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Income Tax Appellate Tribunal, “ D ” BENCH, AHMEDABAD
Before: MS. SUCHITRA KAMBLE & SHRI MAKARAND V. MAHADEOKAR
PER SHRI MAKARAND V. MAHADEOKAR, AM:
The captioned appeal has been filed by the Department against the order dated 26/04/2019 passed by the Learned Commissioner of Income Tax (Appeals)-Gandhinagar, Ahmedabad (hereinafter referred to as “the Ld.CIT(A)”), arising out of the assessment order dated 02/12/2016 passed and CO No.180/Ahd/2019 (By assessee) Asst. Year : 2014-15
2 by the Assessing Officer (AO) u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") relevant to the Assessment Year (AY) 2014-2015. The Assessee has also filed the Cross Objection to this appeal. Therefore, both were heard together and are being disposed of by this common order for the sake of convenience.
Facts of the case:
The assessee filed his return of income on 24-9-2014 declaring the total income of Rs.23,61,331/- The case was selected for the scrutiny as survey u/s.133A of the Act was carried out at the business premises of the assessee on 03-10-2013. Accordingly, notices u/s.143(2) and 142(1) of the Act were issued to the assessee and in response to which assessee submitted the details as called for.
The assessee was surveyed u/s.133A of the Act, whereby after verification of various records, including impounded records, the assessee in his statement on oath admitted to have earned unaccounted income to the tune of Rs.1,19,04,949/- during the period under consideration. The details of which are: a. Excess unaccounted cash Rs. 1,48,300/- b. Unaccounted profit of vegetables Rs. 87,96,629/- c. Unaccounted investment in business Rs. 16,10,000/- d. Unaccounted investment in repair and renovation of house Rs. 13,50,000/- --------------------- Total Rs.1,19,04,949/- --------------------- and CO No.180/Ahd/2019 (By assessee) Asst. Year : 2014-15
However, the AO observed that the assessee has declared only Rs.23,61,331/- in his return of income. Therefore, assessee was asked to explain this difference. The assessee explained that working is in process of preparation and the details and reasons of such differences, he will provide working regarding real income at the time of assessment proceedings. Since the assessee failed to provide supporting evidence with regard to real working viz-a-viz impounded record, assessee was again issued a show- cause notice on 09-09-2016 by the AO. In response to which the assessee attended without any books of accounts and filed written reply. The AO could not verify the details with the books of accounts hence the summons u/s.131 of the Act was issued to the assessee to produce the complete set of audited books of accounts along with bills and vouchers. In response to which the assessee produced only computer-generated cashbook, purchase register, sales register along with all purchase and sale bills as inventorised as per Annexure-A on 05-10-2016 as impounded u/s.131(3) of the Act. The AO observed some discrepancies and concluded that the books of accounts are not supporting the contention of the assessee that he has paid taxes in real income. The AO concluded that the assessee has retracted on flimsy grounds and that too at late stage and made following additions on account of: Rs. 1,01,46,629/- Unaccounted business income on the basis of statement on oath during the survey. Rs. 95,55,616/- Disallowed bogus purchases. Rs. 2,21,48,539/- Cash payments. Rs. 1,80,13,314/- Unexplained source of Cash Deposits. Rs. 5,88,584/- Disallowed expenditure (20% of total Expenses of Rs.2,94,2918/-). and CO No.180/Ahd/2019 (By assessee) Asst. Year : 2014-15
Aggrieved by the order of the AO, the assessee filed an appeal before the Ld.CIT(A). During the course of appellate proceedings, the assessee filed additional evidence and contented that AO had made addition without considering the same. The Ld.CIT(A) asked for a remand report from the AO. The AO submitted the remand report which was furnished to the assessee for the rejoinder. After going through the detailed rejoinder, the Ld.CIT(A) decided as follows:
(a) Granted relief of Rs.87,96,659/- against the addition of Rs. 1,01,46,629/-. The relevant paras from the order of the Ld.CIT(A) are reproduced hereunder:
“7.6 In the background of these facts, the ground no.3 in relation to the addition of Rs.1,01,46 629/- is to be decided solely on the basis facts as brought on record and as discussed above. The first and foremost issue to be decided is as to whether retraction from the original disclosure made was valid or not. In the statement of the appellant recorded u/s 133(3) of the Act, the appellant has deposed the facts in relation to his business and in answer to Q. No.15, it has been stated by the appellant that the jottings made in the diary impounded from his personal custody were on account of purchases (including the profit) of various vegetable items such as potato(Rs.9,42,775/-), bor(Rs.9,87,844/-), onion(Rs.24,34,250/-, lemon(Rs. 14,22,500/-), chili (Rs.8,63,700/-) and tomatoes Rs.21,45,560/-)which were not accounted for in the regular books of accounts which have been declared as unaccounted purchases. Besides these amounts of unaccounted purchases, the appellant had disclosed the profit of Rs.11,05,000/- + Rs.5,05,000/- (totaling to Rs.16,01,000/-) which was unaccounted. At the end of the answer to Q. No.15, the summary has been prepared which has been reproduced in the assessment order also. The disclosure of unaccounted purchases in respect of various items of vegetables was made which could have been taxed as unexplained expenditure by applying the provisions of section 69C of the Act, if no satisfactory explanation of the sources of income/receipts for making such expenses is provided. However, in the case of the appellant, the appellant had disclosed the profit of Rs. 16,01,000/- in the same statement which was obviously out of the sale of the vegetable items which were claimed to be sold for Rs.1,05,54,949/- leaving the difference of Rs.17,58,320/- which was the profit out of undisclosed purchase of vegetable items. Since all these items were perishable in nature and cannot be retained for longer period, the purchase of these vegetable items has to be presumed as sold during the year under consideration and prior to the date of survey as there and CO No.180/Ahd/2019 (By assessee) Asst. Year : 2014-15
could not be physical stock of such vegetable items recorded in the books of accounts on the date of survey. Further, the appellant is maintaining the accounts in Tally software which was written upto August, 2013. As per the appellant's own version, the profit of Rs.17,58,320/- was declared on the unaccounted sales of Rs.1,05,54,949/- which is worked out to 16.66%. On referring to the profit & loss account, it has been noticed that the appellant had shown the sale of vegetables at Rs.11,74,50,992/- and the purchases of Rs.11,38,05,063/- leaving the gross profit margin of Rs.36,45,929/- which is 3,10%. Thus, the gross profit margin as per the recorded transactions and the gross profit margin as per the unaccounted transactions have much variation. The A.O. has not given any finding with regard to the rejection of books of accounts and applying the reasonable rate of gross profit or the net profit after detecting the defects in the books of accounts so maintained and also impounded during the course of assessment proceedings. Therefore, the books of accounts have to be presumed to be correct leaving no scope of invoking the provisions of section 145(3) of the Act. Thus, there are two types of business components involved in this case, one is the taxing of the profit as per the Profit & Loss account based on the books of accounts regularly maintained and accepted to be correct by the A.O. and another business of unrecorded purchase and sale of the vegetables wherein the purchases with embedded profit were noted by the appellant in the small diary as narrated in the question and answer in the statement recorded on oath during the course of survey proceedings. In the remand report proceedings also, the A.O. has taken fresh statement u/s 131 of the Act but did not seek any clarification as to what were the amounts of unaccounted purchases of various vegetable items so as to constitute the receipts with profit or the profit alone. Therefore, the retraction has to be considered as validly made as the original statement of the appellant recorded during the course of survey proceedings clearly suggests that there were unaccounted purchases with embedded profit element noted in the small diary and they were not the real incomes and the appellant himself has worked out the gross profit @ 16.66% which is quite reasonable in this line of business. When no incriminating documents were found and impounded suggesting the undisclosed income in the form of physical cash available at the time of survey proceedings, huge investments in movable and immovable assets etc. therefore, the retraction made is acceptable. Further, there were also no corroborative evidences justifying the retraction as invalid and untenable. For this reason, also, the retraction is considered to be valid.
7 Once it is held that there was valid retraction from the original disclosure made which was on wrong footing of unaccounted purchases treated as receipts of the business, the consequential addition of Rs.1,01,46,629/-(Rs.1,19,04,949/- minus declared profit of Rs.17,58,320/-) is directed to be deleted. The ground no.3 of the appeal is accordingly and CO No.180/Ahd/2019 (By assessee) Asst. Year : 2014-15
allowed. While deciding the issue in favour of the appellant, number of decisions cited by the appellant have also been referred to and found to be supporting the contentions now raised for retraction.
8 While deciding the above ground no.3 of the appeal, it is observed that the appellant had also made disclosure of Rs.13,50,000/- in furniture etc. at his residence at 84, Shailja Green Bungalows for which a separate ground no.6 has been raised by the appellant which has been separately adjudicated in para 10 to 10.2 of the appellate order and it has been decided that the amount of Rs.13,50,000/- has been expended for which no sources of income, other than the amount of Rs.17,58,320/- being the undisclosed profit of the business and unexplained cash, the addition made on that account has been sustained. Thus, the appellant gets the effective relief of Rs.87,96,659/- if considered with ground no.6 of the appeal.”
(b) Deleted the addition on account of Disallowed bogus purchase of Rs. 95,55,616/-. The relevant paras from the order of the Ld.CIT(A) are reproduced hereunder:
“8,2 I have considered the facts of the case, assessment order and submission made by the appellant. The appellant has furnished the copies of accounts as appearing in the books of Shri Rajnikant V. Khamar (brother of the appellant) and confirmation of account from Shri Dhruveshkumar U. Khamar (son of the appellant.). The case of Shri Rajnikant V. Khamar was also covered under the survey operation on 03.10.2013 as the common business premises was shared by these two brothers.
3 In the case of Shri Rajnikant V. Khamar, the assessment order was passed on 02.12.2016 determining the total income of Rs:1,17,17,260/- which comprised of the addition of Rs.51,60,000/- made on the basis of jottings made in the diary which was impounded and another addition of Rs.26,60,000/- on account of unexplained investment in house property. Vide appellate order dated 17.12.2018, the addition of Rs.51,60,000/- was confirmed whereas the addition of Rs.26,60,000/- was deleted for the reason that it was the outgoing investment from the incoming undisclosed income of Rs.51,60,000/-. In the case of Shri Rajnikant V. Khamar, who was acting as commission agent and not involved in the purchase & sale of vegetables and therefore, the retraction was held as not valid and the addition of Rs.51,60,000/- was confirmed for the detailed reasons given therein. In the case of the appellant, the retraction has been held valid for the detailed reasons given hereinabove while dealing with ground no.3 above.
4 Since the additions in respect of these two persons were made for the reason that the purchases were not shown by the appellant which claimed to be sold by these and CO No.180/Ahd/2019 (By assessee) Asst. Year : 2014-15
two persons, one of which was also covered under the survey proceedings and no adverse inference on this account was drawn in the case of Shri Rajnikant V. Khamar and the transactions were considered to be genuine. The appellant has filed the copy of account as appearing in the books of Shri Rajnikant V. Khamar and another account of Shri Dhruveshkumar V. Khamar has duly been confirmed and the closing balance of Rs.17,51,113/- has been shown under the head "Sundry Creditors" in the books of accounts.
5 The observation of the A.O. during the course of remand report proceedings that the sample bills of goods sold by S/Shri Dhruveshkumar U. Khamar and Rajnikant V. Khamar were computer printed bills and the business was carried out by both these persons from the same premises and the bills now provided were afterthought and to give colour of unaccounted purchase of the appellant. To this, the appellant has counter commented that the case of Shri Rajnikant V. Khamar was under scrutiny and the sales made by that person have been accepted and therefore, the account as appearing in the books of that person was subjected to scrutiny and no adverse inference was drawn in that case.
6 Further, there was confirmation from Shri Dhruvesh U. Khamar and the A.O. could have cross examined this person, if the entries in the accounts are found to be non-genuine. The contentions raised by the appellant are found to be acceptable. The A.O. did not carry out any independent inquiry with reference to the purchase register not reflecting the purchases from these parties after verifying the copy of account and held that there were no purchases at all or the purchases accounted for in the purchase register but the bills were not made available by the appellant. Since this is a case of survey, the A.O. has impounded all the accounting material including the purchase register, purchase invoices etc. and therefore, he could have properly investigated this issue. However, merely for the reason that the appellant could not file the copies of purchase bills from these two persons, one of which was acting only as a commission agent and in the case of another person i.e. Shri Dhruvesh U. Khamar, the copies of computer printed bills were made available during the course of remand report proceedings which cannot be doubted when the corresponding entries in the purchase registers are made.
7 In view of the above detailed discussion, the addition of Rs.95,55,616/- made by the A.O. is directed to be deleted. Accordingly, ground no.4 of the appeal is allowed.”
(c) Gave relief of Rs. 2,10,41,112/- out of total disallowance on account of cash payments. The relevant paras of the CIT(A)’s order are reproduced herewith: and CO No.180/Ahd/2019 (By assessee) Asst. Year : 2014-15
“9.3 I have considered the facts of the case, assessment order and submission made by the appellant. The facts as noticed on perusal of the relevant documents, i.e. the assessment order, submissions by the appellant made from time to time as well as the remand report of the A.O. and the counter-comments offered by the appellant, are described in brief as under:-
(1) The A.O. noted that the appellant had made total payments of Rs.6,09,48,821/- as against the purchases of Rs.6,41,68,212/- to various vendors and suppliers of the vegetable items. The part payments to the extent of Rs.3,74,58,963/- to these vendors were found to be made through banking channels i.e. the cheque payments and the remaining payments of Rs. 2,34,89,858/- were found to be made in cash.
(2) In response to specific show cause notice, the appellant has filed the copy of cash book and it was observed by the A.O. that the cash book contained various payments in cash for purchases and prepared a month-wise details of cash payments so made in a tabular format which has also been reproduced vide para 9.1 in the impugned assessment order. Therefore, the A.O. proposed to make the disallowance of Rs.2,21,48,539/- by invoking the provisions of section 40A
(3) of the Act and issued a specific show cause notice to the appellant vide letter dated 21.10.2016. The appellant had filed reply vide letter dated 16,11.2016 and the contents of this letter have been reproduced vide para 9.4 of the assessment order. The appellant has contended that as per the prevailing practice, the payments to the farmers or their intermediaries are made in cash and the payments made to the commission agents on behalf of the farmers have also to be treated as made to the farmers for purchase of agricultural produces. Further, these payments were to be made in cash and immediately after the purchase of vegetable produces being perishable in nature. It has been further contended that the cash was made available through cash withdrawn from the banks wherein the sale proceeds of vegetables received in cash were deposited. He has quoted the Rule 6DD of the I.T. rules Wherein certain exceptions were provided.
(4) However, the A.O. did not accept the explanation so furnished and held that the payments were not made directly to the farmers but to and CO No.180/Ahd/2019 (By assessee) Asst. Year : 2014-15
9 APMC Market agents on one-to-one basis or through auction and the purchase bills did not indicate the name of the farmer and no payments were made on bill to bill on daily basis. The A.O. has cited examples in respect of some merchants whose accounts were showing outstanding balances. He has held that the cash payments made to the commission agents of APMC were not covered under the exceptions provided under Rule 6DD of the I.T. Rules. He accordingly made a disallowance of Rs.2,21,48,539/-.
(5) The appellant has mainly repeated the same contentions as were raised during the course of assessment proceedings by quoting the relevant provisions of Rule 6DD in the written statement made vide letter dated 19.06.2017. He has relied on several decisions in support of the contention that the cash payments made to the agents on behalf of the farmers/growers of vegetables were covered under clause (k) of Rule 6DD of the I.T. Rules and therefore, the disallowance so made by the A.O. was required to be deleted.
(6) In the remand report proceedings, the A.O. has stated that the appellant did not prove that those farmers to whom the cash payments were made did not have the bank accounts and there could not be any scope of making cash payments to the agents who had their permanent establishments in the same APMC where the appellant was doing business. The A.O. has explained as to how the goods were first purchased by the agents on auction and making payment to the farmers and then selling the same to the vegetable vendors of the APMC and there was no relationship between the farmers and the vendors so far as no direct purchases were made and therefore, the payments made in cash to the agents were held to be not covered under Rule 6DD() of the I.T. Rules.
(7) To this remand report, the appellant has filed the counter comments vide letter dated 08.02.2019 by contending that the cash payments for direct purchases were below Rs.20,000/- per person and there was an amendment in section 40(3) by the Finance Act, 2008 w.e.f. 01.04.2009 which provided that if an aggregated payment in a single day to a single person is made in excess of Rs.20,000/-, then it would be disallowed. The appellant has once again quoted the Rule 6DD(e) and 6DD(k) of the I.T. Rules and relied upon the decision of Hon'ble ITAT in the case of Shibpur Pachai Shop in ITA and CO No.180/Ahd/2019 (By assessee) Asst. Year : 2014-15
10 No.340/Kol/2014 involving Assessment Year 2008-09 and several other decisions.
4 In the background of the above facts, the issue has to be examined with reference to the facts as made available during the course of assessment proceedings as well as the appellate proceedings. On going through the assessment order, a glaring mistake is noticed in respect of holding that there were cash payments exceeding Rs.20,000/- made to various persons against the purchases were not found to be based on the cash book impounded during the course of survey. The A.O. has not attempted to link the cash book with the payments to the persons in a single day which were found to be in excess of Rs.20,000/- which is a prime condition to invoke the provisions of section 40(3) of the Act. I have referred to some of the copies of accounts of the commission agents as made available during the course of appellate proceedings. For example, in the case of Idrish Ismailbhai of Mehsana from whom the appellant has purchased the vegetables (being a trader) to whom the payments through cheques have also been made. All the cash payments made to this party were either of Rs.20,000/- or less than that amount paid in cash for which the receipt no. has also been mentioned. Similar case is with Narayanbhai Somabhai, Narayanbhai & Sons, Basirbhai Ismailbhai etc. for which the copies of ledger accounts were made available. However, it has been seen that in some cases, the payments exceeding Rs.20,000/- were made in a single day through different receipts which could have been considered for invoking the provisions of section 40(3) of the Act. Further, where the payments exceeding Rs.20,000/- found to be made in cash, then it was to be examined as to whether the person who received such amount in a single day was a farmer or the commission agent approved by the APMC. However, the A.O. did not carry out this specific exercise, particularly when the ledger accounts of the merchants or commission agents selling the vegetables did not reflect the receiving of such cash payments in excess of Rs.20,000/- in most of the cases and that too in a single day.”
The CIT(A) in his order discussed following judicial pronouncements relied upon by the assessee during the appellate proceedings: • Renukeshwar Rice Mills Vs ITO – [2005] 93 ITD 263 - ITAT Bangalore. and CO No.180/Ahd/2019 (By assessee) Asst. Year : 2014-15
11 • Pr. CIT Vs. Keshvlal Mangaldas – [2018] 96 taxmann.com 83 (Gujarat).
• CIT – II Vs. A.C. Industries – [2014] 43 taxmann.com 290 (Gujarat). After discussions, the Ld.CIT(A) further stated that - “9.8 The facts as noticed above by the Hon'ble High Court are more or less similar to the facts of the appellant's case wherein the survey was carried out and the appellant had come forward with undisclosed purchases of vegetables and offered the due profit thereon. Further, the major payments were made in cash but not exceeding Rs.20,000/- to a single person on a single day.
9 Since the appellant did not make the cash book available for verification by the undersigned and there was no specific finding of the A.O. with reference to cash book and as observed that in some cases, the payments exceeding Rs.20,000/- have been made on a single day to a single person, it would be fair and reasonable to make the ad-hoc disallowance of Rs.11,07,427/- being 5% of total disallowance to cover up all such lapses and non-verification of such cash payments made to the commission agents or other persons. Thus, the appellant gets relief of Rs. 2,10,41,112/- out of disallowance of Rs.2,21,48,539/- by the A.O. Accordingly, ground no.5 of the appeal is partly allowed.”
(d) Deleted the addition of Rs.1,80,13,314/- on account of unexplained source of cash deposit in bank account. The relevant paras from the order of CIT(A) are reproduced herewith:
“11.2 I have considered the facts of the case, assessment order and submission made by the appellant. The A.O. has observed that the appellant had five bank accounts and the total cash deposited in these bank accounts was of Rs.1,80,13,314/-. In response to the show cause notice issued by the A.O., the appellant had filed its reply vide letter dated 23,11.2016 explaining the sources of cash so deposited and stated that the appellant was in the business of selling of perishable goods i.e. vegetables and was receiving the sale proceeds either through cheques or in cash. The cash was explained to be received in two ways i.e. the cash received directly from the debtors on such sales and the cash received indirectly i.e. directly deposited by the debtors in the bank accounts instead of giving the cash to the appellant and then depositing in the bank accounts. The cash indirectly received was not routed through the cash book but and CO No.180/Ahd/2019 (By assessee) Asst. Year : 2014-15
the accounts of the debtors were debited by receipt of such cash. All such cash transactions have been recorded in the books of accounts. However, the A.O. has rejected this explanation and made addition of the cash of Rs.1,80,13,314/-. During the course of appellate proceedings also, the appellant had made the same contentions but with some evidences to show that the cash was received directly from the debtors and their accounts were also adjusted by debiting the cash so received. For example, the appellant has filed the copy of L.B. Jodhpur which reflected the cash payments as well as bank payments of Rs.13,13,439/- including the payments received by some other parties i.e. Dhruvesh U. Thakkar(journal entry). Further, the appellant has also filed the details of cash deposited in various banks with the names of the parties who have made direct cash deposits with ledger copies of accounts which have also been verified which reflected accounting of such cash. For example, L.B. Jodhpur has deposited cash of Rs.13,50,000/- in Kotak Mahindra Bank, the cash of Rs.20,53,610/- in Axis Bank by various parties including L.B. Jodhpur, Rs.5,29,000- in Bank of Baroda by various parties including LB Jodhpur and of Rs.70,25,664/- in Punjab National Bank. It has also been observed that the appellant has credited the total sales of Rs.11,74,50,992/- which is mixed of cash sales and credit sales against which the cash was received and routed through the cash book or directly deposited by the respective parties in the given bank account numbers. The A.O. has not doubted the ledger accounts of the debtors and pointed out any defects with regard to non-genuine or bogus transactions carried out with these parties under the pretext of bogus sales.
3 Considering the nature of business and explanation provided by the appellant with satisfactory evidences, the addition of Rs.1,80,13,314/- is directed to be deleted. Accordingly, this ground of appeal is allowed.” (e) Restricted disallowance of expenses to Rs.1,50,000/- i.e. 20% of total disallowance of Rs.5,88,584/- being incurred for personal use.
Aggrieved by the order of the Ld.CIT(A), the Revenue filed an appeal before us with following grounds of appeal:
“i) Whether, the Ld. Commissioner of Income-Tax appeals) has erred in law and on facts in deleting the addition on account of unaccounted income of Rs. 1,01,46,629/-.
ii) Whether, the Ld. Commissioner of Income-Tax(appeals) has erred in law and on facts in deleting the addition on account of incorrect purchase of Rs.95,55,616/-. and CO No.180/Ahd/2019 (By assessee) Asst. Year : 2014-15
iii) Whether, the Ld. Commissioner of Income-Tax(appeals) has erred in law and on facts in deleting the disallowance made u/s.40A(3) of the Act of Rs.2,10,48,539/- by restricting the same at 5%.
iv) Whether, the Ld. Commissioner of Income-Tax(appeals) has erred in law and on facts in deleting the addition on account of unrecorded cash deposit of Rs. 1,80,13,314/-.
v) Whether, the Ld. Commissioner of Income-Tax(appeals) has erred in law and on facts in restricting the disallowance out of expenses at Rs. 1,50,000/- as against the addition made of Rs.5,88,584/- of 20% of Rs.29,42,918/-.
vi) On the facts and circumstances of the case, the Ld. Commissioner of Income-Tax (Appeals) ought to have upheld the order of the Assessing Officer.
vii)It is, therefore prayed that the order of the Ld.Commissioner of Income-tax (Appeals) may be set aside and that of the Assessing Officer be restored.
viii)The appellant prays for leave, to amend or alter any ground or add a new ground which may be necessary.”
The Assessee also filed Cross Objection with following grounds:
“1. In law and in the facts and circumstances of the appellant's case, honourable Commissioner of Income Tax (appeals) has grossly erred in passing the assessment order without appreciating the facts and circumstances of the appellant's case.
In law and in the facts and circumstances of the appellant's case, honourable Commissioner of Income Tax (appeals) has grossly erred in sustaining / confirming addition to the extent of 5% of total disallowance. It should be allowed in total.
In law and in the facts and circumstances of the appellant's case, honourable Commissioner of Income Tax (appeals) has grossly erred in confirming addition to the extent of Rs 150000 towards disallowance of expenses.
Your appellant craves to add, alter, and amend all or any of the grounds of appeal. The learned assessing officer has grossly erred in point of law and facts.” and CO No.180/Ahd/2019 (By assessee) Asst. Year : 2014-15
During the course of hearing before us, the Ld.Departmental Representative (DR) explained the facts with the help of order of the AO and relied on the order of AO. He further stated that the assessee has retracted on his statement given on oath and CIT(A) has erred in deleting the addition. However, the Ld. DR could not present before us any counter arguments against the conclusion drawn by CIT(A) while partly allowing the appeal of assessee.
The Ld.Authorised Representative of the assessee relied on the order of the Ld.CIT(A) and did not press for the grounds raised in cross objection.
On Ground No. 1 of the Revenue
We have heard the contentions of both the parties. Perused the material available on record. The Ld.CIT(A) found that the original disclosure by the assessee was primarily based on unaccounted purchases with an embedded profit element. The profit margin of 16.66% on unaccounted sales was reasonable compared to the regular business profit margin. The Ld.CIT(A) concluded that the retraction was valid as it was made on reasonable grounds and in the absence of incriminating documents. The Ld.CIT(A) also observed that the AO did not provide any findings regarding the rejection of the books of accounts or the application of a reasonable profit margin. Thus, the books of accounts were presumed correct. Consequently, the addition of Rs.1,01,46,629/- was deleted, granting relief of Rs.87,96,659/- after adjusting the declared profit of Rs.17,58,320/-. We do not find any reason to interfere with the decision of Ld.CIT(A) and, hence, this ground of Revenue’s appeal is dismissed. and CO No.180/Ahd/2019 (By assessee) Asst. Year : 2014-15
15 On Ground No.2 of the Revenue
The Ld.CIT(A) noted that the assessee provided confirmations and copies of accounts from related parties. The AO’s observation about computer-printed bills was countered by the fact that similar transactions were accepted in the case of the assessee’s brother, who operated from the same premises. The Ld.CIT(A) pointed out that the AO did not conduct any independent verification of the purchase register or cross-examine the confirming parties. Hence, the addition of Rs. 95,55,616/- was deleted as the purchases were found to be genuine. We uphold the decision of the Ld.CIT(A). Thus, the ground raised by Revenue is dismissed.
On Ground No.3 of the Revenue
The AO disallowed Rs.2,21,48,539/- under Section 40A(3) of the Act for cash payments exceeding Rs.20,000/-. The assessee argued that the payments were made to farmers and commission agents, falling under the exceptions provided in Rule 6DD. The Ld.CIT(A) found that most payments were below Rs.20,000/- and made in compliance with Rule 6DD. However, acknowledging some lapses and lack of verification, the Ld.CIT(A) made an ad-hoc disallowance of 5%, amounting to Rs.11,07,427/- and granted relief of Rs.2,10,41,112/-.
The Ld.CIT(A) relied on various judicial pronouncements where it was held that cash payments to farmers for agricultural produce should not be disallowed under Section 40A(3) of the Act, if they fall within the exceptions provided in Rule 6DD. The tribunal in case of Renukeshwar Rice and CO No.180/Ahd/2019 (By assessee) Asst. Year : 2014-15
Mills (supra) recognized the practical difficulties in the agricultural sector, supporting the assessee’s claim. The Hon’ble Gujarat High Court in case of Keshvlal Mangaldas (supra) upheld that payments made to commission agents on behalf of farmers were covered under the exceptions of Rule 6DD. This decision reinforced the Ld.CIT(A)’s view that the cash payments made by the assessee were in line with legal provisions. The Hon’ble Gujarat High Court in case of A.C. Industries (supra) reiterated that cash payments for business transactions, particularly in the agricultural and allied sectors, should not be disallowed if they comply with Rule 6DD. The Ld.CIT(A) used this precedent to support the deletion of disallowances related to cash payments, therefore we uphold the decision of the Ld.CIT(A). Hence, this ground of Revenue’s appeal is dismissed.
On Ground No. 4 of the Revenue
The AO added Rs.1,80,13,314/- as unexplained source of cash deposits. The assessee explained that these deposits were from cash sales and direct deposits by debtors, supported by ledger accounts and other documentary evidence. The Ld.CIT(A) verified the evidence and found no defects in the ledger accounts or any indication of bogus transactions. He concluded that the payments indirectly received in bank accounts were not routed through cashbook, but the party’s account was credited, and assessee explained the source. Hence, the addition of Rs.1,80,13,314/- was deleted. In our opinion, the Ld.CIT(A) dealt with facts properly and therefore, uphold the decision of the Ld.CIT(A). Accordingly, this ground of Revenue’s appeal is dismissed. and CO No.180/Ahd/2019 (By assessee) Asst. Year : 2014-15
On Ground No. 5 of the Revenue
The AO disallowed Rs.5,88,584/- for personal use. The Ld.CIT(A) restricted this disallowance to Rs.1,50,000/-, considering it reasonable based on the facts and circumstances. The Ld.CIT(A) arrived at such estimation on the basis of audited books of accounts of assessee’s bother. Since the Ld.CIT(A) also decided in the case of brother of assessee, he has used the 20% ration based on the logic, after allowing some statutory expenses necessary to conduct the business. We do not find any reason interfering in the decision taken by Ld.CIT(A).
The assessee has filed the Cross Objection against this confirmed addition of Rs.1,50,000/-, which the Ld.Counsel for the assessee has not pressed for. Thus, this ground raised in the Cross Objection as well as Revenue’s ground of appeal both are dismissed.
Other grounds raised by Revenue are general in nature, hence the same are not adjudicated.
The Ld.CIT(A) provided a well-reasoned order by thoroughly analysing the facts, evidences, and relevant judicial pronouncements. The Ld.CIT(A)’s order, based on the principles of natural justice and supported by legal precedents, ensured a fair assessment of the assessee's income and expenses. The Revenue's grounds of appeal lacked substantial counterarguments, leading to the affirmation of the Ld.CIT(A)’s order by the Tribunal. and CO No.180/Ahd/2019 (By assessee) Asst. Year : 2014-15
In the result, the appeal of the Revenue is dismissed. Since the Ld.AR decided not to press for the grounds of Cross Objection, the same are dismissed as such.
Order pronounced in the Open Court on 16th July, 2024 at Ahmedabad. (SUCHITRA KAMBLE) ACCOUNTANT MEMBER
अहमदाबाद/Ahmedabad, "दनांक/Dated 16 /07/2024
ट".सी.नायर, व."न.स./T.C. NAIR, Sr. PS आदेश क" ""त"ल"प अ"े"षत/Copy of the Order forwarded to : 1. अपीलाथ" / The Appellant
""यथ" / The Respondent. 3. संबं"धत आयकर आयु"त / Concerned CIT 4. आयकर आयु"त ( अपील ) / The CIT(A)-Gandhinagar, Ahmedabad
"वभागीय ""त"न"ध , आयकर अपील"य अ"धकरण , राजोकट/DR,ITAT, Ahmedabad, 6. गाड" फाईल /Guard file.
आदेशानुसार/ BY ORDER,
स"या"पत ""त //// सहायक पंजीकार (Asstt.