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Income Tax Appellate Tribunal, “C” BENCH : KOLKATA
Before: Hon’ble Shri A.T.Varkey, JM& Shri M.Balaganesh, AM ]
ORDER Per M.Balaganesh, AM
This appeal by the revenue arises out of the order of the Learned Commissioner of Income Tax(Appeals)-XX, Kolkata [in short the ld CIT(A)] in Appeal No.16/CIT(A)- XX/Circle-36/2013-14/Kol dated 13.06.2014 against the order passed by the Assistant Commissioner of Income Tax, Circle-36, Kolkata [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (in short “the Act”) dated 26.03.2013 for the Assessment Year 2010-11.
The only issue to be decided in this appeal is as to whether the ld CITA was justified in reducing the net profit of the assessee by Rs 97,11,023/- in the facts and circumstances of the case.
2 Sri Sampat Mal Bachhawat A.Yr.2010-11 3. The brief facts of this issue are that the assessee is engaged in the business of trading in electrical goods, which is done by the assessee under the name of his proprietorship concern styled as “M/s Power Electronics’. The return of income for the Asst Year 2010-11 was filed by the assessee declaring total income of Rs 34,63,940/-. A survey action u/s 133A of the Act was carried out in the business premises of the proprietorship concern on 30.3.2010. The survey proceedings were started at 2.00 P.M. and the same was concluded on 31.3.2010 at 1.30 A.M. The books and accounts maintained by M/s Power Electronics include cash book, bank book, ledger, sales and purchase register etc. All the books were maintained in computer in the office at 11, Pollock Street, Kolkata- 700001. In the statement recorded on oath, it was confirmed by the assessee that ‘books of accounts are entered up till today, however some of the purchase bills which are yet to be received and some sales bills which is yet to be raised are yet to be entered in the books of accounts. Besides, some day to day expenses such as petty expenses and salary for March is yet to be taken into account. The net profit of the firm for the period 1.4.2009 to 31.3.2010 was extracted by the survey team from the computerized books of accounts of the firm. The profit for the period 1.4.2009 to 31.3.2010 was calculated by the survey team after taking into account the bills of purchase and expenses yet to be entered as claimed during the course of survey and other expenses not provided in the computerized books till date of survey :- Profit as per books on date of survey Rs 2,18,47,252/- Less: Opening Stock Rs 33,43,562/- Less: Exps not yet provided Rs 31,77,000/- (such as salary, depn, interest etc)
Taxable Income Rs 1,53,26,690/- The ld AO found that the assessee had declared total income of Rs 34,63,940/- which included interest and rental income of Rs 97,266/-. He observed that the assessee had offered business income of Rs 33,66,674/- as against income derived above in the sum 2
3 Sri Sampat Mal Bachhawat A.Yr.2010-11 of Rs 1,53,26,690/-. He observed that the assessee had claimed huge expenditure under the following heads in the remaining period of the financial year i.e 1 day after the date of survey and the same are compared as under:- Expenditure 1.4.2009-30.3.2010 31.3.2010- 1.4.2009-31.3.2010 claimed 31.3.2010 Freight charges NIL Rs.133591/- Rs.133591/- Travelling NIL Rs.1339331/- Rs.1339331/- Salary & Bonus Rs.852473/- Rs.791445/- Rs.1643918/- Total of the above Rs.852473/- Rs.2264367/- Rs.3116840/- % of total 27.35% 72.64% 100% expenditure Total turnover Rs.81389785/- Rs.1164422/- (2%) Rs.82554207/- (98%) (100%)
The ld AO observed that as on the date of survey, profit of the firm was 26.84% as against the declared profit of 4.22%. He observed that freight and travel expenses have been booked in post survey period and salary expenses booked in the post survey period was almost double of the pre-survey period. Considering these facts, he observed that the books were not upto the satisfaction as regards their correctness or completeness. The ld AO accordingly vide letter dated 20.3.2013 showcaused the assessee as to why the results shown in the accounts furnished by him in support of return of income be not rejected in accordance with section 145(3) of the Act.
In response, the assessee submitted that he is in the said business of dealing in electrical goods for more than 45 years and that purchases are made from reputed companies and sales are made to big industrial houses and are not made to wholesalers and / or retailers. He stated that the entire basis for rejection of books of accounts is the computer extracts drawn from the computer which showed profit of Rs 2,18,47,252/- on 3
4 Sri Sampat Mal Bachhawat A.Yr.2010-11 the date of survey. The assessee referred to the relevant extracts of the statement recorded from him on oath on the date of survey and explained his contentions as under:- I had stated in reply to question No.4 that "since there are numerous items of goods we do not maintain stock register. At the end of the year, stocks is physically inventorized and valued for the purpose of finalization of accounts at the time of audit". Further, I had stated "I would like to state that the value of stock as on ·date is not correct since the data entered in software package is corrupt and improper". Further in reply to question No.6 I had stated that "as stated earlier the closing stock as on so: March,2010 shown in the extracts of "P/L a/c taken from the computer is wrong and not correct due to corrupt date of value of stock entered in the computer. The matter did not stop here. Even in reply to question No. 8 I stated that as stated earlier the value of closing stock shown in the P/L A/c is completely erroneous and wrong. Al the above would clearly show that I have been stressing throughout the Survey proceeding that the extract drawn from the computer which showed the value of closing stock at Rs 1,52,97,868/- was totally wrong & irrelevant for the purposes of determination of my total income for the year ending 31.03.2010 .
A look at the extract of the computerized P/L Ale would show that the gross profit therein has been brought down at Rs.I6,42,505/-. If that be the case how the expenditure which is Rs. 63,25, 386/-can be reduced there from the still the profit can be declared by me at Rs 34,84,074/-. If these apparent mistakes appear in the extracts of P/L Ale obtained from the computer then this piece of paper cannot be taken cognizance thereof and has to be discarded.
It has been my case all along that I do not maintain any stock register. Past records available with you may be looked into along with the Tax Audit Reports and at Para No.9 of the Tax Audit Report obtained in Form No 3 CD you will find that there is no mention by the Auditor about having examined the stock register.
The inventory of the stock found as on the date of the Survey has been done by the Survey party and the value of the same is recorded at Rs. 34, 71,533/-. I would request you to kindly refer to question No. 6 of my statement recorded wherein I have been asked to explain the discrepancy/difference in the closing stock as physically found and shown in the P/L A/c (though not specifically stated by it refers to extract drawn from the computer )as on date - The question further goes to state that the inventory of stock of goods is taken with active support of staff members and also have queried me as to whether I am satisfied with the method of inventory of closing stock of goods followed. To this, I had replied that I am fully 4
5 Sri Sampat Mal Bachhawat A.Yr.2010-11 satisfied with the inventory of goods taken and valued at Rs 34,71,533/-. I further clarified the discrepancy/difference in closing stock as physically found vis-a-vis closing stock as per the computer extract. Further, to conclude the statement the Survey party at question No. 8 enquired me that the net profit being Rs2,18,47,251/- as per the computer extract has any advance tax been paid for the FY 2009-10. The reply may kindly be referred to. In clear cut terns, I had stated about the corrupt data in the computer and thereafter made the computation therein according to which the income came to Rs 35Lac approximately. I had paid the advance tax on the basis-of the same. Even the Audited Ales shows the profit at Rs34,84,074/-. .
I append below herewith a comparative chart in respect of my turnover for last three Years (inclusive that of the current years) which would show that all along my GP till the AY 2009-10 had been hovering around 6.7 to 7% and the net profit had all along been roughly 1 % which during the year is 4.22% and i. e. because of the reason that during the year the commission payment had been only Rs1, 73,123/- as against last year's Rs25,56, 739/- resulting in a spurt in the profits declared. AY Turnover G.P. % N.P. % 2008-09 112148546.40 7556314.62 6.74 997/30.92 0.89 2009-10 120514165.84 8405933.85 6.98 1124531.04 0.93 2010-11 82554207.66 8547648.79 10.35 3484074.28 4.22
Though the records are there with you still 1 would like to state that in the past Three/four years all my assessments were completed under scrutiny by issue of notices s 143(2) and 142(1) of the IT. Act and the gross profit as well as the net profits were never disturbed except for minor variation being disallowance on account of expenditures claimed.
In view of my aforesaid submissions, Book of accounts, Bills, vouchers etc. being maintained and audited as well as past records during which the assessments were all completed., "even after Survey proceeding with disturbing the trading resulting results 1 would request you to kindly do not proceed in the matter of rejection of Books of accounts as envisaged U/S 145(3) of the Income Tax Act. Further as regards to your query, relating to huge expenditure claimed under the head Freight charges, Travelling and Salary and Bonus, it is submitted as under:-
(i) Freight charges of Rs1,33,591/- has been incurred by me during the year. Ledger A/c is enclosed. It is not understood as to how the same is not appearing in the extract of the computerized P/L A/c. Ledger A/c copy of the Freight charges is enclosed.
6 Sri Sampat Mal Bachhawat A.Yr.2010-11 (ii) Travelling A/c is appearing in the computerized P/L A/c at the bottom at Rs1 3,39,751/-. (iii) Salary & Bonus claimed at Rs.I6,43,918/- includes Rs.4,50,000/- appearing under the head retainer ship, merged with Salary & Bonus, and provision of Bonus as well as the leave pay etc. made on 31st of march. (iv) There is as such no excess claim on account of aforesaid expenditures as stated by you."
4.1. The authorized representative of the assessee filed a letter dated 26.3.2013 furnishing the following explanation:- "The explanation submitted by the assessee covers all the points raised by you and also explains the reasons for non-acceptance of the extract drawn from the computer.
After having had the benefit of discussions with you, 1 had advised the assessee to prepare a statement of purchases and sales made, bill to bill, so as to arrive at the rate of gross profit as well as the net profit. The assessee has prepared as statement which shows the name of the seller, Bill No., amount, name of the buyer and the percentage of gross profit. The purchases and sales mentioned therein are Bill to Bill. The rate of gross profit as will be apparent from the said statement, varies from 0% to 24.79% and in me end on a sale of Rs. 3, 24, 95, 444/- the average profit percentage in only 6.42%. Further, please note that the turnover of Rs. 3,24,95,444/- is roughly 40% of the total turnover disclosed by the assessee. This statement is just to drive on the point that the assessee’s gross profit margin in any case is not more than 6.42% on these sales against which the declared rate of gross profit during the year is 10.35% on the entire turnover . assessee’s tradings/supplies are in wholesale and all duly verifiable.”
4.2. The ld AO observed the following in his order with regard to the aforesaid explanations of the assessee as under:- “4.4 The arguments of the assessee have been considered but are not acceptable. The assessee has argued that in the statement under oath he admitted that the data in the computer was corrupt. However, there are certain facts which need to be looked into:
Head of Amount in books Amount as per Difference Amount not account as on date of books in support entered in survey of return books on the date of 6
7 Sri Sampat Mal Bachhawat A.Yr.2010-11 survey Purchase Rs.72430057/- Rs.75955536/- Rs.3 525479/- Rs. 1733582/- Sales Rs. 81389785/- Rs. 82554207/- Rs.1 164422/- 8449/-
Closing Rs. 15297868/- Rs. 5426130/- (Rs.9871738) NIL stock
A look on the above data indicate that there is not much difference in values in the figure of purchase and sale in books as on date of survey and books in support of return. Hence, the assessee's argument that data was corrupt is not satisfactory. Further, there is a purchase amounting to Rs.3525479/- was entered during post- survey period while the sale is increased by Rs..1164422/-. This means that a further sales of Rs.1164422/- has been recorded in the books and the difference of Rs.23,61,057/- should have been added to the closing stock. The closing stock was valued at Rs.34,71 ,533/- on the date of survey. This means as per the above, the value of closing stock should have had been Rs.58,32,590/-. However, the assessee has shown the value of closing stock as Rs. 54,26,130/- in the books in support of return. Hence, there is a difference of Rs.406460/- which is unaccounted for. Hence, it is not the question of gross profit ratios but unaccounted sales.,
The assessee has accepted there was no stock register maintained as such.
Based on the above, it is understood that books in support of return does not present a true and correct picture of accounts. By taking plea of corrupt data, the assessee is trying to conceal some purchases and sales which are not accounted for in the books. It is also to be understood as to how only one data is corrupt while rest others do not show much difference. Hence, the arguments of the assessee are not acceptable. The books in support of return are neither complete nor correct. Hence, the books are rejected u/s 145(3) of the I.T.Act,1961 and profit is re- estimated as with an assumption that neither purchases nor sales have occurred in post-survey period. 4.5 The profit is re-estimated as under: Profit as per books on date of survey Rs.21847252/- Less: Opening Stock Rs.3343562/- Less: Purchases not entered in books Rs. 1733582/- Add: Sales not entered in books Rs.8449/- Less: Expenses not yet provided Rs. 3177000/- (such as salary, depreciation, interest, etc.) Net profit Rs.I,36,01.557/ –
The ld CITA granted substantial relief to the assessee and sustained the addition of Rs 4,06,460/- towards difference in closing stock by observing as under:- “4. There is only one issue involved in all the grounds of appeal which relates to contention of the appellant against addition of Rs.1,,01,17,483/- made by the AO on account of difference in net profit as per return of income and as estimated by the AO. The fact of the case is that in this case a survey action u/s 133A(1) was carried out and during the course of survey action net profit of the firm for the period 01.04.2009 to 30.03.2010 was extracted from the computerised books of account of the firm. It was claimed that certain purchases and expenses were yet to be entered in the computerized books . During the course of survey action inventory of stock was taken and after taking into account the expenses and opening stock etc, the net profit was arrived at Rs.35,00,000/- which was offered for taxation by the appellant. The AO mentioned in the assessment order that as per computerised books till the date of survey, net profit should be at Rs.l,53,26,690/-. She found that huge expenses were claimed under variousheads after the date of survey. There was huge difference between net profit shown in the computerised books on the date of survey as against declared in the return of income, thereby, she concluded that the books of account were not upto the satisfaction as regard their correctness and completeness. After considering the submission filed by the appellant she concluded that though the appellant admitted that the data in the computer was corrupt, however, there were certain facts which needed to be looked into. There was not much difference in the value in the figures of purchase and sale in the books of account and as shown in the return of income. There was purchases amounting to Rs.35,25,479/- entered into the books of account during post survey period while sales was increased by Rs.11,64,422/-. This means that a further sale of Rs.11,64,422/- had been reported in the books of account and thereby, the difference of Rs.23,61,057/- should have been added to the closing stock. The closing stock was valued at Rs.34,71,533/- on the date of survey, thereby, the value of closing stock should have been at Rs.58,32,590/-. However, the appellant had shown the value of closing stock at Rs.54,26,130/- in the books in support of return of income. This shows that difference in figures of closing stock at Rs.4,06,460/- represents the unaccounted closing stock, thereby, the AO rejected the books of account u/s 145(3) of the Act and estimated the profit at Rs.l,36,01,550/-. Since, a profit of Rs.34,84,074/- had already been shown by the appellant in the return of income, further profit of Rs.l,01,17,483/- was added to the total income as unaccounted net profit. After going through the fact and circumstances of the case and submission of the appellant as well as also perusal 8
9 Sri Sampat Mal Bachhawat A.Yr.2010-11 of the assessment order passed by the AO, I find that if at all working of the AO is accepted based on the profit calculated on computer sheet found during the course of survey action then also the figures of closing stock calculated by the survey team during the course of survey action (copy of the same was filed before me) are required to be taken into account and if the figures of closing stock as arrived by taking physical inventory of stock are taken into account, then the net profit would be as under:
Net profit calculated by the AO Rs.l,36,01,557/- Less: Closing stock shown in computer sheet Rs.1,5297,868/- Add: Closing stock ascertained by the survey team Rs. 34,71,533/- Net Profit Rs. 17,75,222/-
From the above discussion, it is clear that if 'the actual figures of closing stock are taken then the figures shown in the computer sheet has to be reduced, thereby, the profit estimated by the AO is not found to be correct. However, the figure discussed by the AO in her order on para 4.4 with regard to purchase and sale entered during post survey period which show that the closing stock should have been at Rs.58,32,590/- as against value shown by the appellant in the books of account based on return of income at Rs.54,26,130/-. Hence, there was a difference of Rs.4,06,460/- in the figure of closing stock. After analysing the facts/figures in this regard, I find that AO was correct as she had taken into account all the figures of purchases/sales upto the date of survey/post survey period for arriving at the correct figure of closing stock. From the above discussion, it is concluded that addition of Rs.4,06,460/- is sustained but the balance-addition is directed to be deleted.”
Aggrieved, the revenue is in appeal before us on the following grounds:- “1. On the facts & circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the addition to Rs. 4,06,466/- as against addition of Rs. 1,01,17,483/- made by the A.O. on account of difference in the net profit as per return of income and as estimated by the A.O.
2. On the facts & circumstances of the case and in law, the Ld. ClT(A) erred in granting relief of Rs. 97,11,023/- without bringing an record the specific defect in the assessment order in calculating the profit after repeating the books of accounts u/s 145(3) of the Act.
3. The appellant craves the leave to make any addition, alteration, modification of grounds at the appellate stage. “
10 Sri Sampat Mal Bachhawat A.Yr.2010-11 7. We have heard the rival submissions and perused the materials available on record. We have gone through the paper book of the assessee comprising of the following:-
7.1. We find from the physical inventory of stock valuation of electrical goods as done by the survey party, the stock value was determined at Rs 34,71,533/- which are enclosed in pages 30 to 57 of the paper book. We find from the computerized trial balance (enclosed in pages 58 to 59 of paper book) for the period 1.4.2009 to 30.3.2010 ( date of survey is 30.3.2010) impounded on the date of survey, contained the following items :-
‘Difference in Opening Trial’ - Rs 20,87,378.71 ‘Difference in Trial Balance’ - Rs 23,61,973.02 7.2. Similarly we find from the computerized profit and loss account for the period 1.4.2009 to 30.3.2010 and balance sheet as on 30.3.2010 which were impounded on the In Profit and Loss Account ‘Gross Profit Brought Down’ - Rs 16,42,505.27 Closing Stock (P/L) - Rs 1,52,97,868.79 Net Profit - Rs 2,18,47,252.21 In Balance Sheet Reserves & Surplus – Profit and Loss Account – Rs 2,18,46,440.21 Investments Capital Investment - Rs (-) 75,000 Sampatmal Bachhawat - Rs 23,24,024 Inventories – Closing Stock - Rs 1,52,97,868.79 Difference in Balance Sheet - Rs 23,61,973.02 7.3. We find that Opening Stock of Inventories was not reflected in the Computerised Profit and Loss Account impounded at the time of survey. We find from Computerised Balance Sheet impounded at the time of survey, the Opening Capital is reflected at Rs 23,24,024/- as against Rs 44,59,481.97 reflected in the audited balance sheet of the assessee. Moreover, the said computerized balance sheet also contained a line item ‘Difference in Balance Sheet’ to the tune of Rs 23,61,973.02. All these deficiencies go clearly to prove that the computerized profit and loss account and balance sheet impounded at the time of survey cannot be relied upon and in this regard the explanation given by the assessee at the time of survey in the statement on oath that the system is corrupted deserves to be accepted. In any case, the survey team itself had made physical valuation of inventories and had arrived at the value as on 30.3.2010 at Rs 34,71,533/- only. The difference between purchases and sales thereafter worked out to Rs 23,61,057/- (35,25,479-11,64,422) as observed by both the ld AO and ld CITA would lead to further increase in closing stock by Rs 23,61,057/-. Hence the total closing stock as on 31.3.2010 should be Rs 58,32,590/- as against the closing stock of 11
12 Sri Sampat Mal Bachhawat A.Yr.2010-11 Rs 54,26,130/- declared by the assessee in the balance sheet filed in support of return of income, thereby leading to a difference of Rs 4,06,460/- which has been rightly added by the ld CITA.
7.4. We hold that the survey team valued the closing stock as on 30.3.2010 based on physical verification of inventories at Rs 34,71,533/-, whereas the closing stock that was reflected in the computerized profit and loss account was Rs 1,52,97,868/-. Hence the computerized statement in the instant case cannot be relied upon as it contained deficiencies due to system getting corrupted.
7.5. We find that the assessee had also given the statement on oath at the time of survey that the total income for the whole year would be approximately Rs 35 lacs for which due taxes would be paid by him. The returned profit by the assessee was Rs 34,63,940/- . Hence there is no much variation in the approximation done by the assessee on the date of survey vis a vis the actual profit. We also find from the Gross Profit and Net Profit Chart of earlier years that assessee had reported higher GP and NP during the year under appeal despite the huge reduction in turnover. The same is evident as under:-
13 Sri Sampat Mal Bachhawat A.Yr.2010-11 7.6. In view of the aforesaid findings in the facts and circumstances of the case, we hold that the ld CITA had rightly sustained the addition of Rs 4,06,460/- only towards difference in closing stock and the same does not require any interference. Accordingly, the grounds raised by the revenue are dismissed.
In the result, the appeal of the revenue is dismissed.
Order pronounced in the Court on 23.05.2018.