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TMI Blog2012 (9) TMI 1246X X X X Extracts X X X X X X X X Extracts X X X X ..... other books and printing materials. It filed its return of income on 31-03-2006 declaring total income at Rs.21,07,46,680/-. During the assessment proceedings the AO noted that a survey was conducted on the business premises of M/s. Swapnil Distributors Pvt. Ltd., (SDPL) on 13-02-2007 according to which the assessee has purchased goods worth Rs.1.04 Crores from it. In the case of M/s. Swapnil Distributors Pvt. Ltd. i.e. SDPL the AO vide assessment order dated 09-06-08 for A.Y. 2005-06 had held that the purchases of SDPL are not verifiable. The AO extracted the relevant observations of the AO in the assessment order dated 09-06-08 of M/s. Swapnil Distributors Pvt. Ltd. for A.Y. 2005-06. He noted that the assessee has made total purchase of Rs.330.62 Crores during the relevant period out of which purchases worth Rs.253.73 Crores have been made from the following parties : (i) M/s. Swapnil Distributors Pvt. Ltd. Rs. 1,04,05,880/- (ii) M/s. Naira Distributors Pvt. Ltd. Rs. 55,06,270/- (iii) M/s. Dhanshree Enterprises Rs. 21,53,65,479/- (iv) M/s. Laukik Paper Industries Pvt. Ltd. Rs.230,60,48,860/- TOTAL ----------------------- Rs.253,73,26,939/- ----------------------- 3. The AO recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rudent business man will maintain the details of correspondences of such parties for its future business. The probability of sales effected to such parties in the subsequent period cannot be ruled out. (iii) Most of the sales are not verifiable. (iv) The purchases from the four parties as mentioned above area also not fully verifiable. (v) Day to day quantitative details of loss in the manufacturing process is not maintained. 3.3 In view the reasons stated above, the facts emerged are that the purchases and sales are not fully verifiable and therefore, the books of the accounts suffer from various defects, which warrant the rejection of its books of accounts u/s.145 of the I.T. Act. Thus I am not satisfied about the correctness and completeness of the accounts of the assessee. Therefore, the books of accounts are rejected u/s. 145 of the I.T. Act and the income therefore, is completed in the manner prescribed u/s.144 of the I.T. Act. Since the sales are not verifiable, therefore, in the view of the reasons stated above, the sales of the assessee is estimated at Rs.360 Crores instead of net sale of Rs. 330.79 Crores shown by the assessee. 3.4 The profit shown in the books of account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration. Keeping in view the facts stated above and the gross profit ratios of other business concerns, the gross profit rate of 15% is taken into account at enhanced sale of 360 Crores for working out the income of the assessee. The gross profit @15% on enhanced sales of RS. 360 Crores works out to Rs.54,00,00,000/- as against Rs.45,01,43,000/- shown by the assessee. The addition on this score therefore, works out to Rs.8,98,57,000/-, which is added back into the income of the assessee. 5. In appeal, the assessee made detailed submissions challenging the enhancement of the turnover and adoption of GP at 15%. The audit report of the special auditors u/s.142(2A) appointed by the AO was also brought to the notice of the CIT(A). On the basis of the various submissions made by the assessee the CIT(A) directed the assessee to submit a copy of the written reply to the AO for his verification which the assessee complied with. After considering the submissions made by the assessee as well as the AO the CIT(A) deleted the addition of Rs.8,98,57,000/- by holding as under : 4.3 I have carefully considered the submission of the appellant and perused material on record. From the perusal of m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 145 of the Income Tax Act, 1961 clearly applied because books of accounts cannot be said to be complete in the absence of address of the parties to whom the sales have been made. However, for coming to a conclusion that books of accounts are not correct, some instances of understatement of sales and/or suppression of sales have to be brought on record and incorrectness of books of accounts cannot be presumed. This has not been done. On the other hand, Special Auditors appointed u/s.142(2A) of the Income Tax Act, 1961 has clearly mentioned that the rate at which the assessee company has purchased the goods and sold them in the market are comparable and in line with the existing rates of similar commodities in the market . The Special Auditors further point out at the end of paragraph 13.4 of the Special Audit Report that similarly, the transaction of sale with the two parties referred to in our letter are genuine and does not appear to be in nature of accommodation transaction . In view of this and in view of the comments of the Special Auditor regarding trading account and verification of sales with reference to sales tax order, it is clear that there is no material on record f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant, report of the Special Auditor, judicial decisions cited by the appellant and material on record, it is held that there is no justification whatsoever for increasing the turnover of the assessee from Rs.330.79 Crore to Rs.360 Crore. The Assessing Officer s conclusions in this regard pertaining to increase of turnover are held to have no basis in law and on facts and are totally erroneous. Accordingly, it is held that there is no justification for increasing the turnover from Rs.330.79 crore to Rs.360 crore. 4.3.2 As regards the increase of Gross Profit from 12.97% to 15%, it may be mentioned that the gross profit can be increased only if expenses are unverifiable of there is understatement or suppression of sales. The learned Assessing Officer has failed to adduce any cogent material on both the aspects. The conclusion of the learned Assessing Officer in this regard have no cogent and relevant basis. The learned Assessing Officer himself points out that the G.P. In this line of business ranges from 12-20%. If this is so and appellant has shown G.P. of 12.97%, there is no justification for increasing it to 15%. According to the Assessing Officer, the G.P. of Sundaram Multi Pap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the circumstances of the case, the learned CIT(Appeals) erred in deleting the addition of Rs.8,98,57,000/- made on account of estimation of sales at Rs. 360 crores and estimated G.P. @15%. 2. On the facts in the circumstances of the case, the learned CIT(Appeals) erred in not considering the fact that credit sales and purchases are not fully verifiable. 3. The order of the CIT(Appeals) may be vacated and that of the AO restored . 7. The learned DR heavily relied on the order of the AO. He submitted that since the sales are not properly effected and the GP rate declared by the assessee is lower than the comparable cases given by the AO, therefore, the AO was justified in rejecting the book results and thereby enhancing the turnover to Rs.360 crores and adopting the GP rate @ 15%. 8. The learned counsel for the assessee on the other hand reiterated the same submissions as made before the AO and the CIT(A). He submitted that the main allegation of the AO for rejecting the purchases from various concerns is due to his order passed in the case of Swapnil Distributors Pvt. Ltd. He submitted that in the case of Swapnil Distributors Pvt. Ltd. the sales to Blue Bird India Pvt. Ltd. was nev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... behalf of the assessee. We have also considered the various decisions cited before us. We find in the instant case the AO rejected the book results on the ground that purchases and sales are not fully verifiable and the GP rate shown by the assessee is lower than some of the cases engaged in similar line of business. For coming to this proposition he considered the order of the AO in the case of Swapnil Distributors Pvt. Ltd. for A.Y. 2005-06 wherein the purchases made by Swapnil Distributors Pvt. Ltd. have been doubted as not genuine by the AO. For the reasons stated therein the AO came to the conclusion that the purchases from various parties made by the assessee should be held as non genuine because of the same modus operandi. However, we find that against the order passed by the AO in the case of Swapnil Distributors Pvt. Ltd. the CIT(A) had deleted the additions made by the AO on account of investment in unexplained purchases. When the revenue filed appeal before the Tribunal the Tribunal vide ITA No. 675/PN/2009 order dated 31- 03-2012 has dismissed the appeal filed by the revenue by holding as under : 12. We have considered the rival arguments made by both the sides, peruse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the market are comparable and in line with the existing rates of similar commodities in the market. The special auditors have not given any adverse comments about the purchase and sales effected by the assessee. We find the assessee has maintained quantitative details of opening and closing stock of purchases, consumption of raw material (principal items) and sale of finished goods both in terms of quality and value. No discrepancy in this regard has been detected during the course of special audit. We also find that the assessee has made sales to Government agencies and Limited Companies apart from export sales and sales to various customers from different branches. Most of the payments have been received by account payee cheques. 12. We find merit in the submission of the learned counsel for the assessee that sales cannot be enhanced unless the AO has got any corroborative evidence. Nothing has been brought on record to show that the assessee has received any extra money outside the books against such unaccounted sales. Similarly, nothing has been brought on record to show that assessee has inflated the purchases or made bogus purchases for which payments have been made and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Ground No.3 of the CO is concerned, the learned counsel for the assessee submitted that the issue may be set-aside to the AO to decide the issue afresh in the light of the Visakhapatnam Special Bench of the Tribunal in the case of Merilyn Shipping and Transport reported in 136 ITD 23 since the assessee has made the payments and no amount is outstanding at the end of the accounting year. The learned DR has no objection if the issue is set-aside to the file of the AO. In view of the above submissions by the learned counsel for the assessee and no objection by the learned DR we restore the Ground No. 3 of the CO to the file of the AO for fresh adjudication in the light of the decision cited (Supra) and in accordance with law after giving due opportunity of being heard to the assessee. We hold and direct accordingly. Ground No. 3 of the CO is accordingly allowed for statistical purposes and other grounds of the CO are dismissed. ITA No. 964/PN/2009 (A.Y. 2006-07) (By Revenue) : 16. Grounds raised by the revenue are as under : 1. On the facts and in the circumstances of the case, the learned CIT(Appeals) erred in deleting the addition of Rs.8,38,97,678/- made on account of Gross Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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