Shri Kayyum Porp. VIP Publicity, Meerut Ahamed, Vs. ITO, Wad 1(3),Porp. VIP Publicity, Meerut

IN THE INCOME TAX APPELLATE TRIBUNAL 
(DELHI BENCH ‘D ’, NEW DELHI)

BEFORE SHRI G. C. GUPTA, HON’BLE VICE PRESIDENT
 AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER 
I.T.A. No. 2410/Del/2013 
Assessment year : 2009-10

GIR / PAN:AERPA2406F:

Date of hearing : 14.05.2015
Date of pronouncement : 22.05.2015

ORDER

PER T.S. KAPOOR, AM:

 This is an appeal field by assessee against the order of Ld. CIT(A) dated 07.02.2013. The assessee has taken only one effective ground of appeal in which he has raised his rievance regarding confirmation of addition of Rs.47,93,474/- by Ld. CIT(A), which A.O. had made on account of addition of unrecorded sales detected during assessment proceedings. 

2. The brief facts of the case as noted in assessment order are that the assessee is engaged in the business of advertisement and publicity and is working as contractor. During the year under consideration, the assessee filed return of income declaring gross receipt of Rs.47,87,763/-. However, during assessment proceedings, the A.O. from Form 26AS observed that gross receipts of the assessee were Rs.89,81,785/- and, therefore, assessee 

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was show caused as to why the difference of turnover as reflected in Form 26AS and as declared by assessee, be not included in the income of the assessee. In reply, the assessee submitted that the audited balance sheet was prepared from corrupted data and, therefore, the figures contained in P & L account and balance sheet were wrong and, therefore, he prepared revised P & L account wherein he declared gross receipt of Rs.89,81,785/- as reflected in the form 26AS and also declared increased profits as compared to that declared in the return of income. The assessee further submitted that there was difference only in amounts of purchases of material and labour charges and rest of the expenses were almost same as reflected in the original P & L account. The A.O. did not agree with the contention of the assessee and held that since as per the claim of the assessee, the data was corrupted and therefore, the revised P & L account cannot be accepted and in view of above, he made addition of Rs.47,93,422/- being the difference between declared turnover shown in the return of income and the turnover reflected in Form 26AS. Aggrieved, the assessee filed appeal before Ld. CIT(A) and reiterated his submissions made before A.O. However, Ld. CIT(A) did not agree with the contention of assessee and upheld the addition as made by A.O. Aggrieved, the assessee is in appeal before us. 

3. At the outset, Ld. A.R. submitted that during proceedings before Ld. CIT(A), Ld. CIT(A) has called for a remand report from A.O. which was placed at paper book pages B-1 and B-2. Inviting our attention to para 4 of the report of A.O., Ld. A.R. submitted that the A.O. himself in the remand report had recommended that gross receipt of assessee should be taxed @ 8% whereas Ld. CIT(A) did not look into this aspect of A.O.’s repot and confirmed the addition. Ld. A.R. submitted that the assessee during earlier 

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three years had been declaring net profit ranging 6% to 8% and the same were being accepted, therefore in the current year also, the same ratio should be accepted specifically in view of the recommendations of the A.O. during remand proceedings. Ld. A.R. submitted hat the addition confirmed by Ld. CIT(A) has given very absurd picture of P & L account wherein the net profit comes out at 55% of gross receipts which is not at all believable and achievable. Ld. A.R. further submitted that inclusion of entire turnover without giving allowance for expenses is against law and there are various decisions of Hon'ble High Courts wherein similar issue has been decided in favour of the assessee. In this respect our attention was invited to decision of Hon'ble High Court of Gujarat in the case of CIT Vs President Industries 250 ITR 654. 

4. Ld. D.R. on the other hand submitted that assessee had filed return of income after getting his accounts audited and a report u/s 44AB was also filed and in the original P & L ccount as audited by CA, assessee had declared lesser turnover and it is only when the assessee was cornered by the A.O. on the basis of Form 26AS, the assessee submitted revised P & L account wherein he included the undisclosed turnover and also inflated expenditure and in support of inflated expenditure, the assessee did not submit any bills / ouchers to substantiate his claim. He further invited our attention to remand report as placed at paper book pages B1 and B-2 and submitted that in earlier part of remand report, the A.O. had recommended the addition of Rs.37,07,217/- on the basis of hidden investment in the business. He argued that Ld. A.R. did not invite the attention to this aspect. 

5. Ld. D.R. placed his reliance on the following case laws for the proposition that entire sale needs to be added:- 

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 CIT Vs Calcutta Agency Ltd. 19 ITR 191 (S.C.) . 

 CIT Vs Chandravilas Hotel 164 ITR 102 (Guj.) 

 CIT Vs Modi Store Ltd. 203 Taxman 123 (Del.) 

5.1 Ld. D.R. further placed his reliance on the decision of Delhi Bench of the Tribunal in the case of Shaktibhog Foods Pvt .Ltd. Vs ACIT in I.T.A. No. 2777 to 2778/Del/2010 and also relied upon the case law of Ganesh Rice Mills Vs CIT decided by Hon’ble Allahabad High Court and on the basis of above case laws and on facts of the present case, Ld. D.R. strongly argued that the addition made by A.O. needs to be confirmed. 

6. We have heard rival parties and have perused the material placed on record. We find from the written statement placed in paper book that assessee had declared net profit for earlier three years as under and the results declared by assessee were accepted during assessment proceedings:- 

Assessment Year Gross receipts N.P. N.P. rate_____________ 

2006-07 38,05,126 3,04,411 8% (under 44AD) 

2007-08 50,78,403 3,05,742 6% (as per books of a/c) 

2008-09 29,57,136 2,36,589 8% (Under 44AD) 

6.1 During the year under consideration, the assessee claimed that due to fault in the data in computer, the balance sheet and P & L account prepared and submitted to income tax Department contained wrong figures. We find that the A.O. on the basis of the figures contained in Form 26AS had cornered the assessee and, therefore the assessee had prepared revised P & L account declaring reconciled turnover and also claimed revised expenses. The A.O. without considering the increase in expenses, made the addition of entire turnover whereas the fact remains that if there was concealed turnover, there must have been some concealed expenses also which must have been incurred and the A.O. should have considered the claim of 

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expenses also. Though the assessee did not furnish vouchers and bills for the expense yet the A.O. should have taken guidance from the provisions of Section 44AD which provides determination of net profits on the basis of 8% of gross receipt in the case of small traders. From the figures of turnover of assessee, we find that assessee also falls in the category of small traders and his undisclosed income should have been calculated on the basis of certain percentage on undisclosed turnover. The Hon'ble High Court of Gujarat in the case of CIT vs President Industries as relied upon by Ld. A.R. placed at paper book page 45 has held that the amount of undisclosed sales by itself cannot represent the income of the assessee and the sales only represent price received by seller of goods but for achieving of such sales, it had already incurred the cost. The findings of Hon'ble High Court as contained in para 3 are reproduced below: “Having perused the assessment order made by the A.O., the order made by the Commissioner (Appeals) and Tribunal, we are satisfied that the Tribunal was justified in rejecting the application u/s 256(1). It cannot be a matter of an argument that the amount of sales by itself cannot represent the income of the assessee who has not disclosed the sales. The sales only represent the price received by the seller of the goods for the acquisition of which it has already incurred the cost. It is the realization of excess over the costs incurred that only forms part of the profit included in the consideration of sales. Therefore, unless there is a finding to the effect that investment by way of incurring cost of acquiring goods which have been sold has been made by the assessee and that has also not been disclosed, the question, whether entire sum of undisclosed sales proceed can be treated as income of the relevant Assessment Year answers by itself in the negative. The record goes to show that there is no finding nor any material has been referred to about the suppression of investment in acquiring the goods which have been found subject of undisclosed sales.” 

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6.2 The above case law relied upon by Ld. A.R. squarely covers the facts and circumstances of the case, therefore, following the Hon'ble Gujarat High Court we hold that entire turnover cannot be added to the income of assessee and profits embedded in the turnover can only be taxed. The assessee did not produce vouchers / bills to support the increase in expenditure in his revised P & L account. Therefore, instead of 8% of turnover to be included as profits on undisclosed turnover, we hold that an amount equivalent to 12% of turnover be included in the income of assessee. In view of the above, the A.O. is directed to delete the addition on account of unrecorded turnover and instead, make an addition equivalent to 12% of undisclosed turnover. 6.3 The case laws relied upon by Ld. D.R. are distinguishable on facts. The case law of Hon'ble Supreme Court, Hon'ble Gujarat High Court and that of Hon'ble Delhi High Court relate to the claim of expenses wherein the courts had held in favour of Revenue holding that primary onus was on assessee to prove that expenses were incurred wholly and exclusively for the purpose of business. Other case laws relied upon by Ld. D.R. are also distinguishable. 

7. In view of the above, the appeal of the assessee is allowed as above. 
8. Order pronounced in the open court on 22nd May, 2015. 
 

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Copy forwarded to:- 
1. The appellant 
2. The respondent 
3. The CIT 
4. The CIT (A)-, New Delhi. 
5. The DR, ITAT, Loknayak Bhawan, Khan Market, New Delhi. 

True copy. 

 By Order 

 (ITAT, New Delhi).

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