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2016 (2) TMI 1250 - ITAT AMRITSARReopening of assessment - unexplained cash deposits - GP estimation - addition on account of difference in gross profit - rejection of books of accounts - HELD THAT:- From the reasons recorded, we find that the case of the assessee was reopened on account of an AIR information regarding the factum that the assessee had deposited certain cash in his bank account with the Standard Chartered Bank, Jalandhar. The assessee during the course of assessment proceedings in the AY 2009-10 had admitted that part cash of deposit in the bank account represented unaccounted sales. The AO had observed that a part of cash deposit was also deposited in AY 2008-09. Therefore, he reopened the assessment for AY 2008-09 while finalising the assessment order for the AY 2009-10, the AO made trading addition of ₹ 2,55,92,341/- but did not make separate addition for cash deposited in the bank account, as he held that trading addition made by him covered the cash deposit in the bank. AO did mention the fact of deposit of cash in the AY 2008-09 and he has held that since the assessee had already admitted that the source of deposit in the bank account is unaccounted sale proceeds, therefore, he made the trading addition ignoring cash deposit as he had already observed that the cash deposit represented unaccounted sale proceeds. No force in the arguments of the ld. counsel that since he had not made the addition of cash deposit, no other addition can be made. In view of the above, additional ground taken by the assessee is dismissed. Rejection of books of account - We find that AO has nowhere rejected the books of accounts and in fact he has relied upon the same figures of opening stock, purchases, and closing stock to calculate cost of goods sold on accepted accounting principles and therefore contention of the ld. Counsel that income was estimated without rejection of books of accounts does not hold ground as income of assessee was not estimated and it was calculated only on the basis of same figures from Trading Account submitted by Assessee - CIT(A) has recorded a finding that books of accounts were rejected which is not a correct findings. However, since we have held that income was not just estimated but was calculated on the basis of figures submitted by assessee himself therefore, this ground of appeal has become a non-issue and therefore is not being adjudicated. Assessee had not recorded a part of sale in the regular books of accounts as he has already admitted that part of sale proceeds were deposited in the bank. Therefore, the AO and the ld. CIT(A) has rightly not considered the figure of sales for arriving at the cost of goods sold. However, the authorities below have rightly estimated the calculation of cost of goods sold on the basis of figures provided by the assessee in his trading account. The authorities below completely verified the purchases after calling information u/s 133(6) from the various suppliers of the assessee and from where the assessee was getting discount also. By completing the assessment, the AO did not allow benefit of free distribution of stationery and books which the assessee had claimed and which was one of the reasons for low gross profit ratio. Before the ld. CIT(A) complete details alongwith confirmations from Principals of various Schools alongwith details of books distributed free of cost were filed which were forwarded to the AO also. CIT(A) after obtaining the remand report from the AO had found the claim of the assessee as genuine and therefore, he rightly allowed the relief to the assessee on account of free distribution of books/discount allowed by assessee. This is the only grievance raised by the Revenue but which in our opinion has been rightly allowed by ld. CIT(A) as AO did not raise any objections on merits during remand proceedings. In view of the above grounds of appeal taken by Revenue are dismissed. CIT(A) calculated suppression in gross profits by applying the highest Gross Profit ratio - The contention of the ld. counsel that gross profit ratio with respect to sales should have been applied while working out suppression in the gross profit does not carry any force as the sale figure in the trading account itself was not reliable. Therefore, any working with respect to sale will not give fair results. Moreover, the argument of the ld. counsel that assessee be allowed relief on account of wastage etc. equivalent to 10% of purchase also do not carry any force in view of the fact that method of valuation of stock as adopted by the assessee and as noted in audit report is cost or market price, whichever is less. Therefore, the deterioration in value of stock if any on account of change in syllabus/wastage must already have been taken into account while valuing the stock at market prices as apparently market value of such stock would have been lower than the cost price. In view of the above, these two arguments of the ld. counsel are rejected and the formula adopted by the ld. CIT(A) is upheld subject to application of gross profit rate worked out by him - Appeals filed by assessee are partly allowed.
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