9911796707
TMI Blog2016 (4) TMI 511X X X X Extracts X X X X X X X X Extracts X X X X ..... ddition of Rs. 3,92,700/- (enhancement) on account of unexplained investment in purchases of raw material during the A.Y. 1998-99. 4. That the Ld. CIT(A) is not justified in enhancing the addition on account of net profit from Rs. 3,55,5811- to Rs. 9,45,485/- for AY 1999-2000 to 2003-04 (up to 16.08.2002) by arbitrarily applying the net profit rate of 10% on total sales. 5. That the Ld. CIT(A) is not justified in upholding the addition of Rs. 40,000/- u/s 69 for the AY 2003-04 on account of purchase of KVP in joint name with wife out of her 'MEHAR' Money. 6. That the Ld. CIT(A) is not justified in making an addition of Rs.l,54,7701- u/s 69 for the A Y 2003-04 on account of cash payment for purchase of Santro car. 7. That the Ld.CIT(A) is not justified in upholding an addition of Rs. l,00,000/- u/s 69 for the A Y 2003-04 for under valuation of the stock found. 9. That the Ld.CIT(A) is not justified in upholding the Various additions as taxation can be of the real income and only to the extent of source of income which could give rise to such income and not beyond that. 10 That the Ld.CIT(A) is not justified in assessing the income at Rs. 15,14,470/- (after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undisclosed income earned and finally confirmed the addition of Rs. 15,14,470/-. 4. The assessee preferred an appeal against various additions sustained and enhanced by the ld. CIT(A), whereas the Revenue has preferred appeal against the benefit of telescoping allowed to the assessee. 5. In ground No. 1 of the appeal, the assessee has agitated the issue of rejecting the books of account under Section 145(3) of the Act by the Assessing Officer and sustained by the ld. CIT(A). 5.1 The Authorized Representative of the assessee filed paper book containing page no. 1 to 302 and submitted that the books of account were prepared on the basis of the documents found and seized in the course of search. He further submitted that the Assessing Officer and ld. CIT(A) has at times relied on the evidence submitted by the assessee. Ld. Authorized Representative further submitted that the Assessing Officer has relied on the books of account submitted by the assessee for the figure of sales and purchase. He further submitted that the books of account were produced before the ld. CIT(A) also and the matter was remanded twice to the Assessing Officer and no adverse view was taken by the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onfidence of genuineness to entries. The AO's observations on this aspect were therefore correct. 3. As about the argument that the appellant was not required to maintain books as per sec 44AA, it may be mentioned that the provisions does not mandate maintenance of books for certain assessees. However it cannot stop them from doing so. Moreover it is the appellant who has prepared books & is insisting on accepting the same as correct whereas the AO has rejected them. If the appellant does not wish to rely on books he may well not object to their rejection. 4. It was repeatedly stated that the books have been prepared & reconciled with reference to the seized material being kachcha record of business transactions maintained by the appellant who was uneducated & working in unorganized sector. On examination, the seized record was found to be highly casual, unsystematic and haphazard which was in the form of mere rough notings. It is difficult to derive any logical conclusions about nature of his business. I personally test checked the books with reference to the seized material & the explanation submitted by the appellant about nature of his business. Large scale discrepanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ws: 6. The main motive to make books is to show highly inflated cash balance which has been done by showing huge creditors. Comparison of creditors, debtors & cash in b/s filed with original returns and now shown in books is as under: 7. The month wise average, maximum & minimum cash balance for entire period is shown as under: Month Minimum Maximum Average Apr-98 142100 150643 145891 May-98 150643 179005 159372 Jun-98 179005 192276 184772 Jul-98 191876 323950 231779 Aug-98 341480 584245 522335 Sep-98 584245 584354 584248 Oct-98 584354 584993 584374 Nov-98 574777 584993 584358 Dec-98 563759 574427 574082 Jan-99 539950 563759 557525 Feb-99 525766 539950 539029 Mar-99 505235 525766 522567 Apr-99 446610 505235 478521 May-99 428200 447610 443864 Jun-99 306868 428200 371488 Jul-99 203301 306868 254135 Aug-99 174986 216071 207320 Sep-99 174986 234986 202427 Oct-99 168353 293353 238775 Nov-99 256848 637173 468278 Dec-99 325296 687173 514617 Jan-00 415301 915006 652754 Feb-00 826493 877505 860380 Mar-00 778283 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made on its basis. They are changed and manipulated at will according to the need & convenience. It may be noted that all these documents are signed by the appellant. 9. It is stated that the appellant's business of making kites is a seasonal business and major sale takes place in the months of July-August as the kites flying season is on Rakhi and 15th August. The appellant has also vehemently insisted that the cash found during the search reflected the sale proceeds as the sale was clearly over by 15th of August every year. If that were true there would not have been any stock of goods on 31st March which is no season for kites. The appellant has shown huge stock in revised books (refer to table in clause 5. above) . 10. Further, if the details of month wise sales shown in the books of accounts are analyzed it is found that in most of the years the major sale was shown in the months of Sept, Oct, Nov & Dec. Only for the period from 1/4/02 to16/8/02 (date of search) the sale has been shown from the months of April to August. A copy of statement showing month wise purchase and sales is made part of this order as Annexure-D (5 pages). 11. Similar discrepancies and cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents & the annual profit per books of account is correctly stated. However this kind of arguments is quite fallacious because if the transactions are not recorded in the books on correct dates, the books cannot be said to be reliable and conclusions drawn would be erroneous. If it was sufficient to simply include all purchase and sale transactions on any date on whatsoever, there was no purpose of making any books of accounts. Only the P&L a/c could be prepared directly at the end of the year. Moreover if simply the date of cash transaction is changed in any cash business, the final results of accounts may undergo huge change even if purchase & sales bills remain the same. On the basis of same purchase/sales any number of set of books may be prepared to show huge cash balance/minimum cash balance or even negative cash balance by simply changing the date of cash exchange. Therefore even if the total purchase & sales for different years are accepted as based on noting in seized material, manipulation of date of cash transaction renders the books unreliable as it gives a lot of leeway for adjustment of dates of transaction according to the convenience of the assessee to build up cash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - taken in the month of July and August, 2002, just few days before the search and held that the assessee could not justify taking of such loans despite being availability of cash balance as per the cash book prepared. Considering facts and circumstances, the ld. CIT(A) admitted the availability of cash of Rs. 1 lakh in normal business and he held the rest cash available of Rs. 9,27,000/- as unexplained. The relevant paragraph of the order is reproduced as under: " 5.1 Now I come to the explanation about seized cash. Heavy reliance has been placed of books of accounts, The books have already been rejected as unreliable and prepared with particular motive. However without prejudice to that, the manner of cash built up in the books was further examined. During test check it was found that entry of cash receipt of Rs. 16,500 on 16/4/02 in the name was wrong as there was no such noting in seized diary. Similarly, cash receipt of Rs. 47,000 is shown on 23/4/02 from Rehanbhai whereas amount noted in seized dairy is only Rs. 7000. Moreover huge cash sales of more than Rs. 4 lacs have been shown on various dates of August 02. It may be pertinent to note that there was no evidence to this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the seized diary. These entries were merely made in books of accounts.This further proves that the books are unreliable & entries therein are fabricated with particular motive. 5.3 In the appeal proceedings the appellant's AR filed confirmation letters from various persons who allegedly gave loan to the appellant. The AO in his report dated 3/11/05 specifically mentioned that no confirmation letter either from any persons giving loans or alleged creditors (the cash balance was inflated on the basis of these two) was submitted during the assessment proceedings. Hence the confirmation letters from loans parties & creditors are in the nature of additional evidence. The appellant has not made any specific request to admit additional evidence explaining the circumstances as per rule 46A which prevented him from filing them before the AO. In any case since the books of accounts itself have been rejected as unreliable and the claim of taking loan is held to be made up story, the confirmation letters for loans and credits are merely self servicing documents and become irrelevant. Accordingly the question of admission of the same need not be examined. Even the verification or en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged the enhancement of unexplained investment in purchase of raw material from Rs. 1,50,000/- to Rs. 3,92,700/-. 7.2 The ld AR submitted that no addition was justified in the case of the assessee as the assessee was having enough saving of the past period which explain the initial investment in the business. The ld CIT DR on the other hand relied on orders of the lower authorities. 7.3 The Assessing Officer noted that the assessee would have needed investment for setting up the unaccounted business. He further noted that the assessee was having stock worth of Rs. 1,50,962/- after maximum sale of Kites for the relevant year upto 15th August, 2002, therefore, he estimated a sum of Rs. 1,50,000/- as investment in the business at the opening of the block period ,which was not disclosed in the return. Accordingly, he made the addition of Rs. 1,50,000/- under Section 69 of the Act as unexplained investment. 7.4 In the appellate proceedings before the ld. CIT(A), it was submitted by the assessee that the assessee started business in the year 1998 and he invested seed money of Rs. 1,50,000/- which was out of the past savings of the assessee as the assessee was doing some work for other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) applying the net profit rate of 10% on total sales. 8.1 Before us, the ld AR submitted that the CIT(A) has adopted the gross profit rate of 10% on arbitrary basis, without any comparable case. Further, he relied on the submission made before the CIT(A). On the other hand, the ld CIT DR relied on the order of the CIT(A). 8.2 The Assessing Officer and ld. CIT(A) have noticed that the sales and purchases recorded in diaries and other documents seized during the course of search are more than the sales and purchases shown by the assessee in the regular return filed. The Assessing Officer confronted all the seized documents containing purchase and sale of transaction to the assessee and on the basis of which the assessee prepared year-wise lists of sales and purchases, which the assessee further, revised in the books of account prepared and produced before the Assessing Officer. Though the Assessing Officer rejected books of account, however, took the figure of sales from those books of account and after applying net profit ratio, computed the unaccounted net profit at Rs. 3,55,581/- and held the same as undisclosed income of the assessee. 8.2 The ld. CIT(A) though accepted the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances needing cash payment by assessee. The AO then had discretion not to invoke sec 40A(3) if those conditions were fulfilled. However after amendment of sec 40A(3) wef 1/4/96 the discretion of the AO has' been taken away & in case of default 20% of the cash payment is to be disallowed straight unless the payment falls in any of the specific exemptions provided in Rule 600. The decisions relied upon by the AR are not relevant and not applicable to this case because in all cases the old provisions of sec 40A(3) were applicable when rule 600(j) was in existence. Moreover the basis of the decision (that in case of estimate of profit specific disallowance u/s 40A(3) is not to be made) is that all factors including cash payments are treated to have been considered while making estimate. Hence separate disallowance is not to be made u/s 40A(3). In effect present sec 40A(3) means that purchases/expenses which have been paid in cash exceeding prescribed limit are to be treated to have been inflated by 20% (since 20% of the amount has to be disallowed). Therefore if the ratio of these decisions is applied, even without accepting the same, the profit rate to be applied to estimat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the labour charges. We do not find any infirmity in the order of the ld. CIT(A) and the finding are well reasoned, thus, we uphold the same. Accordingly, this ground of the assessee is dismissed. 9. Ground no. 5 is regarding addition of Rs. 40,000/- under Section 69 on account of purchase of Kisan Vikas Patra in the joint name of wife of the assessee. 9.1 The ld. Authorized Representative submitted that the money was invested out of the 'Mehar' money of the wife and thus the investment duly stood explained and no addition was required to be made in the hands of the assessee. 9.2 On the other hand, ld. CIT(DR) relied on the findings of the lower authorities. 9.3 We have heard the rival submission and perused the material on record. The ld. CIT(A) has decided the issue in paras 8.1 to 8.3 of his order. The ld. CIT(A) has considered all the submission of the assessee in respect of the Mehar money of the wife. However, the same was not found acceptable by him. The findings of the CIT(A) in this respect are as under: "8.3 I have carefully considered the submissions made on behalf of appellant. I have seen the copy of KVPs filed in paperbook. It is noted that the investment in KVP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was submitted that the payment was duly reflected therein. The payment was made out of business funds and cannot be treated as undisclosed income. The appellant was not having any other source of business except the kite business. 9.3 I have carefully considered the submissions made by the appellant. The rejection of books of account by the AO has been upheld as per discussion in the earlier paragraphs of the order. The books have been proved to be manipulated and prepared with a particular motive to explain where discrepancies found during the search process. The fact that the books were manipulated to inflate the cash balance is proved by the results of test check of books conducted by me personally. During test check it was found that entry of cash receipt of Rs. 16,500 on 16/4/02 in the name of Arifbhai was wrong as there was no such noting in seized diary. Similarly cash receipt of Rs. 47,000 is shown on 23/4/02 from Rehanbhai whereas amount noted in seized dairy is only Rs. 7000. Fictitious loan from one Bano Begum is also shown on 20/4/02. It may therefore be seen that the appellant had made incorrect/fictitious entries in the books just to inflate cash on 25/4/02 the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s claimed by the appellant. Therefore appellant's explanation regarding the stock found during the search is not acceptable. However even if books are rejected as unreliable, it cannot be said that no stock in any business would be available, even though the peak sale season was over. In my view a sum of Rs. 50,952 can be treated as legitimate stock of business and considered as explained. The addition of undisclosed income on this count is reduced to Rs. 1,00,000 only." 11.1 From the facts and circumstances of the case, it is evident that the assessee was engaged in sales and purchases of kites which did not appear in the return of income filed and thus certain amount of stock was not as per the trade figure reported in return of income. We are of the considered opinion that the ld. CIT(A) has allowed a reasonable amount of stock towards legitimate stock of business and the additions sustained by him is reasonable and justified. Accordingly, we uphold the finding of the ld. CIT(A) and dismiss this ground of appeal of the assessee. 12. In ground no. 9, the assessee has raised issue for various additions which can be made of the real income and only to the extent of source of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estment can obviously be said to have been made out of such income. In principle the argument of the appellant appears to be quite reasonable & should be accepted. 11.3 However what is to be noted is that the set off or telescoping of income with expenditure can be allowed only if it can be shown prima-facie that the investment could have been made out of income. In other words if the income which is claimed to be source of some investment precedes it then only it can be set off. If the income is earned after a particular investment has been made, it will not be possible to set off the two against each other because there was no inflow of funds before the outflow. Therefore apart from the broad categorization of income and expenditure/investment, the chronological order or the period relating to each item is also to be taken into consideration. The various items of inflow and outflow on the basis of which additions have been confirmed/made in this order are shown in the following table in chronological order: S. No. Items Date/FY/Period Income Investment/expenditure 1. Unexplained investment in purchase 98-99 --- 3,92,700 2. Undisclosed business profit 98-99 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
