Ram Prakash Rustogi, Rewari V. ITO, Ward- 2, Rewari

ITA 2967/DEL/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 6586 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 26-04-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: RAJIV SAXENA SH SHYAM SUNDER
• Keywords: Diversion of income

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI SMC-1 BENCH, NEW DELH I BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER (THROUGH VIDEO CONFERENCING) ITA NO.2967/DEL/2018 [A.Y 2009-10] RAM PRAKASH RUSTOGI, VS. ITO C/O M/S. PRABHU DAYAL PREM PRAKASH, WARD-2 SHOP NO.150, NAI ANAJ MANDI, REWARI REWARI APPELLANT BY : SH.RAJIV SAXENA, AD VOCATE SH. SHYAM SUNDER, ADVOCATE RESPONDENT BY : SH. R. K. GUPTA, SR. DR DATE OF HEARING : 16.09.2020 DATE OF PRONOUNCEMENT : 17 .09.2020 ORDER PER N. K. BILLAIYA , AM : 1. THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST TH E ORDER OF THE CIT(A), ROHTAK DATED 01.02.2018 PERTAINING TO A.Y. 2009-10. 2. FACTS ON RECORD SHOW THAT THIS IS THE SECOND ROU ND OF LITIGATION. IN THE FIRST ROUND WHEN THE QUARREL TRAVELLED UP TO TH E TRIBUNAL, THE TRIBUNAL VIDE ORDER DATED 14.08.2015 IN ITA NO.1059 /DEL/2019 HAS 2 RESTORED THE APPEAL TO THE FILES OF THE CIT(A) WITH A DIRECTION TO RE- EXAMINE THE DISPUTE WITH FRESH EVIDENCES. 3. PURSUANT TO THE DIRECTIONS OF THE TRIBUNAL THE C IT(A) HEARD THE APPEAL AND DECIDED THE ISSUE AFRESH AGAINST WHICH T HE ASSESSEE IS BEFORE ME. 4. I FIND THAT VIDE ORDER SHEET ENTRY DATED 21.08.2 019 THE TRIBUNAL HAS ASKED THE DR TO CALL FOR A REMAND REPORT FROM THE A O ON THE DETAILS/ DOCUMENTS SUBMITTED BY THE ASSESSEE. 5. THE FIRST DISPUTE RELATES TO THE DIFFERENCE IN P ARTIES ACCOUNT NAMELY SULTAN SINGH DHARAMPAL RS.25834/- AND RISHI BARDANA COMPANY RS.5133/-. I FIND THAT DURING THE REMAND PROCEEDINGS THE REPRE SENTATIVE OF THE ASSESSEE WITHDREW THIS GROUND AND, THEREFORE, THE A O COULD NOT MAKE ANY COMMENT NOR COULD VERIFY THE DETAILS. 6. CONSIDERING THE CONCESSION GIVEN BY THE ASSESSEE BEFORE THE AO, I DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDIN GS OF THE CIT(A) THIS ADDITION IS ACCORDINGLY SUSTAINED AND GROUND NO.2 I S DISMISSED. 7. GROUND NO.3 RELATES TO THE ADDITION OF RS.3,52,8 34/- ON ACCOUNT OF DIVERSION OF INCOME TO THE FOLLOWING PERSONS :- 1. SMT. SHOBHA RUSTAGI RS.101509/- 2. SMT. SHASHI RUSTAGI RS.1,15,503/- 3. SMT. KAMLESI RUSTAGI RS.135822/- 8. BRIEFLY STATED THE FACTS OF THIS ISSUE ARE THAT THE AFOREMENTIONED PERSONS WERE DOING BUSINESS THROUGH THE ASSESSEE AN D THE ASSESSEE WAS 3 PURCHASING AND SELLING GOODS ON THEIR BEHALF. THERE FORE, WHATEVER COMMISSION INCOME EARNED BY THESE PERSONS WAS GIVEN TO THEM. HOWEVER, THE AO WAS OF THE FIRM BELIEF THAT THE ASS ESSEE IS DIVERTING HIS PROFIT TO HIS FAMILY MEMBERS AND ACCORDINGLY MADE T HE ADDITIONS. DOCUMENTARY EVIDENCES WERE FURNISHED BY THE ASSESSE E DURING THE REMAND PROCEEDINGS AND THE AO ACCEPTED THE TRANSACT ION WITH SMT. SHASHI AND KAMLESH RUSTAGI. HOWEVER, IN THE CASE O F SMT. SHOBHA RUSTAGI THE AO WAS OF THE OPINION THAT ONLY COMMISSION INCO ME OF RS.27070/-CAN BE CONSIDERED IN HER HAND AND BALANCE OF RS.74439/- PERTAIN TO THE ASSESSEE. 9. BEFORE ME THE COUNSEL FOR THE ASSESSEE REITERATE D THAT THESE PERSONS ARE DOING BUSINESS THROUGH THE ASSESSEE IN THEIR OWN NAME AND, THEREFORE, ANY COMMISSION EARNED BY THEM IS THEIR I NCOME AND NOT OF THE ASSESSEE. DR SUPPORTED THE FINDINGS OF THE CIT(A). 10. I HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE UNDERLYING FACTS. I FAIL TO UNDERSTAND WHY THE FAMILY MEMBERS WERE DOIN G BUSINESS THROUGH THE ASSESSEE WHEN THEY COULD HAVE DONE THE COMMISSI ON BUSINESS IN THEIR OWN NAME. THE ASSESSEE IS A SIMPLE DEALER IN GRAIN S AND OBVIOUSLY DOES NOT HAVE ANY BIG BRAND NAME OF HIS OWN BUT SIMPLY P URCHASING AND SELLING GRAINS THROUGH MANDI, THE SAME COULD HAVE BEEN DO NE BY THESE THREE PERSONS ALSO. THESE TRANSACTIONS IN THE NAME OF TH E FAMILY MEMBERS OF THE APPELLANT RAISE DOUBTS ON THE GENUINENESS OF TH E TRANSACTIONS. 4 11. I FURTHER FAIL TO UNDERSTAND HOW THE AO HAS CON CEDED THE ISSUE IN RESPECT OF SMT. SHASHI RUSTAGI AND SMT. KAMLESH RUS TAGI. IN MY CONSIDERED OPINION THE TRANSACTIONS IN THE NAME OF THE FAMILY MEMBERS APPEAR TO BE SHAM TRANSACTION AND IS A CLEAR CASE O F THE INCOME OF THE ASSESSEE BEING DIVERTED IN THE NAME OF THE FAMILY M EMBERS. THEREFORE, I DO NOT HAVE ANY HESITATION IN SUSTAINING THE ADDITI ON OF RS.352834/- 12. GROUND NO.3 IS ACCORDINGLY DISMISSED. 13. GROUND NO.4 RELATES TO THE ADDITION OF RS.58480 /- BEING THE DIFFERENCE IN THE VALUE OF CLOSING STOCK OF BAJRA C OMMODITY. 14. FACTS ON RECORD SHOW THAT THE ASSESSEE HAS VALU ED CLOSING STOCK AT THE AVERAGE RATE OF RS.750 P. QUINTALS. HOWEVER, TH E AO ADOPTED THE RATE OF RS.936 P. QUINTAL THEREBY DISTURBING THE METHOD OF VALUATION CONSISTENTLY FOLLOWED BY THE ASSESSEE FROM PAST MAN Y YEARS. 15. IN MY CONSIDERED OPINION THE AO SHOULD NOT HAVE DISTURBED THE METHOD OF VALUATION FOLLOWED BY THE ASSESSEE CONSIS TENTLY FROM PAST YEARS. MERELY BECAUSE THE ASSESSEE HAS NOT MAINTAI NED STOCK REGISTER WITH QUALITY WISE DETAILS CANNOT JUSTIFY THE AO IN DISCARDING THE METHOD OF VALUATION ADOPTED BY THE ASSESSEE CONSISTENTLY. 5 16. IN MY CONSIDERED OPINION LOOKING INTO THE NATUR E OF THE BUSINESS OF THE ASSESSEE NON MAINTENANCE OF QUALITY WISE DETAIL S IS NOT SO FATAL TO JUSTIFY THE DISTURBANCE IN THE BASIS OF VALUATION O F CLOSING STOCK. CONSIDERING THE FACTS OF THE CASE I DO NOT FIND ANY MERIT IN THIS ADDITION AND I ACCORDINGLY DIRECT THE AO TO DELETE THE ADDIT ION OF RS.58480/-. 17. GROUND NO.5 RELATES TO THE ADDITION OF RS.93863 /- BEING 10% OF THE TOTAL EXPENSES DEBITED IN THE P & L ACCOUNT. 18. UNDERLYING FACTS IN THIS ISSUE ARE THAT THE ASS ESSEE COULD NOT SUPPORT THE EXPENDITURE WITH PROPER BILLS AND VOUCHERS AND THE AO MADE DISALLOWANCE OF 20% ON AD-HOC BASIS ON FINDING THAT MOST OF THE EXPENDITURE WERE INCURRED IN CASH. THE CIT(A) REST RICTED THE DISALLOWANCE TO 10%. 19. BEFORE ME THE COUNSEL REITERATED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES AND THE DR SUPPORTED THE FINDINGS OF THE CIT(A). 20. I HAVE CAREFULLY CONSIDERED THE ORDERS OF THE A UTHORITIES BELOW. I FIND THAT DURING THE ASSESSMENT PROCEEDINGS THE ASS ESSEE DID NOT PRODUCE COMPLETE RECORD AND EVEN IN THE REMAND PROCEEDINGS COMPLETE BILLS AND VOUCHERS WERE NOT PRODUCED. IN MY CONSIDERED OPINI ON LOOKING TO THE 6 NATURE OF EXPENSES, BUSINESS OF THE ASSESSEE AND TH E PLACE OF BUSINESS, AD-HOC DISALLOWANCES OF 5% SHOULD MEET THE ENDS OF JUSTICE, HENCE, I DIRECT THE AO TO RESTRICT THE DISALLOWANCE TO 5% OF THE EXPENDITURE CLAIMED BY THE ASSESSEE. 21. GROUND NO.5 IS ACCORDINGLY PARTLY ALLOWED. 22. GROUND NO.6 AND 7 RELATES TO ESTIMATION OF GROS S PROFIT. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS ASSESSEE WAS ASKED TO FURNISH THE COMPARATIVE GP AND NP RATE OF LAST THREE YEARS ALONGWITH CURRENT YEAR. THE ASSESSEE FURNISHED THE DETAILS FROM WHIC H THE AO NOTED THAT FOR A.Y. 2007-08. THE GP RATE WAS 0.98%, A.Y. 2008 -09 THE GP RATE WAS 1.66% AND IN THE YEAR UNDER CONSIDERATION I.E. A. Y .2009-10 THE GP RATE IS 1.09%. 23. TAKING A LEAF OUT OF THIS THE AO ADOPTED THE GP RATE OF THE IMMEDIATELY PRECEDING YEAR AT 1.66% AND MADE THE AD DITION OF RS.206220/-. 24. ASSESSEE CARRIED THE MATTER BEFORE THE CIT(A) B UT WITHOUT ANY SUCCESS. 25. BEFORE ME THE COUNSEL REITERATED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES AND DR SUPPORTED THE FINDINGS OF THE AO. 7 26. I HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORDERS OF THE AUTHORITIES BELOW. MERELY BECAUSE THERE IS A SLIGHT DROP IN THE GP RATE WOULD NOT JUSTIFY THE ADDITION ON THIS COUNT. THE FACT OF THE MATTER IS THAT THE APPELLANT IS DOING BUSINESS IN FOOD GRAINS , OIL FEED AND OTHER ALLIED GOODS ON COMMISSION BASIS AND, THEREFORE, IT WOULD BE IMPOSSIBLE FOR A BUSINESS MAN IN THIS LINE OF TRADE TO MATCH T HE PROFITABILITY WITH PRECEDING YEARS. MOREOVER IN THE IMMEDIATELY ASSES SMENT YEAR 2008-09 THE GROSS TURNOVER OF THE ASSESSEE WAS RS. 86.50 LA CS WHICH HAS JUMPED TO 3.21 CRORES DURING THE YEAR UNDER CONSIDERATION THI S ALSO JUSTIFIES THE SLIGHT FALL IN THE GP RATE. I, THEREFORE, DO NOT FI ND ANY MERIT IN THIS ADDITION AND ACCORDINGLY DIRECT THE AO TO DELETE TH E ADDITION OF RS.206220/-. 27. GROUND NO.6 AND 7 TAKEN TOGETHER ARE ALLOWED. 28. GROUND NO.8 RELATES TO THE ADDITION RS.28,560/- ON ACCOUNT OF ALLEGED INTEREST CHARGED ON INTEREST FREE ADVANCES TO THE FAMILY MEMBERS. 29. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAS ADVANCED RS.150300/-TO PRADEEP RUS TAGI AND RS.40,100/- TO NEERU RUSTAGI WHO HAPPENED TO BE THE FAMILY MEMBERS. THE AO FURTHER FOUND THAT THE ASSESSEE HAS PAID INT EREST ON UNSECURED LOANS AND, THEREFORE, CHARGED INTEREST AT THE RATE OF 15% PAR ANNUM ON 8 THE AFOREMENTIONED INTEREST FREE ADVANCES AND MADE THE ADDITION OF RS.285600/-. 30. ASSESSEE AGITATED THE MATTER BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS. 31. BEFORE ME THE COUNSEL FOR THE ASSESSEE STATED T HAT THE ASSESSEE WAS HAVING SUFFICIENT INTEREST FREE ADVANCES TO THE FAM ILY MEMBERS AND, THEREFORE, NO ADVERSE INFERENCE SHOULD BE DRAWN. 32. PER CONTRA THE DR STRONGLY SUPPORTED THE FINDIN GS OF THE AO. 33. I HAVE CAREFULLY CONSIDERED THE ORDERS OF THE A UTHORITIES BELOW. FROM THE BALANCE SHEET I FIND THAT THE CAPITAL ACCO UNT SHOW THE BALANCE OF RS.656350/- OUT OF WHICH THE ASSESSEE HAS GIVEN INTEREST FREE ADVANCES OF RS.190400/-. IT IS TRUE THAT THE ASSESSEE HAS S OME UNSECURED LOANS ON THE LIABILITY SIDE OF HIS BALANCE SHEET, BUT I F IN D THAT NO INTEREST HAVE BEEN PAID BY THE ASSESSEE ON THE UNSECURED LOANS TA KEN BY HIM AND ONLY BANK INTEREST OF RS.16902/- HAS BEEN DEBITED TO THE P & L ACCOUNT. CONSIDERING THE FACTS IN TOTALITY I DO NOT FIND ANY MERIT IN THIS ADDITION AND ACCORDINGLY DIRECT THE AO TO DELETE THE ADDITIO N OF RS.28560/-. 9 34. GROUND NO.8 IS ACCORDINGLY ALLOWED. 35. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 17.09.2020. SD/- [ N. K. BILLAIYA] ACCOUNTANT MEMBER DATED: 17.09.2020 *NEHA* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR ITAT, NEW DELHI DATE OF DICTATION 17.09.2020 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 17.09.2020 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER 17.09.2020 DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS /PS 17.09.2020 DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 17.09.2020 DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/ PS 17.09.2020 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WE BSITE OF ITAT 17.09.2020 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 17.09.2020 DATE ON WHICH FILE GOES TO THE HEAD CLERK. THE DATE ON WHICH FILE GOES TO THE ASSISTANT REGIST RAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER