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Income Tax Appellate Tribunal, JAIPUR BENCHES, JAIPUR
Before: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 925/JP/2013
आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR Jh dqy Hkkjr] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 925/JP/2013 fu/kZkj.k o"kZ@Assessment Year : 2008-09 cuke Shri Harish Chand, The A.C.I.T., Vs. Prop. M/s Gaurav Stones, Circle, Bharatpur. Murrki, Bayana, Bharatpur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ACSPN 1776 E vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj ls@ Assessee by : Shri Manish Agarwal (CA) jktLo dh vksj ls@ Revenue by : Shri Rajendra Singh (ACIT)
lquokbZ dh rkjh[k@ Date of Hearing : 09/01/2017 mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 08/02/2017 vkns'k@ ORDER
PER: VIKRAM SINGH YADAV, A.M. This is an appeal filed by the assessee against the order of Ld. CIT(A) dated 02.09.2013 for A.Y. 2008-09. The sole grounds of appeal taken by the assessee are as under:- 1. On the facts and in the circumstances of the case the Ld. CIT(A) has grossly erred in sustaining an addition of Rs.78,005/- by applying G.P. rate of 33.71% being the gross profit on alleged unaccounted sale of Rs.2,31,400/- arbitrarily.
2 ITA No.925/JP/2013 Sh. Harish Chand Prop. Vs. A.C.I.T., Bharatpur
1.1 That the Ld. CIT(A) has further erred in ignoring the fact that entries noted in loose papers and slips impounded during the course of survey were only the rough working and measurements not related to the actual sale made by the assessee and all the sale related to loose papers were duly recorded by the assessee in the books of accounts, thus addition of Rs.78,005/- sustained by the CIT(A) deserves to be deleted.
On the facts and in the circumstances of the case the Ld. CIT(A) has grossly erred in sustaining the addition of Rs.33,908/- on account of unexplained investment in unaccounted purchases, arbitrarily.
2.1 That the Ld. CIT(A) has further erred in ignoring the fact that entries noted in loose papers, slips impounded during the course of survey was only rough estimate and measurements and actual purchases noted on loose papers were duly recorded in the books of accounts, and further, ignored the fact that difference between valuation of purchases by the Ld. AO and purchases declared by the assessee was due to the estimated rate adopted by the Ld. AO therefore, addition of Rs.33,908/- as sustained by the Ld. CIT(A) deserves to be deleted.
On the facts and in the circumstances of the case the Ld. CIT(A) has grossly erred in making the addition of Rs.2,61,930/- on account of Gross Profit in stock alleged as found short of Rs.7,77,010/- arbitrarily, thus the resultant addition deserves to be deleted.
3 ITA No.925/JP/2013 Sh. Harish Chand Prop. Vs. A.C.I.T., Bharatpur
3.1 That the Ld. CIT(A) has further erred in ignoring the fact that valuation of stock done by the department during the course of survey was on lower side on estimate basis without considering the stock of rough stone 5550cft, lying in the bottom row of the Crain which fact was duly brought to the notice to the survey team, therefore, addition so sustained of Rs.2,61,930/- deserves to be deleted.
On the facts and in the circumstances of the case the Ld. CIT(A) has grossly erred in sustaining the addition of Rs.1,23,500/- u/s 40A(3) of the Income Tax Act, 1961 for making the payment in cash exceeding Rs.20,000/- without appreciating the submission made and evidence adduced, arbitrarily.
4.1 That the Ld. CIT(A) has further erred in not appreciating the fact that the aforesaid amount was paid by the assessee on different dates below Rs.20,000/- and duly recorded in the books of accounts and entries noted in loose papers found and impounded in course of survey are only rough calculations, thus addition sustained by the Ld. CIT(A) of Rs.1,23,500/- deserves to be deleted.
On the facts and in the circumstances of the case the Ld. CIT(A) has grossly erred in sustaining lump sum disallowances of Rs.75,000/- on estimate basis out of various expenses claimed in the Profit & Loss Account for non-verification of same without considering the fact that the Ld. AO has failed to point out even a single instance wherein personal element is involved and expenses were not incurred for business purposes. In the circumstances the disallowances so sustained deserves to be deleted.
4 ITA No.925/JP/2013 Sh. Harish Chand Prop. Vs. A.C.I.T., Bharatpur
Without prejudice to grounds of appeal 1 to 5 and in the alternative, Ld. CIT has grossly erred in not allowing the benefit of telescoping and set off one income from the other income which being a legal claim, deserves to be allowed.
Briefly, the facts of the case are that the assessee is an individual
and proprietor of M/s Gaurav Stones engaged in the business of
manufacturing and trading of pillars and slabs of sand stones. A survey
u/s 133A of the Income Tax Act, 1961 was carried out on 18.03.2008 at
the business premises of the assessee, during the course of which
certain loose papers were found and impounded. Further physical
verification of the stock as well as books of accounts was also taken
during the course of survey.
2.1 For the year under appeal, the assessee had filed his return of
income declaring total income of Rs.6,40,990/-. However, the
assessment was completed u/s 143(3) of the Act at a total income of
Rs.26,82,010/- by making various additions aggregating to
Rs.20,41,020/-. Aggrieved by the assessment order, the assessee
preferred an appeal before the Ld. CIT(A), who vide his order dated
20.09.2013 passed in appeal No.343/10-11 partly allowed the appeal of
5 ITA No.925/JP/2013 Sh. Harish Chand Prop. Vs. A.C.I.T., Bharatpur
assessee. Against the additions so sustained by the Ld. CIT(A), the
assessee has preferred this appeal.
2.2 In respect of grounds of appeal nos.1 & 1.1, the assessee has
challenged the action of Ld. CIT(A) in sustaining the addition of
Rs.78,005/- by applying G.P. rate @ 33.71% being the gross profit on
alleged unaccounted sales of Rs.2,31,400/-.
2.3 Brief facts pertaining to these grounds of appeal are that during
the course of survey certain loose papers were found and were
impounded. The Ld. AO referred to these papers and stated that the
jottings on these papers reflect the unaccounted sales made by the
assessee. The details pertain to these papers is as under:
S.No. Page Annexure Date Description Amount as per No. impounded papers (Rs) 1. 14 A-12 12.3.2008 Shokin Khan 53,600.00 2. 66 to A-25 2007-08 Shyam Sunder 2,31,400.00 68 3. 78 A-17 2007-08 Nirmal Kumar Jain 10,79,684.00
2.4 The ld AR submitted that with respect to these papers, it was
submitted before the Ld. AO that none of these papers reflects any
actual sales and in confirmation thereof, affidavits as well as IDs of the
aforementioned persons (to whom the respective papers are related)
6 ITA No.925/JP/2013 Sh. Harish Chand Prop. Vs. A.C.I.T., Bharatpur
were submitted wherein they have clearly stated that no purchase was
made by them from the assessee. However, the Ld. AO ignored the
submission of assessee and the affidavits of concerned parties by
observing that the affidavits are merely a misguide to the Department
and bear no authenticity.
2.5 In this regard, the ld. AR submitted that the aforementioned
papers do not reflect any actual transactions and merely contain some
rough calculations or estimations of measurements. Affidavits of the
parties were also submitted before the Ld. CIT(A), after considering
which, the Ld. CIT(A) forwarded to the Ld. AO and called for a remand
report. In compliance of the directions of the Ld. CIT(A), the Ld. AO
submitted his remand report on 11.06.2013 (APB 20-24) wherein the Ld.
AO himself has accepted that the figures mentioned on the
aforementioned papers do not represent any sale made by the assessee
except the amount of Rs.2,31,400/- as mentioned on Page Nos. 66 to 68
of A-25. However, with regard to the remaining amount, the contentions
of the assessee was accepted by the Ld. AO himself.
2.6 Having taken into consideration the remand report so furnished by
the Ld. AO, the Ld. CIT(A) also accepted the contentions of the assessee
with respect to the amount of Rs.11,33,284/- and the addition made on
7 ITA No.925/JP/2013 Sh. Harish Chand Prop. Vs. A.C.I.T., Bharatpur
this account was deleted. However, with respect to the amount of
Rs.2,31,400/-, the Ld. CIT(A) did not consider the submission/
explanation of the assessee and applied G.P. @ 33.71% in place of the
G.P. rate applied by the Ld. AO @ 26% by taking the average G.P. rate
for past 3 years and accordingly, sustained an addition of Rs.78,005/-.
2.7 In this regard, it was further submitted that the assessee had sold
goods and performed job works worth Rs.11,59,900/- for Shri Shyam
Sunder, However, out of which goods worth Rs.2,31,400/- were not
approved by the buyer and were rejected. Accordingly, the assessee
issued invoices with respect to the remaining goods of Rs.9,28,500/- and
since the sale with respect to the goods of Rs.2,31,400/- could not be
executed as stated above, therefore, no invoice was raised with respect
to the same. It is further submitted that neither the rate nor the amount
received has been mentioned on the aforesaid loose papers. It is
pertinent to mention here that the said person i.e. Shri Shyam Sunder
had executed an affidavit in confirmation of the above fact admitting
therein that no purchase whatsoever was made by him from the
assessee which fact is further confirmed by him in the statement
recorded during remand proceedings also, as observed by Ld. AO in
remand report also (APB-21) however, CIT(A) completely ignored the
8 ITA No.925/JP/2013 Sh. Harish Chand Prop. Vs. A.C.I.T., Bharatpur
submission of the assessee as well as the affidavit of Shri Shyam Sunder
without any basis.
Therefore, in view of the above it is humbly prayed that the
addition of Rs. 78,005/- being G.P. rate @ 33.71% on the alleged
undisclosed sales of Rs.2,31,400/- sustained by the Ld. CIT(A) may
please be directed to be deleted.
2.8 Further, without prejudice to above and in the alternative it is
submitted that the Ld. CIT(A) has grossly erred in enhancing the
application of the profit rate at 33.71% in place of 26% applied by the
Ld. AO. In this regard it is submitted that the Ld. CIT(A) has unilaterally
and on his own applied this profit rate without appreciating the fact that
assessee has disputed the application G.P. rate and requested for
application of N.P. rate and never challenged the application of average
GP rate applied by the ld. AO. It is submitted that the Ld. AO was quite
justified in applying the profit rate of 26% by taking the average profit
rate of the past three assessment years, however the Ld. CIT(A) has
wrongly disturbed this rate by applying the profit rate @ 33.71%.
Thus, in the alternative it is prayed that the action of Ld. CIT(A) in
applying the profit rate of 33.71% may please be declared bad in law
and the profit rate as applied by the Ld. AO @ 26% be upheld.
9 ITA No.925/JP/2013 Sh. Harish Chand Prop. Vs. A.C.I.T., Bharatpur
2.9 The relevant finding of the ld CIT(A) is reproduced as under:
“4.5 I have carefully considered the submissions made by the ld. AR and the remand report furnished by the AO. AO has now worked out the total unaccounted sales at Rs.2,31,400/- after considering the explanations furnished by the appellant and affidavits filed during the course of appellate proceedings, as against the unaccounted sales of Rs.13,64,684/- worked out at the assessment stage. The evidence furnished at the appellate stage was examined by the AO with reference to impounded books of accounts, diary, loose papers etc., which were marked as annexure A-12, A-17 & A-25, and worked out that only sales of Rs.2,31,400/- has not been recorded in the books of accounts.”
“4.6 The AO has thus worked out the unaccounted sales at Rs.2,31,400/- after considering the evidence and explanations furnished by the appellant. The appellant in his counter comments has not been able to controvert the findings of the AO and has merely stated that these papers reflect the estimate made and do not show the actual sales. There is no substance in the arguments given by the appellant. The arguments given by the appellant are repetitive and have already been considered by the AO at the assessment stage as well as at the appellate stage in the remand proceedings.”
“4.7 However, while making the trading addition, the AO applied the average GP rate for the last 3 years (for FY 2005-06 to FY 2007-08 of 26%). I do not agree with the average rate adopted by the AO, while working out the profit earned on unaccounted sales. The rate of GP declared by the appellant for the period under consideration should have been adopted, while working out by the AO now in his remand report.
10 ITA No.925/JP/2013 Sh. Harish Chand Prop. Vs. A.C.I.T., Bharatpur
The appellant in the counter comments on remand report did not offer any explanation on this point. This issue was discussed with the AR during the appellate proceedings and it was fairly conceded by him. The GP rate declared by the appellant for FY 2007-08 is 33.71% and if applied on unaccounted sales of Rs.2,31,400/-, it gives a profit of Rs.78,005/-. Accordingly, I confirm the addition of Rs.78,005/- made on account of profit earned on unaccounted sales and the appellant would get a relief of Rs.2,76,813/- under this head.”
In respect of grounds of appeal nos. 2 & 2.1, the assessee has
challenged the addition of Rs.33,908/- sustained by the Ld. CIT(A) on
account of alleged unexplained investment in unaccounted purchases.
3.1 Brief facts pertaining to these grounds of appeal are that, in the
books of account the assessee has recorded purchases of raw material
to the tune of Rs.58,10,975/-, however, the. AO disputed the valuation
of assessee and stated that the valuation of the stock should be
Rs.65,77,943/- and not Rs.58,10,975/- and thus, the difference of
Rs.7,66,968/- is assessee’s unaccounted purchases. It has been stated
in the assessment order that the basis of such valuation by Ld. AO is
certain papers found during the course of survey such as page no.39, 60
of Annex. A-5 and page no.55 Annex. A-17.
3.2 Before the Ld. CIT(A), it was contended that complete list of
suppliers of raw material was submitted before the Ld. AO and also the
11 ITA No.925/JP/2013 Sh. Harish Chand Prop. Vs. A.C.I.T., Bharatpur
purchase vouchers were duly submitted before the Ld. AO during the
course of assessment proceedings, which is clearly apparent from the
replies submitted by the assessee before the Ld. AO during the course of
assessment proceedings. In spite of the same, the Ld. AO substituted
the proper valuation done by assessee with some fictitious figures which
did not have any basis. It was further submitted that as per trading
account submitted alongwith the return of income, the total value of
purchases after including the expenses incurred on purchases came to
Rs.65,44,035/- and the so-called difference, if any, came only to
Rs.33,908.
3.3 During the course of appellate proceedings, the Ld. CIT(A)
referred the matter to the Ld. AO for examination of the contentions of
the assessee with respect to the impounded documents. Accordingly, the
Ld. AO submitted a remand report on 11.06.2013 (APB 20-24) wherein,
the Ld. AO observed as under:
“to examine the correctness of the rates of sand stone per CFT, loose papers/incriminating documents were verified from the details of purchases calculated by the AO. In most of the incriminating documents like annexure A-5, A-6, A-7 only details of sand stone purchases were mentioned the rates of sand stone and type of sand stone are not mentioned. Only on few pages like Annex. A-17 page 55, A-5 page 39 &
12 ITA No.925/JP/2013 Sh. Harish Chand Prop. Vs. A.C.I.T., Bharatpur
60 rates were mentioned but type of sand stone is not mentioned. From the above facts it is clear that the AO has applied purchase rates of sand stone no estimated basis. Further, all the purchases have been recorded quantity wise in the purchase register. There is only difference of rates of purchases taken by the assessee and applied by the AO. Thus, the contention of the A/R seems to be justifiable to some extent.”
3.4 Thus, from a perusal of the above it is clear that the valuation
done by the Ld. AO is mere estimation and also that there was no proper
basis for the Ld. AO to make such estimation. Accordingly, on the basis
of above observations in the remand report, the Ld. CIT(A) has deleted
the addition of Rs.7,33,060/- out of the addition of Rs.7,66,968/- and
the difference of Rs.33,908/- was sustained by Ld. CIT(A).
3.5 In this regard, it was submitted that the Ld. CIT(A) has completely
failed to consider the contention of the assessee and also the
observation in the remand report that the valuation done by the Ld. AO
in the assessment order was mere estimation which was though alleged
to be done on the basis of impounded loose papers, but in actual it was
not based on any paper whatsoever which fact is apparent from the
remand report itself. The Ld. CIT(A) himself in para 5.5 of his order
accepts this fact and observes that this difference was due to the
estimated rate adopted for valuation of purchases at the time of
13 ITA No.925/JP/2013 Sh. Harish Chand Prop. Vs. A.C.I.T., Bharatpur
assessment. Thus, the addition of Rs.33,908/- is clearly based on
estimation and has been sustained without application of mind and
without considering the submission of assessee.
Thus, in view of the above it is prayed that the addition of
Rs.33,908/- deserves to be deleted.
3.6 The relevant findings of the ld CIT(A) is reproduced as under:
“5.5 I have carefully considered the submissions made by the AR and find that AO had in his order worked out the total purchases at Rs.65,77,943/- as against total purchase of Rs.58,10,975/- declared by the assessee and the difference of Rs.7,66,968/- was treated as unaccounted purchase. However, after considering the evidence in the form of purchase bills, list of suppliers, expenses incurred on purchases and examining the same with reference to the impounded material (relevant annexures) in the course of remand proceedings, the AO has worked out the total purchases (after adding expenses) at Rs.65,44,035/-. This results in a difference of only Rs.33,908/-. It is further stated by the AO in the remand report that this difference was due to the estimated rate adopted for valuation of purchases at the time of assessment. In view of these facts, I confirm the addition of Rs.33,908/- on account of unaccounted purchases and accordingly the appellant would get a relief of Rs.7,33,060/- under this head.”
In respect of grounds of appeal nos.3 & 3.1, the assessee has
challenged the action of the Ld. CIT(A) in sustaining the addition of
14 ITA No.925/JP/2013 Sh. Harish Chand Prop. Vs. A.C.I.T., Bharatpur
Rs.2,61,930/- out of gross profit @ 33.71% on stock alleged as found
short of Rs.7,77,010/- during the course of survey.
4.1 Brief facts pertaining to these grounds of appeal are that during
the course of survey, physical verification of stock was taken by the
department which was stated to have shown availability of stock at
Rs.30,11,120/- and the stock recorded by assessee in the books of
account is at Rs.37,88,130/-, on the basis of which it was stated that the
difference between the two amounts is the shortage in stock which have
been sold by the assessee.
4.2 With regard to the allegation of shortage of stock, it was
submitted before the Ld. CIT(A) that there were some irregularities in
physical verification/valuation of the stock inasmuch as the stock of
rough stone of 5550 cft lying in the bottom row of the crane was not
counted while taking the stock for the reason that measurement of that
row was not possible without lifting the upper rows, which fact was
brought to the knowledge of the inspector making the stock inventory,
on which, the assessee was assured that the said part of stock shall be
taken into consideration at the time of making the final list. However, in
spite of specific requests of assessee, the same was not taken into
consideration. Accordingly, the assessee filed an affidavit before the Ld.
15 ITA No.925/JP/2013 Sh. Harish Chand Prop. Vs. A.C.I.T., Bharatpur
AO (APB 27) deposing the above facts and also stated that he thereafter
made requests to the department to consider the whole stock including
the stock which could not be considered earlier, however it was informed
to him that now no details shall be taken.
4.3 The Ld. CIT(A) then referred the matter to the Ld. AO for
examination of the contentions of the assessee with respect to the
details submitted by him. The Ld. AO submitted his remand report (APB
20-24) wherein he merely repeated the allegations made in the
assessment order. The Ld. CIT(A) accordingly, without considering the
above facts and circumstances of the case and the submissions of the
assessee sustained the addition made by Ld. AO and further enhanced it
to Rs.2,61,930/- by applying profit rate of 33.71% on the alleged short
stock in place of the rate of 26% applied by the Ld. AO.
4.4 In this regard, it was submitted that from the record of the case, it
is undisputed fact that the valuation of stock during physical verification
thereof was not done in proper manner and certain stock was left out
from consideration as mentioned above and to which effect the assessee
has submitted his affidavit also which remains uncontroverted.
4.5 It is further submitted that the Ld. AO as well as Ld. CIT(A) have
failed to establish the sale of alleged short stock on part of the assessee.
16 ITA No.925/JP/2013 Sh. Harish Chand Prop. Vs. A.C.I.T., Bharatpur
Rather, the lower authorities have proceeded on mere presumption that
shortage in stock has resulted into sale thereof. In this regard it is
submitted that it is settled law that the onus of proving the fact of sale is
on department. In this regard reliance is placed on order of Hon’ble ITAT
in the case of Mahavir Prasad Choudhary Vs. ITO (ITAT Jodhpur) (XLII
TW 98).
4.6 Further the sales of Rs.2,31,400/- have been held as made outside
books, which has been challenged separately in Ground of Appeal No.1
above. In the event the Hon’ble Bench proceeded to hold the sales of
Rs.2,31,400/- as outside the books of accounts, the credit may please be
given out of the alleged shortage of stock of Rs.7,77,010/- which is also
treated as undisclosed.
Thus, in view of the above it is humbly prayed that the addition of
Rs.2,61,930/- sustained by the Ld. CIT(A) may please be deleted.
4.7 Further, without prejudice to above and in the alternative it is
submitted that the Ld. CIT(A) has grossly erred in enhancing the
application of the profit rate at 33.71% in place of 26% applied by the
Ld. AO. In this regard it is submitted that the Ld. CIT(A) has unilaterally
and on his own applied this profit rate without confronting this issue to
the assessee and without seeking his explanation on this issue. It is
17 ITA No.925/JP/2013 Sh. Harish Chand Prop. Vs. A.C.I.T., Bharatpur
submitted that the Ld. AO was quite justified in applying the profit rate
of 26% by taking the average profit rate of the past three assessment
years, however the Ld. CIT(A) has wrongly disturbed this rate by
applying the profit rate @ 33.71%.
Thus, in the alternative it is prayed that the action of Ld. CIT(A) in
applying the profit rate of 33.71% may please be declared bad in law
and the profit rate as applied by the Ld. AO @ 26% be upheld.
4.8 The relevant finding of the ld CIT(A) is reproduced as under:
“6.5 I have considered the submissions made by the AR and find that the inventory was prepared with the help of assessee and his son on the date of survey and valuation was also done accordingly. The appellant has not been able to prove beyond reasonable doubt, the reasons for shortage of stock. The appellant has failed to furnish any documentary evidence in support of the stock valuation adopted by him during the course of assessment proceedings or even in the course of present proceedings. The explanation furnished in the course of appellate proceedings has been examined by the AO, after giving an opportunity of being heard to the appellant and considering these facts, I uphold the action of the AO in treating the shortage of stock worth Rs.7,77,010/- as the sales outside the books of accounts. The AO had applied average gross profit rate for the last 3 years while working out the unaccounted profit on such sales. In the remand report, the AO has pointed out that the GP rate for the current year i.e. should be applied for working out
18 ITA No.925/JP/2013 Sh. Harish Chand Prop. Vs. A.C.I.T., Bharatpur
the unaccounted profit on sales made outside the books i.e. on the stock shortage of Rs.7,77,010/-. The appellant has not offered any comment on this issue in his counter reply to the remand report. However, this issue was discussed with the AR in the appellate proceedings and it was fairly conceded. This would result in an addition of Rs.2,61,930/- on account of unaccounted profit earned on sales outside the books of accounts of Rs.7,77,010.
“6.6 Accordingly, I enhance the addition from Rs.2,02,022/- made by
AO (on the basis of average GP rate of last 3 years) to Rs.2,61,930/- on
account of unaccounted profit earned on sales made outside the books
of accounts of Rs.7,77,010/-.”
In respect of grounds of appeal nos.4 & 4.1, the assessee has
challenged the action of Ld. CIT(A) in sustaining the addition of
Rs.1,23,500/- made by way of disallowance u/s 40A(3) of the Act.
5.1 Brief facts pertaining to these grounds of appeal are that during
the year under appeal, the assessee had made certain payments to the
tune of Rs.6,10,375/- in cash to certain suppliers exceeding Rs.20,000/-.
As per the assessee, these payments in cash had to be made under
compulsion and under justifiable circumstances and were clearly covered
by the exceptions provided in Rule 6DD of the Income Tax Rules, 1962.
The assessee also claimed to have submitted complete evidences in
19 ITA No.925/JP/2013 Sh. Harish Chand Prop. Vs. A.C.I.T., Bharatpur
support of such claim in the shape of affidavits of all the persons to
whom payments had been made.
5.2 The matter was referred by the Ld. CIT(A) to the Ld. AO for
examination of the contention of the assessee upon which the Ld. AO
submitted his remand report (APB 20-24) wherein, the Ld. AO has
accepted the fact that the case of assessee was covered by exceptions
provided under Rule 6DD in respect of all the payments except
payments made to two parties i.e. to Sh. Gulaiya and to Sh. Khan
Mahesh Seth of Rs.23,500/- and Rs.1,00,000/- respectively solely for the
reasons that their statements could not be recorded though their
affidavits remained uncontroverted. Accordingly, the Ld. CIT(A) deleted
the addition in respect of the remaining amount, however sustained the
addition with respect to the amount of Rs.1,23,500/- made to the
aforesaid two parties.
5.3 In this regard, it was submitted that all the above payments were
made to different persons trolly wise, crane wise and according to the
need of selling parties as mentioned in the books of account. With
respect to the abovementioned two payments as well it is submitted that
the said payments are also covered by the exceptions provided under
Rule 6DD which fact was ignored by Ld. AO in the remand report as well
20 ITA No.925/JP/2013 Sh. Harish Chand Prop. Vs. A.C.I.T., Bharatpur
as by the Ld. CIT(A). It is submitted that the payment to Sh. Guliya was
made on 21.08.2007 and according to the directions of Shri Guliya, the
payments were not made to him in cash since he stated to not have a
bank account. In support of this contention, affidavit and ID of Shri
Guliya was submitted before the Ld. AO which was completely ignored
and as submitted above remained uncontroverted.
5.4 Further, the allegation of cash payment is solely based on the
loose papers impounded during the survey wherein the consolidated
payments were mentioned. The books of accounts of the assessee based
on which trading results declared were not disturbed and only additions
towards the undisclosed sales/stock were made. Thus, the entries
recorded therein with respect to these payments deserves to be
accepted and consequent addition u/s 40A(3) deserves to be deleted.
Alternatively, if your goodself hold that the books of accounts are
rejected, no disallowance could be made u/s 40A(3) based on the
entries found noted in such rejected books of accounts as has been held
by various Courts.
Thus, in view of the above it is prayed that the addition of
Rs.1,23,500/- sustained by the Ld. CIT(A) may please be deleted.
5.5 The relevant finding of the ld CIT(A) is reproduced as under:
21 ITA No.925/JP/2013 Sh. Harish Chand Prop. Vs. A.C.I.T., Bharatpur
“7.5 I have considered the submissions made by the AR and the report of the AO and find that payments of Rs.4,86,875/- are stated to have been covered within the exceptions provided under the provisions of Rule 6DD of IT Rules read with Section 40A(3) of the IT Act. The AO has further stated in his report that payments of Rs.1,23,500/- are not covered within the scope of exceptions as provided in Rule 6DD of IT Rules. The appellant has merely repeated his arguments in the counter comments on the remand report. In view of these findings given by the AO, I confirm an addition of Rs.1,23,500/- made U/s 40A(3) of IT Act and thus the appellant would get a relief of Rs.4,86,875/- under this head.”
In respect of ground of appeal no.5, the assessee has challenged
the addition of Rs.75,000/- sustained by Ld. CIT(A) on account of lump
sum disallowance made by AO out of the various expenses claimed by
assessee in the P&L Account. As per the assessee, the addition has
been made without bringing on record any single evidence of any
unreasonable expenses or any evidence found as a result of survey
indicating any expenditure incurred for non-professional purposes.
6.1 It was submitted that from the perusal of the order of Ld. CIT(A)
in case of the assessee, your honour would observe the fact that the
said addition of Rs.75,000/- was sustained without referring to any
incriminating material found as a result of survey and disallowance was
made and sustained solely for the sake of additions.
22 ITA No.925/JP/2013 Sh. Harish Chand Prop. Vs. A.C.I.T., Bharatpur
6.2 It was further submitted that while making disallowance Ld. AO
has alleged that assessee has claimed expenses on account of
telephone, running & maintenance of car, business promotion and
general expenses and personal user cannot be denied. However Ld. AO
failed to appreciate the fact that the books of accounts of the assessee
have not been rejected and without rejecting the same, no allegation of
inflated expenses etc. cannot be made. Since the books of account
maintained by the assessee were doubted and merely on assumptions
and presumptions the lump sum disallowance was made, therefore, the
addition of Rs.75,000/- sustained by the Ld. CIT(A) deserves to be
deleted.
6.3 The relevant finding of the ld CIT(A) is reproduced as under:
“8.5 I have considered the submissions made by the appellant and find that AO had made the addition on the ground that some of the expenses were not supported by the vouchers and some defects were also noticed in the vouchers during the course of examination at the assessment stage. In the course of remand proceedings, the appellant has not been able to produce any controverting evidence. However, considering the explanation furnished and the case laws cited by the appellant, I find that the disallowance was made by the AO on an estimate basis and in my opinion, it would be just and fair to restrict the disallowance to
23 ITA No.925/JP/2013 Sh. Harish Chand Prop. Vs. A.C.I.T., Bharatpur
Rs.75,000/- and the appellant would accordingly, get a relief of Rs.56,500/-.
In respect of ground of appeal No.6, the assessee has challenged
the action of Ld. CIT(A) in not allowing telescoping of additions
sustained with each other. It was submitted that the addition sustained
by Ld. CIT(A) are on account of alleged unaccounted sale, alleged
unaccounted purchases and alleged shortage of stock. A bare
consideration of the nature of these additions clearly shows that these
additions could not have been made simultaneously inasmuch as it is
natural presumption that the unaccounted purchases would naturally
have rotated around for the purpose of making sales. Similarly, the short
stock which has been alleged to be sold in unaccounted manner has to
be adjusted in unaccounted sales. Thus, in view of the above it is prayed
that any addition, if sustained, may please be directed to be telescoped
with each other.
The ld DR is heard who has relied on the order of ld CIT(A).
We have heard the rival contentions and perused the material
available on record. Firstly, regarding the addition of Rs.78,005/- by
applying GP rate of 34.71% on unaccounted sales of Rs.2,31,400/-. The
unaccounted sales of Rs 2,31,400 relates to sale transaction with Shri
24 ITA No.925/JP/2013 Sh. Harish Chand Prop. Vs. A.C.I.T., Bharatpur
Shyam Sunder to whom the assessee had sold goods worth
Rs.11,59,900/- out of which, goods worth Rs.2,31,400/- were not
approved by the buyer and were rejected during the same financial year.
In this regard, Shri Shyam Sunder had executed an affidavit in
confirmation of the above fact and his statement were also during
remand proceedings by the AO. The AO in his remand proceedings as
well as ld CIT(A) has not specified any reason for disbelieving the
affidavit as well as statement of Shri Shyam Sunder. Moreso, when on
basis of similar affidavits and statements, additions have been deleted in
respect of other unaccounted sales alleged by the AO on the basis of
loose papers. In light of above, it is clear that goods worth Rs 231,400
were rejected resulting in no actual sales made by the assessee during
the year under consideration and on this ground alone, addition of Rs
78,005 on said unaccounted sales is hereby deleted. The question of
applying gross profit on such non-existent sales therefore doesn’t arise
and hence, not been examined. Ground no. 1 thus, becomes
infructuous and dismissed. Ground no 1.1 is allowed.
Regarding addition of Rs.33,908/-, the said addition is on account
of estimated rate adopted by the Assessing Officer for valuation of
purchases as admitted in the remand report submitted by the AO. As far
25 ITA No.925/JP/2013 Sh. Harish Chand Prop. Vs. A.C.I.T., Bharatpur
as quantity of purchases is concerned, there is no dispute between the
assessee and the Assessing Officer. However, no valuation
methodology/basis has been apparent on perusal of the record pursuant
to which the valuation of the purchases has been done by the Assessing
Officer. Therefore, being an adhoc addition, same is not sustainable in
eye of law. Hence, the same is deleted. Ground Nos.2 & 2.1 are
accordingly allowed.
Regarding ground no.3 & 3.1 where the assessee has challenged
the addition of Rs.2,61,960/- on account of gross profit @ 33.71% on
stock found short during the course of survey. The appellant has
submitted that the valuation of stock during physical verification was not
done in proper manner and hence, stock was left out from consideration.
On perusal of the assessment order, the Assessing Officer has stated
that there is no proper stock evidence on record which can prove that
the stock verification cannot be properly taken by the department during
the course of survey. Further, the ld. CIT(A) has also held that the
appellant has not been able to prove the reason for shortage of stock.
The appellant has failed to furnish any documentary evidence in support
of the stock valuation adopted by him during the course of assessment
proceedings or even the course of appellate proceedings. Further, given
26 ITA No.925/JP/2013 Sh. Harish Chand Prop. Vs. A.C.I.T., Bharatpur
that in the books of accounts, the stock was recorded at Rs.37,88,130/-
as against physical stock at Rs.30,11,120/-, the shortage of stock has
rightly been worked out at Rs.7,77,010/- and which has rightly been
held to have been sold outside the books of accounts. Regarding
application of GP @ 33.71% by the ld. CIT(A) as against G.P rate of
26% applied by the AO, since the unaccounted sales belongs to the year
under consideration, the rate of GP which is declared by the appellant
itself in respect of its recorded sales @ 33.71% has been considered by
the ld. CIT(A). We accordingly, do not see any infirmity in the order of
the ld. CIT(A) which is hereby confirmed. Accordingly, ground no. 3 &
3.1 of the assessee are dismissed.
Regarding ground no.4 & 4.1 where addition of Rs.1,23,500/- has
been made by the AO by way of disallowance u/s 40A(3) of the Act. The
ld. AR has submitted that Rs.1 lac has been paid to Khan Mahesh Seth
and Rs.23,500/- has been paid to Mr. Gulaiya who are material suppliers
and they do not have any bank account maintained by any bank and
such payments are covered under the exceptions stated in Rule 6DD of
the Rules and in support, their affidavits have been filed which have not
been considered in right perspective. However, the Assessing Officer, in
his remand report submitted to the ld. CIT(A), has stated that no
27 ITA No.925/JP/2013 Sh. Harish Chand Prop. Vs. A.C.I.T., Bharatpur
affidavits have been filed in respect of these two persons. Given the
contradictory position and in absence of these affidavits in the
paperbook submitted before us, we are left with no option but to set
aside the matter to the file of the Assessing Officer to examine any such
affidavit filed by the assessee and decide the issue afresh as per law.
Therefore, this ground is allowed for statistical purposes.
Regarding ground no.5, the assessee has challenged the addition
of Rs.75,000/- on account of lump sum disallowance out of various
expenses claimed by the assessee. On perusal of record, it is noted that
originally 10% of the total expenses amounting to Rs.1,31,563/- was
disallowed by the Assessing Officer which has been restricted to
Rs.75,000/- by the ld. CIT(A). However, there is no basis which has
been given by the Assessing Officer to make such disallowance. There is
no finding that these expenses are either bogus or have not been
incurred for the purpose of business. Being an adhoc disallowance, same
is not sustainable in the eye of law. Hence, the same is deleted. In the
result, ground no.5 is allowed.
Regarding ground no. 6 where the assessee has requested for
telescoping benefit in respect of additions on account of unaccounted
sale, unaccounted purchases and shortage of stock. As we have held
28 ITA No.925/JP/2013 Sh. Harish Chand Prop. Vs. A.C.I.T., Bharatpur above, the additions on account of unaccounted sale, unaccounted
purchases have already been deleted and it is only the addition on account of shortage of stock which has been sustained. Given that there
is no question of telescoping which is available to the assessee. In the result, this ground is dismissed.
In the result, the appeal of the assessee is partly allowed for statistical purposes.
Order pronounced in the open court on 08/02/2017.
Sd/- Sd/- ¼dqy Hkkjr ½ ¼foØe flag ;kno½ (Kul Bharat) (Vikram Singh Yadav) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 08/02/2017. *Sanjeev*. आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- Shri Harish Chand, Bharatpur. 2. izR;FkhZ@ The Respondent- The ACIT, Circle, Bharatpur. 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 6. xkMZ QkbZy@ Guard File {ITA No. 925/JP/2013}
vkns'kkuqlkj@ By order,
29 ITA No.925/JP/2013 Sh. Harish Chand Prop. Vs. A.C.I.T., Bharatpur
सहायक पंजीकार@Aेेज. त्महपेजतंत