PER: VIKRAM SINGH YADAV, A.M. These are cross appeals filed by the assessee and the Revenue against the order of ld. CIT(A) Jaipur dated 21.11.2016 for AY 2011-12. The assessee has also filed cross objection to revenues appeal which has similar grounds as raised in assessees own appeal. The respective grounds of appeal raised by the Revenue and the assessee are as under:- ITA No. 117//JP/2017 (Ground of Revenues appeal):-

i) On the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting the addition made u/s 68 of Rs. 4,39,72,094/- of unexplained bank deposits instead applying 5% N.P. rate on presumed sales of Rs. 3,52,40,960/- without the assessee proving the nature of deposits.

ITA No. 48/JP/2017 (Ground of Assessees appeal):-

1) The ld. CIT(Appeals)-5 has grossly erred in sustaining the assessment as initial notice issued by theO is illegal and required to be quashed or set aside.

2) The ld. CIT(Appeals)-5 has grossly erred in taking sales at Rs. 3,52,40,960/- instead of Rs. 3,40,35,960/- as shown in audit report. ITA No. 48 & 117/JP/2017 CO. No. 05 /JP/2017 ITO, Ward-07-03 vs. Shyam Singh Jat, Jaipur 3

3) The ld. CIT(Appeals)-5 has grossly erred in taking net profit at 5% of sales whereas net profit declared as per audit report is 1.75% and all the documents regarding purchase and expenses were provided to ld. CIT.

4) The ld. CIT(Appeals)-5 has wrongly considered agriculture income of Rs. 1,92,350/- and interest income of Rs. 51,215 as income from other sources as no evidence regarding agriculture income were demanded and interest income is already considered in business income.

5) The ld.CIT(Appeals)-05 has grossly erred in disallowing deduction u/s 80C of Rs. 51,215.

2. Firstly, we take up the sole ground taken by the revenue in its appeal wherein it has challenged the action of ld CIT(A) in deleting the addition of Rs. 4,39,72,094/- of unexplained bank deposit under section 68 of theand instead applying net profit rate of 5% on presumed sales of Rs. 3,52,40,960/- without the assessee proving the nature of deposits. We find that the assessee in its ground no. 2 has also challenged the sales figures of Rs. 3,52,40,960/- instead of Rs. 3,40,35,960/- as shown in the audit report and in ground no. 3, assessee has challenged the estimation of net profit of 5% as against 1.75% declared by the assessee. Since all these grounds involved identical facts, the same are being disposed off together.

3. Briefly, the facts of the case are that during the course of assessment proceedings, it was found by the Assessing officer that the assessee had maintained various bank accounts in his name and his proprietorship concern M/s Shyam Poultry Farm however only one account maintained with Bank of Maharashtra, Govindgarh was ITA No. 48 & 117/JP/2017 CO. No. 05 /JP/2017 ITO, Ward-07-03 vs. Shyam Singh Jat, Jaipur 4 furnished on 24.06.2013 and no further explanation was furnished by the assessee. The AO accordingly held that bank deposit does not stand verified and all the credit entries appeared in the said bank accounts amounting to Rs. 4,39,72,094/- were added to the total income of the assessee as unexplained cash credits u/s 68 of the I.T. Act, 1961.

4. Being aggrieved, the assessee carried the matter in appeal before CIT(A). The ld. CIT(A) accepted the assessees contention that the cash deposits in the assessees accounts are mostly on account of sales proceeds out of his Poultry business. He accordingly treated the same as sales proceeds in the hands of the assessee after making certain adjustment. However, the books of accounts were not found reliable and rejected under section 145(3) and net profit of 5% on such adjusted sales were brought to tax. Now both the parties are in appeal against the same findings of ld CIT(A). It would therefore be relevant to refer to the detailed findings of the ld.CIT(A) which are reproduced as under:-

4.4 The assessee has essentially contended that out of total cash deposits of Rs. 4,37,07,862/- ( wrongly mentioned as Rs. 4,39,72,094/- by the AO), the cash deposits amounting to Rs. 3,40,35,960/- represented sale of poultry products as reported in the audit report. The difference of Rs. 96,71,902/- between the total cash deposits and sales is due to the following items: Inter transfer entry 41,31,632/- Opening cash 3,80,000/- Opening Debtors 8,25,000/- RTCG/NEFT Failure 4,00,000/- ITA No. 48 & 117/JP/2017 CO. No. 05 /JP/2017 ITO, Ward-07-03 vs. Shyam Singh Jat, Jaipur 5 Advance Return (Maulana Party) 2,63,000/- Increase in Loan/Liability 15,59,892/- Contra Entries Net Effect 21,12,378/- Total 96,71,902/-

4.5 The reasons cited for the difference of Rs. 96,71,902 have been examined during the appellate proceedings. It is seen that the claim of inter-transfer entries of Rs. 41,31,632/- are correct. Out of such inter-transfer entries, the AO had verified entries to the extent of Rs. 26,29,818. However there are 3 more entries which have not been considered by the AO which are amounts of Rs. 14,49,000 and Rs. 50,000 being amounts given for purchases but returned back. The third entry of Rs. 2,184 is related to credit of interest in the bank account which has been separately considered. In this manner, the claim of inter-transfer entries of Rs. 41,31,632 are verified and found to be correct. Similarly, the claim of return of amount of Rs. 4 lakh on account of RTGS/NEFT failure, Rs. 2,63,000 on account of Return of advance from Maulana Poultry, increase in loan/liability of Rs. 15,59,892 and net effect of other contra entries of Rs. 21,12,378 are verifiable and allowed. However, the claim of opening cash of Rs. 3,80,000 and opening debtors of Rs. 8,25,000 are not verifiable since no books of account have been maintained for any preceding year. Thus these amounts would enhance the figure of sales of Rs. 3,40,35,960 as per audit report. The sales are accordingly enhanced to Rs. 3,52,40,960. This means that out of total cash deposits of Rs. 4,37,07,862/- in the bank accounts of theA No. 48 & 117/JP/2017 CO. No. 05 /JP/2017 ITO, Ward-07-03 vs. Shyam Singh Jat, Jaipur 6 assessee, Cash deposits amounting to Rs. 3,52,40,960/- represent the sales of poultry products for the current year. The fact that cash deposits in the assessees accounts are mostly on account of sales proceeds has been recognized by the AO in assessment u/s 143(3) for AY 2013-14 also.

4.6 After ascertaining the correct sales as above, the next question which arises is regarding computation of profit on such sales. It is seen that much of purchases made by the assessee for his poultry business are through RTGS payments to various suppliers, the confirmations from whom have been furnished by the assessee. Such RTGS payments also vouch for the authenticity of purchases since these are effected through banking channels. However, the assessee has been also made substantial cash purchases which are not supported by proper bills/vouchers. Further, no stock register has been maintained by the assessee. In view of these facts the books of account are rejected u/s 145(3). Regarding the next question of determination of net profit, it is observed that the assessee has shown a NP rate of Rs. 1.75% during the year under consideration, which is the first year for which the Return has been filed. Thus there is no past history of profitability in the case of assessee. Further, 3 out of in 4 subsequent years, the assessee has filed his Return u/s 44AD showing NP at the rate of 8% for AYs 2012-13, 2014-15 & 2015-16. For AY 2013-14, NP has been shown at the rate of 2.14%. Considering the limited data of profitability of the assessee, it will be fair and reasonable to adopt NP rate of 5% for the year under consideration. This was also ITA No. 48 & 117/JP/2017 CO. No. 05 /JP/2017 ITO, Ward-07-03 vs. Shyam Singh Jat, Jaipur 7 agreed to by the AR in the appellate proceedings. Accordingly, the net profit is computed at Rs. 17,62,048.

5. During the course of hearing, the ld AR submitted that the ld. AO was supposed to work as quasi-judicial authority, keeping in mind the natural justice. The elementary principle of natural justice is that the assessee should have knowledge of the material which is going to be used against him so that he may be able to meet it. The Ld. AO altogether ignored his quasi-judicial position and worked hypothetically to inflate the income/assessment. The Ld. AO gone through the credit/receipt side of bank statement only and intentionally ignored debit side i.e. payment/expense side completely. This clearly established that he was not acting as quasi-judicial authority. The Ld. AO fails to establish/explain that: (a) How section 68 is applicable when no books of accounts were available to AO. In CIT Vs. Bhaichand H. Gandhi 141 ITR 67 (Bom), it was held that pass book supplied by the bank to the assessee cannot be regarded as the books of the assessee; (b) how a sale can be done without any purchase; (c) how 100% sale proceed can be income in case of any trading/business activity; (d) The AO assessed the income under the head other source applying section 68 of I.T Act and imposed the penalty u/s 271A, 271B without having any books of accounts. (e) After making all the additions/credit entry as income, the Ld. AO again added the income as declared by the assessee. Simultaneously using his quasi-judicial skill, he again ignored theA No. 48 & 117/JP/2017 CO. No. 05 /JP/2017 ITO, Ward-07-03 vs. Shyam Singh Jat, Jaipur 8 expenses as claimed by the assessee and assessed the income for the year at Rs. 4,50,50,380. Interestingly when the ld. AO has added all the credits, where is the room he felt left for remaining income.

6. Regarding sales figures of Rs 3,52,40,960 taken by the ld CIT(A) instead of Rs 3,40,35,960, the ld. AR submitted that the assessee had submitted the audited financials, books of accounts and vouchers relating thereto before the ld CIT(A). The assessee further submitted the reconciliation of cash/cheque deposited in the bank accounts as under:- Sales proceeds 3,40,35,960 Inter transfer entry 41,31,632 Opening Cash 3,80,000 Opening Debtors 8,25,000 RTCG/NEFT Failure 4,00,000 Advance Return 2,63,000 Increase in loan/liability 15,59,892 Contra entries net effect 21,12,378 Total Deposit 4,37,07,862 It was submitted that the ld CIT(A) examined the financials and other details including the bank reconciliation so submitted and agreed to assessees contention that cash deposits in the bank accounts represent the business receipts from sales of poultry products for theA No. 48 & 117/JP/2017 CO. No. 05 /JP/2017 ITO, Ward-07-03 vs. Shyam Singh Jat, Jaipur 9 current year except for a sum of Rs 12,05,000 which represent opening cash balance and opening debtors. Regarding the observation of the ld CIT(A) that the claim of opening cash balance of Rs. 3,80,000/- and opening debtors of Rs. 8,25,000/- are not verifiable since no books of account have been maintained for any preceding year, the ld AR submitted as under: (a) the assessee was engaged in the business from last so many years and was regularly filing ITR (Copy enclosed from the AY 2004-05 in paper book, page no. 93-99); (b) the financials of year 2010-11 was duly audited by a Chartered Accountant; (c) third party confirmation from the debtors and cash book was duly submitted; (d) Books of accounts for the preceding years was maintained and the income was reported u/s 44AD of the I.T.Act. Thus it is natural/self explanatory to have opening balance as the business was ongoing. Thus the assessee request for deletion of the addition of Rs. 12,05,000 made by ld. CIT(A).

7. Regarding rejection of books of accounts and observation of the ld CIT(A) that the assessee has also made substantial cash purchase which are not supported by proper bills/vouchers, the ld AR submitted that most of the purchases are through RTGS payment which is duly acknowledged by the ld. CIT(A) in his order. It was submitted that only a part of the purchases are made in cash for which cash receipt/Kanta/Parchi/weighment receipt and debit vouchers were presented before ld. CIT(A). As per the practice of industry, these are ITA No. 48 & 117/JP/2017 CO. No. 05 /JP/2017 ITO, Ward-07-03 vs. Shyam Singh Jat, Jaipur 10 sufficient/reasonable proof to ensure the genuineness of the transaction. Further, regarding the observation of the ld CIT(A) that no stock register has been maintained by the assessee, the ld AR submitted that mere non maintenance of stock register cannot form the basis of rejection of books of accounts. This is against the spirit of law and this fact is also confirmed by following judicial pronouncements: Haridas Parikh V ITO [2009] 29 SOT 13 (JODH)(URO) Ashok Kumar & Co. v. ITO [2004] 2 SOT 518 (Asr.) (SMC) Imran Ahmed v. CIT [1982] Tax LR (NOC) 111 (All.) Hemraj Nebhomal & Sons v. CIT [2005] 146 Taxman 345 (M.P) Asstt. CIT v. L.M.P. Tractors (P.) Ltd. [2005] 148 Taxman 52 (Mag.) Malani Ramjivan Jagannath v. Asstt. CIT (Rajasthan-HC) Income Tax Officer vs. Girish M. Mehta [2008] 296 ITR (AT) 125 (Rajkot)

8. Regarding estimation of net profit rate of 5% by the ld CIT(A) instead of 1.5% as disclosed by the assessee, the ld. AR submitted that:- (1) The assessee was engaged in the business of sale and purchase of chicks and poultry feed. Sales are made to farmers and Butchers. The assessee purchase broiler from hatcheries and poultry feed from farmers as well as from industrial units. The assessee sold broiler to marginal farmers and poultry units and after 40-45 days the assessee purchase these already supplied broilers from the farmers/poultry units and sale them to butchers. The selling rate is market dependent and quoted based on per kg. Thus the whole transactions repeated in ITA No. 48 & 117/JP/2017 CO. No. 05 /JP/2017 ITO, Ward-07-03 vs. Shyam Singh Jat, Jaipur 11 nature increase the volume (i.e. sales and purchase of same goods) at a very thin gross margin of 3.95% (Average) keeping stiff competition in mind for the year 2010-11. (2) The Operational expenses/Indirect expenses are required to be incurred for smooth operation of business. Therefore the Net operational margin get reduced to 1.75%. These expenses are inevitable and cannot be avoided. (3) The assessee also submitted the statement of sales, purchases, cash book, bank book, expenses ledger, third party confirmation along with audit report. (4) The assessee has declared income u/s 44AD/44AF as applicable from the AY 2004-05. These presumptive section was introduced in law to help number of small businesses to comply with the taxation provision without consuming their time and resources. A presumptive income scheme for small tax payers lowers the compliance cost for such taxpayers and also reduces the administrative burden on tax machinery. This section specifies the monetary limit and rate of profit to be declared. There is not any nexus between the declared profit and actual profit. There is no difference between any trade/industry. Earlier u/s 44AF the rate of profit to be declared was 5%. This section was later on merged with section 44AD w.e.f. A.Y 2011-12 and the rate of profit to be declared was increased to 8%. (5) The assessee was dealing/transacting with farmers/butchers. The law itself understand that these classes are so illiterate and are not banking savy therefore they have provided specific exemption under rule 6DD of I.T.Act pertaining to cash transactions for such class of persons. ITA No. 48 & 117/JP/2017 CO. No. 05 /JP/2017 ITO, Ward-07-03 vs. Shyam Singh Jat, Jaipur 12 It was further submitted that as the complete books of accounts were produced along with audit report and there was no defect noticed by Ld. CIT(A) except some improper voucher although these were proper as per the prevailing trade practice and non-maintenance of stock register which is not such a material defect liable to reject books of accounts therefore the humble assessee wants to submit that there is no basis of accepting imaginary profit in place of profit which is arrived from the audited books of accounts.

9. The ld DR is heard who has vehemently argued the matter and relied upon the order of the AO. He submitted that inspite of repeated opportunities, the assessee didnt submit the details so called for by the AO to verify the bank credits and accordingly, in absence of necessary explanation, the AO has added the same as unexplained cash credit in the hands of the assessee.

10. We have heard the rival contentions and perused the material available on record. We find that the AO has brought to tax the credit entries appearing in the assessees bank accounts in absence of necessary explanation on the part of the assessee. During the appellate proceedings before the ld CIT(A), the assessee has submitted the audited financial statements, which, as pointed out by the ld CIT(A) as well as by ld DR during the course of hearing, have been audited subsequent to completion of assessment proceedings and other details in terms of bank reconciliation statements and other support documentation in terms of purchase confirmations, etc. The same were ITA No. 48 & 117/JP/2017 CO. No. 05 /JP/2017 ITO, Ward-07-03 vs. Shyam Singh Jat, Jaipur 13 admitted as additional evidence after seeking the remand report from the AO. The ld CIT(A) observed that the AO in his remand report has only commented partially on certain matters and thereafter, invoking his co-terminus powers examined the relevant facts and related documentation having a bearing on the matter especially the nature of deposits in the bank accounts and payments towards purchase of chicken feed and chicken by the assessee. After detailed examination, the ld CIT(A) has accepted the submission of the assessee that out of cash deposits of Rs 4,37,07,862 in his bank accounts, an amount of Rs 3,40,35,960 represents sale of poultry products which has also been reported in the audited financial statements. The said finding of the ld CIT(A) remain uncontroverted before us and the same is hereby confirmed.

11. Regarding the difference of Rs 96,71,902, the ld CIT(A), after taking into consideration the remand report of the AO, has accepted the said difference except for an amount of Rs 12,05,000 which as per assessee represent opening cash and debtor balances. As per ld CIT(A), these opening balances are not verifiable in absence of books of accounts for the previous years. Per contra, the ld AR submitted that assessee was engaged in the business from last so many years and was regularly filing ITRs, the financials of year 2010-11 was duly audited by a Chartered Accountant, third party confirmation from the debtors and cash book was duly submitted and books of accounts for the preceding years was maintained and the income was reported u/s 44AD of the I.T.Act. As per auditors report, we find that the auditors have categorically stated that

this is the first year of audit, opening balance are taken as certified by the proprietor with due confirmation from theA No. 48 & 117/JP/2017 CO. No. 05 /JP/2017 ITO, Ward-07-03 vs. Shyam Singh Jat, Jaipur 14 bank statement

. Given that, we are of the view that matter will require examination of the said contentions so raised by the ld AR and accordingly the matter to this limited extent is remanded back to the file of the AO.

12. Regarding rejection of books of accounts by the ld CIT(A) under section 145(3) of the Act, the ld CIT(A) has stated that there are substantial cash purchases which are not supported by proper bills/vouchers and secondly, no stock register has been maintained by the assessee. In this regard, the ld AR has contended that most of the purchases are through RTGS payments and only a part of the purchases are made in cash for which cash receipt and kanta parchi, etc were submitted before the ld CIT(A). We thus find that there are contrary claims of cash purchases substantial as per ld CIT(A) and only a part of total purchases as per the ld AR which are equally vague and doesnt throw any light on the extent of purchases made during the year in cash and which remains unverified. At the same time, given the inherent nature of the assessees business, where purchases are also made from farmers, cash transactions cannot be ruled out. Further, regarding non-maintenance of stock register, the ld AR submitted that there are no opening and closing stock during the year and what has been purchased during the year, the same has been sold during the year, hence, there was no necessity to maintain the stock register and the same cannot be a basis for rejection of books of accounts. We find that the assessee is in the business of purchase and sale of chicks and poultry feed. Sales are made to farmers and Butchers. The assessee purchase broilers from hatcheries and poultry feed from farmers as well as from industrial units. The assessee sold broiler to marginal farmers ITA No. 48 & 117/JP/2017 CO. No. 05 /JP/2017 ITO, Ward-07-03 vs. Shyam Singh Jat, Jaipur 15 and poultry units and after 40-45 days the assessee purchase these already supplied broilers from the farmers/poultry units and sale them to butchers. In our view, given the nature of business of the assessee and the turnover of Rs 3,40,35,960 reported during the year, the count of no. of broilers and chicks purchased and sold, and stock of poultry feed purchased and consumed is desirable and will support the orderly functioning of the assessees business and reflection of its financial results. At the same time, given that the assessee operates his business in an informal and rural set up with hands on approach, there is a possibility of non-maintenance of adequate records. Further, we noted that this is the first year where the assessee has carried out the exercise of maintenance of formalized books of accounts and got them audited. At the same time, we find that there are adequate documentation to support the purchase and sales made during the year in terms of ledgers, invoices and purchase confirmations. Further, no specific defect has been highlighted by the ld CIT(A) in respect of other expenses claimed by the assessee. Given the peculiarity of the facts and circumstances of the case, we are of the view that the ld CIT(A) was not correct in rejection of books of accounts and estimating the net profits in hands of the assessee relating to the impunged assessment year.

13. In light of above discussions, the book results and net profit so declared by the assessee is hereby accepted except for verification of opening balances of cash and debtors for which the matter is being set- aside to the file of the AO. In the result, sole ground of revenues appeal is dismissed, ground no. 2 of assessees appeal is allowed for statistical purposes and ground no. 3 of the assessees appeal becomes ITA No. 48 & 117/JP/2017 CO. No. 05 /JP/2017 ITO, Ward-07-03 vs. Shyam Singh Jat, Jaipur 16 infructuous in view of results declared as per books of accounts being accepted.

14. Regarding Ground no. 1 of the assessee appeal, the same was not pressed during the course of hearing. Hence, the same is hereby dismissed as not pressed.

15. In Ground No. 4, the assessee has challenged the confirmation of addition of agriculture income of Rs. 1,92,350/- as income from other sources. Briefly stated facts of the case are that no details or basis of the agriculture income was produced for verification before the Assessing Officer. Accordingly he considered the same as income from other sources. Even during the appellate proceedings, ld. CIT(A) observed that the same position is continuing as no explanation or evidence in support of such receipt has been furnished by the assessee. During the course of hearing, the ld. AR submitted that the necessary evidence regarding agriculture income were never demanded by the either AO or by the ld. CIT(A). However, the same are being submitted now in form of copy of jamabandi and proof of agriculture income and the same may kindly be admitted. The ld DR fairly submitted that the matter may be remanded to the AO for verification. In light of the same, the evidence in support of agriculture income is admitted and the matter is remanded back to the file of the AO to examine the same a fresh after providing reasonable opportunity to the assessee. The ground is thus allowed for statistical purposes. ITA No. 48 & 117/JP/2017 CO. No. 05 /JP/2017 ITO, Ward-07-03 vs. Shyam Singh Jat, Jaipur 17

16. In ground No. 4, the assessee has also challenged the action of ld. CIT (A) in considering the interest income of Rs. 48,231 as income from other sources. In this regard, the ld. AR has submitted that interest income was already declared while calculating business income, Net profit and disclosed in audited profit and loss account and same may be deleted. From perusal of assessment order, we noted that the AO has brought to tax income from other sources as per return of income amounting to Rs 90,256. However, there is no finding that said figures includes the figure of Rs 48,231. Hence, the matter is remanded back to the file of the AO to examine the same and where it is found that the figure of Rs 90,256 already includes the figure of Rs 48,231, allow the necessary relief to the assessee as the same income cannot be brought to tax twice. In the result, the ground of appeal is allowed for statistical purposes.

17. In ground no. 5, the assessee has challenged the disallowance of deduction u/s 80C of Rs. 51,215/-. In this regard, ld. CIT(A) has observed that no documents or supporting evidences have been furnished either in assessment proceedings or in the appellate proceedings. In this regard, ld. AR submitted that evidence regarding investment eligible for deduction u/s 80C were never demanded by AO or ld. CIT(A) and the addition evidence regarding said investment in form of LIC receipt and tuition fees has now being submitted and the same may kindly be admitted. The ld DR fairly submitted that the matter may be remanded to the AO for verification. In light of the same, the evidence in support of deduction under section 80C is admitted and the matter is remanded back to the file of the AO to ITA No. 48 & 117/JP/2017 CO. No. 05 /JP/2017 ITO, Ward-07-03 vs. Shyam Singh Jat, Jaipur 18 examine the same a fresh after providing reasonable opportunity to the assessee. The ground is thus allowed for statistical purposes.

18. In the result, the appeal of the revenue is dismissed and the appeal of the assessee is partly allowed for statistical purposes.

19. In its cross objection, the grounds raised by the assessee are similar to the grounds taken by the assessee in its own appeal which have already been adjudicated upon, the same doesnt require any separate adjudication and treated as infructuous. Order pronounced in the open court on 28/11/2017 Sd/- Sd/- fot; ikWy jko foe flag ;kno (Vijay Pal Rao) (Vikram Singh Yadav) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 28/11/2017. *Ganesh Kr. vknsk dh izfrfyfi vxzsfkr@Copy of the order forwarded to:

1. vihykFkhZ@The Appellant- ITO Ward 7-3, Jaipur

2. izR;FkhZ@ The Respondent- Shyam Singh Jat, Jaipur

3. vk;dj vk;qDr@ CIT

4. vk;dj vk;qDr@ CIT(A)

5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur.

6. xkMZ QkbZy@ Guard File { ITA No. 48 & 117/JP/2017 CO. No. 05 /JP/2017} vknskkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar