Smt Mangla Bangur, Ujjain V. ACIT,Central, Ujjain

ITA 210/Ind/2020

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 2182 (ITAT-INDORE)
• Duration Of Justice: 2 year(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2018-2019
• Appeal Filed On: 19-07-2020
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Retrospective amendment
• Section: 132; 44AB; 145(3)

Judgement Text

आयकर अपील य अ धकरण, इंदौर यायपीठ, इंदौर IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI MAHVIR PRASAD, JUDICIAL MEMBER AND SHRI B.M. BIYANI, ACCOUNTANT MEMBER (Conducted through Virtual Court) ITA No. 210/Ind/2020 Assessment Year: 2018-19 Smt. Mangla Bangur, 1, Ramkrishna Colony, Dewas Road, Ujjain बनाम/ Vs. ACIT (Central), Ujjain (Appellant / Assessee) (Respondent / Revenue) PAN: ABSPB 5501 C Assessee by Shri Anil Kumar Garg & Arpit Gaur, ARs Revenue by Smt. Simran Bhullar, CIT- DR Date of Hearing 24.05.2022 Date of Pronouncement 28.07.2022 आदेश / O R D E R Per B.M. Biyani, A.M.: 1. This appeal filed by the assessee is directed against the order dated 20.03.2020 of learned Commissioner of Income-Tax (Appeals)-3, Bhopal [“Ld. CIT(A)”] in Appeal No. CIT(A)-3/BPL/IT-10955,10959,10956, 11055/2019-20, to the extent it pertains to the order of assessment dated 30.12.2019 passed by the learned ACIT ( Central)-Ujjain [“Ld. AO”] u/s 143(3) of the Income-tax Act, 1961 [“the Act”] for the Assessment-Year 2018-19. 2. Facts relevant to the issues involved in the present appeal as culled out from the records are such that the assessee is an individual engaged in Smt. Mangla Bangur ITA No. 210/Ind/2020 A.Y. 2018-19 Page 2 of 8 carrying on businesses in two proprietorship concerns, namely (i) M/s Tirupati Corrugators and (ii) M/s Shree Balaji Polymers. A search u/s 132 was conducted at the business places of assessee on 27.07.2017 wherein physical verification of stock was carried out and the available-stock was found to be shorter than the stock disclosed by books of account maintained by the assessee. Subsequently, while submitting return of income, the assessee declared undisclosed income of Rs. 35,62,269/- computed as gross-profit @ 15.304% on the short-stock of Rs. 2,32,76,441/-. But while completing assessment, the Ld. AO estimated undisclosed income at Rs. 74,93,922/- computed by taking gross-profit @ 18.43% on short-stock of Rs. 4,06,61,540/-. Thus, the Ld. AO made variation in the rate of gross-profit as well as the quantum of short-stock. Accordingly, the Ld. AO made an addition of Rs. 39,31,653/-, being the difference of undisclosed income of Rs. 74,93,922/- computed by him and Rs. 35,62,269/- declared by assessee. Besides this, the assessee also requested the Ld. AO to allow deduction of Rs. 2,06,754/- on account of the expenditure incurred on payment of education cess and secondary & higher education cess but the Ld. AO did not allow the assessee’s request. Being aggrieved by order of Ld. AO, the assessee filed appeal to Ld. CIT(A). 3. During appellate-proceeding, the Ld. CIT(A) accepted the quantum of short-stock at Rs. 2,32,76,441/- as declared by assessee but computed the gross-profit rate @ 18.43% as applied by Ld. AO and thus determined the undisclosed income at Rs. 42,89,848/-. Accordingly, the Ld. CIT(A) upheld the addition the extent of Rs. 7,27,579/- being the difference of undisclosed income of Rs. 42,89,848/- computed by him and Rs. 35,62,269/- disclosed by assessee. Further the Ld. CIT(A) upheld the disallowance of deduction of Rs. 2,06,754/- on account of expenditure on education cess, secondary and higher education cess. 4. Being aggrieved by order of Ld. CIT(A), the assessee has filed this appeal before us, on following grounds: “1. That, the learned CIT(A) grossly erred, both on facts and in Smt. Mangla Bangur ITA No. 210/Ind/2020 A.Y. 2018-19 Page 3 of 8 law, in partly confirming the addition to the tune of Rs.7,27,579/- out of the total addition of Rs.39,31,653/- so made by the AO in the appellant's income, on account of alleged undisclosed business profit by applying gross profit at the rate of 18.43 percent on the alleged variation of Rs. 4,06,61 ,540/- in the inventories physically found during the Course of search with that recorded in the books of account. 2. That, the learned CIT(A) grossly erred, in law, in not allowing the claim of the appellant, as lodged before the AO as well as before him, for grant of deduction under s.37(1) of the Act in respect of payment of education cess and secondary higher education cess aggregating to a sum of Rs.2,06, 754/- made by the appellant during the relevant previous year, without considering the material fact that the education cess is different from income-tax and therefore, the same is wholly allowable as business deduction. 3. That, the appellant further craves leave to add, alter or amend the foregoing ground of appeal as and when considered necessary.” Ground No. 1: 5. In Ground No. 1, the assessee has challenged the addition of Rs. 7,27,579/- confirmed by Ld. CIT(A) on account of undisclosed gross-profit related to short-stock. 6. From the facts cited earlier, which we do no repeat for the sake of brevity, the controversy between the assessee and revenue can be reduced to a narrow compass i.e. the quantum of short-stock of Rs. 2,32,76,441/- is agreed upon by both sides and the dispute is with regard to the rate of gross-profit only. While the assessee has declared gross-profit @ 15.304%, the revenue is insisting upon gross-profit @ 18.43%. Thus, the difference of gross-profit rate is 3.126% which if applied on the undisputed short-stock of Rs. 2,32,76,441/-, yields the addition of Rs. 7,27,579/-. Therefore, the surviving controversy between the assessee and revenue is on the rate of gross-profit, whether it should be 15.304% or 18.43%. 7. The reasoning given by Ld. AO behind adoption of 18.43% rate of gross-profit is contained in following para of the assessment-order: Smt. Mangla Bangur ITA No. 210/Ind/2020 A.Y. 2018-19 Page 4 of 8 “13.7 For the reasons elaborated supra, the contentions of the assessee are rejected being devoid of merits. Further, the assessee herself has offered an amount of Rs.35,62,269/- to tax. This goes to show that there was indeed difference in stock: otherwise, there was no need for the assessee to offer this income. No prudent person could offer an income to tax, which she has not earned. The assessee has accepted ‘alleged variation’ in stock at Rs. 2,32,76,441/-, whereas the actual variation was found at Rs. 4,06,61,540/-. Further, the assessee has adopted GROSS PROFIT@ 15.304% on the aforesaid variation of Rs.2,32,76,441/- whereas GROSS PROFIT as on 31.3.2017 in the case of the assessee is shown at @ 18.43%. In all other cases of the assessee-group, GROSS PROFIT as on 31.3.2017 has been adopted by the respective assessees on variation of stock. Going by the same analygy, GROSS PROFIT @ 18.43% is hereby adopted on the figure of actual variation of stock of Rs.4,06,61,540/-. GROSS PROFIT thus, comes to Rs.74,93,922/-. The assessee has already offered an income of Rs.35,62,269/- on this count. Hence, the difference, which comes to Rs.39,31,653/- is hereby added to the total income of the assessee as undisclosed business profit for A.Y.2018-19.” Thus, it can be seen that the Ld. AO has applied gross-profit rate of 18.43% as earned by the assessee on 31/03/2017 i.e. during the financial year 2016-17 which was immediately preceding year. The Ld. CIT(A) has also confirmed the gross-profit rate of 18.43% applied by Ld. AO. 8. Before us, the Ld. AR argued that the assessee has declared gross- profit @ 15.304% while offering income in the return of income and the Ld. AO has wrongly applied the gross-profit rate of 18.43%. Ld. AR submitted that the Ld. AO has not rejected the books of account of assessee u/s 145(3) of the Act. According to Ld. AR, once the books of account are not rejected, the necessary corollary would be that the books of account as maintained by assessee in the normal course of business were acceptable to Ld. AO and the Ld. AO was very much satisfied with the correctness and completeness of such books of account. Ld. AR further pointed out that the assessee has maintained books of account u/s 44AA of the act and the same were also audited by auditor u/s 44AB of the act which is clearly evident from the report of report placed at Page No. 36 to 85 of the Paper-Book. Ld. AR Smt. Mangla Bangur ITA No. 210/Ind/2020 A.Y. 2018-19 Page 5 of 8 strongly contended that without rejection of such books of accounts, which are statutory records in terms of section 44AA and 44AB of the act, the Ld. AO cannot interfere with the income declared by the assessee. With these submissions, the Ld. AR argued that the Ld. AO has wrongly adopted gross- profit rate of 18.43% as against 15.304% declared by the assessee in the return of income and the Ld. CIT(A) has wrongly confirmed addition to the extent of Rs. 7,27,579/-. 9. Per contra, the Ld. DR supported the orders of lower authorities. Relying upon the observation of Ld. AO, the Ld. DR vehemently argued that the Ld. AO has applied gross-profit rate of 18.43% which was an undisputed gross-profit rate of immediately preceding year. Ld. AR submitted that the adoption of gross-profit rate of immediate preceding year is fully logical as well as legal as per numerous decisions. With these submissions, the Ld. DR requested to uphold the gross-profit rate of 1843% as applied by Ld. AO and confirmed by Ld. CIT(A). 10. We have considered rival submissions of both sides and perused the relevant material held on record. On a careful consideration, we derive following conclusions: (i) We observe that the Ld. AO has applied gross-profit rate of 18.43% for estimation of undisclosed income attributable to the short-stock. The rate of 18.43% is the same rate as earned by assessee in the immediately preceding year 2016-17 and this rate is not only verified by Ld. AO but also evident from Page No. 53 of the Paper-Book where Form No. 3CD u/s 44AB of the assessment-year 2018-19 is placed. On perusal of Clause No. 40 of said Form 3CD, we observe that the tax-auditor has certified gross-profit rate of 18.43% of immediately preceding year. Thus, the assessee had undoubtedly earned gross-profit rate of 18.43% in the immediately preceding financial year 2016-17. We observe that the Ld. AO has a strong basis for adoption of 18.43% rate. During hearing, we raised a specific query to Ld. AR as to what basis was available with the assessee behind adopting 15.403% rate of gross-profit. In reply to our query, the Ld. AR submitted that he is not aware Smt. Mangla Bangur ITA No. 210/Ind/2020 A.Y. 2018-19 Page 6 of 8 of any basis adopted by assessee. Since no basis of 15.403% is submitted before us, it is apparent that the assessee does not have any basis for adopting 15.403%. This brings us to a position where we find that the Ld. AO has a basis to adopt 18.43% but the assessee does not have any basis to adopt 15.403%. In such situation, our inclination is to accept 18.43% which has a basis to stand. It is also noteworthy that the search was conducted on 27.07.2017, which is very near to 31.03.2017 i.e. the end of preceding financial year 2016-17. Therefore also, the gross-profit rate of 18.43% for the year ended 31.03.2017 seems to be a fair rate. (ii) Ld. AR has forcefully stressed that the Ld. AO has not rejected the books of account of assessee u/s 145(3) and therefore there is no justification in rejecting 15.403% profit declared by the assessee. To address this argument of Ld. AR, we refer the documents placed in Paper-Book and observe that the books of account maintained by the assessee show a net profit of Rs. 21,04,202/- and even the undisclosed income of Rs. 35,62,269/-, offered by assessee himself, is not accounted for in the books of account maintained u/s 44AA and audited u/s 44AB. In fact, the assessee has offered undisclosed income of Rs. 35,62,269/- by means of an upward adjustment in a separate-sheet called “Computation of Total Income” by making following disclosure / offer: “Estimated income due to alleged variation of the inventories between that found during the course of the search i.e. Rs. 7,72,26,156/- and that shown in the books of accounts i.e. Rs. 10,01,05,215/- at the G.P. rate of 15.57% - Rs. 35,62,269/-” Thus, we observe that the undisclosed income attributable to the short- stock is not recorded in the books of account. Being so, there does not arise any question of rejecting or non-rejecting the books of account u/s 145(3) as claimed by Ld. AR. Therefore, we are not persuaded to accept this contention of Ld. AR. 11. In view of above discussion, we observe that the Ld. AO has rightly applied gross-profit rate of 18.43% based on the gross-profit rate of Smt. Mangla Bangur ITA No. 210/Ind/2020 A.Y. 2018-19 Page 7 of 8 immediately preceding year and there is no infirmity in the approach of Ld. AO. Therefore, we dismiss Ground No. 1 of assessee. GROUND NO. 2: 12. In next Ground No. 2, the assessee has claimed that the lower authorities were not justified in not giving deduction of Rs. 2,06,754/- paid by assessee on account of Education Cess and Secondary & Higher Education Cess. 13. During hearing, Ld. AR instantly admitted that the section 40(a)(ii) of the Income-tax Act, 1961 has already been amended through Finance Act, 2022 with retrospective effect from 01.04.2005, according to which the claim of assessee is not allowable. Accordingly, the Ld. AR did not press this Ground. Considering the submission of Ld. AR, this Ground of assessee is dismissed. 14. In the result, this appeal of assessee is dismissed. Order pronounced as per Rule 34 of I.T.A.T. Rules 1963 on 28.07. 2022. Sd/- Sd/- (Mahavir Prasad) (B.M. Biyani) Judicial Member Accountant Member Indore दनांक /Dated : 28.07.2022 Patel/Sr. PS Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order COPY Sr. Private Secretary Income Tax Appellate Tribunal Indore Bench, Indore Smt. Mangla Bangur ITA No. 210/Ind/2020 A.Y. 2018-19 Page 8 of 8 1. Date of taking dictation 2. Date of typing & draft order placed before the Dictating Member 3. Date on which the approved draft comes to the Sr. P.S./P.S. 4. Date on which the fair order is placed before the Dictating Member for pronouncement 5. Date on which the file goes to the Bench Clerk 6. Date on which the file goes to the Head Clerk 7. Date on which the file goes to the Assistant Registrar for signature on the order 8. Date of dispatch of the Order