Kalpataru Electricals, Kolkata V. ITO, WD-50(1), KOLKATA, Kolkata

ITA 759/KOL/2015

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 9875 (ITAT-KOLKATA)
• Duration Of Justice: 4 year(s) 3 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2004-2005
• Appeal Filed On: 28-05-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANKAR HALDER
• Keywords: Unexplained cash credit; Income from undisclosed sources; Source of fund; Tangible material; Assessment record; Reason to believe; Reassessment proceedings
• Section: 142(1); 133A; 133(6); 143(1); 143(2); 147; 145; 148

Judgement Text

1 ITA NO. 759/KOL/2015 KALPATARU ELECTRICALS, AY 2004-05 , C , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: KOL KATA ( )BEFORE . , /AND . # . $ , ) [BEFORE SHRI J. SUDHAKAR REDDY, AM & SHRI A. T. VAR KEY, JM] I.T.A. NO. 759/KOL/2015 ASSESSMENT YEAR: 2004-05 KALPATARU ELECTRICALS (PAN: AAFFK3191F) V VS. INCOME-TAX OFFICER, WD-50(1), KOLKATA APPELLANT RESPONDENT FOR THE APPELLANT SHRI VIGYANESHWAR NATH DATTA, ADV OCATE FOR THE RESPONDENT SHRI SANKAR HALDER, JCIT, SR. D R DATE OF HEARING 27.08.2019 DATE OF PRONOUNCEMENT 27.09.2019 ORDER PER SHRI A.T.VARKEY, JM THIS IS AN APPEAL PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A) 15, KOLKATA DATED 10.03.2015 FOR AY 2004-05. THE GROUN DS OF APPEAL RAISED BY THE ASSESSEE ARE AS UNDER: 1. FOR THAT THE REASSESSMENT PROCEEDINGS IS NOT AC CORDANCE WITH LAW RESULTING IN THE REASSESSMENT ORDER IS AN OPPOSED TO REQUIREMENT OF LAW, NOT TENABLE IN LAW AND BAD IN LAW. 2. FOR THAT THE CIT(A) ERRED IN CONFIRMING ASSESS MENT ORDER U/S. 144/145 OF THE ACT IS NOT TENABLE IN LAW AND BAD IN LAW. 3. FOR THAT THE ORDER OF THE CIT(A) IN CONFIRMING T HE ADDITION OF RS.4,22,636/- ON ACCOUNT OF UNDISCLOSED TURNOVER IS NEITHER TENABLE IN LAW NOR IN FACTS AND IS LIABLE TO BE DELETED. 4. FOR THAT THE CIT(A) ERRED IN RESTRICTING THE ADD ITION TO RS.35,20,693/- UNDER THE HEAD ON INCENTIVE & SALES COMMISSION AND NEITHER TENABLE IN LAW NOR IN FACTS. 5. FOR THAT THE APPELLANT CRAVES LEAVE TO AMEND, AL TER, ADD, DELETE OR SUBSTITUTE ANY OTHER GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 2. GROUND NOS. 1 AND 2 ARE AGAINST THE ACTION OF TH E LD. CIT(A) IN CONFIRMING THE ACTION OF THE AO IN REOPENING THE ASSESSMENT U/S. 147 READ WITH SECTION 148 OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). 2 ITA NO. 759/KOL/2015 KALPATARU ELECTRICALS, AY 2004-05 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FO R THE ASSESSMENT YEAR UNDER CONSIDERATION I.E. AY 2004-05 DECLARED A TOTAL INCO ME OF RS.6,220/-. THE CASE WAS THEREAFTER PROCESSED U/S. 143(1) OF THE ACT. THERE AFTER, THE CASE WAS REOPENED U/S. 147 OF THE ACT BASED ON A SURVEY REPORT PREPARED AFTER SUR VEY U/S. 133A OF THE ACT CONDUCTED AT THE BUSINESS PREMISES OF THE ASSESSEE ON 02.03.2005. D URING THE SURVEY, A TYPED PROFIT & LOSS ACCOUNT AND THE BALANCE SHEET OF THE ASSESSEE AS ON 31.03.2004 WAS FOUND WHICH WAS IMPOUNDED IN WHICH THE TURNOVER STATED WAS FOUND TO BE MORE THAN RS.3 CR. AS AGAINST RS.2,03,34,226/- SHOWN BY THE ASSESSEE IN ITS REGUL AR BOOKS OF ACCOUNT. TAKING NOTE OF THIS FACT, THE AO RECORDED THE REASONS TO BELIEVE ESCAPE MENT OF INCOME AND ISSUED NOTICE DATED 04.11.2009 U/S. 148 OF THE ACT PROPOSING TO REOPEN THE ASSESSMENT. SINCE THE ASSESSEE ASKED FOR THE COPY OF THE REASONS RECORDED U/S. 147 OF THE ACT, THE SAME WAS FURNISHED BY THE AO TO THE ASSESSEE VIDE LETTER DATED 10.11.2010 . THIS ACTION OF THE AO TO REOPEN THE ASSESSMENT WHICH WAS CARRIED OUT U/S. 143(1) OF THE ACT FOR THE AY 2004-05 HAS BEEN CHALLENGED BEFORE US. 4. ACCORDING TO LD. COUNSEL, THE ASSESSEE HAD FILED RETURN OF INCOME ON 20.10.2004, WHICH WAS PROCESSED BY THE DEPARTMENT U/S. 143(1) O F THE ACT. THEREAFTER, A SURVEY WAS CARRIED OUT ON 02.03.2005 AND THE SURVEY REPORT AS WELL AS CERTAIN PAPERS (TYPED P&L ACCOUNT AND BALANCE SHEET AS ON 31.03.2004) WAS IMP OUNDED ALONG WITH THIS DOCUMENTS WERE WITH THE DEPARTMENT AND NO ACTION WHATSOEVER W AS CARRIED OUT FOR SUCH A LONG TIME AFTER THE DATE OF SURVEY AND THE SHOW CAUSE NOTICE WAS ISSUED U/S. 148 OF THE ACT PROPOSING TO REOPEN THE ASSESSMENT ONLY ON 04.11.2009 (AFTER 4 YEARS) WHICH SHOULD NOT HAVE BEEN DONE WITHOUT TANGIBLE MATERIAL WHICH HAS COME IN TH E POSSESSION OF THE AO. SINCE, ACCORDING TO LD. AR, THERE WAS NO TANGIBLE MATERIA L THE AO OUGHT NOT TO HAVE REOPENED THE ASSESSMENT AND FOR THAT HE RELIED ON THE FOLLOWING ORDERS: I) ASHOK KUMAR TANDON VS. ACIT (2014) 34 ITR (TRIB. ) 381 (ITAT, DEL.); II) DEBASHIS MOULIK VS. ACIT (2015) 370 ITR 660 (CA L); III) COMMON CAUSE (A REGISTERED SOCIETY) AND OTHERS VS. UNION OF INDIA & ORS. (2017) 394 ITR 220 (SC); IV) ACIT VS. MARVEL ASSOCIATES (2018) 92 TAXMANN.CO M 109 (VISAKHAPATNAM TRIB.) 3 ITA NO. 759/KOL/2015 KALPATARU ELECTRICALS, AY 2004-05 RELYING ON THE AFORESAID ORDERS OF THE TRIBUNAL AND HONBLE HIGH COURTS & SUPREME COURT THE LD. AR CONTENDED THAT THE ACTION OF THE AO TO R EOPEN WAS LEGALLY UNJUSTIFIABLE AND BAD IN LAW. 5. ON THE OTHER HAND, THE LD. DR SUPPORTED THE ACTI ON OF THE LOWER AUTHORITIES IN REJECTING THE CONTENTION OF THE ASSESSEE AND RELIED ON THE ORDER OF THE LD. CIT(A) AND DOES NOT WANT US TO INTERFERE IN THE ORDER OF THE LD. CI T(A). 6. WE HAVE HEARD RIVAL SUBMISSIONS AND CAREFULLY GO NE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE NOTE THAT THE AO HAD GIVEN A COPY OF THE REASONS RECORDED FOR REOPENING THE ASSESSMENT A COPY OF WHICH WAS GIVEN TO US WHICH RE ADS AS UNDER: THERE WAS A SURVEY U/S. 133A OF THE I. T. ACT, IN THE BUSINESS PREMISES OF THE ASSESSEE ON 02.03.2005. IT WAS REPORTED TO THE CIT ON 03.03.20 05 BY THE THEN AO THAT DURING THE COURSE OF SURVEY A TYPED PROFIT AND LOSS ACCOUNT AND BALAN CE SHEET OF THE ASSESSEE AS ON 31.03.2004 WAS FOUND WHICH WAS IMPOUNDED IN WHICH THE TURNOVER DECLARED WAS FOUND AT MORE THAN RS. 3 CRORES AS AGAINST RS.2,03,34,226/- SHOWN IN THE REG ULAR BOOKS OF ACCOUNTS. BESIDES ABOVE, IT WAS FOUND THAT THE ASSESSEE HAS RECEIVED INCENTIVE OF RS.31 LAKHS AND SALES COMMISSION AT RS.15 LAKHS WHICH WERE NOT FOUND DISCLOSED IN THE R EGULAR BOOKS OF ACCOUNTS. UNDER THE ABOVE CIRCUMSTANCES I HAVE REASON TO BEL IEVE THAT THE INCOME ARISEN OUT OF THE AMOUNT MENTIONED ABOVE, CHARGEABLE TO TAX HAS ESCAP ED ASSESSMENT FOR THE AY 2004-05 WITHIN THE MEANING OF SECTION 147 OF THE I. T. ACT, 1961 A ND SUCH ESCAPEMENT HAS OCCURRED BY REASON OF THE OMISSION OR FAILURE ON THE PART OF THE ASSES SEE TO DISCLOSE FULLY OR TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT FOR THE AY 2004-05. 7. FROM A PERUSAL OF THE AFORESAID REASONS RECORDED , WE UNDERSTAND THAT A SURVEY WAS CARRIED OUT ON THE PREMISES OF THE ASSESSEE U/S. 13 3A OF THE ACT ON 02.03.2005. DURING THE SURVEY, THE SURVEY TEAM CAME ACROSS A TYPED P&L ACC OUNT AND BALANCE SHEET OF THE ASSESSEE AS ON 31.03.2004 WHICH WAS IMPOUNDED WHERE IN TURNOVER DECLARED WAS FOUND TO BE MORE THAN RS. 3 CR. AS AGAINST RS.2,03,34,226/- SHO WN IN THE REGULAR BOOKS OF ACCOUNT. BESIDES, IT WAS FOUND ALSO THAT ASSESSEE HAD RECEIV ED INCENTIVE OF RS. 31 LAKHS AND SALES COMMISSION OF RS. 15 LAKHS WHICH WAS ALSO NOT FOUND TO HAVE BEEN DISCLOSED IN THE REGULAR BOOKS OF ACCOUNT. BASED ON THESE SUPPRESSION OF FA CTS, THE AO HAD REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT FOR AY 2004-05. WE NOTE THAT THOUGH THE REOPENING HAS BEEN CARRIED OUT AFTER FOUR YEARS, TH E PROVISO U/S. 147 OF THE ACT WOULD NOT COME INTO PLAY BECAUSE THE ORIGINAL ASSESSMENT WAS ONLY AN INTIMATION U/S. 143(1) OF THE 4 ITA NO. 759/KOL/2015 KALPATARU ELECTRICALS, AY 2004-05 ACT. SINCE THE REOPENING IS BASED ON MATERIAL FOUN D AND IMPOUNDED DURING SURVEY IT DOES NOT LIE IN THE MOUTH OF THE ASSESSEE TO SAY THAT TH ERE WAS NO MATERIAL ON THE BASIS OF WHICH THE REOPENING WAS CARRIED OUT, THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE AO TO REOPEN THE ASSESSMENT WHICH WAS AN INTIMATION U/ S. 143(1) OF THE ACT. THE CASE LAWS REFERRED TO BY THE LD. AR DOES NOT COME TO THE RESC UE OF THE ASSESSEE BECAUSE FACTS IN THESE CASES WERE DIFFERENT. THEREFORE, GROUND NOS. 1 AND 2 OF THE ASSESSEE STANDS DISMISSED. 8. COMING TO THE MERITS OF THE ADDITION, THE FACTS OF THE CASE AS NOTED BY THE AO IS THAT THE ASSESSEE FOR THE ASSESSMENT YEAR UNDER CONSIDER ATION I.E. AY 2004-05 DECLARED A TOTAL INCOME OF RS.6,220/-. THE CASE WAS THEREAFTER PROC ESSED U/S. 143(1) OF THE ACT. THEREAFTER, THE CASE WAS REOPENED U/S. 147 OF THE ACT BASED ON A SURVEY REPORT PREPARED AFTER SURVEY U/S. 133A OF THE ACT CONDUCTED AT THE BUSINESS PREMISES OF THE ASSESSEE ON 02.03.2005. DURING THE SURVEY, A TYPED PROFIT & LOSS ACCOUNT AND THE B ALANCE SHEET OF THE ASSESSEE AS ON 31.03.2004 WAS FOUND WHICH WAS IMPOUNDED IN WHICH T HE TURNOVER DECLARED WAS FOUND TO BE MORE THAN RS.3 CR. AS AGAINST RS.2,03,34,226/- S HOWN BY THE ASSESSEE IN ITS REGULAR BOOKS OF ACCOUNT. TAKING NOTE OF THIS FACT THE AO RECORD ED THE REASONS TO BELIEVE ESCAPEMENT OF INCOME ISSUED NOTICE DATED 04.11.2009 U/S. 148 OF T HE ACT PROPOSING TO REOPEN THE ASSESSMENT. MOREOVER, DURING THE SURVEY IT WAS ALSO FOUND THAT THE ASSESSEE HAS RECEIVED INCENTIVE OF RS. 31 LAKHS AND SALES COMMISSION OF R S. 15 LAKHS WHICH WERE ALSO NOT FOUND TO BE DISCLOSED IN THE REGULAR BOOKS OF ACCOUNT. THER EAFTER, THE AO AFTER ISSUING NOTICE U/S. 148 OF THE ACT ON 04.11.2009 REOPENED THE ASSESSMEN T. DURING THE COURSE OF REASSESSMENT THE AO NOTICED THAT DESPITE STATUTORY NOTICES U/S. 143(2) AND 142(1) OF THE ACT, NONE APPEARED BEFORE HIM. THEREAFTER, THE AO NOTICED TH AT THE ASSESSEE WAS DEALING THE BUSINESS OF ELECTRICAL GOODS AND DISTRIBUTOR OF VARIOUS FANS AND ELECTRICAL GOODS. THEREAFTER, THE AO ISSUED NOTICE U/S. 133(6) OF THE ACT TO THE BRANCH MANAGER, WEST BENGAL STATE COOPERATIVE BANK, WHO BROUGHT TO THE NOTICE OF AO THE FACT ABOU T NEW LOANS WHICH THE ASSESSEE HAD TAKEN AND ALSO HAD FILED DETAILS OF VALUATION OF CL OSING STOCK AS ON 31.03.2004. FROM THE BALANCE SHEET AND P&L ACCOUNT SUBMITTED BY THE ASSE SSEE TO THE BANK, THE AO NOTED THAT THE CLOSING STOCK WAS SHOWN AS ON 31.03.2004 VALUED AT RS.45,01,120/- WHEREAS AS PER THE P&L ACCOUNT AND BALANCE SHEET FILED ALONG WITH THE RETURN OF INCOME WAS TO THE TUNE OF 5 ITA NO. 759/KOL/2015 KALPATARU ELECTRICALS, AY 2004-05 RS.25,19,149/- AND SINCE THERE WAS A DIFFERENCE IN CLOSING STOCK OF RS.19,81,971/- WHICH COULD NOT BE EXPLAINED BY THE ASSESSEE PURSUANT TO THE SHOW CAUSE NOTICE ISSUED TO IT, THE AO ADDED RS.19,81,978/- AS UNDISCLOSED STOCK. THER EAFTER, THE AO NOTED FROM THE TYPED COPY OF THE P&L ACCOUNT AND BALANCE SHEET OF THE AS SESSEE IMPOUNDED DURING THE SURVEY AS ON 31.03.2004 THE TURNOVER DECLARED WAS FOUND TO BE AT RS.3,00,50,000/- AS AGAINST RS.2,03,34,226/- SHOWN BY THE ASSESSEE IN THE REGUL AR BOOKS OF ACCOUNT. TAKING NOTE OF THE DIFFERENCE OF RS.97,15,774/- THE AO APPLIED GP RATE OF 4.35% WHICH WAS APPLIED BY THE ASSESSEE DURING THE YEAR AND AO CALCULATED THE GROS S PROFIT AT RS.4,22,636/-. THEREAFTER, THE AO TAKING NOTE THAT THE ASSESSEE HAS NOT DISCLOSED THE COMMISSION AND INCENTIVE RECEIVED BY IT DURING THE YEAR UNDER CONSIDERATION (INCENTIV E OF RS. 31 LACS AND COMMISSION OF RS. 15 LACS) WAS ADDED. THUS RS.46 LACS WAS ALSO ADDED TO THE INCOME OF THE ASSESSEE, SO THE TOTAL AMOUNT OF RS.70,10,830/- WAS ADDED AS TOTAL INCOME OF THE ASSESSEE. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) WHO GAVE PARTIAL RELIEF TO THE ASSESSEE I.E. IN RESPECT OF ADDITION OF RS.46 LACS ON THE IN CENTIVE AND SALES COMMISSION AND RESTRICTED THE ADDITION TO RS.35,20,693/-. AGGRIEVED, THE ASS ESSEE IS BEFORE US. 9. AFTER HEARING THE RIVAL SUBMISSIONS, WE NOTE THA T BASED ON THE SURVEY THE CASE WAS REOPENED U/S. 147 OF THE ACT BASED ON A SURVEY REPO RT PREPARED AFTER SURVEY U/S. 133A OF THE ACT CONDUCTED AT THE BUSINESS PREMISES OF THE ASSES SEE ON 02.03.2005. DURING THE SURVEY A TYPED PROFIT & LOSS ACCOUNT AND THE BALANCE SHEET O F THE ASSESSEE AS ON 31.03.2004 WAS FOUND. AND WHICH WAS IMPOUNDED IN WHICH THE TURNOVE R DECLARED WAS FOUND MORE THAN RS.3 CR. AS AGAINST RS.2,03,34,226/- SHOWN BY THE ASSESS EE IN ITS REGULAR BOOKS OF ACCOUNT. TAKING NOTE OF THIS FACT THE AO RECORDED THE REASON S TO BELIEVE ESCAPEMENT OF INCOME, AND THEREAFTER ISSUED NOTICE DATED 04.11.2009 U/S. 148 OF THE ACT PROPOSING TO REOPEN THE ASSESSMENT. HOWEVER, THE AO NOTICED THAT THE ASSES SEE DID NOT PARTICIPATE IN THE RE- ASSESSMENT PROCEEDINGS. THEREAFTER, THE AO HAS REJ ECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE BY MAKING A FINDING AS UNDER: THE ASSESSEE FAILED TO GIVE ANY EXPLANATION TILL DATE. SO THE ACCOUNTS OF THE ASSESSEE IS REJECTED U/S. 145(3) OF THE I. T. ACT AS I AM NOT S ATISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE FOR THE FY 2003-04 ACT FOR THE REASON MENTIONED ABOVE. IT IS CLEAR FROM THE FACT STATED ABOVE THAT THE ASSESSEE MADE UNACCOUNTED PURCHASE, WHICH HAS NOT BEEN REFLECTED IN THE BOOKS OF ACCOUNTS OF THE ASS ESSEE FOR WHICH THE CAPTIONED 6 ITA NO. 759/KOL/2015 KALPATARU ELECTRICALS, AY 2004-05 DIFFERENCE/DISCREPANCY OF PURCHASE HAS ARISEN. THE SOURCES OF FUND HAS DEFINITELY COME FROM SOME UNDISCLOSED SOURCES OF INCOME OF THE ASSESSEE. BECAUSE OF THE UNACCOUNTED PURCHASE DISCREPANCY OF THE S/CREDITORS HAS ARISEN AND ULTIM ATELY THE DIFFERENCE OF CLOSING STOCK OF RS.19,81,971/- IS THE PRODUCT OF THE SAME. 10. IN RESPECT OF THE TURNOVER THOUGH THE ASSESSEE HAS SHOWN AS RS.2,03,34,226/- IN ITS REGULAR BOOKS OF ACCOUNT, HOWEVER, THE SURVEY TEAM HAD COME ACROSS A TYPED P&L ACCOUNT AND BALANCE SHEET OF THE ASSESSEE AS ON 31.03.2004 WHICH REFLECTED TURNOVER AS RS.3,00,50,000/- WHICH MEANS A DIFFERENCE OF RS.97, 15,774/- AND THE AO HAS ADOPTED THE ASSESSEES OWN GP OF 4.35% ON RS.97,15,774/- AND AD DED GP OF RS.4,22,636/- WHICH ACTION HAS BEEN CONFIRMED BY THE LD. CIT(A) WHICH ACTION O F LD. CIT(A) PER-SE CANNOT BE FAULTED. HOWEVER, THE AO TAKING NOTE OF THE REPORT OF THE S URVEY TEAM THAT THE ASSESSEE HAS RECEIVED INCENTIVE OF RS. 31 LACS AND SALES COMMISSION AT RS . 15 LACS WHICH WAS NOT DISCLOSED IN THE REGULAR BOOKS OF ACCOUNT HAVE MADE THE ADDITION SEP ARATELY OF RS. 31 LACS AND RS. 15 LACS [TOTALLING RS.46 LACS]. WHEN THIS ACTION OF AO WAS CHALLENGED BY THE ASSESSEE, THE LD. CIT(A) HAS RESTRICTED ADDITION TO RS.35,20,693/- WH ICH ACTION OF THE LD. CIT(A) CANNOT BE COUNTENANCED, FOR THE REASON THAT THE LD. CIT(A) HA S MISDIRECTED HIMSELF AND HAS MADE THE EXTRAPOLATION OF THE COMMISSION/INCENTIVE ON THE E NTIRE TURN-OVER, WHEREAS DURING SURVEY IT REVEALED ONLY THAT THE ASSESSEE HAS RECEIVED FROM M /S METRO RS. 31 LACS AND RS. 15 LACS. WE NOTE THAT THE LD. CIT(A) TOOK NOTE OF THE FACT F ROM THE ASSESSMENT RECORDS THAT THE AO GOT THE DETAILS OF PURCHASES MADE BY THE ASSESSEE FROM M/S. METRO TYRES LTD. AND THE SUPPLIER HAS REPORTED THAT IT HAS MADE SALES OF RS. 50,91,578/- TO THE ASSESSEE DURING FY 2003-04 AND IT HAS ALLOWED A DISCOUNT OF RS.7,95,44 7/- TO THE ASSESSEE. THE PURCHASE RETURNS IN THIS CASE WERE RS.98,336/-. THUS ON A N ET PURCHASE OF RS.49,93,242/- (RS.50,91,578 RS. 98,336 = RS.50,91,578- RS.98,33 6 = RS.49,93,242/-). THE ASSESSEE RECEIVED A DISCOUNT OF RS.7,95,447/- I.E. @ 16%. T HE SAME RATIO OF 16% IF APPLIED TO THE DECLARED TURNOVER OF RS.2,03,34,226/- GIVEN A LIKEL Y DISCOUNT RECEIVED AT RS.32,53,476/- AND IF THE FIGURE OF 16% IS APPLIED TO THE TURNOVER MEN TIONED IN THE TYPED SHEET AT RS.3,00,50,000/- LIKELY DISCOUNT/INCENTIVE COMES TO RS.48,08,000/- WHICH IS VERY CLOSED TO THE FIGURE OF RS. 46 LACS ADDED BY THE AO. THEREAFTER , THE LD. CIT(A) TAKING NOTE THAT THE ASSESSEE HAD DECLARED CREDIT NOTES RECEIVED AT RS.1 0,79,000/- IN THE P&L ACCOUNT GAVE 7 ITA NO. 759/KOL/2015 KALPATARU ELECTRICALS, AY 2004-05 DEDUCTION TO THE SAME FROM RS.46 LACS ADDITION MADE BY AO AND THUS, THE RESTRICTED THE ADDITION TO RS.35,20,693/-. WE DO NOT SUBSCRIBE TO SUCH AN ACTION/EXERCISE CONDUCTED BY THE LD. CIT(A). WE NOTE THAT THE AO HAS TAKEN NOTE THAT AFTER ENQUIRY FROM M/S. METRO TYRES THAT IT (M/S. METRO TYRES) HAD SUPPLIED GOODS WORTH RS.50,91,578/- OUT OF WHICH THE GOODS RETURNED TO IT WERE ONLY RS.98,336/-. THUS, THE NE T PURCHASE FROM THE M/S. METRO TYRES BY THE ASSESSEE WAS TO THE TUNE OF RS.49,93,242/- AND METRO TYRES GAVE AN INCENTIVE/DISCOUNT OF RS.7,95,447/- TO THE ASSESSEE FOR THE SALES TARG ET ACHIEVED BY IT. TAKING NOTE OF THIS INCENTIVE/DISCOUNT, THE LD. CIT(A) HAS MADE A BACKW ARD CALCULATION ON THE ENTIRE TURNOVER AS SUPRA [ IF THE FIGURE OF 16% IS APPLIED TO THE TURNOVER MEN TIONED IN THE TYPED SHEET AT RS.3,00,50,000/- LIKELY DISCOUNT/INCENTIVE COMES TO RS.48,08,000/- WHICH IS VERY CLOSED TO THE FIGURE OF RS. 46 LACS ADDED BY THE AO.] WHICH ACTION WAS NOTHING BUT BASED ON SURMISES AND CONJECTURES AND ON AN ERRONEOUS PRESUMPTION THA T THE ASSESSEE HAD RECEIVED SIMILAR DISCOUNT FROM THE TURNOVER OF RS. 3 CR. WE NOTE T HAT THE ASSESSEES INCOME TERMED AS INCENTIVE AND SALES COMMISSION IS ONLY ON ATTAINMEN T OF SALES TARGET FROM THE SAME LINE OF BUSINESS AND, THEREFORE, WHEN THE ASSESSEE RECEIVES INCENTIVE/DISCOUNT A PART OF IT IS ALSO PASSED ON TO THE CONSUMERS TO ATTRACT MORE CONSUMER S. THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF THE CASE DISCUSSED ABOVE, WHEN THE BOOKS OF ACCOUNT OF THE ASSESSEE HAS BEEN REJECTED, THERE WAS NO NECESSITY FOR SEPARATE ADDITION OF THE COMMISSION/INCENTIVE/DISCOUNT WHICH THE ASSESSEE HA D UNDISPUTEDLY RECEIVED IN THE SAME BUSINESS AND IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE WAS ENGAGED IN ANY OTHER BUSINESS FROM WHICH ASSESSEE HAD RECEIVED SEPARATE INCENTIVE/COMMISSION FOR DOING CERTAIN OTHER SERVICES THE SAID INCOME. THEREFORE, IN THE F ACTS AND CIRCUMSTANCES OF THIS CASE, WE ARE OF THE OPINION THAT ONCE THE BOOKS OF ACCOUNT OF TH E ASSESSEE WERE REJECTED BY THE AO, THEN HE SHOULD HAVE ONLY ESTIMATED THE PROFITS OF THE AS SESSEE. FOR THIS PROPOSITION OF OURS, WE RELY ON THE ORDER OF THE HONBLE ANDHRA PRADESH HIG H COURT IN INDWELL CONSTRUCTIONS VS. CIT (1998) 232 ITR 776 (AP), WHEREIN THE HONBLE HI GH COURT HAS HELD AS UNDER: THE PATTERN OF ASSESSMENT UNDER THE INCOME-TAX ACT IS GIVEN BY SECTION 29 WHICH STATES THAT THE INCOME FROM PROFITS AND GAINS OF BUSINESS SHALL BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN SECTIONS 30 TO 43D. SECTION 40 PROVIDES FOR CERTAIN DISALLOWANCES IN CERTAIN CASES NOTWITHSTANDING THAT THOSE AMOUNTS AR E ALLOWED GENERALLY UNDER OTHER SECTIONS. THE COMPUTATION UNDER SECTION 29 IS TO BE MADE UNDE R SECTION 145 ON THE BASIS OF THE BOOKS REGULARLY MAINTAINED BY THE ASSESSEE. IF THOSE BOOK S ARE NOT CORRECT OR COMPLETE, THE INCOME- 8 ITA NO. 759/KOL/2015 KALPATARU ELECTRICALS, AY 2004-05 TAX OFFICER MAY REJECT THOSE BOOKS AND ESTIMATE THE INCOME TO THE BEST OF HIS JUDGMENT. WHEN SUCH AN ESTIMATE IS MADE IT IS IN SUBSTITUTION OF T HE INCOME THAT IS TO BE COMPUTED UNDER SECTION 29. IN OTHER WORDS, ALL THE DEDUCTIONS WHIC H ARE REFERRED TO UNDER SECTION 29 ARE DEEMED TO HAVE BEEN TAKEN INTO ACCOUNT WHILE MAKING SUCH AN ESTIMATE. THIS WILL ALSO MEAN THAT THE EMBARGO PLACED IN SECTION 40 IS ALSO TAKEN INTO ACCOUNT. 11. WE ALSO RELY ON THE DECISION OF HONBLE ANDHRA PRADESH HIGH COURT IN MADDI SUNDARSANAM OIL MILLS CO. VS. CIT (1959) 37 ITR 369 (AP) WHEREIN THE HONBLE HIGH COURT HAS OBSERVED AS UNDER: IF ONCE THE INCOME TAX AUTHORITIES HAVE REJECTED THE BOOKS, THEY CANNOT HAVE IT BOTH WAYS, NAMELY, ADOPTING A FLAT RATE TO COMPUTE GROSS PROFIT AS WEL L AS RELY ON THE BOOKS FOR THE PURPOSE OF ADDING UNEXPLAINED CASH CREDITS WHICH WERE PART OF THE SCH EME OF BALANCING THE ACCOUNTS.. 12. THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF T HIS CASE AS DISCUSSED (SUPRA), WE ARE OF THE OPINION THAT ONCE THE BOOKS OF ACCOUNT OF THE A SSESSEE WERE REJECTED BY THE AO, THEN HE SHOULD HAVE ONLY ESTIMATED THE PROFITS OF THE ASSES SEE. WE NOTE THAT THE TURNOVER FOUND IN THE IMPUGNED TYPED BALANCE SHEET AND P & L ACCOUNT DURING SURVEY WAS TO THE TUNE OF RS.3,00,50,000/- AND THE SALES INCENTIVE AND SALES COMMISSION WAS TO THE TUNE OF RS.31 LACS AND RS. 15 LACS, SO THE TOTAL AMOUNTS COMES TO RS.3 ,00,50,000 + RS.31,00,000 + RS. 15,00,000 = RS. 3,46,50,000/-. THOUGH THE ASSESSEE HAD SHOWN A GP OF 4.35%, IN THE INTEREST OF BOTH THE PARTIES, WE ENHANCE THE SAME T O 6% AND THUS THE GP COMES TO RS.20,79,000/- AND THUS THE ASSESSEE RECEIVES A REL IEF OF RS.49,31,830/-. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 27TH SEPT EMBER, 2019. SD/- SD/- (J. SUDHAKAR REDDY) (A. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 27TH SEPTEMBER, 2019 JD.(SR.P.S.) 9 ITA NO. 759/KOL/2015 KALPATARU ELECTRICALS, AY 2004-05 COPY OF THE ORDER FORWARDED TO: 1)APPELLANT M/S. KALPATARU ELECTRONICS, GOBARDAN GA STATION ROAD, GOBARDANGA, 24 PARGANAS (NORTH)-743243. 2) RESPONDENT ITO, WARD-50(1), KOLKATA. 3) CIT(A)-15, KOLKATA. (SENT THROUGH E-MAIL) 4)CIT , KOLKATA 5)DR, KOLKATA BENCHES, KOLKATA (SENT THROUGH E-MAIL ) / TRUE COPY, BY ORDER, ASSISTANT REGISTRAR