ACIT, CENTRAL CIRCLE, VARANASI V. M/S G.N.BROTHERS SAREES PVT. LTD., VARANASI

ITA 121/ALLD/2016

AI Insights

The case involves an appeal by the Revenue against the order of the Ld.CIT(A), which pertained to various additions made by the AO following a search and seizure operation under section 132 of the Income Tax Act, 1961, at the premises of the assessee, M/s. G.N. Brothers Sarees Pvt. Ltd. The main issues contested included additions related to unexplained investment in stock, unexplained expenditure, bogus purchases, vehicle expenses, and undisclosed cash loans and payments. The Ld.CIT(A) had partially relieved the assessee by reducing the additions made by the AO, which led to the Revenue's appeal. The Tribunal's decision affirmed the Ld.CIT(A)'s order, highlighting the reliance on incomplete and incorrect data by the AO in his assessments.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 32693 (ITAT-VARANASI)
• Duration Of Justice: 8 year(s) 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-10-2024
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 09-09-2024
• Assessment Year: 2012-2013
• Appeal Filed On: 25-05-2016
• Other Referred Cases: ACIT vs. M/s Kusum Saree Kendra & Others, ITA Nos. 116 to 120/Alld./2016
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMALENDU NATH MISHRA
• Assessee Lawyers: ASHISH BANSAL
• Keywords: Unexplained expenditure; Depreciation; Unexplained investment; Peak credit; Bogus purchase; Search and seizure; Bogus
• Section: 132; 22; 69C

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL VARANASI BENCH “DB”, VARANASI BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA No. 121/ALLD/2016 Assessment Year 2012-13 Asst. Commissioner of Income Tax, Central Circle, Varanasi vs. M/s. G.N. Brothers Sarees Pvt. Ltd., K-37/34, Goal Ghar, Varanasi PAN : AACCG0080D (Appellant) (Respondent) For Assessee : Shri Ashish Bansal, and Shri Deepak Gujrati, For Revenue : Shri Amalendu Nath Mishra, CIT-DR Date of Hearing : 09-09-2024 Date of Pronouncement : 15-10-2024 O R D E R PER B.R. BASKARAN, A.M : The Revenue has filed this appeal challenging the order dated 25-02-2016 passed by the Ld.CIT(A)-1, Lucknow and it relates to the Assessment Year (AY.) 2012-13. 2. The decision rendered by Ld.CIT(A) on the following issues are being agitated by the Revenue:- (a) Addition relating to unexplained investment in stock. (b) Addition relating to alleged unexplained expenditure. 2 ITA No. 121/ALLD/2016 (c) Addition relating to alleged bogus purchases. (d) Addition relating to vehicle expenses (e) Addition relating to undisclosed cash loan & cash payments 3. The facts relating to the case are discussed in brief. The assessee company is engaged in the business of wholesale trading in sarees. A search and seizure operation u/s. 132 of the Income Tax Act, 1961 („the Act‟) was conducted in the hands of the assessee on 27-09-2011. The assessment of the year under consideration, being the search year, was completed by the AO u/s.143(3) of the Act by making various types of additions. The Ld.CIT(A) granted partial relief to the assessee and hence the Revenue has filed this appeal. 4. The first issue relates to the addition relating to unexplained investment in stock. During the course of search proceedings, the inventory of stock available with the assessee as on 27-09-2011 was taken up and the value of the same was arrived at Rs.4,66,85,431/-. The search team also took out the print out of the Balance sheet as on 27-09-2011 from the computer and it was showing stock value of Rs.2,15,17,066/- only. Even though the assessee offered certain explanations with regard to this difference in stock, the AO was not satisfied with the same. Accordingly, he assessed the difference amount of Rs.2,51,68,365/- as unexplained investment. 4.1. Before Ld.CIT(A), the assessee offered detailed explanations with regard to the alleged difference in the value of stock. It was submitted that the search officials/AO has arrived at the alleged difference in the value of stock on the basis of incomplete information. The main submissions made by the assessee are that:- 3 ITA No. 121/ALLD/2016 (a) Three firms belong to the same group, viz., the assessee herein, M/s G N Brothers (Proprietary concern of Smt Neeta Agarwal) and M/s G N Exports (partnership firm) are operating from the same premises. Hence there is mix up in the inventory taken. (b) The value of inventory should have been arrived at cost price. (c) Prior to AY 2011-12, the assessee had been purchasing finished goods. However, from the assessment year 2011-12 onwards, the assessee has diversified its activities, i.e., it has started purchasing grey fabrics, process them and accordingly started producing finished sarees. For accounting purposes, a separate branch/division account titled as “job work company” has been created. At the year end, this branch/division accounts are merged with the assessee‟s accounts. It is submitted that the grey fabric is transferred to “Job work company” for nominal rate of Re1.00 per length. Hence the value of stock available with the above said branch will show very much lower value. However, the search officials have considered the Trading account of Head Office only. It was also submitted that the details of transactions with the branch/division titled as “Job Work Company” is available in the Head office books, even at the time of search. (d) The assessee also stated that the trading account available in the computer on the date of search was not complete in all respects. After completing the accounts, the assessee worked out the value of inventory at cost vis-à-vis value of physical inventory as under for all the three concerns:- 4 ITA No. 121/ALLD/2016 Sl. No. Name of Party Cost price (as per corrected stock) As per trading account on the date of search Excess Shortage 1 G.N Bros Sarees P Ltd 4,48,51,237 4,31,99,096 16,52,140 --- 2 G N Bros (Prop. Concern) 3,13,68,826 3,20,94,903 ---- 7,26,077 3 G N Exports (Partnership firm) 3,20,000 14,24,869 --- 10,95,869 ¤ TOTAL 7,65,40,063 7,67,18,868 16,52,140 18,21,946 Based on the above statistics, it was submitted that the net difference in stock is only Rs.1,69,806/- (18,21,946/- (-) 16,52,140/-), which works out to only 2% of the over stock value and accordingly it was submitted that this difference may be ignored. 4.2. The Ld.CIT(A) examined the books of accounts and contentions of the assessee and accordingly agreed that the stock available with branch/division “Job Work Company” has not been accounted for in the Trading account at correct value. He further held that the reconciliation statement prepared by the assessee by combining the trading account of Head office and Job work company is fully verifiable. All the transactions of Job work company including job charges paid by it have been duly incorporated in the head office account. The Ld.CIT(A) also noticed that the AO has accepted the Trading and Profit and Loss account of the entire year under consideration, which was actually amalgamated figures of Head office and Job work company. Accordingly, the Ld.CIT(A) held that the shortage of physical stock arrived at by the search officials are not correct. Accordingly, he held that the addition of Rs.2,151,68,365/- is also not correct. However, the Ld.CIT(A) held that the value of excess stock of Rs.16,52,140/- shown by the assessee in the above said statement is 5 ITA No. 121/ALLD/2016 liable to be assessed as unexplained income. Further, with regard to shortage of stock of Rs.18,21,946/-, the Ld.CIT(A) treated the same as sales outside the books. Accordingly, he estimated the profit thereon at Rs.1,80,000/-. In effect, the Ld CIT(A) sustained addition to the extent of Rs.18,32,140/- (Rs.16,52,140/- (+) Rs.1,80,000/-). The Revenue is aggrieved. 4.3. We heard rival contentions and perused the record. The fact would remain that the inventory of stocks taken by the search officials belonged to three group concerns, viz., the assessee herein, M/s G N Brothers and M/s G N Exports. According to the assessee, the net stock difference between book stock and physical stock of all the three concerns put together was negligible. It is pertinent to note that the branch/division titled as “Job work company” was completely ignored by the AO consequently, he did not consider the stock available in that division/branch at all while working out the book stock. Even otherwise, it is stated that the grey stock is transferred to above division at a nominal cost of Re1.00 per length. Hence the value of stock shown in the above said division does not represent actual value. The Ld.CIT(A) has also given a finding that the trading account extracted from the computer on 27-09- 2014 is incomplete. In this regard, the paragraph 22 of the order passed by Ld.CIT(A) is very important. Following observations made by him in that paragraph are relevant:- “22…..I called for the records and with reference to the information available on record I myself examined the said reconciliation. On such an examination, I have noted that the trading account as extracted from the computer on 27-09-2014 is incomplete. There is difference even in opening stock which was otherwise verifiable from the audited Balance Sheet for the preceding year (which has since been accepted also by the Assessing Officer for the purposes of assessment simultaneously made by him). Besides, there is force in the submission made by the appellant that on merger of Job Company’s 6 ITA No. 121/ALLD/2016 account with that of Head office the stock as per trading account prepared on 27-09-2014 were worked out to Rs.4,31,99,096 (as calculated on the basis of cost arrived at by adjusting the tag price with the GP rate of current year) and not Rs.2,15,17,066/- (as worked out by the Assessing Officer) which had formed the basis of addition of Rs.2,151,68,165/- (Rs.4,66,85,431 – Rs.2,15,17,066)……” Based on the combined Trading Account of Head office and Jon Work Company, the assessee has prepared following reconciliation statement:- Difference in opening stock Figures as per audited statement of account for the preceding year 5,80,70,549 Less: Opening stock as per page 21 of LP10 5,19,41,426 61,29,123 Add: Purchase made in job company as per information available in the hard disc seized by the department 9,06,21,958 job charges as per records of „job company‟ 5,23,03,986 14,90,55,067 Deduct: Transfer to Head Office as per job company 12,59,12,774 Stock as per Trading account as revelaed by the print out from the computer 2,31,42,293 As noticed earlier, the Ld.CIT(A) sustained addition to the extent of Rs.18,32,140/- only as against the addition of RS.2,51,68,365/- made by the AO. It appears that the assessee has accepted the order passed by Ld. CIT(A) on this issue. 4.4. During the course of hearing, the Ld.AR placed his reliance on the above cited factual finding given by Ld CIT(A). Before us, the Ld.DR could not contradict finding so given by the first appellate authority. No material 7 ITA No. 121/ALLD/2016 was placed before us to show that the factual finding arrived at by Ld. CIT(A) was wrong. Since the AO has computed the stock difference on the basis of incomplete records and since the AO did not consider the book stock available with branch/division - Job work Company, he arrived at a stock difference of Rs.2.51 crores in his computation. If a computation is made on the basis of incomplete and wrong data, the result shall not always be correct. Before Ld.CIT(A), the assessee has pointed out various mistakes and errors in the computation made by the AO and also submitted that the correct combined financial statements. Accordingly, the Ld.CIT(A) has given a finding that the computation made by the AO was not correct. Finally, the Ld.CIT(A) has sustained addition to the extent of Rs.18,32,140/-. Since the decision rendered by Ld.CIT(A) are based upon factual aspects relating to the case and since the same has not been proved to be wrong, we affirm the order passed by Ld.CIT(A) on this issue. 5. The next issue urged by the Revenue is related to the addition of Rs.27,29,896/- made by the AO as unexplained expenditure u/s. 69C of the Act. 5.1. During the course of search action, physical cash balance of Rs.3,95,000/- was found, while the cash balance as per cash book was Rs.31,24,896/-. Hence the AO treated the difference between the above two balances amounting to Rs.27,29,896/- as unexplained expenditure and added the same u/s 69C of the Act. The Ld.CIT(A) has deleted this addition and hence the revenue is aggrieved. 5.2. We heard the parties on this issue and perused the record. We noticed earlier that the books of account found at the time of search were incomplete. Hence, the assessee has furnished explanations with regard to the cash difference before the AO. On the basis of above said explanations, 8 ITA No. 121/ALLD/2016 following reconciliation statement has been prepared and submitted to the Ld CIT(A):- Credit entries Debit (Receipts) Credit (Payments) Balance (Rs.) Cash Balance as per Cash Book 31,24,896.27 Cash Sales 7,39,139 Cash received from Sundry debtors 18,133 Debit Entries Cash deposited into HDFC Bank Ltd A/c No. 04682320002091 64,374 Cash paid to staff toward salary 4,83,197 Cash paid to Sundry Creditors 11,50,900 Amount paid for Purchases, Job Work and other expenses 16,19,159 Cash transferred to Bangalore office 1,57,500 Closing Balance (physical found at the time of search) 4,07,038.27 The Ld.CIT(A) accepted the above said explanations of the assessee. He also found that the AO had rejected the explanations of the assessee on flimsy grounds only. We notice that the provisions of sec.69C would get attracted only when the AO found that the assessee has incurred some expenses and he could not explain the sources thereof. In the instant case, the shortage of cash balance is treated by the AO as having been spent away by the assessee, meaning thereby, the sources of the above said alleged expenses is the cash balance available in the books. Hence, the question of unexplained expenditure does not arise. In any case, the assessee could reconcile the difference between physical cash balance and book cash balance. The Revenue could not bring any material to contradict 9 ITA No. 121/ALLD/2016 the findings given by Ld CIT(A). Accordingly, we confirm the order passed by Ld.CIT(A) on this issue. 6. The next issue urged by the Revenue relates to the addition relating to alleged bogus purchases. The AO noticed that the purchases made by the assessee included purchases titled as “Purja purchases” made in cash to the tune of Rs.4,65,80,955/-. These purchases are directly made from the weavers by the assessee. According to the assessee, it does not maintain the details of the weavers, i.e., the concerned weaver will bring sarees to the assessee, the goods purchased by the assessee is acknowledged by a receipt and the payments were made to them in cash, which will be below Rs.20,000/-. Even if the payment is made by cheque, the same shall be through bearer cheques for a sum less than Rs.20,000/- so that there is no violation of provisions of sec.40A(3) of the Act. Since the assessee could not furnish the details of names and addresses of the Purja purchases and since the payments have been made in cash only, the AO disallowed 3% of the value of above said purchases treating it as bogus in nature, which resulted in an addition of Rs.13,97,429/-. The Ld.CIT(A) deleted the same. 6.1. We heard the parties on this issue and perused the record. We notice that the assessing officer had made identical addition in the assessee‟s own case in the assessment years 2007-08 to 2011-12 and the Co-Ordinate Bench of Tribunal, vide its order dated 20-12-2017 passed in ITA Nos. 116 to 120/Alld./2016, has deleted the addition in those years. In this connection, the Co-Ordinate Bench has followed the Third Member decision rendered in the case of ACIT vs. M/s Kusum Saree Kendra & Others, Varanasi dated 17-01-2023 (ITA Nos. 1123, 1124, 1125 & 1127/Alld/1997), wherein the estimated addition on account of alleged bogus purchases made from Karigars termed as “Purja purchases” was 10 ITA No. 121/ALLD/2016 deleted. It was held that the AO was not justified for rejecting the books of accounts on account of peculiar trade practice prevailing in this trade. We notice that the Ld.CIT(A) has also followed the decision rendered by the Third Member decision in the case of M/s Kusum Saree Kendra & Others (supra) in deleting this addition. Accordingly, we do not find any reason to interfere with the order passed by him on this issue. 7. The next issue urged by the revenue relates to the disallowance of vehicle expenses. The AO had disallowed 20% of car depreciation and expenses, which resulted in an addition of Rs.85,694/-. The Ld CIT(A) restricted the disallowance to 10%, thus granting a relief of Rs.42,847/-. The revenue is aggrieved. 7.1. We heard the parties and perused the record. We notice that the AO had made disallowance on estimated basis and the Ld.CIT(A) has substituted the same with his own estimate. The estimation made by both the tax authorities has no basis. Accordingly, we do not find it necessary to interfere with the decision rendered by Ld.CIT(A) on this issue. 8. The next two issues urged by the Revenue relates to the addition of Rs.3.00 lakhs and Rs.2,43,900/- pertaining to undisclosed cash loan/advances transactions. These additions were made on the basis of entries found in a diary. The submission of the assessee was that these diaries relate to the “Undivided Estate of Late Jamuna Das Ji”, who died on 07-07-1956. The AO did not accept the above said submissions and accordingly added the sum of Rs.3.00 lakhs relating to advances given and Rs.2,43,900/-, being the advances received back. 8.1. Before Ld.CIT(A), the assessee raised an alternative contention stating that the peak credit balance should be assessed instead of assessing all the transactions. The same was found acceptable to the Ld. 11 ITA No. 121/ALLD/2016 CIT(A) and accordingly directed the AO to assess the peak credit balance after giving set off of peak credit of earlier years, which were treated as income. The Revenue is aggrieved. 8.2. We heard the parties on this issue. We notice that the AO had made identical additions in the earlier years also and the Ld.CIT(A) had given identical directions to the AO, accepting the alternative contentions of the assessee. The Co-ordinate Bench of Tribunal, vide its order dated 20-12- 2017 passed in the assessee‟s own case in ITA Nos. 116 to 120/Alld./2016 has upheld the order so passed by the Ld.CIT(A). Following the decision of the co-ordinate bench passed in the assesee‟s own case in the earlier years, we uphold the order passed by Ld.CIT(A) in this year also. 9. In the result, the appeal filed by the Revenue is dismissed. Order pronounced on 15-10-2024 by way of proper mentioning in the Notice Board. Sd/- Sd/- [AMIT SHUKLA] [B.R. BASKARAN] JUDICIAL MEMBER ACCOUNTANT MEMBER Varanasi, Dated: 15-10-2024 TNMM 12 ITA No. 121/ALLD/2016 Copy to : 1. The Appellant 2. The Respondent 3. The Pr. CIT, concerned 4. D.R. ITAT, Varanasi 5. Guard File. //By Order// //True Copy // Dy./Asst. Registrar, ITAT, Varanasi "