Bhagwati Refineries Pvt. Ltd., Jalgaon V. DCIT, Circle-2, Jalgaon

ITA 866/PUN/2013

• Counselvise Citation: 86624514 RSA 2013
• Duration Of Justice: 1 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 23-07-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 17-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B C MALAKAR
• Keywords: Rejection of books of accounts; Depreciation; Wrong claim; Corroborative evidences
• Section: 32; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO.843/PN/2013 (ASSESSMENT YEAR 2009-10) DY.CIT, CIRCLE-2, JALGAON .. APPELLANT VS. BHAGWATI REFINERIES PVT. LTD., S.NO.70, GAT NO.37, VARKHEDI ROAD, PACHORA, DIST : JALGAON PAN NO. AABCB3446R .. RESPONDENT ITA NO.866/PN/2013 (ASSESSMENT YEAR 2009-10) BHAGWATI REFINERIES PVT. LTD., S.NO.70, GAT NO.37, VARKHEDI ROAD, PACHORA, DIST : JALGAON PAN NO. AABCB3446R .. APPELLANT VS. DY.CIT, CIRCLE-2, JALGAON .. RESPONDENT ASSESSEE BY : SHRI NIKHIL PATHAK REVENUE BY : SHRI B.C. MALAKAR DATE OF HEARING : 23-07-2014 DATE OF PRONOUNCEMENT : 31-07-2014 ORDER PER R.K. PANDA, AM : THESE ARE CROSS APPEALS. THE FIRST ONE IS FILED BY THE REVENUE AND THE SECOND ONE FILED BY THE ASSESSEE AND ARE DIRECT ED AGAINST THE ORDER DATED 22-02-2013 OF THE CIT(A)-II, NASHIK RELATING TO ASSESSMENT YEAR 2009-10. FOR THE SAKE OF CONVENIENCE, THESE WERE H EARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. 2 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF SOYA AND COTTON SEED EDIBLE OIL FROM CRUDE OIL (WASH OIL) AND ALSO INVOLVED IN TRADING OF EDIBLE OIL. IT FILED ITS RETURN OF INCOME ON 30-09 -2009 DECLARING TOTAL INCOME OF RS.16,56,120/-. DURING THE COURSE OF ASS ESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS D ECLARED TOTAL TURNOVER OF RS.117.47 CRORES AS AGAINST TURNOVER OF RS.88.28 CRORES IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. HE ANALYSED THE RATE OF GROSS PROFIT AND NET PROFIT OF THE PRECEDING AS WELL AS T HE CURRENT ASSESSMENT YEAR WHICH ARE AS UNDER : PARTICULARS F.Y. 2007-08 (A.Y. 2008-09) F.Y. 2008-09 (A.Y.2009-10) TURNOVER 882805877 1174698521 G.P. 33290437 29423971 %AGE 3.77% 2.50% NET PROFIT 7127369 1068398 %AGE 0.81 0.09 FROM THE ABOVE, HE NOTED THAT THE GROSS PROFIT DURI NG THE YEAR HAS DECREASED FROM 3.77% TO 2.5% AND THE NET PROFIT FRO M 0.81% TO 0.09%. HE, THEREFORE, ASKED THE ASSESSEE TO EXPLAIN WITH S UPPORTING EVIDENCES TO JUSTIFY THE FALL IN THE GROSS PROFIT AND NET PROFIT RATIO DURING THE YEAR AS COMPARED TO THE PRECEDING YEAR. 2.1 THE ASSESSEE IN ITS REPLY SUBMITTED THAT IT HAS MAINTAINED REGULAR BOOKS OF ACCOUNT DULY SUPPORTED BY PURCHASE AND SAL E BILLS, EXPENDITURE VOUCHERS, DAY-TO-DAY ITEM-WISE STOCK REGISTER ETC. THE BOOKS OF ACCOUNTS ARE AUDITED AND QUANTITATIVE TALLY AND DETAILS OF O PENING AND CLOSING STOCK ARE ALREADY FILED. IT WAS SUBMITTED THAT THE TURNO VER DURING THE YEAR HAS GONE UPTO RS.117.47 CRORES AS AGAINST THE TURNOVER OF RS.88.28 CRORES IN THE PRECEDING YEAR AND DUE TO INCREASE IN THE TURNO VER THE GROSS PROFIT 3 RATE HAS FALLEN DOWN. THE ASSESSEE SUBMITTED THAT DUE TO FLUCTUATION IN PRICE OF PALM OIL, THERE WAS LESSER PROFIT IN TRADI NG ACTIVITY DURING THE YEAR. IT WAS SUBMITTED THAT THERE IS NO CHANGE IN THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE AND P ROPER BOOKS OF ACCOUNTS ARE MAINTAINED. IT WAS SUBMITTED THAT IN THE PRECEDING YEAR THE PURCHASES WERE MOSTLY FROM KHANDAWA, BHOPAL, DAKAC HIYA OR FROM SHORT DISTANCE PLACES WHEREAS DURING THE CURRENT YE AR THE GOODS ARE PURCHASED FROM BHOPI, ITARSI, NAGPUR, CHINCHOLI (SO LAPUR) ETC. DUE TO PURCHASE FROM DISTANT PLACES THE FREIGHT RATE HAS A LSO GONE UP. THE FALL IN THE MARKET RATE OF PALM OIL WAS ALSO ONE OF THE REA SONS WHICH CAUSED A LOSS OF RS.36,38,328/-. IT WAS ACCORDINGLY SUBMITT ED THAT THE FALL IN GP RATIO IS DUE TO HUGE INCREASE IN TURNOVER, PURCHASE FROM DISTANT PLACES FOR WHICH HIGHER FREIGHT HAS BEEN INCURRED AND LOSS IN PALM OIL TRADING ACCOUNT DUE TO FALL IN THE OIL PRICES. 3. HOWEVER, THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE. HE NOTED THAT T HE ASSESSEE HAS TWO TYPES OF ACTIVITIES, I.E., MANUFACTURING AND TRADIN G. FROM THE VARIOUS DETAILS FURNISHED BY THE ASSESSEE, THE ASSESSING OF FICER PREPARED A COMPARATIVE CHART FOR BOTH MANUFACTURING AND TRADIN G ACTIVITY WHICH IS AS UNDER : F.Y. 07-08 F.Y.08-09 F.Y.07-08 F.Y. 08-09 OP. STOCK OF RAW MATERIAL. 25741440 29305978 BY SALES OF REF. OIL ( MFG.) 847128477 1046735282 OP. STOCK OF FINISHED GOODS 14293880 14993159 BY SALES OF REF. OIL (TRADING) 35677400 79202613 RAW OIL PURCHASE 785909032 975448315 BY SALES BAGAS 0 0 REF. OIL PURCHASE FOR RESALE 40976979 31907779 CL. STOCK MFG. EXP. 23329607 29259932 RAW OIL 29305978 0 FINISHED GOODS .._. _ 14993159 0 4 3.1 FROM THE ABOVE CHART, THE ASSESSING OFFICER DER IVED THE FOLLOWING INFERENCES: A.Y.2009-10 A.YR.2008-09 DIFFERENCE % OF INCREASE/ DECREASE SALE OF MFG. REFINED OIL. 104,67,35,282 84,71,28,477 19,96,06,805 23.56 SALE OF TRADING OIL. 7,92,02,643 3,56,77,400 4,35,25,243 121.99 RAW OIL PURCHASE 97,54,48,315 78,59,09,032 18,95,39,283 24.11 REFINED OIL PURCHASE 3,19,07,779 4,09,76,979 (-)90,69,200 -22.13 MFG. EXPENSES 2,92,59,932 2,33,29,607 59,30,325 20.26 FREIGHT 1,19,60,463 35,57,639 84,02,824 236.19 3.2 FROM THE ABOVE, THE AO NOTED THAT THE SALE OF M ANUFACTURING REFINED OIL HAS INCREASED BY 23.56% WHEREAS SALE OF TRADING OIL HAS INCREASED BY 121.99%. THE FREIGHT EXPENDITURE HAS INCREASED BY 236.19%. AS THERE WAS INCREASE IN FREIGHT EXPENDIT URE BY MORE THAN 236%, THE ASSESSING OFFICER DEEMED IT PROPER FOR FU RTHER COMPARISON. HE NOTED THAT DURING A.Y. 2008-09 ASSESSEE HAD PURC HASED 6794.075 MT OF SOYA SOLVENT OIL ON WHICH IT SHOWED FREIGHT E XPENDITURE OF RS.31,73,748/- WHEREAS DURING A.Y. 2009-10 IT HAS P URCHASED 14786.850 MT OF SOYA SOLVENT OIL ON WHICH IT HAS IN CURRED FREIGHT EXPENDITURE OF RS.1,05,16,008/-. IN TERMS OF PERCE NTAGE, THE INCREASE IN PURCHASE QUANTITY IS BY 117.63%. BY APPLYING SAME RATIO, THE FREIGHT EXPENDITURE ACCORDING TO HIM SHOULD HAVE BEEN INCR EASED BY 117.63%. THE ASSESSING OFFICER TOOK INTO ACCOUNT THE INCREASE IN FUEL EXPENDITURE AND CAME TO THE CONCLUSION THAT THE FRE IGHT EXPENDITURE WOULD HAVE INCREASED MAXIMUM BY 150% AND NOT MORE T HAN THAT. THEREFORE, THE FREIGHT EXPENDITURE MIGHT HAVE INCRE ASED BY ANOTHER RS.46,60,622/- (I.E.150% OF 31,73,748) AND THEREFOR E, THE ASSESSEE AT 5 THE MOST WOULD HAVE INCURRED RS.79,34,370/- AND NOT RS.1,05,16,008/- AS CLAIMED BY IT. AFTER ANALYSING THE RESULTS OF THE MANUFACTURING AND TRADING ACTIVITY, THE ASSESSING O FFICER HELD THAT THE FALL IN GP RATIO NEEDS TO BE RESTRICTED TO 0.5% AS AGAINST 1.27% AS PER TRADING RESULTS. HE, ACCORDINGLY, MADE ADDITION OF RS.52,33,675/- TO THE GROSS TOTAL INCOME OF THE ASSESSEE DUE TO FALL IN T HE GP MARGIN. 3.3 THE AO FURTHER NOTED THAT AS AGAINST PURCHASE E XPENSES OF RS.24,951/- DURING A.YR.2008-09, THE ASSESSEE HAS C LAIMED RS.1,49,702/- AS PURCHASE EXPENDITURE DURING THE YE AR. ON BEING QUESTIONED BY THE AO TO EXPLAIN THE NATURE OF PURCH ASE EXPENSES WITH SUPPORTING EVIDENCE, IT WAS EXPLAINED THAT THE SE EXPENSES ARE REQUIRED TO BE MADE AS 'ENTRY AND SMALL PETTY PAYME NT' MADE AT THE BORDER AND THEREFORE CANNOT BE VOUCHED. THE AO NOTE D THAT THE INCREASE IN PURCHASE EXPENDITURE IS APPROXIMATELY S IX TIMES. HE, THEREFORE, DISALLOWED THE PURCHASES EXPENSES OF RS. 1,49,702/-. 3.4 THE AO SIMILARLY COMPARED THE TRADING ACCOUNT O F PALM OIL WHICH IS REPRODUCED AS UNDER : PARTICULARS QTY. AMOUNT PARTICULARS QTY. AMOUNT OP. STOCK 0 0 BY SALES 907.040 48760596 PURCHASE 909.430 51573518 PURCHASE EXP. 825406 CL. STOCK 0 0 LOSS 3638328 3.5 FROM THE ABOVE CHART, THE AO NOTED THAT THE ASS ESSEE HAD PURCHASED 909.430 MT OF PALM OIL FOR RS.5,15,73,518 /- AND HAD BOOKED LOSS OF RS.36,38,328/- BY SELLING PURCHASED QUANTITY AT RS.4,87,60,596/- AND AFTER INCURRING FREIGHT EXPEND ITURE OF 6 RS.8,25,406/-. THE AO NOTED THAT THE MANAGING DIREC TOR OF THE ASSESSEE COMPANY, NAMELY SHRI. POONAMCHAND R. MOR H IMSELF IS HAVING A PROPRIETARY CONCERN VIZ. M/S.GAYATRI OIL I NDUSTRIES WHICH HAS CARRIED OUT TRADING ACTIVITY OF PALM OIL IN THE SAME ASSESSMENT YEAR. THE TOTAL TRADING ACTIVITY CARRIED OUT IN HIS INDIVIDUAL CAPACITY IS OF RS.29.48 CRORE ON WHICH HE HAS SHOWN GROSS PR OFIT @2.35%. THE TRADING ACCOUNT OF HIS OWN PROPRIETARY CONCERN SHOWS THAT HE HAD PURCHASED PALM OIL WEIGHING 2999 MT FOR RS. 15,79,6 9,409/-. THE SAME QUANTITY OF PALM OIL I.E. 2999 MT ARE SOLD FOR RS.16,04,87,374/-. HE HAS SHOWN GROSS PROFIT @1.97 %. ACCORDING TO THE AO, T HE MANAGING DIRECTOR HIMSELF IS AN EXPERT IN THE SA ME FIELD AND IS ENGAGED IN TRADING OF SAME COMMODITY. THEREFORE, IT IS UNBELIEVABLE THAT THE SAME PERSON WILL INCUR SUCH A HUGE LOSS OF RS.36,38,328/-. THEREFORE, THE AO REJECTED THE LOSS BOOKED AT RS.36,38,328/- TREATING THE SAME TO BE UNTRUE. AFT ER ALLOWING THE PURCHASES EXPENSES OF RS.8,25,406/- THE AO DISALLOW ED THE LOSS OF RS.28,12,922/- ON ACCOUNT OF TRADING ACTIVITY. 4. BEFORE THE CIT(A) THE ASSESSEE MADE ELABORATE AR GUMENTS REGARDING THE ADDITIONS MADE BY THE ASSESSING OFFIC ER. IT WAS SUBMITTED THAT THE ASSESSEE MAINTAINS PROPER BOOKS OF ACCOUNT S WHICH ARE DULY AUDITED AS PER I.T. ACT U/S.44AB AND AS PER COMPANI ES ACT, 1956 AS WELL AS MAHARASTRA VALUE ADDED TAX ACT, 2002. THE TURNOVER OF THE ASSESSEE HAS GONE UP FROM RS.88 CRORES IN THE PRECE DING YEAR TO 117 CRORES DURING THE CURRENT YEAR. THUS, THERE WAS AN INCREASE OF 33% IN THE TURNOVER WHICH IS ONE OF THE REASONS FOR LOWER GP. IT WAS ARGUED THAT THE FLUCTUATION IN THE MARKET RATE OF EDIBLE OIL WA S ONE OF THE REASON DUE 7 TO WHICH THE ASSESSEE HAS INCURRED A LOSS OF RS.36, 38,328/- IN PALM OIL TRADING ACCOUNT. IT WAS EXPLAINED THAT THERE WAS A N INCREASE IN THE TRADING TURNOVER WHICH HAS GONE UP FROM RS.3.57 CRO RES IN THE PRECEDING YEAR TO RS.12.8 CRORES DURING THE CURRENT YEAR AND THIS IS ALSO ONE OF THE REASONS IN THE FALL IN THE GP RATIO. IT WAS ARGUED THAT IN THE MANUFACTURING ACTIVITY THE PURCHASES OF RAW MATERIA L FROM DISTANT PLACES AS AGAINST NEARBY PLACES IN THE PRECEDING YEAR WAS ANOTHER REASON FOR INCREASE IN FREIGHT RATE THEREBY DECREASE IN GP RAT IO. THE FREIGHT INWARD RATE IN RESPECT OF PURCHASES WENT UPTO 710 PER MT A S AGAINST 470/- PER MT IN THE PRECEDING YEAR. IT WAS ACCORDINGLY ARGUE D THAT WITHOUT CONSIDERING ALL THESE ASPECTS THE ASSESSING OFFICER MADE HUGE ADDITION TO THE TOTAL INCOME OF THE ASSESSEE. 4.1 AS REGARDS THE LOSS IN THE TRADING ACCOUNT OF P ALM OIL, IT WAS SUBMITTED THAT THE COMPARATIVE COST OF SHRI POONAMC HAND R. MOR, MANAGING DIRECTOR OF THE COMPANY IS QUITE DIFFERENT FROM THAT OF THE ASSESSEE COMPANY. IN THE CASE OF THE ASSESSEE COMP ANY PALM REFINED OIL WAS PURCHASED FROM 22-07-2008 TO 28-08-2008 AND THE SALES WERE EFFECTED UPTO DECEMBER 2008. THERE WAS NO PURCHASE AFTER 28-08-2008 AND THE MARKET RATE HAD GONE DOWN TO RS.400 FOR 10 KG FROM MIDDLE OF OCTOBER 2008 AS AGAINST RS.590 IN JULY/AUGUST 2008. BECAUSE OF THE HUGE FLUCTUATION IN THE RATE OF PALM OIL THE ASSESS EE HAD INCURRED HUGE LOSS. AS REGARDS THE DISALLOWANCE OF PURCHASES EXP ENSES OF RS.1,49,702/-, IT WAS ARGUED THAT THE OBSERVATION O F THE ASSESSING OFFICER THAT THE ENTIRE PURCHASES EXPENSES OF RS.1, 49,702/- ARE IN RESPECT OF ENTRY TAX AND TIPS GIVEN TO THE BOARDER AND POLI CE PERSONNEL ARE NOT FULLY CORRECT. 8 5. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE LD.CIT(A) DIRECTED THE ASSESSING OFFICER TO DETERMINE THE GP RATE AT 3% OF THE TURNOVER AND DELETE ADDITION ON ACCOUNT OF TRADING LOSS OF RS.28,12,922/- AND PURCHASES EXPENSES OF RS.1,49,702/-. HE ACCORD INGLY GRANTED RELIEF OF RS.23,79,316/- ON ACCOUNT OF ADDITION MADE TO GP , TRADING LOSS AND PURCHASES EXPENSES. HE, HOWEVER, DIRECTED THE ASSE SSING OFFICER TO DISALLOW THE DEPRECIATION OF RS.29,35,073/- ON THE GROUND THAT THE ASSESSEE HAS CLOSED DOWN HIS BUSINESS AS ON 31-03-2 009 AND THEREFORE HE IS NOT ENTITLED TO DEPRECIATION. THE RELEVANT O BSERVATION OF THE CIT(A) READS AS UNDER : 7. I HAVE CAREFULLY GONE THROUGH THE ASSESSMENT ORDER, SUBMISSION OF THE APPELLANT, REMAND REPORT AND THE MATERIAL AVAIL ABLE ON RECORD. A PERUSAL OF THE DOCUMENTS REVEALS THAT THE APPELLANT'S G P IN THE AY UNDER APPEAL HAS COME DOWN TO 2.50% FROM 3.77% IN AY 2008- 09 AND 3.28% IN AY 2007-08. IT WAS SEEN THAT GROSS PROFITS FOR BOTH SOYAB EAN OIL AS WELL AS COTTON SEED OIL HAVE GONE DOWN VIS-A-VIS AY 2008-09. THE NET PROFIT DRASTICALLY WENT DOWN FROM 0.81% IN AY 2008-09 TO 0. 09% IN AY 2009- 10. NET PROFIT IN AY 2007-08 WAS 0.13%. THE APPELLAN T HAS CITED VARIOUS REASONS SUCH AS INCREASE IN TURNOVER FROM ` 88 CRORE TO ` 117 CRORE IN AY 2009-10, WIDE FLUCTUATIONS IN THE MARKET RATES OF ED IBLE OILS PARTICULARLY IN PALM OIL, PROPORTIONATELY HIGHER INCREASE IN TRAD ING TURNOVER FROM ` 3.57 CRORE TO ` 12.8 CRORE (GP IN TRADING TURNOVER IS LOW AS COMPARED TO MANUFACTURING TURNOVER), INCREASE IN INWARD FREIGHT EXPENSES ETC. FOR FALL IN GP RATE. DECREASE IN NP RATE IS ASCRIBED TO FALL IN INCOME ON ACCOUNT OF PROCESSING CHARGES FROM ` 11,79,028/- IN AY 2008-09 TO ` 2,44,316/- IN AY 2009-10, FALL IN OTHER INCOME FROM ` 45,66,773/- IN AY 2008-09 TO ` 15,84,903/- IN AY 2009-10 AND FALL IN GP FROM 3.77% TO 2.50% IN AY 2009-10. THE RATE OF GP DECLARED BY AN ASSESSEE IS GENER ALLY ACCEPTED AS AN INDICATOR OF THE RELIABILITY OF THE ACCOUNTS. EVE N IN THE INCOME TAX ASSESSMENTS, GENERALLY, THE STARTING POINT OF ANY ENQUIRY IS THE RATE OF GROSS PROFIT AND IF THERE IS A STEEP FALL COMPARED TO T HE EARLIER YEAR, THE ACCOUNTS ARE SUBJECT TO CLOSE SCRUTINY TO FIND OUT IF T HEY ARE RELIABLE AND IN CASE FURTHER DEFECTS IN THE MAINTENANCE OF THE ACC OUNTS OR THE METHOD OF ACCOUNTING ARE UNEARTHED, THE DEPARTMENTAL AUTHO RITIES DO REJECT THE BOOK RESULTS AND ESTIMATE THE PROFITS. IN THE PRESENT CA SE WHILE GOING THROUGH THE AUDITED ACCOUNTS, I HAVE COME ACROSS MANY SERIOUS DEFECTS. THE APPELLANT HAS NOT SUBMITTED THE STOCK STATEMENTS TO THE IDBI BANK ON A REGULAR BASIS. THE APPELLANT DID NOT SUBMIT STOCK STAT EMENTS FOR THE QUARTERS ENDING JUNE 2008, SEPTEMBER 2008, DECEMBER 2008 AND MARCH 2009. THE BANK HAS CHARGED PENAL INTEREST OF ` 10,44,739/- FOR NON- SUBMISSION OF STOCK REPORTS. THE APPELLANT HAD TAKEN A C C LIMIT OF ` 4.40 CRORE FROM IDBI AND THE OUTSTANDING BALANCE AS ON 31/ 03/2009 WAS AT ` 3,97,23,722/-. HOWEVER, THE VALUE OF CLOSING STOCK IN THE BOOKS OF THE APPELLANT AS ON 31/03/2009 WAS AT ` NIL. SECONDLY, THE APPELLANT HAS SHOWN TO HAVE SOLD GOODS TO M/S.GAYATREE OIL INDUSTRIES P ROP SHRI. POONAMCHAND R. MOR, WHO IS A SUBSTANTIAL SHARE HOLDER I N THE APPELLANT COMPANY IN MARCH 2009 AND SHOWED IT AS ONE OF THE SU NDRY DEBTORS WITH 9 AN OUTSTANDING BALANCE OF ` 5,33,82,482/-. HOWEVER, A PERUSAL OF AUDIT REPORT OF M/S. GAYATREE OIL INDUSTRIES FOR AY 2009-10 REVEALED THAT IT HAD NOT SHOWN THE APPELLANT COMPANY AS SUNDRY CREDITOR. A FURTHER SCRUTINY OF THE ACCOUNTS REVEALED THAT THE APPELLANT HAD BEEN PURCHASING RAW MATERIAL MAINLY COTTON WASH OIL FROM GAYATREE (OIL I NDUSTRIES WHICH IT HAS SHOWN TO HAVE RESOLD TO IT ON 31/03/2009. ON FURTH ER ENQUIRY IT WAS STATED THAT M/S GAYATREE OIL INDUSTRIES HAD SOLD/TRANSFER RED THE STOCK TO M/S KRISHNA REFINERIES IN WHICH SHRI. POONAMCHAND MOR AND HIS WIFE SMT. KIRAN P. MOR HAVE 50% SHARE EACH IN PROFIT AND LOSS. IT MAY BE NOTED THAT M/S. KRISHNA REFINERIES IS LOCATED AT THE SAME LA ND IN WHICH AT THE SAME LAND IN WHICH THE APPELLANT COMPANY WAS HAVING I TS OPERATIONS. THERE WAS NO EVIDENCE OF SALE OR MOVEMENT OF GOODS ON 31/03/2009. IT IS ALSO SEEN THAT THE APPELLANT HAS PAID HIGHER PRICES T O M/S GAYATREE OIL INDUSTRIES FOR PURCHASE OF COTTON WASH OIL EG. ON 26/0 2/2009 IT HAS PURCHASED COTTON WASH OIL @ 3855.76/10KG FROM SANJAY FOODS INDIA (P) LTD AS AGAINST ` 4000/10KG FROM GAYATREE OIL INDUSTRIES. ON 01/03/2009 IT HAS PURCHASED COTTON WASH OIL @ ` 384.61/KG FROM SHREE NARAYAN OIL MILL AS AGAINST ` 40/KG FROM GAYATREE OIL INDUSTRIES. THE DISCREPANCY IN THE ACCOUNTS OF APPELLANT: COMPANY AND THE GAYATREE OIL INDUSTRIES ESTABLISHES THAT THE SALE/PURCHASE TRANSACTION WERE NOT R ELIABLE. FURTHER, IN THE ABSENCE OF ANY INDEPENDENT CORROBORATIVE EVID ENCE, DAILY CONSUMPTION AND PRODUCTION FIGURES ALSO NOT REMAIN UNSU BSTANTIATED. THIRDLY, THE STOCK STATEMENTS ESPECIALLY AS ON 31/03/200 9 MAINTAINED BY THE APPELLANT ARE NOT CORROBORATED BY ANY INDEPENDE NT EVIDENCE SUCH AS STOCK STATEMENT FURNISHED TO BANK. IN ABSENCE OF THE SAM E AND IN VIEW OF THE TRANSACTIONS WITHIN THE GROUP ESPECIALLY ON 31/03/ 2009, POSITION OF STOCK SHOWN BY THE APPELLANT IS NOT RELIABLE. THE APPE LLANT HAD DECIDED TO STOP ITS OPERATIONS ON 31/03/2009 BUT STILL IT KEPT ON PURCHASING RAW MATERIAL. IT IS SHOWN TO HAVE PURCHASED COTTON WASH OIL AMOUNTING TO ` 12,03,413/- FROM 28/03/2009 TO 31/03/2009. IF THE D IRECTORS HAD DECIDED TO STOP THE OPERATIONS BY 31/03/2009, THEY WO ULD NOT HAVE MADE PURCHASES AS LATE AS ON 28/03/2009, 29/03/2009 AND 31/03/2009 AND INCUR SUBSTANTIAL INWARD FREIGHT EXPENSES. A COMPAN Y WOULD NOT ALL OF A SUDDEN DECIDE TO DISCONTINUE ITS OPERATIONS AND DI SPOSE OF ITS STOCK WITH AN OUTSTANDING LIABILITY OF ` 3.97 CRORE TOWARDS BANK. FURTHER, THE AUDITORS IN THEIR NOTES HAVE STATED THAT ASSETS INCLUDIN G PLANT AND MACHINERY WERE TRANSFERRED TO ITS RELATED CONCERN AT BOOK VALUE, SHOWING WDV AT THE END OF THE YEAR AT NIL, STILL A DEPRECIA TION OF ` 29,35,077/- AS PER IT ACT HAS BEEN CLAIMED IN ITS BOOKS IN GROSS VIOLAT ION OF SEC 32 READ WITH SEC. 43 OF THE ACT. THE AUDIT REPORT STATES AS UND ER 'ACCORDING TO INFORMATION AND EXPLANATION GIVEN BY THE DIRECTORS, IT IS DECIDED TO GO FOR VOLUNTARILY WINDING UP OF T HE COMPANY AND AS SUCH THE FIXED ASSETS ARE SOLD AND TRANSFER TO MRS. KIRANDEVI MOR AMOUNTING TO ` 39,51,000/- AND THAT TO M/S KRISHNA REFINARIES (A PARTNERSHIP FIRM IN WHICH BOTH THE DIRECTORS ARE PA RTNER) AT BOOK VALUE AMOUNTING TO ` 2,67,01,946/-. FURTHER, DEBIT BALANCE ` 22,68,345/- OF DIRECTOR MRS. KIRANDEVI MOR, CREDIT BALANCE ` 16,31,256/- OF DIRECTOR POONAMCHAND MOR AND THAT CR EDIT BALANCE ` 19,98,299.06/- OF M/S RADHAKISAN KALYANMAL & CO. IS ALSO TRANSFERRED TO M/S KRISHNA REFINARIES'. 8. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, I AM OF THE CONSIDERED OPINION THAT APPELLANT'S BOOKS OF ACCOUNTS ARE NOT REL IABLE AND RIGHTLY REJECTED BY THE AO. THE APPELLANT'S REASONS FOR FALL I N GP ARE GENERAL IN NATURE AND DO NOT JUSTIFY STEEP FALL IN GP FROM 3.77% IN AY 2008-09 TO 2.5% IN AY 2009-10. WHILE THERE IS BOUND TO BE SAME V ARIATION DUE TO FLUCTUATION IN THE MARKET RATES, ONE CANNOT OVERLOOK THE FACT THAT RISE IN PRICES OF RAW MATERIAL WILL LEAD TO RISE IN PRICES OF FINISHED GOODS ALSO AND THERE WOULD BE A PROPORTIONATE BALANCE BETWEEN THE PRICES OF RAW 10 MATERIAL AND THE FINISHED GOODS. KEEPING IN VIEW THE TOTALITY OF FACTS AND THE ARGUMENTS OF THE APPELLANT, I AM OF THE OPINION THAT A GP RATE OF 3% ON THE TOTAL TURNOVER OF ` 117,46,98,521/- WOULD BE FAIR AND REASONABLE. IT WOULD ALSO MEET THE ENDS OF THE JUSTICE. THE GP @ 3 % ON TOTAL TURNOVER OF ` 117,46,98,521/- COMES TO ` 3,52,40,955/- AS AGAINST GP OF ` 2,94,23,971/- SHOWN BY THE APPELLANT. THE DIFFERENCE OF ` 58,16,984/- IS ADDED BACK TO THE INCOME OF THE APPELLANT. BESIDES, DEPRECIATION OF ` 29,35,073/- WRONGLY CLAIMED BY THE APPELLANT (AS IT HAD WDV OF ` NIL AS ON 31/03/2009) AND IGNORANTLY ALLOWED BY THE AO IS A LSO ADDED BACK TO ITS INCOME. AR WAS CONFRONTED ON THIS ISSUE VIDE ORDER SH EET ENTRY DT. 21/02/2013. APPELLANT'S SUBMISSION THAT IT HAD USED THE ASSETS AND PLANT AND MACHINERY FOR 364 DAYS AND HENCE DEPRECIAT ION IS RIGHTLY CLAIMED IS DEVOID OF MERIT AND HENCE REJECTED. AO IS DIRECTED TO INITIATE PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT AGAINST T HE APPELLANT FOR MAKING WRONG CLAIM ON ACCOUNT OF DEPRECIATION IN TH E RETURN OF INCOME. SINCE THE APPELLANT COMPANY HAS CLAIMED TO HAVE TRAN SFERRED FIXED ASSETS AS WELL AS STOCKS TO M/S KRISHNA REFINERIES AND M/S GAYATRE E OIL MILLS, WHERE 2 DIRECTORS ARE PARTNERS/PROPRIETOR, AO IS DIREC TED TO EXAMINE THE ISSUE U/S 2(22)(E) OF THE ACT IN THE PERSONAL CASES OF DI RECTORS FOR THE RELEVANT AY. WITH THESE ADDITIONS OF ` 87,52,057/-, NO OTHER ADDITIONS ON ACCOUNT OF TRADING LOSS ( ` 28,12,922/-) AND PURCHASE EXPENSES ( ` 1,49,702/-) AS MADE BY THE AO ARE PROPOSED. HENCE, W HILE THE APPELLANT GETS A RELIEF OF ` 23,79,316/- ( ` 81,96,300 - ` 58,16,984) ON ACCOUNT OF ADDITIONS IN REGARD TO GP, TRADING LOSS AND PURCHASE EXPENSES MADE BY THE AO, ITS INCOME IS ENHANCED BY ` `` ` 29,35,073/- ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION. TOTAL ADDITIONS TO THE EXTENT OF ` 87,52, 057/- ARE THEREFORE, CONFIRMED. 5.1 AGGRIEVED WITH SUCH PART RELIEF GIVEN BY THE CI T(A) THE ASSESSEE AS WELL AS THE REVENUE ARE IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS : GROUNDS BY ASSESSEE : ON FACTS AND IN LAW, 1] THE LD. CIT(A) ERRED IN CONFIRMING AN ADDITION OF RS.58,16,984/- ON THE GROUND THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE WER E DEFECTIVE AND ALSO BECAUSE THE GROSS PROFIT PERCENTAGE WAS LESS THAN THE GROSS PROFIT PERCENTAGE EARNED BY THE ASSESSEE IN THE EARLIER YEAR. 2] THE LD. CIT(A) ERRED IN HOLDING THAT THE BOOK S OF ACCOUNTS MAINTAINED BY THE ASSESSEE WERE DEFECTIVE AND HENCE, TH E G.P. SHOULD BE ESTIMATED @ 3% AS AGAINST THE G.P. OF 2.50% OFFERED BY THE ASSESSEE. 3] THE LD. CIT(A) FAILED TO APPRECIATE THAT THE ASSESSEE'S BOOKS WERE DULY AUDITED AND THERE WERE NO DEFECTS IN THE BOOKS M AINTAINED BY THE ASSESSEE AND ACCORDINGLY, THERE WAS NO REASON TO REJECT T HE BOOKS AND ESTIMATE THE G.P. 4] THE LD. CIT(A) FURTHER ERRED IN NOT APPRECIAT ING THAT THERE WERE VARIOUS REASONS BECAUSE OF WHICH THERE WAS FALL IN G.P. AND HENCE, THE ADDITION MADE OF RS.58,16,984/- IS NOT JUSTIFIED AT AL L. 11 5] WITHOUT PREJUDICE, THE ASSESSEE SUBMITS THAT THE AD DITION MADE IS VERY HIGHLAND MAY BE REDUCED SUBSTANTIALLY. 6] THE LD. CIT(A) ERRED IN MAKING AN ENHANCEMENT OF RS.29,35,073/- BY DISALLOWING DEPRECIATION ON ASSETS CLAIMED BY THE ASSESSEE ON THE GROUND THAT THE ASSESSEE COMPANY WAS NOT ENTITLED TO CLAIM DEP RECIATION ON THE SAID ASSETS. 7] THE LD. CIT(A) ERRED IN HOLDING THAT AS THE ASSE SSEE HAD TRANSFERRED THE -ASSETS ON WHICH DEPRECIATION WAS CLAIME D, THE ASSESSEE COMPANY WAS NOT ENTITLED TO CLAIM ANY DEPRECIATION O N THE SAID ASSETS. 8] THE LD.CIT(A) FAILED TO APPRECIATE THAT THE ASSESSE E HAD USED THE SAID ASSETS DURING THE YEAR AND THEREFORE, THE DEPRECIA TION WAS RIGHTLY CLAIMED BY THE ASSESSEE COMPANY. 9] THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND O R DELETE ANY OF THE ABOVE GROUNDS OF APPEAL. GROUNDS BY REVENUE : (1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LD. CIT(A) HAS ERRED IN GRANTING RELIEF OF RS.23,79,316/- OUT OF THE TOTAL ADDITION MADE BY A.O. AT RS.81,96,300/- ON ACCOUNT OF FALL I N G.P. IN MANUFACTURING ACTIVITY AND REJECTION OF TRADING LOSS AND PURCHASE EXPENSES. (2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD . CIT(A) HAS ERRED IN GRANTING RELIEF EVEN THOUGH THE A.O. OBSERV ED SPECIFIC DISCREPANCIES IN ASSESSEE'S BOOKS OF ACCOUNTS AND CIT(A) HI MSELF ADMITTED IN HIS ORDER THAT THE BOOKS OF ACCOUNTS ARE N OT RELIABLE. (3) THE APPELLANT CRAVES TO LEAVE, ALTER, AMEND, MO DIFY ANY GROUND OF APPEAL AT THE TIME OF HEARING. 6. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY CHALLE NGED THE ORDER OF THE CIT(A). HE SUBMITTED THAT NEITHER THE ASSESSIN G OFFICER HAS REJECTED THE BOOKS OF ACCOUNTS FOR MAKING THE ESTIMATION OF GP NOR HE HAS POINTED OUT ANY MISTAKE IN THE BOOKS OF ACCOUNT. H E SUBMITTED THAT THE LD.CIT(A) ALTHOUGH GAVE PART RELIEF TO THE ASSESSEE BY REDUCING THE GP TO 2.5% AS AGAINST 3% ESTIMATED BY THE ASSESSING OF FICER, HAS HOWEVER, UPHELD THE ESTIMATION OF GP ON THE GROUND THAT THE ASSESSEE HAS NOT SUBMITTED THE STOCK STATEMENT TO IDBI BANK ON A REG ULAR BASIS. SECONDLY, HE OBSERVED THAT AS AGAINST THE OUTSTANDING CC LIMI T OF RS.3.97 CRORES THE 12 ASSESSEE HAS DECLARED NIL CLOSING STOCK. THIRDLY, HE NOTED THAT THE ASSESSEE HAS SHOWN TO HAVE SOLD GOODS TO M/S. GAYAT REE OIL INDUSTRIES, PROPRIETOR SHRI POONAMCHAND R. MOR, WHO IS A SUBSTA NTIAL SHAREHOLDER IN THE ASSESSEE COMPANY IN MARCH 2009 AND SHOWED IT AS ONE OF THE SUNDRY DEBTORS WITH AN OUTSTANDING BALANCE OF RS.5.34 CROR ES. HOWEVER, GAYATREE OIL INDUSTRIES HAS NOT SHOWN THE ASSESSEE COMPANY AS SUNDRY CREDITOR. THE LD. COUNSEL FOR THE ASSESSEE DREW TH E ATTENTION OF THE BENCH TO THE ORDER OF CIT(A) AND SUBMITTED THAT ACC ORDING TO THE LD.CIT(A), THE ASSESSEE HAS PAID HIGHER PRICE TO GA YATREE OIL INDUSTRIES FOR PURCHASE OF COTTON VASE OIL. HE ALSO NOTED THA T THE STOCK STATEMENT MAINTAINED BY THE ASSESSEE ARE NOT CORROBORATED BY ANY INDEPENDENT EVIDENCE SUCH AS STOCK STATEMENT TO THE BANK. IN V IEW OF THESE DEFECTS, HE HELD THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE ARE NOT RELIABLE AND CORRECT. AS AGAINST THE ABOVE OBSERVATIONS, THE LD .COUNSEL FOR THE ASSESSEE SUBMITTED THAT SINCE THE ACCOUNTS WERE NEI THER REJECTED BY THE ASSESSING OFFICER FOR INVOKING THE PROVISIONS OF SE CTION 145 AND SINCE NO SPECIFIC DEFECT WAS POINTED BY THE ASSESSING OFFICE R IN THE ACCOUNTS, THEREFORE, ESTIMATION OF GP BY THE ASSESSING OFFICE R WAS NOT WARRANTED. HE SUBMITTED THAT IN CASE ANY SUCH DEFECT WAS THERE , THE ASSESSING OFFICER COULD HAVE MADE SPECIFIC ADDITIONS. HOWEVE R, SINCE THE ACCOUNTS OF THE ASSESSEE ARE AUDITED AND THE AUDITORS HAVE N OT POINTED OUT ANY MISTAKE AND SINCE NO SPECIFIC DEFECT WAS POINTED OU T BY THE ASSESSING OFFICER, THEREFORE, THERE WAS NO JUSTIFICATION IN R EJECTING THE BOOK RESULTS. HE SUBMITTED THAT THE REASONS FOR LESS GP WAS EXPLA INED ON ACCOUNT OF HIGH TURNOVER DURING THE YEAR AS COMPARED TO THE PR ECEDING YEAR, LOSS IN THE TRADING OF PALM OIL WAS DUE TO WIDE FLUCTUATION IN THE RATE OF PALM OIL AND PURCHASE OF GOODS FROM DISTANT PLACES AS AGAINS T NEARBY PLACES IN THE 13 PRECEDING YEAR FOR WHICH HIGHER FREIGHT EXPENSES WE RE INCURRED. HE SUBMITTED THAT ALL THESE REASONS WERE EXPLAINED TO THE ASSESSING OFFICER AS WELL AS THE CIT(A), HOWEVER, THEY HAVE BRUSHED A SIDE THE SAME. HE ACCORDINGLY SUBMITTED THAT THE BOOK RESULTS SHOULD BE ACCEPTED AND NO ADDITION IS CALLED FOR. FOR THE ABOVE PROPOSITION, THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE FOLLOWING DECISIONS : I. PYARELAL MITTAL VS. ACIT (2007 211 CTR 512 II. CIT VS. R.K. RICE MILLS (2009) 319 ITR 173 III. CIT VS. MASCOT 9INDIA) TOOLS & FORGINGS PVT. LTD. (2010 320 ITR 116 IV. CIT VS. SMT. POONAM RANI (2010) 326 ITR 223 V. ECIT VS. OM OVERSEAS (2009) 315 ITR 185 VI. ITO VS. SMT. ANSHI JAIN (2010) 36 SOT 263 (JP) 6.1 AS REGARDS THE ENHANCEMENT NOTICE BY THE CIT(A) FOR DISALLOWING THE DEPRECIATION DUE TO SALE OF THE ASS ETS BY THE COMPANY IS CONCERNED HE SUBMITTED THAT SINCE THE ASSESSEE HAS USED THE ASSETS FOR THE ENTIRE YEAR, THEREFORE, DEPRECIATION SHOULD NOT BE DISALLOWED. 6.2 AS REGARDS THE DISALLOWANCE OF EXPENDITURE ON A CCOUNT OF PURCHASE EXPENSES OF RS.1,49,702/- HE SUBMITTED THAT SINCE T HE ENTIRE EXPENDITURE WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSIN ESS, THEREFORE, THE ASSESSING OFFICER SHOULD NOT HAVE MADE ANY DISALLOW ANCE. HE ACCORDINGLY SUBMITTED THAT THE INCOME RETURNED BY T HE ASSESSEE SHOULD BE ACCEPTED. 7. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND HEAVILY RELIED ON THE ORDER OF THE ASSESSING OFFICER. REFE RRING TO THE ORDER OF THE CIT(A) HE DREW THE ATTENTION OF THE BENCH TO THE VA RIOUS DEFECTS POINTED OUT BY THE CIT(A) WHICH MAKES THE ACCOUNTS OF THE A SSESSEE UNRELIABLE. HE SUBMITTED THAT UNDER THESE CIRCUMSTANCES THE ASS ESSING OFFICER WAS FULLY JUSTIFIED IN REJECTING THE BOOK RESULTS AND E STIMATION OF THE GP. HE 14 ACCORDINGLY SUBMITTED THAT THE RELIEF GRANTED BY TH E CIT(A) BEING NOT IN ACCORDANCE WITH THE LAW SHOULD BE REVERSED AND THAT OF THE ORDER OF THE ASSESSING OFFICER BE RESTORED. 8. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE. WE FIND IN THE INSTANT CASE THE ASSESSING OFFICER ESTIMATED THE GP ON THE GROUND THAT THERE IS DRASTIC FALL IN THE GP AND NP RATIO D URING THE YEAR AS COMPARED TO THE PRECEDING ASSESSMENT YEAR AND THE A SSESSEE WAS NOT ABLE TO SATISFACTORILY EXPLAIN THE REASONS FOR SUCH DRAS TIC FALL IN THE GP AND NP. HE FURTHER MADE ADDITION OF RS.28,12,922/- BEI NG LOSS INCURRED BY THE ASSESSEE ON ACCOUNT OF TRADING IN PALM OIL ON T HE GROUND THAT THE DIRECTOR WAS EARNING PROFIT ON ACCOUNT OF TRADING I N PALM OIL WHEREAS THE ASSESSEE COMPANY WAS INCURRING HUGE LOSS ON ACCOUNT OF SUCH TRADING AND THEREFORE IT IS UNBELIEVABLE THAT THE ASSESSEE WOULD INCUR SUCH LOSS IN TRADING IN PALM OIL. THE ASSESSING OFFICER FURTHER MADE DISALLOWANCE OF RS.1,49,702/- INCURRED BY THE ASSESSEE TOWARDS ENTR Y TAX AND TIPS GIVEN TO BOARDER AND POLICE PERSONNEL. WE FIND IN APPEAL TH E LD.CIT(A), ALTHOUGH UPHELD THE REJECTION OF ACCOUNTS BY THE AS SESSING OFFICER, RESTRICTED THE DISALLOWANCE TO 2.5% AS AGAINST 3% B Y THE ASSESSING OFFICER AND FURTHER DIRECTED THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE ON ACCOUNT OF TRADING LOSS OF RS.28,12 ,922/- AND PURCHASES EXPENSES OF RS.1,49,702/-. SIMULTANEOUSLY HE ALSO DIRECTED THE ASSESSING OFFICER TO DISALLOW DEPRECIATION TO THE E XTENT OF RS.29,35,073/- 15 BEING THE DEPRECIATION CLAIMED BY THE ASSESSEE ON A SSETS WHICH HAVE BEEN SOLD DURING THE YEAR. 8.1 IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT ACCOUNTS OF THE ASSESSEE ARE AUDITED, NO MISTAKE HA S BEEN POINTED OUT BY THE AUDITORS, NOT A SINGLE DISCREPANCY IN THE ACCOU NTS WAS POINTED OUT BY THE ASSESSING OFFICER AND THE ASSESSING OFFICER HAS NOT INVOKED THE PROVISIONS OF SECTION 145(3). THEREFORE, ACCORDING TO THE LD. COUNSEL FOR THE ASSESSEE, THE ASSESSING OFFICER COULD HAVE MADE ONLY SPECIFIC ADDITIONS AND HE SHOULD NOT HAVE REJECTED THE BOOK RESULTS AND ESTIMATED THE G.P.. 8.2 WE FIND SOME FORCE IN THE ABOVE ARGUMENTS OF TH E LD. COUNSEL FOR THE ASSESSEE. IT IS AN ADMITTED FACT THAT THE ACCO UNTS OF THE ASSESSEE ARE AUDITED AND NO SPECIFIC DEFECT HAS BEEN POINTED OUT BY THE AUDITORS. SIMILARLY, THE ASSESSING OFFICER HAS NOT POINTED OU T ANY DEFECT IN THE ACCOUNTS NOR HAS HE INVOKED THE PROVISIONS OF SECTI ON 145(3). THEREFORE, WHEN THE BOOKS OF ACCOUNTS ARE SUPPORTED BY PURCHAS E VOUCHERS, VOUCHERS FOR EXPENSES, STOCK RECORDS ETC., THEREFOR E, IMAGINARY CALCULATION OF GP RATE CANNOT BE MADE IN ABSENCE OF SPECIFIC MISTAKE IN THE ACCOUNTS. THE ASSESSEE HAS SUBSTANTIATED THE R EASONS FOR THE FALL IN THE GP AND NP DUE TO INCREASE IN TURNOVER, INCREASE IN FREIGHT EXPENSES DUE TO PURCHASE OF GOODS FROM FAR OFF PLACES AS COM PARED TO THE NEARBY PLACES IN THE PRECEDING YEAR, LOSS IN PALM OIL TRAD ING ACCOUNT DUE TO DOWNFALL IN THE SELLING RATE ETC. THESE SUBMISSION S WERE NOT CONTROVERTED BY THE ASSESSING OFFICER OR BY THE CIT(A) AS UNTRUE OR FALSE. UNDER THESE CIRCUMSTANCES AND IN VIEW OF THE VARIOUS DECI SIONS CITED BY THE LD. COUNSEL FOR THE ASSESSEE, WE ARE OF THE CONSIDERED OPINION THAT 16 ESTIMATION OF GP IN THE INSTANT CASE IS NOT JUSTIFI ED AND THE SAME HAS TO BE REJECTED. 8.3 SO FAR AS LOSS DUE TO TRADING IN PALM OIL IS CO NCERNED, WE FIND IT WAS EXPLAINED BY THE ASSESSEE THAT IT HAS PURCHASED THE PALM OIL IN THE MONTH OF JULY/AUGUST 2008 AND THE GOODS WERE SOLD S UBSEQUENTLY WHICH CONTINUED TILL DECEMBER 2008. THE ASSESSEE HAS ALS O FURNISHED THE DETAILS OF PURCHASE PRICE AS WELL SELLING PRICE WHI CH SHOW THAT THE SELLING PRICE IN THE MONTH OF AUGUST TILL DECEMBER WAS LESS THAN THE PURCHASE PRICE. THE ABOVE SUBMISSION OF THE ASSESSEE BEFORE THE ASSESSING OFFICER AS WELL AS THE CIT(A) HAS NOT BEEN PROVED T O BE UNTRUE OR WRONG. UNDER THESE CIRCUMSTANCES, WE ARE OF THE CONSIDERED OPINION THAT THE LOSS INCURRED BY THE ASSESSEE ON ACCOUNT OF TRADING IN P ALM OIL SHOULD BE ACCEPTED IN TOTO. 8.4 SO FAR AS THE PURCHASE EXPENSES OF RS.1,49,702/ - IS CONCERNED, IT WAS EXPLAINED BY THE ASSESSEE THAT THESE EXPENSES A RE REQUIRED TO BE MADE WHILE BRINGING THE GOODS FROM DIFFERENT PLACES . THE NATURE OF SUCH EXPENSES IS LIKE ENTRY TAX AND TIPS GIVEN TO THE BO ARDER AND POLICE PERSONNEL. UNDOUBTEDLY, THE ASSESSEE HAS NOT GIVE N FULL DOCUMENTARY EVIDENCE FOR SUCH EXPENSES. PAYMENT OF TIPS AT BOA RDER TO POLICE PERSONNEL IN OUR OPINION CANNOT BE ALLOWED AS BUSIN ESS EXPENDITURE. THEREFORE, WE DEEM IT PROPER TO DISALLOW AN AMOUNT OF RS.1 LAKH OUT OF SUCH EXPENSES BEING NOT RELATED TO THE BUSINESS OF THE ASSESSEE AND IT IS NATURE OF PERSONAL EXPENSES. THUS, WE SUSTAIN AN A MOUNT OF RS.1 LAKH OUT OF SUCH PURCHASE EXPENSES. 17 8.5 SO FAR AS THE CLAIM OF DEPRECIATION BY THE ASSE SSEE IS CONCERNED, THE ASSESSEE HAS SOLD THE ENTIRE BUSINESS AT THE EN D OF THE YEAR, THEREFORE, THE LD.CIT(A) WAS JUSTIFIED IN DISALLOWING THE DEPR ECIATION OF RS.29,35,073/- CLAIMED BY THE ASSESSEE. THE SAME I S ACCORDINGLY UPHELD IN ABSENCE OF ANY ARGUMENT BY LD. COUNSEL FOR THE A SSESSEE. 8.6 IN VIEW OF THE AFORESAID DISCUSSION, AN AMOUNT OF RS. 1 LAKH IS SUSTAINED OUT OF DISALLOWANCE OF RS.81,96,300/- MAD E BY THE ASSESSING OFFICER. SIMILARLY, THE DISALLOWANCE OF DEPRECIATI ON OF RS.29,35,073/- BY THE CIT(A) IS ALSO UPHELD. GROUNDS RAISED BY THE R EVENUE ARE DISMISSED AND THE GROUNDS RAISED BY THE ASSESSEE ARE PARTLY A LLOWED. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED AND THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 31-07-2014. SD/- SD/- (SHAILENDRA KUMAR YADAV) (R.K. PA NDA) JUDICIAL MEMBER ACCOUNTAN T MEMBER PUNE DATED: 31 ST JULY, 2014 SATISH COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. THE CIT(A)-II, NASHIK 4. THE CIT-II, NASHIK 5. THE D.R, A PUNE BENCH 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY ITAT, PUNE BENCHES, PUNE