M/s Modern Distributors, Jalandhar V. The Income Tax Officer, Jalandhar

ITA 341/ASR/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0819 (ITAT-AMRITSAR)
• Duration Of Justice: 9 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 25-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S S KANWAL
• Keywords: Business income
• Section: 133A; 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR (SMC). BEFORE SH. A.D. JAIN, JUDICIAL MEMBER ITA NO.341(ASR)/2015 ASSESSMENT YEAR:2010-11 PAN: AABFM-4117D M/S. MODERN DISTRIBUTORS, VS. INCOME TAX OFFICER, 35, NEW VIJAY NAGAR, WARD 1(2), JALANDHAR. JALANDHAR. (APPELLANT) (RESPONDENT) APPELLANT BY: SH. SURINDER MAHAJAN, CA RESPONDENT BY: SH. S.S. KANWAL, DR DATE OF HEARING: 08/02/2016 DATE OF PRONOUNCEMENT: 12/04/2016 ORDER THIS IS THE ASSESSEES APPEAL FOR THE ASSESSMENT Y EAR 2010-11, AGAINST THE ORDER, DATED 19.05.2015, PASSED BY THE LD. CIT(A)-1, JALANDHAR. THE ASSESSEE HAS RAISED THE FOLLOWING GR OUNDS OF APPEAL: 1. A) THAT ON THE FACTS & CIRCUMSTANCES OF THE CAS E, LD. CIT(A) HAS GROSSLY ERRED IN REJECTING GROUND OF AP PEAL NO.3, WHEREIN ASSESSEE HAS CHALLENGED THAT ADDITION MADE IN THE TRADING ACCOUNT WITHOUT INVOKING PROVISIONS OF SECT ION 145(3) OF THE ACT, IS ILLEGAL AND BAD IN LAW. B) THAT THE LD. CIT(A) ERRED IN HOLDING THAT ADDI TION TO TRADING ACCOUNT CAN BE MADE WITHOUT REJECTING BOOKS OF ACCOUNT. ADDITION MADE TO TRADING ACCOUNT WITHOUT R EJECTING BOOKS OF ACCOUNT IS ILLEGAL & BAD IN LAW. 2. A) THAT ON THE FACTS & CIRCUMSTANCES OF THE CASE , LD. CIT(A) HAS GROSSLY ERRED IN CONFIRMING ADDITION OF RS.2,52,300/- BEING 16.82% OF RS.15,00,000/- BY CONCLUDING THAT UNRECORDED SALES OF RS.15,00,000/- HAVE NOT BEEN CONSIDERED WHILE CALCULATING GROSS PROFIT. ITA NO.341(ASR)/2015 ASSESSMENT YEAR: 2010-11 2 B) THAT ADDITION OF RS.2,52,300/- MADE BY ASSESSIN G OFFICER IS BASED ON ASSUMPTIONS & PRESUMPTIONS AND WITHOUT ANY MATERIALS ON RECORD. 3. A) THAT ON THE FACTS & CIRCUMSTANCES OF THE CAS E, LD. CIT(A) HAS GROSSLY ERRED IN CONFIRMING ADDITION OF RS.93,327/- U/S 41(1) OF THE ACT, BY TREATING FOLLO WING SUNDRY CREDITORS AS BOGUS, NON-EXISTENT AND UNVERI FIABLE. I) ANUP KUMAR C/O MODERN HOSPITAL, HOSHIARPUR. RS.37,440/- II) GANESH PHARMACEUTIAL & SURGICAL, DHARAMSHALA RS.10,000/- III) CIVIL SURGEON, HOSHIARPUR. RS.45,887/- B) THAT ON THE FACTS & CIRCUMSTANCES OF THE CASE, L D. CIT(A) HAS ERRED IN CONFIRMING THAT PROVISIONS OF SECTION 41(1) OF THE ACT HAVE RIGHTLY BEEN INVOKED TO CREDI TORS AMOUNTING TO RS.93,327/- WHICH ARE STILL OUTSTANDIN G IN BOOKS OF ACCOUNT. ADDITION CONFIRMED OF RS.93,327/- U/S 41(1) OF THE ACT IS ILLEGAL AND BAD IN LAW. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF TRADING IN MEDICAL EQU IPMENT. FOR THE YEAR, THE ASSESSEE FILED ITS RETURN DECLARING INCOME OF R S.36,750/-. THE AO, INTER-ALIA, MADE ADDITION OF RS.93,327/- UNDER SECT ION 41(1) OF THE INCOME TAX ACT, 1961. THE LD. CIT(A) CONFIRMED THE ADDITION. 3. THE ASSESSEE HAS RAISED GROUND NO.3. THE FACTS O F THIS GROUND ARE THAT A SURVEY OPERATION U/S 133A OF THE ACT WAS CA RRIED OUT IN THE CASE OF THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION . DURING THE COURSE OF SURVEY, THE STOCK ON PHYSICAL VERIFICATION WAS F OUND LESS TO THE EXTENT OF RS.15,00,000/-. IN VIEW OF THE DISCREPANCY IN TH E STOCK FOUND ON PHYSICAL VERIFICATION, THE ASSESSEE SURRENDERED UNA CCOUNTED SALES OF ITA NO.341(ASR)/2015 ASSESSMENT YEAR: 2010-11 3 RS.15,00,000/- DURING THE COURSE OF SURVEY OPERATIO N ITSELF. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFF ICER, IN ORDER TO KNOW THE CORRECTNESS OF THE BALANCES SHOWN IN THE C ASE OF VARIOUS SUNDRY CREDITORS, CALLED FOR INFORMATION FROM THE FOLLOWING CREDITORS U/S 133(6) OF THE ACT:- SR. NO. NAME OF PARTY OUTSTANDING CREDIT AMOU NT 1. SH. ANUP KUMAR, MODERN HOSPITAL HOSIARPUR. RS.37440/- 2. M/S. GANESH PHARMACEUTICAL & SURGICAL DHARMASALA RS. 1000/- 3. CIVIL SURGEON, HOSHIARPUR RS.45887/- TOTAL RS.93327/- IN RESPONSE TO ENQUIRIES MADE U/S 133(6) OF THE ACT , THE PARTY MENTIONED AT SERIAL NO.1 ABOVE INFORMED THE ASSESSING OFFICE R THAT HE HAD NOTHING TO RECEIVE FROM THE ASSESSEE AS ON 31.03.2010 AND THERE WAS NIL BALANCE OUTSTANDING AGAINST THE ASSESSEE IN HIS BOOKS OF AC COUNT. IT HAD FURTHER BEEN SUBMITTED BY THIS PARTY THAT NO TRANSACTION OC CURRED WITH THE ASSESSEE DURING THE F.Y.2009-10 AND AS SUCH COPY OF ACCOUNT FOR THE YEAR UNDER CONSIDERATION COULD NOT BE SUPPLIED. HOW EVER, THE PARTIES MENTIONED AT SERIAL NO.2 & 3 HAD NOT RESPONDED TO N OTICE OF ENQUIRY ISSUED BY THE ASSESSING OFFICER U/S 133(6) OF THE A CT TO THESE PARTIES. THE ASSESSEE WAS CONFRONTED WITH THESE FACTS AND ITS EX PLANATION WITH REGARD TO APPLICATION OF THE PROVISIONS OF SECTION 41(1) O F THE ACT WAS CALLED FOR BY THE ASSESSING OFFICER. IN RESPONSE TO THE QUERIE S, THE ASSESSEE HAD SUBMITTED THAT THE AMOUNT AS OUTSTANDING IN ITS BOO KS OF ACCOUNT OF ITA NO.341(ASR)/2015 ASSESSMENT YEAR: 2010-11 4 THESE PARTIES WAS STILL PAYABLE AND THE PROVISIONS OF SECTION 41(1) OF THE ACT COULD NOT BE APPLIED IN ITS CASE. HOWEVER, THE EXPLANATION SUBMITTED BY THE ASSESSEE WAS NOT FOUND TO BE SATISFACTORY BY THE ASSESSING OFFICER. HE, THEREFORE, MADE AN ADDITION OF RS.93,327/- TO T HE RETURNED INCOME OF THE ASSESSEE ON ACCOUNT OF REMISSION OR CESSATION O F LIABILITY IN THE ABOVE REFERRED CASES BY INVOKING THE PROVISIONS OF SECTIO N 41(1) OF THE ACT. 4. THE ASSESSEE SUBMITTED BEFORE THE AO THAT RS.37 ,440/- WERE STILL DUE TO ANUP KUMAR OF MODERN HOSPITAL. AS REGARDS RS .10,000/- DUE TO M/S GANESH PHARMACEUTICAL & SURGICAL, DHARAMSALA IT WAS SUBMITTED THAT THE AMOUNT WAS RECEIVED AS ADVANCE TOWARDS SUP PLY OF GOODS, WHICH WERE STILL TO BE SUPPLIED. AS REGARDS RS.45,887/- C REDITED IN THE ACCOUNT OF CIVIL SURGEON, HOSHIARPUR, IT WAS EXPLAINED THAT THE CREDIT WAS ON ACCOUNT OF BAD ACCOUNTING, SINCE THE AMOUNT RECEIV ED FROM SOME OTHER PARTY WAS INADVERTENTLY CREDITED TO THE CIVIL SURGE ON, HOSHIARPUR. 5. REGARDING PARTY NOS. 1 & 2, THE AO OBSERVED THAT THE EXPLANATION WAS NOT TENABLE, SINCE THE ASSESSEE THROUGH HIS COU NSEL HAD ADMITTED THAT THE AMOUNT HAD NOT BEEN CONFIRMED BY THE CREDI TORS. REGARDING PARTY NO.3, THE AO OBSERVED THAT THE EXPLANATION OF THE ASSESSEE WAS A CONCOCTED ONE, SINCE NO DOCUMENTARY EVIDENCE HAD B EEN FURNISHED BY THE ASSESSEE. 6. WHILE MAKING THE ADDITION, THE AO OBSERVED THAT THE EXPLANATION OFFERED BY THE ASSESSEE WAS NOT SATISFACTORY; THAT IT WAS ABUNDANTLY CLEAR ITA NO.341(ASR)/2015 ASSESSMENT YEAR: 2010-11 5 FROM THE REPLY OF THE ASSESSEE THAT HE HAD SHOWN HI S INABILITY TO GET VERIFIED THE SAME; THAT THIS LED TO THE INFERENCE T HAT THESE SUNDRY CREDITORS WERE BOGUS, NON-EXISTENT AND UNVERIFIABLE , OR THAT THE LIABILITY HAD CEASED TO EXIST; THAT HENCE, AS PER THE PROVISI ONS OF SECTION 41(1) OF THE ACT, THE SAME BECAME TAXABLE. THE TOTAL AMOUNT OF RS.93,327/- WAS ADDED THE RETURNED INCOME U/S 41(1) OF THE ACT. 7. BEFORE THE LD. CIT(A), THE ASSESSEE SUBMITTED TH AT SECTION 41(1) IS ATTRACTED WHEN AN ALLOWANCE OR DEDUCTION HAS BEEN M ADE IN ANY YEAR IN RESPECT OF A LOSS, EXPENDITURE OR TRADING LIABILITY AND IN SUBSEQUENT YEARS, THE ASSESSEE HAS OBTAINED ANY AMOUNT IN RES PECT OF SUCH LOSS BY WAY OF REMISSION OR CESSATION THEREOF; THAT THIS ME ANS THAT SEC. 41(1) IS ATTRACTED WHEN THE ASSESSEE HAS BEEN BENEFITED BY W AY OF REMISSION OR CESSATION IN RESPECT OF THE LIABILITY WHICH HAS BEE N CLAIMED AS ALLOWANCE OR DEDUCTION IN THE PREVIOUS YEAR; THAT THE PROVIS IONS OF SECTION 41(1) ARE NOT ATTRACTED WHEN THERE IS NO REMISSION OR CESSATI ON OF LIABILITY; THAT THE LIABILITY CANNOT BE SAID TO HAVE CEASED TO EXIST SO LONG AS SAME IS NOT WRITTEN BACK IN BOOKS OF ACCOUNT; AND THAT IT IS AN ESTABLISHED LAW THAT AN AMOUNT OUTSTANDING FOR YEARS CANNOT BE TREATED A S CESSATION OF LIABILITY. 8. THE LD. CIT(A) CONFIRMED THE ADDITION BY OBSERVI NG THAT THE ASSESSEE COULD NOT ESTABLISH THAT THE LIABILITY SHO WN IN ITS BOOKS OF ACCOUNT IN THE CASE OF THE THREE CREDITORS STILL EX ISTED; THAT ON CROSS VERIFICATION, ONE OF THE CREDITORS, NAMELY, SH. ANU P KUMAR HAD ITA NO.341(ASR)/2015 ASSESSMENT YEAR: 2010-11 6 STRAIGHTWAY STATED THAT NO AMOUNT WAS RECEIVABLE BY HIM FROM THE ASSESSEE; THAT NOT ONLY THIS, HE HAD FURTHER STATED THAT HE HAD NOT ENTERED INTO ANY TRANSACTION WITH THE ASSESSEE DURI NG F.Y.2009-10; THAT IF THE CREDITOR HIMSELF SAYS THAT HE IS TO RECEIVE NOTHING FROM THE ASSESSEE, IT WILL AUTOMATICALLY TANTAMOUNT TO REMIS SION OR CESSATION OF THE LIABILITY AND THE PROVISIONS OF SECTION 41(1) ARE CLEARLY ATTRACTED IN THIS CASE; THAT MOREOVER, WHEN THE CREDITOR HIMSELF HAD DISCHARGED THE ASSESSEE FROM ANY LIABILITY, IT WAS NOT UNDERSTOOD AS TO WHOM THE LIABILITY WOULD BE PAID BY THE ASSESSEE IN FUTURE; AND THAT T O AVOID APPLICATION OF THE PROVISIONS OF SECTION 41(1) OF THE ACT, THE ASS ESSEE WILL CONTINUE TO SHOW IN ITS BOOKS, THE LIABILITY WHICH ACTUALLY DID NOT EXIST. THE LD. CIT(A) OBSERVED IT WAS ALSO FOR THE ASSESSEE TO PRO VE THAT THE ASSESSEE HAD NOT DERIVED ANY BENEFIT OF THE LIABILITY IN THE PAST; THAT THIS ONUS HAD ALSO NOT BEEN DISCHARGED IN THE CASE OF SHRI ANUP K UMAR; THAT IN THE OTHER TWO CASES, THE ASSESSEE COULD NOT SUBSTANTIAT E HIS SUBMISSIONS WITH THE HELP OF ANY DOCUMENTARY EVIDENCE; THAT IF THE ASSESSEE ITSELF SAYS THAT SOME WRONG ENTRY HAS BEEN MADE IN THE CAS E OF CIVIL SURGEON, HOSHIARPUR, THE ASSESSEE HAS TO ESTABLISH IT WITH D OCUMENTARY EVIDENCE, WHICH THE ASSESSEE FAILED TO DO; THAT THE ASSESSEE ALSO COULD NOT ESTABLISH THAT SOME SALES HAD BEEN AFFECTED IN FUTU RE TO M/S GANESH PHARMACEUTICALS & SURGICALS; AND THAT THIS CLEARLY ESTABLISHED THAT THE LIABILITY SHOWN IN THESE CASES EITHER DID NOT EXIST , OR THE CREDITORS HAD DISCHARGED THE ASSESSEE FROM ITS LIABILITY. ACCORDI NG TO THE LD. CIT(A), THE ITA NO.341(ASR)/2015 ASSESSMENT YEAR: 2010-11 7 PROVISIONS OF SECTION 41(1) OF THE ACT HAD RIGHTLY BEEN INVOKED BY THE ASSESSING OFFICER IN THE CASE OF THE THREE CREDITOR S. 9. THE LD. COUNSEL FOR THE ASSESSEE HAS REITERATED THE STAND OF THE ASSESSEE AS TAKEN BEFORE THE AUTHORITIES BELOW. 10. THE LD. DR, ON THE OTHER HAND, HAS PLACED STRO NG RELIANCE ON THE IMPUGNED ORDER. 11. APROPOS PARTY NO.1, I.E., ANUP KUMAR OF MODERN HOSPITAL, HOSHIARPUR, WHO HAS OUTSTANDING CREDIT OF AN AMOUNT OF RS.37,440/-, THIS PARTY HAD STATED IN RESPONSE TO THE ENQUIRY MA DE UNDER SECTION 133(6) OF THE ACT, THAT HE HAD NOTHING TO RECEIVE F ROM THE ASSESSEE AS ON 31.03.2010, THERE WAS NIL BALANCE OUTSTANDING AGAIN ST THE ASSESSEE IN HIS BOOKS OF ACCOUNT AND THAT HE HAD HAD NO TRANSAC TION WITH THE ASSESSEE DURING THE F.Y. 2009-10, DUE TO WHICH, COP Y OF ACCOUNT FOR THE YEAR UNDER CONSIDERATION COULD NOT BE SUPPLIED. 12. THE LD. CIT(A) OBSERVED THAT SINCE THE CREDITOR HIMSELF STATED THAT HE WAS NOT TO RECEIVE ANYTHING FROM THE ASSESSEE, I T WOULD AUTOMATICALLY TANTAMOUNT TO REMISSION OR CESSATION OF LIABILITY UNDER THE PROVISIONS OF SECTION 41(1) OF THE ACT; THAT WHEN THE CREDITOR HA D HIMSELF DISCHARGED THE ASSESSEE FROM THE LIABILITY, THE LIABILITY WOUL D NOT BE PAYABLE BY THE ASSESSEE TO THE CREDITOR IN FUTURE; AND THAT THE AS SESSEE WOULD CONTINUE TO SHOW THE LIABILITY IN ITS BOOKS, THOUGH IT DID N OT ACTUALLY EXIST, IN ORDER TO AVOID APPLICATION OF THE PROVISIONS OF SECTION 4 1(1) OF THE ACT. ITA NO.341(ASR)/2015 ASSESSMENT YEAR: 2010-11 8 13. IN THIS REGARD, IN CIT VS. JAIN EXPORTS PVT. L TD., 89 DTR (DEL) 265, IT HAS BEEN OBSERVED THAT WHERE OUTSTANDING BALAN CE IS PAYABLE TO CREDITOR AND SUCH OPENING BALANCES ARE BEING CARRIE D FORWARD FOR SEVERAL YEARS, THE ISSUE AS TO THE GENUINENESS OF A CREDIT ENTRY COULD ONLY BE EXAMINED IN THE YEAR IN WHICH THE LIABILITY WAS REC ORDED AS ARISEN AND SUCH ISSUE DOES NOT ARISE IN ANY OTHER YEAR; AND TH AT THE AO HAVING ACCEPTED BALANCES OUTSTANDING FOR YEARS, IT WAS NO T OPEN FOR THE LD. CIT(A) TO CONFIRM THE ADDITION. IN THE PRESENT CASE , AS NOTED, ONCE THE CREDIT ENTRY QUA SH. ANUP KUMAR IS CONTINUING IN T HE ASSESSEES BOOKS OVER SEVERAL YEARS AND IT HAS BEEN ACCEPTED AS SUCH , THE LD. CIT(A) HAS CLEARLY ERRED WHILE ACCEPTING SH. ANUP KUMARS VERS ION THAT HE DID NOT OWE ANYTHING TO THE ASSESSEE AND REJECTING THE ASS ESSEES ENTRY OF CREDIT OUTSTANDING. THEREBY, THE AUTHORITIES BELOW HAVE RA ISED THE ISSUE OF GENUINENESS OF THE CREDIT ENTRY DURING THE YEAR UND ER CONSIDERATION, WHICH ACTION IS NOT SUSTAINABLE IN VIEW OF THE JAI N EXPORTS PVT. LTD. (SUPRA). THEREFORE THE ADDITION OF RS.37,440/- IS D ELETED. 14. APROPOS PARTY NO.2, THE ASSESSEES STAND THAT T HE AMOUNT OF RS.10,000/- HAD BEEN RECEIVED AS ADVANCE TOWARDS S UPPLY OF GOODS, BUT THE GOODS HAD NOT BEEN SUPPLIED TO THE PARTY, I.E., M/S. GANESH PHARMACEUTICAL & SURGICAL, DHARAMSALA. THE ASSESSEE S CLAIM WAS REJECTED ON THE BASIS THAT SINCE THE CREDITOR PARTY DID NOT RESPOND IN THE ENQUIRY PROCEEDINGS BEFORE THE AO, THE ASSESSEE COU LD NOT SUBSTANTIATE HIS SUBMISSION AND THAT NO DOCUMENTARY EVIDENCE HAD BEEN FILED. HERE ITA NO.341(ASR)/2015 ASSESSMENT YEAR: 2010-11 9 AGAIN, THE ENTRY HAS BEEN STANDING IN THE ASSESSEE S BOOKS OVER THE YEARS AND IT HAS NOT BEEN CHALLENGED IN THE INITIAL YEAR OF SUCH ENTRY. THEREFORE, THE FACTS NOT HAVING UNDERGONE ANY CHAN GE IN THE YEAR UNDER CONSIDERATION, NO CONCLUSION OF CESSATION OF LIABI LITY CAN BE ARRIVED AT. AS SUCH, THIS ADDITION IS DELETED. 15. SO FAR AS REGARDS PARTY NO. 3, I.E., CIVIL SURG EON, HOSHIARPUR, THE ASSESSEE MAINTAINED THAT IT WAS A WRONG ENTRY AND T HAT THIS CREDIT BALANCE WAS ON ACCOUNT OF BAD ACCOUNTING, SINCE THE DEBTOR HAD INADVERTENTLY BEEN CREDITED TO SOME OTHER ACCOUNT, WHICH HAD BEEN CORRECTED IN THE NEXT YEAR. THIS PARTY ALSO DID NOT RESPOND IN THE ENQUIRY MADE BY THE AO. THE LD. CIT(A) CONFIRMED THE ADDITI ON. 16. THE FACT THAT THE ENTRY WAS STATEDLY A WRONG EN TRY DOES NOT STAND DISPUTED BY THE TAXING AUTHORITIES, SINCE THEY HAD NOT DISPUTED THE FACT THAT THIS ENTRY WAS RECTIFIED IN THE NEXT YEAR. AS SUCH, EXISTING OVER THE YEARS, THIS ENTRY HAS NOT BEEN EARLIER DECIDED AGAI NST THE ASSESSEE. ACCORDINGLY, THIS ADDITION IS ALSO DELETED. 17. THEREFORE, GROUND NO. 3 IS ACCEPTED. 18. REGARDING GROUND NOS. 1 & 2, THE AO OBSERVED TH AT IN HIS REPLY DATED 17-07-2012, THE ASSESSEE HAD FILED A COMPARAT IVE CHART OF SALE, GROSS PROFIT AND GROSS PROFIT RATIO, AS UNDER: AS STT. YEAR SALE GROSS PROFIT RATIO 2008-09 39,04,780/- 5,22,478/- 13.38% ITA NO.341(ASR)/2015 ASSESSMENT YEAR: 2010-11 10 2009-10 42,24,445/- 6,48,446/- 15.35% 2010-2011 4341552/- 7,30,194/- 16.82% THE AO OBSERVED THAT A PERUSAL OF THE G.P. CHART R EVEALED THAT THE SALE FIGURE : OF RS. 43,41,552/- OF 2010-11 DID NOT INCLUDE UNREC ORDED SALES OF RS. 15 LACS, WHICH WAS SURRENDERED DURING THE SURVE Y CONDUCTED AND GP SHOWN AS @16.82%; THAT IT WAS NOTICED THAT THE ASSE SSEE HAD SHOWN SALE AMOUNTING TO RS. 43, 41,552/-; THAT THE SAME AMOUNT HAD BEEN REFLECTED IN PART B OF THE AUDIT REPORT AND G.P SHOWN AT 16.8 2%; THAT IT WAS UNDERSTOOD THAT THE ASSESSEE-FIRM HAD NOT TAKEN INT O THE SALE ACCOUNT, THE UNACCOUNTED (SALE) RS. 15 LACS WHICH WAS SURREN DERED AT THE TIME OF THE SURVEY PROCEEDINGS; AND THAT HENCE, THE G.P. @ 16.82% OF 15 LACS, WHICH CAME TO RS. 2,52,300/- WAS TO BE ADDED TO THE RETURNED INCOME. 19. THE ASSESSEE, IN HIS REPLY DATED 20.03.2013 FIL ED BEFORE THE AO, SUBMITTED THAT THE SURVEY OPERATIONS WERE CARRIED OUT AT THE BUSINESS PREMISES OF THE ASSESSEE ON 30.11.2009 AND ON PHYSI CAL VERIFICATION, STOCKS WERE FOUND SHORT AND THE ASSESSEE SURRENDERE D RS. 15,00 000/- ON ACCOUNT OF UNRECORDED SALES. THE ASSESSEE EXPLAI NED THAT SHORTAGE IN THE STOCKS CAN BE ON ACCOUNT OF TWO POSSIBILITIES, ONE, STOCKS HAVE BEEN SOLD AT A LOSS AND ANOTHER, THAT STOCKS HAVE BEEN S OLD OUTSIDE THE BOOKS OF ACCOUNT; THAT TO AVOID LITIGATION WITH THE DEPA RTMENT, THE ASSESSEE HAD SURRENDERED RS.15,00,000/- ON ACCOUNT OF STOCK S SOLD OUTSIDE THE BOOKS OF ACCOUNT AND HAD BROUGHT IT IN ITS BOOKS O F ACCOUNT; THAT ACCORDINGLY, ENTRY OF RS. 15,00,000/- TOWARDS UNREC ORDED SALES WAS ITA NO.341(ASR)/2015 ASSESSMENT YEAR: 2010-11 11 PASSED IN THE BOOKS OF ACCOUNT, WHICH HAD BEEN DUL Y REFLECTED IN THE TRADING ACCOUNT; AND THAT BY REFLECTING UNRECORDED SALES IN THE TRADING ACCOUNT, GROSS PROFIT ON UNRECORDED SALES HAD BEEN BROUGHT TO TAX. 19.1 AS REGARDS THE INFORMATION FILED IN THE G.P C HART FILED VIDE LETTER DATED 17.07.2012, IT WAS SUBMITTED THAT UNRECORDED SALES WERE INADVERTENTLY NOT INCLUDED IN THE TOTAL SALES WHILE CALCULATING THE G.P RATIO; AND THAT THE CORRECT G.P RATIO, AFTER INCLUS ION OF UNRECORDED SALES, CAME TO 12.50%, AS FOLLOWS:- ASS ITT. YE A R. SALE GROSS PROFIT RA TIO 2008 - 2009 39,04,780/ - 5, 22, 478/ - 13.38% 2009 - 2010 42,24,445/ - 6, 48,446/ - 15.35% 2010 - 2010 58,41,552/ - 7,30,194/ - 12.50% 19.2. AS REGARDS THE OBSERVATION THAT ADDITION OF RS. 2,52,300/- BEING 16.82% OF RS. 15,00,000/- WAS TO BE MADE, IT WAS SU BMITTED:- A. THAT AS G.P. OF 16.82% HAD BEEN WRONGLY CALCULATED AND THE CORRECT G.P CAME TO 12.50%. B. THAT NO ADDITION ON THIS ACCOUNT WAS CALLED FOR, SINCE THE UNRECORDED SALE IN ITSELF INCLUDED GROSS PROFIT. C. THAT G.P OF RS. 7,30,194/- WAS A BALANCING FIGURE, SINCE STOCKS OF RS.13,88,739/- WERE STOCKS PHYSICALLY VERIFIED AT T HE YEAR END. D. THAT ALL SALES/PURCHASES WERE DULY SUPPORTED BY BIL LS. ALSO, ALL EXPENSES SHOWN IN TRADING ACCOUNT WERE DULY SUPPORT ED BY BILLS. E. THAT THE ASSESSEE WAS DEALING IN DIFFERENT ITEMS W ITH DIFFERENT VARIETIES, ON WHICH, G.P RATE WAS NOT THE SAME G.P DEPENDS IN PRODUCT MIX SOLD DURING THE YEAR. G.P RATIO OF TWO YEARS CANNOT REMAIN THE SAME BECAUSE OF DIFFERENT PRODUCT MIX SO LD IN DIFFERENT ITA NO.341(ASR)/2015 ASSESSMENT YEAR: 2010-11 12 YEARS, WHICH WAS CLEAR FROM THE FACT THAT G.P % IN A.Y 2008-09 WAS 13.38% WHEREAS IN A.Y-2009-10, IT ROSE TO 15.35 % AND IN A.Y. 2011-12, IT CAME TO 12.50%. F. THAT DURING THE YEAR UNDER CONSIDERATION, SALES, B OTH RECORDED AND UNRECORDED, CAME TO RS.58,41,552/-, AS AGAINST SALE OF RS.42,24,445/- IN THE IMMEDIATELY PRECEDING YEARS. INCREASE IN SALES IS ALWAYS A RESULT OF PRESSURE ON PROFIT. 19.3 WITH REFERENCE TO PART B OF THE AUDIT REPORT, WHERE THE G.P RATIO WAS SHOWN AS 16.82%, IT WAS SUBMITTED THAT INADVERT ENTLY, UNRECORDED SALES WERE NOT INCLUDED WHILE CALCULATING THE G.P R ATIO. 20. THE AO MADE THE ADDITION BY OBSERVING THAT THE REPLY OF THE ASSESSEE-FIRM, THOUGH CONSIDERED, WAS NOT FOUND ACC EPTABLE; THAT IT WAS ABUNDANTLY CLEAR FROM THE TABULATION GIVEN IN THE REPLY, THAT THE ASSESSEE-FIRM HAD MANIPULATED THE GP FIGURE BY NOT INCLUDING UNRECORDED SALE OF RS.L5 LACS; THAT IT WAS CLEAR T HAT THE G.P RATE HAD COME DOWN SUBSTANTIALLY; THAT IT WAS AN AUDIT CASE AND IT COULD NOT HAVE HAPPENED THAT WHEREAS THE SALE WAS SHOWN AT RS. 42, 24,445/- IN PART B OF THE AUDIT REPORT, THE G.P RATIO GOT SHOWN AS 16. 82% INADVERTENTLY; THAT EVEN IN THE REPLY DATED 17-07-2012, THE ASSESSEE HA D GIVEN THE SAME FIGURE; THAT IT WAS ASCERTAINED THAT THE ASSESSEE H AD NOT SHOWN THE SURRENDERED AMOUNT OF RS.15,00,000/- IN THE SALE A CCOUNT IN THE AUDIT REPORT; THAT IT WAS UNDERSTOOD THAT THE ASSESSEE-FI RM HAD NOT TAKEN INTO THE SALE ACCOUNT THE UNACCOUNTED (SALE) RS. 15 LACS , WHICH WAS SURRENDERED AT THE TIME OF THE SURVEY PROCEEDINGS; AND THAT HENCE, G.P. ITA NO.341(ASR)/2015 ASSESSMENT YEAR: 2010-11 13 @ 16.82% OF RS.15 LACS, WHICH CAME TO RS.2,52,300/- , WAS TO BE ADDED TO THE RETURNED INCOME. 21. THE LD. CIT(A) CONFIRMED THE ADDITION BY HOLDIN G AS FOLLOWS: 6.2. I HAVE CONSIDERED THE OBSERVATIONS OF THE ASSESSING OFFICER AS MADE BY HIM IN THE ASSESSMENT ORDER. I HAVE ALSO CO NSIDERED THE WRITTEN SUBMISSIONS FILED BY THE ASSESSEE VIDE LETT ER DATED 20.04.2015 IN CONNECTION WITH THE ISSUE UNDER REFER ENCE. I HAVE FURTHER CONSIDERED VARIOUS JUDICIAL PRONOUNCEMENTS RELIED UPON BY THE ASSESSEE ON THE ISSUE UNDER REFERENCE, THE CITA TIONS OF WHICH FIND MENTION IN THE WRITTEN SUBMISSIONS DATED 20.04 .2015. ON CAREFUL CONSIDERATION OF THE RIVAL CONTENTIONS, I A M ALSO OF THE OPINION THAT THE ASSESSEE FAILED TO TAKE INTO ACCOUNT UNREC ORDED SALES OF RS.15,00,000/- SURRENDERED DURING THE COURSE OF SUR VEY AND THE GROSS PROFIT ON UNRECORDED SALES REMAINED UNTAXED. THE CASE OF THE ASSESSEE IS AN AUDITABLE CASE AND THE AUDITORS CANN OT IGNORE THE FIGURE OF UNRECORDED SALES WHILE MAKING AUDIT. IT A PPEARS TO ME THAT THE PLEA TAKEN BY THE ASSESSEE DURING APPELLATE AS WELL AS ASSESSMENT PROCEEDINGS IS AN AFTERTHOUGHT. WHEN THE MISTAKE OF THE ASSESSEE WAS DETECTED THE ASSESSEE TOOK THE PLEA TH AT EVEN THE AUDITORS FAILED TO CONSIDER THE UNRECORDED SALES B UT THE GP HAS BEEN SHOWN CORRECTLY AFTER INCLUDING UNRECORDED SAL ES. THIS PLEA OF THE ASSESSEE IS BEYOND ANY TRUTH AS THE GP RATIO A FTER TAKING INTO CONSIDERATION THE UNRECORDED SALES SHOULD INCREASE SUBSTANTIALLY WHEREAS IT IS OTHER WAY ROUND IF THE PLEA OF THE AS SESSEE IS ACCEPTED. I AM ALSO OF THE OPINION THAT THE REJECTI ON OF BOOKS OF ACCOUNTS IS NOT NECESSARY IN THE PRESENT FACTS AND IN THE CIRCUMSTANCES OF THE CASE. THE QUESTION WAS THAT A S TO WHETHER THE UNRECORDED SALES SURRENDERED DURING THE COURSE OF S URVEY HAVE BEEN CONSIDERED WHILE WORKING OUT GP OR NOT. WHEN IT HAS BEEN CLEARLY ESTABLISHED BY THE ASSESSING OFFICER BY REFERRING T O THE AUDIT REPORT AND EVEN TO THE REPLY OF ASSESSEE THAT SALES DETECT ED DURING SURVEY HAVE NOT BEEN TAKEN INTO ACCOUNT, THE ASSESSEE CAME WITH THE FACE SAVING PLEA THAT THE AUDITORS FAILED TO ADD BACK TH E UNRECORDED SALES WHEREAS GP SHOWN IN THE AUDIT REPORT IS CORR ECT AND HAS BEEN WORKED OUT ON TOTAL SALES INCLUDING UNRECORDED SALE S. THIS PLEA OF TH ASSESSEE APPEARS TO BE INCORRECT RATHER FUNNY. I A M, THEREFORE, OF THE OPINION THAT REJECTION OF BOOK RESULT IS NOT RE QUIRED TO MAKE GP ADDITION ON UNRECORDED SALES WHICH HAVE BEEN SURREN DERED DURING SURVEY OPERATION. THE ASSESSING OFFICER HAS BROUGH T TO TAX THE INCOME WHICH HAS BEEN SURRENDERED BY THE ASSESSEE D URING THE COURSE OF SURVEY AND NOTHING ELSE AND THIS ACTION D OES NOT REQUIRE REJECTION OF BOOKS OF ACCOUNT. THE JUDICIAL PRONOUN CEMENTS RELIED UPON BY THE ASSESSEE HAVE ALTOGETHER DIFFERENT FACT S FROM THE FACTS ITA NO.341(ASR)/2015 ASSESSMENT YEAR: 2010-11 14 OF THE CASE OF THE ASSESSEE AND HAVE NO APPLICATION IN THE CASE OF THE ASSESSEE. 6.3. IN VIEW OF THE ABOVE STATED FACTS AND IN THE C IRCUMSTANCES OF THE CASE, I AM OF THE OPINION THAT THE ASSESSING OF FICER IS FULLY JUSTIFIED IN MAKING ADDITION OF RS.2,52,300/- ON AC COUNT OF UNDISCLOSED ON UNRECORDED SALES DETECTED DURING TH E COURSE OF SURVEY. THE ADDITION OF RS.2,52,300/- MADE BY THE A SSESSING OFFICER ON ACCOUNT OF UNDISCLOSED PROFITS ON UNRECORDED SAL ES IS, THEREFORE, UPHELD. IN THE RESULT, THE GROUNDS NO. 2, 3(A) & 3( B) OF APPEAL TAKEN BY THE ASSESSEE ARE ALSO DISMISSED. 22. AGAIN, THE ASSESSEE HAS REITERATED ITS STAND TA KEN BEFORE THE TAXING AUTHORITIES AND THE LD. DR HAS PLACED STRONG RELIANCE ON THE IMPUGNED ORDER. 23. THE LD. CIT(A) HAS DISBELIEVED THE STAND TAKEN BY THE ASSESSEE BY OBSERVING THAT THE CASE OF THE ASSESSEE IS AN AUDIT ABLE CASE AND THE AUDITORS COULD NOT IGNORE THE FIGURE OF UNRECORDED SALES WHILE MAKING AUDIT. THE ASSESSEE HAS CATEGORICALLY STATED THAT T HE ENTRY OF RS.15,00,000/- TOWARDS UNRECORDED SALES WAS PASSED IN THE ASSESSEES BOOKS, WHICH HAS BEEN DULY REFLECTED IN THE TRADING ACCOUNT AND THEREBY, THE GP ON THE UNRECORDED SALE HAS BEEN BROUGHT TO TAX. THE LD. CIT(A) HAS NOT PROVED THIS STATEMENT OF THE ASSESSEE TO B E FALSE. IN OTHER WORDS, THE ASSESSEES STAND REGARDING ENTRY HAVING BEEN M ADE IN THE TRADING ACCOUNT HAS NOT BEEN DISPUTED. ONCE THIS IS SO, THE GP ON THE UNRECORDED SALE STANDS TAXED. IT HAS NOT BEEN SHOWN AS TO HOW THE GP OF 12.50% IS WRONG. 24. NOW, IT IS TRITE THAT NO ADDITION CAN BE MADE I N THE TRADING RESULTS WITHOUT ANY MATERIAL ON RECORD AND WITHOUT POINTING OUT ANY DEFECT, ITA NO.341(ASR)/2015 ASSESSMENT YEAR: 2010-11 15 EITHER IN THE METHOD OF ACCOUNTING OF THE ASSESSEE, OR IN THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE. IT HAS BEEN SO HELD, INTER-ALIA, IN THE FOLLOWING CASES: 1. J.A. TRIVEDI BROTHERS VS. CIT, 158 ITR 705 (M P) 2. CIT VS. MODI ENTERPRISES, 2 DTR 47 (RAJ.) 3. CIT VS. REALEST BUILDERS & SERVICES LTD., 307 ITR 202 (SC) 4. ALUMINIUM INDUSTRIES (P) LTD. VS. CIT, 80 TAXM AN 184 (GAU). 5. MALANI RAMJIVAN JAGANNATH VS. ACIT, 207 CTR (R AJ.) 19 25. THUS, THE ASSESSEES GRIEVANCE BY WAY OF GROUND NOS. 1 & 2 IS JUSTIFIED AND IT IS ACCEPTED AS SUCH. ACCORDINGLY, GROUND NOS. 1 & 2 ARE ALLOWED AND THE ADDITION OF RS.2,52,300/- IS DELETE D. 26. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12/04/ 2016. SD/- (A.D. JAIN) JUDICIAL MEMBER /SKR/ DATED: 12/04/2016 COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE: M/S. MODERN DISTRIBUTORS, JALANDHAR 2. THE ITO, WARD 1(2), JALANDHAR. 3. THE CIT(A)-1, JALANDHAR. 4. THE CIT, JALANDHAR. 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR. ITA NO.341(ASR)/2015 ASSESSMENT YEAR: 2010-11 16