The ACIT, Circle-9, Surat V. Shri Dhansukhbhai Devjibhai Mavani, Surat

ITA 2252/AHD/2006

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5472 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 9 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 20-07-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 26-10-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K DHANESTA
• Keywords: Business income; Income from undisclosed sources; Retraction
• Section: 143(3); 133A

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE S/SHRI BHAVNESH SAINI, JM AND D.C.AGRAWAL, A M SHRI DHANSUKHBHAI DEVJIBHAI MAVANI,73, MAHATMA IND. ESTATE, VARACHHA ROAD, SURAT. VS. ASSTT. CIT, CIR.9, SURAT. (APPELLANT) .. (RESPONDENT) AND ASSTT. CIT, CIR.9, SURAT. VS. SHRI DHANSUKHBHAI DEVJIBHAI MAVANI,73, MAHATMA IND. ESTATE, VARACHHA ROAD, SURAT. (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- SHRI SUNIL TALATI, AR REVENUEBY:- SHRI R. K. DHANESTA, DR O R D E R PER D. C. AGRAWAL, ACCOUNTANT MEMBER . THESE ARE TWO CROSS APPEALS ONE FILED BY THE ASSE SSEE AND THE OTHER FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A) DATED 3.8.2006. 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS IN HIS APPEAL :- 1. THAT THE LD. CIT(A) ERRED IN NOT CANCELING THE ENTI RE ADDITION OF RS.20,50,000/-ON ACCOUNT OF ALLEGED UNACCOUNTED REC EIVABLES BEING RETRACTED BY THE APPELLANT. ITA NO.2173/AHD/2006 ASST. YEAR :2003-04 ITA NO.2252/AHD/2006 ASST. YEAR :2003-04 2 2. WITHOUT PREJUDICE TO WHAT HAS BEEN STATED IN (1) AB OVE THE LD. CIT(A) AUGHT NOT TO HAVE CONFIRMED THE ADDITION AT 5.72% NET PROFIT BASIS ON THE UNACCOUNTED RECEIVABLES OF RS.2 0,50,000/- THE LD. CIT(A) SHOULD HAVE DELETED THE ENTIRE ADDIT ION OF RS.20,50,000/-. 3. THAT THE CIT(A) ERRED IN CONFIRMING GP ADDITION OF RS.1,07,621/-. HE SHOULD HAVE DELETED THE ENTIRE GP ADDITION OF RS .2,77,201/-. 4. THAT THE CIT(A) ERRED IN CONFIRMING THE SERIOUS BLU NDER COMMITTED BY AO BY ESTIMATING SALES AND NOT ESTIMAT ING GP AS DISCUSSED IN ASSESSMENT ORDER. 5. THUS THE ADDITIONS CONFIRMED BY CIT(A) AS ABOVE OF RS.1,07,621/- & NP ESTIMATION ON RECEIVABLES MAY KI NDLY BE DELETED. 3. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS IN ITS APPEAL:- (1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING AN ADDITION OF RS. 19,37,740/- (RS.20,50,000 RS.1,27,260/-) MADE BY THE AO TO TH E INCOME OF THE ASSESSEE AS UNACCOUNTED SALES AS PER ASSESSM ENT ORDER U/S 143(3) OF THE I.T. ACT, 1961 DATED 28.02.2006. (2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING AN ADDITION OF RS. 1,69,948/- (RS.2,77,203/- - RS.1,07,261/-) MADE BY THE AO TO T HE INCOME OF THE ASSESSEE AS ON ACCOUNT OF LAW GP AS PER ASSE SSMENT ORDER U/S 143(3) OF THE I.T. ACT, 1961 DATED 28.02.2006. (3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) HAS ERRED IN DIRECTING THE AO TO APPLY N .P. RATIO OF 5.72%. (4) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ADDITIONS MADE BY THE AO ON THE BASIS OF FACTS BROUGHT ON RECORD. 3 4. THE FACTS OF THE CASE ARE THAT THE ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF GREY CLOTH MANUFACTURING. A SURVEY U/S 133A OF THE ACT WAS CARRIED OUT AT THE PREMISES OF THE ASSESSEE. DURING THE COURSE OF SURVEY IT WAS NOTICED BY THE OFFICERS THAT ASSESSEE FIRM IS R UNNING TWO MORE CONCERNS NAMELY M/S PRATIK TEXTILES, PROP. JIVRAJBH AI A. MAVANI (HUF) & (II) M/S MANISHA TEXTILES, PROP. AJAY MAHESHBHAI MAVANI. DURING THE COURSE OF SURVEY THE STATEMENT OF SHRI JIVRAJBHAI W AS RECORDED. THEY ALSO FOUND EXCESS CASH OF RS.5,35,200/- AND EXCESS STOCK OF RS.11,71,500/-. ON THE BASIS OF STATEMENT OF SHRI JIVRAJBHAI RECORD ED ON 26.2.2003 IT WAS INFERRED THAT THE ASSESSEE FIRM IS CARRYING OUT UNA CCOUNTED SALES OF RS.20,50,000/-. BUT WHEN RETURN OF INCOME WAS FILED , THE SAID SUM OF RS.20,50,000/- BEING UNACCOUNTED SALES WAS NOT INCL UDED IN THE TRADING ACCOUNT OR PROFIT AND LOSS ACCOUNT. THE AO ACCORDIN GLY PROPOSED AN ADDITION OF RS.20,50,000/- IN THE TOTAL INCOME AS U NACCOUNTED SALES. THE LD. AO REFERRED TO QUESTION NOS.20 & 21 FROM THE ST ATEMENT AS UNDER :- Q.NO.20 IN REPLY TO THE ABOVE QUESTION YOU HAVE ADMITTED T HE UNACCOUNTED STOCK AND UNACCOUNTED CASH, THEREFORE, YOU ARE AGAI N REQUESTED TO EXPLAIN WHETHER YOU HAVE INDULGED IN ANY OTHER UNACCOUNTED BUSINESS OTHER THAN WHAT IS STATED ABOVE. PLEASE EXPLAIN IN THIS REGARD? ANS.NO.20 YES, AFTER RECOLLECTING ALL THE FACTS, I STATE THA T IN OUR PROPRIETARY CONCERN M/S DHANSUKH FABRICS WE HAD SOLD GOODS WORT H RS.20,50,000/- TO DIFFERENT PERSONS WHICH IS NOT RECORDED IN THE REGULAR BOOKS. Q.NO.21 DO YOU WANT TO SAY ANYTHING MORE THAN WHAT IS STAT ED IN ANSWER TO ABOVE QUESTION? ANS. NO.21 YES, IN REGARD TO THE ABOVE STATED UNACCOUNTED INC OME I WOULD LIKE TO CLARIFY THAT THE SAME ARE THE UNACCOUNTED INCOME OF OUR THREE FIRMS, WHICH WE ADMIT TODAY VOLUNTARILY, OVER AND ABOVE THE REGULAR INCOM E, WHICH WE TREAT AS OUR UNACCOUNTED INCOME. 5. APART FROM THIS, AMOUNT OF RS.20,50,000/-, THE A O ESTIMATED GP ON THESE SALES AT RS.2,77,209/- @ 10.6%. SO FAR AS UNACCOUNTED CASH AND 4 EXCESS STOCK WAS CONCERNED THE ASSESSEE HAD DECLARE D THE SAME IN THE RETURN OF INCOME AND ACCORDINGLY NO SEPARATE ADDITI ON WAS MADE. THE AO MADE AN OBSERVATION IN THE ORDER THAT GP DECLARED B Y THE ASSESSEE AT RS.5,05,647/- ON SALES OF RS.59,68,566/- GIVING A G P RATE OF 8.26% IS BETTER AS COMPARED TO GP AT 8.28% SHOWN IN THE PREC EDING YEAR. 6. BEFORE LD. CIT(A) IT WAS SUBMITTED THAT THE STAT EMENT GIVEN ON 26.2.2003 WAS RETRACTED ON 28.2.2003 AND THEREFORE, NO SEPARATE ADDITION ON THIS ACCOUNT SHOULD HAVE BEEN MADE. THE LD. CIT( A) DIRECTED TO APPLY A N.P. RATE OF 5.72% ON UNACCOUNTED SALES OF RS.20, 50,000/- IN THE PRE- SURVEY PERIOD AND DIRECTED THE AO TO WORK OUT THE A DDITION ACCORDINGLY. HE ALSO DIRECTED THE AO TO VERIFY THE WORKING OF N. P. RATE SUBMITTED BY THE ASSESSEE BEFORE HIM. 7. REGARDING ADDITION OF RS.2,77,209/- MADE ON ACCO UNT OF GP IN THE POST SURVEY PERIOD THE LD. CIT(A) DIRECTED TO APPLY N.P. OF 5.72% AS DISCLOSED IN THE PRE-SURVEY PERIOD ON ACTUAL SALES OF RS.18,75,186/- RESULTING IN AN ADDITION OF RS.1,07,261/- AND RELIE F OF RS.1,69,948/-. THUS, LD. CIT(A) AFTER EXAMINING THE TRADING ACCOUNT OF P RE AND POST SURVEY PERIOD DIRECTED TO APPLY N.P. OF 5.72% ON SALES MA DE IN PRE AND POST SURVEY PERIOD. 8. WE HAVE HEARD THE PARTIES AND CAREFULLY PERUSED THE MATERIAL ON RECORD. WE HAVE ALSO GONE THROUGH THE PAPERS REFERR ED TO BY THE LD. AR IN THE BULKY PAPER BOOK AS SUBMITTED BEFORE US. IN OUR CONSIDERED VIEW THERE IS NO CASE FOR INTERFERENCE IN THE ORDER OF LD. CIT (A). WE ARE UNABLE TO AGREE WITH THE LD. AR THAT ONCE RETRACTION HAS TAKE N PLACE BY THE ASSESSEE ON 28.2.2003, THERE SHOULD NOT BE ANY ADDITION FOR SALES AS DONE BY THE AO IN THE PRE SURVEY PERIOD. BUT IN OUR CONSIDERED VIEW A STATEMENT CAN 5 BE SUCCESSFULLY RETRACTED IF THERE IS NO MATERIAL O N RECORD TO SUGGEST ANY UNACCOUNTED INCOME, TRANSACTIONS, OR ASSET. WHERE A STATEMENT IS TOTAL UNSUPPORTED OR IS GIVEN IN VACUM AND AUTHORITIES AR E MERELY RELYING ON SUCH STATEMENT THEN IT CAN BE RETRACTED SUCCESSFULL Y. BUT WHEN UNACCOUNTED CASH AND UNACCOUNTED EXCESS STOCK ARE F OUND WITH THE ASSESSEE THEN IT CANNOT BE SAID THAT ASSESSEE IS NO T INDULGING IN UNACCOUNTED BUSINESS. IT HAS BEEN AN ADMITTED FACT BY THE ASSESSEE THAT UNACCOUNTED STOCK AND UNACCOUNTED CASH ARE GENERATI ON FROM BUSINESS AND, THEREFORE, THERE IS A CLEAR EVIDENCE OF ASSESS EE EARNING UNACCOUNTED INCOME FROM BUSINESS. THEREFORE, WHAT IS RETRACTED BY THE ASSESSEE ON 28.2.2003 IS MERELY A BALD RETRACTION AND NOT SUPPO RTED BY ANY EVIDENCE. ONCE WE ARE SATISFIED THAT ASSESSEE IS CARRYING OUT UNACCOUNTED BUSINESS THEN STATEMENT GIVEN ON OATH THAT UNACCOUNTED SALES ARE AT RS.20,50,000/- CANNOT BE BRUSHED ASIDE EVEN IF ASSESSEE CHOSES TO RETRACT IT. SUCH RETRACTION HAS NO VALUE AND HENCE IS REJECTED. HOWE VER, WE ARE UNABLE TO AGREE WITH THE DEPARTMENT THAT ENTIRE SALES SHOULD BE TREATED AS UNACCOUNTED INCOME OF THE ASSESSEE. THE REASONS ARE THAT ONCE BOOKS ARE REJECTED AND ESTIMATION OF INCOME IS RESORTED TO TH EN NO TRADING ACCOUNT OR PROFIT AND LOSS ACCOUNT CAN REALLY SURVIVE AND O NLY VIABLE OPTION AVAILABLE WITH THE AUTHORITIES IS THE ESTIMATION OF INCOME. THE LD. CIT(A) HAS, THEREFORE, CORRECTLY ESTIMATED THE PROFITS. PR OFITS CAN BE ESTIMATED EITHER BY APPLYING THE GP RATE OR NP RATE AS THE FA CTS OF THE CASE DEMANDS. IN THE PRESENT CASE ENTIRE BOOKS OF ACCOUNT ARE HEL D TO BE NOT RELIABLE, THEREFORE, NO CREDENCE CAN BE GIVEN TO THE CLAIM O F EXPENSES DEBITED IN PROFIT AND LOSS ACCOUNT. THEREFORE, LD. CIT(A) WAS JUSTIFIED IN APPLYING NP RATE. THE LD. CIT(A) HAS ADOPTED NP RATE AS SUGG ESTED BY THE ASSESSEE BEFORE HIM AND HE HAS RIGHTLY DIRECTED THE AO TO VE RIFY WHETHER NP RATE SO SUGGESTED BY THE ASSESSEE IS CORRECT OR NOT. PRE SUMING THAT IT IS CORRECT 6 THEN LD. CIT(A) WOULD BE JUSTIFIED IN APPLYING NP R ATE ON THE SALES ACCOUNTED OR UNACCOUNTED. 9. SIMILARLY, WE ARE SATISFIED THAT IN THE POST SUR VEY PERIOD TOTAL SALES MADE BY THE ASSESSEE ARE TO THE EXTENT OF RS.18,75, 186/- AS SUBMITTED BY THE ASSESSEE BEFORE THE AO AND REPRODUCED BY THE AO AT PAGE 7 OF HIS ORDER. ACCORDINGLY, THE LD. CIT(A) WAS JUSTIFIED IN APPLYING THE NP RATE OF 5.72% (SUBJECT TO CHECKING BY THE AO) AND ESTIMA TING THE PROFITS AT THAT RATE. 10. IN THE RESULT, WE CONFIRM THE ORDER OF LD. CIT( A) AND DISMISS THE APPEAL FILED BY THE ASSESSEE AS WELL AS THAT OF THE REVENUE. ORDER WAS PRONOUNCED IN OPEN COURT ON 30/7/2010 SD/- SD/- (BHAVNESH SAINI) (D.C.AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD, DATED : 30/7/2010 MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD