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Income Tax Appellate Tribunal, KOLKATA BENCH (SMC
Before: Shri P. M. Jagtap, A.M.)
ORDER This appeal filed by the assessee is directed against the order of Ld. CIT(Appeals) – 13, Kolkata dated 08.08.2016 whereby he confirmed / sustained the various additions made by the AO to the total income of the assessee.
The assessee in the present case is a partnership firm which is engaged in the business of trading in dry fruits. A survey under section 133A of the Income Tax Act, 1961 was carried out at the business premises of the assessee on 21.03.2011. During the course of survey, discrepancies in stock and cash were found on physical verification. Thereafter, the assessee filed his return of income for the year under consideration on 30.09.2011 declaring a total income of Rs. 1,94,151/-. The said return was initially 2 processed by the AO under section 143(1) determining the total income of the assessee at Rs. 2,05,964/- after making some prima facie adjustments. Subsequently, the case of the assessee was selected by the AO for scrutiny. During the course of assessment proceedings, reconciliation statement was furnished by the assessee to explain the difference in cash of Rs. 7,88,495/- a found during the course of survey and cash balance of Rs. 1,07,612/- as appearing in the cash book as on 21.03.2011. The said reconciliation however was not accepted by the AO in the absence of proper supporting evidence and by treating the excess cash found to the extent of Rs. 6,80,883/- as unexplained, addition to that extent was made by him to the total income of the assessee. The difference in stock as found during the course survey on physical verification at Rs. 19,02,979/- and as per the trading account prepared upto the date of survey at Rs. 40,11,896/- was also sought to be explained by the assessee by furnishing reconciliation statement. The AO however found the same to be acceptable only to the extent of difference of Rs. 3,61,350/- and accordingly addition of Rs. 18,30,352/- was made by the AO on account of shortage in stock as found during the course of survey. The AO also found that cash payments exceeding Rs. 20,000/- were made by the assessee against purchase of goods aggregating to Rs. 4,20,342/- during the year under consideration. Since the assessee could not explain any exceptional circumstances under which the said payments were made in cash as specified in Rule 6DD, the AO made a disallowance of Rs. 4,20,342/- by invoking the 3 provision of section 40A(3) of the Act. Accordingly, in the assessment completed under section 143(3) vide an order dated 21.07.2014, the total income of the assessee was determined by the AO at Rs. 32,48,861/-.
Against the order passed by the AO under section 143(3), an appeal was preferred by the assessee before the Ld. CIT(A) and after considering the submission made by the assessee and perusing the relevant material available on record, the Ld. CIT(A) agreed with the stand of the AO that the shortage of Rs. 18,30,352/- found in stock during the course of survey was not satisfactory explained by the assessee. He however held that such shortage in stock represented sales made by the assessee outside the books of accounts and addition, therefore, should have been made by the AO only to the extent of gross profit earned by the assessee from such unaccounted sales and not the entire amount of shortage of stock. Accordingly, he restricted the addition of Rs. 18,30,352/- made by the AO on this issue to Rs. 4,19,333/- being G.P. @22.91% of Rs. 18,30,352/-. The addition made by the AO on account of excess cash found amounting to Rs. 6,80,883/- however was confirmed by the Ld. CIT(A) as the assessee could not offer any satisfactory explanation in respect of such excess cash. He also confirmed the disallowance of Rs. 4,20,342/- made by the AO under section 40A (3) on account of cash payments made against purchases since the assessee failed to explain any exceptional circumstances under which the said payments were required to be made as specified in Rule 6DD.
4 4. Aggrieved by the order of the Ld. CIT(A), the assessee has preferred this appeal before the Tribunal in the following grounds:
1. For that in view of the facts and circumstances the Ld. CIT(A) is wholly unjustified in confirming the action of the AO in considering the income of the appellant at Rs. 2,05,964/- as per the intimation u/s 143(1) as against the returned income of Rs. 1,94,151/- and as such the Ld. CIT(A)’s action in confirming the action of the AO is wholly bad and illegal and it may kindly be held accordingly.
2. For that in view of the facts and in the circumstances the Ld. CIT(A) erred in confirming the addition made by the AO to the extent of Rs. 4,19,333/- on account of discrepancy in stock and in view of the facts and in the circumstances such sum is liable to be deleted and hence it may kindly be held accordingly. 3.For that in view of the facts and in the circumstances the Ld. CIT(A) erred in adding Rs. 6,80,883/- on account of alleged discrepancy in cash found on the date of survey i.e. 21.03.2011 and the Ld. CIT(A) without having considered the explanation / documents filed before the AO during the assessment proceedings, the action of the Ld. CIT(A) is wholly bad and illegal and in view of the facts and to the circumstances it may kingly be held accordingly.
4. For that in view of the facts and in the circumstances the Ld. CIT(A) erred in confirming the action of the AO in adding Rs. 4,20,342/- u/s 40A(3) and the impugned payment being genuine, the Ld. CIT(A)’s action in such respect is wholly bad and illegal and in view of the facts and in the circumstances such sum is fully allowable and hence it may kindly be held accordingly.
5. I have heard the arguments of both the sides and also perused the relevant material available on record. As regards the issue raised in ground no 1, it is observed that the income of the assessee in the intimation issued under section 143(1) was determined by the AO at Rs.
5 2,05,964/- as against the returned income of Rs. 1,94,151/- after making some prima facie adjustment. The assessee however did not file any appeal against the intimation issued by the AO under section 143(1) and thus the adjustment made by the AO in the intimation had attained finality. In these facts and circumstances of the case, I am of the view that the income as determined in the intimation issued under section 143(1) was rightly taken by the AO as the starting point while computing the income of the assessee in the assessment made under section 143(3) and there is no infirmity in the same calling for any interference. Ground No. 1 is accordingly dismissed.
As regards the issue involved in ground no 2 relating to the addition made on account of shortage in stock as found during the course of survey, it is observed that the unexplained difference in the stock to the extent of Rs. 18,30,352/- was entirely added by the AO to the total income of the assessee. The Ld. CIT(A) however held that such shortage in stock represented unaccounted sales of the assessee and accordingly the addition made by the AO was restricted by him to the extent of gross profit of Rs. 4,19,333/- worked out by applying GP rate of 22.91%. At the time of hearing before the Tribunal, the limited contention raised by the learned counsel for the assessee is that the GP rate of 22.91% taken by the AO as well as the Ld. CIT(A) has no basis and the same is excessive and unreasonable keeping in view the GP rate of only 18% reflected in the trading account prepared by the assessee upto 22.02.2011 and the GP rate in the range 12 to 13 percent declared by the assessee in the earlier years. Even the Ld. DR has not been able to explain the basis of GP rate of 22.91% adopted by the AO as well as by the Ld. CIT(A). We, therefore, consider it fair and reasonable to adopt 6 the GP rate of 15% to determine the income of the assessee from unaccounted sales of Rs. 18,30,352/-. The impugned order of the Ld. CIT(A) is accordingly modified and the AO is directed to recompute the addition on this issue by applying GP rate of 15% on the unaccounted sales. Ground No. 2 of the assessee’s appeal is thus partly allowed.
As regards, the issue involved in ground no 3 relating to discrepancy in cash found during the course of survey, we find merit in the contention of the learned counsel for the assessee that going by the unaccounted sales determine by the AO on the basis of shortage of stock found during the course of survey, cash to the extent of such sales ought to have been generated by the assessee and since the same was sufficient to explain the excess cash found during the course of survey, no separate addition on account of excess cash found during the course of survey is justified. I, therefore, delete the addition made by the AO and confirmed by the Ld. CIT(A) on account of excess cash found during the course of survey and allow ground no 3 of the assessee’s appeal.
As regards, the issue involved in ground no 4 relating to the disallowance of Rs. 4,20,342/- were made by the AO under section 40A(3) and confirmed by the Ld. CIT(A), I find that the assessee has not been able to explain or point out any exceptional circumstances under which the relevant payments in cash were required to be made against the purchases as specified in Rule 6DD of the Income Tax Rules 1962. I, therefore, find no infirmity in the impugned order of the Ld. CIT(A) confirming the disallowance made by the AO 40A(3) under section 43A of the Act and upholding the same on this issue, I dismiss ground no 4 of the assessee’s appeal.