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Income Tax Appellate Tribunal, KOLKATA BENCH “C” 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)-XXXIII, Kolkata dated 14.02.2013. Assessment was framed by ITO Ward-1, Haldia u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 30.12.2010 for assessment year 2008-09. The ground raised by assessee per his appeal as under:- “1. For that the order of the Ld. CIT(A) is arbitrary, illegal and bad in law.
2. For that the Ld. CIT(A) erred in confirming the addition to the extent of Rs.1,33,287/- ignoring the reconciliation and the explanation filed by the appellant.
Sh S. Samanta v. ITO Wd-1, Hal Page 2 3. For that the Ld. CIT(A) erred in confirming the addition of Rs.28503/- as undisclosed investment when no such investment was made and explanation there duly filed.
4. For that the Ld. CIT(A) erred in confirming the addition to the extent of Rs.193,750/- ignoring her reconciliation and explanation filed in support of the arguments made.
For that on the facts and circumstances of the case the order of the CIT(A) be modified and the assessee be given the relief prayed for.”
Shri Sunil Surana, L’d Authorized Representative appeared on behalf of assessee and Shri Saurabh Kumar, L’d Departmental Representative appeared on behalf of Revenue.
First issue is general in nature and does not require any adjudication.
Second issue is that Ld. CIT(A) erred in confirming the addition made by Assessing Officer on account of ignoring the reconciliation amount of ₹ 1,33,287/-.
Facts in brief are that assessee in the present case is an individual and engaged in business of cement. A survey was conducted at the business premises of assessee on 30.01.2008. As a result of survey, certain books of accounts including sale registers were impounded. The case was selected for a compulsory scrutiny and accordingly notice u/s 143(2) of the Act was issued on 31.08.2009. Thereafter another notice was issued u/s. 142(1) of the Act again on 18.05.2010 to produce the books of account and other documents which were examined by Assessing Officer. The AO during the course of assessment proceedings, observed that sale upto date of survey i.e., 30.01.2008 should be of ₹2,82,36,651/- on the basis of impounded documents. However the sales declared by assessee for the period beginning from 01.04.2007 to 30.01.2008 was at ₹2,04,59,660/-. Accordingly the suppressed sale of ₹77,76,991/- was worked out by AO which was taxed by Sh S. Samanta v. ITO Wd-1, Hal Page 3 applying gross profit (GP) rate of 2.61% of the suppressed sale. The AO has, accordingly added a sum of ₹1,84,710/- to the total income of assessee.
5. Aggrieved, assessee preferred an appeal before Ld. CIT(A), where assessee pleaded that books of accounts were maintained on the basis of calendar year i.e. 1st January to 31st December. In the aforesaid figure of sale as worked out by the AO on the basis of impounded documents, the sale pertaining to Jan. ’07 to Mar. ’07 for an amount of ₹60,54,723/- was included which is not the sale for the year under consideration, so it should be excluded. Besides the above, sales which were recorded at the time of survey by the AO was inclusive of Value Added Tax (VAT) of ₹ 25,57,459/- and the assessee was accounting the sales on the basis of net figure. Accordingly the sales in the income tax return were reported without the amount of VAT. If these two figures are excluded from the sales amount recorded at the time of survey, there will not be any discrepancy rather the sales declared by the assessee will be higher. Assessee accordingly submitted before Ld. CIT(A) that sale declared by assessee in his returned income is higher than sale shown in the impounded material. It was also submitted that assessee is dealing only ACC cement products and the purchase has been duly verified by ACC Ltd. and no unaccounted purchase was found. Consequently, there is no question of any unaccounted sale without bringing any defect in the position of the closing. Hence there is no need to make any adjustment with regard to unaccounted sale of assessee. Considering the submission placed before Ld. CIT(A), he called for remand report from AO to justify the addition of undisclosed sale made by AO in the original assessment proceedings. After considering the remand report the Ld. CIT(A) has reduced the amount of VAT of Rs. 25,57,459.00 and the amount of sale which is at ₹ 1,12,746/- from the sale worked out on the basis of impounded documents. Ld. CIT(A) finally reduced the addition made by AO from ₹ 77,76,991/- to ₹ 51,06,786/- and applied the GP ratio @ 2.61% and confirmed the addition of ₹1,33,287/-.
Sh S. Samanta v. ITO Wd-1, Hal Page 4 Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us.
Before us, Ld AR filed copy of balance sheet for the year ended 31.03.2008 and submitted that net profit ratio which is 1.16% of the turnover should have applied on the undisclosed sale. In support of its claim, Ld. AR has relied in the judgment of Hon'ble Bombay High Court in Appeal No. 313 of 2013 dated 04.02.2015 in the case of CIT v. Shri Hariram Bhambhani.
On the other hand, L’d DR opposed the argument raised by Ld AR before us and submitted that all the indirect expenses have been duly booked by the assessee in its profit and loss a/c and therefore, the question of applying the net profit ratio does not apply in the instant case. Ld. DR vehemently supported the orders of Authorities Below.
We have heard the rival contentions and perused the materials available on record and case law cited by Ld. AR. Form the foregoing discussion, we find that authorities below have found the undisclosed sales and have applied gross profit ratio to work out the suppressed profit embodied in the unaccounted sale. Before us Ld. AR submitted that various courts have held that net profit ratio should be applied on the undisclosed sale in the aforesaid facts and circumstances of the case. Now, the issue before us arise so as to whether the GP ratio or net profit ratio should be applied on the unaccounted sale of assessee. We find that the case law cited by Ld. AR is based on different facts and distinguishable from the facts in hand. The issue was formulated for the consideration of Hon'ble Bombay High Court in the case of Shri Hariram Bhambhani (supra) is reproduced below:- “Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in upholding the order of the CIT(A) in which he had directed the Assessing Officer to tax 4% net profit on unaccounted sales of Rs.35 lakhs even though no evidence of unaccounted purchase/expenses against such unaccounted sales was detected at the time of survey?”
Sh S. Samanta v. ITO Wd-1, Hal Page 5 Now from the aforesaid issue, we find that the question whether net profit ratio or gross profit ratio should be applied on the unaccounted sale of assessee was not there. Therefore, the ratio laid down in the aforesaid judgment of Hon'ble Bombay High Court in the case of Shri Hariram Bhambhani (supra) cannot be applied in the present case. We also find that assessee has claimed all the indirect expense in its profit and loss a/c. Therefore, it is only GP ratio which is to be applied on the unaccounted sale of assessee. Hence, we find no reason to interfere in the order of Ld. CIT(A), ground raised by assessee is dismissed.
Next inter-connected issue raised by assessee in ground No. 3 & 4 is with regard to the addition made by AO on account of undisclosed investment of ₹28,503/- and ₹ 1,93,750/-on account of undisclosed purchase respectively.
We find that common interconnected issue arising from both the grounds of appeal of the assessee therefore we have clubbed them for the purpose of adjudication and convenience.
During the course of assessment proceedings, AO observed that the difference between the amounts recorded as security deposit with ACC Ltd. and the amount shown by the ACC Ltd. in its books of account for an amount of ₹28,503/- which was added to the total income of assessee. Similarly, AO made the addition of unaccounted purchase of ₹3,70,636/- which was reduced by Ld. CIT(A) to Rs.1,93,750/-. These discrepancies were noted by AO after having confirmation u/s 133(6) of the Act from ACC Ltd. Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us.
Sh S. Samanta v. ITO Wd-1, Hal Page 6 10. Before us L’d AR submitted that the telescoping effect can be given to the above addition made by the lower authorities on account of unaccounted investment and purchases as worked out above.
On the other hand, L’d DR vehemently relied on the orders of Authorities Below.
We have heard the rival contentions and perused the materials available on record. From the foregoing discussion, we find that lower authorities have made the addition on account of discrepancies observed in the books of account of assessee and the information obtained u/s. 133(6) of the Act. The addition was made by lower authorities on account of undisclosed investment of ₹28,509/- and unaccounted purchase of ₹1,93,750/- respectively. Ld. AR before us submitted that additions have already been made by the lower authorities on account of undisclosed sale after offering GP ratio on such sale which was also confirmed by us. We find force in the argument advanced by Ld. AR before us that the additions on account of undisclosed investment and unaccounted purchase are arising out of the profit on unaccounted sale of ₹ 51,06,786/-. We find in the similar facts and circumstances the coordinate Bench of this Tribunal has decided similar issue in favour of assessee in in the case of ACIT v. Smt. Maya Sirkar dated 15.10.2015 for AY 2007-08, the relevant extract of the order is reproduced below:- “11. …. The assessee has already admitted the sale of jewellery amounting to Rs.16,89,700/- outside the books and on the said undisclosed sale the AO has already estimated net profit at 14.68%. we find from records that in course of survey the AO found that some of the purchased jewellery as well as the labor charges were not accounted for, as mentioned above, which is not accounted for. AO himself has presumed outgoings for such sale (Rs.16,89,700/- - Rs.2,40,048/-) at 14,41,652/-. The AO has found in the impounded papers the payment amounting to Rs.10,57,336/-,which is much less than the outgoing estimated by the AO on such sales. Therefore these outgoings can be telescoped with the actual expenses accepted by department to have been incurred for achieving the undisclosed sales of Rs16,89,700/-……”
Sh S. Samanta v. ITO Wd-1, Hal Page 7 We find in the instant case that the undisclosed sale of ₹51,06,786/- has been taxed @ 2.61%. As a result of undisclosed sale there was inflow of Rs. 51,06,786.00 and out flow on account of undisclosed purchases and security deposits for Rs. ₹28,503/- and ₹ 1,93,750/-. We find that the payment amounting to ₹2,22,253/- (28503 plus 193750) which is much less than the amount of undisclosed sales. Therefore, in our considered view, the outgoing can be telescoped with the amount of undisclosed sale which have been duly accepted by assessee. Considering the facts and totality of the case, we reverse the orders of authorities below and ground of assessee is allowed. AO is directed accordingly.
In the result, assessee’s appeal stands partly allowed. Order pronounced in open court on 01/07/2016 Sd/- Sd/- (S.S.Viswanethra Ravi) (Waseem Ahmed) Judicial Member Accountant Member *Dkp �दनांकः- 01/07/2016 कोलकाता / Kolkata आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. अपीलाथ�/Appellant-Sri Suprakash Samanta, Vill & P.O.Mahishadal, Purba Medinipur-721628 2. ��यथ�/Respondent-ITO, Ward-1, Haldia, Dist. Purba Medinipur, W.B. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त- अपील / CIT (A) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण कोलकाता / DR, ITAT, Kolkata 6. गाड� फाइल / Guard file. By order/आदेश से,
उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, कोलकाता