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TMI Blog2018 (2) TMI 1520X X X X Extracts X X X X X X X X Extracts X X X X ..... nal evidence filed under rule 46A. 2. The Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in confirming the trading addition of Rs. 11,99,984/- by disallowing 15% of the entire purchases of Rs. 79,99,891/- alleging the same to be unverifiable but at the same time accepting the sales declared by the assessee and ignoring the fact that the g.p. rate declared during the year is better than the earlier years. 3. The Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in confirming the disallowance of Rs. 73,714/- u/s 40(a)(ia) without considering the fact that the recipient of this amount has included the same in its income and paid the tax on the same. 4. The Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in confirming an addition of Rs. 3,83,757/- by considering the peak of cash deposit and withdrawal from the bank account as unexplained. He has further erred in confirming the addition ignoring that these are regular bank accounts of the assessee and all the deposits in the bank account is verifiable from the cash book maintained by the assessee. 5. The Ld. Commissioner of Income Tax (Appeals) has erred on fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examine the evidence or document or to cross-examine the witness produced by the appellant, or (b) to produce any evidence or document or any witness in rebuttal of the additional evidence produced by the appellant. (4) Nothing contained in this rule shall affect the power of the Deputy Commissioner (Appeals)] or, as the case may be, the Commissioner (Appeals) to direct the production of any document, or the examination of any witness, to enable him to dispose of the appeal, or for any other substantial cause including the enhancement of the assessment or penalty whether on his own motion or on the request of the Assessing Officer under clause (a) of sub-section (1) of section 251 or the imposition of penalty under section 271 (I)(c) (ii) In view of the provisions of Rule 46A of the I.T. Rules, the additional evidences could be admitted only if the case of the assessee falls in any of the four clauses as mentioned in Sub-Rule-1 of Rule 46A. It was claimed by the AR that sufficient opportunities were not provided by the AO to produce these evidences. It is to be noted that this contention of the AR is not correct as it is evident from the assessment order and the remand repor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... general statement, exceptions have been carved out that in certain circumstances it would be open to the Commissioner (Appeals) to admit additional evidence. Therefore, additional evidence can be produced at the first appellate stage only when conditions stipulated in rule 46A are satisfied and a finding is recorded. The conditions prescribed in rule 46A must be shown to exist before additional evidence is admitted and every procedural requirement mentioned in rule has to be strictly complied with so that rule is meaningfully exercised and of exercised in a routine or cursory manner. A distinction should be recognized and maintained between a case where the assessee invokes rule 46A to adduce additional evidence before the Commissioner (Appeals) and a case where the Commissioner (Appeals), without being prompted by the assessee, while dealing with the appeal, considers it fit to cause or make a further enquiry by virtue of the powers vested in him under subsection (4) of section 250. It is only when the exercises his statutory suo motu power under the above subsection, that the requirements of rule 46A need not be followed. On the other hand, whenever the assessee, who is in appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letter dt. 09.03.2016 (PB 12A) requested for admission of additional evidences under Rule 46A. It was submitted that assessee is suffering from heart disease since 2010 and in FY 2010-11, he was diagnosed with TB also. The treatment of TB was started and due to this he could not give attention to the various notices issued by AO and was dependent on his counsel. The medical documents were also filed. However, on receipt of order it was gathered that counsel did not appear before the AO as and when required and thus the assessment was completed u/s 144. On suggestion of counsel, assessee filed an appeal. However, it was seen that he was not giving enough time for preparation of the case and thus assessee changed the counsel. Affidavit of assessee in this regard is at PB 13A. 3. The Ld. CIT(A) called for remand report. In remand report dt. 15.04.2016 (PB 14A-16A), AO submitted that no documentary evidence has been filed regarding contention of assessee that he was suffering from illness. The assessee case does not fall in any of the exceptions mentioned in Rule 46A. The AR of the assessee appeared on 11.04.2016 and submitted some bills and sought adjournment till 15.04.2016. Howeve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot on any principle be precluded from rectifying the error. Mistake is accepted as valid reason to recall an order. Difference lies in the nature of mistaken and scope of rectification, depending on if it is of fact or law. But the root from which the power flows is the anxiety to avoid injustices. It is either statutory or inherent. The latter is available where mistake is of the Court. In Administrative Law, the scope is still wider. Technicalities apart if the Court is satisfied of the injustice then it is its constitutional and legal obligation to set it right by recalling its order. 7. In the present case, assessee has given an explanation which prevented him for submitting the documents before the AO. The same were submitted before the Ld. CIT(A). The Ld. CIT(A) also called a remand report. Thus, opportunity has been given to the AO to examine the additional evidences filed. Once this course is adopted which is as per Rule 46A, it is not appropriate on part of the Ld. CIT(A) not to consider the same. The decision of Delhi High Court in case of Manish Build Well 206 Taxman 106 is in a different fact situation where the assessee invokes Rule 46A and prayed for admission of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ortunities were provided by the A.O. to the assessee. It is noted from the financial statements of the assessee that for the F.Y. 2012-13 and 2013-14, the assessee was having total turnover of Rs. 92,01,799/- and Rs. 57,26,420/- respectively. Various notices were issued by the Assessing Officer to file the details but no compliance was made by the assessee. In view of the above facts and circumstances, the Bench find that there are no any contrary material in the order of the ld. CIT(A), therefore, we uphold the order of the ld. CIT(A) on this issue. Accordingly, this ground of assessee's appeal is dismissed. 8. The 2nd ground of the appeal is against confirming the trading addition of Rs. 11,99,984/- by disallowing 15% of the entire purchases of Rs. 79,99,891/-. The ld. CIT(A) has dealt the issue by holding as under: 3.1.2 Determination: (i) During the course of assessment proceedings, the appellant was required to produce its books of accounts, which were not produced and therefore the purchases made by the appellant remained unverifiable. In view of the bogus/unverifiable purchases, the AO disallowed 25% of purchases amounting to Rs. 79,99,891/- and made addition of Rs. 19, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.68% 2010-11 99,94,807 14,60,532 14.61% 2009-10 2,10,06,499 30,46,728 14.50% From the above table, it can be noted that G.P. Rate of 14.68% declared during the year is better than the G.P. rate of 14.61% declared in last year & G.P. Rate of 14.50% declared in AY 09-10. It is a settled law that, no trading addition is called for if the result declared is better as compared to the result declared in earlier year. Thus, when the overall amount of profit declared by the assessee is better as compared to the results declared in earlier years, disallowance of 15% of purchases made by the CIT(A) is unwarranted & be deleted. For this reliance is placed on t he following cases:- CIT Vs. Vaibhav Gems Ltd. (2014) 112 DTR 84 (Raj.) (HC) dt. 21.08.2014 While the past history becomes the relevant basis but if the AO wishes to tinker with the basis of past records, then some flaw has to be found by the AO in making some addition. Tribunal has come to a conclusion that in the immediate past assessment year, the Tribunal itself has applied G.P. rate of 2.60% whereas in the present year under consideration, the G.P. rate has been declared at 4.85%. AO was unable to poi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y assessee is the best guide for application of profit rate and when the GP shown in the last year was better and AO has not given any comparable case for higher GP then his action to make the trading addition cannot be approved. CIT vs. Babulal Agarwal (2014) 97 DTR (Raj) 284 (HC) G.P. shown in the present year at 7.43% was reasonably higher than the previous years, and could not have been dubbed as fanciful or palpably baseless. When the CIT(A) has deleted the addition in the trading result on relevant considerations and further, when ITAT has concurred with the CIT(A), no substantial question of law arise and appeal was thus dismissed. Thus, where the GP rates shown by assessee in current year was higher than last year's profit declared by the assessee, profit declared by assessee cannot be rejected. M/s Oscar Exports Vs ITO ITA No. 203/JP/08 order dated 19-09- 2008 It was held that when the estimation is made, the immediate preceding year is the nearest year where the assessee has declared the GP rate of 10%. The assessee has declared the GP rate of 14.32% during the impugned year which is better than the gross profit declared in the immediate preceding year. Theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt payee cheques and encashed through the bankers. If an assessee took care to purchase the materials for his business by way of account payee cheques from a third party and subsequently, three years after the purchase, the said third party does not appear before the AO pursuant to the notice or even has stopped the business, the claim of the assessee on that account cannot be discarded as non-existent. CIT Vs. Amarpali Jewels (P.) Ltd. 65 DTR 196 (Raj.)(HC) It is essentially for the taxing authorities to decide as to what should be the % rate of GP that should be applied on particular yearly turnover of the assessee. It is a matter of discretion to be exercised on settled practice applicable to business standards and which is prevalent in commercial world. Thus, in a case, where books of accounts are rejected u/s 145(3) & addition made by disallowing 25% of unverifiable purchases is reduced by applying a G.P. rate by accepting the factual explanation of assessee, the same would not involve any substantial issue of law as such & the Court in its appellate jurisdiction u/s 260A ibid, would not again de novo hold yet another factual inquiry with a view to find out as to whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that section 145 need not have been invoked and the addition for purchases as bogus was wrong as the consumption stood fully proved and the existence of selling parties could not be denied. It upheld the basis of valuation of closing stock of work-in-progress and hence deleted the additions of Rs. 1,48,93,286 made by the AO on account of bogus purchases. It was held that the purchase of scrap could not be termed bogus for the reason that in the subsequent assessment year, the purchases from these very parties stood accepted by the Department to a very substantial extent. No sale invoices were found to be undervalued or the purchases inflated. The extraordinary profit in respect of goods sold and as recorded in the books of account which ought to have been taken favourably qua the assessee, was considered "adverse" by the Assessing Officer by adopting an erroneous approach. The assessee's contention that out of total purchases of non-ferrous metals of Rs. 2.44 crores, the Assessing Officer had treated purchases worth Rs. 1.49 crores only as bogus and it was impossible to manufacture the goods shown to have been manufactured by it out of the remaining purchases if the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Carpet Factory- held that onus is on assessee to prove the genuineness of the purchases. 6. 186 CTR 718 (MP) - VISP Pvt. Ltd.- Same view was taken as in case of Indian woolen 7. 227 ITR 391 (Raj) - Golcha Properties P Ltd 8. 250 ITR 575 (Del) - Law Medica 9. 240 ITR 322 (KER) - Beena Metals 10. 229 ITR 181 (MP) - System India Casting 11. 50 DTR 502 (ITAT, Jaipur) - Deepak Dalela 12. 49 ITR 112 (SC) - Shri Lekha Banerjee 13. 288 ITR 10 (SC) - Kachawala Gems In view of the above, where the assessee filled the appeal /CO may kindly be dismissed and where revenue filled appeal may kindly be allowed. 11. The Bench have heard both the sides on this issue. The ld. CIT(A) held that the assessee has not produced its books of accounts, therefore, the purchases made by the assessee remained unverifiable. The Coordinate Bench of the ITAT, Jaipur Bench in the case of Anuj Kumar Varshney & Ors. had decided that 15% of such bogus/unverifiable purchases can be disallowed and the ld. CIT(A) had followed the same. Therefore, the Bench find no merit in the contention of the ld. AR of the assessee. Accordingly, we uphold the order of the ld. CIT(A) in this regard. Hence, this groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- During the appellate proceedings, it was submitted by the AR that the deduction of tax at source is verifiable from the TDS return filed by the appellant which is on the record of the department. (iv) As the appellant has admitted that it has not deducted tax at source on account of payment of Rs. 73,714/- , the disallowances made by the AO u/s 40(a) (ia) of the Act is hereby sustained. Regarding the remaining expenses, the AO is directed to obtain the TDS return from the TDS Wing of the Income Tax Department and allow the claim of the appellant wherever TDS was made in respect of the payments under consideration. 13. While pleading on behalf of the assessee, the ld AR has submitted as under: 1. The AO observed that assessee has incurred brokerage expenses of Rs. 38,182/-, interest expenses of Rs. 4,28,283/- and legal & consultancy charges of Rs. 94,714/- which were liable to TDS. However, since the assessee has not produced any documents relating to the expenses, it could not be verified that TDS were made out of these expenditures or not. Accordingly, AO disallowed expenses of Rs. 5,61,179/- u/s 40(a)(ia). 2. Before CIT(A), assessee submitted that except payment of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the order of the ld. CIT(A), therefore, we uphold the same. Hence, this ground of appeal of assessee stands dismissed. 16. In the 4th ground of the appeal, the issue involved is confirming the addition of Rs. 3,83,757/- by considering the peak of cash deposit and withdrawal from the bank account as unexplained. The ld. CIT(A) has dealt the issue by holding as under: "3.3.2 Determination: (i) The brief facts of the case are that during the assessment proceedings, it was observed by the AO that the appellant has made cash deposit of Rs. 17,24,150/- in Allahabad Bank and Rs. 5,000/- in Union Bank on various dates as mentioned on page 6 & 7 of the assessment order. Since, the appellant has not filed any explanation for the same, the AO made addition of Rs. 17,24,150/- to the income of the appellant. (ii) During the appellate proceedings, it was submitted by the appellant that these are the regular bank accounts of the appellant and duly incorporated in the books of accounts. The source in the cash book is either receipt from debtors or earlier withdrawals from the bank account itself. In support of its contention, the appellant has filed copy of bank account and relevant pag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to this order as Annexure-A, submitted by the appellant, the peak credit balance was to the tune of Rs. 3,83,757/- as on 27.01.2011 and not Rs. 2,53,857/- as stated by the appellant. Therefore, addition of Rs. 3,83,757/- is hereby sustained as undisclosed income of the appellant. However, the AO is directed to examine the peak deposit chart i.e. Annexure-A with the bank statements of the appellant and to rectify the mistake, if any, in the said chart." 17. The ld. AR of the assessee has reiterated the arguments as made before the ld. CIT(A) and further submitted as under: 1. The AO observed that assessee has deposited cash of Rs. 17,24,150/- in Allahabad Bank on various dates and Rs. 5,000/- in Union Bank of India on 16.04.2010. Since assessee has not filed any explanation for the same, he treated the above cash deposit of Rs. 17,29,150/- as unexplained and made addition for the same u/s 68 of the IT Act. 2. In appellate proceedings, assessee submitted that these are regular bank accounts and duly incorporated in the books of accounts. The source of cash deposit is either receipt from debtors or earlier withdrawal from the bank account itself. The copy of bank account and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also accepted the contention to take into account, the peak credit theory. When any amount is paid, later withdrawn from the bank, would be available for recycling and rotation, unless otherwise established as invested elsewhere by the Revenue. It was held that the assessee was entitled to the benefit of peak credit which ought to have been allowed instead of making separate addition of entire amount. However, it was observed that it the Assessing Officer comes to a finding that withdrawn amount was used or spent by the assessee for any other investment or expenditure than the benefit of peak of such credit, in such circumstances, may not be available. No specific reason was recorded regarding the utilization of cash withdrawal by the assessee from its bank accounts in some investment or expenditure. In view of the above and considering the totality of the facts and circumstances of the case, the Bench find no any contrary material in the order of the ld. CIT(A), therefore, we uphold the same. Hence, this ground of appeal of assessee stands dismissed. 20. In the 5th ground of appeal, the issue involved is confirming the disallowance of deduction of Rs. 56,256 made under Chapter V ..... 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