TMI Blog2020 (8) TMI 807X X X X Extracts X X X X X X X X Extracts X X X X ..... accounted profits offered to tax. Considering judicial precedence find no inconsistency in the finding of Ld. CIT(A) deleting the peak credit addition. Rejection of books of accounts - Addition made by enhancing net profit - AO applying net profit @2.5% as against the net profit disclosed by the assessee @0.73% - CIT-A deleted the addition - HELD THAT:- Action of the A.O rejecting the book results thereby invoking provisions of section 145(3) was not justified and so was also not justified in estimating the net profit on the regular turnover in the books of accounts @2.5% as against 0.73% offered by the assessee. Application of 2.5% on undisclosed turnover cannot be equated to be applied on the regular turnover disclosed by the assessee. In the immediately preceding assessment year 2013-14 assessee has offered 0.91% as net profit rate which has been accepted by the revenue. No reason to interfere in the finding of Ld. CIT(A) deleting the addition of ₹ 67,76,734/- and we also find no justification in the action of the Ld. A.O rejecting the books of accounts u/s 145(3) of the Act. - Decided in favour of assessee. - ITA No.925/Ind/2018 - - - Dated:- 20-8-2020 - Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vely. 4. Aggrieved assessee preferred appeal before Ld. CIT(A) against the above additions and succeeded. 5. Now the Revenue is in appeal before the Tribunal against the above deletions effectively raising two issues against the finding of Ld. CIT(A) firstly deleting the peak credit addition of ₹ 1,25,53,136/- and also deletion of addition of ₹ 67,76,734/- by way of applying higher net profit rate. 6. We first take up Ground No.1 relating to peak credit addition of ₹ 1,25,53,136/-. During the course of assessment proceedings Ld. A.O while examining the unaccounted sales transaction accepted by the assessee which were carried out through the undisclosed bank account held with ICICI Bank. Ld. A.O also examined the peak balance in the bank account and found that on 1.3.2014 there is a peak balance of ₹ 1,25,53,136/-. In reply to the show cause notice it was submitted that no addition was called for on account of peak credit since the assessee had sufficient cash and stock in hand on various dates around the year which were valuing more than the peak balance available in the bank account and thus require set off before calculating the peak credit. Ld. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt having sufficient amount of cash and stock in his regular books of account, in that case certainly he has used the same for his unrecorded business also. One cannot deny credit of the same while calculating Peak credit. The appellant deal in cotton, Cotton bales and cotton seeds, the goods were also sold to his regular parties but realization of some of the bills were deposited in the ICICI Bank account. 1.6] That when the appellant prepared his books of account after incorporating the total turnover which includes recorded and unrecorded turnover in that case there was no negative balance of stock. Hence, there was no justification for separately adding the peak amount to the total income of the appellant on the basis of bank balance with bank account with ICICI Bank. 1.7] That for calculating the peak balance total turnover of the appellant has to be considered and the same is incorporated with Cash and stock as available in the regular books of account of the appellant. Hence, there was no justification for ignoring cash and stock as available in the books of account of the appellant and separately calculated peak investment in respect of turnover as executed through th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14163394 2303975 16467369 28134 16439235 26-02-14 1490.20 15922787 2186384 18109171 3973435 14135736 27-02-14 1490.20 15922787 2186384 18109171 6810435 11298736 28-02-14 1328.35 14193419 2090816 16284235 10472722 5811513 01-03-14 1328.35 14193419 1978374 16171793 1033136 15138657 02-03-14 1328.35 14193419 1970874 16164293 1033136 15131157 03-03-14 1328.35 14193419 1764979 1595839 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2012) 20 taxmann.com 337 (Jodhpur) (ii) Hon ble Allahabad High Court in the case of CIT Central) Vs Fertilizer Traders reported in (2015) 42 Taxmann.com 476 (Allahabad) (iii) Hon ble Gujarat High Court in the case of CIT Vs Tirupati Construction Co. Reported in (2015) 55 taxmann.com 308 ( Gujarat). 10. We have heard rival contentions and perused the records placed before us. Through Ground No.1 Revenue is aggrieved with the finding of Ld. CIT(A) deleting the addition for peak credit of ₹ 1,25,53,136/- in the undisclosed bank account held with ICICI Bank. It is a undisputed fact that the assessee executed total turnover of ₹ 18,82,79,709/- through the undisclosed bank account held with ICICI Bank and the transactions entered into this bank account were not incorporated in the regular books of accounts. Assessee offered net profit of ₹ 47,06,993/- on the unaccounted sales in the revised Return of Income. As per the Ld. A.O as on 1.3.2014 assessee s peak balance in the undisclosed ICICI Bank account at ₹ 1,25,53,136/-, however as submitted by Ld. Counsel for the assessee the peak balance was ₹ 1,04,72,722/- as on 28.2.2014. As on 1.3.2014 there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account with ICICI Bank. 3.6] That for calculating the peak balance total turnover of the assessee has to be considered and the same is incorporated with Cash and stock as available in the regular books of account of the assessee. Hence, there was no justification for ignoring cash and stock as available in the books of account of the assessee and separately calculated peak investment in respect of turnover as executed through the ICICI Bank. 3.7] That it is settled position of law while calculating the peak credit entirety of the circumstances must be taken into account. In the present case in hand, the entire transaction of the ICICI Bank taken into account in the regular books of account, there was no negative cash balance as to calculated peak. The amount as found credited in the ICICI Bank account was on account of sale proceed of material as shown in the books of account but sold by the assessee out of books and cash as found recorded in the books of account also used by the assessee for his business-as -done by him through ICICI Bank. 3.8] The assessee during the course of assessment proceeding filed a sheet wherein stock and cash in his books of account with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19 2090816 16284235 10472722 5811513 9 01-03-14 1328.35 14193419 1978374 16171793 1033136 15138657 10 02-03-14 1328.35 14193419 1970874 16164293 1033136 15131157 11 03-03-14 1328.35 14193419 1764979 15958398 1956759 14001639 12 04-03-14 1647.75 17606208 1415274 19021482 506759 18514723 3.10] The assessee while calculating the peak has considered the following components:- S.No Particulars 1 Cash as per regular books of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... persons. Even then, if the genuineness of all the person is disbelieved and all the credits appearing in the different account are held to be the assessee's own moneys, the assessee will be entitled to set off and determination of the peak credit after arranging all the credits in the chronological order. 16. Such proposition was also considered by this Hon'ble Court in the matter of CIT v. Neemar Ram Badlu Ram [1980[ 122 ITR 68 (All.) in which the relevant paragraphs are reproduced- as under:- The Tribunal also did not agree with the departmental authorities that merely because the assets in the balance sheet changed from time to time, the difference would not be available for explaining a similar difference in subsequent years 3.12.3] That Hon'ble Gujarat High Court in the case of CIT vs Tirupati Construction Co as reported in 55 taxmann.com 308 has held that [ refer para 7 of the order:- 7. At the outset, it is required to be noted that, while appreciating a document, it is required to be considered in its entirety and it cannot be considered in part. In the case on hand, while appreciating the papers / documents, which according to the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom these parties were deposited in the bank account with the ICICI Bank which remained to be incorporated in regular books of account. It was also claimed by the assessee that he was having sufficient amount of stock and cash in his books of account so as to justify the sales as executed by him. The proceeds of the same were deposited in the bank account with ICICI Bank . The assessee during the course of assessment proceeding and also in the appellate proceeding had filed detailed chart showing the cash balance and stock as per his regular books of account and also compared the same with the balance with ICICI bank on account of sale proceed as deposited. On comparing the two, the amount of cash and stock as per books of account was always higher than the sale proceeds as deposited in the ICICI Bank and therefore, it was claimed that addition as made by the assessing officer on account of peak investment was not justified. Few entries as shown by the assessee in his submission are being reproduced for sake of clarity hereunder:- S.No Date Closing Stock Closing Cash Total Stock Cash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17606208 1415274 19021482 506759 18514723 3.4. The assessee also referred the decision in the case of Hon ble Jodhpur bench of ITAT in the case of ACIT vs Kashmir Trading Company as reported in 20 taxmann.com 337 and decision in the case of Hon'ble Allahabad high court in the case of CIT Vs Fertiliser Traders as reported in 42 taxmann.com 476 and Hon'ble Gujarat high court in the case of CIT vs Tirupati construction co as reported in 55 taxmann.com 308. Considering the overall facts of the case, on perusal of the assessment order and submissions as made by the assessee, it is noticed that the assessing officer simply on the basis of credit balance in the bank account with the ICICI bank had reached to a conclusion that peak investment to the tune of ₹ 1,25,53,136/was made by the assessee and totally ignored the submission as made before him on merit. It is an undisputed fact that the assessee was having sufficient amount of stock and cash in his regular books of account the telescoping of which should have been allowed to the appellant for the total turnover as executed by him thr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aring in the regular books of accounts against the peak balance of unaccounted transactions carried out in the bank account. The issue needs to be examined in the light of judicial precedence. 13. We find that the Co-ordinate Bench Jodhpur in the case of ACIT Vs Kashmir Trading Company (2012) 20 Taxmann.com 337 held, considering the issue wherein the Ld. A.O did not allow the telescoping of the peak credit in the books of accounts that of Dasti Bahi (Dasti Bahi is a hindi name of books containing un accounted/undisclosed transactions), the Co-ordinate Bench confirmed the finding of Ld. CIT(A) allowing the telescoping benefit of the entries recorded in the regular books of accounts with the entries recorded in Dasti Bahi observing as under:- 5. We have heard both the parties and gone through the material available on record. From the facts stated above, it is clear that the AO had made addition of ₹ 1,13,000 in the name of Shri Jai Narayan and ₹ 1,55,000 in the name of Shri Roshan Lal on the basis of the entries found recorded in the books of account of the assessee. The assessee had taken a plea before the CIT(A) that no addition in respect of entries found re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee by confirming the decision taken by the Tribunal observing as follows:- 6. We have heard Mr. Parikh, learned Advocate appearing on behalf of the appellant-Revenue, and perused the material on record. 7. At the outset, it is required to be noted that, while appreciating a document, it is required to be considered in its entirety and it cannot be considered in part. 1n the case on hand, while appreciating the papers/ documents, which according to the Assessing officer, contained accounted and unaccounted transactions on the part of the Respondent-assessee, she not only failed to examine it properly but also failed in assessing the income as per law. Further, thougb, the AO, herself, had prepared the account of profit and loss in respect of accounted and unaccounted entries, she did not assign any reason, as to why the profit and loss account of unaccounted transactions of the Respondent-assessee cannot be believed to be true- Moreover, the AO also did not take into consideration the explanations tendered by the Respondent-assessee vide letters dated 10.12.2008 and 29.12.2008 . Even, the working of the peak based on the seized diary given by the Respondent-assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd in the bank account not disclosed in the regular books in the instant case three things have to be considered, firstly stock in hand available with the assessee, secondly cash in hand available in regular books and thirdly the undisclosed profit earned on the unaccounted sales till the date of peak balance which have been offered to tax. Taking these factors together, in the instant case the peak balance in the undisclosed ICICI bank account is much less than the total of stock in hand, cash in hand and unaccounted profits offered to tax. We therefore in the given facts and circumstances of the case and considering judicial precedence find no inconsistency in the finding of Ld. CIT(A) deleting the peak credit addition of ₹ 1,25,33,136/-. We accordingly dismiss revenue s Ground No.1. 17. Now we take up Ground No.2 relating to deletion of addition made by enhancing net profit at ₹ 67,76,734/-. Brief facts relating to this issue are that in the return of income assessee offered for tax the net profit of ₹ 47,06,993/-computed @2.50% on the unrecorded sales of ₹ 18,82,79,709/-. In the audited books the assessee disclosed net profit @0.73% on the sales tu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 40,488 2.1 Net profit as estimated by applying the rate of net profit at 2.5% 93,68,512 2.2 Net profit as shown in the books of account 25,91,778 2.3 Difference in the net profit as added to the total income 67,76,734 2.3] Comparative chart of percentage of Gross Profit and Net profit of proprietorship concern of the assessee M/s SMO Industries for the Assessment Years 2013-14 to 2015-16 is as under:- S.No Particulars 31.03.2013 31.03.2014 31.03.2015 1 % of Gross Profit 8.13 % 4.45 % 5.41 % 2 % of Net Profit 0.91% 0.73% 0.84 % 2.4] Comparative chart of income as declared in the case of the other assessee engaged in the trading activities of similar type of the assessee is as under:- S.No Name of the Firm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lied the same rate of net profit in respect of total turnover as disclosed in the regular books of account. 2.9] The appellant as explained in Ground No 1 of this appeal that he has used cash and stock as shown in his regular books of account and no funds were either borrowed from outside parties. Hence, the margin of his trading business was slightly higher than manufacturing as shown in its books of account. 2.10] The net profit of the assessee as declared in his regular books of account is as under:- S.No Particulars Amount [Rs] % of Profit 1 Sales 37,47,40,488 2.1 Net Profit 27,49,896 0.73% 2.2 Interest as charged in the Profit Loss A/c 62,57,566 1.67% 2.3 Bank Charges 5,66,548 .15% 2.3 Net Profit before interest Bank charges 95,74,010 2.55% 2.11] That ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act and the fair and reasonable profit needs to be estimated on the entire turnover trade out by the assessee. 24. In the regular books of accounts assessee has disclosed turnover of ₹ 37,47,40,488/- on which the net profit @ 0.73% was offered. It was submitted before the Ld. A.O that net profit @ 0.73% was arrived after claiming the interest expenditure and bank charges which in percentage terms were 1.67% and 0.15% respectively. Since the interest and bank charges already stands claimed in the regular books net profit @2.5% was applied on undisclosed turnover. However Ld. A.O was not satisfied and since he had rejected the book results he applied net profit @2.5% on the total recorded sales of ₹ 37,47,40,488/- declared in the regular books thereby working out net profit at ₹ 93,68,512/- as against the disclosed net profit of ₹ 25,91,778/- and the difference of ₹ 67,76,734/- was added to the total income of the assessee. 25. When the matter came up before Ld. CIT(A) assessee made detailed written submission showing consistency of net profit rate offered to tax and the fact that interest expenditure and bank charges were already debited t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Net Profit 0.31 0.32 0.35 3 M/s Suhan Cotton Fibers, Sendhwa Gross Profit 2.21 2.07 Net profit 0.31 0.32 4.5] That from the above chart, the percentage of Gross profit in respect of all the above firms varies between 2.21 to 2.67 and similarly the percentage of Net Profit calculated comes to 0.31 to 0.70. 4.6] That in the following decisions it was held that only net profit can be taxed as income of the assessee, for this preposition we reply on the following direct decisions:- CIT vs Balchand Ajit Kumar 263 ITR 610 [MP] DCIT vs Himmatmal Fafaria 009 ITJ 475 [Indore ] 4.7] That as per available decisions including that of jurisdictional high court, only net profit is taxable on the amount of unrecorded sales which in case of trading firms varies between 0.31 to 0.70. However, while calculating the income on the amount of unr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks of account was lower than what was disclosed for unaccounted turnover. The assessing officer was grossly erred in applied the rate of net profit at 2.5% as against rate of net profit as disclosed by the assessee at 0.73%. The book result as declared by the assessee requires to be accepted and addition as made in the turnover as shown in the books of account was not justified. 4.12]That in view of the above, addition of ₹ 67,76,734/- as made to the total income of the assessee was legally and factually not justified, the same now requires to be deleted in full . 4.2 It is evident from the above facts that the appellant had shown total turnover in his books of account to the tune of ₹ 37,40,40,488/- and unrecorded sales as executed through the bank account of ICICI Bank was of ₹ 16,66,66,003/-. The assessee had shown net profit in his regular books of account at 0.73% but on the amount of unrecorded sales net profit was shown at 2.5%. The assessing officer while passing the assessment order applied the net profit rate at 2.5% on the amount of total turnover as shown by the assessee in his books of account. Comparative chart of net profit as shown by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to interest and bank charges calculated comes to 2.55% and therefore it was claimed by the assessee that net profit on the amount of total turnover as executed through the ICICI Bank which was not recorded in the books of account was offered at 2.50% in place of 0.73% as declared in the regular books of account. The assessee had further claimed that the assessing officer had grossly erred in applying the rate of net profit at 2.5% on the amount of total turnover as disclosed in the books of account. The assessee has also claimed that he had debited interest and bank charges in his books of account and therefore, the rate of net profit was reduced to 0.73% and the same was correctly disclosed by the assessee. As stated, the assessee had used his stock and cash as shown in his regular books of account in respect of sale proceeds which were deposited in the bank account with ICICI Bank and therefore on the amount of unrecorded sales, he was not liable to pay any additional amount of interest and bank charges. Considering the overall facts of the case as discussed in the assessment order and submission as made by the assessee, it appears that though the net profit rate as per books of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The assessee accordingly get relief of ₹ 67,76,734/. This ground of appeal is allowed. 26. From perusal of the detailed finding of fact by Ld. CIT(A) and the factual aspect we observe that the Ld. A.O has only taken the basis of undisclosed bank account for rejecting the books of accounts. Nowhere in the assessment order he has pointed out any other irregularity in the regular books of accounts maintained by the assessee which are duly audited. Ld. Departmental Representative has failed to bring on record any such observation of the Ld. A.O. It is well evident that the fact of undisclosed bank account has duly been admitted by the assessee in the revised return of income and has offered the net profit @2.5% on the total transactions of the undisclosed bank account treating it as undisclosed sales at ₹ 18,82,79,709/- on which net profit of ₹ 47,06,993/- has been offered. Apart from this fact during the course of assessment proceedings Ld. A.O while examining the stock records and books of accounts has not come across any mistake or irregularity which could prove that the books of accounts regularly maintained by the assessee and book results are questiona ..... 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