ITO, JAIPUR vs. DEVENDRA KUMAR MALOO, JAIPUR

PER SHRI KUL BHARAT, JM.

This Appeal by the Revenue is directed against the order of Ld. Commissioner of

Income Tax (A)-1 dated 23/12/2015, pertaining to the assessment year 2012-13.

The Revenue has raised following grounds of appeal:-

(i) “Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) has erred in reducing the trading addition to Rs. 2,89,486/- as against addition of Rs. 4,30,48/- despite upholding rejection of book of accounts u/s 145(3) of IT Act, 1961. (ii) Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) has erred in deleting addition of Rs. 49,96,315/- being made on account of ceased liability u/s 41(1) without any substantial evidence and basis. The appellant craves the indulgence to modify, alter, add any other ground of appeal”

2 ITA No. 192/JP/2016 Shri Devendra Kumar Maloo, Jaipur.

was filed on 25/6/2012. Subsequently, the case was picked up for scrutiny

assessment and the assessment under section 143(3) of the Income-tax Act

(hereinafter referred to as the Act) 1961, was framed vide order dated 18 February,

2015. While framing the assessment, the Assessing Officer made trading addition of

Rs. 4,30,448/- and treating the outstanding import bill of Rs. 49,96,351 as liabilities

ceased. Against this the assessee preferred an appeal before Ld. CIT(A), who after

considering the submissions partly allowed the appeal. Thereby, the Ld. CIT(A),

deleted the additions.

reduced the trading addition from Rs. 4,30,448/- to Rs. 49,96,351/- and the first

ground is against reducing of trading addition.

5.1 The Ld. Departmental Representative supported the order of the Assessing

officer and submitted that Ld. CIT(A) was not a justified in deleting the addition.

5.2 On the contrary, Ld. Counsel for the assessee supported the order of the Ld.

CIT(A) and submitted that there is no illegality into the order of the Ld. CIT(A). He

submitted that the Ld. CIT(A) has rightly deleted the addition. He reiterated the

submissions as made in the written brief.

3 ITA No. 192/JP/2016 Shri Devendra Kumar Maloo, Jaipur.

5.3 We have heard the rival contentions, perused the material available on record

and gone through the order of the authorities below. The Ld. CIT(A) decided the

issue by observing as under:-

“3.1.2. Determination:

(i) I have carefully perused the submissions of the appellant, assessment order and the material placed on record. During the course of assessment proceedings, the AO observed following defects into the books of accounts of the appellant:

• The appellant does not maintain any stock register. • Purchase rate of any item sold can’t be ascertained on the basis of record produced. • Valuation of opening and closing stock is not subject to the verification. • The appellant has made cash sales of Rs. 39,30,361/- without any addresses on sale bills. • The appellant has made URD purchases of Rs. 8,90,590/- and made payment of all these purchases in cash.

After issuing a show cause notice, the AO invoked the provision of section 145(3) of the Act and rejected books of accounts of the appellant and applied GP rate of 27% against declared rate of 23.95% by the appellant on turnover of Rs. 1,41,21, 268/- thereby making trading addition of Rs. 4,30,448/-.

(ii) During the appellant proceedings, it was submitted by the appellant that it was dealing in large number of gemstones on various qualities and sizes. Therefore it was impossible to maintain quality wise details of quantity of goods. All the purchases and sales were completely vouched and no defect was pointed out by the AO. Except some purchases from URD and cash sales. The sources of gem stones is petty karigars who manufactures them and as they have little turnover

4 ITA No. 192/JP/2016 Shri Devendra Kumar Maloo, Jaipur.

and profit and so are not registered under any law but this does not make that purchases are not verifiable. The cash sales are required to be made to consumers which a regular feature of jewellery trade. It was not the case of AO that sales were understated or purchases/ expenses were inflated. The appellant relied upon a number of judicial pronouncements. (iii) I have duly considered the contentions of the appellant and noted that the appellant do not maintain day to day stock register the qualitative and quantitative details of its purchase and sales and a part of its purchases are made in cash and thus the trading results were not open to verification. In view of the above and considering the totality of the facts and circumstances of the case, it is held that the AO was justified in rejecting the books of accounts of the appellant u/s 145(3) of the Act. (iv) Now, the moot question is what should be the appropriate GP rate in the instant case under consideration. It is to be noted that in the year under consideration, the turnover of the appellant increased by over 50% from A.Y. 2011-12 and increase of 100% from A.Y. 2010-11. The GP rate declared in AY 2010-11 was 23.06% and this year the declared G.P. rate I more even when sales are doubled. It was the contention of the appellant that in AY 2011-12, the declared G.P. rate was 26.93% which was due to some exceptional profit earned in a few goods and exchange difference. However, the appellant did not elaborate the same. Considering all the facts and circumstances of the case and also looking to the past history of the case, it would be appropriate to apply GP rate of 26% to the turnover of the appellant as it is observed that with increase in turnover, there is generally fall in GP rate. Therefore, the appellant out of trading addition of Rs. 4,30,448/- a sum of Rs. 2,89,486/- is sustained and the appellant would get a relief of Rs. 1,40,962/-.”

5 ITA No. 192/JP/2016 Shri Devendra Kumar Maloo, Jaipur.

5.4 From the above, it is evident that Ld. CIT(A) has taken into account the

increase in the turn over which is not controverted by the Revenue. Therefore,

there is no infirmity into the order of Ld. CIT(A), same is hereby affirmed. Thus, this

ground of the Revenue’s appeal is dismissed.

6.1 The Ld. Departmental Representatives supported the order of the Assessing

Officer and submitted that Ld. CIT(A) was not justified deleting the addition. He

submitted that, Assessing Officer has given a finding that assessee has not filed any

documentary proof, that the liability is still existing.

6.2 On the contrary, Ld. Counsel for the assessee reiterated the submissions as

made in the written brief and submitted that the action of the Assessing Officer is

patently wrong in law. The creditors are foreign parties from whom imports were

made in the year and past as well. The liability has not been ceased and he

subsidizing and is still existing. It had not written off from books of accounts. He

submitted that the assessee has been admitting the liability and has now instructed

the bank to make payment of the same in support of this. The Ld. Counsel has

drawn our attention to the letter addressed to the banker and same is acknowledged

by the creditor.

6.3 We have heard the rival contentions, that the Ld. CIT(A) has decided the

issue as under:-

“3.2.2 Determination:

6 ITA No. 192/JP/2016 Shri Devendra Kumar Maloo, Jaipur.

(i) I have carefully perused the submissions of the appellant and the material placed on record. The AO made the addition of Rs. 49,96,315/- u/s 41(1) of the Act as they were outstanding in the books of accounts of the appellant. During appellant proceedings, it was the contention of the appellant that it is settled law that unpaid liabilities cannot be added to appellant’s income by the assessing authorities. Under section 41(1) merely because they remained unpaid for a sufficiently long time. The legal position is that unless here is evidence to show that the creditor ha remitted the debt or otherwise by operation of law the liability to pay him has ceased, there can be no benefit arising to the appellant within the meaning of clause (a) of section 41 (1). Unless notices were issued to the creditors and they had stated that they had given up the claims against the appellant, no decision could be taken by the income-tax authorities, merely on the ground that the debts remained unpaid in the appellant’s books for a number of years that the liability had ceased or had been remitted. (ii) I find merit in the contention of the appellant as the AO neither had made any inquiries nor brought any material on record that the creditors either had written off the said liabilities in their book of accounts or denied to own these amounts. In my considered o0pinion, no addition u/s 41(1) can be made merely on the ground that the debts remained unpaid in the appellants’ books for a number of years and no presumption can be made that the said liability had ceased or had been remitted. It is noted from the assessment order that out of the 4 invoiced, the payments for which outstanding as on 31.03.2012, the 2 were pertaining to the AY 2012-13 i.e. the year under consideration and 1 each was pertaining to AY 2010-11 and 2011-12, and thus as on 31.03.2012, these debts were not even barred by limitation. In view of the above discussion and the judicial pronouncements relied upon by the appellant, it is held tha the AO was not justified in making

7 ITA No. 192/JP/2016 Shri Devendra Kumar Maloo, Jaipur.

addition of Rs. 49,96,315/- u/s 41(1) of the Act and hence the same is deleted.

6.4 Since the assessee has demonstrated that liability has not ceased. Under

these facts we do not see any infirmity into the order of the Ld. CIT(A), same is

herby affirmed. This ground of the Revenue’s appeal is dismissed.

Order pronounced in the open court on 25 /04/2017.

Sd/- Sd/- ( dqy Hkkjr) ¼foØe flag ;kno½ (VIKRAM SINGH YADAV) ( KUL BHARAT ) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Jaipur Dated:- 25/04/2017. Pooja/ आदेश की प्रतिलिपि अग्रेषित@ब्वचल वf जीम वतकमत वितूंतकमक जवरू

vkns'kkuqlkj@ By order,

सहायक पंजीकार@ Aेेपेजंदज. त्महपेजतंत

8 ITA No. 192/JP/2016 Shri Devendra Kumar Maloo, Jaipur.