Income Tax Appellate Tribunal - Delhi
Dcit, New Delhi vs Sh. Anil Mahajan, New Delhi on 30 September, 2022
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH, 'A' NEW DELHI
Before Sh. C. N. Prasad, Judicial Member
Dr. B. R. R. Kumar, Accountant Member
ITA No. 3395/Del/2009 : Asstt. Year : 2003-04
DCIT, Vs Sh. Anil Mahajan,
Circle-39(1), 10872, Jhandewalan Road,
New Delhi New Delhi
(APPELLANT) (RESPONDENT)
PAN No. ABAPM0133D
Assessee by : Sh. K. Sampath, Adv. &
Sh. V. Rajkumar, Adv.
Revenue by : Sh. Vivek Sharma, CIT DR
Date of Hearing: 06.09.2022 Date of Pronouncement: 30.09.2022
ORDER
Per Dr. B. R. R. Kumar, Accountant Member:
This appeal has been filed by the Revenue against the order of the ld. CIT(A)-III, New Delhi dated 26.03.2009.
2. Following grounds have been raised by the Revenue:
"1. In the facts and circumstances of the case, the ld. CIT(A) erred in deleting the addition of Rs.31,07,529/- made by the Assessing Officer on account of unexplained expenditure u/s 69C.
2. In the facts and circumstances of the case, the ld.
CIT(A) erred in deleting the addition of Rs.1,38,17,529/- after wrongly observing that the books of account were incorrectly rejected u/s 145 whereas the AO has pointed out that the books of account were not reliable and verifiable as correct amount of purchases and sales of goods had not been accounted for in the books of account."2 ITA No. 3395/Del/2009
Anil Mahajan
3. Facts have been taken from the order of the ld. CIT(A).
4. These grounds are against addition in gross profit of Rs.1,38,17,091/- and addition of Rs. 31,07,529/- on account of variation in the valuation made by the customs authorities in the assessable value of goods imported.
5. The brief facts are that the assessee is a proprietor of M/s Shikhar Enterprises and is wholesaler dealer of PVC films, Sheets, Tape, Leather clothes and shoes. During the financial year 2002-03, the assessee also started two new proprietorship concerns namely M/s Sterling Impex and M/s Diamond Overseas.
6. A search and seizure action under section 132 of the Act was carried out at the premises of the assessee on 16.02.2005 and in pursuance to which, notice under section 153A of the Act was issued on 27.10.2005 and served on the assessee. The assessee in compliance to the notice, filed a return of income on 07.12.2005 declaring income of Rs.63,91,229/-. Thereafter, in pursuance to various notices, the Assessing Officer framed an assessment at an income of Rs.2,35,19,018/-.
7. It was noted by the A.O. that a large number of loose papers were found and seized during the course of search on the assessee from 11, Paschmi Marg, Vasant Vihar, New Delhi. Most of these papers are bills of entries giving the details of goods imported by the assessee and duty charged by the Customs authorities thereon. The Assessing Officer has tabulated the details of such bills of entries in the assessment order and thereafter, found that in number of cases, the value 3 ITA No. 3395/Del/2009 Anil Mahajan of goods imported by the assessee was enhanced by the custom authorities, that the assessed value was increased by Rs. 31,07,529/- for the year under consideration.
8. In view thereof, the AO observed that obvious reason for enhancement by the custom authorities is undervaluation. It has been stated that, the assessee has accepted the same and paid the additional custom duty and in fact, no appeal was even filed by the assessee against the above action of the custom authority. When confronted, the assessee has submitted in reply before the AO that the price of the imported goods depend upon the quantity of the total order, delivery schedules etc. and the custom department fixes its own rate of conversion. The assessee had further contended that cost of filing further appeal is higher than the additional custom duty and, thus, in most of the cases, it is not economical to contest these variations. It was also stated by the assessee that, three orders were challenged before the Commissioner of Customs (Appeals), wherein the value loading done by the customs authority has been set aside.
9. The Assessing Officer, however, noted that in the instances tabulated in the assessment order, the assessee has accepted the loading of the value without protesting it at any stage. It was held that the assessee has not fully accounted for the amount of the purchases. The A.O. observed that other contentions advanced by the assessee are general in nature and cannot be adopted as basis to show that purchases made have been duly accounted for in the books of accounts of the assessee. The AO has also noted that during the course of 4 ITA No. 3395/Del/2009 Anil Mahajan search, a number of receipt books have also been seized from FD-12, Vishakha Enclave, Pitampura, New Delhi which has been marked as Annexure A-3 to A-17, These receipts of huge amounts have been issued by the assessee on various dates, but the name of the person/concern from whom this cash was received is nowhere mentioned on these receipts. According to the AO, this shows that the assessee is making the sales without bringing in the record the name of the purchasing party and it is impossible to verify the genuineness of the rates charged and the goods supplied. The Assessing Officer thereafter has stated that the assessee makes sales against the cash only and it is in exceptional cases only that credit sales are made.
10. The Assessing Officer noted, that the assessee was also asked to furnish the addresses of the person to whom, as revealed from the loose papers seized, huge sales have as also referred to page 7 of Annexure A-1 seized from FD-12, Vishakha Enclave, Pitampura, New Delhi on the basis of which, it has been alleged that the assessee has received part payments in cash and part payments by drafts from the persons whose names have been given in coded abbreviations and the pattern of the above receipts also indicates that the assessee is in the practice of receiving the payments in two modes possibly with an intention to show the sale in the books of account to the extent of drafts received and the remaining amount of cash is not accounted for in the books of account. Apart from above, it was noted that several other pages 1,2, 4 to 6, 12 to 15, 18, 20 to 22 and 26 of Annexure A-1 seized from FD-12, Vishakha 5 ITA No. 3395/Del/2009 Anil Mahajan Enclave, Pitampura, Delhi also indicated huge amount of unaccounted cash sales made by the assessee.
11. The sales reflected in these pages have been admitted and surrendered by the assessee in the assessment year 2005-06. It has also been stated that during the course of search, the assessee has also surrendered income of Rs. 32,50,000/- and Rs. 34,20,000/- on account of unaccounted stock and cash respectively in A.Y. 2005-06.
12. In light of the above factors, the Assessing Officer proceeded to hold that the purchases are not fully accounted for in the books of account and further, even the sales are not accounted in books of accounts and, thus, held that books of accounts cannot be relied upon and therefore, rejected the same as per the provisions of section 145 of the Act.
13. Consequently, in light of the above, he proceeded to make two additions (a) firstly addition of Rs. 31,07,529/- on account of unaccounted purchases by invoking the provisions contained in section 69C of the Act and (b) addition of Rs. 1,38,17,091/- on account of alleged understatement of gross profit by adopting the gross profit rate of 7.59% for the earlier assessment year 2001-02, as against gross rate shown in the year under consideration.
14. In proceedings before the ld. CIT(A), the ld. A.R. submitted that the A.O. was not justified in rejecting books of account for A.Y. 2003-04. It was contended that all the instances of unaccounted sales by the A.O. pertains to the period relevant to A.Y. 2005-06.
6 ITA No. 3395/Del/2009Anil Mahajan
15. No evidence or material was brought on record to conclude that the books of account maintained for A.Y. 2003-04 were not correct or complete. It was argued that based on material for A.Y. 2005-06, the books of account for A.Y. 2003-04 cannot be rejected.
16. The assessee also submitted that the AO has erred in adopting the GP rate of assessment year 2001-02 for the instant assessment year ignoring the following changes in the nature of business during the year under consideration:
"(a) That the assessee has shifted to whole sale trading in imported goods from being a distributor of branded goods produced domestically in India. When a person is new to selling of product, he has to attract customers from others, which can be by offering competitive prices, which can be only by reducing profit margins. The change in the nature of business-which is from domestically to imported goods as well as the nature of goods dealt is depicted by the following table.
Assessment Domestic items dealt in Imported Leatherite Fabric Year Assessment Year 2001-02 Sales in% Decrease Over Decrease Increase over Increase over last year over 2001-02 last year 2001-02 2002-03 60% 60% 1086693 10,88,693 2003-04 72% 80% 257 43,02,257 2004-05 38% 93% 26 48,60,752 2005-06 95% 99% 100 97,21,504
(b) The volume of sales has multiplied many times from the sales of Rs. 384.99 lakhs in A.Y. 2001-02. The increase is not by simple percentage but by hundreds of percent.
7 ITA No. 3395/Del/2009
Anil Mahajan
Assessment Sales Rs. In % of increase Over
Year Lakhs
A.Y. 2001-02 Last Year
2002-03 1353.87 252% 252%
2003-04 3359.65 773% 148%
2004-05 3585.18 831% 7%
2005-06 4367.70 1034% 22%
(c) The growth in the volume of sales can be achieved by reducing the margins and thereby increasing the total net profit. It will be observed that while the GP rate has changed, but the NP rate has not changed much.
Assessment Year Sales Rs. In Lakhs Rates % to Sales
GP Rate NP Rate
2001-02 384.99 7.59% 2.19%
2002-03 1353.87 5.24% 2.16%
2003-04 3359.65 3.49% 1.90%
2.004-05 3585.18 3.76% 2.20%
2005-06 4367.70 4.48% 3.22%
(d) Thus it can be said that the assessee has been able to maintain his net earnings at the same rate and increase his volume of his net income at the same time. That in place of trading just from Delhi, the assessee opened branches in Chandigarh, Gurgaon and Pondicherry besides Delhi. This results in lowering of direct personal involvements in the day to day transactions, which will result in decrease of margins.
(e) Imports entail larger volume of purchase for economic transportation while the domestic goods can he bought in smaller lots.
(f) Imports in larger quantities entail larger requirement of funds which can be by purchasing goods on long credit period. In such a case the supplier will increase the prices to cover his interest cost. This will result in decrease in GP rate but may not 8 ITA No. 3395/Del/2009 Anil Mahajan affect his NP rate in the alternate he has to purchase the goods on LC basis. To do this, the assessee has to make payment by utilizing borrowed funds in which case the assessee has to bear interest. This would result in maintaining the GP rate but decrease in NP rate of the assessee. It will be evident that the assessee has chosen the second alternative.
17. Apart from above, it has been stated that, the Assessing Officer was incorrect in rejecting the books on account on the basis of cash invoices to customers. It has been submitted that rates charged for the same item of sale where an invoice with the customers' name and address is issued and a cash invoice around the same date and the same product is the same. Thus it cannot even be alleged that the cash invoices are used to record lower sales. Reliance in this context was placed on the judgment of Bombay High Court in the case of RB Jessaram Fatehchand vs. CIT reported in 75 ITR 33 and decision of Pune Bench in the case of ACIT vs. Mahesh T Patodia (79 ITD 40).
18. The ld. CIT(A) held that the first and foremost issue involved in the instant appeal is in respect of rejection of books of accounts by invoking the provisions contained in section 145 of the Act. The Assessing Officer has rejected the books of accounts by holding that, neither the amount of purchase of goods is fully accounted for in the books of accounts and nor the sales have been fully accounted for and therefore, the book result of the assessee cannot be relied upon. So far as the conclusion regarding non-accounting for purchases is concerned, the same is essentially based on the bills of entries found and impounded during the course of search from the 9 ITA No. 3395/Del/2009 Anil Mahajan premises at 11, Paschimi Marg, Vasant Vihar, New Delhi. According to the A.O., these bills of entries give details of goods imported by the assessee and duty charged by the custom authorities. The AO found that a number of occasions, value of goods imported by the assessee was enhanced by the custom authorities and same was also accepted by the assessee. The AO found that in the instant year, the assessed value was increased by Rs.31,07,529/-, the details whereof are tabulated hereunder:
S. No Page Date Value Original Assessed Difference & Assessment No. Loaded value Value year per kg 2002-03 2003-04 2004-05 A-14 15 30.04,03 $1,51 843401 1072434 229033 A-35 43 2.12..02 $13.48 609541 811345 2,01804 A-44 299 15.07.03 $0,715 893853 927012 33159 A-44 291 275.03 $0,715 1787706 1854023 663171 A-44 253 7.5.03 $0.72 9052.00 945588 40388 A-44 226 22.4.03 $0,705 1810587 1850875 40298 A-44 213 1.4.03 $0.23 1537370 1601717 22705 1828277 1850982 A-44 116 18.3.03 $.231 1447348 1512682 65338 A-44 103 18.3.03 $.70 1793437 1821089 27652 A-43 22 17.10.02 $.675 885091 915739 30648 A-49 1 15.5.02 $1.79 1344908 1362163 17255 A-45 37 20.12.02 $.74 845593 882357 36764 A-45 1 4.5.02 $1.79 1354299 1371558 17259 A-55 12 28.11.02 $.42 2225470 2459088 233618 A-27 2 10.6.02 $0.76 975100 1002361 27261 A-17 61 05.11.01 - 468869 485486 16617 A-12 119 13.12.02 $0.60 757702 781346 23644 - 61849 62389 540 A-144 42 19.9.02 $.53 1071871 1188070 116199 A-196 40 28.10.02 $1.12.1 1096277 118962 22685 A-196 20 28.9.03 $.121 1513575 1542103 2,8528 A-187 463 9.9.03 - 4002243 4022923 20680 A-187 279 12.8.02 $40 3226833 3340307 113474 j A-187 242 31.7.02 - 4033427 4068270 34843 A-185 44 7.8.03 $1,121 867109 951897 84788 10 ITA No. 3395/Del/2009 Anil Mahajan A-185 36 5.8.03 $1.21 777801 855633 77832 A-190 133 22.4.03 $.36 633270 651985 18711 A-190 132 22.4.03 $.36 633270 651985 18711 A-190 131 19.4.03 $.36 633270 651985 18711 A-190 130 19.4.03 $.36 633270 651985 18711 A-128 2 4.3.03 $.24 1514263 1581992 67729 A-125 81 24.3.03 $1.1 460751 559408 98657 A-125 76 1.4.03 $1.1 384515 4682.42 83727 A-125 27 17.4.03 Rs. 54.01 443330 560320 116990 per kg .....
...... ....... ..... ...... ...... ...... ...... ....... ..........
Total 16617 3107529 983612
19. It was to be noted that the assessee had challenged the action of customs authorities regarding variation in the invoice value in three cases where the Id. Commissioner of Customs (Appeals) deleted the assessment of transaction value made by the customs authorities as no evidence was brought on record by the customs authorities to show that transaction value shown by the assessee was not true commercial value. The relevant portion of observation of Id. Commissioner of Customs (A) is reproduced as under:
"The Hon'ble Supreme Court's de cision in the case of M/s Etcher Tracto rs Limited, (2000) ( 122) ELT 321) , has laid down that transactio n value canno t be reje cted without cle ar and cogent evide nce pro duce d by the de partment with regard to the quantity, quality, country o r origin and place and time of impo rt. It also well settle d that it is for the department to pro duce the e vidence to sho w that the transaction value is not acceptable in view of the comparable price . In this case, the department has not adduce d even an io ta o f evidence to reject the transaction value on the gro und that it is no t the true commercial value of the goods. It is also not the case of the department that the re was any special relationship between the impo rter and the supplier and that the former has paid 11 ITA No. 3395/Del/2009 Anil Mahajan anything extra ove r and above the transacted value. In fact, contrary to the Board's Circular no. 16/ 2003 dated 17.03.2003, the AO has not passed a spe aking order for reje cting the transaction value which could have enlightened the appe llate autho rity o f the reasons for rejecting the transaction value . It is settled practice of law and it has been decided even in S upreme Court that the circular issued by the CBEC is binding on the administrative o fficer or fie ld o fficer who am enforcing fo r implementing the Customs Act or Customs Valuation Rules 1988.
The circumstance s that pe rmit such rejectio n and the alternative basis for fixing assessable value are specified in the Valuation Rules themselves no such legally pe rmissible steps we re taken in the present case . The re is catena o f decisions including the one given by the Supreme Co urt in the case of M/s Eicher T ractors Limited, which say that "reading Rules 3( i) and Rule 4(1) toge ther, it is dear that a mandate has been cast on the autho rities to acce pt the price actually paid or payable for the goo ds in respect of the goods unde r assessment as "T ransactio n Value". The Hon'ble Supre me Court has furthe r held that in the absence o f exceptions particularize d in Rule 4(2) o f the Custo ms Valuatio n Rules and clear and cogent e vidence of contemporaneo us impo rt, it is mandatory fo r the Customs to accept the invo ice value . In this case, no e vidence is brought on record to sho w that the transaction value is no t the true commercial value.
The Hon'ble Supre me Court has held in the case of Co mmissioner o f Customs, New Delhi's vs. Prode lin I ndia (P) Ltd, 2006 (202) ELT 13 (SC), that it is se ttle d law that the department is bo und to accept the transaction value be tween the two parties in absence of any evide nce that identical or similar go ods imported by the importe r at higher price . Moreover, vide amended provision of se ction 17( 5) of the Customs Act, 1962, it is mandato ry that the customs official 12 ITA No. 3395/Del/2009 Anil Mahajan have to pass the speaking order within 15 days from the date o f clearance the goods in case the importer does no t accept the lo ading of the Value and no such o rde rs were passe d by the Assessing Authority for loading the true declared by the appellants."
20. In the case of the assessee, there is no evidence on record to suggest that assessee, has paid any amount over and above the purchase consideration shown in the purchase bills. It may also be noted that the excise duty payable on each bill on the difference in valuation made by the customs authorities @ 16% works out to be in a few hundreds and there is a force in the contention of the assessee that, the cost of filing of further appeal is higher than additional custom duty paid and it was not economical to contest the variations. Moreover, if an assessee opts to contest the variations, it delays the clearance of the goods and result into higher cost. Therefore, keeping in view the totality of the facts and circumstances of the case, I am of the opinion that only on the fact that the assessee had paid custom duty on the enhancement made by the custom authorities cannot be regarded has a valid basis to suggest that there was unaccounted purchases made by the assessee.
21. Hence, the ld. CIT(A) held that the AO was not justified in assuming that the assessee had made unaccounted purchases solitary on the basis that the customs authorities had enhanced the value of goods imported for the purpose of payment of custom, duty. In the absence of any evidence/material on record that the assessee has paid anything extra over and above the transaction value shown in import invoices, no addition on account of unexplained expenditure on purchases 13 ITA No. 3395/Del/2009 Anil Mahajan can be made and deleted the addition of Rs. 31,07,529/- made by the AO.
22. We have gone through the entire factum and without any hesitation, we hold that the Assessing Officer has made addition on a deeming fiction and the ld. CIT(A) has succinctly analyzed every aspect of the business and transactions and gave a surefire decision. Hence, we decline to interfere with the order of the ld. CIT(A) on this issue.
23. The appeal of Revenue on this ground is dismissed.
24. Regarding addition in gross profit, the AO has rejected the books of account holding that the purchases as well as sales have not been fully accounted for. In regard to purchases it was held that there is no evidence or material on record to suggest that unaccounted purchases were made by the assessee. With regard to the issue as to whether the sales have not been fully accounted for, the AO for arriving at this conclusion, has mainly relied upon Annexure A-3 to A-17 and a reference was also made to page 7 of A-1. But it may be noted that all the instances and references made by the AO refers to the, period relevant to A.Y. 2005-06. There was no iota of evidence or material brought on record by the AO which suggests that any sales have not been fully accounted for during the previous year relevant to A.Y. 2003-04. The AO has based his findings on the material found relating to A.Y. 2005-06. On the basis of material found in respect of subsequent assessment year, no adverse inference can be drawn in relation to the transactions of earlier assessment years. Every year is an independent year for the purpose of making assessment. In this case, the 14 ITA No. 3395/Del/2009 Anil Mahajan assessee has been subjected to search and even in the course of search, no evidence was found which shows that the sales for the A.Y. 2003-04 were not duly accounted for in the books of account. The books cannot be rejected on the solitary basis that sales were shown to be made in cash specially when there is no difference in the rate charged on sale of same product booked either in cash or on credit. Therefore, considering the facts and circumstances of the case, we are of the opinion that there was no material in possession of the AO to conclude that books of account for the A.Y. 2003-04 maintained by the assessee were either incorrect or incomplete. Since there is no basis of rejection of books of account, provisions of section 145 cannot be attracted and no addition in the gross profit can be made on estimated basis, when the assessee has cogently explained the reasons for fall in the gross profit rate being on account of change in the pattern of business and increase in the total turnover. Hence, addition of Rs. 1,38,17,091/- made on account of gross profit has been fittingly deleted by the ld. CIT(A). The appeal of the revenue on this ground is dismissed.
25. In the result, the appeal of the Revenue is dismissed. Order Pronounced in the Open Court on 30/09/2022.
Sd/- Sd/-
(C. N. Prasad) (Dr. B. R. R. Kumar)
Judicial Member Accountant Member
Dated: 30/09/2022
*Subodh*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
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