TaxTMI 
TaxTMI 
2022 (2) TMI 515
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....5/- (2,43,03,809 - 19,61,344); 1.1 Ld.CIT(A) erred in deleting the addition of Rs. 2,23,42,465/- made on account of suppressed sale and unexplained investment in purchase including expenses, without appreciating that the assessee failed to reconcile the figures of opening stock, purchase and sales, freight as shown in VAT returns with return of income & audit report, specially when the Ld.CIT(A) himself accepted that there is no explanation with regard to the difference in figures of sales and freight as appearing in the VAT returns and in the audited books of accounts; 1.2 Ld.CIT(A) erred in deleting the addition of Rs. 2,23,42,465/- by considering that the AO cannot pick and choose some figures (sales) from the VAT return and some figures (opening stock, purchase and freight) from the audited books of accounts, to assess the income of the assessee whereas the AO took the value of sales, purchases and freight expenses from audit report & ITR and compared the same with the figures of VAT returns, for making the additions; 2. The Ld. CIT(A) erred in restricting the disallowance out of various expenses from Rs. 2,31,962/- to Rs. 1,15,981/-, without apprecia....
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....um of empresses & found with external Vouchers & also showing without specific defect in vouchers. 7. That all above additions maintained were against the law & written submission provided in detail with covered & binding judgements. The he maintained the additions against the law. 8. That the assessee reserves his rights to add amend or alter any of the grounds on a before the hearing of cross objections or at the lime of haring of Appeal. 2. The hearing of the appeal and C.O. were concluded through video conference in view of the prevailing situation of Covid-19 Pandemic. 3. The brief facts of the case are that the assessee is engaged in the business of trading of old irom material. The assessee e-filed his return of income on 26/11/2014 declaring total income of Rs. 5,59,530/-. The case was selected for scrutiny under CASS and notices were issued to the assessee. The A.O. after discussing all the facts and circumstances as well as the documents placed before him passed assessment order U/s 143(3) of the Income Tax Act, 1961 (in short, the Act) determining total income of assessee at Rs. 2,48,63,340/- by making various additions. 4. Being aggrieved by t....
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....,65,836/- also is supported with the invoices issued by the assessee. Copy of the ledger account alongwith the invoices copy are being produced herewith. 4. The figure of opening stock is same as the figure of closing stock of last year(PB 1 & 4). Since, both the figures are duly vouched, verified and certified by the Tax Auditor, the genuineness of the same cannot be doubted. Also, the figures of-direct expenses incurred by the appellant as recorded in books of accounts were duly vouched, verified and certified by the Tax Auditor and no discrepancy therein was noticed by him. Further, there was no discrepancy in the figures of closing stock as per VAT return(PB 56) as per Tax Audit Report (PB 4). A chart showing trading account of the appellant as appearing in Tax Audit Report and appellant's specific comment against each of those items appearing in Tax Audit Report is enclosed herewith for your Honour's ready reference. Also, as stated above all the bills of purchases and sales recorded by the appellant in its books of accounts are hereby produced for verification. The assesse further submitted as under: Sl.No. Particulars Remark 1. ....
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....rtunities fiven to the assessee.......". However, when the assessee produced books of accounts, no defect therein was pointed out therein. Hence, the aforesaid comment/observation is irrelevant. 2.2 The relevant finding of the AO in his remand report (reproduced at Pg-10 of CIT(A) order are as under: "........CA attended the proceedings from time to time and produced the purchase and sales vouchers, freight bills with the computerized ledgers for examination. These have been examined on test check basis. Moreover, verification has been made regarding the vouchers/bills with reference to the books of accounts produced and few of the expenses vouchers were missing i.e. freight bill, vehicle expenses, petrol etc. During the course of examination, it was noticed that the assessee could not reconcile the figures of-opening stock, purchases and sales, freight gross profit and closing stock with reference to the VAT returns filed from the books of accounts but the figures of audit report are same in the books. In such circumstances and the facts of the case, it can be easily ascertain that the assessee has maintained the books of accounts but in the absence of t....
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....ty or in absence of VAT audit, the VAT return alone could not have been blindly believed as done by the AO. The Revenue is stressing on the figures of VAT returns unwarrantedly. 4. No independent corroborative evidence brought on record:4.1 It is surprising to note that the AO has solely relied upon the figures given in the VAT return. He completely failed to support his inference or conclusion of the alleged suppression/ inflation of sale/ purchase with the help of any other corroborative evidence. It is not the case of the revenue that the ld. Chartered Accountant who audited the accounts u/s 44 AB, has adversely commented in the audit report supporting the AO. No inquiry was made from Commercial Tax Department (or any other government department) w.r.t the alleged differences as noticed by him between the figures of the VAT return and inthe audited accounts nor it is his case that the accountant, supported his case. In other words, there is no direct cogent evidence of suppression of sales or of bogus purchase/ unexplained investment. It is beyond understanding as to why the AO has given so much credence to the VAT return even though it was neither filled by a ....
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.... the gross profit and the closing stock were the same in at both the places. Consequently, there was no loss to revenue in any manner nor it is so alleged. In other words, the AO unwarrantedly stressed upon the wrong figures filled in the VAT return when compared with the audit report and made it a sole basis of the impugned addition. Such a basis though could be sufficient to arouse suspicion in the mind of AO but could not have been a valid basis, (unless corroborated by independent evidences) to make a huge addition. Even otherwise, these mistakes are revenue neutral because there are equal amount addition and deletion. Kindly refer the chart enclosed with submission. Further, an allegation remains a mere allegation unless proved. Suspicion can-not take the place of reality, are the settled principles kindly refer Dhakeshwari cotton Mills 26 ITR 775 (SC). 6. Entire amount of the alleged suppressed sale of Rs. 20,00,000/-, even assuming if it is so (though not conceding), cannot be added in as much as it is not the allegation of the AO what to talk of proving the same that the corresponding amount of the purchases towards such alleged suppressed sale, was also unrecorded....
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....jection: 1.1 Invalid Application of S.145 by CIT(A): At the outset, it is submitted that it is an admitted fact that the AO has not invoked S.145 (3) of the Act though he discussed the difference in the figures found on a comparison between the VAT return & the audited accounts but then he made a half-hearted attempt only. It is not their case of serious defects calling for the wholesome rejection of the accounts. Even in the remand proceedings, when the assessee produced complete books of account before the AO, the AO did not comment on the applicability of S.145(3), which is an incorrect finding and hence in the remand report, the AO accepted that the assessee maintained books of accounts stating as under (refer CIT(A) Pg-10): "In such circumstances and the facts of the case, it can be easily ascertain that the assessee has maintained the books of accounts.......assessment order" 1.2 Deptt. challenges S. 145 applicability: This fact is also evident from the DGOA-1 itself taken by the revenue where they have challenged the very jurisdiction of the ld. CIT(A) to invoke the S.145(3) of the Act. Thus, it is evident that S.145(3) was not applied. In view of ....
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....PB 49-51). Further the audit report and other details were duly produced before the AO. Thus, the ld. CIT(A) not having established any of the three conditions, could not have invoked S.145(3). Since it was a conscious decision taken by the AO not to invoke S.145(3), the ld. CIT(A) could not have acted as a revisionary authority. If the action / order of the AO was erroneous and prejudicial to the interest of the revenue, it was only the ld. CIT(A) who could have invoked S.263 but the ld. CIT(A) could not have stepped into. Therefore, the ld. CIT(A) has clearly acted beyond his jurisdiction. This extent only, we agree with the revenue and do not oppose GOA 1. 2.3 Pertinently, in the remand proceedings, the AO has verified vouchers / bills with reference to the books of accounts produced and he fully agreed that the book of accounts and audited financial statements are same stating as under: "During the course of examination, it was noticed that the assessee could not reconcile the figures of opening stock, purchases and sales, freight, gross profit and closing stock with reference to the VAT returns filed from the books of accounts but the figures of audit report ....
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....guide in the cases of fair estimation. Kindly refer Kindly refer CIT v/s Gupta K.N. Construction Co. (2015) 116 DTR 377 (Raj), CIT v/s Inani Marbles 316 ITR 125 (Raj). However, it will appears that in the present case, the ld. CIT(A)has not made a fair estimation in conformity of the above settled judicial guideline. The assessee, this year declared GP rate of 2.17% on sales of Rs. 9,40,65,836/- as against GP rate of 2.84% on sales of Rs. 6,64,75,224/- (Refer AO Pg- 3-4)in the immediately preceding year (i.e. A.Y.2013-14). Thus, there was a minor fall of 0.67%, which is within the acceptable range. 4.2 Justified reason behind declined in G.P.: It is further submitted that there were justified reasons behind the minor fall of 0.67% of GP rate in as much as the assessee deals in iron scrap and during the financial year 2013-14 (A.Y. 2014-15) there was a big down fall in iron market and to survive in market the assessee has to reduce his margin, which resulted in sharp increase in the sales. In support of the same, the assessee submitted iron sector report of financial year 2013-14 which shows the ratio and reason of decline in iron market. However, no adverse finding given b....
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....g in the audited books of accounts of appellant, on the basis of which the return of income was filed. The AO has given the different figures appearing in VAT return and audited books of accounts as under: Particulars As per VAT Return As per Audit Report and IT Return Difference (effect on profit) Opening Stock 3,26,14,956/- 1,03,11,148/- (1-) 2,23,03,808/- Purchases 9,50,22,574/- 11,63,26,383/- (-) 2,13,03,809/- Sales 9,60,65,836/- 9,40,65,836/- (-) 20,00,000/- Freight 17,48,940/- 7,48,940/- (+) 10,00,000/- Gross Profit 20,38,656/- 20,38,656/- - Closing Stock 3,53,59,291/- 3,53,59,291/- - Nil 4.5 On the basis of the difference in the figures of purchases as appearing in the VAT return (Rs. 9,50,22,574) and the figures as appearing in audited books of accounts (Rs. 11,63,26,383), the AO treated the amount of Rs. 2,13,03,809/- (Rs. 11,63,26,383 - Rs. 9,50,22,574) as inflated purchases. On the basis of the figures of sales as appearing in VAT return (Rs. 9,60,65,836) and the figures as appearing in the audited books of accounts (Rs. 9,40,65,836), the AO treat....
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.... Closing Stock 32614956 10311148 22303808 From the above, it can be seen that the opening stock of Rs. 3,26,14,956/-appearing in the VAT return for F.Y. 2013-14 (A.Y. 2014-15) was the same figures which was appearing at closing stock at the VAT return of F.Y. 2012-13 (A.Y. 2013-14). 4.8 I am in agreement with the contention of the appellant that the AO cannot pick and choose some figures (sales) from the VAT return and some figures (opening stock, purchases and freight) from the audited books of accounts, to assess the income of the appellant under the Income Tax Act. If the AO was of the view that the appellant was maintaining two sets of books of accounts then he could have made the assessment by adopting the figures of any one set of books of accounts, which according to AO was correct or reliable. But the AO, for the purpose of assessing the total income of the appellant cannot choose some figures from VAT return and some figures from the audited books of accounts. The appellant had furnished complete details of the purchases recorded in the audited books of accounts. The AO has not carried out any investigation to show that any of the purchases reco....
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....he appellant at the rate of 4% on the estimated turnover of Rs. 10 crore. The gross profit of the appellant works out to Rs. 40 lac. As the appellant had declared gross profit of Rs. 20,38,656/-, therefore, the addition of Rs. 19,61,344/- (Rs. 40,00,000 - Rs. 20,38,656) is hereby confirmed and remaining addition of Rs. 2,23,42,465/- (Rs. 2,43,03,809 - Rs. 19,61,344) is deleted." 9. We observed from perusal of the record that the assessee is engaged in the business of trading of old iron material. During the year under consideration, the assessee e-filed his return of income declaring total income at Rs. 5,59,530/-.The assessee declared Gross Profit of Rs. 20,38,656/- giving GP rate of 2.17% at total turnover of Rs. 9,40,65,836/- as against Gross Profit of Rs. 18,85,420/- giving GP rate of 2.84% at total turnover of Rs. 6,64,75,224/-last year. During the assessment proceedings, the AO called for information u/s 133(6) of the Act from the Bank of Baroda and from the Sales Tax Department. In response to which information from the Sales Tax Department was received on 15.12.2016, from which, the AO noticed variations in the VAT return filed and in the Trading Account details attached....
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....ticed by the AO that the figures of opening stock, purchases, sales and freight declared in the VAT return were different from the figures appearing in the audited books of accounts of appellant, on the basis of which the return of income was filed. The AO has given the different figures appearing in VAT return and audited books of accounts as under: Particulars As per VAT Return As per Audit Report and IT Return Difference (effect on profit) Opening Stock 3,26,14,956/- 1,03,11,148/- (1-) 2,23,03,808/- Purchases 9,50,22,574/- 11,63,26,383/- (-) 2,13,03,809/- Sales 9,60,65,836/- 9,40,65,836/- (-) 20,00,000/- Freight 17,48,940/- 7,48,940/- (+) 10,00,000/- Gross Profit 20,38,656/- 20,38,656/- - Closing Stock 3,53,59,291/- 3,53,59,291/- - Nil On the basis of the difference in the figures of purchases as appearing in the VAT return (Rs. 9,50,22,574) and the figures as appearing in audited books of accounts (Rs. 11,63,26,383), the AO treated the amount of Rs. 2,13,03,809/- (Rs. 11,63,26,383 - Rs. 9,50,22,574) as inflated purchases. On the basis of the figures of sales a....
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....y reference as under: Particulars As per VAT Return As per Audit Report and IT Return Difference Closing Stock 32614956 10311148 22303808 From the above, it can be seen that the opening stock of Rs. 3,26,14,956/-appearing in the VAT return for F.Y. 2013-14 (A.Y. 2014-15) was the same figures which was appearing at closing stock at the VAT return of F.Y. 2012-13 (A.Y. 2013-14). Therefore, we are in agreement with the contention of the assessee that the AO cannot pick and choose some figures (sales) from the VAT return and some figures (opening stock, purchases and freight) from the audited books of accounts, to assess the income of the assessee under the Income Tax Act. If the AO was of the view that the assessee was maintaining two sets of books of accounts then he could have made the assessment by adopting the figures of any one set of books of accounts, which according to AO was correct or reliable. But the AO, for the purpose of assessing the total income of the assessee cannot choose some figures from VAT return and some figures from the audited books of accounts. The assessee had furnished complete details of the purchases recorded in the audited boo....
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....on by the ld. AR are not applicable as per facts of the present case, therefore, considering the totality of facts and circumstances, we found that the ld. CIT(A) has passed a speaking and reasoned order discussing all the details of the case of the assessee, as far as the rejection of books of account, thus we uphold the order of ld. CIT(A) to the extent it has upheld the rejection of books of account of the assessee. 13. Now coming to the additions confirmed by the ld. CIT(A) to the extent of Rs. 19,61,344/- is concerned, in this regard, it has been categorically submitted by the ld. AR that even if books of account of the assessee were rejected still no additions could have been made and in this regard, the ld. AR has relied upon the decision in the case of CIT Vs Gotan Lime Khaniz Udyog 256 ITR 243 (Raj). It was further submitted by the ld. AR that in case any addition was required to be made or confirmed by the ld. CIT(A) then in that eventuality, a fair estimation was required to be made and while making the said fair estimation, past history of the assessee was the best guide. It was further submitted by the ld. AR that he had placed on records documents which shows justi....
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....n of Hon'ble Jurisdictional High Court in the case of CIT v/s Amrapali Jewels (P) Ltd. (2012) 65 DTR 196 (Raj). At the same time, we cannot lose sight of the fact that the GP declared even at 1.61% on the turnover of Rs. 11.12 Cr. in assessee's own case in AY 2012-13 was also accepted by the Revenue. Thus, considering the totality of the facts and circumstances of the case, we restrict the addition to the tune of Rs. 10.00 lacs and remaining additions are directed to be deleted. We order accordingly. Hence, grounds No. 1 to 1.2 of the Revenue's appeal and grounds No. 1 to 5 of the assessee's C.O. are partly allowed. 16. Ground No. 2 of the Revenue's appeal and ground No. 6 of the assessee's C.O. are also interrelated and interconnected and relates to challenging the order of the ld. CIT(A) in giving relief of Rs. 1,15,981/- to the assessee on account of various expenses. 17. The ld. DR has relied on the order of the A.O. whereas on the contrary, the ld AR appearing on behalf of the assessee has reiterated the same arguments as were raised before the ld. CIT(A) and also relied on the written submissions filed before the Bench and the same is reproduced below: "1.1 Mer....
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....; Rs. 9,40,65,836/- Rs. 6,64,75,224/- Freight 7,48,940/- 1,87,235/- 25% of Total Expenses & 50% restricted by the ld. CIT(A) i.e. Rs. 1,15,981/- 0.80% 0.64% Petrol & Diesel Exp. 58,948/- 14,737/- 0.06% 0.08% Telephone Expenses 16,784/- 4,196/- 0.017% 0.02% Vehicle Expenses 42,947/- 10,737/- 0.05% 0.05% Depreciation 60,229/- 15,057/- 0.06% 0.10% Total Rs. 9,27,848/- 2,31,962/- 1.4 Depreciation is a statutory allowance:Further disallowance of Dep. on vehicles is also not warranted with the facts and merits of the case as Dep. being a statutory allowance and hence cannot be restricted on the basis of personal use as held by Hon'ble ITAT Jaipur Bench (B) in ITA no. 373/JP/2002 in case of Triveni Pharma (2006) 35 T.W. 64 (Jp) and also in Kailash Chand Gupta v/s DCIT 35 Tax World 36 (Jp). No such disallowance was made in past. 2. We strongly rely upon the Written Submissions, Rejoinders etc. filed before ld. CIT(A) time to time and reproduced in the CIT(A) order. Therefore, the allegation of the revenue in its GOA-1.1& 1.2, are not vali....