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TMI Blog2013 (7) TMI 473X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee were not reflected in the books of accounts. (iv) On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in ignoring the fact that the cheques were endorsable but the assessee failed to identify the transactions in respect to which the cheques were utilized. 2)(i) On the fact and in circumstances of the case and in law, the Ld CIT(A) erred in deleting the estimation of gross profit @ 20% of the total turnover and restricting the estimation to 8% of the book sales. (ii) On the facts and in the circumstances of the case and in law, the CIT(A) erred in ignoring the fact that the gross profit rate of 20% was based on the actual rates derived from purchase & sale register, stock statement and sales & purchase bills produced by the assessee during the course of assessment proceedings. (iii) On the facts in the circumstances of the case and in law, the Ld.CIT(A) erred in ignoring the fact that the estimation is based on increase in actual weighted average of purchase & sales figures appearing in the books of the assessee" 3)(i) On the fact and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting disallowances of 40% of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o Rs.50 lakhs for the group entities as additional income 'to cover the discrepancies in the Books of Accounts and stock'. But, said additional income was not disclosed, while filing its return of income for the year under consideration. During the course of survey proceedings, statements of Sh. Pawan Kumar Agarwal and godown-managers were also recorded. Inventory of the stock/Books of Accounts and documents were prepared by the members of the survey teams. 3. First Ground of Appeal is about addition made u/s. 69A of the Act of the sum of Rs.15.5 Lakhs. During the course of survey a number of blank signed cheques issued by various parties were found at the business premises of the assessee- company. AO directed the assessee to explain the blank signed cheques with appropriate documentary evidences to determine the nature of the cheques. After considering the submission of the assessee, AO held that assessee was not able to furnish any documentary evidence to support its case, that cheques were not reflected in its Books of Accounts, that the assessee had not been able to identify the corresponding sales to support its claim, that assessee had failed to identify the transaction in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e considered as money/ bullion/jewellery other available articles and provisions of Section 69A are not applicable. Secondly, we endorsed view of the FAA that once Books of Accounts are rejected and income is estimated u/s.144 of the Act, no addition can be made u/s. 69A of the Act. Ground No.1 is decided against the AO. 4. Next Ground of Appeal is about deleting estimated rate of Gross Profit for the year under consideration. During the course of the assessment proceedings, AO found that assessee was deleting 8 to 10 types of items. He examined the Gross Profit margins in the said items on the basis of their weighted averages to get the true GP margin. He considered only those items which had actually been purchased and sold during the year by the assessee-company. He found that majority of the sales had been in the GP range of 10 to 20% or 20% and above. After considering this, he held that the Books of Accounts of the assessee could not be relied upon for getting a true picture of its profit, that the Gross Profit of the assessee from its trading activity was to be estimated at average rate of 20% of its turn-over. Considering the sales as per the P&L A/c and un-accounted sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case. Upholding the order of the FAA, we decide Ground No.2 against the AO. 5. Next Ground of Appeal pertains to disallowance of selling and administrative expenses. During the assessment proceedings, AO found that assessee-company had claimed selling and administrative expenses Rs.17.02 lakhs and financial expenses of Rs.5.33lakhs respectively for the year under consideration. After considering the various factors like; failure to produce Books of Accounts on the date of survey, inconsistencies with respect to physical stock and its question, absence of any stock register/records as per the acceptable accounting standards, blank cheques signed by various parties found at the premises of the assessee, un-accounted sales and un- explained cash; he held that Books of Accounts maintained by the assessee were not correct, that assessee had not produced all the Books of Accounts for verification during the course of survey. Finally, he disallowed 40% of the selling and administrat -ive expenses i.e., Rs. 6.81 lakhs. 5.1. Assessee preferred an appeal before the FAA. After considering the submissions of the assessee, FAA held that the expenses claimed by the appellant included ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a discrepancies/ inconsistencies in Books of Accounts and stock- records maintained by the assessee-company, that accounts maintained by the assessee could not be taken as reliable source of information. Accordingly, he issued a Show Cause Notice to the assessee for rejecting the Books of Accounts. After deliberating upon the submissions of the assessee, he held that it had failed to produce the statutory Books of Accounts on the date of survey, that assessee had claimed that it was maintaining Books of Accounts like Purchase Register, Sales Register, Bank Book, Cash Book, Journal Register, Ledger, Stock Book, that during the course of survey proceedings one of the directors Sh. Pawan Kumar Agarwal was instructed to produce the Books of Accounts, that till the conclusion of the survey Books of Account, as mentioned in the Tax Audit Report, were not produced, that survey team had impounded some of the documents found at the premises of the assessee- company, that the assessee failed to produce any of the regular Books of Accounts for verification, that Books of Accounts were not maintained at all by the assessee. He further found that documents impounded by the survey team included ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -2009 submitted that there was possibility of being stocked at some other warehouses.AO held that assessee had not brought to the notice of the survey party that goods were stored at some other places, that from the date of survey till the completion of assessment proceedings it had not brought on record as to where the goods were physically lying when survey parties had visited the business premises. In these circumstances, he held that the valuation of the closing stock given by the assessee could not be relied upon. 6.4. AO further found that assessee had not offered any explanation about maintenance of stock records, that during the assessment proceedings also no satisfactory explanation was tendered, that as per Column No. 9(b) of the Tax Audit Report, assessee was maintaining a Stock Book, that the said Stock Book never produced for verification at any stage. He found that on 13-03-2007, Sh. Pawan Kumar Agarwal, in his statement, admitted that Stock Registers were maintained at the warehouses, that on 23-02-2007, no Stock Register was found at the warehouses when the survey team visited the godowns. He further found that on 22-03- 2003,assessee had filed a letter wherein it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dly rejected the Books of Accounts and the best Judgment and assessment passed by the AO u/s. 144 was as per law. He further held that AO had followed the procedure of making best judgment assessment as laid down in proviso u/s. 144 by issue of Show Cause Notice on 04-12-2009 for rejecting the Books of Accounts. He also noticed that AO had clearly asked the assessee as to why its Books of Accounts should not be rejected. He finally held that order passed by the AO u/s. 144 of the Act was valid, that the AO was rightly not satisfied about the correctness and completeness of the accounts, that the AO had given opportunity to the appellant, that AO had considered all the relevant material facts. Therefore, issue was decided against the assessee-company. 7.2. Before us, AR submitted that reason for rejecting the Books of Accounts was absence of Stock Register, that AO did not hold that true profit could not be deduced from the Books of Accounts produced before him, that FAA had not considered the factual position, that assessee was maintaining regular Books of Accounts. He relied upon the cases of Deepak Dalela (128 ITD 225) delivered by the Jaipur Bench of the Tribunal and AR relied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ligible. In the present case, facts are entirely different. In the case of Jacksons House (supra), AO had not pointed out a specific defect in the Books of Accounts. But in the present case, AO as well as FAA has pointed out many a discrepancies found during the survey/assessment proceedings. Thus, the cases do not help the assessee. Therefore, Ground No.1 of Cross appeal is decided against the assessee. 8. Second Ground of Appeal on Cross Objection is about estimation of Gross Profit margin by the FAA @ 8% as discussed at Para No.4.1. Before us, AR submitted that, AO had not found any discrepancy in the GP shown by the assessee, that FAA was not justified in enhancing the GP rate to 8%.DR submitted same arguments which we have discussed at para No.4.3. 8.1. As far as GP Rate to be adopted by the AO is concerned, we find that AO had not taken into consideration direct expenses like Customs Duty, Freight and Shipping Expenses etc., for determining the Gross Profit Margin. It is also fact that assessee has declared GP Rate as high as 8.95% during the AY. 2004-05.FAA has held that GP Rate adopted by the AO as well as the assessee was not reasonable and has estimated it at 8%.In our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hort based on facts gathered in course of survey operations as detailed in para 9 of the assessment order, that the AO had correctly treated stock found short as unaccounted sale. 9.2. Before us, AR submitted that there was no evidence of un-recorded sales, even if there was difference in closing stock difference of GP should have been added. DR supported the orders of the AO and the FAA. 9.3. We have heard the rival submissions and perused the material put before us. Assessee has no where denied that on the date of survey there was shortage of stock. During assessment or appellate proceedings before the AO/FAA, he had not explained the deficiency of stock not found during the survey operations. In these circumstances, departmental authorities were right in holding that there were un- recorded sales during the assessment year under consideration. AR has submitted that only GP could be added and not the entire sales. Argument of the assessee that only GP should be added is a clear admission that assessee was indulging in selling goods out of the books. Therefore, upholding the order of the FAA, we decide Ground No.3 of C.O. against the assessee. As far as the alternative submissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces of the case as well as in Law, the Learned CIT(A) has erred in confirming the addition to the extent of the estimation of the Gross Profit Margin of the Appellant @ 7% when the basis of arriving at the said working was the Sales & Purchases as Posted in the Books of Accounts itself which when totaled and compared, arrived at a Gross Profit Margin of 5.60% without considering and appreciating the facts & circumstances of the case. 3. On the fact and circumstances of the case as well as in Law, the Learned CIT(A) has erred in confirming the estimation of the Closing Stock of the Appellant as sold during the year without considering and appreciating the facts & circumstances of the case. 4. The appellant craves leave to add, amend, alter or delete the said ground of appeal. 10.1. Background:- Assessee, a sister concern of Unicorn Textiles Pvt.Ltd. (UTPL) was carrying out its business from the premises of UTPL. During the survey proceedings of 22- 03-2007 inventories of the documents and stock of the assessee were prepared by the members of survey team. 10.2. In pursuance of survey, AO rejected the books of accounts of the assessee while passing best judgment assessment. He ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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