Krishna Gram Udyog Samiti, Sangrur V. DCIT, Ludhiana

ITA 288/CHANDI/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 4992 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 09-02-2018
• Assessment Year: 2002-2003
• Appeal Filed On: 10-02-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR GULSHAN RAJ
• Keywords: Business income; Search and seizure
• Section: 133A; 263; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH A, CHANDIGARH BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND DR. B.R.R. KUMAR, ACCOUNTANT MEMBER ITA NOS. 287,288,1438,1439,1440,1441,1442/CHD/2017 ASSESSMENT YEARS: 2001-02 TO 2007-08 M/S KRISHNA GRAM UDYOG SAMITI VS. THE DCIT VILL MANNWALA, DHURI, CENTRAL CIRCLE II DIST: SANGRUR LUDHIANA PAN NO. AAAAK3064H & ITA NOS. 1327 TO 1333/CHD/2017 ASSESSMENT YEARS: 2001-02 TO 2007-08 M/S JAIN GRAM UDYOG SAMITI VS. THE DCIT BHALWAN ROAD, DHURI CENTRAL CIRCLE-II DIST: SANGRUR LUDHIANA PAN NO. AAAAJ1893K (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. DEEPAK AGGARWAL SH. ARSH KAUSHAL REVENUE BY : DR. GULSHAN RAJ DATE OF HEARING : 12/04/2018 DATE OF PRONOUNCEMENT : 25/05/2018 ORDER PER BENCH: ALL THE ABOVE APPEALS HAVE BEEN FILED BY TWO DIFFER ENT ASSESSEES AGAINST THE SEPARATE ORDERS OF THE LD. CIT(A)-5, LUDHIANA. 2. SINCE THE ISSUES INVOLVED IN ALL THE APPEALS ARE COMMON THEREFORE THEY ARE BEING DISPOSED OFF TOGETHER BY WAY OF THIS COMM ON ORDER. 3. FOLLOWING GROUNDS HAVE BEEN RAISED IN CASE OF KR ISHNA GRAM UDYOG SAMITI: 2 1. THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACT ION OF THE LD. A.O. IN MAKING AN ADDITION OF RS. 14,49,382/- TOWARDS GROSS PROFIT ON MANUFACTURED @ 15% AND TRADING ITEMS @ 3%, ON THE GROUND THAT THE ASSESSEE FAILED TO PRODUCE THE SUPPORTING VOUCHERS, WHEREAS AS PER THE ASSESSE E THE GROSS PROFIT RATE APPLIED IS EXORBITANTLY HIGH WITHOUT TAKING INTO CO NSIDERATION ANY COMPARABLE CASE, PAST OR FUTURE HISTORY OF THE ASSESSEE HIMSEL F THEREFORE, IT IS PRAYED THAT THE ADDITION MAY KINDLY BE DELETED. 2. THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACT ION OF THE LD. A.O. IN MAKING AN ADDITION OF RS.5,33,886/- TOWARDS NET PRO FIT ON TRADING ITEMS @ 20%, ON THE GROUND THAT THE ASSESSEE FAILED TO PRODUCE THE SUPPORTING VOUCHERS, WHEREAS AS PER THE ASSESSEE THE ADDITION TOWARDS GROSS PROF IT AND THEN TOWARDS NET PROFIT IS NOTHING BUT MISAPPLICATION OF MIND AND LACK OF C LARITY ABOUT THE ACCOUNTING PRINCIPLES THEREFORE, IT IS PRAYED THAT THE ADDITIO N MAY KINDLY BE DELETED. 3.1 FOLLOWING GROUNDS HAVE BEEN RAISED IN CASE OF M /S JAIN GRAM UDYOG SAMITI: 1. THAT THE LD. CIT (A) HAS ERRED IN CONFIRMING THE ACTION OF LD. A.O. IN MAKING AN ADDITION OF RS.2,40,441/- (ENTRIES FOUND RECORDED IN SEIZED DOCUMENT NO. A-6/33) ON THE GROUND THAT THE SPECIAL AUDITOR SUGGESTED THE ADDITION BY TAKING THE SAID TRANSACTION AS UNRECORDED SALES OF THE ASSESSEE AND THE EXPLANATION OF THE ASSESSEE IS NOT CONVINCING WHERE AS AS PER THE ASSESSEE THE TRANSACTION RECORDED IN THE SAID SEIZED DOCUMENT IS THAT OF SHARMA ENTERPRISES AND THERE IS NOT EVEN A REMOTE CONNECTION BETWEEN T RANSACTION AND THE ASSESSEE, HENCE THE ADDITION NEEDS TO BE DELETED. 2. THAT THE LD. CIT (A) HAS ERRED IN CONFIRMING THE ACTION OF LD. A.O. IN MAKING AN ADDITION OF RS.29,857/- (ENTRIES FOUND RE CORDED IN SEIZED DOCUMENT NO. A-6/33-34) ON THE GROUND THAT THE SPECIAL AUDITOR S UGGESTED THE ADDITION AND THE EXPLANATION OF THE ASSESSEE IS NOT CONVINCING WHERE AS AS PER THE ASSESSEE THE TRANSACTION RECORDED IN THE SAID SEIZED DOCUMENT IS THAT OF SHARMA ENTERPRISES AND THERE IS NOT EVEN A REMOTE CONNECTION BETWEEN T RANSACTION AND THE ASSESSEE, HENCE THE ADDITION NEEDS TO BE DELETED. 3. THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE LD. A.O. IN MAKING AN ADDITION OF RS.7,26,564/- TOWARDS GROSS P ROFIT ON MANUFACTURED @ 15% AND TRADING ITEMS @ 3%, ON THE GROUND THAT THE ASSE SSEE FAILED TO PRODUCE THE SUPPORTING VOUCHERS, WHEREAS AS PER THE ASSESSEE TH E GROSS PROFIT RATE APPLIED IS EXORBITANDV HIGH WITHOUT TAKING INTO CONSIDERATION ANY COMPARABLE CASE, PAST OR FUTURE HISTORY O( THE ASSESSEE HIMSELF THEREFORE, I T IS PRAYED THAT THE ADDITION MAY KINDLY BE DELETED. 4. THAT THE LD. CIT(A) HAS ERRED IN PARTLY CONFIRMI NG THE ACTION OF THE LD. A.O. IN MAKING AN ADDITION OF RS.53,138/- TOWARDS NET PR OFIT ON TRADING ITEMS @ 20%, ON THE GROUND THAT THE ASSESSEE FAILED TO PRODUCE THE SUPPORTING VOUCHERS, WHEREAS AS PER THE ASSESSEE THE ADDITION TOWARDS GROSS PROF IT AND THEN TOWARDS NET PROFIT IS NOTHING BUT MISAPPLICATION OF MIND AND LACK OF C LARITY ABOUT THE ACCOUNTING PRINCIPLES THEREFORE, IT IS PRAYED THAT THE ADDITIO N MAY KINDLY BE DELETED. 4. FACTS OF THE CASE: 4.1 THE BRIEF HISTORY PERTAINING TO THE SEARCH AND SEIZURE ACTION TAKEN IN THE CASE OF THE ASSESSEE, CONSEQUENT 153 C ORDERS, REVI SIONARY ORDERS UNDER SECTION 263 AND ASSESSMENT ORDERS SUBSEQUENT TO ORDER UNDER SECTION 263, THE FACTS OF THE CASE AND ARGUMENTS TAKEN BEFORE THE LD. CIT(A) BY THE ASSESSEE. 3 5. THE CASE OF M/S KRISHNA GRAM UDYOG SAMITI FOR TH E A.Y. 2001-02 IN ITA NO. 287/CHD/2017 HAS BEEN TAKEN AS A LEAD CASE AS AGREE D BY BOTH THE PARTIES AS THE FACTS AND THE GROUNDS INVOLVED IN ALL THE CASE S ARE SIMILAR IN NATURE. 5.1 THE ASSESSEEE IS AN ASSOCIATION OF PERSONS AND IS ENGAGED IN THE RUNNING OF RICE MILL AT VILL. MANNWALA, DHURI, DIST T. SANGRUR. DURING THE YEAR, UNDER CONSIDERATION, THE ASSESSEEE MAINTAINED THE COMPLETE BOOKS OF ACCOUNTS, SUCH AS, CASH BOOK, LEDGER, JOURNAL, S TOCK REGISTERS BASED ON SUPPORTING DOCUMENTARY EVIDENCE ETC. THESE BOOKS OF ACCOUNTS, DULY AUDITED IN ACCORDANCE WITH THE PROVISIONS OF SECTIO N 44AB OF THE I.T.ACT. 1961. RETURN DECLARING INCOME OF RS. 64,990/- WAS F ILED AS PER THE PROVISIONS OF SECTION 139(1) OF THE ACT AND THE RET URN OF INCOME FILED WAS SUPPORTED WITH A TAX AUDIT REPORT IN FORM NO. 3CA A ND 3CD, PREPARED IN ACCORDANCE WITH THE PROVISION OF SECTION 44AB OF TH E ACT. 5.2 A SEARCH & SEIZURE OPERATION U/S 132 OF THE INC OME TAX ACT, 1961 CARRIED OUT AT THE RESIDENTIAL PREMISES OF SLIRI VE D PARKASH AND HIS FAMILY MEMBERS AND CONCERNS ON 12.10.2006 AND THE ASSESSEE S' BUSINESS PREMISES WAS COVERED U/S 133A OF THE ACT. DURING TH E SEARCH OPERATION, CERTAIN DOCUMENTS PERTAINING TO THE ASSESSEE AOP FO UND AND SEIZED. ACCORDINGLY, PROCEEDINGS U/S 153C OF THE ACT WERE I NITIATED THROUGH ISSUANCE OF NOTICE U/S 153C ON 2.12.2008 AND IN RES PONSE TO SAID NOTICE, THE ASSESSEE AOP FILED A RETURN OF INCOME DECLARING SAME INCOME OF RS. 64,990/- AS WAS ORIGINALLY FILED U/S 139(1) OF THE ACT. THE AUDIT REPORT AS PREPARED IN ACCORDANCE WITH THE PROVISIONS OF SECTI ON 44AB OF THE ACT MADE AVAILABLE. 4 5.3 ON RECEIPT OF RETURN OF INCOME U/S 153C OF THE ACT, THE CASE WAS TAKEN UP UNDER SCRUTINY AND NOTICES U/S 143(2)/142( 1), CALLING FOR CERTAIN INFORMATION / DETAILS ETC. WERE ISSUED AND COMPLIED WITH. 5.4 THE ASSESSMENT WAS COMPLETED AS PER ORDER DATED 21.08.2009 AS PER WHICH, THE INCOME OF THE ASSESSEE ASSESSEED AT RS. 7,99,023/-, WHICH INCLUDES THE FOLLOWING ADDITIONS:- (I) ADDITION ON ACCOUNT OF GROSS PROFIT = RS 5,9 3,193/- (AFTER REJECTING BOOKS OF ACCOUNTS) (II) DISALLOWANCE OF EXPENSES @ 10% = RS. 65,810 /- HOWEVER, THE ORDER DATED 21.08.2009 OF THE LD. ASSE SSING OFFICER WAS SET ASIDE BY THE CIT, AS PER ORDER DATED 12.03.2012, BY INVOKING THE PROVISIONS OF SEC 263 OF THE L.T. ACT. 5.5 IN PURSUANCE OF THE ORDER DATED 12.03.2012, THE ASSESSMENT PROCEEDINGS WERE RE-INITIATED BY ISSUE OF NOTICES U /S 143(2)/142(1). THE ASSESSMENT HAD AGAIN BEEN COMPLETED VIDE ORDER DATE D 28.03.2013 BY MAKING FURTHER ADDITION OF RS. 30,38,467/- TO THE I NCOME ALREADY ASSESSEED AS PER ORDER DATED 21.08.2009. 6. GROUND NO. 1 RELATES TO ADDITION ON ACCOUNT OF U NDISCLOSED GROSS PROFIT: 6.1 THE LD. ASSESSING OFFICER, AS PER PARA 11.3 AND 11.4OF ITS ORDER DATED 28.03.2013 HAS MADE A FURTHER ADDITION OF RS. 20,42 ,575/- BY ADOPTING THE G.P. RATIO OF 15% FROM MANUFACTURING ITEMS AND 3% F ROM TRADING ITEMS AS AGAINST ADOPTING OF SUCH RATIO OF 8% AND 1% RESPECT IVELY AS PER ORDER DATED 21.08.2009. 6.2 AS PER THE FACTS ON REGARD, IT WAS OBSERVED THA T THE ASSESSEE WAS RUNNING A BUSINESS OF RICE SHELLING AND THE TOTAL T URNOVER DURING THE YEAR 5 WAS TO THE TUNE RS.3,99,53,487/-, INCLUDING THE TRA DING PURCHASES AMOUNTING TO RS. 2,49,55,003/-.HOWEVER, IN ITS RETU RN OF INCOME, THE ASSESSEE HAD DECLARED PROFIT OF RS. 9,55,903/- OUT OF ITS SALE PROCEEDS. IN THE COURSE OF ASSESSMENT PROCEEDINGS, TO BUY PEACE OF MIND, THE ASSESSEE AGREED TO BE ASSESSEED AT A PROFIT @ 8% FR OM MANUFACTURING ITEMS AND 1% FROM TRADING ITEMS OF THE TOTAL TURNOV ER AT THE TIME OF INITIAL ASSESSMENT AND ACCORDINGLY, AN ADDITION OF RS. 5,93 ,193/- WAS MADE AS PER ORDER DATED 21 .08.2009. HOWEVER, THE CIT AS PE R ITS ORDER DATED 12.03.2013 SET-ASIDE THE ORDER OF ASSESSMENT WITH T HE DIRECTIONS TO MAKE FRESH ASSESSMENT DE-NOVO AFTER CONDUCTING PROPER EN QUIRY AND VERIFYING AND ANALYZING SEIZED MATERIAL AND COM MENTS OF THE SPECIAL AUDITOR. 6.3 THE ASSESSING OFFICER, AS PER PARA 11.3 OF ITS ORDER DATED 28.03.2013 MADE A FURTHER ADDITION OF RS. 20,42,575 /- WITH THE FOLLOWING OBSERVATIONS:- ' 11.3 NOW ON HAVING A FRESH LOOK TO THE FACT AND C IRCUMSTANCES OF THE CASE HAVING PARTICULAR REGARD TO THE OBSERVATION MA DE BY THE SPECIAL AUDITOR AND WORTHY CIT, (CENTRAL), LUDHIANA THROUGH HIS ORDER U/S 263 DATED 12.02.2012, IT IS DECIDED THAT BOOKS OF THE A SSESSEE IS UNRELIABLE IN ABSENCE OF THE BASIS DOCUMENTS. HOWEVER, ONE CANNOT AFFORD TO LOOSE SIGHT OF THE METICULOUSNESS WITH WHICH THE BOOKS HA VE BEEN MAINTAINED AND PRODUCED. I AM OF THE OPINION THAT THE BOOKS AS PRODUCED VERIFICATION AT THIS END. COULD HAVE BEEN MANUFACTU RED WITHOUT HAVING THE AID OF BASIC DOCUMENTS. THUS, TAKING INTO CONSI DERATION ALL THESE FACTS I AM OF THE CONSIDER OPINION THAT G.P. RATE OF 15% MAY BE ADOPTED FOR ARRIVING AT THE TRUE GROSS PROFIT OF THE ASSESSEE O N MANUFACTURING ITEMS. SIMILARLY, G.P RATE OF 3% BE ADOPTED FOR ASCERTAINI NG GROSS PROFIT ON TRADING ITEMS.' 6.4 IT WAS ARGUED BEFORE US BY THE LD. AR THAT THE ASSESSING OFFICER, THOUGH DID NOT CATEGORICALLY HELD THE BASIS FOR ARR IVING AT THE CONCLUSION OF ADOPTING THE GROSS PROFIT RATIO OF 15% FROM MANU FACTURING ITEMS AND 3% FROM TRADING ITEMS BUT ADOPTED THE SAME AND COMPLET ED THE ASSESSMENT ACCORDINGLY. THIS IS AGAINST THE SETTLED PRINCIPLE OF LAW. 6 6.5 THE LD. AR ARGUED THAT FURTHER, AS PER ORDER, I N SUCH BUSINESS, THE GROSS PROFIT @8% FROM MANUFACTURING ITEMS AND 1% FR OM TRADING ITEMS NOT HELD AS UNREASONABLE. THE GROSS PROFIT RATIO ADOPTE D BY THE ASSESSING OFFICER IS WITHOUT BASIS AND BASED MERELY ON CONJEC TURE, SURMISES, AND AS SUCH, IS NOT SUSTAINABLE IN THE EYE OF LAW. 6.6 IT WAS ARGUED THAT THE ASSESSEE, AT THE TIME OF INITIAL ASSESSMENT, KEEPING IN VIEW THE NATURE OF BUSINESS, HAD AGREED TO BE ASSESSEED @ 8% FROM MANUFACTURING ITEMS AND 1% FROM TRADING ITEMS OF THE TURNOVER TO BUY PEACE OF MIND OTHERWISE THERE WAS NO EXTRA INCO ME FROM SUCH BUSINESS. HOWEVER, THE ASSESSING OFFICER, AS PER OR DER DATED 28.03.2013 HAS MADE A FURTHER ADDITION OF RS. 20,42,575/-(NOW STANDS AT RS. 14,49,382/- AFTER ORDER OF THE CIT(A)) BY ENHANCIN G THE GROSS PROFIT RATIO AT 15% FROM MANUFACTURING ITEMS AND 3% FROM TRADING ITEMS THOUGH THE ASSESSEE IS MAINTAINING REGULAR BOOKS OF ACCOUNT IN RESPECT OF HIS BUSINESS OF RICE SHELLER AND THESE BOOKS OF ACCOUNTS HAD ALR EADY BEEN AUDITED U/S 44AB OF THE ACT. AND THE ASSESSEE IN ITS RETURN OF INCOME HAD DECLARED GROSS PROFIT @ 2.40% AND NET PROFIT @ 0.09% OUT OF ITS SALE PROCEEDS. 6.7 IT WAS ARGUED THAT IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE PRODUCED THE BOOKS OF ACCOUNTS BUT SOME OF THE SUPPORTING VOUCHERS COULD NOT PRODUCE DUE TO THE REASON THAT T HESE HAVE BEEN LOST IN TRANSIT AND IN SUPPORT OF ITS CONTENTION; THE AS SESSEE PRODUCED A COPY OF THE FIR REGISTERED WITH THE POLICE AUTHORITIES. 6.8 THE LD. AR ARGUED THAT IN THE GIVEN CIRCUMSTAN CES, AS PER SETTLED LAW, IT IS THE DUTY-OF THE LD. ASSESSING OFFICER TO ESTIMATE THE PROFIT IN A FAIR AND REASONABLE MANNER EITHER BY FOLLOWING THE HISTO RY OF THE ASSESSEES OWN CASE OR BY FOLLOWING THE COMPARABLE CASES OF TH E AREA. AS IS EVIDENT 7 FROM THE ASSESSMENT ORDER ITSELF, THE ESTIMATION OF PROFIT BASED NEITHER ON THE ASSESSEES' OWN CASE NOR ON THE COMPARABLE CASES OF THE AREA. THE GROSS PROFIT OF 2.40% DECLARED BY THE ASSESSEE IS Q UITE REASONABLE AND IS IN ACCORDANCE WITH THE GROSS PROFIT RATIO NORMALLY EXP ECTED OUT OF SUCH BUSINESS. THE ASSESSEE, AT THE TIME OF INITIAL ASSE SSMENT, KEEPING IN VIEW THE NATURE OF BUSINESS, HAD AGREED TO BE ASSESSEED AT SUCH PROFIT RATIO OF THE TURNOVER TO BUY PEACE OF MIND OTHERWISE THERE W AS NO EXTRA INCOME FROM SUCH BUSINESS TO THAT AS DECLARED IN THE RETUR N OF INCOME. 6.9 HENCE , IT WAS ARGUED THAT THE ASSESSING OFFICE R HAS ENHANCED THE ESTIMATION OF GROSS PROFIT IN REVISED ASSESSMENT MA DE IN PURSUANT OF DIRECTIONS U/S 263 FROM 8% TO 15% IN CASE OF MFG TU RNOVER AND 3% IN CASE OF TRADING TURNOVER WITH OUT ANY INDEPENDENT ENQUIR Y OR COMPARATIVE RESULTS OF THIRD PARTY OUGHT TO BE DELETED. 6.10 IT WAS ARGUED THAT IN ADDITION THE ASSESSING O FFICER HAS ESTIMATED NET PROFIT @ 20%. IT IS AN ESTABLISHED ACCOUNTING / ASSESSMENT P RINCIPLE THAT ONLY NET PROFIT IS ASSESSABLE IN CASE OF ESTIMATION OF INCOME SO GR OSS PROFIT ADDITION IN UNCALLED FOR HENCE THE GROSS PROFIT ADDITION OUGHT TO BE DEL ETED. 6.11 LD. DR IN ADDITION TO PLACING RELIANCE ON THE ORDERS OF THE LOWER AUTHORITIES HAS SUBMITTED HIS FURTHER ARGUMENTS IN WRITTEN FORM WHICH ARE AS UNDER: IN THE ABOVE CASE, IT IS HUMBLY SUBMITTED THE DAT E OF SEARCH IS 12.10.2006 AND FIR REFERRED AND HEAVILY RELIED BY THE ASSESSEE IN ALL THE CASES IS DATED 13.11.2006. THIS FIR IS POST SEARCH AND IS REFERRING TO 'ALL THE REL EVANT DOCUMENTS OF VEHICLE AND SOME OTHER VALUABLE DOCUMENTS WERE IN THE VEHICLE'. NO LIST OF SUCH DOCUMENTS WAS REPORTED TO THE POLICE. IT IS CLEAR FROM THE WORDIN G I.E. SOME OTHER VALUABLE DOCUMENTS WERE IN THE VEHICLE THAT FILING OF FIR IS AFTER THOUGHT AND MISLEADING. NO RESULT OF FIR WAS EVER SUBMITTED BEFORE ANY AUTHORI TY BELOW. SUPPORTING DOCUMENTS WERE NOT PRODUCED BEFORE THE AO AND THE C IT (A). HENCE, CIT (A) HAS RIGHTLY UPHELD THE ADDITION ON ACCOUNT OF GP AND NP . IT IS FURTHER SUBMITTED THAT THE FOLLOWING DECISIONS MAY KINDLY BE CONSIDERED WITH R EGARD TO ADDITION ON ACCOUNT OF GP/NP RATE: 1. SMT DAVAWANTI VS CIT [2016] 75 TAXMANN.COM 3 08 (DELHI)/R20171 245 TAXMAN 293 (DELHI)/R20171 390 ITR 496 (DELHI)/R2016 1 290 CTR 361 (DELHI) (COPY 8 ENCLOSED) WHERE HON'BLE DELHI HIGH COURT, IN PARA 22 OF ITS O RDER, UPHELD ORDER OF HON'BLE ITAT ESTIMATING GP @15% AND ESTIMATING SALES AT RS.1 CRO RE. 2. KACHWALA GEMS VS CIT [20071 158 TAXMAN 71 (SC)/ R20071 288 ITR 10 (SC)/R20061 206 CTR 585 (SO (COPY ENCLOSED) ASSESSING OFFICER, ON FINDING THAT ASSESSEE HAD NOT MAINTAINED AND KEPT ANY QUANTITATIVE DETAILS/STOCK REGISTER FOR GOODS TRADE D IN BY IT; THAT THERE WAS NO EVIDENCE ON RECORD OR DOCUMENT TO VERIFY BASIS OF V ALUATION OF CLOSING STOCK SHOWN BY ASSESSEE; AND THAT GP RATE DECLARED BY ASS ESSEE DURING ASSESSMENT YEAR DID NOT MATCH RESULT DECLARED BY ASSESSEE ITSELF IN PREVIOUS ASSESSMENT YEARS, REJECTED ASSESSEE'S BOOKS OF ACCOUNT AND RESORTED T O BEST JUDGMENT ASSESSMENT UNDER SECTION 144. HON'BLE SUPREME COURT HELD THAT SINCE COGENT REASONS HAD BEEN GIVEN BY ASSESSING OFFICER FOR DOING SO, THERE WAS NO REASON TO TAKE A DIFFERENT VIEW . 6.12 WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIE S AND GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES. THE FOLLOWING FACTS EMERGED FROM THE PERUSAL OF THE RECORDS. 6.13 THE ASSESSEE HAS FILED HIS RETURN DECLARING TO TAL PROFITS @ 3.75% DURING THE ASSESSMENT PROCEEDINGS THE ASSESSEE HAS OFFERED 1% ON TRADING GOODS AND 8% ON MANUFACTURING GOODS. THE LD . CIT INVOKED JURISDICTION OF SECTION 263 AND IN THE CONSEQUENT O RDER THE PROFIT WAS ESTIMATED @3% ON TRADING GOODS AND 15% ON MANUFACTU RING GOODS. THE ASSESSEE COULD NOT SUBMIT BOOKS OF ACCOUNT IN THE S UBSEQUENT PROCEEDINGS BEFORE THE ASSESSING OFFICER WHICH NECE SSITATED THE ESTIMATION OF PROFITS. A DEFINITE GROUND WORK IS SINE-QUANON ON PART OF THE ASSESSING OFFICER BEFORE RESORTING TO THE PROVISION S OF SECTION. 6.14 WHERE THE ASSESSEE IS UNABLE TO RECONCILE THE QUANTITIES HANDLED BY IT AS BETWEEN PURCHASES AND SALES, SUBJECT TO ADJUSTMENT AS BETWEEN OPENING AND CLOSING STOCKS OR WHERE NO QUANTITY ACCOUNTS ARE KE PT, THE ACCOUNTS ARE TO BE TAKEN AS UNPROVED, SO THAT THE INCOME RETURNED MAY WELL BE REJECTED AND INCOME ESTIMATED. IN THE CASE OF ITO V. GIRISH M MEHTA [2008] 296 ITR (AT) 125 (RAJKOT), IT WAS POINTED OUT, THAT THE PRE-CONDITIO N FOR ESTIMATING BUSINESS INCOME OF THE ASSESSEE, WHERE AN ASSESSEE KEEPS ACC OUNTS IS THAT THE 9 ASSESSEES BOOKS SHOULD HAVE BEEN FOUND TO BE UNREL IABLE OR OTHERWISE NOT CAPABLE OF PROVING THE ASSESSEES INCOME. 6.15 WE HAVE CONSIDERED THE PROFIT PERCENTAGE OF TH E ASSESSEE IN THE EARLIER YEARS AS DECLARED IN THE REGULAR RETURNS. AND ALSO THE CASE LAW CITED BY THE LD. DR IN THE CASE OF DAYAWANTI VS. CIT WHEREIN THE ASS ESSEE IN THE BUSINESS OF PERFUMERY USED IN PRODUCTION OF GUTKA DECLARED G.P. OF 8.6% TO 10.7% THE HONBLE HIGH COURT DIRECTED TO ESTIMATE G.P. @ 15%. SIMILARLY IN THE CASE OF KACHWALA GEMS VS. JCIT 288 ITR 10 (SUPREME COURT) T HE HONBLE SUPREME COURT UPHELD THE ESTIMATION OF G.P. IN THE ABSENCE OF ANY OTHER MATERIAL AND HELD THAT THE ESTIMATION SHOULD BE HONEST AND FAIR AND S HOULD NOT BE ARBITRARY THOUGH IT CONTAINS CERTAIN DEGREE OF GUESS WORK. 6.16 HENCE KEEPING IN VIEW THE ORIGINAL PROFITS, RE VISED PROFITS DECLARED BY THE ASSESSEE AND THE ESTIMATION DONE BY THE ASSESSING O FFICER AND KEEPING IN VIEW THE HISTORY AND THE EARLIER PROFITS DECLARED BY THE ASSESSEE WE HEREBY FEEL IT FIT AND JUSTICE WOULD BE MET IF THE G.P IS ESTIMATED A T 2% FOR TRADING GOODS AND 12% FOR MANUFACTURING GOODS. THE ASSESSING OFFICER IS DIRECTED TO RECOMPUTED THE PROFITS @ 2% ON TRADING GOODS AND 12% ON MANUFA CTURING GOODS. 6.17. THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLO WED FOR STATISTICAL PURPOSES. 7. GROUND NO. 2 RELATES TO ADDITION OF RS. 5,33,886 /- ON ACCOUNT OF UNDISCLOSED NET PROFIT: 7.1 BRIEF FACTS OF THE ISSUE ARE THAT THE LD. ASSES SING OFFICER HAS MADE A FURTHER ADDITION OF RS. 5,99,696/-( NOW STANDS AT R S. 5,33,886/- AFTER THE LD. CIT(A)S ORDER ) WITH THE FOLLOWING OBSERVATIONS:- '12. SINCE, THE ASSESSEE ADMITTED OF NOT HAVING THE GROUND DOCUMENTS ON THE BASIS OF WHICH THE NET PROFIT WAS ARRIVED AT , ON ESTIMATION OF NET PROFIT PERCENTAGE IS SIMILARLY CALLED FOR. IN THE P ROFIT & LOSS A/C, THE ASSESSEE DISCLOSED NET PROFIT % WITH RESPECT TO GRO SS PROFIT OF 3.75%. HAVING REGARD TO THE TOTAL FACTS AND CIRCUMSTANCES, IT IS DECIDED TO ADOPT A 10 FIGURE OF 20% WHICH WORKS OUT TO RS. 5,99,696/- (29 ,98,470 X 20%). THIS SUM IS ADDED TO THE DISCLOSED TOTAL INCOME OF THE ASSESSEE .'' 7.2 BEFORE US IT WAS SUBMITTED BY THE LD. AR THAT I T WOULD ALSO NOT BE OUT OF PLACE TO MENTION THAT AT THE TIME OF INITIAL ASSESSMENT, AS PER ORDER DATED 21.08.2009, AN ADDITION OF RS. 65,810/-WAS MA DE BY DISALLOWING VARIOUS EXPENSES DEBITED TO P&L ACCOUNT. THE ASSESS ING OFFICER HAS MADE FURTHER DISALLOWANCE OF EXPENSES OF RS. 5,99,696/-. THUS, THE DISALLOWANCE OF TOTAL EXPENSES DEBITED TO P&L COMES TO RS. 6,65, 506/- (65,810 + 5,99,696). THUS, APPARENTLY, THE DISALLOWANCE OF EX PENSES DEBITED TO P&L ACCOUNT UNREASONABLE AND NOT IN CONSISTENT WITH ITS OWN FINDINGS, AS STATED SUPRA. 7.3 IN THIS CONNECTION, IT WAS ARGUED THAT AT THE O UTSET, THE ESTIMATION OF NET PROFIT OF 20% ON THE GROSS PROFIT IS WITHOUT BRINGING ANY COMPARABLE CASE IN SUPPORT THEREOF AND /OR BRINGING ANY POSITI VE EVIDENCE ON RECORD TO ARRIVE AT SUCH RATIO. 7.4 THE LD. AR VEHEMENTLY ARGUED THAT THE INCOME OF THE ASSESSEE FROM THE RICE MILL HAS ASSESSEED ON ESTIMATE BASIS BY RE JECTING THE BOOKS OF ACCOUNTS OF THE ASSESSEE. THEREFORE, AS PER THE SET TLED PRINCIPLE OF LAW, WHEN THE ASSESSEES' BOOKS OF ACCOUNTS HAVE REJECTED AND A PROFIT HAS ESTIMATED, THEN, AS PER THE ACCOUNTING PRINCIPLE, N O SEPARATE ADDITION OF NET PROFIT PERCENTAGE IS CALLED FOR. 7.5 LD. DR RELIED ON THE ORDER OF THE ASSESSING OFF ICER AND ORDER OF THE LD. CIT(A). 7.6 WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE FACTS ON RECORD. 11 7.7 IN ADDITION TO THE ESTIMATION OF G.P. THE ASSES SING OFFICER HAS ALSO FURTHER ESTIMATED NET PROFIT @ 20% ON TRADING ITEMS . REGARDING THE ESTIMATION OF NET PROFIT IN ADDITION TO G.P. WE ARE UNABLE TO AGREE WITH THE ARGUMENTS OF LD. DR AND ALSO THE FINDINGS OF TH E LD. CIT(A) AS THE DOUBLE ESTIMATION OF PROFITS ARE CONTRARY TO THE ES TABLISHED ACCOUNTING PRINCIPLES AND ALSO CONTRARY TO THE PRINCIPLES OF E STIMATION OF PROFITS IN THE ABSENCE OF BOOKS OF ACCOUNTS AND EVEN BY INVOKING T HE PROVISIONS UNDER SECTION 145(3) WHICH CAN BE INVOKED (A) WHERE ASSES SING OFFICER IS NOT SATISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS; OR (B) WHERE METHOD OF ACCOUNTING CASH OR MERCANTILE HAS NOT BEE N REGULARLY FOLLOWED BY THE ASSESSEE ; (C) ACCOUNTING STANDARDS AS NOTIFIE D BY THE CENTRAL GOVERNMENT HAVE NOT BEEN REGULARLY FOLLOWED BY THE ASSESSEE. E VEN THIS DOESNT GIVE ANY POWER TO THE ASSESSING OFFICER TO ESTIMATE THE NET PROFIT SEPARATELY IN ADDITION TO ESTIMATION OF GROSS PROFIT. HENCE THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF ESTIMATION OF PROFITS TOWARDS NET PROFIT ON TRADING ITEMS IS LIABLE TO BE DELETED ON MERITS AS WELL AS ON ESTABLISHED PRINCIP LES. 7.8 AS A RESULT GROUND NO. 2 OF THE APPEAL OF THE A SSESSEE IS ALLOWED. 8. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY A LLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT . SD/- SD/- (SANJAY GARG) (DR. B.R.R. KUMAR) JUDICIAL MEMBER ACCOUNTANT ME MBER DATED : 25/05/2018 AG COPY TO: 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE CIT, 4. THE CIT(A), 5. THE DR