TMI Blog1995 (9) TMI 115X X X X Extracts X X X X X X X X Extracts X X X X ..... sel for the assessee submitted that the turnover of the assessee had increased considerably as compared to the last year, that in the previous year relevant to the assessment year under consideration, bulk of the sales were made on wholesale basis and that it was a normal practice to get lesser margin of profit in respect of the sales effected on wholesale basis. The assessee was required to submit the details of various items of goods dealt in by the assessee. The assessee has not given complete details of opening and closing stock of various items of goods. After considering the reply of the assessee and the defects in the maintenance of the books of account, the AO applied the provisions of s. 145(2) and estimated the sales and gross profit rate at Rs. 70 lakhs and 15% respectively. He observed that "proviso to s. 145(2) is being applied because the assessee had not been able to explain properly the fall in the gross profit, sales and purchases are not satisfactorily verifiable. It was found from the scrutiny of the documents seized that some of the entries recorded in such documents are not reflected in the regular books of the assessee and as such the books of account of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e not available, the G.P. rate was applicable. In other sister concern, looking to the fact that the sales had increased substantially, in this year I maintained the G.P. rate at 11.5%. More or less facts are similar of this case as well and, therefore, I direct the AO to apply a G.P. rate of 11.5% in this case also. I further find that the estimation of the sales at Rs. 70 lakhs from the declared sales of Rs. 45,34,536 is without any basis. At least, there is nothing on record which suggests that the AO has applied any logic while estimating the sales. I am surprised to note that there is a mention of many loose papers found and seized at the time of search, but the AO has not brought on record the details of any such paper and, therefore, in the absence of any such record how the sales have been estimated at Rs. 70 lacs, it is beyond my apprehension. In this context it is relevant to mention here that it is a search case. No record was available in this office. This office had even at the time of hearing required the records from the AO but the assessment records were not made available. More surprising is also that even ITNS 151 has not come back from the AO which reflects the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 145(2). Even assuming that the details of opening stock and closing stock were not furnished, s. 145(2) cannot be made applicable. Reliance is placed on the order of the Third Member in para 6 in the case of ITO vs. Oswal Emporium (1989) 35 TTJ (Del) (TM) 225 : (1989) 30 ITD 241 (Del) (TM). At page 1 of the paper book filed by the assessee, copy of the letter dt.14th Oct., 1988, addressed to the AO is placed. In that letter, it is clearly stated that three consignments had been sold on wholesale basis that the details were enclosed and that a profit of 5% had been charged. Hence, the CIT(A) is not correct in saying that the counsel has given such figures before the AO. Another letter was furnished before the AO and the same is given at pages 2 to 9 of the assessee's paper book. Here also, under the head "Trading Results", it has been reiterated that the assessee had already submitted a break up of sales in wholesale as well as retail. As laid down by the Hon'ble Supreme Court in the case of State of Orissa vs. Maharaja Shri B.P. Singh Deo (1970) 76 ITR 690 (SC), "The mere fact that the material placed by the assessee before the assessing authorities is unreliable does not empower ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ault with them, he could meddle with the opening and closing stock figures and the revised figures of opening and closing stocks have to be carried to the earlier assessment year and the subsequent assessment year. But this has not been done. Before applying s. 145(2) a specific finding has to be given based on relevant material brought on record that the books of account maintained by the assessee are incorrect and incomplete or that the assessee did not regularly employ any method of accounting. In the present case, such findings are not given based on any material brought on record. The AO simply says "defects in the maintenance of books of account". He did not elaborate as to what were those defects in the maintenance of books of account. The system of accounting adopted by an assessee cannot be rejected merely on the ground that the gross profit disclosed by his books was low. [RMP Perianna Pillar Co. vs. CIT (1961) 42 ITR 370 (Mad)]. Low profit without any other defect being found in the account books is not a sufficient ground for rejection of accounts [Laxmi Stores vs. CST (1979) 43 STC 167 (All)]. The assessee has given the details of the wholesale sales aggregating to R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case and that he erred in law and on facts by accepting the paying capacity of the partners to deposit such heavy amounts with the firm ignoring the facts that the assessee did not produce any concrete evidence in respect of having the silver in the possession of S/Shri Anil Chandra and Surendra Chandra thus leaving the amounts unexplained to the satisfaction of the AO within the meaning of s. 68 of the IT Act, 1961. 20. The AO noticed certain credits in the accounts of the two partners of the assessee-firm. The assessee was required to explain the credit entries appearing in the books of account of the assessee in the accounts of the two partners. It was submitted by the counsel for the assessee that there were deposits of Rs. 3 lakhs in the account of partner, Shri Surinder Chandra and that the said deposit was made by him out of the sale proceeds of silver. Similarly, another partner, Shri Anil Chandra also deposited a sum of Rs. 2,85,000 with the firm and the same was also out of the sale proceeds of silver. The silver sold by these partners was their personal property, declared under the Amnesty scheme and the capital gain arising on the sale of such silver had been proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een completed under s. 143(1). Thus, it is argued that the source is explained in the hands of the partners. The appellant has also filed the copies of the purchase vouchers wherefrom the silver was claimed to have been purchased. 10. I have considered the facts. On the basis of evidence brought on record by the appellant before the AO, if it was a search case, as mentioned by the AO, at least the AO should have looked into the partners' personal cases and if he was not satisfied, some action should have been taken in the partner's cases. Since, in the hands of the partners the appellant had declared this income by way of capital gains which stood accepted till today as per record and, therefore, hardly there was any reason not to accept in firm's case. The appellant had shown existence of the silver in the WT return for the asst. yr. 1984-85 then at least the onus which was required on the part of the appellant, stands discharged. To my mind, it appears that the AO has rejected the contention but has also not taken any pains to go beyond any such situation which is not justifiable to maintain the addition-once these amounts stood accepted by the Department in the individual case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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