The ITO, Ward-6(4), Surat V. Shri Sanjay Dhansukhlal Gandhi, Surat

ITA 2899/AHD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60560 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 13-06-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 22-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJ MEHRA
• Assessee Lawyers: MANOJ MAKHANIA
• Keywords: Gross profit estimation; Unexplained cash credit
• Section: 131

Judgement Text

ITA NO 2899 /AHD/2011 A.YR.. 2007 -08 1 IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AH MEDABAD (BEFORE SHRI MUKUL KR.SHRAWAT JM & SHRI ANIL CHATUR VEDI A.M.) I.T.A. NO.289 9 /AHD/2011. (ASSESSMENT YEAR: 2007 -08 ) INCOME TAX OFFICER, WARD 6(4), ROOM NO.613, AAYAKAR BHAVAN, MAJURA GATE, SURAT. (APPELLANT) VS. SHRI SANJAY DHANSUKHLAL GANDHI, PROP. OF SANJAY MEDICAL AGENCIES, B-1, SNEHSAGAR APARTMENT, WANKI BORDI, SAIYEDPURA, SURAT-390 005. (RESPONDENT) PAN: ABHPG 3634L APPELLANT BY :MR. RAJ MEHRA, SR. D.R. RESPONDENT BY : MR. MANOJ MAKHANIA. ( )/ ORDER DATE OF HEARING : 13-6-2012 DATE OF PRONOUNCEMENT : 29-6-2012 PER: SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER. THIS APPEAL IS FILED BY THE REVENUE AGAINST THE OR DER OF CIT (A)-IV, SURAT DATED 27-7-2011 FOR THE ASSESSMENT YEAR 2007- 08. 2. THE REVENUE IN ITS APPEAL HAS RAISED FOLL OWING GROUNDS OF APPEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIOT(A)-IOV, SURAT HAS ERRED IN DELETING THE AD DITION OF RS.7,50,000/- MADE BY THE ASSESSING OFFICER ON ACCO UNT OF UNEXPLAINED CASH CREDIT. ITA NO 2899 /AHD/2011 A.YR.. 2007 -08 2 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT (A)-IV, SURAT HAS ERRED IN DELETING THE ADD ITION OF RS.1,28,075/- MADE BY THE ASSESSING OFFICER ON ACCO UNT OF LOSS OF GOODS. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT (A)-IV, SURAT HAS ERRED IN DELETING THE ADD ITION OF RS.3,30,433/- MADE BY THE ASSESSING OFFICER ON ACCO UNT OF LOW G.P. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE CIT (A)-IV, SURAT OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 5. IT IS THEREFORE, PRAYED THAT THE ORDER OF THE CI T (A)-IV, SURAT MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 3. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS AN INDIVIDUAL IN THE BUSINESS OF TRADING OF MEDICINES ON WHOLESALE BASIS .HE FILED RETURN OF INCOME ON 31-10-2007 DECLARING TOTAL INCOME AT RS.3 ,49,233/-. CASE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT WAS COMPLE TED U/S.143(3) OF THE ACT ON 29-12-2009 DETERMINING THE TOTAL INCOME AT R S.15,57,741/- BY MAKING VARIOUS DISALLOWANCES/ADDITIONS. AGGRIEVED B Y ORDER OF A.O. THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT (A) WHERE THE APPEAL OF THE ASSESSEE WAS ALLOWED. THE REVENUE IS THEREFORE, NOW IN APPEAL BEFORE US. 4. GROUND NO.1 IS AGAINST THE ADDITION OF RS.7,50,0 00/- MADE BY A.O. ON ACCOUNT OF UNEXPLAINED CASH CREDIT. DURING THE COUR SE OF ASSESSMENT PROCEEDING THE A.O. OBSERVED THAT THE ASSESSEE HAS TAKEN UNSECURED LOAN AGGREGATING TO RS.52,06,360/-. THE ASSESSEE WAS ASK ED TO FURNISH THE DETAILS, CONFIRMATIONS, IDENTITY PROOF OF THE CREDI TORS. THE A.O. CALLED SHRI SHAILESH SHAH AND SMT. KALPANA SHAH AND THEIR STATE MENT WAS RECORDED ITA NO 2899 /AHD/2011 A.YR.. 2007 -08 3 ON OATH ON 16-12-2009.THEY CONFIRMED GIVING LOAN OF RS.3 LAC AND RS.50,000/- RESPECTIVELY TO THE ASSESSEE. THE A.O. OBSERVED THAT SHRI SHAILESH SHAH HAD DEPOSITED CASH IN HIS ACCOUNT BEF ORE ISSUING CHEQUES TO THE ASSESSEE AND HIS INCOME WAS ONLY RS.70,215/- AND THEREFORE HE CONCLUDED THAT SHRI SHAILESH SHAH WAS NOT CREDITWOR THY TO ADVANCE LOAN OF RS.3,00,000/- TO THE ASSESSEE. IN CASE OF SMT. KALP ANA SHAH THE A.O. OBSERVED THAT SHE HAD SHOWN TOTAL INCOME OF RS.57,2 00/- BUT WAS NOT AWARE ABOUT THE SOURCE OF INCOME, MAINTAINED JOINT ACCOUNT WITH HER HUSBAND AND SOURCE OF LOAN WAS NOT REFLECTED IN THE INCOMPLETE BANK STATEMENT. HE THEREFORE CONCLUDED THAT SHE WAS NOT CREDITWORTHY TO ADVANCE LOAN OF RS.50,000/-. ON THE EXAMINATION OF CONFIRMATION OF SHRI RAMESH GANDHI, A.O. OBSERVED THAT IN HIS ACCOUNT CA SH OF RS.49,000/- WAS DEPOSITED ON 8 DIFFERENT OCCASIONS BEFORE ADVAN CING LOAN OF RS.4,00,000/-.FURTHER AS NO RETURN OF INCOME WAS FU RNISH BEFORE THE A.O. THE A.O. CONCLUDED THAT CREDITWORTHINESS OF SHRI RA MESH GANDHI HAS NOT BEEN ESTABLISHED. THE A.O. THUS ADDED THE AGGREGATE AMOUNT OF RS.7,50,000/-(RS.3,00,000 + 50,000 + 4,00,000) AS U NEXPLAINED CREDITS U/S. 68. AGGRIEVED BY THE ACTION OF THE A.O. THE ASSESS EE PREFERRED APPEAL BEFORE CIT (A) AND SUBMISSIONS WERE MADE. CIT (A) AFTER CONSIDERING THE SUBMISSIONS, CIT (A) HELD THAT THE REJECTION OF THE SOURCE AND CREDITWORTHINESS OF THE LOAN CREDITORS BY THE A.O. WAS BASSED PURELY ON DOUBTS. HE WAS OF THE VIEW THAT THE CASH CREDITS WE RE EXPLAINED AS TO ITS NATURE AND SOURCE AND THEREFORE DELETED THE ADDITIO NS MADE. AGGRIEVED BY THE ORDER OF CIT (A), THE REVENUE IS NOW IN APPEAL BEFORE US. 5. BEFORE US IT WAS SUBMITTED BY THE D.R. THAT THE SOURCE IOF CASH DEPOSITED IN THE BANK ACCOUNTS OF THE DEPOSITORS WE RE UNEXPLAINED AND ITA NO 2899 /AHD/2011 A.YR.. 2007 -08 4 THAT THE ASSESSEE HAS FAILED TO PROVE THE GENUINENE SS OF THE CASE CREDITS AND THEREFORE THE A.O. WAS RIGHT IN MAKING THE ADDI TION. 6. ON THE OTHER HAND THE LD. A.R. SUBMITTED THA T SHRI RAMESH GANDHI IS A FARMER ENGAGED IN THE CULTIVATION OF SUGARCANE. H IS ONLY SOURCE OF INCOME IS FROM AGRICULTURE. HE SELLS THE ENTIRE CROP TO SA YAN VIBHAG SAHAKARI KHAND UDYOG, SAYAN FOR WHICH HE RECEIVES THE PAYMEN T IN CASH WHICH IS EVIDENCED BY THE COPY OF STATEMENT OF ACCOUNT. AS H IS ENTIRE INCOME IS FROM AGRICULTURE, HE IS NOT REQUIRED TO FILE THE IN COME TAX RETURN. IT WAS FURTHER STATED THAT THE CASH WAS DEPOSITED IN BANK SO THAT HE COULD LEND THE MONEY THROUGH CHEQUE. IT WAS FURTHER SUBMITTED THAT THE AMOUNT OF LOAN WAS REPAID TO SHRI RAMESH GANDHI BY CHEQUE IN TWO P ARTS (RS.1,50,000 ON 21-1-2010 AND RS.2,50,000 ON 30-3-2011).WITH RESPEC T TO LOAN FROM SHRI SHAILESH SHAH, IT WAS SUBMITTED THAT THE SOURCE OF LOAN WAS THE REPAYMENT OF LOAN RECEIVED BACK FROM CHIKA TRADERS, AHMEDABAD . IT WAS SUBMITTED THAT THIS FACT WAS STATED IN THE STATEMENT GIVEN U/ S. 131 BY MR.SHAILESH TO THE A.O. IT WAS FURTHER SUBMITTED THAT THE AFORESAI D LOAN HAS BEEN RETURNED BACK THROUGH CHEQUES OF RS.1.50 LAC EACH ON 25-1-20 10 AND 20-4-2010 AND THE ASSESSEE HAS ALSO PAID INTEREST ON THE AMOU NT BORROWED. WITH RESPECT TO LOAN FROM SMT. KALPANA SHAH IT WAS SUBMI TTED THAT IN THE STATEMENT RECORDED U/S. 131.MRS. SHAH HAS CONFIRMED THE GIVING OF LOAN AND THE SOURCE OF THE DEPOSITS WAS INTEREST AND DIV IDEND INCOME. IT WAS FURTHER SUBMITTED THAT THE AFORESAID LOAN HAS BEEN RETURNED BACK THROUGH CHEQUE ON 16-1-2010 AND INTEREST HAS ALSO BEEN PAI D ON THE AMOUNT BORROWED. IT WAS THUS SUBMITTED THAT THE ASSESSEE H AS DISCHARGED HIS ONUS BY PROVING THE IDENTITY OF THE CREDITOR, THE CAPACI TY OF THE CREDITOR AND THE ITA NO 2899 /AHD/2011 A.YR.. 2007 -08 5 GENUINENESS OF THE TRANSACTION. THE LD. A.R. ALSO P OINTED TO THE FINDING OF CIT (A). HE THUS SUPPORTED THE ORDER OF THE CIT (A) . 7. WE HAVE HEARD THE RIVAL SUBMISSION AND MATERIAL ON RECORD. THE UNDISPUTED FACT IS THAT THE ASSESSEE HAS TAKEN LOAN S FROM SHRI SHAILESH SHAH, SMT. KALPANA SHAH AND RAMESH GANDHI. THE ASSE SSEE HAS DISCHARGED THE ONUS CAST UPON HIM BY PROVING THE ID ENTITY OF THE CREDITOR, THE CAPACITY OF THE CREDITOR AND THE GENUINENESS OF THE TRANSACTION. NOTHING HAS BEEN BROUGHT ON RECORD BY THE REVENUE TO CONTRO VERT THE SUBMISSIONS MADE BY THE LD. A.R. IN VIEW OF THESE FACTS, WE ARE OF THE VIEW THAT THERE IS NO NEED TO INTERFERE WITH THE ORDER OF CIT (A) AND WE ACCORDINGLY UPHOLD HIS ORDER. THUS THIS GROUND OF THE REVENUE IS DISMISSED . 8. GROUND NO.2 RELATES TO ADDITION OF RS.1,28,075/- ON ACCOUNT OF LOSS OF GOODS. THE A.O. OBSERVED THAT THE ASSESSEE HAS DEBI TED RS.1,28,075/- UNDER THE HEAD LOSS OF GOODS EXPENSES. IT WAS SUB MITTED THAT DUE TO FLOODS GOODS WORTH RS.17,89,175/- WERE DESTROYED. T HE INSURANCE COMPANY SETTLED THE CLAIM FOR RS.16,70,100/-. THE DIFFERENCE BETWEEN THE LOSS CLAIMED AND SETTLED WAS CLAIMED TO BE LOSS BY FLOODS. THE A.O. CONCLUDED THAT THE ASSESSEE HAS CLAIMED EXCESS LOSS TO THE EXTENT OF WHAT WAS DISALLOWED BY THE INSURANCE COMPANY AND THE SAM E TO BE NOT GENUINE IN NATURE. HE ACCORDINGLY DISALLOWED THE LOSS. AGAI NST THE DISALLOWANCE, THE ASSESSEE PREFERRED APPEAL BEFORE CTI (A). ON THE BA SIS OF SUBMISSIONS MADE, CIT (A) HELD THAT WHEN THE QUANTITY, QUALITY AND RATE OF THE GOODS DESTROYED IS NOT QUESTIONED, THE LOSS IS AN ADMISSI BLE DEDUCTION AND THEREFORE HE DELETED THE ADDITION MADE BY THE A.O. AGGRIEVED BY THE ORDER OF CIT (A), THE REVENUE IS NOW IN APPEAL BEFORE US. ITA NO 2899 /AHD/2011 A.YR.. 2007 -08 6 9. BEFORE US, IT WAS SUBMITTERD BY THE LD.D.R. THAT INSURANCE COMPANY ALLOWED THE LOSS ON THE BASIS OF SPOT ENQUIRY AND AFTER VERIFYING THE ACTUAL POSITION OF THE LOSS. IT WAS SUBMITTED THAT LOSS WA S SETTLED FOR A LESSER AMOUNT, IT INDICATES THAT THE LOSS CLAIMED BY THE A SSESSEE WAS NOT CORRECT. HE THUS RELIED ON THE ORDER OF THE A.O. 10. ON THE OTHER HAND, THE LD. A.R. SUBMITTED THAT THE ASSESSEE HAS BEEN DOING THE BUSINESS AFTER OBTAINING LICENSE FRO M FOOD AND DRUG ADMINISTRATION DEPARTMENT. THE LIST OF GOODS DESTRO YED BY FLOOD WAS VERIFIED AND CERTIFIED BY THE ASSISTANT COMMISSIONE R, FOOD AND DRUG DEPARTMENT. HE PLACED THE CERTIFICATE OF FOOD AND D RUG ADMINISTRATION ON PAGE 88 OF THE PAPER BOOK AND DETAILED FDA CERTIFIE D LIST OF GOODS ON PAGE- 89 TO 136 OF THE PAPER BOOK. THE SAME WERE ALSO CER TIFIED BY THE SURVEYOR APPOINTED BY THE INSURANCE COMPANY. THE INSURANCE C OMPANY HAS NOT QUESTIONED THE QUALITY, QUANTITY AND RATES OF MEDIC INES AS DESCRIBED IN THE CERTIFICATE. 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE UNDISPUTED FACT IS THAT THE GOODS WERE DESTROYED IN FLOODS FOR WHICH THE ASSESSEE LODGED CLAIM FOR RS.17,98,275/- WITH THE INSURANCE COMPANY AND THE CLAIM WAS SETTLED FOR RS.16,70,100/ -. WHILE SETTLING THE CLAIM THE INSURANCE COMPANY HAS NOT QUESTIONED THE QUALITY, QUANTITY AND RATES OF MEDICINES IN THE CLAIM. THE CLAIM OF LOSS HAS ALSO BEEN CERTIFIED BY THE ASSISTANT COMMISSIONER, FOOD & DRUG DEPARTMENT. IN VIEW OF THESE FACTS,. WE AGREE WITH THE VIEW OF THE CIT (A) THAT THE LOSS OF GOODS IS NOTHING BUT DEDUCTION MADE BY INSURANCE COMPANY AS PER THE POLICY ITA NO 2899 /AHD/2011 A.YR.. 2007 -08 7 CONDITIONS AND THEREFORE THE SAME HAS TO BE CONSIDE RED AS ALLOWABLE DEDUCTION. IN VIEW OF THESE FACTS, WE ARE OF THE VI EW THAT THERE IS NO NEED TO INTERFERE WITH THE ORDER OF CIT (A) AND WE ACCORDIN GLY UPHOLD HIS ORDER ON THIS GROUND. THUS THIS GROUND OF THE REVENUE IS DIS MISSED. 12. THE THIRD GROUND OF APPEAL RELATES TO THE ADDIT ION ON ACCOUNT OF LOW GROSS PROFIT. 13. THE A.O. OBSERVED THAT THE G.P. HAS REDUCED FRO M 10.01% IN THE PRECEDING YEAR TO 8.60% I.E. FALL BY 1.41%. THE EXP LANATIONS FOR THE REDUCED G.P. OFFERED BEFORE THE A.O. WAS NOT ACCEPT ED BY THE A.O. AND HE ACCORDINGLY WORKED OUT THE G.P. OF RS.3,30,433/- (A T 1.41% ON TOTAL TURNOVER OF RS.2,34,34,944/-) AND ADDED TO THE TOTA L INCOME. AGGRIEVED BY THE DECISION OF A.O. THE ASSESSEE PREFERRED APPEAL BEFORE CIT (A). CIT (A) WAS CONVINCED WITH THE SUBMISSIONS MADE BY ASSESSEE AND DELETED THE ADDITION BY HOLDING THAT THOUGH THE G.P. HAS REDUCE D, THE NET PROFIT OF THE ASSESSEE HAS INCREASED. THE A.O. HAS NOT FOUND ANY DISCREPANCY IN THE BOOKS OF ACCOUNTS AND THE BOOKS OF ACCOUNTS HAVE AL SO NOT BEEN REJECTED. HE FURTHER HELD THAT ADDITION ON ACCOUNT OF G.P. CA NNOT BE MADE SIMPLY BECAUSE THE GP HAD FALLEN, IN COMPARISON TO ANOTHER YEAR. THE DEPARTMENT BEING AGGRIEVED IS NOW IN APPEAL BEFORE US. 14. BEFORE US THE LD. D.R. RELIED ON THE ORDER OF T HE A.O. ON THE OTHER HAND THE LD. A.R. SUBMITTED THAT IN THE PRECEDING Y EAR THE ASSESSEE WAS OFFERING CUSTOMERS 1 MONTH CREDIT BUT IN THE CURREN T ASSESSMENT YEAR INSTEAD OF OFFERING CREDIT THE ASSESSEE HAS STARTE D OFFERING DISCOUNT OF 2 TO 3% TO THE CUSTOMERS WHO MAKE THE PAYMENT WITHIN TH E A WEEK. ANOTHER ITA NO 2899 /AHD/2011 A.YR.. 2007 -08 8 REASON FOR FALL IN G.P. WAS THAT AFTER THE FLOODS T HE ASSESSEE HAD ALSO SOLD MEDICINES AT LOWER RATES ON HUMANITARIAN GROUNDS. F URTHER DURING THE YEAR THE ASSESSEE HAS STOPPED SELLING MEDICINES UNDER FR EE SALES SCHEME ON THE BASIS OF DECISION OF THE TRADE ASSOCIATION. ALL THESE REASON LEAD TO FALL IN GP. HOWEVER, THERE HAS BEEN NO FALL IN NET PROFIT. ON THE CONTRARY THE NET PROFIT HAS INCREASED FROM 1.38% TO 1.41%.IT WAS FUR THER STATED THAT THE ASSESSEE IS REGULATED BY THE FOOD AND DRUG CONTROL ACT WHEREBY IT CANNOT SELL OR PURCHASE EVEN A SINGLE PILL OR CAPSULE WITH OUT BILL AND THEREFORE IN THESE CIRCUMSTANCES THERE CANNOT BE ANY SUPPRESSION OF SALES. HE THUS URGED THAT THE ORDER OF CIT (A) BE UPHELD. 15. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE UNDISPUTED FACT IS THAT THE BUSINESS OF ASSESSEE IS GOVERNED BY THE REGULATION OF FOOD AND DRUG CONTROL ACT. ALL RE CORDS OF PURCHASE AND SALES ARE SUBJECT TO VERIFICATION BY THOSE AUTHORIT IES. NO DISCREPANCIES HAVE BEEN NOTICED BY THEM. THE REASONS FOR FALL IN GP HA VE NOT BEEN CONTROVERTED BY THE REVENUE NOR HAVE THEY BROUGHT O N RECORD ANY CONTRARY FACTS. THOUGH THERE HAS BEEN FALL IN GP BUT THERE I S INCREASE IN THE RATE OF NET PROFITS. THE REVENUE HAS NOT POINTED OUT ANY DE FECTS IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND HAS ACCEPTED ITS BOOK RESULTS. IN VIEW OF THE TOTALITY OF THE AFORESAID FACTS WE ARE OF THE VIEW THAT THERE IS NO NEED TO INTERFERE WITH THE ORDER OF CIT (A) AND WE ACCORDIN GLY UPHOLD HIS ORDER ON THIS GROUND. THUS THIS GROUND OF THE REVENUE IS ACC ORDINGLY DISMISSED. ITA NO 2899 /AHD/2011 A.YR.. 2007 -08 9 16. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN OPEN COURT ON 29 -6 - 2012. SD/- SD/- (MUKUL KUMAR SHRAWAT) (ANIL CHATURVEDI) JUDICIAL MEMBER ACC OUNTANT MEMBER AHMEDABAD. S.A.PATKI. COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS)-IV,SURAT. 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD. 1.DATE OF DICTATION 13 - 6 -2012 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 28 /6 / 2012 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S 28 - 6 -2012. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 29 - 6 -2012 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 29 - 6 -2012 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 2 9 - 6 -2012. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..