Shri Ramesh Parimal Valrani, Bhavnagar V. The Dy.CIT.,Cent.Circle-1(1), Bhavnagar

ITA 1111/AHD/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 76878 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-07-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 12-08-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 15-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B L YADAV
• Assessee Lawyers: B R POPAT
• Keywords: Gross profit estimation; Unexplained investment; Unexplained expenditure; Tangible material; Bogus loan
• Section: 143(3); 69

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL C HATURVEDI, A.M.) I.T. A. NO.1111/AHD/2011 (ASSESSMENT YEAR: RAMESH PARIAMAL VALRANI PROP. OF M/S. RAMESH DRESSES, KHIJADIWALA SHERI, GOL BAZAR, BHAVNAGAR V/S THE D.C.I.T., CENTRAL CIRLCE- 1(1), AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AAHPV 5302P APPELLANT BY : SHRI B.R. POPAT RESPONDENT BY : SHRI B.L. YADAV, SR. D.R. ( )/ ORDER DATE OF HEARING : 07-07-2014 DATE OF PRONOUNCEMENT : 11-07-2014 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A)-I, AHMEDABAD DATED 01.03.2011 FOR A.Y. 2005-06. 2. THE FACTS AS CULLED OUT FROM THE MATERIAL ON REC ORD ARE AS UNDER. 3. ASSESSEE IS A WHOLESALE DEALER OF READYMADE GARM ENTS. A SURVEY ACTION U/S. 133 OF THE ACT WAS CONDUCTED ON 30.11.2004 WHI CH WAS SUBSEQUENTLY CONVERTED INTO SEARCH ACTION. DURING THE COURSE OF SEARCH, TOTAL CASH BALANCE OF RS. 5,67,700/- WAS FOUND OUT OF WHICH A SUM OF R S. 5,00,000/- WAS SEIZED, PHYSICAL STOCK WAS FOUND SHORT AS COMPARED TO THE B OOK VALUE. THEREAFTER ASSESSEE PREPARED SUPPLEMENTARY BOOKS OF ACCOUNTS W HEREIN UNACCOUNTED ITA NO 1111 /AHD/2011 . A.Y. 2005- 06 2 TRANSACTION WERE INCORPORATED. ASSESSEE FILED HIS R ETURN OF INCOME FOR A.Y. 05-06 ON 11.08.2005 DISCLOSING TOTAL INCOME OF RS. 2,60,030/-. ASSESSMENT WAS FRAMED UNDER SECTION 143(3) VIDE ORDER DATED 29 .11.2006 AND THE TOTAL INCOME WAS DETERMINED AT RS. 16,22,110/-. AGGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) V IDE ORDER DATED 01.03.2011 GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS:- 1. CONFIRMING THE ACTION OF THE AO IN MAKING ADDITION OF RS.38,742/-ON ACCOUNT OF ADDITIONAL SALES; 2. CONFIRMING THE ACTION OF THE AO IN DISALLOWING THE DEDUCTION OF RS.1,72,957/-LEGITIMATELY CLAIMED; 3. CONFIRMING THE ACTION OF THE AO IN MAKING ADDITION OF RS. 13,234/-ON ACCOUNT OF LOW GP; 4. CONFIRMING THE ACTION OF THE AO IN MAKING ADDITION OF RS.5,03,597/-ON ACCOUNT OF CASH PHYSICALLY EXCESS FOUND; 5. PARTLY CONFIRMING THE ADDITION OF RS.5,000/- BY MAK ING ADHOC DISALLOWANCE OUT OF TELEPHONE EXPENSES; GROUND NO. 1 WAS NOT PRESSED AND THEREFORE DISMI SSED AS NOT PRESSED. GROUND NO. 2 IS WITH RESPECT TO DISALLOWING THE DED UCTION OF RS. 1,72,957/-. 4. A.O NOTICED ON THE BASIS OF PAPER BOOK SUBMITTED THAT FROM 01.04.2004 TO 22.11.2004, ASSESSEE HAD MADE PAYMENTS ON VARIOUS A CCOUNT, THE DETAILS OF WHICH ARE LISTED AT PAGE 11 OF HIS ORDER AGGREGATIN G TO RS. 6,26,304/-. A.O NOTICED THAT ASSESSEE HAD CLAIMED PAYMENT TO SUPPLI ERS FROM 01.04.2004 TO 22.11.2004 TO THE EXTENT OF RS. 75,431/- TOWARDS CU RRENT YEAR PURCHASES. A.O WAS OF THE VIEW THAT THE AFORESAID AMOUNT WAS PART OF THE TOTAL AMOUNT OF RS. 1,15,567/- CLAIMED AS PURCHASES IN THE SUPPLEMENTAR Y BOOKS OF ACCOUNTS. HE ALSO NOTICED THAT ASSESSEE HAD ALSO MADE PAYMENTS A GGREGATING TO RS. 1,72,957/- ON ACCOUNT OF SALARY EXPENSES AND JOB WO RK EXPENSES. HE WAS OF THE VIEW THAT THIS EXPENDITURE WAS ALREADY INCLUDED IN THE AMOUNT OF UNEXPLAINED EXPENDITURE OF RS. 6,26,304/-. HE ALSO NOTICED THAT ASSESSEE HAS CLAIMED DEDUCTION OF RS. 1,72,957/- UNDER THE H EAD PURCHASES, SALARY AND JOB WORK CHARGES IN THE PROFIT AND LOSS ACCOUNT . A.O NOTED THAT SINCE THE ITA NO 1111 /AHD/2011 . A.Y. 2005- 06 3 EXPENDITURE HAS BEEN TREATED AS UNEXPLAINED EXPENDI TURE AS PER PROVISIONS OF SECTION 69C, THEREFORE AS PER PROVISO TO SECTION 69 C, THE ASSESSEE IS NOT ALLOWED TO CLAIM DEDUCTION IN RESPECT OF EXPENDITUR E OF RS. 1,72,957/- UNDER ANY HEAD OF INCOME. HE ACCORDINGLY DISALLOWED THE S AME. AGGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CI T(A). CIT(A) UPHELD THE ACTION OF A.O BY HOLDING AS UNDER:- 12. I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELL ANT. WHILE ADJUDICATING GROUND NO.2, THE ADDITION OF RS. 6,26,304/- HAS BEEN DIRECTED TO BE DELETED. IN THE PRESENT CAS E, THE APPELLANT HAS CLAIMED THE DEDUCTION OF EXPENSES OF RS.1,72,957/- TWICE BY DEBITING THESE EXPENSES IN THE PROFIT AND LOSS ACCOUNT. AS THE EXPENSES OF RS.1,72,957/- COULD NOT BE ALLOWED TO BE DEDUCTED TWICE, THEREFORE, THE ADDITION OF RS.1,72,957/- IS CONFIRMED. 5. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE IS NO W IN APPEAL BEFORE US. BEFORE US, LD. A.R. REITERATED THE SUBMISSIONS MADE BEFORE A.O. HE FURTHER SUBMITTED THAT THE AMOUNT WAS ALREADY INCLUDED IN T HE UNEXPLAINED EXPENSES AND THE CLAIM OF THE ASSESSEE WAS NOT A DOUBLE CLAI M OF EXPENSES. HE THEREFORE SUBMITTED THAT THE ASSESSEE BE ALLOWED FO R DEDUCTION OF RS. 1,72,957/-. THE LD. D.R. ON THE OTHER HAND RELIED O N THE ORDER OF A.O. IN THE ALTERNATE HE SUBMITTED THAT THE MATTER MAY BE REMIT TED TO A.O TO VERIFY THE SUBMISSION OF ASSESSEE THAT THE CLAIM OF ASSESSEE I S NOT A DOUBLE CLAIM OF EXPENSES. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT IT IS ASSESSEES CONTENTION THAT THE CLAI M OF EXPENSES IS NOT A DOUBLE CLAIM BUT ON THE OTHER HAND, A.O HAS HELD THE CLAIM OF EXPENSES TO BE THE DOUBLE CLAIM. WE FEEL THAT IN SUCH CIRCUMSTANCES, T HE FACTUAL POSITION NEEDS VERIFICATION AND TO WHICH THE LD. D.R. HAS ALSO NO OBJECTION. WE THEREFORE REMIT THE ISSUE TO THE FILE OF A.O FOR VERIFICATION OF TH E ASSESSEES CLAIM AND DE NOVO CONSIDERATION AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE. THE ASSESSEE IS ALSO DIRECTED TO FURNISH ALL THE NECESS ARY DETAILS CALLED FOR BY A.O PROMPTLY. IN THE RESULT, THIS GROUND OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ITA NO 1111 /AHD/2011 . A.Y. 2005- 06 4 GROUND NO. 3 IS WITH RESPECT TO UPHOLDING THE ADDIT ION OF RS. 13,234/- ON ACCOUNT OF LOW G.P. 7. BEFORE A.O, ASSESSEE SUBMITTED TRADING RESULTS F OR PRE-SEARCH PERIOD I.E. 01.04.2004 TO 30.11.2004 AND THE RESULTS FOR POST S EARCH PERIOD I.E. FROM 01.12.2004 TO 31.03.2005. A.O NOTICED THAT THE GROS S PROFIT FOR THE PRE SEARCH PERIOD WORKED OUT TO 16.01% WHEREAS THE GROSS PROFI T FOR THE POST SEARCH PERIOD WORKED OUT TO 14.86% AND THUS THERE WAS DECL INE IN THE GROSS PROFIT FOR THE POST SEARCH PERIOD. HE ALSO NOTICED THAT THE AV ERAGE GROSS PROFIT FOR THE EARLIER 3 YEARS WAS 16.10% WHICH WAS ALSO ADMITTED BY THE ASSESSEE WHILE WORKING OUT THE DIFFERENCE OF STOCK AS PER THE BOOK S AS COMPARED TO THE PHYSICAL STOCK FOUND AT THE TIME OF SEARCH. HE THER EFORE WORKED OUT THE GROSS PROFIT FOR THE ENTIRE PERIOD AT 16.10% AND AFTER GR ANTING THE CREDIT OF THE GROSS PROFIT SHOWN BY THE ASSESEE WORKED OUT THE DIFFEREN CE OF RS. 13,234/- ON ACCOUNT OF LOW GROSS PROFIT AND ADDED THE SAME TO T HE INCOME. AGGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFOR E CIT(A). CIT(A) UPHELD THE ORDER OF A.O BY HOLDING AS UNDER:- 15. I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT IT IS OBSERVED THAT THE APPELLANT HAS CONTENDED THAT THE GROSS PROFIT RATE IN THE POST SEARCH PERIO D HAS DECLINED TO 14.86%. I AGREE WITH THE FINDINGS RECORDED BY THE ASSESSING OFFICER THAT AVE RAGE GROSS PROFIT RATE HAS TO BE TAKEN AT 16.10%, WHICH IS BASED ON THE BUSINESS RESULT OF A. Y.2002-03 TO A.Y.2004-05. THEREFORE, THE ADDITION OF RS.13,234/- IS CONSIDERED JUSTIFIED AND SAME IS CONFIRMED. 8. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE IS NO W IN APPEAL BEFORE US. 9. BEFORE US, THE LD. A.R. REITERATED THE SUBMISSIO NS MADE BEFORE A.O AND CIT(A). THE LD. D.R. ON THE OTHER HAND SUPPORTED TH E ORDER OF CIT(A). 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. BEFORE US, LD. A.R. HAS NOT BROUGHT ANY MATERIAL ON RECORD TO CONTROVERT THE FINDINGS OF CIT(A). WE THEREFORE FIND NO REASON TO INTERFERE WITH THE ORDER OF CIT(A) AND THUS THIS GROUND OF ASSESSEE IS DISMISSE D. ITA NO 1111 /AHD/2011 . A.Y. 2005- 06 5 4 TH GROUND IS WITH RESPECT TO CONFIRMING THE ADDITION OF RS. 5,03,597/- ON ACCOUNT OF EXCESS CASH FOUND. 11. A.O NOTICED THAT CASH OF RS. 5,67,700/- WAS FOU ND AT THE TIME OF SEARCH, THE SOURCE OF WHICH WAS ADMITTED BY THE ASSESSEE TO BE PART OF UNACCOUNTED SALE. A.O NOTED THAT DURING THE SEARCH NO EVIDENCES IN THE FORM SALES BILLS, CASH RECEIPTS FROM DEBTORS AND DEBTORS ACCOUNT WERE FOUND WHICH COULD PROVE THAT THE UNRECORDED SALES WERE REALIZED TILL THE DATE OF SEARCH. IN THE ABSENCE OF DOCUMENTARY EVIDENCE, A.O CONSIDERED THE UNACCOUNTED CASH AMOUNTING TO RS. 5,03,597/- TO BE UNEXPLAINED AND T HEREFORE ADDED THE SAME AS UNDISCLOSED INCOME U/S. 69A OF THE ACT. AGGRIEVE D BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) C ONFIRMING THE ADDITION MADE BY A.O BY HOLDING AS UNDER:- 18. I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELL ANT. AS MENTIONED IN THE INSTANT APPELLATE ORDER, THE CASH GENERATED DUE TO UNRECORDED SALES IS NORMA LLY INVESTED OR EXPENDED BY THE BUSINESSMAN IN VARIETY OF MANNERS, WHICH INCLUDES MAKING UNRECORDE D PURCHASES, MAKING UNACCOUNTED INVESTMENTS, GIVING UNACCOUNTED LOANS, MAKING UNACCOUNTED EXPEND ITURE ETC. NORMALLY, THE UNRECORDED SALE PROCEEDS ARE NOT KEPT AT THE BUSINESS PREMISES AND SUCH UNACCOUNTED SALE PROCEED ARE TAKEN AWAY AT THE TIME OF CLOSURE OF THE SHOP. IT IS HIGHLY UNBEL IEVABLE THAT APPELLANT IS KEEPING THE UNACCOUNTED C ASH IN THE BUSINESS PREMISES. BESIDES, AT THE TIME OF S EARCH ACTION, NO DOCUMENTARY EVIDENCE HAS BEEN RECOVERED FROM THE PREMISES OF THE APPELLANT WHICH COULD ESTABLISH THAT THE AMOUNT OF CASH FOUND AT THE TIME OF SEARCH ACTION REPRESENTS THE UNRECORDED CASH SALE PROCEEDS. IN VIEW OF ABOVE, I AM IN AGREEMENT WITH THE FINDINGS RECORDED BY THE ASSESSI NG OFFICER THAT CASH AMOUNTING TO RS.5,03,597/- HAS TO BE TAXED U/S.69A OF THE I.T. ACT. THE ADDITI ON OF RS.5,03,597/- IS CONFIRMED. 12. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE IS N OW IN APPEAL BEFORE US. 13. BEFORE US, THE LD. A.R. REITERATED THE SUBMISSI ONS MADE BEFORE A.O AND CIT(A). THE LD. D.R. ON THE OTHER HAND SUPPORTED TH E ORDER OF A.O AND CIT(A). 14. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT CIT(A) WHILE CONFIRMING THE ACTION OF A.O HAS GIVEN A FINDING THAT NO DOCUMENTARY EVIDENCE WERE RECOVERED AT THE TIME OF SEARCH WHICH COULD ESTABLISH THAT THE AMOUNT OF CASH FOUND AT THE TIME OF SEARCH REPRESENTED THE UNRECORDED SALES. THE FINDINGS OF A.O AND CIT(A) HA S NOT BEEN CONTROVERTED ITA NO 1111 /AHD/2011 . A.Y. 2005- 06 6 BY ASSESSEE BY PLACING ANY TANGIBLE MATERIAL ON REC ORD. IN VIEW OF THE AFORESAID FACTS, WE FIND NO REASON TO INTERFERE WIT H THE ORDER OF CIT(A) AND THUS THIS GROUND OF ASSESSEE IS DISMISSED. 5 TH GROUND IS WITH RESPECT TO CONFIRMING THE ADDITION OF RS. 5,000/- ON ACCOUNT OF TELEPHONE EXPENSES. 15. A.O NOTICED THAT ASSESSEE HAD CLAIMED TELEPHONE EXPENSES OF RS. 23,624/- WHICH INCLUDED THE TELEPHONE INSTALLED AT THE JOB A ND AT THE RESIDENCE. THE ASSESSEE WAS ASKED TO EXPLAIN THE INCURRING OF EXPE NDITURE EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. A.O NOTED THAT ASSESSEE HA S NOT EXPLAINED THE NATURE AND USE OF TELEPHONE AT HIS RESIDENCE AND HA D ALSO FAILED TO EXPLAIN THE EXCLUSIVE USE OF TELEPHONE LINE AT JOB FOR BUSI NESS PURPOSE. CONSIDERING THE PERSONAL ELEMENT AND NON BUSINESS USE OF TELEPH ONES, HE CONSIDERED 25% OF THE EXPENDITURE TO BE HAVING PERSONAL ELEMEN T AND ACCORDINGLY WORKED THE DISALLOWANCE AT RS. 7,250/-. AGGRIEVED B Y THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) G RANTED PARTIAL RELIEF TO THE ASSESSEE BY HOLDING AS UNDER:- 21. I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELL ANT. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS POINTED OUT THAT DURING THE YEAR UNDER CONSIDER ATION, THE APPELLANT HAS CLAIMED DEDUCTION OF AN AMOUNT OF RS.7,219/- FOR TELEPHONE CONNECTION INSTALLED AT THE RESIDENCE AND RS.16,405/- IN RESPECT OF TELEPHONES INSTALLED AT SHOP. BESIDES A PROVISIONS OF RS.1,793/- HAS ALSO BEEN CLAIMED AS AN EXPENDITURE. HOWEVER, I AM OF THE OPINION THAT DISALLOWANCE OF 25% OF THE TELEPHONE E XPENSES IS TOO HIGH. CONSIDERING THE FACTS IN TOTALITY, THE DISALLOWANCE OUT OF TELEPHONE EXPENSE S IS DIRECTED TO RESTRICTED AT RS.5,000/- WHICH ALSO INCLUDES THE DISALLOWANCE ON ACCOUNT OF PROVISIONS OF RS.1,793/-. THE APPELLANT GET A RELIEF OF RS.2,250/- ON THIS SCORE. 16. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE IS N OW IN APPEAL BEFORE US. BEFORE US, LD. A.R. SUBMITTED THAT THE EXPENSES WER E FOR THE PURPOSE OF BUSINESS AND NO DISALLOWANCE WAS CALLED FOR. THE LD . D.R. ON THE OTHER HAND SUPPORTED THE ORDER OF CIT(A). 17. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT CIT(A) AFTER CONSIDERING THE SUBMISSION O F THE ASSESSEE GRANTED ITA NO 1111 /AHD/2011 . A.Y. 2005- 06 7 RELIEF OF RS. 2,250/-. BEFORE US, THE LD. A.R. HAS NOT BROUGHT ANY MATERIAL ON RECORD IN SUPPORT OF HIS CONTENTION. WE THEREFORE F IND NOT REASON TO INTERFERE WITH THE ORDER OF CIT(A) AND THUS THIS GROUND OF AS SESSEE IS DISMISSED. 18. IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 11 - 07 - 2014. SD/- SD/- (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHM EDABAD