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TMI Blog2014 (11) TMI 131X X X X Extracts X X X X X X X X Extracts X X X X ..... G P rate of 3.48% after rejecting the books of accounts of the assessee on account of law G.P. rate without appreciating the facts and circumstances of the case in the right perspective. 2. The assessee on the other hand in ITA No.2172/Del/2009 has impugned first appellate order on the following grounds : 1 That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in upholding the trading addition of Rs. 35,02,280/- out of total addition of Rs. 53,77,921/- made by the learned Assessing Officer in the order of assessment framed under section 143(3) of the Act. 1.1 That the learned Commissioner of Income Tax (Appeals) while upholding the aforesaid addition, has further erred both in law and on facts in confirming the rejection of books of accounts under section 145(3) of the Act. 1.2 That the learned Commissioner of Income Tax (Appeals ) has failed to appreciate that mere allegation that, there was mismatch in appellant's monthly production figures and corresponding production expenses or sales were made to related concerns allegedly at a lower purchase price or closing stock had not been valued by not including the excise duty component, could nei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also been made available before the Tribunal in the paper book filed on behalf of the assessee at page No. 36 of the paper book with the letters on different dates with annexures. He reiterated the submissions made before the Ld. CIT(A) and his finding. The Ld. AR also referred the decisions cited before Ld. CIT(A) alongwith the decision of Hon'ble Supreme Court in the case of Lovely Exports Pvt. Ltd. 216 ITR 195 (SC) holding that if the share application money is received by the assessee company from bogus share holders, whose names are given to the AO, then the department is free to proceed to reopen their individual assessment in accordance with law. 6. Considering the above submission we find that the AO had denied the claimed share application money of Rs. 3,50,000/- invested by the share applicant Mr. Rohit Kumar Gogia, proprietor M/s R K Engineers doubting the transaction and the creditworthiness of the applicant. The AO held that the assessee failed to establish the claimed investment by furnishing proper evidence despite opportunities given by him in this regard to the assessee. There is no dispute that before the AO the assessee had filed confirmation of the said applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve finding of the Ld. CIT(A) since after filing of the primary evidence like confirmation of the share applicant, his PAN, bank statement of the firm under the proprietorship of the share applicant which remain the source of the investment in question, etc. the onus was shifted upon the AO to establish that after verification the confirmation and other documents were not found reliable. Of course merely because transaction was through banking channel by cheque is not sufficient evidence but we have to see the said fact coupled with other documents like PAN and confirmation of the applicant. Without examining the veracity of these documents by summoning the applicant, we are of the view that the AO was not justified in holding that the evidence filed in support by the assessee was not sufficient to establish the genuineness of the claim. We are thus of the view that the Ld. CIT(A) following the ratio laid down by several decisions including decision of Hon'ble Supreme Court in the case of Lovely Exports Pvt. Ltd. (supra) as well as the facts of the present case has rightly deleted the addition. The same is upheld . Ground No. 1 is accordingly rejected. Ground No. 2 7. The facts in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. He submitted that the AO failed to appreciate that application of the provisions of section 68 by the AO under the facts on the issue was misconceived. He failed to appreciate that credits were appearing in the books of the assessee and not in the books of two traders from whom purchases were made and to whom goods were sold. The AO has alleged that the said two traders were related to the assessee without appreciating these material facts that they are assessed to tax. Besides there was no evidence that one emanated from the account of assessee. He also referred contents of page Nos. 20 to 24 of the first appellate order, wherein besides other the Ld. CIT(A) has also dealt with the allegation made by the AO that the transactions in question were nothing but circulated among the said parties. 10. Considering the above submission, we find that the Ld. CIT (A) has rightly appreciated the contention of the assessee that the Assessing Officer was not justified in assessing the income represented by the cash deposits in the account of third party as undisclosed income in the hands of the assessee u/s 68 of the Act. What is taxable under the Income Tax Act, is income which has on its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Ld. CIT (A) in rejecting the books of account u/s 145(3) of the Act and sustaining the trading addition of Rs. 35,02,280/- by applying G. P. rate of 1.5% on the total sales declared by the assessee. Thus the issues involved in these grounds are as to whether the Assessing Officer was justified in rejecting the books of account u/s 145(3) of the Act, upheld by the Ld. CIT (A) and secondly the reasonableness of the estimation of trading addition if any. Thus, grounds are thus being disposed off simultaneously. 13. The relevant facts are that during the year the assessee had shown sale of iron and steel, saw pipes worth Rs. 9,47,29,322/-, claiming gross loss of Rs. 20,81,341/-. The Assessing Officer noted shortcomings in the affairs of the assessee and being not satisfied with the explanation furnished by assessee to him, the Assessing Officer has rejected the books of accounts of the assessee and computed its taxable income at the G. P. rate of 3.48% from the business of trading and manufacturing tubes and pipes resulting in trading addition of Rs. 53,77,921/-. 14. The Ld. CIT (A) after discussing the case of the parties has upheld the rejection of books of account and foun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of purchases (raw material) with the date, parties name, bill nos., quantity in M.T., purchase account, excise duty, total account and the rate, he also referred page no.40,41,75,79 and 80 of the paper book filed on behalf of the assessee with the submission that contents of these pages have been accepted by the Ld. CIT (A) which has not been rebutted. These are details of purchases during the assessment year under consideration, details of sales made during the year with party name, address and account, letter dated 14.05.2007 by the assessee to the Assessing Officer explaining the reason or declining in the G.P rate during the year. Instances of purchases where the seller of the raw material have not reduced rates even after reduction in excise rate, and the details of payments made through profit and loss account during the year worth Rs. 39,50,939/- were furnished. 17. Considering the above submission, we find that the Assessing Officer had made trading addition of Rs. 53,77,921/-, after rejecting the books of account u/s 145(3) of the Act, pointing out some shortcomings in the business affairs of the assessee and finding it reasonable to estimate the profit at the G. P. rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aluation has been maintained in accordance with accrual concept basis, and there was no discrepancy in the same. It was also submitted that excise duty due on the stock of finished goods has been duly considered. Since the purchase of materials was accounted for on net basis in its books of account i.e net on mod vat, excise duty component was not added to the value of stock of raw material. It was explained by the assessee that stock have been valued at cost or market price which is lower as per accepted accounting principles. It was explained by the assessee that sales were made to its sister concern M/s spark Electrodes Ltd. at a price which was in accordance with the market conditions. It is submitted comparative chart, in support showing the sales made by M/s spark Electrodes Ltd. from assessee as well as to other outside parties. The assessee also furnished evidence to support its contention that the purchases were made by M/s spark Electrodes Ltd. from the assessee at the rate higher that the rate at which it had purchased similar goods from the other parties. Similarly it was also shown by the appellant that the goods purchased from the appellant by M/s spark Electrodes Ltd ..... 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