KALPATARU ELECTRICALS,KOLKATA vs. ITO, WD-50(1), KOLKATA, KOLKATA

Ground nos. 1 and 2 are against the action of the Ld. CIT(A) in confirming the action of the AO in reopening the assessment u/s. 147 read with section 148 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”).

According to Ld. Counsel, the assessee had filed return of income on 20.10.2004, which was processed by the department u/s. 143(1) of the Act. Thereafter, a survey was carried out on 02.03.2005 and the survey report as well as certain papers (typed P&L Account and Balance Sheet as on 31.03.2004) was impounded along with this documents were with the department and no action whatsoever was carried out for such a long time after the date of survey and the show cause notice was issued u/s. 148 of the Act proposing to reopen the assessment only on 04.11.2009 (after 4 years) which should not have been done without tangible material which has come in the possession of the AO. Since, according to Ld. AR, there was no tangible material the AO ought not to have reopened the assessment and for that he relied on the following orders: i) Ashok Kumar Tandon Vs. ACIT (2014) 34 ITR (Trib.) 381 (ITAT, Del.); ii) Debashis Moulik Vs. ACIT (2015) 370 ITR 660 (Cal); iii) Common Cause (A Registered Society) And Others Vs. Union of India & Ors. (2017) 394 ITR 220 (SC); iv) ACIT Vs. Marvel Associates (2018) 92 taxmann.com 109 (Visakhapatnam Trib.)

On the other hand, the Ld. DR supported the action of the lower authorities in rejecting the contention of the assessee and relied on the order of the Ld. CIT(A) and does not want us to interfere in the order of the Ld. CIT(A).

We have heard rival submissions and carefully gone through the material available on record. We note that the AO had given a copy of the reasons recorded for reopening the assessment a copy of which was given to us which reads as under: “There was a survey u/s. 133A of the I. T. Act, in the business premises of the assessee on 02.03.2005. It was reported to the CIT on 03.03.2005 by the then AO that during the course of survey a typed profit and loss account and balance sheet of the assessee as on 31.03.2004 was found which was impounded in which the turnover declared was found at more than Rs. 3 crores as against Rs.2,03,34,226/- shown in the regular books of accounts. Besides above, it was found that the assessee has received incentive of Rs.31 lakhs and sales commission at Rs.15 lakhs which were not found disclosed in the regular books of accounts. Under the above circumstances I have reason to believe that the income arisen out of the amount mentioned above, chargeable to tax has escaped assessment for the AY 2004-05 within the meaning of Section 147 of the I. T. Act, 1961 and such escapement has occurred by reason of the omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment for the AY 2004-05.”

From a perusal of the aforesaid reasons recorded, we understand that a survey was carried out on the premises of the assessee u/s. 133A of the Act on 02.03.2005. During the survey, the survey team came across a typed P&L Account and Balance Sheet of the assessee as on 31.03.2004 which was impounded wherein turnover declared was found to be more than Rs. 3 cr. as against Rs.2,03,34,226/- shown in the regular books of account. Besides, it was found also that assessee had received incentive of Rs. 31 lakhs and sales commission of Rs. 15 lakhs which was also not found to have been disclosed in the regular books of account. Based on these suppression of facts, the AO had reason to believe that income chargeable to tax had escaped assessment for AY 2004-05. We note that though the reopening has been carried out after four years, the proviso u/s. 147 of the Act would not come into play because the original assessment was only an intimation u/s. 143(1) of the

Coming to the merits of the addition, the facts of the case as noted by the AO is that the assessee for the assessment year under consideration i.e. AY 2004-05 declared a total income of Rs.6,220/-. The case was thereafter processed u/s. 143(1) of the Act. Thereafter, the case was reopened u/s. 147 of the Act based on a survey report prepared after survey u/s. 133A of the Act conducted at the business premises of the assessee on 02.03.2005. During the survey, a typed Profit & Loss Account and the Balance Sheet of the assessee as on 31.03.2004 was found which was impounded in which the turnover declared was found to be more than Rs.3 cr. as against Rs.2,03,34,226/- shown by the assessee in its regular books of account. Taking note of this fact the AO recorded the reasons to believe escapement of income issued notice dated 04.11.2009 u/s. 148 of the Act proposing to reopen the assessment. Moreover, during the survey it was also found that the assessee has received incentive of Rs. 31 lakhs and sales commission of Rs. 15 lakhs which were also not found to be disclosed in the regular books of account. Thereafter, the AO after issuing notice u/s. 148 of the Act on 04.11.2009 reopened the assessment. During the course of reassessment the AO noticed that despite statutory notices u/s. 143(2) and 142(1) of the Act, none appeared before him. Thereafter, the AO noticed that the assessee was dealing the business of electrical goods and distributor of various fans and electrical goods. Thereafter, the AO issued notice u/s. 133(6) of the Act to the Branch Manager, West Bengal State Cooperative Bank, who brought to the notice of AO the fact about new loans which the assessee had taken and also had filed details of valuation of closing stock as on 31.03.2004. From the Balance Sheet and P&L Account submitted by the assessee to the bank, the AO noted that the closing stock was shown as on 31.03.2004 valued at Rs.45,01,120/- whereas as per the P&L Account and Balance Sheet filed along with the return of income was to the tune of

After hearing the rival submissions, we note that based on the survey the case was reopened u/s. 147 of the Act based on a survey report prepared after survey u/s. 133A of the Act conducted at the business premises of the assessee on 02.03.2005. During the survey a typed Profit & Loss Account and the Balance Sheet of the assessee as on 31.03.2004 was found. And which was impounded in which the turnover declared was found more than Rs.3 cr. as against Rs.2,03,34,226/- shown by the assessee in its regular books of account. Taking note of this fact the AO recorded the reasons to believe escapement of income, and thereafter issued notice dated 04.11.2009 u/s. 148 of the Act proposing to reopen the assessment. However, the AO noticed that the assessee did not participate in the re- assessment proceedings. Thereafter, the AO has rejected the books of account of the assessee by making a finding as under: “The assessee failed to give any explanation till date. So the accounts of the assessee is rejected u/s. 145(3) of the I. T. Act as I am not satisfied about the correctness or completeness of the accounts of the assessee for the FY 2003-04 Act for the reason mentioned above. It is clear from the fact stated above that the assessee made unaccounted purchase, which has not been reflected in the books of accounts of the assessee for which the captioned

In respect of the turnover though the assessee has shown as Rs.2,03,34,226/- in its regular books of account, however, the survey team had come across a typed P&L Account and Balance Sheet of the assessee as on 31.03.2004 which reflected turnover as Rs.3,00,50,000/- which means a difference of Rs.97,15,774/- and the AO has adopted the assessee’s own GP of 4.35% on Rs.97,15,774/- and added GP of Rs.4,22,636/- which action has been confirmed by the Ld. CIT(A) which action of Ld. CIT(A) per-se cannot be faulted. However, the AO taking note of the report of the survey team that the assessee has received incentive of Rs. 31 lacs and sales commission at Rs. 15 lacs which was not disclosed in the regular books of account have made the addition separately of Rs. 31 lacs and Rs. 15 lacs [totalling Rs.46 lacs]. When this action of AO was challenged by the assessee, the Ld. CIT(A) has restricted addition to Rs.35,20,693/- which action of the Ld. CIT(A) cannot be countenanced, for the reason that the Ld. CIT(A) has misdirected himself and has made the extrapolation of the commission/incentive on the entire turn-over, whereas during survey it revealed only that the assessee has received from M/s Metro Rs. 31 lacs and Rs. 15 lacs. We note that the Ld. CIT(A) took note of the fact from the assessment records that the AO “got the details of purchases made by the assessee from M/s. Metro Tyres Ltd. and the supplier has reported that it has made sales of Rs.50,91,578/- to the assessee during FY 2003-04 and it has allowed a discount of Rs.7,95,447/- to the assessee. The purchase returns in this case were Rs.98,336/-. Thus on a net purchase of Rs.49,93,242/- (Rs.50,91,578 – Rs. 98,336 = Rs.50,91,578- Rs.98,336 = Rs.49,93,242/-). The assessee received a discount of Rs.7,95,447/- i.e. @ 16%. The same ratio of 16% if applied to the declared turnover of Rs.2,03,34,226/- given a likely discount received at Rs.32,53,476/- and if the figure of 16% is applied to the turnover mentioned in the typed sheet at Rs.3,00,50,000/- likely discount/incentive comes to Rs.48,08,000/- which is very closed to the figure of Rs. 46 lacs added by the AO.” Thereafter , the Ld. CIT(A) taking note that the assessee had declared credit notes received at Rs.10,79,000/- in the P&L Account gave

Therefore, in the facts and circumstances of this case as discussed (supra), we are of the opinion that once the books of account of the assessee were rejected by the AO, then he should have only estimated the profits of the assessee. We note that the turnover found in the impugned typed Balance Sheet and P & L Account during survey was to the tune of Rs.3,00,50,000/- and the sales incentive and sales commission was to the tune of Rs.31 lacs and Rs. 15 lacs, so the total amounts comes to Rs.3,00,50,000 + Rs.31,00,000 + Rs. 15,00,000 = Rs. 3,46,50,000/-. Though the assessee had shown a GP of 4.35%, in the interest of both the parties, we enhance the same to 6% and thus the GP comes to Rs.20,79,000/- and thus the assessee receives a relief of Rs.49,31,830/-.

In the result, the appeal of the assessee is partly allowed.