Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, DELHI BENCH ‘E’ NEW DELHI
Before: SHRI I.C. SUDHIR & SHRI L.P. SAHU
Per L.P. Sahu, Accountant Member:
This is an appeal filed by the Revenue against the order of ld. CIT(A)- IX, New Delhi dated 19.03.2012 on the following grounds :
“1. The order of the learned CIT(APPEALS) is erroneous & contrary to facts & law.
2. On the facts and in the circumstances of the case and in law, the learned CIT(Appeals) has erred in deleting the addition of Rs. 36.19 lacs on account of Gross Profit rate.
3. On the facts and in the circumstances of the case and in law, the learned CIT(Appeals) has erred in deleting the addition of Rs. 4.07 lacs out of renovation expenses.
4. On the facts and in the circumstances of the case and in law, the learned CIT(Appeals) has erred in deleting the addition of Rs. 42.41 lacs on account of unsecured loans.
5. On the facts and in the circumstances of the case and in law, the learned CIT(Appeals) has erred in deleting the addition of Rs. 54.54 lacs claimed as payable was added to the income.”
The brief facts of the case are that the assessee filed his return of income on 03.09.2008 declaring an income of Rs.7,54,430/-. The case was selected for scrutiny and statutory notices were issued. The total turnover for the year under consideration was Rs.14,53,75,462/-. During the course of scrutiny proceedings, the Assessing Officer asked for the details through questionnaire and for production of books of accounts. In this regard, the assessee submitted that a major fire occurred at the office cum godown at 172, Sector 15, part-I, Gurgaon on 12.06.2010 and all the records and stock were destroyed there.
The Assessing Officer gave many opportunities for filing requisite details as
per questionnaire issued, but the assessee did not comply with the notices.
The ld. Assessing Officer also called for the details of the godown and offices.
He submitted the details of offices and godowns as per letter dated 01.11.2010 showing the names and addresses and use of the premises. The Assessing Officer noted that the name and address of the premises on which the fire was said to have occurred, did not find place in these details furnished by the assessee. It was submitted by the assessee that since except one backup of books of accounts, which too was not complete, of the previous records and documents up to F.Y. 2008-09 got destroyed in that major fire, they have tried to reproduce all the records from the third parties and incomplete back up, but they were unable to give complete details. The assessee filed some documents in piecemeal fashion. The Assessing Officer issued notice u/s. 133(6) of the Act to six parties for verification of purchases at the addresses provided by the assessee out of which four notices were received back. The assessee filed details of purchases and sales month-wise and party-wise, details of opening stock and closing stock, debtors and creditors exceeding Rs.1 lac and the details of expenses. In this regard the AO drew inference that this information is not possible in case of records having been destroyed in fire. The assessee also did not produce books of account.
The AO asked for the details of previous years’ GP rates. The AR of the assessee submitted GP rate for A.Y. 2005-06 at 9.31% and for A.Y. 2006-07 @ 3.3%. The ld. AO calculated average GP at 6.3% for the previous two years and applied the G.P. rate of 6.5% after rejecting the books of account, as against 4.1% declared by the assessee for the year under consideration.
Accordingly, the AO made trading addition of Rs.36,19,849/- to the total income of the assessee.
On further scrutiny of details, the Assessing Officer noted that a sum of Rs.43,88,880/- has been taken as unsecured loan from Rakesh Gupta. The assessee did not file any details of Rakesh Gupta nor his confirmation even on providing sufficient opportunities. Therefore, for non-compliance, the AO treated it as unexplained cash credit and added the same to his income u/s. 68 of the Act.
The assessee had filed ledger account of office renovation expenses before the AO. The AO required the assessee to explain the nature of expenses and where these expenses have been incurred. The assessee submitted that in the existing structure, major repair and maintenance has been undertaken and stated that it was a revenue expense. The total expenditure was incurred towards repair and maintenance has been undertaken and stated that it was a Revenue expense. The total expenditure was incurred towards repair and maintenance of Rs.5,07,202/-, out of which Rs.4,07,202/- were paid through the banking channel and rest amount through cash. Substantial amount was paid to M/s. D.K. construction is labour cost. The AO did not accept the explanation of assessee and treated it as capital expenditure and disallowed the sum of Rs.5,07,202/-.
The Assessing Officer issued notice u/s. 133(6) to the creditors M/s.
Irish Computer Ltd. and M/s. E sys Information Tech. Ltd., which were received back un-served. This fact was confronted to the assessee. The assessee did not file any information. Even confirmations from the parties were not filed. Therefore, the AO added the whole credit balance of ledger account stood at Rs.31.03.2008 of Rs.7,01,190/- and Rs.47,53,544/- respectively totaling to Rs.54,54,734/-, as un-confirmed credit balances.
Against the above additions, the assessee appealed before the first appellate authority. The assessee submitted additional evidence before the first appellate authority and remand reports were called from the Assessing Officer and after being satisfied with the submissions of the assessee and considering the remand report, the ld. CIT(A) deleted the trading addition of Rs.36,19,000/-, gave relief of Rs.4,07,000/- out of addition of Rs.5,07,202/- and further gave relief of Rs.42,41,000/- out of addition of Rs.43,88,880/- made by the AO as unexplained cash credit. The ld. CIT(A) also deleted the addition of Rs.54,54,734/- made by the AO as unconfirmed credit balances.
Accordingly, the appeal of the assessee was partly allowed. Aggrieved, the Revenue is in appeal before the Tribunal.
The ld. DR relied on the order of the Assessing Officer and submitted that the AO has rightly calculated the gross profit rate. The AO had given sufficient opportunity to the assessee but the assessee did not comply with the notices and admitting of additional evidence by the CIT(A) is not correct.
The ld. DR vehemently objected to the admission of additional evidences. The fire occurred on 12.06.2010 whereas the certificate has been obtained from the fire fighting party on 29.12.2010, i.e., after six months from the fire accident and after the service of notices on 29.09.2009 in the scrutiny proceedings. Therefore, the certificate is not reliable. Moreover, it was the duty of the assessee to inform the Revenue Authorities about the destruction of account books in fire which allegedly took place on 12.06.2010, but the assessee did not do so. In the remand proceedings, the AO had objected the admission of additional evidence also. The ld. DR further submitted that the assessee has wrongly calculated the Gross Profit. He has shown in his trading result for F.Y. 2006-07 under the head ‘Misc. income’ of Rs.3,53,879/- which is a part and parcel of the regular business. Therefore, it will be considered for calculation of gross profit. Therefore, the action of the Assessing Officer is justified in considering 9.31% G.P. in A.Y. 2006-07. The books of account were also not audited. The ld. DR also submitted that the office renovation expenses claimed by assessee are capital expenditure. A huge amount has been incurred on renovation and enduring benefit cannot be denied. Therefore, the action of the AO is justified. The assessee had also not produced any agreement with the landlord for the repair and renovation of the rented building.
The ld. DR further submitted that Shri Rakesh Gupta, in whose name unsecured loan stood at Rs.43,88,880/- could not be proved before the AO as required by section 68 of the Act. Mere filing of ledger account does not satisfy the conditions laid down u/s. 68 of the Act. The assessee has submitted confirmation from Rakesh Gupta in the remand proceedings, in which the PAN shown is also wrong.
In respect of ground No. 5, the ld. DR has not pressed because he submitted that the major part of the amount has been accepted by the Assessing Officer.
On the other hand, the ld. AR relied on the order of the ld. CIT(A). In respect of ground No. 1, he submitted that the ld. Assessing Officer has wrongly calculated the GP rate for the assessment year 2006-07. The details of profit and loss account were provided in the remand proceedings. The assessee did not submit correct G.P. rate. He had included all sundry balances write off of Rs.2,67,692/- and Misc. income of Rs.62,450/- and discount received of Rs.23,737/- for calculation of gross profit of the business. These two items are not part of the regular trading activities. He submitted that it has to be excluded. Therefore, correct profit for F.Y. 2005-06 is Rs.59093/- which given profit rate of 1.51% instead of 9.13%. Accordingly, the AO was not justified for enhancing the income by applying the higher rate of GP. The ld. CIT(A) has elaborately discussed this issue. The ld. AR also submitted in respect of office renovation expenses that it was a repair and maintenance.
The details of renovation expenses in the office building were provided before the ld. CIT(A) and the details of all the business premises were also given to the AO. The assessee had taken a new shop at S/F 114, DLF Galleria, DLF-IV, Gurgaon. Lease Deed was submitted before the CIT(A) and the turnover has also been increased from 6.12 crores to 14.53 crores and similar expenses incurred during the last year were allowed. In the present day of business, customer get attracted only if the business place is properly maintained and also duly renovated from time to time. Therefore, proper upkeep of the sales outlets and office places is business expenditure allowable u/s. 37(1).
In respect of unsecured loans taken from Rakesh Gupta, it is submitted that only a sum of Rs.5 lacs was taken from Shri Rakesh Gupta and the other credits were wrongly entered in his name and the same could not be reconciled due to dislocation and overlapping of records on account of fire.
His bank account clearly show only a debit entry of Rs.5,00,000/- on 22.12.2007. In respect of other credits, the details of the bills and their ledger accounts were filed before the CIT(A), which are available in the paper book page 74 to 90.
After hearing both the parties and perusing the materials available on record, we find that in respect to ground Nos. 2 & 3, the ld. CIT(A) has made a good order which requires no interference. The ld. CIT(A) has recorded his respective findings at para Nos. 5.7 and 6.5 of the impugned order which are reproduced here for ready reference :
“5.7. I have gone through the finding of the AO, submissions made by the appellant, the remand report and the rejoinder. The AO has made the addition for the reason of non production of books of accounts coupled with low G.P. rate as per the chart furnished by the appellant during the assessment stage. Admittedly, during the assessment proceedings the appellant had filed a number of details except the books of accounts owing to the fire in the office cum godown and submitted that it was trying to reconstruct the data. During the appellate proceedings, it was submitted that the accounts were retrieved and the same could be produced with sales and purchase bills. The appellant had also filed an application under Rule 46A which was send to AO. In the remand report, the AO repeated the contents of the assessment order. In the rejoinder, the appellant stated that it had produced the books of accounts and the sales and purchase vouchers before the AO in the remand proceedings but he preferred not to comment on the same. The appellant submitted that the G.P. rate chart filed before the AO was not correct and was contrary to facts and the audited accounts. It was averred that during the assessment proceedings, the G.P. rate for the F.Y. 2005-06 was wrongly mentioned as 9.13 % though as per the audited accounts, the same was 1.51% . He also explained the reason for the calculation error. In the remand report, the ld. AO did not comment on this issue but stated that the audit report date as submitted by the AR is different from the audit report date mentioned in the e-filed return. On this pretext, he did not commented on the error in respect of G.P. rate. The rejoinder of the ld. AR was that there were two dates in the audit report one the for the statutory report and the other for the Tax audit report and both the dates were apparent from the copy of audit reports enclosed in the paper book. I find that the basis of the addition is the average of the G.P. rate taken by the ld. AO from the submission of the ld. AR which was apparently not verified by him from the records and from the copies of the audited balances sheet which were duly accepted by the department in the earlier years, furnished by the appellant. It is seem that the G.P. rate for the earlier two years i.e A.Y. 2006-07 and 2007-08 was 1.51 % and 3.30% respectively and the average of the two comes to 2.40% as against re G.P. rate in the year under consideration at 4.1% with increased turnover by more than double. Thus, it is clear that the addition was made by the Id. AO on the basis of wrong figure inadvertently provided by the Id. AR during the assessment proceeding. In fact the G.P. rate is much better in the year consideration as compared to earlier years and hence no addition is called for. Therefore, the addition of Rs.36,19,849/- made by the ld. AO is directed to be deleted. Accordingly, the ground No. 1 is allowed to the appellant.”
“6.5 I have considered the findings recorded by the ld. AO as per the assessment order, the submissions made by the ld. AR and the facts of the case on record. The appellant contended that its turnover has increased more than twice which was to some extent due to the opening of a new outlet. It was submitted that the renovation expenses were incurred on the existing and the new outlet to attract the customers. As
per the copy of ledger account it is seen that out of the total expenses of Rs.5,07,202/-, an amount to of Rs.4,07,202/- was incurred by cheque and Rs.1,00,000/- wee paid by cash but the appellant could not produce any vouchers for the same. In the immediately preceding asst. Year, the appellant had claimed Rs.2,00,000/- under this head which was allowed after scrutiny. Keeping in view the fact that the turnover has doubled during the year and the appellant has opened one more outlet for which a copy of the lease deed was also filed, I am of the considered opinion that some expenses must have been incurred for the renovation and upkeep of the business purpose, hence it will be appropriate to allow the expenses incurred by cheque amounting to Rs.4,07,202/- and the disallowance of the balance amount of Rs. 1,00,000/- is confirmed resulting into a relief of Rs.4,07,202/- to the appellant. Accordingly, the ground No. 2 is partly allowed.”
We do not find any material on record to discard the above findings of the ld. CIT(A). Accordingly, grounds Nos. 2 & 3 of appeal are dismissed.
In respect of ground No. 4, we find that the scrutiny proceedings were initiated on 29.09.2009 and fire accident occurred on 12.06.2010, but the report has been obtained from the Fire Department on 29.12.2010. During this period, the assessee submitted many written submissions before the Assessing Officer. The AO had also asked many times for filing of books of accounts, but the assessee did not tell about the fire accident and the destruction of books of accounts nor produced any books of account. It was only when the Assessing Officer finally asked the assessee on 20.12.2010 to produce the pending details as required by various notices and to produce the books of account, then the assessee informed the AO about the fire accident occurred in the office cum godown on 12.06.2010 and destruction of records there. We do not find any substance in the contention of the assessee that he raised unsecured loan from Rakesh Gupta only to the tune of Rs.5,00,000/- instead of Rs.43,88,880/-. In this context, the AR of the assessee reconciling the above difference with confirmation of Rakesh Gupta, submitted before the ld. CIT(A) as under :
“The copy of account of Sh. Rakesh Gupta as per the books f accounts is placed at PB 77-78. The confirmation could not be filed at the time of assessment as the actual amount given by Sh. Rakesh Gupta was only Rs. 5 lakhs and the other credits were wrongly entered in his name and same could not be reconciled due to the dislocation and overlapping of records on account of fire. Now the accounts has been reconciled and same is explained in the following paras with the confirmation.”
A perusal of the impugned order shows that the ld. CIT(A) has accepted the reconciliation made before him and accordingly gave relief to the assessee. It is notable that the tax auditor has audited the books of account of the assessee on 30.09.2008, i.e., much before the fire accident took place on 12.06.2008 and in Schedule C of the balance sheet, a sum of Rs.43,88,880/- is found appearing as unsecured loan taken by the assessee from Rakesh Gupta under the head unsecured loans which is placed at paper book page 18, as part of the audited balance sheet. The tax audit is always supposed to have been made by the tax auditor after verifying the things from the books of accounts, bills and vouchers. Therefore, once the tax auditor has audited the books of accounts of assessee much before the fire accident and has mentioned the figure of unsecured loan of Rs.43,88,880/- from Rakesh Gupta, the contention of the assessee that the assessee received only Rs.5 lacs from Rakesh Gupta cannot be accepted on the pretext that the reconciliation of the difference could not be made due to dislocation and overlapping of records in the fire accident. The assessee has also placed debtors and creditors list at page No. 22 to 26 of the paper book, but the same are not found certified by any auditor. Moreover, the PAN mentioned at the confirmation filed before the CIT(A) was found wrong and the assessee at any stage has failed to produce Shri Rakesh Gupta to verify the true state of affairs. The assessee has placed tax audit report in the paper book before us, but on perusal of this audit report, we find that relevant annexures to the items mentioned under Sl. No. 24(a) of the audit report, i.e., “Particulars of each loan or deposit in an amount exceeding the limit specified in section 269SS taken or accepted during the previous year”, have not been filed in the paper book, to verify the alleged reconciliation given by assessee.
In presence of these facts, in our considered opinion, the ld. CIT(A) was not justified in accepting the reconciliation furnished by assessee before him by way of additional evidence, even without verifying the effect of the balances remained after alleged reconciliation in the subsequent years. We, therefore, find merit in ground No. 4 of the Revenue and the same deserves to be allowed.
Ground No. 5 has not been pressed by the ld. DR, as noted above, for the reason that the major part of the amounts has been accepted by the Assessing Officer. Accordingly, this ground of appeal is dismissed as such.
In the result, the appeal of the Revenue is partly allowed.
Order pronounced in the open court on 07.12.2016.