1. These appeals are cross-appeals against the common order of the learned CIT(A) dt. 29th Oct., 2004, for the asst. yr. 2000-01. The grounds in both the appeals relate to the common issues, therefore, these are being decided as under through a common order for the sake of convenience.
Ground No. 2 : Confirmation of investment by AOP Members/Cash Creditors amounting to Rs. 79,98,000 as per following details under Section 68 of the Act. (i) By AOP Members :(a) Shri Ashwani Kumar Dixit 2,00,000(b) Shri Anil Wadia 15,00,000(c) Shri Sohan Lal Singla 37,00,000(d) Smt. Kamoda Devi 1.0,00,000 ___________(a) Shri Devendra Singh 50,000(b) Shri Ghanshyam Das 98,000(c) Shri Nand Singh 50,000(d) Shri Pushpendra Singh 50,000(e) M/s Fortune Stone Ltd. 13,50,000 ___________ 2. Shri Ashwani Kumar Dixit deposited Rs. 2 lacs in cash on 21st April, 1999 by cash. The assessee filed confirmation of Shri Ashwani Kumar Dixit along with PAN No. ADVPD-1945-K (paper book 12). During the course of statement before the AO under Section 131 of the Act, Shri Dixit had denied that he had deposited any money with the assessee.
3. After hearing rival submissions, we are of the opinion that the PAW was given before the lower authorities and Shri Dixit was assessed to tax by the ITO, Ward 4(1), Jaipur, as per copy of acknowledgement slip (paper book 12). The counsel for the assessee submitted that no opportunity to cross examine Shri Dixit was given. Therefore, this issue is restored to the file of the AO with the direction that he should verify the fact of advancing Rs. 2 lacs from income-tax record of Shri Dixit. He should also give an opportunity of being heard and to cross-examine Shri Dixit by the assessee.
4. The brief facts of the case are that the assessee had filed confirmations along with PAN of these two persons (paper book 14 and 18). However, these persons could not be produced before the AO and the AO had not issued summons under Section 131 of the Act. Shri Anil Kumar made payment of Rs. 15,000 vide Draft No. 0780021 dt. 22nd Feb., 1999, of Standard Chartered Bank, Delhi. The address of Shri Anil Kumar is B-36, Mohan Park, Navin Sahadra, Delhi (paper book 15). The details of payment amounting to Rs. 37,00,000 in respect of Shri Sohan Lal Singla are available at paper books 17 to 19. He was assessed to tax by ITO, Ward 21(7), New Delhi. The address of Shri Sohan Lal Singla is, 31, West Avenue, Punjabi Bagh, New Delhi.CIT v.Orissa Corporation (P) Ltd. (1986) 159 ITR 78 (SC) wherein it was held that the names and addresses of the alleged creditors had been given and it was in the knowledge of the Revenue that the said creditors were income tax assessees. Their index numbers were in the file of the Revenue. The Revenue, apart from issuing notices under Section 131 at the instance of the respondent, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy. There was no effort made to pursue the so-called alleged creditors. In these circumstances, it was held that no addition can be made for unexplained cash creditors. The facts of these two cash creditors are similar to the facts of the case of CIT v. Orissa Corporation (P) Ltd. (supra).
Therefore, the additions sustained by the learned CIT(A) in the name of these two cash creditors are deleted.
6. In para 27, it was discussed by the learned CIT(A) that Smt. Kamoda Devi invested Rs. 10 lacs. This was refundable security amount from Distt. Excise Officer, Jaipur City in the case of S.R. Wines but the same was adjusted in the case of the assessee in the account of Smt.
Kamoda Devi as capital. This fact can be verified from paper book 21 and 22). For this purpose, the assessee had submitted confirmation from M/s S.R. Wines which is appearing at (paper book 21) and the same was adjusted as capital of Smt. Kamoda Devi duly confirmed by her at paper book 20. This security amount was adjusted by Distt. Excise Officer, Jaipur City, vide letter. No. P-10./Ex./Adj./ACCT./99/209 dt. 22nd April, 1999 (paper book 20). This was a case of adjustment which is borne out from the record produced before the lower authorities.
Therefore, we are of the opinion that the learned CIT(A) erred in sustaining the addition of Rs. 10 lacs in the name of Smt. Kamoda Devi under Section 68 of the Act. Hence, we delete this amount of Rs. 10 lacs sustained by the learned CIT(A).
7. After perusal of the facts of the record, we find that Shri Devender Singh had deposited Rs. 50,000 in cash. He had not been assessed to tax. The simple confirmation had been filed before the lower authorities. We find no infirmity in the order of the learned CIT(A) on this issue. Therefore, we sustain the addition of Rs. 50,000.
8. Similar is the case of Shri Ghanshyam Das who has given confirmation on plain piece of paper and no sources of the amount had been explained before the lower authorities. Therefore, the learned CIT(A) had rightly sustained the addition made for unexplained cash credit of Rs. 50,000.
We decline to interfere with the order of the learned CIT(A) on this issue.
9. After perusal of the record, we find that both persons were neither produced before the lower authorities nor any confirmations in respect of them were filed. Therefore, the learned CIT(A) had rightly sustained the additions for unexplained cash credits in respect of these two persons. We decline to interfere with the order of the learned CIT(A) on this issue.
10. We have heard the rival submissions and perused the materials available on record. In this case, the assessee had shown cash credit of Rs. 12.50 lacs in the name of M/s M.P. Fortune Co. However, the assessee had filed confirmation of loan from M/s Fortune Stone Ltd. The learned CIT(A) had sustained the addition only for the reasons that cash credit was shown in the name of M.P. Fortune Co. whereas confirmation was filed from M/s Fortune Stones Ltd. The lower authorities have not accepted the plea of the assessee that there was mistake in the books of account. This fact can be verified from the record of M/s Fortune Stones Ltd. This fact can also be verified as to whether the repayment, was made to M/s M.P. Fortune Co. or to M/s Fortune Stones Ltd. Hence, this issue is restored to the file of the AO with the direction that he should verify necessary facts and after conducting enquiry he should readjudicate upon this case after allowing an opportunity of being heard to the assessee.
Ground No. 2 : Deleting the addition on account of unexplained cash creditors amounting to Rs. 33,32,800 11. The AO discussed this issue at pp. 20 to 21 of his order and the learned CIT(A) discussed this issue at pp. 22 to 36 in para 32 to 37 of his order. These cash creditors were introduced in following names.
The learned CIT(A) observed that all these persons are assessed to tax and their PAN along with confirmation of loans had been filed. The amounts of all the cash creditors were deposited through demand drafts.
12. Having regard to all these facts of the case, we find that the learned CIT(A) had rightly deleted the addition to the extent of Rs. 33,32,800. Therefore, we decline to interfere with the order of the learned CIT(A).
Ground No. 1 of the Revenue: Deletion of trading addition of Rs. 5,92,55,512 Ground No. 1 of the assessee : Sustaining the income of Rs. 2,60 crores against loss of Rs. 2,92,30,610 shown by the assessee.
13. The brief facts of the case are that the assessee AOP had taken liquor contract (IMFL/Beer wholesale, IMFL Beer retail and Country liquor for Tehsils of Ajmer. Kekri, Kishangarh, Vijaynagar and Beawar, the major parts of which are rural areas. The return of income was submitted along with audited statement of accounts under Section 44AB of the Act, declaring loss of Rs. 2,76,86,920. The assessment was completed vide order dt. 31st March, 2003 under Section 143(3) at income of Rs, 9,64,86,310 by the AO, The position of the trading results achieved, assessed and sustained was as under :Trading loss shown by the assessee Rs. 2,92,30,610Add. Depreciation Rs. 15,43,690 = 2,76,86,920Trading profit assessed by the AO (Total Rs. 11,29,42,432) 8,52,55,512Trading additions sustained by the CIT(A) 2,60,00,000 On the basis of survey under Section 133A of the Act conducted on 21st March, 2003, on two or three retail shops of IMFL/Beer of M/s Surjeet Wines (liquor contractor of Jaipur city for the asst. yr. 2003-04) by some other officers of IT Department, Jaipur not the AO), the retail sales rates of Jaipur city were applied in the case of the assessee, AOP and the G.P. rate on that basts was applied as under : The learned CIT(A) estimated net income at Rs. 2.60 crores as against loss of Rs. 2,92,30,610 shown by the assessee .
14. The learned Departmental Representative relied upon the order of the AO and submitted that the assessee made violation of Excise Laws.
He relied upon the following cases :Bihari Lal Jaiswal and Ors. v. CIT and Ors. (1996) 217 ITR 746 (sc)Moti Lal Chunni Lal v. CIT The Hon'ble Supreme Court has also affirmed this decision as reported in Moti Lal Chunni Lal v. CIT (1999) 234 WR 472 (SC) in the assessee's own case.
The learned Departmental Representative further submitted that the assessee was not maintaining the complete books of account and the assessee made violation of the provisions contained in Section 44AA(2) of the Act. The assessee did not issue sales bills to its customers.
Even the auditors of the AOP firm had qualified the tax audit report under Section 44AB with the remarks that no sale vouchers had been produced for examination leading to doubts about varacity of the claim of total sales being only to the extent reflected in the final accounts. The assessee did not maintain any stock register which is mandatory as per requirement of State Excise Department. The vouchers of expenses had not been produced for verification and the auditors had also stated in their report that vouchers of the expenses were produced for verification in part only. The IT Department conducted survey under Section 133A of the Act on 21st March, 2003 on various liquor shops of M/s Surjeet Wines, Jaipur and had relied upon the defects in accounts noticed in that case.
15. The learned Departmental Representative further submitted that the assessee cannot be allowed to take advantage of its own fault and the books of account had rightly been rejected in the absence of the stock register, sale vouchers coupled with factors like lack of vouchers for expenses. He further relied upon the case of Awadhesh Pratap Singh Abdul Rehman & Bros. v. CIT (1994) 210 ITR 406 (All) and submitted that the AO had rightly invoked the provisions of Section 145(2) of the Act.
16. The learned Authorised Representative made the following submissions: "On the basis of survey dt. 21st March, 2003, on two or three retail shops of [MFL/Beer of M/s Surjeet Wines (liquor contractor of Jaipur city in the financial year 2002-03) by some other officers of IT Department, Jaipur (not the learned AO), the retail sales rates of Jaipur city were applied on the assessee AOP and G.P. rate on that basis was applied which are as under : In avoidance of provisions of Section 142(3) of IT Act, no opportunity to cross-examine the source or the persons, from whom the information for margin of profit was collected by the Survey Team and applied on the assessee during the course of survey was allowed by the learned AO. In the appellate proceedings, the assessee had collected information from M/s Rajasthan Wines (who had liquor contract in the financial year 2003-04) for the retail rates of liquor. The learned CIT(A) also called for the remand report from the learned AO but the same was not considered in deciding the issue before the learned CIT(A). On the basis of above facts, we submit as under : (a) As per newspaper reporting dt. 22nd June, 2004 (which was for financial year 2004 0b but the same universal policy was adopted by every liquor contractor of Jaipur city for the last 15 to 20 years), the Jaipur liquor contractor used to charge higher retail rates for the Jaipur city (applied on the assessee) and lower rate at the border areas. The assessee had liquor contract for tehsils of Ajmer Kekri, Kishangarh, Vijaynagar and Beawar. The retail rates charged at Jaipur Ajmer border area were lower in terms of rupees per bottle as per the following details :Type of liquor Rates at Jaipur-Ajmer border Jaipur city rates Beer 40 60IMFL (Bottle) 80 to 120 200 to 220Rum/Jin 80 to 100 200 When the rates charged by Jaipur liquor contractor at the Jaipur-Ajmer border areas are about 50 per cent lower than charged in the city area there is no justification in applying the retail rates of Jaipur city on the assessee. More so when the assessee AOP, in order to achieve sales to fulfill the obligation contract price, on the facts, was forced to charge even lower rates than charged by Jaipur liquor contractor, selling the liquor at lower rates on the Jaipur Ajmer border. On the facts, how the action of the learned AO in applying retail rates of Jaipur city could be treated as justified? (b) This was third consecutive year of drought and the assessee's liquor contract areas (from Kishangarh to Banner-Jaisalmer) were badly affected areas. The major part of the public had no means of earning except through cultivation or agriculture. High sales of liquor can be achieved only when there are good mansoon conditions.
On the other hand, retail rates of liquor in Jaipur city are not dependent on mansoon conditions. The major part of the public is either service class or business class in Jaipur and, therefore, Jaipur liquor rates cannot be compared.
(c) Information was gathered that no survey at any country liquor shop was carried out in Jaipur by the survey team so as to justify the application of such high G.P. rate of 65 per cent in case of country liquor branch. Moreover, the country liquor can only be purchased from M/s Rajasthan State Ganganagar Sugar Mills Ltd. and that too after payment of huge amount of permit fee and other charges to the State Excise Department and issue price to M/s Ganganagar Sugar Mills Ltd. If high margin of profit is charged, the manufacture of illicit country liquor at number of places in the remote areas and villages takes place. The manufacture of illicit liquor results in lower sales of branded county liquor dealt by the licensed contractors like assessee AOP. (d) That in case of wholesale IMFL/Beer, the total sales are vouched. The retailers get credit of fulfilment of liquor contract price on the basis of purchases in terms of quantity and, therefore, it is compulsory to issue sale invoices so as to verify the purchases made by retailers. There is no justification for the learned AO to apply G.P. rate of 5 per cent on wholesale sales.
(e) The major part of the sale by IMFL/Beer wholesale is to assessee's own retail and, therefore, application of 5 per cent of G.P. and, thereafter, 35 per cent in retail will have double effect on the total profit of retail sales.
(f) From the information collected from the price list of the Jaipur liquor contractor for the financial year 2003-04, the current retail rates of Jaipur city as compared to purchase price adopted by the learned AO (refer pp. 19 and 20 of the order dt. 31st March, 2003, under Section 143(3) of the Act under appeal), were as under :______________________________________________________________________________S.No. Type of liquor Purchase price Sale price of Jaipur (in Rates applied of Appellant financial year 2003-04) by the AO______________________________________________________________________________10. Beer Hayward 20.42 50 50______________________________________________________________________________ 1596.92 1980 2620 (The G.P. on the basis of above retail sale price of the Jaipur city comes to 19.35 per cent, i.e., G.P. of Rs. 383.08 on sale of Rs. 1,980 in IMFL/Beer as against 35 per cent applied by the learned AO whereas the assessee was forced to sell the liquor lower than the rates charged by Jaipur liquor contractor in the Border areas.
(g) That the learned AO applied the retail rates charged by Jaipur liquor contractor in the year 2002-03 as against the case of the assessee for the year 1999-2000. In these three years, due to changes in Excise policy, there was increase in duty. The learned AO had applied purchase rates of the assessee prevailing in the year 1999-2000 and the selling rates for the year 2002-03 (on 21st March, 2003). This is another example of arbitrary and unjustified action of the learned AO. The addition trading addition of Rs. 11,29,42,432 (returned loss of Rs. 2,76,86,920 + Rs. 8,52,55,512 assessed by learned AO) and Rs. 2,60,00,000 sustained by the learned CIT(A) by applying the principles of res judicata is not only illegal and nullity but also arbitrary and whimsical." 17. The learned Authorised Representative made the following submissions in response to argument of the learned Departmental Representative.
(1) The assessment of the assessee was completed under Section 143(3) of IT Act and not under Section 144 of the IT Act and, therefore, the learned Departmental Representative was not correct in stating before this Hon'ble Tribunal that the assessee was not co-operating and, therefore, the AO was left with no alternative but to complete the assessment ex parte on the basis of material collected during the survey dt. 21st March, 2003 on the Jaipur liquor contractor.
(2) Not a single case of manufacturing or selling spurious liquor by the assessee was found or noticed either by the Excise Department or others. The allegation that the assessee was selling spurious liquor was totally baseless Moreover, if the assessee was to sell spurious county liquor, the liability on account of short license fee would have increased for not lifting the liquor as per obligation to purchase it as per the contract.
(3) If one liquor contactor is indulging in any unlawful or illegal activities of carrying on liquor trade, the other liquor contractor cannot be taken akin to him.
(4) In the case of Asstt. CIT v. Bhanwar Ali Habib Mohammed & Party and Ors. (ITA No. 308, 309, 122, 259, 310, 311, 790, 375 & 374/Jp/2003 decided on 22nd Dec, 2004), cited by the learned Departmental Representative, this Hon'ble Tribunal has held that in the retail trade of the liquor, the location of the shop is very important. The assessee's case was Ajmer District where at the border areas, the Jaipur liquor contractor used to sell the liquor at about 50 per cent of the rates sold in Jaipur city and, therefore, the case of Jaipur liquor contractor cannot be compared.
More so when the assessee had collected the retail rates which are quite lower to rates adopted by the learned AO in the assessment order.
(5) The case of CST v. H.M. Esufali H.M. Abdulali (1973) 90 ITR 271 (SC) is not applicable on assessee AOP. No escaped turnover even for a single day was found or detected by the learned AO or by the Excise Department so to estimate the sale for the whole year.
(6) The payment of short license fee in all the three branches of IMFL and Beer retail and country liquor was Rs. 18,48,07,627. This payment is also a reasonable cause for lower profit as held by this Hon'ble Tribunal in the case of Kanhiyalal Kailash Chand & Party v. Assn. CIT (7) In case of IMFL/Beer wholesale, the estimation of sale by the learned AO was Rs. 19,40,04,167 whereas the assessee had total vouched sale of Rs. 39,27,86,196, therefore the estimation of sale cannot be considered as correct.
(8) The Jaipur liquor contractor is a misfit case for the purpose of comparison. The same cannot be compared with the liquor contract of assessee for the following reasons : (a) The assessee's liquor contract consisted mainly of rural areas of Ajmer, Kishangarh, Beawar, Vijaynagar and Kekri. These were the seriously affected drought areas of Rajasthan for the third consecutive year. Food for both times or even the drinking water was not available with majority of the residents of the areas. The sale of the assessee was adversely affected for this reason also. On the contrary, the Jaipur city residents had little effect of drought and there was hardly any effect in their purchasing capacity.
(b) The assessee's case is for the financial year 1999-2000 whereas the comparison is for retail rates of Jaipur city in March, 2003. In these three years, there was drastic changes in the excise policy resulting in high duty and resultant high retail price.
(c) As reported in leading daily Newspaper (paper book p. 10) the Jaipur liquor contractor used to sell liquor at Jaipur Ajmer Border at just 50 per cent of the retail rates sold in Jaipur city. When the liquor was available at just 50' per cent of Jaipur city rates at the Border areas, no residents of assessee's liquor contract area would purchase it at the retail rates of Jaipur city. The assessee had to reduce the rates even lower than sold at border areas by Jaipur liquor contractors.
(d) Without prejudice to above, for application of retail rates of Jaipur liquor contractor (charged in Jaipur city), the learned AO did not allow cross-examination as provided under Section 142(3) of IT Act. The rates applied could not be verified and, therefore, it is not known whether the rates applied were the actual rates or the creation of the learned AO. The assessee had collected evidence for retail rates of Jaipur city. The list is appearing at page No. (6) of the paper book.
18. We have heard the rival submissions and perused the materials available on record. We find that the learned CIT(A) had upheld the application of provisions of Section 145(3) of the Act for the reasons given by the AO in his order. The defects also find mention in the audit report under Section 44AB of the Act. In view of this, we decline to interfere with the order of the learned CIT(A) as far as application of Section 145(3) is concerned.
19. Now we shall deal with the issue of deletion of trading addition of Rs. 5,92,55,512 pertaining to the Revenue and the issue of sustaining the trading addition of Rs. 2.60 crores against loss of Rs. 2,92,30,610 pertaining to the assessee wherein both the parties are aggrieved against the order of the learned CIT(A) and hence in appeal before us.
20. In this case, the AO relied upon the case of Surjeet Wines, Jaipur wherein survey under Section 133A of the Act was conducted. He applied the G.P. rate as under : After making trading addition of Rs. 11,29,42,432, net profit of the assessee was worked out by the AO at Rs. 8,52,55,512.
21. The learned CIT(A) after discussions at pp. 13 to 19 of his order held that the AO had grossly erred in relying upon the survey report in the case of Surjeet Wines, Jaipur, and that too was not of the same year but was of after three years. There was difference in the sales rate of country liquor, IMFL Beer, etc., in the city of Jaipur and that in rural areas which was the area of operation of the assessee. The survey was conducted on 21st March, 2003, on the premises of Surjeet Wines, Jaipur, pertaining to asst. yr. 2003-04 whereas the case of the assessee is for the asst. yr. 2000-01. After holding that the AO cannot make any trading addition on the basis of M/s Surjeet Wines, Jaipur which was not a comparable case, the learned CIT(A) had compared the trading results of the current year with that of the subsequent assessment year. The learned CIT(A) on the basis of income shown during subsequent year had estimated net income at Rs. 2.60 crores after ignoring the declared loss of Rs. 2,92,30,610 as against the income estimated by the AO at Rs. 8,52,55,51,2 for the year under appeal. In fact, the learned CIT(A) had estimated the income at Rs. 5,52,30,610 (Rs. 2,60,00,000 + Rs. 2,92,30,610).
22. On this ground the learned Departmental Representative submitted that AO had rightly placed reliance on the case of Surjeet Wines, Jaipur. The assessee had not complied with the requirement of the AO for furnishing the requisite information and documents. Therefore, the AO had rightly estimated the income in the manner under Section 144 of the Act. He relied upon the case of CST v. H.M. Esufali H.M. Abdulali (supra) and some other judgments. He submitted that the AO can estimate the income by applying the rule of thumb which in a sense is an arbitrary rule. The assessee was entirely responsible for that situation.
23. We considered the submissions of the learned Departmental Representative and submissions of the learned Authorised Representative had already been reproduced in this order. After perusal of the facts of the case, we find that the AO relied upon the case of Surjeet Wines, Jaipur. In this case, survey under Section 133A of the Act was conducted on 21st March, 2003.
24. As regards the application of G.P. rate of 5 per cent on IMEL Beer (wholesale), we agree with the opinion of the learned CIT(A) that no addition can be made in the case of wholesale IMFL beer because the total sales and purchases are vouched. Therefore, we sustain the order of the learned CIT(A) on this issue.
25. As regards the application of higher G.P. rate on country liquor, IMFL Beer (retail), we again sustain the order of the learned CIT(A) for the reasons that AO had grossly erred in relying upon the case of Surjeet Wines, Jaipur. In this case, the survey was conducted on 21st March, 2003, and the relevant asst. yr. was 2003-04 whereas the appeal is for asst. yr. 2000-01. The AO also grossly erred in relying upon the case of third party whose premises was situated in Jaipur whereas the area of operation of the assessee is rural area. The Jaipur resident never faced the seriousness of drought whereas major part of assessee's liquor contract area being the villages, faced acute drought for the third consecutive year. Huge amount of short license fee amounting to Rs. 18,48,07,627 was paid by the assessee. Therefore, the learned CIT(A) had rightly held that the addition made by the AO was baseless and no such addition is called for on the basis of the case of Surjeet Wines.
26. Now we shall decide the issue of sustaining the trading addition by the learned CIT(A) at Rs. 2.60 crores against trading loss of Rs. 2,92,30,610. The learned CIT(A) discussed this issue at pp. 18-19 of his order. We do not agree with the view of the learned Departmental Representative that income of the assessee can be determined in arbitrary manner by the AO. He relied upon the case of CST v. H.M.Esufali H.M. Abdulali (supra). In this case, it was held that the AO could make an estimate of the suppressed turnover on the basis of the material before him. So long as the estimate made by him was not arbitrary and had a reasonable nexus with the facts discovered, it could not be questioned. We agree that when the defects are found in accounts, total turnover/sales can be estimated proportionately after invoking the provisions Section 145 of the Act. However, while applying the G.P. rate, the AO is required to make rational estimate having regard to the nexus of the material on record. It was held in the case of Dhakeshwari Cotton Mills v. CIT (1954) 26 ITR 775 (SC) that ITO is not entitled to make a pure guess and make an assessment with reference to any evidence or any material at all. There must be something more than bare suspicion to support the assessment order. Besides, we find that the AO has not completed the assessment in the manner laid down under Section 144 of the Act. He passed the order under Section 143(3) of the Act after relying on the case of Surjeet Wines, Jaipur.
27. Now we have to decide the issue whether the learned CIT(A) was justified in sustaining the trading addition of Rs. 5,52,50,610 (Rs. 2.60 crores + loss of Rs. 2,92,30,610). .
28. After perusal of the record, we find that the learned CIT(A) after rejecting the basis adopted by the AO had estimated net profit for the year under appeal at Rs. 2.60 crores on the basis of income declared during subsequent assessment year, i.e., asst. yr. 2001-02. The learned CIT(A) had not discussed this issue in detail and the order of the learned CIT(A) is devoid of reasons as to how the income of the subsequent year can be substituted as income of the year under appeal.
The trading addition can be made on the basis of immediately preceding, i.e., past assessment year or on the basis of comparable cases as held by the various Courts and also as per the book "Techniques of Investigation for Assessment" issued by the IT Department. Besides after going through the arguments of the learned Authorised Representative, we find that the trading results of the year under appeal are not comparable with the trading results of the subsequent years for the following reasons.
(i) This was first year of the liquor contract The assessee's liquor contract area consisted mainly of rural areas of Ajmer, Kekri, Kishangarh, Vijaynagar and Beawar. The assessee was new in these areas and took time to understand about these areas.
(ii) Due to tough competition from Jaipur Liquor Contractor who sold liquor at 50 per cent of rates in the border areas (paper book 10), the assessee had to purchase more liquor in terms of quantity and had to sell at low price to capture the market in order to face the competition with the liquor contractor of the adjoining areas. This results into high sales in terms of quantity but low in value.
(iii) In subsequent year, the assessee could understand the areas and its people that led to more income in the subsequent years.
(iv) The AOP also came to know about areas where illicit liquor was manufactured. The assessee succeeded in curbing these activities in the subsequent years.
Therefore, we hold that the learned CIT(A) had grossly erred in sustaining the addition on this account and the results of the current year were not comparable with the results of the subsequent years.
Hence, this ground of the assessee is allowed.
In this case, we have deleted the trading/estimation of net income made by the AO and the learned CIT(A) for the detailed reasons given in this order. We find that while making trading addition, the lower authorities have taken into account disallowances to be made out of the unvouched/unverifiable expenses. Normally separate addition is made for the unvouched expenses when the expenses are of personal nature. Since, we have already deleted the trading addition made by the lower authorities, separate disallowance is to be made for unvouched/unverifiable expenses. The assessee was not maintaining complete record of the expenses. Even the auditors of the AOP firm had qualified the tax audit report under Section 44AB with the remarks that vouchers had been produced for verification in part only, The complete sale vouchers had not been produced before the AO. Therefore, keeping in view the totality of the facts and circumstances of the case, the addition to the extent of Rs. 25 lacs is to be upheld. The AO is directed to give effect to this order.
29. In the result, the appeal of the Department is partly allowed and the appeal of the assessee is also partly allowed.