M/s D.P. Woodtech Pvt. Ltd., New Delhi V. DCIT, Faridabad

CO 416/DEL/2012

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 1206 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 9 month(s) 23 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 14-08-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 10-08-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 22-10-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Rejection of books of accounts; Unexplained investment; Document seized; Documents seized

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `B NEW DELHI BEFORE SHRI J.S. REDDY, ACCOUNTANT MEMBER AND SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER I.T.A.NO.5080/DEL/2012 ASSESSMENT YEAR : 2007-08 DCIT, VS M/S D.P. WOODTECH PVT. LTD., CENTRAL CIRCLE-1, 14/7, MATHURA ROAD, FARIDABAD. MEWLA CHOWK, FARIDABAD. (AAACD2776M) C.O. NO. 416/DEL/2012 (IN I.T.A.NO.5080/DEL/2012) ASSESSMENT YEAR : 2007-08 M/S D.P. WOODTECH PVT. LTD., VS DCIT, CC-1 , C/O RRA TAXINDIA, FARIDABAD. D-28, SOUTH EXTENSION PART-I, NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT B Y: MD.MOHSIN ALAM CIT DR RESPONDENT BY : DR. RAKESH GUPTA, ADV., SH. TARUN KUMAR, ADV. O R D E R PER CHANDRAMOHAN GARG, J.M. THIS APPEAL OF THE REVENUE AS WELL AS C.O. OF THE A SSESSEE HAVE BEEN PREFERRED AGAINST THE ORDER OF CIT(A)(CENTRAL), GU RGAON DATED 25.07.2012 IN APPEAL NO. 68F/121(LDH)/CIT(A)(C)/GGN/2008-09 FOR A Y 2007-08. THE GROUNDS RAISED BY THE REVENUE READ AS UNDER:- (I) LD. CIT (A) HAS ERRED IN TAKING ONLY GROSS PR OFIT ON UNACCOUNTED TURNOVER OF RS. 25, 08,740/- WITHOUT C ONSIDERING ITA NO. 5680/D/12 CO NO.416/D/2012 AY: 2007-08 2 THE FACT THAT THE ASSESSEE IN ORDER TO MAKE SUCH TU RNOVER WOULD REQUIRE INVESTMENT IN STOCKS. LD. CIT(A) SHOULD HAV E MADE AN ADDITION OF FIXED % AGE OF TURNOVER AS UNACCOUNTED INVESTMENT IN STOCK. (II) LD. CIT (A) ERRED IN PERMITTING TELESCOPIC VI EW TO THE EXTENT OF RS. 4,86,007/- INVESTED IN PURCHASE OF FIXED ASS ET OUT OF THE UNACCOUNTED PROFITS WITHOUT CONSIDERING THAT THE AS SESSEE NEED TO DEMONSTRATE THAT ON DATE OF PURCHASE OF FIXED ASSET (02-08-2006) SUFFICIENT AMOUNT OF PROFIT WAS EARNED FROM UNACCOU NTED TURNOVER TO MAKE INVESTMENT IN THE AFORESAID FIXED ASSET. 2. APROPOS THESE GROUNDS, WE HAVE HEARD ARGUMENTS O F BOTH THE SIDES AND CAREFULLY PERUSED THE RELEVANT MATERIAL PLACED ON R ECORD. SUPPORTING THE ACTION OF THE AO, LD. DR POINTED OUT THAT THE AO WAS CORRE CT IN MAKING THE ADDITION OF RS.29,94,740 ON THE GROUND THAT ENTRIES IN SEIZED D OCUMENTS WERE UNACCOUNTED. LD. DR VEHEMENTLY CONTENDED THAT THE CIT(A) HAS GRO SSLY ERRED IN ALLOWING RELIEF TO THE ASSESSEE WITHOUT CONSIDERING THE FACT THAT THE ASSESSEE IN ORDER TO MAKE SUCH TURNOVER WOULD REQUIRE INVESTMENT IN STOC KS. LD. DR FURTHER SUBMITTED THAT THE CIT(A) SHOULD HAVE MADE ADDITION OF FIXED PERCENTAAGE OF TURNOVER AS UNACCOUNTED INVESTMENT IN STOCK. LD. D R STRENUOUSLY CONTENDED THAT THE CIT(A) WAS NOT JUSTIFIED IN PERMITTING TEL ESCOPIC VIEW TO THE EXTENT OF RS. 4,86,007/- INVESTED IN PURCHASE OF FIXED ASSET OUT OF THE UNACCOUNTED PROFITS WITHOUT CONSIDERING THAT THE ASSESSEE NEEDS TO DEMO NSTRATE THAT ON THE DATE OF PURCHASE OF FIXED ASSETS (02-08-2006) SUFFICIENT AM OUNT OF PROFIT WAS EARNED FROM UNACCOUNTED TURNOVER TO MAKE INVESTMENT IN THE AFORESAID FIXED ASSET. LD. DR SUBMITTED THAT THE ASSESSEE COULD NOT ESTABLISH REQUIRED FACTS TO SUBSTANTIATE ITA NO. 5680/D/12 CO NO.416/D/2012 AY: 2007-08 3 AND ESTABLISH THAT ON THE DATE OF PURCHASE OF FIXED ASSETS I.E. MACHINERY, SUFFICIENT AMOUNT OF PROFIT WAS EARNED FROM UNACCOU NTED TURNOVER TO MAKE INVESTMENT IN THE SAID FIXED ASSET. LD. DR LASTLY SUBMITTED THAT THE IMPUGNED ORDER MAY BE SET ASIDE BY RESTORING THAT OF THE AO. 3. LD. COUNSEL OF THE ASSESSEE STRONGLY SUPPORTING THE APPELLATE ORDER OF THE CIT(A) SUBMITTED THAT THE AO MADE ADDITION WITHOUT CONSIDERING THE FACT THAT THE ASSESSEE WOULD REQUIRE SUBSTANTIAL INVESTMENT I N STOCK FOR MAKING SUCH ALLEGED TURNOVER AND THE CIT(A) WAS RIGHT IN RESTRI CTING THE ADDITION TO THE FIXED PERCENTAGE OF TURNOVER AS UNACCOUNTED INVESTMENT IN STOCK. LD. COUNSEL ALSO POINTED OUT THAT ON THE DATE OF PURCHASE OF FIXED A SSETS I.E. 2.8.2006, THE ASSESSEE HAD EARNED SUFFICIENT AMOUNT OF INCOME/PROFIT FROM UNACCOUNTED TURNOVER TO MAKE FURTHER INVESTMENT IN PROVISION OF MACHINE/FIX ED ASSET, THEREFORE, THE CIT(A) WAS QUITE REASONABLE AND JUSTIFIED IN PERMIT TING TELESCOPIC VIEW TO THE EXTENT OF RS.4,86,000 IN THIS REGARD. LD. COUNSEL STRENUOUSLY POINTED OUT THAT ON TAKING A TELESCOPIC VIEW, NO FURTHER AND SEPARATE A DDITION WAS REQUIRED TO BE MADE ON ACCOUNT OF ALLEGED PURCHASE OF MACHINE BY T HE ASSESSEE DURING THE RELEVANT FINANCIAL PERIOD, THEREFORE, THE VIEW TAKE N BY THE FIRST APPELLATE AUTHORITY DESERVES TO BE UPHELD. 4. ON CAREFUL CONSIDERATION OF ABOVE SUBMISSIONS AN D VIGILANT PERUSAL OF THE RELEVANT MATERIAL, INTER ALIA, ASSESSMENT ORDER AND IMPUGNED ORDER OF THE ITA NO. 5680/D/12 CO NO.416/D/2012 AY: 2007-08 4 CIT(A), WE NOTE THAT THE CIT(A) GRANTED RELIEF TO T HE ASSESSEE WITH FOLLOWING OBSERVATIONS AND CONCLUSION:- 4. THE ASSESSEE HAS TAKEN 4 GROUNDS OF APPEAL. GR OUND NO. 1 AND 4 ARE GENERAL IN NATURE WHILE GROUND NO. 3 PERTAINS TO CHARGING OF INTEREST U/S 2348 THOUGH MANDATORY IS CONSEQUENTIAL IN NATURE. IN GROUND OF APPEAL NO. 2 THE ASSESSEE HAS AGITATED AGAINST THE ADDITION OF RS. 29,94,740/ - ON THE GROUND THAT THE ENTRIES IN SEIZED DOCUMENTS WERE UN ACCOUNTED, IT WAS FURTHER SUBMITTED THAT THE ADDITION INCLUDED A SUM OF RS. 4,86,000/- SPENT TOWARDS PURCHASE OF PLANT AND MACH INERY AND RS. 21,958/- AS DIFFERENCE IN RECONCILIATION OF STO CK. A CHART WAS ALSO FURNISHED TO SHOW WHICH OF THE ALLEGED UNACCOU NTED TRANSACTIONS WERE CLEARLY RECORDED IN THE BOOKS OF ACCOUNTS. IT WAS ALSO PUT FORTH THAT THE AMOUNT IN ANY CASE COUL D NOT BE TREATED AS INCOME AND THAT AT THE MOST IT COULD BE CONSIDERED AS SALES ON WHICH GP RATE COULD BE APPLIED ON THE TRAN SACTIONS NOT REFLECTED IN THE BOOKS VIZ. RS.5,85,585/-. RELIANCE WAS PLACED IN THE CASE OF DCIT VS PANNA CORPORATION, TAX APPEAL 3 23/2000 GUJARAT HIGH COURT DECISION DATED 16.6.2012. AS REG ARDS THE ALLEGED UNACCOUNTED INVESTMENT IN PLANT AND MACHINE RY, IT WAS SUBMITTED THAT THE SAME COULD ONLY HAVE BEEN EXPEND ED OUT OF THE UNDISCLOSED INCOME DETERMINED BY THE LD AO. 5. IT IS SEEN FROM PARA 5 OF THE IMPUGNED ASSESSME NT ORDER THAT SEVERAL DOCUMENTS WERE FOUND AND SEIZED WHICH WERE HELD TO BE CONTAINING DETAILS OF SALE TRANSACTION OUTSID E THE BOOKS OF ACCOUNTS. THESE UNACCOUNTED ENTRIES HAVE BEEN DISCU SSED AT LENGTH BY THE LD. AO BEFORE ADDING BACK THE SAID AM OUNTS AND AFTER HAVING DECODED THE ENTRIES. 6. I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF TH E ASSESSEE AND THE IMPUGNED ASSESSMENT ORDER. SEVERAL DOCUMENTS WERE FOUND IN THE COURSE OF SEARCH, AND A S STATED BY THE LD. AO THE ENTRIES WERE DECODED TO ARRIVE AT TH E CORRECT FIGURE OF UNDISCLOSED SALES. THESE NOTINGS WERE IN THE SHAPE OF ROUGH PADS. IT IS ALSO UNDISPUTED THAT THE LD. AO H AD REJECTED THE BOOKS OF ACCOUNTS. IN APPEAL IT WAS PUT FORTH T HAT THESE ALLEGED UNACCOUNTED ENTRIES REFLECTED IN THE ROUGH PADS, OTHER THAN THE INVESTMENT IN PLANT AND MACHINERY, COULD B E AT THE MOST CONSIDERED AS SALE RECEIPTS, AND THE BENEFIT O F TELESCOPING ITA NO. 5680/D/12 CO NO.416/D/2012 AY: 2007-08 5 BE GIVEN. THE LD. AO IN THE ASSESSMENT ORDER HAS AC COUNTED FOR THESE ENTRIES AS CASH RECEIPTS. HENCE AFTER CAREFUL LY CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, THE AMOUNT OF RS. 25,08,740/- (I.E. RS. 29,94,740/-LESS RS. 4,86,000/ -) IS TREATED AS UNACCOUNTED RECEIPTS ON ACCOUNT OF SALE ON WHICH TH E GP RATE OF 29.01 % IS APPLIED TO WORK OUT THE UNDISCLOSED I NCOME. THE SAME WORKS OUT TO RS. 7,27,534/-. THIS AMOUNT ALSO INCLUDES RS. 21,958/- WHICH IS THE SHORTAGE IN STOCK ON PHYSICAL VERIFICATION WHICH HAS BEEN TREATED BY THE AO AS UNACCOUNTED SAL E OF THE ASSESSEE DURING THE YEAR. 6.1 AS REGARDS RS. 4,86,000/- IT IS SEEN THAT THE SAME IS ON ACCOUNT OF INVESTMENT IN FIXED ASSETS. IT IS THE CASE OF THE ASSESSEE THAT THE MACHINERY WAS PURCHASED FROM M/S DELLANTECHICA LTD. AND THAT THE PAYMENTS WERE MADE THROUGH BANKING CHANNEL, BESIDES BEING PARTLY FINANCED BY S TATE BANK OF INDIA. HOWEVER NO SUPPORTING DOCUMENTS AS REGARDS T HE BANK LOAN, HYPOTHECATION ETC. HAVE NOT BEEN PRODUCED NOR THE EXACT TYPE OF MACHINE ALLEGEDLY PURCHASED BY THE ASSESSEE . HENCE, THE ADDITION OF RS. 4,86,000/- BY THE LD. AO IS CONFIRM ED. HOWEVER, ON TAKING A TELESCOPIC VIEW, NO FURTHER AND SEPARAT E ADDITION IS MADE ON THIS ACCOUNT. IN THE RESULT, THE ADDITION M ADE BY THE LD. AO OF RS. 29,94,740/- IS RESTRICTED TO RS.727,534. 5. IN VIEW OF ABOVE, WE OBSERVE THAT THE ASSESSEE E XPLAINED THAT THE IMPUGNED ADDITION OF RS. 29,94,740 INCLUDED A SUM O F RS.4,86,000 SPENT TOWARDS PLANT AND MACHINERY/FIXED ASSET AND RS. 21, 958 AS DIFFERENCE IN RECONCILIATION OF STOCK AND TRADE. THE ASSESSEE CL ARIFIED THESE FACTS BY WAY OF FURNISHING A CHART BEFORE THE AUTHORITIES BELOW AND IT WAS ALSO SUBMITTED THAT AT THE MOST, THE IMPUGNED AMOUNT OF ALLEGED UNACCOUNTE D SALE MAY BE CONSIDERED AS SALES ON WHICH GP RATE COULD BE APPLIED ON THE T RANSACTIONS NOT REFLECTED IN THE BOOKS. LD. COUNSEL HAS ALSO PLACED RELIANCE ON THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF DCIT VS PANNA COR PORATION DATED 16.6.2012 AND TAX APPEAL NO. 323/2000 AND SUBMITTED THAT ENTI RE AMOUNT OF UNACCOUNTED ITA NO. 5680/D/12 CO NO.416/D/2012 AY: 2007-08 6 TURNOVER CANNOT BE ADDED TO THE RETURNED INCOME OF THE ASSESSEE ONLY AND ADDITION IN ACCORDANCE WITH GP RATE COULD BE MADE. 6. THE MAIN CONTENTION OF THE ASSESSEE WITH REGARD TO ALLEGED UNACCOUNTED INVESTMENT IN PLANT AND MACHINERY IS THAT THE SAME COULD ONLY HAVE BEEN EXPENDED OUT OF UNDISCLOSED INCOME AS DETERMINED BY THE AO, THEREFORE NO SEPARATE ADDITION CAN BE MADE ON THIS COUNT. 7. ON CAREFUL CONSIDERATION OF ABOVE NOTED FACTS AN D CIRCUMSTANCES IN THE LIGHT OF OBSERVATIONS AND CONCLUSION OF THE CIT(A), WE ARE OF THE CONSIDERED OPINION THAT THE FIRST APPELLATE AUTHORITY WAS RIGH T IN HOLDING THAT THE AMOUNT OF RS.25,08,740 DESERVES TO BE TREATED AS UNACCOUNTED RECEIPT ON ACCOUNT OF SALE ON WHICH GP RATE OF 29.01% WAS APPLIED TO WORK OUT UND ISCLOSED INCOME OF RS.7,27,534. LD. CIT(A) ALSO NOTED THAT THE AMOUNT OF SHORTAGE IN STOCK OF PHYSICAL VERIFICATION OF RS.21,958 WAS ALSO INCLUDE D IN THE SAID AMOUNT OF UNDISCLOSED INCOME AS CALCULATED BY APPLYING GP RAT E. 8. IN THE OPERATIVE PARA 6.1, LD. CIT(A) RIGHTLY CO NCLUDED THAT THE ASSESSEE PURCHASED MACHINERY FROM M/S DELLANTECHICA LTD. AND THE PAYMENTS WERE MADE THROUGH BANKING CHANNEL BESIDES BEING PARTLY FINANC ED BY SBI. IN ABSENCE OF SUPPORTING DOCUMENTS AS REGARDS BANK LOAN, HYPOTHEC ATION ETC., THE CIT(A) CONFIRMED ADDITION OF RS.4,86,000 MADE BY THE AO IN THIS REGARD. WE FURTHER NOTE THAT THE CIT(A) ALLOWED TELESCOPING OF THE OTH ER INVESTMENT IN THE FIXED ITA NO. 5680/D/12 CO NO.416/D/2012 AY: 2007-08 7 ASSETS/CAPITAL AND CONCLUDED THAT NO FURTHER AND SE PARATE ADDITION IS REQUIRED TO BE MADE ON THIS COUNT SINCE THE ASSESSEE PURCHASED THIS MACHINE ON 2.8.2006 IN THE FIFTH MONTH OF FINANCIAL PERIOD, THEREFORE, IT CAN EASILY BE INFERRED THAT SUFFICIENT AMOUNT OF PROFIT WAS EARNED BY THE ASSES SEE FROM UNACCOUNTED TURNOVER TO MAKE INVESTMENT IN THE AFORESAID FIXED ASSET VIZ. PLANT AND MACHINERY, THEREFORE, THE CIT(A) WAS RIGHT IN GRANT ING TELESCOPING OF THIS UNACCOUNTED INVESTMENT. WE ARE UNABLE TO SEE ANY P ERVERSITY, AMBIGUITY OR ANY OTHER VALID REASON TO INTERFERE WITH THE OBSERVATIO NS AND FINDINGS OF THE FIRST APPELLATE AUTHORITY AND WE UPHOLD THE SAME. ACCORD INGLY, GROUND NO. 1 AND 2 OF THE REVENUE ARE DISMISSED. C.O. NO. 416/DEL/2012 OF THE ASSESSEE 9. LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE A SSESSEE DOES NOT WANT TO PRESS ITS CROSS OBJECTION, THEREFORE, WE DISMISS TH E SAME AS NOT PRESSED. 10. IN THE RESULT, THE APPEAL OF THE REVENUE AS WEL L AS C.O. OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14/08/2015. SD/- SD/- (J.S.REDDY) (CHANDRAMOHAN GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DT. 14 TH AUGUST 2015 GS ITA NO. 5680/D/12 CO NO.416/D/2012 AY: 2007-08 8 COPY FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. C.I.T.(A) 4. C.I.T. 5. DR BY ORDER ASSTT.REGISTRAR