Shri Mahendrapal Rajeshkumar Gandhi, Ahmedabad V. The ACIT., Circle-11, Ahmedabad

ITA 1022/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 8619 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-03-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 11-03-2010
• Assessment Year: 1994-1995
• Appeal Filed On: 08-03-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M C
• Keywords: Bogus purchase; Rejection of books of accounts; Unexplained investment; Business income
• Section: 132

Judgement Text

ITA.1022-07. IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE S/SHRI T.K. SHARMA, JM AND D.C.AGRAWAL, AM MAHENDRAPAL RAJESHKUMAR GANDHI 503 NEW CLOTH MARKET, AHMEDABAD-380 002. V/S . ASSISTANT COMMISSIONER OF INCOME TAX,CIRCLE-11, NARAYAN CHAMBERS, ASHRAM ROAD, AHMEDABAD. PAN NO.AAOFM 0901 G (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI GAURAV NAHTA. RESPONDENT BY:- SHRI M.C. PANDIT,SR.D.R. O R D E R PER SHRI D.C. AGRAWAL, J.M . THIS IS AN APPEAL BY THE ASSESSEE RAISING FOLLOWIN G GROUNDS :- 1. THE LD. CIT (A) XVII HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ADDITION ON ACCOUNT OF UNEXPLAINED I NVESTMENT IN PURCHASES TO THE EXTENT OF RS.1,96,061/- OUT OF THE DISALLOWANCES MADE BY THE A.O. OF RS.2,12,606/-. 2. THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS IN EN HANCING THE ADDITION ON ACCOUNT OF SALE OUT OF BOOKS FROM RS.4, 93,501/- TO RS.5,30,150/-. ITA NO.1022/AHD/2007. ASST. YEAR :1994-95 2 2. THE FACTS OF THE CASE ARE THAT SEARCH U/S. 132 O F THE ACT WAS CARRIED OUT AT THE PREMISES OF THE ASSESSEE AND ITS GROUP O N 20.12.1993. AFTER SCRUTINIZING THE SEIZED MATERIAL THE A.O. PROPOSED THE FOLLOWING ADDITIONS: (I) UNEXPLAINED INVESTMENT IN PURCHASES .. RS. 2,12,606/- (II) BOGUS PURCHASE. .. RS. 64,127/- (III) SALES OUT OF BOOKS. .. RS. 4,93,501/- 3. THE LEARNED C.I.T.(A) DELETED THESE ADDITIONS. T HE MATTER HAD BEEN RESTORED BY THE TRIBUNAL TO HIS FILE FOR PASSING S PEAKING ORDER. CONSEQUENT TO THAT THE LD. CIT (A) PASSED THE IMPUG NED ORDER ON 1-11- 2006. OUT OF THE 3 ADDITIONS THE LD. CIT (A) IN THE IMPUGNED ORDER DELETED RS. 64,127/-. IT SEEMS THAT DEPARTMENT IS N OT IN APPEAL AND HENCE THIS ISSUE IS SETTLED IN FAVOUR OF THE ASSESSEE. 4. IN RESPECT OF UNEXPLAINED INVESTMENT IN PURCHASE S THE LD. CIT(A) NOTED THAT THE TOTAL PURCHASES RECORDED IN THE SEIZ ED MATERIAL ARE 889 BALES OF COTTON WHEREAS THE ASSESSEE HAD RECORDED O NLY 870 BALES IN THE REGULAR BOOKS OF ACCOUNTS. THUS ASSESSEE WAS REQUIR ED TO RECONCILE THE DIFFERENCE OF 19 BALES. THE EXPLANATION FURNISHED B Y THE ASSESSEE WAS NOT FOUND SATISFACTORY AND ACCORDINGLY, THE LD. CIT(A) WORKED OUT THE COST OF 19 BALES AT RS.1,96,061/- AT THE RATE OF RS.10,3 19/- PER BALE. HE ACCORDINGLY CONFIRMED THE ADDITION OF RS.1,96,061/- AS AGAINST RS.2,12,606/- MADE BY THE A.O. THE ASSESSEE IS IN A PPEAL AGAINST THE RETENTION OF THIS ADDITION. 5. REGARDING SECOND ISSUE BASED ON SEIZED MATERIAL OUTSIDE THE BOOKS, THE A.O. HAD MADE ADDITION OF RS.4,93,501/-. THE L D. A.O. MENTIONED 3 THAT AS PER SEIZED MATERIAL SALES OF 835 BALES IS S HOWN AT RS.95,87,107/- WHEREAS IN THE REGULAR BOOKS OF ACCOUNTS THE ASSESS EE HAS CREDITED SALES OF 789 BALES AT RS.90,93,606/-. ON THIS BASIS A.O. WORKED OUT THE DIFFERENCE OF RS.4,93,501/- BEING THE SUPPRESSED SA LES AND MADE THE ADDITION ACCORDINGLY. THE LD. CIT(A) EXAMINED THE A CCOUNTS AGAIN AND NOTICED THAT TOTAL SALES OF BALES RECORDED IN THE S EIZED MATERIAL IS 835 WHEREAS IN THE REGULAR BOOKS OF ACCOUNTS THE SALES OF 789 BALES ALONE HAS BEEN RECORDED. THUS, THERE IS A DIFFERENCE OF 46 BA LES BEING SALES OUT-SIDE THE BOOKS. NOT FINDING THE EXPLANATION SATISFACTORY , THE LD. CIT(A) WORKED OUT THE SALES VALUE OF THESE 46 BALES AT RS. 5,30,150/- AT THE RATE OF RS.11,525/- PER BALE BEING THE SALE PRICE RECORDED IN THE REGULAR BOOKS. THUS, IN PLACE OF ADDITION OF RS.4,93,501/- THE LD. CIT(A) PROPOSED AN ADDITION OF RS.5,30,150/-. 6. AGAINST THESE ADDITIONS, THE LD. A.R. FOR THE AS SESSEE SUBMITTED THAT ONCE SALES AND PURCHASES OUTSIDE THE BOOKS ARE FOUND THE A.O. SHOULD HAVE REJECTED THE BOOKS OF ACCOUNTS AND ESTIMATED T HE PROFITS. IN ANY CASE, ONLY GROSS PROFIT ADDITION SHOULD HAVE BEEN MADE ON THE AMOUNT OF SUPPRESSED SALES FOUND. IF SUPPRESSED SALES TO THE EXTENT OF RS.5,30,150/- ARE FOUND THEN ONLY G.P. ADDITION SHOULD HAVE BEEN MADE. FURTHER, WHATEVER SURPLUS PROFIT IS ASSESSED ON ACCOUNT OF S ALES OUTSIDE THE BOOKS THEN IT SHOULD BE TREATED AS AVAILABLE FOR MAKING I NVESTMENT IN PURCHASES. THEREFORE, NO SEPARATE ADDITION SHOULD HAVE BEEN DO NE ON ACCOUNT OF INVESTMENT IN PURCHASES IN ADDITION TO PROFIT ON SA LES. ALTERNATIVELY THE ENTIRE INVESTMENT IN PURCHASES SHOULD BE TREATED AS COMING OUT OF SALES PROCEEDS RECEIVED ON SALES OUTSIDE THE BOOKS. 7. THE LD. D.R. ON THE OTHER HAND SUPPORTED THE ORD ER OF AUTHORITIES BELOW. 4 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL AVAILABLE ON RECORD. IN OUR CONSIDERED VIEW THE WOR KING DONE BY THE LD. CIT(A) IS SLIGHTLY INCORRECT. THE INVESTMENT IN P URCHASES MADE DURING APRIL TO NOVEMBER WAS NOT MADE AT ONE TIME. ALL THE SE PURCHASES WERE SPREAD OVER 8 MONTHS. DURING THIS PERIOD ASSESSEE A LSO SOLD THE GOODS OUTSIDE THE BOOKS, THEREFORE, THERE WAS CLEAR TURNO VER OF GOODS OUTSIDE THE BOOKS AS WELL. THE PURCHASES WERE MADE OUTSIDE BOO KS AND SALES WERE ALSO MADE OUTSIDE THE BOOKS. THEREFORE, SALE PROCEE DS RECEIVED OUTSIDE THE BOOKS WERE AVAILABLE FOR INVESTMENT IN PURCHASE S. THEREFORE, ADDITION FOR PURCHASES OUTSIDE THE BOOKS CANNOT BE TREATED A S DONE AT ONE TIME AND THEREFORE, THE ENTIRE DIFFERENCE WORKED OUT BY THE LD. CIT(A) AT RS.1,96,061/- COULD NOT BE SAID TO BE MADE AT A POI NT OF TIME. IF TOTAL INVESTMENT OF RS.1,96,061/- IS TREATED AS SPREAD OV ER FOR 8 MONTHS THEN INVESTMENT PER MONTH WOULD COME TO RS.24,508/- ONLY . 9. WHEN WE LOOK AT THE SALES WE FIND THAT THERE IS A DIFFERENCE OF 46 BALES SOLD OUTSIDE THE BOOKS. OUT OF THEM FIRST DIF FERENCE COMES IN THE MONTH OF AUGUST WHERE SALES AS PER SEIZED MATERIAL IS 157 BALES WHEREAS IN THE BOOKS 146 BALES HAVE BEEN RECORDED RESULTING IN 11 BALES SOLD MORE OUTSIDE THE BOOKS AS COMPARED TO REGULAR BOOKS. THE REAFTER, IN THE MONTH OF NOVEMBER ASSESSEE HAS SHOWN SALES OF 191 BALES A S PER SEIZED MATERIAL WHEREAS IN THE BOOKS IT HAS TAKEN 157 BALES. 10. FOR THE SAKE OF CONVENIENCE WE REPRODUCE THE C HART OF PURCHASE AND SALES AS NOTED BY THE A.O. IN HIS ASSESSMENT OR DER AS UNDER:- 5 PURCHASES SEIZED MATERIAL . REGULAR BOOKS . MONTH. AMOUNT. BALES. AMOUNT. BALE S DIFFERENCE. APRIL 12,38,448 90 12,38,448 90 0 MAY 23,28,659 240 23,28,659 240 0 JUNE 8,65,283 112 8,65,283 112 0 JULY 89,414 10 89,414 10 0 AUGUST 11,14,184 150 11,11,822 152 (-) 2,362 SEPTEMBER 2,72,422 26 3,36,560 31 (+) 64,127 OCTOBER 4,28,301 49 4,28,301 49 0 NOVEMBER 27,88,864 212 25,78,620 188 (-) 2,10 ,244 ------------- ----- ------------- ----- ------------ 91,25,575 889 89,77,107 870 (-) 1,48,468 SALES . APRIL. 16,36,551 109 16,06,969 109 (-) 29,382 MAY 18,58,276 143 18,06,002 142 (-) 52,274 JUNE 11,95,295 130 11,66,994 130 (-) 28,301 JULY 1,57,679 24 1,49,458 24 (-) 8 ,221 AUGUST 12,61,480 157 11,91,561 146 (-) 69,919 SEPTEMBER 4,27,953 38 4,18,623 38 (-) 9 ,330 OCTOBER 3,40,133 43 3,28,022 43 (-) 12,111 NOVEMBER 27,09,740 191 24,25,977 157 (-) 2 ,83,763 ------------ -- -- ------------ ----- ----------- 95,87,107 835 90,93,606 78 9 (-) 4,93,301 11. THUS, ONLY IN THE MONTH OF NOVEMBER ASSESSEE HA D ADDITIONAL 34 BALES WHICH WERE SOLD OUTSIDE THE BOOKS. THUS, THE ASSESSEE HAD IN ITS POSSESSION COST VALUE PLUS PROFIT OF 34 BALES AS PE AK. THE SALE VALUE OF 34 BALES WOULD COME TO RS. 3,91,850/-. WITH THIS AMOUN T THE UNDISCLOSED INVESTMENT IN PURCHASES PRIOR TO NOVEMBER AND UNDIS CLOSED SALES PROCEED IN THE MONTH OF AUGUST ARE COVERED. THEREFORE, PEAK UNDISCLOSED AMOUNT AVAILABLE WITH THE ASSESSEE AT ONE TIME WOULD BE RS .3,91,850/-. THIS IS THE ONLY SUSTAINABLE ADDITION ON THE BASIS OF SEIZED MA TERIAL. THIS WILL COVER ALL OTHER ADDITIONS MENTIONED BY THE ASSESSEE IN IT S GROUNDS. AS A RESULT WE SUSTAIN AN ADDITION OF RS.3,91,850/- IN ALL THE ASSESSEE GETS THE RESULTANT RELIEF. 6 12. THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. SD/- SD/- (T. K. SHARMA ) (D.C.AG RAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD, DATED : 12-03-2010 PATKI. COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD. ADDITIONAL ORDER PRONOUNCED IN OPEN COURT ON 12-03-2010 7