SETRON EXPORTS, MUMBAI V. DCIT CEN CIR 4(3), MUMBAI

ITA 6356/MUM/2016

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9645 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2013-2014
• Appeal Filed On: 27-10-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: CHAUDHARY ARUN KUMAR SINGH
• Keywords: Gross profit estimation; Unexplained cash credit; Rejection of books of accounts; Rectification of order; Salary income; Source of fund; Question of law; Onus to prove
• Section: 131; 68; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN (AM) & SHRI AMARJIT SINGH (JM) I.T.A. NO. 6356/MUM/2016 (ASSESSMENT YEAR 2013 - 14) M/S. SETRON EXPORTS 408 - 412, KAPADIA CHAMBERS, 4 TH FLOOR, 599, J.S.S. ROAD, CHIRA BAZAR , MUMBAI 400002. VS. DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE - 4(3),MUMBAI. ( APPELLANT ) .. ( RESPONDENT ) I.T.A. NO. 6643/MUM/2016 (ASSESSMENT YEAR 2013 - 14) DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE - 4(3), CENTRAL RANGE - 4,MUMBAI. VS. M/S. SETRO N EXPORTS 408 - 412, KAPADIA CHAMBERS, 4 TH FLOOR, 599, J.S.S. ROAD, CHIRA BAZAR, MUMBAI 400002. ( APPELLANT ) .. ( RESPONDENT ) PAN NO. AABFS1150Q ASSESSEE BY : SHRI RAKESH JOSHI DEPARTMENT BY : SHRI CHAUDHARY ARUNKUMAR SINGH DATE OF HEARING : 06 . 12 .201 8 DATE OF PRONOUNCEMENT : 12 . 12 .201 8 2 M/S. SETRON EXPORTS ITA NOS. 6356 & 6643/MUM/2016 O R D E R PER B.R. BASKARAN, AM THESE CROSS - APPEALS ARE DIRECTED AGAINST THE ORDER DATED 29.08.2016 PASSED BY THE LD. CIT(A) - 52, MUMBAI AND THEY RELATE TO ASSESSMENT YEAR 2013 - 14. 2. THE ASSESSEE IS A PARTNERSHIP FIRM AN D IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND EXPORT OF READYMADE GARMENTS. IT FILED ITS RETURN OF INCOME DECLARING A TOTAL INCOME OF ` 92.56 LACS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNT ON THE R EASONING THAT ASSESSEE DID NOT MAINTAIN COMPLETE DETAILS OF QUANTITY RECORD SPECIFYING AS TO HOW EACH AND EVERY OF RECEIPT AND ISSUE OF MATERIAL IS ACCOUNTED FOR. THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS PURCHASED YARN AND FABRICS IN KILOGRAMS AND WOVEN FABRICS IN METRES AND PRODUCED 20.12 LACS PIECES OF READYMADE GARMENTS , GIVING YIELD OF 100% . FURTHER, T HE ASSESSING OFFICER ALSO TOOK THE VIEW THAT THE DETAILS SUBMITTED BY THE ASSESSEE DID NOT REFLECT THE ACTUAL TRANSACTIONS PERTAINING TO A PARTICU LAR LOT OF PRODUCTION. HENCE, THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNT UNDER SECTION 145(3) OF THE ACT AND COMPLETED THE ASSESSMENT BY APPLYING NET PROFIT RATE OF 5% OF THE TURNOVER. IN ADDITION TO THE ABOVE, THE ASSESSING OFFICER ALSO MADE OT HER DISALLOWANCES. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) HELD THAT THE REJECTION OF BOOKS OF ACCOUNTS IS NOT CORRECT. HE FURTHER GRANTED PARTIAL RELIEF IN RESPECT OF OTHER DISALLOWANCES. H ENCE, BOTH THE PARTIES HAVE FILED THESE APPEALS CHALLENGING THE ORDER PASSED BY THE LD. CIT(A) ON THE ISSUES DECIDED AGAINST EACH OF THEM. 3 M/S. SETRON EXPORTS ITA NOS. 6356 & 6643/MUM/2016 3. WE SHALL FIRST TAKE UP THE APPEAL FILED BY THE REVENUE. THE FIRST ISSUE CONTEST ED THEREIN IS WHETHER THE LD. CIT(A) WAS JUSTIFIED IN CANCELLING THE REJECTION OF BOOKS OF A CCOUNT . 4. WE HEARD THE PARTIES ON THIS ISSUE. THE LD. D R REITERATED THE OBSERVATIONS MADE BY THE ASSESSING OFFICER. HE SUBMITTED THAT THE A SSESSEE HAS FAILED TO MAINTAIN DETAILED STOCK REGISTER TO SHOW THE RECEIPT AND ISSUE OF VARIOUS MATERIALS PURCHAS ED BY THE ASSESSEE. FURTHER, THE ASSESSEE HAS SOLD ITS ENTIRE PRODUCT TO ONLY ONE PARTY, M/S. UNITY INTERNATIONAL INC. HE SUBMITTED THAT, IN THE ABSENCE OF STOCK REGISTER, THE BOOK RESULTS OF THE ASSESSEE CANNOT BE RELIED UPON. FURTHER, THE QUANTITY DET AILS FURNISHED BY THE ASSESSEE SHOW THAT ASSESSEE HAS BEEN SHOWING YIELD OF 100% OF FINISHED GOODS. HE FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAS PLACED RELIANCE ON THE DECISION RENDERED BY THE HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF AWADESH PRA TAP SINGH ABDUL REHMAN & BROS VS CIT, 201 ITR 406 (ALL) , THE DECISION RENDERED BY THE HON'BLE SUPREME COURT IN THE CASE OF KACHWALA GEMS VS JCIT, 288 ITR 10 (SC) AND THE DECISION RENDERED BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF BASTIRAM NARAYANDAS VS CIT, 210 ITR 438 (BOM.) . ACCORDINGLY, THE LD. DR SUBMITTED THAT THE ASSESSING OFFICER HAS GIVEN PROPER REASON FOR REJECTING THE BOOKS OF ACCOUNT OF THE ASSESSEE AND HENCE, THE LD. CIT(A) WAS NOT JUSTIFIED IN HOLDING THAT THE REJECTION IS NOT WARRANTED. 5. ON THE CONTRARY, THE LD. AR SUBMITTED THAT ASSESSEE HAS MAINTAINED ITS STOCK REGISTER AND FURNISHED QUANTITY DETAILS OF RAW MATERIALS AS WELL AS FINISHED GOODS. HE SUBMITTED THAT THE ASSESSING OFFICER DID NOT ASK FOR ANY EXPLANATION FROM THE ASSESSEE WITH REGARD TO STOCK REGISTER AND HENCE, 4 M/S. SETRON EXPORTS ITA NOS. 6356 & 6643/MUM/2016 ASSESSEE DID NOT HAVE AN OPPORTUNITY TO SHOW THAT IT DID MAINTAIN STOCK REGISTER. HE SUBMITTED THAT THE TAX AUDIT REPORT FURNISHED BY THE ASSESSEE ALSO CONTAINS STOCK REGISTER. THE LD A.R SUBMITTED THAT THE AO WA S OF THE VIEW THAT THE ASSESSEE SHOULD HAVE MAINTAINED STOCK REGISTER FOR INTERNAL PROCESSING ALSO. HE SUBMITTED THAT THE ASSESSEE IS NOT MANUFACTURING ANY STANDARD PRODUCT AND HENCE IT WOULD BE DIFFICULT TO MAINTAIN STOCK REGISTER FOR INTERNAL PROCESSING OF READYMADE GARMENTS IN VARIOUS STAGES. THE LD. AR FURTHER SUBMITTED THAT ASSESSEE HAS SHOWN HIGHER RATE OF GP AND NP DURING THE YEAR UNDER CONSIDERATION. SINCE T HE ASSESSEE IS MANUFACTURING READYMADE GARMENTS AND EXPORTING THE SAME TO THE USA TO A SIN GLE PARTY , THEY ARE MANUFACTURED ACCORDING TO THE REQUIREMENT OF THE BUYER. EVEN WASTAGES GENERATED DURING THE COURSE OF MANUFACTURE OF GARMENTS ARE BEING SOLD. ACCORDINGLY, THE LD. AR SUBMITTED THAT THE YIELD OF FINISHED GOODS WORKED OUT BY THE ASSESSIN G OFFICER ALSO INCLUDES SALE OF WASTAGE CLOTH ALSO. THE LD. AR FURTHER SUBMITTED THAT THE HON'BLE DELHI HIGH COURT HAS CONSIDERED AN IDENTICAL ISSUE IN THE CASE OF CIT VS SMT. POONAM RANI (2010) 192 TAXMAN 167 (DELHI) WHEREIN THE HON'BLE HIGH COURT HELD T HAT REJECTION OF BOOKS OF ACCOUNT IS NOT CORRECT IF NO DEFECT WAS POINTED IN THE ACCOUNTS OF THE ASSESSEE. IN THE INSTANT CASE ALSO, THE ASSESSING OFFICER HAS NOT POINTED OUT ANY DEFECT EITHER IN THE BOOKS OF ACCOUNT OR IN THE INFORMATION SUPPLIED BY THE ASSESSEE. HENCE, THE LD. CIT(A) HAS HELD THAT THE REJECTION OF BOOKS OF ACCOUNT IS NOT WARRANTED. ACCORDINGLY, HE HAS DELETED THE ESTIMATED ADDITION MADE BY THE ASSESSING OFFICER. THE LD. AR FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAS PASSED THE RE CTIFICATION ORDER UNDER SECTION 154 OF THE ACT DATED 03.03.2016 WHEREIN HE HAS REDUCED THE ESTIMATE MADE BY HIM FROM ` 1.44 CRORE TO ` 1.04 CRORE. ACCORDINGLY, THE LD. AR SUBMITTED THAT THE ESTIMATE MADE BY THE ASSESSING OFFICER AFTER REJECTION OF THE BOOKS OF 5 M/S. SETRON EXPORTS ITA NOS. 6356 & 6643/MUM/2016 ACCOUNT IS ALSO NOT SUPPORTED BY ANY MATERIAL. ACCORDINGLY, HE SUBMITTED THAT THE ORDER PASSED BY THE LD. CIT(A) DOES NOT CALL FOR ANY INTERFERENCE. 6. WE NOTICED THAT THE LD. CIT(A) HAS HELD THAT THE REJECTION OF BOOKS OF ACCOUNT IS NOT WARRANTED IN THE FACTS AND CIRCUMSTANCES OF THE CASE. THE LD. CIT(A) HAS NOTICED THAT THE GP RATE AND NP RATE DECLARED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION IS ON THE HIGHER SIDE VIS - A - VIS THE RATE DECLARED IN THE EARLIER YEAR. THE LD. CIT(A) HAS ALS O TAKEN NOTE OF THE FACT THAT THE ASSESSEE HAS BEEN SELLING WASTAGE CLOTH ALSO. THE LD. CIT(A) NOTICED THAT THE ASSESSEE HAS FURNISHED QUANTITY DETAILS OF RAW MATERIALS AND FINISHED GOODS IN THE TAX AUDIT REPORT. HE HAS NOTICED THAT THE ASSESSEE HAS PURC HASED CERTAIN RAW MATERIALS ON WEIGHT BASIS AND CERTAIN CLOTHS ON METRE BASIS AND SOLD THE FINISHED GOODS ON PIECE BASIS. HENCE, IT WOULD BE DIFFICULT TO MAINTAIN STOCK REGISTER ON ONE - TO - ONE BASIS. HE HAS TAKEN NOTE OF THE FACT THAT THE ASSESSEE HAS BEE N TAKING INVENTORY TWICE IN A YEAR AND IS HAVING CON T ROL OVER THE STOCK OF THE BUSINESS. ACCORDINGLY, THE LD. CIT(A) HAS TAKEN THE VIEW THAT THE ACCOUNTS OF THE ASSESSEE COULD NOT BE CONSIDERED TO BE DEFECTIVE OR INCOMPLETE FOR NON - MAINTENANCE OF DETAILED STOCK REGISTER. THE LD. CIT(A) HAS ALSO PLACED RELIANCE ON THE VARIOUS CASE LAWS AND ACCORDINGLY, HELD THAT THE REJECTION OF BOOKS OF ACCOUNT IS NOT JUSTIFIED. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE OPERATIVE PORTION OF THE ORDER PASSED BY TH E LD. CIT(A) : - 12. I HAVE CONSIDERED THE ARGUMENTS OF THE ASSESSEE AS ALSO THE FCATS OF THE CASE . I AGREE WITH THE ASSESSEE , THAT EVEN THOUGH DAY TO DAY STOCK REGISTER IS NOT MAINTAINED BY IT BUT OTHERWISE COMPLETE QUANTITATIVE DETAILS OF RAW MATERIAL S PURCHASED IN THE FORM OF YARN AND CLOTH, NO. OF GARMENTS MANUFACTURED & OTHER RELEVANT DETAILS ARE METICULOUSLY MAINTAINED BY THE 6 M/S. SETRON EXPORTS ITA NOS. 6356 & 6643/MUM/2016 ASSESSEE WHICH ARE ALSO PART OF THE AUDIT REPORT ITSELF WHICH WAS FILED BEFORE THE AO. I ALSO AGREE THAT ENTIRE GOODS ARE EX PORTED TO USA AND THERE ARE NO DOMESTIC SALES. I ALSO AGREE WITH THE LD. AR WITH THE GP AND NP RATE FOR THE YEAR, WAS SIGNIFICANTLY HIGHER AS COMPARED TO THE EARLIER YEARS, THE DETAILS OF WHICH ARE TABULATED AS UNDER. - AY 2013 - 14 AY 2012 - 13 A.Y.2011 - 12 A.Y. 2010 - 11 GROSS RECEIPTS 208,573,424 201,691,365 20,35,66,131 20,7,06,182 GROSS PROFIT 64,833,675 50,631,061 4,83,32,535 4,47,19,535 LOCAL SALES 434,751 259,112 134,138 258,765 EXPORT SALES 208,138,673 201,432,253 203,431,993 205,447,417 NET PROFIT 9,263,369 6,961,164 70,05,321 79,99,221 GP RATIO 31% 25% 24% 23% NP RATIO 4.44% 3.45% 3.44% 3.86% 13. FROM THE ABOVE TABLE IT IS CLEAR THAT PROFIT RATES FOR THE YEAR ARE SIGNIFICANTLY BETTER AS COMPARED TO THE EARLIER YEARS . MOREOVER IT IS NOTICED TH AT THE PROFIT RATES FOR THE YEAR WAS HIGHEST IN LAST FOUR YEARS . ON THE OTHER HAND THE LD. AO HAS NOT CITED ANY COMPARATIVE CASE WHERE IN EITHER THE GP RATE OR THE NP RATE SHOWN WAS HIGHER . THUS THE ASSESSEE COULD NOT BE PENALISED FOR SHOWING A LOW GP RA TE OR NP RATE SPECIALLY WHEN IT WAS NOT SO . THESE FACTS WERE DISCUSSED IN DETAIL WITH THE AO ON 20/07/2016 AND HE WAS SPECIFICALLY ASKED WHETHER THERE WAS ANY INFORMATION ABOUT ANY COMPARATIVE CASES SHOWING HIGHER PROFIT RATE THAN THE ASSESSEE IN THIS KIN D OF BUSINESS BUT HE COULD NOT FURNISH ANY INFORMATION ON THIS . CONSIDERING THE NATURE OF BUSINESS, I FEEL THAT A GP RATE OF 31% AND NP RATE OF 4.44% SHOWN BY THE ASSESSEE APPEARS TO BE REASONABLE . THEREFORE IN MY OPINION ALLEGED LOW PROFIT RATE COULD NO T BE A BASIS OF REJECTION OF THE BOOKS AND MAKING AN ADDITION IN THE HANDS OF THE ASSESSEE. 14. AS REGARD, PERCENTAGE YIELD AND NOT SHOWING WASTAGES ETC., IT IS RELEVANT TO MENTION OVER HERE THAT THE ASSESSEE HAD CONSIDERED EVEN SCRAP OF CLOTH IN QUANTITA TIVE DETAILS WHOSE SALES HAD BEEN SHOWN AS DOMESTIC SALES AND THIS IS THE REASON IT HAD SHOWN YIELD OF 100% AND THEREFORE NO WASTAGE WAS SHOWN. BUT TECHNICALLY SUCH A SCRAP IS A KIND OF WASTE ONLY AND THEREFORE THE YIELD OF THE ASSESSEE CAN NOT BE SAID TO BE 100% . BUT SUCH SCRAP HAS BEEN ACCOUNTED FOR BY THE ASSESSEE AND THEREFORE THIS COULD NOT BE A BASIS FOR THE REJECTION OF THE BANK ACCOUNTS. THE ASSESSEE HAS ALSO GIVEN COSTING PER GARMENT AND SALES PER GARMENTS IN RESPECT OF 7 M/S. SETRON EXPORTS ITA NOS. 6356 & 6643/MUM/2016 FEW ITEMS , INDICATING THE FACT THAT ALL ITEMS ARE SOLD ON PROFIT OR COST PLUS BASIS . NOT ONLY THIS, THE ASSESSEE HAS ALSO GIVEN WORKING OF WEIGHT PER GARMENT , METERAGE OF CLOTH USED PER GARMENT WHICH REFLECTS THAT THE ASSESSEE WAS HAVING SUFFICIENT CONTROL OVER THE MANUFACTUR ING PROCESS AND THAT CORRECT PROFIT COULD HAVE BEEN DEDUCED OUT OF VARIOUS RECORDS MAINTAINED BY THE ASSESSEE THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. SMT. POONAM RANI 192 TAXMAN.167 , WHILE DEALING WITH THIS ISSUE OBSERVED THAT THAT EVEN IF THE STOCK REGISTER IS NOT MAINTAINED BY THE ASSESSEE THAT BY ITSELF WOULD NOT BE LEADING TO THE INFERENCE THAT IT WAS NOT POSSIBLE TO DEDUCE THE TRUE INCOME OF THE ASSESSEE FROM THE ACCOUNTS MAINTAINED BY IT. NOR, THE ACCOUNTS COULD BE SAID TO BE DEFECTED OR INCORPORATE FOR THAT REASON. OF ALUMINIUM INDUSTRIES (P.) LTD. V. CIT [1995] 80 TAXMAN 184 (GAUHATI). 15. IN CASE OF MYSORE FERTILISER CO. V. CIT [1966] 59 ITR 268 (MAD.) IT WAS HELD THAT THE ITO SHALL MAKE THE ASSESSMENT TO THE BEST OF HIS JUDGEMENT; IT MEANS THAT HE MUST MAKE IT ACCORDING TO THE RULES OF REASON AND JUSTICE, NOT ACCORDING TO PRIVATE OPINION, BUT ACCORDING TO LAW AND NOT HUMOUR; AND THE ASSESSMENT IS TO BE NOT ARBITRARY, VAGUE AND FANCIFUL, BUT LEGAL AND REGULAR. FURTHER IN CASE OF CIT V. SURJIT SINGH MAHESH KUMAR [1994] 210 ITR 83 (ALL.) IT WAS HELD THAT SO LONG AS THE BEST JUDGEMENT HAS NEXUS TO MATERIAL ON RECORD AND THE DISCRETION IN THAT BEHALF HAS NOT BEEN EXERCISED ARBITRARILY OR CAPRICIOUSLY, IT IS NOT OPEN TO SCRUTINY IN REFERENCE PROCEEDINGS TO GIVE RISE TO A QUESTION OF LAW OR TO A MIXED QUESTION OF LAW AND FACT. SIMILARLY IN CASE OF CITV. EASTERN COMMERCIAL ENTERPRISES [1994] 210 ITR 103 (CAL.) IT WAS HELD THAT WHERE THE ASSESSEE HAS GIVEN A COMPARATIVE INSTANCE OF GROSS PROFIT R ATE, IT IS NECESSARY FOR THE DEPARTMENT TO COME TO A FINDING AS TO THE NORM OF THE GROSS PROFIT ON THE BASIS OF COMPARATIVE CASES. THEREFORE, IT IS THE DUTY OF THE ASSESSING OFFICER TO COUNTER THE COMPARATIVE STATEMENT CITED BY THE ASSESSEE BEFORE HE CAN H AVE THE OPTION TO ESTIMATE THE GROSS PROFIT. BESIDES IN CASE OF ALUMINIUM INDUSTRIES (P.) LTD. V. CIT [1995] 80 TAXMAN 184 (GAUHATI) IT WAS OBSERVED BY HON'BLE COURT IN CASE THAT ADDITIONS TO THE PROFITS OF THE ASSESSEE MADE SOLELY ON THE GROUND THAT IT WA S LOW WITHOUT GIVING A SPECIFIC FINDING THAT THE ACCOUNTS OF THE ASSESSEE WERE NOT CORRECT AND COMPLETE, OR THAT THE INCOME COULD NOT BE PROPERLY DETERMINED AND DEDUCED FROM THE ACCOUNTING METHOD EMPLOYED BY THE ASSESSEE, IS NOT JUSTIFIED. THE MERE 8 M/S. SETRON EXPORTS ITA NOS. 6356 & 6643/MUM/2016 FACT TH AT THERE WAS A LESS RATE OF GROSS PROFIT DECLARED BY AN ASSESSEE AS COMPARED TO THE PREVIOUS YEAR WOULD NOT BY ITSELF BE SUFFICIENT TO JUSTIFY THE ADDITION. 16. IN RECENT JUDGMENT IN THE CASE OF CIT VS SMT POONAM RANI [2010] 192 TAXMAN 167 (DELHI), WHEREI N THE OFFICER HAD REJECTED THE BOOKS BECAUSE OF THE QUANTITATIVE VARIATION IN THE WEIGHT, OF THE OUTPUT PRODUCTS AS AGAINST INPUT ITEMS, THE HON'BLE HIGH COURT REJECTED THE ADDITION MADE ON ESTIMATE BASIS BY THE AO BECAUSE NO DEFECT WAS POINTED OUT IN THE ACCOUNTS AND THERE NO BASIS WAS GIVEN FOR ESTIMATION. THE OBSERVATIONS OF THE HON'BLE COURT ARE REPRODUCED AS BELOW: 'THE ASSESSING OFFICER HAD NOT POINTED OUT ANY PARTICULAR DEFECT OR DISCREPANCY IN THE ACCOUNT BOOKS MAINTAINED BY THE ASSESSEE. DURING TH E COURSE OF HEARING BEFORE THE COMMISSIONER (APPEALS), IT WAS POINTED OUT BY THE ASSESSEE THAT HER ACCOUNT BOOKS WERE DULY AUDITED UNDER SECTION 44AB OF THE CENTRAL EXCISE ACT AND THE QUANTITATIVE DETAILS AS REQUIRED BY CLAUSE 28(B) OF FORM NO. 3 CD REGARD ING RAW MATERIAL AND FINISHED PRODUCTS WERE PREPARED AND AUDITED BY CERTIFIED ACCOUNTANT AND WERE ENCLOSED WITH FORM NO. 3CD WHICH HAD BEEN PLACED ON RECORD. AS REGARDS THE MARGINAL INCREASE IN THE WEIGHT OF THE FINISHED PRODUCT, THE EXPLANATION GIVEN BY T HE ASSESSEE HAD BEEN ACCEPTED NOT ONLY BY THE COMMISSIONER (APPEALS) BUT ALSO BY THE TRIBUNAL. THE ASSESSING OFFICER HAD NO MATERIAL BEFORE HIM ON THE BASIS OF WHICH IT COULD BE SAID THAT THE WEIGHT OF THE WIRE DID NOT INCREASE EVEN MARGINALLY DURING THE P ROCESS OF ENAMELLING. THE FALL IN THE GROSS PROFIT RATIO COULD BE FOR VARIOUS REASONS SUCH AS INCREASE IN THE COST OF RAW MATERIAL, DECREASE IN THE MARKET PRICE OF FINISHED PRODUCT, INCREASE IN THE COST OF PROCESSING BY THE ASSESSEE, ETC. THERE WAS NO FINDING THAT THE ACTUAL COST OF THE RAW MATERIAL PURCHASED BY THE ASSESSEE WAS LESS THAN WHAT WAS DECLARED IN THE ACCOUNT BOOKS. THERE WAS NO FINDING THAT THE ACTUAL COST OF PROCESSING CARRIED OUT BY THE ASSESSEE WAS LESS THAN WHAT HAD BEEN DECLARED IN HER ACCOUNT BOOKS. NO PARTICULAR EXPENDITURE SHOWN IN THE ACCOUNT BOOKS HAD BEEN DISALLOWED BY THE ASSESSING OFFICER. THERE WAS NO FINDING BY THE ASSESSING OFFICER THAT THE ACTUAL QUANTITY OF FINISHED 9 M/S. SETRON EXPORTS ITA NOS. 6356 & 6643/MUM/2016 PRODUCTS PRODUCED BY THE ASSESSEE WAS MORE THAN WHAT WAS S HOWN IN THE ACCOUNT BOOKS. THERE WAS NO FINDING THAT THE ASSESSEE HAD MADE ANY SUCH SALE OF THE FINISHED PRODUCTS WHICH WAS NOT REFLECTED IN THE ACCOUNT BOOKS. THERE WAS NO FINDING BY THE ASSESSING OFFICER THAT THE FINISHED PRODUCTS WERE SOLD BY THE ASSESS EE AT A PRICE HIGHER THAN WHAT WAS DECLARED IN THE ACCOUNT BOOKS. IN THOSE CIRCUMSTANCES, THE COMMISSIONER (APPEALS) AND THE TRIBUNAL WERE JUSTIFIED IN HOLDING THAT THE ASSESSING OFFICER COULD NOT HAVE INCREASED THE GROSS PROFIT RATIO MERELY BECAUSE IT WAS LOW AS COMPARED TO THE GROSS PROFIT RATIO OF THE PRECEDING YEAR. THE REVENUE CONTENDED THAT THE ASSESSEE WAS NOT MAINTAINING THE DAILY STOCK REGISTER. HOWEVER, NO SUCH FINDING WAS FOUND IN THE ASSESSMENT ORDER. ON THE OTHER HAND, THE ASSESSEE HAD SUBMITTE D BEFORE THE COMMISSIONER (APPEALS) THAT FORM NO. 3CD CONTAINING ALL THE QUANTITATIVE DETAILS IN RESPECT OF RAW MATERIALS AS WELL AS THE FINISHED GOODS AND DULY AUDITED BY THE CERTIFIED ACCOUNTANT HAD BEEN PLACED ON RECORD, BUT THE ASSESSING OFFICER IGNORE D THOSE ACTUAL FIGURES ENCLOSED WITH THE RETURN. IN ANY CASE, THERE IS NO STATUTORY PROVISION UNDER THE INCOME - TAX REGIME REQUIRING THE ASSESSEE TO MAINTAIN THE DAILY STOCK REGISTER. SUCH REGISTER WAS BEING MAINTAINED BY THE ASSESSEE, THAT, BY ITSELF, WOUL D NOT LEAD TO THE INFERENCE THAT IT WAS NOT POSSIBLE TO DEDUCE THE TRUE INCOME OF THE ASSESSEE FROM THE ACCOUNTS MAINTAINED BY HER, NOR THE ACCOUNTS COULD BE SAID TO BE DEFECTIVE OR INCOMPLETE FOR THAT REASON ALONE. IF THE STOCK REGISTER IS NOT MAINTAINED BY THE ASSESSEE, THAT MAY PUT THE ASSESSING OFFICER ON GUARD AGAINST THE FALSITY OF THE RETURN MADE BY THE ASSESSEE AND PERSUADE HIM TO CAREFULLY SCRUTINIZE THE ACCOUNT BOOKS OF THE ASSESSEE, BUT THE ABSENCE OF ONE REGISTER ALONE DOES NOT AMOUNT TO SUCH A MATERIAL LEADING TO THE CONCLUSION THAT THE ACCOUNT BOOKS WERE INCOMPLETE OR INACCURATE. SIMILARLY, IF THE RATE OF GROSS PROFIT DECLARED BY THE ASSESSEE IN A PARTICULAR PERIOD IS LOWER AS COMPARED TO THE GROSS PROFIT DECLARED BY HIM IN THE PRECEDING YEAR, THAT MAY ALERT THE ASSESSING OFFICER AND SERVE AS A WARNING TO HIM TO LOOK INTO THE ACCOUNTS MORE CAREFULLY AND TO LOOK FOR SOME MATERIAL WHICH COULD LEAD TO THE CONCLUSION THAT THE ACCOUNTS MAINTAINED BY THE ASSESSEE WERE NOT CORRECT, BUT A LOW RATE OF G ROSS PROFIT, IN THE ABSENCE OF ANY MATERIAL POINTING TOWARDS 10 M/S. SETRON EXPORTS ITA NOS. 6356 & 6643/MUM/2016 FALSEHOOD OF THE ACCOUNT BOOKS, CANNOT, BY ITSELF, BE A GROUND TO REJECT THE ACCOUNT BOOKS UNDER SECTION 145(3). AS CLEAR FROM THE ABOVE DISCUSSION, NOT ONLY A PROPER REASON FOR REJECTION OF ACCO UNTS IS NEEDED BUT IT IS EQUALLY IMPORTANT TO BASE THE ESTIMATION ON SOLID FACTS. WHILE LOW GROSS PROFIT MAY PROMPT AN INVESTIGATION IN RESPECT OF THE ASSESSEE, IT MAY NOT SERVE AS A GUIDE FOR ESTIMATION OF GROSS MARGIN IN THE CURRENT YEAR. AS MENTIONED ABOVE, PEER OR SECTORAL ANALYSIS IS GENERALLY AVAILABLE IN RESPECT OF MOST OF THE SECTORS ON THE INTERNET. THE AOS SHOULD MAKE FULL USE OF SUCH DATA. FURTHER, TO FACTOR GEOGRAPHICAL AND OTHER DIFFERENCES, THE ASSESSING OFFICERS MAY RESORT TO LOCAL COMPARAB LE IN THE SAME TRADE. DATABASES LIKE PROWESS MAINTAINED BY CMIE AND CAPITALINE ARE IMPORTANT SOURCE OF SUCH DATA. THESE DATABASES CAN BE USED TO FIND OUT THE NORMAL MARGINS EARNED BY OTHER ASSESSES IN THE SAME TRADE. THIS WOULD GIVE A SOUND BASIS FOR THE A SSESSING OFFICER TO ARRIVE AT A REASONABLE GROSS MARGIN FOR THE PURPOSE OF ESTIMATION. THE RATIO OF THE ABOVE CASE LAWS IS SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE. 17. ADMITTEDLY IN THE PRESENT CASE, THE GP RATE AND NP RATE SHOWN BY THE A SSESSEE WAS SIGNIFICANTLY HIGHER THAN EARLIER YEARS . NO COMPARATIVE CASE HAS BEEN FURNISHED BY THE AO IN WHICH THE GP OR NP RATE WAS SHOWN HIGHER. FURTHER NO SIGNIFICANT DEFECT HAS BEEN POINTED OUT BY THE AO IN THE ACCOUNTS OF THE ASSESSEE. VARIOUS ISSUES RAISED BY THE AO IN THE ORDER HAS BEEN REBUTTED BY THE ASSESSEE . THEREFORE CONSIDERING THE OVERALL FACTS OF THE CASE, I AM OF THE VIEW THAT THE AO WAS NOT JUSTIFIED IN REJECTING THE BOOK RESULTS OF THE ASSESSEE U/S. 145(3) OF THE IT ACT. CONSEQUENTLY I ALSO HOLD THAT THE AO WAS NOT JUSTIFIED IN APPLYING A GP RATE OF 5% AND THUS MAKING AN ADDITION OF RS.1,44,54;306/ - IN THE HANDS OF THE ASSESSEE . THE SAME IS THEREFORE DIRECTED TO BE DELETED. CONSEQUENTLY GROUNDS NO. 2 & 3 TAK EN BY THE ASSESSEE ARE ALLOWED. 7. A CAREFUL PERUSAL OF THE ORDER PASSED BY LD CIT(A) WOULD SHOW THAT THE LD CIT(A) HAS GIVEN PROPER REASONS FOR REVERSING THE DECISION TAKEN BY THE 11 M/S. SETRON EXPORTS ITA NOS. 6356 & 6643/MUM/2016 AO. IN THE PRECEDING PARAGRAPHS ALSO, WE HAVE RECORDED THE CONTENTIONS OF LD A .R, WHEREIN HE HAS SUBMITTED THAT THE ASSESSEE HAS MAINTAINED STOCK REGISTER FOR RAW MATERIALS AND FINISHED GOODS. HE SUBMITTED THAT THE ASSESSEE COULD NOT MAINTAIN DETAILED STOCK REGISTER FOR INTERNAL PROCESSING, SINCE THE ASSESSEE DOES NOT MANUFACTURE A NY STANDARDISED PRODUCT, I.E., THE GARMENTS DESIGN WOULD DIFFER ACCORDING TO THE ORDERS RECEIVED. THE LD CIT(A) HAS NOTICED THAT THE ASSESSEE HAS BEEN TAKING INVENTORY TWICE IN A YEAR AND THUS IS HAVING CONTROL OVER THE INVENTORIES. THE G.P RATE AND N.P RATE DECLARED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION WAS ALSO HIGHER. WE NOTICE THAT THE LD CIT(A) HAS APPRECIATED ALL THESE FACTORS AND ACCORDINGLY TAKEN THE DECISION TO REVERSE THE ORDER OF THE AO. IN VIEW OF THE FOREGOING DISCUSSIONS, WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND ACCORDINGLY UPHOLD THE SAME. 8. THE NEXT ISSUE CONTESTED BY THE REVENUE RELATES TO THE DISALLOWANCE MADE OUT OF TRAVELLING EXPENSES. THE AO HAD DISALLOWED 50% OF THE EXPENSES AND THE LD CIT(A) HAS REDUCED THE SAME TO 20%. HENCE THE REVENUE IS AGGRIEVED BY THE RELIEF GRANTED. THE ASSESSEE IS ALSO CONTESTING THE ADDITION SUSTAINED BY LD CIT(A). 9. THE FACTS RELATING TO THIS ISSUE ARE DISCUSSED IN BRIEF. THE ASSESSEE CLAIMED TRAV ELLING EXPENSES OF RS.17.89 LACS. SINCE THE ASSESSEE FURNISHED THE DETAILS OF TRAVEL UNDERTAKEN LIKE PLACES VISITED, BUSINESS TRANSACTED, PURPOSE OF VISIT ETC., THE AO TOOK THE VIEW THAT THE ASSESSEE FAILED TO PROVE THE NEXUS OF SUCH EXPENSES WITH THE BUS INESS OF THE ASSESSEE. THE AO ALSO OBSERVED THAT THE ASSESSEE HAS EXPORTED GOODS TO ONLY ONE COMPANY NAMED M/S UNITY INTERNATIONAL INC LOCATED IN USA. ACCORDINGLY THE AO TOOK THE 12 M/S. SETRON EXPORTS ITA NOS. 6356 & 6643/MUM/2016 VIEW THAT THERE IS NO MUCH NEED OF SUCH EXPENSES AND ACCORDINGLY DISALLOWED 50% OF THE EXPENSES. 10. THE LD CIT(A) NOTICED THAT THE ASSESSEE HAS BEEN INCURRING TRAVELLING EXPENSES EVERY YEAR AND THE QUANTUM OF EXPENSES IS ALMOST SAME EVERY YEAR. HE FURTHER NOTICED THAT THE TRAVEL HAS BEEN UNDERTAKEN BY THE PARTNERS OF THE FIR M AND THE NATURE OF EXPENSES CONSISTED OF AIR TICKETS, FOREIGN EXCHANGE ETC., AND THE ASSESSEE HAS FURNISHED COMPLETE DETAILS OF EXPENSES. BEFORE LD CIT(A), THE ASSESSEE SUBMITTED THAT THE PURPOSE OF VISIT TO USA WAS COLLECTION OF SAMPLES, ASCERTAINING LAT EST FASHION TRENDS AND DESIGNS OF GARMENTS, MEETING THE CUSTOMER IN USA. SINCE THE ASSESSEE HAS GIVEN GENERAL REPLY REGARDING PURPOSE OF VISIT, THE LD CIT(A) TOOK THE VIEW THAT SOME DISALLOWANCE IS CALLED FOR. ACCORDINGLY HE SUSTAINED THE DISALLOWANCE TO 20% OF EXPENSES CLAIMED BY THE ASSESSEE. 11. WE HEARD THE PARTIES ON THIS ISSUE AND PERUSED THE RECORD. WE NOTICE THAT THE AO HAS TAKEN THE VIEW THAT THE ASSESSEE WAS DEALING WITH ONLY ONE CUSTOMER AND HENCE THERE IS NO MUCH NEED OF SUCH EXPENSES. THIS VIEW OF THE AO IS NOT SUSTAINABLE, SINCE IT IS WELL ESTABLISHED PRINCIPLE THAT THE AO IS NOT ENTITLED TO SIT IN THE ARM CHAIR OF A BUSINESS MAN AND DICTATE THE MANNER OF CONDUCTING THE BUSINESS. WE NOTICE THAT THE LD CIT(A) HAS FOUND THAT THE TRAVELLING WAS UNDERTAKEN BY THE PARTNERS AND ALL THE DETAILS OF EXPENSES WERE FURNISHED BY THEM. WE NOTICE THAT THE TAX AUTHORITIES HAVE POINTED OUT THAT THE ASSESSEE HAS GIVEN ONLY A GENERAL REPLY WITH REGARD TO THE PURPOSE OF VISIT, WITHOUT GIVING PURPOSE OF VISI T OF EACH OF THE TRAVELLING UNDERTAKEN BY THEM. HOWEVER, WE NOTICE THAT NO MATERIAL WAS BROUGHT ON RECORD TO SHOW THAT THE TRAVELLING WAS NOT FOR BUSINESS PURPOSES. THE LD 13 M/S. SETRON EXPORTS ITA NOS. 6356 & 6643/MUM/2016 CIT(A) HAS ALSO RECORDED A FINDING THAT THE TRAVELLING EXPENSES DURING THE YEAR UN DER CONSIDERATION IS COMPARABLE WITH THE EXPENSES INCURRED IN OTHER YEARS. UNDER THESE SET OF FACTS, WE ARE OF THE VIEW THAT THIS ISSUE MAY BE PUT TO REST BY SUSTAINING THE DISALLOWANCE TO 10% OF THE TRAVELLING EXPENSES INCURRED BY THE ASSESSEE. ACCORDIN GLY WE MODIFY THE ORDER PASSED BY LD CIT(A) AND DIRECT THE AO TO SUSTAIN THE DISALLOWANCE TO THE EXTENT OF 10% OF TRAVELLING EXPENSES. 12. THE NEXT ISSUE CONTESTED BY THE REVENUE RELATES TO THE DISALLOWANCE OF SAMPLE EXPENSES. THE ASSESSEE HAD CLAIMED SA MPLE EXPENSES OF RS.18.91 LAKHS. THE AO DISALLOWED THE CLAIM FOR THE REASON THAT THE ASSESSEE DID NOT FURNISH ANY DETAILS. BEFORE LD CIT(A), THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS FURNISHED PARTY WISE DETAILS TO THE AO, VIDE SUBMISSION MADE ON 26.1 0.2015. IT WAS ALSO SUBMITTED THAT THE SAMPLE EXPENSES ARE INCURRED YEAR AFTER YEAR. IT WAS ALSO SUBMITTED THAT THE ASSESSEE HAS TO NECESSARILY INCUR SAMPLE EXPENSES, SINCE IT IS MANUFACTURING GARMENTS. 13. THE LD CIT(A) NOTICED THAT THE ASSESSEE HAS BE EN INCURRING SAMPLE EXPENSES EVERY YEAR. HE NOTICED THAT THE EXPENSE INCURRED DURING THE YEAR WAS COMPARABLE WITH THE EXPENSES INCURRED IN EARLIER YEARS. HE ALSO NOTICED THAT THE AO HAS MADE THE DISALLOWANCE WITHOUT MAKING ANY ENQUIRIES AND ALSO WITHOUT POINTING OUT ANY DEFECT IN THE DETAILS FURNISHED BY THE ASSESSEE. ACCORDINGLY, THE LD CIT(A) DELETED THE DISALLOWANCE. 14. WE HEARD THE PARTIES ON THIS ISSUE AND PERUSED THE RECORD. BEFORE US, THE LD A.R SUBMITTED THAT THE ASSESSEE HAS FURNISHED THE DET AILS OF SAMPLE EXPENSES TO THE AO, BUT THE AO DID NOT EXAMINE THE SAME. THE LD CIT(A) HAS 14 M/S. SETRON EXPORTS ITA NOS. 6356 & 6643/MUM/2016 ALSO POINTED OUT THAT THE AO HAS MADE THE DISALLOWANCE WITHOUT MAKING ENQUIRIES AND WITHOUT EXAMINING THE DETAILS. THERE SHOULD NOT BE DISPUTE THAT THE SAMPLE EXPEN SES ARE PART OF BUSINESS OF MANUFACTURE OF READYMADE GARMENTS. THE LD CIT(A) HAS ALSO ANALYSED THE EXPENSES INCURRED BY THE ASSESSEE OVER THE YEARS AND HAS GIVEN A FINDING THAT THE EXPENSES INCURRED DURING THE YEAR IS COMPARABLE WITH THE EXPENSES INCURRED IN THE EARLIER YEARS. UNDER THESE SET OF FACTS, WE ARE OF THE VIEW THAT THE AO WAS NOT JUSTIFIED IN DISALLOWING THE SAMPLE EXPENSES. ACCORDINGLY WE CONFIRM THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE. 15. THE LAST ISSUE CONTESTED BY THE REVENUE RELATES TO THE DELETION OF THE ADDITION MADE U/S 68 OF THE ACT. THE ASSESSEE HAD SHOWN UNSECURED LOAN OF RS.491.13 LAKHS AND THE AO ASSESSED THE SAME AS UNEXPLAINED CASH CREDIT U/S 68 OF THE ACT. LATER, IT CAME TO THE NOTICE OF THE AO THAT THE ABOVE SAID BALANC ES INCLUDED OPENING BALANCES OF RS.306.92 LAKHS. HENCE THE AO PASSED A RECTIFICATION ORDER BY DELETING THE OPENING BALANCES AMOUNT OF RS.306.92 LAKHS. THUS THE AO, IN EFFECT, MADE ADDITION OF FRESH LOAN OF RS.184.20 LAKHS. THE LD CIT(A) DELETED THE ADDI TION AND HENCE THE REVENUE HAS FILED THIS APPEAL. 16. WE HAVE HEARD THE PARTIES ON THIS ISSUE AND PERUSED THE RECORD. WE NOTICE THAT THE ASSESSEE HAS FURNISHED RELEVANT DETAILS LIKE LOAN CONFIRMATION LETTERS, COPIES OF INCOME TAX RETURNS FURNISHED BY THE LENDERS, BANK STATEMENTS OF THE LENDERS BEFORE THE AO. IT IS THE CONTENTION OF THE ASSESSEE THAT THE ASSESSEE HAS DISCHARGED THE INITIAL BURDEN OF PROOF PLACED UPON IT. THE LD A.R FURTHER SUBMITTED THAT IMPUGNED LOANS HAVE BEEN TAKEN FROM THE CLOSE RELA TIVES OF PARTNERS ONLY AND IN MOST CASES, THE LOANS REPAID 15 M/S. SETRON EXPORTS ITA NOS. 6356 & 6643/MUM/2016 TO ONE PERSON CONSTITUTE SOURCE FOR OTHERS, AS THE FUNDS WERE CONSOLIDATED WITH SOME MEMBERS. WE NOTICE THAT THE LD CIT(A) HAS EXAMINED THIS ISSUE IN DETAIL AND HE HAS COME TO THE CONCLUSION THAT THE ADDITION MADE U/S 68 OF THE ACT IS NOT WARRANTED. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE DECISION TAKEN BY LD CIT(A) ON THIS ISSUE: - 49. FROM THE PERUSAL OF DETAILS SUBMITTED BY THE ASSESSEE, IT IS QUITE CLEAR THAT ENTIRE LOAN HAD BEEN TA KEN EITHER FROM THE PARTNERS OR THEIR FAMILY MEMBERS OR THEIR CLOSE RELATIVES, OR CLOSELY HELD GROUP CONCERN NAMELY M/S. ACME CLEANING CO., M/S. MELTEX INDUSTRIES AND M/S. INDO STAR EXPORTS, M/S. INDO STAR SEGMENTS AND M/S. INDO STAR ARTS SEGMENTS, THEREFO RE THEIR IDENTITY WAS NEVER IN DOUBT. IN FACT, THE COMPLETE DETAILS IN THIS REGARD WERE APPEARING IN ANNEXURE 'F' AND ANNEXURE 'G' OF THE AUDIT REPORT, WHICH ALSO REFLECTS THE RELATIONSHIP OF THE CREDITOR WITH THE ASSESSEE FIRM AND ITS PARTNERS. MOREOVER, ALL THE CREDITORS ARE ASSESSED TO TAX AND MOST OF THEM WITH THE PRESENT ASSESSING OFFICER ITSELF AND ARE FILING THEIR RETURNS OF INCOME REGULARLY. SIGNIFICANT INCOME HAS BEEN OFFERED BY THEM TO TAX CONSISTENTLY IN THEIR RETURNS FILED OVER LAST FEW YEARS, W HICH PROVES FINANCIAL CAPACITY OF SUCH CREDITORS. THE ASSESSEE IN THIS REGARD HAS ALREADY PRODUCED COPIES OF ACKNOWLEDGEMENTS OF I.T. RETURNS OF THESE PERSONS, THEIR COMPUTATION OF INCOME, THEIR BALANCE SHEET AND ALSO FILED THEIR BANK STATEMENTS TO DRIVE T HE POINT THAT LOAN WERE EXPLAINED. ALL THESE EVIDENCES, INDICATE THAT THE CREDITORS HAD SUFFICIENT SOURCES OF INCOME TO ADVANCE THE ABOVE LOANS TO THE ASSESSEE FIRM. FURTHER ENTIRE AMOUNT HAS BEEN GIVEN THROUGH CHEQUE AND HAS BEEN CREDITED TO THE ASSESSEE' S ACCOUNT THROUGH BANKING CHANNELS AND THEREFORE GENUINENESS OF TRANSACTION IS NOT IN DOUBT. NO CASH DEPOSITS OR SUSPICIOUS DEPOSITS ARE APPARENTLY MADE IN THESE ACCOUNTS. THE SOURCES OF INCOME HAS BEEN CLEARLY EXPLAINED AS IS EVIDENT FROM COMPUTATION OF I NCOME OF THESE PERSONS FILED, WHICH ARE EITHER FROM BUSINESS OR FROM RENT OR FROM OTHER SOURCES. CONFIRMATIONS FROM THESE PERSONS HAVE ALSO BEEN FILED, WHERE IN THEY HAVE CATEGORICALLY OWNED UP AND CONFIRMED THE TRANSACTION. AS STATED ABOVE, THE IDENTITY O F THE CREDITORS IS WELL KNOWN AND THEY HAPPENED TO BE THE FAMILY MEMBERS OF THE PARTNERS OR THE GROUP CONCERNS. THEREFORE IN MY OPINION THE ASSESSES HAS EXPLAINED THE IDENTITY OF THE CREDITORS, THEIR 16 M/S. SETRON EXPORTS ITA NOS. 6356 & 6643/MUM/2016 CREDITWORTHINESS AND THE GENUINENESS OF THE TRANSACTIONS AND THEREFORE THE LD. AO WAS NOT JUSTIFIED IN ADDING THESE AMOUNTS IN THE HANDS OF THE ASSESSEE. THE AO HAS MENTIONED IN HIS ASSESSMENT ORDER THAT THE SOURCES OF VARIOUS DEPOSITS IN THE BANK ACCOUNTS OF THE CREDITORS WERE NOT EXPLAINED. HOWEVER AT NO POIN T OF TIME, DID THE AO RAISE ANY QUERY IN THIS REGARD TO THE ASSESSEE, NOR DID HE MAKE ANY SPECIFIC OBSERVATIONS IN THE ORDER ABOUT ANY SUSPICIOUS CREDIT APPEARING IN THE BANK ACCOUNT OF ANY CREDITOR. I HAVE GONE THROUGH THE BANK STATEMENT OF VARIOUS CREDIT ORS DURING THE RELEVANT PERIOD AND DID NOT FIND ANY THING OBJECTIONABLE IN THE SAME. IN FACT, THESE ISSUES WERE DISCUSSED WITH THE AO IN THE MEETING ON 22 - 07 - 2016 WHEREIN VARIOUS BANK STATEMENTS WERE SHOWN TO HIM AND HE WAS ASKED AS TO WHICH ENTRIES OR DEP OSITS IN THE BANK ACCOUNT, HE WAS NOT SATISFIED WITH BUT HE COULD NOT PINPOINT ANY SUSPICIOUS ENTRY. AS REGARDS THE AO'S OBJECTION THAT SOME CONFIRMATIONS HAVE BEEN SIGNED BY SAME PERSONS , THE ASSESSEE HAS CLARIFIED THAT IT HAS HAPPENED ONLY IN CASE OF MR J C VORA WHO HAS SIGNED ON BEHALF OF HIS SON ASHISH VORA , BUT HE HAPPENS TO BE AN AUTHORIZED SIGNATORY ON BEHALF OF HIS SON WHO HAPPENS TO BE AN NRI. SO THIS OBJECTION OF THE AO DOES NOT HOLD MUCH GROUND. 50. IN THE CASE OF COMMISSIONER OF INCOME TAX V S. CREATIVE WORLD TELEFILMS LTD (2011) 333 ITR 100 (BOM) , THE HON'BLE BOMBAY HIGH COURT HELD THAT WHEN THE ASSESSEE HAD GIVEN THE DETAILS OF NAME AND ADDRESS OF THE SHAREHOLDER, THEIR PAN/GIR NUMBER AND HAD ALSO GIVEN THE CHEQUE NUMBER, NAME OF THE BANK AN D THE AO DID NOTHING EXCEPT ISSUING SUMMONS WHICH WERE ULTIMATELY RETURNED BACK WITH AN ENDORSEMENT 'NOT TRACEABLE', TRIBUNAL WAS JUSTIFIED IN DELETING THE ADDITION OF CASH CREDIT IN RESPECT OF SHARE APPLICATION MONEY. SIMILARLY IN THE CASE OF COMMISSIONER OF INCOME TAX VS. JAY DEE SECURITIES AND FINANCE LTD. (2013) 350 ITR 220 (ALL) , THE HON'BLE ALLAHABAD HIGH COURT HELD THAT THE TRIBUNAL RECORDED FINDINGS THAT THE ASSESSEE HAD PRODUCED THE RETURN OF INCOME FILED BY THE RELEVANT SHAREHOLDERS WHO HAD PAID S HARE APPLICATION MONEY. THE ASSESSEE HAD ALSO PRODUCED THE CONFIRMATION OF SHAREHOLDERS INDICATING THE DETAILS OF ADDRESSES, PAN AND PARTICULARS OF CHEQUES THROUGH WHICH THE AMOUNT WAS PAID TOWARDS THE SHARE APPLICATION MONEY. THE TRIBUNAL THEREAFTER RELIE D UPON THE JUDGMENT OF THE SUPREME COURT IN CIT VS. LOVELY EXPORTS (P) LTD WHEREIN IT WAS HELD THAT IF THE ASSESSEE PRODUCES THE NAMES, ADDRESSES, PAN DETAILS OF THE 17 M/S. SETRON EXPORTS ITA NOS. 6356 & 6643/MUM/2016 SHAREHOLDERS THEN THE ONUS ON THE ASSESSEE TO PROVE THE SOURCE OF SHARE APPLICATION MONEY STANDS DISCHARGED. IF THE ASSESSING AUTHORITY WAS NOT SATISFIED WITH THE CREDITWORTHINESS OF THE SHAREHOLDERS, IT WAS OPEN TO THE ASSESSING AUTHORITY TO VERIFY THE SAME IN THE HANDS OF THE SHAREHOLDERS CONCERNED. LIKEWISE THE HON'BLE HIGH COURT OF CALCUTTA IN THE CASE OF CIT VS SAHIBGANJ ELECTRIC CABLES PVT. LTD. REPORTED AS (1978) 115 ITR 408 (CAL), HELD THAT WHERE THE AMOUNT OF LOAN RECEIVED BY CHEQUES AND REPAYMENT WAS ALSO MADE THROUGH CHEQUES AND THERE ARE CONFIRMATION LETTERS SUBMITTED WHEREIN INCOME TAX FILE NUMBER IS ALSO MENTIONED, THE ASSESSING OFFICER COULD NOT MAKE ADDITION WITHOUT MAKING FURTHER ENQUIRY, DISBELIEVING THE EVIDENCE PLACED BEFORE HIM. THE ID. CIT(A) ALSO CONSIDERED AND NOTED THAT SINCE THE DISPUTED LOAN TRANSACTION HAD BEEN THROUGH THE ACCOUNT PAYEE CHEQUES AND THE ADDRESS AND PAN OF CREDITOR WERE BEFORE THE AO, THE QUESTION OF IDENTITY OF THE CREDITOR BECOMES IRRELEVANT AND SINCE THE IDENTITY OF THE CREDITOR STANDS ESTABLISHED AND THE ASSESSEE PRODUCED EVIDENCE SHOWING THAT THE ENT RIES WERE NOT FICTITIOUS AND IN ADDITION TO THAT, THE ASSESSEE ALSO PRODUCED COPY OF THE LEGAL NOTICE SENT BY THE CREDITOR TO THE ASSESSEE FOR DEFAULT OF THE REPAYMENT OF LOAN, THE ONUS PLACED UPON THE ASSESSEE HAS BEEN DISCHARGED AND BURDEN SHIFTS ON THE REVENUE TO SHOW THAT THE ENTRY OF LOAN ACTUALLY REPRESENTED ASSESSEE'S SUPPRESSED OR ESCAPED INCOME. 51. FURTHER, THE HON'BLE GAUHATI HIGH COURT IN THE CASE OF NEMI CHAND KOTHARI VS CIT REPORTED AS (2003) 264 ITR 254 (GAU.) WHEREIN IT WAS HELD THAT IF THE ASSESSEE HAS ESTABLISHED THE IDENTITY OF THE CREDITOR AND ALSO SHOWN THAT THE SAID AMOUNT HAD BEEN RECEIVED BY HIM BY WAY OF CHEQUES FROM THE CREDITOR, WHICH IS ALSO NOT IN DISPUTE IN THE PRESENT CASE, THE ASSESSEE MUST BE TAKEN TO HAVE PROVED THAT THE CR EDITOR HAS CREDITWORTHINESS TO ADVANCE THE LOAN. THEREAFTER, THE BURDEN GETS SHIFTED TO THE AO TO PROVE THE CONTRARY. IN THIS CASE, THE HON'BLE GAUHATI HIGH COURT FURTHER HELD THAT A PERSON MAY BORROW FUNDS FROM A THIRD PERSON HAVING NUMBER OF SOURCES AND IT IS NOT THE BUSINESS OF THE ASSESSEE TO FIND OUT WHETHER THE SOURCES FROM WHICH THE CREDITOR ADVANCED THE LOAN TO THE ASSESSEE WERE GENUINE OR NOT. THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS ORISSA CORPORATION PVT. LTD. REPORTED AS (1986) 159 ITR 78 (SC), OBSERVED AS UNDER: - 18 M/S. SETRON EXPORTS ITA NOS. 6356 & 6643/MUM/2016 'HELD, THAT IN THIS CASE THE RESPONDENT HAD GIVEN THE NAMES AND ADDRESSES OF THE ALLEGED CREDITORS. IT WAS IN THE KNOWLEDGE OF THE REVENUE THAT THE SAID CREDITORS WERE INCOME TAX ASSESSES. THEIR INDEX NUMBERS WERE IN THE FILE OF THE REVENUE. THE REVENUE, APART FROM ISSUING NOTICES UNDER SECTION 131 AT THE INSTANCE OF THE RESPONDENT, DID NOT PURSUE THE MATTER FURTHER. THE REVENUE DID NOT EXAMINE THE SOURCE OF INCOME OF THE SAID ALLEGED CREDITORS TO FIND OUT WHETHER THEY WERE CREDIT WORTHY. THERE WAS NO EFFORT MADE TO PURSUE THE SO - CALLED ALLEGED CREDITORS. IN THOSE CIRCUMSTANCES, THE RESPONDENT COULD, NOT DO ANYTHING FURTHER. IN THE PREMISES, IF THE TRIBUNAL CAME TO THE CONCLUSION THAT THE RESPONDENT HAD DISCHARGED THE BURDEN THAT LA Y ON IT, THEN IT COULD NOT BE SAID THAT SUCH A CONCLUSION WAS UNREASONABLE OR PERVERSE OR BASED ON NO EVIDENCE. IF THE CONCLUSION WAS BASED ON SOME EVIDENCE ON WHICH A CONCLUSION COULD BE ARRIVED AT, NO QUESTION OF LAW AS SUCH AROSE. THE HIGH COURT WAS RI GHT IN REFUSING TO STATE A CASE.' IN THE CASE OF ORISSA CORPORATION (P) LTD, (SUPRA) THE HON'BLE APEX COURT HELD THAT THE REVENUE DID NOT EXAMINE THE SOURCE OF INCOME OF THE ALLEGED CREDITORS TO FIND OUT WHETHER THEY WERE CREDITWORTHY OR WERE SUCH WHO COU LD ADVANCE THE ALLEGED LOANS. THE HON'BLE COURT ALSO OBSERVED THAT THERE WAS NO EFFORT MADE BY THE REVENUE DEPARTMENT TO PURSUE THE SO - CALLED ALLEGED CREDITORS AND IN THOSE CIRCUMSTANCES, THE ASSESSEE COULD NOT DO ANYTHING FURTHER. IN THE PRESENT CASE ALSO , THE ENTIRE RECORD BEFORE US DO NOT REVEAL THAT THERE WAS ANY EFFORT MADE BY THE REVENUE TO PURSUE THE SO - CALLED ALLEGED CREDITORS AND IT ALSO SHOWS THAT THE FACTS IN THE PRESENT CASE ARE IDENTICAL WITH THE CASE OF ORISSA CORPORATION (P) LTD. (SUPRA) AS N OTED BY THE HON'BLE APEX COURT. 52. IN THAT CASE, THE HON'BLE APEX COURT ALSO HELD THAT AFTER SUBMISSIONS OF RELEVANT DOCUMENTS REGARDING THEIR CREDITWORTHINESS AND IDENTITY AND ALSO THE DOCUMENTS SHOWING GENUINENESS OF THE TRANSACTION THROUGH BANK, THE A SSESSEE COULD NOT DO ANYTHING FURTHER. THE HON'BLE COURT FURTHER OBSERVED THAT THE ASSESSEE HAD DISCHARGED THE BURDEN THAT LAY UPON HIM. ON THE CONTRARY, THERE WAS NO EFFORT BY THE REVENUE TO PURSUE THE 19 M/S. SETRON EXPORTS ITA NOS. 6356 & 6643/MUM/2016 EXAMINATION OF SOURCE OF INCOME OF SAID CREDITORS TO FIND OUT WHETHER THEY WERE CREDITWORTHY OR NOT. THE RATIO OF ABOVE JUDGMENTS SUPPORTS THE CLAIM OF THE ASSESSEE ABOUT GENUINENESS OF TRANSACTION OF LOAN. 53. COMING TO THE SPECIFICS OF THE UNSECURED LOANS, THE ASSESSEE FIRM HAS RECEIVED FOLLOWING FRESH L OANS DURING THE YEAR: - SR. NO. NAME OF THE PARTY PAN OPENING BALANCE AMOUNT OF LOAN TAKEN AMOUNT OF LOAN REPAID CLOSING BALANCE 1 ACME CLEANING CO. AABFA2071N 1,500,000 800,000 1,500,000 800,000 2 ROSE MARY CHETTIAR ACVPC5309B 1,725,000 225,000 50,000 1 ,900,000 3 MANJULA J VORA ABTPV8613E 3,800,000 35,300,000 1,000,000 38,100,000 4 MEETA J VORA ADJPV3537B 2,560,000 310,000 300,000 2,570,000 5 REKHATEX INDUSTRIES AAAFR2669E 500,000 1,000,000 500,000 1,000,000 6 PRATITI KETAN DOSHI ADQPD8139E 450,000 95,000 - 545,000 7 ARUSH KETAN DOSHI ADQPD8139E - 30,000 - 30,000 8 LATA K NATHANI ACOPN0730C - 1,700,000 1,700,000 - 9 P B NATHANI AADPN7468G - 1,700,000 - 1,700,000 10 MELTEX INDUSTRIES AAAFM3717C 500,000 1,000,000 500,000 1,000,000 11 HASMUKH C DOSHI AADPD2414L 450,000 50,000 - 500,000 30,692,937 42,210,000 23,789,756 49,113,181 AS REGARDS M/S ACME CLEANING CO. WHO HAS GIVEN A FRESH LOAN OF RS. 8 LACS DURING THE YEAR, THIS COMPANY HAS RETURNED INCOME OF RS. 40,41,950/ - FOR A.Y. 2013 - 14. IT S SOURCES OF INCOME ARE RENTAL INCOME OF OVER RS. 66 LACS AND INCOME FROM OTHER SOURCES OF RS. 88,803/ - . IT HAS FIXED ASSETS OF RS. 3.33 CR AND INVESTMENTS OF RS. 52.45 LACS AS ON 31.03.2013 . THE COMPANY BELONGS TO THE SAME GROUP AND IS REGULARLY ASSED TO TAX. IT HAS ALSO FILED A CONFIRMATION IN THIS REGARD. IT HAS RECEIVED INTEREST OF RS. 88,803/ - DURING THE YEAR ON THIS LOAN AMOUNT. IN THE CIRCUMSTANCES ITS LOAN AMOUNT IS TREATED AS EXPLAINED. COMING TO ROSE MARY CHETTIAR, WHO HAD GIVEN A FRESH LOAN OF R S. 2,25,000/ - DURING THE YEAR, BESIDES SOME AMOUNT BROUGHT FORWARD, SHE HAS FILED HER RETURN OF INCOME OF RS. 3,92,417/ - FOR A.Y. 2013 - 14 . SHE GETS SALARY INCOME OF RS. 1,64,118/ - , HOUSE PROPERTY INCOME OF RS. 20 M/S. SETRON EXPORTS ITA NOS. 6356 & 6643/MUM/2016 32,250/ - AND INTEREST INCOME OF RS. 2,26,447/ - . SHE HAD SIGNIFICANT BANK BALANCE IN HER ACCOUNT WITH VIJAYA BANK ( A/C NO 16241 ) MAHIM MUMBAI BEFORE AND AFTER GIVING LOAN OF RS. 1,50,000/ - AS ON 08/05/2012 AND RS. 75,000/ - AS ON 14/12/2012 . THERE IS NO CASH DEPOSITS IN THE BANK ACCOUNT DURING THE RE LEVANT PERIOD AND I DO NOT SEE ANY UNUSAL ENTRIES IN THE BANK ACCOUNT. SHE HAS BEEN FILING HER RETURN OF INCOME REGULARLY. SHE HAS FILED A CONFIRMATION REGARDING THE LOAN OF RS. 2,25,000/ - RECEIVED DURING THE YEAR . SHE HAS BEEN PAID INTEREST ON LOAN AMOUN T. IN FACT SHE HAS BEEN PAID BACK A SUM OF RS. 50.000/ - DURING THE YEAR. THEREFORE HER LOAN AMOUNT IS TREATED AS EXPLAINED. MANJULA VORA AND MEETA VORA ARE FAMILY MEMBERS OF PARTNER MR J C VORA. THEY HAD FILED RETURN OF INCOME SHOWING INCOME OF RS. 30,72, 753/ - AND RS. 6,68,210/ - RESPECTIVELY FOR A.Y. 2013 - 14 . THEIR SOURCES OF INCOME ARE SALARY, BUSINESS AND OTHER SOURCES IN NATURE OF INTEREST BESIDES THEY HAVE ALSO RECEIVED SOME DIVIDEND AND LONG TERM CAPITAL GAINS ON SALE OF SHARES WHICH WAS CLAIMED AS E XEMPTED. THEY HAVE BEEN PAID INTEREST ON LOAN TAKEN WHICH HAS BEEN OFFERED TO TAX AND A PART OF THE LOAN HAS BEEN REPAID ALSO DURING THE YEAR. THEY HAVE FILED CONFIRMATIONS REGARDING THE ABOVE LOANS. THEREFORE AMOUNTS TAKEN FROM THEM ARE TREATED AS EXPLAIN ED. AS REGARDS M/S REKHATEX INDUSTRIES WHICH BELONGS TO THE SAME GROUP AND HAS GIVEN FRESH LOAN OF RS. 10,00,000/ - , IT HAS FILED ITS RETURN OF INCOME FOR 2013 - 14 SHOWING INCOME OF RS. 11,09,186/ - , SOURCES OF INCOME ARE RENTAL INCOME OF RS. 19,96,137 AN D OTHER SOURCES INCOME OF RS. 1,10,825/ - . IT HAD SIGNIFICANT BANK BALANCES AS ON 31.03.13 AS ALSO ALL ALONG THE YEAR. NO CASH DEPOSITS HAS BEEN MADE IN ITS BANK ACCOUNT. IT HAS ALSO RECEIVED INTEREST OF RS. 68,103/ - ON LOAN GIVEN. FURTHER A SUM OF RS.5 ,00,000/ - HAS BEEN REPAID TO IT . THE COMPANY HAS FILED A CONFIRMATION ABOUT LOAN. THEREFORE THE AMOUNT IS TREATED AS EXPLAINED. PRATITI KHETAN DOSHI AND ARUSH KHETAN DOSHI WHO HAVE GIVEN LOAN OF RS. 95,000/ - & 30,000/ - ARE THE MINOR CHILDREN OF SHRI KETAN DOSHI, A CLOSE RELATIVE OF SHRI J.C. VORA, PARTNER. THEIR INCOMES ARE CLUBBED IN THE HANDS OF SHRI KETAN DOSHI. LIKEWISE SHRI HASMUKH DOSHI WHO HAS GIVEN A LOAN OF RS. 50,000/ - DURING THE YEAR HAPPENS TO BE A CLOSE RELATIVE OF MR. J. C. VORA PARTNER. HI S INCOME IS BELOW TAXABLE LIMITS AND THEREFORE HE IS NOT FILING HIS TAX RETURN. HOWEVER, HIS BANK ACCOUNT HAS BEEN SUBMITTED AND AFTER PERUSAL OF THE SAME IT IS GATHERED THAT THERE ARE NO CASH DEPOSITS APPEARING IN HIS BANK ACCOUNT. ALL THE ABOVE PERSON S HAVE FILED LOAN CONFIRMATIONS OWNING UP THE TRANSACTIONS. THEREFORE THE AMOUNTS OF RS. 21 M/S. SETRON EXPORTS ITA NOS. 6356 & 6643/MUM/2016 95,000/ - , RS.30,000/ - AND RS. 50,000/ - GIVEN BY THEM ARE TREATED AS EXPLAINED. NEXT IS M/S. MELTEX INDUSTRIES WHO HAS GIVEN A LOAN OF RS.10,00,000/ - . IT IS A FAMILY CONCERNS/ GROUP CONCERN. IT FILED ITS RETURN OF INCOME FOR A.Y. 2013 - 14 SHOWING INCOME OF RS.12,00,162/ - . SOURCES OF INCOME ARE RENTAL INCOME (22,46,857/ - ) AND INTEREST INCOME (1,04,127/ - ). APPARENTLY NO CASH DEPOSITS OR SUSPICIOUS CREDITS ARE MADE IN IT S BANK ACCOUNT, WHICH SHOWS SUFFICIENT BALANCE THROUGH OUT THE YEAR SPECIALLY BECAUSE OF REGULAR RENTAL INCOME. A CONFIRMATION ABOUT LOAN HAS ALREADY BEEN FILED BY IT. SO LOAN GIVEN BY THIS COMPANY IS ALSO TREATED AS EXPLAINED. SIMILARLY LATA NATHANI WIFE OF MR NATHANI PARTNER AND P.B. NATHANI HIS SON HAVE GIVEN LOAN OF RS. 17 LACS EACH TO THE ASSESSEE FIRM. THEY ARE BEING ASSESSED TO TAX WITH THE SAME ASSESSING OFFICER AND HAVE FILED THEIR RETURN OF INCOME FOR A.Y. 2013 - 14, SHOWING INCOMES OF RS. 12,48,75 3/ - AND RS.3,40,635/ - RESPECTIVELY. THEY HAVE FILED THEIR BALANCE SHEETS ALSO SHOWING SIGNIFICANT ASSETS AND INVESTMENTS. NO CASH DEPOSITS OR SUSPICIOUS DEPOSITS/CREDITS ARE APPEARING IN THEIR BANK ACCOUNTS BEFORE GIVING LOAN TO THE ASSESSEE FIRM. THE BA NK ACCOUNTS HAD DECENT BALANCES THROUGH OUT THE YEAR. THEY HAVE ALSO FILED CONFIRMATIONS ABOUT LOAN TRANSACTIONS. COPIES OF THEIR BANK STATEMENTS ARE PLACED ON RECORD. IN VIEW OF THESE FACTS, AMOUNTS GIVEN BY THEM ARE TREATED AS EXPLAINED. 54. IN VIEW O F THE ABOVE DISCUSSION, THE ADDITION MADE BY THE AO BECOMES UNSUSTAINABLE IN LAW. THE SAME IS THEREFORE DIRECTED TO BE DELETED. THUS THE GROUND TAKEN BY THE ASSESSEE IN THIS REGARD IS ALLOWED. 17. WE NOTICE THAT THE LD CIT(A) HAS ANALYSED EACH OF THE LOA N AND HAS COME TO THE CONCLUSION THAT THE THREE INGREDIENTS ARE SATISFIED. THOUGH THE REVENUE IS CHALLENGING THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE, YET THE REVENUE COULD NOT FIND ANY FAULT WITH THE ORDER PASSED BY LD CIT(A). SINCE THE LD CIT(A) HAS COME TO THE CONCLUSION THAT THE ASSESSEE HAS DISCHARGED THE INITIAL BURDEN OF PROOF PLACED UPON IT BY DULY ANALYSING EACH CASE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE. ACCORDINGLY WE CONFIRM THE SAME. 22 M/S. SETRON EXPORTS ITA NOS. 6356 & 6643/MUM/2016 18. WE SHALL NOW TAKE UP THE APPEAL FILED BY THE ASSESSEE. THE GROUND NO.2 RELATING TO DISALLOWANCE MADE OUT OF TRAVELLING EXPENSES HAS ALREADY BEEN ADJUDICATED BY US WHILE DEALING WITH THE APPEAL FILED BY THE REVENUE. THE REMAINING GROUND URGED BY THE ASSESSEE RELATES TO DISALLOWANCE OF PACKING MATERIAL EXPENDITURE OF RS.54.05 LAKHS. 19. THE AO NOTICED THAT THE ASSESSEE HAS INCURRED PACKING EXPENSES OF RS.210.42 LACS AND THE SAME ACCOUNTED FOR 10% OF THE TURNOVER OF THE ASSESSEE. THE AO TOOK THE VIEW THAT THE PACK ING MATERIALS REQUIRED ARE ONLY POLY BAGS AND CARTON BOXES, WHOSE COST IS NOT HIGHER. ACCORDINGLY HE PROPOSED TO ALLOW PACKING EXPENSES TO THE EXTENT OF 1% OF THE TURNOVER. THE ASSESSEE SUBMITTED THAT THE PACKING EXPENSES CLAIMED BY IT CONSISTED OF PACKI NG MATERIALS AND ALSO ACCESSORIES LIKE THREAD, BUTTONS, INTERLINING, ELASTICS, N V TAPES ETC. THE ASSESSEE ALSO SUBMITTED THAT THE ASSESSEE HAS BEEN CLAIMING THESE EXPENSES YEAR AFTER YEAR AND THE SAME HAS BEEN ACCEPTED IN THE PAST. HOWEVER, THE AO TOOK T HE VIEW THAT THE ASSESSEE HAS FAILED TO PROVE THE CLAIM OF PACKING EXPENSES. ACCORDINGLY HE RESTRICTED THE CLAIM TO 1% OF TURNOVER AMOUNTING TO RS.20.85 LAKHS AND DISALLOWED THE BALANCE AMOUNT OF RS.189.56 LAKHS. 20. THE LD CIT(A) NOTICED THAT THE ASSESS EE HAS BEEN CLAIMING PACKING EXPENSES EVERY YEAR. HE ALSO APPRECIATED THE CLAIM OF THE ASSESSEE THAT IT HAS PROVIDED NECESSARY DETAILS BEFORE THE AO, BUT THE AO HAS FAILED TO EXAMINE THE SAME. THE LD CIT(A) OBSERVED THAT THERE IS NO LOGIC IN THE DECISION OF THE AO IN ESTIMATING THE PACKING EXPENSES AT 1% OF THE TURNOVER. HE NOTICED THAT, IN THE EARLIER YEARS, THE PACKING EXPENSES INCURRED BY THE ASSESSEE WERE IN THE RANGE OF 7%, WHERE AS IT HAS GONE UP TO 10.07% DURING 23 M/S. SETRON EXPORTS ITA NOS. 6356 & 6643/MUM/2016 THE YEAR UNDER CONSIDERATION. ACCO RDINGLY, THE LD CIT(A) TOOK THE VIEW THAT THE PACKING EXPENSES MAY BE ALLOWED TO THE EXTENT OF AVERAGE EXPENSES OF LAST THREE YEARS. THE AVERAGE EXPENDITURE WAS WORKED OUT BY LD CIT(A) AT RS.156.37 LAKHS. THE ASSESSEE HAD CLAIMED A SUM OF RS.210.42 LAKHS AND ACCORDINGLY DISALLOWED THE EXCESS CLAIM OF RS.54.05 LAKHS. 21. WE HEARD THE PARTIES ON THIS ISSUE AND PERUSED THE RECORD. WE NOTICE THAT BOTH THE TAX AUTHORITIES ARE ACCEPTING THE FACT THAT THE ASSESSEE HAS TO INCUR EXPENDITURE ON PACKING OF READYMA DE GARMENTS. THE LD A.R SUBMITTED THAT ALL THE RELEVANT BILLS WERE FURNISHED BEFORE THE TAX AUTHORITIES TO PROVE THE EXPENSES CLAIMED BY THE ASSESSEE. THE LD A.R FURTHER SUBMITTED THAT THE AO WAS WRONG IN ASSUMING THAT THE PACKING EXPENSES CLAIMED BY THE ASSESSEE WOULD CONSIST OF POLYBAGS AND CARTONS. HE SUBMITTED THAT THE ASSESSEE HAS DEBITED THIS HEAD WITH THE EXPENSES RELATING TO ACCESSORIES ALSO. THE LD A.R ALSO SUBMITTED THAT COPIES OF SOME BILLS ARE ALSO FURNISHED IN THE PAPER BOOK ALONG WITH THE EXPLANATIONS FURNISHED BY THE ASSESSEE BEFORE THE AO. 22. WE NOTICE THAT BOTH THE TAX AUTHORITIES HAVE NOT EXAMINED THE CLAIM OF THE ASSESSEE VIS - A - VIS BILLS FURNISHED BY THE ASSESSEE. BOTH THE TAX AUTHORITIES HAVE PROCEEDED TO ESTIMATE THE EXPENSE S BY TOTALLY DISREGARDING THE EVIDENCES FURNISHED BY THE ASSESSEE. THE SAID APPROACH OF THE TAX AUTHORITIES IS NOT JUSTIFIED. WHEN THE ASSESSEE IS FURNISHING THE DETAILS OF EXPENSES ALONG WITH THE SUPPORTING VOUCHERS, IT IS NECESSARY TO EXAMINE THE SAME . IF ANY DEFECT IS FOUND DURING THE COURSE OF EXAMINATION, THEN ADDITION MAY BE WARRANTED. IN THE INSTANT CASE, THE TAX AUTHORITIES HAVE NOT EXAMINED THE EVIDENCES AND HENCE THEY DID NOT FIND ANY DEFECT IN THE 24 M/S. SETRON EXPORTS ITA NOS. 6356 & 6643/MUM/2016 SUPPORTING VOUCHERS AS WELL AS CLAIM MADE BY THE ASSESSEE. WHILE THE AO HAS ESTIMATED THE SAMPLE EXPENSES AS 1% OF THE TOTAL TURNOVER, THE LD CIT(A) HAS ESTIMATED THE SAME AT AVERAGE OF PAST THREE YEARS EXPENSES. AS OBSERVED BY US, THE APPROACH OF BOTH THE TAX AUTHORITIES IS NOT JUSTIFIED. ACCORD INGLY WE SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THIS ADDITION. 23. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED AND THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH DECEMBER , 2018. SD/ - SD/ - ( AMARJIT SINGH) JUDICIAL MEMBER ( B.R. BASKARAN ) ACCOUNTANT MEMBER MUMBAI, DATE : 12 TH DECEMBER , 201 8 * SSL * COPY TO : 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT(A) CONCERNED 4) THE CIT CONCERNED 5) THE D.R, G BENCH, MUMBAI 6) GUARD FILE BY ORDER DY./ASSTT. REGISTRAR I.T.A.T, MUMBAI