Decided on December 15,1994



M.A.A. Khan, Judicial Member - (1.) THIS is an appeal by an assessee from the order of CIT(A) whereby the CIT(A) confirmed, inter alia, an addition of Rs. 2,19,065 made on account of non-disclosure of the empty bottles in the closing stock.
(2.) The relevant facts are that during the accounting period relevant to A. Y. 1985-86 the assessee-firm dealt in liquor on retail basis. It had declared gross profit rate of 3.6% on total turnover of Rs. 6,52,53,557. However, on going through the statements filed along with the return of income, -the AO noticed that during the month of March 1985 the assessee-firm had purchased 3,59,198 empty bottles from the market and 35,032 empty bottles from the distillery against which expenditure of Rs. 3,94,230 was claimed, but in the very same month the sale of 1,75,165 liquor bottles only had been shown and the balance of 2,19,065 bottles was not reflected in the closing stock. On being asked the assessee-flrm explained that as of practice and procedure certain number of liquor both say 20% of the total requirement was supplied by the distillery against payment of Rs. 2 per empty bottle and the rest of the required number of empty bottles was used to be supplied by the assessee. At times it was not possible for the assessee to supply the required number of empty bottles to the distillery and in that case the distillery supplied extra bottles to the assessee-firm, and the deficiency, if any, used to be made good to the distillery at the time of final settlement of the account. It was further submitted that at times the consumers used to bring back empty bottles to the 53 retail shops run by the assessee-firm and such bottles used to be purchased by it at the rate of Re. 1 per bottle. The AO summoned the record of the distillery and also examined the Manager Shri Vishal Singh Shekhawat. Shri Shekhawat told that the procedure followed at the distillery was that 20% of the empty bottles, involved in the sale to be made to the assessee, used to be supplied to the assessee by the distillery @ Rs. 2 per bottle and the rest of the 80% empty bottles were supplied by the assessee itself from its sources other than the distillery. Mr. Shekhawat clarified that under no circumstances any bottle was supplied to the assessee-firm without charging the price @ Rs. 2 per empty bottle. The record of the distillery did not corroborate assessee's version of purchase of extra bottles. On scrutiny of the empty bottle a/c for the period from 4/84 to 2/85, the AO further noted that the assessee-firm had supplied to the distillery 30,935 bottles more than these reflected in the account books. He was, therefore, of the view that addition of Rs. 30,935 being the value of the empty bottles @ Rs. 1 per bottle be also made.
(3.) ABOVE all, the AO was of the view that the gross profit rate was quite low. He, therefore, proposed a further trading addition of Rs. 12,501 by applying a g.p. rate of 4% instead of 3.6% applied by the assessee. The AO accordingly sought approval from his IAC.;

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