OM PRAKASH JAISWAL,,GORAKHPUR vs. INCOME TAX OFFICER, WARD - 1(3),, GORAKHPUR

Per B.R.Baskaran (AM) :-

Both the appeals filed by the assessee are directed against the orders passed by the learned CIT(A), Gorakhpur and they relate to A.Y. 2013-14 & 2014-15.

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3.1 The first issue relates to addition on account of increase in rate of gross profit made by the AO. During the course of assessment proceedings, the assessee did not produce ledger and cash book. Further the Assessing Officer also noticed that the assessee had shown closing stock as on 31.3.2012 at Rs.86,92,170/- in the return of income filed for A.Y. 2012-13. However, in the profit and loss account filed for A.Y. 2013-14 the opening stock as on 1.4.2012 was shown at Rs. 88,02,119/-. There should not be any dispute that the value of closing stock shown as on 31.3.2012 shall constitute opening stock as on 1.4.2012. Thus the assessee has shown excess stock of Rs. 1,09,948/- in the opening stock, the effect of which is that the profit of the year relevant to AY 2013-14 shall be understated by Rs.1,09,948/-. The Assessing Officer also noticed that the assessee has claimed wastage of 8% while processing paddy. According to AO, the normal rate of wastage would work out to 5% to 6%. He also noticed that the assessee has declared gross profit at 6.97% whereas in the immediately preceding year he had shown gross profit of 14.9%. In view of various discrepancies noticed, the Assessing Officer rejected the book result and estimated the gross profit @ 12%, which resulted in an addition of Rs. 8,09,335/-. The learned CIT(A) confimred the same.

3.2 We have heard both the parties on this issue and perused the record. We noticed that the turnover reported by the assessee in A.Y. 2012-13 was Rs. 41.96 lakhs whereas in A.Y. 2013-14 the assessee has achieved turnover of Rs. 160.99 lakhs. Thus, we noticed that there is 400% increase in the turnover in the current year when compared with the immediately preceding year. Further, the gross profit rate achieved by the assessee would depend upon various factors including external factors like demand and supply chain. Rice being an agricultural commodity, profitability would depend upon general yield achieved in that region. Wastage would depend upon the quality of paddy.

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3.3 We noticed that the Assessing Officer has concluded that the wastage is on the higher side without bringing any comparable cases. Further, he has concluded that the rate of gross profit is lower, without citing proper reasons and without bringing comparable cases. We noticed that the AO has estimated gross profit at 12%. But no comparable case has been brought on record by the Assessing Officer to justify the rate of 12% adopted by him. Accordingly, we are of the view that the AO has rejected the book results and estimated the profit on surmises and conjectures only. Accordingly we are of the view that the learned CIT(A) was not justified in confirming the gross profit rate estimated by the Assessing Officer.

3.4 From the discussions made supra, we notice that the AO has noticed a valid defect in the accounts of the assessee, i.e., the difference in the value of opening stock shown in the current year. We noticed earlier there is difference of Rs. 1,09,948/- in the opening stock, i.e., the above said amount was shown in excess, which will have the effect of reducing current year’s profit. Accordingly in our view the above said difference of Rs. 1,09,948/- deserves to be disallowed. Accordingly we set aside the order passed the learned CIT(A) on the issue of gross profit and direct the Assessing Officer to sustain the addition to the extent of Rs.1,09,948/- and delete the balance amount of Rs. 6,99,387/-,

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Assessing Officer took the view that the assessee has failed to prove the liability of Rs. 5,17,500/- shown in the name of Chandra Prakash. Accordingly, he assessed the same as income of the assessee. The learned CIT(A) also confimred the same.

4.1 The Learned AR submitted that the amount outstanding in the name of Chandra Prakash is a trading liability and further, it relates to the current year. Accordingly, he submitted that there is no reason to assess the outstanding liability when the corresponding expenditure has been accepted as genuine.

4.2 On the contrary, the learned DR submitted that the assessee has failed to furnish any documents relating to the above said creditor and hence the above said claim of the assessee could not be verified.

4.3 We heard rival contentions on this issue and perused the record. We noticed that the assessee did not file ledger account copy of creditor named Shri Chandra Prakash nor did he file confirmation letter obtained from the above said creditor. It is submitted before us that the impugned amount related to the current year’s trading liability and the corresponding expenditure has been accepted. In our view if the above said liability is trading liability and the corresponding expenditure has been accepted, then the said outstanding liability of the current year cannot be assessed as income, unless it is proved that the payment to the above said creditor has been made outside the books of account. However, we noticed that the assessee has not furnished any material to support its claim. Accordingly, we are of the view that this issue requires fresh examination at the end of the Assessing Officer in order to verify the claim of the assessee. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and restore the same to the file of the AO for examining it afresh. We also direct the assessee to furnish relevant materials to support his claim that the amount outstanding

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in the name of Chandra Prakash is trading liability and corresponding expenditure has been allowed. After hearing the assessee, the AO may take appropriate decision on this issue in accordance with law.

5.1 The facts relating to the above said issue are stated in brief. During the course of assessment proceedings, the Assessing Officer noticed that the assessee has maintained savings bank account with SBI, Minwa branch and the same was not disclosed in his books of account. He further noticed that the aggregate amount of cash deposits made into the above said bank account was Rs.1,02,36,441/-. When questioned, the assessee submitted before the Assessing Officer that the transactions in the above said SBI account were related to his cattle feed business. It was further submitted that the above said deposit of Rs.1.02 crores consisted of sweep transfer from fixed deposit accounts to the extent of Rs. 37.68 lakhs, i.e. the deposit to the extent of Rs. 37.68 lakhs are not cash deposits. It was also submitted that there are credits by way of interest of saving account and other income to the tune of Rs. 8,331/- and Rs. 10,631/- respectively. Accordingly it was submitted that the net deposit made by way of cash Rs. 64.49 lakhs only. The assessee filed revised return of income, wherein it declared profit under section 44AD of the Act @ 8% and also offered interest income and other income credited to the SBI account.

5.2 The Assessing Officer did not accept the above said explanations of the assessee. Accordingly he assessed the entire deposit of Rs. 1,02,36,441/- as income of the assessee. In the appellate proceedings the learned CIT(A) gave credit to the sweep transfer amount of Rs. 37.68 lakhs and accordingly

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confirmed the addition to the extent of Rs. 64.68 lakhs. Still the assessee is aggrieved.

5.3 The Learned AR submitted that the Assessing Officer is aware that the assessee is carrying on cattle feed business also. He submitted that the cattle feed is an exempted item under VAT Act. Hence the assessee was carrying on cattle feed business through his bank account, i.e., it was not recorded in the books of account. He submitted that the assessee has accepted his omission and accordingly filed revised return of income declaring profit from Cattle business @ 8%. Accordingly, he submitted that the profit of 8% declared by the assessee on the deposit amounts should be accepted.

5.4 On the contrary, the learned DR submitted that the turnover limit prescribed under section 44AD of the Act for A.Y. 2014-15 is Rs. 1 crore. The assessee has already declared turnover Rs. 62.90 lakhs in the rice mill business, while it is claimed that the turnover of the cattle feed business was Rs. 64.49 lakhs. Thus, the aggregate turnover of the assessee has exceeded the limit of Rs.1.00 crore and hence the provisions of section 44AD are not applicable to the assessee.

5.5 In the rejoinder, learned AR submitted that the perusal of the SBI account would show that the assessee has been making repeated deposit of cash and withdrawals. He submitted that the earlier withdrawal would constitute source for subsequent deposit. Accordingly he submitted that if the claim of cattle feed business is not accepted, then the addition should be restricted to the peak credit balance amount, as there is sequence of cash deposits and cash withdrawals. The Learned AR submitted that the assessee has raised the above said alternative claim as an additional ground of appeal. He submitted that the peak balance works out to Rs. 11,31,023/- as on 4.3.2014. Accordingly he prayed that the peak credit balance may be directed to be assessed as income.

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5.6 We heard the parties and perused the record. Even though the assessee has claimed that the deposits made into his SB account represents sale proceeds of Cattle feed business, yet no evidence was produced to support the same. However, we find merit in the alternative claim of the assessee, since there is a sequence of cash deposits and cash withdrawals. Hence there is a possibility that the earlier cash withdrawals were used to make subsequent cash deposits. In this kind of situation, the peak credit balance may be taken as income of the assessee. The Ld A.R submitted that the peak credit balance is available on 04-03-2014 and the amount is Rs.11,31,023/-. In our view, the above said alternative claim of the assessee can be accepted. Accordingly, we modify the order passed by Ld CIT(A) on this issue and direct the AO to restrict the addition to the peak credit balance, which according to the assessee is Rs.11,31,023/-. If the AO finds any enhanced amount as peak credit balance, he may assess the same after confronting his views with the assessee.

Order pronounced on 09.11.2023.

Sd/- Sd/- (Amit Shukla) (B.R. Baskaran) Judicial Member Accountant Member Varanasi.; Dated : 09/11/2023 Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT 5. DR, ITAT, Varanasi.

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