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Income Tax Appellate Tribunal, DELHI BENCH “G”: NEW DELHI
Before: SHRI KULDIP SINGH & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M.
These are the two appeals filed by the same assessee for two different Assessment Years where the similar issue is involved of addition on account of seized material. Both these appeals are heard together and disposed off by this common order.
First appeal in is for Assessment Year 2004-05 filed by the assessee against the order of the ld CIT(A), (Central), Phase- V, Gurgaon dated 14.03.2014 for the Assessment Year 2004-05 raising only issues with respect to validity of jurisdiction u/s 153A of the Act as well as addition of Rs. 75965/- confirmed by the ld CIT(A), with respect to certain trading activities.
Firstly, the assessee filed original grounds of appeal in Form No. 36 but found certain discrepancies in those grounds and revised the grounds of appeal. In the revised grounds the assessee challenged the ground u/s 153A of the Act.
Bodan Lal urf Rahul Kumar Vs DCIT & 3282/Del/2014 (Assessment Year: 2004-05 and 2005-06) 4. The ld DR vehemently objected to the fact that in original ground of appeal no such ground was mentioned, however, in the revised ground the assessee has raised specific grounds.
5. The ld CIT DR contested that if the assessee wants to raise the additional grounds of appeal then it has to come as per prescribed procedure. Under the guise of revised grounds the assessee is not allowed to raise additional grounds.
6. The ld AR stated that the assessee has challenged the additions stating that it is bad in law in the original grounds of appeal, therefore, it also covers whether such additions is validly made or not. Hence, it is not additional ground of appeal but the same ground of appeal worded differently. He further stated that ground Nos. 2, 3 and 4 raised in the original appeal memo are not at all contested by the assessee.
7. We are of the view that when the assessee has challenged the original ground of appeal stating that addition cannot be made validly also the assessee is rightfully entitled to challenge the validity of the same. Therefore, we do not find any infirmity in the revised ground raised by the assessee.
8. The solitary issue in this appeal is whether addition of Rs. 75965/- made by the ld AO and confirmed by the ld CIT(A) is valid or not.
9. The brief facts of the case is that the assessee is an individual and the premises of the assessee was subjected to search and seizure on 30.07.2009. Consequently, notice u/s 153A of the Act was issued to the assessee. The assessee did not file any return of income and did not produce any details. Therefore, the order passed u/s 144 of the Act on 07.12.2011 making the addition of Rs. 136489/- on account of business. An addition of Rs. 144000/- was also made on account of household expenses. Consequently, the total income was assessed at Rs. 280490/-. The assessee challenged the same before the ld CIT(A), who dealt with the above addition of Rs. 136489/- and consequently on the appraisal of annexure A-3 seized during the course of search held that addition of Rs.
Bodan Lal urf Rahul Kumar Vs DCIT & 3282/Del/2014 (Assessment Year: 2004-05 and 2005-06) 75965/- pm;u to be sustained for this year. The assessee aggrieved with this has come in appeal before us.
The ld AR submitted that addition is beyond the purview of section 153A of the Act and even otherwise in case of sale transaction found related to trading activities only profit embedded therein can be added.
The ld DR relied upon the orders of the lower authorities.
We have carefully considered the rival contention. During the course of search a diary was found which was marked as Annexure A-3 wherein, certain transactions were found. As the assessee did not explain anything the ld AO made the addition of Rs. 136489/-. The ld CIT(A) held that though entries appeared to be sale transactions but addition cannot be made on the basis of GP. He gave the reason that no trading account, quantitative details or ledger accounts were produced. He further held that entire business of the assessee is undoubtedly unaccounted and therefore, he held that the gross profit cannot be added but the entire sale transaction requires to be added. However, he reduced the addition from Rs. 136489/- to Rs. 75965/-. Undoubtedly, the addition has been made on account of seized material during the search pertaining to the order and therefore, the ld AO is correct in taking cognizance of those incriminating documents for making addition during the year. In view of this ground No. 1 of the appeal of the assessee deserves to be dismissed. Hence, it is dismissed.
Regarding ground No. 2 of the appeal is on account of gross profit. We are of the view that undoubtedly the entries appeared to be sale transaction is the finding of the lower authorities. Therefore, addition of the whole sum cannot be made in the hands of the assessee and the assessee must be granted the deduction of cost of purchase of such goods and related expenditure incurred thereof. In view of this, we are of the opinion that proper percentage of gross profit needs to be added in the hands of the assessee and not the whole turnover. Such is also emanated in the decision of the Hon'ble Supreme Court in case of Vijay Bodan Lal urf Rahul Kumar Vs DCIT & 3282/Del/2014 (Assessment Year: 2004-05 and 2005-06) Proteins Ltd. Now the issue arise is what could be the gross profit ratio which can be added in the hands of the assessee. The assessee has not given any basis of the GP ratio for this year as whole business of the assessee is unaccounted. The assessee has also not given any past history of the business of the assessee and resultant profit thereof. Therefore, in absence of any guidance available from the past history of the assessee or any comparable shown to us by any party, we are of the opinion that appropriate net profit is required to be added. The assessee is in the business of jewellery. It deals in gold ornaments. Gold is general trading at margin of 1% to 2%. Unless assessee designs its own jewellery the profit margin is very low in that business as gold prices are transparent and readily verifiable. In the assessment year 2005-06 the ld CIT(A) has taken the gross profit ratio of 10%. According to us such percentage is very high and is comparable with other trading commodities. Therefore, such a high gross profit margin cannot be upheld. Therefore, we direct the ld AO to tax the income of the assessee @2% of unaccounted sales determined by the ld CIT(A) of Rs. 75965/-. In the result ground No. 2 of the appeal of the assessee is partly allowed.
No argument are placed before us vide ground No. 3 and 4 of the appeal, as they are not pressed, hence, they are dismissed.
Now we come to the appeal of the assessee in Assessment Year 2005-06, where the addition of Rs. 46855/- with respect to sale transactions relating to trading activities was made. The ld CIT(A) has estimated the gross profit @10%. In the appeal of the assessee for AY 2004-05 we have held that in case of jeweler the gross profit margin is very low and directed the ld AO to make the addition of gross profit @2%. We accordingly, held so for this year too directing the ld AO to take the above gross profit ratio and worked out the addition accordingly. Therefore, ground No. 2, 3 and 4 of the appeal are partly allowed.