TMI Blog2015 (1) TMI 1442X X X X Extracts X X X X X X X X Extracts X X X X ..... r in the books of R.H. Patel Co. and that there was no shortage of the cash balance in the books of the assessee-firm. Rather, this is a factual aspect which can be ascertained at any point of time by examining the relevant books of accounts; hence, for this limited purpose we hereby refer this issue back to the stage of the AO so that the assessee can demonstrate that there was genuine transfer of funds introduced by the partner and that there was no shortage of the cash as alleged by the Revenue Department. For this limited purpose the matter is restored back; hence this ground of the Revenue may be treated as allowed for statistical purpose only. Unexplained cash credits - stand taken by the assessee of having made sales to the said parties in the next year is nothing but an afterthought by the assessee to furnish his self servicing submission /details in the appellate proceedings - HELD THAT:- AR has explained that there was some parties who came forward with advance with a guarantee from the assessee to supply the iron in the subsequent years; therefore, the assessee has received the advance and duly credited in its books of account. In the subsequent year sales were ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... THAT:- a penalty was imposed by the Sales Tax Department; hence, the expenditure being penal in nature is not admissible as per law. We are not convinced by the argument of learned AR; that it was compensatory in nature as it was paid as an advance payment of tax; because no such evidence was placed before us. TDS u/s 194C - Addition u/s 40(a)(i)(ia) - HELD THAT:- Situation when there was no evidence of existence of any contract between the assessee and those transporters and the goods were transported to the assessee at the behest of the supplier then the assessee was not under an obligation to deduct the tax at source at the time of payment to truck drivers/owners. We, therefore, reverse the findings of the authorities below and direct to delete the addition. Addition on account of excess claim of salary and wages and kharajat expenses made - HELD THAT:- Merely on the basis that the some of the amounts or names were not recorded in the salary register, the impugned disallowance should not have been made. The AO was required to investigate the basis of the total salary paid as claimed in the profit and loss account. The assessee s explanation was that the salary registe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- and unaccounted sales of ₹ 3,41,335/-. It has also been noted by the AO that the Sales Tax Department had passed the necessary order to that effect. Further, Sales Tax Department had also levied a penalty of ₹ 98,239/- vide an order dated 25th April, 2005, as noted by the AO. The AO has scrutinized the cash book and thereupon noted that there was a debit balance of ₹ 1,93,61,599/- as on 13th of January, 2005. According to him, there was negative balance in the cash book. The assessee s main argument was that as per the cash book in blue colour bind there was introduction of cash in the name of Anwar Ali H. Lakhani which has covered up the discrepancy which was found in the original cash book. The AO has not found this second cash book as a reliable account and thereupon detailed discussion held as under: 4.7. In show cause notice, proposal for addition was made for ₹ 1,93,61,599/-, but when the assessee has further produced a new cash book found to be unbelievable but has claimed to have introduction of cash to the extent of ₹ 1,95,50,000/-, it is under the compulsion of the circumstances to take note of this amount for taxation. Here, with a v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch were crucial to the issue of introduction of unaccounted cash of ₹ 1,95,50,000/-. The first was the cash book of the Assessee, the second was the current account of Shri Anwar Ali Lakhani held with the Assessee firm, and the third was the cash book of M/s R.H. Patel Co., the proprietorship concern of the Assessee. I have examined all the three very carefully. With regard to the cash book of the Assessee firm, it is an accepted fact that the accounting software requires journal entries to be indexed which means that such entries are debited on credited to the respective accounts from the journal. The fact that the indexing was not done while taking the print-out of the first cash book was proved by there being no daily balances drawn, which was done in the second cash book which had been prepared after due indexing. Since, the second cash book was also submitted before the AO to explain the negative cash balance, it was imperative for the AO to examine the same without summararily rejecting it. The examination would mean seeking explanation of the cash introduced on different dates. The explanation was provided by the second most important account or book, which was the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat learned CIT(A) has ignored all those facts and wrongly deleted the addition. 4.1 On the other hand, from the side of the respondent-assessee, learned AR, Mr. Tushar Hemani appeared and argued that the copy of cash book of Amir Traders was duly placed before the AO to demonstrate that there was shortage of cash. Learned AR has also pointed out that as per the ledger account of Anwar Ali H. Lakhani in the books of Amir Traders the amount has been transferred either from his personal account or from the proprietory concern of the Firm, viz., R.H. Patel and Co. Further, in respect of two cash books produced, he has pleaded that there was some technical reason due to which the first cash book was not completed; hence, when the indexing was done properly then the second cash book was produced before the AO. Further, it was the duty of the AO to detect any mistake in the second cash book filed during the course of assessment proceedings. For this legal proposition, he has placed reliance on the decision of Pipush Kumar O. Desai, 247 ITR 568 (Guj.). Learned AR has also argued that there was sufficient evidence on record to prove that there was no shortage of cash balance because the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in an authenticated manner. The cash book stated to be in blue colour should not therefore be disregard in summarily manner merely on the ground that it was prepared after the inquiries were raised by the Department. 5.2 After holding the legal position as above, we have noted that the AO had examined the balance-sheet of Sri Anwar Lakhani for the Financial Year 2003-04 and noted that there was a capital which was not sufficient to explain the cash introduced by him in the books of accounts of the assessee. There was a comment of the AO that the capital as per the books was deployed in the fixed assets. During the course of hearing, we have also inquired whether the date-wise transaction from the account of the said partner can be demonstrated by placing the contra ledger account from both the concern, but it was pleaded that the total books of account have already been placed before the AO as well as before learned CIT(A) therefore it was not again furnished before the Tribunal as it was not doubted by the lower authorities. However, we are not in agreement to these submissions especially when we are not able to satisfy ourselves that there was a regular transfer of fund from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... address given hence disbelieved the explanation of the assessee. According to him, the assessee has introduced its own money in the name of small retailers. The impugned amount of ₹ 13,29,575/- was taxed in the hands of the assessee. 7. When the matter was carried before the First Appellate Authority, learned CIT(A) has held in favour of the assessee as under: 10. I have carefully considered both the positions. At the very outset, it must be stated that I do not agree with the position taken by the AO. She observed that iron scrap was not such a precious matter or commodity which would require a customer to pay advance. This observation is not based on any market research or survey or any statistical analysis of the business of scarp dealing. From the breaking/dismantling of ships, a lot of valuable scarp is generated, especially metals such as copper, aluminum, iron, steel etc. The body of a ship is made of solid steel plates, the quality of which is of very high standard, especially of the ship which had been built in shipyard of the western country. Such scarp is generated only when old ships are available for breaking/dismantling. It therefore becomes necessary for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the next year; therefore, there was no justification on the part of the AO to disbelieve the action of the assessee. Learned AR has also placed reliance on an order of Hon ble Gujarat High Court pronounced in the case of CIT Vs. Vishal Exports Overseas Limited (Tax Appeals No.2471, 2473, 2475, 2476 of 2009 order dated 3rd of July, 2012 wherein vide paragraph 5 an observation was made as under: 5. Revenue carried the matter in appeal before the Tribunal. The Tribunal did not address the question of correctness of the C.I.T.(Appeals)'s conclusion that amount of ₹ 70 lakhs represented the genuine export sale of the assessee. The Tribunal however, upheld the deletion of ₹ 70 lakhs under section 68 of the Act observing that when the assessee had already offered sales realisation and such income is accepted by the Assessing Officer to be the income of the assessee, addition of the same amount once again under section 68 of the Act would tantamount to double taxation of the same income. 10. Having heard the submissions of both the sides and after perusal of the relevant record we are also of the opinion that the impugned addition was made on a wrong premise, espec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... centage automatically becomes low. In this case, the turnover had increased 65 times and it was inevitable that there would be a fall in the GP ratio which fell only by the narrow margin of 1.43%, a fall was fully justified given such facts of the case. The AO has pointed out the matter concerning the unverifiable sales, but has not brought on record the relevant facts in their totality; who were the parties to whom letters u/s.133(6) were issued and which were the letters which had came back unserved. There is no mention of any such fact at all. All said and done, I am of the view that the AO was not justified in making the addition of ₹ 12,74,550 on account of low GP. The same will stand deleted. 13. From the side of the Revenue, learned Sr.D.R. has supported the order of the AO mainly on the ground that in a situation when there was fall in gross profit ratio and the sales were not fully verifiable; therefore, the AO was justified in making the impugned addition. 14. From the side of the respondent-assessee, learned AR has informed that the AO had failed to notice that the assessee s sales have increased by more than 65%, which has also resulted into a better net pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed the order. On those lines, the AO has held that on the said sales there was an element of gross profit of ₹ 1,11,922/- which was taxed in the hands of the assessee. 19. When the matter was carried before the First Appellate Authority, learned CIT(A) has confirmed the addition as under: 14. I have carefully considered the action taken by the AO, as also the written submissions of the AR. To begin with, I am of the view that both the figures of sales and purchases were fictitious and were worked out on estimate, on the basis of what the Sales-tax authorities had determined as unaccounted sales and unaccounted stock. The point to note, is that, at the point of time when the Sales-tax Department surveyed the Assessee's premises, the sales of ₹ 3,41,335 was in the provisional stage, awaiting confirmation from the buyer(s), regarding the weight of the goods dispatched/received. Since, such sales was subsequently entered in the books on receipt of confirmation, for Income-tax purposes it couldn't be treated as unaccounted. Similarly, the stock of ₹ 6,39,239 may have been unaccounted on the date of the survey by the Sales-tax Department, i.e. on 03-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ni. Further it was noted that the Trader i.e., the Assessee was not able to explain cash in hand of ₹ 25,282/-, stock in trade of ₹ 6,39,239/- and suspense sales of ₹ 3,35,335/-. In that order, it was also held that there was existence of unaccounted purchases which were not proved. After applying gross profit margin the unaccounted purchase amounting to ₹ 12,87,102/- was taxed. We are of the view that in a situation when an another authority has given a finding that there were unaccounted purchases then it is not fair to disregard those finding of the Sales Tax Department. In the result, we hereby confirm the findings of learned CIT(A) made in the hands of the assessee and dismiss this ground of the Cross Objector. 23. Ground No.2 is reproduced below: 2. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-Tax (Appeals) has erred in confirming the sales tax penalty of ₹ 98,239/-made by the AO. Therefore, the same may kindly be deleted. 24. Facts of the case have revealed that there was a survey by the Sales Tax Department and thereupon sales were found made out of the books, which resulted into a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cording to him, the Assessee had failed to deduct the tax on the payment made to truck owners/transporters; therefore, violated the provisions of Section 40(a)(ia) of IT Act. The expenditure was claimed of ₹ 7,32,181/- was disallowed. 31. When the matter was carried before the Appellate Authority, learned CIT(A) has discussed the provisions of Section 194C of IT Act and thereupon held that the AO was justified in invoking the provisions of Section 40(a)(ia). Learned CIT(A) has also rejected the alternate plea of the assessee that the amount which was below ₹ 20,000/- should not be disallowed because there was no requirement of deduction of tax at source. According to this alternate argument a sum of ₹ 3 lac should not have been disallowed by the AO. However, learned CIT(A) has rejected this alternate plea as well. 32. Learned AR has argued that there was no contract between the assessee-firm and the said transporter. Those transporters were directly appointed by the suppliers by whom the assessee has purchased the iron. The payment was made at the time of the delivery to respective truck drivers under the head Transportation Expenses . Those drivers/truck o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dras). We have noted that the fact of this case are rather more convincing because in a situation when there was no evidence of existence of any contract between the assessee and those transporters and the goods were transported to the assessee at the behest of the supplier then the assessee was not under an obligation to deduct the tax at source at the time of payment to truck drivers/owners. We, therefore, reverse the findings of the authorities below and direct to delete the addition. This ground of the Cross Objection is allowed. 36. Ground No.4 is reproduced below: 4. On the facts and in the circumstances of the case, the learned Commissioner of Income-Tax (Appeals) has erred in confirming the addition of ₹ 177400/- on account of excess claim of salary and ₹ 140273/- out of wages and kharajat expenses made by the AO. Therefore, the same may kindly be deleted. 37. It was noted by the AO that in the profit and loss account salary was claimed at ₹ 4,89,400/- whereas in the salary register the amount reflected was at ₹ 3,12,000/-. According to AO, there was an excess claim of ₹ 1,77,400/- which was disallowed by the AO. Likewise in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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