Income Tax Appellate Tribunal - Indore
M/S. Monica Galaxy Pvt. Ltd.,, Indore vs The A.C.I.T., Indore on 20 March, 2018
आयकर अपील य अ धकरण ,इ दौर यायपीठ ,इ दौर IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE ी कु ल भारत, या यक सद य तथा ी मनीष बोरड, लेखा सद य के सम BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER आ(एसएस).अ.सं /.IT(SS)A Nos.48 to 50/Ind/2010 नधारण वष/ Assessment Year: 2006-07 to 2008-09 M/s.Monica Galaxy Private vs. ACIT, Ltd., Indore. 1(2), Indore.
अपीलाथ /Appellant यथ /Respondent
था.ले.सं./PAN: AABCM1881H
अपीलाथ क ओर से/Appellant : Smt.Richa Parwal,
by CA
यथ क ओर से/Respondent : Shri Lal Chand, CIT
by DR
सुनवाई क तारीख/Date of : 15.02.2018.
hearing
उ ोषणा क तारीख/Date of : 20.03.2018
pronouncement
1
M/s.Monica Galaxy P.Ltd,, Indore. -:2:-
आदे श / O R D E R
PER BENCH :
These three appeals of the assessee are filed against the consolidated order passed by the Ld. CIT(A)-I, Indore, dated 05.03.2010, for the assessment years 2002-03 to 2008-09.
2. Facts of the case are that the assessee company is engaged in the manufacturing of ice cream. Search action u/s 132(1) was carried on 18th July, 2007, at the business premises of the assessee M/s Monica Galaxy Private Limited, a company engaged in the manufacturing of Ice Creams and at residence of its Directors. Certain books of accounts, records, registers and papers were found and seized. For the years under consideration the assessee was covered under Excise Law and during the search proceedings entire excise records of the assessee were seized. Statement of Shri Ramesh Rijhwani, Director of the assessee Company was recorded u/s 132. Primarily a register marked as BS 17-22 related with the period 01.04.2007 to 30.06.2007 was found which allegedly contained records of unaccounted purchases and in the Statement, the Director accepted that the entries of the register were not made 2 M/s.Monica Galaxy P.Ltd,, Indore. -:3:- in the books of account. Based on this register (predominantly), it was held that the assessee suppressed its actual production and has unrecorded sales purchases. Surrender of Rs. 60,00,000/- was made as per the following detail:
A.Y. 2007-08 2008-09
Unrecorded G.P. Unrecorded G.P. Closing Stock
As per statement 30 Lakhs 20 Lakhs 10 Lakhs
As per return filed 40 Lakhs 10 Lakhs 10 Lakhs
Assessments were made for the years 2002-03 to 2008-09. Since no incriminating material was found for the years 2002-03 to 2005-06, the assessments made u/s 153A r.w.s. 143(3) were quashed by this Bench.
3. Grounds No.1 in assessment year 2006-07 and 2008-09 are common, which read as under :-
"That addition for manufacturing of ice cream made on the basis of imagination, estimation and projection of income are unfortunate, prejudice, unjustified and bad in law."
4. The AO has given comparative chart in his order, which is reproduced as under :-
A.Y. 2006-07 A.Y.2007-08 A.Y.2008-09 Sales 1,03,92,591 1,27,15,569 1,17,57,415 Gross profit 38,80,638 32,12,888 32,60,633 3 M/s.Monica Galaxy P.Ltd,, Indore. -:4:- G.P. Rate 37.34 % 25.27% 27.73 %
The AO rejected the books of account stating that no quantitative details and day to day production record was maintained. During the course of assessment proceedings, the assessee was asked to furnish quantitative details of the material purchased and produce the valuation of closing stock and day to day production records. It was stated before the AO by the Ld. Authorized Representative of the assessee that the assessee has not maintained any records for day to day production for the years under consideration. The Ld. Authorized Representative of the assessee stated before the AO that each and every record available at the premises have been seized by the Department. The Ld. Authorized Representative of the assessee further stated that it was very difficult to maintain the quantitative details of raw material as well as production and sales in quantity, as so many types of raw material are used in the manufacturing of ice cream. When asked about the BS 17, 21, 22 to 27 etc. which are records for quantitative records for production, sales and raw material for the financial year 2006-07 and 2007-08, it was stated that these registers were prepared reversely for the 4 M/s.Monica Galaxy P.Ltd,, Indore. -:5:- purpose for ISO registration only. The assessee has also not submitted the details of valuation of closing stock and stated that the valuations were made at the time of the ending of the year, but no record was available with the assessee. The AO has also observed that the assessee declared sale at 1.31 crore in the assessment year 2005-06 but the sales for the A.Y. 2008-09 has been declared only at Rs. 1.17 crore. There was decline in fall in the sale. However, on retail counters of the assessee, it was found that the sales were increased by 50%. It indicates that the sales figures have been suppressed by the company. In A.Y. 2006-07, the gross profit was 37.34 % whereas during the year, the assessee has declared gross profit rate at 27.73 %. This also shows suppression of sales. The assessee company manufactures ice cream of various flavours/shapes & sizes under its brand "Monica Galaxy", main ingredients for the product are, milk, milk powder, butter, sugar, coconut Oil, Choc-let paste, gelatin, glucose, fruit pulps, various favours etc. During the course of assessment proceedings, on perusal of vouchers, it was noticed that no voucher was available with the assessee for milk purchases. There is also addition of plant and machinery of Rs. 1.26 crore which indicates that there 5 M/s.Monica Galaxy P.Ltd,, Indore. -:6:- would have been more production in the year in comparison to the earlier years and there is no possibility for decreasing of sale. It was noticed that there were number of persons/parties from whom the assessee had taken advances for agency deposits. The advances were towards the security amount against the deep freeze given to them. The assessee has not declared any sales to the most of the persons or sale was too nominal to be accepted. There were number of slips found during the course of search indicating sales, but the same were not found in the books of the assessee and for the maximum slips, the assessee replied that the sales were not made as payment was not made. The AO formed an opinion that the correct profit cannot be deducted from the books of the assessee as such provisions of Section 145(3) are applied and the books of the assessee were rejected. The AO reached to the conclusion that the assessee has suppressed its production and sales. In view of increase in consumption of electricity, increase in consumption of sugar and newly addition of plant and machinery, the AO took increase of 10% on the production of preceding year, which was calculated at Rs. 1,47,60,000/-, as such the sale for the year under consideration was calculated at Rs. 1,62,50,000/-. The AO 6 M/s.Monica Galaxy P.Ltd,, Indore. -:7:- calculated profit from ice cream business at Rs. 6,12,093/- for the assessment year 2006-07. The AO calculated the profit from sale of ice cream business for the assessment year 2008-09 at Rs. 19,43,530/-. The AO adopted the ratio of cost of input to sales was taken at 46.9%, which the AO adopted while making assessment for the assessment year 2002-03. The AO made trading addition at Rs. 26,77,058/- in the assessment year 2006-07 and Rs. 25,61,001/-in the assessment year 2008-09. On appeal, the Ld. CIT(A) confirmed the additions based on the profits as computed by the AO. The assessee is in appeal for these additions before us.
5. The Ld. Authorized Representative of the assessee contended that the AO rejected the books of account of the assessee by making various negative observations during the course of assessment proceedings as the assessee could not furnish the following :-
a) Bills for purchases made
b) Quantitative details of the material purchased
c) Valuation of closing stock
d) Day to day production records 7 M/s.Monica Galaxy P.Ltd,, Indore. -:8:-
e) Addition in plant & machinery with no relatable increase in production
f) Increase in consumption of electricity with no relatable increase in production etc. The Ld. Authorized Representative of the assessee further contended that on the basis of the register marked as BS 17-22 related with the period 01.04.2007 to 30.06.2007 that allegedly contained records of unaccounted purchases and relying on the Statements of the Director, it was ,thus, deduced that the assessee has suppressed its actual production and has unrecorded sales/ purchases. Sales were then estimated for all the years from 2002-
03 to 2008-09 and cost of production calculated for A.Y. 2002-03 was applied and profit was calculated. For the assessment year 2006-07, the sales were calculated by taking an approx 10% increase each year from the previous year's estimated sales (15% in A.Y. 2003-04) from 2002-03. For the assessment year 2008-09, unrecorded production for month was calculated at 9000 kgs. on the basis of the register and an average rate of Rs.50/- was applied. Unrecorded sales were, thus, calculated at 9000*50*12=5934000/-. The Ld. Authorized Representative of the assessee further 8 M/s.Monica Galaxy P.Ltd,, Indore. -:9:- submitted that the assessee was covered under Central Excise Act. For the years under consideration. The Ld. Authorized Representative of the assessee submitted that all the returns were duly and timely filed, proper books and records were maintained as per the Act. All the other procedural or assessment requirements were fulfilled and no penalty or fine was levied for non-maintenance of books or for not filing returns or any other procedural requirements. The Ld. Authorized Representative of the assessee contended that the rejection of books of account of the assessee was not correct as proper explanation was rendered at the time of assessment proceedings as well as before the Hon. CIT(A) for the various observations made. Regarding no bills for milk purchases, the Ld. Authorized Representative of the assessee contended that it was explained to the Hon.CIT that the assessee is a wholesale purchaser of milk and has no fixed suppliers of milk. It purchases milk from various farmers and villagers in the open market directly on day to day basis on cash basis and no bills are issued by these farmers and villagers. Since the purchases are in large quantities and from various persons who are farmers and villagers with no understanding of accounts and access to banking facilities, no 9 M/s.Monica Galaxy P.Ltd,, Indore. -:10:- monthly account or credit facility is available to the assessee. The observation that even a household makes monthly payment for milk purchases or has bills is because they are petty consumers and milk is supplied to them as consumers by a wholesale purchaser of milk. Regarding non maintenance of stock or production records, the Ld. Authorized Representative of the assessee contended that Excise records and assessments were furnished that proved that the assessee maintains proper records as per the Central Excise Act and the other details so sought were not required to be maintained, hence could be furnished. It was also explained that the nature of business is such that it involves innumerable items in production and the measures of each raw material is different like Milk in Liters, butter in kg, flavors in grams etc. hence maintaining consumption records as per same unit is not possible. As regards quantitative details of milk, it was submitted that details cannot be maintained as owing to the nature of the milk many a times it gets spoiled during production and has high tendency of leakage and pilferage, hence it is very difficult to calculate and correlate the amount of milk purchased with the amount actually used in production. It was also brought to the Hon. CIT notice that the 10 M/s.Monica Galaxy P.Ltd,, Indore. -:11:- production is also made in various units. The ice-cream bricks are as per litres, while the cones or cups are as per number or Gms., hence, here also maintenance of stock records as per single standard unit is not possible. It was pertinently mentioned that the Excise Act recognizes such practical difficulties, hence excise is levied on the end product and keeping of quantitative records is not required.
The additions in plant and machinery were of:
(i) Deep freezer not related with production
(ii) Other machinery related with production
(iii) Cold rooms not related with production These additions were also accounted for in two separate heads i.e. those put to use or that under installation on which no depreciation was claimed. The extract of the Fixed Asset Schedule from the Audited Balance Sheets is enclosed at Page 902-903.
The table clearly explains that every addition in the plant can't be attributed to increase in production as the additions were of machinery not related with production or was not put to use or was 11 M/s.Monica Galaxy P.Ltd,, Indore. -:12:- either an upgrade or capital expenditure incurred on existing plant & machinery.
Regarding consumption of electricity, the assessee being a manufacturer of ice-creams is required to maintain a certain temperature for entire facility for production and storing the products, irrespective of the scale of production or storage of the products. Hence, the consumption of electricity cannot be directly associated with production. Further the plant & machinery under installation refers to cold rooms that were under the process of installation and trial runs, hence, electricity was consumed on these trial runs that cannot be related with production. Regarding Sales to persons with agency deposits, the Ld. Authorized Representative of the assessee submitted as under :-
A) The Schedule of Agency Deposits from the Audited Balance Sheets makes it evident that Agency Deposits include deposits from Distributors as well as for Deep Freezers from small retailers.
B) The deposits from Distributors are in a large amount and 12 M/s.Monica Galaxy P.Ltd,, Indore. -:13:- are in the nature of deposit for being a sole distributor in the area or a C&F Agent while the petty amounts (Rs.15000/- to Rs.30000/-) mostly relate with the security deposit taken from persons to whom deep freezers were given.
C)As a regular business policy, sales were made to C&F Agency or other sole distributors (Generally being other sister concerns) for effective distribution system and management, low transportation cost and immediate supply of the product to the retailer. Only in exceptional and rare circumstances sales were made to the retailers directly.
D) Hence, the assessee might have issued deep freezer to a retailer it is not compulsory to have made sales to them.
Since the assessee has plausible explanation for the various negative observations, rejection of books should be construed as bad in law and on facts and ,thus, estimation of sales owing to such rejection should be deleted.
13 M/s.Monica Galaxy P.Ltd,, Indore. -:14:- Regarding estimation of sales based on the register seized, the Ld. Authorized Representative of the assessee submitted that reference to the search and all the above mentioned register and other records were intimated to the Sales Tax Department and assessments for the A.Y. 2006-07 and A.Y. 2007-08 were done under the Sales Tax Act. Vide order dated 28.02.2014, it was held that the entries from these records originates from the regular books of accounts. The extract of end result of the order is reproduced here below:
As per the Order of 2007-08 Pg. 16 (Vol I) " टॉक रिज टर म दज क चे माल का य कर नधारण के समय तु त य सू चय तथा हसाबी पु तक से स या पत ह| नमाण म उ पा दत आइस म तथा उनके व य क ि त थ भी हसाबी पु तको से स या पत है | अतः कर नधारण तर पर क गयी व य वृ 10866667/- समा त क जाती है तथा इस पर 12.50% तशत क दर से आरो पत कर 1207407/- भी समा त कया जाता है "
As per the Oder of 2006-07 Pg. 18 (Vol I) "जो टॉक रिज टर आयकर वभाग वारा ज त कये गए थे या िजनके आधार पर जांच तवेदन तैयार कया गया है उसको हसाबी पु तको म से अ नय मत हसाबी पु तक माना जाना उ चत तीत नह ं है य क 14 M/s.Monica Galaxy P.Ltd,, Indore. -:15:- इस रिज टर म जो क चा माल ह तांत रत कया गया है उसक खर द अपीलाथ वारा नय मत हसाबी पु तको म दशायी गयी है।"
The record pertains to the period from 01/04/2007 to 30/06/2007 i.e. F.Y. 2007-08 and has no nexus or relation or reference of any other year but for F.Y. 2007-08. Without prejudice, the anomalies or result of records pertaining to one year cannot be applied to other years either prospectively or retrospectively. The Central Excise Act levies duty on the manufacture or production of Excisable Goods. Hence, it is an Act that specifically covers and assesses production and/or manufacturing; similarly Sales Tax is a tax levied on "sales" and specifically covers and assesses sales of an entity. Since, the assessee has clear assessments in these two Acts that specifically assess production and sales, an inference under the Income Tax Act based on certain observations of the AO without any corroborative evidence is not righteous and is bad in law.
Also sales have been estimated by increasing 10% of the estimated sales of the preceding year (15% in case of A.Y.2003-04) that is 15 M/s.Monica Galaxy P.Ltd,, Indore. -:16:- unreasonable and beyond comprehension in all stretch of imagination. The Ld. Authorized Representative of the assessee reproduced a chart in his written submission, which is reproduced as under :-
Particulars AY 02-03 AY 03-04 AY 04-05 AY 05-06 AY 06-07 Sales as per Trading a 9996709 10020892 10602243 13123856 10392591 % increase in sales as per order b 10 15 10 10 10 preceding year sales considered for estimating sales c 9636568 10600000 12200000 13420000 14760000 Estimated sales d= c + (b*c)/100 10600000 12200000 13420000 14760000 16250000 Difference between estimated sales and trading sales e= d-a 603291 2179108 2817757 1636144 5857409 % increase in sales estimated than trading sales f= e/a 6.03% 21.75% 26.58% 12.47% 56.36% The Ld. Authorized Representative of the assessee contended that it could be seen from the above table that as a result of this increase of 10/15% on estimated sales, the net effect is increase of 56.36% in sales as compared to the sales shown in the trading account which is unrealistic and illogical. For the assessment year 2008-09 also, the sales were estimated based solely on the allegedly 16 M/s.Monica Galaxy P.Ltd,, Indore. -:17:- unrecorded purchase entries found in the raw material register of 3 months without any further finding or corroborative evidence. Without prejudice, even if unrecorded sale is presumed to be against the Assessee, then also net profit rate could be applied on such sales, and entire unrecorded sales cannot be treated as income.
This view was taken by the Jurisdictional High Court and placed reliance on the decision of Hon'ble Jurisdictional High Court of M.P. in (2007) 7 ITJ 324 (MP) in CIT vs. Balchand Ajit Kumar and also in (2008) 11ITJ 587 (MP) in Man Mohan Sadani vs. CIT.
Since there is a loss, an average of net profit for the years under consideration should only be applied even if sales are assumed to be unrecorded.
The Ld. Authorized Representative of the assessee concluded and submitted that rejection of the books by the Ld. AO be held as unjust as the assessee has justification and reasonable explanation for all the observations made by the Ld. AO. Also the rejection of books is not righteous as it is not based on any incriminating material found during the course of search.
17 M/s.Monica Galaxy P.Ltd,, Indore. -:18:- The Ld. Authorized Representative of the assessee further prayed that Trading additions may kindly be deleted as the addition is not based on any cognate material. The register on the basis of which sales have been extrapolated considering that the entries have not been done in the books of account has actually originated from books of account and the Sales Tax Order is also in assessee's favor and the negative observations so made are fully explainable.
6. The Ld. Departmental Representative placed reliance on the orders of the lower authorities.
7. We have considered the facts, rival submissions and perused the material available on record. We have also gone through the orders of the lower authorities. We have also gone through the case laws cited by the Ld. Authorized Representative of the assessee. We find that on the basis of register marked as BS-17-22 related with the period 1.4.2007 to 30.06.2007, which allegedly contained records of unaccounted purchases and relying on the statements of the Director, the AO reached to the conclusion that the assessee suppressed its actual production and has unrecorded sales/purchases. We find that the sales were then estimated for all the years from 2002-03 to 2008-09 and cost of production was 18 M/s.Monica Galaxy P.Ltd,, Indore. -:19:- calculated for assessment year 2002-03 was applied and profit was calculated. We find that all the returns were duly filed in time by the assessee. We find that no penalty or fine was ever levied to the assessee for non-maintenance of books or for not filing returns or for lapse of any other procedural requirements. We find that proper explanation was rendered at the time of assessment proceedings as well as before the Ld. CIT(A) for various observations made. We find that the estimation of sales based on the register seized is also not correct as all the registers and other records were intimated to the Sales Tax Department and assessments for the assessment year 2006-07 and 2007-08 were done under the Sales Tax Act. We find that the Ld. Authorized Representative of the assessee has also reproduced the extract in his written submission and the same has been reproduced above also, which substantiates that the entries from these records originate from the regular books of account. Copy of orders are placed in paper book at Vol.I page 15-18. The record pertained to the period from 1.4.2007 to 30.6.2007 i.e. financial year 2007-08 and has no nexus or relation or reference of any other year but the financial year 2007-08. The anomalies or result of records pertaining to one year cannot be applied to other 19 M/s.Monica Galaxy P.Ltd,, Indore. -:20:- years either prospectively or retrospectively. As per the Central Excise Act duty is levied on the manufacture or production of excisable goods. Similarly, Sales Tax is levied on "sales" and specifically covers and assesses sales of an entity. Since the assessee has clear assessments in these two Acts, which specifically assess production and sales and the AO cannot draw inference under the Income-tax Act, basing on certain observations of the AO without any corroborative evidence. We also find that the Sales have been estimated by increasing 10% of the estimated sales of the preceding year i.e. 15% in case of assessment year 2003-04, which is unreasonable. The increase of 10 % / 15 % on estimated sales, the net effect is increase of 56.36 % in sales as compared to the sales shown in the trading account which is unrealistic and illogical. We also find that for the year 2008-09 also the sales were estimated based solely on the allegedly unrecorded purchase entries found in the raw material register of three months without any further finding or corroborative evidence, which is not justified. We have gone through the case laws cited by the Ld. Authorized Representative of the assessee in the case of CIT vs. Balchand Ajit Kumar, (2007) 7 ITJ 324 (MP) and Man Mohan Sadani vs. CIT, 20 M/s.Monica Galaxy P.Ltd,, Indore. -:21:- (2008)11 ITJ 587 (MP), wherein the Hon'ble Jurisdictional High Court has held as under :-
"Entire unrecorded sales cannot be treated as income - Net Profit is to be applied."
We find that the above case laws cited by the Ld. Authorized Representative of the assessee are squarely applicable in the case of the assessee. We, therefore, delete the trading additions of Rs. 26,77,058/- and Rs. 25,61,001/- in the assessment years 2006-07 and 2008-09 in view of our observations made above. Therefore, grounds taken in both the assessment years are allowed.
8. Ground nos.2 in assessment years 2006-07 & assessment year 2008-09, ground no. 1 in assessment year 2007-08, which are common and read as under :-
"That addition made on account of deep freezer rent on the basis of imagination, estimation and projection of income are unfortunate, prejudice, unjustified and bad in law."
9. Facts of the case relating to these grounds are that during the course of search proceedings, it was noticed that the assessee has rented the deep freezes to the various parties. During the course of assessment proceedings, it was accepted that the assessee has given freeze to the distributors and the assessee either received 21 M/s.Monica Galaxy P.Ltd,, Indore. -:22:- security amount or received blank cheques for security purposes and Rs. 2,000/- was received for maintenance charges/rent. The parties who have deposited advance to the assessee, only Rs. 2000/- has been charged and where the party had given only blank cheques to the assessee, it had charged Rs. 4,000/-. The AO has taken the figure of 200 freezes and average rent at Rs. 3000/-, of which the rent at Rs. 6,00,000/- was added to the income of the assessee for assessment year 2006-07.In the assessment year 2007-08, during the course of search, some delivery challans marked as LPS-1/5 were seized in which the details were mentioned in respect of the party to which deep freeze was rented out, the machine no., capacity and amount received from the parties. The assessee has declared receipts of Rs. 26,000/-, while in the statement recorded, it was accepted by the assessee that he had given 335 freezes on rent. As such, the AO took average of Rs. 3000/- for 335 freezes (10,05,000(-) 26000) = Rs. 9,79,000/- and added to the income of the assessee. In the assessment year 2007- 08, the AO has taken average of Rs. 3,000/- for 335 freezes and total sum of Rs. 10,05,000/- was added to the income of the 22 M/s.Monica Galaxy P.Ltd,, Indore. -:23:- assessee. On appeal, the Ld. CIT(A) confirmed the additions in all the assessment years.
10. The Ld. Authorized Representative of the assessee reiterated the submissions before us made in written submission, which is reproduced as under :-
"On scrutiny of the agreements marked as LPS 6-8 up to 2006 it is evident that the Appellant has not received or has charged any maintenance charges/ rent for the deep freezers and has only received security deposit.
During the Assessment proceedings the Appellant has categorically emphasized that it has either received security deposit or has maintenance received charges, but the addition has been made on an assumption that both has been taken which is not correct.
On perusal of the Audited Balance sheets the amount of security deposit accounted for and shown in the B/S is as follows:
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2226840 2072500 2980780 2950725 1341900 1500294 375000 23 M/s.Monica Galaxy P.Ltd,, Indore. -:24:- The amount of security deposit includes amounts from C&F Agents and other distributors and related parties to whom deep freezers were not necessarily rented and the amount pertained against Distributorship.
Still number of deep freezers were calculated on the basis of security deposit of A.Y.2002-03 without giving regard to :-
Self use of deep freezers, appellant being a ice-cream producing unit.
Major deposits taken from distributors or C/F Agents. Deep freezers under installation or not being put to use.
Sale of deep freezers due to change in business policy in the year 2006-07 , profit and rent of Rs.11 Lakhs (approx) being shown in P&L A/c. Quantity wise, amount wise details were furnished. It was also explained that the Appellant has shown a profit on sale of freezers of Rs.1002825/- during the year that substantiates reduction in no. of freezers but no credit is given to the facts and explanations so made. 24 M/s.Monica Galaxy P.Ltd,, Indore. -:25:- Since, the agreements so found have been properly and duly accounted for in the books and has no mention that rental has been taken against the deep freezers, the addition made in these years is baseless and hence should be deleted. Submissions of the Appellant for A.Y. 2007-08 & 2008- 09:
The addition has been made solely on the basis of the Statement of Shri Ramesh Rijhwani wherein he has stated that approx 335 deep freezers are given on rent. In the Statement of Shri Ramesh Rijhwani, only two specific questions related with deep freezers were asked being Q.20 & 21. On perusal of the Question and answer the following facts emerge:
Mr. Ramesh in response to Q.20 stated that approximately 335 freezers have been given.
Agreement has been executed against the deal and accordingly whatever security deposit has been received against these agreements is shown as a Liability in the B/S as Agency Deposit.
25M/s.Monica Galaxy P.Ltd,, Indore. -:26:- The investment related with these deep freezers has been shown as Block of Asset in the B/S Considering the above, number of deep freezers taken solely on the basis of the statement of the director is not righteous as:
No exact figure has been quoted by the Director. It has only been stated approximately 335 freezers have been given, hence it should be regarded that the statement was given on the basis of recollection of facts and it could refer to the maximum quantity of deep freezers being held or given at any point of time.
Has specifically mentioned that agreements have been executed against them and there are only 58 agreements found and seized during the course of search, no records found or freezers were given to distributors or agents. 26 M/s.Monica Galaxy P.Ltd,, Indore. -:27:- Also on perusal of quantitative summary of the audited balance sheets and books of account number of deep freezers is below 200 for both the years :-
Sold during Opening Purchased during A.Y. the year (in Closing (in Nos.) (in Nos.) the year (in Nos.) Nos.) 2002-03 139 14 2 151 2003-04 151 0 0 151 2004-05 151 262 23 390 2005-06 390 76 55 411 2006-07 411 0 116 295 2007-08 295 24 138 181 2008-09 181 0 14 167 It is pertinent to mention here that from the year 2005-06 there has been a constant sale of deep freezers and profit on sale has also been duly accounted for in the books and value of gross block of deep freezers has reduced significantly owing to sale of deep freezers in use as well as those not put to use (under installation) and does not substantiate value of 335 deep freezers. No corroborative evidence substantiating 335 freezers brought on record, no external enquiries or statements 27 M/s.Monica Galaxy P.Ltd,, Indore. -:28:- from dealers or distributors recorded to substantiate 335 deep freezers.
Assuming 335 deep freezers only on the basis of the statement in A.Y. 2007-08 is also not correct as in the absence of period in the statement the period should be considered as the current F.Y. according to the date on which statement is recorded. Hence without prejudice, even if 335 deep freezers are to be considered it should be restricted only to A.Y.2008-09.
To conclude it is thus being submitted that: For the A.Y. 2006-07: The additions may kindly be deleted as the agreements related with the period duly substantiate that no rental was charged against the deep freezers.
For A.Y. 2007-08 & 2008-09: The additions may kindly be deleted as the agreements found and other documentary evidence does not substantiate 335 deep freezers. " 28 M/s.Monica Galaxy P.Ltd,, Indore. -:29:-
11. The Ld. Departmental Representative relied on the orders of the authorities below.
12. We have considered the facts, rival submissions and perused the material available on record. We find that during the course of search proceedings, certain agreements mentioned as LPS 5-8 were found and seized. The agreements so found and seized are of different assessment years identifiable as up to assessment year 2006-07 (LPS 6-8) and for assessment year 2007-08 (LPS 5). Agreements listed in LPS-6 to 8 covering the period 2000-2006 are in a standard format and mentioned deep freezers being provided to vendors on the terms decided therein. There was no mention of rent and/or maintenance charges in the agreement. It specifically mentioned about security deposit and the clause was duly filled if security deposit was being taken. Agreements listed in LPS 5 for the period Jan 07-March 07 are in a different format than those mentioned in LPS 6-8. It mentioned rent/ maintenance charges were taken at Rs.2000/- or 4000/- depending whether blank cheques from vendors as security deposits were taken or not. Based on the Agreements in LPS-5 it was observed that the assessee hasn't shown the rent; hence addition was made in all the years. 29 M/s.Monica Galaxy P.Ltd,, Indore. -:30:- For the assessment year 2006-07, a rent of Rs.3000/- per deep freezer for 200 freezers was assumed. Number of deep freezers were calculated by estimating Rs.15000/- as security deposit per deep freezer divided by the amount of Security deposit shown in the Balance Sheet of 31/03/2002 of Rs.22,26,840/-
(2226840/15000=150 freezers rounded to) add 50 freezers purchased in A.Y.2004-05, thus, amounting to Rs. 6,00,000/-. For 2007-08 & 2008-09, the statement of Mr. Ramesh Rijhwani, Director that 335 freezers have been given on rent on an average of Rs. 3000/- was calculated. Credit of rent shown was given and the difference was, thus, added. In the statement of Shri Ramesh Rijhwani, only two specific questions related with deep freezers were asked being Q.Nos. 20 & 21. Mr. Ramesh in response to Q.20 stated that approximately 335 freezers have been given. Agreement has been executed against the deal and accordingly whatever security deposit has been received against these agreements is shown as a Liability in the B/S as Agency Deposit. The investment related with these deep freezers has been shown as Block of Asset in the Balance Sheet. No exact figure has been quoted by the Director. It has only been stated approximately 335 freezers have 30 M/s.Monica Galaxy P.Ltd,, Indore. -:31:- been given. Hence, it is considered that the statement was given on the basis of recollection of facts and it could refer to the maximum quantity of deep freezers being held or given at any point of time. It was mentioned that agreements have been executed against them and there are only 58 agreements found and seized during the course of search and no records found or freezers were given to distributors or agents. We find that on perusal of quantitative summary of the audited balance sheets and books of account, no. of deep freezers is below 200 for both the years. We find that no corroborative evidence substantiating 335 freezers brought on record, no external enquiries or statements from dealers or distributors recorded to substantiate 335 deep freezers. Assuming 335 deep freezers only on the basis of the statement in A.Y. 2007- 08 is also not correct as in the absence of period in the statement the period should be considered as the current financial year according to the date on which statement is recorded. We, therefore, direct the AO to delete the addition for assessment year 2006-07, as the agreements related with the period duly substantiated that no rental was charged against the deep freezers and also delete the additions for the assessment year 2007-08 & 31 M/s.Monica Galaxy P.Ltd,, Indore. -:32:- 2008-09, as the agreements found and other documentary evidence do not substantiate 335 deep freezers. Ground nos.2 in assessment years 2006-07 & assessment year 2008-09 and ground no. 1 in assessment year 2007-08 are allowed.
13. Ground no.3 taken in assessment year 2006-07 reads as under :-
"That addition made u/s 68 of the Act on account of genuineness of application money is unjustified and bad in law. "
14. Since no such addition was made by the AO, this ground of appeal has become infructuous.
15. Ground no. 3 for the assessment year 2008-09 reads as under
:-
"That the addition on account of surrender amount is unjustified because the total surrender for the year 31.03.2008 of Rs. 20,00,000/- and the assessee has already recorded them into books of account, but the ld. AO has added twice Rs. 11,68,652/-."
32 M/s.Monica Galaxy P.Ltd,, Indore. -:33:-
16. The Ld. Counsel for the assessee the addition may please be deleted as it would tantamount to double addition.
17. We observe that the assessee has made surrender of Rs. 20,00,000/- out of which Rs. 10,00,000/- on account of gross profit and Rs. 10,00,000/- on account of stock, but the AO, has added Rs. 11,68,652/- twice. We, therefore, direct the AO to delete the addition of Rs. 11,68,652/-, as it would tantamount to double addition. Ground is allowed.
17. Ground no. 4 in assessment year 2008-09 reads as under :-
"That after verification of all the transactions of Shri Ramesh Khushlani, addition of Rs. 50,000/- as unaccounted transaction is unjustified and bad in law. "
16. The Ld. Counsel for the assessee contended that the set off may kindly be given from the amount of surrender already made by the assessee, as otherwise it shall tantamount to double addition.
17. The Ld. Departmental Representative did not controvert anything contrary to the above submission.
18. We have considered the facts, rival submissions and perused the material available on record. We observe that the set off may 33 M/s.Monica Galaxy P.Ltd,, Indore. -:34:- kindly be given from the amount of surrender already made by the assessee, as otherwise it shall tantamount to double addition. We, therefore, direct the AO to delete this addition.
19. In the result, all the appeals of the assessee in I.T.(SS)A.Nos. 48,49 & 50/Ind/2010 for the assessment years 2006-07, 2007-08 & 2008-09 are allowed.
Order was pronounced in the open court on 20.03.2018.
Sd/- Sd/-
(मनीष बोरड) (कुल भारत)
लेखा सद य या यक सद य
(MANISH BORAD) (KUL BHARAT)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Indore; दनांक Dated : 20 /03/2018
CPU/SPS
Copy to: Assessee/AO/Pr. CIT/ CIT (A)/ITAT (DR)/Guard file.
By order Private Secretary/DDO, Indore 34 M/s.Monica Galaxy P.Ltd,, Indore. -:35:- 35