ITO, Jaipur V. M/S MANGLAM fashions, Jaipur

ITA 751/JPR/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54229 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 29-09-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 29-09-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VINOD JOHARI
• Keywords: Rejection of books of accounts; Unexplained investment; Business income; Loose papers; Reasonable cause; TDS
• Section: 133A; 69; 145

Judgement Text

1 ITA 751(2)-09 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH A JAIPUR. ( BEFORE SHRI R.K. GUPTA AND SHRI N.L. KALRA ) ITA NO. 751/JP/2009 ASSTT. YEAR : 2006-07. THE INCOME-TAX OFFICER, VS. M/S. MANGLAM FASHIONS , WARD 1(1), DHULA HOUSE MAIN ROAD, JAIPUR. BAPU BAZAR, JAIPUR. (APPELLANT) (RESPONDENT) C.O. NO. 3/JP/2010 ( ARISING OUT OF ITA NO. 751/JP/2009) ASSTT. YEAR : 2006-07. M/S. MANGLAM FASHIONS, VS. THE INCOME-TAX OFFICER , JAIPUR. WARD 1(1), JAIPUR. (CROSS OBJECTOR) (RESPONDENT) APPELLANT BY : SHRI VINOD JOHARI RESPONDENT BY : SHRI VIJAY GOYAL DATE OF HEARING : 29.09.2011 DATE OF PRONOUNCEMENT : 21.10.2011. ORDER DATED : 21/10/2011. PER R.K. GUPTA, J.M. THIS IS AN APPEAL BY DEPARTMENT AND CROSS OBJECTIO N BY ASSESSEE AGAINST THE ORDER OF LD. CIT (A) RELATING TO ASSESSMENT YEAR 2006-07. 2. IN GROUND NO. 3 THE DEPARTMENT IS OBJECTING IN R EDUCING THE ADDITION MADE ON ACCOUNT OF UNEXPLAINED INVESTMENT IN STOCK FOUND WI TH KARIGARS AT RS. 68,49,315/- MADE 2 BY AO TO RS. 2,64,085/- ON THE GROUND THAT THE STOC K LYING WITH KARIGARS IS IN CYCLE OF 8 DAYS OF PURCHASES AS AGAINST ESTIMATION MADE BY THE AO. 3. IN CROSS OBJECTION THE ASSESSEE IS OBJECTING IN CONFIRMING THE ADDITION OF RS. 2,64,085/- OUT OF TOTAL ADDITION OF RS. 68,49,315/- THROUGH GROUND NO. 1. 4. THE BRIEF FACTS OF THE CASE DISCUSSED BY LD. CIT (A) IN HIS ORDER AT PAGES 1 & 2 ARE THAT ASSESSEE DERIVES INCOME FROM MANUFACTURING AND TRADING OF SAREES, SALWAR SUITS ETC. A SURVEY UNDER SECTION 133A WAS CARRIED ON 26.4.200 5 AT THE BUSINESS PREMISES OF THE ASSESSEE. INVENTORY OF STOCK WAS PREPARED AND ON PH YSICAL VERIFICATION STOCK OF RS. 1,85,15,876/- WAS FOUND THOUGH AS PER BOOKS ON THE DATE OF SURVEY IT WAS ONLY RS. 1,68,14,178/-. THUS EXCESS STOCK OF RS. 17,01,698/ - WAS FOUND AT THE SHOP. 4.1. THE ASSESSEE WAS FOUND MAINTAINING 4 KARIGAR R EGISTERS FOR GIVING CLOTHES AND OTHER ITEMS FOR JOB WORK TO VARIOUS KARIGARS. AS PE R THE LIST PREPARED ON THE BASIS OF KARIGAR REGISTER STOCK OF RS. 2,75,58,311/- WAS FOU ND LYING WITH KARIGARS AS ON DATE OF SURVEY. IT WAS FOUND THAT MANY GOODS THOUGH ALREADY RECEIVED BUT WERE NOT FOUND ENTERED THEREIN. SHORTAGE OF CASH OF RS. 1,69,230/- WAS ALS O FOUND. 4.2. DURING THE COURSE OF ASSESSMENT PROCEEDINGS CO PY OF KARIGAR REGISTERS AND COPY OF CHALLAN ISSUED TO THE KARIGARS AFTER SURVEY WERE FILED AND IT WAS CLAIMED THAT MOST OF THE STOCK WAS RECEIVED BACK AND ONLY STOCK OF RS. 1 0,05,640/- WAS LYING WITH THE KARIGARS ON THE DATE OF SURVEY. FROM THE KARIGAR RE GISTER AND CHALLANS ETC. THE AO FOUND THAT NO ENTRY WAS MADE ON RECEIPT OF; GOODS IN PIEC E MEAL MANNER AND ENTRIES WERE MADE ONLY AFTER RECEIVING THE ENTIRE GOODS FROM THE KARI GARS. THE ARGUMENTS OF THE LD. A/R WERE HOWEVER ;NOT ACCEPTED BY AO. IT WAS SUBMITTED BY THE LD. A/R THAT WHEN GOODS ARE ISSUED ENTRIES ARE MADE IN THE KARIGAR REGISTER AND IN CHALLAN COPY BY THE ASSESSEE. WHEN 3 GOODS ARE RECEIVED ENTRIES ARE MADE ONLY IN THE COP Y OF CHALLAN KEPT BY THE KARIGARS. THIS ARGUMENT WAS NOT FOUND CONVINCING BY THE AO ON THE GROUND THAT FOR SUCH A BIG ASSESSEE IT WAS NOT POSSIBLE NOT TO HAVE ANY SYSTEM FOR ENTRY OF RECEIPT OF GOODS FROM KARIGARS/JOB WORKS. WHEN A KARIGAR RETURNED SOME PI ECE OF SAREES AFTER COMPLETION OF JOB WORK NO ENTRIES WERE STATED TO BE MADE IN KARIG AR REGISTER OR IN COPY OF CHALLAN KEPT BY THE ASSESSEE. AS SUCH IN VIEW OF AO THE ASSESSE E CANNOT HAVE CONTROL IF ENTRIES IN ITS OWN CHALLANS ARE NOT MADE AGAINST THE RECEIPT OF GO ODS. HE HAS ALSO RAISED OBJECTION THAT WHEN CHALLANS WERE PREPARED IN DUPLICATE THEN WHY N O ENTRY WAS MADE IN THE ASSESSEES COPY OF CHALLAN. 4.3. FURTHER THE AO FOUND ARGUMENTS OF THE ASSESSEE THAT KARIGAR REGISTER WAS INCOMPLETE ONLY PARTIALLY CORRECT. THE AO HAS OBSER VED THAT FROM PERUSAL OF REGISTER AND COPY OF CHALLANS IT IS CLEAR THAT ENTRIES ARE NOT M ADE IN KARIGAR REGISTER EVEN AFTER RECEIPT OF ALL THE GOODS FROM A KARIGAR. 4.4. FROM CERTAIN LOOSE PAPERS THE AO FOUND THAT IN CERTAIN CASES SAREES ETC. WERE GIVEN FOR JOB WORK NOT ON CHALLAN BUT ONLY ON SOME LOOSE SLIPS. IT SHOWS THAT THE RECORDS ARE NOT MAINTAINED PROPERLY. WITH THIS AO MADE HIS OWN WORKING BY ESTIMATING THAT GOODS ARE NORMALLY RETURNED BY THE KARIGARS WITHIN A SPAN OF 20 TO 40 DAYS. THE STOCK WITH THE KARIGAR WAS ESTIMATED ON 25 DAY OF SALES. THE AO HAS FURTHER ESTIMATED SALES OF RS. 10 CRORES AS AGAINST DECLARED SALES OF RS. 9.54 CRORES AS SOME SALES OUT OF BOOKS WERE ALSO NOTICED. THE AO, THEREFORE, ESTIMATED STOCK L YING WITH KARIGARS AT RS. 68,49,315/- AS ON THE DATE OF SURVEY AS AGAINST RS. 10,05,640/- ADMITTED BY THE ASSESSEE. THE AO, THEREFORE, MADE ADDITION OF RS. 68,49,315/- UNDER S ECTION 69 OF IT ACT. 4 5. IT WAS CONTENDED BEFORE LD. CIT (A) THAT THE MOD US OPERANDI OF ISSUANCE OF GOODS TO KARIGARS AND RECEIPT OF GOODS BACK AFTER COMPLET ING JOB WORK WAS EXPLAINED TO THE AO. THE AO FOUND THE MODUS OPERANDI DOUBTFUL AND HELD T HAT KARIGARS REGISTER WAS NOT MAINTAINED PROPERLY. ON THE BASIS OF CERTAIN LOOSE SLIPS FOUND DURING THE COURSE OF SURVEY WHEREIN GOODS WERE GIVEN TO KARIGARS WITHOUT CHALLA N, THE AO ESTIMATED GOODS WITH KARIGARS. FOR ESTIMATION HE HAS CONSIDERED A NORMA L PERIOD OF RECEIVING BACK THE GOODS AFTER COMPLETING JOB WORK AT 25 DAYS. THE AO HAS A LSO ESTIMATED SALES AT RS. 10 CRORES AS AGAINST DECLARED SALES OF RS. 9.54 CRORES. RECONCI LIATION OF STOCK WAS FILED IMMEDIATE AFTER SURVEY WHICH WAS NOT ACCEPTED BY THE AO. AS PER RECONCILIATION STATEMENT THE DISCREPANCY WORKED OUT WAS ONLY OF RS. 1,13,037/-. ADMITTEDLY, THE KARIGARS REGISTERS WERE FOUND INCOMPLETE BUT DURING THE STATEMENT IT W AS EXPLAINED THAT ENTRY IN BOOKS OF ACCOUNTS IS MADE ONLY ON RETURN OF COMPLETE GOODS A ND NO ENTRY IS MADE IN BETWEEN. IT WAS ALSO SUBMITTED AT THE TIME OF SURVEY THAT STOCK WITH KARIGARS MAY BE BETWEEN RS. 10 TO 15 LACS. COMPLETE DETAILS AFTER MAKING RECONCIL IATION OF STOCK WAS FILED BEFORE THE AO ALONG WITH CONFIRMATIONS OF KARIGARS AND COPIES OF CHALLANS RECEIVED FROM KARIGARS AND KARIGARS REGISTER WAS RECASTED. THE EVIDENCES WERE REJECTED BY THE AO MERELY ON SUSPICION AND GUESS WORK WHICH IS NOT PERMISSIBLE A S PER LAW. THE HONBLE SUPREME COURT IN THE CASE OF UMA CHARAN SHAW & BROS CO. VS. CIT, 37 ITR 271 HAS HELD THAT THE SUSPICION HOWEVER, STRONG CANNOT TAKE PLACE OF PROO F. IT WAS ALSO EXPLAINED BEFORE THE AO THAT WHEN GOODS ARE ISSUED TO A KARIGAR, CHALLAN IS PREPARED IN DUPLICATE. OUT OF IT ORIGINAL COPY IS ISSUED TO KARIGAR AND DUPLICATE CO PY IS RETAINED BY THE ASSESSEE. ENTRY OF GOODS ISSUED TO KARIGAR IS MADE ON BOTH THE COPIES OF CHALLAN. ENTRY OF GOODS RECEIVED BACK IS MADE ONLY ON THE CHALLAN KEPT BY THE KARIGA R. CHALLANS ARE PREPARED AS SUPPORTING 5 EVIDENCE OF GOODS TAKEN BY KARIGARS AND DELIVERED B ACK BY. THIS PRACTICE IS BEING FOLLOWED REGULARLY. WHEN THE GOODS ARE DELIVERED BA CK TO THE ASSESSEE KARIGAR TAKES SIGNATURE OF THE ASSESSEE ON THE CHALLANS AGAINST T HE ENTRY OF RECEIPT OF THE GOODS. LAW HAS NOT PRESCRIBED ANY SPECIFIC MODE OF RECORDING S UCH ENTRY BUT THE BASIC PURPOSE OF THE ASSESSEE OF KEEPING ACCOUNTS OF GOODS ISSUED IS FUL FILLED BY THIS PRACTICE. FURTHER IT WAS SUBMITTED THAT THE AO CANNOT STEP INTO THE SHOES OF THE ASSESSEE. THE AO HAS TO LOOK AT MATTER FROM THE VIEW POINT OF A BUSINESSMAN AND NOT FROM HIS OWN VIEW POINT. FOR THIS RELIANCE WAS PLACED ON 51 ITR 353 (SC) AND 237 ITR 454 (SC). 5.1. THE AO HAS REJECTED THE ABOVE EXPLAINED MODUS OPERANDI MERELY ON DOUBTS. AT THE TIME OF SURVEY THE DEPARTMENT FOUND DUPLICATE C OPY OF CHALLANS KEPT BY THE ASSESSEE WHICH SUPPORTS THE EXPLANATION OF THE ASSESSEE. ON NONE OF THESE CHALLANS ENTRY OF RECEIPT OF GOODS WAS FOUND. THE AO COULD HAVE MADE ENQUIRY FROM THE KARIGARS. DURING THE ASSESSMENT PROCEEDINGS FOR ASSESSMENT YEAR 2005 -06 THE AO HAS RECORDED STATEMENTS OF FIVE KARIGARS BUT NOTHING WAS FOUND AGAINST THE EXPLANATION OF THE ASSESSEE. THUS THE EXPLANATION CANNOT BE REJECTED MERELY ON DOUBTS. 5.2. AT THE TIME OF SURVEY KARIGARS REGISTER WAS IN COMPLETE BUT LATER ON IT WAS GOT COMPLETED AND COPY OF RECASTED KARIGAR REGISTER WAS FILED BEFORE THE AO ALONG WITH COPY OF CHALLANS RECEIVED FROM THE KARIGARS AS WELL AS C ONFIRMATIONS OF THE KARIGARS. THE AO HAS NOT FOUND ANY DEFECT IN RECASTED KARIGAR REGIST ER. CERTAIN LOOSE PAPERS FOUND AT THE TIME OF SURVEY ONLY SHOW GOODS SENT TO THE KARIGARS . ON THE STRENGTH OF LOOSE PAPERS INSTEAD OF CHALLAN WHICH MIGHT NOT BE AVAILABLE REA DILY. THE WORKING GIVEN BY THE LD. A/R SHOULD BE ACCEPTED AS CORRECT. BEFORE MAKING AD DITION UNDER SECTION 69 THE DEPARTMENT WAS TO PROVE THAT INVESTMENT WAS MADE BY THE ASSESSEE. THE AO HAD NO 6 POSITIVE MATERIAL TO SHOW THAT STOCK OF RS. 68,49,3 15/- WAS LYING WITH KARIGARS. ESTIMATION OF CYCLE OF GOODS LYING WITH KARIGARS AT 25 DAYS IS WRONG. ON THE BASIS OF SOME SAMPLE CHALLANS IT WAS EXPLAINED THAT WEIGHTED AVERAGE CYCLE COMES TO 8.06 DAYS ONLY. FURTHER IT WAS SUBMITTED THAT VALUATION OF ST OCK LYING AT KARIGARS CANNOT BE MADE ON SALE PRICE. IT SHOULD BE FURTHER REDUCED BY G.P. (6 .57%) AND COST OF JOB WORK (50.05%) AS MENTIONED BY AO. THUS EVEN IF THE VALUATION OF AO IS ACCEPTED THE ESTIMATED ADDITION OF RS. 64,89,315/- WILL BE REDUCED TO RS. 29,71,233/-. FURTHER IT WAS SUBMITTED THAT IN A COMPARABLE CASE OF M/S. GANPATI FASHIONS WHERE DEPA RTMENT CARRIED OUT SEARCH ACTION IN ASSESSMENT YEAR 2006-07, THE CYCLE OF GOODS WITH KA RIGARS WAS 4 DAYS OF THE SALES. IN THAT CASE SALES DECLARED WAS RS. 22.87 CRORES AND GOODS LYING WITH KARIGARS WAS RS. 25 LACS. 6. AFTER CONSIDERING THE ORDER OF THE AO AND THE CO NTENTION OF THE ASSESSEE, THE LD. CIT (A) FOUND THAT THE AO WAS NOT JUSTIFIED IN ESTI MATING THE UNDISCLOSED STOCK LYING WITH THE KARIGARS AS THERE WAS NO POSITIVE MATERIAL WITH HIM. THE ESTIMATION MADE BY AO WAS ON GUESS WORK ONLY. HOWEVER, SINCE BOTH THE AC COUNTS WERE NOT COMPLETE, THEREFORE, TO COVER THE LEAKAGE OF REVENUE, IF ANY, THE LD. CI T (A) REDUCED THE ADDITION TO RS. 2,64,085/- AGAINST THE ADDITION OF RS. 68,89,315/- MADE BY AO. 7. NOW BOTH ARE IN APPEAL HERE BEFORE THE TRIBUNAL. 8. THE LD. D/R FIRSTLY PLACED RELIANCE ON THE ORDER OF AO. IT WAS FURTHER SUBMITTED THAT DISCREPANCIES WERE NOTED IN THE LOOSE PAPERS A ND THE DISCREPANCIES NOTED BY THE SURVEY PARTY HAS BEEN DISCUSSED BY THE AO AT PAGE 2 2. IT WAS ALSO SUBMITTED THAT THERE WAS A SHORTAGE IN CASH IN HAND AS PER BOOKS OF ACCO UNT AND THERE WERE SO MANY DISCREPANCIES. THEREFORE, THE LD. CIT (A) WAS NOT J USTIFIED IN REDUCING THE ADDITION TO A GREAT EXTENT. 7 9. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESS EE PLACED RELIANCE ON THE ORDER OF LD. CIT (A) TO THE EXTENT TO WHICH ADDITIONS WERE R EDUCED. IT WAS FURTHER SUBMITTED THAT AO HAS NOT APPRECIATED THE DISCREPANCIES IN RIGHT P ERSPECTIVE AS LOOSE PAPERS WERE NOT EXAMINED IN FULL. ATTENTION OF THE BENCH WAS DRAWN ON PAGE 114 OF THE PAPER BOOK. IT WAS FURTHER SUBMITTED THAT GP RATE SHOWN BY ASSESSE E IS BETTER AS COMPARED TO EARLIER YEAR. THE SYSTEM OF WORKING OF THE ASSESSEE IS SIM ILAR TO THE SYSTEM ADOPTED IN EARLIER YEARS. IN EARLIER YEAR ALSO CERTAIN TRADING ADDITIO NS WERE MADE. THE MATTER CAME BEFORE THE TRIBUNAL AND THE TRIBUNAL HAS DELETED THE TRADI NG ADDITIONS. ATTENTION OF THE BENCH WAS DRAWN ON COPY OF ORDER OF TRIBUNAL PLACED IN TH E PAPER BOOK AT PAGES 114 TO 116. IT WAS FURTHER SUBMITTED THAT THOUGH THE REJECTION OF BOOKS OF ACCOUNTS WERE UPHELD IN EARLIER YEAR, HOWEVER, THE TRADING ADDITION MADE BY AO WERE ENTIRELY DELETED. FINDING OF THE TRIBUNAL HAVE BEEN RECORDED IN PARA 4 OF ITS OR DER DECIDED IN ITA NO. 207/JP/2009 VIDE ORDER DATED 22.5.2009. 10. IN REPLY THE LD. D/R STATED THAT IN EARLIER YEA R THERE WAS NO SURVEY. HOWEVER, IN THE YEAR UNDER CONSIDERATION THERE WAS A SURVEY. 11. IN COUNTER REPLY THE LD. COUNSEL OF THE ASSESSE E STATED THAT THOUGH THERE WAS NO SURVEY FOR ASSESSMENT YEAR 2005-06 BUT THE ASSESSME NT FOR ASSESSMENT YEAR 2005-06 WAS COMPLETED AFTER THE DATE OF SURVEY AND WHATEVER THE SURVEY PARTY HAS DRAWN INFERENCE THAT WAS ALSO IN THE MIND OF THE AO AND, THEREFORE, HE H AS DISTURBED THE TRADING RESULT BY WHICH THE SALES WERE ESTIMATED AT RS. 6.9 CRORES AN D A GP RATE WAS ALSO INCREASED. THE LD. CIT (A) REDUCED THE GP RATE TO 7% AGAINST 7.5% APPLIED BY THE AO ON ESTIMATED SALES AND IN SECOND APPEAL THE ENTIRE ADDITIONS WERE DELE TED AS STATED ABOVE. 8 12. WE HAVE HEARD RIVAL SUBMISSIONS AND CONSIDERED THEM CAREFULLY. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERI AL ON RECORD, WE FIND THAT LD. CIT (A) WAS REASONABLE IN REDUCING THE ADDITION TO RS. 2,64 ,085/- AGAINST ADDITION MADE BY AO. THE GP RATE DECLARED BY ASSESSEE DURING THE YEAR IS 6.57% AGAINST 6.5% SHOWN IN EARLIER YEAR. THE FINDINGS OF LD. CIT (A) HAVE BEEN RECORD ED AT PAGES 4 & 5 OF HIS ORDER ARE AS UNDER :- CONTENTION OF THE AR IS CONSIDERED. THE AO HAS PR ESUMED THAT GOODS ARE RETURNED FROM THE KARIGARS WITHIN 25 DAYS AFTER COMPLETING THE JOB WORK. HE HAS FURTHER ESTIMATED STOCK LYING WITH THE KARIGARS AT 25 DAYS OF SALES OF RS. 10 CRO RES. THE AO HAS NOT GIVEN ANY BASIS FOR HIS ESTIMATION. ADMITTEDLY THE KARIGARS REGISTERS WERE FOUND INCOMPLETE DURING THE COURSE O F SURVEY. RECASTED KARIGARS REGISTER WAS SUBMITTED WITHIN VER Y SHORT TIME FROM THE DATE OF SURVEY. THE AO HAS NOT FOUND ANY M ISTAKE IN THE RECASTED KARIGARS REGISTER. THERE APPEARS NO LOGIC OF ESTIMATING STOCK AT 25 DAYS OF SALES AS SALE HAS NOTHING TO DO WITH THE GOODS GIVEN TO THE KARIGARS FOR JOB WORK. WHAT IS GIVEN TO THE KARIGARS IS GREY CLOTHES AND NOT FINISHED GOODS. IF AT ALL ESTI MATION IS TO BE MADE IT SHOULD BE MADE ON PURCHASES AND NOT SALES. IN THE WORKING GIVEN BY THE AR THE STOCK WITH KARIGARS HAS BEEN WO RKED OUT AT RS. 10,05,640/- BY TAKING STOCK LYING WITH THE KARIGARS FOR AVERAGE OF 6.33 DAYS OF PURCHASES. ON THE BASIS OF SOME CHALLA NS THE AR HIMSELF HAS WORKED OUT THE WEIGHTED AVERAGE CYCLE O F 8.06 DAYS AND, THEREFORE, IT WILL BE MORE LOGICAL IF STOCK LY ING AT KARIGARS IS WORKED OUT BY TAKING AVERAGE CYCLE OF 8 DAYS OF PUR CHASES. THIS COMES TO RS. 12,69,725/- (8/365=57931188). THIS IS FURTHER SUPPORTED BY COMPARABLE CASE OF M/S. GANPATI FASHIO NS WHERE THE CYCLE COMES TO 8.41 DAYS OF PURCHASES AND ON THE TO TAL PURCHASES 9 OF RS. 10.85 CRORES STOCK WITH KARIGARS WAS FOUND A T RS. 25 LACS. IF IT IS PRESUMED THAT ONE KARIGAR TAKES 25 DAYS TO MA KE ONE SAREE AS NUMBER OF KARIGARS ARE 118, IT MEANS IN 25 DAYS ONL Y 118 SAREES ARE MADE. PER DAY SALE OF THE APPELLANT COMES RS. 2.61 LACS AND THEREFORE SALE OF 25 DAYS COMES TO RS. 65 LACS. WHE THER COST OF 118 SAREES CAN BE RS. 65 LACS ? IT IS CLEARLY ESTABLISH ED THAT CYCLE OF 25 DAYS IS JUST IMPOSSIBLE. THE AO IS, THEREFORE, DIRE CTED TO REDUCE ADDITION OF RS. 68,49,315/- TO RS. 12,69,725/-. AS IN THE COMPUTATION OF INCOME FILED BY THE APPELLANT HIMSEL F HAS WORKED OUT STOCK WITH KARIGARS AT RS. 10,05,640/- ADDITION OF RS. 12,69,725/- WILL BE REDUCED BY RS. 10,05,640/-. IN OTHER WORDS THE ADDITION MADE U/S 69 IS REDUCED TO RS. 2,64,085/-. THE GROUNDS OF APPEAL ARE DECIDED PARTLY IN FAVOUR OF THE APPELLAN T. 12.1. THESE FINDINGS ARE SELF EXPLANATORY AND FINDI NGS OF FACT. THE LD. CIT (A) HAS CONSIDERED THE CYCLE OF 8 DAYS AS REASONABLE AGAINS T CYCLE OF 25 DAYS ADOPTED BY THE AO. NO MAJOR DISCREPANCIES WERE NOTED IN THE LOOSE PAPE RS FOUND. THE SYSTEM OF ACCOUNTANCY AND SYSTEM OF WORKING IS SIMILAR TO EARLIER YEAR. IN EARLIER YEAR ALSO THE TRADING ADDITION WAS MADE BY THE AO BY NOT ACCEPTING THE GP RATE AS THERE WERE CERTAIN DISCREPANCIES NOTED FOR THAT YEAR ALSO. THE TRIBUNAL CONFIRMED T HE APPLICATION OF PROVISIONS OF SECTION 145(3). HOWEVER, SINCE GP RATE WAS SHOWN BY ASSESS EE WAS BETTER, THEREFORE, ENTIRE TRADING ADDITION WAS DELETED. IN THE YEAR UNDER CO NSIDERATION ALSO THE SIMILAR METHOD OF WORKING IS ADOPTED BY THE ASSESSEE. THE CLOTH IS G IVEN TO THE KARIGARS FOR MAKING JOB WORK ETC. AND AFTER RECEIVING THE ENTIRE MATERIAL F ROM THE KARIGARS A NOTING HAS BEEN MADE IN THE BOOKS OF ACCOUNT AND THEREAFTER THE PAYMENT HAS BEEN GIVEN TO THE KARIGARS ON THE BASIS OF WORK DONE BY THEM. AS STATED EARLIER SIMI LAR METHOD WAS ADOPTED IN EARLIER YEAR ALSO. THEREFORE, IN OUR CONSIDERED VIEW NO ADDITIO N SHOULD HAVE BEEN MADE MERELY ON 10 THE BASIS OF LOOSE PAPERS FOUND. TURNOVER IS HUGE AND LOOKING TO THE NATURE OF JOB/BUSINESS, CERTAIN DISCREPANCIES ARE BOUND TO OC CUR AND THERE ARE VARIOUS KARIGARS AND ALL THE KARIGARS ARE WORKING IN UNORGANIZED SECTOR. IN NORMAL WORK 8 DAYS CYCLE IS REASONABLE WHICH HAS BEEN ADOPTED BY LD. CIT (A) WH ICH WAS BASED ON THE RECASTED REGISTER. NO MISTAKE WAS FOUND IN THE RECASTED REGI STER BY THE AO. THEREFORE, IN OUR VIEW THE LD. CIT (A) WAS REASONABLE IN REDUCING THE ADDI TION AFTER UPHOLDING PROVISIONS OF SECTION 145(3). THEREFORE, WE CONFIRM THE FINDING OF LD. CIT (A). THE GROUND OF THE DEPARTMENT AND GROUND OF THE ASSESSEE FAILS. 13. NOW WE WILL TAKE GROUND NO. 1 IN THE APPEAL OF THE DEPARTMENT WHICH IS AGAINST REDUCING TRADING ADDITION OF RS. 12,26,676/- TO RS. 2,96,676/- AND GROUND NO. 4 IN THE CROSS OBJECTION OF THE ASSESSEE IS AGAINST CONFIRMI NG ADDITION OF RS. 2,96,676/-. 14. BRIEF FACTS, WE HAVE ALREADY DISCUSSED ABOVE WH ILE DISCUSSING GROUND NO. 3 IN APPEAL OF THE DEPARTMENT. SINCE THERE WERE VARIOUS DISCREPANCIES IN MAINTENANCE OF BOOKS OF ACCOUNT AND CERTAIN LOOSE PAPERS WERE FOUN D DURING THE COURSE OF SURVEY, THEREFORE, THE AO APPLIED PROVISIONS OF SECTION 145 (3). WHILE APPLYING PROVISIONS OF SECTION 145(3), THE AO ALSO NOTED THAT THERE WAS A SHORTAGE OF CASH OF RS. 1,69,230/- AND CERTAIN CASH PAYMENTS WERE RECORDED IN LOOSE PAPERS AND CERTAIN SALES WERE ALSO FOUND UNRECORDED. THE AO ALSO NOTICED THAT THE ASSESSEE H AS SHOWN SALES RETURN WHICH WAS 16.9% OF TOTAL SALES AND ASSESSEE HAS PAID JOB CHAR GES WHICH WAS OF 50.05% OF TOTAL SALES. ACCORDINGLY, THE AO REJECTED THE BOOKS OF A CCOUNT AND ESTIMATED SALES OF RS. 10 CRORES AGAINST DECLARED SALES OF RS. 9,54,98,149/-. THE AO APPLIED GP RATE OF 7.5% AGAINST DECLARED GP OF 6.57% WHICH RESULTED IN A TR ADING ADDITION OF RS. 12,26,676/-. 11 15. IT WAS CONTENDED BEFORE LD. CIT (A) THAT REJECT ION OF BOOKS OF ACCOUNTS IS NOT JUSTIFIED. DETAILED EXPLANATION IN RESPECT OF LOOSE PAPERS AND ROUGH PAID FOUND DURING THE COURSE OF SURVEY WAS GIVEN TO THE AO. LOOSE PAPERS DO NOT INDICATE ANY UNACCOUNTED PURCHASES/SALES/INCOME. ADMITTEDLY, AT THE TIME OF SURVEY BOOKS OF ACCOUNTS WERE NOT COMPLETE AND THE SAME COULD BE COMPLETED ONLY AFTER SURVEY. BUT THE AO HAS NOT POINTED OUT ANY MATERIAL MISTAKE IN THE BOOKS OF ACCOUNTS O N THE BASIS OF LOOSE PAPERS FOUND. REGARDING HIGH PERCENTAGE OF SALES RETURNED IT WAS EXPLAINED THAT IN THIS TRADE IT IS VERY COMMON. THE AO HAS NOT MADE ANY INQUIRY FROM THE C ONCERNED PARTIES. ON THE ALLEGATIONS OF HIGH PERCENTAGE OF JOB CHARGES IT WA S SUBMITTED THAT IN COMPARABLE CASE OF M/S. GANPATI FASHIONS THE PERCENTAGE OF JOB CHARGES WAS 50.09% AND THE ASSESSEES CASE IS, THEREFORE, COMPARABLE. FURTHER TDS HAS BEEN DE DUCTED ON ADVANCE PAYMENTS TO JOB WORKERS OR AT THE TIME OF CREDIT OF BILLS OF JOB WO RK, WHICHEVER IS EARLIER. COMPLETE DETAILS OF TDS DEDUCTED ON JOB WORK IN DESIRED FORM AT WERE FILED BEFORE THE AO. COMPLETE ADDRESSES OF THE KARIGARS WERE ALSO PROVID ED. LASTLY IT WAS SUBMITTED THAT BOOKS OF ACCOUNTS WERE AUDITED AND, THEREFORE, SAME CANNOT BE REJECTED ON SOME TECHNICAL GROUNDS. 15.1. REGARDING G.P. ESTIMATION IT WAS SUBMITTED TH AT THE AO HAS MADE WILD ESTIMATION WHILE APPLYING G.P. RATE AS WELL AS ESTIMATING SALE S. IN COMPARABLE CASE OF M/S. GANPATI FASHIONS AND SHREE GANPATI FASHIONS DECLARED G.P. R ATES ARE 6.04% AND 6.47% RESPECTIVELY. FURLTHER THE G.P. RATE DECLARED OF 6 .57% BY THE ASSESSEE IS COMPARABLE WITH THE G.P. RATE OF 6.50% ON SALES OF RS. 6.86 CRORES IN ASSESSMENT YEAR 2005-06 AND G.P. RATE OF 6.57% ON SALES OF RS. 6.48 CRORES IN ASSESSMENT YEAR 2004-05. RELYING ON CERTAIN CASE LAWS IT WAS SUBMITTED THAT PAST HISTORY OF THE CASE IS BEST GUIDE FOR ESTIMATING G.P. 12 LASTLY, IT WAS SUBMITTED THAT ITAT IN THE ASSESSEE S OWN CASE IN ASSESSMENT YEAR 2005- 06 I.E. IMMEDIATE PRECEDING YEAR HAS FOUND G.P. RAT E OF 6.50% DECLARED BY THE ASSESSEE AS REASONABLE. WITH THIS IT WAS SUBMITTED THAT BOOKS OF ACCOUNTS SHOULD NOT BE REJECTED BUT EVEN IF BOOKS OF ACCOUNTS ARE REJECTED NO TRADING A DDITION IS REQUIRED. 16. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, THE LD. CIT (A) GAVE FOLLOWING FINDINGS :- CONTENTION OF THE AR IS CONSIDERED. AS THE BOOKS OF ACCOUNTS WERE FOUND INCOMPLETE AT THE TIME OF SURVEY AND SHO RTAGE OF CASH AS WELL AS EXCESS OF STOCK WAS FOUND DURING THE SUR VEY CARRIED OUT DURING THE YEAR UNDER CONSIDERATION, THE REJECTION OF BOOKS OF ACCOUNTS MADE BY THE AO IS HEREBY CONFIRMED. SO FAR AS ESTIMATION OF SALES IS CONCERNED AS THERE ARE SOME EVIDENCES A VAILABLE WITH THE AO WHICH INDICATE UNRECORDED SALES, ESTIMATION OF SALES MADE BY THE AO AT RS. 10 CRORES IS HEREBY CONFIRMED. REG ARDING APPLICATION OF G.P. RATE OF 7.5% THE AO HAS NOT GIV EN ANY BASIS. ON THE OTHER HAND THE DECLARED G.P. RATE OF 6.57% I S BETTER THAN G.P. RATE OF 6.50% DECLARED IN THE IMMEDIATELY PRECEDING YEAR THOUGH THE SALES HAVE CONSIDERABLY INCREASED TO RS. 9.5 CR ORES FROM RS. 6.8 CRORES. FURTHER THE HONBLE ITAT HAS CONFIRMED G.P. RATE OF 6.50% DECLARED IN THE IMMEDIATE PRECEDING YEAR. ADDITION ON ACCOUNT OF EXCESS STOCK HAS ALSO BEEN MADE WHICH LEAVES NO SCO PE FURTHER FOR MAKING TRADING ADDITION AS IT IS NOT A CASE OF FALL IN G.P. RATE. THE AO IS, THEREFORE, DIRECTED TO APPLY DECLARED G.P. R ATE OF 6.57% ON ESTIMATED SALES OF RS. 10 CRORES AND MAKE TRADING A DDITION. THE TRADING ADDITION OF RS. 12,26,676/- THUS WILL BE RE DUCED TO RS. 2,96,676/-. THE APPELLANT THUS GETS PARTIAL RELIEF . 13 17. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING OTHER MATERIALS ON RECORD AGAIN WE FIND NO INFIRMITY IN THE FINDING OF LD. CIT (A) WHO HAS DIRECTED TO APPLY DECLARED GP RATE OF 6.57% ON ESTIMATED SALES OF RS. 10 CRORES. THIS IS ALSO AN UNDISPUTED FACT THAT CERTAIN SALES WERE FOUND UNRECORDED IN THE BOOKS OF ACCOUNT AS THEY WERE FOUND RECORDED IN LOOSE PAPERS FOUND DURING THE COURSE OF SURVEY. THEREFORE, THERE WAS A REASONABLE CAUSE FOR ESTIMATING THE SALES AFTER REJECTING THE BOOKS OF ACCOUNT. THE AO HAS ESTIMATED THE SALES OF THE ASSESSEE AT A REASONABLE QUANTUM I .E. RS. 10 CRORES AGAINST RS. 9.54 CRORES OR ODD. IN VIEW OF THESE FACTS AND CIRCUMSTANCES, WE CONFIRM THE FINDING OF LD. CIT (A) IN THIS RESPECT ALSO. THESE GROUNDS OF THE ASSESSEE AS WELL AS OF THE DEPARTMENT ARE DISMISSED. 18. GROUND NO. 2 IN THE APPEAL OF THE DEPARTMENT IS AGAINST REDUCING THE ADDITION MADE ON ACCOUNT OF UNEXPLAINED INVESTMENT IN STOCK FOUND DURING THE SURVEY AT RS. 17,34,968/- TO RS. 5,00,000/- ON THE GROUND THAT AS SESSEE COULD NOT HAVE ANY FOOLPROOF METHOD OF RECORDING STOCK. 19. THE ASSESSEE THROUGH GROUND NO. 2 OF ITS CROSS OBJECTION IS OBJECTING IN SUSTAINING ADDITION OF RS. 5,00,000/-. 20. THE BRIEF FACTS OF THE CASE AND CONTENTION OF T HE ASSESSEE BEFORE LD. CIT (A) HAVE BEEN DISCUSSED IN THE ORDER OF LD. CIT (A) AT PAGES 5 & 6 OF HIS ORDER ARE AS UNDER :- ON 24.6.2005 WHEN SURVEY U/S 133A WAS CARRIED OU T AT THE BUSINESS PREMISES OF THE APPELLANT AS PER BOOKS OF ACCOUNTS STOCK OF RS. 1,68,14,178/- WAS FOUND BUT ON PHYSICAL VERI FICATION STOCK OF RS. 1,85,15,876/- WAS FOUND. THUS EXCESS STOCK O F RS. 17,01,698- WAS DETERMINED AND ACCORDINGLY ADDITION OF RS. 17,34,968/- WAS MADE U/S 69 WHICH INCLUDES EXCESS S TOCK WORKED 14 OUT AT RS. 17,01,689/- + RS. 33270/- (ON ACCOUNT OF BILLS OF STEEL WRONGLY DEBITED IN PURCHASES ACCOUNT). THE CONTENT ION FO THE AR IS THAT THE AO HAS NOT CONSIDERED THE FOLLOWING POI NTS : (I) UN ENTERED PURCHASES OF RS. 9,92,675/- FOR WHIC H NO CREDIT WAS GIVEN. IT WAS SUBMITTED THAT THERE WERE SOME BILLS DULY SUPPORTED BY GRS BUILTY WHICH WERE NOT ENTERED IN THE BOOKS O F ACCOUNTS FOUND AT THE TIME OF SURVEY. PURCHASES OF RS. 9,92 ,675/- WERE MADE FROM M/S. VINAYAK TRADERS BEFORE THE DATE OF S URVEY AND GOODS ALREADY RECEIVED BUT BILLS WERE NOT ENTERED I N THE BOOKS OF ACCOUNTS. IN THE POST SURVEY ENQUIRY, THIS CLAIM W AS MADE BEFORE THE AO AND IN SUPPORT OF THIS CLAIM BUILTY REGISTER S WERE FURNISHED IMMEDIATE AFTER SURVEY ALONG WITH THE COPIES OF PUR CHASE BILLS. THE APPELLANT REQUESTED THE AO TO MAKE NECESSARY ENQUIR Y FROM THE PARTY OR TRANSPORTER IF HE FEELS SO. NO SUCH ENQUIR Y HOWEVER, WAS MADE. RELYING ON THE FOLLOWING CASE LAWS IT WAS SU BMITTED THAT THE HONBLE TRIBUNAL PERMITS ENTRY AFTER THE DATE O F SURVEY IF IT IS SUPPORTED BY DOCUMENTS : SHRI RAJENDER KUMAR KEDIA VS. DCIT, 22 TW 506 (ITAT JAIPUR) TARACHAND JAIN ITSSA NO. 103/JP/2002 (ITAT JAIP UR.) (II) OUT STANDING WAGES OF RS. 27,79,155/- AGAINST COMPLETED JOBS WERE NOT ACCOUNTED FOR ON THE DATE OF SURVEY. THIS CLAIM WAS SUBMITTED 3 DAYS AFTER THE DATE OF SURVEY AND BILLS OF EXPENS ES SUPPORTED BY CHALLANS WERE SUBSEQUENTLY FILED. (III) IN STATEMENT THE PARTNER SHRI RAMDASS TEMANI STATED THAT AFTER RECONCILIATION OF FINAL POSITION OF STOCK IF THERE REMAINS EXCESS STOCK THEN HE WILL PAY THE TAX. IN ANY CASE THE ST ATEMENT RECORDED AT THE TIME OF SURVEY WAS EXTEMPORE. ADMISSION IS EXTREMELY IMPORTANT PIECE OF EVIDENCE BUT IT CANNOT BE SAID T O BE CONCLUSIVE. RELIANCE WAS PLACED ON THE DECISION OF HONBLE S.C. IN THE CASE OF PULLANGODE RUBBER PRODUCE CO. LTD. VS. STATE OF KER ALA & 15 ANOTHERS (1973) 91 ITR 18. RELIANCE WAS ALSO PLACE D ON THE DECISION OF JURISDICTIONAL H.C. IN THE CASE OF CIT VS. ASHOK KUMAR SONI 291 ITR 172 (RAJ.). WITH THIS IT WAS SUBMITTE D THAT ADDITION OF RS. 17,34,968/- DESERVES TO BE DELETED. 21. AFTER CONSIDERING THE SUBMISSIONS, THE LD. CIT (A) GAVE HIS FOLLOWING FINDINGS AT PAGES 6 & AND OF HIS ORDER : CONTENTION OF THE AR IS CONSIDERED. SURVEY TOOK PLACE ON 26.4.2005 AND ON 2.5.2005 I.E. JUST AFTER 5 DAYS TH E APPELLANT HAD MADE CLAIM OF UN-ENTERED PURCHASES. THIS FACT IS CO NFIRMED FROM THE LETTER DATED 5.5.2005 AND LETTER DT. 29.4.2005 (COPY OF LETTER DATED 29.4.2005 IS AVAILABLE AT PAGE NO. 10 OF PAPE R BOOK). COPIES OF BILLS AND CHALLANS RELATED TO UN ENTERED PURCHAS ES WERE FILED. ON 2.5.2005 STOCK REGISTER ON BEING ASKED BY THE AO WA S ALSO PRODUCED BEFORE AO IN SUPPORT OF CLAIM THAT PURCHAS ES OF RS. 9,92,675/- REMAINED UN ENTERED. THE BILLS SUPPORTE D BY GRS SHOW PURCHASES OF RS. 9,92,675/- MADE FROM M/S. VINAYAK TRADERS. FROM THE APPELLANTS CLAIM WHICH IS SUPPORTED BY EV IDENCES, IT APPEARS THAT GOODS WERE RECEIVED BEFORE SURVEY BUT BILLS WERE RECEIVED AFTER SURVEY AND PAYMENT WAS ALSO MADE AFT ER SURVEY. THE AO REMAINED ALMOST SILENT ON THIS ISSUE EXCEPT STATING THAT CLAIM OF UN ENTERED PURCHASES WAS NOT MADE DURING T HE COURSE OF SURVEY. ON THE STRENGTH OF ADMISSION BY THE PARTNE RS DURING THE COURSE OF SURVEY THAT THERE WAS NO BILL RECEIVABLE AND ADMISSION OF EXCESS STOCK, THE AO MADE ADDITION OF RS. 17,34,968 /- AFTER DETERMINING THE DIFFERENCE OF STOCK FOUND AND STOCK RECORDED IN THE BOOKS OF ACCOUNTS. DOCUMENTARY EVIDENCES IN THE FO RM OF BUILTY REGISTER, COPY OF CHALLAN, COPY OF GRS AND COPY OF PURCHASE BILLS WERE FILED AND AO HAS NOT STATED ANY THING ABOUT TH E CORRECTNESS OR 16 OTHERWISE OF CLAIM OF THE APPELLANT. NO ENQUIRY WA S ALSO MADE TO ASCERTAIN THE CLAIM MADE BY THE APPELLANT. IN VIEW OF THE CLAIM SUPPORTED BY DOCUMENTS THE AO IS DIRECTED TO ACCEPT THE CLAIM OF PURCHASES OF RS. 9,92,675/- NOT ENTERED IN THE BOOK S OF ACCOUNTS AT THE TIME OF SURVEY. THIS WILL REDUCE THE EXCESS ST OCK DETERMINED AT RS. 17,34,968/- BY RS. 9,92,675/-. REGARDING FURTHER CLAIM OF UN RECORDED JOB CHARGES CLAIM WAS MADE ON 29.4.2005 I.E. IMMEDIATE AFTER SURVEY. WHI LE DECIDING THE EARLIER GROUND OF APPEAL THE CLAIM HAS BEEN ACCEPTE D TO SOME EXTENT THAT THERE REMAINED GOODS WITH THE KARIGARS AND JOB CHARGES REMAINED OUTSTANDING TILL ALL THE GOODS ARE RECEIVE D BACK FROM ANY KARIGAR. GREY CLOTH IS GIVEN TO KARIGARS THROUGH O NE CHALLAN BUT FINISHED GOODS IN THE FORM OF SAREES ARE RECEIVED F ROM THE KARIGARS IN PIECEMEAL AND PAYMENT OF JOB WORK IS MADE ONLY A FTER RECEIVING ALL THE GOODS FROM KARIGARS. THIS WILL RESULT INTO SITUATION WHERE JOB CHARGES REMAINED OUTSTANDING AT ANY POINT OF TI ME. COMPLETE DETAILS LIKE NAME OF KARIGARS, CHALLANS AND AMOUNT RECORDED IN BOOKS WERE FURNISHED BEFORE THE AO. SEPARATELY ADDR ESSES OF ALL THE KARIGARS WERE ALSO GIVEN TO AO. IT APPEARS THA T AO HAS NOT MADE ANY ENQUIRY WITH THE KARIGARS. THE PAYMENTS W ERE MADE TO THE KARIGARS AFTER DEDUCTING TDS WHEREVER IT WAS RE QUIRED. HOWEVER, THE COMPUTATION FOR DETERMINING OUTSTANDIN G JOB WORK CHARGES GIVEN BY THE AR CANNOT BE ACCEPTED AS DONE WHILE DECIDING THE EARLIER GROUND OF APPEAL. IF CYCLE OF 8 DAYS IS CONSIDERED THEN ON TOTAL JOB WORK PAYMENT FOR THE Y EAR OF RS. 4.78 LACS THE OUTSTANDING JOB CHARGES WORKED OUT AT RS. 10.47 LACS. THIS WILL INCREASE THE BOOK STOCK AND REDUCE THE EXCESS STOCK. HOWEVER, THIS COMPUTATION IS ALSO BASED ON ESTIMATION ONLY A ND CANNOT BE A FOOLPROOF METHOD TO WORK OUT THE EXCESS STOCK OR UN RECORDED STOCK. THE FACT OF THE CASE IS THAT CERTAIN LOOSE PAPERS WERE FOUND SHOWING THAT RAW MATERIAL AT TIMES WAS GIVEN TO THE KARIGARS 17 WITHOUT CHALLAN AND, THEREFORE, THERE IS POSSIBILIT Y OF EXCESS STOCK. THE MODUS OPERANDI OF BUSINESS APPEARS TO SUCH THAT FOOLPROOF SYSTEM OF RECORDING STOCK MAY NOT BE POSSIBLE. TO COVER UP THE POSSIBLE LEAKAGE IT WILL BE MORE REASONABLE IF LUMP SUM ADDITION ON ACCOUNT OF EXCESS STOCK LYING AT SHOP IS MADE. THE AO, IS, THEREFORE, DIRECTED TO RESTRICT THE ADDITION TO RS. 5 LACS ON ACCOUNT OF EXCESS STOCK AT THE SHOP AS AGAINST RS. 17,34,96 8/-. THE APPELLANT THUS GETS PARTIAL RELIEF. 22. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT THERE IS NO SUBSTANCE IN THE GROUND OF THE DEPARTMENT. HOWEVER, ASSESSEE DESERVE S TO SUCCEED IN ITS GROUND. THE PART ADDITION ON ACCOUNT OF EXCESS STOCK LYING WITH KARI GARS HAS ALREADY BEEN SUSTAINED BY US WHILE DISPOSING GROUND NO. 3 OF THE DEPARTMENT AND GROUND NO. 1 OF THE ASSESSEE. WE HAVE ALSO SUSTAINED CERTAIN TRADING ADDITION WHILE DISPOSING GROUND NO. 1 OF THE DEPARTMENT AND GROUND NO. 2 OF THE ASSESSEE. THERE FORE, IN OUR VIEW THERE IS NO LOGIC TO CONFIRM ANY ADDITION ON ACCOUNT OF EXCESS STOCK TO COVER UP POSSIBLE LEAKAGE. WHATEVER THE DISCREPANCIES WERE NOTED THEY HAVE BEEN TAKEN C ARE WHILE DISPOSING GROUND NO. 3 AND GROUND NO. 1 OF THE DEPARTMENT. WE HAVE ALREADY UP HELD THE REJECTION OF BOOKS OF ACCOUNT AS THERE WERE CERTAIN DISCREPANCIES NOTED. HOWEVER, THERE IS NO COGENT MATERIAL TO SUSPECT THAT THERE WAS EXCESS STOCK AT THE PREMI SES OF THE ASSESSEE. ENTIRE PURCHASES OF GREY CLOTH ARE VOUCHED, BILLS ARE KEPT, THEY WERE P RODUCED AND WERE FOUND ALSO AT THE TIME OF SURVEY. THEREFORE, WHATEVER THE PURCHASES WERE T HERE THEY HAVE BEEN RECORDED AND OUT OF THE PURCHASES THE GREY CLOTH WERE ISSUED TO THE KARIGARS FOR DOING REQUIRED JOB WORK AND WHATEVER THE MATERIAL HAS BEEN GIVEN TO THE KAR IGARS THAT HAS BEEN RECEIVED AND HAVE BEEN RECORDED IN THE BOOKS OF ACCOUNT. WHATEVER TH E LEFT OVER OF STOCKS WERE LYING WITH 18 KARIGARS THAT WILL BE RETURNED AND WILL BE ACCOUNTE D FOR ACCORDINGLY AS PER SYSTEM ADOPTED BY THE ASSESSEE CONSISTENTLY. THEREFORE, IN OUR VI EW THE LD. CIT (A) WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION OF RS. 5,00,000/- JUST TO C OVER UP LEAKAGE. HE HAS PERHAPS SUSTAINED THIS ADDITION DUE TO OVERSIGHT THAT CERTA IN ADDITIONS ON ACCOUNT OF EXCESS STOCK WERE LYING WITH KARIGARS AND CERTAIN ADDITIONS ON A CCOUNT OF DISTURBING THE GP RATE ESTIMATED SALES HAVE BEEN CONFIRMED. THEREFORE, I N OUR VIEW, THE ADDITION OF RS. 5,00,000/- SUSTAINED BY LD. CIT (A) IS LIABLE TO BE DELETED. ACCORDINGLY WE DELETE THIS ADDITION. THE GROUND OF THE DEPARTMENT IS DISMISSE D AND GROUND OF THE ASSESSEE IS ALLOWED. 23. GROUND NO. 4 IN THE APPEAL OF THE DEPARTMENT IS AGAINST REDUCING THE VARIOUS ADDITIONS BELOW THE SURRENDERED AMOUNT OF RS. 80,00 ,000/- IS INFRUCTUOUS IN NATURE AS THIS GROUND DOES NOT REQUIRE ANY SEPARATE ADJUDICATION U PON BECAUSE OF THE REASON THAT WE HAVE ALREADY DISPOSED OFF OTHER GROUNDS ON MERIT AN D THIS GROUND IS CONSEQUENT TO THOSE GROUNDS. THEREFORE, THIS GROUND OF THE DEPARTMENT I S REJECTED. 24. GROUND NO. 3 IN THE CROSS OBJECTION OF THE ASSE SSEE IS AGAINST INVOKING PROVISIONS OF SECTION 145(3) OF THE ACT. 25. THIS GROUND WE HAVE ALREADY DISPOSED OFF WHILE DISPOSING OTHER GROUNDS OF THE ASSESSEE AND DEPARTMENT AND WE HAVE UPHELD THE INVO CATION OF PROVISIONS OF SECTION 145(3). ACCORDINGLY THIS GROUND OF THE ASSESSEE IS REJECTED. 26. GROUND NO. 5 IS AGAINST NOT ALLOWING TELESCOPIC ON ACCOUNT OF EXCESS STOCK. 27. THIS GROUND IS CONSEQUENTIAL TO THE GROUND NO. 2 OF THE ASSESSEE WHICH IS AGAINST CONFIRMING THE ADDITION OF RS. 5,00,000/- ON ACCOUN T OF EXCESS STOCK. GROUND NO. 2 OF THE 19 ASSESSEE HAS ALREADY BEEN ALLOWED BY US, THEREFORE, THIS GROUND DOES NOT REQUIRE ANY SEPARATE ADJUDICATION. ACCORDINGLY THE SAME IS DISM ISSED. 28. IN THE RESULT, APPEAL OF THE DEPARTMENT AS WELL AS CROSS OBJECTION OF THE ASSESSEE ARE ALLOWED IN PART. 29. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 21 .10.2011. SD/- SD/- ( N.L. KALRA ) ( R.K. GUPTA ) ACCOUNTANT MEMBER JUDICIAL MEMBER JAIPUR, D/ COPY FORWARDED TO :- THE ITO WARD 1(1), JAIPUR. M/S. MANGLAM FASHIONS, JAIPUR. THE CIT (A) THE CIT THE D/R GUARD FILE (ITA NO. 751/JP/2009) BY ORDER, AR ITAT JAIPUR.