M/S. SBASH CHANDER AGGARWAL, JALANDHAR V. ASSISTANT COMMISIONER OF INCOME TAX RANGE -II, JALANDHAR

ITA 738/ASR/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 4507 (ITAT-AMRITSAR)
• Duration Of Justice: 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-10-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 06-12-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: GAUTAM DEB
• Assessee Lawyers: J S BHASIN
• Keywords: Question of law
• Section: 143(3); 133A; 145

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR. BEFORE SH. SANJAY ARORA, ACCOUNTANT MEMBER AND SH. N. K. CHOUDHRY, JUDICIAL MEMBER I. T. A. NOS. 738 & 739/(ASR)/2017 ASSESSME NT YEARS: 2009-10 & 2010-11 SUBHASH CHANDER AGGARWAL, PROP. M/S. PRABH DAYAL OM PARKASH, 157, GULAB DEVI HOSPITAL ROAD, JALANDHAR [PAN: AAKPA 7004L] VS. ASSTT. C. I. T., RANGE-II, JALANDHAR (APPELLANT) (RESPONDENT) APPELLANT BY : SH. J. S. BHASIN (ADV.) RESPONDENT BY: SH. GAUTAM DEB (D.R.) DATE OF HEARING: 31.07.2018 DATE OF PRONOUNCEMENT: 29.10.2018 ORDER PER SANJAY ARORA, AM: THIS IS A SET OF TWO APPEALS BY THE ASSESSEE DIRECT ED AGAINST THE SEPARATE ORDERS BY THE COMMISSIONER OF INCOME TAX (APPEALS)- 1, JALANDHAR (CIT (A) FOR SHORT) OF EVEN DATE (30.10.2017), PARTLY ALLOWING T HE ASSESSEES APPEAL CONTESTING HIS ASSESSMENTS U/S. 143(3) OF THE INCOME TAX ACT, 1961, ('THE ACT' HEREINAFTER) FOR ASSESSMENT YEARS (AYS.) 2009-10 & 2010-11. 2. THE BRIEF FACTS OF THE CASE, LARGELY UNDISPUTED, ARE THAT THE ASSESSEES PROPRIETARY BUSINESS (IN THE NAME, INSTEAD OF M/S. PRABH DAYAL OM PRAKASH) WAS SUBJECT TO SURVEY PROCEEDINGS UNDER SECTION 133A OF THE ACT ON 22/2/2008, WHEREAT AN INCOME DISCLOSURE FOR RS. 100 LACS, INCLUDING ON ACCOUNT OF UNEXPLAINED ITA NOS. 738 & 739/ASR/2017 (AYS 2009-10 & 2010-11) SUBHASH CHAND ER AGGARWAL V. ASSTT. CIT 2 (EXCESS) STOCK (AT RS. 41 LACS), WAS MADE. THE YEAR S UNDER REFERENCE ARE THE FOLLOWING TWO YEARS, FOR WHICH THE ASSESSEES ACCOU NTS DISCLOSE A GROSS PROFIT (TRADING MARGIN) OF 3.87 % AND 3.93 % RESPECTIVELY , I.E., IN CONFORMITY WITH THAT FOR THE PRECEDING YEARS, FOR WHICH THE DISCLOSED GR OSS PROFIT (GP) RATE VARIES IN THE RANGE OF 3.8% TO 3.85% (ON TRADING IN PIPES). THE T RADING RESULTS FOR THE PRECEDING AS WELL AS THE CURRENT YEARS IS REPRODUCED AS UNDER FOR READY REFERENCE: A. Y. TOTAL TURNOVER GROSS PROFIT GPR % A. Y. TOTAL TURNOVER GROSS PROFIT GPR % PIPES CHINA-WARES 2008-09 443310404 17067433 3.85 2008-09 - - - 2009-10 480865688 18609491 3.87 2009-10 1839027 147155 8.00 2010-11 546741404 21538594 3.93 2010-11 10072514 805801 8.00 2011-12 4.0.0 2011-12 166,70014 849162 5.09 2012-13 589667975 25776386 4.37 2012-13 19380605 969053 5.00 2013-14 604006516 26535093 4.39 2013-14 26046928 1302427 5.00 THE ASSESSEE, IN THE BUSINESS OF TRADING IN CHINAWA RE AND PIPES, I.E., APART FROM SUBMERSIBLE PUMPS, WAS FOUND NOT TO BE MAINTAINING ANY STOCK RECORDS, STATED TO BE NOT PRACTICAL IN VIEW OF THE LARGE NUMBER OF ITE MS, WITH EACH HAVING ITS OWN SET OF SIZES AND DIMENSIONS. THE ASSESSEES TRADING RES ULTS WERE, IN THE ABSENCE THEREOF, FOUND NOT VERIFIABLE. THE ASSESSEES ACCOU NTS, BEING REGARDED AS NOT CORRECT OR COMPLETE, THE ASSESSING OFFICER (AO) DIS REGARDED THE ASSESSEES TRADING RESULTS OF THE PIPE BUSINESS, RELYING ON THE DECISI ONS IN, INTER ALIA, CIT V. BRITISH PAINTS INDIA LTD .[1991] 188 ITR 44 (SC); INVESTMENT LTD. V. CIT [1970] 77 ITR 533 (SC); S.N. NAMASIVAYAM CHETTIAR V. CIT [1960] 38 ITR 579 (SC); BOMBAY CYCLE STORES CO. LTD. V. CIT [1958] 33 ITR 13 (BOM); GHANSHYAMDAS PERMANAND V. CIT [1952] 21 ITR 79 (NAG.); AND RATANLAL OMPRAKASH V. CIT [1981] 132 ITR ITA NOS. 738 & 739/ASR/2017 (AYS 2009-10 & 2010-11) SUBHASH CHAND ER AGGARWAL V. ASSTT. CIT 3 640 (ORI). ALSO NOTING THEIR RATIO, AND MADE AN A DDITION FOR RS. 5 LACS AND RS. 4.5 LACS (FOR EACH OF THE TWO YEARS UNDER REFERENCE RES PECTIVELY) TO THE DECLARED GROSS PROFIT, WHICH STOOD CONFIRMED IN APPEAL FOR THE SAM E REASON/S. AGGRIEVED, THE ASSESSEE IS IN SECOND APPEAL. 3. BEFORE US, THE ASSESSEES PRINCIPAL CONTENTION, RELYING ON THE DECISIONS IN CIT V. OM OVERSEAS [2009] 315 ITR 185 (P&H) AND CIT V. LUDHIANA STEEL ROLL MILLS [2007] 295 ITR 111 (P&H), WAS THAT NO SPECIFIC DEF ECT HAD BEEN POINTED OUT BY THE AO IN REJECTING THE ASSESSEES BOOKS OF ACCO UNT, SO THAT THE SAID REJECTION IS NOT VALID IN LAW. ON BEING QUESTIONED BY THE BENCH ABOUT THE CORRECTNESS OF THE CLOSING STOCK, THE PRINCIPAL INGREDIENT FOR ARRIVIN G AT THE TRADING RESULTS, I.E., IN THE ABSENCE OF STOCK RECORDS, SO THAT THE SAME COULD NO T BE ASCERTAINED, AS EXPLAINED IN MANY DECISION, AS IN CHAINRUP SAMPATRAM V. CIT [1953] 24 ITR 481 (SC), THE LD. COUNSEL, SH. BHASIN, ADVOCATE, WOULD SUBMIT THAT, E VEN SO, REJECTION OF ACCOUNTS WOULD NOT PER SE ENTITLE THE REVENUE TO MAKE AN ADDITION, MUCH LESS AT AN ARBITRARY SUM. THAT IS, AN ADDITION IS NOT A CONCOMITANT OF R EJECTION OF ACCOUNTS, AS EXPLAINED IN CIT V. GOTAN LIME KHANIJ UDHYOG [2002] 256 ITR 243 (RAJ). THE ASSESSEES BOOK RESULTS FOR THE FOLLOWING TWO YEARS, I.E., AYS . 2012-13 AND 2013-14, HAVE BEEN ACCEPTED. MERELY BECAUSE THERE HAS BEEN A SURV EY AT THE ASSESSEES BUSINESS PREMISES (SOME TIME PRIOR TO THE FIRST YEAR UNDER R EFERENCE), WHEREAT AN UNDECLARED STOCK WHICH COULD IN FACT REPRESENT UNDISCLOSED E ARNINGS FOR MORE THAN ONE YEAR, WAS FOUND, WOULD NOT BY ITSELF IMPLY THAT AN ADDITI ON TO THE DECLARED RESULTS SHALL, FOR THE FOLLOWING PERIODS, FOLLOW AS A RESULT. THE LD. DEPARTMENTAL REPRESENTATIVE (DR) WOULD, ON THE OTHER HAND, RELY ON THE ORDERS BY THE REVENUE AUTHORITIES, STATING THAT THE ADDITION AS MADE, AS WELL AS ITS QUANTUM, IS JUSTIFIED IN THE FACTS AND CIRCUMS TANCES THE CASE. THE ASSESSMENT FOR THE CURRENT YEAR/S COULD NOT POSSIBLY BE GUIDED BY THAT FOR THE SUBSEQUENT YEARS, ITA NOS. 738 & 739/ASR/2017 (AYS 2009-10 & 2010-11) SUBHASH CHAND ER AGGARWAL V. ASSTT. CIT 4 SO THAT NOTHING TURNS ON THE ASSESSMENT FOR THE SUB SEQUENT YEARS HAVING BEEN FINALIZED WITHOUT MAKING ANY ADDITION ON TRADING AC COUNT. 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 4.1 THE RESPECTIVE CASES THE ASSESSEES CASE IS THAT HIS ACCOUNTS, NOTWITHST ANDING THE NON- MAINTENANCE OF ANY STOCK RECORDS, ARE CORRECT AND C OMPLETE, FROM WHICH THE TRUE PROFITS OF HIS BUSINESS CAN BE DEDUCED. THE REVENUE CONTESTS THIS. THE ASSESSEES ACCOUNTS, IN ITS VIEW, COULD NOT BE SAID TO BE RELI ABLE AND ARE LIABLE FOR REJECTION, I.E., IN THE FACTS AND CIRCUMSTANCES OF THE CASE. T HE LAW IN THE MATTER IS TRITE, AS EXPLAINED AND APPLIED IN SEVERAL DECISIONS, TO A NU MBER OF WHICH, IN FACT, REFERENCE STANDS MADE BY THE REVENUE (AO), TO NO REBUTTAL. TH IS IS TO BE COUPLED WITH THE FACT THAT THE ASSESSEES STOCK, UPON PHYSICAL VERIF ICATION DURING THE SURVEY PROCEEDINGS, WAS FOUND TO BE IN EXCESS THAN THAT DE TERMINED ON THE BASIS OF THE TRADING RESULTS BEING DISCLOSED BY THE ASSESSEE, AN D TOWARD WHICH, THEREFORE, THE ASSESSEE DISCLOSED AN INCOME OF RS.41 LACS AS HIS B USINESS INCOME, AND WHICH WORKS TO ABOUT 0.92% OF HIS TURNOVER FOR THE RELEVA NT ASSESSMENT YEAR, I.E., AY 2008-09 (I.E., THE PIPE BUSINESS). THE TRADING RESU LTS (ON SALE OF PIPES ), WHICH ARE THE SAME AS THAT FOR THE IMMEDIATELY PRECEDING YEAR AND, IN FACT, THE PRECEDING YEARS, THEREFORE, CANNOT BE ACCEPTED AND ARE LIABLE TO BE ESTIMATED. THE SAME STAND ESTIMATED AT AN INCREASE OF RS.5 LACS FROM THAT DEC LARED, I.E., AT RS.191.09 LACS, ON A TURNOVER OF RS.4808.66 LACS, YIELDING A GROSS PROFI T OF 3.97%, AS AGAINST A DECLARED GROSS PROFIT OF RS.186.09 LACS (AT 3.87%). THE NET PROFIT, DESPITE THE ADDITION, WORKS TO 0.61%, AS AGAINST A DECLARED NET PROFIT OF 1.51% FOR THE IMMEDIATELY PRECEDING YEAR. NO EXPLANATION FOR THE DECLINE IN T HE TRADING MARGIN, I.E., WHEN RECKONED UPON INCLUDING THE ADDITION OF RS.41 LACS ADMITTED ON BEING FOUND IN EXCESS (FOR AY 2008-09), IS ADVANCED. FOR AY 2010-1 1, THE ADDITION MADE AND ITA NOS. 738 & 739/ASR/2017 (AYS 2009-10 & 2010-11) SUBHASH CHAND ER AGGARWAL V. ASSTT. CIT 5 SUSTAINED IS AT RS.4.50 LACS, INCREASING THE GROSS MARGIN TO RS.219.89 LACS (ON A TURNOVER OF RS.5467.41), I.E., A MARGIN OF 4.02%, W HICH IS AGAIN CONSISTENT WITH THAT ASSESSED FOR THE IMMEDIATELY PRECEDING YEAR (A Y 2009-10), WITH THE ASSEESSEES DISCLOSED RESULTS BEING COMPARABLE AND INFLICTED WITH THE SAME INFIRMITY AS THAT FOR THE SAID PRECEDING YEAR. THE TRADING ADDITION FOR BOTH THE YEARS IS TO BE ACCORDINGLY UPHELD. 4.2 IT MAY BE, TO BEGIN WITH, RELEVANT TO DELINEATE THE LAW IN THE MATTER, AS EXPLAINED BY THE HIGHER COURTS OF LAW, THAT IS, QUA THE NON-ACCEPTANCE (EUPHEMISTICALLY ALSO CALLED REJECTION) OF ACCOUN TS. SECTION 145 OF THE ACT READ AS UNDER: METHOD OF ACCOUNTING. SECTION 145. (1) INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' OR 'INCOME FROM OTHER SOURCES' SHALL, S UBJECT TO THE PROVISIONS OF SUB-SECTION (2) , BE COMPUTED IN ACCORDANCE WITH EITHER CASH OR MERCA NTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. (2) THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFICI AL GAZETTE FROM TIME TO TIME ACCOUNTING STANDARDS TO BE FOLLOWED BY ANY CLASS OF ASSESSEES OR IN RESPECT OF ANY CLASS OF INCOME. (3) WHERE THE ASSESSING OFFICER IS NOT SATISFIED AB OUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, OR WHERE THE METHOD OF AC COUNTING PROVIDED IN SUB-SECTION (1) OR ACCOUNTING STANDARDS AS NOTIFIED UNDER SUB-SECTION (2), HAVE NOT BEEN REGULARLY FOLLOWED BY THE ASSESSEE, THE ASSESSING OFFICER MAY MAKE AN ASSESSM ENT IN THE MANNER PROVIDED IN SECTION 144.' CLEARLY, THEREFORE, THE REJECTION OF ACCOUNTS CAN O NLY FOLLOW A FINDING, BASED ON COGENT REASONS, THAT THE ASSESSEES ACCOUNTS ARE NO T CORRECT OR COMPLETE, SO THAT INCOME, AS A RESULT, CANNOT BE PROPERLY DEDUCED THE REFROM. THE PROVISION IS MANDATORY ( NALINIKANT AMBALAL MODY V. CIT [1966] 61 ITR 428 (SC)). IT IS NEVERTHELESS A MACHINERY PROVISION MEANT TO EFFECTU ATE THE CHARGE. IT CANNOT QUALIFY THE CHARGING SECTION, SO AS TO MAKE THE LAT TER OTIOSE, NOR CAN BE GIVEN AN OVERRIDING EFFECT SO AS TO DEFEAT THE CHARGE ( CIT V. STANDARD TRIUMPH MOTOR CO. ITA NOS. 738 & 739/ASR/2017 (AYS 2009-10 & 2010-11) SUBHASH CHAND ER AGGARWAL V. ASSTT. CIT 6 LTD . [1979] 119 ITR 573 (MAD)). THE REVENUE IS ENTITLE D TO JUDGE THE ACCOUNTS OF THE ASSESSEE EACH YEAR ON ITS MERITS. THERE IS NO Q UESTION OF ESTOPPEL IN SUCH A CASE ( JAMNA DAS RAMESHWAR DAS V. CIT [1952] 21 ITR 109 (PUNJ)). KEEPING OF A STOCK REGISTER IS OF GREAT IMPORTANCE BECAUSE THAT IS A M EANS OF VERIFYING THE ASSESSEES ACCOUNTS BY HAVING A QUANTITATIVE TALLY. IF, AFTE R TAKING INTO ACCOUNT ALL THE MATERIAL, INCLUDING WANT OF A STOCK REGISTER, IT IS FOUND THAT FROM THE METHOD OF ACCOUNTING THE CORRECT PROFITS OF THE BUSINESS ARE NOT DEDUCIBLE, THE OPERATION OF SECTION 145(3) OF THE ACT WOULD BE ATTRACTED ( S.N. NAMASIVAYAM CHETTIAR (SUPRA)). VALUATION OF CLOSING STOCK, WHICH THEREFORE INCLUDE S ITS QUANTITY AS WELL, ON WHICH THE PER UNIT IS TO APPLIED, IS INTEGRAL TO ANY ACCO UNTING PROCESS. WE MAY CONCLUDE THE DISCUSSION ON THE LEGAL ASPECT OF THE MATTER BY ALLUDING TO THE FOLLOWING OBSERVATIONS BY THE APEX COURT IN CHAINRUP SAMPATRAM (SUPRA), TO DRAW HOME THE SIGNIFICANCE OF CORRECT VALUATION OF CLOSING STOCK IN ARRIVING AT CORRECT PROFITS, AND WHICH INCLUDES THE TWIN ASPECTS OF QUANTITY AND THE PER UNIT VALUE: IT IS A MISCONCEPTION TO THINK THAT ANY PROFIT AR ISES OUT OF THE VALUATION OF THE CLOSING STOCK AND THE SITUS OF ITS ARISING OR ACCRUAL IS WHERE TH E VALUATION IS MADE. VALUATION OF UNSOLD STOCK AT THE CLOSE OF AN ACCOUNTING PERIOD IS A NEC ESSARY PART OF THE PROCESS OF DETERMINING THE TRADING RESULTS OF THAT PERIOD, AND CAN IN NO S ENSE BE REGARDED AS THE SOURCE OF SUCH PROFITS. NOR CAN THE PLACE WHERE SUCH VALUATION IS MADE BE REGARDED AS THE SITUS OF THEIR ACCRUAL. THE SOURCE OF THE PROFITS AND GAINS OF A B USINESS IS INDUBITABLY THE BUSINESS, AND THE PLACE OF THEIR ACCRUAL IS WHERE THE BUSINESS IS CAR RIED ON. AS SUCH PROFITS CAN BE CORRECTLY ASCERTAINED ACCORDING TO THE METHOD ADOPTED BY AN A SSESSEE ONLY AFTER BRINGING INTO THE TRADING ACCOUNT HIS CLOSING STOCK WHEREVER IT MAY E XIST, THE WHOLE OF THE PROFITS MUST BE TAKEN TO ACCRUE OR ARISE AT THE PLACE OF CARRYING O N THE BUSINESS. 4.3 THUS, WHILE THE ASSESSEE INSISTS ON HIS ACCOUNT S BEING, DESPITE THE NON- MAINTENANCE OF STOCK RECORDS, CORRECT AND COMPLETE, THE REVENUE EMPHASIZES ON THE PRIMACY OF THE STOCK RECORD, DRAWING FURTHER SU PPORT FROM THE FACT OF THE ASSESSEES ACCOUNTS YIELDING AN INVENTORY WHICH, ON PHYSICAL VERIFICATION, WAS FOUND TO BE FAR LOWER THAN THAT REFLECTED PER HIS A CCOUNTS, I.E., ON THE BASIS OF THE ITA NOS. 738 & 739/ASR/2017 (AYS 2009-10 & 2010-11) SUBHASH CHAND ER AGGARWAL V. ASSTT. CIT 7 TRADING MARGIN DISCLOSED THEREBY. CLEARLY, THEREFOR E, A STOCK REGISTER IS OF PRIME RELEVANCE IN FIRST DETERMINING AND, THEN, VERIFYING THE ASSESSEES TRADING RESULTS, THE ABSENCE OF WHICH THEREFORE MAKES THE SAME, I.E., TH E TRADING RESULTS, UNVERIFIABLE. THE QUESTION, VERY SIMPLY, IS, HOW HAVE THE ACCOUNT S FOR THE YEAR BEEN CLOSED, ARRIVING AT A FIGURE OF CLOSING STOCK, I.E., IN THE ABSENCE OF ANY STOCK REGISTER, WHICH ONLY WOULD GIVE A QUANTITATIVE ACCOUNT OF THE GOODS TRADED IN, BEARING DETAILS OF THE GOODS (OF EACH TYPE) BROUGHT FORWARD, BOUGHT AND SO LD DURING THE YEAR, GIVING A BALANCE, VALUATION OF WHICH, AGAIN AT COST OR MARKE T VALUE WHICHEVER IS LESS, WOULD YIELD THE VALUATION OF THE CLOSING STOCK? RAT HER, THE COST, WHICH IS GENERALLY LESS THAN THE MARKET VALUE, IS ITSELF, IN THE ABSEN CE OF A QUANTITATIVE RECORD, DIFFICULT TO ASCERTAIN IN MOST CASES. THERE IS NO EXPLANATION ? IN FACT, THE QUANTITATIVE FIGURES REFLECTED BY THE STOCK REGISTER SHOULD BE CROSS VER IFIED THROUGH PHYSICAL EXAMINATION, AS INDEED THE BUSINESS HOUSES DO AND, IN FACT, PERIODICALLY, SO AS TO CONFIRM AND VALIDATE THE BOOK FIGURE AS WELL AS ENS URE THE CORRECTNESS OF ITS ACCOUNTS AS, WITHOUT DOUBT, IT IS ONLY THE STOCK PH YSICALLY AVAILABLE THAT REPRESENTS THE ACTUAL ASSET OF THE FIRM (BUSINESS ENTITY), AND MUST THEREFORE ENTER THE ACCOUNTS. THIS IS ALSO RELEVANT AS THERE IS ALSO THE POSSIBIL ITY OF LEAKAGE, SHORTAGE, ETC. NECESSITATING PERIODIC ADJUSTMENTS, AS BY WAY OF WR ITE BACK OR WRITE OFF IN ACCOUNTS THE MINOR DIFFERENCES THAT MAY ARISE OR ARE DETERMI NED ON PHYSICAL VERIFICATION (PV). NO WONDER, PV FORMS AN ESSENTIAL PART OF THE INTERNAL CHECKS, INTEGRAL TO ANY ROBUST ACCOUNTING PROCESS. NO SUCH CHECKS ARE CLEAR LY IN PLACE. ALL THIS CONSTITUTES A SERIOUS DEFECT, PARTICULARLY CONSIDERING THAT THE RE IS NO CORROBORATIVE OR CIRCUMSTANTIAL EVIDENCE TO SUPPORT THE ASSESSEES D ISCLOSED RESULTS. THE NEXT BEST, IN THE ABSENCE OF A STOCK REGISTER, IS A QUANTITATIVE TALLY, PROVIDING, AS AN AGGREGATE FOR THE YEAR, A QUANTITA TIVE ACCOUNT FOR EACH ITEM TRADED IN. THOUGH NOT AS DETAILED AS A STOCK REGISTER, WHI CH EXHIBITS DAY TO DAY MOVEMENT, ITA NOS. 738 & 739/ASR/2017 (AYS 2009-10 & 2010-11) SUBHASH CHAND ER AGGARWAL V. ASSTT. CIT 8 IT YET PROVIDES A SOUND BASIS FOR CLOSING THE ACCOU NTS. CLEARLY, NONE OF THIS IS DONE OR MADE AVAILABLE. HOW, THEN, CAN THE ACCOUNTS BE S AID TO BE CORRECT OR COMPLETE, OR SAID TO YIELD THE CORRECT BUSINESS PROFIT/LOSS F OR THE ACCOUNTING PERIOD, WHICH IS FIXED FOR INCOME-TAX PURPOSES AS THE FINANCIAL YEAR IMMEDIATELY PRECEDING THE RELEVANT ASSESSMENT YEAR. WHEN COUPLED WITH THE FAC T THAT THE STOCK, ON PHYSICAL VERIFICATION ON 22/2/2008, I.E., SHORTLY PRIOR TO T HE COMMENCEMENT OF THE CURRENT YEAR, WAS FOUND TO BE AT AN EXCESS BY RS.41 LACS WI TH REFERENCE TO THE BOOK FIGURE DISCLOSING A GP RATE OF 3.85%, LEAVES ONE IN NO MAN NER OF ANY DOUBT THAT THE ASSESSEES GROSS PROFIT IS IN FACT HIGHER THAN THAT DISCLOSED FIGURE. THAT IS, THE SAME PROVES THE ASSESSEES ACCOUNTS TO BE NOT YIELDING T HE CORRECT OR TRUE PROFITS, ALSO IN FACT, INDICATING THE EXTENT THEREOF AND, THUS, LIAB LE TO BE REJECTED. NOTHING HAS BEEN BROUGHT ON RECORD TO REBUT THIS. SURELY, THERE CAN BE UNDER THE CIRCUMSTANCES LITTLE DOUBT THAT THE VERACITY OF THE ASSESSEES ACCOUNTS OR THE RELIABILITY OF ITS OPERATING RESULTS CANNOT BE VERIFIED OR, IN OTHER WORDS, ACCE PTED AS RELIABLE. IT MAY AT THIS STAGE BE RELEVANT TO CONSIDER THE AS SESSEES RELIANCE ON CASE LAW. IN CIT V. OM OVERSEAS [2009] 315 ITR 185 (P&H), THE REJECTION OF ACCOUNT S WAS FOUND NOT VALID AS THERE WAS, APART FROM A MARG INAL FALL IN THE PROFIT RATE, NO SPECIFIC DEFECT POINTED OUT BY THE AO, SO THAT ALL THE AUTHORITIES; THE FIRST APPELLATE AUTHORITY ONWARDS, REGARDED THE SAME AS NOT SUSTAIN ABLE. THE RAW MATERIAL CONSUMPTION IN RESPECT OF EACH ITEM PRODUCED COULD NOT BE REFLECTED IN THE ACCOUNTS AS THE PRODUCTION WAS IN PIECES OF DIFFERE NT DESIGNS AND SIZES. IN FACT THE ASSESSEE WAS A 100% EXPORT HOUSE, WITH ITS ENTIRE INCOME BEING EXEMPT, SO THAT NO PURPOSE WAS SERVED BY MAKING AN ADDITION. WE HAVE A LREADY CLARIFIED THAT THE REJECTION IS TO BE MADE WHERE ON AN OVERALL VIEW OF THE MATTER IT IS FOUND THAT THE CORRECT INCOME, I.E., THE TRUE PROFITS AND GAIN OF BUSINESS, IS NOT DEDUCIBLE FROM THE ASSESSEES ACCOUNTS. THE PRESENT CASE IS OF A TRADI NG WHERE ONE TO ONE ITA NOS. 738 & 739/ASR/2017 (AYS 2009-10 & 2010-11) SUBHASH CHAND ER AGGARWAL V. ASSTT. CIT 9 CORRESPONDENCE BETWEEN WHAT IS BOUGHT AND WHAT IS S OLD. THAT APART, THE ASSESSEE HAS NOT LED OR SHOWN ANY BASIS FOR CLOSING HIS ACCO UNTS OR EVEN OTHERWISE SOUGHT TO VALIDATE THE COST OF THE GOODS SOLD, AS REFLECTED I N HIS ACCOUNTS, IN ANY MANNER. THE MATTER IS PRIMARILY FACTUAL, EVEN AS EVIDENT FROM T HE FACT THAT THE HONBLE COURT CLARIFIED THAT NO SUBSTANTIAL QUESTION OF LAW AROSE FOR ITS DETERMINATION. THE SAID DECISION WOULD NOT BE OF ANY ASSISTANCE TO THE ASSE SSEE. IN LUDHIANA STEEL ROLL MILLS (SUPRA), THE REJECTION OF ACCOUNTS WAS REVERSED BY BOTH THE FIRST AND THE SECOND APPELLATE AUTHORITY, FINDING NO DISCREPANCY IN THE MAINTENANCE OF ACCOUNTS BY THE ASSESSEE. THE MATTER IS AGAIN BASED ON FACTU AL FINDINGS. NO PERVERSITY BEING POINTED OUT IN THE IMPUGNED ORDER, THE HONBLE COUR T DECLINED TO INTERFERE, DISMISSING THE REVENUES APPEAL. WE ARE AGAIN UNABL E TO SEE AS TO HOW ANY ASSISTANCE COULD BE DRAWN FROM THE SAID CASE IN THE INSTANT CASE. 4.4 THE NEXT QUESTION IS QUA THE PROFIT THAT IS TO BE ESTIMATED; ASSESSEES ACCOUNTS BEING DECIDEDLY NOT AMENABLE TO DEDUCING T HE CORRECT OPERATING RESULTS. IN THIS REGARD, THE DISCLOSED RESULT FOR THE PAST YEAR S MAY BE LOOKED AT, WHICH THOUGH SUFFER FROM THE SAME INFIRMITY/S. THE SAME, HOWEVER , ARE AVAILABLE ONLY FOR TRADING IN PIPES, THE CHINAWARE TRADE, AS IT APPEARS, COMME NCING ONLY IN AY 2009-10. AS PER THE CHART SUBMITTED BY THE ASSESSEE, DETAILING THE TRADING MARGIN FOR THE TWO CATEGORIES SEPARATELY ON A YEAR-WISE BASIS, THE REV ENUE HAS ACCEPTED THE TRADING MARGIN OF 8% QUA CHINAWARE. AS AFORE-NOTED, THAT FOR PIPES RANGES B ETWEEN 3.8% OT 3.85%. THE ADDITION FOR RS.41 LACS TO THE CLOSIN G STOCK, I.E., WOULD INCREASE THE GP, AS THE BALANCING FIGURE, TO 4.77% (ON THE DISCL OSED TURNOVER OF RS.4433.10 LACS). WE SAY SO AS NO MATERIAL OR EVIDENCE OF SALE OUT-OF-BOOKS WAS FOUND DURING SURVEY OR IS OTHERWISE ALLEGED BY THE REVENUE. THAT , HOWEVER, WOULD PRESUME THAT THE EXCESS INCOME OF RS.41 LACS HAS BEEN EARNED IN ITS ENTIRETY DURING THE PREVIOUS YEAR RELEVANT TO AY 2008-09. THIS MAY WELL BE TRUE, THOUGH, AT THE SAME TIME, IT ITA NOS. 738 & 739/ASR/2017 (AYS 2009-10 & 2010-11) SUBHASH CHAND ER AGGARWAL V. ASSTT. CIT 10 COULD ALSO BE THAT THE SAME REPRESENTS ACCUMULATED PROFIT FOR MORE THAN ONE ACCOUNTING PERIOD. AN INFERENCE AS TO THE LATTER GE TS REFURBISHED IN THE ABSENCE OF ANY PURCHASE AND SALE OUTSIDE BOOKS BEING FOUND, SO THAT THE PROFIT GET ACCUMULATED IN THE FIRM BY WAY OF UNDER-REPORTING O F STOCK VALUE. AGAIN, WITHOUT DOUBT, IT IS NEITHER FEASIBLE TO, GIVEN THE DATA AV AILABLE, DETERMINE THE ACCOUNTING PERIOD/S FOR WHICH THE EXCESS PROFIT PERTAINS TO NO R INDEED THE EXACT EXTENT OF THE PROFIT IN-AS-MUCH AS THIS PROFIT IS ALSO LIABLE TO BE SIPHONED OFF, SO THAT THE UNDER- VALUATION OF THE CLOSING STOCK MAY NOT NECESSARILY CAPTURE THE EXACT MAGNITUDE OF THE UNDER-REPORTING OF PROFIT. THE ISSUE, UNDER THE CIRCUMSTANCES, IN OUR VIEW, IS TO BE SEEN FROM THE STAND-POINT OF THE REASONABILITY O F THE ESTIMATION OF PROFIT AT AN EXCESS OF RS.5 LACS AND RS.4.50 LACS FOR THE TWO AS SESSMENT YEARS UNDER REFERENCE, BEING AYS. 2009-10 AND 2010-11. THE SAME YIELDS A G ROSS PROFIT RATE OF 3.97% AND 4.02% RESPECTIVELY ON THE DISCLOSED TURNOVER FOR TH E RELEVANT YEARS, I.E., AS AGAINST A DECLARED MARGIN OF 3.85% FOR THE PRECEDING YEAR, FOUND SHORT BY CLOSE TO 1%. THE NET PROFIT RATE, AS FOUND BY THE LD. CIT(A), IS ALSO COMPARABLE WITH THE PRECEDING YEAR/S. THE SAME, IN OUR VIEW, IS, THEREF ORE, AND CLEARLY, REASONABLE. THIS ALSO MEETS THE ASSESSEES RELIANCE ON GOTAN LIME KHANIJ UDHYOG (SUPRA), EVEN AS THE TRADING RESULTS OF THE CHINAWARE BUSINESS HAVE BEEN ACCEPTED, MAKING NO ADDITION TO THE TRADING RESULTS DISCLOSED IN ITS RE SPECT. THE ASSESSEES CONTENTION THAT NO ADDITION HAS BEEN MADE FOR THE SUBSEQUENT YEARS, I.E., AY 2011-12 AND 2012-13. HOW WOULD, ONE WONDER, THAT BE RELEVANT? AS EXPLAINED IN JAMNA DAS RAMESHWAR DAS (SUPRA), THERE IS NO ESTOPPEL IN SUCH CASES. EVEN OTHERWISE, EACH YEAR IS A INDEPENDENT U NIT OF ASSESSMENT. THERE IS THUS, VALID BASIS FOR ESTIMATING THE ASSESSEES GROSS MAR GIN AT THE AMOUNTS ASSESSED. 4.5 WE DECIDE ACCORDINGLY, SO THAT THE IMPUGNED ORD ER/S WARRANTS NO INTERFERENCE. ITA NOS. 738 & 739/ASR/2017 (AYS 2009-10 & 2010-11) SUBHASH CHAND ER AGGARWAL V. ASSTT. CIT 11 5. IN THE RESULT, THE ASSESSEES APPEALS ARE DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON OCTOBER 29, 2 018 SD/- SD/- (N. K. CHOUDHRY) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 29.10.2018 /GP/SR. PS. COPY OF THE ORDER FORWARDED TO: (1) THE APPELLANT: SUBHASH CHANDER AGGARWAL, PR OP. M/S. PRABH DAYAL OM PARKASH, 157, GULAB DEVI HOSPITAL ROAD, J ALANDHAR (2) THE RESPONDENT: ASSTT. C. I. T., RANGE-II, JALANDHAR (3) THE CIT(APPEALS)-1, JALANDHAR (4) THE CIT CONCERNED (5) THE SR. DR, I.T.A.T. TRUE COPY BY ORDER