Sh. Imran Farooq Sheikh, Srinagar V. The Income Tax Officer, Srinagar

ITA 506/ASR/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7794 (ITAT-AMRITSAR)
• Duration Of Justice: 2 year(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-10-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 11-07-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 14-09-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAHUL DHAWANLD
• Assessee Lawyers: BASHIR AHMED LONE LD
• Keywords: Unexplained investment; Business income; Peak credit
• Section: 143(3); 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR BEFORE SH. T.S. KAPOOR, ACCOUNTANT MEMBER AND SH. N.K.CHOUDHRY, JUDICIAL MEMBER I.T.A NO.506(ASR)/2015 ASSESSMENT YEAR:2010- 11 SH. IMRAN FAROOQ SHEIKH, PROP. M/S. CLASSIC ENTERPRISES 5-NOWPORA TANG BAGH, KHAYAM CHOWK, SRINAGAR, KASHMIR. PAN:BBJPS-9361P VS. INCOME TAX OFFICER, WARD-3(1), RAJ BAGH, SRINAGAR. (APPELLANT) (RESPONDENT) APPELLANT BY: SH. BASHIR AHMED LONE (LD. CA) RESPONDENT BY: SH. RAHUL DHAWAN (LD. D.R) DATE OF HEARING:09.08.2017 DATE OF PRONOUNCEMENT: .10.20 17 ORDER PER N.K.CHOUDHRY: THE INSTANT APPEAL HAS BEEN PREFERRED BY THE ASSESSEE, ON FEELING AGGRIEVED AGAINST THE ORDER DATED 10.06.201 5 PASSED BY THE LD. CIT(A), JAMMU, FOR ASST. YEAR:2011-12. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APP EAL. 1. THAT THE ASSESSMENT ORDER PASSED BY ITO-WARD 3( 1) IS BAD IN LAW. 2. THAT THE CIT(APPEALS) ERRED IN BOTH FACTS & LAWS BY CONFIRMING ADDITION OF RS.89,24,178.00 AS UNEXPLAINED DEPOSITS/INVESTME NT, WHEN THE SAID BANK ACCOUNT DOES NOT BELONG TO ASSESSEE. 3. THAT THE LD. CIT(APPEALS) HAS ERRED IN BOTH FACT S & LAWS BY CONFIRMING THE TURNOVER OF ASSESSEE AS RS.505,32,668.00 WHICH IS INCLUSIVE OF VAT, INSTEAD OF RS.46,393,024.00 & ALSO UPHELD APPLICATI ON OF NET PROFIT RATE OF 3% ON SAID TURNOVER. 4. THE UPHOLDING OF THE ADDITIONS BY CIT (APPEALS) IS ILLEGAL & ARBITRARY. ITA NO.506 (ASR)/2015 ASST. YEAR :2011-12 2 5. THE APPELLANT CRAVES LEAVE TO AMEND, ALTER OR AD D ANY GROUND OF APPEAL BEFORE THE SAME IS HEARD & DISPOSED OFF. THEREFORE, IT IS PRAYED THAT THE GROUNDS URGED ABOV E MAY PLEASE BE CONSIDERED DUE AND THE PENALTY MAY PLEASE BE DELETE D IN FULL. 3. THE BRIEF FACTS OF THE CASE ARE AS UNDER: THAT THE ASSESSEE IS AN INDIVIDUAL BY STATUS AND HAS BEEN CARRIED OUT WHOLESALE TRADING/BUSINESS OF FOOD ITEMS LIKE OILS, B ISCUITS, MILK, JUICES ETC AND HAS DECLARED GROSS SALES OF RS.4,63,93,024/- FOR THE PERIOD 01.04.2010 TO 31.03.2011. THE ASSESSEE HAS DECLARE D A GROSS PROFIT OF RS.11,59,826/-. DURING THE ASSESSMENT YEAR:201 1-12 HAS FILED ITS RETURN OF INCOME AND DECLARED INCOME OF RS.8,5 8,361/-. LATER ON, THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE I. T. ACT, 196 1 BY MAKING AN ADDITION OF RS.96,75,851/- BY THE ITO, WAR D-3(1), SRINAGAR. THE A.O WORKED OUT THE APPLICATION OF NP RATE 3% ON GROSS RECEIPTS WHICH WORKED OUT AT RS. 15,15,980/- AND FURTHE R ADDED RS.89,24,178/- AS UNEXPLAINED CASH DEPOSITS/ INVESTMENTS BY IGNORING THE INCOME DECLARED BY THE ASSESSEE TO THE TUNE OF RS.8,58 ,361/- ONLY. 4. THE ASSESSEE PREFERRED THE FIRST APPEAL BEFORE THE LD. CIT(A) WHO WHILE REJECTING THE APPLICATION FOR ADMISSION OF ADDITI ONAL EVIDENCE U/S 46A OF THE I.T. RULES, PARTLY ALLOWED THE RELIEF OF THE ASSESSEE BY OBSERVING AS UNDER: 4.2 GROUND OF APPEAL NO.1 IS GENERAL IN NATURE, RE QUIRED NO ADJUDICATION AND ACCORDINGLY DISMISSED. 4.3 GROUND OF APPEAL NO.2 RELATES TO ADDITION OF R S.89,24,178/- ON ACCOUNT OF UNEXPLAINED CASH DEPOSITS IN THE BANK AC COUNT. THE A.O DURING ITA NO.506 (ASR)/2015 ASST. YEAR :2011-12 3 THE COURSE OF ASSESSMENT PROCEEDINGS FOUND THAT THE APPELLANT IS MAINTAINING A SAVING BANK ACCOUNT WITH J&K BANK LTD , BOGAL BRANCH, NEW DELHI WHICH HAS NOT BEEN REFLECTED IN HIS BOOKS OF ACCOUNTS. THE APPELLANT COULD NOT EXPLAIN THE SOURCE OF DEPOSITS IN THE SAID ACCOUNT AND ACCORDINGLY THE ADDITION IS MADE IN THE HANDS OF A PPELLANT ON ACCOUNT OF UNEXPLAINED DEPOSITS. THE APPELLANT HAS ARGUED THAT THE BANK AUTHORITY HAS OPENED A BANK ACCOUNT IN HIS NAME WITHOUT HIS K NOWLEDGE AND HE IS NOT AWARE OF THE TRANSACTIONS IN THE SAID BANK ACCO UNT. THE APPELLANT HAS ALSO ARGUED THAT AN AMOUNT OF RS.42,69,763/- HAS AL SO BEEN WITHDRAWN FRAUDULENTLY BY THE BANK AUTHORITIES THE APPELLANT HAS ARGUED THAT HE HAS FILED A COMPLAINT BEFORE THE CONSUMER COURT IN THIS REGARD. IT IS OBSERVED THAT THE BANK ACCOUNT IS IN THE NAME OF THE APPELLA NT AND CASH AMOUNTING TO RS.89,24,178/- HAS BEEN DEPOSITED IN THIS ACCOUN T AND THE APPELLANT COULD NOT EXPLAIN THE REASON AS TO WHY THE BANK AUT HORITY WILL OPEN AN ACCOUNT IN HIS NAME TO DEPOSIT AN AMOUNT OF RS 89,2 4,178/- IN CASH IN HIS ACCOUNT. THE POSITION WOULD HAVE BEEN DIFFERENT IF SOME CHEQUES IN THE NAME OF THE APPELLANT WERE WITHDRAWN BY OPENING AN ACCOUNT IN HIS NAME. THE BANK AUTHORITIES HAVE CATEGORICALLY SUBMITTED T O THE HON'BLE CONSUMER COURT THAT THE ALLEGATION MADE BY THE APPELLANT IS FALSE AND MALICIOUS AND THE ACCOUNT UNDER QUESTION IS OPENED BY THE APPELLA NT HIMSELF AND ALL THE TRANSACTION IN THE SAID ACCOUNT WERE MADE WITH THE AUTHORITY OF THE APPELLANT. THE BANK AUTHORITY HAS ALSO INFORMED THA T THE BROTHER OF THE APPELLANT HAS AVAILED A CASH CREDIT FACILITY IN THE SAID BOGAL BRANCH IN THE NAME OF M/S CLASSICAL ENTERPRISES AND THE APPELLANT IS A GUARANTOR FOR SUCH FACILITY. THE APPELLANT HAS TRANSFERRED VARIOU S AMOUNTS THROUGH CHEQUE TO THE SAVING ACCOUNT AND CASH CREDIT ACCOUN T OF HIS BROTHER DURING THE FINANCIAL YEAR 2011-12 WHICH THE APPELLANT IS C LAIMING TO HAVE BEEN WITHDRAWN BY THE BANK FRAUDULENTLY. ON THE PERUSAL OF SUBMISSION OF THE APPELLANT AND ASSESSMENT ORDER, IT IS OBSERVED THAT THE APPELLANT HAS FAILED TO PROVIDE ANY VALID DOCUMENTARY EVIDENCE TO JUSTIFY HIS CONTENTION THAT THE BANK ACCOUNT UNDER CONSIDERATION DOES NOT BELONG TO HIM. MERE FILING OF A COMPLAINT BEFORE AN AUTHORITY DOES NOT PROVE THAT THE BANK ACCOUNT UNDER QUESTION DOES NOT BELONG TO THE APPEL LANT SPECIALLY WHEN THE BANK AUTHORITIES HAVE CATEGORICALLY REFUTED HIS CLAIM. THIS GROUND OF APPEAL OF THE APPELLANT IS DISMISSED. 4.4. GROUND OF APPEAL NO 3 & 4 RELATES TO APPLICATI ON OF NET PROFIT RATE OF 3% AFTER REJECTING BOOKS OF ACCOUNTS U/S 145(3) OF THE ACT ON INCREASED TURNOVER OF RS.5,05,32,668/-. THE APPELLANT HAS DEC LARED A TURNOVER OF RS.4,63,93,024/- IN HIS RETURN, HOWEVER THE AO OBSE RVED THAT THE DEPOSITS IN THE BANK ACCOUNT FOR THE PERIOD ARE MORE THAN TH E TURNOVER DECLARED. THE APPELLANT ARGUED THAT THE TURNOVER HAS BEEN DEC LARED AS PER BOOKS OF ACCOUNTS AND THE EXCESS CREDITS ARE ON ACCOUNT OF V AT COLLECTED WHICH HAS NOT BEEN ROUTED THROUGH TRADING ACCOUNT. THE APPELL ANT HAS ALSO PROVIDED THE COPY OF SALES TAX RETURNS TO JUSTIFY THE AMOUNT OF SALES AND OUTPUT TAX AS REFLECTED IN THE RETURN OF INCOME. IT IS OBSERVE D THAT AGGREGATE FIGURE OF SALES AND VAT OUTPUT AS PROVIDED BY THE APPELLANT C OMES TO RS.5,03,61,365/-. ALTHOUGH, THERE IS STILL A DIFFER ENCE OF RS.1,71,303/-, THE PLEA OF THE APPELLANT IS ACCEPTED AND THE TURNOVER OF THE APPELLANT IS HELD AT RS.5,03,61,365/- (I.E. SALES AMOUNT OF RS.4,63,9 3,024/- AND VAT OUTPUT OF RS.39,68,341/-) AS ALSO SUPPORTED BY SALES TAX R ETURNS. THIS PLEA OF THE APPELLANT IS ACCEPTED. HOWEVER, IT IS ALSO IMPORTAN T TO MENTION THAT THE' NET ITA NO.506 (ASR)/2015 ASST. YEAR :2011-12 4 PROFIT RATE IS TO BE APPLIED ON TURNOVER WHICH IS I NCLUSIVE OF SALES TAX/VAT AND NOT ON THE NET SALES FIGURE. A GUIDANCE NOTE ON SECTION 44AB OF THE ACT .WAS ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTAN TS AND IT WAS CLARIFIED THAT THE 'TURNOVER' WOULD INCLUDE THE EXCISE DUTY A ND SALES TAX EVEN IF THE ASSESSEE HAS NOT INCLUDED THE SAME IN PROFIT & LOSS ACCOUNT. FURTHER, U/S 145A OF THE ACT, IT IS SPECIFICALLY MENTIONED T HAT THE VALUATION OF PURCHASE AND SALES OF GOODS AND INVENTORY FOR THE P URPOSE OF DETERMINING THE INCOME CHARGEABLE UNDER THE HEAD PR OFITS AND GAINS OF BUSINESS AND PROFESSION SHALL INCLUDE THE AMOUNT OF ANY TAX, DUTY, CESS OR FEE ACTUALLY PAID OR INCLINED BY THE ASSESS EE. THUS, THE NET PROFIT RATE IS TO BE APPLIED ON THE TURNOVER INCLUSIVE OF SALES TAX. FURTHER, THE APPELLANT HAS ARGUED THAT THE AO IS NO T JUSTIFIED IN REJECTING THE BOOK RESULTS AND APPLYING A NET PROFIT RATE OF 3% WHICH IS ON A VERY HIGHER SIDE. IT IS OBSERVED THAT THE AO HAS POINTED OUT DIFFERENCE IN TURNOVER WHICH WAS NOT EXPLAINED TO THE AO AND FURT HER, APPELLANT WAS NOT ABLE TO PRODUCE THE DOCUMENTARY EVIDENCE IN RESPECT OF VARIOUS EXPENSES CLAIMED BY HIM, THE AO WAS LEFT WITH NO OPTION BUT TO MAKE A BEST JUDGMENT ASSESSMENT BY APPLICATION OF NET PROFIT RA TE. THE APPELLANT HAS ARGUED THAT HE HAS DECLARED LOWER NET PROFITS IN TH E EARLIER YEARS. IT IS SEEN THAT THE APPELLANT HAS FILED A RETURN OF INCOME DEC LARING AN INCOME OF RS.8,83,973/- WHEREAS THE RECEIPTS FROM COMMISSION INCOME AND OTHER INCOME WHICH WAS DEPOSITED IN THE BANK ACCOUNT APAR T FROM TRADING ACTIVITY WAS RS.24,83,805/-. THEREFORE, IN MY OPINI ON, THE NET PROFIT OF 3% APPLIED BY THE AO WHICH CONES TO EVEN LESS THAN THE COMMISSION & OTHER INCOME OF THE APPELLANT CANNOT BE SAID TO BE ON HIG HER SIDE. THEREFORE, THIS GROUND OF APPEAL IS PARTLY ALLOWED AND A RELIEF OF RS.5140/- IS ALLOWED TO THE APPELLANT. 4.5. GROUND OF APPEAL NO 5 IS GENERAL IN NATURE, RE QUIRE NO ADJUDICATION AND ACCORDINGLY DISMISSED. THE APPEAL IS PARTLY ALLOWED. 5. ON FEELING AGGRIEVED AGAINST THE ORDER PASSED BY THE LD. CIT(A), THE ASSESSEE BY FILING THE INSTANT APPEAL AND I N SUPPORT OF GROUND NO.2 ARGUED BEFORE US, THAT ADDITION OF RS.89, 24,178/- WAS MADE AS UNEXPLAINED CASH DEPOSITS/INVESTMENT CREDITED IN THE BANK ACCOUNT NO.0409040100000735 MAINTAINED WITH J&K BANK LTD. BRANCH BOGAL, NEW DELHI DURING THE FINANCIAL YEAR 2011-12 BY HOLDING TO BE NOT DISCLOSED IN ASSESSEE FINANCIAL STATEMENTS. FURTHER THE SAID ADDITION WAS CONFIRMED BY THE LD. CIT(A). THE LD. AR DRAWN OUR ATTENTION TO THE FOLLOWING FACTS. ITA NO.506 (ASR)/2015 ASST. YEAR :2011-12 5 (1) THE ASSESSEE DURING THE YEAR WAS CARRYING BUSINESS OF SALE & PURCHASE OF FMCG GOODS & WAS ALSO SUPER STOCKIEST/ CFA OF FEW LE ADING COMPANIES FOR SRINAGAR NAMELY CARGIL INDIA PRIVATE LIMITED, ASIAN LAKE HEALTH FOODS PRIVATE LIMITED, VRS FOODS LIMITED, BOON FOOD INDUSTRIES (FR OM LAST 12 YEARS) & WAS MAINTAINING HIS USUAL BUSINESS ACCOUNT WITH JAMMU & KASHMIR BANK LTD. BRANCH OFFICE AIR CARGO SRINAGAR & WAS AVAILING CASH CREDIT FACILITY OF 68 LACS. THE ASSESSEE WAS ENTIRELY CARRYING HIS BUSINE SS THROUGH THIS ACCOUNT & THE SAID BANK ACCOUNT STANDS DULY DECLARED IN THE F INANCIAL STATEMENTS SUBMITTED TO TAX AUTHORITIES. (2) THE BRANCH AUTHORITIES OF JAMMU & KASHMIR BANK LTD . BRANCH OFFICE BOGAL NEW DELHI HAVE FRAUDULENTLY OPENED A SAVING BANK AC COUNT WITH ACCOUNT NO.0409040100000735 IN THE NAME OF ASSESSEE WITHOUT HIS KNOWLEDGE NOR THE ASSESSEE HAS APPROACHED THE SAID BRANCH FOR OPE NING ANY BANK ACCOUNT. IN ADDITION TO ABOVE, THE SAID BANK HAS ALSO RAISEC L A PERSONAL LOAN OF RS.5.00 LACS IN THE NAME OF THE ASSESSEE & THE SAME STANDS CREDITED IN THE SAID BANK ACCOUNT. DURING THE ASSESSMENT PROCEEDINGS, WHEN TH E LD. AO CONFRONTED THE ASSESSEE REGARDING NON REFLECTION OF BANK ACCOUNT ( NO.0409040100000735 MAINTAINED WITH JAMMU & KASHMIR BANK LTD. BRANCH OF FICE BOGAL NEW DELHI IN FINANCIAL STATEMENTS. THE ASSESSEE INFORMED THE LD. AO IN WRITING THAT THE SAID BANK ACCOUNT DOES NOT BELONG TO HIM NOR HE HAS CARRIED ANY TRANSACTION IN THE SAID BANK ACCOUNT & THE SAME STANDS OPENED B Y BANK AUTHORITIES WITHOUT ASSESSES KNOWLEDGE & IN CONFIRMATION OF SAI D FACT, THE ASSESSEE SUBMITTED FOLLOWING DOCUMENTS BEFORE LD AO. A. UNDERTAKING IN WRITING DENYING THE SAID BANK ACCOU NT. B. AFFIDAVIT BY ASSESSEE. C. COPY OF COMPLIANT FILED U/S 15 READ WITH 16 OF J&K STATE CONSUMERS PROTECTION ACT. BEFORE HONORABLE STATE CONSUMER PROT ECTION COMMISSION UNDER J&K CONSUMER PROTECTION ACT. BY THE ASSESSEE. THE AS SESSEE FILED COMPLIANT BEFORE THE COURT EVEN BEFORE THE ASSESSEE HAS RECEI VED NOTICE U/S 143(2) OF THE INCOME TAX ACT 1961 FOR THE SAID ASSESSMENT YEAR. D. PETITION FILED BY THE ASSESSEE BEFORE HONORAB LE COURT OF ADDITIONAL DISTRICT JUDGE (BANK CASES) AT SRINAGAR IN TERMS OF ORDER 8 RULE 8A OF CODE OF CIVIL PROCEDURE (CPC) FOR DIRECTING THE DEFENDANTS TO PRO DUCE THE DOCUMENTS UPON WHICH THEY RELY IN TERMS OF THE STATEMENT BEFORE TH E HONORABLE COURT. DESPITE SUBMISSION OF ABOVE MENTIONED DOCUMENTS, TH E LD. AO PROCEEDED & MADE AN ADDITION OF RS.89,24,178.00 BY TREATING THE ENTIR E CASH DEPOSITS MADE IN THE SAID BANK ACCOUNT AS UNEXPLAINED INVESTMENTS BY TRE ATING THE SAID BANK ACCOUNT AS ASSESSES BANK ACCOUNT, WHICH IS NOT THE FACT. THE APPELLATE ALSO SUBMITTED THE FOLLOWING DOCUMENTS BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) A. COPY OF COMPLIANT FILED U/S 15 READ WITH 16 OF J&K STATE CONSUMERS PROTECTION ACT. BEFORE HONORABLE STATE CONSUMER PROT ECTION COMMISSION UNDER J & K CONSUMER PROTECTION ACT. BY ASSESSEE. B. COPY OF REPLY FILED BY J & K BANK BEFORE HONORABLE STATE CONSUMER PROTECTION COMMISSION DENYING THE ASSESSES ALLEGATI ONS. C. PETITION FILED BY ASSESSEE BEFORE HONORABLE COURT OF ADDITIONAL DISTRICT JUDGE (BANK CASES) AT SRINAGAR IN TERMS OF ORDER 8 RULE 8A OF CODE OF CIVIL ITA NO.506 (ASR)/2015 ASST. YEAR :2011-12 6 PROCEDURE (CPC) FOR DIRECTING THE DEFENDANTS TO PRO DUCE THE DOCUMENTS UPON WHICH THEY RELY IN TERMS OF THE STATEMENT BEFORE TH E HONORABLE COURT. D. EXPERT OPINION DATED 23-04-2014 SOUGHT BY COURT RE GARDING SIGNATURE/ WITHDRAWAL & ACCOUNT OPENING VERIFICATION GIVEN BY FORENSIC LAB (IFS PUNE) IN FAVOR OF ASSESSEE. E. SECOND EXPERT OPINION DATED 03/03/2015 AGAIN SOUGH T BY COURT REGARDING SIGNATURE/ WITHDRAWAL & ACCOUNT OPENING V ERIFICATION GIVEN BY SIFS INDIA PVT. LTD .NEW DELHI IN FAVOR OF ASSESSEE. FURTHER, THE AO IS HIMSELF NOT CLEAR, UNDER WHAT SE CTION THE AO IS MAKING ADDITIONS, RATHER HAS DEEMED THE ENTIRE CASH DEPOSI T AS UNEXPLAINED INVESTMENT. THE SAID BANK ACCOUNT DOES NOT BELONG TO ASSESSEE A T ALL & IF WE PRESUME, THAT THE SAID BANK ACCOUNT BELONG TO ASSESSEE AND THE AS SESSEE HAS NOT DISCLOSED THE SAID BANK ACCOUNT IN THE FINANCIAL STATEMENTS, STIL L ENTIRE CASH DEPOSITS/BANK CREDITS OF RS 89,24,174.00 CANNOT BE TREATED AS INCO ME OF THE ASSESSEE. SINCE, THE SAID SUM REPRESENTS, BANK CREDITS/CASH DEPOSITS, OU T OF WHICH WITH-DRAWLS STANDS ALSO MADE AND THERE REMAINS A PEAK CREDIT OF RS.17236.00 ON 10/05/2010 . UNDER NORMAL CIRCUMSTANCES, IN CASE OF NON- DISCLOSURE OF BANK ACCOUNT IN FINANCIAL STATEMENTS OWNED BY THE ASSESS EE, EITHER ADDITION ON ACCOUNT OF PEAK CREDIT IS MADE OR THE UNDISCLOSED TRANSACTI ONS ARE ADDED TO TURNOVER AND NET PROFIT RATE IS APPLIED. FURTHER ON THE DATE OF CREDIT, THE ENTIRE AMOUNT STANDS WITHDRAWN, WHICH CAN BE VERIFIED FROM THE BANK STAT EMENTS AND THERE HARDLY REMAINS ANY CREDIT IN THE BANK. IN THE FOLLOWING CASES, THE ENTIRE CASH DEPOSITS HA VE NOT BEEN ADDED, RATHER PEAK CREDITS STANDS TREATED AS UNDISCLOSED INCOME. ITO WARD- 51(4) KOLKATA VS. DEB KUMAR JANA KOLKATA BEFORE ITAT BENCH 'C', KOLKATA ITO WARD 3(3) MATHURA VS. SHRI RAJEEV KUMAR GUPTA M ATHURA BEFORE ITAT AGRA BENCH, AGRA ITO 9( APPELLANT) VS. M/S MURLIDHAR ICE CREAM& SWEE T PARLOR ITO WARD -1 GOBINDGARH VS. SMT. SATYA BHAMA BINDAL MANDI GOBINDGARH BEFORE ITAT CHANDIGARH BENCHES 'A', CHANDIGARH ITO WARD -1, NADYAL VS. MR. C. VAMSI MOHAN NANDYAL BEFORE ITAT HYDERABAD BENCHES A', HYDERABAD. ITO 6(4) LUCKNOW VS. SHRI VISHAN LAI LUCKNOW BEFORE ITAT LUCKNOW BENCH 'A', LUCKNOW ITO 23(2) MUMBAI VS. JAGDISH N.THAKKUR MUMBAI BEFOR E ITAT MUMBAI BENCH ]' MUMBAI FINALLY THE LD. AR SUBMITTED THAT THE SAID ACCOUNT DO ES NOT BELONG TO THE ASSESSEE AND THE DEEMED ADDITION BASED O N THE ITA NO.506 (ASR)/2015 ASST. YEAR :2011-12 7 PRESUMPTION AMOUNTING TO RS.89,24,178/- IS LIABLE BE DELETED IN FULL OR ALTERNATIVELY THE ADDITIONS ON ACCOUNT OF PEAK CREDIT M AY BE HELD. WITH REGARD TO GROUND NO.3 QUA ADDITION OF RS.7,51,6 73/-, THE LD. AR FILED WRITTEN SUBMISSION , WHICH ARE REPRODUCED AS UNDER: THE LD AO HAS ALSO APPLIED NET PROFIT RATE OF 3% AN D ALSO ENHANCED TURNOVER OF THE ASSESSEE ON FOLLOWING PRESUMPTIONS (A) EXCESS BANK CREDITS OF RS 41,39,644.00 IN THE ASSES SEE REGULAR BANK ACCOUNTS COMPARED TO SALES DECLARED BY ASSESSE E. (B) INCREASE IN ESTABLISHMENT, WAGES & FREIGHT & CARRI AGE EXPENSES DURING THE YEAR, COMPARED TO LAST YEAR. (C) NON MAINTENANCE OF STOCK REGISTER. IN THIS REGARD, FOLLOWING SUBMISSIONS ARE MADE, WHI CH STANDS ALSO MADE BEFORE CIT (APPEALS) (A) THE APPLICATION OF NET PROFIT RATE OF 3% & TREATING THE ASSESSES SALES AS RS.505,32,668.00 INSTEAD OF RS.4,63,93,024 .00 IS UNJUSTIFIED, UNWARRANTED & BASED ON PRESUMPTIONS RA THER THAN ON ANY CONCRETE MATERIAL. THE ASSESSEE IS A SU PER STOCKIEST /CPA OF FEW LEADING COMPANIES FOR KASHMIR VALLEY & ENTIRE PURCHASES ARE MADE FROM THESE COMPANIES. THE ASSESSEE PRODUCED COMPLETE BOOKS OF ACCOUNTS COMPRISING OF L EDGER, CASH BOOK, VOUCHERS & VAT RETURNS IN SUPPORT OF SAL ES & PURCHASES MADE BY THE ASSESSEE DURING THE YEAR BEFO RE AO. REGARDING EXCESS BANK CREDITS AMOUNTING TO RS.41,39 ,644.00 (RS.5,05,32,668 - RS.4,63,93,024) AS POINTED OUT BY LD. AO, OUT OF WHICH RS.39,68,341.00 REPRESENTS OUTPUT TAX COLLECTED BY THE ASSESSEE & THE SALES ARE SHOWN AS NET OF OUT PUT TAX IN THE PROFIT & LOSS ACCOUNT BY THE ASSESSEE, WHICH IS AN ALLOWED PRACTICE AS PER ACCOUNTING NORMS. . THE ASSESSEE DU LY PROVIDED THE DETAILS OF SAID OUTPUT TAX TO THE LD. AO DURING THE ASSESSMENT PROCEEDINGS BEFORE AO, HOWEVER THE LD. A O HAS NOT CONSIDERED THE SAME, WHILE FRAMING ASSESSMENT O RDER. FURTHER THE ASSESSEE'S ASSESSMENT FOR THE SAID ASSE SSMENT YEAR STANDS ALSO MADE BY COMMERCIAL TAX DEPARTMENT SRINAGAR, WHICH HAVE CONFIRMED SALES & PURCHASE OF THE ASSESS EE. THE COPY OF VAT RETURNS, DETAILS OF OUTPUT TAX & COPY O F VAT ASSESSMENT COPY STANDS ALSO SUBMITTED BEFORE CIT (A PPEALS). IN RESPECT OF AFORESAID SUBMISSIONS MADE BY APPELLA TE BEFORE CIT (APPEALS). THE LD. CIT (APPEALS) GAVE THE SAID SUBM ISSIONS A DIFFERENT TWIST TO JUSTIFY THE BANK CREDITS AS SALES BY REFER RING TO GUIDANCE NOTE ON SECTION 44AB ISSUED BY INSTITUTE OF CHARTERED ACCOU NTANTS OF INDIA, THAT TURNOVER 'WOULD INCLUDE EXCISE DUTY AND SALES TAX EVEN IF THE ASSESSEE HAS NOT ITA NO.506 (ASR)/2015 ASST. YEAR :2011-12 8 INCLUDED THE SAME IN PROFIT AND LOSS ACCOUNT. HOWEV ER, AS PER THE SAID GUIDANCE NOTE, THE TURNOVER DOES NOT INCLUDE EXCISE DUTY OR SALES TAX RECOVERED IF CREDITED SEPARATELY TO EXCISE DUTY OR SALES TAX ACCOUNT AND PAYMENTS TO THE AUTHORITY ARE DEBITED IN THE SAME ACCOUNT, THEREFORE NEITHER AO N OR CIT (APPEALS) IS NOT JUSTIFIED IN THEIR ACTIONS . (B) REGARDING INCREASE IN ESTABLISHMENT, WAGES , FREIG HT & CARRIAGE EXPENSES DURING THE YEAR, COMPARED TO FAST YEAR. IN ORDER TO INCREA SE BUSINESS VOLUMES, THE ASSESSEE DURING THE YEAR WAS APPOINTED AS SUPER STO CKIEST OF ANOTHER 3 COMPANIES NAMELY SHREE JEE FOOD PRODUCTS, INCITE HO ME CARE LTD & DEEP TRADING CO. DURING THE YEAR, THE SALES OF ASSESSEE HAVE INCREASED BY RS.72.14 LACS & NET PROFITS HAVE SUBSTANTIALLY INCREASED BY 5.78 LACS. THE ASSESSEE HAS TO INCUR ADDITIONAL EXPENSES IN THE FORM OF SALARIES & CARRI AGE OUTWARDS TO PUSH NEW PRODUCTS IN THE MARKET BY APPOINTING NEW EMPLOYEES & APPROACHING NEW DEALERS, ACCORDINGLY THE INCREASE IS JUSTIFIED. FUR THER THE ASSESSEE PRODUCED COMPLETE BOOKS OF ACCOUNTS & SUBSIDIARY DETAILS OF THESE EXPENSES DURING ASSESSMENT PROCEEDINGS & THE ID. AO COULD NOT DETEC T ANY DEFECT IN THE ACCOUNTS, RATHER ACTED ON PRESUMPTIONS, WHICH IS AGAINST LAW. ( C) REGARDING NON MAINTENANCE OF STOCK REGISTER, AS THE ASSESSEE IS DEALING IN FMCG VARIOUS ITEMS, IT WAS NOT POSSIBLE FOR ASSESSEE TO MAINTAIN STOCK REGISTER, KEEPING IN VIEW LARGE NO. OF ITEMS, DEALT BY ASSESSEE. IT I S WELL ESTABLISHED LAW, THAT BOOKS OF ACCOUNTS CANNOT BE REJECTED ON NON-MAINTENANCE O F STOCK REGISTER, UNLESS THERE ARE OTHER EVIDENT FACTORS AVAILABLE LIKE SUBSTANTIA L REDUCTION IN GROSS PROFIT RATE/NET PROFIT RATE. THE ASSESSEE HAS DECLARED FOL LOWING GROSS PROFIT & NET PROFIT RATES OF THE LAST THREE YEARS S. NO ASSESSMENT YEAR GROSS PROFIT RATE NET PROFIT RATE 1 . 2009-10 2.50% 0.75% 2. 2010-11 2.50% 0.75% 3. 2011-12 2.50% 1.65% THE ASSESSES GROSS PROFIT RATE HAS REMAINED CONSTAN T DURING THE CURRENT YEAR AS DECLARED IN PROCEEDING TWO YEARS & THE PROFIT RA TE HAS SUBSTANTIALLY INCREASED DURING THE CURRENT YEAR COMPARED TO LAST YEARS. THE COPIES OF FINANCIAL STATEMENTS ALONG WITH COPY OF ITR OF ABOV E MENTIONED YEARS ARE ENCLOSED. FURTHER, DESPITE PRODUCTION OF COMPLETE BOOKS OF AC COUNTS & PROVIDING ALL POSSIBLE COOPERATION BY THE ASSESSEE, THE LD. AO RE JECTED THE BOOK RESULTS ON FOLLOWING GROUNDS. A. NON - DISCLOSURE OF BANK ACCOUNT MAINTAINED WITH JK BANK BOGAL NEW DELHI. B. EXCESS CREDITS OF RS.41, 39,644.00 IN THE BANK ACCOUNT AS COMPARED TO SALES DECLARED BY ASSESSEE. C. INCREASE IN EXPENSES LIKE WAGES, ESTABLIS HMENT & FREIGHT. D. NON - MAINTENANCE OF STOCK REGISTER. ITA NO.506 (ASR)/2015 ASST. YEAR :2011-12 9 IN ADDITION TO THE AFOREMENTIONED WRITTEN SUBMISSION S, THE LD. AR ALSO SUBMITTED THAT DESPITE PRODUCTION OF COMPLETE BO OKS OF ACCOUNTS AND PROVIDING ALL POSSIBLE CO-OPERATION BY THE ASSESSEE, THE LD. AO WHILE REJECTING THE BOOKS OF ACCOUNT RELIED UPO N HIS OWN PRESUMPTION AND NOT SUPPORTED BY ANY CONCRETE MATERIAL, THEREFORE, THE REJECTION OF BOOK RESULTS IS UNJUSTIFIED AND RESULTS AND APPLICATION OF NET PROFIT RATE OF 3% IS NOT BASED ON THE FACTS AND FURTHER CONFIRMATION BY THE LD. CIT(A) IS ALSO AGAINST THE JUST ICE. 6. ON THE OTHER HAND, THE LD. DR RELIED UPON THE ORDE R PASSED BY THE AUTHORITIES BELOW AND SUBMITTED THAT THE ORDER SP ECIFICALLY PASSED BY THE LD. CIT(A) IS WELL REASONED AND LOGICAL ORDER A ND DOES NOT REQUIRES TO BE INTERFERED WITH. 7. WE HAVE GONE THROUGH WITH THE FACTS AND CIRCUMSTA NCES OF THE CASE. GROUNDS NO. 1, 4 & 5 ARE FORMAL IN NATURE, HENCE DOES NOT REQUIRES SPECIFIC ADJUDICATION. GROUND NO. 2 RELATES TO THE ADDITION OF RS.89,24,178/- AS ADDED BY THE AO AS UNEXPLAINED CASH DEPOSITS/INVESTMENT CREDI T IN THE BANK ACCOUNT OF THE ASSESSEE WITH J&K BANK LTD., BRANCH BOGAL, NEW DELHI. DURING THE FINANCIAL YEAR 2011-12, IT WAS NOT DISCLOSE D IN ASSESSEES FINANCIAL STATEMENT AS IT REFLECTS FROM THE ORDERS PASSED BY THE AUTHORITIES BELOW. THE LD. AR BROUGHT TO THE KNOWLE DGE TO THE REVENUE AUTHORITIES THAT THE SAID BANK ACCOUNT DOES NOT BELONGS TO HIM NOR HE HAD CARRIED OUT ANY TRANSACTION IN THE SAID BANK ACCOUNT AND THE SAME STANDS OPENED BY BANK AUTHORITIES WITHOUT ASSESSEES KNOWLEDGE AND IN CONFIRMATION OF SAID FACT, THE ASSESSEE SUBMITTED FOLLOWING DOCUMENTS BEFORE THE LD. AO. ITA NO.506 (ASR)/2015 ASST. YEAR :2011-12 10 (A) UNDERTAKING IN WRITING THE SAID BANK ACCOUNT. (B) AFFIDAVIT (C) COPY OF COMPLAINT FILED U/S 15 R.W. 16 OF J&K STATE CONSUMERS PROTECTION ACT BEFORE THE HONBLE STATE CONSUMER PROTECTION COMMIS SION UNDER J&K CONSUMER PROTECTION ACT BY THE ASSESSEE. THE ASSESSEE FILED COMPLAINT BEFORE THE HONBLE COU RT EVEN BEFORE THE ASSESSEE HAS RECEIVED NOTICES U/S 143(2) OF THE INC OME TAX ACT, 1961 FOR THE SAID ASSESSMENT ORDER. (D) PETITION FILED BY ASSESSEE BEFORE HONBLE COURT OF ADDITIONAL DISTRICT JUDGE (BANK CASES) AT SRINAGAR IN TERMS OF ORDER 8 RULE 8A OF C ODE OF CIVIL PROCEDURE (CPC) FOR DIRECTING THE DEFENDANTS TO PRODUCE THE DOCUMENTS U PON WHICH THEY RELY IN TERMS OF THE STATEMENT BEFORE THE HONBLE COURT. EVEN DURING THE APPELLATE PROCEEDINGS PENDI NG BEFORE THE LD. CIT(A) THE ASSESSEE IN ADDITION TO THE AFORESAID DO CUMENTS WHILE RELYING UPON THE FOLLOWING DOCUMENTS. (A) EXPERT OPINION DATED 23.04.2014 SOUGHT BY HONBLE C OURT REGARDING SIGNATURE/ WITHDRAWAL & ACCOUNT OPENING VERIFICATIO N GRANTED BY FORENSIC LAB (IFS PUNE) IN FAVOUR OF ASSESSEE. (B) SECOND EXPERT OPINION DATED 03.03.2015 AGAIN SOUGHT BY HONBLE COURT REGARDING SIGNATURE/WITHDRAWAL AND ACCOUNT OPENING VERIFICATION GIVEN BY SIFS PVT. LTD., NEW DELHI, IN FAVOUR OF ASSESSEE. ALTERNATIVELY, THE LD. AR, ARGUED THAT EVEN IF IT I S PRESUMED THAT THE SAID BANK ACCOUNT BELONGS TO THE ASSESSEE AND THE ASSESSE E HAS NOT DISCLOSED THE SAID BANK ACCOUNT IN THE FINANCIAL STA TEMENT STILL ENTIRE CASH DEPOSITS/BANK CREDIT OF RS.89,24,174/- CANNOT BE TREATED AS INCOME OF THE ASSESSEE. SINCE, THE SAID SUM REPRESENTS, BAN K CREDITS/CASH DEPOSITS, OUT OF WHICH WITHDRAWALS ALSO MADE AND THERE REMAINS A PEAK CREDIT OF RS.17,236/- AS ON 10.05.2010. UNDER NORMAL CIRCUMSTANCES, IN CASE OF NON DISCLOSURE OF BANK ACCOUNT IN F INANCIAL STATEMENTS OWNED BY THE ASSESSEE, EITHER ADDITION ON ACCOU NT OF PEAK ITA NO.506 (ASR)/2015 ASST. YEAR :2011-12 11 CREDIT IS MADE OR THE UNDISCLOSED TRANSACTIONS ARE ADDED T O TURN OVER AND NET PROFIT RATE IS APPLIED. HOWEVER, ON THE DATE OF CREDIT, THE ENTIRE AMOUNT STANDS WITHDRAWN, WHICH CAN BE VERIFIED FROM THE BANK STATEMENTS AND THERE HARDLY REMAINS ANY CREDIT IN THE B ANK. LET US TO PERUSE THE REPORT OF THE IFS (FORENSIC SCIENCE DEPARTMENT, PUNE) WHICH IS REPRODUCED HEREIN BELOW:- ON THE CUMULATIVE EFFECT OF ALL THE ABOVE REASONS AND OBSERVATIONS TAKEN TOGETHER, WE ARE OF THE OPINION THAT, 1) THE QUESTIONED SIGNATURE SAMPLE MARKED AS (Q-1) SEEMS THAT HAS NOT BEEN WRITTEN BY THE SAME WRITER WHO HAVE WRITTE N THE ADMITTED SIGNATURE SAMPLE MARKED AS (S-1) OR VICE VERSA.; 2) THE QUESTIONED S IGNATURE SAMPLE MARKED AS (Q-2) SEEMS THAT HAS NOT BEEN WRITTEN BY THE SAME WRITER WHO HAVE WRITTEN THE ADMITTED SIGNATURE SAMPLE MARKED AS (S-2) OR VICE VERSA.; 3) THE QUESTIONED SIGNATURE SAMPLE MARKED AS (Q-3) SEEMS THAT HAS NOT BEEN WRITTEN BY THE SAME WRITER WHO HAVE WRITTEN THE ADMITTED SIGNATURE SAMPLE MARKED AS (S-3) OR VI CE VERSA.; 4) THE QUESTIONED SIGNATURE SAMPLE MARKED AS (Q-4) SEEMS THAT HAS NOT BEEN WRITTEN BY THE SAME WRITER WHO HAVE WRITTEN THE ADMITTED SIGNATURE SAMPLE MARK ED AS (S-4) OR VICE VERSA.; 5) THE QUESTIONED SIGNATURE SAMPLE MARKED AS (Q-5) SEEMS T HAT HAS NOT BEEN WRITTEN BY THE SAME WRITER WHO HAVE WRITTEN THE ADMITTED SIGNATURE SAMPLE MARKED AS (S-5) OR VICE VERSA.; 6) THE QUESTIONED SIGNATURE SAMPLE MARKED A S (Q-6) SEEMS THAT HAS NOT BEEN WRITTEN BY THE SAME WRITER WHO HAVE WRITTEN THE ADM ITTED SIGNATURE SAMPLE MARKED AS (S-6) OR VICE VERSA.; 7) THE QUESTIONED SIGNATURE S AMPLE MARKED AS (Q-7) SEEMS THAT HAS NOT BEEN WRITTEN BY THE SAME WRITER WHO HAVE WRITTEN THE ADMITTED SIGNATURE SAMPLE MARKED AS (S-7) OR VICE VERSA. COMPLETELY STABILITY SHOULD BE PROVE IF SUFFICIENT LENGTH MORE ADMITTED SIGNATURES AVAILABLE FROM THE DIFFERENT SOURCE, HAVING SIMILAR DATE/INTERVAL AND FROM ORIGINAL DOCUMENT ETC. THESE RESULTS MAY BE AFFECTED BY THE CERTAIN FACTOR AS STATED IN OBSERVATIONS, TIME INTERVAL, AN ALYSIS, ETC. FOR MORE ACCURACY VARIOUS CHEMICALS TESTS ETC CAN BE PERFORMED IN FORENSIC LA BS ON ORIGINAL DOCUMENTS. IT IS ALWAYS SUGGESTED THAT OPINION OF OTHER TWO-THREE EXPERTS O N SAME SAMPLES SHOULD BE TAKEN FOR MAXIMUM ACCURACY AND STRONG OPINION. FURTHER, THE EXPERT OPINION OF SAFS (FORENSIC SCIENCE O RGANIZATION) IS AS UNDER: AFTER DOING THE IN DEPT ANALYSIS OF THE PROVIDED DOCU MENTS, WE HAVE OBSERVED DISSIMILARITIES IN THE SIGNATURES WHICH ARE SIGNIFICANT AND SUFFICIENT TO REACH A DEFINITE CONCLUSION. ALL THE DESCRIBED DISSIMILARITIES ARE UNIQUE IN NATURE AND BEYOND THE RANGE OF NATURAL VARIATION AND THE WRITING HABITS BETWEEN THE SIGNATURES LEADS TO A CONCLUSION THAT THE SIGNATURES OF BOTH THE QUESTIONED AND ADMITTED WRITTEN BY THE DIFFERENT WRITERS. ITA NO.506 (ASR)/2015 ASST. YEAR :2011-12 12 ON PERUSAL OF THE AFORESAID HANDWRITING EXPERTS/FOREN SIC SCIENCE LABORATORY OPINION, WE ARE CONSIDERED OPINION THAT TH E PRIMA FACIE THE ACCOUNT DOES NOT BELONG TO THE ASSESSEE AND EVEN MANY PRO CEEDINGS ARE PENDING BEFORE VARIOUS LEGAL FORMS WITH REGARD TO THE CONTROVERSY OF THE BANK ACCOUNT. ONCE THE ASSESSEE HAS TAKEN STANDS THA T THE SAID ACCOUNT DOES NOT BELONG TO THE ASSESSEE AND FROM THE VARIO US COMPLAINTS LODGED BY THE ASSESSEE TO DIFFERENT AUTHORITIE S AND SPECIFICALLY EXPERT OPINIONS GIVEN BY THE FORENSIC EXPERT S DEPARTMENT AS WELL AS BY SAFS IN FAVOUR OF THE ASSESSEE. FROM THE DO CUMENTS, EXPERT OPINIONS AND COMPLAINTS OF THE ASSESSEE TO MANY AU THORITIES, GOES TO SHOW THAT THERE IS A DISPUTE WITH REGARD TO TH E ACCOUNT UNDER SCRUTINY WHICH SEEMS TO BE SUSPICIOUS AND IT IS SETTLED LAW THAT THE ADDITION CAN NOT BE MADE ON SUSPICION AND SURMISES , HENCE , FOR THE DISPUTED ACCOUNT, THE LIABILITY OF THE ASSESSEE CANNOT BE F ASTENED. AS WE REALIZE THAT THE LD. CIT(A) HAS NOT CONSIDERED THE EXPERT OPINION REPORTS ISSUED BY THE FORENSIC SCIENCE DEPARTMENT, PUNE, G OVT. OF INDIAN AND BY SAFS (FORENSIC SCIENCE ORGANIZATION, IND IA) AND THE SAME HAS NOT BEEN DISPUTED BY THE DEPARTMENT, HENCE, WE FIND THE ORDER PASSED BY THE LD. CIT(A) FOR CONFIRMATION OF THE ADDITION OF RS.89,24,178/- AS PERVERSE, IMPROPER AND IRREGULAR. HE NCE, WE DELETED THE SAID ADDITION. GROUND NO.2 STANDS ALLOWED. GROUND NO.3 RELATES TO THE CONFIRMATION OF THE TURNOVER OF ASSESSEE AS RS.5,05,32,668/- WHICH IS INCLUSIVE OF VAT, INSTEA D OF RS.4,63,93,024/- AND ALSO UPHOLDING OF APPLICATION OF NPA @ 3% ON SAID TURNOVER BY THE LD. CIT . ASSESSING OFFICER APPLIED NPA @ 3% , BY ADDING EXCESS BANK CREDITS OF RS.41,39,644/- IN THE ASSESSEE REGULAR BOOKS OF ACCOUNT COMPARED TO SALES DECLARED BY THE ASSESSEE AN D ALSO INCREASE IN ESTABLISHMENT, WAGES, FREIGHT AND CARRIES EXP ENSES DURING THE YEAR, COMPARED TO LAST YEAR AND NON MAINTENANCE OF STOCK REGISTER THE SAID NET PROFIT RATE @ 3% WAS CONFIRMED BY THE LD . CIT(A) BY ITA NO.506 (ASR)/2015 ASST. YEAR :2011-12 13 OBSERVING THAT THE NET PROFIT RATE IS TO BE APPLIED O N TURN OVER WHICH IS INCLUSIVE OF SALES TAX/VAT AND NOT ON THE NET SALE FIGU RE. THE GUIDANCE NOTE OF SEC.44AB OF THE ACT WAS ISSUED BY THE CHARTERED ACCOUNTS OF INDIA, AND IT WAS CLARIFIED THAT THE TURN OVER WOUL D INCLUDE THE EXCISE DUTY AND SALES TAX EVEN IF THE ASSESSEE HAS NOT INCLUDED T HE SAME IN P&L ACCOUNT. THE LD. AR HAD DRAWN OUR ATTENTION TO THE GUIDANCE N OTE ON TAX AUDIT U/S 44AB OF THE INCOME TAX ACT, 1961, THE TURN O VER HAS BEEN DEFINED UNDER CLAUSE 5.7 WHICH IS REPRODUCED HEREIN BEL OW. 5.7 THE TERM TURNOVER FOR THE PURPOSES OF THIS C LAUSE MAY BE INTERPRETED TO MEAN THE AGGREGATE AMOUNT FOR WHICH SALES ARE EF FECTED OR SERVICES RENDERED BY AN ENTERPRISE. IF SALES TAX AND EXCISE DUTY ARE INCLUDED IN THE SALE PRICE, NO ADJUSTMENT IN RESPECT THEREOF SHOULD BE MADE FOR CONSIDERING THE QUANTUM OF TURNOVER. TRADE DISCOUNTS CAN BE DED UCTED FROM SALES BUT THE COMMISSION ALLOWED TO THIRD PARTIES. IF, HOWEVE R, THE EXCISE DUTY AND/ OR SALES TAX RECOVERED ARE CREDITED SEPARATELY TO E XCISE DUTY OR SALES TAX ACCOUNT (BEING SEPARATE ACCOUNTS) AND PAYMENT TO TH E AUTHORITY ARE DEBITED IN THE SAME ACCOUNT, THEY WOULD NOT BE INCL UDED IN THE TURNOVER. HOWEVER, SALES OF SCRAP SEPARATELY UNDER THE HEADIN G MISCELLANEOUS INCOME WILL HAVE TO BE INCLUDED IN TURNOVER. AS THE LD. AR ARGUED THAT THE EXCISE BANK CREDITS OF RS.41,39,600/- AS POINTED OUT BY THE LD. AO IN FACT I NCLUSIVE OF RS.39,68,341/- WHICH REPRESENTS OUT PUT TAX CALCULATED B Y THE ASSESSEE AND SALES ARE SHOWN AS NET OF OUT PUT TAX IN THE P & L ACCOUNT BY THE ASSESSEE, WHICH IS ALLOWED PRACTICE AS PER ACCOUN TING NORMS AND THE ASSESSEE DULY PROVIDED THE DETAILS OF SAID O UT PUT TAX TO THE LD. AO DURING THE ASSESSMENT PROCEEDINGS. HOWEVER, HE HAS NOT PAID ANY HEAD TO THE SAME. WE HAVE GONE THROUGH WITH THE FACTS AND CIRCUMSTANCES, AND ALSO GIVEN THOUGHTFUL CONSIDERATION TO THE ORDER PASSED BY THE AUTHORITIES BELOW AND THE SUBMISSIONS OF THE PARTIES WHI LE GOING ITA NO.506 (ASR)/2015 ASST. YEAR :2011-12 14 THROUGH THE GUIDANCE NOTE ON SEC.44AB ISSUED BY INSTITUT E OF CHARTERED ACCOUNTANT OF INDIA , IT EMERGED THAT THE T URN OVER DOES NOT INCLUDE EXCISE DUTY OR SALE TAX RECOVERED IF THE SAME ARE CREDITED SEPARATELY TO EXCISE DUTY OR SALES TAX ACCOUNT (BEING SEPA RATE ACCOUNT) AND PAYMENTS TO THE AUTHORITY ARE DEBITED IN THE SAME ACCOUNT, AS IN THE INSTANT CASE, THE ASSESSEES CLAIM OF RS.39, 68,341/- OUT OF EXCESS BANK CREDITS AMOUNT OF RS.41,39,644/- AS O UT PUT TAX COLLECTED BY THE ASSESSEE AND TOTAL SALES HAVE BEEN SHOWN A S RS.4,63,93,024/- WHICH EXCLUDING THE OUT PUT TAX, WHIC H IS SHOWN SEPARATELY BY THE ASSESSEE AND EVEN COMMERCIAL TAX DEPART MENT, SRINAGAR, ALSO MADE ASSESSMENT FOR THE YEAR UNDER CONSIDER ATION AND CONFIRMED THE SALES AND PURCHASE OF THE ASSESSEE ON THE AFOR ESAID REASONING. WE ARE IN CONCURRENCE WITH THE SUBMISSIONS OF TH E ASSESSEE THAT THE EXCISE DUTY AND/ OR SALES TAX CREDITED SEPARATEL Y IN SEPARATE ACCOUNT AND PAYMENTS TO THE AUTHORITY ARE DEBITED IN T HE SAME ACCOUNT, THEN WOULD NOT BE INCLUDED IN THE TURN OVER. WITH THE AFORESAID OBSERVATION, WE DIRECT THE ASSESSING OFFICER TO E XCLUDE THE VAT OUT PUT TAX FROM THE TOTAL SALES OF THE ASSESSEE. CONSIDERING THE SUBSTANTIAL INCREASE OF THE NET PROFIT RATE FROM 0.75 TO 1.65% IN THE FINANCIAL YEAR UNDER CONSIDERATI ON AS THE LD. AR HAS SUBMITTED THAT THE DURING THE YEAR UNDER CONSIDERAT ION, THE ASSESSEE WAS APPOINTED AS SUPER STOCKIEST OF ANOTHER THREE COM PANIES NAMELY SH. JEE FOOD PRODUCTS, INCITE HOME CARE LTD. AN D DEEP TRADING CO. THEREAFTER, THE SALE OF ASSESSEE HAS INCREASED BY RS.72.14 LACS AND NET PROFIT HAVE SUBSTANTIALLY INCREASED BY 5.78 LACS. THE ASSESSEE HAS TO INCUR ADDITIONAL EXPENSES IN THE FORM OF SA LARIES AND CARRIAGE OUTWARDS TO PUSH NEW PRODUCTS IN THE MARKET BY APPOINTING NEW EMPLOYEES & APPROACHING NEW DEALERS, ACCORDINGLY, TH E INCREASE IS JUSTIFIED. ITA NO.506 (ASR)/2015 ASST. YEAR :2011-12 15 WE FOUND FORCE IN THE CONTENTION OF THE ASSESSEE AS HE WAS APPOINTED AS SUPER STOCKIEST OF ANOTHER THREE COMPANIES AS REFERRED ABOVE, THEN CERTAINLY THERE MUST BE ADDITIONAL EXPENS ES WHICH ARE SUPPOSED TO BE INCURRED FOR MARKETING THE NEW PRODUCTS F OR ITS CIRCULATIONS. FURTHER WITH REGARDS TO THE ESTIMATE THE NET PROFIT R ATE @ 3% . IN THE INSTANT CASE, THE BOOK OF ACCOUNTS WAS REJECTED BY THE ASSESSING OFFICER ON THE GROUNDS THAT THERE ARE DIFFERENCES IN TU RN OVER AND REASON OF SAME WAS NOT EXPLAINED BY THE ASSESSEE AND FURTH ER THE ASSESSEE WAS NOT ABLE TO PRODUCE THE DOCUMENTARY EVIDENCE IN RESPECT OF VARIOUS EXPENSES CLAIMED BY HIM, THEREFORE, THE AO WAS LEFT WITH NO OPTION BUT TO MAKE BEST ASSESSMENT BY APPLICATION OF NET PROFIT RATE. WE ARE IN AGREEMENT WITH THE CONCLUSION DRAWN BY THE A.O. AS WELL AS LD. CIT (A) FOR REJECTION OF THE BOOKS OF ACCOUN T, HOWEVER, ONCE THE BOOKS OF ACCOUNTS HAS BEEN REJECTED THEN THE A.O. IS SUPPOSED TO MAKE A BEST JUDGMENT ASSESSMENT BUT SUBJECT TO CERTAIN PARAMETERS OF THE PREVIOUS HISTORY OF THE ASSESSEE AS THE A SSESSEE HAS DECLARED FOLLOWING GROSS AND NET PROFIT RATES OF THE LA ST THREE YEARS. S. NO. ASST. YEAR GROSS PROFIT RATE NET PROFIT R ATE 1. 2009-10 2.50% 0.75% 2. 2010-11 2.50% 0.75% 3. 2011-12 2.50% 1.65% THEREFORE, CONSIDERING THE PECULIAR FACTS AND PECUL IAR CIRCUMSTANCES OF THE INSTANT CASE AND AVERAGE NPA OF PREVIOUS YEARS, WE FEEL IT APPROPRIATE TO APPLY NET PROFIT RATE @ 2.25%, HENCE, WE DIRECT THE A.O. TO APPLY NPA RATE @ 2.25%. IN RESULT, GROUND NO.3 OF THE ASSESSEE STANDS ALLOWED. ITA NO.506 (ASR)/2015 ASST. YEAR :2011-12 16 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 04.10.2017. SD/- SD/- (T. S. KAPOOR) (N.K.CHOUDHRY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 04.10.2017. /PK/ PS. COPY OF THE ORDER FORWARDED TO: (1) THE ASSESSEE: (2) THE (3) THE CIT(A), (4) THE CIT, (5) THE SR DR, I.T.A.T., TRUE COPY BY ORDER