ITO, Ludhiana V. M/s A.K. Engineering Co., Ludhiana

ITA 637/CHANDI/2011

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8974 (ITAT-CHANDIGARH)
• Duration Of Justice: 5 year(s) 5 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 25-07-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 06-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Assessee Lawyers: SUDHIR SEHGALASHOK GOYAL
• Section: 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO.637/CHD/2016 (ASSESSMENT YEAR : 2007-08) THE INCOME TAX OFFICER I(1), VS. M/S A.K. ENGINEERING CO., LUDHIANA. D-117A, PHASE-V, FOCAL POINT, LUDHIANA. PAN: AABFA9467A AND C.O.NO.64/CHD/2011 IN ITA NO.637/CHD/2016 (ASSESSMENT YEAR : 2007-08) M/S A.K. ENGINEERING CO., VS. THE INCOME TAX OFFICER I(1), D-117A, PHASE-V, FOCAL POINT, LUDHIANA. LUDHIANA. PAN: AABFA9467A (APPELLANT) (RESPONDENT) ASSESSEE BY : S/SHRI SUDHIR SEHGAL ASHOK GOYAL DEPARTMENT BY : SHRI S.K. MITTAL, DR DATE OF HEARING : 24.08.2016 DATE OF PRONOUNCEMENT : 30.11.2016 O R D E R PER ANNAPURNA GUPTA, A.M . : THIS APPEAL AT THE INSTANCE OF THE REVENUE AND CROS S OBJECTIONS AT THE INSTANCE OF THE ASSESSEE ARISE OU T OF THE ORDER OF THE CIT (APPEALS) DATED 04.03.2011, RELAT ING TO ASSESSMENT YEAR 2007-08. 2 2. WE WILL FIRST TAKE UP THE APPEAL OF THE REVENUE IN ITA NO.367/CHD/2011. ITA NO.637/CHD/2011 : 3. GROUND NO.1 RAISED BY THE REVENUE READS AS UNDER : 1. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT THE ADDITION MADE OF RS.14,41,127/ ON ACCOUNT OF SALES TO M/S KITO FASTNERS SEEMS TO BE ERRONEOUS WITHOUT APPRECIATING THE FACT THAT THE SALES HAVE BEEN MADE TO M/S KITO FASTNERS AT SUPPRESSED RATES WITH SOLE MOTIVE TO SIPHON OFF THE PROFITS OF THE ASSESSEE. 4. THE REVENUE IN THIS GROUND HAS CHALLENGED THE DELETION OF ADDITION MADE ON ACCOUNT OF SUPPRESSED SALES BY THE ASSESSEE TO ONE M/S KITO FASTNERS AMOUNTING IN ALL TO RS.14,41,127/-. 5. BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURIN G OF WASHER, NUTS AND BOLTS. IN THE ASSESSMENT ORDER TH E ASSESSING OFFICER NOTED THAT DURING THE IMPUGNED YE AR, THE ASSESSEE HAD MADE SALE OF FINISHED GOODS TO M/S KITO FASTNERS A SISTER CONCERN AT RATES LOWER THAN THE R ATES AT WHICH THE GOODS HAVE BEEN SOLD TO OTHER PARTIES. T HE ASSESSING OFFICER FURTHER NOTICED THAT M/S KITO FAS TNERS HAD SOLD ITS GOODS TO OUTSIDE PARTIES AT RATES COMP ARABLE TO DIRECT SALES BY THE ASSESSEE WITHOUT MAKING ANY VALUE 3 ADDITION TO THE GOODS. THE ASSESSEE WAS ASKED TO S HOW CAUSE WHY SUCH AMOUNT SHOULD NOT BE TREATED AS SUPPRESSED SALES. THE ASSESSEE SUBMITTED DETAILED REPLY WHICH IS REPRODUCED IN THE ASSESSMENT ORDER. HOWEV ER, THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE AS SESSEES REPLY AND AFTER MAKING NECESSARY ADJUSTMENTS/CORREC TIONS THE ASSESSING OFFICER HELD THAT THE SALES MADE TO M /S KITO FASTNERS WAS COLORABLE DEVICE TO SIPHON THE PROFITS OF THE ASSESSEE AND DIFFERENCE ON THIS ACCOUNT WAS CALCULA TED AND ADDED TO THE INCOME OF THE ASSESSEE. THE ASSES SING OFFICER MADE AN ADDITION OF RS.14,41,127/- IN THIS REGARD, OUT OF WHICH RS.11,04,897/- WAS MADE ON ACCOUNT OF SALE OF BOLTS, RS.2,59,733/- ON ACCOUNT OF SALE OF NUTS, RS.642/- ON ACCOUNT OF WASHER AND RS.75,855/- ON ACCOUNT OF SALE OF THREAD BAR. 6. BEFORE THE LD. CIT (APPEALS), THE ASSESSEE MADE DETAILED SUBMISSIONS, REPRODUCED AT PARA 4.1 OF HIS ORDER. BRIEFLY STATED, THE ASSESSEE ARGUED THAT M/S KITO F ASTNERS WAS NOT A SISTER CONCERN BUT AN INDEPENDENT CONCERN AND, THEREFORE, NO QUESTION AROSE OF SIPHONING OFF PROFI TS TO IT. THE ASSESSEE FURTHER CONTENDED THAT EVEN IF M/S KIT O FASTNERS WAS HELD TO BE A SISTER CONCERN OF THE ASS ESSEE, NO ADDITION COULD BE MADE ON ACCOUNT OF SUPPRESSED SALES SINCE TRANSACTIONS OF SUCH NATURE WERE NOT COVERED U/S 40A(2)(B) OF THE ACT. FURTHER IT WAS SUBMITTED THAT SINCE NO DEFECTS HAD BEEN FOUND IN THE BOOKS OF THE ASSES SEE, NOR THE TRANSACTIONS HELD TO BE BOGUS, THE ADDITION COULD 4 NOT HAVE BEEN MADE. THE ASSESSEE RELIED UPON ON A NUMBER OF CASE LAWS IN SUPPORT OF HIS CONTENTION. FURTHER, THE ASSESSEE STATED THAT THE VERY BASIS OF THE ASSESSING OFFICER FOR CALCULATING THE AVERAGE RATE OF SALE MADE TO OUTSIDE PARTIES AND APPLYING THE SAME TO TH E SALES MADE TO M/S KITO FASTNERS WAS FAULTY/INCORREC T SINCE THE ASSESSING OFFICER HAD COMPLETELY IGNORED THE FACT THAT THE SALES MADE TO OUTSIDE PARTIES WERE OF CUSTOMIZED ITEMS REQUIRING SPECIFIC TESTING AND OTH ER REQUIREMENTS, THEREFORE, ENTAILING HIGHER COST AND HIGHER PRICE, AS AGAINST GENERAL ITEMS HAD SOLD TO M/S KIT O FASTNERS. THE ASSESSEE ALSO CONTENDED THAT THE MET HOD USED BY THE ASSESSING OFFICER WAS FLAWED BECAUSE SA LES MADE TO M/S KITO FASTNERS WAS BULK IN COMPARISON TO THE SALES MADE TO OUTSIDE PARTIES. BESIDES, THE ASSESSE E POINTED OUT ITEM-WISE VARIOUS FLAWS IN THE CALCULAT ION MADE BY THE ASSESSING OFFICER IN THE FIGURE OF SUPP RESSED SALES. 7. AS REGARDS THE SUPPRESSED SALES ATTRIBUTED TO BOLTS AMOUNTING OF RS.11,04,987/-,THE ASSESSEE POIN TED OUT THAT THE DIFFERENCE BETWEEN THE SALES MADE TO O UTSIDE PARTIES AND M/S KITO FASTNERS WAS ON ACCOUNT OF THE FACT THAT MAJOR SALES TO OUTSIDE PARTIES WERE OF CUSTOMI ZED BOLTS MADE AFTER TESTING AND HENCE INCURRED ADDITI ONAL COST. THE ASSESSEE FILED EVIDENCE OF THE FACT OF T ESTING THE BOLTS BEFORE SELLING THEM TO THE OUTSIDE PARTIES IN THE FORM OF FEW SAMPLES TEST CERTIFICATES . FURTHER THE ASS ESSEE 5 CONTENDED THAT MAJOR SALES MADE TO M/S KITO FASTNER S WAS AT COMPARABLE RATE AS COMPARED TO OUTSIDE PARTIES. FURTHER, THE ASSESSEE REWORKED THE CALCULATION OF T HE AVERAGE RATE OF SALE PRICE MADE TO M/S KITO FASTNER S AND OTHER PARTIES AND POINTED OUT THAT THERE WAS ONLY M INOR DIFFERENCE OF RS.1.50 ON ACCOUNT OF THE SAME. 8. AS REGARDS NUTS SOLD, THE ASSESSEE SUBMITTED THAT THE NUTS SOLD TO OUTSIDE PARTIES WERE IN ASSEM BLED FORM WHICH WERE CUSTOMIZED, AS COMPARED TO THE NUT S SOLD M/S KITO FASTNERS, WHICH WERE ORDINARY NUTS. FURTHER, NUTS SOLD TO OUTSIDE PARTIES WERE AS PER T HE SPECIFICATION OF THE CUSTOMERS AND IN CERTAIN CASES THEY WERE TESTED ON THE REQUEST OF THE OUTSIDE PARTIES. COPIES OF THE TEST REPORTS WAS FILED AS EVIDENCE BY THE ASSESSEE. FURTHER, THE ASSESSEE SUBMITTED THAT THERE WAS A GR EAT VARIATION IN THE PRICE AT WHICH NUTS WERE SOLD TO O THER PARTIES. IN VIEW OF THE ABOVE FACTS, THE ASSESSEE SUBMITTED THAT THE PRICE AT WHICH NUTS WERE SOLD TO M/S KITO FASTNERS COULD NOT BE COMPARED WITH THE PRICE AT WHICH THEY WERE SOLD TO OTHER PARTIES. 9. AS REGARDS SUPPRESSED SALES ON ACCOUNT OF WASHER, THE ASSESSEE SUBMITTED THAT ONLY ONE ITEM O F SALE WAS INCURRED WITH M/S KITO FASTNERS WHICH COULD NOT BE COMPARED WITH NUMEROUS TRANSACTIONS MADE WITH OTHER PARTIES. 6 10. AS REGARDS SALE OF THREADS, THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER HAD COMPARED T HE RATE AT WHICH THE SALE WAS MADE TO M/S KITO FASTNER S WITH THE RATE OF THREAD AS PER THE CLOSING STOCK, AND TH IS, THE ASSESSEE SUBMITTED, WAS AT VARIANCE WITH THE METHOD ADOPTED IN THE CASE OF OTHER PRODUCTS BY THE AO. E VEN OTHERWISE, IT WAS SUBMITTED THAT THE RATES WERE NOT COMPARABLE ON ACCOUNT OF DIFFERENCE IN THE QUALITY OF THREAD MANUFACTURED WHICH WAS GENERAL PURPOSE THREA D IN THE CASE OF M/S KITO FASTNERS AND SPECIFIC PURPOSE TO THE OUTSIDE PARTIES. THUS, THE ASSESSEE SUBMITTED THAT NO COMPARABLE ANALYSIS COULD BE DONE IN THE CASE OF TH READS ALSO. 11. THE SUBMISSIONS OF THE ASSESSEE WERE SENT TO T HE ASSESSING OFFICER FOR HIS COMMENTS, WHO FILED HIS R EPLY REPRODUCED AT PARA 4.2 OF THE CIT (APPEALS)S ORDER , IN WHICH HE STATED THAT THE SUBMISSIONS OF THE ASSESSE E THAT M/S KITO FASTNERS WAS NOT THE SISTER CONCERN OF THE ASSESSEE WAS INCORRECT AND POINTED OUT TO THE AUDIT REPORT OF THE ASSESSEE WHICH STATED OTHERWISE. THE ASSESSEE COUNTERED IN HIS REPLY BY STATING THAT THE SALE TRANSACTIONS ARE NOT COVERED UNDER SECTION 40(A)(2) (B) OF THE ACT AND, THEREFORE, THE ADDITION MADE IN ANY CA SE WAS UNJUSTIFIED. MOREOVER, THE ASSESSEE POINTED OUT TH AT NO SPECIFIC DEFECTS HAD BEEN POINTED OUT IN THE BOOKS OF THE ASSESSEE, NOR BOOKS BEEN REJECTED BY THE ASSESSING OFFICER AND THEREFORE ALSO THE ADDITION COULD NOT HAVE BEEN MADE. 7 12. THE CIT (APPEALS) AFTER CONSIDERING THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE HIM, ALLOWED ASSESSEES APPEAL BY STATING THAT THE IMPUGNED TRANSACTION OF SALE WAS NOT COVERED UNDER THE PROVI SIONS OF SECTION 40A(2)(B) OF THE ACT AND FURTHER THAT TH E ASSESSEE HAD FILED VARIOUS EVIDENCES AND JUSTIFICAT ION IN SUPPORT OF THE RATE AT WHICH SALES WERE MADE TO M/S KITO FASTNERS WHICH HAD NOT BEEN DULY CONSIDERED BY THE ASSESSING OFFICER. THE RELEVANT FINDINGS OF THE CI T (APPEALS) AT PARA 4.4 OF THE ORDER ARE REPRODUCED HEREUNDER : 4.4 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE AND SUBMISSIONS OF THE AR. ASSESSEE AS NOTED IN THE ASS ESSMENT ORDER IS ENGAGED IN THE BUSINESS OF MANUFACTURING O F FASTENERS AND AS STATED BY AR HAS STARTED TRADING OF THE SAME FOR THE RELEVANT ASSTT YEAR UNDER CONSIDERATION. IN THE ASS TT ORDER THE AO HAS NOTED THAT DURING THE YEAR UNDER CONSIDE RATION, THE ASSESSEE HAS DONE SALE OF FINISHED GOODS TO M/S KIT O FASTENERS A SISTER CONCERN AT THE RATES LOWER THAN THE RATES AT WHICH GOODS HAVE BEEN SOLD TO OTHER PARTIES. AO HAS FURTHER NOTICED THAT M/S KITO FASTERS HAS SOLD THESE GOODS TO OUTSIDE PARTIES AT RATES COMPARABLE TO DIRECT SALES BY THE AS SESSEE WITHOUT MAKING ANY VALUE ADDITION TO THE GOODS. THE ASSESSEE WAS ASKED TO SHOW CAUSE THAT WHY SUCH AN AMOUNT SHOULD NOT BE TREATED AS SUPPRESSED SALES. ASSESSEE SUBMITTED HIS DETAILED REPL Y WHICH HAS BEEN REPRODUCED BY THE AO IN THE ASSTT ORDER. HO WEVER, ASSESSING OFFICER WAS NOT SATISFIED WITH ASSESSEE'S R EPLY AND AFTER MAKING NECESSARY ADJUSTMENTS/CORRECTIONS AO H ELD THAT SALES MADE TO M/S KITO FASTENERS WAS A COLORABLE DE VICE TO SIPHON THE PROFITS OF THE ASSESSEE AND DIFFERENCE O N THIS ACCOUNT WAS CALCULATED AND ADDED TO THE INCOME OF THE A SSESSEE. THE ADDITION RS. 14,41,127/- WAS MADE AS RS. 11,04 ,897/- ON ACCOUNT OF SALE OF BOLTS, RS. 2,59,733/- ON ACCOUNT OF SALE OF NUTS, 8 RS. 642/- ON ACCOUNT OF SALE OF VASSAL AND RS.75,855/ - ON ACCOUNT OF SALE OF THREAD BAR. HOWEVER, FROM THE FACT S OF THE CASE AS DISCUSSED ABOVE AND IN THE SUBMISSIONS OF THE AR, AND AS ALSO NOTED IN THE VARIOUS DETAILS FILED, I FIND THAT AO HAS NOT CONSIDERED THE ISSUE IN THE CORRECT PERSPECTIVE. THO UGH AO HAS REFERRED TO THE FACT THAT M/S KITO FASTENERS IS A SIS TER CONCERN COVERED U/S 40A(2)(B) OF THE ACT BUT SINCE IN THIS CAS E NO PAYMENT HAS BEEN MADE TO THE SISTER CONCERN, THE PR OVISIONS OF SECTION 40A(2)(B) ARE NOT APPLICABLE. FURTHER, THE BO OKS OF ACCOUNTS OF THE APPELLANT ARE DULY AUDITED AND NO SP ECIFIC DEFECT HAS BEEN POINTED OUT BY THE AO. EVEN OTHERWISE ON MER ITS OF THE CASE, I FIND THAT THE AO HAS NOT TAKEN INTO CONSIDERA TION THE FACT THAT ITEMS MANUFACTURED BY THE ASSESSEE HAS DIFFERE NT PROPERTIES LIKE ELONGATION, TENSILE STRENGTH, CARBO N AND MAGENISE CONTENT OF STEEL, GO-NO-GO GAUGING THREAD, STANDARD/NON STANDARD PITCH OF THREAD ETC. THAT STRO NGLY AFFECT THE PRICE OF THE GOODS SOLD APPELLANT. IT ALSO APPEARS THAT AO HAS COMPLETELY IGNORED THE DETAILED REPLY FILED BY THE A SSESSEE. IT IS SEEN THAT DURING THE COURSE OF ASSTT PROCEEDINGS, ASSESSEE HAD FILED VARIOUS EVIDENCES AND JUSTIFICATION FOR DIF FERENCE IN RATES FOR SALES MADE TO M/S KITO FASTENERS AND TO OTHER PA RTIES. ASSESSEE HAS EXPLAINED THERE ARE LOT OF DIFFERENCES IN THE PRODUCTS WHICH ARE SOLD IN THE MARKET WITH THAT OF T HE PRODUCTS WHICH ARE SOLD TO M/S KITO FASTENERS. THE PRODUCTS WH ICH ARE SOLD TO OTHER PARTIES ARE OF STANDARD SPECIFICATION AND ARE NOT READILY AVAILABLE IN THE MARKET. FURTHER, THE ASSESSEE HAS GIVEN EXPLANATION WITH RE GARD TO EACH PRODUCT. REGARDING SALE OF BOLTS/ NUT, ASSESSE E HAS FURNISHED TESTING CERTIFICATES WITH REGARD TO SALES MADE TO OUTSIDE PARTIES. THE PRODUCTS SOLD TO OUTSIDE PARTI ES ARE TESTED AND INCURS ADDITIONAL COST. THE ID. AR HAS ALSO BROUG HT MY INTENTION TO THE FACT THAT AO HAS ALSO WRONGLY COMP ARED THE RATES FOR SALES MADE TO OUTSIDE PARTIES AND FOR THE SALES MADE TO M/S KITO FASTNERS BY ADDING QUANTITY OF 109050 U NITS OF BOLT SOLD TO M/S KITO FASTNERS IN THE ANNEXURE B-L WHICH IS PREPARED FOR DERIVING THE AVERAGE SALE RATE FOR THE PRODUCTS SOLD 9 TO OUTSIDE PARTIES. REGARDING SALE OF NUTS, AO HAS WRONGLY COMPARED THE NUTS AS IN ANNEXURE A-1 AND THAT OF NU TS IN THE ASSEMBLE FORM AS IN ANNEXURE B-1. FURTHER, THE EXPL ANATION IN THIS REGARD IN THE FORM OF LAB AND TESTING ANALYSIS REPORT HAS NOT BEEN CONSIDERED BY THE AO. AO HAS ALSO IGNORE D THE FACT THAT QUANTITY SOLD TO M/S KITO FASTENERS IS MEANT O NLY FOR HARDWARE PURPOSES AND NOT FOR ANY SPECIFIC PURPOSE. REGARDING THE SALE OF WASHER, THE AO HAS WRONGLY COM PARED ONE ODD TRANSACTION OF SALE TO M/S KITO FASTNERS WITH N UMEROUS TRANSACTIONS OF SALE OF WASHER TO OTHER PARTIES. REGARDING THE SALE OF THREADS, THE AO HAS COMPARED T HE AVERAGE RATE OF SALE TO M/S KITO FASTENERS WITH THE RATE OF THREAD BAR AS PER CLOSING STOCK. THUS, THE AO HAS FOLL OWED DIFFERENT METHOD OF COMPARISON WHILE MAKING THE ADDITION IN TH E CASE OF THREAD BAR. FURTHER THE FACT THAT QUALITY OF THREAD BAR DEPENDS UPON THE APPLICATION OF THE THREAD I.E. W HETHER IT IS USED FOR SPECIFIC INDUSTRY OR FOR HARDWARE PURPOSE HA S ALSO BEEN IGNORED BY THE AO. IN VIEW OF THE ABOVE, ADDITION OF RS. 14,41,127/- M ADE ON ACCOUNT OF SALES TO M/S KITO FASTENERS SEEMS TO BE ERRONEOUS . IN VIEW OF THE ABOVE AND ALSO IN VIEW OF OBSERVATION MA DE WHILE DECIDING GROUNDS OF APPEAL NO. 4 AND 5 IN THE SUCCEE DING PARAS, ADDITION OF RS. 14,41,127/- IS DELETED. 13. BEFORE US, THE LD. DR RELIED UPON THE ORDER OF THE ASSESSING OFFICER WHILE THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE ARGUMENTS MADE BEFORE THE C IT(A) AND AO ,PLACING RELIANCE ON VARIOUS DOCUMENTS AND SUBMISSIONS FILED BEFORE THEM. 14. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHO RITIES 10 BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. THE CASE OF THE REVENUE IS THAT THE ASSESSEE HAS ROUTED SALES AT LOWER RATES THROUGH M/S KITO FASTENERS , A SPECIFIED CONCERN OF THE ASSESSEE AS PER SECTION 40 A(2)(B) OF THE ACT,THUS SIPHONING OFF PROFITS. WE FIND NO I NFIRMITY IN THE ORDER OF THE CIT (APPEALS) DELETING THE ADDI TION MADE OF RS.14,41,127/- ON ACCOUNT OF SUPPRESSED SAL ES. WE ARE IN COMPLETE AGREEMENT WITH THE FINDINGS OF T HE CIT (APPEALS) THAT THE IMPUGNED TRANSACTION RELATING TO SALES MADE BY THE ASSESSEE IS NOT COVERED UNDER THE PROVI SIONS OF SECTION 40A(2)(B) OF THE ACT AND FURTHER NOTE TH AT THERE IS NO OTHER SECTION IN THE INCOME TAX ACT WHICH EMP OWERS THE ASSESSING OFFICER TO SUBSTITUTE THE VALUE AT WH ICH A TRANSACTION IS UNDERTAKEN BY THE ASSESSEE, IN THE A BSENCE OF ANY FINDING REGARDING THE GENUINENESS OF THE TRANSACTION. IN THE PRESENT CASE, UNDENIABLY, THE GENUINENESS OF THE TRANSACTION WITH M/S KITO FASTNE RS HAS NOT BEEN DOUBTED BY THE ASSESSING OFFICER. THE ONL Y ISSUE OR GRIEVANCE OF THE REVENUE IS THAT THE ASSESSEE HA D UNDERTAKEN THE TRANSACTION AT LOWER PRICE AS COMPAR ED TO SIMILAR TRANSACTION UNDERTAKEN WITH OTHER PARTIES, THUS SUPPRESSING ITS PROFIT AND AVOIDING PAYMENT OF TAXE S TO THAT EXTENT. SINCE THE GENUINENESS OF THE TRANSACT ION HAS NOT BEEN IN DOUBT, IT IS NOT DISPUTED THAT THE TRAN SACTION OF SALE DID ACTUALLY TAKE PLACE WITH M/S KITO FASTN ERS. THE ONLY ISSUE, THEREFORE, IS WHETHER THE ASSESSING OFFICER COULD HAVE QUESTIONED THE RATE OR THE PRICE AT WHIC H THE TRANSACTION TOOK PLACE. IT IS SETTLED LAW THAT WHER E A 11 TRADER TRANSFERS GOODS TO ANOTHER TRADER AT A PRICE LESS THAN THE MARKET PRICE AND THE TRANSACTION IS BONAFI DE, PROFIT CANNOT BE COMPUTED BY TAKING THE MARKET PRIC E IGNORING THE REAL PRICE FETCHED, CIT VS CALCUTTA DI SCOUNT CO. LTD.(1973)91 ITR 8 (SC).MOREOVER AS STATED ABOV E, UNDER THE INCOME TAX ACT NO SUCH POWERS HAVE BEEN G IVEN TO THE REVENUE AUTHORITIES TO DETERMINE THE VALUE O F THE TRANSACTION EXCEPT UNDER SECTION 40A(2)(B) OF THE A CT, BUT THE SCOPE OF SECTION 40A(2)(B) IS LIMITED ONLY TO EXPENDITURES INCURRED AND DO NOT EXTEND TO SALE TRANSACTION. THEREFORE, WE FIND THAT THE ASSESSING OFFICER HAD NO POWER TO DETERMINE THE VALUE AT WHICH THE TRANSACTION OUGHT TO HAVE BEEN UNDERTAKEN BY THE ASSESSEE WITH M/S KITO FASTNERS AND SUBSTITUTE THE SAME FOR THE PURPOSE OF DETERMINING THE INCOME OF THE AS SESSEE FOR THE YEAR. IT IS SETTLED LAW THAT THE REVENUE O FFICERS CANNOT DICTATE THE MANNER IN WHICH THE BUSINESS IS TO BE RUN BY THE ASSESSEE, IN THE COURSE OF CARRYING OUT THEIR DUTIES OF DETERMINING TAXABLE INCOME OF THE ASSESSE E. THIS PROPOSITION HAS BEEN REITERATED BY THE HON'BLE SUPREME COURT IN A NUMBER OF DECISIONS I.E. HERO CY CLES (P) LTD. VS. CIT IN CIVIL APPEAL NO . 514 OF 2008, CIT VS . WALCHAND & CO. (P) LTD. (1967) 65 ITR 381(SC) AND J .K. WOOLLEN MANUFACTURERS [1969] 72 ITR 612 (SC). IN V IEW OF THE ABOVE, WE HOLD THAT THE ASSESSING OFFICER HAD NO JURISDICTION TO SUBSTITUTE THE SALE VALUE SHOWN BY THE ASSESSEE ON ACCOUNT OF SALES MADE TO M/S KITO FASTN ERS AND ADDITION MADE ON ACCOUNT OF SUPPRESSED SALES IS 12 LIABLE TO BE DELETED ON THIS ACCOUNT ALONE. BUT HA VING SAID SO, WE MAY ALSO ADD THAT THE LD. CIT (APPEALS) HAS RIGHTLY POINTED OUT THAT THE ASSESSEE HAD FILED DET AILED EXPLANATION REGARDING THE VARIATION IN SALE PRICE O F DIFFERENT ITEMS VIS-S-VIS M/S KITO FASTNERS AND OTH ER PARTIES, ALONGWITH EVIDENCE IN SUPPORT OF ITS CONTE NTION, WHICH THE ASSESSING OFFICER HAS COMPLETELY IGNORED. AS POINTED OUT BY THE LD. CIT (APPEALS), THE ASSESSING OFFICER HAS NOT TAKEN INTO CONSIDERATION THE FACTS THAT ITE MS MANUFACTURED BY THE ASSESSEE HAD DIFFERENT PROPERTI ES LIKE ELONGATION, TENSILE STRENGTH, CARBON AND MANGANISE CONTENT OF STEEL, ETC., WHICH STRONGLY AFFECT THE P RICE OF THE GOODS SOLD BY THE ASSESSEE. THE ASSESSING OFFI CER HAS ALSO NOT CONSIDERED THE FACT THAT THE GOODS SOLD TO OTHER PARTIES WERE OF STANDARD SPECIFICATION NOT READILY AVAILABLE IN THE MARKET WHICH REQUIRED ADDITIONAL COST ON ACC OUNT OF THE SAME AND THUS HIGHER PRICE OF SALE. THE ASS ESSING OFFICER HAS ALSO NOT CONSIDERED THE SUBMISSIONS OF THE ASSESSEE WITH REGARD TO THE MISTAKE IN CALCULATION OF DIFFERENCE BETWEEN THE PRICE OF NUTS SOLD TO M/S KI TO FASTNERS AND THAT SOLD TO OUTSIDE PARTIES. IN VIEW OF THE SAME, EVEN ON MERITS, THERE IS NO CASE FOR HOLDING THAT THE SALES MADE TO M/S KITO FASTNERS WERE AT SUPPRESSED RATES AS COMPARED TO OUTSIDE PARTIES AND, THEREFORE, ALSO THE ADDITION MADE IS UNWARRANTED AND UNJUSTIFIED. 13 15. IN VIEW OF THE ABOVE, WE UPHOLD THE ORDER OF T HE CIT (APPEALS) IN DELETING THE ADDITION MADE ON ACCO UNT OF SUPPRESSED SALES AMOUNTING TO RS.14,41,127/-. 16. THIS GROUND OF APPEAL RAISED BY THE REVENUE IS , THEREFORE, DISMISSED. 17. GROUND NOS.2, 3, 4 AND 5 RAISED BY THE REVENUE AS ALSO GROUND NO.2 & 3 RAISED BY THE ASSESSEE IN I TS CROSS OBJECTION FILED IN CO NO.64/CHD/11 RELATE TO THE SAME ISSUE AND ARE THEREFORE BEING DEALT TOGETHER. 18. BRIEF FACTS RELATING TO THE ISSUE ARE THAT DUR ING THE IMPUGNED ASSESSMENT YEAR THE ASSESSEE HAD SOLD A PLANT COMPRISING OF AROUND 59 OLD MACHINERY IN RUNN ING CONDITION ALONWITH THE SEMI FINISHED RAW MATERIAL, WHICH WERE INSIDE THE MACHINERY AT THE TIME OF SALE OF TH E PLANT. THE SAID PLANT WAS SOLD ON THE BASIS OF AGREEMENT O F SALE ENTERED INTO WITH SHRI TARSEM LAL S/O SHRI SANT RAM . THE SAID AGREEMENT WAS DULY NOTARIZED. AS PER THE AGREEMENT OF SALE, SALE PRICE OF MACHINERY WAS RS.17,11,458/- AND THE SALE OF SEMI FINISHED RAW MA TERIAL INSIDE THE MACHINE WAS RS.37,01,656/-. HOWEVER, T HE ASSESSING OFFICER DOUBTED THE AUTHENTICITY OF THIS AGREEMENT ON THE BASIS OF REASONING GIVEN IN THE ASSESSMENT ORDER AND ACCORDINGLY, CONCLUDED THAT TH E ASSESSEE HAD NOT ACTUALLY SOLD ANY QUANTITY OF STOC K WITH THE PLANT BUT HAD IN FACT, SOLD FINISHED GOODS TO T HE TUNE OF RS.282839.456 KGS AT AN AVERAGE RATE OF RS.36.26 PER 14 KG. OUTSIDE THE BOOKS OF ACCOUNT AND, THEREFORE, MA DE AN ADDITION OF RS.65,54,102 ON ACCOUNT OF UNEXPLAINED SALES MADE OUTSIDE THE BOOKS OF ACCOUNT. FURTHER, THE ASSESSING OFFICER HELD THAT THE ASSESSEE HAD SOLD I TS WHOLE MACHINERY AT RS.54,13,114/- AND, THEREFORE, COMPUTED SHORT TERM CAPITAL GAIN UNDER SECTION 50 O F THE INCOME TAX ACT AT RS.37,01,656/- AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. FURTHER THE ASSESSING OFFICER MADE ADDITION OF RS.4,49,121/- ON ACCOUNT OF UNDER- VALUATION OF ITS CLOSING STOCK. 19. DURING APPELLATE PROCEEDINGS, THE ASSESSEE CONTESTED ALL THE ABOVE THREE ADDITIONS MADE AND ST ATED THAT IT HAD IN FACT SOLD ITS COMPLETE PLANT WHICH W AS VERY OLD AND INCLUDED BOTH MACHINERY AS WELL THE STOCK I N PROCESS IN THE PLANT. THE ASSESSEE RELIED UPON THE NOTARIZED AGREEMENT TO SELL IN THIS REGARD, AND STA TED THAT THE ASSUMPTION OF THE ASSESSING OFFICER THAT THE AS SESSEE HAD IN FACT ONLY SOLD MACHINERY VIDE THE AGREEMENT TO SELL WAS INCORRECT AND SO ALSO THE ASSUMPTION OF THE ASS ESSING OFFICER THAT THE STOCK OF MATERIAL SHOWN AS STOCK I N PROCESS IN THE MACHINERY SOLD WAS IN FACT MANUFACTU RED AND SOLD OUTSIDE THE BOOKS OF THE ASSESSEE. THE AS SESSEE STATED THAT THE FINDINGS OF THE ASSESSING OFFICER W ERE MERE PRESUMPTIONS AND BASELESS AND THERE WAS NO REASON A T ALL FOR THE ASSESSING OFFICER TO BIFURCATE ONE CONSOLID ATED AGREEMENT TO SELL PLANT INCLUDING MACHINERY AND ST OCK INTO TWO SEPARATE TRANSACTIONS OF SALE OF MACHINERY AND 15 SALE OF FINISHED GOODS SEPARATELY. THE ASSESSEE CON TENDED THAT THE FACT THAT SEMI FINISHED GOODS WERE SOLD AL ONGWITH MACHINERY WAS VERIFIABLE FROM THE SALES TAX RETURN AND ALSO THE SALES ACCOUNT IN THE BOOKS OF THE ASSESSEE WHEREIN THE IMPUGNED SALES WERE DULY REFLECTED. TH E ASSESSEE ALSO CONTENDED THAT THERE WAS NO REASON TO DOUBT THE AGREEMENT TO SELL WHICH WAS DULY NOTARIZED AND THE NOTARY SHRI RAJINDER SINGH HAD BEEN EXAMINED BY THE ASSESSING OFFICER, BEFORE WHOM, HE HAD CONFIRMED TH AT THE SAID AGREEMENT WAS ATTESTED BY HIM IN HIS OWN HAND ON 7.11.2007 AND DULY ENTERED IN REGISTER ALSO. 20. AS REGARDS THE SALE VALUE OF MACHINERY, WHIC H WAS SUBSTITUTED BY THE ASSESSING OFFICER AT RS.54,31,114/- I.E. THE TOTAL VALUE OF THE SALE AGR EEMENT AS AGAINST RS.17,11,458/- SHOWN BY THE ASSESSEE, TH E ASSESSEE SUBMITTED THAT IN THE FIRST PLACE, THE MAC HINERY BEING OLD COULD NOT HAVE BEEN SOLD AT SUCH A HUGE P ROFIT OF RS.37,01,656/-. FURTHER THE FACT THAT THE AGREE MENT HAD BEEN DULY NOTARIZED AND THE NOTARY DULY EXAMIN ED BY THE ASSESSING OFFICER ALSO PROVED THE AUTHENTICITY OF THE SALE PRICE OF THE OLD MACHINERY. THE LD. CIT (APPEALS) AFTER CONSIDERING THE SUBMISS IONS OF THE ASSESSEE HELD THAT THE ASSESSING OFFICER WAS NO T JUSTIFIED IN IGNORING THE AGREEMENT TO SELL BETWEEN THE ASSESSEE AND SHRI TARSEM LAL WHEN THE SAID AGREEMEN T WAS NOTARIZED AND THE FACTS WERE CONFIRMED BY THE N OTARY HIMSELF. FURTHER, THE LD. CIT (APPEALS) HELD THAT THE 16 ASSESSING OFFICER HAD NO CORROBORATIVE EVIDENCE TO PROVE THAT THE SALES HAD BEEN MADE OUTSIDE THE BOOKS OF A CCOUNT OF THE ASSESSEE AND THE ALLEGATION OF THE ASSESSING OFFICER WAS A MERE PRESUMPTION. FURTHER, THE LD. CIT (APPE ALS) HELD THAT IF THE SUPPRESSED SALES WERE TAKEN INTO CONSIDERATION, THE GP AND NP OF THE ASSESSEE WOULD TURN OUT TO BE 17.31% AND 10.70%, WHICH WAS VERY HIGH AN D IN CONTRAST TO THE PAST HISTORY AND NATURE OF BUSINES S OF THE ASSESSEE. THE LD. CIT (APPEALS), THEREFORE, HELD T HAT THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT O F SUPPRESSED SALES AND ON ACCOUNT OF SHORT TERM CAPIT AL GAIN WAS BASED ON MERE SUSPICION AND, THEREFORE, DE LETED THE SAME. THEREAFTER THE LD. CIT (APPEALS) POINTED OUT THAT THE ASSESSEE HAD FAILED TO SATISFY THE ASSESSI NG OFFICER REGARDING THE SALE OF MACHINERY BY NOT FILI NG THE CONFIRMATION OF THE PURCHASER AND ALSO NOT PRODUCIN G HIM BEFORE THE AO. THE LD. CIT (APPEALS) ALSO POINTED OUT THAT COMPLETE DETAILS OF MACHINERY SOLD HAD NOT BEEN FIL ED BY THE ASSESSEE AS ALSO THE EVIDENCE OF BURNING LOSS. HE, THEREFORE, HELD THAT THE TRADING RESULTS OF THE ASS ESSEE WERE NOT FREE FROM DOUBT AND THEREFORE, REJECTED TH E BOOKS OF ACCOUNT OF THE ASSESSEE AND ESTIMATED THE GP OF THE ASSESSEE AT 9% AS AGAINST 7.44% SHOWN BY THE ASSESS EE, THUS UPHOLDING THE ADDITION OF RS.10,45,459/- OUT O F THE ADDITION OF RS.65,54,102/- MADE BY THE ASSESSING OF FICER. THE LD. CIT (APPEALS) FURTHER HELD THAT THE ISSUE O F ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT O F SALES TO M/S KITO FASTNERS BE ALSO TELESCOPED IN THE SAME AND 17 NO SEPARATE ADDITION BE MADE ON ACCOUNT OF IT FOR T HIS REASON ALSO. AS REGARDS THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF SALE OF MACHINERY AMOUNTING TO RS.37,01,656/- THE CIT (APPEALS) HELD THAT SINCE THE ASSESSEE COULD NOT PRODUCE THE PURCHASER SHRI TARSEM LAL, NOR FILED COMPLETE DETAILS OF MACHINERY , NOR THE CONFIRMATION OF THE PARTIES TO WHOM THE MACHINE RY WAS SOLD, HE ESTIMATED THE SALE VALUE OF THE MACHIN ERY AT RS.25 LACS AND UPHELD THE ADDITION OF RS.7,88,542/- ON ACCOUNT OF SHORT TERM CAPITAL GAIN OUT OF THE TOTAL ADDITION OF RS.37,01,656/- MADE BY THE ASSESSING OFFICER. 21. AS REGARDS THE ADDITION ON ACCOUNT OF UNDER- VALUATION OF CLOSING STOCK, THE CIT (APPEALS) DELET ED THE ADDITION SINCE HE HAD ALREADY CONFIRMED THE ADDITIO N BY APPLYING THE GP RATE OF 9% TO THE TRADING RESULTS O F THE ASSESSEE. 22. THE REVENUE BEING AGGRIEVED BY THE RELIEF GRANTED TO THE ASSESSEE BY WAY OF REDUCTION IN SHOR T TERM CAPITAL GAIN ON THE SALE OF MACHINERY, THE DELETION OF ADDITION MADE ON ACCOUNT OF UNACCOUNTED SALES AND O N ACCOUNT OF UNDERVALUATION OF CLOSING STOCK AS ALSO SUPPRESSED SALES MADE TO M/S KITO FASTENERS AND THE ESTIMATION OF G.P RATE OF THE ASSESSEES BUSINESS AT 9%, RAISED THE FOLLOWING GROUNDS BEFORE US : 2. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FAC TS IN HOLDING THAT OLD MACHINERY WAS SOLD AT RS.25,00,000/- THEREBY RED UCING THE SHORT TERM CAPITAL GAIN TO RS.7,88,542/-, WITHOUT GIVING ANY 18 REASON, WHEN THE AO HAS CLEARLY BROUGHT OUT THE FACT THAT AS PER ASSESSEE'S SALES BILL THE MACHINERY WAS SOLD AT RS. 54,13,114/- AND THAT NO DOCUMENTARY EVIDENCE TO THE CONTRARY WAS PRODUCED BEFORE THE AO DURING THE ASSESSMENT PRO CEEDINGS. 3. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.55,08,643/- AS AGAINST ADDITION OF R S.65.54,102/- MADE BY AO ON ACCOUNT OF UNACCOUNTED SALES WHEN THE AO HAS CORRECTLY POINTED OUT IN THE ASSESSMENT ORDER THAT THE ASSESSEE HAS MANUFACTURED AND SOLD IN MARKET GOODS WEIGHING 282839.456 KG. 4. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION ON ACCOUNT OF UNDERVALUATION OF CLOSING STO CK AT RS. 4,49,121/- WHEN THE RAW MATERIAL WAS PURCHASED BY T HE ASSESSEE AT THE AVERAGE RATE OF RS.27.22 AS POINTED OUT BY THE AO IN THE ASSESSMENT ORDER. 5. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN E STIMATING THE GP RATE OF THE ASSESSEE'S BUSINESS AT 9% AND DELETIN G THE ADDITION MADE BY AO ON ACCOUNT OF SALES MADE TO M/S KITO FASTNERS ON LOW RATE, UNACCOUNTED SALES AND UNDER V ALUATION OF CLOSING STOCK. 23. WHILE THE ASSESSEE, AGGRIEVED ON ACCOUNT OF SUSTAINING THE ADDITION OF RS.10,45,459/-BY APPLICA TION OF G.P RATE OF 9% AS AGAINST 7.44% SHOWN BY THE ASSESS EE AS ALSO THE ADDITION OF RS.7,88,542/- ON ACCOUNT OF SH ORT TERM CAPITAL GAIN ON SALE OF MACHINERY, RAISED THE FOLLOWING GROUNDS IN ITS CROSS OBJECTION : 2. THAT THE LEARNED CIT(A)-I, LUDHIANA HAS ERRED IN N OT DELETING THE ENTIRE ADDITION OF RS.65,54,102/- AS MADE BY THE ASSES SING OFFICER AND SUSTAINING A PART ADDITION OF RS. 10,45,45 9/- BY APPLYING GROSS PROFIT @ 9% AGAINST THE GROSS PROFIT @ 7.44% AS SHOWN BY THE ASSESSEE. 19 3. THAT THE LEARNED CIT(A)-I, LUDHIANA HAS ALSO ERRED IN SUSTAINING AN ADDITION OF RS. 7,88,542/- ON ACCOUNT OF SHORT TERM CAPITAL GAIN BY ESTIMATING THE SALE VALUE OF MACHINERY @ RS. 25 LAC S AND WHICH ADDITION HAS BEEN MADE AGAINST THE FACTS AND CIRCUMSTANCES OF THE CASE. 24. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSE E REITERATED THE CONTENTIONS MADE BEFORE THE LD. CIT (APPEALS) AND STATED THAT THE ASSESSEE HAD AS A MAT TER OF FACT SOLD ITS OLD RUNNING MACHINERIES ALONG WITH ST OCK EMBEDDED IN IT, WHICH IS EVIDENT FROM THE AGREEMEN T TO SELL DULY NOTARIZED AND THERE WAS NO REASON FOR THE ASSESSING OFFICER TO PRESUME THAT ONLY MACHINERIES HAD BEEN SOLD VIDE AGREEMENT TO SELL, WHILE THE QUANTIT Y OF STOCK MENTIONED THEREIN HAD IN FACT BEEN MANUFACTUR ED AND SOLD OUTSIDE THE BOOKS. THE LEARNED COUNSEL FO R THE ASSESSEE STATED THAT IN THE FIRST PLACE THE AGREEME NT TO SELL CANNOT BE DOUBTED AS RIGHTLY HELD BY THE CIT ( APPEALS) ALSO SINCE THE NOTARY HAD CONFIRMED THE RECORDING O F THE AGREEMENT IN HIS OWN HANDS AND REFLECTED THE SAME IN THE REGISTER MAINTAINED BY HIM, WHICH HAD BEEN DEMONSTR ATED TO THE ASSESSING OFFICER ALSO. SINCE THE AGREEMENT COULD NOT BE DOUBTED, THERE WAS NO QUESTION OF TREATING T HE SALES OF MACHINERIES AND STOCKS SEPARATELY. THE LE ARNED COUNSEL FOR THE ASSESSEE FURTHER STATED THAT EVEN OTHERWISE, THE ASSESSEE HAD REFLECTED THE SALE OF S TOCKS IN PROCESS, BOTH IN ITS BOOKS OF ACCOUNT AND IN THE SA LES TAX RETURN AND, THEREFORE, ALSO THE ASSESSING OFFICER COULD NOT HAVE MADE SEPARATE ADDITION ON ACCOUNT OF THE S AME. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT FOR 20 THE ABOVE REASONS, THE SALE PRICE OF THE MACHINERIE S COULD NO HAVE BEEN SUBSTITUTED AT RS.54,13,114/- AS ALSO FOR THE REASON THAT THE ASSESSEE HAD DULY DISCLOSED SALE PR ICE IN ITS BOOKS OF ACCOUNT. 25. THE LD. DR, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE ASSESSING OFFICER. 26. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHO RITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. 27. THE ISSUE BEFORE US CAN BE CRYSTALLIZED AS FOLLOWS : I) WHETHER THE GENUINENESS OF THE AGREEMENT TO SELL WAS ESTABLISHED AND THUS THE VERACITY OF THE TRANSACTION OF SALE OF MACHINERIES ALONGWITH STOCK- IN-PROCESS WEIGHING 24677.066 KGS, AT RS.54,13,114/-. II) IF THE ANSWER TO THE ABOVE IS IN THE NEGATIVE, WAS THE ESTIMATION OF GP RATE @ 9% REASONABLE, CONSIDERING THE PAST HISTORY OF THE ASSESSEE. III) IF THE ANSWER TO (I) ABOVE IS IN THE AFFIRMATI VE, COULD THE BOOKS OF ACCOUNT OF THE ASSESSEE, STILL B E REJECTED AND GP ESTIMATED. 28. COMING TO THE FIRST ISSUE, THE CASE OF THE LD . COUNSEL FOR THE ASSESSEE IS THAT THE AUTHENTICITY O F THE 21 AGREEMENT TO SELL WAS ESTABLISHED ON THE BASIS OF THE FACT THAT THE SAID AGREEMENT WAS DULY NOTARIZED AND THE FACTS WERE DULY CONFIRMED BY THE NOTARY HIMSELF WHO PRODU CED THE REGISTER REFLECTING THE NOTING OF THE AGREEMENT AND WHOSE STATEMENT WAS ALSO RECORDED BY THE AO. LD. CO UNSEL POINTED PUT THAT NO DEFECTS WERE POINTED OUT BY THE AO. MOREOVER THE AO ALSO GOT VERIFICATION DONE FROM HANDWRITING EXPERT WHO GAVE NO ADVERSE VIEW IN HIS REPORT. THE LD. COUNSEL POINTED OUT THAT THE CIT (APPEALS) HAD RIGHTLY POINTED OUT THAT ONLY SUSPICI ON WHICH THE ASSESSING OFFICER HAD WAS REGARDING THE U SE OF SAME STAMP BUT THAT WAS NOT REASONABLE ENOUGH BASIS FOR REJECTING THE DOCUMENT TO SELL SINCE THE STAMPS ARE COMPUTERIZED AND IT CANNOT BE SAID THAT THE DOCUMEN TS HAD BEEN STAMPED SUBSEQUENTLY. LD.COUNSEL SUBMITTED THAT WHEN THE NOTARY HIMSELF HAD CONFIRMED IN HIS STATEMENT THAT THE ENTRY WAS MADE IN HIS OWN HANDS AND THE REGISTER WAS ALSO PRODUCED BEFORE THE ASSESSING OFFICER SHOWING THE PARTICULAR ENTRY IN THE CASE OF THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS THE AUTHENTICITY OF THE DOCUMENT COULD NOT BE DOUBTED. LD. DR ON THE OTHER HAND WE FIND HAS NOT CONTROVERTED T HESE FACTS. IN SUCH CIRCUMSTANCES WE CONCUR WITH THE CIT (A) THAT THE AGREEMENT TO SELL CANNOT BE IGNORED. 29. HAVING SAID SO WE FIND THAT THE CASE OF THE REVENUE FOR MAKING ADDITION ON ACCOUNT OF SALES OUT SIDE THE BOOKS AND CAPITAL GAIN IS THAT THE ASSESSEES 22 EXPLANATION OF HAVING SOLD THE SAME AS STOCK-IN-PRO CESS ALONGWITH MACHINERIES WAS EVIDENCED ONLY BY THE AGREEMENT TO SELL WITH SHRI TARSEM LAL, WHO WAS NOT PRODUCED NOR DID HE RESPOND TO SUMMONS UNDER SECTIO N 131 OF THE ACT TO ESTABLISH THE VERACITY OF THE DOC UMENT. AS PER THE REVENUE THE ASSESSEE DID NOT PRODUCE THE REGISTER OF RAW MATERIAL AND FINISHED GOODS TO SUBS TANTIATE ITS CLAIM OF STOCK-IN-PROCESS, NOR DID HE FILE CONF IRMATION OF PARTIES TO THE EFFECT THAT MATERIAL WAS RECEIVED BY THEM ALONGWITH MACHINERIES. THE LD.DR ALSO STATED THAT CONSIDERING THE MANUFACTURING PROCESS SUCH LARGE QUANTITY OF STOCK COULD NOT HAVE BEEN IN PROCESS. 30. WE FIND THAT HAVING ACCEPTED THE VERACITY OF T HE AGREEMENT, THE FACT REMAINS THAT THE ASSESSEE HAD E NTERED INTO A VALID AGREEMENT TO SELL THE MACHINERIES ALON GWITH STOCK-IN-PROCESS. FURTHER, UNDISPUTEDLY, THE ASSES SEE HAS REFLECTED THE SALE OF MACHINERIES AND STOCK-IN-PROC ESS IN SEPARATE ACCOUNTS I.E. MACHINERY ACCOUNT AND SALE O F MANUFACTURED GOODS ACCOUNT IN ITS BOOKS OF ACCOUNT. THE SALE OF STOCK IN PROCESS HAS ALSO BEEN UNDENIABLY REFLECTED IN THE SALES TAX RETURN . THUS, THE VERA CITY OF THE AGREEMENT AS ALSO THE VALUE OF MACHINERIES AND STOCK- IN-PROCESS SOLD STANDS ESTABLISHED. ALL THE ARGUME NTS OF THE REVENUE ARE ONLY EXPRESSIONS OF DOUBTS OVER THE VERACITY OF THE AGREEMENT TO SELL, WHICH HAVING BEE N PROVED BY THE STATEMENT OF THE NOTARY AND THE INCLU SION OF THE AGREEMENT IN THE REGISTER OF THE NOTARY, HAVE N O 23 MEANING/MERIT AT ALL. IT IS NOT THE CASE OF THE RE VENUE THAT THE AVERMENTS OF THE NOTARY WERE FOUND TO BE F ALSE. IN SUCH CIRCUMSTANCES, THE AGREEMENT TO SELL HAVING BEEN ESTABLISHED TO BE GENUINE, THE CONTENT OF THE SAME HAVE TO ACCEPTED IN TOTO. THE REVENUE, ON THE OTHER HAND, WE FIND, HAS ACCEPTED THE AGREEMENT VIS A VIS ONLY TH E SALE OF THE MACHINERIES THAT TOO TO THE EXTENT OF THE ENTIR E SALE VALUE STATED THEREIN, AND REJECTED THE SALE OF STOC K-IN- PROCESS SHOWN THEREIN. THE REVENUE CANNOT BLOW HOT AND COLD AT THE SAME TIME ACCEPTING PART OF THE AGREEME NT AND REJECTING THE REST AS PER ITS CONVENIENCE. 31. THEREFORE ON THE FIRST ISSUE BEFORE US WE HOLD THAT THE GENUINENESS OF THE AGREEMENT TO SELL HAS B EEN ESTABLISHED AND SO ALSO THE FACT STATED THEREIN OF SALE OF MACHINERY ALONGWITH STOCK IN PROCESS AT THE VALUES AGREED UPON. 32. HAVING ACCEPTED THE SALE OF STOCK-IN-PROCESS ALONGWITH MACHINERIES, WE FIND NO REASON TO REJECT THE BOOKS OF THE ASSESSEE AND ESTIMATE THE GP. THE NON - CONFIRMATION BY PURCHASE OF MACHINERIES, NON-PRODUC TION OF TARSEM LAL, & THE NON-FILING OF DETAILS OF MACHI NERIES SOLD, ALL BEING POINTERS TO THE IN-GENUINENESS OF THE TRANSACTION OF SALE OF MACHINERIES WITH STOCK-IN-PR OCESS AND THE SAME HAVING BEEN ACCEPTED, THE AFORESAID SHORTCOMINGS CANNOT BE SAID TO MAKE THE RESULTS DEC LARED BY THE ASSESSEE AS UNREASONABLE AND THEREFORE, REJE CT THE 24 BOOKS AND ESTIMATE THE GP. THEREFORE, ISSUE NO. 2 IS ANSWERED IN FAVOUR OF THE ASSESSEE. 33. SINCE THE AGREEMENT HAS BEEN HELD TO BE GENUINE, ISSUE NO.3 NEED NOT BE ADDRESSED BY US. 34. IN VIEW OF THE ABOVE, WE HOLD THAT THE AGREEME NT TO SELL MACHINERIES ALONGWITH STOCK-IN-PROCESS IS G ENUINE AND ACCORDINGLY THE DIFFERENCE IN GOODS SOLD BOTH V ALUE- WISE AS WELL AS QUANTITY-WISE STANDS EXPLAINED AND THERE IS NO REASON TO MAKE ANY ADDITION ON ACCOUNT OF SAL ES MADE OUTSIDE THE BOOKS OF THE ASSESSEE. FOR THE SA ME REASON, WE HOLD THAT THE SALE VALUE OF MACHINERIES CANNOT BE TAKEN AT ANY OTHER FIGURE EXCEPT THAT REFLECTED IN THE AGREEMENT. THE REJECTION OF BOOKS OF ACCOUNT AND ESTIMATE OF GP IS ALSO HOLD TO BE INCORRECT. 35. AS FOR THE ADDITION MADE ON ACCOUNT OF UNDERVALUATION OF CLOSING STOCK AMOUNTING TO RS.4,49,121/-,THE FACTS ARE THAT THE AO FOUND THAT WHILE THE ASSESSEE HAD PURCHASED RAW MATERIAL AT AVERAGE RATE OF RS.27.22/-,IT HAD VALUED THE CLOSING STOCK OF TH E SAME AT RS.25.50/-.THE ASSESSEE CONTENDED THAT THE AVERA GE PURCHASE PRICE WITHOUT TAXES WAS RS.23.09.THE AO REJECTED THE ASSESSEES CONTENTION BY STATING THAT T HE PURCHASE ACCOUNT SHOWED PURCHASE INCLUSIVE OF TAXES AND ACCORDINGLY MADE ADDITION ON ACCOUNT OF UNDERVALUAT ION OF STOCK OF RS.4,49,121/-.LD.CIT(A) TELESCOPED THE ADD ITION IN THE GP ADDITION MADE BY HIM. 25 36. BEFORE US LD.AR REITERATED THE CONTENTIONS MAD E BEFORE THE AO WHILE THE LD. DR RELIED UPON THE ORDE R OF THE AO. 37. THE ADDITION UNDER CHALLENGE BEING ON ACCOUNT OF UNDERVALUATION OF CLOSING STOCK ,WE HOLD THE SAM E TO BE UNSUSTAINABLE SINCE VALUATIONS OF STOCKS CANNOT BE REGARDED AS SOURCE OF PROFITS AS HELD BY THE APEX C OURT IN CHAINRUP SAMPATRAM VS CIT 24 ITR 481(SC). MOREOVER THE CLOSING STOCK OF THIS YEAR IS THE OPENING STOCK OF THE NEXT YEAR, AND SINCE IT HAS NOT BEEN DEMONSTRATED BEFORE US THAT DUE EFFECT OF THE INCREASE IN VALUATION OF STO CK HAS BEEN GIVEN IN THE NEXT YEAR, WE DELETE THE ADDITION MADE. 38. THE GROUNDS OF APPEAL OF BOTH THE ASSESSEE AND REVENUE STAND ADJUDICATED ACCORDINGLY. 39. IN THE RESULT, THE APPEAL OF THE REVENUE IS DI SMISSED AND THE CROSS APPEAL OF THE ASSESSEE STANDS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (BHAVNESH SAINI) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 30 TH NOVEMBER, 2016 *RATI* COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE DR ASSISTANT REGISTRAR, ITAT, CHANDIGARH