Asstt.CIT, Cir.1, Kolhapur, Kolhapur V. Shri Manohar Kevalram Hotwani, Kolhapur

ITA 892/PUN/2007

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 2780 (ITAT-PUNE)
• Duration Of Justice: 8 year(s) 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 01-04-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 21-06-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ALOK MALVIYA
• Keywords: Unexplained cash credit; Unexplained investment; Business income; Depreciation; Business expenditure; Corroborative evidences
• Section: 133A; 145; 68

Judgement Text

] ]] ] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE , !, # $ BEFORE MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA, AM ITA NO.692/PN/2007 ASSESSMENT YEAR : 2004-05 SHRI MOHAN K. HOTWANI (HUF), PROP. M/S BHARAT ELECTRICALS, 1606-C BINDU CHOWK, KOLHAPUR. PAN : AAAHH4988R . APPELLANT VS. THE ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 1, KOLHAPUR. . RESPONDENT ITA NO.892/PN/2007 ASSESSMENT YEAR : 2004-05 THE ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 1, KOLHAPUR. . APPELLANT VS. SHRI MOHAN K. HOTWANI (HUF), PROP. M/S BHARAT ELECTRICALS, 1606-C BINDU CHOWK, KOLHAPUR. PAN : AAAHH4988R . RESPONDENT ASSESSEE BY : SHRI M. K. KULKARNI DEPARTMENT BY : SHRI ALOK MALVIYA, JCIT / DATE OF HEARING : 18.01.2016 / DATE OF PRONOUNCEMENT: 29.01.2016 % / ORDER PER PRADIP KUMAR KEDIA, AM : THE AFORESAID CAPTIONED CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE ARE AGAINST THE ORDER OF CIT(A), KOLHAPUR, DATED 23.03.2007 RELATING TO ASSESSMENT YEAR 2004-05 PASSED UNDER SECTION 143 (3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2 ITA NO.692/PN/2007 ITA NO.892/PN/2007 2. THE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLID ATED ORDER. 3. THE ASSESSEE IN ITA NO.692/PN/2007 HAS RAISED TH E FOLLOWING GROUNDS OF APPEAL :- 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. C.I.T. (A) WAS NOT JUSTIFIED IN CONFIRMING THE REJECTION O F BOOKS OF ACCOUNTS OF THE APPELLANT AS DONE BY THE A.O. INVOK ING THE PROVISIONS OF S. 145 (3) OF THE ACT THOUGH INGREDIENTS OF THAT SECTION WERE NOT SATISFIED AND THE REJECTION WAS THE RESULT OF PRESU MPTIONS AND SURMISES WITHOUT GOING TO THE REALITIES OF THE CASE. 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD C.I.T. (A) WAS NOT JUSTIFIED IN CONFIRMING THE TURN OVER ESTIMATED BY THE A.O. AT RS. 1.50 CRORES AS AGAINST 1.13 CRORES AND THE TURNOVER BE ACCEPTED AS PER BOOKS OF ACCOUNTS. 3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. C.I.T. (A) ERRED IN NOT ACCEPTING THE LOSS OF RS. 14,77,29 4/- AS DECLARED BY THE APPELLANT AND INSTEAD DIRECTING THE A.O. TO COMPUTE INCOME/LOSS BY ADOPTING THE G.P. PERCENTAGE OF 10.13 ON THE TUR NOVER OF 1.50 CRORES. 4) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. C.I.T. (A) WAS NOT JUSTIFIED IN SUSTAINING THE ADDITION OF RS.4,44,434/- U/S. 68 OF THE I.T. ACT. THE C.I.T. (A) ERRED IN SUSTAINING THE SAID ADDITIO N OF RS.4,44,434/-. 5) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE APPELLANT DENIES HIS LIABILITY TO PAY INTEREST U/S. 234-A, 23 4-B AND 234-C OF THE ACT. 6) THE APPELLANT CRAVES TO LEAVE, ADD/AMEND OR ALTE R ANY OF THE ABOVE GROUNDS OF APPEAL. 4. THE REVENUE IN ITA NO.892/PN/2007 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- (1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE CIT(A) ERRED IN DIRECTING THE A.O. TO ALLOW THE EXPENDITURE CLAIMED TO PROFIT AND LOSS A/C IGNORING THE FACT THAT ONCE THE BOOK RESULTS ARE REJECTED U/ S 145, THE QUESTION OF ALLOWING EXPENDITURE DOES NOT ARISE. (2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE CIT(A) ERRED IN ADOPTING GROSS PROFIT AT 10.13% AND DIRECTING THE A .O. TO ALLOW THE EXPENSES DEBITED TO PROFIT AND LOSS A/C AS AGAINST NET PROFIT AT 1% OF THE SALES ESTIMATED BY THE A.O. U/S 145; WHEN THE ACTION OF THE A.O. OF ESTIMATING THE SALES HAS BEEN CONFIRMED IN APPEAL. (3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE CIT(A) ERRED IN DELETING ADDITION OF RS.13,24,160/- MADE U/S 68 BASED ON THE MERE STATEMENTS OF ACCOUNTS FURNISHED DURING THE COURSE OF APPELLATE PROCEEDING S IGNORING THE FACT THAT NO SUPPORTING EVIDENCE LIKE DESCRIPTION OF THE EXCESS STOCK SOLD, BILL NUMBER, DATE, NAME AND ADDRESS OF THE PARTIES TO WHOM SOLD, MODE OF PAYMENT RECEIVED ETC. HAS BEEN GIVEN BY THE ASSESSEE. 3 ITA NO.692/PN/2007 ITA NO.892/PN/2007 (4) THE ORDER OF THE CIT(A) BE VACATED AND THAT OF THE A.O. BE RESTORED. (5) APPELLANT CRAVES, LEAVE TO ADD, ALTER, AMEND OR MODIFY ANY OF THE ABOVE GROUNDS OR RAISE ANY OTHER GROUND AT THE TIME OF PR OCEEDINGS BEFORE THE HONBLE TRIBUNAL WHICH MAY PLEASE BE GRANTED. 5. THE FIRST ISSUE OF ASSESSEES APPEAL IS CONCERNI NG THE ESTIMATION OF PROFITS BY REJECTION OF BOOKS OF ACCOUNT BY INVOKIN G SECTION 145 OF THE ACT. 5.1 BRIEFLY STATED, THE RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE IS A HINDU UNDIVIDED FAMILY (HUF) AND OPERATES THROUGH I TS KARTA. THE ASSESSEE DEALS IN PURCHASE AND SALE OF ELECTRICAL GOODS SUCH AS FANS, MIXER, IRON, TOASTER, ZUMBER, WALL BRAKET, GATE LAMP, LAMP TUBES , ETC. ON WHOLESALE AND RETAILS BASIS. THE ASSESSEE FILED RETURN OF INCOME FOR THE ASSESSMENT YEAR 2004-05 ON 01.11.2004 DECLARING A TOTAL INCOME OF R S.9,39,070/-. IN THIS CASE, A SURVEY ACTION UNDER SECTION 133A OF THE ACT WAS E ARLIER CARRIED OUT BY THE DEPARTMENT ON 06.11.2003 DURING WHICH THE SURVEY PA RTY DETECTED ADDITIONAL INCOME OF RS.22,24,360/- AS UNDER :- (I) UNEXPLAINED INVESTMENT IN STOCK : RS.13,24,1 60 (II) UNEXPLAINED CASH : RS. 50,200 (III) UNEXPLAINED INVESTMENT IN INTERIOR DECORATIO N : RS. 8,50,000 TOTAL ADDITIONAL INCOME DETECTED : RS.22,24,360 5.2 THE ASSESSING OFFICER OBSERVED THAT IN THE STAT EMENT RECORDED ON OATH DURING THE COURSE OF SURVEY, THE ASSESSEE ADMITTED THE AFORESAID ADDITIONAL INCOME OVER AND ABOVE HIS REGULAR INCOME. HOWEVER, WHILE FILING THE RETURN THE ASSESSEE HAS SHOWN LOSS OF RS.14,77,294/- FROM ITS BUSINESS OPERATION WHICH RESULTED IN EROSION OF ADDITIONAL INCOME DECL ARED IN SURVEY UNDER SECTION 133A OF THE ACT. THE ASSESSING OFFICER QUE STIONED THE CORRECTNESS OF THE LOSS OF RS.14.77 LAKHS AS DECLARED BY THE ASSES SEE. THE ASSESSING OFFICER OBSERVED THAT DURING THE YEAR, THE ASSESSEE HAS SHO WN SALES AT RS.1,13,89,453/- AND A GROSS PROFIT OF RS.8,90,318/- THEREON WHICH W ORKS OUT TO 7.81%. HE OBSERVED THAT THE RATE OF GROSS PROFIT FOR THE YEAR UNDER CONSIDERATION IS FOUND TO BE VERY LOW AS COMPARED TO EARLIER YEARS. IN TH E IMMEDIATELY PRECEDING YEAR I.E. ASSESSMENT YEAR 2003-04, THE RATE OF GROSS PRO FIT WAS TO THE TUNE OF 4 ITA NO.692/PN/2007 ITA NO.892/PN/2007 RS.9.42.% WHICH WAS INCORRECTLY STATED BY THE ASSES SEE AT 3.66% IN HIS WRITTEN SUBMISSIONS. THE NET BUSINESS PROFIT FOR THE ASSES SMENT YEAR 2003-04 WAS DECLARED AT RS.3,47,118/- AND THE BUSINESS INCOME S HOWN IN THE EARLIER YEARS WAS ALSO ALMOST IN THE SAME RANGE. CONSIDERING THI S, THE ASSESSING OFFICER OBSERVED THAT NORMAL BUSINESS INCOME OF RS.3.5 LAKH S AND THE ADDITIONAL INCOME DETECTED DURING SURVEY UNDER SECTION 133A OF RS.22.24 LAKHS, THE RETURNED INCOME WAS EXPECTED IN THE RANGE OF RS.25 LAKHS OR MORE. HOWEVER, THE ASSESSEE HAS DECLARED A TOTAL INCOME OF RS.9,39 ,070/- ONLY BY SHOWING WRONGFUL BUSINESS LOSSES TO SET-OFF THE ADDITIONAL INCOME DECLARED DURING THE SURVEY. ACCORDINGLY, A DETAILED SHOW-CAUSE NOTICE WAS SERVED ON THE ASSESSEE AS EXTRACTED IN PARA 6.4 OF THE ASSESSMENT ORDER. AFTER CONSIDERING THE REPLY FROM ASSESSEE, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS NOT MAINTAINED PROPER BOOKS OF ACCOUNT AND BOOKS MAINTA INED SUFFERS FROM SEVERAL DEFECTS. HE DISCARDED THE ARGUMENT OF THE ASSESSEE THAT THE BOOKS WERE COMPLETED UPTO 31.10.2003 AND SURVEY PARTIES DID NO T OBSERVE ANY DEFECT IN THE BOOKS. THE ASSESSING OFFICER OBSERVED THAT THIS CO NTENTION OF THE ASSESSEE IS CONTRARY TO HIS EARLIER SUBMISSIONS DATED 14.09.200 6 WHEREIN THE ASSESSEE INTER-ALIA ADMITTED INCOMPLETE NATURE OF BOOKS OF ACCOUNTS. T HE ASSESSING OFFICER FURTHER OBSERVED THAT BOOKS OF ACCOUNT WERE NOT PRODUCED BEFORE SURVEY PARTY EXCEPT LEDGER EXTRACTS FOR FINANCIAL Y EAR 2003-04. COUPLED WITH THIS, TENTATIVE TRADING ACCOUNT ON OR ABOUT THE DAT E OF SURVEY WERE ALSO NOT MADE AVAILABLE TO THE SURVEY PARTY. THE FIGURES OF PURCHASE AND SALE UPTO THE DATE OF SURVEY WERE MADE NOT AVAILABLE EITHER. THE SE FACTS DEMONSTRATE THAT BOOKS OF ACCOUNTS ON THE DATE OF SURVEY WERE NOT CO MPLETE. THEREFORE, THE CONTENTION OF THE ASSESSEE ON RELIABILITY OF BOOKS IS INCORRECT AND MISLEADING. IT WAS CONTENDED BY THE ASSESSEE BEFORE THE ASSESSI NG OFFICER THAT THE ASSESSEE WAS A MAIN DEALER AND DISTRIBUTOR OF VARIOUS ELECTR ICAL ITEMS OF CROMPTON GREAVES LTD. UPTO THE FINANCIAL YEAR 2002-03 RELEVA NT TO ASSESSMENT YEAR 2003- 04. DURING THE FINANCIAL YEAR 2002-03 RELEVANT TO ASSESSMENT YEAR 2003-04 TOTAL PURCHASE OF CROMPTON GREAVES WERE TO THE TUNE OF RS.2,57,84,074/- FROM CROMPTON GREAVES OUT OF TOTAL PURCHASE OF RS.3,02,8 4,843/- WHICH NEARLY 85.13% OF THE TOTAL PURCHASE. THE ASSESSEE WAS THE MAIN DISTRIBUTOR OF THE SAID 5 ITA NO.692/PN/2007 ITA NO.892/PN/2007 COMPANY. HOWEVER, SINCE THE BEGINNING OF FINANCIAL YEAR 2003-04 RELEVANT TO THE ASSESSMENT YEAR 2003-04 OWING THE CONSTANT PRES SURE FROM THE SAID COMPANY FOR FULFILLMENT OF TARGET AND STOCK DUMPING WITHOUT ANY SPECIFIC ORDER FROM THE ASSESSEE, THE ASSESSEE DECIDED TO ST OP HIS BUSINESS FROM CROMPTON GREAVES LTD. AND ALSO RETURNED THE COMPANI ES GOODS WORTH OF RS.54,89,875/- ON 21.06.2003. THE ASSESSEE WHILE S TOPPING THE PURCHASES AND RETURNING THE GOODS TO THE ABOVE SAID COMPANY ALSO DECIDED TO ENGAGE IN RETAIL BUSINESS OF ELECTRICAL GOODS ONLY; AS AGAINST BOTH WHOLESALE AND RETAIL DEALINGS IN THE EARLIER YEARS. THE ASSESSEE ALSO CLAIMED TH AT SINCE THE BOOKS OF ACCOUNT ARE AUDITED AS PER THE PROVISIONS OF SECTION 44AB O F THE ACT, THE BOOK RESULTS DECLARED BY THE ASSESSEE ARE RELIABLE. THE ASSESSI NG OFFICER REJECTED THE PLEA OF THE ASSESSEE ON RELIABILITY OF THE BOOKS AND POI NTED OUT THE SEVERAL DEFECTS IN THE BOOK RESULTS DECLARED BY THE ASSESSEE. THE ASS ESSING OFFICER INTER-ALIA OBSERVED THAT AT THE TIME OF SURVEY, THE BOOKS OF A CCOUNT WERE INCOMPLETE AND STOCKS WERE NOT VERIFIABLE. THE EXCESS STOCK DETEC TED BY THE SURVEY TEAM WAS ADMITTED BY THE ASSESSEE. THE BOOKS OF ACCOUNT PRO DUCED AT THE TIME OF ASSESSMENT WAS PREPARED AFTER THE DATE OF SURVEY TO MEET THE REQUIREMENTS. THE ASSESSING OFFICER FURTHER OBSERVED THAT SALES S HOWN BY THE ASSESSEE ARE ONE THIRD OF THE PREVIOUS YEAR. ON THE CONTRARY, I NCREASED SALES AND ADMINISTRATIVE EXPENSES HAS BEEN CLAIMED WHICH IS 6.65% WITH REFERENCE TO SALES WHEREAS THE SAME WERE 3.85% IN THE LAST YEAR FOR WHICH NO SATISFACTORY EXPLANATION HAS BEEN FILED BY THE ASSESSEE. IN THE PRECEEDING ASSESSMENT YEAR 2003-04, THE PURCHASES OF RS.3.02 CRORES WERE SHOWN WHICH IS 90% OF THE SALE OF RS.3.35 CRORES BUT DURING THIS YEAR PURCHASES SH OWN OF RS.37 LAKHS WITHOUT TAKING INTO ACCOUNT THE PURCHASES RETURNS IS ONLY 3 0% OF THE SALES. THEREFORE, THE FIGURES ARE NOT COMPARABLE. THE ASSESSING OFFI CER ALSO FOUND THAT OCTROI CHARGES OF RS.1,21,407/- DURING THE YEAR HAS BEEN C LAIMED AS AGAINST RS.1,05,853/- CLAIMED IN ASSESSMENT YEAR 2003-04. LIKEWISE, LOADING/UNLOADING EXPENSES AND TRANSPORT CHARGES AR E RS.37,698/- AND RS.62,320/- RESPECTIVELY WHICH IS ALMOST THE SAME C ORRESPONDING TO ASSESSMENT YEAR 2003-04. THIS MEANS THE PURCHASES OF MORE THA N RS.3 CRORES FOR ASSESSMENT YEAR 2003-04 AND ONLY RS.37 LAKHS IN ASS ESSMENT YEAR 2004-05 THE 6 ITA NO.692/PN/2007 ITA NO.892/PN/2007 EXPENSES IN RESPECT OF OCTROI AND TRANSPORT CHARGES ARE DECLARED TO BE SAME, WHICH IS QUITE PERPLEXING. THIS INDICATES THAT THE RE IS A STRONG CASE OF SUPPRESSED PURCHASE AS WELL AS SUPPRESSED SALES. T HE ASSESSING OFFICER FURTHER OBSERVED THAT THERE IS A DIFFERENCE BETWEEN THE PURCHASE RETURNS FIGURES VIS--VIS CORRESPONDING RECORDS MAINTAINED BY CROMP TON GREAVES LTD. TO THE TUNE OF RS.12,75,027/- WHICH PROVES THAT CERTAIN PU RCHASES FROM THE COMPANY HAS REMAINED UNRECORDED IN THIS BOOKS. THE ASSESSI NG OFFICER NEXT ALLEGED THAT COGENT DETAILS OF STOCK QUANTITY-WISE & QUALIT Y-WISE ARE NOT AVAILABLE INSPITE OF SEVERAL REQUESTS. THE ASSESSING OFFICER WENT ON FURTHER TO POINT OUT CERTAIN DIFFERENCES IN SUNDRY CREDITORS BALANCES AL SO. THE ASSESSING OFFICER THEREAFTER OBSERVED THAT THE ASSESSEE CLAIMED INTER EST EXPENSES OF RS.5,68,708/-. HE OBSERVED THAT THE ASSESSEE HAS D IVERTED ITS BUSINESS FUND FOR NON-BUSINESS PURPOSES TO THE EXTENT OF RS.90.46 LAK HS. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE IS TRYING TO STRESS UPON ON LY ONE THING I.E. THE RETURN OF GOODS TO CROMPTON GREAVES AND TRYING TO SHOW THAT T HIS HAS RESULTED IN LOSS TO THE ASSESSEE. THE ASSESSING OFFICER REBUTTED THIS CONTENTION OF THE ASSESSEE ON THE GROUND THAT NO INTEREST HAS BEEN PAID ON EXTRA MATERIAL PURPORTEDLY DUMPED UPON THE ASSESSEE AND NO EXTRA GODOWN RENT OR EXTRA EXPENSES HAS BEEN INCURRED. THEREFORE THE ASSESSEE HAS NOT OFFERED A NY PROPER EXPLANATION WHICH RESULTED IN LOSS IN THE BUSINESS. HE OBSERVED THAT THROUGHOUT THE YEAR, THE ASSESSEE WAS DOING BUSINESS OF PURCHASING AND SELLI NG ELECTRICAL MATERIAL AS EVIDENT FROM EXPENSES CLAIMED. IN THE CIRCUMSTANCE S, AFORESAID JUSTIFICATIONS FOR LOSS INCURRED IS NOT TENABLE. HE, FURTHER, OBS ERVED THAT THE ASSESSEE IN HIS SUBMISSION DATED 14.12.2006 ADMITTED THAT HE HAS SO LD THE EXCESS STOCK OF RS.13,24,160/- DETECTED DURING THE COURSE OF SURVEY OPERATION UNDER SECTION 133A OF THE ACT FOR RS.15,16,160/- AND HAS EARNED P ROFIT OF RS.1,92,000/- THEREON. THE PERCENTAGE OF GROSS PROFIT SHOWN WORK S OUT TO RS.12.66%. IT IS ADMITTED BY THE ASSESSEE THAT THE SALES WERE NOT RO UTED THROUGH REGULAR PROFIT & LOSS ACCOUNT BUT HAVE BEEN MAINTAINED AS A SEPARATE ACCOUNT. THIS ADMISSION, ON THE PART OF ASSESSEE, MAKES IT CLEAR THAT THE GR OSS PROFIT IN SUCH LINE OF BUSINESS IS MORE THAN 10% WHEREAS THE ASSESSEE HAS SHOWN A MEAGER GROSS PROFIT AT 7.25% FOR THE YEAR UNDER CONSIDERATION. THIS CLEARLY ESTABLISHES THAT 7 ITA NO.692/PN/2007 ITA NO.892/PN/2007 THERE ARE OMISSIONS AND MISTAKES IN THE ACCOUNT MAI NTAINED AND THE SAID ACCOUNT SUFFERED FROM MANY DEFECTS. THE ASSESSING OFFICER ACCORDINGLY REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE AND E STIMATED THE BUSINESS INCOME OF THE ASSESSEE FOR INVOKING SECTION 145(3) OF THE ACT. HE ALSO TABULATED NET PROFIT FROM ASSESSMENT YEAR 2001-02 O NWARDS UPTO ASSESSMENT YEAR 2005-06 AS PER PARA 6(M) OF HIS ORDER AND FOUN D THAT THE NET PROFITS IN ALL THESE YEARS ARE IN THE RANGE OF MORE THAN 1% OF THE SALES AS AGAINST THE 12.9% LOSS IN THE IMPUGNED ASSESSMENT YEAR 2004-05. THER E ARE A PROFIT IN ALL THE YEARS EXCEPT ASSESSMENT YEAR 2004-05 WHERE SEPARATE INCOME OWING TO SURVEY PROCEEDINGS HAVE BEEN DETECTED. 5.3 HAVING REGARD TO THE ENQUIRIES MADE FROM CROMPT ON GREAVES INCLUDING CROSS-EXAMINATION AND DISCREPANCY AND DEFECTS POINT ED OUT IN THE BOOKS OF ACCOUNT AND AFTER GIVING DUE WEIGHTAGE TO THE ASSES SEE ADMISSION, THE ASSESSING OFFICER ESTIMATED THE SALES AT RS.1.50 CR ORES AS AGAINST THE 1.14 CRORES DECLARED BY THE ASSESSEE. SIMILARLY, NET PR OFIT FROM BUSINESS WAS ESTIMATED AT 1% OF THE SALES WHICH WORKED OUT TO RS .1,50,000/- AFTER GIVING WEIGHTAGE TO ALL EXPENSES AND DEPRECIATION AS AGAIN ST THE DECLARED LOSS OF RS.14,77,294/-. 6. THE SECOND ISSUE IS WITH REGARD TO ADDITION UNDE R SECTION 68 OF THE ACT ON ACCOUNT OF UNEXPLAINED CREDITS SHOWN IN THE CAPI TAL ACCOUNT. THE ASSESSING OFFICER OBSERVED THAT ON VERIFICATION OF THE CAPITA L ACCOUNT, FOLLOWING CREDITS IN CASH IN THE CAPITAL ACCOUNT OF THE ASSESSEE WERE FO UND :- DATE PARTICULARS AMOUNT (RS.) 1/12/2003 CASH RS. 18,000 1/12/2003 CASH RS.1,36,853 12/12/2003 CASH RS. 57,581 15/1/2004 CASH RS.4,00,000 15/1/2004 CASH RS. 50,000 7/2/2004 CASH RS. 50,000 12/2/2004 CASH RS.4,00,000 15/2/2004 CASH RS.1,00,000 28/2/2004 CASH RS.2,00,000 5/3/2004 CASH RS.1,00,000 8 ITA NO.692/PN/2007 ITA NO.892/PN/2007 14/3/2004 CASH RS. 50,000 31/3/2004 CASH RS.1,24,160 TOTAL RS.16,86,594 6.1 BEFORE THE ASSESSING OFFICER, THE ASSESSEE EXPL AINED THE SOURCE OF CREDIT OF THESE DEPOSITS AS UNDER :- DATE PARTICULARS AMOUNT (RS.) SOURCES OF CREDIT 01.12.2003 BY CHEQUE RS.18,000/- BY WITHDRAWAL FROM ICHAL. JANATA SAH. BANK LTD. 01.12.2003 CASH RS.1,36,853/- OUT OF CASH WITHDRAW AL OF RS.1,36,853 ON 1/4/2003 02.12.2003 CASH RS.57,581/- CASH IS CREDITED OUT OF CASH AMOUNT WITHDRAWN OF RS.2,07,581/- ON 30.05.2003 15.01.2004 CASH RS.4,00,000/- (RS.1,50,000/- OUT O F WITHDRAWAL OF RS.2,07,581/- ON 12.12.2003 & RS.2,50,000/- ON ACCOUNT OF SALE OUT OF EXCESS STOCK FOUND DURING SURVEY) 15.01.2004 CASH RS.50,000/- THE AMOUNT IS CREDITED ON A/C. OF CASH SALE OUT OF EXCESS STOCK FOUND DURING SURVEY 07.02.2004 CASH RS.50,000/- -DO- 12.02.2004 CASH RS.4,00,000/- -DO- 15.02.2004 CASH RS.1,00,000/- -DO- 28.02.2004 CASH RS.2,00,000/- -DO- 05.03.2004 CASH RS.1,00,000/- -DO- 14.03.2004 CASH RS.50,000/- -DO- 31.03.2004 CASH RS.1,24,160/- -DO- 6.2 THE CRUX OF THE EXPLANATION OF THE ASSESSEE WAS THAT THE EXCESS STOCK FOUND WHICH WAS SOLD AT RS.15.16 LAKHS WAS ONE OF T HE DOMINANT SOURCES FOR SUCH CASH ENTRIES IN THE CAPITAL ACCOUNT ALONG WITH CERTAIN EARLIER CASH WITHDRAWALS FROM THE BANK. THE ASSESSING OFFICER R EJECTED THE EXPLANATION OF THE ASSESSEE PRIMARILY ON THE GROUND THAT THE ASSES SEE HAS NOT PRODUCED A SINGLE BILL FOR ALLEGED SALE OF THE UNACCOUNTED STO CK AND THE NAME AND ADDRESS OF THE PARTIES TO WHOM WERE MADE. HE ALSO REJECTED THE SECOND LIMB OF THE ARGUMENT OF THE ASSESSEE THAT WITHDRAWAL FROM THE B ANKS 7 TO 8 MONTHS BACK AND REMAINING IN THE HANDS OF THE ASSESSEE HAS BEEN INTRODUCED IN THE CAPITAL ACCOUNT. HE ACCORDINGLY INVOKED SECTION 68 OF THE ACT AND ADDED RS.16,86,594/- INCOME OF THE ASSESSEE. 9 ITA NO.692/PN/2007 ITA NO.892/PN/2007 7. AGGRIEVED BY THE ACTION OF THE ASSESSING OFFICER , IN ESTIMATING THE SALES AT RS.1.50 CRORE AND DETERMINING NET PROFIT @ 1% I. E. 1.5 LAKHS THEREON AND TOWARDS ANOTHER ADDITION OF RS.16.86 LAKHS UNDER SE CTION 68 OF THE ACT, ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). 7.1 THE CIT(A) AGREED WITH THE OBSERVATIONS OF THE ASSESSING OFFICER THAT THE ASSESSEE HAS FAILED TO RECONCILE THE DIFFERENCE S IN THE VALUE OF PURCHASE RETURNS AND THE BOOK RESULTS ARE NOT DEPENDABLE AS SUBSTANTIAL AMOUNT OF STOCK WERE NOT FOUND AT THE TIME OF SURVEY. THE CIT(A) E NDORSED THE ACTION OF THE ASSESSING OFFICER IN REJECTING THE BOOKS OF ACCOUNT AND ESTIMATING THE TURNOVER ACCRUING TO THE ASSESSEE DURING THE YEAR. HE OBSER VED THAT THE TURNOVER ESTIMATED AT RS.1.5 CRORE INSTEAD OF 1.13 CRORE IS REASONABLE KEEPING IN MIND THE FACTS THAT GOODS RETURNED TO THE CROMPTON GREAV ES AS SHOWN IN THE ASSESSEES BOOKS WERE FOUND TO BE IN DIFFERENCE WIT H THE ACCOUNTS OF THE SUPPLIER. TO COME TO SUCH CONCLUSION, THE CIT(A) A LSO NOTICED THAT DEFECTS IN STOCK STATEMENTS POINTED OUT BY ASSESSING OFFICER H AS NOT BEEN RECONCILED. HE, HOWEVER, DECLINED TO AGREE WITH THE ACTION OF T HE ASSESSING OFFICER IN ESTIMATING THE NET PROFIT @ 1% MERELY ON THE BASIS OF TREND IN THE EARLIER YEARS. HE OBSERVED THAT THE ASSESSING OFFICER HAS NOT TAKE N INTO ACCOUNT THE SHIFT FROM AGENCY BUSINESS TO RETAIL BUSINESS AND DECLINE IN TURNOVER. HE OBSERVED THAT THE COMPARISON OF SUCH OVERHEADS IS NOT JUSTIF IED SINCE OVERHEADS SUCH AS INTERESTS, SALARY, ESTABLISHMENT COSTS, ETC. REMAIN MORE OR LESS FIXED AND SUCH OVERHEADS ARE NOT SENSITIVE TO TURNOVER. THE CIT(A ) NOTED THAT THE ASSESSING OFFICER HAS NOT PROVED THAT THE EXPENSES IN PROFIT & LOSS ACCOUNT ARE NOT BEING GENUINE BUSINESS EXPENSES OR HAVE BEEN INFLAT ED. IN THIS SCENARIO, THE ESTIMATION OF PROFITS SHOULD BE RESTRICTED TO GROS S PROFIT AND NOT NET PROFIT. THE GROSS PROFIT OF THE EARLIER YEARS IS NOT COMPAR ABLE DUE TO THE CHANGE IN THE NATURE OF BUSINESS. THE GROSS PROFITS OF THE NEXT YEAR I.E. ASSESSMENT YEAR 2005-06 IS RATHER BETTER INDICATOR AS OBSERVED BY T HE CIT(A). IN THE ASSESSMENT YEAR 2005-06, THE GROSS PROFIT RATE IS D ECLARED AT 10.13%. THE SAME PERCENTAGE OF 10.13% SHOULD BE ADOPTED IN THE CURRE NT ASSESSMENT YEAR I.E. A.Y. 2004-05 AND EXPENSES DEBITED TO THE PROFIT & L OSS ACCOUNT SHOULD BE 10 ITA NO.692/PN/2007 ITA NO.892/PN/2007 ADJUSTED AGAINST THE GROSS PROFIT COMPUTED AT THE A BOVE RATE AND THE RESULTANT INCOME/LOSS WAS DIRECTED TO BE ASSESSED TO TAX BY T HE CIT(A). 7.2 WITH REGARD TO THE SECOND ISSUE OF ADDITION ON ACCOUNT OF UNEXPLAINED CASH CREDIT IN THE CAPITAL ACCOUNT TO THE TUNE OF R S.16,86,594/-, THE CIT(A) ACCEPTED THE EXPLANATION OF THE ASSESSEE THAT THE S OURCE OF CASH CREDIT IS BROADLY OUT OF SALE OF UNEXPLAINED STOCK DECLARED A T THE TIME OF SURVEY AND ACCORDINGLY AS PER PARA 13 TO 19 OF HIS ORDER, HE G RANTED PARTIAL RELIEF TO RS.12,46,160/- HOLDING THE SAME TO BE TREATED OUT O F SALES FROM THE EXCESS STOCK FOUND AT THE TIME OF SURVEY AND CONFIRMED THE CASH CREDIT TO THE TUNE OF RS.4,44,434/- AS CONTINUED TO BE UNEXPLAINED. THE RELEVANT PARA OF THE ORDER OF THE CIT(A) CONCERNING THE ISSUE REPRODUCED AS UN DER :- 15. THE BANK ACCOUNT OF THE APPELLANT IN ICHALKARA NJI JANATA SAHAKARI BANK SHOWS A WITHDRAWAL OF RS. 18,000/- ON 06/12/2002 BY CHEQUE IN THE NAME OF BHARAT ELECTRICALS, WHICH HAS THE APPELLANT'S PROPRIETARY BUSINESS. THE ACCOUNT OF THE BUSINESS SHOWS THE AMOUNT DEPOSITED ON TRANSFER FRO M SB ACCOUNT NO. 4285. IN VIEW OF THE ABOVE EVIDENCE THE EXPLANATION OF THE APPELL ANT IS ACCEPTED. 16. AS REGARDS THE CASH ENTRIES ON 1ST AND 2ND DECE MBER 2003 OF RS.1,36,853/- AND RS. 57,581/-, IT IS EXPLAINED THAT THE AMOUNTS WERE OUT OF CASH WITHDRAWALS ON 01/4/2003 AND 30/05/2003. THE WITHDRAWALS HAVE BEEN MADE 7-8 MONTHS BEFORE THE DEPOSIT IN THE CAPITAL ACCOUNT. THERE IS NO PLAUSIBLE EXPLANATION OF SUCH DELAY. IT CAN ONLY BE PRESUMED THAT THE WITHDRAWALS MADE EARLIER WERE FOR OTHER PURPOSES. THE EXPLANATION OF THE APPELLANT IS NOT S ATISFACTORY AND, THEREFORE, THE ASSESSING OFFICER IS HELD TO BE JUSTIFIED IN RE JECTING THE SAME. 17. AS REGARDS THE AMOUNT OF CASH DEPOSITED ON 15/0 1/2004, THE EXPLANATION IS THAT RS. 1,50,000/- IS OUT OF WITHDRAWAL OF RS.2,07 ,581/- ON 12/12/2003 AND RS.2,50,000/- ON SALE OF EXCESS STOCK DURING SURVEY . THE APPELLANT HAS NOT GIVEN ANY NEW EVIDENCE TO SHOW THAT THERE WAS A WITHDRAWAL OF RS. 2,07,581/- FROM THE PARTNER'S BANK ACCOUNT. EXPLANATION TO THIS EXTENT IS, THEREFORE, NOT ACCEPTABLE. 18. AS REGARDS AMOUNTS BROUGHT IN BY SALE OF EXCESS STOCK, THE STATEMENT OF SALE OF SUCH EXCESS STOCK SUBMITTED BY THE APPELLANT SHO WS THAT THE TOTAL SALES OF EXCESS STOCK ON THE 10TH, 12TH, 14TH AND 15TH OF JANUARY, 2004 AMOUNTING TO RS. 4,40,022/- THE EXPLANATION THAT RS. 2,50,000/- CREDITED TO THE CAPITAL ACCOUNT REPRESENTED THE CASH RECEIVED ON SUCH SALE THEREFORE, APPEARS TO BE ACCEPTABLE. ON 15.01.2004 THERE IS AN AMOUNT OF RS. 50,000/- CREDITED TO THE ACCOUN T. THE EXPLANATION OF THE APPELLANT IS ALSO ACCEPTABLE WITH REGARD TO THIS CR EDIT. THE SALES MADE UP TILL 07/02/2004 WAS RS. 7,58,602/-. THE CREDIT OF RS.50, 000/- COULD BE TREATED AS OUT OF SALES MADE UP TILL 07/02/2004. THE BALANCES OF SALE S MADE UP TO DATES VIS-A-VIS TO CASH CREDITS ARE AS UNDER: DATE CREDIT (RS.) SALES (RS.) 12/02/2004 4,00,000 4,31,160 15/02/2004 1,00,000 21,160 28/02/2004 2,00,000 4,97,692 11 ITA NO.692/PN/2007 ITA NO.892/PN/2007 05/03/2004 1,00,000 2,97,692 14/03/2004 50,000 2,40,000 31/03/2004 1,21,160 4,67,592 IN THE ABOVE CALCULATION, THE SALES AMOUNT IN THE L AST COLUMN CONSISTS OF THE SALES MADE UP TO THAT DATE LESS ADJUSTED BY THE CASH CRED IT UP TO THAT DATE. IT IS SEEN FROM THE ABOVE CALCULATION THAT EXCEPT FOR CASH CREDIT O F RS. 1 LAC ON 15/02/2004, THE OTHER CREDITS STARTING FROM 2,50,000/- ON 15/04/200 4 ON 31/03/2004 CAN BE TREATED AS ACCOUNTED FOR BY WAY OF SALES OF EXCESS STOCK EX CEPT THE AMOUNT OF RS.1 LAC ON 15/03/2004 WHEN THE SALES AMOUNT BALANCE WAS NOT SU FFICIENT. 19. IN VIEW OF THE ABOVE, THE FOLLOWING AMOUNTS ARE DELETED. DATE AMOUNT (RS.) 06/12/2003 18,000 15/01/2004 2,50,000 15/01/2004 50,000 07/02/2004 50,000 12/02/2004 4,00,000 28/02/2004 2,00,000 05/03/2004 1,00,000 14/03/2004 50,000 31/03/2004 1,24,160 TOTAL . 12,42,160 THE BALANCE AMOUNT OF CASH CREDIT OF RS.4,44,434/- IS CONTINUED AS UNEXPLAINED. 8. AGGRIEVED BY THE ORDER OF THE CIT(A), BOTH THE A SSESSEE AND THE REVENUE ARE IN APPEAL BEFORE US. 9. THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESS EE, AT THE OUTSET, SUBMITTED THAT THE RETURN OF INCOME FILED ON 01.11. 2004 IS WITHIN THE DUE DATE UNDER SECTION 139(1) OF THE ACT IN VIEW OF ORDER UN DER SECTION 119(1) OF THE ACT DATED 20.10.2004 WHEREBY THE DUE DATE OF THE FI LING OF THE RETURN UNDER FIRST PROVISO TO SECTION 139(1) WAS EXTENDED TO 31. 10.2004. AS THE 30.10.2004 BEING HOLIDAY, THE RETURN FILED ON 01.11.2004 IS DE EMED TO HAVE BEEN WITHIN THE DUE DATE (COPY OF INSTRUCTIONS PLACED IN FILE). TH E LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE DID NOT CONTRADICT T HE OBSERVATIONS MADE ON BEHALF OF THE ASSESSEE. THEREAFTER, THE LD. AUTHOR IZED REPRESENTATIVE FOR THE ASSESSEE AT THE TIME OF HEARING, FAIRLY SUBMITTED T HAT REJECTION OF BOOKS BY THE 12 ITA NO.692/PN/2007 ITA NO.892/PN/2007 ASSESSING OFFICER MAY BE TAKEN AS JUSTIFIED. HOWEV ER, THE CIT(A) HAS ERRED IN NOT ACCEPTING THE LOSS OF RS.14,72,294/- AS DECLARE D BY THE ASSESSEE AND IN DIRECTING THE ASSESSING OFFICER TO COMPUTE THE INCO ME/LOSS BY ADOPTING GROSS PROFIT PERCENTAGE OF 10.13% ON THE TURNOVER OF 1.5 CRORE. NO OTHER SUBSTANTIVE EXPLANATIONS WERE OFFERED. 10. HOWEVER, ON THE SECOND ISSUE OF ADDITION UNDER SECTION 68 OF THE ACT, HE VEHEMENTLY OBJECTED THE ACTION OF THE CIT(A) IN GRA NTING ONLY PART RELIEF. HE SUBMITTED THAT ONCE THE ADDITION HAS BEEN MADE BY R EJECTING THE BOOKS OF ACCOUNT NO FURTHER ADDITION UNDER SECTION 68 OF THE ACT IS CALLED FOR. HE RELIED UPON VARIOUS PRECEDENTS VIZ. CIT VS. AGGARWAL ENGG. CO. (JAL.), (2008) 302 ITR 246 (P&H) AND (A) MADDI SUDARSANAM OIL MILLS CO . VS. CIT, (1959) 37 ITR 369 (AP) FOR THIS PROPOSITION. 11. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REV ENUE, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE ASSESSING OFFICE R AND SUBMITTED THAT THE CIT(A) WAS NOT JUSTIFIED AT ALL IN SUBSTITUTING THE ESTIMATION OF NET PROFIT @ 1% OF THE TURNOVER DONE BY ASSESSING OFFICER TO GROSS PROFIT @ 10.13% WITH REFERENCE TO SUBSEQUENT YEARS GROSS PROFIT IN VIEW OF THE CLEAR TREND AVAILABLE IN THE EARLIER YEARS. THE LD. DEPARTMENTAL REPRESE NTATIVE SUBMITTED THAT THE WHEN THE BOOKS OF ACCOUNT ARE NOT RELIABLE AND REJE CTED BY BOTH THE AUTHORITIES, THE CIT(A) OUGHT TO HAVE NOT INTERFERED WITH THE OR DER OF THE ASSESSING OFFICER IN ESTIMATING OF PROFIT WHICH IS JUST AND FAIR IN T HE FACTS AND CIRCUMSTANCES OF THE CASE. AS REGARDS ANOTHER ADDITION UNDER SECTIO N 68 OF THE ACT, THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE CIT( A) HAS WRONGLY PLACED RELIANCE ON THE AVERMENTS OF THE ASSESSEE THAT THE CASH INTRODUCED IN THE CAPITAL ACCOUNT SHOULD BE TAKEN AS OUT OF THE EXCESS STOCK SOLD SUBSEQUENTLY AS FOUND DURING THE SURVEY WAS WITHOUT ANY EVIDENCE IN THIS REGARD. THE LD. DEPARTMENTAL REPRESENTATIVE ALSO RELIED UPON THE DE CISION OF THE HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT VS. MA DURI RAJAIAHGARI KISTAISH, 120 ITR 294 (AP) AND SUBMITTED THAT SECTI ON 68 OF THE ACT HAS BEEN RIGHTLY APPLIED IN THE FACTS AND THE DECISION OF HO NBLE PUNJAB AND HARYANA 13 ITA NO.692/PN/2007 ITA NO.892/PN/2007 HIGH COURT RELIED UPON BY THE ASSESSEE HAS NOT APPL ICATION IN THE FACTS OF THE CASE. 12. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS, ORDERS OF THE AUTHORITIES BELOW AND CASE LAWS CITED AT BAR. THE FIRST ISSUE INVOLVES REJECTION OF BOOKS OF ACCOUNT BY RESORTING TO SECTION 145 AND ESTIMATION OF FIGURE OF THE TURNOVER AND NET PROFITS THEREOF. PURSUANT TO SURV EY OPERATION, THE ASSESSEE HAS DECLARED A PROFIT OF RS.22,24,360/- AS NOTED ABOVE. THEREAFTER, THE RETURN OF INCOME WAS FILED WHEREIN LOSS OF RS.14,77,294/- WAS DECLARED FROM BUSINESS ACTIVITIES WHICH WAS SOUGHT TO BE SET-OFF AGAINST T HE UNREPORTED PROFIT DECLARED DURING THE TIME OF SURVEY AND CONSEQUENTLY A NET PR OFIT OF RS.9,39,070/- ONLY WAS OFFERED FOR TAXATION PURPOSE. WE OBSERVE THAT THE ASSESSING OFFICER HAS MADE DETAILED ENQUIRIES AND POINTED OUT SPECIFIC DI SCREPANCIES AS RECORDED IN THE ASSESSMENT ORDER AND ALSO NOTED ABOVE IN THIS O RDER. WE ALSO NOTICE THAT UNDECLARED EXCESS STOCK FOUND AT THE TIME OF SURVEY HAS BEEN ACCEPTED BY THE ASSESSEE. THE DIFFERENCE IN THE BALANCES IN THE BO OKS OF ACCOUNT OF THE ASSESSEE VIS--VIS THE SUPPLIER WAS ALSO RECORDED B Y THE ASSESSING OFFICER. THE ASSESSING OFFICER RETURNED HIS FINDING ON SEVER AL EXPENSES WHICH ARE NOT COMPARABLE WITH THE SALE DECLARED BY THE ASSESSEE Q UA THE EARLIER YEARS. WE FIND THAT THE OBSERVATIONS OF THE ASSESSING OFFICER ON THE COMPARISON IN EXPENSES LIKE OCTROI LOADING AND UNLOADING CHARGES, ETC. AS NOTED ABOVE CAST ASPERSIONS ON THE CORRECTNESS OF THE BOOKS OF ACCOU NT PREPARED BY THE ASSESSEE. COUPLED WITH THESE FACTS, THE INCOMPLETENESS OF BOO KS OF ACCOUNT AND NON- PRODUCTION OF BOOKS OF ACCOUNT AT THE TIME OF SURVE Y BY THE ASSESSEE HAS REMAINED UNCONTROVERTED. IN THE LIGHT OF THESE FAC TS AND CIRCUMSTANCES, WE FIND THAT THE ASSESSING OFFICER WAS FULLY JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNT AND RESORTING TO ESTIMATION OF TURNOVER AND INCOME THEREON. WE FIND THAT THE ASSESSING OFFICER HAS ESTIMATED A NET PROF IT @ 1% ON THE ESTIMATED TURNOVER ON 1.5 CRORE WHICH IS IN SYNC WITH THE NET PROFIT DECLARED IN THE PAST SEVERAL YEARS AND IS ALSO JUST AND FAIR HAVING REGA RD TO RETAIL NATURE OF BUSINESS AS CLAIMED. THEREFORE, WE FIND FORCE IN THE CONTEN TION OF THE ASSESSING OFFICER THAT DECLARATION OF BUSINESS LOSS DURING THIS YEAR WAS ONLY INTENDED TO SET-OFF 14 ITA NO.692/PN/2007 ITA NO.892/PN/2007 UNEXPLAINED INCOME DETECTED AT THE TIME OF SURVEY. THE CIT(A), IN OUR VIEW, HAS MADE INCORRECT OBSERVATIONS THAT THE OVERHEAD E XPENSES AS NOTED BY THE ASSESSING OFFICER ARE MORE OR LESS FIXED IN NATURE AND WILL NOT VARY WITH THE INCREASE OR DECREASE OF THE TURNOVER AND THEREFORE GROSS PROFIT RATE INSPITE OF NET PROFIT RATE SHOULD HAVE BEEN APPLIED. WE ARE O F THE VIEW THAT THERE IS NO RATIONALE IN THE OPINION OF THE CIT(A) THAT GROSS P ROFIT RATE OF THE SUBSEQUENT YEAR SHOULD BE TAKEN AS A BASIS INSTEAD OF RELYING ON NET PROFIT RATES OF THE PREVIOUS YEARS IN THE FACTS AND CIRCUMSTANCES EXIST ING IN THE CASE. ON THE FACE OF MULTIPLE DEFECTS IN THE QUANTUM OF EXPENSES BOOK ED QUA THE TURNOVER, VARIANCE IN THE ACCOUNT OF THE SUPPLIER, EXCESS STO CK FOUND AT THE TIME OF SEARCH AND CONSISTENT PROFIT RATES IN THE EARLIER YEARS, A BSENCE OF QUANTITATIVE DETAILS AT THE TIME OF SURVEY, NON-PRODUCTION OF BOOKS OF ACCO UNT AT THE TIME OF SURVEY, ETC. HOLD ADEQUATELY AGAINST THE ASSESSEE. WE, THE REFORE, UPHOLD THE VIEW TAKEN BY THE ASSESSING OFFICER THAT 1% OF THE TURNOVER IS JUST AND REASONABLE BUSINESS PROFIT OF THE ASSESSEE AS AGAINST THE BUSI NESS LOSS DECLARED BY THE ASSESSEE. ACCORDINGLY, WE SET-ASIDE THE DIRECTIONS OF THE CIT(A) IN THIS REGARD AND UPHOLD THE ORDER OF THE ASSESSING OFFICER. ACC ORDINGLY, THE GROUND NO.1 TO 3 OF THE ASSESSEES APPEAL ARE DISMISSED AND GRO UND NO.1 AND 2 OF THE REVENUES APPEAL ARE ALLOWED. 13. AS REGARDS SECOND ISSUE OF ADDITION UNDER SECTI ON 68 OF THE ACT ALONGSIDE THE REJECTION OF BOOKS OF ACCOUNT AND EST IMATION OF PROFIT THEREON, WE ARE IN AGREEMENT WITH THE REVENUE IN PRINCIPLE T HAT THERE IS NO BAR OF INVOKING SECTION 68 OF THE ACT PER SE SIMPLY BECAUSE PROFIT HAS BEEN ESTIMATED BY REJECTING THE BOOKS OF ACCOUNT. HOWEVER, ON FAC TS, WE FIND THAT THE CIT(A) HAS OBJECTIVELY APPROACHED THE ISSUE AND AFTER PROP ER ANALYSIS OF THE FACTS HAS ARRIVED AT A FINDING AND HAS GRANTED PARTIAL RELIEF OF RS.12,42,160/- AND CONFIRMED THE BALANCE AMOUNT OF RS.4,44,434/- AS PE R HIS OBSERVATIONS NOTED ABOVE IN PARA NO. 7.2. ONCE ON FACTS, IT IS ADMITT ED THAT EXCESS STOCK OF RS.13,24,160/- FOUND AT THE TIME OF SURVEY, THE SAL E THEREOF GIVES JUSTIFIABLE EXPLANATION OF SOURCE OF CASH INTRODUCED IN THE CAP ITAL ACCOUNT AS ANALYZED BY THE CIT(A). THEREFORE, OBJECTION RAISED BY THE REV ENUE IS NOT JUSTIFIED. THUS, 15 ITA NO.692/PN/2007 ITA NO.892/PN/2007 WE DO NOT FIND ANY INFIRMITY IN THE OBSERVATIONS OF THE CIT(A) WITH REGARD TO THIS ISSUE AND ACCORDINGLY DECLINE TO INTERFERE WIT H HIS FINDINGS. IN THE RESULT, GROUND NO.4 OF THE APPEAL OF THE ASSESSEE IS DISMIS SED AND GROUND NO.3 OF THE REVENUES APPEAL IS ALSO DISMISSED. 14. RESULTANTLY, APPEAL OF THE ASSESSEE IS DISMISSE D AND THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 29 TH DAY OF JANUARY, 2016. SD/- SD/- ( SUSHMA CHOWLA ) ( PRADIP KUMAR KEDIA ) / JUDICIAL MEMBER # / ACCOUNTANT MEMBER PUNE ; DATED : 29 TH JANUARY, 2016. % & '() *)' / COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A), KOLHAPUR; 4) THE CIT-II, KOLHAPUR; 5) THE DR A BENCH, I.T.A.T., PUNE; 6) GUARD FILE. %+ / BY ORDER , //TRUE COPY// ! '# / SR. PRIVATE SECRETARY $ %& %'' , / ITAT, PUNE