M/s. Upkar Agro Engg. Works, Panipat v. ACIT, Panipat

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH H : NEW DELHI BEFORE SHRI A.D.JAIN AND SHRI K.D.RANJAN ITA NOS. 636 & 637/DEL/2009 ASSESSMENT YEAR : 2004-05 M/S UPKAR AGRO ENGG. WORKS BARSAT ROAD PANIPAT. VS. ADDL. CIT PANIPAT RANGE PANIPAT. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VED JAIN C.A. RESPONDENT BY : SHRI N.K.CHAND SR. D.R. ORDER PER K.D.RANJAN AM: THESE APPEALS BY THE ASSESSEE FOR ASSESSMENT YEAR 2 004-05 ARISE OUT OF SEPARATE ORDERS OF LD. CIT(A) KARNAL. THESE APP EALS WERE HEARD TOGETHER AND FOR THE SAKE OF CONVENIENCE ARE DISPOSED OF BY THIS COMMON ORDER. ITA NO.636: 2. THE GROUNDS OF APPEAL ARE REPRODUCED AS UNDER: 1. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCE S OF THE CASE LD.CIT(A) HAS GROSSLY ERRED ON FACTS IN CONFIRMING THE ACTION OF AO WITH LITTLE MODIFICATION IN ESTIMATING THE NE T PROFIT RATE OF THE ASSESSEE AT 12% OF THE SALES (WHILE THE AO HAD ESTIMATED THE SAME @ 15%) AND THUS CONFIRMING AN ADDITION OF RS.3 75 118/- OUT OF THE TOTAL ADDITION OF RS.4 68 898/- MADE BY THE AO IN AN ORDER U/S 144 WITHOUT GIVING REASONABL E OPPORTUNITY OF BEING HEARD TO THE APPELLANT. 2. THAT THE LD.CIT(A) HAS GROSSLY ERRED ON FACTS AN D IN LAW IN CONFIRMING THE UNREASONABLY HUGE ADDITION OF RS.3 7 5 118/- 2 COMPLETELY IGNORING THE ASSESSEES PLEADINGS THAT T HE DEPARTMENT HAS ACCEPTED IN SEVERAL OTHER AYS IN THE ASSESSEES OWN CASE N.P. RATES VARYING BETWEEN 1% TO 3% SIMPL Y BY SAYING THAT THE ASSESSMENTS IN THOSE CASES HAD BEEN COMPLETED U/S 143(1) OF THE I.T. ACT. NO OTHER COMPARABLE CA SE HAS BEEN CITED BY THE AO OR THE LD.CIT(A) TO JUSTIFY AN UNRE ASONABLY HIGH RATE OF 12% OF THE SALES AS NET PROFIT IN THE APPELLANTS CASE. 3. HAVING ADMITTED BY THE LD.CIT(A) IN PARA.4 OF HI S ORDER THAT THE A.O. HAD NOT GIVEN ANY BASIS FOR APPLYING THE V ERY HIGH NET PROFIT RATE OF 15% THE LD.CIT(A) SHOULD NOT HAVING ESTIMATED IT AT MORE THAN 3%. THUS THE LD.CIT(A) HIMSELF HAS ALSO ERRED ON FACTS IN ESTIMATING THE NET PROFIT AGAIN AT AN U NREASONABLY AND UNJUSTIFIED FIGURE OF 12% WHICH IS JUST NOT PO SSIBLE FOR ANY CONCERN IN THE SAME LINE OF BUSINESS MORE SO WITHO UT GIVING ANY REASON IN SUPPORT OF THIS FIGURE 12%. 4. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCE S OF THE CASE LD.CIT(A) HAS GROSSLY ERRED ON FACTS AND IN LAW ALS O IN CONFIRMING THE FURTHER ADDITION OF RS.3 13 101/- ON ACCOUNT OF ALLEGED UNDISCLOSED INVESTMENT AS THE PEAK OF PURCH ASES WHICH ARE DULY RECORDED IN THE BOOKS OF ACCOUNT AND ARE A LSO DULY REFLECTED IN THE ACCOUNTING VERSION FURNISHED TO TH E DEPARTMENT WITHOUT INDICATING EVEN THE SLIGHTEST BASIS HOW THI S FIGURE HAS BEEN REACHED EITHER BY THE AO OR THE LD.CIT(A). 5. THAT THE ASSESSMENT HAVING BEEN MADE EX-PARTE U/ S 144 SOLELY ON THE GROUND THAT HE ASSESSEE HAD FAILED TO PRODUC E BOOKS OF ACCOUNT AND THE INCOME HAVING ALREADY BEEN ESTIMATE D AT N.P. RATE OF 15% THERE WAS ABSOLUTELY NO BASIS FOR MAKI NG FURTHER ADDITION OF RS.3 13 101/- AS PEAK OF UNACCOUNTED PU RCHASES. IT IS AN ABSOLUTELY ABSURD CONCEPT WHICH HAS NOT BEEN HEARD BEFORE. NO PURCHASE CAN BE SAID TO BE UNACCOUNTED WITHOUT REFERENCE TO THE BOOKS OF ACCOUNT MORE SO WHEN IT HAS BEEN DULY REFERRED TO IN THE ACCOUNTING VERSION FURNISHE D BY THE ASSESSEE HIMSELF. THUS THE LD.CIT(A) ERRED IN SUST AINING THE FURTHER ADDITION OF RS.3 13 101/- WHICH IS AGAINST THE LAW. 6. THE LD.CIT(A) HAS FURTHER ERRED IN IGNORING THE ALTERNATIVE SUBMISSIONS OF THE ASSESSEE TO THE EFFECT THAT THE IMPUGNED PURCHASES WERE MADE NOT IN CASH BUT ON CREDIT BASI S WITH CREDIT PERIOD VARYING FROM 1 TO 3 MONTHS AND ALSO THAT THE ASSESSEE HAD ALSO THE SUBSTANTIAL AMOUNTS AS OPENIN G CAPITAL AND THE OPENING STOCK BESIDES THE SUBSTANTIAL AMOUNTS OF SUNDRY 3 AND OTHER CREDITORS WHICH TOTAL UP MUCH MORE THAN THE ADDITION OF RS.3 13 101/- WHICH WERE SUFFICIENT TO FINANCE T HE IMPUGNED PURCHASES AND THUS CALLED FOR NO FURTHER ADDITION O F RS.3 13 101/-. 7. THERE BEING A HUGE TRADING ADDITION THE LD.CIT(A ) HAS FURTHER ERRED IN NOT TREATING THE ADDITION OF RS.3 13 101/- ON ACCOUNT OF ALLEGED INVESTMENT IN THE IMPUGNED PURCHASES AS COV ERED BY THE TRADING ADDITION AS EVEN OTHERWISE SUCH FURTHER A DDITIONS ARE NOT LEGALLY PERMISSIBLE WHERE INCOME IS ESTIMATED O N THE BASIS OF G.P. OR N.P. RATE IN AN EX-PARTE U/S 144 ON THE GROUND OF NON-PRODUCTION OF BOOKS OF ACCOUNT. 3. THE FIRST ISSUE FOR CONSIDERATION RELATES TO CON FIRMING THE ADDITION ON ACCOUNT OF GROSS PROFIT RATE. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT THE ASSESSEE FILED RETURN OF INCOME DECLARING INCOME OF RS.48 950/- AND AGRICULTURAL INCOME OF RS.2 75 720/-. THE RETURN WA S PROCESSED U/S 143(1). THE ASSESSEE DURING THE RELEVANT PERIOD WAS ENGAGED IN MANUFACTURING AND REPAIR OF AGRICULTURAL IMPLEMENTS. ASSESSEES CASE WAS SELECTED FOR SCRUTINY AND NOTICE U/S 142(2) WAS ISSUED AND SERVED ON THE ASSESSEE. THEREAFTER THE ASSESSING OFFICER ISSUED QUESTIONNAIRE ALONG WITH N OTICES U/S 143(2) AND 143(1). IN RESPONSE THERETO SHRI VARINDER GOEL C. A. ATTENDED ASSESSMENT PROCEEDINGS. HE FILED ONLY DETAILS OF AGRICULTURAL INCOME ON THE DATE OF HEARING FIXED. LATER ON SHRI D.S.KHARAB ADVOCATE A PPEARED ON BEHALF OF THE ASSESSEE. HE ALSO FILED COPY OF ACCOUNT OF SOME OF THE EXPENSES CLAIMED IN THE PROFIT &LOSS ACCOUNT. THEREAFTER SHRI MOHINDER PAL PROPRIETOR M/S UPKAR ENGINEERING WORKS ATTENDED ON DIFFERENT DATE S. THE ASSESSEE FAILED TO PRODUCE BOOKS OF ACCOUNTS. THE ASSESSEE WAS AGAI N ALLOWED OPPORTUNITY VIDE LETTER DATED 05/12/2006 GIVING REFERENCE OF VA RIOUS NOTICES ISSUED. 4. THE ASSESSING OFFICER ASKED INSPECTOR REPORTS T O CONDUCT ENQUIRIES IN THE CASES OF M/S KISAN ENGG. WORKS PANIPAT AND M/S PUNJAB AGRO ENGG. 4 PANIPAT. IT WAS REPORTED THAT BOTH THE PERSONS WERE NOT AVAILABLE. THE ASSESSING OFFICER ON THE BASIS OF REPORT OF INSPECT OR WAS OF THE OPINION THAT THE PURCHASES SHOWN FROM ABOVE PARTIES WERE NOT IN EXISTENCE. THE ASSESSEE WAS ENGAGED IN THE MANUFACTURING AND REPAIR OF AGRI CULTURAL IMPLEMENTS LIKE TROLLEY HARROW CULTIVATOR LEVELER THRESHER WAT ER TANK CANTOR BODY GATE GRILLS SHUTTER AND ENGG. WORKS. HE WAS OF THE OPI NION THAT FOR MANUFACTURE OF THESE ITEMS RAW MATERIAL WAS REQUIRED WHICH WAS AVAILABLE ON DIFFERENT SHOPS/PLACES. AS PER DETAILS OF PURCHASES FURNISHED THE ASSESSEE MADE PURCHASES FROM ONLY TWO CONCERNS NAMELY M/S KISAN ENGG. WORKS PANIPAT AND M/S PUNJAB AGRO ENG. PANIPAT. THE ASSESSING OF FICER WAS OF THE OPINION THAT PURCHASES WERE NOT FULLY REFLECTED IN THE BOOKS OF ACCOUNTS AND PROPER BOOKS OF ACCOUNTS WERE NOT MAINTAINED IN RES PECT OF THE BUSINESS CARRIED ON BY THE ASSESSEE. THE ASSESSING OFFICER THEREFORE REQUIRED THE ASSESSEE TO PRODUCE COMPLETE BOOKS OF ACCOUNTS I.E. CASH BOOK LEDGER PURCHASE/SALE VOUCHERS STOCK REGISTER ETC.. IT WAS ALSO INFORMED THAT IN CASE OF NON-PRODUCTION OF BOOKS OF ACCOUNTS THE BOOK R ESULTS WILL BE REJECTED AND PROVISIONS OF SEC. 145(3) WILL BE APPLIED. ON T HE DATE FIXED FOR HEARING NOBODY ATTENDED THE PROCEEDINGS NOR WERE ANY WRITTE N SUBMISSIONS FILED BY THE ASSESSEE. THE ASSESSING OFFICER FROM ABOVE FACT S CAME TO THE CONCLUSION THAT PURCHASES WERE MADE FROM THE PARTIE S WHICH WERE NOT IN EXISTENCE. SINCE THE ASSESSEE HAD NOT PRODUCED THE BOOKS OF ACCOUNTS SUPPORTING VOUCHERS ETC. THE RESULTS DECLARED BY T HE ASSESSEE WERE NOT ACCEPTABLE. HE THEREFORE REJECTED THE BOOKS OF AC COUNTS AND COMPLETED THE INCOME BY APPLYING THE PROVISIONS OF SEC. 145(3) OF THE ACT. 5. THE ASSESSING OFFICER APPLIED NET PROFIT RATE OF 15% ON SALES SHOWN AT RS.31 25 988/-. THE ASSESSING OFFICER THUS MADE AN ADDITION OF RS. 4 68 698/- ON ACCOUNT OF G.P. RATE. FURTHER THE AS SESSING OFFICER WORKED OUT 5 INVESTMENT IN THE PURCHASES BY WORKING OUT PEAK PUR CHASE. THE PEAK PURCHASE WAS MADE IN THE MONTH OF SEPTEMBER AND WOR KED OUT THE SAME AT RS.3 13 101/-. THIS AMOUNT WAS ADDED AS UNDISCLOSED INVESTMENT MADE IN THE PURCHASES. THE ASSESSING OFFICER THUS MADE ANOT HER ADDITION OF RS.3 13 101/-. 6. ON APPEAL THE LD. CIT(A) UPHELD THE REJECTION O F BOOKS OF ACCOUNTS U/S 145(3) AND FRAMING OF ASSESSMENT ORDER U/S 144 OF THE ACT. AS REGARDS ESTIMATION OF INCOME BY APPLYING NET PROFIT RATE OF 15% THE LD. CIT(A) NOTED THAT THE ASSESSING OFFICER HAD NOT GIVEN ANY BASIS FOR APPLYING THE RATE OF 15% BUT SINCE THE ASSESSEE HAD NOT GIVEN ANY JUS TIFICATION FOR CLAIM OF LOWER RATE OF NET PROFIT EXCEPT IN EARLIER YEARS T HE LD. CIT(A) KEEPING IN VIEW THE NATURE OF TRADE AS WELL AS RATE OF NET PRO FIT OFFERED BY THE ASSESSEE IN EARLIER YEARS ESTIMATED NET PROFIT OF THE ASSE SSEE AT 12%. ACCORDINGLY HE CONFIRMED THE ADDITION OF RS. 3 75 118/-. 7. AS REGARDS THE ADDITION MADE ON ACCOUNT OF PEAK PURCHASES THE LD. CIT(A) NOTED THAT IN THE ABSENCE OF ANY DETAILS AND EVIDENCE ADDUCED BY THE ASSESSEE AND IN THE ABSENCE OF ANY BOOKS OF ACCOUN TS ANY CLAIM OF ASSESSEE TO HAVE OPENING STOCK OR TO HAVE A PURCHASE CYCLE W AS NOT MAINTAINABLE BECAUSE THEY HAVE NO BASIS OR EVIDENCE. THE ASSESSE E FAILED TO PRODUCE ANY EVIDENCE AND BOOKS OF ACCOUNTS DURING THE ASSESSMEN T PROCEEDINGS AS WELL AS THE APPELLATE PROCEEDINGS. THEREFORE THE SOURCE OF PURCHASE REMAINED UNEXPLAINED. ACCORDINGLY THE LD. CIT(A) UPHELD THE ADDITION OF RS. 3 13 101/- ON ACCOUNT OF INVESTMENT IN THE PEAK PUR CHASE MADE BY THE ASSESSEE. 6 8. BEFORE US THE LD. A.R. OF THE ASSESSEE SUBMITTE D THAT THE ASSESSING OFFICER HAD MADE ASSESSMENT U/S 144 BUT HE HAS NOT GIVEN ANY BASIS FOR APPLYING THE G.P. RATE OF 15%.. HE HAS ALSO SUBMITT ED THAT THE LD. CIT(A) IN HIS ORDER HAS ADMITTED THAT THE ASSESSING OFFICER H AD NOT GIVEN ANY BASIS FOR ESTIMATING 15% OF NET PROFIT. HOWEVER HE SUBMITTED THAT NET PROFIT EARNED BY THE ASSESSEE IN A YEAR WAS MUCH LOWER THAN ESTIM ATED BY THE ASSESSING OFFICER AS WELL AS THE LD. CIT(A). 9. AS REGARDS THE ADDITION CONFIRMED ON ACCOUNT OF PEAK PURCHASES THE LD. A.R. OF THE ASSESSEE SUBMITTED THAT ONCE THE BO OKS OF ACCOUNTS HAVE BEEN REJECTED AND NET PROFIT HAS BEEN APPLIED NO FURTHE R ADDITION COULD BE MADE. ON THE OTHER HAND THE LD. SR. D.R. SUPPORTED THE O RDER OF THE LD. CIT(A). HE SUBMITTED THAT ONCE THE BOOKS OF ACCOUNTS HAVE BEEN REJECTED THE ASSESSING OFFICER CAN ESTIMATE INCOME ON GUESS WORK BASIS. TH E ASSESSING OFFICER GOT ENQUIRIES CONDUCTED THROUGH INSPECTOR AND THE PARTI ES FROM WHOM PURCHASES WERE MADE WERE FOUND TO BE NON-EXISTENT. THEREFORE THE ASSESSING OFFICER WAS JUSTIFIED IN MAKING THE ADDITION OF RS. 3 13 10 1/- ON ACCOUNT OF PEAK PURCHASES. HE ALSO SUBMITTED THAT EVEN IF ADDITION ON ACCOUNT OF G.P. RATE IS DELETED THE ADDITION OF RS. 3 13 101/- WILL HAVE T O BE SUSTAINED AS THE PARTIES FROM WHOM PURCHASES WERE MADE WERE NOT IN EXISTENCE . 10. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THERE IS NO DISPUTE ABOUT THE FACT THAT THE ASSESSEE HAD NOT COOPERATED WITH THE ASSESSING OFFICER IN COMPLE TION OF ASSESSMENT. THEREFORE THE ASSESSING OFFICER WAS JUSTIFIED IN C OMPLETING THE ASSESSMENT U/S 144 OF THE ACT. IT IS SETTLED LAW THAT ONCE ASS ESSMENT IS FRAMED EX PARTE THE ASSESSING OFFICER HAS TO ESTIMATE INCOME ON THE BASIS OF MATERIAL AVAILABLE ON RECORD. THE ASSESSING OFFICER HAS TO M AKE GUESS WORK ABOUT THE 7 ADDITION BUT THE GUESS WORK CANNOT BE MADE WITHOUT ANY SUPPORTING MATERIAL ON RECORD. THE RETURNS FOR EARLIER YEARS WERE AVAIL ABLE WITH THE ASSESSING OFFICER. THE ASSESSING OFFICER HAS NOTED THAT IN S IMILAR LINE OF BUSINESS NET PROFIT RATE WAS 15% BUT HE HAD NOT GIVEN ANY EXAMPL E OF THE ASSESSEE WHO HAD EARNED NET PROFIT OF 15%. THE LD. CIT(A) HAS AL SO RECORDED A FINDING THAT THE ASSESSING OFFICER HAD NOT GIVEN ANY BASIS FOR A PPLYING THE NET PROFIT OF 15%. THEREFORE IN OUR CONSIDERED OPINION ADDITION CAN BE MADE ON THE BASIS OF MERE WILD GUESS WHICH HAS BEEN DONE BY THE ASSESSING OFFICER IN THIS CASE. THE LD. CIT(A) HAS ALSO NOT GIVEN ANY EX AMPLE OF THE CASE WHERE NET PROFIT RATE OF 12% WAS EARNED IN SIMILAR LINE O F BUSINESS PLACED IN SIMILAR CONDITIONS. THE LD. CIT(A) HAS ESTIMATED NET PROFIT @12% WITHOUT ANY BASIS. HE HAS ADMITTED THAT ASSESSEE HAD OFFERED A LOWER RATE OF NET PROFIT BUT THOSE RETURNS WERE ACCEPTED U/S 143(1) OF THE ACT. IN THE CASE BEFORE US NONE OF THE AUTHORITIES HAD ESTIMATED THE NET PROFIT BAS ED ON MATERIAL PLACED ON RECORD. THEY HAVE ESTIMATED THE NET PROFIT MERELY O N WILD GUESS WORK WHICH CANNOT BE UPHELD. WE ACCORDINGLY HOLD THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN ESTIMATING THE NET PROFIT RATE OF 12%. WE ACCORD INGLY DELETE THE ADDITION OF RS. 3 75 118/-. 11. AS REGARDS THE SECOND ISSUE WE FIND THAT THE A SSESSEE MADE SALES OF RS.31 25 988/-. THE ASSESSEE HAD MADE PURCHASES FRO M TWO PARTIES NAMELY KISSAN ENGG. WORKS PANIPAT AND M/S PUNJAB AGRO ENG G. PANIPAT. THE ASSESSEE HAS MADE PURCHASES FROM THESE TWO PARTIES WHICH IS EVIDENT FROM THE ASSESSMENT ORDER. THE INSPECTOR HAS GIVEN THE F OLLOWING REPORT IN RESPECT OF THESE PARTIES: 8 M/S KISAN ENGINEERING WORKS PANIPAT: AS DIRECTED I MADE LOCAL ENQUIRY FROM KUTANI ROAD OLD CHUNGI TO VILLAGE KUTANI. NO FIRM NAMELY M/S KISS AN ENGINEERING WORKS PANIPAT IS IN EXISTENCE FROM FOU R TO FIVE YEARS. SD/- INSPECTOR M/S PUNJAB AGRO ENGINEERING PANIPAT: AS DIRECTED I MADE LOCAL ENQUIRY FROM SANJAY CHOW K TO VILLAGE JATAL. NO FIRM NAMELY M/S PUNJAB AGRO ENG INEERING PANIPAT IS EXISTING FROM THE LAST FOUR TO FIVE YEAR S. SD/- INSPECTOR FROM THE ABOVE REPORT OF INSPECTOR THE ASSESSING O FFICER PRESUMED THAT THE ASSESSEE HAD MADE PURCHASES FROM THESE TWO PARTIES WHICH WERE NOT IN EXISTENCE. THEREFORE PURCHASES WERE NOT FULLY REFL ECTED IN THE BOOKS OF ACCOUNTS AND THE ASSESSEE WAS NOT MAINTAINING PROPE R ACCOUNTS IN RESPECT OF HIS BUSINESS. THE ASSESSING OFFICER REJECTED THE BO OKS OF ACCOUNT ON THE BASIS OF INSPECTORS REPORT. HOWEVER HE HAS NOT RE JECTED THE SALES EFFECTED BY THE ASSESSEE AT RS.31 25 988/-. IT IS A FACT THA T NO SALES CAN BE EFFECTED UNLESS PURCHASES ARE MADE. THE ASSESSEE HAD MADE PU RCHASES FROM TWO PARTIES. THE REPORT OF THE INSPECTOR DOES NOT MENTI ON THE ADDRESS AT WHICH THE ENQUIRY WAS CONDUCTED. THE REPORT ONLY SAYS THAT IN THE CASE OF M/S KISAN ENGG. WORKS PANIPAT ENQUIRY WAS MADE FROM KUTANI R OAD OLD CHUNGI TO VILLAGE KUTANI AND NO FIRM WAS IN EXISTENCE. SIMILA R IS THE CASE IN RESPECT OF PUNJAB ENGG. WORKS PANIPAT. IT IS IMPOSSIBLE FOR A N ASSESSEE TO EFFECT THE SALES OF RS. 31 25 988/- WITHOUT MAKING THE PURCHAS ES. THE ASSESSING OFFICER HAS ALSO PRESUMED THAT ALL THE PURCHASES WE RE MADE IN CASH THOUGH THE PURCHASES ARE REFLECTED IN THE COPY OF ACCOUNTS FILED WITH THE ASSESSING 9 OFFICER. THOUGH THE ASSESSEE HAS NOT CHALLENGED THE REJECTION OF BOOKS OF ACCOUNTS BUT THE WAY THE INCOME HAS BEEN ESTIMATED BY ESTIMATING INVESTMENT IN PURCHASES IGNORING THE FACT THAT THE ASSESSEE IS AN OLD ASSESSEE AND HAVE BEEN FILING THE RETURNS REGULARLY WHICH HA VE BEEN PROCESSED U/S 143(1) FOR EARLIER YEARS. DEFINITELY THE ASSESSEE WILL HAVE THE CAPITAL AS WELL AS THE OPENING STOCK. THEREFORE THE LD. CIT(A) WAS NOT JUSTIFIED IN HOLDING THAT IN THE ABSENCE OF BOOKS OF ACCOUNTS THE CLAIM OF THE ASSESSEE FOR OPENING STOCKS PURCHASES COULD NOT BE VERIFIED. IN OUR CONSIDERED OPINION THE ASSESSING OFFICER IS NOT JUSTIFIED IN ESTIMATIN G THE INVESTMENT IGNORING THE MATERIAL ON RECORD AND TREATING THE ENTIRE PURC HASES IN CASH. THE ASSESSEE IN THE GROUNDS OF APPEAL HAS STATED THAT THE IMPUGN ED PURCHASES WERE NOT MADE IN CASH BUT ON CREDIT BASIS WITH CREDIT PERIOD VARYING FROM ONE TO THREE MONTHS AND THE ASSESSEE HAD SUBSTANTIAL AMOUNT AS O PENING CAPITAL AND OPENING STOCK BESIDES THE AMOUNT OF SUNDRY AND OTHE R CREDITORS WHICH TOTALED MUCH MORE THAN RS. 3 13 101/-. THE ASSESSIN G OFFICER HAS THUS MADE WILD GUESS IN RESPECT OF WORKING OUT OF PEAK PURCHA SES TREATING THE PURCHASES IN CASH. SUCH AN ADDITION CANNOT BE SUSTA INED. ACCORDINGLY THE ADDITION CONFIRMED BY THE LD. CIT(A) IN RESPECT OF UNDISCLOSED INVESTMENT IN THE PURCHASES AT RS.3 13 101/- IS ALSO DELETED. 12. IN THE RESULT APPEAL FILED BY THE ASSESSEE IS ALLOWED. ITA NO.637: 13. THE ONLY ISSUE FOR CONSIDERATION RELATES TO ADD ITION OF RS. 1 36 105/- ON ACCOUNT OF LABOUR CHARGES. THE RELEVANT GROUNDS OF APPEAL ARE REPRODUCED AS UNDER: 10 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD.CIT(A) HAS GROSSLY ERRED IN NOT QUASHING THE ORDER DATED 1 3.8.2007 U/S 154 OF THE A.O. WHEREBY A FURTHER ADDITION OF RS.1 36 105/- ON ACCOUNT OF LABOUR CHARGES WAS MADE TO THE ALREADY A SSESSED INCOME OF RS.7 82 000/- U/S144 AS THERE WAS NO MIST AKE APPARENT FROM THE RECORD AS COULD BE RECTIFIED U/S 154 OF THE I.T. ACT. 2. THE A.O. HAVING ESTIMATED THE INCOME @ 15% OF TH E GROSS TURNOVER THERE WAS NO SCOPE FOR ANY FURTHER ADDITI ON ON ACCOUNT OF ANY PROFIT INCLUDED IN THE LABOUR CHARGES MUCH LESS THE GROSS LABOUR CHARGES WHICH ALONG WITH ITS RELATED EXPENS ES ALREADY FORMED PART OF THE PROFIT AND LOSS ACCOUNT AS ANY INCOME ACCRUING THEREFROM IS DEEMED TO HAVE BEEN COVERED I N THE PROFITS ESTIMATED BY THE A.O. @ 15%. 3. THE LD.CIT(A) HAS IGNORED THE SUBMISSION OF THE ASSESSEE THAT GROSS LABOUR CHARGES RECEIVED COULD NOT BE TREATED AS THE INCOME AS SUCH AS THE ASSESSEE HAD TO INCUR VARIOU S EXPENSES TO EARN LABOUR CHARGES WHICH ARE DEBITED IN THE PROFIT AND LOSS ACCOUNT. THE LD.CIT(A) HAD ALSO NOT CONSIDERED THE EXPENSES DEBITED IN THE PROFIT AND LOSS ACCOUNT RELATED TO L ABOUR CHARGES BUT BLINDLY RELIED UPON THE ORDER U/S 154 OF THE A. O. 14. THE FACTS OF THE CASE ARE THAT AFTER COMPLETION OF ASSESSMENT U/S 144 THE REVENUE AUDIT POINTED OUT THAT ASSESSEE HAD SHO WN RECEIPT OF RS. 1 36 105/- ON ACCOUNT OF LABOUR CHARGES FOR REPAIR WORK WHICH WAS IN ADDITION TO THE SALE AND PURCHASE OF AGRICULTURAL I MPLEMENTS AND MANUFACTURING ACTIVITY BUT THIS INCOME WAS NOT BROU GHT UNDER TAX. THE ASSESSING OFFICER ISSUED NOTICE U/S 154. DURING THE COURSE OF HEARING IT WAS SUBMITTED THAT AMOUNT ON LABOUR CHARGES AMOUNTING T O RS.1 36 105/- HAD BEEN CREDITED IN THE PROFIT & LOSS ACCOUNT OF THE C ONCERN AND SAME HAD NOT BEEN RECEIVED BY THE ASSESSEE IN INDIVIDUAL CAPACIT Y. FURTHER THE ASSESSEE HAD BEEN MAINTAINING BOOKS OF ACCOUNTS AND VARIOUS EXPENSES WHICH HAD BEEN DEBITED IN PROFIT & LOSS ACCOUNT OF THE CONCER N AND NET PROFIT OF RS. 11 48 950/- WAS ARRIVED AT. THIS REPLY OF THE ASSESSEE WAS REJECTED AND THE ASSESSING OFFICER ADDED THE AMOUNT OF RS.1 36 105/- AS INCOME FROM LABOUR CHARGES. 15. ON APPEAL THE LD. CIT(A) HELD THAT HE HAD ESTI MATED INCOME @15% OF SALES WHEREAS LABOUR CHARGES WERE NOT PART OF SA LES AND THEY WERE SEPARATELY SHOWN AS INCOME OF THE ASSESSEE. THEREFO RE THE SAME WERE REQUIRED TO BE ESTIMATED BY THE ASSESSING OFFICER. HENCE THERE WAS A MISTAKE APPARENT FROM RECORD TO BE RECTIFIED. THE L D. CIT(A) THEREFORE UPHELD THE ADDITION OF RS. 1 36 105/-. 16. BEFORE US THE LD. A.R. OF THE ASSESSEE SUBMITT ED THAT LABOUR CHARGES WERE ALREADY ASSESSED AT AN INCOME OF RS. 7 82 000/ - ASSESSED U/S 144 AND THEREFORE THERE WAS NO MISTAKE APPARENT FROM RECOR D. THE ASSESSING OFFICER HAD ESTIMATED INCOME @15% OF GROSS TURNOVER HENCE THERE WAS NO SCOPE FOR SEPARATE ADDITION. IT WAS ALSO SUBMITTED THAT T HE LD. CIT(A) HAD IGNORED THE SUBMISSION OF THE ASSESSEE THAT GROSS LABOUR CH ARGES RECEIVED COULD NOT BE TREATED AS INCOME. THE ASSESSEE HAD TO INCUR VAR IOUS EXPENSES TO EARN LABOUR CHARGES WHICH WERE DEBITED IN THE PROFIT & L OSS ACCOUNT. IT HAS ALSO BEEN SUBMITTED THAT LABOUR CHARGES COULD NOT BE ADD ED AS EXPENDITURE RELATING THERETO HAD TO BE DEDUCTED. HOW MUCH EXPEN DITURE WILL BE DEDUCTIBLE IS A SUBJECT MATTER OF DEBATE. HENCE TH E ESTIMATION OF PROFIT FROM LABOUR CHARGES BECAME DEBATABLE. 17. ON THE OTHER HAND THE LD. SR. D.R. SUBMITTED T HAT SAME RATE OF GROSS PROFIT WILL BE APPLICABLE AS IN THE CASE OF SALES. 12 18. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. FROM THE ASSESSMENT ORDER PASS ED U/S 144 WE FIND THAT THE ASSESSING OFFICER HAS ESTIMATED THE NET PROFIT AT RS.4 68 989/- BY APPLYING 15% OF NET PROFIT ON TOTAL SALES OF RS.31 25 988/-. IN APPEAL AGAINST THE QUANTUM ADDITION WE HAVE HELD THAT NO ADDITION CAN BE MADE ON THE BASIS OF WILD GUESS AND HAVE DELETED THE ADDITION O F RS. 3 75 118/- SUSTAINED BY THE LD. CIT(A) OUT OF TOTAL ADDITION OF RS. 4 68 898/-. SINCE THE ADDITION HAS BEEN DELETED ON ACCOUNT OF NET PROFIT THE RETU RNED INCOME ESTIMATED BY THE ASSESSEE WHICH INCLUDES THE PROFIT FROM LABOUR CHARGES WILL BE ASSESSABLE AS ACCEPTED U/S 143(1) OF THE ACT. MORE OVER THE GROSS LABOUR CHARGES RECEIVED CANNOT BE ADDED. THE EXPENDITURE I NCURRED IN THE FORM OF LABOUR CHARGES PAID THE RAW MATERIAL AND OTHER EXP ENSES INCURRED HAVE TO BE DEDUCTED. THEREFORE ENTIRE AMOUNT COULD NOT BE ADD ED AS INCOME OF THE ASSESSEE. HENCE IT WAS AGAIN AN ISSUE OF ESTIMATIO N OF INCOME FROM LABOUR CHARGES. WHEN THE ESTIMATION IS INVOLVED THE ISSUE BECOMES DEBATABLE AND CANNOT BE VERIFIED U/S 154 OF THE ACT. WE ACCORDING LY DO NOT FIND ANY JUSTIFICATION IN EITHER CASE FOR UPHOLDING THE ADDI TION OF RS. 1 36 105/- ON ACCOUNT OF LABOUR CHARGES. ACCORDINGLY WE SET ASID E THE ORDER OF LD. CIT(A) AND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDI TION. 19.IN THE RESULT APPEAL FILED BY THE ASSESSEE AGAI NST ORDER U/S 154 IS ALLOWED. 20. TO SUM UP BOTH THE APPEALS FILED BY THE ASSESS EE ARE ALLOWED. DECISION PRONOUNCED IN THE OPEN COURT ON 9 TH APRIL 2010. SD/- SD/- (A.D.JAIN ) (K.D.RANJAN ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 9.04.2010. PSP 13 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT DEPUTY REGISTRAR