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Income Tax Appellate Tribunal, DELHI BENCHES: “F” NEW DELHI
Before: SHRI J.SUDHAKAR REDDY, A.M. & SHRI KULDIP SINGH, J.M.
O R D E R PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER These are cross appeals for the Assessment Year (A.Y.) 2005 - 06 and revenue appeal for the A.Y. 2006-07 and A.Y. 2008-09. As the issues arising in all these appeals are common, for the sake of convenience, they are heard together and disposed of by way of this common order.
Facts in brief:- The assessee is a company and is in the business of manufacturing and trading of milk and milk products. It filed its return of income on 31.10.2005 declaring income of Rs.70,89,013/-. The Assessing Officer (A.O.) framed an assessment u/s 144 of the Income Tax Act, 1961 (the Act) read with S.143(3) of the Act on 28.12.2007 determining the total income at Rs.5,04,89,886/- inter alia making additions on account of : (a) unexplained investment in share application money; (b) an addition on account of low gross profit rate; (c ) addition on account of loss of lactose; (d) disallowance of expenses and (e) disallowance u/s 43B of the Act. 2.1. A best judgement assessment u/s 144 of the Act was passed, based on the material available on record, due to non cooperation of the assessee. The assessee has not produced the books of accounts and vouchers before the A.O. 2.2. The assessee carried the matter in appeal. The Ld.CIT(A) admitted fresh evidences filed by the assessee and called for the remand report from the A.O. After considering the Remand Report, the Ld.CIT(A) had partly allowed the appeal of the assessee.
Aggrieved, both the assessee as well as the Revenue are in appeal before us.
4. We first take up the Cross Appeals for the A.Y. 2005-06.
ITA 4509/Del/2010: The revenue filed an additional ground which reads as follows. “That the Ld.CIT(A) has erred in law and on facts in admitting additional evidence which are not in accordance with rule 46A of IncomeTaxRules.”
The Ld.D.R. submitted that this is a purely legal ground not requiring any investigation into the facts of the case and hence has to be admitted. The Ld.Counsel for the assessee on the other hand opposed the same by submitting that it is not a legal ground that depends on investigation of fact. No reason has been assigned for not taking this ground at the time of filing of the appeal in form number 36. The additional evidences in respect of which this ground is preferred is not specified. The A.O. has not objected for admission of additional evidences at the time when the Ld.CIT(A) had called for the remand report.
After hearing rival contentions I am of the considered opinion that the additional ground raised by the revenue has to be admitted as this is a legal ground not requiring investigation into any fresh facts. All the facts are on record.
We now consider this additional ground on merits. The order of the assessment was passed under section 144 of the Act. The Ld.AO has at the time of calling for the remand report has not objected for the admission of additional evidence. From the assessment order it can be seen that on 26.12.2012 the assessee filed four sets of papers with details. The A.O. records that no books of accounts or any vouchers etc. in support of the items in the profit and loss account have been produced before him. There was nothing that the assessee has furnished details to prove valuation of closing stock. The assessment order was passed on 30.01.2012 as it was a time barring case i.e. within ……….. Under these circumstances the ld.CIT(A) has admitted additional evidence. We find no infirmity in this action. Hence this additional ground is dismissed.
Ground number 1 is against the deletion of Rs.1.80 crores being addition made by the A.O. on the ground that the share application money received remained unexplained.
After hearing rival contention we find that the share application money of Rs. 1.80 crores was received from 1062 persons. The A.O. asked the assessee to produce these persons before him on 27.12. 2007. Due to paucity of time and as the assessee had also not produced books of accounts, the addition have been made by the A.O. During the remand proceedings the assessee produced the audited books of accounts.
As per the directions of the A.O. he produced 361 persons who had given share application money. The A.O. recorded their statements and there is no adverse finding on the same. The assessee also filed confirmation from 97 share applicants in the proforma suggested by the A.O. The AO was of the view that the addition was justified, since all the share applicants were not produced before him and as payments were received in cash from person who are not income tax assesses nor are having bank accounts and as books were not produced nor source is proved. The Ld.CIT(A) deleted the addition on the ground that the assessee has furnished all the details of share applicants as decided by the AO and 361 persons were produced and statements recorded and all of them confirmed the transactions. He gave a finding that the amounts in question were nominal, starting from Rs.3,000/- each and hence the credit worthiness and genuineness stand explained. The identity of the persons was proved by the assessee except in the case of 26 persons. This was due to the reason that, they were not carrying their identity proofs. Some of these people have admitted that they were promised that the money contributed by them would be doubled in five years.
11.1. A further finding is given that out of 1622 share applicant 854 persons had made similar applications and deposited money for the A.Y. 2004-05, 345 persons had also made applications for the A.Y. 2007-08 and 270 persons had made applications for both the A.Y. 2004-05 and 2007-08. These applications were accepted in those years. This leaves only 399 persons who were new applicants during this year. Hence the Ld.CIT(A) was of the view that when the amount is too small and when the statements of 361 persons were recorded and confirmation of 97% filed on record and no material is gathered by the A.O. to disprove the documents submitted by the assessee, merely disbelieving the evidence would not suffice. The A.O. has not conducted any enquiry by issuing notices under section 131 or 133(6) of the Act to gather evidence to controvert the evidence filed by the assessee. The books of accounts were produced before the A.O. during the remand proceedings.
11.2. Under these circumstances we find no infirmity in the order of the first appellate authority. The decision of the first appellate authority is in line with the propositions of law laid down by the Jurisdictional High Court in the case of CIT vs. Gangeshwari Metals P.Ltd. 361 ITR 10 (Del.)
11.3. In view of the above discussion we uphold the order of the first appellate authority and dismiss this ground of the revenue.
Ground no.2 is against the rejection of an addition made by the AO on account of low gross profit. The A.O. estimated this turnover of the assessee at Rs.144 crores as against the turnover of Rs.140.21 crores declared by the assessee. The Ld.CIT(A) deleted this estimation of turnover on the ground that it has no basis. The A.O. had calculated the gross profit at an average of 3 years at 4.41% as against the declared gross profit of 3.10%. The Ld.CIT(A) noticed that the A.O. had completed the assessment u/s 143(3) of the Act for the A.Y. 2007-08 and under similar circumstances accepted the gross profit of 2.94%. Only the net profit declared by the assessee of 0.62% was assessed at 0.70%. Based on this the Ld.CIT(A) directed the A.O. to apply net profit rate of 0.80%. Thus he reduced the gross profit addition of Rs.1,88,64,000/- made by the A.O. to Rs.7,59,561/-.
After hearing rival contentions we find no infirmity in the order of the first appellate authority, wherein he has determined the turnover at Rs.140.21 crores. The assessee maintains audited books of accounts. This figure is taken from these audited books of accounts. The estimation of turnover at Rs.144 crores by the A.O. has no basis.
Coming to the Gross Profit rate, we find that the A.O. has accepted Net Profit @ 0.70% for the A.Y. 2007-08 and net profit of 0.66% for the A.Y. 2008-09. The assessee had declared net profit of 0.74% during the impugned A.Y. Hence we find no infirmity in the estimate made by the First appellate authority. The basis on which me made this is logical. In the result this ground of Revenue is dismissed.
Ground no.3 of the Revenue is against the deletion by the Ld.CIT(A) of an addition of Rs.28,79,500/- claimed as loss on abandonment of lactose. Lactose is a raw material being a type of sugar for milk products which is imported from Holland. The A.O. was of the view that as per the tax audit report, the quantitative details stand reconciled with respect to purchases, consumption and closing stock. Therefore, the loss of Rs.28,79,500/- for this item is not understandable. The assessee explained that lactose was imported in three lots of 1 lakh kgs each. Two lots were received and whereas the third lot was not lifted from the customs due to imposition of huge demurrage and detention charges. Its release, as per the assessee would have costed it more than the benefit. Hence this loss was claimed as an expenditure. Evidence for the same was produced by the assessee. The Ld.D.R. could not controvert these submissions. Hence we uphold the finding of the Ld.CIT(A) and dismiss this ground of Revenue.
Ground no.4 is against deletion of an adhoc disallowance of 5% of the expenses made by the A.O. on the ground that the same are not verifiable. The Ld.CIT(A) deleted this adhoc disallowance on the ground that, there is no dispute that these expenses relate to the business and are not excessive and that all the expenses have been vouched. He held that the A.O. made the disallowance by making general observations and without bringing on record as to how these expenses were excessive. We find that, the turnover of the assessee has increased from Rs.90.65 crores in the A.Y. 2004-05 to Rs.140.21 crores in the impugned A.Y. 2005-06 and whereas there is nominal increase of 5% in expenses. Thus we find no reason to interfere in the order of the first appellate authority on this aspect. Thus we dismiss this ground of Revenue.
Ground no.5 is general in nature.
In the result this appeal of the Revenue in ITA 4509/Del/10 is dismissed.
The assessee’s appeal ITA 4492/Del/10 for the A.Y. 2005-06 is on the following ground. “That the Ld.CIT(A) has erred in law as well as on the facts of the case by confirming an addition of Rs.7,79,561/- towards alleged low G.P. rate and the submissions of the appellant and material on record have not been considered in the right perspective thereof”.
While disposing of ground no.2 of revenue’s appeal for the very same A.Y. we upheld the net profit rate applied by the Ld.CIT(A). Ld.Counsel for the assessee though not leaving his ground, did not strongly object to this finding of the first appellate authority. Consistent with the view taken therein we dismiss this ground of assessee.
In the result ITA 4492/Del/10 by the assessee is dismissed.
ITA 2830/Del/11 for A.Y. 2006-07 is Revenue’s appeal on the following grounds .
1. Whether the Ld.Commissioner of Income Tax(Appeals) has erred in law and facts in deleting the addition of Rs.2,35,00,000/- made by the Assessing Officer on account of unexplained share application money inspite of the fact that the creditworthiness of the share holders could not be proved by the assessee before the Assessing Officer? The amount has rightly been added to the income of the assessee u/s 68 of the Income Tax Act, 1961 in the light of the following judgements. CIT vs. Sophia Finance Limited(Del) 205 ITR 98 CIT vs. Active Traders P. Limited(Cal), 214 ITR 583 CIT vs. Nivedan Vanijya Niyojan Ltd., (Cal) 263 ITR 623 CIT vs. Bhagwati Jewels Ltd.(Del.) 201 ITR 461 2. Whether the Ld. Commissioner of Income Tax(Appeals) has erred in law and facts in reducing the addition of Rs.3,06,45,632/- made by the Assessing Officer on account of low GP to Rs.5,21,513/- without appreciating the facts that the books of accounts were not produced by the assessee and relevant facts were brought on record before making addition on account of low GP rate.
3. Whether the Ld. Commissioner o f Income Tax(Appeals) has erred in law and facts in deleting the addition of Rs.8,68, 197/- made by the Assessing Officer on account of unverifiable expenses without appreciating the facts that no books of account and bills and vouchers were produced by the assessee and hence the expenditure remained unsupported and unverified.
In the facts and circumstances of the case, the order of the Commissioner of Income Tax(Appeals) may be set aside and that of the A.O. restored.”
Ground no.1 is against the deletion of addition of Rs.2.35 crores on account of unexplained share application money. The share application money was received from 754 persons. The assessee has produced 150 persons before the A.O. in the remand proceedings and the assessing officer recorded their statements. All these persons confirmed the transaction. Only 20 persons out of 754 persons have deposited amounts in excess of Rs.1 lakh. Out of these 20 persons, 12 persons were produced before the A.O. Confirmations were filed from the other persons. 4 out of the 8 persons are income tax assesses. Out of the 754 persons, 686 applicants have acquired shares of the company either in the earlier Assessment years or in the subsequent assessment years. These transactions were not accepted by the Revenue.
This leaves us only with 68 persons who were new applicants during the year. The facts and circumstances and the evidence produced in this year, is similar to, what was produced before the A.O. during the A.Y. 2005-06. We have discussed this issue and adjudicated the same in favour of the assessee at para no. 11 of this order. Consistent with the view taken therein, we uphold the order of the first appellate authority and dismiss this ground of Revenue.
Ground no.2 is on the estimation of profit. This is similar to ground no.2 of the revenue appeal for the A.Y. 2005-06. Consistent with the view taken therein we uphold the order of the first appellate authority and dismiss this ground of revenue.
Ground no.3 is against deletion of adhoc disallowance of expenses. This ground is similar to ground no.4 of revenue appeal for the A.Y. 2005-06. As the facts are identical, consistent with the view taken therein, we dismiss this ground of revenue.
The revenue had also taken additional ground of appeal on admission of additional evidences by the Ld.CIT(A). Consistent with the view taken by us on similar issue on the same facts for the A.Y. 2005-06, we admit this additional ground of revenue. On merits we dismiss this ground as we find no infirmity in the order of the Ld.CIT(A) on this issue.
In the result this appeal ITA 2830/Del/11 by revenue is dismissed.
ITA 2975/Del/12 for A.Y. 2008-09: This is revenue’s appeal.
Ground no.1 is against deletion of disallowance of expenses made by the AO on adhoc basis. The facts for the A.Y. 2005-06, 2006-07 on this issue are similar. While disposing ground no.4 in Revenue’s appeal for the A.Y. 2005-06 we have discussed this issue. Consistent with the view taken therein we uphold the order of the first appellate authority and dismiss this ground no.1.
Ground no.2 is against the deletion of disallowance made by the A.O. on bad debts of Rs.19,35,000/-. The undisputed fact is that these debts relate to dues that arose on sale of milk etc. These debts were written off in the books of accounts of the assessee as bad debts. On these facts we apply the decision of Hon’ble Supreme Court in the case of TRF Ltd. vs. CIT 323 ITR 379 (SC) and uphold the order of the first appellate authority. In the result ground no.2 is dismissed.
Ground no.3 is against deletion of addition of Rs.33,27,500/- u/s 68 of the Act for share application money received. As in the earlier years, the assessee had produced confirmations and i.d. proofs of 1034 persons. The A.O. accepted as genuine share application money received from large number of persons. As i.d. proofs and confirmations of 64 persons could not be filed during the course of assessment proceedings, an addition of Rs.33,27,500/- was made. It was submitted that out of these 64 persons, 42 persons had applied for share applications in the earlier A.Y. and that stood accepted. The confirmations and i.d. proofs of the 64 persons were filed before the Ld.CIT(A) as additional evidence. The Ld.CIT(A) admitted these evidences and called for a remand report from the A.O. There is no adverse finding by the A.O. Under these circumstances, for the same reasons given therein, on the very same issue for the A.Y. 2005- 06 and 2006-07 the Ld.CIT(A) as deleted this addition. We have discussed similar issue while disposing of revenue appeal for the A.Y. 2005-06 and 2006-07. Consistent with the view taken therein we uphold the order of the first appellate authority and dismiss this ground of revenue.
In the result revenue’s appeal in ITA 2975/Del/12 for Assessment Year 2008-09 is dismissed.
In the result all the three appeals filed by the Revenue as well as the appeal filed by the assessee for A.Y. 2005-06 are hereby dismissed.
Order pronounced on 25th January, 2017.