Poornima Fire Works , Jaipur vs Department Of Income Tax

Jh vkj-ih-rksykuh] U;kf;d lnL; ,oa Jh Vh-vkj-ehuk] ys[kk lnL; ds le{k BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM

vk;dj vihy la-@ITA No. 316/JP/2012 fu/kZkj.k o"kZ@Assessment Year : 2009-10

The A.C.I.T. cuke M/s Poornima Fire Works, Central circle-1, Vs. 2-A, 138, Shiv Shakti Colony, Jaipur. Shashtri Nagar, Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAEFP 4879 L vihykFkhZ@Appellant izR;FkhZ@Respondent

izR;k{ksi.k@C.O. No. 35/JP/2012 (Arising out of vk;dj vihy la-@ITA No. 316/JP/2012) fu/kZkj.k o"kZ@Assessment Year : 2009-10

M/s Poornima Fire Works, cuke The A.C.I.T. 2-A, 138, Shiv Shakti Colony, Vs. Central circle-1, Shashtri Nagar, Jaipur. Jaipur.

LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAEFP 4879 L izR;k{ksid@Objector izR;FkhZ@Respondent

jktLo dh vksj ls@ Revenue by : Shri Ajay Malik (Addl.CIT) fu/kZkfjrh dh vksj ls@ Assessee by : Shri P.C. Parwal (C.A.)

lquokbZ dh rkjh[k@ Date of Hearing : 27/11/2014 ?kks"k.kk dh rkjh[k@ Date of Pronouncement : 27/02/2015 2 ITA 316/JP/2012 & C.O.35/JP/2012_ ACIT Vs. M/s Purnima Fire Works

vkns'k@ ORDER

PER: T.R. MEENA, A.M.

This is an Revenue's appeal for A.Y. 2009-10 and C.O. of the

assessee for A.Y. 2009-10 filed against the order dated 30/01/2012 by

the learned CIT(A), Central, Jaipur. The effective grounds of the appeal

as well as C.O. are as under:-

Grounds of revenue's appeal being ITA No. 316/JP/2012 (A.Y. 2009-10)

"1. Whether on the facts and circumstances of the case the CIT(A) (Central), Jaipur has erred in law as well as facts in reducing GP rate from 18.05% which was applied by the A.O. by invoking the provisions of section 145(3) of the IT Act on the basis of comparable case of 16% without any basis despite the fact that the CIT(A) has upheld applicability of section 145(3).

2. Whether on the facts and circumstances of the case the CIT(A) (Central), Jaipur has erred in law as well as on facts in deleting the addition of Rs. 19,50,059/-

made by the A.O. on account of unexplained cash on the basis of admission of the partner of the assessee firm u/s 132(4) of the IT Act on the ground that the assessee has declared additional income of Rs. 42 lacs during the year under consideration which included the amount of unexplained cash.

3 ITA 316/JP/2012 & C.O.35/JP/2012_ ACIT Vs. M/s Purnima Fire Works

3. Whether on the facts and circumstances of the case the CIT(A) (Central), Jaipur has erred in law as well as on facts in deleting the addition of Rs. 12,20,999/- out of the total addition of Rs. 15,01,237/- made by the A.O. on account of unexplained stock found at the time of search/survey despite the fact that the CIT(A) has partly accepted the facts mentioned by the A.O. in the remand report."

Grounds of assessee's C.O. No. 35/JP/2012 (A.Y. 2009-10)

"1. The learned Commissioner of Income Tax (Appeals) has erred on facts and in law in confirming trading addition of Rs. 2,29,402/- by applying GP rate 16%.

2. The learned Commissioner of Income Tax (Appeals) has erred on facts and in law in computing the alleged unexplained investment in stock at Rs. 4,63,345/- and thereby confirming addition of Rs. 2,80,238/- on account of unexplained investment in stock after allowing set off of trading addition."

2. First ground of revenue's appeal and assessee's C.O. are against

reducing the G.P. rate from 18.5% to 16% by the learned CIT(A) and

confirming the G.P. rate @ 16%.

2.1 The assessee is in trading of fireworks. There was a search and

seizure operation U/s 132(1) of the Income Tax Act, 1961 (hereinafter

referred to as the Act) carried out on 22/10/2008 at the business and

residential premises of the assessee's group. During the course of 4 ITA 316/JP/2012 & C.O.35/JP/2012_ ACIT Vs. M/s Purnima Fire Works

search and seizure operation, incriminating documents/loose papers

were found and seized. The assessee filed its return of income on

30/09/2009 declaring income of Rs. 46,03,850/-. The case was

scrutinized U/s 143(3) of the Act by the Assessing Officer. The assessee

is a partnership firm. Books of account were produced during the

course of assessment proceedings by the assessee. On verification of

books of account, the assessee had declared gross profit at Rs.

3,23,516/- on total turnover of Rs. 21,57,817/- giving a G.P. rate of

14.99%. Apart from this, the assessee declared Rs. 9,16,182/- on total

turnover of Rs. 70,24,060/- giving G.P. rate of 13.4%, which has not

been entered into regular books of account. It is observed by the

Assessing Officer that the assessee has not fully vouched purchase and

sale and also not maintained day to day stock register. The assessee

made purchase outside the state and purchased bill include charity and

Mahamai @ .30%, which is not allowable as per law. During the course

of search, as per schedule mentioned on page No. 2 of the assessment

order, total unaccounted purchase was detected at Rs. 71,42,709/- and

unaccounted sales of Rs. 32,08,310/-. Total stock of Rs. 79,04,220/-

was found during the course of search proceedings at various business

premises. As per statement of Shri Madan Mohan Gupta, the main key 5 ITA 316/JP/2012 & C.O.35/JP/2012_ ACIT Vs. M/s Purnima Fire Works

person of the assessee group has admitted that no proper books of

account had been maintained by the assessee group, therefore, it was

not possible to verify the stock found at various premises. Shri Madan

Mohan Gupta has stated in his statement dated 21/10/2008 in reply to

question No. 21, which is reproduced as under:-

Ikz'u 21 vkt fnukad 22-10-08 dks lpZ dh dk;Zokgh ds nkSjku tks yqt isilZ Annexure bR;kfn ik;s x;s vkSj tCr fd;s tk jgs gSa muds vUnj dPps purchase & sale dh dkxtkr 'kkfey gS A vkids Books of A/c Hkh iwjh rjg cus gq, ugh gSa vkSj bl dkj.k LVkd dk lR;kiu Hkh vki ugh djok ik jgsa gSa bu lHkh dfe;ksa ds ckjs vki dk D;k dguk gSa \ mRrj eSa ;g Lohdkj djrk gwWa fd gekjs iVk[ksa ds business esa dkQh gn rd transaction cgh [kkrksa ds ckgj jgrs gSa gekjs sale and purchases Hkh cash esa gksrs gSa A ftudk fooj.k cgh[kkrksa esa ntZ ugh gksrk ;gh dkj.k fd cgh[kkrs izfrfnu update ugha fd;s tkrs gS vkSj blfy, gekjs business premises ij ik;s x;s stock dk lR;kiu djokuk lEHko ugh gSa bu lHkh dfe;ksa dks eSa igys Hkh Lohdkj dj pqdk gwa fiNys iz'uksa ds mRrj esa eSua s crk;k Fkk fd esjh v?kksf"kr vk; esa ls eSaus 41 yk[k :I;s yksxksa dks m/kkj ns j[ks gSa blds vykok 15 yk[k :- agreement ds vuqlkj ukbZ fd FkMh okyh tehu vykok 20 yk[k ds djhc uxnh ik;s x;s esjs ?kj ij ik;k x;k gS mls eSa viuh v?kksf"kr [kkrksa esa vftZr vk; ds :i esa Lohdkj dj pqdk gwWa A blds vfrfjDr tks loose paper bR;kfn esjs ?kj ,oa business LFkkuksa ls ik;s x;s gSa muesa v?kksf"kr vk; vkSj mlls vftZr fuos'k ds :i esa eSa LosPNk ls viuh v?kksf"kr vk; lefiZr djuk pkgrk gwWa A eSa ;g Hkh Li"V djuk

6 ITA 316/JP/2012 & C.O.35/JP/2012_ ACIT Vs. M/s Purnima Fire Works

pkgrk gq fd gekjs business izfr"Bkuksa esa djhc 10 ls 12 yk[kksa dk stock v?kksf"kr vk; ls vftZr fuos'k ds :i esa fo/keku gSa A bu lHkh djxtkr stock bR;kfn ds :Ik esa eSa vius vuqeku l 30 yk[k :I;s Hkh v?kksf"kr vk; bl isVs vk;dj ds fy, lefiZr djrk gwWa A ftlesa v?kksf"kr stock] sale, purchases ds dPps dkxtkr ,oa esjs ?kj ,oa business izfr"Bkuksa ls ik;s x;s dkxtkr o nLrkost esa yh xbZ transaction 'kkfey gSa A During the course of search operation, it is also found that the books of the assessee are incomplete as per the statement of Shri Pankaj Agarwal in reply to Q. No. 8 recorded U/s 131 of the I.T. Act, 1961 on 05/01/2008 which is reproduced below:

iz'u8- eSa vkidks vkids business premises 295-296 The Rajasthan Shora Supply Co., Hawa Mahal Bazar, Jaipur ls impound dh x;h laptop ftldk data ,d vyx hard disk esa copy fd;k gqvk gSa bl hard disk dks [kksy dj fn[kk jgk gwWa A d`I;k crk;s fd blesa D;k D;k gSa \

mRrj bl hard disk esa gekjh firm vkSj concerns dk tally&9 vkSj tally&7-2 format esa data j[kk gSa A tally 7-2 esa Hkh cgh data gS tks fd tally 9 esa gSa A cl mls upgrade dj fn;k x;k gSa A tally 9 esa Poornima fireworks dh F.Y. 2005&06] 2006&07 dh rks iwjh complete books gS vkSj F.Y. 2007&08 o 2008&09 dh incomplete books gSa A

7 ITA 316/JP/2012 & C.O.35/JP/2012_ ACIT Vs. M/s Purnima Fire Works

Shri Madan Mohan Gupta and Shri Pankaj Agarwal both admitted that the books of accounts wee not completed and assessee firm indulged into transactions which are not entered in the regular books of account.

It has been concluded by the Assessing Officer that opening stock and

closing stock is not verifiable. During the course of assessment

proceedings to verify the genuineness of the purchases some of the

parties from whom the assessee has made purchases notices U/s

133(6) of IT Act,. 1961 were issued to the purchasers parties. Out of

these notices issues, following notices were returned back by the postal

authority unserved giving remark "Not known" or "No such address"

etc.

1. M/s Arjun Fireworks, Sivakashi.

2. M/s Shri Divan Foreworks, Thiruthangal, Sivkashi

3. M/s Rajavel Fireworks factor, Sivkashi.

4. M/s Jaya Latchana Fireworks, Sivkashi.

5. M/s Durgaiamman Fireworks, Vishwanathan, Sivkashi.

6. M/s Anitha Sparklers Fireworks, Sivkashi

7. M/s Gokila Fireworks, Sivkashi.

As the notices issued to the purchase parties returned unserved

by the postal authority, therefore, the assessee was asked vide order 8 ITA 316/JP/2012 & C.O.35/JP/2012_ ACIT Vs. M/s Purnima Fire Works

sheet dated 26/11/2010 to verify all the above parties from whom the

assessee has made purchases with supporting evidences. The assessee

was required to verify purchase made from all the above parties but

assessee has been unable to verify the purchase with supporting

evidences to substantiate the genuineness of purchases. The learned

Assessing Officer also held that the onus to prove the purchases

genuine is on the assessee by relying on the various decisions

considered by him, which is as under:-

(i) M/s Indian Woolen Carpet Factory Vs. ITAT & Others (2002) 178 CTR 420 and M.P. High Court in the case of VISP (P) Ltd. Vs. CIT & Anr. 186 CTR 718.

(ii) Awadesh Pratap Singh Abdul Rehman & Bros. Vs. CIT (1994) 76 Taxman 106 (All.).

(iii) S.N. Namasivayam Chettiar Vs. CIT (1960) 38 ITR 579.

(iv) M/s Kachwala Gems Vs. JCIT (2007) 288 ITR 10.

On the basis of defects found, as mentioned above, the learned

Assessing Officer rejected the book result U/s 145(3) of the Act. It is

further held that opening and closing balance are not verifiable, there

is no sanctity of gross profit shown by the assessee. The assessee

business transaction on the basis of regular books as well as

incriminating documents can be summarized as under:-

9 ITA 316/JP/2012 & C.O.35/JP/2012_ ACIT Vs. M/s Purnima Fire Works

A.Y. As per regular books of account Unaccounted sales Sales G.P. Ratio Sales G.P. Ratio 2003-04 11,89,909/- 11.87% 2004-05 18,29,613/- 13.23% 2005-06 23,09,098/- 11.04% 2006-07 26,27,528/- 12.26% 15,58,786/- 12.26% 2007-08 15,93,180/- 12.98% 49,40,182/- 12.98% 2008-09 20,56,885/- 13.00% 70,88,444/- 13.04% 2009-10 21,57,817/- 14.99% 70,24,060/- 13.04%

The Assessing Officer gave reasonable opportunity of being heard as to

why not G.P. @ 18.25% should not be applied after rejection of books

of account. The assessee has not filed any proper reply. Further as per

comparable case learned Assessing Officer applied comparable case of

M/s Rajan Fireworks and Emporium Prop. M/s Sunder Dass Hasani HUF,

who is wholesalers/retailers of fireworks, who has shown G.P. rate

ranging G.P. from 17% to 18%. Accordingly, he applied G.P. rate @

18.5% on total turnover shown in the regular books of account at Rs.

21,57,817/- and unrecorded turnover of Rs. 70,24,060/-. Therefore, he

concluded gross profit at Rs. 16,98,648/- as against Rs. 2,23,516/-

declared by the assessee in the regular books of account and Rs.

9,16,182/- out of books. The trading addition of Rs. 4,58,950/- was

made by the Assessing Officer.

10 ITA 316/JP/2012 & C.O.35/JP/2012_ ACIT Vs. M/s Purnima Fire Works

3. Being aggrieved by the order of the Assessing Officer, the

assessee carried the matter before the learned CIT(A), who had allowed

the appeal partly by observing as under:-

"2.3 I have considered the submission of learned A.R. and have perused the material on record. Undisputedly, on going through the facts, provisions of section 145(3) are clearly applicable. This has also not been disputed by the A.R. Coming to the application of G.P. rate, it is quite evident that G.P. rate shown by the appellant for different year is certainly quite less than the G.P. rate of 17.02% to 18% declared by M/s Rajan Fire Works @ Emporium. The appellant as well as this firm both are wholesaler. It may be possible that M/s Rajan Fire Works & Emporium may be doing some manufacturing of its own, part from main business of wholesale trading. Considering this position, it will be appropriate and reasonable to apply the G.P. rate of 16% in the case of appellant on recorded (Rs. 21,57,817/-) as well as unrecorded sales (Rs. 70,24,060/-) both, giving the gross profit of Rs. 14,69,100/- as against Rs. 3,23,516/- declared by appellant in regular books and Rs. 9,16,182/- out of books, leading to sustaining the addition of Rs. 2,2,9,402/-. Thus, relief of Rs. 2,29,547/- is granted."

4. Now the revenue as well as the assessee are before us.

11 ITA 316/JP/2012 & C.O.35/JP/2012_ ACIT Vs. M/s Purnima Fire Works

5. The learned CIT D.R. vehemently supported the order of the

learned Assessing Officer.

6. At the outset, the learned counsel for the assessee has submitted

that there is no dispute as to the fact that the provisions of Section

145(3) of the Act is applicable. The question is that what should be the

gross profit rate and whether any addition is required when assessee

had already declared undisclosed income of Rs. 52.12 lacs. The

Assessing Officer applied G.P. rate @ 18.5% by referring to the case of

M/s Rajan Fireworks and Emporium, which is not justified for the

following reasons.

(i) The A.O. has not provided the financial data of M/s Rajan Fire Works and Emporium. In assessment proceedings, the result of this firm was not confronted to the assessee.

Otherwise also this firm is not comparable with the assessee for the following reasons:

- Rajan Fire Works are Emporium is a manufacturer cum wholesaler in this business while assessee is wholesaler only.

- Rajan Fire Works and Emporium is well established entity in this business since 35 years while assessee started its business from 1998.

- The size of business of this firm is much larger than that of assessee.

12 ITA 316/JP/2012 & C.O.35/JP/2012_ ACIT Vs. M/s Purnima Fire Works

(ii) The comparative position of the gross profit rate declared by the assessee as per books of account are as under:-

A.Y. Sales Gross G.P. Profit Ratio 2009-10 21,57,817/- 3,23,516/- 14.99% 2008-09 20,56,885/- 2,67,395/- 13.00% 2007-08 15,93,180/- 2,06,850/- 12.98% 2006-07 26,27,528/- 3,22,211/- 12.26% 2005-06 23,09,098/- 2,52,912/- 11.04% 2004-05 18,29,613/- 2,41,985/- 13.23% 2003-04 11,89,909/- 1,41,239/- 11.87%

From the above table, it can be noted that the G.P. rate declared by the assessee is better and comparable to the earlier years. In the present case since the assessee has declared better results, the G.P. rate declared should be accepted.

The assessee has declared undisclosed miscellaneous income of Rs. 42 lacs, apart from undisclosed interest income and income from unaccounted business of Rs. 10,12,675/-. Once this is assessed, no separate trading addition of Rs. 4,50,8950/- is required as miscellaneous income offered is much more than the trading addition made by the A.O. In view of above the trading addition made by the A.O. is uncalled for and be deleted.

7. We have heard the rival contentions of both the parties and

perused the material available on the record. It is undisputed fact that 13 ITA 316/JP/2012 & C.O.35/JP/2012_ ACIT Vs. M/s Purnima Fire Works

the assessee has been indulging in unaccounted sales/purchases. The

major expenses on account of trading of fireworks have already been

debited by the assessee in P&L account except unaccounted purchase.

Therefore, in unaccounted purchase resultant to unaccounted sales, the

assessee has more profitability. The learned counsel has not

controverted the finding given by the learned CIT(A). In case of Rajan

fireworks and Emporium, the G.P. shown by it @ 17% to 18%, who is

dealing in wholesale/retail fireworks. Therefore, the learned CIT(A) has

reasonable to apply 16% G.P. on recorded sales as well as unrecorded

sales. Thus, we confirm the order of the learned CIT(A). Therefore, the

revenue's appeal and assessee's C.O. on this issue are dismissed.

8. The second ground of revenue's appeal is against deleting the

addition of Rs. 19,50,059/- on account of unexplained cash on the basis

of admission of partner of the assessee firm U/s 132(4) of the Act on

the ground that the assessee had declared additional income of Rs. 42

lacs during the year under consideration. The Assessing Officer

observed that during the course of search proceeding, as per physical

inventory of cash, the cash of Rs. 20,64,200/- was found, out of this,

Rs. 20 lacs was seized by the authorized officer. As per books

maintained by the assessee on the date of search, the assessee balance 14 ITA 316/JP/2012 & C.O.35/JP/2012_ ACIT Vs. M/s Purnima Fire Works

was Rs. 1,14,141/-, therefore, excess cash of Rs. 19,50,059/- was

found. Shri Madan Mohan Gupta, key person of the assessee group had

stated in reply to question No. 20 in his statement that it is unrecorded

income of the family of the assessee. The statement is reproduced

below:

iz- 20 vkt fnukad 22-10-08 dks vkids fuokl LFkku ij lpZ dh dk;Zokgh ds nkSjku djhc 20 yk[k :Ik;s uxnh ik;s x;sA blds ckjsa esa vkidk D;k dguk gSa Li'V djsa ?

m- mijksDr jde tks feyh gS og esjh v?kksf'kr vk; grievance tks eSusa Books of Account tks esa n'kZk ugha j[kh gS ;g esjh vk; O;olk; ls lEcfU/kr gS tks n'kkZ;h ugha x;h gSA

The Assessing Officer gave reasonable opportunity of being heard on

this issue, which has been availed by the assessee vide letter dated

17/12/2010. It has been submitted before the Assessing Officer that on

verification of the books of account found from the period 15/10/2008

to 22/10/2008, the assessee has added unverifiable sales and

purchases of which no supporting vouchers had been furnished. The

Assessing Officer held that the cash availability on date of search as

submitted by the assessee was Rs. 20,64,200/- has no basis. The

15 ITA 316/JP/2012 & C.O.35/JP/2012_ ACIT Vs. M/s Purnima Fire Works

assessee failed to furnish any satisfactory explanation regarding cash

found during the course of search. Therefore, he treated excess cash of

Rs. 20,50,059/- as income from undisclosed source and added back to

the total income of the assessee.

9. Being aggrieved by the order of the Assessing Officer, the

assessee carried the matter before the learned CIT(A), who had allowed

the appeal by observing that the learned Assessing Officer has not

accepted the books of account prepared after the date of search by

including the unaccounted sales and purchases and also considering

that in the statement, the appellant had admitted the cash to be

unaccounted. On the basis of unaccounted purchases/sales, the

availability of cash has been explained by the assessee before the

Assessing Officer, which has been rejected by him without appreciating

the facts. It is also argued by the AR before the learned CIT(A) that

undisclosed profit from undisclosed sale recorded in seized material

totaling to Rs. 26,73,213/- spread over in four years. The additional

income has further been offered for taxation to explain the acquisition

of unaccounted assets. Such income is Rs. 42 lacs for A.Y. 2009-10, Rs.

3.5 lacs for A.Y. 2008-09 and Rs. 6.5 lacs for A.Y. 2007-08. Thus, total

additional income offered by the assessee was Rs. 52 lacs included the 16 ITA 316/JP/2012 & C.O.35/JP/2012_ ACIT Vs. M/s Purnima Fire Works

undisclosed profit as well as interest on loan additionally offered, total

unaccounted income offered, came to Rs. 79,69,706/- whereas

unaccounted assets found to be noticed during the course of search,

inter alia, includes cash loan of Rs. 35 lacs, unexplained cash of Rs.

19,50,059/- and unaccounted investment in land at Rs. 15 lacs. The

learned Assessing Officer had accepted the explanation partly as much

as that cash loan of Rs. 35 lacs and unexplained investment in land was

not added whereas unexplained cash was added.

10. Now the Revenue is in appeal before us.

11. The learned CIT DR vehemently supported the order of the

Assessing Officer.

12. At the outset, the learned A.R. for the assessee has submitted as

under:-

"The AO observed that Sh. Madan Mohan Gupta in his statement in reply to Q.20 admitted it to be undisclosed income. The explanation of the assessee that the cash found is out of undisclosed sales and purchase is without supporting evidence. He therefore made addition of Rs.19,50,059/- by treating the same as income from undisclosed sources.

The CIT(A) at para 3.3, pg 8 to 10 of his order considering the fact that assessee has offered undisclosed profit of 17 ITA 316/JP/2012 & C.O.35/JP/2012_ ACIT Vs. M/s Purnima Fire Works

Rs.26,73,213/- and additional income of Rs.52,00,000/- between assessment years 2006-07 to 2009-10 and also considering the fact that AO himself has allowed the set off undisclosed income against undisclosed investment made in loan/ land, allowed the set off the undisclosed cash found against the undisclosed income offered for tax and thus deleted the addition.

There is no dispute as to the fact that assessee has offered substantial undisclosed income between AY 2007- 08 to 2009-10 which is more than the undisclosed investment made by the assessee and the unrecorded cash found in search. The position of income so declared and the investment found there against is as under:-

Particulars Amount Undisclosed income declared Undisclosed income on unaccounted turnover 2659901 between AY 2006-07 to 2009-10 Miscellaneous income between AY 2007-08 to 5200000 2009-10 Total undisclosed income declared 7859901

Undisclosed investment between AY 2006-07 to 2009-10 Loans 35,00,000/-

Cash 19,50,059/- Investment in Land 15,00,000/- Total Undisclosed investment 69,50,059/- Excess of undisclosed income over undisclosed 9,09,842/- investment 18 ITA 316/JP/2012 & C.O.35/JP/2012_ ACIT Vs. M/s Purnima Fire Works

From the above, it is evident that cash found in search is covered by the undisclosed income offered by the assessee in the return. CIT(A) has therefore rightly deleted the addition. The ground of the department be therefore be dismissed.

13. We have heard the rival contentions of both the parties and

perused the material available on the record. The assessee has already

disclosed excess undisclosed income over undisclosed investment in

the return itself. It is a fact that the assessee has admitted additional

income on account of cash found during the course of search. The

statement recorded U/s 133A of the Act has no evidentiary value as

held by the Hon'ble Supreme Court but the statement recorded U/s

132(4) has evidentiary value, which is also rebuttable presumption as

held by the Hon'ble Apex Court in various cases. It is fact that Shri

Madan Mohan Gupta in question to answer No. 21 in statement U/s

133A dated 22/10/2008 had admitted that the cash of Rs. 20 lacs was

found at residence, had disclosed additional income. The learned AR for

the assessee's argument that the excess cash found during the course

of search at residence was result of unaccounted sale made in

preceding years. The learned CIT(A) also analysed the whole facts with

reference to cash and unaccounted investment found and has given 19 ITA 316/JP/2012 & C.O.35/JP/2012_ ACIT Vs. M/s Purnima Fire Works

detailed findings on this issue, which has not been controverted by the

learned CIT DR. Therefore, we confirm the order of the learned CIT(A).

14. In the result, the appeal of the revenue on this ground is

dismissed.

15. The third ground of the revenue's appeal and second ground of

the assessee's C.O. are against deleting the addition of Rs. 12,20,999/-

out of total addition of Rs. 15,01,237 on account of unexplained stock

found and confirming addition of Rs. 2,80,238/- after allowing set off

trading addition. The Assessing Officer observed that during the course

of search proceedings, stock amounting to Rs. 79,04,220/- was found.

The details of stock found is as under:-

S. No. Premises Value of Stock 1 M/s Poornima Fire Works Rs. 11,95,196/- 291-292, Hawa Mahal Bazar, Jaipur. 2. M/s Rajasthan shora Supply Company Rs. 2,31,485/- 295-196, Khawas Ji Ka Rasta, Hawa Mahal Bazar, Jaipur. 3. M/s Poornima Fire Works & M/s Rajasthan 60,18,614/- shora Supply Company 865, Khawas Ji Ka Rasta, Hawa Mahal Bazar, Jaipur. 4. Ware House at Vill. Roopa Ki Nangal, Rs. 2,67,395/- Ram Garh Road, Jaipur (Godown No. 3) 5. Ware House at Vill. Roopa Ki Nangal, Rs. 1,91,530/- Ram Garh Road, Jaipur (Godown No. 4) Total Stock Rs. 79,04,220/- 20 ITA 316/JP/2012 & C.O.35/JP/2012_ ACIT Vs. M/s Purnima Fire Works

The Assessing Officer gave reasonable opportunity of being heard on

this issue to verify the stock found during the course of search, which

was replied by it vide letter dated 17/12/2010. The assessee submitted

before the Assessing Officer during the assessment proceedings that

valuation made by the authorized officer had not valued the closing

stock on accounting principle i.e. stock valued at lower cost or net

realizable value and not at MRP, it worked out total stock as per its

valuation at Rs. 17,52,601/- and claimed that there is no difference in

physical stock found during the course of search and stock declared as

per book. It also submitted that there was a discrepancy in chart of

stock taking at shop No. 865, Hawa Mahal Bazar, Jaipur and calculated

the difference in the stock at Rs. 18,30,610/-. The learned Assessing

Officer fairly accepted the discrepancy pointed out by the assessee

during the course of assessment proceedings. There was a totaling

mistake in the summary sheet of stock taken by the authorized officer

at Rs. 20,81,172/- which has also been accepted by the Assessing

Officer. Finally, he calculated the physical stock on date of search at Rs.

39,92,438/- after reducing the G.P. @ 18.5% from the total stock found

in physical, the cost of stock calculated at Rs. 32,53,880/- as per books

of account. After considering the various purchases, not recofrded in 21 ITA 316/JP/2012 & C.O.35/JP/2012_ ACIT Vs. M/s Purnima Fire Works

the regular books of account, the stock was at Rs. 17,52,601/-, thus

excess stock of Rs. 15,01,237/- was found at the time of search, which

was added in the income of the assessee as unrecorded investment in

stock and treated the income from undisclosed income.

16. Being aggrieved by the order of the Assessing Officer, the

assessee carried the matter before the learned CIT(A), who had partly

allowed the appeal by giving detailed findings on page Nos. 17, 18 and

19 and confirmed the net addition under this head at Rs. 2,80,238/-.

17. Now the Revenue is in appeal and assessee is in C.O. before us.

18. The learned CIT DR vehemently supported the order of the

Assessing Officer whereas the learned AR for the assessee challenged

the addition confirmed by the learned CIT(A) on the basis of not

allowing the set off trading addition. He further submitted as under:-

i. There is no dispute as to the fact that the physical stock found in survey is valued at MRP. Therefore, to arrive at the cost price, deduction is required to be given on account of (a) normal discount from MRP and (b) deduction for G.P. Rate. The AO has allowed deduction for g.p. rate but he has not allowed deduction for discount from MRP rate.

ii It is a common practice in this trade that discount of at least 50% is allowed on the MRP. This fact is evident from 22 ITA 316/JP/2012 & C.O.35/JP/2012_ ACIT Vs. M/s Purnima Fire Works

the advertisement cutting published in news paper and banners/pamphlets where it is stated that the fireworks are available at 50% discount to customers. This discount is more in the assessee's case as most of the sales are to shopkeepers. Therefore, before CIT(A), assessee prepared a comparative statement of MRP rate and actual cost. This statement is placed at. From this statement, it is clear that the difference in the MRP and cost price is ranging from 35% to 95%. Therefore, to arrive at the cost price, assessee claimed that a reasonable deduction of at least 50% be allowed from the physical stock valued on MRP.

iii. CIT(A) called for a remand report on this claim of the assessee. The AO in its report dated 26.12.2011 at Para 6 admitted that assessee deserves some benefit as MRP rate is higher than the actual sale rate but incorrectly mentioned that same has been allowed by the AO at Page 11 of the order. In fact no allowance is given by the AO from MRP rate to arrive at the sale rate. The AO also made certain observations on the calculation made by the assessee in Para 7-15 of the remand report. The assessee vide its letter dated 30.12.2011 explained each and every objection of the AO raised in the remand report. iv. CIT(A) after considering the various evidences, the remand report and also the rejoinder of the assessee on the remand report accepted that a discount is to be allowed from MRP rate to arrive at the sale rate but at the 23 ITA 316/JP/2012 & C.O.35/JP/2012_ ACIT Vs. M/s Purnima Fire Works

same time incorrectly observed that heavy discount ranging from 70% to 90% is not believable. Finally, she allowed a discount of 45% to the MRP to arrive at the sale price. The discount so allowed is at a lower side. Considering the evidences filed, such discount should be at least 50% as claimed by the assessee.

v. CIT(A) has considered that stock valued at Rs.2,67,395/-

at godown no. 3 and at Rs.1,91,530/- at godown no. 4 are not at MRP rate in as much as the MRP rate is not mentioned in these lists whereas on other list, MRP rate is mentioned. It may be noted that this list contain the various items of crackers. The rate mentioned in this list is per box/case. The rate on the box/case is only the MRP rate and therefore discount of 50% need to be allowed from this value also to arrive at the sale value. vi. On the above basis, the cost of the stock found in search would work out as under:-

Stock valued at MRP rate accepted by CIT(A) Rs.33,02,028/-

Stock at Godown No. 3 Rs.2,67,395/-

Stock at Godown No.4 Rs.1,91,530/- Total Rs.37,60,953/-

Less:- 50% discount to arrive at selling rate Rs.18,80,476/-

Balance Rs.18,80,476/- Less:- G.P. Margin @15% Rs.2,82,071/- Balance being cost of goods Rs.15,98,405/- Add:- Cost of chemical at Shop No. 295-296 Rs.2,31,485/- Total value of stock at cost Rs.18,29,890/- 24 ITA 316/JP/2012 & C.O.35/JP/2012_ ACIT Vs. M/s Purnima Fire Works

Less:-Book value of stock Rs.17,52,601/- Excess Stock Rs.77,289/-

From the above, it can be noted that excess stock is only Rs.77,289/- and not Rs.4,63,345/- as worked out by CIT(A). This excess stock is also on account of estimating the discount from MRP at 50% whereas the evidence on record show that such discount is at higher rate and therefore the addition sustained by CIT(A) is uncalled for. vii Without prejudice to above, even if the excess determined by CIT(A) is accepted then set off of the same should be considered against the trading addition of Rs.24,04,135/- sustained by CIT(A) in A.Y. 03-04 to 06-07 and also from the trading addition, if any, sustained in the year under consideration in as much as such trading addition has not been set off against any other unexplained investment/expenses. On this basis also, no addition on account of excess stock is justified.

In view of above, the trading addition confirmed by CIT(A) be deleted by allowing the cross objection of the assessee and dismissing the ground of the department."

19. We have heard the rival contentions of both the parties and

perused the material on record. The learned AR considered the

reconciliation in his submission and excess stock has been calculated at

Rs. 77,289/- in place of addition confirmed by the learned CIT(A) at Rs.

2,80,238/-. The facts and figure mentioned by the assessee are 25 ITA 316/JP/2012 & C.O.35/JP/2012_ ACIT Vs. M/s Purnima Fire Works

required to be verified from the record of the assessee and seized

material, therefore, we set aside this issue to the Assessing Officer to

re-verify these facts and figure reproduced above in conciliation of

stock. Accordingly, this ground of appeal is set aside to the Assessing

Officer.

20. In the result, revenue's appeal is dismissed and C.O. of the

assessee is allowed for statistical purposes only.

Order pronounced in the open court on 27/02/2015.

Sd/- Sd/- ¼vkj-ih-rksykuh½ ¼Vh-vkj-ehuk½ (R.P.Tolani) (T.R. Meena) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 27th February, 2015 *Ranjan

vkns'k dh izfrfyfi vxzsf'kr@Copy of the order forwarded to:

1. vihykFkhZ@The Appellant- The A.C.I.T., Central circle-1, Jaipur.

2. izR;FkhZ@ The Respondent- M/s Poornima Fire Works, Jaipur.

3. vk;dj vk;qDr@ CIT

4. vk;dj vk;qDr¼vihy½@The CIT(A)

5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur

6. xkMZ QkbZy@ Guard File (ITA No. 316/JP/2012 & C.O. 35/JP/2012) vkns'kkuqlkj@ By order,

lgk;d iathdkj@Asst. Registrar