ACIT, CIR-44, KOLKATA, KOLKATA vs. SHRI SHIW BINOD GUPTA, KOLKATA

Ground no.1 of revenue’s appeal is against the action of Ld. CIT(A) in deleting the addition of Rs.31,90,000/- on account of capital introduction from undisclosed sources.

The first ground of appeal of Revenue is against the action of the Ld. CIT(A) in deleting the addition of Rs.31,90,000/- made by the AO on account of introduction of capital in the books out of undisclosed sources. Briefly stated the facts of the case are that the assessee is an individual engaged in trading of different commodities. Survey operations u/s 133A was conducted upon the assessee on 04.02.2010 wherein evidence regarding sales & purchases made outside the books was found. With reference to the material found in the course of survey, the assessee declared additional income of Rs.50,00,000/- which was later on revised to Rs.70,00,000/- towards the profit derived from sales made outside the books of accounts and the circulating capital involved in such business. In the course of assessment the AO noted that the assessee had credited sum of Rs.31,90,000/- by way of capital introduction in his personal balance sheet. When confronted the assessee explained that balance sheet as on 31.03.2010 was prepared post the survey and hence the such introduction of capital inter alia formed part of the additional income of Rs.70,00,000/- offered at the time of survey. On further query, the assessee furnished a detailed reconciliation statement along with an explanation. The AO however was not agreeable to the same and added back the said sum of Rs.31,90,000/- holding that the assessee was unable to substantiate its source. Aggrieved by the impugned addition, the assessee preferred appeal before the Ld. CIT(A), who deleted the addition by observing as follows:

Aggrieved by the order of the Ld. CIT(A), the Revenue is now in appeal before us. The Ld. DR appearing on behalf of the Revenue relied on the order of the AO but was unable to point out any infirmity in the above findings of the Ld. CIT(A). After going through the facts and material on record, we note that the it is not in dispute that the assessee had offered income of Rs.70,00,000/- in the course of survey as well as the return of income. Before the AO it was explained that the said offer inter alia included cash disclosure of Rs.61,00,000/- towards the profit derived from sales made outside the books of accounts and the circulating capital involved therein, which was introduced in the cash book of the assessee post completion of survey. It was submitted that such disclosure of capital of Rs.61,00,000/- inter alia included the amount of Rs.31,90,000/- by way of capital introduction in the personal balance sheet of the assessee. A reconciliation statement in respect thereof was furnished at the time of assessment. Before the AO, the assessee submitted that the cash sales made by the assessee on behalf of its proprietorship concern was deposited in his personal savings bank account so as to avoid charges levied by Bank on deposit of cash beyond prescribed limit in current account. The cash deposited in the personal savings account would be accounted by way of withdrawal by the assessee from the proprietorship concern and the transfer of funds from the personal savings account to the proprietorship concern’s current account would be treated as introduction of capital by the assessee to its proprietorship concern. From the cash flow statement furnished before the AO, which is also available at Page 17 of the paper book; we note that the total cash deposited in savings account i.e. withdrawal from the proprietorship concern was Rs.1,36,10,000/-. On the other hand the total capital introduced during the year comprised of funds of Rs.1,07,00,000/- transferred from the personal savings account to the proprietorship concern’s current account. These facts have not been disputed by the AO. The assessee thus submitted that the total capital introduced into the proprietorship concern therefore comprised of Rs.1,07,00,000/- transferred from personal savings accounts and the cash disclosure of Rs.61,00,000/- made in the course of survey; aggregating to Rs.1,68,00,000/-.Accordingly the net difference between the capital introduced in the proprietorship concern and capital withdrawn from the said concern of Rs.39,10,000/- [1,68,00,000 – 1,36,10,000] was reflected by way of entry in the books of accounts as capital introduction into the assessee’s personal balance sheet to ensure that the income disclosed in the course of survey was correctly brought into the regular books of accounts.

After going through the above facts and statement, we find that the assessee had duly reconciled and explained the introduction of capital of Rs.39,10,000/- in his personal balance sheet and that it indeed formed part of the additional income of Rs.70,00,000/- disclosed at the time of survey. The Ld. CIT(A) was therefore right in observing that assessee was able to explain the entries in his balance sheet and that the addition of Rs.39,10,000/- made by the AO was unwarranted. Ground No. 1 raised by the Revenue is therefore dismissed.

The second ground of appeal of the Revenue is against the action of the Ld. CIT(A) deleting the addition of Rs.25,70,949/- made on account of unaccounted transportation expenses. From the facts as available on record, it is noted that the in the survey conducted at the assessee’s premises u/s 133A, evidence of sales & purchases outside the books was found. With reference to such business conducted outside the regular books, the assessee had disclosed profit of Rs.70,00,000/-. In the course of assessment the AO however rejected the books of accounts and estimated a higher profit than the profit disclosed and offered to tax by the assessee. Apart from estimating the profits, the AO made specific addition of Rs.25,70,949/- on account of unaccounted transportation expenses found recorded in the material impounded in the course of survey. On appeal, the Ld. CIT(A) deleted the impugned addition. Aggrieved by the Ld. CIT’s action, the Revenue is now in appeal before us.

Considering the above decisions and the facts of the case before us, we do not find any infirmity in the order of the Ld. CIT(A)holding that no further additions/ disallowance on account of specific item of expenses is permissible when the Gross profit rate of gross receipts are applied after rejecting the books of account of the assessee in the Assessment Year under consideration. Accordingly, Ground No. 2 raised by the Revenue is hereby dismissed.

The last ground of appeal raised by the Revenue is against the Ld. CIT(A)’s action of estimating the GP rate at 1% instead of 1.5% as estimated by the AO. Briefly stated, the assessee is a wholesale dealer of vanaspati, mustard oil, sugar etc. Post the survey u/s 133A, the assessee had re-drawn its books of accounts and submitted the return of income along with the tax audit report& audited accounts. In the course of assessment, the AO observed that the assessee had carried out large scale trades in different commodities but was unable to produce the stock registers so as to enable him to verify the quantitative records. The AO further noted that the profitability of different commodities varied and hence in absence of stock register, it was not possible for him to verify the trading results. For the reasons as aforesaid the AO held that the trading results as reported by the assessee were unreliable. He therefore invoked the provisions of Section 145(3) and rejected the books of accounts submitted by the assessee. The AO was of the view that the GP rate of 0.88% reported by the assessee was on the lower side and hence estimated it at 1.50%. Accordingly he made further addition of Rs.42,81,400/- to the profits of the assessee. Aggrieved the assessee preferred appeal against the same before the CIT(A), who taking into account the past history of the assessee and the facts of the case estimated the GP rate of 1%. Aggrieved, the Revenue is in appeal before us.

We have heard the rival contentions & perused the materials available on record. We find that there is no dispute with regard to the rejection of books of accounts. Thus, the limited issue before us relates to the estimation of profit in the event of rejection of books of accounts. The AO estimated the profit @ 1.50% of the gross turnover which was reduced by the Ld. CIT(A) to 1% of the gross turnover. We note that AO in the impugned has not elaborated the reasons for adopting the higher profit as compare to the earlier years. We also find that no comparable cases were brought on record by the AO for determining the profit at 1.5% on estimated basis.

On the other hand we find force in the Ld. AR’s contention that the history of the assessee becomes very important once the profit has to be determined on estimated basis. It is noted that the income-tax assessments for the earlier years were framed u/s 143(3) and in those years the trading results of the assessee had been accepted by the Department. From the chart submitted before us, we find that the assessee has disclosed the fair rate of gross profit in comparison to the earlier years. In the circumstances the profit declared by the assessee in earlier years cannot be brushed aside for estimating the profit of the relevant year until and unless, there are changes in the facts and circumstances or the AO brings any results of comparable cases to justify his action, which is not the case here in hand. The Ld. AR has pointed out that there is no change in the modus operandi of the business as well as the facts and circumstances as compared to earlier assessment years. In our considered view therefore, we find merit in the action of the Ld. CIT(A) in estimating the profit at 1% after taking into consideration the profit of earlier years declared by assessee. Accordingly, Ground No. 3 raised by the Revenue is hereby dismissed.

In the result the appeal of the revenue stands dismissed.