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TMI Blog2002 (6) TMI 180X X X X Extracts X X X X X X X X Extracts X X X X ..... ality of paddy, condition of plant and tough competition in the market. The AO did not accept this explanation of the assessee for fall in gross profit. The AO observed that in the survey under s. 133A of the Act conducted on 13th Feb., 1995, in the business premises of the assessee, the survey team found the excess stock. The partner of the assessee also admitted unrecorded investment in the stock. In the opinion of the AO, these two factors are clear proof that the books of account of the assessee were incomplete, incorrect and unreliable. The AO, therefore, rejected the books of account. The AO observed that the discrepancies having been noticed only at the time of survey, the provisions of s. 145(2) of the Act were to be applied only in the post survey period. The AO called upon the assessee to furnish separate trading accounts for the period from 1st April, 1994 to 13th Feb., 1995, (i.e. the date of survey) and from the date of survey to 31st March, 1995. The assessee furnished the trading accounts of rice and kanki. The assessee also furnished the trading account of tax paid kanki. On scrutiny of the two trading accounts for the two periods, the AO found that in respect of ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee in the form of trading account were not actual figures but were estimates and, therefore, the estimate given did not reflect the actual state of affairs. The CIT(A) relied on the decision of the Hon'ble Orissa High Court in the case of Ramchand Ramnivas 25 STC 501 (Ori), decision of the Kerala High Court in the case of S. Veeraih Reddiar vs. CIT (1960) 38 ITR 152 (Ker) and the decision of the Jammu and Kashmir High Court in the case of International Forest Co. vs. CIT 1975 CTR (J&K) 88 : (1975) 101 ITR 721 (J&K), and concluded that rejection of the books of account was not proper. The CIT(A) ultimately held that there was no case for making the addition on account of low gross profits in respect of rice and kanki. As far as the tax paid kanki was concerned, the CIT(A) held that the sale price of kanki was low during the post survey period. The CIT(A) held that no defects had been pointed out in the books of account and, therefore, there was no case for making the addition. He accordingly deleted the addition. 4. The first two grounds of appeal of the Revenue are directed against this deletion of the additions by the CIT(A). 5. The learned Departmental Representative, at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amined and he admitted that the stock as found is much more than the stock as found recorded in the books of account. Except for 140.25 quintals of paddy which was stated to have been loaded on two trucks for delivery to a purchaser, all other purchases and sales have been duly recorded in the books of account. After preparation of the inventories, in the final statement, the partner did not raise any objection regarding the value of stock worked out. The partner in his statement declared voluntarily to pay tax on a sum of Rs. 5,75,000 admitting it as unrecorded investment. However, in the course of the assessment proceedings, the assessee furnished reconciliation statement in respect of the excess stock found at the time of survey. In this reconciliation statement, the assessee pleaded that certain purchases and sales were made earlier to the date of survey but were not recorded in the books of account. According to the assessee, these purchases as well as sales were genuine and were omitted to be recorded in the books of account. According to the assessee, all the purchases were genuine and can be verified from the record of the respective purchasers. According to the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry evidence filed by the assessee was acceptable and in his opinion, the AO was not justified in rejecting the same. He accordingly deleted the addition made by the AO. 9. The learned Departmental Representative, at the outset, submitted that B-1 register was required to be maintained as per the legal requirement and in the absence of entries in the said B-1 register it is enough to conclude that the purchases pleaded by the assessee before the date of survey not having been recorded in the books of account were afterthought. He also relied on the fact that there was no corroborative evidence in the form of payment of transportation charges for the goods that were received by the assessee prior to the survey. He also relied on the order of the AO and the reasons stated therein by the AO for rejecting the assessee's versions. 10. The learned counsel for the assessee, on the other hand, relied on the order of the CIT(A) and the written submissions filed by him before the CIT(A). 11. We have considered the rival submissions. We find that the assessee had to explain the quantity of 1,178 quintals of paddy as purchased prior to 13th Feb., 1995, which were admittedly not found recorde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd this was owing to the fact that the quality of the kanki of the assessee resemble like rice. Similarly, in respect of excess quantity of kanki purchased from Amit Trading Company of Raipur, it is evidenced by an endorsement of Bagbahara Mandi to the effect that delivery was effected on 12th Feb., 1995. The truck freight charges of Rs. 1,320 in respect of these purchases are also found entered into the cash book. In the light of these evidence produced by the assessee before the AO, the AO did not consider this explanation of the assessee on the only ground that the entries are not found in B-1 register, and we do not find this to be a valid reason for rejecting the explanation offered by the assessee. Lack of entries in B-1 register can always be explained. The AO was more influenced by the fact that the partner of the assessee-firm admitted before the survey team about the excess quantity and his contrary version made at the time of assessment. The AO rejected all the evidence produced by the assessee. As rightly observed by the CIT(A), the documentary evidence produced by the assessee established its case. The receipts issued by the Mandi Samities which are semi-Government org ..... X X X X Extracts X X X X X X X X Extracts X X X X
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