ACIT, CC-13,, v. Ajay Kapoor,,

ITSSA 78/DEL/2005 | misc
Pronouncement Date: 16-04-2010 | Result: Dismissed

Appeal Details

RSA Number 7820116 RSA 2005
Bench Delhi
Appeal Number ITSSA 78/DEL/2005
Duration Of Justice 5 year(s) 2 month(s) 5 day(s)
Appellant ACIT, CC-13,,
Respondent Ajay Kapoor,,
Appeal Type Income Tax (Search & Seizure) Appeal
Pronouncement Date 16-04-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted E
Tribunal Order Date 16-04-2010
Date Of Final Hearing 23-05-2017
Next Hearing Date 23-05-2017
Assessment Year misc
Appeal Filed On 11-02-2005
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E DELHI BEFORE SHRI A.D. JAIN AND SHRI K.G. BANSAL IT(SS) A.NO. 78(DEL)/2005 BLOCK PERIOD: ENDING 6.11.2001 ASSTT. COMMISSIONER OF S HRI AJAY KAPOOR INCOME-TAX CENTRAL CIRCLE 13 VS. PROP. M/S SHUBHAM DYES & NEW DELHI. CHEMICALS 1/26 ROOP NAGAR DELHI-7. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI M.K. GAUTAM CIT DR RESPONDENT BY: SHRI SURESH K. GUPTA C.A. ORDER PER K.G BANSAL : AM THIS APPEAL OF THE REVENUE EMANATES FROM THE ORDER OF CIT(APPEALS)-II NEW DELHI PASSED ON 5.11.2004 IN APPEAL NO. 180/04- 05 PERTAINING TO BLOCK PERIOD ENDING ON 6.11.20 01. THE CORRESPONDING ORDER OF ASSESSMENT WAS FRAMED BY THE ASSISTAN T COMMISSIONER OF INCOME-TAX CENTRAL CIRCLE 13 NEW DELHI UNDER THE PROVISIONS OF SECTION 158BC OF THE INCOME-TAX ACT 1961 ON 2 8.11.2003. THE REVENUE HAS TAKEN THREE GROUNDS IN THE APPEAL THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(APPEALS) ERRED IN (I) DIRECTING THE AO TO TAKE RS. 21 90 685/- AS UNDISCLOSED INCOM E BEING THE GROSS PROFIT ESTIMATED @ 2.25% OF UNRECORDED SALES AMOUNTING TO RS. 9 73 63 789/-; IT(SS)A NO. 78(DEL)/05 2 (II) DELETING THE ADDITION ON ACCOUNT OF UND ECLARED GROSS PROFIT OF RS. 5 23 46 173/-; AND (III) DELETING THE ADDITION O N ACCOUNT OF UNDISCLOSED INCOME OF RS. 4 50 17 607/- ASSESSED U/S 69 OF T HE ACT. 2. THE FACTS OF THE CASE AS MENTIONED IN TH E ASSESSMENT ORDER ARE THAT THE ASSESSEE IS A PROPRIETOR OF M/S SHUBH AM DYES & CHEMICALS DEALING IN DYES AND CHEMICALS. SEARCH AND SE IZURE OPERATION WAS CARRIED OUT AT THE RESIDENTIAL AND OFFICE PREMISES OF THE ASSESSEE ON 6.11.2001. IN THE COURSE OF SEARCH CASH OF RS. 17 43 180/- JEWELLERY OF THE VALUE OF RS. 20 40 688/- AND VARIOUS DOCUMEN TS WERE FOUND. IN RESPONSE TO NOTICE U/S 158BC THE ASSESSEE FIL ED THE RETURN SHOWING UNDISCLOSED INCOME OF RS. 18.00 LAKH. THE DOCUME NTS FOUND AND SEIZED IN SEARCH CONTAINED RECORD OF UNACCOUNTED PURCHASES AND SALES. THE UNRECORDED PURCHASES WERE COMPUTED BY THE AO AT RS. 4 50 17 616/- AND UNRECORDED SALES AT RS. 9 73 63 789/-. THE ASS ESSEE WAS INTER-ALIA REQUESTED TO SHOW CAUSE AS TO WHY THE UNDISCLO SED INCOME SHOULD NOT BE TAKEN AT RS. 9 73 63 789/- BEING ADMITTED UN DISCLOSED SALES AS PER LETTER DATED 6.6.2002. THE ASSESSEE WAS ALSO REQUESTED TO GIVE THE WORKING OF UNRECORDED PURCHASES AS PER SEIZED DOCU MENTS. IT WAS SUBMITTED THAT THE ASSESSEE MAINTAINS SUFFICIE NTLY LARGE STOCK OF DYES IT(SS)A NO. 78(DEL)/05 3 AND CHEMICALS OF VARIOUS KINDS. THE UNRECORDED SALES WERE MADE OUT OF SUCH STOCK WHICH WAS AVAILABLE IN BOOKS OF ACCOUNT. AS AND WHEN THE STOCK OF AN ITEM FELL BELOW THE REQUIRED Q UANTITY THE SALE PROCEEDS RECEIVED OUT OF UNACCOUNTED PURCHASES WERE UT ILIZED TO REPLENISH THE STOCK. THEREFORE IT WAS AGITATED THAT THERE W AS NO INVESTMENT MADE IN PURCHASE OF STOCK WHICH WAS SOLD WITHOUT MAKING RECORD THERE OF IN THE BOOKS OF ACCOUNT. IT WAS FURTHER SUBMITTED TH AT IN A SITUATION LIKE THIS ONLY GROSS PROFIT ON UNRECORDED SALES COULD BE TREATED AS THE UNDISCLOSED INCOME. THE AO CONSIDERED THE FACT S OF THE CASE AND SUBMISSIONS MADE BEFORE HIM. IT APPEARS TH AT WHILE EXPLAINING THE DETAILS MENTIONED IN SEIZED DOCUMENTS THE ASS ESSEE HAD WORKED OUT UNRECORDED PURCHASES AT RS. 4 50 17 616/-. AL THOUGH SOME OBJECTIONS WERE RAISED IN REGARD TO THIS WORKING THE A O QUANTIFIED UNRECORDED PURCHASES AT RS. 4 50 17 616/- AS PER ASSESSEE S OWN LETTER. THIS AMOUNT WAS TAKEN AS UNEXPLAINED INVESTMENT U/S 69 OF THE ACT. THE DIFFERENCE BETWEEN THE AMOUNT OF UNRECORDED SALES AND UNRE CORDED PURCHASES AS AFORESAID AMOUNTING TO RS. 5 23 46 173/- WAS TA KEN AS THE GROSS PROFIT. THUS THE UNDISCLOSED INCOME OF THE ASSESSEE W AS ASSESSED AT RS. 9 73 63 789/-. IT(SS)A NO. 78(DEL)/05 4 2.1 AGGRIEVED BY THIS ORDER THE ASSESSEE MOVED AN APPEAL BEFORE THE CIT(APPEALS)-II NEW DELHI. SOME OBJECTIONS WER E RAISED ABOUT THE QUANTIFICATION OF UNRECORDED SALES AND UNRECORDE D PURCHASES. HOWEVER IN VIEW OF THE FACTS EXPLAINED TO THE AO IN R EGARD TO UNRECORDED SALES IT WAS STRONGLY AGITATED THAT NO ADDITION WHA TSOEVER COULD BE MADE IN RESPECT OF UNACCOUNTED INVESTMENT IN PURCHASE OF STOCK WHICH WAS SOLD WITHOUT BEING RECORDED IN THE BOOKS OF ACCOUNT. THE LD. CIT(APPEALS) CONSIDERED THE FACTS OF THE CASE AND RIVAL SU BMISSIONS. HE CAME TO THE CONCLUSION THAT THE WORKING OF UNRECORDED SALES AT ABOUT RS. 9.73 CRORE BY THE AO WAS FAIR AND REASONABLE AS THE ASSESSEE COULD NOT POINT OUT TOWARDS ANY SUBSTANTIAL ERROR THEREIN. THE AO HAD ADOPTED THE FIGURE OF UNACCOUNTED SALES ON THE BASIS OF LETT ER DATED 6.6.2002 SUBMITTED BY THE ASSESSEE TO THE DDIT(INV.). TH EREFORE THE UNACCOUNTED SALES WAS CONFIRMED AT ABOUT RS. 9.73 CRORE. IN REGARD TO THE INCLUSION OF UNRECORDED INVESTMENT IT WAS MENTIONED THAT NO EXCESS STOCK WAS FOUND IN THE COURSE OF SEARCH. THE ASSESSEES CASE IS THAT UNACCOUNTED SALES WERE MADE OUT OF REGULAR STOCK. WHENEVER THE STOCK FELL BELOW THE CRITICAL LIMIT IT WAS REPLENISHED BY MAKING PURCHASES BUT NOT RECORDING THEM IN THE BOOKS OF ACCOUNT. THE AO REJECTED T HIS SUBMISSION ON THE GROUND THAT STOCK REGISTER IS NOT MAINTAINED BY THE ASSESSEE ON DAY-TO- IT(SS)A NO. 78(DEL)/05 5 DAY BASIS AND THEREFORE SUCH A SUBMISSION W AS INCAPABLE OF VERIFICATION. HOWEVER STOCK TALLY ON THE DATE OF SEARCH L EADS TO AN INFERENCE THAT THE EXPLANATION OF THE ASSESSEE COULD BE RELI ED UPON. IN ANY CASE NO MATERIAL WAS FOUND TO SHOW THAT THE ASSESSEE MADE ANY UNDISCLOSED INVESTMENT IN PURCHASES. THEREFORE THE ADDITI ON ON THIS GROUND WAS DELETED. 2.2 COMING TO THE COMPUTATION OF UNDISCLOSED INCOM E IT WAS MENTIONED THAT IN THE AFORESAID FACTS ONLY U NDECLARED GROSS PROFIT COULD BE BROUGHT TO TAX AND NOT THE AMOUNT OF U NRECORDED SALES. HE OBTAINED THE FIGURE OF GROSS PROFIT IN VARIOUS YE ARS COMPRISED IN THE BLOCK PERIOD SHOWN IN THE RETURNS OF INCOME OF THOSE YEARS. IT WAS FOUND THAT IT VARIES BETWEEN 1.92% TO 2.83% O F THE SALES. THE AVERAGE OF THESE PERCENTAGES WAS 2.19%. THEREFORE IT WAS HELD THAT IT WILL BE FAIR AND REASONABLE TO APPLY THE GROSS PROFIT RATIO OF 2.25%. THIS LED TO THE COMPUTATION OF UNDISCLOSED INCOME OF RS. 21 9 0 685/-. AGGRIEVED BY THIS ORDER THE REVENUE IS IN APPEAL BEFORE US . 3. THE LD. DR REFERRED TO THE ASSESSMENT ORDER AND IN PARTICULAR SUBMITTED THAT THE AO WORKED OUT UNACCOUNTED SA LES AT ABOUT RS. 9.74 IT(SS)A NO. 78(DEL)/05 6 CRORE AND UNACCOUNTED INVESTMENT AT ABOUT 4.50 CRORE. THE CONTENTION OF THE ASSESSEE WAS THAT NO UNACCOUNTED INVESTMEN T WAS MADE IN PURCHASE OF STOCK. HOWEVER IT IS CLEAR FROM THE AS SESSMENT ORDER THAT THERE WAS NO EVIDENCE FOUND THAT ALL UNRECORDED SALES WERE MADE FROM THE REGULAR STOCK AS DAY-TO-DAY STOCK BOOK WAS N OT MAINTAINED. THE AO QUANTIFIED THE UNACCOUNTED INVESTMENT AT ABOUT R S. 4.40 CRORE AND THE DIFFERENCE BETWEEN UNACCOUNTED SALES AND THE UNA CCOUNTED INVESTMENT AMOUNTING TO ABOUT RS. 5.23 CRORE WAS TAKEN A S GROSS PROFIT. HE REFERRED TO THE SUBMISSIONS OF THE ASSESSEE AND POINTED OUT THAT THE ASSESSEE HAS BEEN CHANGING HIS STAND IN THE MATT ER. THEREFORE THE FIGURES WORKED OUT BY THE AO SHOULD BE TAKEN TO BE CORREC T. THAT WAS ALSO DONE BY THE LD. CIT(APPEALS) WHEN IT WAS HELD THAT IN ABSENCE OF ANY SPECIFIC DETAILS OF DUPLICATION THE FIGURE OF U NACCOUNTED SALE WAS TO BE TAKEN AT ABOUT RS. 9.73 CRORE. 3.1 THE SUBMISSION OF THE LD. DR AGAINST THE WORKI NG OF UNACCOUNTED INCOME BY THE LD. CIT(APPEALS) ON ACCOUNT OF GRO SS PROFIT WAS THAT PROFIT IN UNACCOUNTED BUSINESS IS ALWAYS MORE THAN T HE PROFIT IN THE REGULAR BUSINESS TRANSACTIONS OF WHICH ARE RECORDED IN THE BOOKS OF ACCOUNT. IN THIS CONNECTION RELIANCE WAS PLACED ON THE ORD ER OF C BENCH OF IT(SS)A NO. 78(DEL)/05 7 AHMEDABAD TRIBUNAL IN THE CASE OF VIJAY PROTEI NS LTD. VS. ACIT (1996) 58 ITD 428. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE HAD NOT MAINTAINED DAY-TO-DAY STOCK BOOK. THEREFORE I T COULD NOT BE ACCEPTED THAT UNRECORDED SALES WERE MADE OUT OF REGUL AR STOCK WHICH WAS LATER REPLENISHED. IN THIS CONNECTION HE FURNI SHED A WORKING OF THE PEAK OF INVESTMENT IN UNACCOUNTED PURCHASES ON THE BASIS OF SEIZED DOCUMENTS AND MENTIONED THAT THE LARGEST PE AK OF RS. 17 03 546/- OCCURRED ON 29.9.2001. THEREFORE IT WAS HI S ALTERNATIVE SUBMISSION THAT AT LEAST THIS AMOUNT SHOULD BE BROUGHT T O TAX AS UNACCOUNTED INVESTMENT. THE DETAILS OF PEAK OF INVESTMENT ARE AS UNDER:- S. NO. SEIZED DOCUMENT UNACCOUNTED PURCHASE (RS.) DATE PAYMENT (RS.) (I) ANNEXURE A-25 PAGE 115 9 87 110 27.2. 2 92 050 (II) ANNEXURE A-25 PAGE 119 93 57 660 (III) ANNEXURE A-4 PAGE 16 1627 61 200 22/5 4 50 000 (IV) ANNEXURE A-8 PAGE 2 62 84 800 13.7.2001 10 17 720 (V) ANNEXURE A-8 PAGE 3 57 74 455 29.9.2001 17 03 546 (VI) ANNEXURE A-8 PAGE 12 65 43 733 30.8.2001 14 44 784 (VII) ANNEXURE A-8 PAGE 22&23 53 82 698 - - (VIII) ANNEXURE A-12 PAGE 18&19 23 64 207 10/8 3 01 140 IT(SS)A NO. 78(DEL)/05 8 (IX) ANNEXURE A-34 PAGE 73 & 113 40 26 435 8/6 6 00 862 (X) ANNEXURE A- 35 PAGE 4 & 5 2 02 000 12/1 80 250 (XI) ANNEXURE A-37 PAGE 8 20 21&34 1 17 675 17/11 1 50 000 (XII) ANNEXURE A-43 12 15 643 11/5 2 00 000 IT WAS ALSO SUBMITTED THAT SINCE THE ASSESSEE HA S MENTIONED PAID ON SEIZED DOCUMENTS WHICH CONTAIN DETAILS OF UNACC OUNTED PURCHASES THERE IS NO DISPUTE THAT THERE WAS UNEXPLAINED INVES TMENT IN THE UNACCOUNTED PURCHASES. ACCORDINGLY IT WAS PRAYED THAT PEAK INVESTMENT OF RS. 17 03 546/- SHOULD BE CONFIRMED IN VIEW OF SEI ZED DOCUMENTARY EVIDENCE. 4. IN REPLY THE LD. COUNSEL FOR THE ASSESSEE REFERRED TO THE ASSESSMENT ORDER AND THE ORDER OF THE LD. CIT(APPEALS). WE N EED NOT REPEAT THESE ORDERS AS THEY HAVE BEEN DISCUSSED BY US WHILE SUMMARIZING THEM AND ALSO WHILE STATING THE CASE OF THE LD. DR. IT WAS SUBMITTED THAT THE ASSESSEE HAD MAINTAINED ONLY ONE GODOWN FOR ALL THE GOODS STORED BY IT. NO DOUBT THE ASSESSEE DID NOT MAINTAIN DAY-TO-DAY STOCK BOOK BUT IT IS ALSO A FACT THAT NO EXCESS OR SHOR TAGE WAS FOUND IN THE STOCK ON THE DATE OF SEARCH. NO EVIDENCE WAS ALSO F OUND THAT THE ASSESSEE INVESTED OR SPENT ANY MONEY IN MAKING CORRESPOND ING UNACCOUNTED PURCHASES THE REASON BEING THAT UNACCOUNTED SALES WERE EFFECTED OUT OF REGULAR STOCK WHICH WAS PERIODICALLY REPLENISH ED FROM THE MONEY RECEIVED ON ACCOUNT OF UNACCOUNTED SALES. I T WAS STRESSED THAT THE IT(SS)A NO. 78(DEL)/05 9 ASSESSEE HAD MAINTAINED SUBSTANTIAL STOCK IN VIE W OF HIS VERY HIGH TURNOVER IN THE BLOCK PERIOD. THEREFORE IT WAS HIS CASE THAT NO INVESTMENT WHATSOEVER WAS MADE IN EFFECTING UN ACCOUNTED SALES. IN ORDER TO PROVE THAT THE ASSESSEE MAINTAINED S UBSTANTIAL STOCK IN THE REGULAR COURSE FIGURES FOR FIVE YEARS OF THE B LOCK PERIOD WERE FILED WHICH SHOW THAT THE STOCK AS PER BOOKS VARI ED BETWEEN RS. 49 98 258/- TO RS. 1 29 58 280/-. THESE DETAILS ARE REPRODUCED BELOW:- ASSTT. YEAR SALE (RS.) CLOSING STOCK (RS.) 1997-98 13 95 36 984/- 89 68 067/- 1998-99 21 60 38 469/- 91 00 586/- 1999-00 29 38 80 444/- 1 04 26 102/- 2000-01 38 72 74 321/- 49 98 258/- 2001-02 46 71 69 464/- 1 29 58 280/- 4.1 COMING TO THE ARGUMENT THAT AT LEAST THE PEA K OF THE INVESTMENT SHOULD BE BROUGHT TO TAX IT WAS SUBMITTED T HAT THE PURCHASES WERE MADE OUT OF SALE PROCEEDS OF UNRECORDED SALES . THE PEAK WORKED OUT BY THE LD. DR AMOUNTED TO RS. 17 03 546/-. THIS WAS LOWER THAN THE UNDISCLOSED INCOME WORKED OUT BY THE LD. CIT(A ) AT RS. 21 90 685/-. THIS SHOWS THAT THE UNACCOUNTED MONEY AVAILABLE AS CASH ON HAND BY WAY OF UNDISCLOSED PROFIT WAS MORE THAN THE PEA K OF INVESTMENT IN THE SO-CALLED UNACCOUNTED PURCHASES. THEREFORE IT WAS ARGUED THAT THE IT(SS)A NO. 78(DEL)/05 10 MONEY WAS AVAILABLE IN THE HANDS OF THE ASSESS EE AS UNDISCLOSED INCOME AND SEPARATE ADDITION OF UNDISCLOSED INVESTMEN T WILL THUS AMOUNT TO DOUBLE TAXATION OF THE SAME AMOUNT. 5. WE HAVE CONSIDERED THE FACTS OF THE CASE AND RIVAL SUBMISSIONS. GROUND NOS. 1 AND 2 ARE INTER-LINKED. THE AO HAD TAXED AN AMOUNT OF ABOUT RS. 5.23 CRORE AS GROSS PROFIT. THE LD. CIT(APPEALS) DIRECTED THAT THE GROSS PROFIT MAY BE WORKED OUT AT 2.25 % OF UNRECORDED SALES AMOUNTING TO ABOUT 9.74 CRORE. THEREFORE THES E GROUNDS ARE TAKEN TOGETHER FOR DETERMINATION. 5.1 THE FACTS IN THIS REGARD ARE THAT IN TH E COURSE OF SEARCH AND SEIZURE OPERATION CERTAIN DOCUMENTS WERE FOUND AND SEIZED REGARDING SALES MADE BY THE ASSESSEE WHICH WERE NOT RECOR DED IN THE BOOKS OF ACCOUNT. THE AO COMPUTED THE UNRECORDED SALES AT RS. 9 73 63 789/-. THIS FIGURE HAS NOT BEEN CHALLENGED BEFORE US BY THE ASSESSEE. THEREFORE THIS FIGURE BECOMES THE FINAL FIGURE. THUS THE O NLY QUESTION IN THIS CASE IS WHETHER THE GROSS PROFIT ON UNRECORDED SALES S HOULD BE TAKEN AT 2.25% THEREOF OR RS. 5 23 46 173/- DETERMINED BY THE A O. THE ARGUMENT OF THE LD. DR IS THAT UNRECORDED PURCHASES HAVE BEEN W ORKED OUT BY THE AO AT IT(SS)A NO. 78(DEL)/05 11 RS. 4 50 17 616/-. THIS HAS BEEN DONE ON THE BAS IS OF THE SEIZED DOCUMENTS AND HAS BEEN ACCEPTED BY THE ASSESS EE VIDE LETTERS DATED 13.10.2003 AND 28.10.2003. THEREFORE THE DIFFE RENCE BETWEEN UNRECORDED SALES AND UNRECORDED PURCHASES AS PER SEIZED DOCUMENTS IS NOTHING BUT THE GROSS PROFIT. IN THE ALTERNAT IVE IT HAS BEEN ARGUED THAT GROSS PROFIT RATIO IN UNRECORDED BUSINESS IS ALWAYS MORE THAN THE GROSS PROFIT RATIO IN THE RECORDED TRANSACTION . FOR THIS PURPOSE RELIANCE WAS PLACED ON THE DECISION IN THE CASE OF VI JAY PROTEINS LTD. (SUPRA). IN PARTICULAR OUR ATTENTION WAS DRAWN TO PARA GRAPH 19.3 OF THE ORDER WHICH IS REPRODUCED BELOW FOR THE SAKE OF READY REFERENCE:- 19.3 IT IS WELL KNOWN THAT IF PURCHASES ARE MADE FROM OPEN MARKET WITHOUT INSISTING FOR THE GENUINE BILLS THE SUPPLIERS MAY BE WILLING TO SELL THOSE PRODUCTS AT A MUCH LOWER RATE AS COMPARED TO THE RATE WHICH THEY MA Y CHARGE IN CASE THE DEALER HAS TO GIVE A GENUINE SALE INVO ICE IN RESPECT OF THAT SALE AND SUPPLY THE GOODS. THERE MAY BE VARIOUS FACTORS DUE TO WHICH THERE IS BOUND TO BE A SUBSTAN TIAL DIFFERENCE BETWEEN THE PURCHASE PRICE OF UNACCOUNTED MATERI AL AND RATE OF PURCHASE OF ACCOUNTED FOR GOODS. THERE MAY BE A SAVING ON ACCOUNT OF SALES-TAX AND OTHER TAXES AND DUTIE S WHICH MAY BE LEVIABLE IN RESPECT OF MANUFACTURE OR SALE OF GOODS IN QUESTION. THE SUPPLIERS OR THE MANUFACTURERS MAK E A SUBSTANTIAL SAVING IN THE INCOME-TAX IN RESPECT OF INCOME FROM SALE OF UNACCOUNTED GOODS PRODUCED AND SOLD BY THEM. THIS MAY ALSO BE ONE OF THE FACTORS DUE TO WHICH TH E SELLER MAY BE WILLING TO CHARGE LOWER RATES FOR UNACCOUNTED G OODS AS COMPARED TO ACCOUNTED FOR GOODS. KEEPING ALL T HESE FACTORS IN MIND AND ALSO KEEPING IN VIEW THE DECIS ION OF THE ITAT IT(SS)A NO. 78(DEL)/05 12 IN THE CASE OF SANJAY OIL CAKE INDUSTRIES (SU PRA) WE HOLD THAT 25% OF THE PURCHASE PRICE ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS THROUGH SUCH FICTITIOUS INVOICES IN THE NAME OF 33 BOGUS PARTIES SHOULD BE DISALLOWED OUT OF THE AMOUNT OF PURCHASES SHOWN TO HAVE BEEN MADE FROM THOSE 3 3 BOGUS SUPPLIERS. THE TOTAL PURCHASES SHOWN AS MADE FROM THESE 33 PARTIES WHICH HAVE BEEN DISALLOWED BY THE ASSES SING OFFICER ARE AS UNDER:- (I) BOGUS PURCHASES AS DISCUSSED IN PAR A 38 READ WITH PARA 22 OF THE ASSESSMENT ORDER 70 03 826/- (II)BOGUS PURCHASED AS DISCUSSED IN PAR A 40 OF THE ASSESSMENT ORDER 17 99 788/- 88 03 614/- WE DIRECT THE ASSESSING OFFICER TO DISALLOW 2 5% OF THE AFORESAID AMOUNT ON ACCOUNT OF INFLATION OF PURCH ASE PRICE. THE AMOUNT OF DISALLOWANCE WOULD ACCORDINGLY COME TO RS. 22 00 903/- WHICH MAY BE ROUNDED TO RS. 22 LAKHS . THE AMOUNT OF EXPENDITURE SHOWN BY WAY OF FREIGHT ON THE AFORESAID PURCHASES HAS BEEN SEPARATELY DISALLOWED BY THE ASSESSING OFFICER TO THE TUNE OF RS. 5 02 752/-. SINCE TH E ASSESSEE HAS FAILED TO PROVE THAT SUCH OIL CAKES WERE REC EIVED FROM OUTSIDE THE STATE AS SHOWN AS PER THE FICTITI OUS INVOICES WE AGREE WITH THE VIEW TAKEN BY THE DEPARTMENTAL AU THORITIES IN RESPECT OF DISALLOWANCE OF THE ENTIRE AMOUNT OF FREIGHT IN RELATION TO THE AFORESAID PURCHASES. THE DISAL LOWANCE OF RS. 5 02 752/- IS ALSO THEREFORE CONFIRMED. THUS T HE ASSESSING OFFICER IS DIRECTED TO RESTRICT THE DISALLOWANC E TO AN AGGREGATE SUM OF RS. 27 02 752/- (RS. 22 LAKHS P LUS RS. 5 02 752/-) AS AGAINST THE AGGREGATE DISALLOW ANCE OF RS. 93 06 366/- MADE BY THE ASSESSING OFFICER COMPRISI NG OF RS. 70 03 826/- RS. 17 99 788/- AND RS. 5 02 752/-. 5.2 ON THE OTHER HAND THE CASE OF THE LD. COUNSE L IS THAT THERE IS NO REASON TO ASSUME THAT GROSS PROFIT RATIO IN R ESPECT OF UNRECORDED IT(SS)A NO. 78(DEL)/05 13 TRANSACTIONS WILL BE MORE THAN THE GROSS PROFI T RATIO IN RECORDED TRANSACTION. IN PARTICULAR IT WAS ARGUED T HAT THE BENEFIT WHICH ACCRUED IN UNRECORDED TRANSACTION WAS PASSED ON TO THE CUSTOMER JUST AS THE LIABILITY OF INDIRECT TAXES WAS PASSED ON TO TH E CUSTOMER IN THE RECORDED BUSINESS. THE CASE OF VIJAY PROTEINS LTD. WAS DISTINGUISHED BY MENTIONING THAT IN THAT CASE PURCHASES WERE VERIFIED AND THE ASSESSEE WAS NOT ABLE TO PRODUCE ANY EVIDENCE REGARDING PURCHASES FROM 33 PARTIES BY PRODUCTION OF THE PARTIES THE BROK ERS OR THE TRANSPORTERS. THEREFORE THE AO CAME TO THE CONCLUSION THAT SA LE INVOICES AND VOUCHERS FOR FREIGHT PAYMENTS WERE FICTITIOUS. THEREAFTE R THE BOOKS OF ACCOUNT WERE REJECTED. IN THIS CONTEXT THE TRIBUNAL HE LD THAT 25% OF THE PURCHASE PRICE ACCOUNTED FOR IN THE BOOKS TH ROUGH SUCH INVOICES COULD BE DISALLOWED FOR WORKING OUT THE INCOME. SUCH A RE NOT THE FACTS HERE. THE FACTS ARE THAT PURCHASES AND SALES WERE NOT RECORDED IN THE BOOKS OF ACCOUNT. IN SUCH A SITUATION THE GROSS PROFIT RATIO SHOULD BE SAME OR SIMILAR TO THE GROSS PROFIT RATIO IN C ASE OF RECORDED TRANSACTIONS HAVING CONSIDERED THE ARGUMENTS OF BOTH THE SIDE S WE ARE OF THE VIEW THAT THE ACTION OF THE AO IN TAKING UNACCOUNTED GROSS PROFIT AT ABOUT RS. 5.24 CRORE CANNOT BE UPHELD EVEN ON A PRI MA FACIE BASIS FOR THE REASON THAT IT YIELDS A GROSS PROFIT RATI O OF 53.7% (5.23X100 9.74) IT(SS)A NO. 78(DEL)/05 14 AGAINST THE AVERAGE GROSS PROFIT OF 2.19% IN T HE YEARS COMPRISED IN THE BLOCK PERIOD. THIS RATIO DOES NOT STAND JUST IFIED EVEN IN TERMS OF THE ORDER IN THE CASE OF VIJAY PROTEINS LTD. 5.3 COMING TO THE ESTIMATION OF UNRECORDED GROS S PROFIT THE LD. CIT(APPEALS) HAS MENTIONED THAT THE GROSS PROF IT RATIO IN THE RECORDED BUSINESS IN THE YEARS COMPRISED IN THE BLOCK PERIO D VARIES BETWEEN 1.92% AND 2.83%. THE AVERAGE IS 2.19%. THE ALTERNATI VE CASE OF THE LD. DR IS THAT THE RATIO REQUIRES TO BE ENHANCED IN THE L IGHT OF THE DECISION IN THE CASE OF VIJAY PROTEINS LTD. IN WHICH 25% OF THE PURCHASE PRICE INVOLVED IN FICTITIOUS BILLS OF 33 SUPPLIERS WAS DISAL LOWED. THE LD. DR WAS REQUESTED TO WORK OUT THE ENHANCEMENT IN GROSS PROFIT RATIO ON THE BASIS OF THIS DECISION WHICH COULD NOT BE DONE. HO WEVER AS RIGHTLY POINTED OUT BY THE LD. COUNSEL IN THAT CASE THE AO MADE ENQUIRIES INTO PURCHASES IN RESPECT OF 33 PARTIES WHICH WERE DEBITED T O BOOKS OF ACCOUNT. HE CAME TO THE CONCLUSION THAT THE SALE INVOICES AND VOUCHERS FOR FREIGHT PAYMENT WERE FICTITIOUS. THEREFORE HE REJECTE D THE BOOKS OF ACCOUNT AND PROCEEDED TO ESTIMATE THE PROFITS OF THE ASS ESSEE. IT IS CLEAR THAT SINCE INVOICES FROM 33 SUPPLIERS ETC. WERE FICTITI OUS THOSE WERE INTRODUCED IN PLACE OF GENUINE INVOICES WITH A VIEW TO SUPPRESS THE PROFITS. THUS IT(SS)A NO. 78(DEL)/05 15 SUPPRESSION OF PROFIT FOLLOWED AUTOMATICALLY F ROM THE CONDUCT OF THE ASSESSEE OF INTRODUCING BOGUS AND FICTITIOUS IN VOICES IN THE BOOKS OF ACCOUNT. SUCH IS NOT THE CASE HERE. IN THE CASE BEFORE US THE UNRECORDED SALES ADMITTEDLY STAND AT ABOUT R S. 9.74 CRORE. SINCE THE SALES HAVE BEEN EFFECTED BY THE ASSESSEE THE CO RRESPONDING PURCHASES WOULD HAVE BEEN MADE BY HIM. THE ONLY QUESTION IN THESE GROUNDS IS REGARDING ESTIMATION OF PROFIT ON SUCH SALES. THE AO HAS NOT ANALYSED ITEM-WISE PURCHASE PRICE AND SALE PRICE MENTIONED IN THE SEIZED DOCUMENTS REGARDING UNACCOUNTED PURCHASES AND UN ACCOUNTED SALES. SUCH AN EXERCISE EVEN ON A SAMPLE BASIS WOU LD HAVE FURNISHED A FAIR IDEA OF THE GROSS PROFIT RATIO IN UNACCOUNTED BUSINESS. THE RESULT OF SUCH AN EXERCISE WAS ALSO NOT SUBMITTED BY TH E AO IN THE COURSE OF HEARING BEFORE THE LD CIT(APPEALS). THEREFORE THE PRESUMPTION IS THAT SUCH AN EXERCISE WOULD NOT HAVE HELPED THE CA SE OF THE REVENUE. OTHERWISE THERE IS NO EVIDENCE ON RECORD THAT PRO FIT IN UNRECORDED TRANSACTIONS WAS MORE THAN THE PROFIT IN RECORD ED TRANSACTION. THE LD. COUNSEL HAS SUBMITTED THAT PROFIT ON ACCOUNT OF NON-PAYMENT OF INDIRECT TAXES HAS BEEN PASSED ON TO THE CUSTOMERS. WE TEN D TO AGREE WITH THE LD. COUNSEL THAT THE BENEFIT IF ANY BY WAY OF NO N-PAYMENT OF INDIRECT TAXES WOULD HAVE BEEN PASSED ON TO THE CLIENTS AS SUC H LIABILITY IS ALSO PASSED IT(SS)A NO. 78(DEL)/05 16 ON TO THEM IN THE REGULAR BUSINESS. THUS THE AVERAGE OF GROSS PROFIT RATIO IN THE RECORDED BUSINESS OF VARIOUS YEAR S IN THE BLOCK PERIOD GIVES A FAIR IDEA OF THE GROSS PROFIT RATIO EAR NED BY THE ASSESSEE EVEN IN UNRECORDED BUSINESS. THEREFORE WE ARE OF THE VIEW THAT THE LD. CIT(APPEALS) WAS RIGHT IN DIRECTING THE AO TO ADOPT THE GROSS PROFIT AT RS. 21 90 685/- AGAINST RS. 5 23 46 173/- ADOPTED BY HIM. 5.4 THE RESULT OF AFORESAID DISCUSSION IS THAT GROUND NOS. 1 AND 2 ARE DISMISSED. 6. COMING TO GROUND NO. 3 REGARDING COMPUTATION OF UNDISCLOSED INVESTMENT AT RS. 4 50 17 616/- THE CASE OF TH E LD. DR IS THAT THE SAME WAS WORKED OUT ON THE BASIS OF SEIZED DOCUMENTS. THE ASSESSEE DID NOT MAINTAIN DAY-TO-DAY STOCK BOOK AND THEREFORE IT CANNOT BE SAID THAT UNRECORDED SALES WERE OUT OF ACCOUNTED STOCK WHICH WAS LATER ON REPLENISHED FROM SALE PROCEEDS OF UNRECORDED SA LES. THERE IS SOME CONTROVERSY ABOUT COMPUTATION OF THE UNDISCLOSED INVESTMENT AT ABOUT RS. 4.50 CRORE. HOWEVER THE LD. DR SUBMITTED THAT IT HAS BEEN WORKED OUT ON THE BASIS OF LETTERS OF THE ASSESSEE DATED 13.10.2003 AND 28.10.2003. THE CASE OF THE LD. COUNSEL IS THAT SINCE THE SALES WERE MADE OUT OF IT(SS)A NO. 78(DEL)/05 17 RECORDED STOCK THERE IS NO QUESTION OF COMPUTI NG UNACCOUNTED INVESTMENT MORE SO WHEN NO EVIDENCE WAS FOUND IN THE COURSE OF SEARCH REGARDING SUCH INVESTMENT. IN THIS CONNECTION I T WAS STRESSED THAT WHILE THERE IS EVIDENCE OF UNACCOUNTED PURCHASES THE RE IS NO EVIDENCE ABOUT UNACCOUNTED INVESTMENT. IN THIS CONNECTION RE LIANCE WAS PLACED ON THE DECISION OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF ASHOK KUMAR RASTOGI VS. CIT (1991) 100 CTR 204. THE HONB LE COURT MENTIONED THAT ADDITION OF RS. 50 000/- WAS MADE BY WAY OF UNEXPLAINED INVESTMENT BUT THERE WAS NO DOCUMENT TO PROVE T HE SAME. THE ADDITION WAS MADE MERELY ON THE BASIS THAT THERE WERE S ALE TRANSACTIONS OF RS. 4 24 396/-. THE COURT REFERRED TO THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF DHAKESHWARI COTTON MILLS LTD. VS . CIT (1954) 26 ITR 775 AND MENTIONED THAT WHILE THE AO IS NOT BOUND B Y TECHNICAL RULES OF EVIDENCE HE CANNOT MAKE ASSESSMENT ON A PURE GUESS WORK WITHOUT ANY REFERENCE TO EVIDENCE ON RECORD. NO EVIDENCE WAS REFERRED TO OR RELIED UPON FOR BRINGING TO TAX THE UNEXPLAINED INVE STMENT AND THE ONLY CIRCUMSTANCE WAS THE SALE. FROM THE ESTIMAT ED SALES IT CANNOT BE NECESSARILY INFERRED THAT THE ASSESSEE INVESTE D RS 50 000/- IN THE UNEXPLAINED BUSINESS. THUS THE ADDITION WAS DELETED. FURTHER RELIANCE WAS PLACED ON THE DECISION OF HONBLE GUJARA T HIGH COURT IN THE CASE IT(SS)A NO. 78(DEL)/05 18 OF CIT VS. PRESIDENT INDUSTRIES (2002) 258 ITR 654. IN THAT CASE SURVEY WAS CONDUCTED AT THE PREMISES OF THE ASSESSEE IN WHICH IT WAS FOUND THAT SALES AMOUNTING TO RS. 29 01 300/- WERE NOT RECORDED IN THE BOOKS OF ACCOUNT. THE ADDITION ON ACCOUNT OF SALES WAS MADE WHICH WAS CONFIRMED BY THE CIT(APPEALS). THE TRIBUNAL FOUND THAT THE ENTIRE SALE COULD NOT HAVE BEEN ADDED AND ONLY PROFITS ON SALES COULD BE ADDED TO THE TOTAL INCOME. THEREFORE SUCH PROFIT WAS ESTIMATED. ON THE APPEAL OF THE REVENUE THE HONBLE COURT HELD T HAT IT CANNOT BE AN ARGUMENT FROM THE REVENUE THAT THE AMOUNT OF S ALES WAS THE PROFIT EARNED BY THE ASSESSEE. THE COST OF ACQUI SITION HAS TO BE REDUCED THEREFROM TO ARRIVE AT THE PROFIT. THERE W AS ALSO NO FINDING NOR ANY MATERIAL TO SHOW THAT INVESTMENT HAD BEEN SUPPRESS ED. THEREFORE IT WAS HELD THAT ONLY PROFIT COULD BE BROUGHT TO TAX. ON CONSIDERING THE RIVAL SUBMISSIONS WE ARE OF THE VIEW THAT THE UNDISCL OSED INCOME HAS TO BE WORKED OUT ONLY IF SOME EVIDENCE IN REGARD THE RETO IS FOUND IN THE COURSE OF SEARCH. EVEN IF THE FACT OF DISCOVERY OF UNRECORDED SALES IS TAKEN TO MEAN THAT THERE WERE UNRECORDED PURCHASES THE EVIDENCE IN REGARD TO WHICH WAS ALSO FOUND THE UNACCOUNTED INVESTMENT COULD BE COMPUTED ONLY IF THERE WAS SOME MATERIAL TO THAT EFFECT AS HELD IN THE CASE OF ASHOK KUMAR RASTOGI AND PRESIDENT INDUSTRIES (SUP RA). IT MAY BE IT(SS)A NO. 78(DEL)/05 19 MENTIONED HERE THAT PROOF OF UNACCOUNTED PURCHA SES DOES NOT IPSO FACTO LEAD TO CONCLUSION OF UNACCOUNTED INVESTMENT IN ABSENCE OF SOME EVIDENCE TO THAT EFFECT. THIS IS BECAUSE THE P URCHASE CONSIDERATION COULD BE PAID OUT OF UNACCOUNTED SALE PROCEEDS. THER EFORE WE ARE OF THE VIEW THAT IN ABSENCE OF ANY MATERIAL ON RECORD REGAR DING UNACCOUNTED INVESTMENT NO INCOME COULD BE BROUGHT TO TAX O N THIS GROUND. 6.1 COMING TO THE ALTERNATIVE SUBMISSION THAT AT LEAST PEAK OF UNACCOUNTED INVESTMENT WORKED OUT ON THE BASIS O F UNRECORDED PURCHASES SHOULD HAVE BEEN BROUGHT TO TAX WE HAVE ONLY T O MENTION THAT THE SAME COULD BE TAXED ONLY IF THERE IS SOME EVIDENCE O N RECORD REGARDING UNDISCLOSED INCOME IN THE SEIZED MATERIAL OR OT HERWISE. THERE IS NO SUCH EVIDENCE AND THEREFORE IN VIEW OF ARGUME NTS IN PARAGRAPH 6 (SUPRA) THE STAND OF THE LEARNED DR CANNOT B E ACCEPTED. NOTWITHSTANDING THIS ARGUMENT THE WORKING OF PE AK SUBMITTED BY THE LD. DR AT RS. 17 03 546/- IS LOWER THAN THE UNACCOU NTED INCOME BROUGHT TO TAX BY THE LD. CIT(APPEALS) AT RS. 21 90 685/-. TH E LD. DR HAS NOT BEEN ABLE TO SHOW THAT THE PEAK EXCEEDED THE UNACCOU NTED PROFIT IN ANY YEAR. THEREFORE IT IS HELD THAT THE ASSESSEE WAS IN POSSESSION OF MONEY BY IT(SS)A NO. 78(DEL)/05 20 WAY OF PROFIT ON UNRECORDED SALES WHICH COULD H AVE BEEN USED FOR FUNDING THE PURCHASES. 6.2 IN VIEW OF AFORESAID DISCUSSION GROUND NO. 3 IS ALSO DISMISSED. 7. IN THE RESULT THE APPEAL IS DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 16 APRIL 2010. SD/- SD/- (A.D. JAIN) (K.G.BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE OF ORDER: 16TH APRIL 2010. SP SATIA COPY OF THE ORDER FORWARDED TO:- 1. SHRI AJAY KAPOOR ROOP NAGAR DELHI. 2. ACIT CENTRAL CIRCLE 13 NEW DELHI. 3. CIT(A) 4. CIT 5. THE DR ITAT NEW DELHI. ASSI STANT REGISTRAR.