HARISH CHAND, Jaipur V. ACIT, BHARATPUR

ITA 925/JPR/2013

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 5620 (ITAT-JAIPUR)
• Duration Of Justice: 3 year(s) 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-02-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 29-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJENDRA SINGH ACIT
• Keywords: Unexplained investment; Sale consideration of property below Jantri Value; Loose papers; Opportunity of being heard
• Section: 40A(3); 143(3); 133A

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH DQY HKKJR] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YA DAV, AM VK;DJ VIHY LA- @ ITA NO. 925/JP/2013 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2008-09 SHRI HARISH CHAND, PROP. M/S GAURAV STONES, MURRKI, BAYANA, BHARATPUR. CUKE VS. THE A.C.I.T., CIRCLE, BHARATPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: ACSPN 1776 E VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI MANISH AGARWAL (CA) JKTLO DH VKSJ LS @ REVENUE BY : SHRI RAJENDRA SINGH (ACIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 09/01/2017 MN?KKS'K.KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 08/02/2017 VKNS'K@ ORDER PER: VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF LD. CIT(A) DATED 02.09.2013 FOR A.Y. 2008-09. THE SOLE GROUNDS OF APPEAL TAKEN BY THE ASSESSEE ARE AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE LD. CIT(A) HAS GROSSLY ERRED IN SUSTAINING AN ADDITION OF RS.78,00 5/- BY APPLYING G.P. RATE OF 33.71% BEING THE GROSS PROFIT ON ALLEG ED UNACCOUNTED SALE OF RS.2,31,400/- ARBITRARILY. ITA NO.925/JP/2013 SH. HARISH CHAND PROP. VS. A.C.I.T., BHARATPUR 2 1.1 THAT THE LD. CIT(A) HAS FURTHER ERRED IN IGNORING T HE FACT THAT ENTRIES NOTED IN LOOSE PAPERS AND SLIPS IMPOUNDED DURING TH E COURSE OF SURVEY WERE ONLY THE ROUGH WORKING AND MEASUREMENTS NOT RELATED TO THE ACTUAL SALE MADE BY THE ASSESSEE AND ALL THE SALE RELATED TO LOOSE PAPERS WERE DULY RECORDED BY THE ASSESSEE IN THE BOOKS OF ACCOUNTS, THUS ADDITION OF RS.78,005/- SUSTAINED BY THE CIT(A) DESERVES TO BE DELETED. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE LD. CIT(A) HAS GROSSLY ERRED IN SUSTAINING THE ADDITION OF RS. 33,908/- ON ACCOUNT OF UNEXPLAINED INVESTMENT IN UNACCOUNTED PU RCHASES, ARBITRARILY. 2.1 THAT THE LD. CIT(A) HAS FURTHER ERRED IN IGNORING T HE FACT THAT ENTRIES NOTED IN LOOSE PAPERS, SLIPS IMPOUNDED DURING THE C OURSE OF SURVEY WAS ONLY ROUGH ESTIMATE AND MEASUREMENTS AND ACTUAL PURCHASES NOTED ON LOOSE PAPERS WERE DULY RECORDED IN THE BOO KS OF ACCOUNTS, AND FURTHER, IGNORED THE FACT THAT DIFFERENCE BETWE EN VALUATION OF PURCHASES BY THE LD. AO AND PURCHASES DECLARED BY T HE ASSESSEE WAS DUE TO THE ESTIMATED RATE ADOPTED BY THE LD. AO THEREFORE, ADDITION OF RS.33,908/- AS SUSTAINED BY THE LD. CIT (A) DESERVES TO BE DELETED. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE LD. CIT(A) HAS GROSSLY ERRED IN MAKING THE ADDITION OF RS.2,61,930 /- ON ACCOUNT OF GROSS PROFIT IN STOCK ALLEGED AS FOUND SHORT OF RS. 7,77,010/- ARBITRARILY, THUS THE RESULTANT ADDITION DESERVES T O BE DELETED. ITA NO.925/JP/2013 SH. HARISH CHAND PROP. VS. A.C.I.T., BHARATPUR 3 3.1 THAT THE LD. CIT(A) HAS FURTHER ERRED IN IGNORING T HE FACT THAT VALUATION OF STOCK DONE BY THE DEPARTMENT DURING TH E COURSE OF SURVEY WAS ON LOWER SIDE ON ESTIMATE BASIS WITHOUT CONSIDERING THE STOCK OF ROUGH STONE 5550CFT, LYING IN THE BOTTOM R OW OF THE CRAIN WHICH FACT WAS DULY BROUGHT TO THE NOTICE TO THE SU RVEY TEAM, THEREFORE, ADDITION SO SUSTAINED OF RS.2,61,930/- D ESERVES TO BE DELETED. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE LD. CIT(A) HAS GROSSLY ERRED IN SUSTAINING THE ADDITION OF RS.1,23 ,500/- U/S 40A(3) OF THE INCOME TAX ACT, 1961 FOR MAKING THE PAYMENT IN CASH EXCEEDING RS.20,000/- WITHOUT APPRECIATING THE SUBM ISSION MADE AND EVIDENCE ADDUCED, ARBITRARILY. 4.1 THAT THE LD. CIT(A) HAS FURTHER ERRED IN NOT APPREC IATING THE FACT THAT THE AFORESAID AMOUNT WAS PAID BY THE ASSESSEE ON DIFFERENT DATES BELOW RS.20,000/- AND DULY RECORDED IN THE BO OKS OF ACCOUNTS AND ENTRIES NOTED IN LOOSE PAPERS FOUND AND IMPOUND ED IN COURSE OF SURVEY ARE ONLY ROUGH CALCULATIONS, THUS ADDITION S USTAINED BY THE LD. CIT(A) OF RS.1,23,500/- DESERVES TO BE DELETED. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE LD. CIT(A) HAS GROSSLY ERRED IN SUSTAINING LUMP SUM DISALLOWANCES OF RS.75,000/- ON ESTIMATE BASIS OUT OF VARIOUS EXPENSES CLAIMED IN T HE PROFIT & LOSS ACCOUNT FOR NON-VERIFICATION OF SAME WITHOUT CONSID ERING THE FACT THAT THE LD. AO HAS FAILED TO POINT OUT EVEN A SING LE INSTANCE WHEREIN PERSONAL ELEMENT IS INVOLVED AND EXPENSES WERE NOT INCURRED FOR BUSINESS PURPOSES. IN THE CIRCUMSTANCES THE DISALLO WANCES SO SUSTAINED DESERVES TO BE DELETED. ITA NO.925/JP/2013 SH. HARISH CHAND PROP. VS. A.C.I.T., BHARATPUR 4 6. WITHOUT PREJUDICE TO GROUNDS OF APPEAL 1 TO 5 AND I N THE ALTERNATIVE, LD. CIT HAS GROSSLY ERRED IN NOT ALLOWING THE BENEF IT OF TELESCOPING AND SET OFF ONE INCOME FROM THE OTHER INCOME WHICH BEING A LEGAL CLAIM, DESERVES TO BE ALLOWED. 2. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSE SSEE IS AN INDIVIDUAL AND PROPRIETOR OF M/S GAURAV STONES ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF PILLARS AND SLABS OF S AND STONES. A SURVEY U/S 133A OF THE INCOME TAX ACT, 1961 WAS CARRIED OU T ON 18.03.2008 AT THE BUSINESS PREMISES OF THE ASSESSEE, DURING THE C OURSE OF WHICH CERTAIN LOOSE PAPERS WERE FOUND AND IMPOUNDED. FURT HER PHYSICAL VERIFICATION OF THE STOCK AS WELL AS BOOKS OF ACCOU NTS WAS ALSO TAKEN DURING THE COURSE OF SURVEY. 2.1 FOR THE YEAR UNDER APPEAL, THE ASSESSEE HAD FIL ED HIS RETURN OF INCOME DECLARING TOTAL INCOME OF RS.6,40,990/-. HOW EVER, THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT AT A TOTAL INCOME OF RS.26,82,010/- BY MAKING VARIOUS ADDITIONS AGGREGAT ING TO RS.20,41,020/-. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A), WHO VIDE HIS ORDER DATED 20.09.2013 PASSED IN APPEAL NO.343/10-11 PARTLY ALL OWED THE APPEAL OF ITA NO.925/JP/2013 SH. HARISH CHAND PROP. VS. A.C.I.T., BHARATPUR 5 ASSESSEE. AGAINST THE ADDITIONS SO SUSTAINED BY THE LD. CIT(A), THE ASSESSEE HAS PREFERRED THIS APPEAL. 2.2 IN RESPECT OF GROUNDS OF APPEAL NOS.1 & 1.1, TH E ASSESSEE HAS CHALLENGED THE ACTION OF LD. CIT(A) IN SUSTAINING T HE ADDITION OF RS.78,005/- BY APPLYING G.P. RATE @ 33.71% BEING TH E GROSS PROFIT ON ALLEGED UNACCOUNTED SALES OF RS.2,31,400/-. 2.3 BRIEF FACTS PERTAINING TO THESE GROUNDS OF APPE AL ARE THAT DURING THE COURSE OF SURVEY CERTAIN LOOSE PAPERS WERE FOUN D AND WERE IMPOUNDED. THE LD. AO REFERRED TO THESE PAPERS AND STATED THAT THE JOTTINGS ON THESE PAPERS REFLECT THE UNACCOUNTED SA LES MADE BY THE ASSESSEE. THE DETAILS PERTAIN TO THESE PAPERS IS AS UNDER: S.NO. PAGE NO. ANNEXURE DATE DESCRIPTI ON AMOUNT AS PER IMPOUNDED PAPERS (RS) 1. 14 A - 12 12.3.2008 SHOKIN KHAN 53,600.00 2. 66 TO 68 A - 25 2007 - 08 SHYAM SUNDER 2,31,400.00 3. 78 A - 17 2007 - 08 NIRMAL KUMAR JAIN 10,79,684.00 2.4 THE LD AR SUBMITTED THAT WITH RESPECT TO THESE PAPERS, IT WAS SUBMITTED BEFORE THE LD. AO THAT NONE OF THESE PAPE RS REFLECTS ANY ACTUAL SALES AND IN CONFIRMATION THEREOF, AFFIDAVIT S AS WELL AS IDS OF THE AFOREMENTIONED PERSONS (TO WHOM THE RESPECTIVE PAPE RS ARE RELATED) ITA NO.925/JP/2013 SH. HARISH CHAND PROP. VS. A.C.I.T., BHARATPUR 6 WERE SUBMITTED WHEREIN THEY HAVE CLEARLY STATED THA T NO PURCHASE WAS MADE BY THEM FROM THE ASSESSEE. HOWEVER, THE LD. AO IGNORED THE SUBMISSION OF ASSESSEE AND THE AFFIDAVITS OF CONCER NED PARTIES BY OBSERVING THAT THE AFFIDAVITS ARE MERELY A MISGUIDE TO THE DEPARTMENT AND BEAR NO AUTHENTICITY. 2.5 IN THIS REGARD, THE LD. AR SUBMITTED THAT THE A FOREMENTIONED PAPERS DO NOT REFLECT ANY ACTUAL TRANSACTIONS AND M ERELY CONTAIN SOME ROUGH CALCULATIONS OR ESTIMATIONS OF MEASUREMENTS. AFFIDAVITS OF THE PARTIES WERE ALSO SUBMITTED BEFORE THE LD. CIT(A), AFTER CONSIDERING WHICH, THE LD. CIT(A) FORWARDED TO THE LD. AO AND C ALLED FOR A REMAND REPORT. IN COMPLIANCE OF THE DIRECTIONS OF THE LD. CIT(A), THE LD. AO SUBMITTED HIS REMAND REPORT ON 11.06.2013 (APB 20-2 4) WHEREIN THE LD. AO HIMSELF HAS ACCEPTED THAT THE FIGURES MENTIONED ON THE AFOREMENTIONED PAPERS DO NOT REPRESENT ANY SALE MAD E BY THE ASSESSEE EXCEPT THE AMOUNT OF RS.2,31,400/- AS MENTIONED ON PAGE NOS. 66 TO 68 OF A-25. HOWEVER, WITH REGARD TO THE REMAINING AMOU NT, THE CONTENTIONS OF THE ASSESSEE WAS ACCEPTED BY THE LD. AO HIMSELF. 2.6 HAVING TAKEN INTO CONSIDERATION THE REMAND REPO RT SO FURNISHED BY THE LD. AO, THE LD. CIT(A) ALSO ACCEPTED THE CONTEN TIONS OF THE ASSESSEE WITH RESPECT TO THE AMOUNT OF RS.11,33,284/- AND TH E ADDITION MADE ON ITA NO.925/JP/2013 SH. HARISH CHAND PROP. VS. A.C.I.T., BHARATPUR 7 THIS ACCOUNT WAS DELETED. HOWEVER, WITH RESPECT TO THE AMOUNT OF RS.2,31,400/-, THE LD. CIT(A) DID NOT CONSIDER THE SUBMISSION/ EXPLANATION OF THE ASSESSEE AND APPLIED G.P. @ 33.7 1% IN PLACE OF THE G.P. RATE APPLIED BY THE LD. AO @ 26% BY TAKING THE AVERAGE G.P. RATE FOR PAST 3 YEARS AND ACCORDINGLY, SUSTAINED AN ADDI TION OF RS.78,005/-. 2.7 IN THIS REGARD, IT WAS FURTHER SUBMITTED THAT T HE ASSESSEE HAD SOLD GOODS AND PERFORMED JOB WORKS WORTH RS.11,59,900/- FOR SHRI SHYAM SUNDER, HOWEVER, OUT OF WHICH GOODS WORTH RS.2,31,4 00/- WERE NOT APPROVED BY THE BUYER AND WERE REJECTED. ACCORDINGL Y, THE ASSESSEE ISSUED INVOICES WITH RESPECT TO THE REMAINING GOODS OF RS.9,28,500/- AND SINCE THE SALE WITH RESPECT TO THE GOODS OF RS.2,31 ,400/- COULD NOT BE EXECUTED AS STATED ABOVE, THEREFORE, NO INVOICE WAS RAISED WITH RESPECT TO THE SAME. IT IS FURTHER SUBMITTED THAT NEITHER T HE RATE NOR THE AMOUNT RECEIVED HAS BEEN MENTIONED ON THE AFORESAID LOOSE PAPERS. IT IS PERTINENT TO MENTION HERE THAT THE SAID PERSON I.E. SHRI SHYAM SUNDER HAD EXECUTED AN AFFIDAVIT IN CONFIRMATION OF THE AB OVE FACT ADMITTING THEREIN THAT NO PURCHASE WHATSOEVER WAS MADE BY HIM FROM THE ASSESSEE WHICH FACT IS FURTHER CONFIRMED BY HIM IN THE STATEMENT RECORDED DURING REMAND PROCEEDINGS ALSO, AS OBSERVE D BY LD. AO IN REMAND REPORT ALSO (APB-21) HOWEVER, CIT(A) COMPLET ELY IGNORED THE ITA NO.925/JP/2013 SH. HARISH CHAND PROP. VS. A.C.I.T., BHARATPUR 8 SUBMISSION OF THE ASSESSEE AS WELL AS THE AFFIDAVIT OF SHRI SHYAM SUNDER WITHOUT ANY BASIS. THEREFORE, IN VIEW OF THE ABOVE IT IS HUMBLY PRAYE D THAT THE ADDITION OF RS. 78,005/- BEING G.P. RATE @ 33.71% O N THE ALLEGED UNDISCLOSED SALES OF RS.2,31,400/- SUSTAINED BY THE LD. CIT(A) MAY PLEASE BE DIRECTED TO BE DELETED. 2.8 FURTHER, WITHOUT PREJUDICE TO ABOVE AND IN THE ALTERNATIVE IT IS SUBMITTED THAT THE LD. CIT(A) HAS GROSSLY ERRED IN ENHANCING THE APPLICATION OF THE PROFIT RATE AT 33.71% IN PLACE O F 26% APPLIED BY THE LD. AO. IN THIS REGARD IT IS SUBMITTED THAT THE LD. CIT(A) HAS UNILATERALLY AND ON HIS OWN APPLIED THIS PROFIT RATE WITHOUT APP RECIATING THE FACT THAT ASSESSEE HAS DISPUTED THE APPLICATION G.P. RATE AND REQUESTED FOR APPLICATION OF N.P. RATE AND NEVER CHALLENGED THE A PPLICATION OF AVERAGE GP RATE APPLIED BY THE LD. AO. IT IS SUBMITTED THAT THE LD. AO WAS QUITE JUSTIFIED IN APPLYING THE PROFIT RATE OF 26% BY TAK ING THE AVERAGE PROFIT RATE OF THE PAST THREE ASSESSMENT YEARS, HOWEVER TH E LD. CIT(A) HAS WRONGLY DISTURBED THIS RATE BY APPLYING THE PROFIT RATE @ 33.71%. THUS, IN THE ALTERNATIVE IT IS PRAYED THAT THE ACTI ON OF LD. CIT(A) IN APPLYING THE PROFIT RATE OF 33.71% MAY PLEASE BE DE CLARED BAD IN LAW AND THE PROFIT RATE AS APPLIED BY THE LD. AO @ 26% BE UPHELD. ITA NO.925/JP/2013 SH. HARISH CHAND PROP. VS. A.C.I.T., BHARATPUR 9 2.9 THE RELEVANT FINDING OF THE LD CIT(A) IS REPROD UCED AS UNDER: 4.5 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MA DE BY THE LD. AR AND THE REMAND REPORT FURNISHED BY THE AO. AO HAS N OW WORKED OUT THE TOTAL UNACCOUNTED SALES AT RS.2,31,400/- AFTER CONS IDERING THE EXPLANATIONS FURNISHED BY THE APPELLANT AND AFFIDAV ITS FILED DURING THE COURSE OF APPELLATE PROCEEDINGS, AS AGAINST THE UNA CCOUNTED SALES OF RS.13,64,684/- WORKED OUT AT THE ASSESSMENT STAGE. THE EVIDENCE FURNISHED AT THE APPELLATE STAGE WAS EXAMINED BY TH E AO WITH REFERENCE TO IMPOUNDED BOOKS OF ACCOUNTS, DIARY, LOOSE PAPERS ETC., WHICH WERE MARKED AS ANNEXURE A-12, A-17 & A-25, AND WORKED OU T THAT ONLY SALES OF RS.2,31,400/- HAS NOT BEEN RECORDED IN THE BOOKS OF ACCOUNTS. 4.6 THE AO HAS THUS WORKED OUT THE UNACCOUNTED SAL ES AT RS.2,31,400/- AFTER CONSIDERING THE EVIDENCE AND EX PLANATIONS FURNISHED BY THE APPELLANT. THE APPELLANT IN HIS COUNTER COMM ENTS HAS NOT BEEN ABLE TO CONTROVERT THE FINDINGS OF THE AO AND HAS M ERELY STATED THAT THESE PAPERS REFLECT THE ESTIMATE MADE AND DO NOT S HOW THE ACTUAL SALES. THERE IS NO SUBSTANCE IN THE ARGUMENTS GIVEN BY THE APPELLANT. THE ARGUMENTS GIVEN BY THE APPELLANT ARE REPETITIVE AND HAVE ALREADY BEEN CONSIDERED BY THE AO AT THE ASSESSMENT STAGE A S WELL AS AT THE APPELLATE STAGE IN THE REMAND PROCEEDINGS. 4.7 HOWEVER, WHILE MAKING THE TRADING ADDITION, TH E AO APPLIED THE AVERAGE GP RATE FOR THE LAST 3 YEARS (FOR FY 2005-0 6 TO FY 2007-08 OF 26%). I DO NOT AGREE WITH THE AVERAGE RATE ADOPTED BY THE AO, WHILE WORKING OUT THE PROFIT EARNED ON UNACCOUNTED SALES. THE RATE OF GP DECLARED BY THE APPELLANT FOR THE PERIOD UNDER CONS IDERATION SHOULD HAVE BEEN ADOPTED, WHILE WORKING OUT BY THE AO NOW IN HI S REMAND REPORT. ITA NO.925/JP/2013 SH. HARISH CHAND PROP. VS. A.C.I.T., BHARATPUR 10 THE APPELLANT IN THE COUNTER COMMENTS ON REMAND REP ORT DID NOT OFFER ANY EXPLANATION ON THIS POINT. THIS ISSUE WAS DISCU SSED WITH THE AR DURING THE APPELLATE PROCEEDINGS AND IT WAS FAIRLY CONCEDED BY HIM. THE GP RATE DECLARED BY THE APPELLANT FOR FY 2007-08 IS 33.71% AND IF APPLIED ON UNACCOUNTED SALES OF RS.2,31,400/-, IT G IVES A PROFIT OF RS.78,005/-. ACCORDINGLY, I CONFIRM THE ADDITION OF RS.78,005/- MADE ON ACCOUNT OF PROFIT EARNED ON UNACCOUNTED SALES AND T HE APPELLANT WOULD GET A RELIEF OF RS.2,76,813/- UNDER THIS HEAD. 3. IN RESPECT OF GROUNDS OF APPEAL NOS. 2 & 2.1, TH E ASSESSEE HAS CHALLENGED THE ADDITION OF RS.33,908/- SUSTAINED BY THE LD. CIT(A) ON ACCOUNT OF ALLEGED UNEXPLAINED INVESTMENT IN UNACCO UNTED PURCHASES. 3.1 BRIEF FACTS PERTAINING TO THESE GROUNDS OF APPE AL ARE THAT, IN THE BOOKS OF ACCOUNT THE ASSESSEE HAS RECORDED PURCHASE S OF RAW MATERIAL TO THE TUNE OF RS.58,10,975/-, HOWEVER, THE. AO DIS PUTED THE VALUATION OF ASSESSEE AND STATED THAT THE VALUATION OF THE ST OCK SHOULD BE RS.65,77,943/- AND NOT RS.58,10,975/- AND THUS, THE DIFFERENCE OF RS.7,66,968/- IS ASSESSEES UNACCOUNTED PURCHASES. IT HAS BEEN STATED IN THE ASSESSMENT ORDER THAT THE BASIS OF SUCH VALU ATION BY LD. AO IS CERTAIN PAPERS FOUND DURING THE COURSE OF SURVEY SU CH AS PAGE NO.39, 60 OF ANNEX. A-5 AND PAGE NO.55 ANNEX. A-17. 3.2 BEFORE THE LD. CIT(A), IT WAS CONTENDED THAT CO MPLETE LIST OF SUPPLIERS OF RAW MATERIAL WAS SUBMITTED BEFORE THE LD. AO AND ALSO THE ITA NO.925/JP/2013 SH. HARISH CHAND PROP. VS. A.C.I.T., BHARATPUR 11 PURCHASE VOUCHERS WERE DULY SUBMITTED BEFORE THE LD . AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS, WHICH IS CLEARLY APPARENT FROM THE REPLIES SUBMITTED BY THE ASSESSEE BEFORE THE LD. AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS. IN SPITE OF THE SAME, THE L D. AO SUBSTITUTED THE PROPER VALUATION DONE BY ASSESSEE WITH SOME FIC TITIOUS FIGURES WHICH DID NOT HAVE ANY BASIS. IT WAS FURTHER SUBMITTED TH AT AS PER TRADING ACCOUNT SUBMITTED ALONGWITH THE RETURN OF INCOME, T HE TOTAL VALUE OF PURCHASES AFTER INCLUDING THE EXPENSES INCURRED ON PURCHASES CAME TO RS.65,44,035/- AND THE SO-CALLED DIFFERENCE, IF ANY , CAME ONLY TO RS.33,908. 3.3 DURING THE COURSE OF APPELLATE PROCEEDINGS, THE LD. CIT(A) REFERRED THE MATTER TO THE LD. AO FOR EXAMINATION O F THE CONTENTIONS OF THE ASSESSEE WITH RESPECT TO THE IMPOUNDED DOCUMENT S. ACCORDINGLY, THE LD. AO SUBMITTED A REMAND REPORT ON 11.06.2013 (APB 20-24) WHEREIN, THE LD. AO OBSERVED AS UNDER: TO EXAMINE THE CORRECTNESS OF THE RATES OF SAND ST ONE PER CFT, LOOSE PAPERS/INCRIMINATING DOCUMENTS WERE VERIFIED FROM T HE DETAILS OF PURCHASES CALCULATED BY THE AO. IN MOST OF THE INCR IMINATING DOCUMENTS LIKE ANNEXURE A-5, A-6, A-7 ONLY DETAILS OF SAND ST ONE PURCHASES WERE MENTIONED THE RATES OF SAND STONE AND TYPE OF SAND STONE ARE NOT MENTIONED. ONLY ON FEW PAGES LIKE ANNEX. A-17 PAGE 55, A-5 PAGE 39 & ITA NO.925/JP/2013 SH. HARISH CHAND PROP. VS. A.C.I.T., BHARATPUR 12 60 RATES WERE MENTIONED BUT TYPE OF SAND STONE IS N OT MENTIONED. FROM THE ABOVE FACTS IT IS CLEAR THAT THE AO HAS APPLIED PURCHASE RATES OF SAND STONE NO ESTIMATED BASIS. FURTHER, ALL THE PURCHASE S HAVE BEEN RECORDED QUANTITY WISE IN THE PURCHASE REGISTER. THERE IS ON LY DIFFERENCE OF RATES OF PURCHASES TAKEN BY THE ASSESSEE AND APPLIED BY T HE AO. THUS, THE CONTENTION OF THE A/R SEEMS TO BE JUSTIFIABLE TO SO ME EXTENT. 3.4 THUS, FROM A PERUSAL OF THE ABOVE IT IS CLEAR T HAT THE VALUATION DONE BY THE LD. AO IS MERE ESTIMATION AND ALSO THAT THERE WAS NO PROPER BASIS FOR THE LD. AO TO MAKE SUCH ESTIMATION. ACCOR DINGLY, ON THE BASIS OF ABOVE OBSERVATIONS IN THE REMAND REPORT, THE LD. CIT(A) HAS DELETED THE ADDITION OF RS.7,33,060/- OUT OF THE ADDITION O F RS.7,66,968/- AND THE DIFFERENCE OF RS.33,908/- WAS SUSTAINED BY LD. CIT(A). 3.5 IN THIS REGARD, IT WAS SUBMITTED THAT THE LD. C IT(A) HAS COMPLETELY FAILED TO CONSIDER THE CONTENTION OF THE ASSESSEE A ND ALSO THE OBSERVATION IN THE REMAND REPORT THAT THE VALUATION DONE BY THE LD. AO IN THE ASSESSMENT ORDER WAS MERE ESTIMATION WHICH W AS THOUGH ALLEGED TO BE DONE ON THE BASIS OF IMPOUNDED LOOSE PAPERS, BUT IN ACTUAL IT WAS NOT BASED ON ANY PAPER WHATSOEVER WHICH FACT IS APP ARENT FROM THE REMAND REPORT ITSELF. THE LD. CIT(A) HIMSELF IN PAR A 5.5 OF HIS ORDER ACCEPTS THIS FACT AND OBSERVES THAT THIS DIFFERENCE WAS DUE TO THE ESTIMATED RATE ADOPTED FOR VALUATION OF PURCHASES A T THE TIME OF ITA NO.925/JP/2013 SH. HARISH CHAND PROP. VS. A.C.I.T., BHARATPUR 13 ASSESSMENT. THUS, THE ADDITION OF RS.33,908/- IS CL EARLY BASED ON ESTIMATION AND HAS BEEN SUSTAINED WITHOUT APPLICATI ON OF MIND AND WITHOUT CONSIDERING THE SUBMISSION OF ASSESSEE. THUS, IN VIEW OF THE ABOVE IT IS PRAYED THAT THE A DDITION OF RS.33,908/- DESERVES TO BE DELETED. 3.6 THE RELEVANT FINDINGS OF THE LD CIT(A) IS REPRO DUCED AS UNDER: 5.5 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MA DE BY THE AR AND FIND THAT AO HAD IN HIS ORDER WORKED OUT THE TOTAL PURCHASES AT RS.65,77,943/- AS AGAINST TOTAL PURCHASE OF RS.58,1 0,975/- DECLARED BY THE ASSESSEE AND THE DIFFERENCE OF RS.7,66,968/- WA S TREATED AS UNACCOUNTED PURCHASE. HOWEVER, AFTER CONSIDERING TH E EVIDENCE IN THE FORM OF PURCHASE BILLS, LIST OF SUPPLIERS, EXPENSES INCURRED ON PURCHASES AND EXAMINING THE SAME WITH REFERENCE TO THE IMPOUN DED MATERIAL (RELEVANT ANNEXURES) IN THE COURSE OF REMAND PROCEE DINGS, THE AO HAS WORKED OUT THE TOTAL PURCHASES (AFTER ADDING EXPENS ES) AT RS.65,44,035/-. THIS RESULTS IN A DIFFERENCE OF ONL Y RS.33,908/-. IT IS FURTHER STATED BY THE AO IN THE REMAND REPORT THAT THIS DIFFERENCE WAS DUE TO THE ESTIMATED RATE ADOPTED FOR VALUATION OF PURCHASES AT THE TIME OF ASSESSMENT. IN VIEW OF THESE FACTS, I CONFIRM TH E ADDITION OF RS.33,908/- ON ACCOUNT OF UNACCOUNTED PURCHASES AND ACCORDINGLY THE APPELLANT WOULD GET A RELIEF OF RS.7,33,060/- UNDER THIS HEAD. 4. IN RESPECT OF GROUNDS OF APPEAL NOS.3 & 3.1, THE ASSESSEE HAS CHALLENGED THE ACTION OF THE LD. CIT(A) IN SUSTAINI NG THE ADDITION OF ITA NO.925/JP/2013 SH. HARISH CHAND PROP. VS. A.C.I.T., BHARATPUR 14 RS.2,61,930/- OUT OF GROSS PROFIT @ 33.71% ON STOCK ALLEGED AS FOUND SHORT OF RS.7,77,010/- DURING THE COURSE OF SURVEY. 4.1 BRIEF FACTS PERTAINING TO THESE GROUNDS OF APPE AL ARE THAT DURING THE COURSE OF SURVEY, PHYSICAL VERIFICATION OF STOC K WAS TAKEN BY THE DEPARTMENT WHICH WAS STATED TO HAVE SHOWN AVAILABIL ITY OF STOCK AT RS.30,11,120/- AND THE STOCK RECORDED BY ASSESSEE I N THE BOOKS OF ACCOUNT IS AT RS.37,88,130/-, ON THE BASIS OF WHICH IT WAS STATED THAT THE DIFFERENCE BETWEEN THE TWO AMOUNTS IS THE SHORTAGE IN STOCK WHICH HAVE BEEN SOLD BY THE ASSESSEE. 4.2 WITH REGARD TO THE ALLEGATION OF SHORTAGE OF ST OCK, IT WAS SUBMITTED BEFORE THE LD. CIT(A) THAT THERE WERE SOM E IRREGULARITIES IN PHYSICAL VERIFICATION/VALUATION OF THE STOCK INASMU CH AS THE STOCK OF ROUGH STONE OF 5550 CFT LYING IN THE BOTTOM ROW OF THE CRANE WAS NOT COUNTED WHILE TAKING THE STOCK FOR THE REASON THAT MEASUREMENT OF THAT ROW WAS NOT POSSIBLE WITHOUT LIFTING THE UPPER ROWS , WHICH FACT WAS BROUGHT TO THE KNOWLEDGE OF THE INSPECTOR MAKING TH E STOCK INVENTORY, ON WHICH, THE ASSESSEE WAS ASSURED THAT THE SAID PA RT OF STOCK SHALL BE TAKEN INTO CONSIDERATION AT THE TIME OF MAKING THE FINAL LIST. HOWEVER, IN SPITE OF SPECIFIC REQUESTS OF ASSESSEE, THE SAME WA S NOT TAKEN INTO CONSIDERATION. ACCORDINGLY, THE ASSESSEE FILED AN A FFIDAVIT BEFORE THE LD. ITA NO.925/JP/2013 SH. HARISH CHAND PROP. VS. A.C.I.T., BHARATPUR 15 AO (APB 27) DEPOSING THE ABOVE FACTS AND ALSO STATE D THAT HE THEREAFTER MADE REQUESTS TO THE DEPARTMENT TO CONSIDER THE WHO LE STOCK INCLUDING THE STOCK WHICH COULD NOT BE CONSIDERED EARLIER, HO WEVER IT WAS INFORMED TO HIM THAT NOW NO DETAILS SHALL BE TAKEN. 4.3 THE LD. CIT(A) THEN REFERRED THE MATTER TO THE LD. AO FOR EXAMINATION OF THE CONTENTIONS OF THE ASSESSEE WITH RESPECT TO THE DETAILS SUBMITTED BY HIM. THE LD. AO SUBMITTED HIS REMAND REPORT (APB 20-24) WHEREIN HE MERELY REPEATED THE ALLEGATIONS M ADE IN THE ASSESSMENT ORDER. THE LD. CIT(A) ACCORDINGLY, WITHO UT CONSIDERING THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE AND THE S UBMISSIONS OF THE ASSESSEE SUSTAINED THE ADDITION MADE BY LD. AO AND FURTHER ENHANCED IT TO RS.2,61,930/- BY APPLYING PROFIT RATE OF 33.71% ON THE ALLEGED SHORT STOCK IN PLACE OF THE RATE OF 26% APPLIED BY THE LD . AO. 4.4 IN THIS REGARD, IT WAS SUBMITTED THAT FROM THE RECORD OF THE CASE, IT IS UNDISPUTED FACT THAT THE VALUATION OF STOCK DURI NG PHYSICAL VERIFICATION THEREOF WAS NOT DONE IN PROPER MANNER AND CERTAIN S TOCK WAS LEFT OUT FROM CONSIDERATION AS MENTIONED ABOVE AND TO WHICH EFFECT THE ASSESSEE HAS SUBMITTED HIS AFFIDAVIT ALSO WHICH REMAINS UNCO NTROVERTED. 4.5 IT IS FURTHER SUBMITTED THAT THE LD. AO AS WELL AS LD. CIT(A) HAVE FAILED TO ESTABLISH THE SALE OF ALLEGED SHORT STOCK ON PART OF THE ASSESSEE. ITA NO.925/JP/2013 SH. HARISH CHAND PROP. VS. A.C.I.T., BHARATPUR 16 RATHER, THE LOWER AUTHORITIES HAVE PROCEEDED ON MER E PRESUMPTION THAT SHORTAGE IN STOCK HAS RESULTED INTO SALE THEREOF. I N THIS REGARD IT IS SUBMITTED THAT IT IS SETTLED LAW THAT THE ONUS OF P ROVING THE FACT OF SALE IS ON DEPARTMENT. IN THIS REGARD RELIANCE IS PLACED ON ORDER OF HONBLE ITAT IN THE CASE OF MAHAVIR PRASAD CHOUDHARY VS. ITO (IT AT JODHPUR) (XLII TW 98). 4.6 FURTHER THE SALES OF RS.2,31,400/- HAVE BEEN HE LD AS MADE OUTSIDE BOOKS, WHICH HAS BEEN CHALLENGED SEPARATELY IN GROU ND OF APPEAL NO.1 ABOVE. IN THE EVENT THE HONBLE BENCH PROCEEDED TO HOLD THE SALES OF RS.2,31,400/- AS OUTSIDE THE BOOKS OF ACCOUNTS, THE CREDIT MAY PLEASE BE GIVEN OUT OF THE ALLEGED SHORTAGE OF STOCK OF RS.7, 77,010/- WHICH IS ALSO TREATED AS UNDISCLOSED. THUS, IN VIEW OF THE ABOVE IT IS HUMBLY PRAYED THA T THE ADDITION OF RS.2,61,930/- SUSTAINED BY THE LD. CIT(A) MAY PLEAS E BE DELETED. 4.7 FURTHER, WITHOUT PREJUDICE TO ABOVE AND IN THE ALTERNATIVE IT IS SUBMITTED THAT THE LD. CIT(A) HAS GROSSLY ERRED IN ENHANCING THE APPLICATION OF THE PROFIT RATE AT 33.71% IN PLACE O F 26% APPLIED BY THE LD. AO. IN THIS REGARD IT IS SUBMITTED THAT THE LD. CIT(A) HAS UNILATERALLY AND ON HIS OWN APPLIED THIS PROFIT RATE WITHOUT CON FRONTING THIS ISSUE TO THE ASSESSEE AND WITHOUT SEEKING HIS EXPLANATION ON THIS ISSUE. IT IS ITA NO.925/JP/2013 SH. HARISH CHAND PROP. VS. A.C.I.T., BHARATPUR 17 SUBMITTED THAT THE LD. AO WAS QUITE JUSTIFIED IN AP PLYING THE PROFIT RATE OF 26% BY TAKING THE AVERAGE PROFIT RATE OF THE PAS T THREE ASSESSMENT YEARS, HOWEVER THE LD. CIT(A) HAS WRONGLY DISTURBED THIS RATE BY APPLYING THE PROFIT RATE @ 33.71%. THUS, IN THE ALTERNATIVE IT IS PRAYED THAT THE ACT ION OF LD. CIT(A) IN APPLYING THE PROFIT RATE OF 33.71% MAY PLEASE BE DE CLARED BAD IN LAW AND THE PROFIT RATE AS APPLIED BY THE LD. AO @ 26% BE UPHELD. 4.8 THE RELEVANT FINDING OF THE LD CIT(A) IS REPROD UCED AS UNDER: 6.5 I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE AR AND FIND THAT THE INVENTORY WAS PREPARED WITH THE HELP OF ASSESSE E AND HIS SON ON THE DATE OF SURVEY AND VALUATION WAS ALSO DONE ACCORDIN GLY. THE APPELLANT HAS NOT BEEN ABLE TO PROVE BEYOND REASONABLE DOUBT, THE REASONS FOR SHORTAGE OF STOCK. THE APPELLANT HAS FAILED TO FURN ISH ANY DOCUMENTARY EVIDENCE IN SUPPORT OF THE STOCK VALUATION ADOPTED BY HIM DURING THE COURSE OF ASSESSMENT PROCEEDINGS OR EVEN IN THE COU RSE OF PRESENT PROCEEDINGS. THE EXPLANATION FURNISHED IN THE COURS E OF APPELLATE PROCEEDINGS HAS BEEN EXAMINED BY THE AO, AFTER GIVI NG AN OPPORTUNITY OF BEING HEARD TO THE APPELLANT AND CONSIDERING THE SE FACTS, I UPHOLD THE ACTION OF THE AO IN TREATING THE SHORTAGE OF STOCK WORTH RS.7,77,010/- AS THE SALES OUTSIDE THE BOOKS OF ACCOUNTS. THE AO HAD APPLIED AVERAGE GROSS PROFIT RATE FOR THE LAST 3 YEARS WHILE WORKIN G OUT THE UNACCOUNTED PROFIT ON SUCH SALES. IN THE REMAND REPORT, THE AO HAS POINTED OUT THAT THE GP RATE FOR THE CURRENT YEAR I.E. SHOULD BE APP LIED FOR WORKING OUT ITA NO.925/JP/2013 SH. HARISH CHAND PROP. VS. A.C.I.T., BHARATPUR 18 THE UNACCOUNTED PROFIT ON SALES MADE OUTSIDE THE BO OKS I.E. ON THE STOCK SHORTAGE OF RS.7,77,010/-. THE APPELLANT HAS NOT OF FERED ANY COMMENT ON THIS ISSUE IN HIS COUNTER REPLY TO THE REMAND RE PORT. HOWEVER, THIS ISSUE WAS DISCUSSED WITH THE AR IN THE APPELLATE PR OCEEDINGS AND IT WAS FAIRLY CONCEDED. THIS WOULD RESULT IN AN ADDITION O F RS.2,61,930/- ON ACCOUNT OF UNACCOUNTED PROFIT EARNED ON SALES OUTSI DE THE BOOKS OF ACCOUNTS OF RS.7,77,010. 6.6 ACCORDINGLY, I ENHANCE THE ADDITION FROM RS.2, 02,022/- MADE BY AO (ON THE BASIS OF AVERAGE GP RATE OF LAST 3 YEARS ) TO RS.2,61,930/- ON ACCOUNT OF UNACCOUNTED PROFIT EARNED ON SALES MADE OUTSIDE THE BOOKS OF ACCOUNTS OF RS.7,77,010/-. 5. IN RESPECT OF GROUNDS OF APPEAL NOS.4 & 4.1, THE ASSESSEE HAS CHALLENGED THE ACTION OF LD. CIT(A) IN SUSTAINING T HE ADDITION OF RS.1,23,500/- MADE BY WAY OF DISALLOWANCE U/S 40A(3 ) OF THE ACT. 5.1 BRIEF FACTS PERTAINING TO THESE GROUNDS OF APPE AL ARE THAT DURING THE YEAR UNDER APPEAL, THE ASSESSEE HAD MADE CERTAI N PAYMENTS TO THE TUNE OF RS.6,10,375/- IN CASH TO CERTAIN SUPPLIERS EXCEEDING RS.20,000/-. AS PER THE ASSESSEE, THESE PAYMENTS IN CASH HAD TO BE MADE UNDER COMPULSION AND UNDER JUSTIFIABLE CIRCUMSTANCES AND WERE CLEARLY COVERED BY THE EXCEPTIONS PROVIDED IN RULE 6DD OF THE INCOM E TAX RULES, 1962. THE ASSESSEE ALSO CLAIMED TO HAVE SUBMITTED COMPLET E EVIDENCES IN ITA NO.925/JP/2013 SH. HARISH CHAND PROP. VS. A.C.I.T., BHARATPUR 19 SUPPORT OF SUCH CLAIM IN THE SHAPE OF AFFIDAVITS OF ALL THE PERSONS TO WHOM PAYMENTS HAD BEEN MADE. 5.2 THE MATTER WAS REFERRED BY THE LD. CIT(A) TO TH E LD. AO FOR EXAMINATION OF THE CONTENTION OF THE ASSESSEE UPON WHICH THE LD. AO SUBMITTED HIS REMAND REPORT (APB 20-24) WHEREIN, TH E LD. AO HAS ACCEPTED THE FACT THAT THE CASE OF ASSESSEE WAS COV ERED BY EXCEPTIONS PROVIDED UNDER RULE 6DD IN RESPECT OF ALL THE PAYME NTS EXCEPT PAYMENTS MADE TO TWO PARTIES I.E. TO SH. GULAIYA AN D TO SH. KHAN MAHESH SETH OF RS.23,500/- AND RS.1,00,000/- RESPEC TIVELY SOLELY FOR THE REASONS THAT THEIR STATEMENTS COULD NOT BE RECORDED THOUGH THEIR AFFIDAVITS REMAINED UNCONTROVERTED. ACCORDINGLY, TH E LD. CIT(A) DELETED THE ADDITION IN RESPECT OF THE REMAINING AMOUNT, HO WEVER SUSTAINED THE ADDITION WITH RESPECT TO THE AMOUNT OF RS.1,23,500/ - MADE TO THE AFORESAID TWO PARTIES. 5.3 IN THIS REGARD, IT WAS SUBMITTED THAT ALL THE A BOVE PAYMENTS WERE MADE TO DIFFERENT PERSONS TROLLY WISE, CRANE WISE A ND ACCORDING TO THE NEED OF SELLING PARTIES AS MENTIONED IN THE BOOKS O F ACCOUNT. WITH RESPECT TO THE ABOVEMENTIONED TWO PAYMENTS AS WELL IT IS SUBMITTED THAT THE SAID PAYMENTS ARE ALSO COVERED BY THE EXCEPTION S PROVIDED UNDER RULE 6DD WHICH FACT WAS IGNORED BY LD. AO IN THE RE MAND REPORT AS WELL ITA NO.925/JP/2013 SH. HARISH CHAND PROP. VS. A.C.I.T., BHARATPUR 20 AS BY THE LD. CIT(A). IT IS SUBMITTED THAT THE PAYM ENT TO SH. GULIYA WAS MADE ON 21.08.2007 AND ACCORDING TO THE DIRECTIONS OF SHRI GULIYA, THE PAYMENTS WERE NOT MADE TO HIM IN CASH SINCE HE STAT ED TO NOT HAVE A BANK ACCOUNT. IN SUPPORT OF THIS CONTENTION, AFFIDA VIT AND ID OF SHRI GULIYA WAS SUBMITTED BEFORE THE LD. AO WHICH WAS CO MPLETELY IGNORED AND AS SUBMITTED ABOVE REMAINED UNCONTROVERTED. 5.4 FURTHER, THE ALLEGATION OF CASH PAYMENT IS SOLE LY BASED ON THE LOOSE PAPERS IMPOUNDED DURING THE SURVEY WHEREIN TH E CONSOLIDATED PAYMENTS WERE MENTIONED. THE BOOKS OF ACCOUNTS OF T HE ASSESSEE BASED ON WHICH TRADING RESULTS DECLARED WERE NOT DISTURBE D AND ONLY ADDITIONS TOWARDS THE UNDISCLOSED SALES/STOCK WERE MADE. THUS , THE ENTRIES RECORDED THEREIN WITH RESPECT TO THESE PAYMENTS DES ERVES TO BE ACCEPTED AND CONSEQUENT ADDITION U/S 40A(3) DESERVE S TO BE DELETED. ALTERNATIVELY, IF YOUR GOODSELF HOLD THAT THE BOOKS OF ACCOUNTS ARE REJECTED, NO DISALLOWANCE COULD BE MADE U/S 40A(3) BASED ON THE ENTRIES FOUND NOTED IN SUCH REJECTED BOOKS OF ACCOU NTS AS HAS BEEN HELD BY VARIOUS COURTS. THUS, IN VIEW OF THE ABOVE IT IS PRAYED THAT THE A DDITION OF RS.1,23,500/- SUSTAINED BY THE LD. CIT(A) MAY PLEAS E BE DELETED. 5.5 THE RELEVANT FINDING OF THE LD CIT(A) IS REPROD UCED AS UNDER: ITA NO.925/JP/2013 SH. HARISH CHAND PROP. VS. A.C.I.T., BHARATPUR 21 7.5 I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE AR AND THE REPORT OF THE AO AND FIND THAT PAYMENTS OF RS.4,86,875/- A RE STATED TO HAVE BEEN COVERED WITHIN THE EXCEPTIONS PROVIDED UNDER T HE PROVISIONS OF RULE 6DD OF IT RULES READ WITH SECTION 40A(3) OF TH E IT ACT. THE AO HAS FURTHER STATED IN HIS REPORT THAT PAYMENTS OF RS.1, 23,500/- ARE NOT COVERED WITHIN THE SCOPE OF EXCEPTIONS AS PROVIDED IN RULE 6DD OF IT RULES. THE APPELLANT HAS MERELY REPEATED HIS ARGUME NTS IN THE COUNTER COMMENTS ON THE REMAND REPORT. IN VIEW OF THESE FIN DINGS GIVEN BY THE AO, I CONFIRM AN ADDITION OF RS.1,23,500/- MADE U/S 40A(3) OF IT ACT AND THUS THE APPELLANT WOULD GET A RELIEF OF RS.4,8 6,875/- UNDER THIS HEAD. 6. IN RESPECT OF GROUND OF APPEAL NO.5, THE ASSESSE E HAS CHALLENGED THE ADDITION OF RS.75,000/- SUSTAINED BY LD. CIT(A) ON ACCOUNT OF LUMP SUM DISALLOWANCE MADE BY AO OUT OF THE VARIOUS EXPE NSES CLAIMED BY ASSESSEE IN THE P&L ACCOUNT. AS PER THE ASSESSEE, THE ADDITION HAS BEEN MADE WITHOUT BRINGING ON RECORD ANY SINGLE EVI DENCE OF ANY UNREASONABLE EXPENSES OR ANY EVIDENCE FOUND AS A RE SULT OF SURVEY INDICATING ANY EXPENDITURE INCURRED FOR NON-PROFESS IONAL PURPOSES. 6.1 IT WAS SUBMITTED THAT FROM THE PERUSAL OF THE O RDER OF LD. CIT(A) IN CASE OF THE ASSESSEE, YOUR HONOUR WOULD OBSERVE THE FACT THAT THE SAID ADDITION OF RS.75,000/- WAS SUSTAINED WITHOUT REFERRING TO ANY INCRIMINATING MATERIAL FOUND AS A RESULT OF SURVEY AND DISALLOWANCE WAS MADE AND SUSTAINED SOLELY FOR THE SAKE OF ADDITIONS . ITA NO.925/JP/2013 SH. HARISH CHAND PROP. VS. A.C.I.T., BHARATPUR 22 6.2 IT WAS FURTHER SUBMITTED THAT WHILE MAKING DISA LLOWANCE LD. AO HAS ALLEGED THAT ASSESSEE HAS CLAIMED EXPENSES ON A CCOUNT OF TELEPHONE, RUNNING & MAINTENANCE OF CAR, BUSINESS P ROMOTION AND GENERAL EXPENSES AND PERSONAL USER CANNOT BE DENIED . HOWEVER LD. AO FAILED TO APPRECIATE THE FACT THAT THE BOOKS OF ACC OUNTS OF THE ASSESSEE HAVE NOT BEEN REJECTED AND WITHOUT REJECTING THE SA ME, NO ALLEGATION OF INFLATED EXPENSES ETC. CANNOT BE MADE. SINCE THE BO OKS OF ACCOUNT MAINTAINED BY THE ASSESSEE WERE DOUBTED AND MERELY ON ASSUMPTIONS AND PRESUMPTIONS THE LUMP SUM DISALLOWANCE WAS MADE , THEREFORE, THE ADDITION OF RS.75,000/- SUSTAINED BY THE LD. CIT(A) DESERVES TO BE DELETED. 6.3 THE RELEVANT FINDING OF THE LD CIT(A) IS REPROD UCED AS UNDER: 8.5 I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE APPELLANT AND FIND THAT AO HAD MADE THE ADDITION ON THE GROUND THAT SO ME OF THE EXPENSES WERE NOT SUPPORTED BY THE VOUCHERS AND SOME DEFECTS WERE ALSO NOTICED IN THE VOUCHERS DURING THE COURSE OF EXAMINATION AT THE ASSESSMENT STAGE. IN THE COURSE OF REMAND PROCEEDINGS, THE APP ELLANT HAS NOT BEEN ABLE TO PRODUCE ANY CONTROVERTING EVIDENCE. HOWEVER , CONSIDERING THE EXPLANATION FURNISHED AND THE CASE LAWS CITED BY TH E APPELLANT, I FIND THAT THE DISALLOWANCE WAS MADE BY THE AO ON AN EST IMATE BASIS AND IN MY OPINION, IT WOULD BE JUST AND FAIR TO RESTRICT T HE DISALLOWANCE TO ITA NO.925/JP/2013 SH. HARISH CHAND PROP. VS. A.C.I.T., BHARATPUR 23 RS.75,000/- AND THE APPELLANT WOULD ACCORDINGLY, GE T A RELIEF OF RS.56,500/-. 7. IN RESPECT OF GROUND OF APPEAL NO.6, THE ASSESSE E HAS CHALLENGED THE ACTION OF LD. CIT(A) IN NOT ALLOWING TELESCOPIN G OF ADDITIONS SUSTAINED WITH EACH OTHER. IT WAS SUBMITTED THAT TH E ADDITION SUSTAINED BY LD. CIT(A) ARE ON ACCOUNT OF ALLEGED UNACCOUNTED SALE, ALLEGED UNACCOUNTED PURCHASES AND ALLEGED SHORTAGE OF STOCK . A BARE CONSIDERATION OF THE NATURE OF THESE ADDITIONS CLEA RLY SHOWS THAT THESE ADDITIONS COULD NOT HAVE BEEN MADE SIMULTANEOUSLY I NASMUCH AS IT IS NATURAL PRESUMPTION THAT THE UNACCOUNTED PURCHASES WOULD NATURALLY HAVE ROTATED AROUND FOR THE PURPOSE OF MAKING SALES . SIMILARLY, THE SHORT STOCK WHICH HAS BEEN ALLEGED TO BE SOLD IN UNACCOUN TED MANNER HAS TO BE ADJUSTED IN UNACCOUNTED SALES. THUS, IN VIEW OF THE ABOVE IT IS PRAYED THAT ANY ADDITION, IF SUSTAINED, MAY PLEASE BE DIRE CTED TO BE TELESCOPED WITH EACH OTHER. 8. THE LD DR IS HEARD WHO HAS RELIED ON THE ORDER O F LD CIT(A). 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. FIRSTLY, REGARDING THE ADDITIO N OF RS.78,005/- BY APPLYING GP RATE OF 34.71% ON UNACCOUNTED SALES OF RS.2,31,400/-. THE UNACCOUNTED SALES OF RS 2,31,400 RELATES TO SALE TR ANSACTION WITH SHRI ITA NO.925/JP/2013 SH. HARISH CHAND PROP. VS. A.C.I.T., BHARATPUR 24 SHYAM SUNDER TO WHOM THE ASSESSEE HAD SOLD GOODS WO RTH RS.11,59,900/- OUT OF WHICH, GOODS WORTH RS.2,31,40 0/- WERE NOT APPROVED BY THE BUYER AND WERE REJECTED DURING THE SAME FINANCIAL YEAR. IN THIS REGARD, SHRI SHYAM SUNDER HAD EXECUTED AN A FFIDAVIT IN CONFIRMATION OF THE ABOVE FACT AND HIS STATEMENT WE RE ALSO DURING REMAND PROCEEDINGS BY THE AO. THE AO IN HIS REMAND PROCEEDINGS AS WELL AS LD CIT(A) HAS NOT SPECIFIED ANY REASON FOR DISBELIEVING THE AFFIDAVIT AS WELL AS STATEMENT OF SHRI SHYAM SUNDER . MORESO, WHEN ON BASIS OF SIMILAR AFFIDAVITS AND STATEMENTS, ADDITIO NS HAVE BEEN DELETED IN RESPECT OF OTHER UNACCOUNTED SALES ALLEGED BY THE A O ON THE BASIS OF LOOSE PAPERS. IN LIGHT OF ABOVE, IT IS CLEAR THAT GOODS WORTH RS 231,400 WERE REJECTED RESULTING IN NO ACTUAL SALES MADE BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION AND ON THIS GROUND ALO NE, ADDITION OF RS 78,005 ON SAID UNACCOUNTED SALES IS HEREBY DELETED. THE QUESTION OF APPLYING GROSS PROFIT ON SUCH NON-EXISTENT SALES TH EREFORE DOESNT ARISE AND HENCE, NOT BEEN EXAMINED. GROUND NO. 1 THUS, B ECOMES INFRUCTUOUS AND DISMISSED. GROUND NO 1.1 IS ALLOWE D. 10. REGARDING ADDITION OF RS.33,908/-, THE SAID ADD ITION IS ON ACCOUNT OF ESTIMATED RATE ADOPTED BY THE ASSESSING OFFICER FOR VALUATION OF PURCHASES AS ADMITTED IN THE REMAND REPORT SUBMITTE D BY THE AO. AS FAR ITA NO.925/JP/2013 SH. HARISH CHAND PROP. VS. A.C.I.T., BHARATPUR 25 AS QUANTITY OF PURCHASES IS CONCERNED, THERE IS NO DISPUTE BETWEEN THE ASSESSEE AND THE ASSESSING OFFICER. HOWEVER, NO VAL UATION METHODOLOGY/BASIS HAS BEEN APPARENT ON PERUSAL OF T HE RECORD PURSUANT TO WHICH THE VALUATION OF THE PURCHASES HAS BEEN DO NE BY THE ASSESSING OFFICER. THEREFORE, BEING AN ADHOC ADDITION, SAME I S NOT SUSTAINABLE IN EYE OF LAW. HENCE, THE SAME IS DELETED. GROUND NOS. 2 & 2.1 ARE ACCORDINGLY ALLOWED. 11. REGARDING GROUND NO.3 & 3.1 WHERE THE ASSESSEE HAS CHALLENGED THE ADDITION OF RS.2,61,960/- ON ACCOUNT OF GROSS P ROFIT @ 33.71% ON STOCK FOUND SHORT DURING THE COURSE OF SURVEY. THE APPELLANT HAS SUBMITTED THAT THE VALUATION OF STOCK DURING PHYSIC AL VERIFICATION WAS NOT DONE IN PROPER MANNER AND HENCE, STOCK WAS LEFT OUT FROM CONSIDERATION. ON PERUSAL OF THE ASSESSMENT ORDER, THE ASSESSING O FFICER HAS STATED THAT THERE IS NO PROPER STOCK EVIDENCE ON RECORD WH ICH CAN PROVE THAT THE STOCK VERIFICATION CANNOT BE PROPERLY TAKEN BY THE DEPARTMENT DURING THE COURSE OF SURVEY. FURTHER, THE LD. CIT(A) HAS A LSO HELD THAT THE APPELLANT HAS NOT BEEN ABLE TO PROVE THE REASON FOR SHORTAGE OF STOCK. THE APPELLANT HAS FAILED TO FURNISH ANY DOCUMENTARY EVIDENCE IN SUPPORT OF THE STOCK VALUATION ADOPTED BY HIM DURING THE CO URSE OF ASSESSMENT PROCEEDINGS OR EVEN THE COURSE OF APPELLATE PROCEED INGS. FURTHER, GIVEN ITA NO.925/JP/2013 SH. HARISH CHAND PROP. VS. A.C.I.T., BHARATPUR 26 THAT IN THE BOOKS OF ACCOUNTS, THE STOCK WAS RECORD ED AT RS.37,88,130/- AS AGAINST PHYSICAL STOCK AT RS.30,11,120/-, THE SH ORTAGE OF STOCK HAS RIGHTLY BEEN WORKED OUT AT RS.7,77,010/- AND WHICH HAS RIGHTLY BEEN HELD TO HAVE BEEN SOLD OUTSIDE THE BOOKS OF ACCOUNT S. REGARDING APPLICATION OF GP @ 33.71% BY THE LD. CIT(A) AS AGA INST G.P RATE OF 26% APPLIED BY THE AO, SINCE THE UNACCOUNTED SALES BELONGS TO THE YEAR UNDER CONSIDERATION, THE RATE OF GP WHICH IS DECLAR ED BY THE APPELLANT ITSELF IN RESPECT OF ITS RECORDED SALES @ 33.71% HA S BEEN CONSIDERED BY THE LD. CIT(A). WE ACCORDINGLY, DO NOT SEE ANY INFI RMITY IN THE ORDER OF THE LD. CIT(A) WHICH IS HEREBY CONFIRMED. ACCORDING LY, GROUND NO. 3 & 3.1 OF THE ASSESSEE ARE DISMISSED. 12. REGARDING GROUND NO.4 & 4.1 WHERE ADDITION OF R S.1,23,500/- HAS BEEN MADE BY THE AO BY WAY OF DISALLOWANCE U/S 40A( 3) OF THE ACT. THE LD. AR HAS SUBMITTED THAT RS.1 LAC HAS BEEN PAID TO KHAN MAHESH SETH AND RS.23,500/- HAS BEEN PAID TO MR. GULAIYA WHO AR E MATERIAL SUPPLIERS AND THEY DO NOT HAVE ANY BANK ACCOUNT MAINTAINED BY ANY BANK AND SUCH PAYMENTS ARE COVERED UNDER THE EXCEPTIONS STAT ED IN RULE 6DD OF THE RULES AND IN SUPPORT, THEIR AFFIDAVITS HAVE BEE N FILED WHICH HAVE NOT BEEN CONSIDERED IN RIGHT PERSPECTIVE. HOWEVER, THE ASSESSING OFFICER, IN HIS REMAND REPORT SUBMITTED TO THE LD. CIT(A), HAS STATED THAT NO ITA NO.925/JP/2013 SH. HARISH CHAND PROP. VS. A.C.I.T., BHARATPUR 27 AFFIDAVITS HAVE BEEN FILED IN RESPECT OF THESE TWO PERSONS. GIVEN THE CONTRADICTORY POSITION AND IN ABSENCE OF THESE AFFI DAVITS IN THE PAPERBOOK SUBMITTED BEFORE US, WE ARE LEFT WITH NO OPTION BUT TO SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFIC ER TO EXAMINE ANY SUCH AFFIDAVIT FILED BY THE ASSESSEE AND DECIDE THE ISSU E AFRESH AS PER LAW. THEREFORE, THIS GROUND IS ALLOWED FOR STATISTICAL P URPOSES. 14. REGARDING GROUND NO.5, THE ASSESSEE HAS CHALLEN GED THE ADDITION OF RS.75,000/- ON ACCOUNT OF LUMP SUM DISALLOWANCE OUT OF VARIOUS EXPENSES CLAIMED BY THE ASSESSEE. ON PERUSAL OF REC ORD, IT IS NOTED THAT ORIGINALLY 10% OF THE TOTAL EXPENSES AMOUNTING TO R S.1,31,563/- WAS DISALLOWED BY THE ASSESSING OFFICER WHICH HAS BEEN RESTRICTED TO RS.75,000/- BY THE LD. CIT(A). HOWEVER, THERE IS NO BASIS WHICH HAS BEEN GIVEN BY THE ASSESSING OFFICER TO MAKE SUCH DI SALLOWANCE. THERE IS NO FINDING THAT THESE EXPENSES ARE EITHER BOGUS OR HAVE NOT BEEN INCURRED FOR THE PURPOSE OF BUSINESS. BEING AN ADHO C DISALLOWANCE, SAME IS NOT SUSTAINABLE IN THE EYE OF LAW. HENCE, THE SA ME IS DELETED. IN THE RESULT, GROUND NO.5 IS ALLOWED. 15. REGARDING GROUND NO. 6 WHERE THE ASSESSEE HAS R EQUESTED FOR TELESCOPING BENEFIT IN RESPECT OF ADDITIONS ON ACCO UNT OF UNACCOUNTED SALE, UNACCOUNTED PURCHASES AND SHORTAGE OF STOCK. AS WE HAVE HELD ITA NO.925/JP/2013 SH. HARISH CHAND PROP. VS. A.C.I.T., BHARATPUR 28 ABOVE, THE ADDITIONS ON ACCOUNT OF UNACCOUNTED SALE , UNACCOUNTED PURCHASES HAVE ALREADY BEEN DELETED AND IT IS ONLY THE ADDITION ON ACCOUNT OF SHORTAGE OF STOCK WHICH HAS BEEN SUSTAIN ED. GIVEN THAT THERE IS NO QUESTION OF TELESCOPING WHICH IS AVAILABLE TO THE ASSESSEE. IN THE RESULT, THIS GROUND IS DISMISSED. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 08/02/2 017. SD/- S D/- DQY HKKJR FOE FLAG ;KNO (KUL BHARAT) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 08/02/2017. * SANJEEV*. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- SHRI HARISH CHAND, BHARATPUR. 2. IZR;FKHZ@ THE RESPONDENT- THE ACIT, CIRCLE, BHARATPUR. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE {ITA NO. 925/JP/2013} VKNS'KKUQLKJ@ BY ORDER, ITA NO.925/JP/2013 SH. HARISH CHAND PROP. VS. A.C.I.T., BHARATPUR 29 LGK;D IATHDKJ@ ASST. REGISTRAR