M/s. Saptashrungi Traders, Nashik V. Assistant Commissioner of Income tax,

ITA 2837/PUN/2016

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 6169 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 9 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 14-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VITTHAL M BHOSALE
• Keywords: Business income
• Section: 143(3); 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUNE (THROUGH VIRTUAL COURT) BEFORE SHRI P.M. JAGTAP, VICE PRESIDENT AND SHRI PARTHA SARATHI CHAUDHURY, JM . / ITA NO.2837/PUN/2016 / ASSESSMENT YEAR : 2013-14 M/S. SAPTASHRUNGI TRADERS, GAT NO.14, AT & POST- MATORI, TALUKA: NASHIK, NASHIK-423110. PAN : ABZFS8741E ....... / APPELLANT / V/S. ACIT, CIRCLE-2, NASHIK. / RESPONDENT ASSESSEE BY : SHRI PRAMOD SHINGTE REVENUE BY : SHRI VITTHAL M. BHOSALE / DATE OF HEARING : 11.09.2020 / DATE OF PRONOUNCEMENT : 17.09.2020 / ORDER PER P.M. JAGTAP, VP : THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A)-2, NASHIK DATED 11.11.2016 WHEREBY HE SUSTAINED THE GP ADDITION OF RS.39,60,651/- MADE BY THE ASSESSING OFFICER TO THE EXTENT OF RS.30,18,904/-. 2. THE ASSESSEE IN THE PRESENT CASE IS A PARTNERSHIP FIRM WHICH IS ENGAGED IN THE BUSINESS OF TRADING IN MS ANGELS, GI WIRES AND CEMENT. A SURVEY U/S 133A OF THE INCOME TAX ACT, 1961 WAS CARRIED OUT IN THE BUSINESS PREMISES OF THE ASSESSEE ON 06.11.2012. DURING THE COURSE OF SURVEY, A STATEMENT OF THE PARTNER OF THE ASSESSEE FIRM WAS RECORDED WHEREIN HE AGREED TO SURRENDER ADDITIONAL INCOME OF RS.50 LAKHS FOR ASSESSMENT YEARS 2012-13 AND 2013-14. THEREAFTER, THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY THE ASSESSEE ON 29.09.2013 DECLARING TOTAL INCOME OF RS.29,58,347/-. DURING THE COURSE OF SURVEY, A TRADING ACCOUNT FOR THE PRE-SURVEY PERIOD WAS PREPARED 2 ITA NO.2837/PUN/2016 BY THE SURVEY TEAM AND IN THE SAID TRADING ACCOUNT DULY SIGNED BY THE PARTNER OF THE ASSESSEE FIRM, GROSS PROFIT AT THE RATE OF 4.09% WAS REFLECTED. AS NOTICED BY THE ASSESSING OFFICER, THE TRADING ACCOUNT PREPARED BY THE ASSESSEE FIRM AND FILED ALONG WITH THE RETURN FOR THE ENTIRE PREVIOUS YEAR ENDING ON 31.03.2013 HOWEVER REFLECTED G.P. RATE OF 1.6% ONLY. HE NOTED ON THE BASIS OF THE COMPARISON OF TRADING ACCOUNT PREPARED FOR THE PRE-SURVEY PERIOD DURING THE COURSE OF SURVEY AND THE TRADING ACCOUNT PREPARED BY THE ASSESSEE FOR THE ENTIRE YEAR THAT THERE WAS A GROSS LOSS FOR THE POST-SURVEY PERIOD AND THE SALE SHOWN BY THE ASSESSEE WAS MORE THAN THE PURCHASES. HE, THEREFORE, REQUIRED THE ASSESSEE TO OFFER ITS EXPLANATION IN THE MATTER. IN REPLY, IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT THE TRADING ACCOUNT PREPARED FOR THE PRE-SURVEY PERIOD DURING THE COURSE OF SURVEY WAS TENTATIVE ONE AND IT WAS PREPARED BY TAKING GROSS PROFIT RATE OF 4.09% AS DECLARED BY THE ASSESSEE IN THE EARLIER YEAR. IT WAS ALSO SUBMITTED THAT THERE WAS SUBSTANTIAL INCREASE IN THE TURNOVER OF THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION AS COMPARED TO THE EARLIER YEAR WHICH ALSO CAUSED REDUCTION IN THE GROSS PROFIT RATE. IT WAS SUBMITTED THAT THE TRADING ACCOUNT PREPARED AND FURNISHED BY THE ASSESSEE ALONG WITH THE RETURN OF INCOME WAS RELIABLE ONE AS THE SAME WAS BASED ON THE BOOKS OF ACCOUNT REGULARLY MAINTAINED BY THE ASSESSEE. THIS EXPLANATION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE BY THE ASSESSING OFFICER. ACCORDING TO HIM, NO STOCK RECORD WAS MAINTAINED BY THE ASSESSEE AND IN THE ABSENCE OF THE SAME, THE TRADING RESULTS DECLARED BY THE ASSESSEE WERE NOT RELIABLE AND ACCEPTABLE. HE ALSO NOTED THAT THE TRADING ACCOUNT FOR THE PRE-SURVEY PERIOD AS PREPARED DURING THE COURSE OF SURVEY WAS SIGNED BY THE PARTNER OF THE ASSESSEE FIRM AND THE ASSESSEE, THEREFORE, WAS NOT JUSTIFIED IN DISPUTING THE RELIABILITY OF THE SAME. HE FURTHER NOTED THAT THE DIFFERENCE IN STOCK AS WELL AS PURCHASE & SALE WAS FOUND DURING THE COURSE OF SURVEY AND THIS FACT ACCEPTED BY THE PARTNER OF THE ASSESSEE FIRM IN A STATEMENT RECORDED DURING THE COURSE OF 3 ITA NO.2837/PUN/2016 SURVEY WAS SUFFICIENT TO SHOW THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE WERE NOT RELIABLE. HE, THEREFORE, WORKED OUT THE GROSS PROFIT OF THE ASSESSEE FIRM FOR THE YEAR UNDER CONSIDERATION AT RS.65,28,383/- BY APPLYING THE GP RATE OF 4.09% AND MADE TRADING ADDITION OF RS.39,60,651/- IN THE ASSESSMENT COMPLETED U/S 143(3) OF THE ACT VIDE AN ORDER DATED 05.02.2016. 3. AGAINST THE ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE ACT, AN APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LD. CIT(A) CHALLENGING THE TRADING ADDITION OF RS.39,60,651/- MADE BY THE ASSESSING OFFICER AND AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE AS WELL AS THE RELEVANT MATERIAL AVAILABLE ON RECORD, THE LD. CIT(A) RESTRICTED THE SAID TRADING ADDITION TO RS.30,18,904/- FOR THE FOLLOWING REASONS GIVEN IN PARAGRAPH NO.8.4 OF HIS IMPUGNED ORDER :- 8.4 AS REGARDS ESTIMATION OF GROSS PROFIT PERCENTAGE, IT HAS BEEN NOTICED THAT IN THE 3 PRECEDING YEARS THE GROSS PROFIT PERCENTAGE OF THE BUSINESS OF THE APPELLANT WAS 3.17%, 5.89% AND 4.89%, AVERAGE OF WHICH WORKS OUT TO 4.65%. IT IS ALSO A FACT THAT TURNOVER OF THE APPELLANT HAD SUBSTANTIALLY INCREASED DURING THE YEAR UNDER APPEAL TO 15.96 CRORES FROM 3.53 CRORES IN THE PRECEDING YEAR. CONSIDERING THE INCREASE IN THE TURNOVER AND THE FACTS OF THE CASE, THE GROSS PROFIT OF THE APPELLANT IS ESTIMATED AT 3.50% AS AGAINST PRECEDING YEARS GROSS PROFIT OF 4.89% WHICH WAS INADVERTENTLY CONSIDERED BY THE A.O. AT 4.09%. THE GROSS PROFIT OF THE APPELLANT THEREFORE WORKS OUT TO RS.55,86,636/- @ 3.5% AS AGAINST SHOWN BY THE APPELLANT AT RS.25,67,732/-. THE GROSS PROFIT ADDITION IS THEREFORE CONFIRMED TO THE EXTENT OF RS.30,18,904/- AND DELETED TO THE EXTENT OF RS.9,41,747/-. THE A.O. IS DIRECTED ACCORDINGLY. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE THIS TRIBUNAL. 4. THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET INVITED OUR ATTENTION TO THE RELEVANT PORTION OF THE STATEMENT OF THE PARTNER OF THE ASSESSEE FIRM RECORDED DURING THE COURSE OF SURVEY PLACED AT PAGE NO.46 OF THE PAPER BOOK TO POINT OUT THAT THE ADDITIONAL INCOME OF RS.35 LAKHS WAS SURRENDERED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION MAINLY ON THE BASIS OF DIFFERENCE IN THE STOCK AND DIFFERENCE IN THE PURCHASE & SALE AS FOUND DURING THE COURSE OF SURVEY. HE ALSO 4 ITA NO.2837/PUN/2016 INVITED OUR ATTENTION TO THE TRADING ACCOUNT AND PROFIT & LOSS ACCOUNT OF THE ASSESSEE FIRM PLACED AT PAGE NO.30 AND 31 OF THE PAPER BOOK TO SHOW THAT THE ADDITIONAL INCOME OF RS.35 LAKHS DISCLOSED DURING THE COURSE OF SURVEY AFFECTING THE TRADING RESULT HOWEVER WAS WRONGLY CREDITED BY THE ASSESSEE TO THE PROFIT & LOSS ACCOUNT. HE HAS SUBMITTED THAT IF THE SAID AMOUNT OF RS.35 LAKHS IS ADDED TO THE GROSS PROFIT OF RS.25.67 LAKHS AS APPEARING IN THE TRADING ACCOUNT OF THE ASSESSEE, THE GROSS PROFIT WOULD BE RS.60.67 LAKHS GIVING A GP RATE OF 3.80% ON THE TOTAL SALES OF RS.15.96 CRORES. HE CONTENDED THAT SINCE THIS GP RATE IS ACTUALLY MORE THAN THE GP RATE OF 3.5% ADOPTED BY THE LD. CIT(A) BY TAKING INTO CONSIDERATION ALL THE RELEVANT FACTS OF THE CASE INCLUDING ESPECIALLY THE AVERAGE GP RATE DECLARED BY THE ASSESSEE FOR THE IMMEDIATELY PRECEDING YEARS, THERE IS NO CASE OF MAKING ANY TRADING ADDITION AND EVEN THE TRADING ADDITION SUSTAINED BY THE LD. CIT(A) IS LIABLE TO BE DELETED. 5. THE LD. DR, ON THE OTHER HAND, RELIED ON THE ORDER OF THE AUTHORITIES BELOW IN SUPPORT OF THE REVENUES CASE. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. AS RIGHTLY POINTED OUT BY THE LD. COUNSEL FOR THE ASSESSEE, ADDITIONAL INCOME OF RS.35 LAKHS FOR THE YEAR UNDER CONSIDERATION WAS DISCLOSED BY THE PARTNER OF THE ASSESSEE FIRM IN HIS STATEMENT RECORDED DURING THE COURSE OF SURVEY ON ACCOUNT OF DIFFERENCE IN STOCK AND DIFFERENCE IN PURCHASE & SALE AS FOUND DURING THE COURSE OF SURVEY. SINCE THIS DIFFERENCE WAS DIRECTLY AFFECTING THE TRADING RESULTS OF THE ASSESSEE FIRM, THE ADDITIONAL INCOME OF RS.35 LAKHS DISCLOSED BY THE ASSESSEE SHOULD HAVE BEEN REFLECTED IN THE TRADING ACCOUNT INSTEAD OF PROFIT & LOSS ACCOUNT AS DONE BY THE ASSESSEE. IF THE SAID AMOUNT OF RS.35 LAKHS IS CREDITED TO THE TRADING ACCOUNT, IT GIVES A GROSS PROFIT OF RS.60.67 LAKHS WHICH IS 3.8% OF THE SALES DECLARED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION AND SINCE THE SAME IS MORE THAN THE 5 ITA NO.2837/PUN/2016 GP RATE OF 3.5% ADOPTED BY THE LD. CIT(A), WE FIND MERIT IN THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THIS IS NOT A FIT CASE TO MAKE ANY TRADING ADDITION AND THE TRADING ADDITION MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE LD. CIT(A) IS LIABLE TO BE DELETED. IT APPEARS THAT THIS VITAL ASPECT RELATING TO THE MISTAKE COMMITTED BY THE ASSESSEE BY TREATING THE INCOME DISCLOSED DURING THE COURSE OF SURVEY TO PROFIT & LOSS ACCOUNT INSTEAD OF TRADING ACCOUNT AS NOW HIGHLIGHTED BY THE LD. COUNSEL FOR THE ASSESSEE WAS NOT BROUGHT TO THE NOTICE OF THE LD. CIT(A) AND EVEN THE LD. CIT(A) FAILED TO TAKE NOTE ON THE SAME WHILE SUSTAINING THE TRADING ADDITION MADE BY THE ASSESSING OFFICER PARTLY. WE, ACCORDINGLY, DELETE THE TRADING ADDITION MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE LD. CIT(A) AND ALLOW THIS APPEAL OF THE ASSESSEE. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 17 TH DAY OF SEPTEMBER, 2020. SD/- SD/- ( PARTHA SARATHI CHAUDHURY ) ( P.M. JAGTAP ) JUDICIAL MEMBER VICE PRESIDENT / PUNE; / DATED : 17 TH SEPTEMBER, 2020. SUJEET / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(A)-2, NASHIK. 4. THE PR. CIT-2, NASHIK. 5 . , , , / DR, ITAT, A BENCH, PUNE. 6. / GUARD FILE. / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE.