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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI C.N. PRASAD, JM & SHRI RAJESH KUMAR, AM
सुनवधई की तधयीख /Date of Hearing : 10.1.2017 घोषणध की तधयीख /Date of Pronouncement : 27.2.2017 आदेश / O R D E R PER RAJESH KUMAR, A. M: These are the cross appeals filed by the respective parties and directed against the order dated 30.1.2015 passed by the ld.CIT(A)-25, Mumbai for the assessment year 2011-12. These appeals were clubbed together, heard together and are being disposed of by this common order, for the sake of convenience.
First we shall take up the appeal filed by the assessee bearing :
The issue raised in the first grounds of appeal
is against the upholding the decision of the AO taking the loss in almond trade at NIL as against actual loss of Rs.3,03,51,447/- by ignoring the facts that the assessee‟s books of accounts were duly audited and similar book results were accepted by the revenue in the past. The issue raised in the grounds of appeal no.2 is against the sustaining the addition of Rs.90,06,530/- on account of gross profit in addition to disallowance of gross loss of Rs.3,03,51,447/- which is highly excessive and unjustified as in the wholesale trading of almond gross profit margin was never 12.00%.
4. Facts of the case are that the assessee filed its return of income on 30.09.2011 declaring total income of Rs.95,05,145/- which was processed under section 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny and statutory notices were issued under section 143(2) and 142(1) of the Act and served upon the assessee. During the course of assessment proceedings, the AO noticed on the basis of reply filed by the assessee that GP rate on chemicals trading was 21.14% whereas on the almonds trading the assessee declared gross loss of 21.26% and overall average net profit rate was 7.5%. The AO noted that the assessee has made huge losses in the almonds trading by selling the product below the cost price. The AO also requested the assessee to submit the average cost of purchase of almond vis-à-vis average cost of purchase and bifurcated and quantified the sales of almond below and above the average price. Below average price rate worked out by the AO at Rs.325/- per kg for 346405 kg on which the AO estimated 8% GP rate calculating the GP at Rs.90,06,530/- and as regard the sales made above average price the AO calculated the GP rate by taking the average cost to the average sales rate which worked out to 13.65% and after allowing the allowance at 1.65% from the gross profit rate , the estimated GP rate was calculated at Rs.12.00% which comes to Rs.73,15,854/- thereby making total addition on account of gross profit on sale of almonds sold below and above average price at Rs.1,63,22,384/- by rejecting the gross loss of Rs.3,03,51,447/- as shown by the assessee which was adjusted against the positive profit in the chemical division. Thus, the AO made total addition of Rs.4,66,73,831/-. Aggrieved by the order of the AO passed under section 143(3) dated 20.2.2014 by determining the total income at Rs.5,73,50,030/- by making other additions also.
5. In the appellate proceedings, the ld.CIT(A) ,after considering the detailed submissions and contentions raised by the assessee ,dismissed the appeal of the assessee by observing and holding as under : “5.14 In the instant appeal, the assessee has also in its grounds stated tht the assessing officer has erred in disallowing the loss at Rs.3,03,51,447/- instead of loss of Rs.34,52,447/-. To understand this, I have duly gone through the grounds, facts and submissions of the appellant which were filed during the appellate proceedings. The appellant has stated its arguments as below:
“4. Contentions: At the outset we would like to bring to your notice that he position was different in earlier years. In the earlier years i.e. AY 09-10appellant had deposited cash sums in the same bank accounts but were later on transferred by cheque to the bank account of M/ s. Gem Corporation. (Emphasis is placed on the order of A Y. 09-10 and AY. 10-11 enclosed as 'Annexure et). In the relevant Assessment Year, the amount has not been transferred to the bank account of the Appellant and was directly added to the sales by the Ld. A. O. as being accepted by the Managing Partner of the Appellant, Mr. Bharat Shah in his statement. To give the effect of this, the Ld. A 0. has calculated the revised profit of the Appellant by considering the entire cash deposit as sales and has been added to the loss of the Appellant which is not argued by the Appellant as being duly accepted by the managing partner in his statement. 4.1 The Ld. A O. in his order has also mentioned about the actual loss after taking into consideration the additional amount of sales. In para 4.6 of the order, the AO states as below: "In view of the above, it is observed that in the case of almonds business, the assessee has incurred great loss of Rs. 3, 03, 51,447/ -. This loss has been incurred on account of depositing the cash sales receipts in benami accounts. However, if the above cash sales receipts amounting to Rs.2, 68,99, 000/- are considered, then also there is loss of Rs.34,52,447/-. The assessee was therefore asked to furnish reasons for negative gross profit. " 4.2 If we go by the A O.'s version of the above para, it can easily be construed that the Ld. A O. has gone further and asked to furnish reasons for negative gross profit of Rs.34,52,447/-. In case, the Appellant would have earned gross profit by adding up unaccounted portion of sales, the Ld. AO. would not have asked for furnishing any reason or doubt the profitability." 5.15 The Appellant in its further submission dated 28.10.2014 submitted as under which is carefully perused: " We would like to state that the Ld. A. O. has erred in para 4.19 of his order which is reproduced for your honour: "The gross profit addition on sale of almonds sold below average price and above average price thus comes to Rs. 1,63,22,384/-. The assessee has shown a loss of Rs.3,03,51,447/ - on sale of almonds instead of profit. This loss is nullified and positive profit of Rs. 1,63,22,384/- is arrived as discussed above. This makes the addition to the total income of the assessee to be at Rs.4,66,73,831/-." The Ld. A.O. in para 4.6 has mentioned about the actual loss after taking into consideration the additional amount of sales. Para 4.6 of the order is reproduced as below: "In view of the above, it is observed that in the case of almonds business, the assessee has incurred great loss of Rs.3,03,51,447/-. This loss has been incurred on account of depositing the cash sales receipts in benami accounts. However, if the above cash sales receipts amounting to Rs.2,68,99, 000/- are considered, then also there is loss of Rs. 34,52,447/-." 5.16 The appellant has further contended that A.O should have disallowed the loss Rs.34,52,447/ - for which it is submitted as under: "
6. Subject to above remarks and the data available on record, the taxable income of the assessee for the assessment year 2011-12 is computed as under: In Rs. Total income as per computation 95,05,145 Addition of GP as discussed in para 4 4,66,73,831 of the order Addition as discussed in para 5 of the 11,71,055 order Total Taxable Income 5,73,50,031 Rounded of u/s 288A 5,73,50,030 From above, it can be seen that the addition as per para 4 is Rs. 4,66,73,831/-. The AO has arrived on this figure as given below: In Rs. Addition of 8% GP 90,06,530 Addition of 12% GP 73,15,854 Disallowance of loss 3,03,51,447 Total 4,66,73,831 From the above facts it can be observed that the Ld. AO has rejected the book of accounts and has himself given a clear cut finding that the loss on sale of almonds is Rs.34,52,447/- only and hence while computing the addition on account of almonds in para 6 of the order, it would be fair and logical to take the figure of Rs.34,52,447/ -. If the above effect is given in the computation on the basis of findings of the AO, the addition on account of para 4 would be as under: In Rs. Addition of 8% GP 90,06,530 Addition of 12% GP 73,15,854 Disallowance of loss 34,52,447 Total 1,97,74,831/- It is therefore submitted that the Ld. A. 0. has based his computation. without appreciating proper facts and findings found during the course of the assessment proceedings. He himself has accepted that the actual loss is only Rs.34,53,447/- in para 4.6 of the order. He now cannot suo moto add Rs. 3,03,51,447/- after giving effect of cash sales. Hence, the Ld. A. O. has erred in computing the profits and disallowed a wrong figure. The learned AO should have added back the loss on account of almonds at Rs. 34,52,447/- as against Rs. 3,03,51,447/-. It is therefore prayed that the addition made by the ld. A.O. should be deleted."
5.18 I have gone through the contention of the appellant as well as carefully perused the order of the A.O. The undisputed fact remains that during the year under consideration the appellant has shown loss of Rs.3,03,51,447/-. It is also not in dispute that this loss is attributable to unaccounted sales in cash made by the partners, which are not reflected in the books of accounts. During the course of assessment proceedings, it was also found that cash of Rs.2,68,99,000/- was deposited in the bank account of partners which is nothing but the amounts of sale receipts of almonds pertaining the appellant firm. It is, therefore, clear that the appellant has shown loss on account of trading in almonds which is nothing but an outcome of suppressed sales. As regards, such suppressed sales, the assessee has not produced any evidence in the form of party wise details of such sales or for that matter any sale invoices made either by the appellant firm or by its partners. Hence, it is absolutely unclear and not proved by evidence that the sales amounts of Rs.2,68,99,000/- was only the sales and there were no other receipts in cash apart from deposits made in the partners' accounts of appellant firm. Since the books of accounts were not receivable in view of the categorical findings of suppressed sale, the A.O has rightly rejected the books of accounts. Once the books of accounts are so rejected, the A.O after considering the various aspect may estimate the income which has been done by the A.O in this case. However, looking into the facts of the case, it is seen that the A.O has estimated the income not only on the sales made below cost but also sales which were made above the cost price. In the preceding previous year, the CIT(A) has deleted the addition made in respect of those sales which were made above the cost whereas she has confirmed the addition with regard to addition in respect sales made below the cost. I am in agreement with my predecessor and following the same, I uphold the addition made by A.O on the gross profit addition of 8% with regard to sales made below the cost. Therefore, when the income has been estimated at positive figure, it would automatically lead to the conclusion that the entire loss claimed by the assessee should be ignored i.e. the same should be added to the incorrect to nullify such losses. The appellant's argument that it should be restricted to Rs.34,52,447 j- is misplaced and not tenable both on facts of the instant case and in law, precisely because this loss in respect of almond business of Rs.3,03,51,447/- has already been set off against the profit of chemical business by the appellant itself while working out its net profit of Rs.95,05,145j- shown in its return of income for the year under consideration. In view of the above, I do not find any infirmity in the order of the A.O. The addition of Rs.3,03,51,447 j- is confirmed. This ground is accordingly dismissed”
At the outset, the ld.AR submitted that the issue raised in the present appeal stands fully covered by the decision of the Co-ordinate Bench of the Tribunal in assessee‟s own case in order dated 13.3.2015 wherein the issue has been decided in favour of the assessee and against the revenue. The ld. AR therefore prayed that by following the decision of the Tribunal in assessee‟s own case (supra), the issue be decided in favour of the assessee for which the ld.DR did not object.
Heard both the parties perused the material placed before us including the impugned orders and case law relied upon by the assessee. We find that in the earlier year the similar issue was involved wherein the additions were made by rejecting the books of account by invoking the provisions of section 145(3) of the Act and applying GP rate to estimate the income of the assessee. We find that the issue raised by the assessee in the present case is materially same and stands covered by the assessee‟s own case (supra). For the sake of brevity we reproduce the relevant portion of the order as under :
“3. We heard the parties and perused the record. The assessee firm is engaged in the business of importing and dealing in chemicals and almonds. The assessee imports chemicals named Ditomite, Silica and Aerosil. It also imports “Shelled” and “Unshelled” almonds from USA, besides sourcing the almonds locally also. During the course of assessment proceedings, the AO received information from the Designated officer, investigation wing to the effect that the bank accounts have been opened in the name of Mrs. Aruna H Doshi and six others with M/s Janakalyan Sahakari Bank Ltd. The aggregate amount of deposits made in these six bank accounts during the year under consideration was Rs.3.35 crores. These deposits were found transferred to another account opened in the name of M/s Sameer & Co. In the account of M/s Sameer & Co also, cash deposits to the tune of Rs.1.11 crores was found deposited. Thus the aggregate amount of Rs.4.46 crores (Rs.3.35 crores + Rs.1.11 crores) was found deposited in the bank account of M/s Sameer & Co and the same was found transferred to the account of the assessee. When the details about deposits made in the above said bank accounts were enquired, the assessee owned up these bank accounts and further submitted that the cash deposits were made out of proceeds received from cash sales, i.e., the assessee explained that entire cash deposits represents the sales already accounted for in the books of accounts. The assessing officer also verified the books of account and noticed that the cheques received from M/s Sameer & Co. were found credited in the accounts of different debtors to whom sales had already been made. Accordingly, the AO accepted the above said explanations of the assessee and hence he did not make any further addition on cash deposits made by the assessee on others‟ bank account. For the sake of convenience, we extract below paragraph 7.1 of the assessment order. “7.1. I have gone through the submissions of the assessee and the facts on record. As already brought out in this order the assessee's offer of 4% extra G.P on almond sales of Rs.4,46,81,778/- is not accepted. The gross profit margin on the entire sale of almonds @ 16.05% has been considered in this order as against the loss of Rs.4,07,29,717/- or about shown by the assessee. The gross profit margin considered at 16.05% also covers the cash sales and the difference in the gross profit is reflected in the computation of income of the assessee made in this order. The Gross Profit margin considered in the order has been based on the sales figure of Rs.22,58,94,971/- on almonds and the sales amount realized contained not only the amounts received through the bank but also substantial cash sales. The assessee had shown almond sales for the entire period of the previous year and its cash sales also considered in the order for forming part of the G.P estimated on sale. Since the G.P estimated and cash sales have been closely interlinked and in the absence of any additional information, no further addition on cash deposits made by the assessee on others banks as discussed is made in this order.”
However, the AO proceeded to examine the sales details reported by the assessee. The AO called for item-wise sales break-up from the assessee. Since the assessee failed to furnish the details, the AO proceeded to compute the Gross Profit arising on sale of each product dealt by the assessee. The AO computed the rate of Gross Profit arising from sale of Diatomite and Silica/Aerosil at 27.71% and 27.20 % respectively. In money terms, the aggregate amount of Gross profit that arose from sale of Diatomite and Silica/Aerosil worked out to Rs.7.53 crores. However, the assessee had disclosed Gross profit of Rs.3.13 crores, which means that the assessee had declared Gross Loss on sale of Almonds. The AO noticed from the sales bills of Almonds that the sales have been made to parties, who could not be identified. Hence the AO took the view that the sales shown against the non-existent parties are not reliable and so also the Gross Profit shown against those sales also. The AO also verified the sales effected on 7.1.2009 and also the related purchases and noticed that the G.P on the same worked out to 16.05%. Accordingly, the AO took the view that the Gross loss (stated as “negative gross profit” by the AO) reported by the assessee is not unacceptable for the following reasons:- “(i) Assessee has shown sales in almonds in fictitious names as admitted by the partner himself and those sales cannot be held as genuine.
(ii) Bulk quantity of sales has been shown by assessee at very cheap rate of Rs.50 to Rs.60 per kg in several, bills (which constitute hardly 15% to 20% of the sale price of almond at market rates) is not reliable. From the same lot of purchase, assessee has shown sales to others at market rate which shows that the sales shown at very cheap rates has not been genuine. The sale claims to these parties at the low rates have been made up by assessee for creating the negative G.P or loss.