THE ACIT (CENTRAL)-1, INDORE vs. M/S. M.C.S. TRADING COM. PVT. LTD., INDORE

PER MANISH BORAD.

Search u/s 132 of the Act was conducted on 25.11.10 at the MCS Trading Company Pvt Ltd IT(SS) No.141,C.O.No.38/Ind/2016 & ITANo.353/Ind/2017 assessee’s premises at Indore. The assessee company belongs to Chitresh Mehta Group. Consequently notices u/s 153A of the Act along with 143(2) and 142(1) of the Act duly issued and served upon the assessee. In compliance to the notice assessee e-filed the Income Tax Return on 1.2.2012 declaring income of Rs.29,29,070/-. During the course of assessment proceedings various information were called relating to the transactions entered in the books of accounts.

Submissions were filed. Ld. A.O concluded the assessment after making various additions amounting to Rs.97,54,952/-.

No.71/Indore/2014 order dated 6.11.15 and decision in the case of Anant Steels Ltd Vs. ACIT ITA(SS) No.133/Ind/2013 order dated 30.11.2015 and held the impugned assessments u/s 153A of the Act as invalid.

Revenue Appeal No. IT(SS)ANo.141/Ind/2016, Assessment

Year 2009-10 :

“On the facts and in the circumstances of the case the Ld. CIT(A) has erred by holding the proceedings u/s 153A as invalid in absence of incriminating documents whereas, as per the Income

Tax Act and in the light of various case laws the assessment proceeding cannot be invalid when a search action u/s 132 of the Act was carried out and warrant of authorization was issued and executed against the assessee.”

Assessee’s C.O. No. 38/Ind/2016, Assessment Year 2009-

10:

MCS Trading Company Pvt Ltd IT(SS) No.141,C.O.No.38/Ind/2016 & ITANo.353/Ind/2017 1. That, on the facts and in the circumstances of the case, the learned CIT(A) grossly erred in law in not admitting the additional ground of appeal raised by the respondent before the ld. CIT(A) inasmuch that the impugned Assessment Order passed by the learned AO was barred by the time limit prescribed under s.l53B(I)(a) of the Income-Tax Act, 1961 inasmuch in the instant case, last of the authorisations for search under s.132 of the Act was executed during the financial year ended on 31-03-2011 and consequently, the Assessment Order was statutorily required to be passed uptill 31-03-2013 whereas such Assessment Order was actually passed after 31-03-2013 and served upon the respondent on 02-04-2013, therefore, the impugned Assessment Order deserves to be quashed on this legal ground alone.

2. That, without prejudice to the above, on the facts and in the circumstances of the case, the learned CIT(A) grossly erred in not deciding the issue on merits with respect to the action of the AO for rejection of the books of account of the respondent by invoking provisions of sub-section (3) of section 145 of the Income Tax Act, 1961.

3. That, without prejudice to the above, the learned CIT (A) grossly erred, both on facts and in law, in not deciding the issue on merits with respect to the addition of Rs.50,00,000/- made by the AO in the respondent's income on account of unsecured loan claimed to have been received by the respondent from Shri Balkishan, by invoking provisions of section 68 of the Income-Tax Act, 1961.

4. a. That, on the facts and in the circumstances of the case, the learned CIT(A) grossly erred, both on facts and in law, in not deciding the issue on merits with respect to the ad-hoc addition of Rs.2,66,835/- made by the AO in the respondent's income by arbitrarily estimating gross profit on sale of Gold Bullion merely on conjectures, surmises, guess-work and whims and without confronting the respondent with the so-called market enquiries conducted by him and further without considering the material fact that the respondent had maintained regular financial books of account and quantitative records in its ordinary course of business.

b. That, on the facts and in the circumstances of the case, the learned CIT(A) grossly erred, both on facts and in law, in not deciding the issue on merits with respect to the ad-hoc addition ofRs.11,79,082/- made by the AO in the respondent's income by arbitrarily estimating gross profit on sale of Silver Bullion merely on conjectures, surmises, guess-work and whims and without confronting the respondent with the so-called market enquiries conducted by him and further without considering the material fact that the respondent had maintained regular financial books of account and quantitative records in its ordinary course of business.

MCS Trading Company Pvt Ltd IT(SS) No.141,C.O.No.38/Ind/2016 & ITANo.353/Ind/2017 5. That, on the facts and in the circumstances of the case, the learned CIT(A) grossly erred, both on facts and in law, in not deciding the issue on merits with respect to the ad-hoc addition of Rs.30,00,000/- made by the AO in the respondent's income by making disallowance out of salary expenses amounting to Rs.35,06,000/- actually incurred and claimed by the respondent company merely on conjectures, surmises, guess-work and whims.

6. That, on the facts and in the circumstances of the case, the learned CIT(A) grossly erred, both on facts and in law, in not deciding the issue on merits with respect to the ad-hoc addition of Rs.3,09,035/- made by the AO in the respondent's income by restricting the genuine claim of the respondent in respect of the Computer System Charges and Computer Expenses to 50% only.”

“5. Ground no.1,2 & 4: by these grounds the appellant has challenged the validity of the assessment made u/s 153A of the Act by contending that no incriminating material/details of undisclosed income were found and hence the assessment was bad in law. Detailed submissions of the appellant on the issue are reproduced at Para No.3 above. 5.1 The thrust of the appellants contention is that for the assessment year 2009-10 the return of income was originally filed on 27.08.2009. No notice MCS Trading Company Pvt Ltd IT(SS) No.141,C.O.No.38/Ind/2016 & ITANo.353/Ind/2017 u/s 143(2) of the Act was issued in the case upto 30.09.2010. In view of the above the assessment stood concluded as on 30.09.2010. The additions made in the order u/s 153A r.w.s. 143(3) dated 28.03.2013 are not based on any incriminating material/documents/evidences found as a result of action u/s 132. The additions already reflected in the original return of income filed and no incriminating material was found related to the above transactions warranting addition to the total income u/s 153A of the Income Tax Act, 1961. 5.2 The transactions were properly recorded in the accounts/return maintained/filed prior to the date of search. Appellant placed reliance on various judicial pronouncements in support of the above legal contention including the decision of the jurisdictional I.T.A.T. in the case of Anant Steels Ltd. vs. ACIT (Income-tax Act, 1961. No.133/Ind/2013 dated 30.11.2015) and in the case of Kalani Bros. & Ors. ITA(SS) NO.71/Ind/2014 dated 06.11.2015 and the decision of the special bench of I.T.A.T., Mumbai in the case of All Cargo Global Logistics Ltd. vs. DCIT (20 ITJ 45) (Trib. Mumbai)(SB). 5.3 The material placed on record has been considered. In the case of Kalani Bros. the jurisdictional I.T.A.T. has observed as under: “We have heard both the sides. We have also gone through the case laws relied upon by both the sides. We have also considered various relevant facts of the case. It is a settled legal position that once a search and seizure action has taken place u/s 132 of the Act or a requisition has been made u/s 132A, the provisions of section 153A trigged and Assessing Officer is bound to issue notice u/s 153A of the Act. Once notices are issued u/s 153A of the Act then assessee is legally obliged to file return of income for six years. The assessment and reassessment for six years shall be finalised by the Assessing Officer. It is also held by various Courts that once notice u/s 153A of the Act issued, then assessment for six years shall be at large both for Assessing Officer and assessee have no warrant of law. It has been also held that in the assessment years where assessments have been abated in 8 MCS Trading Company Pvt Ltd IT(SS) No.141,C.O.No.38/Ind/2016 & ITANo.353/Ind/2017 terms of second proviso to section 153A then Assessing Officer acts under original jurisdiction and one assessment is made for total income including the addition made on the basis of seized material. But where there is no abatement of assessments and assessments were completed on the date of search then addition can be made only on the basis of incriminating documents or undisclosed assets, etc. In these cases there was no incriminating document found and seized. No assessment proceedings were abated in these assessees. Thus assessments for these assessment years were completed on the date of search. The MCS Trading IT(SS)A No.257 of 2015 and others 27 assessments were completed u/s 143(3) of the Act read with section 153A/153C of the Act after the search. There was no abatement of any proceedings in these cases for these assessment years in terms of second proviso to section 153A of the Act. There is no seized material belonging to the assessee which was found and seized in relation to additions made. In a recent decision, Hon'ble Delhi High Court in the case of CIT vs. Kabul Chawla (supra) has held that completed assessments can be interfered with by the Assessing Officer while making assessment u/s 153A of the Act, only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which was not produced or not already disclosed or made known in the course of original assessment. In all these cases no assessments were pending on the date of search for these assessment years. No assessments were abated in terms of second proviso to section 153A of the Act. Hon'ble Delhi High Court in the case of CIT vs. Kabul Chawla (supra) has considered various High Court decisions relied upon by the learned DR. The Hon'ble Delhi High Court has considered the cases of Canara Housing Development Co. vs. DCIT; Madugula vs. DCIT; CIT vs. Chetandas Laxmandas and CIT vs. Anil Kumar Bhatia (supra). The only decision of the Hon'ble Allahabad High Court in the case of CIT vs. Raj Kumar Arora; 367 ITR 517 relied on by the learned DR was not considered by Hon'ble Delhi High Court while deciding the issue in 9 MCS Trading Company Pvt Ltd IT(SS) No.141,C.O.No.38/Ind/2016 & ITANo.353/Ind/2017 the case of Kabul Chawla. The Hon'ble Allahabad High Court has reversed the order of the Tribunal and remanded the issue to the Tribunal to consider the appeal of the department on merits. It is a settled legal position that when two views are possible on a particular issue then the view favourable to the assessee should be followed as held by the Hon'ble Apex Court in the case of CIT vs. Vegetable Products; 88 ITR 192. Respectfully following the decision of the Hon'ble Apex Court, we dismiss the ground of appeal s of the Revenue. Departmental appeals are disposed accordingly.” The Hon'ble I.T.A.T., Indore Bench, Indore while arriving at the above decision has taken note of all the recent decisions on the issue of validity of assessment proceedings u/s 153A of the Income Tax Act, 1961 wherein assessments were made without reference to any incriminating documents/material/evidences found during the course of search and held that it is a settled legal position that when two views are possible on a particular issue then the view favourable to the assessee should be followed as held by the Hon'ble Apex Court in the case of CIT vs. Vegetable Products,

88. ITR 192. On perusal of the assessment order in the case it is seen that the additions made by the AO have been made without any reference to any evidences/documents /material found as a result of search action. The appellant has also stated that no incriminating material was found during the course of search to justify any inquiry on the above issues. In view of the facts that no incriminating documents/material/evidences were found related to the issues considered in the assessment order during the search and keeping in view the decisions of the Jurisdictional I.T.A.T. cited above the validity of the assessment u/s 153A of the Income Tax Act, 1961 cannot be upheld. These grounds of the appellant are therefore allowed”.

MCS Trading Company Pvt Ltd IT(SS) No.141,C.O.No.38/Ind/2016 & ITANo.353/Ind/2017 12. We further observe that similar issue relating to the additions made subsequent to search for the Assessment Years for which no incriminating material was found and the additions were made merely on the basis of information called during the course of block assessment came up before the Co-ordinate Bench and was decided in favour of the assessee by the Tribunal observing that if return of income is filed u/s 139 of the Act before the date of search and time limit for issuance of notice u/s 143(2) of the Act for selecting the case for scrutiny assessment expires before the date of search then addition for block assessment can be made only on the basis of incriminating material found during the course of search. The relevant portion of the decision of Co-ordinate Bench in the case of Omprakash Gupta (supra) is extracted hereunder;

“11. We have heard the rival submissions, perused the materials available on record and gone through the orders of the authorities below. The assessee is an individual filed returns of income for all the assessment years i.e. assessment years 2008-09 to 2012-13 and assessments are completed u/s 143(1) of the Act. Subsequently, a search action was conducted u/s 132 of the Act in the business group of the assessee and A.O. has asked the assessee to file returns of income for all the assessment years by issue of notice u/s 153A of the Act on 12.9.2014. In response to that, assessee has filed returns of income for A.Yrs. 2008-09 to 2013-14 on 7.11.2014. The case of the assessee is that the return for A.Y. 2012-13 was MCS Trading Company Pvt Ltd IT(SS) No.141,C.O.No.38/Ind/2016 & ITANo.353/Ind/2017 filed on 7.11.2012. As per section 143(2) of the Act, the last date on which notice for assessment would have been issued was 30.9.2013. All the other returns are filed on earliest date and the time limit for issue of notice u/s 143(2) of the Act in all those cases has expired. The search was initiated in the business premises of the assessee on 29.1.2014 and therefore the time limit for issue of notice u/s 143(2) of the Act is lapsed. All the assessment years from 2008-09 to 2012-13 are concluded and non abated assessments. The A.O. cannot reopen the assessments u/s 153A of the Act. In so far as the above submission is concerned from the assessment order and even from the Ld. CIT(A)’s order, there is nothing on the record which says that the additions made by the A.O. are based on any incriminating material. Even when the same was pointed out to Ld. D.R., she is not able to establish the fact that additions are based on any incriminating material, therefore we find that the additions made by the A.O. for all the years are not based on any incriminating material found during the course of search. It is only based on subsequent search by issue of notice u/s 153A of the Act calling for the various documents from the assessee additions are made. In so far as the arguments of the Ld. Counsel for the assessee in respect of concluded assessments cannot be reopened, we find that in all the assessment years from 2008-09 to 2012-13, there is no scope for the A.O to issue a notice u/s 143(2) of the Act for the reason that the time limit is already over before the date of search itself i.e. on 29.1.2014. Therefore, in our opinion, all the assessment years from 2008-09 to 2012-13 are concluded assessments and non abated assessments and any addition has to be made in respect of those assessment years, there must be an incriminating material. In the present case, there is no incriminating material and therefore, the additions made by the A.O. cannot survive.

21. There are many decisions in favour of the assessee, which says that “once assessments are concluded without incriminating material, additions cannot be made by reopening u/s 153A of the Act. There are two decisions, one is of Hon'ble Kerala High Court in the case of E.N. Gopakumar (supra) and the second one is of Hon'ble Karnataka High Court in the case of Canara Housing Development Company Vs. DCIT Central Circle-1, Bangalore (supra) in favour of the revenue in which it was held that no incriminating material is necessary to reopen the assessments and to make an addition. In the present case, decisions of Hon’ble Delhi, Gujarat and Bombay High Courts are in favour of the assessee. The decisions of Hon'ble Kerala High Court and Karnataka High Court are against the assessee. We find that after examining the facts and circumstances of the case, the judgement of the Hon'ble Supreme Court in the case of Vegetable Products (supra) has to be followed. The Hon'ble Supreme Court in the above case has held that “if two reasonable constructions of a taxing provisions are possible, then that construction, which favours the assessee must be adopted.”

13. We therefore respectfully following the above decision and examining the facts of the instant appeal, find that the assessee e- filed its regular return of income u/s 139(1) on 27.8.2009 declaring income of Rs.29,39,060/-. The case of the assessee could have been picked up for scrutiny assessment by issuance of notice u/s 143(2) of the Act latest by 30.9.2010. No such notices u/s 143(2) of the Act MCS Trading Company Pvt Ltd IT(SS) No.141,C.O.No.38/Ind/2016 & ITANo.353/Ind/2017 was issued to the assessee. Search u/s 132 of the Act conducted on 25.11.10 i.e. after the expiry of the time limit for issuance of notice u/s 143(2) of the Act for Assessment Year 2009-10. No incriminating material pertaining to Assessment Year 2009-10 was found during the course of search. In these given facts the Assessment Year 2009- 10 will come under the category of completed and non abated assessment and the Ld. A.O can make additions in such assessments only on the basis of incriminating material found during the course of search. In the case of the assessee as there is no incriminating material found during the course of search Ld. A.O could not make any addition on the basis of information called during the course of assessment proceedings and therefore Ld. CIT(A) has rightly held the impugned proceedings u/s 153A r.ws. 143(3) of the Act as invalid. We uphold the same and dismiss revenue’s sole Ground No.1. Appeal of the revenue for Assessment Year 2009-10 stands dismissed.

14. Apropos the Cross objections raised by the assessee against the revenue’s appeal, we find that as the proceedings u/s 153A r.w.s.

143(3) of the Act has already been held as invalid by us in the preceding paras, dealing with the grounds raised by assessee in the 17. MCS Trading Company Pvt Ltd IT(SS) No.141,C.O.No.38/Ind/2016 & ITANo.353/Ind/2017 Cross Objections will be merely academic in nature and thus we are inclined not to adjudicate at this stage. Therefore grounds raised in Cross Objection by the assessee we dismissed as infructuous.

16. Now we take up revenue’s appeal for Assessment Year 2012-13 where following grounds of appeal are raised; “1. On the facts and in the circumstances of the case the Ld. CIT(A) erred in allowing the appeal of assessee on account of rejection of books of accounts u/s 145(3) of the Income Tax Act, 1961 without appreciating the facts and evidences brought into light by the AO during assessment proceedings.

2. On the facts and in the circumstances of the case the ld. CIT(A) erred in deleting the addition made by AO of Rs.21,56,32,991/- and Rs.5,41,62,993/- on account of estimation of gross profit on sale of Gold Bullion respectively, without appreciating the facts and evidences brought into light by the AO during assessment proceedings.”

MCS Trading Company Pvt Ltd IT(SS) No.141,C.O.No.38/Ind/2016 & ITANo.353/Ind/2017 18. Ld. Departmental Representative vehemently argued supporting the orders of Ld. A.O but could not controvert the fact that the case of the assessee is squarely covered by the decision of the Tribunal in assessee’s own case for Assessment Year 2010-11 vide ITA No.257&258/Ind/2015.

19. Per contra Ld. Counsel for the assessee relied on the decision of the Co-ordinate Bench in the case of assessee for Assessment Year 2010-11 and also on the detailed finding by Ld. CIT(A) and further submitted that the assessee is regularly maintaining the books of accounts in the ordinary course of business of bullion trading. Day to day stock entry in respect of each and every item of purchases as well as sales are maintained. Audit under the provisions of Companies Act 1956 u/s 44AB of the Income Tax Act have been conducted and no fault have been found by the Auditors in the maintenance of such books of accounts. Furthermore, the Ld. A.O has also not found any significant defect or deficiency in such books of accounts and he has merely adopted the reasoning for Assessment Year 2009-10 and 2010-11 taken by his predecessor for finalizing the assessment, which is uncalled for. He also contended that the Ld. A.O has not raised any doubt about the correctness of the sales, 20 MCS Trading Company Pvt Ltd IT(SS) No.141,C.O.No.38/Ind/2016 & ITANo.353/Ind/2017 purchases and day to day quantitative as well as valuation of opening and closing stock. Merely applying Gross Profit rates adopted by the predecessor is most arbitratory and the finding of Ld. A.O is rightly rejected by Ld. CIT(A).

20. We have heard rival contentions and perused the records placed before us. Revenue has challenged the finding of Ld. CIT(A) holding that the Ld. A.O erred in rejecting the books of accounts of the assessee u/s 145(3) of the Act and has also challenged the finding of Ld. CIT(A) deleting the addition made by Ld. A.O on account of estimation of Gross Profit on sale of gold and silver bullion.

"We, respectfully, following the same, hold that in absence o] any incriminating documents, there is absolutely no justification for making any estimation of g.p. in respect o] assessment year 2010-11, for which, rejection of books of accounts has not been upheld by us. Accordingly, we hold that there was no justification in the Assessing Officer’s action as well as in the learned CIT(A)’s action in estimating g.p. on sales for the assessment year 2010-11. However, for assessment year 2011-12, we have upheld the rejection of books of accounts and therefore, we hold that considering the facts and circumstances of the assessee's case, it would be just and fair to estimate g.p. on sale of gold bullion and silver bullion @0.30% as against 0.29% shown by the assessee in its books of accounts. Thus, the ground nos 7(a) and 7(b) of the appeal of the assessee for assessment year 2010-11 are allowed and ground nos. 6(a) & 6(b) of the appeal of the assessee for the MCS Trading Company Pvt Ltd IT(SS) No.141,C.O.No.38/Ind/2016 & ITANo.353/Ind/2017 assessment year 2011-12 are partly allowed. Departmental grounds for both the years on this issue are dismissed”.

“5.1 Search and seizure action u/s 132 was conducted at the business premises of the appellant on 25.11.2010. In respect of A.Y. 2011-12 excess stock amounting to Rs. 1,73,81,169/- was found during the search and the appellant surrendered Rs.5 Crores as additional income. The Assessing Officer rejected the books of accounts for A.Ys 2010-11 and 2011-12 and made addition on account of G.P.

5.2 The appellant has placed reliance on the orders of the Hon’ble ITAT, Indore in the appellant’s own case for A.Ys 2010-11 and 2011- 12 and in the case of Shri Omprakash Dhanwani for A.Ys 2009-10 to 2011-12.

5.3 Hon’ble ITAT, Indore in its order in IT(SS)A Nos 241 to 243/Ind/2015 and IT(SS) A Nos 254 to 256/Ind/2015 dated 17.05.2016 in the case of Shri Omprakash Dhanwani held in paragraph 15 as under:-

“15. We also find that the assessee is dealing in precious metal like gold and silver and the rates are verifiable and available in 23 MCS Trading Company Pvt Ltd IT(SS) No.141,C.O.No.38/Ind/2016 & ITANo.353/Ind/2017 open to every customer from MCX gold reports or Sarafa Publications. Thus, the customers who purchase goods from the assessee were well aware about the prevailing market price of these metals at the relevant time. Most of the purchases are from reputed dealers. Very few documents pertaining to the assessment year 2011-12were seized which suggest that the assessee indulged in trading which was not recorded in the books of accounts. For recorded purchases, the assessee was maintaining day to day stock register with quantities and purchase vouchers. The payments were also made through banking channels. Therefore, the learned CIT(A)'s action in enhancing the turnover by 17.5% for all the years is unjustified. There was seizure of documents which suggest unaccounted sales for the assessment year 2011-12 and with a view to plug the loopholes, we are of the view that the enhancement in turnover by 5% on the sales recorded in the books of accounts shall be reasonable for the assessment year 2011-12. We accordingly direct the Assessing Officer to enhance the turnover by 5%. Further, on account of sharp fall in GP rate as disclosed by the assessee as compared to assessment year 2009-10, we also find it appropriate to enhance the turnover by 5% for the assessment year 2010-11. We direct accordingly. Since we are accepting the GP rate declared for the assessment year 2009-10 in the absence of any incriminating documents for the relevant period and better book results iin comparison to succeeding years and no defect in books of accounts was found by the authorities below for assessment year 2009-10, therefore, we direct to accept the book results for the assessment year 2009-10. The gold prices were also increased during the relevant period. The average gold price for the period relevant to the assessment year 2007- 24 MCS Trading Company Pvt Ltd IT(SS) No.141,C.O.No.38/Ind/2016 & ITANo.353/Ind/2017 08 was Rs.8.36 lacs per kg which increased to Rs.16.32 lacs per kg for the period relevant to the assessment year 2010- 11and Rs.20,72,000/- for the period relevant to assessment year 2011-12. We also observe that whenever there is tremendous increase in the price of gold, the margin of profit shrinks. Gold market is well informed marked and guided by international price. There was VAT of 1% on the recorded trading of gold. Thus, the gross profit estimated on unrecorded sales cannot be applied to the recorded sales as the margin of tax also are increased by VAT which reduces the margin of profit by the similar amount. The cumulative effect of increase in turnover and increase in gold price must have reduced the gross profit for the assessment years 2010-11 and 2011-12. We also find that the Additional Commissioner of the same Range in the case of Shri Nitesh Kumar Doshi for the A.Y. 2010- 11 has accepted the G.P rate at 0.14% on the recorded sales and Shri Doshi was also engaged in similar business. In the case of Baldev Krishna the GP was estimated at Rs.400/- per 120 gms which comes to around 0.2% of the sales recorded.

Similarly in the case of Vonamala Jagdishwaraiah; (2015) 44 CCH 005 GP at 0.1% has been accepted by Hyderabad Bench of ITAT and in the case of Mahandra Kumar Agrawal (2015) Tax Publication (DT) 2124 the Jaipur Bench of the Tribunal accepted the GP of 0.1%. Further, we are of the view that on unrecorded sales estimated, the profit has to be worked out at the rate of 1.25%. Considering all these aspects we sustain the gross profit rate of 1.25% on the enhanced turnover of gold bullion for the assessment years 2010-11 and 2011-12 and on the recorded turnover disclosed in the books of accounts, we direct to apply gross profit rate of 0.25%. 25 MCS Trading Company Pvt Ltd IT(SS) No.141,C.O.No.38/Ind/2016 & ITANo.353/Ind/2017 5.3.1 In the case of Shri Omprakash Dhamvani the Hon’ble ITAT has accepted the GP rate declared for AY. 2009-10 in the absence of any incriminating document for the relevant period, better book results in comparison to succeeding years and the fact that no defect in the books of accounts was found by the Assessing Officer and CIT(A). The Hon’ble ITAT did not accept the book results for A.Y. 2010-11 on account of sharp fall in G.P. rate as compared to A.Y. 2009-10 and for A.Y. 2011-12 due to incriminating documents seized during the search. The Hon'ble ITAT, Indore found it appropriate to enhance the turnover by 5 for AY s 2010-11 and 2011-12 and further sustained the addition of G.P @0.25% on the recorded turnover and @1.25% on the enhanced turn over for A.Ys 2010-11 and 2011-12.

5.4 The Hon’ble ITAT, Indore in the appellant’s own case in and 258/ 2015 after taking into consideration the order passed in the case of Shri Omprakash Dhanwani has upheld the addition of G.P @ 0.01% in A.Y. 2011-12 where the book results have been rejected due to incriminating documents. The Hon’ble ITAT held that in absence of any incriminating documents there is no justification for making any estimation of G.P in respect of A.Y. 2010-11 for which the rejection of books of accounts has also not been upheld.

5.5 In appellant’s case the CIT(A) had rejected the books of accounts of the assessee for A.Y. 2010-11 by invoking the provisions of section 145(3) by using his co-terminus powers. The AO had also rejected the books of accounts but not made any reference to section 145(3). The CIT(A) held that the cash MCS Trading Company Pvt Ltd IT(SS) No.141,C.O.No.38/Ind/2016 & ITANo.353/Ind/2017 sales are more than 90 or total sales and as the cash bills remain With the assessee it gives lot of scope for manipulation of rates, quantity and amount of the bills. The Hon’ble ITAT held the view that during the course of the search proceedings, not a single incriminating document or loose paper was found from which the unaccounted trading of bullion by the assessee could get established. The Hon’ble ITAT also observed that the assessee had maintained stock register and such stock register was duly produced before the Assessing Officer and the Revenue Authorities have not brought on record any single instance of any sales having been made at a rate lower than the then prevailing market rate. If the sale is not found to have been made at the rate below than tee market rate, any allegation regarding manipulation in the cash memos without any basis has no legs to stand . The Hon'ble ITAT deleted the action of the ClT(A) in enhancing the sales on adhoc basis by 20% of the sales shown in the audited accounts for A.Y.s 2010-11 and 2011-12.

5.6 The Assessing Officer has primarily rejected the books of accounts holding that the huge cash sales made are unverifiable in the absence of completed address on the sale bills. The Hon'ble lTAT has clearly held in the appellant's case that if the sale is not found to have been made at the rate below than the market rate, any allegation regarding manipulation in the cash memos cannot be accepted. The Hon’ble ITAT has also not upheld the rejection of books of accounts for A.Y. 2010-11 in the absence of any incriminating material.

MCS Trading Company Pvt Ltd IT(SS) No.141,C.O.No.38/Ind/2016 & ITANo.353/Ind/2017 5.7 In view of the facts and circumstances of the case and respectfully following the decision of Hon'ble ITAT, Indore in appellant's own case it is held that the rejection of books of accounts cannot be accepted in the absence of any incriminating evidence and merely on the observation that huge number of cash sales are unverifiable, Ground No.2 is therefore allowed.

5.8 As the rejection of books of account has not been upheld the addition of Rs.21,56,32,991/- made on account of estimation of gross profit on sale of gold bullion and Rs. 5,41,62,993/- on account of estimation of gross profit on sale of silver bullion is deleted. Ground Nos. 3(a) and 3(b)are allowed.”

Audited reports by the Auditor under the Companies Acts and Income Tax Act are placed on records. No error is pointed out by the Auditors. Ld. A.O has made a general observation that the assessee is having huge amount of cash purchases and cash sales but has not placed or referred to any evidence on record to prove that the MCS Trading Company Pvt Ltd IT(SS) No.141,C.O.No.38/Ind/2016 & ITANo.353/Ind/2017 assessee is indulged into unaccounted sales and purchases. All the expense are vouched. Ld. A.O has merely followed the order of his predecessor of previous years for making the impugned addition. It is well settled principal that before rejecting the book results, discrepancies should be pointed out in the regular books of accounts by the Assessing Officer.

The order pronounced in the open Court on 09.04.2019.