2007-VIL-327-ITAT-JDP
Equivalent Citation: TTJ 113, 357,
Income Tax Appellate Tribunal JODHPUR
Date: 28.09.2007
INCOME-TAX OFFICER.
Vs
HITESH KUMAR PANCHORI.
BENCH
Member(s) : R. S. SYAL., HARI OM MARATHA.
JUDGMENT
The appeal by the Revenue for asst. yr. 2004-05 is directed against the order of the learned CIT(A) dt. 16th June, 2006. It was stated by learned Authorised Representative at Bar that there is no cross-appeal by the assessee.
2. The Revenue has raised the following grounds of appeal:
"On the facts and in the circumstances of the case, the learned CIT(A) has erred in:
1. Reducing the trading addition of Rs. 3,57,861 to Rs. 34,000.
2. Deleting the addition of Rs. 2,75,205 made on account of excess cash found during the course of survey under s. 133A.
3. Deleting the addition of Rs. 2,20,000 made on account of unexplained advance.
4. Deleting the addition of Rs. 11,000 made under s. 40A(3) of IT Act.
5. Deleting the disallowance of Rs. 50,000 out of vehicle hire charges."
3. Briefly stated, the facts of this case are that the assessee deals in the purchase and sale of footwears in the name of M/s Vinod Foot Wear. A survey under s. 133A of the IT Act, 1961 (hereinafter referred to as 'the Act' for short) was carried out on 15th Oct., 2003 in this case. During the course of survey, the assessee surrendered the following amounts against item Nos. 1 to 4, as under:
1. Excess/unexplained cash Rs. 5,70,545
2. Excess/unexplained stock Rs. 3,10,004
3. Unexplained investment in building construction Rs. 4,00,000
4. Unexplained debtors Rs. 2,20,000
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Total amount surrendered Rs. 15,00,549
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However, in the return of income filed, the assessee has shown only the following incomes for taxation:
1. Profits as per P&L a/c (-) Rs. 763
2. Out of unexplained cash surrendered during Rs. 2,95,340
survey
3. Out of excess stock found during survey Rs. 12,290
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Total income Rs. 3,07,630
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Thus, as against the surrendered amount of Rs. 15,00,549 plus the profit for the year, the assessee has returned only a sum of Rs. 3,07,630 for taxation.
4. The facts of ground No. (1) are that during survey, stock of Rs. 27,37,157 was found on physical verification as against stock as per books being at Rs. 24,27,153. Thus, there was an excess stock of Rs. 3,10,004. The assessee had surrendered this amount at the time of survey. However, in the computation of total income the assessee has worked out the excess stock as under:
Inventory valued at the time of survey Rs. 27,37,157
Less: difference in valuation of stock Rs. 2,97,714
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Rs. 24,39,443
Stock as per trading account as on date of survey Rs. 24,27,153
Difference (excess stock as per assessee) Rs. 12,290
But, the learned AO worked out the excess stock at Rs. 69,537 as against Rs. 12,290 shown by the assessee. The assessee has shown a gross profit of Rs. 15,93,054 on total sales of Rs. 1,43,72,895 giving a GP rate of 11.08 per cent as against rate of 10.20 per cent on sales of Rs. 1,37,91,045 shown in the last year. The learned AO is of the opinion that the assessee has shown huge expenses to nullity the amount surrendered during survey. The assessee further stated that the rate shown to the survey team was on estimate only. The AO further stated that the profit rate of the assessee was much higher than what has been shown in the trading account. He has further noted that in the tax audit report the auditor has observed that the assessee has not maintained day-to-day quantitative details. He was, therefore, of the opinion that the valuation of closing stock was not verifiable. It was further noticed that the assessee has shown trade debtor namely, Shri Mahipal Ajit Kumar for Rs. 21,368. On verification, the AO came to the conclusion that no amount was due from this party. The assessee made dealing with this party on various dates for Rs. 38,436 in cash only. On asking, the assessee stated that he has effected sales and the amount of Rs. 21,368 was due from him. Similarly an amount of Rs. 10,956 has been shown in the name of M/s Deepak General Store, Banswara as debtor. On verification, this party denied to have entered into any transaction with the assessee. The AO also obtained the copy of account of M/s Mahaveer Polymers (P) Ltd., Jaipur and found that some of the payments were not found recorded in the books of the assessee but the assessee has denied such receipt. He further observed that at the fag end of the year the concern M/s Mahaveer Polymers (P) Ltd. shown credit entries against the assessee in its books in the form of credit note for commission. Further the following entries were also not found verifiable from the books of the assessee:
31.3.2004 Credit note Rs. 20,000
31.3.2004 Credit note Rs. 15,000
31.3.2004 Credit note Rs. 40,789
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Rs. 75,789
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These were the discounts received by the assessee, but the assessee has not accounted for the same in its books of accounts on the plea that no such payments were received. In view of the above the learned AO held that the book result cannot be accepted. He further stated that the GP rate of the immediately preceding assessment year also cannot be taken as a basis as the same was not subjected to any verification. The AO has further noted that it was evident from the purchase bills that the rate stated to the survey team has been reduced drastically. This means that the profit element to the assessee is not 11.8 per cent shown in the trading account. He has also noted that the assessee had received discounts against purchases, meaning thereby that the assessee has inflated the purchase to that extent. In view of the above discussion and discrepancies, the AO made a trading addition of Rs. 3,57,861 which was equal to the excess stock found and surrendered during the course of survey but excluding Rs. 12,290 declared by the assessee in the return. The learned CIT(A), however, reduced the trading addition to Rs. 34,000. The Revenue has disputed this finding of learned CIT(A).
5. We have heard rival submissions and have perused the available materials on record carefully.
6. Admittedly and apparently, the GP rate declared in this year is better being at 11.08 per cent as against 10.20 per cent in the immediately preceding year. The consistent view of the Bench is that even when the books of accounts are rejected, addition is not automatic, and if the GP rate declared in the current year is better than the past year, no further addition can be made in the declared results. Therefore, the learned CIT(A) has correctly deleted the trading addition. Hence, we dismiss ground No. (1) of Revenue's appeal.
7. The facts of this ground No. (2) are that during the course of survey cash amounting to Rs. 6,57,250 was found. The cash as per cash books was available to the extent of Rs. 86,705. The assessee surrendered Rs. 5,70,545 for taxation. But, in the return of income he declared excess cash of Rs. 2,95,340 only on the plea that Rs. 2,75,205 belonged to M/s Siddhi Plastics a proprietary concern of his brother, Vinod Kumar Jain, who was also there at the time of survey. An affidavit of Shri Vinod Kumar along with the return of income was also filed. The AO did not believe this version and after rejecting the explanation offered by the assessee added a sum of Rs. 2,75,205 to assessee's total income. The learned CIT(A), in turn, deleted this addition.
8. We have heard rival submissions and have perused the available materials on record carefully.
9. After hearing both sides in the light of the available facts, there is nothing wrong in the finding of the learned CIT(A) because the regular books of accounts of M/s Siddhi Plastics also reflected cash balance of Rs. 2,75,205, as opening balance, as on 15th Oct., 2003, the date of survey. The fact that the office premises of M/s Siddhi Plastics & M/s Vinod Kumar Foot Wear is common was also found correct from the available evidences on record. The books of accounts of both the concerns are found to be maintained in a single computer which is owned by this assessee. This was established by a copy of ledger accounts of M/s Siddhi Plastics and M/s Vinod Food Wear, furnished before the AO. A certificate from Bank of Baroda, Paloda, District Banswara, certifying that M/s Siddhi Plastics is maintaining current account with bank and its official address has been given as Sadar Bazar, VPO Paloda, District Banswara. Therefore from evidences which include copy of cash book of M/s Siddhi Plastics, registration certificate issued by the Sales-tax Department showing the address of the factory at village Paloda, a certificate from Bank of Baroda, the fact of maintenance of account by the same accountant namely Shri Prakash and proof of salary payment to him by both the concerns go to establish the plea taken by the assessee. As far as surrender made during survey is concerned the assessee has a legal right to disprove the same, which he has done successfully in this case. Consequently, we confirm the impugned deletion and dismiss ground No. (2) of Revenue's appeal.
10. The facts of ground No. (3) are that the AO has noted that during the course of survey, a small diary was found in which advances/loans were shown in the following names:
01.04.2003 Shri Ram Lal Rs. 20,000
18.04.2003 Shri Shankerlal Rs. 25,000
20.05.2003 Shri Prakash Chand Rs. 20,000
20.05.2003 Shri Mohanlal Rs. 22,000
22.06.2003 Shri Surajmal Rs. 23,000
Shri Lal Shankar Rs. 20,000
15.08.2003 Shri Narayanlal Rs. 30,000
Shri Kachrulal Rs. 25,000
10.09.2003 Shri Ramesh Kumar Rs. 15,000
Shri Kanhaiyalal Rs. 20,000
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Total Rs. 2,20,000
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In his statement recorded, the assessee admitted that these amounts represented the cash loan given by him from his undisclosed sources and not recorded in the books of accounts, therefore, he surrendered this amount for taxation. But in the return of income, he did not disclose this surrendered income on the plea that in fact the aforesaid transactions were related to the building construction as the assessee had made the payment to the contractor through his employee and for memorizing the transaction this diary was kept. It was further stated that the transactions are duly recorded in the books of accounts of the assessee and also are debited in the addition to the building account, as there was no undisclosed investment on the part of the assessee. The assessee also filed a confirmation from Shri Suraj Mal to whom he advanced money for building construction. Shri Suraj Mal, the contractor stated that he had received Rs. 3,98,045 from the assessee towards different works and he had given a sum of Rs. 2,20,000 to the above persons. But, the AO did not believe the above claim of the assessee and added this amount in his total income. On the contrary, the learned CIT(A) deleted this addition.
11. After hearing both sides and after carefully going through the available material on record, we are not inclined to accept this amount of Revenue's appeal. The simple reason for our above conclusion is that the AO has rejected the contention of the assessee with regard to advance having been made to the contractor by mentioning that this is not usually done and that a copy of agreement between the contractor and the assessee had not been filed. The above grounds taken by the AO for rejecting of the claim of the assessee are not valid ones. There is no abnormality in the act of the assessee in making advances to the contractor for the construction work. When all the payments are recorded in the books of accounts which are also supported by the letter of the contractor Shri Suraj Mal, there remains no doubt about the correctness of the contention of the assessee. As stated above, the assessee has got a right to dispute his surrender made during survey by way of plausible evidences. The assessee has successfully disproved the same. Consequently, we dismiss ground No. (3) of this appeal.
12. The facts of ground No. (4) of Revenue's appeal are that the AO has found that the assessee has made cash payments towards the purchase totalling to Rs. 55,000, in contravention of the provisions of s. 40A(3) of the Act. Consequently, the AO disallowed 20 per cent of this amount and added Rs. 11,000 in the total income of the assessee. However, the learned CIT(A) has deleted this addition by observing that all the payments made in cash are within permissible limit and are not hit by s. 40A(3) of the Act.
13. We have heard rival submissions and have perused the available materials on record carefully.
14. The assessee made various payments on 21st April, 2003, 22nd April, 2003, 19th May, 2003 and 20th May, 2003 to M/s Calcutta Shoe Company; but M/s Calcutta Shoe Company made entries on two dates i.e., 24th April, 2003 and 22nd May, 2003 for the entire amounts of Rs. 25,000 and Rs. 50,000, respectively. But when these payments were examined, it was found that the payment of Rs. 12,500 and Rs. 15,000 at the most were made on one day, which amounts are below the limit prescribed by s. 40A(3) of the Act. Therefore, in our considered opinion, the learned CIT(A) has correctly deleted this addition.
15. The facts of last ground of this appeal are that the assessee had paid jeep rent of Rs. 1,50,000 to one Shri Suresh Kumar. In the last year, the rent was Rs. 93,780. When called upon to explain the assessee stated that this rent did not include charges of diesel expenses which were borne by the assessee. The AO considered the rent of Rs. 1,50,000 to be on higher side and estimated a reasonable rent of Rs. 1,00,000 and by disallowing the balance amount of Rs. 50,000 added the same in assessee's total income. The learned CIT(A) deleted this addition by holding that there was no material to show that the vehicle was used for non-business purposes and that the disallowance was made by the AO on presumption/assumption basis only. We also find that the disallowance is not based on any valid reason and is simply an ad hoc one. Any ad hoc disallowance, which is devoid of any legal force and not supported by documentary evidence, cannot be sustained. Hence, we dismiss this ground of appeal also.
16. In the result, the appeal of the Revenue stands dismissed.
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