DCIT CIR 22(1), NAVI MUMBAI V. GEM CORPORATION, MUMBAI

ITA 3573/MUM/2013

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9345 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 14-01-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 07-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PAVAN KUMAR BEER LA
• Assessee Lawyers: PRAMOD MISHRA ITA NOS
• Keywords: Peak credit; Cost of acquisition

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, M UMBAI BEFORE S/SHRI B.R.BASKARAN (AM) AND VIVEK VARMA ( JM) . . , , ./I.T.A. NO.3573/ MUM/2013 AND 5250/MUM/2013 ( / ASSESSMENT YEARS : 2009-10 AND 2010-11) THE DY.COMMISSIONER OF INCOME TAX CIRCLE 22(1), ROOM NO.411, 4 TH FLOOR, TOWER NO.6, VASHI RAILWAY STATION COMPLEX, VASHI, NAVI MUMBAI-400703 / VS. M/S GEM CORPORATION, 703, RAMESHWAR, NEAR RAJAWADI, GHATKOPAR (E), MUMBAI-400077 ( / APPELLANT) .. ( / RESPONDENT) ./I.T.A. NOS.7099/MUM/2013 AND 5298/MUM/2013 ( / ASSESSMENT YEARS : 2009-10 AND 2010-11) M/S GEM CORPORATION, 703, RAMESHWAR, NILKANTH VALLEY, RAJAWADI, GHATKOPAR (E), MUMBAI-400077 / VS. JT.COMMISSIONER OF INCOME TAX, RANGE -22(1), ROOM NO.411, 4 TH FLOOR, TOWER NO.6, VASHI RAILWAY STATION COMPLEX, VASHI, NAVI MUMBAI-400703 ( / APPELLANT) .. ( / RESPONDENT) ./ ./PAN/GIR NO. :AAAFG5630Q ! / REVENUE BY SHRI PAVAN KUMAR BEERLA ' ! /ASSESSEE BY SHRI RAJIV KHANDELWAL AND SHRI PRAMOD MISHRA ITA NOS.3573/M/2013,5250/M/2013, 5298/M/13 AND 7099/M/2013 2 # $ ' %& / DATE OF HEARING :10.2.2015 '( ' %& /DATE OF PRONOUNCEMENT :13.3.2015 / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THESE CROSS APPEALS RELATE TO THE ASSESSMENT YEARS 2009-10 AND 2010-11 AND THEY ARE DIRECTED AGAINST THE ORDERS PA SSED BY LD.CIT(A)-33, MUMBAI. ALL THE APPEALS WERE HEARD TOGETHER AND HE NCE THEY ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CO NVENIENCE. THE APPEAL OF THE ASSESSEE FILED FOR AY 2009-10 IS BARRED BY L IMITATION BY 192 DAYS. THE ASSESSEE HAS FILED A PETITION REQUESTING THE BE NCH TO CONDONE THE DELAY. WE HEARD THE PARTIES AND HAVING REGARD TO T HE SUBMISSIONS MADE IN THE PETITION; WE CONDONE THE DELAY AND ADMIT THE APPEAL FOR HEARING. 2. THE COMMON ISSUE URGED ON ALL THE FOUR APPEALS R ELATE TO THE ESTIMATION OF GROSS PROFIT ON SALE OF ALMONDS. SIN CE THE FACTS RELATING TO THE ISSUE ARE IDENTICAL IN NATURE IN BOTH THE YEARS UNDER CONSIDERATION, WE TAKE THE AY 2009-10 AS THE LEAD CASE. 3. WE HEARD THE PARTIES AND PERUSED THE RECORD. T HE ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF IMPORTING AND DEALING IN CHEMICALS AND ALMONDS. THE ASSESSEE IMPORTS CHEMICALS NAMED DITOM ITE, SILICA AND AEROSIL. IT ALSO IMPORTS SHELLED AND UNSHELLED ALMONDS FROM USA, BESIDES SOURCING THE ALMONDS LOCALLY ALSO. DURING T HE COURSE OF ASSESSMENT PROCEEDINGS, THE AO RECEIVED INFORMATION FROM THE D ESIGNATED OFFICER, INVESTIGATION WING TO THE EFFECT THAT THE BANK ACCO UNTS HAVE BEEN OPENED IN THE NAME OF MRS. ARUNA H DOSHI AND SIX OTHERS WI TH M/S JANAKALYAN SAHAKARI BANK LTD. THE AGGREGATE AMOUNT OF DEPOSITS MADE IN THESE SIX BANK ACCOUNTS DURING THE YEAR UNDER CONSIDERATION W AS RS.3.35 CRORES. THESE DEPOSITS WERE FOUND TRANSFERRED TO ANOTHER AC COUNT OPENED IN THE ITA NOS.3573/M/2013,5250/M/2013, 5298/M/13 AND 7099/M/2013 3 NAME OF M/S SAMEER & CO. IN THE ACCOUNT OF M/S SAM EER & CO ALSO, CASH DEPOSITS TO THE TUNE OF RS.1.11 CRORES WAS FOUND DE POSITED. THUS THE AGGREGATE AMOUNT OF RS.4.46 CRORES (RS.3.35 CRORES + RS.1.11 CRORES) WAS FOUND DEPOSITED IN THE BANK ACCOUNT OF M/S SAMEER & CO AND THE SAME WAS FOUND TRANSFERRED TO THE ACCOUNT OF THE ASSESSE E. WHEN THE DETAILS ABOUT DEPOSITS MADE IN THE ABOVE SAID BANK ACCOUNTS WERE ENQUIRED, THE ASSESSEE OWNED UP THESE BANK ACCOUNTS AND FURTHER S UBMITTED THAT THE CASH DEPOSITS WERE MADE OUT OF PROCEEDS RECEIVED FR OM CASH SALES, I.E., THE ASSESSEE EXPLAINED THAT ENTIRE CASH DEPOSITS RE PRESENTS THE SALES ALREADY ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS. TH E ASSESSING OFFICER ALSO VERIFIED THE BOOKS OF ACCOUNT AND NOTICED THAT THE CHEQUES RECEIVED FROM M/S SAMEER & CO. WERE FOUND CREDITED IN THE ACCOUNT S OF DIFFERENT DEBTORS TO WHOM SALES HAD ALREADY BEEN MADE. ACCORDINGLY, THE AO ACCEPTED THE ABOVE SAID EXPLANATIONS OF THE ASSESSEE AND HENCE H E DID NOT MAKE ANY FURTHER ADDITION ON CASH DEPOSITS MADE BY THE ASSES SEE ON OTHERS BANK ACCOUNT. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BE LOW PARAGRAPH 7.1 OF THE ASSESSMENT ORDER. 7.1. I HAVE GONE THROUGH THE SUBMISSIONS OF THE AS SESSEE AND THE FACTS ON RECORD. AS ALREADY BROUGHT OUT IN THIS ORDER THE ASSESSEE'S OFFER OF 4% EXTRA G.P ON ALMOND SALES OF RS.4,46,81,778/- IS NOT ACCEPTED. THE GROSS PROFIT MARGIN ON THE ENTIRE SALE OF ALMONDS @ 16.05% HAS BEEN CONSIDERED IN THIS ORDER AS AGAINST THE LOSS OF RS.4,07,29,717/- OR AB OUT SHOWN BY THE ASSESSEE. THE GROSS PROFIT MARGIN CONSIDERED AT 16.05% ALSO COVERS THE CASH SALES AND THE DIFFERENCE IN TH E GROSS PROFIT IS REFLECTED IN THE COMPUTATION OF INCOME OF THE ASSESSEE MADE IN THIS ORDER. THE GROSS PROFIT MARGI N CONSIDERED IN THE ORDER HAS BEEN BASED ON THE SALES FIGURE OF RS.22,58,94,971/- ON ALMONDS AND THE SALES AMOUNT R EALIZED CONTAINED NOT ONLY THE AMOUNTS RECEIVED THROUGH THE BANK BUT ALSO SUBSTANTIAL CASH SALES. THE ASSESSEE HAD SHOWN ALMOND SALES FOR THE ENTIRE PERIOD OF THE PREVIOUS YEAR AN D ITS CASH SALES ALSO CONSIDERED IN THE ORDER FOR FORMING PART OF TH E G.P ESTIMATED ON SALE. SINCE THE G.P ESTIMATED AND CASH SALES HAVE BEEN CLOSELY INTERLINKED AND IN THE ABSENCE OF ANY ADDITIONAL INFORMATION, NO FURTHER ADDITION ON CASH DEPOSITS ITA NOS.3573/M/2013,5250/M/2013, 5298/M/13 AND 7099/M/2013 4 MADE BY THE ASSESSEE ON OTHERS BANKS AS DISCUSSED I S MADE IN THIS ORDER. 4. HOWEVER, THE AO PROCEEDED TO EXAMINE THE SALES DETAILS REPORTED BY THE ASSESSEE. THE AO CALLED FOR ITEM-WISE SALES BRE AK-UP FROM THE ASSESSEE. SINCE THE ASSESSEE FAILED TO FURNISH THE DETAILS, THE AO PROCEEDED TO COMPUTE THE GROSS PROFIT ARISING ON SA LE OF EACH PRODUCT DEALT BY THE ASSESSEE. THE AO COMPUTED THE RATE OF GROSS PROFIT ARISING FROM SALE OF DIATOMITE AND SILICA/AEROSIL AT 27.71% AND 27.20 % RESPECTIVELY. IN MONEY TERMS, THE AGGREGATE AMOUNT OF GROSS PROFIT THAT AROSE FROM SALE OF DIATOMITE AND SILICA/AEROSIL WOR KED OUT TO RS.7.53 CRORES. HOWEVER, THE ASSESSEE HAD DISCLOSED GROSS P ROFIT OF RS.3.13 CRORES, WHICH MEANS THAT THE ASSESSEE HAD DECLARED GROSS LO SS ON SALE OF ALMONDS. THE AO NOTICED FROM THE SALES BILLS OF ALM ONDS THAT THE SALES HAVE BEEN MADE TO PARTIES, WHO COULD NOT BE IDENTIF IED. HENCE THE AO TOOK THE VIEW THAT THE SALES SHOWN AGAINST THE NON- EXISTENT PARTIES ARE NOT RELIABLE AND SO ALSO THE GROSS PROFIT SHOWN AGAINST THOSE SALES ALSO. THE AO ALSO VERIFIED THE SALES EFFECTED ON 7.1.2009 AND ALSO THE RELATED PURCHASES AND NOTICED THAT THE G.P ON THE SAME WORK ED OUT TO 16.05%. ACCORDINGLY, THE AO TOOK THE VIEW THAT THE GROSS LO SS (STATED AS NEGATIVE GROSS PROFIT BY THE AO) REPORTED BY THE ASSESSEE I S NOT UNACCEPTABLE FOR THE FOLLOWING REASONS:- (I) ASSESSEE HAS SHOWN SALES IN ALMONDS IN FICTIT IOUS NAMES AS ADMITTED BY THE PARTNER HIMSELF AND THOSE SALES CAN NOT BE HELD AS GENUINE. (II) BULK QUANTITY OF SALES HAS BEEN SHOWN BY ASS ESSEE AT VERY CHEAP RATE OF RS.50 TO RS.60 PER KG IN SEVERAL, BILLS (WHICH C ONSTITUTE HARDLY 15% TO 20% OF THE SALE PRICE OF ALMOND AT MARKET RATES) IS NOT RELIABLE. FROM THE SAME LOT OF PURCHASE, ASSESSEE HAS SHOWN SALES TO O THERS AT MARKET RATE WHICH SHOWS THAT THE SALES SHOWN AT VERY CHEAP RATE S HAS NOT BEEN GENUINE. THE SALE CLAIMS TO THESE PARTIES AT THE LO W RATES HAVE BEEN MADE UP BY ASSESSEE FOR CREATING THE NEGATIVE G.P OR LOS S. (III) AS MENTIONED EARLIER, THE ASSESSEE CONTINUED TO RES IST THE REQUEST ITA NOS.3573/M/2013,5250/M/2013, 5298/M/13 AND 7099/M/2013 5 FOR FURNISHING THE DATA OF SALES TURNOVER OF ALMOND S CONTAINED IN THE OVERALL SALES TURNOVER SHOWN IN THE TRADING ACCOUNT . THE SALE TURNOVER OF ALMONDS WORKED OUT SUBSEQUENTLY AND HAS SUBSTANTIAL NEGATIVE G.P OR LOSS. THIS FACT HAS COME TO LIGHT AFTER COMPLETION OF THE VERIFICATION CARRIED OUT BY THIS OFFICE ON THE MAIN ITEMS OF TRADE VIZ. 'DIATOMITE' AND 'SILICA/AEROSIL'. THE SALE TURNOVER OF ALMOND HAS B EEN INDIRECTLY ARRIVED AT AFTER REDUCING THE SALES TURNOVER OF THESE TWO ITEM S FROM THE TOTAL TURNOVER DECLARED BY THE ASSESSEE. (IV) THE ACTUAL SALES MADE BY THE ASSESSEE COULD HA VE BEEN AT MARKET RATE SOLD AT A PROFIT TO PERSONS OTHER THAN DISCLOS ED IN THOSE CASES OF CLAIM OF SALES AT VERY LOW RATE. THIS HAS RESULTED IN THE SUPPRESSION OF ACTUA L PROFIT. (V) THE 'MODUS OPERANDI' ADOPTED BY THE ASSESSEE HA S BEEN THAT THE REAL PROFIT FROM ALMOND HAS BEEN SUPPRESSED AND SHO WN AS LOSS TO REDUCE THE IMPACT ON OVERALL G.P OF THE SUPER PROFIT EARNE D BY IT FROM THE SALE OF 'DIATOMITE' AND 'SILICA/AEROSIL'. THIS HAS RESULTED IN OVERALL G.P MARGIN GETTING REDUCED TO 7.25%. ACCORDINGLY, THE AO COMPUTED THE SALE VALUE OF ALMO NDS BY GROSSING UP THE PURCHASE COST OF ALMOND BY 16.05%. ACCORDINGLY , THE AO REWORKED THE GROSS SALES ARISING ON SALE OF ALL GOODS AT RS. 50.05 CRORES. SINCE THE ASSESSEE HAD DISCLOSED THE GROSS SALES AT RS.42.72 CRORES, THE AO HELD THE DIFFERENCE AMOUNT OF RS.7.33 CRORES (50.05 LESS 42. 72) WOULD INCREASE THE PROFIT OF THE ASSESSEE. 5. THE ASSESSEE CONTENDED BEFORE THE AO THAT THE A SSESSING OFFICER HAS ARRIVED AT THE CONCLUSION THAT THE GROSS PROFIT ON SALE OF ALMONDS WAS 16.05% BY TAKING FEW SALE BILLS AND IT WAS NOT TO C ORRECT TO PRESUME THAT THE SAME RATE OF GROSS PROFIT WOULD BE REALIZED THR OUGHOUT THE YEAR ON THE ENTIRE QUANTITY OF PURCHASES. THE ASSESSEE SUBMITT ED THAT IT HAD INCURRED LOSS ON SALE OF SUB-STANDARD QUALITY ALMONDS. IT FU RTHER SUBMITTED THAT THE OVERALL G.P RATE REPORTED BY IT IS COMPARABLE WITH THE EARLIER YEARS. THE AO NOTICED THAT THE LOSS HAS BEEN INCURRED BY SELLING ALMONDS AT VERY LOW RATE OF RS.50/- TO RS.60/- PER KG AND FURTHER HE DID NOT ACCEPT THE CLAIM THE SUB-STANDARD QUALITY ITEMS WERE SOLD AT LOW RATES. THE AO TOOK THE VIEW THAT THE ASSESSEE SHOULD HAVE RETURNED THE SUB-STAN DARD QUALITY ITEMS TO ITA NOS.3573/M/2013,5250/M/2013, 5298/M/13 AND 7099/M/2013 6 THE SUPPLIER. THE AO ALSO NOTICED THAT THE ASSESSEE HAS IMPORTED THE ALMONDS FROM A SISTER CONCERN AND HENCE THE PAYMENT OF HIGHER PURCHASE COST ON SUB-STANDARD ITEMS WOULD ATTRACT DISALLOWAN CE U/S 40A(2)(B) OF THE ACT. THE AO ALSO EXAMINED SOME MORE SALE BILLS AND NOTICED THAT THE G.P RATE THEREON WAS IN THE RANGE OF 8.74% TO 39.47%. HENCE THE AO TOOK THE VIEW THAT THE G.P. RATE OF 16.05% DETERMINED BY HIM WAS REASONABLE. ACCORDINGLY, THE AO ASSESSED THE DIFFERENCE IN SALE S (COULD ALSO BE TAKEN AS DIFFERENCE IN GROSS PROFIT) OF RS.7.33 CRORES AS INCOME OF THE ASSESSEE. 6. IN THE APPELLATE PROCEEDINGS, THE LD.CIT(A) TO OK THE VIEW THAT THE PEAK AMOUNT OF CASH DEPOSITS MADE IN THE SEVEN BANK ACCOUNTS /CHEQUE RECEIPTS FROM THE ACCOUNT OF M/S SAMEER & CO. HAS T O BE ASSESSED AS INCOME OF THE ASSESSEE. THE LD CIT(A) WORKED OUT TH E PEAK CREDIT AT RS.45,01,668/- AND HELD THE SAME TO BE THE INCOME O F THE ASSESSEE. BEFORE THE LD CIT(A), THE ASSESSEE SUBMITTED THE DE TAILS OF SALES EFFECTED AT LESSER THAN THE COST OF PURCHASE. HENCE THE LD. CIT(A) TOOK THE VIEW THAT THE CLAIM OF LOSS SHOULD BE IGNORED. THE COST OF PURCHASES OF ALMONDS WHICH WERE SOLD AT LOSS WORKED OUT TO RS.14.21 CROR ES. SINCE THE ASSESSEE HAD DECLARED PROFIT AT AN AVERAGE RATE OF 7.5% IN T HE EARLIER YEARS, THE LD CIT(A) HELD THAT THE GROSS PROFIT SHOULD BE ESTIMAT ED @ 8% ON THE COST OF PURCHASE OF 14.21 CRORES, CITED ABOVE. ACCORDINGLY HE ESTIMATED THE PROFIT AT RS.1,13,69,590/- AND DIRECTED THE AO TO ASSESS T HE SAME ALONG WITH THE PEAK CREDIT OF RS.45,01,668/- REFERRED ABOVE, IN TH E PLACE OF RS.7.33 CRORES ASSESSED BY THE AO. 7. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF L D CIT(A) IN ENHANCING THE INCOME BY PEAK CREDIT AMOUNT OF RS.45,01,668/- AND ALSO IN CONFIRMING THE GROSS PROFIT ADDITION BY RS.1,13,69,590/-. 8. THE REVENUE IS AGGRIEVED BY THE DECISION OF LD. CIT(A) IN REDUCING THE GROSS PROFIT ADDITION MADE BY THE AO. ITA NOS.3573/M/2013,5250/M/2013, 5298/M/13 AND 7099/M/2013 7 9. BEFORE US, THE LD A.R SUBMITTED THAT THE ALMOND IS A PERISHABLE EDIBLE PRODUCT AND IS LIABLE TO BE DAMAGED BY IMPRO PER HANDLING AND STORAGE, TEMPERATURE VARIATIONS, HUMIDITY VARIATION , EFFLUX OF TIME AND BY DAMAGE THROUGH INSECTS/INFECTIONS. THE ALMONDS ARE IMPORTED FROM USA AND THE TIME TAKEN FOR TRANSPORT OF ALMONDS FROM TH E GODOWN OF THE SUPPLIER TO THE GODOWN OF THE ASSESSEE WOULD BE CON SIDERABLE AND SOMETIMES, IT WOULD TAKE MORE TIME DUE TO OPERATION AL PROBLEMS, LIKE DELAYS IN LOADING INTO CONTAINERS, THE TRANSPORTATI ON DELAY CAUSED BY PROBLEMS OF SHIPS, THE DELAY IN GETTING BERTH IN TH E PORT ETC. DURING THE COURSE OF TRANSPORTATION, THE PRODUCTS MAY LEAD TO INFESTATIONS. DUE TO DELAY, THE INFECTIONS WOULD SPREAD TO GOOD ALMONDS ALSO. THE ASSESSEE HAS TO NECESSARILY EXAMINE THE QUALITY OF THE ALMONDS A ND SORT/SEGREGATE THE SAME ACCORDING TO ITS SIZE, QUALITY, BROKEN ONE (CH IPPED, SCRATCHED, BROKEN) ETC. THE INFESTED ALMONDS ARE SUBJECTED TO FUMIGATION PROCESS BEFORE SELLING THE SAME IN THE MARKET. HENCE, THE S ELLING PRICE OF ALMONDS WOULD DEPEND UPON ALL THESE FACTORS. FURTHER, THE ASSESSEE HAS SOLD BOTH SHELLED AND IN-SHELL ALMONDS DURING THE YEAR UN DER CONSIDERATION. THE IN-SHELL ALMONDS COMMAND LOW PRICE WHEN COMPARED TO THE SHELLED ALMONDS. FURTHER, THE PRICE OF THE ALMONDS WOULD A LSO BE NOT STATIC AND THE SAME WOULD VARY ACCORDING TO THE MARKET CONDITI ONS. ACCORDINGLY HE SUBMITTED THAT THE ASSESSEE, AS A BUSINESS MAN, WOU LD BE SELLING THE ALMONDS AT VARIOUS RATES IN ORDER TO MINIMIZE THE L OSS, SO THAT IN AVERAGE HE MAKES PROFIT ON SALE OF ALL PRODUCTS DEALT BY HI M. THE ASSESSEE WOULD TEND TO MAKE MORE LOSS IF IT HOLDS THE PRODUCTS. HE SUBMITTED THAT THE ABOVE SAID PRACTICE IS THE NORMAL TRADE PRACTICE AD OPTED IN ALMOST ALL KINDS OF TRADES. ACCORDINGLY HE SUBMITTED THAT TAX AUTHOR ITIES ARE NOT JUSTIFIED IN PRESUMING THAT THE ASSESSEE HAS TO REALIZE SAME RAT E OF GROSS PROFIT ON SALE OF ENTIRE QUANTITY OF PURCHASE, WHICH IS TOTAL LY AGAINST THE NORMAL TRADING CONDITIONS. ITA NOS.3573/M/2013,5250/M/2013, 5298/M/13 AND 7099/M/2013 8 10. THE LD A.R FURTHER SUBMITTED THAT THE FLUCTUAT IONS IN CURRENCY RATE WOULD ALSO AFFECT THE MARGINS REALIZED ON SALE OF A LMONDS. FURTHER, THE ASSESSEE IS IN WHOLESALE TRADE AND HENCE THE MARGIN REALIZED BY THE ASSESSEE WOULD ALWAYS BE LOWER DUE TO HIGH VOLUME O F SALES. HE FURTHER SUBMITTED THAT THE AO HAS HELD THAT PURCHASES ARE C OVERED BY THE PROVISIONS OF SEC. 40A(2)(B) OF THE ACT. HOWEVER, THE AO HAS NOT GIVEN A FINDING THAT THE PURCHASE PRICES PAID ARE IN EXCESS OF MARKET VALUE. ON ONE HAND, THE AO HAS DISBELIEVED THE SELLING PRICE BY ACCEPTING THE PURCHASE PRICE AND ACCORDINGLY COMPUTED THE GROSS P ROFIT, AND ON THE OTHER HAND, HE IS ENTERTAINING THE VIEW THAT THE PU RCHASE PRICES ARE ON THE HIGHER SIDE. ACCORDINGLY, HE SUBMITTED THAT THERE WAS INCONSISTENCY IN THE APPROACH OF THE AO. HE FURTHER SUBMITTED THAT THE AO WAS NOT JUSTIFIED IN HOLDING THAT THE ASSESSEE SHOULD HAVE RETURNED BACK THE SUB-STANDARD ITEMS TO THE SUPPLIER. HE SUBMITTED THAT THE AO IS NOT ENTITLED TO STEP INTO THE SHOES OF BUSINESSMAN AND EXPECT THE BUSINESS TO CONDUCT THE BUSINESS IN A PARTICULAR MANNER. HE SUBMITTED THAT THE AO HA S FAILED TO NOTICE THAT THE COST OF TRANSPORTATION OF SUB-STANDARD ITEMS TO USA WOULD BE MORE AND FURTHER IT WOULD NOT BE POSSIBLE TO SEND THE IN FESTED ITEMS TO THAT COUNTRY, AS THE FOOD PRODUCTS ARE REQUIRED TO COMPL Y WITH STRINGENT NORMS. ACCORDINGLY HE SUBMITTED THAT THE AO HAS RE JECTED THE BOOK RESULTS WITHOUT PROVING WITH ANY TANGENT MATERIAL T HAT THE ASSESSEE HAS REALLY SHOWN BOGUS LOSS IN THE BOOKS OF ACCOUNT. A CCORDINGLY HE SUBMITTED THAT THE AO HAS PROCEEDED TO ESTIMATE THE GROSS PRO FIT ON SALE OF ALMONDS ONLY ON PRESUMPTIONS AND ON SURMISES AND CONJECTURE S. HENCE THE ENTIRE ADDITION IS LIABLE TO BE DELETED. 11. THE LD A.R SUBMITTED THAT THE LD CIT(A) HAS ACCEPTED THE FACT THAT THE AVERAGE RATE OF GROSS PROFIT CANNOT BE APPLIED ON ENTIRE SALE VALUE OF ALMONDS. ACCORDINGLY HE HELD THAT THE SALES MADE AB OVE THE PURCHASE COST SHOULD NOT BE DISTURBED. HOWEVER, HE HAS REJECTED THE LOSS MADE ON SALE ITA NOS.3573/M/2013,5250/M/2013, 5298/M/13 AND 7099/M/2013 9 OF ALMONDS AND ESTIMATED THE PROFIT AT 8% OF THE PU RCHASE COST. HE SUBMITTED THAT THE LD CIT(A) HAS ALSO TAKEN THE VIE W THAT THE ASSESSEE COULD NOT HAVE MADE LOSS, WITHOUT BRINGING ANY MATE RIAL ON RECORD. ACCORDINGLY HE SUBMITTED THAT THE ADDITION SUSTAINE D BY LD CIT(A) IS ALSO LIABLE TO BE DELETED. 12. THE LD A.R SUBMITTED THAT THE AO HAS ACCEPTED THE FACT THAT THE CASH DEPOSITS MADE INTO THE BANK ACCOUNTS OF SIX PE RSONS AND M/S SAMEER & CO. HAVE COME FROM THE CASH SALES MADE BY THE ASS ESSEE AND HENCE HE DID NOT MAKE ANY ADDITION. THE LD CIT(A) ALSO ACCE PTED THIS FACT, BUT HE HAS TAKEN THE VIEW THAT THE ASSESSEE HAS GAINED BY ROUTING THE CASH THROUGH THE BANK ACCOUNTS. ACCORDINGLY, THE LD CIT (A) HAS COMPUTED THE PEAK CREDIT AND HELD THE SAME TO THE INCOME OF THE ASSESSEE. THE LD A.R SUBMITTED THAT THE ASSESSEE HAS ACCOUNTED FOR ALL T HE SALES IN ITS BOOKS OF ACCOUNT. ONLY THE CASH AMOUNT HAS BEEN DEPOSITED I NTO THE ABOVE SAID BANK ACCOUNTS AND THEY HAVE BEEN RECEIVED BY WAY OF CHEQUES. HENCE, THE PROCEDURE ADOPTED BY THE ASSESSEE WOULD NOT GIV E RISE TO ANY INCOME ELEMENT AND HENCE THE LD CIT(A) WAS NOT JUSTIFIED I N HOLDING THAT THE PEAK CREDIT REPRESENTS INCOME OF THE ASSESSEE. HE FURTHE R SUBMITTED THAT THE THEORY OF PEAK CREDIT IS APPLIED ONLY IN RESPECT OF UNACCOUNTED TRANSACTIONS, WHERE AS IN THE INSTANT CASE, THE ASS ESSEE HAS ACCOUNTED THE SALES. 13. ON THE CONTRARY, THE LD D.R PLACED STRONG RELI ANCE ON THE ASSESSMENT ORDER. HE SUBMITTED THAT THE ASSESSEE H AS CLAIMED TO HAVE INCURRED GROSS LOSS ON SALE OF ALMOND AND THE SAID CLAIM WAS NOT PRIMA FACIE ACCEPTABLE. HENCE, THE AO HAS COMPUTED THE G ROSS PROFIT REALIZED ON SALE OF OTHER PRODUCTS AND NOTICED THAT THE ASSESSE E HAS SOLD THE ALMONDS AT VERY LOW PRICE, WHICH IS NOT BELIEVABLE. HE SUB MITTED THAT THE ASSESSING OFFICER HAS CONSIDERED CERTAIN INSTANCES OF SALES O N TEST CHECK BASIS AND HAS NOTICED THAT THE ASSESSEE HAS ACTUALLY MADE PRO FITS ON SALE OF ITA NOS.3573/M/2013,5250/M/2013, 5298/M/13 AND 7099/M/2013 10 ALMONDS. ON THE BASIS OF THOSE SALE INVOICES, THE AO HAS COME TO THE CONCLUSION THAT THE AVERAGE RATE OF GROSS PROFIT WA S 16.05% OF PURCHASE VALUE. HENCE THE AO REJECTED THE CLAIM OF LOSS AND ACCORDINGLY COMPUTED THE GROSS PROFIT ON SALE OF ALMONDS. HE FURTHER SU BMITTED THAT THE AO HAS GIVEN PROPER REASONS TO REJECT THE BOOK RESULTS AND FOR THE GROSS PROFIT RATE ADOPTED BY HIM. HENCE THE LD CIT(A) WAS NOT J USTIFIED IN REDUCING THE ADDITION MADE BY THE AO. 14. ON CONSIDERATION OF ENTIRE SPECTRUM OF THE MA TTER, WE ARE OF THE VIEW THAT THERE IS MERIT IN THE CONTENTIONS OF THE ASSESSEE. BEFORE US, THE ASSESSEE HAS FURNISHED THE ORDER OF ASSESSMENT OF T AX MADE UNDER MVAT ACT (VALUE ADDED TAX SALES TAX). WE NOTICE THAT THE COMMERCIAL TAX AUTHORITIES HAVE ACCEPTED THE TURNOVER REPORTED BY THE ASSESSEE. WHEN THE AUTHORITIES WHO ARE MAINLY CONCERNED WITH THE A MOUNT OF TURNOVER/ SALES HAVE ACCEPTED, THEN, PRIMA FACIE, THE ACCOUN TS APPEAR TO BE CORRECT. HOWEVER, ACCORDING TO THE AO, THE ASSESSEE HAS MADE GROSS LOSS ON SALE OF ALMONDS. WHEN WE EXAMINE THE ASSESSMENT ORDER, WE NOTICE THAT THE ASSESSING OFFICER HAS DERIVED THE AMOUNT OF GROSS P ROFIT REALIZED ON SALE OF CHEMICAL ITEMS LIKE DIATOMITE, SILICA/AEROSIL BY MA KING HIS OWN CALCULATIONS, SINCE THE ASSESSEE HAS EXPRESSED ITS INABILITY TO FURNISH SEPARATE TRADING ACCOUNT FOR EACH OF THE PRODUCTS. WE NOTICE THAT THE AVERAGE GROSS PROFIT RATE WAS COMPUTED AS 27.71% AN D 27.20% ON SALE OF DIATOMITE AND SILICA/AEROSIL RESPECTIVELY. IT IS P ERTINENT TO NOTE THAT THERE IS NOTHING ON RECORD TO SHOW THAT THE ABOVE SAID CO MPUTATION OF GROSS PROFIT WAS ACCEPTED BY THE ASSESSEE. THE AO HAS TA KEN SWORN STATEMENT FROM ONE OF THE PARTNERS OF THE FIRM. IN QUESTION NO.31 ALSO, THE AO HAS MADE CERTAIN COMPUTATION OF GROSS PROFIT IN RESPECT OF SOME OF THE BILLS. WE NOTICE THAT THE GROSS PROFIT RATE COMPUTED FOR D ITOMITE WAS 19.76% IN ONE INSTANCE AND 54% IN ANOTHER INSTANCE. THE GROS S PROFIT RATE COMPUTED FOR AEROSIL WAS 3.18% IN ONE INSTANCE AND 15.31% IN ANOTHER ITA NOS.3573/M/2013,5250/M/2013, 5298/M/13 AND 7099/M/2013 11 INSTANCE. THE GROSS PROFIT RATE COMPUTED FOR SHELL ED DIAMONDS WAS IN THE RANGE OF 7.17% TO 10%. THUS IT IS SEEN THAT HUGE VARIATION IN THE GROSS PROFIT RATE REALIZED BY THE ASSESSEE IN VARIOUS PRO DUCTS AND IT VINDICATES THE CONTENTION OF THE ASSESSEE THAT THE G.P. RATE W OULD BE DEPENDENT UPON VARIOUS FACTORS. 15. THE ASSESSING OFFICER HAS ARRIVED AT THE CONCL USION THAT THE ASSESSEE HAS INCURRED GROSS LOSS ON SALE OF ALMONDS, SINCE H E HAD COMPUTED THE GROSS PROFIT REALIZED ON CHEMICAL ITEMS AT A HUGE F IGURE. THUS THE GROSS PROFIT OF ALL THE PRODUCTS WOULD BE DEPENDENT UPON EACH OTHER UNDER THIS METHOD OF COMPUTATION, I.E., IF THE GROSS PROFIT FR OM CHEMICALS IS REDUCED, THEN THE GROSS PROFIT ON ALMONDS WILL GO UP. HENCE , UNLESS IT IS SHOWN THAT THE GROSS PROFIT COMPUTED BY THE AO FROM CHEMICAL S ALES IS AN AUTHENTICATED ONE, IN OUR VIEW, ONE CANNOT ACCEPT H IS CONCLUSIONS. 16. WE HAVE NOTICED THAT THE AO HAS APPLIED THE A VERAGE GROSS PROFIT RATE OF 16.05% ON THE ENTIRE COST OF PURCHASE OF AL MONDS. HOWEVER, THE LD CIT(A) HAS NOTICED THAT THE ASSESSEE HAS INCURRE D LOSS ONLY ON THE PURCHASES MADE TO THE EXTENT OF RS.14.21 CRORES. T HUS, THE REMAINING SALES HAVE BEEN MADE ABOVE THE PURCHASE COST. HENC E, THE LD CIT(A) HAS TAKEN THE VIEW THAT THE ESTIMATED GROSS PROFIT RATE SHOULD BE APPLIED ONLY THE ABOVE SAID PURCHASES OF RS.14.21 CRORES. IN OU R OPINION, THIS APPROACH OF THE LD CIT(A) APPEARS TO BE REASONABLE ONE., I.E., WHEN THE AO IS SUSPECTING ABOUT THE CLAIM OF LOSS ON SALE OF ALMONDS, THERE IS NO REASON TO DISTURB THE SALES MADE WITH PROFIT. HENC E, IN OUR VIEW, THE AO WAS NOT JUSTIFIED IN APPLYING THE GROSS PROFIT RATE ON ENTIRE COST OF PURCHASE OF ALMONDS AND TO THAT EXTENT THE VIEW OF THE LD CIT(A) STANDS JUSTIFIED. AT THE SAME TIME, THE CONTENTION OF THE ASSESSEE WAS THAT THE LD CIT(A) WAS ALSO NOT JUSTIFIED IN ESTIMATING THE GROSS PROFIT ON RS.14.21 CRORES WITHOUT BRINGING ANY MATERIAL ON RECORD TO D ISBELIEVE THE BOOKS OF ACCOUNTS OF THE ASSESSEE. ITA NOS.3573/M/2013,5250/M/2013, 5298/M/13 AND 7099/M/2013 12 17. HENCE, THE QUESTION AS TO WHETHER THE TAX AUTHO RITIES ARE JUSTIFIED IN REJECTING THE BOOK RESULTS WOULD STILL REMAINS TO B E ADDRESSED. A PERUSAL OF THE ASSESSMENT ORDER WOULD SHOW THAT THE ASSESSI NG OFFICER HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW THAT THE SAL ES MADE AT BELOW THE COST PRICE WERE NOT CORRECT. WE NOTICE THAT THE AO HAS SIMPLY PROCEEDED TO MAKE COMPUTATIONS ON THE BASIS OF BOOK RESULTS O NLY. IT CAN BE SEEN THAT THE AO DID NOT USE ANY OUTSIDE MATERIAL/INFORM ATION IN THIS REGARD. THUS, IT IS SEEN THAT THE ASSESSING OFFICER DID NOT MAKE ANY THIRD PARTY ENQUIRIES OR ANY OTHER MATERIAL ON RECORD TO DISPRO VE THE BOOK RESULTS. MORE PARTICULARLY, THE CLAIMS OF THE ASSESSEE THAT THE ALMONDS ARE PERISHABLE PRODUCTS AND SUBJECT TO VAGARIES OF WEAT HER, SUBJECT TO BREAKAGE AND OTHER LOSS, LIABLE TO INFESTED ETC. AN D HENCE WOULD RESULT IN REDUCTION OF QUALITY WERE NOT DISPROVED. THE AO HA S NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW THAT THE PRODUCTS WERE R ECEIVED FROM USA IN PERFECT QUALITY AND HENCE THE CLAIM OF THE ASSESSEE WAS WRONG. THUS, IN OUR VIEW, THE AO HAS COMPLETELY FAILED TO DISPROVE THE CLAIM OF THE ASSESSEE THAT IT HAS TO SELL ALMONDS AT LOWER THAN THE COST RATE DUE TO SUB- STANDARD QUALITY. UNDER THESE SET OF FACTS, IN OUR VIEW, THE AO HAS PROCEEDED TO REJECT THE BOOK RESULTS ONLY ON THE BA SIS OF SURMISES AND CONJECTURES. IT IS A WELL SETTLED PROPOSITION THAT THE SUSPICION, HOWSOEVER STRONG IT MAY BE, CANNOT JUSTIFY THE ACTION OF THE ASSESSING OFFICER. HENCE, IN OUR VIEW, THERE IS NO ENOUGH MATERIAL ON RECORD TO WARRANT OR JUSTIFY THE ACTION OF REJECTION OF BOOK RESULTS. ACCORDINGLY W E ARE OF THE VIEW THAT THE LD CIT(A) WAS NOT JUSTIFIED IN UPHOLDING THE ACTION OF REJECTION OF BOOK RESULTS. 18. THE VIEW EXPRESSED BY THE AO ON APPLICATION OF SEC. 40A(2)(B), IN OUR VIEW, WAS NOT CORRECT, SINCE THE ASSESSING OFFI CER HAS NOT PROVED BY ITA NOS.3573/M/2013,5250/M/2013, 5298/M/13 AND 7099/M/2013 13 WAY OF ANY MATERIAL THAT THE PURCHASE PRICE PAID BY THE ASSESSEE IN EXCESS OF MARKET RATES. 19. SINCE, WE HAVE SET ASIDE THE DECISION OF THE T AX AUTHORITIES ON REJECTION OF BOOK RESULTS, THE CONSEQUENT ESTIMATE OF GROSS PROFIT IS ALSO LIABLE TO REJECTED. THE LD A.R ALSO POINTED OUT TH AT THE GROSS PROFIT RATE DECLARED BY THE ASSESSEE IN THE EARLIER YEARS HAS B EEN ACCEPTED. WE HAVE EARLIER NOTICED THAT THE TAX AUTHORITIES HAVE PROCE EDED TO COMPUTE THE GROSS PROFIT ON PRESUMPTIVE BASIS WITHOUT BRINGING ANY MATERIAL ON RECORD. WE HAVE ALSO NOTICED THAT THE CLAIM OF SALE OF SUB- STANDARD QUALITY OF ALMONDS HAS NOT BEEN DISPROVED. THOUGH IT IS STATE D THAT THE ASSESSEE HAS SOLD TO NON-EXISTANT PARTIES, YET THE BILLS REL ATING TO CASH SALES GENERALLY DO NOT BEAR THE ADDRESS OF THE BUYERS. HE NCE, THE SAME CANNOT BE A GROUND TO REJECT THE CLAIM OF THE ASSESSEE. A CCORDINGLY, WE ARE OF THE VIEW THAT THERE IS NO MATERIAL ON RECORD TO REJ ECT THE CLAIM OF SALES MADE AT LOWER THAN THE COST PRICE. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD CIT(A) ON THE ISSUE RELATING TO ADDITION OF GROSS PROFIT AND DIRECT THE AO TO DELETE THE ADDITION MADE ON ACCOUNT OF DI FFERENCE IN GROSS PROFIT/SALES AMOUNT. 20. THE NEXT ISSUE RELATES TO THE ASSESSMENT OF PEAK CREDIT BALANCE IN THE BANK ACCOUNTS. WE HAVE EARLIER NOTICED THAT TH E AO DID NOT MAKE ANY ADDITION ON THIS ACCOUNT, SINCE HE HAS ACCEPTED THA T THE SAID DEPOSITS HAVE BEEN MADE OUT OF CASH SALES ONLY. WE NOTICE THAT T HE LD CIT(A) HAS ALSO ACCEPTED THE SAID FACT, BUT HE HAS ENTERTAINED THE VIEW THAT THE ASSESSEE HAS MADE CERTAIN GAINS IN ROUTING THE CASH SALES PR OCEEDS THROUGH THE BANK ACCOUNT. WE HAVE EARLIER NOTICED THAT THE SAL ES EFFECTED IN CASH WAS SHOWN AS CREDIT SALES IN THE BOOKS OF ACCOUNT. THE CASH REALIZED ON MAKING THE CASH SALES WAS DEPOSITED INTO THE BANK A CCOUNTS OF OTHER PERSONS AND CHEQUES WERE RECEIVED. THOSE CHEQUES W ERE CREDITED AGAINST THE DEBTORS. IN OUR VIEW, THE ABOVE SAID PROCEDURE WOULD NOT GIVE RISE TO ITA NOS.3573/M/2013,5250/M/2013, 5298/M/13 AND 7099/M/2013 14 ANY GAIN AS ASSUMED BY THE LD CIT(A). ACCORDINGLY, WE ARE OF THE VIEW THAT THERE IS NO JUSTIFICATION IN TREATING THE PEAK CREDIT OF BANK ACCOUNTS AS INCOME OF THE ASSESSEE. ACCORDINGLY WE SET ASIDE TH E ORDER OF LD CIT(A) ON THIS ISSUE. 21. NOW WE SHALL TAKE UP THE APPEALS FILED BY BO TH THE PARTIES FOR AY 2010-11. WE NOTICE THAT THE AO HAS MADE ADDITION T OWARDS SUPPRESSED SALES/GROSS PROFIT ON IDENTICAL GROUNDS. THE LD.CIT (A) HAS TREATED THE PEAK CREDIT IN BANK ACCOUNTS AS INCOME OF THE ASSESSEE A ND HAS ALSO DETERMINED THE GROSS PROFIT ONLY ON SALES MADE IN LOSS. HENCE , BY FOLLOWING OUR ORDER RENDERED FOR AY 2009-10, WE SET ASIDE THE ORDER OF LD CIT(A) WITH REGARD TO THE ISSUES RELATING TO PEAK CREDIT ADDITION AND THE ADDITION RELATING TO SUPPRESSED SALES/GROSS PROFIT AND DIRECT THE AO TO DELETE BOTH THE ADDITIONS. 22. IN THE RESULT, THE APPEALS FILED BY THE ASS ESSEE ARE ALLOWED AND THE APPEALS OF THE REVENUE ARE DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COU RT ON 13TH MAR, 2015 . '( # ) *+ 13TH MAR , 2015 ( ' ,$ - SD SD ( / VIVEK VARMA ( . . / B.R. BASKARAN) / JUDICIAL MEMBER . / ACCOUNTANT MEMBER # $ MUMBAI: 13TH MAR ,2015. . . ./ SRL , SR. PS !'#$% &%'# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. # /% ( ) / THE CIT(A)- CONCERNED 4. # /% / CIT CONCERNED ITA NOS.3573/M/2013,5250/M/2013, 5298/M/13 AND 7099/M/2013 15 5. 0, %1 , & 1 , # $ / DR, ITAT, MUMBAI CONCERNED 6. ,2 3$ / GUARD FILE. 4 # / BY ORDER, TRUE COPY 5 (ASSTT. REGISTRAR) & 1 , # $ /ITAT, MUMBAI