Income Tax Appellate Tribunal - Pune
Manohar Kevalram Hotwani, Kolhapur vs Assessee on 29 January, 2016
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IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "A", PUNE
सु ी सष
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BEFORE MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA, AM
ITA No.692/PN/2007
Assessment Year : 2004-05
Shri Mohan K. Hotwani (HUF),
Prop. M/s Bharat Electricals,
1606-C Bindu Chowk,
Kolhapur.
PAN : AAAHH4988R .... Appellant
Vs.
The Asstt. Commissioner of Income Tax,
Circle - 1, Kolhapur. .... Respondent
ITA No.892/PN/2007
Assessment Year : 2004-05
The Asstt. Commissioner of Income Tax,
Circle - 1, Kolhapur. .... Appellant
Vs.
Shri Mohan K. Hotwani (HUF),
Prop. M/s Bharat Electricals,
1606-C Bindu Chowk,
Kolhapur.
PAN : AAAHH4988R .... Respondent
Assessee by : Shri M. K. Kulkarni
Department by : Shri Alok Malviya, JCIT
सन
ु वाई क तार ख / घोषणा क तार ख /
Date of Hearing : 18.01.2016 Date of Pronouncement: 29.01.2016
आदे श / ORDER
PER PRADIP KUMAR KEDIA, AM :
The aforesaid captioned cross appeals filed by the assessee and the Revenue are against the order of CIT(A), Kolhapur, dated 23.03.2007 relating to assessment year 2004-05 passed under section 143(3) of the Income Tax Act, 1961 (in short "the Act").
2 ITA No.692/PN/2007 ITA No.892/PN/20072. The cross appeals filed by the assessee and the Revenue were heard together and are being disposed of by this consolidated order.
3. The assessee in ITA No.692/PN/2007 has raised the following Grounds of Appeal :-
"1) On the facts and in the circumstances of the case and in law the Ld. C.I.T. (A) was not justified in confirming the rejection of books of accounts of the appellant as done by the A.O. invoking the provisions of S. 145 (3) of the Act though ingredients of that section were not satisfied and the rejection was the result of presumptions and surmises without going to the realities of the case.
2) On the facts and in the circumstances of the case and in law the Ld C.I.T. (A) was not justified in confirming the turnover estimated by the A.O. at Rs. 1.50 crores as against 1.13 crores and the turnover be accepted as per books of accounts.
3) On the facts and in the circumstances of the case and in law the Ld. C.I.T. (A) erred in not accepting the loss of Rs. 14,77,294/- as declared by the appellant and instead directing the A.O. to compute income/loss by adopting the G.P. percentage of 10.13 on the turnover of 1.50 crores.
4) On the facts and in the circumstances of the case and in law the Ld. C.I.T. (A) was not justified in sustaining the addition of Rs.4,44,434/- u/s. 68 of the I.T. Act. The C.I.T. (A) erred in sustaining the said addition of Rs.4,44,434/-.
5) On the facts and in the circumstances of the case and in law the appellant denies his liability to pay interest u/s. 234-A, 234-B and 234-C of the Act.
6) The appellant craves to leave, add/amend or alter any of the above grounds of appeal."
4. The Revenue in ITA No.892/PN/2007 has raised the following Grounds of Appeal:-
"(1) On the facts and in the circumstances of the case the CIT(A) erred in directing the A.O. to allow the expenditure claimed to profit and loss a/c ignoring the fact that once the book results are rejected u/s 145, the question of allowing expenditure does not arise.
(2) On the facts and in the circumstances of the case the CIT(A) erred in adopting gross profit at 10.13% and directing the A.O. to allow the expenses debited to profit and loss a/c as against net profit at 1% of the sales estimated by the A.O. u/s 145; when the action of the A.O. of estimating the sales has been confirmed in appeal.
(3) On the facts and in the circumstances of the case the CIT(A) erred in deleting addition of Rs.13,24,160/- made u/s 68 based on the mere statements of accounts furnished during the course of appellate proceedings ignoring the fact that no supporting evidence like description of the excess stock sold, bill number, date, name and address of the parties to whom sold, mode of payment received etc. has been given by the assessee.3 ITA No.692/PN/2007 ITA No.892/PN/2007
(4) The order of the CIT(A) be vacated and that of the A.O. be restored. (5) Appellant craves, leave to add, alter, amend or modify any of the above grounds or raise any other ground at the time of proceedings before the Hon'ble Tribunal which may please be granted."
5. The first issue of assessee's appeal is concerning the estimation of profits by rejection of books of account by invoking section 145 of the Act.
5.1 Briefly stated, the relevant facts of the case are that the assessee is a Hindu Undivided Family (HUF) and operates through its Karta. The assessee deals in purchase and sale of electrical goods such as Fans, Mixer, Iron, Toaster, Zumber, Wall Braket, Gate Lamp, Lamp Tubes, etc. on wholesale and retails basis. The assessee filed return of income for the assessment year 2004-05 on 01.11.2004 declaring a total income of Rs.9,39,070/-. In this case, a survey action under section 133A of the Act was earlier carried out by the Department on 06.11.2003 during which the survey party detected additional income of Rs.22,24,360/- as under :-
(i) Unexplained investment in stock : Rs.13,24,160
(ii) Unexplained cash : Rs. 50,200
(iii) Unexplained investment in interior decoration : Rs. 8,50,000
Total additional income detected : Rs.22,24,360
5.2 The Assessing Officer observed that in the statement recorded on oath during the course of survey, the assessee admitted the aforesaid additional income over and above his regular income. However, while filing the return the assessee has shown loss of Rs.14,77,294/- from its business operation which resulted in erosion of additional income declared in survey under section 133A of the Act. The Assessing Officer questioned the correctness of the loss of Rs.14.77 lakhs as declared by the assessee. The Assessing Officer observed that during the year, the assessee has shown sales at Rs.1,13,89,453/- and a gross profit of Rs.8,90,318/- thereon which works out to 7.81%. He observed that the rate of gross profit for the year under consideration is found to be very low as compared to earlier years. In the immediately preceding year i.e. assessment year 2003-04, the rate of gross profit was to the tune of 4 ITA No.692/PN/2007 ITA No.892/PN/2007 Rs.9.42.% which was incorrectly stated by the assessee at 3.66% in his written submissions. The net business profit for the assessment year 2003-04 was declared at Rs.3,47,118/- and the business income shown in the earlier years was also almost in the same range. Considering this, the Assessing Officer observed that normal business income of Rs.3.5 lakhs and the additional income detected during survey under section 133A of Rs.22.24 lakhs, the returned income was expected in the range of Rs.25 lakhs or more. However, the assessee has declared a total income of Rs.9,39,070/- only by showing wrongful business losses to set-off the additional income declared during the survey. Accordingly, a detailed show-cause notice was served on the assessee as extracted in para 6.4 of the assessment order. After considering the reply from assessee, the Assessing Officer observed that the assessee has not maintained proper books of account and books maintained suffers from several defects. He discarded the argument of the assessee that the books were completed upto 31.10.2003 and survey parties did not observe any defect in the books. The Assessing Officer observed that this contention of the assessee is contrary to his earlier submissions dated 14.09.2006 wherein the assessee inter-alia admitted incomplete nature of books of accounts. The Assessing Officer further observed that books of account were not produced before survey party except ledger extracts for financial year 2003-04. Coupled with this, tentative trading account on or about the date of survey were also not made available to the survey party. The figures of purchase and sale upto the date of survey were made not available either. These facts demonstrate that books of accounts on the date of survey were not complete. Therefore, the contention of the assessee on reliability of books is incorrect and misleading. It was contended by the assessee before the Assessing Officer that the assessee was a main dealer and distributor of various electrical items of Crompton Greaves Ltd. upto the financial year 2002-03 relevant to assessment year 2003-
04. During the financial year 2002-03 relevant to assessment year 2003-04 total purchase of Crompton Greaves were to the tune of Rs.2,57,84,074/- from Crompton Greaves out of total purchase of Rs.3,02,84,843/- which nearly 85.13% of the total purchase. The assessee was the main distributor of the said 5 ITA No.692/PN/2007 ITA No.892/PN/2007 company. However, since the beginning of financial year 2003-04 relevant to the assessment year 2003-04 owing the constant pressure from the said company for fulfillment of target and stock dumping without any specific order from the assessee, the assessee decided to stop his business from Crompton Greaves Ltd. and also returned the companies goods worth of Rs.54,89,875/- on 21.06.2003. The assessee while stopping the purchases and returning the goods to the above said company also decided to engage in retail business of electrical goods only; as against both wholesale and retail dealings in the earlier years. The assessee also claimed that since the books of account are audited as per the provisions of section 44AB of the Act, the book results declared by the assessee are reliable. The Assessing Officer rejected the plea of the assessee on reliability of the books and pointed out the several defects in the book results declared by the assessee. The Assessing Officer inter-alia observed that at the time of survey, the books of account were incomplete and stocks were not verifiable. The excess stock detected by the survey team was admitted by the assessee. The books of account produced at the time of assessment was prepared after the date of survey to meet the requirements. The Assessing Officer further observed that sales shown by the assessee are one third of the previous year. On the contrary, increased 'sales and administrative expenses' has been claimed which is 6.65% with reference to sales whereas the same were 3.85% in the last year for which no satisfactory explanation has been filed by the assessee. In the preceeding assessment year 2003-04, the purchases of Rs.3.02 crores were shown which is 90% of the sale of Rs.3.35 crores but during this year purchases shown of Rs.37 lakhs without taking into account the purchases returns is only 30% of the sales. Therefore, the figures are not comparable. The Assessing Officer also found that octroi charges of Rs.1,21,407/- during the year has been claimed as against Rs.1,05,853/- claimed in assessment year 2003-04. Likewise, loading/unloading expenses and transport charges are Rs.37,698/- and Rs.62,320/- respectively which is almost the same corresponding to assessment year 2003-04. This means the purchases of more than Rs.3 crores for assessment year 2003-04 and only Rs.37 lakhs in assessment year 2004-05 the 6 ITA No.692/PN/2007 ITA No.892/PN/2007 expenses in respect of octroi and transport charges are declared to be same, which is quite perplexing. This indicates that there is a strong case of suppressed purchase as well as suppressed sales. The Assessing Officer further observed that there is a difference between the purchase returns figures vis-à-vis corresponding records maintained by Crompton Greaves Ltd. to the tune of Rs.12,75,027/- which proves that certain purchases from the company has remained unrecorded in this books. The Assessing Officer next alleged that cogent details of stock quantity-wise & quality-wise are not available inspite of several requests. The Assessing Officer went on further to point out certain differences in sundry creditors balances also. The Assessing Officer thereafter observed that the assessee claimed interest expenses of Rs.5,68,708/-. He observed that the assessee has diverted its business fund for non-business purposes to the extent of Rs.90.46 lakhs. The Assessing Officer noted that the assessee is trying to stress upon only one thing i.e. the return of goods to Crompton Greaves and trying to show that this has resulted in loss to the assessee. The Assessing Officer rebutted this contention of the assessee on the ground that no interest has been paid on extra material purportedly dumped upon the assessee and no extra godown rent or extra expenses has been incurred. Therefore the assessee has not offered any proper explanation which resulted in loss in the business. He observed that throughout the year, the assessee was doing business of purchasing and selling electrical material as evident from expenses claimed. In the circumstances, aforesaid justifications for loss incurred is not tenable. He, further, observed that the assessee in his submission dated 14.12.2006 admitted that he has sold the excess stock of Rs.13,24,160/- detected during the course of survey operation under section 133A of the Act for Rs.15,16,160/- and has earned profit of Rs.1,92,000/- thereon. The percentage of gross profit shown works out to Rs.12.66%. It is admitted by the assessee that the sales were not routed through regular Profit & Loss Account but have been maintained as a separate account. This admission, on the part of assessee, makes it clear that the gross profit in such line of business is more than 10% whereas the assessee has shown a meager gross profit at 7.25% for the year under consideration. This clearly establishes that 7 ITA No.692/PN/2007 ITA No.892/PN/2007 there are omissions and mistakes in the account maintained and the said account suffered from many defects. The Assessing Officer accordingly rejected the books of account of the assessee and estimated the business income of the assessee for invoking section 145(3) of the Act. He also tabulated net profit from assessment year 2001-02 onwards upto assessment year 2005-06 as per para 6(m) of his order and found that the net profits in all these years are in the range of more than 1% of the sales as against the 12.9% loss in the impugned assessment year 2004-05. There are a profit in all the years except assessment year 2004-05 where separate income owing to survey proceedings have been detected.
5.3 Having regard to the enquiries made from Crompton Greaves including cross-examination and discrepancy and defects pointed out in the books of account and after giving due weightage to the assessee admission, the Assessing Officer estimated the sales at Rs.1.50 crores as against the 1.14 crores declared by the assessee. Similarly, net profit from business was estimated at 1% of the sales which worked out to Rs.1,50,000/- after giving weightage to all expenses and depreciation as against the declared loss of Rs.14,77,294/-.
6. The second issue is with regard to addition under section 68 of the Act on account of unexplained credits shown in the capital account. The Assessing Officer observed that on verification of the capital account, following credits in cash in the capital account of the assessee were found :-
Date Particulars Amount (Rs.)
1/12/2003 Cash Rs. 18,000
1/12/2003 Cash Rs.1,36,853
12/12/2003 Cash Rs. 57,581
15/1/2004 Cash Rs.4,00,000
15/1/2004 Cash Rs. 50,000
7/2/2004 Cash Rs. 50,000
12/2/2004 Cash Rs.4,00,000
15/2/2004 Cash Rs.1,00,000
28/2/2004 Cash Rs.2,00,000
5/3/2004 Cash Rs.1,00,000
8
ITA No.692/PN/2007
ITA No.892/PN/2007
14/3/2004 Cash Rs. 50,000
31/3/2004 Cash Rs.1,24,160
Total Rs.16,86,594
6.1 Before the Assessing Officer, the assessee explained the source of credit of these deposits as under :-
Date Particulars Amount (Rs.) Sources of credit
01.12.2003 By cheque Rs.18,000/- By withdrawal from Ichal. Janata
Sah. Bank Ltd.
01.12.2003 Cash Rs.1,36,853/- Out of cash withdrawal of
Rs.1,36,853 on 1/4/2003
02.12.2003 Cash Rs.57,581/- Cash is credited out of cash amount
withdrawn of Rs.2,07,581/- on
30.05.2003
15.01.2004 Cash Rs.4,00,000/- (Rs.1,50,000/- out of withdrawal of
Rs.2,07,581/- on 12.12.2003 &
Rs.2,50,000/- on account of sale out
of excess stock found during survey)
15.01.2004 Cash Rs.50,000/- The amount is credited on A/c. of
cash sale out of excess stock found
during survey
07.02.2004 Cash Rs.50,000/- -do-
12.02.2004 Cash Rs.4,00,000/- -do-
15.02.2004 Cash Rs.1,00,000/- -do-
28.02.2004 Cash Rs.2,00,000/- -do-
05.03.2004 Cash Rs.1,00,000/- -do-
14.03.2004 Cash Rs.50,000/- -do-
31.03.2004 Cash Rs.1,24,160/- -do-
6.2 The crux of the explanation of the assessee was that the excess stock found which was sold at Rs.15.16 lakhs was one of the dominant sources for such cash entries in the capital account along with certain earlier cash withdrawals from the bank. The Assessing Officer rejected the explanation of the assessee primarily on the ground that the assessee has not produced a single bill for alleged sale of the unaccounted stock and the name and address of the parties to whom were made. He also rejected the second limb of the argument of the assessee that withdrawal from the banks 7 to 8 months back and remaining in the hands of the assessee has been introduced in the capital account. He accordingly invoked section 68 of the Act and added Rs.16,86,594/- income of the assessee.
9 ITA No.692/PN/2007 ITA No.892/PN/20077. Aggrieved by the action of the Assessing Officer, in estimating the sales at Rs.1.50 crore and determining net profit @ 1% i.e. 1.5 lakhs thereon and towards another addition of Rs.16.86 lakhs under section 68 of the Act, assessee preferred an appeal before the CIT(A).
7.1 The CIT(A) agreed with the observations of the Assessing Officer that the assessee has failed to reconcile the differences in the value of purchase returns and the book results are not dependable as substantial amount of stock were not found at the time of survey. The CIT(A) endorsed the action of the Assessing Officer in rejecting the books of account and estimating the turnover accruing to the assessee during the year. He observed that the turnover estimated at Rs.1.5 crore instead of 1.13 crore is reasonable keeping in mind the facts that goods returned to the Crompton Greaves as shown in the assessee's books were found to be in difference with the accounts of the supplier. To come to such conclusion, the CIT(A) also noticed that defects in stock statements pointed out by Assessing Officer has not been reconciled. He, however, declined to agree with the action of the Assessing Officer in estimating the net profit @ 1% merely on the basis of trend in the earlier years. He observed that the Assessing Officer has not taken into account the shift from agency business to retail business and decline in turnover. He observed that the comparison of such overheads is not justified since overheads such as interests, salary, establishment costs, etc. remain more or less fixed and such overheads are not sensitive to turnover. The CIT(A) noted that the Assessing Officer has not proved that the expenses in Profit & Loss Account are not being genuine business expenses or have been inflated. In this scenario, the estimation of profits should be restricted to 'gross profit' and not 'net profit'. The gross profit of the earlier years is not comparable due to the change in the nature of business. The gross profits of the next year i.e. assessment year 2005-06 is rather better indicator as observed by the CIT(A). In the assessment year 2005-06, the gross profit rate is declared at 10.13%. The same percentage of 10.13% should be adopted in the current assessment year i.e. A.Y. 2004-05 and expenses debited to the Profit & Loss Account should be 10 ITA No.692/PN/2007 ITA No.892/PN/2007 adjusted against the gross profit computed at the above rate and the resultant income/loss was directed to be assessed to tax by the CIT(A).
7.2 With regard to the second issue of addition on account of unexplained cash credit in the capital account to the tune of Rs.16,86,594/-, the CIT(A) accepted the explanation of the assessee that the source of cash credit is broadly out of sale of unexplained stock declared at the time of survey and accordingly as per para 13 to 19 of his order, he granted partial relief to Rs.12,46,160/- holding the same to be treated out of sales from the excess stock found at the time of survey and confirmed the cash credit to the tune of Rs.4,44,434/- as continued to be unexplained. The relevant para of the order of the CIT(A) concerning the issue reproduced as under :-
"15. The bank account of the appellant in Ichalkaranji Janata Sahakari Bank shows a withdrawal of Rs. 18,000/- on 06/12/2002 by cheque in the name of Bharat Electricals, which has the appellant's proprietary business. The account of the business shows the amount deposited on transfer from SB account No. 4285. In view of the above evidence the explanation of the appellant is accepted.
16. As regards the cash entries on 1st and 2nd December 2003 of Rs.1,36,853/- and Rs. 57,581/-, it is explained that the amounts were out of cash withdrawals on 01/4/2003 and 30/05/2003. The withdrawals have been made 7-8 months before the deposit in the capital account. There is no plausible explanation of such delay. It can only be presumed that the withdrawals made earlier were for other purposes. The explanation of the appellant is not satisfactory and, therefore, the Assessing Officer is held to be justified in rejecting the same.
17. As regards the amount of cash deposited on 15/01/2004, the explanation is that Rs. 1,50,000/- is out of withdrawal of Rs.2,07,581/- on 12/12/2003 and Rs.2,50,000/- on sale of excess stock during survey. The appellant has not given any new evidence to show that there was a withdrawal of Rs. 2,07,581/- from the partner's bank account. Explanation to this extent is, therefore, not acceptable.
18. As regards amounts brought in by sale of excess stock, the statement of sale of such excess stock submitted by the appellant shows that the total sales of excess stock on the 10th, 12th, 14th and 15th of January, 2004 amounting to Rs. 4,40,022/- The explanation that Rs. 2,50,000/- credited to the capital account represented the cash received on such sale therefore, appears to be acceptable. On 15.01.2004 there is an amount of Rs. 50,000/- credited to the account. The explanation of the appellant is also acceptable with regard to this credit. The sales made up till 07/02/2004 was Rs. 7,58,602/-. The credit of Rs.50,000/- could be treated as out of sales made up till 07/02/2004. The balances of sales made up to dates vis-a-vis to cash credits are as under:
Date Credit (Rs.) Sales (Rs.)
12/02/2004 4,00,000 4,31,160
15/02/2004 1,00,000 21,160
28/02/2004 2,00,000 4,97,692
11
ITA No.692/PN/2007
ITA No.892/PN/2007
05/03/2004 1,00,000 2,97,692
14/03/2004 50,000 2,40,000
31/03/2004 1,21,160 4,67,592
In the above calculation, the sales amount in the last column consists of the sales made up to that date less adjusted by the cash credit up to that date. It is seen from the above calculation that except for cash credit of Rs. 1 lac on 15/02/2004, the other credits starting from 2,50,000/- on 15/04/2004 on 31/03/2004 can be treated as accounted for by way of sales of excess stock except the amount of Rs.1 lac on 15/03/2004 when the sales amount balance was not sufficient.
19. In view of the above, the following amounts are deleted.
Date Amount (Rs.)
06/12/2003 18,000
15/01/2004 2,50,000
15/01/2004 50,000
07/02/2004 50,000
12/02/2004 4,00,000
28/02/2004 2,00,000
05/03/2004 1,00,000
14/03/2004 50,000
31/03/2004 1,24,160
TOTAL ....... 12,42,160
The balance amount of cash credit of Rs.4,44,434/- is continued as unexplained."
8. Aggrieved by the order of the CIT(A), both the assessee and the Revenue are in appeal before us.
9. The Ld. Authorized Representative for the assessee, at the outset, submitted that the return of income filed on 01.11.2004 is within the due date under section 139(1) of the Act in view of order under section 119(1) of the Act dated 20.10.2004 whereby the due date of the filing of the return under first proviso to section 139(1) was extended to 31.10.2004. As the 30.10.2004 being holiday, the return filed on 01.11.2004 is deemed to have been within the due date (Copy of Instructions placed in file). The Ld. Departmental Representative for the Revenue did not contradict the observations made on behalf of the assessee. Thereafter, the Ld. Authorized Representative for the assessee at the time of hearing, fairly submitted that rejection of books by the 12 ITA No.692/PN/2007 ITA No.892/PN/2007 Assessing Officer may be taken as justified. However, the CIT(A) has erred in not accepting the loss of Rs.14,72,294/- as declared by the assessee and in directing the Assessing Officer to compute the income/loss by adopting gross profit percentage of 10.13% on the turnover of 1.5 crore. No other substantive explanations were offered.
10. However, on the second issue of addition under section 68 of the Act, he vehemently objected the action of the CIT(A) in granting only part relief. He submitted that once the addition has been made by rejecting the books of account no further addition under section 68 of the Act is called for. He relied upon various precedents viz. CIT vs. Aggarwal Engg. Co. (Jal.), (2008) 302 ITR 246 (P&H) and (A) Maddi Sudarsanam Oil Mills Co. vs. CIT, (1959) 37 ITR 369 (AP) for this proposition.
11. The Ld. Departmental Representative for the Revenue, on the other hand, relied upon the order of the Assessing Officer and submitted that the CIT(A) was not justified at all in substituting the estimation of net profit @ 1% of the turnover done by Assessing Officer to gross profit @ 10.13% with reference to subsequent year's gross profit in view of the clear trend available in the earlier years. The Ld. Departmental Representative submitted that the when the books of account are not reliable and rejected by both the authorities, the CIT(A) ought to have not interfered with the order of the Assessing Officer in estimating of profit which is just and fair in the facts and circumstances of the case. As regards another addition under section 68 of the Act, the Ld. Departmental Representative submitted that the CIT(A) has wrongly placed reliance on the averments of the assessee that the cash introduced in the capital account should be taken as out of the excess stock sold subsequently as found during the survey was without any evidence in this regard. The Ld. Departmental Representative also relied upon the decision of the Hon'ble Andhra Pradesh High Court in the case of CIT vs. Maduri Rajaiahgari Kistaish, 120 ITR 294 (AP) and submitted that section 68 of the Act has been rightly applied in the facts and the decision of Hon'ble Punjab and Haryana 13 ITA No.692/PN/2007 ITA No.892/PN/2007 High Court relied upon by the assessee has not application in the facts of the case.
12. We have carefully considered the rival submissions, orders of the authorities below and case laws cited at Bar. The first issue involves rejection of books of account by resorting to section 145 and estimation of figure of the turnover and net profits thereof. Pursuant to survey operation, the assessee has declared a profit of Rs.22,24,360/- as noted above. Thereafter, the return of income was filed wherein loss of Rs.14,77,294/- was declared from business activities which was sought to be set-off against the unreported profit declared during the time of survey and consequently a net profit of Rs.9,39,070/- only was offered for taxation purpose. We observe that the Assessing Officer has made detailed enquiries and pointed out specific discrepancies as recorded in the assessment order and also noted above in this order. We also notice that undeclared excess stock found at the time of survey has been accepted by the assessee. The difference in the balances in the books of account of the assessee vis-à-vis the supplier was also recorded by the Assessing Officer. The Assessing Officer returned his finding on several expenses which are not comparable with the sale declared by the assessee qua the earlier years. We find that the observations of the Assessing Officer on the comparison in expenses like octroi loading and unloading charges, etc. as noted above cast aspersions on the correctness of the books of account prepared by the assessee. Coupled with these facts, the incompleteness of books of account and non- production of books of account at the time of survey by the assessee has remained uncontroverted. In the light of these facts and circumstances, we find that the Assessing Officer was fully justified in rejecting the books of account and resorting to estimation of turnover and income thereon. We find that the Assessing Officer has estimated a net profit @ 1% on the estimated turnover on 1.5 crore which is in sync with the net profit declared in the past several years and is also just and fair having regard to retail nature of business as claimed. Therefore, we find force in the contention of the Assessing Officer that declaration of business loss during this year was only intended to set-off 14 ITA No.692/PN/2007 ITA No.892/PN/2007 unexplained income detected at the time of survey. The CIT(A), in our view, has made incorrect observations that the overhead expenses as noted by the Assessing Officer are more or less fixed in nature and will not vary with the increase or decrease of the turnover and therefore gross profit rate inspite of net profit rate should have been applied. We are of the view that there is no rationale in the opinion of the CIT(A) that gross profit rate of the subsequent year should be taken as a basis instead of relying on net profit rates of the previous years in the facts and circumstances existing in the case. On the face of multiple defects in the quantum of expenses booked qua the turnover, variance in the account of the supplier, excess stock found at the time of search and consistent profit rates in the earlier years, absence of quantitative details at the time of survey, non-production of books of account at the time of survey, etc. hold adequately against the assessee. We, therefore, uphold the view taken by the Assessing Officer that 1% of the turnover is just and reasonable business profit of the assessee as against the business loss declared by the assessee. Accordingly, we set-aside the directions of the CIT(A) in this regard and uphold the order of the Assessing Officer. Accordingly, the Ground No.1 to 3 of the assessee's appeal are dismissed and Ground No.1 and 2 of the Revenue's appeal are allowed.
13. As regards second issue of addition under section 68 of the Act alongside the rejection of books of account and estimation of profit thereon, we are in agreement with the Revenue in principle that there is no bar of invoking section 68 of the Act per se simply because profit has been estimated by rejecting the books of account. However, on facts, we find that the CIT(A) has objectively approached the issue and after proper analysis of the facts has arrived at a finding and has granted partial relief of Rs.12,42,160/- and confirmed the balance amount of Rs.4,44,434/- as per his observations noted above in para no. 7.2. Once on facts, it is admitted that excess stock of Rs.13,24,160/- found at the time of survey, the sale thereof gives justifiable explanation of source of cash introduced in the capital account as analyzed by the CIT(A). Therefore, objection raised by the Revenue is not justified. Thus, 15 ITA No.692/PN/2007 ITA No.892/PN/2007 we do not find any infirmity in the observations of the CIT(A) with regard to this issue and accordingly decline to interfere with his findings. In the result, Ground No.4 of the appeal of the assessee is dismissed and Ground No.3 of the Revenue's appeal is also dismissed.
14. Resultantly, appeal of the assessee is dismissed and the appeal of the Revenue is partly allowed.
Order pronounced on this 29th day of January, 2016.
Sd/- Sd/-
(SUSHMA CHOWLA) (PRADIP KUMAR KEDIA)
या यक सद य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER
पुणे Pune; दनांक Dated : 29th January, 2016.
सज
ु ीत
आदे श क& त(ल)प अ*े)षत/Copy of the order is forwarded to :
1) The Assessee;
2) The Department;
3) The CIT(A), Kolhapur;
4) The CIT-II, Kolhapur;
5) The DR "A" Bench, I.T.A.T., Pune;
6) Guard File.
आदे शानस
ु ार/ BY ORDER,
स या पत त //True Copy//
व र ठ नजी स"चव / Sr. Private Secretary
आयकर अपील य अ"धकरण, पण
ु े / ITAT, Pune