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M/s. Shanti Sarup and Sons Pvt. Ltd. Versus Commissioner of Income-tax, Meerut.

2016 (5) TMI 758 - ITAT DELHI

Revision u/s 263 - disallowance of expenses - Held that:- AO, after duly examining written submissions, audited copies of balance sheet, trading and profit & loss account, books of account, bills and vouchers, applied his mind and proceeded to make the disallowance of ₹ 35,000/- out of expenses. Whereas, on the other hand, ld. CIT, without examining the books of accounts and bills/vouchers, during the proceedings u/s 263, returned the findings on the basis of assumptions. It is un-understa .....

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ts earned by the assessee and on the other hand, asked him to reject the books of accounts in case the same are incorrect or incomplete so as to ascertain the correct profits and applied the reasonable rate of profit on the turnover. When the books of accounts have initially been examined by the AO on the test check basis and then have been duly produced before ld. CIT during proceedings u/s 263 who got an opportunity to scrutinize the same, it would not be fair to put the assessee in the initia .....

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f the considered view that ld. CIT has hurriedly decided this issue without controverting submissions made by the assessee during proceedings u/s 263 of the Act nor has conducted any independent enquiry. - Decided in favour of assessee - Addition of sundry creditors - Held that:- When the assessee had already paid balance due to the various sundry creditors in the subsequent year which has been duly accepted by the revenue, an addition u/s 68 of the Act is not sustainable. Moreover, on the o .....

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stion of making addition on account of unsecured loan amounting to ₹ 28,30,711/- by the ld. CIT by impugned order is concerned, it is categoric case of the assessee that it has raised fresh loan of only ₹ 1,10,500/- from Mohit and ₹ 50,000/- from Rahul during the year under assessment and the balance unsecured loans were old loans raised in the earlier years. It is proved from Schedule - 3 of the audited balance sheet explaining break-up of the unsecured loans lying. Hon’ble Ra .....

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P SINGH, JUDICIAL MEMBER For The Assessee : None For The Revenue : Shri Munish Kumar, CIT DR ORDER PER KULDIP SINGH, JUDICIAL MEMBER : Appellant, M/s. Shanti Sarup & Sons Pvt. Ltd. (hereinafter referred to as the assessee ), by filing the present appeal sought to set aside the impugned order dated 12.03.2013 passed by the Commissioner of Income-tax, Meerut qua the assessment year 2008-09 on the grounds inter alia that :- 1. That the impugned order as passed by the Id. CIT u/s 263 of the Inco .....

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der are either incorrect or are untenable in law and various case laws relied upon by the Id. CIT are not applicable to the appellant's case, being distinguishable on facts. 2. That, without prejudice to ground no.1 above the direction of Id. CIT to AO vide Para 8 to disallow proportionate interest paid by the assessee on advances are also illegal, unjust and untenable. 3. That without prejudice to above, grounds, the ld. CIT has grossly erred in law by making additions of ₹ 21,25,298/ .....

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order under appeal cannot be termed as a speaking order and is based on incomplete and inadequate appreciation of facts of the case and the various case laws relied upon by the ld. CIT are not applicable to the appellant's case being distinguishable on facts. 4. That the impugned order of the CIT u/s 263 deserves to be cancelled/ annulled. 5. The appellant craves leave to add, delete and / or modify any grounds of appeal. 2. Briefly stated the facts of this case are : the return of income fi .....

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the trading of tyres, tubes, flaps, batteries and lubricating oil. 3. From the scrutiny of profit & loss account, it is noticed that assessee has debited a sum of ₹ 2,87,949/- towards other expenses, found to be incurred by the assessee in cash and as such, their verification was not done and to cover up the possible leakage of revenue, the Assessing Officer disallowed the amount of ₹ 35,000/- and added the same to the income of the assessee on estimate basis. The AO, in the lig .....

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e have heard the ld. Departmental Representative of the Revenue, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case. GROUND NO.1 6. A bare perusal of the impugned order passed by the ld. CIT u/s 263 goes to prove that the issue as to the tax audit report and as to the quantitative details etc. has never been raised by the ld. CIT in the show-cause notice dated 12.12.2013 issued u/s 263 of the Act and a .....

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s not charged the interest on advances. Therefore, the interest shall be disallowed on proportionate basis. (c) Sundry creditors of ₹ 21,25,298/- have not been enquired into properly before accepting the same. (d) Similarly, unsecured loans of ₹ 28,30,711/- have not been enquired into properly before accepting the same. 8. Ld. CIT, pursuant to the show cause notice, referred to above, returned the findings as to tax audit report qua the quantitative details in para 7 of the impugned .....

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iving information in pursuance of provisions of part 2 of schedule VI of the Company Act 1956 have categorically stated as follows: "Separate figures of purchases and sales of tyres, tubes and flaps cannot be given as the same are generally purchased and sold in sets of one tyre, one tube and one flap set." In the tax auditor's report, the auditors have reported that "that the company has not followed AS2 valuation of inventories as issued by the Institute of Chartered Account .....

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assessment record so as to suggest if any kind of verification was made before accepting such unreasonable and unsupported loss. The inventories of stock are not available in the assessment records and there is absolutely nothing on record to suggest if any such scrutiny was made. As has been stated above, it is not ascertainable as to how from the final accounts, the true profit could be deduced, ascertained or verified. It is reiterated at the cost of repetition that the losses on the turnove .....

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oks of account in case the same are incorrect and incomplete so as to ascertain correct profits and apply the reasonable rate of profit on the turnover to be arrived at by the AO after considering the relevant accounts properly. While doing so, the assessee may be provided reasonable opportunity of being heard and furnishing, producing the evidence, if any, and explaining about the correctness of the books of account. 9. Ld. CIT raised the first query, in the show cause notice as to huge loss of .....

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ical issue. Ratio of the judgments i.e. Toyo Engineering India Ltd. and Ashish Rajpal (supra) is that Commissioner while exercising a revisional power u/s 263 is not empowered to travel beyond the show cause notice and in case order passed by Commissioner u/s 263, refer to any other issue than referred in the show-cause notice, it would amount to violation of rule of natural justice. 11. A bare perusal of the show-cause notice issued u/s 263 raising four issues goes to prove that the issue as to .....

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ing the law laid down by the Hon ble Apex Court and the Hon ble jurisdictional High Court, referred to above, the impugned order has failed to withstand judicial scrutiny and as such, is liable to be set aside on this score only. 12. Even otherwise, on merits, the assessee has duly filed quantitative and amount-wise details of the opening stock, purchases, sales and closing stock along with written submissions, audited copies of balance sheet, trading and profit & loss account, books of acco .....

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- 311 ITR 161 (Del.). Ratio of the judgment (supra) is that when the assessee had been consistently following the cost method for valuation of closing stock and same had been accepted by the revenue on earlier occasion being in accordance with the wellaccepted principles, the same cannot be faulted with in the subsequent assessment year. The ratio of the judgment (supra) is duly applicable to the facts and circumstances of the case. 14. Ld. CIT further returned the findings that it is not ascert .....

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s could be deduced, ascertain or verified. 15. However, from the bare perusal of the assessment order, it is apparently clear that the AO, after duly examining written submissions, audited copies of balance sheet, trading and profit & loss account, books of account, bills and vouchers, applied his mind and proceeded to make the disallowance of ₹ 35,000/- out of expenses. Whereas, on the other hand, ld. CIT, without examining the books of accounts and bills/vouchers, during the proceedi .....

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. Not only this, ld. CIT, on the other hand, has directed the AO to enquire into the actual profits earned by the assessee and on the other hand, asked him to reject the books of accounts in case the same are incorrect or incomplete so as to ascertain the correct profits and applied the reasonable rate of profit on the turnover. When the books of accounts have initially been examined by the AO on the test check basis and then have been duly produced before ld. CIT during proceedings u/s 263 who .....

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t of advances in any form given to the other parties and worked out the interest rate on which the interest had been paid by the assessee and disallowed proportionate interest on the same, on the ground that when the money was available with the assessee, the same could have been used for its own business instead of raising unsecured loan. However, vide written submission dated 05.03.2013 filed before the ld. CIT, during proceedings u/s 263 of the Act, now lying at page 124 of the paper book, wh .....

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addition of ₹ 21,25,298/- and ₹ 28,30,711/- on account of sundry creditors and unexplained unsecured loans respectively being totally unexplained u/s 68 of the Act. 19. It is also clear from the documents on record that during assessment proceedings, the assessee has placed on record vide letter dated 20.05.2010 list of sundry creditors, copies of accounts of various sundry creditors in the books of assessee s accounts along with confirmation copy of accounts of assessee and vide le .....

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