TMI Blog2014 (7) TMI 1273X X X X Extracts X X X X X X X X Extracts X X X X ..... which was required as investment in the form of inventory. It was also observed that at best only profit could be estimated on such undisclosed sales. The undisclosed sales was clearly admitted during the survey/search operation by the assessee himself and therefore, the same cannot be denied now. At least profits on all such transactions have to be assessed to tax. The Assessing Officer has been more then reasonable to assess the profit at the GP rate declared by the assessee in various years and the same has been confirmed by Ld. CIT(A), therefore, we find nothing wrong with the order of Ld. CIT(A) and confirm the same. Addition on account of alleged capital gains short disclosed - Held that:- The year a sum of ₹ 1,60,000/- has been shown towards construction and further a sum of ₹ 44,333/- is shown for transfer charges and ₹ 28,550/- for purchase of wood etc. Therefore, it can be said that assessee has incurred some expenditure for cost of improvement. However, at the same time no documentary evidence has been placed and since admittedly the assessee is holding many properties, therefore, it cannot be said that all the expenses have been incurred for improv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry to the extent of 500 gms in case of a married lady and 100 gms in case of a married male should be accepted, therefore out of jewellery of 735.20 gms, jewellery of 600 gms should be accepted. Similarly diamond items had been valued at ₹ 65150/- and silver items had been valued at ₹ 21780/-. These are small amounts and considering the overall status of the family, in our opinion, these amounts should be accepted as explained. Therefore we set aside the order of the CIT(A) and direct the Assessing Officer to make addition of jewellery for 135.20 gms. Addition on account of alleged undisclosed capital gains - cost of improvement - Held that:- No force in the submissions because no evidence has been filed for the source of the cash for so called improvement. Therefore we set aside the order of the CIT(A) and confirm AO order. - ITA Nos. 77 to 81/CHD/2014 , C.O.Nos. 13 to 17/Chd/2014 (In ITA Nos. 77 to 81/Chd/2014) , ITA Nos. 84 & 85/CHD/2014, ITA Nos. 94 & 95/CHD/2014 - - - Dated:- 11-7-2014 - SHRI T.R. SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER Department By : Dr. Amarveer Singh Assessee By : Shri Vishal Mohan ORDER PER B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 60/- 5. Channels (Drawer) ₹ 4/- ₹ 3.20/- ₹ 4/- ₹ 4.70 to ₹ 4.80 6. Iron Tools - Hammer (per kg) ₹ 60/- ₹ 52/- ₹ 55/- to 60/- ₹ 67/- to 70/- The hardware items which are tax free does not require my business to adopt such modus operandi. Branded hardware item too does not require sales / purchases out of books. Some of such item are thinners from SRP Jalandhar, tools with make Pye, Taparia, J.K. Electrics, Hinges, Tower boths, Aldrops, screws, nut both etc. The tax free items includes agriculture implement, Baan (Coconut himp), old not etc. On the basis of above statement, the Assessing Officer prepared the following table:- Table-1 Sl.No. Name of the items Actual value Purchase bill value (Shown in books (in Rs. ) Difference Deflation % 1 Machine -Cutter 900 700 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,45,50,243 A show cause notice was issued why these under reported purchases should not be added as his unexplained investment in stock etc. under section 69. In response, the assessee replied vide letter dated 1.2.2013 as under:- The perusal of the table chart in response of para 5 reproduced by you would go to reveal that though the assessee admits variation in the purchase price as well as sale price but the profit on the most items remain the same leading to no effect in the profitability. If the profitability is computed on higher sales figure the same shall decrease in percentage terms. That most of sale and purchase of the assessee are in respect of the products of Multi National Company of which admittedly even under the statement recorded within the meaning of Section 132(4) of the Income Tax Act, 1961. The assessee has categorically mentioned that the same are billed on the actual selling price and so are the purchase made. The copy of the inventory prepared during the course of survey would also go to reveal that apart from 2,3 items in respect of the list detailed in the reply to the questionnaire stands found and as such no adverse i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able profit could have been estimated on such unrecorded sales. The Ld. CIT(A) adjudicated this issue vide para 5.3 which is as under;- 5.3 I have considered the submissions of the assessee and the impugned order. The assessee has admitted, as evident from Qs. 2,5,9 and 10 of the statement recorded on 08.10.2010, copy of which was furnished in the Paper-book, that over 50% of the sales were of Paints; purchases and sales are booked out of books; purchases undervalued in bills to avoid VAT payments and the actual value-purchases bill paid out of books; seized documents A1 and A2 are entries of sales (pertaining to AY 2010-11) not recorded in the books. Books are also admittedly not written upto-date. It is however not clear from the statement whether only the hardware terms from Delhi are under billed. It is also not clear that purchases of Paints other than from reputed companies have not been undervalued. It is seen that the AO had specifically asked the assessee to prove if purchase price or sale price of any of the other items have not been undervalued. The undisputed fact being assessee resorts to under-billing to avoid payments of VAT etc. The AO also noted that despite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have not been recorded. However, the moot question is whether separate additions can be made for such unrecorded purchases and sales. No doubt whatever has been purchased have been sold also and assessee was trying only to underreport the purchases and sales. This would mean that purchases and sales have been conducted outside the books of account. The Chandigarh Bench of the Tribunal in the case of ITO Vs. Ajit Boot House, in ITA No. 850/Chd/1996 (supra) has observed at para 8 9 as under:- 8. We have given careful thought to rival submissions of the parties. There is no dispute that the assessee made purchases and sales outside the books of accounts and its income for relvant period has been computed by taking sales at ₹ 25.00 lacs against ₹ 19,23,648/- disclosed in the books. Thus unaccounted for sales and purchases have been taken into account in the estimated income. The question that now arises is - whether separate addition on account of un-explained investment was justified or not ? On the facts of the case we are inclined to agree with the view taken by the Commissioner of Income Tax (Appeals). 9. It is a matter of common knowledge that the investment i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the similar issue. As observed earlier only the initial addition of ₹ 3 lakhs would be sufficient to cover the inventory and sundry debtors of unrecorded purchases and, therefore, no addition is required to be made in these years. Therefore, we direct the Assessing Officer to make addition of ₹ 3 lakhs in assessment year 2005-06 and no addition is required to be made in assessment year 2006-07 to 2011-12. 12. In the result appeal of the Revenue in ITA No. 77/Chd/2014 is partly allowed and in ITA Nos. 78 to 81/Chd/2014 and 84/Chd/2014 to 85/Chd/2014 are dismissed. Cross Objections No. 13/Chd/2014 13. In this Cross Objection the assessee has raised the following ground:- That in the facts and circumstances of the case the Ld. CIT(A)is not justified in sustaining the addition of ₹ 124635/- made on account of alleged profit earned on alleged unaccounted sales. 14. After hearing both the parties we find that during assessment proceedings the Assessing Officer after determining the under recorded purchases and sales went on to work out the profit on unrecorded sales. A computation has been done in table No.4, which is as under;- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee outside the books of account. Accordingly he added a sum of ₹ 1,24,635/- towards profits of undisclosed sales in this year. 16. On appeal before CIT(A), the submission made before Assessing Officer were reiterated. The Ld. CIT(A) after examining the submissions decided the issue vide para 5.3 which we have already reproduced while adjudicating the Revenue s appeal. The relevant portion relating to the conformation of addition on account of profits reads as under:- Be that as it may, I have considered the fact that unaccounted purchases and sales were made by the assessee. However one has to also consider the fact that the purchases and sales if taken together would become neutral. This has been articulated by the assessee himself. Thus I am conscious that they both cannot be taken together as unaccounted. However the assessee cannot escape the eligibility of taxation, which has also been accepted by him in the statement recorded vis- -vis unaccounted purchases and unaccounted sales. It would be thus scientific to take the percentage of unaccounted sales (turnover) as the unaccounted income of the assessee. In the disclosed profit and loss account, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the case the Ld. Commissioner of Income Tax (Appeals) is not justified in upholding the addition of a sum of ₹ 3,00,000/- on account of alleged capital gains short disclosed. 24. Ground No.1 : Through this ground the assessee has challenged the addition on account of profit on unaccounted sales. This issue has been discussed by us in detail while adjudging the Cross objections in C.O.Nos.13/Chd/2014 to 17/Chd/2014. Since the facts are identical, therefore following the order in C.O. No. 13/Chd/2014, we decide this issue against the assessee. 25. Ground No.2: After hearing both the parties we find that during assessment proceedings the Assessing Officer noticed that assessee sold a flat at A-147, Sector III, New Shimla. The assessee has shown capital gain of ₹ 11 lakhs as per following details:- Sale consideration ₹ 11,00,000/- Less: Cost of acquisition ₹ 7,00,000/- Cost of improvement ₹ 3,00,000/- ₹ 10,00,000/- ₹ 1,00,000/- 26. The assessee failed to file any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as towards construction and ₹ 1.80 lakhs as personal expenses do not prove anything, other than perhaps raising a question of how the assessee, in such circumstances is meeting his personal and household expenses ? No documentary evidences in support of development expenditure claimed have been furnished by the assessee. Thus, I have no hesitation in confirming the action of the AO. Assessee fails on this ground. 28. Before us, Ld. counsel for the assessee referred to page 30 of the paper book which is cash flow statement for the year where clearly the amount of ₹ 1,60,000/- is shown towards construction. He also referred to page 32 to 33 of the paper book and pointed out that ₹ 44,333/- was paid to Himuda as transfer charges on 8.4.2008 and further a sum of ₹ 28,550/- was spent towards purchase of wood etc. These items clearly show that assessee has incurred expenditure in improvement. 29. On the other hand, the Ld. DR while strongly supported the order of CIT(A) and submitted that assessee has not filed any documentary evidence to show that development expenditure was incurred for the said property because the assessee was holding many properties an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital gains. 33 Ground No. 1 - This issue is identical to the issue raised by the assessee in Cross objections which we have decided vide para 19 of this order. Following that order we decide this issue against the assessee. 34. Ground No.2: After hearing both the parties we find that during the survey operation the stock was inventorised and the detail of stock was as under:- a) At BCS, Sector-I, New Shimla: ₹ 9,92,244/- b) At Basement, Sharma Shopping Complex, Near Police Chowki, New Shimla. ₹ 1,84,850/- c) At B-1, Lane-I, Sector-1 New Shimla. ₹ 12,55,460/- ₹ 24,32,554/- 35. The assessee was asked to reconcile the stock with the books of account but the assessee failed to do so. It was stated by the assessee that since the books are not up-to-date, therefore, it is not possible to prepare a inventory as per the books of account. In this background the Assessing Officer issued a show cause notice that why a sum of ₹ 24,32,554/- should not be added to the income of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing the method of valuation of stock at cost or market value whichever is lower. Therefore, this addition was not justified at all. 39. On the other hand, the Ld. DR strongly supported the order of CIT(A). 40. We have considered the rival submissions. We find some force in the submissions of Ld. Counsel for the assessee. The Assessing Officer has added the whole of the stock found during the survey except for a minor value of ₹ 10,800/-. This seems to be totally incorrect. The assessee is regularly carrying on the business of sanitary and hardware items and, therefore, must be carrying on some stock . Before CIT(A) list of inventory was furnished showing stock of ₹ 18,47,600/-. Though inventory list was not furnished before Assessing Officer but this can be said to have be accepted by the Revenue because investment in undisclosed sale was calculated on the basis of these details. Further, we have already held while adjudicating the issue regarding undisclosed stock i.e sum of ₹ 3 lakhs should be added towards inventory and sundry debtors. Considering this fact and the fact that some of the items have been valued at retail price we are of the opinion that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, the proprietary concern of Hemant Popli cash on the date of survey i.e. 8.10.2010 was ₹ 145647/- instead of ₹ 1345647/-. Similarly as per cash book of proprietary concern of assessee M/s Shimla Hard Ware and Welding Works cash was ₹ 71084/- instead of ₹ 371084/-. In this background the assessee was issued a show cause notice that why the cash found during search should not be added to the income of the assessee. The assessee vide letter dated 1.2.2013 gave following reply: Regarding cash in hand the detailed submissions have already been made which have also been reproduced by you. Just because cash is found would not lead to the inference with same is unaccounted. Just because surrender has been retracted does not empower the revenue to make unnecessary additions. The abstract of the cash of Sh. Rajesh Popli has already been placed on record. No discrepancy in the same has been pointed out. His brother Sh. Hament Popli has owned case as per his books of account of ₹ 13,45,647/-. The sister and brother in law of the assessee had owned the case of ₹ 3 lakh and their statement was also recorded during the course of proceedings under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vailable is ₹ 371084/-. He also referred to pg 84 which is a copy of certificate given by Smt. Jyoti Khajuria who is sister of the assessee who was visiting her parents, has clearly stated that she has brought cash of ₹ 3.00 lakhs from Delhi for purchase of Single Room flat at Shimla. He also referred to pg 85 which is a copy of certificate given by Shri Vijay Kishan Sharma who is father-in-law of Shri Hemant Popli and said to have cash of ₹ 3.00 lakhs which is withdrawn from Vijay Bank on 19.8.2010. 46 On the other hand, the Ld. D.R for the revenue strongly supported the order of the Ld. CIT(A) and submitted that there was no occasion for the father-in-law to bring cash to the house of his son-in-law. Similarly Smt. Jyoti Khajuria who is the sister of the assessee, has not explained the source of cash. He also submitted that since books of account were not complete at the time of search / survey and therefore no credit can be given for cash in hand of the business. 47 We have considered the rival submissions carefully. First of all as far as cash related to the business is concerned, admittedly the books of account were not complete and therefore credit cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the query regarding source of jewellery it was stated as under: That the valuation of jewellery as elucidate by you in para 28 is also admitted it is pertinent to mention that the family of the assessee is a family of means and have been doing business for some time. The jewellery found under the respective heads and owned by the ladies dating back to their respective marriages. It is pertinent to mention that in the year of purchase, of the jewellery, the value of gold was on the lowest side and when the jewellery was seized the same was valued at the current market price. The Assessing Officer did not find any force in the above explanation and treated the total jewellery amounting to ₹ 1085530/- as unexplained and added the same to the income of the assessee on protective basis. 49 On appeal before the Ld. CIT(A) it was mainly submitted that the jewellery was belonging to the wife of the assessee and therefore at best it could have been added in her hands. The Ld. CIT(A) observed that in the absence of any documentary evidence the explanation cannot be accepted and therefore she confirmed the addition on substantive basis in the hands of the assessee and deleted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t various expenses for sale and expenditure was duly incorporated in the cash flow statement. The Ld. CIT(A) did not find force in the submissions because no evidence was filed for improvement. 55 Before us, the Ld. Counsel for the assessee reiterated the submissions made before the Ld. CIT(A). 56 on the other hand, the Ld. D.R for the revenue supported the order of the Ld. CIT(A). 57 After considering the rival submissions, we find no force in the submissions because no evidence has been filed for the source of the cash for so called improvement. Therefore we set aside the order of the CIT(A) and confirm her order. 58 In the result, appeal of the assessee in ITA No. 95/Chd/2014 is partly allowed. 59 In the result, appeals of the revenue and the assessee are disposed off as under: Sl No ITA No Name of the party Result 1 77/Chd/2014 DCIT Partly allowed 2 78/Chd/2014 DCIT Dismissed 3 79/Chd/2014 DCIT -do- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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