M/s HMM Coaches Ltd., Chandigarh V. Addl. CIT, Chandigarh

ITA 66/CHANDI/2014

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1638 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 9 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-10-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 13-10-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 08-01-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Keywords: Opportunity of being heard; Proportionate interest; Additional evidence; Bad and doubtful debts
• Section: 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH,CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO. 66/CHD/2014 ASSESSMENT YEAR: 2009-10 M/S HMM COACHES LTD., VS THE ADDL. CIT, #2550/3, RANGE III, MANI MAJRA, CHANDIGARH, CHANDIGARH. PAN: AAACH4280L & ITA NO. 39/CHD/2014 ASSESSMENT YEAR: 2009-10 THE ACIT, VS M/S HMM COACHES LTD., CIRCLE 3(1), # 2550/3, CHANDIGARH. MANI MAJRA, CHANDIGARH, PAN: AAACH4280L (APPELLANT) (RESPONDENT) DEPARTMENT BY : SHRI S.K.MITTAL ASSESSEE BY : SHRI T.N.SING LA DATE OF HEARING : 13.10.2015 DATE OF PRONOUNCEMENT : 20.10.2015 O R D E R PER BHAVNESH SAINI,JM BOTH THE CROSS APPEALS ARE DIRECTED AGAINST THE ORD ER OF LD. CIT(APPEALS) CHANDIGARH DATED 11.10.2013 FOR ASSESSMENT YEAR 2009-10. 2 2. WE HAVE HEARD LD. REPRESENTATIVES OF BOTH THE PA RTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. BOTH THE APPEALS ARE DECIDED AS UNDER. DEPARTMENTAL APPEAL 3. IN THIS DEPARTMENTAL APPEAL, REVENUE CHALLENGED THE ORDER OF LD. CIT(APPEALS) IN DELETING THE DISALLOWA NCE OF BAD DEBTS WRITTEN OFF AMOUNTING TO RS. 1,77,19,645/- BY ADMITTING THE ADDITIONAL EVIDENCES IN THE FORM OF A RBITRATION AWARD TO ALLOW BAD DEBTS, WHICH IS IN CONTRAVENTION TO RULE 46A OF THE IT RULES. 4. THE BRIEF FACTS ARE THAT ASSESSEE HAD CLAIMED AN AMOUNT OF RS.1.77 C R ON ACCOUNT OF BAD DEBTS WRITT EN OFF IN RESPECT OF NON-RECOVERY OF THE AMOUNT OUTSTANDING F ROM M/S INDERSON MOTORS (P) LTD. FOR SALES WHICH WERE BOOKE D IN THE EARLIER YEARS. THE ASSESSING OFFICER NOTICED THAT THE SALES WERE REGULARLY MADE TO THIS PARTY UPTO FEB.,2008 AN D THE AMOUNT WAS SUDDENLY WRITTEN OFF DURING THE YEAR UND ER CONSIDERATION. AS PER ASSESSMENT ORDER, NO LEGAL A CTION WAS TAKEN BY ASSESSEE AGAINST /S INDERSON MOTORS (P) LT D. AND NO PROOF HAD BEEN FILED BY ASSESSEE TO PROVE THAT T HE SAID AMOUNT HAD BECOME BAD DURING THE RELEVANT FINANCIAL YEAR AND THERE WAS NOTHING ON RECORD TO SHOW THAT THERE WERE NO CHANCES OF RECOVERY. THE ASSESSING OFFICER, THEREF ORE, NOTED THAT IMPUGNED CLAIM WAS A DEVICE TO REDUCE THE INCO ME AND TAX LIABILITY. 3 5. THE ASSESSEE SUBMITTED BEFORE LD. CIT(APPEALS) T HAT THE MATTER REGARDING DISPUTE WITH M/S INDERSON MOTO RS (P) LTD. WAS REFERRED TO ARBITRATOR UNDER THE ARBITRATI ON AND CONCILIATION ACT, 1966 AND THE ARBITRATOR HAS PASSE D THE AWARD IN FEBRUARY,2013. IT HAS ALSO BEEN SUBMITTED THAT AFTER THE AMENDMENT TO SECTION 36(1)(VII) OF THE AC T W.E.F. 01.04.1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT DEBT HAS BECOME IRRECOVERABLE AND IT IS ENOUGH IF THE DEBT HAS BEEN WRITTEN OFF AS IRRECOVERABLE IN THE A CCOUNTS. THE ASSESSEE RELIED UPON DECISION OF THE HON'BLE SU PREME COURT IN THE CASE OF T.R.F. LTD. 230 CTR 14. THE L D. CIT(APPEALS) CONSIDERING THE EXPLANATION OF ASSESSE E, FOLLOWING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF T.R.F. LTD., DELETED THE ADDITION. HIS FIN DINGS IN PARA 3.3 AND 3.3.1 OF THE APPELLATE ORDER ARE REPRO DUCED AS UNDER : 3.3 I HAVE CONSIDERED THE SUBMISSION OF THE LD. C OUNSEL. THE APPELLANT HAS WRITTEN OFF THE DEBT PERTAINING TO M/ S INDERSON MOTORS (P) LTD, WHICH, ACCORDING TO THE APPELLANT, HAD BECOME IRRECOVERABLE. THE ASSESSING OFFICER HAS DISALLOWED THE AMOUNT ON THE GROUND THAT LEGAL ACTION WAS NOT TAKEN, NO E VIDENCE HAS BEEN FILED TO PROVE THAT THE AMOUNT HAD BECOME BAD DURING THE RELEVANT FINANCIAL YEAR AND THERE WAS NOTHING ON RE CORD TO SHOW THAT THERE WERE NO CHANCES OF RECOVERY, BUT AL L THESE REASONS GIVEN BY THE ASSESSING OFFICER ARE NOT RELEVANT IN VIEW OF THE JUDGEMENT OF HONBLE SUPREME-COURT IN THE CASE OF M/S T.R.F. LTD (SUPRA), IN WHICH IT WAS HELD: 'THIS POSITION IN LAW IS WELL-SETTLED. AFTER 1ST AP RIL, 1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE 4 DEBT, IN FACT, HAS BECOME IRRECOVERABLE. IT IS ENOU GH IF THE BAD DEBT WRITTEN OFF AS IRRECOVERABLE IN THE' A CCOUNTS OF THE ASSESSEE. HOWEVER, IN THE PRESENT CASE, THE AO HAS NOT EXAMINED WHETHER THE DEBT HAS, IN FACT, BEEN WR ITTEN OFF IN ACCOUNTS OF THE ASSESSEE. WHEN BAD. DEBT OCCURS, THE BAD DEBT ACCOUNT IS DEBITED AND THE CUSTOMER'S ACCO UNT IS CREDITED, THUS, CLOSING THE ACCOUNT OF THE CUSTOMER . IN THE CASE OF COMPANIES, THE PROVISION IS DEDUCTED, FROM SUNDRY DEBTORS. AS STATED ABOVE, THE AO HAS NOT EXAMINED WHETHER, IN FACT, THE BAD DEBT OR PART THEREOF IS W RITTEN OFF IN THE ACCOUNTS OF THE ASSESSEE. THIS EXERCISE HAS NOT BEEN UNDERTAKEN BY THE AO. HENCE, THE MATTER IS REM ITTED TO THE AO FOR DE NOVO CONSIDERATION OF THE ABOVE- MENTIONED ASPECT ONLY AND THAT TOO ONLY TO THE EXTE NT OF THE WRITE OFF.' 3.3.1 IN EFFECT, AFTER AMENDMENT TO SECTION 36(1)(V II) W.E.F. 01.04.1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT DEBT HAS BECOME IRRECOVERABLE AND IT IS SUFFIC IENT IF THE DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE BOOKS O F ACCOUNTS. IT IS ALSO WORTH MENTIONING THAT IN THE INSTANT CASE, THE ARBITRATOR HAS ALSO DECIDED THE MATTER IN FEBRUARY, 2013 AND AS PE R THE AWARD, NO AMOUNT IS RECOVERABLE. IN VIEW OF THIS DI SCUSSION, THE ADDITION MADE BY THE ASSESSING OFFICER ON THIS ACCO UNT IS DELETED. GROUND OF APPEAL NO. 2 IS ALLOWED. 6. AFTER HEARING RIVAL SUBMISSIONS, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. THE GRIEVANCE OF THE DEPARTMENT IS THAT ARBITRATION AWARD WAS REL IED UPON BY LD. CIT(APPEALS) IN CONTRAVENTION OF RULE 46A. ACCORDING TO THE ARBITRATION AND CONCILIATION ACT, THE ARBITR AL AWARD IS LIKE A DECREE OF THE COURT AND IS EXECUTABLE BY THE COURTS. IT IS, THEREFORE, LIKE AN ORDER/JUDGEMENT ENFORCEAB LE AT LAW AND AS SUCH, COULD NOT BE CONSTRUED AS DOCUMENT OR EVIDENCE. IT IS WELL SETTLED LAW THAT JUDGEMENT AN D ORDERS OF 5 THE COURTS ARE ADMISSIBLE AND COULD BE LOOKED INTO AT ANY STAGE. FURTHER, THERE WERE NO REQUIREMENT AFTER AM ENDMENT TO SECTION 36(1)(VII) OF THE ACT THAT ASSESSEE SHOU LD ESTABLISH THAT DEBT HAS BECOME IRRECOVERABLE. IT I S ENOUGH IF THE DEBT HAS BEEN WRITTEN OFF AS RECOVERABLE IN THE ACCOUNTS. ADMITTEDLY, ASSESSEE HAS WRITTEN OFF THE BAD DEBTS AS IRRECOVERABLE IN ITS ACCOUNTS. THE ISSUE IS SQUARE LY COVERED BY JUDGEMENT OF THE HON'BLE SUPREME COURT IN THE CA SE OF M/S T.R.F. LTD. (SUPRA) THEREFORE, LD. CIT(APPEALS) RIGHTLY DELETED THE ADDITION. THERE IS NO VIOLATION OF RUL E 46A IN THE MATTER. THEREFORE, CONTENTION OF LD. DR IS REJ ECTED. IN THE RESULT, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 7. IN THE RESULT, DEPARTMENTAL APPEAL IS DISMISSED. ASSESSEE'S APPEAL 8. GROUND NO. 1 IS GENERAL AND NEED NO ADJUDICATION . 9. ON GROUND NO. 2, ASSESSEE CHALLENGED THE DISALLO WANCE OF INTEREST UNDER SECTION 36(1)(III) OF THE ACT AMO UNTING TO RS. 7,43,556/- ON ACCOUNT OF INTEREST ON FUNDS GIVE N TO VARIOUS UNRELATED PARTIES ADVANCED FOR BUSINESS. BR IEF FACTS ARE THAT ASSESSEE HAD DEBITED INTEREST OF MORE THAN RS. 2.59 CR TO THE PROFIT & LOSS ACCOUNT ON VARIOUS LOANS TA KEN. THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAD GIVEN I NTEREST FREE ADVANCES OF MORE THAN RS. 68.83 LACS. THE ASS ESSEE SUBMITTED THAT ADVANCES WERE GIVEN FOR BUSINESS PUR POSES 6 WHICH WAS NOT ACCEPTED BY THE ASSESSING OFFICER AND DISALLOWED PROPORTIONATE INTEREST OF RS. 7,43,556/- UNDER SECTION 36(1)(III) OF THE ACT. 10. THE ASSESSEE FILED WRITTEN SUBMISSIONS BEFORE L D. CIT(APPEALS) TO CHALLENGE THE ADDITION WHICH IS REP RODUCED IN THE APPELLATE ORDER IN WHICH THE ASSESSEE BRIEFL Y EXPLAINED THAT ADVANCES WERE GIVEN FOR BUSINESS PUR POSE AND ADVANCES GIVEN TO BB SAGAR WAS SECURITY GIVING FOR RENTING A PROPERTY AND ADVANCE TO R.S.A. MOTORS PVT . LTD. IS ADVANCE PAYMENT FOR PURCHASE OF CAR. THE ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS IN THE SHAPE OF CAPI TAL AND RESERVES AND SURPLUS AMOUNTING TO RS. 713.14 LACS A ND ASSESSEE IS FREE TO APPLY ITS INTEREST FREE FUNDS F OR BUSINESS PURPOSES INCLUDING ADVANCES TO OTHER PARTIES AS PRU DENT BUSINESSMAN. THE ASSESSEE ALSO SUBMITTED THAT EVEN IF ADDITION IS TO BE MADE, ONLY PRORATA DISALLOWANCE I N A SUM OF RS. 2,01,541/- SHOULD BE MADE. 11. THE LD. CIT(APPEALS) DID NOT ACCEPT CONTENTION OF THE ASSESSEE AND RELIED UPON DECISION OF THE HON'BLE PU NJAB & HARYANA HIGH COURT IN THE CASE OF M/S ABHISHEK INDU STRIES LTD. 286 ITR 1 AND ACCORDINGLY, DISMISSED THIS GROU ND OF APPEAL OF THE ASSESSEE. 12. AFTER CONSIDERING RIVAL SUBMISSIONS, WE ARE OF THE VIEW THE MATTER REQUIRES RE-CONSIDERATION AT THE LEVEL O F THE ASSESSING OFFICER. THE LD. COUNSEL FOR THE ASSESSE E SUBMITTED THAT ASSESSEE HAS SUFFICIENT INTEREST FRE E FUNDS IN 7 THE SHAPE OF CAPITAL, RESERVES AND SURPLUS AMOUNTIN G TO RS. 36.83 CR AND REFERRED TO PAGE 7 WHICH IS BALANCE SH EET OF THE ASSESSEE AND RELIED UPON DECISION OF THE HON'BL E PUNJAB & HARYANA HIGH COURT IN THE CASE OF M/S BRITE ENTER PRISES PVT. LTD. V CIT IN ITA 224 OF 2013 DATED 24.07.2015 . THE JUDGEMENT OF THE HON'BLE PUNJAB & HARYANA HIGH COUR T IN THE CASE OF M/S BRITE ENTERPRISES PVT. LTD. IS WITH REGARD TO DISALLOWANCE MADE UNDER SECTION 36(1)(III) OF THE A CT (SUPRA) IN WHICH THE ASSESSEE CLAIMED TO HAVE SUFFICIENT IN TEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE SO THAT DISALLOWA NCE WAS CLAIMED TO BE UNJUSTIFIED. HON'BLE PUNJAB & HARYAN A HIGH COURT IN THIS CASE CONSIDERED ITS EARLIER JUDGEMENT IN THE CASE OF M/S ABHISHEK INDUSTRIES (SUPRA), JUDGEMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF S.A. BUILDERS 288 ITR 1 AND ITS EARLIER DECISION IN THE CASE OF MARUDHAR CHEMICALS & PHARMACEUTICALS 319 ITR 75 AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. HON'BLE HIGH COURT ALSO CO NSIDERED THE FUNDS/RESERVES OF THE ASSESSEE WERE SUFFICIENT TO COVER THE INTEREST FREE ADVANCES MADE BY IT TO THE SISTER CONCERN AND AGREED WITH THE JUDGEMENT OF BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES & POWER LTD. 313 ITR 340 IN WHICH IT WAS HELD THAT IF THERE ARE INTEREST FREE FUNDS A VAILABLE, A PRESUMPTION WOULD ARISE THAT INVESTMENT WOULD BE OU T OF INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENT. THE LATER DECISION HAS SINCE CONSIDERE D ITS EARLIER DECISION OF THE SAME HIGH COURT AND THE AUT HORITIES BELOW HAVE NOT EXAMINED THE ISSUE IN THE LIGHT OF S UFFICIENT 8 INTEREST FREE FUNDS/RESERVES AVAILABLE TO THE ASSES SEE. THEREFORE, THE MATTER REQUIRES RE-CONSIDERATION AT THE LEVEL OF THE ASSESSING OFFICER. WE, ACCORDINGLY, SET ASI DE THE ORDERS OF AUTHORITIES BELOW AND RESTORE THIS ISSUE TO THE FILE OF ASSESSING OFFICER WITH DIRECTION TO RE-DECIDE TH IS ISSUE IN THE LIGHT OF THE DISCUSSION ABOVE AND IN THE LIGHT OF THE RECENT DECISION OF HON'BLE PUNJAB & HARYANA HIGH CO URT IN THE CASE OF M/S BRITE ENTERPRISES PVT. LTD.9SUPRA). THE ASSESSING OFFICER SHALL GIVE REASONABLE, SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THIS G ROUND OF APPEAL OF ASSESSEE IS ACCORDINGLY, ALLOWED FOR STAT ISTICAL PURPOSES. 13. ON GROUND NO. 3, ASSESSEE CHALLENGED THE DISALL OWANCE OF INTEREST UNDER SECTION 36(1)(III) OF THE ACT AMO UNTING TO RS. 7,65,090/- FOR CAPITALIZATION OF INTEREST ON CA PITAL WORK IN PROGRESS. THE BRIEF FACTS ARE THAT ASSESSEE HAD SHOWN CAPITAL WORK IN PROGRESS OF RS. 1,80,07,163/- AS ON 31.03.2008 ON ACCOUNT OF BUILDING AND DIES AND TOOL S. THE ASSESSING OFFICER NOTICED THAT INTEREST EXPENDITURE WAS NOT CAPITALIZED ON THE CAPITAL WORK IN PROGRESS, WHEREA S ASSESSEE HAD DEBITED INTEREST OF MORE THAN R. 2.59 CR TO THE PROFIT & LOSS ACCOUNT AND ACCORDINGLY, MADE THE ABO VE DISALLOWANCE. THE ASSESSEE IN THE WRITTEN SUBMISSI ONS SUBMITTED BEFORE LD. CIT(APPEALS) THAT THE ABOVE PR OVISIONS ARE NOT APPLICABLE FOR PURCHASE OF ASSETS ACQUIRED FOR EXISTING BUSINESS. THESE ASSETS WERE NOT ACQUIRED OUT OF BORROWED FUNDS AS NO FRESH LOAN FOR PURCHASE OF THE SE ASSETS 9 WAS TAKEN DURING THE YEAR UNDER CONSIDERATION. THE COMPANY HAD A CLOSING CAPITAL WORK IN PROGRESS OF R S. 1.80CR. THERE WAS ADDITION IN AMBALA DIVISION AND IN KAPHOLI DIVISION. THE TOTAL COST OF ASSETS OF ASSE SSEE COMPANY AS ON 31.03.2009 WAS RS. 45.33 CR AND THE C LOSING CAPITAL WORK IN PROGRESS IS ONLY RS.1.80 CR WHICH I S 5.74% OF THE TOTAL COST OF ASSETS OF THE COMPANY AND THIS WORK IN PROGRESS WAS NEITHER FOR STARTING OF NEW BUSINESS N OR FOR ANY EXPANSION. THEREFORE, ADDITION WAS UNJUSTIFIED . IT WAS ALSO EXPLAINED THAT EVEN ON PRO-RATA BASIS, ADDITIO N OF RS. 2,91,165/- COULD BE MADE. THE LD. CIT(APPEALS), HO WEVER, FOLLOWING THE JUDGEMENT OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF ABHISHEK INDUSTRIES 286 ITR 1 CONFIRMED THE ADDITION. 14. AFTER CONSIDERING RIVAL SUBMISSIONS, WE ARE OF THE VIEW THE MATTER REQUIRES RE-CONSIDERATION AT THE LEVEL O F THE ASSESSING OFFICER. THE ASSESSEE CLAIMED THAT THERE WAS NO EXPANSION OF BUSINESS AND ASSESSEE DID NOT CLAIM AN Y DEDUCTION OF THE INTEREST ON THE SAME ISSUE. THE F INDINGS OF THE AUTHORITIES BELOW WERE PRECISELY ON APPLYING TH E PROVISO TO SECTION 36(1)(III) OF THE ACT WHICH WAS MEANT FO R ACQUISITION OF ASSET FOR EXPANSION OF EXISTING BUSI NESS OR PROFESSION WHICH FACT IS NEITHER VERIFIED BY THE AS SESSING OFFICER NOR BY LD. CIT(APPEALS). THE ASSESSEE FURT HER CLAIMED TO HAVE SUFFICIENT INTEREST FREE FUNDS AND ON THE SIMILAR ISSUE, WE HAVE RESTORED THE MATTER TO THE F ILE OF ASSESSING OFFICER IN THE LIGHT OF JUDGEMENT OF THE HON'BLE 10 PUNJAB & HARYANA HIGH COURT IN THE CASE OF M/S BRIT E ENTERPRISES P. LTD. (SUPRA). THEREFORE, THIS ISSUE ALSO REQUIRES RE-CONSIDERATION IN THE LIGHT OF THE ABOVE FACTS AND RECENT JUDGEMENT OF THE HON'BLE PUNJAB & HARYANA HI GH COURT. WE, ACCORDINGLY, SET ASIDE ORDERS OF AUTHOR ITIES BELOW AND RESTORE THIS ISSUE TO THE FILE OF ASSESSI NG OFFICER WITH DIRECTION TO RE-DECIDE THIS ISSUE IN THE LIGHT OF THE FACTS AVAILABLE ON RECORD AND IN THE LIGHT OF THE DECISIO N OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF M/S BRITE ENTERPRISES P. LTD. (SUPRA. THIS GROUND OF A PPEAL OF THE ASSESSEE IS ACCORDINGLY, ALLOWED FOR STATISTICA L PURPOSES. 15. ON GROUND NO.S 4 & 5, ASSESSEE CHALLENGED THE REJECTION OF THE BOOKS OF ACCOUNT AND ADDITION OF R S. 83,60,726/- ON ESTIMATION ON THE BASIS OF GROSS PRO FIT RATE OF LAST YEAR. 15(I) THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE HAD DECLARED GP RATE OF 11.83% IN THIS YEAR AS AGAINST 13.64% IN THE PRECEDING YEAR. THE ASSESSING OFFICER NOTED TH AT IF THE ADDITIONAL INCOME OFFERED FOR TAXATION UNDER SECTIO N 133A OF THE ACT WAS REDUCED FROM THE NET PROFIT, THERE WOUL D BE NET LOSS. SOME OTHER OBSERVATIONS MADE BY THE ASSESSIN G OFFICER ARE THAT THERE WAS A STEEP FALL IN THE GROS S PROFIT, DOWNFALL IN NET PROFIT RATE, GROSS LOSS IN KHAPOLI UNIT AND THAT NOTHING HAD BEEN FILED WHICH COULD EXPLAIN SUC H A LOSS. AS PER ASSESSING OFFICER, THE ASSESSEE HAD OFFERED RS. 4 CR FOR TAXATION AS ADDITIONAL INCOME DURING THE COURSE OF SURVEY UNDER SECTION 133A OF THE ACT BUT HAD SUBSEQ UENTLY 11 ARRANGED ITS AFFAIRS IN SUCH A MANNER THAT THE INCO ME RETURNED WAS BELOW THE ADDITIONAL INCOME OFFERED FO R TAXATION. THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNT UNDER SECTION 145(3) OF THE ACT AND APPLIED GROSS PROFIT RATE OF PRECEDING ASSESSMENT YEAR I.E. 13.64 % AND MADE ADDITION OF R. 1,18,04,269/-. 16. THE ASSESSEE CHALLENGED THE ADDITION BEFORE LD. CIT(APPEALS) AND FILED WRITTEN SUBMISSIONS IN WHICH THE ASSESSEE BRIEFLY EXPLAINED THAT ASSESSEE HAS SET UP A NEW UNIT AT KAPHOLI, MAHARASHTRA WHICH STARTED PRODUCTI ON IN MARCH,2008. DURING THE YEAR ASSESSEE COULD NOT PRO CURE EXPECTED ORDERS AND HENCE, COULD NOT UTILIZE ITS FU LL CAPACITY DUE TO WHICH IT SUFFERED LOSS. IN THE INITIAL YEAR , THERE ARE REMOTE CHANCES OF PROFIT AND NORMALLY IT TAKES 2 TO 3 YEARS TO REACH THE BREAK EVEN POIONT. THE NEW UNIT SUFFE RED A KLOSS OF RS. 23.03 LACS AND THERE WAS A PROFIT OF R S. 829.73 LACS IN THE AMBALA UNIT. DUE TO THIS SET OFF, OF LO SS, THE GROSS PROFIT RATIO OF THE COMPANY FALL TO 11.8% IN COMPARISON TO THE PREVIOUS YEAR 13.64%. THE ASSESSEE MAINTAIN ED PROPER BOOKS OF ACCOUNT AND NO DEFECTS HAVE BEEN PO INTED OUT IN THE BOOKS OF ACCOUNT WHICH ARE ALSO AUDITED. THE ASSESSING OFFICER IGNORED THE COMPLETE BOOKS OF ACC OUNT, SALES/PURCHASE BILLS, VOUCHERS AND PAST HISTORY OF THE ASSESSEE. THEREFORE, ON MERE FALL IN GP, IS NO GRO UND TO REJECT THE BOOKS OF ACCOUNT. THE GP AT AMBALA UNIT WAS 18.39% INCLUDING ADDITIONAL SURRENDER OF RS. 4 CR D URING SURVEY. THE GP RATE OF KAPHOLI UNIT WAS (-) 17.48% DURING 12 THE YEAR. THE COMBINED GP OF THE COMPANY WAS 11.83% EXCLUDING ADDITIONAL INCOME. THIS COMPARISON WOULD SHOW THAT GP OF AMBALA UNIT WAS MUCH MORE THAN THE LAST YEAR GP BY CONSIDERING SURRENDERED INCOME. IT WAS ALSO EXPLAINED THAT ASSESSEE HAS OTHER MISCELLANEOUS INC OME AND IF THESE ARE TAKEN INTO INCOME OF THE BUSINESS, THE PROFIT RATE OF THE ASSESSEE WITHOUT ADDITIONAL SURRENDERED INCOME WOULD COME TO 13.26% OF AMBALA UNIT. NO OTHER ERRO R HAVE BEEN POINTED OUT IN THE BOOKS OF ACCOUNT. 17. THE LD. CIT(APPEALS), CONSIDERING THE SUBMISSIO NS OF THE ASSESSEE AND MATERIAL ON RECORD, FOUND THAT OBS ERVATION OF THE ASSESSING OFFICER WITH REGARD TO NEW UNIT AT KAPHOLI IS NOT CORRECT BECAUSE ASSESSING OFFICER HAS NOT CONTROVERTED THE EXPLANATION OF THE ASSESSEE WITH R EGARD TO THIS UNIT SUFFERED LOSS DURING THE INITIAL YEAR. H OWEVER, THERE IS NO SATISFACTORY EXPLANATION REGARDING FALL IN GP AT AMBALA UNIT. THE LD. CIT(APPEALS) NOTED THAT PRICE S ARE INCREASING, IS NO GROUND FOR FALL IN GP. THE LD. C IT(APPEALS), HOWEVER, ACCEPTED THE LOSS IN KAPHOLI UNIT AND DID NOT ACCET CONTENTION OF THE ASSESSEE WITH REGARD TO FALL IN G P AT AMBALA UNIT AND ACCORDINGLY, DIRECTED THE ASSESSIN G OFFICER TO ADOPT GP RATE OF 13.66% OF AMBALA UNIT AS PER PR EVIOUS YEARS PROFIT AS AGAINST DECLARED PROFIT OF 12.41% AND DIRECTED TO WORK OUT THE ADDITION TO RS. 83,60,726/ - AND GRANTED RELIEF TO THE ASSESSEE IN A SUM OF RS. 34,4 3,543/- AND THIS GROUND WAS PARTLY ALLOWED. 13 18. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE AUTHORITIES BELOW AND ALSO FILED A CHART TO SHOW THAT IF OTHER INCOME OF RS. 4.57 CR I S TAKEN INTO CONSIDERATION ALONGWITH THE SURRENDERED INCOME , THE GP RATE IN AMBALA UNIT WOULD COME TO 18.53% AS AGAINST 13.92% OF THE PRECEDING ASSESSMENT YEAR. IN CASE T HE SURRENDERED INCOME IS EXCLUDED, THE PERCENTAGE OF G P WOULD COME TO 12.66%. HE HAS, THEREFORE, SUBMITTED THAT EVEN IF BOOKS OF ACCOUNT ARE REJECTED, ADDITION IS WHOLLY U NJUSTIFIED. HE HAS SUBMITTED THAT LD. CIT(APPEALS) ACCEPTED LOS S IN KAPHOLI UNIT WHICH WAS THE MAIN REASON FOR FALL IN GP ON WHICH THERE IS NO DEPARTMENTAL APPEAL, AS SUCH THE CLAIM OF ASSESSEE SHOULD BE ACCEPTED. 18(I) ON THE OTHER HAND, LD. DR RELIED UPON ORDERS OF THE LD. CIT(APPEALS). 19. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND MATERI AL AVAILABLE ON RECORD. THE SURVEY IN THIS CASE WAS C ONDUCTED ON 20.02.2009 AND THE ASSESSEE OFFERED AN ADDITIONA L INCOME OF RS. 4 CR UNDER THE FIVE HEADS I.E. EXCESS STOCK, CASH, BUILDING, PLANT AND MACHINERY AND SUNDRY RECEIVABLE S. THE ASSESSEE ALSO OFFERED THIS ADDITIONAL INCOME FOR TA XATION. NO OTHER DEFECTS HAVE BEEN POINTED OUT IN THE BOOKS OF ACCOUNT. THE PREVIOUS YEAR WOULD CLOSE ON 31.03.2009 AND AS SUCH SURVEY WAS CONDUCTED AT THE CLOSE OF THE FINANCIAL YEAR. SINCE ASSESSEE MADE SURRENDER OF ADDITIONAL INCOME, THEREFORE, BOOKS OF ACCOUNT OF THE ASSESSEE WERE NO T RELIABLE AND HAVE BEEN CORRECTLY REJECTED UNDER SECTION 145( 3) OF THE 14 ASSESSEE. WE ARE FORTIFIED IN OUR VIEW BY JUDGEMEN T OF HON'BLE DELHI HIGH COURT IN THE CASE OF ACTION ELEC TRICALS 258 ITR 188 IN WHICH IT WAS HELD THAT AMOUNT DISCOVERED DURING SEARCH AND SURRENDER. REJECTION OF ACCOUNTS PROPER. ESTIMATED ASSESSMENT ON PREVIOUS YEARS BASIS IS JU STIFIED. HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF BIMAL K UMAR ANANT KUMAR 288 ITR 278 HELD THAT, WHEN CASH CREDITS ARE SURRENDERED, ABSENCE OF STOCK REGISTER, REJECTION O F THE BOOKS OF ACCOUNT JUSTIFIED. WE, THEREFORE, CONFIRM FINDINGS OF AUTHORITIES BELOW WITH REGARD TO REJECTION OF THE B OOKS OF ACCOUNT. 19(I) NOW THE POINT IS LEFT FOR CONSIDERATION, WHET HER APPLICATION OF HIGHER GP RATE AND CONFIRMING ADDITI ON OF RS. 83,60,726/- IS JUSTIFIED. THE ASSESSEE HAS DECLARE D GP RATE OF 11.83% IN THIS YEAR AS AGAINST 13.64% OF THE PRE CEDING ASSESSMENT YEAR. THE ASSESSING OFFICER FOUND THERE IS A FALL IN GP RATE AND ALSO CONSIDERED THAT THERE ARE CERTA IN EXPENSES WHICH HAVE BEEN CLAIMED BY ASSESSEE WHICH HAS REDUCED THE INCOME OF THE ASSESSEE I.E. BAD DEBTS W RITTEN OFF, DISCOUNT AND REBATE AND TDS WRITTEN OFF. THE LD. CIT(APPEALS) DELETED ALL THE THREE ADDITIONS. THE D EPARTMENT HAS COME UP IN APPEAL ONLY AGAINST BAD DEBTS WRITTE N OF IN WHICH ALSO, WE HAVE DISMISSED THE DEPARTMENTAL APPE AL. THUS, THE ONLY REASON FOR CONSIDERATION WAS FALL IN GP WHICH BY ITSELF IS NO GROUND TO MAKE ADDITION AGAINST THE ASSESSEE. FURTHER, THE ASSESSEE EXPLAINED THAT THERE WAS A HE AVY LOSS IN THE NEW UNIT ESTABLISHED BY ASSESSEE AT KAPHOLI, 15 MAHARASHTRA. THE REASON WAS ACCEPTED BY THE LD. CIT(APPEALS) THAT THERE WAS HEAVY LOSS IN NEW UNIT AT KAPHOLI, MAHARASHTRA. THE LD. COUNSEL FOR THE ASSES SEE SUBMITTED BEFORE LD. CIT(APPEALS) THAT GP AT AMBALA UNIT WAS 18.39% INCLUDING ADDITIONAL SURRENDER OF RS. 4 CRORES AND THAT WITHOUT CONSIDERING ADDITIONAL INCOME, THE GP RATE OF AMBALA UNIT WAS 12.41%. 19(I) THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED TH AT THE COMBINED GP OF THE COMPANY WAS THUS, 11.83% EXCLUDI NG ADDITIONAL SURRENDERED INCOME OF RS. 4 CRORES. THE LD. COUNSEL FOR THE ASSESSEE REFERRED TO PB-8 WHICH IS PROFIT & LOSS ACCOUNT OF THE ASSESSEE WHICH SHOWS THAT UNDER THE HEAD OTHER INCOME, THE ASSESSEE HAS DECLARED INCO ME OF RS. 4.57 CR IN ASSESSMENT YEAR UNDER APPEAL AS AGAI NST RS. 19,61,723/- IN PRECEDING ASSESSMENT YEAR. ACCORDIN G TO THE LD. COUNSEL FOR THE ASSESSEE, IF OTHER INCOME AND SURRENDERED INCOME ARE TAKEN INTO CONSIDERATION, TH E GROSS PROFIT RATE OF THE ASSESSEE WOULD COME TO 18.53% WH ICH IS BETTER AS AGAINST GP RATE OF THE PRECEDING ASSESSME NT YEAR IN AMBALA UNIT SHOWN AT 13.92%. IF SURRENDERED INCO ME IS EXCLUDED IN AMBALA UNIT, ACCORDING TO THE LD. COUNS EL FOR THE ASSESSEE, THE GP WOULD COME TO 12.66% AS AGAINST 13 .92% OF AMBALA UNIT. THUS, THE OVERALL PICTURE WOULD SHOW THAT PROFIT RATE AT AMBALA UNIT WAS BETTER. THE AUTHORI TIES BELOW COULD NOT IGNORE OTHER INCOME AND SURRENDERED INCOM E INCLUDED BY ASSESSEE IN ITS ACCOUNT AND OFFERED FOR TAXATION. WHEN BOTH THESE OTHER INCOME AND ADDITIONAL INCO ME ARE 16 TAKEN INTO CONSIDERATION, THE PROFIT OF THE ASSESSE E FOR AMBALA UNIT WOULD COME TO 18.53% AS AGAINST 13.92% OF THE AMBALA UNIT. NO OTHER DEFECTS HAVE BEEN POINTED OU T IN THE BOOKS OF ACCOUNT. THE AUTHORITIES BELOW HAVE, THER EFORE, DID NOT TAKEN INTO CONSIDERATION THESE FACTS FOR MAKING THE ADDITION AGAINST THE ASSESSEE. 20. CONSIDERING THE TOTALITY OF THE FACTS AND CIRCU MSTANCES ABOVE, IT IS CLEAR THAT THERE WAS NO BASIS FOR AUTH ORITIES BELOW TO MAKE THE ADDITION AGAINST THE ASSESSEE FOR AMBALA UNIT EVEN IF BOOKS OF ACCOUNT OF THE ASSESSEE HAVE BEEN REJECTED. THE HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF GOTAN LIME KHANIJ UDYOG 256 ITR 243 HELD THAT ON MERE REJECTION OF BOOKS OF ACCOUNT, DOES NOT MEAN THAT A DDITION IS TO BE NECESSARILY MADE. 21. CONSIDERING THE FACTS OF THE CASE AND ABOVE DIS CUSSION IN THE LIGHT OF THE ABOVE JUDGEMENT OF THE RAJASTHA N HIGH COURT, IT IS CLEAR THAT EVEN IF BOOKS OF ACCOUNT OF THE ASSESSEE ARE REJECTED, BUT IT WOULD NOT LEAD TO ASS UMPTION OF THE FACT THAT ADDITION SHALL HAVE TO BE NECESSARILY MADE AGAINST THE ASSESSEE. THE SOLE REASON GIVEN FOR MA KING ADDITION WAS FALL IN GP WHICH FACT ITSELF IS INCORR ECT AS PER THE ANALYSIS OF THE GP GIVEN BY THE LD. COUNSEL FOR THE ASSESSEE ABOVE AS WELL AS EXPLAINED BEFORE LD. CIT( APPEALS). WE, THEREFORE, DO NOT FIND ANY JUSTIFICATION TO SUS TAIN THE ADDITION OF RS. 83,60,726/- AS IS RESTRICTED BY THE LD. CIT(APPEALS). WE, THEREFORE, SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND DELETE THE ADDITION OF RS. 83 ,60,726/-. 17 IN THE RESULT, GROUNDS OF APPEAL OF THE ASSESSEE AR E PARTLY ALLOWED. 22. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 23. IN THE RESULT, DEPARTMENTAL APPEAL IS DISMISSED AND APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (RANO JAIN) (BHAVNES H SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 20 TH OCT., 2015. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT,DR ASSISTANT REGISTRAR, ITAT/CHD