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आदेश/Order
PER N.K. SAINI, VICE PRESIDENT
This is an appeal by the Assessee against the order dt. 29/09/2018 of the Ld. CIT(A)-3, Gurgaon.
Following grounds have been raised in this appeal :
That the order of the Ld. CIT(A) is against the facts of the case and is bad in law. 2. That the Ld. CIT(A) has erred in confirming the estimation of foreign tour expenses for China at Rs. 90,000/- and further erred in confirming the addition of Rs. 60,000/- in the hands of the assessee, inspite of the fact that the father of the assessee Sh. Umesh Goel has owned having met the expenses. 3. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in confirming the estimation of household expenses at Rs. 6,67,920/- P.A. and further erred in confirming the addition of Rs. 1,56,960/- towards share of the assessee. 4. That the Ld. CIT(A) has erred in confirming addition of Rs. 20,200/- being Gross Profit on alleged short stock of Rs. 5,64,441/-.
That on the facts and circumstances of the case, the Ld. CIT(A) has erred in confirming disallowance of Rs. 2,86,000/- out of salary paid by assessee.
That the appellant craves leave to add, amend or delete any of the grounds of appeal before the same is finally heard & disposed off.
Ground No. 1 and 6 are general in nature, so do not require any comments on our part.
Vide Ground No. 2 the grievance of the assessee relates to the sustenance of addition of Rs. 60,000/- on account of foreign tour expenses and Vide Ground No. 3 the grievance of the assessee relates to the confirmation of addition of Rs. 1,56,960/- on account of household expenses. As regards to these two issues the Ld. Counsel for the Assessee furnished the additional evidences under Rule 29 of the ITAT Rules 1963 and also submitted that the similar evidence were furnished in the preceding Assessment Year 2015-16 which was a subject matter of the Assessee’s Appeal in ITA No. 1488/Chd/2018, and that the identical issues were raised in the said year. It was further submitted that this Bench of ITAT vide order dt. 30/09/2019 set aside these issues back to the file of the A.O. for fresh adjudication, copy of the aforesaid order dt. 30/09/2019 was furnished which is placed on record.
In her rival submissions the Ld. CIT DR could not controvert the aforesaid contention of the Ld. Counsel for the Assessee.
We have considered the submissions of both the parties and perused the material available on the record. It is noticed that the identical issues having similar facts were involved in the preceding year in ITA No. 1488/Chd/2018 wherein also the assessee furnished the additional evidences under Rule 29 of the ITAT Rule 1963 as have been furnished for the year under consideration vide application dt. 27/08/2019. In the preceding year the issues had been decided
vide order dt. 30/09/2019 by this Bench of ITAT and the relevant findings have been given in para 3 to 5 which read as under :
“At the outset, the Ld. Counsel for the assessee has invited our attention to the application filed by the assessee for admission of additional evidence under Rule 29 of the Income Tax Appellate Tribunal Rules 1963. It has been pleaded that after passing of the impugned assessment order by the Assessing Officer, the Settlement Commission in the case of father of the assessee namely Shri Umesh Goel has passed the order. The impugned additions made by the Assessing Officer have been dealt by the Hon'ble Settlement Commission in the said order. That the order of the Hon'ble settlement Commission is very much relevant, and is required to be looked into and considered for just and proper decision of the case. The Ld. Counsel, therefore, has submitted that the additional evidence furnished by the assessee be admitted and the matter be restored to the file of the Assessing Officer to decide the issue afresh in the light of the additional evidence furnished.
The DR, though has relied on the findings of the lower authorities, however, could not rebut the contention of the Ld. Counsel for the assessee that the order of the Settlement Commission was subsequent to the order passed by the Assessing Officer and that the issues dealt by the Hon'ble Settlement Commission have bearing on the issue raised by the assessee in this appeal.
In view of this, the additional evidences filed by the assessee are admitted and the impugned orders of the lower authorities are hereby set aside and the matter is restored to the file of the Assessing Officer to decide the issue afresh. The Assessing Officer will consider the evidence so furnished by the assessee. Needless to say that the assessee will promptly appear before the Assessing Officer, as and when called for, and will not contribute in delaying the proceedings.”
So respectfully following the aforesaid referred to order dt. 30/09/2019, these two issues relating to foreign tour expenses and household expenses are restored to the file of the A.O. for a fresh adjudication as has been directed for the A.Y. 2015-16.
Vide Ground No. 4 the grievance of the assessee relates to the confirmation of addition of Rs. 20,200/- on account of Gross Profit on alleged short stock.
Facts related to this issue in brief are that the A.O. during the course of assessment proceedings, pointed out that during the course of search on
physical verification the stock was found at Rs. 41,70,465/- whereas as per the books of accounts it was at Rs. 47,35,406/-, so, there was shortage of Rs. 5,64,441/-. He asked the assessee to show cause as to why the difference may not be treated on account of its sale outside of the books of accounts and addition of Gross Profit may not be made. In response the assessee submitted as under:
" 2. The assessee is dealing in G.P. & G.C. Sheet and G.I. Pipe. The stock taking on the date of search was not conducted by actual weighment. It will not be out of place to mention that the sectional weight varies with the thickness of the sheet. The Authorized Officer during search estimated the stock on the basis of pieces and by adopting round figures of the cost.
The assessee submit that there is no difference in the stocks. The difference in stock is due to estimation only, which is bound to be there on the adoption of round figures rather than the actual. During search, Shri Nitin Goel stated that the discrepancy will be explained later on. But on such explanation was called for from him.
We have stated above that the stock was only estimated and there is bound to be margin of error in such inventory based on estimation, so the difference be ignored and no addition be kindly made."
8.1 The A.O. however did not find merit in the submissions of the assessee and made the addition of Rs. 20,200/- by observing as under:
“ 6.3 The submissions made by the assessee have been examined. The stock was inventorised and valued on the basis of information provided by the employees available at the business premises who are competent to do so as they are involved the day-to-day trading at the premises of the assessee. The assessee now cannot take a plea that the valuation is not properly done. The assessee has shown gross profit @ 3.58%. As, there was shortage of stock, the reason attributable to the same is sales outside the books of accounts. Therefore, an addition of gross profit of Rs.20,200/- @ 3.58% on account of sales of Rs.5,64,441/- made outside the books is made to the returned income of the assessee.”
Being aggrieved the assessee carried the matter to the Ld. CIT(A) and submitted as under:
Addition of Rs. 20,200/- on account of sale of alleged shortage in stock:
The Ld. A.O. has considered the sale of alleged shortage in stock based on the stock as per books worked out by the Authorized Officer applying the GP. rate which cannot replace the actual value of stock as per books. The Authorized Officer during the survey on the business premises of M/s. Bhagwati Trading Company inventorised the stock with the help of employees by considering the number of sheets in the heaps lying in the godown in round figures. The details of inventory prepared itself shows that the stock taking were defected and the sheets have been inventorised by number and it is very difficult for survey party to count the number of sheets in the heap as the sheet are 0.25mm to 0.65mm, which is just like a blade and it is difficult to count at a glance. Further the rates of the purchases have been taken in round figures only, which is again not possible which shows the inventory was defective and should not have been relied upon by the Ld. A.O. Hence on the basis of estimation of stock no shortage can be worked out to make addition by applying G.P. Rate and that too without rejecting the books of account infact, there was no shortage of stock, the Ld. A.O. has wrongly made addition as the stocks cannot be worked out by applying G.P. Rate. It is the actual stock as per physical count which can only be considered. But it has not been done and the method has been wrongly applied.
The Ld. CIT(A) however confirmed the addition made by the A.O. by observing that the shortage of stock had been worked out by the A.O. in the assessment order and thereafter GP Rate had been applied as shown by the assessee.
Now the assessee is in appeal.
Ld. Counsel for the Assessee reiterated the submissions made before the authorities below and further submitted that the addition has been made only on estimate basis and even the stock was worked out on estimate basis and that there was no difference in the physical quantity, therefore, the addition made by the A.O. and sustained by the Ld. CIT(A) was not justified. The reliance was placed on the following case laws:
• CIT Vs. Anil Kumar And Company (2016) 386 ITR 0702 (Karnataka)
• CIT Vs. K.S. Bhatia (2004) 269 ITR 0577 (P&H)
• CIT-II Vs. M/s Navbharat Export in ITA 212/2013 & 221/2013 order dt. 05/05/2015 (Delhi)
• Lalit Cloth House, Jalandhar Vs. ITO, III (4) Jalandhar, in ITA No. 185/Asr/2016 for A.Y. 2009-10, order dated 15/09/2016 (ITAT, Amritsar)
In her rival submissions the Ld. CIT DR strongly supported the orders of the authorities below.
We have considered the submissions of both the parties and perused the material available on the record. In the present case it appears that the A.O. worked out the difference of stock on estimate basis and did not point out any specific item which was sold outside of the books of accounts. Ld. CIT(A) also passed the impugned order in a slip shod manner, he simply stated that the A.O. worked out the difference during the course of assessment proceedings and applied the GP rate shown by the assessee. However, the explanation of the assessee wherein it was stated that the stock was lying in heaps in the ground and was taken in the round figures and even the rates of purchase were taken in round figures was not rebutted, therefore it appears that the calculation of the stock at the time of search was not accurate and particularly when the A.O. had not rejected the books of accounts then the addition made by the A.O. and sustained by the Ld. CIT(A) on estimate basis was not justified, accordingly the same is deleted.
The next issue vide ground no. 5 relates to the confirmation of disallowance of Rs. 2,86,000/- made by the A.O. out of the salary paid by the assessee.
The facts relating to this issue in brief are that the assessee debited Rs. 3,79,000/- in its P&L Account towards salary. The A.O. observed that in the statement during the course of search, it was stated that there were two employees namely Shri Manish Sharma and Shri Chaman drawing salary of Rs. 6,500/- and Rs. 5,000/- respectively per month. The A.O. asked the assessee to
show cause as to why excess salary debited may not be disallowed. The explanation of the assessee before the A.O. was as under:
“It is respectfully submitted that the assessee has four employees and at the time of search in the morning only two employees were present. The other two employees were not allowed to enter the premises after the commencement of search. The details of salary are enclosed herewith and there is no cause for any disallowance of Rs.2,41,000/- as proposed by you."
However, the A.O. was of the view that the explanation of the Assessee was an afterthought and that no other evidence like wages register, or attendance register was produced. He also pointed out that Shri Chaman had joined recently. He, accepted the salary paid to him for three months amounting to Rs. 15,000/-. The A.O. also pointed out that the salary of Rs. 78,000/- was paid to Shri Manish Sharma. He, therefore allowed salary of Rs. 93,000/- ( Rs. 15000 + Rs. 78000 ) out of total salary of Rs. 3,79,000/- and made the addition of Rs. 2,86,000/- (Rs. 3,79,000/- (-) Rs. 93,000/-).
Being aggrieved the assessee carried the matter to the Ld. CIT(A) and submitted as under:
Addition ofRs. 2.86.000/- on account of Salary “In this regard, it is submitted that during the course of survey only 2 employees were present in the morning, when the Authorized Officer ask Sh. Nitin Goel, he only meant that we have 2 employees present in the firm at the time of survey and the salary of only these 2 employees was stated which is as per the books of the assessee. The Ld. A.O. has assumed that since there were only 2 employees, the assessee has claimed bogus expenditure on account of salary. The assessee filed the details of the salary and explained that the assessee has 1 van and a car which is used for the purpose of business. The deliveries are made by own van also and the assessee has employed 2 driver, who were on-roll but were not allowed to enter the premises after the start of survey. Without considering the above fact, the Ld. A.O. has assumed that they are only 2 employees and rest of the employees are bogus.
Your honour, it is submitted that the assessee has employed in Asstt. Year 2015-16 also and their salaries have been allowed as expenditure by the Ld. A.O. while assessing the income. When the employees were already there in earlier years, how can their existence be doubted during the appeal.
We are enclosing herewith the details of salary allowed for Asstt Year 2015-16, where they were 4 employees including Sahil Goel, Manish, Driver 3443 to whom paid the salary during the year also. The Ld. A.O. has misdirected herself in disallowing the salary on conjecture and surmises.
The Ld. CIT(A) after considering the submissions of the assessee sustained the addition by observing that the assessee had filed only copy of ledger account and the details of salaries paid during the appellate proceedings, however, no documentary evidence in support of the salary claimed to have been paid, was filed.
Now the assessee is in appeal.
The Ld. Counsel for the Assessee reiterated the submissions made before the authorities below and further submitted that the detail of the salary was filed before the A.O. as well as the Ld. CIT(A) and in the preceding years no such disallowance was made. It was further submitted that there were four employees but the A.O. allowed the salary of only two persons even when all the details were given to him, the reference was made to page no. 22 & 23 of the assessee’s paper book which are the copies of ledger account wherein the names of the employees alongwith amount of salary per month has been mentioned.
In her rival submissions the Ld. CIT DR strongly supported the orders of the authorities below.
We have considered the submissions of both the parties and perused the material available on the record. It is noticed that the assessee was having four employees namely Shri Kuldeep Kumar (Salesman), Shri Manish Sharma (Salesman), Shri Dalip (Peon) and Shri Sahil Goel and there was one Driver for Vehicle No. 3443, which is evident from the details furnished by the assessee before the A.O. and the Ld. CIT(A) i.e; copies of the ledger account which are placed at page no. 22 & 23 of the assessee’s paper book. In our opinion the
disallowance made by the A.O. and sustained by the Ld. CIT(A) on this basis that only two persons were stated to be employed in the statement during the course of search was not justified particularly when the assessee mentioned the names of the persons who were regularly employed, in its ledger account. In the present case, the books were accepted by the A.O., therefore, when the books of accounts were accepted which clearly show the name of the persons to whom monthly salary was paid total of which for the year under consideration was at Rs. 3,46,000/- then the disallowance made by the A.O. and sustained by the Ld. CIT(A) was not justified. Accordingly the same is deleted.
In the result, appeal of the Assessee is partly allowed for statistical purposes.
(Order pronounced in the open Court on 22/10/2019 )
Sd/- Sd/-
संजय गग� एन.के.सैनी, (SANJAY GARG ) ( N.K. SAINI) �या�यक सद�य/ Judicial Member उपा�य� / VICE PRESIDENT AG Date: 22/10/2019
आदेश क� ��त�ल�प अ�े�षत/ Copy of the order forwarded to :
अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent 3. आयकर आयु�त/ CIT 4. आयकर आयु�त (अपील)/ The CIT(A) 5. �वभागीय ��त�न�ध, आयकर अपील�य आ�धकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड� फाईल/ Guard File