M/s Bansal Generations Ltd., Chandigarh V. ACIT, Chandigarh

ITA 1158/CHANDI/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80865 (ITAT-CHANDIGARH)
• Duration Of Justice: 8 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-09-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 04-08-2014
• Assessment Year: 2010-2011
• Appeal Filed On: 12-12-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMARVEER SINGH
• Keywords: Gross profit estimation; Business income; Assessment record
• Section: 40A(3); 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B, CHANDIGARH BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 1158/CHD/2013 ASSESSMENT YEARS : 2010-11 M/S BANSAL GENERATIONS V A.C.I.T. CIRCLE 4(1) LTD. SCO 171, F.F CHANDIGARH SECTOR 38-C CHANDIGARH AABCB 8974E ITA NO. 113/CHD/2014 ASSESSMENT YEARS : 2010-11 D.C.I.T. CIRCLE 4(1) V M/S BANSAL GENERATIONS CHANDIGARH LTD. SCO 171, F.F SECTOR 38-C CHANDIGARH AABCB 8974E (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI AJAY JAIN RESPONDENT BY: SHRI AMARVEER SINGH DATE OF HEARING 7.8.2014 DATE OF PRONOUNCEMENT 10 .9.2014 O R D E R PER T.R. SOOD, A.M THESE ARE CROSS APPEALS AND ARE DIRECTED AGAINST TH E ORDER DATED 28.11.2013 OF THE LD CIT(A), CHANDIGAR H. ITA NO. 1158/CHD/2013 ASSESSEES APPEAL 2. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLO WING GROUNDS: 1 THAT THE LD. CIT(A), CHANDIGARH HAS WRONGLY CONF IRMED THE ADDITION OF RS. 279,70,000 ON ACCOUNT OF DEPOSIT M ADE IN VARIOUS BANK ACCOUNTS WITHOUT APPRECIATING THE FACT THAT AL L TRANSACTIONS ARE DULY RECORDED IN THE BOOKS OF ACCOUNT AND ALL BANKS ARE ALSO REFLECTED IN THE BALANCE SHEET AND HE ALSO FAILED T O APPRECIATE THE FACT THAT THE APPELLATE HAS DISCLOSED ADDITIONAL IN COME OF RS. 275,00,000/- DURING THE COURSE OF SURVEY WHICH WAS DULY REFLECTED IN PROFIT AND LOSS ACCOUNT UNDER THE HEAD OTHER INC OME. 2 THAT THE LD. CIT(A) HAS ERRED BY NOT ALLOWING THE CARRIED FORWARD LOSSES OF BUSINESS LOSS OF RS. 116,51,823/- FOR THE ASSESSMENT YEAR 2009-10 AGAINST THE INCOME OF YEAR UNDER 2 CONSIDERATION WITHOUT APPRECIATING THE FACT THAT TH E APPELLANT HAS NO INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. 3 OUT OF ABOVE GROUNDS, GROUND NO. 2 WAS NOT PRESSE D BEFORE US, THEREFORE SAME IS DISMISSED AS NOT PRESS ED. 4 AFTER HEARING BOTH THE PARTIES WE FIND THAT A SUR VEY WAS CONDUCTED IN THE PREMISES OF THE ASSESSEE. DURING SURVEY CERTAIN DOCUMENTS WERE FOUND AND CONFRONTED TO THE ASSESSEE AND ULTIMATELY A SUM OF RS. 3.50 CRORES WAS SURREND ERED DURING THE SURVEY. DURING ASSESSMENT PROCEEDINGS THE ASSE SSING OFFICER NOTICED THAT THE ASSESSEE HAS DEPOSITED CAS H AMOUNTING TO RS. 279,70,000/- AS PER FOLLOWING DETA ILS: DATE BANK NAME AMOUNT (RS.) 29.12.2009 UCO BANK 7,00,000 1.2.2010 UCO BANK 50,00,000 1.2.2010 PUNJAB NATIONAL BANK 25,00,000 5.3.2010 -DO- 25,00,000 6.3.2010 -DO- 30,00,000 12.3.2010 STATE BANK OF PATIALA 11,00,000 17.3.2010 UCO BANK 40,00,000 17.3.2010 STATE BANK OF PATIALA 11,50,000 19.3.2010 UCO BANK 40,00,000 23.3.2010 UCO BANK 19,50,000 29.3.2010 UCO BANK 20,00,000 29.3.2010 STATE BANK OF PATIALA 70,000 TOTAL 279,70,000 THE ASSESSEE WAS ASKED TO FURNISH THE SOURCES OF CA SH DEPOSITED AND VIDE WRITTEN SUBMISSIONS DATED 23.2.2 012 IT WAS STATED IT IS THE AMOUNT DEPOSITED WHICH WAS DISCLOS ED AS SURRENDERED AMOUNT DURING THE TIME OF SURVEY. THE ASSESSING OFFICER WAS NOT SATISFIED AND ASKED THE ASSESSEE TO GIVE SOURCES AND SIMILAR REPLY WAS GIVEN ON TWO MORE OCC ASIONS. THE ASSESSING OFFICER DID NOT FIND FORCE IN THE SUB MISSIONS AND OBSERVED THAT THERE WAS NO EVIDENCE TO SHOW THAT TH E ADVANCES MADE BY THE ASSESSEE HAVE BEEN RETURNED IN CASH. S URRENDER WAS MADE ON THE BASIS OF THAT THE SUNDRY ADVANCES WERE PAID 3 OUT OF THE BOOKS AND CERTAIN ADDITIONS TO BUILDING WERE MADE OUTSIDE THE ACCOUNTS. SINCE THE ASSESSEE HAS FAILED TO GIVE DETAILS WHY THE ADVANCES WERE RETURNED BY THE PARTI ES TO WHOM SUCH ADVANCES WERE GIVEN, THEREFORE SUM OF RS. 279, 70,000 WAS ADDED TO THE INCOME OF THE ASSESSEE. 5 ON APPEAL BEFORE THE LD. CIT(A) THE WRITTEN SUBMI SSIONS WERE FILED WHICH HAVE BEEN EXTRACTED BY THE LD. CIT (A) AT PARA 4.2 WHICH IS AS UNDER: THE APPELLANT COMPANY HAS MADE DEPOSIT AFTER SURVE Y IN BANK ACCOUNTS OUT OF ADDITIONAL INCOME DISCLOSED DURING THE COURSE OF SURVEY. THE COMPANY HAS DISCLOSED RS. 275 LAKHS UN DER THE HEAD ADVANCES AND IMPREST AT THE TIME OF SURVEY AND TH E SAME HAS BEEN RECORDED IN THE BOOKS OF ACCOUNT. THIS ADVANC ES AND IMPREST BALANCE HAS BEEN DULY RECORDED AND IN ORDINARY COUR SE OF AFFAIRS, SAME WAS UTILIZED INCLUDING DEPOSIT IN BANK ACCOUNT S. THE ASSESSING OFFICER FAILED TO APPRECIATE THE FACT THAT APPELLANT COMPANY HAS ALREADY SHOWN ADDITIONAL INCOME OF RS. 275 LAKHS SURRENDERED IN PROFIT AND LOSS ACCOUNT UNDER THE HE AD OTHER INCOME & AGAINST ADDED WHILE CALCULATED THE TAXABLE INCOME. FURTHER TO BRING INTO YOUR KIND NOTICE THAT THE ASS ESSING OFFICER DID NOT APPLIED HIS MIND BY DISALLOWING ALL THE CAS H DEPOSITS IN THE BANK INCLUDING CASH GENERATED FROM CASH SALES AS WE LL AS EARLIER WITHDRAWALS FROM THE BANK ITSELF. BECAUSE OF THE FA CT THE LAO DISALLOWED ALL THE CASH DEPOSITS OF RS. 279.70 LAKH S (RS. 275 LAKHS SURRENDERED ON ACCOUNT OF SUNDRY ADVANCES AT THE T IME OF SURVEY AND RS. 4.70 LAKHS GENERATED ON ACCOUNT OF CASH SA LES AND CASH WITHDRAWALS FROM BANKS ON EARLIER DATES). A) ALL BANKS ACCOUNTS I.E. UCO, PNB AND SBOP ARE DU LY RECORDED IN BOOKS OF ACCOUNT. B) THAT THE ASSESSING OFFICER HAS WRONGLY MADE ADDI TION OF RS. 279,70,000 ON ACCOUNT OF DEPOSIT MADE IN VARIOUS B ANK ACCOUNTS WITHOUT APPRECIATING THE FACT THAT ALL TRANSACTION ARE DULY RECORDED IN THE BOOKS OF ACCOUNT AND BANK IS ALSO REFLECTED IN THE BALANCE SHEET. C) THE ASSESSEE IS MAINTAINING COMPLETE BOOKS OF AC COUNT AND SAME HAVE BEEN PRODUCED DURING THE COURSE OF ASSESS MENT PROCEEDINGS AND ALL TRANSACTION INCLUDING CASH DEP OSITS IN ALL BANKS HAS BEEN REFLECTED IN THE BOOKS OF ACCOUNT. D) ALL BANK ACCOUNTS ARE REGULAR BANK ACCOUNTS WHIC H IS REFLECTED IN THE BOOKS OF ACCOUNT AND THEREFORE ALL ENTRIES OF CASH DEPOSITS HAVE BEEN MADE OUT OF CASH IN HANDS AVAILA BLE ON DAY TO DAY BASIS. E) THE OBSERVATION OF ASSESSING OFFICER CLEARLY REV EALS THAT THE ASSESSING OFFICER DID NOT DIFFERENTIATE THE BANK AC COUNT REFLECTED IN THE BOOKS OF ACCOUNT VIZ-A-VIZ BANK ACCOUNT NOT RECORDED IN THE BOOKS OF ACCOUNT. F) IN CASE THE BANK ACCOUNT IS DULY REFLECTED IN TH E BOOKS OF ACCOUNTS IT DOES NOT REQUIRE ANY FURTHER EXPLANATIO N IN THE 4 CIRCUMSTANCES WHEN THE BOOKS OF ACCOUNT ARE ACCEPTE D BY THE ASSESSING OFFICER. THE LD. CIT(A) EXAMINED THESE SUBMISSIONS AND DID N OT FIND FORCE IN THE SAME AND DISMISSED THE APPEAL OF THE A SSESSEE VIDE PARA 4.3, 4,3,1 AND 4.3.2 WHICH ARE AS UNDER: 4.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPEL LANT. I HAVE ALSO GONE THROUGH THE ASSESSMENT RECORDS. A PERUSA L OF THE ORDER SHEET OF THE ASSESSMENT RECORD REVEALS THAT THE ASS ESSING OFFICER HAD ASKED THE APPELLANT TO FURNISH THE DETAILS OF C ASH DEPOSITS AND THE APPELLANT, INSTEAD OF SUBMITTING THE DETAILS, H AD ONLY REPLIED THAT THE DEPOSITS WERE ON ACCOUNT OF AMOUNTS SURREN DERED DURING SURVEY AND REPRESENTED REALIZATION FROM PERSONS TO WHOM ADVANCES WERE GIVEN. DURING THE COURSE OF APPELLA TE PROCEEDINGS ALSO, THE APPELLANT HAS NOT PRODUCED THE DETAILS OF PERSONS AND THE DATES ON WHICH THE AMOUNTS WERE REALIZED FROM THE P ERSONS TO WHOM ADVANCES WERE GIVEN. 4.3.1 THE APPELLANT HAD DEPOSITED AMOUNT OF RS. 7,0 0,000/- IN THE MONTH OF DECEMBER, 2009, RS. 75,00,000/- IN THE MON TH OF FEB 2010 AND RS. 197,70,000/- IN THE MONTH OF MARCH 201 0 IN ITS BANK ACCOUNTS. OUT OF THE TOTAL AMOUNT OF RS. 279,70,00 0/-, THE EXPLANATION OF THE APPELLANT REGARDING RS. 275,00,0 00/- IS THAT IT HAD SURRENDERED AN AMOUNT OF RS. 275 LAKHS ON ACCOU NT OF ADVANCES AND IMPREST AT THE TIME OF SURVEY WHICH HA D BEEN RECORDED IN THE BOOKS OF ACCOUNT. THE LD. COUNSEL WAS SPECIFICALLY ASKED BY ME BUT HE HAS NOT GIVEN ANY D ETAILS ABOUT THE PERSONS FROM WHOM THE AMOUNTS WERE REALIZED. TH E APPELLANT HAS ALSO NOT GIVEN ANY EVIDENCE TO THE EFFECT THAT THESE AMOUNTS WERE RECEIVED ON OR BEFORE THE RESPECTIVE DATES OF DEPOSITS OF THE AMOUNTS IN THE BANK ACCOUNTS AND SO IT IS NOT POSSI BLE TO ASCERTAIN THAT IT WAS, IN FACT, THE AMOUNT SURRENDERED WHICH HAD BEEN DEPOSITED IN THE BANK ACCOUNTS. THE FACT THAT THE APPELLANT ADMITTED THAT CERTAIN ADVANCES GIVEN BY IT WERE NOT RECORDED IN THE BOOKS OF ACCOUNT AND IT AGREED TO BE TAXED ON THE Q UANTUM OF THESE ADVANCES, GIVES IMMUNITY TO THE APPELLANT ONL Y TO THE EXTENT THAT THE DEPARTMENT CANNOT AGAIN QUESTION THE SOURC E OF THOSE ADVANCES. HOWEVER, ADMITTEDLY THE AMOUNT SURRENDER ED WAS NOT AVAILABLE WITH THE APPELLANT IN CASH THAT AS AND WH EN IT LIKES, IT CAN DEPOSIT A PART OF IT IN THE BANK. I THINK AN E XAMPLE WILL HELP IN UNDERSTANDING THE POSITION. ASSUME THAT AN ASSESSE E STATES THAT A PARTICULAR HOUSE OR CERTAIN STOCK HAS BEEN ACQUIR ED BY HIM WITH THE UNDECLARED FUNDS OF RS 2 CRORES AND HE AGREES T O PAY TAX ON THAT AMOUNT. HE GETS AN IMMUNITY TO THE EXTENT THA T THE REVENUE CANNOT QUESTION HIM IN REGARD TO THE SOURCE OF ACQU ISITION OF THE HOUSE OR STOCK, BUT IF HE DEPOSITS RS. 1 CRORE IN H IS BANK ACCOUNT AND CLAIMS IT TO BE PART OF RS. 2 CRORES DECLARED B Y HIM, THE DEPARTMENT HAS EVERY RIGHT TO QUESTION HIM REGARDIN G THE SALE OF THE HOUSE OR THE STOCK. IF THE HOUSE OR STOCK HAS B EEN SOLD AND HE HAS RECEIVED THE SALE CONSIDERATION BEFORE THE DATE OF DEPOSIT OF THE MONEY IN THE BANK ACCOUNT, THE MATTER SETTLES T HERE, BUT IF HE HAS NO EVIDENCE OF SALE OF HOUSE/STOCK, THE SOURCE OF DEPOSIT OF RS. 1 CRORE REMAINS UNEXPLAINED. SAME IS THE POSIT ION HERE. IF THE APPELLANT SAYS THAT THE AMOUNT DEPOSITED IN THE BANK ACCOUNTS WAS REPAYMENT OF ADVANCE BY X, THE DEPARTMENT WILL NOT ASK THE SOURCE OF ADVANCE TO X, BUT WOULD CERTAINLY LOOK IN TO THE FACTUM OF REPAYMENT BEFORE THE DATE OF BANK DEPOSITS. THIS O NUS ON THE APPELLANT HAS NOT BEEN DISCHARGED INSPITE OF BEING GIVEN REPEATED OPPORTUNITIES BY THE ASSESSING OFFICER AND ALSO BY ME. THEREFORE I HOLD THAT THE SOURCE OF BANK DEPOSIT OF RS. 275 L AKHS IS NOT EXPLAINED BY THE APPELLANT. THE ADDITION OF RS. 27 5 LAKHS U/S 69A ON ACCOUNT OF CASH DEPOSITS IN THE BANK ACCOUNTS I S ACCORDINGLY CONFIRMED. 5 4.3.2 REGARDING REST OF THE AMOUNT OF RS. 4.70 LAKH S THE APPELLANT HAS EXPLAINED THAT THIS AMOUNT WAS OUT OF CASH GENE RATED FROM CASH SALES AS WELL AS EARLIER WITHDRAWALS FROM THE BANK ACCOUNT, BUT NO EVIDENCE HAS BEEN FILED IN THIS REGARD AND S O THIS EXPLANATION OF THE APPELLANT IS NOT ACCEPTABLE AND ADDITION OF THIS AMOUNT OF RS. 4.70 LAKHS IS ALSO UPHELD. 6 BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUBMI TTED THAT A SURVEY WAS CONDUCTED ON 16.9.2009 AND A SUM OF RS. 3.50 CRORES WAS SURRENDERED. HE REFERRED TO PAGE 22 OF THE PAPER BOOK WHICH IS COMPUTATION OF INCOME AND POINT ED OUT THAT THIS AMOUNT WAS SEPARATELY OFFERED FOR TAXATIO N AND ADDED TO THE INCOME RETURNED BY THE ASSESSEE. NET TOTAL INCOME WAS LOWER THAN THE SURRENDERED AMOUNT BECAUSE THERE WAS A LOSS IN THE BUSINESS TO THE EXTENT OF RS. 2.66 CRORES. THEN HE REFERRED TO PAGE 329 WHICH IS COPY OF SURRENDER LETTER IN WH ICH IT IS CLEARLY STATED THAT THE AMOUNT OF RS. 3.50 CRORES H AS BEEN GENERATED BY THE COMPANY FROM OTHER SOURCES OTHER T HAN THE MANUFACTURING ACTIVITIES LIKE REAL ESTATE ETC. CER TAIN DOCUMENTS AND REGISTERS WERE FOUND WHERE CERTAIN AD VANCES HAVE BEEN NOTED AND THAT IS WHY THE ASSESSEE SURREN DERED A SUM OF RS. 3.50 CRORES. OUT OF THIS SUM RS. 25 LAK HS WAS SURRENDERED ON ACCOUNT OF INVESTMENTS IN MACHINERY , RS. 50 LAKHS ON ACCOUNT OF INVESTMENTS IN BUILDING RS. 2. 75 CRORES ON ACCOUNT OF ADVANCES AND IMPREST AMOUNT. ONCE THIS AMOUNT WAS SURRENDERED AND WHEN THIS AMOUNT WAS ACTUALLY R ECEIVED SAME WAS RECORDED IN THE BOOKS OF ACCOUNT AND ULTIM ATELY DEPOSITED IN THE BANK. IN THIS REGARD HE REFERRED TO THE SCHEDULE OF BANK BALANCE SHEET AT PAGE 41 TO 43 WHE RE VARIOUS ACCOUNTS HAVE BEEN SHOWN AND ALSO REFERRED TO THE B ANK STATEMENTS WHERE THESE AMOUNTS HAVE BEEN DEPOSITED. THEREFORE CLEARLY THE SOURCE OF DEPOSIT IS OUT OF T HE ADVANCES WHICH HAVE BEEN SURRENDERED AND SINCE THE ASSESSEE HAS 6 OFFERED THIS SUM FOR TAXATION, THE ASSESSEE WAS NOT REQUIRED TO DISCLOSE THE NAMES OF PERSONS TO WHOM SUCH ADVANCES WERE GIVEN. 7 ON THE OTHER HAND, THE LD. D.R FOR THE REVENUE ST RONGLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND TH E LD. CIT(A). 8 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND T HAT THAT CERTAIN DOCUMENTS WERE FOUND DURING SURVEY. THE AS SESSEE PREFERRED TO SURRENDER A SUM OF RS. 3.50 CRORES AND A SURRENDER LETTER DATED 17.9.2009, COPY OF WHICH IS PLACED AT PAGE 329 OF PAPER BOOK AND READS AS UNDER: DATED 17.9.2009 THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 4(1), CHANDIGARH SUBJECT: ADDITIONAL INCOME DISCLOSURE DURING THE C OURSE OF SURVEY U/S 133A OF THE INCOME TAX ACT, 1961 IN THE CASE O F M/S BANSAL GENERATIONS LTD CONDUCTED ON 16.9.2009 TO 17.9.2009 MADAM, SURVEY U/S 133A OF THE IT ACT WAS CONDUCTED IN THE ABOVE REFERRED CASE ON 16.9.2009 TO 17.9.2009. AFTER DIS CUSSION ON VARIOUS ISSUES WE HEREBY DISCLOSE ADDITIONAL INCOME OF RS.3.50 CRORES (RUPEES THREE CRORES FIFTY LAKHS ONLY) DURIN G THE FY 2009- 10 SUBJECT TO NO PENAL ACTION OF ANY TYPE INCLUDING U/S 271(1)(C) OF IT ACT, 1961 AND PROSECUTION. THE DETAILED BIFURCA TION OF ADDITIONAL INCOME OF ASSESSMENT YEAR 2010-11 IS AS UNDER: 1 INVESTMENT IN MACHINERY RS. 25 LAKHS 2 INVESTMENT IN BUILDING RS. 50 LAKHS 3 ADVANCES AND IMPREST RS. 275 LAKHS TOTAL RS. 350 LAKHS FURTHER TO CLARIFY THAT THE ABOVE SAID INCOME HAS BEEN GENERATED BY THE COMPANY FROM OTHER SOURCES OTHER T HAN MANUFACTURING ACTIVITIES LIKE REAL ESTATE ETC. THE ABOVE DISCLOSURE COVERS UP ALL THE LEAKAGE OF R EVENUE, TO AVOID FURTHER LITIGATION AND TO BUY PEACE OF MIND. THIS ADDITIONAL INCOME IS OVER AND ABOVE THE NORMAL BUSINESS INCOME AND COVERS UP ALL THE DISCREPANCIES IF ANY FOUND DURING THE CO URSE OF SURVEY. THANKING YOU, YOURS TRULY, SD/- (PAWAN K. BANSAL) DIRECTOR 7 FROM ABOVE IT BECOMES CLEAR THAT THE SOURCES FOR TH E SURRENDER WERE STATED TO BE OTHER THAN MANUFACTURING ACTIVITI ES LIKE BUSINESS OF REAL ESTATE. THEREFORE THE ASSESSEE MI GHT HAVE EARNED CERTAIN INCOME IN REAL ESTATE TRANSACTION AN D THE AMOUNTS STOOD RECORDED IN INCRIMINATING DIARIES AND BOOKS FOUND DURING SURVEY. THE ASSESSEE HAS CLEARLY SURR ENDERED A SUM OF RS. 3.50 CRORES WHICH HAS ALSO BEEN SHOWN AS INCOME AND THIS FACT IS CLEAR FROM THE COMPUTATION OF INCO ME. OUT OF A SUM OF RS. 3.50 CRORES, A SUM OF RS. 25 LAKHS WAS D ISCLOSED AS INVESTMENT IN MACHINERY AND RS. 50 LAKHS AS INVESTM ENT IN BUILDING. BALANCE AMOUNT WAS SHOWN ON ACCOUNT OF ADVANCES AND IMPREST AND THE ASSESSEE ONCE HAVING DECLARED S UCH INCOME IS ENTITLED TO RECEIVE THIS AMOUNT. ONCE TH ESE AMOUNTS WERE RECEIVED WHICH WERE DULY RECORDED IN THE ACCOU NTS AND DEPOSITED IN THE BANK. THE LD. CIT(A) WHILE REJECT ING THESE CONTENTIONS HAS GIVEN AN EXAMPLE THAT IF THE AMOUNT S SURRENDERED WAS ON ACCOUNT OF HOUSE THEN THE ASSESS EE CANNOT SAY THAT THE ASSESSEE HAS DEPOSITED A SUM IN CASH B UT THE LD. CIT(A) HAS FAILED TO RECOGNIZE THAT OUT OF A SUM OF RS. 3.50 CRORES ONLY AN AMOUNT OF RS. 25 LAKHS AND RS. 50 LA KHS WAS DECLARED TOWARDS MACHINERY AND BUILDING WHICH WAS N OT AVAILABLE TO THE ASSESSEE FOR CASH DEPOSIT. 9 AS FAR AS THE ADVANCES ARE CONCERNED THE ASSESSEE CAN RECEIVE THEM IN CASH. ONCE THE AMOUNT HAS ALREADY BEEN RECORDED IN THE BOOKS THEN WE FAIL TO UNDERSTAND WH AT OTHER PARTICULARS THE ASSESSEE COULD HAVE OFFERED. IN VI EW OF THIS WE ARE OF THE OPINION THAT THIS ADDITION NEEDS TO BE D ELETED AND 8 ACCORDINGLY WE SET ASIDE THE ORDER OF THE CIT(A) AN D DELETE THE ADDITION. 10 IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ITA NO. 113/CHD/2014 REVENUE APPEAL 11 IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLOW ING GROUNDS: 1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS . 222,60,840/- MADE BY THE ASSESSING OFFICER BY APPLYING THE AVERA GE GROSS PROFIT RATE OF PRECEDING YEARS THE ASSESSEE ITSELF, WHEREAS IT HAS BEEN HELD BY THE ITAT IN SEVERAL CASES THAT THE DAT A PERTAINING TO AN ASSESSEE IN THE EARLIER YEAR CAN BE APPLIED TO T HE FACTS AND CIRCUMSTANCES IN THE CURRENT YEAR AS THE SAME IS T HE BEST COMPARATIVE DATA. 2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS . 222,60,840/- MADE BY THE ASSESSING OFFICER BY OBSERVING THAT NO MATERIAL HAS BEEN BROUGHT ON RECORD BY WAY OF SPECIFIC DEFECTS I N THE BOOKS OF ACCOUNT BEFORE RECOMPUTING THE LOSS WHEREAS THE FA CTS ARE THAT BESIDES SPECIFIC OBSERVATIONS BY THE ASSESSING OFFI CER THE ASSESSEE ITSELF HAS SUBMITTED THAT ITS COMPUTER DAT A FOR ASSESSMENT YEAR 2010-11 WERE CORRUPTED. 12 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICE D THAT THOUGH THE ASSESSEE HAS SURRENDERED A SUM OF RS. 3. 50 CRORRES AS ADDITIONAL INCOME BUT RETURN WAS FILED ONLY FOR RS 37,50,570/-. HE NOTED THAT THE ASSESSEE HAS SHOWN BUSINESS LOSS TO THE TUNE OF RS. 2.66 CRORES WHICH IS MORE T HAN THE DOUBLE OVER THE LOSS DECLARED BY THE ASSESSEE AT RS . 1.23 CRORES IN EARLIER YEAR. IT WAS FURTHER NOTICED THA T THE ASSESSEE HAS DISCLOSED SALE TURNOVER OF RS. 22.70 CRORES AGA INST HIS TURNOVER OF RS. 47.88 CRORES IN THE LAST YEAR. THE ASSESSEE WAS CONFRONTED WITH THESE ISSUES AND IN RESPONSE VA RIOUS DETAILS WERE FILED. ACCORDING TO THE ASSESSING OF FICER THE ASSESSEE HAS NOT GIVEN ANY REPLY FOR DECREASE IN T URNOVER. 9 ACCORDING TO ASSESSING OFFICER PERUSAL OF DOCUMENTS RAISE FOLLOWING IMPORTANT ISSUES: I) THE AUDIT REPORT FOR ASSESSMENT YEAR 2010-11 D OES NOT CONTAIN ANY NOTE/EXPLANATION AS TO THE HUGE FALL IN TURNOVER WHICH OTHERWISE IS A FUNDAMENTAL FINANCIAL EVENT IN THE C OURSE OF BUSINESS OF THE CONCERN. II) THE COMPANY HAS MADE REPAYMENT OF LOANS DURING THE YEAR TO THE TUNE OF RS. 5 CRORE AS IS REVEALED FROM ANNE XURE IV TO THE AUDIT REPORT AND SCHEDULES OF SECURED AND UNSECURED LOANS ANNEXED TO THE BALANCE SHEET. III) FURTHER SUNDRY DEBTORS HAVE INCREASED FROM RS. 5.5 CRORE TO RS. 9.13 CRORE DURING THE YEAR. IV) ADVANCES MADE HAVE GONE UP FROM RS. 60 LAKHS TO RS. 1.1 CRORE DURING THE YEAR. V) A PERUSAL OF THE LEDGER ACCOUNTS OF WAGES, SALAR Y, CONSUMABLE EXPENSES, FREIGHT INWARD, CARRIAGE INWAR D, FREIGHT OUTWARD, DIESEL GENUINENESS-SET/REPAIR EXPENSES, RE PAIR AND MAINTENANCE (MACHINERY), ELECTRICAL REPAIR AND MAIN TENANCE, BUILDING REPAIR, REPAIR AND MAINTENANCE, SHOWS THAT A MAJORITY OF THE PAYMENTS HAVE BEEN MADE IN CASH, WHICH IS NOT O NLY A CONTRAVENTION OF THE PROVISIONS OF SECTION 40A(3) OF THE ACT BUT ALSO THE FACT THAT THESE CASH PAYMENTS HAVE NOT BEE N SUBSTANTIATED PROPER BILLS AND VOUCHERS AND TDS CHA LLANS MAKES THESE PAYMENTS LARGELY BOGUS, COPIES OF THESE LEDGE R ACCOUNTS ARE PLACED ON RECORD. VI) FURTHER EXPENSES ON ACCOUNT OF FREIGHT OUTWARD , REPAIR AND MAINTENANCE, TESTING CHARGES, TOOLS AND TECH HAVE B EEN INCREASED OVER LAST YEAR DESPITE THERE BEING A TREMENDOUS DEC LINE IN TURNOVER. VII) THE COMPANY HAS ALSO RECEIVED SOME SHARE APPLI CATION MONEY AND HAS CLAIMED LOSS ON SALE OF FIXED ASSETS. VIII) THE ASSESSEE HAS SHOWN CLOSING STOCK OF RS. 4 .5 CRORE THIS YEAR AS COMPARED TO RS. 8.2 CRORE LAST YEAR. IX) MORE GRAVELY THE ASSESSEE HAS CASH DEPOSITS IN ITS BANK ACCOUNT TO THE TUNE OF RS. 279,70,000/- DURING THE YEAR. X) VIDE WRITTEN SUBMISSIONS DATED 28.2.2013 THE ASS ESSEE HAS STATED THAT THEIR SOFTWARE DATA RELATED TO ASSESSME NT YEAR 2010- 11 HAS BEEN CORRUPTED. ACCORDING TO THE ASSESSING OFFICER ABOVE POINTS CLE ARLY SHOW THAT THE ASSESSEE HAS UNDISCLOSED SALES AND THE ASS ESSEE HAS ALSO RETRACTED FROM THE SURRENDER MADE DURING SURVE Y. IN THIS BACKGROUND THE ASSESSING OFFICER HAD REDRAWN TRADIN G AND PROFIT AND LOSS ACCOUNT OF THE ASSESSEE. IT WAS O BSERVED THAT THE ASSESSEE HAD A PROFIT DURING ASSESSMENT YEAR 20 08-09 TO THE TUNE OF 6.70% AND THE ASSESSEE HAD DECLARED A L OSS OF 2.92% IN ASSESSMENT YEAR 2009-10 WHEREAS SAME HAS 10 INCREASED TO 12.8% DURING THE YEAR UNDER CONSIDERAT ION. THEREAFTER THE ASSESSING OFFICER WORKED THE ADDITIO N OF RS. 222,60,840/- VIDE PARA 6 WHICH IS AS UNDER: 6 THEREFORE THE ASSESSEE HAS INCREASED BUSINESS LO SSES TO 12.8% AS COMPARED TO 2.92% LAST YEAR. THE PROFIT F IGURE OF RS. 59,28,374/- IS MISLEADING IN THAT IT IS THE RESIDUA L ADDITIONAL INCOME DISCLOSED. AS DISCUSSED ABOVE, THE DISCREPA NCIES IN THE NATURE OF UNEXPLAINED CASH DEPOSITS, INCREASE IN CL OSING STOCK, DRASTIC REDUCTION IN SALES, INCREASE IN SUNDRY DEBT ORS, REPAYMENT OF LOANS, CASH PAYMENTS UNDER VARIOUS HEADS ETC. CL EARLY ESTABLISH THAT THE ASSESSEE HAS INFLATED LOSSES IN THE CURREN T YEAR. TO ARRIVE AT A REASONABLE ESTIMATE OF THE LOSS %AGE OF THE BUSINESS CONCERN OF THE ASSESSEE A SIMPLE AVERAGE OF PROFIT/ LOSS RATIOS FOR THE PRECEDING TWO YEARS AND THE CURRENT YEAR IS HER EBY ADOPTED. THIS PROFIT /LOSS RATIO WORKS OUT TO BE 3% {(-) 12. 8% + (-) 2.92% + 6.7%}/3 AND RESULTANTLY THE LOSS FIGURE FOR THE YEA R COMES TO (-) RS. 68,10,785/- {3% OF 22,70,194}. THE DIFFERENCE IN THE BUSINESS LOSS REPORTED AND AS RECOMPUTED I.E. RS. 222,60,840 /- (RS. 290,71,625 RS. 68,10,785} IS HEREBY ADDED BACK TO THE RETURNED INCOME OF THE ASSESSEE. 13 ON APPEAL BEFORE THE LD. CIT(A) DETAILED WRITTEN SUBMISSIONS WERE FILED AND IT WAS MAINLY STATED THA T THE ASSESSING OFFICER HAS REWORKED THE TRADING RESULTS WITHOUT REJECTING OF THE BOOKS OF ACCOUNT WHICH IS NOT PERM ISSIBLE UNDER THE LAW. THE LD. CIT(A) FOUND FORCE IN THESE SUBMISSIONS AND DELETED THE ADDITION. 14 BEFORE US. LD. D.R FOR THE REVENUE SUBMITTED THA T FIRST APPELLATE AUTHORITY IS NOT RIGHT IN ALLOWING RELIEF ON THIS ACCOUNT BY OBSERVING THAT BOOKS OF ACCOUNT HAVE NOT BEEN RE JECTED. IT IS ALWAYS NOT NECESSARY TO REJECT THE BOOKS OF ACCO UNT AND THEN ONLY ESTIMATE THE TURNOVER AND PROFIT. NO SUCH REJ ECTION IS REQUIRED PARTICULARLY IN CASE OF SURVEY AND IN THIS REGARD HE STRONGLY RELIED ON THE FOLLOWING DECISIONS: SURINDER KUMAR CHARANJIT KUMAR, 282 ITR 78 (PH) DHANESH GUPTA AND CO. V CIT, 327 ITR 246 (DHC) CIT V SURINDER PAL NAYAR, 327 ITR 236 (PH) 15 ON THE OTHER HAND, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ALL THE REQUISITE DETAILS WERE FILED BEFORE THE ASSESSING OFFICER. IT WAS PARTICULARLY EXPLAINED TH AT TURNOVER 11 HAS DECREASED BECAUSE THERE WAS SOME FAMILY DISPUTE AND OUT OF TWO UNITS OWNED BY THE ASSESSEE-COMPANY LOCATED IN THE STATE OF PUNJAB AND STATE OF HIMACHAL PRADESH, THE UNIT LOCATED IN HIMACHAL PRADESH WAS SOLD TO THE PARTNER SHIP FIRM IN THE FAMILY SETTLEMENT. HE ALSO VEHEMENTLY ARGUED T HAT IT IS NOT POSSIBLE TO ESTIMATE HIGHER TURNOVER AND APPLY A PA RTICULAR PROFIT RATE WITHOUT POINTING OUT ANY DEFECT IN THE BOOKS OF ACCOUNT AND THEN REJECT THE SAME. THE ASSESSING OF FICER HAS SIMPLY MADE GENERAL OBSERVATIONS. THE ASSESSEE IS MAINLY ENGAGED IN THE BUSINESS OF MANUFACTURING TRANSFORME RS WHICH ARE BEING SOLD ONLY TO THE P.S.E.B AND IT IS NOT PO SSIBLE TO SELL SUCH TRANSFORMERS OUT OF BOOKS BECAUSE THE BOARDS A RE ONLY GOVT AGENCIES. 16 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY. THE LD. CIT(A) HAS ADJUDICATED THIS ISSUE VIDE PARA 3.3 WHICH IS AS UNDER: 3.3 I HAVE GONE THROUGH THE FACTS OF THE ISSUE AND CONSIDERED THE SUBMISSIONS OF THE LD. COUNSELS. A THE OUTSET , IT MAY BE MENTIONED THAT THOUGH THE ASSESSING OFFICER HAS PIN POINTED CERTAIN ASPECTS OF THE FINANCIAL AFFAIRS OF EH ASS ESSMENT PROCEEDINGS IN PARA 3 OF HIS ORDER (WHICH HAVE BEE N REPRODUCED IN PARA 3.1 ABOVE) THESE OBSERVATIONS OF THE ASSESSING OFFICER CANNOT BE TREATED AS D EFFECT IN THE BOOKS OF ACCOU NTS. I WILL NOW EXAMINE SOME OF THE OBJECTIONS OF THE ASSESSING OFF ICER. IT IS MENTIONED BY THE ASSESSING OFFICER THAT THE AUDIT R EPORT DOES NOT CONTAIN ANY EXPLANATION FOR FALL IN TURNOVER. THE ASSESSING OFFICER SHOULD HAVE KNOWN THAT THE AUDITORS ONLY SEE THE AC CURACY OF THE ACCOUNTS AND IT IS NONE OF THEIR BUSINESS TO COMMEN T ON THE FINANCIAL HEALTH OF THE COMPANY. A COMPANY MAY MA KE PROFIT OR LOSS AND THE AUDITORS DO NOT COMMENT, MUCH LESS EXA MINE THE REASONS FOR LOSS OR PROFIT OF THE YEAR. SIMILARLY THE FACT THAT REPAYMENT OF LOAN HAS BEEN MADE OR THE SUNDRY DEBTO RS HAVE INCREASED, CANNOT BE CONSIDERED AS DEFECT IN ACCOUN TS. THESE ARE DULY RECORDED IN THE BOOKS OF ACCOUNT. THE INCREAS E IN FREIGHT CHARGES WITH A FALL IN TURNOVER MAY BE A STARTING P OINT FOR A PROBE INTO THE ACCURACY OF ACCOUNTS AND THE ASSESSING OFF ICER SHOULD HAVE CALLED FOR THE DETAILS OF FREIGHT CHARGES AND CHECKED UP IF FRIGHT WAS DEBITED TO THE ACCOUNTS IN RESPECT OF SO ME SALES/PURCHASES WHICH WERE NOT RECORDED IN THE BOOK S OF ACCOUNT, BUT NO SUCH EXERCISE APPEARS TO HAVE BEEN DONE. SI MILARLY RECEIPT OF APPLICATION MONEY AND SALE OF FIXED ASSETS ON LO SS DOES NOT ESTABLISH THAT THE BOOKS OF ACCOUNT A RE NOT RELIAB LE. IN FACT NO DEFECTS WERE POINTED OUT IN THE BOOKS OF ACCOUNT AN D THE ASSESSING OFFICER PROCEEDED TO RECOMPUTED THE BUSIN ESS LOSS EVEN WITHOUT REJECTING THE BOOKS OF ACCOUNT U/S 145(3) O F THE ACT. THE 12 METHOD OF RECOMPUTATION OF BUSINESS LOSS BY TAKING THE AVERAGE RATE OF LOSS/PROFIT OF THE CURRENT YEAR AND HE PREC EDING TWO YEARS IS ALSO NOT VERY SCIENTIFIC AND ACCEPTED METHOD OF ESTIMATION OF GROSS PROFIT RATE. NO MATERIAL HAS BEEN BROUGHT ON RECORD BY WAY OF SPECIFIC DEFECTS IN THE BOOKS OF ACCOUNT BEFORE RECOMPUTING THE LOSS. IT HAS BEEN OBSERVED BY HON'BLE HIGH COURT O F PUNJAB & HARYANA IN THE CASE OF M/S DUA AND ASSOCIATES (P) L TD, 316 ITR 224 THAT THE BOOKS OF ACCOUNTS OF AN ASSESSEE CANNO T BE REJECTED UNLESS THE ASSESSING OFFICER BRINGS ON RECORD DEFEC TS IN THE BOOKS OF ACCOUNT. BY APPLYING THE RATIO OF THIS JUDGMENT , IT IS HELD THAT SINCE THE ASSESSING OFFICER HAD NOT BROUGHT ANY MAT ERIAL ON RECORD TO POINT OUT DEFECTS IN THE BOOKS OF ACCOUNT, HE CO ULD NOT HAVE REJECTED THE BOOKS OF ACCOUNT AND RECOMPUTED THE BU SINESS LOSS, IPSO-FACTO. THE ADDITION MADE ON THIS ACCOUNT IS A CCORDINGLY DELETED. IN OUR OPINION, THE LD. CIT(A) HAS CORRECTLY ADJUDI CATED THE ISSUE AND HAS MET WITH ALL THE OBJECTIONS RAISED BY THE ASSESSING OFFICER. WE FURTHER FIND THAT THE MAIN RE ASON FOR FALL IN TURNOVER WAS EXPLAINED BECAUSE OUT OF TWO UNITS ONE UNIT LOCATED IN HIMACHAL PRADESH WAS SOLD BY THE ASSESSE E BECAUSE OF FAMILY DISPUTES. THE ASSESSEE HAS FURTHER GIVEN ALL THE DETAILS OF THE EXPENSES ETC. AND IT HAS TO BE KEPT IN MIND THAT EVEN IN LAST YEAR THERE WAS A LOSS DECLARED BY THE ASSESSEE. 17 AS FAR AS THE DECISION OF HON'BLE HIGH COURT OF PUNJAB & HARYANA IN CASE OF SURINDER KUMAR CHARANJIT KUMAR (SUPRA) IS CONCERNED, THE COURT HAS MADE FOLLOWING OBSERVATION S: THE ACCOUNTS REGULARLY MAINTAINED BY AN ASSESSEE IN THE COURSE OF BUSINESS ARE NORMALLY TAKEN AS CORRECT UNLESS TH ERE ARE COGENT REASONS TO INDICATE THAT THE YARE NOT RELIABLE, AND YET IT IS NOT POSSIBLE TO LAY DOWN THE EXACT CIRCUMSTANCES IN WHI CH THESE MAY BE REJECTED AS INCORRECT OR UNRELIABLE. IT IS BASIC ALLY A QUESTION OF FACT TO BE DECIDED ON THE FACTS AND CIRCUMSTANCES O F EACH CASE. SIMILARLY A LOW GROSS PROFIT RATE MAY NOT PER SE LE D TO AN INFERENCE THAT THE ACCOUNTS ARE FALSE BUT COUPLED WITH OTHER RELEVANT CIRCUMSTANCES, IT DOES AFFORD A SUFFICIENT GROUND F OR REJECTION OF THE ACCOUNTS AND ESTIMATION OF PROFITS. PLAIN READING OF ABOVE PARA CLEARLY SHOW THAT THE C OURT HAS NOT LAID DOWN ANY PRINCIPAL AS TO IN WHAT CIRCUMSTANCES THE BOOKS OF ACCOUNT NEED TO BE REJECTED. HOWEVER, THERE IS GENERAL PRINCIPAL THEN WHAT TURNOVER OF THE ASSESSEE IS REQ UIRED TO BE ESTIMATED ON HIGHER FIGURE AND PROFIT IS REQUIRED T O BE ESTIMATED BOOKS OF ACCOUNT NEED TO BE REJECTED. IN OUR 13 OPINION, THE BOOKS OF ACCOUNT NEEDS TO BE REJECTED BY POINTING OUT SPECIFIC DEFECTS WHICH HAS NOT BEEN DONE IN THI S CASE. THEREFORE IN OUR OPINION, THE LD. CIT(A) HAS CORREC TLY ADJUDICATED THE ISSUE AND WE UPHOLD HIS ORDER. 18 IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. 19 IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED WHEREAS APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 10.9.2014 SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 10.9.2014 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/THE DR