TaxTMI 
TaxTMI 
2015 (3) TMI 923
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.... to the issue are identical in nature in both the years under consideration, we take the AY 2009-10 as the lead case. 3. We heard the parties and perused the record. The assessee firm is engaged in the business of importing and dealing in chemicals and almonds. The assessee imports chemicals named Ditomite, Silica and Aerosil. It also imports "Shelled" and "Unshelled" almonds from USA, besides sourcing the almonds locally also. During the course of assessment proceedings, the AO received information from the Designated officer, investigation wing to the effect that the bank accounts have been opened in the name of Mrs. Aruna H Doshi and six others with M/s Janakalyan Sahakari Bank Ltd. The aggregate amount of deposits made in these six bank accounts during the year under consideration was Rs. 3.35 crores. These deposits were found transferred to another account opened in the name of M/s Sameer & Co. In the account of M/s Sameer & Co also, cash deposits to the tune of Rs. 1.11 crores was found deposited. Thus the aggregate amount of Rs. 4.46 crores (Rs.3.35 crores + Rs. 1.11 crores) was found deposited in the bank account of M/s Sameer & Co and the same was found transferred to the....
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....ofit arising from sale of Diatomite and Silica/Aerosil at 27.71% and 27.20 % respectively. In money terms, the aggregate amount of Gross profit that arose from sale of Diatomite and Silica/Aerosil worked out to Rs. 7.53 crores. However, the assessee had disclosed Gross profit of Rs. 3.13 crores, which means that the assessee had declared Gross Loss on sale of Almonds. The AO noticed from the sales bills of Almonds that the sales have been made to parties, who could not be identified. Hence the AO took the view that the sales shown against the non-existent parties are not reliable and so also the Gross Profit shown against those sales also. The AO also verified the sales effected on 7.1.2009 and also the related purchases and noticed that the G.P on the same worked out to 16.05%. Accordingly, the AO took the view that the Gross loss (stated as "negative gross profit" by the AO) reported by the assessee is not unacceptable for the following reasons:- "(i) Assessee has shown sales in almonds in fictitious names as admitted by the partner himself and those sales cannot be held as genuine. (ii) Bulk quantity of sales has been shown by assessee at very cheap rate of Rs. 50 to Rs. 60 pe....
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....further submitted that the overall G.P rate reported by it is comparable with the earlier years. The AO noticed that the loss has been incurred by selling almonds at very low rate of Rs. 50/- to Rs. 60/- per kg and further he did not accept the claim the sub-standard quality items were sold at low rates. The AO took the view that the assessee should have returned the sub-standard quality items to the supplier. The AO also noticed that the assessee has imported the almonds from a sister concern and hence the payment of higher purchase cost on sub-standard items would attract disallowance u/s 40A(2)(b) of the Act. The AO also examined some more sale bills and noticed that the G.P rate thereon was in the range of 8.74% to 39.47%. Hence the AO took the view that the G.P. rate of 16.05% determined by him was reasonable. Accordingly, the AO assessed the difference in sales (could also be taken as difference in Gross Profit) of Rs. 7.33 crores as income of the assessee. 6. In the appellate proceedings, the Ld.CIT(A) took the view that the peak amount of Cash deposits made in the seven bank accounts /cheque receipts from the account of M/s Sameer & Co. has to be assessed as income of the ....
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....s. Further, the price of the almonds would also be not static and the same would vary according to the market conditions. Accordingly he submitted that the assessee, as a business man, would be selling the almonds at various rates in order to minimize the loss, so that in average he makes profit on sale of all products dealt by him. The assessee would tend to make more loss if it holds the products. He submitted that the above said practice is the normal trade practice adopted in almost all kinds of trades. Accordingly he submitted that tax authorities are not justified in presuming that the assessee has to realize same rate of gross profit on sale of entire quantity of purchase, which is totally against the normal trading conditions. 10. The Ld A.R further submitted that the fluctuations in currency rate would also affect the margins realized on sale of almonds. Further, the assessee is in wholesale trade and hence the margin realized by the assessee would always be lower due to high volume of sales. He further submitted that the AO has held that purchases are covered by the provisions of sec. 40A(2)(b) of the Act. However, the AO has not given a finding that the purchase prices ....
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....he assessee has accounted for all the sales in its books of account. Only the cash amount has been deposited into the above said bank accounts and they have been received by way of cheques. Hence, the procedure adopted by the assessee would not give rise to any income element and hence the Ld CIT(A) was not justified in holding that the peak credit represents income of the assessee. He further submitted that the theory of peak credit is applied only in respect of unaccounted transactions, where as in the instant case, the assessee has accounted the sales. 13. On the contrary, the Ld D.R placed strong reliance on the assessment order. He submitted that the assessee has claimed to have incurred gross loss on sale of almond and the said claim was not prima facie acceptable. Hence, the AO has computed the gross profit realized on sale of other products and noticed that the assessee has sold the almonds at very low price, which is not believable. He submitted that the assessing officer has considered certain instances of sales on test check basis and has noticed that the assessee has actually made profits on sale of almonds. On the basis of those sale invoices, the AO has come to the c....
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....computed the Gross profit realized on chemical items at a huge figure. Thus the gross profit of all the products would be dependent upon each other under this method of computation, i.e., if the gross profit from chemicals is reduced, then the gross profit on almonds will go up. Hence, unless it is shown that the gross profit computed by the AO from chemical sales is an authenticated one, in our view, one cannot accept his conclusions. 16. We have noticed that the AO has applied the average gross profit rate of 16.05% on the entire cost of purchase of almonds. However, the Ld CIT(A) has noticed that the assessee has incurred loss only on the purchases made to the extent of Rs. 14.21 crores. Thus, the remaining sales have been made above the purchase cost. Hence, the Ld CIT(A) has taken the view that the estimated gross profit rate should be applied only the above said purchases of Rs. 14.21 crores. In our opinion, this approach of the Ld CIT(A) appears to be reasonable one., i.e., when the AO is suspecting about the claim of loss on sale of almonds, there is no reason to disturb the sales made with profit. Hence, in our view, the AO was not justified in applying the gross profit r....
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....on of book results, the consequent estimate of gross profit is also liable to rejected. The ld A.R also pointed out that the gross profit rate declared by the assessee in the earlier years has been accepted. We have earlier noticed that the tax authorities have proceeded to compute the gross profit on presumptive basis without bringing any material on record. We have also noticed that the claim of sale of sub-standard quality of almonds has not been disproved. Though it is stated that the assessee has sold to non-existant parties, yet the bills relating to cash sales generally do not bear the address of the buyers. Hence, the same cannot be a ground to reject the claim of the assessee. Accordingly, we are of the view that there is no material on record to reject the claim of sales made at lower than the cost price. Accordingly, we set aside the order of the Ld CIT(A) on the issue relating to addition of gross profit and direct the AO to delete the addition made on account of difference in Gross profit/sales amount. 20. The next issue relates to the assessment of peak credit balance in the bank accounts. We have earlier noticed that the AO did not make any addition on this account,....