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Income Tax Appellate Tribunal, “D “ BENCH : KOLKATA
Before: Hon’ble Sri N.V.Vasudevan, JM & Shri M.Balaganesh, AM ]
Grounds of appeal
raised by the assessee in this appeal read as follows :- “1. For that in the facts and circumstances of the case the Appellate order passed was in violation of principals of natural justice hence is bad in law and be quashed.
2. For that in the facts and circumstances of the case the Ld. Commissioner of Income Tax Appeals erred in upholding the addition of Rs.3,09,269/- on account of gross profit earned on undisclosed purchase of Rs.37,17,674/-. The addition is not called for hence the same be deleted.
3. For that the interest computed u/s 234A/B/C/D of the IT Act 1961 is over charged and wrongly calculated and or is not applicable to the assessee case it be directed to re- compute the interest as per law.
2 to 1176/Kol/2016 Anil Kr.Dua A.Yr.2008-09, 2009-10 & 2010-11 4. The appellant craves leave to press new, additional grounds of appeal or modify, withdraw any of the above grounds at the time of hearing of the appeal.”
3. The Assessee is an individual. He carries on the business as wholesale seller of fruits. He also sells fruits on commission. For A.Y.2008-09, the assessee filed return of income showing total income of Rs.3,81,510/-. In the course of assessment proceedings u/s 143(3) of the Income Tax Act, 1961 (Act), the AO noticed that there were undisclosed transactions in the assesee’s bank accounts with Axis Bank Ltd. The volume of such transactions was to the tune of Rs.40,26,943/-. These transactions were admittedly not recorded in the books of accounts of the Assessee. The AO therefore considered the sales made by the Assessee as sales outside the books of account. A gross profit of 7.68% on undisclosed sale viz., a sum of Rs.3,09,269/- was added to the total income of the assessee as profits from undisclosed sales. The same was confirmed by CIT(A).
4. At the time of hearing the ld. Counsel for the assessee made a limited prayer that the addition in question can be sustained as the sales were undisclosed sales not recorded in the books of accounts. His limited prayer was that credit for the income earned and brought to tax should be given for the assessee and this income should be regarded as available to the Assessee for explaining source for any income in the subsequent periods. Though the ld. DR opposed the prayer of the ld. Counsel for the assessee, we are of the view that the prayer made by the ld. Counsel for the assessee is acceptable and accordingly the addition made by the CIT(A) is confirmed and it is held that credit for the income earned to the extent of addition sustained should be given and the benefit of availability of funds to the said extent in the subsequent year should be given. With these observations, the appeal of the assessee for A.Y.2008-09 is dismissed. (A.Y.2009-10) : 5. Grounds of appeal raised by the assessee in this appeal read as follows :- 2 3 to 1176/Kol/2016 Anil Kr.Dua A.Yr.2008-09, 2009-10 & 2010-11 “1. For that in the facts and circumstances of the case the Appellate order passed was in violation of principals of natural justice hence is bad in law and be quashed.
2. For that in the facts and circumstances of the case the Ld. Commissioner of Income Tax Appeals erred in upholding the addition of Rs.58,090/- on account of undisclosed bank account. The addition is not called for hence the same be deleted.
3. For that in the facts and circumstances of the case the Ld. Commissioner of Income Tax Appeals erred in upholding the addition of Rs.2,50,000/- on account of undisclosed transaction. The addition not called for hence the same be deleted.
For that the interest computed u/s 234A/B/C/D of the IT Act 1961 is over charged and wrongly calculated and or is not applicable to the assessee case it be directed to re- compute the interest as per law.
The appellant craves leave to press new, additional grounds of appeal or modify, withdraw any of the above grounds at the time of hearing of the appeal.”
6. Ground Nos. 1, 4 and 5 are either general or consequential and hence need no adjudication.
7. As far as Ground No.2 and 3 are concerned the prayer of the ld. Counsel for the assessee was that to the extent of the addition sustained in A.Y.2008-09 namely gross profit addition of Rs.3,09,269/-, the assessee should be given the benefit of availability of funds and therefore the addition should be deleted by holding that the assessee has explained the source of funds in the undisclosed bank account and undisclosed transactions. We are of the view that the prayer made by the ld. Counsel for the assessee is acceptable and there are no such circumstances which indicate the non availability of the funds consequent to the addition made in A.Y.2008-09 in the hands of the assessee to explain the source of funds for the deposits in undisclosed bank account and for carrying out the undisclosed transactions. We accordingly allow ground nos. 2 and 3 raised by the assessee. Thus the appeal of the assessee for A.Y.2009-10 is allowed.
ITA No.1176/Kol/2016 (A.Y.2010-11)
4 to 1176/Kol/2016 Anil Kr.Dua A.Yr.2008-09, 2009-10 & 2010-11 8. Grounds of appeal raised by the assessee in this appeal read as follows :- “1.For that in the facts and circumstances of the case the Appellate order passed in violation of principles of natural justice hence is bad in law and be quashed.
2. For that in the facts and circumstances of the case the Ld. Commissioner of Income Tax Appeals erred in upholding the addition of Rs.1,00,000/- on account of undisclosed income. The addition is not called for hence the same be deleted.
3. For that in the facts and circumstances of the case the Ld. Commissioner of Income Tax Appeals erred in upholding the addition of Rs.30,46,400/- on account of gross profit earned on Back to Back sale of Rs.3,40,00,000/-. The addition is not called for hence the same be deleted.
4. For that in the facts and circumstances of the case the Ld. Commissioner of Income Tax Appeals erred in upholding the addition of Rs.30,000/-on account of undisclosed lease rent. The addition is not called for hence the same be deleted.
5. For that in the facts and circumstances of the case the Ld. Commissioner of Income Tax Appeals erred in upholding the addition of Rs.25,000/ - on account of undisclosed additional discount. The addition is not called for hence the same be deleted.
6. For that in the facts and circumstances of the case the Ld. Commissioner of Income Tax Appeals erred in upholding the addition of Rs.4,15,000/- on account of bogus purchases. The addition is not called for hence the same be deleted.
7. For that in the facts and circumstances of the case the Ld. Commissioner of Income Tax Appeals erred in upholding the addition of Rs.55,000/ - on account of unexplained money. The addition is not called for hence the same be deleted.
8. For that the interest computed u/s 234A/B/C/D of the IT Act 1961 is over charged and wrongly calculated and or is not applicable to the assessee case it be directed to re- compute the interest as per law.
9. The appellant craves leave to press new, additional grounds of appeal or modify, withdraw any of the above grounds at the time of hearing of the appeal.”
9. Ground Nos. 1,8 and 9 raised by the assessee are general or consequential and do not call for any specific adjudication.
10. The first issue to be taken up for consideration is ground no.3 raised by the assessee. As far as ground no.3 raised by the assessee is concerned the material facts for 4
5 to 1176/Kol/2016 Anil Kr.Dua A.Yr.2008-09, 2009-10 & 2010-11 adjudication of the aforesaid grounds of appeal are that the AO on scrutiny of the trading account found that there were purchases to the tune of Rs.3,40,00,000/- and corresponding sale of the same value of Rs.3,40,00,000/- in the trading account. The plea of the assesee was that apart from wholesale business of selling fruits, the Assessee also used to carry out back to back purchase and sale in which there is no physical delivery of goods to the assessee and the purchases are directly sold to the third party. The assessee was acting purely as an intermediary and used to earn commission. It was the plea of the assessee that in such transactions it had earned a marginal commission of say 2%. The AO however was of the view that the assessee did not give valid explanation and documentary evidences to establish its case back to back purchase and sale. The AO therefore applied the gross profit rate earned by the assessee namely. 8.96% of the value of transaction of Rs.3.40 Crores and brought to tax a sum of Rs.30,46,400/- as undisclosed income.
11. On appeal by the assessee the CIT(A) confirmed the order of AO for the following reasons : “4.2 The appellant's authorized representative stated that the appellant has accounted all the purchase and sales and there were no unaccounted purchases and sales. All the payments were made through the bank accounts and there is no need to make any estimated addition of gross profit. Even if it is presumed that the gross profit has to be estimated it should be estimated@ 2% as in the case of Sri Prakash Hari Bhan Pandel. The authorized representative of the appellant was of the opinion that estimation of income @ 2% appears to be reasonable. 4.3 I have carefully considered the submissions made by the appellant but I do not find any merit in the argument. The appellant has not made the purchases and sales at one go in lump sum to make distress sales on back to back basis. The appellant has made the purchases regularly throughout the year from the various parties and sold to various parties. All the sales were in cash and the appellant has not maintained the sales vouchers. There were no evidences to show that the appellant has made back to back sales and simply made the entry in the trading and profit and loss account but not accounted in the books of accounts . In the absence of any evidences to show that the sales were made without profit and the relevant purchase and sale vouchers, the appellant's explanation that the sales were back to back without profit was not tenable. The A.R of the appellant has been asked to furnish the details of party-wise purchases and sales with quantity and the amount. During the appeal the A.R has expressed his inability. From 5
6 to 1176/Kol/2016 Anil Kr.Dua A.Yr.2008-09, 2009-10 & 2010-11 the assessment order and the submissions made during the appeal it is understood that the appellant has made the sales of Rs.Rs.3,40,00,000/- outside the books of accounts without admitting any profit. In the facts and circumstances the Assessing Officer has taken the information available from the assessee's own record and estimated the profit @ 8.96%. In the case of Sri Prakash Hari Bhan Pandel the appellant submitted the details of purchase statement stating that the appellant has made purchases of Rs.27,50,000/- on back to back without any profit. However, as per the information collected by the AO, it was revealed that the appellant has paid commission @2% to Sri Prakash Hari Bhan Pandel. Therefore, the A.O made the addition of Rs.55,000/- @2% on purchases. Therefore, the appellant's request to estimate the G.P as in the case of Sri Prakash Hari Bhan Pandel is not acceptable and rejected. When the A.O. has caught the issue in the right direction and the appellant had no answer, the appellant has come up with the alternative argument to estimate the profit @ 2% as in the case of Sri Prakash Hari Bhan Pandel.. However, the appellant has failed to furnish before me that the gross profit was 2% or less than 8.96%. The appellant is meticulously planning the sales without vouchers and suppressing the profit. The appellant has failed to draw any trading account of -Unaccounted sales. Scrutiny of Bank account reveals the cash deposits and payments to various parties. In the absence of any details, the A.O. has rightly estimated the gross profit @8.96% on unaccounted sales of Rs.3,40,00,000/-. The addition made by the A.O is confirmed. Ground No. 3 and the additional grounds of appeal are dismissed.”
12. Aggrieved by the order of CIT(A) the assessee has raised ground no.3 before the Tribunal.
The ld. Counsel for the assessee submitted before us that the stand of the assessee that there was back to back purchase and sale is clearly evident from the findings of the AO himself in the order of assessment. In this regard the ld. Counsel for the assessee firstly submitted that purchases and sales have been duly disclosed in the books of accounts by the assessee. All the details of back to back purchases were given by the assessee to the AO and the observations of the AO to the contrary in the order of assessment is incorrect. In this regard our attention was drawn to para-D at page-3 of the order of assessment wherein the assessee had referred to back to back purchase and sale carried out by the assessee with Shri Kartic Samanta and another instance of back to 7 to 1176/Kol/2016 Anil Kr.Dua A.Yr.2008-09, 2009-10 & 2010-11 back purchase and sale referred to in the order of assessment is the transaction of back to back purchase and sale with Shri Prakash Haribhan Pandel, where Shri Pandel as per his version had submitted that only 2% commission is earned on back to back purchase and sale. It was pointed out by him that in the light of clear details provided by the assessee the AO examined some of the back to back purchase and sale which formed part of the total back to back purchase and sale of Rs.3.40 crores reflected in the trading account. Our attention was also drawn to the fact that in para-1 of the assessment order the AO himself has admitted that the assessee produced necessary documents in respect of the case. In these circumstances it was submitted by him that estimation of gross profit at 8.96% on back to back purchase and sale of Rs.3.40 crores was not justified. The ld. Counsel fairly conceded that the assessee ought to have disclosed at least 2% commission income on back to back purchase and sale which is the general trend in this trade. In support of 2% commission being prevailing commission earned in the trading the ld. Counsel relied on the declaration of Shri Prakash Haribhan Pandel which is discussed by the AO in page 4 of the order of assessment. According to the ld. Counsel for the assessee intrinsic evidence is available with the AO both with regard to the documentary evidence to prove back to back purchase and sale by the Assessee and the quantum of commission that could be earned in such transaction.
The ld. DR submitted that the presumption of the AO that these were not back to back purchase and sale and these were normal transactions and has to be upheld and the action in determination of gross profit should also be upheld. In this regard the ld. Counsel for the assessee strongly relied on the findings of CIT(A).
We have given a very careful consideration to the rival submissions. It is clear from the reading of the entire assessment order that the theory of back to back purchase and sale has been discussed by the AO himself in respect of purchase on back to back basis having been made by the assessee from Shri Kartik Samanta to the extent of 7
8 to 1176/Kol/2016 Anil Kr.Dua A.Yr.2008-09, 2009-10 & 2010-11 Rs.32,90,050/-. The AO has also examined the evidence with regard to back to back purchase from one Shri Prakash Hari Bhan Pandel of Rs.27,50,000/- with the assessee. In fact Shri Prakash hari Bhan Pandel claimed that 2% commission was derived by him on sale back to back to the assessee. The reading of the entire order shows that there was evidence available with the AO with regard to purchase and sale back to back. Therefore the conclusion of the AO that these were normal sales is not justified. As rightly submitted by the ld. Counsel for the assessee 2% of the total back to back purchase and sale transaction namely a sum of Rs.6,80,000/- (2% of Rs.3,40,00,000) should alone be added as income of the assessee. The above findings duly takes into consideration the prevalent practice of back to back purchase and sale in the wholesale fruits and other allied business. We therefore hold that the addition of Rs.30,46,400/- should be substituted by an addition of Rs.6,80,000/-. We hold accordingly and partly allow ground no.3.
As far as ground nos. 2 and 4 to 7 are concerned the additions in these grounds are a sum of Rs.1,00,000/- being the difference in the amounts in the purchase account of purchases from Raj Kumar Bros (ground no.2) and the addition of Rs.30,000/- on account of undisclosed rent (ground no.4) and addition of Rs.25,000/- on account of undisclosed additional discount (ground no.5), addition of Rs.4,15,000/- on account of bogus purchases (ground no.6) and addition of Rs.55,000/-on account of unexplained money (ground no.7). All the aforesaid additions would total a sum of Rs.6,25,000/-. Addition of Rs.6,80,000/- sustained in ground no.3 would be sufficient to cover all these additions. In other words, the addition of 2% commission on back to back purchase and sale of Rs.6,80,000/- would explain the availability of funds for all the aforesaid additions. Keeping in mind the above, we confirm the additions challenged by the assessee in ground nos. 2, and 4 to 7 but hold that no separate addition should be made as those additions would get subsumed in the addition of Rs.6,80,000/-.
In the result & 1176/Kol/2016 are partly allowed.
Order pronounced in the Court on 03.02.2017.