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Income Tax Appellate Tribunal, DELHI BENCH “A”: NEW DELHI
Before: SMT SUCHITRA KAMBLE & SHRI PRASHANT MAHARISHI
Assessee by : Sh. KK Jaiswal, DR Revenue by: Sh. Sanjay Malik, Adv Date of Hearing 13/07/2016 Date of pronouncement 08/09/2016 O R D E R PER PRASHANT MAHARISHI, A. M. This is an appeal filed by the revenue against the order of the ld CIT(A)- 1. Meerut, dated 30.03.2010 for the Assessment Year 2003-04 The revenue has raised the following grounds of appeal:- 2.
1. Whether in the facts and circumstances of the case, the Ld. Commissioner o Income-tax (Appeals) has erred in law in deleting the addition of Rs. 36,61,536/- made by AO for low gross rate of profit inspite of the facts brought on record by the AO and specific finding for rejection of books of accounts u/s 145(3) of the Income-tax Act while CIT(A) did not give a single finding or ground before deleting the entire addition ?
2. Whether in the facts and circumstances of the case, the Ld. Commissioner o: Income-tax (Appeals) has erred in law in deleting the addition of Rs. 36,61,536/-made by AO for low gross rate of profit without bringing even a single point or material on record on applicability of IT AT's judgement to the facts of the present case before relying upon the judgments in the case of ITO Vs. Sujata Devi (94 TTJ 484 (jd) and ITO Vs. Laxmi Narain Ram Swaroop Shivare, 123 TTJ(Agra) (TM)289 which did not at all apply in the instant case for granting relief to the assessee ?
3. Whether in the facts and circumstances of the case, the Ld. Commissioner of Income-tax (Appeals) has erred in law in deleting the addition of Rs. 4,40,335/-made by AO u/s 40A(3) of the Income-tax Act inspite of the finding of the A.O. in assessment order that the assessee made cash expenditure over Rs. 20,000/- to the parties with whom running accounts were maintained and the assesssee failed to prove that these parties insisted for cash and CIT(A)'s deletion is in clear contravention of Hon'ble Supreme Courts judgement ?
4. Whether in the facts and circumstances of the case, the Ld. Commissioner of Income-tax (Appeals) has erred in law in deleting the Page 2 of 8 addition of Rs. 29,57,580/- made u/s 68 being unexplained investment by 14 members of the AOP made by the AO inspite the fact that the confirmatory letters were not even signed by the depositors and thus the genuineness of the transaction, creditworthiness as well as the identity of the depositors was not at all proved ? 5. In the facts and circumstances of the case, the order of the Ld. Commissioner of Income Tax(Appeals) may be set-aside and that of the A. O. be restored.
3. The brief facts of the case are that assessee is an Association of person engaged in the trading of the liquor. It filed return of income declaring income of Rs. 770862/- on 21/11/2003. Subsequently the return was picked up for scrutiny and assessment under section 143(3) of the income tax act was framed on 22/02/2006. Ld. assessing officer made several additions to the income of the assessee and assessed total income at the Rs. 7880310/-. Mainly the additions were made on account of lower gross profit, disallowance under section 40 A (3), addition under section 68 and disallowance of certain expenses. Against this assessee preferred appeal before the Ld. CIT appeal who deleted addition on account of lower gross profit, deleted the disallowance under section 40 A (3), deleted the addition under section 68 of the act and further restricting disallowance on account of various expenditure to Rs. 25,000/-. Aggrieved by the order of the Ld. CIT appeal revenue is in appeal before us.
The 1st and 2nd ground of appeal are against deletion of addition to the extent of Rs. 3661536/- made by the assessing officer on account of low gross profit invoking provisions of section 145 (3) and applying average gross profit rate at the rate of 14%. During the year assessee has declared gross profit of Rs. 103.38 lakhs on turnover of Rs 9.92 crores resulting into the gross profit rate of 10.41% and net profit ratio was shown to be 0.51%. According to the assessing officer this gross profit ratio was too low in comparison with other persons operating in the same line of business in the same area. Ld. assessing officer asked assessee to furnish details of purchase and sales and to produce the complete books of accounts for its verification however assessee produced certain details along with the books of accounts but no details of sales have been filed nor any sales register is produced. As no sales memo was issued and no details for day-to-day sales of liquor from each shop have been maintained , Ld. assessing officer was of the view that sales of the assessee are not verifiable consequently stock is Page 3 of 8 also not verifiable and hence reliance on the books of accounts cannot be placed. Therefore he estimated sales of the assessee at Rs. 10 crores and applied the average gross profit rate of 15% and worked out the gross profit of the assessee at Rs. 1.40 crores against which the assessee has shown G P of Rs 1.03 crores and thereby making an addition of Rs. 36.61 Lacs to the income of the assessee. The ld. CIT appeal deleted the addition following 2 decisions of the coordinate benches holding that the rejection of the books of accounts is not sustainable.
5. Ld. DR submitted that the order of the Ld. CIT appeal is not proper in view of the facts that not a single sales voucher was maintained by the assessee or produced before the assessing officer. He submitted that as the sales itself is not verifiable how the books of accounts can be relied upon for determining the income of the assessee. The Ld. CIT appeal has examined the books during the course of hearing however he has not verified a single sales voucher and in absence of that deleting the addition is not proper.
The Ld. authorized representative submitted that the assessee has maintained the complete books of accounts of the business of the assessee and they are audited, therefore, as there is no defect in accounts same cannot be rejected. He therefore relied on the order of the Ld. CIT appeal regarding veracity of the books of accounts. He further submitted that the assesse’s gross profit is comparable compared to the previous year. Regarding the sale price he submitted that each and every bottle of the liquor has got the sale price printed on it however the sales invoices were not issued to the buyer as they do not insist on the same. He submitted that merely sales are not supported by sales invoice; books of accounts cannot be rejected. He further relied on the decision of the coordinate bench in ITO versus Smt. Sujatha Devi 94 ITR 484 (JD). He further submitted that the remand report submitted by the assessing officer did not controvert any of the submission and the case law cited by the assessee. He therefore submitted that the Ld. CIT appeal has rightly deleted the addition.
We have carefully considered the rival contentions and also perused material produced before us in the form of paper book as well as written synopsis of the summary of case Law and remand report. In the present case before the assessing officer the appellant could not establish the exact amount of sales recorded in the books of accounts of the assessee with the Page 4 of 8 sales invoices or sales register. Ld. CIT appeal has deleted the addition verifying the books of accounts of the assessee such as purchases and expenses however how the sales of assessee is verified by the Ld. CIT appeal is not clear. Assessee himself has submitted that it does not maintain any cash sales memo or sales register on day-to-day basis. In view of this it is surprising that how assessee is recording sales in its books of accounts. Further it is also not clear that though the books of accounts of the assessee are audited but whether the complete quantitative details with respect to the purchase and sales maintained .In absence of quantity detail coupled with non-maintenance of sales recorded on day-to-day basis makes the financial result of the assessee unreliable. Further without looking at the purchases from the various distilleries by the assessee the turnover of the assessee could not be estimated by the Ld. assessing officer. According to us the Ld. assessing officer has not made proper Inquiry with respect to the purchases of the assessee from various distilleries and then based on the quantitative details ascertaining the method of recording of the sales by the assessee and then determining appropriate profit. The assessee submitted that it adopt the regular method of accounting supported by quantitative details of purchases and sales contained in the regular stock register. Further as submitted by the assessee that complete details of purchases, sales of the liquor sold is marinated and sales price of the liquor is printed on the bottle, therefore in view of this, sales of the assessee is subject to determination based on sale price printed. Further if quantitative details are also tallied then there cannot be any reason for rejection of the books of accounts. In absence of ascertaining the complete fact by carrying out these exercise, decisions relied upon by the Ld. authorized representative and based on which the addition is deleted by the Ld. CIT appeal , are not applicable to the facts of the case All these exercise has not been done by the assessee before the assessing officer to substantiate its claim that its books of accounts are true and correct, and ld. CIT appeal has deleted the addition without verification of the manner of recording of the day-to-day sales of the assessee, we set-aside this issue back to the file of the Ld. assessing officer to call for and examine the details of sales and quantitative records of the assessee and then to decide the issue afresh after granting assessee an opportunity of adducing proper Page 5 of 8 details and hearing. In the result ground No. 1 and 2 of the appeal is allowed for statistical purposes.
Ground No. 3 of the appeal is against the order of Ld. CIT appeal in deleting the addition of Rs. 440335/- made by Ld. assessing officer under section 40A (3) of the act. During the course of assessment proceedings ld. assessing officer noted that assessee has incurred certain expenditure in respect of which payment has been made in excess of Rs. 20,000/-otherwise than by account payee cheque. Ld. assessing officer issued letter to different distilleries and it was found that total purchases made from this parties have been made in cash. Therefore according to the assessing officer assessee violated the provisions of section 40A (3) and disallowed 20% of such expenditure amounting to Rs. 440335/-. Aggrieved by this assessee carried matter before the Ld. CIT appeal who deleted the disallowance holding that each payment being less than Rs. 20,000/-.
Ld. departmental representative submitted that that assessee has made cash payment to the various distilleries for purchase of the liquor and to the same distilleries assessee has also paid through account payee cheques therefore the contention of the appellant that it did not have the bank account is devoid of any merit. Further it was submitted that the cash payments are corroborated by the supplying distilleries and therefore the disallowance has been correctly made.
Ld. authorized representative submitted that each payment is less than Rs. 20,000/-to these distilleries and none of the payment has exceeded that monetary limit. Further the assessee does not have the bank account at the place where these distilleries situated. He therefore submitted that the Ld. CIT appeal has deleted the disallowance correctly.
We have carefully considered the rival contentions. We fully agree with the contention of the Ld. authorized representative that if each payment is less than Rs. 20,000 then no disallowance can be made under section 40 A (3) of the income tax act. However neither before Ld. CIT appeal nor before us the relevant details of each payment being less than Rs 20,000/-is filed. Further the Ld. assessing officer has obtained the details from various distilleries where they have stated that they have received cash payment. Therefore the relevant information which is available with the assessing officer which shows that whether each payment is less than Rs. 20,000 or not will Page 6 of 8 determine the issue of this disallowance. In view of this we set-aside this issue to the file of the assessing officer to verify from the details gathered from the distilleries whether they have received any payment in excess of Rs. 20,000/-otherwise than by account payee cheque and then to work out disallowance , if any. In the result ground No. 3 of the appeal of the revenue is allowed for statistical purposes.
Ground No. 4 of the appeal of the revenue is against deletion of the addition of Rs 2957580/- made by ld. assessing officer under section 68 of the income tax act being unexplained deposits made by 14 members of the association of persons introduced in the books of accounts of the assessee. The assessee has been contributed capital of Rs 27501177/-by 25 members. The Ld. assessing officer asked assessee to prove the identity, creditworthiness and genuineness of deposit made by the members. Before the assessing officer assessee filed copies of the capital account of the members of the AOP from the books of accounts of the assessee. Ld. Assessing officer made addition under section 68 as the conformation furnished by the assessee are not signed by those members i.e. depositors. Further assessee was also required to produce all the members for examination before the assessing officer but assessee failed to produce them. Assessee preferred appeal before the CIT appeal on this ground who deleted the addition holding that identity of the members constituting the AOP is not in dispute, most of the members of the Association of person are regularly assessed to tax and in most of the cases the deposits were received on the opening day of the accounting period. Aggrieved by this revenue is in appeal before us.
Ld. departmental representative submitted that before the assessing officer the signed confirmations were not filed and further assessee was asked to produce the creditors which were not produced. Therefore appellant failed to discharge onus cast up on it of proving identity, creditworthiness and genuineness of the transactions. He submitted that the ld. CIT appeal has deleted the addition simply relying on the written submission of the assessee with respect to the depositors. He further submitted that merely the deposits have been received on the opening day of the accounting period cannot justify the creditworthiness of the depositor and genuineness of the transaction.
Page 7 of 8 14. Ld. authorized representative submitted that assessee has submitted the memorandum of Association dated 20/08/2002 by which the AOP has come in to existence. Copies of accounts are furnished and details of the depositor in the books of the assessee are also given. It was further submitted that that assessee has submitted the permanent account number of all the contributory and source of the income is also given therefore the Ld. CIT appeal has correctly deleted that addition under section 68 of the income tax act.
We have carefully considered the rival contentions. This association of person (AOP) has 25 members and is running 9 shops of sale of country liquor. All the members have entered into a memorandum of understanding and commenced the business w.e.f. 1st day of April 2002. Therefore all the members contributed capital on the 1st day of the accounting period when the assessee has not commenced the business. Assessee submitted a chart before ld CIT (A) wherein it has shown name of the creditor, place where they are assessed, their permanent account number, and date of deposit, amount deposited and nature and source of deposit. Before Ld. CIT appeal the assessee has given explanation for each of the deposit and submitted sources of such deposits. These facts pertain to Smt. Beena Goel, Shri Anil vasudev, Shri gurvinder singh, Karam jeet singh and Shantilal Arrora, rajkumar Dhingra , narinder Kumar Dhingra. Appellant has stated that theses persons had various security deposit which have become refundable from the Excise Department in the name of these persons which was received back and subsequently this security deposit amount are deposited through cheque in the books of accounts of the appellant. This fact has also been demonstrated before the Ld. CIT appeal by producing the photocopies of this challan of the sum aggregating to the amount of refund of the security deposit. Before ld CIT (A) assessee explained money received from each of the depositor with documentary evidence and ld assessing officer has not commented adversely on any of the amount contributed by the members. Hence, we do not find any infirmity in the order of Ld. CIT appeal in deleting the addition under section 68 of the income tax act where the depositors are having permanent account number and the source of the money so deposited is also explained by appellant. In the result ground No. 4 of the appeal of the revenue is dismissed.