ACIT, New Delhi V. Shri Kamal Gupta, New Delhi

ITA 380/DEL/2012

• Counselvise Citation: 38020114 RSA 2012
• Duration Of Justice: 3 year(s) 1 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 16-03-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 24-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B R R KUMAR
• Keywords: Business income
• Section: 40A(3); 143(3); 142(1)

Judgement Text

ITA NO. 380/ DEL/ 2012 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D , NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO. 380 /DEL/201 2 A.Y. : 200 8 - 0 9 ACIT, CIRCLE 39(1), NEW DELHI VS. SHRI KAMAL GUPTA, 5652, BASTI HARPHOOL SINGH, SADAR THANA ROAD, SADAR BAZAR, DELHI 6 (PAN: AATPG5786A) (APPELLANT) (RESPONDENT) DEPARTMENT BY : SH. B.R.R. KUMAR, SR. DR ASSESSEE BY : NONE DATE OF HEARING : 1 6 - 0 3 - 201 5 DATE OF ORDER : 1 8 - 0 3 - 201 5 ORDER PER H.S. SIDHU, JM REVENUE HAS FILED THIS APPEAL AGAINST THE O RDER DATED 1. 1 1.201 1 PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) - XXVIII ) , NEW DELHI P ERTAINING TO ASSESSMENT YEAR 200 8 - 0 9 . 2. THE GROUNDS RAISED BY THE DEPARTMENT READ AS UNDER: - 1. THE LD. CIT(A) HAS ERRED IN REDUCING THE NET PROFIT RATE FROM 5% TO 1% WITHOUT ANY BASIS OR EVIDENCE AND WITHOUT DISCUSSING THE REASONS GIVEN BY THE AO. 2. THE LD. CIT(A) HAS ERRED IN DELETING TH E ADDITION OF RS. 81,00,000/ - MADE BY THE AO ON ACCOUNT OF ITA NO. 380/ DEL/ 2012 2 UNDISCLOSED STOCK ON THE GROUND THAT IT AMOUNTS TO DOUBLE ADDITION WHEREAS THE ABOVE ADDITION WAS MADE AS INCOME FROM OTHER SOURCES AND NOT AS BUSINESS INCOME. FURTHER THE CIT(A) ALSO ERRED IN NOT ADJUDICATING ON THE DISALLOWANCES ON ACCOUNT SECTION 40A(3) OF THE INCOME TAX ACT, 1961 WHILE DELETING THE ADDITION OF RS. 81,00,000/ - . 3. THAT THE GROUND OF APPEAL ARE WITHOUT PREJUDICE TO EACH OTHER. 4. THE APPELLANT CRAVES TO ADD, AMEND OR MODIFY THE GROUNDS OF APPEAL AT ANY TIME. 3 . THE BRIEF FACTS OF THE CASE ARE THAT IN THIS CASE RETURN OF INCOME WAS FILED BY THE ASSESSEE FOR THE ASSTT. YEAR 2008 - 09 ON 30.9.2009 DECLARING A TOTAL INCOME OF RS. 7,26,878/ - . THIS CASE WAS PICKED UP FOR SCRUTI NY . ACCORDINGLY, A NOTICE U/S. 143(2) OF THE I.T. ACT, 1961 WAS ISSUED ON 25.9.2009. DETAILED QUESTIONNAIRE ALONG WITH NOTICE U/S. 142(1) WAS ISSUED ON 10.5.2010. IN RESPONSE THERETO, ASSESSEE S COUNSEL ATTENDED THE HEARING BEFORE THE AO FROM TIME TO TI ME AND FILED NECESSARY DETAILS / DOCUMENTS, AS REQUIRED. IN THIS CASE THE ASSESSEE IS AN INDIVIDUAL AND DEALING IN MANUFACTURING AND TRADING OF HOSIERY ITEMS, READYMADE GARMENTS AND FABRIC ETC. UNDER THE NAME M/S HAPPY HOURS OVERSEAS. TOTAL GROSS RECEIP TS FOR THE YEAR UNDER CONSIDERATION ARE RS. 8,39,91,597/ - WITH A NET PROFIT RATE OF 0.67% IN A.Y., 2008 - 09 IN COMPARISON TO 1.16% IN THE A.Y. 2007 - 08. 3.1 THE AO REJECTED THE BOOKS OF ACCOUNT AND OBSERVED THAT THE INCOME OF THE ASSESSEE HAS TO BE DERIVED . IN COMPARABLE TRADE, OTHER ASSESSEE ARE SHOWING NET PROFIT IN THE RANGE OF 5% TO 8%. THEREFORE, NET PROFIT RATE AT THE LOWER MARGIN OF 5% IS BEING ADOPTED ITA NO. 380/ DEL/ 2012 3 FOR CALCULATING PROFITS FROM THE BUSINESS. TOTAL GROSS RECEIPTS DURING THE YEAR UNDER CONSIDER ATION ARE RS. 8,39,91,597/ - . 5% OF TOTAL GROSS RECEIPTS IS RS. 41,99,579/ - . THEREFORE, TOTAL PROFITS FROM THE BUSINESS IS BEING ESTIMATED AT RS. 41,99,579. ASSESSEE HAS SHOWN NET PROFIT OF RS. 4,12,907/ - . SO DIFFERENCE AMOUNT (RS. 41,99,579 RS. 4,12, 907) OF RS. 37,86,672/ - WAS ADDED TO THE TOTAL INCOME AND PENALTY PROCEEDINGS ON THIS ACCOUNT HAS BEEN INITIATED SEPARATELY FOR CONCEALING PARTICULARS OF INCOME. 3.2 THE ASSESSEE HAS UNDISCLOSED STOCK TO THE TUNE OF RS. 81.01 LACS. ASSESSEE HAS FAILED TO EXPLAIN THE DISCREPANCY IN THE STOCK. AO OBSERVED THAT IT IS VERY CLEAR FROM THE RECORDS THAT THIS IS THE UNDISCLOSED STOCK WHICH IS OUT OF THE BOOKS. HE ALSO OBS ERVED THAT THE ASSESSEE COULD NOT EXPLAIN THE DISCREPANCY IN THE STOCK. THEREFORE, THIS AMOUNT OF UNDISCLOSED STOCK IS OF RS. 81,01,000/ - IS ASSESSEE S UNDISCLOSED INCOME AND THEREFORE ADDED TO THE TOTAL INCOME OF THE ASSESSEE. IN VIEW OF ABOVE, AO COMPLETED THE ASSESSMENT U/S. 143(3) R.W.S. 145(3) OF THE I.T. ACT, VIDE ASSESSMENT ORDER DATED 29.12.2010 AND MADE THE AFOREMENTIONED ADDITIONS. 4. AGAINST THE AFOREMENTIONED ASSESSMENT ORDER DATED 29.12.2010 , ASSESSEE APPEALED BEFORE THE LD. FIRST APPELLATE AUTHORITY, WHO VIDE IMPUGNED ORDER 1 . 1 1 .201 1 HAS PARTLY ALLOWED THE APPEAL OF THE ASSESEE . 5 . AGGRIEVED BY THE AFORESAID IMPUGNED ORDER DATED 1 . 1 1 .201 1 , REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 6 . AT THE TIME OF HEARING LD. DEPARTMENTAL REPRESENTATIVE HAS RELIED UPON THE ORDER OF THE ASSESSING OFFICER AND REITERATED ON THE CONTENTIONS RAISED IN THE GROUNDS OF APPEAL FILED BY THE REVENUE. ITA NO. 380/ DEL/ 2012 4 7 . AT THE THRESHOLD, WE NOTE THAT THIS CASE CAME UP FOR HEARING BEFORE THE BENCH ON VARIOUS DATES AND HAS BEEN ADJOURN ING SINCE 27.3.2012 ON ONE PRETEXT OR THE OTHER. FOR TODAY AGAIN T HIS CASE WAS FIXED FOR 16.3.2015 AND NOTICE WAS SENT AT THE AVAILABLE A DDRESS, BUT AGAIN NONE APPEARED ON BEHALF OF THE ASSESSEE NOR ANY REQUEST FOR ADJOURNMENT IS FILED. IN VIEW OF THE ABOVE, WE ARE OF THE CONSIDERED OPINION THAT NO USEFUL PURPOSE WOULD BE SERVED TO ADJOURN THE CASE AGAIN AND AGAIN. THEREFORE, WE ARE DEC IDING THE APPEAL, EXPARTE QUA ASSESSEE. 8 . WE HAVE HEARD THE LD. DR AND PERUSED THE RELEVANT RECORDS , ESPECIALLY THE IMPUGNED ORDER DATED 1 . 1 1 .201 1 , WE FIND THAT ASSESSING OFFICER HAS REJECTING BOOKS OF ACCOUNT BY INVOKING SECTION 145(3) AND APPLYING NET PROFIT RATE OF 5% TO THE TUNE OF RS.3786672/ - . THE MAIN CONTENTION OF THE ASSESSING OFFICER IS THAT STOCK HAS BEEN GROSSLY UNDERVALUED AND DOES NOT REPRESENT THE TRUE, CORRECT AND FAIR PICTURE OF BUSINESS AFFAIR. THE FINDINGS ARE BASED ON THE STATEMENT O F STOCK FILED WITH THE BANK. WE FIND THAT B ESIDES THIS AO HAS NOT BEEN ABLE TO BRING OUT ANY EVIDENCE OR FIND FAULT WITH THE STOCK BOOK MAINTAINED BY THE ASSESSEE . THE ASSESSEE HAS RELIED ON VARIOUS CASES , WHEREIN IT HAS BEEN STATED THAT MERE INFLATION OF STOCK STATEMENT FILED WITH THE BANK FOR HYPOTHECATION PURPOSES, CANNOT BE A REASON TO REJECT THE BOOKS OF ACCOUNT AND INVOKE SECTION 145(3). WE FIND THAT THE AO O N A CLOSE PERUSAL OF GP AND NP IN THE ASSTT. YEAR CONCERNED I.E. 2008 - 09 AND PRECEDING TWO YEARS IT IS SEEN THAT THE TURNOVER HAS INCREASED FROM 48307984 TO 83991597. ITA NO. 380/ DEL/ 2012 5 HOWEVER, THE GROSS PROFIT RATIO HAS DECREASED FROM 9.03% TO 8.07%. THE NET PROFIT RATIO HAS ALSO DECREASED FROM 1.16% TO 0.94%. T HE ASSESSEE HAS STATED THAT THERE IS NOT MUCH CHAN GE IN G.P. RATE CO M PARE D TO PREVIOUS YEAR. THE MAIN REASON FOR LOW NP RATE IS DUE TO INCREASE IN EXPENSES RELATED TO BANK INTEREST AND EXCHANGE FLUCTUATION. WE FIND THAT T HE ASSESSING OFFICER AFTER REJECTING THE BOOKS OF ACCOUNT OF THE APPELLANT HA D ESTIMA TED NET PROFIT RATIO AT 5% WHICH SEEMS TO BE NOT BASED ON THE PREVIOUS HISTORY OF THE APPELLANT. LAST YEAR FOR ASSTT. YEAR 2007 - 08 THE N.P. RATE WAS SHOWN AT 1.16% AND IN THE YEAR BEFORE THAT IT WAS ONLY 0.90%. KEEPING IN VIEW OF THE ABOVE, WE FIND CONSID ERABLE COGENCY IN THE CIT(A) S FINDING THAT THE AO HAS MADE AN ADDITION OF RS. 37,86,672/ - BY RAISING THE N.P. RATE TO 5%. 1 % NP RATE WOULD BE RS. 839915/ - . WE ARE ALSO OF THE VIEW THAT THE LD. CIT(A) HAS RIGHTLY HELD THAT A S THE A SSESSEE HAS ALREADY SH OWN NP RATE @0.49%, LD. CIT(A) ENHANCE D THAT TO 1% BY ADDING 0.51 % IN THE N.P. RATIO AND ACCORDINGLY, IN THE NET RESULT , THE NET PROFIT IS INCREASED BY AN AMOUNT OF RS.428357/ - TO ROUND OFF LD. CIT(A) SUSTAIN ED THE ADDITION OF RS.4,30,000/ - AND RIGHTL Y ALLOW ED THE RELIEF TO THE TUNE OF RS.37,86,672 RS. 4,30,000/ - = RS. 33,56,672/ - AND PARTLY ALLOWED THIS GROUND . IN VIEW OF THE ABOVE, W E DO NOT SEE ANY REASON TO INTERFERE WITH THE WELL REASONED ORDER OF THE LD. CIT(A), ACCORDINGLY, ITA NO. 380/ DEL/ 2012 6 WE UPHOLD THE SAME AND DECIDE THE ISSUE IN DISPUTE AGAINST THE REVENUE BY REJECTING THIS GROUND OF APPEAL. 9. WITH REGARD TO ADDITION OF RS. 81,01,000/ - ON ACCOUNT OF UNDISCLOSED STOCK IS CONCERNED, WE FIND THAT THE A SSESSEE HAS STATED THAT THE A.O. HAS REJECTED THE BOOKS OF ACCOUNT BY I NFLATING THE N .P. RATE AND HAS ESTIMATED THE INCOME AND IN ADDITION TO THAT , AO HAS MADE ADDITIONS IN THE STOCK ADDITIONS HAVE BEEN MADE TWICE ON THE SAME COUNT, WHICH IS AGAINST THE INCOME TAX PROVISIONS AND IS WRON G. WHERE THE INCOME IS ESTIMATED AFTER REJECTING BOOKS OF ACCOUNT, IT IS NOT PERMISSIBLE TO THE ASSESSING OFFICER TO RELY ON THE REJECTED BOOKS OF ACCOUNTS FOR MAKING AN ADDITION OF AN EXACT ITEM (OF EXPENDITURE) DEPICTED IN THE PROFIT AND LOSS ACCOUNT. W E FIND THAT THE A SSESSEE HAS RELIED ON THE JUDGEMENT OF INDWELL CONSTRUCTIONS V. CIT, (1998)232 ITR 776, 778 - 79(AP). WE FIND THAT THE ASSESSING OFFICER HAS REJECTED THE BOOKS OF ACCOUNT BY APPLYING SECTION 145(3) AND ESTIMATING THE NET PROFIT ON ONE HAND AND AGAIN MADE ADDITION TO THE STOCK TREATING IT AS UNDERVALUED DUE TO THE FACT THAT THE FIGURE SHOWN IN THE STOCK BOOK DID NOT TALLY WITH THE STOCK STATEMENT FILED WITH THE BANK FOR HYPOTHECATION. WE FIND FORCE IN THE FINDING OF THE LD. CIT(A) THAT T HE ADDITIONS TO THE STOCK TO THE TUNE OF RS. 81,01,000/ - IF SUSTAINED, WOULD LEAD TO DOUBLE ADDITION AND TANTAMOUNT TO TAXING THE SAME INCOME TWICE. THEREFORE, I N VIEW OF THESE FACTS ADDITION MADE TO THE TUNE OF RS. 81,01,000/ - WAS ITA NO. 380/ DEL/ 2012 7 RIGHTLY DELETED BY THE LD. CIT(A), WHICH DOES NOT NEED ANY INTERFERENCE ON OUR PART, HENCE, WE UPHOLD THE WELL REASONED ORDER PASSED BY THE LD. CIT(A) ON THE ISSUE IN DISPUTE AND DECIDE THE ISSUE AGAINST THE REVENUE BY REJECTING THE GROUNDS OF APPEAL. 10. IN THE RESULT, THE APPEA L FILED BY THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE O PEN C OURT ON 1 8 / 0 3 /20 1 5 . S D / - S D / - [ T.S. KAPOOR ] [ H.S. SIDHU ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE 1 8 / 3 /201 5 SRBHATNAGAR COPY FORWARDED TO: - 1. APPELLANT - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES