Income Tax Appellate Tribunal - Chandigarh
Bansal Generations Ltd., Chandigarh vs Assessee on 10 September, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIG ARH BENCH 'B', CHANDIG ARH
BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER AND
Ms. SUSHMA CHOWLA, JUDICI AL MEMBER
ITA No. 1158/Chd/2013
Assessment Years : 2010-11
M/s Bansal Generations V A.C.I.T. Circle 4(1)
Ltd. SCO 171, F.F Chandigarh
Sector 38-C
Chandigarh
AABCB 8974E
ITA No. 113/Chd/2014
Assessment Years : 2010-11
D.C.I.T. Circle 4(1) V M/s Bansal Generations
Chandigarh Ltd. SCO 171, F.F
Sector 38-C
Chandigarh
AABCB 8974E
(Appellant) (Respondent)
Appellant by: Shri Ajay Jain
Respondent by: Shri Amarveer Singh
Date of hearing 7.8.2014
Date of Pronouncement 10.9.2014
O R D E R
PER T.R. SOOD, A.M
These are cross appeals and are directed against the order dated 28.11.2013 of the Ld CIT(A), Chandigarh. I T A N o . 1 1 5 8 / C h d / 2 0 1 3 - As s e s s e e ' s a p p e a l
2. In this appeal the assessee has raised the following grounds:
"1 That the Ld. CIT(A), Chandigarh has wrongly confirmed the addition of Rs. 279,70,000 on account of deposit made in various bank accounts without appreciating the fact that all transactions are duly recorded in the books of account and all banks are also reflected in the balance sheet and he also failed to appreciate the fact that the appellate has disclosed additional income of Rs. 275,00,000/- during the course of survey which was duly reflected in profit and loss account under the head Other income.
2 That the Ld. CIT(A) has erred by not allowing the carried forward losses of business loss of Rs. 116,51,823/- for the assessm ent year 2009-10 against the incom e of year under 2 consideration without appreciating the fact that the appellant has no income under the head income from other sources."
3 Out of above grounds, ground No. 2 was not pressed before us, therefore same is dismissed as not pressed. 4 After hearing both the parties we find that a survey was conducted in the premises of the assessee. During survey certain documents were found and confronted to the assessee and ultimately a sum of Rs. 3.50 crores was surrendered during the survey. During assessment proceedings the Assessing Officer noticed that the assessee has deposited cash amounting to Rs. 279,70,000/- as per following details:
Date Bank Name Amount (Rs.)
29.12.2009 UCO Bank 7,00,000
1.2.2010 UCO Bank 50,00,000
1.2.2010 Punjab National Bank 25,00,000
5.3.2010 -do- 25,00,000
6.3.2010 -do- 30,00,000
12.3.2010 State Bank of Patiala 11,00,000
17.3.2010 UCO Bank 40,00,000
17.3.2010 State Bank of Patiala 11,50,000
19.3.2010 UCO Bank 40,00,000
23.3.2010 UCO Bank 19,50,000
29.3.2010 UCO Bank 20,00,000
29.3.2010 State Bank of Patiala 70,000
Total 279,70,000
The assessee was asked to furnish the sources of cash
deposited and vide written submissions dated 23.2.2012 it was stated it is the amount deposited which was disclosed as surrendered amount during the time of survey. The Assessing Officer was not satisfied and asked the assessee to give sources and similar reply was given on two more occasions. The Assessing Officer did not find force in the submissions and observed that there was no evidence to show that the advances made by the assessee have been returned in cash. Surrender was made on the basis of that the sundry advances were paid 3 out of the books and certain additions to building were made outside the accounts. Since the assessee has failed to give details why the advances were returned by the parties to whom such advances were given, therefore sum of Rs. 279,70,000 was added to the income of the assessee.
5 On appeal before the Ld. CIT(A) the written submissions were filed which have been extracted by the Ld. CIT(A) at para 4.2 which is as under:
"The appellant company has made deposit after survey in Bank accounts out of additional income disclosed during the course of survey. T he com pan y has disclosed Rs. 275 lak hs under the head "Advances and im prest" at the tim e of survey and the same has been recorded in the books of account. This advances and imprest balance has been duly recorded and in ordinary course of affairs, same was utilized including deposit in bank accounts.
The Assessing Officer failed to appreciate the fact that appellant company has already shown additional income of Rs. 275 lakhs surrendered in profit and loss account under the head Other income & against added while calculated the Taxable income.
Further to bring into your k ind notice that the Assessing Off icer did not applied his mind by disallowing all the cash deposits in the bank including cash generated from cash sales as well as earlier withdrawals from the bank itself. Because of the fact the LAO disallowed all the cash deposits of Rs. 279.70 lakhs (Rs. 275 lakhs surrendered on account of sundry advances at the time of survey and Rs. 4.70 lakhs generated on account of cash sales and cash withdrawals from banks on earlier dates).
a) All Banks accounts i.e. UCO, PNB and SBOP are duly recorded in books of account.
b) That the Assessing Officer has wrongly made addition of Rs.
279,70,000 on account of deposit made in various bank accounts without appreciating the fact that all transaction are duly recorded in the books of account and bank is also reflected in the balance sheet.
c) The assessee is maintaining complete books of account and same have been produced during the course of assessment proceedings and all transaction including cash deposits in all banks has been reflected in the books of account.
d) All Bank accounts are regular bank accounts which is reflected in the books of account and therefore all entries of cash deposits have been made out of cash in hands available on day to day basis.
e) The observation of Assessing Officer clearly reveals that the Assessing Officer did not differentiate the bank account reflected in the books of account viz-a-viz bank account not recorded in the books of account.
f) In case the bank account is duly reflected in the books of accounts it does not require any further explanation in the 4 circumstances when the books of account are accepted by the Assessing Officer."
The Ld. CIT(A) examined these submissions and did not find force in the same and dismissed the appeal of the assessee vide para 4.3, 4,3,1 and 4.3.2 which are as under:
"4.3 I have considered the submissions of the appellant. I have also gone through the assessment records. A perusal of the order sheet of the assessment record reveals that the Assessing Officer had asked the appellant to furnish the details of cash deposits and the appellant, instead of submitting the details, had only replied that the deposits were on account of amounts surrendered during survey and represented realization from persons to whom advances were given. During the course of appellate proceedings also, the appellant has not produced the details of persons and the dates on which the am ounts were realized from the persons to whom advances were given.
4.3.1 The appellant had deposited amount of Rs. 7,00,000/- in the month of December, 2009, Rs. 75,00,000/- in the month of Feb 2010 and Rs. 197,70,000/- in the month of March 2010 in its bank accounts. Out of the total amount of Rs. 279,70,000/-, the explanation of the appellant regarding Rs. 275,00,000/- is that it had surrendered an amount of Rs. 275 lakhs on account of advances and imprest at the time of survey which had been recorded in the books of account. The Ld. Counsel was specifically asked by me but he has not given any details about the persons from whom the amounts were realized. The appellant has also not given any evidence to the effect that these amounts were received on or before the respective dates of deposits of the amounts in the bank accounts and so it is not possible to ascertain that it was, in fact, the amount surrendered which had been deposited in the bank accounts. The fact that the appellant admitted that certain advances given by it were not recorded in the books of account and it agreed to be taxed on the quantum of these advances, gives immunity to the appellant only to the extent that the department cannot again question the source of those advances. However, admittedly the amount surrendered was not available with the appellant in cash that as and when it likes, it can deposit a part of it in the bank. I think an example will help in understanding the position. Assume that an assessee states that a particular house or certain stock has been acquired by him with the undeclared funds of Rs 2 crores and he agrees to pay tax on that amount. He gets an immunity to the extent that the revenue cannot question him in regard to the source of acquisition of the house or stock, but if he deposits Rs. 1 crore in his bank account and claims it to be part of Rs. 2 crores declared by him, the department has every right to question him regarding the sale of the house or the stock. If the house or stock has been sold and he has received the sale consideration before the date of deposit of the money in the bank account, the matter settles there, but if he has no evidence of sale of house/stock, the source of deposit of Rs. 1 crore remains unexplained. Same is the position here. If the appellant says that the am ount deposited in the bank accounts was repaym ent of advance by X, the departm ent will not ask the source of advance to X, but would certainly look into the factum of repaym ent before the date of bank deposits. This onus on the appellant has not been discharged inspite of being given repeated opportunities by the Assessing Officer and also by me. Therefore I hold that the source of bank deposit of Rs. 275 lakhs is not explained by the appellant. The addition of Rs. 275 lakhs u/s 69A on account of cash deposits in the bank accounts is accordingly confirmed.5
4.3.2 Regarding rest of the amount of Rs. 4.70 lakhs the appellant has explained that this amount was out of cash generated from cash sales as well as earlier withdrawals from the bank account, but no evidence has been filed in this regard and so this explanation of the appellant is not acceptable and addition of this amount of Rs. 4.70 lakhs is also upheld."
6 Before us, the Ld. Counsel for the assessee submitted that a survey was conducted on 16.9.2009 and a sum of Rs. 3.50 crores was surrendered. He referred to page 22 of the paper book which is computation of income and pointed out that this amount was separately offered for taxation and added to the income returned by the assessee. Net total income was lower than the surrendered amount because there was a loss in the business to the extent of Rs. 2.66 crores. Then he referred to page 329 which is copy of surrender letter in which it is clearly stated that the amount of Rs. 3.50 crores has been generated by the company from other sources other than the manufacturing activities like real estate etc. Certain documents and registers were found where certain advances have been noted and that is why the assessee surrendered a sum of Rs. 3.50 crores. Out of this sum Rs. 25 lakhs was surrendered on account of investments in machinery, Rs. 50 lakhs on account of investments in building Rs. 2.75 crores on account of advances and imprest amount. Once this amount was surrendered and when this amount was actually received same was recorded in the books of account and ultimately deposited in the bank. In this regard he referred to the schedule of bank balance sheet at page 41 to 43 where various accounts have been shown and also referred to the bank statements where these amounts have been deposited. Therefore clearly the source of deposit is out of the advances which have been surrendered and since the assessee has 6 offered this sum for taxation, the assessee was not required to disclose the names of persons to whom such advances were given.
7 On the other hand, the Ld. D.R for the revenue strongly supported the order of the Assessing Officer and the Ld. CIT(A).
8 After considering the rival submissions we find that that certain documents were found during survey. The assessee preferred to surrender a sum of RS. 3.50 crores and a surrender letter dated 17.9.2009, copy of which is placed at page 329 of paper book and reads as under:
" Dated 17.9.2009
The Assistant Commissioner of Income Tax
Circle 4(1), Chandigarh
Subject: Additional income disclosure during the course of survey u/s 133A of the Income Tax Act, 1961 in the case of M/s Bansal Generations Ltd conducted on 16.9.2009 to 17.9.2009 Madam, Survey u/s 133A of the IT Act was conducted in the above referred case on 16.9.2009 to 17.9.2009. After discussion on various issues we hereby disclose additional income of Rs.3.50 crores (Rupees T hree Crores Fifty Lak hs only) during the f y 2009- 10 subject to no penal action of any type including u/s 271(1)(c) of IT Act, 1961 and prosecution. The detailed bifurcation of additional incom e of assessm ent year 2010-11 is as under:
1 Investment in machinery Rs. 25 lakhs 2 Investment in building Rs. 50 lakhs 3 Advances and Imprest Rs. 275 lakhs Total Rs. 350 lakhs Further to clarify that the above said income has been generated by the company from other sources other than manufacturing activities like real estate etc. The above disclosure covers up all the leakage of revenue, to avoid further litigation and to buy peace of mind. This additional income is over and above the normal business income and covers up all the discrepancies if any f ound during the course of surve y.
Thanking you, Yours truly, Sd/-
(Pawan K. Bansal)
Director "
7
From above it becomes clear that the sources for the surrender were stated to be other than manufacturing activities like business of real estate. Therefore the assessee might have earned certain income in real estate transaction and the amounts stood recorded in incriminating diaries and books found during survey. The assessee has clearly surrendered a sum of RS. 3.50 crores which has also been shown as income and this fact is clear from the computation of income. Out of a sum of Rs. 3.50 crores, a sum of Rs. 25 lakhs was disclosed as investment in machinery and Rs. 50 lakhs as investment in building. Balance amount was shown on account of advances and imprest and the assessee once having declared such income is entitled to receive this amount. Once these amounts were received which were duly recorded in the accounts and deposited in the bank. The Ld. CIT(A) while rejecting these contentions has given an example that if the amounts surrendered was on account of house then the assessee cannot say that the assessee has deposited a sum in cash but the Ld. CIT(A) has failed to recognize that out of a sum of Rs. 3.50 crores only an amount of RS. 25 lakhs and Rs. 50 lakhs was declared towards machinery and building which was not available to the assessee for cash deposit. 9 As far as the advances are concerned the assessee can receive them in cash. Once the amount has already been recorded in the books then we fail to understand what other particulars the assessee could have offered. In view of this we are of the opinion that this addition needs to be deleted and 8 accordingly we set aside the order of the CIT(A) and delete the addition.
10 In the result, appeal of the assessee is partly allowed. ITA No. 113/Chd/2014 - Revenue appeal 11 In this appeal the revenue has raised the following grounds:
"1 On the facts and circumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition of Rs. 222,60,840/- m ade by the Assessing Officer by applying the average Gross prof it rate of preceding years the assessee itself , whereas it has been held by the ITAT in several cases that the data pertaining to an assessee in the earlier year can be applied to the f acts and circumstances in the current year as the sam e is the best comparative data.
2 On the facts and circumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition of Rs. 222,60,840/- made by the Assessing Officer by observing that 'no material has been brought on record by way of specific defects in the books of account before recomputing the loss' whereas the facts are that besides specific observations by the Assessing Officer the assessee itself has submitted that its computer data for assessm ent year 2010-11 were corrupted."
12 After hearing both the parties we find that during assessment proceedings the Assessing Officer noticed that though the assessee has surrendered a sum of Rs. 3.50 crorres as additional income but return was filed only for Rs 37,50,570/-. He noted that the assessee has shown business loss to the tune of Rs. 2.66 crores which is more than the double over the loss declared by the assessee at Rs. 1.23 crores in earlier year. It was further noticed that the assessee has disclosed sale turnover of Rs. 22.70 crores against his turnover of Rs. 47.88 crores in the last year. The assessee was confronted with these issues and in response various details were filed. According to the Assessing Officer the assessee has not given any reply for decrease in turnover. 9 According to Assessing Officer perusal of documents raise following important issues:
"i) The audit report f or assessm ent year 2010-11 does not contain any note/explanation as to the huge fall in turnover which otherwise is a fundamental financial event in the course of business of the concern.
ii) The com pany has made repaym ent of loans during the year to the tune of Rs. 5 crore as is revealed from annexure 'IV' to the audit report and schedules of secured and unsecured loans annexed to the balance sheet.
iii) Further sundry debtors have increased from Rs. 5.5 crore to Rs. 9.13 crore during the year.
iv) Advances made have gone up from Rs. 60 lakhs to Rs. 1.1 crore during the year.
v) A perusal of the ledger accounts of wages, salary, consumable expenses, freight inward, carriage inward, freight outward, diesel genuineness-set/repair expenses, repair and m aintenance (m achinery), electrical repair and m aintenance, building repair, repair and maintenance, shows that a majority of the paym ents have been m ade in cash, which is not only a contravention of the provisions of section 40A(3) of the Act but also the fact that these cash pa ym ents have not been substantiated proper bills and vouchers and TDS challans makes these paym ents largely bogus, copies of these ledger accounts are placed on record.
vi) Further expenses on account of freight outward, repair and maintenance, testing charges, tools and tech have been increased over last year despite there being a trem endous decline in turnover.
vii) The company has also received some share application money and has claimed loss on sale of fixed assets.
viii) The assessee has shown closing stock of Rs. 4.5 crore this year as compared to Rs. 8.2 crore last year.
ix) More gravely the assessee has cash deposits in its bank account to the tune of Rs. 279,70,000/- during the year.
x) Vide written submissions dated 28.2.2013 the assessee has stated that their software data related to assessm ent year 2010-
11 has been corrupted."
According to the Assessing Officer above points clearly show that the assessee has undisclosed sales and the assessee has also retracted from the surrender made during survey. In this background the Assessing Officer had redrawn trading and profit and loss account of the assessee. It was observed that the assessee had a profit during assessment year 2008-09 to the tune of 6.70% and the assessee had declared a loss of 2.92% in assessment year 2009-10 whereas same has 10 increased to 12.8% during the year under consideration. Thereafter the Assessing Officer worked the addition of Rs. 222,60,840/- vide para 6 which is as under:
"6 Therefore the assessee has increased business losses to 12.8% as com pared to 2.92% last year. The profit f igure of Rs. 59,28,374/- is misleading in that it is the residual additional income disclosed. As discussed above, the discrepancies in the nature of unexplained cash deposits, increase in closing stock, drastic reduction in sales, increase in sundry debtors, repa ym ent of loans, cash paym ents under various heads etc. clearly establish that the assessee has inflated losses in the current year. To arrive at a reasonable estimate of the loss %age of the business concern of the assessee a simple average of profit/loss ratios for the preceding two years and the current year is hereby adopted. This profit /loss ratio works out to be 3% {(-) 12.8% + (-) 2.92% + 6.7%}/3 and resultantly the loss f igure f or the year com es to (-) Rs. 68,10,785/- {3% of 22,70,194}. The difference in the business loss reported and as recomputed i.e. Rs. 222,60,840/- (Rs. 290,71,625 - Rs. 68,10,785} is hereby added back to the returned income of the assessee."
13 On appeal before the Ld. CIT(A) detailed written submissions were filed and it was mainly stated that the Assessing Officer has reworked the trading results without rejecting of the books of account which is not permissible under the law. The Ld. CIT(A) found force in these submissions and deleted the addition.
14 Before us. Ld. D.R for the revenue submitted that first appellate authority is not right in allowing relief on this account by observing that books of account have not been rejected. It is always not necessary to reject the books of account and then only estimate the turnover and profit. No such rejection is required particularly in case of survey and in this regard he strongly relied on the following decisions:
Surinder Kumar Charanjit Kumar, 282 ITR 78 (PH) Dhanesh Gupta and Co. V CIT, 327 ITR 246 (DHC) CIT V Surinder Pal Na yar, 327 ITR 236 (PH)
15 On the other hand, Ld. Counsel for the assessee submitted that all the requisite details were filed before the Assessing Officer. It was particularly explained that turnover 11 has decreased because there was some family dispute and out of two units owned by the assessee-company located in the State of Punjab and State of Himachal Pradesh, the unit located in Himachal Pradesh was sold to the partnership firm in the family settlement. He also vehemently argued that it is not possible to estimate higher turnover and apply a particular profit rate without pointing out any defect in the books of account and then reject the same. The Assessing Officer has simply made general observations. The assessee is mainly engaged in the business of manufacturing transformers which are being sold only to the P.S.E.B and it is not possible to sell such transformers out of books because the Boards are only Govt agencies.
16 W e have considered the rival submissions carefully. The Ld. CIT(A) has adjudicated this issue vide para 3.3 which is as under:
3.3 I have gone through the facts of the issue and considered the submissions of the ld. Counsels. A the outset , it may be mentioned that though the Assessing Officer has pinpointed certain aspects of the financial affairs of eh assessment proceedings in para 3 of his order (which have been reproduced in para 3.1 above) these observations of the Assessing Officer cannot be treated as d effect in the books of accounts. I will now examine some of the objections of the Assessing Officer. It is mentioned by the Assessing Officer that the audit report does not contain any explanation for fall in turnover. The Assessing Officer should have known that the auditors only see the accuracy of the accounts and it is none of their business to comment on the f inancial health of the com pany. A company may make profit or loss and the auditors do not comment, much less examine the reasons for loss or prof it of the year. Similarly the fact that repaym ent of loan has been m ade or the sundry debtors have increased, cannot be considered as defect in accounts. These are duly recorded in the books of account. The increase in freight charges with a fall in turnover may be a starting point for a probe into the accuracy of accounts and the Assessing Officer should have called for the details of freight charges and checked up if fright was debited to the accounts in respect of some sales/purchases which were not recorded in the books of account, but no such exercise appears to have been done. Similarly r eceipt of application money and sale of fixed assets on loss does not establish that the books of account a re not reliable. In fact no defects were pointed out in the books of account and the Assessing Officer proceeded to recomputed the business loss even without rejecting the books of account u/s 145(3) of the Act. The 12 method of recomputation of business loss by taking the average rate of loss/profit of the current year and he preceding two years is also not very scientific and accepted method of estimation of gross profit rate. No material has been brought on record by way of specific defects in the books of account before recomputing the loss. It has been observed by Hon'ble High Court of Punjab & Haryana in the case of M/s Dua and Associates (P) Ltd, 316 IT R 224 that the books of accounts of an assessee cannot be rejected unless the Assessing Officer brings on record defects in the books of account. By applying the ratio of this judgment, it is held that since the Assessing Officer had not brought any material on record to point out defects in the books of account, he could not have rejected the books of account and recomputed the business loss, ipso-facto. The addition made on this account is accordingly deleted."
In our opinion, the Ld. CIT(A) has correctly adjudicated the issue and has met with all the objections raised by the Assessing Officer. W e further find that the main reason for fall in turnover was explained because out of two units one unit located in Himachal Pradesh was sold by the assessee because of family disputes. The assessee has further given all the details of the expenses etc. and it has to be kept in mind that even in last year there was a loss declared by the assessee. 17 As far as the decision of Hon'ble High Court of Punjab & Haryana in case of Surinder Kumar Charanjit Kumar (supra) is concerned, the Court has made following observations:
"The accounts regularly maintained by an assessee in the course of business are normally taken as correct unless there are cogent reasons to indicate that the yare not reliable, and yet it is not possible to lay down the exact circumstances in which these may be rejected as incorrect or unreliable. It is basically a question of fact to be decided on the facts and circumstances of each case. Similarly a low gross profit rate may not per se led to an inference that the accounts are false but coupled with other relevant circumstances, it does afford a sufficient ground for rejection of the accounts and estimation of profits."
Plain reading of above para clearly show that the Court has not laid down any principal as to in what circumstances the books of account need to be rejected. However, there is general principal then what turnover of the assessee is required to be estimated on higher figure and profit is required to be estimated books of account need to be rejected. In our 13 opinion, the Books of account needs to be rejected by pointing out specific defects which has not been done in this case. Therefore in our opinion, the Ld. CIT(A) has correctly adjudicated the issue and we uphold his order. 18 In the result, appeal of the revenue is dismissed. 19 In the result, appeal of the assessee is partly allowed whereas appeal of the revenue is dismissed.
Order pronounced in the open court on 10.9.2014 Sd/- Sd/-
(SUSHMA CHOWLA) (T.R. SOOD)
JUDICI AL MEMBER ACCOUNTANT MEMBER
Dated: 10.9.2014
SURESH
Copy to: The Appellant/The Respondent/The CIT/The CIT(A)/The DR