Deepak Mittal, Delhi V. ACIT, Circle-60(1), New Delhi

ITA 4709/DEL/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3049 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 21-07-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHEFALI SWROOP
• Keywords: Unexplained cash credit; Peak credit
• Section: 40A(3); 131; 68; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES E : DELHI BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA.NO.4709/DEL./2017 ASSESSMENT YEAR 2013-2014 SHRI DEEPAK MITTAL, DELHI. C/O. M/S. RRA TAX INDIA, D-28, SOUTH EXTENSION, PART-1, NEW DELHI-110049. PAN AISPM6139J VS THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE 60 (1), NEW DELHI. (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI R.S. SINGHVI, C.A. AND SHRI SATYAJEET GOEL, C.A. FOR REVENUE : MS. SHEFALI SWROOP, CIT-D.R. DATE OF HEARING : 13.03.2018 DATE OF PRONOUNCEMENT : 23.03.2018 ORDER PER BHAVNESH SAINI, J.M. THIS APPEAL BY ASSESSEE HAS BEEN DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-19, NEW DELHI, DATED 26 TH JUNE, 2017, FOR THE A.Y. 2013-2014. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE FIL ED RETURN OF INCOME DECLARING INCOME AT RS.22,52,471/-. THE A SSESSEE IS 2 ITA.NO.4709/DEL./2017 SHRI DEEPAK MITTAL, DELHI. AN INDIVIDUAL AND ENGAGED IN THE BUSINESS OF TRADIN G/ DISTRIBUTION OF ITC PRODUCTS UNDER THE NAME AND STY LE OF M/S. DK ENTERPRISES. ON VERIFICATION OF THE P & L A/C, A UDITED REPORT AND BOOKS OF ACCOUNT OF THE ASSESSEE, IT WAS NOTICE D THAT ASSESSEE HAD MADE HUGE PAYMENTS TO M/S. HANUMAN TRA DERS IN CASH. THE ASSESSEE WAS REQUESTED TO PRODUCE LEDG ER ACCOUNT OF THE PARTY. THE A.O. NOTED THAT ASSESSEE HAS MADE CASH PAYMENTS TO THIS PARTY AND REQUIRED TO ASSESSEE TO EXPLAIN WHY THE SAME SHOULD NOT BE DISALLOWED UNDER SECTION 40A (3) OF THE I.T. ACT, 1961. THE ASSESSEE, IN HIS REPLY, SUBMITT ED THAT COPY OF THE AUDITED ACCOUNTS ARE FILED TO SHOW SUNDRY CR EDITORS IN A SUM OF RS.1.79 CRORE IN THE BALANCE SHEET IN RESPEC T OF ONE M/S. HANUMAN TRADERS WHO WILL IS THE DEALER OF THE ASSES SEE AND HAVING THE TRANSACTION WITH THE PARTY AS A NORMAL A CCOUNTING PRACTICE AND DEALS IN ITC PRODUCTS AND WHEAT FLOOR (AATTA) AND SAME WAS SOLD/PURCHASED IN CASH TO WHOLESALE DEALER S TO APPROACH THE ASSESSEE AND HAVING THE CREDIT AMOUNT OF RS.1.58 CRORES AS ON 31 ST MARCH, 2013 AND ONE M/S. GARG CLOTHS HOUSE SHOWN A SUM OF RS.14 LAKHS AND REMAINING BALANCE AS CREDITORS 3 ITA.NO.4709/DEL./2017 SHRI DEEPAK MITTAL, DELHI. OF M/S. ITC LIMITED. THE ASSESSEE DID NOT PRODUCE T HE COPY OF THE LEDGER ACCOUNT. THEREFORE, ASSESSEE WAS ASKED T O PRODUCE THE PARTY M/S. HANUMAN TRADERS AND ALSO PRODUCE PUR CHASE REGISTER, SALE REGISTER AND COPY OF THE LEDGER OF I TC LIMITED. THE ASSESSEE EXPLAINED THAT ASSESSEE IS NOT IN CONTACT WITH M/S. HANUMAN TRADERS AND THAT THEY HAVE LEFT THE BUSINES S. THE INSPECTOR WAS DEPUTED TO MAKE ENQUIRIES AT THE ADDR ESS OF M/S. HANUMAN TRADERS. THE ENQUIRY REPORT OF THE INSPECTO R STATED THAT FIRM WAS NOT EXISTING/AVAILABLE AT THE GIVEN ADDRE SS. THE ASSESSEE WAS CONFRONTED WITH THESE FACTS. SUMMONS W ERE ISSUED UNDER SECTION 131 TO THE ASSESSEE TO APPEAR PERSONALLY. THE ASSESSEE APPEARED AND PRODUCED PURCHASE AND SAL E LEDGER. IT WAS NOTICED THAT NAME OF M/S. HANUMAN TRADERS DI D NOT EXIST IN PURCHASE AND SALE LEDGER. THE STATEMENT OF ASSES SEE WERE RECORDED UNDER SECTION 131 ON 28 TH MARCH, 2016. THE RELEVANT PORTION OF THE STATEMENT ARE REPRODUCED IN THE ASSE SSMENT ORDER IN WHICH ASSESSEE WAS CONFRONTED THAT PAYMENT S IN CASH HAVE BEEN MADE TO M/S. HANUMAN TRADERS OF RS.6,92,2 5,000/- THE ASSESSEE EXPLAINED THAT IT IS NOT RECORDED IN T HE BOOKS OF 4 ITA.NO.4709/DEL./2017 SHRI DEEPAK MITTAL, DELHI. ACCOUNT AS PURCHASE AND STATED THAT IT IS UNDISCLOS ED PART OF HIS TRADING ACTIVITIES. IT WAS ALSO STATED THAT SAL E FROM PURCHASES ARE NOT RECORDED IN THE BOOKS OF ACCOUNT. THE ASSES SEE FURTHER EXPLAINED THAT SOME PURCHASES OF UNBRANDED AATTA WE RE MADE WHICH WERE SOLD IN NEXT YEAR AND ASSESSEE OFFERED T HE SAME FOR TAXATION. THE A.O, THEREFORE, NOTED THAT ASSESSEE H AS CONFESSED IN HIS STATEMENT THAT HE HAS NEITHER SHOWN THE PURC HASES OF UNBRANDED AATTA PURCHASED FROM M/S. HANUMAN TRADERS IN HIS BOOKS OF ACCOUNT NOR HAS SHOWN THE CORRESPONDING SA LES IN HIS BOOKS OF ACCOUNT. THE PROFIT EARNED OUT OF THESE TR ANSACTIONS HAVE NOT BEEN ACCOUNTED BY THE ASSESSEE IN HIS BOOK S OF ACCOUNT. THE ASSESSEE IN HIS STATEMENT FURTHER SUBM ITTED THAT PURCHASES AND SALES MADE OF THE PRODUCT SO SHOWN IN THE NAME OF M/S. HANUMAN TRADERS, ARE NOT ACCOUNTED IN THE B OOKS OF ACCOUNT AND SAME MAY BE TAXED. THE ASSESSEE OFFERED THE SAME AMOUNT FOR TAXATION AND SUBMITTED THAT HE HAS ALSO INCURRED EXPENSES RELATING TO PURCHASE AND SALES MADE, THERE FORE, REQUESTED THAT GROSS PROFIT ON THE SALE MAY BE TAXE D @ 8%. THE A.O, THEREFORE, NOTED THAT SINCE PURCHASES AND SALE S OF 5 ITA.NO.4709/DEL./2017 SHRI DEEPAK MITTAL, DELHI. UNBRANDED AATTA WAS NOT DISCLOSED IN THE BOOKS OF A CCOUNT, THEREFORE, BOOKS OF ACCOUNT OF THE ASSESSEE ARE NOT RELIABLE AND THE SAME WERE ACCORDINGLY, REJECTED UNDER SECTION 1 45(3) OF THE I.T. ACT. THE A.O. REPRODUCED THE LETTER OF THE ASS ESSEE IN WHICH IT IS CONFIRMED THAT ADDITIONAL TURNOVER WAS MADE O F RS.7,55,15,150/- WITHOUT CLAIMING EXPENSES, ON WHIC H, PROFIT RATE OF 8% WAS SURRENDERED FOR TAXATION IN A SUM OF RS.60,41,212/-. THE A.O. REJECTED THE EXPLANATION O F ASSESSEE THAT HE WAS ACTING AS AN AGENT OF M/S. HANUMAN TRAD ERS BECAUSE NO SUCH DOCUMENTARY EVIDENCE WAS PRODUCED. THE A.O. NOTED THAT ASSESSEE HAS PAID RS.6,92,25,000/- IN CA SH AND RECEIVED RS.7,55,15,150/- IN CASH, WHICH, A COMMISS ION AGENT WILL NOT RECEIVE IT. THE A.O. RE-CASTED TRADING, P & L A/C AND MADE THE ADDITION ON ACCOUNT OF NET PROFIT OF RS.4, 14,44,156/- 2.1. THE A.O. IN VIEW OF THE ABOVE FINDINGS ALSO N OTED THAT SINCE CASH PAYMENTS OF PURCHASES ARE MADE IN A SUM OF RS.6,92,25,000 TO M/S. HANUMAN TRADERS, THEREFORE, SECTION 40A(3) IS APPLICABLE. IN THE ABSENCE OF ANY PLAUSIB LE 6 ITA.NO.4709/DEL./2017 SHRI DEEPAK MITTAL, DELHI. EXPLANATION, THE ADDITION OF RS.6,92,25,000/- WAS M ADE UNDER SECTION 40A(3) OF THE I.T. ACT, 1961. 2.2. THE A.O. ALSO NOTED THAT SINCE CASH PAYMENTS ARE MADE TO M/S. HANUMAN TRADERS FOR PURCHASE AND IDENT ITY AND EXISTENCE OF M/S. HANUMAN TRADERS IS NOT ESTABLISHE D AND AN AMOUNT OF RS.6,31,90,150/- IS SHOWN AS RECEIPT IN C ASH, THEREFORE, IT WAS CONSIDERED AS UNEXPLAINED CREDIT UNDER SECTION 68 OF THE I.T. ACT, BUT, NO SEPARATE ADDITION WAS M ADE OF THIS AMOUNT BECAUSE THE ADDITION UNDER SECTION 40A(3) HA S ALREADY BEEN MADE. 3. THE ASSESSEE CHALLENGED BOTH THE ABOVE ADDITION S BEFORE THE LD. CIT(A). THE LD. CIT(A) CONFIRMED THE REJECTION OF THE BOOKS OF ACCOUNT UNDER SECTION 145(3) OF THE I. T. ACT. IN RESPECT OF RE-CASTING OF THE P & L A/C, THE LD. CIT (A) DID NOT AGREE WITH THE FINDINGS OF THE A.O. IT IS NOTED THA T SINCE THE ACCOUNT OF M/S. HANUMAN TRADERS REFLECT ONLY CASH S ALES, DEBITS IN ACCOUNT DO NOT NECESSARILY REFLECT THE AM OUNT OF PURCHASES. THIS IS MORE SO, IN VIEW OF THE FACT THA T ASSESSEE HAS 7 ITA.NO.4709/DEL./2017 SHRI DEEPAK MITTAL, DELHI. NEITHER MAINTAINED NOR GIVEN ANY STOCK TALLY IN RES PECT OF THE QUANTITY PURCHASES OR SOLD. THE ASSESSEE STATED THA T THERE WAS A RECEIPT OF MATERIAL WHICH HAD NOT BEEN SOLD AND F OR WHICH PAYMENT MIGHT NOT HAVE BEEN MADE. IN ANY CASE, PAYM ENT SHOWN IN THE ACCOUNT MIGHT NOT BE BILL OR BILL PAYM ENT BUT PAYMENTS MADE ON ADHOC BASIS. A.O. HOWEVER, ADDED T HE ENTIRE DEBIT SIDE TOTALING TO RS.6,92,25,000/- AS UNDISCLO SED PURCHASE AND SALES HAVE BEEN RE-CASTED BY ADDING THE ENTIRE CREDIT SIDE OF RS.8,50,30,150/- AND OUTSTANDING BALANCE OF RS.1,58,05,150/-, THEREBY, INCREASING THE SALES BY RS.10,08,35,300/-. LD. CIT(A), THEREFORE, NOTED THA T A.O. IS NOT CORRECT IN HIS APPROACH TO RECAST THE P & L A/C. SI NCE, CREDIT SIDE DO NOT REFLECT THE SALES, BUT, IT HAS OPENING CREDIT BALANCE OF RS.95,15,000/-. THE SALES, IF ANY, REFLECTED IN THE ABOVE ACCOUNT COULD ONLY BE TO THE TUNE OF RS.7,55,15,150 /- FOR THE YEAR. THE OUTSTANDING PAYABLE BALANCE COULD NOT HAV E BEEN ADDED TO INCREASE AMOUNT OF SALES. THEREFORE, APPAR ENTLY, THERE IS A MISTAKE IN RECASTING OF THE P & L A/C, IF THE VERSION OF THE ASSESSEE THAT LEDGER ACCOUNT OF M/S. HANUMAN TRADER S REFLECT 8 ITA.NO.4709/DEL./2017 SHRI DEEPAK MITTAL, DELHI. THE ENTIRE PURCHASE AND SALES IS ACCEPTED, THE PROF IT OUT OF THE SAME WOULD BE TO THE TUNE OF RS.62,90,150/- (SALES RS.7,55,15,150 (-) PURCHASES RS.6,92,25,000/-). THE LD. CIT(A) INSTEAD OF ADDITION OF NET PROFIT OF RS.4,14,44,156 /-, RESTRICTED THE ADDITION OF NET PROFIT TO RS.62,90,150/-. 4. THE LD. CIT(A), AS REGARDS DISALLOWANCE UN DER SECTION 40A(3) OF THE I.T. ACT, NOTED THAT ASSESSEE VIOLATED THESE PROVISIONS FOR MAKING CASH PAYMENTS. ACCORDINGLY, C ONFIRMED THE ADDITION OF RS.6,92,25,000/-. THIS GROUND OF AP PEAL OF ASSESSEE WAS DISMISSED. 4.1. THE LD. CIT(A), AS REGARDS ADDITION UNDER SEC TION 68 OF THE I.T. ACT, WHICH THE A.O. DID NOT MAKE SEPARA TE ADDITION OF RS.6,31,90,150/- ON ACCOUNT OF DISALLOWANCE MADE UN DER SECTION 40A(3) OF THE I.T. ACT, NOTED THAT ASSESSEE HAS STATED THAT HE WAS PURCHASED UNBRANDED AATTA FROM M/S. HAN UMAN TRADERS AND SELLING THE SAME. THE ASSESSEE IS A TRA DER AND DISTRIBUTOR OF ITC FOR BRANDED AATTA. THE ASSESSEE DID NOT PRODUCE M/S. HANUMAN TRADERS AS WELL AS DID NOT PRO DUCE 9 ITA.NO.4709/DEL./2017 SHRI DEEPAK MITTAL, DELHI. SUFFICIENT MATERIAL TO PROVE HIS IDENTITY. THE ASSE SSEE DESPITE GIVING OPPORTUNITIES HAS NOT BEEN ABLE TO ADDUCE AN Y IOTA OF EVIDENCE THAT THERE WAS ANY ENTITY LIKE M/S. HANUMA N TRADERS, WHICH HAD THE CAPACITY TO SUPPLY GOODS OVER RS.6.50 CRORES ON CREDIT TO ASSESSEE. THERE IS NO EVIDENCE AS TO THE RECEIPT OR DISPATCH OF THE GOODS. ENTIRE SALES HAVE BEEN MADE IN CASH. THERE IS NO EVIDENCE THAT CASH SO CREDITED IN THE C ASH BOOK REFLECTS ANY SALE PROCEEDS OF ANY MATERIAL. THESE U NEXPLAINED CASH CREDITS IN CASH BOOK WHICH HAD BEEN ALLEGEDLY POSTED TO SO-CALLED M/S. HANUMAN TRADERS REMAIN UNEXPLAINED. THE PEAK THEREOF, COMES TO RS.7,12,15,150/- AS ON 10 TH JANUARY, 2013, EVEN IGNORING THE OPENING BALANCE OF RS.95,15 ,000/-. THE LD. CIT(A), THEREFORE, NOTED THAT ASSESSEE HAS NOT BEEN ABLE TO SUBSTANTIATE THE EXPLANATION THAT THE MONEY SO DEPO SITED IN THE BOOKS OF ACCOUNT REFLECTED THE SALES OF UNBRANDED A ATTA. THE ASSESSEE FAILED TO PROVE EXISTENCE OF THIS PARTY. T HE LD. CIT(A), THEREFORE, MADE THE ADDITION OF RS.7,12,15,150/- UN DER SECTION 68 OF THE I.T. ACT. 10 ITA.NO.4709/DEL./2017 SHRI DEEPAK MITTAL, DELHI. 5. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BO TH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON R ECORD. 6. THE ASSESSEE RAISED ADDITIONAL GROUND OF APPEAL CHALLENGING THE VALIDITY OF THE ASSESSMENT PROCEEDI NGS ON ACCOUNT OF JURISDICTION OF THE A.O. LEARNED COUNSEL FOR THE ASSESSEE, HOWEVER, AFTER BRIEF ARGUMENTS, DID NOT P RESS THE ADDITIONAL GROUND FOR ADMISSION IN VIEW OF PROVISIO NS CONTAINED IN SECTION 124(3) AND 127(3) OF THE I.T. ACT. IN VI EW OF THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE, THE ADDITIONAL GROUND OF APPEAL OF ASSESSEE IS REJECTED . 7. LEARNED COUNSEL FOR THE ASSESSEE, DURING THE CO URSE OF ARGUMENTS, DID NOT PRESS GROUND NOS. 1, 2, 7 AND 8 WITH REGARD TO REJECTION OF THE BOOKS OF ACCOUNT UNDER S ECTION 145(3) OF THE I.T. ACT AND ESTIMATING THE NET PROFIT OF AS SESSEE AT RS.62,90,150/-. THESE GROUNDS OF APPEAL OF THE ASSE SSEE ARE ACCORDINGLY, DISMISSED AS NOT PRESSED. 8. THE ASSESSEE ON GROUND NOS. 3 AND 4, CHALLENGED THE DISALLOWANCE OF RS.6,92,25,000/- UNDER SECTION 40A( 3) OF THE 11 ITA.NO.4709/DEL./2017 SHRI DEEPAK MITTAL, DELHI. I.T. ACT ON ACCOUNT OF PURCHASES MADE IN CASH FROM M/S. HANUMAN TRADERS. ON GROUND NOS. 5 AND 6, THE ASSESS EE CHALLENGED THE ADDITION OF RS.7,12,15,150/- MADE BY LD. CIT(A), THOUGH THE A.O. DID NOT MAKE SEPARATE ADDITION OF RS.6,31,19,150/- UNDER SECTION 68 OF THE I.T. ACT O N ACCOUNT OF PEAK CREDIT. 9. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESSEE EXPLAINED BEFORE A.O. THAT TRANSACTION OF SALE OF UNBRANDED AATTA PURCHASED FROM M/S. HANUMAN TRADERS WERE MADE OUTSIDE THE BOOKS OF ACCOUNT AND OFFERED THE A MOUNT FOR TAXATION BY APPLYING THE PROFIT RATE OF 8% ON UNREC ORDED SALES. THE A.O. ALSO NOTED IN THE ASSESSMENT ORDER THAT PU RCHASE OF UNBRANDED AATTA FROM M/S. HANUMAN TRADERS AND CORRESPONDING SALES HAVE NOT BEEN SHOWN IN THE BOOK S OF ACCOUNT THE A.O. ACCORDINGLY, REJECTED THE BOOKS OF ACCOUNT UNDER SECTION 145(3) OF THE I.T. ACT. HE HAS SUBMIT TED THAT WHEN BOOKS OF ACCOUNT OF THE ASSESSEE ARE NOT RELIABLE A ND REJECTED, THE A.O. IS NOT JUSTIFIED IN MAKING THE DISALLOWANC E UNDER 12 ITA.NO.4709/DEL./2017 SHRI DEEPAK MITTAL, DELHI. SECTION 40A(3) OF THE I.T. ACT. HE HAS FURTHER SUBM ITTED THAT THERE IS NO EVIDENCE ON RECORD TO PROVE ASSESSEE MA DE ANY INVESTMENT IN UNRECORDED PURCHASES OR THAT ASSESSEE RECEIVED ANY AMOUNT FROM M/S. HANUMAN TRADERS SO AS TO CONSI DER THE ADDITION UNDER SECTION 68 OF THE I.T. ACT. HE HAS S UBMITTED THAT LD. CIT(A) HAS MERELY RECORDED ORDER SHEET ENTRY ON 8 TH JUNE, 2017, BUT HAS NOT BEEN GIVEN ANY SPECIFIC NOTICE FO R MAKING ENHANCEMENT TO THE ASSESSED INCOME, WHICH A.O. HAS NOT MADE. HE HAS SUBMITTED THAT THERE IS NO BASIS FOR MAKING BOTH THE ADDITIONS AGAINST THE ASSESSEE. HE HAS SUBMITTED TH AT WHERE A.O. AND LD. CIT(A) REJECTED THE BOOKS OF ACCOUNT O F THE ASSESSEE AND ULTIMATELY, ESTIMATED GROSS PROFIT ON SUPPRESSE D SALES, HE COULD NOT MAKE SEPARATE ADDITION ON ACCOUNT OF UNEX PLAINED INVESTMENT, UNDISCLOSED INCOME ETC., AND ALSO CANNO T MAKE DISALLOWANCE OF EXPENSES UNDER SECTION 40A(3) OF TH E I.T. ACT. IN SUPPORT OF HIS CONTENTION, HE HAS RELIED UPON THE D ECISIONS IN THE CASE OF CIT, BELGAUM VS. BAHUBALI NEMINATH MUTT IN (2016) 72 TAXMAN.COM 139 (KARNATAKA) (HC), CIT, LUDHIANA V S. SANTOSH JAIN (2008) 296 ITR 324 (P & H) (HC), CIT V S. BANWARI 13 ITA.NO.4709/DEL./2017 SHRI DEEPAK MITTAL, DELHI. LAL BANSIDHAR (1998) 229 ITR 229 (ALL.) (HC), INDWE LL CONSTRUCTION VS. CIT (1998) 232 ITR 776 (A.P.) (HC) , CIT VS. AGGARWAL ENGG. CO. (2008) 302 ITR 246 (P & H), CIT VS. PRESIDENT INDUSTRIES (2002) 258 ITR 654 (GUJ.), CIT VS. M/S. HIND AGRO INDUSTRIES, ITAT, CHANDIGARH BENCH AND IT O VS. NARDEV KUMAR GUPTA (2013) 22 ITR (TRIBU.) 273 (JAIP UR). 10. ON THE OTHER HAND, LD. D.R. RELIED UPON THE OR DERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT ASSESSEE F AILED TO PROVE THE IDENTITY OF M/S. HANUMAN TRADERS AND THAT ASSESSEE VIOLATED SECTION 40A(3) OF THE I.T. ACT BECAUSE CAS H PAYMENTS HAVE BEEN MADE TO M/S. HANUMAN TRADERS, THEREFORE, BOTH ADDITIONS HAVE TO BE CONFIRMED. 11. WE HAVE CONSIDERED THE RIVAL CONTENTIONS. THE HONBLE GUJRAT HIGH COURT IN THE CASE OF CIT VS. PRE SIDENT INDUSTRIES (2002) 258 ITR 654 (GUJ.) HELD AS UNDER : IN THE COURSE OF SURVEY CONDUCTED I N THE PREMISES OF THE ASSESSEE, EXCISE RECORDS FOUND, WHICH DISCLOSED GOD OWN SALES NOT DISCLOSED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. 14 ITA.NO.4709/DEL./2017 SHRI DEEPAK MITTAL, DELHI. THE ASSESSING OFFICER MADE THE ADDITION OF THE UNDI SCLOSED INCOME OF THE ENTIRE SALE PROCEEDS THEREOF. THE COMMISSIONER (APPEALS) AFFIRMED THE ADDITION BU T THE APPELLATE TRIBUNAL FOUND THAT THERE WAS NO MATERIAL TO INDICATE THAT THE ASSESSEE MADE INVESTMENTS OUTSIDE THE BOOKS OF ACCOUNT TO MAKE ALLEGED SALES AND HELD THA T ENTIRE SALE PROCEEDS COULD NOT HAVE BEEN ADDED AS UNDISCLO SED INCOME OF THE ASSESSEE BUT THE ADDITION COULD BE ON LY OF THE PROFITS EMBEDDED IN THE SALES. THE TRIBUNAL HAVING DECLINED TO STATE A CASE, THE DEPARTMENT APPLIED TO THE HIGH COURT FOR AN ORDER CALLING FOR A REFERENCE; HELD, DISMISSING THE APPLICATION FOR REFERENCE, THA T THE AMOUNT OF SALES COULD NOT REPRESENT THE INCOME OF T HE ASSESSEE WHO HAD NOT DISCLOSED THE SALES. THE SALES ONLY REPRESENTED THE PRICE RECEIVED BY THE SELLER OF THE GOODS; ONLY THE REALISATION OF EXCESS OVER THE COST INCURR ED COULD FORM PART OF THE PROFIT INCLUDED IN THE CONSIDERATI ON FOR THE SALES. SINCE, THERE WAS NO FINDING TO THE EFFECT TH AT 15 ITA.NO.4709/DEL./2017 SHRI DEEPAK MITTAL, DELHI. INVESTMENT BY WAY OF INCURRING THE COST IN ACQUIRIN G THE GOODS WHICH WERE SOLD HAD BEEN MADE BY THE ASSESSEE AND THAT THAT INVESTMENT WAS ALSO NOT DISCLOSED, ONLY T HE EXCESS OVER THE COST INCURRED COULD BE TREATED AS PROFIT. 12. THE HONBLE GUJRAT HIGH COURT FOLLOWING ITS EAR LIER JUDGMENT IN THE CASE OF PRESIDENT INDUSTRIES (SUPRA ), IN THE CASE OF CIT VS. SAMIR SYNTHETICS MILL (2010) 326 IT R 410 (GUJ.), HELD AS UNDER : IN THE COURSE OF A SEARCH BY THE EXCISE DEPARTMENT IN THE PREMISES OF THE ASSESSEE, IT WAS FOUND THAT THE PRO DUCTION OF MAN-MADE FABRICS WAS SUPPRESSED AND ONLY A SMALL PART THEREOF WAS SHOWN IN THE EXCISE REGISTER. THE ASSESSEE COULD NOT RECONCILE THE PRODUCTION, SALES AND THE CLOSING STOCK DESPITE OPPORTUNITY GIVEN BY THE ASSE SSING OFFICER AND ADDITION IN RESPECT OF UNACCOUNTED SALE S WAS MADE BY THE ASSESSING OFFICER. THE COMMISSIONER (APPEALS) FOUND THAT THE ASSESSEE FAILED TO EXPLAIN THE SUPPRESSION OF PRODUCTION OF FABRICS AND ALSO HELD THAT 16 ITA.NO.4709/DEL./2017 SHRI DEEPAK MITTAL, DELHI. ANY ADDITION THAT WAS TO BE MADE WAS NOT IN RESPECT OF THE SALE CONSIDERATION BUT ONLY IN RESPECT OF THE P ROFIT. THE COMMISSIONER (APPEALS) REDUCED THE ADDITION MADE BY THE ASSESSING OFFICER. THE TRIBUNAL CONCURRED WITH THE COMMISSIONER (APPEALS) AS IT FOUND THAT THERE WAS N O EVIDENCE ON RECORD TO PROVE THAT THE ASSESSEE HAD C LAIMED ALL THE EXPENSES IN THE PROFIT AND LOSS ACCOUNT. ON APPEAL: HELD, DISMISSING THE APPEALS, THAT IN VIEW OF THE CONCURRENT FINDINGS OF FACT BY THE COMMISSIONER (APPEALS) AND THE TRIBUNAL THAT THE REDUCED ADDITION WAS JUST AND EQUITABLE ON ACCOUNT OF PAPERS FOUND DURING THE SEA RCH, THERE WAS NO MERIT IN THE APPEALS. 13. THE HONBLE ALLAHABAD HIGH COURT IN THE CASE O F CIT VS. BANWARI LAL BANSHIDHAR (1998) 229 ITR 229 (ALLD .) (HC) HELD AS UNDER : HELD AFFIRMING THE DECISION OF THE TRIBUNAL, THAT NO DISALLOWANCE COULD BE MADE IN VIEW OF THE PROVISION S OF SECTION 40A(3) READ WITH RULE 6DD(J) OF THE INCOME- TAX RULES, 17 ITA.NO.4709/DEL./2017 SHRI DEEPAK MITTAL, DELHI. 1962, AS NO DEDUCTION WAS ALLOWED TO AND CLAIMED BY THE ASSESSEE. WHEN THE GROSS PROFIT RATE WAS APPLIED, T HAT WOULD TAKE CARE OF EVERYTHING AND THERE WAS NO NEED FOR THE ASSESSING OFFICER TO MAKE SCRUTINY OF THE AMOUN T INCURRED ON THE PURCHASES MADE BY THE ASSESSEE. 14. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF THE ABOVE DECISIONS AND DECISIONS RELIED UPON BY LEARNE D COUNSEL FOR THE ASSESSEE, WE ARE OF THE VIEW THAT BOTH THE ADDITIONS CANNOT BE SUSTAINED. THE A.O. DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOUND THAT ASSESSEE HAS MADE PURCHASES AND SALES OUTSIDE THE BOOKS OF ACCOUNT OF UNBRANDED AATTA. TH E A.O. NOTED THAT NAME OF M/S. HANUMAN TRADERS DID NOT EXI ST IN PURCHASE OR SALE LEDGER. THE A.O. AFTER RECORDING T HE STATEMENT OF THE ASSESSEE FOUND THAT ASSESSEE HAS CONFESSED T HAT HE HAS NEITHER SHOWN THE PURCHASES OF UNBRANDED AATTA PURC HASED FROM M/S. HANUMAN TRADERS IN THE BOOKS OF ACCOUNT N OR HAS SHOWN CORRESPONDING SALES IN HIS BOOKS OF ACCOUNT. THE PROFIT EARNED OUT OF THESE TRANSACTIONS, HAS NOT BEEN ACCO UNTED BY THE 18 ITA.NO.4709/DEL./2017 SHRI DEEPAK MITTAL, DELHI. ASSESSEE IN THE BOOKS OF ACCOUNT. THE ASSESSEE OFFE RED THE AMOUNT FOR TAXATION I.E., PROFIT OUT OF THESE TRANS ACTIONS @ 8% IN A SUM OF RS.60,41,212/-. THE A.O. ACCORDINGLY, R EJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE UNDER SECTION 145( 3) OF THE I.T. ACT AND AFTER RECASTING THE TRADING & P & L A/C, MA DE THE ADDITION OF RS.4.14 CRORES ON ACCOUNT OF ADDITIONAL PROFIT. THE LD. CIT(A), CORRECTLY NOTED THAT ENTIRE SALES COULD NOT BE PROFIT OF THE ASSESSEE AND THAT RE-CASTING OF THE TRADING & P & L A/C BY THE A.O. IS NOT PROPER AS PER LAW. THE LD. CIT(A ) HAS TAKEN THE PURCHASES AND SALES IN THE APPELLATE ORDER AND THE DIFFERENCE OF THE SAME WAS TAKEN AS UNDISCLOSED PRO FIT OF THE ASSESSEE IN A SUM OF RS.62,91,150/- WHICH IS ALMOST SAME AS OFFERED BY ASSESSEE @ 8% OF UNDISCLOSED TURNOVER. THE ASSESSEE DID NOT CHALLENGE THE REJECTION OF THE BOOKS OF ACC OUNT UNDER SECTION 145(3) AND THE ADDITION MADE BY LD. CIT(A) ABOVE TO THE PROFIT OF THE ASSESSEE. THERE IS NO CHALLENGE TO TH ESE FINDINGS OF THE LD. CIT(A) BY THE DEPARTMENT IN THE DEPARTMENTA L APPEAL BECAUSE FILING OF DEPARTMENTAL APPEAL NOT REPORTED BY LD. CIT- D.R. LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON S EVERAL 19 ITA.NO.4709/DEL./2017 SHRI DEEPAK MITTAL, DELHI. DECISIONS OF DIFFERENT HIGH COURTS IN WHICH IT WAS HELD THAT WHEN A.O. REJECTED THE BOOKS OF ACCOUNT OF THE ASS ESSEE AND APPLIED GROSS PROFIT RATE ON SUPPRESSED SALES, A.O. CANNOT MAKE SEPARATE ADDITION ON ACCOUNT OF UNEXPLAINED INVESTM ENT, UNDISCLOSED INCOME AND EVEN THE PROVISIONS OF SECTI ON 40A(3) COULD NOT BE INVOKED. 14.1. ONE OF THE DECISION OF HONBLE ALLAHABAD HIG H COURT IN THE CASE OF CIT VS. BANWARI LAL BANSHIDHAR (1998 ) 229 ITR 229 (ALLD.) (HC) AS REPRODUCED ABOVE ALONG WITH JUD GMENTS OF HONBLE GUJRAT HIGH COURT IN THE CASE OF PRESIDENT INDUSTRIES AND CIT VS. SAMIR SYNTHETICS MILL (SUPRA), THE AUT HORITIES BELOW HAVE ALSO NOT FOUND ANY MATERIAL TO INDICATE THAT A SSESSEE MADE INVESTMENTS OUTSIDE THE BOOKS OF ACCOUNT TO MAKE TH E SALES. THE ENTIRE SALES COULD NOT REPRESENT INCOME OF THE ASSESSEE, ON WHICH, LD. CIT(A), HAS ALREADY GIVEN A FINDING TO A DD THE PROFIT ONLY ON SUCH UNRECORDED SALES. WHEN BOOKS OF ACCOUN T OF THE ASSESSEE ARE NOT RELIABLE AND REJECTED BY THE AUTHO RITIES BELOW UNDER SECTION 145(3) OF THE I.T. ACT AND THERE IS N O CHALLENGE TO 20 ITA.NO.4709/DEL./2017 SHRI DEEPAK MITTAL, DELHI. THESE FINDINGS OF THE AUTHORITIES BELOW, THERE IS N O REASON FOR THE AUTHORITIES BELOW TO RELY UPON THE SAME BOOKS O F ACCOUNT FOR THE PURPOSE OF MAKING ADDITION UNDER SECTION 40 A(3) OF THE I.T. ACT AS WELL AS TO MAKE ADDITION OF PEAK UNDER SECTION 68 OF THE I.T. ACT. THE A.O. NOTED IN HIS FINDINGS THAT M /S. HANUMAN TRADERS DID NOT EXIST IN PURCHASE AND SALE LEDGER A ND EXISTENCE OF THE SAME HAVE NOT BEEN PROVED. THE INSPECTOR ALS O GAVE REPORT TO THE SAME EFFECT THAT M/S. HANUMAN TRADERS DO NOT EXIST AT THE GIVEN ADDRESS. THESE FACTS CLEARLY SHO W THAT WHATEVER ENTRIES ARE RELIED UPON BY THE AUTHORITIES BELOW FROM THE BOOKS OF ACCOUNT, ARE CONTRARY TO THE FINDINGS OF THE AUTHORITIES BELOW BECAUSE NON-EXISTENT PARTY WOULD NOT COME TO PAY ANY AMOUNT TO THE ASSESSEE. THEREFORE, THERE IS NO QUESTION OF CONSIDERING THE UNRECORDED AMOUNT RECOR DED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE, SO AS TO MAKE THE ADDITION UNDER SECTION 68 OF THE I.T. ACT. THE A.O. DID NOT MAKE ADDITION UNDER SECTION 68 OF THE I.T. ACT SEPARATELY BECAUSE THE ADDITION IS ALREADY MADE UNDER SECTION 40A(3) OF THE I.T. AC T. THE LD. CIT(A) DID NOT GIVE ANY SPECIFIC NOTICE TO ASSESSEE FOR 21 ITA.NO.4709/DEL./2017 SHRI DEEPAK MITTAL, DELHI. ENHANCEMENT OF INCOME UNDER SECTION 68 OF THE I.T. ACT BECAUSE HE HAS MERELY RECORDED ENTRY OF 8 TH JUNE, 2017 WITHOUT CONFRONTING THE FACTS FOR MAKING ADDITION OF PEAK C REDIT. THE LD. CIT(A) FORGOT TO CONSIDER THAT IF HE WANTED TO MAKE ADDITION ON ACCOUNT OF PEAK CREDIT ON ACCOUNT OF M/S. HANUMAN T RADERS, WHETHER THEORY OF PEAK CREDIT WOULD APPLY IN THE CA SE OF THE ASSESSEE ? FOR CONSIDERING THE ISSUE OF PEAK CREDIT , THE AUTHORITIES BELOW HAVE TO LAID-OUT THE FOUNDATION T HAT IT WAS UNACCOUNTED MONEY OF THE ASSESSEE HAVING BOTH DEBIT AND CREDIT WHICH ASSESSEE DID NOT AGREE. IT COULD NOT B E TAKEN INTO CONSIDERATION FOR MAKING SUCH ADDITION UNDER SECTIO N 68 OF THE I.T. ACT IN THE HANDS OF THE ASSESSEE FOR MAKING AN Y ALLEGED TRANSACTION WITH M/S. HANUMAN TRADERS, WHICH, ACCOR DING TO THE AUTHORITIES BELOW, DID NOT EXIST AND THAT NO SU CH ENTRIES APPEAR IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. EVE N IF, SOME ENTRIES APPEARED IN THE BOOKS OF ACCOUNT OF THE ASS ESSEE REGARDING M/S. HANUMAN TRADERS, ACCORDING TO THE FI NDINGS OF THE AUTHORITIES BELOW, SUCH BOOKS OF ACCOUNT OF THE ASSESSEE ARE NOT RELIABLE. THEREFORE, THE AUTHORITIES BELOW CANN OT RELY UPON 22 ITA.NO.4709/DEL./2017 SHRI DEEPAK MITTAL, DELHI. THE SAME ENTRIES IN BOOKS OF ACCOUNT FOR THE PURPOS E OF MAKING THE ADDITION OF THE NATURE OF PEAK AGAINST THE ASSE SSEE. THUS, THERE IS NO JUSTIFICATION FOR THE AUTHORITIES BELOW TO MAKE ADDITION OF RS.6,92,25,000/- UNDER SECTION 40A(3) O F THE I.T. ACT AND ADDITION OF RS.7,12,15,150/- UNDER SECTION 68 O F THE I.T. ACT. IN VIEW OF THE ABOVE DISCUSSION, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE BOTH THESE ADDITIO NS. GROUND NOS. 3 TO 6 OF THE APPEAL OF ASSESSEE ARE ALLOWED. 15. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (L.P. SAHU) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DELHI, DATED 23 RD MARCH, 2018 VBP/- COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. CIT(A) CONCERNED 4. CIT CONCERNED 5. D.R. ITAT E BENCH, DELHI 6. GUARD FILE. 23 ITA.NO.4709/DEL./2017 SHRI DEEPAK MITTAL, DELHI. // BY ORDER // ASSISTANT REGISTRAR : ITAT DELHI BENCHES : DELHI.