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Income Tax Appellate Tribunal, DELHI BENCH: ‘SMC-I’: NEW DELHI
Before: SMT. DIVA SINGH & SHRI O.P. KANT
ORDER PER O.P. KANT, A.M.:
This appeal of the assessee is directed against order dated 13.11.2015 of the CIT(A) – Rohtak raising following grounds of appeal :-
1. That the order of Ld. CIT(Appeals) is against law and facts.
2. That the Ld. CIT(Appeals) erred in confirming the addition of Rs. 40,000/- u/s 40A(3) of the Act although no payment exceeding 20,000/- was made by the appellant in a single day.
3. That the Ld. CIT(Appeals) erred in confirming the addition of Rs. 17,806/- made by the Ld. AO on account of cash found short at the time of survey.
Gaja Nand Garg 4. That the Ld. CIT(Appeals) erred in confirming the addition of 6000/- made by the Ld. A.O. on account of stock found short at the time of survey. 5. That the Ld. CIT(Appeals) erred in confirming the addition of Rs. 102079/- made by the Ld. AO on account of alleged profit in Trading of Sugar against the loss of Rs. 24952/- shown in the books of accounts of the appellant. 6. That the appellant craves leave to add or alter any of the Grounds of Appeal”
2.1 The facts in brief are that the assessee was engaged in trading of grocery items (Kiryana) like ‘sugar’, ‘gur’ etc. In the case of assessee, a survey u/s 133A of the Income Tax Act (for short the ‘Act’) was conducted on 23.02.2011 in the previous year relevant to the assessment year. The assessee filed return of income on 20.08.2011 declaring income of Rs. 6,16,793/-. The case of the assessee was selected for scrutiny and notice u/s 143(2) was issued and served within statutory period. Based on the impounded books of accounts and other documents, the Assessing Officer made the following additions: (a) Cash payments against purchase Rs. 40,000/- (b) Cash found found short no. by survey Rs. 17,806/- (c) Shortage of stock of Gud – Shakkar survey Rs. 6,000/- (d) Loss in sugar sale after survey Rs. 1,02,079/- (e) Disallowance of telephone expenses Rs. 2,078/- 2.2 On appeal, the first appellate authority deleted the addition of Rs. 2,078/- for disallowance in respect of telephone expenses and confirmed the other additions made by the Assessing Officer. Aggrieved, the assessee is in appeal before the Tribunal.
The grounds No. 1 and 6 of the appeal are general in nature and not required to adjudicate upon, therefore, same are dismissed as infructuous.
Gaja Nand Garg 4. In ground No. 2, the assessee has agitated the addition of Rs. 40,000/- u/s 40A(3) of the Act for payment exceeding Rs. 20,000/- in cash. The Ld. AR submitted that the assessee made payment on two different dates of Rs. 20,000/- each i.e. Rs. 20,000/- on 28.01.2011 and Rs. 20,000/- on 29.01.2011 in the corresponding entries made in the books of accounts, which were not rejected the Assessing Officer. According to Ld. AR, since the payment on a single day was not exceeding Rs. 20,000/-, the provisions of section 40A(3) of the Act were not applicable in the case of the assessee. He also supported his case with the judgment of the Hon’ble Andhra Pradesh High Court in the case of Shri Luxmi Satya Narayana Oil Mills vs. CIT reported it 49 Taxmann. Com 363 where it is held that where payment made in cash on the insistence of seller and there was no doubt about the genuineness, no disallowance u/s 40A(3) of the Act could be made. On the other hand, ld. Sr. DR relied on the order of the lower authorities.
We have heard rival submissions and perused the material on record. In the case of the assessee a survey under section 133A of the Act was conducted and in the course of survey a diary was impounded as Annexure A- 5 and the page no. 34 of that diary revealed cash payment of Rs. 40,000/- on 29.01.2011 to M/s. Manik Chand Ashok Kumar against purchases. When this issue was raised by the Assessing Officer, the assessee took the plea that one payment of Rs. 20,000/- was made on 28.01.2011 and another payment of Rs. 20,000/- was made on 21.09.2011, whereas by mistake, in diary both the payments were written on 29.01.2011. As no further evidence in respect of the above claim was filed by the assessee, the Assessing Officer made disallowance in terms of Section 40A(3) of the Income Tax Act. Before the CIT(A), also the assessee reiterated the same submission. It is evident that it was noted in the diary impounded from the possession of the assessee having two entries of cash payment each Rs. 20,000/- on 29.01.2011 and the diary was maintained in regular course of business, the case of the assessee is squarely covered by Gaja Nand Garg section 40A(3) of the Act. Further, the assessee did not submit any evidence that cash payment was at the insistence of the seller and therefore the ratio in the case of the Luxmi Satya Narayan Oil Mills vs. CIT (supra) cited by the assessee is not applicable to the facts of the assessee and we, therefore uphold the finding of the Ld. CIT(A) on the issue. The ground of the assessee is accordingly dismissed.
In the ground No. 3, the assessee has raised addition of Rs. 17,806/- made by the Ld. AO for cash found short at the time of survey. The Ld. AR submitted that during the survey cash of Rs. 17,806/- was stated to be short as compared to the cash book. He further submitted that the assessee explained that certain payments received by the assessee were lying in his pockets but the assessing officer did not believe the contention of the assessee. The Ld AR further submitted that at the most such a small amount could be treated as temporary withdrawal and deposited back. On the other hand, the Ld. Sr. DR relied on the findings of the lower authorities.
We have heard the rival submission and perused the material on record. The small discrepancies in cash of Rs. 17,806/- was explained by the assessee as money was lying in his pockets and which the survey team did not take notice. The explanation of the assessee is not justified as had the cash been in his pockets, he could have explained the same at the time of survey and the cash as per books of account could have been reconciled, however, no such explanation was submitted at the time of survey. Notwithstanding above explanation, we find that the shortage of such small amount of cash can be considered as temporary withdrawal by the proprietor and deposited back and for which no addition is warranted in the case of the assessee. In our considered view no addition on account of shortage of cash can be made. The ld. DR could not bring out any authority in support of the proposition that shortage of cash can be treated as income of the assessee. In view of the above facts and circumstances,
Gaja Nand Garg we delete the addition sustained by the CIT(A) and ground no. 3 of the appeal is thus allowed.
The ground No. 4 is in respect of addition of Rs. 6,000/- on account of shortage of stock found at the time of survey. The Ld. AR submitted that at the time of survey on 23.02.2011 stock of ‘gud shukkar’ was found at 589 bags as against stock of 595 bags as per books of accounts, and for that shortage of 6 bags, the Assessing Officer made addition of Rs. 6,000/- taking cost of the each bag at Rs. 1,000/- . The ld. AR explained that shortage on stock might be due to counting mistake also. He further submitted that even for arguments it was taken that the goods worth Rs. 6,000/- were sold out books of accounts, then also in worse to worse case the GP rate can be added and not the entire sales. Ld. Sr. DR on the other hand submitted that as far as counting of bags was concerned, it was made in presence of the assessee or its representative during survey and no doubt could be raised now at the stage of appeal before the Tribunal. He further, relied on the finding of the lower authorities.
We have heard the rival submission and perused the material available on record. We are not agreed with the submission of the ld. AR that there might be difference in counting of bags, because no such issue was raised before the lower authorities or during the course of survey. The ld AR has further submitted that only addition for the gross profit on the sales should have been made. But in our view when the entire activity of purchase and sale is out of books of account and in that case, the unexplained investment for purchase and subsequent gross profit on sales could be made, but where the purchases corresponding to unaccounted sales are already debited in books of account, then addition for entire unaccounted sales need to be made. Since in the case of the assessee the physical quantity of goods is found less than the quantity of goods as per books, which means the purchases are already debited and thus in Gaja Nand Garg our view, the AO has rightly made addition for entire amount of unaccounted sales. Accordingly, the ground no. 4 is thus dismissed.
10. The ground No. 5 is in respect of addition of Rs. 1,02,079/- on account of profit in sugar trade from 24.02.2011 to 31.03.2011 ( i.e. post survey period). The ld. AR submitted that on the date of survey no stock of sugar was found, however, between 01.04.2011 to 23.02.2011( i.e. pre survey period) , the assessee earned gross profit of Rs. 6,12,377/- on sale of sugar of Rs. 52,25,875/-. He further submitted that from 24.02.2011 to 31.03.2011, the assessee incurred a loss of Rs. 24,952/- in sugar account, however, same was not accepted by the Assessing Officer and he, applying, the gross profit rate for the period prior to survey, on the sales of sugar made post survey , computed a profit of Rs. 1,02,079/- and added to the income of the assessee. The ld. AR further submitted that entire sales and purchases of the assessee were supported by the voucher and day to day stock register was duly maintained and the loss in the trade was due to fall in the prices of the sugar. He further submitted that the Assessing Officer did not reject books of accounts. The ld. AR relying on the judgment of the Hon’ble Rajasthan High Court in the case of Malani Ram Jiwan Jagannath vs. ACIT reported at page 207 CTR 19 that where none of the date and entries of the trading account have been found to be incorrect in any manner, rejection of G.P. rate and books by the application of rule of thumb was not justified. On the other hand the ld. DR strongly relied on the finding of the lower authorities.
9. We have heard the rival submission and perused the material on record. We agree with the submission of the ld. AR that without rejecting books of accounts, the AO was not allowed to make addition applying the gross profit rate for the period before the survey, on the sales for the post survey period. The AO has not pointed out any mistake in inventory register of the goods relevant to the issue in dispute. In our considered view, no addition could be made in the Gaja Nand Garg facts of the assessee on the issue in dispute. Accordingly, we delete the addition sustained by the ld. CIT(A) in impugned order thus, ground no. 5 of the appeal of the assessee is allowed.
In the result appeal of the assessee is partly allowed. The decision is pronounced in the open court on 18th March, 2016.