B.P. JAIN, A.M. ORDER This is appeal filed by Department against order of learned CIT(A) dt. 21st July, 2003, for asst. yr. 2001-02. assessee has also filed cross-objection. 2. In this appeal, Department has raised following ground : "On facts and in circumstances of case and in law, learned CIT(A)-II, Jaipur, has erred in reducing trading addition of Rs. 18,34,483 made by AO to Rs. 1,50,000 only without giving any sound basis and without appreciating that assessee had no plausible explanation for shortage of stock of Rs. 4,65,485 and based on sample check of assessee s own books of account, GP, declared at 3.13 per cent on turnover of Rs. 103.79 lakhs was very much on lower side." And assessee has raised in all seven grounds in its cross-objection. assessee s objections in all seven grounds are related to retention of addition of Rs. 1.50 lakhs by learned CIT(A). 3. brief facts of case are that assessee-company continues to derive income from manufacturing and sale of cattle feed. Survey under s. 133A was carried out at registered office and factory of assessee on 30th Dec., 1999, and survey team observed that assessee had not made entries in stock register for last 15 days. cash in hand as per books of account written upto 29th Dec., 1999, and after accounting for receipts and payments cash in hand as per books of account of assessee was Rs. 58,638.24 and whereas cash in hand found physically as belonging to assessee was Rs. 14,230. Thus, there was shortage of cash of Rs. 44,408.24, i.e., cash in hand as per books was more by Rs. 44,408.24 as compared to cash found at time of survey. AO, therefore, did not make any addition on this account (p. 8 of AO s order). As regards stock found at time of survey, it was 8,20,574 kgs. and value of which works out at Rs. 43,45,580. Besides this, there was stock of raw materials and finished goods, 29,600 old gunny bags, 5,450 new gunny bags and Sutli approx. 50 kgs. including value of these Bardana amounting to Rs. 3,92,150. stock found at time of survey was of total value of Rs. 47,37,730 whereas stock as recorded by assessee in books of account was Rs. 52,03,215. Therefore, stock declared by assessee was in excess by Rs. 4,65,485, i.e., declared at Rs. 52,03,215 as compared to stock found physically at Rs. 47,37,730 (p. 7 of AO s order). AO also pointed out certain defects in stock tally, i.e., at sl. No. 27 of inventory, it was rice Bhusi of 2,015 bags and whereas in stock register at sl. No. 17, it is rice polish having 204 bags. Similarly, at sl. No. 29, it was inventory of Imli Chilka of 60 bags but as per stock register it was Rajma Katchri and Sarson of 59 bags. assessee made explanation vide letter dt. 8th June, 2001, as under : "That on 30th Dec., 1999, premises of assessee were surveyed under s . 133A when no major discrepancies were noticed. During survey, survey team has allegedly found some excess stock but this fact is not correct. stock as per physical counting and as per stock register of assessee is almost in agreement except difference of 11 bags in toto, which too is for reason that stock was not taken minutely. You will please appreciate that more than 16500 bags cannot be counted in 2-3 hours. Copy of stock register of assessee was taken at spot and if we compare two there is hardly any difference. Head-wise comparative chard is appended hereunder (refer to pp. 3 to 6 of AO s order). 3.1 According to physical counting stock of 16,517 bags was found and according to stock register of assessee 16,742 bags were in stock meaning thereby that there was excess stock of 225 bags but that is for reason that following bags were not counted by survey team : Haldi Powder 170 bags Sarson Khal 45 bags Vikram special 21 bags Total 236 bags 3.2 Thus, there is difference of 11 bags only which is minor difference and can be attributed to counting errors. 3.3 From submissions above, you will please find that there is no excess stock as alleged by Department. Please refer to statements of Shri Ravi Kant at page No. 6, question No. 19, where questioning authority has stated that stock worth Rs. 30 lakhs approx. is in excess and director was compelled to agree for excess stock of Rs. 15 lakhs. From comparative statement of physical stock counted at time of survey and stock as per stock register, there is difference of only 11 bags and that too is not excess at time of physical verification but in fact 11 bags were found short. Value of 11 bags is hardly Rs. 5 to 6 thousands only and immaterial. mistake in physical counting is for following reasons. (i) Stock was not counted in presence of any director or responsible person, who could have explained various varieties and categories. (ii) bags of various raw materials and finished products of various kinds were not segregated but only bags were counted on basis of Dheri which could mean that bag containing particular raw material or brand of finished product was counted with another. One Dheri may have 20 bags while another may have 19 or 21 bags : (iii) Loose goods were counted approximately in terms of bags. (iv) Various kinds of raw materials and finished goods were intermixed. Under these circumstances, it is submitted that there is no excess stock as alleged." 4 . AO was not justified with explanation of assessee and accordingly invoked s. 145 of Act and thus on basis of short stock found to extent of 9 per cent, total sales were estimated at Rs. 11,31,34,569 as against sales of Rs. 10,37,93,183 declared by assessee. AO made estimation of GP by examining profit margin of three products in month of April on test check basis, i.e., gold coin at 4.7 per cent, Khal Pala at 4.36 per cent and Krishna Dana at 4.58 per cent, and according to AO, estimated GP rate of assessee at 4.5 per cent on estimated sales and made GP rate of assessee at 4.5 per cent on estimated sales and made trading addition of Rs. 18,34,483 to income of assessee. 5 . learned CIT(A) confirmed application of s. 145. Before learned CIT(A). Learned counsel for assessee submitted as under [refer paras 4.2 and 4.3 of learned CIT(A) order] : "4.2 defect as pointed out by AO that stock register was not maintained upto date for which learned counsel has stated during assessment proceeding that purchase register which was in 2 volumes and both volumes were signed by surveying authority and were also impounded and were complete till dt. 29th Dec., 1999, upto gate entry No. 6135 and receipts upto gate entry No. 6139 have been signed by surveying authority which means that only four gate receipts were pending to be entered in purchase register at time of survey, but since last gate receipt was signed, there is nothing pending. surveying authority had signed sale invoice No. 7572, dt. 29th Dec., 1999. stock register which was incomplete at time of survey has been completed on basis of sale and purchase register and stock register is in agreement with sales and purchase register. It is submitted by learned counsel that stock register can be posted later on if supporting documents such as gate pass, sale and purchase registers are written upto date. 4.3 Shri R.C. Shah, learned counsel of appellant-assessee, has mentioned in his written arguments that there is no item like Imli Chhilka in list of raw materials consumed by assessee, whereas AO has treated Rajma Kachari, etc. as Imli Chhilka. other difference in nomenclature pointed out by assessing authority is relating to rice polish and rice Bhushi. This will not be out of place to mention that rice polish and rice Bhushi are same commodity. appellant has mentioned rice polish in stock register and survey team has taken rice Bhushi but item is same and hence allegation of AO is baseless. With reference to GP rate as adopted by AO, learned counsel has stated that statements of various items were submitted before AO in which details of cost of manufacturing, cost of raw material and sale price were mentioned for all 12 months of previous year. But, AO has selected month in which there was higher margin of profit. learned counsel has further mentioned that while applying GP at 4.5 per cent, AO did not confront appellant with single case dealing in similar business in same area in which GP has been shown by other person at more than percentage declared by appellant. It is further mentioned by learned counsel that copy of bank s statement of stock was filed before AO and there was no variance in stock between stock register and bank s stock statement. AO has accepted closing stock as on 31st March, 2000, as per stock shown in accounts. It is further mentioned that AO has ignored affidavits of directors in this respect without any evidence to contrary and before making trading additions, no opportunity was given to appellant-assessee. AO has alleged that excess stock was found short but later on additions have been made on basis of stock found short." 6. learned CIT(A) observed that assessee has dealt in more than 30 items which include 20 items of its own manufactured goods and learned CIT(A) has perused 12 monthly statement of various products like gold coin, Khal Pala, Krishna Dana, where GP had been worked out at 3.83 per cent, 3.48 per cent and 3.42 per cent, respectively, and assessee has declared 3.137 per cent. assessee has declared sales of varied quantity and quality on different rates. learned CIT(A) was of view that sales price as considered by AO for month of April in respect of these items cannot be same in whole of accounting period for all trading and manufactured items and, as such, GP adopted by AO cannot be treated as wholly correct. AO by taking up only three items for purpose of adopting GP rate for all items without giving any comparable case does not appear to be reasonable and justified. Considering accepted GP rate of 1.45 per cent in similar business of same assessment year being carried out by its sister- concern, M/s Johrilal Radhballabh, AO does not appear to have verified submission of assessee with regard to cash found during survey operations though no adverse inference on this account is drawn by AO. AO has also not pointed out any purchase or sale which is not found recorded in books of account of assessee. assessee has accepted difference of 11 bags and, therefore, AO has rightly applied provisions of s. 145(3) of Act. learned CIT(A) was of view that trading additions as made by AO cannot be upheld in toto but, on other hand, it is admitted that there are certain defects in maintaining books of account as discussed. Therefore, there is possibility of leakage of revenue. Considering above facts, learned CIT(A) sustained trading addition of Rs. 1.50 lakhs and deleted balance of addition of Rs. 16,84,483. 7. We have heard parties and perused material on record. During course of survey carried out on 30th Dec., 1999, survey team mainly pointed out two defects. first defect (para 5, p. 8 of AO s order) pointed out by Department was that cash in hand as per books of account of assessee was Rs. 58,638.24 and whereas cash found belonging to assessee on date of survey was Rs. 14,230, i.e., cash found was lesser than as declared by assessee. AO did not take any view on this account. As regards stock, AO pointed out that stock register was not complete for 15 days, whereas assessee has stated that stock register was complete upto 29th Dec., 1999, i.e., upto gate entry No. 6135 which was impounded by survey team and stock from gate entry Nos. 6136 to 6139, i.e., only four entries which pertained to date of survey were not entered in stock register. These four entry receipts were also impounded by survey authority. survey authority had signed sales invoice upto No. 7572, dt. 29th Dec., 1999. survey team had also signed purchase register which was in two volumes and same were also impounded. stock register which was impounded was incomplete at time of survey which was completed on basis of purchase and sales, at time of survey only and stock register was in agreement with purchase and sales register. Whereas learned counsel for assessee argued that stock register can be posted later, if supporting documents like gate pass, sale and purchase registers are written upto date and which was done at time of survey. learned counsel for assessee argued that survey team counted stocks which were in "Dheri" and have opted for number of bags as per their assumptions and presumptions without weighing same. One "Dheri" may have 19 to 21 bags. learned counsel for assessee further argued that statement of tally as per Department and as per stock register was submitted before AO (pp. 3 to 6 of AO s order) where all details are available in AO s order. AO could not point out even single defect in same and there was difference of only 11 bags which cannot be more than Rs. 6,000 and is insignificant, in view of fact that survey team had completed physical counting hurriedly and without any proper method as discussed above within 2 to 3 hours. assessee made explanation as regards rice polish and rice Bhushi which are actually outer covering of rice called as rice polish or rice Bhushi. learned counsel for assessee has mentioned that there is no item like Imli Chhilka in list of raw material consumed by assessee, whereas AO has treated Rajma Kachhri, etc. as Imli Chhilka. books of account of assessee are audited and no defect of any kind has been pointed by AO. 8. With appreciation of facts, we are of view that AO on one hand, has pointed out that stock as per books of account is Rs. 52,03,215 and stock found physically was of Rs. 47,37,730, i.e., books of account have recorded more stock of Rs. 4,65,485 as compared to stock found by survey team (p. 7 of AO s order), i.e., AO has not pointed out any excess stock found during course of survey which could be said as undisclosed stock/undisclosed investment and which could be treated as undisclosed income of assessee. It is other way round that books of account are showing excess stock and AO while making estimation of sales calculated 9 per cent excess stock found at time of survey. At same time, AO failed to point out any defect in purchase, sales, opening stock or any items of trading account. only difference found out was of 11 bags valuing not more than Rs. 6,000 which can be ignored since kind of products, assessee is dealing cannot be counted exactly in 2 to 3 hours as pointed out by learned counsel for assessee. With above discussions, we are of view that assessee has made explanations of each and every defects pointed out by survey team and by AO. Therefore, surrender made by assessee at time of survey has no relevance. admission by assessee in present case, at time of survey, is not conclusive evidence, since assessee s books of account were found to have been completed at time of survey upto 29th Dec., 1999, and four entries were made before survey team, which pertained to 30th Dec., 1999, date of survey, and stock register was completed. No defect has been found out in details submitted by assessee as per AO s order pp. 3 to 6. learned counsel for assessee has relied upon various decisions which have been considered and mainly learned counsel for assessee has relied upon decision of Hon ble jurisdictional High Court in case of CIT vs. Gotan Lime Khanij Udyog (2001) 169 CTR (Raj) 318 : (2002) 256 ITR 243 (Raj), where in it has been held that mere rejection or some shortcoming in books does not mean that addition is made. 9. In view of above discussion, we are of view that AO has made addition without any cogent material in hand and on surmises and conjectures. In such circumstances, AO is not justified in invoking provisions of s. 145 and additions made by AO amounting to Rs. 18,34,483 are not justified and also learned CIT(A) is not justified in sustaining addition of Rs. 1.50 lakhs. Thus, appeal of Revenue is dismissed and cross-objection of assessee is allowed. 1 0 . In result, appeal of Revenue is dismissed and cross- objection of assessee is allowed. *** INCOME TAX OFFICER v. VIKRAM PROTEINS (P) LTD.