SURAJIT DEY ,KOLKATA vs. ITO, WARD - 45(3), KOLKATA , KOLKATA

ORDER Per Shri A.T.Varkey, JM

This is an appeal filed by the assessee against the order of Ld. CIT(A)-13, Kolkata dated 16.07.2018 for A Y 2015-16. The effective grounds of appeal raised by the assessee are as under:

"1. For that the Ld. CIT(A) in the facts and circumstances of the case was not justified in modifying and enhancing the returned income and thereby sustaining addition to the tune of Rs.14,40,340/- against export sales of Rs. 31,21, 380/- to Bangladesah.

2. The facts pertaining to the aforesaid grounds are that the AO noted that the assessee has filed his return of income declaring total income of Rs.7,28,370/-. Thereafter, the case was selected for scrutiny. The AO notes that assessee was the proprietor of two concerns viz. M/s. Crystal Express and M/s. Crystal Enterprises. The concern M/s. Crystal Enterprises was engaged in importing of fruit juices and biscuits from Bangladesh which was later sold in the local markets. The AO also notes that with the sale proceeds which the assessee gets from the sale of imported fruit juice and biscuits, the assessee purchased fish dust and exported it to Bangladesh. The AO also noted that the assessee was the proprietor of another concern M/s. Crystal Express which was involved in supply of vehicles to customers for transportation. Thereafter, the AO notes that there was mismatch in sales turnover as reported in the audit report and income tax return. According to him, the assessee's sales turnover as reported in the audit report was to the tune of Rs.1,20,47,415/- whereas the gross turnover as per the income tax return was only Rs.36,29,793/-; And since the assessee could not produce any documentary evidence to substantiate/reconcile the mismatch between the sales turnover and purchases, the AO computed the difference of Rs.84,17,622/- i.e. (Rs.1,20,47,415/- - Rs.36,29,793/-) as undisclosed turnover which was added as the undisclosed income of the assessee. Further, the AO noted that assessee has shown in the income tax return (ITR) purchases less than the invoice value of imports. According to the AO, purchases shown in the ITR is to the tune of Rs.40,69,189/- and purchases as per export import data was to the tune of Rs.56,89,985/- and since the assessee failed to file any document to substantiate/reconcile this mismatch in respect of the purchases, the difference i.e. Rs.56,89,985 - Rs.14,69,189/- which comes to Rs.16,20,796/- was treated as purchase from undisclosed source of fund. Thereafter, the AO notes from a perusal of the records that as per the export import data, the assessee has paid custom duty of Rs.2,97,095/- whereas custom duty paid in the income tax return is shown as ‘Nil’. Hence, the omission to show Rs.2,97,095/- was treated as undisclosed investment and added to the total income of the assessee. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who allowed the first claim of the assessee in respect of addition of Rs.84, 17,622/-. The Ld. CIT(A) noted that the assessee inadvertently wrote the receipt from transportation activity under the head "any other income" and since the assessee had shown the receipt from the transportation business as Rs.84,17,622/- the AO erred in making the addition and he directed the AO to delete the addition of Rs.84,17,622/-.

3. Coming to the addition of Rs.16,20,796/- the Ld. CIT(A) noted that the assessee himself has accepted the mistake which was on the part of his Accountant who have overlooked the transaction of purchase of Rs.16,20,796/- and moreover, the Ld. CIT(A) noted that the entire import purchase has been made against the Letter of Credit (LC) wherein the payments have been made through proper banking channel which was duly reflected in his bank statement and taking into consideration the bill of entry and invoice, the Ld. CIT(A) accepted the claim of assessee in respect of import purchase price to the extent of Rs.16,20,796/-. However, the Ld. CIT(A) asked for the source of these purchases of Rs.16,20,796/-. The assessee filed the total fund flow in his bank account which has been reproduced by the Ld. CIT(A) at page 5 of the impugned order. Thereafter, the Ld. CIT(A) notes that in order to show the source of payment of purchases of Rs.16,20,796/- the assessee has claimed to have made export sale of Rs.31,21,380/- which was also according to Ld. CIT(A) neither disclosed in the account nor in the return. Taking note of this fact the Ld. CIT(A) asked the assessee to recast his export sale account which was submitted by the assessee as under:

Receipt Amount in Rs. Payments Amount in Rs. To Import purchase 16,20,796 By export sales 31,21,380 To damage claim paid 1,45,000 To godown rent 1,56,021 To import duty 2,97,095 To transportation charges 2,31,500 To net profit 6,70,968 31,21,380 31,21,380

6. Having heard both the parties and after perusal of the records, we are not repeating the facts narrated above for the sake of brevity. According to Ld. AR, in respect of the income from export is concerned, the assessee had shown the net profit of Rs.6,70,978/- which comes to 21.5% Net Profit (NP). However, the Ld. CIT(A) by disallowing the claim of the assessee in respect of the damages paid of Rs.l,45,000/- and the transportation charges of Rs.2,31,500/- has computed the income from export to the tune of Rs.l4,44,340/- which comes to 46% of the NP which is un-realistic and unreasonable. And according to him it is common knowledge that export of fish dust cannot command that much of NP. The Ld. AR drew our attention to the chart re-casted by the Ld. CIT(A) at page 7 to show that in place of import purchase the figure of Rs.l4,60,834/- has been taken by the Ld. CIT(A) whereas the amount of purchase offered and duly substantiated by the assessee was to the tune of Rs.l6,20,796/-. So, the difference/mistake per se is (Rs.16,20,796/- - Rs.14,60,834/-) i.e. = Rs.l,69,962/-. The Ld. AR contended that, if the damages claimed of Rs.l,45,000/- and the transportation charges for the export business claimed of Rs.2,31,500/- is allowed then it comes to Rs.3,76,500/- then the net profit would come to Rs.5,46,462/- (Rs.l,69,962 + Rs.l,45,000 + Rs.2,31,5001-) whereas the assessee has shown net profit of Rs.6,70,968/- which is reasonable and, therefore, ought to have been accepted. We note that the assessee has imported fruit juice and biscuits from Bangladesh. The assessee has imported the purchases against LC and payments were made through banking channel which has been verified by the Ld. CIT(A). The assessee also produced the copy of entire import purchase documents along with the bills of entry and invoice to show that assessee has imported this goods for Rs.16,20,796/-, therefore, based on these materials the Ld. CIT(A) has accepted the claim of the assessee. The AO has made the addition for mismatch in purchase to the tune of Rs.16,20,796/-. The Ld. CIT(A) after verifying the aforesaid facts and taking note that the assessee had made a mistake because of the fault of the accountant who overlooked the purchase entry has accepted the veracity of the import purchase of Rs.16,20,796/-.

However, the Ld. CIT(A) asked for the source of Rs.16,20,796/- which was shown by the assessee by filing the total fund flow in his account. From a perusal of the same, the Ld. CIT(A) noted that assessee had shown that out of the total credit of Rs.1,10,54,566/- the assessee had adjusted export sales of Rs.31,21,380/- which the assessee received from export of fish dust to Bangladesh. Therefore, the Ld. CIT(A) asked the assessee to recast its export sale account for which the assessee submitted the same, showing net profit of Rs.6,70,968/-. From the re-casted export sales, it is evident that the assessee has claimed the expenses for earning the export sales of Rs.31,21,380/- which were (1) expenditure incurred on account of damages claimed to the tune of Rs.1,45,000/- (2) expenditure incurred for godown rent Rs.1,56,021/-, (3) expenditure incurred for levy of import duty Rs.2,97,095/- and (4) expenditure incurred for transportation of goods to the tune of Rs.2,31,500/- and thus, has shown a net profit of Rs.6,70,168/-. However, the Ld. CIT(A) has allowed the expenses claimed for (i) godown rent and (2) import duty Rs.1,56,021/- and Rs.2,97,095/-, however, disallowed expenses claimed on account of (1) damages paid and (2) transport charges to the tune of Rs.2,31,500/- and thereafter re-casted the income of the assessee in respect of the export and concluded that assessee’s net profit from undisclosed income is Rs.14,44,340/-. Against the action of Ld. CIT(A), the Ld. AR contended that the Ld. CIT(A) erred in recasting the income of the assessee. For that the Ld. AR pointed out that the import purchase amount shown by the Ld. CIT(A) in the recast is erroneous, since the ld. CIT(A) has taken wrongly the figure of Rs.14,60,834/- when it is clear that the purchase amount as evident from books and other records is Rs.16,20,796/-. We note that the Ld. CIT(A) has accepted this figure of import-purchase after taking note that assessee imported the goods against LC and the entire transaction took place through banking channel as well as there were bills of entry and invoices, so when the Ld. CIT(A) has accepted the purchase of goods on import as Rs.16,20,796/-, the Ld. CIT(A) erred while recasting to adopt the figure of Rs.14,60,834/- when the actual purchase price of goods on import was Rs.16,20,796/-, so there is a difference of Rs.1,69,962/-[Rs.16,20,796/- - Rs.14,60,834]. We note that the N.P % shown by the assessee for export of fish dust after recast of export sale account is 21.5% which is reasonable and moreover considering the fact that the action of Ld. CIT(A) will result in N.P of 46%, which will be high and unreasonable.

Therefore, we direct the AO to accept the re-casted export sale account of assessee, wherein the assessee has shown N.P of 21.5% i.e. Rs. 6,70,968/- and accordingly compute the tax.