Income Tax Appellate Tribunal - Indore
Deepak Kumar Gupta, vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
INDORE BENCH : INDORE
BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND
SHRI R.C.SHARMA, ACCOUNTANT MEMBER
PAN NO. : AEOPG1769J
I.T.A.No. 578/Ind/2006
A.Y. : 2003-04
Income-tax Officer, Shri Deepak Kumar Gupta,
Ward 2, Prop. Gupta Agency,
Ratlam Alirajpur
Appellant Respondent
C.O.No. 104/Ind/2006
(Arising out of I.T.A.No. 578/Ind/2006)
Shri Deepak Kumar Gupta, Income-tax Officer,
Prop. Gupta Agency, Ward 2,
Alirajpur Ratlam
Cross Objector Respondent
PAN NO. : ADNPG9106F
I.T.A.No. 579/Ind/2006
A.Y. : 2003-04
Income-tax Officer, Shri Dhanraj Gupta,
Ward 2, Prop. Gupta Radio &
Electronics,
Ratlam Alirajpur
Appellant Respondent
C.O.No. 103/Ind/2006
(Arising out of I.T.A.No. 579/Ind/2006)
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Shri Deepak Kumar Gupta, Income-tax Officer,
Prop. Gupta Agency, Ward 2,
Alirajpur Ratlam
Cross Objector Respondent
Department by : Smt. Aparna Karan, Sr. DR
Assessee by : Shri P. N. Dixit, Adv.
ORDER
PER R. C. SHARMA, A.M.
These appeals of different assessees belonging to the same group, filed by the Revenue and cross objections by the assessees against the orders of CIT(A) dated 5.6.2006 for the assessment year 2003-04 in the matter of orders passed u/s 143(3) of the Income-tax Act, 1961.
2. Common grounds have been taken in both the appeals except the amounts of additions. However, we will first decide the issues in I.T.A.No. 578/Ind/2006 and cross objection No. 104/Ind/2006.
3. Rival contentions have been heard and record perused. The facts, in brief, are that the assessee Mr. Deepak Kumar Gupta, Prop. Of M/s. Gupta Agency, deals in trading of steel almirahs, coolers, TV, Boxes etc. There was survey u/s 133A on 3.3.2003 including other sister concerns of the assessee, namely, M/s. Gupta Radio and Electronics and M/s. Raghav Minerals, Alirajpur. During the course of survey, the assessee was asked to 2 -3- show the books of account and it was replied by the assessee that the books are not complete, same were also not lying at shop, therefore could not be produced at the time of survey. During the course of survey, inventory of cash stock, loose papers were prepared, but in the absence of books of account not available with the assessee, the assessee could not offer any explanation with regard to cash and stock found at business premises. Statement of assessee was recorded u/s 133A, wherein the assessee offered cash and some amount on account of loose papers. Cash offered was Rs.3,56,713/-, while Rs. 5 lakhs was offered in respect of loose papers found and inventorized in respect of all the three concerns jointly. However, at the time of filing returns of income, the assessee offered only Rs. 1 lakh as additional income thereby retracting from the original income offered during the course of survey in respect of cash and loose papers found. However, during the course of assessment proceedings, the assessee has produced computerized books of account, purchase and sale bills etc. The claim of the assessee was that the loose papers found during the course of survey was verifiable with reference to the books of account produced now for verification before the AO. However, the AO did not accept the correctness of books of account on the plea that the same was prepared after survey with the help of copies of loose papers received by them and no books were 3 -4- available with the assessee either at the time of survey and, thereafter. Accordingly, the AO rejected the book result by invoking provisions of Section 145(3) and estimated profit on the sales undertaken by the assessee. The AO also made various other additions with regard to amount invested in purchase, stock and cash found during the course of survey and also certain additions on the basis of entries in loose papers. By the impugned order, the ld. CIT(A) deleted all the additions by observing that the assessee is a small trader and is covered by the provisions of Section 44AF on which the profit rate of 5 % is to be applied. However, in place of sale of Rs. 20.28 lakhs disclosed by the assessee in the profit and loss account, the ld. CIT(A) directed for estimating sales at Rs. 35 lakhs, and for applying net profit rate of 5 % thereon. Accordingly, the addition of Rs. 1.75 lakhs was directed by CIT(A) to be made on account of profit on such sales in addition to Rs. 1 lakh admitted by the assessee as unexplained cash found in the course of survey which was in the return of income so filed. Both the Revenue and assessee are aggrieved by the above order of ld. CIT(A). The Revenue is aggrieved for deletion of various additions made by the Assessing Officer with reference to the stock, cash and loose papers, found during course of survey, whereas the assessee is aggrieved by the action of the ld. CIT(A) for 4 -5- estimating sale at Rs. 35 lakhs in place of sale of Rs. 20.28 lakhs disclosed in the books of account, without any cogent reasons.
4. Following are the grounds taken in the Revenue's appeal as well as cross objection :-
Grounds in Appeal : (Revenue's ground)
(i) On the facts and in the circumstances of the case, the ld.
CIT(A) erred in deleting the addition of Rs. 3,56,713/-on account of unexplained cash inspite of the fact that the AO has made this addition, as the cash found during the survey u/s 133A was unexplained.
(ii) The ld. CIT(A) further erred in deleting the addition of Rs. 1,79,042/- on account unexplained investment, sale and deposits inspite of the fact that the AO made this addition, on the basis of loose papers found during the course of survey preceding for which no explanation was offered.
(iii) The ld. CIT(A) further erred in deleting the addition of Rs. 1,99,382/- on account of unexplained purchases which were taken on the basis of peak purchases of year 5 -6- as per credit sales book found during survey operation for which no explanation was offered.
(iv) The ld. CIT(A) further erred in deleting the addition of Rs. 3,19,090/- on account of unexplained purchases inspite of fact that the AO has made this addition as unexplained investment in purchases of stock shown as debtors.
(v) The ld. CIT(A) further erred in deleting the addition of Rs. 68,000/- (wrongly taken by the CIT(A) as Rs.
60,880/-) on account of gross profit on unrecorded sales inspite of the fact that the AO has made this addition after necessary verification.
(vi) The ld. CIT(A) further erred in deleting the addition of Rs. 1,40,340/- on account of unexplained stock found on physical verification, inspite of the fact that the AO has made this addition after making necessary verification.
(vii) The ld. CIT(A) further erred in deleting the addition of Rs. 12,000/- and Rs. 8,000/- on account of salary expenses and godown rent inspite of the fact that the AO 6 -7- has made these disallowances after necessary verification from the records of the assessee .
Grounds in Cross objection :
(i) On the facts and in the circumstances of the case , the ld.
CIT(A) was fully justified in granting all the reliefs being contested in the departmental appeal at grounds no.
(i) to (vii).
(ii) On the facts and in the circumstances of the case , the ld.
CIT(A) was not justified in estimating the sales and also applying net profit rate of 5 % on the sales so estimated, thereby enhancing the declared total income by Rs.
68,309/-
(iii) On the facts and in the circumstances of the case, the ld.
CIT(A) was not justified in so enhancing the declared total income by Rs. 68,309/- without any notice u/s 251(2).
5. Smt. Aparna Karan, Sr. DR, appeared on behalf of the Revenue and assailed the order of the ld. CIT(A) and contended that the assessee could not produce books of account neither at the time of survey nor thereafter even though the AO has issued notice u/s 131 for producing the regular 7 -8- books of account. She further contended that no cogent reason has been given by the ld. CIT(A) for deleting the addition made with respect of cash and stock found during the course of survey as well as transaction found to be recorded in the loose papers. She justified the action of the AO for rejecting books of account, since the assessee could not produce the same before the survey team and the computerized books were maintained thereafter only.
6. On the other hand, Shri P. N. Dixit, Advocate appeared on behalf of the assessee and fully supported the action of the ld. CIT(A) in so far as he has deleted all the additions made by AO.
7. We have considered the rival contentions, carefully gone through the orders of the authorities below and found from record that the assessee is a trader dealing in T.V. Freeze etc. whose turnover was stated to be below Rs. 40 lacs. There was survey at business premises of the assessee and inventory of stock, cash and loose papers were prepared. The assessee was asked to produce the books of account on which he replied that the same were not lying at shop but were lying with the Accountant of the firm. Therefore, books could not be produced before survey team. The assessee also fairly conceded that the books of account were not complete. The AO observed that the assessee has not filed any return of income after 8 -9- assessment year 1999-2000. However, at the time of scrutiny assessment, the assessee produced books of account maintained on computer, which was disbelieved by the Assessing Officer on the plea that at the time of survey the assessee could not produce the regular books of account and even thereafter the assessee did not comply with the direction of the AO for producing the regular books of account. In the assessment order, no where AO has stated that the assessee has not produced the books of account at the time of assessment stage. The AO also did not point out any defects in these books of account nor he has tried to verify cash, stock etc. found at the time of survey with the entries recorded in the computerized books of account produced by the assessee at the time of assessment proceedings. Merely on the plea that the books were not available at the time of survey and were maintained on computer, cannot be made the reason for rejecting the book result unless some defects are found in the books of account on verification. Books of account maintained in computer with the help of regular purchase and sale bills, expenditure vouchers are as valid as books maintained manually. As per provisions of Section 44AF when the assessee is not required to maintain regular books of account and profit is to be estimated @ 5 % of net profit on sales, the maintenance of books of account cannot be thrown on him and provisions of Section 44AB and 44AA of the Income-tax 9
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Act, 1961, are not applicable on him. Books of accounts maintained in computer will not lose authenticity unless some defects are found therein by the Assessing Officer on verification. Such computerized books of account produced during the course of assessment proceedings cannot be rejected light heartedly, merely on the plea that these books were not available earlier at the time of survey, when the assessee was not required to maintain regular books of account as per provisions of Section 44AF. For rejecting the books of account, it is Revenue's onus to prove that either the books of account maintained by the assessee are not correct and complete or the method of accounting adopted is such that true profits cannot be deduced there from. As the onus to make out the case for rejection of books of account is on the Revenue, the AO is required to indicate the specific defects in the books of account, which clinches the profits shown by the assessee or its state of affairs. After production of books of account and submission of explanation by the assessee, if any, asked by the Assessing Officer, with respect of the contents of the return and books of account, the Revenue may accept the same or after pointing out specific defects, may reject the books of account and proceed to determine the assessee's income as per the provisions of Section 145. Even though it is not possible to lay down the exact circumstances in which accounts should be rejected as unreliable or 10
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incorrect, yet the accounts may be rejected as unreliable if important entries and transactions are omitted therefrom or if proper particulars and vouchers, bills etc. are not forthcoming or if they did not include entries relating to particular class of business transaction. The assessee should invariably be given opportunity for offering explanation regarding defects in accounts and on his failure to satisfactorily explain the defects, the Department would be justified in rejecting the books of account. Thus, the books of account should not be rejected light-heartedly. In the instant case, undisputedly, the assessee has produced the computerized books of account alleged to be maintained as per the regular transactions entered by the assessee. The books were supported by purchase and sale bills and expenditure vouchers etc., which were duly produced for verification. Even the transactions found to be recorded in the loose papers as found during the course of survey was also alleged to be finding place in the books of account. However, the AO did not take any pain to reconcile the transactions in the loose papers with reference to the entries in books of account so produced, therefore, no fault can be found on the part of the assessee and the books of account rejected without pointing out any defects therein, is not acceptable. No where in the assessment order, the AO has alleged that stock, debtor position, sale and purchases etc. were not matching with the entries made in books of account 11
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nor it is the case of AO that system of accounting followed by the assessee was not reflecting correct state of affairs/profit etc. In case of assessee being a small trader and covered by the provisions of Section 44AF, he is not supposed to maintain regular books of account and profit is assessable at net profit of 5 % of the declared sales. However, if the assessee himself declare higher profit rate same is to be taken into consideration. When the case of assessee is taken under scrutiny due to survey action, the AO is at liberty to verify the books of account if any maintained by the assessee and if some defects are found therein or if some sales are found unaccounted, addition can be made with respect to unreconciled transactions. In the instant case, various additions were made by the Assessing Officer were with respect of the purchase, stock, cash etc., which were as verifiable from the books of account produced by assessee during the course of assessment proceedings. But inspite of verifying the availability of stock, debtor position etc. with reference to the entries in the books of account, the AO without pointing out any defect in the books, rejected the same and made addition in respect of whatever cash, stock etc. was found during course of survey. Various other additions were also made with reference to entries on the loose papers. If assessee is carrying on business, some cash and stock is bound to be there. Making addition of entire cash, stock etc. without verifying their correctness 12
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with the books of account are not justifiable. We do not appreciate this action of the AO. Accordingly, we do not approve the action of AO for the additions so made except the cash found during survey which was offered by the assessee himself in his statement. It is very pertinent to mention here that while deleting the addition even the ld. CIT(A) has not verified the cash, stock and the entries recorded in the loose paper seized during the course of survey, with reference to the entries in the books of account which were produced by the assessee before the AO but he did not take any pain to verify the same and rejected outrightly. There is no dispute to the well settled legal proposition that the powers of the ld. CIT(A) are coterminus with that of the AO, what the AO has failed to do the ld. CIT(A) can very well do it and he has got all the powers to ask any remand reports from the AO if he wants to verify the correct state of affairs.. In the instant case, there is a gross failure on the part of the AO to verify the books of account produced by small assessee during the course of assessment, at the very same time, the ld. CIT(A) has done the same mistake of not verifying the books of account, which were ignored by the Assessing Officer without any cogent reason, in so far as no where in the appellate order, the CIT(A) has given any of his finding to this effect. Nowhere in the appellate order, the ld. CIT(A) has stated that he has checked the books of account to verify the 13
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correctness of addition made in respect of cash, stock and entries in the loose papers. However, a small assessee cannot be now punished for the lapse on the part of the Departmental Authorities, by setting aside their orders and restoring the matter back to the file of AO for doing de novo after verifying the books of accounts. Keeping in view the fact of assessee being a small trader covered u/s 44AF, it is reasonable and legitimate to estimate the net profit at 5 % of the sales, in so far as no defect was pointed out by the Departmental Authorities in the books of account maintained and produced by the assessee during the course of assessment proceedings and was very much there even during appellate proceedings before the ld. CIT(A).
8. The powers of the ld. CIT(A) for enhancement of assessment is subject to the reasonable opportunity being given to the assessee u/s 251(2). As per contention of the ld.Authorized Representative, no such notice for enhancement was given by the ld. CIT(A), nor any basis for estimating the sales at such a higher figure was conveyed to the assessee. Accordingly, action of the ld. CIT(A) was alleged to be against the principle of natural justice to enhance the assessment without giving opportunity and without bringing any material much less a cogent material on record. Keeping in view the totality of facts and circumstances, since no basis has been given by the ld. CIT(A) for higher estimation of sales, we direct the 14
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AO to accept the book result, and income of the assessee is to be assessed at net profit rate of 5 % of the sales declared by him at Rs. 20.28 lakhs.
9. In terms of statement recorded during survey, cash found at business premises were offered by the assessee at Rs. 3.56 lakhs. However, while filing return, the assessee retracted from his statement and offered only Rs. 1 lac in the return of income on account of cash found during course of survey. Since neither any finding nor any reasoning has been given by the ld. CIT(A) for accepting the retraction by the assessee we do not find any valid justification in CIT(A)'s action for deleting this addition of Rs. 3,56,713/-. Small trader is normally not supposed to carry this much of cash unless special circumstances necessitating this much of cash is explained to the revenue authorities. No where in the instant case the assessee has substantiated his action of having huge cash of Rs. 3.56 lakhs nor CIT(A) has given any justification for accepting assessee's retraction or for deleting the addition so made by the Assessing Officer with reference to cash found during survey and statement recorded wherein assessee agreed to offer this cash as his income. Whenever there is any retraction by the assessee and the ld. CIT(A) wants to accept it, the same should be supported by proper reasoning and the relevant material on record. When any statement is made during the course of survey, the assessee has all the rights 15
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to substantiate the correctness of the statement and if the same are not found to be correct subsequently, with the help of relevant material the assessee has also the rights to rectify the same to the satisfaction of the Revenue Authorities. Since no reasoning has been given by the ld. CIT(A) for accepting the retraction from the offer clearly made during the course of survey with reference to the cash found at the business premises, which the assessee could not explain, we do not find any justification in CIT(A)'s action for deleting this addition. Accordingly, we direct the AO to retain the addition of Rs. 3.57 lakhs in place of Rs. 1 lakh offered by the assessee in the return of income. We direct accordingly.
10. In view of the above discussion, following additions are directed to be sustained.
(i) Rs. 3.57 lakhs in respect of cash found during the course of survey.
(ii) Computation of income at 5% of the net profit of the sales declared by the assessee at Rs. 20.28 lakhs.
All other additions are directed to be deleted.
11. The facts and circumstances in the case of Shri Dhanraj Gupta in I.T.A.No. 579/Ind/2006 are pari materia as discussed hereinabove. Addition in this case was also made with reference to the same survey. 16
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Respectfully following our observation and verdict as elaborated above, we direct the AO for retaining the addition of Rs. 2.41,687/- lakhs in respect of cash surrendered by the assessee during the course of survey in place of Rs. 1.00 lakh offered in the return, in addition to estimating net profit at 5.00 % of the sale of Rs. 29.18 lacs declared by the assessee in the books of account. We direct accordingly.
12. In the result, the appeals of the Revenue and cross objections filed by the assessees are allowed in part in terms indicated hereinabove.
This order has been pronounced in the open court on 29th October, 2009.
Sd/- Sd/-
(JOGINDER SINGH) ( R.C.SHARMA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated : 29th October, 2010.
CPU*
2829
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