DWARKADHEESH BATRA,ALWAR vs. ITO, ALWAR

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ITA 351/JPR/2016Status: DisposedITAT Jaipur12 October 2018AY 2011-1213 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal condoned the delay of 67 days in filing the appeal, finding the assessee's reasons to be bonafide and reasonable. The Tribunal also addressed various grounds of appeal related to rejection of books of accounts, disallowance of expenses, and additions on account of gifts.

What were the facts?

The assessee filed an appeal with a delay of 67 days due to confusion regarding which of the two orders passed by the CIT(A) to challenge. The appeal pertains to the assessment year 2011-12.

What were the issues?

Whether the delay in filing the appeal is condonable and whether the additions/disallowances made by the AO and confirmed by the CIT(A) are justified.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 154,Section 145(3),Section 133A,Section 56(2)(vii)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, JAIPUR BENCHES, JAIPUR

Before: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 351/JP/2016

For Appellant: Shri Rajeev Sogani(CA) jktLo dh vksj ls@

PER VIJAY PAL RAO, JM :

This appeal by the assessee is directed against the order dated 20.11.2015 of

ld. CIT (A), Alwar for the assessment year 2011-12. There is a delay of 67 days in

filing the present appeal. The assessee has filed an application for condonation of

delay which is supported by an Affidavit.

2.

We have heard the ld. A/R as well as the ld. D/R on the condonation of delay

and carefully perused the reasons explained by the assessee in the application as

well as the averments made in the affidavit filed by the assessee. The assessee has

explained the reasons that after the assessment order passed under section 143(3)

of the IT Act, the assessee filed an application under section 154. Therefore, the

assessee filed two appeals before the ld. CIT (A) – one against the order passed

2 ITA No. 351/JP/2016 Shri Dwarkadheesh Batra, Alwar.

under section 143(3) and another against under section 154. The ld. CIT (A)

passed two orders dated 20.11.2015 and 22.12.2015. It was not clear to the

assessee to challenge which of the orders passed by the ld. CIT (A) before this

Tribunal and, therefore, due to this confusion, there is a delay in filing the present

appeal which is neither willful nor deliberate but due to the bonafide reason. We

find that there is no dispute that the ld. CIT (A) has passed two orders and the

impugned order dated 20.11.2015 was passed against the assessment order under

section 143(3) and thereafter the another order dated 22.12.2015 was passed

against the order passed under section 154 of the Act. Some of the issues are

common in both the appeals which were decided by the ld. CIT (A), therefore, the

possibility of the said confusion in the mind of the assessee cannot be ruled out.

Further we find that filing the appeal belatedly the assessee would not achieve any

ulterior purpose or any gain. Therefore, having regard to the facts and

circumstances of the case, when the reasons explained by the assessee are found to

be correct and bonafide, then we are satisfied that the assessee has explained the

reasonable cause for delay of 67 days in filing the present appeal. Accordingly, in

the facts and circumstances of the case and in the interest of justice, we condone

the delay of 67 days in filing the present appeal.

3.

The assessee has raised the following grounds :-

1.

In the facts and circumstances of the case and in law the ld. CIT (A) has erred in confirming the action of the ld. AO in rejecting the books of accounts by invoking the provisions of section 145(3) of the Income Tax Act 1961 and thereafter making an addition of Rs. 8,50,925/- to the income of the appellant. The action of ld. CIT (A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the rejection of books of accounts and deleting the trading addition of Rs. 8,50,925/-.

3 ITA No. 351/JP/2016 Shri Dwarkadheesh Batra, Alwar.

2.

In the facts and circumstances of the case and in law the ld. CIT (A) has erred in confirming the action of ld. AO in not reducing the amount of Rs. 3,00,000/- surrendered by the appellant during the course of survey proceedings out of the total addition of Rs. 8,50,925/- made by ld. AO. Relief may please be granted by deleting the said addition of Rs. 3,00,000/-.

3.

In the facts and circumstances of the case and in law, the ld. CIT (A) has erred in confirming the disallowance of the following expenses :

Expenses Amount Amount Relief Confirmed claimed Disallowed Granted by CIT (A) by CIT (A) Wages Expenses 73,341/- 15,000/- Nil 15,000/- Conveyance expenses 18,325/- 4,000/- Nil 4,000/- Travelling expenses 50,498/- 11,000/- Nil 11,000/- Bardana charges 19,153/- 4,000/- Nil 4,000/- Tea, Food and 42,323/- 8,500/- Nil 8,500/- Beverages Telephone & Mobile 12,313/- 2,500/- Nil 2,500/- expenses Petrol and Depreciation 43,525/- 8,500/- Nil 8,500/- on Hero Honda Bike Entertainment expense 15,505/- 3,000/- Nil 3,000/- Salary 1,33,000/- 1,33,000/- 83,000/- 50,000/- Total 4,07,983/- 1,89,500/- 83,000/- 1,06,500/-

The action of ld. CIT (A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the said disallowance of Rs. 1,06,500/-.

4.

In the facts and circumstances of the case and in law the ld. CIT (A) has erred in confirming the disallowance of Rs. 75,000/- out of the total disallowance of Rs. 87,000/- made by the ld. AO on account of cash discount given to the customers. The action of ld. CIT (A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the said disallowance of Rs. 75,000/-.

5.

In the facts and circumstances of the case and in law the ld. CIT (A) has erred in confirming the addition made by the ld. AO of Rs. 76,000/- out of total addition of Rs. 1,76,000/- on account of cash gifts received on Tikka ceremony and confirming the addition of Rs.

4 ITA No. 351/JP/2016 Shri Dwarkadheesh Batra, Alwar.

1,75,000/- out of total additions of Rs. 3,75,000/- on account of cash gift received on marriage ceremony. Relief may please be granted by deleting the said addition of Rs. 2,51,000/-.

6.

The assessee reserves his right to add, amend or alter any of the grounds of appeal on or before the hearing.

4.

Ground No. 1 is general in nature and the ld. A/R of the assessee has

submitted that the assessee does not press this ground particularly the issue of

rejection of books of account under section 145(3) of the Act. Hence, the same may

be dismissed as not pressed. Accordingly ground no. 1 of the assessee’s appeal is

dismissed as not pressed.

Ground Nos. 2 & 3 are inter connected.

5.

The AO has made adhoc disallowances in respect of various expenses which

were confirmed by the ld. CIT (A). The ld. A/R of the assessee has submitted that during the course of survey under section 133A of the IT Act on 1st February, 2011

the assessee has surrendered an income of Rs. 3,00,000/- on account of discrepancy

and deficiency found in the books of account of the assessee or other records.

However, the AO while making disallowances of various expenditures has not given

the credit of the said amount of Rs. 3,00,000/- surrendered by the assessee and

offered to tax. The ld. A/R has further contended that the AO after rejection of

books of account and having admitted the fact that the net profit declared by the

assessee for the year under consideration is better than the past history of the

assessee has made the disallowances of expenditure which is not justified. Thus the

ld. A/R has submitted that even if certain expenses are disallowed by the AO, the

5 ITA No. 351/JP/2016 Shri Dwarkadheesh Batra, Alwar.

credit of the amount surrendered and offered to tax by the assessee shall be allowed

and set off against the said disallowance.

6.

On the other hand, the ld. D/R has submitted that the assessee has

surrendered the income of Rs. 3,00,000/- only on account of the earlier year so that

the AO should not reopen the assessment of earlier year. He has referred to the contents of the letter dated 10th February, 2011 whereby the assessee has

surrendered this amount of Rs. 3,00,000/- and submitted that the surrender was

made with the condition that no reopening of assessments for the past years would

be undertaken by the department. Thus it is clear that the surrender was made only

in respect of any undisclosed income of past years and not for the current year. He

has relied upon the orders of the authorities below.

7.

We have considered the rival submissions as well as the relevant material on

record. The AO has noted in the assessment order that the assessee has earned

commission income of Rs.9,60,142/- and other receipts of Rs. 7,200/- and declared

net profit of Rs. 1,74,183/- which is 18.13%. The details of the comparative net

profit declared by the assessee has been given by the AO in para 2 as under :- fu/kZkj.k o"kZ 'kq} ykHk 'kq} ykHk nj

2011-12 1,74,183/- ¼deh'ku ij½ 18.13 izfr'kr

2010-11 3,27,830/- ¼deh'ku ij½ 14.60 izfr'kr

2009-10 61,235/- ¼fcØh ij½ 7.60 izfr'kr

The AO has also rejected the books of account of the assessee by invoking the

provisions of section 145(3). The assessee has not pressed the said issue in the

6 ITA No. 351/JP/2016 Shri Dwarkadheesh Batra, Alwar.

present appeal. Therefore, the rejection of books of account has attained the

finality. Once the AO has rejected the books of account and also made a

comparative analysis of net profit declared by the assessee, then the only option

with the AO to assess the income of the assessee by estimating the income on some

reasonable basis whether it is average GP of the past years or the average net profit

of the past years. There is no dispute that the average GP or NP of the past years

as declared by the assessee which has been accepted or attained finality may be a

reasonable basis and good guidance for estimation of income after rejection of

books of account. Admittedly, the net profit declared by the assessee for the year

under consideration is much more than the average net profit declared by the

assessee in the past which has not been disturbed by the AO. Therefore, once the

books of account are rejected by the AO, the estimation of income of the assessee

shall be based on some reasonable basis and having regard to the criteria of past

net profit declared by the assessee, we find that despite the rejection of books of

account, no addition is called for. Hence, the disallowance made by the AO on

account of certain expenditures after rejection of books of account is not justified

and, therefore, the net profit declared by the assessee would be more than the

estimated income. Accordingly, instead of going into the issue of giving the credit of

Rs. 3,00,000/- against the various disallowances made by the AO as referred in

ground no. 3, we hold that the disallowances made by the AO are not called for

when the income of the assessee was to be estimated and the comparative net

profit is admittedly much better than the past history of the assessee. Consequently

no addition is called for. Hence we delete the addition/disallowances made by the

AO on account of various expenses totaling to Rs. 1,06,500/-.

7 ITA No. 351/JP/2016 Shri Dwarkadheesh Batra, Alwar.

Ground No. 4 is regarding the adhoc disallowance of Rs. 75,000/- on

account of cash discount.

8.

We have heard the ld. A/R as well as the ld. D/R and considered the relevant

material on record. An identical issue has been considered by us in the case of

father of the assessee in ITA No. 439/JP/2016 vide even dated order as under :-

“14. The ld. A/R of the assessee has submitted that the AO has made the adhoc disallowance of Rs. 83,000/- out of the total claim of Rs. 2,70,993/-. The ld. A/R has submitted that the discount is customary in this business and was given for prompt and regular payment from the customers. He has referred to the confirmations filed by the assessee from some of the customers as well as from the Alwar Fruit & Vegetable Mandi Union. Thus the ld. A/R has submitted that when it is a prevailing practice in this trade, then the adhoc disallowance made by the AO is not justified. The assessee has produced the supporting documents to prove the discount given by the assessee, thus in the absence of any contrary material or document, the disallowance made by the AO is not justified. 15. On the other hand, the ld. D/R has relied upon the orders of the authorities below and submitted that the assessee has not produced any details of the persons and the dates regarding the discount given to the customers. Thus it is an excessive claim made by the assessee without giving the details of payment as well as the dates, hence the claim of the assessee cannot be accepted. He has further submitted that in this trade the question of allowing discount does not arise when the assessee is earning only commission income. 16. We have considered the rival submissions as well as the relevant material on record. Though the AO has made an adhoc disallowance of Rs. 83,000/- out of total claim of cash discount of Rs.

8 ITA No. 351/JP/2016 Shri Dwarkadheesh Batra, Alwar.

2,70,993/-, however, we find that the assessee is working as a Commission Agent and facilitate the transactions of fruits and vegetables brought by the one party is sold to the other party. Thus the role of the assessee is only providing a platform for the transactions of purchase and sale between two parties. Since the assessee is earning commission income and no income on account of profit on sale is either recorded in the books of account or included in the total income, then such a claim of cash discount cannot be considered as an expenditure incurred wholly and exclusively for the business of the assessee. The nature of business of the assessee is only to facilitate the platform for the transactions between the parties though the assessee is having certain duties and responsibilities of assuring the payment to the owner of the goods who has brought the goods for sale. Accordingly the cash discount allowed by the assessee to the customers has no direct connection with the business of the assessee. Since the AO has made part disallowance, accordingly we find no reason to interfere with the orders of the authorities below. The same is confirmed.”

Accordingly, in view of our finding on this issue in the connected appeal, we do not

find any reason to interfere with the orders of the authorities below.

Ground No. 5 is regarding addition of Rs. 76,000/- on account of

cash gift received on the occasion of engagement ceremony and further

Rs. 1,75,000/- on account of cash received on marriage ceremony.

9.

The AO has made a total addition of Rs. 1,76,000/- on account of cash gift

received on engagement ceremony of the assessee and further an amount of Rs.

3,75,000/- on account of cash gift claimed to have received in marriage ceremony.

On appeal, the ld. CIT (A) has restricted these additions to Rs. 76,000/- out of Rs.

9 ITA No. 351/JP/2016 Shri Dwarkadheesh Batra, Alwar.

1,76,000/- on account the gift received in engagement ceremony and further the

addition was restricted to Rs. 1,75,000/- out of Rs. 3,75,000/- in respect of gift

received on marriage ceremony. Thus the ld. CIT (A) has allowed the relief of Rs.

2,51,000/-.

10.

Before us, the ld. A/R of the assessee has submitted that the AO has made a

total addition of Rs. 5,51,000/- which includes cash deposit in the bank of Rs.

3,75,000/-. Therefore, the addition made on account of gift received at the time of

Tilak ceremony and marriage ceremony can be considered as a source of deposit of

cash in the bank account, whereas the AO has made the addition of both the

amounts of gift received as well as the deposit made in the bank account. Thus the

ld. A/R has submitted that the addition made on one account shall be considered as

source of deposit made in the bank account of the assessee and consequently there

would be no addition on this account. He has referred to the details of the gift

received total amounting to Rs. 2,26,000/- from his friends and relatives at the time

of pre-marriage and marriage ceremony and, therefore, to the extent of the said

money the addition on account of bank deposit would not be warranted. Further,

the assessee has also withdrew certain cash from the bank to the tune of Rs.

2,50,000/-. Thus the said amount of withdrawal from the bank is also available with

the assessee for source of deposit in the bank account.

11.

On the other hand, the ld. D/R has submitted that the ld. CIT (A) has

considered all these contentions of the assessee and found that the assessee has

not considered the expenditure incurred in the marriage of the assessee and has

only shown the cash gift received by the assessee. Therefore, after considering the

totality of the facts and circumstances of the assessee’s case, the ld. CIT (A) has

10 ITA No. 351/JP/2016 Shri Dwarkadheesh Batra, Alwar.

granted substantial relief to the assessee. He has relied upon the order of the ld.

CIT (A).

12.

We have considered the rival submissions as well as the relevant material on

record. In the receipt and payment account the assessee has shown gift receipts of

Rs. 1,01,000/- at the time of Tilak ceremony and further gift receipts of Rs.

1,25,000/- on Reception ceremony post marriage of the assessee. Thus Rs.

2,26,000/- was claimed as gift received in the pre-marriage and post marriage

ceremonies of the assessee. The assessee has also shown the household

expenditure of Rs. 38,400/- as well as marriage expenses of Rs. 70,000/-. The AO

has made the addition of Rs. 1,76,000/- out of the total receipts of Rs. 2,26,000/-

claimed as gift and further an addition of Rs. 3,75,000/- as cash deposit in the bank

account. Thus the total addition was made by the AO of Rs. 5,51,000/-. We find

that the ld. CIT (A) has allowed the relief of Rs. 3,00,000/- and sustained the

balance addition of Rs. 2,51,000/-. The finding of the ld. CIT (A) on this issue is

given in para 11.3 to 11.7 as under :-

“ 11.3. I have gone through the assessment order as well as submissions made by the appellant and find that an addition of Rs. 1,76,000 stated to have been received on tikka ceremony and of Rs. 3,75,000, which were stated to be received on marriage have been made by the AO. These amounts were found to have been deposited in cash in the bank account of the appellant. AO has held these deposits to be unexplained in the absence of complete information regarding the names and addresses of the donors giving these gifts in cash. 11.4. The appellant has stated that these gifts were received at the time of tikka ceremony and marriage ceremony of the appellant from

11 ITA No. 351/JP/2016 Shri Dwarkadheesh Batra, Alwar.

different relatives and family friends. A list of the names along with the amount received from different persons has been filed in the course of assessment proceedings. A copy of the same has also been filed in the course of appellate proceedings. The appellant further stated that such gifts cannot be brought to tax by virtue of the provisions of section 56(2)(vii) of the I.T. Act. 11.5. Having considered the submissions made on this issue and other material available on record, I find that appellant has deposited cash of Rs. 1,01,000 on account of tikka ceremony, cash of Rs. 1,25,000 on account of gift on ceremony and further cash of Rs. 3,75,000 on account of marriage ceremony. These cash balance were deposited on different dates in the bank account of the appellant. AO has after considering the material available on record given a finding that only an amount of Rs. 50,000/- can be considered as having been received on account of these ceremonies and balance amount of Rs. 5,51,000 has been considered as unexplained deposits in the bank account. 11.6. No doubt, certain amount of cash is being received in the Indian society at the time of different marriage ceremonies but the quantum of the same would depend upon the status of the family. Further, these ceremonies involve incurring of huge expenditure on booking of venues, lighting, catering, transport, giving return gifts purchase of jewellery, clothes and other items etc. Therefore, the expenses on these items have also to be completely accounted for. 11.7. In view of the above discussion, I hold that it would be just and fair to restrict the addition to Rs. 76,000 on account of gifts received at the time of tikka ceremony out of the total addition of Rs. 1,76,000 made by the AO and to Rs. 1,75,000/- on account of gifts received at the time of marriage ceremony out of the total addition of Rs. 3,75,000 made by the AO under this head.”

12 ITA No. 351/JP/2016 Shri Dwarkadheesh Batra, Alwar.

Thus the ld. CIT (A) has considered the fact that apart from receiving these gifts,

there is inevitable expenditure in the marriage which has not been considered by the

assessee while claiming these gifts of Rs. 2,26,000/-. In any case, the expenditure

shown by the assessee of Rs. 70,000/- is completely unrealistic having regard to the

minimum expenditure at the time of marriage ceremony. Hence we find that the ld.

CIT (A) has considered this issue amicably and giving proper reference and,

therefore, no interference is called for.

13.

In the result, appeal of the assessee is partly allowed.

Order is pronounced in the open court on 12/10/2018.

Sd/- Sd/- (foØe flag ;kno) (fot; iky jkWo ½ (VIKRAM SINGH YADAV ) (VIJAY PAL RAO) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member

Jaipur Dated:- 12/10/2018. Das/ आदेश की प्रतिलिपि अग्रेषित@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. The Appellant- late Shri Dwarkadheesh Batra, Alwar. 2. The Respondent – The ITO Ward 2(3), Alwar. 3. The CIT(A). 4. The CIT, 5. The DR, ITAT, Jaipur 6. Guard File (ITA No. 351/JP/2016)

vkns'kkuqlkj@ By order,

सहायक पंजीकार@ Aेेपेजंदज. त्महपेजतंत

13 ITA No. 351/JP/2016 Shri Dwarkadheesh Batra, Alwar.

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