ACIT, NEW DELHI V. .YOGESHWAR CHANDER WADHAWAN, NEW DELHI

ITSSA 34/DEL/2012

AI Insights

The case involves appeals by both the assessee, Yogeshwar Chander Wadhawan, and the revenue against the order of the Commissioner of Income Tax (Appeals) which was based on a reassessment of undisclosed income for the block period from April 1, 1997, to May 27, 2003. The reassessment followed search proceedings under Section 132 of the Income Tax Act, 1961, which led to the original assessment declaring a significantly higher undisclosed income than what was declared by the assessee. The CIT(A) had adjusted the income based on the average gross profit rates of comparable businesses, which was contested by both parties in their respective appeals. The Tribunal's decision affirmed the CIT(A)'s approach and dismissed both appeals.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 40142 (ITAT-DELHI)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 20-12-2024
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: misc
• Laws Referred To: Income Tax Act 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Unexplained expenditure; Document seized; Documents seized; Capital Gains; Block assessment
• Section: 158BC

Judgement Text

" ITA Nos. 33 & 34/Del/2012 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘F’, NEW DELHI BEFORE SH.S RIFAUR RAHMAN, ACCOUNTANT MEMBER AND SH. SUDHIR KUMAR, JUDICIAL MEMBER IT(SS)A No.33/Del/2012 Asst. Year/Block Period: 01-04-1997 to 27-05-2003 Yogeshwar Chander Wadhawan A-13 First Floor Green Park Extension New Delhi -110016 PAN No.AABPY1542Q Vs. DCIT, Circle 24(1) New Delhi (APPELLANT) (RESPONDENT) ITA(SS) No.34/Del/2012 Asst. Year/Block Period: 01-04-1997 to 27-05-2003 DCIT, Circle 24(1), New Delhi Vs. Yogeshwar Chander Wadhawan A-13 First Floor Green Park Extension New Delhi -110016 PAN No.AABPY1542Q (APPELLANT) (RESPONDENT) Assessee by N o n e Departmeent by Ms. Suneeta Verma CIT DR ITA Nos. 33 & 34/Del/2012 2 Date of hearing: 19/11/2024 Date of Pronouncement: 20/12/2024 ORDER PER SUDHIR KUMAR: JUDICIAL MEMBER: This appeal by the assessee is directed against the order of the Commissioner of Income Tax (Appeals)-23 New Delhi [hereinafter referred to as “CIT(A)”] vide order dated 29.02.2012 pertaining to A.Y. 2016-17 arises out of the assessment order dated 31.12.2010 under section 254/158 r.w.s.143 (3) of the Income Tax Act 1961 [hereinafter referred as ‘the Act]. 2. The assessee has raised the following grounds: On the facts and circumstances of the case, the Learned CIT(A) erred in 1) Upholding the assessment completed us 158BC of the Income Tax Act in the ‘individual’ status of the appellant even though no Panchnama was drawn in the name of the appellant in such a status; the Panchnama was drawn in the Joint names of R R Enterprises (India), R R Enterprises, Y C Wadhawan, Vini Sharma & Gauav Wadhawan; 2) Adopting Gross Profit Rate of 23.09% as against the contention of the appellant to adopt Gross Profit of ITA Nos. 33 & 34/Del/2012 3 16.84% consistent with the appellant’s own history of earlier years; 3) Is not appreciating that the comparative cases quoted by the appellant were only to illustrate the absurd rate of net profit of 80% adopted by the Ld. AO; 4) In upholding the capital gain of Rs.24,71,719/- as against the capital gain of Rs.11,927/- computed by the appellant without considering the submission of the assessee. 5) In relying upon the ITAT’s order and even though it was brought to the knowledge of the ld. CIT(A) that the ITAT order has been recalled. 3. The Revenue has raised the following grounds of appeal: 1. On the facts and in the circumstances of the case the Ld CIT(A) has erred in adopting the average GP rate of other comparable cases, as contended by the assessee and reduced the addition of Rs. 2,83,53,085/- made by the A.O. on account of income from undisclosed sales of the minimal figure of Rs. 24,13,341 2. The appellant craves leave to add, alter or amend any of the grounds of appeal before of during the course of the hearing of the appeal. It is prayed that the order of the CIT(A) being contrary to the facts on record and the settled position of law be set aside and that of the Assessing Officer be restored. ITA Nos. 33 & 34/Del/2012 4 4. The brief facts of the case are that the assessee is a proprietor of M/s R.R. Enterprises, which was engaged in the manufacture of fire-fighting equipments for ocean going ships. The concern supplied goods to major ship yards in India including Cochin Shipyard Ltd, Mazagaon Docks Ltd., Hindustan Shipyard Ltd. Search proceedings under Section 132 of the Act was carried out on 27-05-2003 at the residential and commercial premises of the assessee. Original assessment was completed on 30-05-2005 at an undisclosed income of Rs 4,53,79,243/- against income of Rs.55,000/- declared by the assessee in respect of the block period 01-04-1997 to 27-05- 2003. The assessee obtained relief of Rs 68,89,839/-. The Hon’ble ITAT Delhi vide order dated 4-11-2009 held that the block assessment had been framed in an ad-hoc and summary manner and directed the AO to decide the matter as a fresh after giving the adequate opportunity of being heard and after considering the assessee’s submission. The fresh assessment was completed vide order dated 31-12-2010 at an income of Rs ITA Nos. 33 & 34/Del/2012 5 3,08,79,800/- as undisclosed income. Aggrieved the order of the assessing officer the assessee has filed the appeal before the Ld CIT(A) who vide his order dated 29-02-2012 partly allowed the appeal against which the assessee and revenue both have filed the appeal before the Tribunal. 5. No body attended the hearing on behalf of the assessee on various occasions which only goes to prove that the assessee is not interested in pursuing the case. We have decided to dispose off the appeals with the support of the Learned DR. We have heard the ld DR. Ld DR has submitted that Ld CIT(A) has erred in adopting the average GP rate of the other comparable cases. She vehemently supported the order of the assessing officer. 6. Ld. CIT(A) observed in his order as under: (8.1) I have carefully considered the above submissions and also taken note of the fact that the undisclosed sales have been arrived at, not on the basis of entries in the seized material, but on the basis of verification carried out with the customers of the appellant. Therefore, it can be concluded that neither the entire undisclosed receipts nor unaccounted expenditure has been recorded in the books of accounts or other seized documents. I am constrained to agree with the appellant that sales cannot take place without purchases and other overheads. The appellant has ITA Nos. 33 & 34/Del/2012 6 filed detailed descriptions and specifications of the equipment manufactured by him. He has furnished complete list of the raw materials which are purchased for assembling the equipment. To give an example, a' 4\" dual purpose monitor', supplied to the Hooghly Dock and Port, requires the input of 65 items of raw material comprises of 23 items. The 'part list' of a 'monitor remote control' It is also observed that the equipments manufactured by the appellant are as per detailed specifications provided by the customers, and the constituent parts are approved by the parties concerned. All these facts lead me to believe that an estimation of income on the basis of gross profit ratio requires to be made in this case. {8.2} The appellant has submitted that the gross profit ratio as per its books of accounts should be applied to the undisclosed sales to arrive at the true income. The average gross profit rate for the Assessment Years 2000-01, 2001- 02 & 2002-03 works out to 16.84%. However, the appellant has also attempted to justify the gross profit rate by referring to the gross profit disclosed by companies in the same line of business, as per details extracted from the website of the Ministry of Corporate Affairs, Government of India. In the case of Jwala Safety Engineers Pvt Ltd, engaged in the manufacture of fire fighting equipments and fire extinguishers, the average gross profit for the assessment years 2006-07 & 2007-08 works out to 20.04%. In the case of Standard Castings Pvt Ltd., manufacturer of Aviation Refuellers, Hydrant Dispensers etc. the average gross profit for the Assessment Years 2005-06 & 2006-07 is disclosed at 23.76%. Vijay Industries & Projects Ltd., engaged in manufacturing fire fighting equipment and fire protection systems, has disclosed a gross profit of 27.63% in the Assessment Year 2002-03. It can be seen therefore, that the average gross ITA Nos. 33 & 34/Del/2012 7 profit ratio of these three cases works out to 23.09%. I have examined the profile of these companies, and the Profit & Loss Accounts for the years as mentioned above, and find that the nature of business is roughly comparable with the case of the appellant. I am convinced that the assessment of income of Rs. 2,83,53,085/ on undisclosed sales of Rs. 3,52,00,558/- is unreasonable and high pitched. After careful consideration, the Assessing Officer is directed to compute the income at the average gross profit disclosed in the comparable cases at 23.09%, which works out to Rs. 81,27,809/. The appellant is entitled to set off of the indirect expenses recorded in the seized material. Out of Rs. 63,07,410/- of expenses computed in the assessment order, the figures of labour charges, freight expenses, transportation charges, packing charges, processing charges and consumables are treated as direct expenses. Set off of the balance indirect expenses amounting to Rs. 57,13,748/- is to be allowed as against set off allowed in the assessment order of Rs. 63,07,410/-. The net profit on undisclosed sales thus works out to Rs.24,13,341/-, which comes to 6.85%. It may be added that Vijay Inds. & Projects Ltd. with the highest gross profit ratio of 27.63% for the Assessment Year 2002-03 has disclosed net profit at 6.32%. Accordingly, the appellant partially succeeds at grounds of appeal Nos 3 & 4. {9} At grounds of appeal No 5 & 6, the appellant has disputed the computation of capital gains on sale of property at Rs. 24,71,719/- as against Rs. 11,927/- offered in the return of income. As discussed in the assessment order, an agreement of sale was seized during search, showing sale consideration of Rs. 57,25,000/- as against the registered sale price of Rs. 8,00,000/-. The sale consideration of Rs. 57,25,000/- stands confirmed by the order of the CIT(A) and the ITAT in the case of the co- ITA Nos. 33 & 34/Del/2012 8 owner, Smt Niti Wadhawan. I have perused the order of the Hon'ble ITAT dated 30.01.2009 and the order of the CIT(A) II, Delhi, dated 23.10.2006, wherein the only relief allowed by the CIT(A) and confirmed by the ITAT, is that the capital gains is to be assessed in the hands of Shri Y.C.Wadhawan and Smt Niti Wadhawan, as per their respective ownership shares. The Assessing Officer has computed the capital gains at Rs. 24,71,719/- by following the directions of the CIT(A) in the case of Smt Niti Wadhawan. Hence, the appellant is not entitled to any further relief on this issue. 7. The CIT(A) has taken the average of the gross profit disclosed by the companies in the same line of business. It is true that sale can not take place without purchase. No sale can take place without giving credit for purchases and overheads. The money generated from the undisclosed sales used into such cost. The assessee has already disclosed the sales to the department. Ld. CIT(Appeals) has taken the correct view to take the average of the gross profit. The Ld. CIT(Appeals) has examined the issue in the right perspective and rightly allowed the appeal partly. The reasoning and findings of the Ld. CIT(Appeals), while granting relief is on proper appreciation of ITA Nos. 33 & 34/Del/2012 9 low expounded by the judicial dicta. We do not find any reason to interfere with the findings of the Ld. CIT(Appeals). 8. From the above discussion, the appeal of the assessee and the revenue are liable to be dismissed. 9. In the net result the appeals of the assessee and revenue are dismissed. Order pronounced in the open court on 20/12/2024. Sd/- Sd/- (S RIFAUR RAHMAN) (SUDHIR KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER *Mohan Lal* Dated: 20/12/2024 Copy forwarded to: 1.Appellant 2.Respondent 3.CIT 4.CIT(Appeals) ` 5.DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI ITA Nos. 33 & 34/Del/2012 10 Date of dictation 09.12.2024 Date on which the typed draft is placed before the dictating Member 11.12.2024 Date on which the typed draft is placed before the Other member 11.12.2024 Date on which the approved draft comes to the Sr.PS/PS 16.12.2024 Date on which the fair order is placed before the Dictating Member for Pronouncement 16.12.2024 Date on which the fair order comes back to the Sr. PS/ PS 19.12.2024 Date on which the final order is uploaded on the website of ITAT 20.12.2024 Date on which the file goes to the Bench Clerk 20.12.2024 Date on which file goes to the Head Clerk. The date on which file goes to the Assistant Registrar for signature on the order Date of dispatch of the Order "