The ITO, Ward-6(4), Surat V. M/s. Umiya Hardware & Sanitary, Surat

ITA 709/AHD/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 94197 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 03-08-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 26-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D C MISHRA
• Assessee Lawyers: M K PATEL
• Keywords: Business income

Judgement Text

, C IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER ./ ITA NO.709/AHD/2012 /BLOCK ASSTT. YEAR: 2008-09 ITO, WARD - 6(4) SURAT. VS M/S.UMIYA HARDWARE & SANITARY TUNING POINT KUVARDA CHOKDI, KOSAMBA MANGROL, SURAT. %& / (APPELLANT) '( %& / (RESPONDENT) REVENUE BY : SHRI D.C. MISHRA, SR.DR ASSESSEE BY : SHRI M.K. PATEL / DATE OF HEARING : 03/08/2015 / DATE OF PRONOUNCEMENT: 03/08/2015 )*/ O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: THE REVENUE IS IN APPEAL BEFORE US AGAINST THE ORD ER OF THE LD.CIT(A)-IV, SURAT DATED 22.12.2011 PASSED FOR THE ASSTT.YEAR 2008- 09. 2. THE REVENUE HAS TAKEN FOUR GROUNDS OF APPEAL, BU T, ITS GRIEVANCE REVOLVES AROUND A SINGLE ISSUE, WHEREBY, IT HAS PLE ADED THAT THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 11,92,535/- OUT OF THE ADDITION OF RS.16,27,445/- MADE BY THE AO ON THE GR OUND THAT THE ITA NO.709/AHD/2012 2 ASSESSEE HAS FAILED TO EXPLAIN THE SOURCE OF INITIA L INVESTMENT IN THE UNACCOUNTED SALES ACHIEVED BY IT. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S FILED ITS RETURN OF INCOME ON 10.2.2009 DECLARING TOTAL INCOME OF RS.7, 519/-. THE CASE WAS SELECTED FOR SCRUTINY ASSESSMENT AND NOTICE UND ER SECTION 143(2) WAS ISSUED AND SERVED UPON THE ASSESSEE. ON SCRUTI NY OF THE ACCOUNTS, IT REVEALED TO THE AO THAT THE ASSESSEE HAS TOTAL C REDIT BALANCE OF RS.50,36,458/-, WHEREAS, IT HAS SHOWN A TOTAL TURNO VER TO THE EXTENT OF RS.31,34,114/-. THE AO WORKED OUT A DIFFERENCE BET WEEN THE TOTAL SALES SHOWN IN THE BOOKS VIS--VIS CREDITED IN THE BANK ACCOUNT. THE DIFFERENCE IS OF RS.19,02,334/-. ACCORDING TO THE AO, THE ASSESSEE HAS FAILED TO EXPLAIN THE DIFFERENCE. THEREFORE, AFTER DEDUCTING THE GP INVOLVE IN THIS SALES AT THE RATE OF 14.45%, HE WOR KED OUT THE VALUE OF UNACCOUNTED PURCHASE AT RS.16,27,445/- (RS.19,02,33 4/- MINUS RS.2,74,889/- TAKING GP AT 14.45%). IN THIS WAY, T HE LD. AO HAS MADE ADDITION OF RS.16,27,445/-. 4. ON APPEAL, THE LD.CIT(A) HAS DELETED THE ADDITIO N BY OBSERVING AS UNDER: 3.2 I HAVE GONE THROUGH THE FACTS OF THE CASE. IT HAS NOT BEEN DISPUTED THAT THE DIFFERENCE IN CREDIT IN BANK ACCO UNT AND RECORDED SALES IS SUPPRESSED SALES OF THE APPELLANT . THE DISPUTE IS REGARDING QUANTUM OF INCOME. THE A.O, HAS CONSIDERE D THE PURCHASES THAT WOULD HAVE BEEN MADE TO ACHIEVE UNRE CORDED SALES AS THE INCOME OF THE APPELLANT. THE AMOUNT OF SUCH UNRECORDED PURCHASES WAS CALCULATED BY APPLYING GP RATE OF 14.45% TO THE UNRECORDED SALES. IN MY OPINION, THIS APPROACH IS ERRONEOUS ON TWO COUNTS ( 1) IT DOES NOT ACCOUNT F OR PROFITS EMBEDDED IN THE SALES AND 2) IT DOES NOT PROVIDE FO R ROTATION OF FUNDS IN TRADING) THE CORRECT APPROACH WOULD BE TO TAX THE EMBEDDED PROFITS IN THE SALE PLUS THE INVESTMENT RE QUIRED TO ACHIEVE THE UNRECORDED TURNOVER. ITA NO.709/AHD/2012 3 3.2.1. THE PROFITS EMBEDDED WILL HAVE TO BE COMPUTE D AT THE NORMAL GP OF THE APPELLANT WHICH IS APPROXIMATELY 7 %. THERE IS NO BASIS TO ADOPT RATE OF 14.45%. THE INVESTMENT RE QUIRED FOR THE UNREPORTED PART OF THE BUSINESS WILL HAVE TO BE COM PUTED ON THE BASIS OF PARTNERS' CAPITAL EMPLOYED OR INVESTMENT I N STOCK VIS-A- VIS TURNOVER ACHIEVED IN DISCLOSED BUSINESS. IT IS SEEN THAT THE DISCLOSED TURNOVER IS RS.31,34,114/-, PARTNERS CAP ITAL IS 5,28,255/-, AVERAGE OF CLOSING AND OPENING STOCK IS RS.4,46,008/- (RS.5.66,557/- + RS.3,25,460/2). THE INVESTMENT REQ UIRED ON THE BASIS OF AVERAGE STOCK REQUIREMENT WOULD BE RS.2,82 ,8567- [(RS.19,02,334/- X RS.4,46,008/-) 7 RS.31,34,114/-] . THE INVESTMENT REQUIRED ON THE BASIS OF CAPITAL EMPLOYE D WOULD BE RS.3,20,638/-[(RS.19,02,334/- X RS.5,28,255/- / RS .31,34,114/- ]. IN MY OPINION, AVERAGE OF THE TWO WOULD GIVE THE BEST POSSIBLE ESTIMATE. THE INVESTMENT REQUIRED IS THEREFORE ESTI MATED AT F 3,01,747/-. PROFIT EMBEDDED IN THE UNRECORDED SALES WILL BE RS.1,33,163/- (7% OF RS.19,02,334/-). THEREFORE THE TOTAL INCOME OF THE APPELLANT FROM THE UNREPORTED SALES, I.E. PR OFIT EMBEDDED IN AND INVESTMENT REQUIRED FOR SUCH SALES, IS RS.4,34, 910/-. THE ADDITION IS RESTRICTED TO THIS MOUNT. THIS GROUND IS PARTLY ALLOWED. 5. WITH THE ASSISTANCE OF LEARNED REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. ON PERUSAL OF THE CI T(A)S ORDER, IT REVEALS THAT THE LD.FIRST APPELLATE TRIBUNAL HAS WO RKED OUT THE VALUE OF INITIAL INVESTMENT FOR ACHIEVING UNRECORDED SALES T URNOVER AT RS.19,02,334/- ON THE BASIS OF INITIAL INVESTMENT U SED BY THE ASSESSEE FOR ACHIEVING THE RECORDED SALES. IN OTHER WORDS, THE ASSESSEE HAS DISCLOSED A TURNOVER OF RS.31,34,114/-. THE INVEST MENT REQUIRED FOR ACHIEVING THIS TURNOVER HAS BEEN WORKED OUT AT RS.3 ,20,638/-. THIS FIGURE HAS BEEN WORKED OUT KEEPING IN MIND THE PART NERS CAPITAL CONTRIBUTION AND AVERAGE OF CLOSING AND OPENING STO CK, AND THIS IS HOW THE TURNOVER WAS ACHIEVED. ON THE BASIS OF THIS FO RMULA, AS HE HAS WORKED OUT THE VALUE OF INITIAL INVESTMENT FOR ACHI EVING UNDISCLOSED TURNOVER OF RS.19,02,334/-, HE HAS ALSO ADDED THE G P EARNED ON THIS UNACCOUNTED SALES. TO OUR MIND, THE WORKING GIVEN BY THE LD. FIRST APPELLATE AUTHORITY, THOUGH BASED ON ESTIMATED FIGU RE, BUT HAS BEEN ITA NO.709/AHD/2012 4 DONE IN A SCIENTIFIC WAY. WE DO NOT FIND ANY ERROR IN THIS ORDER OF THE LD.CIT(A). ACCORDINGLY, THE APPEAL OF THE REVENUE IS DISMISSED. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE COURT ON 3 RD AUGUST, 2015 AT AHMEDABAD. SD/- SD/- (ANIL CHATURVEDI) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER