ITO, Ward - 45(4), Kolkata, Kolkata V. Rameswar Lal Agarwal, Kolkata

ITA 1597/KOL/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 5488 (ITAT-KOLKATA)
• Duration Of Justice: 3 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2010
• Appeal Filed By: Department
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 11-08-2010
• Court: TRIBUNAL
• Department Lawyers: PIYUSH KOLHE
• Assessee Lawyers: A K TULSIYAN
• Keywords: Bogus purchase; Reason to believe

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL, BEN CH B, KOLKATA () BEFORE . . . . . . . . , ,, , SHRI B.R.MITTAL, JUDICIAL MEMBER. ! ! ! ! /AND . .. .'# '#'# '#. .. . , $% SHRI C.D. RAO, ACCOUNTANT MEMBER !& !& !& !& / ITA NOS. 1597/KOL/2010 '( )* / ASSESSMENT YEARS : 2007-08 (,- / APPELLANT ) I.T.O., WARD-45(2), KOLKATA - ' - - VERSUS - (/0,-/ RESPONDENT ) RAMESWAR LAL AGARWAL (PAN:ADCPA 2926Q) ,- 1 2 $/ FOR THE APPELLANT: SHRI PIYUSH KOLHE /0,- 1 2 $ / FOR THE RESPONDENT : SHRI A. K. TULSIYAN $3 / ORDER ( . .. .'# '#'# '#. .. . ) $% PER SHRI C.D.RAO, A.M . THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE C.I.T.(A)- XXX, KOLKATA DATED 25.05.2010 FOR THE ASSESSMENT YE AR 2007-08. 2. THE THREE GROUNDS TAKEN BY THE REVENUE IN THIS APPEAL ARE AS UNDER: 1. THAT THE LD. CIT(A) ERRED IN DELETING THE ADDITI ON OF RS.1,68,028/- ON ACCOUNT OF DISALLOWANCE OF BROKERAGE. 2. THAT LD. CIT(A) ERRED IN DELETING THE ADDITION O F RS.1,35,800/- ON ACCOUNT OF DISALLOWANCE OF SALARY & BONUS. 3. THAT THE LD. CIT(A) ERRED IN DELETING THE ADDIT ION OF RS.60,27,011/- [@95% OF RS.(19,145+44,447+5,83,918+6,31,274+50,65, 438)] ON ACCOUNT OF UNDISCLOSED SALES & BOGUS PURCHASE. . 3. BRIEF FACTS IN RESPECT OF FIRST GROUND ARE THAT THE AO HAS DISALLOWED AN AMOUNT OF RS.1,68,022/- UNDER THE HEAD BROKERAGE BY OBS ERVING THAT THE PAYMENT OF BROKERAGE HAS BEEN MADE TO SHRI ALOK AGARWAL AND SR I ANUP AGARWAL, WHO ARE THE 2 SONS OF THE ASSESSEE. HE FURTHER OBSERVED THAT THER E IS NO NEED FOR THE ASSESSEE TO MAKE THE PAYMENT OF THE BROKERAGE AS MOST OF THE DEBTORS WERE OLD CUSTOMERS AND THE ABOVE TWO PERSONS, TO WHOM THE BROKERAGE HAS BEEN PAID, H AVE NOT BROUGHT OR INTRODUCED NEW CUSTOMERS. HE FURTHER OBSERVED THAT THE ABOVE T WO PERSONS ARE ALSO EMPLOYEES OF THE ASSESSEE AND DRAWING SALARIES. THEREFORE, HE DI SALLOWED THE SAME. 4. ON APPEAL, THE LD. CIT(A) HAS DISALLOWED THE ADD ITION BY OBSERVING THAT THE AO HAS NOT BROUGHT ON RECORD ANYTHING TO INDICATE T HAT THE AFORESAID TWO PERSONS HAVE NOT RENDERED ANY SERVICES TO RUN THE BUSINESS OF TH E ASSESSEE IN TERMS OF EFFECTING SALES. THE AOS CONTENTION IS THAT THE ABOVE TWO PE RSONS PLAYED SOME ROLE AGAINST THE ALLEGED SALES AS EMPLOYEES OF THE ASSESSEE COULD NO T BE ACCEPTED IN ITS ENTIRETY. NOTHING PREVENTED THEM TO CLAIM BROKERAGE, BESIDES GETTING SALARIES FROM THE ASSESSEE 5. AGGRIEVED BY THIS, THE REVENUE IS IN APPEAL BEFO RE US. 6. AT THE TIME OF HEARING, THE LD. D.R., APPEARING ON BEHALF OF THE REVENUE, HAS HEAVILY RELIED ON THE ORDERS OF THE AO AND FURTHER SUBMITTED THAT THE ASSESSEE IS NOT IN A POSITION TO ESTABLISH THE NECESSITY FOR MAKING PA YMENT OF THE BROKERAGE IN ADDITION TO SALARY DRAWN BY THEM. 7. ON THE OTHER HAND, THE LD. COUNSEL, APPEARING ON BEHALF OF THE ASSESSEE, HAS RELIED ON THE ORDERS OF THE LD. CIT(A) AND FURTHER CONTENDED THAT THOUGH THE TWO PARTIES ARE SONS OF THE ASSESSEE, THEY ARE DRAWING A MEAGER AMOUNT AS SALARY AND THE BROKERAGE HAS BEEN PAID IN ADDITION TO SALARY FOR T HE SERVICES RENDERED FOR MAINTAINING GOOD RELATIONS WITH THE CUSTOMERS AND BOTH THE SONS HAVE ALREADY DECLARED THE SUM OF BROKERAGE AS THE INCOME IN THEIR RETURN. FURTHER, H E SUBMITTED THAT THESE PERSONS ARE ALSO DRAWING BROKERAGE/COMMISSION FROM SAREE HOUSE PRIVATE LTD. ALSO. IN SUPPORT OF THIS, HE FILED THE COMPUTATION OF INCOME IN RESPECT OF TWO PERSONS WHEREIN THEY DECLARED THE BROKERAGE. THEREFORE, HE REQUESTED TO UPHOLD THE ACTION OF THE LD. CIT(A). 8. AFTER HEARING THE RIVAL SUBMISSIONS AND ON CAREF UL PERUSAL OF THE MATERIALS AVAILABLE ON RECORD, KEEPING IN VIEW OF THE FACT TH AT THE SALARY AND BONUS DRAWN BY 3 THESE TWO PERSONS ARE VERY NOMINAL I.E. RS.52,000/- BY SHRI ALOK AGARWAL AND RS.45,500/- BY SHRI ANUP AGARWAL, WE FIND NO INFIRM ITY IN THE ORDERS OF THE LD. CIT(A) TO BE INTERFERED WITH. THUS, THIS GROUND OF THE REVENUE IS DISMISSED. 9. BRIEF FACTS RELATING TO THE GROUND NO.2 RAISED B Y THE REVENUE ARE THAT THE AO DISALLOWED AN AMOUNT OF RS.1,35,800/- ON ACCOUNT OF SALARY AND BONUS BY OBSERVING THAT THE ASSESSEE CLAIMED PAYMENT OF SALARY TO 11 E MPLOYEES BUT AT THE TIME OF SURVEY ON 06.03.07, ONLY FOUR PERSONS WERE PRESENT INCLUDI NG SHRI ALOK AGARWAL AND SHRI ANUP AGARWAL, TWO SONS OF THE ASSESSEE. THEREFORE, THE AO HELD THAT THE CLAIM OF SALARY AGAINST SEVEN EMPLOYEES WHO WERE ABSENT WAS INFLATED AND ACCORDINGLY HE DISALLOWED RS.1,35,800/-. 10. ON APPEAL, THE LD. CIT(A) HAS DELETED THE SAME BY OBSERVING THAT THE AO HAS NOT BROUGHT ANY MATERIAL ON RECORD. THE DATE OF SUR VEY APPEARS TO BE COINCIDING WITH THE TIME OF HOLI FESTIVAL FOR WHICH THERE IS EVERY REASON TO BELIEVE THAT THE SEVEN EMPLOYEES, WHO WERE ABSENT ON THE DATE OF SURVEY, M UST HAVE GONE ON HOLIDAY. PAYMENT OF RS.1,35,800/- MADE TO SEVEN PERSONS ON A VERAGE MONTHLY PAYMENT OF RS.1,617/- IS CERTAINLY NOT REASONABLE CONSIDERING THE VOLUME OF BUSINESS. THE AO DID NOT MAKE ANY ENQUIRY TO FIND OUT WHETHER THE PAYMEN T OF SALARY TO THESE PERSONS WAS BOGUS OR IN OTHER WORDS, SEVEN PERSONS TO WHOM SALA RY WAS ALLEGEDLY PAID BY THE APPELLANT DID NOT RENDER ANY SERVICES. THE LD. CIT( A), BEFORE GIVING DIRECTION TO THE AO TO DELETE THE ADDITION, CONSIDERED THE CASE LAWS CITED BY THE ASSESSEE AND FOUND THAT THE A.O HAS DISALLOWED THE PAYMENT OF SALARY W ITHOUT SUFFICIENT REASONS AND BEING SATISFIED WITH THE EXPLANATION OF THE ASSESSEE, HEL D THAT THE DISALLOWANCE OF PAYMENT OF SALARY IS UNJUSTIFIED. 11. AGGRIEVED BY THIS, NOW THE REVENUE IS IN APPEAL BEFORE US. 12. AT THE TIME OF HEARING, THE LD. D.R. RELIED ON THE ORDERS OF THE AO AND FURTHER OBSERVED THAT ONUS IS ON THE ASSESSEE TO SUBSTANTIA TE THAT ALL THE PERSONS ARE WORKING FOR THE ASSESSEE. HE FURTHER SUBMITTED THAT THE REA SONING GIVEN BY THE LD. CIT(A) IS NOT SUFFICIENT TO DELETE THE ADDITION MADE BY THE A O. 4 13. ON THE OTHER HAND, THE LD. COUNSEL, APPEARING O N BEHALF OF THE ASSESSEE, HAS RELIED ON THE ORDERS OF THE LD. CIT(A) AND BY REFER RING TO THE COPIES OF THE ACCOUNTS RIGHT FROM THE ASSESSMENT YEAR 1999-2000 TO 2007-08 , POINTED OUT THAT THE ASSESSEE HAS BEEN REGULARLY MAINTAINING THESE EMPLOYEES IN H IS ROLLS AND THERE IS NO DISALLOWANCE ON ACCOUNT OF SALARIES FOR THOSE RESP ECTIVE YEARS. THEREFORE, HE REQUESTED TO UPHOLD THE SAME. 14. AFTER HEARING THE RIVAL SUBMISSIONS AND ON CARE FUL PERUSAL OF THE MATERIALS AVAILABLE ON RECORD, WE FIND NO INFIRMITY IN THE OR DERS OF THE LD. CIT(A) TO BE INTERFERED WITH. HENCE, WE CONFIRM THE SAME BY DISM ISSING THE GROUND OF THE REVENUE. 15. BRIEF FACTS, IN RESPECT OF THE LAST GROUND TAKE N BY THE REVENUE IN THIS APPEAL, ARE THAT WHILE DOING THE SCRUTINY ASSESSMENT, THE A O HAS MADE THE ADDITION OF RS.OF RS.19,145/- ON ACCOUNT OF UNDISCLOSED SALES BY OBSE RVING THAT NET SALES TO M/S. SUPER SAREES AMOUNTED TO RS.23,35,399/- WHEREAS THE SAID PARTY CONFIRMED PURCHASE OF RS.23,54,484/-. THUS, THERE AROSE A DISCREPANCY OF RS.19,145/- WHICH COULD NOT BE EXPLAINED BY THE ASSESSEE. AGAIN, THE AO OBSERVED T HAT THE ASSESSEE HAS SHOWN NET SALES OF RS.3,95,353/- TO MR. TARIKA EXCLUSIVE WHER EAS THE LATTER CONFIRMED THE NET PURCHASE FROM THE ASSESSEE AT RS.4,39,800/-. AFTER ADJUSTMENT OF DISCOUNT, DD CHARGES, ETC. THE AO FOUND THAT THERE IS A DIFFEREN CE OF RS.44,447/- WHICH COULD NOT BE EXPLAINED BY THE ASSESSEE. HENCE, HE DISALLOWED THE SAME ALSO. FURTHER, DURING THE COURSE OF SURVEY, STOCK OF 6037 PIECES OF GOODS WER E FOUND AND INVENTORISED BY THE SURVEY TEAM WHICH WAS VALUED AT RS.20,24,015/- WHER EAS, FROM THE COMPUTER INKL WHICH THE ACCOUNTS OF THE ASSESSEE WAS MAINTAINED S TOCK OF 7495 PIECES OF GOODS WERE FOUND WHICH WAS VALUED AT RS.28,02,390/- AS ON 1-3- 07. THE ASSESSEE FILED RECONCILIATION OF STOCK WHICH WAS NOT ACCEPTED BY T HE AO. THE AO FOUND DIFFERENCE OF RS.5,83,918/- WHICH HE CONSIDERED AS BOGUS PURCH ASE AND ADDED TO THE INCOME OF THE ASSESSEE. AGAIN, THE AO, AT PAGE 4 OF THE ASSES SMENT ORDER HAS ELABORATELY DISCUSSED ABOUT THE UNDISCLOSED SALE AND FOUND THAT THERE IS A DIFFERENCE WITH REGARD TO SALE MADE TO VARIOUS PARTIES AND HENCE ADDED TO RS. 6,31,274/- AS UNDISCLOSED SALE TO THE TOTAL INCOME OF THE ASSESSEE. FURTHER, THE AO, AT PAGE 5 OF THE ASSESSMENT ORDER, 5 HAS FOUND OUT UNDISCLOSED SALE OF RS.50,65,438/-. T HE AO, AFTER TAKING INTO ACCOUNT THE QUANTITATIVE DETAILS, CALCULATED TOTAL SALE AT RS.2,60,68,585/- WHEREAS THE ASSESSEE HAS SHOWN SALES OF RS.2,10,03,147/-, THEREBY ARISIN G THE DIFFERENCE OF RS.50,65,438/- WHICH HE HAS TAKEN AS UNDISCLOSED SALES AND ADDED T O THE TOTAL INCOME OF THE ASSESSEE. 16. ON APPEAL, THE LD. CIT(A) HAS RESTRICTED THE AD DITION TO 5% OF THE TOTAL TURNOVER BY OBSERVING AS UNDER: THE TOTAL UNDISCLOSED PURCHASE AND SALE IN THIS CAS E COMES TO RS.63,25,077/-. THE APPELLANT HAD SHOWN GROSS PROFI T @2.3% WHICH APPEARS TO BE ON A LOWER SIDE. THE A.O. HAS RIGHTLY CONSIDERED THE DISCREPANCY REFLECTED IN THE ASSESSMENT AS UNDISCLO SED PURCHASE AND SALE BUT WHILE DOING SO, HE HAS NOT TAKEN INTO ACCO UNT THE FACT THAT THE PROFIT ELEMENT IN RESPECT OF THE UNACCOUNTED PURCHA SE AND SALE HAS TO BE CONSIDERED AS THE UNDISCLOSED INCOME. HAVING REGARD TO THE EXPLANATION OF THE APPELLANT AND VARIOUS CASE LAWS CITED SUPRA, I AM OF THE OPINION THAT THE PROFIT IN THIS CASE SHOULD BE ESTIMATED ON THE UNACCOUNTED PURCHASE AND SALE. IN ORDER TO ESTIMATE PROFIT/INCO ME ELEMENT ON THE UNACCOUNTED PURCHASE AND SALE, A COMPARABLE CASE I. E. M/S. SIDDHI VINAYAK SAREES, 23B, KALAKAR STREET, KOLKATA HAS BE EN TAKEN FROM WHICH IT IS SEEN THAT THE SAID ASSESSEE HAS SHOWN PROFIT AT 5% OF THE TURNOVER FOR THE A.YR. 2006-07. THERE IS ANOTHER CASE NAMELY NASIM GOREY, VILL- CHENGAIL, P.O. ULUBERIA, DIST. HOWRAH, WHERE THE LD. C.I.T.(A) HAS TAKEN THE PROFIT AT 5% OF THE TURNOVER IN ITA A PPEAL NO.171/CIT(A)- XXX/CIRCLE-48/2007-08 FOR A.YR 2004-05. IN CASE OF SK. MEHBOOB, IN APPEAL NO.169/CIT(A)-XXX/CIR-48/2007-08, THE NET PR OFIT HAS BEEN ESTIMATED AT 5% OF THE TURNOVER. ACCORDINGLY, IN TH IS CASE ALSO, I AM INCLINED TO TAKE PROFIT AT 5% OF THE TURNOVER. AS D ISCUSSED ABOVE, THE TOTAL UNDISCLOSED PURCHASE AND SALE COMES TO RS.62, 25,077 AND 5% THEREOF COMES TO RS.3,16,253/-. THE APPELLANT, THUS , GETS RELIEF OF RS.60,08,824/- (RS.63,25,077/-- RS.3,16,253). 17. AGGRIEVED BY THIS, NOW THE REVENUE IS IN APPEAL BEFORE US. 18. AT THE TIME OF HEARING, THE LD. D.R. RELIED ON THE ORDERS OF THE AO AND CONTENDED THAT THE LD. CIT(A) IS NOT JUSTIFIED TO R ESTRICT THE ADDITION TO ONLY 5%. THE LD. CIT(A) HAS ALSO NOT CONSIDERED THE INVESTMENT O N CAPITAL ON ACCOUNT OF UNACCOUNTED PURCHASE AS WELL AS SALES. THEREFORE, H E REQUESTED TO SET ASIDE THE MATTER TO THE FILE OF THE AO FOR FRESH CONSIDERATION. 6 19. ON THE OTHER HAND, THE LD. COUNSEL, APPEARING O N BEHALF OF THE ASSESSEE, HAS SUBMITTED THAT THE ESTIMATION OF INCOME AT 5% HAS B EEN UPHELD BY THIS TRIBUNAL IN VARIOUS CASES UNDER THE SIMILAR FACTS AND CIRCUMSTA NCES. HE FURTHER SUBMITTED THAT IN THE CASE OF THE ASSESSEE, THE G.P. COMES TO RS.1,48 ,007/- WHEREAS THE LD. CIT(A) HAS ESTIMATED THE INCOME AT 5%. THIS INCLUDES THE INVES TMENT MADE ON ACCOUNT OF UNACCOUNTED PURCHASE AS WELL AS SALES. THEREFORE, H E REQUESTED TO UPHOLD THE SAME. 20. AFTER HEARING THE RIVAL SUBMISSIONS AND ON CARE FUL PERUSAL OF THE MATERIALS AVAILABLE ON RECORD, KEEPING IN VIEW OF THE FACT TH AT THE AO IS NOT JUSTIFIED TO ADD THE ENTIRE UNDISCLOSED PURCHASES AS WELL AS SALES BUT T HE ONLY INCOME ELEMENT ON ACCOUNT OF ALES AND THE INVESTMENT PORTION ON ACCOUNT OF PU RCHASES ARE ONLY SUPPOSED TO BE TREATED AS INCOME OF THE ASSESSEE. IN THE PRESENT C ASE, THE ASSESSEE HAS SHOWN A GROSS PROFIT OF 2.34% AND THE SAME HAS BEEN ACCEPTED BY T HE REVENUE. THE ADDITION RESTRICTED BY THE LD. CIT(A) AT 5% IS JUSTIFIED IN THE FACTS AND CIRCUMSTANCES OF THE CASE. THEREFORE, WE FIND NO INFIRMITY IN THE ORDERS OF THE LD. CIT(A). HENCE, WE CONFIRM THE SAME AND DISMISS THE GROUND OF THE REVE NUE. 21. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. 4 $3 5 6' 7 48 ORDER PRONOUNCED IN THE COURT ON 10.12.2010. SD/- SD/- . . . . . . . . , ,, , B.R.MITTAL, JUDICIAL MEMBER . .. .'# '#'# '#. .. . , $% C.D. RAO, ACCOUNTANT MEMBER ( (( (#% #% #% #%) )) ) DATE: 10.12.2010 MST(SR.P.S.) $3 1 /9 :$9);- COPY OF THE ORDER FORWARDED TO: 1. RAMESWAR LAL AGARWAL, PROP. OF M/S. RAMSONS, 42, SH IVTALA STREET, KOLKATA- 700 007. 2. I.T.O., WARD-45(2), KOLKATA, 3. THE CIT(A), 4. THE CIT 5 . DR, KOLKATA BENCHES, KOLKATA 09 // TRUE COPY, $3'6/ BY ORDER, DEPUTY /ASST. REGISTRAR , ITAT, KOLKATA BENCHES 7 .