ITO, Mandi Gobindgarh V. Sh. Hitesh Sood, Sirhind

ITA 471/CHANDI/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80965 (ITAT-CHANDIGARH)
• Duration Of Justice: 5 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 27-10-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 01-05-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Gross profit estimation; Rejection of books of accounts; Assessment record
• Section: 68; 69

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES B CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.R. SOOD, ACCOUNTANT MEMBER ITA NO. 471/CHD/2014 ASSESSMENT YEAR: 2008-09 THE ITO, VS. SHRI. HITESH SOOD WARD SIRHIND PROP. SHREE KRISHNA ENTERPRISES MANDI GOBINDGARH SIRHIND PAN NO.AYPPS1014B (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MAHAVIR SINGH RESPONDENT BY : SHRI. TEJ MOHAN SINGH DATE OF HEARING : 27/10/2014 DATE OF PRONOUNCEMENT : 31/10/2014 ORDER PER T.R.SOOD, A.M. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER DATED 27/02/2014 OF CIT (APPEALS), PATIALA. 2. IN THIS APPEAL FOLLOWING GROUNDS HAVE BEEN RAISE D: 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) HAS ERRED IN NOT UPHOLDING NET PROFIT@10.69 APPLIED BY THE ASSESSING OFFICER AFTER SUSTAINING THE ACTION OF THE ASSESSING OFFICER REGA RDING REJECTION OF BOOKS OF ACCOUNT UNDER SECTION 145(3) OF THE INCOME TAX ACT, 1961 FOR THE REASONS MENTIONED IN THE ASSESSMENT ORDER, IN VIEW OF THE NUMEROUS DEFICIENCIES POINTED OUT BY THE AO. 2 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) HAS ERRED IN RESTRICTING THE ADDITIO N OF RS. 3,95,240/- MADE ON ACCOUNT OF LOW GP RATE, TO RS. 50,000/- ONLY, WITHOUT APPRECIATING THAT THE PURCHA SE OF HARDWARE AND ADHESIVE WAS ONLY OF RS. 1,02,131/- OUT OF TOTAL PURCHASES OF RS. 87,91,698/- AND WILL NOT AFFECT THE GP RATE SIGNIFICANTLY, AND FURTHER THE ASSESSEE FAILED TO FURNISH THE VALUATION OF CLOSING STOCK. 3. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION O F RS. 4,74,696/- MADE UNDER SECTION 68 OF THE INCOME TAX ACT, 1961, WITHOUT APPRECIATING THAT THOUGH THE ADVANCES FROM THE FATHER WERE MADE THROUGH CHEQUES, THERE WAS INSUFFICIENT BALANCE IN THE BANK ACCOUNT AND CASH WAS DEPOSITED IN THE BANK ACCOUNT BEFORE ISSUI NG THE CHEQUES AND THE FATHER HAD ALSO NO CAPACITY AS HIS RETURN OF INCOME WAS OF RS. 1,52,870/- ONLY. 4. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION O F RS. 5,11,566/- WITHOUT APPRECIATING THE FACTUAL FINDING S IN THE ASSESSMENT ORDER THAT THE ASSESSEE WAS NOT ABLE TO SHOW THE SOURCE OF PAYMENT FOR ACQUIRING THE ASSETS OTHER THAN THE SUM OF RS. 5,89,000/-, NO REPLY IN R EGARD TO THE SOURCE OF PAYMENT OF BALANCE SUM OF RS. 5,11,560/- WAS SUBMITTED IN SPITE OF SPECIFIC OPPORTUNITIES, THE BOOKS PRODUCED DID NOT SHOW THE INVESTMENTS, AND THAT THOUGH THE ASSETS APPEARED IN THE BALANCE SHEET, IN THE ABSENCE OF PROOF OF PAYME NT AND SOURCE OF PAYMENT FOR THE ASSETS, THE ADDITION MADE WAS JUSTIFIED. GROUND NO. 1 & 2 3. AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG THE ASSESSMENT PROCEEDINGS AO NOTICED THAT GP RATE HAS FALLEN DURI NG THE YEAR FROM 10.69 % TO 6.20% AS PER THE FOLLOWING GP CHART : S.NO. A.Y. TURNOVER GP GP% 1 2006-07 1,08,964.00 7,356.00 06.75% 2 2007-08 23,84,516.00 2,54,969.00 10.69% 3 2008-09 87,94,148.00 5,44,855.38 06.20% 3 IN RESPONSE TO QUERY FOR FALL OF GP RATE IT WAS MAI NLY SUBMITTED THAT DURING THE YEAR ASSESSEE HAS CHANGED THE LINE OF BU SINESS BY STARTING SALE OF HARDWARE GOODS. FURTHER TURNOVER HAS INCREASED F ROM RS. 23.84 LACS TO RS. 87.94 LACS WHICH HAS REDUCED THE GP RATE. AO OB SERVED THAT PRACTICALLY THERE WAS NO CHANGE IN THE BUSINESS BEC AUSE ASSESSEE HAD PURCHASED HARDWARE GOODS ONLY AMOUNTING TO RS. 1,02 ,131/-. FURTHER DETAILS OF CLOSING STOCK ETC. WERE NOT FILED THEREF ORE, AO REJECTED THE BOOKS OF ACCOUNTS AND APPLIED THE GP RATE AT 10.69% AND MADE AN ADDITION OF RS. 3,95,240/- 4. ON APPEAL IT WAS MAINLY SUBMITTED THAT AO HAS NO T POINTED OUT ANY SPECIFIC DEFECT IN THE BOOKS OF ACCOUNTS AND THE RE TURN HAS BEEN FILED ON THE BASIS OF AUDIT REPORT OF BOOKS OF ACCOUNTS WHIC H COULD NOT BE BRUSHED ASIDE. IT WAS ALSO POINTED OUT THAT GP RATE OF 5.9 1% HAS BEEN ACCEPTED IN THE ASSESSMENT YEAR 2009-10 IN THE ASSESSMENT FR AMED UNDER SECTION 143(3). THE LD. CIT(A) AFTER EXAMINING THESE SUBMIS SIONS OBSERVED THAT BOOKS COULD NOT HAVE BEEN REJECTED MERELY BECAUSE O F FALL IN GP RATE HOWEVER SINCE ASSESSEE HAS ALSO NOT FILED THE DETAI LS OF CLOSING STOCK THEREFORE, BOOKS WERE RIGHTLY REJECTED. CONSIDERING OVER ALL FACTS HE RESTRICTED THE GP ADDITION OF RS. 50,000/-. 5. BEFORE US LD. DR STRONGLY RELIED ON THE ORDER OF AO. HE FURTHER SUBMITTED THAT ASSESSEE STATED BEFORE AO THAT HE HA S CHANGED THE LINE OF BUSINESS TO HARDWARE GOODS. BUT HOWEVER WHEN IT WAS POINTED OUT THAT 4 HARDWARE GOODS VALUING ONLY RS. 1,02,131/- WERE PUR CHASED THEN THE ASSESSEE CHANGED THE STAND AND SUBMITTED THAT GP HA S FALLEN BECAUSE OF THE INCREASED TURNOVER. THIS ITSELF SHOWS INCONSIST ENCY IN THE EXPLANATION GIVEN BY THE ASSESSEE. IN ANY CASE REJECTION OF BOO KS HAS BEEN UPHELD BY THE LD. CIT(A) THEN THE GP ADDITION COULD NOT HAVE BEEN REDUCED. 6. ON THE OTHER HAND LD. COUNSEL FOR THE ASSESSEE R EITERATED THE SUBMISSIONS MADE BEFORE AO AND LD. CIT(A). HE FURTH ER SUBMITTED THAT PROFIT HAS MAINLY DECREASED BECAUSE OF FOUR FOLD IN CREASE IN THE TURNOVER FROM RS. 23.84 LACS TO RS. 87.94 LACS. FURTHER IT H AS TO BE NOTED THAT DEPARTMENT HAS ACCEPTED THE GP RATE OF 5.91% IN THE IMMEDIATE NEXT YEAR. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSION CAREFULL Y AND FIND THAT THE ACTION OF AO IN REJECTING THE BOOKS HAS BEEN UPHELD BY THE LD. CIT(A) AND THIS ACTION HAS NOT BEEN CHALLENGED BY THE ASSE SSEE. THEREFORE ONLY QUESTION IS AT WHAT RATE THE GP SHOULD BE ESTIMATED . IT IS DIFFICULT TO BELIEVE THAT GP HAS FALLEN BY AROUND 4.5% JUST BECAUSE OF I NCREASE IN TURNOVER BUT AT THE SAME TIME THE DEPARTMENT HAS ACCEPTED LOWER GP IN THE NEXT YEAR. THEREFORE, CONSIDERING THE OVER ALL FACTS AND CIRCUMSTANCES OF THE CASE WE ARE OF THE OPINION THAT ADDITION OF RS. 2 L ACS SHOULD BE MADE ON ACCOUNT OF LOWER GP WHICH WOULD MEET ENDS OF JUSTIC E. ACCORDINGLY WE 5 SET ASIDE THE ORDER OF LD. CIT(A) AND DIRECT AO TO MAKE ADDITION OF RS. 2 LACS ON ACCOUNT OF LOWER GP. GROUND NO. 3 8. AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG THE ASSESSMENT PROCEEDINGS IT WAS NOTICED THAT ASSESSEE HAS RAISED UNSECURED LOAN OF RS. 4,74,696/- FROM SH. RANJIT KUMAR SOOD PROP. OF NEW SOOD SALES CORP. THE ASSESSEE HAD FILED CONFIRMATION AND STATED THAT SH. RANJIT KUMAR SOOD IS AN EXISTING ASSESSEE AND COPY OF P&L ACCOUNT AND BA LANCE SHEET WAS ALSO FILED. HOWEVER, ON PERUSAL OF BANK STATEMENT A O NOTICED THAT SH. RANJIT KUMAR SOOD HAD DEPOSITED CASH IMMEDIATELY BE FORE GIVING LOAN THEREFORE CREDIT WORTHINESS OF SH. RANJIT KUMAR SOO D WAS NOT PROVED. IT WAS ALSO EXPLAINED BEFORE THE AO THAT SH. RANJIT KUMAR SOOD HAD ACTUALLY MADE PAYMENT OF RS. 4,53,100/- TO MS. JAI BHARAT TI MBER, RAJPURA ON BEHALF OF HIS SON I.E; ASSESSEE AND THE BALANCE AMO UNT WAS GIVEN AS LOAN. IN VIEW OF THE LACK OF CREDIT WORTHINESS THIS AMOUN T WAS ADDED TO INCOME OF THE ASSESSEE. AO HOWEVER MADE THE ADDITION FOR R S. 4,74,696/- BECAUSE CREDIT WORTHINESS WAS NOT PROVED. 9. ON APPEAL IT WAS SUBMITTED THAT SH. RANJIT KUMAR SOOD WAS AN EXISTING ASSESSEE HAVING HIS OWN SOURCE OF INCOME A ND ASSESSED WITH INCOME TAX OFFICER, SIRHIND. SH. RANJIT KUMAR SOOD WAS ALREADY RUNNING THE BUSINESS OF SAWING OF TIMBER UNDER THE NAME AND STY LE OF M/S NEW SOOD 6 SALES CORPORATION AT SIRHIND. IT WAS FURTHER SUBMIT TED THAT COPY OF HIS RETURN, BALANCE SHEET, AND COPY OF BANK ACCOUNT WER E FURNISHED BEFORE THE AO. IT WAS FURTHER SUBMITTED THAT CASH WAS DEPO SITED ON MANY OCCASIONS AND NOT BEFORE THE LOANS WERE GIVEN. 10. THE LD. CIT(A) FOUND FORCE IN THESE SUBMISSIONS AND DELETED THE ADDITION. 11. BEFORE US LD. D.R. STRONGLY SUPPORTED THE ORDER OF AO AND POINTED OUT THAT NO SOURCE OF CASH HAS BEEN GIVEN. 12. ON THE OTHER HAND LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT COPY OF CONFIRMATION, INCOME TAX RETURN, BALANCE SHEET, COPY OF BANK ACCOUNT WERE DULY FILED BEFORE THE ASSESSING OFFICE R. THEN HE REFERRED TO HIS BANK STATEMENT PLACED AT PAGE 20 TO 27 OF PAPER BOOK AND POINTED OUT THAT CASH HAS BEEN DEPOSITED OUT OF THE BUSINES S RECEIPT ON MANY OCCASIONS AND IT IS INCORRECT TO SAY THAT CASH HAS BEEN DEPOSITED ONLY BEFORE GIVING LOANS. 13. AFTER CONSIDERING THE RIVAL SUBMISSION CAREFULL Y WE FIND THAT THIS ISSUE HAS BEEN DECIDED BY LD. CIT(A) VIDE PARA 5.2 WHICH IS AS UNDER : 5.2- IN THE COUNTER COMMENT, THE A.O. SIMPLY RELI ED ON THE ASSESSMENT ORDER. THEREAFTER, THE ASSESSMENT RECORDS WERE ALSO EXAMINED IN THE PRESENCE OF THE A.O. IT WAS SEEN THAT THE PLEA TAKEN BEFORE THE UNDERSIGNED IN THIS CONNECTION IS ALSO TAKEN BEFORE THE A.O. DURING THE ASSESSMENT PROCEEDINGS. FROM THE BANK STATEMENT OF SH. RANJIT KUMAR SOOD, IT IS SEEN THAT THERE ARE REGULAR TRANSACTION S IN THE BANK A/C AND IT IS 7 NOT CASE THAT DEPOSITS ARE MADE JUST TO GIVE THE AD VANCE. MOREOVER, SH. RANJIT KUMAR SOOD IS AN EXISTING INCOME TAX ASSESSE E AND FILED HIS RETURN AND IS CARRYING OUT HIS OWN BUSINESS SEPARATELY IN THE NAME OF NEW SOOD SALES CORP. THE ADVANCES OF RS. 4,53,100/- AND RS. 21,596/- ARE MADE OUT OF HIS BANK ACCOUNT BY CHEQUE. THERE ARE REGULAR TR ANSACTIONS IN THE BANK A/C OVER THE YEAR. THEREFORE, IN MY OPINION, THE ID ENTITY OF THE PERSON, GENUINENESS OF TRANSACTION AND CREDITWORTHINESS OF THE PERSON IS PROVED. LOOKING INTO ENTIRETY OF THE FACTS, I AM OF THE OPI NION THAT THE ADDITIONS MADE BY THE A.O. CAN NOT BE SUSTAINED AND, THEREFORE , THIS ADDITION IS HEREBY DELETED. WE ARE OF THE OPINION THAT LD. CIT(A) HAS CORRECTLY DECIDED THE ISSUE BECAUSE SH. RANJIT KUMAR SOOD IS ALREADY A RE GULAR INCOME TAX ASSESSEE AND HAS FILED HIS INCOME TAX RETURN. IF TH ERE WERE ANY DOUBT REGARDING CREDIT WORTHINESS THEN AO SHOULD HAVE CHE CKED THE ALL CASH DEPOSITS WHICH HAVE BEEN MADE BY SH. RANJIT KUMAR S OOD SINCE HE IS ALSO RUNNING A BUSINESS AND THEN THERE IS NO BAR ON DEPO SITING CASH OUT OF THE BUSINESS. THEREFORE, WE FIND NOTHING WRONG IN THE O RDER OF LD. CIT(A) AND CONFIRM THE SAME. GROUND NO. 4 14. AFTER HEARING BOTH THE PARTIES WE FIND THAT DUR ING THE ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAS PURCHASED THREE NEW VEHICLES FOR RS. 11,00,566/-. IN RESPONSE TO THE QUERY RAISE D AGAINST THE SOURCE FOR PURCHASE OF THESE ASSETS, IT WAS EXPLAINED THAT LOA N OF RS. 5,89,000/- WAS OBTAINED FROM HDFC BANK, NO SOURCE FOR THE BALANCE AMOUNT OF RS. 5,11,566/- WAS FURNISHED. AO NOTED THAT IN RESPONSE TO THE QUERY IN COLUMN NUMBER 22 IT WAS STATED THAT NO INVESTMENT H AVE BEEN MADE IN MOVABLE OR IMMOVABLE PROPERTY. ONE MORE OPPORTUNITY WAS GIVEN TO 8 EXPLAIN SOURCE FOR BALANCE OF RS. 5,11,566/- BUT NO REPLY WAS FURNISHED. THEREFORE, AO MADE ADDITION OF RS. 5,11,566/- TO TH E INCOME OF THE ASSESSEE. 15. ON APPEAL IT WAS MAINLY SUBMITTED THAT ALL THE ASSETS PURCHASED WERE DULY SHOWN IN THE BOOKS OF ACCOUNTS AND HAVE B EEN REFLECTED IN THE BLOCK OF ASSETS. THEREFORE SECTION 69 COULD NOT BE INVOKED BECAUSE THESE INVESTMENTS COULD NOT BE SAID TO BE UNDISCLOSED INV ESTMENT. LD. CIT(A) DELETED THIS ADDITION VIDE PARA 6.2. 16. BEFORE US LD. DR RELIED ON THE ORDER OF AO. 17. ON THE OTHER HAND LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSION MADE BEFORE LD. CIT(A) AND SUPPORTED THE IMPUGNED ORDER . 18. AFTER CONSIDERING THE RIVAL SUBMISSIONS CAREFUL LY WE FIND THAT THE LD. CIT(A) HAS DECIDED THIS ISSUE VIDE PARA 6.2 WHICH I S AS UNDER: 6.2- IN THE COUNTER COMMENT, THE A.O. SIMPLY RELIE D ON THE ASSESSMENT YEAR AND DIDNT REBUT THE CONTENTION OF THE APPELLA NT. FURTHER, VIDE ORDER SHEET NOTING DATED 12.02.2014, AFTER PERUSAL OF THE ASSESSMENT RECORDS, IT WAS CONFIRMED BY THE A.O. THAT THESE ASSETS ARE DULY DISCLOSED IN THE BALANCE SHEET AND ARE FINANCED OUT OF FUNDS AVAILAB LE WITH THE ASSESSEE IN HIS BOOKS OF ACCOUNTS. LOOKING INTO THE FACTS OF THE CASE IT IS, THEREFORE, SEEN THAT ALL SUCH ASSETS ARE DULY DISCLOSED AND TH E ASSETS HAVE BEEN PURCHASED BY PARTLY RAISING LOANS AND PARTLY OUT OF FUNDS AVAILABLE WITH THE ASSESSEE. THEREFORE, LOOKING INTO THE FACTS OF THE CASE, THIS ADDITION CAN NOT BE SUSTAINED AND IS HEREBY DELETED. 19. IN OUR OPINION THE LD. CIT HAS CORRECTLY DECIDE D THE ISSUE BECAUSE ONCE ASSETS WERE DISCLOSED IN THE BOOKS OF ACCOUNTS NATURALLY SAME WERE 9 PURCHASED OUT OF THE FUNDS AVAILABLE IN THE BOOKS A S POINTED OUT BY LD. CIT(A). THEREFORE, WE FIND NOTHING WRONG IN THE ORD ER OF LD. CIT(A) AND CONFIRM THE SAME. 20. IN THE RESULT APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31/10/2014 SD/- SD/- (BHAVNESH SAINI) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 31/10/2014 AG COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR