ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-6(3)(1), BANGALORE vs. SHRI SATYENDRA KUMAR GUTUTIA , BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH : BANGALORE

BEFORE SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER

ITA No.2036/Bang/2017 Assessment Year : 2010 – 11 Shri Satyendra Kumar Gutgutia, Block No. 304, 3rd Floor, ACIT Circle – 6 (3) (1), Oscar Orchard Apartment, vs. Bangalore. Sahakar Nagar, Bengaluru - 560092 PAN: ADRPG8676J APPELLANT RESPONDENT Assessee by : Shri B. Chattaraj, Advocate Revenue by : Smt. C. H. Sundar Rao, CIT (DR) Date of hearing : 27.06.2019 Date of Pronouncement : 25.07.2019

O R D E R Per Shri A. K. Garodia, Accountant Member This appeal is filed by the revenue and it is directed against the order of CIT (A) 7, Kolkata dated 30.06.2017 for A. Y. 2010 – 11. 2. The grounds raised by the revenue are as under: - The order of the CIT (Appeals) is opposed to law and the facts and 1. circumstances of the case. On the facts and circumstances of the case, the CIT(A) erred in 2. deleting the addition of Rs.2,47,31,161 as unexplained cash credit based on tile additional evidences submitted by the assessee. On the facts and circumstances of the case, the CIT(A) erred in deleting the addition of Rs.2,47,31,161 as the issue of taking over 3. assets and liability does not arise when the assessee himself was the proprietor of converted partnership concern. On the facts and circumstances of the case, the CIT(A) erred in deleting the addition of Rs.25,00,000 as unexplained cash credit in 4. the case of Ranbo Flora based on the new evidence/details submitted by the assessee before CIT(A) when the same details were not submitted during the assessment proceedings before AO.

ITA No. 2036/Bang/2017 Page 2 of 21 On the facts and circumstances of the case, the CIT(A) erred in deleting the addition of Rs.1,24,30,787 and Rs.2,25,98,006 as unexplained cash credit in the case of Florance Flora, Bengaluru 5. and Florance Flora, Dimapur respectively based on the new evidence/details submitted by the assessee before CIT(A) when the same details were not submitted during the assessment proceedings before AO. On the facts and in circumstances of the case, the CIT(A) erred in deleting the addition of Rs.30,00,000 towards job work charges based on the additional details submitted before CIT(A) when the 6. AO had given findings during the assessment proceedings that the job work charges claimed do not pertain to the assessee but belonged to Florance Flora Farm, Bengaluru. On the facts and in circumstances of the case, the CIT(A) erred in reducing the Gross Profit at 38% to Net Profit at 8% on the basis 7. that the assessee has accepted the assessment order for subsequent years wherein the net profit was estimated at 8%. On the facts and in circumstances of the case, the CIT(A) erred in deciding the matter based on the fresh evidences submitted by the 8. assessee without giving an opportunity to the assessing officer to examine such evidences which is contravened to the provision of Rule 46A (3). The appellant craves leave to add, to alter, to amend or delete any of 9. the grounds that may be urged at the time of hearing of the appeal.

ITA No. 2036/Bang/2017 Page 3 of 21 The information sought for could be discerned from these financial statements. The A.O himself had admitted in the assessment order that all these statements were filed before him; but he failed to make correct analysis of the statements. Even the Accountant explained the different contra entries in detail and hence the learned A.O was fully aware of the facts, which were not taken into cognizance while finalising the assessment order. Grounds of Appeal 2&3: Deletion of Rs. 247,31,161/- added by the A.O as Cash credit : This is not a cash credit but brought forward loans from Banks and NBFC's and also intra branch transfer as evidenced from the Ledger Accounts submitted in the paper book as under: Page numbers in Ledger copy Bank/NBFC Particulars documents Cash brought in towards capital Rs. 1,16,404/- Page 341 --- Loan balances from Banks/NBFC's Rs. 68,74,043/- Page 342 Future Money Loans Rs. 1,26,099/- page 362 Page 363 to 364 HDFC Bank - MC NewRs.13,752/- page 365 Page 366 to 367 India Bulls Loans Rs. 12,23,191/- page 368 Page 369 to 371 ING Vysya Bank Rs. 3,97,727/- page 372 Page 373 to 374 Reliance Capital Rs. 6,79,779/- page 375 Page 376 to 378 Religare Finvest Ltd. Rs. 3,25,552/- page 379 Page 380 to 383 Tata Capital Rs. 6,49,554/- page 384 Page 385 to 391 Kotak Mahindra Rs.25,37,758/- page 392 ---- Oscar Udyog Ltd. Rs. 6,23,000/- page 393 ---- ICICI Bank Loan Rs. 2,97,630/- page 394 Page 395 to 396 Inter-company/inter branch balances Rs. 177,40,715/- Page 343 Florance Flora Farm (Debit balance)page- 397 Florance Flora (Credit balance) page-398 Florance Flora Farm (Debit balance)page 399 Florance Flora- Agartala (Credit balance) page 399 90,91,491/- 4: Deletion of Rs.25 Lacs added as cash credit: This in fact is the purchase of plants made from M/s Ranbo Flora who has been shown as sundry creditor. The Ledger Account and financial reports of Ranbo Flora was filed with the AO and submitted. paper book pages 400 to 408

ITA No. 2036/Bang/2017 Page 4 of 21

Paper Business entity Debit Balance Paper book Business entity Credit Balance book Page Florance Flora Mkg. Ghy Rs. Page 411- 413- Florance Flora- Blr. Rs.128,09,672/- 376,827/- FloranceFlora Mkg.Ghy 412 Page- 414 FloranceFloraMkgDpur Rs. 225,98,006/- Rs 124,30,787/- Florance Flora 409 page- Mkg.Blr Rs. 225,98,006/- 415

ITA No. 2036/Bang/2017 Page 5 of 21 proprietary concern to partnership business, the assets and liabilities of the proprietary concerns were transferred to the capital account of the proprietor which had ultimately formed the capital contribution of the proprietor as a partner of the newly formed partnership. However, while filing the return of the respondent as an individual; all the audited accounts and statements for each proprietary concern were filed before the learned Assessing Officer. The proprietor's capital account was also furnished in the Return of Income filed through online. 2. Addition of Rs. 247,31,161/- : The assessment was taken up for scrutiny and the notices were issued u/s 143 (2) and 142 (1) to the respondent to produce the books of accounts and other details. During the course of such assessment proceedings, the learned A.0 observed that there was a credit of Rs.247,31,161/- in the capital account of the respondent in financial reports of Florance Flora. It was explained before him that the aforesaid sum does not represent any fresh capital being introduced excepting a paltry sum of Rs. 1,16,404/- which was drawn from one account and transferred to this account . The rest of the amount were brought forward as secured loan from earlier years, apart from, certain credit of one proprietary concern due to another proprietary concern of the assessee, It is needless to mention that the overall net effect of such credit is NIL. This was done as the proprietary concerns of the appellant were transformed to partnership concern from 1/1/2010. To be exact, Loan balance drawn from Banks/NBFC's by the proprietary business pending for repayment, for Rs.68,74,043/- and book balances for transactions between different businesses of the proprietor for Rs.1,77,40,714/-. This was further clarified that the book balances will get added to "NIL" on consolidating them into capital account of the proprietor for these businesses and as the loan is continued from the proprietary business, the actual fresh addition to the capital will amount to Rs.1,16,404/- only. The source of the said amount was drawings by the respondent from his farming activity, Florance Flora Farm. This has been duly reflected in the Balance Sheet, filed along with the Return of Income of the appellant, where no addition of capital as noted by the learned A.O. to the extent of Rs. 247,31,161/- was shown. The learned A.O misconceived it as the value of Goodwill charged by the Appellant and failed to appreciate the different statement of accounts that were made up through Journal entries because of the transformation. Therefore, the learned A.O made addition of Rs.247,31,161/-. (The Loan statements from Bank/NBFC's and relevant Ledger copies of the Loan accounts from the proprietary business are enclosed vide page nos. 361 to 396: the Account Balance particulars of the proprietary concerns (vide page no.343) together with the ledger copies are enclosed vide page nos. 397 to 399). 3. Before the learned C.I.T (Appeals) the respondent sought to

ITA No. 2036/Bang/2017 Page 6 of 21 explain the credit of Rs.247,31,161/-in the same way as noted above and the learned C.I.T (Appeals) called for the books of Accounts to examine the veracity of our statement. On being satisfied after the verification of the entries in the books of accounts, the learned C.I.T (Appeals) deleted the addition as it was not called for. Obviously, no new evidence other than the financial statements, already filed before the Assessing Officer, was filed again before the learned C.I.T (Appeals). Hence, the ground that the respondent filed additional/new evidences before the C.I.T (Appeals) to get the relief is without any objective basis and it needs to be quashed. 4. Addition of Rs. 25,00,000/-: Florance Flora Marketing, Dimapur branch, a proprietary concern of the respondent made a purchase of stock of plants from M/s. Ranbo Flora, an agricultural firm (not belonging to the respondent) for an amount of Rs.25,00,000/-; the stock was not sold during the year and was therefore reflected as closing stock in the Audited Financial report. The learned A.0 observed that M/s. Ranbo Flora filed a return .showing Nil income, therefore such transaction remained unexplained. He therefore added the said sum of Rs.25,00 000/- to the total income of the respondent. 5. The sum of Rs. 25,00,000/- represented the value of purchase of plants by Florance Flora Marketing, Dimapur branch from M/s. Ranbo Flora, an agricultural firm based in Bangalore. Both the parties are assessed to tax and even the stocks so purchased was not sold during the relevant year and was reflected in the accounts as closing stock in hand. M/s. Ranbo Flora had also filed its Income Tax Return for the relevant year wherein such sale was disclosed. The Financial Reports of M/s. Ranbo Flora had also been filed before the Assessing Officer. The statements established without any doubt, the veracity and the genuineness of the transaction. In spite of all this information being present on records, the learned A.O. made the addition purely on conjectures and surmises. The same details were filed before the learned C.I.T (Appeals) and he deleted the addition. Obviously, there was no question of filing any additional/new evidence before the learned C.I.T (Appeals). So, there was no question of addition on this account. (The Account balance confirmation from Ranbo Flora and their IT Return copy with Financial Reports are enclosed vide page nos. 400 to 408) 6. Additions of Rs.124,30,787/- & Rs. 225,98,006/-: The learned A.O completely mislead himself to conclude "The assesse also did not produce any evidence to confirm that Florance Flora, Bangalore partnership and Florance Flora Marketing, Dimapur were the genuine creditors of Florance Flora Marketing Bangalore. Accordingly, a sum of Rs.12430787/- and Rs.22598006/- is added to the income of the assesse as

ITA No. 2036/Bang/2017 Page 7 of 21 unexplained cash credit u/s 68 of the income tax act, 1961". 7. The Audited Financial statements filed before the learned AO would indicate that there was no real cash credit in terms of provisions of Section 68 of income tax act 1961. The entries comprised of business transactions between the different proprietary concerns of the respondent. It has already been clarified that each of these proprietary concerns was functioning as separate profit centre. Therefore, the transactions between them were reflected in the books as between two separate business concerns. But the Audited Financial Statement of each of these concerns were filed before the learned A.O and the entries could have been cross verified from these accounts with little diligence. 8. It will not be out of place to draw your kind attention on two of the observations made by the learned A.O., as reproduced below: "The assessee's Audited Accounts consist of five (5) proprietary concerns as under: i)Florance Flora Farm - Bangalore Florance Flora - Bangalore, Florance Flora Marketing iv) Florance Flora Celebrations & v) Plants & Flowers Boutique." And "There are large number of branches of each concern, which are independently shown as sundry creditors and debtors in these concerns, though they do not file separate Income Tax Returns" 9. From the above, it is obvious that the learned A.O was aware of the method of accounting followed by the respondent and the Financial Statements of each branch of the proprietary concerns had been submitted before him. The credit and debit entries were easily verifiable from these statements. The credit balance of Rs. 1,24,30,787/- in the books of Florance Flora Marketing Guwahati (vide pages-413 to 415) is the contra of debit balance in the books of Florance Flora Bangalore (vide pages411 to 412). Similarly, the credit balance of Rs. 2,25,98,006/-in the books of Florance Flora Marketing, Dimapur (vide Page-410) is matched against the debit balance in the books Florance Flora Marketing, Bangalore (vide page-409) 10. The issues were taken up for appeal before the Honourable CIT (Appeals)-7, Kolkata. The Learned CIT (A) called for further details and asked for production of books of accounts for all business activities of the respondent. for the relevant financial year 2009-10, for preceding financial year 2008-2009 and the succeeding financial year 2010-11, along with bills and Ong vouchers. These were all produced and the Learned CIT (A) personally examined the verified them from the bills and vouchers on random selections. Thereafter the was asked to file a written submission clarifying the statement of accounts filed and pointed out by the learned A.O for making the additions. This was done

ITA No. 2036/Bang/2017 Page 8 of 21 and the CIT (A) was convinced to grant relief as per his order. 11. Addition of Rs. 30,00,000/-:The learned A.O also made the addition of Rs.30,00,000/- paid Dy the respondent's proprietary business, Florance Flora, Agartala Branch to Horti Farm Corporation for undertaking steel fabrication work for purposes of executing the polyhouse constructions, against orders received from the Horticulture Department. Govt. of Tripura. The payment for the Job Work was made after due deduction of Tax at Source and the receipt from such contract had duly been reflected as income in the books of fabricator, Horti Farm Corporation. The learned A.O misleads himself to conclude that such payment was uncalled for and hence it was added back to the total income of the respondent. 12. The learned A.O. had completely misled himself to conclude "the claim of Rs. 30,00,000/- as job work in a purely trading concern is absolutely uncalled for and just because the payment has been claimed to have been made from the books of a trading concern. it does not make it a genuine claim automatically". The learned A.O. completely ignored the fact of the case that the respondent entered into a contract for construction of polyhouse with the Department of Horticulture., Govt. of Tripura. The receipt from such contract has duly been reflected as income in the financial statements of the proprietary business, Florance Flora, Agartala (vide page nos.351 to 354). This financial statement was also filed before the learned A.O. and was open for his verification and examination. While the income part was accepted without question, the expenditure part, he cast a doubt without any objective basis and with vague reason. The learned CIT (A) had rightly deleted the addition and no new evidence was placed before him. (The Ledger copy of the job worker with copies of bills and their F-26AS record showing the TDS by the respondent, vide page nos. 348 (plus sheets A to L} to 350 is enclosed. Also the Ledger copy of Horti Dept., Tripura, TDS certificates received from the Horti Dept. Tripura with respondent's F-26AS record is enclosed from pages 351 to 360) 13. Additions of Gross Profit: The learned A.0 made addition on account of trading activities of Flower at Kolkata at an abnormal rate of 38% purely on the basis of conjecture and surmise. In so far as the addition in the gross profit in the trading business, Plants & Flowers boutique at Kolkata, the learned A.O. without any findings of defects in the accounts, rejected the same and estimated the gross profit as high as 38% on the basis of his conjecture and surmise. The learned CIT (A) however, reduced the same at 8% of net profit as the same rate had been adopted by the Department in the assessment for the later years. 14. From the perusal of the grounds of appeal, canvassed by the

ITA No. 2036/Bang/2017 Page 9 of 21 Appellant, it is obvious that the most of the grounds are based on the assumption that the respondent had brought forth additional evidences/details before the learned CIT(A). The Appellant therefore tried to invoke the provisions of Rule 46-A of the Income Tax Rules, 1962. At the outset, it is emphatically denied that any new evidence was adduced before the first appellate authority. The explanations/ interpretations had been provided to the CIT(A) on being asked by him to make such submission. It is needless to state that similar interpretation, clarification and explanations were advanced by the respondent before the learned A.O also. The assessment order itself indicates that the authorised representative and the respondent himself appeared several times before the learned A.O. to explain the statement of accounts filed before him and to answer all the queries raised by him. It had been earlier pointed out that the assessee's proprietary business had several branches which functioned as independent profit centres. For this reason any branches purchase/sell from another branch is reflected in the statement as if it were between two unrelated parties; but while these proprietary concerns were transformed into a partnership firm, the proprietor's capital account transferred to the partnership firm had to be drawn out, such entries required to be squared up through journal entries. The credit in different branches of the proprietor's business led the learned A.O. to erroneous conceptions of unexplained cash credit. When called upon the respondent himself along with his accountant appeared before the learned A.O. carrying the statement of accounts in a laptop. This is as had been pointed in the assessment order, the respondent had already shifted his business centre to Bangalore, though the assessment continued to be made in Kolkata; In spite of specific request being made by the respondent to transfer the jurisdiction to Bangalore. Within the short notice the respondent received, it was not possible to carry the whole loads of Books of Accounts, Bills and vouchers from Bangalore to Kolkata for inspection/ clarification of the learned A.O. However, all the financial statements of all the branches of business had been made available in the Laptop. The relevant entries were shown to the learned A.O. and he was convinced, but he wanted everything in printed form. Though the hearing was taken up on 21st March 2013 towards the fag end of the financial year, and no time was allowed to get the print outs of the statements of Accounts wanted by the learned A.0; It is relevant that the assessment order was passed on the same day, i.e., on 21st March, 2013. 15. The learned CIT(A), however called for all the statements and also asked the respondent to produce the Books of Accounts not only for the relevant year, but also for the immediate preceding and succeeding years. The requirement of the learned CIT(A) was complied with. It is a well-established law that the CIT(A), as first appellate authority has coterminous power over the sources of

ITA No. 2036/Bang/2017 Page 10 of 21 income constituting the subject matter of the assessment, except the power to tackle new sources of income not considered by the A.O; and can do what the A.O. can do and can direct the A.O.to do what he failed to do, as held by the honourable supreme court in the case of Commissioner of Income Tax, U.P vs. Kanpur Coal syndincate(1964. 53 ITR 225 (Case document enclosed herewith). The order sheet entry of the proceedings before the CIT(A) will clearly indicate to show that, while disposing off the appeal, he had directed further enquiry and called for the books of accounts as indicated earlier, to be produced before him. Therefore, the learned CIT(A) was within his power conferred upon him under sub-section (4) of Sec. 250. 16. The honourable Delhi High Court observed in disposing the APPEAL NO.928/2011, dated November 15, 2011, in the case of COMMISSIONER OF INCOME TAX (CENTRAL)-I vs MANISH BUILD WELL PVT. LTD. This power, which is recognized in sub- Section (4) of section 25C). has to be exercised by the CIT (A) and there should be material on record to show that he, while disposing of the appeal, had directed further enquiry and called for the confirmation letters from the assessee even in respect of receipt of monies from customers by way of cheques. Rule46A is a provision in the lncomeTaxRules. 1962 which is invoked, on the other hand. by the assesse who is in an appeal before the CIT (A). Once the assesse invokes Rule46A and prays for admission of additional evidence before the CIT (A), then the procedure prescribed in the said rule has to be scrupulously followed. (Case document enclosed herewith) 17. The records in the office of the learned CIT(Appeals) will testify that it was he who called for the books of accounts and the details of accounts, for disposal of the appeal before him. It may not be out of place to mention here that the credit entries, for which the learned A.O. made additions u/s 68, could have been cross verified and discerned with little diligence from the financial statements filed before the learned A.O. Moreover, as indicated earlier the same were explained to him through the statements uploaded in the laptop. 18. For the aforesaid explanation and the documentary evidences the respondent placed fervently before your honour, it is prayed to set aside the contentions raised by the appellant in the grounds of appeal.” 5. We find that as per the grounds raised by the revenue as reproduced above, the grievance of the revenue is regarding deletion of four additions made by the AO i.e. (1) Rs.247,31,161/-, (2) Rs. 25 lacs, (3) Rs. 124,30,787/- and Rs. 225,98,006/- and (4) Rs. 30 Lacs. In addition to this,

ITA No. 2036/Bang/2017 Page 11 of 21 the revenue has raised Ground No. 7 in respect of reducing by CIT (A) of the addition made by the AO as G.P. of 38% to N. P. of 8% and about violation of Rule 46A (3) by CIT (A). We will decide each of these issues one by one. 6. Regarding the first issue i.e. addition of Rs. 247,31,161/- made by the AO and deleted by CIT (A), we find that on page 5 of the assessment order, it is stated by the O that the proprietorship business of Florance Flora was converted into partnership from 01.01.2010 and as a result of the same, assets and liabilities were transferred to his capital account through journal entries. The AO raised a query as noted on this page of the assessment order that whether this amount was a receipt by way of Goodwill from the incoming partners and if the assessee was the proprietor till its conversion into a partnership firm then where was the question of his taking over the assets & liabilities as claimed by the assessee in a letter submitted to the AO. He ultimately held that this credit in capital account is unexplained credit and he added the same u/s 68. Learned CIT (A) deleted it. As per the note of two pages submitted before us as reproduced above, it is submitted that this amount of Rs. 247,31,161/- includes three amounts. Rs. 116,404/- is cash introduced in F. Y. 2009 – 10 being Rs. 5,000/- on 05.05.2009 in Florance Flora Agartalla, Rs. 100,000/- on 30.11.2009 in Florance Flora Guwahati and Rs, 11,404/- on 31.12.2009 in Florance Flora, Delhi as per details on page 341of the paper book. Since this amount is introduced by the assessee in cash, addition of it is not justified. 7. Second amount is of Rs. 68,74,043/- being loan balances from Banks/NBFCs as per details and evidences on pages 342 to 396 of the paper book. As per page 342, party wise detail is available. Rs. 126,909/- is loan from Future Money. Ledger account is on page 362 of the paper book and as per this, the balance on 31.12.2009 i.e. at the time of conversion into partnership firm, was transferred to capital Account of the present assessee. As per page 363 of the paper book, the loan from Future Money is in the individual name of the present assessee Mr. S. K. Gutgutia. When the loan is in the individual name of the present assessee Mr. S. K. Gutgutia, the assessee is personally liable for repayment of this loan. The assets

ITA No. 2036/Bang/2017 Page 12 of 21 acquired by taking this loan is in the name of proprietorship concern and on its conversion into a partnership firm, those assets will of that firm and therefore, the outstanding loan amount has to be credited to the capital account of Mr. S. K. Gutgutia or the loan has to be converted in the books of lender i.e. Future Money as loan to the new partnership firm in stead of loan to Mr. S. K. Gutgutia. If the assessee has chosen first option, there cannot be any objection from any quarter because it has no impact on the assets and liabilities of the assessee or the said partnership firm. As per the option chosen by the assessee, the assessee has an asset in the form of capital investment in the firm and equal amount of liability being loan repayable to Future Money. Similarly, against the assets acquired by the partnership firm on conversion of the proprietorship concern, the firm will have liability either in the form of capital of the present assessee or in the form of loan repayable to Future Money if second option is chosen i.e. takeover of loan by the partnership firm. Similar is the case in respect of other loans as per Note of two pages reproduced above because we find that as per page 366, loan from HDFC Bank Rs. 13,752/- is also in the individual name of the assessee i.e. Mr. S. K. Gutgutia. Similarly, we find that as per page 369, loan from India Bulls Rs. 12,23,191/- is in the name of Florance Flora, Proprietorship concern and this is the claim of the assessee that this loan is repayable by the present assessee i.e. Mr. S. K. Gutgutia and not by the new partnership firm. Next loan of Rs. 397,727/- is from ING Vysya Bank and as per page 373 of the paper book, this loan is also in the name of Mr. S. K. Gutgutia. In the same manner, all these loans are either in the individual name of the present assessee i.e. Mr. S. K. Gutgutia or in the name of Florance Flora, Proprietorship concern and this is the claim of the assessee that these loans are repayable by the present assessee i.e. Mr. S. K. Gutgutia and not by the new partnership firm. Under these facts, we find that no interference is called for in the order of CIT (A) on this issue in the absence of any material brought on record by the revenue showing that these contentions are not correct. 8. Third amount is of Rs. 177,40,715/- stated to be debit balances in one branch and credit balance in another branch. Such details are available on

ITA No. 2036/Bang/2017 Page 13 of 21 page 343 of the paper book. It says that in the books of Florance Flora Farm, Bangalore there is debit balance in the name of Florance Flora, Bangalore of Rs. 86,49,224/- and in the books Florance Flora Bangalore, there is credit balance of the same amount in the account of Florance Flora Farm Bangalore. Similarly, It says that in the books of Florance Flora Farm, Bangalore there is debit balance in the name of Florance Flora, Agartalla of Rs. 90,91,491/- and in the books Florance Flora, Agartalla, there is credit balance of the same amount in the account of Florance Flora Farm, Bangalore. Total of these two amounts is Rs. 177,40,715/-. Hence, it is seen that these contra Debits and credits and it will be nil when consolidated account is drawn and therefore, no interference is called for in the order of CIT (A) on this issue also in the absence of any material brought on record by the revenue showing that these contentions are not correct. 9. Now we examine the ground No. 8 of the appeal of the revenue contending that there is violation of Rule 46A (3). In this regard, we find that this is true that pages 338 to 417 of the paper book were filed only before CIT (A) and these documents were submitted for the first time before CIT (A) and the decision of CIT (A) on this issue is on the basis of these documents submitted before him for the first time and before us also, only these documents are referred to. Hence, there is violation of Rule 46A (3) because admittedly, no remand report was obtained by CIT (A). In normal circumstances, in such a case, we would have restored the matter to CIT (A) for a fresh decision after obtaining remand report from the AO. But in the present case, we find that the assessment year involved is A. Y. 2010 – 11 which means that more than 8 years have elapsed after the end of the relevant assessment year. The second special fact of the present case is this that the impugned orders of CIT (A) and AO were passed on 30.06.2017 by CIT (A) – 7, Kolkata against the appeal filed by the assessee on 17.04.2013 and assessment order was passed by the AO on 21.03.2013 by JCIT Range 52 Kolkata. Now the assessee is in Bangalore and the present appeal is filed by the ACIT Circle 6 (3) (1) Bangalore. Hence, restoring the matter back to CIT (A) Kolkata after 8 years will not serve any practical purpose. Moreover, it is noted by CIT (A) in Para 5.2 of the

ITA No. 2036/Bang/2017 Page 14 of 21 impugned order that he had examined the Books of Accounts of the assessee and relevant ledgers and the contentions of the assessee were found correct on verification of the books of accounts. This is also true that the powers of CIT (A) are co terminus with that of the AO. Considering all these facts in its entirety i.e. oldness of the matter, change of location, finding of CIT (A) about correctness of the contentions of the assessee even after examination of books and the fact that the powers of CIT (A) are co terminus with that of the AO, we feel that restoration of the matter to CIT (A) for a fresh decision after obtaining remand report from the AO is not required because of these peculiar facts. 10. The next issue is regarding addition of Rs. 25 Lakhs made by the AO u/s. 68 in respect of credits owned by the assessee in the name of Ranbo Flora. This issue was decided by ld. CIT(A) as per the following para on page no. 8 of his order. “(i) Addition of Rs. 25 lakhs- I have perused the ledger account of Florance Flora, Ranbo Flora. In the books of appellant and the contention of the appellant are found to be correct. Both the parties are showing these transactions in their books of account. Therefore, no addition can be made on this account.” 11. As per above para on page no. 8 being part of para no. 6.2 of his order the issue was decided by CIT (A) but before this para, in para 6.1 of his order, the ld. CIT(A) has reproduced the submissions made by the assessee before him on this issue. The same is also reproduced hereinbelow from page no. 6. “Addition of Rs. 25,00,000/- As explained in the business module, the appellant's propritory concern, Florance Flora Marketing has a branch at Dimapur. The financial statements of this branch show credit in the name of Ranbo Flora, a sum of Rs. 25,00,000/-. The learned A.O. did not call for any investigation or even a confirmative statement; but completed the assessment by addition of this amount of Rs. 25,00,0001. In fact, this branch of Florance Flora Marketing Dimapur mode purchase of plants from Ranbo Flora for trading for an amount of Rs. 25,00,000/-. The stock so purchased was not sold during the year and had been reflected in the closing stock. M/s. Ranbo Flora is a partnership firm at Bangalore and they are duly assessed to Income Tax under PAN: AAJFR7823F. The learned A.0 observed that the creditor M/s. Ranbo Flora filed a "NIL" income return for the relevant year which led him

ITA No. 2036/Bang/2017 Page 15 of 21 to conclude that the credit remained unexplained, meriting addition u/s. 68. The financial statements of M/s. Ranbo Flora and the Ledger Account of the appellant in the books of M/s. Ranbo Flora are enclosed herewith. This will indicate that M/S. Ranbo Flora had in fact, sold plants to the Dimapur branch of Appellant's proprietary concern, Florance Flora Marketing. The sum represented trade credit and had been duly billed against appellant. The necessary documents are enclosed. M/s. Ranbo Flora is very much identifiable and genuine firm carrying on business from Bangalore. Hence the addition is totally uncalled for and was made without adhering to the principle of natural justice.” 12. In the brief note submitted by ld. AR of assessee before us as reproduced above, this is the submissions made before us that there was purchase of stock of plants from M/s. Ranbo Flora for this reason that this amount was shown as credit to M/s. Ranbo Flora. It is submitted that on pages 400 to 408 are containing the confirmation of M/s. Ranbo Flora, ledger account of M/s. Florance Flora Marketing, Dimapur in the books of M/s. Ranbo Flora, copy of income tax return filed by M/s. Ranbo Flora for Assessment Year 2010-11 and the balance sheet and P&L account of M/s. Ranbo Flora as on 28.02.2010 along with details of sundry creditors which includes this amount of Rs. 25 Lakhs shown as receivable by M/s. Ranbo Flora from M/s. Florance Flora Marketing, Dimapur. As per the assessment order, this is the only objection of the AO that this credit remains unexplained because as per the return of income filed by M/s. Ranbo Flora, the income was declared as Nil for Assessment Year 2010-11. In our considered opinion, this cannot be a reason for doubting the genuineness of the credit along with credit worthiness of the creditor that the income declared by the creditor in the return of income is Nil. In fact as per the P&L account of M/s. Ranbo Flora available on page no. 405 of the paper book, a loss of Rs. 9,441/- was incurred by M/s. Ranbo Flora for the Assessment Year 2010-11 up to 28.02.2010. But in the balance sheet of M/s. Ranbo Flora, this amount of Rs. 25 Lakhs receivable by M/s. Ranbo Flora from M/s. Florance Flora Marketing, Dimapur is appearing in the list of debtors and total sundry debtors is shown at Rs. 32,08,313/-. Since the return of income was filed by M/s. Ranbo Flora showing Nil income as noted by the AO and PAN of M/s. Ranbo Flora in the return of income filed by them is available as per copy available on page no. 402 of the paper book, the identity of this creditor is

ITA No. 2036/Bang/2017 Page 16 of 21 established. Regarding the genuineness of the transactions and the credit worthiness of the creditor, it is seen that it is not by way of cash credit but by way of sale of goods by M/s. Ranbo Flora to M/s. Florance Flora Marketing Dimapur. Hence on this issue, we find that no interference is called for in the order of ld. CIT(A) on this issue and his order is confirmed on this issue. 13. The next issue in dispute is regarding addition of Rs. 1,24,30,787/- and Rs.2,25,98,006/- added by the AO as cash credit. Regarding these two amounts, the submission of the assessee before ld. CIT(A) is reproduced by him on page no. 8 of his order which is reproduced below for ready reference. The decision of ld. CIT(A) is available on page no. 8 of his order and the same is reproduced hereinbelow for ready reference. “Addition of Rs.2,25,98,006/- It is seen that this amount is appearing as a debtor in the books of Florance Flora Bengalore and it is shown in the books of Florance Flora Marketing, Dimapur. This being con entry no addition on this account can be made by any stretch of imagination. Addition of Rs.1,24,30,787/- This amount is appearing as a sundry creditor in the books of Florance Flora, Gowahati, and as a sundry debtor in the books of Florance Flora, Bengalore. This being inter branch debit and credit. No addition on account of inter branch balance can be made. In view of the above decision the addition is deleted. Therefore ground no. 6 and 7 is allowed.” 14. From the above paras reproduced from the order of ld. CIT(A), it is seen that this addition was deleted by ld. CIT(A) on this basis that amount of Rs.2,25,98,006/- is appearing as a debtor in the books of Florance Flora, Bangalore and it is shown in the books of Florance Flora Marketing, Dimapur as creditor. Similarly, regarding amount of Rs. 1,24,30,787/-, it has been explained that this amount is appearing as sundry creditor in the books of Florance Flora, Guwahati and in the sundry debtors in the books of Florance Flora, Bangalore. Before us, it is submitted in the note reproduced above that pages 409 to 415 of paper book are relevant. On page no. 409 of the paper book, it is seen that this is ledger account of Florance Flora, Bangalore in the books of Florance Flora Marketing, Dimapur for the Financial Year 01.04.2009 to 31.03.2010 and as per the same, there is debit balance of Rs. 2,25,98,006.42 and on page no. 410 of the paper book is the

ITA No. 2036/Bang/2017 Page 17 of 21 ledger account of M/s. Florance Flora Marketing, Dimapur in the books of Florance Marketing, Bangalore for the same Financial Year and as per the same, there is credit balance of Rs. 2,25,98,006.42. Both are proprietary concern of the assessee and therefore, once consolidated balance sheet is drawn, there will be neither any debit nor credit because these credit / debit will be offset. Regarding the second amount of Rs. 1,24,30,787/-, it is submitted before us that on page no. 415 of the paper book, there is ledger account of M/s. Florance Flora, Bangalore in the books of Florance Flora, Guwahati and as per the same, there is credit balance of Rs.1,24,30,787/- and as per page no. 412 of the paper book, there is ledger account of M/s. Florance Flora Marketing, Guwahati in the books of M/s. Florance Flora, Bangalore in the Financial Year 2009-10 and as per the same, there is debit balance of Rs. 1,28,09,672.10. Hence it is seen that there is difference of Rs. 3,78,885.10. Regarding this difference also, it is noted on page no. 412 of the paper book i.e. the ledger account of M/s. Florance Flora, Guwahati in the books of M/s. Florance Flora, Bangalore that a debit of Rs. 3,76,827.10 is made on 01.01.2010 on account of capital-SKG. Under these facts, we are of the considered opinion that the addition made by the AO in this regard is also not justified and hence, we hold that no interference is called for in the order of ld. CIT(A) on this issue also. We also feel that in view of that these are accounts of one proprietary concern with other proprietary concern, there is no purpose of sending back the same to the AO for verification because the addition is made by the AO by saying on page no. 5 of the assessment order that M/s. Florance Flora, Bangalore and M/s. Florance Flora Marketing (Dimapur) are sundry creditors of Rs. 1.24 crore and Rs. 2.25 crores respectively without noticing this aspect that these are two proprietary concerns of assessee himself. This issue is decided in favour of the assessee and we confirm the order of ld. CIT(A).

ITA No. 2036/Bang/2017 Page 18 of 21 pages 8 and 9 of his order which are reproduced hereinbelow for ready reference. “ADDITION OF Rs.. 30,00,000/-: As have been explained in the business diagram provided above that the Appellant, apart from selling plants and flowers, also undertake construction of poly houses. During the year in question, the appellant has been constructing poi house projects 14,v PitfAioce, 90vey.- -for the Horticulture Department for Govt. of Tripura r During Me construction of such poly houses, the appellant had outsourced different kind of job work of fabricating. The total bills debited to the appellant amounts to Rs. 30,00,000/- during the year in this regard. While the receipt had duly been credited under the head sales, the charges for outsourced job work hove been debited to the trading account of the branch. The learned A.O. misread this item of expenditure. His comment that this expenditure was debited only to reduce the profit was 'absolutely uncalled for" and is without any objective basis. It is obvious that the learned A.0 assumed that such expenditure was incurred in appellant's agricultural farm and debited to the trading firm. This is not factually correct. The Ledger account of the Job work indicating the payment as also the TDS on the amount paid/credited is enclosed along with the copies of F-26 AS for your kind perusal. The addition emanated from misconception of the debit entry should be quashed. 7.1 Findings of C1T(A): I have perused the assessment order and the submission of the appellant. I have also seen the bills related to job work charges which was found to be in order. It is seen that the AO has not doubted nor has he seen the bills of this expenditure. In fact this expenditure has been incurred in Agartala where work of fabrication of poly house is being done for Horticulture Deptt., Govt. of Tripura. In fact from the account of Florance Flora, Agartala it is seen that they have done the work of Rs.3.51 crore during the year for Tripura Govt. and the expenditure of Rs.30 lakhs is towards during this work. Therefore, AO's observations are totally incorrect and the addition cannot be sustained.” 16. Before us, it has been submitted that paper book pages 348 to 360 are relevant in this regard. As per page no. 355 of the paper book is TDS certificate issued by the Directorate of Horticulture & Soil Conservation, Government of Tripura. As per this, TDS was deducted on total amount of Rs. 2,08,09,500/-. TDS amount with surcharge is Rs. 4,28,709/-. This is the claim of the assessee that this amount of Rs. 30 Lakhs was incurred being the amount of outsourcing job work on behalf of Horticulture Department, Govt. of Tripura. The AO’s objection is this much only that job chares is not allowable because it pertains to M/s. Florance Flora,

ITA No. 2036/Bang/2017 Page 19 of 21 Bangalore and the assessee’s income is exempt from tax. A categorical finding is given by ld. CIT(A) that M/s. Florance Agartala has done work of Rs. 3.51 Crores during the year for Tripura Govt. for which Rs. 30 Lakhs was incurred doing this work. This finding of ld. CIT(A) regarding work done of Rs. 3.51 crores was supported by TDS certificate available on page no. 355 of the paper book. Considering the facts in its entirety, we find no reason to interfere in the order of ld. CIT(A) on this aspect also. 17. The next issue in dispute is regarding ground no. 7 of the appeal of the revenue as per which this is the grievance of the revenue that ld. CIT(A) was not justified in reducing the addition made by the AO by adopting 38% G.P by directing the AO to adopt net profit at 8%. This issue is discussed and decided by ld. CIT(A) as per para nos. 8 to 8.2 of his order and for ready reference, these paras are reproduced hereinbelow. “8. Addition of Rs.37,49,973/- on account of rejection of books of accounts and addition of G.P – The AO has stated the following in support of the addition : It is also important to note here that the proprietary concern with the exempt income has a closing stock of Rs. 1,52,00,000/- against a turnover of Rs. 6,22,06,646/- which gives it a G.P. of 38% while concerns which are taxable like Florence flora have a poor closing stock of Rs. 54,22,537/- against a turnover of Rs.15,44,54,230/-. The assessee has shown a very poor income of Rs. 82,877/- from retail sales of flowers of Rs. 98,68,350/. The bouquets sold at the retail shop at Rowdon Street, Kolkata are presently priced at -Rs. 250/- to Rs.1,000/-. Keeping the inflation in mind the rates in A.Y. 2010-11 should have been Rs. 100/- to Rs.500/. When flowers are sold as Bouquets there is a very heavy value addition resulting from the design, the placement of flowers, the basket, the wire mesh which holds the design etc. of around 40% to 50%. The assessee has shown a G.P. of only 12% from such retail sales. The entire sales being in cash it is very easy for the ossessee to record the sales value as he pleases and suppress the actual profits. Accordingly, 38% of the sale value of Rs. 98,68,350/- i.e. Rs. 37,49,973/- is added to the income of the assessee as suppressed profits from plants and flowers boutique. 8.1 The A/R of the appellant has submitted the following in defence: (iii) GP ADDITION of Rs. 37,49,973/- The Appellant has been running a shop selling flowers and bouquets at Kolkata. During the year the total turnover from this business was

ITA No. 2036/Bang/2017 Page 20 of 21 at 98,68,350/- and Gross profit at Rs. 12,20.830/-. The rate of GP from this business works out at 12.4%. The appellant maintains proper books of accounts for this business. Separate financial statements were drawn up and the accounts have been duly audited by the chartered Accountant. The learned A.O. decline to accept the book results purely on surmises and conjectures. No defect in the books of accounts had been pointed out by him; nor had any comparative statement from the comparable business been cited by the learned A.O. The appellant on the other hand had been showing similar rate of GP from year to year as revealed in the Financial Reports enclosed and as would be evident from the following table. Fin. Year Total turnover Gross Profit % of GP 2008-09 89.75 Lacs 11.57 Lacs 12.9% 2009-10 98.68 Lacs 12.21 Lacs 12.4% 201Q-11 97.75 Lacs 13.23 Lacs 13.5% It is obvious from the aforesaid table that the turnover and the rates of GP are favourable for the year in question. The books results of the appellant had all along been accepted. The learned A.O's decision to make addition on account of GP from this business was baseless and without any objectivity. Moreover, the appellant for all practical purposes resides and functions from Bangalore while the shop is at Kolkata. Therefore, the business lacks personal supervision of the appellant. Under the circumstances the rate of profit- disclosed by the appellant is quite reasonable and as per book result which are duly been audited. The learned A.O. had not pointed out any specific defect in Accounts. On the other hand, the books were maintained as per accepted Accounting Standards. Hence the addition is uncalled for and needs to be quashed. The recent decision of the Honourable Allahabad High Court in the case of C.I.T vs Pasupathy NathAgro Food Products Private Limited is relied upon. The honourable apex court further upheld similar decision in the case of CIT vs Sriram Associated bearing (P) Ltd., (1984) 150 ITR (St) 77 SC. That apart, the honourable apex court in the case of Lalchand Bhagat Ambika Ram vs C.I.T (37 ITR 288(SC)) held inter alia that there is no presumption of bad faith against an assesse unless there is sufficient material on record and establish and sustain such bad faith We shall not increase the volume of our submission by stating a plethora of other case where the honourable judicial pronouncements had clearly held that rejection of book results without finding any specific defect is not tenable under the Law. Hence the addition on account of GP on the basis of mere conjectures is not sustainable.

ITA No. 2036/Bang/2017 Page 21 of 21 8.2 Findings of CIT(A): I have perused the assessment order and the submission of the A/R of the appellant. The appellant has shown very low profit margin on the Flora Boutique shop. However, the estimation of profit made by the A.0 seems to be quite excessive and without any basis. I found that in subsequent years profit of Boutique business has been estimated by the Department at NP of 8% and the appellant has not challenged the same and has accepted the assessment order. In view of the above the AO is directed to estimate the profit of the Flower Boutique shop at 8% of NP instead of less than 1% of NP shown by the appellant. Therefore, this ground is partly allowed.” 18. From the above paras reproduced from the order of ld. CIT(A), it is seen that this is the finding of ld. CIT(A) that estimation of income is ok but the estimation of income by the AO by adopting GP rate of 38% is excessive and unreasonable. This is also noted by ld. CIT(A) that in subsequent years, the AO himself has adopted NP rate at 8% and on this basis, it is held by ld. CIT(A) that in the present year also, the income should be estimated at 8% NP rate. In view of these facts that in subsequent years, the AO has himself has adopted 8% NP rate, we find no reason to interfere in the order of ld. CIT(A) in the present year. 19. In the result, the appeal filed by the revenue stands dismissed. Order pronounced in the open court on the date mentioned on the caption page.

Sd/- Sd/- (BEENA PILLAI) (ARUN KUMAR GARODIA) Judicial Member Accountant Member Bangalore, Dated, the 25th July, 2019. /MS/ Copy to: 1. Appellant 4. CIT (A) 2. Respondent 5. DR, ITAT, Bangalore 3. CIT 6. Guard file By order

Assistant Registrar, Income Tax Appellate Tribunal, Bangalore.