M/s.SAJ SERA COLOURS, Trichur V. DCIT, Trichur

ITA 336/COCH/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73798 (ITAT-COCHIN)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-01-2014
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 08-12-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 11-07-2014
• Court: TRIBUNAL
• Department Lawyers: LATHA V KUMAR
• Keywords: Bogus purchase; Business income; Reasonable cause; Onus to prove; Condonation of delay
• Section: 133A; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND CHANDRA POOJ ARI, AM I.T.A. NOS.336 &337 /COCH/2014 ASSESSMENT YEARS : 2007-08 & 2008-09 M/S. SAJ CERA COLOURS, KOTTAMURI, P.O., VADAMA, MALA, THRISSUR-680 736. [PAN:ABLFS 5996B] VS. THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE, THRISSUR. (ASSESSEE-APPELLANT) (REVENUE-RESPONDENT) I.T.A. NOS.227&228/COCH/2014 ASSESSMENT YEARS : 2007-08 & 2008-09 THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE, THRISSUR. VS. M/S. SAJ CERA COLOURS, KOTTAMURI, P.O., VADAMA, MALA, THRISSUR-680 736. [PAN:ABLFS 5996B] (REVENUE-APPELLANT) (ASSESSEE-RESPONDENT) REVENUE BY SMT. LATHA V. KUMAR, JR. DR ASSESSEE BY NONE DATE OF HEARING 10/12/2014 DATE OF PRONOUNCEMENT 09/01/2015 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THESE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE ARE DIRECTED AGAINST THE SEPARATE ORDERS DATED 06-01-2014 PASSED BY THE CIT(A)-V, KOCHI FOR THE ASSESSMENT YEARS 2007-08 AND 2008-09. I.T.A. NO.227&228 & 336 & 337/COCH/2014 2 2. NONE APPEARED ON BEHALF OF THE ASSESSEE NOR WAS THERE ANY ADJOURNMENT APPLICATION FILED BEFORE THE TRIBUNAL. HENCE, WE PR OCEED TO ADJUDICATE THESE APPEALS AFTER HEARING THE LD. DR. 3. THERE WAS A DELAY OF 64 DAYS IN FILING THE ASSES SEE APPEALS IN I.T.A. NOS. 336&337/COCH/2014 BEFORE THE TRIBUNAL. THE ASSESS EE HAS FILED A PETITION SEEKING CONDONATION OF DELAY AND ALSO HAS FILED AN AFFIDAVIT EXPLAINING THE REASONS FOR DELAY IN FILING THE APPEAL BEFORE THE T RIBUNAL WITHIN THE DUE DATE. THE ASSESSEE SUBMITTED THAT THOUGH THE TIME LIMIT O F FILING APPEAL AS PER 249(2) IS 30 DAYS, THE CERTIFIED COPY OF THE ORDER WAS REC EIVED ON 06/01/2014, 30 DAYS CALCULATED THEREFROM ENDS ON 05/02/2014. THE ASSES SEE SUBMITTED THAT THE APPEAL WAS FILED ON 11/07/2014 AND THUS THERE WAS D ELAY OF 64 DAYS. THE ASSESSEE SUBMITTED THAT THE ABOVE DELAY WAS NOT DUE TO ANY WILLFUL DEFAULT, NEGLECT OR LACHES BUT THE SAME WAS CAUSED DUE TO IN ADVERTENT MISTAKE. THE ASSESSEE WAS UNDER TREATMENT AND IN BED REST BY DIS EASE FROM 01/04/2014 TO 10/07/2014 (MEDICAL CERTIFICATE ENCLOSED), AND WHEN HE GOT BACK FROM THIS, HE PROCEEDED TO FILE THE APPEALS. IT WAS SUBMITTED TH AT THE DELAY OCCURRED SOLELY DUE TO THE REASONS STATED ABOVE AND HENCE PRAYED TH AT THE DELAY IN FILING THE ABOVE APPEALS MAY BE CONDONED. 4. THE LD. DR HAS NOT RAISED ANY SERIOUS OBJECT ION FOR CONDONATION OF DELAY IN FILING THE APPEAL BY THE ASSESSEE. I.T.A. NO.227&228 & 336 & 337/COCH/2014 3 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E RECORD. WE FIND THAT THERE EXISTS REASONABLE CAUSE FOR NOT FILING THE APPEAL I N TIME AND THE REASONS ADVANCED BY THE ASSESSEE FOR THE DELAY ARE BONA FID E. BEING SO, WE CONDONE THE DELAY IN FILING THE APPEAL BY THE ASSESSEE AND ADMI T THE APPEAL FOR ADJUDICATION. 6. WE WILL FIRST TAKE UP THE REVENUE APPEAL IN I.T. A. NO. 227/COCH/2014. THE FIRST GROUND RAISED BY THE REVENUE IS WITH REGA RD TO DELETION OF ADDITION OF UNACCOUNTED SALES OF RS.9,65,654/-. 7. THE BRIEF FACTS OF THE CASE AS NARRATED IN REVEN UE APPEAL I.T.A NO. 227/COCH/20214 ARE THAT THE ASSESSEE IS A FIRM ENGA GED IN PRODUCTION OF CERAMICS. A SURVEY U/S. 133A WAS CONDUCTED AT THE BUSINESS PREMISES OF THE GROUP, INCLUDING THE ASSESSEE M/S. SAJ CERA COLOURS , SIMULTANEOUS TO THE SEARCH U/S. 132 IN THE CASE OF DEVASSY & SONS GROUP ON 26/ 03/2008. THE RETURN WAS FILED ON 28.7.2010 AT A LOSS OF RS.5,03,629/- AND T HE INCOME WAS ASSESSED AT RS.17,40,032/- BY MAKING CERTAIN ADDITIONS. 7.1 IN THIS CASE, THE ASSESSING OFFICER HAS HELD TH AT AS PER THE DOCUMENT H-1, IMPOUNDED U/S. 131(3) OF THE I,T. ACT, FROM THE BUS INESS PREMISES OF THE ASSESSEE ON 26/03/2008, TOTAL SALES TURNOVER DURING THE FINANCIAL YEAR 2006-07 WAS RS. 48,89,854/- AS AGAINST THE TOTAL SALES OF R S.12,55,475/- DECLARED IN THEIR I.T.A. NO.227&228 & 336 & 337/COCH/2014 4 TRADING AND PROFIT AND LOSS ACCOUNT FOR THE ABOVE F INANCIAL YEAR, FILED WITH THE RETURN OF INCOME, FOR THE ASSESSMENT YEAR 2007-08. IT WAS FOUND THAT THE ASSESSEE HAD DEBITED ALL EXPENSES RELATING TO ITS B USINESS DURING THE PREVIOUS YEAR RELEVANT TO THIS ASSESSMENT YEAR. HENCE, THE D IFFERENCE BETWEEN THE SALES TURNOVER FOUND IN THE IMPOUNDED DOCUMENT NO. H-1 AN D THE TOTAL SALES DECLARED IN THE TRADING AND PROFIT AND LOSS ACCOUNT WAS TO B E TREATED AS ASSESSEES UNACCOUNTED PROFIT FROM THEIR BUSINESS DURING THE A BOVE FINANCIAL YEAR AND WAS TO BE ADDED TO THE INCOME RETURNED. THE ASSESSING O FFICER ALSO FOUND THAT THE ASSESSEE HAD DECLARED GP @ 26.57% IN THE TRADING A CCOUNT FILED FOR THE FINANCIAL YEAR. THEREFORE, THE ASSESSING OFFICER AP PLIED GP @ OF 26.57% TO THE DIFFERENCE IN UNACCOUNTED SALE OF RS.36,34,379/- (R S.48,89,854.70 RS.12,55,474) X 26.57%) = RS.9,65,654/ AND PROFIT O F RS.9,65,654/- SO COMPUTED WAS TREATED AS INCOME OF THE ASSESSEE FROM UNDISCLOSED SALES DURING THE FINANCIAL YEAR 2006-07 AND IT WAS ADDED TO THE INCOME RETURNED FOR THE ASSESSMENT YEAR 2007-08. 7.2 IT WAS SUBMITTED BY THE ASSESSEE BEFORE THE CIT (A)THAT THE FINDINGS OF THE ASSESSING OFFICER AS PER SEIZED DOCUMENT NO. H-1, W AS ONLY AN ESTIMATE WHICH WAS PREPARED TO BE GIVEN TO THE FINANCIAL INSTITUTI ON TO SATISFY THEIR LENDING NORMS AND AS PER THAT ESTIMATE, THE NET PROFIT WAS ONLY R S.2,24,966/-. IT WAS ALSO SUBMITTED THAT THE TURNOVER WAS ONLY RS. 12,55,475/ - WHICH WAS SHOWN IN THE RETURN OF INCOME WHEREIN THE TOTAL LOSS WAS SHOWN A T RS.5,03,629/-. I.T.A. NO.227&228 & 336 & 337/COCH/2014 5 8. THE CIT(A) FOUND THAT THE ASSESSING OFFICER HAS TAKEN ONLY THE SALES FIGURES AS UNACCOUNTED SALE BY REJECTING THE ASSESS EES PLEA THAT THIS PARALLEL SET OF TRADING AND PROFIT AND LOSS ACCOUNT WAS PREPARED ONLY FOR THE PURPOSE OF SECURING FINANCE FROM THE FINANCIAL INSTITUTION OR FROM BANK. ACCORDING TO THE CIT(A), IF THE ASSESSING OFFICER HAS CONSIDERED THI S PAPER IMPOUNDED DURING SURVEY, FOR CONSIDERING THE SALES CONSIDERATION SHO WN OVER AND ABOVE WHAT IS SHOWN IN THE RETURN OF INCOME, HE SHOULD HAVE CONSI DERED THIS DOCUMENT IN ITS TOTALITY. THE CIT(A) OBSERVED THAT THERE COULD NOT BE A SITUATION WHERE ONLY SALES AMOUNT COULD BE TRUE AND THE NET PROFIT WORKE D OUT IN THE PROFIT AND LOSS ACCOUNT COULD BE FALSE. THE CIT(A) FOUND FORCE IN THE CONTENTION OF THE ASSESSEE THAT EVEN IF THE IMPOUNDED DOCUMENT WAS CO NSIDERED, IT WAS ONLY THE NET PROFIT WHICH WAS WORKED OUT AT RS.2,24,966/- CA N BE TAKEN AS INCOME, AND THERE WAS NO NEED OF TAKING THE GROSS SALES AND APP LYING THE GP RATE IN ORDER TO DETERMINE THE PROFIT. ACCORDINGLY, THE ADDITION OF RS.9,65,654/- AS INCOME ESTIMATED ON UNACCOUNTED SALE MADE BY THE ASSESSING OFFICER BY APPLYING GP RATE OF 26.75% ON THE DIFFERENCE OF SALE AMOUNT FOU ND IN THE IMPOUNDED DOCUMENT H-1 AND THAT OF SHOWN IN THE TRADING ACCOU NT FILED ALONGWITH THE RETURN OF INCOME WAS DELETED BY THE CIT(A). HOWEVE R, THE CIT(A) ADDED A SUM OF RS. 2,24,966/- AS IT HAS BEEN WORKED OUT AS N.P. IN THE IMPOUNDED DOCUMENT I.T.A. NO.227&228 & 336 & 337/COCH/2014 6 H-1 TO THE TOTAL INCOME OF THE ASSESSEE. AGAINST T HIS, THE REVENUE IS IN APPEAL BEFORE US. 9. WE HAVE HEARD THE LD. DR. THERE IS NO DISPUTE WITH REGARD TO SUPPRESSED SALES OF RS.36,34,379/-. THE ONLY DISPUTE IS WITH REGARD TO RATE OF N.P. APPLIED BY THE CIT(A). ACCORDING TO THE CIT(A), NET PROFIT RATE IS TO BE APPLIED INSTEAD OF GROSS PROFIT RATE ON UNACCOUNTED SALES. IN OUR OPIN ION, THE VIEW ADOPTED BY THE CIT(A) IS NOT CORRECT. IT IS AN ADMITTED FACT THAT ALL REGULAR EXPENSES HAVE BEEN TAKEN CARE OF IN THE REGULAR BOOKS OF ACCOUNTS. HEN CE, WHEN SUPPRESSED TURNOVER IS UNEARTHED, IT IS APPROPRIATE TO TAKE G. P. RATE TO COMPUTE THE INCOME. 9.1 REGARDING G.P. RATE, THE G.P. RATE ADOPTED BY THE ASSESSING OFFICER IS BASED ON THE GROSS PROFIT RATE DECLARED BY THE ASSESSEE I N THE TRADING A/C AND THERE IS NO ENHANCEMENT IN THE ESTIMATION MADE BY THE ASSESS ING OFFICER. THERE IS NO MATERIAL TO SUGGEST THAT THERE ARE NO EXPENSES LEFT OUT WITH REGARD TO THE SUPPRESSED TURNOVER IN THE BOOKS OF ACCOUNTS. IN TH E ABSENCE OF ANY EVIDENCE THAT ANYL EXPENSES RELATING TO THE BUSINESS HAVE BE EN OMITTED TO ACCOUNT FOR IN THE REGULAR BOOKS OF ACCOUNTS, G.P. RATE ON SUPPRES SED TURNOVER IS TO BE CONSIDERED. ACCORDINGLY, WE REVERSE THE ORDER OF THE CIT(A) ON THIS ISSUE. THIS GROUND OF THE REVENUE IS ALLOWED. I.T.A. NO.227&228 & 336 & 337/COCH/2014 7 10. THE SECOND GROUND RAISED BY THE REVENUE IS WITH REGARD TO SUSTAINING THE ADDITION OF RS.1,25,000/- OUT OF RS.5,00,000/- MADE BY THE ASSESSING OFFICER TOWARDS UNEXPLAINED LOAN TRANSACTIONS. 11. THE BRIEF FACTS OF THIS ISSUE ARE THAT UNSECURE D LOAN OF RS.5,00,000/- FROM THE FOLLOWING 28 PARTIES, AN AMOUNT BELOW RS. 20,00 0/- WERE RECEIVED BY THE ASSESSEE . THE ASSESSEE PRODUCED TWO PERSONS BEFORE THE ASSESSING OFFICER FOR THE VERIFICATION AND THEY HAVE STATED THAT THEY HAV E GIVEN LOANS. S.NO. NAME AMOUNT 1. ANTONY S. LBS NAGAR, BANGALORE-64 RS. 4000.00 2. ANTONY THOPPIL, THOPPIL HOUSE, AMBAZHAKADU RS.17 ,500.00 3. DAVIS NEREPARAMBIL,NEREPARAMBIL HOUSE, KALLETTUM KARA RS.19,000.00 4. GEORGE UKKEN, UKKEN HOUSE, VADAMA RS.20,000.00 5. HENDRY FRANCIS, KODALIPARAMBIL HOUSE, AMBAZHAKAD U RS.17,000.00 6. JOSE MADATHIPARAMBIL, MADATHIPARAMBIL HOUSE, VAD AMA RS.20,000.00 7. JOSE PUDUSSERY, PUDUSSERY HOUSE, KOKKAT RS.17,50 0.00 8. K.K.THOMAS, KANICHAI HOUSE, KOKAMURI RS.19,500.0 0 9. S.SUDHAKARAN, KATTUNGAL HOUSE, KOTTAVADIL RS.16, 000.00 10. M.G.SADAN, MODAYIL HOUSE, VADAMA RS.19,000.00 11. M.M. MANY RS.19,000.00 12. MOHANAN V.A. RS.18,000.00 13. O.S. VARGHESE, OLATUPUATH HOUSE, IRINJALAKUDA RS.18,000.00 14. PAUL MANDAKATH, MANDAKATH RS.19,500.00 15. PULSON KOTTAMURI, MANDAKAN HOUSE, KOTTAMURI RS. 18,000.00 16. P.P.PAPPAN RS.17,500.00 17. RANJITH M.R. RS.17,000.00 18. RAVI U.,R. URUNDOLYIL HOUSE, KOTTAMURI RS.14,50 0.00 19. SABU OLATUPURATH,IRINJALAKUDA RS.18,500.00 20. SADASIVAN M. RS.18,000.00 21. SEBY PAUL, KODALIPARAMBIL HOUSE, CHALOOR UK R S.20,000.00 22. SHAJU VADASERY, VADASSERY HOUSE, THAZHOOR, CKY RS.20,000.00 I.T.A. NO.227&228 & 336 & 337/COCH/2014 8 23. SHANDY V.A., VADASSERY HOUSE, THAZHOOR, CKY RS. 18,000.00 24. SHIJI SHIBU, CHANGAN HOUSE, PALAYAPARAMBU RS.19 ,000.00 25. STEPHEN THOPPIL, THOPPIL HOUSE, AMBAZHAKKADU R S.19,000.00 26. THOMAS K.G. KANICHAI HOUSE, KOTTAVADIL RS.20,00 0.00 27. THOMAS V.P. RS. 20,000.00 28. WILSON MANDAN, MANDAN HOUSE, KALLOOR RS. 16,50 0.00 TOTAL RS .5,00,000.00 THE ASSESSEE SUBMITTED THAT THE GENUINENESS OF THE LOANS WAS PROVED BY THE ASSESSEE AND THEREFORE THE ADDITION ON THIS ACCOUNT MAY BE DELETED. 11.1 HOWEVER, ACCORDING TO THE ASSESSING OFFICER, A S PER THE RETURNS OF INCOME FILED FOR THE A.Y.S 2006-07 TO 2008-09, THE ASSESSE E HAS SHOWN UNSECURED LOANS FROM VARIOUS INDIVIDUALS AS UNDER: A.Y. 2006-07 2007-08 2008-09 RS. 22,500/- RS.5,00,000/- RS.5,00,000/- ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE FI LED LIST OF THE PERSONS FROM WHOM LOANS WERE RECEIVED BUT WITHOUT ANY ADDRESS OF THEM. ON PERUSAL OF THE LIST, THE ASSESSING OFFICER FOUND THAT FOR EACH A.Y ., THERE WERE 28 PERSONS FROM WHOM LOANS RANGING FROM RS. 16,500 TO RS.20,000/- W ERE RECEIVED. THE ASSESSEE WAS ASKED TO PRODUCE 5 PERSONS EACH FOR EV ERY ASSESSMENT YEAR FROM THE LIST FURNISHED. HOWEVER, THE ASSESSEE COULD P RODUCE ONLY TWO PERSONS, SHRI M.G.SADAN, MOTHAYIL HOUSE, VADAMA, THRISSUR AND SHR I STEPHEN, S/O DEVASSY THOPPIL KANNAMPUZHA HOUSE, AMBAZHAKKAD, THRISSUR AN D STATED THEY HAD GIVEN LOAN OF RS. 19,000/- EACH TO SHRI M.J. JOY, PARTNER OF THE ASSESSEE FIRM IN CASH ON 5.12.2006 AND 10.11.2006 RESPECTIVELY AND SHRI M .J. JOY REPAID THE AMOUNTS I.T.A. NO.227&228 & 336 & 337/COCH/2014 9 IN CASH TO THEM RESPECTIVELY ON 5.4.2007 AND 15.9.2 007. THEY CATEGORICALLY STATED THAT THEY HAD GIVEN THE LOANS TO SHRI M.J. J OY AND NOT TO THE FIRM. HENCE THE LOANS RECEIVED BY SHRI M.J. JOY FROM THE ABOVE PERSONS CANNOT BE TREATED AS THE LOAN TAKEN BY THE FIRM. HENCE THE ASSESSING OF FICER HELD THAT THE ONUS TO PROVE THE IDENTITY, GENUINENESS AND CREDITWORTHINES S OF THE CREDITORS LIES ON THE ASSESSEE AND THE ASSESSEE HAS NOT PROVEN THE SAME. 11.2 IN VIEW OF THE ABOVE, THE ASSESSING OFFICER DI D NOT ACCEPT THE CLAIM OF THE ASSESSEE FIRM THAT THEY HAD TAKEN UNSECURED LOAN OF RS.5,00,000/- FROM 28 PERSONS DURING THE F.Y. 2006-07 AND ACCORDINGLY, TH E ABOVE SUM WAS DISALLOWED AND ADDED TO THE INCOME RETURNED FOR THE ASSESSMENT YEAR 2007-08. 12. IN THE APPELLATE PROCEEDINGS, THE CIT(A), IN RE SPONSE TO THE GRIEVANCE OF THE ASSESSEE THAT THE ASSESSEE WAS NOT GIVEN ENOUGH OPPORTUNITY TO FURNISH EVIDENCE, DIRECTED THE ASSESSEE TO FURNISH EVIDENCE WITH REGARD TO CLAIM OF UNSECURED LOANS OF RS.5,00,000/- AND PRODUCE LOAN C REDITORS FOR VERIFICATION. ACCORDINGLY, THE ASSESSEE PRODUCED FOUR LOAN CREDIT ORS VIZ. SHRI DAVIS NERAPARAMBIL, HENDRY FRANCIS, STEPHEN THOPPIL AND S HIJI SHIBU. 12.1. DAVIS N.L. LOAN AMOUNT RS. 19000/-. THE DE PONENT STATED ON OATH THAT HE HAS GIVEN A SUM OF RS.19,000/- TO SHRI M.J. JOY AND GOT IT BACK WITH INTEREST AT THE RATE OF BANK INTEREST. BUT HE DOES NOT RECA LL THE DATE OF LENDING OR DATE I.T.A. NO.227&228 & 336 & 337/COCH/2014 10 ON WHICH HE RECEIVED IT BACK AND HE HAS NOT MAINTAI NED ANY WRITTEN ACCOUNTS FOR THE TRANSACTION AND, THE MAIN SOURCE OF HIS INCOME IS AGRICULTURE. 12.2 SMT. SHIJI SHIBU: LOAN AMOUNT OF RS. 19,000/- SHE STATED ON OATH THAT SHE HAD GIVEN RS.19,000/- TO SHRI M.J. JOY SOMETIME IN 2005 IN ONE LUMP SUM AND ALSO RECEIVED IT BACK IN ONE LUMP SUM WITHIN 6 OR 7 MONTHS. SHE ALSO COULD NOT RECALL THE EXACT DATE OF LENDING AND DATE OF RECEIP T AND ALSO THERE WERE NO WRITTEN RECORDS. FURTHER, SHE SAID HER SOURCE OF I NCOME WAS THE MONEY RECEIVED FROM HER HUSBAND. 12.3 HENDRY FRANCIS LOAN AMOUNT OF RS. 17,000/-. THIS DEPONENT ALSO STATED THAT HE HAD GIVEN RS.17,000/- TO SHRI M.J. JOY IN O NE LUMP SUM AND RECEIVED IT BACK IN ONE LUMP SUM AND NO WRITTEN RECORDS WERE MA INTAINED FOR THE TRANSACTIONS. 12.4 STEPHEN THOPPIL LOAN AMOUNT OF RS.19,000/- THIS DEPONENT STATED THAT HE HAD NOT GIVEN ANY MONEY TO ANYBODY. 12.5 AFTER GOING THROUGH THE EVIDENCE AND CONFIRM ATION LETTERS, THE CIT(A) WAS OF THE OPINION THAT THE INFERENCES DRAWN BY THE ASSESSING OFFICER SEEMS TO BE DERIVED MORE OUT OF LOGIC WITHOUT EVEN GOING THR OUGH DUE DILIGENCE FOR THE PROCESS OF VERIFICATION AND LINKING UP THE SAME WIT H THE USE OF THE MONIES SO I.T.A. NO.227&228 & 336 & 337/COCH/2014 11 TAKEN. THE CIT(A) WAS OF THE OPINION THAT FOR PETT Y CASH LOANS, I.E., FOR AN AMOUNT LESS THAN RS.20,000/-, THE LENDERS ARE NOT R EQUIRED TO MAINTAIN BOOKS OF ACCOUNTS. THE CIT(A) OBSERVED THAT THE ASSESSING O FFICER HAS RESORTED TO RANDOM CHECK FOR WHICH THE ASSESSEE PRODUCED CERTAI N CASH CREDITORS AND OUT OF 4 SUCH CREDITORS, 3 HAVE ACCEPTED TO HAVE GIVEN LOA NS. ACCORDING TO THE CIT(A), THE IDENTITY OF PERSONS WAS THUS ESTABLISHED AND SO THE GENUINENESS OF SUCH LOANS. ACCORDING TO THE CIT(A), IN A RANDOM SAMPLI NG, IF OUT OF 4 PERSONS, 3 PERSONS HAVE ACCEPTED TO HAVE GIVEN THE LOANS AND O NE PERSON REFUSES, IT MAY BE INFERRED THAT 25% OF SUCH LOANS CANNOT BE TREATE D AS GENUINE. HENCE, THE CIT(A) RESTRICTED THE DISALLOWANCE MADE BY THE ASSE SSING OFFICER TO RS. 1,25,000/-, I.E., 25% OF RS.5,00,000/- AGAINST THIS , THE REVENUE IS IN APPEAL BEFORE US. 13. WE HAVE HEARD THE LD. DR. THIS IS A SMALL AMOU NT RANGING FROM RS.4000/- TO RS.20,000/- RECEIVED FROM 28 PARTIES. SINCE THREE PERSONS OUT OF FOUR CREDITORS CONFIRMED THE LOAN TRANSACTIONS, THE CIT(A) SUSTAINED 25% PF RS.5.00,000/-, I.E., RS.1,25,000/- AS UNEXPLAINED L OANS. IN VIEW OF THIS FINDING, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CI T(A). ACCORDINGLY, WE CONFIRM THE ORDER OF THE CIT(A) ON THIS ISSUE. THIS GROUND OF THE REVENUE IS DISMISSED. 14. THE THIRD GROUND IN THE REVENUE APPEAL, IS WITH REGARD TO DELETION OF ADDITION WITH REGARD TO SUNDRY CREDITORS OF RS. 7,7 8,295/-. I.T.A. NO.227&228 & 336 & 337/COCH/2014 12 15. THE BRIEF FACTS OF THIS ISSUE ARE THAT AN AMOUN T OF RS.7,78,295/- WAS RECEIVED BY THE ASSESSEE FROM THE FOLLOWING 18 SUND RY CREDITORS: SL. NO. DETAILS AMOUNT 1. COCHIN RUBBER FACTORY RS.33,800.00 2. EXCEL FRITS & COLOUR INDUSTRIES, BANGALORE RS.11, 944.00 3. FORTUNE INDIAN SERVICES, PARAVUR RS.58,295.33 4. HOPEWELL CERAMICS PVT. LTD., JAIPUR RS.71,704.00 5. JANATHA TRADING CORPORATION RS.70,031.00 6. LANXES INDIA PVT. LTD., EKM RS.30,252.00 7. MAHAVIR FINE PACK SYSTEMS PVT. EKM RS.10,608.00 8. MILLANIUM RUBBER TECHNOLOGIES TRICHUR RS.32,375. 00 9. M.V.SONS ASSOCIATES RS.20,450.00 10. ABOOBACKAR AGENCY RS.40,000.00 11. PEAN EXPORTS, KOCHI-36 RS.68,818.00 12. PEREPADAN GAS AGENCIES, MALA RS.26,015.28 13. PREMIER INDUSTRIES, NEW DELHI RS.25,000.00 14. QUALITY ENTERPRISES RS.62,000.00 15. RESHMI INDUSTRIES, POTTA RS.59,275.00 16. S.B. SALES & SERVICE CKY RS.53,101.00 17. ST. JOHN CERAMICS, VADAMA RS.49,920.00 18. TRAVANCORE POLYMERS RS.54,704.00 TOT AL RS.7,78,295.26 15.1 THE ASSESSING OFFICER HELD THAT THOUGH THE ASS ESSEE HAS BEEN GIVEN AMPLE OPPORTUNITIES TO PRODUCE ACCOUNT COPY FROM TH EIR CREDITORS, THEY HAVE NOT PRODUCED ANY. HENCE, THE ASSESSING OFFICER TRE ATED THE ASSESSEES CLAIM OF SUNDRY CREDITORS AS BOGUS AND SO, THE AMOUNT OF RS.7,78,295/-/- SHOWN AGAINST SUNDRY CREDITORS WAS DISALLOWED AND ADDED T O THE INCOME RETURNED FOR THE RELEVANT ASSESSMENT YEAR. I.T.A. NO.227&228 & 336 & 337/COCH/2014 13 16. ON APPEAL, THE CIT(A) OBSERVED THAT THOUGH THE ASSESSING OFFICER MENTIONED THAT THE ASSESSEE HAS NOT FURNISHED THE C ORRECT AND COMPLETE ADDRESSES OF THE CREDITORS TO ENABLE INDEPENDENT VE RIFICATION BY THE DEPARTMENT, THE ASSESSEE HAS INSISTED THAT THE LIST OF SUNDRY CREDITORS ALONGWITH THE LEDGER COPIES AS CONFIRMATION WERE FU RNISHED BEFORE THE ASSESSING OFFICER WHICH WERE SUPPORTED BY BILLS AND VOUCHERS. THE CIT(A) WAS OF THE OPINION THAT THE ASSESSING OFFICER HAS F AILED TO MAKE ANY CROSS VERIFICATION WHETHER SUNDRY CREDITORS APPEARING FOR SUCH PURCHASES OF GOODS/SERVICES WERE NOT UTILIZED BY THE ASSESSEE AN D IF PURCHASES ON CREDIT WAS THE PART OF TRADING ACCOUNT, AND HAS BEEN MATER IALLY AFFECTING THE SALES AND THE GROSS PROFIT, SUO MOTU, DISALLOWING THE GEN UINENESS OF SUCH UNPAID PURCHASES APPEARING IN THE BALANCE SHEET COULD NOT BE APPROPRIATE. ACCORDING TO THE CIT(A), IF ANY SUNDRY CREDIT IS BO GUS, IT MEANS CORRESPONDING PURCHASES ARE ALSO BOGUS, ONLY BECAUS E THE ASSESSEE HAS NOT BEEN ABLE TO PRODUCE THE SUNDRY CREDITORS OR THE CO NFIRMATION FROM THEM, CANNOT BE TREATED AS ENOUGH EVIDENCE TO DENY THE GE NUINENESS UNLESS, COMPLETE SET OF FACTS AND CIRCUMSTANCES ARE BROUGHT ON RECORD. ACCORDING TO THE CIT(A), IN THIS CASE, THERE HAS BEEN A SURVE Y BUT THERE WAS NO SUCH FINDING OF ANY BOGUS PURCHASE ETC.. IN VIEW OF THI S, THE CIT(A) HELD THAT THE CLAIM OF THE ASSESSEE CANNOT BE DISALLOWED SUO MOTU AND SINCE THE ASSESSING OFFICER HAS NOT DIFFERENTIATED THE GENUIN ENESS OR OTHERWISE OF THE PURCHASES, SUO MOTU, TREATING THE SUNDRY CREDITORS AS BOGUS, WAS NOT I.T.A. NO.227&228 & 336 & 337/COCH/2014 14 SUSTAINABLE. ACCORDINGLY, THE CIT(A) DELETED THE AD DITION OF RS. 7,78,295/- MADE BY THE ASSESSING OFFICER. 17. WE HAVE HEARD THE LD. DR. THESE IMPUGNED CREDIT S WERE RELATING TO CREDIT PURCHASES. THE PURCHASES WERE NOT DOUBTED BY THE A SSESSING OFFICER. HENCE, THE CIT(A) OBSERVED THAT THE CREDITS WERE ALSO TO B E CONSIDERED AS GENUINE. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE OR DER OF THE CIT(A) ON THIS ISSUE AND CONFIRM THE SAME. ACCORDINGLY, THIS GROUND OF THE REVENUE IS DISMISSED. 18. THE FIRST GROUND IN THE REVENUE APPEAL NO. I.T .A.228/COCH/2014 IS WITH REGARD TO DELETION OF ADDITION OF UNACCOUNTED SALES OF RS.20,97,639/-. 19. IN THIS CASE, THE ASSESSING OFFICER HAS HELD TH AT AS PER THE DOCUMENT H-1, IMPOUNDED U/S. 131(3) OF THE I,T. ACT, FROM THE BUS INESS PREMISES OF THE ASSESSEE ON 26/03/2008, TOTAL SALES TURNOVER DURING THE FINANCIAL YEAR 2006-07 WAS RS. 48,89,854/- AS AGAINST THE TOTAL SALES OF R S.12,55,475/- DECLARED IN THEIR TRADING AND PROFIT AND LOSS ACCOUNT FOR THE ABOVE F INANCIAL YEAR, FILED WITH THE RETURN OF INCOME, FOR THE ASSESSMENT YEAR 2007-08. IT WAS FOUND THAT THE ASSESSEE HAD DEBITED ALL EXPENSES RELATING TO ITS B USINESS DURING THE PREVIOUS YEAR RELEVANT TO THIS ASSESSMENT YEAR. HENCE, THE D IFFERENCE BETWEEN THE SALES TURNOVER FOUND IN THE IMPOUNDED DOCUMENT NO. H-1 AN D THE TOTAL SALES DECLARED IN THE TRADING AND PROFIT AND LOSS ACCOUNT WAS TO B E TREATED AS ASSESSEES I.T.A. NO.227&228 & 336 & 337/COCH/2014 15 UNACCOUNTED PROFIT FROM THEIR BUSINESS DURING THE A BOVE FINANCIAL YEAR AND WAS TO BE ADDED TO THE INCOME RETURNED. THE ASSESSING O FFICER ALSO FOUND THAT THE ASSESSEE HAD DECLARED GP @ 26.57% IN THE TRADING A CCOUNT FILED FOR THE FINANCIAL YEAR. THEREFORE, THE ASSESSING OFFICER AP PLIED GP @ OF 26.57% TO THE DIFFERENCE IN UNACCOUNTED SALE OF RS.36,34,379/- (R S.48,89,854.70 RS.12,55,474) X 26.57%) = RS.9,65,654/ AND PROFIT O F RS.9,65,654/- SO COMPUTED WAS TREATED AS INCOME OF THE ASSESSEE FROM UNDISCLOSED SALES DURING THE FINANCIAL YEAR 2006-07 AND IT WAS ADDED TO THE INCOME RETURNED FOR THE ASSESSMENT YEAR 2007-08. 20. ON APPEAL, THE CIT(A) FOUND THAT THE ASSESSING OFFICER HAS TAKEN ONLY THE SALES FIGURES AS UNACCOUNTED SALE BY REJECTING THE ASSESSEES PLEA THAT THIS PARALLEL SET OF TRADING AND PROFIT AND LOSS ACCOUNT WAS PREPARED ONLY FOR THE PURPOSE OF SECURING FINANCE FROM THE FINANCIAL INST ITUTION OR FROM BANK. ACCORDING TO THE CIT(A), IF THE ASSESSING OFFICER HAS CONSIDE RED THIS PAPER IMPOUNDED DURING SURVEY, FOR CONSIDERING THE SALES CONSIDERAT ION SHOWN OVER AND ABOVE WHAT IS SHOWN IN THE RETURN OF INCOME, HE SHOULD HA VE CONSIDERED THIS DOCUMENT IN ITS TOTALITY. THE CIT(A) OBSERVED THAT THERE CO ULD NOT BE A SITUATION WHERE ONLY SALES AMOUNT COULD BE TRUE AND THE NET PROFIT WORKED OUT IN THE PROFIT AND LOSS ACCOUNT COULD BE FALSE. THE CIT(A) FOUND FOR CE IN THE CONTENTION OF THE ASSESSEE THAT EVEN IF THE IMPOUNDED DOCUMENT WAS CO NSIDERED, IT WAS ONLY THE NET PROFIT WHICH WAS WORKED OUT AT RS.4,30,445/- CA N BE TAKEN AS INCOME, AND I.T.A. NO.227&228 & 336 & 337/COCH/2014 16 THERE WAS NO NEED OF TAKING THE GROSS SALES AND APP LYING THE GP RATE IN ORDER TO DETERMINE THE PROFIT. ACCORDINGLY, THE ADDITION OF RS.20,97,639/- ESTIMATED BY THE ASSESSING OFFICER BY APPLYING G.P. RATE OF 31.9 1% ON UNACCOUNTED SALES OF RS.65,73,609/-, I.E., (887,75,626/- - 23,02,017) X 31.91% = 20,97,639) WAS DELETED BY THE CIT(A). HOWEVER, THE CIT(A) SUSTA INED THE ADDITION AT RS. 4,30,455/- AS IT HAS BEEN WORKED OUT AS NET PROFIT IN THE IMPOUNDED DOCUMENT. AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. 21. WE HAVE HEARD THE LD. DR. AS HELD IN PARA 9 & 9.1 IN I.T.A. NO. 227/COCH/2014 FOR A.Y. 2007-08, IN THE ABSENCE OF A NY EXPENSES RELATING TO THE BUSINESS HAVE BEEN OMITTED TO ACCOUNT FOR IN THE RE GULAR BOOKS OF ACCOUNTS, THE G.P. RATE ON SUPPRESSED TURNOVER IS TO BE CONSIDERE D. ACCORDINGLY, WE REVERSE THE FINDINGS OF THE CIT(A) ON THIS ISSUE IN THIS AP PEAL ALSO. ACCORDINGLY, THIS GROUND OF THE REVENUE IS ALLOWED. 22. THE SECOND GROUND RAISED BY THE REVENUE IN THIS APPEAL IS WITH REGARD TO DELETION OF ADDITION OF SUNDRY CREDITORS OF RS.12,0 3,755/-. 23. THE BRIEF FACTS OF THE CASE ARE THAT THOUGH THE ASSESSEE HAS BEEN GIVEN AMPLE OPPORTUNITIES TO PRODUCE ACCOUNT COPY F ROM THEIR CREDITORS, THEY HAVE NOT PRODUCED ANY. HENCE, THE ASSESSING O FFICER TREATED THE ASSESSEES CLAIM OF SUNDRY CREDITORS AS BOGUS AND S O, THE AMOUNT OF I.T.A. NO.227&228 & 336 & 337/COCH/2014 17 RS.12,03,755/- SHOWN AGAINST SUNDRY CREDITORS WAS D ISALLOWED AND ADDED TO THE INCOME RETURNED FOR THE RELEVANT ASSESSMENT YEA R. 24. ON APPEAL, THE CIT(A) OBSERVED THAT THOUGH THE ASSESSING OFFICER MENTIONED THAT THE ASSESSEE HAS NOT FURNISHED THE C ORRECT AND COMPLETE ADDRESSES OF THE CREDITORS TO ENABLE INDEPENDENT VE RIFICATION BY THE DEPARTMENT, THE ASSESSEE HAS INSISTED THAT THE LIST OF SUNDRY CREDITORS ALONGWITH THE LEDGER COPIES AS CONFIRMATION WERE FU RNISHED BEFORE THE ASSESSING OFFICER WHICH WERE SUPPORTED BY BILLS AND VOUCHERS. THE CIT(A) WAS OF THE OPINION THAT THE ASSESSING OFFICER HAS F AILED TO MAKE ANY CROSS VERIFICATION WHETHER SUNDRY CREDITORS APPEARING FOR SUCH PURCHASES OF GOODS/SERVICES WERE NOT UTILIZED BY THE ASSESSEE AN D IF PURCHASES ON CREDIT WAS THE PART OF TRADING ACCOUNT, AND HAS BEEN MATER IALLY AFFECTING THE SALES AND THE GROSS PROFIT, SUO MOTU, DISALLOWING THE GEN UINENESS OF SUCH UNPAID PURCHASES APPEARING IN THE BALANCE SHEET COULD NOT BE APPROPRIATE. ACCORDING TO THE CIT(A), IF ANY SUNDRY CREDIT IS BO GUS, IT MEANS CORRESPONDING PURCHASES ARE ALSO BOGUS, ONLY BECAUS E THE ASSESSEE HAS NOT BEEN ABLE TO PRODUCE THE SUNDRY CREDITORS OR THE CO NFIRMATION FROM THEM, CANNOT BE TREATED AS ENOUGH EVIDENCE TO DENY THE GE NUINENESS UNLESS, COMPLETE SET OF FACTS AND CIRCUMSTANCES ARE BROUGHT ON RECORD. ACCORDING TO THE CIT(A), IN THIS CASE, THERE HAS BEEN A SURVE Y BUT THERE WAS NO SUCH FINDING OF ANY BOGUS PURCHASE ETC.. IN VIEW OF THI S, THE CIT(A) HELD THAT THE I.T.A. NO.227&228 & 336 & 337/COCH/2014 18 CLAIM OF THE ASSESSEE CANNOT BE DISALLOWED SUO MOTU AND SINCE THE ASSESSING OFFICER HAS NOT DIFFERENTIATED THE GENUIN ENESS OR OTHERWISE OF THE PURCHASES, SUO MOTU, TREATING THE SUNDRY CREDITORS AS BOGUS, WAS NOT SUSTAINABLE. ACCORDINGLY, THE CIT(A) DELETED THE AD DITION OF RS. 12,03,755/- MADE BY THE ASSESSING OFFICER. 25. WE HAVE HEARD THE LD. DR. AS HELD IN PARA 17 IN I.T.A. NO. 227/COCH/2014 FOR A.Y. 2007-08, FOR A.Y. 2008-09 ALSO, THE CREDIT PURCHASES ARE TO BE CONSIDERED AS GENUINE AS HELD BY THE CIT( A). HENCE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) ON THIS IS SUE AND CONFIRM THE SAME. ACCORDINGLY, THIS GROUND OF THE REVENUE IS DISMISSE D. 26. NEXT WE WILL TAKE UP THE COMMON GROUNDS IN ASSE SSEES APPEALS IN I.T.A. NOS. 336&337/COCH/2014. 2 7. WE HAVE HEARD THE LD. DR. THE GROUNDS ARE VER Y GENERAL IN NATURE AND HAVE NOT SPECIFIED THE EXACT GRIEVANCE OF THE ASSES SEE. MORE SO, THE GROUNDS ARE SUPPORTIVE OF THE CIT(A) ORDER. ACCORDINGLY, T HE GROUNDS OF THE ASSESSEE IN BOTH THE APPEALS ARE DISMISSED. I.T.A. NO.227&228 & 336 & 337/COCH/2014 19 28. IN THE RESULT, THE APPEALS FILED BY THE REVENUE ARE PARTLY ALLOWED AND APPEALS FILED BY THE ASSESSEE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 09-01-2015. SD/- SD/- (N.R.S.GANESAN) (CHANDRA POOJARI) JUDICIAL MEMBER ACC OUNTANT MEMBER PLACE: KOCHI DATED: 9 TH JAN. 2015 GJ COPY TO: 1. M/S. SAJ CERA COLOURS, KOTTAMURI, P.O., VADAMA, MALA, THRISSUR-680 736. 2. THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL C IRCLE, THRISSUR. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS)-V, KOCHI . 4. THE COMMISSIONER OF INCOME-TAX, CENTRAL, KOCHI. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T., COC HIN