The ACIT, Circle-5, RAJKOT-GUJARAT V. Shri Dineshkumar Valjibhai Sanadiya,

ITA 20/RJT/2012

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 6823 (ITAT-RAJKOT)
• Duration Of Justice: 5 year(s) 11 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 12-11-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 12-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARVIND N SONTAKKE
• Keywords: Business income
• Section: 69C; 143(3); 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH , RAJKOT BEFORE: SHRI S.S. GODARA, JUDICIAL MEMBER AND S H RI AMARJIT SINGH , ACCOUNTANT MEMBER [CONDUCTED THROUGH E - COURT AT AHMEDABAD] ACIT, CIRCLE - 5 , RAJKOT (APPELLANT) VS SHRI DINESHKUMAR VALJIBHAI, SANANDIYA, NEKAM, (MORBI) P AN: AFPPP0229N (RESPONDENT) REVENUE BY : S H RI ARVIND N. SONTAKKE , SR. D . R. ASSESSEE BY: S H RI KALPESH DOSHI , A.R. DATE OF HEARING : 20 - 1 1 - 2 017 DATE OF PRONOUNCEMENT : 19 - 12 - 2 017 / O RDER P ER : AMARJIT SINGH, ACCOUNTANT MEMBER : - THI S REVENUE S APPEAL FOR A.Y. 2008 - 09 , AR ISES FROM ORDER OF THE CIT(A) - IV, RAJKOT DATED 14 - 11 - 2011 , IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . 2. THE REVENUE H AS RAISED FOLLOWING GROUNDS OF APPEAL: - I T A NO . 20 / RJT /20 12 A SSESSMENT YEAR 200 8 - 09 I.T.A NO. 20 /RJT /20 12 A.Y. 2008 - 09 PAGE NO ACIT VS. SHRI DINESHKUMAR VALJIBHAI SANANDIYA 2 1. THE LD. CIT(A) - IV, RAJKOT HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE BY THE AO OF RS. 24,84,854/ - ON ACCOUNT OF ESTIMATION GROSS PROFIT AT THE FATE OF 3.95%, WITHOUT APPRECIATING THE FACTS BROUGH T ON RECORD BY THE AO. 2. THE LD. CIT(A) - IV, RAJKOT HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE BY THE AO OF RS. 1,29,000/ - ON ACCOUNT OF DISALLOWANCE OF SALARY EXPENSES, WITHOUT APPRECIATING THE FACTS BROUGHT ON RECORD BY THE AO. 3. ON THE FACTS OF THE CASE AND IN LAW THE LD. CIT (A) OUGHT TO HAVE UPHELD THE ORDER OF THE AO. 4. ANY OTHER GROUND THAT THE REVENUE MAY RAISE BEFORE OR DURING HEARING PROCEEDINGS , BEFORE THE HON'BLE ITAT. 5. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE CIT(A ) - IV, RAJKOT MAY KINDLY BE SET - ASIDE AND THAT OF ASSESSING OFFICER BE RESTORED. 3. IN THIS CASE, RETURN OF INCOME DECLARING INCOME OF RS. 6 , 9 3,650/ - WAS FILED ON 26 TH SEPTEMBER, 2009. SUBSEQUENTLY, THE CASE WAS SELECTED UNDER SCRUTINY BY ISSUING OF NOTIC E U/S. 143(2) OF THE ACT ON 25 TH AUGUST, 2009. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS DECLARED GROSS PROFIT @ 2% DURING T HE YEAR UNDER CONSIDERATION. T HE ASSESSING OFFICER ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE THAT THAT THERE WAS A S URVEY ACTION IN THE CASE OF THE ASSESSEE ON 4 TH AUGUST, 2009 AND IT WAS NOTICED THAT ASSESSEE HAS BEEN CONSISTENTLY SHOWING GP @ 2% FOR THE LAST 3 YEARS WHEREAS IN SURVEY ACTION IT WAS REVEALED THAT GROSS PROFIT WAS A CTUALLY 3.95%. T HEREFORE, HE WAS ASKED TO EXPLAIN WHY NOT THE GP RATE SHOULD NOT BE ADOPTED AS SHOWN IN THE ACCOUNT BOOK ON THE DATE OF SURVEY . IN REPLY, THE ASSESSEE EXPLAINED THAT HE HAS BEEN MAINTAINING REGULAR BOOKS OF ACCOUNTS / DOCUMENTS . THE SA LES AND PURCHASES ARE DULY SUPPORTED WITH BILLS AND VOUCHERS, THEREFORE, REQUESTED THAT T HE PROFIT RATE SHOULD NOT BE DISTURBED . THE ASSESSING OFFICER HAS NOT ACCEPTED THE EXPLANATION OF THE ASSESSEE AND ADOPTED THE GROSS PROFIT RATE 3.95% DETERMIN ED ON THE DATE OF SURVEY ON THE SALE OF RS. 12 , 74 , 28 , 528/ - AND COMPUTED I.T.A NO. 20 /RJT /20 12 A.Y. 2008 - 09 PAGE NO ACIT VS. SHRI DINESHKUMAR VALJIBHAI SANANDIYA 3 THE TOTAL GROSS PROFIT AT RS. 50 , 33 , 426/ - AS AGAINST GROSS PROFIT OF RS. 25 , 48 , 5 3 7/ - SHOWN BY THE ASSESSEE IN THE BOOKS OF ACCOUNT, CONSEQUENTLY, THE ASSESSING OFFICER HAD MADE ADDIT ION OF RS. 24 , 84 , 854/ - TO THE TOTAL INCOME OF THE ASSESSEE. 4. AGGRIEVED AGAINST T H E ORDER OF THE ASSESSING OFFICER, ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS ALLOWED THE APPEAL OF THE ASSESSEE BY OBSE RV ING AS UNDER: - 4. I HAVE GONE THROUGH THE ASSESSMENT ORDER AND SUBMISSIONS OF APPELLANT. A SURVEY U/S 133A WAS CARRIED OUT AT THE PREMISES OF APPELLANT ON 04 - 08 - 2008. APPELLANT HAD SUBMITTED BEFORE THE ASSESSING OFFICER THE TRADING ACCOUNT FOR THE PERIOD 01 - 04 - 2008 TO 04 - 08 - 2008, IE THE DATE OF SURVEY, DURING THE ASSESSMENT PROCEEDINGS OF ASSESSMENT YEAR UNDER APPEAL, IN THE MANNER AS UNDER: 1 - 4 - 2008 TO 4 - 8 - 2008 DEBIT AMOUNT CREDIT AMOUNT OPENING STOCK 11916475 SALE 55216158 PURCHASE 53779150 STOCK AS PER BOOKS ON THE DA TE OF SURVEY 15686869 FREIGHT 477659 STOCK ACTUALLY FOUND AT THE TIME OF SURVEY 20299719 PACKAGING PURCHASE 2548991 EXCESS STOCK 4612580 GOSS PROFIT 2180752 70903027 70903027 THERE IS NO EXPLANATION AS HOW THE BOOK STOCK OF RS 1568 6869/ - WAS DETE RMINED ON THE DATE OF SURVEY ON 04 - 08 - 2008. APPELLANT HAS ARGUED THAT THE GROSS PROFIT IN HIS BUSINESS IS 2% BUT IF THE BOOK STOCK ON THE DATE OF SURVEY IS CONSIDERED AT RS 15686869/ - THE GP IS 3.95% WHICH IS IN CONSISTENT WITH APPELLANT'S OWN ARGUMENT OF JUSTIFYING THE GP TO BE CONSISTENTLY ABOUT 2%. THEREFORE, IT APPEARS THAT APPELLANT HAS CONSIDERED BOOK STOCK OF RS 1,56,86,869/ - AS ON 04 - 08 - 2008 AT A HIGHER FIGURE. A 2% GP ON SALE OF RS. 55216158/ - WOULD YIELD A GROSS PROFIT OF RS. 1104323/ - ONLY INS TEAD OF RS 2180752/ - . IT MEANS THAT THE BOOK STOCK OF RS 15686869/ - ON 04 - 08 - 2008 HAS BEEN SHOWN BY APPELLANT HIGHER BY ABOUT RS 10.8 LAKH. IT WOULD MEAN THAT APPELLANT HAS SHOWN THE EXCESS STOCK FOUND AT T HE TIME OF SURVEY ON 04.0 8 .2008 LESS ABOUT RS. 10. 8 LAKH IN ASSESSMENT YEAR 2009 - 10. APPELLANT HAS DECLARED THE EXCESS STOCK FOUND AT THE TIME OF SURVEY AT RS. 46.1 LAKH IN THE RETURN OF INCOME OF ASSESSMENT YEAR 2009 - 10 AND IF CONSISTENCY OF GP OF 2% IN THE BUSINESS OF APPELLANT IS CONSIDERED, THE EXCES S STOCK SHOULD HAVE BEEN ABOUT RS. 57 LAKH. IN THE TRADING ACCOUNT OF ASSESSMENT YEAR 2009 - I.T.A NO. 20 /RJT /20 12 A.Y. 2008 - 09 PAGE NO ACIT VS. SHRI DINESHKUMAR VALJIBHAI SANANDIYA 4 10, APPELLANT HAS NOT EXPLAINED THE SOURCE OF ACQUISITION OF EXCESS STOCK FOUND AT THE TIME OF SURVEY ON 4 - 8 - 2008. APPELLANT HAS SIMPLY CONSIDERED IT AS UNACCOUNTED PURCHASES AND DEBITED THE SAME IN TRADING ACCOUNT AND THEN CREDITED THE SAME AMOUNT AS INCOME IN P&L A/C. THE UNEXPLAINED PURCHASES ARE DEEMED AS INCOME U/S 69C OF THE IT. ACT. THE APPELLANT HAS CONSIDERED THE EXCESS STOCK FOUND AT THE TIME OF SURVEY AS IN COME SEPARATELY AND HAS REFLECTED THE SAME AS SALE/CLOSING STOCK IN THE PERIOD SUBSEQUENT TO THE DATE OF SURVEY. HOWEVER, APPELLANT CANNOT INCLUDE THIS INCOME UNDER THE HEAD BUSINESS INCOME IN ASSESSMENT YEAR 2009 - 10 BECAUSE UNACCOUNTED PURCHASE DOES NOT E STABLISH THE SOURCE UNDER ANY HEAD OF INCOME. SUCH INCOME SHOULD BE SHOWN SEPARATELY AS INCOME U/S 69C. THIS IS RELEVANT BECAUSE FOR THE PERIOD AFTER THE DATE OF SURVEY ON 4 - 8 - 2008, NO LOSS CAN BE CLAIMED ON THE STOCK DECLARED AS UNACCOUNTED PURCHASES AS P ER EXPLANATION TO SECTION 69C OF THE I.T. ACT. THEREFORE, THE FALL IN GP TO 0.87% IN THE PERIOD AFTER SURVEY, AS PER THE TRADING ACCOUNT SUBMITTED BY APPELLANT FOR THE PERIOD 05 - 08 - 2008 TO 31 - 03 - 2009 DURING THE ASSESSMENT PROCEEDING, IS ALSO A SUBJECT MATT ER OF INVESTIGATION TO DETERMINE WHETHER ANY LOSS HAS BEEN CLAIMED OUT OF THE SALE OF EXCESS STOCK DEEMED AS INCOME U/S 69C. THE UNDISPUTED FACT IS THAT THE APPELLANT HAS ADMITTED THE ERROR IN THE BOOKS OF ASSESSMENT YEAR 2009 - 10 BECAUSE OF UNACCOUNTED PUR CHASES IN ASSESSMENT YEAR 2009 - 10. HOWEVER, THESE ARE ISSUES RELEVANT FOR ASSESSMENT YEAR 2009 - 10. ON THE OTHER HAND, THE ASSESSING OFFICER HAS ATTRIBUTED THE REASON OF EXCESS STOCK FOUND AT THE TIME OF SURVEY TO SUPPRESSION OF GP. THE GP MAY BE SUPPRESSED NOT ONLY BECAUSE OF INFLATED PURCHASES AND EXPENDITURE BUT ALSO BECAUSE OF SUPPRESSION OF STOCK ITSELF. IN PRESENT CASE, THE POSSIBILITY OF SYSTEMATIC SUPPRESSION OF STOCK BY APPELLANT OUT OF BOOK PURCHASES IS ALSO THERE BECAUSE EXCESS STOCK OF ABOUT RS.5 7 LAKH WAS FOUND AT THE TIME OF SURVEY AND THE MOST LIKELY SUPPRESSION WOULD BE IN THE OPENING STOCK AS ON 01 - 04 - 2008 AND FROM SUBSEQUENT PURCHASES TILL 04 - 08 - 2008. THE OPENING STOCK, AS ON 01 - 04 - 2008 IS THE CLOSING STOCK OF FINANCIAL YEAR 2007 - 08, WHICH I S FINANCIAL YEAR OF THE ASSESSMENT YEAR UNDER APPEAL. THEREFORE, THE POSSIBILITY OF SUPPRESSION OF STOCK IN THE ASSESSMENT YEAR UNDER APPEAL IS ALSO THERE AFTER EXCESS STOCK OF ABOUT RS. 57 LAKH WAS FOUND AS A RESULT OF S URVEY CARRIED OUT ON 4 - 8 - 2008. THE DIFFICULTY IN SUCH PRESUMPTION IS THAT THAT THE SUPPRESSION OF STOCK MAY BE OVER A LONGER PERIOD OF TIME IN THE PAST AND MORE THAN ONE ASSESSMENT YEAR MAY BE INVOLVED AND IT CAN NOT BE SAID WITH CERTAINTY AS IN WINCH YEAR AND HOW MUCH SUPPRESSION ACTUALLY TOOK PLACE. MOREOVER, APPELLANT HAS OFFERED TH E EXCESS STOCK OF RS. 46,12,850/ - FOR TAXATION IN ASSESSMENT YEAR 2009 - 10 ALTHOUGH IN MY OPINION, THIS EXCESS STOCK SHOULD BE ABOUT RS 57 LAKH IF CONSISTENCY OF GP OF 2% IS MAINTAINED. THE REMEDY IN SUCH CASE I S TO DEEM THE ADMITTED OR CALCULATED UNACCOUNTED PURCHASE IN ASSESSMENT YEAR 2009 - 10 RESULTING IN EXCESS STOCK OF ABOUT RS. 57 LAKH FOUND AT THE TIME OF SURVEY AS INCOME U/S 69C OF THE I.T. ACT IN ASSESSMENT YEAR 2009 - 10 ITSELF. THE REJECTION OF BOOKS, DETERMINATION OF UNACCOUNTED PURCHASE, ASSESSMENT OF INCOME UNDER PROPER HEAD OF INCOME AND ESTIMATION OF INCOME OR DISALLOWANCE OF ANY LOSS CLAIMED ON STOCK OUT OF UNACCOUNTED PURCHASES IN THE PERIOD AFTER THE DATE OF SURVEY ETC. ARE MATTERS OF INVESTIG ATION AND CONSIDERATION FOR ASSESSMENT YEAR 2009 - 10. PRIMA FACIE APPELLANT HAS OFFERED THE ADDITIONAL INCOME ON ACCOUNT OF EXCESS STOCK FOUND AT THE TIME OF SURVEY FOR TAXATION IN THE FINANCIAL ACCOUNTS OF ASSESSMENT YEAR 2009 - 10. THE AMOUNT OF EXCESS STOC K MAY BE MORE THAN THE AMOUNT DETERMINED I.T.A NO. 20 /RJT /20 12 A.Y. 2008 - 09 PAGE NO ACIT VS. SHRI DINESHKUMAR VALJIBHAI SANANDIYA 5 BY APPELLANT FOR THE REASONS MENTIONED ABOVE AND MOST PROBABLY APPEARS TO BE ABOUT RS 57 LAKH. HOWEVER, IF THE EXCESS STOCK FOUND AT THE TIME OF SURVEY IS OFFERED FOR TAXATION IN ASSESSMENT YEAR 2009 - 10 OR IS ADDED TO TOTAL INCOME IN THE ASSESSMENT YEAR 2009 - 10, THERE DOES NOT REMAIN ANY REASON TO DISTURB THE ACCOUNTING RESULT OF ASSESSMENT YEAR 2008 - 09, IE THE ASSESSMENT YEAR UNDER APPEAL. THEREFORE, THERE IS NO NEED TO TAX A PART OF THE SAME INCOME AGAIN IN THE ASS ESSMENT YEAR UNDER APPEAL. I THEREFORE DIRECT THE ASSESSING OFFICER TO DELETE THE ESTI MATED ADDITION OF RS. 24,84,854/ - MADE BY HIM BECAUSE THIS INCOME IS ALREADY OFFERED FOR TAXATION IN ASSESSMENT YEAR 2009 - 10 AND IF THE OFFER IS INADEQUATE THE SAME MAY B E CORRECTED IN THE ASSESSMENT OF ASSESSMENT YEAR 2009 - 10. 5. T HE ASSESSING OFFICER HAS ALSO OBSERVED THA T ASSESSEE HAS PAID SALARY OF RS . 1,29 , 500/ - TO SMT. BHAKTI MAYUR SANANDIYA ASSESSEE S BROTHER S SON S WIFE. THE ASSESSING OFFICER HAS DISALLOWED THE SALARY PAYMENT ON THE GROUND THAT EMPLOYEE WAS RELATIVE OF THE ASSESSEE AND THE ASSESSEE HAS NOT PROVIDE D BASIC PROOF OF EMPLOY MENT, NATURE OF WORK PERFORMED ETC. 6. AGGRIEVED ASSESEE PREFERRED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS ALLOWE D THE APPEAL OF THE ASSESSEE BY OBSERVING THAT THE EMPLOYEE WAS WIFE OF THE ASSEESSEE S BROTHER S SON AND AS PER SECTION 2( 41 ) OF THE IT A CT SHE CANNOT BE RELATIVE OF THE ASSESSEE, THEREFORE, THERE IS NO QUESTION TO INCLUDE HER NAME IN THE AUDIT REPORT IN RESPECT OF PAYMENT MADE TO RELATIVE U/S. 40A(2)(B) OF THE A CT. 7. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE US, LD. COUNSEL FURNISHED PAPER BOOK CONTAINING WRITTEN SUBMISSION FILED BEFORE THE LD. CIT(A) , ASSESSING OFFICER AND COPY OF ASSESSMENT ORDER, COPY OF EMPLOYEE S DEGREE CERTIFICATE ETC. LD. DEPARTMENTAL I.T.A NO. 20 /RJT /20 12 A.Y. 2008 - 09 PAGE NO ACIT VS. SHRI DINESHKUMAR VALJIBHAI SANANDIYA 6 REPRESENTATIVE HAS SUPPORTED THE ORDER OF ASSESSING OFFICER. ON THE OTHER HAND, LD. COUNSEL SUPPORTED THE ORDER OF LD. CIT(A). 8. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD CAREFULLY. DURING THE COURSE OF SURVEY U/S 133A ON 4/8/2010 , TRADING ACCOUNT FOR THE PERIOD 01 - 04 - 2008 TO 4 TH AUGUST, 2008 WAS DRAWN ON THE BASIS OF WHICH T HE GROSS PROFIT WAS WORKED OUT AT 3.95%. THE ASSESSING OFFICER OBSERVED THAT T HIS GRO SS PROFIT WAS INCONSISTENT WITH THE ASSESSEE S OWN GROSS PROFIT AROUND 2% SHOWN CONSISTENTL Y IN THE PRECEDING YEARS. DURING THE COURSE OF SURVEY , THE ASSESSEE HAS OFFERED ADDITIONAL INCOME ON ACCOUNT OF EXCESS STOCK FOUND AT T HE TIME OF SURVEY FOR TAXATIO N IN THE FINANC IAL ACCOUNT ASSESSMENT YEAR 200 9 - 10. THE ASSESSING OFFICER HAS ESTIMATED THE GROSS PROFIT FOR THE YEAR UNDER CONSIDERATION WITHOUT DETECTING ANY DISCREPANCIES AND DEFECTS IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. WE OBSERVED THAT IF THE EXC ESS STOCK FOUND AT THE TIME OF SURVEY WAS OFFERED FOR TAXATION I N ASSESSMENT YEAR 2009 - 10 AND WA S ADDED TO THE TOTAL INCOME OF THE ASSESSMENT YEAR 2009 - 10, THEN, THERE DOES NOT REMAIN ANY REASON TO MAKE ADD ITI ON FOR GROSS PROFIT IN R ESP E C T OF ASSESSMENT YE AR 2008 - 09. AFTER CONSIDERING THESE FACTS A ND DETAILED FINDINGS OF LD. CIT(A) WE DO NOT FIND ANY ERROR IN THE DECISION OF THE LD. CIT(A) . T HEREFORE, APPEAL OF THE REVENUE ON THIS ISSUE IS REJECTED. REGARDING PAYMENT OF S ALARY TO WIFE OF ASSESSEE S BROT HER S SON WE FIND THAT AS PER SECTION 2(41) SUCH KIND OF RELATION ARE NOT CONSIDERED AS RELATIVE . THEREFORE, THIS PAYMENT IS NOT REQUIRED TO BE INCLUDED IN THE TAX AUDIT REPORT IN RESPECT OF PAYMENT MADE TO RELATIVE U/S. I.T.A NO. 20 /RJT /20 12 A.Y. 2008 - 09 PAGE NO ACIT VS. SHRI DINESHKUMAR VALJIBHAI SANANDIYA 7 40A ( 2 )(B) OF THE ACT. THE ASSE SSEE HAS EXPLAINED THAT THE AFORESAID EMPLOYEE WAS A GRADUATE AND WAS MANAGING THE DAY TO DAY ACTIVITY OF THE BUSINESS. WE FIND THAT THE ASSESSING OFFICER HAS NOT JUSTIFIED THE AFORESAID SALARY DISALLOWANCE WITH RELEVANT MATERIAL, THEREFORE, WE WE DO NOT F IND ANY REASON TO INTERFERE IN THE DECISION OF THE LD. CIT(A) .ACCORDINGLY, THE APPEAL OF THE REVENUE O N THIS ISSUE IS ALSO DISMISSED . 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PR ONOUNCED I N THE OPEN C OUR T ON 19 - 12 - 201 7 SD/ - SD/ - (S. S. GODARA ) ( AMARJIT SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 19 /12 /201 7 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, RAJKOT