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Income Tax Appellate Tribunal - Delhi

Acit, New Delhi vs M/S. The Installment Supply Ltd., New ... on 24 March, 2017

       IN THE INCOME TAX APPELLATE TRIBUNAL
             DELHI BENCH "D", NEW DELHI
     BEFORE SH. R. K. PANDA, ACCOUNTANT MEMBER
                         AND
        SMT. BEENA A. PILLAI, JUDICIAL MEMBER

                         ITA No. 2401/Del/2012
                       (Assessment Year: 2007-08)
ACIT                                The Installment Supply Ltd.
Circle-16(1)                    Vs. 46, Janpath
New Delhi                           New Delhi
                                    PAN : AAACT0060G
         (Appellant)                            (Respondent)

      Revenue/Department by :        Sh. Umesh Chand Dubey, Sr.DR
      Assessee by           :        Sh. Barun Kumar, CA
      Date of hearing       :        28.02.2017
      Date of pronouncement :        24.03.2017

                            ORDER

PER BEENA A. PILLAI, J.M :

1. The present appeal has been filed by revenue against order dated 29.02.2012 passed by Ld. CIT (A)-XII2, New Delhi for assessment year 2007-08 on following grounds of appeal:

1. "On the facts and in the circumstances of the case and in law the learned CIT (A) erred in deleting the addition of Rs.83,85,200/- on a/c of commission received, without appreciating that the commission income had a steep fall but the expenses on cartage inward had increased."

2. "On the facts and in the circumstances of the case and in law the learned CIT (A) erred in deleting an addition of Rs.68,01,864/- as advance received from customers."

2.1 "On the facts and in the circumstances of the case and in law the learned CIT (A) erred in deleting addition of Rs.68,01,864/- without appreciating that 2 ITA No. 2401/Del/2012 this was in the nature of public deposit which the assessee was not allowed to take as per RBI guidelines and as per the advice of its own Chartered Accountant."

3. "On the facts and in the circumstances of the case and in law the learned CIT (A) erred in deleting an addition of Rs. 86,84,062/- made as a disallowance out of various expenses without appreciating that there was no abnormal increase in the claim of the expenses and that the assessee was not able prove that the increase was for tin-purpose of business."

4. "The appellant craves leave for reserving the right to amend, modify, alter, add or forego, any ground(s) of appeal at any time before or during the hearing of appeal."

2. Brief facts of the case are as under:

The assessee filed its return of income on 15.11.2007 declaring a total income of rupees nail. However, it has been recorded in the assessment order that the return was not based on the audited profit and loss account because the accounts of the assessee were not audited before filing of return of income. Thereafter, books of accounts were finalized and audit report was prepared as on 30.05.2008. Subsequently the assessee filed revised return of income on 26.11.2008 again declaring nil income. However, before filing revised return of income the case of assessee was selected under scrutiny and statutory notice under section 143(2) of the Act was issued and served upon. Questionnaire alongwith notice under section 142 (1) of the Act was served, in reply to which assessee from time to time furnished written submissions, including books of accounts, bills and vouchers, bank statements which were put to test check and discussed by Ld. AO.

3. During assessment proceedings Ld. AO observed that assessee was engaged in business of hire purchase, leasing at its Head Office at Delhi and Dealership of Tata Commercial vehicles and also operating the service centre for commercial vehicles for Tata Motors Ltd., at Meerut and Saharanpur, under name and style of "Bahadur Motors". Assessing Officer completed assessment by making an addition of Rs.3,27,20,562/- in the hands of assessee.

4. Aggrieved by additions made assessee preferred appeal before Ld. CIT(A), who deleted the additions and granted substantial relief to assessee.

5. Aggrieved by order of Ld. CIT(A), revenue is in appeal before us now. However, it has been submitted that in terms of additions that has been confirmed by Ld. CIT(A) assessee is not in appeal.

6. At the outset Ld. DR has submitted that assessee has not substantiated with any bills and vouchers in respect of expenditure claimed. Ld. DR submitted that audit report conducted by internal auditors, expresses various irregularities in the books of accounts maintained by assessee. He submitted that turnover has decreased but carriage expenses has increased. Ld. DR further submitted that there was no details that were produced before internal auditors regarding commission and discount received from Tata Motors by assessee. Ld. DR submitted that assessing officer has rightly added difference in the commission and discount as compared to previous year to income of assessee. In respect of sundry creditors Ld. DR submitted that assessee 4 ITA No. 2401/Del/2012 has not been able to establish the credit entries in books of accounts and has not given any details regarding creditors. He submitted that assessing officer was right in not considering such advances as real and genuine and creditworthy. He submitted that assessee has shown liability towards vehicle amounting to Rs.68,01,864/- but has not supplied vehicles as according to him vehicles were available in closing stock of assessee.

7. Ld. DR thus submitted that assessing officer has rightly rejected books of account and estimated income on the basis of the gross profit of the previous year. He submitted that as the income, as well as the expenditure, recorded by assessee in its books of accounts was not supported by proper vouchers, bills assessing officer has conducted comparative study of previous year in assessee's case with that of the year under consideration which cannot be faulted with.

8. On the contrary Ld. AR submitted that addition made by Ld. AO on account of commission and discount should be deleted as Ld. AO has completely ignored trading account of Bahadur Motors which has been reproduced by assessing officer at page 18 of assessment order. It has been submitted that assessee had incurred loss in previous assessment year whereas for the year under consideration assessee has earned income of Rs.96,19,960/-. Further Ld. AR submitted that assessing officer has made addition without establishing that assessee received commission and discount more than recorded in books. He thus places reliance upon decision of Ld. CIT(A).

9. We have perused findings of Ld. CIT(A) in the light of submissions advanced by both sides and records placed before us.

10. It is observed that assessing officer has made disallowance based on irregularities pointed out by internal auditors in audit report. On perusal of audit report it is observed that assessee has not substantiated any of its claim, expenses or commission received with proper bills, vouchers or any other such document. We shall reproduce here relevant observation by internal auditors, pertaining to issues raised by revenue before us, more particularly placed at pages 72 to 83 of the paper book:

"4.10 No reconciliation/analysis/confirmation of balances in various accounts with Tata Motors showing a net debit balance of Rs.73.32 lacs were made available to us. We have been provided with letter dated December, 2007 from Tata Motor Finance where Tata Motors have stated that for the period April, 206 to September, 2006, Rs. 11.26 lacs are due to them. Neither statement for the period October 2006 to March, 2007 nor any reconciliation for the amount claimed by Tata Motors was made available to us. Under these circumstances it is not possible to ascertain whether the commission income due from Tata Motors has been accounted for during the year 2006-07."

"4.13. The internal auditors of the Company have also reported irregularities towards payments and accounting for expenses at the Head Office and the Meerut Workshop and among other things, have reported that:

a) Amounts aggregating to Rs.18.34 lacs had been charged under various workshop expenses at Bahadur Motors Meerut on the strength of invoices / bills of parties generated from workshops own 6 ITA No. 2401/Del/2012 computer system at Meerut during the period April, 2006 to March, 2007.

b) An expenditure of Rs.10.80 lacs has been accounted for relating to repairs of new vehicles and supporting documents were similar to self generated invoice / bills mentioned in (a) above in most of the cases.

c) There were irregularities in payment of discount to customers amounting to Rs.12.21 lacs resulting in loss to the Company.

d) Siphoning of income in the absence of internal controls specially relating to job cards for repair work.

e) Destruction of certain records pertaining to payments to temporary workers.

f) Camouflaging leading to falsification by accounting for payments to temporary workers and booking the expenses under other heads of accounts."

11. It has been argued by Ld.AR that once books of accounts are rejected and gross profit has been calculated, no separate addition should be made. He placed is reliance upon decision of Hon'ble Andhra Pradesh High Court in the case of Madi Sundaram Mills Co Ltd vs. CIT reported in 32 ITR 369. He submitted that once the gross profit has been estimated by assessing officer based on total turnover, then assessing officer cannot rely upon rejected books of accounts in terms of cash credits for making further addition. We agree with contention of Ld. AR that by making addition in respect of cash credits, after rejecting books of accounts, would amount to double taxation of certain items. However, assessing officer has rejected books of account based on irregularities and infirmities recorded by internal auditors in audit report.

Further it is observed from order of Ld. CIT(A) that even Ld. CIT(A) has not himself verified any of credit entries under head sundry creditors amounting to Rs.68,01,864/-, alleged commission income earned and discount received amounting to Rs.83,85,200/- and expenses under head other expenses amounting to Rs.86,84,062/-. We are, therefore, inclined to set aside this issue is back to file of Ld. AO for a suo motu verification of these entries in books of accounts. Ld. AO shall take into consideration all documents that may be filed by assessee to establish its claim and may verify to his satisfaction as per law regarding the identity, creditworthiness, and genuineness of the transaction in respect of credit entries. Assessee is directed to furnish all the necessary details like bills/vouchers/discount coupons etc., before Ld. AO for purposes of adjudication of these grounds. Needless to say that Ld. AO shall give proper opportunity to assessee as per law.

Accordingly the grounds raised by revenue stands allowed for statistical purposes.

In the result appeal filed by the revenue stands allowed for statistical purposes.

Order pronounced in the open court on 24th March, 2017.

     Sd/-                                        Sd/-
 (R. K.PANDA)                             (BEENA A. PILLAI)
ACCOUNTANT MEMBER                         JUDICIAL MEMBER
Date:24.03.2017
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