M/s Adit Overseas, Ludhiana V. ITO, Ludhiana

ITA 51/CHANDI/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95725 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 year(s) 10 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 02-09-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 13-01-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Assessee Lawyers: VIBHOR GARG
• Keywords: Rejection of books of accounts; Value adopted by valuation officer; Corroborative evidences; Valuation report
• Section: 145; 143(3)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. ANNAPURNA MEHROTRA, ACCOUNTANT MEMBER ITA NO.51/CHD/2012 ASSESSMENT YEAR:2006-07 M/S ADIT OVERSEAS, VS. THE ITO VILLAGE GILL WARD III(2) LUDHIANA LUDHIANA PAN NO. AALFA4695C (APPELLANT) (RESPONDENT) APPELLANT BY : SH. VIBHOR GARG RESPONDENT BY : SH. MANJIT SINGH DATE OF HEARING : 02/09/2015 DATE OF PRONOUNCEMENT : 27/11/2015 ORDER PER ANNAPURNA MEHROTRA A.M. THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A)- II, LUDHIANA DATED 01-11-2011. 2. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL:- 1. BECAUSE THE ACTION IS BEING CHALLENGED ON FACTS AND LAW FOR HAVING MADE THE ADDITION WITHOUT INVOKING THE PROVISIONS O F SECTION 145 AND WITHOUT REJECTING THE BOOKS ACCOUNTS. 2. BECAUSE THE ACTION IS BEING CHALLENGED ON FACTS AND LAW FOR MAKING AN ADDITION OF RS. 6,94,692/- ATTRIBUTABLE TO THE SALE OF BARDANA BAGS WHEREIN HAVING OVERLOOKED THE STOCK OF 72216 BAGS AND THE UTILIZAT ION OF THE BAGS IN ROTATION WITHIN THE BUSINESS BEING A PECULIAR FEATURE OF T HE BUSINESS. THE QUANTUM OF THE ADDITION IS DISPUTED. 3. BECAUSE THE ACTION IS BEING CHALLENGED ON FACTS AND LAW FOR MAKING AN ADDITION OF RS. 4,18,037/- ATTRIBUTABLE TO UNDERVAL UATION OF CLOSING STOCK OF BINOLA IGNORING THE VALUATION OF THE BYE PRODUCTS NAMELY K HAL, OIL, OIL WASTE BEING IN THE CONSOLIDATED EFFECT WOULD HAVE NEGLIGIBLE DIFFE RENCE IN THE VALUATION. 4. BECAUSE THE ACTION IS BEING CHALLENGED ON FACTS AND LAW FOR MAKING AN ADDITION OF RS. 13,22,933/- ATTRIBUTABLE TO UNDER B ILLING OF SALE IGNORING THE MATERIAL PLEADINGS, DOCUMENTS ON RECORD. 5. BECAUSE THE ACTION IS BEING CHALLENGED ON FACTS AND LAW FOR MAKING AN ADDITION OF RS. 11,58,310/- ATTRIBUTABLE TO ADDITIO N ON ACCOUNT OF DIFFERENCE IN VALUATION IN THE CONSTRUCTION OF THE BUILDING INSPI TE OF THE FACT THE ASSESSEE HAVING MAINTAINED BOOKS OF ACCOUNTS WITH SUPPORTING BILLS AND VOUCHERS. 2 6. THAT THE LEARNED ASSESSING OFFICER AND THE CIT(A ) HAVE FURTHER ERRED AS ADDITION OF PEAK AMOUNT CAN ONLY BE MADE TO THE INC OME AND IN THIS CASE IF THE ASSESSING OFFICER MAKES AN ADDITION ON ACCOUNT OF D ISCREPANCIES LIKE SALE OF BARDANA OUTSIDE THE BOOKS OF ACCOUNT, UNDER VALUATI ON OF SALES AND CLOSING STOCK THEN THE ADDITION ON ACCOUNT OF INVESTMENT MA DE IN CONSTRUCTION OF BUILDING FROM UNDISCLOSED SOURCES SHOULD NOT BE MAD E. 7. BECAUSE THE ACTION OF ASSESSING OFFICER AS WELL AS OF CIT(A) IS UNDER CHALLENGE SINCE NOT HAVING APPRECIATED THE FACTS, D OCUMENTS, PAPER BOOK, EVIDENCE, DECISION RELIED & PROVISION OF ACT IN ITS TRUE SENSE & SPIRITS. 3. BRIEF FACTS RELATING TO THE CASE ARE THAT THE AS SESSEE DERIVES INCOME FROM THE MANUFACTURE OF BINOLA OIL, KHAL ETC. FROM BINOL A AND SALE OF BINOLA. THIS IS THE FIRST YEAR OF BUSINESS OF THE ASSESSE. RETURN FOR T HE IMPUGNED ASSESSMENT YEAR WAS FILED BY THE ASSESSEE ON 31.10.2006 DECLARING I NCOME OF RS. 64,758/-. ASSESSMENT U/S 143(3) OF THE INCOME TAX ACT, 1961 W AS FRAMED ON THE ASSESSEE AT AN INCOME OF RS. 38,25,150/- VIDE ORDER DATED 30 -12-2008 AFTER MAKING THE FOLLOWING ADDITIONS:- 1. ON ACCOUNT OF SALE OF BARDONA OUT OF BOOKS OF ACCOU NTS RS. 6,94,692/- 2. ON ACCOUNT OF UNDERVALUATION OF CLOSING STOCKOF BIN OLA RS. 4,18,037/- 3. ON ACCOUNT OF UNDER BILLING OF SALES RS. 13,22, 933/- 4. ON ACCOUNT OF DIVERSION OF PROFIT U/S 40A(2)(A) R S. 1,66,414/- 5. ON ACCOUNT OF INVESTMENT MADE IN CONSTRUCTION OF BUILDING RS. 11,58,310/- --------------------- TOTAL:- RS. 37,60,386/- ============ 4. THE MATTER WAS TAKEN UP IN APPEAL BEFORE THE LD. CIT(A) WHO VIDE HIS ORDER DATED 01-11-2011 UPHELD ALL THE ADDITIONS / D ISALLOWANCES MADE BY THE A.O. EXCEPT THE ADDITION OF RS.1,66,414/- UNDER SEC TION 40A(2)(A) IN RESPECT OF PURCHASES FROM SISTER CONCERN. AGGRIEVED BY THE SAM E, THE ASSESSEE FILED THIS APPEAL BEFORE US. 5. GROUND NO. 1 OF THE APPEAL IS AGAINST MAKING NU MEROUS ADDITIONS AMOUNTING TO RS.37,60,386/- TO THE INCOME OF THE AS SESSEE ON ACCOUNT OF VARIOUS DISCREPANCIES ATTRIBUTABLE TO SALES OUTSIDE THE BOO KS, UNDERVALUATION OF CLOSING STOCK, UNDER BILLING OF SALES AND UNACCOUNTED INVES TMENT IN CONSTRUCTION OF 3 BUILDING, MADE WITHOUT REJECTING THE BOOKS OF ACCO UNTS OF THE ASSESSEE. THIS GROUND BEING COMMON TO ALL THE OTHER SPECIFIC GROUN DS RAISED, IS BEING DEALT WITH THEREIN. 6. GROUND NO. 2 OF THE APPEAL RELATES TO THE ADDI TION OF RS. 6,94,692/- MADE ON ACCOUNT OF SALE OF BARDANA BAGS / GUNNY BAGS OUT SIDE THE BOOKS OF ACCOUNTS OF THE ASSESSEE. 7. BRIEF FACTS OF THE CASE ARE THAT DURING ASSESSMENT PROCEEDINGS IT WAS OBSERVED BY THE A.O. THAT DURING THE YEAR THE ASSES SEE HAD RECEIVED 97,738 BAGS OF BARDANA ALONG WITH PURCHASE OF BINOLA AND H AD ALSO MADE LOCAL PURCHASE OF 1,000 BAGS OF BARDANA. THUS, THE TOTAL BAGS OF BARDANA AVAILABLE WITH THE ASSESSEE DURING THE YEAR WERE FOUND TO BE 98,738 BAGS. AS AGAINST THIS, THE A.O. FOUND THAT THE ASSESEE HAD SHOWN CLOSING S TOCK OF BAGS CONTAINING BINOLA OF 6,216 AND STOCK OF BARDANA BAGS AT 15,3 34. THUS, THE A.O. FOUND THAT THE ASSESSEE HAD ACCOUNTED FOR 21,550 BAGS OF BARDA NA IN ITS BOOKS WHILE 77,188 BAGS WERE LEFT UNACCOUNTED FOR. ON BEING QUE STIONED REGARDING THE SAME, THE ASSESSEE EXPLAINED THAT THE TOTAL AVAILAB ILITY OF BAGS WITH THE ASSESSEE WAS 21,550/- ONLY OUT OF WHICH 1,000 BAGS HAD BEEN PURCHASED BY THE ASESSEE FROM THE LOCAL MARKET WHILE 20,550 BAGS HAD BEEN PU RCHASED ALONG WITH BINOLA FROM THE SUPPLIERS OF BINOLA. THE ASSESSEE FURTHER EXPLAINED THAT IN THE REST OF THE CASES BINOLA WAS PURCHASED IN BAGS EITHER TAKEN ON LOAN FROM THE MARKET OR THE BAGS AVAILABLE WITH THE ASSESSEE WERE ROTATED A ND SENT TO THE SUPPLIER OF BINOLA FOR SUPPLYING THE SAME. THE ASSESSEE STATED THAT IT IS INCORRECT TO PRESUME THAT BINOLA IS INVARIABLY PURCHASED ALONG WITH BAGS . THE ASEESEE STATED THAT IN SOME CASES BAGS ARE ALSO PURCHASED ALONG WITH BINOL A WHILE IN OTHERS BAGS ARE NOT PURCHASED WITH BINOLA. THE ASSESSEE FURTHER EXP LAINED THAT WHERE BAGS ARE PURCHASED ALONG WITH BINOLA THE SAME IS SHOWN SEPAR ATELY IN THE BILL AND ALSO ACCOUNTED FOR IN THE STOCK OF BAGS KEPT BY THE ASSE SSEE. LD. A.O., NOT SATISFIED 4 WITH THE REPLY OF THE ASSESSEE , CONDUCTED AN ENQUI RY IN THIS BEHALF AND DEPUTED AN INSPECTOR TO GET INFORMATION REGARDING T HE PRACTICE BEING FOLLOWED BY BINOLA TRADERS. AS PER THE INFORMATION OBTAINED FROM THE INSPECTOR AND REPRODUCED IN THE ASSESSMENT ORDER, IT WAS CONFIRME D BY ALL THE BINOLA TRADERS THAT TWO TYPES OF BILLS WERE ISSUED, ONE IN WHICH B ARDANA WAS PURCHASED ON BEHALF OF THE CUSTOMER AND CHARGES WERE SHOWN SEPAR ATELY IN THE BILL AND SECOND IN WHICH BARDANA WAS SUPPLIED BY THE CUSTOME RS AND NO CHARGES FOR THE SAME WERE SHOWN IN THE BILL. FROM THIS INFORMAT ION GATHERED, THE A.O. CONCLUDED THAT BINOLA WAS NEVER SUPPLIED LOOSE BUT WAS ALWAYS FILLED IN BAGS AND WHILE IN SOME CASES THE BAGS WERE PURCHASED BY THE SELLING PARTY ON BEHALF OF THE ASSESSEE IN OTHERS THE BAGS WERE SUPPLIED BY THE ASSESSEE HIMSELF TO THE PURCHASING PARTIES. LD. A.O. THEREAFTER FOUND THAT FOR THE BARDANA SUPPLIED BY THE ASSESSEE TO THE SELLERS OF BINOLA NO EVIDENCE O F TRANSPORTING THE BAGS TO THE SELLERS WAS BROUGHT ON RECORD BY THE ASSESSEE. IN V IEW OF THE SAME THE A.O. HELD THAT THE ASSESSEE HAD SOLD 77,188 BAGS OF BARDANA O UTSIDE THE BOOKS AND VALUING THE SAME ATRS. 9/- PER BAG MADE AN ADDITION OF RS. 6,94,692/- TO THE INCOME OF THE ASSESSEE, BEING UNDISCLOSED INCOME. 8. LD. CIT(A) UPHELD THE ADDITION BY HOLDING AT PARA4 OF HIS ORDER AS FOLLOWS:- I HAVE GONE THROUGH THE ORDER OF THE ASSESSING OF FICER AND SUBMISSIONS MADE BY THE COUNSEL OF THE ASSESSEE. THE ASSESSEE HAS NOT B EEN ABLE TO CONTROVERT THE FINDINGS OF THE ASSESSING OFFICER AS TO WHY IN THE STOCK REGISTER MAINTAINED BY HIM ONLY BARDANA FOR WHICH SEPARATE AMOUNT HAS BEEN CHA RGED IN THE PURCHASE BILLS OF BINOLA HAS BEEN ACCOUNTED FOR BUT NO BARDANA FOR BINOLA PURCHASED INCLUDING COST OF BARDANA HAS NOT BEEN ACCOUNTED FOR IN BOOKS OF ACCOUNTS. THE ASSESSEES CONTENTION REGARDING PURCHASE OF BINOLA WITH OR WITHOUT BAGS CANNOT BE ACCEPTED IN LIGHT OF INDIVIDUAL PURCHASE BILLS B EING COMMENTED UPON BY THE ASSESSING OFFICER. THE ASSESSEE HAS NOT BEEN ABLE T O SHOW AS TO WHY IN CASES OF BARDANA SUPPLIED BY THE ASSESSEE TO PURCHASING PART IES WHERE THE WEIGHT OF BARDANA HAS BEEN REDUCED FROM THE GROSS WEIGHT, HE HAS NO GIVEN ANY PURCHASE OF SUCH BARDANA FOR FILLING THE BINOLA PURCHASED. I T IS CLEAR THAT IN CASES WHERE THE COST OF BARDANA IS CHARGED SEPARATELY IN PURCHASE B ILLS, THE BARDANA IS PURCHASED BY THE SELLING PARTY ON BEHALF OF THE ASS ESSEE AND AMOUNT OF SUCH PURCHASE IS CHARGED IN BILL ITSELF AND THE ASSESSEE HAS ACCOUNTED FOR PURCHASES OF SUCH BARDANA IN ITS BOOKS OF ACCOUNTS AND NO OTHER BARDANA IS ACCOUNTED FOR. HENCE THIS GROUND OF APPEAL OF THE ASSESSEE IS DISM ISSED AND ORDER OF THE ASSESSING OFFICER IS UPHELD. 5 9. BEFORE US LD. AR ARGUED THAT IT IS TRUE THAT THE ASSESSE HAD PURCHASED 97,738 BAGS OF BINOLA DURING THE YEAR BUT, THE LD. AR STATED, THAT IT WAS NOT IN ALL CASES THAT THE BAGS WERE ALSO PURCHASED BY THE ASSE SSEE. LD. AR STATED THAT UNDENIABLY BINOLA IS PURCHASED IN BAGS AND IT IS NO T PURCHASED LOOSE. BUT THE LD. AR STATED THAT IT IS NOT IN ALL CASES THAT BAGS WER E ALSO PURCHASED ALONG WITH THE BINOLA. LD. AR STATED THAT IT IS COMMON PRACTICE IN THE LINE OF BUSINESS THAT BINOLA IS PURCHASED IN TWO WAYS, ONE IN WHICH THE BAG IS S UPPLIED BY THE SELLER OF BINOLA AND THE COST OF THE BAG IS SEPARATELY INCLUDED IN T HE BILL OF THE SUPPLIER. IN THE SECOND CASE THE BAGS ARE PROVIDED BY THE PURCHASER OF BINOLA AND IN SUCH CASES THE SUPPLIER OF BINOLA DOES NO CHARGE SEPARAT ELY FOR THE BAGS IN THE BILLS PREPARED BY IT. LD. AR STATED THAT IN CASES WHERE B AGS ARE SUPPLIED BY THE SUPPLIER OF BINOLA THE SAME ARE ACCOUNTED FOR IN TH E BOOKS OF THE ASESSEE. LD. AR STATED THAT THIS FACT WAS CONFIRMED FROM THE ENQ UIRIES CARRIED OUT BY THE INSPECTOR DURING ASSESSMENT PROCEEDINGS AND THE REP ORT OF WHICH IS REPRODUCED IN THE ASSESSMENT ORDER, WHEREIN THE SUPPLIERS OF B INOLA HAVE CATEGORICALLY STATED THAT BINOLA IS SUPPLIED IN BAGS EITHER PURCH ASED BY THE SUPPLIER OR IN BAGS WHICH ARE PROVIDED OF THE PURCHASER OF BINOLA. LD. A.R. STATED THAT IT IS ONLY THOSE BAGS WHICH ARE SUPPLIED BY THE SUPPLIERS OF BINOLA THAT ARE ACCOUNTED FOR IN THE BOOKS OF THE ASSESSEE. LD. AR DO OUR ATTENTION TO V ARIOUS BILLS REPRODUCED IN THE ASSESSMENT ORDER WHEREIN, THE PRICE OF BAGS WAS SEP ARATELY CHARGED AND STATED THAT IT WAS THESE BAGS WHICH WERE ACCOUNTED FOR IN THEBOOKS OF THE ASSESSEE. LD. AR FURTHER STATED THAT IT IS NOT IN DISPUTE THA T 1,000 BAGS WERE ALSO PURCHASED BY THE ASESEE FROM THE LOCAL MARKET. THUS, THE LD. AR STATED THAT AS PER THE BOOKS OF THE ASSESSEE 21550 WERE AVAILABLE WITH THE ASSESSEE PURCHASED EITHER FROM THE LOCAL MARKET OR ALONG WITH THE BINOLA AND IT WAS THESE BAGS WHICH WERE ROTATED TO THE SUPPLIERS OF BINOLA IN THE REST OF T HE CASES OF PURCHASE OF BINOLA, WHERE IN NO SEPARATE CHARGES FOR THE BAGS WERE SHOW N IN THE BILLS. LD. DR ON THE OTHER HAND CONTENDED THAT THE ASSESSEE HAD NOT DEMO NSTRATED THE MOVEMENT 6 OF THE BAGS AVAILABLE WITH IT TO THE SUPPLIERS OF B INOLA ALONG WITH EVIDENCE AND THEREFORE, THIS CONTENTION OF THE ASSESSEE THAT THE 21550 AVAILABLE WITH IT WERE ROTATED FOR THE SUPPLY OF BINOLA IS NOT ACCEPTABLE. LD. DR FURTHER PLACED RELIANCE ON THE ORDER OF LD. CIT(A). 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE DOCUMENTS PLACED BEFORE U S. 11. THE FACTS EMERGING IN THE PRESENT CASE ARE THAT DURING THE IMPUGNED ASSESSMENT YEAR THE ASSESSEE PURCHASED BAGS 97,738 OF BINOLA. OUT OF THE SAME THE ASSESSEE HAS DEMONSTRATED ALONG WITH EVIDENCE T HE AVAILABILITY OF 21,550 BAGS, 1,000 BAGS PURCHASED FROM THE LOCAL MARKET AN D 20,550 BAGS FROM THE SUPPLIERS OF BINOLA AND DULY REFLECTED IN THE BILLS OF THE SUPPLIERS. IT IS NOT IN DISPUTE THAT THE COMMON PRACTICE IN THIS TRADE IS T HAT BINOLA IS SUPPLIED IN BAGS WHICH ARE EITHER SUPPLIED BY THE SUPPLIER OF BINOLA AND CHARGED SEPARATELY IN THE BILLS OR IN BAGS WHICH ARE PROVIDED BY THE PURC HASER OF BINOLA FOR WHICH NO CHARGES ARE LEVIED IN THE BILLS OF THE SUPPLIER. WE FIND THAT THE ASSESSEE HAS CONTENDED THAT OUT OF THE 97,738 BAGS OF BINOLA PUR CHASED BY IT, 20550 WERE SUPPLIED BY THE SUPPLIER OF BINOLA, 1,000 BAGS WERE PURCHASED BY THE ASSESSEE FROM THE LOCAL MARKET AND SENT TO THE SUPPLIER OF B INOLA. FOR THE REST I.E. 77,188 BAGS THE ASSESSEE HAS STATED THAT IT HAD ROTATED TH E AVAILABLE 21,550 BAGS. THIS EXPLANATION OF THE ASSESSEE HAS NOT BEEN CONTROVERT ED BY THE AUTHORITIES BELOW. IN FACT IT HAS BEEN CONFIRMED BY THE INSPECTOR DEPU TED TO MAKE AN ENQUIRY IN THIS REGARD THAT IT IS COMMON PRACTICE THAT BINOLA IS SUPPLIED IN BAGS WHICH ARE PROVIDED BY THE PURCHASERS OF BINOLA. TAKING THIS F ACT INTO CONSIDERATION WE FIND THAT THE ACTION OF THE AUTHORITIES BELOW IN OUTRIGH TLY REJECTING THE CONTENTION OF THE ASSESSEE THAT 77,188 BAGS WERE SUPPLIED BY THE ASSESSEE FROM HIS OWN STOCK OF BAGS IS AGAINST THE FACTS AND CIRCUMSTANCES OF T HE CASE ITSELF. WE FIND NO REASON TO REJECT THE EXPLANATION OFFERED BY THE ASS ESSEE. WE FURTHER FIND THAT NO 7 EVIDENCE HAS BEEN BROUGHT ON RECORD TO SHOW THAT TH E BAGS WERE PURCHASED OUTSIDE THE BOOKS OR SOLD OUTSIDE THE BOOKS OF THE ASSESSEE. THE ENTIRE ADDITION HAS BEEN MADE ON SURMISES AND CONJECTURES. WE THERE FORE, HOLD THAT THE ADDITION OF RS. 6,94,692/- MADE ON ACCOUNT OF UNACC OUNTED SALES OF BAGS BE HEREBY DELETED. 12. THIS GROUND OF APPEAL OF THE ASSESSEE IS THERE FORE, ALLOWED. 13. IN GROUND NO. 3 THE ASSESSEE HAS CHALLENGED THE ADDITION OF RS. 4,18,037/- ATTRIBUTABLE TO UNDER VALUATION OF CLOSING STOCK OF BINOLA. 14. BRIEF FACTS RELATING TO THE ISSUES ARE THAT WHI LE EXAMINING THE VALUE OF CLOSING STOCK THE A.O. FOUND THAT THE VALUATION OF BINOLA HAD BEEN DONE AT RS. 858.74 PER QUINTAL AS AGAINST THE AVERAGE OF PURCHA SE PRICE OF BINOLA IN MARCH, 2006 AT RS. 1008.22 PER QUINTAL AND THAT THE ASSESS EES SISTER CONCERN M/S BERRY COTTON INDUSTRIES HAD VALUED ITS CLOSING STOCK OF B INOLA AT RS. 1038.72 PER QUINTAL. THE ASSESSEE EXPLAINED THAT THE CLOSING STOCK HAD B EEN WORKED OUT ON THE BASIS OF QUALITY OF BINOLA AT THE END OF THE YEAR AND ALS O GAVE DETAILED WORKING OF THE VALUATION OF CLOSING STOCK OF BINOLA, BINOLA OIL, B INOLA KHAL AND OIL WASTE. THE A.O. REJECTED THE ASSESSEES VALUATION KEEPING IN VIEW T HE FACTS THAT THE SYSTEM OF VALUATION OF STOCK AS MENTIONED IN THE AUDIT REPORT WAS COST OR MARKET VALUE WHICHEVER WAS LESS AND WORKED OUT THE UNDER VALUATI ON OF BINOLA AT RS. 418178/- BY VALUING THE SAME AT RS. 1008.32 AS AGAINST RS. 8 58.78 BY THE APPELLANT. THE A.O. ALSO NOTICED THAT THREE OTHER ITEMS OF CLOSING STOCK I.E. OIL BINOLA, KHAL BINOLA, OIL WASTE WERE VALUED AT HIGHER RATES I.E. OIL BINOLA VALUED AT RS. 4000/- QUINTAL AGAINST RS. 3425/-, KHAL BINOLA VALUED AT R S 800/- PER QUINTAL AGAINST RS. 740.79/- AND OIL WASTE VALUED AT RS. 470/- PER QUIN TAL AGAINST RS. 362/-. THE A.O. IGNORED THE HIGHER VALUATION OF STOCK OF OIL BINOLA , KHAL BINOLA AND OIL WASTE AND MADE ADDITION OF RS. 4,18,718/- ON ACCOUNT OF UNDER VALUATION OF STOCK OF BINOLA ONLY. 8 15. BEFORE THE LD. CIT(A), THE ASSESSE PLEADED THAT THE VALUATION OF CLOSING STOCK DEPENDS UPON THE QUALITY OF STOCK AT THE END OF THE YEAR. THE ASSESSEE FURTHER PLEADED THAT BETTER QUALITY STOCK IS PROCES SED FIRST FOR BETTER YIELD AND THEREFORE, THE STOCK OF BINOLA AT THE END OF YEAR I S GENERALLY LOW QUALITY OF CHEAPER RATE. THE ASSESSEE FURTHER PLEADED THAT QUA LITY OF BINOLA ALSO GETS DETERIOTED WITH THE PASSAGE OF TIME AND HENCE THERE IS NO UNDER VALUATION IN THE STOCK OF BINOLA. THE ASSESSEE ALSO STATED THAT IF THE ENTIRE CLOSING STOCK OF BINOLA AND ITS BY PRODUCE ARE VALUED AT THE RATES A DOPTED BY THE AO THE TOTAL VALUE OF STOCK TAKEN BY THE ASSESSEE WOULD RS. 73,5 5,332/- AS AGAINST THE VALUE OF STOCK TAKEN BY THE ASSESSEE AT RS. 73,35,332/-. THUS, THE UNDERVALUATION OF STOCK WOULD BE OF A PETTY SUM OF RS. 20,000 ONLY WH ICH WAS IMMATERIAL. THE ASSESSEE ALSO PLEADED THAT VALUATION OF CLOSING STO CK WAS REVENUE NEUTRAL EXERCISE SINCE THE CLOSING STOCK OF THE ONE YEAR IS THE OPENING STOCK OF THE NEXT YEAR. 16. THE LD. CIT(A) REJECTED THE CONTENTION OF THE A SSESSEE AND UPHELD THE ADDITION MADE BY HOLDING AT PARA 6 OF ITS ORDER AS FOLLOWS:- 6. I HAVE GONE THROUGH THE ORDER OF THE ASSESSING OFFICER AND SUBMISSIONS MADE BY THE COUNSEL OF THE ASSESSEE. THE ASSESSEE HAS NO T BEEN ABLE TO CONTROVERT THE FACT THAT ENTIRE CLOSING STOCK AVAILABLE WITH HIM A S ON 31/03/2006 WAS OUT OF PURCHASES MADE IN MONTH OF MARCH. AVERAGE COST OF M ATCH PURCHASES COME OUT TO BE RS. 1008.22 PER QUINTAL. THERE IS NO SUPPORT TO ASSESSEES CONTENTION ON THE LAST DAY OF THE YEAR THE STOCK IS BEING PHYSICALLY VERIFIED & COUNTED BY THE MANAGEMENT AND THEREAFTER VALUATION OF STOCK IS DON E ON THE BASIS OF THE QUALITY OF THE GOODS. RULES REGARDING VALUATION OF STOCK SH OULD BE CONSISTENTLY FOLLOWED. IF THIS ARGUMENT IS ACCEPTED THEN VALUATION OF CLOSING STOCK COULD ALWAYS BE ADOPTED BY THE ASSESSEE AS PER HIS CONVENIENCE. THE RE IS NO ERROR IN THE ORDER OF THE ASSESSING OFFICER IN ADOPTING THE VALUE AS PER THE AVERAGE OF LAST MONTH. HENCE THIS GROUND OF APPEAL OF THE ASSESSEE IS DISM ISSED AND ORDER OF THE ASSESSING OFFICER IS UPHELD. 17. BEFORE US LD. AR REPEATED THE CONTENTIONS MADE BEFORE THE LD. CIT(A) AND FURTHER EMPHASIZED, THAT THE ADDITION MADE IS U NJUSTIFIED, SINCE AS PER THE AOS OWN CALCULATION, WHILE THE ASSESSEE HAD UNDERV ALUED ITS STOCK OF BINOLA, IT HAD ALSO OVERVALUED ITS STOCK OF OIL BINOLA, KHAL B INOLA AND OIL WASTE. LD. AR 9 STATED THAT THE NET EFFECT ON THE VALUATION OF STOC K OF THE ASSESSEEE WAS ONLY RS. 20,000, WHICH WAS IMMATERIAL LD. AR PRODUCED BEFORE US A CHART INDICATING THE SA ME AS FOLLOWS: NAME OF PRODUCT QUANTITY RATE ADOPTED BY ASSESSEE TOTAL VALUE AS PER ASSESSEE RATE ADOPTED BY AO TOTAL VALUE AS PER AO 1. BINOLA 2797.59 858.74 2402408 1008.22 2820586 2. OIL BINOLA 142.75 4000 571000 3567.38 509243 3. KHAL BINOLA 5343.78 800 4275021 740.79 3958619 4. OIL WASTE 184.90 470 86903 362 66934 7335332 7355382 LD. AR THEREFORE PLEADED THAT NO ADDITION ON ACCOUN T OF UNDERVALUATION OF STOCK OF BINOLA WAS WARRANTED, ON A STAND ALONE BAS IS. 18. LD. DR ON THE OTHER HAND RELIED UPON THE ORDER OF THE LD. CIT(A) 19. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HA VE PERUSED THE MATERIALS AND ORDERS BEFORE US:- 20. WE FIND THAT IN SO FAR AS THE ADDITION OF RS. 4 ,18,037/- ATTRIBUTABLE TO UNDER VALUATION OF CLOSING STOCK OF BINOLA IS CONCERNED, THE LIMITED PRAYER OF THE ASSESSEE BEFORE US IS THAT SUCH ADDITION HAS BEEN M ADE BY IGNORING THE VALUATION OF BY PRODUCTS NAMELY OIL BINOLA, KHAL BI NOLA AND OIL WASTE AND THE CONSOLIDATED EFFECT IN THIS REGARD WOULD BE NEGLIGI BLE. WE HAVE CONSIDERED THIS CONTENTION OF THE APPELLANT AND FIND MERIT IN IT AS IT IS THE A.O. HIMSELF WHO HAS FOUND THE VALUATION OF CLOSING STOCK OF OIL BINOLA, KHAL BINOLA AND OIL WASTE AS OVERVALUED BY THE ASSESSEE. THE ASSESSEE HAS FURNIS HED A WORKING SHOWING THE QUANTUM OF IMPACT BECAUSE OF OVER VALUATION OF THES E THREE ITEMS DONE BY THE AO. IN VIEW OF THE ADMITED CASE OF A.O. THAT ASSESS EE HAS DONE OVER VALUATION 10 OF CLOSING STOCK OF OIL BINOLA, KHAL BINOLA AND OIL WASTE, THE ADDITION WHICH IS TO BE SUSTAINED REMAINS RS. 20,000/- AND ACCORDINGLY T HE ASSESSEE GET RELIEF TO THE EXTENT OF RS. 3,98,037/-. 21. THIS GROUND OF APPEAL IS THEREFORE PARTLY ALLOW ED. 22. GROUND NO. 4 IS AGAINST THE ADDITION OF RS. 13, 22,933/- ATTRIBUTABLE TO UNDER BILLING OF SALES. 23. BRIEFLY STATED DURING ASSESSMENT PROCEEDING THE A.O. NOTICED ON SCRUTINY OF SALES BILLS OF KHAL BINOLA THAT THE SALE RATES F ROM 07/11/2005 TO 31/03/2006 REPRODUCED IN THE ASSESSMENT ORDER WERE LESS AS COM PARED TO THOSE OF ITS SISTER CONCERN I.E. M/S BERI COTTON INDUSTRIES AND M/S NAV AL BERI, WHILE 50% OF THE RAW MATERIAL WAS PURCHASED FROM THESE SISTER CONCERN AT HIGHER RATE. THE ASSESSEE EXPLAINED THAT THE COMPARISON IS NOT JUSTIFIED SINC E THE A.O. HAD CHOSEN BILLS WHICH SUPPORTED HIS CONTENTION AND IGNORED THOSE WH ERE THE SALES RATE WERE HIGHER. THE ASSESSEE GAVE A NUMBER OF INSTANCES TO SUPPLEMENT ITS VIEW. THE ASSESSEE FURTHER STATED THAT THE COMPARISON WITH SI STER CONCERN WAS NOT POSSIBLE WITHOUT KNOWING THE QUALITY OF PRODUCT SOLD, RAW MA TERIAL USED, PLACE OF PURCHASE OF RAW MATERIAL, MOISTURE IN THE RAW MATER IAL AT THE TIME OF PURCHASE AND EXPERIENCE OF PURCHASER. THE AO REJECTED THE AS SESSEES CONTENTIONS ON THE GROUND THAT THE SAME WERE NOT BASED ON THE FACT S AND WORKED OUT UNDERVALUATION OF SALES AT RS. 1322933/- AND MADE A DDITION OF THIS AMOUNT TO THE ASSESSEES INCOME. BEFORE THE LD. CIT(A), THE A SSESEE PLEADED THAT THE ADDITION MADE WAS NOT JUSTIFIED SINCE, THE A.O. HAD IGNORED BILLS OF THE ASSESSEE WHERE GOODS WERE SOLD AT HIGHER RATE AS COMPARED TO OTHER PARTIES, THE A.O. HAD ALSO IGNORED BILLS OF SISTER CONCERNS AT LOWER RATE. THE ASSESSEE ALSO PLEADED THAT THE AO HAD NOT ALLEGED THAT THE ASSESSEE HAS R ECEIVED ANYTHING OVER AND ABOVE THE PRICE MENTIONED IN THE SALE BILLS. THE AS SESSEE PLEADED THAT THE CASE OF THE A.O. WAS THAT THE ASSESSEE COULD HAVE EARNED MORE. THE ASSESSEE STATED 11 THAT THE ADDITION WAS MISPLACED SINCE IT WAS MADE O N ACCOUNT OF INCOME WHICH HAD NOT BEEN EARNED BY THE ASSESSEE. 24. THE LD.CIT(A) REJECTED THE CONTENTION OF ASSESS EE AND UPHELD THE ADDITION MADE BY HOLDING AT PARA 8 OF ITS ORDER AS FOLLOWS:- 8. I HAVE GONE THROUGH THE ORDER OF THE ASSESSING OFFICER AND SUBMISSIONS MADE BY THE COUNSEL OF THE ASSESSEE. THE ASSESSING OFFIC ER HAS GIVEN A CLEAR FINDING WITH DETAILED ANALYSIS OF SALES BILLS, PURCHASE BILLS AN D VALUATION OF CLOSING STOCK. THERE HAS BEEN NUMEROUS INSTANCES WHICH HAVE BEEN QUOTED BY THE ASSESSING OFFICER WITH SUPPORTING EVIDENCES FROM WHICH IT IS CLEAR TH AT ASSESSEE HAS MADE PURCHASES FROM THE SISTER CONCERN AT HIGHER MARKET PRICE, SOLD THE GOODS AT LOWER RATES THAN THE MARKET PRICE AND TO COVER ALL THESE, HAS VALUED THE CLOSING STOCK AT HIGHER RATE. AS PER THE DETAILED FINDINGS OF THE ASSESSING OFFICER IN HIS ASSESSMENT ORDER IT IS BEYOND DOUBT THAT THE ASSESS EE HAS UNDER VALUED THE SALES BY ISSUING SALE BILLS IN RESPECT OF KHAL BINOLA (LO CAL SALES & SALES OUT OF PUNJAB) AT VALUE LOWER THAN THE MARKET PRICE I.E. RATES AT WHI CH SISTER CONCERN HAS SOLD THE GOODS OR THE ASSESSEE HAS SOLS IT OWN GOODS IN RESP ECT OF SALES OUT OF PUNJAB. HENCE ADDITION OF RS. 13,22,933/- MADE BY ASSESSING OFFICER OUT OF SALES NOT BEING DISCLOSED AND MADE OUT OF BOOKS BY UNDER BILLING TH E SALES IS HEREBY SUSTAINED AND ASSESSEES GROUND OF APPEAL IS BEING DISMISSED. 25. BEFORE US LD. AR REPEATED THE CONTENTIONS MADE BEFORE THE LD. CIT(A) AND EMPHASIZED THAT THE ADDITION MADE IS PURELY HYP OTHETICAL AND HAS BEEN MADE, WITHOUT BRINGING ON RECORD ANY EVIDENCE OF SU PPRESSION OF SALE BY THE ASSESSEE. LD. AR PRODUCED BEFORE US A CHART AT PAPE R BOOK 33-48 SHOWING DIFFERENT RATES OF KHAL BINOLA PREVALENT IN DIFFERE NT MANDIS ON THE SAME DAY AS WELL AS ON DIFFERENT DATES TO EMPHASIZE THE FACT TH AT THERE CAN BE NO BLANKET METHOD FOR COMPARISON OF SALE PRICE OF KHAL BINOLA WHICH VARIES AS PER ITS QUALITY AND OTHER CRITERIA. LD. AR STATED THAT THE ENTIRE E XERCISE CARRIED OUT FOR CALCULATING THE UNDERVALUATION OF SALES WAS THEREFO RE WITHOUT ANY BASIS AT ALL. LD. AR ALSO PRODUCED DETAILS SUPPLEMENTED WITH EVID ENCE OF PURCHASES MADE BY OTHER PARTIES OF KHAL BINOLA FROM VARIOUS SELLER S DURING THE IMPUGNED YEAR AT PB 116-250. LD. AR POINTED OUT FROM THE SAME THAT THE ASSESSEE HAD IN FACT SOLD KHAL BINOLA AT HIGHER PRICES AS COMPARED TO OTHER P ARTIES. LD. AR STATED THAT THE REVENUE HAD MERELY PICKED UP RATES OF KHAL BINOLA, WHICH SUITED THEIR CASE TO DEMONSTRATE UNDERBILLING BY ASSESSEE, AND COMPLETEL Y SHUT THEIR EYES TO INSTANCES BROUGHT BEFORE THEM, DEMONSTRATING OTHERW ISE. IN THIS REGARD LD. AR 12 DREW OUR ATTENTION TO PB 251-294, WHEREIN IT WAS DE MONSTRATED WITH EVIDENCE, THAT THERE WERE INSTANCES WHERE SALES OF KHAL BINOL A WERE MADE BY SISTER CONCERNS AT LOWER RATES AS COMPARED TO THE ASSESSEE , WHICH THE LD. AO HAD CONVENIENTLY CHOSEN TO IGNORE. LD. AR DREW OUR ATTE NTION TO PB 321-326 DEMONSTRATING INSTANCES OF SALES OF KHAL BINOLA BY ASSESSEE TO OTHERS AT RATES HIGHER THAN THAT OF SISTER CONCERN. LD. AR ALSO DRE W OUR ATTENTION TO PB 295-320 TO DEMONSTRATE SALE OF KHAL BINOLA BY OTHERS AT LOW ER RATES. 26. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HA VE GONE THROUGH THE ORDERS PASSED BY THE A.O. AND CIT(A) AND HAVE ALSO GONE THROUGH THE PAPER BOOK FILED BEFORE US. THE ONLY ISSUE IN THIS GROUND OF APPEAL IS THAT THE REVENUE HAS CHARGED THE ASSESSEE WITH RESORTING TO UNDER BILLING OF BINOLA AND MAKING SALES OUTSIDE THE BOOKS. WE FIND THAT THE ASSESSEE HAS CLEARLY DEMONSTRATED BEFORE US WITH EVIDENCES THAT IT IS FACTUALLY INCORRECT THAT THE ASSESSEE HA S INVARIABLY SOLD KHAL BINOLA AT LOWER RATE. THE ASSESSEE HAS PRODUCED BEFORE US INS TANCES AT PB 116-326 WHERE KHAL BINOLA WAS SOLD BY THE ASSESSEE AT RATES WHICH WERE HIGHER AS COMPARED TO SISTER CONCERN AND OTHERS. MOREOVER THE ASSESSEE HA S ALSO DEMONSTRATED THAT THERE IS NO FIXED RATE OF SELLING PRICE OF BINOLA, WHICH VARIES FROM PLACE TO PLACE DEPENDING UPON THE QUALITY AND OTHER FACTOR OF KHAL BINOLA, BY PRODUCING CHART SHOWING DIFFERENT PRICE OF KHAL BINOLA IN DIFFERENT MANDIS ON THE SAME DAY. ON THE OTHER HAND WE FIND THAT THE ENTIRE ADDITION MAD E BY A.O. AND SUSTAINED BY CIT(A) IS WITHOUT ANY EVIDENCE HAVING BEEN BROUGHT ON RECORD BY THE REVENUE THAT ASSESSEE HAS IN FACT SOLD THE MATERIAL AT HIGH ER PRICE AND SHOWN SUCH SALE AT LESSER PRICE IN ITS BOOKS OF ACCOUNTS. COMPARISO NS MADE BY A.O. COULD AT BEST HAVE PUT THE A.O. ON ENQUIRY BUT IT CANNOT BE THE S OLE BASIS FOR MAKING ADDITION. MOREOVER, IT IS ALSO SEEN THAT A.O. HAS NOT REJECTE D THE BOOKS OF ACCOUNT AS 13 THERE IS NO FINDING TO THAT EFFECT IN THE ORDERS PA SSED BY THE AUTHORITIES BELOW. THEREFORE, ADDITION MADE BY A.O. OF RS. 13,22,933 O N ACCOUNT OF UNDERBILLING OF SALES AND SUSTAINED BY CIT(A) IS NOT BASED ON ANY C OGENT MATERIAL AND IS BASED ON SURMISES AND CONJECTURES WHICH IS THEREFORE DELE TED. 27. THIS GROUND OF APPEAL OF THE ASSESSEE IS THEREF ORE ALLOWED. 28. GROUND NO. 5 IS AGAINST THE ADDITION OF RS. 11, 58,310/- ATTRIBUTABLE TO ADDITION ON ACCOUNT OF DIFFERENCE IN VALUATION IN T HE CONSTRUCTION OF BUILDING. 29. BRIEF FACTS OF THE CASE ARE THAT DURING ASSESSM ENT PROCEEDINGS IT WAS NOTICED BY THE A.O. THAT THE ASSESSEE HAD CONSTRUCT ED A FACTORY BUILDING DURING THE YEAR AND THE INVESTMENT IN THE SAME HAD BEEN SH OWN AT RS. 15,83,351/-. THE A.O. REFERRED THE MATTER OF VALUATION TO THE DVO SI NCE HE FOUND THAT THE VALUER OF THE BANK FROM WHO THE ASSESEE HAD TAKEN LOAN BY PLEDGING THE FACTORY BUILDING HAD VALUED THE BUILDING AT RS. 26,12,400/- . THE DVO VALUED THE BUILDING AT RS. 27,41,662/-. THE ASSESSEE TURN SUBMITTED A V ALUATION REPORT BY GOVERNMENT APPROVED VALUER WHO VALUED THE COST OF CONSTRUCTION AT RS. 15,90,600/-. THE A.O. THEREAFTER MADE AN ADDITION OF RS. 11,58,310/- ON A CCOUNT OF DIFFERENCE IN VALUATION AS PER THE BOOKS OF ACCOUNTS OF ASESSEE A ND DVOS VALUATION REPORT. 30. BEFORE THE LD. CIT(A) THE ASSESSEE PLEADED THAT THE BANKS VALUATION REPORT WAS NOT RELIABLE AND WAS ON THE HIGHER SIDE FOR THE PURPOSE OF TAKING ADEQUATE LOAN / CC LIMIT FROM THE BANK. THE ASSESEE FURTHER STATED THAT THERE WAS A NOMINAL DIFFERENCE OF RS. 7,000 ONLY BETWEEN THE COST OF CONSTRUCTION SHOWN BY THE ASSESSEE AND THAT SHOWN BY THE GOVERNM ENT APPROVED REGISTERED VALUER. THE ASSESSEE FURTHER PLEADED THAT COMPLETE BOOKS OF ACCOUNTS SHOWING THE COST OF CONSTRUCTION OF BUILDING WERE PRODUCED BEFORE THE AO AND NO DEFECTS IN THE SAME WERE POINTED BY THE A.O. THE AS SESSEE ALSO PLEADED THAT THE BOOKS OF ACCOUNTS WERE ALSO NOT REJECTED BY THE A.O. BEFORE MAKING A REFERENCE MADE TO THE DVO. THE ASSESSEE THEREFORE, PLEADED THAT THE 14 REFERENCE MADE TO THE DVO WAS NOT VALID AS PER JUDI CIAL DECISIONS AND EVEN AS PER SECTION 142A AND THEREFORE, NO ADDITION COULD B E MADE ON THE BASIS OF DVO REPORT. ON MERITS THE ASSESEE ARGUED THAT THE D VOS REPORT WAS ONLY A ROUTINE REPORT WHICH ARRIVED AT THE VALUATION BY TH E CPWD RATES. THE ASSESSEE PLEADED THAT ON THE OTHER HAND THE REGISTERED VALUE R REPORT WAS A DETAILED ONE GIVING BREAKUP OF VARIOUS ACTIVITIES CARRIED ON FOR THE CONSTRUCTION OF THE BUILDING AND HAD APPLIED THE STATE PWD RATE TO ARRIVE AT A F AIR ESTIMATE OF THE VALUE OF CONSTRUCTION OF BUILDING. 31. THE LD. CIT(A) REJECTED THE CONTENTION OF ASSES SEE AND UPHELD THE ADDITION MADE BY HOLDING AT PARA 12 OF THE ORDER AS FOLLOWS: I HAVE GONE THROUGH THE ORDER OF THE ASSESSING OF FICER AND SUBMISSIONS MADE BY THE COUNSEL OF THE ASSESSEE. THE ASSESSEE HAS NOT T RIED TO CONTROVERT THE REPORT OF DEPARTMENTAL VALUER ON MERITS AT ALL. EVEN THE VALU ATION REPORT GIVEN BY VALUER TO BANK ALSO SHOWS INVESTMENT IN CONSTRUCTION NEAR TO THE VALUATION MADE BY DEPARTMENTAL VALUATION OFFICER. THE ASSESSEE HAS TR IED TO DEFEND HIMSELF ONLY ON LEGAL ISSUE THAT NO DISCREPANCY IN BOOKS OF ACCOUNT S HAVE BEEN FOUND. THERE HAVE BEEN GLARING DISCREPANCY IN THE BOOKS OF ACCOU NTS MAINTAINED BY THE ASSESSEE AND THIS IS CLEAR FROM THE VARIOUS ADDITIO NS MADE BY THE ASSESSING OFFICER AND CONFIRMED IN THIS ORDER. FURTHER ASSESSEE HAS N OT BROUGHT ANY MATERIAL IN HIS DEFENCE TO SHOW THAT RATES ADOPTED BY THE DEPARTMEN TAL VALUER IS EXCESSIVE AND UNREASONABLE. FURTHER THE CASE LAWS REFERRED BY THE ASSESSEE ARE FACTUAL AND DO NOT LAY DOWN ANY LAW RELATING TO VALUATION. EVEN IN THE CASE LAWS REFERRED TO THE ASSESSEE, THE TRIBUNALS HAVE GIVEN THE RELIEF ONLY WHEN THE TAXPAYERS WERE ABLE TO CONTROVERT THE FINDINGS OF THE DEPARTMENTAL VALUER WHEREAS IN THIS CASE THE ASSESSEE HAS FAILED ON THIS ASPECT. HENCE THIS GROU ND OF APPEAL OF ASSESSEE IS ALSO REJECTED. 32. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HA VE GONE THROUGH THE ORDER PASSED BY THE A.O. AND CIT(A) AND HAVE ALSO G ONE THROUGH THE PAPER BOOK FILED BEFORE US. THE ISSUE BEFORE US IS ABOUT THE ADDITION AS A RESU LT OF DIFFERENCE BETWEEN THE INVESTMENT SHOWN BY THE ASSESSEE IN ITS BOOKS OF AC COUNTS AND ONE WORKED OUT BY THE DISTRICT VALUATION OFFICERS (DVO) REPORT. I T MAY BE MENTIONED AT THE OUTSET THAT IT HAS BEEN HELD BY HONBLE SUPREME COU RT IN THE CASE OF SARGAM CINEMA VS. CIT (2010) 328 ITR 0513 THAT WITHOUT REJ ECTING THE BOOKS OF ACCOUNT MAINTAINED IN THE ORDINARY COURSE, MATTER CANNOT BE REFERRED TO DVO FOR 15 DETERMINATION OF INVESTMENT AND REFERENCE MADE WITH OUT REJECTING THE BOOKS OF ACCOUNT IS INVALID. WE FIND IN THE INSTANT CASE THA T A.O. HAS ACCEPTED THE BOOKS OF ACCOUNT WHICH IS EVIDENT BY THE FACT THAT BOOKS OF ACCOUNTS WERE NOT REJECTED AS WE COULD NOT FIND EVEN A TRACE WHEREBY IT COULD BE FOUND THAT A.O. REJECTED THE BOOKS OF ACCOUNTS. THEREFORE, THE VALU ATION REPORT OBTAINED BY AO FROM THE DVO PURSUANT TO SUCH INVALID REFERENCE CAN NOT BE RELIED UPON FOR MAKING THE ADDITION AS DONE BY AO IN THE INSTANT CA SE. THUS, WE, WITHOUT GOING INTO THE MERIT OF THE ADDITION, ARE CONSTRAINED TO DELETE THE ADDITION OF RS. 11,58,310/- MADE BY A.O. AND SUSTAINED BY LD. CIT(A ) BASED UPON SUCH DVOS REPORT. 33. THIS GROUND OF APPEAL OF THE ASSESSEE IS THEREF ORE ALLOWED. 34. GROUND NO. 6 TAKEN UP BY THE ASSESSEE IS FOR TH E PURPOSE OF RESTRICTING THE ADDITIONS MADE TO THE PEAK AMOUNT, SINCE AFTER MAKI NG VARIOUS TRADING ADDITIONS, ADDITION ON ACCOUNT OF INVESTMENT IN BUI LDING HAS ALSO BEEN MADE WHICH THE ASSESSEE HAS PRAYED TO BE TELESCOPED WITH IN THE TRADING ADDITION. 35. WE FIND THAT SINCE THE ADDITION MADE ON ACCOUNT OF INVESTMENT IN BUILDING HAS BEEN DELETED BY US AT PARA 32 OF THE O RDER AND MOREOVER SINCE ALL THE ADDITIONS MADE HAVE BEEN DELETED AT PARA 11 AND 26 EXCEPT THE ADDITION ON ACCOUNT OF UNDERVALUATION OF STOCK WHICH HAS BEE N RESTRICTED TO RS. 20,000/- ONLY AT PARA 20 OF THE ORDER, THIS GROUND OF APPEAL HAS NO MERIT. 36. THIS GROUND OF APPEAL OF THE ASSESSEE IS THEREF ORE DISMISSED. 37. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (BHAVNESH SAINI) (ANNAPURNA MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 27/11/2015 AG COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR