IMPERIAL COIR YARN TRADING Co., Cherthala V. DCIT, Alappuzha

ITA 49/COCH/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86406 (ITAT-COCHIN)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-01-2015
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 07-01-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 19-01-2015
• Court: TRIBUNAL
• Department Lawyers: SHANTAM BOSE
• Keywords: Depreciation
• Section: 80HHC; 133A; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH C OCHIN BEFORE S/SHRI B.P. JAIN, AM AND GEORGE GEOR GE K., JM I.T.A. NO.50/COCH/ 2015 ASSESSMENT YEAR : 2006-07 M/S. KONCHERRY COIR FACTORIES, MAYITHARA, CHERTHALA. [PAN:AABFK 9010F] VS. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1, ALLEPPEY. (ASSESSEE -APPELLANT) (REVENUE-RESPONDENT) I.T.A. NO.49/COCH/ 2015 ASSESSMENT YEAR : 2006-07 M/S. IMPERIAL COIR YARN TRADING CO., MAYITHARA, CHERTHALA. [PAN:AAAFI 8374F] VS. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1, ALLEPPEY. (ASSESSEE -APPELLANT) (REVENUE-RESPONDENT) A SSESSEE BY SHRI R. SREENIVASAN, CA REVENUE BY SHRI SHANTAM BOSE, CIT/DR DATE OF HEARING 07/01/2016 DATE OF PRONOUNCEMENT 12/01/2016 O R D E R PER B.P.JAIN, ACCOUNTANT MEMBER: THESE TWO APPEALS OF THE ASSESSEE IN THE CASE OF TWO DIFFERENT ASSESSEES ARISE FROM TWO DIFFERENT ORDERS OF LD. CI T(A)-V, KOCHI EACH DATED 07/1 1 /2014 FOR THE ASSESSMENT YEAR 2006-07. I.T.A. NOS.50&49/COCH/2015 2 2. SINCE THE ISSUES IN BOTH THE APPEALS ARE IDENT ICAL, THEREFORE, BOTH THE APPEALS ARE BEING TAKEN UP BY THIS CONSOLIDATED ORD ER. 3. THE GROUNDS TAKEN IN BOTH THE APPEALS ARE ALSO IDENTICAL AND ACCORDINGLY, WE REPRODUCE THE GROUNDS IN THE CASE O F M/S. KONCHERRY COIR FACTORIES IN I.T.A. NO.50/COCH/2015 AS UNDER: 1. THE OFFICERS BELOW WERE NOT JUSTIFIED IN CONFIR MING THE ESTIMATED ADDITION OF 10% ON TURNOVER, AS NET PROFIT. 2. THE OFFICERS THAT YOUR APPELLANT HAD SHOWN LOSS ON ACCOUNT OF PHASING OUT OF SECTION 80HHC IS DEVOID OF MERIT AND WITHOUT ANY BASIS. 3. THE OFFICERS FAILED TO APPRECIATE THE FACT THAT IT WAS ONLY ON ACCOUNT OF PHYSICAL SHORTAGE OF STOCK THAT THE APPELLANT FI RM HAS SUFFERED A LOSS AS COMPARED TO THE EARLIER YEARS. 4. THE OFFICERS BELOW HAVE NOT PROPERLY CONSIDERED THE CONFIDENTIAL NOTE GIVEN BY THE FINANCE MANAGER TO THE MANAGEMENT ABOU T THE AVAILABILITY OF STOCK WHICH ALSO FORMS PART OF THE IMPOUNDED DOC UMENT DURING THE SURVEY. 5. THE COMMISSIONER OF INCOME TAX(APPEALS) OBSERVA TION IN PARA 4 OF THE ASSESSMENT ORDER THAT BOOKS OF ACCOUNT WERE NOT MAINTAINED BY THE APPELLANT IS TOTALLY MIS-CONSTRUED AS DURING THE CO URSE OF SURVEY THE ENTIRE BOOKS AND OTHER FILES WERE IMPOUNDED BY THE DEPARTMENT WHICH IS ON RECORD. 6. THE ASSESSMENT AND CONFIRMATION OF THE INCLUSIO N OF SECRET PROFIT ON ALLEGED SUPPRESSED SALE OF STOCK IS PURELY BASED ON SURMISE, ASSUMPTION AND GUESS WORK, WITHOUT EVEN ESTABLISHING MATERIALL Y, OF THE APPELLANT RESORTING TO UNACCOUNTED SALE. 7. MERELY BECAUSE THERE IS A VARIATION BETWEEN ST OCK GIVEN TO THE BANK AND STOCK ADOPTED IN ACCOUNTS, SHOULD NOT HAVE LEAD TO THE INFERENCE THAT THERE WAS ANY SALE OUT SIDE THE BOOKS. I.T.A. NOS.50&49/COCH/2015 3 8. THE OFFICERS BELOW HAVE ALSO NOT CONSIDERED THE CARDINAL FACT THAT THE APPELLANT BEING A 100% EXPORTER AND GOODS BEING SOL D ONLY IN EXPORT MARKET, CANNOT BE SOLD LOCALLY. 4. WE PROCEED TO DECIDE THE APPEAL IN THE CASE OF THE ASSESSEE IN I.T.A. NO.50/COCH/2015 AND OUR ORDER HEREINBELOW SHALL BE IDENTICALLY APPLICABLE IN THE CASE OF M/S. IMPERIAL COIR YARN TRADING CO. IN I.T. A. NO.49/COCH/2015 EXCEPT THE DIFFERENCE IN QUANTUM WHICH SHALL BE SUBSTITUTED. 5. THE FACTS IN BRIEF IN THE CASE OF M/S. KONCHER RY COIR FACTORIES IN I.T.A. NO.50/COCH/2015 ARE THAT A SURVEY WAS CONDUCTED IN THE PRESENT CASE WHERE A CONFIDENTIAL FILE WAS FOUND WHICH INTER ALIA, GIVES A REPORT OF CLOSING STOCK AS AT 31-03-2006. THE RELEVANT PORTION IS REPRODUCED HERE INBELOW: THE KONCHERRY COIR FACTORIES RS.8,60,77,58 0.77 (THIS FIGURE IS REFLECTED IMPERIAL COIR YARN TRADING CO. RS. 14,00,0 00.00 IN THE TRG. AND P&L A/C KONCHERRY INTERNATIONAL RS. 8,2 4,741.00 FURNISHED WITH THE TOTAL RS .8,83,02,321.77 RETURN OF INCOME) CLOSING STOCK VALUED FOR THE PURPOSE OF BANK STATEM ENT AS ON 31-3-2006 AS FOLLOWS: THE KONCHERRY COIR FACTORIES RS.10,9 1,98,000 IMPERIAL COIR YARN TRADING CO. RS. 1, 72,17,000 KONCHERRY INTERNATIONAL RS. 2,07,92,000 TOTAL RS.14,72,07,000 . THE PHYSICAL STOCK AS ON 31-3-2006 IS APPROXIMATE LY LESS THAN RS.5 CRORES. L I.T.A. NOS.50&49/COCH/2015 4 6. APART FROM THIS, STOCK SUMMARY AS AT 31.03.20 06 WAS RETRIEVED FROM THE COMPUTER WHICH IS AVAILABLE AT PAGES 3 & 4 OF THE A SSESSING OFFICERS ORDER WHICH CONSISTS OF PARTICULARS OF ITEMS, QUANTITY, RATE AN D AMOUNT WHICH TOTALS TO RS.1,56,41,187.33/-. THE TOTAL STOCK AS PER THE STO CK SUMMARY RETRIEVED FROM THE COMPUTER U/S. 133A WAS AS UNDER: 1. KONCHERRY INTERNATIONAL : RS. 47,72,300/- 2. IMPERIAL COIR YARN TRDG. CO. : RS. 67,07,702/- GRAND TOTAL STOCK AVAILABLE IN GROUP : RS.2,71,21,189/- 7. FURTHER FINDINGS OF THE ASSESSING OFFICER IN T HIS REGARD ARE VERY RELEVANT AND ARE REPRODUCED HEREINBELOW: THIS IS THE PHYSICAL STOCK ACTUALLY AVAILABLE WIT H THE GROUP AS AT 31-03-2006. THIS FIGURE IS IN AGREEMENT WITH THE PHYSICAL STOCK AVAILABLE AS AT 31-03-2006 AS PER THE REPORT FOUND IN THE CONFIDENTIAL FOLDER AT THE TIME OF SURVEY WHEREIN IT IS REPORTED THAT THE PHYSICAL STOCK AS ON 31-3- 2006 IS APPROXIMATELY LESS THAN 5 CRORES. THE STATEMENT CONTAINED IN THE CONF IDENTIAL FOLDER STRENGTHENS THE STOCK SUMMARY RETRIEVED FROM THE COMPUTER AT THE TIME OF SURVEY UNDER SECTION 133A. THE STOCK SUMMARY FOUND IS NOT OF ANY GUESS WOR K OR AN ESTIMATED FIGURE. THE STOCK SUMMARY CLEARLY STATES THAT IT IS THE CLO SING BALANCE AS AT 31-03- 2006. ITEM-WISE, QUANTITY-WISE, RATE-WISE, VALUE-WI SE DETAILS ARE SPECIFIED IN THE STOCK-SUMMARY STATEMENT. SUCH PRECISE CALCULATI ON REFLECTS THE CORRECT POSITION OF STOCK AS ON 31-03-2006. THE MANAGING PA RTNER, AND THE FINANCE MANAGER BOTH WERE QUESTIONED ABOUT THE DETAILS OF S TOCK FOUND IN THE CONFIDENTIAL FOLDER, BUT BOTH COULD NOT GIVE ANY SA TISFACTORY ANSWER. VIDE QUESTIONNAIRE DATED 22-02-2008, ASSESSEE WAS REQUIR ED TO EXPLAIN THE FOLLOWING: THERE HAD BEEN SURVEY U/S. 133A IN YOUR CASE ON 25 -07-2007. IN THE COURSE OF SURVEY, STOCK STATEMENTS HAVE BEEN RETRIEVED FRO M THE COMPUTER SYSTEM. AS PER THE STATEMENT, THE CLOSING STOCK AS ON 31-03 -2006 IS RS.1,56,41,187/-. BUT, FOR THE ASST. YEAR 2006-07, THE CLOSING STOCK IS SHOWN AT RS.8,60,77,580/-. YOU ARE REQUIRED TO RECONCILE THE DIFFERENCE NOTICED. I.T.A. NOS.50&49/COCH/2015 5 DESPITE THE SEVERAL OPPORTUNITIES GIVEN, ASSESSE E COULD NOT EXPLAIN OR RECONCILE THE DIFFERENCE. ASSESSEE IN THE COURSE OF ASSESSMENT PROCEEDINGS REMARKED THAT THE STOCK SUMMARY FOUND WAS ONLY A DR AFT BUT WHEN CONFRONTED WITH THE CORROBORATING EVIDENCE FOUND IN THE CONFIDENTIAL FOLDER, ASSESSEE COULD NOT REFUTE THE STOCK-SUMMARY STATEME NT. ASSESSEE VIDE LETTER DATED 26-12-2008 HAS STATED THAT YOU ARE ALSO AWARE OF THE FACT THAT IN A CONF IDENTIAL NOTE GIVEN BY THE FINANCE MANAGER/GENERAL MANAGER TO THE MANAGEMENT THE ACTUAL STOCK HAS BEEN SPELT OUT. IN THE CONFIDENTIAL FILE, ACTUAL STOCK PHYSICAL LY AVAILABLE IN THE GROUP (KONCHERRY INTERNATIONAL, KONCHERRY COIR FACTORIES AND IMPERIAL COIR YARN TRADING CO) HAS BEEN SPELT OUT AS BELOW FIVE CRORES OF RUPEES. FURTHER, ASSESSEE IN THE SAME LETTER STATES SUCH CONFIDENTIAL NOTE FOUND OUT DURING THE COURSE OF SURVEY CANNOT BE IGNORED OR GIVE A GO BY. AS PER ASSESSEES OWN SUBMISSION, THE STOCK SUM MARY FOUND WHICH IS IN AGREEMENT WITH THE NOTE IN CONFIDENTIAL FOLDER FILE MENTIONED SUPRA CANNOT BE IGNORED. FOLLOWING THE SAME, THE CLOSING STOCK WITH THE ASSESSEE IS TAKEN AT RS.1,56,41,187/-. BUT THE ASSESSEE HAS SHOWN IN THE TRADING ACCOUNT A CLOSING STOCK AT RS.8,60,77,580/-. THAT MEANS, THE ASSESSEE HAS SHOWN STOCK IN EXCESS BY 7,04,36,393/- WHICH IS THE DIFFERENCE BETWEEN THE STOCK AS PER TRADING ACCOUNT I.E. RS.8,60,77,580/- MINUS 1,56,41 ,187/-. THE PERTINENT QUESTION NOW IS HOW ASSESSEE HAS SHOWN A STOCK OF RS.8,60,77,580 WHEN THE PHYSICAL STOCK AVAILABLE WA S ONLY RS.1,56,41,187/-. THE ASSESSEE IN THE COURSE OF ASSESSMENT PROCEEDING S HAS GIVEN A WRITTEN SUBMISSION WHEREIN IT HAS STATED THAT THE EVIDENCE COLLECTED IN THE FORM OF CONFIDENTIAL FILE AND THE NOTINGS THEREIN REGARDING THE PHYSICAL STOCK AVAILABLE WITH THE ASSESSEE CANNOT BE IGNORED OR GIVEN A GO B Y. ACCEPTING ASSESSEES PLEA, THE PHYSICAL STOCK AVAILABLE IS ONLY RS.1,56, 41,187/-. BUT ASSESSEE HAS DECLARED IN THE TRADING ACCOUNT FURNISHED WITH THE RETURN A CLOSING STOCK OF RS.8,60,77,580/-. SINCE THE PHYSICAL STOCK AVAILABL E IS RS.1,56,41,187/- ONLY, THE BALANCE OF RS.7,04,36,393/- CANNOT BE TREATED A S CLOSING STOCK AVAILABLE AS ON 31-3-2006. IN OTHER WORDS, THERE IS NO CLOSIN G STOCK PHYSICALLY AVAILABLE WITH THE ASSESSEE TO THE EXTENT OF RS.7,04,36,393/ - AS AT 31-03-2006. BUT THE ASSESSEE HAS OFFERED THE SAME FOR TAXATION IN T HE RETURN FILED. WHAT HAPPENED TO THIS STOCK OF RS.7,04,36,393/- WHICH AS SESSEE HAS SHOWN BUT WHICH IS FOUND NOT AVAILABLE AS PER EVIDENCE COLLEC TED IN THE COURSE OF SURVEY (STOCK SUMMARY). WHERE THIS STOCK HAS VANISHED? THE QUESTION WAS PUT FORTH I.T.A. NOS.50&49/COCH/2015 6 TO THE MANAGING PARTNER AS WELL AS TO THE FINANCE M ANAGER AT THE TIME OF SURVEY. A STATEMENT WAS RECORDED OF SHRI K.P. VARG HESE JOHN ON 25-07- 2007. HE WAS LOOKING AFTER THE RESTRUCTURING OF FI NANCIAL AND ACCOUNTING ACTIVITIES OF THE GROUP FROM APRIL 2007 ONWARDS IN A CAPACITY OF GENERAL MANAGER(FINANCE). HE WAS SHOWN THE STOCK SUMMARY RE TRIEVED FROM THE COMPUTER AND HE HAS AGREED TO THE STOCK FOUND AT T HE TIME OF SURVEY AS PER THE STOCK SUMMARY. QUESTION WAS ALSO PUT FORTH T SH RI K.S. SANJEEV, MANAGING PARTNER AND HE WAS CONFRONTED WITH THE STO CK SUMMARY RETRIEVED FROM THE COMPUTER. HE COULD NOT EXPLAIN THE SAME AT THAT POINT OF TIME AND AGREED TO EXPLAIN OR RECONCILE THE DIFFERENCE LATER ON. BUT IN THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS EXPLAINED THAT THE F INDINGS AT THE TIME OF SURVEY ABOUT THE PHYSICAL STOCK AVAILABLE AS AT 31- 3-2006 CANNOT BE IGNORED OR GIVEN A GO BY. THE EFFECT OF IT IS THAT THE STOC K OF RS.7,04,36,393/- WAS NOT PHYSICALLY AVAILABLE WITH THE ASSESSEE AS AT 31-3-2 006. THEN THE PERTAINING QUESTION IS WHAT HAS HAPPENED THIS STOCK. THAT MEAN S THERE HAS BEEN SALE OF STOCK OF RS.7,04,36,393/- AT A PROFIT IN THE OPEN M ARKET. THIS SALE IS SUPPRESSED. THE QUANTITY OF STOCK SO SOLD WAS SHOWN AS NOT SOLD BUT AS THE STOCK AVAILABLE IN HAND. IN THE PROCESS ASSESSEE S UPPRESSED THE PROFIT EARNED. THIS IS ANOTHER MODE OF TAX EVASION THAT HA S BEEN FOUND IN THE COURSE OF SURVEY. ASSESSEES G.P. RATIO FOR ASSESSM ENT YEAR 2006-07 UNDER CONSIDERATION IS 17.72%. BY APPLYING THE SAME RATE THE GROSS PROFIT EARNED AND SUPPRESSED FROM THE BOOKS COMES TO RS.1,24,81,3 29/-. ASSESSEE MADE A PROFIT O RS.1,24,81,329/- ON THE SALE OF STOCK OF R S.7,04,36,393/-. THIS PROFIT IS SUPPRESSED AND KEPT AS SECRET PROFIT. THE AMOUNT OF VALUE OF THE STOCK OF RS.7,04,36,393/- IS NOT ADDED IN VIEW OF THE FACT T HAT THE ASSESSEE HAS ALREADY SHOWN THIS AS STOCK IN THE TRADING ACCOUNT AND HENCE FURTHER ADDITION WILL AMOUNT TO DOUBLE TAXATION. 8. VIDE QUESTIONNAIRE DATED 22-02-2008, THE ASSE SSEE WAS SHOW CAUSED WHY THE BOOKS OF ACCOUNT SHOULD NOT HAVE BEEN REJECTED. THE ASSESSEE SUBMITTED THE REPLY WHICH WAS NOT FOUND TO BE SATISFACTORY. THE A SSESSING OFFICER, FOLLOWING THE DECISION OF THE HONBLE HIGH COURT OF KERALA IN THE CASE OF S. MURUGAPPA CHETTIAR VS. CIT REPORTED IN 174 ITR 245 WHEREIN IT HAS BEEN HELD THAT WHEN THE STOCK FIGURES APPLIED BY THE ASSESSEE TO THE DEPARTMENT A ND THE BANK VARY, REJECTION OF BOOKS OF ACCOUNT ARE JUSTIFIED. THE ASSESSING O FFICER ALSO OBSERVED THAT THE FACT OF SECRET PROFIT EARNED IN THE BUSINESS BY WAY OF INFLATED STOCK TANTAMOUNTS I.T.A. NOS.50&49/COCH/2015 7 TO CONCEALMENT OF INCOME AND BOOKS ARE REQUIRED TO BE REJECTED. ACCORDINGLY, THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNT AND PROCEEDED TO ESTIMATE THE INCOME OVER AND ABOVE THE ADDITION OF RS.1,24,8 1,329/- WHICH WAS ADDED TO THE INCOME AS SECRET PROFIT MADE OUT OF THE SALES O F STOCK OUTSIDE THE BOOKS OF ACCOUNT. THE ASSESSING OFFICER WHILE ESTIMATING THE INCOME HAS GIVEN THE FOLLOWING FINDINGS WHICH ARE VERY RELEVANT TO BE RE PRODUCED HEREINBELOW:- ONCE BOOKS OF ACCOUNTS ARE REJECTED IT IS NECESSAR Y TO BRING TO ESTIMATE THE INCOME. IT IS FOUND THAT ASSESSEE HAD DISCLOSED A N ET PROFIT OF 7.58% WHEN 80HHC WAS 80%, 14.38% WHEN 80HHC WAS 75%, 12.09%, W HEN 80HHC WAS 50%. THE EXPORT INCENTIVES HAD MERGED WITH THE PERC ENTAGE OF NET PROFIT WHILE ARRIVING AT THE ABOVE PERCENTAGE. AVERAGE OF THE ABOVE THREE COMES TO 11.35%. CONSIDERING THE FACT THAT THE PRODUCTION CH ARGES AND OVERHEAD EXPENSES HAVE GONE UP, AND COIR INDUSTRY HAS FACED TOUGH COMPETITION IN FOREIGN LAND, THE NET PROFIT AVAILABLE TO THE ASSES SEE IS ESTIMATED 10% OF THE TURNOVER PLUS THE SECRET PROFIT OF RS.1,24,81,329/- ON SUPPRESSED SALE OF STOCK OF RS.7,04,36,393/-. TURNOVER AS PER RETURN : RS.20,31,78,227 INCOME ESTIMATED -10% THEREOF : RS . 2,03,17,822 ADD: SECRET PROFIT AS DISCUSSED : RS. 1,24,81,151 THEREFORE, INCOME FROM BUSINESS AFTER CONSIDERING ALL EXPENSES INCLUDING DEPRECIATION : RS. 3,27,99,151 ACCORDINGLY, THE ASSESSING OFFICER HAS ESTIMATED TH E INCOME AT RS.3,27,99,151/-. 9. THE LD. CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER. I.T.A. NOS.50&49/COCH/2015 8 10. THE LD. COUNSEL FOR THE ASSESSEE ARGUED THAT THERE IS NOTHING ON RECORD BEFORE ANY OF THE AUTHORITIES BELOW THAT THE ASSESS EE HAS SOLD THE STOCK OUT OF THE BOOKS OF ACCOUNT AND THEREFORE, THE BOOKS OF AC COUNT ARE NOT LIABLE TO BE REJECTED AND NO ESTIMATION OF INCOME CAN BE MADE AN D ALSO NO ADDITION ON ACCOUNT OF SECRET PROFIT CAN BE MADE. 11. THE LD. DR ON THE OTHER HAND RELIED UPON THE ORDERS OF BOTH THE AUTHORITIES BELOW. 12. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED THE FACTS OF THE CASE. THE UNDISPUTED FACTS IN THE PRESENT CASE ARE THAT DURIN G THE COURSE OF SURVEY, A CONFIDENTIAL REPORT/FILE WAS FOUND FROM THE COMPUTE R OF THE ASSESSEE WHERE THE ASSESSEES CLOSING STOCK WAS AT RS.8,60,77,580.77/- AND THE TOTAL PHYSICAL STOCK AS AT 31.03.2006 FROM THE ASSESSEES CONCERNS WAS L ESS THAN RS.5 CRORES. IT IS ALSO UNDISPUTED THAT THE ITEMWISE STOCK LIST WAS AL SO AVAILABLE WHICH IS REPRODUCED AT PAGES 3 & 4 OF THE ORDER OF THE ASSES SING OFFICER, TOTALLING TO RS.1,56,41,187.33/- AND THE OTHER CONCERNS WERE HAV ING SIMILAR STOCKS SO THAT THE TOTAL STOCK COMES TO RS.2,71,21,189/-. THEREFO RE, AS PER THE CONFIDENTIAL REPORT, THE PHYSICAL STOCK AS AT 31-03-2006 WAS LES S THAN RS.5 CRORES WHICH IS NOT IN DISPUTE. THE ASSESSEE HAS ALSO CONCEDED THA T THE CONFIDENTIAL REPORT/NOTE FOUND DURING THE COURSE OF SURVEY CANNOT BE IGNORED OR CANNOT BE GIVEN A GO BY, IS ALSO A MATTER OF RECORD. THEREFORE, IT IS EVIDEN T THAT THERE IS NO DISPUTE TO THE I.T.A. NOS.50&49/COCH/2015 9 FACT THAT THE ASSESSEE HAS AGREED TO THE CONFIDENTI AL REPORT THAT THE ASSESSEE IS HAVING CLOSING STOCK AT RS.8,60,77,580.77/- WHEREAS THE ASSESSEE IS HAVING ACTUAL PHYSICAL STOCK AT RS.1,56,41,187.33/-. THE D IFFERENCE BETWEEN THE STOCK AS PER THE CONFIDENTIAL REPORT FOUND IN THE COMPUTER W HICH HAS BEEN CONCEDED BY THE ASSESSEE AND THE STOCK FOUND PHYSICALLY IS RS.7 ,04,36,393/- WHICH CANNOT IN FACT BE TREATED AS CLOSING STOCK AS AT 31-03-2006. 13. NOW THE QUESTION ARISES WHERE THE STOCK OF RS .7,04,36,393/- HAS VANISHED. THE ASSESSEE HAS NOT GIVEN ANY EXPLANATION TO RECON CILE THE SAID DIFFERENCE. IN SUCH CIRCUMSTANCES AND FACTS OF THE CASE, A REASONA BLE PRESUMPTION HAS TO BE TAKEN THAT THE SAID STOCK OF RS.7,04,36,393/- HAD B EEN SOLD OUT OF THE BOOKS OF ACCOUNT. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) WHO HAS RIGHTLY TREATED THE SAID AMOUNT OF RS.7,04, 36,393/- AS SALE OF STOCK OUTSIDE THE BOOKS OF ACCOUNT WHICH HAS NOT BEEN ACC OUNTED FOR IN THE BOOKS OF ACCOUNT. 14. THE ASSESSEE HAS DECLARED A G.P. RATE OF 17.7 2% DURING THE IMPUGNED ASSESSMENT YEAR AND THE ASSESSING OFFICER WAS JUSTI FIED IN APPLYING THE SAID RATE TO THE SAID SUPPRESSED SALE OF RS.7,04,36,393/-, TH US EARNING SECRET PROFIT OF RS.1,24,81,329/-. THEREFORE, THE ASSESSEE HAS EARNE D RS.1,24,81,329/- AS SECRET PROFIT WHICH IS NOT ACCOUNTED FOR IN THE BOOKS OF A CCOUNT WHICH IN FACT REQUIRES ADDITION TO THE INCOME OF THE ASSESSEE AND ACCORDIN GLY, WE DO NOT FIND ANY I.T.A. NOS.50&49/COCH/2015 10 INFIRMITY IN THE ORDER OF THE LD. CIT(A) WHO HAS RI GHTLY CONFIRMED THE ACTION OF THE ASSESSING OFFICER WHO HAS ADDED THE SAID SECRET PRO FIT OF RS.1,24,61,329/- TO THE INCOME OF THE ASSESSEE. 15. SINCE THE ASSESSEE HAS MADE THE SECRET PROFIT BY MAKING THE SALES OUTSIDE THE BOOKS OF ACCOUNT, A SHOW CAUSE NOTICE WAS GIVEN BY THE ASSESSING OFFICER TO INVOKE THE PROVISIONS OF SECTION 145 OF THE ACT. TH E REPLY OF THE ASSESSEE WAS NOT FOUND TO BE SATISFACTORY. 16. THE ASSESSING OFFICER, FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF S. MURUGAPPA CHETTIAR VS . CIT REPORTED IN 174 ITR 245 WHEREIN IT HAS BEEN HELD THAT WHEN THE STOCK FIGURE S APPLIED BY THE ASSESSEE TO THE DEPARTMENT AND THE BANK VARY, REJECTION OF BOOK S OF ACCOUNT ARE JUSTIFIED. IN THE PRESENT CASE ALSO, APPLYING THE SAME RATIO, THE ASSESSEES STOCK AS PER THE CONFIDENTIAL FILE WAS AT RS.8.60,77,580.77/- WHEREA S AS PER THE ACTUAL PHYSICAL STOCK, IT WAS AT RS.1,56,41,187.33/-, THUS MAKING A DIFFERENCE OF RS.7,04,36,393/- WHICH CLEARLY SHOWS THAT THE BOOKS OF ACCOUNT ARE NOT CORRECT. THEREFORE, THE ACTUAL INCOME CANNOT BE DEDUCED. THE ASSESSING OFFICER IS JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 145 (3) OF THE ACT WHICH HAS RIGHTLY BEEN CONFIRMED BY THE LD. CIT(A) . I.T.A. NOS.50&49/COCH/2015 11 17. THE ASSESSING OFFICER PROCEEDED TO ESTIMA TE THE INCOME AND THE RELEVANT PARA WITH REGARD TO THE SAME IS REPRODUCED HEREINBE LOW:. ONCE BOOKS OF ACCOUNTS ARE REJECTED IT IS NECESSAR Y TO BRING TO ESTIMATE THE INCOME. IT IS FOUND THAT ASSESSEE HAD DISCLOSED A N ET PROFIT OF 7.58% WHEN 80HHC WAS 80%, 14.38% WHEN 80HHC WAS 75%, 12.09%, W HEN 80HHC WAS 50%. THE EXPORT INCENTIVES HAD MERGED WITH THE PERC ENTAGE OF NET PROFIT WHILE ARRIVING AT THE ABOVE PERCENTAGE. AVERAGE OF THE ABOVE THREE COMES TO 11.35%. CONSIDERING THE FACT THAT THE PRODUCTION CH ARGES AND OVERHEAD EXPENSES HAVE GONE UP, AND COIR INDUSTRY HAS FACED TOUGH COMPETITION IN FOREIGN LAND, THE NET PROFIT AVAILABLE TO THE ASSES SEE IS ESTIMATED 10% OF THE TURNOVER PLUS THE SECRET PROFIT OF RS.1,24,81,329/- ON SUPPRESSED SALE OF STOCK OF RS.7,04,36,393/-. TURNOVER AS PER RETURN : RS.20,31,78,227 INCOME ESTIMATED -10% THEREOF : RS . 2,03,17,822 ADD: SECRET PROFIT AS DISCUSSED : RS. 1,24,81,151 THEREFORE, INCOME FROM BUSINESS AFTER CONSIDERING ALL EXPENSES INCLUDING DEPRECIATION : RS. 3,27,99,151 18. WE HAVE HEARD THE RIVAL CONTENTIONS AND PER USED THE FACTS OF THE CASE. THE REJECTION OF BOOKS OF ACCOUNT HAS BEEN HELD TO BE CORRECT HEREINABOVE AND WE HAD FOUND NO INFIRMITY IN THE ORDER OF THE LD. C IT(A) WHO HAD RIGHTLY CONFIRMED THE ACTION OF THE ASSESSING OFFICER. THER EFORE SOME ESTIMATION OF INCOME HAS TO BE MADE. THE ASSESSING OFFICER HAS CA LCULATED THE AVERAGE NET PROFIT FOR PAST 3 YEARS AT 11.35% AND THEN PROCEEDE D TO APPLY A NET PROFIT RATE AT 10% AT RS.2,03,17,822, WHICH IN FACT WAS ADDED T O INCOME OF THE ASSESSEE OVER AND ABOVE THE ADDITION MADE ON ACCOUNT OF SECR ET PROFIT OF RS.1,24,81,151/- SINCE THE ASSESSING OFFICER HAS SPECIFICALLY WORKED OUT THE SECRET PROFIT AT RS.1,24,81,329/-, THEREFORE, MAKING FURTHER ADDITIO N BY APPLYING A G.P. RATE OF I.T.A. NOS.50&49/COCH/2015 12 10% WILL TANTAMOUNT TO DOUBLE ADDITION AND WILL BE GROSSLY UNJUSTIFIED. THEREFORE, IN THE INTEREST OF JUSTICE, WE RESTRICT THE ESTIMATION OF INCOME TO THE EXTENT OF THE SECRET PROFIT EARNED BY THE ASSESSEE AT RS.1,24,81,329/-. ACCORDINGLY, THE ASSESSEE GETS PART RELIEF. THUS T HE GROUNDS OF THE ASSESSEE ARE PARTLY ALLOWED. THE APPEAL IN THE CASE OF M/S. KONC HERRY COIR FACTORIES IN I.T.A. NO 50/COCH/2015 IS PARTLY ALLOWED. 19. NOW WE SHALL TAKE UP THE APPEAL IN THE CAS E OF IMPERIAL COIR YARN TRADING CO. IN I.T.A. NO. 49/COCH/2015 . THE FACTS IN THE P RESENT CASE ARE IDENTICAL TO THE FACTS IN THE CASE OF THE ASSESSEE IN I.T.A. NO. 50/ COCH/2015 AND OUR ORDER HEREINABOVE IN I.T.A. NO. 49/COCH/2015 SHALL BE IDE NTICALLY APPLICABLE IN THE PRESENT CASE. THEREFORE, THE ASSESSING OFFICER IS D IRECTED TO WORK OUT THE NET PROFIT ON THE UNACCOUNTED SALES FROM WHICH SECRET P ROFIT HAS BEEN EARNED AND RESTRICT THE ESTIMATION OF INCOME TO THE EXTENT OF SECRET PROFIT EARNED BY THE ASSESSEE. THUS THE GROUNDS OF THE ASSESSEE ARE ALL OWED IN PART. ACCORDINGLY, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 20. IN THE RESULT, THE APPEAL IN THE CASE OF M/S . KONCHERRY COIR FACTORIES IN I.T.A. NO. 50/COCH/2015 AND IN THE CASE OF M/S. IMP ERIAL COIR YARN TRADING CO. I.T.A. NOS.50&49/COCH/2015 13 IN I.T.A.NO.49/COCH/2015 ARE PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 12-01-2016. SD/- SD/- (GEORGE GEORGE K.) (B.P. JAIN) JUDICIAL MEMBER ACC OUNTANT MEMBER PLACE: KOCHI DATED: 12TH JANUARY, 2016 GJ COPY TO: 1. M/S. KONCHERRY COIR FACTORIES, MAYITHARA, CHERTH ALA. 2. M/S. IMPERIAL COIR YARN TRADING CO., MAYITHARA C HERTHALA. 3. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1, ALLEPPEY. 4. THE COMMISSIONER OF INCOME-TAX(APPEALS)-V, KOCHI . 5. THE COMMISSIONER OF INCOME-TAX, KOTTAYAM. 6. D.R., I.T.A.T.,COCHIN. 7. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T., COC HIN