Income Tax Appellate Tribunal - Chandigarh
Pearl Mech. Engg. And Foundry Works (P.) ... vs Income-Tax Officer on 27 May, 1992
Equivalent citations: [1993]45ITD393(CHD)
ORDER
R.K. Bali, Accountant Member
1. These are two cross-appeals, one by the assessee and the other by the Department, relating to the same assessee, for assessment year 1980-81. They are, therefore, disposed of by a common order, for the sake of convenience.
2. ITA No. 868 is by the assessee, in which five grounds are taken. At the start, of the proceedings before us, Sh. Subhash Aggarwal, ld. Representative of the assessee, submitted that he did not want to press any other ground, except ground No. 1 relating to the addition of Rs. 1,11,000. Accordingly, ground Nos. 2, 3 and 4 are dismissed as having not been pressed.
3. The only ground argued by Sh. Aggarwal relates to the addition of Rs. 1,11,000 made by the Assessing Officer as income from undisclosed sources. The addition has been made by the Assessing Officer on account of various defects in the accounts detected by him, as mentioned in paras 3 to 9 of the assessment order. The Assessing Officer during the course of assessment proceedings found that the g.p. declared this year was very low in comparison to the g.p. of last year, although the job work receipts this year were declared at Rs. 1,98,485, as against Rs. 90,532 of the last year. The Assessing Officer also found that the sales were declared at Rs. 5,65,065 only, as against Rs. 13,52,860 of the last year. Besides, the Assessing Officer found that in the list of closing stock furnished, the assessee has not declared any consumable stores like coal and fire-wood, lubricants, although it was not possible for the assessee to have consumed the entire coal and lubricant by the end of the accounting year. The Assessing Officer also found that in the inventory of closing stock, no 'work in progress' was shown and the value of unfinished and finished items of machinery were taken at their material cost only and no value addition on account of labour cost and other raw material consumed, was taken into consideration. Accordingly, he held that the g.p. rate declared by the assessee being low and the accounts being not properly maintained the profit was to be estimated by taking the sales at Rs. 7,70,000 and a g.p. of 20 per cent was to be applied, which would result into an addition of Rs. 61,939.
4. The Assessing Officer also found that the assessee had declared four sales of machineries, as mentioned in para 9 of the assessment order, amounting to Rs. 1,11,000, on account of cash sales. On a specific query from the Assessing Officer, the assessee could not furnish the names and addresses of the persons as well as the challan/gate pass as also the mode of transport of these four machineries sold by the assessee and accordingly the Assessing Officer concluded that these sales were fictitious and the assessee has introduced his undisclosed income amounting to Rs. 1,11,000 in the garb of cash sales, which was necessary to meet the urgent need of cash for payment of unpaid wages and other dues which the assessee was obliged to make to the Punjab National Bank as well as other related business expenses.
5. The assessee objected to the above two additions in proceedings under Section 144B before the IAC (Central) and pleaded that in case the addition of Rs. 1,11,000 was to be sustained on the ground that sales of Rs. 1,11,000 included in the sale account were not admitted by the Department to be real sales, then g.p. rate on the reduced sales would come to normal figure and should be accepted, in view of the past history of the case, where the g.p. rate of 20 per cent was being declared. The IAC(C), while giving directions under Section 144B, directed that this contention of the assessee was accepted and the g.p. rate addition would be limited to the total addition of Rs. 1,11,000.
6. On appeal, the ld. first appellate authority confirmed the addition, as per the reasoning given in paras 3 to 3.3 of the impugned order.
7. During the course of hearing before us, Sh. Aggarwal submitted that the Assessing Officer as well as the ld. first appellate authority were not justified in making/confirming the addition of Rs. 1,11,000. It was submitted that there was no bar in law against making cash sales and the assessee is not obliged to mention in the cash memos the names and addresses of the purchasers. It was submitted that, even if for argument's sake, it is accepted that Rs. 1,11,000 represented cash introduced by the assessee in the garb of fictitious cash sales, even then the amount has been subjected to tax, as these sales formed a part of credit to the trading-cum-manufacturing account and have been included in the profits declared by the assessee.
8. Sh. M.S. Bhatia, ld. D.R. supported the orders of the authorities below and specifically submitted that the alleged cash sales were shown by the assessee at the time when the assessee was in dire necessity of cash for making urgent payments to labour etc. It was argued by Sh. Bhatia that the sale of machineries as depicted in para 9 of the assessment order as well as in para 3.3 of the impugned order, will be a permanent asset in the hands of the buyer, who will require it for use in their manufacturing process and the buyer has to identify the machineries with itself for claiming the benefits like depreciation/investment allowance from the Department. It was pleaded that the amount involved in these four sales was quite substantial and it would not have been difficult for the assessee to obtain the names of the buyer/s and furnish it to the Assessing Officer. Accordingly, it was pleaded that the alleged cash sales of Rs. 1,11,000 were in fact fictitious sales, which were used by the assessee to introduce its undisclosed income to tide over its financial difficulties. Accordingly, he submitted that the Assessing Officer as well as the ld. first appellate authority were perfectly justified in making/confirming the addition of Rs. 1,11,000.
9. We have considered the rival submissions. In this connection, it will be quite relevant to reproduce para 3 of the directions issued by the IAC(C) after hearing the objections of the assessee to the draft assessment order, which brings out the case of the Assessing Officer as well as the stand taken by the assessee :
The ITO's proposed action to add Rs. 1,11,000 is the next objection. Here the assessee claims to have sold during the year gill box and other old machinery coming from 1973 in incomplete form. The ITO has pointed out that no spare-parts, raw material cost or any repair exp. has been debited by the assessee to make the machinery fit for sale. The ITO has also pointed out that no sale bills in any particular name have been issued by the assessee, although the sale price is Rs. 49,000, Rs. 50,000 and so on. The entire amount is supposed to have been received in cash and there is no evidence as to who was the purchaser for these specialised items of machinery and how the machinery was transported and removed from the assessee's premises. There is no gate-pass produced by the assessee nor any other evidence to show that the machinery was actually sold, has been produced. On these grounds, the ITO has held that the assessee has introduced a sum of Rs. 1,11,000 in his books in the garb of sale and has utilised this cash amount also. The assessee has not added anything to the evidence at the time of argument before me during the proceedings under Section 144B and, therefore, the ITO's action is approved.
The assessee has, however, taken the alternative plea that, if the sum of Rs. 1,11,000 is not a sale, then the g.p. rate on the reduced sales will become normal and should be accepted in view of the past history of the case where the g.p. rate of 20 to 26 per cent was being declared. This contention of the assessee is acceptable and the ITO shall make the g.p. rate addition, keeping in view the assessee's contention but shall limit the total addition on these two points to Rs. 1,11,000 alone.
A reading of the above paragraph clearly indicates that although the assessee objected to the addition of Rs. 1,11,000 before the IAC(C), which was proposed by the Assessing Officer on account of fictitious cash sales of machineries, yet subsequently he took the alternative plea that, if the sum of Rs. 1,11,000 is not a sale, then the g.p. rate on the reduced sales would be in accordance with the past history of the case and as such no g.p. rate addition should be made. This plea of the assessee was accepted by the IAC(C), who directed that the g.p. rate addition should be limited to the total addition of Rs. 1,11,000. In this view of the matter, we are of the opinion that the Assessing Officer as well as the ld. first appellate authority were perfectly justified in making/sustaining the addition of Rs. 1,11,000, whose action is upheld. Accordingly, this ground of appeal is decided against the assessee.
10. In the result, the appeal filed by the assessee is dismissed.
11. Coming to the appeal of the revenue in ITA No. 892, following substantive ground has been raised :
On the facts and in the circumstances of the case, the Id CFT (Appeals) has erred in directing the assessing authority to adopt the valuation of the property sold by the assessee at Rs. 10,05,000 as against Rs. 18,54,976 adopted by the assessing authority for the purpose of calculating profit under Section 41(2) and the capital gains.
This aspect of the case has been discussed by the Assessing Officer in para 10 of the assessment order. The facts, briefly, are that the assessee sold a part of land measuring 9230 sq. yd. and factory building thereon for a consideration of Rs. 10,05,000 vide registered sale deed No. 5015 dated 5-2-1980 to M/s Oswal Woollen Mills. Acquisition proceedings were started by the IAC against the purchaser and the valuation of this property was referred to the Government valuer, who estimated the fair market value of the property at Rs. 18,31,000 on the date of sale. Accordingly the competent authority - IAC (Acq.) passed order for acquiring the property.
The vendee went in appeal against this order before the ITAT, which cancelled the order, accepting the estimate made by the registered valuer M/s Nut and Jawanda, who estimated the value of the property at Rs. 9,98,334 vide report dated 14-9-1981, vide order dated 16-8-1982. The Department went in appeal before the High Court against the order of the ITAT. Since the decision of the ITAT has been challenged in appeal by the Revenue before the High Court, the Assessing Officer calculated the profit under Section 41(2) as well as capital gains on the basis of valuation done by the Government valuer in respect of land and factory building sold by the assessee and the ld. first appellate authority deleted the addition, in view of the fact that the order passed by the competent authority has been cancelled by the ITAT.
12. We don't find any infirmity in the order passed by the ld. first appellate authority and we uphold the same, except with the rider that as and when the appeal filed by the Department against the order of the ITAT in acquisition case is decided by the Hon'ble High Court, this order should also be modified in accordance with and as per the directions of the Hon'ble High Court, relating to acquisition proceedings in respect of the land as well as factory building, which has been sold by the assessee to M/s Oswal Woollen Mills.
13. In the result, the appeal filed by the Revenue is accordingly disposed of as above.