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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI MAHAVIR PRASAD & SHRI MANISH BORAD
PER MANISH BORAD, A.M: The above captioned appeal filed at the instance of the Revenue for Assessment Year 2012-13 is directed against the order of Ld. Commissioner of Income Tax(Appeals) (in short ‘Ld.CIT]-III, Indore dated 22.09.2020 which is arising out of the order u/s 143(3) of the Income Tax Act 1961(In short the ‘Act’) dated 22.12.2017 framed by DCIT (Central), Indore.
M/s Goyal Road Lines ITANo.42/Ind/2021 The revenue has raised following grounds of appeal :
“ On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law in deleting the addition of Rs. 8,48,33,589/- made by the Assessing officer on account of unexplained income.” 2. This appeal was filed on 01.03.2021. Registry informed that this appeal is time-barred by 128 days. Ld. CIT-DR submitted that due to current pandemic covid-19, the delay occurred which may be condoned in view of guidelines of Govt. of India and Hon’ble Supreme Court. On the other hand, Ld. counsel for the assessee was fair enough in not opposing the delay. We find that vide Gazette “CG-DL-E-29092020-222110 No.63 New Delhi, 29/2020 issued by Secretary to Govt. of India, it has been directed that in computing the period of limitation for any appeal, the period for 20.3.2020 till 31.12.2020 or 31.3.2020, as the case may be, shall stand excluded. Further, the Hon’ble Supreme Court in Suo Motu Writ Petition (Civil) No.3 of 2020 dated 08.3.2021 has issued directions that in computing the period of limitation for any suit/appeal, the period for 15.3.2020 till 14.3.2021 shall stand excluded. Considering the same, we condone the delay in filing the revenue’s appeal and admit the same for hearing.
Brief facts of the case as culled out from the records are that the assessee is a partnership firm engaged in the business of transportation. Return for A.Y. 2012-13 filed u/s 139(1) of the Act on 30th September 2013 declaring income of Rs. 26,74,394/-. On 04.09.2015 search and seizure operations were carried out u/s 132 of the Act on the business and residential premises of the Kalyan
M/s Goyal Road Lines ITANo.42/Ind/2021 Group. Various documents were impounded and seized. Page no.6 to 9 of LPS24 and certain pages of LPS 39 contained certain transactions between the assessee and one of the company of Kalyan Group. After necessary satisfaction notice u/s 153C of the Act was issued and incompliance the assessee filed the return of income on 11.12.2017 declaring income of Rs. 35,22,770/- which included additional income of Rs.8,48,336/- offered to tax being 1% of the unaccounted cash purchase of bitumen of Rs.8,48,33,589/- made from Kalyan Infratech Pvt. Ltd. Notice u/s 143(2) of the Act duly was served. Ld. AO confronted the assessee with the alleged seized documents showing the transaction of sale of bitumen to the assessee from Kalyan Infratech Pvt. Ltd. In the seized documents there were entries of sales and payments were received in cash on regular intervals. Assessee accepted that the unaccounted purchase of bitumen from Kalyan Infratech Pvt. Ltd. were made on regular intervals and sold in the open market and it was in the nature of trading of bitumen and assessee earned meagor profit of 1% of the turnover of Rs. 8,48,33,579/- and therefore, assessee accepted to offer income of Rs.8,48,336/- to tax. However, Ld. AO was not satisfied and was of the view that the assessee failed to explain the source of investment in the cash purchase of Rs.8,48,33,579/- made by the assessee during the assessment year 2012-13 and accordingly added the total amount of purchase to the income declared by the assessee at Rs.35,22,730/- and assessed the income at Rs.8,83,56,319/-.
M/s Goyal Road Lines ITANo.42/Ind/2021 4. Aggrieved assessee preferred an appeal before the ld. CIT(A) and succeeded, as Ld. CIT(A) after making detailed examination of the facts of the case was of the view that assessee entered into trading of purchase and sale of bitumen and in view of the settled judicial precedents only the profit element needs to taxed and Ld. AO erred in making addition for the total unaccounted purchase.
Aggrieved revenue is in appeal before this Tribunal. Ld. DR vehemently argued supporting the order of Ld. AO.
Per contra Ld. counsel for the assessee supported the finding of ld. CIT(A) and the written submission before this Tribunal along with detailed paper book placing reliance on settled judicial precedence.
We have heard rival contentions, perused the records placed before us. Sole issue raised by the revenue in ground no.1 challenges the finding of Ld. CIT(A) deleting the addition of Rs. 8,48,33,589/- made by the Ld. AO towards unaccounted purchase made in cash from Kalyan Infratech Pvt. Ltd. We notice that as per seized documents page no. 6 to 9 of LPS-24 and certain pages of LPS- 39 found during the course of search at Kalyan group carried on 04.09.2015 undisputedly shows that Kalyan Infratech Pvt. Ltd. sold bitumen to assessee throughout the year totaling to Rs.8,48,33,589/- and payments were received on regular intervals in cash.
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Ld. counsel for the assessee stated that bitumen by the assessee has been sold in the open market in cash and profit of around 1% was earned on such trading activity and the same is offered to tax. On the other hand, Ld. AO on one hand accepted the 1% net profit offered by the assessee on alleged unaccounted purchase but on the other hand alleged that the total purchase are unaccounted and needs to be taxed.
We find that ld. CIT(A) after considering the detailed submission filed by the assessee as well as settled judicial precedence and also observing that the assessee has only carried out trading activity of purchase and sale of bitumen, deleted the addition made by the Ld. AO for unaccounted purchase observing as follows:
3.1. This ground of the appeal has been raised in respect of an addition of Rs. 8,48,33,589/- made on account of unaccounted purchase. Relevant discussion is at Page No.3 to 11 and again at Page No. 14 and 15 of the assessment order. Brief facts of the case are that in the search operations conducted on 'Kalyan Group of Indore' on 04.09.2015, certain documents numbered as LPS 24 Pages 6 to 9 were seized from the office premises of Kalyan Group and it was found that Kalyan Group has sold bitumen of Rs. 8,84,01,956/- to the appellant firm during the FY 2010-11 and FY 2011-12. These transactions between the appellant firm and Kalyan Group commenced from 19.12.2010 and continued till 29.02.2012 and were not recorded in the books of accounts of the either parties. It was also found that transactions found noted on page 6 to 9 of LPS 24 were correlating with various pages of another LPS 39 which were the workings of Kalyan Group wherein various details such as invoice no., date, vehicle no. and amount etc. were also mentioned. Taking clue from the finding of the documents related to the appellant during the search operation of Kalyan Group, proceedings under section 153C of the Act were initiated in this case. The appellant, in the returns filed in response to notices issued u/s 153C admitted the above said unaccounted trading transactions and also offered profit @ 1% amounting to Rs. 35,683/-for AY 2011-12 and Rs. 8,48,335/- for AY 2012- 13, totalling to Rs. 8,84,018/- on the entire trading purchases. 3.2. The AO has observed that the assessee accepted the fact that the said transaction is out of books purchase and sale and are not recorded in the regular books of account maintained with respect to transportation business and offered 1 % profit there on. The AO noted that purchase was made in cash without being accounted for in the Books of Accounts and no 5
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explanation is offered regarding the source of investment in cash purchase, hence the purchase of Bitumen remained unexplained in the hands of the appellant. In the assessment order the AO observing that the source of cash purchase of bitumen is not disclosed by the appellant, made the addition of the entire amount of unaccounted purchases made from Kalyan Group.
3.3. The appellant on the other hand contended that transactions with Kalyan Group of purchase of Bitumen were purely trading transactions in nature and the Bitumen so purchased from Kalyan Group was sold in the open market. The appellant contended that it is into the business of transportation and the trading of Bitumen was undertaken for some time in FY 2010-11 & FY 2011-12 and was discontinued due to meagre profits. It is also contended that since the search was conducted on Kalyan Group only one side of the transaction i.e. the purchase side was found however, the fact that these purchases were only for the purpose of trading is not disputed and the profit offered by the appellant of 1% in respect of these trading transactions is also accepted by the AO. The appellant has also contended that as evident from the details seized from the Kalyan Group, the payments against the purchases, were made by the appellant at a much later date implying that there was no investment required to be made by the appellant. The appellant contended that it used to purchase the material from Kalyan Group on credit and use to sale the same either in cash or on advance payment condition, since the appellant did not wanted to take any risk of bad debts in respect of such unaccounted sales. The appellant contended that the addition made by the AO of the entire purchases, solely for the reason that the appellant could not substantiate the source of payments made to Kalyan Group, is wrong and uncalled for. The fact that the impugned material was sold in the open market was sufficient to substantiate the source of payments made against the purchases. For the proposition that in such type of unrecorded trading transactions only profit is taxable and addition of the entire purchase amount is wrong, the appellant has placed reliance on various decisions through the written submission which are already abstracted above. The appellant has also relied on the decision of the Hon'ble Jurisdictional Bench of Indore ITAT in the case of Signet Industries Limited vs. Deputy Commissioner of Income Tax in its decision rendered in IT(SS)A No. 11S to 120jIndj201S and ITA No. 400jIndj201S and contended that only profit element in respect of unaccounted trading can be brought in the ambit of taxation. The appellant has also contended that the addition made is wrong also for the reason that the assessment proceedings were not carried out properly as no notice uj s 143(2) was issued for this year and also for the reason that this being a case covered uj s 1S3C, the period of a block assessment was required to be reckoned qua the documents received by the AO from the AO of the searched person or with respect to the satisfaction recorded by the AO, which having not been done has rendered the assessment order and also the addition made, as invalid.
3.4. After taking into consideration, carefully the observations made in the assessment order and also the submissions of the appellant, it is seen that documents related to the purchase of bitumen by the appellant from the Kalyan Group were seized in the search on Kalyan Group and thus the appellant was found engaged in the unaccounted trading of the Bitumen. The appellant admitted this fact and offered the net profit @ 1 %-2. such transactions in the return filed under section 153C. It is seen that the fact 6
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that these purchase transaction were undertaken for trading purposes is not disputed and the net profit so offered by the appellant has also been accepted by the AO, however the AO made further addition of the entire purchase amount stating that the appellant could not explain the source of such purchases and the details of the parties to whom the material was sold in cash was not disclosed by the appellant. From the assessment order, it is seen that the main thrust of the AO while making the addition was that the documents seized from the premises of Kalyan Group reflected unaccounted transactions between the appellant and the Kalyan Group. I find that this fact was never under dispute and was also accepted by the appellant. Further, all the noting found in the material seized from the premises of Kalyan Group were related to the transactions between the appellant and the Kalyan Group, therefore reflected only one side of the transaction i.e. the unaccounted purchases made by the appellant. However since no documents related to the trading sales made by the appellant were found, the AO stated that the appellant could not explain the source of purchases. It is seen that the AO has not disputed the unaccounted trading of the Bitumen at all. The fact that this bitumen was traded and sold by the appellant was an obvious one, which the AO also very well acknowledged as evident from the 'satisfaction' recorded and also from the notice issued uls 142(1) dated 11.12.2017 to the appellant in this regard. However, for want of the details of the parties to whom such material was sold in cash, the AO added the entire amount of purchase, which in my opinion is not justified. In such type of unaccounted trading transactions particularly when the sales are made in cash or against advance payment, the assessee is not required to maintain the other details of the parties to whom such goods are sold in cash. Therefore, merely for the reason that the details of the parties to whom sales were made in cash are not provided-it cannot be concluded that the source of payments made for purchases is not explained. Once the fact that the transactions are in the nature of trading transaction is accepted, the natural consequence would follow that the source of payment for purchases is the sale proceeds thereof.
3.5. The important fact that the documents of the impugned purchases were found at the premises of the Kalyan Group cannot be lost sight of implying that the record of only one side of the transactions that the purchase side was found and obviously the record and the documents with respect to the sales made by the appellant would not be found at the premises of Kalyan Group. I find considerable force in the contention of the appellant that in case of unaccounted trading only the profit on such trading is liable to be taxed. I find support from the decisions of Hon'ble Gujarat High Court in the case of Commissioner of Income Tax vs. Bholanath Poly Fab (P.) Ltd. in 40 taxmann.com 494 holding that only profit margin embedded in such purchases could be subject to tax and not the entire purchases and also of the Hon'ble jurisdictional Madhya Pradesh High Court in the case of Man Mohan Sadani vs. Commissioner of Income Tax in 304 ITR 52 holding that it is the net profit rate which has to be adopted in such cases. Therefore, in view of the above discussion addition made on account of entire unaccounted purchases is held to be not in order and does not survive.
3.6. In the present case the appellant has offered profit on the trading transaction, which profits stands accepted and has not been disputed by the AO. With regard to the investment in purchase, it is seen that from the documents found and seized as LPS 24 and LPS 39 from the Kalyan Group 7
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that transaction wise notings of sale to the appellant was maintained by the Kalyan Group. This fact is corroborated from the notings in LPS 39 abstracted in the assessment order, wherein it is apparent that the systematic details of bill wise supply, quantity of supply, loading dates, transportation, vehicle no. grade and amount received etc. are also found noted. Similarly from the notings on page no. 6-9 of LPS 24, which are also abstracted in the assessment order, it is seen that the details noted on these pages are under the heading such as 'Date', 'Amount Recd', 'Bill' and the last column is mentioned as 'Balance'. The 'Amount recd' column represents the amount of cash paid by the appellant to the Kalyan Group and the 'Balance' column represents the balance amount due to be paid by the appellant to the Kalyan Group. The balance receivable has been drawn after each transaction date. It is evident from these documents that first the material was sold by Kalyan Group and then the payment was made by the appellant to the Kalyan Group subsequently on a later date substantiating that the appellant was purchasing the goods on credit from Kalyan Group, implying that no investment was made by the appellant. From the' documents found and seized of LPS 24 Page no. 6-9 it is also evident that the purchase was made first and then the payment were made subsequently gets corroborated from the contention that the payments were made out of cash sales made I advance received by the appellant. This contention of the appellant deserves to be accepted in view of the fact and documents on record and also considering the fact that there is nothing on record to suggest otherwise. There is nothing on record to disregard the theory propounded by the appellant, which gets Support also from the surrounding circumstantial facts and record.
3.7. The appellant has rightly placed reliance on various judgements, wherein it has been primarily held that only profit element of the unaccounted trading is required to be taxed. In my considered view, the AO has accepted the fact of unaccounted trading transactions and also accepted the profits offered by the appellant in respect of such unaccounted trading and therefore, the addition made of the entire purchase is unwarranted and not justified and therefore the addition made on account of unaccounted purchase of Rs. 8,48,33,589/- is deleted. Since the addition has been deleted, I do not deem it necessary to dwell upon other contentions raised by the appellant such as non issuance of notice u/s 143(2) and the reckoning of the block assessment period u/s 153C. This ground of appeal is allowed.
From the perusal of the above finding of Ld. CIT(A) settled judicial precedents as well as documents placed on record by the assessee before lower authorities, we find that the seized documents i.e. LPS-24 pages 6 to 9 and few pages of LPS-39 clearly shows that there are unaccounted transactions of sale of Bitumen by Kalyan Infratech Pvt. Ltd. to assessee. It is also evident that the
M/s Goyal Road Lines ITANo.42/Ind/2021 assessee first purchased bitumen and then made the sales and the payments for purchase have been made on regular intervals. For instance, we find that for the purchase made on 19th December and 21st December 2010 of Rs.1036167/-(approx.) assessee made the payment on 07.01.2011 at Rs. 10,18,900/-. Though this transaction fall during the assessment year 2011-12 but similar modus operendi has been adopted by assessee during the year under appeal also and payments have been made on regular intervals as and when purchase are made which shows that the assessee did not invested in the total purchase made from Kalyan Infratech Pvt. Ltd. as alleged by the Ld. AO. Rather this discernable that the assessee received goods (Bitumen) on credit from Kalyan Infratech Pvt. and after receiving the sale consideration has made the payment to seller. Thus there seems no basis in the finding of Ld. AO that assessee had invested its unaccounted income for purchase of bitumen during the year at Rs.8,48,33,589/-. The seized documents in itself are sufficient enough to show that assessee is engaged in trading of bitumen and entered into transactions of purchase and sale consistently and there is as such no major investment for carrying out such trading activities.Even Ld. AO has not disputed the trading profit declared by Assessee in its Income Tax Return. Ld CIT(A) has rightly appreciated this fact and deleted the addition for unaccounted purchase made by the Ld. AO.
We are thus in conformity with the finding of Ld. CIT(A) arrived at after respectfully following judicial precedence holding that the 9
M/s Goyal Road Lines ITANo.42/Ind/2021 assessee has rightly disclosed the net profit from trading of Bitumen during the year and no addition for unaccounted purchase of Rs.8,48,33,589/- was called for. Thus, sole grounds raised by the revenue stands dismissed.
In the result, appeal of the Revenue in ITANo.42/Ind/2021 for A.Y. 2012-13 is dismissed.
The order pronounced as per Rule 34 of ITAT Rules, 1963 on 08.03.2022.
Sd/- Sd/- (MAHAVIR PRASAD) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER
�दनांक /Dated :08.03.2022 Patel/Sr. PS Copy to: The Appellant/Respondent/CIT concerned/CIT(A) concerned/ DR, ITAT, Indore/Guard file. By Order, Sr. Private Secretary, I.T.A.T., Indore