ITO, Faridabad V. Sh. Jagpal Singh, Faridabad

ITA 3956/DEL/2011

• Counselvise Citation: 395620114 RSA 2011
• Duration Of Justice: 2 year(s) 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 26-03-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 30-08-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S N BHATIA
• Assessee Lawyers: K C SINGHAL; SAMRAT JONEJA
• Keywords: Unexplained investment; Business income; Opportunity of being heard
• Section: 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D, NEW DELHI BEFORE SH. R. S. SYAL, AM AND SH. A. D. JAIN, JM ITA NO. 3956/DEL/2011 : ASSTT. YEAR : 2007-08 INCOME TAX OFFICER, WARD-II(4), FARIDABAD VS SHRI JAGPAL SINGH, 3C/60, B. P. NIT, FARIDABAD (APPELLANT) (RESPONDENT) PAN NO. ALJPS1252Q ASSESSEE BY : S/SHRI K. C. SINGHAL & SAMRAT JONEJA REVENUE BY : SHRI S. N. BHATIA DATE OF HEARING : 26.3.2014 DATE OF PRONOUNCEMENT : 27.3.2014 ORDER PER R. S. SYAL, AM: THIS APPEAL BY THE REVENUE ARISES OUT OF THE ORDER PASSED BY THE CIT(A) ON 13.5.2013 IN RELATION TO THE ASSESSMENT Y EAR 2007-08. 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT A SURVEY ACTION WAS TAKEN U/S 133A OF THE INCOME-TAX ACT, 1961 (ACT) AT THE BUSINESS PREMISES OF THE ASSESSEE ON 1.3.2007. IT WAS FOUND DURING THE COURSE OF SURVEY THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEES ONLY PROPRIETORSHIP CONCERN, NAMELY, M/S AUTO TECH WERE WRITTEN UP TO 31.12.2006. A PRINTOUT OF TRIAL BALANCE OF SUCH BOOKS FOR THE PE RIOD OF 1.4.2006 TO 31.12.2006 WAS TAKEN. STOCK WORTH RS. 1,77,23,328/- WAS FOUND ON PHYSICAL VERIFICATION ON 1.3.2007. AS AGAINST THAT, THE AMOUNT OF STOCK ON THE DATE OF SURVEY AS PER BOOKS OF ACCOUNT WAS D ETERMINED AT RS. 1,54,60,820/-. SIMILARLY, CASH AMOUNTING TO RS.5,45 0/- WAS FOUND AS ON ITA NO. 3956/DEL/2011 JAG PAL SINGH 2 1.3.2007, AGAINST THE CASH OF (-) RS. 23,83,807.73 AS PER CASH BOOK. CONSIDERING THESE DISCREPANCIES, THE ASSESSEE CAME OUT WITH A SURRENDER OF RS. 30 LAC AS ADDITIONAL INCOME, WHICH WAS ACC EPTED TO BE IN ADDITION TO HIS NORMAL INCOME FOR THE RELEVANT YEAR . A FURTHER SUM OF RS. 3,000/- ON ACCOUNT OF DIFFERENCE IN CASH, WAS ALSO SURRENDERED. THE ASSESSEE FURNISHED ITS ANNUAL ACCOUNTS DURING THE C OURSE OF ASSESSMENT PROCEEDINGS. ON THE PERUSAL OF THE TRADING ACCOUNT , IT WAS NOTICED BY THE A.O THAT THE ASSESSEE HAD SHOWN GROSS PROFIT (G .P.) OF RS. 55.10 LAC AS AGAINST SALES OF RS. 4.59 CRORE, GIVING G.P. RA TE OF 12% FOR THE CURRENT YEAR. THIS WAS IN CONTRAST TO G.P OF RS. 33 .05 LAC AND SALE OF RS. 2.75 CRORE, GIVING G.P. RATE OF 12.01% FOR THE IMMEDIATELY PRECEDING YEAR. THE AMOUNT OF GROSS PROFIT OF RS. 55.10 LAC FOR THE CURRENT YEAR WAS INCLUSIVE OF THE ADDITIONAL INCOME OF RS. 30 LAC SURRENDERED DURING THE COURSE OF SURVEY. THE A.O OB SERVED THAT IF THE FIGURE OF RS. 30 LAC WAS EXCLUDED FROM THE GROSS PR OFIT OF RS. 55.10 LAC, THE G.P RATE WOULD COME TO 5.46% ONLY. THE ASSESSEE ATTRIBUTED REDUCTION IN THE G.P. RATE FOR THE CURRENT YEAR TO THE INCREASE IN THE RAW MATERIAL COST RANGING FROM 10.37% TO 55.83%. THE A SSESSING OFFICER EXAMINED THE BOOKS OF ACCOUNT AND NOTICED THAT CASH BALANCE OF RS. 3,41,770/- WAS SHOWN AS ON 31.12.2006 AGAINST THE N EGATIVE CASH BALANCE OF (-) RS. 23,83,808 ON 31.12.2006 FOUND AT THE TIME OF SURVEY FROM THE TRIAL BALANCE TAKEN FROM THE BOOKS OF ACCO UNT. SIMILARLY, IT WAS OBSERVED THAT THE AMOUNT OF JOB CHARGES AS PER TRIAL BALANCE ON 31.12.2006 WERE AT RS. 2,84,659/- AS AGAINST THE AM OUNT OF JOB CHARGES AS PER THE BOOKS PRODUCED BEFORE HIM ON 31.12.2006 AT RS. 3,48,931/-. ITA NO. 3956/DEL/2011 JAG PAL SINGH 3 SIMILAR DISCREPANCIES WERE OBSERVED IN THE AMOUNT O F CARTAGE OUTWARD AND CARTAGE INWARD. THE AMOUNT OF CARTAGE INWARD A S PER TRIAL BALANCE AS ON 31.12.2006 PREPARED AT THE TIME OF SURVEY WAS RS. 2,250/- AS AGAINST THE FIGURE SHOWN IN THE BOOKS OF ACCOUNT PR ODUCED BEFORE THE ASSESSING OFFICER RELEVANT TO 31.12.2006 AT RS. 3,5 8,534/-. AFTER CONSIDERING THE ABOVE DISCREPANCIES AND ALSO VARIA TION IN THE AMOUNT OF TRAVELLING EXPENSES AND WORKERS WELFARE EXPENSES , BEING THE AMOUNT SHOWN AS PER TRIAL BALANCE AS ON 31.12.2006 PREPARE D AT THE TIME OF SURVEY VIS--VIS THAT ON 31.12.2006 AS PER BOOKS PRODUCED DURING THE COURSE OF ASSESSMENT PROCEEDING, THE ASSESSING OFFI CER REJECTED THE BOOKS OF ACCOUNT. AS THERE WAS DIFFERENCE IN THE ST OCK POSITION AS DISCUSSED ABOVE, THE AO ESTIMATED SALES OF THE ASSE SSEE AT RS. 4.70 CRORE AS AGAINST THE DECLARED SALE OF RS. 4,59,19,7 73/-. G.P. RATE OF 11% WAS APPLIED ON SUCH SALES FOR WORKING OUT THE GROSS PROFIT OF RS.51,70,000. THE SURRENDERED AMOUNT OF RS. 30 LA C WAS ADDED TO IT. A FURTHER ADDITION OF RS. 7,07,508/- WAS MADE ON A CCOUNT OF UNEXPLAINED INVESTMENT IN STOCK OVER AND ABOVE THE SURRENDERED INCOME OF RS. 30 LAC ON ACCOUNT OF STOCK OF BRAS R OD/BAR WEIGHING 5,000 KG WORTH RS. 14,45,000/- WHICH WAS IN ADDITIO N TO THE STOCK ON PHYSICAL VERIFICATION AS ON THE DATE OF SURVEY OF R S. 1.77 CRORE. THE AMOUNT OF ADDITION AT RS. 7,07,508/- WAS WORKED OUT BY REDUCING STOCK OF RS. 1.54 CRORE AS PER BOOKS OF ACCOUNT ON THE DA TE OF SURVEY FROM A SUM OF RS. 1,91,68,328/- [(RS.1,77,23,328/- FOUND O N PHYSICAL VERIFICATION OTHER THAN THE STOCK OF BRAS ROD/BAR P LUS AND STOCK OF BRAS ROD/BAR WORTH RS. 14.45 LAC) AS REDUCED BY THE AMO UNT OF RS.30.00 LAC ITA NO. 3956/DEL/2011 JAG PAL SINGH 4 FOR WHICH HE MADE A SEPARATE ADDITION]. APART FROM THAT, THE A.O ALSO ADDED EXCESS CASH SURRENDERED AMOUNTING TO RS. 3000 THEREBY COMPUTING GROSS INCOME AT RS. 88,80,508/-. FROM SUC H GROSS INCOME, HE REDUCED EXPENSES AMOUNTING TO RS. 26 LAC AS AGA INST THE CLAIM OF THE ASSESSEE FOR SUCH EXPENSES AT RS. 29,08,839/- DEBITED TO THE PROFIT AND LOSS ACCOUNT. THIS RESULTED INTO COMPUTATION OF BUSINESS INCOME AS RS. 62,80,508/-. 3. WHEN THE MATTER CAME UP BEFORE THE LD. CIT (A), HE DELETED THE ADDITION OF RS. 7,07,508/- BY HOLDING THAT STOCK OF FINISHED GOODS WAS REQUIRED TO BE VALUED AT COST AND NOT AT MARKET PRI CE AS WAS DONE BY THE SURVEY TEAM. HE ALSO BROUGHT THE FIGURE OF SALES DO WN TO THE DECLARED AMOUNT OF RS. 4.59 CRORE AS AGAINST THE AO ESTIMATI NG IT AT RS. 4.70 CRORE. APART FROM THAT, HE ALSO HELD THAT IF THE PERCENTAGE INCREASE IN THE PURCHASE PRICE OF RAW MATERIAL WAS ACCEPTED AND APPLIED, THE EFFECT OF SUCH INCREASE WOULD RESULT INTO FALL IN G.P TO T HE EXTENT OF RS. 58,68,837/-. HE NOTICED THAT THE A.O MADE EFFECTIV E ADDITION OF RS. 26.60 LAC (RS. 51.70 LAC AND RS. 25.10 LAC) AND IF THE ADDITIONAL INCOME OF RS. 30 LAC WAS REDUCED FROM THE GROSS PR OFIT OF RS. 55.10 LAC, THE NET G.P WOULD WORK OUT TO RS. 25.10 LAC. SINCE THE ASSESSEE IN HIS OPINION HAD SUFFICIENTLY EXPLAINED THE FALL IN THE G.P. TO THE EXTENT OF RS. 58.68 LAC ON ACCOUNT OF INCREASE IN PRICE OF RAW MATERIAL, HE HELD THAT THERE WAS NO CASE FOR MAKING ANY ADDITION ON A CCOUNT OF LOW G.P. THUS, THE ADDITION OF RS. 26.60 LAC WAS ALSO DELET ED. AS REGARDS THE EXPENSES DISALLOWED BY THE ASSESSING OFFICER TO THE TUNE OF RS. ITA NO. 3956/DEL/2011 JAG PAL SINGH 5 3,08,839/-, HE RESTRICTED SUCH DISALLOWANCE TO RS. 50,000/- THEREBY ALLOWING RELIEF OF RS. 2,58,839/-. THE REVENUE IS I N APPEAL AGAINST THE DELETIONS MADE BY THE LD. CIT(A). 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED RELEVANT MATERIAL ON RECORD. AT THE VERY OUTSET, WE WANT TO MAKE IT CLEAR THAT THE AO REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSE E, WHICH ACTION WAS UPHELD IN THE FIRST APPEAL. THE ASSESSEE HAS ACCEP TED SUCH REJECTION OF BOOKS INASMUCH AS THERE IS NO CHALLENGE BY THE ASSE SSEE TO THIS FINDING OF THE LD. FIRST APPELLATE AUTHORITY. 5. FIRST GROUND OF THE REVENUES APPEAL IS AGAIN ST DELETION OF ADDITION OF RS. 7,07,508/-. WE HAVE NOTICED ABOVE THAT THIS ADDITION WAS MADE BY INCLUDING STOCK OF BRAS ROD/BAR WORTH RS. 14.45 LAC TO THE STOCK PHYSICALLY VERIFIED AT RS. 1.77 CRORE AS REDUCED BY THE AMOUNT OF STOCK AS PER BOOKS OF ACCOUNT AT RS. 1.54 CRORE AND ADDIT ION ON ACCOUNT OF SURRENDERED STOCK AT RS. 30 LAC. THE LD. CIT(A) HAS RECORDED IN PARA 6.2 OF HIS ORDER THAT THE STOCK OF RAW MATERIAL WAS COR RECTLY VALUED BY THE SURVEY TEAM BY EXCLUDING THE ELEMENT OF EXCISE DUTY . AS REGARDS THE VALUATION OF FINISHED GOODS DONE BY THE SURVEY TEA M, THE LD. CIT(A) OBSERVED THAT SUCH VALUATION WAS DONE AT SALE PRICE . OUT OF THE TOTAL STOCK OF RS. 1.77 CRORE FOUND ON PHYSICAL VERIFICAT ION, IN ADDITION TO THE STOCK OF BRAS ROD/BAR, THE STOCK OF FINISHED GOODS AMOUNTING TO RS. 1.40 CRORE WAS VALUED BY THE SURVEY TEAM AT SALE PRICE. THE LD. CIT(A) HELD THAT SUCH STOCK WAS REQUIRED TO BE VALUED AT COST A ND NOT AT MARKET ITA NO. 3956/DEL/2011 JAG PAL SINGH 6 PRICE. BY APPLYING THE G.P. RATE OF 5.67% ON SUC H OF STOCK OF FINISHED GOODS, HE COMPUTED THE PROFIT ELEMENT IN IT TO THE TUNE OF RS. 7,67,174/. THAT IS HOW THE FURTHER ADDITION OF RS. 7,07,508/- MADE BY THE AO WAS KNOCKED DOWN. WE AGREE IN PRINCIPLE WITH THE VIEW C ANVASSED BY THE LD. CIT(A) THAT THE STOCK OF FINISHED GOODS AT THE TIME OF SURVEY WAS REQUIRED TO BE VALUED AT COST, AS IT IS ONLY THIS V ALUE WHICH WOULD SHOW THE UNEXPLAINED INVESTMENT MADE BY THE ASSESSEE. T HE CALCULATION DONE BY THE LD. CIT(A) IN BRINGING THE MARKET VALUE OF FINISHED GOODS DOWN TO ITS COST PRICE, HAS NOT BEEN CONTROVERTED BY THE LD. DR. THUS, IF WE VALUE THE STOCK OF FINISHED GOODS AT COST IN STEAD OF MARKET PRICE TAKEN BY THE SURVEY TEAM, THE DELETION OF ADDITION OF RS. 7,07,508/- IS PERFECTLY IN ORDER. THIS GROUND IS NOT ALLOWED. 6. THE GROUND NO. 3 IS AGAINST THE REJECTION OF EST IMATION OF SALES AT RS. 4.70 CRORE ON WHICH THE G.P. RATE WAS APPLIED F OR COMPUTING GROSS PROFIT OF THE ASSESSEE. THE ASSESSING OFFICER ESTIM ATED FIGURE OF HIGHER SALE AT RS. 4.70 CRORE AS AGAINST THE DECLARED SAL E OF RS. 4.59 CRORE FOR THE REASON THAT THERE WAS EXCESS STOCK FOUND DURING THE COURSE OF SURVEY. IT IS SELF EVIDENT THAT EXCESS STOCK FORTIF IES THE INFERENCE OF THE ASSESSEE MAKING UNACCOUNTED PURCHASES. IF THERE AR E CERTAIN UNACCOUNTED SALES, THE AMOUNT OF STOCK ON PHYSICAL VERIFICATION SHOULD BE LESS TO THAT EXTENT. AS IT IS A CASE OF EXCESS S TOCK FOUND ON PHYSICAL VERIFICATION, THERE CAN BE NO INFERENCE THAT THE AS SESSEE WAS MAKING SALES BUT NOT RECORDING THEM IN BOOKS OF ACCOUNT. M OREOVER, THERE IS NO BASIS ON WHICH THE SALE HAS BEEN ESTIMATED AT RS.4. 70 CRORE. WE, ITA NO. 3956/DEL/2011 JAG PAL SINGH 7 THEREFORE, UPHOLD THE ACTION OF THE LD. CIT(A) IN R ESTRICTING THE AMOUNT OF SALES AT THE DECLARED LEVEL OF RS. 4.59 CRORE. THIS GROUND IS ALSO NOT ALLOWED. 7. NOW COMES THE SECOND GROUND BY WHICH THE REVENUE IS AGGRIEVED AGAINST THE DELETION OF ADDITION OF RS. 2 6,60,000/-. IT IS SEEN THAT THE LD. CIT(A) TOOK INTO CONSIDERATION THE FAC TUM OF INCREASE IN THE PRICE OF RAW MATERIAL AND THUS, CONCLUDED THAT IF T HAT WAS GIVEN EFFECT TO THEN THERE WOULD BE REDUCTION IN G.P. TO THE EXTENT OF RS. 58.68 LAC. BY LIMITING THE ADDITION OF RS. 30 LAC SURRENDERED ON ACCOUNT OF EXCESS STOCK FOUND DURING THE SURVEY, HE HELD THAT NET ADD ITION OF RS. 26.60 LAC MADE ON ACCOUNT OF LOW G.P. WAS UNCALLED FOR A ND HENCE DELETED. WE ARE NOT AGREEABLE WITH THE LD. CIT(A) FOR THIS W HOLESOME BENEVOLENT APPROACH. THE EFFECT OF THE FINDING GIV EN BY THE LD. FIRST APPELLATE AUTHORITY IS THAT THERE CAN BE NO ADDITIO N TO THE EXTENT OF RS.58.68 LAC. WHATEVER IS ADDED UP TO THIS LEVEL DE SERVES TO BE DELETED. AS IN THE PRESENT CASE THE FIGURE OF ADDITION CAME AT RS.26.60 LAC, HE DELETED IT IN ENTIRETY. THE LD. DR STATED THAT THIS DECISION TAKEN BY THE LD. CIT(A) HAS THE EFFECT OF REDUCING THE G.P. OF T HE ASSESSEE TO NIL. THE ENTIRE PREMISE OF THE ACTION OF THE LD. CIT(A) IN WORKING OUT THE FIGURE OF RS. 58.68 LAC IS THE INCREMENTAL INCREAS E IN THE PRICE OF RAW MATERIAL. WE ARE UNABLE TO APPRECIATE AS TO HOW THE CORRESPONDING INCREASE IN THE SALE PRICE CAN BE IGNORED OR THE ME AGER FIGURE OF SUCH INCREASE IN SALE PRICE CAN BE ACCEPTED WITHOUT PROP ER VERIFICATION. IN THIS CONNECTION IT IS RELEVANT TO MENTION THAT THE ASSESSEE HIMSELF ITA NO. 3956/DEL/2011 JAG PAL SINGH 8 SUBMITTED THAT THE EFFECTIVE INCREASE IN G.P. THAT DUE TO INCREASE IN SALE RATE OF FEW ITEMS WAS ONLY RS. 4,45,000/-. IN THE NAME OF SUBSTANTIATION OF THE INCREASE IN SALE PRICE, THE LD. AR HAS FILED A CHART, A COPY OF WHICH IS PLACED ON PAGES 68 TO 70 OF THE PAPER BOOK, COMPARING THE SALE RATE OF SOME ITEMS FOR THE FINAN CIAL YEARS 2005-06 WITH THAT FOR THE FINANCIAL YEAR 2006-07 RELEVANT T O THE ASSESSMENT YEAR UNDER CONSIDERATION. THERE IS NO REFERENCE WORTH TH E NAME TO THE DATES ON WHICH SUCH SALE RATE HAVE BEEN TAKEN DESPITE THE FACT THAT SUCH ITEMS ARE SUBJECT TO REGULAR SALE THROUGH OUT THE PERIOD. IN THE ABSENCE OF THE MENTION OF ANY INVOICE NOS. ON SUCH LIST, IT IS FUR THER NOT COMING OUT IF SUCH CHART COVERS THE ENTIRE SALES MADE DURING THE YEAR. THE LD. CIT(A) APPEARS TO HAVE BEEN MORE THAN CHARITABLE. IN OUR C ONSIDERED OPINION THIS APPROACH ADOPTED BY HIM DOES NOT MERIT ACCEPTA NCE. HOWEVER, THE FACT REMAINS THAT THE ASSESSING OFFICER MADE THE AD DITION BY APPLYING G.P RATE OF 11% ON ESTIMATE BASIS AS AGAINST THE LA ST YEARS G.P. RATE OF 12%, WITHOUT SPECIFICALLY CONSIDERING THE EFFECT O F INCREASE IN THE COST OF RAW MATERIAL VIS--VIS THE RESULTANT INCREASE IN THE SALE PRICE OF THE PRODUCTS MANUFACTURED BY THE ASSESSEE TO JUSTIFY RE DUCTION IN THE G.P RATE. IN OUR CONSIDERED OPINION, THE ENDS OF JUSTIC E WOULD MEET ADEQUATELY IF THE IMPUGNED ORDER ON THIS ISSUE IS S ET ASIDE AND THE MATTER IS RESTORED TO THE FILE OF THE AO FOR TAKING A FRESH DECISION ON THIS POINT IN CONFORMITY WITH OUR ABOVE DISCUSSION AS PER LAW AFTER ALLOWING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE ORDER ACCORDINGLY. IT IS MADE CLEAR THAT SUCH DETER MINATION OF FRESH GROSS PROFIT BY APPLYING THE CORRECT G.P. RATE ON T HE DECLARED SALES OF ITA NO. 3956/DEL/2011 JAG PAL SINGH 9 RS.4.59 CRORE WILL BE IN ADDITION TO THE INCOME OF RS.30.00 LAC SURRENDERED ON ACCOUNT OF STOCK. 8. GROUND NO. 4 OF THE APPEAL IS AGAINST THE ALLOWI NG OF RELIEF OF RS. 2,58,839/- TOWARDS EXPENSES DISALLOWED BY THE A.O. IT IS SEEN THAT THE ASSESSING OFFICER ALLOWED DEDUCTION OF RS. 26 LAC TOWARDS VARIOUS EXPENSES AS AGAINST THE CLAIM OF ASSESSEE AT RS. 2 9,08,839/-. THE DISALLOWANCE WAS MADE ON AD HOC BASIS WITHOUT ANY SPECIFIC REFERENCE TO THE AMOUNT DISALLOWABLE. IN OUR CONSIDERED OPINI ON, NO EXCEPTION CAN BE TAKEN TO THE VIEW CANVASSED BY THE LD. CIT( A) IN RESTRICTING THE DISALLOWANCE TO RS. 50,000/- TOWARDS SOME UNSUPPORT ED EXPENSES. THIS GROUND IS NOT ALLOWED. 9. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 27/03/2014. SD/- SD/- (A. D. JAIN) (R. S. SYAL) JUDICIAL MEMBER ACCOUNTANT ME MBER DATED: 27/03/2014 *SUBODH* COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(APPEALS) 5.DR: ITAT ASSISTANT REGISTRAR