Income Tax Appellate Tribunal - Chandigarh
Sh. Hem Raj Verma, Hamirpur vs Assessee on 12 January, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIG ARH BENCH ' A', CHANDIG ARH
BEFORE SHRI T.R. SOOD, A.M AND Ms. SUSHMA CHOWLA, JM
ITA No. 268/Chd/2012
Assessment Year : 2005-06
Hem Raj Verma V Addl C.I.T
Prop. Verma Engineering Mandi Range
Services, VPO Didwin Mandi
Tikker, Teh & District
Hamirpur
AAXPV 5004 E
(Appellant) (Respondent)
Appellant by Shri S.K. Mukhi
Respondent by: Shri A. Gupta
Date of hearing 8.1.2013
Date of Pronouncement 14 .1.2013
O R D E R
PER T.R.SOOD, A.M
This appeal is directed against the order passed by the ld. CIT(A), Shimla dated 12.1.2012.
2. In this appeal the assessee has raised the following grounds:
"1 That the orders of the ld. CIT(A), Chandigarh is arbitrary based on extraneous consideration, devoid of facts on record, against principles of justice therefore, illegal, erroneous, perverse and thus uncalled for.
2. That the ld. CIT(A) is not justified in concurring with the Assessing Officer and thereby confirming the addition in toto without appreciating the facts, replies, contentions and evidences filed bythe appellant which needs due consideration by the Hon'ble Tribunal.
3. That the ld. CIT(A) is not justified in concurring with the Assessing Officer and thereby confirming the independent / additional income of Rs. 6,48,199/- by applying the provisions of section 41(1) of the Income-tax Act, 1961 once it had applied NP Rate of 8% on the gross contract receipts of the appellant by rejecting the books of account which is against established principles of law and thus perverse.2
4. That the ld. CIT(A) is not justified in confirming the taxable turnover at Rs. 64,68,573/- instead of Rs. 62,90,1890/- for applying the rate of 8% which is erroneous."
3 Grounds No. 1& 2 are of general nature and do not require separate adjudication.
4. Ground No. 3 - After considering the rival submissions we find that during assessment proceedings in order to verify the correctness and genuineness of the trading results, the Assessing Officer made an inquiry with 30 parties by writing a letter u/s 133(6) for confirmation of accounts. Some of the parties did not reply. In the remaining replies it was noticed that there were serious discrepancies in the accounts as reflected and confirmed by these parties. The assessee was confronted with these discrepancies. The assessee could not reconcile these discrepancies and on 28.12.2007, Shri Sandeep Sharma, C.A. ld. A.R. for the assessee expressed his inability to reconcile the discrepancies and agreed for the rejection of books of account and expressed no objection if the profit was estimated at 8%. The Assessing Officer rejected the books of account and applied NP Rate and worked out net profit during the year at Rs. 5,17,485/-. In addition to this he noted that there were discrepancies in the accounts submitted by parties and the difference came to Rs. 6,48,199/-. The Assessing Officer added this amount separately being bogus liability u/s 41(1) of the Act.
5 On appeal, it was mainly submitted that it was unfair for the Assessing Officer to make additions over and above the estimated income and in this regard reliance was placed on certain decisions.
36 The ld. CIT(A) did not agree with the submissions and observed that the assessee failed to reconcile the said discrepancies and agreed for rejection of books of account. Therefore, the Assessing Officer was right in applying NP Rate of 8%. As far as addition u/s 41(1) is concerned, the ld. CIT(A) observed that Section 41(1) specifically provides that if liability has ceased to exist then additions can be made and since this was a case of bogus liability, separate addition was justified. 7 Before us, the ld. counsel of the assessee submitted that the assessee had agreed only to application of net profit @ 8%. Once such profit rate was applied there was no further scope for separate addition because enhanced income in view of 8% profit rate would cover other items also. He submitted that books have been rejected only on account of non-reconciliation of accounts with various parties and no other defect was found. Therefore, non-reconciliation items would be covered by the application of NP Rate of 8%.
8 On the other hand, the ld. DR for the revenue strongly supported the orders of Assessing Officer and the ld. CIT(A). 9 W e have heard the rival submissions carefully and find some merit in the arguments of the ld. counsel of the assessee. Apart from non-reconciliation of accounts with various parties no other defect has been found. So at best the addition could have been made only of the total amount which was not reconciled. The Assessing Officer has narrated non- reconciliation with various parties. As an example, we quote the issues arising in case of two parties as under: 4
"As per the information obtained from M/s R.K. Projects Pvt Ltd there was no transaction during the year with the assessee nor any opening balance. On the other hand in his books the assessee there is credit entry of Rs. 4,36,800/- on account of purchase on 1.4.2004 and this amount remained as such on 3.3.2005. On the other hand, as per the information from M/s R.K. Projects Pvt Ltd. It has already received the payment during the earlier Financial Year i.e. relevant to Assessment year 2004-05. It is not possible that the party which has to receive money from the assessee would forgo the same without any basis. In fact, the assessee has willfully created bogus liability in his books. Since the assessee has failed to reconcile the same, it needs to be added back to the income of the assessee f or the relevant year.
As per the information received from M/s Hydro Power Engineers it has shown the assessee has sundry creditor in its books of account as on 1.4.2004 with Rs. 20,203/-. On the other hand instead of showing the above party as sundry debtor the assessee has shown it as sundry debtor in his books of account at Rs. 27,007/-. Since the assessee has failed to reconcile the same, it needs to be added back to the income of the assessee for the relevant year."
Similar details have been given by the Assessing Officer in respect of other parties also. It is clear that the assessee had shown bogus liabilities and bogus purchase in respect of above accounts which totaled to Rs. 6,48,199/-. W e are of the opinion that when the Assessing Officer did not find any other defect in the accounts then he should have added this sum to the income of the assessee instead of first estimating the income at 8% simply because the assessee had agreed for rejection of books by an application of 8% of the profit and then again adding the sum of Rs. 6,48,199/- on account of discrepancies. It is to be noted that no attempt was made before us to give any evidence which would reconcile the accounts of the various parties where discrepancies were noted by the Assessing Officer. Therefore, we could not have given one more opportunity to the assessee for reconciling these accounts by remanding the case to the Assessing Officer, therefore, we are of the opinion that amount of discrepancies 5 can be added to the returned income of the assessee. We proposed accordingly and this proposition was agreed by the ld. counsel of the assessee. Accordingly we set aside the order of the ld. CIT(A) and direct the Assessing Officer to compute the income of the assessee as under:
Returned income Rs. 2,81,682/-
Add difference
In accounts of various parties
As noted by the Assessing Officer Rs. 6,48,199/-
Rs. 9,29,881/-
We again clarify that no further addition should be made on account of estimating of profit.
10 Ground No. 4 - During assessment proceedings the Assessing Officer had applied 8% profit on the gross receipt whereas it is contended before us that the assessee had also paid sales tax and in this regard reference was invited to page 16 & 17 of the paper book which is copy of the sales tax which clearly shows that assessee had paid sales tax of Rs. 1,68,770/-. It was contended that net profit can be applied only on net receipt. However, this issue has become infructuous because we have confirmed the addition on account of difference in various accounts and deleted the separate addition of application of net profit. Therefore, this ground is dismissed being infructuous.
11. In the result, appeal of the assessee is partly allowed.
Order pronounced on 14 .1.2013.
Sd/- Sd/-
(SUSHMA CHOWLA) (T.R. SOOD)
JUDICI AL MEMBER ACCOUNTANT MEMBER
Dated : 14 .1.2013
SURESH
Copy to: The Appellant/The Respondent/The CIT/The CIT(A)/The DR 6