9911796707
TMI Blog2012 (1) TMI 327X X X X Extracts X X X X X X X X Extracts X X X X ..... d circumstances of the case the learned CIT(A) further erred in not annulling order of the learned AO which was framed by him beyond time provided in section 153(2) of the IT Act 1961 which was extended by learned AO by appointing Special Auditors u/s 142(2A) and extending their time again and again thus taking benefit of proviso to sec.153(4)." 2.2 Ground of Appeal 1 by assessee for Assessment year 2005-06 to 2008-09 reads as under:- "That under the facts and circumstances of the case the learned CIT(A) erred in not annulling the order of the learned AO which was based on report of the learned Special Auditors who were appointed for the assignments beyond the provisions of sec.142(2A) of the Income Tax Act, 1961. Reliance in this regard is made on decision of Hon'ble Jurisdictional High Court in CIT vs. Bajrang Textiles 205 CTR 287 (Raj.)." 2.3 The facts in this case are similar to the facts in the case of Shri Ritesh Somani. While deciding the appeal in the case of Shri Ritesh Somani in ITA No. 592 to 597 JP/2011 and 618 to 623/JP /2011 vide order dated 30-12-2011, we have held that reference for special audit is in accordance with the provisions of law. Following that order, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umar Mundra Vs. ITO (2009) XLI Taxworld 59 (Jd.). As after computation of income u/s 44AE income from gitti business is 5.14%, which being reasonable it should not be interfered. 3.5 In further alternate, the assessee submitted that income from vehicles subject to depreciation and interest was 14.81% whereas in case of Orient Mail Speed Transport Service Vs.ITO (2008) XL TW 138(JP) Hon'ble ITAT Jaipur Bench approved NP rate of 6.76%. . The assessee therefore requested that profit being fairly well addition be deleted. 3.6 The ld CIT(A) considered submissions but finally applied submission made by assessee in para 3.5 above partly. As the profit in relation to income from gitti supply was worked out in this process at 5.14%, he considered it low, applied NP rate of 10% and made addition of ₹ 232318/-. Relevant part of ld. CIT(A)'s order is reproduced as under:- "As mentioned by appellant, he has declared net profit of ₹ 289773/- in his Profit & Loss Account which includes income from Gitti Supply as well as transportation business. In the absence of correct and complete books of accounts, it will be proper to estimate income from transportation business as per the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'ble CIT(A) did not considered followings:- (i) That our vehicles are being used in our gitti supply business also whereas income from plying of vehicles considered separately inconsonance to provision of sec.44AE. (ii) That assessee being a supplier to Railways where there is cut throat competition, margin of profit is comparatively less. We therefore request your honour that rate applied by Hon'ble CIT(A) is too high and our disclosed Profit rate @ 5.14 being very reasonable the same be accepted in view of decisions of this Hon'ble Bench. In alternate we request that a reasonable rate be applied.'' 3.8 We have heard both the parties. The chart of receipt other details as filed by the ld. AR is as under:- Particulars A.Y.2004-05 A.Y. 2005-06 A.Y.2006-07 A.Y.2007-08 A.Y.2008-09 DISCLOSED INCOME 1. net profit A 289773 272298 259479 490986 484386 Truck 224651 303779 136699 47845 81337 Dumper 99867 59920 26964 65117 222060 JCB Machine 24485 18363 16526 26960 474746 B 349003 382062 180189 382642 778143 Add. Depreciation C 136355 10884 61577 109012 92705 Add Interest to Bank B 6308 46602 46602 137843 158350 Total A+B+C+D 781439 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 33% 2005-06 2,66,298 3.22% 2006-07 2,47,851 8.04% 2007-08 4,86,507 5.54% 2008-09 4,36,144 4.56% 3.10 The depreciation in assessment year 2006-07 is only ₹ 2.40 lacs as against ₹ 4.90 lacs of earlier year. In the assessment year 2007-08 and 2008-09, there are lime stone sales in addition to grit sales. Such lime stones were not existing in earlier years. In the assessment year 2006-07, the turnover is only around ₹ 30.00 lacs as against around ₹ 85.00 to 90.00 lacs in other years. Therefore, the case for the assessment year 2006-07 is not at all comparable. Neither the AO nor the ld. CIT(A) has referred to any comparable cases. It is an admitted position that net profit rate will depend upon proportion of transportation receipts and grit sales as compared to the total turnover . Considering the nature of expenses debited in trading and profit and loss account and the fact that major expenses are in respect of purchases. We therefore, feel that it will be fair and reasonable to apply net profit rate of 6% for the assessment year 2004-05, 2005-06, 2007-08 and 2008-09. Assessment year N.P. Rate after 6% Addition confirmed 2004-05 5,03,862 2,23 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 134940/- to Choudhary Crushers is verifiable from my accounts and the said firm has also confirmed it which is evident from para 2 of the learned AO's letter also therefore the same also be reduced. Besides my request was that purchase of ₹ 948676/- is overlapping which is evident from page 48 & 49 of Annexure 20 also. I had therefore requested that purchases of ₹ 4369704/- be reduced by Rs.l439800/-(purchases from my son's firm Swastik Stone Crushers as per report of auditors inform 3CD), ₹ 134940/- (as per para 2 of letter of learned AO) and ₹ 9486761- (page 48 & 49 of 'Annexure 20) which shall bring nett undisclosed purchases, as per impounded records, to ₹ 1846288/-. However the learned AO not only did not grant me deduction for it but after making hypothical addition of deemed profit of ₹ 620010/- estimated sales at ₹ 4989714/- and by taking 100% NP rate thereon made addition of ₹ 4989714/-. I submit my every purchase is recorded; of course it may be in some other head. But it is true that there is deficiency in my book keeping. I am a man of more than 70 years of age and therefore to purchase peace I accept the pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve to be dismissed. There are plethora of judgments wherein this Hon'ble Bench has held that in case of undisclosed sales disclosed profit rate should be applied. In view of this factual and legal position, the assessee requested to direct AO to apply the disclosed rate on unverifiable purchase of ₹ 1846288/-. 4.7 On the other hand, the ld. DR supported the orders of the AO. 4.8 We have heard both the parties. In the cases of Ritesh Somani and Smt. Meena Somani, we have held that profit is to be added to the income in respect of undisclosed sales. Following our findings in the case of Shri Ritesh Somani and Smt. Meena Somani, we hold that profit is to be applied on undisclosed sales. On the undisclosed sales including transportation receipts, we held net profit rate of 6%. It will be fair and reasonable if net profit rate of 8% is applied on the undisclosed sales because some of the expenses in respect of such sales stands included in the undisclosed sales. Hence, ground of appeal 3(i) of the assessee is party allowed while ground of appeal 1 of the revenue is dismissed. Such rate is to be applied for other years also. 5.1 The ground of appeal no.3(ii) of the assessee and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2506750/- (2710000-203250) and assessee is in appeal before us for application of normal NP rate of 5% in this line of business on undisclosed sales ₹ 2710000/-. The assessee submitted that the appeal of Deptt.is not maintainable because AO has estimated 100% profit on undisclosed sales which is unjudicious because while estimating profit on undisclosed sales AO's approach should be honest and reasonable. The assessee therefore submitted that departmental appeal on this ground deserves to be dismissed. So far as assesses's ground of appeal is concerned, the assessee submitted that in the case of Smt. Meena Somani in the similar circumstances the Hon'ble CIT(A) has applied 5% rate on undisclosed gitti sales. Ignoring the assessee's earlier submission and in order to purchases peace, the assessee submitted that the same rate of 5% be applied in his case also. 5.6 We have heard both the parties. This issue has been decided in the case of Smt. Meena Somani as well as in Shri Ritesh Somani. We therefore, hold that net profit rate of 5% be applied on lime stone sales estimated by the AO at ₹ 27.10 lacs. 6.1 The Deptt. Ground of appeal no.(iv) reads as under:- "The Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition is uncalled for. It is therefore submitted by the assessee that this ground of appeal of deptt. be dismissed. 6.6 After hearing both the parties, we feel that the ld. CIT(A) was justified in deleting the addition on account of advance of ₹ 1,04,284/- 7.1 The ground of appeal no.(v) of Deptt. reads as under:- "The learned CIT(A) erred in deleting addition on account of unrecorded advances at ₹ 320000/-." 7.2 During hearing of the group case, it was argued by the assessee that in Annexure- 24 contains financial activities of Smt.Meena Somani from assessment year 2002-03 to 2009-10 were appearing. It was also submitted by the assessee that origin of the Annexure- 24 is assessment year 2002-03. The assessee submitted that action u/s 148 in this group was taken as under:- Shri Babulal Somani Ass.Year 2004-05 to 2007-08 Smt.Meena Somani Ass.Year 2002-03 to 2005-06 Ritesh Kumar Somani Ass.Year 2003-04 to 2007-08 As in Annexure-24 entries are from Ass. Year 2002-03 and as notice u/s 148 for Ass.Year 2002-03 was issued to Smt.Meena Somani only, the assessee submitted that the then AO was perhaps very clear that Annexure-24 belongs to her only. The addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in case of Smt. Meena Somani the learned AO has accepted the returned figures of loans and interest on loans and did not made any additions like earlier years. Copy of order is enclosed vide Annexure-H to this letter. In view of these facts I submit additions in my hands are uncalled for and it may be deleted. " 7.4 The ld CIT(A) also verified these advances and interest from Smt.Meena Somani's records and he deleted the addition with following observations- "From the perusal of records it is found that it was claimed by appellant during the course of survey proceedings as well as assessment proceedings that transactions recorded in Annexure 24 pertain to Smt. Meena Somani. AO also made addition on this account in the case of Smt. Meena Somani for A.Y. 2002-03 and 2003-04. Appellant also furnished copy of cash book of Smt. Meena Somani and details of Loans and advances in her case for various years during the course of appellate proceedings, copy of which was also forwarded to AO for his comments in the case of Smt. Meena Somani. AO has not pointed out any discrepancies in these details furnished by appellant. In such a situation addition of ₹ 320000/- in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dvance of ₹ 3.20 lacs. 8.1 The ground of appeal no.(vi) of Deptt. reads as under:- "The learned CIT(A) has erred in deleting addition on account of protective investment at ₹ 300000/-." 8.2 The facts are similar to the facts as per ground of appeal No. (v) of Department and submissions of the assessee are also the same. 8.3 The Hon'ble CIT(A) also verified it from Smt.Meena Somani's records and he deleted the addition with following observations- "As mentioned earlier, transactions recorded in annexure-24 were claimed to be belonging to Smt.Meena Somani. AO is directed to examine whether this amount of ₹ 300000/- is verifiable from the books of Smt. Meena Somani for A.Y. 2004-05 or not. If the amount is verifiable, AO is directed to delete the addition in this case. If the amount is not verifiable, AO is directed to take suitable action in the case of Smt. Meena Somani for A.Y. 2004-05. Ground No. 4(vi) is thus partly allowed." 8.4 Being aggrieved, the Deptt. is in appeal before us. 8.5 We have heard both the parties. The above referred issue stands concluded in the case of Smt. Meena Somani and Shri Ritesh Somani. In that case, we have confirmed the find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon the order of the AO.. 9.7 The assessee submitted that ld CIT(A) has deleted disallowance of depreciation which is based on decision of this Hon'ble Bench in case of ITO Vs. Awadesh Katta (2010) XLVI Taxworld 85 (JP). The assessee therefore submitted that there is no case of deptt in relation to ground no.(viii) So far as other 2 grounds are concerned the ld CIT(A) has given relief taking disallowance from telephone expenses at ₹ 400/- per month and on Car Maintenance at ₹ 1600/- per month on account of personal use. The assessee is of 70 years of age and has small family with only one son. In view of this fact disallowance confirmed by ld CIT(A) being very reasonable department appeal deserve to be dismissed. 9.8 We have heard both the parties. The personal use of telephone and vehicles cannot be ruled out. Section 38(2) permits the revenue authorities to disallow depreciation on an asset which is not wholly used for the purpose of the business. The disallowance confirmed by the ld. CIT(A) on account of telephone expenses is reasonable. In respect of disallowance of depreciation on vehicles, we hold that it will be fair and reasonable to disallow 1/8th of the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in his books of accounts and therefore the same cannot be disallowed. Even otherwise books of accounts of appellant have been rejected by AO and income has been estimated by applying profit rate. In such a situation also, no further disallowance is justified u/s 40(a)(ia). Addition of ₹ 530714/- is directed to be deleted. Ground No. 5(i) is thus allowed." 11.5 Being aggrieved Deptt.is in appeal before us. 11.6 The ld. DR relied upon the order of the AO 11.7 The assessee in this regard submitted as under:- (i) The AO has made addition u/s 194C. In my case provisions of sec.194C are not attracted. (ii) In my case no written or verbal contract is found by learned AO and therefore provisions of 194C are not attracted. (iii) As there are several defects in my books, which is evident from order of the learned AO also, my accounts are rejected by implication. Reliance in this regard is made on Choudhary & Bros. Vs.ITO (2011) XLV TW 98 (JP). If books are rejected my income is computed u/s 28 and therefore deduction of expenses from sec.30 to 38 being not allowable provisions of sec.40(a)(ia) are not attracted. 11.8 We have heard both the parties. The assessee has engaged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) erred in deleting addition on account of unrecorded payment at ₹ 626524/-" 15.2 The AO has dealt these addition in para 5 of assessment order which has been reproduced by Hon'ble CIT(A) in his order and which reads as under:- "In para 4 of questionnaire it is asked to the assessee to explain the payment made to Shri Allanur of ₹ 778724/-, in his reply the assessee has explain that the amount is struck of before survey as the a/c did not exist. However, it is also stated by the assessee that he has paid amount for diesel to various petrol pumps. The above contents of the assessee are not acceptable as on the perusal of the nature of the payment it looked the payment of transportation. In view of above it is clear the assessee has violated the provisions under section 194 of the I. T. Act, 1961. Hence, an addition of ₹ 626524/- is made in the total income of the assessee." 15.3 During the course of appeal proceedings, the assessee submitted in this regard as under:- "During the course of audit the learned Special Auditors found that in our books of accounts there is one account of Shri Alanoor which was struck before survey wherein payment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. DR supported the order of the AO. 15.6 Before us, the ld. AR has submitted as under:- ''The assessee submit that additions are made by learned AO without understanding the effect of the entries. If some entries are wrongly debited in one account which is rectified latter by way of debiting other account and deleting old one what is wrong therein. Even Hon'ble Special Auditors in para 4 of their report dated 08.05.2010 have admitted that 15 entries in this account totaling to ₹ 626524/- have been debited to other account. Only struck off of old account (before survey) does not have any effect. In view of these facts the Hon'ble CIT(A) have deleted additions very fairly and it does not call for any interference. This ground of appeal of Deptt. therefore needs dismissal.'' 15.7 After hearing both the parties, we feel that order of the ld. CIT(A) is fair and reasonable and does not require any interference. Accordingly the ground of appeal no. 3 of the Department is dismissed. 16.1 The Ground No. 7 of the revenue is that the ld. CIT(A) has erred in deleting the addition on account of unrecorded advances at ₹ 13,67,284/- 16.2 The Ground No. 8 of the revenue is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ory reply regarding difference hi purchases of Gitti. AO is therefore justified in making addition of ₹ 150400/-and the same is confirmed. However there is no justification for further addition of ₹ 24064/- and the same is directed to be deleted. Thus addition under this head is restricted to ₹ 150400/- as against ₹ 174464/- made by AO. Ground No. 5(iii) is thus partly allowed." 18.5 The assessee submitted that he is is in appeal before us for addition of ₹ 150400/- and deptt. is in appeal for addition of ₹ 24064/-. So far as deptt. appeal is concern, it is not maintainable because of this reason also that on account of difference in 2 figures it is difference only which is to be taxed and not the element of profit thereon. In our case accounts are rejected and profit rate is applied. In such circumstances difference in purchases as per accounts and as per papers attached with ROI has no relevancy. Whatever addition are made on account of application of rate it covers purchases also. The assessee therefore prayed that addition of ₹ 150400/- are uncalled for and the same be deleted. 18.6 We have heard both the parties. While considering th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate at par to sec. 44AD be applied thereon and relief be provided to us. " 21.2 The ld CIT(A) decided this issue vide para 9.3 of his order which reads as under:- "During assessment year 2005-06 it was found by AO that appellant has made unrecorded purchases of ₹ 188738/-. It will be therefore reasonable to allow credit for the same to appellant during this year. As mentioned above unrecorded sales during the year are of ₹ 210336/-. AO is therefore directed to restrict addition during this year to ₹ 21598/- (210336 - 188738) as against ₹ 210336/- made by him. Ground No. 5(v) is thus partly allowed" 21.3 The revenue relied upon the order of the AO. 21.4 The assessee submitted that being aggrieved Deptt.is in appeal before us on deletion of addition of ₹ 188738/- and further submitted that r that there is no dispute to this fact that there is out of books marble sale of ₹ 210336/- The reasonable and judicious approach thereon may be to apply reasonable NP rate. The ld CIT(A) has already confirmed addition of ₹ 21598/- which is more than 10% and assessee is not in appeal the purpose is already achieved. The assessee therefore, praye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see submitted that income from vehicles subject to depreciation and interest was 19.43% whereas in case of Orient Mail Speed Transport Service Vs.ITO (2008) XL TW 138(JP) the ITAT Jaipur Bench approved NP rate of 6.76%. The assessee therefore requested that his profit is fairly well and addition be deleted. 22.6 The ld CIT(A) considered submissions but finally applied submission made by the assessee in para 3.04 above. Relevant part of his order is reproduced as under:- "As mentioned by appellant, he has declared net profit of ₹ 259479/- in his Profit & Loss Account which includes income from Gitti Supply as well as transportation business. In the absence of correct and complete books of accounts, it will be proper to estimate income from transportation business as per the provisions of section 44AE. During the year appellant has 2 trucks and 1 dumper for full year. Income from these vehicles is estimated at ₹ 3500/- per month each. This gives figure of ₹ 126000/-. Income of JCB is estimated at ₹ 75000/- for the entire year. Thus total income from transportation business is estimated at ₹ 201000/- (126000 + 75000)." "As discussed earlier total pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Department is partly allowed. 25.1 The ground of appeal no.8 of Deptt. reads as under:- "The learned CIT(A) erred in deleting the addition on account of depreciation on vehicle at ₹ 6,334/- 25.2 We have heard both the parties. Following our findings for the assessment year 2004-05, we hold that depreciation to the extent of 1/8th is to be disallowed. 26.1 The ground of appeal no.9 of Deptt. reads as under:- "The learned CIT(A) erred in restricting the addition on account of disallowance of vehicle expenses to ₹ 10,000/- 26.2 After hearing both the parties, we feel that the disallowance made by the ld. CIT(A) is reasonable 27.1 The ground of appeal no. 10 of Deptt. reads as under:- "The learned CIT(A) erred in allowing telescoping benefit of ₹ 4,62,967/- 27.2 We have heard both the parties. Looking to our findings recorded in the case of Ritesh Somani, , the issue is only academic as there is no need of telescoping. Assessment year 2007-08 28.1 The ground of appeal no.2(i) of the assessee and GOA no.1 of the Deptt. reads as under:- GOA no.2(i) of the assessee "That under the facts and circumstances of the case the learned CIT(A) erred in applyi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on on account of unrecorded advances at ₹ 2311000/-." 31.2 The ground of appeal no.6 of Deptt. reads as under:- "The learned CIT(A) has erred in deleting addition on account of protective investment at ₹ 1220000/-." 31.3 This issue has been considered by us while disposing off the appeal for the assessment year 2004-05. Following that order for the assessment year 2004-05, we hold that the ld. CIT(A) has erred in deleting the addition on account of protective investment at ₹ 12.20 lacs 32.1 The ground of appeal no.5 of the Deptt reads as under:- GOA no.5 of Deptt.- "The learned CIT(A) erred in deleting addition on account of violation of provision of sec.40A(3) of ₹ 200000/-." 32.2 During the course of assessment proceedings, the AO ignoring the submissions that payment of ₹ 200000/- are to our sister concern on account of acute necessity in cash the AO made addition of ₹ 200000/- because of contravention of provision of sec.40A(3). 32.3 During hearing of appeal we submitted as under:- "During the course of assessment proceedings on scrutiny of papers the learned AO found that the assessee has paid payment of ₹ 200000/- in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of telephone expenses at ₹ 4,000/-. 33.2 We have heard both the parties. We feel that the disallowance should be restricted to ₹ 5,000/-. 34.1 Ground No. 8 of the revenue is that the ld. CIT(A) has erred in deleting the addition on account of depreciation on vehicle of ₹ 15,856/-. 34.2 We have heard both the parties. Following our findings for the assessment year 2004-05, we hold that depreciation at 1/8th of the vehicle i.e. car is to be disallowed u/s 38(2) of the Act. 35.1 Ground No. 9 of the revenue is that the ld. CIT(A) has erred in restricting the addition on account of disallowance of vehicle expenses to ₹ 15,000/-. 35.2 We have heard both the parties. We feel that the ld. CIT(A) was justified in restricting the disallowance. Assessment year 2008-09 36.1 The ground of appeal no.2(i) of the assessee and GOA no.1 of the Deptt. reads as under:- GOA no.2(i) of the assessee "That under the facts and circumstances of the case the learned CIT(A) erred in applying NP rate of 10% on undisclosed sales ₹ 133392/- as against 5.58% disclosed by the appellant as per Trading account appended with original ROI filed" GOA no.1 of Deptt.- "The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e additions 39.1 The ground of appeal no.5 of the Deptt reads as under:- GOA no.5 of Deptt.- "The learned CIT(A) erred in deleting addition on account of violation of provision of sec.40A(3) of ₹ 1095000/-." 39.2 We have heard both the parties. This issue is also to be decided in favour of the assessee in view of our findings for the assessment year 2007-08. Hence, we hold that the ld. CIT(A) was justified in deleting the addition on account of violation of provisions of Section 40A(3) of the Act. 40.1 The 7th ground of appeal of the revenue is that the ld. CIT(A) has erred in deleting the addition on account of transportation/contract payment without TDS of ₹ 38,12,700/-. 40.2 This issue has been considered and we have held that assessee was not liable to deduct the TDS as there was no verbal contract and the ld. CIT(A) was justified in deleting the addition. 41.1 The 8th ground of appeal of the revenue is that the ld. CIT(A) has erred in deleting the addition on account of contract payment without TDS of ₹ 13,29,105/-. 41.2 We have heard both the parties. The ld. CIT(A) has considered that the sum is included in the sum of ₹ 38,12,700/-. Hence th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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