SHRI SUBHASH CHAND KAPANIA PROP.,ROORKEE vs. ITO, ROORKEE

PER ANADEE NATH MISSHRA, ACCOUNTANT MEMBER (A). The present appeal has been filed by the assessee against the order dated 02.11.2011 of CIT(A)-II, Dehradun pertaining to A.Y. 2007-08.

Grounds of appeal are as under:-

1. “That on the facts and circumstances of the case and in law, the order dated 02.11.2011 (hereinafter referred to as the ‘impugned appellate order’), passed under section 250(6) of the Act by the Ld. Commissioner of Income Tax (Appeals)-II, Dehradun (the ‘Ld. CIT(A)’), is erroneous, arbitrary, based on surmises and conjectures, assuming incorrect facts and hence is illegal and bad in law.

2. That on the facts and circumstances of the case, and in law, the Ld.CIT(A) has erred in confirming the additions of Rs.1,52,538/- (on account of stock shortage) and Rs.2,43,500/- (out of total disallowance of Rs.373500/- made by the Ld.AO, on account of unexplained investments, being certain entries recorded on a loose parcha), without appreciating the facts and evidences submitted before him as well as the Assessing Officer. I.T.A .No.-762/Del/2012 Subhash Chand Kapania Prop. Vs ITO

Page 2 of 10 The above grounds of objections are without prejudice to each other. That the Appellant reserves its right to add, later, amend or withdraw any ground of appeal either before or at the time of hearing.”

(B). For the sake of convenience, both grounds of appeal are taken up together. The grounds of appeal are directed against the order of Ld.CIT(A) wherein the Ld.CIT(A) confirmed additions of Rs.1,52,538/- (on account of stock shortage) and Rs.2,43,500/- (out of total disallowance of Rs.373500/- made by the Ld. AO, on account of unexplained investments, being certain entries recorded on a loose parcha). Return of income was filed by the assessee showing total income of Rs.1,79,100/-. A survey u/s 133A of the I.T.Act, 1961 (in short “Act”) was conducted in the business premises of the assessee on 29.03.2007. At the time of survey u/s 133A of the Act, the net shortage of stock was valued at Rs.1,52,538/- (i.e. the value of stock as per books was higher by an amount of Rs.1,52,538/- as compared to value of stock physically found at the time of survey). Initially, the assessee explained that the shortage in stock was due to the fact that the same was lying with sister concern namely M/s Amba Marble Industries. On verification with M/s Amba Marble Industries, however, this explanation of the assessee was found to be wrong, as M/s Amba Marble Industries denied that any stock belonging to the assessee was lying with them. At a later stage the assessee furnished another explanation by way of re- conciliation between stock physically found at the time of survey and stock

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Page 3 of 10 as per books of the assessee at the time of survey. The Assessing Officer (in short “AO”) rejected this second explanation of the assessee as being an after thought. In the assessment order dated 21.12.2009, the AO added the aforesaid amount of Rs.1,52,538/- to the income of the assessee. The ld.CIT(A) confirmed this addition, vide impugned appellate order dated 02.11.2011.

(B.1). The AO also made an addition of Rs.3,73,500/- on the basis of loose paper found at the time of aforesaid survey u/s 133A of the Act. The relevant notings under loose paper contain entries of Rs.17,000/-, Rs.1,20,000/-, Rs.80,000/-, Rs.50,000/-, Rs.30,000/-, Rs.50,000/- Rs.30,000/- Rs.18,000/-, Rs.8,500/-, the gross total of which is stated at Rs.4,53,500/-. Then, there is a deduction of Rs.80,000/- on the losse paper, and the net amount is stated to be Rs.3,73,500/-. During the assessment proceedings, the assessee submitted explanation regarding the aforesaid entries the gross total of which is aforesaid Rs.4,53,500/-. The AO rejected the explanation furnished by the assessee during the assessment proceedings and made an addition of the aforesaid net amount of Rs.3,73,500/-. The Ld.CIT(A) took cognizance of the aforesaid gross amount of Rs.4,53,500/- instead of the aforesaid net amount of Rs.3,73,500/-. However, he accepted the explanation of the assessee with regard to some specific entries on the loose paper, total amount of which I.T.A .No.-762/Del/2012 Subhash Chand Kapania Prop. Vs ITO

Page 4 of 10 was Rs.2,10,000/-. He thus, confirmed the addition of Rs.2,43,500/- which is Rs.4,53,500/- minus Rs.2,10,000/-.

(B.2). The assessee is in appeal against the order of Ld.CIT(A) on both the aforesaid additions of Rs.1,52,538/- (as per foregoing paragraph “B”) and Rs.2,43,500/- (as per foregoing paragraph “B.1”).

(C) At the time of hearing before us, Ld. counsel for the assessee contended that the aforesaid addition of Rs.1,52,538/- was made by the AO and sustained by the Ld.CIT(A) without considering the stock reconciliation submitted by the assessee before the AO. Instead of rejecting the stock reconciliation merely as an after thought, the lower authorities should have examined the stock reconciliation provided by the assessee on merits, he contended. Without prejudice to this contention, the Ld. counsel also submitted that instead of making an addition of the entire amount of Rs.1,52,538/- on account of suppressed sales, the addition should have been restricted to the gross profit earned on the alleged suppressed sales, and in support of this, Ld. Counsel relied on the decision of Pune Bench of ITAT in the case of Janta Tiles vs ACIT in IT(SS)A No.-144/Pune/1996 dated 06.04.1999 [2000] 66 TTJ 0695. On this issue, the Ld.CIT Departmental Representative (in short “DR”) appearing for the Revenue stated that the credibility of the stock reconciliation furnished by the assessee to AO was doubtful because of varying explanations furnished by assessee at different

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Page 5 of 10 stages. He pointed out that initially the assessee had explained that the shortage in stock was because the same was lying with the assessee’s sister concern namely M/s Amba Marble Industries; and it was only when this explanation was found to be wrong that the assessee came up with the second explanation by way of stock reconciliation. We have heard both sides patiently on this issue and we have also carefully considered all materials on record. We find that the lower authorities have summarily rejected the stock reconciliation submitted by the assessee before the AO, as an afterthought without examining the merits of stock reconciliation provided by the assessee. We also find that the lower authorities have not given the reason for making the addition of the entire amount of alleged suppressed sales amounting to Rs.1,52,538/- without explaining why the addition was not restricted to gross profit on the alleged suppressed sales.

In the fitness of things, therefore, we set aside the order of the lower authorities on this issue and restore the matter to the file of the Ld. CIT(A) for fresh order on this issue. The Ld. CIT(A) is directed to examine the stock reconciliation furnished by the assessee on merits and to give a categorical finding. The Ld. CIT(A) is also directed to pass a speaking order giving categorical finding whether the entire amount of the alleged suppressed sales is to be added or only the gross profit earned on such alleged suppressed sales is to be added as assessee’s income. This issue is I.T.A .No.-762/Del/2012 Subhash Chand Kapania Prop. Vs ITO

Page 6 of 10 restored with the aforesaid directions to the file of the Ld. CIT(A) for fresh order as per law.

(C.1) As far as the aforesaid addition of Rs. Rs.2,43,500/- is concerned, the ld. Counsel for the assessee contented that the loose paper on the basis of which this addition is made is a ‘dumb’ document as it is undated and unsigned, and no adverse inference should be drawn against the assessee on the basis of it. The Ld. counsel cited a few case laws in support of this contention including (i) CIT vs Vineet Aggarwal (2015) 121 DTR 241 (Delhi); (ii) Chander Mohan Mehta vs ACIT [1999] 71/ITD/245 [Pune]; (iii)

D.D.Malhan vs DCIT 91/TTJ/947. (Delhi). In this regard, our special attention was drawn by Ld. counsel for the assessee to the precedent in the case of CIT vs Vineet Aggarwal (supra). The Ld. counsel for the assessee further submitted that the assessee had produced all the necessary evidences to the entire satisfaction of the AO despite which the AO made the additions. The Ld. counsel also submitted that copies of the documents furnished before the AO were also submitted the Ld.CIT(A) but the Ld.CIT(A) failed to take due cognizance of the same. The Ld. counsel, moreover, also submitted that the Ld.CIT(A) considered the aforesaid gross amount of Rs.4,53,500/- instead of the net amount of Rs.3,73,500/- considered by the AO, and thereby erred in enhancing the addition by an I.T.A .No.-762/Del/2012 Subhash Chand Kapania Prop. Vs ITO

Page 7 of 10 amount of Rs.80,000/- (i.e. Rs.4,53,500/- minus Rs.3,73,500/-); without giving an opportunity to the assessee. Furthermore, the Ld. counsel contended that the Ld.CIT(A) failed to give benefit of telescoping to the assessee in view of the fact that he had already confirmed the addition of Rs.1,52,538/- on account of alleged suppressed sales. He submitted that the addition on account of alleged suppressed sales should have been telescoped with addition on account of entries in the loose paper. The Ld.CIT (DR) appearing for the Revenue submitted that the additions have been made in accordance with law in view of the statutory presumption under section 292C of the Act. He supported the addition of Rs.2,43,500/- and relied on the order of the Ld.CIT(A). We have heard both sides patiently. We have also carefully considered the materials on record and the precedents brought to our attention. The assessee has filed a Paper Book before us containing 10 pages which includes the copy of the assessee’s reply filed before the AO and copy of assessee’s submissions filed to Ld.CIT(A). The contention raised on behalf of the assessee by the Ld. counsel, therefore, that the addition has been made on the basis of “dumb document” cannot be accepted at this stage in view of the fact that the assessee has already owned up this document during assessment proceedings and during appellant proceedings before Ld.CIT(A). The assessee has already furnished explanation and supporting evidences

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Page 8 of 10 regarding the various entries on this document before the AO as well as before the Ld.CIT(A), thereby owning up the loose paper. The contention that the document is “dumb” is inconsistent with the assessee’s own conduct during assessment proceedings and during appellate proceedings before the Ld.CIT(A). If the assessee has owned up the loose paper by furnishing explanation before the AO and before the Ld.CIT(A) and by furnishing supporting evidences; the assessee is barred by principle of estoppel to deny contents of the loose paper at a later stage by claiming that it was a dumb document. In view of these distinguishable facts, the reliance by the assessee on the precedents brought to our attention, lacks force and conviction. However, we find that the Ld.CIT(A) has summarily rejected the assessee’s explanation with regard to the additions on account of entries of Rs.17,000/-, Rs.1,20,000/-, Rs.18,000/-, Rs.8,500/- and Rs.80,000/-. The assessee had furnished explanation and evidences before the AO and copies thereof were also furnished to the Ld.CIT(A). The assessee has filed a Paper Book before us containing 10 pages which includes the copy of the assessee’s reply filed before the AO and copy of assessee’s submissions filed to Ld.CIT(A). The order of Ld.CIT(A) is a non-speaking order and does not explain why the explanation/evidences furnished by the assessee before AO and before ld.CIT(A) have been rejected. The order of the Ld.CIT(A) is also silent on I.T.A .No.-762/Del/2012 Subhash Chand Kapania Prop. Vs ITO

Page 9 of 10 why he chose to consider the aforesaid amount of Rs.4,53,500/- and not the aforesaid net amount of Rs.3,73,500/-; and from perusal of the order of the Ld.CIT(A) there is no mention that any opportunity was given by him to the assessee for taking this step. In view of these facts and circumstances, we are of the view that the order of Ld.CIT(A) is a non- speaking order and has been passed without giving reasonable opportunity to the assessee. In the fitness of things, therefore, we set aside the order of Ld.CIT(A) and restore this matter to the file of the Ld.CIT(A) for fresh orders on this issue. The Ld.CIT(A) is directed to pass a speaking order giving reasons for why the explanation/evidences furnished by the assessee before AO and before Ld.CIT(A) have been rejected and why he chose to consider the aforesaid amount of Rs.4,53,500/- and not the aforesaid net amount of Rs.3,73,500/-. The Ld.CIT(A) is directed to provide reasonable opportunity to the assessee before passing fresh order. This issue is restored, with the aforesaid directions, to the file of the Ld.CIT(A), for fresh orders as per law.

(C.2). As far as claim now made on behalf of assessee before us regarding benefit of telescoping is concerned, we find that no specific ground of appeal in this regard has been taken by the assessee. On perusal of records before us, we find that this ground/plea was not raised by the assessee either before the Ld.CIT(A) or even before the AO. Telescoping is an issue to be decided on the specific facts of the case, and Revenue must get an I.T.A .No.-762/Del/2012 Subhash Chand Kapania Prop. Vs ITO

Page 10 of 10 opportunity to examine this claim in the light of facts of the case. In the present case, the Revenue has not got this opportunity as this claim was not made by assessee before lower authorities. In these facts and circumstances, we decline to adjudicate on the issue of telescoping, at present. We have already set aside both the issues in dispute (additions on account of alleged suppressed sales and on account of entries in the loose paper) to the file of Ld. CIT(A). If the assessee now raises a ground before Ld.CIT(A) to claim benefit of telescoping, the Ld.CIT(A) will deal with the ground and dispose it off in accordance with law.

(D). The grounds of appeal are disposed off in accordance with the aforesaid directions. For statistical purposes, this appeal is partly allowed. This written order is pronounced in the open court on 21st April 2017.