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Income Tax Appellate Tribunal, KOLKATA BENCH “A” KOLKATA
Before: Shri N.V.Vasudevan & Shri Waseem Ahmed
आदेश /O R D E R
PER Waseem Ahmed, Accountant Member:-
This appeal by Revenue and Cross Objection (CO) by assessee are against the order of Commissioner of Income Tax (Appeals)-XXXIII, Kolkata dated 08.03.2013. Assessment was framed by ITO Ward-3, Haldia u/s CO 110/Kol/2013 A.Y. 2006-07 ITO Wd-3HAL v. Shyamali Bera Page 2 143(3)/145(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 31.12.2008 for assessment year 2006-07.
Shri K.L.Bhawmick, Ld. Authorized Representative appeared on behalf of assessee and Shri Sallong Yaden, Ld Departmental Representative appeared on behalf of Revenue.
First we take up Revenue’s appeal in .
First issue raised by Revenue in ground No.1 is regarding that Ld. CIT(A) erred in reducing addition made by the AO on account of suppression of purchase, gross profit and stock from Rs. 55,28,442.00 to 16,95,715.00. The relevant ground raised by Revenue is reproduced below:- “1) That on the facts and in circumstances of the case the Ld. CIT(A) erred in reducing the Suppression of Purchase; Suppression of gross profit and Suppression of Stock calculated at ₹44,66,817/-; ₹5,67,122/- and ₹4,94,503/- respectively to ₹16,95,715/- only.”
The facts in brief are that assessee in the present case is an individual and engaged in trading of hardware goods & cement. A survey action u/s133A was conducted at her premises on 20.01.2006. During the course of search, various documents and books of account of assessee were impounded. The Assessing Officer, in his assessment proceedings has made the following additions to the total income of assessee:- 1) Suppression for purchase ₹17950930 - ₹ 13484113 = ₹44,66,817/- 2) Suppression of GP ₹1128004 - ₹560882 = ₹ 5,67,122/- 3) Suppression of stock ₹1028357 - ₹533854 = ₹ 4,94,503 The first addition suppression of purchase was made by Assessing Officer by observing that assessee had issued cheques from its bank account for purchase of goods for an amount of ₹1,75,50,167/- to various parties. Accordingly the AO worked out the purchases after giving effect to the CO 110/Kol/2013 A.Y. 2006-07 ITO Wd-3HAL v. Shyamali Bera Page 3 opening and closing balance of creditors for the year under consideration which stood as under:- a) Balance of creditors as on 31.03.2006 Rs. 4,75,675/-. b) Payment made through cheques during F/Y Rs.1,75,50,167/- c) total 1,80,258,42/- d) Balance of creditors as on 01.04.2005 Rs. 74,912/- e) Difference for the purchase of Rs.1,79,50,930/- Less f) Purchase declared in her return for Rs.1,34,84,113/- g) The short purchases reported by Rs. Rs. 44,66,817/- The AO treated the short above difference as suppression of purchase and accordingly added it to the total income of assessee.
In addition to above the AO during the course of assessment proceeding observed on the basis of impounded books that assessee has sold the cement of ACC, Lafarge, Rashmi, Crescent and Konark Brand to the tune of ₹45,39,436/- but assessee has not shown corresponding purchase of cement of the said companies. Accordingly, AO has drawn the fresh trading account of assessee as under:- Opening stock (as per her Rs.68,681 Sales (as per return) Rs.1.42,60,625 books on 01.04.2005) Purchase (as discussed Rs.1,79,50,930 Sales (suppression Rs. 45,39,436 above) as discussed above) Carriage inward (as per Rs. 6,55,893 Closing stock Rs. 10,28,357 return) Coolie charge (as per Rs. 24,910 (balancing figure) return) Gross profit (6%) Rs. 11,28,004 Total Rs.1,98,28,418 Rs.1,98,28,418 Note: Since the GP for the period 01.04.2005 to 31.03.2006 was achieved to 6% of the sales by Sri Lakshmi Naraya Bera who is engaged in the same line of business as well as counterpart to her business activities hence the same percentage of GP @ 6% is calculated against the sales of Rs.1,l88,00,061/- for the period from 01.04.2005 to 31.03.2006.”
CO 110/Kol/2013 A.Y. 2006-07 ITO Wd-3HAL v. Shyamali Bera Page 4 From the above trading account the gross profit works out for ₹11,28,004/- but assessee has shown the GP at ₹5,60,882/-. So the suppressed GP of ₹5,67,122/- was added to the total income of assessee.
Similarly from the above trading account the closing stock works out at ₹10,28,357/- but assessee has shown in its return of income the closing stock for ₹5,33,854/- and as such, there is a suppression of stock for ₹4,94,503/-. Accordingly, AO made the additions of ₹4,94,503/- as suppressed closing stock as stated above.
Aggrieved, assessee preferred an appeal before Ld. CIT(A), whereas assessee contested that all the sales and purchases were duly recorded and supported with the bills and invoices in its books of account. There was no unaccounted purchase at all. The assessee was dealing in the ‘Grasim Cement’ brand only and she was not selling cement of any other brand. However, assessee before Ld. CIT(A) has taken a new ground that the figure of purchases of ₹1,79,50,930/- taken by AO is based on all the debits from the bank statement but the fact is that all the debits entries do not represent purchase. There were debit entries of ₹30,82,201/- and ₹ 3,15,000/- which was utilized in giving money to Shri L.N. Bera and Shri Subhash Bera respectively. If these debit entries are excluded then there would hardly be any difference between purchase as per bank statement and books of account of assessee. Accordingly, Ld. CIT(A) has given partly relief to assessee by observing as under:- “ii. So far as debits in bank account are concerned, debits of Rs.33,97,201/- are stated to be for money given to Shri L.N.Bera and Shri Subhash Bera the assessing officer has stated that the appellant has not been able to explain purpose of such transfer of money to Shri L.N.Bera and Shri Subhash Bera. He has also observed that apart from transfer entries there were some cash withdrawals which could not be automatically linked with Shri L.N.Bera and Shri Subhash Bera. However, whether or not the appellant is able to explain purpose of money transfer to Shri L.N.Bera and Shri Subhash Bera, the fact remains that such transfers/withdrawals could not be considered as CO 110/Kol/2013 A.Y. 2006-07 ITO Wd-3HAL v. Shyamali Bera Page 5 amounts utilized for purchases as these were not purpose of buying drafts or issuing cheques for purchase made from cement companies. Even otherwise, it does not appear to be logical for a businessman to utilize his regular bank account (from which his disclosed transactions are made) to make unaccounted purchases.
Therefore I am of the view, that while the appellant has made unaccounted transactions for trading of cement of brand other than Grasim, it cannot be said that all the debits in regular bank account were made for that purpose. As explained by the appellant, if the entries for money transfer to Shri L.N.Bera and Shri Subhash Bera are excluded, the amount of debits entries would not be much question from the purchases and expenses shown in the regular accounts. Therefore I hold that debits in bank account are not to be taken as basis for computing purchases of the appellant.
3.9 The question that arises next is that, what should be the basis for computing unaccounted purchase / sale, in place of the debits in the bank account. In this regard, it is observed that the unaccounted transactions, as identified by the assessing officer, consist of two parties:-
(a) There are some entries relating to undisclosed sale in respect of cement of ACC, Lafarge, Rashmi, Crescent and Konark Brands. According to the assessing officer, the impounded books were showing such transactions amounting to Rs.45,39,436/-. Here it may be mentioned that the assessing officer has, in his report dated 16.08.12, given a list of some entries and in oral discussion the authorized representative of the appellant contended that total of the list was much less than the figure of Rs.45,39,436/-. In this regard, it may be mentioned that the list in the report was only an illustrated list and not an exhaustive one. Therefore, undisclosed sales of brands other than Grasim has to be taken at Rs.45,39,436/- as mentioned in the assessment order. It may also be mentioned here that section 292C provides that any books of account or other documents are found in possession of any person in the course of survey action under section 133A, it may be presumed that such books of account and other documents belong to such person and contents of the same are true. It may also be recalled here, that the appellant had made several attempts to disown these entries, first by denying the very existence of such entries, then claiming that the corresponding purchase might have been made directly by the customers and the by suggesting that the entries might be relating to business of her husband. However, all these claims were, as discussed above, found to be incorrect.
CO 110/Kol/2013 A.Y. 2006-07 ITO Wd-3HAL v. Shyamali Bera Page 6 (b) The assessing officer has also mentioned that as per enquires conducted under section 133(6), as well impounded books, total purchases were amounting to Rs1,46,20,354/-. On the other hand, the purchases in regular books of account were of Rs.1,34,84,113/-. Thus there were undisclosed purchases amounting to Rs.11,36,241/- as per the impounded material. As there is no material to suggest that these also included purchase of cement of brands other than Grasim, amount of which is much higher, these are to be considered separately. In his computation, the assessing officer has taken gross profit rate of 6% on sale. Based on the same, the corresponding unaccounted sale would be about Rs.12,08,767/-.
After considering both the above amounts total unaccounted sale would be Rs.57,48,203/-. What is required to be added to the appellant’s income is the gross profit earned on the unaccounted sale and investment in unaccounted purchase. At the GP rate of 6% adopted by the assessing officer, gross profit on undisclosed sale would come to Rs.3,44,892/-. Also, the purchase corresponding to unaccounted sale would be Rs.54,03,311/-. In oral discussion, it was claimed that even if unaccounted transactions were made, since the entire purchase would not have been made at one point of time and proceeds from cash sale would be available for further purchases, actual investment in unaccounted purchase would be lower than total unaccounted purchases. There is some force in the contention. However, as the entries in the impounded material are relating to unaccounted sales and not purchases, it is not possible to work out actual peak investment in unaccounted purchases. In absence of any direct evidence in this regard, it is considered reasonable to take that investment made in unaccounted purchases might have been rolled over four times upto the date of survey, as the unaccounted transactions in this impounded material pertain to that period only. On applying this ratio, investment in unaccounted purchase of Rs.54,03,311/- would be Rs.13,50,823/-. Total addition on profit earned on unaccounted sales and investment in the corresponding purchase would accordingly come to Rs.16,95,715/-. The three additions namely suppression of purchase and suppression of gross profit are accordingly being reduced to Rs.16,95,715/-. No separate addition is required for suppression of stock because the same is acquired out of unaccounted purchases and addition for investment in unaccounted purchases has already been made.”
Being aggrieved by this order of Ld. CIT(A) Revenue is appeal before us.
The ld. DR vehemently supported the order of the AO.
CO 110/Kol/2013 A.Y. 2006-07 ITO Wd-3HAL v. Shyamali Bera Page 7 On the other hand, Ld. AR submitted written arguments and stated that AO has made the additions without bringing any factual error or omission in the books of account of assessee. The assessment was completed not on the basis of assessee’s books of account but considering all debits entries of the bank account of the assessee which has no base for making the addition of accounted purchase. Ld. AR further stated that Ld. CIT(A) is fully justified to exclude the debit entries where the transfer of money was made to Shri L.N. Bera and Shri Subhash Bera respectively for Rs. 33,97,201.00 only.
We have heard rival contentions of both the parties and perused the materials available on record. In view of the foregoing discussions, we find that additions have been made by AO on account of suppression of purchase, closing stock and GP. The AO has worked out the suppressed purchase by treating all the debit entries from the bank as purchased after adjusting the opening and closing figures of the creditors for the year under consideration. The AO has taken the GP ratio @ 6% on the ground that the other party who is in the similar activity has declared its GP @ 6%, hence AO applied that rate. The AO has drawn the fresh trading account of the assessee after considering the unaccounted purchase, sales and applied the GP ratio @ 6% and treated the balancing figure as closing stock. Accordingly there arose difference between the figures of gross profit and closing stock with the figures declared by the assessee which was added to the total income of the assessee. However the ld. CIT(A) deleted the addition arising on account of suppressed purchases by observing that all the debit entries do not necessarily represent the purchase made by assessee. Accordingly the addition for gross profit and closing stock as determined by the AO stand deleted. However the ld. CIT(A) worked out undisclosed sale on the difference between the purchase shown by the assessee i.e. 1,34,84,113.00 and purchase figures derived as per the confirmation obtained under section 133(6) of the Act i.e. 1,46,20,354.00. The difference for short purchases was worked out for Rs. 11,36,241.00 and its sale value is of Rs. 12,08,767.00 (11,36,241.00/94*100). This unaccounted CO 110/Kol/2013 A.Y. 2006-07 ITO Wd-3HAL v. Shyamali Bera Page 8 sale i.e. 12,08,767.00 was added to the undisclosed sale of Rs. 45,39,436.00 as discovered during survey and accordingly the unaccounted GP was worked out for Rs. 3,44,892.00 (57,48,203.00 @ 6%) which was added to the total income of the assessee. Besides this the ld. CIT(A) worked out the undisclosed investment in the undisclosed purchases of Rs. 54,03,311.00 ( Rs. 57,48,203- Rs.3,44,892) by holding that the money must have been rolled 4 times upto the date of survey i.e. Rs. 13,50,827.00. Finally the AO made the addition of for undisclosed profit and investment for Rs. 16,95,715.00 only. Now the question before us arises so as to whether the ld. CIT(A) is justified in restricting the addition to Rs. 16,95,715.00 in the aforesaid facts & circumstances. We also find that the withdrawal from the bank can be for several purposes and do not necessary represent the purchase. In this case the base taken by the AO to unearth the unaccounted purchase was not correct in our considered view. The AO has also not brought any defect in the stock register of the assessee but has relied on the balancing figure of the stock. Accordingly in our view the AO has made the addition without applying his mind for unearthing the disclosed income of the assessee. In view of the above, we find that the base adopted by AO for working out the suppressed purchase, gross profit and closing stock was not proper and therefore we find no reason to interfere in the order of Ld. CIT(A). Hence this ground of Revenue’s appeal is dismissed.
Next issue in this appeal of Revenue is that Ld. CIT(A) has failed to consider the provision of Sec.292C of the Act.
At the outset, we observe that Ld. CIT(A) has passed a speaking order and after considering the submission of assessee and taking the remand report from Assessing Officer. As per Sec.292C of the Act the documents seized at the premises of assessee are presumed belonging to assessee only and assessee has to justify about those documents. In this case, we find that Ld. CIT(A) has duly considered the justification given by assessee and CO 110/Kol/2013 A.Y. 2006-07 ITO Wd-3HAL v. Shyamali Bera Page 9 accordingly he passed a speaking order. Hence, we find no infirmity in the order of Ld. CIT(A). Hence, this ground of Revenue is dismissed.
In the result, Revenue’s appeal is dismissed.
Coming to assessee’s CO No.110/Kol/2013.
Assessee has raised following grounds:- “I. The Ld. CIT(A) was not justified to treat sale proceeds of cement other than Grasim(white) brand in the hands of the assessee-appellant Shyamali Bera inasmuch as dealings in cement of every other brand relate to Lakshmi Narayan Bera her husband from the same business centre; II. The presumption of acquisition of such cement by Smt. Shyamali Bera is not supported by corroborative evidence like confirmation of supplies from such suppliers or supporting vouchers; III. The nature of business carried on by both the wife and the husband is on record of both the authorities which have been disregarded by both the authorities; IV. The computation of extra capital required to effect unrecorded purchase (not admitted) is unreasonably high inasmuch as the usual number of rotations in a year is much more than four and as such the amount is liable to be modified accordingly; V. The Respondent raising the cross objections craves the leave of the Ld. Bench to add to or modify any of the objections before or at the time of appeal hearing.
12. Ground No. I to III are interrelated and therefore being taken up together. In the CO, the assessee has merely supported the impugned order of Ld. CIT(A), whereby he deleted the disallowance made by the AO in assessee’s total income on account of suppressed purchase, gross profit and closing stock. Since we have already upheld the order of Ld. CIT(A) giving relief to the assessee on this issue while dismissing the appeal of the Revenue, the CO filed by the assessee has become infructuous and the same is accordingly dismissed.
CO 110/Kol/2013 A.Y. 2006-07 ITO Wd-3HAL v. Shyamali Bera Page 10 13. Next ground raised by assessee in CO is that Ld. CIT(A) erred in computing extra capital invested in the unrecorded purchase of assessee is unreasonable high. The Ld. CIT(A) has worked out the investment made by assessee in her unrecorded purchase presuming the rotations of four times and determined the undisclosed investment at ₹13,50,827.00/-.
Ld. AR before us submitted that the rotation of the capital in the business is 17 times in a year and in support of assessee’s claim submitted the detailed of capital embodied in the business vis-à-vis turnover of assessee for the year under consideration. On the contrary, Ld. DR relied on the order of Ld. CIT(A). After considering the business and rotation of capital we are of the considered view to take the rotation cycle 15 times and accordingly work out the capital embodied in the disclosed purchase for ₹3,60,220/- (₹54,03,311 / 15 times). This ground of assessee’s CO is allowed and AO is directed accordingly.
Last ground of assessee’s CO is general in nature and does not require any adjudication.
In the result, assessee’s CO is partly allowed.
In combine result, appeal of Revenue is dismissed and that of assessee’s CO is partly allowed. Order pronounced in the open court 05/07/2016 Sd/- Sd/- (N.V.Vasudevan) (Waseem Ahmed) (Judicial Member) (Accountant Member) Kolkata, *Dkp �दनांकः- 05/07/2016 कोलकाता । CO 110/Kol/2013 A.Y. 2006-07 ITO Wd-3HAL v. Shyamali Bera Page 11