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TMI Blog2015 (3) TMI 923X X X X Extracts X X X X X X X X Extracts X X X X ..... he above said purchases of ₹ 14.21 crores. In our opinion, this approach of the Ld CIT(A) appears to be reasonable one., i.e., when the AO is suspecting about the claim of loss on sale of almonds, there is no reason to disturb the sales made with profit. Hence, in our view, the AO was not justified in applying the gross profit rate on entire cost of purchase of almonds and to that extent the view of the Ld CIT(A) stands justified. - Decided in favour of assessee. Rejection of books of accounts - Held that:- AO has completely failed to disprove the claim of the assessee that it has to sell almonds at lower than the cost rate due to substandard quality. Under these set of facts, in our view, the AO has proceeded to reject the book results only on the basis of surmises and conjectures. It is a well settled proposition that the suspicion, howsoever strong it may be, cannot justify the action of the assessing officer. Hence, in our view, there is no enough material on record to warrant or justify the action of rejection of book results. Accordingly we are of the view that the Ld CIT(A) was not justified in upholding the action of rejection of book results.- Decided in favour of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed a petition requesting the bench to condone the delay. We heard the parties and having regard to the submissions made in the petition; we condone the delay and admit the appeal for hearing. 2. The common issue urged on all the four appeals relate to the estimation of gross profit on sale of almonds. Since the facts relating to the issue are identical in nature in both the years under consideration, we take the AY 2009-10 as the lead case. 3. We heard the parties and perused the record. The assessee firm is engaged in the business of importing and dealing in chemicals and almonds. The assessee imports chemicals named Ditomite, Silica and Aerosil. It also imports Shelled and Unshelled almonds from USA, besides sourcing the almonds locally also. During the course of assessment proceedings, the AO received information from the Designated officer, investigation wing to the effect that the bank accounts have been opened in the name of Mrs. Aruna H Doshi and six others with M/s Janakalyan Sahakari Bank Ltd. The aggregate amount of deposits made in these six bank accounts during the year under consideration was ₹ 3.35 crores. These deposits were found transferred to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iscussed is made in this order. 4. However, the AO proceeded to examine the sales details reported by the assessee. The AO called for item-wise sales break-up from the assessee. Since the assessee failed to furnish the details, the AO proceeded to compute the Gross Profit arising on sale of each product dealt by the assessee. The AO computed the rate of Gross Profit arising from sale of Diatomite and Silica/Aerosil at 27.71% and 27.20 % respectively. In money terms, the aggregate amount of Gross profit that arose from sale of Diatomite and Silica/Aerosil worked out to ₹ 7.53 crores. However, the assessee had disclosed Gross profit of ₹ 3.13 crores, which means that the assessee had declared Gross Loss on sale of Almonds. The AO noticed from the sales bills of Almonds that the sales have been made to parties, who could not be identified. Hence the AO took the view that the sales shown against the non-existent parties are not reliable and so also the Gross Profit shown against those sales also. The AO also verified the sales effected on 7.1.2009 and also the related purchases and noticed that the G.P on the same worked out to 16.05%. Accordingly, the AO took the view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee contended before the AO that the assessing officer has arrived at the conclusion that the Gross profit on sale of almonds was 16.05% by taking few sale bills and it was not to correct to presume that the same rate of gross profit would be realized throughout the year on the entire quantity of purchases. The assessee submitted that it had incurred loss on sale of sub-standard quality almonds. It further submitted that the overall G.P rate reported by it is comparable with the earlier years. The AO noticed that the loss has been incurred by selling almonds at very low rate of ₹ 50/- to ₹ 60/- per kg and further he did not accept the claim the sub-standard quality items were sold at low rates. The AO took the view that the assessee should have returned the sub-standard quality items to the supplier. The AO also noticed that the assessee has imported the almonds from a sister concern and hence the payment of higher purchase cost on sub-standard items would attract disallowance u/s 40A(2)(b) of the Act. The AO also examined some more sale bills and noticed that the G.P rate thereon was in the range of 8.74% to 39.47%. Hence the AO took the view that the G.P. rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds and sort/segregate the same according to its size, quality, broken one (chipped, scratched, broken) etc. The infested almonds are subjected to fumigation process before selling the same in the market. Hence, the selling price of almonds would depend upon all these factors. Further, the assessee has sold both Shelled and In-Shell almonds during the year under consideration. The In-shell almonds command low price when compared to the shelled almonds. Further, the price of the almonds would also be not static and the same would vary according to the market conditions. Accordingly he submitted that the assessee, as a business man, would be selling the almonds at various rates in order to minimize the loss, so that in average he makes profit on sale of all products dealt by him. The assessee would tend to make more loss if it holds the products. He submitted that the above said practice is the normal trade practice adopted in almost all kinds of trades. Accordingly he submitted that tax authorities are not justified in presuming that the assessee has to realize same rate of gross profit on sale of entire quantity of purchase, which is totally against the normal trading condition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the fact that the cash deposits made into the bank accounts of six persons and M/s Sameer Co. have come from the Cash sales made by the assessee and hence he did not make any addition. The Ld CIT(A) also accepted this fact, but he has taken the view that the assessee has gained by routing the cash through the bank accounts. Accordingly, the Ld CIT(A) has computed the peak credit and held the same to the income of the assessee. The Ld A.R submitted that the assessee has accounted for all the sales in its books of account. Only the cash amount has been deposited into the above said bank accounts and they have been received by way of cheques. Hence, the procedure adopted by the assessee would not give rise to any income element and hence the Ld CIT(A) was not justified in holding that the peak credit represents income of the assessee. He further submitted that the theory of peak credit is applied only in respect of unaccounted transactions, where as in the instant case, the assessee has accounted the sales. 13. On the contrary, the Ld D.R placed strong reliance on the assessment order. He submitted that the assessee has claimed to have incurred gross loss on sale of almond an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce and 15.31% in another instance. The gross profit rate computed for Shelled diamonds was in the range of 7.17% to 10%. Thus it is seen that huge variation in the gross profit rate realized by the assessee in various products and it vindicates the contention of the assessee that the G.P. rate would be dependent upon various factors. 15. The assessing officer has arrived at the conclusion that the assessee has incurred Gross Loss on sale of almonds, since he had computed the Gross profit realized on chemical items at a huge figure. Thus the gross profit of all the products would be dependent upon each other under this method of computation, i.e., if the gross profit from chemicals is reduced, then the gross profit on almonds will go up. Hence, unless it is shown that the gross profit computed by the AO from chemical sales is an authenticated one, in our view, one cannot accept his conclusions. 16. We have noticed that the AO has applied the average gross profit rate of 16.05% on the entire cost of purchase of almonds. However, the Ld CIT(A) has noticed that the assessee has incurred loss only on the purchases made to the extent of ₹ 14.21 crores. Thus, the remaining sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or justify the action of rejection of book results. Accordingly we are of the view that the Ld CIT(A) was not justified in upholding the action of rejection of book results. 18. The view expressed by the AO on application of sec. 40A(2)(b), in our view, was not correct, since the assessing officer has not proved by way of any material that the purchase price paid by the assessee in excess of market rates. 19. Since, we have set aside the decision of the tax authorities on rejection of book results, the consequent estimate of gross profit is also liable to rejected. The ld A.R also pointed out that the gross profit rate declared by the assessee in the earlier years has been accepted. We have earlier noticed that the tax authorities have proceeded to compute the gross profit on presumptive basis without bringing any material on record. We have also noticed that the claim of sale of sub-standard quality of almonds has not been disproved. Though it is stated that the assessee has sold to non-existant parties, yet the bills relating to cash sales generally do not bear the address of the buyers. Hence, the same cannot be a ground to reject the claim of the assessee. Accordingly, we ..... X X X X Extracts X X X X X X X X Extracts X X X X
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