ACIT, CHENNAI V. Shri Venkateswara Traders, CHENNAI

ITA 521/CHNY/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4979 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-06-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 23-03-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: P B SEKARAN
• Keywords: Unexplained cash credit; Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH B CHENNAI BEFORE U.B.S.BEDI, JUDICIAL MEMBER AND SHRI ABRAHAM P.GEORGE, ACCOUNTANT MEMBER .. ITA NO.521/MDS./11 ASSESSMENT YEAR:2007-08 ACIT, CIRCLE IX, CHENNAI. VS. SHRI VENKATESWARA TRADERS, GOVINDAPPA NAICKEN ST., CHENNAI. PAN AACFS 4984 M (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI P.B.SEKARAN DEPARTMENT BY : NONE O R D E R PER ABRAHAM P.GEORGE, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE REVENUE AGAINS T THE ORDER DT.15.12.2010 BY WHICH HE DELETED RS.19,25, 707/- OUT OF A TOTAL ADDITION OF RS.26,00,000 MADE BY THE ASSESS ING OFFICER, FOR UNEXPLAINED TRADE CREDIT BALANCES. 2. WHEN THE CASE WAS CALLED UP FOR HEARING, NOBODY APPEARED ON BEHALF OF THE ASSESSEE. ASSESSEE HAS HO WEVER FILED AN UNSIGNED LETTER RECEIVED IN THE REGISTRY O N 28.04.11. IN THIS LETTER, IT IS STATED AS UNDER:- THE ORDER PASSED BY THE ASST. COMMISSIONER OF INCO ME TAX CIRCLE IX WAS OBJECTED BY US ON TWO GROUNDS THROUGH GROUND OF APPEALS FILED BY US AND SUBSEQUEN T PAGE OF 7 ITA. 521/MDS/11 2 HEARINGS ON TWO GROUNDS BEFORE THE LD. COMMISSIONER OF INCOME TAX VIZ. 1. WE COULD NOT PRODUCE THE DETAILS OF SUNDRY CREDI TORS AT THE TIME OF SURVEY BECAUSE ALL OF THEM WERE CULTIVATORS IN REMOTE VILLAGES OF TELENGANA AREA ASSESSING OFFICER. HOWEVER, CONFIRMATION AND RECEIPTS WERE OBTAINED AT THE TIME OF PAYMENT. UNDER THE CIRCUMSTANCES, THE ASSESSING OFFICER IS N OT JUSTIFIED IN REJECTING OUR SUBMISSION WITH REGARD T O THE SUNDRY CREDITORS. THE COPIES OF RECEIPTS AND DETAI LS WERE SUBMITTED AT THE TIME OF HEARING. 2. THE INCOME ARRIVED AT BY THE ASSESSING OFFICER W ORKS OUT TO 56% OF THE TURNOVER WHICH IS NOT POSSIBLE AN D HENCE REQUESTED THAT THE ADDITION OF ENTIRE RS.2600000/- MAY BE CANCELLED. WE HAD ALSO SUBMITTED THAT THE ADDITION MADE TO THE STOCK DURING THE SURVEY WAS ALSO FIXED ARBITRARILY WITHOUT VERIFICATION OF STOCK. HOWEVER, THE COMMISSIONER OF INCOME TAX(A) IX HAD PARTLY ALLOWED OUR APPEAL CONSIDERING HIGH PROFIT R ATIO ONLY. UNDER THE CIRCUMSTANCES, WE SUBMIT THAT THERE IS NO REASON TO SET ASIDE THE COMMISSIONER OF INCOME TAX ORDER. 3. SHORT FACTS, APROPOS ARE THAT ASSESSEE, A WHOLESALE AND RETAIL TRADER IN COUNTRY DRUGS, WAS SUBJECT TO A SU RVEY OPERATION ON 06.02.07. IN A SWORN STATEMENT GIVEN BY ONE SHRI MUKUNDAN, MANAGING PARTNER OF THE FIRM, IT SEE MS PAGE OF 7 ITA. 521/MDS/11 3 ASSESSEE OFFERED A SUM OF RS.18.94 LAKHS AS DIFFERE NCE IN STOCK AND FURTHER A SUM OF RS.26 LAKHS ON ACCOUNT O F HIS INABILITY TO FURNISH DETAILS OF TRADE CREDITORS. NE VERTHELESS WHEN THE RETURN OF INCOME WAS FILED ON 06.12.07, TH E TOTAL INCOME WAS RETURNED RS.14,34,989/- ONLY. EXPLANATIO N OF THE ASSESSEE WAS THAT THE EXCESS STOCK OF RS.19 LAKHS W AS INCLUDED IN THE CLOSING STOCK ADMITTED IN THE RETUR N FOR THE YEAR 2007-08. FURTHER ACCORDING TO THE ASSESSEE G P RATE, WHICH WAS 11.26% IN THE PRECEDING YEAR, HAD INCREAS ED TO 32% IN THE RELEVANT PREVIOUS YEAR. ASSESSEE ALSO P RODUCED THE BOOKS OF ACCOUNT, BILLS AND VOUCHERS AND EXPENS ES BEFORE THE ASSESSING OFFICER. INSOFAR AS TRADE CREDITORS OF RS.26 LAKHS WAS CONCERNED, ASSESSEE PRODUCED PARTIES LED GER ACCOUNT WITH A LIST. ASSESSING OFFICER NOTED FROM SUCH LEDGER ACCOUNT THAT MANY OF THE TRADE CREDITORS WERE NEW P ARTIES AND THE AMOUNTS WERE IN THOUSANDS ONLY. AS PER THE ASSESSEE, MUCH OF THE PURCHASE OF RAW MATERIALS LIK E MEDICINAL DRY ROOTS, LEAVES ETC. WERE FROM PARTIES IN ANDHRAPRADESH, WHICH WAS ENGULFED IN TELUNGANA PROB LEM. THEREFORE, ACCORDING TO HIM, IT WAS NOT POSSIBLE TO PRODUCE THE CONFIRMATION THOUGH SUCH CONFIRMATIONS WERE ASS URED TO BE PRODUCED BY THE ASSESSEE DURING THE SURVEY PROCE EDINGS. ASSESSEE ALSO BROUGHT TO THE NOTICE OF ASSESSING O FFICER THAT SUCH TRADE CREDITORS ACCOUNT WERE CLOSED IN THE SUC CEEDING YEAR. HOWEVER, THE ASSESSING OFFICER WAS OF THE OP INION THAT ASSESSEE HAVING NOT FILED THE CONFIRMATIONS AS PROM ISED BY IT DURING THE COURSE OF SURVEY, DID NOT PROVE THE GENU INENESS OF THE BALANCES IN THE TRADE CREDITORS ACCOUNT. FURT HER ACCORDING TO HIM, EVEN THE ADDRESSES OF THE TRADE C REDITORS PAGE OF 7 ITA. 521/MDS/11 4 WERE NOT AVAILABLE. HE THEREFORE, CONSIDERED THE BA LANCES IN THE TRADE CREDITORS ACCOUNT AS UNEXPLAINED AND MAD E AN ADDITION OF RS.26 LAKHS. 4. IN ITS APPEAL BEFORE THE COMMISSIONER OF INCOME TAX(A), ASSESSEE ARGUED THAT ITS SALES FOR THE RELE VANT PREVIOUS YEAR CAME TO RS.90,13,865/- AGAINST WHICH THE NET PROFIT SHOWN WAS RS.20,29,866/- WORKING OUT TO 22.5 %. AS PER THE ASSESSEE IF ADDITION OF RS.26 LAKHS MADE BY THE ASSESSING OFFICER WAS SUSTAINED, IT WOULD RESULT I N THE NET PROFIT RATE GOING UPTO 44% AND SUCH KIND OF PROFIT WAS NOT POSSIBLE IN THE TRADE THAT THE ASSESSEE WAS ENGAGED IN. COMMISSIONER OF INCOME TAX(A) AFTER HEARING THE ASS ESSEE WAS OF THE OPINION THAT 44.7% PROFIT ON TOTAL TURNO VER WAS ON A HIGHER SIDE AND ASSESSEE COULD NOT HAVE MADE THAT MUCH AMOUNT ON THE TYPE OF TRADE HE WAS ENGAGED IN. NEVERTHELESS, ACCORDING TO HIM 30% OF TOTAL TURNOVE R COULD BE CONSIDERED AS POSSIBLE PROFIT. HE THEREFORE, FI XED THE PROFIT AT 30% AND THE RESULT WAS THAT ASSESSEE GOT A RELIEF OF RS.19,25,707/-. 5. NOW BEFORE US. LD. DR ASSAILING THE ORDER OF TH E COMMISSIONER OF INCOME TAX(A) SUBMITTED THAT THE AS SESSING OFFICER HAD NOT MADE ANY ESTIMATION OF PROFIT. HE H AD ONLY MADE AN ADDITION OF RS.26 LAKHS TOWARDS TRADE CREDI TORS THAT REMAINED UNPROVED TO THE ADMITTED TOTAL INCOME. AS PER LD. DR, COMMISSIONER OF INCOME TAX(A) WENT OFF TANGENT IN PROCEEDING IN A DIFFERENT MANNER WHEN THE ASSESSING OFFICER HAD NOT REJECTED THE BOOKS NOR APPLIED ANY PROFIT R ATE. PAGE OF 7 ITA. 521/MDS/11 5 6. WE HAVE PERUSED THE ORDERS & LETTER FILED BY RESPON DENT AND HEARD THE CONTENTIONS OF DR. AS ALREADY MENTIONED BY US EXCEPT FOR THE LETTER FILED, NOBODY ENTERED APPEAR ANCE ON ASSESSEES BEHALF. IT IS CLEAR FROM THE ASSESSMEN T ORDER THAT THE ASSESSEE HAD TRADE CREDITORS OF RS.26 LAKHS AND IT WAS UNABLE TO FURNISH DETAILS OF THE TRADE CREDITORS, N OT EVEN THE TRADE CREDITORS ADDRESSES WERE GIVEN TO THE ASSESS ING OFFICER. JUST BECAUSE IN THE SUCCEEDING YEAR, THE T RADE CREDITORS ACCOUNT WERE CLOSED, WOULD NOT BE A REASO N FOR AN ASSESSEE TO ARGUE THAT THE BALANCES, AS AT THE END OF THE RELEVANT PREVIOUS YEAR WAS CORRECT. THE RAW MATERI ALS PURCHASED WERE NOT ONLY FROM ANDHRAPRADESH BUT ALSO FROM KERALA AND TAMILNADU. AN ASSESSEE WHICH CLAIM THAT BALANCES IN TRADE CREDITORS ACCOUNT ARE CORRECT, IS DUTY BOUND TO FURNISH CONFIRMATION FROM SUCH TRADE CREDI TORS. SUCH CONFIRMATION COULD EVEN BE IN THE FORM OF AN ACCOUNT COPY SIGNED BY THE CONCERNED TRADE CREDITORS. HERE, THE ASSESSEE NOT ONLY FAULTED TO FURNISH THE CONFIRMATI ONS BUT COULD NOT EVEN FURNISH THE ADDRESS. ASSESSEE COUL D NOT DISCHARGE THE BASIC ONUS WHICH WAS UPON IT TO PROVE THE CREDIT BALANCES. LD. COMMISSIONER OF INCOME TAX(A) SIMPLY WENT BY A PROFIT RATE ANALYSIS AND CAME TO A CONCLU SION THAT IF THE TRADE CREDITORS WERE ADDED, PROFIT RATE WOU LD UPTO 44.7%, WHICH WAS NOT PRACTICAL. AS MENTIONED BY THE LD. DR THE ADDITION WAS NOT DONE BY REJECTING BOOKS AND A PPLYING ANY PROFIT RATE. LD. COMMISSIONER OF INCOME TAX(A) COULD NOT HAVE APPLIED A PROFIT RATE ON THE TURN OVER, WHEN T HE ASSESSING OFFICER HAD NOT ADOPTED ANY SUCH METHODOL OGY IN THE ASSESSMENT, NOR REJECTED THE BOOKS OF THE ASSES SEE. PAGE OF 7 ITA. 521/MDS/11 6 THOUGH ASSESSEE HAS STATED IN ITS LETTER REPRODUCED AT PARA 2 ABOVE THAT CONFIRMATION RECEIPTS WERE OBTAINED FR OM THE CREDITORS CONCERNED, THERE IS NOTHING ON RECORD TO SHOW SUCH CONFIRMATION HAVING BEEN PRODUCED BEFORE THE A SSESSING OFFICER. WE ARE OF THE OPINION THAT THE COMMISSION ER OF INCOME TAX(A) ERRED IN SCALING DOWN THE ADDITION BY APPLYING A PROFIT RATE, WHEN THE ORIGINAL ADDITION WAS MADE FOR UNEXPLAINED CREDIT BALANCE. WE THEREFORE, SET ASID E THE ORDER OF THE COMMISSIONER OF INCOME TAX(A) AND REIN STATE THE ADDITION MADE BY THE ASSESSING OFFICER. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF HEARING ON 2 ND JUNE, 2011. SD/- SD/- ( U.B.S.BEDI ) ( ABRAHAM P. GEORGE ) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 2 ND JUNE, 2011. K S SUNDARAM COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE PAGE OF 7 ITA. 521/MDS/11 7 DATE INITIALS 1. DRAFT DICTATED ON 02.06.11 2. DRAFT PLACED BEFORE AUTHORITY 02.06.11 3. DRAFT PLACED BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 5. APPROVED DRAFT COMES TO P.S. 6. KEEP FOR PRONOUNCEMENT ON 7. FILE SENT TO THE BENCH CLERK 8. DATE ON WHICH FILE GOES TO THE 9. DATE OF DISPATCH OF ORDER