MOTI LAL GUPTA,NEW DELHI vs. ITO, NEW DELHI

Per ANADI N. MISHRA, Accountant Member (A) This appeal has been filed by assessee against order dated 17.1.2012 of Ld. CIT(A) – XXVIII, New Delhi. The grounds of appeal are as under:

2. That the learned authority below grossly erred in making an addition of Rs.12,59,446/- on account of estimating income @ 8% on gross receipts on erroneous and insufficient grounds.

AY 2008-09 in the case of Moti Lal Gupta vs. ITO

(B) The assessee is proprietor of M/s. M. B. Contractor. The assessee filed return of income on 15.12.2008 declaring a total income of Rs. 1,26,207/-. The Ld. AO noticed that the gross receipts declared by the assessee were Rs. 61,00,552/- on which the assessee declared net profit of Rs. 2,05,707/- after claiming expenses of Rs. 58,94,845/-. During assessment proceedings the assessee, vide letter dated 16.11.2010, filed unaudited balance sheet and profit and loss account. The Ld. AO has noted in paragraphs 2 and 3.3 of the assessment order that the assessee had deposited huge amount of cash to the tune of Rs. 1,29,74,300/- in bank account. During the assessment proceedings, the Ld. AO asked the assessee to explain the source of cash deposits. As per paragraph 3.6 of the assessment order the assessee stated that cash was received from sale of furniture, and the furniture sold was claimed by the assessee to have been purchased from M/s. Sharma Construction. The Ld. AO has also taken note that the entire amount of Rs. 1,29,74,300/- deposited in cash in the bank account of the assessee was withdrawn through cheques drawn in favour of M/s. Sharma Construction. In these facts and circumstances the Page 2 of 9

AY 2008-09 in the case of Moti Lal Gupta vs. ITO Ld. AO made a protective addition of the aforesaid amount of Rs. 1,29,74,300/- in the hands of the assessee ; and for substantive enquiry and investigation, information was forwarded to the Ld. AO of Mr. Ramesh Sharma (proprietor : M/s. Sharma Construction) having PAN : AKYP3876J). Vide a notice dated 18.11.2010 issued by the Ld. AO the assessee was asked to produce statement of affairs and explain the source of cash deposits totaling Rs. 1,29,74,300/- alongwith documentary evidence. On 13.12.2010 the assessee filed a different set of financial statement and computation of income which was at variance with the return of income earlier filed on 15.12.2008. In the second set of financial statement and computation of income, the assessee declared turnover of Rs. 2,07,56,738/-, net profit of Rs. 4,01,093/- and total income of Rs. 3,24,303/-. The assessee also submitted a tax audit report dated 12.06.2008 whereunder turnover was declared at Rs. 2,07,56,738/- (earlier shown at Rs. 61,00,552/-) and net profit was shown at Rs. 4,01,093/- (earlier shown at Rs. 2,05,707/-). Thus the difference amounting to Rs. 1,46,56,186/- ( i.e. Rs. 2,07,56,738/- minus Rs. 61,00,552/-) was shown by the assessee as increased business turnover. The Ld. AO accepted the claim of the assessee that the aforesaid amount of Rs. 1,46,56,186/-. and the Ld. AO further accepted the claim of the assessee regarding amended figure of business turnover of Rs. 2,07,56,738/- as against the amount of Rs. 61,00,552/- initially shown by assessee in return of income as business turnover. Vide paragraph 3.9 of the assessment order Ld. AO noted certain deficiencies and infirmities. Taking note of these deficiencies and infirmities the AO rejected the books of the assessee by applying section 145(3) of I.T. Act and estimated profit of the assessee @ 8% of gross receipts of Rs. 2,07,56,738/- declared by the assessee. Giving the assessee Page 3 of 9

AY 2008-09 in the case of Moti Lal Gupta vs. ITO credit for Rs. 4,01,093/- earlier declared by the assessee as net profit, the AO made an addition of Rs. 12,59,446/-.

(B.1) Ld. CIT(A) in her impugned order dated 17.01.2012 agreed with the Ld. AO as far as the aforesaid addition of Rs. 12,59,446/- is concerned. As far as the protective addition of the aforesaid of Rs. 1,29,74,300/- is concerned she noted that the amount was not added in the hands of the aforesaid Mr. Ramesh Sharma, Proprietor M/s. Sharma Construction, and the amount of Rs. 1,29,74,300/- initially made by AO on protective basis in assessment order dated 31.12.2010, was sustained by the Ld. CIT(A) as substantive addition. The assessee is now in appeal against the order of the Ld. CIT(A).

(B.2) During appellate proceedings in ITAT the assessee filed detailed paper book. At the time of hearing before us, assessee drew our attention to the contents of this paper book. In particular our attention was drawn to duplicate copies of purchase invoices issued by M/s. Sharma Construction, in respect of the purchases claimed to have been made by the assessee from them. Our attention was also drawn to affidavits of the assessee and of Mr. Ramesh Sharma (proprietor M/s. Sharma Construction) ; and to the submissions made by the assessee before the lower authorities. These are part of the paper book filed by the assessee. Our attention was also drawn to the details filed before the lower authorities, which is also part of the paper book filed by the assessee. Based on materials on record and submissions made by Ld. AR of the assesee at the time of hearing ; the case of the assessee can be thus summarized :The assessee claims that more than 80% of purchases (items of furniture) were made from Mr. Page 4 of 9

AY 2008-09 in the case of Moti Lal Gupta vs. ITO Ramesh Sharma (Proprietor M/s. Sharma Construction) from the Goa premises of M/s. Sharma Construction which was handling various items of Ginger Hotel Project at Goa ; and that the assessee sold mainly in cash to the customers ; that the sale proceeds were received by the assessee from the customers not in Goa in Delhi ; that cartage on goods sold by assessee were paid by the purchasing customers ; that octroi was not paid and sales tax / VAT was also not paid in respect of sales claimed to have been made by the assessee because sales were made in Goa itself where VAT is not applicable and octroi was also not applicable ; that three persons were engaged at Goa for looking after sales, purchase and other related jobs ; that cash arising from sales in Goa was either received by the assesee in Delhi, or was brought to Delhi from Goa and as per requirement the same was deposited in bank account in Delhi ; that the business was carried out from business premises of M/s. Sharma Construction for which the assessee was not paying any charges except security charges to security persons ; that no transportation charges were incurred on account of goods purchased / sold because of same location / premises and on account of transportation charges being met by the purchasers ; that figures of turnover and profit of business were wrongly reported in the return of income on the advice of one Mr. Tiwari who misguided the assessee and filed the assessee’s return on estimate basis without considering the relevant documents ; that the assessee had to approach Mr. Tiwari because the earlier CA of the assessee demanded a fee which was considered very high ; that audit report u/s 44AB was already prepared by CA Shri R.P. Grover but could not be considered and filed when the assessee submitted return of income ; that the difference of aforesaid amount of Rs. 1,46,56,186/- in sales figures may be due to Page 5 of 9

AY 2008-09 in the case of Moti Lal Gupta vs. ITO omission of Goa sale, being the sale conducted under the supervision of the assessee’s son, due to clerical mistake or may be due to ignorance of law of Mr. Tiwari or the reason best known to him . The Ld. AR of assesse emphasized that duplicate copies of purchase bills regarding purchases from M/s. Sharma Construction were produced before Ld. AO alongwith copy of ledger account and rejection of book results u/s 145(3) was not warranted. Ld. AR of the assessee also argued that the net profit 8% of turnover adopted by the AO was incorrect because u/s 44AD of I.T. Act this rate of profit is applicable for turnover below Rs. 40 lacs whereas the turnover of the assesee is more than Rs. 40 lacs. Ld. AR of the assesee strongly contended at the time of hearing before us, that the lower authorities did not fully appreciate these facts of the case and the case should be restored back to the Ld. AO for removal of any doubts regarding facts of the case and for denovo assessment .On the other hand Ld. DR supported the orders of the Ld. CIT(A). He contended that the AO was justified, in rejecting the book results u/s 145(3) of I.T. Act in view of the deficiencies and infirmities highlighted in the assessment order ;that estimation of profit @ 8% of the turnover was a reasonable estimate and that the Ld. CIT(A) was justified in sustaining the addition of Rs. 1,29,74,300/- on substantive basis because as noted by Ld. CIT(A), this amount was not considered for addition in the hands of Mr. Ramesh Sharma (proprietor M/s. Sharma Construction).

(C) We have heard both sides. We have also perused the materials on record carefully. As far as addition of Rs. 1,29,74,300/- on account of cash deposits in bank account is concerned, perusal of paragraph 3.6 of Page 6 of 9

AY 2008-09 in the case of Moti Lal Gupta vs. ITO assessment order dated 31.12.2010 shows that this addition was made by AO on protective basis while holding that M/s. Sharma Construction (proprietor : Mr. Ramesh Sharma) was the real beneficiary of cash deposited in bank account. For substantive enquiry and investigation, information was forwarded by Ld. AO of assessee to Ld. AO of M/s. Sharma Construction (proprietor : Mr. Ramesh Sharma). Ld. CIT(A), before converting this protective addition to substantive addition should have considered inquiries and investigations conducted in the case of Mr. Ramesh Sharma, proprietor of M/s. Sharma Construction. However, she based her decision on a much earlier assessment order dated 16.4.2010 (passed much earlier than assessment order dated 31.12.2010 of the appellant assesee) which could not have taken the information forwarded by the Ld. AO of the appellant assessee, into consideration. Ld. CIT(A) converted protective addition of Rs. 1,29,74,300/- into substantive addition merely because in the aforesaid earlier order dated 16.4.2010 the addition of Rs. 1,29,74,300/- was not made in the case of Mr. Ramesh Sharma proprietor of M/s. Sharma proprietor of M/s. Sharma Construction. Moreover, neither the Ld. AO nor the Ld. CIT(A) have taken care to ascertain the extent to which cash deposits in bank account, totaling Rs. 1,29,74,300/- was included in the sales turnover of the assessee, originally shown by assessee at Rs. 61,00,552/- and changed later to Rs. 2,07,56,738/-. Thus, to that extent, not only the amount is fully added on account of cash deposited in bank account ; but business profit @ 8% is also added to the income of the assessee. This has, therefore, resulted in double addition, which cannot be upheld. When an appellate authority converts a protective addition into substantive addition ; there must be good reasons for it. It cannot be done lightly without consideration of Page 7 of 9

AY 2008-09 in the case of Moti Lal Gupta vs. ITO relevant facts and circumstances, without due application of mind, and without sound basis. Also protective addition cannot be converted into substantive addition in the hands of an assessee merely because substantive addition was not made in the hands of another assessee. What has to be seen is whether substantive additions in the hands of the assesee is just and reasonable in the overall facts and circumstances of the case. Further, double taxation of same amount is against basic tenets of taxation. Moreover, neither the Ld. AO nor Ld. CIT(A) have ,in their respective orders adequately dealt with or specifically rejected the facts (summarized in paragraph 3.2 of this order) claimed by the appellant in the proceedings before lower authorities. On cumulative consideration of the aforesaid facts and circumstances, we set aside the impugned order of Ld. CIT(A) and restore the case to the file of Ld. AO for denovo assessment. The Ld. AO in the proceedings for denovo assessment will be free to make any inquiries and investigations. Also, the assessee will be free to furnish any evidences and explanations.

(D) In the result, this appeal is partly allowed.