The ITO, Ward-2, Anand V. Shri Uveshbhai S. Vohra, Anand

ITA 321/AHD/2006

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 8615 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 1 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-03-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 09-03-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 08-02-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: WITH URVASHI SHODHAN; S N SOPARKAR
• Assessee Lawyers: SHRIM C
• Keywords: Unexplained investment; Principle of natural justice; Initiation of penalty proceedings
• Section: 133A; 69; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE S/SHRI T.K. SHARMA, JM AND D.C.AGRAWAL, AM SHRI UVESHBHAI S.VOHRA, PROP. ALL GLASS TRADERS, NEAR KASHMIR HOTEL, ANAND. V/S . INCOME TAX OFFICER, WARD-2, ANAND. PAN NO.ABBPV 8876 H (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI S.N.SOPARKAR & WITH URVASHI SHODHAN RESPONDENT BY:- SHRIM.C.PANDIT, SR.D.R. O R D E R PER SHRI D.C. AGRAWAL . THESE ARE THE TWO CROSS APPEALS, ONE FILED BY THE ASSESSEE AND THE OTHER FILED BY THE REVENUE AGAINST THE ORDER OF THE LD. C.I.T.(A) DATED 7- 11-2005. IN THIS APPEAL ASSESSEE HAS RAISED THE FOL LOWING GROUNDS :- 1. THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS IN CO NFIRMING THE ADDITIONS MADE BY THE AO WHILE FRAMING THE ASSESSME NT U/S.143 (3) R. W. S. 145(3) OF THE ACT ON ALL TOGETHER DIFF ERENT GROUNDS AND REASONING. THIS ACTION OF LD. CIT(A) HAS RESULT ED INTO ENHANCEMENT OF INCOME OF THE APPELLANT ON ENTIRELY DIFFERENT GROUNDS WHICH WERE NOT THE BASIS FOR MAKING THE ADD ITIONS IN ITA NO. 310/AHD/2006(BY ASSESSEE) & ITA.NO.321/AHD/2006 (BY DEPT.) ASST. YEAR :2002-03 2 THE ASSESSMENT ORDER AND WHICH ARE FAR FROM THE FAC TS AND EVIDENCES ON RECORDS AND BASED ON CONJECTURES AND S URMISES. THUS, THIS ACTION OF LD. CIT (A) HAS RESULTED INTO ASSESSING AN ALTOGETHER NEW SOURCE OF INCOME IN THE HANDS OF THE APPELLANT THAT TOO WITHOUT ISSUING ANY NOTICE ON THE APPELLAN T WHICH IS NOT PERMISSIBLE UNDER THE LAW AND THEREFORE, DESERVES T O BE QUASHED. 2. ALTERNATIVELY AND WITHOUT PREJUDICE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN ADDING RS.15,61,787/-ON ACCOUNT OF ALLEGED DIFFERENCE BETWEEN THE BOOK STOCK AND PHYSICAL STOC K ESTIMATED BY THE SURVEY PARTY. 3. ALTERNATIVELY AND WITHOUT PREJUDICE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS IN ADDING RS.5,76,295/- ON ACCOUNT OF ALLEGED DIFFERENCE BETWEEN THE BOOK STOCK AND STOCK AS PER BANK STATEMENT. 4. ALTERNATIVELY AND WITHOUT PREJUDICE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN ADDING RS.1,46,420/- ON ACCOUNT OF ALLEGED DIFFERENCE IN VALUATION OF CLOSING STOCK. 5. ALTERNATIVELY AND WITHOUT PREJUDICE ONCE STOCK DIFF ERENCE BETWEEN THE BOOK STOCK AND PHYSICAL STOCK IS ADDED NO FURTHER ADDITION ON ACCOUNT OF ANY STOCK DISCREPANCIES CAN BE MADE. 6. LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT GRA NTING ANY OPPORTUNITY OF HEARING TO THE APPELLANT AND PASSED THE ORDER WITHOUT GRANTING ANY OPPORTUNITY TO PLACE ON RECORD ANY SUBMISSIONS EVIDENCES AND SUPPORTING DURING THE COU RSE OF APPELLATE PROCEEDINGS AND FURTHER ERRED IN NOT PROP ERLY APPRECIATING VARIOUS FACTS AND LAW IN ITS PROPER PE RSPECTIVE AND FURTHER ERRED IN PASSING ORDERS IN GROSS VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE. 7. LEVY OF INTEREST U/S. 234A/B/C IS NOT JUSTIFIED. 3 8. INITIATION OF PENALTY PROCEEDINGS U/S.271(1) (C) O F THE ACT IS NOT JUSTIFIED. 2. WHEREAS IN ITS APPEAL THE REVENUE HAS RAISED THE FOLLOWING GROUNDS:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING THE RELIEF OF RS.2 7,91,031/- OUT OF TOTAL ADDITION MADE ON ACCOUNT OF GROSS PROF IT OF RS.47,68,851/-. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) OUGHT TO HAVE SUSTAINED THE ENTIRE A DDITION MADE ON ACCOUNT OF GROSS PROFIT OF RS.47,68,851/-. 3. THE LD. CIT(A) HAS NOT GIVEN ANY FINDINGS CON TRARY TO THE REJECTION OF BOOKS OF ACCOUNT U/S. 145(3) OF THE I. T. ACT,1961 AND ADOPTION OF G.P. @ 9.5% ON ESTIMATED SALES OF R S.7 CRORES AND THEREFORE, THERE WAS NO JUSTIFICATION FO R ALLOWING ANY RELIEF TO THE ASSESSEE. 4. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LD. CIT (A) ON THE ISSUE OF RELIEF GRANTED IN RESPECT OF G.P. ADDI TION OF RS.27,91,031/- MAY KINDLY BE SET ASIDE AND THAT THE ORDER OF THE ASSESSING OFFICER BE RESTORED. 3. THE FACTS OF THE CASE ARE THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF WHOLESALE TRADING IN GLASSES LIKE FLOAT GLASS, S HEET GLASS, WIRED GLASS, MIRROR GLASS ETC. FOR THE ASSESSMENT YEAR 20 02-03 ASSESSEE FILED RETURN OF INCOME ON 22.10.2002 DECLARING TAXA BLE INCOME OF RS.8,44,680/-. THE ASSESSEE HAD DECLARED TURNOVER O F RS. 6,86,71,643/- GIVING GROSS PROFIT OF RS.18,81,149/- SHOWING G.P. RATIO OF 2.74%. DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR A SURVEY 4 UNDER SECTION 133A WAS CARRIED OUT AT THE BUSINESS PREMISES OF THE ASSESSEE ON 31.1.2002 AND STOCK TAKING WAS CARRIED OUT. THE PHYSICAL STOCK WORTH RS,.93,42,312/- WAS FOUND. IT COMPRISED OF STOCK OF RS.15,61,787/- BELONGING TO ONE DOLPHIN GLASS PRODU CTS PVT. LTD., AN ASSOCIATE CONCERN OF THE ASSESSEE. THIS WAS NOT DIS PUTED BY THE DEPARTMENT AND NECESSARY DISCOUNT WAS ALLOWED. THE OFFICERS CARRYING OUT THE SURVEY FOUND OUT STOCK AS PER BOOKS AT RS.6 7,43,525/-. THUS, A DIFFERENT OF RS.10,37,000/- WAS FOUND INDICATING TH AT PHYSICAL STOCK WAS MORE BY THIS AMOUNT OVER THE BOOK STOCK. ON THI S BASIS A STATEMENT WAS RECORDED AND SHERI URESHBHAI S. VOHR A WHO ADMITTED THAT THIS STOCK BELONGED TO HIS PROPRIETARY CONCERN AND HE AGREED TO PAY TAX OVER IT. QUESTION NO.20 AND 21 FROM THAT ST ATEMENT ARE REPRODUCED BELOW:- Q.NO.20. DURING THE COURSE OF SURVEY AT YOUR GODO WN/BUSINESS PREMISES, PHYSICALLY STOCK WAS INVENTORISED. ACCORD INGLY STOCK VALUED AT RS.93,42,312/- WAS FOUND. PLEASE EX PLAIN. ANS. THE STOCK OF MY PROPRIETARY CONCERN IS OF RS.6 7,43,525/- AS PER BOOKS, WHEREAS THE STOCK IN RESPECT OF THE C OMPANY IS OF RS.15,61,787/- AS PER BOOKS. Q.NO.21. AS YOU HAVE REPLIED IN RESPONSE TO THE Q . NO.20 THAT THE STOCK AVAILABLE FOR YOUR PROPRIETARY CONCERN AS WEL L AS YOUR COMPANY AS PER BOOKS IS OF RS.83,05,312/- (RS.67,43,525 + 15,61,787/-). IN FACT, THE STOCK VA LUED AT RS.93,42,312/- IS FOUND. THUS, THERE IS A DIFFERENC E IN THE STOCK PHYSICALLY FOUND AND STOCK AS PER BOOKS AMOUN TING TO RS.10,37,000/-. IN THIS REGARD, PLEASE GIVE AN EXPLANATION. ANS. THIS IS THE EXCESS STOCK OF MY PROPRIETARY CON CERN, M/S. ALL GLASS TRADERS AND WHATEVER TAX PAYABLE ON IT, I AGREE TO PAY IT. 5 4. HOWEVER, AT THE TIME OF FILING OF THE RETURN OF INCOME AUDIT REPORT WAS ATTACHED WHICH CONTAINED A NOTE SHOWING COMMENT S OF THE AUDITORS THAT THE STOCK WAS VALUED AT SALE PRICE DURING THE COURSE OF SURVEY. WHEN THE STOCK WAS VALUED AT COST PRICE, THE DIFFERENCE WAS WORKED OUT AT RS.3,19,853/- IN PLACE OF RS.10,37,000/-. NOT FINDI NG THAT SUM OF RS.10,37,000/- WAS DECLARED BY THE ASSESSEE, THE A. O. CALLED FOR AN EXPLANATION. THE ASSESSEE HOWEVER, ONLY AGREED TO D ECLARE EXCESS STOCK OF RS.3,19,853/-. IT WAS ALSO POINTED OUT TO THE A.O. THAT A SUM OF RS.3,19,853/- IS ADDED IN THE CLOSING STOCK UPTO TH E DATE OF SURVEY. THE A.O. WAS NOT SATISFIED WITH THE EXPLANATION. 5. IN ADDITION TO ABOVE, THE A.O. COMPARED THE STAT EMENT OF STOCK GIVEN BY THE ASSESSEE TO THE BANK WITH THE STOCK PO SITION AS PER BOOKS ON 30.4.2001 AND FOUND FOLLOWING DISCREPANCIES:- PARTICULARS QTY.(SQ.MTR) RATE PER SQ. MTR. VALUE.(R S.) DETAILS AS PER BANK STATEMENT CLEAR GLASS 12 MM 701 RS. 792 5,55,192/ - COLOUR GLASS 5 MM 628 RS. 316 1,98,455/ - TOTAL. 7,53,647/- DETAILS AS PER BOOKS OF ACCOUNT. CLEAR GLASS 12 MM 117 RS. 792 92,664/ - COLOURED GLASS 5 MM. 268 84,688 TOTAL 1,77,352/- 6. IT WAS EXPLAINED THAT STOCK STATEMENT TO THE BAN K ARE GIVEN ON ESTIMATE BASIS BUT A.O. DID NOT ACCEPT THE EXPLANAT ION. IN ADDITION TO THIS THE A.O. VERIFIED THE RATE OF CLOSING STOCK AND FOU ND THAT THEY ARE NOT IN CONFORMITY WITH THE PURCHASE RATES DISCLOSED BY THE ASSESSEE. BY COMPARING RATES OF VARIOUS ITEMS THE A.O. FOUND A D IFFERENCE OF RS.1,46,420/-. ACCORDING TO THE A.O. THE ASSESSEE H AS NOT VALUED THE 6 CLOSING STOCK ACCORDING TO THE PURCHASE PRICE. HE A CCORDINGLY, TREATED A SUM OF RS.1,46,420/- AS UNDER VALUATION OF CLOSING STOCK. 7. FURTHER ON EXAMINATION OF THE CASH BOOK, THE A.O . FOUND THAT TOTAL PAYMENT AS PER CASH BOOK RECEIPTS WERE OF RS.1,71,8 4,942/- WHEREAS RECEIPTS TO THE EXTENT OF RS.27,93,402/- WERE RECOR DED UP TO THE DATE OF SURVEY. THE ASSESSEE EXPLAINED THAT CERTAIN SALES W ERE NOT ENTERED IN THE CASH BOOK. HE REVISED THE CASH BOOK AND ENTERED SO ME MORE CASH TRANSACTIONS. THE A.O. CARRIED OUT INQUIRIES AND FO UND THAT SEVERAL PARTIES AGAINST WHOM SALES WERE RECORDED DENIED TO HAVE PUR CHASED THE GOODS FROM THE ASSESSEE. SOME OF THESE PARTIES ARE AS UND ER :- SR.NO. NAME OF THE PARTY. DATE. AMOUNT IN CASH. 1. LAXMI GLASS HOUSE 11-11-01 RS. 5,000 2. SHIVAM GLASS TRADERS 19-10-01 RS. 3,900 3. SHIVAM GLASS & PLYWOOD. 26-07-01 RS. 3,000 4. NAVDURGA GLASS TRADERS 25-01-02 RS. 8,500 5. J.J. TRADERS. 10-04-01 RS. 2,000 8. THE A.O. ALSO FOUND THAT ASSESSEE DID NOT FURNIS H CONFIRMATION FROM SEVERAL PARTIES AS TO WHETHER THEY HAVE MADE C ASH PURCHASES FROM THE ASSESSEE. THE A.O. HAS RECORDED THE NAMES OF SU CH 25 PARTIES IN HIS ASSESSMENT ORDER. THUS, THE A.O. INFERRED THAT ASSE SSEE IS NOT REGULARLY ENTERING THE CASH SALES FOR THE REASONS BEST KNOWN TO THE ASSESSEE. ON THE BASIS OF HIS INQUIRY AND EXAMINATION OF ACCOUNT THE A.O. SUMMARISED THE DEFECTS IN BOOKS AS UNDER:- 7 THE ASSESSEE HAS INDULGED IN THE PURCHASES AND SAL ES OF GOODS WITHOUT RECORDING THE SAME INTO HIS BOOKS OF ACCOUN T.(PARA 2.2, 3.4, 3.8, 3.14, 3.22, 3.24) THE ASSESSEE WAS FOUND IN POSSESSION OF EXCESS STOC K OF RS.10,37,000 ON THE DATE OF SURVEY. THE ASSESSEE HA S ALSO DULY CONFIRMED UNEXPLAINED INVESTMENT IN STOCK ON THE DA TE OF SURVEY. (PARA 2.2). THOUGH, THE ASSESSEE HAS RETRACTED FROM HIS ADMISSI ON MADE DURING THE COURSE OF SURVEY, STILL THE ASSESSEE HAS ACCEPT ED DURING THE COURSE OF ASSESSMENT PROCEEDINGS ALSO THAT HE WAS I N POSSESSION OF UNEXPLAINED STOCK AMOUNTING TO RS.3,19,853/- ON THE DATE OF SURVEY.(PARA 3.4) IN VIEW OF THE DISCUSSION MADE IN EARLIER PARA, THE ASSESSEES UNEXPLAINED STOCK WAS DETERMINED AT RS.15,74,968/- INSTEAD OF RS.10,37,000/- DISCLOSED AT THE TIME OF SURVEY AND RS.3M19,853/- SHOWN DURING THE COURSE OF ASSESSMENT PROCEEDINGS. (PARA 3.8) THE ASSESSEE WAS FOUND IN POSSESSION OF EXCESS STOC K OF RS.5,76,295/- AS ON 30.4.2001 AS PER THE STATEMENTS OF STOCK FURNISHED TO THE VASO BANK. (PARA 3.14) THE ASSESSEE HAS UNDERVALUED HIS CLOSING STOCK BY R S.1,46,420/- AS ON 31.03.2002. (PARA 3.18) THE ASSESSEES CASH SALES ARE NOT PROPERLY RECORDED AS FOUND DURING THE COURSE OF SURVEY. (PARA 3.22.) SOME PARTIES DO NOT DULY CONFIRM THE ASSESSEES CAS H SALES ON PARTICULAR DATES. (PARA 3.24.). 8. ON THE ABOVE BASIS HE REJECTED THE BOOKS AND PRO CEEDED TO ESTIMATE THE PROFITS. HE PICKED UP THE EXAMPLE OF ONE MAYUR ELECTRONICS WHICH WAS ALSO REPORTED TO BE DEALING IN GLASS AND MIRROR S. THAT PARTY HAD DECLARED SALES OF RS.3.51 CRORES GIVING G.P. RATIO OF 9.71%. ON THIS BASIS THE A.O. APPLIED GROSS PROFIT RATE OF 9.5% ON ESTI MATED SALES OF RS.7 CRORES AND PROPOSED ADDITION OF RS.47,68,851/-. 9. THE LD. CIT(A) CONSIDERED THE EXPLANATION OF THE ASSESSEE AND VARIOUS EFFECTIVE DEFECTS FOUND BY THE A.O. HE UPHE LD THE REJECTION OF THE BOOKS BUT GAVE DIRECTION THAT ACTUAL DIFFERENCE IN THE STOCK SHOULD BE ADOPTED IN PLACE OF APPLYING G.P. RATE. ON THIS BA SIS HE DIRECTED THAT (1) 8 DIFFERENCE ON ACCOUNT OF STOCK SHOULD BE TREATED AT RS.15,61,787/- AS THE ASSESSEE HAS ALREADY ADDED A SUM OF RS.3,19,853/- T HE BALANCE OF RS.12,55,115/- SHOULD FURTHER BE ADDED. (2) HE CONF IRMED THE ADDITION OF RS.1,77,532/- BEING THE STOCK DIFFERENCE ON THE BAS IS OF STOCK STATEMENT GIVEN TO THE BANK. SIMILARLY, HE ALSO CONFIRMED THE ADDITION ON ACCOUNT OF UNDER VALUATION OF STOCK AT RS.1,46,420/-. THUS, TH E TOTAL ADDITION OF RS. 19,77,830/- WAS CONFIRMED AS AGAINST PROPOSED ADDIT ION OF RS. 47,68,851/- 10. BEFORE US THE LEARNED AR FOR THE ASSESSEE SUBMI TTED THAT BOOKS OF ACCOUNTS OUGHT NOT TO HAVE BEEN REJECTED. HE SUBMIT TED THAT IN CASE BOOKS ARE REJECTED THEN NO SEPARATE ADDITIONS ARE CALLED FOR. FURTHER, ASSESSEE HAS CONSISTENTLY SHOWN G.P. RATE BELOW 3% WHICH HAS BEEN ACCEPTED BY THE DEPARTMENT. THERE IS NO REASON TO APPLY HIGHER G.P. RATE ON THE BASIS OF OTHER PARTIES WHEN THE BUSINESS OF THE TWO ARE N OT COMPARABLE. M/S. MAYUR ELECTRONICS, WHOSE CASE HAS BEEN CONSIDERED B Y THE A.O. FOR COMPARISON IS DEALING ONLY IN FLOAT AND MIRROR GLAS S WHEREAS THE ASSESSEE IS DEALING MORE IN OTHER KIND OF GLASSES VIZ. SHEET GLASS, WIRED GLASS, FIGURED GLASS BESIDES FLOAT AND MIRROR GLASS. IN A DDITION M/S. MAYUR ELECTRONICS IS DOING BUSINESS IN THE BACKWARD AREA SITUATED IN GIDC AND GETTING SALES TAX, OCTROI RELIEF. AS A RESULT OF WH ICH HIS PROFIT MARGIN IS HIGH. THEREFORE, ONLY THE RESULTS OF THE ASSESSEE H IMSELF ACCEPTED BY THE DEPARTMENT IN THE PAST SHOULD BE RELIED ON. 11. AGAINST THIS LEARNED D.R. SUBMITTED THAT THERE IS NO SUBSTANTIVE DIFFERENCE IN THE BUSINESS CARRIED OUT BY MAYUR ELE CTRONICS AND THE ASSESSEE AND THEREFORE, THE A.O. WAS JUSTIFIED IN A DOPTING THE G.P. RATE OF THAT PARTY FOR COMPARISON. REGARDING REJECTION OF B OOKS LEARNED D.R. 9 SUBMITTED THAT A.O. HAS POINTED OUT SO MANY DEFECTS , THEREFORE, THE A.O. WAS JUSTIFIED IN RELYING UPON THEM AND ESTIMATING T HE PROFITS. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSION AND ALS O PERUSED THE MATERIAL ON RECORDS. IN OUR CONSIDERED VIEW THERE A RE SEVERAL REASONS TO REJECT BOOKS AND RESORT TO ESTIMATION. ONCE STOCK D IFFERENCE IS FOUND DURING THE COURSE OF SURVEY IN THE MIDDLE OF THE YE AR AND ASSESSEE HIMSELF ADMITS THE DIFFERENCE OF RS.3,19,853/- THEN THERE IS NO REASON TO ACCEPT THE BOOK RESULTS,. IT SHOWS THAT ASSESSEE IS NOT CORRECTLY MAINTAINING THE BOOKS RESULTING IN EXCESS PHYSICAL STOCK. A.O. FURTHER FOUND ON THE DATE OF SURVEY THAT BOOKS OF ACCOUNTS ARE NOT COMPLETE AND SUBSTANTIAL AMOUNT BEING RS.1,43,91,539/- IS SHOWN AS EXCESS PAYMENT AS COMPARED TO RECEIPTS. IT CLEARLY INDICATED THAT ASS ESSEE HAD NOT RECORDED THE COMPLETE SALES. WHEN THE DIFFERENCE IN CASH REC EIPTS AND PAYMENTS WAS POINTED OUT THE ASSESSEE COULD NOT RECONCILE TH E SAME. SEVERAL PARTIES DID NOT CONFIRM THE PURCHASES FROM THE ASSESSEE AND SEVERAL PARTIES DENIED TO HAVE MADE PURCHASES FROM THE ASSESSEE. TH E BANK STATEMENT COULD NOT BE RECONCILED WITH THE BOOKS. THE CLOSING STOCK WAS NOT CORRECTLY VALUED WITH THE PURCHASE RATES. LOOKING T O THESE DEFECTS WE CONFIRM THE FINDING OF THE AUTHORITIES BELOW IN REJ ECTING THE BOOKS. THE SYSTEM OF MAINTENANCE OF ACCOUNTS IS SUCH THAT INCO ME CANNOT BE CORRECTLY DEDUCED FROM THE BOOKS. ACCORDINGLY, THIS PART OF THE ORDER IS CONFIRMED. 13. HAVING REJECTED THE BOOKS THEN THE QUESTION OF MAKING SEPARATE ADDITIONS ON THE BASIS OF VARIOUS DISCREPANCIES FOU ND WILL NOT BE JUSTIFIED. ONCE THE BOOKS ARE REJECTED THERE REMAINS NOTHING F OR COMPARISON. IT CANNOT BE A CASE THAT YOU REJECT THE BOOKS FOR ESTI MATION AND ALSO USE BOOKS FOR COMPARISON. ONCE THE BOOKS ARE REJECTED T HEY ARE REJECTED FOR ALL PURPOSES FOR COMPUTING THE INCOME UNDER THE HEA D BUSINESS OR PROFESSION. SECTION 145 PROVIDES MECHANISM FOR ACC EPTING THE BOOK 10 RESULT FOR THE PURPOSE OF COMPUTING INCOME UNDER TH E HEAD BUSINESS. IF BOOKS ARE MAINTAINED REGULARLY AND METHOD OF ACCOUN TING IS ACCEPTABLE THEN INCOME HAS TO BE COMPUTED AS PER THE BOOKS. BU T WHERE METHOD OF ACCOUNTING IS SUCH THAT INCOME CANNOT BE DEDUCED CO RRECTLY THEN BOOKS HAS TO BE REJECTED AND INCOME IS TO BE COMPUTED AS PROVIDED U/S. 144. THUS ESTIMATION OF INCOME IS TO BE RESORTED. 14. NOW COMING TO ESTIMATION WE FIND THAT THE COMPA RATIVE EXAMPLE OF M/S. MAYUR ELECTRONICS IS NOT SUITABLE WHEN DEPARTM ENT HAS ACCEPTED ALL ALONG THE G.P. RATE OF AROUND 2.75% WITHOUT DISTURB ING IT. THE COMPARATIVE CHART OF THE G.P. GIVEN BY THE ASSESSEE AND ACCEPTED BY THE DEPARTMENT IS AS UNDER :- ASSTT. YEAR. TURNOVER GROSS PROFIT. G.P.RATIO. 2000-01 5,85,80,493/- 12,54,292/- 2.14% 2001-02 6,96,94,210/- 15,63,775/- 2.24% 2002-03 6,86,71,643/- 18,81,149/- 2.73% 2003-04 7,08,89,882/- 19,30,824/- 2.72% 2004-05 8,36,22,336/- 23,33,625/- 2.79% 15. IT SHOWS THAT IN NONE OF THE YEARS G.P. RATE IS MORE THAN 2.79%. THEREFORE, IT WILL BE UNFAIR TO ESTIMATE THE PROFIT AT 9.5% . NO DOUBT THERE ARE DEFECTS IN THE BOOKS AND CASH SALES ARE NOT REC ORDED BUT THAT DOES NOT WARRANT TO MAKE HIGH PITCHED ADDITION. THE ASSESSEE HAS DECLARED EXCESS STOCK AT RS.3,19,853/- WHICH HAS BEEN INCLUDED IN T HE CLOSING STOCK FOR THE PERIOD UP TO THE DATE OF SURVEY AND IN THE OPEN ING STOCK THEREAFTER. 16. IN OUR CONSIDERED VIEW THE ADDITION OF THIS AMO UNT SHOULD HAVE BEEN SEPARATELY CONSIDERED AS ADDITIONAL BUSINESS I NCOME READ WITH SECTION 69 AS THE ASSESSEE IS UNABLE TO POINT OUT A S TO WHICH YEAR THIS 11 ADDITIONAL INCOME BELONG. IT IS RIGHTLY ASSESSABLE IN THE CURRENT FINANCIAL YEAR WHEN IT WAS DISCOVERED. 17. CONSIDERING THE TOTALITY OF THE FACTS AND CIRCU MSTANCES OF THE CASE, WE DIRECT TO APPLY THE GROSS PROFIT RATE OF 3.5%. T HE A.O. WILL APPLY THIS RATE ON ESTIMATED SALES OF RS.6,90,00,000/- AND WOR K OUT THE DIFFERENCE. THE SUM OF RS.3,19,853/- IS TAKEN AS COVERED IN THA T ADDITION. NO FURTHER ADDITION ON ANY SPECIFIC AMOUNT IS SUSTAINED FOR TH E REASONS THAT ONCE BOOKS ARE REJECTED THEN NO SEPARATE ADDITION ON THE BASIS OF ENTRIES IN THE BOOKS IS REQUIRED. THE ASSESSEE GETS THE RESULTANT RELIEF. AS A RESULT THE APPEAL BY THE ASSESSEE IS PARTLY ALLOWED. ITA.NO.321/AHD/2006 . (DEPARTMENTAL APPEAL). 18. IN THE DEPARTMENTAL APPEAL, ISSUES INVOLVED ARE ONLY ABOUT GROSS PROFIT ADDITION AND REJECTION OF THE BOOKS. WE HAVE UPHELD THE REJECTION OF THE BOOKS BUT NO FURTHER ADDITION OVER AND ABOVE WHAT IS RETAINED BY THE LD. CIT(A) IS UPHELD. THIS GROUND REGARDING REJ ECTION OF BOOK IS ALLOWED WHEREAS GROUND REGARDING FURTHER ADDITIONS ARE REJECTED. THE APPEAL OF THE REVENUE IS ALSO PARTLY ALLOWED. 19. BOTH THE APPEALS ARE PARTLY ALLOWED. SD/- SD/- (T. K. SHARMA) (D.C .AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD, DATED : 12 -03-2010 PATKI ORDER PRONOUNCED IN OPEN COURT ON 12 -03-2010 12 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