DCIT, Jaipur V. KAYAKALP HERBAL PVT. LTD., Jaipur

ITA 609/JPR/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2152 (ITAT-JAIPUR)
• Duration Of Justice: 10 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-04-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2005-2006
• Appeal Filed On: 03-06-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PRATIMA KAUSHIK
• Assessee Lawyers: GULSHAN AGARWAL CA DH
• Keywords: Unexplained cash credit; Rejection of books of accounts; Unexplained investment; Business income; Depreciation; Document seized; Question of law; Validity of assessment; Tax effect; Retraction; Revised return; Documents seized
• Section: 143(3); 153A; 145; 132

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES , JAIPUR JH HKKXPUN] YS[KK LNL; ,O JH DQY HKKJR] U;KF;D L NL; DS LE{K BEFORE: SHRI BHAGCHAND, AM & SHRI KUL BHAR AT, JM VK;DJ VIHY LA-@ ITA NO. 609, 627,628,629,630,631 & 632/JP/2016 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR :2005-06, 2006-07, 2007-08,2008-09, 2009-10, 2010-11 & 2011-12 THE ACIT CENTRAL CIRCLE- 1,JAIPUR CUKE VS. M/S. KAYAKALP HERBAL PVT. LTD. 73, SURAJ NAGAR, EAST CIVIL LINES, JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO .: AABCK 0373 N VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA-@ ITA NO. 633,634, 635, 636 /JP/2016 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR :2005-06, ,2008-09,2009-10, & 2011 -12 M/S. KAYAKALP HERBAL PVT. LTD. 73, SURAJ NAGAR, EAST CIVIL LINES, JAIPUR CUKE VS. THE DCIT CENTRAL CIRCLE- 1,JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO .: AABCK 0373 N VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS@ REVENUE BY: SMT. PRATIMA KAUSHIK, CIT - DR FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY: SHRI VIJAY GOYAL, CA & SHRI GULSHAN AGARWAL, CA LQUOKBZ DH RKJH[K@ DATE OF HEARING : 20/04/2017 ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 25/04/2017 VKNS'K@ ORDER PER BHAGCHAND, AM THE ABOVE MENTIONED RESPECTIVE APPEALS HAVE BEEN F ILED BY THE REVENUE AND THE ASSESSEE AGAINST SEPARATE ORDERS OF THE LD. CIT(A) DATED ITA NO. 609/JP/2016 THE ACIT, CENTRAL CIRCLE- 1, AL WAR VS. M/S. KAYAKALP HERBAL (P) LTD., JAIPUR 2 31-03-2016 PERTAINING TO ASSESSMENT YEAR 2005-06 TO 2011-12 (REVENUE) AND PERTAINING TO ASSESSMENT YEARS 2005-06, 2008-0 9, 2009-10 AND 2011- 12(ASSESSEE). FOR THE SAKE OF CONVENIENCE AND BREVI TY OF THE CASE, THESE APPEALS ARE BEING DISPOSED OFF THROUGH A COMMON ORD ER. 2.1 BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S A COMPANY AND ENGAGED IN THE BUSINESS OF MANUFACTURING OF VARIOUS HERBAL PRODUCTS. THE ASSESSEE FILED ITS REGULAR RETURN U/S 139(1) OF INC OME TAX ACT TABULATED AS UNDER :- AY DATE OF FILING INCOME DECLARED 2005-06 29-10-2005 7,21,339/- 2006-07 30-11-2006 11,51,843/- 2007-08 31-10-2007 15,67,870/- 2008-09 27-09-2008 16,40,660/- 2009-10 21-10-2009 23,84,570/- 2010-11 14-10-2010 31,51,470/- 2.2 THE DEPARTMENT CARRIED OUT SEARCH & SEIZURE OPE RATIONS ON ASSESSEE ON 11.11.2010 . IN PURSUANT TO NOTICE U/S 153A OF INCOME TAX AC T, THE ASSESSEE FILED ITS RETURNS AS UNDER:- AY DATE OF FILING TOTAL INCOME DECLARED ADDITIONAL INCOME DECLARED ITA NO. 609/JP/2016 THE ACIT, CENTRAL CIRCLE- 1, AL WAR VS. M/S. KAYAKALP HERBAL (P) LTD., JAIPUR 3 2005-06 24/10/2011 7,21,339/- NIL 2006-07 24/10/2011 16/08/2012 (REVISED) 11,51,843/- (O) 32,01,843/-(R) ADDITIONAL INCOME OF RS. 20,50,000/- DECLARED IN REVISED RETURN ON ACCOUNT OF SHARE CAPITAL 2007-08 24/10/2011 17/08/2012 (REVISED) 15,67,870/- (O) 37,67,870/-(R) ADDITIONAL INCOME OF RS. 22,00,000/- DECLARED IN REVISED RETURN ON ACCOUNT OF SHARE CAPITAL 2008-09 24/10/2011 17/08/2012 (REVISED) 16,40,660/- (O) 23,35,660/-(R) ADDITIONAL INCOME OF RS. 6,95,000/- DECLARED IN REVISED RETURN ON ACCOUNT OF SHARE CAPITAL 2009-10 24/10/2011 23,84,570/- NIL 2010-11 24/10/2011 17/08/2012 (REVISED) 31,51,470/- (O) 1,15,76,470/-(R) ADDITIONAL INCOME OF RS. 56,25,000/- DECLARED IN REVISED RETURN ON ACCOUNT ON MONEY PAYMENT IN PURCHASE OF PROPERTY AND OF RS. 28,00,000/- ON ACCOUNT OF UNACCOUNTED SALES. TOTAL ADDITIONAL INCOME RS. 84,25,000/- 2011-12 (U/S 139(1) AFTER SEARCH) 17/08/2012 (REVISED) 88,18,798/- ADDITIONAL INCOME SURREND ERED RS. 41,30,000/- ON ACCOUNT OF PROFIT ON UNACCOUNTED SALES 2.3 DURING THE COURSE OF SEARCH THE ASSESSEE GROUP ADMITTED UNDISCLOSED INCOME OF RS. 3,50,00,000/-. THIS SURRE NDER WAS HONORED BY ASSESSEE GROUP BY DECLARING THE ADDITIONAL INCOME O F RS. 1,75,00,000/- IN THE HANDS OF ASSESSEE AND RS. 1,75,00,000/- IN THE HANDS OF CHAIRPERSON/DIRECTOR OF ASSESSEE COMPANY SMT KULSUM MALIK. THE ITA NO. 609/JP/2016 THE ACIT, CENTRAL CIRCLE- 1, AL WAR VS. M/S. KAYAKALP HERBAL (P) LTD., JAIPUR 4 ADDITIONAL INCOME IN PURSUANT TO SEARCH STATEMENT D ECLARED BY ASSESSEE GROUP WAS AS UNDER:- KAYAKALP HERBAL PVT LTD KULSUM MALIK AY ADDITIONAL INCOME (AMOUNT) DESCRIPTION OF ADDITIONAL INCOME ADDITIONAL INCOME (AMOUNT) DESCRIPTION OF ADDITIONAL INCOME 2005-06 0 0 2006-07 2050000 SHARE CAPITAL 690000 INVESTMENT IN PROPERTY 2007-08 2200000 SHARE CAPITAL 0 2008-09 695000 SHARE CAPITAL 0 2009-10 0 0 2010-11 5625000 INVESTMENT IN PROPERTY 1875000 INVESTMENT IN PROPERTY 2800000 PROFIT FROM UNACCOUNTED SALES 0 2011-12 4130000 PROFIT FROM UNACCOUNTED SALES 14935000 BUSINESS INCOME UTILISED IN UNEXPLAINED ASSETS/ EXPENDITURE TOTAL 17500000 17500000 2.4 THE ASSESSMENT WAS COMPLETED BY AO BY MAKING FO LLOWING ADDITIONS . ITA NO. 609/JP/2016 THE ACIT, CENTRAL CIRCLE- 1, AL WAR VS. M/S. KAYAKALP HERBAL (P) LTD., JAIPUR 5 AY TOTAL INCOME DECLARED ADDITION MADE BY AO DESCRIPTION OF ADDITION 2005-06 7,21,339/- 74,90,831 TRADING ADDITION BY ESTIMATING THE SALES AND APPLYING THE GP RATE OF 72% ON ESTIMATED SALES 2006-07 11,51,843/- (EX INCOME DECLARED IN REVISED RETURN) 91,77,221 TRADING ADDITION BY ESTIMATING THE SALES AND APPLYING THE GP RATE OF 72% ON ESTIMATED SALES. TELESCOPING BENEFIT OF RS. 20,50,000/- GIVEN ON ACCOUNT OF SHARE CAPITAL. EFFECTIVE ADDITION 71,27,221/ 2007-08 15,67,870/- (EX INCOME DECLARED IN REVISED RETURN) 1,22,28,398 TRADING ADDITION BY ESTIMATING THE SALES AND APPLYING THE GP RATE OF 72% ON ESTIMATED SALES. TELESCOPING BENEFIT OF RS. 22,00,000/- GIVEN ON ACCOUNT OF SHARE CAPITAL. EFFECTIVE ADDITION 1,00,28,398/ 2008-09 16,40,660/- (EX INCOME DECLARED IN REVISED RETURN) 1,23,00,760 TRADING ADDITION BY ESTIMATING THE SALES AND APPLYING THE GP RATE OF 72% ON ESTIMATED SALES. TELESCOPING BENEFIT OF RS. 6,95,000/- GIVEN ON ACCOUNT OF SHARE CAPITAL. EFFECTIVE ADDITION 1,16,05,760/ 2009-10 23,84,570/- 1,77,24,552 TRADING ADDITION BY ESTIMATING THE SALES AND APPLYING THE GP RATE OF 72% ON ESTIMATED SALES. 2010-11 31,51,470/- 1,99,12,116 (I) RS. 1,94,24,158/- TRADING ADDITION BY ESTIMATING THE SALES AND APPLYING THE GP RATE OF 72% ON ESTIMATED SALES. THE ASSESSEE SURRENDERED RS. 84,25,000/- IN ITS REVISED RETURN ON ACCOUNT OF TRADING PROFITS, THEREFORE THE EFFECTIVE TRADING ADDITION IS OF RS. 1,09,99,158/- (II) 4,87,958/- DISALLOWANCE OF DEPRECIATION 2011-12 (U/S 139 88,18,798/- 1,51,73,300 1. ADDITION ON ACCOUNT OF SUPPRESSED SALES 1,13,00,000 ITA NO. 609/JP/2016 THE ACIT, CENTRAL CIRCLE- 1, AL WAR VS. M/S. KAYAKALP HERBAL (P) LTD., JAIPUR 6 ADMITTED DURING THE COURSE OF SEARCH 2. TRADING ADDITION BY APPLYING THE GP RATE OF 72% ON SALES OF ASSESSEE FOR POST SEARCH PERIOD RS. 3,20,67,509/-. 66,75,676 3. DISALLOWANCE OF DEPRECIATION ON PROPERTY SITUATED AT SUBHASH MARG 12,08,369 4. DISALLOWANCE OF DEPRECIATION ON PROPERTY SITUATED AT MOTU KA BASS 99,478 5. DISALLOWANCE OF EPF EMPLOYEES CONTRIBUTION BY APPLYING THE PROVISIONS OF SECTION 36(1)(VA)/2(24)(X) 19,777 TOTAL 1,93,03,300 AFTER SEARCH) LESS ADDITIONAL INCOME DECLARED IN RETURN ON ACCOUNT OF PROFIT ON UNACCOUNTED SALES -41,30,000 NET ADDITION 1,51,73,300 2.5 AGGRIEVED FROM THE ASSESSMENT ORDER, THE ASSESS EE FILED APPEAL BEFORE LD CIT(A) WHO DELETED/SUSTAINED THE ADDITION AS UNDER:- AY NET EFFECTIVE ADDITION MADE BY AO ADDITION DELETED ADDITION SUSTAINED CIT(A) FINDINGS ITA NO. 609/JP/2016 THE ACIT, CENTRAL CIRCLE- 1, AL WAR VS. M/S. KAYAKALP HERBAL (P) LTD., JAIPUR 7 2005-06 74,90,831 6371460 1119371 (I) ESTIMATION OF UNACCOUNTED SALES MADE BY AO WAS NOT SUSTAINED. (II) GP ESTIMATED @ 62% ON DECLARED SALES IN BOOKS AS AGAINST 72% BY LD AO AND 50.56% BY ASSESSEE. 2006-07 71,27,221 71,27,221 0 (I) ESTIMATION OF UNACCOUNTED SALES MADE BY AO WAS NOT SUSTAINED. (II) GP ESTIMATED @ 62% ON DECLARED SALES IN BOOKS AS AGAINST 72% BY LD AO AND 53.20% BY ASSESSEE. 2007-08 1,00,28,398 1,00,28,398 0 (I) ESTIMATION OF UNACCOUNTED SALES MADE BY AO WAS NOT SUSTAINED. (II) GP ESTIMATED @ 62% ON DECLARED SALES IN BOOKS AS AGAINST 72% BY LD AO AND 52.70% BY ASSESSEE. 2008-09 1,16,05,760 1,07,01,306 9,04,454 (I) ESTIMATION OF UNACCOUNTED SALES MADE BY AO WAS NOT SUSTAINED. (II) GP ESTIMATED @ 62% ON DECLARED SALES IN BOOKS AS AGAINST 72% BY LD AO AND 53.33% BY ASSESSEE. 2009-10 1,77,24,552 1,51,35,146 25,89,406 (I) ESTIMATION OF UNACCOUNTED SALES MADE BY AO WAS NOT SUSTAINED. (II) GP ESTIMATED @ 62% ON ITA NO. 609/JP/2016 THE ACIT, CENTRAL CIRCLE- 1, AL WAR VS. M/S. KAYAKALP HERBAL (P) LTD., JAIPUR 8 DECLARED SALES IN BOOKS AS AGAINST 72% BY LD AO AND 51.09% BY ASSESSEE. 2010-11 1,09,99,158 1,09,99,158 0 (I) ESTIMATION OF UNACCOUNTED SALES OVER AND ABOVE TO SEIZED RECORDS MADE BY AO WAS NOT SUSTAINED. (II) GP ESTIMATED @ 62% ON DECLARED SALES IN BOOKS AS AGAINST 72% BY LD AO AND 60.63% BY ASSESSEE. 2011-12 (U/S 139(1) AFTER SEARCH) 1,38,45,676 (TRADING ADDITION) 1,10,32,527 28,13,149 (I) ESTIMATION OF UNACCOUNTED SALES OVER AND ABOVE TO SEIZED RECORDS MADE BY AO WAS NOT SUSTAINED. (II) GP ESTIMATED @ 62% ON DECLARED SALES IN BOOKS AS AGAINST 72% BY LD AO AND 52.48% BY ASSESSEE. 2.6 AGGRIEVED FROM THE ORDER OF LD CIT(A), THE ASSE SSEE IS IN APPEAL BEFORE THE TRIBUNAL FOR AY 2005-06, AY 2008-09, AY 2009-10 AND AY 2011-12 AND THE REVENUE IS IN APPEAL FOR AY 2005-06 TO AY 2011-12. 2.7 THE GROUNDS RAISED BY THE ASSESSEE IN RESPECTIV E APPEALS ARE AS UNDER:- ITA NO 633/JP/16 AY 2005-06 1. THE ASSESSMENT ORDER PASSED U/S 153A READ WITH SECT ION 143(3) OF THE INCOME TAX ACT FOR ASSESSMENT YEAR 2005-2006 IS BAD IN LAW, ITA NO. 609/JP/2016 THE ACIT, CENTRAL CIRCLE- 1, AL WAR VS. M/S. KAYAKALP HERBAL (P) LTD., JAIPUR 9 VOID AB-INITIO, AND ALSO THE ADDITION MADE THEREIN DESERVES TO BE DELETED AS NO ADDITION CAN BE MADE IN THE ASSESSMEN T MADE U/S 153A READ WITH SEC. 143(3) CONSEQUENT TO THE SEARCH UNLESS SOME INCRIMINATING MATERIAL IN SUPPORT OF THE ADDITION I S FOUND AS A RESULT OF SEARCH. 2. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. CIT (A) ERRED IN CONFIRMING THE REJECTION OF THE BOOKS OF ACCOUNTS AND APPLICATION OF SECTION 145(3) OF THE I.T. ACT, 1961 . 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. CIT (A) ERRED IN CONFIRMING THE ADDITION OF RS.11,1 9,371/- ON A/C OF TRADING ADDITION, BY ESTIMATING THE GP OF ASSESS EE @ 62% ON DECLARED SALES AS AGAINST GP RATE @ 50.56% DECLARED BY THE ASSESSEE. ITA NO 634/JP/16 AY 2008-09 1. THE ASSESSMENT ORDER PASSED U/S 153A READ WITH SECT ION 143(3) OF THE INCOME TAX ACT FOR ASSESSMENT YEAR 2008-2009 IS BAD IN LAW, VOID AB-INITIO, AND ALSO THE ADDITION MADE THEREIN DESERVES TO BE DELETED AS NO ADDITION CAN BE MADE IN THE ASSESSMEN T MADE U/S 153A READ WITH SEC. 143(3) CONSEQUENT TO THE SEARCH UNLESS SOME INCRIMINATING MATERIAL IN SUPPORT OF THE ADDITION I S FOUND AS A RESULT OF SEARCH. 2. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. CIT (A) ERRED IN CONFIRMING THE REJECTION OF THE BOOKS OF ACCOUNTS AND APPLICATION OF SECTION 145(3) OF THE I.T. ACT, 1961 . 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. CIT (A) ERRED IN CONFIRMING THE ADDITION OF RS.9,04 ,454/- ON A/C OF TRADING ADDITION, BY ESTIMATING THE GP OF ASSESSEE @ 62% ON DECLARED SALES AS AGAINST GP RATE @ 53.33% DECLARED BY THE ASSESSEE. ITA NO. 609/JP/2016 THE ACIT, CENTRAL CIRCLE- 1, AL WAR VS. M/S. KAYAKALP HERBAL (P) LTD., JAIPUR 10 ITA NO 635/JP/16 AY 2009-10 1. THE ASSESSMENT ORDER PASSED U/S 153A READ WITH SECT ION 143(3) OF THE INCOME TAX ACT FOR ASSESSMENT YEAR 2009-2010 IS BAD IN LAW, VOID AB-INITIO, AND ALSO THE ADDITION MADE THEREIN DESERVES TO BE DELETED AS NO ADDITION CAN BE MADE IN THE ASSESSMEN T MADE U/S 153A READ WITH SEC. 143(3) CONSEQUENT TO THE SEARCH UNLESS SOME INCRIMINATING MATERIAL IN SUPPORT OF THE ADDITION I S FOUND AS A RESULT OF SEARCH. 2. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. CIT (A) ERRED IN CONFIRMING THE REJECTION OF THE BOOKS OF ACCOUNTS AND APPLICATION OF SECTION 145(3) OF THE I.T. ACT, 1961 . 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. CIT (A) ERRED IN CONFIRMING THE ADDITION OF RS.25,8 9,406/- ON A/C OF TRADING ADDITION, BY ESTIMATING THE GP OF ASSESS EE @ 62% ON DECLARED SALES AS AGAINST GP RATE @ 51.09% DECLARED BY ASSESSEE. ITA NO 636/JP/16 AY 2011-12 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. CIT (A) ERRED IN CONFIRMING THE REJECTION OF THE BOOKS OF ACCOUNTS AND APPLICATION OF SECTION 145(3) OF THE I.T. ACT, 1961 . 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. CIT (A) ERRED IN CONFIRMING THE ADDITION OF RS.28,1 3,149/- ON A/C OF TRADING ADDITION, BY ESTIMATING THE GP OF ASSESS EE @ 62% ON DECLARED SALES AND UNACCOUNTED SALES. 2.8 THE GROUNDS RAISED BY THE REVENUE IN ITS RESPE CTIVE APPEALS ARE AS UNDER:- ITA NO 609/JP/16 AY 2005-06 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT(A) WAS RIGHT IN REDUCING THE GP RATE F ROM 72% TO ITA NO. 609/JP/2016 THE ACIT, CENTRAL CIRCLE- 1, AL WAR VS. M/S. KAYAKALP HERBAL (P) LTD., JAIPUR 11 62% IGNORING THE FACT THAT AO HAS GIVEN STRONG COGE NT REASONS FOR ESTIMATION OF GP RATE IN THE ASSESSMENT ORDER. ITA NO 627/JP/16 AY 2006-07 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT(A) WAS RIGHT IN REDUCING THE GP RATE F ROM 72% TO 62% IGNORING THE FACT THAT AO HAS GIVEN STRONG COGE NT REASONS FOR ESTIMATION OF GP RATE IN THE ASSESSMENT ORDER. ITA NO 628/JP/16 AY 2007-08 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT(A) WAS RIGHT IN REDUCING THE GP RATE F ROM 72% TO 62% IGNORING THE FACT THAT AO HAS GIVEN STRONG COGE NT REASONS FOR ESTIMATION OF GP RATE IN THE ASSESSMENT ORDER. ITA NO 629/JP/16 AY 2008-09 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT(A) WAS RIGHT IN REDUCING THE GP RATE F ROM 72% TO 62% IGNORING THE FACT THAT AO HAS GIVEN STRONG COGE NT REASONS FOR ESTIMATION OF GP RATE IN THE ASSESSMENT ORDER. ITA NO 630/JP/16 AY 2009-10 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT(A) WAS RIGHT IN REDUCING THE GP RATE F ROM 72% TO 62% IGNORING THE FACT THAT AO HAS GIVEN STRONG COGE NT REASONS FOR ESTIMATION OF GP RATE IN THE ASSESSMENT ORDER. ITA NO 631/JP/16 AY 2010-11 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT(A) WAS RIGHT IN REDUCING THE GP RATE F ROM 72% TO 62% IGNORING THE FACT THAT AO HAS GIVEN STRONG COGE NT REASONS FOR ESTIMATION OF GP RATE IN THE ASSESSMENT ORDER. ITA NO 632/JP/16 AY 2011-12 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT(A) WAS RIGHT IN REDUCING THE GP RATE F ROM 72% TO ITA NO. 609/JP/2016 THE ACIT, CENTRAL CIRCLE- 1, AL WAR VS. M/S. KAYAKALP HERBAL (P) LTD., JAIPUR 12 62% IGNORING THE FACT THAT AO HAS GIVEN STRONG COGE NT REASONS FOR ESTIMATION OF GP RATE IN THE ASSESSMENT ORDER. 2.9 AT THE OUTSET LD AR OBJECTED THE ADMISSION OF R EVENUES APPEAL FOR AY 2005-06 TO AY 2010-11 BY STATING THAT THE APPEAL S FILED BY THE REVENUE FOR AY 2005-06 TO AY 2010-11 ARE NOT MAINTA INABLE AND LIABLE TO BE REJECTED IN LIMINE, FOR THE REASON THAT THE TAX EFFECT IS NOT MORE THAN RS. 10 LACS IN VIEW OF CIRCULAR NO. 21/2015 F NO 27 9/MISC. 142/2007-ITJ (PT) 10TH DECEMBER, 2015. 2.10 ON THE OTHER HAND THE LD CIT-DR SUPPORTED THE MAINTAINABILITY OF APPEALS BY STATING THAT THE TAX EFFECT ON THE RELIE F GIVEN BY THE CIT(A) IS MORE THAN THE LIMIT PRESCRIBED IN THE CIRCULAR. HOW EVER, THE LD AR IN REJOINDER SUBMITTED A CHART SHOWING THE TAX EFFECT ON THE GROUNDS RAISED BY THE DEPARTMENT AND STATED THAT THE LD CIT(A) ALL OWED RELIEF BY REDUCING THE SALES BY NOT SUSTAINING THE ESTIMATION ON UNACCOUNTED SALES OVER AND ABOVE THE SEIZED DOCUMENTS AND ALSO REDUCI NG THE GP RATE FROM 72% TO 62%. THE DEPARTMENT IS NOT IN APPEAL ON THE RELIEF ALLOWED BY LD CIT(A) ON ACCOUNT OF ESTIMATION OF UNACCOUNTED SALE S. IN REVENUES APPEAL QUANTUM OF RELIEF GIVEN BY LD CIT(A) IS NOT UNDER QUESTION AND ONLY GROUND IS REDUCING THE GP RATE FROM 72% TO 62% . 2.11 ON MERIT, THE LD AR SUBMITTED FOLLOWING WRITTE N SUBMISSION RELATING TO THE APPEALS FILED BY THE ASSESSEE ITA NO. 609/JP/2016 THE ACIT, CENTRAL CIRCLE- 1, AL WAR VS. M/S. KAYAKALP HERBAL (P) LTD., JAIPUR 13 4.1 REGARDING REJECTION OF BOOKS OF ACCOUNTS:- A) THE LD CIT(A) CONFIRMED THE REJECTION OF BOOKS OF ACCOUNT ON THE GROUND THAT THE ASSESSEE IS NOT MAINTAINING OF QUANTITATIVE DETAIL OF RAW MATERIAL, ITS CONSUMPTION AND PRODUCTION OF FIN ISHED GOODS. IN THIS REGARD WE SUBMIT THAT THE ASSESSEE COMPANY IS MANUF ACTURING VARIETY OF PRODUCTS IN LOTS AND THEREFORE ALL THE RAW MATER IAL PURCHASED WERE ISSUED FOR MANUFACTURING AS AND WHEN REQUIRED AS A WHOLE AND NOT FOR ITEM WISE PRODUCT. FURTHER IT IS SUBMITTED THAT IN CASE OF BEAUTY PRODUCTS SOME INGREDIENTS (LIKE SOME TYPE OF OIL, W AXES, EMOLLIENTS, VARIOUS INCIPIENT ETC.) IS BEING USED COMMONLY AND HAS BEEN MANUFACTURED IN LOTS. THESE INGREDIENTS BECOME COMP ONENTS OF MANUFACTURED PRODUCTS AND THEREFORE ITEM WISE DETAI LS CANNOT BE DERIVED. THEREFORE SEPARATE DETAIL OF ITEM WISE CON SUMPTION AND PRODUCTION WAS NEITHER MAINTAINED NOR PRACTICALLY P OSSIBLE TO MAINTAIN. DUE TO REASON MENTIONED ABOVE IT WAS NOT PRACTICABLE AND FEASIBLE TO KEEP REGULAR QUANTITATIVE INVENTORY OF RAW MATERIAL. THE PURCHASES, SALES AND EXPENSES OF THE ASSESSEE WERE SUPPORTED BY BILLS AND VOUCHERS AND NO DEFECT WAS FOUND THEREIN BY THE LOWER AUTHORITIES. WHEN THE COSTS AS WELL AS SALES ARE 100% SUBJECT TO VERIFICATION THAN BOOKS OF ACCOUNT CANNOT BE REJECTED MERELY FOR WANT OF STOCK REGISTER. THE EXPLANATION OF THE ASSESSEE SHOULD BE CONSIDERE D FROM THE VIEW POINT OF A BUSINESSMAN. HOWEVER, EVEN IF STOCK RECO RD IS NOT MAINTAINED, THE BOOKS OF ACCOUNTS CANT BE REJECTED ON THIS GROUND ALONE. RELIANCE IS PLACED ON THE FOLLOWING DECISIONS: I) HONBLE RAJASTHAN HIGH COURT IN THE CASE OF MALANI RAMJIVAN JAGANNATH VS. ASSISTANT COMMISSIONER OF INCOME TAX (2009) 316 ITR 120 HAS HELD AS UNDER:- 10. IN THE FACE OF THESE UNDISPUTED FACTS AND CIRCUMSTANCES, THE TRIBUNAL IN OUR OPINION COULD NO T HAVE INTERFERED WITH THE ORDER OF CIT(A). IN DOING SO, IT HAD IGNORED ALL ADMITTED FACTS NOTICED BY US ABOVE, IN THE FACE OF WHICH THERE WAS NO OCCASION FOR THE AO TO HAVE RESORTED TO ESTIMATE METHOD. THE GP IS PRIMARI LY RESULT OF EXCESS OF SALES OVER PURCHASES, OPENING S TOCK, CLOSING STOCK, THE UNSOLD STOCK AT TWO TERMINALS IS ONLY BALANCING FACTOR. ADMITTEDLY OUT OF THIS FOUR COMPONENTS OF TRADING RESULT, THERE COULD NOT HAVE BEEN ANY GROUND FOR THE REVENUE TO ARRIVE AT DIFFERENT R ESULT. SO FAR AS CLOSING STOCK IS CONCERNED, INVENTORIES O F EXISTING STOCK WERE NOT FOUND TO BE INCORRECT BY TH E AO I.E. THAT POSITION OF STOCK AS SHOWN IN THE ACCOUNT BOOKS WAS NOT INCORRECT. THERE BEING NO DISPUTE ABOUT THE ITA NO. 609/JP/2016 THE ACIT, CENTRAL CIRCLE- 1, AL WAR VS. M/S. KAYAKALP HERBAL (P) LTD., JAIPUR 14 SALES AND PURCHASES, NON-MAINTENANCE OF STOCK REGIS TER LOST ITS SIGNIFICANCE SO FAR AS ARRIVING AT GP IS CONCERNED. THEREFORE, THE CIT(A) WAS RIGHT IN HIS REASONING ABOUT ADMITTED STATE OF AFFAIRS. RESORTIN G TO ESTIMATE OF GP RATE WAS FOUNDED ON NO MATERIAL. IT WAS MERELY A CASE OF MAKING CERTAIN ADDITIONS ON THE BA SIS OF CERTAIN DEFECTS POINTED OUT BY THE AO AND WHICH HE HAS SHOWN IN DIFFERENT ACCOUNT BY GIVING MARGIN OF UNVOUCHED EXPENSES. HE HAS DISALLOWED CERTAIN EXPENSES. 11. THE TRIBUNAL COMMITTED BASIC ERROR IN NOT APPRECIATING THE REASONING GIVEN BY THE CIT(A). IT IS TRITE TO SAY THAT IN THE FACTS AND CIRCUMSTANCES OF PRESENT CASE, ACCOUNT BOOKS ARE MAINTAINED AS THEY WERE ORDINARILY MAINTAINED YEARS AFTER YEARS AND WH ICH WERE FOUND TO YIELD A FAIR RESULT. MERE DEVIATION I N GP RATE CANNOT BE A GROUND FOR REJECTING BOOKS OF ACCO UNT AND ENTERING REALM OF ESTIMATE AND GUESSWORK. LOWER GP RATE SHOWN IN THE BOOKS OF ACCOUNT DURING CURREN T YEAR AND FALL IN GP RATE WAS JUSTIFIED AND ALSO ADM ITTED BY THE AO AS WELL AS CIT(A) AS WELL AS THE TRIBUNAL . THEREFORE, FALL IN GP RATE LOST ITS SIGNIFICANCE. H AVING ACCEPTED THE REASON FOR FALL IN GP RATE, NAMELY, ST IFF COMPETITION IN MARKET AND ALSO THAT HUGE LOSS CAUSE D IN PARTICULAR TRANSACTION, NEITHER THE REJECTION OF BO OKS OF ACCOUNT WAS JUSTIFIED NOR RESORT TO SUBSTITUTION OF ESTIMATED GP BY RULE OF THUMB MERELY FOR MAKING CERTAIN ADDITIONS. WE ARE, THEREFORE, OF THE OPINIO N THAT THE FINDINGS ARRIVED AT BY THE TRIBUNAL SUFFERS FRO M BASIC DEFECT OF NOT APPLYING ITS MIND TO THE EXISTI NG MATERIAL WHICH WERE RELEVANT AND WENT TO THE ROOT O F THE MATTER. WHEN ALL THE DATA AND ENTRIES MADE IN THE TRADING ACCOUNT WERE NOT FOUND TO BE INCORRECT IN A NY MANNER, THERE COULD NOT HAVE BEEN ANY OTHER RESULT EXCEPT WHAT HAS BEEN SHOWN BY THE ASSESSEE IN THE BOOKS OF ACCOUNT. WE ARE, THEREFORE, UNABLE TO SUST AIN THE ORDER OF THE TRIBUNAL. THE DEFECTS POINTED OUT BY THE AO ARE NOT DEFECT A T ALL. THE TRUE PROFIT CAN BE DEDUCED FROM THE BOOKS OF ACCOUNT MAI NTAINED BY THE ASSESSEE. THE ASSESSEE IS MAINTAINING PROPER BO OKS OF ACCOUNT, AND FOLLOWING THE ACCOUNTING POLICIES AND ACCOUNTING STANDARDS REGULARLY. EACH CASE HAS TO BE CONSIDERED ON ITS OWN PECULIAR FACTS, HAVING REGARD TO THE NATURE OF BUSI NESS. ACTION OF THE ASSESSING OFFICER CLEARLY DEMONSTRATES THAT HE COULD NOT ITA NO. 609/JP/2016 THE ACIT, CENTRAL CIRCLE- 1, AL WAR VS. M/S. KAYAKALP HERBAL (P) LTD., JAIPUR 15 GATHER ANY DETAILS OR FIND ANY IRREGULARITY IN MAIN TENANCE OF THE BOOKS SO AS TO JUSTIFY REJECTION OF BOOKS IN TO TO. THEREFORE, WE PRAY YOUR HONOR TO QUASH THE REASONING OFFERED B Y THE ASSESSING OFFICER FOR REJECTING THE BOOKS AS LEGALL Y UNSUSTAINABLE PROPOSITION. WE FURTHER RELY ON THE F OLLOWING DECISIONS:- (I) M. DURAI RAJ VS. COMMISSIONER OF INCOME TAX HIGH COURT OF KERALA (1972) 83 ITR 484 (KER) : HELD WHAT IS RELEVANT TO CONSIDER IN SUCH CASES IS WHETH ER THE ASSESSEE'S ACCOUNTS ARE MAINTAINED ACCORDING TO THE METHOD REGULARLY EMPLOYED BY HIM, WHETHER THEY ARE CORRECT AND COMPLETE, AND WHETHER THE INCOME CAN BE PROPERLY COMPUTED FROM THE ACCOUNTS. THERE IS NO FINDING THAT THE PURCHASES HAVE BEEN EXAGGERATED OR THE SALES HAVE BEEN SUPPRESSED, OR THAT ANY TRANSACTION HAS NOT COME INTO THE ACCOUNTS. IN THESE CIRCUMSTANCES, THE GROUNDS STATED BY THE TRIBUNAL ARE NEITHER VALID NO R RELEVANT IN REJECTING THE ACCOUNTS OF THE ASSESSEE. (II) ST TERESAS OIL MILLS VS STATE OF KERALA 76 IT R 365 (KER) ACCOUNTS REGULARLY MAINTAINED IN THE COURSE OF BUSINESS HAVE TO BE TAKEN AS CORRECT UNLESS THERE A RE STRONG AND SUFFICIENT REASON TO INDICATE THAT THEY ARE UNRELIABLE. (III) CIT VS JAS JACK ELEGANCE EXPORTS 324 ITR 95 ( DELHI) :- HONBLE DELHI HIGH COURT HELD THAT SEC. 145(3) PROVIDES FOR ASSESSMENT IN THE MANNER PRESCRIBED IN S. 144, WHERE THE AO IS NOT SATISFIED ABOUT THE CORREC TNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE OR WHERE EITHER THE METHOD OF ACCOUNTING PROVIDED IN S UB- S. (1) OR THE ACCOUNTING STANDARDS AS NOTIFIED UNDE R SUB-S. (2) HAVE NOT BEEN REGULARLY FOLLOWED BY THE ASSESSEE. THIS IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAD NOT FOLLOWED EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING STIPULATED IN SUB-S. (1) OF S. 145. THIS IS ALSO NOT THE CASE OF THE REVENUE THAT THE C ENTRAL GOVERNMENT HAD NOTIFIED ANY PARTICULAR ACCOUNTING STANDARDS TO BE FOLLOWED BY MANUFACTURERS AND EXPORTERS OF READYMADE GARMENTS. HENCE, THE SECOND PART OF SUB-S. (3) OF S. 145 DOES NOT APPLY TO THIS CASE. AS NOTED BY THE CIT(A) AS WELL AS BY THE TRIBUNAL, THE AO HAD NOT POINTED OUT ANY DEFECT IN THE ACCOUNTS B OOKS ITA NO. 609/JP/2016 THE ACIT, CENTRAL CIRCLE- 1, AL WAR VS. M/S. KAYAKALP HERBAL (P) LTD., JAIPUR 16 MAINTAINED BY THE ASSESSEE, WHICH, ADMITTEDLY, WERE PRODUCED BEFORE THE AO FOR HIS CONSIDERATION. THIS IS ALSO NOT THE FINDING OF THE AO THAT THE ACCOUNT OF THE ASSESSEE WAS NOT COMPLETE. NO PROVISION EITHER IN THE ACT OR IN THE RULES REQUIRING AN ASSESSEE CARRYING BUSINESS OF THIS NATURE, TO MAINTAIN A STOCK REGIST ER, AS A PART OF ITS ACCOUNTS HAS BEEN BROUGHT TO NOTICE . AS REGARDS NON-PRODUCTION OF STOCK REGISTER, THE ASSES SEE HAS GIVEN AN EXPLANATION WHICH HAS BEEN ACCEPTED NO T ONLY BY THE CIT(A) BUT ALSO BY THE TRIBUNAL AND BOT H OF THEM HAVE GIVEN A CONCURRENT FINDING OF FACT THAT MAINTAINING STOCK REGISTER WAS NOT FEASIBLE CONSIDE RING THE NATURE OF THE BUSINESS BEING RUN BY THE ASSESSE E WHICH WAS ENGAGED IN THE BUSINESS OF MANUFACTURING READYMADE GARMENTS BY PURCHASING FABRIC WHICH WAS THEN SUBJECTED TO EMBROIDERY, DYEING AND FINISHING AND THEN CONVERTED INTO READYMADE GARMENTS BY STITCHING . SEC. 145(3) THEREFORE COULD NOT HAVE BEEN APPLIED B Y THE AO TO THE PRESENT CASE. AS REGARDS FAILURE OF T HE ASSESSEE TO PRODUCE THE PERSONS TO WHOM PAYMENTS WERE MADE BY THE ASSESSEE FOR FABRICATION, EMBROIDE RY AND DYEING AND FINISHING, ETC., THE AO WAS AT LIBER TY TO SUMMON ANY OR ALL OF THEM IN CASE HE WANTED TO VERI FY THE GENUINENESS OF THE PAYMENTS MADE TO THEM. NO SU CH COURSE OF ACTION WAS, HOWEVER, ADOPTED BY HIM. FAIL URE OF THE ASSESSEE TO PRODUCE THOSE PERSONS COULD NOT HAVE BEEN A GROUND FOR REJECTING THE ACCOUNTS UNDER S. 145(3). THE AO DID NOT POINT OUT ANY DIFFERENCE IN THE CONSUMPTION OF RAW MATERIAL AND PRODUCTION OF FINIS HED GOODS WHEN COMPARED TO EARLIER YEARS. THE AO DID NO T SAY THAT AFTER COMPARING THE RAW MATERIAL CONSUMED AND FINISHED GOODS PRODUCED IN THE PREVIOUS YEARS W ITH THE RAW MATERIAL CONSUMED AND THE FINISHED GOODS PRODUCED IN THE YEAR IN QUESTION, HE HAD FOUND THAT THE NUMBER OF FINISHED GOODS PIECES ACTUALLY PRODUCED B Y THE ASSESSEE SHOULD HAVE BEEN MORE THAN THE NUMBER OF PIECES DECLARED IN THE ACCOUNT BOOKS PRODUCED BEFOR E HIM. ANOTHER IMPORTANT ASPECT OF THIS CASE IS THAT, ADMITTEDLY, THE GP PERCENTAGE DECLARED BY THE ASSES SEE IN THE ASST. YR. 2003-04 WHICH WAS THE IMMEDIATE PRECEDING YEAR, WAS MORE OR LESS THE SAME AS WAS DECLARED IN THE ASST. YR. 2004-05, TO WHICH THIS AP PEAL PERTAINS. HOWEVER, THE AO, INSTEAD OF APPLYING THE GP RATIO DECLARED IN THE IMMEDIATE PRECEDING YEAR, APP LIED THE GP RATIO DECLARED IN THE ASST. YR. 2002-03, THE REBY FAILING TO MAINTAIN THE ACCEPTED PRINCIPLE OF CONTI NUITY ITA NO. 609/JP/2016 THE ACIT, CENTRAL CIRCLE- 1, AL WAR VS. M/S. KAYAKALP HERBAL (P) LTD., JAIPUR 17 AND CONSISTENCY. THE QUESTION WHETHER FALL IN GROSS PROFIT STOOD EXPLAINED BY THE ASSESSEE OR NOT IS A QUESTION OF FACT. BOTH, THE TRIBUNAL AS WELL AS CIT (A) HAS ACCEPTED THE EXPLANATION GIVEN BY THE ASSESSEE. NO SUBSTANTIAL QUESTION OF LAW ARISES. (IV) HARIDAS PARIKH VS ITO 113 TTJ 274 (ITAT JODHPUR):- HONBLE ITAT JODHPUR BENCH HAS HELD THAT UNLESS THE AO IS ABLE TO POINT OUT CERTAIN TRANSACTIONS WHICH HAVE BEEN LEFT TO BE ENTERED IN THE BOOKS OF ACCOUNT OR THAT THE ASSESSEE HAS SOLD SOME OF THE ITEMS AT A PRICE HIGHER THAN WHAT IS DISCLOSED IN THE BOOKS OF ACCOUNT OR IF PROPER PARTICULARS, BILLS, VOUCHERS, ARE NOT FORTHCOMING ETC., THE BOOKS OF AC COUNT CANNOT BE REJECTED WITHOUT ASSIGNING SPECIFIC REASO NS. IN THE INSTANT CASE MERELY BECAUSE DIFFERENT RANGE AND NATURE OF ITEMS ARE BEING DEALT WITH BY THE ASSESSE E AND THE MAINTENANCE OF QUANTITATIVE STOCK OF EACH AND E VERY ITEM IS NOT PRACTICALLY POSSIBLE, THE BOOKS OF ACCO UNT MAINTAINED BY THE ASSESSEE WHICH ARE FREE FROM ANY DEFECT CANNOT BE REJECTED MERELY BECAUSE THE AVERAG E GP RATE WAS SLIGHTLY LOWER THAN THE AVERAGE GP RATE OF THE EARLIER YEAR. (V) VISHAL INFRASTRUCTURE LTD VS ACIT 104 ITD 537 (ITAT HYDERABAD) :- HONBLE ITAT HYDERABAD A BENCH HELD THAT THE UNDISPUTED FACT IS THAT THE ASSESSEE WHICH IS A LIMITED COMPANY HAS BEEN CONSISTENTLY FOLLOWING A PARTICULAR METHOD OF ACCOUNTING. ITS ACCOUNTS ARE AUDITED BOTH UNDER THE COMPANIES ACT A S WELL AS UNDER S. 44AB. SUCH AUDITED ACCOUNTS ARE BE ING FILED WITH THE REGISTRAR OF COMPANIES AS WELL AS WI TH THE IT DEPARTMENT FOR MORE THAN 7 YEARS. THE REVENU E HAS SCRUTINIZED THE ACCOUNTS AND THE METHOD OF ACCOUNTING REGULARLY EMPLOYED AND ADOPTED BY THE ASSESSEE YEAR AFTER YEAR HAVE NOT BEEN FOUND FAULT WITH. AUDITORS OF THE COMPANY BOTH UNDER THE COMPANIES AC T AND THE IT ACT HAVE BEEN CONSISTENTLY CERTIFYING TH AT THE ASSESSEE HAS BEEN REGULARLY FOLLOWING THE METHOD OF ACCOUNTING AND THAT THE ANNUAL PROFITS CAN BE PROPE RLY DEDUCED FROM SUCH METHOD OF ACCOUNTING EMPLOYED BY THE ASSESSEE. THE AUDITORS OVER THE YEARS HAVE ALSO BEEN CERTIFYING THAT THE ACCOUNTS ARE REGULARLY MAINTAIN ED AND ARE COMPLETE IN THE SENSE THAT THERE IS NO SIGN IFICANT OMISSION THEREIN. THIS FINDING HAS BEEN ACCEPTED BY DIFFERENT AOS OVER A PERIOD OF SEVEN YEARS. THOUGH THE ITA NO. 609/JP/2016 THE ACIT, CENTRAL CIRCLE- 1, AL WAR VS. M/S. KAYAKALP HERBAL (P) LTD., JAIPUR 18 PRINCIPLES OF RES JUDICATA DO NOT APPLY TO INCOME-T AX PROCEEDINGS, EACH ASSESSMENT YEAR BEING A UNIT BY ITSELF, YET IN CASES, WHEN A FUNDAMENTAL ASPECT PERMEATING THROUGH THE DIFFERENT ASSESSMENT YEARS H AS BEEN FOUND AS A FACT ONE WAY OR THE OTHER AND PARTI ES HAVE BEEN ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING THE ORDER, IT MAY NOT BE APPROPRIATE TO ALLOW THAT POSITION TO BE CHANGED IN A SUBSEQUENT Y EAR. FOR REJECTING THE VIEW TAKEN FOR THE EARLIER ASSESS MENT YEARS, THERE MUST BE A MATERIAL CHANGE IN THE FACT SITUATION. HONBLE ITAT PLACED RELIANCE ON RADHASOAMI SATSANG VS. CIT (1991) 100 CTR (SC) 267 : (1992) 193 ITR 321 (SC), CIT VS. A.R.J. SECURITY PRINTERS (2003) 183 CTR (DEL) 323 : (2003) 264 ITR 276 (DEL) AND CIT VS. NEO POLY PACK (P) LTD. (2000) 245 ITR 492 (DEL). (VI) AVDESH PRATAP SINGH ABDUL REHMAN & BROS VS CIT (1994) 210 ITR 406 (ALL) -H ELD THAT ABSENCE OF STOCK REGISTER MAY NOT PER SE LEAD TO AN INFERENCE THAT ACCOUNTS ARE FALSE OR INCOMPLETE. (VII) PANDIT BROS VS CIT (1954) 26 ITR 159 (PUN) - HELD THAT ABSENCE OF STOCK REGISTER IS NOT SUFFICIENT GR OUND TO REJECT THE BOOKS OF ACCOUNT. (VIII) ASHOK REFRACTORIES PVT LTD VS CIT (2005) 279 ITR 475 (CAL) -HE LD THAT ABSENCE OF STOCK REGISTER MAY NOT PER SE LEAD TO AN INFERENCE THAT ACCOUNTS ARE FALSE OR INCOMPLETE. (IX) ST TERESAS OIL MILLS VS STATE OF KERALA 76 IT R 365 (KER.) ACCOUNTS REGULARLY MAINTAINED IN THE COURSE OF BUSINESS HAVE TO BE TAKEN AS CORRECT UNLESS THERE A RE STRONG AND SUFFICIENT REASONS TO INDICATE THAT THEY ARE UNRELIABLE. (X) ANTIQUAIRIATE VS ACIT 37 TAXWORLD 145 (ITAT. JAIPUR). IN VIEW OF ABOVE THIS IS TO SUBMIT THAT THE LD. AO WAS NOT JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNTS OF THE ASSESSEE BY APPLYING THE PROVISIONS OF SECTION 145(3) OF INCOME TAX ACT, 196 1 MERELY ON PRESUMPTION AND ASSUMPTION. 4.2 SUSTAINING THE TRADING ADDITION BY ESTIMATING T HE GP RATE @ 62% ITA NO. 609/JP/2016 THE ACIT, CENTRAL CIRCLE- 1, AL WAR VS. M/S. KAYAKALP HERBAL (P) LTD., JAIPUR 19 A) THE INCOME TAX DEPARTMENT CARRIED OUT INTENSIVE SEARCH OVER THE ASSESSEE GROUP WHICH INCLUDES THE BUSINESS PREMISES OF THE ASSESSEE AS WELL AS RESIDENCE OF THE DIRECTO RS OF THE ASSESSEE. DURING THE COURSE OF SEARCH THE DEPARTMEN T FOUND ALL THE MATERIAL REGARDING INCOME/ASSETS/INVESTMENTS OF THE ASSESSEE GROUP WHETHER RECORDED OR UNRECORDED AND W HATEVER UNRECORDED/UNEXPLAINED ASSETS/INVESTMENT/INCOME WAS DETECTED AS A RESULT OF SEARCH THE SAME WAS SURRENDERED AS I NCOME AND OFFERED FOR TAX IN INCOME TAX RETURN FILED AFTER SE ARCH. THE DETAIL OF ADDITIONAL INCOME OFFERED BY THE ASSESSEE COMPANY IN VARIOUS YEARS IS AS UNDER: - AY NATURE OF INCOME SURRENDERED AMOUNT 2006-07 UNEXPLAINED SHARE APPLICATION MONEY 20,50,0 00 2007-08 UNEXPLAINED SHARE APPLICATION MONEY 22,00,0 00 2008-09 UNEXPLAINED SHARE APPLICATION MONEY 6,95,00 0 2010-11 UNEXPLAINED INVESTMENT IN PROPERTY AT G-2 AND G-3, SUBHASH MARG, JAIPUR. 56,25,000 UNDISCLOSED INCOME EARNED FROM UNDISCLOSED SALES 28,00,000 2011-12 UNDISCLOSED INCOME EARNED FROM UNDISCLOSED SALES 41,30,000 TOTAL 1,75,00,000 THE ASSESSEE ALWAYS ACTED BONA FIDE AND IN GOOD FAI TH. THE ASSESSEE SURRENDERED THE UNDISCLOSED INCOME IN RETU RNS JUST TO HONOR THE ADMISSION IN STATEMENT MADE DURING THE SE ARCH WHEREIN THE UNDISCLOSED INCOME OF RS. 3,50,00,000/- WAS ADMITTED AND OUT OF WHICH RS. 1,75,00,000/- WAS SUR RENDERED IN THE RETURN OF SMT. KULSUM MALIK AND BALANCE RS. 1,7 5,00,000/- SURRENDERED IN THE CASE OF THE ASSESSEE. THE DEPAR TMENT HAS NOT FUND OVER AND ABOVE TO THE ABOVE SO ANY FURTHER ADD ITION WOULD BE HIGHLY UNJUSTIFIED. B) THE LD AO HAS MADE REPEATED FINDINGS THAT THE AS SESSEE WAS INDULGED IN UNACCOUNTED SALES AND THE UNACCOUNT ED PROFIT WAS USED FOR UNDISCLOSED INVESTMENT. THEREFORE, WHE N THE INCOME WAS SURRENDERED ON THE BASIS OF UNDISCLOSED INVESTMENT, FURTHER ADDITION BY ESTIMATION OF GP IS NOT JUSTIFI ED PARTICULARLY ITA NO. 609/JP/2016 THE ACIT, CENTRAL CIRCLE- 1, AL WAR VS. M/S. KAYAKALP HERBAL (P) LTD., JAIPUR 20 WHEN SUCH ADDITIONAL INCOME IS NOT SUPPORTED BY COR ROBORATIVE EVIDENCE OF UNDISCLOSED INVESTMENT/EXPENSES. C) FURTHER, IF GP IS INCREASED THAN THIS WOULD RESU LT INCREASE IN BOOKS STOCK. LD CIT(A) HAS SUSTAINED AD DITION ON ACCOUNT OF GP IN ALL THE ABOVE YEARS FOR THE AMOUNT RS. 7426380/-. IF GP IS INCREASED BY THIS AMOUNT THIS W OULD RESULT INCREASE IN BOOK STOCK AS ON THE DATE OF SEARCH. WH EREAS THE FACT REMAINS THAT EXCESS STOCK OF MINOR AMOUNT OF R S. 4,16,000/- WAS FOUND WHICH IS ALSO BECAUSE OF COUNT ING OF REJECTED GOODS OR GOODS RECEIVED FOR REPLACEMENT OR EXPIRED GOODS. THIS SHOWS THAT THE ADDITION IS HIGHLY UNJUS TIFIED. D) FURTHER, THE ASSESSEE IS NOT ALONE IN THIS LINE. THERE ARE MANY REPUTED AND ESTABLISHED BRAND MANUFACTURER IN THE LINE LIKE M/S KAYA CLINIC OF KAYA LTD, MUMBAI, VLCC, BI OTIQUE BEAUTY PRODUCTS, SHEHNAZ HERBALS ETC. THEREFORE EAR NING OF SUCH A HUGE PROFIT MARGIN AT 62% IS NOT POSSIBLE IN A COMPETITIVE MARKET. E) THE LD AO HAS MENTIONED IN PARA 5.7.4 THAT ASSES SEES BRAND KAYAKALP GAINED POPULARITY YEAR AFTER YEAR. THEREFORE, PROFITS FOR ALL THE YEARS CANNOT BE SAME. F) THE LOWER AUTHORITIES HAVE NOT CITED ANY EXAMPLE OF COMPARATIVE CASE TO JUSTIFY THE ESTIMATION OF HIGHE R GP RATE. G) THE COMPUTATION OF CONSOLIDATED GP OF 61.78% IS BASED ON CERTAIN PRESUMPTION. IN THIS TRADING ACCOUNT NO CREDIT FOR UNACCOUNTED PURCHASES OR EXPENSES WAS GIVEN WHERE UNACCOUNTED SALES WAS TAKEN AT GROSS VALUE. THIS RE SULTED AT HIGHER GP OF 61.78% H) THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 200 5-06, AY 2008-09 AND AY 2009-10 WERE FILED UNDER SECTION 139, WHICH WERE SUBJECTED TO ASSESSMENT UNDER SECTION 14 3(1) WHICH WAS COMPLETED MUCH BEFORE THE DATE OF SEARCH TABULA TED AS UNDER:- PARTICULARS AY 2005-06 AY 2008-09 AY 2009-10 DATE OF FILING RETURN U/S 139(1) 29/10/2005 27/09/2008 21/10/2009 ITA NO. 609/JP/2016 THE ACIT, CENTRAL CIRCLE- 1, AL WAR VS. M/S. KAYAKALP HERBAL (P) LTD., JAIPUR 21 NOTICE U/S 143(2) CAN BE ISSUED UPTO 31-10-2006 30-09-2009 30-09-2010 ON THE DATE OF ISSUANCE OF NOTICE UNDER SECTION 153 A, NO ASSESSMENT WAS PENDING AND THE ASSESSMENT SO COMPLE TED EARLIER HAD ATTAINED FINALITY. FROM A PLAIN READING OF THE PROVISIONS OF SECTION 153A, IT IS EVIDENT THAT IF A SEARCH HAS BEEN INITIATED UNDER SECTION 132(1) OR REQUISITION HAS BEEN MADE UNDER SECTION 132A, THEN THE ASSESSING OFFICER IS OBLIGED TO ISSUE NOTICE UNDER SECTION 153A, REQUIRING SUCH PERSON TO FURNISH RETURN OF INCOME OF SIX YEARS IN THE PRESCR IBED FORM FOR THE IMMEDIATELY PRECEDING THE YEAR OF SEARCH. THE A SSESSING OFFICER IS LEGALLY REQUIRED TO ASSESS OR RE-ASSESS THE TOTAL INCOME OF SIX ASSESSMENT YEARS IMMEDIATELY PROCEEDI NG TO THE YEAR OF SEARCH. THE SECOND PROVISO TO SECTION 153A PROVIDES THAT IF THE ASSESSMENT OR RE- ASSESSMENT OF ANY OF THE ASSESSMENT YEAR, FALLING WITHIN THE PERIOD OF SIX Y EARS IS PENDING ON THE DATE OF SEARCH, THEN THE SAME SHALL GET ABATED. IN THE PRESENT CASE, FOR THE YEARS UNDER APPEAL, THE A SSESSMENT WAS NOT PENDING AND HAD ATTAINED FINALITY, THEREFORE, T HE ASSESSMENT COMPLETED IN THE IMPUGNED ASSESSMENT YEAR WILL NOT GET ABATED. ONCE THAT IS SO, THE LEGAL POSITION AS OF NOW IS TH AT THE ADDITIONS OVER AND ABOVE THE ASSESSED INCOME CANNOT BE MADE D EHORS THE INCRIMINATING MATERIAL FOUND AT THE TIME OF SEARCH WHILE COMPLETING THE ASSESSMENT UNDER SECTION 153A. THIS, INTER-ALIA, MEANS THAT IF THERE IS NO INCRIMINATING MATERIAL, T HEN THE ORIGINAL ASSESSMENT MADE CAN BE REITERATED AND NO F URTHER ADDITION IS CALLED FOR. FURTHER ON THIS ISSUE HONBLE DELHI HIGH COURT HAS DECIDED THE LEGAL POSITION IN THE CASE OF CIT VS KABUL CHAWLA 380 ITR 573 (DEL) AFTER ANALYZING THE CASE LAWS EARLIER DECIDED BY VARIOUS COURTS. THE FINDINGS OF HONBLE COURT IN PARA 37 AND 38 OF ITS ORDER IS AS UNDER:- 37. ON A CONSPECTUS OF SECTION 153A(1) OF THE ACT, READ WITH THE PROVISOS THERETO, AND IN THE LIGHT OF THE LAW E XPLAINED IN THE ITA NO. 609/JP/2016 THE ACIT, CENTRAL CIRCLE- 1, AL WAR VS. M/S. KAYAKALP HERBAL (P) LTD., JAIPUR 22 AFOREMENTIONED DECISIONS, THE LEGAL POSITION THAT E MERGES IS AS UNDER: I. ONCE A SEARCH TAKES PLACE UNDER SECTION 132 OF T HE ACT, NOTICE UNDER SECTION 153 A (1) WILL HAVE TO BE MAND ATORILY ISSUED TO THE PERSON SEARCHED REQUIRING HIM TO FILE RETURNS FOR SIX AYS IMMEDIATELY PRECEDING THE PREVIOUS YEAR REL EVANT TO THE AY IN WHICH THE SEARCH TAKES PLACE. II. ASSESSMENTS AND REASSESSMENTS PENDING ON THE DA TE OF THE SEARCH SHALL ABATE. THE TOTAL INCOME FOR SUCH AYS W ILL HAVE TO BE COMPUTED BY THE AOS AS A FRESH EXERCISE. III. THE AO WILL EXERCISE NORMAL ASSESSMENT POWERS IN RESPECT OF THE SIX YEARS PREVIOUS TO THE RELEVANT AY IN WHI CH THE SEARCH TAKES PLACE. THE AO HAS THE POWER TO ASSESS AND REA SSESS THE 'TOTAL INCOME' OF THE AFOREMENTIONED SIX YEARS IN S EPARATE ASSESSMENT ORDERS FOR EACH OF THE SIX YEARS. IN OTH ER WORDS THERE WILL BE ONLY ONE ASSESSMENT ORDER IN RESPECT OF EACH OF THE SIX AYS IN WHICH BOTH THE DISCLOSED AND THE UN DISCLOSED INCOME WOULD BE BROUGHT TO TAX. IV. ALTHOUGH SECTION 153 A DOES NOT SAY THAT ADDITI ONS SHOULD BE STRICTLY MADE ON THE BASIS OF EVIDENCE FOUND IN THE COURSE OF THE SEARCH, OR OTHER POST-SEARCH MATERIAL OR INFORM ATION AVAILABLE WITH THE AO WHICH CAN BE RELATED TO THE E VIDENCE FOUND, IT DOES NOT MEAN THAT THE ASSESSMENT CAN BE ARBITR ARY OR MADE WITHOUT ANY RELEVANCE OR NEXUS WITH THE SEI ZED MATERIAL . OBVIOUSLY AN ASSESSMENT HAS TO BE MADE UNDER THIS SECTION ONLY ON THE BASIS OF SEIZED MATERIAL. V. IN ABSENCE OF ANY INCRIMINATING MATERIAL, THE CO MPLETED ASSESSMENT CAN BE REITERATED AND THE ABATED ASSESSM ENT OR REASSESSMENT CAN BE MADE. THE WORD 'ASSESS' IN SECT ION 153 A IS RELATABLE TO ABATED PROCEEDINGS (I.E. THOSE PEND ING ON THE DATE OF SEARCH) AND THE WORD 'REASSESS' TO COMPLETE D ASSESSMENT PROCEEDINGS. VI. INSOFAR AS PENDING ASSESSMENTS ARE CONCERNED, T HE JURISDICTION TO MAKE THE ORIGINAL ASSESSMENT AND TH E ASSESSMENT UNDER SECTION 153A MERGES INTO ONE. ONLY ONE ASSESS MENT SHALL BE MADE SEPARATELY FOR EACH AY ON THE BASIS OF THE FINDINGS OF THE SEARCH AND ANY OTHER MATERIAL EXISTING OR BROUG HT ON THE RECORD OF THE AO. VII. COMPLETED ASSESSMENTS CAN BE INTERFERED WITH B Y THE AO WHILE MAKING THE ASSESSMENT UNDER SECTION 153 A ONL Y ON THE BASIS OF SOME INCRIMINATING MATERIAL UNEARTHED DURI NG THE ITA NO. 609/JP/2016 THE ACIT, CENTRAL CIRCLE- 1, AL WAR VS. M/S. KAYAKALP HERBAL (P) LTD., JAIPUR 23 COURSE OF SEARCH OR REQUISITION OF DOCUMENTS OR UND ISCLOSED INCOME OR PROPERTY DISCOVERED IN THE COURSE OF SEAR CH WHICH WERE NOT PRODUCED OR NOT ALREADY DISCLOSED OR MADE KNOWN IN THE COURSE OF ORIGINAL ASSESSMENT . CONCLUSION 38. THE PRESENT APPEALS CONCERN AYS, 2002-03, 2005- 06 AND 2006-07.ON THE DATE OF THE SEARCH THE SAID ASSESSME NTS ALREADY STOOD COMPLETED. SINCE NO INCRIMINATING MATERIAL WA S UNEARTHED DURING THE SEARCH, NO ADDITIONS COULD HAV E BEEN MADE TO THE INCOME ALREADY ASSESSED. IN THE CASE OF ASSESSEE NO ANY INCRIMINATING MATER IAL WAS FOUND FOR THE AY 2005-06, AY 2008-09 AND AY 2009-10. THE SURRENDER OF ADDITION INCOME OF RS. 6,95,000/- ON A CCOUNT OF SHARE CAPITAL IN AY 2008-09 IS NOT BASED ON INCRIMI NATING DOCUMENTS BUT JUST OF BUY PEACE AND AVOID LITIGATIO N. SINCE NO ANY INCRIMINATING DOCUMENT WAS FOUND AS TH E RESULT OF THE SEARCH TO VISUALIZE THE UNDISCLOSED S ALES OR SUPPRESSION OF PROFIT FOR THE YEARS, THEREFORE, TH E ADDITION IS BEYOND THE SCOPE OF SECTION 153A OF INCOME TAX A CT. 2.12 ON APPEALS FILED BY THE REVENUE, THE LD AR RE LIED UPON THE FINDINGS OF LD CIT(A). 2.13 ON THE OTHER HAND, THE LD CIT-DR SUBMITTED TH AT DEPARTMENT HAS FOUND DOCUMENTS OF UNACCOUNTED SALES FOR THE AY 201 0-11 AND AY 2011- 12. THE MODUS OPERANDI OF UNACCOUNTED SALES WAS EXP LAINED BY THE DIRECTORS AND EMPLOYEES OF ASSESSEE IN THE SEARCH S TATEMENT WHICH WAS NOT RETRACTED. THE ASSESSEE HAS DESTROYED THE RECOR DS OF UNACCOUNTED SALES FOR EARLIER YEARS, SO THEY CANNOT BE FOUND BY THE S EARCH TEAM. FURTHER, THE ASSESSEE HAS NOT MAINTAINED THE STOCK RECORDS, THER EFORE YIELD OF THE ASSESSEE CANNOT BE ASCERTAINED. THE ASSESSEE HAS AL SO NOT PROVIDED THE ITA NO. 609/JP/2016 THE ACIT, CENTRAL CIRCLE- 1, AL WAR VS. M/S. KAYAKALP HERBAL (P) LTD., JAIPUR 24 MIX OF RAW MATERIAL USED AND ITS COST IN ITS DIFFER ENT PRODUCTS. THEREFORE, THE AO HAS JUSTIFIED THE ESTIMATION OF UNACCOUNTED SALES BY EXTRAPOLATING THE GP RATE OF 72%. THE AO CALCULATED THE INPUT COS T AT 28% (100-72) AND BY COMPARING THE INPUT COST FROM THE COST DISCL OSED IN THE REGULAR BOOKS AND BY EXTRAPOLATING THE INPUT COST 28%, THE AO ESTIMATED THE UNACCOUNTED + ACCOUNTED SALES AND BY APPLYING THE G P RATE OF 72% HE WORKED OUT GROSS PROFIT. HE REDUCED THE GROSS PROFI T DECLARED BY THE ASSESSEE IN BOOKS OF ACCOUNT AND ADDED THE DIFFEREN CE AS INCOME OF THE ASSESSEE. THE AO HELD THAT THE ASSESSEE HAS ACCOUNT ED FOR ALL THE COST IN ITS BOOKS BY RELYING ON THE STATEMENTS OF DIRECTORS OF ASSESSEE. THE LD CIT-DR RELIED UPON THE FOLLOWING DECISIONS:- 1 E.N. GOPAL KUMAR VS. CIT , (2016), 75 TAXMANN. CO M 215 (KERALA) 2 CIT VS. ST. FRANCIS CLAY DCOR TILES, (2016), 70 TAXMANN. COM 234 (KERALA) 3 FILATEX INDIA LTD. VS. CIT (2014) 49 TAXMANN. COM 465 (DEL) 4. CIT VS. CHETAN DAS LACHMAN DAS (2012) 25 TAXMANN A. COM 227 (DEL) THE LD. DR FURTHER SUBMITTED THAT IN THE CASE OF CI T VS. CONTINENTAL WAREHOUSING CORPORATION (2015) 64 TAXMANN. COM 34 ( SC), SLP FILED BY THE DEPARTMENT HAD BEEN ADMITTED BY THE HON'BLE SUPREME COURT . THE LD. DR FURTHER SUBMITTED THAT LD CIT(A) HELD T HAT THE ASSESSEE HAS ITA NO. 609/JP/2016 THE ACIT, CENTRAL CIRCLE- 1, AL WAR VS. M/S. KAYAKALP HERBAL (P) LTD., JAIPUR 25 RETRACTED FROM THE SEARCH BY NOT SHOWING THE INCOME IN THE RETURNS FILED BY IT SUBSEQUENT TO SEARCH. SHE SUBMITTED THAT THIS IMPLIED RETRACTION IS NOT ACCEPTABLE. 2.14 IN REJOINDER LD AR SUBMITTED THAT LD CIT-DR HA S ARGUED THE CASE BEYOND THE SCOPE OF GROUNDS RAISED BY THE REVENUE. HE SUBMITTED THAT THE DEPARTMENT HAS NOT QUESTIONED OVER THE REDUCTION OF SALES MADE BY CIT(A) ON THE BASIS OF CATEGORICAL FINDINGS IN PARA 3.1.3 (B) OF THE ORDER OF LD CIT(A). FURTHER, THE REVENUE HAS NOT RAISED D ISPUTE OVER THE QUANTUM OF RELIEF GIVEN BY LD CIT(A). THE ONLY DISP UTE IS OVER THE REDUCTION OF GP RATE FROM 72% TO 62%. FURTHER, AFTE R CONSIDERING ALL THE DISCREPANCIES IN ACCOUNTS AND DOCUMENTS FOUND BY TH E SEARCH PARTY, THE ASSESSEE GROUP DECLARED THE UNDISCLOSED INCOME OF R S. 3,50,00,000/- IN THE SEARCH STATEMENT, WHICH THE ASSESSEE GROUP HONO RED BY SHOWING ADDITIONAL INCOME OF RS. 1,75,00,000/- IN THE HANDS OF ASSESSEE AND RS. 1,75,00,000/- IN THE HANDS OF CHAIRPERSON OF ASSESS EE SMT KULSUM MALIK. THEREFORE, THERE IS NO RETRACTION ON THE INCOME DIS CLOSED BY THE ASSESSEE IN SEARCH STATEMENT. FURTHER, THE LD AR SUBMITTED T HAT THE DEPARTMENT HAS CARRIED OUT INTENSIVE SEARCH OPERATION WHEREIN ALL THE PREMISES OF THE ASSESSEE AND ITS DIRECTORS WERE SEARCHED. NO ANY UN ACCOUNTED ASSETS, CASH, STOCK, UNEXPLAINED CREDIT ENTRY, UNEXPLAINED EXPENSES WERE FOUND ITA NO. 609/JP/2016 THE ACIT, CENTRAL CIRCLE- 1, AL WAR VS. M/S. KAYAKALP HERBAL (P) LTD., JAIPUR 26 OVER AND ABOVE TO THE ADDITIONAL INCOME DECLARED IN THE RETURNS FILED SUBSEQUENT TO THE SEARCH. FURTHER, THE REVENUE HAS NOT CHALLENGED THE FINDINGS OF LD CIT(A) THAT ESTIMATION OF UNACCOUNTE D SALES OVER AND ABOVE THE SEIZED MATERIAL CANNOT BE MADE. THE LD. C IT(A) HAS WORKED OUT THE SALES OF THE ASSESSEE IN THE CHART GIVEN IN PAR A 3.1.3 (C) OF HIS ORDER. IN SUCH A CASE, WHEN GP IS INCREASED, IT WOULD INCREAS E THE CLOSING STOCK AS PER THE BOOKS AND SUCH EXCESS STOCK WAS NOT FOUND. THE DEPARTMENT HAS FOUND EXCESS STOCK ONLY OF RS. 4.16 LACS WHICH HAS ALREADY BEEN COVERED BY ADDITIONAL INCOME FOR AY 2011-12 DECLARED BY THE ASSESSEE. FURTHER, ON THE BASIS OF INCREASED GP RATE IF EXCESS BOOK ST OCK IS WORKED OUT IN COMPARISON TO PHYSICAL STOCK FOUND BY THE SEARCH PA RTY, THEN IT WOULD BE TREATED AS UNACCOUNTED SALES WHICH HAS ALREADY BEEN CONSIDERED AT RS. 1,13,00,000/- IN AY 2011-12 AND RS. 28,00,000/- IN AY 2010-11. AS REGARDS, DECISIONS OF HON'BLE KERALA HIGH COURT R ELIED UPON BY LD CIT- DR, THE LD AR SUBMITTED THAT RATIO LAID DOWN BY HON BLE RAJASTHAN HIGH COURT IN THE CASE OF JAI STEEL (INDIA) VS ASTT COM MISSIONER OF INCOME TAX (2013) 259 CTR (RAJ) 281 ALSO SUPPORT THE ASSE SSEES CONTENTION THAT IF NO INCRIMINATING MATERIAL HAS BEEN FOUND TH EN IN THE COMPLETED ASSESSMENTS IT IS NOT OPEN FOR THE ASSESSEE TO SEEK DEDUCTION OR CLAIM EXPENDITURE WHICH HAS NOT BEEN CLAIMED IN THE ORIGI NAL ASSESSMENT. THUS ITA NO. 609/JP/2016 THE ACIT, CENTRAL CIRCLE- 1, AL WAR VS. M/S. KAYAKALP HERBAL (P) LTD., JAIPUR 27 IN NON-ABATED ASSESSMENT, NO ACTION CAN BE TAKEN IN PROCEEDINGS U/S 153A WHERE NO INCRIMINATING DOCUMENTS ARE FOUND . THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS KABUL CHAWLA 380 ITR 573 (DEL) ALSO SUPPORTS THAT NO ADDITION CAN BE MADE IN AY 2 005-06 AND AY 2009-10 WHERE NO ASSESSMENT WAS ABATED. THE LD A R FURTHER SUBMITTED THAT VARIOUS BENCHES OF ITAT HAS FOLLOW ED THE ABOVE REFERRED DECISION OF HONBLE DELHI HIGH COURT ON THE ISSUE O F ASSESSMENT U/S 153A WHERE NO ASSESSMENT WERE ABATED. THE LD AR SU BMITTED THAT THE DOCUMENTS OTHER THAN AY 2005-06 AND AY 2009-10 WERE FOUND AND SEIZED AND ON THAT BASIS THE ASSESSEE HAS DECLARED ADDITIONAL INCOME, THEREFORE, IN ABSENCE OF ANY INCRIMINATING MATERIAL AND ASSESSMENTS OF THESE TWO YEARS WERE NOT ABATED THEN NO ADDITION CA N BE MADE IN THESE YEARS. THE LD AR FURTHER SUBMITTED THAT IF INCOME H AD GENERATED THEN IT WOULD HAVE BEEN FOUND IN THE SHAPE OF CASH, STOCK O R OTHER ASSETS OR UNEXPLAINED CREDIT OR UNEXPLAINED EXPENSES, BUT IN THE CASE OF ASSESSEE NO SUCH CASH, STOCK OR OTHER ASSETS OR UNEXPLAINED CRE DIT OR UNEXPLAINED EXPENSES WERE FOUND OVER AND ABOVE TO WHAT HAS BEEN DISCLOSED BY THE ASSESSEE COMPANY OR ITS DIRECTORS. THE LD. AR FURTH ER SUBMITTED THAT HON'BLE SUPREME COURT HAS HELD THAT IN CASE OF TWO CONFLICTING VIEWS OF ITA NO. 609/JP/2016 THE ACIT, CENTRAL CIRCLE- 1, AL WAR VS. M/S. KAYAKALP HERBAL (P) LTD., JAIPUR 28 THE COURT, FAVOURABLE VIEW OF THE ASSESSEE WOULD BE TAKEN AS HELD IN THE CASE OF CIT VS VEGETABLE PRODUCTS LTD. (1973) 88 ITR 192 (S C) . 2.15 WE HAVE HEARD RIVAL CONTENTIONS OF BOTH THE PA RTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. FIRST WE TAKE THE APP EALS FILED BY THE ASSESSEE FOR ADJUDICATION. ITA NO 633/JP/2016 (AY 2005-06) AND 635/JP/ 16 (AY 2009-10), 2.16 WITH REGARD TO AY 2005-06 AND AY 2009-10, WE OBSERVED THAT THE DEPARTMENT HAS NOT FOUND ANY INCRIMINATING DOCU MENT OR UNEXPLAINED CASH, STOCK OR OTHER ASSETS OR UNEXPLAINED CREDIT O R UNEXPLAINED EXPENSES. IN THESE CASES THE ASSESSEE FILED RETURN U/S 139(1) ON 29/10/2005 FOR AY 2005-06 AND ON 21/10/2009 FOR AY 2009-10. THE LAST DATE OF ISSUE OF NOTICE U/S 143(2) OF INCOME TAX ACT WAS 31-10-2006 AND 30/09/2010 RESPECTIVELY. THE SEARCH WAS CONDUCTED ON 11/11/20 10. SINCE NO INCRIMINATING DOCUMENTS WERE FOUND FOR THE AY 2005- 06 AND AY 2009- 10 AND NO ASSESSMENT PROCEEDINGS WERE PENDING BEFOR E THE AO, THEREFORE, NO ASSESSMENT COULD HAVE BEEN MADE IN VI EW OF THE DECISION OF HON'BLE RAJASTHAN HIGH COURT AND HON'BLE DELHI HIG H COURT (SUPRA). THE HON'BLE JURISDICTIONAL HIGH COURT DECISION IN T HE CASE OF JAI STEEL INDIA VS. ACIT (SUPRA) HAS HELD AS UNDER:- ITA NO. 609/JP/2016 THE ACIT, CENTRAL CIRCLE- 1, AL WAR VS. M/S. KAYAKALP HERBAL (P) LTD., JAIPUR 29 CONSEQUENTLY IT IS HELD THAT IT IS NOT OPEN FOR T HE ASSESSEE TO SEEK DEDUCTION OR CLAIM EXPENDITURE WHI CH HAS NOT BEEN CLAIMED IN THE ORIGINAL ASSESSMENT, WHICH ASSESSMENT ALREADY STANDS COMPLETED, ONLY BECAUSE A ASSESSMENT UNDER SECTION OF THE ACT IN PURSUANCE OF SEARCH OR REQUISITION IS REQUIRED TO BE MADE. IN VIEW OF THE ABOVE DISCUSSION, THE ANSWER TO SUBSTANTIAL QUESTION OF LAW (IV) ABOVE IS IN THE PO SITIVE AND AGAINST THE APPELLANT ASSESSEE, THE OTHER THREE QUE STIONS CONSEQUENTLY DO NOT ARISE, AND AS SUCH, THE APPEAL FAILS AND IS, THEREFORE, DISMISSED. NO COSTS. THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS . KABUL (SUPRA) HELD AS UNDER:- HELD ACCORDINGLY, THAT THE MATTER RELATED TO THE ASSESSMENT 2002-03, 2005-06 AND 2006-07. ON THE DA TE OF THE SEARCH THE ASSESSMENTS ALREADY STOOD COMPLETED. SINCE NO INCRIMINATING MATERIAL WAS UNEARTHED DURING THE SEARCH, NO ADDITIONS COULD HAVE BEEN MADE TO THE INCOME ALR EADY ASSESSED. ALTHOUGH THE HON'BLE KERALA HIGH COURT (SUPRA) HE LD AGAINST THE ASSESSEE OR SAY CONTRARY TO THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. KABUL CHAWLA (SUPRA). HOWEVER, IN VIEW OF THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF C IT VS. VEGETABLE PRODUCTS LTD. (1973), THE ISSUE TO BE DECIDED IN FA VOUR OF THE ASSESSEE. THE RELEVANT OBSERVATION OF THE HON'BLE SUPREME CO URT IS AS UNDER:- ITA NO. 609/JP/2016 THE ACIT, CENTRAL CIRCLE- 1, AL WAR VS. M/S. KAYAKALP HERBAL (P) LTD., JAIPUR 30 THERE IS NO DOUBT THAT THE ACCEPTANCE OF ONE OR TH E OTHER INTERPRETATION SOUGHT TO BE PLACED ON SECTION 271(1 )(A)(I) BY THE PARTIES WILFUL LEAD TO SOME INCONVENIENT RESULT, BUT THE DUTY OF T HE COURT IS TO READ THE SECTION, UNDERSTAND ITS LANGUAGE AND GIVE EFFECT TO THE SAME. IF THE LANGUAGE IS PLAIN, THE FACT THAT THE CONSEQUENCE OF GIVING EFFE CT TO IT MAY LEAD TO SOME ABSURD RESULT IS NOT A FACTOR TO BE TAKEN INTO ACCO UNT IN INTERPRETING A PROVISION. IT IS FOR THE LEGISLATURE TO STEP IN AND REMOVE THE ABSURDITY. ON THE OTHER HAND, IF TWO REASONABLE CONSTRUCTIONS OF A TA XING PROVISION ARE POSSIBLE, THAT CONSTRUCTION WHICH FAVOURS THE ASSESSEE MUST B E ADOPTED. THIS IS A WELL ACCEPTED RULE OF CONSTRUCTION RECOGNISED BY THIS CO URT IN SEVERAL OF ITS DECISIONS. HENCE, ALL THAT WE HAVE TO SEE IS, WHAT IS THE TRUE EFFECT OF THE LANGUAGE EMPLOYED IN SECTION 271(1)(A)(I). IF WE FI ND THAT LANGUAGE TO BE AMBIGUOUS OR CAPABLE OF MORE MEANINGS THAN ONE, THE N WE HAVE TO ADOPT THAT INTERPRETATION WHICH FAVOURS THE ASSESSEE, MORE PAR TICULARLY SO BECAUSE THE PROVISION RELATES TO IMPOSITION OF PENALTY. THUS THE ASSESSEES APPEAL SUCCEEDS FOR AY 2005-06 AND AY 2009-10 THE APPEAL FILED BY THE ASSESSEE IN ITA NO 633/JP/2 016 (AY 2005-06) AND 635/JP/ 16 (AY 2009-10) STAND ALLOWED. ITA NO 634/JP/2016 (AY 2008-09) 2.17 IN GROUND NO 1, THE ASSESSEE HAS CHALLENGED THE VALIDITY OF ASSESSMENT FRAMED U/S 153A ON THE GROUND THAT NO IN CRIMINATING DOCUMENTS WAS FOUND IN SEARCH. BUT THE FACT REMAINS THAT THE ASSESSEE HAS SURRENDERED ADDITIONAL INCOME OF RS. 6,95,000/- IN THE REVISED RETURN FILED U/S 153A OF THE ACT ON 17/08/2012. THE AO MADE ADDI TION BY ESTIMATING THE GROSS PROFIT RATE AND OUT OF THE ADDITION THE T ELESCOPING BENEFIT WAS GIVEN BY THE AO FOR ESTIMATED AMOUNT. THE LD. CIT( A) REDUCED THE ESTIMATION OF PROFIT BUT UPHELD THE REJECTION OF BO OKS OF ACCOUNT. IN THE GROUND NO. 2, THE ASSESSEE HAS CHALLENGED THE CON FIRMING OF THE FINDING ITA NO. 609/JP/2016 THE ACIT, CENTRAL CIRCLE- 1, AL WAR VS. M/S. KAYAKALP HERBAL (P) LTD., JAIPUR 31 OF AO BY LD. CIT(A) AS REGARDS REJECTION OF BOOKS OF ACCOUNT. IT IS ADMITTED FACT THAT THE ASSESSEE IS NOT MAINTAINING THE STOCK RECORDS OF CONSUMPTION OF RAW MATERIAL. THE ASSESSEE HAS ALSO NOT FURNISHED ALTERNATIVE METHOD FOR VERIFICATION OF FIGURES MENT IONED AGAINST OPENING AND CLOSING STOCK IN TRADING ACCOUNT. CONSIDERING A LL THE ASPECT, WE HOLD THAT THE LD. CIT(A) HAS RIGHTLY CONFIRMED THE FIND INGS OF AO AS REGARDS REJECTION OF BOOKS OF ACCOUNT. WITH REGARD TO GROUN D NO 3, THE ASSESSEE HAS CHALLENGED THE ADDITION OF RS. 9,04,454/- CONFI RMED BY CIT(A) BY APPLYING GP RATE OF 62% ON THE DECLARED SALES AS AG AINST GP RATE @ 53.33% DECLARED BY THE ASSESSEE IN ITS BOOKS OF ACC OUNT. IN THIS CASE, THE DEPARTMENT HAS FOUND EVIDENCES OF UNACCOUNTED SAL ES IN SOME OF THE YEARS. THE ESTIMATION OF UNACCOUNTED SALES MADE BY AO IN ABSENCE OF ANY INCRIMINATING DOCUMENTS WAS NOT SUSTAINED BY LD CIT(A) AND WHEREVER EVIDENCE WAS FOUND IT HAS BEEN SUSTAINED IN A.Y. 2010-11 AND 2011-12. THIS FINDINGS OF LD CIT(A) WITH REGARD TO ESTIMATIN G SALES IN ABSENCE OF ANY INCRIMINATING DOCUMENTS HAS NOT BEEN DISPUTED BY THE REVENUE IN APPEAL. THUS ISSUE REMAINS ONLY ESTIMAT ION OF G.P. ON THE RECORDED SALES WHEREVER NO INCRIMINATING EVIDENCE S WERE FOUND. THE GROSS PROFIT RATE DECLARED BY THE ASSESSEE ON THE R ECORDED SALES VARY FROM 50% TO 60% DURING A.Y. 2005-06 TO 2010-11. THE HON' BLE RAJASTHAN ITA NO. 609/JP/2016 THE ACIT, CENTRAL CIRCLE- 1, AL WAR VS. M/S. KAYAKALP HERBAL (P) LTD., JAIPUR 32 HIGH COURT IN THE CASE OF CIT VS. POPULAR ART PALAC E (P) LTD. (2017) 391 ITR 352 HAS APPROVED THE ESTIMATION OF PROFIT ON TH E BASIS OF AVERAGE PROFIT OF PAST YEARS. THE HELD PORTION OF THE ORDER IS AS UNDER:- HELD, THAT ADOPTION OF GROSS PROFIT BY THE ASSESS ING OFFICER AT 35 PER CENT WAS HIGH. THE AVERAGE OF PROFIT SHOWN B Y THE ASSESSEE FROM THE YEAR 1991-92 TO 1996-97, WAS 31.4 PER CENT AND FOR THAT THE ESTIMATE OF 32 PER CENT COULD BE ADOPTED INSTEAD OF 35 PER CENT BY THE ASSESSING OFFICER. THE ASSESSING OFFICER WAS TO MAK E CALCULATIONS BY ADOPTING ESTIMATED PROFIT OF 32 PER CENT. THE ASSESSEE HAS ALSO MADE CERTAIN DISCLOSURE OF IN COME DURING CERTAIN ASSESSMENT YEARS. THE AO HAS ALSO FOUND DEFECTS IN THE BOOKS OF ACCOUNT AND WE HAVE SUSTAINED THE REJECTION OF BOOKS OF ACC OUNT. CONSIDERING ALL THESE ASPECTS, WE ARE OF THE VIEW THAT ESTIMATING THE PROFIT @ 58% ON THE DECLARED SALES SHALL MEET THE ENDS OF JUSTICE. IN THE RESULT, THE GROUND NO. 3 OF THE ASSESSEE'S APPEAL IS PARTLY ALLOWED. H OWEVER, WHEREVER THE DISCLOSURE MADE IN THE RETURN OF CLAIM U/S 153A OF THE ACT IS OVER AND ABOVE THE ESTIMATED INCOME ON THE BASIS OF PROFIT @ 58%, SAME SHALL BE MAINTAINED.. THE APPEAL FILED BY THE ASSESSEE IN ITA NO 634/JP/2 016 (AY 2008-09) STANDS PARTLY ALLOWED. ITA NO 636/JP/2016 (AY 2011-12) 2.18 GROUND NO 1 IS REGARDING REJECTION OF BOOKS O F ACCOUNT. IT MAY BE NOTED THAT SIMILAR ISSUE HAS BEEN DECIDED AGAINST T HE ASSESSEE IN GROUND 1 ITA NO. 609/JP/2016 THE ACIT, CENTRAL CIRCLE- 1, AL WAR VS. M/S. KAYAKALP HERBAL (P) LTD., JAIPUR 33 NO. 2 OF THE ASSESSEES IN ITA NO. 634/JP/2016 FO R THE ASSESSMENT YEAR 2008-09. HENCE, THIS GROUND OF THE ASSESSEE IS ALSO DISMISSED FOR THE SAME REASONS AS THE FACTS REMAIN SIMILAR. GROUND NO . 1 OF THE ASSESSEE ASSESSEE IN ITA NO. 636/JP/2016 STANDS DISMISSED. 2.19 IN GROUND NO 2, THE ASSESSEE HAS CHALLENGED T HE ADDITION OF RS. 28,13,149/- CONFIRMED BY LD. CIT(A) BY APPLYING GP RATE OF 62%. THE AO HAS CONSIDERED THE UNACCOUNTED RS. 1,13,00,000/- FOR AY 2011-12 ON THE BASIS OF INCRIMINATING DOCUMENTS. IN THIS YE AR, THE SALES INCLUDES THE UNACCOUNTED SALES RECORDED IN THE SEIZED MATERI AL. WE HAVE ALREADY DECIDED THE ISSUE OF ESTIMATING THE PROFIT RATE ON THE SALES DECLARED BY ASSESSEE @ 58% FOR THE SAME REASONS MENTIONED ABOVE . FOR THIS YEAR ALSO, WE DIRECT TO ESTIMATE THE PROFIT @ 58% ON BOT H SALES RECORDED AND ALSO UNRECORDED SALES AS PER SEIZED MATERIAL I.E. R S. 1.13 CRORES. THE AO IS DIRECTED TO WORK OUT THE PROFIT ACCORDINGLY. T HE APPEAL FILED BY THE ASSESSEE IN ITA NO 636/JP/2016 (AY 2011-12) STANDS PARTLY ALLOWED. 3.0 NOW WE TAKE UP THE REVENUES APPEAL IN ITA NO. 609 /JP/16, (AY 2005-06), 627/JP/16, (AY 2006-07), 628/JP/16, (AY 2007-08), 629/JP/16, (AY 2008-09), 630/JP/16, (AY 2009-10) AN D 631/JP/16, (AY 2010-11) FOR ADJUDICATION. ITA NO. 609/JP/2016 THE ACIT, CENTRAL CIRCLE- 1, AL WAR VS. M/S. KAYAKALP HERBAL (P) LTD., JAIPUR 34 3.1 IN THESE APPEALS, IT IS NOTED THAT THE PRIMARY OBJECTION RAISED BY LD AR IS THAT THESE APPEALS FILED BY THE REVENUE FOR A Y 2005-06 TO AY 2010-11 ARE NOT MAINTAINABLE AND LIABLE TO BE REJEC TED IN LIMINE FOR THE , REASON THAT TAX EFFECT IN THESE APPEALS IS NOT M ORE THAN RS. 10 LACS IN VIEW OF CIRCULAR NO. 21/2015 F NO 279/MISC. 142/200 7-ITJ (PT) 10TH DECEMBER, 2015. 3.2 ON THE OTHER HAND THE LD CIT-DR SUPPORTED THE M AINTAINABILITY OF APPEALS BY STATING THAT THE TAX EFFECT ON THE RELIE F GIVEN BY THE LD CIT(A) IS MORE THAN THE LIMIT PRESCRIBED IN THE CIRCULAR. 3.3 THE LD AR IN REJOINDER SUBMITTED A CHART SHOWIN G THE TAX EFFECT ON THE GROUNDS RAISED BY THE DEPARTMENT HAVING MAIN CO NTENTS AS UNDER:- AS PER ORDER OF CIT(A) IF GP RATE OF 72% IS APPLIED AS AGAINST 62% APPLIED BY CIT(A) A.Y TOTAL SALES (RS) GP @ 62% ( RS ) GP DECLARED IN REGULAR BOOKS (RS) SHORTFALL IN GP ( RS) INCOME DECLARED BY ASSSESSEE IN RETURN FILED U/S 153A (RS) ADDITION SUSTAINED (RS) PROFIT IF GP APPLIED 72% SHORTFALL IN GP INCOME DECLARED BY ASSSESSE E IN RETURNS FILED U/S 153A (RS) ADDITION TO BE SUSTAINED IF GP RATE IS APPLIED 72% ADDITION SUSTAINED BY CIT(A) ON THE BASIS OF GP RATE 62% ADDITIONA L ADDITIONS IF GP RATE 72% IS APPLIED AS AGAINST 62% TAX EFFECT @30% ON ADDITIO NAL INCOME IF GP RATE OF 72% IS APPLIED 1 2 3 4 5 6 7 8 10 11 12 13 14 15 2005 -06 97,80,619 60,63,984 49,44,613 11,19,37 1 0 11,19,371 7042046 2097433 0 2097433 1119371 978062 293419 ITA NO. 609/JP/2016 THE ACIT, CENTRAL CIRCLE- 1, AL WAR VS. M/S. KAYAKALP HERBAL (P) LTD., JAIPUR 35 2006 -07 1,36,70,714 84,75,843 72,73,292 12,02,55 1 20,50,00 0 INCOME SURRENDERE D IS MORE THAN ADDITION TO BE MADE FOR TRADING RESULTS, THEREFORE NO FURTHER ADDITION DESERVES TO BE MADE 9842914 2569622 2050000 519622 0 519622 155887 2007 -08 1,62,92,362 1,01,01,26 4 85,86,549 15,14,71 5 22,00,00 0 INCOME SURRENDERE D IS MORE THAN ADDITION TO BE MADE FOR TRADING RESULTS, THEREFORE NO FURTHER ADDITION DESERVES TO BE MADE 1173050 1 3143952 2200000 943952 0 943952 283185 2008 -09 1,84,47,586 1,14,37,50 3 98,38,049 15,99,45 4 6,95,000 9,04,454 1328226 2 3444213 695000 2749213 904454 1844759 553428 2009 -10 2,37,34,690 1,47,15,50 8 1,21,26,10 2 25,89,40 6 0 25,89,406 1708897 7 4962875 0 4962875 2589406 2373469 712041 2010 -11 4,09,70,620 2,54,01,78 4 2,20,44,08 2 33,57,70 2 84,25,00 0 INCOME SURRENDERE D IS MORE THAN ADDITION TO BE MADE FOR TRADING RESULTS, THEREFORE NO FURTHER ADDITION DESERVES TO BE MADE 2949884 6 7454764 8425000 INCOME SURRENDER ED IS MORE THAN ADDITION TO BE MADE FOR TRADING RESULTS, THEREFORE NO FURTHER ADDITION DESERVES TO BE MADE 0 0 0 2011 -12 7,29,45,281 4,52,26,07 4 3,82,82,92 5 69,43,14 9 41,30,00 0 28,13,149 5252060 2 1423767 7 4130000 10107677 2813149 7294528 218835 8 3.4 THE LD AR FURTHER SUBMITTED THAT THE LD CIT(A) ALLOWED RELIEF BY REDUCING THE SALES BY NOT SUSTAINING THE ESTIMATION ON UNACCOUNTED SALES OVER AND ABOVE THE SEIZED DOCUMENTS AND ALSO REDUCI NG THE GP RATE FROM 72% TO 62%. THE DEPARTMENT IS NOT IN APPEAL ON THE RELIEF ALLOWED BY LD ITA NO. 609/JP/2016 THE ACIT, CENTRAL CIRCLE- 1, AL WAR VS. M/S. KAYAKALP HERBAL (P) LTD., JAIPUR 36 CIT(A) ON ACCOUNT OF ESTIMATION OF UNACCOUNTED SALE S. IN REVENUES APPEAL QUANTUM OF RELIEF GIVEN BY LD CIT(A) IS NOT UNDER QUESTION AND ONLY GROUND IS REDUCING THE GP RATE FROM 72% TO 62% . 3.5 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AS REGARDS THIS ISSUE, IT IS W ORTHWHILE TO MENTION FOLLOWING RELEVANT FINDINGS OF LD CIT(A) WHICH IS I N PARA 3.1.3. (B) OF ORDER OF LD CIT(A) .. FURTHER, THE DEPARTMENT HAS CARRIED OUT INTENS IVE SEARCH OVER THE ASSESSEE AND NO EVIDENCE WAS FOUND FOR UNACCOUNTED SALES FOR AY 2005-06 TO AY 2009-10. TH E EVIDENCE OF UNACCOUNTED SALES WAS FOUND FOR A.Y. 2010-11 TO THE EXTENT OF RS. 28,00,000/- ONLY. THEREFORE, BY EXTRAPOLATING THE G ROSS PROFIT RATE OF72% CALCULATED BY THE AO FOR THE A.Y. 2011-12, SU PPRESSED SALE OUT OF SUPPRESSED PRODUCTION CANNOT BE ESTIMATED FO R A.Y. 2005-06 TO 2010-11. THE SAME AO HAS COMPLETED THE ASSESSMEN T OF DIRECTOR OF ASSESSEE COMPANY SMT. KULSUM MALIK. KULSUM MALIK RUNS BEAUTY PARLOR AT VARIOUS PLACES. I HAVE GONE THROUG H THE ASSESSMENT MADE BY THE SAME AO FOR A.Y. 2009-10 U/S 154A IN HER CASE. IN THIS CASE ALSO SUPPRESSED RECEIPTS WERE FO UND. THE DEPARTMENT FOUND DOCUMENTS SHOWING SUPPRESSED RECEI PTS OF MAHAVEER NAGAR PARLOR FOR APRIL 2008 TO MARCH 2009, HANUMAN NAGAR PARLOR FOR NOV. 2008, JAN 2009 AND MARCH 2009 AND BANI PARK PARLOR FROM 07-10-2008 TO 6-11-2008. IN THIS C ASE, THE AO RESTRICTED THE ADDITION UPTO EVIDENCE FOUND AS THE RESULT OF SEARCH. IN THIS CASE THE AO HAS NOT ESTIMATED THE SUPPRESSE D RECEIPTS FOR WHOLE PERIOD FOR F.Y. 2008-09 AS WELL AS FOR EARLIE R YEARS BY EXTRAPOLATING THE INCOME/ COST AS DONE IN THE CASE UNDER CONSIDERATION. SO FAR AS THE UNDISCLOSED INVESTMENT IN OWN SHARES AND PROPERTY TO THE TUNE OF RS. 1,05,70,000/- IN PR EVIOUS YEAR (A.Y. 2006-07, A.Y. 2007-08, A.Y. 2008-09 AND A.Y. 2010-1 1) IS CONCERNED, THE ASSESSEE HAS OFFERED ITS INCOME IN T HE RETURN FILED U/S 153A AND IN ABSENCE OF ANY EVIDENCE, SUCH INCOM E CANNOT BE ITA NO. 609/JP/2016 THE ACIT, CENTRAL CIRCLE- 1, AL WAR VS. M/S. KAYAKALP HERBAL (P) LTD., JAIPUR 37 ENHANCED MERELY ON SURMISES AND CONJECTURES. THE DE PARTMENT HAS NO EVIDENCE OF UNACCOUNTED DURING THE POST SEARCH P ERIOD. THE AO MENTIONED THAT THE CUSTOMER BASE OF THE ASSESSEE W AS SAME IN ALL THE PREVIOUS YEAR. THE ASSESSEE HAS SUBMITTED A CHA RT SHOWING YEARWISE LIST OF PARTIES TO WHOM IT SOLD GOODS. I F OUND ONLY 16 PARTIES WERE COMMON OUT OF TOTAL 145 PARTIES. THERE FORE, IT CANNOT BE PRESUMED THAT ALL THE PARTIES WERE PURCHASING TH E GOODS FROM THE ASSESSEE WITHOUT BILL. THE AO HAS NOT MADE ANY INQUIRY FROM THE BUYER PARTIES OF THE ASSESSEE TO ESTABLISH THE UNACCOUNTED SALES BY THE ASSESSEE. MERELY ON THE BASIS OF SEARCH STAT EMENT OF THE DIRECTORS OF THE ASSESSEE STATING THAT THE ASSESSEE WAS MAKING UNACCOUNTED SALES IN PAST ALSO AND ESTIMATE SLIPS A GAINST THE UNACCOUNTED SALES WERE DESTROYED AFTER SETTLING THE ACCOUNT UNACCOUNTED SALES CANNOT BE ESTIMATED WITHOUT HAVIN G CORROBORATIVE EVIDENCE. IT MAY BE FURTHER NOTED THAT THE CIT(A) IN PARA 3.1.3 (C) TABULATED A CHART SHOWING SALES TAKEN BY HIM AND SHORTFALL IN GP ON T HE BASIS OF GP RATE OF 62% APPLIED BY HIM AND ADDITION SUSTAINED BY HIM. I T MAY BE FURTHER NOTED THAT REVENUE HAS TAKEN THE COMMON FOLLOWING G ROUNDS IN ITS ALL APPEALS (SUPRA) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE THE CIT(A) WAS RIGHT IN REDUCING THE GP RATE FROM 72% T O 62% IGNORING THE FACT THAT AO HAS GIVEN STRONG COGENT REASONS FO R ESTIMATION OF GP RATE IN THE ASSESSMENT ORDER. 3.5.1 AFTER HEARING BOTH THE PARTIES AND PERUSING T HE MATERIALS AVAILABLE RELATING TO THE GROUNDS TAKEN BY THE REVENUE, IT IS CLEAR THAT THE REVENUE HAS QUESTIONED ONLY REDUCTION OF GP RATE. THE REVEN UE HAS NOT QUESTIONED THE REDUCTION OF SALES MADE BY LD CIT(A ). FURTHERMORE, THE REVENUE HAS NOT QUESTIONED THE QUANTUM OF RELIEF GI VEN BY LD. CIT(A). IN ITA NO. 609/JP/2016 THE ACIT, CENTRAL CIRCLE- 1, AL WAR VS. M/S. KAYAKALP HERBAL (P) LTD., JAIPUR 38 VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, IT IS HE LD THAT THE GRIEVANCE OF THE REVENUE IS ON THE REDUCTION OF GP RATE MADE BY THE LD. CIT(A) FROM 72% TO 62% AND THE TAX EFFECT SHOULD BE CALCULATED ON THE BASIS OF GROUNDS OF APPEAL RAISED BY THE REVENUE. WE NOTICED FROM THE ABOVE CHART THAT THE TAX EFFECT IS NOT MORE THAN RS. 10 L ACS IN THE APPEAL FILED BY THE REVENUE ITA NO. 609 /JP/16, (AY 2005-06), 627/JP/16, (AY 2 006- 07), 628/JP/16, (AY 2007-08), 629/JP/16, (AY 2008- 09), 630/JP/16, (AY 2009-10) AND 631/JP/16, (AY 2010-11) WHICH AR E DISMISSED IN LIMINE, IN VIEW OF CIRCULAR NO. 21/2015 F NO 279/MISC. 142 /2007-ITJ (PT) 10TH DECEMBER, 2015. THUS THE ABOVE APPEALS OF REVENUE ARE DISMISSED. 4.0 NOW WE TAKE UP THE APPEAL OF THE REVENUE IN ITA NO. 632/JP/2016 FOR THE ASSESSMENT YEAR 2011-12 WHEREIN THE SOLITAR Y GROUND OF THE REVENUE IS AS UNDER:- WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE THE CIT(A) WAS RIGHT IN REDUCING THE GP RATE FROM 72% T O 62% IGNORING THE FACT THAT AO HAS GIVEN STRONG COGENT REASONS FO R ESTIMATION OF GP RATE IN THE ASSESSMENT ORDER. 4.1 IT MAY BE NOTED THAT WE HAVE DECIDED THIS ISSUE RAISED BY THE REVENUE IN ASSESSEE'S APPEAL IN ITA NO. 636/JP/2016 FOR THE ASSESSMENT YEAR 2011-12 UNDER GROUND NO. 2 OF THE ASSESSEE. TH EREFORE, THE SOLITARY GROUND RAISED BY THE REVENUE IN ITS APPEAL IS DISMI SSED. ITA NO. 609/JP/2016 THE ACIT, CENTRAL CIRCLE- 1, AL WAR VS. M/S. KAYAKALP HERBAL (P) LTD., JAIPUR 39 5.0 IN THE RESULT, THE APPEALS FILED BY THE REVENU E ARE DISMISSED AND THE APPEALS OF THE ASSESSEE IN ITA NO. 633 AND 635/ JP/2016 ARE ALLOWED AND THE APPEAL IN ITA NO. 634 AND 636/JP/2016 ARE P ARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 25-04-201 7. SD/- SD/- DQY HKKJR HKKXPUN (KUL BHARAT) ( BHAGCHAND) U;KF;D LNL; / JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 25/04/ 2017 *MISHRA VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- THE ACIT/ DCIT , CENTRAL CIRCLE- 1, JAIPUR 2. IZR;FKHZ@ THE RESPONDENT- M/S. KAYAKALP HERBAL (P) LTD., JAI PUR 3. VK;DJ VK;QDRVIHY@ CIT(A). 4. VK;DJ VK;QDR@ CIT, 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO. 609/JP/2016) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ @ ASSISTANT. REGISTRAR