A.C.I.T., Circle-3(1), Gwalior V. M/s Kamal Kumar Mukesh Kumar, Ashok Nagar

ITA 520/AGR/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0323 (ITAT-AGRA)
• Duration Of Justice: 4 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 04-03-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 12-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KK MISHRA
• Assessee Lawyers: AMIT SOGANI
• Keywords: Business income
• Section: 133A; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AGRA BENCH, AGRA BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI A.L. GEHLOT, ACCOUNTANT MEMBER ITA NO.520/AGR/2012 ASSESSMENT YEAR: 2006-07 ASSTT. COMMISSIONER OF INCOME TAX, VS. M/S. KAMAL K UMAR MUKESH KUMAR, CIRCLE-3(1), GWALIOR. ASHOK NAGAR (M.P.) (PAN : AABFK 1308 E). (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K.K. MISHRA, JR. D.R. RESPONDENTS BY : SHRI AMIT SOGANI, ADVOCATE DATE OF HEARING : 04.03.2013 DATE OF PRONOUNCEMENT : 15.03.2013 ORDER PER A.L. GEHLOT, ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER DATED 23.08.2012 PASSED BY THE LD. CIT(A), GWALIOR FOR THE ASSESSMEN T YEAR 2006-07. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- (I) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS .13,00,023/- MADE ON ACCOUNT OF SURRENDERED EXCESS VALUE OF STOCK DUR ING THE SURVEY PROCEEDINGS. ITA NO.520/AGR/2012 A.Y. 2006-07 2 (II) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN ALLOWING THE SALARY TO PART NERS AMOUNTING TO RS.4,21,142/- 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PARTNERSHIP FIRM DERIVES INCOME FROM WHOLESALE AND RETAIL TRADING OF CLOTH. A SURVEY UNDER SECTION 133A OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) WA S CARRIED OUT ON 12.01.2006. DURING THE COURSE OF SURVEY, THE ASSESSEE SURRENDER ED VALUE OF EXCESS STOCK RS.13,00,023/- THROUGH STATEMENT ON OATH. DURING T HE ASSESSMENT PROCEEDINGS, THE A.O. NOTICED THAT THE ASSESSEE HAS FILED RETURN OF INCOME ON DECLARED INCOME OF RS.5,00,600//-. THE A.O. WAS OF THE VIEW THAT THE ASSESSEE HAS NOT SURRENDERED THE AMOUNT OF STOCK IN THE COMPUTATION OF TOTAL INCOME. THE A.O. RECAST THE TRADING AND PROFIT & LOSS ACCOUNT OF THE ASSESSEE AND FOUND THAT THE NET PROFIT FROM BUSINESS IS ONLY RS.27,895/- AND IF INTEREST INCOME IS EXCLUDED FROM IT, THERE IS A NET LOSS IN THE BUSINESS INCOME. THE RELEVANT RECA STING OF TRADING AND PROFIT & LOSS ACCOUNT IS AS UNDER: (PAGE NO.4) OPENING STOCK 27,14,485/- SALES 39,64,454/- PURCHASE + THE VALUE OF UNRECORDED STOCKS (39,91,062+13,00,023) 52,91,085/- CLOSING STOCK + VALUE OF UNRECORDED STOCK (32,16,827+ 13,00,023) 45,16,850/- GROSS PROFIT (12%) 4,75,724/- TOTAL 84,81,294/- TOTAL 84,81,294/- TOTAL EXP. DEBITED TO P&L A/C. OTHER THAN INTEREST AND SALARY TO PARTNERS 5,83,206/- GROSS PROFIT 4,75,724/- NET PROFIT 27,895/- INTEREST RECEIVED* 1,35,377/- ITA NO.520/AGR/2012 A.Y. 2006-07 3 TOTAL 6,11,101/- 6,11,101/- * IF THIS AMOUNT IS DELETED FROM THE ABOVE AS IT IS INCOME FROM OTHER SOURCES THERE WILL BE LOSS INSTEAD OF NET PROFIT. 4. ON THE BASIS OF ABOVE, THE A.O. NOTICED THAT IT IS A CLEAR CASE WHERE THE ASSESSEE HAS SUPPRESSED THE CORRECT PROFIT BY INFLA TING THE EXPENSES DEBITED TO PROFIT & LOSS ACCOUNT FOR REDUCING THE SURRENDERED AMOUNT OF THE STOCK. AT PAGE NO.5, THE A.O. NOTED VARIOUS COMPARATIVE EXCESS EXP ENSES CLAIMED BY THE ASSESSEE. THE A.O. REJECTED THE BOOKS OF ACCOUNT OF THE ASSES SEE. AFTER REJECTING THE BOOKS OF ACCOUNT, THE A.O. ESTIMATED THE TURNOVER AT RS.4 2,00,000/- AGAINST THE TURNOVER OF RS.39,64,454/- SHOWN BY THE ASSESSEE. THE A.O. APPLIED 5% NET PROFIT RATE AND CALCULATED THE INCOME FROM BUSINESS FOR RS.2,10,000 /-. 5. THE A.O. HAS ALSO NOTED THAT THE ASSESSEE HAS CL AIMED RS.4,21,142/- ON ACCOUNT OF SALARY PAID TO PARTNER. HE FURTHER NOTI CED THAT THE SALARY PAID TO PARTNER INCLUDED FOUR LADY PARTNERS. THE A.O. WAS OF THE V IEW THAT SALARY TO LADY PARTNERS IS DISALLOWABLE AS AT THE TIME OF SURVEY NONE OF TH E LADY PARTNERS WAS PRESENT. THE A.O. WAS OF THE VIEW THAT THE ASSESSEE IS NOT ENTIT LED FOR SALARY FROM THE AMOUNT DECLARED AS SURRENDER ON ACCOUNT OF CLOSING STOCK. AS PER THE CALCULATION OF THE A.O. THE BOOK PROFIT WAS BELOW RS.1,00,000/-, THERE FORE, HE ALLOWED SALARY UPTO RS.50,000/-. THE A.O. ALLOWED SALARY TO PARTNERS O NLY RS.50,000/- AS AGAINST CLAIMED BY THE ASSESSEE FOR RS.4,21,142/-. ITA NO.520/AGR/2012 A.Y. 2006-07 4 6. THE CIT(A) ACCEPTED THE METHOD OF INCLUSION OF S TOCK DIFFERENCE OF RS.13,00,023/-. HOWEVER, THE CIT(A) FOUND THAT THE ASSESSEE HAS FAILED TO JUSTIFY THE TRADING RESULT DECLARED IN THE RETURNS OF INCOM E. THE CIT(A) AGREED WITH THE VIEW OF THE A.O. THAT IF INTEREST INCOME OF RS.1,35 ,377/- IS CONSIDERED SEPARATELY, THE RATE OF PROFIT OF THE ASSESSEE COMES TO NEGATIV E. THE CIT(A) FURTHER NOTICED THAT THE ASSESSEE HAS FAILED TO EXPLAIN THE ABNORMA L INCREASE AND INACCURACY OF EXPENSES THIS YEAR BOTH IN PRE SURVEY PERIOD OF 9 MONTHS AND POST SURVEY PERIOD OF 2 MONTHS. THE CIT(A) HELD THAT THE PROVISIONS OF SECTION 145 IS APPLICABLE THOUGH SPECIFICALLY HAS NO MENTIONED BY THE A.O. T HE CIT(A) AGREED WITH THE VIEW OF THE A.O. THAT UNDER THE FACTS AND CIRCUMSTA NCES THE BOOKS OF ACCOUNT DID NOT REFLECT TRUE POSITION OF STATE OF AFFAIRS. THE CIT(A) CONFIRMED THE ORDER OF THE A.O. IN REJECTION OF BOOKS OF ACCOUNT. HOWEVER, WH ILE ESTIMATING TOTAL INCOME IN THE YEAR UNDER CONSIDERATION, THE CIT(A) HELD THAT THE A.O. HAS ESTIMATED THE TURNOVER OF RS.42,00,000/- IN SALE DECLARED BY THE ASSESSEE OF RS.39,64,454/- WITHOUT BRINGING ON RECORD ANY SALE BILL OR OTHER M ATERIAL AS NO SUCH DOCUMENTS WAS FOUND IN THIS REGARD DURING THE COURSE OF SURVE Y OR ASSESSMENT PROCEEDINGS. THE CIT(A) DID NOT AGREE WITH THE A.O. FOR APPLYING N.P. @ 5% WHERE THE ASSESSEE HIMSELF HAD DECLARED PROFIT OF 4.81% IN LA ST YEAR ON COMPARABLE SALE OF RS.39,97,737/-. THE CIT(A) CORRECTLY ESTIMATED INC OME BY APPLYING N.P. RATE OF 4.81% ON TURNOVER OF RS.39,64,464/- DECLARED BY TH E ASSESSEE AND CALCULATION OF ITA NO.520/AGR/2012 A.Y. 2006-07 5 N.P. COMES TO RS.1,90,690/- IN PLACE OF INCOME ESTI MATED BY THE A.O. OF RS.2,10,000/-. 7. AS REGARDS THE DISALLOWANCE OF REMUNERATION OF L ADY PARTNERS, THE CIT(A) ALLOWED THE CLAIM AS UNDER :- (PAGE NOS.6 & 7) 4.2 APPELLANTS SUBMISSIONS ALONG WITH ASSESSMENT ORDER HAVE BEEN CONSIDERED CAREFULLY AND ARE FOUND ACCEPTABLE. PAY MENTS TO THE PARTNERS OF THE FIRM, INCLUDING LADY PARTNERS, HAVE BEEN MADE AS PER THE TERMS OF THE PARTNERSHIP DEED. AO HAS MADE THE SAID DISALLOWANCE MORE ON PRESUMPTIONS AND THE SOLE REAS ON THAT AT THE TIME OF SURVEY NONE OF THE LADY PARTNER WAS FOUND P RESENT AT THE BUSINESS PREMISES. ALL THE LADY PARTNERS ARE STATE D TO BE WELL EDUCATED AND CONVERSANT TO THE BUSINESS AFFAIRS OF THE APPELLANT FIRM. THE SAME FACT HAS NOT BEEN FOUND TO BE INCORRECT BY THE AO. AO HAS ALSO NOT BROUGHT ON RECORD ANY MATERIAL TO SHOW THA T THE SALARY PAID TO PARTNERS IS EXCESSIVE AS COMPARED TO SERVICES RE NDERED BY THEM. ON THE BASIS OF FACTS, DISALLOWANCE OF SALARY TO PA RTNERS PAID THROUGH APPELLANTS BOOKS OF ACCOUNTS AND DULY SHOWN THEREI N IS NOT FOUND SUSTAINABLE AND HEREBY DELETED, 8. AS REGARDS SEPARATE ADDITION OF RS.1,35,377 ON A CCOUNT OF INTEREST INCOME, THE CIT(A) DELETED THE ADDITION ON THE GROUND THAT THE INCOME OF THE ASSESSEE HAS BEEN COMPUTED ON ESTIMATE BASIS BY APPLYING NET PRO FIT RATE. THEREFORE, SEPARATE ADDITION OF INTEREST INCOME WHICH IS A BUSINESS INC OME DID NOT REQUIRE. 9. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PAR TIES AND RECORDS PERUSED. IT IS ADMITTED FACT THAT THE ASSESSEE HAS INCORPORATED THE SURRENDER AMOUNT ON ACCOUNT OF EXCESS STOCK IN THE TRADING ACCOUNT WHICH IS EVI DENT FROM COPY OF TRADING ITA NO.520/AGR/2012 A.Y. 2006-07 6 ACCOUNT FILED BY THE ASSESSEE. SIMULTANEOUSLY, IT IS ALSO ADMITTED FACT THAT THE ASSESSEE HAS CLAIMED EXCESSIVE EXPENSES PRIMA FACIE TO COVER THE INCOME DECLARED ON ACCOUNT OF EXCESS STOCK. IN THE LIGHT OF EXCESS STOCK DECLARED BY THE ASSESSEE AND EXCESSIVE EXPENDITURE CLAIMED, WE ARE OF THE VI EW THAT THE A.O. AND THE CIT(A) HAS CORRECTLY REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE. 10. THE NEXT STEP AFTER REJECTION OF BOOKS OF ACCOU NT IS ESTIMATION OF THE CURRENT YEARS PROFIT. WE NOTICE THAT THE CIT(A) ESTIMATED CURRENT YEAR PROFIT WHICH IS ON THE BASIS OF PROFIT RATE OF LAST YEAR OF THE ASSESS EE. THE CIT(A) HELD THAT THE A.O. ENHANCED THE SALES WITHOUT POINTING OUT ANY ERROR I N THE SALES DECLARED BY THE ASSESSEE. HE FURTHER HELD THAT THE A.O. HAS ALSO A PPLIED NET PROFIT RATE ARBITRARILY WITHOUT ANY BASIS. THE CIT(A) HAS TAKEN THE TURNOV ER DECLARED BY THE ASSESSEE AND APPLIED THE PROFIT RATE DECLARED BY THE ASSESSEE IN THE LAST YEAR. THE CIT(A) HAS ESTIMATED THE CURRENT YEAR PROFIT AT RS.1,90,690/- IN PLACE OF RS.2,10,000/- COMPUTED BY THE A.O. THE REVENUE DID NOT CHALLENGE THIS FINDING OF THE CIT(A) IN THE GROUNDS OF APPEAL FILED BEFORE US. 11. AS REGARDS THE GROUND NO.1 RAISED BY THE REVENU E, THE SAME APPEARS TO BE INCORRECT AS THE ASSESSEE HAS NOT CHALLENGED THE AM OUNT OF EXCESS STOCK RS.13,00,023/-. THE ASSESSEE ITSELF HAS SHOWN THIS AMOUNT IN TRADING ACCOUNT. THE FINDING OF CIT(A) ARE THAT THE ASSESSEE HAS RIGHTLY ADOPTED PROCEDURE OF ITA NO.520/AGR/2012 A.Y. 2006-07 7 DECLARATION OF EXCESS STOCK IN THE BOOKS OF ACCOUNT , THAT THE ASSESSEE HAS RIGHTLY CREDITED THE EXCESS STOCK AND HAS RIGHTLY INCREASED THE G.P. RATE ON ACCOUNT OF EXCESS STOCK SURRENDERED BY THE ASSESSEE AT THE TIM E OF SURVEY. THUS, THE GROUND RAISED BY THE REVENUE THAT THE CIT(A) HAS DELETED T HE ADDITION OF RS.13,00,023/- IS INCORRECT. IN FACT, THE CIT(A) DID NOT DELETE THE ADDITION. THE ABOVE FINDING OF CIT(A) ARE IN RESPECT OF BOOK PROFIT FOR THE PURPOS E OF ALLOWANCE OF SALARY TO PARTNERS. 12. THE LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON THE JUDGEMENT OF HONBLE HIMACHAL PRADESH HIGH COURT IN THE CASE OF HIRA SIN GH AND CO. VS. CIT, 230 ITR 791 (H.P.). THIS JUDGMENT DOES NOT HELP TO THE REV ENUE AS THERE IS NO DISPUTE REGARDING THE ADDITION OF SURRENDERED AMOUNT ON ACC OUNT OF EXCESS STOCK. IN THE LIGHT OF ABOVE DISCUSSION, GROUND NO.1 OF REVENUES APPEAL IS REJECTED. 13. THE ISSUE RAISED IN GROUND NO.2 OF THE APPEAL I S REGARDING THE DISALLOWANCE OF REMUNERATION TO PARTNERS. WE NOTICE THAT THE A. O. HAS DISALLOWED THE SAME ON TWO REASONS. FIRST REASON IS THAT DURING THE COURS E OF SURVEY, LADY PARTNERS WERE NOT FOUND. SUCH BASIS FOR DISALLOWANCE IS NOT SUST AINABLE UNLESS THERE IS MATERIAL THAT THE LADY PARTNERS WERE NOT WORKING PARTNERS, O THERWISE THE REMUNERATION TO PARTNER IS ALLOWABLE IN ACCORDANCE WITH THE INSTRUM ENT OF PARTNERSHIP DEED AND ALSO IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. THE A.O. DID NOT POINT OUT ANY OTHER ITA NO.520/AGR/2012 A.Y. 2006-07 8 MATERIAL. THEREFORE, THE DISALLOWANCE MADE BY THE A.O. FOR THE REASON THAT THE LADY PARTNERS WERE NOT FOUND AT THE TIME OF SURVEY IS NOT SUSTAINABLE. WE FIND THAT IN THIS REGARD THE CIT(A) HAS RIGHTLY TAKEN A VIEW THAT THE RUMINATION TO LADY PARTNERS IS ALLOWABLE. THE SECOND REASON FOR DISAL LOWANCE OF THE A.O. IS THAT THE BOOK PROFIT IS BELOW RS.1,00,000/-, THEREFORE, THE REMUNERATION TO PARTNERS IS ALLOWABLE IS ONLY UPTO RS.50,000/-. THE CIT(A) DID NOT ACCEPT THIS VIEW OF THE A.O. ON THE GROUND THAT THE AMOUNT DECLARED ON ACCO UNT OF EXCESS STOCK WAS SHOWN BY THE ASSESSEE IN TRADING ACCOUNT. THOUGH T HE BOOKS OF ACCOUNT HAVE BEEN REJECTED, BUT THE NATURE OF AMOUNT DISCLOSED ON ACC OUNT OF EXCESS STOCK REMAINED THE SAME AND IT IS TO BE TAKEN INTO CONSIDERATION A S BOOK PROFIT. AFTER CONSIDERING THE AMOUNT OF EXCESS STOCK RS.13,00,023/- AS BOOK P ROFIT, THE ASSESSEE IS ENTITLED FOR REMUNERATION TO PARTNERS. THE CLAIM OF THE ASS ESSEE OF REMUNERATION TO PARTNERS RS.4,21,142/- IS ON THE BASIS OF BOOK PROFIT, THERE FORE, THE SAME IS ALLOWABLE. WE FIND THAT THE CIT(A) HAS RIGHTLY ALLOWED THE CLAIM OF THE ASSESSEE. GROUND NAO.2 OF REVENUES APPEAL IS ALSO REJECTED. 14. FOR THE PURPOSE OF CLARITY, WE STATE FINAL POSI TION OF COMPUTATION OF TOTAL INCOME AFTER OUR ORDER WHICH IS AS UNDER :- INCOME FROM BUSINESS AS TAKEN BY THE A.O. RS.2,10, 000/- LESS: RELIEF GRANTED BY THE CIT(A) & RS. 19,31 0/- WHICH IS CONFIRMED BY US. ----------------- RS.1,90,690/- ITA NO.520/AGR/2012 A.Y. 2006-07 9 ADD: STOCK DECLARATION RS.13,00,023/- ------------------ TOTAL INCOME FROM BUSINESS RS.14,90,713/- LESS: INTEREST TO PARTNERS RS.4,06,324/- SALARY TO PARTNERS RS.4,21,142/- RS.8,27,466/- ----------------- TOTAL INCOME RS.6,63,247/- ----------------- 15. TOTAL INCOME RS.6,63,247/- AS AGAINST INCOME OF RS.5,00,600/- DECLARED BY THE ASSESSEE IN RETURN OF INCOME AND RS.11,89,076/- ASSESSED BY THE A.O. THE A.O. IS DIRECTED ACCORDINGLY. 16. IN THE RESULT, APPEAL FILED BY THE REVENUE IS D ISMISSED. (ORDER PRONOUNCED IN THE OPEN COURT) SD/- SD/- (BHAVNESH SAINI) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT MEMBER PBN/* COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT (APPEALS) CONCERNED 4. CIT CONCERNED 5. D.R., ITAT, AGRA BENCH, AGRA 6. GUARD FILE. BY ORDER SR. PRIVATE SECRETARY INCOME-TAX APPELLATE TRIBUNAL, AGRA TRUE COPY