DCIT, NEW DELHI vs. M/S. PEARL BOTTLING PVT. LTD., NEW DELHI

2) On the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the disallowance of Rs. 3,82,42611/- on account of increased profit after invoking provision of section 145(2) of the I.T. Act, 1961.

3) In the facts and circumstances of the case, the Ld. CIT(A) has erred in not appreciating the facts that books of accounts were not rejected merely because of low profit rate, rather they were rejected because the assessee did not furnish any documentary evidence to explain the abrupt fall in net profit rate.

4) On the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 3,82,42,611/- on the grounds of non-following the principle of natural justice, when it has co terminus power as of AO.

5) In the facts of the circumstances of the case whether the CIT(A has justified in holding that the ‘additional income’ of Rs. 3,22,10,000/- surrendered by the assessee during search can be included in regular P&L account of the assessee.

6) The appellant craves leave to add, amend any / all the grounds of appeal before or during the course of hearing of the appeal.

Accordingly, warrant of authorization u/s. 132 of the Act was also issued in the name of M/s Pearl Bottling Pvt. Ltd., 802, Ansal Bhawan, KG Marg, New Delhi. The case of the assessee is related to Sh. CK Jaipria Group in Jaipuria Group of cases. Notice u/s. 153A of the Act dated 8.4.2013 was issued to the assessee requiring it to file the return for the assessment year 2011-12. In response to notice u/s. 153A of the Act, the return of income for the assessment year 2011-12 was filed by the assessee on 31.5.2013 declaring loss of Rs. 8,01,64,285/-. Notices u/s. 142(1) & 143(2) of the Act alongwith questionnaire dated 20.6.2013 was issued to the assessee requiring it to file necessary details. Notice u/s. 142(1) and 143(2) of the Act alongwith questionnaire dated 20.6.2013 were issued to assessee on 01.11.2013 requiring it to file necessary details and produce the books of accounts. Thereafter, vide several statutory notices and order sheet entries, the AR of the assessee were reminded of this questionnaire and were asked to produce the details as provided therein but the compliance has been unsatisfactory. During the year under consideration, the assessee is deriving income from business and profession. During the year under consideration, the assessee company is engaged in the business of manufacturing and trading in soft drinks under the brand name Pepsi, Mirinda, 7up etc. and deriving income from business and profession. On examination of the net profits of the assessee for the relevant financial year vis a vis the net profits of the immediately last 3 preceding years, AO observed that the net profit for the year under consideration is abysmally low. AO observed that assessee had not furnished any details whatsoever in reply to question no. 43 of the questionnaire dated 1.11.2013 regarding the details for expenses claimed in the P&L account with documentary evidences, however, after repeated reminders, the assessee had furnished part details which also include only list of major expenses without any bills and vouchers to verify the same.

AO further observed that assessee had not produced the books of accounts. Hence, he observed that it is clear that the assessee has not been able to substantiate the trading results in P&L account by not producing any details of expenses, confirmations or ledger accounts of the parties. He also observed that assessee has made willfully surrender on account of disallowance of expenses and others. Accordingly, the books of accounts of the assessee are rejected u/s. 145(2) of the Act and recomputed the income at Rs. 2,66,81,850/- on account of profits and gain of business and profession and assessed the income of the assessee on the same amount i.e. Rs. 2,66,81,850/- u/s. 153A/143(3) of the Act vide order dated 28.3.2014. Aggrieved with the assessment order, the assessee appealed before the Ld. CIT(A), who vide his impugned order dated 10.06.2015 has allowed the appeal of the assessee by deleting the addition of Rs. 2,66,81,850/-. Against the impugned order, the Revenue is in appeal before the Tribunal.

4.1 Ld. DR relied upon the Order of the AO and reiterated the contentions raised in the grounds of appeal. She stated that during the year under consideration, the assessee company was engaged in the business of manufacturing and trading in soft drinks under the brand name Pepsi, Mirinda, 7up etc. and deriving income from business and profession. On examination of the net profits of the assessee for the relevant financial year vis a vis the net profits of the immediately last 3 preceding years, AO observed that the net profit for the year under consideration is abysmally low. She further stated that assessee had not furnished any details whatsoever in reply to question no. 43 of the questionnaire dated 1.11.2013 regarding the details for expenses claimed in the P&L account with documentary evidences, however, after repeated reminders, the assessee had furnished part details which also include only list of major expenses without any bills and vouchers to verify the same. Therefore, she stated that AO has rightly observed that assessee had not produced the books of accounts, as a result thereof, the assessee has not been able to substantiate the trading results in P&L account by not producing any details of expenses, confirmations or ledger accounts of the parties. She also submitted that assessee has made willfully surrender on account of disallowance of expenses and others. Accordingly, the books of accounts of the assessee were rightly rejected u/s. 145(2) of the Act by the AO and therefore, the AO recomputed the income at Rs. 2,66,81,850/- on account of profits and gain of business and profession, which does not need any interference. In support of her contention, she stated that following decisions may kindly be considered with regard to addition on account of rejection of books of accounts and estimation of profit:-

TIQL-83-SC-IT (Supreme Court) rejection of books was sustainable, where the Assessee had failed to produce the Registers indicating Production,

Issuance and Consumption. It also upheld the estimation of income on the basis of the material on record and the statements made by the employees and directors during search and survey proceedings

2. M/s Punjab Sind Dairy Products Pvt Ltd Vs DCIT 2016-

TIQL-3116-HC-MUM-IT (Bombay High Court)

1. rejection of books is sustainable, where the Assessee

failed to produce the Registers indicating Production,

Issuance and Consumption.

2. estimation of income on the basis of the material on record and the statements made by the employees and directors during search and survey proceedings is not arbitrary

3. Smt Dayawanti Vs CIT f20161 75 taxmann.com 308

(Delhi)/[2017] 245 Taxman 293 (Delhi/[2017] 390 ITR

496 (Delhi)[2016] 290 CTR 361 (Delhi) (Copy Enclosed) where Hon’ble Delhi High Court, in para 22 of its order, upheld order of Hon’ble ITAT estimating GP @15% and estimating sales at Rs.1 crore.

4. CIT Vs Chadha Automobiles (India) f2011113

taxmann.com 152 (Delhi)/r20111 202 Taxman 268

(Delhi) (Copy Enclosed) where Hon’ble Delhi High Court upheld addition on account of GP rate @5% as against 3.25% disclosed by the assessee in earlier years

5- Kachwala Gems Vs CIT [2007] 158 Taxman 71 (SC)/[2007] 288 ITR 10 (SC)/[2006] 206 CTR 585 (SC) (Copy Enclosed)

Assessing Officer, on finding that assessee had not maintained and kept any quantitative details/stock register for goods traded in by it; that there was no evidence on record or document to verify basis of valuation of closing stock shown by assessee; and that GP rate declared by assessee during assessment year did not match result declared by assessee itself in previous assessment years, rejected assessee’s books of account and resorted to best judgment assessment under section

reasons had been given by Assessing Officer for doing so, there was no reason to take a different view.

5. On the other hand, Ld. counsel for the assessee has relied upon the order of the Ld. CIT(A) and stated that he has passed a well reasoned order which does not need any interference. He submitted that assessee has submitted required details such as audited financial statements, tax audit report, detail of loans taken/ given, partywise sale and purchase, bank statements, debtor/ creditor, stock details, raw material consumption, major expenses, acknowledgement of TDS return, excise return and VAT return etc. before the lower authorities. However, the AO has failed to consider the above details and alleged that the assessee has not filed required details and also failed to produce the books of account for verification, while the assessee has submitted required details and produced books of account before the AO during the assessment proceedings. He further submitted that AO erred in rejecting the books of account by invoking section 145 of the Act and estimating book profit by net profit by applying average net profit rate of immediate preceding three years without bringing in any material or cogent evidence on record which were relied by the AO for such estimation. He further submitted that Assessing Officer erred in rejecting the books of account by invoking section 145 of the Income tax Act, 1961 while the books of account of the appellant company were statutorily audited in compliance of the provisions of the Companies Act, 1956 and also tax audit under section 44AB of the Income tax Act, 1961 was conducted by chartered accountant and the auditors have reported the about correctness and completeness of the books of account and also not qualified their reports. It was further submitted that AO has neither pointed out any defect or discrepancy in the books of account nor mentioned his dissatisfaction regarding correctness and completeness of the books of account. So, the conditions prescribed under section 145 of the Income tax Act, 1961 for rejection of books of account has not been satisfied in the case of the assessee and the books of account of the assessee have been wrongly rejected arbitrarily and capriciously. It was further submitted that AO has erred in alleging that the assessee has failed to furnish the required details and to produce the books of account which has been corroborated from two facts.

Firstly the AO framed assessment under section 153A read with section 143(3) of the Income tax Act, 1961 instead of 153A read with section 144 of the Income tax Act, 1961 which proves beyond doubt that the assessee has filed the required details sought by the AO for completion of the assessment. Secondly, the AO has rejected the books of account under section 145 of the Income tax Act, 1961 which proves beyond doubt that after verification of the books of account the AO was not satisfied about the completeness and correctness of the accounts of the appellant as books of account cannot be rejected without verifying the same with the material available on records. It was further submitted that AO also failed to bring in any material on record that the evidences which were seized from the premises of the assessee company showing undisclosed sales / bogus expenses alleged to have been claimed by the appellant for reducing profit deliberately which prompt AO to estimate the book profit / net profit at Rs 2,66,81,850/- by applying average net profit rate of 2.60% of immediate preceding three years by rejecting the books of account. It was the further submission that the AO erred in facts to estimate book profit / net profit at Rs 2,66,81,850/- of the assessee against loss of Rs. 5,46,70,444/- as shown in the audited books of account without bringing in any material on record for such estimation and also failed to consider the fact that there has been gradual increase in cost of material and financial cost apart from increase in other expenses of the assessee company which resulting in fall in GP / NP of the assessee company even without affording an opportunity of being heard to the assessee. In view of above, he requested to uphold the order of the Ld. CIT(A) of deletion of addition in dispute and dismiss the appeal of the Revenue.

6. We have heard rival contentions and considered the records, especially the impugned order passed by the Ld. CIT(A) as well as the written submissions filed by the Ld. CIT(DR). We find that Ld. CIT(A) has elaborately discussed the issue in dispute vide para no. 4.1.5 to 4.1.23 at page no. 43-59 of the impugned order dated 10.6.2015. For the sake of clarity, we are reproducing hereunder the said relevant findings of the Ld. CIT(A).

“4.1.5 I have considered the submission of the AR and the assessment order. Since a substantial addition was made by the A.O. by rejecting books of account on the basis of low N.P.ratio and for non submission of details it was found appropriate to seek the report from the A.O. on the AR’s submission. Therefore, the submission of the AR alongwith paper book was forwarded to the A.O. seeking his comments on various submissions of the AR. The contents of the letter seeking A.O’s report is reproduced below In the above case the AO has made NP addition of Rs. 2,66,81,850/- on the ground that the NP declared by the appellant was very much on the lower side. The appellant has made a detailed written submission and filed paper book substantiating the financial results declared by them. The AO is hereby given an opportunity to offer his comments, if any, on the various submissions made during the appeal proceedings. 4.1.6 The A.O. has submitted his report through his JCIT. The relevant contents of the report are as under: The case of above named assessee has been centralized in CC-12 (Now Central Circle 07), New Delhi consequent to search in the case of assessee on Jaipuria Group of cases. The assessee has taken ground of appeal before CIT(A) that:- “On the fact and circumstances of the appellant’s case, the learned assessing officer erred both in fact and in law in estimating profit of Rs. 3,82,42,611/- by rejecting the books of account / book results by invoking provisions of section 145 of the Income tax Act, 1961 and applying average NP rate of three financial years only on the basis of doubt, suspicion, conjectures and surmises without bringing in any material on record that the books of account of the appellant is incorrect and incomplete. Hence, estimation of profit of Rs. 3,82,42,611/- by rejecting the books of account is bad in law and liable to be deleted". In this context, it is submitted that I have gone through the assessment records of the assessee. Observation of the assessee before the Ld. CIT(A) was that the appellant has shown sales of Rs. 1,18,96,53,730/- on which Gross Profit of Rs.

29,76,42,068/- and Net Profit of Rs. 1,13,20,727/- has been declared giving GP ration of 25.02% and NP ration of 0.95% during the financial year under consideration. The appellant has shown sales of Rs.l,02,01,52,679/- on which Gross Profit of Rs. 19,74,90,370/- and Net Loss of Rs. 5,46,70,444/- has been declared giving GP ration of 19.36% and NP ratio of -5.36% during the immediately preceding financial year. In this regard, submission filed by the assessee before the Ld. CIT(A) and to prove the contention of the assessee company , a letter was sent by the undersigned to the Principal Officer, of the assessee company on 01.05.2015 to produce the evidence in respect of downfall in Net Profit in the F Y 2011-12, comparison with the immediate three preceding F Ys. In response to the letter issued, the assessee company has filed reply on 15.05.2015 and placed the reason for downfall alongwith books of accounts. The reason submitted by the assessee company is as under:- “This has reference to the above mentioned subject enquiring about the reasons for fall in the Net Profit rates of the Company over the years. It is humbly submitted as under: 1. The Profitability chart for the financial year 2010 - 11 and last three financial years are as reproduced as under: Particulars Financial Year Financial Year Financial Year Financial Year 2007 2010-11 2009 - 10 2008 - 09 - 08 Rs. Rs. Rs. Rs. INCOME Sales 1,097,562,154 1,036,568,758 782,908,499 584,354,292 Less: Excise Duty 77,409,475 57,121,520 69,156,708 59,086,249 Total Turnover 1,020,152,679 979,447,238 713,751,791 525,268,043 Other Income 3,118,862 16,270,390 9,042,139 6,683,740 Total Income 1,023,271,541 995,717,628 722,793,930 531,951,783

EXPENDITURE Increase / Decrease in (8,701,407) (4,300,694) (156,707) (5,169,627) stocks 792,922 (572,721) (487,898) 449,916 Excise Duty on Op/ Closing FG Stock Purchases of Traded Goods 117,329,314 232,283,485 149,608,038 115,346,667 480,526,067 315,939,248 224,553,873 153,375,188 Cost of Raw Material Consumed Stores Consumed 22,114,116 15,743,774 12,627,492 7,687,991 Power & Fuel 50,106,834 29,623,318 20,881,508 15,478,518 Employees Benefit Expenses 77,140,066 67,218,464 57,128,470 50,673,843 83,354,397 96,003,364 65,140,513 47,994,459 Transportation, Handling & distribution cost 822,662,309 751,938,236 529,295,289 385,836,955 Total Manufacturing Expenses Gross Profit 197,490,370 227,509,002 184,456,502 139,431,088 Other Expenses 33,640,855 35,203,039 26,843,620 26,360,189 Administrative & Other Expenses Repair & Maintenance 34,595,241 26,074,024 21,752,749 16,990,517 Selling & Other Expenses 52,548,446 55,183,838 43,158,306 36,534,542 17,067,532 8,738,173 5,050,564 Breakage Leakage & Burst 18,612,066 etc. Finance Cost 55,876,756 26,541,119 28,977,303 25,216,148 Depreciation 60,006,312 55,961,062 33,655,094 31,696,940 Total Other Expenses 255,279,676 216,030,613 163,125,245 141,848,900 Net Profit (54,670,444) 27,748,778 30,373,397 4,265,928 GP Ratio on Total Sale 19.36% 23.23% 25.84% 26.54% NP Ratio on Total Sale -5.36% 2.83% 4.26% 0.81%

PARTICULARS Average of FY 2007-08 to 2009- Financial Year 2010-11 10 Rs. Rs. INCOME Sales 1,097,562,154 80.1,277,183 Less: Excise Duty 77,409,475 61,788,159 Total Turnover 1,020,152,679 739,489,024 Other Income 3,118,862 10,665,423

Total Income 1,023,271,541 750,154,447 EXPENDITURE Increase / Decrease in stocks (8,701,407) (3,209,009) Excise Duty on Op/ Closing FG Stock 792,922 (203,568) Purchases of Traded Goods 117,329,314 165,746,063 Cost of Raw Material Consumed 480,526,067 231,289,436 Stores Consumed 22,114,116 12,019,752 Power & Fuel 50.106,834 21.994,448 Employees Benefit Expenses 77,140,066 58,340.259 83,354,397 69,712,778 Transportation, Handling & distribution cost Total Manufacturing Expenses 822,662,309 555,690,160 Gross Profit 197,490,370 183,798,864 Other Expenses Administrative & Other Expenses 33,640,855 29,468.949 Repair & Maintenance 34.595,241 21,605,763 Selling & Other Expenses 52,548,446 44,958,895 Breakage Leakage & Burst etc. 18,612,066 10,285,423 Finance Cost 55,876.756 26,911,524 Depreciation 60,006,312 40,437,699 Loss on Sale of Fixed Assets - - Total Other Expenses 255,279,676 173,668,253 Net Profit (54,670,444) 20,796,034 GP Ratio on Total Sale 19.36% 24.85% NP Ratio on Total Sale -5.36% 2.81%

1,02,01,52,679/- for the financial year 2010 - 11 as against average cost of purchase / cost of raw material consumed of Rs 39,70,35,499/- and sale turnover of Rs 73,94,89,024/- for last three preceding years i.e. from 2007 — 08 to 2009 - 10. The percentage of cost of material to sale for the financial year 2010-11 works out at 58.60% against average cost of material to sale 53.69% for last three preceding years. Hence, the percentage increase in cost of purchase / cost of material consumed works out 4.91% which is the major factor reducing the gross profit of the appellant company. The detail of percentage growth in cost of purchases and raw material as compared to average rate of cost of material are as under:

Particulars Average of FY 2007-08 to Financial Year 2010-11 2009- H) Net Sale / Turnover 1,020,152,679 739,489,024 Cost of Material Purchase of traded Goods 117,329,314 165,746,063 Cost of Raw Material consumed 480,526,067 231,289,436 Total Cost of Material 597,855,381 397,035,499 % of Cost of Material Purchase over 58.60% 53.69% Turnover % Growth of cost of material 4.91%

It is important to note that further fall in GP rate of 0.58% is quite justified due to increase in expenses on Salary, Wages & amenities and expenses on Repair & maintenance keeping in view of the normal inflation in the economy over the years. 4. The decrease in GP rate is attributed mainly due to increase in cost price per unit of raw materials over the years. The percentage increase in cost per unit of major raw materials as per the 18 audited financial statements of the appellant company is as under: Unit %age Particulars of Cost per unit Cost per unit Cost per unit Cost per unit increase in Rs (2011) in Rs (2010) in Rs (2009) in Rs (2008) major Raw material

Average Cost per unit in Rs (2008 - 2010) Concentrate Units 20,712 21,408 18259 18189 19285 7.40 Pulp Kg 63 63 29.04 82 Crown Cork Gross 46 38 36 29 34 32.77 Sugar Kg 30 14 52.63 28 18 20 C02 Kg 14 13 14 13 13 6.95

2008 - 09 26.54 25.84 2009-10 23.23 20 1 0 - 11

are allowable expenses as per the provisions of the Income tax Act, 1961. Detail of loans taken and interest thereon claimed in the profit & loss account are as under:

S. Particulars Financial year 2010- No. 11 Average Financial Charges of last three financial years 1. Oriental Bank of Commerce Cash Credit 61,776,118 Term Loan 20,292,037 Yes Bank Limited 2. Cash Credit 19,727,647 Working Capital Demand Loan 80,000,000 Term Loan 240,000,000 3. 10,061,298 Pepsico India Holding Private Limited

4. 15,378,695 Limited Companies against Vehicles

5. Interest accrued but not due Total Secured Loan 447,235,794

Financial charges 55,876,756 26,911,524 Net Turnover 1,020,152,679 73,94,89,024 5.48% 3.64% % of financial charges over net turnover % increase in financial charges 1.84%

Report of A O The Submissions of the assessee were examined and the contention of the assessee that the decrease in the NP ratio was mainly on account of increase in the Input cost, Fixed Costs along with the increase in the finance cost due to increased borrowings over the years, whereas there is no proportionate increase in the Selling price of the beverages as per the books of account produced.

Financial Cost Chart for AY 2011-12 - S. Particulars Financial year 2010- No. 11 Average Financial Charges of last three financial years 1. Oriental Bank of Commerce Cash Credit 61,776,118 Term Loan 20,292,037 Yes Bank Limited 2. Cash Credit 19,727,647 Working Capital Demand Loan 80,000,000 Term Loan 240,000,000 3. Pepsico India Holding Private Limited 10,061,298 4. Limited Companies against Vehicles 15,378,695 5. Interest accrued but not due Total Secured Loan 447,235,794

Financial charges 55,876,756 26,911,524

Net Turnover 1,020,152,679 73,94,89,024 % of financial charges over net turnover 5.48% 3.64% ' % increase in financial charges 1.84%

In view of the facts narrated above, it is requested that the appeal of the assessee may kindly be deleted on merits. 4.1.7 The AR has also filed a rejoinder to the remand report the contents of which are as under: This is with reference to Remand Report submitted at your office by learned Assistant Commissioner of Income Tax, Central Circle - 07, New Delhi through the Joint Commissioner of Income Tax, Central Range - 02, New Delhi on 09/06/2015. A copy of the said remand report has been provided to us for our comments / explanation by your good self/ln this regard we would like to submit as under:

The AO estimated net profit of Rs 2,66,81,850/- instead of net loss of Rs 5,46,70,444/- shown in the profit & loss account of the appellant by rejecting the books of account / book results by invoking provisions of section 145(2) of the Income tax Act, 1961 and applying average NP rate of three financial years only on the basis of doubt, suspicion, conjectures and surmises without bringing any material on record that the books of account of the appellant have not been maintained properly. We would like to submit that the learned assessing officer vide letter dated 01.05.2015 asked the appellant to produce the evidence in respect of downfall in Net Profit in financial year 2010 - 11, comparison with the immediate three preceding financial years during the course of remand proceedings. In response, the appellant submitted the detail reply to justify downfall in Net Profit in financial year 2010 - 11, comparison with the immediate three preceding financial years and also produced books of accounts before the learned assessing officer during the course of remand proceedings. We would further like to submit that the learned assessing officer has verified the books of account of the appellant company and stated that the contention of the appellant raised before Hon’ble Commissioner of Income Tax

(Appeals) as per the books of accounts produced. The learned assessing officer mentioned in the remand report that: The learned assessing officer in his Remand Report stated that “The submissions of the assessee were examined and the contention of the assessee that the decrease in NP ratio was mainly on account of increase in the Input cost, Fixed Costs along with the increase in the finance cost due to increased borrowings over the years, whereas there is no proportionate increase in the Selling price of the beverages as per the books of account produced. ” In this regard, we would like to submit that the learned assessing officer in his remand report submitted that the contention of the assessee in respect of decrease in NP ratio was mainly on account of increase in the Input cost, Fixed Costs along with the increase in the finance cost due to increased borrowings over the years, whereas there is no proportionate increase in the Selling price of the beverages is found to be as per the books of account produced. Hence, the learned assessing officer in his remand report has accepted the contentions of the appellant company in respect of Grounds of Appeal No 1 to 6 raised by the appellant on verification of books of account produced before him and completely satisfied about completeness and correctness of the books of account of the appellant company. Since, books of accounts have been duly examined by the learned assessing officer and found to be correct and complete, so the appellant stands by the submission made earlier before your good self that the learned assessing officer erred in fact and in law in estimating profit of Rs 2,66,81,850/- by rejecting the books of account / book results by invoking provisions of section 145 of the Income tax Act, 1961 and applying average NP rate of three, financial years only on the basis of doubt, suspicion, conjectures and surmises without bringing in any material on record that the books of account of the appellant is incorrect and incomplete. 4.1.8 I have considered the submission of the AR, assessment order and the remand report. Submissions of the appellant has been that the A.O’s action in rejecting the books of account was against law. There is no provision under the law to reject the books of account for non-furnishing of details. The books of account of the company are actually maintained and regularly audited both under the Co’s Act as well as under the Income tax Act. The return of income filed before the A.O. contains report of the auditors u/s 44AB of the Act. The auditors, who have audited the books of account, were fully satisfied that all the accounting standards have been followed and he did not make any adverse remarks in the audited report. The provisions of section 45 describes certain conditions for rejection of books of account but non furnishing of details is not one of the prescribed conditions for rejection of books of account. 4.1.9 Further all the details called for vide questionnaire dated 1.11.13 have been furnished. The AR submitted that there was some delay in submission of the details but the same was due to large number of cases being handled simultaneously by the AR before the same A.O. The delay was not on account of any design but was merely on account of huge work load. The AR has drawn attention to the fact that the A.O. has mentioned in the order itself that the details have been filed on 18.3.14. 4.1.10 As regards fall in net profit ratio, a comparative chart of financial results for the current assessment year and for the three preceding assessment years has been provided. The same is reproduced below for ready reference :

Particulars Financial Year Financial Year Financial Year Financial Year 2010-11 2009 - 10 2008 - 09 2007 - 08 Rs. Rs. Rs. Rs. INCOME Sales 1,097,562,154 1,036,568,758 782,908,499 584,354,292 Less: Excise Duty 77,409,475 57,121,520 69,156,708 59,086,249 Total Turnover 1,020,152,679 979,447,238 713,751,791 525,268,043 Other Income 3,118,862 16,270,390 9,042,139 6,683,740 Total Income 1,023,271,541 995,717,628 722,793,930 531,951,783

EXPENDITURE Increase / Decrease in (8,701,407) (4,300,694) (156,707) (5,169,627) stocks 792,922 (572,721) (487,898) 449,916 Excise Duty on Op/ Closing FG Stock Purchases of Traded Goods 117,329,314 232,283,485 149,608,038 115,346,667 480,526,067 315,939,248 224,553,873 153,375,188 Cost of Raw Material Consumed Stores Consumed 22,114,116 15,743,774 12,627,492 7,687,991 Power & Fuel 50,106,834 29,623,318 20,881,508 15,478,518 Employees Benefit Expenses 77,140,066 67,218,464 57,128,470 50,673,843 83,354,397 96,003,364 65,140,513 47,994,459 Transportation, Handling & distribution cost 822,662,309 751,938,236 529,295,289 385,836,955 Total Manufacturing Expenses Gross Profit 197,490,370 227,509,002 184,456,502 139,431,088 Other Expenses 33,640,855 35,203,039 26,843,620 26,360,189 Administrative & Other Expenses Repair & Maintenance 34,595,241 26,074,024 21,752,749 16,990,517 Selling & Other Expenses 52,548,446 55,183,838 43,158,306 36,534,542 17,067,532 8,738,173 5,050,564 Breakage Leakage & Burst 18,612,066 etc. Finance Cost 55,876,756 26,541,119 28,977,303 25,216,148 Depreciation 60,006,312 55,961,062 33,655,094 31,696,940 Total Other Expenses 255,279,676 216,030,613 163,125,245 141,848,900 Net Profit (54,670,444) 27,748,778 30,373,397 4,265,928 GP Ratio on Total Sale 19.36% 23.23% 25.84% 26.54% NP Ratio on Total Sale -5.36% 2.83% 4.26% 0.81%

4.1.11 The fall in G.P. and Net profit ratio has been attributed to increase in cost of purchases and raw material and due to increase in financial cost. The comparative chart of the profitability form for F.Y. 10-11 vis-a-vis the average net profit of immediately preceding three financial years is reproduced below :- PARTICULARS Average of FY 2007-08 to 2009- Financial Year 2010-11 10 Rs. Rs. INCOME Sales 1,097,562,154 80.1,277,183 Less: Excise Duty 77,409,475 61,788,159 Total Turnover 1,020,152,679 739,489,024 Other Income 3,118,862 10,665,423 Total Income 1,023,271,541 750,154,447 EXPENDITURE

Increase / Decrease in stocks (8,701,407) (3,209,009) Excise Duty on Op/ Closing FG Stock 792,922 (203,568) Purchases of Traded Goods 117,329,314 165,746,063 Cost of Raw Material Consumed 480,526,067 231,289,436 Stores Consumed 22,114,116 12,019,752 Power & Fuel 50.106,834 21.994,448 Employees Benefit Expenses 77,140,066 58,340.259 83,354,397 69,712,778 Transportation, Handling & distribution cost Total Manufacturing Expenses 822,662,309 555,690,160 Gross Profit 197,490,370 183,798,864 Other Expenses Administrative & Other Expenses 33,640,855 29,468.949 Repair & Maintenance 34.595,241 21,605,763 Selling & Other Expenses 52,548,446 44,958,895 Breakage Leakage & Burst etc. 18,612,066 10,285,423 Finance Cost 55,876.756 26,911,524 Depreciation 60,006,312 40,437,699 Loss on Sale of Fixed Assets - - Total Other Expenses 255,279,676 173,668,253 Net Profit (54,670,444) 20,796,034 GP Ratio on Total Sale 19.36% 24.85% NP Ratio on Total Sale -5.36% 2.81%

4.1.12 The fall in G.P. by 5.4% (24.85% to 19.36%) and net profit rate by 18.17% (i.e. 2.81% to (-) 5.36%) was on account of increase in cost of purchase and cost of raw material consumed.

4.1.13 There is a fall in G.P. by 5.49%. Out of 5.49%, 4.91% fall in G.P. has been attributed to increase in cost of raw material consumed and purchases of traded goods. The balance fall in G.P. (5.49% (-) 4.91% - 0.58%), was attributable to increase in salary, wages, repairs & maintenance expenses.

4.1.14 The comparative chart showing percentage increase in cost per unit of major raw materials as per the audited financial statements of the appellant’s company, as submitted by the AR, for the F.Yrs. 2007-08 to 10-11 is reproduced below:

Unit %age Particulars of Cost per unit Cost per unit Cost per unit Cost per unit increase in Rs (2011) in Rs (2010) in Rs (2009) in Rs (2008) major Raw material

Average Cost per unit in Rs (2008 - 2010) Concentrate Units 20,712 21,408 18259 18189 19285 7.40 Pulp Kg 63 63 29.04 82 Crown Cork Gross 46 38 36 29 34 32.77 Sugar Kg 30 14 52.63 28 18 20 C02 Kg 14 13 14 13 13 6.95

4.1.15 The fall in net profit ratio has been attributed to fall G.P. rate which in turn was due to increase in cost of raw material and increase in purchase of credit goods. The net profit rate has been severely affected by increased financial cost by 107.63% during the current previous year as compared to average financial cost of last three preceding years. The loan liability has almost doubled over the years from 25.79% as on 31.3.08 to 44.72% as on 31.3.11. The break up of secured loans and the financial charges paid by the company during the previous year relevant to present assessment year is reproduced below for ready reference :

S. Particulars Financial year 2010- No. 11 Average Financial Charges of last three financial years 1. Oriental Bank of Commerce Cash Credit 61,776,118 Term Loan 20,292,037 Yes Bank Limited 2. Cash Credit 19,727,647 Working Capital Demand Loan 80,000,000 Term Loan 240,000,000 3. 10,061,298 Pepsico India Holding Private Limited

4. 15,378,695 Limited Companies against Vehicles

5. Interest accrued but not due Total Secured Loan 447,235,794

Financial charges 55,876,756 26,911,524 Net Turnover 1,020,152,679 73,94,89,024 % of financial charges over net turnover 5.48% 3.64% % increase in financial charges 1.84%

4.1.16 The increase in financial charges was 1.84% during the current previous year as compared to the average of previous three financial years. 4.1.17 From the explanation/ justification for fall in GP/NP ratio as above, it is clear that the appellant did have some explanation/justification for such fall. During remand proceedings AO has examined the same and has not found any discrepancies them as compare to books of accounts produced before him. During the assessment proceedings, AO has however not sought any explanation nor confronted with the adverse evidences. It is observed that the AO has resorted to rejection of books, all of a sudden without any indication to the assessee. No show cause notice has been issued to the appellant before rejecting the books of account. Further, even though the A.O. has noted the fall in N.P. ratio in the assessment order, no effort has been made by him to ascertain the appellant’s version about the reasons for fall in GP/NP rates. The questionnaire dated 1.11.13 issued by him does not seek any clarification or explanation for the fall in N.P. rate. As noted in the previous paragraphs, the appellant did have its own justification for the fall in N.P. ratio. It has been submitted that the G.P. rate has been falling over the years and the same was attributable to the increase in the cost of raw material and cost of purchases of traded goods without commensurate increase in the selling price of beverages due to stiff competition . 4.1.18 Thus from the explanation given by the appellant, it is clear that the fall in G.P. is due to increase in cost of raw materials. It is also seen that over the years, the financial charges have seen a growth of 1.84% from average of 3.64% (for the past 3 years) to 5.48% during the current previous year. Further, the fall in N.P. rate has been attributed to the increase in input cost and finance cost. 4.1.19 All the above justifications have been examined by the A.O. in the remand proceedings and as such no deficiencies/discrepancies have been observed by him. As per the report, the appellant has produced books of account before the A.O. It is noted here that the A.O. cannot resort to rejection of books of account without finding discrepancies in the accounts or without pointing out any non-fulfillment of accounting standards which are required to be followed. Further mere fall in N.P. ratio cannot be a ground for rejection of books of account and estimation of profits. The appellant is a Pvt. Ltd. Company governed by Company’s Act. It is not in dispute that the appellant had maintained the regular books of account and also it had furnished by the details before the A.O. No doubt there has been delay in complying with the requirements of the A.O. But that itself cannot be a ground for rejection of books of account.

4.1.20 This is a search & seizure case and the Previous year of the present assessment year falls within the block period of 6 years. A.O. has not brought on record any adverse material. He has rejected the books of account merely on the basis of fall in N.P. ratio. There is no rule of law that an enterprise cannot incur losses or it cannot declare lesser net profit that what is shown in the previous year. The same is permissible as long as the same is supported by proper books of account, bills and vouchers. During the remand proceedings, the A.O. has examined the justification for fall in net profit submitted by the appellant and has not reported any discrepancies nor taken any counter arguments. I have also noted that this is not a fit / case for rejection of books of account and estimation of profits as the search has not thrown up any specific discrepancies in the accounts regularly maintained by the appellant. The A.O. has rejected the books of account and estimated the profits of the business only based upon NP ratio without confronting the same to the appellant. This is completely in violation of principles of natural justice. A.O. has adopted a very simplistic approach in completing the assessment. Such action of the A.O. cannot be sustained. 4.1.21 In the above background it has to be concluded that no ground survives for rejection of books and estimation of income. The result of remand proceedings support the stand of the appellant. The appellant group have also honoured there declaration of surrender of income made during search & seizure proceedings. As is evident from the detailed letter dated 28.02.2014, submitted before the AO. The group had surrendered Rs. 10 crore during the search and initially it had given the following breakup of the said surrender. Name of the assessee Amount (Rs.) Sh. C.K. Jaipuria 1000000 Sh. Ruchirans Jaipuria 2500000 M/s. Pearl Drinks Ltd. and others 91500000 M/s. Jaipuria Beverages & Food Industries Pvt. Ltd. 5000000 Total 100000000 4.1.22 The above surrendered amount has been reworked out on the basis of study and analysis of the seized documents. In their letter dated 28.02.2014 submitted before the AO on 07.03.2014, a detailed explanation of surrendered income in hands of different entities and different assessment years has also been provided. The total surrendered amount infact exceeds Rs. 10 crore by Rs. 16 lacs the breakup of which is as under: - Name of Income Tax paid the surrendered (amount in assessee (amount in Rs.) Rs.) M/s 27665794 11321359 Jaipuria Beverages and Food Industries Pvt. Ltd. M/s Pearl 33759400 5762680 Drinks Ltd. M/s Pearl 32210000 2174160 Bottling Pvt. Ltd. Sh. 3500000 2000000 Ruchirains 33

Jaipuria M/s 1668000 0 Ganpatie Traders Pvt. Ltd. Sh. CK 2816140 881364 Jaipuria Total 101619334 22139563

4.1.23 Considering the above, I find merit in appellant’s grounds and delete the addition of Rs. 2,66,81,850/-. The grounds on the issue are allowed.” 6.1 After perusing the aforesaid findings of the Ld. CIT(A), we find that the return of income filed before the A.O. contains report of the auditors u/s 44AB of the Act. The auditors, who have audited the books of account, were fully satisfied that all the accounting standards have been followed and he did not make any adverse remarks in the audited report. The provisions of section 145 describes certain conditions for rejection of books of account but non furnishing of details is not one of the prescribed conditions for rejection of books of account. We also find that all the details called for vide questionnaire dated 1.11.13 have been furnished. As regards fall in net profit ratio, a comparative chart of financial results for the current assessment year and for the three preceding assessment years has been provided. The fall in G.P. and Net profit ratio has been attributed to increase in cost of purchases and raw material and due to increase in financial cost. The fall in G.P. by 5.4% (24.85% to 19.36%) and net profit rate by 18.17% (i.e. 2.81% to (-) 5.36%) was on account of increase in cost of purchase and cost of raw material consumed. It is further noted that there is a fall in G.P. by 5.49%. Out of 5.49%, 4.91% fall in G.P. has been attributed to increase in cost of raw material consumed and purchases of traded goods. The balance fall in G.P. (5.49% (-) 4.91% - 0.58%), was attributable to increase in salary, wages, repairs & maintenance expenses. The fall in net profit ratio has been attributed to fall G.P. rate which in turn was due to increase in cost of raw material and increase in purchase of credit goods. The net profit rate has been severely affected by increased financial cost by 107.63% during the current previous year as compared to average financial cost of last three preceding years. The loan liability has almost doubled over the years from 25.79% as on 31.3.08 to 44.72% as on 31.3.11. The increase in financial charges was 1.84% during the current previous year as compared to the average of previous three financial years. We further AO has not found any discrepancies in the books of accounts produced before him. During the assessment proceedings, AO has however, not sought any explanation nor confronted with the adverse evidences. It is also observed that the AO has resorted to rejection of books, all of a sudden without any indication to the assessee. No show cause notice has been issued to the appellant before rejecting the books of account. Further, even though the A.O. has noted the fall in N.P. ratio in the assessment order, no effort has been made by him to ascertain the appellant’s version about the reasons for fall in GP/NP rates. The questionnaire dated 1.11.13 issued by him does not seek any clarification or explanation for the fall in N.P. rate. It is further noted that that the fall in G.P. is due to increase in cost of raw materials and over the years, the financial charges have seen a growth of 1.84% from average of 3.64% (for the past 3 years) to 5.48% during the current previous year. Further, the fall in N.P. rate has been attributed to the increase in input cost and finance cost.

Since this is a search & seizure case and the Previous year of the present assessment year falls within the block period of 6 years. A.O. has not brought on record any adverse material. AO has rejected the books of account merely on the basis of fall in N.P. ratio. There is no rule of law that an enterprise cannot incur losses or it cannot declare lesser net profit that what is shown in the previous year. The same is permissible as long as the same is supported by proper books of account, bills and vouchers. During the remand proceedings, the A.O. has examined the justification for fall in net profit submitted by the assessee and has not reported any discrepancies nor taken any counter arguments. We have also noted that this is not a fit / case for rejection of books of account and estimation of profits as the search has not thrown up any specific discrepancies in the accounts regularly maintained by the appellant. The A.O. has rejected the books of account and estimated the profits of the business only based upon NP ratio without confronting the same to the appellant. This is completely in violation of principles of natural justice. A.O. has adopted a very simplistic approach in completing the assessment. Such action of the A.O. cannot be sustained. In view of the above, we agree with the finding of the Ld. CIT(A) that no ground survives for rejection of books and estimation of income. The result of remand proceedings support the stand of the assessee. The assessee group have also honoured there declaration of surrender of income made during search & seizure proceedings. As is evident from the detailed letter dated 28.02.2014, submitted before the AO. The group had surrendered Rs. 10 crore during the search. Therefore, the Ld. CIT(A) has rightly deleted the addition of Rs. 2,66,81,850/- and allowed the appeal of the assessee, which does not need any interference on our part, therefore, we uphold the action of the Ld. CIT(A) on the issue in dispute and reject the ground raised by the Revenue. In view of above facts and circumstances, it is noted that the case laws cited by the Ld. CIT(A) are distinguished to the facts of the present case, hence, the same are not applicable in the present case. In the result, the (AY 2011- 12) stands dismissed.

7. Following the consistent view as aforesaid taken in (AY 2011-12), the ITA No. 5306/Del/2015 (AY 2012-13) also stand dismissed.

8. In the result, both the Revenue Appeals stand dismissed

Order pronounced on 27/02/2019.