Bhavik Nareshbhai Patel, Ahmedabad V. ITO, Ward-6(1)(3), Ahmedabad

ITA 2160/AHD/2018

AI Insights

The case involves Bhavik Nareshbhai Patel, the appellant, contesting the additions made by the Income Tax Officer (ITO) under various heads for the Assessment Year 2014-15. The primary issues were the additions of unexplained cash credit, deficit of stock, and commission charges. The ITO had treated the credit balance in the name of M/s Jalaram Finvest as unexplained and added it to the income of the assessee. The CIT(A) upheld these additions, which were partly contested in the Tribunal. The Tribunal's decision confirmed some additions while deleting others based on the merits of the arguments and evidence presented.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 133483 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 4 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Next Hearing Date: 11-01-2023
• Assessment Year: 2014-2015
• Appeal Filed On: 21-10-2018
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Income from undisclosed sources; Principle of natural justice; Accommodation entries
• Section: 68

Judgement Text

आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरणआयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण, अहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठअहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठ ‘A’ अहमदाबाद। अहमदाबाद।अहमदाबाद। अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, AHMEDABAD BEFORE SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND SMT. MADHUMITA ROY, JUDICIAL MEMBER, JUDICIAL MEMBER ITA No.2160/AHD/2018 Assessment Year :2014-15 Bhavik Nareshbhai Patel 11, Gayatri Society Nr.Jalaram Plaza Jawahar Chowk, Maninagar Ahmedabad 380 008 PAN : AONPP 1772 M Vs. ITO, Ward-6(1)(3) Ahmedabad. 0 अपीलाथ / (Appellant) यथ /(Respondent) Assesseeby : Shri S.N. Divatia, AR with Shri Samir Vora, AR Revenue by : Shri V.K. Mangla, Sr.DR स ु नवाई क तार ख/Date of Hearing : 12/01/2023 घोषणा क तार ख /Date of Pronouncement: 23/02/2023 आदेश/ O R D E R PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER Present appeal has been filed by the assessee against order of the ld.Commissioner of Income-Tax (Appeals)-6, Ahmedabad [hereinafter referred to as “the ld.CIT(A)”] dated 14.8.2018passed under section 250(6) of the Income Tax Act, 1961 [hereinafter referred to as "the Act" for short] pertained to the Asst.Year 2014-15. 2. Grounds of appeal raised by the assessee are as under: 1.1 The order passed u/s.250 on 14.08.2018 for A.Y.2014-15 by CIT(A)-6 , Abad upholding additions towards unexplained cash credit of Rs.33,86,637 deficit of stock of Rs.5,15,182 and commission charges of Rs.5,69,820 is wholly illegal, unlawful and against the principles of natural justice. ITA No.2160/AHD/2018 2 1.2 The Ld. CIT(A) has grievously erred in law and or on facts in not considering fully and properly the submissions made and evidence produced by the appellant with regard to the impugned additions. 1.3 The Ld. CIT(A) has grievously erred in law and or oh facts in not allowing the opportunity to cross-examine M/s Jalaram Finvest. 2.1 The Ld. CIT(A) has grievously erred in law and or on facts in upholding the addition of Rs.33,86,637/- in respect of Jalaram Finvest as cash credits when the same were sales were accepted by way of upholding GP addition thereon. 2.2 That in the facts and circumstances of the case, the Ld CIT(A) ought not have confirmed the addition of Rs.33,67,837. 3.1 That in the facts and circumstances of the case as well as in law, the Id. CIT(A) has grievously erred in upholding the addition of Rs.5,15,122 towards alleged deficit of stock. 3.2 The Ld. CIT(A) has grievously erred in law and or on facts in upholding the addition of Rs.5,15,122 towards alleged deficit of stock. 4.1 The Ld. CIT(A) has grievously erred in law and or on facts in upholding the addition of Rs.5,69,820 towards commission charges at 1.25% on sales of Rs.4,55,85,562 without appreciating fully and properly the modus operandi of the transactions/business. 4.2 Without prejudice to the above and in the alternative, the Ld. CIT(A) ought to have restricted the addition towards commission charges at reasonable rate instead of 1.25% which was excessive. It is therefore prayed that the additions towards unexplained cash credit of Rs.33,86,637, deficit of stock of Rs.5.15,182 and commission charges of Rs.5,69,820 upheld by CIT(A) should be deleted.” 3. At the outset itself, the ld.counsel for the assessee stated that effective grounds of appeal are only 2.1, 3.1 and 4.1. Therefore, we shall be dealing only with these grounds of appeal. 4. Taking up ground no 2.1 first, the issue raised in the said ground relates to addition made on account of unexplained cash credit amounting to Rs.33,86,637/- in respect of one M/s.Jalaram Finvest. Drawing our attention to the facts of the case, the ld.counsel for the assessee pointed out from the assessment order that M/s Jalaram Finvest had been reflected as creditor of Rs.33,86,637/- in the books of assessee, and on asking the assessee to confirm the said balance, the assessee had submitted that he had ITA No.2160/AHD/2018 3 no objection to addition being made under section 68 of the Act in respect of the said balance. He had submitted that in relation to the said party, the assessee had shown sales made to it which were in fact bogus sales. Thatactual sales had been made in cash and bills being raised in the name of M/s Jalaram Finvest only as an accommodation entry provider with cash being given to M/s Jalaram Finvest who in turn issued cheque to the assessee. Considering the explanation of the assessee the AO treated the credit balance appearing in the name of Jalaram Finvest as unexplained credit and added the same to the income of the assessee. The Ld.CIT(A) confirmed the addition. 5. Before us, the ld.counsel for the assessee contended that since the assessee had admitted to accommodation entry being taken from the said party, and the balance being reflected on account of the same, it was only the profit element embedded therein which needed to be added; the balance outstanding could not be treated as unexplained credits. To this effect, the ld.counsel for the assessee took us through various documents pointing out the fact that the assessee had reflected sales made to this party, which were accounted for in its books of accounts in the ledger account of Jalaram Finvest. 6. We have heard contentions of the ld.counsel for the assessee and are not convinced with the same. The fact of the matter is that the assessee does not deny factum of bogus sales made and payments received by banking channels in lieu thereof by M/s Jalaram Finvest, with the sole purpose , as per the assesses admission, for introducing his unaccounted business cash on account of cash sales made to parties outside the books. The ITA No.2160/AHD/2018 4 credit balance of Jalaram Finvest now being added in the hands of the assessee is the excess of cheque payment received from Jalaram Finvest over and above the sales billed to him. Therefore, as far as this credit balance is concerned, there is no corresponding sale booked by the assessee. For all purpose, therefore, this credit balance, as per the explanation of the assessee itself, represented the some unaccounted income of the assessee, and therefore, the AO has rightly treated- it as unexplained credit. The addition, therefore made of Rs.33,86,637/- is confirmed. 7. Ground No.3.1 relates to the addition account of stock found short in the books of the assessee to the extent of Rs.5,15,122/-. 8. During assessment proceedings, the AO on verification of the stock details noted that the stock of VAM(allegedly a product dealt in by the assessee)showed negative balance on certain dates. The assessee explained that this was for the reason that it had issued bills prior to the item being entered in the stock, and therefore, this small discrepancy had crept in. The AO, however, not convinced with the explanation , made addition of difference of negative stock balance noted by him of Rs.5,15,122/-. The same was confirmed by the Ld.CIT(A). 9. We have gone through order of the ld.CIT(A) and of the AO, and we find no merit in this addition made by the AO. The explanation of the assessee, we find is reasonable explanation. The fact of the matter is that the assessee has shown a turnover of approximately Rs.1.5 crores during the year, which is evident from the copy of audited accounts of the assessee placed before us at P.B 3-41 and there can be instances in businesses where bills are issued prior to the stock being recorded in its books on very few occasions, ITA No.2160/AHD/2018 5 concerning urgency of raising the bills; that the present case with turnover of Rs.1.5 crores, discrepancy of Rs.5,15,122/-can be reasonably attributed to this cause only. – The discrepancy is too minor to be attributed to any out of the books investment or likewise. Therefore, we do not see any reason for making any addition on account of negative stock in the books of the assessee. The addition of Rs.5,15,122/- is directed to be deleted. 10. Ground no.3.1. It was pointed out that the AO had accepted the assessee’s plea that the sales made to Jalaram Finvest during the year were of bogus accommodation entries for the purpose of introducing only the cash sales made to some parties through Jalaram Finvest. He noted the sales made in this regard to be to the tune of Rs.4,55,85,562/- and further noted that in lieu of such accommodation entries, the market practice is to give commission for the same. Finding that the assessee had not disclosed commission paid on this admitted accommodation entries to M/s Jalaram Finvest and noting the market practice being 1.2% commission on such accommodation entries, he held that the assessee had paid commission out of the books to this extent of sales made to Jalaram Finvest of Rs.4.55 crores. Further noting that the assessee had returned gross profit to the extent of 0.84%, he made addition at the rate of 2.09% on the sales made to Jalaram Finvest, amounting to Rs.9,52,738/-, treating it as income from undisclosed sources to cover the alleged commission paid on the bogus sale transaction entered with Jalaram Finvest. Before the ld.CIT(A), the assessee contended that out of the rate applied of 2.09% on sales made by the assessee for computing the commission paid by the assessee for this accommodation entry ITA No.2160/AHD/2018 6 through Jalaram Finvest, the assessee had returned 0.84% as GP on such sales, and therefore, addition only of the balance need to be made of 1.25%. The ld.CIT(A) was convinced with the contentions of the assessee, and accordingly restricted the addition to the extent of 1.25% of the sales made to Jalaram Finvest, amounting to Rs.5,69,820/-, and deleted the balance amount of Rs.3,82,919/-. 11. The ld.counsel for the assessee argued against the addition confirmed by the ld.CIT(A) that there was no evidence of payment of any commission by the assessee, and it was only on the basis of surmises and conjectures, and that in any case, the market rate of commission at therate of 2.09% taken by the AO was not substantiated with any evidence or reasoning, that this market rate was very high and therefore the addition made need to be deleted. 12. We have heard contentions of the ld.counsel for the assessee. It is not denied that all the sales shown by the assessee to Jalaram Finvest was only accommodation entry for routing cash sales made by the assessee to the unknown parties. The modus operandibeing transferring cash to Jalaram Finvest, raising bogus sales bills on him on account of the same and taking cheques in return. The assessee does not deny this fact, and infact has repeatedly admitted to this modus operandi being followed by him. Surely, this accommodation entry cannot be provided by anybody free of cost and certain commission is always charged on the same. The onus was not on the Revenue to demonstrate that the assessee did actually pay commission, but in fact, it was other way round for the assessee to demonstrate that he had paid no commission in the light of his own admission to have taken accommodation entry from Jalaram Finvest. Therefore, contention of the assessee that in the ITA No.2160/AHD/2018 7 absence of any evidence having being gathered by the Revenue of commission being paid by him, no addition can be made in the hands of the assessee, is rejected. As for rate applied for determining the amount of commission paid, the ld.counsel for the assessee was unable to demonstrate what the reasonable rate of commission is. In such circumstances, we see no reason to interfere in the rate applied by the Ld.CIT(A) of 1.25% of the sales. Addition confirmed by the ld.CIT(A) is therefore, upheld. The ground of appeal No.3.1 raised by the assessee is rejected. 13. In the result, appeal of the assessee is partly allowed. Order pronounced in the Court on 23 rd February, 2023 at Ahmedabad. Sd/- Sd/- (MADHUMITA ROY) JUDICIAL MEMBER (ANNAPURNA GUPTA) ACCOUNTANT MEMBER Ahmedabad, dated 23/02/2023