HARISH CHAND,JAIPUR vs. ACIT, BHARATPUR

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.

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.

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.

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.

4 ITA No.925/JP/2013 Sh. Harish Chand Prop. Vs. A.C.I.T., Bharatpur

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

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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.

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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.”

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.”

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/-.”

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.”

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/-.

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.

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.

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.

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.

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.

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.

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