AMIT BHANDARI,JAIPUR vs. ITO, JAIPUR

+आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES (SMC), JAIPUR Jh Hkkxpan] ys[kk lnL;] ds le{k BEFORE: SHRI BHAGCHAND, ACCOUNTANT MEMBER vk;dj vihy la-@ITA Nos. 350 & 351/JP/2015 fu/kZkj.k o"kZ@Assessment Years : 2006-07 & 2008-09 cuke Amit Bhandari, Income Tax Officer, Vs. 80, Usha Colony, Malviya Ward-6(1), Nagar, Jaipur. Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ACGPB 3125 P vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri B.P. Moondra (CA) jktLo dh vksj ls@ Revenue by : Shri Raj Mehra (Addl.CIT) lquokbZ dh rkjh[k@ Date of Hearing : 05/04/2017 mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 06/04/2017 vkns'k@ ORDER

PER: BHAGCHAND, A.M. Both the appeals have been filed by the assessee emanates from the two separate orders of the Ld. CIT(A)-2, Jaipur dated 12/03/2015 pertaining to the A.Y. 2006-07 & 2008-09, wherein the assessee has taken following effective grounds of appeal in both the years: Grounds of ITA No. 350/JP/2015 “1. Initiations of reassessment proceedings U/s 148 is bad in law and facts as the assessee never received notice U/s 148 of Income Tax Act, 1961.

ITA 350 & 351/JP/2015_ 2 Amit Bhandari Vs ITO

Grounds of ITA No. 351/JP/2015

“1. Initiations of reassessment proceedings U/s 148 is bad in law and facts as the assessee never received notice U/s 148 of Income Tax Act, 1961.

convenience and brevity, a common order is being passed.

reassessment proceedings U/s 148 of the Income Tax Act, 1961

(hereinafter referred as the Act). The brief facts of the case are that the

assessee is engaged in the business of manufacturing and trading of

export of all types of readymade garments and made ups. The assessee

is proprietor of M/s PAS International. In the assessment proceedings for

the assessment year 2007-08, the Assessing Officer collected the details

that the assessee has made payment against the purchases and other

expenses through cheques but the cash had been withdrawn from the

ITA 350 & 351/JP/2015_ 3 Amit Bhandari Vs ITO

bank as these were not account payee cheques. The Assessing Officer

held that the payments were not paid to the parties in whose names the

cheques were issued and on that basis notice U/s 148 of the Act was

issued, therefore, the Assessing Officer made addition. The assessee has

challenged that the notice was never received by the assessee, however,

the record shows that the notice was served to Ms. Aashna, who is

daughter of the assessee.

proceedings for the assessment year 2007-08, the information was

gathered that assessee had made payment by issuing cheques but cash

has been withdrawn from the account. The cash payments were more

than permissible limit. Thereafter the Assessing Officer was having

sufficient information to record reasons for issuance of notice U/s 148 of

the Act. The notice was served on the daughter of the assessee,

therefore, I find no merit in the ground of the assessee’s appeals.

Accordingly, ground No. 1 of both the appeals of the assessee is

dismissed.

rejection of books of account U/s 145(3) of the Act and in ground No. 3

of both the appeals, the issue involved is against making the additions by

ITA 350 & 351/JP/2015_ 4 Amit Bhandari Vs ITO

invoking the provisions of Section 40A(3) of the Act by the CIT(A). The

Assessing Officer noted the following defects in the books of account of

the assessee, which is as under:-

(i) The assessee has not produced quantitative details so as to verify the correctness of the trading results declared. (ii) Merely furnishing purchase and sale bills do not prove the assessee's contention of maintaining proper books of accounts. (iii) In the audit report it is mentioned that the quantitative details have been maintained for opening and closing stock but in the absence of day-to-day stock register it is not verifiable as such the quantitative details of the stock as reported in the audit report are not verifiable. (iv) The assessee has not furnished any details as to how the verification of the closing stock has been made and the basis for the cost assigned is also not furnished. (v) In the absence of stock records it is not verifiable whether the purchase bills introduced are in respect of the actual goods purchased or just to inflate the expenses claimed. (vi) From the past history of the assessee's case it is very much clear that the assessee is in the habit of introducing purchases without actual purchase of goods and the bearer cheques are issued for which payment drawn by the assessee or his close person from bank and in the books of accounts the payments are shown in the name of the parties from whom so called purchase bill have been obtained.

Therefore, the Assessing Officer had rejected the books of account.

5.1 The ld. CIT(A) has upheld the rejection of books of account by

holding as under:-

(a) The assessee had not maintained quantitative details or a day to day stock register.

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(b) The computation of closing stock given by the assessee is not verifiable. (c) The assessee has made payment by bearer cheques for purchases and expenses to seven concerns of amounts, ranging from Rs. 1,00,000/- to Rs. 3,00,000/- totaling Rs. 20,00,000/-. The bank statements clearly indicate that bearer cheques had been issued against which cash has been withdrawn.”

5.2 The ld AR further submitted that the Assessing Officer’s

observation that the assessee is not maintaining quantitative details on

day to day basis is a general observation. The Assessing Officer took the

photocopies of more than thousand bills and vouchers and for more than

five days, the Inspector was deputed to verify the purchase and other

expenses and he could not find even a single mistake in the books of

account produced. The original books of account were produced. The

Assessing Officer observed that the assessee is in habit of introducing

purchases without actual purchase of goods and the bearer cheques are

issued for which payment drawn by the assessee or his close person

from bank and in the books of account the payments are shown in the

name of the parties from whom so called purchase bill have been

obtained. But no addition was made in the past on the basis of bogus

purchases in assessee’s case. Ld. AR relied on the following case laws:-

Your honor kind attention is invited in Haridas Parikh V ITO (i) [2009] 29 SOT 13 (JODH.)(URO) case in which your honor it was held that unless the Assessing Officer is able to point out certain

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transactions which have been left to be entered in the books of account or that the assessee has sold some of the items at a price higher than what is disclosed in the books of account or if proper particulars, bills, vouchers, are not forthcoming etc., the books of account cannot be rejected without assigning specific reasons. In the instant case merely because different range and nature of items are being dealt with by the assessee and the maintenance of quantitative stock of each and every item is not practically possible, the books of account maintained by the assessee which are free from any defect cannot be rejected merely because the average GP rate was slightly lower than the average GP rate of the earlier year.

Further, it was held that Absence of vouchers or the supporting (ii) evidence in respect of a particular item of expenditure cannot by itself empower an Assessing Officer to invoke provision of Section 145(3) in rejecting the books of account. Amritsar Bench of the Hon’ble Tribunal in Ashok Kumar & Co. v. ITO [2004] 2 SOT 518 (Asr.) (SMC) held that rejection of books cannot be restored to simply on the basis of absence of some vouchers and failure to produce the same by the assessee.

(iii) Further, the Kerala High Court in the case of CM. Francis & Co. (P.) Ltd. v. CIT held that where purchase vouchers for agricultural produce purchased from agriculturists could not be produced, books of account cannot be rejected in total on the basis of such finding.

(iv) Further, It was held by the Madhya Pradesh High Court in the case of Hemraj Nebhomal & Sons v. CIT [2005] 146 Taxman 345 (M.P.) that the assessee is not under obligation to satisfy the

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Assessing Officer as to the legitimacy and necessity of expenditure.

(v) Further, Asstt. CIT v. L.M.P. Tractors (P.) Ltd. [2005] 148 Taxman 52 (Mag.) the Ahmadabad Bench of the ITAT held that non maintenance of quantitative details of spare parts could not be a ground for rejection of books of account and the Assessing Officer is not justified in rejecting the books of account without pinpointing specific defects and thereby making an ad hoc addition when discrepancies were duly reconciled before lower authorities.

(vi) The assessee request that only one irregularity of not keeping stock register cannot justify the rejection of entire books of accounts in view of ACIT v/s Mewar Polytee (P) Ltd. 51 TTJ 698 (JP) XIII Tax world 64 and (2) CIT V/s Geo Tech Construction Corporation (1996) 221 ITR (Ker.). [Pandit Bros. v. CIT, (1954) 26 ITR 159, 166-7 (Punj). Also, CST v. Khera Shoe Co., (1975) 36 STC 220 (All); Lallooram Ram Swarup v. CST, (1978) Tax LR (NOC) 152 (All); Asst. CTO v. Kapur Trunk Factory, (1990) 79 STC, 334 (Raj); State of Orissa v. Gaurav Enterprises, (1992) 106 Taxation 428, 432 (Ori); K. Ramalinga Muddaliar & Co. v. State, (1992) 86 STC 475, 479 (Mad)].

On the issue of sustaining the addition U/s 40A(3) of the Act, the ld AR

of the assessee has submitted as under:-

(a) The Ld.CIT appeal confirmed that there are no facts on record which would show that these purchases are unverifiable.

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(b) The Ld.CIT appeal further confirmed that the contention of the appellant that the Assessing Officer has not doubted the genuineness of the sale and export is correct.

(c) The Ld.CIT appeal also confirmed that there is no material on record to show that cash against bearer cheques has been withdrawn by the assessee, himself but it is undisputed that bearer cheques were issued against which cash has been withdrawn All these bearer cheques are of an amount of Rs. 1,00,000/- and above.

(d) The Ld.CIT appeal therefore held that there is no material on record to dispute the genuineness of these purchases and expenses, debited in the books of account. It is also not disputed that the appellant has incurred expenditure in excess of Rs. 20,000/-, by bearer cheques i.e. otherwise than by an account payee cheque drawn on bank or an account payee draft. Therefore, the appellant has violated the provisions of Section 40A (3) of the IT. Act. and no deduction can be allowed on the above expenditure of Rs. 20,00,000/-. Therefore, expenditure of Rs. 20,00,000/- is disallowed u/s. 4oA(3) of the IT. Act....

(e) It is admitted fact that all sundry creditors were on account of goods supplied and services rendered by them in the bona fide manner for the goods exported by the appellant and the AO in the assessment order hits not recorded any findings that these purchases were bogus.

(f) There is no evidence to show that amount given by assessee in favour of the supplier by cheques has come back to the assessee in any form.

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(g) Your honour in the case of the assessee for the AY 2007-08 vide appeal no. ITA No. 869/JP/2010 AY 2007-08 and CO No. 88/JP/2010 (Arising out of ITA No. 869/JP/2010 AY 2007-08), the honourable ITAT allowed the appeal by Relying upon Rajasthan High Court judgments in The case of Smt. Harshil Choradia v/s ITO 298 ITR 349 where in it was held that rule 6DD(j) has to be liberally construed and ordinarily where the genuineness of the transactions and the payment and identity of the receiver is established the requirement of Rule 6DD (j) should be deemed to have been satisfied. The AR in this respect considering the satisfaction of aforesaid conditions requested to delete the entire addition of Rs. 20,00,000/-.

(h) The appellant has shown better GP rate of 8.93% as compared to last year's GP rate of 8.85% even though there was increase in the turnover. S. No. Assessment Year Turnover Gross Profit G.P. Rate 1 2006-07 47122121 4209689 8.93% 2 2005-06 40247710 3563541 8.85% 3 2004-05 17796721 1051392 5.91% (i) Your honour, at the most this is the case that certain parties from whom purchases were shown to have been made were remained unverifiable and looking to the quantum of purchases, the trading addition of Rs. 50,000/- may be made by rejecting the books of account. For your kind attention this is a case of garment manufacturer who was engaged in export activity of the garments manufactured. It can be verified through the assessment order that the export shown by the appellant and genuineness of the same is not questioned doubted by the Ld. AO. The assessee had a turnover of Rs, 4,71,22,121/- the appellant has shown GP rate

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of 8.93% in A. Y.2006- 07 on increased turnover of Rs. 4,02,47,710/- the appellant has shown better GP 8.83%.

j) The AR request that once income is estimated, provisions of section 40A (3) cannot be invoked. Your honour, there is justification in assessee's claim. The Hon'ble Madhya Pradesh High Court in the case of CIT-II vs. Hindustan Equipment P. Ltd., 30 taxmann.com 295 (MP.) considered the provisions of section 4oA(3) and held that where profit was estimated by applying net profit rate, there was no scope of further disallowance under section 4oA(3) in respect of such projects. Since books of accounts are rejected and turnover itself is estimated and net profit was determined ITA.N0.1125/Hyd/2014 Mr. P. Ramaswamy & Sons, R.R. District at 5%, provisions of section 4OA(3) cannot be invoked in this case. The argument is supported by the following judgments/decisions:- (i) Armour Chemicals Ltd. vs. JCIT17 SOT 467 (Mum) (ITAT). (ii) CIT vs. Agarwal Eng. Co. 156 Taxman 40 (P & H) (HC) (iii) CIT vs. Smt. Santosh Jain 159 Taxman 392 (P & H) (HC) (iv) CIT vs. Purusahothamlal Tamarkar 270 ITR 314 (MP). (v) Indwell Constructions vs. CIT 232 ITR 776 (AP) (vi) Singhal Builders Contractors vs. Addl. CIT 46 SOT 5.1.

authorities below.

rejected the books of account and made the addition by estimating the

gross profit and also by invoking the provisions of Section 40A(3) of the

Act. It has been held in various cases that no disallowance U/s 40A(3) of

ITA 350 & 351/JP/2015_ 11 Amit Bhandari Vs ITO

the Act can be made where profit has been estimated by applying NP

rate. In this regard, reliance is placed on the decision of the Hon’ble M.P.

High Court in the case of CIT-II Vs. Hindustan Equipment P. Ltd. 30

taxmann.com 295 (M.P.) wherein the Hon'ble High Court has clearly held

that where profit was estimated by applying net profit rate, there was no

scope of further disallowance U/s 40A(3) of the Act. In the assessee’s

cases, books of account were rejected and income was estimated and

the additions were made. The Assessing Officer doubted the genuineness

of the purchases and expenses debited in the books of account.

However, the ld. CIT(A) has held that there is no material on the record

to dispute the genuineness of these purchases and expenses. He invoked

the provisions of Section 40A(3) of the Act. In view of the decision of the

Hon’ble M.P. High Court in the case of CIT-II Vs. Hindustan Equipment P.

Ltd. (supra) and for the fact that the initial addition of Assessing Officer

holding bogus purchases and subsequently sustaining the addition by the

ld. CIT(A) by invoking the provisions of Section 40A(3) of the Act were

completely unjustified. Moreover, the ld. CIT(A) has not issued any show

cause notice in view of the provisions of Section 251(2) of the Act for

invoking Section 40A(3) of the Act. Further there is nothing on the record

against the assessee, which can doubt the genuineness of the export

made by the assessee or any inflation of export turnover. In the various

ITA 350 & 351/JP/2015_ 12 Amit Bhandari Vs ITO

case laws, as consistently held that whenever income has estimated by

invoking the provisions of Section 145(3) of the Act then there is not

further scope to disallow U/s 40A(3) of the Act. By relying on the various

case laws i.e.:

(i) Armour Chemicals Ltd. vs. JCIT17 SOT 467 (Mum) (ITAT). (ii) CIT vs. Agarwal Eng. Co. 156 Taxman 40 (P & H) (HC) (iii) CIT vs. Smt. Santosh Jain 159 Taxman 392 (P & H) (HC) (iv) CIT vs. Purusahothamlal Tamarkar 270 ITR 314 (MP). (v) Indwell Constructions vs. CIT 232 ITR 776 (AP) (vi) Singhal Builders Contractors vs. Addl. CIT 46 SOT 5.1. and considering all these facts and circumstances of the case, I partly

allow the appeals of the assessee in both the years and sustain the

addition of Rs. 50,000/- for want of verification of certain purchases.

Order pronounced in the open court on 06/04/2017.

Sd/- ¼Hkkxpan½ (BHAGCHAND) ys[kk lnL;@Accountant Member

Tk;iqj@Jaipur fnukad@Dated:- 06th April, 2017

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