Ganpati Edibles Pvt. Ltd., Kanpur V. Income Tax Officer-6(2), Kanpur

ITA 320/LKW/2017

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 4507 (ITAT-LUCKNOW)
• Duration Of Justice: 1 year(s) 10 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 15-05-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Unexplained cash credit
• Section: 40A(3); 201; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH SMC , LUCKNOW BEFORE SHRI. A. D. JAIN, VICE PRESIDENT ITA NO. 320/LKW/2017 ASSESSMENT YEAR: 2012 - 13 GANPATI EDIBLES PVT. LTD. 74/2, 1 ST FLOOR, COLLECTORGANJ KANPUR V. INCOME TAX OFFICER 6(2) KANP UR T AN /PAN : AABCG4338F (APP ELL ANT) (RESPONDENT) APPELLANT BY: SHRI RAKESH GARG, ADVOCATE RESPONDENT BY: SMT. ALKA SINGH, D.R. DATE OF HEARING: 14 0 3 201 9 DATE OF PRONOUNCEMENT: 20 0 3 201 9 O R D E R THIS IS ASSESSEES APPEAL AGAINST THE ORDER OF THE LD. CIT(A) - II, KANPUR DATED 8/3/2017 FOR ASSESSMENT YEAR 20 12 - 13 , TAKING THE FOLLOWING GROUNDS: 01 . BECAUSE THE CIT(A) HAS ERRED ON FACTS AND IN LAW IN UPHOLDING THE ADDITION OF RS. 12,23,690/ - AS UNEXPLAINED CREDIT, UNDER SECTION 68 WHICH ADDITION IS CONTRARY TO FACTS, BAD IN LAW BE DELETED 02 . BECAUSE THE CIT(A) HAS ERRED ON FACTS AND IN LAW IN UPHOLDING THE ADDITION OF RS.12,23,690/ - TREATING THE SAME AS BOGUS CREDIT BY APPLYING THE PROVISIONS OF SECTION 68 OF THE ACT, WHICH ADDITION IS BAD IN LAW AN D BE DELETED 03. BECAUSE THE CIT(A) HAS FAILED TO APPRECIATE THAT A SUM OF RS.12,23,690/ - BEING PART OF SALE PROCEEDS HAS ALREADY BEEN REFLECTED IN SALES, CANNOT BE ADDED TWICE, ONCE AS SALES AND AGAIN AS UNEXPLAINED CREDIT, WHICH IS OTHERWISE EXPLAINED AN D BE DELETED. 04 . BECAUSE IN ANY CASE AND IN ALL CIRCUMSTANCES OF THE CASE, THE ADDITION OF RS. 12,23,690/ - UPHELD BY THE CIT(A) IS CONT R ARY TO FACTS, BAD IN LAW AND BE DELETED. ITA NO.320/LKW/2017 PAGE 2 OF 5 2 . THE FACTS ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY, CARRYING ON BUS INESS OF REFINING OF CRUDE OIL AND RB OIL AND TRADING OF EDIBLE OILS. THE RETURN OF INCOME WAS FILED ON 29 09 2012 DECLARING NIL INCOME. THE ASSESSMENT HAS BEEN FRAMED ON A TOTAL INCOME OF RS.17,29,308/ - AND AFTER SETTING OFF THE CARRIED FORWARDED LOSSES, THE INCOME HAS BEEN DETERMINED AT NIL. HOWEVER, THE TAX HAS BEEN LEVIED ON THE BOOK PROFIT OF RS.6,91,614/ - AND A TAX LIABILITY OF RS.34,249/ - HAS BEEN CREATED . WHILE FRAMING THE ASSESSMENT AND COMPUTING THE INCOME, THE FOLLOWING ADDITI ONS HAVE BEEN MADE BY THE A.O : 1. RS. 12,23,690/ - UNDER SECTION 68 OF THE I.T. ACT, 1961. 2. RS.41,120/ - OUT OF OTHER E XPENSES, BEING 10% DISALLOWED TO COVER POSSIBLE LEAKAGES. 3. RS.4,681/ - OUT OF T ELEPHONE & C ONVEYANCE E XPENSES. 4. RS.50,000/ - ON ADHOC BASIS OUT OF MANUFA CTURING EXPENSES TO COVER POSSIBLE LEAKAGES 3 . THE LD. CIT(A) HAS CONFIRMED THE ASSESSMENT ORDER. 4 . THE LD. A.R. OF THE ASSESSEE CONTEN D S THAT THE CIT(A) HAS ERRED ON FACTS AND IN LAW IN UPHOLDING THE ADDITION OF RS.12,23,690/ - TREATING THE SAME AS BOGUS CREDIT BY APPLYING THE PROVISIONS OF SECTION 68 OF THE ACT ; THAT T HE CIT(A) HAS FAILED TO APPRECIATE THAT THE SUM OF RS.12,23,690/ - , BEING PART OF SALE PROCEEDS , HAS ALREADY BEEN REFLECTED IN SALES, AND, THEREFORE, THE SAME CANNOT BE ADDED TWICE, ONCE AS SALES A ND AGAIN AS UNEXPLAINED CREDIT ; AND THAT T HEREFORE, THE SAME MAY BE DELETED. 5 . THE LD. D.R., ON THE OTHER HAND, HAS PLACED STRONG RELIANCE ON THE IMPUGNED ORDER. 6 . HEARD. THE ASSESSEE MAINTAINS AS FOLLOWS. T HE A.O HAS NO T DISTURBED THE PROFIT & LOSS ACCOUNT, NOR THE TRADING OR MANUFACTURING ACCOUNT, BUT ON THE BASIS OF CASH SEIZED, HAS PROCEEDED TO REJECT THE ITA NO.320/LKW/2017 PAGE 3 OF 5 BOOKS OF ACCOUNT. MERE LY DISBELIEVING THE SALES WOULD , OF ITSELF , NOT AMOUNT TO A CASE OF REJECTION OF BOOKS OF ACCOUNT. IT IS NOT THE CASE OF THE AO T HAT THE ASSESSEE WAS NOT IN POSSESSION OF STOCK AS ON THE RELE V ANT DATE AND HENCE THERE WAS NO POSSIBILITY FOR MAKING CASH SALES. THERE IS NO BAN ON CASH SALES EITHER. THE A . O HAS SIMPLY DISBELIEVED THE SUBMISSION ADVANCED BY THE ASSESSEE AND H AS REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE . SINCE NO DISCREPANCY IN THE BOOKS OF ACCOUNT HA S BEEN POINTED OUT BY THE A . O, NOR ANY FAULT IN THE METHOD OF ACCOUNTING REGULARLY BEING FOLLOWED BY THE ASSESSEE HAS BEEN SPELT OUT BY THE AO, THE REJECTI O N OF THE BOOKS OF ACCOUNT IS NOT SUSTAINABLE IN LAW . THE BOOKS OF ACCOUNT CAN BE REJECTED U/S.145(3) OF THE ACT ONLY WHEN THE ASSESSEE DOES NOT FOLLOW A RECOGNIZED METHOD OF ACCOUNTING REGULARLY AND WHEN TRUE PROFITS CANNOT BE DECIPHERED FROM THE BOOKS OF ACCOUNT MAINTAI NED. F URTHER , T HE ACCOUNTS HAVE BEEN TAX AUDITED. THERE IS NO QUALIFYING ACCOUNT FROM THE AUDITORS. ALSO , THE AO DOES NOT DISPUTE THAT THE ASSESSEE HAS ACCOUNTED FOR THE SALES MADE BY IT IN CASH. IN OTHER WORDS, THERE CANNOT BE DOUBLE ADDITION, ONCE ON AC COUNT OF SALES AND AGAIN AS UNEXPLAINED. IF THE ADDITION IS UPHELD IN RESPECT OF UNEXPLA INED CASH SEIZED, THE SALES SHOULD BE REDUCED ACCORDINGLY. OTHERWISE TOO , THE AMOUNT ADDED BY THE AO WAS NOT CLAIMED AS EXPENDITURE, THEREFORE, THE QUESTION OF DISALLOW ANCE OF THE SAME DOES NOT ARISE. 7 . HOWEVER, THE FACT REMAIN S THAT THE CASH AMOUNTING TO RS. 12,23,600/ - WAS RECOVERED FROM ONE MR. RADHEY KRISHNA GUPTA, AN EMPLOYEE OF THE ASSESSEE , BY THE POLICE AUTHORITIES , DURING THE PERIOD OF ELECTION , ON 02.02.2012. SUBS EQUENTLY, IT WAS SEIZED BY THE INCOME - TAX D EPARTMENT , AS MR. RADHEY KRISHNA GUPTA COULD NOT PRODUCE EVIDENCE WITH REGARD TO THE SOURCE OF THE CASH FOUND IN HIS POSSESSION , EXCEPT HIS STATEMENT THAT THE CASH RECOVERED PERTAINS TO THE ASSESSEE COMPANY. MR. R ADHEY KRISHNA GUPTA WAS DEPUTED TO HANDOVER THE CASH TO THE ITA NO.320/LKW/2017 PAGE 4 OF 5 SUPPLIERS OF THE ASSESSEE - M/S. GANGA GALVANSING COMPANY PVT. LTD. AND M/S ALVIVA STEELS PVT. LTD. ON BEHALF OF THE COMPANY FOR PROCURING MATERIAL FOR ITS NEW PLANT & MACHINERY , WHICH WAS IN THE PROCESS OF ERECTION AND INSTALLATION. COP IES OF ACCOUNT OF M/S GANGA GALVANSING COMPANY PVT. LTD. AND M/S ALVIVA STEELS PVT. LTD. ALONG WITH PHOTO COP IES OF PURCHASE BILLS WERE ALSO PRODUCED BEFORE THE A . O AND DURING THE FIRST APPELLATE PROCEEDINGS. THE AS SESSEE SUBMITTED THAT IT WAS NECESSARY TO MAKE THE PAYMENT IN CASH , AS MATERIAL WAS PURCHASED ON 01/02/2012 AND 02/02/2012 ON URGENT BASIS BECAUSE WITHOUT THAT MATERIAL , ERECTION AND INSTALLATION OF PLANT AND MACHINERY WAS HELD UP. 8 . AS OBSERVED BY THE LD. C IT(A), AND ALSO NOT DISPUTED BEFORE THIS BENCH, MR RADHEY KRISHNA GUPTA DID NOT TAKE THE PLEA AND COULD NOT PROVE AT THE TIME OF SEIZURE THAT THE CASH WAS GENERATED DUE TO CASH SALES MADE TILL THE DATE OF SEIZURE , EITHER BEFORE THE POLICE , OR BEFORE THE IN COME TAX AUTHORITIES SEIZING THE CASH. THIS MAKES THE STORY OF CASH SALES FALL FLAT. AS RIGHTLY HELD BY THE LD. CIT(A), THIS IS JUST AN AFTERTHOUGHT. THE ENTRIES REPRESENTING ALLEGED CASH SALES ARE NOTHING ELSE, BUT BOGUS CASH SALES ENTRIES MADE TO SUBS TANTIATE THE THEORY OF CASH - IN - HAND, WHICH WAS ACTUALLY NON - EXISTENT. AND THIS IS DIRECTLY PROVED FROM THE FACT THAT NONE OF THE PURCHASERS IS EITHER IDENTIFIED, OR IDENTIFIABLE. ALSO, NONE OF THESE SO - CALLED CASH SALES ARE WORTH MORE THAN THE LIMIT OF R S.20,000/ - , AS PRESCRIBED BY SECTION 40A(3) OF THE I.T. ACT, SO AS TO OBVIATE THE BURDEN OF PRODUCING SUCH PURCHASERS. SO, IT REMAINS UNDISPUTED THAT DURING THE YEAR, NO SUCH RETAIL CASH SALES WERE MADE TO THE UNIDENTIFIED PERSONS FOR THE PERIOD FROM 1/4/ 2011 TO 31/12/2011. THIS ALSO SHOWS THAT THE UNPROVED CASH SALES FOR THE REMAINING PERIOD, INCLUDING THE DATE OF SEIZURE OF THE CASH OF RS.12,23,600/ - , I.E., 2/2/2012, WAS NOTHING OTHER THAN A STORY MANUFACTURED TO ENABLE SHOWING AVAILABILITY OF CASH IN H AND TO EXPLAIN THE CASH SEIZED. ITA NO.320/LKW/2017 PAGE 5 OF 5 9 . THEREFORE, THE LD. CIT(A) I S RIGHT IN HOLDING THAT THE ASSESSEE HAS REMAINED UNABLE TO EXPLAIN THE CASH SEIZED. 10 . THE GRIEVANCE OF THE ASSESSEE IS THAT THE AMOUNT OF RS.12,23,690/ - , BEING PART OF SALE PROCEEDS, HAS ALREADY BE EN REFLECTED IN THE SALES AND AS SUCH, IT CANNOT BE ADDED TWICE. THE EXPLANATION OF THE ASSESSEE WITH REGARD TO THE CASH SEIZED HAS NOT BEEN ACCEPTED. THE ASSESSEES EXPLANATION CONCERNING CASH SALES HAS ALSO BEEN REJECTED. HOWEVER, THE ADDITION MADE IS ONLY ONE. EVEN IF THE ASSESSEES REQUEST WERE TO BE ACCEPTED , IT WOULD MAKE NO DIFFERENCE, AS IN THE TRADING ACCOUNT, IF SOME AMOUNT IS REDUCED FROM THE SALES, THE CLOSING STOCK WILL AUTOMATICALLY INCREASE BY THE SAME AMOUNT, WHICH CLOSING STOCK SHALL FO RM THE OPENING STOCK OF THE NEXT YEAR, BUT FOR THE ELEMENT OF GROSS PROFIT . THIS, IN THE PRESENT CASE, AMOUNTS TO 2 .06 %. TO THIS AMOUNT, THE ASSESSEE IS, FAIRLY, ENTITLED. ACCORDINGLY, THE A.O IS DIRECTED TO GIVE BENEFIT OF THIS DIFFERENCE TO THE ASSESS EE AND SHOULD ALLOW THE OPENING STOCK OF THE SUCCEEDING YEAR, AS THE CLOSING STOCK OF THE YEAR UNDER CONSIDERATION PLUS THE AMOUNT OF RS.12,23,690/ - . WITH THESE OBSERVATIONS, THE ADDITION IS DIRECTED TO BE REDUCED BY 2 .06% OF THE SUM OF RS.12,23,690/ - , RE PRESENTING BOGUS SALES. 11 . IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 / 0 3 /201 9 . SD/ - [ A. D. JAIN ] VICE PRESIDENT DATED: 20 / 03/ 201 9 JJ: 1503 COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT(A) 4 . CIT 5 . DR