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Shri Harish Chand Versus The A.C.I.T., Circle, Bharatpur

2017 (2) TMI 600 - ITAT JAIPUR

Addition by applying GP rate of 34.71% on unaccounted sales - Held that:- The unaccounted sales of ₹ 2,31,400 relates to sale transaction with Shri Shyam Sunder to whom the assessee had sold goods worth ₹ 11,59,900/- out of which, goods worth ₹ 2,31,400/- were not approved by the buyer and were rejected during the same financial year. In this regard, Shri Shyam Sunder had executed an affidavit in confirmation of the above fact and his statement were also during remand proceedin .....

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deration and on this ground alone, addition of ₹ 78,005 on said unaccounted sales is hereby deleted. The question of applying gross profit on such non-existent sales therefore doesn’t arise and hence, not been examined. - Addition is on account of estimated rate adopted by AO for valuation of purchases as admitted in the remand report submitted by the AO. As far as quantity of purchases is concerned, there is no dispute between the assessee and the Assessing Officer. However, no valuat .....

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of assessment proceedings or even the course of appellate proceedings. Further, given that in the books of accounts, the stock was recorded at ₹ 37,88,130/- as against physical stock at ₹ 30,11,120/-, the shortage of stock has rightly been worked out at ₹ 7,77,010/- and which has rightly been held to have been sold outside the books of accounts. Regarding application of GP @ 33.71% by the ld. CIT(A) as against G.P rate of 26% applied by the AO, since the unaccounted sales belon .....

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do not have any bank account maintained by any bank and such payments are covered under the exceptions stated in Rule 6DD of the Rules and in support, their affidavits have been filed which have not been considered in right perspective. However, the Assessing Officer, in his remand report submitted to the ld. CIT(A), has stated that no affidavits have been filed in respect of these two persons. Given the contradictory position and in absence of these affidavits in the paperbook submitted before .....

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g Officer which has been restricted to ₹ 75,000/- by the ld. CIT(A). However, there is no basis which has been given by the Assessing Officer to make such disallowance. There is no finding that these expenses are either bogus or have not been incurred for the purpose of business. Being an adhoc disallowance, same is not sustainable in the eye of law. Hence, the same is deleted. - Decided in favour of assessee. - Telescoping benefit in respect of additions on account of unaccounted sale .....

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(CA) For The Revenue : Shri Rajendra Singh (ACIT) ORDER PER: VIKRAM SINGH YADAV, A.M. This is an appeal filed by the assessee against the order of Ld. CIT(A) dated 02.09.2013 for A.Y. 2008-09. The sole grounds of appeal taken by the assessee are as under:- 1. On the facts and in the circumstances of the case the Ld. CIT(A) has grossly erred in sustaining an addition of ₹ 78,005/- by applying G.P. rate of 33.71% being the gross profit on alleged unaccounted sale of ₹ 2,31,400/- arbitr .....

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) has grossly erred in sustaining the addition of ₹ 33,908/- on account of unexplained investment in unaccounted purchases, arbitrarily. 2.1 That the Ld. CIT(A) has further erred in ignoring the fact that entries noted in loose papers, slips impounded during the course of survey was only rough estimate and measurements and actual purchases noted on loose papers were duly recorded in the books of accounts, and further, ignored the fact that difference between valuation of purchases by the L .....

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ther erred in ignoring the fact that valuation of stock done by the department during the course of survey was on lower side on estimate basis without considering the stock of rough stone 5550cft, lying in the bottom row of the Crain which fact was duly brought to the notice to the survey team, therefore, addition so sustained of ₹ 2,61,930/- deserves to be deleted. 4. On the facts and in the circumstances of the case the Ld. CIT(A) has grossly erred in sustaining the addition of ₹ 1 .....

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dition sustained by the Ld. CIT(A) of ₹ 1,23,500/- deserves to be deleted. 5. On the facts and in the circumstances of the case the Ld. CIT(A) has grossly erred in sustaining lump sum disallowances of ₹ 75,000/- on estimate basis out of various expenses claimed in the Profit & Loss Account for non-verification of same without considering the fact that the Ld. AO has failed to point out even a single instance wherein personal element is involved and expenses were not incurred for .....

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llars and slabs of sand stones. A survey u/s 133A of the Income Tax Act, 1961 was carried out on 18.03.2008 at the business premises of the assessee, during the course of which certain loose papers were found and impounded. Further physical verification of the stock as well as books of accounts was also taken during the course of survey. 2.1 For the year under appeal, the assessee had filed his return of income declaring total income of ₹ 6,40,990/-. However, the assessment was completed u .....

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action of Ld. CIT(A) in sustaining the addition of ₹ 78,005/- by applying G.P. rate @ 33.71% being the gross profit on alleged unaccounted sales of ₹ 2,31,400/-. 2.3 Brief facts pertaining to these grounds of appeal are that during the course of survey certain loose papers were found and were impounded. The Ld. AO referred to these papers and stated that the jottings on these papers reflect the unaccounted sales made by the assessee. The details pertain to these papers is as under: .....

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submitted wherein they have clearly stated that no purchase was made by them from the assessee. However, the Ld. AO ignored the submission of assessee and the affidavits of concerned parties by observing that the affidavits are merely a misguide to the Department and bear no authenticity. 2.5 In this regard, the ld. AR submitted that the aforementioned papers do not reflect any actual transactions and merely contain some rough calculations or estimations of measurements. Affidavits of the partie .....

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gard to the remaining amount, the contentions of the assessee was accepted by the Ld. AO himself. 2.6 Having taken into consideration the remand report so furnished by the Ld. AO, the Ld. CIT(A) also accepted the contentions of the assessee with respect to the amount of ₹ 11,33,284/- and the addition made on this account was deleted. However, with respect to the amount of ₹ 2,31,400/-, the Ld. CIT(A) did not consider the submission/ explanation of the assessee and applied G.P. @ 33.7 .....

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₹ 9,28,500/- and since the sale with respect to the goods of ₹ 2,31,400/- could not be executed as stated above, therefore, no invoice was raised with respect to the same. It is further submitted that neither the rate nor the amount received has been mentioned on the aforesaid loose papers. It is pertinent to mention here that the said person i.e. Shri Shyam Sunder had executed an affidavit in confirmation of the above fact admitting therein that no purchase whatsoever was made by h .....

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may please be directed to be deleted. 2.8 Further, without prejudice to above and in the alternative it is submitted that the Ld. CIT(A) has grossly erred in enhancing the application of the profit rate at 33.71% in place of 26% applied by the Ld. AO. In this regard it is submitted that the Ld. CIT(A) has unilaterally and on his own applied this profit rate without appreciating the fact that assessee has disputed the application G.P. rate and requested for application of N.P. rate and never chal .....

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@ 26% be upheld. 2.9 The relevant finding of the ld CIT(A) is reproduced as under: 4.5 I have carefully considered the submissions made by the ld. AR and the remand report furnished by the AO. AO has now worked out the total unaccounted sales at ₹ 2,31,400/- after considering the explanations furnished by the appellant and affidavits filed during the course of appellate proceedings, as against the unaccounted sales of ₹ 13,64,684/- worked out at the assessment stage. The evidence fur .....

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the findings of the AO and has merely stated that these papers reflect the estimate made and do not show the actual sales. There is no substance in the arguments given by the appellant. The arguments given by the appellant are repetitive and have already been considered by the AO at the assessment stage as well as at the appellate stage in the remand proceedings. 4.7 However, while making the trading addition, the AO applied the average GP rate for the last 3 years (for FY 2005-06 to FY 2007-08 .....

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lared by the appellant for FY 2007-08 is 33.71% and if applied on unaccounted sales of ₹ 2,31,400/-, it gives a profit of ₹ 78,005/-. Accordingly, I confirm the addition of ₹ 78,005/- made on account of profit earned on unaccounted sales and the appellant would get a relief of ₹ 2,76,813/- under this head. 3. In respect of grounds of appeal nos. 2 & 2.1, the assessee has challenged the addition of ₹ 33,908/- sustained by the Ld. CIT(A) on account of alleged unex .....

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that the basis of such valuation by Ld. AO is certain papers found during the course of survey such as page no.39, 60 of Annex. A-5 and page no.55 Annex. A-17. 3.2 Before the Ld. CIT(A), it was contended that complete list of suppliers of raw material was submitted before the Ld. AO and also the purchase vouchers were duly submitted before the Ld. AO during the course of assessment proceedings, which is clearly apparent from the replies submitted by the assessee before the Ld. AO during the cou .....

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IT(A) referred the matter to the Ld. AO for examination of the contentions of the assessee with respect to the impounded documents. Accordingly, the Ld. AO submitted a remand report on 11.06.2013 (APB 20-24) wherein, the Ld. AO observed as under: to examine the correctness of the rates of sand stone per CFT, loose papers/incriminating documents were verified from the details of purchases calculated by the AO. In most of the incriminating documents like annexure A-5, A-6, A-7 only details of sand .....

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the AO. Thus, the contention of the A/R seems to be justifiable to some extent. 3.4 Thus, from a perusal of the above it is clear that the valuation done by the Ld. AO is mere estimation and also that there was no proper basis for the Ld. AO to make such estimation. Accordingly, on the basis of above observations in the remand report, the Ld. CIT(A) has deleted the addition of ₹ 7,33,060/- out of the addition of ₹ 7,66,968/- and the difference of ₹ 33,908/- was sustained by Ld .....

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this fact and observes that this difference was due to the estimated rate adopted for valuation of purchases at the time of assessment. Thus, the addition of ₹ 33,908/- is clearly based on estimation and has been sustained without application of mind and without considering the submission of assessee. Thus, in view of the above it is prayed that the addition of ₹ 33,908/- deserves to be deleted. 3.6 The relevant findings of the ld CIT(A) is reproduced as under: 5.5 I have carefully .....

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e of remand proceedings, the AO has worked out the total purchases (after adding expenses) at ₹ 65,44,035/-. This results in a difference of only ₹ 33,908/-. It is further stated by the AO in the remand report that this difference was due to the estimated rate adopted for valuation of purchases at the time of assessment. In view of these facts, I confirm the addition of ₹ 33,908/- on account of unaccounted purchases and accordingly the appellant would get a relief of ₹ 7, .....

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at ₹ 30,11,120/- and the stock recorded by assessee in the books of account is at ₹ 37,88,130/-, on the basis of which it was stated that the difference between the two amounts is the shortage in stock which have been sold by the assessee. 4.2 With regard to the allegation of shortage of stock, it was submitted before the Ld. CIT(A) that there were some irregularities in physical verification/valuation of the stock inasmuch as the stock of rough stone of 5550 cft lying in the bottom .....

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ffidavit before the Ld. AO (APB 27) deposing the above facts and also stated that he thereafter made requests to the department to consider the whole stock including the stock which could not be considered earlier, however it was informed to him that now no details shall be taken. 4.3 The Ld. CIT(A) then referred the matter to the Ld. AO for examination of the contentions of the assessee with respect to the details submitted by him. The Ld. AO submitted his remand report (APB 20-24) wherein he m .....

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f stock during physical verification thereof was not done in proper manner and certain stock was left out from consideration as mentioned above and to which effect the assessee has submitted his affidavit also which remains uncontroverted. 4.5 It is further submitted that the Ld. AO as well as Ld. CIT(A) have failed to establish the sale of alleged short stock on part of the assessee. Rather, the lower authorities have proceeded on mere presumption that shortage in stock has resulted into sale t .....

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the books of accounts, the credit may please be given out of the alleged shortage of stock of ₹ 7,77,010/- which is also treated as undisclosed. Thus, in view of the above it is humbly prayed that the addition of ₹ 2,61,930/- sustained by the Ld. CIT(A) may please be deleted. 4.7 Further, without prejudice to above and in the alternative it is submitted that the Ld. CIT(A) has grossly erred in enhancing the application of the profit rate at 33.71% in place of 26% applied by the Ld. .....

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at the action of Ld. CIT(A) in applying the profit rate of 33.71% may please be declared bad in law and the profit rate as applied by the Ld. AO @ 26% be upheld. 4.8 The relevant finding of the ld CIT(A) is reproduced as under: 6.5 I have considered the submissions made by the AR and find that the inventory was prepared with the help of assessee and his son on the date of survey and valuation was also done accordingly. The appellant has not been able to prove beyond reasonable doubt, the reasons .....

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he sales outside the books of accounts. The AO had applied average gross profit rate for the last 3 years while working out the unaccounted profit on such sales. In the remand report, the AO has pointed out that the GP rate for the current year i.e. should be applied for working out the unaccounted profit on sales made outside the books i.e. on the stock shortage of ₹ 7,77,010/-. The appellant has not offered any comment on this issue in his counter reply to the remand report. However, thi .....

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5. In respect of grounds of appeal nos.4 & 4.1, the assessee has challenged the action of Ld. CIT(A) in sustaining the addition of ₹ 1,23,500/- made by way of disallowance u/s 40A(3) of the Act. 5.1 Brief facts pertaining to these grounds of appeal are that during the year under appeal, the assessee had made certain payments to the tune of ₹ 6,10,375/- in cash to certain suppliers exceeding ₹ 20,000/-. As per the assessee, these payments in cash had to be made under compuls .....

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epted the fact that the case of assessee was covered by exceptions provided under Rule 6DD in respect of all the payments except payments made to two parties i.e. to Sh. Gulaiya and to Sh. Khan Mahesh Seth of ₹ 23,500/- and ₹ 1,00,000/- respectively solely for the reasons that their statements could not be recorded though their affidavits remained uncontroverted. Accordingly, the Ld. CIT(A) deleted the addition in respect of the remaining amount, however sustained the addition with r .....

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by the Ld. CIT(A). It is submitted that the payment to Sh. Guliya was made on 21.08.2007 and according to the directions of Shri Guliya, the payments were not made to him in cash since he stated to not have a bank account. In support of this contention, affidavit and ID of Shri Guliya was submitted before the Ld. AO which was completely ignored and as submitted above remained uncontroverted. 5.4 Further, the allegation of cash payment is solely based on the loose papers impounded during the surv .....

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ries found noted in such rejected books of accounts as has been held by various Courts. Thus, in view of the above it is prayed that the addition of ₹ 1,23,500/- sustained by the Ld. CIT(A) may please be deleted. 5.5 The relevant finding of the ld CIT(A) is reproduced as under: 7.5 I have considered the submissions made by the AR and the report of the AO and find that payments of ₹ 4,86,875/- are stated to have been covered within the exceptions provided under the provisions of Rule .....

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ad. 6. In respect of ground of appeal no.5, the assessee has challenged the addition of ₹ 75,000/- sustained by Ld. CIT(A) on account of lump sum disallowance made by AO out of the various expenses claimed by assessee in the P&L Account. As per the assessee, the addition has been made without bringing on record any single evidence of any unreasonable expenses or any evidence found as a result of survey indicating any expenditure incurred for non-professional purposes. 6.1 It was submit .....

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s promotion and general expenses and personal user cannot be denied. However Ld. AO failed to appreciate the fact that the books of accounts of the assessee have not been rejected and without rejecting the same, no allegation of inflated expenses etc. cannot be made. Since the books of account maintained by the assessee were doubted and merely on assumptions and presumptions the lump sum disallowance was made, therefore, the addition of ₹ 75,000/- sustained by the Ld. CIT(A) deserves to be .....

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ion furnished and the case laws cited by the appellant, I find that the disallowance was made by the AO on an estimate basis and in my opinion, it would be just and fair to restrict the disallowance to ₹ 75,000/- and the appellant would accordingly, get a relief of ₹ 56,500/-. 7. In respect of ground of appeal No.6, the assessee has challenged the action of Ld. CIT(A) in not allowing telescoping of additions sustained with each other. It was submitted that the addition sustained by L .....

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ales. Thus, in view of the above it is prayed that any addition, if sustained, may please be directed to be telescoped with each other. 8. The ld DR is heard who has relied on the order of ld CIT(A). 9. We have heard the rival contentions and perused the material available on record. Firstly, regarding the addition of ₹ 78,005/- by applying GP rate of 34.71% on unaccounted sales of ₹ 2,31,400/-. The unaccounted sales of ₹ 2,31,400 relates to sale transaction with Shri Shyam Sun .....

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Sunder. Moreso, when on basis of similar affidavits and statements, additions have been deleted in respect of other unaccounted sales alleged by the AO on the basis of loose papers. In light of above, it is clear that goods worth ₹ 231,400 were rejected resulting in no actual sales made by the assessee during the year under consideration and on this ground alone, addition of ₹ 78,005 on said unaccounted sales is hereby deleted. The question of applying gross profit on such non-existe .....

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asis has been apparent on perusal of the record pursuant to which the valuation of the purchases has been done by the Assessing Officer. Therefore, being an adhoc addition, same is not sustainable in eye of law. Hence, the same is deleted. Ground Nos.2 & 2.1 are accordingly allowed. 11. Regarding ground no.3 & 3.1 where the assessee has challenged the addition of ₹ 2,61,960/- on account of gross profit @ 33.71% on stock found short during the course of survey. The appellant has sub .....

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appellant has failed to furnish any documentary evidence in support of the stock valuation adopted by him during the course of assessment proceedings or even the course of appellate proceedings. Further, given that in the books of accounts, the stock was recorded at ₹ 37,88,130/- as against physical stock at ₹ 30,11,120/-, the shortage of stock has rightly been worked out at ₹ 7,77,010/- and which has rightly been held to have been sold outside the books of accounts. Regarding .....

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where addition of ₹ 1,23,500/- has been made by the AO by way of disallowance u/s 40A(3) of the Act. The ld. AR has submitted that ₹ 1 lac has been paid to Khan Mahesh Seth and ₹ 23,500/- has been paid to Mr. Gulaiya who are material suppliers and they do not have any bank account maintained by any bank and such payments are covered under the exceptions stated in Rule 6DD of the Rules and in support, their affidavits have been filed which have not been considered in right persp .....

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