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Income Tax Appellate Tribunal, JAIPUR BENCHES, JAIPUR
Before: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA. No. 326/JP/2017
PER BENCH:
These appeals are filed by the Revenue and cross objection by the respective assessees against the orders of Ld. CIT(A), Jaipur of even date 10.02.2017 for A.Y. 2012-13 respectively. Given the similarity of facts and common grounds of appeal involved in all these cases, all these appeals were heard together and are being disposed off by this consolidated order.
First, we will take up the appeal of the Revenue and cross objection of the assessee in case of M/s Jhandewalas Foods Pvt. Ltd.,wherein the respective grounds of the appeals are as under:-
3 ITA No. 326 & 325/JP/17 & CO No. 19 & 18/JP/17 ACIT, Jaipur, vs. Jhandewalas Food Pvt. Ltd., Jaipur
ITA No. 326/JP/17(Revenue’s grounds of appeal):
“1. Whether on the facts and in the circumstances of the case and in law the ld. CIT(A) has erred in deleting the addition of Rs. 1,80,00,000/- made by the AO holding that the AO was not justified in making addition. 2. Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) has erred in restricting the addition to Rs. 12,78,758/- out of addition of Rs. 1,80,00,000/- made by the AO by apply the GP rate of 3.40% on total turnover on the basis of previous results of GP rate of assessee. 3. Whether the observation of ld. CIT(A) that it appears from the assessment order that the AO has relied solely on the basis of the above mentioned statement of Shri Rakesh B. Koolwal as not even a single incriminating document was discussed in the assessment order is correct on facts of the case.”
CO No. 19/JP/17 (Assessee’s grounds of appeal):
“1. The ld. CIT(A) has erred on facts and in law in confirming the addition of Rs. 12,78,757/- by applying estimated g.p rate of 3.40% on total turnover of Rs. 97,98,20,678/- by not appreciating the facts that when in survey short stock of Rs. 9,28,887/- is found, there is no reason to make the addition by estimating the g.p rate on the total turnover of the assessee instead of restricting the addition by applying g.p rate on such short stock.”
4 ITA No. 326 & 325/JP/17 & CO No. 19 & 18/JP/17 ACIT, Jaipur, vs. Jhandewalas Food Pvt. Ltd., Jaipur
Briefly stated facts of the case are that a survey u/s 133A was carried out at the business premises of the assessee company on 18.10.2011. During the course of survey, certain discrepancies were noticed in the books of account maintained by the assessee company and statement of Shri Rakesh Koolwal, one of the directors of the assessee company was recorded on oath wherein he had surrendered a sum of Rs. 1.80 crore. Subsequently the assessee filed its return of income for the year under consideration wherein said surrender of Rs. 1.80 crore was not included and not offered to tax.
The Assessing Officer observed that no representation or intimation was made before the department by the assessee whereby the assessee has changed its stand and retracted from what has been stated on oath in the statement recorded. The Assessing Officer further observed that this lapse was pointed out to the assessee during the course of assessment proceedings by the department itself and only thereafter, the assessee was constrained to justify its retracted stand.
Thereafter, the assessee was given another opportunity and statement of Shri Rakesh Koolwal, Director of the assessee company was recorded on oath u/s 131 on 20.02.2015 during the course of assessment proceedings wherein the various discrepancies which were found during the course of survey proceedings and documents referred in the earlier statement recorded during the course of survey were confronted to him. In his latter statement, the assessee justified the retraction stating that the earlier surrender was made in the state of unconscious mind and pressure, and in view of possible mistakes in the
5 ITA No. 326 & 325/JP/17 & CO No. 19 & 18/JP/17 ACIT, Jaipur, vs. Jhandewalas Food Pvt. Ltd., Jaipur
books of accounts and it was also submitted that the department was informed about the retraction through a letter sent by Post.
However, the contention so raised by the assessee was not accepted by the Assessing Officer. The contention of the assessee that the surrender was made to cover any possible defects in the books of account and subsequently no defects were found was not found acceptable as per Assessing Officer. It was held by the AO that there were number of inconsistencies in the books of account which were pointed to the assessee during the survey proceedings and also specifically queried in the statement recorded. The assessee failed to furnish the reasons with the respect to differences in the purchase order and actual purchases (q. no. 14 of survey statement dated 18.10.2011) and mismatch of book stock and stock as per physical verification (q. no. 21 of statement dated 18.10.2011). It was also pointed out that Director has categorically agreed to the method of computation of closing stock adopted by the survey team. It was further observed by the AO that in the Indore premises of the assessee, the stock register was not maintained. It was also held by the AO that even in the statement recorded on 20.02.2015 during course of assessment proceedings, the assessee failed to explain the inconsistencies and no letter was received with the request to provide photocopy of the impounded material during the course of survey. It was held by the AO that the assessee also failed to point out what corrections of mistakes were made subsequently in its books of account. It was accordingly held that the contention of the assessee that there were no defects in the books of account is a self-serving
6 ITA No. 326 & 325/JP/17 & CO No. 19 & 18/JP/17 ACIT, Jaipur, vs. Jhandewalas Food Pvt. Ltd., Jaipur
statement not acceptable to the revenue especially in the light of the statement recorded of one of the Director of the assessee company.
Regarding the submission of the assessee that during the survey proceedings, the statement was made under pressure and abnormal state of mind, the Assessing Officer observed that there was no reason for the assessee to not notify the department regarding this aberration immediately after conclusion of the survey or as and when it was discovered that the books are perfect and without any shortcomings.
Regarding filing of the letter retracting the earlier statement recorded during the course of survey, the Assessing Officer observed that the assessee produced a copy of the purported letter vide submission dated 2.3.2015 and the assessee admittedly failed to furnish any proof of receipt of the letter by the department.
It was accordingly held by the AO that when the assessee arrived at a different conclusion, separately and independently, after completion of survey, it was incumbent upon him to immediately apprise the department about the same, at the earliest. The assessee however, never bothered to do so, and the same was known only during scrutiny proceedings. It was accordingly held that the assessee did not uphold the declaration made by the Director at the time of survey not did it disclose the reasons of this volte-face to the department.
It was finally by the AO that the assessee has failed to avail the repeated opportunities for filing any substantive evidence in respect of its subsequent claim and as such its claim is reduced to a mere
7 ITA No. 326 & 325/JP/17 & CO No. 19 & 18/JP/17 ACIT, Jaipur, vs. Jhandewalas Food Pvt. Ltd., Jaipur
statement nor upheld or reinforced by any appropriate proof whatsoever. It was held that the assessee has miserably lapsed in justifying its own changed contention, willingly altered by it post survey. It was held that the subsequent digression of the assessee is nothing but a calculated attempt to escape taxation by manipulating evidences and facts of the case. Consequently, the entire declaration of Rs. 1.80 crore on account of undisclosed income and letter retracted by the assessee without any relevant proof and without any intimation of the same to the department was brought to tax in the hands of the assessee company.
Being aggrieved, the assessee carried the matter in appeal before ld. CIT(A) who has sustained the addition to the extent of Rs. 12,78,758/- and balance addition was deleted. Now both the parties are in appeal against the said finding of the ld. CIT(A).
It would therefore, be relevant to refer to the findings of the ld. CIT(A) which were in dispute before us:
“(iii) I have duly considered the submissions of the appellant, assessment order and the material placed on record. During the course of survey, in its statement, Shri Rakesh B Koolwal, Director of the appellant company surrendered a sum of Rs. 1.8 Crore, the relevant extract of the statement of Shri Rakesh b Koolwal is being reproduced as under:-
iz-18 esa vkidks vkidh dEiuh eSa- >.Msokyk QwMl izk- fy- ds ekeys esa losZ{k.k dh dk;Zokgh ds nkSjku vkids dEi;wVj ls fudkys x;s dqN [kkrksa ds print fn[kk jgk gwWA ftUgs Annexure ,&5 ¼ist 1 ls 24½ ds :i esa impound fd;k x;k gS] fn[kk jgk gWqA ;s
8 ITA No. 326 & 325/JP/17 & CO No. 19 & 18/JP/17 ACIT, Jaipur, vs. Jhandewalas Food Pvt. Ltd., Jaipur [kkrsa vkidh dEiuh dh fu/kkZj.k o"kZ 2010&11] 2011&12 ,oa pkyw fofr; o"kZ ls lEcfU/kr gSA
bl [kkrksa ds vuqlkj vkidh dEiuh us fuEu QeksZ ls purchases fn[kkbZ gS%&
7- Shri Govind Sales Corporation
8- Shree Balaji Sale Corporation
9- Ritesh Kumar & Co.
10- Vaibhav Trading Co.
11- Yash Milk Products
Hindustan Milk Products
losZ{k.k dh dk;Zokgh ds nkSjku gh mDr QeksZ ds Purchase bills dh tkap field enquiry ,oa cSad [kkrksa dh tkap esa ;g yxrk gS fd mDr Concerns /kh dk dksbZ O;kikj ugha djrs gS ,o okLro esa flQZ fcyksa dh ysunsu djrsa gS ftlls ;g Li"V gksrk gS fd mDr Concerns ls okLro esa dksbZ eky ugh [kjhnk tkrk gSA d`i;k blds ckjs esa
m- eSus Annexure ,&5 ¼ist 1 ls 24½ ns[k fy;k gSA ;sa gekjs computers ls fudkys x;s Print Out gSA ;g gekjh dEiuh dh [kjhn esa gh lEcf/kr gSA mDr lkjh concerns ds proper Bills gekjs ikl gS ;s lkjh concerns sales tax department] Mandi tax esa registered gSA ,oa okLro esa eky [kjhnrh gS o cSprh gSA lHkh fcyksa esa fue;kuqlkj Vat yxk;k gqvk gSA geus [kjhns x;s eky dk bUnzkt viuh dEiuh dh Stock esa fd;k gSA lHkh QeksZ dks Hkqxrku Hkh cSafdax ek/;e ls fd;k gSA blds ckotqn fdlh Hkh lEHkkfor =qfVtksa fd ys[kk iqLrdksa esa gks ldrh gS mldks /;ku esa j[krs gq, foHkkx dks lg;ksax djus gsrq ,oa ekufld ‘’kkafr ds fy, eSa dEiuh eS >.Msokyk QqMl izk- fy- esa 18000000@& ¼,d djksM+ vLlh yk[k½ :i;s v/kksf’kr vk; ekurs gq, vk;dj gsarq lefiZr djrk gSA lkFk gh bl en esa eSa- gfjukjk;.k x;kjlhyky] Prop. Jh Hkojyky dqyoky ds ew[;rkjvke ¼Power of attorney holder½ dh gSfl;r ls 2000000@& ¼chl yk[k½ :i;sa v/kksf’kr vk; ekurs gq, vk;dj ds fy, lefiZr djrk gwaA ;g lei.kZ eSus LosPNk ls fd;k gS ,oa foHkkx dks iw.kZr lg;ksx ,oa ekufld ‘’kkafr ds mns’; ls fd;k gSA esjk fuosnu gS fd esa mij fdlh Hkh izdkj dh Penalty uk yxkbZ tk;sA lkFk gh ;g vk’oklr fn;k tk;sa fd gekjs f[kykQ Prosecution dh dk;Zokgh uk dh tk;sA
9 ITA No. 326 & 325/JP/17 & CO No. 19 & 18/JP/17 ACIT, Jaipur, vs. Jhandewalas Food Pvt. Ltd., Jaipur
(iv) It appears from the assessment order that the AO has relied solely on the basis of the above mentioned statement of Shri Rakesh B. Koolwal as not even a single incriminating document was discussed in the assessment order. It also appears that no discrepancy was found by the AO during the assessment proceedings even in respect of the parties as referred to in the above mentioned statement of Shri Rakesh B. Koolwal. It may be mentioned that in the case of CIT vs. S. Khander Khan Son [2012] 25 taxmann.com 413 (SC), the Hon’ble Apex Court has dismissed the civil appeal filed by the income tax department and confirmed the order of Hon’ble Madras High Court in the case of CIT vs. S. Khader Khan Son [2008] 300 ITR 157 (MAD.) wherein it was held by the Hon’ble Hgih Court of Madras that:
“From the foregoing discussion, the following principles can be culled out:
(i) An admission is an extremely important piece of evidence but it cannot be said that it is conclusive and it is open to the person who made the admission to show that it is incorrect and that the assessee should be given a proper opportunity to show that the books of account do not correctly disclose the correct state of facts, vide decision of the apex court in Pulkngode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18;
(ii) In contradistinction to the power under section 133A, section 132(4) of the Income-tax Act enables the authorized officer to examine a person on oath and any statement made by such person during such examination
10 ITA No. 326 & 325/JP/17 & CO No. 19 & 18/JP/17 ACIT, Jaipur, vs. Jhandewalas Food Pvt. Ltd., Jaipur
can also be used in evidence under the Income-tax Act. On the other hand, whatever statement is recorded under section 133A of the Income-tax Act is not given any evidentiary value obviously for the reason that the officer is not authorized to administer oath and to take any sworn statement which along has evidentiary value as contemplated under law, vide Paul Mathews and Sons v. CIT [2003] 263 ITR 101 (Ker.);
(iii) The expression “such other materials or information as are available with the Assessing Officer” contained in section 158BB of the Income-tax Act, 1961, would include the materials gathered during the survey operation under section 133A, vide CIT v. G.K. Senniappan [2006] 284 ITR 220 (Mad.); “
(iv) The material or information found in the course of survey proceeding could not be a basis for making any addition in the block assessment, vide decision of this court in T.C(A) No. 2620 of 2006 (between CIT v. S. Ajit Kumar [2008] 300 ITR 152 (Mad.);
(v) Finally, the word ‘may’ used in section 133A (3)(iii) of the Act, vis., record the statement of any person which may be useful for, or relevant to, any proceeding under this Act”, as already extracted above, makes it clear that the materials collected and the statement recorded during the survey under section 133A are not conclusive piece of evidence by itself.
11 ITA No. 326 & 325/JP/17 & CO No. 19 & 18/JP/17 ACIT, Jaipur, vs. Jhandewalas Food Pvt. Ltd., Jaipur
For all these reasons, particularly, when the Commissioner and the Tribunal followed the circular of the Central Board of Direct Taxes dated March 10, 2003, extracted above, for arriving at the conclusion that the materials collected and the statement, obtained under section 133A would not automatically bind upon the assessee we do not see any reason to interfere with the order of the Tribunal.”
(v) It may be mentioned that the Hon’ble Rajasthan High Court in case of CIT v. Shri Roshan Lal Lodha DBITA No. 185/2014 vide order dated 3.11.2015 followed the above referred decision of Hon’ble Apex Court in the case of CIT V. S. Kadar Khan Son (supra) and approved the order passed by the CIT(A)/ITAT allowing relief to the assessee by holding that “We do not find any merit in the argument advanced. The assessee filed an appeal before the Commissioner Income Tax (Appeals), with specific assertion that the statement made by him would have not been accepted to make any addition and therefore his denial is apparent. In view of it, the order passed by the CIT(A) and the ITAT do not suffer from any wrong.”
(vi) Therefore, in view of the above discussion and the judicial pronouncements, it is held that there was no justification for the AO to make addition of Rs. 1.80 crore to the income of the appellant solely on the basis of the statement of Shri Rakesh B Koolwal recorded during the course of survey without bringing on record any material to support such addition. However, it may be mentioned that during survey proceedings, there was difference
12 ITA No. 326 & 325/JP/17 & CO No. 19 & 18/JP/17 ACIT, Jaipur, vs. Jhandewalas Food Pvt. Ltd., Jaipur
between the physical stock as well as cash as found during the course of survey and as recorded in its books of accounts and after reconciliation, on the date of survey, still there remained difference in the stock which could not be reconciled as per following details:
M/s Jhandewala Foods (P) Ltd.,
As per physical Stock As per books Balance/difference verification
Stock at Indore 64,54,766/- 29,21,819/- (-) 35,32,947/- office
Stock at A-2 27,08,711/- 32,33,237/- 5,24,526/- Surajpole, Jaipur
Stock at VKI Area, 99,59,454/- 1,20,38,988/- 20,79,534/- Jaipur
Total 1,91,22,931/- 1,81,94,044/- (-) 9,28,887/-
(vii) It appears that these discrepancies were not even reconciled during assessment proceedings. However, in its written submission, it was stated by the appellant that only gross profit amounting to Rs. 30,357/- could be added on account of such shortage in stock. Thus, It is evident that the books of accounts maintained by the appellant are not reliable and thus these are being hereby rejected u/s 145(3) of the Act. Now the question remains, the GP rate which should be applied to determine the gross profit of the appellant. It may be mentioned that in a number of judicial pronouncements, it may be mentioned that in
13 ITA No. 326 & 325/JP/17 & CO No. 19 & 18/JP/17 ACIT, Jaipur, vs. Jhandewalas Food Pvt. Ltd., Jaipur
a number of judicial pronouncements, it has been held by the Hon’ble jurisdictional High Court of Rajasthan that the past trading results of the assessee or comparable cases are the best guide for estimating the income. It would be appropriate to reproduce the trading results of the appellant as under:-
A.Y Turnover (in Rs.) Gross Profit (in Rs.) G.P. Rate
2012-13 979820678 32035146 3.27%
2011-12 883801559 27297039 3.09%
2010-11 482753645 13764603 2.85%
(viii) Hence, considering the totality of facts and circumstances of the case especially looking to the fact that some discrepancies were found during the course of survey and the case of the appellant was not completed under scrutiny in earlier years. I think it would be appropriate to apply GP rate of 3.40% to the total turnover of the appellant, which gives gross profit of Rs. 3,33,13,903/-. The appellant has declared gross profit of Rs. 3,20,35,146/- on total turnover of Rs. 97,98,20,678/- for the year under consideration, which leads to trading addition of Rs. 12,78,757/- to the income of the appellant. Hence, the addition of Rs. 1.80 Crore made by the AO is hereby restricted to Rs. 12,78,757/- only. Thus this ground of appeal is partly allowed.”
During the course of hearing, the ld. AR submitted that the impugned addition of Rs. 1,80,00,000/- made by the AO is solely on the basis of admission made by the director Sh. Rakesh B. Koolwal in his
14 ITA No. 326 & 325/JP/17 & CO No. 19 & 18/JP/17 ACIT, Jaipur, vs. Jhandewalas Food Pvt. Ltd., Jaipur
statement recorded during survey proceedings. The statement recorded in survey has no evidentiary value as held by Supreme Court in case of CIT vs. S. Khader Khan Son 352 ITR 480 where it was held that section 133A does not empower any income tax authority to examine any person on oath and thus, any such statement has no evidentiary value. Further, Rajasthan High Court in case of CIT vs. Shri Roshan Lal Lodha in DBITA No. 185/2014 vide order dated 3.11.201, after following the decision of Supreme Court in case of CIT vs. S. Khader Khan son, approved the order passed by the CIT(A)/ITAT allowing relief to the assessee by holding that ‘We do not find any merit in the argument advanced. The assessee filed an appeal before the Commissioner income tax (Appeals), with specific assertion that the statement made by him would have not been accepted to make any addition and therefore his denial is apparent. In view of it, the order passed by the CIT(A) and the ITAT do not suffer from any wrong.” Therefore, any addition made solely on the basis of such statement is bad in law.
It was submitted by the ld AR that in the present case, neither in the statement recorded in course of survey nor in assessment proceedings, any tangible material/evidence was brought on record by the AO to support the addition of Rs. 1,80,00,000/-. In fact the surrender made in reply to Q. No. 18 of statement dated 18.10.2011 recorded in course of survey was with reference to the purchases made from six parties which according to the survey party were not genuine. In reply to this question, assessee categorically stated that all these parties are genuine but still to cover any probable mistake in the accounts and to cooperate with the department and to buy peace of mind, he surrendered Rs. 1,80,00,000/-. In course of assessment
15 ITA No. 326 & 325/JP/17 & CO No. 19 & 18/JP/17 ACIT, Jaipur, vs. Jhandewalas Food Pvt. Ltd., Jaipur
proceedings, assessee furnished confirmations of these parties. AO also made necessary enquiries. No discrepancy was found by the AO with reference to these purchases as evident from the assessment order. Therefore, addition made by the AO with reference to Q.No. 18 of statement without pointing out any specific discrepancies in the books of accounts is not sustainable. For this purpose, reliance is placed on the decision of Rajasthan High Court in case of CIT vs. Ashok Kumar Jain (2014) 111 DTR 291/229 Taxman 65. In this case, assessee disclosed amount of Rs. 3 crore only in his revised return filed pursuant to survey as against Rs. 5 crore surrendered by him during the course of survey operations giving explanation supported by material on record. AO has not controverted the explanation offered by the assessee and not pointed out any evidence or material in the loose papers or diaries or incriminating documents which could justify addition of more than Rs. 3 crore. On these facts, it was held that if the assessee does not adhere to the surrender made during the course of survey, then it is for the AO to bring on record cogent material and other evidences to support the addition rather than rely on statements simplicitor. Since the AO has not found anything as a result of survey except relying on the statements recorded at the time of survey, the conclusion of the Tribunal accepting the surrender to the tune of Rs. 3 crore is a finding of fact based on appreciation of evidence and therefore no substantial question of law arises.
It was further submitted by the ld AR that another reason given by the AO for making the addition was with reference to the mistakes pointed out in the books of accounts in course of survey which is stated to be not explained by the assessee in assessment proceedings. In this
16 ITA No. 326 & 325/JP/17 & CO No. 19 & 18/JP/17 ACIT, Jaipur, vs. Jhandewalas Food Pvt. Ltd., Jaipur
connection it is submitted that in Q. No. 14 of the statement dated 18.10.2011, the purchases of Rs. 34.11 crores as per the purchase order for the period 01.04.2011 to 13.10.2011 is wrongly compared with the purchases of Rs. 4.71 crores made by the Indore office instead of comparing it with the total purchases made by the assessee as such. In fact the total purchases made by the assessee are of Rs. 96.17 crores out of which purchases up to the date of survey was Rs. 38.45 crores at Jaipur and Rs. 4.70 crores at Indore office. Thus, there is no discrepancies in purchases as alleged by the AO/survey party. Further in Q. No. 21 of statement dated 18.10.2011, the stock was found short by the survey party at Rs. 9,28,887/-. With reference to this difference, it was clarified in the statement that the same may be for the reason that some purchase/sales have not been incorporated in the books of accounts. In any case, the stock as per books taken at the time of survey was not on the basis of complete entries recorded in the books of accounts and therefore, for such minor variation in the stock, no adverse inference was drawn by the survey party. In any case, since assessee has maintained complete books of accounts along with the stock register and no discrepancy was found by the AO therein, the alleged short stock determined at the time of survey can’t be a basis for making addition of Rs. 1,80,00,000/-.
It was further submitted that the assessee had filed letter dated 19.03.2012 retracting from the surrender made in the statement. Copy of this letter was filed in course of assessment proceeding. The AO has not accepted this letter for the reason that the evidence of filing of this letter with the department is not proved by the assessee. Even if the proof of filing of the letter with the department is not filed, the
17 ITA No. 326 & 325/JP/17 & CO No. 19 & 18/JP/17 ACIT, Jaipur, vs. Jhandewalas Food Pvt. Ltd., Jaipur
statement along can’t be a basis for making the addition particularly when the same is not honoured while filing the return of income. The CBDT in Instruction No. 286/2/2003-IT(Inv.) dated 10.03.2003 has also accepted that instances has come to their notice where assessee has claimed that they have been forced to confess the undisclosed income during course of search and survey operation. Such confession is not based upon the reliable evidences and not considered by the assessee while filing the returns. It is therefore advised that the focus and construction should be on collection of evidence of income. Further, while recording the statement no attempt should be made to obtain the confession as to the undisclosed income. The same is again reiterated by CBDT vide Instruction F. No. 286/98/2013-IT(Inv. II) dt. 18.12.2014. In various decisions, it has been held that though an admission in a statement recorded on oath may be an important piece of evidence but it is not conclusive and it is open for the assessee to demonstrate that it is not correct. For this purpose, reliance is placed on the following cases:-
Pullangode Rubber Produce Company Ltd. V. State of Kerala and Another 91 ITR 0018 (SC):
Admission is an extremely important piece of evidence but it can’t be said that it is conclusive. It is open to the assessee who made admission to show that it is incorrect and the assessee should be given proper opportunity to show the correct state of affairs.
CIT Vs. Ashok Kumar Soni 291 ITR 172 (Raj.) (HC):
18 ITA No. 326 & 325/JP/17 & CO No. 19 & 18/JP/17 ACIT, Jaipur, vs. Jhandewalas Food Pvt. Ltd., Jaipur
Admissions are relevant & strong piece of evidence that may be used against the person making such admission but they are not conclusive proof of the statement contained in the admission and can always be explained.
ITO Vs. Vijay Kumar Kesar (2010) 36 DTR 13 (Chattisgarh):
The confession made by the assessee during the survey proceedings is not conclusive and it is open to the assessee to establish that the same was not true and correct by filing cogent evidence. The Tribunal accepted the explanation of the assessee for retracting his admission and deleted the addition made on account of excess cash and stock by accepting the updated books of account prepared by the assessee supported by primary evidences on record.
Surender Pal Verma vs. ACIT 89 ITD 129 (Chd)(TM):-
Confessional statement made during search are often venerable on ground that person giving such statement remain under a great mental stress and strain and in the absence of availability of relevant details, documents and books at the time of giving statement, precise information as to utilization of such income and year of investment cannot be correctly furnished. Therefore, assessee is entitled to modify/clarify statement after verifying necessary details from relevant records at a later point of time.
It was further submitted that the two decisions relied by the AO are in different context. In those decisions, certain facts were admitted in statement but no evidence was filed contrary to the admitted facts. In that situation it was held that an admission, though retracted, would
19 ITA No. 326 & 325/JP/17 & CO No. 19 & 18/JP/17 ACIT, Jaipur, vs. Jhandewalas Food Pvt. Ltd., Jaipur
bind the assessee. However, in the present case the surrender is made for probable mistake which may be there in the books of the accounts. The assessee thereafter got the books of accounts audited and produced before the AO. AO has not found any discrepancies in these books of accounts to support the addition of Rs. 1,80,00,000/-. In these circumstances the cases relied by the AO are not applicable and thus, the addition made by the AO is rightly deleted by the ld. CIT(A).
It was further submitted that the ld. CIT(A) however held that during survey proceedings, difference is found between the physical stock & physical cash vis-à-vis the amount recorded in the books of accounts. The stock at the time of survey was short by Rs. 9,28,887/-. The same was explained to be on account of certain bills of purchases/sales left to be incorporated in the books as on the date of survey the books were written upto 15.10.2011. This was also explained before the AO and therefore, he has not taken any adverse inference on this account. So far as cash in hand is concerned, the difference between the physical cash and cash as per books of accounts was clarified by the assessee in the statement recorded in course of survey itself and therefore, no adverse inference was drawn by the AO on this account. Thus, when the assessee has explained the difference in the stock and cash at the time of survey itself on which no adverse inference is drawn by the AO, the ld. CIT(A) is not justified in making trading addition of Rs. 12,78,757/- by applying g.p. rate of 3.40% on the declared turnover of Rs. 97,98,20,678/-. In any case, even if any addition could have been made, the same ought to have been restricted by applying a g.p. rate on the short stock instead of applying the g.p.
20 ITA No. 326 & 325/JP/17 & CO No. 19 & 18/JP/17 ACIT, Jaipur, vs. Jhandewalas Food Pvt. Ltd., Jaipur
rate on the total turnover. Hence, the addition made by the ld. CIT(A) be directed to be deleted.
In view of above, the ground of the department be dismissed and cross objection of the assessee be allowed.
On the other hand, ld. DR supported the orders of the Assessing Officer. He took us through the findings of the AO and submitted that the additions have been made by the AO basis the statement of the director of the assessee company and also based on discrepancies pointed out during the course of survey.
We have heard the rival contentions and perused the material available on record. In this case, survey operations were carried at the business premises of the assessee company and statement of Shri Rakesh B Koolwal who is a director in the assessee company was recorded on 18.10.2011. During the course of survey, certain specific discrepencies were noticed by the survey team on perusal of assessee’s books of accounts and pointed questions were raised and explanation sought from the assessee company. Specifically, in question no. 18 which was based on ledger printouts of some six concerns from whom the assessee has shown purchases, it was stated by the survey team that based on verification of purchase bills, field enquiry and verification of bank accounts, it appears that these concerns don’t trade in ghee and in reality, these concerns are engaged in mere arranging the bills and no actual purchase has been made by the assessee company and necessary explanation was sought. In response, the director of the assessee company stated that he has seen the ledger printouts and the assessee company has the proper bills issued by these concerns, these
21 ITA No. 326 & 325/JP/17 & CO No. 19 & 18/JP/17 ACIT, Jaipur, vs. Jhandewalas Food Pvt. Ltd., Jaipur
concerns are registered with sales tax and mandi tax department and they actually purchase and sell goods. It was further submitted that all purchase bills carry VAT and all the purchases have been recorded in their stock and payment to these concerns have been made through banking channels. Further, in question no. 14, certain discrepencies were observed between the purchase order register and actual purchases. In response, he submitted that at this stage, he is unable to provide any explanation and the same will be provided later. Further, in question no. 21, certain mismatch in the daily stock as per books and as per physical verification were observed and explanation sought. In response, he submitted that stock valuation has been done by the survey team in presence of company’s employees and for variation in stock, it is possible that certain bills of purchase and sale have not been entered at this stage and full explanation shall be submitted later on. At the same time, to cover any probable mistake in the books of accounts and to cooperate with the department and to buy peace of mind, he surrendered an amount of Rs 1.80 Crores on behalf of the assessee company and such surrender statement is stated as part of response to question no. 18 as noted above.
During the assessment proceedings, the AO observed that the assessee company has not honoured the surrender of income so made during the course of survey and not offered to tax while filing the return of income. The statement of Shri Rakesh B Koolwal was again recorded on 20.2.2015 during the course of assessment proceedings. In question no. 11, reference was drawn to Annexure A-5, pages 1-24 impounded during the course of survey and he was asked to provide
22 ITA No. 326 & 325/JP/17 & CO No. 19 & 18/JP/17 ACIT, Jaipur, vs. Jhandewalas Food Pvt. Ltd., Jaipur
the explanation regarding 6 concerns from whom the assessee has shown purchases and as per field enquiry and verification of bank accounts, no purchases have been made from them. In response, he submitted that the assessee company has actually made purchases from these six companies and the books of accounts can be produced for necessary verification. In support of production of books of accounts during the course of assessment proceedings, the assessee has submitted a copy of its letter dated 10.03.2015 and 16.03.2015 filed before the AO and available as part of paperbook filed before us. The assessee has further submitted confirmation from these concerns from whom the purchases were made vide its letter dated 5.03.2015 which is also available on record. There is no material available on record in terms of field enquiry and investigation of bank accounts as stated by the survey team in respect of such purchases. Further, there is no independent enquiry done by the AO to verify such purchases and there is no finding of the AO as apparent from perusal of the assessment order doubting the purchases so made by the assessee company from these concerns.
In respect of question no. 14 where certain discrepencies were observed during the course of survey between the purchase order register and actual purchases and where he has submitted at the time of survey that he is unable to provide any explanation and the same will be provided later. The AO observed that even during the course of assessment proceedings, the assessee company has failed to furnish the reasons with respect to differences in the purchase order and actual purchases. Before us, the ld AR has submitted that in Q. No. 14 of the
23 ITA No. 326 & 325/JP/17 & CO No. 19 & 18/JP/17 ACIT, Jaipur, vs. Jhandewalas Food Pvt. Ltd., Jaipur
statement dated 18.10.2011, the purchases of Rs. 34.11 crores as per the purchase order for the period 01.04.2011 to 13.10.2011 is wrongly compared with the purchases of Rs. 4.71 crores made by the Indore office instead of comparing it with the total purchases made by the assessee as such. In fact the total purchases made by the assessee are of Rs. 96.17 crores out of which purchases up to the date of survey was Rs. 38.45 crores at Jaipur and Rs. 4.70 crores at Indore office. Thus, there is no discrepancies in purchases as alleged by the AO/survey party. We agree with the broad contention of the ld AR that the comparison should be between the purchases as per purchase order at the entity level with the actual purchase stock at the entity level and not at the branch/office level. However, we find that there is no specific finding given by the ld CIT(A) in this regard and in absence of the relevant material available on record, we are unable to take a view in the matter and the same would need further examination.
In respect of question no. 21 where certain mismatch amounting to Rs 9,28,887 in the daily stock as per books and as per physical verification were observed by the survey team and where, in response, it was submitted that it is possible that certain bills of purchase and sale have not been entered at this stage and full explanation shall be submitted later on. During the course of assessment proceedings, the AO observed that even during the course of assessment proceedings, the assessee company has failed to furnish the reasons with respect to such differences. Before us, it was submitted that the stock as per books taken at the time of survey was not on the basis of complete entries recorded in the books of accounts and therefore, for such minor
24 ITA No. 326 & 325/JP/17 & CO No. 19 & 18/JP/17 ACIT, Jaipur, vs. Jhandewalas Food Pvt. Ltd., Jaipur
variation in the stock, no adverse inference was drawn by the survey party and since assessee has maintained complete books of accounts along with the stock register and no discrepancy was found by the AO therein, the alleged short stock determined at the time of survey can’t be a basis for making addition of Rs. 1,80,00,000/-. The ld CIT(A) has returned a finding that such discrepancies were not reconciled during the assessment or even appellate stage. The stock to the extent of Rs 928,887 therefore remain unreconciled.
In light of above discussions, it is clear that there were purchases from certain specific concerns and certain other discrepencies in the overall purchases as per books and as per physical stock which were found during the course of survey and basis that, the surrender was made by the assessee company of Rs 1.8 Crores during the course of survey as admitted by the assessee company through its director whose statement was recorded at the time of survey. Subsequently, during the course of assessment proceedings, the assessee was again confronted with such discrepancies and to an extent, certain discrepancies remain unreconciled during the assessment and appellate proceedings. And in respect of certain discrepencies, the assessee has offered the necessary explanation before us and hence, the same couldn’t have been examined earlier during the assessment and appellate stage. In light of the same, we are of the view that the addition has not been made by the AO solely basis the admission made in the statement recorded during the course of survey rather these were based on specific discrepancies founds on perusal of books of accounts.
25 ITA No. 326 & 325/JP/17 & CO No. 19 & 18/JP/17 ACIT, Jaipur, vs. Jhandewalas Food Pvt. Ltd., Jaipur
Bases such discrepancies, the books of accounts have been rejected by the ld CIT(A) u/s 145(3) and the said rejection of books of accounts are not under challenge before us. Once the books of accounts have been rejected, the gross profit has to be determined based on some rational basis and material available on record and which will be applied on the whole of the turnover so declared by the assessee company as also accepted by the Revenue. The ld CIT(A) has applied G.P rate of 3.40% as against G.P rate of 3.27% declared by the assessee company. The basis of such determination of 3.4% g.p rate is not clear from perusal of the order of the ld CIT(A). As held by the Courts, the past history of the assessee is the best guide to assist determination of g.p rate in absence of any third party comparable data. Given that, the matter is set aside to the file of the AO for the limited purposes of determination of G.P rate based on average of past results of atleast three years which have either attained finality or have been accepted by the Revenue. The AO shall determine the G.P rate and apply the same on the accepted turnover as declared by the assessee company.
In the result, ground no. 2 of revenue’s appeal is allowed for statistical purposes, ground no. 3 of revenue’s appeal is allowed and sole ground in assessee’s cross objection is dismissed.
Now, coming to ground no. 1 of revenue’s appeal where the revenue has challenged the action of the ld. CIT(A) in deleting the addition of Rs. 1,80,00,000/- made by the AO holding that the AO was not justified in making addition. At the outset, it was submitted by the
26 ITA No. 326 & 325/JP/17 & CO No. 19 & 18/JP/17 ACIT, Jaipur, vs. Jhandewalas Food Pvt. Ltd., Jaipur
ld DR that the figure of Rs 1.8 crores has been inadvertently mentioned in the ground of appeal and the same should be read as Rs 40 lacs. The ld AR didn’t raise any objection to the same and hence, the figure of Rs 40 lacs is read instead of Rs 1.8 crores.
Briefly, the facts of the case are that the assessee company has accepted during the course of survey that it shall deposit advance tax on net profit of Rs 1 crore as calculated on the date of survey in respect of assessee company and M/s Harinarayan Gyarasi lal. Th AO observed that the assessee company has not complied with the same and has also failed to furnish any proof that such profit was included in the books of accounts and Rs 40 lacs out of Rs 1 Crore as allocated to the assessee company was brought to tax in the hands of the asessee company.
We now refer to the findings of the ld. CIT(A) which are under challenge before us: “(i) The brief facts of the case are that during the course of survey, Shri Rakesh Koolwal estimated the net profit of its company and other concern i.e. M/s Harinarayan Gyarasi Lal till the date of survey at Rs. 1 crore. Out of this amount of Rs. 1 Crore, in the instant case under consideration, the AO has apportioned a sum of Rs. 40 Lac pertaining to the appellant company and made addition for the same stating that the appellant has failed to prove that this profit is included in its books of accounts.
27 ITA No. 326 & 325/JP/17 & CO No. 19 & 18/JP/17 ACIT, Jaipur, vs. Jhandewalas Food Pvt. Ltd., Jaipur
(ii) During the appellate proceedings, it was submitted by the appellant that Sh. Rakesh B. Koolwal, in his statement has estimated the net profit for both the concerns for the entire financial year at Rs. 1 Crore and this was an estimate made by him on the date of survey i.e. 18.10.2011. This estimate was made with reference to the profit up to the date of survey as per the print out of the profit & loss account taken from regular books of accounts. Finally, the appellant has declared profit of Rs. 44,76,878/- and its sister concern M/s Harinarayan Gyarsilal has declared profit of Rs. 41,51,628/- as per the profit & loss account aggregating to Rs. 86,28,506/-. This profit is after considering the interest and depreciation. Thus the net profit as per the profit & loss account is close to the income estimated at the time of survey. The AO, without any basis, has held that profit of Rs. 40 Lac pertained to the appellant out of Rs. 1 Crore estimated by Shri Rakesh B. Koolwal and that the same is other than what is included in the books of accounts.
(iii) I have duly considered the submissions of the appellant, assessment order and the material placed on record. It would be appropriate to reproduce hereunder the relevant extract of the statement of Shri Rakesh Koolwal as under:-
iz-l- 19 vkt vkids O;kokfjd izfr"Bku ij losZ dh dk;Zokgh ds nkSjku vkids dEI;wVj ij vkids Group Concern ds tks regular cgh[kkrs maintain fd, tkrs gS] mu concerns ds pkyw fofŸk; o"kZ ds 18-0-11 rd ds ykHk gkfu [kkrksa dk Printout fy;k x;k gSA bu [kkrksa ds fglkc ls eSa- gfjukjk;.k fx;kjlhyky esa 1-07 djksM+ dk ‘’kq} ykHk vk;k gS tcfd eSa- >.Msokykl QwMl izk- fy- 29]75]000@& :i;s dk ‘’kq} ykHk fn[kk;k x;k gS blds ckjs esa vkidk D;k dguk gSA
28 ITA No. 326 & 325/JP/17 & CO No. 19 & 18/JP/17 ACIT, Jaipur, vs. Jhandewalas Food Pvt. Ltd., Jaipur mŸkj eSus Annexure A-&2 ,oa A&3 ns[k fy;k gSA ;g gekjs dEI;wVj ds Printouts gh gSA ;g gekjh dEiuh o QeZ ls gh lEcaf/kr gSA eSa ;g dguk pkgrk gWw mDr ykHk gkfu [kkrksa esa dqN [kpsZ bUnzkt gksus ls jg x, gS tSls fd depreciation, interest, etc tks fd lky ds var esa gh bUnzkt gks gSA gks ldrk gS dqN bills/voucher dh entry Hkh gksus ls jg xbZ gksxhA bu lHkh dks /;ku esa j[krs gq, viuh dEiuh o QeZ esa pkyw fofŸk; o"kZ 18-10- 2011 rd dk ‘’kq} ykHk :i;s ,d djksM+ dk ykHk gksrk gS ftl ij eSa fu;ekuqlkj vfxze dj tek dj nwWaxkA
(iv) Thus, it is evident from the above statement that Shri Koolwal estimated the net profit of the part of the financial year i.e. till 18.10.2011 for both the concerns at Rs. 1 Crore at the time of survey. The appellant has declared net profit of Rs. 44,76,878/- for the year under consideration and its sister concern M/s Harinarayan Gyarsilal has declared net profit of Rs. 41,51,628/- as per the profit and loss account aggregating to Rs. 86,28,506/- and this net profit is after considering the interest and depreciation. The appellant has provided the working of the net profit of both the concerns as reproduced above in its written submissions and it is observed that the appellant along with its sister concern has shown a total net profit of Rs. 2,86,07,148/- before allowance of interest and depreciation i.e. the net profit subject to allowance of interest and depreciation thereon. It may be noted that as per the statement of Shri Rakesh B Koolwal as reproduced above, the total profit till the date of survey of both the concerns was Rs. 1,36,75,000/- (Rs. 1,07,00,000 + 29,75,000) subject to allowance of interest and depreciation and Shri Koolwal has estimated the net income at Rs. 1 Crore after allowance of interest and depreciation thereof. For the whole year, the total profit of both the concerns was Rs. 2,86,07,148/-
29 ITA No. 326 & 325/JP/17 & CO No. 19 & 18/JP/17 ACIT, Jaipur, vs. Jhandewalas Food Pvt. Ltd., Jaipur
subject to allowance of depreciation and interest. It is noted that after claim of depreciation and interest, the net profit of both the concerns was shown at Rs. 86,28,506/-. Further, this addition was made solely on the basis of statement of Shri Rakesh B Koolwal, recorded during the course of survey without bringing on record any material, which may justify the addition of Rs. 40 Lac to the income of the appellant. The AO has not given any basis for apportioning Rs. 40 Lac to the appellant company.
(vi) Therefore, in view of the above discussion and looking to the factual matrix of the case and the decisions of Hon’ble Apex Court in the case of CIT vs. S. Kadar Khan Son (supra) and Hon’ble Rajasthan High Court in the case of CIT vs. Shri Roshan Lal Lodha (supra) discussed in earlier ground of appeal, it is held that the AO was not justified in making addition of Rs. 40 Lac to the income of the appellant, hence the same cannot be justified and thus, hereby deleted.”
We find that the AO has made the addition on the sole basis that the assessee company has failed to furnish any evidence that this profit of Rs 40 lacs was included in the books of accounts. The ld CIT(A) has returned a finding that such net profit determined at the time of survey has been included in the overall net profit determined at the end of the financial year. The said findings of the ld CIT(A) remain uncontroverted before us and is hereby confirmed. In the result, ground of revenue’s appeal is dismissed.
With the above directions, revenue’s appeal is partly allowed for statistical purposes and the assessee’s cross objection is dismissed.
30 ITA No. 326 & 325/JP/17 & CO No. 19 & 18/JP/17 ACIT, Jaipur, vs. Jhandewalas Food Pvt. Ltd., Jaipur
Now, coming to revenue’s appeal in case of Shri Bhanwar lal Koolwal in ITA No. 325/JP/17 and assessee’s cross objection in CO No.18/JP/17, both the parties submitted that the facts and circumstances are exactly identical and arising out of same survey proceedings and the statement of Rakesh Koolwal and similar contentions as raised in case of Jhandewalas Food Pvt Ltd were made which have not been reproduced for the sake of brevity.
In this case, based on survey statement of Shri Rakesh Koolwal and other discrepancies noticed during the course of survey, an addition of Rs 20 lacs was made by the AO. The Ld. CIT(A) deleted the addition of Rs.20 lakhs by holding that the addition was made solely on the basis of statement of Sh. Rakesh B. Koolwal recorded during the course of survey without bringing on record any incriminating material to support such addition. However, he held that during survey proceedings, there was difference between the physical stock as well as cash as found during the course of survey proceedings and as recorded in the books of accounts. Even after reconciliation on the date of survey, there still remains difference of Rs.1,20,798/- on account of excess stock. Such discrepancy is not even reconciled during assessment proceedings. Accordingly, books of accounts were rejected u/s 145(3) of the Act and g.p. rate of 1% was applied to the total turnover of Rs.1,25,43,82,062/- as against g.p. rate of 0.96% declared by the assessee resulting into trading addition of Rs.4,71,708/-.
We find that similar to the case of Jhandewalas Foods where number of discrepancies were observed, the discrepancies in the instant
31 ITA No. 326 & 325/JP/17 & CO No. 19 & 18/JP/17 ACIT, Jaipur, vs. Jhandewalas Food Pvt. Ltd., Jaipur
case were also observed and remain unreconciled. Bases such discrepancies, the books of accounts have been rejected by the ld CIT(A) u/s 145(3) and the said rejection of books of accounts are not under challenge before us. Once the books of accounts have been rejected, the gross profit has to be determined based on some rational basis and material available on record and which will be applied on the whole of the turnover so declared by the assessee company as also accepted by the Revenue. The ld CIT(A) has applied G.P rate of 1% as against G.P rate of 0.96% declared by the assessee company. The basis of such determination of 1% g.p rate is not clear from perusal of the order of the ld CIT(A). As held by the Courts from time to time, the past history of the assessee is the best guide to assist determination of g.p rate in absence of any third party comparable data. Given that, the matter is set aside to the file of the AO for the limited purposes of determination of G.P rate based on average of past results of atleast three years which have either attained finality or have been accepted by the Revenue. The AO shall determine the G.P rate and apply the same on the accepted turnover as declared by the assessee company.
In the result, ground no. 2 of revenue’s appeal is allowed for statistical purposes, ground no. 3 of revenue’s appeal is allowed and sole ground in assessee’s cross objection is dismissed.
Similarly, ground no. 1 of the revenue’s appeal is dismissed following our reasoning at para 24 above in ITA No. 326/JP/17 which shall apply mutatis mutandis to this appeal.
32 ITA No. 326 & 325/JP/17 & CO No. 19 & 18/JP/17 ACIT, Jaipur, vs. Jhandewalas Food Pvt. Ltd., Jaipur 31. With the above directions, revenue’s appeal is partly allowed for statistical purposes and the assessee’s cross objection is dismissed.
The respective appeals are thus disposed off with above directions.
Order pronounced in the open court on 29/12/2017.
Sd/- Sd/- ¼fot; ikWy jko½ ¼foØe flag ;kno½ (Vijay Pal Rao) (Vikram Singh Yadav) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 29/12/2017. *Ganesh Kr. आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1.vihykFkhZ@The Appellant- . ACIT, Jaipur 2. izR;FkhZ@ The Respondent- Jhandewalas Food Pvt. Ltd., & Sh. Bhanwar Lal Koolwal, Jaipur 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 6. xkMZ QkbZy@ Guard File { ITA No. 326/JP/17 , CO No. 19/JP/17 & 325/JP/2017 & CO No. 18/JP/17} vkns'kkuqlkj@ By order, सहायक पंजीकार@Aेेज. त्महपेजतंत