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Income Tax Appellate Tribunal, “D” BENCH : KOLKATA
Before: Hon’ble Sri A.T.Varkey, JM & Shri M.Balaganesh, AM ]
This appeal of the assessee arises out of the order of the Learned Commissioner of Income Tax (Appeals) -6 , Kolkata [ in short the ld CITA] in Appeal No. 35/CIT(A)- 6/Kol/14-15/ dated 18.01.2016 against the order passed by the Income Tax Officer, Ward 1(2), Hooghly [ in short the ld AO] under section 143(3) of the Act dated 30.03.2014 for the Asst Year 2011-12.
The first issue to be decided in this appeal is as to whether the ld AO was justified in making an addition towards undisclosed purchases u/s 69C of the Act which was also later enhanced marginally by the ld CITA in the facts and circumstances of the case. The interconnected issue thereon is with regard to taxation of profit on the enhanced undisclosed purchases . 3. The brief facts of this issue is that the assessee is an individual , dealing in the business of soft drinks under the proprietorship concern styled as M/s B.M.Enterprises. The assessee also earned profit from another proprietorship business styled as M/s Sova Engineering which is engaged in the designing of printing for sarees. The assessee has 2 Promod Kumar Banerjee A.Yr.2011-12 also declared share of profit from a firm styled as M/s Sova Communication in the return of income. The ld AO observed that assessee had purchased cool drinks from its only supplier M/s Bengal Beverages Pvt Ltd and sought to verify the same by issuing notice u/s 133(6) of the Act. On examination of ledger furnished by M/s Bengal Beverages Pvt Ltd, it was detected that its total sale against supply amounted to Rs 49,33,000/- whereas the assessee in his profit and loss account of M/s B.M.Enterpries had shown the purchase of Rs 23,13,643/- only which led to the difference of Rs 26,19,357/-. The ld AO issued show cause notice as to why the said difference should not be brought to tax as undisclosed purchases in the hands of the assessee.
3.1. The assessee replied vide his letter dated 24.2.2014 before the ld AO as under:- a) That during the financial year 2010-11, total sum of Rs 49,33,000/- was paid to M/s Bengal Beverages Pvt Ltd through bank as per their advice. b) That the sum of Rs 79,33,000/- was paid inclusive of previous year outstanding. c) That it is learnt from my authorized representative Mr Dipak Ghosh that actual purchase and sale were not taken in the profit and loss account for the financial year 2010-11. d) That I know how to make business but I have had no knowledge about the accounts, all the documents relating to my business handed over to my part time accountant with whom the accounts job was entrusted but he made wrong as a result I am in trouble. It is my humble request to you kindly to allow me to submit a fresh P&L account and Balance Sheet for the financial year 31.03.2011. e) That I have had no malafide intention to suppress the business turnover as well as to avoid the tax but the absence of due case, in a case such as the present does not mean that the assessee is guilty of either furnishing inaccurate particulars or attempting to conceal its income.
3 Promod Kumar Banerjee A.Yr.2011-12 3.2. The ld AO did not entertain the plea of the assessee for allowing to file P&L account and Balance Sheet for 31.3.2011 and he gave credit for Rs 38,752/- being the payment made for sundry creditors for the previous year and brought the difference of Rs 25,80,605/- ( 26,19,357 – 38,752) by stating that the assessee had concealed the purchases. Accordingly he added the same to the total icnome under undisclosed purchases.
3.3. The ld AO observed that while speaking about undisclosed purchases, it is necessary to mention that undisclosed sales had resulted simultaneously and accordingly in such situation, the gross profit (GP) is to be brought to tax. For this purpose, he observed that the GP shown by the assessee is 15% and accordingly 15% of Rs 25,80,605/- amounting to Rs 3,87,090/- was added to the total income under the head undisclosed gross profit.
The ld CITA observed that the total purchases as per the confirmation of the supplier i.e M/s Bengal Beverages Pvt Ltd was Rs 49,73,081/- and not Rs 49,33,000/- as adopted by the ld AO. Accordingly he enhanced the addition made on this account to Rs 26,59,438/- and also brought down the gross profit addition to 10% . In other words, the ld CITA enhanced the addition towards undisclosed purchases at Rs 26,59,438/- and brought down the addition towards undisclosed gross profit at 10% amounting to Rs 2,95,494/- (26,59,438 * 10 / 90) and gave relief to the assessee to the tune of Rs 91,596/- ( 3,87,090 – 2,95,494) thereon.
Aggrieved, the assessee is in appeal before us on the following grounds:- “1. That on the facts and in the circumstances of the case Ld. Commissioner of Income tax (A)-6, Kolkata has erred in law in directing to enhance the addition of Rs.26,19,357/- u/s. 69C of the LT. Act. against the addition made by A.O. of Rs. 25,80,605/- treating the amount as undisclosed purchase on wrong premises of facts of the case.
4 Promod Kumar Banerjee A.Yr.2011-12 2. That on the facts and in the circumstances of the case Ld. Commissioner of Income tax (A)-6, Kolkata has erred in law in viewing that the reduction of Rs. 38,752/- from the undisclosed purchase computed by the A.O of Rs. 26,19,357/- was unjustified as the treatment of opening balance of sundry creditors cannot be treated as source of explained cash payments.
That on the facts and in the circumstances of the case the Ld. Commissioner of Income tax (A)-6, Kolkata has erred in law in upholding the above addition without considering that the information collected by issuing Notice u/s 133(6) ought to have been served to the appellant for filing his submission against the information supplied and this is in violation of the principle of natural justice.
4. That on the facts and in the circumstances of the case the ld. Commissioner of Income tax (A)-6, Kolkata has erred in law in viewing in his order that the issue in question is not that of mismatch between the accounts of the appellant and the supplier when it is reiterated that in absence of reply of the seller obtained by the A.O. which was not forwarded to the appellant and as such the appellant was denied opportunity for filing his submission against the information supplied by the seller, after perused of the accounts for the relevant period.
5. That on the facts and in the circumstances of the case the Ld. Commissioner of Income tax (A)-6, Kolkata has erred in law in directing to calculate G.P. @ 10% on the alleged undisclosed purchase as against 15% estimated by the A.O. when the appellant is already contesting the alleged addition and as per accounts of the appellant the rate of g.p. is only 8.49%.”
The ld AR argued that it is not disputed that the total purchases made by the assessee from its only supplier i.e M/s Bengal Beverages Pvt Ltd was Rs 49,73,081/- and payment made to them during the year was Rs 49,33,000/- towards current year purchases. The assessee is following mercantile system of accounting. The entire payments made to the said supplier was duly reflected in the bank accounts wherein payments were made out of withdrawals from the bank. He placed on record the date wise details of sources and payments to M/s Bengal Beverages Pvt Ltd which goes to prove that there is no case for making any addition towards purchases made out of unaccounted sources. He argued that just because the profit and loss account filed along with the return of income did not disclose the actual purchases , which was duly explained by the assessee vide letter dated 24.2.2014 before the ld AO itself, the assessee cannot be penalized for making unjust payment of taxes and interest. He
5 Promod Kumar Banerjee A.Yr.2011-12 argued that the ld AO does not dispute the purchases made for the differential amount from M/s Bengal Beverages Pvt ltd. It is not in dispute that the assessee makes retail sales of those cold drinks in cash and the sale proceeds received thereon in cash is deposited into the bank account and payments are made to Bengal Beverages Pvt Ltd by withdrawals thereon.
6.1. With regard to the estimation of GP on undisclosed sales, he stated that the ld CITA had reduced from 15% to 10%. He stated that the ld CITA had merely erred in assuming that the indirect expenses would have already been debited by the assessee in the profit and loss account. He stated that the net profit declared by the assessee in his profit and loss account was 8.50% .
6.2. In response to this, the ld DR vehemently relied on the orders of the lower authorities.
We have heard the rival submissions. The facts stated hereinabove remain undisputed and hence the same are not reiterated for the sake of brevity. At the outset, we find that there is no dispute that the purchases made from Bengal Beverages Pvt Ltd were to the tune of Rs 49,73,081/-. Even though the assessee has disclosed lesser purchases figure and lesser sales figure in his profit and loss account, we hold that no addition could be made merely based on the profit and loss account as long as the assessee was able to prove the sources for making payments to Bengal Beverages Pvt Ltd for the differential sum. We are convinced with the details placed on record containing the date wise details of sources and payments to Bengal Beverages Pvt Ltd wherein the entire payments were duly explained by proper sources. The revenue had also assumed and accepted that there are some undisclosed sales made by the assessee in cash which were not reflected in the profit and loss account filed by the assessee. In fact the assessee had made a prayer before the ld AO seeking permission to file the 5 6 Promod Kumar Banerjee A.Yr.2011-12 revised profit and loss account and balance sheet which was rejected by the ld AO. But strangely the assessee had also remained quiet thereafter. In any case, we hold that there cannot be any addition made in the assessment merely based on wrong profit and loss account filed by the assessee, as long as the sources for making payment for purchases are properly explained, which has been duly done in the instant case. Hence there cannot be any addition towards undisclosed purchases in the sum of Rs 26,59,438/- in the facts and circumstances of the case and accordingly we direct the ld AO to delete the same. With regard to taxability of profit on the said undisclosed purchases, we hold that the assessee had to be taxed on the net profit derived thereon. Hence we deem it fit and appropriate to tax the net profit at 9% on the differential sum of Rs 26,59,438/- which would meet the ends of justice in the instant case. Accordingly, the grounds 1 to 4 raised by the assessee are allowed and Ground No. 5 is partly allowed.
The Ground No. 6 raised by the assessee was stated to be not pressed at the time of hearing by the ld AR. The same is reckoned as a statement from the Bar and accordingly the Ground No. 6 raised by the assessee is dismissed as not pressed.
The Ground No. 7 raised by the assessee is general in nature and does not require any specific adjudication.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the Court on 14.06.2017.