Income Tax Appellate Tribunal - Bangalore
M/S Arihant Aluminium Corporation , ... vs Department Of Income Tax on 15 January, 2010
IN THE INCOME TAX APPELLATE TRIBUNAL
"B" BENCH : BANGALORE
BEFORE GEORGE GEORGE K., JUDICIAL MEMBER
AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER
ITA No. 174 to 180/Bang/2010
Assessment years : 2001-02 to 2007-08
Arihant Aluminium Corporation,
No.91, N.R. Road,
Bangalore - 560 002. : APPELLANT
Vs.
The Assistant Commissioner of
Income Tax,
Central Circle 2(2),
Bangalore. : RESPONDENT
ITA No. 373/Bang/2010
Assessment year : 2007-08
The Deputy Commissioner of
Income Tax,
Central Circle 2(2),
Bangalore. : APPELLANT
Vs.
Arihant Aluminium Corporation,
No.91, N.R. Road,
Bangalore - 560 002. : RESPONDENT
Assessee by : Shri H.N. Khincha, C.A.
Revenue by : Shri Kumar Ajeet, Jt. CIT(DR)
ITA No.174/Bang/10
Page 2 of 20
ORDER
Per Bench These eight appeals - (i) seven appeals preferred by the assessee company for the AYs 2001-02 to 2007-08 and (ii) one appeal of the Revenue for the AY 2007-08 - are directed against the common order of the Ld. CIT (A) - VI, Bangalore in ITA Nos: 299, 300, 301, 302, 303, 304 and 396/AC CC 2(2)/CIT(A)-VI/2008-09 dated: 15.1.2010. I. ITA NO: 174/10 - A.Y. 2001-02:
The assessee company [ 'the assessee' in short ] has raised seven grounds, out of which ground Nos: 1 and 7 being general and no specific issues involved, they have become non-consequential. In the remaining grounds, the issues raised are reformulated, for the sake of convenience and proper understanding, in a concise manner, as under:
(i) the CIT (A) erred in confirming the order passed u/s 143(3) rws 153C of the Act which was not in accordance with the provisions of the Act and bad in law and, thus, liable to be quashed;
(ii) without prejudice, the lower authorities have erred in considering the profit ratio at 7% as against 6% on undisclosed sales;
(iii) the authorities below have erred in addition Rs.20.53 lakhs being highest peak credit in the bank accounts as undisclosed investment u/s 69 of the Act;
- the CIT(A) erred in not properly appreciating the submissions and drawn a conclusion that the peak credit was to be added u/s 69 of the Act; &
(iv) the assessee denies the liability of interest levied u/s 234B, 234C and 234D of the Act.
ITA No.174/Bang/10Page 3 of 20 II. ITA NOs: 175 & 176/10 - A.Ys. 2002-03 & 03-04:
The assessee has raised six identical grounds for these two AYs, out of which ground Nos: 1 and 6 being general, they have been considered as non-consequential. In the remaining grounds, the issues raised are reformulated, in a concise manner, as under:
(i) the CIT (A) erred in confirming the order passed u/s 143(3) rws 153C of the Act partially which was not in accordance with the provisions of the Act and bad in law and, thus, liable to be quashed;
(ii) without prejudice, the lower authorities have erred in considering the profit ratio at 7% as against 6% on undisclosed sales;
(iii) the assessee has got the benefit of deletion of the addition for peak credits for the year as the same get subsumed in the earlier year's peak credit and, hence, the confirmation by the CIT(A) of the theory of peak credit was applicable to the facts of the case was wrong since the credits in the bank accounts were out of turnover on which % of profit was separately taxed; &
(iv) the assessee denies the liability of interest levied u/s 234B and 234D of the Act.
III. ITA NO: 177/10 - A.Y. 2004-05:
The assessee has raised six grounds, out of which ground Nos: 1 and 6 being general, they have been considered as non-consequential. In the remaining grounds, the issues raised are reformulated, in a concise manner, as under:
(i) the CIT (A) erred in confirming the order passed u/s 143(3) rws 153C of the Act partially which was not in accordance with the provisions of the Act and bad in law and, thus, liable to be quashed;
(ii) without prejudice, the lower authorities have erred in considering the profit ratio at 7% as against 6% on undisclosed sales;ITA No.174/Bang/10 Page 4 of 20
(iii) the assessee has got the benefit of deletion of the addition for peak credits for the year as the same get subsumed in the earlier year's peak credit and, hence, the confirmation by the CIT(A) of the theory of peak credit was applicable to the facts of the case was wrong since the credits in the bank accounts were out of turnover on which % of profit was separately taxed; &
(iv) the assessee denies the liability of interest levied u/s 234B, 234C and 234D of the Act.
III. ITA NO: 178/10 - A.Y. 2005-06:
Similarly, the assessee has raised six grounds, in which ground Nos: 1 and 6 being general, they have become non-consequential. In the remaining grounds, the issues raised are as under:
(i) the CIT (A) erred in confirming the order passed u/s 143(3) rws 153C of the Act partially which was not in accordance with the provisions of the Act and bad in law and, thus, liable to be quashed;
(ii) without prejudice, the lower authorities have erred in considering the profit ratio at 7% as against 6% on undisclosed sales;
(iii) the assessee has got the benefit of deletion of the addition for peak credits for the year as the same get subsumed in the earlier year's peak credit and, hence, the confirmation by the CIT(A) of the theory of peak credit was applicable to the facts of the case was wrong since the credits in the bank accounts were out of turnover on which % of profit was separately taxed; &
(iv) the assessee denies the liability of interest levied u/s 234B of the Act.
IV. ITA NO: 179 /10- A.Y. 2006-07 :
For this AY, the assessee has raised eight grounds, in which ground Nos: 1 and 8 being general and no specific issues involved, they ITA No.174/Bang/10 Page 5 of 20 have naturally become non-consequential. In the remaining grounds, the issues raised are listed out as under:
(i) the CIT (A) erred in confirming the order passed u/s 143(3) rws 153C of the Act partially which was not in accordance with the provisions of the Act and bad in law and, thus, liable to be quashed;
(ii) without prejudice, the lower authorities have erred in considering the profit ratio at 7% as against 6% on undisclosed sales;
(iii) the assessee has got the benefit of deletion of the addition for peak credits for the year as the same get subsumed in the earlier year's peak credit and, hence, the confirmation by the CIT(A) of the theory of peak credit was applicable to the facts of the case was wrong since the credits in the bank accounts were out of turnover on which % of profit was separately taxed;
(iv) Without prejudice, the authorities below erred in holding that the figures of debtors and cash receipts as additional turnover over and in calculating profits thereon and, thus additions of Rs.4.77 lakhs and Rs.2.63 lakhs are liable to be deleted.&
(v) the assessee denies the liability of interest levied u/s 234B and 234C of the Act.
V. ITA NO: 180/10 - A.Y. 2007-08 :
For this AY also, the assessee has raised eight grounds, out of which ground Nos: 1 and 8 being general and no specific issues involved, they have naturally become non-consequential. In the remaining grounds, the issues raised are listed out as under:
(i) the CIT (A) erred in confirming the order passed u/s 143(3) of the Act partially which was not in accordance with the provisions of the Act and bad in law and, thus, liable to be quashed;
(ii) without prejudice, the lower authorities have erred in considering the profit ratio at 7% as against 6% on undisclosed sales;ITA No.174/Bang/10 Page 6 of 20
(iii) Without prejudice, the authorities below erred in holding that the figures of debtors and cash receipts as additional turnover over and in calculating profits thereon and, thus, additions of Rs.1.22 lakhs and Rs.0.83 lakh are liable to be deleted;
(iv) The CIT(A) erred in confirming the action of the AO in making an addition of Rs.31.64 lakhs as unexplained cash u/s 69A of the Act; &
(v) the assessee denies the liability of interest levied u/s 234B and 234C of the Act.
VI. ITA NO: 373 /10- A.Y. 2007-08 :
In its lone appeal, even though the Revenue has raised five grounds, the crux of the issue is confined to that -
"the CIT (A) had failed to reason that the addition of Rs.6.98 lakhs was made as deficit stock being the difference in the trading account and physical stock as on the date of survey by holding it as unexplained investment."
Common order:
2. As the issues raised by the assessee in these appeals were more or less identical and inter-linked and also the Revenue's lone appeal was also concerning the same assessee, they were heard, considered together and disposed off, for the sake of convenience and clarity, in this common order.
3. Let us now take up the assessee's appeals for consideration.
4. During the course of hearing, the Ld. A.R reiterated more or less what was put-forth before the first appellate authority. In furtherance, it was urged that -ITA No.174/Bang/10 Page 7 of 20
(i) the increase in percentage as was done by the AO had no basis, that the profits as declared by the assessee being reasonable, the same should have been accepted;
(ii) the lower authorities have erred in adding Rs.20.53 lakhs being highest peak credit in the bank accounts as undisclosed investments u/s 69 of the Act. There was no unexplained investment/concealed investment at all;
- on proper appreciation of facts and evidence available, the addition being contrary to the facts of the case and law applicable and in fact amounting to taxing of turnover being against the law;
- the first appellate authority erred in not properly appreciating the submissions made and drawn a conclusion that the peak credit was to be added as un-explained investments u/s 69 of the Act;
(iii) (for the AYs 2006-07 & 07-08) the lower authorities have erred in holding that the figures of debtors and cash receipts as additional turnover and in calculating profits thereon. In fact, the debtors and cash receipts were the fall out of the unaccounted turnover on which the profits were already taxed and the additions made on these counts were totally wrong and on incorrect appreciation of facts. These additions, in fact, amount to double addition;
(iv) (for the AY 2007-08) the addition of Rs.31.64 lakhs as unexplained cash u/s 69A of the Act holding that the cash found on search was not explained etc was totally wrong as the cash was fully explained and as such there was no unexplained cash at all; &
(v) The assessee denies the liability to pay interest u/s 234B, 234C and 234D of the Act. As the interests having been levied erroneously, they require to be deleted in toto.
4.1. Buttress his arguments, the Ld A R furnished a voluminous paper book containing 1 - 143 pages consist of among others, copies of (i) correspondence with the AIT (Inv); (ii) gross profit and net profit charts for the AY 1995-96 to 06-07; (iii) peak credits chart for the AYs 2001-02 to 06- 07 etc. ITA No.174/Bang/10 Page 8 of 20 4.2. On the other hand, the Ld. D R was very emphatic in his/her urge that there was a search and seizure operation u/s 132 of the Act in the case of Shri Babulal Nagori and group of cases on 20.4.2006 which was followed by survey u/s 133A of the Act in the case of the above assessee, its partners and their family members which culminated in the conclusion of the assessments for the AYs under dispute. The assessment orders in question have been concluded after analyzing the issues at depth and also taking into account the facts which cropped up during the search operation. As the Ld. CIT (A) had also given his findings in a judicious manner, it was pleaded that the order of the first appellate authority requires to be sustained.
5. We have duly considered the rival submissions, diligently perused the relevant case records and also the documentary evidences advanced by either party in the shape of paper book, case law etc. 5.1. The first ground being common for all the AYs under dispute [except for the AY 2007-08 wherein the assessment was concluded u/s 143(3) of the Act] that the CIT (A) erred in confirming the orders passed u/s 143(3) rws 153C of the Act which were not in accordance with the provisions of the Act and bad in law and, thus, liable to be quashed etc., 5.1.1. However, the assessee had not come up with any credible documentary evidence to substantiate its claim that the assessment orders under dispute have not been passed in accordance with the provisions of the Act. On the other hand, the stand of the authorities below on this score was in conformity with the provisions of the Act and, thus, we are of the firm ITA No.174/Bang/10 Page 9 of 20 view that there is no case for the assessee to agitate on this count. This ground is, accordingly, dismissed for all the AYs under dispute including for the AY 2007-08.
6. The next ground also being identical for all the assessment years under appeal wherein it was contested by the assessee that the AO had grossly erred in adopting the profit rate at 7% as against 6% disclosed by the assessee on undisclosed sales.
6.1. On a glance of the impugned orders of the AO, we find that the AO had estimated the GP at 7% on the unaccounted sales, as rightly highlighted by the Ld. CIT(A), the proceeds of such unaccounted sales were clandestinely deposited in the unaccounted bank accounts of the partners of the assessee and their family members. Such additions made by the AO for the AYs 2001-02 to 06-07 were in the range of Rs.61194/-, 17171/-, 31,130/-, 29,640/-, 38,036/- and 1217/- respectively. 6.1.1. After careful consideration of the assessee's averment, perusal of the assessment orders under dispute and also the reasoning of the Ld. CIT (A), we find that there was no credible evidence to back the assessee's contention that the net profit at 6% admitted by it was higher. As rightly brought on record by the CIT(A) that the assessee itself had declared the GP at 8.6% and 6.7% for the AYs. 2005-06 and 06-07 respectively in its regular returns of income. Such being the ground reality, how could the assessee now come up with a theory that adopting of net profit at 7% being on the higher-side? As a matter of fact, the AO had taken a leaf out of the assessee's shelf to counter its argument that the AO had not come up with a comparable case to quote. The assessee itself had unwittingly admitted ITA No.174/Bang/10 Page 10 of 20 the GP at 8.6% and 6.7% in its regular returns of income which cannot be brushed aside. On the other hand, the assessee had not come up with any facts and figures or least any comparable cases in this line of business to refute the AO's estimation.
6.1.2. In an over all consideration of the facts, we find that the AO was quite reasonable in adopting the GP at 7% which requires to be sustained. It is ordered accordingly.
7. The other ground concerning the addition of Rs.20, 53,169/- for the AY 2001-02 being highest peak credit in the bank accounts as undisclosed investments u/s 69 of the Act.
7.1. The assessee's argument, in brief, was that -
(i) it would purchase and sell goods which were not reflected in its regular books of account. Such sales would be both on credit account/cash account. The payments for such sales made on credit basis would also come through DDs/cheques. For these DDs/Cheques, separate bank accounts were maintained. These DDs/cheques were deposited in such bank accounts and whenever necessary and required the balances in these bank accounts were used for further purchase of materials. Thus, the funds in bank accounts were mostly the proceeds for sale were rotated in business for buying and selling of goods which were not disclosed in the regular books of accounts. Thus, the credits in transactions including the peak credits were only out of the proceeds of the sale;
(ii) the assessee is in this line of business since several years and it could get the goods on credit basis and thus very little initial investments for purchase of goods;
(iii) that additions, if any, on account of possibly in such subsequent year where there was a huge increase in purchases. As the assessee had started is business long back and much before the first year for which the post survey assessment was being done, and, hence, no addition for initial investment was called for; ITA No.174/Bang/10 Page 11 of 20 7.1.1. After due consideration of the assessee's arguments and also the perusal of the assessment order, the Ld. CIT (A) had observed that -
"2.3.3........................It is evident from the facts on record that in the first year i.e., 2001.02 in which the unaccounted trading was made by the appellant by using such bank accounts, the peak credits in the accounts according to the appellant itself is Rs.24,81,550/- out of which the assessing officer reduced profit @ 7% estimated by him for the assessment year of Rs.4,28,381/-. Then also the appellant has to explain the source of the investment in the bank accounts to the extent of Rs.20,53,169/- the appellant only argued that the peak credits were only out of the sale proceeds, but failed to substantiate that the credit in the bank accounts does not represents unaccounted investments by the appellant. Even in the case of the sale proceeds, the appellant need to explain the source of the investment in purchases, the sale proceed of which claimed to have been deposited in the bank accounts. The appellant's arguments that the goods can be purchased on credit is not tenable in view of the fact that no evidence to prove such argument was produced before the assessing officer. It is also evident that no such evidence was found during the course of the search. The argument that such unaccounted business were carried out since long, if there is any investment in the purchases it is coming from the earlier years is not acceptable as no such evidence has been found during the course of the search. Further, the appellant also failed to produce any such evidence in the assessment proceedings or appellate proceeding. However, there is a substance in the argument of the appellant that 'having arrived at highest peak in the assessment year 2001-02, there was no need to add the subsequent year peak which are all less than the highest peak for AY 2001-02 because as per the principles of calculating the peak of telescoping the highest peak subsumes all other lower peaks.' It is evident from the record that in the subsequent year the peak credits in the bank accounts are much less than the peak credits of Rs.24,81,550/- for AY 2001-02 including the unaccounted profits of that year. Therefore, there is no doubt that the peak credit for AY 2001-02 of Rs.24,81,550/- (after reducing profit of Rs.4,28,381/- assessed on such transactions) are to be added to the income of the appellant for AY 2001-02 under section 69 of the Income Tax Act...."
7.1.2. We have carefully considered the impugned order of the AO and also the reasoning of the Ld. CIT (A) in confirming the addition made ITA No.174/Bang/10 Page 12 of 20 by the AO. The assessee had not brought any evidence to refute the findings of the authorities below. The submission before us was that "There is no unexplained investment/concealed investment at all. On proper appreciation of facts and evidence available, the addition being contrary to the facts of the case and law applicable and in fact amounting to taxing of turnover being against law is to be deleted."
7.1.3. In an over all consideration of the facts and circumstances of the issue as deliberated upon in the fore-going paragraphs and also diligently considering the reasoning of the Ld. CIT(A), we are of the firm view that the authorities below were justified in adding Rs.20,53,169/- as unexplained investments u/s 69 of the Act. It is ordered accordingly.
8. The next issue being common for the AYs 2003-04, 04-05 and 05-06 wherein the assessee has submitted that "though the appellant has got the benefit of deletion of the addition for peak credits for the year on the ground that the same get subsumed in the earlier year's peak credit, the appellant submits that the confirmation by the CIT(A) of the theory of peak credit is applicable to the facts of the case is wrong since the credits in the bank accounts are out of turnover on which % of profit is separately taxed." 8.1. On a careful reading of the wordings, we find that the assessee had conceded that it had got the benefit of deletion of the additions for peak credits for the AYS mentioned supra on the ground that the same got subsumed in the earlier year's peak credit. Thus, the assessee has no grievance on the issue. Further submission of the assessee on the stand ITA No.174/Bang/10 Page 13 of 20 of the CIT (A) was rather clarificatory which, in our considered view, requires no adjudication. It is ordered accordingly. 8.1.1. However, for the AYs 2006-07 and 07-08, the assessee has agitated that -
the lower authorities have erred in holding that the figures of debtors and cash receipts as additional turnover and in calculating profits thereon. In fact, the debtors and cash receipts were the fall out of the unaccounted turnover on which the profits were already taxed.
Assessment year Additions
2006-07 Rs.477321/- & Rs.263019/-
2007-08 Rs.122840/- & Rs. 83567/-
It was contended that the additions made on these counts were totally wrong and on incorrect appreciation of facts. These additions, in fact, amount to double addition;
8.1.2. With regard to unaccounted debtors for the AYs 06-07 & 07-08, after due consideration of the assessee's lengthy contentions, the AO had observed that -
"(A)
(iii)...................................................................................................
..................... The assessee's contention that the credit entries in the said (undisclosed) bank accounts (Of the partners i.e.,) include payments/realizations against the unaccounted debtors in question on which 6% profit is offered, is not borne out by any evidence, even though, it is not in the realms of impossibility. But, since the 'onus' lies with the assessee to prove it entry and transaction-wise and it has failed to do so, the credit sales (since the debtors are nothing but the opposite entry of credit sales) amounting to Rs.3757412 and Rs.1754851 for the AYs 06-07 & 07-08 respectively are brought to tax @ 7% applying the same parameters of turnover-profit ratio as discussed elsewhere in this order. The concealed components for AYs 06-07 and 07-08 are, therefore computed as under:
AY 06-07: 7% of Rs.3757412 = Rs.263019 & AY 07-08: 7% of Rs.1754851 =Rs. 122840"ITA No.174/Bang/10 Page 14 of 20
8.1.3. In respect of profit component on cash receipts, taking into account the averment of the one of the partners of the assessee, the AO had observed that -
"(B)................................................................................................
..............................Since the average of those two years is 7.65%. it is only fair to conclude that the rate adopted by the assessee is slightly less than the average. In view of this and taking a very reasonable view of the matter, the GP ratio to be adopted on those two cash receipts i.e., Rs.4,77,32,130 and Rs.83,56,695 is taken to be 7%. As a result, the additional 1% which has been left out of the calculation is now applied on these amounts as detailed below:
AY 06-07- 1% of Rs.4,77,32,130 - Rs.477321-/- & AY 07-08 - 1% of Rs.83,56,695 - Rs.83567"
8.1.4. When these issues went before the Ld.CIT (A) who, after considering the assessee's forceful contentions as set-out in the impugned order which is under dispute, had reasoned thus -
"2.4.3. The argument of the appellant that the debtor list represents the sales which has already been included in the unaccounted turnover covered in the credits in the bank account is not found acceptable in view of the reasons that the appellant failed to substantiate that the amount recovered from the debtors has been received through the cheques or the drafts which have been credited in the bank accounts. The question of double addition will arise only when the amount recovered from the debtors has been credited to the bank account, but, there is no evidence to prove the same. The statements as well as the replies reproduced by the assessing officer in the assessment order also proves that the debtors amounting to Rs.3757412/- and Rs.1754851/- respectively for AY 2006-07 and 07-08 represents the unaccounted sales. Therefore, the assessing officer was correct in estimating the profit @ 7% on such sales of Rs.263019/- for AY 2006- 07 and Rs.122840/- for AY 2007-08 the same is accordingly upheld.
The ground regarding to taking of addition turnover on account of cash receipts of Rs.47732130/- and Rs.8356695/- for AY 2006-07 and for AY 07-08 respectively is on wrong assumption, it is evident from the finding given by the assessing officer in para (B) of the assessment order, that appellant himself (sic) itself offered net profit @ 6% on such receipts, admitting the same as unaccounted sales. The AO ITA No.174/Bang/10 Page 15 of 20 instead of 6% taken Net profit @ 7% after comparing the GP disclosed by the appellant itself for AY 2005-06 and AY 2006-07. the addition made by the assessing officer is confirmed on the similar reasoning given in para 2.3.3. of the order in regard to unaccounted sales made through unaccounted bank account and accordingly addition of Rs.4,77,321/- and Rs.83,567/- made respectively for AY 200-07 and AY 2007-08 is upheld."
8.1.5 We have conscientiously considered the argument of the assessee and also perused the relevant records. After perusing the reasoning of the Ld. CIT (A) who unhesitatingly agreed with the stand of the AO on this count, we find no flaw on the finding of the first appellate authority which requires our intervention. On the other hand, the assessee has not brought any tangible documentary evidence on record even at this stage to rebut or to suggest that the findings of the authorities below were at fault. In these circumstances, we are in total agreement with the Ld. CIT (A). 8.1.6. With regard to the assessee's apprehension that these additions amount to double addition, the question of double addition will arise, as rightly remarked by the Ld. CIT(A), ONLY when the amounts recovered from the alleged debtors have been credited to the bank accounts, however, there was no tangible evidence to prove the same. As such, the apprehension of the assessee that these additions led to double addition is unfounded and rather hypothetical.
9. For the assessment year 2007-08, the assessee has a ground that the CIT(A) erred in confirming the action of the AO in making an addition of Rs.31.64 lakhs as unexplained cash u/s 69A of the Act. ITA No.174/Bang/10 Page 16 of 20 9.1. It was argued by the Ld. A R that the AO erred in making the addition of Rs.31.64 lakhs as unexplained cash u/s 69A of the Act holding that the cash found on search was not explained. It was, further, contended that the cash was fully explained and there was no unexplained cash as such. It was vociferously argued that the addition having been made on wrong and improper appreciation of facts and also details filed requires to be deleted in entirety.
9.1.1. On a perusal of the records, it is seen that the assessee argued before the CIT (A) that the cash found during the search has also emerged from the unaccounted transactions. The profits on such unaccounted transactions were taxed in the respective years. Therefore, it was contended that, again taxing the investments out of the income amounts to double addition which requires to be deleted.
9.1.2. After taking into account the arguments of the assessee, the Ld. CIT (A) took a divergent view thus -
"2.5.3. The above arguments of the appellant is not found acceptable in view of the fact that in the statement recorded during the course of the search it is admitted that (by) the partner that Rs.30,50,000/- is unaccounted cash. Further, when the assessee was asked to explain how the cash has been accounted in the return of income for AY 2007-08, the partner of the appellant firm could not properly explain but stated that 'the above income is offered to tax in the hands of M/s.Arihant Aluminium Corporation. It is submitted that the total asset found viz., excess cash and debtors are Rs.8773801/- (Rs.3050000 + Rs.5723801) whereas the income computed above is only Rs.4436000/- this is because of the fact that the income accumulation of the period prior to 1.4.2000.' However, the appellant failed to furnish any evidence to prove that the unaccounted cash found is generated prior to 1.4.2000. The section 69A of the Income Tax Act provides that where in any financial year, the assessee is found to be owner of any money which is not recorded in any books of accounts and the explanation offered by the assessee is not found satisfactory in the opinion of ITA No.174/Bang/10 Page 17 of 20 the assessing officer, the same shall be deemed to be income of the assessee of such financial year. In the case of the appellant is clear that for the cash of Rs.30,50,000/- and Rs.1,14,507/- found during the course of the search, the appellant failed to furnish the satisfactory explanation along with the supporting evidences, therefore, the assessing officer was right in making the said addition under section 69A of the Income Tax Act."
9.1.3. We have duly considered the assessee's submission as well as the reasoning of the Ld. CIT(A) in turning down the assessee's arguments and confirming the action of the AO. Careful persuasion of the CIT(A), we are of the firm view that the assessee had failed to furnish any clinching evidence to suggest that the unaccounted cash unearthed during the course of search was, in fact, generated prior to 1.4.2000. In view of the above position, the AO was within his realm to invoke the provisions of s.69A of the Act which makes it explicit that -
"Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the assessing officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be income of the assessee for such financial year."
9.1.4. In view of the above, we are of the considered view that no interference is called for in the findings of the authorities below. It is ordered accordingly.
10. Finally, the assessee has agitated over the charging of interest under sections 234B, 234C and 234D of the Act.
ITA No.174/Bang/10Page 18 of 20 10.1. In this connection, we would like to point out that charging of interest under sections 234B and 234C of the Act are mandatory and consequential in nature, and, therefore, these grounds are summarily rejected as not maintainable.
10.1.1. However, charging of interest under section 234D of the Act can be resorted into only from the assessment year 2004-05 onwards as the section itself was inserted by the Finance Act 2003 w.e.f. 1.6.2003. Therefore, interest charged under this section for the AYs 2001-02, 2002- 03 and 2003-04 in the assessee's case is not in accordance with the provisions of the Act. Our view is in conformity with the finding of the Hon'ble Delhi E Special Bench in the case of ITO v. Ekta Promoters P. Ltd. reported in 305 ITR 1 (Del)(AT) (SB). It is ordered accordingly.
11. Let us now deal with the Revenue's appeal for the assessment year 2007-08.
12. The lone ground raised by the Revenue is that the CIT (A) had failed to reason that the addition of Rs.6.98 lakhs was made as deficit stock being the difference in the trading account and physical stock as on the date of survey by holding it as unexplained investment. During the course of hearing, it was submitted that the assessee vide its reply dated: 11.3.2008 had admitted to shortage of stock to the extent of Rs.6.98 lakhs and had attributed the same to unaccounted sales. Thus, it was submitted that, the Ld. CIT (A) erred in deleting the addition by holding that addition cannot be made as unexplained investment as deficit stock does not amount to ITA No.174/Bang/10 Page 19 of 20 investment. In conclusion, the Ld. D R's plea was that the addition of Rs.6.98 lakhs requires to be sustained.
12.1. On the other hand, the Ld. A R was vehement in his urge that after considering the assessee's explanation, the CIT(A) took a judicious view in deleting the addition and, therefore, pleaded that the stand of the CIT(A) be sustained.
12.1.1. The CIT(A) had reasoned that "2.6.3. On perusal of the finding given in the assessment order, it is evident that the appellant in the reply dated: 15.10.2007 stated that the book stock at the time of the survey was arrived at on the basis of the application of the GP ratio of the preceding year which is not full proof. As the stock as per the books of accounts was worked out on the application of the GP of the preceding year, it cannot be said to be correct working. Further, even if the working is taken to be correct no addition cannot (sic) can be made as unexplained investment as deficit of the stock does not amount to investment. The addition made on this account is accordingly deleted." 12.1.2. We have considered the rival submissions and also the finding of the CIT (A) on the issue. While deleting the addition, perhaps, the CIT(A) has overlooked that the shortage of stock is on account of unaccounted sales and the profit element on the unaccounted sales are to be added to the income. Therefore, seven per cent adopted by the AO is to be calculated on the deficit of stock of Rs.6.98 lakhs. To facilitate the AO to carry out the direction of this Bench, this issue is remitted back on the file of the AO. The AO shall, however, afford an opportunity to the assessee of ITA No.174/Bang/10 Page 20 of 20 being heard while carrying out the above direction. It is ordered accordingly.
13. In the result:
(i) Assessee's appeals for -
- the A.Ys 2001-02, 2002-03 and 2003-04 are partly allowed; &
- the A.Ys 2004-05, 2005-06, 2006-07 and 2007-08 are dismissed.
(ii) Revenue's appeal for -
- the A.Y 2007-08 is partly allowed.
Pronounced in the open court on this 30th day of July, 2010.
Sd/- Sd/-
(A. MOHAN ALANKAMONY ) ( GEORGE GEORGE K. )
Accountant Member Judicial Member
Bangalore,
Dated, the 30th July, 2010.
Ds/-
Copy to:
1. Applicant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT, Bangalore.
6. Guard file
By order
Assistant Registrar
ITAT, Bangalore.