Maruti Mills Private Limited , Balotra V. ITO, Balotra

ITA 91/JODH/2020

AI Insights

M/s. Maruti Mills Private Ltd. appealed against the order of the CIT(A)-2, Jodhpur, which confirmed the additions and disallowances made by the Assessing Officer for the assessment year 2000-01. The main issues in the appeal were the confirmation of a trading addition of Rs.30,91,677 and an addition of Rs.2,16,046 for peak credit. The Tribunal examined the gross profit rates applied by the Assessing Officer, considering the appellant's historical data and the rates used by similar businesses. The Tribunal found merit in reducing the gross profit rate to 17.5% but upheld the addition for peak credit as the appellant failed to provide satisfactory evidence to prove the genuineness of the cash credits.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 122757 (ITAT-JODHPUR)
• Duration Of Justice: 2 year(s) 9 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: DB
• Next Hearing Date: 19-03-2023
• Assessment Year: 2000-2001
• Appeal Filed On: 04-06-2020
• Other Referred Cases: CIT Vs. Gotan Lime Khanij Udyog (2001) 26 TW 205 (Raj.)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Peak credit
• Section: 133A; 205

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER 91/Jodh/2020 (ASSESSMENT YEAR- 2000-01) M/s. Maruti Mills Private Ltd. G-58, Ist Phase, Industrial Area, Balotra Vs The ITO Balotra (Appellant) (Respondent) PAN NO. AALCM 1247 M Assessee By Shri Rajindra Jain, CA Revenue By Shri S.M. Joshi, JCIT- DR Date of hearing 20/03/2023 Date of Pronouncement 23 /03/2023 O R D E R PER: SHRI MANISH BORAD, AM This is an appeal filed by the assessee against the order of the ld. CIT(A)-2, Jodhpur dated 26-02-2020 for the assessment year 2000- 01 raising therein following grounds of appeal. 2 ITA NO. 91/JODH/2020 MARUTI MILLS PVT LTD. VS ITO, BALOTRA ‘’1. That the appellate order dated 26-02-2020 passed by the ld. CIT(A) confirming the addition/disallowances made by the AO is bad in law and on facts. 2. That in the facts and circumstances of the case, the ld. CIT(A) erred in confirming the trading addition of Rs.30,91,677/- made by the AO for the relevant assessment year which otherwise is fully liable to be deleted. 3. That in the facts and circumstances of the case, the ld. CIT(A) erred in confirming the addition of Rs.2,16,046/- for peak credit made by the AO for the relevant assessment year otherwise is fully liable to be deleted. 2.1 The Ground No. 1 of the assessee is general in nature which does not require any adjudication. Hence, the same is dismissd. 3.1 Apropos Ground No. 2 of the assessee, the facts as emerges from the order of the ld CIT(A) are as under:- ‘’4.2 I have given a careful consideration to the facts on record and appellant's submissions and I find that the during the course of survey at the business premises of the company on 21.12.1999 double set of cash-book including duplicate cash book and other incriminating paper were found subsequently the such books of account and papers were impounded u/s 131(3) of the Act on 22.12.1999 later on the signed photocopies of these documents were retained for examination. During the course of hearing the assessee was asked to explain the entries and details recorded in the copies during the survey. During the course of assessment proceedings worked out the details of thans processed by the company as per gate passes found during the survey and as per such working based on gate 3 ITA NO. 91/JODH/2020 MARUTI MILLS PVT LTD. VS ITO, BALOTRA passes the total thans processed during the year up-to 20.12.99 comes at 109434 but according to bill books maintained by the assessee for period 01.04.99 to 20.12.99 total thans process shown at 61209 only. The assessee company has not recorded the process receipts of 48225 thans in the regular books of accounts. In this regard the Assessing Officer asked to the assessee on above issue but has not given any explanation by the AR of the appellant and accept the unrecorded process receipt of above 48225 thans as out of books and receipts of such thans is undisclosed income of the assessee company. The above facts clearly proved that assessee had earned income out of books which was attempt to be concealed to evade tax as complete process receipts were not recorded in regular books of accounts. The Assessing Officer further noted that as per impounded gate passes a total of 48225 thans were processed out of books upto the date of survey. The assessee has shown process receipts of 61209 thans at Rs. 6785376/- upto the date of survey, giving rate of Rs. 1.10 per mtr by taking each Than of average 100 metre, by applying same job receipt rate for the thans processed out of books, the unrecorded receipt of above 48225 thans came to Rs. 5304750/- The assessee himself had shown total receipts on account of processing charges at Rs. 9735753/- for the whole year to which the above unrecorded receipts of Rs. 5304750 had to be added to the total income of the assessee. Thus, total receipts for the year were worked out at Rs. 1,50,40,503/-. The assessee has shown color chemical consumption of Rs. 29,35,615/- against the recorded job receipts of Rs. 97,35,753/- giving rate of consumption of 30.75% against 12.75% of such expense shown in the previous year. The Assessing Officer noted that the declared GP by the assessee is very low in such line of work. Other firm M/s Surveyshwar Process House, Balotra had shown GP of 36.31% for the similar work during the year. Whereas the appellant had shown GP of 29.25%. in the A.Y. 1998-99. In A. Y. 1999-2000 4 ITA NO. 91/JODH/2020 MARUTI MILLS PVT LTD. VS ITO, BALOTRA the GP was taken at 25% considering the past history of case and comparative GP rate of similar work it was considered reasonable to adopt the GP for current year also, equal to last year @ 25%. Accordingly, the Assessing Officer worked out and made addition of Rs. 30,79,671/- to the total income of the assessee. During the course of appellate proceeding the AR of the appellant submitted written submission vide which it was stated that the assessee was engaged in the job work of finishing of cloth and for this purpose it had set up hot air stenter and Decca machine. During the year, a survey u/s 133 A of the IT Act, 1961 on 21.12.1999 and found duplicate set of books in which the job work activities out- side the regular books of accounts were found reflected. Along with the regular cash book, a common cash book (Exh. 10) was also found. The copies of the gate passes issued were also found in which the entire job work done by the assessee was duly reflected. According to the working given by the assessee, the details of thans processed by the company as per gate passes found during the survey and as per working based on gate passes (annexure 'A') the total thans processed during the year up to 20-12-1999 comes at 109434 but accordingly to bill books maintained by the assessee for the period 1-4-1999 to 20-12-1999. (Ex 100 and 110) total thans processed shown at 61209 only. Thus according to the assessing officer, the assessee company has not recorded the process receipts of 48255(109434-61209) thans in the regular books of accounts. The process receipts of these thans according to the AO were obviously undisclosed income of the assessee. The AO did not point out any discrepancy whatsoever in such working. Though this statement of the appellant is brazen since duplicate set of books was caught and the working had to be resorted on the basis of gate passes issued, than relying on the basis of his records. 5 ITA NO. 91/JODH/2020 MARUTI MILLS PVT LTD. VS ITO, BALOTRA It was submitted by the appellant that the AO made additions without any basis and by calculating the profit in wrongful manner. It was submitted by the appellant that the entire job receipts as reflected in the common cash book for Rs 5891953/were adjusted with the expenses as reflected in the same set of books of accounts for Rs 3581132.50 and the resultant figure was further adjusted with the double receipts of job work for Rs. 2531294/- This resulted into loss of Rs. 220473.50 which was adjusted against the peak credit balance of Rs. 423280/- so arrived at on the basis of the remaining credits and debits entries shown in the common cash book which was the only correct method of determining the true income in such cases. It was further submitted by the appellant that it is established beyond doubt that there was no receipt or expenditure other than shown either in the regular books of accounts or in the common cash book found at the time of the survey proceedings and therefore there is no question of determining the income in an otherwise manner in view of the decision of the Hon'ble Raj. High Court in the case of CIT Vs. Gotan Lime Khanij Udyog (2001) 26 TW 205 (Raj.). Further submitted that, on the other side, the AO, first of all determined the income on the basis of the result estimated on GP rate basis and compared it with the results as reflected in the common cash book/gate passes and other incriminating documents found during survey on 21.12.1999. The AO applied a GP rate of 25% as in the preceding Asst Year. The AO did not consider the submissions of the appellant explaining the reasons for fall in the GP rate which was stated to be mainly attributed to the use of own chemicals in the job work as against the fact that the chemicals were used to be supplied by the parties for which the job work is carried out in the preceding year. It was stated by the appellant that the use of own chemical was started in the immediately preceding Asst year and this fact was duly brought to the notice of 6 ITA NO. 91/JODH/2020 MARUTI MILLS PVT LTD. VS ITO, BALOTRA the AO but no enquiry whatsoever was made in this connection. It was submitted that the rates of the job work could not be increased to the desired level due to the competition and therefore the GP stood at low level in the relevant asst year as compared to the preceding asst year. It was claimed by the appellant company that the position remained the same in the relevant asst year. The comparative analysis of various other expenses were submitted to the AO and no discrepancy was found therein. It was submitted that the above case was duly distinguished during the asst proceedings itself that in that case only stenter machine was installed whereas in the assessee's case Decca Machine is also installed and the process is therefore different. Further, the AO in the second alternative method also calculated the profit on the basis of the transaction shown in the regular as well as in common cash book. The AO determined the total receipts out of the Exh. 8 & 10 for Rs 126,63,692/- and reduced it by the total expenditure determined by him for Rs. 3536371/- and also by the bank receipts relating to all the sister concern of the assessee company for Rs. 5362809/- duly verified from the regular books and estimated that there was a net profit of Rs. 3764512/- out of the Exh. 8 & 10. This net profit was further increased by the AO by the difference of the credit and debits between 16.11.1999 to 30.11.1999 amounting to Rs. 231480/- for which there were no entries found in the common cash book but was taken in the calculation of the peak credit by the assessee. Thus the net profit of Rs. Rs. 3995992/- (Rs. 3764512+Rs. 231480) was calculated. While submitting the return of income for the relevant asst year, income arising both from the regular as well as common cash book transactions have been taken into account. From the credit side of the common cash book the job receipts were determined and the remaining entries except relating to the assessee company were taken to the peak credit account and the credit balance in the said peak credit account was also 7 ITA NO. 91/JODH/2020 MARUTI MILLS PVT LTD. VS ITO, BALOTRA taken. as income of the assessee company. The common cash book contained credit and debit entries in the name of the assessee company itself and therefore these entries were summarised and a net debit balance of Rs. 2531294/- was determined. At the time of asst. proceedings; the said amount was re- determined at Rs. 2529587/- as shown in the asst. order dated 28.03.2003. This debit balance represented the moneys withdrawn from the common cash book and deposited into the bank account in the regular books of accounts as reflected from the common cash book and the regular cash book being produced before you're the undersigned. Since the money has been withdrawn from the common cash book and utilized in depositing the same into the assessee's bank account as clearly mentioned in the narration of the common cash and therefore to that extent the job receipts have been shown twice i.e. first when received and credited into the common cash book and secondly at the time of depositing the same into bank account in the regular books of accounts. The entries of job receipts in common cash book and regular cash book were either in the same name at some places and in different name at other places in the regular cash book. In view of the above position, the total receipts of Rs. 5891953/- was accordingly reduced by Rs.2531294/- while filing the return of income and since at the time asst, proceedings the above figure was calculated at Rs.2529587/-, the same was claimed to be reduced from the total income determined by the AO but the same was negative by the AO for no reason and by simply saying that the same represented the withdrawals by the company and therefore is not liable to be deducted as claimed by the assessee. The AO while doing so did not bring on record any material showing the disposal of the withdrawal other than as claimed by the assessee and therefore the fact that the money withdrawn from the common cash book went into the bank account of the assessee as shown in the regular cash book remained uncontroverted and therefore 8 ITA NO. 91/JODH/2020 MARUTI MILLS PVT LTD. VS ITO, BALOTRA the decision of the AO for not allowing the set off of double job receipts is contrary to the facts available on record found at the time of survey u/s 133 A on 21.12.1999. The assessee then determined the expenses as claimed in the common cash book (Exh 10) for Rs.3581132.50 and on this basis determined the net income out of the Exh.10. At the time of assessment proceedings, the expenses were determined by the AO for Rs. 3536371/- out of the common cash book which is slightly varying. But the fact that the income was determined without giving set off of double job receipts as stated above made the whole order illegal and against the principle of arriving at a the real income. The said sum of Rs.207735.00 is represented by investment in cash for Rs.2811/- and DG Set for Rs.204923/- which have already been taken in the books and accepted by the AO. In this way the appellant company submitted that both the methods of calculating the income in its case as applied by the AO is patently wrong and the method as submitted the appellant company on the basis of real income theory is the only correct method and therefore the trading addition so made deserves to be deleted. Appellant's contention were considered and in the interest of natural justice, this office forwarded the appellant's written submissions to the Assessing Officer for his comments. In the remand reports dt. 18.01.2006 and 16.05.2013, and counter replies furnished by the AR of the appellant on the remand report dated 10.11.2008, 21.10.2010 and 08.08.2013 were also duly considered by the undersigned during the course of appellate proceeding but not found any satisfactorily explanation in favor of the appellant. Rather, I find that the assessee himself has shown GP rate of 25% in the preceding year which was confirmed by the Id CIT-(A)-2, Jodhpur in the appellant'a own case in appeal number 120/2002-03 dated 09.12.2005. Considering the past history of the case and comparative GP of similar work, the Assessing Officer has correctly 9 ITA NO. 91/JODH/2020 MARUTI MILLS PVT LTD. VS ITO, BALOTRA accepted GP for the current year equal to last year @ 25%. In view of the peculiar circumstances of the this case wherein duplicate set of book had been caught, the appellant's contention of relying on such dubious transactions in the manner he wishes, cannot be accepted. I find that the assessee himself shown GP of 29.25% and 25% in the AY 1998-99 and 1999-2000. Thus, considering the factual and legal position as discussed above and keeping in view the nature and volume of appellant's business, the AO's action of applying GP rate @ 25% is upheld. Which in my view, having followed the due rationale, is quite reasonable. This addition does not appear to be on higher side either. Hence, the same is sustained. The ground no. 2 is dismissed. 3.2 During the course of hearing, the ld. AR of the assessee prayed that the ld. CIT(A) erred in confirming the trading addition of Rs.30,91,677/- which needs to be deleted. 3.3 On the other hand, the ld. DR supported the order of the AO. 3.4 We have heard both the parties and perused the materials available on record. It is noted that the AO made addition of Rs.30,91,677/- being (trading addition) net profit determined as per duplicate cash book during the course of survey proceedings u/s 133A of the Act. The AO while making the assessment in the case of the assessee in nut shell applied the G.P. Rate of 25% and worked out the 10 ITA NO. 91/JODH/2020 MARUTI MILLS PVT LTD. VS ITO, BALOTRA addition of Rs.30,79,671/- to the total income of the assessee. The relevant para as to the addition made by the AO is reproduced as under:- ‘’5. .... As proved from impounded books/documents the assessee has concealed the true income, hence the declared results are not correct. The declared G.P. by the assessee is very low in such line of work. Other firm M/s. Surveyshwar Process House, Balotra had shown g.p. of 26.31% for the similar work during the year. The assessee himself has shown g.p. of 29.25% in the year 1998-99. In the A.Y 1999-2000, the G.P. was taken at 25%. Considering the past history of the case and comparative G.P. of similar work, it would be reasonable to adopt the G.P. for the current year equal to last year at 25%. Accordingly, total income of the assessee company is worked out by the AO at page 3 of the assessment order and thus made addition of Rs.30,79,671/- to the total income of the assessee.’’ In first appeal, the ld CIT(A) observed that the assessee had himself shown GP 29.25% and 25% in the A.Y. 1998-99 and 1999-2000. Thus considering the factual and legal position as well as the nature and volume of assessee’s business, the ld. CIT(A) confirmed the action of AO holding the G.P. @ 25% as reasonable and dismissed the ground of appeal of the assessee. It may be noted that in assessee’s own case for the assessment year 1999-2000, the Tribunal 11 ITA NO. 91/JODH/2020 MARUTI MILLS PVT LTD. VS ITO, BALOTRA vide its order dated 30-04-2007 in ITA No.14/JPR/2006 had upheld the G.P.Rate at 18.93%. In view of the above deliberation, we find that G.P. Rate at 17.5% would be reasonable in view of the addition so made by the AO. Thus Ground No.2 of the assessee is partly allowed. 4.1 In Ground No.3, the assessee is aggrieved that the ld. CIT(A) has erred in confirming the addition of Rs.2,16,046/- for the peak credit made by the AO. 4.2 Apropos Ground No. 3 of the assessee, the facts as emerges from the order of the ld. CIT(A) are as under:- ‘’05. I have considered the facts of the case, appellant submission and I find that during the course of assessment proceedings the Assessing Officer noted that total receipt as per Ex 8 and 10 are at Rs. 1,26,63,692/- and total expenses of Rs. 35,36,371/-. The bank receipts in these exhibits of common cash book of all sister concerns of the assessee were at Rs. 53,62,809/- which were claimed to be shown in regular books of the assessee company and sister concern. Thus, the difference or receipts excluding expenses and bank transactions shown in common cash book comes at Rs. 37,64,512/-. Thus, 37,64,512/- was net profit as per Ex-8 and 10. The common cash book period 16.11.1999 to 30.11.1999 was not available with the assessee but the working of debits and credits 12 ITA NO. 91/JODH/2020 MARUTI MILLS PVT LTD. VS ITO, BALOTRA recorded list was prepared by the appellant. In the difference between in total credits and total debits of Rs. 2,31,480/- (9,17,120-6,85,640) was taken net income of the appellant up to date of the survey and the total worked out at Rs. 39,95,992/- (37,64,512 2,31,480), during the course of assessment proceeding the AR further claimed that in sum of Rs. 39,95,992/- non trading entries of Rs. 15,55,315/- are also included which were been considered in peak calculation. On examination of the books the Assessing Officer found that non trading entries amounted only to Rs. 6,51,000/- as shown as receipt in Exh- No. 8 is marked as M/s Delhi on different dates and no repayment is shown to such delhiwala. Therefore these receipts of Rs. 6,51,000/- were treated as trading receipts. Accordingly, only the balance amount of Rs. 9,04,315/-(15,55,315- 6,51,000) included in the net profit of Rs. 39,95,992/- was reduced to arrive at the net profit of the appellant. However, the balance entries of Rs. 9,04,315/- appear to be deposits and reflected the cash creditors. As the peak amount to these deposits as worked out at Rs. 4.23,780/- by the appellant, the same was treated as undisclosed income of the appellant on account of these transactions. The assessee had already shown Rs. 2,07.434/+ in the return against the above peak calculation. The difference of Rs. 2.16.046 was added to the total income of the assessee. During the course of appellate proceeding the AR of the appellant filed written submissions regarding his claim which was duly considered by the undersigned but not found tenable. Moot question still remained that the appellant had failed to prove the cash credits, as brought out by the AO in his assessment order. Needless to reiterate that during the assessment proceedings, the appellant neither 13 ITA NO. 91/JODH/2020 MARUTI MILLS PVT LTD. VS ITO, BALOTRA produced confirmation nor these parties despite specific opportunity granted by the Assessing Officer. The exhibits 8 and 10 are common cash- book of the assessee company itself. Thus, these entries in the own name of the company are merely the withdrawals of the company out of its income, which in no case can be termed as business expenditure. The AR of the appellant had not filed any evidence in support of his claim. Thus, I hold that the appellant's contention that the Assessing Officer had not brought any material on record to disprove the facts mentioned by the assessee, and the evidence brought on record by the assessee is not correct. Considering the facts of the case and discussion made above, it is held that the Assessing Officer was justified in holding that the appellant failed to prove the genuineness of his claim. Accordingly, the addition made on this account is sustained. The ground raised by the appellant regarding these issues is dismissed. 4.3 During the course of hearing, the ld. AR of the assessee prayed that the ld. CIT(A) has wrongly confirmed the addition of Rs.2,16,046/- for peak credit made by the AO which should be allowed. 4.4 On the other hand, the ld. DR supported the order of the ld. CIT(A). 14 ITA NO. 91/JODH/2020 MARUTI MILLS PVT LTD. VS ITO, BALOTRA 4.5 We have heard both the parties and perused the material available on record. During the course of hearing, we observed that no contrary view or documents to controvert the findings was advanced by the ld. AR of the assessee concerning the issue in question. In such a situation, we have no other alternative except to confirm the order of the ld. CIT(A) on the issue in question. Thus Ground No. 3 of the assessee is dismissed. 5.0 In the result, the appeal of the assessee is partly allowed. Order pronounced in the open Court on 23/03/2023. Sd/- Sd/- (KUL BHARAT) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 23 /03/2023 *Mishra Copy to: 1. The Appellant 2. The Respondent 3. The CIT 4. The DR 5. Guard File Assistant Registrar Jodhpur Bench