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Income Tax Appellate Tribunal, [DEHRADUN CIRCUIT BENCH: DEHRADUN]
Before: SHRI SUDHANSHU SRIVASTAVASHRI PRASHANT MAHARISHISmt. Rekha Kushwaha,
O R D E R PER PRASHANT MAHARISHI, A. M.
This appeal is filed by the assessee against the order of the CIT (Appeals), Dehradun, dated 6.02.2018 for assessment year 2010-11 wherein following grounds of appeal are raised:-
“ That the Id CIT (A), Dehradun erred under the law and on facts in confirming the turnover shown in audited balance for bank limit purpose and also to calculate the net profit on same percentage as shown by the assessee in his unaudited turnover shown in original return. That the Id CIT (A), Dehradun erred under the law and on facts in taking two parameters and not to stick on his own order as his version is "the assessee cannot under any circumstances blow hot and blow cold and make different submission on the same point of its financial affairs before different government authorities', so he should also accept the complete audited report, just not only sales and profit declared in audited profit and loss account should also be accepted. That without prejudice to ground above the assessment as has been confirmed at Rs.13,22,940/- as against returned income of Rs. 2,96,640/- is arbitrary, unjust and very - very excessive at all the corners and deserve to be deleted.” Page | 1
The brief facts of the case show that assessee is a proprietary of M/s. Uttarakhand I. T. Services & Trading Company. She filed her return on 30th September, 2011 declaring income of Rs. 3,59,260/-. The case of the assessee was re-opened by issue of notice under Section 148 of the Income Tax Act, 1961 (the Act) on 7.01.2016 after taking approval of Pr. Commissioner of Income Tax, Dehradun. In response to that notice assessee filed return on 25.04.2016 declaring income of Rs. 3,59,260/-. During the course of assessment proceedings, the assessee did not submit necessary reply and sought adjournment. Therefore, the ld. Assessing Officer passed an order under Section 144 of the Act on 18.11.2016 at the total income of Rs. 1,48,26,540/-. The ld. Assessing Officer made an addition of Rs. 1,40,00,000/- on account of undisclosed closing stock. A further addition of Rs. 4,67,280/- was also made as undisclosed income on account of purchase of plot. On both these counts, the assessee preferred appeal before the ld. CIT (Appeals). The ld. CIT (Appeals) reduced the addition to Rs. 1,40,00,000 confirming addition of net profit @ 46.16% thereon. He sent issue for verification of profit rate to ld AO , who confirmed addition of Rs 13 22940/- As he has confirmed the addition on account of net profit element of the suppressed sales of Rs. 1,40,00,000/- the assessee is aggrieved. On the second issue an addition of Rs. 4,67,208/-, the ld. CIT (Appeals) deleted the addition on the basis of cash flow statement submitted by the assessee holding that assessee has enough cash surplus available of Rs. 9,15,735/-. Thus, no addition was warranted. Accordingly, the appeal of the assessee vide order dated 6.02.2018 was partly allowed. Thus, assessee is in appeal before us challenging the order of the ld. CIT (Appeals).
The brief facts of the addition as mentioned by the ld. Assessing Officer in para No. 5 of his order shows that during the course of verification of AIR information in respect of purchase of immovable property in assessment year 2010-11, Assessee furnished copies of return of income and trading and profit and loss account for the year ended on 31.03.2010. From the Chartered Accountant of the assessee (auditor), ld AO obtained audit report for financial year 2009-10 relevant to assessment year 2010-11, who had signed audit report of the assessee. Along with the return of Income, there Page | 2 were no audited accounts as turnover was less than prescribed limit, however, the auditor issued audit report, which has turnover above the prescribed limit u/s 44AB, and thus it were signed by a CA. The Assessing Officer found that in the Income Tax Return filed by the assessee she disclosed sales of Rs. 34,53,540/-, whereas in the audit balance sheet and trading and profit and loss account provided by the auditor, her sales turnover was shown at Rs. 1,74,53,540/-. Therefore, Assessing Officer found that there is a difference of Rs. 1,40,00,000/- in the turnover. Therefore, the Assessing Officer made this addition. When the matter went before the ld. CIT (Appeals) the assessee submitted that the actual turnover of the assessee is only Rs. 34,53,540/- which is supported by the bank account of the assessee. It was also stated assessee did not have a VAT Registration up to 15.01.2010. The assessee also stated that it submitted the audit balance sheet compiled by inflating the sale and purchase account by adding Rs. 1,40,00,000/- on both the sides at the behest of South Indian Bank, Rajpur Road, Dehradun, who has suggested the same for sanctioning working capital facilities. However, it was stated that no working capital was sanctioned. It was also stated that at the time of filing of the original return the correct sales and purchases were shown. It was further contended that the profit and loss and the balance sheet filed before the Assessing Officer are un-audited figures. As the turnover was less than Rs. 40,00,000/- i.e. Rs. 34,53,540/-, the ld. CIT (Appeals) dis-believed the explanation of the assessee, but held that the addition should be made in the hands of the assessee of the net profit @ 46.16%. He held that Assessing Officer may verify the rate of percentage of profit and directed to bring to tax the profit element only.
The ld. AR submitted that for obtaining loan in the profit and loss account CA has increased sales turnover and increased purchases and opening stock with same amount. He submitted that there is no increase in the profit of the assessee. He, therefore, submitted that the assessee has submitted the correct annual accounts, which are supported by bank statement of the assessee. There is no evidence available with respect to any un-accounted sales made by the assessee. He further submitted the copy of the trading profit and loss account submitted before the Assessing Officer along with the return of income and the trading profit and loss account signed by the Chartered Accountant. He submitted that in the account audited by the CA, there is no signature by the assessee. He also compared each item of the profit and loss account of both the versions to show that there is an exact increase in sales to the extent of increase in purchases and opening stock. He further submitted that net profit submitted before the Assessing Officer, which is signed by the assessee shows profit of Rs. 6,80,505/- and same profit is shown by the Chartered Accountant in the statement submitted to the bank. Thus, even otherwise profit in both the statements remains the same. In the end, he submitted that if Assessing Officer has added the sales of Rs. 1,40,00,000/- then Assessing Officer should have granted deduction of Rs. 1,40,00,000/- on account of purchases and opening stock also. Even otherwise, he submitted that under Section 44AF of the Act the percentage of profit is set at 8 %. He submitted that in assessment year 2010-11 the net profit ratio is just 3.80%. Therefore, he submitted that the ld. Assessing Officer cannot pick and chose the figures from the profit and loss account given to the bank. He otherwise stated that only real income could be taxed. He submitted that even otherwise the re-opening of the assessment made by the ld. Assessing Officer is also invalid for the reason that in the reasons recorded he has ignored the purchases also. In the end, he submitted that the addition deserves to be deleted.
The ld. DR vehemently supported the order of the ld. Lower authorities.
We have carefully considered the rival submissions. In fact as per this ground, assessee is contesting the addition of Rs 13.22 lakhs made by the LD AO as per direction of CIT (A). On the basis of the fact stated above it is clear that the profit and loss account submitted by the assessee along with the return of income shows the sales of Rs. 34,53,540/- and resultant net profit of Rs. 6,80,505/-. This profit and loss account and balance sheet is duly signed by the assessee. The Assessing Officer obtained a balance sheet and profit and loss account from the Chartered Accountant signed by him, but not signed by the assessee, which shows that sale is Rs. 1,74,53,540/-, but the resultant net profit is same as shown in the trading profit and loss account filed by the assessee along with the return of income of Rs.
6,80,505/-. Thus, it is apparent that in the audit accounts, there is an increase in sales by Rs.1,40,00,000/-. There is no increase in the profit. Therefore, the sum Rs.1,40,00,000/- by which the sales have been inflated, the purchases and opening stock has also been inflated to the same extant. There is no evidence of un-accounted sales or un-accounted purchases by the assessee. At the time of re-opening and at the time of assessment the ld. Assessing Officer did not point out any other difference in the so-called audited accounts submitted to the bank by the Chartered Accountant and profit and loss account and balance sheet submitted by the assessee before the Assessing Officer. Even the amount of closing stock, debtors, creditors no difference was pointed out. Therefore, it is apparent that there are no actual sales or purchases by the assessee. It is a cardinal principle that only the real income of the assessee should be charged to tax. Thus, the action of the ld AO of making an addition of Rs 1,40,00,000/- in the hands of the assessee is devoid of any merit and it was rightly deleted by the dl CIT (A). Now, Coming to the order of the ld. CIT (Appeals) he has applied the high percentage of net profit of 46.06%. Revenue is not aggrieved with the restriction of addition to the extent of net profit rate, but assessee is aggrieved with the same. Had there been any evidence of un-accounted sales by the assessee or consequent purchase then the addition would have been proper by applying reasonable profit rate. However, in the present case, it is the tempering of profit and loss account only for obtaining the bank loan. Such profit and loss account was also not signed by the assessee. There is no consequent increase in the fund-flow in the form of increase in assets or working capital of the assessee. There is no change in the profit shown by the assessee as per return of income and as per the audited profit and loss account obtained by the Assessing Officer from the Chartered Accountants. Even the profit rate taken by the ld CIT (A) also does not bear any comparability with the profit history of the assessee. Even the LD AO on the direction of the LD CIT (A) made addition of only Rs 13.22 lakhs and not 46 % of Rs 1.40 Crores. Thus it is amply clear that even profit ratio adopted by the LD CIT (A) is also arbitrary and without any basis. In view of this, we find merit in the argument of the ld. AR that no addition should have been made in the hands of the assessee. Either no corroborating assets of the business equal to the amount of addition were found in the books of accounts of the assessee or any unaccounted investments in stocks etc. Thus we direct the ld AO to delete the addition of Rs 13.22 lakhs made in the hands of the assessee in absence of any evidence of a earning any real income by the assessee. In the result, solitary ground of appeal is allowed.
7. In the result, appeal of the assessee is allowed. Order pronounced in the open court on 18.05.2021.