THE DCIT, CIRCLE - 2(1), Vijayawada V. Mulpuri Poultries, Nuzividu

ITA 419/VIZ/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 6536 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 23-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R GOVINDA RAJU
• Assessee Lawyers: K SIVARAMA KUMAR
• Keywords: Rejection of books of accounts; Unexplained investment; Search and seizure; Corroborative evidences; Tax effect
• Section: 143(3); 142(1); 153A; 145; 132

Judgement Text

ITA NO.416 TO 424/VIZAG/2014 & CO 58 TO 61 & 63/VIZ AG/2016 MULPURI POULTRIES, NUZVID & SRI VENKATESWARA POULTRY FARM, CHALLAPALLI 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NOS.416 TO 419/VIZAG/2014 ( / ASSESSMENT YEARS: 2005-06 TO 2007-08 & 2011-12 RESPECTIVELY) DCIT, CIRCLE - 2(1), VIJAYAWADA VS. MULPURI POULTRIES, NUZVID [PAN: AAMFM5140K ] ( % / APPELLANT) ( &'% / RESPONDENT) C.O. NO.63/VIZAG/2016 ./I.T.A.NOS.418/VIZAG/2014 ( / ASSESSMENT YEARS: 2007-08) MULPURI POULTRIES, NUZVID VS. DCIT, CIRCLE - 2(1), VIJAYAWADA ( % / APPELLANT) ( &'% / RESPONDENT) ./I.T.A.NOS.420 TO 424/VIZAG/2014 ( / ASSESSMENT YEARS: 2005-06 TO 2008-09 & 2010-11 RESPECTIVELY) DCIT, CIRCLE - 2(1), VIJAYAWADA VS. SRI VENKATESWARA POULTRY FARM, CHALLAPALLI [PAN NO.AAIFS3849M] ( % / APPELLANT) ( &'% / RESPONDENT) ITA NO.416 TO 424/VIZAG/2014 & CO 58 TO 61 & 63/VIZ AG/2016 MULPURI POULTRIES, NUZVID & SRI VENKATESWARA POULTRY FARM, CHALLAPALLI 2 C.O. NOS.58 TO 61/VIZAG/2016 ./I.T.A.NOS.420 TO 423/VIZAG/2014 ( / ASSESSMENT YEARS: 2005-06 TO 2008-09 RESPECTIVEL Y) SRI VENKATESWARA POULTRY FARM, CHALLAPALLI VS. DCIT, CIRCLE - 2(1), VIJAYAWADA ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI R. GOVINDA RAJU, DR / RESPONDENT BY : SHRI K. SIVA RAMA KUMAR, AR / DATE OF HEARING : 25.01.2017 / DATE OF PRONOUNCEMENT : 31.01.2017 / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: THESE APPEALS FILED BY THE REVENUE AND CROSS OBJEC TIONS FILED BY TWO DIFFERENT ASSESSEES AGAINST SEPARATE, BUT IDENT ICAL ORDERS OF THE CIT(A), VIJAYAWADA FOR THE ASSESSMENT YEARS 2005-06 TO 2008-09 & 2010-11 & 2011-12. SINCE, THE FACTS ARE IDENTICAL AND ISSUES ARE COMMON, THEY ARE CLUBBED, HEARD TOGETHER AND DISPOS ED-OFF BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE REVENUE HAS RAISED COMMON GROUNDS FOR ALL TH E ASSESSMENT YEARS IN TWO DIFFERENT CASES. FROM THESE GROUNDS O F APPEALS, THE REVENUE HAS AGITATED (1) DELETION OF ADDITIONS MADE BY THE A.O. TOWARDS ITA NO.416 TO 424/VIZAG/2014 & CO 58 TO 61 & 63/VIZ AG/2016 MULPURI POULTRIES, NUZVID & SRI VENKATESWARA POULTRY FARM, CHALLAPALLI 3 GROSS PROFIT ADDITION (2) DELETION OF ADDITIONS TOW ARDS DISALLOWANCE OF INTEREST ON PARTNERS WITHDRAWALS AND (3) DELETION O F ADDITIONS TOWARDS UNEXPLAINED INVESTMENT. 3. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM REVENUE APPEALS IS ADDITION TOWARDS GROSS PROFIT ADDITION O N TOTAL SALES. THE FACTS WHICH LEAD TO THE ADDITIONS ARE THAT A SEARCH AND SEIZURE OPERATION U/S 132 OF THE INCOME TAX ACT, 1961 (HEREINAFTER CA LLED AS 'THE ACT') WAS CONDUCTED ON THE ASSESSEE ON 4.10.2010. DURING THE COURSE OF SEARCH, VARIOUS INCRIMINATING MATERIAL WAS FOUND AND SEIZED WHICH REVEALS THAT UNACCOUNTED INVESTMENT MADE BY THE PARTNERS OF THE ASSESSEE FIRM IN THE FORM OF PURCHASE OF LANDS AND GOLD ORNAMENTS IN THE NAME OF FAMILY MEMBERS OF THE PARTNERS. THE MAIN FEATURES FOUND W ERE INVESTMENTS MADE IN PURCHASE OF LAND IN THE NAME OF VARIOUS CON CERNS BELONGING TO MR. MULPURI LAKSHMI SWAMY AND HIS FAMILY MEMBERS. THE INCRIMINATING MATERIAL FOUND DURING THE COURSE OF SEARCH REVEALS THAT THE GROUP HAS MADE CERTAIN PAYMENTS FOR PURCHASE OF LANDS BY WAY OF CHEQUES AS WELL AS CASH. SINCE THE CASH PAYMENTS WERE NOT DECLARED IN THE REGULAR BOOKS OF ACCOUNTS FOR THE RESPECTIVE FINANCIAL YEAR S, THE SOURCES FOR THE UNACCOUNTED MONEY WAS SAID TO BE MAINLY FROM INFLAT ING THE PURCHASE PRICES OF FEED, ETC. BY THE ASSESSEE FIRM AS WELL A S OTHER GROUP FIRMS. IN THE COURSE OF SEARCH PROCEEDINGS, THE MANAGING PART NER OF THE FIRM HAS ITA NO.416 TO 424/VIZAG/2014 & CO 58 TO 61 & 63/VIZ AG/2016 MULPURI POULTRIES, NUZVID & SRI VENKATESWARA POULTRY FARM, CHALLAPALLI 4 ADMITTED THAT THE FIRM HAS INFLATED PURCHASES TO SO URCE THE INVESTMENTS MADE IN PURCHASE OF LANDS AND ACCORDINGLY ADMITTED ADDITIONAL UNDISCLOSED INCOME IN VARIOUS GROUP CONCERNS TO COV ER UP THE DEFICIENCIES FOUND IN THE FORM OF PURCHASE OF LANDS AS WELL AS GOLD AND OTHER INVESTMENTS. CONSEQUENT TO SEARCH PROCEEDING S, ASSESSMENT PROCEEDINGS WERE INITIATED U/S 153A OF THE ACT. TH E ASSESSEE HAS FILED RETURNS IN RESPONSE TO NOTICES U/S 153A OF THE ACT, FOR ALL THE ASSESSMENT YEARS DISCLOSING THE ADDITIONAL UNDISCLO SED INCOME ADMITTED DURING THE COURSE OF SEARCH. 4. SUBSEQUENTLY, THE CASES HAVE BEEN SELECTED FOR S CRUTINY AND ACCORDINGLY, NOTICES U/S 143(2) & 142(1) OF THE ACT WERE ISSUED. IN RESPONSE TO NOTICES, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE APPEARED FROM TIME TO TIME AND FURNISHED BOOKS OF A CCOUNTS AND OTHER DETAILS CALLED FOR. DURING THE COURSE OF ASSESSMEN T PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT THE INFLATION OF PU RCHASES HAD DIRECT IMPACT ON THE GROSS PROFIT IN AS MUCH AS THE PROFIT IS SUPPRESSED BY THE SAME AMOUNT OF INFLATED PURCHASES. AS PER ONE YEAR , THE ASSESSEE HAS INFLATED PURCHASES, IT CANNOT BE SAID THAT PURCHASE S WERE SHOWN AT THE SAME COST AS PURCHASED BY THE ASSESSEE FOR THE REMA INING YEARS AND ALSO THERE IS EVERY POSSIBILITY OF INFLATING THE PU RCHASES AND SUPPRESSING THE GROSS PROFIT FOR THE REMAINING YEARS. HENCE, T HE A.O. HAS RE-WORKED ITA NO.416 TO 424/VIZAG/2014 & CO 58 TO 61 & 63/VIZ AG/2016 MULPURI POULTRIES, NUZVID & SRI VENKATESWARA POULTRY FARM, CHALLAPALLI 5 THE GROSS PROFIT AFTER TAKING INTO ACCOUNT THE INFL ATED PURCHASES FOR THE ASSESSMENT YEAR 2009-10 & 2010-11 AND THE SAME GROS S PROFIT RATE IS ADOPTED FOR THE REMAINING YEARS AND THE DIFFERENCE BETWEEN GROSS PROFIT SHOWN BY THE ASSESSEE AND THE ACTUAL GROSS PROFIT T HAT SHOULD HAVE BEEN ADOPTED AFTER EXCLUDING THE INFLATED PURCHASES, WOR KED OUT DIFFERENCE AND MADE ADDITIONS TOWARDS SUPPRESSION OF GROSS PRO FIT. 5. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE A SSESSEE FILED ELABORATE WRITTEN SUBMISSIONS AND CONTENDED THAT TH E A.O. WAS ERRED IN MAKING ADDITIONS TOWARDS GROSS PROFIT DIFFERENCE WI THOUT FOLLOWING DUE PROCEDURE PROVIDED U/S 145(3) OF THE ACT. THE ASSE SSEE FURTHER SUBMITTED THAT ESTIMATION OF GROSS PROFIT U/S 145 O F THE ACT, CAN BE MADE ONLY, IF THERE ARE DEFECTS IN THE BOOKS OF ACC OUNTS. BUT, THE A.O. HAS FAILED TO POINT OUT ANY DEFECTS IN THE BOOKS OF ACCOUNTS, THEREFORE, WITHOUT REJECTION OF BOOKS OF ACCOUNTS MAKING ADDIT IONS TOWARDS GROSS PROFIT DIFFERENCE IS INCORRECT. THE A.R. FURTHER S UBMITTED THAT DURING THE COURSE OF SEARCH PROCEEDINGS, THE ASSESSEE HAS ADMI TTED THAT IT HAD INFLATED PURCHASES FOR THE ASSESSMENT YEAR 2009-10 & 2010-11 TO EXPLAIN THE SOURCES FOR PURCHASE OF LANDS AND SUCH INFLATED PURCHASES HAS BEEN OFFERED AS UNDISCLOSED INCOME FOR THOSE AS SESSMENT YEARS. IT WAS FURTHER SUBMITTED THAT AN ADMISSION OF PURCHASE INFLATED IN A ITA NO.416 TO 424/VIZAG/2014 & CO 58 TO 61 & 63/VIZ AG/2016 MULPURI POULTRIES, NUZVID & SRI VENKATESWARA POULTRY FARM, CHALLAPALLI 6 PREVIOUS YEAR IS FORMING THE SOURCE OF AN INVESTMEN T WOULD NOT HAVE BEEN DETERMINED AS LEADING TO AN INFERENCE OF INCOM E SUPPRESSION IN A DIFFERENT YEAR, PARTICULARLY WHEN THE SHARPEST WEAP ON OF SEARCH WAS USED AGAINST THE ASSESSEE AND THE ENTIRE GOMET OF T RANSACTIONS OF THE BLOCK PERIOD WAS EXAMINED WHICH SHALL NOT LEAVE ANY SCOPE FOR ESTIMATION OF GROSS PROFIT BY THE A.O. IN SUPPORT OF HIS ARGUMENTS, RELIED UPON PLETHORA OF JUDGEMENTS INCLUDING THAT O F THE HONBLE APEX COURT, IN THE CASE OF DHAKESWARI COTTON MILLS LTD. VS. CIT (1954) 26 ITR 775. 6. THE CIT(A) AFTER CONSIDERING THE EXPLANATIONS OF THE ASSESSEE, HELD THAT THE A.O. HAS NOT OBSERVED THE PROCEDURE S PELLED OUT IN SECTION 145 OF THE ACT, IN REJECTING THE BOOKS OF ACCOUNTS AND ESTIMATING THE GROSS PROFIT. THE A.O. HAS NOT POINTED OUT ANY DEF ECTS IN AUDITED ACCOUNTS OF THE ASSESSEE NOR DID HE DEMONSTRATE HOW AND WHERE THE ACCOUNTING WENT WRONG GIVING LEVERAGE FOR ESTIMATIO N. THE A.O. FAILED TO BROUGHT ON RECORD ANY MATERIAL TO SUPPORT HIS AC TION OF ESTIMATION OF GROSS PROFIT, EXCEPT BY OBSERVING THAT THE ASSESSEE HAS INFLATED PURCHASES IN THE OTHER ASSESSMENT YEARS. IT IS TRU E THAT THE ASSESSEE HAS INFLATED PURCHASES FOR THE FEW ASSESSMENT YEARS , HOWEVER, THE ASSESSEE ITSELF HAS ADMITTED SUCH INFLATION AS ITS UNDISCLOSED INCOME FOR THOSE ASSESSMENT YEARS AND HENCE, MAKING GROSS PROF IT ADDITION BASED ITA NO.416 TO 424/VIZAG/2014 & CO 58 TO 61 & 63/VIZ AG/2016 MULPURI POULTRIES, NUZVID & SRI VENKATESWARA POULTRY FARM, CHALLAPALLI 7 ON SUCH GROSS PROFIT WORKINGS TO OTHER YEARS WITHOU T ANY CORROBORATIVE EVIDENCES FOUND DURING THE COURSE OF SEARCH TO SUGG EST THAT THERE IS AN UNDISCLOSED INCOME FOR THOSE ASSESSMENT YEARS. THE CIT(A) FURTHER HELD THAT EVEN OTHERWISE, WHEN ALL UNEXPLAINED INVE STMENT/EXPENDITURE ETC. WERE OFFERED TO TAX HAVING BEEN MADE OUT OF TH E UNDISCLOSED PROFIT OF THE GROUP CONCERNS, MAKING SEPARATE ADDITIONS TO WARDS GROSS PROFIT SUPPRESSION IS UNJUSTIFIED. WHEN ADDITIONS ARE MAD E ON ACCOUNT OF UNDISCLOSED INCOME IN THE FORM OF UNEXPLAINED ASSET S AND EXPENDITURE, TELESCOPING HAS TO BE GIVEN FOR GROSS PROFIT ADDITI ON WHICH FORMS PART OF SOURCE FOR INVESTMENTS IN UNDISCLOSED ASSETS. WITH THESE OBSERVATIONS DIRECTED THE A.O. TO DELETE ADDITIONS MADE TOWARDS GROSS PROFIT ADDITION. AGGRIEVED BY THE CIT(A) ORDER, THE REVENUE IS IN AP PEAL BEFORE US. 7. THE LD. D.R. SUBMITTED THAT THE LD. CIT(A) ERRED IN OBSERVING THAT THE A.O. HAS NOT POINTED OUT ANY DEFECTS IN THE BOO KS OF ACCOUNTS AND MATERIAL WAS BROUGHT ON RECORD TO ESTIMATE THE GROS S PROFIT, WHEN IT WAS ESTABLISHED THAT THE FINANCIAL STATEMENTS DO NOT RE FLECT THE TRUE STATE OF AFFAIRS. THE LD. CIT(A) FAILED TO TAKE COGNIZANCE OF THE FACT THAT THE AUDITED FINANCIAL STATEMENTS CANNOT BE RELIED UPON BY THE A.O., AS THE ASSESSEE HAS ADMITTED INFLATION OF PURCHASES FOR AS SESSMENT YEAR 2009- 10 & 2010-11, BUT FILED THE SAME FINANCIAL STATEMEN TS EVEN AFTER SEARCH FOR ALL THOSE ASSESSMENT YEARS WHICH GIVES A DISTOR TED FIGURE OF GROSS ITA NO.416 TO 424/VIZAG/2014 & CO 58 TO 61 & 63/VIZ AG/2016 MULPURI POULTRIES, NUZVID & SRI VENKATESWARA POULTRY FARM, CHALLAPALLI 8 PROFIT FOR ALL THE YEARS. THE D.R. FURTHER ARGUED THAT WHEN THE FINANCIAL STATEMENT DID NOT REFLECT TRUE POSITION OF PROFIT, THE ACTION OF THE A.O. IN EXTRAPOLATING THE AVERAGE ACTUAL GROSS PROFIT BASED ON THE ADMITTED GROSS PROFIT OF ASSESSMENT YEAR 2009-10 & 2010-11 T O EARLIER YEARS IS A VALID METHOD. THE LD. D.R. REFERRING TO THE DECISI ON OF MUMBAI BENCH OF ITAT IN THE CASE OF OVERSEAS CHINESE CUISINE (INDIA ) PVT. LTD. VS. ACIT 56 ITD 67 (TM), HELD THAT THERE IS NO NEED TO REJEC T THE BOOKS OF ACCOUNTS FOR ESTIMATION OF GROSS PROFIT. IT IS FUR THER SUBMITTED THAT TELESCOPING THEORY IS AVAILABLE ONLY IN SUCH CASES, WHERE AN EARLIER ADDITIONS COULD BE AVAILABLE FOR A LATER INVESTMENT . IF THERE IS SOMETHING INTERVENING IN RECORDED EXPENDITURE, IN BETWEEN SUC H PERIOD, THEN THE THEORY OF TELESCOPING MAY NOT BE AVAILABLE. EXCEPT A LETTER, THE ASSESSEE HAS NOT FURNISHED ANY CORROBORATIVE EVIDEN CE TO SUBSTANTIATE HIS CLAIM. THOUGH THE ASSESSEE HAS ADMITTED UNDISC LOSED INCOME FOR TWO YEARS, THESE ADMISSIONS WERE MADE AGAINST THE I NFLATION OF PURCHASES FOR THOSE YEARS. THE ASSESSEE FAILED TO EXPLAIN HOW THE UNACCOUNTED PROFIT EARNED FROM THESE FIRMS IS INVES TED IN PURCHASE OF PROPERTIES IN THE NAME OF ITS FAMILY MEMBERS, MORE PARTICULARLY WHEN SUCH ASSESSEES ARE NOT ON APPEAL. THE A.O. HAS RIG HTLY ADOPTED GROSS PROFIT RATE FOR OTHER YEARS, AS THERE IS A EVERY PO SSIBILITY OF INFLATING ITA NO.416 TO 424/VIZAG/2014 & CO 58 TO 61 & 63/VIZ AG/2016 MULPURI POULTRIES, NUZVID & SRI VENKATESWARA POULTRY FARM, CHALLAPALLI 9 PURCHASES FOR OTHER YEARS, THEREFORE, THE ORDER OF THE A.O. SHOULD BE UPHELD. 8. ON THE OTHER HAND, THE LD. A.R. FOR THE ASSESSEE SUBMITTED THAT THE LD. CIT(A) RIGHTLY HELD THAT THE A.O. FAILED TO FOLLOW THE DUE PROCEDURE PROVIDED U/S 145 OF THE ACT, FOR ESTIMATI ON OF GROSS PROFIT. ESTIMATION OF GROSS PROFIT U/S 145 OF THE ACT, CAN BE MADE ONLY IF THERE ARE DEFECTS IN THE BOOKS OF ACCOUNTS AND IN THE ABS ENCE OF ANY SPECIFIC OBSERVATIONS BY THE A.O. WITH REGARD TO THE INCORRE CTNESS OF BOOKS OF ACCOUNTS, THE A.O. ERRED IN MAKING ADDITIONS TOWARD S GROSS PROFIT ADDITIONS. THE A.R. FURTHER SUBMITTED THAT ADDITIO NS CANNOT BE MADE MERELY ON SUSPICION AND SURMISES MANNER WITHOUT REF ERENCE TO ANY EVIDENCES. IN THE PRESENT CASE, THE A.O. FAILED TO BROUGHT ON RECORD ANY EVIDENCES, EXCEPT STATING THAT THE ASSESSEE HAS INF LATED PURCHASES OF FEEDS FOR THE ASSESSMENT YEARS 2009-10 AND 2010-11. BUT THE FACT REMAINS THAT THE ASSESSEE ITSELF HAS ADMITTED INFLA TION OF PURCHASES WHICH WAS EXPLAINED BEFORE THE A.O. AND ALSO ADMITT ED SUCH INFLATION OF PURCHASES AS ITS UNDISCLOSED INCOME FOR THOSE ASSES SMENT YEARS. WHEN THERE IS NO MATERIALS TO SUGGEST THAT THE ASSESSEE HAS INFLATED PURCHASES FOR OTHER YEARS, MAKING ADDITIONS TOWARDS GROSS PRO FIT BASED ON THE GROSS PROFIT OF SUBSEQUENT YEAR TO THE EARLIER YEAR IS INCORRECT. IN SUPPORT OF HIS ARGUMENTS RELIED UPON PLETHORA OF JU DGEMENTS INCLUDING ITA NO.416 TO 424/VIZAG/2014 & CO 58 TO 61 & 63/VIZ AG/2016 MULPURI POULTRIES, NUZVID & SRI VENKATESWARA POULTRY FARM, CHALLAPALLI 10 THE DECISION OF HONBLE SUPREME COURT, IN THE CASE OF DHAKESWARI COTTON MILLS PVT. LTD. (SUPRA). 9. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE A.O. MADE ADDITIONS TOWARDS DIFFERENCE IN GROSS PRO FIT, BASED ON THE GROSS PROFIT WORKED OUT FOR THE ASSESSMENT YEARS 20 09-10 & 2010-11 AFTER EXCLUSION OF INFLATED PURCHASES ADMITTED BY T HE ASSESSEE DURING SEARCH PROCEEDINGS. THE A.O. WAS OF THE OPINION TH AT THERE IS EVERY POSSIBILITY OF INFLATION OF PURCHASES FOR ALL THE Y EARS LIKE IN THE CASE OF ASSESSMENT YEAR 2009-10 AND 2010-11. THE A.O. FURT HER WAS OF THE OPINION THAT INFLATION OF PURCHASE HAS DIRECT IMPAC T AND GROSS PROFIT IN AS MUCH AS THE PROFIT IS SUPPRESSED BY SAME AMOUNT OF INFLATED PURCHASES. AS FOR ONE YEAR, THE ASSESSEE HAS INFLATED PURCHASE S, IT CANNOT BE SAID THAT PURCHASES WERE SHOWN AT THE SAME COST AS PURCH ASED BY THE ASSESSEE FOR THE REMAINING YEARS ALSO. ACCORDINGLY, OPINED THAT THE ASSESSEE MIGHT HAVE SUPPRESSED GROSS PROFIT BY INFL ATING PURCHASES FOR ALL THE ASSESSMENT YEARS. IT IS THE CONTENTION OF THE ASSESSEE THAT ESTIMATION OF GROSS PROFIT U/S 145 OF THE ACT CAN B E MADE ONLY IF THERE ARE DEFECTS IN THE BOOKS OF ACCOUNTS OF THE ASSESSE E. IN THE ABSENCE OF ANY SPECIFIC DEFECTS POINTED OUT BY THE A.O. IN THE BOOKS OF ACCOUNTS, THE A.O. WAS INCORRECT IN ESTIMATION OF GROSS PROFI T WITHOUT FOLLOWING DUE ITA NO.416 TO 424/VIZAG/2014 & CO 58 TO 61 & 63/VIZ AG/2016 MULPURI POULTRIES, NUZVID & SRI VENKATESWARA POULTRY FARM, CHALLAPALLI 11 PROCEDURE PROVIDED U/S 145 OF THE ACT. THE ASSESSE E FURTHER CONTENDED THAT THE INFLATION OF PURCHASES FOR THE ASSESSMENT YEAR 2009-10 & 2010-11 HAS BEEN EXPLAINED AND ALSO ADMITTED AS ITS UNDISCLOSED INCOME FOR THOSE ASSESSMENT YEARS. AN ADMISSION OF PURCHA SE INFLATION IN A PREVIOUS YEAR AS FORMING THE SOURCE OF AN INVESTMEN T WOULD NOT HAVE BEEN DETERMINED AS LEADING TO AN INFERENCE OF INCOM E SUPPRESSION IN A DIFFERENT YEAR, PARTICULARLY WHEN THE SHARPEST WEAP ON OF SEARCH WAS USED AGAINST THE ASSESSEE AND THE ENTIRE GOMET OF T RANSACTIONS OF THE BLOCK PERIOD WAS EXAMINED BY THE SEARCH PARTY, WHIC H SHALL NOT LEAVE ANY SCOPE FOR ESTIMATION OF GROSS PROFIT. 10. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATE RIAL ON RECORD, WE FIND THAT THE A.O. HAS NOT POINTED OUT ANY SPECI FIC DEFECTS IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. THE ASSESSEE HA S MAINTAINED REGULAR BOOKS OF ACCOUNTS FOR ALL THE ASSESSMENT YE ARS WHICH WERE AUDITED UNDER THE PROVISIONS OF SECTION 44AB OF THE ACT AND THE AUDITOR HAS NOT POINTED OUT ANY UNQUALIFIED OBSERVATIONS IN THE AUDITED REPORT ABOUT THE CORRECTNESS OF THE BOOKS OF ACCOUNTS. WE FURTHER OBSERVED THAT THE A.O. HAS NOT REJECTED BOOKS OF ACCOUNTS U/ S 145(3) OF THE ACT, BEFORE RESORTING TO ESTIMATION OF GROSS PROFIT. ON CE THE A.O. FAILED TO FOLLOW THE DUE PROCEDURE PROVIDED IN SECTION 145 OF THE ACT IN REJECTING THE BOOKS OF ACCOUNTS AND ESTIMATING THE GROSS PROF IT, ADDITIONS MADE ITA NO.416 TO 424/VIZAG/2014 & CO 58 TO 61 & 63/VIZ AG/2016 MULPURI POULTRIES, NUZVID & SRI VENKATESWARA POULTRY FARM, CHALLAPALLI 12 TOWARDS DIFFERENCE IN GROSS PROFIT CANNOT SUSTAIN I N THE EYES OF LAW. IN THIS CASE, ADMITTEDLY, THE ASSESSEE HAS ADMITTED IN FLATION OF PURCHASES FOR THE ASSESSMENT YEARS 2009-10 & 2010-11 AND ALSO ADMITTED SUCH INFLATION OF PURCHASES AS ITS UNDISCLOSED INCOME FO R THOSE ASSESSMENT YEARS. WE FURTHER OBSERVED THAT THE ASSESSEE HAS A DMITTED UNEXPLAINED INVESTMENTS IN PURCHASE OF LAND AND OTHER INVESTMEN TS IN GROUP CONCERNS AND ALSO ADMITTED INFLATED PURCHASES AS IT S UNDISCLOSED INCOME. THEREFORE, WE ARE OF THE VIEW THAT WHEN AD MISSIONS MADE DURING THE SEARCH AND THE IMPACT OF VARIOUS ADMISSI ONS ON THE COMPUTATION OF INCOME FOR THE PREVIOUS YEAR FALLING IN THE BLOCK PERIOD HAVE BEEN PROPERLY APPRECIATED BY THE A.O. IN ASSES SING THE INCOME OF THE ASSESSEE, FURTHER ADDITIONS TOWARDS ESTIMATED G ROSS PROFIT BASED ON THE GROSS PROFIT RATE WORKED OUT EXCLUDING THE INFL ATED PURCHASES TO OTHER YEARS WITHOUT REFERENCE TO ANY MATERIALS IS I NCORRECT. AN ADMISSION OF PURCHASE INFLATION IN A PREVIOUS YEAR AS FORMING THE SOURCE OF INVESTMENT WOULD NOT HAVE BEEN DETERMINED LEADIN G TO AN INFERENCE OF INCOME SUPPRESSION FOR DIFFERENT YEARS, PARTICUL ARLY WHEN THE ASSESSEE WAS COVERED UNDER SEARCH AND THE ENTIRE GOMET OF TR ANSACTIONS WERE EXAMINED BY THE A.O. AS FOR ONE YEAR, THE ASSESSEE HAS INFLATED PURCHASES, IT CANNOT BE SAID THAT THE ASSESSEE HAS INFLATED PURCHASES FOR OTHER YEARS ON SURMISES AND CONJECTURES BASIS WITHO UT ANY MATERIAL ITA NO.416 TO 424/VIZAG/2014 & CO 58 TO 61 & 63/VIZ AG/2016 MULPURI POULTRIES, NUZVID & SRI VENKATESWARA POULTRY FARM, CHALLAPALLI 13 EVIDENCE FOUND WHICH SUGGEST THAT THE ASSESSEE HAS SUPPRESSED GROSS PROFIT BY INFLATING PURCHASES OR THE ASSESSEE IS HA VING UNDISCLOSED INCOME IN THE FORM OF UNACCOUNTED ASSETS. 11. IN THE PRESENT CASE ON HAND, ON PERUSAL OF THE FACTS AVAILABLE ON RECORD, WE FIND THAT THE ASSESSEE HAS ESTIMATED ADD ITIONAL UNDISCLOSED INCOME INCLUDING INFLATED PURCHASES FOR THOSE TWO A SSESSMENT YEARS TO COVER UP THE DEFICIENCIES IN THE FORM OF UNACCOUNTE D INVESTMENTS IN PURCHASE OF LANDS AS WELL AS OTHER ASSETS. THE AS SESSEE ADMITTED THAT HE HAD INFLATED PURCHASES TO EXPLAIN THE SOURCES FO R PURCHASE OF LANDS. WE FURTHER OBSERVED THAT THE ASSESSEE HAS MAINTAINED BOOKS OF ACCOUNTS, WHICH WERE SUBJECT TO AUDIT U/S 44AB OF T HE ACT, WHEREIN THE AUDITOR HAS ISSUED AN UNQUALIFIED REPORT IN RESPECT OF CORRECTNESS OF BOOKS OF ACCOUNTS OF THE ASSESSEE. WE FURTHER OBSER VED THAT THE ASSESSEE HAS DISCLOSED GROSS PROFIT WHICH VARIES FR OM 11.13% TO 14.67% FROM ASSESSMENT YEAR 2005-06 TO ASSESSMENT YEAR 201 0-11. ON FURTHER VERIFICATION OF THE GROSS PROFIT RATE ADMITTED BY T HE ASSESSEE, WE FIND THAT THERE IS NO MUCH VARIATIONS IN THE GROSS PROFI T ADMITTED BY THE ASSESSEE EVEN ASSUMING THAT THE ASSESSEE HAS INFLAT ED PURCHASES FOR THE ASSESSMENT YEARS 2009-10 & 2010-11. THEREFORE, WE ARE OF THE VIEW THAT IN THE ABSENCE OF ANY SPECIFIC FINDING AS TO C ORRECTNESS OF BOOKS OF ACCOUNTS BY THE A.O., ADDITIONS TOWARDS GROSS PROFI T ADDITIONS WITHOUT ITA NO.416 TO 424/VIZAG/2014 & CO 58 TO 61 & 63/VIZ AG/2016 MULPURI POULTRIES, NUZVID & SRI VENKATESWARA POULTRY FARM, CHALLAPALLI 14 REJECTION OF BOOKS OF ACCOUNTS U/S 145 OF THE ACT I S INCORRECT. THE PROVISIONS OF SECTION 145 OF THE ACT MANDATES, REJE CTION OF BOOKS OF ACCOUNTS BEFORE ESTIMATION OF GROSS PROFIT. IN THE PRESENT CASE, THE A.O. FAILED TO FOLLOW THE DUE PROCEDURE PROVIDED U/S 145 OF THE ACT AND HENCE THE ADDITIONS MADE BY THE A.O. TOWARDS DIFFERENCE I N GROSS PROFIT FOR ALL THE ASSESSMENT YEARS FROM 2005-06 TO 2010-11 IS INC ORRECT. WE FURTHER OBSERVED THAT FOR ESTIMATION OF GROSS PROFIT, THERE MUST BE MORE THAN MERE SUSPICION TO SUPPORT ASSESSMENT U/S 143(3) OF THE ACT. IN THIS CASE, THE A.O. HAS ESTIMATED GROSS PROFIT BY STATIN G THAT THERE IS EVERY POSSIBILITY OF INFLATING THE PURCHASES AND SUPPRESS ION OF GROSS PROFIT FOR OTHER YEARS WHICH DO NOT FIND ANY SUPPORT FROM EITH ER SEIZED MATERIALS OR INCORRECT BOOKS OF ACCOUNTS OF THE ASSESSEE. TH E HONBLE SUPREME COURT IN THE CASE DHAKESWARI MILLS PVT. LTD. (SUPRA ) HELD THAT FOR ESTIMATION OF GROSS PROFIT THERE MUST BE MORE THAN MERE SUSPICION TO SUPPORT AN ASSESSMENT U/S 143(3) OF THE ACT. THERE FORE, WE ARE OF THE VIEW THAT THE A.O. WAS INCORRECT IN ESTIMATING THE GROSS PROFIT ON THE GROSS PROFIT, BASED ON THE GROSS PROFIT RATE OF A P ARTICULAR YEAR TO OTHER YEARS WITHOUT ANY REFERENCE TO ANY MATERIAL EVIDENC E. 12. IN SO FAR AS ALTERNATIVE ARGUMENTS OF THE ASSES SEE THAT ONCE ADDITIONS ARE MADE TOWARDS UNEXPLAINED INVESTMENTS/ EXPENDITURE ETC., FURTHER ADDITIONS TOWARDS ADDITIONS IN THE FORM OF GROSS PROFIT ITA NO.416 TO 424/VIZAG/2014 & CO 58 TO 61 & 63/VIZ AG/2016 MULPURI POULTRIES, NUZVID & SRI VENKATESWARA POULTRY FARM, CHALLAPALLI 15 SUPPRESSION HAS TO BE TELESCOPED AGAINST UNDISCLOSE D ASSETS. WE FIND FORCE IN THE ARGUMENTS OF THE ASSESSEE, THAT ONCE A DDITIONS ARE MADE TOWARDS ALL UNDISCLOSED ASSETS AND INCOME, ANY ADDI TIONS TOWARDS GROSS PROFIT DIFFERENCE HAS TO BE TELESCOPED AGAINST THE UNDISCLOSED ASSETS AND INCOME. EVEN ON THIS COUNT, THE ADDITIONS MADE BY THE A.O. CANNOT SUSTAIN IN THE EYES OF LAW, AS THE A.O. HAS ALREADY MADE ADDITIONS TOWARDS UNEXPLAINED INVESTMENTS/EXPENDITURE ETC. AN D HENCE FURTHER ADDITIONS TOWARDS DIFFERENCE IN GROSS PROFIT IS UNW ARRANTED. THE CIT(A) AFTER CONSIDERING THE RELEVANT FACTS HAS RIGHTLY DE LETED ADDITIONS MADE BY THE A.O. TOWARDS GROSS PROFIT. WE DO NOT FIND AN Y ERROR OR INFIRMITY IN THE ORDER OF THE CIT(A) AND HENCE, WE INCLINED TO U PHOLD CIT(A) ORDER AND REJECT GROUND RAISED BY THE REVENUE FOR ALL THE YEARS. 13. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM ITA NO.418/VIZAG/2014 IS DISALLOWANCE OF INTEREST ON EX CESS WITHDRAWALS OF PARTNERS. DURING THE COURSE OF ASSESSMENT PROCEEDI NGS, THE A.O. OBSERVED THAT THE ASSESSEE IS PAYING INTEREST ON TE RM LOANS AND UNSECURED LOANS ON ONE HAND AND THE PARTNERS HAVE DRAWN OVER AND ABOVE THEIR CAPITAL ACCOUNT ON THE OTHER HAND. THE REFORE, THE ASSESSING OFFICER OPINED THAT THE ASSESSEE HAS DIVERTED INTER EST BEARING FUNDS TO THE PARTNERS WITHOUT CHARGING ANY INTEREST AND ACCO RDINGLY WORKED OUT INTEREST @ 12% ON THE WITHDRAWALS MADE BY THE PARTN ERS. IT IS THE ITA NO.416 TO 424/VIZAG/2014 & CO 58 TO 61 & 63/VIZ AG/2016 MULPURI POULTRIES, NUZVID & SRI VENKATESWARA POULTRY FARM, CHALLAPALLI 16 CONTENTION OF THE ASSESSEE THAT IT HAS NOT DIVERTED INTEREST BEARING FUNDS, BUT, THE PARTNERS HAVE DRAWN EXCESS AMOUNT O UT OF THE SURPLUS AVAILABLE WITH THE FIRM, THEREFORE, THE A.O. WAS NO T CORRECT IN CHARGING INTEREST ON PARTNERS WITHDRAWALS. WE FIND FORCE IN THE ARGUMENTS OF THE ASSESSEE FOR THE REASON THAT IN THE ABSENCE OF ANY SPECIFIC FINDING BY THE A.O. THAT THE INTEREST BEARING FUNDS HAVE BEEN DRAW N BY THE PARTNERS WITHOUT CHARGING ANY INTEREST, CHARGING INTEREST ON DRAWINGS OF THE PARTNERS IS INCORRECT. THE ASSESSEE HAS FILED NECE SSARY EVIDENCES TO PROVE THAT THE WITHDRAWALS OF THE PARTNERS ARE OUT OF THE OWN FUNDS OF THE ASSESSEE, BUT NOT FROM THE INTEREST BEARING FUN DS. THE CIT(A) AFTER CONSIDERING THE RELEVANT FACTS HAS RIGHTLY DELETED ADDITIONS MADE BY THE A.O. TOWARDS DISALLOWANCE OF INTEREST ON PARTNERS W ITHDRAWALS. WE DO NOT FIND ANY ERROR OR INFIRMITY IN THE ORDER OF THE CIT(A). HENCE, WE INCLINED TO UPHOLD CIT(A) ORDER AND REJECT THE GROU ND RAISED BY THE REVENUE. 14. IN THE RESULT, THE APPEALS FILED BY THE REVENUE IN ITA NOS.418, 420, 421, 422 & 423/VIZAG/2014 ARE DISMISSED. ITA NOS.416, 417, 419 & 424/VIZAG/2014: 15. THE LD. A.R. FOR THE ASSESSEE, AT THE TIME OF H EARING SUBMITTED THAT AS PER THE CIRCULAR NO.21/2015 DATED 10.12.201 5 OF CBDT, THE TAX EFFECT INVOLVED IN THESE APPEALS IS BELOW THE MONET ARY LIMIT PRESCRIBED ITA NO.416 TO 424/VIZAG/2014 & CO 58 TO 61 & 63/VIZ AG/2016 MULPURI POULTRIES, NUZVID & SRI VENKATESWARA POULTRY FARM, CHALLAPALLI 17 FOR FILING APPEAL BEFORE THE ITAT. SINCE, THE LATE ST CIRCULAR NO.21/2015 DATED 10.12.2015 OF CBDT BEING RETROSPECTIVE IN NAT URE, THE APPEALS FILED BY THE REVENUE ARE NOT MAINTAINABLE. THE LD. D.R., PRESENT HAS FAIRLY ACCEPTED THAT THE TAX EFFECT INVOLVED IN THE SE APPEALS IS BELOW THE MONETARY LIMIT PRESCRIBED FOR FILING APPEAL BEFORE THE ITAT. WE FIND THAT THE TAX EFFECT INVOLVED IN THESE APPEALS IS BELOW T HE MONETARY LIMIT FIXED FOR FILING APPEALS BEFORE THE ITAT. IN VIEW OF THE LATEST CIRCULAR ISSUED BY CBDT VIDE CIRCULAR NO.21/2015 DATED 10.12.2015, WE DISMISS THE APPEAL FILED BY THE REVENUE AS NOT MAINTAINABLE. 16. IN THE RESULT, THE APPEALS FILED BY THE REVENUE IN ITA NOS.416, 417, 419 & 424/VIZAG/2014 ARE DISMISSED. C.O. NOS.58 TO 61 & 63/VIZAG/2016: 17. THE ASSESSEES HAVE FILED CROSS OBJECTIONS IN S UPPORT OF THE ORDER OF LD. CIT(A). THE ASSESSEES ALSO RAISED A LEGAL I SSUE CHALLENGING THE ADDITIONS MADE BY THE A.O. TOWARDS GROSS PROFIT ADD ITION BY STATING THAT IN THE ABSENCE OF ANY MATERIALS, ADDITIONS CANNOT B E MADE IN THE ASSESSMENTS FRAMED U/S 153A/153C OF THE ACT. DURIN G THE COURSE OF HEARING, THE LD. A.R. FOR THE ASSESSEE SUBMITTED TH AT HE DID NOT PRESS CROSS OBJECTIONS FILED FOR ALL THE ASSESSMENT YEARS IN BOTH ASSESSEES CASE. HENCE, WE DISMISSED CROSS OBJECTIONS FILED BY THE ASSESSEES AS NOT PRESSED. ITA NO.416 TO 424/VIZAG/2014 & CO 58 TO 61 & 63/VIZ AG/2016 MULPURI POULTRIES, NUZVID & SRI VENKATESWARA POULTRY FARM, CHALLAPALLI 18 18. IN THE RESULT, THE CROSS OBJECTIONS FILED BY TH E ASSESSEES IN CO NOS.58 TO 61 & 63/VIZAG/2016 ARE DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 31 ST JAN17. SD/- SD/- ( . ) ( . ) (V. DURGA RAO) (G. MANJUNATHA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 31.01.2017 VG/SPS )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT THE DCIT, CIRCLE-2(1), VISAKHAPA TNAM 2. / THE RESPONDENT MULPURI POULTRIES, RAMANNAGUDEM , NUZVID, KRISHNA DIST. 3. / THE RESPONDENT SRI VENKATESWARA POULTRY FARM R AMANAGARAM, CHALLAPALLI, KRISHNA DIST. 4. + / THE CIT, VIJAYAWADA 5. + ( ) / THE CIT (A), VIJAYAWADA 6. # . , . , # / DR, ITAT, VISAKHAPATNAM 7 . / GUARD FILE / BY ORDER // TRUE COPY // 12 . (SR.PRIVATE SECRETARY) . , # / ITAT, VISAKHAPATNAM