ITO, New Delhi V. Sh. Sohan Lal Maheshwari Prop, New Delhi

ITA 1897/DEL/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3802 (ITAT-DELHI)
• Duration Of Justice: 1 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2006-2007
• Appeal Filed On: 18-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B KISHORE
• Keywords: Additional evidence

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH G DELHI ] BEFORE SHRI R. P. TOLANI, JM AND SHRI K. D. RANJ AN, AM I. T. APPEAL NO. 1897 (DEL) OF 2011. ASSESSMENT YEAR : 2006-07. THE INCOME-TAX OFFICER, SHRI SOHAN L AL MAHESHWARI, W A R D : 29 (2), VS. PROP. M/S. SOHAN LAL JAGDISH KUMAR, N E W D E L H I. 484, KATRA ISHWAR BHAWAN , KHARI BAOLI, D E L H I 110 006. P A N / G I R NO. AAQ PM 1254 G. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI KAPIL SHARMA, ADV.; DEPARTMENT BY : SHRI B. KISHORE, SR. D. R. O R D E R. PER K. D. RANJAN, AM : THIS APPEAL BY THE REVENUE FOR ASSESSMENT YEAR 200 6-07 ARISES OUT OF ORDER OF THE LD. CIT (APPEALS)XXV, NEW DELHI. 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE READ AS FOLLOWS :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE LD. CIT (A) HAS ERRED IN RESTRICTING THE ADDITION TO RS.50,808/- IGNORING THAT THE DECLARED NP WAS 2 I. T. APPEAL NO. 1897 (DEL) OF 2011. DETERMINED AT 4 PER CENT AFTER EXCLUDING THE INTERE ST INCOME OF RS.1,26,557/- WHICH IS ASSESSABLE UNDER THE HEAD INCOME FROM OTH ER SOURCES; 2. ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE THE LD. CIT (A) HAS ERRED IN DELETING THE ADDITION OF RS.11,37,144/- BY ACCEP TING THE ADDIONAL EVIDENCE IGNORING THE PROVISIONS OF RULE 46-A OF THE INCOME- TAX RULES 1962 AND ALSO NOT APPRECIATING THAT EVEN THE ADDITIONAL EVIDENCES IS OF MUCH LATER DATE THAN THE DATE OF ASSESSMENT. 3. THE FIRST ISSUE FOR CONSIDERATION RELATES TO DE LETING THE ADDITION ON ACCOUNT OF NET PROFIT. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT SHRI SOHAN LAL MAHESHWARI IS AN IMPORTER AND TRADER IN DRY FRUITS. FOR THE YEAR UNDER CONSIDERATION TH E ASSESSEE EARNED GP RATE OF 8.22 PER CENT AS AGAINST 7.41 PER CENT IN THE AY 200-06 AND 5.87 PER CENT IN AY 2004-05. THE ASSESSEE HAD SHOWN NET PROFIT OF RS.3,32,983/- WHICH INCLUDED O THER INCOME DECLARED AT RS.1,26,557/-. ACCORDING TO THE ASSESSING OFFICER THE COMPARATIV E STUDY REVEALED THE INCREASE IN THE GP RATE, BUT DECLINE IN THE NET PROFIT RATE FROM 3.47 PER CE NT IN THE YEAR UNDER CONSIDERATION FROM 5.42 PER CENT IN THE IMMEDIATE PRECEDING YEAR. THE AO, THER EFORE, INTENDED TO ASSESS NET PROFIT OF 4 PER CENT AS AGAINST 3.47 PER CENT. ON A QUERY IT WAS C LARIFIED BY THE ASSESSEE THAT SALES WERE AT RS.97,06,818/- ON WHICH DISCOUNT OF RS.1,11,033/- W AS ALLOWED, WHICH RESULTED IN NET SALES AT RS.95,94,785/-. ACCORDINGLY NET PROFIT RATIO ALSO DECLINED. THIS CONTENTION OF THE ASSESSEE WAS REJECTED AND HE ESTIMATED PROFIT OF THE ASSESSEE BY APPLYING NET PROFIT RATE OF 4 PER CENT IN THE ABSENCE OF PROPER EXPLANATION. THE ASSESSING OFFICE R ESTIMATED NET PROFIT OF RS.3,83,791/- AS AGAINST RS.3,32,983/-. TO THIS THE ASSESSING OFFICE R FURTHER ADDED OTHER INCOME OF RS.1,26,557/-, WHICH RESULTED IN AN ADDITION OF RS.5,10,348/-( RS. 3,83,791+ RS.1,26,557). 4. ON APPEAL, IT WAS SUBMITTED THAT THE AO WAS NOT JUSTIFIED IN MAKING ADDITION OF RS.50,808/-(3,83,791-3,32,983) BY APPLYING NET PROF IT RATE OF 4 PER CENT WHEN THE ASSESSEE WAS MAINTAINING PROPER BOOKS OF ACCOUNTS. THE LD. CIT (APPEALS) KEEPING IN VIEW THE FACTS OF THE CASE, ARGUMENTS OF ASSESSEE AND THE REMAND REPORT O F THE ASSESSING OFFICER OBSERVED THAT THE AMOUNT OF RS.1,26,557/-, WHICH HAS BEEN ADDED BY TH E AO WAS ALREADY INCLUDED BY THE ASSESSEE 3 I. T. APPEAL NO. 1897 (DEL) OF 2011. IN THE PROFIT AND LOSS ACCOUNT. AS SUCH THE AO WAS NOT JUSTIFIED TO MAKE SEPARATE ADDITION OF RS.1,26,557/-. AS REGARDS THE ADDITION OF RS.50,80 8/-, THE LD. CIT (A) OBSERVED THAT THE ASSESSEE HAS NOT BEEN ABLE TO GIVE ANY SATISFACTORY EXPLANAT ION FOR THE FALL IN NET PROFIT COMPARED TO HIGHER NET PROFIT IN THE IMMEDIATE PRECEDING YEAR. HE FUR THER NOTED THAT THE WITHDRAWALS FOR HOUSE HOLD EXPENSES OF THE ASSESSEE WAS RS.77,190/-, WHICH WAS NOT SUFFICIENT FOR THE WHOLE FAMILY. THE LD. CIT (A) KEEPING IN VIEW SOME LEAKAGE OF REVENUE, UP HELD THE ADDITION OF RS.50,808/- ON ACCOUNT OF NET PROFIT. 5. WE HAVE HEARD BOTH THE PARTIES. THE ASSESSING O FFICER HAS TAKEN NET PROFIT OF 4 PER CENT THOUGH THE GP RATE FOR THE YEAR UNDER CONSIDERATION WAS MUCH HIGHER. THE ASSESSEE HAS TAKEN PROFIT OF RS.3,32,984/-, WHICH INCLUDES OTHER INCOM E OF RS.1,26,555/-. THE LD. CIT (A) HAS UPHELD THE ADDITION OF RS.50,808/- NOT ON THE GROUN D OF LOW NET PROFIT, BUT ON THE GROUND THAT THE HOUSE-HOLD WITHDRAWALS FOR THE ENTIRE YEAR WERE LOW . THE LD. CIT (A) HAS DELETED THE ADDITION OF RS.1,26,557/- ON THE GROUND THAT THE SAME WAS INCLU DED IN THE NET PROFIT SHOWN BY THE ASSESSEE. THE DIFFERENCE OF RS.50,808/- REPRESENTS THE DIFFER ENCE BETWEEN THE NET PROFIT AT THE RATE OF 4 PER CENT AT RS.3,83,791/- AND RS.3,32,983/- DECLARED BY THE ASSESSEE, WHICH INCLUDES OTHER INCOME OF RS.1,26,557/-. MOREOVER ASSESSING OFFICER HAD NOT P OINTED OUT ANY OF THE EXPENDITURE DEBITED TO PROFIT AND LOSS ACCOUNT WHICH HAS BEEN INFLATED. IN THE ABSENCE OF ANY SUCH MATERIAL NO ADDITION CAN BE MADE THAT TOO WITHOUT POINTING OUT ANY DISCR EPANCY IN THE BOOKS OF ACCOUNT AND REJECTING BOOK RESULTS. SINCE THE LD. CIT (A) HAS UPHELD THE ADDITION OF RS.50,808/- ON ACCOUNT OF LOW HOUSE-HOLD WITHDRAWALS, WE DO NOT FIND ANY INFIRMIT Y IN DELETING THE INTEREST INCOME OF RS.1,26,557/- ADDED BY THE ASSESSING OFFICER WHICH IS ALREADY INCLUDED IN NET PROFIT ADMITTED BY THE ASSESSEE. 6. THE NEXT ISSUE FOR CONSIDERATION RELATES TO DELE TING THE ADDITION OF RS.11,37,144/-. THE ASSESSING OFFICER FROM THE BALANCE SHEET FOUND THAT AMOUNT OF RS.11,87,592/- WAS SHOWN AS OUTSTANDING LIABILITY FROM THREE PARTIES FOR LONG T IME. THE AO REQUIRED THE ASSESSEE TO EXPLAIN WHY THE OUTSTANDING LIABILITIES SHOULD NOT BE ADDED TO THE INCOME OF THE ASSESSEE. IT WAS SUBMITTED BY THE ASSESSEE THAT THE LIABILITIES OF A SPURA GUM CHEMICALS AT RS.3,48,574/-; KANWAL 4 I. T. APPEAL NO. 1897 (DEL) OF 2011. AJAY KUMAR RS.4,77,179/-, WHICH WERE UNPAID AS ON 3 1 ST MARCH, 2006 HAD BEEN PAID PARTLY. THE AO NOTED THAT THE ASSESSEE HAD ADMITTED THAT THEY H AD PAID THE PART AMOUNT TO APSURA GUM CHEMICALS RS.28,570/- VIDE DRAFT NO. 7679 DRAWN ON AXIS BANK ON 14/10/2008 PAYABLE AT JODHPUR, KANWAL AJAY KUMAR RS.27,179=80 VIDE DRAFT NO.7680 DRAWN ON 14/11/2008 PAYABLE AT JODHPUR. THE AO FURTHER NOTED THAT THE BALANCE AMO UNT WAS NOT PAYABLE AS ON 31 ST MARCH, 2006 AND THE PART PAYMENTS WERE MADE ON 14/10/2008 WHEN THE ASSESSMENT WAS ON FINAL STAGE. THEREFORE, THE ASSESSEE FAILED TO DISCHARGE THE ONU S THAT THE AMOUNT HAD NOT CEASED AS LIABILITY AS ON 31 ST MARCH, 2006. FURTHER THE ASSESSEE HAD NOT DISCLOS ED THE ADDRESS OF THE PARTY. THE AO INVOKED THE PROVISIONS OF SECTION 41(1) OF THE ACT AND ADDED THE AMOUNT OF RS.11,37,144/-. ON APPEAL, IT WAS SUBMITTED THAT THERE WAS NO CESSATIO N OF LIABILITY AS PER BOOKS OF ACCOUNTS, WHICH WERE AUDITED. THEREFORE, THE AO WAS NOT JUSTIFIED TO MAKE ADDITION WHEN THE ASSESSEE HAD NOT RECEIVED ANY BENEFIT AS THE LIABILITY WAS STILL OUT STANDING AGAINST THE ASSESSEE. THE LD. CIT (A) AFTER OBTAINING REMAND REPORT FROM THE AO OBSERVED THAT THERE WAS NO CESSATION OF LIABILITY AS PROVIDED UNDER SECTION 41(1). THE LIABILITY WAS ST ILL OUTSTANDING AS PER BOOKS OF ACCOUNTS. THE AO HAD ALLOWED BENEFIT OF RS.28,570/- IN THE CASE O F ASPURA GUM CHEMICALS AND AN AMOUNT OF RS.27,179/- IN THE CASE OF KANWAL AJAY KUMAR. THE LD. CIT (A), THEREFORE, DELETED THE ADDITION. 7. BEFORE US THE LD. AR OF THE ASSESSEE SUBMITTED T HAT THERE WAS NO CESSATION OF LIABILITY AND, THEREFORE, PROVISIONS OF SECTION 41(1) OF THE ACT W ERE NOT APPLICABLE. ON THE OTHER HAND, THE LD. SR. DR SUPPORTED THE ORDER OF THE AO. 8. WE HAVE HEARD BOTH THE PARTIES. THE AO HAD MADE ADDITION ON ACCOUNT OF OUTSTANDING LIABILITIES REMAINED UNPAID FOR A LONG TIME. THE O UTSTANDING AMOUNTS HAVE NOT BEEN WRITTEN BACK IN THE BOOKS OF ACCOUNTS. THEREFORE, PROVISIONS OF SECTION 41(1) OF THE ACT ARE NOT ATTRACTED. THE AO HAD ALLOWED BENEFIT OF RS.28,570/- IN THE CASE O F ASPURA GUM CHEMICALS AND RS.27,179/- IN THE CASE OF KANWAL AJAY KUMAR. SINCE THE AMOUNT OU TSTANDING AGAINST THE PARTIES HAS NOT BEEN WRITTEN BACK IN THE BOOKS OF ACCOUNTS, THE SAME CAN NOT BE ADDED UNDER SECTION 41(1) OF THE ACT. ACCORDINGLY, THE LD. CIT (A) WAS JUSTIFIED IN DELET ING THE ADDITION. 5 I. T. APPEAL NO. 1897 (DEL) OF 2011. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON : 17 TH JUNE, 2011. SD/- SD/- [ R. P. TOLANI ] [ K. D. RANJAN ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 17 TH JUNE, 2011. *MEHTA * COPY OF THE ORDER FORWARDED TO : - 1. APPELLANT. 2. RESPONDENT. 3. CIT, 4. CIT (APPEALS), 5. DR, ITAT, NEW DELHI. TRUE COPY. BY ORDER. ASSISTANT REGISTRAR, ITAT.