIAL AUTHOR ITY SUCH AS CIT(A), THE ASSESSEE IS GIVEN ONE OPPORTUNITY TO PROJECT THE FA CTS FROM ITS PERSPECTIVE. BEFORE THE TRIBUNAL, ORDER OF THE CIT (A) IS CHALLENGED AND IF THE FINDINGS ARE PERVERSE OR CONTRARY TO LAW, TH E ASSESSING OFFICER IS ENTITLED TO SEND A BRIEF MEMO TO THE DEPARTMENTAL R EPRESENTATIVE TO ENABLE HIM TO PUT FORTH HIS PLEA, BUT HE IS NOT ENT ITLED TO FILE STATEMENT OF FACTS. ON THE TOP OF IT, IN GROUND NO.6, THE AP PELLANT SUBMITS THAT THE LD. CIT(A) OUGHT TO HAVE CONFIRMED THE ADDITION OF UNACCOUNTED INVESTMENT IN STOCK FOR THE REASONS ELABORATELY DI SCUSSED IN THE STATEMENT OF FACTS. THIS, IN OUR VIEW, IS NOT PER MISSIBLE. WE THEREFORE, DO NOT CONSIDER EITHER GROUND NO.6 OR THE STATEMENT OF FACTS FILED BEFORE US. THE LD. D.R. WAS HOWEVER GIVEN FULL OPPORTUNIT Y TO PUT FORTH THE CASE OF THE REVENUE WHILE CHALLENGING THE ORDER PAS SED BY CIT(A) AND IN FACT, THE LD. D.R. DID NOT EITHER REFER TO STATEMEN T OF FACTS OR ANY OF THE CASE LAW OR SECTIONS MENTIONED IN THE STATEMENT OF FACTS. 3. FACTS IN BRIEF ARE THAT THE ASSESSEE, AS A PROPR IETARY CONCERN, WAS ENGAGED IN THE BUSINESS OF MANUFACTURE OF HOSIERY A ND READYMADE GARMENTS AND SALE THEREOF. FOR THE YEAR UNDER CONS IDERATION, THE RETURN WAS ORIGINALLY PROCESSED U/S 143(1) OF THE INCOME T AX ACT, 1961 ITA NO.28/VIZAG/2015 THATAVARTHI RAMESH BABU, KANURU, VIJAYAWADA 4 (HEREINAFTER CALLED AS 'THE ACT') BUT LATER ON TAKE N UP FOR SCRUTINY UNDER CASS. DURING THE COURSE OF EXAMINATION, THE A.O. N OTICED THAT THE ASSESSEE AVAILED OPEN CASH CREDIT FACILITY FROM AND HRA BANK TO MEET THE WORKING CAPITAL REQUIREMENT BY HYPOTHECATION OF INV ENTORY AND RECEIVABLES. ASSESSEE WAS CALLED UPON TO FURNISH T HE STOCK DETAILS (HYPOTHECATED) AS ON 31.3.2010 AND 31.3.2011. THE ASSESSEE, ACCORDINGLY FURNISHED THE DETAILS. THE A.O. NOTICE D THAT THE VALUE OF CLOSING STOCK DECLARED TO ANDHRA BANK, AS ON 31.3.2 011 WAS RS.62,72,919/- WHEREAS AS PER THE BOOKS OF ACCOUNTS , THE VALUE OF CLOSING STOCK AS ON 31.3.2011 WAS RS.39,13,580/-. THE BANK STATED THAT THE STOCK WAS VALUED AT COST PRICE OR MARKET PRICE, WHICHEVER IS LOWER, WHICH MEANS THAT BOTH THE STOCK REPORTED BY THE BAN K AND RECORDED IN THE BOOKS OF ACCOUNTS ARE BASED ON THE COST PRICE O NLY. IT WAS THUS CONCLUDED THAT THE DIFFERENCE IN VALUE OF STOCKS WA S ONLY BECAUSE OF THE DIFFERENCE IN QUANTITY OF STOCK AND NOT BECAUSE OF INFLATED VALUE. 4. IN THIS REGARD, HE OBSERVED THAT ORDINARILY THE BOOKS OF ACCOUNTS ARE PRESUMED TO BE TRUE AND CORRECT UNLESS PROVED O THERWISE. HE FURTHER OBSERVED THAT THE ONUS IS UPON THE ASSESSEE TO PROVE THE FACTS CORRECTLY SINCE THE STATEMENT OF STOCK AS WELL AS E NTRIES IN THE BOOKS OF ACCOUNTS ARE WITHIN THE PERSONAL KNOWLEDGE OF THE A SSESSEE. HE ALSO RELIED UPON THE DECISION OF HONBLE SUPREME COURT I N THE CASE OF ITA NO.28/VIZAG/2015 THATAVARTHI RAMESH BABU, KANURU, VIJAYAWADA 5 CHUMANMAL (172 ITR 250), WHEREIN IT WAS HELD THAT S TATUTORY PRINCIPLE OF COMMON LAW JURISPRUDENCE EMBEDDED IN SECTION 110 OF THE EVIDENCE ACT COULD BE APPLIED TO THE TAXATION PROCEEDINGS. IN THE OPINION OF THE ASSESSING OFFICER, THE ONUS IS HEAVILY UPON THE ASS ESSEE AND IF THE ASSESSEE ALLEGES THAT THE BANK STATEMENT IS INCORRE CT, THEN HE HAS TO ESTABLISH THE SAME BY BRINGING ON RECORD SOME DIREC T OR CIRCUMSTANTIAL EVIDENCE AND HE CANNOT GET AWAY JUST BY MAKING A ST ATEMENT THAT IT WAS TO AVAIL HIGHER OVER DRAFT FACILITY. RELIANCE WAS ALSO PLACED UPON THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE O F COIMBATORE SPINNING AND WEAVING COMPANY (93 ITR 375), WHEREIN T HE COURT OBSERVED THAT SUB-STANDARD MORALITY ON THE PART OF THE ASSESSEE SHOULD NOT BE ENCOURAGED SINCE IT IS OPPOSED TO PUBLIC POL ICY. ASSESSING OFFICER HAS ALSO RELIED UPON SEVERAL DECISIONS FOR TAKING A STANCE THAT WHEN ASSESSEE FAILS TO MAINTAIN STOCK REGISTER AND IF HE FAILS TO GIVE PROPER STOCK PRICE TO THE BANK, ADVERSE CONSEQUENCES FLOWI NG FROM SUCH ACT MUST FOLLOW AND HE HAS EVERY RIGHT TO APPLY HIS BES T DISCRETION ON FACTS OF THE CASE. IN HIS OPINION, THE EXCESS STOCK OF R S.23,59,339/- REFERABLE TO THE DIFFERENCE BETWEEN STOCK STATEMENT GIVEN TO THE BANK AND THE STOCK MENTIONED IN THE BOOKS OF ACCOUNTS HAS TO BE TREATED AS UNEXPLAINED INVESTMENT AND ACCORDINGLY ADDED THE SA ME. ITA NO.28/VIZAG/2015 THATAVARTHI RAMESH BABU, KANURU, VIJAYAWADA 6 4. THE A.O. MADE AN ADDITION OF RS.2,74,153/- TOWAR DS SUPPRESSION OF GROSS PROFIT. AS PER THE RETURNS OF INCOME FILE D, THE GROSS PROFIT RATE FOR THE 3 CONSECUTIVE ASSESSMENT YEARS ARE AS UNDER : ASST. YEAR GROSS PROFIT 2010-11 36.50% 2011-12 36.13% 2012-13 37.92% AVERAGE GP 36.85% BY TAKING THE AVERAGE PERCENTAGE OF GROSS PROFIT, THE SUPPRESSION OF GROSS PROFIT WAS WORKED OUT BY THE A.O. 5. AGGRIEVED BY THE ORDER OF THE A.O., ASSESSEE PRE FERRED AN APPEAL BEFORE THE TRIBUNAL. IT WAS CONTENDED THAT THE MON THLY STOCK STATEMENTS FURNISHED TO BANK FROM TIME TO TIME ARE USUALLY PREPARED BY A JUNIOR CLERK WHO DOES NOT HAVE AUTHENTIC KNOWLEDG E OF VALUE OF STOCK AND THEY ARE ORDINARILY BASED ON APPROXIMATION BASI S WITHOUT BOTHERING ABOUT ACCURACY IN TERMS OF QUANTITY AND VALUE OF TH E STOCK, JUST TO SATISFY THE DRAWING POWER IN OCC LIMITS, EVEN WITH INFLATED FIGURES. IT WAS THUS SUBMITTED THAT THE VALUE OF STOCK SUBMITTE D TO BANK WILL NEVER BE ACCURATE BOTH IN TERMS OF QUANTITY AND VALUE AND WOULD NOT TALLY WITH THE AMOUNT REFLECTED IN THE BOOKS OF ACCOUNTS. IT WAS ALSO STATED THAT A COMPARATIVE STATEMENT BOTH FOR PURCHASES AND SALES AS PER THE STOCK STATEMENT SUBMITTED TO ANDHRA BANK AND AS PER THE A UDITED BOOKS, SAYS ITA NO.28/VIZAG/2015 THATAVARTHI RAMESH BABU, KANURU, VIJAYAWADA 7 THAT PURCHASES FOR APRIL, 2010 AND SEPTEMBER, 2010 WAS WRONGLY TAKEN WITH SIGNIFICANT FIGURES AND THUS THE TOTAL PURCHAS ES WERE EXCESSIVELY REPORTED TO THE BANK, WHEREAS FOR OCTOBER, 2010, TH E SALES FIGURES WERE ERRONEOUSLY REPORTED AND THUS, THE TOTAL SALES WERE LESS REPORTED DURING THE ENTIRE FINANCIAL YEAR 2010-11. IT WAS THUS CON TENDED THAT NO ADDITION CAN BE MADE MERELY BECAUSE OF THE DIFFEREN CE IN THE VALUE OF STOCK FURNISHED TO THE BANK FOR OBTAINING OD FACILI TY. 7. AS REGARDS THE ALLEGED SUPPRESSION IN GROSS PROF IT, IT WAS CONTENDED THAT THE FALL IN RATE OF GROSS PROFIT, CO MPARED TO THE EARLIER YEAR WAS ONLY 0.37%. PROFIT RATE VARIES FROM YEAR TO YEAR AND IN FACT THE ASSESSEE HAS DECLARED HIGHER RATE OF PROFIT IN THE SUCCEEDING YEAR. THUS, NO ADDITION IS MAINTAINABLE BY AVERAGING THE GROSS PROFIT DECLARED IN DIFFERENT YEARS. 8. IT MAY NOT BE OUT OF PLACE TO MENTION THAT THE A .O. HAS ESTIMATED THE GROSS PROFIT ON UNACCOUNTED SALES, REFERABLE TO THE DIFFERENCE IN STOCK (CLOSING STOCK AS DISCLOSED TO THE ANDHRA BAN K AND THE STOCK MENTIONED IN THE BOOKS OF ACCOUNTS) AND ACCORDINGLY ADDED A SUM OF RS.8,69,416/-. IN THIS REGARD, THE ASSESSEE CONTEN DED THAT THE ADDITION IS UNWARRANTED SINCE IT IS MERELY BASED ON THE STOC K STATEMENT GIVEN TO THE BANK THOUGH THE FACT REMAINS THAT THERE WAS NO SUPPRESSION OF STOCK, WHICH COULD HAVE BEEN SOLD. ITA NO.28/VIZAG/2015 THATAVARTHI RAMESH BABU, KANURU, VIJAYAWADA 8 9. THE LD. CIT(A) OBSERVED THAT THE STOCK SHOWN IN THE BANK ACCOUNT WAS MERELY TO SATISFY THE DRAWING POWER FROM THE BA NK AND IT WAS AN OPEN CASH CREDIT FACILITY IN WHICH EVENT, THE A.O. HAS TO BRING SOME COGENT MATERIAL SUCH AS PURCHASES/SALES INVOICES, W HICH WERE NOT REFLECTED IN THE BOOKS, TO PROVE THE EXISTENCE OF U NACCOUNTED STOCK. LD. CIT(A) ALSO OBSERVED THAT ANY EXCESS UNACCOUNTED ST OCK COULD HAVE BEEN FOUND BY PHYSICAL VERIFICATION. THERE IS NO E VIDENCE TO SHOW THAT THE BANK AUTHORITIES HAD ACTUALLY VERIFIED THE STOC K AND TALLIED THEM WITH THE STOCK DECLARED TO THEM AND EVEN THE A.O. HAS NO T DONE THAT EXERCISE. THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE WERE IN AGREEMENT WITH VAT RETURNS FILED BEFORE STATE COMME RCIAL TAX AUTHORITIES AND THERE WAS NOTHING ON RECORD TO SUGG EST THAT ANY UNACCOUNTED STOCK WAS NOTICED BY THE COMMERCIAL TAX AUTHORITIES. THE BOOKS OF THE ASSESSEE WERE NOT REJECTED BY THE A.O. AND THUS ADDITION CANNOT BE MADE ON PRESUMPTION BASIS WHEN THERE IS NO UNACCOUNTED STOCK, THE QUESTION OF SELLING THE SAME AND DERIVIN G PROFIT WOULD NOT ARISE. UNDER THESE CIRCUMSTANCES, THE LD. CIT(A) DELETED THE ADDITION BY OBSERVING AS UNDER: AFTER CAREFUL CONSIDERATION OF THE FACTS PREVAILED IN THIS CASE, I FOUND FORCE IN THE ARGUMENTS OF THE LEARNED AUTHORI SED REPRESENTATIVE. THE ASSESSING OFFICER MADE ADDITION ONLY ON THE BAS IS OF STATEMENT OBTAINED FROM BANK. IN THE ABSENCE OF STOCK REGISTE R, TO ESTABLISH THE UNACCOUNTED STOCK, THE ASSESSING OFFICER SHOULD HAV E MADE SOME EXERCISE TO BRING ON RECORD SOME CORROBORATIVE EVIDENCE SUCH AS ABNORMAL INCREASE ITA NO.28/VIZAG/2015 THATAVARTHI RAMESH BABU, KANURU, VIJAYAWADA 9 IN PRODUCTION COST, ELECTRICITY CHARGES, TRANSPORTA TION ETC., WHICH ARE ATTRIBUTABLE TO THE UNACCOUNTED STOCK TO PROVE THE EXISTENCE OF SUCH STOCK AND PRODUCTION OF FINISHED GOODS BY PROCESSING THE SAME. HOWEVER, NO SUCH EXERCISE WAS DONE BY THE ASSESSING OFFICER. F URTHER, NO EVIDENCE SUCH AS ANY PURCHASE/SALE BILLS WHICH ARE NOT REFLE CTED IN BOOKS OF ACCOUNT WAS ALSO FOUND. IN SUCH CIRCUMSTANCES, I AM UNABLE TO ACCEPT THE STAND TAKEN BY THE ASSESSING OFFICER THAT THERE WAS UNACCOUNTED STOCK AND THE APPELLANT DERIVED PROFIT ON SALE OF S UCH STOCK. HENCE, THE ADDITIONS MADE TOWARDS UNACCOUNTED INVESTMENT IN ST OCK AND SUPPRESSED GROSS PROFIT ON SALE OF SUCH STOCK ARE DELETED. 10. SIMILARLY, WITH REGARD TO THE ESTIMATE OF PROFI T, THE LD. CIT(A) OBSERVED THAT PROFIT VARIES FROM YEAR TO YEAR DEPEN DING UPON THE FACTS AND CIRCUMSTANCES PREVAILING IN THAT PARTICULAR YEA R, WHICH IS VERY COMMON IN ANY LINE OF BUSINESS. HOWEVER, TAKING IN TO CONSIDERATION, THE FACT THAT THERE WAS CERTAIN DEFICIENCIES IN THE MAI NTENANCE OF BOOKS OF ACCOUNTS, THE LD. CIT(A) DIRECTED THE A.O. TO ESTIM ATE THE PROFIT AT 36.50%, IN LINE WITH THE PROFIT ADMITTED IN THE IMM EDIATELY PRECEDING YEAR. 11. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), REVEN UE IS IN APPEAL BEFORE THE TRIBUNAL. LD. D.R. STRONGLY RELIED UPON THE ORDER PASSED BY THE A.O. TO SUBMIT THAT THE FACTS, WHICH ARE WITHIN THE PERSONAL KNOWLEDGE OF THE ASSESSEE CANNOT BE PROVED BY THE A .O. AND HE IS ENTITLED TO TAKE A REASONABLE VIEW IN THE CIRCUMSTA NCES OF THE CASE. SINCE THE ASSESSEE ADMITTEDLY CLAIMS TO HAVE FILED WRONG STATEMENT BEFORE THE BANK AUTHORITIES, THE BURDEN IS UPON THE ASSESSEE TO PROVE THAT THE QUANTITATIVE PARTICULARS AND THE RATE MENT IONED THEREIN TO THE ITA NO.28/VIZAG/2015 THATAVARTHI RAMESH BABU, KANURU, VIJAYAWADA 10 BANK AUTHORITIES, IS NOT CORRECT AS OTHERWISE ADDIT ION IS MAINTAINABLE AND PROFIT THEREON CAN BE ESTIMATED ON THE GROUND OF DE EMED SALE. SIMILARLY, WITH REGARD TO THE ESTIMATE OF PROFIT, B Y AVERAGING 3 YEARS GROSS PROFIT RATE, THE LD. D.R. SUBMITS THAT THE PR OCEDURE FOLLOWED BY THE A.O. IS A WELL ESTABLISHED PROCEDURE AND THE LD . CIT (A) SHOULD NOT HAVE SUBSTITUTED THE RATE ADOPTED WITHOUT ANY BASIS . 12. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSE SSEE FILED WRITTEN SUBMISSIONS, COMPARATIVE STATEMENTS OF PURCHASE AND SALE, AS PER THE BOOKS OF ACCOUNTS SUBMITTED TO BANK AS WELL AS MONT HLY VAT RETURNS FILED AND ALSO RELIED UPON THE FOLLOWING CASE LAW T O CONTEND THAT IF THE STOCKS ARE HYPOTHECATED AND NOT PLEDGED WITH BANK, MERELY BECAUSE SOME HIGHER FIGURE IS ADOPTED IN THE STATEMENT GIVE N TO THE BANK, THAT SHOULD NOT BE A REASON FOR MAKING AN ADDITION, PART ICULARLY WHEN THE ASSESSEES BOOKS OF ACCOUNTS AND THE ACCOUNTING SYS TEM IS GENUINE AND SUPPORTED BY VOUCHERS: 1. (2010) 230 CTR 0293 (GUJARAT HC) 2. (2006) 200 CTR 0595 (ALLAHABAD HC) 3. (2000) 241 ITR 0363 (MADRAS HC) 4. (1987) 163 ITR 0434 (DELHI HC) 5. (2007) 292 ITR 0630 (MADRAS HC) 6. ITA NO.271/VIZAG/2012 7. ITA NO.1007/HYD/2011 13. IT WAS ALSO CONTENDED THAT THE PROFIT RATE ESTI MATED BY THE LD. CIT(A) DO NOT CALL FOR INTERFERENCE. ITA NO.28/VIZAG/2015 THATAVARTHI RAMESH BABU, KANURU, VIJAYAWADA 11 14. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO N AND PERUSED THE RECORD. WE HAVE ALSO CAREFULLY GONE THROUGH THE CA SE LAW RELIED UPON BY THE A.O. AS WELL AS THE LD. COUNSEL FOR THE ASSE SSEE. IT IS NO DOUBT TRUE THAT THE INITIAL BURDEN IS UPON THE ASSESSEE T O PROVE THE CORRECT VALUE OF THE STOCK HELD BY THE ASSESSEE AND HE HAS TO PROVE THAT THE VALUE REFLECTED IN THE BOOKS OF ACCOUNTS IS CORRECT BUT THE FACT REMAINS THAT THE COURTS HAVE TIME AND AGAIN ACCEPTED THE FA CT THAT IN OPEN LOAN SYSTEM, THE PARTIES TEND TO INFLATE FIGURES OF QUAN TITY AS WELL AS RATE MERELY TO ENJOY HIGHER CASH CREDIT LIMITS. IN THE INSTANT CASE, THE ASSESSEE FILED MONTHLY VAT RETURNS BASED ON THE SAM E BOOKS OF ACCOUNTS AND THE SAME WAS ACCEPTED WITHOUT MAKING A NY ADDITIONS. NEITHER THE BANK AUTHORITIES NOR THE A.O. MADE ANY EFFORT TO VERIFY THE ACTUAL STOCK TO PROVE THAT THERE IS EXISTENCE OF UN ACCOUNTED STOCK UNDER THESE CIRCUMSTANCES AND CONSISTENT WITH THE VIEW TA KEN BY THE ITAT AND VARIOUS HIGH COURTS, WE HOLD THAT THE A.O. HAS NOT MADE OUT A CASE FOR MAKING AN ADDITION REFERABLE TO UNACCOUNTED STOCK A S WELL AS DETERMINING THE PROFIT ON THE ALLEGED SALE OF SUCH UNACCOUNTED STOCK. UNDER THE CIRCUMSTANCES, WE UPHOLD THE ORDER PASSED BY THE LD. CIT(A). 15. SIMILARLY, WITH REGARD TO THE ESTIMATE OF GROSS PROFIT, THERE CANNOT BE ANY UNIFORM BASIS FOR ESTIMATING GROSS PROFIT. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THERE WERE DEFICIENCIE S IN THE MAINTENANCE ITA NO.28/VIZAG/2015 THATAVARTHI RAMESH BABU, KANURU, VIJAYAWADA 12 OF BOOKS OF ACCOUNTS. WHEN THE A.O. AS WELL AS CIT (A) AGREED ON THIS ISSUE, IT MAY NOT BE PROPER TO SUBSTITUTE THE CASE OF THE A.O. BY AN APPELLATE AUTHORITY, WITHOUT ANY COGENT REASONS. S INCE THE A.O. FOLLOWED AN ACCEPTABLE BASIS SUCH AS AVERAGING THE 3 YEARS PROFIT RATE, WE ARE OF THE VIEW THAT THE ORDER OF THE LD. CIT(A) ON THIS ASPECT DESERVES TO BE MODIFIED AND WE UPHOLD THE ORDER OF THE A.O. OF ESTIMATING THE AVERAGE RATE OF 36.85%. THE ORDER O F THE LD. CIT(A) IS MODIFIED ACCORDINGLY. 16. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT O N 8 TH DEC17. SD/- SD/- ( . . # % ) ( . ) (D.S. SUNDER SINGH) (D. MANMOHAN) ' /ACCOUNTANT MEMBER /VICE PRESIDENT $ /VISAKHAPATNAM: ( /DATED : 08.12.2017 VG/SPS *$ +$ /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT THE ACIT, CIRCLE-3(1), VIJAYAWAD A 2. / THE RESPONDENT SHRI THATAVARTHI RAMESH BABU, P ROP: M/S. KEERTHANA GARMENTS, PLOT NO.28, J.R.D. TATA INDUSTRIAL ESTATE, KANURU, VIJAY AWADA-520007. 3. , / THE CIT, VIJAYAWADA 4. , ( ) / THE CIT (A), VIJAYAWADA 5. $ / , / , $ / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. 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