Navneet Kumar Agarwal, Hyderabad V. ITO,Ward 8(2), Hyderabad

ITA 552/HYD/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 87202 (ITAT-HYDERABAD)
• Duration Of Justice: 9 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-01-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 27-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITRA
• Assessee Lawyers: MADHU SADAN MANTRI
• Keywords: Gross profit estimation; Bad and doubtful debts; Agreed addition

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 552/HYD/2014 ASSESSMENT YEAR: 2009-10 NAVNEET KUMAR AGARWAL, HYDERABAD. PAN AEXPA2244P INCOME-TAX OFFICER, WARD 8(2), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI MADHU SADAN MANTRI REVENUE BY SHRI RAJAT MITRA DATE OF HEARING 10-12-2014 DATE OF PRONOUNCEMENT 07-01-2015 O R D E R PER SAKTIJIT DEY, J.M.: THIS APPEAL OF THE ASSESSEE IS AGAINST ORDER DATED 15/01/14 PASSED BY LD. CIT(A)-III, HYDERABAD PERTAINING TO A Y 2009-10. 2. THE ISSUE IN THIS APPEAL IS CONFINED TO THE DEC ISION OF LD. CIT(A) IN SUSTAININGADDITION OF RS. 15 LAKHS. 3. BRIEFLY THE FACTS ARE, ASSESSEE AN INDIVIDUAL DE RIVES INCOME FROM CLOTH BUSINESS. FOR THE AY UNDER DISPUTE, ASSE SSEE FILED HIS RETURN OF INCOME ON 26/09/09 DECLARING TOTAL INCOME OF RS. 8,46,060. DURING THE ASSESSMENT PROCEEDING, AO AFTER EXAMININ G THE BOOKS OF ACCOUNT AND VOUCHERS, BILLS, ETC. ISSUED A SHOW CAU SE NOTICE TO ASSESSEE PROPOSING TO MAKE THE FOLLOWING ADDITIONS/ DISALLOWANCES: 1. ON ACCOUNT OF LOW GP RS. 13,55,903 2. DISALLOWANCE OF 20% OF BROKERAGE CLAIMED RS. 28 ,37,092 2 ITA NO. 552/HYD/2014 NAVNEET KUMAR AGARWAL 3. DISALLOWANCE OF BAD DEBTS WRITTEN OFF RS. 7,0 9,270 4. DISALLOWANCE OF CASH PAYMENTS MADE ABOVE RS. 20,000 U/S 40(A)(3) RS. 40 LAKHS 5. DIFFERENCE BETWEEN SALES FIGURE RS. 8 0,19,590 AS NOTED BY AO IN THE ASSESSMENT ORDER, IN RESPONSE TO THE SHOW CAUSE NOTICE, ASSESSEE FILED A LETTER DATED 14/12/1 1 OBJECTING TO THE PROPOSED ADDITION. FURTHER, IT HAS BEEN MENTIONED B Y AO, IN COURSE OF ASSESSMENT PROCEEDING, ASSESSEES AR AGREED FOR AD DITION OF AN AMOUNT OF RS. 15 LAKHS FOR AVOIDING FURTHER LITIGAT ION. AO, HOWEVER, DID NOT ACCEPT ASSESSEES OFFER OF ADDITIONAL INCOM E OF RS. 15 LAKHS AND ULTIMATELY MADE THE ADDITIONS AS PROPOSED BY HI M IN THE SHOW CAUSE NOTICE AS A RESULT OF WHICH TOTAL INCOME WAS DETERMINED AT RS. 1,49,97,385. BEING AGGRIEVED OF THE ASSESSMENT ORDE R, SO PASSED, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A). 4. LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE IN THE LIGHT OF FACTS AND MATERIALS ON RECORD, DELETED THE ADDITION OF RS. 40 LAKHS MADE ON ACCOUNT OF DISALLOWANCE U/S 40(A)(3) AND THE AMOUNT OF RS. 80,19,590 ON ACCOUNT OF DIFFERENCE IN SALES. HOWEVER, SO FAR AS OTHER THREE ITEMS OF ADDITIONS MADE BY AO SUCH A S BROKERAGE, BAD DEBTS WRITTEN OFF AND LOW GP, LD. CIT(A), THOUGH, U PHELD THE REJECTION OF BOOKS OF ACCOUNT, BUT, OBSERVED THAT ONCE, AO HA S ESTIMATED THE TURNOVER AND NET PROFIT, NO ADDITIONS RELATING TO T RADING CAN BE MADE. FURTHER, CONSIDERING THE FACT THAT ASSESSEE HAS OFF ERED ADDITIONAL INCOME OF RS. 15 LAKHS, OVER AND ABOVE THE RETURNED INCOME, LD. CIT(A) HELD THAT ADDITION TO THE EXTENT OF RS. 15 L AKHS (WRONGLY MENTIONED AS RS. 50 LAKHS IN PARA 5.6 OF THE ORDER OF CIT(A) ) OVER AND ABOVE RETURNED INCOME, SHOULD BE SUSTAINED. BEI NG AGGRIEVED OF THE FINDINGS OF LD. CIT(A), ASSESSEE IS BEFORE US. 5. LD. AR SUBMITTED BEFORE US THAT ASSESSEE MAINTAI NED PROPER BOOKS OF ACCOUNT BEING SUPPORTED BY VOUCHERS, BOOKS OF ACCOUNTS ARE 3 ITA NO. 552/HYD/2014 NAVNEET KUMAR AGARWAL ALSO AUDITED U/S 44AB. IT WAS SUBMITTED THAT ASSESS EE PURCHASES TEXTILE GOODS IN METERS AND SELLS IN NUMBERS. THOUG H, NO STOCK REGISTER IS MAINTAINED CONSIDERING THE LARGE VARIET IES AND SIZES, HOWEVER, AS PER THE PHYSICAL STOCK TAKEN AT THE END CORRECT GP IS DERIVED AND ACCOUNTED FOR. IT WAS FURTHER SUBMITTED , ASSESSEE IS PURCHASING ONLY FROM SRI MAHALAXMI TEX PRINTS(P) LT D., AN ASSOCIATE CONCERN. IN OTHER WORDS, IT CAN BE CONSIDERED AS A DISTRIBUTOR FOR THIS COMPANY. AO WITHOUT PROPERLY APPRECIATING THE FACT S HAS INCREASED THE GP RATIO. IT WAS SUBMITTED THAT THOUGH AO HAS I NCREASED GP ON THE GROUND OF NON-MAINTENANCE OF STOCK REGISTER, BU T, IN SCRUTINY ASSESSMENT PROCEEDING IN THE EARLIER AY, GP DECLARE D BY ASSESSEE WAS ACCEPTED. LD. AR FURTHER SUBMITTED THAT THERE I S FALL IN GP RATIO FROM 4.39% TO 3.74%, BUT, NET PROFIT HAS INCREASED FROM 7.13 LAKHS TO 9.91 LAKHS DUE TO LARGER VOLUME OF SALES WITH INCRE ASE OF 48%. IT WAS CONTENDED BY LD. AR THAT POLICY OF INCREASING SALES BY SLIGHTLY REDUCING, GP GAVE GOOD RESULTS AND PROFIT WAS INCR EASED. TO SUBSTANTIATE SUCH CLAIM, FOLLOWING WORKING WAS SUBM ITTED: 2008-09 FY 2007-08 FY DIFF. (RS. IN LAKHS) SALES 2009.27 1361.41 +47.58% GP DERIVED 75.25 59.77 +15.48 LAKHS GP RATIO 3.75% 4.39% -0.64% NP 9.91 7.13 2.78 LAKHS IT WAS SUBMITTED BY LD. AR, THOUGH LD. CIT(A) DELE TED THE MAJOR ADDITIONS AND ALSO DID NOT FIND ANY REASONABLE BASI S FOR ADDITIONS MADE ON ACCOUNT OF BROKERAGE AND BAD DEBTS WRITTEN OFF, BUT BEING CARRIED AWAY BY THE ADDITIONAL INCOME OFFERED BY AS SESSEE OF RS. 15 LAKHS, LD. CIT(A) SUSTAINED THE ADDITION TO THAT EX TENT. CONTESTING THE ADDITION OF RS. 15 LAKHS, LD. AR SUBMITTED ONLY TO COVER UP ANY DISCREPANCIES ASSESSEE IN COURSE OF ASSESSMENT PROC EEDING HAD AGREED TO OFFER AN ADDITIONAL INCOME OF RS. 15 LAKH S. LD. AR SUBMITTED THAT ONLY BECAUSE OF PRACTICAL DIFFICULTI ES, ASSESSEE HAS NOT MAINTAINED STOCK REGISTER, WHICH WAS WELL EXPLAINED BEFORE THE DEPARTMENTAL AUTHORITIES, BUT, ALL OTHER FINANCIAL RECORDS HAVE BEEN 4 ITA NO. 552/HYD/2014 NAVNEET KUMAR AGARWAL FULLY MAINTAINED WHICH HAS NOT BEEN DISPUTED BY AO. IT WAS SUBMITTED, IN FACT, AO HAS NOT REJECTED BOOKS OF AC COUNT. IT WAS FURTHER SUBMITTED, THE INCREASE OF 48% IN TURNOVER HAS NOT BEEN DISPUTED BY AO. THUS, IT WAS SUBMITTED THAT WHEN TH ERE IS NO DEFECT AND DISCREPANCIES IN THE BOOKS OF ACCOUNT, LD. CIT( A) WAS NOT JUSTIFIED EITHER IN OBSERVING THAT REJECTION OF BOOKS OF ACCO UNT WAS PROPER OR SUSTAINING THE ADDITION OF RS. 15 LAKHS. IT WAS SUB MITTED, THE ONLY REASON ASSESSEE AGREED FOR ADDITION OF RS. 15 LAKHS WAS TO AVOID LITIGATION IN SPITE OF THE FACT NO DISCREPANCIES WE RE FOUND IN THE BOOKS OF ACCOUNT. HOWEVER, WHEN AO REJECTED OFFER OF AGRE ED ADDITION OF RS. 15 LAKHS AND MADE ADDITIONS ACCORDING TO HIS OW N WILL, LD. CIT(A) SHOULD HAVE DECIDED THE ADDITIONS ON THEIR MERITS A LONE WITHOUT REFERRING TO THE ADDITIONAL INCOME OFFERED BY ASSES SEE. 6. LD. DR, ON THE OTHER HAND, RELIED ON THE ORDER O F LD. CIT(A). 7. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIE S AND PERUSED THE ORDERS OF REVENUE AUTHORITIES AS WELL AS OTHER MATERIALS ON RECORD. IT IS EVIDENT FROM THE ASSESSMENT ORDER THAT IN COU RSE OF ASSESSMENT PROCEEDING, ASSESSEE HAD AGREED FOR ADDITIONAL INCO ME OF RS. 15 LAKHS, BUT, AO DID NOT ACCEPT THAT OFFER AND PROCEE DED TO MAKE ADDITIONS AS PROPOSED IN THE SHOW CAUSE NOTICE. IT IS FURTHER EVIDENT THAT AO HAS NOT SPECIFICALLY REJECTED BOOKS OF ACCO UNT NOR HAS POINTED OUT ANY SPECIFIC DEFECT OR DISCREPANCY IN THE BOOKS OF ACCOUNT. ONLY BECAUSE STOCK REGISTER IS NOT MAINTAINED, AO HAS MA DE ADDITION TO GP. IT IS A FACT ON RECORD THAT IN COURSE OF PROCEE DING BEFORE THE FIRST APPELLATE AUTHORITY, AFTER CONSIDERING THE SUBMISSI ONS OF ASSESSEE AND PERUSING THE FACTS AND MATERIALS PLACED BEFORE HIM, LD. CIT(A) HAD FOUND THE MAJOR ADDITIONS OF RS. 40,00,000 AND RS. 80,19,590 MADE BY AO TO BE UNSUSTAINABLE, AGAINST WHICH, THE DEPARTMENT IS NOT IN APPEAL. EVEN AS FAR AS OTHER THREE ITEMS OF ADDI TIONS, VIZ., ON ACCOUNT OF LOW GP, BAD DEBTS WRITTEN OFF AND BROKER AGE ALSO, LD. CIT(A) HAS NOT FOUND ANY VALID GROUND TO SUSTAIN TH OSE ADDITIONS. IT IS 5 ITA NO. 552/HYD/2014 NAVNEET KUMAR AGARWAL EVIDENT FROM THE ORDER OF LD. CIT(A) THAT ONLY BECA USE, ASSESSEE AGREED FOR ADDITION OF RS. 15 LAKHS DURING THE ASSE SSMENT PROCEEDING, HE CHOSE TO SUSTAIN THE ADDITION TO THA T EXTENT. HOWEVER, IT IS OBVIOUS FROM THE ORDER OF LD. CIT(A) THAT THE RE IS NO OTHER VALID GROUND FOR SUSTAINING SUCH ADDITION. IT NEEDS TO BE OBSERVED THAT WHEN THE AGREED ADDITION FAILED AND AO PROCEEDED TO MAKE ADDITIONS AS PER HIS OWN DECISION, LD. CIT(A) SHOULD HAVE CON SIDERED EACH OF THE ADDITIONS ON ITS OWN MERITS WITHOUT TAKING COGN IZANCE OF THE OFFER MADE BY ASSESSEE AT THE TIME OF ASSESSMENT PROCEEDI NG. AS THERE IS NO BASIS FOR SUSTAINING THE ADDITION OF RS. 15 LAKH , WE ARE OF THE VIEW THAT ADDITION MADE IS REQUIRED TO BE DELETED. ACCOR DINGLY, WE DO SO. 8. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 07/01/2015. SD/- SD/- (B. RAMAKOTAIAH) (SAKTIJIT DEY) ACCOUNTANT MEMBER JU DICIAL MEMBER HYDERABAD, DATED: 7 TH JANUARY, 2015 KV COPY TO:- 1) SHRI NAVNEET KUMAR AGARWAL, C/O SRI MADHU SUDAN MATRI, MADHU MANTRI & ASSOCIATES, 3-5-873, C-103, MATR USHREEE APARTMENTS, HYDERGUDA, HYDERABAD 500 029 2) ITO, WARD 8(2), 8 TH FLOOR, INCOME TAX TOWERS, AC GUARDS, MASAB TANK, HYDERABAD 500 004 3) CIT(A)-III, HYDERABAD 4) CIT-II, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 6 ITA NO. 552/HYD/2014 NAVNEET KUMAR AGARWAL DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON SR.P.S. 2. DRAFT PLACED BEFORE AUTHOR SR.P.S 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER VP 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S. 6. KEPT FOR PRONOUNCEMENT ON SR.P S. 7. FILE SENT TO THE BENCH CLERK SR.P.S. 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER