Income Tax Appellate Tribunal - Jaipur
Assistant Commissioner Of Income Tax vs M.M. Sales Agencies [Alongwith It(Ss)A ... on 5 August, 2004
Equivalent citations: (2005)97TTJ(JP)575
ORDER
B.L. Khatri, A.M.
1. The Revenue has filed the above-captioned appeals against the orders of the learned CIT(A), Kota, dt. 29th Nov., 2002, in the case of M/s M.M. Sales Agencies and 17th Oct., 2002, in the case of M/s M.M. Enterprises for the block period 1989-90 to 1999-2000 (upto 24th Feb., 1999). These appeals involve common grounds of appeal and these appeals are of two sister-concerns. For the sake of convenience, these appeals were heard together and are being decided by this consolidated order.
2. Ground Nos. 1 and 2 in both the appeals are common, which relate to deletion of addition of Rs. 9,82,741 made on account of undisclosed excess stock found during the course of search operation. The AO made this addition on substantive basis in the case of M/s M.M. Sales Agencies and on protective basis in the case of M/s M.M. Enterprises.
3. The brief facts of the case are that in this group, search was conducted on 24th Feb., 1999. On the basis of the inventory prepared of the stock found during the course of search, the AO worked out the excess stock of Rs. 9,82,741 on the basis of the trading account prepared by him. He worked out closing stock of M/s M.M. Sales Agencies at Rs. 39,34,119 and closing stock of M/s M.M. Enterprises at Rs. 73,120, totalling to Rs. 40,07,239, whereas actual stock found in both the concerns was of Rs. 49,89,980 as per details given in the assessment order. Thus, the addition of Rs. 9,82,741 was made by the AO for excess stock. The AO could not work out excess stock separately of these two concerns as the stock of both the concerns was mixed.
4. The learned CIT(A), after taking into account the purchases of Rs. 12,36,021, had deleted this addition made by the AO on account of excess stock. The Revenue is aggrieved against this order of learned CIT(A).
5. We heard the rival submissions and also perused the record. We find that the AO had worked out excess stock of Rs. '9,81,741. However, the learned Authorised Representative submitted that while working out the excess stock, the AO had not taken into account the purchases of Rs. 12,36,021. During the" course of search, Shri M.M. Bagree, partner of M.M. Enterprises, was confronted on this point of excess stock, who stated that these concerns have also made some more purchases for which bills were available at the residence/business premises, but these purchase bills were not seized by the Department. He stated that some variation may be due to discount and replacement of defective items. The AO has not allowed the benefit of these purchases for the reasons that the bills of these purchases were not found or seized during the course of search. During the course of assessment, the assessee submitted the list of bills and the purchases are supported by GRs of the transport companies. Copies of purchase invoices, builty, proof of the delivery of goods by transport companies have been filed. Further, the list of rate difference, goods in transit, stock replacement was filed.
6. The learned CIT(A), on, the basis of above arguments and evidence, has rightly held that the AO was not justified in not taking into account the purchases of Rs. 12,36,021. If the purchases are taken into account, there would be a shortage of Rs. 4,10,574 and assessee's sister-concern, M/s M.M. Enterprises, had already declared and disclosed profit @ 6 per cent on shortage of stock of Rs. 4,10,574. Therefore, the learned CIT(A) has rightly deleted the addition made in the hands of both the concerns after appreciation of the facts of the case and evidence on record. Therefore, we do not find any infirmity in the order of the learned CIT(A).
7. Ground Nos. 3, 4 and 5 are common in both the appeals, which relate to :
(i) Reducing of addition of Rs. 2,60,764 in the case of M/s M.M. Sales Agencies and Rs. 2,20,643 in the case of M/s M.M. Enterprises made on account of profit earned on unaccounted sales and undisclosed investment for the unaccounted transactions.
(ii) Directing the AO to work out the unaccounted sales only for the years in respect of which the unaccounted sales were found noted from the seized documents.
(iii) Directing the AO to apply profit rate of 5.5 per cent in place of the profit rate applied at 10 per cent
8. During the course of search in the case of M/s M.M. Sales Agencies for the asst. yr. 1997-98, actual sales for the part period of the year was worked out to Rs. 97,855 which has been estimated by the AO at Rs. 6,11,220, which is not disputed by the assessee and the sales for the asst. yrs. 1998-99 and 1999-2000 taken at Rs. 10,23,028 and at Rs. 12,77,595 are also not being disputed by the assessee. The dispute is only with regard to the estimation of sales for the period 1989-90 to 1996-97 for which no incriminating documents were seized. Similarly, in the case of M/s M.M. Enterprises, there is no dispute regarding the sales determined/estimated for the asst. yrs. 1997-98 to 1999-2000. The dispute is only with regard to the estimation of sales for the years 1989-90 to 1996-97, for which no document or information regarding unaccounted sales even for part of the year was found and seized. We agree with the view of the learned CIT(A) that the sales are to be taken on the basis of the seized documents and the sales are to be estimated only for the year for which the information or document had been found and seized for a part period of the accounting period. No sales can be estimated where no information at all had been obtained during the course of search and no information is available on the basis of the seized record that the assessee had indulged in out of the books transaction for a part of the year. For these years, the sales cannot be estimated. Thus, we find no infirmity in the order of the learned CIT(A) in both the cases.
9. The second issue is regarding application of GP rate for both the cases. The learned CIT(A) has concluded that AO applied the GP rate of 10 per cent without any basis. The actual GP rate on the basis of the documents for the year under appeal comes to 5.5 per cent, whereas the assessee itself declared GP rate of 6 per cent on these unrecorded sales. We find no infirmity in the order of the learned CIT(A) in this regard.
10. The third issue is regarding estimation of investment in the unrecorded purchases for making the unrecorded sales.
11. First of all, the learned CIT(A) has rightly held that the income is to be estimated only for the years for which the information was found on the basis of the seized documents for whole of the year or for a part of the year. Therefore, the investment is to be estimated only for the asst. yrs. 1997-98 to 1999-2000.
12. We have heard the rival submissions and also perused the record. We find from the perusal of the order of the learned CIT(A) that from p. 30, the learned CIT(A) has reproduced the extract from the reply of the assessee filed through letter dt. 20th July, 2001 :
"The assessee-firm purchased goods on credit during the financial years 1996-97 to 1998-99 (upto 24th Feb., 1999). As per documents seized by the Department and forming part of Annex. 'A' of such documents, page Nos. 19, 96 to 109 show that the goods have been purchased on credit as the outstanding balance of Rs. 2,09,425 is written and then the payment made thereafter is reduced from total outstanding. Therefore, it shows that the payments have been made after sale of goods by the assessee-firm and no investment for purchase of goods was made by the assessee-firm. Similarly, page Nos. 139 and 140 of Annex. 'A' which contain summary transaction of page Nos. 133 to 139 also show that goods worth Rs. 4,99,000 have been purchased on credit in the month of November, 1997, and payments against such purchases commenced from December, 1997, to June, 1998, in petty amount of Rs. 20,000 to Rs. 40,000 in cash. In this case also, there is no investment made by the assessee-firm for the purchase of goods during financial years 1997-98 and 1998-99. In the same way transaction of goods purchased as appearing on page Nos. 152 to 154, 162 to 165 of Annex. 'A' and page Nos. 91, 72 and 73 of Annex. 'AC' shows that such goods are on credit from the parties and payments in cash have been made later on after realization of sales. Except such transactions, petty purchases have been made in cash only by the assessee-firm. This fact may be verified from the seized documents lying with your goodself. Even then, the assessee has disclosed additional income, statement of which is enclosed herewith, considering the investment for carrying out transactions out of books. Details of computation of undisclosed income is enclosed herewith."
It is clear from the perusal of the reply of the assessee that this is the case of credit purchases and the payment for the credit purchases was made after effecting the sales. No investment was required. Secondly, the learned Authorised Representative has rightly placed reliance on the case of Laduram Tarachand v. Dy. CIT 27 Tax World 194. In this judgment, this Bench of the Tribunal has held that unexplained investment in the purchase can be worked out in the ratio of capital to purchases on the basis of recorded purchases and the capital. We find that on the basis of this judgment, the assessee has already declared unexplained investment for the relevant year. Therefore, the learned CIT(A) has rightly held that no addition for unexplained investment can be made in both the cases. Therefore, we decline to interfere with the order of the learned CIT(A) in both the cases.
13. Ground No. 6 in the case of M/s M.M. Sales Agencies and ground No. 7 in the case of M/s M.M. Enterprises are common regarding directing the AO not to charge interest under Section 158BFA(1) upto the period 19th March, 2000, in the case of M/s M.M. Sales Agencies and not to charge interest under this section upto 12th March, 2000, in the case of M/s M.M. Enterprises.
14. We have heard the rival parties. We are of the opinion that no interest should be charged under Section 158BFA(1) upto the date of supply of photostat copies of the seized documents as this delay is not attributable to the assessee. This ground is restored to the AO for determination of interest payable, if any, after verification from the records.
15. In the result, both the appeals filed by the Revenue are partly allowed.