Income Tax Appellate Tribunal - Delhi
Jasbir Kaur Bhatia, New Delhi vs Assessee on 4 September, 2015
1
ITA 5419/Del/10
Jasbir Kaur Bhatia Vs. ITO
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "D" NEW DELHI
BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER
AND
SHRI I.C. SUDHIR : JUDICIAL MEMBER
ITA no. 5419/Del/2010
Asstt. Yr: 2007-08
Smt. Jasbir Kaur Bhatia, Vs. Income-tax Officer,
11100, Doriwalan, East Park Road, Ward 39(1), New Delhi.
Karol Bagh, New Delhi-110005.
PAN: AAIPB 6318 A
( Appellant ) (Respondent)
Appellant by : Shri Salil Aggarwal Adv., &
Shri Shailesh Gupta CA
Respondent by : Shri Sameer Sharma DR
Date of hearing : 29/07/2015.
Date of order : 04/09/2015.
ORDER
PER S.V. MEHROTRA, A.M.:
This appeal has been preferred by the assessee against the order dated 25-8-2010 passed by the ld. CIT(Appeals)-XXVII, New Delhi in appeal no. 253/2009-10, relating to asstt. Year 2007-08, raising following grounds of appeal:
"1.1 The order of learned commissioner of Income Tax (Appeal) is arbitrary, against law and facts on record. 1.2 The learned Commissioner of Income Tax (Appeal) has erred in justifying the action of the assessing officer in which the assessing officer has disallowed the difference in 2 ITA 5419/Del/10 Jasbir Kaur Bhatia Vs. ITO the account of sundry creditor i.e. M/s ITC Ltd without appreciating the details as well as documentary evidence filed during the course of assessment proceeding. 1.3 The learned Commissioner of Income Tax (Appeal) has failed to appreciate the fact that the sundry creditors as well as amount of purchase is supported with the documentary evidence and there is no single instances of bogus transaction as such amount of purchase shown in the books of account cannot be disallowed. 1.4 The learned Commissioner of Income Tax (Appeal) has. also ignored the fact that the difference in the balance as per books of sundry creditors and as per the books of assessee is on account of the dispute with the sundry creditors which is pending before the High court. 1.5 The learned Commissioner of Income Tax (Appeal) has erred in justifying the action of the assessing officer in which the assessing officer has disallowed the 1/5 of the expenses debited under the head telephone expenses and car expenses without any basis.
1.6 The appellant may be permitted to add, alter or amend any of the foregoing grounds of appeal."
2. Brief facts of the case are that the assessee, in the relevant assessment year, was carrying on wholesale & retail business of greeting cards of all types under proprietary concerns M/s Prabjyoti Marketing and Jyoti Traders. The assessee had field return of income declaring total income of Rs. 1,65,210/-. The AO noticed that in the case of M/s Prabjyoti Marketing, gross turnover had been shown at Rs. 88,93,854/- with gross profit of Rs. 12,09,730/- giving a G.P. rate of 13.60% as against turnover of Rs. 76,37,476/- with gross profit of Rs. 12,03,263/- yielding g.p. rate of 15.75% in the preceding year. In case of M/s Jyoti Traders, gross turnover had been shown at Rs. 20,26,901/- with gross profit of Rs. 2,32,822/- giving g.p. rate 3 ITA 5419/Del/10 Jasbir Kaur Bhatia Vs. ITO of 11.49% as against gross turnover of Rs. 9,42,662/- with gross profit of Rs. 69,019/- yielding g.p. rate of 7.32% in the preceding year. While scrutinizing the balance-sheet of M/s Prabjyoti Marketing, it was noticed that the assessee had shown sundry creditor of Rs. 91,44,472/- in the name of M/s ITC Ltd. The AO issued notice u/s 143(6) to ITC Ltd. for confirmation of the account of the assessee in their books of a/c. ITC Ltd. confirmed a balance of Rs. 65,52,852/- as against the balance of Rs. 91,44,472/- in assessee's books of a/c. Thus, there was excess credit of Rs. 25,91,620/- in the books of assessee in the account of creditor M/s ITC Ltd. The assessee submitted following reconciliation of creditor's a/c as on 31-3-2007:
Balance as per Prabjyoti Marketing 9144472.40 Less:
1. Amount debited by ITC but not Credited by assessee. 2199867.00
2. Cheque issued but not presented by ITC Date Page no. Amount 2.1.2007 103393.00 31.1.2007 200000.00 303393.00
3. Difference in opening balance of both the Parties as on 1.4.2006 1242282.00 2627542.00 Balance: 6516930.00 Add: Difference of last year others intt. Etc. 35921.00 Balance as per ITC 6552852.00 2.1. The AO, after considering the credit notes issued by ITC Ltd., for which purchases were not credited by assessee in its books of a/c, observed that assessee could not explain the reason for not passing the necessary 4 ITA 5419/Del/10 Jasbir Kaur Bhatia Vs. ITO entries in its books of a/c. Thus, he concluded that assessee had shown excess purchases by Rs. 21,99,867/-. As regards other differences, he further observed as under:
"2. The assessee has further explained the remaining difference in her accounts and that of ITC Limited on account of the following items:
A. Cheque issued but not presented by ITC Date Page no. Amount 2.1.2007 103393.00 31.1.2007 200000.00 303393 B. Difference in opening balance of both the parties as on 1.4.2006 124282 C. Difference of last year others, intt. etc. 35921.00 Total As regards items reflected at 2.A, B & C, the assessee could not produce any documentary evidence in support of her contention. Hence the contention of the assessee for the booking of the excess sundry credit in the name of M/s ITC Ltd. to the tune of Rs.4,63,596/- is not tenable. As' stated above, the assessee could not further reconcile the account with ITC Limited as required vide this office letter dated 15.12.-2009 and also could not explain the difference with the help of the books of account. Therefore, the accounts submitted above are not reliable and not acceptable.
Considering all the facts of the case, it is clear that the assessee has further inflated her: purchases to the extent of Rs.3,91 ,753/- and reflected the corresponding amount as outstanding liability in the account of M/s. ITC Ltd. Thus, as the assessee has not been able to reconcile the further difference of Rs.3,91",753/- (Rs.2591620 - 2199867) also in her account and the account of M/s. ITC Ltd. The assessee has inflated her purchases by an amount of Rs.3,91,753/- and shown excess credit in the account of 5 ITA 5419/Del/10 Jasbir Kaur Bhatia Vs. ITO the ITC Ltd of the corresponding amount. Thus, the difference of Rs.3,91,753/- is also assessable as the income of the assessee on account of inflated purchases and excess credit shown as stated above. I, therefore, make an addition of Rs.3,91 ,753/- to the declared income for the facts stated above on account of inflated purchases and excess credit in the account of ITC Ltd. in the balance sheet."
2.2. The AO further made disallowance of 1/5th of the expenses incurred on account on petrol, car expenses and depreciation in the books of M/s Prabjyoti Marketing.
2.3. In case of M/s Jyoti Traders also he made disallowance of Rs. 657/- being 1/5th of the expenses incurred on account of telephone expenses. Computation of income was made as under:
Income as declared Rs. 1,65,210/-
Add:
1. M/s Prabjyoti Marketing.
i. Excess purchases booked/
Difference in the account of
Sundry credit M/s ITC Ltd. 25,91,620
Out of telephone expenses 5,514
Out of car expenses 13,932
Difference in account 1,354 Rs. 26,12,420/-
2. M/s Jyoti Traders:
Difference in account 86
Out of telephone expenses 657 Rs. 743
Rs. 27,78,373
Rounded off: Rs. 27,78,370/-
2.4. Ld. CIT(A) dismissed the assessee's appeal. Being aggrieved, the assessee is in appeal before us.
6ITA 5419/Del/10 Jasbir Kaur Bhatia Vs. ITO
3. Ld. counsel for the assessee referred to page 25 of the paper book, wherein the notice u/s 142(1) is contained in which AO had required the assessee to explain the following difference on the basis of letter dated 1- 12-2009 received from M/s ITC Ltd.:
1. Amount debited by ITC not credited by you Rs. 21,99,667/- (details of bills not given)
2. Cheque issued by you but not presented by ITC Rs. 3,03,393/- (details of bills not given)
3. Difference in opening balance of both the Parties as on 1.4.2006 Rs. 1,24,282/-
4. Difference of last year - interest etc. Rs. 35,921/-
Difference: Rs. 26,63,463/-
3.1. Ld. counsel for the assessee at the outset pointed out that as far as difference of last year's interest etc. amounting to Rs. 35,921/- is concerned, the AO has wrongly added the same, which should have been deducted. As regards the difference in opening balance of both the parties as on 1-4-2006 amounting to Rs. 1,24,282/-, ld. counsel pointed out that this cannot be added, in any view of the matter, in this year. Ld. counsel referred to page 31 of the paper book, wherein the submissions made before ld. CIT(A) are contained and pointed out that as regards the addition of Rs. 21,99,867/- it was explained that the entry of the amounts credited by ITC in their account had not been passed by the assessee because till the credit is given by the supplier, the assessee keeps the stock as its own stock. It was pointed out that the products sold by the assessee are festival/ occasion specific. Further, on each card the year is also mentioned, hence the same product cannot be sold in the next year. Hence, the suppliers allows the return of the goods 7 ITA 5419/Del/10 Jasbir Kaur Bhatia Vs. ITO facility to its distributors. It was pointed out that during the year under consideration the assessee had sent the goods amounting to Rs. 26,32,303/- as goods returned to ITC Ltd. against which the assessee got credit of Rs. 21,99,867/-. The assessee pointed out that since the credit for Rs. 21,99,867/- only had been granted as against the return of Rs. 26,32,303/-, the assessee had not accepted the same and, therefore, the said goods returnedhad been shown as stock in hand, lying with the ITC. In support of its contention, the assessee had submitted the stock statement. The assessee further pointed out that if the AO's contention was accepted then the gross profit would be 38.34%, as under:
Particulars Amount Particulars Amount
To opening stock 2215578 By sales 8893854
To purchases 12452905 By closing stock 6984359
Less: Excess purchases 2199867 10253038
To gross profit 15878213 15878213
3.2. Ld. counsel referred to pages 34 to 93 of the paper book wherein stock statement is contained and pointed out that in the aforementioned computation, the closing stock of Rs. 69,84,359/- includes the stock lying with ITC of Rs. 26,32,303/-.
3.3. As regards the addition of Rs. 3,03,393/-, ld. counsel pointed out that it is the normal practice of the trade to provide the blank cheques to the company. The company, as and when require, can fill the amount and inform its distributor about the same. The ITC Ltd. had taken into its account the cheques, but as the same had not been informed to the assessee nor 8 ITA 5419/Del/10 Jasbir Kaur Bhatia Vs. ITO presented to the bank, hence not accounted for the bank. In this regard ld. counsel referred to pages 254 to 260 of the PB, wherein the bank statement is contained to submit that the two cheques have not been credited to assessee's account. Ld. CIT(A) rejected the assessee's plea.
4. Ld. DR submitted that no plea was taken in regard to stock in trade lying with ITC.
5. We have considered the submissions of both the parties and have perused the record of the case. There are 4 items in dispute, as noted earlier, out of which at the outset, we are in agreement with ld. counsel for the assessee that addition of Rs. 1,24,282/- could not be made in this year because the difference pertained to earlier year. As regards the addition of Rs. 35,921/-, the same had to be reduced by AO and not added. The AO will verify this aspect.
5.1. The main issue is regarding addition of Rs. 21,99,867/-. The assessee's plea is that though credit notes had been issued by ITC aggregating to Rs. 21,99,867/-, but in its books of a/c it did not account for the same because assessee had lodged the claim for Rs. 26,32,303/-, which the assessee continued to show in its stock register as a separate item, which is evident from page 93 of the PB. In order to examine the credibility of assessee's explanation, we have to consider the various aspects. The assessee, admittedly, was distributor of M/s ITC Ltd., and, therefore, had regular dealings with M/s ITC Ltd. Considering the nature of assessee's business, the explanation given by assessee cannot be faulted, because the 9 ITA 5419/Del/10 Jasbir Kaur Bhatia Vs. ITO greeting cards are always year specific and the old stock become obsolete and cannot be used. This practice, therefore, is commercially prevalent in this line of business.
5.2. Further, as regards the credit entries being not accounted for in assessee's books of account, keeping in view the commercial practice, it cannot be denied that the assessee had to account for the credit notes because it is not that only ITC was required to confirm the balance, but even assessee could also be called upon by the AO to confirm the balance relating to ITC Ltd. in assessment proceedings of ITC. Therefore, it cannot be concluded that assessee was deliberately not accounting for the credit notes. Under such circumstances, normal commercial practice assumes significance and that has to be given due credence. In the stock register, maintained by assessee, the stock lying with ITC has separately been mentioned. Under such circumstance, we are of the opinion that the assessee's explanation was quite reasonable, considering the business practice and, therefore, should have been accepted. In the ground of appeal no. 1.4, the assessee further pointed out that dispute in this regard is pending before Hon'ble High Court. In view of above, the addition made on this count is deleted.
5.3. As regards the assessee's explanation in respect of difference of Rs. 3,03,393/-, that the cheques issued were not presented by ITC, we restore this issue to the file of AO for verification of assessee's claim with reference to the bank account, which has been filed in the paper book before us. Ground is allowed for statistical purposes.
10ITA 5419/Del/10 Jasbir Kaur Bhatia Vs. ITO
6. Vide ground no. 1.5, the assessee has disputed various disallowances made by AO and confirmed by ld. CIT(A). These disallowances have been made on the ground of personal uses. In our opinion, the disallowance is quite reasonable and, accordingly, we confirm the same.
7. In the result, assessee's appeal is partly allowed for statistical purposes.
Order pronounced in open court on 04/09/2015.
Sd/- Sd/-
(I.C. SUDHIR) (S.V. MEHROTRA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 04/09/2015.
*MP*
Copy of order to:
1. Assessee
2. AO
3. CIT
4. CIT(A)
5. DR, ITAT, New Delhi.
11
ITA 5419/Del/10
Jasbir Kaur Bhatia Vs. ITO
-+ Date
Initial
1. Draft dictated on -09.2015 PS
2. Draft placed before author .09.2015 PS
3. Draft proposed & placed before the second JM/AM
member
4. Draft discussed/approved by Second JM/AM
Member.
5. Approved Draft comes to the Sr.PS/PS PS/PS
6. Kept for pronouncement on PS
7. File sent to the Bench Clerk PS
8. Date on which file goes to the AR
9. Date on which file goes to the Head Clerk.
10. Date of dispatch of Order.