ITO, WARD 22(2), KOLKATA, KOLKATA vs. M/S. K.B. MEDICAL AGENCY, KOLKATA

These cross appeals and cross objections, relate to the same assessee, for different assessment years, identical and common issues are involved, therefore these have been clubbed and heard together and a consolidated order is being passed for the sake of brevity and convenience.

In these appeals, the Revenue as well as Assessee have raised multiple grounds of appeal, but at the time of hearing the main grievance of the Revenue and Assessee areconcised and summarized. These summarized and common grounds of Revenue, andAssessee are given below: Summarized and Common grounds of appeal raised by Revenue in I.T.A. No. 1209,1210&1211/Kol/2017 for assessment years 2010-11, 2011-12 & 2012-13 are given below:

First, we shall takethe summarized / common grounds of appeal raised by the Revenue. Ground no. 1 raised by the revenue is given below for ready reference. 1. The ld. CIT(A) erred in deleting additions on account of difference in sales a. Addition for assessment year 2010-11 Rs. 45,88,473/- b. Addition for assessment year 2012-13 Rs. 6,50,172/-

The facts of the case which can be stated quite shortly are as follows. In the assessee’s case, a survey was conducted on 08.01.2013 in the business premises of the assessee. In the course of survey,the computerized accounts for the assessment year 2010-11 was found. On examination of computerized accounts and comparing with e-filed return of income including e-filed profit and loss account and balance sheet, the Assessing Officer noted some discrepancies,therefore the Assessing Officer reopened the assessee’s case u/s 147 of the Act. The reasons for which the assessment was reopened are given below:

In response, the assessee submitted that he was maintaining books of accounts on software ‘Unisolve’ in computerized system. The assessee submitted that Unisolve software is the specialized software catering for the need of the medicine whole-sellers wherein all the mandatory requirements under the Drug control Rules have been incorporated. It also have features for maintenance of full-fledged books of accounts. The ‘Unisolve software’ has been developed by the local IT professional on DOS platform. The assessee submitted that the software which they were using was not user friendly and it used to give inconsistent results and therefore the assessee was using that software only for the purpose of issuing sales bills and up to some extent for the purpose of stock. The assessee also submitted that he maintains his books of accounts in its tally software and engaged a part time accountant. Unfortunately, the books of

However, the Assessing Officer rejected the contention of the assessee and noted that as per computerized account impounded on the date of survey on 08.01.2013 sales was found to the tune of Rs. 15,18,97,903/-. Whereas the assessee filed return of income where he has declared the turnover to the tune of Rs. 4,73,09,430/-, therefore the difference amount to the tune of Rs. 45,88,473/- (Rs. 15,18,97,903 – Rs. 14,73,09,430) was added to the income of the assessee.

On appeal , the Ld. CIT(A) deleted the addition. Aggrieved the revenue is in appeal before us. Before us,the ld. DR has primarily reiterated the stand taken by the Assessing Officer which we have already noted in our earlier para and the same is not being repeated for the sake of brevity.On the other hand, the ld. Counsel for the assessee defended the order passed by the Ld. CIT(A).

We have heard both the parties and perused the material available on record. We note that during the assessment proceedings it was explained by the

The summarized / common ground no. 2 raised by the revenue reads follows: 2. The ld. CIT(A) erred in deleting addition on account of difference in purchase. a. Addition for assessment year 2010-11 Rs. 24,35,545/- b. Addition for assessment year 2012-13 Rs. 61,323/-

Brief facts qua the issue are that as per computerized account impounded during the surveyon dated 08.01.2013, the survey team found purchases to the tune of Rs.14,92,68,998/-, whereas as per electronically return filed by the assessee it was only Rs.14,68,33,453/-. Therefore, the difference to the tune of Rs. 24,35,545/- (Rs.14,92,68,998 – Rs.14,68,33,453) was added as undisclosed purchases. On appeal by the assessee, the ld. CIT(A) deleted the addition on undisclosed purchases. Aggrieved the Revenue is in appeal before us.

Before us, the ld. DR for the revenue submitted that the ld. CIT(A) failed to appreciate the fact that the assessee had made unexplained investment of Rs. 24,35,545/- in purchases, out of books of account and assesseeoffered no satisfactorily explanation about the nature of source of investment therefore addition made by the Assessing Officer should be sustained. On the other hand, the ld. Counsel for the assessee defended the order passed by the ld. CIT(A).

We have given a careful consideration to the rival submissionsand perused the material available on record. We note that only the profit on the unaccounted sales and the purchases could be brought to tax. The discrepancy in purchases of Rs. 24,35,545/- computed by the Assessing Officer was lower than the discrepancy of Rs.45,88,473/-computed in respect of sales. Therefore, the Assessing Officer was directed by the ld. CIT(A) to tax only the profit of Rs. 75,710/- on the unaccounted sales computed by the Assessing Officer. The

The summarized and common ground no. 3 raised by the revenue is given below for ready reference. 3. The ld. CIT(A) erred in deleting addition on account of difference in closing stock and difference in opening stock. a. Addition for assessment year 2010-11,Rs. 38,39,828/- difference on account of closing stock. b. Addition for assessment year 2011-12 of Rs.93,80,355/- difference on account of closing stock. c. Addition for assessment year 2012-13 of Rs.93,80,355/- difference on account of opening stock. d. Addition for assessment year 2012-13 of Rs.1,36,14,608/- difference on account of closing stock.

The brief facts qua the issue are that on the basis of impounded books of accounts, the Assessing Officer calculated the closing stock at Rs.1,11,69,931/-, as against stock of Rs.73,30,103/- declared by the assessee in the return of income. Accordingly, the excess of Rs. 38,39,828/- ( Rs. 1,11,69,931 – Rs. 73,30,103) was added to the total income of the assessee.On appeal, the ld. CIT(A) deleted the said addition because the calculation of closing stock made by

Before us,the ld. DR has primarily reiterated the stands taken by the Assessing Officer which we have discussed in our earlier para and the same is not being repeated for the sake of brevity. On the other hand, the ld. AR for the counsel has defended the order of theld CIT(A).

We have given a careful consideration to the rival submissions and perused the material available on record. We note that theassessee explained the differences and submitted the explanation before the Assessing Officer stating that the discrepancy in his stock was manually represented the accumulated effect of incorrect stock brought forward from earlier years and also effect of purchases or sales return not routed through inventory systems as also free samples included in the stock and valued at purchase rates. We note that the Assessing Officer has calculated the closing stock as per survey at Rs.1,11,69,931/- as against stock of Rs. 73,30,103/- declared by the assessee in the return of income, thereby computing the excess stock of Rs. 38,39,828/- The stock of Rs. 1,11,69,931/- has been computed by the AO as per the findings of survey. We note that the computation of closing stock as per survey findings done by the AO as above is not correct because of the following reasons: a) The AO has computed that actual closing stock in respect of the details found in the computerized accounts during the survey, but has adopted a pick and choose method without any basis for this purpose. b) The AO has computed unreported purchases of Rs. 45,12,763/- by a random method whereas the actual unreported purchases even according to the AO amounted to Rs. 24,35,545/-(purchases of Rs. 14,92,68,998/- as per computerized

The summarized/ common ground no. 4 raised by the revenue is given below for ready reference. 4. The ld. CIT(A) erred in deleting addition on account of difference in sundry debtors. a. Addition for A.Y. 2011-12 of Rs.1,65,196/- on account of difference in sundry debtors. b. Addition for A.Y. 2012-13 of Rs.9,06,723/- on account of difference in sundry debtors.

The brief facts qua the issue are that during the assessment proceedings the Assessing Officer noted that as per audited balance sheet sales was shown by the assessee to the tune of Rs. 17,05,41,061/-, out of which cash sales amounting to Rs.6,15,51,642/- and cheques worth Rs.10,89,89,419/- were deposited. Therefore, as per Assessing Officer, the sundry debtors should have been zero.( Rs. 17,05,41,061-Rs.6,15,51,642-Rs.10,89,89,419). But the sundry debtors to the tune of Rs. 1,65,196/- was shown by the assessee in his balance sheet. The Assessing Officer asked for the explanation regarding the sundry debtors. In response, the assessee submitted that the accounts were maintained in the tally system and not inthe Unisolve software. The survey team took the figures from the Unisolve software maintained by the assessee which does not show correct

The ld. The ld. DR has primarily reiterated the stands taken by the Assessing Officer which we have discussed in our earlier para and the same is not being repeated for the sake of brevity. On the other hand, the ld. Counsel for the assessee defended the order of theld CIT(A).

We have given a careful consideration to the rival submissions and perused the material available on record. We note that the Assessing Officer found that sales as per audited balance sheet amounted to Rs.17,05,41,061/-, out of which cash sales amounted to Rs.6,15,51,642/- and cheques worth Rs. 10,89,89,419/- were deposited, as stated at page 10 of the Assessing Officer. Hence sundry debtors should have been nil whereas the debtors amounted to Rs. 1,65,196/- was shown by the assessee in his balance sheet.We note that if we deduct from the total sales to the tune of Rs. 17,05,41,601/- cash sales and cheques there is no balance left (being Rs. 17,05,41,061 – Rs. 10,89,89,419 – Rs. 6,15,51,642). We note that the main allegation of the Assessing Officer was that the assessee could not reconcile this difference therefore the addition was made. We note that the ld. CIT(A) stated that no specific unexplained discrepancy was found despite issue of notice u/s 133(6) of the Act in case of sundry debtors. No sundry debtor was found to be bogus. We note that the reason given by the AO is very general in nature. We note that it is not the case of Assessing Officer that the assessee has introduced any bogus credit in the balance sheet which has reflected in the form of debtors on the debit side of the balance sheet. No discrepancy has been found in the case of any specific debtors. We also note that there is no evidence in

The summarized / common ground no. 5 raised by the revenue is given as follows: 5. The ld. CIT(A) erred in deleting addition of Rs. 5,00,000/- on account of payment made by partner out of books of accounts (A.Y. 2012-13)

The brief facts qua the issue are that during the course of survey a deed of assignment (KBA-4) have been impounded. As per deed of assignment, Shri Arup Saha, partner of the firm was paid full consideration of Rs. 26,00,000/-. Shri Arup Saha denied that no payment made to him other than Rs. 5,00,000/-, which was paid in cash out of income generated from M/s K.B. Medical. During the assessment proceedings the assessee was asked to explain the reasons for this cash payment. In response, the assessee submitted that the nature of transaction was personal in nature.However, the Assessing Officer rejected the contention of the assesseeand made addition to the tune of Rs. 5,00,000/-. On appeal the ld. CIT(A) deleted the addition. Aggrieved the revenue is in appeal before us.

The ld. The ld. DR has primarily reiterated the stands taken by the Assessing Officer which we have discussed in our earlier para and the same is not being repeated for the sake of brevity. On the other hand, the ld. AR for the assessee defended the order of theld CIT(A).

We have given a careful consideration to the rival submissions and perused the material available in the record. We note that the addition of Rs. 5,00,000/- is in respect of deed of assignment (KBA-4) found during the survey u/s 133A on 08.01.2013.

Now we shall take summarized /common grounds raised by the assessee. Summarized ground no. 1 raised by the assessee is given for ready reference. 1. The ld. CIT(A) erred in confirming the addition on account of discrepancy in sundry creditors. a. Addition for A.Y. 2011-12 of Rs.11,53,985/- on account of discrepancy in sundry creditors.

Brief facts qua the issue are that during the assessment proceedings the Assessing Officer worked out excess sundry creditors reflected in the balance sheet of the assessee, as computed by the Assessing Officer on page no. 9 of the assessment order. We note that the Assessing Officer added the purchase to the opening balance of the sundry creditors and reduced payment made against the purchases therefrom to arrive at a closing balance of sundry creditors of Rs. 40,49,240/- as on 31.03.2011, as against which the assessee’s balance sheet reflected sundry creditors of Rs. 52,03,225/-. We note that the assessee’s explanation is rejected and the difference of Rs. 11,53,985/- (52,03,225 – 40,49,240) was added. On appeal the Ld. CIT(A) confirmed the addition made by the Assessing Officer. Aggrieved the assessee is in appeal before us.

The ld. Counsel for the assessee relied on the submissions made before the authorities below. Whereas the ld. DR for the revenue relied on the order passed by the Assessing Officer. We have given a careful consideration to the rival submissions and perused the material available on record. We note that the assessee has explained that the discrepancy was computed on the basis of artificial calculationsand discrepancy arose because the Assessing Officer treated the entire debits in the bank account as payment for purchases which was not correct. We note that the assessee submitted all the details of sundry creditors and purchases and we also note that no sundry creditor was found to be bogus. Therefore, we note that the Assessing Officer did not bring any tangible material on record to show that there is a discrepancy of Rs.11,53,985/-. We note that the assessee was maintaining books of accounts in ‘Unisolve Software’ as well as tally software, and the survey team worked out the difference based on the Unisolve software which was not updated. Therefore, we note that the Assessing Officer has failed to bring any tangible evidence on record to show that there was a discrepancy in the sundry creditors specially where the sundry creditors had

The summarized ground no. 2 raised by the assessee reads as under: 2. The ld. CIT(A) erred in confirming addition as gross profit on account of discrepancy in sales. a. Addition for A.Y. 2012-13 of Rs. 13,003/- as gross profit on account of discrepancy is sales. b. Addition for A.Y. 2013-14 of Rs. 1,06,146/- as gross profit on account of discrepancy in sales.

We note that during the course of survey it was found that the assessee maintained its accounts in Software by name “Unisolve System”, which was not updated. The Unisolve software is specialized in nature and catering the need of medicines wholesalers and retailers wherein all the mandatory requirements have been incorporated, but the said software was not updated therefore it used to give un-consistency results.The assessee has submitted the reconciliation during the assessment proceedings and the Assessing Officer did not comment anything adverse except to say that the assessee’s explanation are not accepted. The Assessing Officer did not give his findings as to why the difference was being added as undisclosed sales of the assessee. We note that the assessee’s books of accounts were audited by the chartered accountant and Assessing Officer has not rejected the books of accounts u/s 145(3) of the Act. Moreover, the Assessing Officer has not doubted on the gross profit declared by the assessee in preceding previous year therefore we find force in the arguments in the ld. Counsel for the assessee and delete the addition to the tune of Rs. 1,06,146/-.

The brief facts qua the issue are that the assessee entered in ledger of expenses cash payment of Rs.10,30,000/- on 31/03/2012. The computerized ledger copy impounded (KBA-l) on 08/01/2013. In this regard,assessee made his submission before the AO. The AO noted that the assessee has questioned own books of accounts which maintained in his business premises. Theassesse paid Rs.13,78,636/- to 23 persons. Sri Arup Saha, partner of the firm, failed to explain the violation of the provision of section 40A(3) of the I.T.Act on the date of survey under oath (Q.34 &Ans.34) and no further explanation given in this respect. Therefore. the entry in Expenses Ledger of cash payment of Rs.24,08,636/- disallowed U/s.40A(3) of the I.T.Act and added to returned income of the assesse.

On appeal, the ld. CIT(A) confirmed the addition made by the Assessing Officer. Aggrieved the assessee is in appeal before us.

The ld. The ld. DR has primarily reiterated the stands taken by the Assessing Officer which we have discussed in our earlier para and the same is not being repeated for the sake of brevity. On the other hand the ld. Counsel for the assessee has defended the order of theld CIT(A).

The summarized ground no. 4 raised by the assessee is given below: 4.The ld. CIT(A) erred in confirming the addition of Rs. 4,30,819/- on account of bogus purchases (A.Y. 2013-14)

Brief facts qua the issue are that from the impounded documents it was found that the purchase up to 08.01.2013( date of survey) was Rs. 19,76,37,113.26/- and from 09.01.2013 to 31.03.2013 purchase was Rs. 5,31,89,504.74/- totalling to Rs. 25,08,26,618/-. Whereas the purchase appeared in the audit report for the period 01.04.2012 to 31.03.2013 ofRs. 25,12,57,437/-. Thus the excess purchase shown in the audit report amounting to Rs. 4,30,819/-. The assessee was asked to explain the same vide letter dated 20.01.2016. In reply, the assessee submitted vide his letter dated 25.01.2016 reconciling the purchases. From which it transpired that the following bills were entered after 08.01.2013. Details of which are as under:

On appeal, the ld. CIT(A) confirmed the addition made by the Assessing Officer. Aggrieved the assessee is in appeal before us. The ld. The ld. DR has primarily reiterated the stands taken by the Assessing Officer which we have discussed in our earlier para and the same is not being repeated for the sake of brevity. On the other hand, the ld. Counsel for the assessee defended the order of the Ld CIT(A).

We have given a careful consideration to the rival submissions and perused the material available on record. We note that this grounds of appeal is against the disallowance of bogus purchases of Rs. 4,30,819/-. The Assessing Officer found that the assessee had claimed purchases of Rs. 25,12,57,437/- in the audited books of accounts. On the other hand, the purchase worth Rs. 19,76,37,113/- had been made during the relevant previous year till the date of survey u/s 133A i.e. on 08.01.2013 as per computerized accounts impounded during the survey and during the period from 09.01.2013 to 31.03.2013, purchases aggregating to Rs. 5,31,89,505/- had been made by the assessee. Therefore the total purchase as evidenced by the documents impounded during the survey impounded to Rs. 25,08,26,618/-. We note that the assessee has explained during the assessment proceedings that purchases totaling to Rs. 4,27,982/- had been made on date prior to 08.01.2013, the date of survey.We note that assessee was maintain books of accounts in tally software, whereas the figures taken by the Assessing Officer were from Unisolve software, which was not updated, as explained by the assessee. The assessee submitted the reconciliation and the difference is reconciliatory. The Assessing Officer did not bring any cogent evidence on record to show that the difference of Rs. 4,33,819/- is on account of bogus purchases. We note that the books of accounts of the assessee were audited and Assessing Officer did not reject the books of accounts. Moreover, the Assessing Officer has not doubted the sales, if corresponding sales are accepted by the AO then the purchase in respect of that sale is going to be correct. Hence we delete the disallowance of Rs. 4,30,819/-.

The summarized ground no. 5 raised by the assessee is given below:

Now we shall take the grounds raised by the assessee in cross objection in C.O. No. 68/Kol/2017, for assessment year 2010-11, which reads as under:

We have given a careful consideration to the rival submissions and perused the material available on record. We note that the assessee’s books of accounts were audited by chartered accountant. The books of accounts were not rejected by the Assessing Officer u/s 145(3) of the Act. We have deleted all the additions relating to bogus purchases and sales made by the Assessing Officer. The discrepancy in sundry creditors to the tune of Rs. 44,118/- worked out by the Assessing Officer is not based on any cogent material. This discrepancy worked out by the Assessing Officer has not been corroborated by any tangible material by the Assessing Officer therefore, we delete the addition of Rs. 44,118/-. Hence the cross objection filed by the assessee in C.O. No. 68/Kol/2017 is allowed.

In the result, the appeals of the Revenue in I.T.A. No. 1209, 1210&1211/Kol/2017 and the cross objections of the assessee in C.O. Nos.