ACIT, UDAIPUR V. M/s. G.G. Valves Pvt. Ltd., UDAIPUR

ITA 503/JODH/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1948 (ITAT-JODHPUR)
• Duration Of Justice: 2 year(s) 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-05-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 02-05-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 01-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ALKA R JAIN
• Keywords: Gross profit estimation; Business income; Additional evidence; Bogus loan
• Section: 142(1); 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, JODHPUR BENCH , JODHPUR BEFORE: SMT. DIVA SINGH, JM & SHRI BHAGCHAND, AM ITA NO. 503 /JODH/2014 ASSESSMENT YEARS : 2011-12 ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE - 1, UDAIPUR. VS. M/S G.G. VALVES PVT. LTD., E-262, MEWAR INDUSTRIAL AREA, MADRI, UDAIPUR. PAN NO.: AAACG 7668 K APPELLANT RESPONDENT ITA NO. 381/JODH/2015 ASSESSMENT YEARS : 2012-13 DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1, UDAIPUR. VS. M/S G.G. VALVES PVT. LTD., E-262, MEWAR INDUSTRIAL AREA, MADRI, UDAIPUR. PAN NO.: AAACG 7668 K APPELLANT RESPONDENT REVENUE BY: SMT. ALKA R. JAIN (CIT D.R.) ASSESSEE BY : SHRI AMIT KOTHARI (CA) DATE OF HEARING : 02/05/2017 DATE OF PRONOUNCEMENT : 05/05/2017 ORDER PER: BHAGCHAND, A.M. THESE ARE THE APPEALS FILED BY THE REVENUE EMANATE S FROM THE TWO SEPARATE ORDERS DATED 04/07/2014 AND 16/04/2015 RES PECTIVELY PASSED BY THE LD. CIT(A), UDAIPUR PERTAINING TO THE ASSESSMEN T YEARS 2011-12 & 2012-13, WHEREIN THE REVENUE HAVE TAKEN FOLLOWING G ROUNDS OF APPEAL: GROUNDS OF ITA NO. 503/JODH/2014 1(A) DELETING THE ADDITION OF RS. 1,50,636/- MADE ON ACCOUNT OF LOWER PROFIT RATE WITHOUT APPRECIATING THE DEFECTS RAISED IN ITA 503/JODH/2014 & 381/JODH/2015_ ACIT VS G.G. VALVES PVT. LTD. 2 THE VALUATION OF CLOSING STOCK THAT IN THE CLOSING STOCK MANY VALVES LYING AS IT IS, OUT OF THE OPENING STOCK AND THERE IS NO PRODUCTION OF SUCH VALVES DURING THE YEAR, STILL TH E VALUE OF SAME WERE NOT THE SAME AS THAT OF OPENING STOCK AND THEREBY THE VALUATION OF CLOSING STOCK WAS NOT PROP ER. 1(B) IGNORING THE FACT THAT SPECIFIC DEFECTS IN THE VALUATION OF CLOSING STOCK OF VALVES HAVE BEEN POINTED OUT AND COMMUNICATED TO THE ASSESSEE FOR WHICH THE ASSESSEE FAILED GIVE ANY SATISFACTORY EXPLANATION. 1(C) IGNORING THE FACTS THAT THE PROPOSED GROSS PRO FIT RATE WAS WORKED OUT BY TAKING SPECIFIC CASES OF SALE OF SPEC IFIC VALVES AND THEIR PURCHASE/COST PRICE, WHEREVER AVAILABLE A ND IN REMAINING CASES THE GROSS PROFIT SHOWN BY THE ASSES SEE ITSELF WAS ACCEPTED AND THIS GROSS PROFIT SO WORKED OUT BY THE A.O. WAS COMMUNICATED TO THE ASSESSEE BY WAY OF SHOW CAUSE LETTER, OBVIOUSLY AFTER INFERRING THAT BOOKS OF ACCOUNT ARE REJECTABLE. 1(D) OBSERVING THAT BOOKS OF ACCOUNT HAVE NOT BEEN REJECTED BY THE A.O., WHEREAS IN THE ASSESSMENT ORDER REPEATED AT MANY PLACES SPECIFIC DEFECTS HAVE BEEN POINTED OUT IN TH E BOOKS OF ACCOUNT EG. VALUATION OF VARIOUS TYPES OF VALVES IN CLOSING STOCK ETC. 2(A) DELETING THE ADDITION OF RS. 38,75,000/- MADE BY THE A.O. U/S 68 OF THE IT ACT ON ACCOUNT OF BOGUS UNSECURED LOAN S WITHOUT APPRECIATING THE FACT THAT ASSESSEE FAILED TO PROVE THE IDENTITY, GENUINENESS AND CREDITWORTHINESS OF PERSONS/CONCERNS FROM WHOM SAID UNSECURED LOANS WER E RECEIVED. 2(B) IGNORING THE FACT THAT ASSESSEE ACTION OF TREA TING THESE UNSECURED LOANS AS HIS INCOME DURING A.Y. 2013-14,I TSELF PROVES THAT THESE WERE BOGUS UNSECURED LOANS AND IT WAS AN ADJUSTMENT MADE BY THE ASSESSEE. ITA 503/JODH/2014 & 381/JODH/2015_ ACIT VS G.G. VALVES PVT. LTD. 3 2(C) ADMITTING THE ADDITIONAL EVIDENCE FURNISHED BY THE ASSESSEE DESPITE THE FACT THAT DURING THE ASSESSMENT PROCEED INGS IN SPITE OF AMPLE OPPORTUNITIES PROVIDED TO THE ASSESS EE TO PRODUCE THE CONFIRMATION TO PROVE THE GENUINENESS O F SAID LOANS, HE FAILED TO FURNISH THE SAME BEFORE THE A.O . 3. DELETING THE ADDITION OF RS. 3,47,186/- MADE ON ACCOUNT OF DIFFERENT BETWEEN GROSS TURNOVER AS PER SALES TAX R ETURN AND GROSS TURNOVER AS PER BALANCE SHEET WITHOUT APPRECI ATING THE FACT THAT IN SPITE OF GIVING AMPLE OPPORTUNITIES TO RECONCILE THE SAME, ASSESSEE FAILED TO DO SO. GROUNDS OF ITA NO. 381/JODH/2015 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LD CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 1,48,52,9 72/- MADE ON ACCOUNT OF LOWER PROFIT RATE. 1. WITHOUT APPRECIATING THE DEFECTS RAISED IN THE VALUATION OF CLOSING STOCK THAT IN THE CLOSING STOCK MANY VALVES /VARIOUS ITEMS WERE LYING AS-IT-IS, OUT OF THE OPENING STOCK AND THERE IS NO PRODUCTION OF SUCH VALVES DURING THE YEAR, ST ILL THE VALUE OF SAME WERE NOT THE SAME AS THAT OF OPENING STOCK AND THEREBY THE VALUATION OF CLOSING STOCK WAS NOT PROP ER. 2. BY IGNORING THE FACT THAT SPECIFIC DEFECTS IN TH E VALUATION OF CLOSING STOCK OF VALVES/VARIOUS ITEMS HAVE BEEN POI NTED OUT AND COMMUNICATED TO THE ASSESSEE FOR WHICH THE ASSE SSEE FAILED TO GIVE ANY SATISFACTORY EXPLANATION. 3. BY HOLDING THAT PROVISIONS OF SECTION 145(3) OF THE ACT IS UNJUSTIFIED AS NO MAJOR DEFECT HAVE BEEN POINTED OU T DESPITE OF THE FACTS THAT IN THE ASSESSMENT ORDER REPEATEDL Y AT MANY PLACES SPECIFIC DEFECTS HAVE BEEN POINTED OUT IN TH E BOOKS OF ACCOUNT BY WAY OF INCORRECT VALUATION OF CLOSING ST OCK OF VARIOUS ITEMS INCLUDING MANY VALVES. 2. BOTH THE APPEALS ARE BEING HEARD TOGETHER AND FO R THE SAKE FOR CONVENIENCE AND BREVITY, A COMMON ORDER IS BEING PA SSED. ITA 503/JODH/2014 & 381/JODH/2015_ ACIT VS G.G. VALVES PVT. LTD. 4 3. FIRSTLY WE TAKE ITA NO. 503/JODH/2014 . THE ASSESSEE IS A COMPANY FOLLOWING MERCANTILE SYS TEM OF ACCOUNTING AND ENGAGED IN MANUFACTURING OF METAL AL LOYS VALVES. THE RETURN FOR THE YEAR UNDER CONSIDERATION WAS FILED O N 29/09/2011 DECLARING TOTAL INCOME OF RS. 1,95,85,670/-. THE ASSESSING OF FICER ASSESSED TOTAL INCOME OF THE ASSESSEE AT RS. 3,88,25,490/- AFTER M AKING VARIOUS ADDITIONS. 4. IN THE GROUND NOS. 1(A) TO 1(D) OF THE APPEAL, T HE ISSUE INVOLVED IS AGAINST DELETING THE ADDITION OF 1,50,17,636/- MADE ON ACCOUNT OF LOWER PROFIT RATE. IT IS CLAIMED BY THE LD. AR OF THE ASS ESSEE THAT THIS ADDITION WAS MADE WITHOUT DETECTING ANY DEFECT IN THE VALUAT ION OF THE CLOSING STOCK. THE ASSESSEES GROSS PROFIT FOR THE YEAR UND ER CONSIDERATION WAS 18.54% AS AGAINST 24.83% IN THE IMMEDIATE PRECEDING YEAR. THE REASON FOR DECLINE WAS STATED TO BE THE INCREASING OF COST OF RAW MATERIAL BY ABOUT 25-26% IN COMPARISON TO THE PRECEDING YEAR. T HE SALES PRICES WERE NOT INCREASED CORRESPONDINGLY. IN SOME OF THE PRODU CTS, EVEN THE SALE PRICE DECREASED IN COMPARISON TO THE PRECEDING YEAR . MOREOVER, THE APPELLANTS TURNOVER INCREASED FROM 11.60 CRORES TO RS. 14.25 CRORES IN COMPARISON TO THE PRECEDING YEAR AND DUE TO INCREAS E IN TURNOVER ALSO, THE SELLING PRICES WERE LOWER TO WITHSTAND COMPETIT ION. THE BOOKS OF ACCOUNT OF THE APPELLANT WERE AUDITED BY THE C.A. T HE ASSESSING OFFICER ITA 503/JODH/2014 & 381/JODH/2015_ ACIT VS G.G. VALVES PVT. LTD. 5 HAS NOT FOUND ANY DEFECT IN THE BOOKS OF ACCOUNT AN D IN ABSENCE OF ANY SPECIFIC DEFECT, THE AUDITED BOOKS OF ACCOUNT WERE NOT REJECTED THEN THE ASSESSING OFFICER WAS NOT JUSTIFIED IN CALCULATING THE GROSS PROFIT. 5. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS HAD DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. THE RELEVAN T PARAGRAPH OF THE LD. CIT(A)S ORDER IS REPRODUCED HEREUNDER:- I HAVE CAREFULLY GONE THROUGH THE DETAIL SUBMISSIO NS AND CASE LAWS CITED BY THE LD. AR AND THE REPORT OF THE LD. AO. THE LD. AO HAS OBJECTED THE ADMISSION AND CONSIDERATION OF ADDITIONAL EVIDENCES FILED DURING THE COURSE OF APPELLATE PROCEEDINGS. THE LD. AR IN HIS WRITTEN SUBMISSION MENTION ABOVE HAS STATED AS UNDER:- THE APPELLANT WAS ALSO TRYING TO OBTAIN THE CONFIRM ATIONS FROM THE SAID TWO COMPANIES. VIZ. M/S BOMBAY METAL & ALLOYS MFG. CO. PVT. LTD. AND M/S IRON & METAL TRADERS PVT. LTD., BASED IN MUMBAI. HOWEVER S INCE THESE TWO COMPANIES ARE NOT CARRYING OUT ANY BUSINESS AT PRES ENT, THERE ARE HARDLY ANY EMPLOYEES IN THE COMPANY. SINCE, THE LOAN TRANSACTI ONS WERE VERY OLD I.E. ALMOST 12-15 YEARS OLD, THE SAID COMPANIES HAD TO R ETRIEVE DATA FROM THE COMPUTER BACK UP AND TOOK CONSIDERABLE TIME IN ISSU ING THE CONFIRMATIONS. IT IS NOTICED THAT THE ASSESSEE WAS PREVENTED BY SU FFICIENT CAUSE TO FILE CONFIRMATIONS BEFORE THE LEARNED AO DURING THE COUR SE OF ASSESSMENT PROCEEDINGS AND THE CASE OF THE ASSESSEE FALLS IN T HE EXCEPTIONS PROVIDED IN RULE 46A(1)(B) / 46A (1)(C). THE LD. AR HAS RELIED ON THE FOLLOWING JUDICIAL PRO NOUNCEMENTS: * ITO V. BHAGWANDAS [ITA NO. 383 (CH) OF 2011] ITAT B BENCH, CHANDIGARH * ACIT, CIR 10(1)NEW DELHI V. M/S DENTSPLY INDIA PV T. LTD.[ITA NO. 31/DEL/2011] ITAT DELHI B BENCH * CIT V. SUBHASHNDRA AGARWAL (1988) 172 ITR 166 (AL L.) * SMT. MOHINDER KAUR VS. CENTRAL GOVT. (1976) 104 I TR 120 (ALL.) ITA 503/JODH/2014 & 381/JODH/2015_ ACIT VS G.G. VALVES PVT. LTD. 6 I HAVE CAREFULLY PERUSED THE ASSESSMENT ORDER, THE ABOVE WRITTEN SUBMISSION OF THE APPELLANT AND THE JUDICIAL PRONOUNCEMENTS RE LIED ON BY HIM FOR THE ADMISSION OF ADDITIONAL EVIDENCE. KEEPING INTO CONS IDERATION THE FACTS AND CIRCUMSTANCES OF THE CASE AND SEQUENCE OF EVENTS, I AM OF THE OPINION THAT THE SUBMISSIONS DESERVE TO BE ADMITTED TO RENDER TH E JUSTICE TO THE APPELLANT AS THESE ARE RELEVANT TO DECIDE THE GROUNDS OF THE APPEAL. THE LD. A.O. IN HIS REMAND REPORT AS ALSO GIVEN COMMENTS ON THE MERITS OF THE ADDITION, AS WELL AND THEREFORE, THE GROUNDS OF APPEAL ARE DISCUSSED AND DECIDED ON MERIT. I HAVE CAREFULLY PERUSED THE ASSESSMENT ORDER AND T HE ABOVE WRITTEN SUBMISSION OF THE APPELLANT I FIND FORCE IN THE ARG UMENTS OF THE APPELLANT THAT THE LD. AO IS NOT I JUSTIFIED IN RECALCULATING THE GROSS PROFIT WITHOUT ACTUALLY REJECTING THE BOOKS OF ACCOUNTS U/S 145(3) OF THE ACT. THE LD. AO HAS NOT REJECTED THE APPELLANTS BOOKS OF ACCOUNTS U/S 145(3) OF THE ACT, THAT ITSELF MEANS THAT HE HAS ACCEPTED THE BOOK RESULTS, WHICH WERE DULY AUDITED BY A QUALIFIED CHARTERED ACCOUNTANT. THE LD. AOS P OWERS TO MAKE A BEST JUDGEMENT ASSESSMENT ARE PROVIDED U/S 145(3) OF THE ACT THAT - WHERE THE ASSESSING OFFICER IS NOT SATISFIED ABOU T THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, OR - WHERE THE METHOD OF ACCOUNTING PROVIDED IN SECTIO N 145(1) OR ACCOUNTING STANDARDS AS NOTICED U/S 145(2), HAVE N OT BEEN REGULARLY FOLLOWED BY THE ASSESSEE, THE ASSESSING OFFICER MAY MAKE AN ASSESSMENT IN THE MANNER PROVIDED IN SECTION 144. THE LD. AO ON PAGE NO. 2 OF HIS ORDER HAS MENTIONED AS UNDER:- IN RESPONSE TO THE NOTICES, THE ASSESSEES AUTHOR IZED REPRESENTATIVE SH. R.C. GARG C.A. ATTENDED AND SUBMITTED THE REQUISITE DETAILS, INFORMATION, DOCUMENTS AND CLARIFICATION SOUGHT FOR VIDE NOTICES U/S 143(2) & 142(1) AND AS PER ORDER SHEET ENTRIES. THE AUTHORIZED REPRESENTATIVE OF THE ASSES SEE WAS HEARD AND THE CASE WAS DISCUSSED WITH HIM. THE AR PRODUCED THE BOOKS OF AC COUNT, BILLS/ VOUCHERS IN SUPPORT OF THE RETURN OF INCOME WHICH WERE VERIFIED ON TEST CHECK BASIS. THE ASSESSEE COMPANY IS ENGAGED IN MANUFACTURING OF METAL ALLOYS VALVES. ITA 503/JODH/2014 & 381/JODH/2015_ ACIT VS G.G. VALVES PVT. LTD. 7 I FIND THAT THE LD. AO HAS VERIFIED ON TEST CHECK B ASIS THE BOOKS OF ACCOUNTS PRODUCED BEFORE HIM BUT NOT FOUND ANY FAULT IN THE FIGURES OF PURCHASES, SALES, WAGES AND MANUFACTURING EXPENSES. THE LD. AO HAS NOT RECORDED ANY REASON IN RESPECT OF ANY DEFECTS IN THE BOOKS OF AC COUNTS AND PROCEEDED TO RECALCULATE THE GROSS PROFIT WITHOUT ANY JUSTIFIED BASIS. THE SIMPLE AND ACCEPTED FORMULA FOR WORKING OF GROSS PROFIT IS SAL ES MINUS COST OF GOODS SOLD. WHEN THE LD. AO HAS NOT GIVEN ANY FINDING THAT THE COST OF GOODS SOLD AS SHOWN BY THE APPELLANT IN ITS BOOKS OF ACCOUNTS IS WRONG, HE CANNOT CALCULATE OR RATHER RECALCULATE GROSS PROFIT AS PER HIS SWEET WILL. THE LD. AO SHOULD HAVE PROVED WITH COGENT EVIDENCE THAT THE AP PELLANT HAS SUPPRESSED GROSS PROFIT FIGURES. I FIND THAT THE APPELLANT HAS SATISFACTORILY EXPLAINED THE REASONS FOR LOWER RATE OF GROSS PROFIT AS COMPARED TO THE PRECEDING YEAR. THE APPELLANT HAS ADDUCED EVIDENCES TO SHOW THAT THE CO ST OF RAW MATERIALS INCREASED BETWEEN 20% TO 56% WHEREAS THE SELLING RA TES IN SOME PRODUCTS REDUCED IN COMPARISON TO PRECEDING YEAR. THE APPELL ANT ALSO FURNISHED A CHART SHOWING LOWER REALIZATION OF INDIAN CURRENCY AGAINST EXPORTS AS COMPARED TO THE PRECEDING YEAR. MOREOVER, IT IS EVI DENT FROM THE AUDITED ACCOUNTS THAT THE WAGES AND MANUFACTURING EXPENSES ALSO INCREASED DURING THE CURRENT YEAR. ALL THESE FACTORS COMBINED RESULT ED IN LOWER RATE OF GROSS PROFIT DURING THE CURRENT YEAR. DUE TO INCREASES IN THE COST OF RAW MATERIALS, WAGES AND MANUFACTURING EXPENSES, THE COST OF PRODU CTION HAS GONE UP, WHICH IS ALSO REFLECTED IN THE CLOSING STOCK OF FIN ISHED GOODS AND WIP AS THE SAME HAVE SIMULTANEOUSLY INCREASED BY ABOUT 33-34%. SINCE, THE APPELLANT HAS SHOWN HIGHER VALUE OF CLOSING STOCK OF FINISHED GOODS AND WIP, IT CANNOT BE SAID THAT THE APPELLANT HAS UNDERVALUED ITS CLOS ING STOCK. I FURTHER FIND FORCE IN THE ARGUMENT OF THE LD. AR OF THE APPELLAN T THAT THERE IS NO DISPUTE ABOUT THE QUANTITIES OF CLOSING STOCK. HOWEVER, THE CLOSING STOCK IS ALWAYS VALUED AT COST OR MARKET VALUE, WHICHEVER IS LOWER AS PER THE ACCOUNTING POLICY OF THE APPELLANT. AS THE COST IS LOWER THAN THE MARKET VALUE, THE ITA 503/JODH/2014 & 381/JODH/2015_ ACIT VS G.G. VALVES PVT. LTD. 8 APPELLANT HAS RIGHTLY VALUED THE CLOSING STOCK AT C OST. I ALSO FIND THAT THE ASSESSEE IS DULY REGISTERED UNDER CENTRAL EXCISE AC T AND WAS MAINTAINING PROPER QUANTITATIVE DETAILS IN THE PRESCRIBED MANNE R. I FIND THAT THE ASSESSEE HAS SUBMITTED COMPLETE DET AILS INCLUDING QUANTITIES DETAILS OF OPENING STOCK, PRODUCTION, SALES AND CLO SING STOCK OF RAW MATERIALS, WIP AND FINISHED GOODS. THE ACCOUNTS OF THE ASSESSE E WERE DULY AUDITED U/S 44AB OF THE INCOME TAX ACT, 1961 AND THE ASSESSEE H AS FURNISHED COMPLETE DETAILS OF STOCK AS REQUIRED BY THE STATUTE. THERE IS NO FINDING THAT THE ACTUAL COST OF RAW MATERIAL PURCHASED BY THE ASSESSEE WAS LESS THAN WHAT WAS DECLARED IN ACCOUNT BOOKS. THERE IS NO FINDING THAT ACTUAL COST OF WAGES AND MANUFACTURING EXPENSES WAS LESS THAN WHAT WAS DECLA RED IN ACCOUNT BOOKS. NO PARTICULAR EXPENDITURE SHOWN IN THE BOOKS OF ACC OUNTS HAS BEEN DISALLOWED BY THE LD. AO. THERE IS NO FINDING BY TH E LD. AO THAT ACTUAL QUANTITY OF FINISHED GOODS PRODUCED BY THE ASSESSEE WAS MORE THAN WHAT IT WAS SHOWN IN THE BOOKS OF ACCOUNTS. THERE IS NO FIN DING BY THE LD. AO THAT FINISHED PRODUCT WAS SOLD BY THE ASSESSEE AT A PRIC E HIGHER THAN WHAT WAS DECLARED IN ACCOUNTS BOOKS. IT IS A WELL SETTLED LA W THAT THE ASSESSMENT CANNOT BE MADE ON THE BASIS OF PRESUMPTION, SUSPICI ON OR SURMISES. THIS PRINCIPLE IS REFLECTED IN THE FOLLOWING JUDICIAL PR ONOUNCEMENTS: UMACHARAN SHAW & BROS V. CIT (37ITR 271) (SC) DHAKESHWARI COTTON MILLS V. CIT (26 ITR 775) (SC) SHEONARAIN DULICHAND V. CIT (72 ITR 766) (ALL.) THE APPELLANTS CASE IS COVERED BY THE ABOVE MENTIO NED JUDGEMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. SMT. POONAM RANI CIT [ITA NO. 406 I 2009] DELHI HIGH COURT. IN THE SAID CASE, TH E DECISION WAS IN FAVOUR OF THE ASSESSEE RIGHT THROUGH CIT(A) TO HIGH COURT. TH E FACTS OF THE SAID CASE ARE SIMILAR TO THE PRESENT ASSESSEES CASE AS IN THAT C ASE ALSO THE GP RATIO WAS LOWER AT 1.4% AS COMPARED TO THE PRECEDING YEARS G P RATIO OF 5.91%. ITA 503/JODH/2014 & 381/JODH/2015_ ACIT VS G.G. VALVES PVT. LTD. 9 IN THE CASE OF ITO V. GOBIND STEEL ROLLING MILLS (1 991) [ 54 TAXMAN 72] (CHANDIGARH), THE QUESTION AROSE WHETHER IN ABSENCE OF ANY SPECIF IC PURCHASE OR SALE ESTABLISHED WHICH WAS NOT ACCOUNTED FOR, ADDITION MADE BY ASSES SING OFFICER WAS MERELY BASED ON SURMISES OR CONJECTURES AND THUS LIABLE TO BE DE LETED- HELD YES. IN THE CASE OF THE ACIT, CIR-II VS. M/S S.E. ENTERP RISES PVT. LTD. (ITA NO. 485/(2010) LUCKNOW), IT WAS OBSERVED BY THE HON'BLE CIT(A) AND HON'BLE ITAT THAT A.O. HAS NOT ESTABLISHED THAT THERE IS ANY SUPPRESSION OF SALES OR UNDERVALUATION OF CLOSING STOCK. THERE IS NO DISPUTE THAT VALUATION OF CLOSING STOCK WAS DONE AT THE END OF FINANCIAL YEAR ON THE BASIS OF PHYSICAL VERIFICATION CARRIED OUT BY THE DIRECTOR AND EMPLOYEES. THE A.O. HAS NOT GIVEN ANY ADVERSE COMMENTS REGARDI NG METHOD OF ACCOUNTING REGULARLY FOLLOWED BY THE ASSESSEE. IN FACT THERE W AS NO CHANGE IN THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE TO ASCERTAIN PH YSICAL QUANTITY OF CLOSING STOCK AND WORKING OF VALUE OF IT. THE A.O. HAS NOT POINTE D OUT ANY INSTANCE OF DETECTING ANY DEFECT IN THE BOOKS OF ACCOUNT MAINTAINED BY TH E ASSESSEE. IT WAS HELD THAT ADDITION WAS MADE WITHOUT ANY FACTUAL BASIS AND ACC ORDINGLY SAME IS NOT SUSTAINABLE. IN THE CASE OF GARG INDIA PVT. LTD. V. ITO (1983) 1 6 TTJ (ALLAHABAD), THE QUESTION AROSE WHERE ACCOUNTS OF THE ASSESSEE WERE FOUND TO BE NOT DETECTIVE, NO ADDITION COULD BE MADE TO THE TRADING RESULTS AS DECLARED BY THE ASSESSEE AS NO CONSUMPTION OR PRODUCTION OUTSIDE THE RECORDS WAS ESTABLISHED. HELD - YES. I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT AS WELL AS THE FINDINGS OF THE LD. AO. KEEPING INTO CONSIDERATION THE VARIOUS CASE LAWS OF THE HIGHER APPELLATE AUTHORITIES AND THE HONBLE COURTS I INCL INE TO AGREE WITH THE CONTENTION OF THE APPELLANT THAT THE LD. AO COULD N OT HAVE INCREASED THE GROSS PROFIT RATIO BECAUSE IT WAS LOW AS COMPARED T O THE GROSS PROFIT RATIO OF THE PRECEDING YEAR WITHOUT REJECTION OF BOOKS U/S 1 45(3) OF THE ACT. AFTER TAKING INTO ACCOUNT THE SUBMISSION OF THE APPELLANT , FINDING OF THE LD. AO, THE POSITION OF THE BOOK RESULTS DULY AUDITED BY A QUAL IFIED CHARTERED ACCOUNTANT AND POSITION OF LAW EMERGING OUT OF THE ABOVE REFER RED JUDGEMENTS, I AM OF THE CONSIDERED OPINION THAT THE ADDITION WAS MADE W ITHOUT ANY FACTUAL BASIS AND ON THE BASIS OF SUSPICION, CONJECTURES AND SURM ISES. ACCORDINGLY THE SAME IS NOT SUSTAINABLE AND THE ADDITION OF RS. 1,50,17, 636/- MADE ON ACCOUNT OF LOWER GROSS PROFIT IS DELETED. THE GROUNDS OF APPEA L ARE ALLOWED. ITA 503/JODH/2014 & 381/JODH/2015_ ACIT VS G.G. VALVES PVT. LTD. 10 6. NOW THE REVENUE IS IN APPEAL BEFORE US. THE LD. CIT D.R. HAS RELIED ON THE ORDER OF THE ASSESSING OFFICER. AT THE OUTSE T OF HEARING, THE LD AR OF THE ASSESSEE HAS RELIED ON THE ORDER OF THE LD. CIT(A) AND PLEADED THAT THE LD. CIT(A) HAS CONSIDERED ALL THE RELEVANT ISSU ES. 7. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES, PERUSED THE MATERIAL AVAILABLE ON THE RECORD AND ALSO GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES. THE ASSESSING OFFICER ADOPT ED A METHOD, WHICH IS NOT IN ACCORDANCE WITH THE ACCOUNTING STANDARD. FUR THER, NONE OF THE ITEMS IN THE CLOSING STOCK WAS FOUND TO BE VALUED A T THE LOWER RATE THAN THE OPENING STOCK RATE AND THE LD. CIT(A) HAS RECOR DED THAT MOST OF THE ITEMS WERE VALUED AT HIGHER RATE. THE ASSESSEE HAS PROVIDED CLOSING STOCK VALUE/RATE OF EACH ITEM, WHICH IS HIGHER THAN THE O PENING STOCK VALUE/RATE OF CORRESPONDING ITEM. FURTHER, IF DEPB SALES AMOUN TING TO RS. 25,90,518/- AND FOREIGN EXCHANGE GAINS OF RS. 10,21 ,906/- IS ADDED TO THE GROSS PROFIT THEN THE RATIO COMES TO 21.08% FOR THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICERS ALLEGATION T HAT THE ASSESSEE HAS UNDERVALUED THE CLOSING STOCK BY RS. 64,93,830/- IS NOT FACTUALLY ESTABLISHED. THE ASSESSING OFFICER APPLIED AVERAGE BASIS ONLY ON THE CLOSING STOCK TO ENHANCE ITS VALUE BUT HE HAS NOT A DOPTED THE SAME FOR THE OPENING STOCK. THUS, IT IS NOT CORRECT AND CONS ISTENT IN VALUING IN ITA 503/JODH/2014 & 381/JODH/2015_ ACIT VS G.G. VALVES PVT. LTD. 11 OPENING AND CLOSING STOCK. THE ASSESSEE HAS ADOPTED THE SAME METHOD OF INVENTORY SINCE LAST 15 YEARS. THE NET SALES FOR THE YEAR UNDER APPEAL ARE HIGHER THAN THE PRECEDING YEAR. CONSIDERING ALL THESE ASPECTS, THE LD. CIT(A) HAS GRANTED RELIEF TO THE ASSESSEE AND THE F ACTUAL ASPECT RECORDED BY THE LD. CIT(A) WAS NOT CONTROVERTED BY THE REVEN UE. CONSIDERING ALL THESE FACTS, WE DO NOT FIND ANY INFIRMITY IN THE OR DER OF THE LD. CIT(A), THEREFORE, WE UPHOLD THE ORDER THE SAME ON THIS ISS UE. ACCORDINGLY, THIS GROUND OF REVENUES APPEAL IS DISMISSED. 8. IN THE GROUND NO. 2(A) TO 2(C) OF THE APPEAL, TH E ISSUE INVOLVED IS AGAINST DELETING THE ADDITION OF RS. 38,75,000/- MA DE BY THE ASSESSING OFFICER U/S 68 OF THE ACT. BRIEF FACTS OF THE ISSUE ARE THAT ASSESSING OFFICER HIMSELF HAS RECORDED THAT THIS IS THE AMOUNT OF UNS ECURED LOANS WAS RECEIVED FROM OTHER COMPANIES IN F.Y. 1997-98 AND 1 998-99. THE ASSESSING OFFICER HAS MADE ADDITION BY INVOKING THE PROVISIONS OF SECTION 68 OF THE ACT. THESE AMOUNTS HAD BEEN WRITTEN BACK AS PER PROVISIONS OF SECTION 41(1) OF THE ACT IN THE ASSESSMENT YEAR 201 3-14 AND THE TAXES HAVE BEEN PAID. 9. THE LD. CIT(A) HAS DELETED THE ADDITION BY HOLDI NG AS UNDER:- I HAVE CAREFULLY CONSIDERED THE OBSERVATIONS OF TH E LD. AO IN THE ASSESSMENT ORDER AND THE ABOVE WRITTEN SUBMISSION OF THE APPEL LANT. SINCE CERTAIN DOCUMENTS VIZ. CONFIRMATIONS FROM THE SAID TWO COMP ANIES, THEIR AUDITED ITA 503/JODH/2014 & 381/JODH/2015_ ACIT VS G.G. VALVES PVT. LTD. 12 BALANCE SHEET, IT ACKNOWLEDGEMENTS, COPIES OF ASSES SMENT ORDERS WERE NOT SUBMITTED BEFORE THE LD. AO, THE SAME WERE FORWARDE D TO LD. AO FOR HIS COMMENTS ON THE SAME. THE LD. AO IN HIS REMAND REPL Y HAS STATED AS UNDER: THAT THE ADDITIONAL EVIDENCE UNDER RULE 46A SHALL NOT BE ADMITTED. THE AO FURTHER ELABORATED THE OPPORTUNITIES GIVEN TO THE A SSESSEE TO PRODUCE THE CONFIRMATIONS TO PROVE THE GENUINENESS OF THE SAID TWO LOANS. THE A.O. FURTHER STATES THAT THE ASSESSEES CASE WAS EARLIER SCRUTINIZED IN A.Y. 2005-06. SINCE, THERE WAS NO SCRUTINY BETWEEN A.Y. 1105-06 T O 2011-12, THE GENUINENESS OF THESE UNSECURED LOANS COULD NOT BE Q UESTIONED. THE AO FURTHER STATES THAT SINCE THESE UNSECURED LOANS HAV E BEEN WRITTEN BY THE SAID TWO COMPANIES IN EARLIER YEARS I.E. FY 2003-04 AND 2006-07 AND THEREFORE, THESE CREDIT ENTRIES CANNOT BE CONSIDERED TO BE GEN UINE IN THE YEAR UNDER CONSIDERATION. IN REPLY TO THE REMAND REPORT THE APPELLANT SUBMITT ED AS UNDER: THAT THE LD. AO HAS SIMPLY OBJECTED TO THE ADMISS ION OF ADDITIONAL EVIDENCE UNDER RULE 46A OF THE I. T. RULES 1962 ON THE GROUN D THAT SUFFICIENT AND AMPLE OPPORTUNITY WAS PROVIDED TO THE ASSESSEE DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS TO SUBMIT THE DETAILS / CLAR IFICATIONS AND EVIDENCES. IT IS FURTHER STATED IN THE REMAND REPORT THAT VIDE OR DER SHEET ENTRY DATED 17.09.2013, THE ASSESSEE WAS ASKED TO SUBMIT THE LO AN CONFIRMATIONS FROM THE SAID TWO PARTIES VIZ. M/S BOMBAY METAL & ALLOYS MFG. CO. PVT. LTD. AND M/S IRON & METAL TRADERS PVT. LTD. IN THIS REGARD, THE APPELLANT HUMBLY SUBMITS THAT I T SUBMITTED BEFORE AO, THE WHATEVER DETAILS AVAILABLE WITH IT VIZ. A COMPLETE CHART SHOWING DETAILS OF CHEQUES RECEIVED AND CHEQUES ISSUED, COPY OF THE TD S CERTIFICATE FOR TDS DEDUCTED ON INTEREST FOR A.Y. 1998- 99. THESE DETAI LS APPEARING ON PAGE NO. ITA 503/JODH/2014 & 381/JODH/2015_ ACIT VS G.G. VALVES PVT. LTD. 13 206 TO 211 OF THE APPEAL PAPER BOOK - III WERE SUBM ITTED BEFORE THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE APPELLANT WAS ALSO TRYING TO OBTAIN THE CONFIRM ATIONS FROM THE SAID TWO COMPANIES. VIZ. M/S BOMBAY METAL & ALLOYS MFG. CO. PVT. LTD. AND M/S IRON & METAL TRADERS PVT. LTD., BASED IN MUMBAI. HOWEVER S INCE THESE TWO COMPANIES ARE NOT CARRYING OUT ANY BUSINESS AT PRES ENT, THERE ARE HARDLY ANY EMPLOYEES IN THE COMPANY. SINCE, THE LOAN TRANSACTI ONS WERE VERY OLD I.E. ALMOST 12-15 YEARS OLD, THE SAID COMPANIES HAD TO R ETRIEVE DATA FROM THE COMPUTER BACK UP AND TOOK CONSIDERABLE TIME IN ISSU ING THE CONFIRMATIONS. THUS IT IS CLEAR THAT THE ASSESSEE WAS PREVENTED BY SUFFICIENT CAUSE TO FILE CONFIRMATIONS BEFORE THE LEARNED AO DURING THE COUR SE, OF ASSESSMENT PROCEEDINGS AND THE CASE OF THE ASSESSEE FALLS IN T HE EXCEPTIONS PROVIDED IN RULE 46A(1)(B)/46A (1)(C). USEFUL REFERENCE IS MADE TO THE FOLLOWING JUDGEMENT S : ITO V. BHAGWANDAS [ITA NO. 383 (CH) OF 2011] ITAT B BENCH, CHANDIGARH ACIT, CIR 10(1)NEW DELHI V. M/S DENTSPLY INDIA PVT. LTD.[ ITA NO. 31/DEL/2011] ITAT DELHI B BENCH CIT V. SUBHASHNDRA AGARWAL (1988) 172 ITR 166 (ALL. ) SMT. MOHINDER KAUR VS. CENTRAL GOVT. (1976) 104 ITR 120 (ALL.) IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND POSITION OF THE LAW EMERGING OUT OF THE ABOVE REFERRED JUDGEMENTS, WE P RAY BEFORE YOUR HONOUR TO KINDLY CONSIDER THE EVIDENCES PLACED BEFORE YOUR HONOUR WHILE DECIDING THE APPEAL OF THE ASSESSEE. AFTER GOING THROUGH THE REPLY OF THE LD. AO AND THE ABOVE WRITTEN SUBMISSION OF THE LD. AR AND DOCUMENTARY EVIDENCES PRODUCED BE FORE ME, I FIND THAT THESE LOANS WERE NOT BOGUS LOANS AS HAS BEEN HELD B Y THE LD. AO. THE DOCUMENTS SUBMITTED CLEARLY ESTABLISH THE IDENTITY AND CREDITWORTHINESS OF THE SAID TWO PARTIES. THE LOAN TRANSACTIONS ARE THR OUGH BANKING CHANNELS AND ITA 503/JODH/2014 & 381/JODH/2015_ ACIT VS G.G. VALVES PVT. LTD. 14 THROUGH ACCOUNT PAYEE CHEQUES, EVEN THE GENUINENESS OF THE SAID LOANS IS PROVED. THE ASSESSEE COMPANY HAS SUO MOTO OFFERED T HE SAID LOANS AS INCOME IN A.Y. 2013-14 AND PAID THE TAX THEREON AS EVIDENT FROM THE AUDITED BALANCE SHEET AS ON 31.03.2013 FILED BEFORE THE LD. AO AS W ELL DURING THE COURSE OF APPELLATE PROCEEDINGS. I AM INCLINED TO AGREE WITH THE CONTENTION/ SUBMISSION OF THE LD. AR OF THE APPELLANT THAT SAME INCOME CANNOT BE TAXED TWICE. THE APPELLANT COMPANY HAS ALREADY OFFERED TH E SAID LOANS AS INCOME IN AY 2013-14, THE ADDITION OF THE SAME TO THE INCOME OF A.Y. 2011-12 IS UNJUSTIFIED. I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT AS WELL AS THE FINDINGS OF THE LD. AO. KEEPING INTO CONSIDERATION THE VARIOUS CASE LAWS OF THE HIGHER APPELLATE AUTHORITIES AND THE HONBLE COURTS I INCL INE TO AGREE WITH THE CONTENTION OF THE APPELLANT THAT THE LD. AO IS NOT JUSTIFIED IN MAKING THE ADDITION U/S 68 OF THE ACT. ACCORDINGLY, ADDITION O F RS. 38,75,000/- U/S 68 OF THE ACT IS DELETED. HENCE, THIS GROUND OF APPEAL IS ALLOWED 10. THE LD. CIT D.R. HAS VEHEMENTLY SUPPORTED THE O RDER OF THE ASSESSING OFFICER. ON THE CONTRARY, THE LD AR OF TH E ASSESSEE HAS REITERATED THE ARGUMENTS AS MADE BEFORE THE LD. CIT (A) AND PRAYED TO UPHOLD THE ORDER. 11. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES, PERUSED THE MATERIAL AVAILABLE ON THE RECORD AND ALSO GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES. IT IS UNDISPUTED FACT THAT T HESE CREDITS WERE RECEIVED DURING F.Y. 1997-98 AND 1998-99. THE ASSES SING OFFICER HAS MADE ADDITION BY INVOKING THE PROVISIONS OF SECTION 68 OF THE ACT IN THE YEAR UNDER CONSIDERATION. THESE AMOUNTS WERE OPENIN G BALANCE AT THE ITA 503/JODH/2014 & 381/JODH/2015_ ACIT VS G.G. VALVES PVT. LTD. 15 FIRST DAY OF F.Y. UNDER CONSIDERATION, HENCE PROVIS ION OF SECTION 68 OF THE ACT ARE NOT ATTRACTED. AT THE MOST, ADDITION COULD HAVE BEEN MADE BY INVOKING THE PROVISIONS OF SECTION 41(1) OF THE ACT . THE ASSESSEE ITSELF HAS WRITTEN BACK THESE LOANS AMOUNTS AND PAID TAXES FOR THE ASSESSMENT YEAR 2013-14. CONSIDERING ALL THESE FACTS, WE DO NO T FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A), THEREFORE, WE UPHOLD T HE ORDER THE SAME ON THIS ISSUE. ACCORDINGLY, THIS GROUND OF REVENUES A PPEAL IS DISMISSED. 12. IN THE GROUND NO. 3 OF THE APPEAL, THE ISSUE IN VOLVED IS AGAINST DELETING THE ADDITION OF RS. 3,47,186/- MADE ON ACC OUNT OF DIFFERENENCE BETWEEN GROSS TURNOVER AS PER SALES TAX RETURN AND GROSS TURNOVER AS PER BALANCE SHEET. THE LD. CIT(A) HAS DELETED THE ADDIT ION MADE BY THE ASSESSING OFFICER BY HOLDING AS UNDER:- THE A.O. MADE THE THIRD ADDITION OF RS. 3,47,186/- TO THE TOTAL INCOME OF THE APPELLANT. THE A.O. ALLEGED THAT THE GROSS SALES TU RNOVER AS PER PROFIT & LOSS A/C DIFFERED FROM THE GROSS SALES TURNOVER SHOWN UN DER THE VAT RETURNS. THE APPELLANT HAD SUBMITTED A RECONCILIATION STATEMENT OF VAT RETURNS WITH THE SALES FIGURE OF THE P & L A/C. IN THE ASSESSMENT OR DER, THE A.O. HAS STATED THAT THE TOTAL SALES TURNOVER IN FORM VAT-10 IS RS. 15,7 1,05,509/- (3,06,64,850+3,71,24,186+4,25,41,183+4,67,75,290). BUT IN FACT, THE SALES OF THE FOURTH QUARTER IS RS. 4,64,28,104/- AS PER FORM CST-1 WHEREAS THE A.O. HAS TAKEN A FIGURE OF RS. 4,67,75,290/- AS THE SALE S OF THE FOURTH QUARTER AND THEREBY THE DIFFERENCE OF RS. 3,47,186/- HAS ARISEN , WHICH THE A.O. HAS ADDED TO THE TOTAL INCOME OF THE APPELLANT. ITA 503/JODH/2014 & 381/JODH/2015_ ACIT VS G.G. VALVES PVT. LTD. 16 THIS ADDITION HAS BEEN MADE PURELY BECAUSE OF THE W RONG FIGURE OF TURNOVER FOR THE FOURTH QUARTER TAKEN BY THE LEARNED A.O. SI NCE, THE MISTAKE COMMITTED BY THE LEARNED A.O. IS APPARENT FROM THE FORM CST-1 OF THE FOURTH QUARTER, THE ADDITION MAY KINDLY BE DELETED AS IT I S INCORRECT. DURING THE COURSE OF HEARING THE APPELLANT FURTHER SUBMITTED C OPY OF THE CST-1 FORM FOR THE 4 TH QUARTER, WHICH SHOWS THE GROSS SALES TURNOVER FOR THE 4 LH QUARTER AT RS. 4,64,28,104/-. THE APPELLANT SUBMITS THAT THE CORRE CT GROSS SALES TURNOVER FOR THE 4 TH QUARTER WAS RS. 4,64,28,104 BUT THERE WAS A MISTAK E WHILE PREPARING THE VAT-10 RETURN OF 4 TH QUARTER IN WHICH THE SALES WITHIN STATE OF RS. 3,47,186/- HAS BEEN ADDED TWICE. THE AR ALSO EXPLAI NED THAT THE CST-1 FORM FILED FOR THE 4 TH QUARTER GIVES THE CORRECT FIGURE OF GROSS SALES TU RNOVER OF RS. 4,64,28,104/-. I HAVE CAREFULLY CONSIDERED THE OBSERVATIONS OF THE LD. AO IN THE ASSESSMENT ORDER AND THE ABOVE WRITTEN SUBMISSION OF THE APPEL LANT. THE LD. AR HAS FILED COPIES OF ASSESSMENT ORDER REVEIVED FROM RAJASTHAN SALE TAX DEPARTMENT WHICH PROVES THAT SALES TURNOVER FIGURE APPEARING I N THE AUDITED P & L ACCOUNT IS CORRECT. I FIND THAT THIS IS A CLERICAL MISTAKE WHILE PREPARING THE VAT-10 RETURN OF 4 TH QUARTER. THE MISTAKE IS APPARENT FROM RECORD AND T HE LD. AO SHOULD NOT HAVE TAKEN ADVERSE VIEW OF THE MATTER . I, THEREFORE, DELETE THE SAID ADDITION OF RS. 3,47,186/-. ACCORDINGLY, THIS GROUND IS ALLOWED. 13. THE LD. CIT D.R. HAS RELIED ON THE ORDER OF THE ASSESSING OFFICER. ON THE CONTRARY, THE LD AR OF THE ASSESSEE HAS VEHE MENTLY SUPPORTED THE ORDER OF THE LD. CIT(A). 14. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE. THE LD D.R. WAS NOT ABLE TO CONTROVERT THE FINDING RECORDED BY THE LD. CIT(A) WITH REGARD TO CLERICAL MISTAKE WHILE PREPARING THE VAT-10 RETURN OF 4 TH QUARTER AND THE MISTAKE WAS APPARENT FROM THE RECORD. THE TURNOVER DECLARED IN THE P&L ITA 503/JODH/2014 & 381/JODH/2015_ ACIT VS G.G. VALVES PVT. LTD. 17 ACCOUNT WAS CORRECT. THEREFORE, WE CONCUR WITH THE FINDING OF THE LD. CIT(A) ON THIS ISSUE AND THE SAME IS HEREBY UPHOLD. ACCORDINGLY, THIS GROUND OF THE REVENUES APPEAL IS DISMISSED. 15. ITA NO. 381/JODH/2015 . IN THIS APPEAL, THE ONLY ISSUE INVOLVED IS AGAINST DELETING THE ADDITION OF RS. 1,48,52,972/- MADE ON ACCOUNT OF LO WER PROFIT RATE. THIS ISSUE HAS ALREADY BEEN DECIDED BY US WHILE DECIDING GROUND NO. 1(A) TO 1(D) OF ITA NO. 503/JODH/2014 WHEREIN WE HAVE SUSTA INED THE ORDER OF THE LD. CIT(A). FOR THIS YEAR, THE LD. CIT(A) HAS G RANTED RELIEF TO THE ASSESSEE BY HOLDING AS UNDER:- 2.4 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPEL LANT VIS-A-VIS THE FINDINGS OF THE A.O. GIVEN IN THE ASSESSMENT ORDER ALONGWITH TH E MATERIALS/EVIDENCES BROUGHT ON RECORDS. FROM THE ASSESSMENT ORDER IT IS SEEN THAT EVIDENTLY, THE A.O. HAS NOT BROUGHT ANY MATERIALS ON RECORD TO SUG GEST THAT THE BOOKS OF ACCOUNT REGULARLY MAINTAINED BY THE APPELLANT SUFFE RS MAJOR DEFECTS DUE TO WHICH THE ACTUAL PROFITS EARNED BY THE APPELLANT CA NNOT BE ADDUCED. IT IS NOT A CASE OF THE A.O. THAT THE APPELLANT HAS INDUL GED IN TRANSACTIONS OUT OF BOOKS OF ACCOUNTS. IT IS ALSO NOT A CASE OF THE A.O . THAT THE EXPENSES DEBITED CLAIMED UNDER VARIOUS HEADS ARE NOT SUPPORTED BY PR OPER VOUCHERS AND SUCH EXPENSES WERE INFLATED WITH THE MAIN INTENTION TO REDUCE THE TAX LIABILITY IN THE HANDS OF THE APPELLANT COMPANY. AS PER THE ASSESSMENT ORDER, THE A.O. HAS INVOKED THE PROVISIONS OF SECTION 145(3) OF THE ACT ON THE GROUND THAT EITHER THE AS SESSEE COMPANY UNDERVALUED ITS CLOSING STOCK OR OVERSTATEMENT OF E XPENSES. IN MY VIEW, THIS CANNOT BE SUSTAINED BECAUSE BEFORE REJECTING/I NVOKING THE PROVISIONS OF ITA 503/JODH/2014 & 381/JODH/2015_ ACIT VS G.G. VALVES PVT. LTD. 18 SECTION 145(3) OF THE ACT, THE A.O. SHOULD HAVE SAT ISFIED THAT THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE SUFFERED FROM V ARIOUS MAJOR DEFECTS AND HE SHOULD HAVE POINTED OUT SUCH DEFECTS DUE TO WHICH THE ACTUAL INCOME EARNED BY THE ASSESSEE CANNOT BE ADDUCED AND THE LAW DOES NOT PERMIT THE REJECTION ON DOUBTFUL PRESUMPTION/ASSUMP TION USING EITHER THIS OR THAT. AS REGARDS THE DOUBTFUL UNDER VALUATION O F CLOSING STOCK, IT MAY BE MENTIONED HERE THAT THE APPELLANT COMPANY HAS VALUE D THE CLOSING STOCK AS PER THE VALUATION METHOD CONSISTENTLY FOLLOWED BY I T SINCE THE BEGINNING OF THE BUSINESS AND THIS HAS NOT BEEN DISPUTED BY THE A.O. ANYWHERE IN THE ASSESSMENT ORDER. FURTHER, AS PER THE SUBMISSIONS A ND EVIDENCES PLACED BY THE APPELLANT COMPANY, THE APPELLANT HAS VALUED ITS CLOSING STOCK AT A HIGHER RATE THAN THE VALUATION OF OPENING STOCK. FU RTHER, THE A.O. HAS NOT MADE ANY FINDING ABOUT THE RATE AT WHICH THE APPELL ANT SHOULD HAVE MADE THE VALUATION OF ITS CLOSING STOCK. IN MY VIEW, IF THE A.O. WAS NOT SATISFIED WITH THE RATE AT WHICH THE VALUATION OF CLOSING WAS MADE BY THE APPELLANT, THEN HE SHOULD HAVE WORKED THE RATE AT WHICH THE CL OSING STOCK SHOULD HAVE BEEN VALUED. ADMITTEDLY, HE HAS NOT GIVEN ANY SUCH RATE THE A.O. WAS NOT SURE AS TO WHETHER THERE WAS ANY UNDER VALUATION. M OREOVER, THE ONLY UNDER VALUATION OF CLOSING STOCK CANNOT BE MADE A B ASIS FOR REJECTION OF DULY REGULARLY MAINTAINED AND AUDITED BOOKS OF ACCOUNTS. THE A.O. WAS ALSO NOT SURE AS TO WHETHER THERE WAS ANY INFLATION OF EXPEN SES DEBITED IN THE PROFIT & LOSS ACCOUNT DUE TO WHICH THE INCOME DECLARED BY THE APPELLANT COMPANY IS ON THE LOWER SIDE. AS REGARDS THE LOW GROSS PROFIT 19.85% REFERRED TO BY THE A.O. IN THE ASSESSMENT ORDER IT MAY BE MENTIONED HERE THAT DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS ITSELF, THE APPELLANT COMPAN Y HAS BROUGHT TO THE NOTICE OF THE A.O. THAT ACTUALLY THE GROSS PROFIT D ECLARED DURING THE YEAR IS BETTER THAN THAT OF THE IMMEDIATELY PRECEDING YEAR BECAUSE, IN THE AUDIT REPORT, THE AUDITOR HAS WRONGLY TAKEN THE PAYMENT F OR EMPLOYEES IN THE ITA 503/JODH/2014 & 381/JODH/2015_ ACIT VS G.G. VALVES PVT. LTD. 19 MANUFACTURING ACCOUNT WHEREAS THE SAME SHOULD HAVE CONSIDERED IN THE ADMINISTRATIVE EXPENSES. THE APPELLANT HAS RECTIFIE D THIS MISTAKE AND FILED RECONCILED STATEMENT BEFORE THE A.O. ACCORDING TO W HICH, THE GROSS PROFIT DECLARED BY THE APPELLANT COMPANY COMES TO 23.63% W HICH IS HIGHER THAN THE GROSS PROFIT DECLARED IN THE IMMEDIATELY PRECED ING YEAR. IT IS ALSO A CASE OF THE A.O. THAT THE RECONCILIATION STATEMENT FILED BY THE APPELLANT DURING THE ASSESSMENT PROCEEDINGS WAS NOT ACCEPTABLE AS IT WAS ONLY AN ATTEMPT TO COVER UP THE LOW GROSS PROFIT RATE DECLARED DURI NG THE YEAR UNDER APPEAL. AS REGARDS THE FINDINGS OF THE A.O. THAT THE DECIS ION OF THE LD. CIT (A) IN THE CASE OF THE APPELLANT COMPANY FOR THE ASSESSMENT YE AR 2011-12 WHERE TRADING ADDITION MADE OF RS.1,50,17,636/- BY APPLIC ATION OF HIGHER RATE OF GROSS PROFIT OF 30% WAS DELETED AS IN THE SAID YEAR , THE A.O. DID NOT REJECT THE BOOKS OF ACCOUNT U/S. 145(3) OF THE ACT, IT MAY BE MENTIONED HERE THAT THOUGH THERE WAS NO SPECIFIC MENTION ABOUT INVOCATI ON OF PROVISIONS OF SECTION 145(3) OF THE ACT, BUT APPARENTLY, THE A.O. HAD MADE THE TRADING ADDITION ON SIMILAR ISSUE I.E. DOUBTFUL UNDER VALUA TION OF CLOSING STOCK. THEREFORE, THE CASE OF THE APPELLANT COMPANY FOR TH E ASSESSMENT YEAR 2012- 3 IS COVERED BY THE SAID DECISION. IN VIEW OF ABOVE DISCUSSIONS AND CONSIDERING THE E NTIRETY AND TOTALITY OF THE CASE OF THE APPELLANT, IT IS HELD THAT THE INVOCATI ON OF PROVISIONS OF SECTION 145(3) IS WITHOUT ANY BASIS AND ONLY ON ASSUMPTION/ PRESUMPTION THAT EITHER THE APPELLANT COMPANY HAS UNDERVALUED THE CLOSING S TOCK OR OVERSTATED/CLAIMED THE EXPENSES. THEREFORE, THE REJ ECTION OF REGULARLY MAINTAINED AND AUDITED BOOKS OF ACCOUNT OF THE APPE LLANT DESERVES TO BE HELD UNWARRANTED AND UNJUSTIFIED. I HELD ACCORDINGL Y. SIMILARLY, THE TRADING ADDITION MADE OF RS. 1,48,5 2,972/- ALSO DESERVES TO BE DELETED PARTICULARLY IN VIEW OF THE FACT THAT THE G ROSS PROFIT DECLARED DURING THE ASSESSMENT YEAR UNDER APPEAL IS BETTER THAN THE GROSS PROFIT DECLARED IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR AND ALSO KEEPING IN-VIEW THE ITA 503/JODH/2014 & 381/JODH/2015_ ACIT VS G.G. VALVES PVT. LTD. 20 FACT THAT PROFIT IN THE BUSINESS DEPEND UPON VARIOU S FACTORS LIKE MARKET COMPETITION, PUBLIC DEMAND AND OTHER SURROUNDING FA CTORS AND ADMITTEDLY, THE A.O. HAS ALSO NOT GIVEN ANY COMPARABLE CASE OF OTHER ASSESSEES WHO IS IN THE LINE OF SAME BUSINESS AND DECLARED THE GROSS PROJECT AS APPLIED BY THE A.O. IN THE CASE OF THE APPELLANT. THEREFORE, THE T RADING ADDITION MADE BY THE A.O. AMOUNTING TO RS. 1,48,52,972 DESERVES TO B E DELETED AND I ORDER ACCORDINGLY. THUS, ALL THE GROUNDS OF APPEAL ARE AL LOWED. 16. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE. WE FIND THAT THE PROVISIONS OF SECTION 145(3) OF THE ACT WERE INVOKE D WITHOUT ANY BASIS. IT WAS BASED ONLY ON ASSUMPTIONS AND PRESUMPTIONS. ASS ESSEE HAS NOT UNDERVALUED THE CLOSING STOCK NOR ANY SPECIFIC DEFE CT WAS FOUND IN CLAIM OF EXPENSES DEBITED TO THE P&L ACCOUNT. CONSIDERING ALL THESE FACTS AND CIRCUMSTANCES OF THE CASE, WE DO NOT FIND ANY INFIR MITY IN THE ORDER OF THE LD. CIT(A), THEREFORE, WE SUSTAIN THE ORDER OF THE LD. CIT(A). ACCORDINGLY, ALL THE GROUNDS OF THE REVENUES APPEAL ARE ALSO DI SMISSED. 17. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 05/05/2017. SD/- SD/- (DIVA SINGH) (BHAGCHAND) JUDICIAL MEMBER ACCOUNTANT MEMBER JODHPUR DATED:- 05 TH MAY, 2017. *RANJAN ITA 503/JODH/2014 & 381/JODH/2015_ ACIT VS G.G. VALVES PVT. LTD. 21 COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- THE ACIT/DCIT, CIRCLE-1, UDAIPUR. 2. THE RESPONDENT- M/S G.G. VALVES PVT. LTD., UDAIPUR. 3. CIT 4. THE CIT(A) 5. DR, ITAT, JODHPUR 6. GUARD FILE (ITA NO. 503/JODH/2014 & 381/JODH/2015) BY ORDER, ASST. REGISTRAR