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Income Tax Appellate Tribunal, KOLKATA BENCH “D” KOLKATA
Before: Shri Waseem Ahmed & Shri S.S.Viswanethra Ravi
आदेश /O R D E R
PER Waseem Ahmed, Accountant Member:-
This appeal by the assessee is against the order of Commissioner of Income Tax (Appeals)-XXXII, Kolkata dated 26.09.2014. Assessment was framed by I.T.O., Ward-4, Murshidabad u/s 147/143(3) of the Income tax Act, 1961 (hereinafter referred to as ‘the Act ‘) vide his order dated 06.12.2007 for assessment year 2005-06. Shri Sanjib K Das Sarma, Ld. Authorized Representative appeared on behalf of assessee and Shri Rajendr Prasad, Ld. Departmental Representative represented on behalf of Revenue.
A.Y.2005-06 Susen Chaki Vs. ITO Wd-4 MSD Page 2 2. The facts in brief are that the assessee in the present case is an individual and is engaged in the trading business of seeds. The assessee for the year under consideration has filed its return of income declaring total income of Rs.1,08,628/- which is arising out of income under the head “business only”. The return of income of the assessee was processed u/s 143(1) of the Act, accepting the income shown by the assessee. However, subsequently the case was picked up under income escaping assessment u/s 147 of the Act and accordingly notices u/s 148/143(2) and 142(1) of the Act were served upon the assessee. The assessment was framed u/s 147 r.w.s.143(3) of the Act at a total income of Rs.12,40,128/- after making certain additions/disallowances to the total income of the assessee which have been discussed in details hereinafter.
We first take up ground no. 4 of the assessee where the issue raised by the assessee is that the ld. CIT(A) erred in confirming the order of AO by sustaining the addition of Rs.2,36,564 on account of gross profit on the unrecorded purchases. The AO during the assessment proceedings observed certain differences in the amount of purchases shown by the assessee vis-à-vis sales shown by the corresponding parties in their respective books of accounts as detailed below Company Statement by the assessee understated:- Name of the Party Amount as per Amount shown Amount Bharat Nursery Pvt.Ltd. Rs.5,11,315.00 Rs.5,04,690 Rs.6,625.00 Mahyco Seeds Ltd. Rs.22,47,863.25 Rs.1,40,150 Rs.21,07,713.25 Palli Shree Ltd. Rs. 9,30,825.00 Rs.1,55,570 Rs. 7,77,255.00 Pashupati Das & Sons Rs.10,99,634.00 Rs.6,16,132 Rs. 4,83,502.00 Rs.47,89,637.25 Rs.14,14,342 Rs.33,75,095.25 On question by the AO about the understated purchases, the assessee submitted that the information gathered u/s 133(6) of the Act cannot be accepted. However, the AO disregarded the contention of the assessee and A.Y.2005-06 Susen Chaki Vs. ITO Wd-4 MSD Page 3 worked out the profit @ 6.55 % on the sales which is coming for Rs.2,36,564.00 (3375095 x 6.55 divided by 93.45). The above gross profit on undisclosed purchases was disallowed and added to the total income of the assessee.
Aggrieved, assessee preferred an appeal before Ld. CIT(A).The assessee before the ld. CIT(A) submitted that the information gathered u/s 133(6) from the parties as discussed above have not been provided for confrontation and therefore the same cannot be used against the assessee, otherwise it will be against the principle of natural justice. The assessee further submitted that there is no defect in the books of accounts maintained by it and no defect was reported by the AO during the assessment proceedings.
Without prejudice to the above, the assessee further submitted that for determining the profit on the unrecorded purchases the net profit shown by the assessee @5% should be adopted. However, the ld. CIT(A) disregarded the contention of the assessee by observing as under :- “The AO had found out that the actual purchases of the assessee were very high than those reported and these facts are detailed in the assessment order. The AO applied the declared gross profit rate of 6.55% to the total unreported purchases of Rs. 33,75,095/- and an addition of Rs. 2,36,564/- was made by the A.O. In the appellate proceedings, the assessee has not disputed the facts and has not adduced any other fact which goes contrary to the facts enumerated by the A.O. The assessee's ground of appeal as explained in the written submission is very limited. The AR has claimed that the assessee had declared a g.p. rate of 6.55% and a net profit rate of 5% in his Profit & Loss Account and therefore the AO should have applied the net profit rate of 5% only to the unreported purchases. The contention of the assessee is baseless. The expenses in the P&L Account are generally of administrative nature or are otherwise fixed and these don't change only because the assessee has done some unaccounted purchases & sales also. In these appellate proceedings the A R has not adduced anything to even remotely suggest that the assessee had to incur some new or hitherto undeclared expense to earn the additional incomes. Therefore it is held that all the expenses of the Profit & Loss Account are already allowed to the assessee and there is no cause for allowing any further deduction for expenses. A.Y.2005-06 Susen Chaki Vs. ITO Wd-4 MSD Page
4. In addition to the above, the assessee had also made an alternative plea that the AO had not supplied the copy of confirmation of account obtained from the sellers and therefore a reply of 'Not accepted' was given to the AO earlier. The assessee had also requested for a remand back of the matter 'for a proper rebuttal. In this connection it is held that the suppliers are not third parties but are the creditors of the assessee and the assessee had quoted their names and address to support his purchases. Thus in the eyes of the law as explained in the case of Sukh Ram v. ACTT (2001)
99. ITD 417 (Delhi) ( case confirmed by Delhi High Court and reported as 285 ITR 256), the creditors were the witnesses of the assessee only and not of the Revenue. It was. therefore, incumbent upon the assessee to adduce proof in his favour instead of merely disclaiming the confirmation of accounts. Moreover in the remand proceedings the assessee has again made no new submissions and the AR vide order sheet dated. 20.09.14 has categorically admitted that the assessee has no further arguments to make and no rejoinder to the Remand Report is filed. In view of the above it is heed that the assessee has no explanation or evidences to offer in support of his ground of appeal and the ground of appeal No.2 is dismissed.”
Being aggrieved by the order of ld. CIT(A) the assessee is in second appeal before us on the following grounds of appeal : “4) That the Id.CIT(A) erred in sustaining the addition of Rs. 236564/- on account of GP on unrecorded purchase.”
The ld. AR before us submitted that the information gathered u/s 133(6) of the Act has not been provided to the assessee for his confrontation and therefore the matter should be restored back to the AO for fresh adjudication. Ld. DR present was duly heard. He fairly submitted that the matter needs to be restored by the Ld. CIT(A) for fresh consideration.
We have gone through the submissions made by both the sides and perused the orders of the lower authorities. The issue in the present ground of appeal of the assessee is with regard to the addition made by the lower authorities on the undisclosed purchases at the GP rate of 6.55% though the assessee has shown net profit at the rate of 5%.
The assessee has shown its net profit @ 5% of the turnover and accordingly the ld AR of the assessee was of the view that the same amount of profit i.e. 5% should be adopted for the impugned undisclosed purchase. A.Y.2005-06 Susen Chaki Vs. ITO Wd-4 MSD Page 5 Admittedly, the undisclosed purchases were found by the AO at the time of assessment proceedings which were discovered as a result of mismatch between the amount of purchases as shown by the assessee as well as the amount of sale shown by the parties. The aforesaid mismatch amount in the purchases was discovered as a result of the notice issued u/s 133(6) of the Act. The assessee, at the time of assessment as well as at the time of remand stage, failed to furnish any documentary evidence to controvert the finding of lower authorities. Therefore, the allegation of the assessee that the information gathered in accordance with the provisions of section 133(6) of the Act was not cross verified is baseless. On examination of lower authorities, we find that sufficient opportunities were given by the lower authorities to counter the allegations framed by the AO but the assessee failed to do so. The ld AR before us has also not brought anything contrary to the finding of ld CIT(A). Now coming to the rate adopted by the AO for determining the profit on the undisclosed purchases we find that the lower authorities have taken the GP rate as disclosed by the assessee in this return of income and the same rate of profit has also been applied on the undisclosed purchases. The argument of the assessee that the net profit on the undisclosed purchases should be used to work out profit does not have any force. It is because that all the indirect expenses has been duly incurred and claimed by the assessee against the disclose sales of the business. Thus, we are of the view there was no indirect expense which was incurred by the assessee in relation to undisclosed sale and not claimed. Thus, in our considered view the GP rate adopted by the lower authorities is reasonable in the working out the taxable income on the undisclosed purchases. However, in the interest of justice & fair play we are inclined to give one more opportunity to the assessee as he is alleging that the information received in response to the notice issued u/s 133(6) of the Act has not been confronted and DR also has no objection in this regard. Therefore, we are restoring this issue to the file of AO for fresh adjudication in accordance with the law. Hence, this ground of appeal raised by the assessee is allowed for statistical purposes. A.Y.2005-06 Susen Chaki Vs. ITO Wd-4 MSD Page 6
7. The second issue raised by the issue in ground no. 5 is that the ld. CIT(A) erred in confirming the order of AO by sustaining the addition of Rs.6,93,038/- on account of circulating capital invested in the undisclosed purchases.
8. The AO during the course of assessment proceedings observed that this stock turnover from the disclosed business of the assessee is coming to 4.87 times and accordingly calculated the circulating capital invested by the assessee in its unrecorded purchases which works out to Rs. 6,93,038/- (3375095 divided by 4.87). The aforesaid circulating capital was brought to tax as undisclosed investment u/s 69 of the Act and added to the total income of the assessee.
Aggrieved the assessee preferred the appeal before ld. CIT(A). The assessee before ld. CIT(A) submitted that the addition on account of circulating capital has been worked out without any documents. As such, the same was determined by the AO in his own surmise and conjectures and therefore liable to be deleted. However, the ld. CIT(A) disallowed the contention of the assessee and confirmed the order of AO by observing as under :- “In connection with the undisclosed purchases, which facts are mentioned in the Ground of Appeal above, the AO noted that the assessee has made a total purchases of Rs. 47,89,637/- but had declared only Rs. 14,14,542/- as his purchases in the books of accounts maintained for Income Tax Purposes. The AO also noted that the assessee rolls-over stock 4.87 times before he starts getting returns on the sales. The AO therefore held that the assessee must have invested unaccounted capital in acquiring unaccounted purchases and this was calculated by the AO at Rs.6,93,038/-. In the appellate proceedings the AR merely claimed that the estimation of the AO is erroneous and subjective. However the AR gave no alternative explanation backed by any evidence. The facts of this addition are the same as for ground No. 2 above, In this case also the assessee only makes general statement but there is no substantiation. In the absence of filing of any verifiable facts, rejoinder to remand report and other arguments, the ground of appeal No. 3 is also dismissed.”
Being aggrieved by the order of CIT(A) the assessee is in second appeal before us. For this, the assessee has raised the following grounds of appeal : A.Y.2005
06. Susen Chaki Vs. ITO Wd
4. MSD Page 7 “5) That the Id. CIT(A) erred in sustaining the addition of Rs.693038/- under the head circulating capital on unrecorded purchase”.
The ld. AR before us submitted that the instant issue is directly linked with unrecorded purchases for which ground no.1 has been raised. In ground no.1 it was prayed to restore the matter to the AO and therefore the ld. AR further requested to restore the matter to the AO for fresh adjudication. On the other hand the ld. DR raised no objection if the matter is restored to the AO.
We have gone through the submissions made by both the sides and perused the orders of the lower authorities. The issue in the present ground of appeal of the assessee is with regard to the addition made by the lower authorities on the undisclosed money invested in the undisclosed purchases.
In this regard, we have already restored the ground No. 4 to the file of AO for fresh adjudication in relation to the taxable profit on the undisclosed purchases. Indeed, undisclosed purchases were made by the assessee and therefore the element of the circulating capital invested in the undisclosed purchases cannot be ignored. Therefore, it is necessary to bring the same under the tax net. The ld AR has submitted that the undisclosed purchases were made on the basis of credit but he failed to bring any evidence in support of his claim. As the present issue is concerned and connected with the ground no. 4 which has been allowed for statistical purposes, therefore we are also inclined to restore this ground to the AO for fresh adjudication in accordance with the law. Hence, this ground of appeal raised by the assessee is allowed for statistical purposes in terms of the above.
The third issue raised by the assessee in this appeal is that the ld.CIT(A) erred in confirming the order of AO by sustaining the disallowance u/s 40A(3) of the Act for Rs.1,14,600/-. For this the assessee has raised the following grounds of appeal :- A.Y.2005
06. Susen Chaki Vs. ITO Wd
4. MSD Page 8 “6) That the Id. CIT(A) erred in sustaining the disallowance u/s.40A(3) amounting to Rs.114600/-“
We have gone through the submissions made by both the sides and perused the orders of the lower authorities. At the outset, we find that the ld AR has not brought anything on record contrary to the finding of ld CIT(A). Thus, we do not find any reason to interfere in the order of ld CIT(A). Hence the ground of appeal raised by the assessee is hereby dismissed.
The next issue raised by the assessee in this appeal is that the ld. CIT(A) erred in confirming the order of AO by sustaining the addition of Rs.87,292/- u/s 69 of the Act. For this, the assessee has raised the following grounds of appeal :- “7) That the Id.CIT(A) erred in sustaining the addition of Rs.87,292/- u/s.69.”
We have gone through the submissions made by both the sides and perused the orders of the lower authorities. At the outset, we find that the ld AR has not brought anything on record contrary to the finding of ld CIT(A). Though, the assessee was provided several opportunities at the time of appellate stage and remand stage but details was submitted to counter the allegation of the AO. Even before us the ld. AR failed to submit any details. Thus we do not find any reason to interfere in the order of ld CIT(A). Hence, the ground of appeal raised by the assessee is hereby dismissed.
The assessee in ground nos. 1 to 3 has challenged re-assessment proceedings initiated and completed u/s 147 of the Act. For this the assessee has raised the following grounds of appeal:- “1) That the Id. CIT(A) erred in not allowing reasonable and proper opportunity to the appellant to represent its case before him.
2) That the Id. CIT(A) erred in dismissing the grounds taken in appeal before him against the initiation of reassessment proceeding.
3) That the Id. CIT(A) erred in confirming the initiation of reassessment proceeding as valid.”
A.Y.2005-06 Susen Chaki Vs. ITO Wd-4 MSD Page 9 17. At the outset, it was observed that at the time of hearing the ld. AR has not challenged the reassessment proceedings framed by the AO u/s 147 of the Act. Therefore, we are inclined to dismiss this ground of appeal of the assessee as infructuous. Hence, these grounds of assessee’s appeal are dismissed.
18. Ground Nos. 8 and 9 are general in nature and do not require any adjudication.