The income Tax Officer, Ward-1(3), , Visakhaptnam V. Ashok Kumar Jain, Visakhapatnam

ITA 534/VIZ/2018

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 0879 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 4 year(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2022
• Appeal Filed By: Department
• Order Result: PartlyAllowed
• Bench Allotted: DB
• Next Hearing Date: 26-09-2022
• Assessment Year: misc
• Appeal Filed On: 10-10-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Unexplained investment
• Section: 131; 40A(3); 143(3); 133A; 133(6); 143(2)

Judgement Text

आयकरअपीलȣयअͬधकरण, ͪवशाखापटणमपीठ, ͪवशाखापटणम IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM Įीदुåवूǽआरएलरेɬडी, ÛयाǓयकसदèयएवंĮीएसबालाकृçणन, लेखासदèयकेसम¢ BEFORE SHRI DUVVURU RL REDDY, HON’BLE JUDICIAL MEMBER & SHRI S BALAKRISHNAN, HON’BLE ACCOUNTANT MEMBER आयकरअपीलसं./ I.T.A. No.534 & 535/Viz/2018 (Ǔनधा[रणवष[/ Assessment Years: 2011-12 & 2012-13) Income Tax Officer, Ward-1(3), Visakhapatnam. Vs. Sri Ashok Kumar Jain, D.No.26-8-78, Bowdara Road, Visakhapatnam. PAN: AALPJ 7029 F (अपीलाथȸ/ Appellant) (Ĥ×यथȸ/ Respondent) अपीलाथȸकȧओरसे/ Assessee by : Sri I Kama Sastry, CA Ĥ×याथȸकȧओरसे/ Revenue by : Sri MN Murthy Naik, CIT-DR सुनवाईकȧतारȣख/ Date of Hearing : 27/09/2022 घोषणाकȧतारȣख/Date of Pronouncement : 13/10/2022 O R D E R PER Bench: The captioned appeals are filed by the Revenue against the order of the Learned Commissioner of Income Tax (Appeals)-1, Visakhapatnam in ITA No.689/2014-15/ITO-W-1(3), Vsp/2017- 18 and ITA No.063/2015-16/ITO-W-1(3), Vsp/2017-18, dated 7/8/2018 for the AYs 2011-12 and 2012-13 arising out of the 2 orders passed U/s. 143(3) and 143(3) r.w.s 147 of the Income Tax Act, 1961 [the Act]respectively. Since the issues raised in both the appeals are identical, both these appeals are clubbed, heard together and disposed off in this consolidated order. 2. Firstly, we shall take ITA No. 534/Viz/2018 as a lead appeal and the grounds raised by the Revenue in this appeal are as follows: “1. The order of the Ld. CIT(A)-1, Visakh ap atnam is erroneous on fac ts and in law. 2. The Ld. CIT(A)-1, Visakh ap atnam erred in directing the AO to estim ate Gross Profit @ 1.6% (Gross Profit as per audited books of accounts) of unaccounted purchases of Rs. 1,17,12,373/- (quantified as per sales tax order) when th e said purchases are unaccounted and the p aymen ts to wards pur chases were made in cash in violation of provision of section 40A(3) of the IT Act. 3. The Ld. CIT(A)-1, ought to h ave considered that asse ssee has no t explained the sources of paymen ts made to ward s said purchases and therefore same were rightly treated as unexplained investment in purchases. 4. Withou t prejud ice to the above, the Ld. CIT (A)-1, while direc ting the AO to estim ate the profit at 1.6% of purchases, failed to note th at profit e lement in c ase of turnover relating to unac counted purchases is always higher th an the profit sho wn in aud ited statements of account. 5. The Ld.CIT(A) erred in directing the AO to estimate the gross profit at 1.6% (gross profit as per audited books of account) of second set of unaccounted purchases of Rs. 55,64,244/- [as per supp liers information obtained by the AO u/s. 133(6) when the said purch ase s are not recorded in the books of account of the assessee and where the paymen ts to wards purchases were made in cash in vio lation section 40A(3) of the IT Act. 6. The Ld. CIT (A)-1, ought to have considered that assessee has not explained the sources of paymen ts made to wards said purchases and therefore same were rightly treated as unexplained investment in purchases. 7. Withou t prejud ice to the above, the Ld. CIT (A)-1, while direc ting the AO to estim ate the profit at 1.6% of purchases failed to note 3 th at profit e lement in c ase of turnover relating to unac counted purchases is always higher th an the profit sho wn in aud ited statements of accounts. 8. The Ld. CIT (a)-1, Visakh ap atn am erred in directing the AO to estim ate profit at 1.6% on unaccounted tran sport/freight charges of Rs. 14,84,407/- (quantified as per sales tax order) when the expenses were incurred outside the regular books of account and in some case s in violation of section 40A(3) of the Act. 9. The Ld. CIT(A)-1, ought to h ave considered that asse ssee has no t explained the sources of paymen ts made to wards said expenses incurred for purchases and therefore same were rightly treated as unexplained investmen t in purchases. 10. Withou t prejud ice to the above, the Ld. CIT (A)-1, while direc ting the AO to estim ate the profit at 1.6% of expenses incurred for purchases failed to note th at profit element in c ase of turnover relating to unaccoun ted purchases is always higher th an the profit sho wn in aud ited statemen ts of account. 11. The Ld. CIT (A)-1, Visakh ap atn am erred in directing the AO to estim ate gross profit at 1.6% (gross profit as per audited books of account) on the unaccounted turnover of 6.84 Crs [as per evidence in the form of CD found during the survey] when the said turnover is unaccounted and profit element in case of unaccoun ted turnover is always h igher than the profit sho wn in the aud ited statemen t of accounts. 12. The Ld. CIT(A) ought to have upheld the addition made by the Ld. AO on account of unaccounted investment in purchases to generate turnover of Rs. 6.84 Crs as reflected in the CD found during the survey in add ition to reasonab le profit on the said turnover. 13. The appellan t cr aves leave to add or delete or amend or substitu te an y ground of appeal before and / or at the time of hearing of appeal.” 3. Briefly stated the facts of the case are that the assessee is a proprietor of M/s. Saahil Trading Company, Visakhapatnam and dealing in whole sale business of Dhalls, Sugar, Edible Oils, etc., filed his return of income for the AY 2011-12 on 30/09/2011 admitting a total income of Rs. 9,44,595/-. Initially survey U/s. 133A of the Act was conducted on 28/02/2011. Subsequently, 4 based on the information available another survey U/s. 133A was conducted on 17/5/2013. Statutory notices u/s. 143(2) and 142(1) of the Act were issued and served on the assessee on 16/08/2012. In response the assessee’s Representative appeared and produced / furnished the information called for by the Ld. AO. On verification of the detailed submissions made by the assessee’s representative, the Ld. AO framed the assessment by determining the total income at Rs. 8,83,46,463/-. The Ld. AO relied on the incriminating material found in the form of bills/vouchers and also the order of the Commercial Tax Officer (CTO), Suryabagh Circle, Visakhapatnam dated 31/1/2013 found that the assessee has not accounted 59 invoices/bills amounting to Rs. 1,17,12,373/-. Further, the Ld. AO also found that the assessee has not accounted the transportation/freight charges of Rs. 14,84,407/-. The details of the invoices are listed in the assessment order. The assessee in his sworn in statement recorded u/s. 131 of the Act on 11/09/2013; 26/09/2013 and 27/09/2013 disowned the transactions and claimed that these transactions were made by his cousin brother who is an authorized agent of the assessee and the same were not recorded in the books of accounts. Subsequently, the Ld. AO issued notices U/s. 133(6) of the Act to various suppliers. In response 5 to the notice U/s. 133(6) of the Act, the suppliers confirmed the transactions as listed in the order of the Ld. AO. 4. Further, the Ld. AO also observed that from the replies received in response to notice U/s. 133(6) additional unaccounted purchases of Rs. 55,64,244/- were unaccounted in the books of accounts as per the list detailed in the order of the Ld. AO. The Ld. AO provided one more final opportunity U/s. 142(1) and letter dated 5/2/2014 to comply with the notice on 13/02/2014 to explain as to why the additional unaccounted purchases of Rs. 55,64,244/- cannot be treated as unaccounted investment and added to the returned income. The assessee contended that even though the transactions are not owned by him but accepted the additions to be made on account of unaccounted transactions with respect to the profit margin as filed as per the return of income in the relevant assessment year. 5. The Ld. AO also further observed that the assessee accepted the fact that all the above unaccounted transactions are pertaining to his proprietorship concern but it was done by his cousin brother without his knowledge. The Ld. AO further relying on the CD found in the business premises of the assessee during the survey operations which contained balance sheet and 6 sales details for the period 19/04/2010 to 26/03/2011 in the Excel Sheet,observed that the turnover was shown at Rs. 32,26,99,282/- and whereas while filing the return of income the assessee disclosed the turnover of Rs. 25,42,61,465/. The difference in turnover was considered as unaccounted sales for Rs. 6,84,37,817/-. 6. The assessee disowned the CD and its contents which were found during the course of the survey proceedings. The Ld. AO considered the gross profit margin of 1.6% as per the audited balance sheet and concluded the profit margin of Rs. 10,95,005/- on the unaccounted sales of Rs. 6,84,37,817/- as income of the assessee. Further, the Ld. AO also added Rs. 6,84,37,817/- as unaccounted investment. Accordingly, the Ld. AO determined the total tax at Rs. 3,71,33,200/- for the AY 2011-12. Aggrieved by the order of the Ld. AO, the assessee carried the matter in appeal to the Ld. CIT(A). 7. Before the Ld. CIT(A), the assessee contended that during the survey conducted on two occasions nowhere it was found any documents with regard to unaccounted purchases and sales. The Ld. AR also further contested that there was no mentioning of excess stock or shortage in stock detected during the survey 7 ontwo occasions. Considering the submissions made by the assessee’s Representative, the Ld. CIT(A) discussed about the three alternatives as detailed below: “5. Al ternative No.1: The maximum purchases th at were detected by the AO co mes to Rs. 8,61,03,836/- (including those purchases arrived by the AO out of the unaccounted s al es figure) therefore if profit percentage is adopted @ 1.6% on this purchase figure the profit comes to Rs. 13,77,661/- on this entire trans actions. 6. If above (5) is adopted there is no need of Rs. 10,95,000/- as a sep arate addi tion out of profit from unaccounted s al es. 7. Peak l evel of purchases: In an y case, AO was not justified in taking al l sources of information for the purpose of making addi tion, th at is to s ay, purchases b ased on Invoices av ail abl e at the premises of the as sessee, invoices detail s received in response to notice U/s. 133(6) and ag ain detail s of purchases av ail abl e in the CD impounded, here it is submitte d th at entire de tail s of all purchases are av ail abl e on CD therefore AO is to adopt profi t percentage @ 1.6% on the total purchases of Rs. 6,73,42,812/-, which comes to Rs. 10,77,485/- the same can be brought to tax. 8. Al ternative No.2. AO himself arrived a profit of Rs. 10,95,005/- on the unaccounted s al es of Rs. 6,84,37,817/- and therefore al l other cal cul ations are not call ed for. He was not justified in taking different stand for making different addi tions. 9. Al ternative No.3: The AP found both unaccounted purchases and unaccounted s al es, there was no other issues in the regul ar books of accounts of the assessee. Anal ysis of the unaccounted purchases and unaccounted sal es, the net resul t comes to Since books of accounts are accepte d by the AO, the net resul t of unaccounted purchases and un acounted sal es are to be taken for the purpose of tax ation, and the s ame comes to LOSS of Rs. Unaccounted purchases (Rs.) Unaccounted sales (Rs.) Profit / Loss (Rs.) 1,17,12,373 14,84,407 55,64,244 6,73,42,812 6,84,37,817 Total: 8,61,03,836 Total: 6,84,37,817 Total: 1,76,66,019 8 1,76,66,019/- and if this is added to the ROI, the income l iabl e to be taxed comes to a NEGATIVE FIGURE THAN RETURNED PROFIT.” 8. The Ld. CIT (A) therefore directed the Ld. AO to adopt the gross profit @ 1.60% on all the said unaccounted purchases and unaccounted sales. The Ld. CIT(A) also issued a corrigendum dated 4/9/2018 directing the Ld. AO to delete the addition of Rs. 6,84,37,817/- and profit margin @ 1.6% on the unaccounted sales shall be treated as income of the assessee. Aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before us. 9. The main grievance of the Revenue as culled out from the Grounds of Appeal is with respect to estimation of gross profit of 1.6% on the unaccounted purchases, sales and on the transport / freight charges. The Ld. DR argued that the survey team has found 59 invoices totaling to Rs. 1,17,12,373/- purchases not accounted for in the books of accounts. The Ld. DR also argued that the assessee accepted the same during the proceedings before the Commercial Tax Officer. The Ld. DR further submitted that the assessee having disowned the transactions and has claimed that it was done by his cousin brother without his knowledge but has accepted profit margin, which is contradictory. The Ld. DR further submitted that as per the CD 9 found during the survey proceedings, the balance sheet available in the CD shows the same bank balance and balances as per the audited financial statement but showing a difference in turnover of Rs. 6,84,37,817/-. The Ld. DR therefore pleaded that the order of the Ld. AO be upheld. Per contra, the Ld. Authorized Representative [Ld. AR] argued that during the survey on two occasions no excess stock was found by the survey team. The Ld. AR further submitted that no excess cash was also found during the survey proceedings. He therefore vehemently argued that there cannot be unexplained investment on purchases. The Ld. AR also submitted that this fact was recorded by the Ld. CIT(A) in her order. The Ld. AR also stated that the balance sheet found in the Excel Sheet of the CD refers to a partnership firm and not the proprietary concern and hence it cannot be relied upon. The Ld. AR therefore pleaded that the order of the Ld. CIT(A) be upheld. 10. We have heard both the sides and perused the materials available on record and the orders of the Authorities below. Admittedly there are unaccounted purchases amounting to Rs. 1,17,12,373/-, unaccounted transport/freight charges amounting to Rs. 14,84,407/- and accounted investment on account of 10 additional unaccounted purchases for Rs. 55,64,244/- and unaccounted sales of Rs. 6,84,37,817/-. The claim of the assessee that these transactions were done by his cousin brother, who is an authorized agent of the assessee, without his knowledge cannot be accepted as it is baseless. 11. Further, it is found from the Ld. CIT(A) order that the Ld. CIT(A) has discussed about the various alternatives as detailed above in her order. The Ld. CIT (A) has not made any specific finding with respect to the gross profit of 1.6% while directing the Ld. AO to adopt the same. The Ld. CIT(A) has grossly erred in completing the proceedings without adducing any valid reason for adoption of the gross profit percentage in her order. We hereby extract below the findings of the Ld. CIT(A): “6. I h ave considered the submissions made by the appell ant an d al so gone through the assessment order. Basing on the CD an d other submissions which were veri fied during the course of appe al proceedings, I hol d that GP @ 1.6% on all the sai d unaccounted purchases and un accounted sal es of Rs. 1,72,76,617/- (ie Rs. 1,17,12,373 + Rs. 55,64,244) have to be considered as requested by appel l ant, which is reasonabl e. Sl no Nature of addition Amount (Rs.) Remarks 1. Unexplained investment on account of unaccounted purchase as 59 invoices / bills 1,17,12,373 The AO is directed to estimate profit @ 1.6% 2. Unexplained investment on account of additional unaccounted purchase as per replies to Notices U/s. 133(6) from the suppliers. 55,64,244 The AO is directed to estimate profit @ 1.6% 3. Undisclosed profit on account of 10,95,000 The AO has already 11 unaccounted sales as per balance sheet contained in CD impounded from the assessee’s premises. estimated profit @ 1.6% on accounted sales of Rs. 6,84,37,817 contained in a CD which was impounded from the assessee’s premises. Hence no addition warranted. Hence, the AO is directed to estimate GP @ 1.6% as ag ainst the whol e purchases which we re adde d by him in the assessmen t order.” 12. We therefore find that the Ld. CIT(A) without verifying the evidences has grossly erred in determining the gross profit percentage @ 1.6% and therefore we are of the considered view that the Ld. CIT(A) is directed to verify the details of unaccounted purchases, sales and transport charges and pass a detailed order for the relevant assessment year. Accordingly, we hereby remit the matter back to the file of the Ld. CIT(A) with a direction to adjudicate the appeal on the basis of our observations and pass a detailed speaking order after considering all the evidences. Needless to mention that the assessee should be given sufficient opportunity of being heard in accordance with the principles of natural justice. It is ordered accordingly. 13. In the result, appeal of the Revenue is allowed for statistical purposes. 12 ITA No. 535/Viz/2018 AY: 2012-13 14. This appeal filed by the Revenue against the of the Ld. CIT(A)-1, Visakhapatnam for the AY 2012-13. 15. The Revenue has raised eight grounds in its appeal however, the issues raised thereto are identical to that of the issues raised by the Revenue in its appeal for the AY 2011-12. Since the issues are identical for the AY 2011-12 and 2012-13, our decision on the issues raised for the AY 2011-12 mutatis mutandis applies to the issues raised in the appeal for the AY 2012-13 also. Accordingly, the grounds raised by the Revenue are allowed for statistical purposes. 16. In the result, appeal of the Revenue is allowed for statistical purposes. Pronounced in the open Court on the 13 th October, 2022. Sd/- Sd/- (दुåवूǽआर.एलरेɬडी) (एसबालाकृçणन) (DUVVURU RL REDDY) (S.BALAKRISHNAN) ÛयाǓयकसदèय/JUDICIAL MEMBER लेखासदèय/ACCOUNTANT MEMBER Dated : 13.10.2022 OKK - SPS 13 आदेशकȧĤǓतͧलͪपअĒेͪषत/Copy of the order forwarded to:- 1. Ǔनधा[ǐरती/ The Assessee–Sri Ashok Kumar Jain, D.No.26-8-78, Bowdara Road, Visakhapatnam. 2. राजèव/The Revenue – Income Tax Officer, Ward-1(3), 4 th Floor, Direct Taxes Building, MVP Double Road, Visakhapatnam – 530017. 3. (i) The Chief Commissioner of Income Tax, Visakhapatnam. (ii) The Principle Commissioner of Income Tax 4. आयकरआयुÈत (अपील)/ The Commissioner of Income Tax 5. ͪवभागीयĤǓतǓनͬध, आयकरअपीलȣयअͬधकरण, ͪवशाखापटणम/ DR,ITAT, Visakhapatnam 6. गाड[फ़ाईल / Guard file आदेशानुसार / BY ORDER Sr. Private Secretary ITAT, Visakhapatnam