TaxTMI 
TaxTMI 
2019 (11) TMI 801
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....impounded material during survey. 4. It is prayed that the order of Ld. CIT (A), Patiala be set aside and that of the Assessing Officer be restored. 5. The appellant craves leave to add or amend any grounds of appeal before the appeal is heard and finally disposed of. 3. The facts of the case in brief are that the Assessee was engaged mainly in wholesale trading in timber and wood under the name and style of M/s Chhabra Timber Store. He also maintained a saw mill. A survey under section 133A of the Income Tax Act, 1961 (hereinafter referred to as 'Act') was conducted at the business premises of the Assessee on 09/12/2013 and the inventory of physical stock found at the business premises was compared with the provisional stock as per the books of accounts. The Assessee in his return of income disclosed Rs. 24,56,010/- on account of additional stock, however the A.O. neither mentioned the same in the assessment order nor made any discussions with regard to the disclosure of stock found verified during the survey. The Assessee filed the return of income on 22/11/2014 declaring an income of Rs. 34,08,070/-. The case was selected under compulsory scrutiny as per ....
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....s made to the returned income, without rejecting the account books as envisaged in Sec. 144 of the Act, ibid, are legally invalid and deserve to be deleted." 4.1 The Ld. CIT(A) asked the Assessee to show cause as to why the books of accounts should not be rejected in view of the non maintenance of the stock register and other errors. In response, the assessee submitted as under: "While imported timber/wood is purchased from the parties of Gandhidham in Gujarat, indigenous/local woods are purchased from the parties of Arunanchal Pradesh, Madhya Pradesh and Himachal Pradesh. This timber/wood is segregated quality wise and size-wise. Generally, the timber/wood of medium quality (being easily marketable due to competitive sale rates) is purchased. Pertinent to mention here is the universal fact that the sale rates of timber/wood are based on the quality, size and seasoning quotients. The assessee also has his own saw mill within the business premises to cut the logs to the requirements of customers. There is nominal trading in plywood etc. also. All sales (majority of them being wholesales were made to traders) are evidenced by regularly issued sale invoices, where....
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..... The A.O. estimated the suppressed sales for the year under consideration at Rs. 1,62,66,878/-. The Assessee submitted before the Ld. CIT(A) as under: " The act of Ld. A.O. in making additions to the tune of Rs. 1,62,66,878/- by enhancing by 31.57% the sale value of timber/wood/plywood, over and above the actual sales achieved by the assessee, is not tenable in law, as it has been made by applying some presumptive sale rates, while arbitrarily rejecting the sale rate and value recorded in the Sale Invoices issued for each and every individual sale transaction. 3.3.2 Humbly submitted at the outset, that the rates of timber and wood vary with the variation in the quality of timber and it was for this reason that the assessee had purchased different types of timber/wood at varying rates throughout the period under reference. Pertinent to mention here itself, is another well know/ fact contributing towards variation of rates that a log bigger in length commands higher rate than the smaller one. Higher the thickness of log, higher will be rate as it results in lower wastage. All these facts are verifiable from the trade and this fact of varying rates had been accepted....
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....leged suppressed sales by applying some mathematical formula coined by him. 3.3.5 Your appellant has drawn details relating to the purchase and sale of different types of timber/wood purchased during the entire period under reference on the line of Ld. A.O., and these details are being filed herewith for kind appreciation of your goodself with the summary thereof, as under: S.No Item Quantity Sold in CBM Average Sale Rate Rate determined byA.O. 1 Imported Sawn Meranti 995.8281 21,658/- 21,222/40 2 Imported Mix Wood 498.3545 22,451/- 30,176/- 3 Meranti Mix Size It is part of Imported Sawn Meranti 24,155/20 4 Kapoor Sal 102.0693 24,071/- 18,920/- 5 Teak Wood 247.4085 38,548/- Not determined 6 Pine Wood 244.7637 18,360/- Not determined Further perusal of these details, when compared with the unrealistic determination of sale rates by the A.O., shall reflect, as under: (i)'Imported Sawn Morindi' (may please be read as Meranti) Purchase rates of Imported Sawn Meranti' ranged from Rs. 12,582/- per cbm to Rs. 20,500/- per cbm (excluding freight etc.)....
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.... cbm (before freight expenses) and average sale rate of Rs. 38,548/-per cbm.. The Ld. Officer has not found any fault with the above and has obviously accepted these sales rates and no case of under-pricing has been made for this type of wood which forms 19.36% of total sales. (v) 'Pine Wood' The assessee had conducted sales of 'Pine Wood' during the period under reference, to the tune of Rs. 44,93,822/- (being 9.12% of total sales), with the average purchase rate of Rs. 15,915/- per cbm (before freight expenses) and average sale rate of Rs. 18,360/- per cbm.. The Ld. Officer has accepted these sales rates and has not made any effort to calculate average sale rates at his end for raising presumptions of under-pricing. (vi) 'Imported Sawn Timber Mix Sizes' In addition to the identified species of timber like Teak Wood, Meranti, Hollok etc., there are woods which are not familiar by name with the ultimate users. These different species of wood are purchased in lots which are not specifically identified as a particular type of wood and are described as Imported Sawn Timber with mix sizes. Purchase rates of the above mixed lot....
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....the books of account have not been rejected. The Ld AO has no cogent documentary evidence to prove the receipt of sales price over and above what has been mentioned in the sales invoices issued as per Punjab VAT Act, 2005 but proceeded merely on presumptions and imaginations to justify his addition. He also ignored the fact that almost 79.41% of the total sales were wholesales and accounts were duly reconciled regularly with such purchasers and no discrepancy whatsoever has been pinpointed by the AO. In this connection, a reference is invited to the decision of Hon'ble Apex Court in the case of M/s. Daulatram Rawatmal reported in 87ITR 349(SC), according to which, to prove that the apparent is not the real, the onus lies on the party which says so. It was, therefore, the onus of the Ld. A.O. to prove that the assessee realised more than what was recorded in the books of account and that onus could be discharged only by placing positive material on record. It could not be discharged merely by rejecting unreasonably the explanation of the assessee without pointing out any inherent defect therein or rebutting the evidence produced as has been held by the Hon'ble Apex ....
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.... recorded in the books of account which had been examined by the A.O. and that the duly confirmed copies of accounts of the buyers with the total sales exceeding Rs. 1,00,000/- had been furnished which was on record. The Ld. CIT(A) mentioned that the net effect of the A.O.'s working had been to enhance the sales by 31.57% and the Gross Profit Rate(GPR) to 22.66% while in the preceding assessment year 2013-14 the GPR accepted in scrutiny assessment was 6.97%. The Ld. CIT(A) also reproduced the GPR of the various assessment years at page no. 19 of the impugned order which read as under: Asstt. Year G.P. Rate (%) 2006-07 3.48 2007-08 4.40 2008-09 4.25 2009-10 4.51 2010-11 4.12 2011-12 4.76 2012-13 5.03 2013-14 5.98 2014-15 6.97 2015-16 7.01 2016-17 7.35 2017-18 8.26 6.1 The Ld. CIT(A) deleted the trading addition of Rs. 1,62,66,878/- made by the A.O. on account of under declared sales, however, directed to apply the GPR of 7.5% by observing in para 5.5 of the impugned order as under: 5.5 The Ld. AO has not pointed out a single instance of under declared prices/ in the books. It is my considere....
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....e assessee. Kind attention is drawn to the fact that the details recorded on the relevant piece of paper make reference to Shri Charanjit Tulani and not Shri Ram Krishan Tulani. In the face of this fact, the above inference has been wrongly drawn and therefore the action has been wrongly taken. Without prejudice to the above, it is humbly submitted that at the most the only amount of Rs. 18,900/- pending after scoring off of other two entries, could be considered for making additions and not at Rs. 65,000/-. B) Addition of Rs. 19,125/-: The addition of Rs. 19,125/- as alleged unaccounted sales to have been recorded in documents serially numbered as 1 to 3, 5, 7 to 14, 16 and 18 to 47 of Annexure B-2, has also been wrongly made. The perusal of relevant impounded documents shall support the submissions of assessee that these are just some rates quoted by the staff members and do not relate to any business transaction which had taken place to conclude that it represented unaccounted sales of the assessee and that too during the period under reference. C) Addition ofRs. 25,452/-: Further addition of Rs. 25,452/-, again as unaccounted sale alleged to ....
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....ounted sales. However, since the appellant has during assessment proceedings not contested the Ld AO treating these as unaccounted sales; I see no reason to differ with the findings. Lastly with regards to the calculation of Rs. 25,451.85/- made from Annexure B-4 of the impounded documents. I find some merit in the submission of the Ld AR that these are routine calculations relating to stock. This document does not mention any date or party and could also be an estimate. The Ld AO has treated the same as undisclosed sale. I do not agree with the finding of the Ld AO. In view of the above, the total unaccounted sales relating to the above is quantified at( Rs. 65,000+19,125) Rs. 84,125. I also find considerable merit in the appellant' alternate submission that it is not the argument of the Ld AO that the sales were out of unaccounted purchases. I find considerable merit in the appellant's submissions that the additions need to be restricted to the GP after giving credit to the purchases. Thus the addition is directed to be restricted to 7.5% of Rs. 84,125 or Rs. 6400. The appellant partly succeeds on this ground of appeal. 9. The another addition of Rs. ....
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....r. The Ld AR also argued that the advance was in the nature of a trade advance and the advance was in the normal course of business but that there was a dispute which resulted the amount remaining outstanding. That M/s. Garg Trading Co. of Phillaur was a trade debtor (for supply of goods by the appellant) till the Previous year 2008-09 relevant to the immediately prior Assessment Year of the impugned order is on record and not disputed by the appellant. However M/s Garg Trading Company was in the past a buyer from the appellant. The Ld. AO has agreed that there is no business expediency. In this connection referring to the the decision of the Hon'ble Apex court in the case of SA Builders Ltd, vs. CIT (2007) 158 Taxman 74 (SC)may be relevant. The relevant part is extracted below: " However, where it is obvious that a holding company has a deep interest in its subsidiary, and hence if the holding company advances borrowed money to a subsidiary and the same is used by the subsidiary for some business purposes, the assessee would, in our opinion, ordinarily be entitled to deduction of interest on its borrowed loans." This principle has b....
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....iew that at the time of making the advance of Rs. 2,64,655/- there existed a business expediency for making the advance as M/s Garg Trading, Phillaur was a regular trading partner of the appellant. Due to the above finding I am not examining the alternate submission that in since the appellant has interest free funds credit be given for them as wherever there are mixed funds the assessee has mixed funds i.e. interest bearing funds as well as its own capital (paid up capital/surplus/reserve), then no disallowances u/s 36(1)(iii) of the Act has to be made. The AO is directed to delete the addition u/s 36(1)(iii) of Rs. 31,758/-. Thus ordered. The appellant succeeds on this ground of appeal. 11. Now the Department is in appeal. 12. The Ld. Sr. DR reiterated the observations made by the A.O. and strongly supported the assessment order. It was further submitted that the additions were made by the A.O. on the basis of the documents found during the course of survey which proved that the Assessee was engaged in the sales outside the books of accounts. Therefore, the additions were rightly made by the A.O, the Ld. CIT(A) was not justified in deleting the same and directing t....