ACIT, Kota V. SHRI SHABBAR HUSSAIN ALI MOHAMMED, Kota

ITA 368/JPR/2010

• Counselvise Citation: 36823114 RSA 2010
• Duration Of Justice: 1 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 13-10-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 22-04-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: VINOD JOHRI
• Keywords: Unexplained investment; Unexplained expenditure; Loose papers; Retraction
• Section: 69C; 142(1); 133A; 131; 69; 144

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH B JAIPUR (BEFORE SHRI R.K.GUPTA AND SHRI N.L.KALRA) ITA NO.368/ JP/2010 ASSESSMENT YEAR 2005-2006 PAN: AARPP 9847 R THE ACIT VS. SHRI SHABBAR HUSSAIN ALI MOHAMMED CIRCLE- 1 PROP. M/S. PEDHIWALA BROTHERS KOTA 32, SHOPPING CENTRE, KOTA (APPELLANT ) (RESPONDENT) ASSESSEE BY : SHRI VINOD JOHRI DEPARTMENT BY : SHRI MAHENDRA GARGIEYA ORDER PER N.L. KALRA, AM:- THE REVENUE HAS FILED AN APPEAL AGAINST THE ORDER OF THE LD. CIT(A), KOTA DATED 03-02-2010 FOR THE ASSESSMENT YEAR 200 5-2006. 2.1 THE FIRST GROUND OF APPEAL OF THE REVENUE IS T HAT THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 20,08,502/- M ADE BY THE AO ON ACCOUNT OF EXCESS STOCK WITHOUT APPRECIATING THE FACTS ADM ITTED BY THE ASSESSEE REGARDING THE POSITION OF BOOKS OF ACCOUNTS AND VAL UATION OF STOCK DURING THE COURSE OF SURVEY AND GIVING CREDENCE TO THE STAND TAKEN BY THE ASSESSEE AFTER A GAP OF THREE YEARS FROM THE DATE OF SURVEY. 2.2 THE ASSESSEE IS TRADING IN SANITARY ITEMS AND BUILDING MATERIALS. THE ASSESSEE IS ALSO DIRECTOR OF THE COMPANY NAMELY M/S . PEDIWAL CERAMIC (P) 2 LTD. (IN SHORT PCPL). THE PROPRIETARY CONCERN OF TH E ASSESSEE NAMELY M/S. PEDIWAL BROTHERS (IN SHORT M/S. P.B.) AND THAT OF M /S.PCPL ARE HAVING THE SAME BUSINESS PREMISES. A SURVEY U/S 133A OF THE AC T WAS CONDUCTED IN THE CASE OF THE ASSESSEE CONCERN ON 19-10-2004. DURING THE COURSE OF SURVEY, PHYSICAL VERIFICATION OF STOCK WAS DONE AND THE INV ENTORY WAS PREPARED. THE AO NOTED DURING THE COURSE OF SURVEY THAT THE STO CK OF BOTH CONCERNS WAS INTERMINGLED. THE STATEMENT OF THE ASSESSEE AND EMP LOYEES WERE RECORDED AND INCRIMINATING DOCUMENTS WERE IMPOUNDED. DURING THE COURSE OF SURVEY STATEMENTS OF SHRI SHABBAR HUSSAIN, PROPRIETOR AND STATEMENTS OF EMPLOYEES SHRI NAND KISHORE, SHRI TAHIR BOHRA, SHRI AHMED, SH RI ABDUL KADIR & SHRI ROOP CHAND SAINI WERE RECORDED. STATEMENT OF SHRI S HABBAR HUSSAIN WAS ALSO RECORDED AFTER SURVEY ON 19.01.2005 ALSO. DURI NG SURVEY, VALUATION OF STOCK WAS DONE AT SALE PRICE. ON PHYSICAL VERIFICAT ION, STOCK WAS FOUND OF RS. 56,77,311 /- (EXCLUDING GP @ 5% AND INCLUDING STOCK OF PCPL) AN D AS PER TRADING A/C GOT PREPARED DURING THE COURSE OF S URVEY. AS PER BOOKS, STOCK WAS OF RS. 36, 68,809/-. THUS, THE STOCK OF R S. 20, 08,502/- (RS. 56, 77,311/- LESS RS. 36, 68,809/-) WAS FOUND IN EXCESS . THE AO THEREAFTER, REFERRED TO THE TRADING ACCOUNTS OF M/S. PB AND M/S . PCPL UPTO THE DATE OF SURVEY I.E. 19/10/2004. FURTHER REFERRED TO THE STA TEMENT OF THE ASSESSEE RECORDED ON 19/01/2005 AND THE FACT THAT BOOKS WERE NOT FOUND COMPLETE ON 3 THE DATE OF SURVEY AND THE ASSESSEE GAVE SPECIFIC PURCHASE AND SALES BILL WHICH WERE NOT ENTERED IN THE BOOKS THOUGH TRANSACT IONS HAVE ALREADY TAKEN PLACE. HE ALSO REFERRED TO QS NO. 3, 6, 8, 9, 10 & 11 OF THE STATEMENT RECORDED ON 19/10/2004. REFERRING TO THE RETURN FOR A.Y. 2004-05, HE WORKED OUT STOCK TURNOVER RATIO AT 13.89% IN THAT YEAR, AS AGAINST 7.90% OF THIS YEAR UPTO THE DATE OF SURVEY. FROM THIS, HE ALLEGED THAT THE WORKING OF THE CLOSING STOCK AS ON THE DAY OF SURVEY BY APPLYI NG G.P. RATE WAS ERRONEOUS AND ILLOGICAL. WHEN CONFRONTED AS REGARDS THE EXCES S STOCK OF RS. 20, 08,502/-, THE ASSESSEE VIDE WRITTEN SUBMISSION DAT ED 13/12/2007 , EXPLAINED THE REASONS OF SUCH DIFFERENCE SUPPORTED BY AN AFFI DAVIT (MAINLY THAT STOCKS OF M/S. PB AND M/S. PCPL WAS MIXED UP, CALCULATIO N MISTAKE AND APART FROM OTHERS) AND SUCH SUBMISSIONS WERE REJECTED SA YING THAT IT WAS A CASE OF RETRACTION MADE AFTER A PERIOD OF MORE THAN 3 YEARS AND WAS MERELY AN AFTER THOUGHT. HE ALSO ALLEGED THAT IN THE TRADING ACCOUN TS PREPARED AND SUBMITTED WITH LETTER DATED 13.12.2007, THE FIGURES OF SALES AND CLOSING STOCK IN TRADING A/C OF M/S. PB, WERE DIFFERENT THAN WHAT THE ASSESSEE PREPARED ON THE DAY OF SURVEY I.E.19.10.2004. FURTHER ADVERT ING TO LETTER DATED 24.12.2007 OF THE ASSESSEE , HE REJECTED THE CONTEN TION OF THE MISTAKE BY THE SURVEY TEAM IN COUNTING OF 27669 INSTEAD OF 2769 SA YING THAT THE SAME WERE COUNTED BY THE EMPLOYEES NOMINATED BY THE ASSE SSEE AND INVENTORY 4 DRAWN ON SURVEY WAS SIGNED BY THE ASSESSEE. MOREOVE R, THE CONTENTION OF THE INCLUSION OF THE DAMAGED STOCK WAS ALSO REJECTED, A LLEGING LACK OF DETAILED STOCK REGISTER AND STATING THAT ONLY SALEABLE GOODS WERE INVENTORIZED. HE ALSO REFERRED TO THE Q NO& A -1 OF THE STATEMENT OF THE ASSESSEE RECORDED ON 19/01/2005 U/S 131OF THE ACT AND THEREAFTER WORKED OUT THE EXCESS STOCK OF RS. 20,08,502/- AND TAKING THE SAME TO BE THE EXCES S STOCK OF THE ASSESSEE, WAS ADDED IN THE INCOME AS INVESTMENT FROM UNDISCLO SED AND UNACCOUNTED SOURCES OF THE ASSESSEE. 2.3 THE LD. CIT(A) HAS DELETED THE ADDITION AFTER O BSERVING AS UNDER:- I HAVE PERUSED THE ASSESSMENT ORDER AND CONSIDERED SUBMISSIONS OF THE APPELLANT. THE BUSINESS PREMISES OF THE APPELLANT WERE SURVEYE D ON 19.10.04 (UNDER SECTION 133A OF THE I.T. ACT, 1961) AND THE SALIENT FACTS RELATING TO THIS SURVEY AND ADDITIONS MADE THEREAFT ER ARE AS FOLLOWS. DURING THE SURVEY, IT WAS NOTICED THAT FROM THE SAM E PREMISES, THE APPELLANT WAS CONDUCTING BUSINESS FOR HIS PROPRIETA RY CONCERN, PEDHIWALA BROTHERS (PB) AND PEDIWALA CERAMICS (P) L TD. (PCPL), OF WHICH HE WAS A DIRECTOR. THE ASSESSING OFFICER HAS ACKNOWLEDGED IN THE ASSESSMENT ORDER THAT 'STOCK OF BOTH CONCERNS W AS INTERMINGLED'. AFTER A PHYSICAL VERIFICATION, THE ENTIRE STOCK FOU ND AT THE BUSINESS PREMISES OF THE APPELLANT WAS VALUED AT RS.56,77,31 1/- ADOPTING THE SALE PRICE AS THE BASIS (PARA 4, PAGE 2 OF THE ASSE SSMENT ORDER.) IN DUE COURSE, AFTER ALLOWING FOR GP @5% SALES TAX @14% AND STOCK OF PCPL, AS PER TRADING ACCOUNT PREPARED ON DURING THE SURVEY, THE ASSESSING OFFICER CALCULATED THE EXCESS STOCK OF PB ON THE DATE OF SURVEY OF RS.20,08,500/- AND THIS AMOUNT WAS ADDED TO THE TOTAL INCOME OF THE APPELLANT AS INVESTMENT.......FROM UN DISCLOSED AND UNACCOUNTED SOURCES'. 5 IN COURSE OF APPEAL PROCEEDINGS, THE APPELLANT OBJE CTED TO THIS ADDITION ON THE FOLLOWING GROUNDS. HIS CASE IS THAT BECAUSE BUSINESS OPERATIONS OF BOTH PB AND PCPL WERE CONDUCTED FROM ONE PREMISE S, IT WAS EVIDENT THAT STOCK OF BOTH PB AND PCPL WAS KEPT IN THE SAME PREMISES. YET, ALL ALLEGED EXCESS STOCK OF RS.20,08 ,500/- WAS ATTRIBUTED TO PB, WITHOUT ANY INQUIRY IN THE CASE O F PCPL. THE APPELLANT SUBMITTED FURTHER THAT DURING THE STA TEMENTS ON 19.01.05, HE HAD INFORMED THE ASSESSING OFFICER THA T HE WAS FOLLOWING COST OR MARKET PRICE, WHICH EVER WAS LESS FOR VALUA TION OF THE STOCK (APB 52). YET, ACCORDING TO THE APPELLANT, THE VALU E OF STOCK TAKEN DURING THE SURVEY WAS BASED ON MRP, INDICATED ON TH E PACKING OF THE GOODS AND NOT AT THE SALE PRICE, AS MENTIONED IN TH E ASSESSMENT ORDER. HE EXPLAINED THAT HIS BOOKS WOULD SHOW THAT ACTUAL SALES PRICE WERE AT LEAST 15% LOWER THAT THE MRP, ANOTHER FACT THAT WAS VERIFIABLE FROM THE BOOKS, WHICH WERE WITH THE DEPARTMENT TILL DATE . HE ALSO ASSERTED THAT THE VALUE OF DEAD STOCK SHOULD HAVE BEEN TAKEN AS NIL DEPARTMENT TILL DATE. HE ALSO ASSERTED THAT THE VALUE OF DEAD STOCK SHOULD HAVE BEEN TAKEN AS NIL. THE APPELLANT CLAIMED THAT DURING PHYSICAL VERIFICA TION OF STOCK THERE WAS A MISTAKE IN RECORDING THE NUMBERS OF ONE ITEM, NAMELY TILES BORDERS. HE SUBMITTED THAT ACTUAL NUMBER OF TILES B ORDERS FOUND WAS 2769 BUT BY MISTAKE IT WAS RECORDED AS 27699. IN TH E RESULT THE VALUE OF THIS ITEM, WHICH SHOULD HAVE BEEN RS.19,383/-, W AS WRONGLY TAKEN RS.1,93,893/-. HE ASSERTED THAT THE SPACE IN HIS BU SINESS PREMISES WAS NOT ENOUGH TO HOLD 27699 PIECES OF TILES BORDERS, A QUESTION OF FACT THAT COULD BE EASILY VERIFIED. THE DECISION OF THE ASSESSING OFFICER TO TREAT ALLE GED EXCESS STOCK OF RS.20,08,502/- AS INVESTMENT OF THE APPELLANT FROM UNDISCLOSED OR UNEXPLAINED SOURCES, IN MY VIEW, SUFFERS FROM FOLLO WING DEFECTS. AS THE BUSINESS OF THE PB AND PCPL WAS CARRIED OUT FROM SAME PREMISES, IT WAS BUT NATURAL THAT THE STOCK OF BOTH PB AND PCPL WAS LYING IN THE SAME PREMISES, A FACT RECOGNIZED BY TH E ASSESSING OFFICER IN ASSESSMENT ORDER: 'STOCK OF BOTH CONCERNS WAS IN TERMINGLED'. YET, WITHOUT ANY ENQUIRY INTO THE STOCK OF PCPL, THE ENT IRE STOCK 6 INVENTORISED DURING THE SURVEY WAS ATTRIBUTED TO TH E PB. THIS IS, IN MY VIEW, NEITHER FAIR NOR CORRECT. EVEN, DURING THE STATEMENT OF 19/01/2005 (APB 52), THE APPELLANT HAD STATED THAT INSTEAD OF USING LOWER OF COST OR MARKE T VALUE, THE STOCK FOUND DURING THE SURVEY WAS VALUED USING MRP, AND I N SOME CASES AT SALE PRICE. HE HAD EXPLAINED THAT NORMALLY SALE PRI CE WAS SUBSTANTIALLY LOWER THAN MRP PRINTED ON THE BOXES. THIS POSITION WAS REITERATED BEFORE THE ASSESSING OFFICER THROUGH LETTERS DATED 27/03/2006 (APB 66-69), 20/11/2007(APB 70-76), 13/12/2007 (APB 82-8 4) (SUPPORTED WITH AFFIDAVIT DATED 13/12/2007 OF THE APPELLANT (A PB 83-84)) AND 24/12/2007 (APB 85-87). THE APPELLANT HAD ALSO ASSE RTED BEFORE THE ASSESSING OFFICER THAT THIS CLAIM CAN BE VERIFIED F ROM BOOKS AND SUPPORTING DOCUMENTS, AVAILABLE WITH THE DEPARTMENT . THE APPELLANT ALSO REQUESTED THE ASSESSING OFFICER TO ASCRIBED NI L VALUE TO THE DEAD STOCK. THERE IS NO EVIDENCE THAT THE ASSESSING OFFI CER EXAMINED THESE CLAIMS. THE APPARENT MISTAKE IN COUNTING NUMBERS TILES BORD ERS WAS POINTED OUT IN THE STATEMENT OF 19.01.05 (Q NO1): THE APPEL LANT HAD EXPLAINED THAT INSTEAD OF 2769, THE NUMBER OF TILES BORDERS W AS WRONGLY RECORDED AS 27699. THE APPELLANT CLAIMED THAT SPACE HE HAD COULD NOT HOLD 550 BOXES REQUIRED FOR 27699 TILES BORDERS. TH ERE IS NO EVIDENCE THAT THE ASSESSING OFFICER TOOK UP THE REQUEST OF T HE APPELLANT TO VERIFY HIS CLAIM THAT SPACE AVAILABLE WITH HIM COULD NOT P HYSICALLY HOLD 27699 TILES BORDERS. IN COURSE OF APPEAL PROCEEDINGS, THE APPELLANT SUBM ITTED A COMPUTATION OF STOCK (A 76) THAT TAKES INTO ACCOUNT THESE FACTORS (ANNEXURE TO THIS ORDER). IT WAS ALSO MENTIONED THA T THIS COMPUTATION WAS SUBMITTED TO THE ASSESSING OFFICER, ALONG WITH LETTER DATED 13.12.07 (APB 82-84). THERE IS NO EVIDENCE THAT THE ASSESSING OFFICER CONSIDERED THE SAID COMPUTATION BEFORE ARRIVING AT THIS DECISION. TO SUM UP, IT WAS NECESSARY TO SEGREGATE THE STOCK OF PB FROM THAT PCPL. IN ADDITION, THERE IS MERIT IN CONTENTION OF THE APPELLANT THAT IT WAS WRONG TO USE MRP FOR VALUATION OF THE STOCK, WH EN THE ACTUAL SALE PRICES WERE SUBSTANTIALLY LOWER THAN THE MRP. THERE IS LITTLE DOUBT THAT DEAD STOCK SHOULD BE VALUED AT NIL. THE CLAIM THAT BUSINESS PREMISES DID NOT HAVE ENOUGH SPACE TO HOLD 27699 TI LES BORDERS WAS 7 EASILY VERIFIABLE, BUT ASSESSING OFFICER DID NOT TA KE IT UP. AFTER FACTORING THESE ASPECTS, THERE IS NO SCOPE FOR ADDI TION, AS DEMONSTRATED IN THE COMPUTATION OF STOCK, SUBMITTED BY THE APPEL LANT AND AVAILABLE AS ANNEXURE TO THIS ORDER. IT IS PERTINENT THAT THI S COMPUTATION WAS IGNORED BY THE ASSESSING OFFICER. 2.4 THE LD. DR DURING THE COURSE OF PROCEEDINGS BEF ORE US FILED THE WRITTEN SUBMISSION AS UNDER:- 1. SURVEY UNDER SECTION 133A OF INCOME TAX ACT 1961 WA S CONDUCTED ON 19.10.2004 IN THE BUSINESS PREMISES OF M/S PEDHI WALA BROTHERS ( IN SHORT PB) AND M/S PEDHIWALA CERAMIC PRIVATE LIMI TED ( IN SHORT PCPL). THE ASSESSEE IS A DEALER IN TILES ETC. THE ASSESSEE IS PROPRIETOR OF PB AND DIRECTOR OF PCPL. BOTH THE CON CERNS HAVE SAME BUSINESS AND THEIR AFFAIRS / STOCK ETC WERE FOUND I NTER-MINGLED AT THE TIME OF SURVEY. 2. DURING SURVEY, A NUMBER OF INCRIMINATING DOCUMENTS WERE FOUND AND IMPOUNDED. SUCH DOCUMENTS REVEAL UNACCOUNTED STOCK, SALES, UNDER- INVOICING ETC. 3. WHILE FILING RETURN OF INCOME FOR ASSESSMENT YEAR 2 005-06, THE ASSESSEE ACCEPTED AND INCLUDED UNEXPLAINED INCOME O F RS. 7.5 LAKHS WITHOUT GIVING ANY DETAILS OF SUCH UNACCOUNTED INCO ME AND STATING THE MANNER IN WHICH IT WAS EARNED. 4. STATEMENT OF THE ASSESSEE WAS RECORDED ON 19.10.200 4 AND POST- SURVEY ON 3.11.2004 AND 19.1.2005. 5. DURING SURVEY, TOTAL STOCK WAS DULY INVENTORIED BY THE SURVEY TEAM WITH THE ASSISTANCE OF STAFF OF THE ASSESSEE. STOCK WAS FOUND AT RS. 56,77,311/- WHEREAS AS PER BOOKS OF ACCOUNT, THE ST OCK WAS RECORDED AT RS. 36,68,809/-. DETAILED WORKING OF STOCK AS PE R BOOKS OF ACCOUNT 8 HAS BEEN DISCUSSED BY AO IN PARA 4 ON PAGES 2 TO 6 OF THE ASSESSMENT ORDER AND NEEDS NO REPETITION. ALL THE O BJECTIONS OF THE ASSESSEE RELATING TO ADJUSTMENT OF STOCK OF PCPL, G P RATES EMBEDDED IN STOCK ETC. HAVE BEEN DULY CONSIDERED BY AO. IN T HE STATEMENT RECORDED ON 19.1.2005 AS REPRODUCED IN THE ASSESSME NT ORDER ON PAGES 3 & 4, THE ASSESSEE HAD ACCEPTED THIS VALUA TION OF STOCK AT THE TIME OF SURVEY. 6. IN THE STATEMENT RECORDED ON THE DATE OF SURVEY, IT WAS ADMITTED IN ANSWER TO QUESTION NO. 36 THAT NO PHYSICAL VERIFICA TION WAS EVER CARRIED OUT BY THE ASSESSEE. THIS FACT IS MENTION O N PAGE 8 OF THE ASSESSMENT ORDER. THEREFORE, THE DECLARATION IN THE BOOKS AND IN RETURN OF INCOME ABOUT THE STOCK AS ON 31.3.2004 IS ALSO NOT ACCURATE AND VERIFIED. 7. THUS AN ADDITION OF RS. 20,08,502/- WAS MADE TOWARD S EXCESS STOCK IN WHICH UNEXPLAINED INVESTMENT WAS MADE. 8. DURING THE COURSE OF ASSESSMENT, NOTICES UNDER SECT ION 142(1) WERE ISSUED ON 07.09.2007 AND 07.11.2007. BUT AT THE FAG END OF ASSESSMENT PROCEEDINGS, THE ASSESSEE FILED RETRACTI ON ON 13.12.2007 ( AFTER 3 YEARS OF SURVEY ) DISPUTING THE VALUATION ON THE GROUND OF VALUATION OF DAMAGED STOCK AND CERTAIN DISCREPANCY IN QUANTITY OF CERTAIN ITEMS OF STOCK. 9. IT IS RELEVANT THAT RETRACTION QUESTIONED THE VALUA TION OF DAMAGED STOCK, THE DETAILS OF WHICH HAVE NEVER BEEN PROVIDE D TO AO AND LEARNED COMMISSIONER OF INCOME TAX (APPEALS). EVEN AT THE TIME OF SURVEY, THE DAMAGED STOCK COULD HAVE BEEN IDENTIFIE D. THE DISCREPANCY IN NUMBERS OF CERTAIN ITEMS IS BASED ON DOUBTS OF THE ASSESSEE. IT HAS BEEN STATED THAT THERE WAS POSSIBI LITY OF TAKING THE 9 NUMBERS AT 27,699 AS AGAINST 2769. THERE MAY HAVE B EEN MINOR DIFFERENCE IN STOCK TAKING BUT IN THIS CASE, THE DI FFERENCE IS CLAIMED AT 10 TIMES. EVEN IF IT IS ACCEPTED BY APPELLATE AUTHO RITIES, THE DIFFERENCE IN VALUATION IS ONLY RS. 1,74,510/-. MAY I STATE TH AT THE ASSESSEES DOUBT IS CREDIBLE WHEREAS THE ASSESSING OFFICERS D OUBT IS VIEWED VERY ADVERSELY. FURTHER, DOUBT RAISED BY THE ASSESS EE AFTER THREE YEARS HAS BEEN GIVEN CREDIBILITY BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS) . 10. ON PAGE 3 OF THE APPELLATE ORDER, LEARNED CIT (AP PEALS) HAS UPHELD REJECTION OF BOOKS OF ACCOUNT UNDER SECTION 145(3) OF INCOME TAX ACT 1961. 11. EVEN LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS OBSERVED ON PAGE-9 OF THE ASSESSMENT ORDER THAT RETRACTION B Y THE ASSESSEE IS REDUNDANT. BUT THE OBSERVATION HAS BEEN MADE AFTER THE ADDITION OF RS. 20,08,502/- WAS DELETED. IT IS UNACCEPTABLE THA T FOR THE PURPOSES OF DELETION OF UNEXPLAINED INVESTMENT IN EXCESS STO CK, RETRACTION HAS BEEN CONSIDERED WHILE FOR ADJUDICATION OF UNRECORDE D SALES OF RS. 38,16,698/- SUCH RETRACTION HAS BEEN REJECTED. THIS APPROACH OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS UNA CCEPTABLE AND UNWARRANTED. 12. AFTER HOLDING BOOKS OF ACCOUNT AS INCOMPLETE & UNTR UE AND HOLDING THE RETRACTION AS REDUNDANT, LEARNED COMMISSIONER O F INCOME TAX (APPEALS) WAS TOTALLY UNJUSTIFIED IN DELETION OF TH E ENTIRE ADDITION OF UNEXPLAINED INVESTMENT IN EXCESS STOCK AT RS. 20,08, 502/- WHEN THE CLAIMED DIFFERENCE IN CERTAIN ITEMS WAS VALUED BY THE ASSESSEE ON THE BASIS OF DOUBTS ONLY AT RS. 1,74,510/- AND UN-Q UANTIFIED DEAD STOCK. THE ENTIRE DELETION MEANS THAT ENTIRE STOCK FOUND AND VALUED BY 10 THE SURVEY TEAM WAS DAMAGED AND NONE WAS SALEABLE. HOWEVER, THERE IS NO SUCH FINDING EITHER BY LEARNED COMMISSIONER O F INCOME TAX (APPEALS) OR CLAIM OF THE ASSESSEE THAT ENTIRE STOC K WAS DAMAGED. 13. THE STOCK WAS NOT WORKED OUT IN ACCORDANCE WITH THE REQUIREMENT OF ACCOUNTING STANDARD 2 (AS-2) WHICH THE ASSESSEE H AS FAILED TO COMPLY. 14. IT IS, THEREFORE, PRAYED THAT THE RELIEF ALLOWED BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS) MAY BE REVERSE D AND ADDITION MADE BY AO BE RESTORED BECAUSE THE BASIS O F RELIEF IS BASED ON INCORRECT APPRECIATION OF FACTS AND TO THAT EXTE NT THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS PER VERSE. 2.5 DURING THE COURSE OF PROCEEDINGS BEFORE US, THE LD. AR HAS FILED THE WRITTEN SUBMISSION AS UNDER:- 1. NO EXCESS STOCK AS SUCH: AT THE OUTSET, IT IS SUBMITTED THAT RIGHT SINCE BEGINNING, THE REVENUE PROCEEDED O N A MISCONCEPTION OF FACT AND LAW I.E. FROM THE STAGE OF THE ASSESSME NT WHICH, CONTINUES TILL DATE AS REFLECTED IN THE GROUND TAKEN BY THE R EVENUE. THE AO AS ALSO THE REVENUE IN ITS GROUND HAS ALLEGED THAT THE LD. CIT (A) GRANTED RELIEF BASED ON THE RETRACTION MADE AFTER A PERIOD OF 3 YEARS WHICH, IS NOT AT ALL A CORRECT FACT. IT IS SUBMITTED THAT SUR VEY WAS CARRIED OUT ON 19/10/2004 WHEN STATEMENT OF THE ASSESSEE WERE RECO RDED (APB 34- 44). IN ANSWER TO Q NO.1 HE REPLIED THAT BOTH FIRM WERE ENGAGED IN THE BUSINESS OF SANITARY. NOTABLY, ON THE VERY FIRS T OCCASION I.E. ON THE DAY OF SURVEY ITSELF IN THE STATEMENT RECORDED ON 1 9/10/2004, IN ANSWER TO Q NO.3 HE STATED THAT THE BUSINESS OF PB AND PCPL IS CONDUCTED FROM THE SAME PLACE. IN ANSWER TO THE SPE CIFIC Q NO.2 (APB 34) AS REGARDS THE PLACEMENT OF STOCK OF BOTH THE FIRMS AND LOCATION OF THEIR GODOWN, HE REPLIED THAT THE GODOW N OF BOTH THE FIRM IS COMMON I.E. 4 A SHOPPING CENTRE, KOTA. IN REPLIE D TO Q NO.5 HE REPLIED THAT ACCOUNTS OF BOTH THE FIRM ARE ALSO KEP T AT ONE PLACE. 11 THERE APPEARS NO SPECIFIC QUESTION ASKED ON THE A LLEGED EXCESS STOCK IN STATEMENT DATED 19.10.2004. THE AO NEVER ALLEGED THAT THE ASSESSEE MADE A CATEGORICAL ADMISSION/SURR ENDER OF ANY SPECIFIC AMOUNT ON ACCOUNT OF EXCESS STOCK ETC IN T HOSE STATEMENTS. THEREAFTER, WHEN ASKED FIRST TIME IN SPECIFIC Q N O.1 AS REGARDS THE EXCESS STOCK IN THE STATEMENT RECORDED ON 19/01/2005 IN REPLY (REPRODUCED AT PAGE 5), THE ASSESSEE EXPLAINE D THE DETAILED REASONS OF DIFFERENCE AND MISTAKES COMMITTED BY TH E SURVEY TEAM. THEREAFTER, DURING THE COURSE OF ASSESSMENT PROCEED ING, THE ASSESSEE, WHEN ASKED SUBMITTED A LETTER DATED 13/12/2007 (APB 82-84) DULY SUPPORTED BY AN AFFIDAVIT (APB 83-84) AGAIN REPEATI NG ALL THOSE MISTAKES POINTED OUT EARLIER. THUS, FIRSTLY THERE WAS NO SPECIFIC SURRENDER OF `20.08 LACS THEREFORE, TO SAY THAT THERE WAS SOME RETRACTI ON, IS WRONG. SECONDLY, THING WERE CLARIFIED IN JAN 2005 WITHIN A PERIOD OF 3 MONTHS ONLY THEREFORE, TO SAY THAT THE RETRACTION, IF SO CONSIDERED, WAS MADE AFTER A PERIOD 3 YEARS, IS ALSO WRONG. 2. THE NEXT ASPECT WHICH REMAINED COMPLETELY UNAN SWERED IS THAT WHY THE AO DID NOT ALLOW THE CREDIT OF THE STOCKS OF PCPL ADMITTEDLY LYING AT THE SUBJECTED PREMISES AND EVEN INTERMINGLED. THE APPELLANT HAS ALMOST IN ALL ITS REPLIES EXPLA INED THAT IN THE INVENTORIZED STOCKS, THE STOCKS OF PCPL WERE ALSO INCLUDED. PCPL IS A LTD. CONCERN AND IS BEING ASSESSED SEPARA TELY. NOTABLY THE PURCHASES WERE BEING MADE BY PCPL ONLY (QUESTION NO . 5 APB 36) AND THEREAFTER PCPL USED TO SALE TO THE ASSESSEE TH EREFORE, EVEN ASSUMING THERE WAS SOME EXCESS, SUCH EXCESS COULD H AVE BELONGED TO PCPL BUT NOT OF THE ASSESSEE PB. FURTHER NOTABLY BO OKS OF BOTH PB AND PCPL WERE FOUND INCOMPLETE ON THE DAY OF SURVEY AND, WERE COMPLETED THEREAFTER SO AS TO ARRIVE AT THE CORRECT FIGURES. DURING THE COURSE OF SURVEY, TRADING ACCOUNTS OF BOTH THE FIRM WERE OBTAINED (REF. PG 2 OF AO) WHICH ITSELF SHOWS THAT THE SURVE Y TEAM WERE AWARE OF TWO SEPARATE ENTITIES WHOSE STOCKS WAS LYING AT ONE COMMON PLACE. THIS IMPLIES THAT THE FIGURES OF CLOSING STOCK WORK ED / VALUED BY THE SURVEY TEAM ON 19.10.2004 WERE COMPLETELY ERRONEOUS AND WERE NOT RELIABLE. 12 IF THIS CONTENTION IS CONSIDERED COUPLED WITH OTH ER REASONS FOLLOWING HEAR IN AFTER, THERE WOULD BE NO CASE OF DIFFERENCE. ON THIS ASPECT FOLLOWING SUBMISSIONS MADE BEFORE THE CIT (A) ARE WORTH NOTING HENCE REPRODUCED HERE UNDE R FOR A READY REFERENCE IN VERBATIM: AS ALREADY EXPLAINED IN OUR SUBMISSION AGAINST GR OUND NO.1 THAT THE APPELLANT IS EARNING FROM SALE AND PU RCHASE OF SANITARY ITEMS AND BUILDING MATERIALS. THE SURVEY W AS CONDUCTED AT THE BUSINESS PREMISES OF THE APPELLANT . AT THE SAME PLACE, ANOTHER COMPANY NAMELY M/S PEDHIWALA CE RAMICS PRIVATE LIMITED IS ALSO RUNNING AND ITS BOOKS OF AC COUNTS, BILLS, VOUCHERS AND STOCK ARE ALSO KEPT AT THE SAME PLACE. THE A.O. HAS ALSO ACCEPTED THE SAME FACTS AND MENTIONED THE SAME IN ITS ASSESSMENT ORDER. DURING THE COURSE OF SURVEY AND T HEREAFTER NO DETAILS WERE CALLED FROM M/S PEDHIWALA CERAMICS PRI VATE LIMITED. THEIR RECORDS WERE NOT CHECKED OR EXAMINED AND NO STOCK POSITION WAS CALLED FROM THEM. THE APPELLANT HAS ALMOST IN ALL ITS REPLIES HAS EXPLAINED THAT IN THE INVENT ORIZED STOCKS, THE STOCKS OF M/S PEDHIWALA CERAMICS ARE ALSO INCLU DED, THEN HOW FIRSTLY THE EXCESS STOCK WAS COMPUTED AND SECON DLY HOW IT WAS ASSUMED THAT IF THERE IS AN EXCESS STOCK THE SA ME IS PERTAINS TO THE APPELLANT AND NOT TO ANOTHER FIRM RUNS AT TH E SAME PLACE. THE CONSOLIDATED ITEM WISE DETAILS OF THE FOUND INV ENTORY WHICH PERTAINS TO TWO FIRMS WERE MADE BY THE DEPART MENTAL OFFICIALS BUT WHILE EVALUATING THE EXCESS STOCK OF THE APPELLANT, THE STOCKS PERTAINS TO THE ANOTHER FIRM WAS NOT SEG REGATED. NO ITEM WISE DETAILS WERE CALLED FROM THE OTHER FIRM. DURING THE COURSE OF SURVEY, TRADING ACCOUNT OF BOTH THE FIRM WAS OBTAINED AND ON THE BASIS OF THAT TRADING ACCOUNT IT WAS PRE SUMED THAT STOCK SHOWN BY THE OTHER FIRM IN THEIR TRADING ACCO UNT IS TRUE AND THE STOCK SHOWN BY THE APPELLANT IN ITS TRADING ACCOUNT IS FALSE AND THE AMOUNT AS EVALUATED EXCESS BY THE DEP ARTMENT IS ADDED TO THE TOTAL INCOME OF THE ONE FIRM ONLY. THE DEPARTMENT HAS NOT GIVEN ANY JUSTIFICATION THAT WHY THE ENTIRE EXCESS STOCK (IF ANY) PRESUMED AS RELATES TO APPELLANT FIRM ONLY . HERE IT IS IMPORTANT TO NOTE THAT ALL THE PURCHASES WERE MADE BY THE M/S PEDHIWALA CERAMICS PRIVATE LIMITED AND LATER ON WAS TRANSFERRED TO APPELLANT FIRM. THUS, THE APPELLANT FIRM GENERALLY 13 PURCHASES THE GOODS FROM M/S PEDHIWALA CERAMICS PRI VATE LIMITED ONLY. SO IF THERE IS ANY EXCESS STOCK, IT C AN BE PRESUMED TO PERTAIN TO OTHER FIRM ONLY. SECONDLY, W ITHOUT EXAMINING THE BOOKS OF ACCOUNTS OF OTHER FIRM AND W ITHOUT OBTAINING THE FULL DETAILS OF STOCKS OF OTHER FIRM, EXCESS STOCK OF THE APPELLANTS FIRM CAN NOT BE DETERMINED. THEREFO RE, THE LEARNED A.O. IS NOT JUSTIFIED IN ADDING THE AMOUNT OF RS. 20, 08, 502/- TOWARDS EXCESS STOCK FOUND AT THE TIME OF SUR VEY. 3. THE GROUND OF THE REVENUE IS ONCE AGAIN IS FAC TUALLY INCORRECT WHILE ALLEGING THAT RELIEF WAS GRANTED WI THOUT APPRECIATING THE FACTS ADMITTED BY THE ASSESSEE REGARDING THE PO SITION OF BOOKS OF ACCOUNT AND VALUATION OF STOCK DURING THE COURSE OF SURVEY.... , IN AS MUCH AS IN THE ENTIRE STATEMENT DATED 19.10.04, THE RE WAS NO SUCH SPECIFIC ADMISSION. THERE IS A MINOR PENDENCY TO RE CORDED SMALL EXPENSES OF CARTAGE ETC. OF A FEW DAYS (Q NO.35 APB 50). 4. INCORRECT VALUATION: IT WAS ALSO SUBMITTED REP EATEDLY RIGHT FROM BEGINNING WHEN ASKED THAT THE ASSESSEE H AD BEEN CONSISTENTLY FOLLOWING THE METHOD OF VALUATION BEIN G COST OR MARKET PRICE, WHICH EVER WAS LESS, WHICH FACT, WAS EVIDE NT FROM THE TAX AUDIT REPORT PARA 12(B) (APB 20) AND IN THE PAST AL SO THE APPELLANT FOLLOWED THE SAME METHOD. AS AGAINST THIS, THE SURV EY TEAM VALUED THE STOCK EITHER ON MRP INDICATED ON THE PACKING OR THE SALE PRICE. KINDLY REFER SOME EXAMPLES FOR MRP REF DPB 68-56 AN D FOR SALE PRICE REF DPB 88 THUS, THE STOCK WAS VALUED ALMOST 15% MORE THAN WHAT WAS RECODED IN THE ACCOUNTS. THE AO IS HOWEVER , COMPLETELY SILENT ON THIS ASPECT. THIS RESULTED INTO EXCESS VA LUATION BY `8, 96,418/- (APB 76) SPECIFIC SUBMISSIONS WERE MADE BE FORE THE AO VIDE LETTER DATED 27.03.2006 PARA 1 APB 66-67. 5. AS REGARDS HIS ALLEGATION THAT THE FIGURES OF S ALES AND CLOSING STOCK SHOWN IN THE TRADING ACCOUNTS SUBMITTED DURIN G HEARING AND PREPARED ON THE DAY OF SURVEY, A DETAILED REPLY WAS GIVEN IN THE STATEMENT DATED 19.01.05 Q.4 (APB 56). OTHERWISE, N O BODY CAN BE EXPECTED TO BE MATHEMATICALLY PRECISE REGARDING FIG URES DURING SURVEY AND SEARCH. STRANGELY DESPITE THIS, THE AO WHILE CO MPUTING EXCESS STOCK (AO PG 6), HE CONSIDERED AVAILABLE STOCK OF P B OF `9,76,596/- ONLY AS AGAINST `13,36,260/- (AO PG 4). EVEN HE DID NOT FIND ANY FAULT WITH THE CORRECT WORKING OF `13, 36,260/- BASED ON THE REGULAR AND 14 UPDATED ACCOUNTS TILL 19.1004. THE SAME WAS THEREAF TER CARRIED FORWARDED AND THE CLOSING STOCK THE YEAR END 31.03. 05 AT `12,27,590/- WAS ARRIVED (APB 75). THE ACCOUNTS WERE AUDITED FIN DING NOTING WRONG ON THIS ASPECT. ON THIS ASPECT IT WAS SUBMITTED BEFORE CIT(A) DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS, APPELLANT HAS GIV EN THE TRADING ACCOUNT OF M/S PEDHIWALA CERAMICS PRIVATE LIMITED A S ON THE DATE OF SURVEY AND AS PER THAT TRADING ACCOUNT, THEIR STOCK COMES TO RS.28,27,500/- WHEREAS, DEPARTMENT HAS CONSIDERED O NLY RS.23,01,037/-. SIMILARLY, TRADING ACCOUNT OF THE A PPELLANT FIRM WAS ALSO PRODUCED AND AS PER TRADING ACCOUNT, THE STOCK COMES TO RS.13,36,260/- AS AGAINST RS.9,76,596/- CONSIDERED BY THE DEPARTMENT. THE BOOKS OF THE APPELLANT FIRM WAS IN THE POSSESSI ON OF THE DEPARTMENT AND ON THE BASIS OF THAT BOOKS OF ACCOUN T ONLY, THE SAID TRADING ACCOUNT WAS PREPARED. THIS RESULTED INTO OV ER VALUATION BY RS.3,59,664/- 6. WRONG COUNTING: A SERIOUS MISTAKE WAS COMMIT TED WHILE RECORDING THE NUMBER OF ITEMS FOUND IN AS MUCH AS THE ACTUAL NUMBER OF TILE BOARDERS THOUGH FOUND 2769 ONLY BUT WRONGLY RECORDED AS 27699 AND AS A RESULT, THE VALUE WHICH SHOULD HAVE BEEN TAKEN AT `19,383/-, WAS WRONGLY TAKEN AT 1,93,893/-. THE LD. AO THOUGH REJECTED SUCH CONTENTION ON THE PLEA OF LACK OF SUP PORTING RECORD HOWEVER, IGNORED ANOTHER IMPORTANT CONTENTION THAT EVEN NO SUFFICIENT PHYSICAL SPACE WAS AVAILABLE IN THE SURVEYED PREMIS ES TO HOLD 27699 PIECES. THE ASSESSEE IN HIS STATEMENT DATED 19/01/2 005 Q NO1 (AO PAGE-5) AND (DPB 142) SPECIFICALLY MENTIONED THAT T O KEEP GOODS TO THIS EXTENT AT LEAST 550 BOXES ARE REQUIRED. MOREOV ER, AT THE BEST, SALE OF SUCH ITEM WERE NOT MORE THAN 200 BOXES. THE INVE STIGATING OFFICER WAS SPECIFICALLY ASKED TO HAVE ON THE SPOT PHYSICAL VERIFICATION TO HIS SATISFACTION AT ANY TIME RANDOMLY. EVEN SPECIFIC AS SERTION WAS MADE IN THE AFFIDAVIT VIDE PARA 7 PB 84. HOWEVER, NOTING WAS DONE NOR THE AO REFUTED SUCH FACTUAL ASPECT. THIS RESULTED INTO AN INCORRECT EXCESS VALUATION OF `1,74,510/- (SPECIFIC SUBMISSIONS WERE MADE BEFORE THE AO VIDE LETTER DATED 27-03-2006 PARA 1 APB 67). THE FURTHER ALLEGATION THAT THE SAME WERE COUNTED BY THE EMPLOYEES NOMINATED BY THE ASSESSEE, IS FACTUALLY I NCORRECT IN ABSENCE OF SIGNATURE OF THE CONCERNED EMPLOYEES ON THE INVENTORY 15 PREPARED BY THEM (DPB 11 TO 88 AND 96 TO 103) AND F URTHER THAT INVENTORY DRAWN ON SURVEY WAS SIGNED BY THE ASSESSE E, ALSO SHOULD NOT BE GIVEN MUCH WEIGHTAGE IN AS MUCH AS IN THE TE NSED MOMENTS, THE ASSESSEE HAS TO SIGN WHEREVER REQUIRED. THE ABS ENCE OF WITNESSES AND THE SHORT DURATION WITHIN WHICH SUCH A HUGE INV ENTORY WAS PHYSICALLY VERIFIED, ITSELF WAGES DOUBT OVER ITS CO RRECTNESS. 7. THERE APART, THE SURVEY TEAM DID NOT PROPERLY CONSIDER THE FACT AND THE CONTENTION THAT THE DAMAGED/DEAD S TOCK WAS HAVING EITHER LITTLE VALUE OR NO VALUE AT ALL. THE AO SIMP LY STATED THAT THE SURVEY TEAM TOOK CARE TO CONSIDER SALEABLE ITEMS ON LY. HOWEVER, THERE IS NO EVIDENCE TO SUPPORT THIS VERSION OF THE AO. A LSO KINDLY REFER Q NO1 (APB 52). ON THIS ASPECT IT WAS SUBMITTED BEFOR E CIT (A) THAT GENERALLY 1% TO 2% DAMAGES DO TOOK PLACE WHILE SELL ING THE GOODS BUT THE SAME WAS NOT CONSIDERED. THIS ALSO RESULTED IN INCORRECT EXCESS VALUATION BY `51,420/- . 8. IT WAS FURTHER EXPLAINED THAT THE APPELLANT HAS ALREADY DISCLOSED THE INCOME OF `7.5 LACS IN ITS RETURN OF INCOME TOWARDS THE STOCK DEBTORS FOUND, IF ANY, UNRECORDED AND THEREFO RE THERE WAS NO JUSTIFICATION FOR FURTHER ENHANCEMENT. SPECIFIC SUB MISSIONS WERE MADE BEFORE THE AO VIDE LETTER DATED 27-03-2006 PAR A1 (APB 67). 9. AFTER GIVING MATHEMATICAL EFFECT TO ALL THES E FACTORS, THERE REMAINS NO DIFFERENCE AS SUCH, AS SHOWN IN A RECONCILIATION CHART (APB 76). ALL THE ABOVE OBJECTION WERE RAISED DURING THE COU RSE OF ASSESSMENT PROCEEDINGS THROUGH VARIOUS SUBMISSIONS DATED 27.03.2006 (APB 66-69), 20.11.2007(APB 70-76), 13.1 2.2007 (APB 82-84) (SUPPORTED WITH AFFIDAVIT DATED 13.12.2007 O F THE APPELLANT (APB 83-84)) AND SUMMARISED IN DATED 24.12.2007 (AP B 85-87). 10. SUPPORTING CASE LAWS: - KINDLY REFER SHREYANS GEMS (P) LTD. VS. ACIT (2007) 111 TTJ 959 (JP) HELD ADDITION- UNACCOUNTED STOCK- ASSESSEE HAS DULY EXPLAINED THE STOCK AND WORK IN PROGRESS AND ALSO T HE VALUATION OF THE SAME AUTHORITIES BELOW HAVE NOT FOUND ANY SPECIFI C DEFECT IN THE SAME -STOCK OF THE ASSESSEE WAS MIXED UP WITH THE S TOCK OF PC & CO. 16 THE PROPRIETARY CONCERN OF THE DIRECTOR OF THE ASSE SSEE, AT THE TIME OF SEARCH OPERATION AND WAS UNDER SEIZURE- SAID STOCK WAS NOT FOUND ANYWHERE ELSE AND IT IS NOT SHOWN THAT THE ASSESSEE HAS SOLD THE STOCK TO ANY OTHER PERSON- NO UNRECORDED SALES HAVE BEEN BROUGHT ON RECORD IN THE FOLLOWING YEARS- THUS ,THE FINDING OF THE CI T(A) THAT THE STOCK OF THE ASSESSEE COMPANY WAS NOT MIXED UP WITH THE S TOCK OF PC & CO. AND WAS NOT FULLY ACCOUNTED IS NOT CORRECT AND NO A DDITION WAS CALLED FOR. 2.6 WE HAVE HEARD BOTH THE PARTIES. THE AO HAS REPR ODUCED THE TRADING ACCOUNT OF M/S. P.B. AND M/S.PCPL PREPARED AT THE T IME OF SURVEY IN ORDER TO ASCERTAIN THE STOCKS AS PER BOOKS OF ACCOUNTS. T HIS IS REPRODUCED AS UNDER:- PEDHIWALA BROTHERS, SHOPPING CENTRE KOTA TRADING ACCOUNT OF THE YEAR OF ENDING 01-04-04 TO 19-10-04 PARTICULAR AMOUNT PARTICULAR AMOUNT TO OPENING STOCK 2512175 BY SALES 12035142 TO PURCHASE 10203303 BY CHALLAN SALES 321575 TO GOSS PROFIT @ 5% 617835 BY CLOSING STOCK 976596 13333313 13333313 PEDHIWALA CERAMICS (P) LTD. , SHOPPING CENTRE KOTA TRADING ACCOUNT OF THE YEAR OF ENDING 01-04-04 TO 19-10-04 PARTICULAR AMOUNT PARTICULAR AMOUNT TO OPENING STOCK 560442 BY SALES 8206334 TO PURCHASE IN A/C 8215608 BY CLOSING STOCK 2301037 TO PURCHASE NO ENTERED 921515 TO EXP. DIRECT IN A/C 486307 TO EXP. DIRECT 77310 17 NO ENTERED TO G.P. @ 3% 10507372 10507372 THE AO HAS ALSO REPRODUCED THE TRADING ACCOUNT AND P & L A/C OF THE ASSESSEE FIRM UPTO THE DATE OF SURVEY AND FROM THE DATE OF SURVEY TILL THE END OF THE ACCOUNTING PERIOD. THESE ARE REPRODUCED AS U NDER:- PEDHIWALA BROTHERS, 32, SHOPPING CENTRE KOTA TRADING AND P & L A/C OF THE YEAR ENDED ON 19-10 -04 PARTICULAR AMOUNT PARTICULAR AMOUNT TO OPENING STOCK 2512175 BY SALES 12009860 TO PURCHASE 10201759 BY CLOSING STOCK 1336260 TO FREIGHT EXPENSES 31494 TO GROSS PROFIT C/D 600691 TOTAL RS. 13346120 TOTAL RS. 13346120 TRADING AND P & L A/C FOR THE PERIOD FROM 20-10-04 TO 31-03-05 PARTICULAR AMOUNT PARTICULAR AMOUNT TO OPENING STOCK 1336260 BY SALES 8739541 TO PURCHASE 8177828 BY CLOSING STOCK 1227590 TO FREIGHT EXPENSES 13774 TO GROSS PROFIT C/D 439268 TOTAL RS. 9967131 TOTAL RS. 9967131 2.7 FOR MAKING ADDITION OF RS. 20,08,502/-, THE AO HAS MADE FOLLOWING COMPUTATION AS UNDER:- 18 THUS FROM THE ABOVE, THE FOLLOWING PICTURE REGARD ING EXCESS STOCK ARRIVES TOTAL STOCK OF M/S. P.B. AND M/S.PCPL (EXCLUDING 5% G.P.) RS.5677311 LESS: I) STOCK OF M/S.PCPL AS PER TRADING ACCOUNT RS. 26 92213/ - DRAWN BY ASSESSEE (INCLUDING 14% ST AND 3% G.P.) II) STOCK OF M/S. P.B. RS. 976596/- RS.3668809/- EXCESS STOCK OF M/S. PB RS.2008502/- THE AO HAS PRESUMED THAT EXCESS STOCK IF ANY BELONG S TO M/S. P.B. THERE WAS INTERMINGLING OF STOCK OF BOTH THE CONCERNS. IT IS THE CONTENTION OF THE LD. AR THAT ADDITION ON ACCOUNT OF EXCESS STOCK CA NNOT BE MADE IN THE HANDS OF THE ASSESSEE AS THE ASSESSEE WAS PURCHASING THE GOODS FROM M/S.PCPL. FROM THE ORDERS OF THE LOWER AUTHORITIES, IT IS NOT CLEAR AS TO EXCESS STOCK IF ANY HAS BEEN INCLUDED IN THE HANDS OF M/S. P.B. THE CLOSING STOCK OF M/S.PCPL COMES TO RS. 23,01037/- AS PER BOOKS OF AC COUNTS. THE SALES UPTO THE DATE OF SURVEY IN THE CASE OF M/S.PCPL WAS TO T HE EXTENT OF RS. 82,06,334/-. IT IS TRUE THAT SALES IN M/S. P.B. ARE MORE AS COMPARED TO THE SALES IN M/S.PCPL. WE ARE NOT HAVING BENEFIT OF THE ASSESSMENT ORDER IN THE CASE OF M/S.PCPL . SINCE THE ASSESSEE WAS THE DIREC TOR OF M/S.PCPL AND IN CASE THE ASSESSEE HAS ADMITTED OF HAVING THE CLOSIN G STOCK OF RS. 23,01,037/- 19 IN THE CASE OF M/S.PCPL THEN THE STOCK OF THAT CONC ERN IS TO BE ADOPTED FOR ASCERTAINING THE EXCESS STOCK IN THE HANDS OF THE A SSESSEE. 2.8 THE STATEMENT OF THE ASSESSEE WAS RECORDED ON 1 9-01-2005. IN THE STATEMENT, THE ASSESSEE HAS ADMITTED TO BE RECEIVIN G THE PURCHASES IN WHICH THE PURCHASE AMOUNT STANDS SUPPRESSED. THIS IS BASI CALLY IN RESPECT OF THE PURCHASES MADE FROM THE CONCERNS SITUATED IN MORVI, GUJARAT. IN RESPECT OF SUCH PURCHASES, THE ASSESSEE HAS TO MAKE THE PAYMEN T IN CASH AND THESE FACTS HAVE BEEN MENTIONED BY THE ASSESSEE IN HIS STATEMEN T. THE FACTS ARE VERIFIABLE FROM ANS. TO QUESTION NO. 16 IN THE STAT EMENT RECORDED ON 19-10- 04. 2.9 IN RESPECT OF EXCESS STOCK, THE AO RECORDED THE STATEMENT OF THE ASSESSEE ON 19-01-2005. THE STATEMENT IS JUST AFTER THREE MONTHS OF THE DATE OF SURVEY. IN THE STATEMENT , THE ASSESSEE REFERRED TO THE FOLLOWING DISCREPANCIES IN THE VALUATION OF THE STOCK. 1. THE STOCK HAS BEEN TAKEN AT THE SALE PRICE WHILE HE IS VALUING AT COST PRICE. 2. THE OLD STOCK I.E. DEAD STOCK HAS ALSO BEEN VALU ED AT SALE PRICE. THE MARKET VALUE OF SUCH STOCK IS VERY LESS . 3. THERE IS A DAMAGE STOCK KEPT AT THE ROOF AND THE SAME HAS ALSO BEEN VALUED AT SALE PRICE WHILE THE MARKET VAL UE OF SUCH GOODS IS ZERO. 20 4. THERE WERE TILES BORDERS AND NUMBER OF TILES BOR DERS WERE 2769 BUT THE SAME HAS BEEN WRITTEN AS 27699 IN THE INVENTORY. IT WAS FURTHER STATED BY THE ASSESSEE THAT SALE OF TILES BORDERS DURING THE YEAR IS AROUND 10,000 TO 12,000 AND THERE IS NO QUESTION OF KEEPING THE STOCK OF 27699 TILES BORDERS. HENCE, BEFORE THE REVENUE AUTH ORITIES, THE ASSESSEE GAVE THE EXPLANATION FOR THE DISCREPANCIES IN STOCK. SUC H EXPLANATION HAS BEEN FILED BEFORE FILING THE RETURN OF INCOME. HENCE, IT CANNOT BE SAID THAT THE ASSESSEE IS DISPUTING THE VALUATION OF THE STOCK AF TER THE END OF THREE YEARS. IT IS TRUE THAT IN THE BUSINESS IN WHICH THE ASSESSEE WAS ENGAGED WAS INVOLVING THE PURCHASES AT THE SUPPRESSED VALUE THOUGH THE A CTUAL PURCHASE CONSIDERATION USED TO BE MORE. IN QUESTION NO. 27 A ND 28, THE REVENUE ON THE BASIS OF THE DOCUMENTS FOUND AT THE TIME OF SUR VEY REQUIRED THE ASSESSEE TO EXPLAIN AS TO HOW THE CONSIDERATION OVER AND ABO VE PURCHASE BILLS WAS BEING ESTIMATED. THE ASSESSEE DID NOT GIVE REPLY TO QUESTION NO. 27AND 28 EVEN AFTER ALLOWING 20 MINUTES. THUS THE FACTS WHIC H HAVE BEEN NOTICED DURING THE COURSE OF SURVEY CLEARLY SUGGEST THAT BO OKS OF ACCOUNTS OF THE ASSESSEE ARE NOT COMPLETE AND CORRECT. BEFORE US TH E REVENUE HAS ALSO FILED THE PAPER BOOK WHICH CONTAINS INVENTORY OF THE STO CK PREPARED AT THE TIME OF SURVEY. IT ALSO CONTAINS THE STATEMENT OF ONE OF TH E CUSTOMERS WHO STATED THAT HE WAS NOT GIVEN THE BILLS THOUGH HE HAS PAID THE A MOUNT AND ONLY A SLIP HAS 21 BEEN GIVEN. THE INVENTORY LIST IS VERY DETAILED. S INCE THE ASSESSEE IN HIS STATEMENT DATED 19-01-2005HAS REFERRED TO THE DAMAG ED STOCK OF THE GOODS, THE ASSESSEE WILL INTIMATE THE AO IN RESPECT OF SU CH STOCK FROM THE INVENTORY. THE DEAD STOCK IS ALSO KEPT AT SOME PLAC ES AND THE ASSESSEE WILL GIVE THE AO ABOUT THE DETAILS OF DEAD STOCK AS AVAI LABLE IN THE INVENTORY OF STOCK PREPARED. IN RESPECT OF BORDER TILES, WE FEE L THAT THE ASSESSEE IS RIGHT IN SAYING THAT FIGURE HAS BEEN INADVERTENTLY MENTIONED AT 27699 AS AGAINST 2769. HENCE, THE ISSUE OF ADDITION OF CLOSING STOCK IS RESTORED BACK ON THE FILE OF THE AO TO CONSIDER THE CONTENTIONS AFTER GI VING THE OPPORTUNITY TO THE ASSESSEE TO EXPLAIN FROM THE STOCK INVENTORY AS TO WHICH ITEMS ARE TO BE CONSIDERED AS DAMAGED AND WHICH HAVE BEEN THE PART OF THE DEAD STOCK. FURTHER THE AO CAN REFER TO STATEMENT OF ASSESSEE D ATED 19-01-2005 IN WHICH HE REFERRED TO THE PLACE WHERE SUCH STOCK WAS KEPT. THE AO WILL ALSO LOOK INTO THE ASSESSMENT ORDER OF M/S.PCPL TO ASCERTAIN AS TO WHETHER THE STOCK FOUND AT THE TIME OF SURVEY COULD HAVE BELONGED TO M/S.PCPL. HOWEVER, IF THE CONCERN M/S.PCPL HAS ADMITTED IN WRITING THAT T HERE IS NO DISCREPANCIES IN THEIR STOCK AT THE TIME OF SURVEY THEN EXCESS ST OCK WILL HAVE TO BE CONSIDERED IN THE HANDS OF THE ASSESSEE. WE ARE NOT AWARE AS TO WHETHER SURRENDER OF RS. 75.00 LACS HAS BEEN ENTERED IN TH E BOOKS AS STOCK OR IN CASH. 22 IF IT IS TAKEN PART OF THE STOCK THEN BOOK VALUE OF STOCK AT THE END OF YEAR WILL BE MORE. HENCE, ISSUE OF TELESCOPING IS ALSO TO BE CONSIDERED BY THE AO. 3.1 THE SECOND GROUND OF APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE TRADING ADDITION OF RS. 4,14, 574/- MADE BY THE AO BY REJECTING THE BOOKS OF ACCOUNTS BY INVOKING THE PRO VISIONS OF SECTION 145(3) AND CITING THE COMPARABLE CASES. 3.2 THE AO HAS REFERRED TO THE STATEMENT OF SHRI NA ND KISHORE RECORDED AT THE TIME OF SURVEY. SHRI NAND KISHORE, AN EMPLOY EE STATED THAT AVERAGE DAILY SALES OF SHOP IS 50 TO 60 THOUSAND PER DAY. T HE EMPLOYEE FURTHER STATED THAT 1/3 RD OF THE DAILY SALES ARE UNRECORDED AND THIS RATIO I S FOLLOWED FOR THE ENTIRE YEAR. THE ASSESSEE DURING THE COURSE OF PROC EEDING STATED THAT SHRI NAND KISHORE IS NOT AWARE OF THE FINANCIAL POSITION AND HE WANTED TO CROSS EXAMINE SHRI NAND KISHORE. SHRI NAND KISHORE ALSO A PPEARED BEFORE THE AO DURING ASSESSMENT PROCEEDINGS ON BEHALF OF THE ASSE SSEE. THEREFORE, THE AO RECORDED THE STATEMENT OF SHRI NAND KISHORE ON 20-1 1-07 U/S 131 OF THE ACT. SHRI NAND KISHORE REITERATED THAT HE HAS COMPL ETE KNOWLEDGE OF THE FINANCIAL TRANSACTIONS AND HE HAS BEEN DULY AUTHORI ZED BY THE ASSESSEE TO APPEAR BEFORE THE I.T. AUTHORITIES. THE ASSESSEE WA S ALSO ASKED TO EXPLAIN AS TO WHY GROSS PROFIT RATE DISCLOSED BY ANOTHER CONCE RN OF M/S. CERAMIC POINT BE NOT APPLIED. THE ASSESSEE IN HIS REPLY DATED 24 -12-2007 SUBMITTED THAT 23 THE ASSESSEE HAS ALREADY SURRENDERED THE AMOUNT OF RS. 7.50 LACS TOWARDS THE EXCESS STOCK, DEBTORS AND FOR PROFIT EARNED ON OTHE R ACCOUNT. IT WAS ALSO EXPLAINED THAT THE ASSESSEE IS PURCHASING THE GOODS FROM THE SISTER CONCERN M/S.PCPL AND THIS CONCERN IS SHOWING THE GROSS PROF IT OF AROUND 3.5%. HENCE, THE GROSS PROFIT RATE DISCLOSED BY M/S. P.B. AND M/S.PCPL ARE ADDED THAN THE GROSS PROFIT RATE SHOWN BY BOTH THE CONCER NS ARE MORE THAN 7% DECLARED BY M/S. CERAMIC POINT. THE AO WAS NOT SATI SFIED WITH THE EXPLANATION AND MADE THE TRADING ADDITION OF RS. 4, 14,574/-. 3.3 THE LD. CIT(A) HAS DELETED THE ADDITION AFTER O BSERVING AS UNDER:- I HAVE PERUSED THE ASSESSMENT ORDER AND CONSIDERED SUBMISSIONS OF THE APPELLANT. AFTER REJECTING THE BOOKS, THE ASSESSING OFFICER AD OPTED GP 7.01% AND THIS RESULTED IN TRADING ADDITION OF R S.4,14,574/- . IN SUPPORT, OF HIS DECISION TO ADOPT GP 7.01%, TH E ASSESSING OFFICER MENTIONED THE CASE OF CERAMIC POINT, ANOTHE R DEALER 'IN THE SANITARY WARES AND SHOPS OF CERAMIC POINT AND P EDHIWALA BROTHERS ARE IN THE SAME VICINITY.........IN FACT O PPOSITE EACH OTHER ON THE SAME ROAD ' AND ' BOTH THE CONCERNS AR E CATERING TO SAME KIND OF PEOPLE IN THE SAME MARKET IN THE SAME COMMODITIES'. THE ASSESSING OFFICER FURTHER OBSERVE D THAT A SURVEY WAS UNDERTAKEN AT THE PREMISES OF CERAMIC PO INT ALSO ON 19.10.04, WHEN GP OF 7.01% WAS ACCEPTED. THE ASSESS ING OFFICER UNDERSCORED THE FACT THAT' CERAMIC POINT AL SO PURCHASES GOODS FROM ITS SISTER CONCERN AND THE SISTER CONCER N HAS SEPARATELY DISCLOSED GROSS PROFIT OF 6.5%' AND OBSE RVED THAT THE TURNOVER OF CERAMIC POINT WAS COMPARABLE WITH THE T URN OVER OF THE APPELLANT. THE ASSESSING OFFICER ALSO OBSERVED, 'THIS TRADING ADDITION IS SEPARATELY DONE TO COVER UP LOWER PROFI T DISCLOSED ON THE RECORDED SALES. THE ADDITION FOR UNRECORDED SAL E HAS BEEN SEPARATELY DONE.' 24 THE DECISION OF THE ASSESSING OFFICER TO ADOPT GP 7 .01% IN CASE OF PB IS SOLELY BASED ON HIS COMPARISON WIT H THE CERAMIC POINT, ANOTHER DEALER IN SANITARY-WARES, HA VING BUSINESS PREMISES ON THE SAME ROAD AND CATERING TO THE SAME KIND OF PEOPLE IN THE SAME MARKET IN THE SAME COMMO DITIES.' THE ASSESSING OFFICER, HOWEVER, DID NOT GIVE ANY RE ASON FOR IGNORING CONTENTIONS OF THE APPELLANT THAT CERAMIC POINT WAS 'MOSTLY DEALING IN LOCAL BRANDS WHERE THE GROSS MAR GIN IS HIGHER' AND THAT THE PROFIT MARGIN DEPENDED ON WHET HER SALES WERE MADE AGAINST CASH OR ON CREDIT . WITHOUT GIVEN REASONS, THE ASSESSING OFFICER REJECTED EXPLANATION OF THE APPEL LANT THAT TOTAL PROFIT MARGIN OF PB (5%) AND PCPL 3.5% WAS 8.5%, WH ICH WAS HIGHER THAN 7% SHOWN BY CERAMIC POINT. IN THE APPEA L PROCEEDINGS, BEFORE ME, THE APPELLANT CLAIMED THAT THE ASSESSING OFFICER DID NOT CONFRONT HIM WITH ANY MATERIAL TO S UPPORT THE OBSERVATION THAT CERAMIC POINT TOO PURCHASED GOODS FROM ITS SISTER CONCERN, WHO HAD SEPARATELY DISCLOSED THE GP OF 6.5%. IN SHORT, IN MY CONSIDERED VIEW, AT ONE LEVEL, THE COMPARISON WITH CERAMIC POINT WAS SHALLOW AND AT AN OTHER LEVEL THE APPELLANT WAS NOT SUPPLIED WITH FULL FACT S OF THE CASE OF CERAMIC POINT AND HE WAS NOT OFFERED PROPER OPPO RTUNITY TO EXPLAIN HIS CASE. THE ASSESSING OFFICER IGNORED HIS TORY OF THE CASE AND DID NOT BRING ANY OTHER MATERIAL ON RECORD TO JUSTIFY HIS DECISION TO APPLY GP OF 7.01%. EVIDENTLY, IN ARRIVI NG AT HIS DECISION THE ASSESSING OFFICER FAILED TO FULFILL RE QUIREMENTS OF SECTION 144 OF THE IT ACT, 1961. THE DECISION TO AP PLY GP OF 7.01% AND CONSEQUENT ADDITION OF RS.4,14,754/- IS N OT CONFIRMED. GROUND 3 OF THE APPEAL IS ACCEPTED. 3.4 THE LD. DR IN HIS WRITTEN SUBMISSION HAS SUBMIT TED AS UNDER:- ON THE BASIS OF IMPOUNDED ANNEXURE A-44, AO FOUND UNRECORDED SALES OF RS. 38,16,968/- PERTAINING TO P B ONLY, WHICH HAS BEEN ADDED BY AO AFTER RECORDING FINDING THAT PURCHASES HAVE ALREADY BEEN RECORDED IN BOOKS OF AC COUNTS. IT 25 HAS BEEN FOUND THAT THERE IS UNDER-INVOICING AS ADM ITTED IN STATEMENT RECORDED ON 19.1.2005 ( AS RECORDED ON PA GE 11 OF ASSESSMENT ORDER ). IT HAS ALSO BEEN ADMITTED THAT PART OF RECEIPT OF SALE ARE RECEIVED IN CASH AND PARTLY BY CHEQUES WHICH IS RECORDED IN BOOKS OF ACCOUNTS. IT IS NOT THE CASE W HEN UNRECORDED SALES ARE MADE OUT OF UNRECORDED PURCHAS ES. THEREFORE, RELIEF ALLOWED BY LEARNED COMMISSIONER O F INCOME TAX (APPEALS) IS BASED ON INCORRECT APPRECIATION OF FACTS. 3.5 THE LD. AR OF THE ASSESSEE HAS SUBMITTED AS UND ER:- 1. IT IS NOT DISPUTED THAT THE BOOKS OF ACCOUNT WERE REJECTED AND UPHELD BY THE LD. CIT (A) U/S 145. THE ONLY COURSE LEFT THEREAFTER IS A FAIR ESTIMATION. THE LAW IS WE LL SETTLED THAT THE PAST HISTORY IS THE BEST GUIDE BUT EVEN BEFORE MAKING A COMPARISON WITH ANY CASE OF A THIRD PARTY, IT IS AL WAYS THE PAST HISTORY WHICH IS THE PREFERRED ONE (KINDLY REFER AJ AY GOYAL V/S ITO 99 TTJ 164 (JD )) MORE PARTICULARLY, WHEN THE SO CALLED COMPARABLE CASE IS NOT FOUND COMPARABLE AND THE NEC ESSARY DETAILS HAVE NOT BEEN SUPPLIED / CONFRONTED TO THE ASSESSEE. IN ABSENCE OF SUCH AN OPPORTUNITY, THE RESULT SHOWN BY SUCH ALLEGED COMPARABLE CASE CAN NEVER BE APPLIED AS HEL D IN THE CASE OF VIMAL CHANDRA GOLECHA V/S ITO CENTRAL CIRCL E-1 AND ORS (1982) 134 ITR 119 (RAJ). THE AO WAS ALSO SILENT ON THE FACTUAL ASPECT NARRATED BY THE ASSESSEE THAT THE SA ID M/S CERAMIC POINTS (CITED BY THE AO) WAS MOSTLY DEALING IN THE 26 LOCAL BRANDS WHERE THE GROSS MARGIN WAS COMPARATIVE LY HIGHER THEN THE ASSESSEE AND IT WAS NOT KNOWN WHETHER SALE S WERE MADE BY THE SAID PARTY AGAINST CASH OR CREDIT AND I N WHAT PERCENTAGE. THEREFORE, BLIND RELIANCE PLACED BY THE AO ON THE CASE OF CERAMIC POINT IGNORING THE PAST HISTORY, WA S AGAINST THE SETTLED JUDICIAL VIEW. THE AO HAS NOT DENIED THAT A LL ALONG IN THE PAST THE ASSESSEE HAS BEEN SHOWING GP RANGING B ETWEEN 4.50% TO 4.63% AND ALSO THE FACT THAT GP DECLARED T HIS YEAR @5.01% WAS BETTER THAN 4.63% DECLARED AND ACCEPTED IN THE IMMEDIATELY PRECEDING YEAR, WAS ALSO NOT DENIED. TH EREFORE, THE LD. CIT (A) WAS FULLY JUSTIFIED IN DELETING THE IMPUGNED ADDITION. 2. IN THE CASE OF HARISH CHANDER V/S ITO 35 TW 61, THE JODHPUR BENCH OF ITAT HAS HELD THAT WHERE ASSESSEE HAS ALREADY MADE A SURRENDER OF HIGHER AMOUNT, NO FURTHER ADDIT ION CAN BE MADE SINCE IT STAND AUTOMATICALLY COVERED BY THE SU RRENDER AMOUNT, FURTHER NO ADDITION CAN BE MADE ON THE BASI S OF LOOSE PAPERS WHEREIN THE ASSESSEE AS WELL AS THE CONCERNE D PARTIES HAS DENIED THE SAME. 3.6 WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES. IT HAS BEEN EXPLAINED THAT M/S. P.B. IS PURCHASING THE GOODS FR OM M/S.PCPL AND M/S.PCPL IS ALSO SHOWING THE GROSS PROFIT RATE OF 3 %. THUS THE GROSS PROFIT RATE IS OF 8.5%. THUS THE GROSS PROFIT RATE OF BOTH THE CONCERNS IF ADDED WILL BE MORE THAN THE GROSS PROFIT RATE OF M/S. CERAMIC POINT. THE SALES OF M/S. 27 CERAMIC POINT ARE MORE AS COMPARED TO THE SALES OF THE ASSESSEE. SINCE SURVEY U/S 133A OF THE ACT HAS BEEN CONDUCTED ON 19 -10-2004 AND EXCESS STOCK IF ANY FOUND IS ALSO TO BE ADDED AND SUCH ADD ITION IS TO BE TELESCOPIED WITH THE TRADING ADDITION IF ANY UPTO THE DATE OF S URVEY. SINCE THE AO HAS ESTIMATED THE TURNOVER, THEREFORE, WE FEEL THAT THE GROSS PROFIT RATE DISCLOSED BY THE ASSESSEE SHOULD BE ACCEPTED. THUS THE LD. CI T(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS. 4.14.574/-. 4.1 THE THIRD GROUND OF APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE TRADING ADDITION OF RS. 1.90 LACS MADE BY THE AO ON ACCOUNT OF UNEXPLAINED EXPENSES U/S 69 C OF THE AC T. 4.2 THE AO NOTICED THAT THE ASSESSEE HAS MADE CASH PAYMENT OF RS. 1.90 LACS IN RESPECT OF THE PURCHASES MADE FROM THE PAR TY OF MORVI (STAR CERAMICS). THE AO HAS REPRODUCED THE ANSWER TO QUES TION NO. 16 GIVEN BY THE ASSESSEE AT THE TIME OF SURVEY. ON THE BASIS OF SUCH PAYMENTS, THE AO MADE THE ADDITION OF RS. 1.90 LACS U/S 69C OF THE A CT. 4.3 THE LD. CIT(A) HAS DELETED THE ADDITION ON THE SAME REASONS AS GIVEN AGAINST DELETION OF ADDITION OF RS. 38,16,698/-. HE NCE BEFORE DECIDING THE ISSUE, IT WILL BE USEFUL TO CONSIDER LAST GROUND AP PEAL OF THE REVENUE. 5.1 THE LAST GROUND OF APPEAL OF THE REVENUE IS TH AT THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 38,16,698/- M ADE BY THE AO ON ACCOUNT 28 OF UNRECORDED SALES BASED ON PAPER FOUND AND IMPOU NDED DURING THE COURSE OF SURVEY. 5.2 DURING THE COURSE OF SURVEY, THE DIARY WAS NOTI CED WHICH CONTAINS THE UNACCOUNTED SALES FOR THE PERIOD 27-05-2004 TO 14-1 0-2004. IN THIS DIARY, ACCOUNTED AND UNACCOUNTED RECEIPTS WERE MENTIONED. DURING THE COURSE OF SURVEY, EXERCISE WAS DONE BY THE AO TO ARRIVE AT TH E UNRECORDED SALES WITH THE HELP OF THE LD. AR OF THE ASSESSEE AND EMPLOYEE OF THE ASSESSEE. THE TOTAL UNENTERED / UNRECORDED RECEIPTS WERE TO THE E XTENT OF RS. 38,16,968/-. THE ASSESSEE WAS CONFRONTED WITH SUCH UNRECORDED SA LES WHEN THE STATEMENT OF THE ASSESSEE WAS RECORDED ON 19-01-2005. THE AO HAS REFERRED TO RELEVANT PORTION OF THE STATEMENT AT PAGE 10 OF THE ASSESSME NT ORDER. BEFORE THE AO, IT WAS SUBMITTED THAT DIARY A-44 BEARS ROUGH CALCUL ATION SHEET LIKE SALES, CASH SALES, CASH RECEIVED FROM DEBTORS ETC. IN THE LETTER, IT WAS FURTHER SUBMITTED THAT THE ASSESSEE HAS ALREADY SURRENDERED AMOUNT OF RS. 7.50 LACS. THE ASSESSEE SHOULD BE GIVEN BENEFIT OF TELESCOPING AND SET OFF IN THE PROFIT EARNED AND SUCH REPLY OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE. THERE ARE UNRECORDED SALES FOR WHICH CORRESPONDING PURCHASES HAVE ALREADY BEEN DEBITED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. T HE AO ACCORDINGLY MADE THE ADDITION OF RS. 38,16,968/-. 5.3 THE LD. CIT(A) HAS DELETED THE ADDITION AFTER O BSERVING AS UNDER:- 29 I HAVE PERUSED THE ASSESSMENT ORDER AND CONSIDERED SUBMISSIONS OF THE APPELLANT. THE ASSESSING OFFICER OBSERVED THAT THE DIARY CONTAINING 70 PAGES (IMPOUNDED AND INVENTORIZED AS A44) CONTAI NED DETAILS OF BOTH ACCOUNTED AND UNACCOUNTED PURCHASES AND SALES. IN ANSWER TO QUESTION TO 8 TO 17 AND 27 TO 35 OF ST ATEMENT DATED 19/01/2005, THE APPELLANT ACCEPTED THAT DURING THE PERIOD UNDER CONSIDERATION (IN MAY 2004), HE DID INDULGE IN 'UND ER BILLING' OF PURCHASES AS WELL AS PURCHASES OUTSIDE THE BOOKS, M AINLY FROM MORVI IN GUJARAT. HE ACKNOWLEDGED THAT SALES FROM U NDER BILLED AND NON-REPORTED PURCHASES AMOUNTED TO RS.38, 16,96 8/- AND WERE NOT RECORDED IN THE BOOKS AND THAT HE WOULD PA Y TAX ON GP OF 5% ON THESE SALES (Q.9). HE ALSO EXPLAINED THAT THE PAYMENT FOR PURCHASES WERE MADE FROM SALE PROCEEDS OF SUCH TRANSACTIONS. BY LETTER DATED 13/12/2007 THE APPELLANT HAD SUBMITTED TO THE ASSESSING OFFICER THAT BECAUSE HIS VIEW ON V ALUATION OF CLOSING STOCK WERE NOT TAKEN INTO ACCOUNT HE WEIGHT ED TO RETRACT HIS STATEMENTS RECORDED UNDER SECTION 131 OF THE IT ACT, 1961. THE ASSESSING OFFICER HAS NOTED THAT 'RETRACTION FR OM THE STATEMENT RECORDED U/S 131 AFTER ALMOST MORE THAN 3 YEARS HAVE PASSED FROM THE DATE OF STATEMENT. THIS IS AGAINST THE PRINCIPLES AND LEGISLATIVE INTEND. THE ASSESSEE CANNOT BE GIVE N THE LIBERTY TO CHANGE THE STAND AFTER SUCH A LONG PERIOD CHANGI NG OF STAND IS MERELY AS AFTER THOUGHT.' IN MY CONSIDERED OPINION, LAW DOES NOT PROVIDE FOR SUCH RETRACTION AT ANY TIME, AND TO THIS EXTENT THE REQU EST OF THE APPELLANT BEFORE THE ASSESSING OFFICER IS REDUNDANT . BASED ON FINDINGS DURING THE SURVEY, MAINLY THE NOT ING IN A 44, STATEMENT DATED 19/01/2005 AND WRITTEN SUBMIS SION DATED 24/12/2007, THE ASSESSING OFFICER CONCLUDED, 'UNREC ORDED SALES OF RS.38,16,968/- IS TREATED AS UNDISCLOSED RECEIPT S OF THE ASSESSEE FOR WHICH THE CORRESPONDING PURCHASE HAVE ALREADY BEEN DEBITED IN THE BOOKS OF ACCOUNTS OF THE ASSESS EE'. 30 RELYING ON STATEMENT DATED 19/01/2005 (WRONGLY TYPE D CORRECT DATE IS 19-10-2004) OF THE APPELLANT THAT CASH PAYMENTS OF RS.1 LAC (ON 23/07/2004) AND RS.50, 000/- (ON 11 /10/2004) WERE MADE AND TWO DEMAND DRAFTS OF RS.20, 000/- EAC H WERE OBTAINED BY PAYING CASH, THE ASSESSING OFFICER CONC LUDED THAT THE APPELLANT HAD MADE UNEXPLAINED EXPENDITURE OF RS.1,90,000/- AND THIS AMOUNT WAS ADDED TO HIS INCO ME. IN MY OPINION, IT IS NECESSARY TO EXAMINE THE TWO ADDITIONS TOGETHER AS THESE EMANATE FROM A 44 THE D IARY CONTAINING DETAILS OF UNDER-BILLED AND UN-REPORTED SALES AND PURCHASES AND PAYMENTS AND RECEIPTS RELATING THERET O. THERE IS EVIDENCE THAT THE APPELLANT HAD ADMITTED T HAT DURING THIS PERIOD IN ORDER TO FACE COMPETITION HE OBTAINED GOODS FROM MORVI IN GUJARAT (Q NO16) AND THAT SUCH PURCHASES WERE UNDER BILLED OR NOT RECORDED AT ALL AND ALSO S OLD WITHOUT PROPER BILLS. HE CONFIRMED UNREPORTED SALES TO THE EXTENT OF RS.38,16,968/- AND AGREED TO PAY TAX ON GP OF 5% OF SUCH SALES. IT HAS BEEN MENTIONED ABOVE THAT, HIS ALLEGE D RETRACTION BEFORE THE ASSESSING OFFICER WAS REDUNDANT. THE ASS ESSING OFFICER, ON OTHER HAND, WITHOUT GOOD REASONS IGNORE D ASSERTION OF THE APPELLANT THAT PAYMENT FOR UNDER BILLED AND UN-REPORTED PURCHASES FROM MORVI WAS MADE FROM SALE PROCEEDS OF SUCH GOODS. HE DID NOT BRING ON RECORD ANY EVIDENCE TO S HOW THAT 'ENTIRE PURCHASES RELATING TO THE SALES (OF RS.38, 16,968/-) HAVE BEEN CONSIDERED' IN THE TRADING ACCOUNT (DPB 104 AN D AO PAGE 2) PREPARED ON 19/10/2004, BEFORE DECIDING TO ADD ' UNRECORDED SALES OF RS.38, 16,698/- AS UNDISCLOSED RECEIPTS.' IN THIS VIEW OF THINGS AND AS THE APPELLANT DID INC LUDED GP OF 5% ON RS.38,16,698/- IN THE RETURNED TOTAL IN COME, THERE IS NO JUSTIFICATION FOR ADDITION ON ACCOUNT OF UN-R ECORDED SALES OF RS.38,16,698/-. THE ADDITION OF RS.38,16,698/-. GROUND 6 OF THE APPEAL IS ACCEPTED. FURTHER, AS A 44 CONTAINED DETAILS OF SALES PURCHAS ES OF UNDER-BILLED AND UN-REPORTED GOODS, THE CASH PAYMEN TS OF RS.1,90,000/- RECORDED THEREIN TOO WERE A PART OF R ECEIPTS AND PAYMENTS RELATING TO SUCH TRANSACTIONS . THERE IS NO SCOPE FOR A 31 SEPARATE ADDITION ON ACCOUNT OF SAID CASH PAYMENTS AND THE ADDITION OF RS.1,90,000/- IS NOT CONFIRMED. GROUND 5 OF THE APPEAL IS ACCEPTED. 5.4 DURING THE COURSE OF PROCEEDINGS BEFORE US, THE LD. DR RELIED UPON THE ORDER OF THE AO. 5.5 THE LD. AR OF THE ASSESSEE HAS SUBMITTED AS UND ER:- 1. THE AO FROM THE STATEMENT OF THE ASSESSEE TOOK CERT AIN CASH PAYMENTS AND CONSIDERING THE SAME UNEXPLAINED CASH PAYMENT, MADE THE ADDITION. THE RELEVANT ANSWER TO Q NO16 WAS GIVEN BY THE ASSESSEE IN THE CONTEXT OF THE TRANSACTIONS RECORDED IN THE IMP OUNDED DIARY 44A WHICH CONTAINED UNRECORDED SALES TRANSACTION. THE LD. CIT (A) HAS ALREADY HELD THE SALES OF `38.1 7 LACS AS UNRECORDED. THE PAYMENT TOWARDS THE CORRESPONDING UNRECORDED PURCHASES WERE MADE FROM THE SAME VARY UNRECORDED S ALE REALIZATION AND GROSS PROFIT THEREON. IN ANS. TO SAME Q16, THE ASSE SSEE AGAIN REPLIED THAT SUCH PAYMENT WAS OUT OF UNRECORDED SALE REALIZATION . THESE PURCHASE TRANSACTIONS IN CASH OF RS.1,90,000/ - WERE ALSO, IN FACT, WERE A PART AND PARCEL OF THE SAME SERIES OF TRANSACTIONS. THEREFORE, THERE WAS NO OCCASION FOR THE AO TO HAVE MADE SEPAR ATE ADDITION. THE LD. AO HAS NO ESTABLISHED THAT THESE CASH PURCHASES WER E SOMETHING DIFFERENT THEN THE SAME TRANSACTION OF PURCHASE SALE FROM MOR VI GUJRAT. THE LD.CIT (A) THEREFORE RIGHTLY DELETED THE SAME. GOA (IV): 1. FIRSTLY , WE STRONGLY RELY UPON OUR WRITTEN SUBMISSIONS MADE BEFORE THE CIT(A) 2. WHILE MAKING THE ADDITION OF THE ENTIRE UNDISCLOSED SALES OF RS.38.17 LACS, THE AO REJECTED THE CONTENTION OF TH E ASSESSEE OF MAKING THE ADDITION OF THE G.P ONLY ON THE SOLE REASONING THAT THE CORRESPONDING PURCHASES HAVE ALREADY BEEN DEBITED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE AT PAGE 11 OF THE AO. HOWEVER, IT WAS A ME RE STATEMENT MADE BY HIM TO SUIT HIS CONVENIENCE WITHOUT SUPPORT OF ANY MATERIAL AT ALL. ON THE CONTRARY, IN THOSE VERY STATEMENT (DATED 19/01/2005 HEAVILY RELIED UPON BY THE AO ALLEGING AN ADMISSION OF THE UNRECORDED PURC HASESALE), THE ASSESSEE CATEGORICALLY REPLIED IN ANSWER TO Q NO. 8 & 11, (BOTH REPRODUCED AT PG10 OF THE ASSESSMENT ORDER) THAT TH E UNRECORDED PURCHASES WERE MADE FROM THE VARIOUS RECEIPTS OF THE UNRECORD ED SALES. THE ASSESSEE 32 FURTHER STATED THAT THERE WAS NO RECORDING OF SUCH PURCHASES BUT THE PAYMENTS TOWARDS THE SAME IN ANY CASE, WERE MADE FR OM THE RECEIPTS MENTIONED IN THE SAME DIARY I.E. FROM THE UNRECORDE D SALES REALIZATIONS. IN ANSWER TO Q NO 9 (AO PG10), HE FURTHER STATED THAT EVEN GROSS PROFIT OF SUCH UNRECORDED TRANSACTIONS, WAS UTILIZED FOR PURC HASES. . ONCE THE AO HIMSELF RELIED UPON THESE VERY STATEMEN TS FOR MAKING THE ADDITION WHEN IT SUITED HIM, HE COULD NOT IGNOR E THE OTHER PART OF THE STATEMENT WHICH DID NOT SUIT HIM/WENT AGAINST HIM. THE LAW IS WELL SETTLED THAT EVIDENCE HAS TO BE READ IN ITS ENTITY AND ONE IS NOT PERMITTED TO PICK AND CHOOSE CIT V/S HISSARIA BROTHERS (2007) 291 ITR 244 (RAJ.) 3. FURTHER CONTENTION OF THE AO AT PG11 THAT ENTIRE PURCHASES RELATING TO THE SALES HAVE BEEN CONSIDERED WHILE DR AWING THE TRADING ACCOUNT AS ON 19.10.2004 THEREFORE, NO FURTHER BENE FIT OF THE PURCHASES AND DIRECT EXPENSES CAN BE GIVEN TO THE ASSESSEE. HERE ALSO, THE LD.AO HAS NOT DEMONSTRATED AS TO HOW THE FIGURE OF PURCHASES OF ` 1, 02, 03,303/- AS BEEN ARRIVED AT AND HOW THE SAME INCLUDED THE UNRECORDED PURCHASES RELATING TO THE UNRECORDED SALES OF `38.17 LACS. 4. THIS IS A MATTER OF COMMON KNOWLEDGE THAT DURING T HE COURSE OF IT SURVEYS, WHILE TAKING THE PHYSICAL INVENTORY, TH E STOCK FOUND IS NORMALLY COMPARED WITH THE STOCK WHICH IS SHOWN IN THE REGULARLY MAINTAINED BOOKS OF ACCOUNT IF WRITTEN UPTO THE DAY OF SURVEY (OR IF NOT, AFTER RECORDING THE PENDING TRANSACTIONS TILL THAT DATE) AND THEN ONLY A COMPARISON IS MADE BETWEEN THE TWO. THUS, THE COMPA RISON IS BETWEEN THE RECORDED STOCK AND THE ONE FOUND ON THE DAY OF SURV EY. THEREFORE, TO ASSUME THAT IN SUCH TRADING ACCOUNT PREPARED ON THE DAY OF SURVEY, THE UNRECORDED PURCHASES WOULD BE INCLUDED IS WITHOUT A NY BASIS AND RATHER A MISCONCEPTION FACT BY THE AO. 5. FURTHER ALLEGATION OF THE AO AT PG12 IN PARA 9, IS NOTHING BUT A SUSPICION. THE VARY FACT OF UNDER INVOICE PURCHASE SALE IS THE BASE OF THIS ADDITION. THE AO CONVENIENTLY IGNORED AND RATHER HA S NOT ESTABLISHED THAT THE SALE PROCEEDED OF `36.18 LACS IN CASH STOOD UTI LIZED ANYWERE ELSE THEN IN THE UNRECORDED PURCHASES FROM MORVI. THE AO ALSO DID NOT ALLEGED SHORTAGE / UNAVAILABILITY OF CASH. NO UNRECORDED AS SETS OR EXPENDITURE TO THIS EXTENT IS REPORTED TO HAVE FOUND DURING SURVEY . HENCE THE ONLY LOGICAL INFERENCE SHOULD BE THAT THE UNRECORDED PURCHASES W ERE MADE FROM THE VARIOUS RECEIPTS OF THE UNRECORDED SALES . IN VIEW OF THESE ESTABLISHED FACTS THEREFORE IT IS ONLY A REASONABLE AMOUNT OF GP WHICH COULD BE ADDED. 6. SUPPORTING CASE LAWS : KINDLY REFER IN CIT V/S PRESIDENT INDUSTRIES (2000) 158 CTR 372/ 258 ITR 654 (GUJ) HELD THAT THE ENTIRE 33 SALE COULD NOT BE ADDED AS INCOME OF THE ASSESSEE B UT ADDITION COULD BE MADE ONLY TO THE EXTENT OF ESTIMATED PROFITS EMBEDD ED IN SALE. BANSAL RICE MILLS V/S ITO (2001) 72 TTJ 1 (CHD) (TM ), HOLDING THAT THE ENTIRE SALE CAN NOT BE TAXED AS INCOME AND ONLY REASONABLE NET PROFIT CAN BE ESTIMATED. 7. FURTHER, THE FACT THAT THE ASSESSEE HAD ALREADY MA DE SURRENDER OF `7,50,000/- WHICH WAS TOWARDS THE EXCESS STOCK, DEB TORS AND THE PROFIT EARNED ON OTHER ACCOUNT (KINDLY REFER APB 67) HAS NEVER BEEN DENIED BY THE ASSESSING OFFICER. THEREFORE, TO THIS EXTENT TH E ASSESSEE CERTAINLY DESERVED CREDIT/ SETOFF AGAINST THE IMPUGNED ADDITI ON. 5.6 WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES. IF THE ENTIRE SUM IS ADDED THEN GROSS PROFIT WILL BE ABNORMALLY H IGH. THE SAME IS IMPOSSIBLE TO ACHIEVE. IT IS TRUE THAT THE ASSESSEE HAS KEPT THE DIARY FOR UNRECORDED SALES. IT HAS BEEN MENTIONED BY THE ASSE SSEE THAT IT IS ALSO MAKING THE PAYMENTS FOR THE PURCHASES AS PURCHASE B ILLS ARE SHOWING LESSER AMOUNT. HENCE, WE FEEL THAT IT WILL BE FAIR AND REA SONABLE TO APPLY THE GROSS PROFIT RATE OF 5% ON THE UNRECORDED SALES. 5.7 CASH PAYMENTS IF REQUIRED TO BE CLAIMED AS EXPE NDITURE THEN PROVISO TO SECTION 69C WILL BE APPLICABLE, ALTERNATIVELY SU CH CASH PAYMENT ARE ALSO HIT BY SECTION 40A(3). THE EXPENDITURE IF UNACCOUNT ED CANNOT ALLOWED UNDER PROVISO TO SECTION 69C AND HENCE THE AO WAS JUSTIFI ED IN ADDING BACK RS. 1.90 LACS. 34 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS PART LY ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 24-06 -2011. SD/- SD/- (R.K. GUPTA) (N.L. KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR DATED; 24/06/2011 *MISHRA COPY FORWARDED TO :- 1. THE ACIT, CIRCLE- 1, KOTA 2. SHRI SHABBAR HUSSAIN ALI MOHAMMED, KOTA 3. THE LD. CIT BY ORDER 4. THE LD. CIT(A) 5. THE LD.DR 6. THE GUARD FILE (ITA NO.368/JP /10) A.R, ITAT, JAIPUR 35 36