SANJAY BAJAJ HUF,BATALA vs. INCOME TAX OFFICER, WARD - 2, BATALA

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR (SMC) BEFORE SH. SANJAY ARORA, ACCOUNTANT MEMBER I.T.A. No. 626/Asr/2017 Assessment Year: 2013-2014

Sanjay Bajaj (HUF), vs. Income Tax Officer, Prop. Bajrang Engineers, Ward-2, Batala. D.B.N. Road, Batala. [PAN:AAVHS 8134E] (Appellant) (Respondent) Appellant by : Sh. Parveen Jain (C.A.) Respondent by: Sh. Charan Dass (D.R.)

Date of Hearing: 07.03.2019 Date of Pronouncement: 30.05.2019 ORDER Per Sanjay Arora, AM: This is an Appeal by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals)-1, Amritsar, ('CIT(A)' for short) dated 23.6.2017, dismissing the assessee’s appeal contesting his assessment u/s. 143 of the Income Tax Act, 1961 ('the Act' hereinafter) vide assessment zorder dated 28.03.2016 for the Assessment Year (AY) 2013-14.

ITA No.626/Asr/2017 (AY 2013 -14 ) 2 Sanjay Bajaj Huf v. ITO 3. The brief facts of the case are that the assessee’s accounts for the relevant year, examined during the course of the assessment proceedings, were found to bear a debit to the purchase account in respect of bill no. 254 dated 13/2/2013 for Rs. 5,46,139. The same was in fact a bill of sale (of pig iron, at 16.52 MT) issued by the assessee to M/s. GEW (PB pg. 22), duly accounted for as sales, with the corresponding debit to the account of the said party in the assessee’s accounts (PB pg. 44). The same had, however, also been simultaneously accounted for as a purchase, i.e., as if it was a bill for purchase of goods (from the said party) and, accordingly, debited to the purchase account (with the corresponding credit to the account of the said party). The second entry (i.e., treating it as a transaction of purchase), on being pointed out by the Assessing Officer (AO), was admitted by the assessee to be a mistake. As, therefore, it had claimed purchase expenditure in excess by that amount – the same admittedly not representing any purchase of goods by the assessee, i.e., did not signify any acquisition of goods nor, consequently, any liability there-against (to any party), the AO disallowed the expenditure to that extent, which stands confirmed in appeal, so that, aggrieved, the assessee is in second appeal.

ITA No.626/Asr/2017 (AY 2013 -14 ) 3 Sanjay Bajaj Huf v. ITO amount, so that there is, in effect, no decline in the profit per the operating statement (P&L Account) due to the admitted wrong entry of purchase in accounts. To illustrate: Table 1 P&L A/c Debit Credit To opening stock 100 By sales 800 To purchase 900 By closing stock 280 To gross profit 80 1080 1080 Table 2 P&L A/c Debit Credit To opening stock 100 By sales 800 To purchase 1000 By closing stock 380 To gross profit 80 1180 1180

Table 1 reflects the actual purchase and sale, and Table 2 represents the distorted P&L Account, i.e., including the excess, non-existing purchase (at Rs.100, say). In either case, the reported gross (and, therefore, net) profit remains the same, so that no addition to the returned income for the said excess purchase is called for. Now, without doubt, it is incorrect to say, as the assessee does, that it has not claimed purchase expenditure in excess by Rs. 5.46 lacs (Rs.100, in our example). This is, as explained in Attar Singh Gurmukh Singh, 191 ITR 67 (SC), the factum of the goods representing the purchase during the year being sold or not does not signify or determine whether the purchase is claimed or not. Closing stock is not a

ITA No.626/Asr/2017 (AY 2013 -14 ) 4 Sanjay Bajaj Huf v. ITO source of profit, but an adjustment to the operative statement required to be made to disclose the correcting profit (operating result) on the sales for the account period (Chainrup Sampatram 24 ITR 481 (SC)). As explained by the Tribunal, with reference to Attar Singh Gurumukh Singh (supra) and other decisions by the Hon’ble jurisdictional High Court, in Asst. CIT v. Darshan Mahajan (ITA No. 566/Asr/2016, dated 18/4/2018) and Shiv Raj Singh Bawa (ITA No. 407/Asr/2016, dated 30/1/2019), it is only as the expenditure on purchase is incurred and claimed that the relevant goods get acquired by it, so that where unsold (during the year), are valued so as to determine the correct amount of profit for the account period. The crux of the matter in the instant case, however, is whether there has been, on account of the claim of excess expenditure on purchase by Rs. 5.46 lacs, any artificial depression of the profit by the assessee which, as represented by Table-1 & Table-2 herein-above, is the same. To verify the assessee’s said claim, the ld. counsel, Sh. Jain, was asked to produce the stock record for the period up to 31/1/2014, i.e., the date on which the ‘wrong’ entry (of purchase) had been rectified in the assesee’s books of account by passing a journal entry crediting the purchase account and debiting the concerned party (M/s. GEW). This is as if the stock level falls below 16.52 MT, being artificially inflated by that quantity, at any time till the said date, it would imply actual stock with the assessee – inasmuch as there can be no negative stock on that date and, resultantly, on 31/3/2013, put paying the assessee’s claims. The reversal of purchase, it may be appreciated, should have been passed on the very date the purchase had been wrongly entered and, in any case, would have to be reckoned with reference to that date. The said stock record (copy on record at PB pgs. 39-43, 49-54) shows a stock level from 13/2/2013 to 31/1/2014 at a minimum of 22.490 MT (on 03/12/2013), validating the assessee’s claim of the purchase having been wrongly entered. Two, if the impugned purchase entry is indeed a mistake, as claimed, the concerned party

ITA No.626/Asr/2017 (AY 2013 -14 ) 5 Sanjay Bajaj Huf v. ITO (M/s. GEW) would pay the assessee the sale amount (in due course) and, accordingly, the assesee paid the sale amount by it, even as the assessee would not make any payment thereto (for the said non-existent purchase), which is indeed the case, as the statement of account of the said party in the assessee’s accounts (PB pg. 45) shows. There is, in view of the same, no reason to doubt that the purchase entry (for Rs. 5,46,139) in the said account is indeed on account of a mistake, which has not led to any deflation in the reported profit for the year. The assessee’s stock record for the subsequent period, produced during hearing, would though require verification at the end of the AO, and its’ production during hearing was for a prima facie satisfaction as to the bona fides of the assessee’s explanation. Subject, therefore, to the same, based as it is on the purchases and sales for the period up to a date falling in the subsequent account period, being verified as true and correct by the AO, no addition for the impugned claim of purchase is accordingly called for. And, therefore, where so found, directed for deletion. The assessee shall, to enable him to carry out the said verification, provide the documents, as required, to the AO, who shall undertake this exercise while giving appeal effect to this order. Needless to add, the AO shall record his finding, either way, per a speaking order, completing the exercise in a time bound manner. I decide accordingly.

ITA No.626/Asr/2017 (AY 2013 -14 ) 6 Sanjay Bajaj Huf v. ITO (1) The Appellant: Sanjay Bajaj Huf, Prop. Bajrang Enginers, Dera Baba Nanak Road, Batala (2) The Respondent: Income Tax Officer, Ward-2, Batala (3) The CIT(Appeals)-1, Amritsar (4) The CIT concerned (5) The Sr. DR, I.T.A.T True Copy By Order