INCOME TAX OFFICER, WARD-2(1), VIJAYAWADA V. AJAY ELECTRONICS, VIJAYAWADA

ITA 272/VIZ/2023

• Counselvise Citation: [2023] 101 COUNSELVISE.COM (IT) 9358 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2023
• Appeal Filed By: Department
• Order Result: PartlyAllowed
• Bench Allotted: DB
• Next Hearing Date: 06-12-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 29-10-2023
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Section: 132; 143(3); 142(1); 143(1); 69A

Judgement Text

आयकर अपीलȣयअͬधकरण, ͪवशाखापटणम पीठ, ͪवशाखापटणम IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM Įी दुåवूǽ आर एल रेɬडी, ÛयाǓयक सदèय एवं Įी एस बालाकृçणन, लेखा सदèय के सम¢ BEFORE SHRI DUVVURU RL REDDY, HON’BLE JUDICIAL MEMBER & SHRI S BALAKRISHNAN, HON’BLE ACCOUNTANT MEMBER आयकर अपील सं./ I.T.A. No. 272/Viz/2023 (Ǔनधा[रण वष[ / Assessment Year : 2017-18) Income Tax Officer, Ward-2(1), Vijayawada. Vs. Ajay Electronics, Vijayawada. PAN: AAGFA 2330 M (अपीलाथȸ/ Appellant) (Ĥ×यथȸ/ Respondent) अपीलाथȸ कȧ ओर से/ Assessee by : Sri GVN Hari, AR Ĥ×याथȸ कȧ ओर से / Revenue by : Sri Madhukar Aves, Sr. AR सुनवाई कȧ तारȣख / Date of Hearing : 07/12/2023 घोषणा कȧ तारȣख/Date of Pronouncement : 22/12/2023 O R D E R PER S. BALAKRISHNAN, Accountant Member : This appeal is filed by the Revenue against the order of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [NFAC] in DIN & Order No. ITBA/NFAC/S/250/2023-24/1055740880(1), dated 5/9/2023 2 arising out of the order passed U/s. 143(3) of the Income Tax Act, 1961 (the Act) dated 03/12/2019. 2. Brief facts of the case are that the assessee is engaged in the business of Trading in Electronic Goods and e-filed its return of income for the AY 2017-18 on 12/09/2017 declaring an income of Rs. 5,900/-. The return was processed U/s. 143(1) of the Act wherein it was noted by the Department that the assessee has admitted total purchases of Rs. 21,14,949/- and a very huge sales during the year. A search and seizure operation was conducted in the case of M/s. Laxmi Remote Group (LRIPL) wherein it was found that this company has made cash sales to the assessee (Ajay Electronics) to the tune of Rs. 1,12,27,707/- during the FY relevant to the AY 2017-18. Therefore, the assessee’s case was taken up for scrutiny with the prior approval of the Ld. Pr. CIT, Vijayawada. Accordingly, notice U/s. 142(1) of the Act was issued on 28/09/2018 and served on the assessee through mail. Further, notices u/s. 142(1) of the Act dated 7/8/2019 and 17/10/2019 were issued and served on the assessee wherein the assessee was called for to furnish certain information and in response to the notices, the assessee furnished the information called for from time to time. In the said 3 reply, the assessee stated that even though it had purchased some electronic items from M/s. Laxmi Remote (India) Private Limited, the assessee did not make any cash purchases from M/s. Laxmi Remote (India) Private Limited. Thereafter, the Ld. AO observed that during the course of investigation in the case of M/s. Laxmi Remote (India) Private Limited a statement was recorded from Sri Prakash Chand Sachdeva, one of the Directors of M/s. Laxmi Remote (India) Private Limited, wherein it was stated by him that M/s. Laxmi Remote (India) Private Limited had made cash sales worth Rs. 1,12,27,707/- to M/s. Ajay Electronics during the AY 2017-18. Therefore, the Ld. AO treated the cash purchases of Rs. 1,12,27,707/- made by the assessee as unexplained money U/s. 69A of the Act and brought it to tax in the hands of the assessee and determined the assessed income at Rs. 1,12,33,607/- and passed the assessment order dated 3/12/2019. Aggrieved by the order of the Ld. AO, the assessee preferred an appeal before the Ld. CIT(A). 3. On appeal, it was contended before the Ld. CIT(A)-NFAC that the Ld. AO is not correct in making addition of the total purchases of Rs. 1,12,27,707/-. If at all the addition is to be made, only the profit element involved in the sales should be 4 taxed as income of the assessee. The assessee also pleaded before the Ld. CIT(A)-NFAC that the income may be estimated @ 8% of the total sales. However, the Ld. CIT(A)-NFAC overlooking the argument of the assessee, deleted the entire addition made by the Ld. AO. Aggrieved by the order of the Ld. CIT(A)-NFAC, the Revenue is in appeal before the Tribunal by raising the following grounds of appeal: “1. The Ld. CIT(A) erred in del eting the addition made of Rs. 1,12,24,707/- U/s. 69A r.w.s 115BBE of the Act by the AO wi thout appreci ating the fact th at the addi tion was made by the AO on the specific and authentic information provided by the ACIT, Central Ci rcl e-18, Delhi consequent to the findings of the Directorate of Income Tax ( Investig ation), Del hi after thorough investig ation carried out during the course of search proceedings U/s. 132 in the case of M/s. Laxmi Remo te ( Indi a) Pvt Ltd. 2. The Ld. CIT(A) e rred in not appreci ating the f act th at the two e mpl oyees namel y Sri P awan Kumar Ko th ari and Sri Pawan Kumar Midh a of M/s. L axmi Re mote ( In di a) Pv t Ltd have stated in their s tatements recorde d during the course of search proceedings th at cash s al es we re made to the assessee M/s. Ajay El ectronics to the extent of Rs. 1,12,24,707/- during the AY 2017-18, as per the IVM S software maintained by the comp an y used to record the genuine and origin al sal es taken pl ace. The same was al so admi tted / confirmed by the Directo r of the sai d comp an y – Sri Prak ash Ch and Sachdev a in his s worn statement recorde d U/s. 132(4) of the Act on 23/8/2017 by the investigation authorities. 3. The Ld. CIT (A) erred in not appreci ati ng the fact th at the sanctity of the information provided by the investigation unit Del hi wi th materi al evidences, afte r thorough investigation cannot be doubted until and unl ess there is ano ther strong mate ri al evidence, which proves that the information given by the investigation au thority is wrong, fictitious and cannot be rel iabl e. 5 4. The Ld. CIT(A) whil e al l owing the appeal of the assessee has ignored the fact th at the trans action s unearthed by the investigation unit we re intentional l y not recorde d by the sai d comp an y M/s. Laxmi Re mote ( In di a) Pvt Ltd in the Books of account th at we re sho wn to v arious Govt. Agencies and were maintained secretl y i n another software IVMS. Simil arl y, in the instant case, it is cl early evident th at the assessee al so did not bring such trans actions into the books of account produced before the income tax au thority wi th a mo tive of hiding the facts to ev ade taxes. 5. The Ld. CIT (A) has al so erred in not appreciating the fact th at the assessee did not p roduce any evidence / mate ri al l ike confirmation from M/s. Laxmi Recmote ( Indi a) Pvt Ltd wi th reg ard to the trans actions made by the assessee wi th it consequent to the search proceedings on the company. 6. The Ld. CIT (A) erred in del eting the entire addition made by the AO ignoring the fact th at s ame i ssue is invol ved in other AYs 2014-15, 2015-16, 2016-17 & 2018-19 in the assessee’s case and the FAO of Nation al Facel ess Assessment Centre has esti mated the profit of the assessee – M/s. Ajay El ectronics @ 8% on the gross turnover / total sal es incl uding the sal es made out of cash purchases reported by the investigation unit and the same was accepted by the assessee by not fil ing appe al on these assessments. 7. The Ld. CIT(A) e rred in not appreci ating the f act th at the assessee has accepte d th at there are cash purchases made by the assessee from M/s. Laxmi Remo te (Indi a) Pvt Ltd as reported by the Investig ation Unit for the AYs 2014-15, 2015-16, 2016-17 and 2018-19 by not fil ing the appe al s made by the FAO, NeFAC in these AYs whe re as the cash purchases reporte d by the investigati on unit for the AY 2017-18 are denied by the assessee. 8. Any other grounds of appe al th at emerg e out of the appe al proceedings from time to time.” 4. At the outset, the Ld. Departmental Representative submitted that the assessee has accepted the out of books sales in the earlier assessment years as well as in the subsequent assessment year (i.e., AYs 2014-15, 2015-16, 2016-17 & 2018-19), and 6 therefore it was pleaded that the order of the Ld. AO for the AY 2017-18 which is under consideration is required to be upheld. The Ld. DR vehemently argued in support of the decision taken by the Ld. AO. On the other hand, the Ld. Authorized Representative reiterated the submissions made before the Ld. CIT(A) and supported the decision taken by the Ld. CIT(A). 5. We have heard both the sides and perused the material available on record as well as the orders of the Ld. Revenue Authorities. In the instant case, there is no dispute on the cash purchases worth Rs.1,12,27,707/- made by the assessee. The grievance of the Revenue is that since the assessee has not properly explained the sources for the cash purchases of Rs. 1,12,27,707/- the decision of the Ld. AO by making an addition U/s. 69A of the Act treating it as unexplained cash holds good and therefore the same may be sustained and the order of the Ld. CIT(A), NFAC be set-aside. On the other hand the argument of the Ld. AR is that only the income/net profit embedded in total cash sales must have been taxed and not the entire cash purchases. It is also a fact that the assessee had accepted the Ld. AO’s estimation @ 8% on gross turnover / total sales including the 7 sales made out of cash purchases as reported by the Investigation Unit. We find that the Ld. AO has merely relied on the sworn-in statement recorded from one of the Directors of M/s. Laxmi Remote (India) Pvt Ltd to brought to tax the cash sales of Rs. 1,12,24,707/-. In the case of CIT vs. Willamson Financial Services reported in [2007] 165 Taxman 638 (SC) the Hon’ble Supreme Court has observed as follows in Para 29: “.........Under the inco me tax Act the tax is on the income and no t on gross receipts. It is also important to bear in mind that U/s. 4 the levy is on ‘ to tal inco me’ of the assessee co mputed in accordance with and subjec t to the provisions of the Inco me Tax Act. What is to chargeable to tax under the Income Tax Act is the profit and gains of a year. What is chargeable to tax under the Income Tax Ac t is no t gross receipts but inco me.....” Hon’ble Gujarat High Court in the case of CIT vs. President Industries [258 ITR 654] (Gujarat HC) has held that it cannot be the matter of an argument that the amount of sales by itself canno t represent the income of the assessee. It is the realization of excess over the cost incurred that only forms par t of the profit included in the configuration of sale. Similar view was taken in the case of CIT vs. Gurubachhan Singh J. Juneja [215 CTR 509] (Gujarat HC) and CIT vs. Sharada Real Estate (P) Ltd., [99 DTR 100] (MP- HC) and in the case of Jyotibhaichand Bhaichand Saraf & Sons 8 (P) Ltd., vs. DCIT [139 ITD 10] the Coordinate Bench at Pune has confirmed the addition could only be made only to an ex tent of gross profit earned on an unaccounted/suppressed sales and no t on the entire sales itself. Similar view was taken in the case of ACIT vs. M/s. Archana Trading Co., in ITA Nos. 351 & 352/Coch/2011, dated 28/02/2013 and also ACIT vs. Pahal Food [IT(SS)A No. 42/Hyd/2005, dated 30/09/2009] by ITAT, Hyderabad. 6. Respectfully following the ratio laid in the above decisions, we are of the opinion that the entire unaccounted purchases cannot be treated as income of the assessee and only the profit element should be considered as income for the purpose of computing the tax on sales. Hence, we are inclined to allow 8% on the sales made by the assessee as income of the assessee. Accordingly, the Ld. AO is directed to work out the income of the assessee and tax the same in accordance with law. It is ordered accordingly. 7. In the result, appeal of the Revenue is partly allowed. 9 Pronounced in the open Court on 22 nd December, 2023. Sd/- Sd/- (दुåवूǽ आर.एल रेɬडी) (एस बालाकृçणन) (DUVVURU RL REDDY) (S.BALAKRISHNAN) ÛयाǓयकसदèय/JUDICIAL MEMBER लेखा सदèय/ACCOUNTANT MEMBER Dated : 22.12.2023 OKK - SPS आदेश कȧ ĤǓतͧलͪप अĒेͪषत/Copy of the order forwarded to:- 1. Ǔनधा[ǐरती/ The Assessee – Ajay Electronics, Shop No. 14, 27-23-100, Prakasam Road, Governorpet, Andhra Pradesh – 520002. 2. राजèव/The Revenue – Income Tax Officer, Ward-2(1), R.No. 107, Ground Floor, Central Revenue Buildings, Near PWD Grounds, MG Road, Andhra Pradesh – 520002. 3. The Principal Commissioner of Income Tax, 4. आयकर आयुÈत (अपील)/ The Commissioner of Income Tax 5. ͪवभागीय ĤǓतǓनͬध, आयकर अपीलȣय अͬधकरण, ͪवशाखापटणम/ DR, ITAT, Visakhapatnam 6. गाड[ फ़ाईल / Guard file आदेशानुसार / BY ORDER Sr. Private Secretary ITAT, Visakhapatnam