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Income Tax Appellate Tribunal, NAGPUR BENCH, NAGPUR
Before: SHRI G.D. AGRAWAL & SHRI MAHAVIR SINGH
PER BENCH :
This appeal by the assessee for the assessment year 2008-09 is directed against the order of learned CIT(A)-I, Nagpur dated 23rd December, 2013.
The first two interconnected issues in this appeal of the assessee are against the order of learned CIT(A) confirming the action of the Assessing Officer in making addition of trade creditors u/s 68 of the Income-tax Act, 1961 (hereinafter ‘the Act’) as unexplained cash credits and also in making additions of gross profit after rejecting the book results u/s 145(3) of the Act. For this, assessee has raised following ground Nos.1 to 3 :-
2 ITA-179/Nag/2014 “1. That the learned CIT(A) has committed gross mistake in sustaining the order of Assessing Officer, thereby confirming the addition made by the Assessing Officer wherein the Assessing Officer has rejected cash sales made by the assessee and treated the same as unexplained cash credit in books of account. The addition made by Assessing Officer and confirmed by CIT(A) needs to be deleted.
That the learned CIT(A) has committed gross mistake in sustaining the order of Assessing Officer, wherein, once the Assessing Officer has rejected the books of account and calculated the net profit u/s 145(3) himself, the addition made on account of any credit entry cannot be made u/s 68 and the addition made on account of unexplained cash credit needs to be deleted.
That the learned CIT(A) has committed gross mistake in sustaining the order of Assessing Officer whereby CIT(A) has confirmed the value of stock as calculated by Assessing Officer inspite of the fact that the assessee has pointed out clerical mistake committed by the Assessing Officer. The Assessing Officer in his remand report dated 06.02.2013 also confirms regarding clerical mistake committed by his predecessor. And, as such the addition made of account of closing stock needs to be deleted and/or the income may be recomputed accordingly.”
Briefly stated, facts are that the assessee is engaged in the business of iron and steel trading. The assessee produced books of account, bills and vouchers, bank pass book before the Assessing Officer during the course of assessment proceedings which were verified on test check basis. The Assessing Officer noticed that the assessee is maintaining two sets of books of account and accordingly, he rejected the book results and made addition by applying gross profit rate at `25,66,935/- as against declared by the assessee at `6,09,366/-. The Assessing Officer thereby made addition to the income by an amount of `19,57,569/-. Consequently, the Assessing Officer also noted that cash sales made by the assessee are not proved and hence, he treated the cash deposited in the bank account as undisclosed sales
3 ITA-179/Nag/2014 and consequently, the same as unexplained cash credits amounting to `43,84,895/-. Aggrieved, assessee preferred appeal before the CIT(A) against both the additions and learned CIT(A) confirmed the addition without considering the submissions of the assessee. Aggrieved, now the assessee is in second appeal before the Tribunal on both the issues.
We have heard rival contentions and gone through the facts and circumstances of the case. We have gone through the bare finding of the Assessing Officer who has recorded the fact for rejecting the books of account and estimating the cash sales as unexplained cash credits. According to the Assessing Officer, these cash sales are cash credits and, for this, he has recorded the following reason in paragraph 11, which reads as under :-
“11. The cash sales of the assessee are not genuine and can be termed as introduction of unaccounted money under the garb of cash sales. The reasons for such a finding are as under :
(a) The difference between the two sets of books of account, audited & unaudited, is the generation of cash sales on specified dates.
(b) The cash sale bills are not supported by any supporting documents.
(c) Two parties have denied to have purchased any material from the assessee.
(d) The inability of the assessee to produce confirmations from the parties which have affected cash sales for the assessee or in turn, are the source of cash generation for the assessee.
(e) The assessee instead of depositing this cash generated has routed the cash in the business through his personal saving bank account i.e. the cash is deposited in the saving bank account with Akola Urban Co-operative Bank and on the same is transferred to assessee’s current bank account with
4 ITA-179/Nag/2014 the same branch, from wherein business transactions are affected.
(f) The sales tax return filed by the assessee is not on the due dates. In fact, the assessee has not filed any sales tax quarterly/half yearly return on time and the consolidated return has been filed on 13.10.2008, which suggests that the sales are manipulated.
(g) The increased position of closing stock is the indicator for introducing cash through bogus cash sales.
(h) Inability of the assessee to explain the stock position or not maintaining the stock position is also an indicator to doubt the transaction.”
We find from the above reasons of the Assessing Officer that the Assessing Officer admits these cash sales as unexplained in the absence of confirmation by the parties. Admittedly, these are trade creditors and not cash creditors because the assessee has deposited the cash in its trading bank account out of the proceeds of sales, although those are not verified. It means that these have relation with trading entries and these are not independent cash credits. On the other hand, the Assessing Officer is also rejecting the books of account u/s 145(3) of the Act and applied profit rate and making addition by enhancing the income of `6,09,366/- to `19,57,569/-. We find from the above facts in entirety that the Assessing Officer cannot blow hot and cold at the same time for the reason he has made twin additions out of the trading results i.e., treating the cash sales as cash credit and adding the same u/s 68. Consequently, the Assessing Officer also rejected the book results u/s 145(3) of the Act and also enhanced the profit by applying profit rate. We are of the view that the Assessing Officer is very well within the power of rejecting the book results u/s 145(3) and we confirm the action of the Assessing Officer. However, we find that the Assessing Officer has applied profit rate of more than 8% and assessee’s nature of business is trading in steel and iron, which does not give this much profit and assessee’s regular profit is assessed
5 ITA-179/Nag/2014 at the rate of 2.5% to 3% and it varies from year to year in between the same. In view of the above position, we are of the view that a reasonable profit rate at the rate of 5% should be estimated on the above sales and not at the rate of 8% or above 8%. We direct the Assessing Officer accordingly. However, we delete the addition of cash credits added by the Assessing Officer treating the same as unexplained cash credits u/s 68 of the Act as the same are arising out of the trading entries i.e., cash sales made by the assessee which are unproved. Our view is supported by the decision of Hon’ble Andhra Pradesh High Court in the case of CIT Vs. Maduri Rajaiahgari Kistaiah – (1979) 120 ITR 294 (AP) and of Hon’ble Allahabad High Court in the case of CIT Vs. Neema Ram Badlu Ram – (1980) 122 ITR 68 (All). Accordingly, we delete the addition of bank deposits treated by the Assessing Officer as cash credits being trade creditors and sustained the addition of gross profit applied by the Assessing Officer after rejecting the gross profit addition but only at the rate of 5%. The Assessing Officer will recompute the income accordingly.
The next issue in this appeal of the assessee is against the orders of lower authorities in not allowing the claim of deduction of LIC etc. under Chapter VIA of the Act. We direct the Assessing Officer to take evidences from the assessee and accordingly allow the claim of the assessee as per law.
In the result, the appeal of the assessee is partly allowed for statistical purposes. Decision pronounced in the open Court on 08.03.2018.
Sd/- Sd/- (G.D. AGRAWAL) (MAHAVIR SINGH) PRESIDENT JUDICIAL MEMBER
Dated : 08.03.2018 VK.
6 ITA-179/Nag/2014
Copy of the order forwarded to :
The Appellant 2. The Respondent 3. Concerned CIT 4. The CIT(A) 5. D.R. Assistant Registrar