TaxTMI 
TaxTMI 
2020 (8) TMI 807
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....th ICICI Bank, holding that the assessee used cash and stock available in the books of accounts for making such unaccounted credits, whereas peak credit arrived at by AO from the bank account is in not part of the turnover. 2. Whether on the facts and circumstances of the case of Ld. CIT(A) was justified in deleting the addition of Rs. 67,76,734/- made on account of G.P on total turnover after rejecting books of accounts of the assessee u/s 145(3) of the IT Act which was based on serious defects in books of accounts of the assessee. 3. The appellant craves leave to add to or deduct from or otherwise amend the above grounds of appeal. 3. Brief facts of the case as culled out from the records are that the assessee is an individual deriving income from the business of manufacturing and trading of cotton, cotton bales and cotton seeds. Return of income declaring income of Rs. 26,88,550/- was filed on 21.09.2014 electronically and further revised return on 11.3.2016 declaring total income at Rs. 73,95,540/- and agriculture income at Rs. 53,640/-. The case was selected for scrutiny through CASS. Notices u/s 143(2) and 142(1) along with questionnaire were duly s....
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....- was offered. 1.2.2] The appellant has also executed total turnover of Rs. 18,82,79,709/- through his bank account with ICICI Bank which was originally not incorporated in his regular books of account but net profit on the same as calculated to the tune of Rs. 47,06,993/- was offered for tax. 1.2.3] The assessing officer while passing the assessment order considered the highest credit balance in the bank account with ICICI Bank and added the same to the total income of the appellant. The assessing officer considered the same at Rs. 1,25,53,136/-. 1.3] The appellant is engaged in the business of Cotton. The appellant has maintained sufficient stock in his books of account. However, some of the realizations on sale of goods were deposited in the bank account with ICICI Bank which was not incorporated in the regular books of account of the appellant. 1.4] The assessing officer while passing the assessment order considered the peak credit in the bank account with the ICICI Bank as on 01-03-2014 was of Rs. 1,25,53,136/- [Peak balance of Rs. 1,04,72,722/- as on 28-02- 2014 and Rs. 10,33,136/- as on 01-03-2014] and added the same to the total income of....
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....gative balance even after deducting the amount of ICICI Bank balance from the total of Cash and stock in the regular books of account. 1.10.1] The few entries from the statement as filed during the course of assessment is re- produced hereunder for sake of clarity:- S.No Date Closing Stock Closing cash Total [ Stock + Cash] Bank balance with ICICI Cash & Stock available Qty [ In Quintals] Amount [Rs] 21-02-14 1319.39 14097682 2393422 16491104 2130993 14360111 22-02-14 1160.89 12404109 2372792 14776901 1730993 13045908 23-02-14 1160.89 12404109 2365018 14769127 1730993 13038134 24-02-14 1325.54 14163394 2357975 16521369 1621278 14900091 25-02-14 1325.54 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 162842....
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....ding company reported in 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 Rs. 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 Rs. 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 Rs. 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 Rs. 1,25,53,136/-, however as submitted by Ld. Counsel for the assessee the peak balance was Rs. 1,04,72,722/- as on 28.2.2014. As on....
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....the peak on the basis of Bank 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 st....
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....the balance as credited in the bank statement is duly explained and the assessing officer was not justified in adding an amount of Rs. 1,25,53,136/- to the total income of the assessee. 3.12.1] That Hon'ble Jodhpur Bench of ITAT in the case of ACIT vs Kashmir Trading Company as reported in 20 Taxmann.com 337 had an occasion to discuss The similar issue in detail and held that [ refer Para 5 J of the order :- « 5. ---------------------------------- The AO had made the addition on the basis of entries found recorded in the regular books of account apart from addition based on peak of 'Dasti Bahi'. Since the AO had made addition on the basis of peak of entries recorded in regular books of account while determining the undisclosed income of the assessee, the entries recorded in the regular books of account have to be telescoped with entries recorded in the 'Dasti Bahi'. Learned CIT(A), therefore, is justified in allowing the telescoping of the addition made on the basis of peak credits of the entries recorded in the regular books of account against the peak of credits found recorded in 'Dasti Bahi'. In our considered opinion,....
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.... 29.12.2008. Even, the working of the peak based on the seized diary given by the Respondent assessee for the concerned assessment years was also overlooked by the AO and, here again, no reason was assigned for the same. We are, therefore, of the opinion that the CIT(A) rightly held that it would be just and proper, if, the income from the transactions recorded in the seized diary are determined on the basis of highest peak, as increased by the net profit of 5 per cent on the receipts and taxed accordingly, for the relevant assessment years. We do not find that the CIT(A) and ITAT has committed any jurisdictional error in passing the impugned orders. 3.13] That in view of the above, addition as made by the assessing officer on account of Peak credit was neither legal nor proper, after considering the cash and stock as available in the regular books of account and after considering the credit of Profit as available for investment in the unrecorded business, there was no negative balance as to attract the peak addition in the case of the assessee. The addition as made by the assessing officer on account of peak was therefore neither legal nor proper, the same now requires to....
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....87 2186384 18109171 6810435 11298736 8 28-02-14 1328.35 14193419 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 3.4. 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....
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....s. 1,62,84,235/-. Against this figure of the total of stock and cash in hand accounted for in the duly audited accounts the peak balance in the ICICI bank is Rs. 1,04,72,722/- which is less than the figure of stock and cash of Rs. 1,62,84,235/-. 12. Now whether the assessee is eligible for set off value of stock and cash in hand appearing 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 fa....
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....on'ble High Court of Gujarat in the case of CIT vs Tirupati Construction Co. (2015) 55 Taxmann.com (Gujarat) dealing with the issue about the determination of the peak from the transactions recorded in the seized diary and accepting Profit & Loss Account of unrecorded transactions prepared by the assessee held in favour of the assessee 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 los....
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....ed for making un accounted sales. It is noteworthy that the assessee is carrying out of books sales transactions in the past also and till the date of peak bank balance on 28.2.2014 the profits earned on unrecorded sales have been offered to tax and they form part of the peak bank balance. So in nutshell against peak balance found 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 Rs. 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 m....
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....books of account balance amount of Rs. 67,76,734/- was added to the total income of the assessee:- S.No Particular Amount [Rs] 1 Total turnover as disclosed in the books of account 37,47,40,488 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 Particular 31.03.13 31.03.14 31.03.15 1 Sanjay Agrawal Prop of Sourabh Bio Tech, Kasrawad Gross Profit 2.38 1.06 1.77 Net Profit ....
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....Bank Charges 5,66,548 .15% 2.3 Net Profit before interest & Bank charges 95,74,010 2.55% 2.11] That while comparing the Net profit as per regular books of account and as calculated on the amount of total turnover routed through the ICICI Bank, the component of interest must be ignored. The assessee has not claimed any deduction on account of Interest in his unaccounted turnover, since, the entire funds of the regular business was used by him for the purpose of his unaccounted turnover. If the effect of Interest and Bank charges ignored, the percentage of Net profit in his books of account was 2.55% i.e. higher than what was considered by the assessee for his unaccounted business. 2.12] The assessee charged entire amount interest in its books of account. For this reason the percentage of net profit as shown in the books 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 turnov....
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....rofit rate offered to tax and the fact that interest expenditure and bank charges were already debited to profit and loss account. Ld. CIT(A) based on the facts and circumstances of the case deleted the addition of Rs. 67,76,734/- observing as follows :- GROUND No 4 4.0 The assessee in this ground of appeal has challenged the addition of Rs. 67,76,734/- to the total; income of the assessee. I have carefully gone through the assessment order as well as submission of the appellant in this regard. 4.1 The relevant portion of the appellant's submission is reproduced hereunder:- "4.2] The assessing officer while passing the assessment order applied the rate of net profit at 2.5 on the amount of total turnover as disclosed in the books of account of Rs. 37,47,40,488/- which calculated comes to Rs. 93,68,512/- and after allowing credit of net profit of Rs. 25,91,778/- as disclosed in the books of account balance amount of Rs. 67,76,734/ - was added to the total income of the assessee. 4.3] Comparative chart of percentage of Gross Profit and Net profit of M/ s SMO Industries for the Assessment Years 2013-14 to 2015-16 is as under.- ....
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....ng business was slightly higher than manufacturing as shown in. its books of account. 4.9] 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 AI 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 4.10] That while comparing the Net profit as per regular books of account and as calculated on the amount of total turnover routed through the ICICI Bank, the component of interest must be ignored. The assessee has not claimed any deduction on account of Interest in his unaccounted turnover, since, the entire funds of the regular business was used by him for the purpose of his unaccounted turnover. If the effect of Interest and Bank charges ignored, the percentage of Net profit in his books of account was 2.55% i.e. higher than what was considered by the assessee for his unaccounted business. 4.11] The assessee charged entire amount interest in its....
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....s executed through the ICICI Bank. The rate of net profit as declared by the assessee at 2.50 in respect of total turnover as executed through the bank account with ICICI Bank and not incorporated in the regular books of account is calculated 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 AI 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% 4.4 The net profit rate prior 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 ch....
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....r ignoring the deduction as claimedN on account of Bank interest and Bank charges. Since, both these expenses were debited in the regular books of account and after considering the amount of bank interest and bank charges the percentage of net profit gets reduced from 2.50% to 0.73% which was correctly offered and applied by the assessee on the amount of total turnover as shown in his books of account. The assessing officer failed to appreciate this aspect of the facts of the case. Therefore, the addition so made by the assessing officer to the tune of Rs. 67,76,734/- is not justified and is hereby deleted in full. The assessee accordingly get relief of Rs. 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 t....