M.M.KUMAR, J. - (1.) THIS order shall dispose of IT Appeal Nos. 31 and 32 of 2004 as both the appeals emerge from one composite order passed in respect of asst. yrs. 1990 -91 and 1992 -93.
(2.) THESE appeals by the assessee filed under s. 260A of the IT Act, 1961 (for brevity, 'the Act'), challenging order dt. Tribunal'), in ITA No. 1424/Chd/1995, in respect of the asst. yrs. 1990 -91 and ITA No. 1425/Chd/1995, in respect of the asst. yr. 1992 -93 (A -3). The assessee has claimed that following three questions of law would arise for our determination : "(i) Whether in the facts and circumstances of the case the Tribunal is right by ignoring the fact that the assessee was dealing with the items on the whole sale basis and only a nominal profit of 4.5 per cent be applied by treating the sale as of raw material ? (ii) Whether in the facts and circumstances of the case, the Tribunal is right in upholding the addition of Rs. 21,39,950 when there is no evidence to show that the sale in stock outside the books of accounts ? (iii) Whether in the facts and circumstances of the case the Tribunal is right in ignoring that the gross rate of profit should be taken at 0.5 per cent and not at 29.15 per cent when it was not clear whether the said rate of profit was in respect of the yarn trading account or it included profit in respect of job work receipt."
(3.) BRIEFLY facts necessary for disposal of these appeals are that a notice under s. 148 of the Act was issued to the mention that the assessee derived income from manufacturing and sale of shoddy yarn; and also from trading of M.S. Rounds. It is also involved in getting job work done on account of drawing and straightening of M.S. Round and bright books of accounts including papers were seized. The AO noticed that sales and labour earned have increased suitably but the GP rate for the years under consideration has fallen by more than 6 per cent. On the asking of the AO, the assessee submitted that at the beginning of the manufacturing season there was theft at its factory premises on the resulted into fall in the GP rate. The AO did not feel convinced with the explanation furnished and made addition of Rs. 12 lacs on account of low GP rate in comparison to the GP rate of the last year on estimate basis. The assessee had also shown a sum of Rs. 51,02,069 as the claim receivable in an Annexure to the balance sheet under the head 'Current assets loans and advances', which the assessee claimed that it was receivable on account of theft. No copy of the FIR or the claim filed with the insurance company was furnished to the AO despite various opportunities. The AO also made direct inquiries from the insurance company by issuing summons under s. 131 of the Act. The United India Insurance stood rejected as it was found to be fraudulent. The AO has made reference to various surveyor reports as well as the reports submitted by the investigators of private companies. Accordingly, the AO disallowed the claim of the assessee in the P&L a/c, amounting to Rs. 51,02,069 and added towards the income of the assessee. The assessee challenged the order of the AO before the CIT(A), Ludhiana, and raised those very contentions which from the order of the AO as to how and on what basis he concluded that the alleged fictitious entries as reflected in the balance sheet for the asst. yr. 1990 -91 were representing the cash available with the assessee because the entry suggested the amount receivable and certainly not the cash available with the assessee. According to the CIT(A), the AO had misdirected himself. It was concluded that the assessee had not written off the loss caused by theft and that the claim thereof was receivable. It was emphasised that the transaction had become transaction of writing off a bad debt as the assessee. The CIT(A) also held that the order passed by the AO in this respect contravened the provisions of s. 36 (2) of the Act.;