M/s Naresh Chhabra, Yamunanagar V. DCIT, Yamunanagar

ITA 88/CHANDI/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51543 (ITAT-CHANDIGARH)
• Duration Of Justice: 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 31-10-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 24-01-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JAI SHREE SHARMA
• Keywords: Unexplained cash credit; Salary income; Opportunity of being heard
• Section: 133A; 69; 68

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES B CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE, VICE PRESIDENT AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO. 88/CHD/2011 ASSESSMENT YEAR: 2006-07 M/S NARESH CHHABRA, VS THE DCIT, YAMUNANAGAR CIRCLE, ` YAMUNANAGAR PAN NO. ABMPK5304N (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI AJAY JAIN RESPONDENT BY : SMT. JAI SHREE SHARMA DATE OF HEARING : 31.10.2011 DATE OF PRONOUNCEMENT : 31.10.2011 ORDER PER H.L.KARWA, VP THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF CIT(A), KARNAL DATED 28.10.2010 RELATING TO ASSESSM ENT YEAR 2006-07. 2. THE GROUND NOS.1 & 2 OF THE APPEAL READS AS UNDE R:- 1. THAT THE AUTHORITIES BELOW HAVE ERRED IN LAW AND FACTS IN REJECTING THE TRADING RESULTS U/S 145(3) O F THE INCOME TAX ACT, 1961. 2. THAT THE AUTHORITIES BELOW HAVE ERRED IN LAW AND FACTS IN MAKING AN ADDITION OF RS. 50,00,000/- AND APPLYING A GROSS PROFIT RATE OF 15%. 2 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT A SSESSEE IS A MANUFACTURER OF ALLOPATHIC MEDICINES. A SURVEY U/S 133A OF THE INCOME TAX ACT, 1961 (IN SHORT 'THE ACT') WAS CARRIED OUT AT THE BUSINESS PREMISES OF THE ASSESSEE ON 18.1.2006. THE ASSESSEE DECLAR ED ADDITIONAL INCOME OF RS. 30 LACS IN THE YEAR UNDER CONSIDERATION. THE A SSESSING OFFICER OBSERVED THAT DURING THE ASSESSMENT YEAR UNDER CONS IDERATION, THE ASSESSEE HAD DECLARED GROSS SALES OF RS. 34,33,434 /- AND GROSS PROFIT @ 13.5% AS AGAINST GROSS SALES OF RS. 51,79,287/- AND RS. 50,29,895/- AND GP @ 12.02% AND 11.63% DECLARED IN THE ASSESSMENT Y EARS 2005-06 AND 2004-05 RESPECTIVELY. THE ASSESSEE ALSO FURNISHED MANUFACTURING/TRADING AND PROFIT AND LOSS ACCOUNT TILL THE DATE OF SURVEY AND OF POST SURVEY PERIOD. THE ASSESSEE DECLARED GP @ 8.7% FOR THE FI RST TWO YEARS FROM 1.4.2005 TO 18.1.2006 AND GP OF 45% WAS DECLARED FO R THE POST SURVEY PERIOD. THE ASSESSING OFFICER OBSERVED THAT THERE WAS A VAST DIFFERENCE BETWEEN THE GP RATE OF PRE SURVEY PERIOD AND THE PO ST SURVEY PERIOD. THE ASSESSING OFFICER ALSO OBSERVED THAT NO STOCK REGIS TER AND PRODUCTION REGISTER IN RESPECT OF PURCHASES, QUANTITY MANUFACT URED, SALES MADE, AND CLOSING STOCK AND OF SHORTAGE/ EXCESS ETC. WAS MAIN TAINED / PRODUCED. THE ASSESSING OFFICER ALSO OBSERVED THAT DURING THE SUR VEY, EXCESS STOCK AND EXCESS CASH WAS FOUND WHICH BELIE THE CORRECTNESS A ND GENUINENESS OF THE BOOKS OF ACCOUNT OF THE ASSESSEE. IN VIEW OF THE A BOVE DISCREPANCIES, THE ASSESSING OFFICER HELD THAT THE BOOKS OF ACCOUNT AR E NOT RELIABLE AND CORRECT GROSS PROFIT CANNOT BE DEDUCED FROM THE SAM E AND THEREFORE, HE REJECTED THE TRADING RESULTS DECLARED BY THE ASSESS EE INVOKING THE PROVISIONS OF SECTION 145(3) OF THE ACT. THE ASSES SING OFFICER FURTHER ESTIMATED THE GROSS SALES AT RS. 50 LACKS ON THE B ASIS OF SALES DECLARED IN THE LAST YEARS I.E. ASSESSMENT YEARS 2004-05 AND 20 05-06 AND ESTIMATED 3 THE GP BY APPLYING THE GP RATIO @ 15% AS AGAINST DE CLARED AT 13.5% RESULTING IN AN ADDITION OF RS. 2,86,353/- ON THIS ACCOUNT. 4. ON APPEAL, THE CIT(A) CONFIRMED THE ADDITION OF RS. 2,86,353/- MADE BY THE ASSESSING OFFICER. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE ALS O PERUSED THE MATERIALS AVAILABLE ON RECORD. AS PER THE RECORDS, THE ASSESSEE IS A MANUFACTURER OF ALLOPATHIC MEDICINES AND ON 18.1.20 06, A SURVEY OPERATION U/S 133A OF THE ACT WAS CARRIED OUT BY IN COME TAX AUTHORITIES AT THE BUSINESS PREMISES OF THE ASSESSEE. IT IS AP PARENT FROM THE RECORDS THAT ON THE DATE OF SURVEY, CLOSING STOCK ESTIMATED BY APPLYING A GP RATE AND CLOSING STOCK WAS ESTIMATED AT RS. 4,90,800/-, WHEREAS THE PHYSICAL INVENTORY STOCK WAS TAKEN AT RS. 5,02,808/- RESULTI NG IN A DIFFERENCE OF RS. 12,008/-. HOWEVER, THE ASSESSEE OFFERED AN ADD ITIONAL INCOME OF RS. 25,000/- ON ACCOUNT OF DIFFERENCE IN STOCK AND THE SAME WAS INCLUDED IN THE RETURN OF INCOME. IN THE INSTANT CASE, THE ASS ESSING OFFICER ESTIMATED THE SALES TURN OVER OF THE ASSESSEE DURING THE YEAR AT RS. 50 LACS WHICH IS PURELY ON HYPOTHETICAL BASIS AND SIMPLY ON THE BASI S OF TURN OVER OF THE LAST YEAR. IT IS A MATTER OF FACT THAT DURING THE COURSE OF SURVEY PROCEEDINGS, NO DIFFERENCE WAS FOUND IN THE SALES T URN OVER AND, THEREFORE, THERE WAS NO BASIS FOR ESTIMATION OF SALES AT RS. 5 0 LACS. IT IS ALSO APPARENT FROM THE RECORD THAT SALES TURNOVER UP TO 18.1.2006 (DATE OF SURVEY) WAS RS. 29,82,360/- AND WHATEVER THE DIFFE RENCE WAS OBSERVED BY THE ASSESSING OFFICER, WERE OFFERED FOR TAXATION. IN THE INSTANT CASE, THE ASSESSING OFFICER ESTIMATED THE GROSS PROFIT RATE @ 15% WHEREAS GP RATE ON THE DATE OF SURVEY WAS TAKEN AT 8.71% AND ON THA T BASIS THE DIFFERENCE IN CLOSING STOCK WAS WORKED OUT AND AS SUCH THERE W AS NO JUSTIFICATION IN 4 TAKING GP RATE OF 15% ON WORKING OUT THE GP FOR THE SAME YEAR AND FOR WORKING OUT THE DIFFERENCE IN CLOSING STOCK, GP RAT E OF 8.71% WAS ADOPTED. IT IS ALSO APPARENT FROM THE RECORD THAT T HE GROSS PROFIT RATE DECLARED BY THE ASSESSEE FOR THE ASSESSMENT YEAR UN DER CONSIDERATION IS HIGHER THAN THE PROFIT DECLARED IN THE IMMEDIATE PR ECEDING YEARS AS WELL AS ON THE DATE OF SURVEY. WE DO NOT SEE THAT ANY C OGENT REASON HAS BEEN GIVEN BY THE ASSESSING OFFICER FOR ADOPTING THE GP RATE OF 15%. 6. SHRI AJAY JAIN, LD. COUNSEL FOR THE ASSESSEE REL IED UPON THE DECISION OF ITAT, AGRA BENCH OF THE TRIBUNAL IN THE CASE OF ACIT V RAVI AGRICULTURAL INDUSTRIES (2009) 117 ITD 338, WHEREIN ON SIMILAR SET OF FACTS, THE LD. THIRD MEMBER HELD AS UNDER:- I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND GONE THROUGH THE IMPUGNED ORDERS. IN MAY VIEW, THE ORDE R OF THE JM REQUIRES TO BE UPHELD HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE. THE ASSESSEE HAS SHOWN BETTER PROFIT PERCENTAGE, AS COULD BE SEEN FROM THE CHART, THE ASSESSEE HAS FURNISHED BEFORE THE ASSESSING OFFICER . UNLESS THE DEPARTMENT HAS SOME MATERIAL TO SHOW THAT THERE WAS SALE OUTSIDE THE BOOKS OF ACCOUNT, IT WAS NOT CORRECT TO REJECT THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE. MERE FALL IN THE SALES DOES NOT JUSTIFY THE REJECTION OF BOOKS OF AC COUNT WITHOUT ANY OTHER COGENT MATERIAL. AGAIN, I MAY E XPLAIN THAT THE COMPUTATION OF STOCK, DURING THE COURSE OF SURV EY, WAS BASED ON CERTAIN ESTIMATES, INTERPOLATIONS AND EXTR APOLATIONS. THAT BY ITSELF DOES NOT MEAN THAT THE BOOKS OF ACCO UNT MAINTAINED BY THE ASSESSEE, DULY SUPPORTED BY PURCH ASE AND SALE BILLS WHICH WERE PRODUCED BEFORE THE ASSESSING OFFICER, DESERVE REJECTION. THE BLANK BILLS FOUND IN THE CO URSE OF SURVEY IN THE NAME OF PERSONS DOING JOB WORK, PAINI NG ETC. DO NOT IN ANY WAY LEAD THAT THE SALE FIGURE DISCLOSED BY THE 5 ASSESSEE REQUIRES TO BE REJECTED. IN MY VIEW, THE REJECTION OF BOOKS OF ACCOUNT BY INVOKING THE PROVISIONS OF SECT ION 145(3) IS TOTALLY UNWARRANTED AND CANNOT BE SUPPORTED IN T HE EYES OF LAW. HAVING ACCEPTING THIS, THE ADDITION BASED ON CERTAIN ESTIMATION OF SALES IS CORRECTLY DELETED BY THE CIT (A) AS WELL AS BY THE LD. JM. I AGREE WITH THE FINDINGS OF T HE LD. JM ON THIS POINT. 7. IN THE ABOVE CASE, THE ASSESSEE HAD SHOWN BETTER PROFIT PERCENTAGE AS IN THE PRESENT CASE AND THEREFORE, IN THE ABOVE CASE, THE TRIBUNAL HELD THAT MERE FALL IN SALES WITHOUT ANY MATERIAL TO SHO W SALE OUTSIDE THE BOOKS DOES NOT WARRANT REJECTION OF ACCOUNTS. THE TRIBUN AL FURTHER HELD THAT THE COMPUTATION OF STOCK BASED ON ESTIMATIONS, INTERPOL ATIONS, AND EXTRAPOLATIONS BY ITSELF DOES NOT MEAN THAT THE BOO KS OF ACCOUNT MAINTAINED BY THE ASSESSEE, DULY SUPPORTED BY PURCH ASE SALE BILLS, DESERVE REJECTION. 8. IN OUR VIEW, THE ABOVE DECISION OF THE ITAT AGRA BENCH IS SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE. IN TH E INSTANT CASE, THE ASSESSING OFFICER ESTIMATED THE SALES TURN OVER OF THE ASSESSEE AT RS. 50 LACS WHICH IS PURELY ON HYPOTHETICAL BASIS AND SIMP LY ON THE BASIS OF TURN OVER OF LAST YEAR. SIMILARLY, THE ASSESSING OFFICE R ESTIMATED THE GP RATE @ 15% WHEREAS THE GP ON THE DATE OF SURVEY WAS TAKE N AT 8.71%. IN OUR VIEW, THE GP RATE ADOPTED BY THE ASSESSING OFFICER IS ALSO WITHOUT ANY BASIS AND THE GP @ 13.50% DECLARED BY THE ASSESSEE IS MORE THAN THE PROFIT DECLARED ON THE DATE OF SURVEY AS WELL AS IM MEDIATE PRECEDING YEAR. WE, THEREFORE, HOLD THAT ASSESSEE HAVING SHOWN BETT ER PROFIT PERCENTAGE, MERE FALL IN SALE WITHOUT ANY MATERIAL TO SHOW SALE OUTSIDE THE BOOKS OF 6 ACCOUNT DOES NOT WARRANT REJECTION OF ACCOUNTS. CO NSEQUENTLY, WE DELETE THE ADDITION OF RS. 2,86,353/-. 9. GROUND NO.3 OF THE APPEAL READS AS UNDER:- 3. THAT THE AUTHORITIES BELOW HAVE ERRED IN LAW AND FACTS IN MAKING AN ADDITION OF RS. 68,000/- IN THE NAME OF SHRI SANJEEV CHHABRA AS UNEXPLAINED CASH CREDIT U/S 68. 10. WHILE FRAMING THE ASSESSMENT, THE ASSESSING OFF ICER MADE AN ADDITION OF RS. 68,000/- U/S 68 OF THE ACT, WHICH W AS CONFIRMED BY CIT(A) AND HENCE THE ASSESSEE IS IN APPEAL BEFORE T HE TRIBUNAL. 11. BEFORE US, SHRI AJAY JAIN, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT A SUM OF RS. 68,000/- WAS RECEIVED DURING THE YEAR UNDER CONSIDERATION FROM SHRI SANJEEV CHHABRA S/O SHRI RA M CHANDER CHHABRA PROP KALIDAC INDIA RESIDENT OF 413/7, VISHWAKARMA M OHALLA, YAMUNANNAGAR HAVING PAN AGHPC0452D ASSESSED WITH IN COME TAX OFFICER, WARD NO.2, YAMUNANAGAR. SHRI AJAY JAIN, L D. COUNSEL FOR THE ASSESSEE SUBMITTED THAT SHRI SANJEEV CHHABRA WAS RE CEIVING RS. 4,500/- PER MONTH FROM KALIDAC PHARMACEUTICALS AS SALARY AN D APART FROM ABOVE, HE WAS RECEIVING COMMISSION. SHRI AJAY JAIN, LD. C OUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT IN HIS STATEMENT, SHRI SANJEEV CHHABRA, CONFIRMED THE SOURCE OF DEPOSIT. ACCORDING TO LD. COUNSEL FOR THE ASSESSEE, NO ADVERSE FINDINGS HAVE BEEN RECORDED BY THE ASSESSING OFFICER ON THE STATEMENT OF SHRI SANJEEV CHHABRA EXCEPT THE PRESUMPTION THAT SHRI SANJEEV CHHABRA HAS NO CAPACITY TO DEPOSIT THE MONE Y. SHRI AJAY JAIN, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AUT HORITIES BELOW HAVE NOT 7 CORRECTLY APPRECIATED THE EXPLANATION OF THE ASSESS EE AS REGARD TO THE DEPOSIT OF RS. 68,000/-. HE ALSO SUBMITTED THAT THE DEPOSITOR IS AN EXISTING INCOME TAX ASSESSEE. HE, THEREFORE, SUBMITTED THAT THERE WAS NO JUSTIFICATION IN MAKING THE ADDITION. 12. SMT. JAI SHREE SHARMA, LD. DR SUBMITTED THAT IN ORDER TO DISCHARGE ONUS U/S 68 OF THE ACT, THE ASSESSEE MUST PROVE THE FOLLOWING:- I) THE IDENTITY OF THE CREDITOR; II) THE CAPACITY OF THE CREDITOR TO ADVANCE MONEY; AND III) THE GENUINENESS OF THE TRANSACTION. 13. ACCORDING TO LD. DR, IN THIS CASE THE ASSESSEE FAILED TO PROVE THE CONDITIONS NO. (II) AND (III). HE, THEREFORE, SUBM ITTED THAT THE ADDITION MAY BE UPHELD. 14. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE AL SO PERUSED THE MATERIALS AVAILABLE ON RECORD. THE CIT(A) HAS OBS ERVED THAT THE ASSESSEE COULD NOT ESTABLISH THE CAPACITY / SOURCE OF THE CR EDITOR OF ADVANCING THE AMOUNT IN QUESTION. SHRI AJAY JAIN, LD. COUNSEL F OR THE ASSESSEE HAD ALREADY SUBMITTED THAT SHRI SANJEEV CHHABRA IS A P ERSON OF MEANS. HE IS EARNING SALARY INCOME FROM KALIDAC INDIA AND APART FROM SALARY INCOME, HE IS ALSO EARNING COMMISSION INCOME. SHRI AJAY J AIN, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT SHRI SANJEEV CHHABRA IS AN INCOME TAX ASSESSEE. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFF ICER WITH A DIRECTION TO VERIFY WHETHER SHRI SANJEEV CHHABRA IS EARNING SALA RY AND ALSO COMMISSION INCOME. THE ASSESSING OFFICER SHOULD VE RIFY THIS ASPECT OF THE MATTER FROM THE RETURN FILED BY SHRI SANJEEV CH HABRA FOR THE 8 ASSESSMENT YEAR UNDER CONSIDERATION. ACCORDINGLY, THE ASSESSING OFFICER WILL DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW AFTER AFFORDING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. 15. GROUND NO.4 READS AS UNDER:- 4. THAT THE AUTHORITIES BELOW HAVE ERRED IN LAW AND FA CTS IN MAKING A DISALLOWANCE OF RS. 24,000/- BEING LEAS E RENT PAID FOR THE YEAR. 16. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE AL SO PERUSED THE MATERIALS AVAILABLE ON RECORD. SHRI AJAY JAIN LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS PAID A SUM OF RS. 24,000/- AS OFFICE RENT FOR BUSINESS PRE MISES. THE RENT WAS PAID TO THE BROTHER OF THE ASSESSEE. THE ASSESSING OFFICER WAS OF THE VIEW THAT AS NO OFFICE RENT WAS PAID IN THE IMMEDIATELY PRECEDING YEAR, AS SUCH THE SAME WAS DISALLOWED FOR THE YEAR UNDER CONSIDER ATION. SHRI AJAY JAIN LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASS ESSING OFFICER HAS DISALLOWED THE AMOUNT MERELY ON THE BASIS OF PRESUM PTION. HE FURTHER SUBMITTED THAT ASSESSING OFFICER HAS REJECTED THE G ENUINE CLAIM OF THE ASSESSEE. IT WAS ALSO SUBMITTED BY SHRI AJAY JAIN , LD. COUNSEL FOR THE ASSESSEE THAT ASSESSING OFFICER HAS NOT ASKED THE A SSESSEE TO PRODUCE RENT AGREEMENT OR CONFIRMATION FROM THE BROTHER OF THE A SSESSEE IN ORDER TO JUSTIFY PAYMENT OF RENT OF RS. 24,000/-. CONSIDERI NG THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE THINK IT PROP ER TO RESTORE THIS ISSUE ALSO BACK TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO DECIDE THE SAME AFRESH IN ACCORDANCE WITH LAW AFTER AFFORD ING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 17. GROUND NOS. 5 & 6 READS AS UNDER:- 9 5. THAT THE AUTHORITIES BELOW HAVE ERRED IN LAW AND FA CTS IN MAKING A DISALLOWANCE OF RS. 28,815/- BEING 1/5 TH OF CAR EXPENSES TO THE INCOME OF THE ASSESSEE. 6. THAT THE AUTHORITIES BELOW HAVE ERRED IN LAW AND FACTS IN HOLDING THE SURRENDERED INCOME AT THE TIME OF SU RVEY U/S 133A AS CHARGEABLE U/S 69 & 69A. 18. AT THE TIME OF HEARING OF THE APPEAL, SHRI AJAY JAIN, LD. COUNSEL FOR THE ASSESSEE DID NOT PRESS FOR GROUND NOS. 5 & 6 AND ACCORDINGLY, WE DISMISS THESE GROUNDS AS NOT PRESSED. 19. IN THE RESULT, APPEAL IS ALLOWED PARTLY AND PAR TLY FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF OCTOBER, 2011. SD/- SD/- (MEHAR SINGH) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT DATED : 31 ST OCTOBER, 2011 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR 6. TRUE COPY BY ORDER ASSISTANT REGISTRAR