DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1, LUDHIANA , LUDHIANA vs. LALIT KUMAR, PROP. LALIT CO., MS BABU RAM HEM RAJ, FARIDKOT

1

IN THE INCOME TAX APPELLATE TRIBUNAL
“A” BENCH, CHANDIGARH

BEFORE HON’BLE SHRI RAJPAL YADAV, VICE PRESIDENT
AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM

Shri Lalit Kumar
(Prop. Lalit Co.& M/s Babu Ram Hem Raj)
New Grain Market
Faridkot - 151203
बनाम/
Vs.
DCIT Central Circle-1
SCO 1-6, 2nd Floor, Opp. BVM School
Kitchlu Nagar
Ludhiana-141001. ̾थायीलेखासं./जीआइआरसं./PAN/GIR No. ADAPK-3617-L
(अपीलाथŎ/Appellant)
:
(ŮȑथŎ / Respondent)

Assessee by :
Shri Sudhir Sehgal (Advocate) – Ld. AR
Revenue by :
Shri Rohit Sharma (CIT) & Shri Vivek Vardhan,
(Addl.CIT) - Ld. DRs

सुनवाई की तारीख/Date of Hearing
:
12-03-2025
घोषणा की तारीख /Date of Pronouncement
:
24-04-2025

आदेश / O R D E R

Manoj Kumar Aggarwal (Accountant Member)

The Ld. AO, rejecting assessee’s various submissions, alleged that the assessee was maintaining parallel books of accounts and aforesaid books detailed unaccounted transactions as carried out by the assessee. Finally, the receipts of Rs.211.20 Lacs pertaining to this year as mentioned in the above books but not recorded in regular books were added as unaccounted receipts of the assessee. The payments as noted therein were ignored. Aggrieved, the assessee preferred further appeal against the same.
Appellate Proceedings
3.1 The assessee assailed the assessment on legal grounds as well as quantum additions on merits by way of elaborate written submissions which have already been extracted in the impugned order.
It was contended that these books were mere ‘Yadasht Note books’ for remembrance and convenience only. All the transactions were not related to the assessee. There was no corroboration of these entries.
Alternatively, the assessee acted as Kacha Ahrtiya and therefore, only commission income could be brought to tax which was in the range of 0.50% to 1% only. The Ld. CIT(A) observed that many of the entries were reconciled with regular books of accounts and it could, therefore, not be accepted that other transactions had not taken place. The impounded document was to be read as a whole as per settled legal position. The Ld. CIT(A) further observed that the assessee failed to identify any principal for whom he was acting as commission agent.
The assessee was doing retail business also. On these facts, Ld.
CIT(A) proceeded to estimate the amount of income which could have been earned by the assessee on these transactions.
3.2 As per Audit Report, the assessee reflected regular Gross Profit
(GP) rate of 4.51%. The GP rate on undisclosed transactions would be higher. Considering average GP rate of 4% and presumptive rate of 8%
u/s 44AD, the Ld. CIT(A) applied GP rate of 6% on receipts of Rs.211.20 Lacs and estimated the impugned addition at Rs.12.67

Lacs. The Ld. CIT(A) further observed that this was the first year of assessment of the assessee. To carry out unaccounted sale, the assessee must have made some initial investment also. For Lalit & Co., the assessee employed capital of Rs.18.92 Lacs to carry out sale of Rs.414.74 Lacs. Applying the same ratio, the capital required to carry out sales of Rs.211.20 Lacs would be Rs.9.63 Lacs. Rounding-off the same to Rs.10 Lacs, the same was separately added u/s 69. The legal grounds as urged by the assessee were dismissed. The aforesaid adjudication has led to revenue’s appeal and assessee’s cross- objections before us.
Our findings and Adjudication
4. We find that the dispute before us is in narrow compass. It is quite clear that the assessee is engaged in retail trade as well as he has acted as a commission agent. The Ld. AO has added entire receipts of Rs.211.20 Lacs to the income of the assessee whereas Ld. CIT(A) has applied GP rate of 6% beside making separate addition of Rs.10 Lacs.
We find that the assessee has acted as proprietor of M/s Babu Ram
Hem Raj which acts as a commission agent (Kacha Ahrtiya) wherein the commission rate would be very low. The assessee has carried out trading of fertilizers and pesticides in another proprietorship concern i.e., M/s Lalit Kumar & Co. where profit rate would generally be higher.
There is no segregation of these two distinct receipts in the impounded day book and accordingly, there would be no option but to make an estimation of profit rate. We are also of the opinion that adding entire receipts in the hands of the assessee could not be held to be justified from any angle since the impounded material which form the very basis of impugned addition contain the details of payment also. Therefore, the only option would be to estimate the income of the assessee on some reasonable basis. The conclusion of Ld. CIT(A), to that extent, could not be faulted with.
5. Proceeding further, it is the finding of Ld. CIT(A) that the assessee, has offered GP rate of 4.54% on aggregate basis in the regular books of accounts. Considering the fact that there is no segregation of nature of receipts in the impounded material and also considering the fact that the assessee would earn nominal commission while acting as commission agent, the estimation of 6%, in our considered opinion, is on the higher side. We estimate the same @3%
of impugned receipts of Rs.211.20 Lacs. The same being arising out of business activities, would be assessable as ‘business income’ only.
The separate addition of Rs.10 Lacs is not clearly borne out of the order of Ld. AO and no material, to that effect has been found during survey. Further, no enhancement notice is shown to have been issued by Ld. CIT(A) to the assessee for the same. The separate addition of Rs.10 Lacs in merely on presumptions and assumptions only and therefore, clearly not sustainable in law. The Ld. AO is directed to re- compute the income of the assessee in above terms. The impugned addition as sustained by us would be assessable as ‘business income’
only. The legal ground qua reopening has not been urged by Ld. AR.
In the result, the revenue’s appeal stands dismissed. The assessee succeeds partly in its cross-objections.

Assessment Year 2015-16
6. It is admitted position that facts as well as issues in this year are quite identical as in AY 2014-15. Based on Day Books Annexure A-3,
A-4 and A-5 containing details of receipts and payments for this year,
Ld. AO added undisclosed receipts of Rs.478.72 Lacs in the hands of the assessee. The Ld. CIT(A) has applied GP rate of 6%. Facts being pari-materia the same as in AY 2014-15, our adjudication therein would mutatis mutandis apply to this year. In other words, Ld. AO is directed to compute additional business income @3% of impugned receipts of Rs.478.72 Lacs. The revenue’s appeal stands dismissed. The assessee succeeds partly in its cross-objections.
Assessment Year 2016-17
7. The assessee has been assessed for this year u/s 143(3) of the Act on 26-12-2018. Based on Day Book Annexure A-6, A-7 & A-8. Ld.
AO made impugned additions. In the assessment order, Ld. AO listed
233 entries of cash introduction by various parties which were not disclosed in the regular books of accounts. Accordingly, the amount of Rs.905.38 Lacs was added u/s 68 on account of alleged unexplained cash deposits in the books of accounts. The Ld. CIT(A) observed that during survey no unexplained cash or other valuable article was found from the possession of the assessee. As in earlier years, Ld. CIT(A) estimated addition of 6% on these receipts. Aggrieved, the revenue is in further appeal before us whereas the assessee has assailed the aforesaid estimation in its cross-objections. Facts being pari-materia the same as in AY 2014-15, our adjudication therein would mutatis mutandis apply to this year also. In other words, Ld. AO is directed to compute additional business income @3% of impugned receipts. The revenue’s appeal stands dismissed. The assessee’s ground of cross- objections stands partly allowed.
8. Another issue that arises in this year is disallowance of excessive interest to Shri Varinder Pal and Smt. Manju Bansal. It transpired that the assessee paid interest of Rs.7.12 Lacs to these two family members. The Ld. AO alleged that the same was excessive in terms of Sec.40A(2)(b). Accordingly, by applying reasonable rate of 15%, the excessive interest for Rs.3.61 Lacs was disallowed u/s 40A(2)(b). The Ld. CIT(A) confirmed the same against which the assessee is in further appeal before us. It is the contention of Ld. AR that the assessee has actually paid interest of 15% only and Ld. AO has erred in assuming interest rates of 24% and 26%. Considering the same, we restore this issue back to the file of Ld. AO for fresh consideration with a direction to the assessee to plead and prove its case. The grounds as raised in cross-objection stand allowed for statistical purposes. The assessee’s cross-objection stand partly allowed.

Conclusion
9. All the three appeals of the revenue stand dismissed. The assessee’s cross-objections stands partly allowed. A copy of this common order may be placed in respective case files.

Order pronounced on 24-04-2025. (RAJPAL YADAV) (MANOJ KUMAR AGGARWAL)
VICE PRESIDENT लेखा सद˟ /ACCOUNTANT MEMBER

Dated: 24-04-2025. आदेश की Ůितिलिप अŤेिषत / Copy of the Order forwarded to :
1. अपीलाथŎ/Appellant
2. ŮȑथŎ/Respondent
3. आयकरआयुƅ/CIT
4. िवभागीयŮितिनिध/DR
5. गाडŊफाईल/GF