ITO, NEW DELHI vs. SH. SANJEEV GOYAL, NEW DELHI

O R D E R PER PRASHANT MAHARISHI, A. M. 1. These are the appeals filed by the assessee and the revenue against the order of the ld CIT (A) for the Assessment Year 2007-08 and 2008-09. 2. Firstly, we take up the appeal of the revenue for assessment year 2007 - 2008. 3. The revenue has raised the following grounds of appeal for assessment year 2007 - 2008 in ITA 3998/DEL/2011 as under:-

1. On the facts and in the circumstances of the case, the ld CIT(A) XXV, new Delhi has erred in deleting addition of Rs. 32,95,932/- made by AO, specifically on account of variation in weight and rate of closing stock.”

4. The brief facts of the case are that assessee an individual has filed his return of income declaring income of Rs 475501/- on 02/11/2007. He is engaged in the business of trading of the food grains having annual turnover of Rs 57.61 cr and has earned gross profit of 4.6% and net profit of 0.03%. During the course of assessment proceedings LD assessing officer noted that the rate per quintal taken by the assessee of Rs. 1.96 for waste rice is very low and not acceptable. He took the market rate at Rs. 5/- per kg and applied it on sale of 5008 quintals and calculated Rs. 25.04 Lacs as sales of waste rice and therefore made a resultant addition of Rs. 15.22 lakhs as under recording of sales. On appeal before the Ld. CIT appeal the addition was deleted. The 2nd addition was with respect to the working of the quantitative details in case of the assessee worked out difference of 5008 quintals and held that it is sold by assessee @ Rs 5/- per kg and worked out quantity against shown by the assessee of 8755 quintals thereby working out that the assessee has sold 3747 quintals out of books. He took minimum rate of Rs. 500 per quintal for the same and worked out the difference of Rs. 1873500/- as unaccounted sales. Assessee contested the matter before the Ld. CIT appeal who in turn confirmed the addition of Rs. 1 lakh and deleted the balance addition of Rs. 3295932/-. The revenue is in appeal before us against the deletion of this addition by the Ld. CIT (A).

5. Ld. departmental representative vehemently submitted that that the sale price shown by the assessee of waste rice is absolutely low and therefore the assessing officer has taken the rate at Rs. 5 per kg against Rs. 1.96 on an average basis shown by the assessee. Therefore, she supported the order of the Ld. assessing officer. On the issue of difference in quantity she relied up on the order of ld AO. 6. Ld. AR of the appellant submitted that quantitative records are maintained by the assessee and the total purchases of rice is 560420.280 quintal by the assessee which has been taken by 565428 quintal. Other than, this there is no difference in the quantitative records of the assessee and extracted by the Ld. Assessing officer. He submitted that ld. AO has erred in taking wrong quantity which is mentioned in the tax audit report and ld. CIT (A) on taking note of this mistake has deleted the addition on account of difference. He further submitted that at page No. 26 the quantity of waste rice and kinky sold by the assessee on various dates of 8755 quintals amounting to Rs. 166540/-. So firstly his submission was that there is no difference in the quantity and secondly the rates taken by the Ld. assessing officer of Rs. 5/- per kg are without any basis and are not the prevalent rates. He submitted that that assessee has sold the above material at various rates from Rs. 1.75 to Rs. 1.96 per kg during the year. He further submitted that that the accounts of the assessee are audited and quantitative details are maintained and without rejecting the books of accounts and without finding any defect in the records the assessee, ld. AO has arbitrarily made the addition. He further referred to the comparative gross profit chart for past years and pleaded that this year is better than previous three years. He further referred to the order of the Ld. CIT (A) and submitted that that he has retained the addition of Rs. 1 lakh on altogether different aspects but on the trading result, he has deleted the addition. Therefore, he submitted that that the order of the Ld. CIT (A) may be upheld.

7. We have carefully considered the rival contentions. In the present case, the Ld. assessing officer has made an addition to the trading results of the assessee when the books of accounts of the assessee are audited and no defects in the books of accounts have been pointed out by the revenue. The Ld. assessing officer gets an authority to estimate or make an addition to the trading results of the assessee only in case there is a latent, patent and glaring defect in books of accounts or the quantitative records of the assessee. In the present case books of accounts have not been rejected and even then, without pointing out any defects the Ld. assessing officer has attempted to make an addition to the trading result of the assessee. Firstly the Ld. assessing officer has misread the quantity of rice purchased by the assessee of 560420.280 quintal as 565428 quintals. This has resulted into a difference of 5008 quintals. The quantitative details submitted by the assessee are maintained on day-to-day basis and are audited, therefore

according to us there is no difference in quantity of rice traded by the assessee. Therefore, there is no factual finding regarding the unaccounted sale of 3747 quintals as held by the Ld. assessing officer. Ld. DR could not controvert the quantity details depicted in the tax audit report of the assessee which has also not been controverted by the ld AO in assessment proceedings. The adoption of rate at Rs. 5/- per kilograms is also based on guesswork and without any comparables. The Ld CIT (A) has dealt with these issue as under :-

“4.1. Both the grounds of appeal

Nos. 2 and 3 are interlinked and hence, the same are discussed together for the sake of convenience. The facts emanating from the order of the AO and the submissions of the assessee is that the assessee is proprietor of M/s Bharti Enterprises and engaged in the business of food grains like rice. The turnover of the assessee is of Rs 57,61,86,174/- and the G.P is of Rs. 27,18,83 8/- and NP is of Rs 16.991/-only. The assessee has filed return income of Rs 4,75,501/- which included other income of salary and interest etc. 4.2. In ground No. 2 the AO has made the addition of Rs 15,22,432/- on the ground of excess sale of kinky rice (wastage) on the basis of excess kinky of 5,008 quintals of kinky rice. As per the AO the assessee has declared the total purchase of rice of 5,60,420 quintals whereas as per the AO the total purchase is of 5,65,428 quintals and as such there is excess purchase and sale of kinky rice of 5,008 quintals (5,65,428 (-) 5,60,420). The assessee has claimed the sale of kinky rice @ Rs 1.96P per Kg whereas the AO has estimated the rate @ Rs 51- per kg. So the value of the sale of 5,008 quintals @ Rs 51- is Rs 25,04.0007- and the value of the sale @ Rs 1.96P comes to Rs 9,81.5687- and accordingly, the AO has made the net addition of Rs 15,22,4327- (Rs 25,04,0007- (-) Rs-9,81,568/-)

43. The assessee is in appeal against the order of the AO and it is submitted that the books of the accounts of the assessee are audited and as per the audit report vide Annexure -V the total purchase of rice is only 5.60,420 quintals only and the AO has wrongly taken the figure of 5.65.428 quintals which is factually incorrect and the AO is not justified to make this addition without any proper finding. It is also submitted by the assessee that if the AO wanted to make the actual addition, the addition should have been of Rs 25.04,000/- on the basis of 5.008 quintals at the estimated price @ Rs 57- per Kg. It is submitted by the assessee that there is no basis for making this addition and the same is without merits. 4.4. I have considered the addition of the AO and the submissions of the assessee and I find considerable merit in the submission of the assessee that there is no factual finding of purchase of 5,65,428 quintals of rice as taken by the AO as against the claim of the assessee of 5,60,420 quintals. 4.5. In ground No. 3 the AO has made the addition of Rs 18,73,500/-. As per the AO the assessee has claimed the sale of kinky rice of 8,755 quintals @ Rs 1.96P per 4 | P a g e Kg. As per the AO since there is excess purchase of kinky of 5,008 quintals which has not been accounted for by the assessee there is unaccounted sale of 3,747 quintals (8,755 (-) 5,008) of kinky rice and accordingly, the sale value estimated @ Rs 57- per Kg comes to Rs 18.73.5007- which has been added by the AO. 4.6. The assessee is in appeal against the addition of Rs 18.73.5007- and it is submitted that there is no factual finding regarding the unaccounted sale of 3,747 quintals as claimed by the AO. It is also submitted by the assessee that the AO has made both the additions of Rs 15.22.432/- and of Rs 18.73.500/- without any factual finding and the additions have been made purely on the basis of guess work and the assessee has submitted two written submissions dated 12/07/2010 and 04/05/2011. It is also submitted by the assessee that the AO has made double additions on the same facts and figures without any pro] finding. It is also submitted by the assessee that the AO has estimated the rate of Rs 57-per Kg of the kinky rice which is basically a wastage and is not saleable at such a higher rate in the market. 4.7. I have considered the order of the AO and the submission of the assessee and I find considerable merit in the submission of the assessee. A perusal of the order of the AO shows that there is no proper finding of facts on the basis of which both the additions have been made. The turnover of the assessee is of Rs 57,61,86,1747- whereas the assessee has declared the NP of Rs I6,991/- only which @ 0.03%. It is surprising that the AO has not made any proper inquiry and has not gone into the behind the scene of the business activity of the assessee of such a huge turnover and where the rate of GP and NP as declared by the assessee is not only negligible but the same does not seem to be full and true. At the same time, the assessee has declared the nominal income of Rs 16,991/- only against the huge total turnover of Rs 57,61,86,174/- which also does not seem to be convincing as the assessee would not be earning such a meagre income and has been doing the business activity of such a huge turnover and surviving with such a meagre income. As per the assessee's own admission there is kinky rice/wastage of 8,755 quintals which is sold at the nominal @ of Rs 1.96P which does not seem to be convincing as the quantity appears to be highly exaggerated and inflated. 4.8. After considering all the facts and circumstances of the case, I am of the view that there is considerable merit in the submission of the assessee that the AO has made both the additions without giving any proper or factual finding and as such both the additions cannot be sustained. However, it is also a matter of fact and it is quite surprising that the assessee has claimed to have earned the nominal income of Rs 16,991/- only on such huge turnover which does not seem to be convincing and practical and it is apparent that the assessee is not showing the full and true income. The AO has made the total addition of Rs 33,95,932/- (Rs 15,22,4327- (+) Rs 18,73,5007-) vide Ground Nos. 2 & 3. So, keeping in mind, the overall view of the case as discussed above, the interest of justice and the interest of revenue a lump sum addition on estimated basis to the extent of Rs. 1,00,000/- is confirmed and the balance addition of Rs 32,95,932/- (Rs 33,95,932/- (-) Rs l,00,0007-) is deleted.”

basis for taking sales price at Rs 5/- per kg in form of any comparative prices and progressive gross profit rates compared to previous years earned by the assessee, we confirm the finding of the ld CIT (A) in deleting the addition of Rs 3295932/- out of addition of Rs 3395237/-. In the result we dismiss solitary ground of appeal of revenue.

9. In the result, appeal of the revenue is dismissed.

(Assessment Year: 2008-09)

1. The Ld. Addl. CIT has made addition of Rs. 25,08,456/- under the different head of accounts which is arbitrary, illegal and bad in law and based on the surmises and conjecture totally disregarding the facts of the case.

Heads of Account Amount Disallowance of interest 10,67,668 Addition of capital and loan from brother 14,14,000 and wife Disallowance of running and depreciation 26788 of car Total 25,08,456 2. That determination and inclusion in income of Rs.10,67,668/- as disallowance of Interest is wrong, perverse, unjustifiable, not based on evidences, opposed to evidences on records and based on surmises and conjecture.

an addition of Rs. 1067668/- on account of disallowance interest and further addition of Rs. 1414000/- was made on account of genuineness for addition of the capital account and loans in the statement of affairs under section 68 of the Income Tax Act. Assessee preferred appeal before the Ld. CIT (A) who in turn has partly confirmed the disallowance on account of interest and confirmed addition on account of loans under section 68 of the Income Tax Act. Aggrieved by the order of the Ld. CIT appeal the assessee has preferred appeal before us raising above two effective grounds of appeal

12. Ground No. 1 of the appeal is general in nature and therefore dismissed.

13. The 2nd ground of appeal is against the disallowance of Rs. 1067668/- out of interest expenditure. During the course of assessment proceedings it was found that assessee has claimed expenditure on account of interest to bank of Rs. 575118 and interest paid to others is Rs. 492550/- and therefore total expenditure claimed on account of interest is Rs. 1067668/-. Ld. assessing officer noted that during the year assessee has purchased from M/s Shivnath Rai Harnarayan ( India) Ltd major quantity of rice and has paid Rs. 423550000/- to that party for purchase of rice. According to the Ld. assessing officer despite there is there was a debit balance in the account of that party of Rs. 23517992/- and another sum of Rs. 12919247/- M/s Lal Mahal overseas Ltd which is a sister concern of the above party. It was also noted by the Ld. assessing officer that the assessee has meager capital of Rs. 10.13 lakhs and the sale and purchase transactions are so arranged to accommodate the above parties therefore he considered that assessee has advanced Rs 3.64 crores to the above parties as interest-free advances and interest on which at the rate of 12% works out to Rs. 43.68 lakhs and therefore he disallowed interest of 10.67 paid by the assessee. Ld. CIT (A) has held that as there is a debit balance of Rs 9.52 lakhs into capital account therefore held that the payment of interest is not for the purpose of the business and accordingly confirmed the disallowance on account of interest payment.

14. The Ld. Authorized representative of the assessee submitted that opening debit balance of Rs. 1.29 crores is shown the account of the party. He further submitted the copies of the account of this party for previous years starting from 01/04/2004 onwards. At page No. 26 of the paper book submitted that the sales of Rs. 2.10 crore was made to Sh. Lal Mahal overseas Ltd and out of that in the year ended on 31st of March 2006 Rs. 82 lakhs could be recovered making the debit balance at Rs. 1.28 crores. A further sale in the year ended March 2007 of Rs.75,954/- was made which has made the closing balance receivable from that party on account of sale of goods of Rs. 1.29 crores. Regarding M/s Shivnath Rai harnarayan ( India) Ltd , he submitted that sale of Rs. 2.74 crores was made to this party in the year ended on 31st of March 2005 out of which Rs. 16 lakhs were received in March 2006 and Rs 22.50 Lacs were received in March 2007 and further receipt of Rs. 7 lakhs in March 2008 and therefore there is an outstanding balance as on 01/04/2008 of Rs. 2.28 crores. He further submitted that from this that total sum was received in the year ended March 2011 and full balance of the parties received, which is shown at page No. 27 of the paper book. In view of this he submitted that the outstanding sum on which the interest has been disallowed by the Ld. assessing officer is erroneous and the amount is outstanding for sale of goods for which the income has been offered by the assessee to the profit and loss account and not on account of any advance given to the parties. He further stated that as the interest is paid for the purpose of the business, same is allowable according to the provisions of section 36 (1)(iii) of the act. Therefore, he submitted that disallowance made by the Ld. assessing officer and confirmed by the Ld. CIT (A) is erroneous.

15. Ld. departmental representative vehemently supported the order of the Ld. assessing officer and Commissioner (A) she further submitted that Hon’ble Delhi high court in case of Punjab stainless steel industries versus Commissioner of income tax covers the issue in favour of the revenue. Therefore, the addition confirmed by the 1st appellate authority does not have any error.

16. We have carefully considered the rival contentions. It is apparent that assessee has debit balance with respect to the above two parties. However assessee has sold goods to these parties in past years and could not recover the full sum of the goods sold to these parties and therefore they are outstanding as debtors. On perusal of the paper book furnished before us by the Ld. Authorized representative, it is apparent that the assessee has sold goods to these parties in the earlier years. It is also apparent that profit on that sale has already been offered to the taxation in earlier years. According to the provisions of section 36 (1) (iii) of the income tax act assessee is eligible to claim deduction of the amount of the interest paid in respect of capital borrowed for the purpose of the business of assessee . In this case other than 2 parties the Ld. assessing officer could not point out that the money used by the assessee on which interest is paid is not for the purpose of the business. It is also an admitted fact that these 2 parties are not related parties of the assessee and assessee has not even known to the parties but the amount is outstanding on account of goods sold to these parties. As the debtors are part of the business assets of the assessee and are not interest-free loans and advances given to those parties which are unrelated to the business of the assessee therefore, in our opinion , no interest disallowances can be made by the assessing officer. We have also carefully perused the decision relied upon by the Ld. departmental representative of Hon’ble Delhi high court wherein in para No. 2 it is apparent that in that particular case interest-free advances was given to the sister concern and assessee had borrowings on which substantial interest has been paid. In the present case the amount outstanding is not on account of the interest-free advances given to the sister concerns but to an outsider who is not at all related to the assessee and also it is outstanding amount of sales made by the assessee. Therefore decision cited by the Ld. departmental representative does not apply to the facts of this case and therefore reliance placed by the revenue on that decision is misplaced. In the result ground No.2 of the appeal of the assessee is allowed and the decision of ld. CIT (A) in confirming the disallowance of interest of Rs. 1 067668 is reversed.

17. The 3rd ground of the appeal is against confirmation of addition of Rs. 1414000/- as addition to the capital of the proprietorship firm and loan from his wife and brother. During the year Ld. Assessing officer noted that there is an addition of Rs. 12.85 lakhs to the capital account of the assessee and further credits the name of Mrs Sanjay Goel the brother of the assessee and Mrs Mona Goel wife of the assessee. Ld. assessing officer stated that during the course of assessment proceedings assessee has not filed supporting evidences to prove the genuineness of the addition in the capital account and loans in the statement of affairs therefore the same was added under section 68 of the income tax act. Assessee carried the matter before the Ld. CIT (A) however he confirmed the addition for the reason that the assessee has failed to submit any explanation about the source of the money introduced in the business or in the capital account and the further stated that the assessee has declared nominal net profit of Rs. 28,000 only on turnover of Rs. 44 crores and therefore it is abundantly clear that the assessee is not declaring true income and the books of accounts of the assessee are not reliable and therefore he confirmed the addition. Therefore the assessee is in appeal before us on ground No. 3 of the appeal.

18. Ld. AR of the appellant submitted before us that the amount of Rs. 12.85 Laces introduced by the assessee is out of the transfer from the savings account of the assessee himself. He submitted a chart at page No. 34 of the paper book wherein 16.24 Laces were found to be credited in the savings bank account of the assessee and out of which Rs. 12.85 Laces had been deposited in the proprietary concern of the assessee. To support the amount of withdrawal he further furnished the copy of the passbook of the savings bank account No. 1557 of the assessee of Naya Bazaar branch Delhi of state bank of Mysore. He further submitted the copy of the bank statement of the proprietary concern of the assessee M/s Bharti Enterprises from the same bank and from the same branch coordinate the respective entries that have been withdrawn from the savings bank account of the assessee and credited in the bank account of the proprietary concern. Hence he submitted that these are the transactions from the savings bank account of the assessee to the bank account of the proprietary concern of the assessee the same bank the same branch which is been overlooked by the assessing officer and addition has been made . He further submitted that the amount of loan received by the assessee from the savings bank account of Mrs Mona Goel from state bank of Mysore. He further drew our attention to the paper book page No. 64 which is the copy of the pass book wherein on 23/06/2007 an amount of Rs. 93 100/-has been debited from her account. Regarding the sum of Rs. 53,000/- received from Sanjay Goel he also submitted the photocopy of the passbook which shows that on 6th of August 2007 a sum of Rs. 53,000 was issued in favour of the assessee which was cleared in the bank account of the Sanjay Goel on 07/08/2007 with the same branch of state bank of Mysore and credited in the account of the bank of the assessee. For both the above parties he submitted the confirmation which is placed at page No. 71 and 72 of the paper book wherein the name, address and permanent account number are mentioned in view of this he submitted that assessee has discharged the onus of proving the identity, creditworthiness and genuineness of transaction as these are the relatives of the assessee.

19. Ld. departmental representative relied upon the orders of lower authorities and submitted that the addition has rightly been made by the Ld. assessing officer as assessee could not provide complete details.

20. We will borrowings have carefully considered the rival contentions. Regarding the addition of this 12.85 Lacs to the capital account of the assessee assessee has produced the copy of the savings bank account of the assessee with the state bank of Mysore where from the money has been deposited in the current account of M/s Bharti enterprise which is the proprietary concern of the assessee. From the same savings bank account it is apparent that assessee is offered income from house property income from other sources ancillary income therefore it is apparent that that savings bank account had the income and the assessee has also shown the sources of such funds which are part of the income tax refund and part of the refund from the public issue. Therefore it cannot be said that the amount of Rs. 12 .85 Lacs which has been introduced by the assessee in the proprietary concern is not properly explained. Regarding the addition on account of loan of Rs. 53,070 6000 from his brother Sh. Sanjay Goel and his wife Mrs Mona Goel the assessee has substantiated the amount credited in the books of the firm by producing the bank account of the depositor and conformation from them showing their permanent account number . As the depositors are the relatives of the assessee and further the income tax assessee the genuineness of the transaction has also been established. In view of this we addition made by the Ld. assessing officer of Rs. 14.14 Lacs under section 68 of the income tax act, as income from undisclosed sources

cannot be sustained. In the result we reverse the finding of the Ld. CIT appeal in confirming this addition and allow ground No. 3 of the appeal. 21. In the result appeal of the assessee for assessment year 2008 – 09 is partly allowed. Order pronounced in the open court on 27/07/2016. -Sd/- -Sd/- (KULDIP SINGH) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 27/07/2016 A K Keot Copy to