ACIT-3, Mathura V. M/s MercuryEngineers India, Mathura

ITA 344/AGR/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0407 (ITAT-AGRA)
• Duration Of Justice: 1 year(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 13-09-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 31-08-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: M M AGRAWAL
• Keywords: Unexplained cash credit
• Section: 271(1)(c)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AGRA BENCH : AGRA BEFORE SHRI R.K. GUPTA, J. M. AND SHRI P.K. BANSAL, A.M. PAN NO. AAAFI9191C I.T.A.NO . 344/AGR/09 A. Y. 2002-03 ACIT-3, M/S.MERCURY ENGINEERS INDIA, MATHURA VS. MATHURA APPELLANT RESPONDENT APPELLANT BY : SHRI VINOD KUMAR, SR. DR RESPONDENT BY : SHRI M.M.AGRAWAL, C. A. O R D E R PER R.K.GUPTA, J.M. THIS IS AN APPEAL BY THE DEPARTMENT AGAINST THE OR DER OF LD. CIT (A)-I, AGRA, RELATING TO ASSESSMENT YEAR 2002-03. 2. THE DEPARTMENT IS OBJECTING TO DELETING THE ADDITI ON OF RS. 13,71,120/- MADE BY THE ASSESSING OFFICER ON ACCOUN T OF UNEXPLAINED CREDITORS. THE DEPARTMENT IS ALSO OBJECTING IN DEL ETING THE ADDITION AND DIRECTING THE ASSESSING OFFICER, TO APPLY 8 % NET P ROFIT RATE ON THE TURNOVER SHOWN BY THE ASSESSEE. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE F ILED RETURN DECLARING INCOME OF RS. 10,97,770/-. DURING THE ASS ESSMENT PROCEEDINGS, - 2 - 2 THE ASSESSING OFFICER NOTICED THAT THERE ARE TRADE CREDITORS OF RS. 13,71,120/-. THE ASSESSEE WAS REQUIRED TO EXPLAIN T HE GENUINENESS OF TRADE CREDITORS. THEREAFTER, THE ASSESSEE FILED COM PLETE DETAILS OF TRADE CREDITORS ALONGWITH THEIR COMPLETE ADDRESSES. IN SO ME OF THE CASES, THE ADDRESSES COULD NOT BE FILED AS THE SAME WERE NOT A VAILABLE WITH THE ASSESSEE. HOWEVER, CONFIRMATION OF ALL THE CREDITOR S WERE FILED. IT WAS FURTHER SUBMITTED THAT PURCHASES HAD BEEN MADE FROM THESE CREDITORS AND HAVE USED FOR THE BUSINESS PURPOSE OF THE ASSESSEE. THE PAYMENT COULD NOT BE MADE DURING THE YEAR UNDER CONSIDERATION. T HEREFORE, THEY ARE OUTSTANDING. AFTER EXAMINING THE DETAILS AND THE PR OFIT RATIO OF THE ASSESSEE, THE ASSESSING OFFICER NOTICED THAT THE AS SESSEE HAD SHOWN 5.63 % NET PROFIT RATE DURING THE YEAR UNDER CONSIDERATI ON. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE HAS INFLA TED ITS PURCHASES. THEREFORE, THE ASSESSEE WAS REQUIRED TO PRODUCE ALL THE TRADE CREDITORS. AT THIS POINT OF TIME, THE ASSESSEE CAME FORWARD TO SU RRENDER THESE CREDITORS AS HE WAS NOT IN A POSITION TO PRODUCE THEM. ACCORD INGLY, IT WAS STATED THAT THE AMOUNT OF RS. 13,71,120/- MAY BE ADDED TO THE INCOME OF THE ASSESSEE SUBJECT TO NON LEVY OF ANY PENALTY, AS THE ASSESSEE WANTS TO, AVOID LITIGATION. IN VIEW OF THE ABOVE, THE ASSESSI NG OFFICER MADE ADDITION OF RS. 31,71,120/-. WHILE ADDING THIS AMOU NT, THE ASSESSING OFFICER, HAS ALSO INITIATED PENALTY PROCEEDINGS UND ER SECTION 271(1)(C) OF THE ACT. THE ASSESSEE PREFERRED APPEAL BEFORE THE L D. CIT(A), BEFORE - 3 - 3 WHOM IT WAS SUBMITTED THAT THE ASSESSEE MADE SURREN DER CONDITIONALLY AND NO PENALTY PROCEEDINGS SHOULD BE INITIATED. HOW EVER, THE ASSESSING OFFICER, INITIATED PENALTY PROCEEDINGS. THEREFORE, CONDITIONAL SURRENDER MAY BE TREATED AS WITHDRAWN. ON MERIT, IT WAS SUBMI TTED THAT COMPLETE DETAILS OF PURCHASES HAVE BEEN FILED. PART PAYMENTS HAVE ALREADY BEEN MADE TO THESE PARTIES. IT WAS FURTHER EXPLAINED THA T, IN FACT, THE ASSESSEE HAD FILED APPEAL BEFORE THE LD. CIT(A) AGAINST QUAN TUM ADDITION LATE BECAUSE OF THE REASON THAT THE ASSESSEE DID NOT PRE FER APPEAL AS THE ADDITION WAS MADE ON ACCOUNT OF SURRENDER. HOWEVER, WHEN ASSESSEE RECEIVED PENALTY ORDER DATED 26.8.205, THEN IMMEDIA TELY ASSESSEE FILED APPEAL AS CONDITIONAL SURRENDER WAS NOT ACCEPTED BY THE ASSESSING OFFICER, WHO INITIATED PENALTY PROCEEDINGS ALSO. TH E APPEAL OF THE ASSESSEE WAS DISMISSED BY THE LD. CIT(A). HOWEVER, THE TRIBUNAL DIRECTED THE LD. CIT(A) AFTER CONDONING THE DELAY TO DECIDE THE ISSUE ON MERITS. ACCORDINGLY, IT WAS SUBMITTED BEFORE THE PRESENT CI T(A) THAT THE SURRENDER MADE BY THE ASSESSEE SHOULD NOT BE TAKEN INTO CONSIDERATION AND THE ISSUE SHOULD BE DECIDED ON MERIT. DETAIL OF CREDITORS ALONGWITH PAYMENT MADE AND REMAINING WERE FILED BEFORE THE LD . CIT(A). THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS AND PERUSI NG THE MATERIAL ON RECORD WAS OF THE VIEW THAT THE ADDITION CANNOT BE SUSTAINED ON ACCOUNT OF SURRENDER OF TRADE CREDITORS. HOWEVER, BY NOTICING THAT THERE ARE SO MANY DEFECTS IN MAINTENANCE OF BOOKS OF ACCOUNT, THEREFO RE, THE PROVISIONS OF - 4 - 4 SECTION 145(3) ARE APPLICABLE ON THE FACTS OF THE P RESENT CASE. ACCORDINGLY, THE LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO COMPUTE THE INCOME BY APPLYING NET PROFIT RATE OF 8 % AGAIN ST NET PROFIT RATE OF 5.63 % SHOWN BY THE ASSESSEE. WHILE DIRECTING SO, T HE LD. CIT(A) HAS TAKEN INTO CONSIDERATION VARIOUS CASE LAWS RELIED U PON BY THE ASSESSEE AND OTHER MATERIAL. THEN HE CONCLUDED THAT THE ADDITION CANNOT BE MADE ON ACCOUNT OF OUTSTANDING TRADE CREDITORS, BUT AS STAT ED ABOVE THERE ARE VARIOUS DISCREPANCIES IN MAINTAINING THE ACCOUNTS. THEREFORE, HE DIRECTED TO APPLY THE NET PROFIT RATE. NOW THE DEPARTMENT I S IN APPEAL HERE BEFORE THE TRIBUNAL. 4. THE LD. SR. DR STRONGLY PLACED RELIANCE ON THE ORDE R OF THE AO. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE HAS PLACED RELIANCE ON THE ORDER OF THE LD. CIT(A). IT WAS FURTHER SUBMITT ED THAT THE LD. CIT(A) HAS DIRECTED TO APPLY NET PROFIT RATE, THEREFORE, N O ADDITION CAN BE MADE BY DISALLOWING EITHER TRADE CREDITORS OR ANY OTHER EXP ENSES CLAIMED IN THE PROFIT AND LOSS ACCOUNT. ACCORDINGLY, IT WAS SUBMIT TED THAT THE ORDER OF THE LD. CIT(A) IS LIABLE TO BE SUSTAINED. 5. RELIANCE WAS PLACED ON THE DECISION OF THE TRIBUNAL AND ON THE DECISION OF THE HON'BLE RAJSTHAN HIGH COURT IN THE CASE OF GOPAL SHARMA, 10 DTR 102. COPY OF THESE DECISIONS ARE PLACED ON R ECORD. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CONSIDERED THEM CAREFULLY. WE HAVE ALSO PERUSED THE MATERIAL ON REC ORD. AFTER CONSIDERING - 5 - 5 THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD , WE FOUND THAT THE LD. CIT(A) WAS REASONABLE IN DIRECTING TO APPLY NET PRO FIT RATE OF 8 % ON THE TOTAL TURNOVER SHOWN BY THE ASSESSEE. THERE ARE SO MANY DISCREPANCIES IN MAINTAINING BOOKS OF ACCOUNT AND, THEREFORE, REJECT ING THE BOOKS OF ACCOUNT UNDER SECTION 145(3) WERE RIGHT AND THEREAF TER DIRECTING THE ASSESSING OFFICER TO COMPUTE THE PROFIT BY APPLYING NET PROFIT RATE, IN OUR CONSIDERED VIEW, IS CORRECT. HON'BLE ALLAHBAD HIGH COURT IN THE CASE OF BANWARILAL BANSHIDHAR, 229 ITR 29, HAVE HELD THAT W HERE BOOKS OF ACCOUNT ARE REJECTED AND NET PROFIT RATE IS APPLIED , THEN NO OTHER DISALLOWANCES ARE POSSIBLE. THE LD. CIT(A) AFTER AP PLYING NET PROFIT RATE, THE ADDITION MADE ON ACCOUNT OF TRADE CREDITORS HAV E DELETED. THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE HON'BLE JUR ISDICTIONAL HIGH COURT THAT WHERE THE PROFIT IS DEDUCED AFTER APPLYING NET PROFIT RATE, NO OTHER DISALLOWANCE IS POSSIBLE. ACCORDINGLY, WE HOLD THAT THE LD. CIT(A) WAS CORRECT IN DELETING THE ADDITION MADE ON ACCOUNT OF TRADE CREDITORS. VARIOUS BENCHES OF THE TRIBUNAL ARE TAKING A CONSIS TENT VIEW THAT WHERE PURCHASES ARE NOT PROVED THEN PROFIT RATE HAS TO BE APPLIED. IN THIS CASE, IF WE TAKE THAT PURCHASES ARE NOT PROVED, THEN PROFIT RATE HAS TO BE APPLIED THAT TOO KEEPING IN MIND THE PAST HISTORY OF THE CA SE. IN EARLIER YEAR, PROFIT RATE SHOWN BY THE ASSESSEE WAS 5.63 % AND LD. CIT(A ) HAS DIRECTED TO, APPLY 8 % NET PROFIT RATE WHICH IS MOST REASONABLE RATE. THEREFORE, WE HOLD THAT THE LD. CIT(A) WAS JUSTIFIED IN DIRECTING TO APPLY NET PROFIT RATE INSTEAD OF ADDITION MADE ON ACCOUNT OF TRADE CREDIT ORS FROM WHICH THE ASSESSEE HAS PURCHASED THE MATERIAL FOR HIS BUSINES S NEED. THE LD. CIT(A) HAS ACCEPTED THE ARGUMENTS OF THE ASSESSEE THAT CON DITIONAL SURRENDER MADE BY THE ASSESSEE SHOULD BE TREATED AS WITHDRAWN FOR THE SIMPLE REASON THAT CONDITIONAL SURRENDER WAS MADE THAT NO PENALTY PROCEEDINGS SHOULD BE INITIATED. THE ASSESSING OFFICER HAS NOT ACCEPTED THE CONDITIONAL SURRENDER AS HE HAS MADE THE ADDITION O N ACCOUNT OF - 6 - 6 SURRENDER, BUT HAVE ALSO INITIATED PENALTY PROCEEDI NGS UNDER SECTION 271(1)(1)(C) OF THE ACT. IT MEANS THE CONTENTION OF THE ASSESSEE WAS ACCEPTED BY THE ASSESSING OFFICER, IN PART. WHERE C ONDITIONAL SURRENDER IS MADE, THEN SURRENDER SHOULD HAVE BEEN ACCEPTED IN COMPLETE. IN VIEW OF THESE FACTS, WE ARE OF THE CONSIDERED VIEW THAT THE LD. CIT(A) WAS JUSTIFIED IN HOLDING THAT CONDITIONAL SURRENDER WAS MADE BY THE ASSESSEE AND ADDITION MADE ON THAT ACCOUNT WAS NOT JUSTIFIED AS SURRENDER MADE BY THE ASSESSEE HAS NOT BEEN ACCEPTED COMPLETELY. IN V IEW OF THESE FACTS AND CIRCUMSTANCES AND IN VIEW OF THE REASONING GIVEN BY US IN FOREGOING PARAS, WE CONFIRM THE ORDER OF THE LD. CIT(A). 7. IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS DISM ISSED. . THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 17 TH SEPTEMBER, 2010. SD/- SD/- ( P.K. BANSAL ) ( R.K. GUPTA ) ACCOUNTANT MEMBER JUDICIAL MEMBER AGRA DATED : 17 TH SEPTEMBER,2010. CPU* 139 COPY FORWARDED TO :- THE APPELLANT THE RESPONDENT THE CIT THE CIT(A) CONCERNED. THE D.R, ITAT AGRA. GUARD FILE BY ORDER, AR, I.T.A.T., AGRA.