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Income Tax Appellate Tribunal, SURAT BENCH, SURAT
Before: SHRI C.M.GARG & SHRI O.P.MEENA
Maruti Hardware Vs. DCIT, Circle-2, Surat/I.T.A. No.148/AHD/2013/SRT/A.Y.: 2009-10 Page 1 of 14
आयकर अपीलीय अिधकरण,सुरत �यायपीठ, सुरत IN THE INCOME TAX APPELLATE TRIBUNAL SURAT BENCH, SURAT �ी सी.एम.गग�, �याियक सद�य तथा �ी ओ.पी.मीना, लेखा सद�य के सम� BEFORE SHRI C.M.GARG, JUDICIAL MEMBER AND SHRI O.P.MEENA, ACCOUNTANT MEMBER आ.अ.सं./I.T.A No.148/AHD/2013/SRT िनधा�रण वष�/Assessment Year : 2009-10 The Deputy Commissioner of Vs. Maruti Hardware, Income Tax, 1-2, Thakor Baug, Circle – 2, Surat. New Civil Road, Near Kapadia Health Club, Surat – 395 002. [PAN: AAEFM 1969 J] अपीलाथ� Appellant ��यथ�/Respondent C.O.No.63/AHD/2013/SRT िनधा�रण वष�/Assessment Year : 2009-10 Maruti Hardware, Vs. The Deputy Commissioner of 1-2, Thakor Baug, Income Tax, New Civil Road, Near Range– 2, Surat 395 001. Kapadia Health Club, Surat – 395 002. [PAN: AAEFM 1969 J] अपीलाथ� Appellant ��यथ�/Respondent Shri Rajesh Upadhyay – ITP िनधा�रती क� ओर से /Assessee by Shri R.P.Rastogi – Sr.DR राज�व क� ओर से /Revenue by सुनवाई क� तारीख/ Date of hearing: 25.09.2018 उ�ोषणा क� तारीख/Pronouncement on 10.10.2018 आदेश /O R D E R PER O. P. MEENA, ACCOUTANT MEMBER: 1. This appeal filed by the Revenue is directed against the order of learned Commissioner of Income tax (Appeals)–II, Surat(in short
Maruti Hardware Vs. DCIT, Circle-2, Surat/I.T.A. No.148/AHD/2013/SRT/A.Y.: 2009-10 Page 2 of 14
“the CIT (A)”) dated 31.10.2012 pertaining to Assessment Year 2009-10, which in turn has arisen from the order passed by the Deputy Commissioner of Income-tax, Circle-2, Surat(in short “the AO”) dated 29.12.2011 under section 143(3) of Income Tax Act,1961 (in short ‘the Act’).
Ground No.1 relates to addition of Rs.53,27,910/- made by the Assessing Officer (AO) without appreciating that the books of accounts of the assessee are not reliable.
Briefly stated facts of the case are that the assessee has filed its Return of Income on 30.09.2009 declaring total income at Rs.1,48,21,910/-. A survey action was carried out at the business premises of the assessee wherein income of Rs.2,49,93,764/- was disclosed for tax. Besides this income of Rs.1,85,87,691/- surrendered on account of stock and cash over his regular income. During the survey, a CD was impounded which reflected that the assessee has given Proforma Invoice (PIs) to various parties and margin of sale price was near to 26% to 40%. The explanation of the assessee was that the PIs were given to some of the customers who wanted to show high income to obtained higher loan from bank. It was also submitted that PIs were found which were
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related to the period prior to survey period, hence, on that basis books of accounts cannot be rejected. However, the AO was of the view that the assessee has sold goods on the rate reflected in the PIs and showed the lower mark up, therefore, books of accounts are not reliable, hence, relying on the ratio laid down in the case of British Paints India Ltd. 188 ITR 44(SS) rejected the books of accounts by invoking the provisions of section 142(3) of the Act and accordingly estimated Gross Profit Rate at 20% as against 11.82 % shown by the assessee for the period from the date of survey to 31.03.2009 which resulted in an addition of Rs.53,27,910/- to the income shown by the assessee.
Being aggrieved, the assessee has filed an appeal before the ld.CIT(A) wherein it was contended that the said PIs on which the AO relied for estimation of Gross Profit are actually relate to pre- survey period, therefore, they cannot be made basis for estimating Gross Profit of the post survey period. There is no provision in the Act to reject books of account for the part of the year. Further, the Gross Profit at 13.46% of the pre-survey period is accepted, then there is no reason to dispute or to reject the books of accounts on same set of facts. The CIT(A) observed that main basis
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of rejection of books of accounts, is PIs dated 28.03.2018, 05.08.2008 and 07.08.2018 pertains to earlier period. In such circumstances, the conclusion drawn by the AO was on irrelevant documents, whereas the AO has not disturbed the Gross Profit of the period to which these PIs pertains. The AO also failed to establish that goods were actually sold as shown in the PIs. So far as, difference in the stock the appellant has already disclosed the same and paid taxes also. Therefore, CIT(A), has held that books of accounts are wrongly rejected by the AO. Therefore, the addition made by estimating the Gross Profit of post survey period was deleted.
Being aggrieved, the Revenue has filed this appeal before us. The ld.Senior Departmental Representative supported the order of the AO and submitted that the decision of CIT(A) is not acceptable as the huge discrepancy found in stock during survey proved that the assessee was not recording all his transactions at actual value. The PIs rate were not found reflected in sales bills as the assessee was not maintaining books of accounts properly, therefore, the AO was justified in rejecting the books of accounts and estimating Gross Profit @ 20%.
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On the other hand, the ld.Counsel for the assessee submitted that the PIs pertains to prior to survey period for which no documents have been rejected and the Gross Profit disclosed by the assessee has been duly accepted. Further, only three PIs were found which were given to the customers who wanted to show higher amount for taking bank loans. The AO has not brought on record anything to suggest that rate shown in the PIs were actual sale rate disclosed by the assessee. There is no provision in the Act to reject books of accounts for the part period as the books have been rejected after the date of survey period, therefore, the CIT(A) has been justified in deleting the addition made by AO.
We have heard the rival contentions and perused the material on record. We find that the AO not pointed any discrepancy in the books of accounts maintained from the date of survey to the date of closing of the accounting year. The Gross Profit disclosed at 13.46% for the pre-survey period is accepted on the same set of books of accounts. Further the PIs on the basis of which books of accounts were rejected pertains to pre-survey period and even one PIs is pertains to the preceding year. Therefore, these PIs cannot be made the basis for rejection of
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books of accounts. We also note that there is no provision in the Act to reject the books of accounts for the part period. In view of these circumstances, we are inclined to agree with the findings recorded by the ld.CIT(A), therefore, no fault can be found in the order of CIT(A), accordingly same is upheld. Therefore Ground No.1 of the appeal raised by the Revenue is therefore dismissed.
Ground No.2 states that the ld.CIT(A) has erred in deleting the addition of Rs.61,06,673/- made on account of unexplained investment. Inspite of the facts that the assessee had voluntarily accepted the amount as unaccounted investment during the course of survey.
Facts apropos of this ground are that during the survey proceedings the assessee had admitted that he had incurred expenditure of Rs.1.70 crores till the construction of business premises as against which only Rs.1,08,97,927/- was recorded in the books of accounts and thus the difference of Rs.61,06,764/- remained as unexplained. Therefore, this amount was disclosed for taxation. The assessee has not disclosed this amount in his Return of Income filed which is under consideration. The assessee has furnished a valuation report dated 28.08.2008 which was
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showing the cost of construction at Rs.1,12,14,000/- as on 28.08.2008 and the assessee has also furnished another valuation report dated 02.02.2009 which has shown the cost of construction at Rs.1,79,80,000/- as on 02.02.2009. Thus, it was contended the investment was duly shown in the books of accounts at Rs.1.08 crores as recorded in the books of accounts on the date of survey, therefore, there is no question to incur expenditure at Rs.1.70 crores on the date of survey for which no evidence was found during the course of survey. The statement of the assessee was wrongly taken due to technical mistake of assessee while recording statement. Since the assessee has not disclosed the amount of disclosure accepted during survey, the AO issued summon to the architect and interior decorators of the building Mr.Vishal Khelandira who deposed that the full completion of building had taken place and inauguration of the building was done during July 2009 only. Further, it was also submitted by him that work was in progress at that time of survey action. However, the AO did not accepted the version of the assessee on the ground that there is no reason as to why the assessee would disclose huge sum of Rs.61.06 lakhs, if no reason would have been found during the survey proceedings. Assessee’s submission that no evidences were
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found and the amount recorded in the books for building construction and situation of building under consideration is enough to show that how much is recorded and not recorded. The survey on assessee was conducted on 27.08.2008. The initial investment shown by the assessee as per Return of Income filed on 30.09.2009 after the date of survey was shown at Rs.52,25,509/-. This shows that the assessee has spent on construction which was accounted properly in the books of accounts. However, the AO was of the view the explanation of the assessee that no evidence of unexplained investment in building was found during survey proceedings and statements were recorded under pressure, therefore same were retracted soon after the survey proceedings. Further, the statement of interior decorators were recorded after 2.5 years, so he could not recollect the details correctly and further the valuation report submitted by the assessee support the investment made by him. This explanation of the assessee was not accepted by the AO on the ground that the statements of the partner during survey were not recorded under pressure and disclosure was made voluntarily and the difference of Rs.61.06 lakhs in investment was also accepted voluntarily. Further, the statement of interior decorator also confirmed the facts that the
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investment in building was understated. The AO therefore made an addition of Rs.61,06,673/- as unexplained investment ant added the same to the total income of the assessee.
Being aggrieved, the assessee has filed an appeal before the CIT(A). After considering the explanation of the assessee, the ld.CIT(A) in para 3.3 has observed as under by deleting the addition made by the AO : “3.3 I have considered the facts of the issue and found that there is no basis of addition other than the statements recorded during the survey proceedings. Not a single documentary evidence was found during survey proceeding or assessment proceedings to indicate that any unexplained investment has been made in the building. The said statements have also been retracted by the appellant by filing affidavit on 03.09.2008, after six days of survey. It was clarified in affidavit that the total investments of Rs.1,70,00,000/- was actually estimated cost of building at completion, not on the date of survey proceedings. It was also submitted that the statements given at the time of survey were actually in confused state of mind without proper understanding the questions asked by authorities having ignorance of its consequence. However, at completion of building, the total investment of Rs.1,81,46,196/- has been shown in the books of account. The A.O. has not commented upon the retraction made by appellant and total investment of aforesaid amount shown in the books of account. He has simply relied on the statements of architect, which were recorded after 2.5 years of survey proceedings. Even the estimation made by architect at Rs.1,91,15,000/- is also near to investment as shown by appellant. In support of its claim, appellant has relied on following judgment wherein it has been clearly held that in absence of corroborative evidence in support of admission in statement u/s.132(4)/, same has to be disbelieved, if subsequently retracted and necessary evidence is led contrary to such admission. (1) CIT vs. Kallashben Manharlal Chokshi (2009) 25 (i) ITCL (Guj) 129 (2) Paul Matews and Sons v.CIT [2003] 263 ITR 101 (Ker.) (3) Pullangode Rubber Produce co Ltd. Vs.State of Kerala (1973) 91 ITR 18 (SC). (4) ITO v.Fakirchand L Gupta :: ITA No.4158/Ahd/2008 A.Y.2005-06
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In view of above discussion, it is clear that A.O. has no evidence other than statements of partner to support the addition made by him. This statement has also no base in absence of supporting material. Therefore, taking into the consideration the facts and circumstances of the case and legal position as taken by above mentioned authorities, I hold that the A.O. has wrongly made the addition which deserves to be deleted. Consequently, I delete the addition and allow the ground of appeal.” 11. Being aggrieved, the Revenue has filed appeal before us. The ld.Senior Departmental Representative submitted that the assessee has rightly accepted the investment at Rs.1.70 crores at the time of survey as on date whereas the books of accounts showed the investment at Rs.1.08 crores, hence, the difference was rightly admitted by the assessee during the course of survey proceedings in his statement. However, the retraction is made soon after the date of survey, but there is no evidence that the statement was recorded under pressure. Therefore, the AO has correctly made the addition of Rs.61.60 lakhs. Therefore, the two valuation reports submitted by the assessee are not reliable. Therefore, the AO was correct in making in addition, hence, same should be upheld.
Per contra, the ld.Counsel for the assessee submitted that the survey was conducted on 28.08.2008 wherein under pressure due to technical mistake on the part of the assessee, the
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investment in building was wrongly estimated at Rs.1.70 crore whereas actual investment has been duly reflected in the books of accounts. When the assessee came to know this fact, he has filed an affidavit on 03.09.2008 after six days of the survey before the AO to retract the same. Further, there is no documentary evidence has been found during the survey which reflected that the investment made up to the date of survey, was at Rs.1.70 crores and not as Rs.1.08 crore. Further, the assessee has obtained valuation report as on the date of survey according to which the value of investment comes to Rs.1.12 crore as against the value of investment considered at Rs.1.70 crore by the AO. Similarly, the assessee has filed second valuation report dated 02.02.2009 according to which the total investment in the property is made at Rs.1.91 crore which has been shown by the assessee in his books of accounts. It is also a fact that building was under construction at the time of survey and was only completed after the date of survey, therefore the statement recorded during the course of survey has no evidentiary value in the light of decision in the case of Paul Mathews and Sons vs. CIT [2003] 263 ITR 101 (Kerala) rightly by the ld.CIT(A). This decision also been upheld
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by Hon'ble Supreme Court in the case of Shri S.Khadar kahan, therefore, CIT(A) was justified in deleting the addition.
We have heard the submissions and perused the material on record. We find that no documentary evidence of unexplained investment made in building was found during the course of survey proceedings. The survey was conducted on 27.08.2008 and ended on 7pm on next day i.e. 28.08.2008. The statement was recorded late at night on 27.08.2008. This statement has been retracted by the assessee by filing an affidavit on 03.09.2008 i.e. after six days of survey. It has been clarified in the affidavit that the total investment of Rs.1.70 crores was actually estimated cost of building at completion and not on the date of survey proceedings. The statement given during the course of survey was stated to be under tremendous pressure, tension and without their being taking note of its legal implications. The statement recorded during the course of survey was without any documentary evidence, which has no evidentiary value in the light of decision in the case of Paul Mathews and Sons vs CIT (Supra) and Shri K.Khadar Khan of Hon'ble Supreme Court. The statement of interior decorator Shri Vishal
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Kherandia was recorded u/s.131 on 07.12.2001 by the AO in his office which is almost three years and behind the back of the assessee which is also not supported by any documentary evidence. Further, there is a valuation report dated 28.08.2008 from the Government approved value, according to which the cost of construction as on the date of survey was at Rs.1.12 crores. Similarly, there is another valuation report dated 02.02.2009 at Rs.1.91 crores. Therefore, we are of the opinion that investment shown in the books of accounts at Rs.1.08 crores is supported by documentary evidence as well as valuation report whereas there is no documentary single evidence found during the course of survey proceedings are brought on record during the course of assessment proceedings to indicate that any unexplained investment has been made in the building. The estimation made by the architect at Rs.1.91 crore is also near to investment shown by the assessee in the books of accounts. Considering these facts, we are inclined to agree with the findings of the ld.CIT(A), therefore, same are upheld, accordingly the Ground No.2 of the appeal is dismissed.
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In the result, appeal of the Revenue is dismissed.
C.O.No.63/Ahd/2013/SRT by Assessee:
The assessee has also filed Cross Objection against the confirmation of addition of Rs.8,47,450/- on account of depreciation claim.
This C.O. has not been pressed before us, hence, same is treated as dismissed.
In the result, appeal of Revenue and C.O. of the assessee are dismissed. 18. The order pronounced in the open Court on 10-10-2018.
Sd/- Sd/- (सी.एम.गग� /C.M. GARG) (ओ.पी.मीना/O.P.MEENA) �याियकसद�यतथा/JUDICIAL MEMBER लेखासद�यकेसम� /ACCOUNTANT MEMBER सुरत/ Surat, �दनांक Dated: 10th October, 2018/ S.Gangadhara Rao, Sr.PS Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/Guard file of ITAT. By order / / TRUE COPY / / Assistant Registrar, Surat