Mr. M.L. Krupal (Huf), Somwarpet vs Assessee

I.T.A. No.338/Bang/2014 (Assessment Year : 2007-08) Mr. M.L. Krupal (HUF), Vs. The Income Tax Officer, Prop. M/s. Associated Coffee, Ward 1, Madikeri. BLV Complex, Somawarpet - 571 236 Kodagu District PAN ACNPK 9003N Appellant Respondent.

Appellant By : Shri K.Y. Ningoji Rao, C.A. Respondent By : Dr.P.K. Srihari, Addl. CIT (D.R.)

Date of Hearing : 27.4.2015. Date of Pronouncement : 29.6.2015.

Per Shri Jason P. Boaz, A.M. :

This appeal by the Revenue is directed against the order of the Commissioner of

Income Tax (Appeals)-III, Bangalore dt.30.12.2013 for Assessment Year 2009-10.

2. The facts of the case, briefly, are as under :-

2.1 The assessee is a HUF trading in coffee seeds. For Assessment Year 2007-08, it

filed a return of income on 31.10.2007 declaring total income of Rs.1,31,940. A survey

under Section 133A of the Income Tax Act, 1961 (in short 'the Act') was conducted at

the assessee's premises on 9.3.2007 in the course of which certain Books of Accounts and

other documents found were impounded. Consequent to the survey, scrutiny assessment 2 ITA No.338/Bang/2014

was taken up and the assessment was completed under Section 143(3) of the Act vide

order dt.31.12.2009 wherein the assessee's income was determined at Rs.26,96,000, in

view of an addition of Rs.25,64,032 towards suppressed profits.

2.2 In the course of assessment proceedings, the Assessing Officer verified the books

of account vis-à-vis the books and documents impounded during survey and noticed

discrepancies in both the purchases and sales reported in the books of account. As per

the Assessing Officer, there were differences in purchases and sales for the months of

July, August and September, 2006 between the regular books of account and the books

impounded during the survey to the extent of Rs.1,43,64,108 and Rs.1,69,28,140

respectively. Therefore, the Assessing Officer issued a show cause letter dt.23.12.2009

to the assessee proposing to add the unaccounted purchases of Rs.1,43,64,108 and also

10% of the sales as the gross profit on unaccounted sales. The assessee's explanations

regarding these discrepancies were called for. The assessee filed reply vide letter

dt.30.12.2009. The assessee's contention was that the discrepancies were only due to

wrong entries made by his semi-skilled employees, who mixed up the transactions and

inter-changed the entries between the Karta's individual business and that of the

assessee's HUF's business. The assessee also mentioned about certain sales made directly

to the principal buyers, etc. and submitted re-cast books of account, thereby attempting

to justify the discrepancies in the books of account relating to both purchases and sales.

The Assessing Officer, however, did not accept the contention of the assessee. He held

that the assessee is running a well organized business and that the books of account 3 ITA No.338/Bang/2014

produced before him by the assessee did not show any commission received from the

buyers and the claim of mixing up of entries by the employees of the assessee cannot be

accepted for the reason that the persons who have written the books of accounts for the

two concerns are different. After rejecting the assessee's contentions, the Assessing

Officer made an addition of the difference between the unaccounted sales and

unaccounted purchases amounting to Rs.25,64,032 as the suppressed profit of the

assessee and computed the total income of the assessee accordingly.

3. Aggrieved by the order of assessment for Assessment Year 2007-08 dt.31.12.2009,

the assessee preferred an appeal before the CIT (Appeals), Mysore reiterating the

submissions put forth before the Assessing Officer. The assessee also filed a re-cast

statement of accounts wherein the profit was worked out at Rs.11,01,256 as against

income of Rs.1,31,940 as per the audited accounts of the assessee which was declared in

the return of income filed for Assessment Year 2007-08. The learned CIT (Appeals)

forwarded the said re-cast accounts, furnished by the assessee, to the Assessing Officer

for his report thereon. A copy of the Assessing Officer's report was given to the

assessee for his reply thereto. After considering the assessee's rejoinder to the remand

report of the Assessing Officer, the learned CIT (Appeals) came to the conclusion that

the actual sales and purchase figures are culled out by the Assessing Officer from the

registers/books/documents impounded in the course of survey, which reflect the true and

correct transactions done by the assessee and therefore the addition was justified. The 4 ITA No.338/Bang/2014

learned CIT (Appeals) thus by order dt.29.11.2011 confirmed the addition of Rs.25,64,032

made by the Assessing Officer and dismissed the assessee's appeal.

4. Aggrieved by the order of the CIT (Appeals), Mysore dt.29.11.2011 for Assessment

Year 2007-08, the assessee preferred a further appeal before this Tribunal. A co-

ordinate bench of this Tribunal vide order in ITA No.230/Bang/2012 dt.26.12.2012

remanded the matter to the file of the CIT (Appeals), Mysore, holding as under at para 7

thereof :-

" 7. Having heard both the parties and having considered the rival contentions, we find that the AO has made the addition on difference between the purchases and sales. Both the authorities below seem to have overlooked the fact that the sales also included the gross profit and that the same will have to be excluded from the sales for arriving at the net taxable income. Neither the AO nor the CIT(Appeals) have really applied their mind to the above legal position. In view of the same and in the interest of justice, we deem it fit and proper to remand the issue to the file of the CIT(Appeals) to verify the statement of the assessee with regard to the wrong entries made in its books of accounts and after examination of the same to also look into the proportion of the gross profit embedded in the sales. Needless to mention that the assessee shall be given a fair opportunity of hearing."

5. Pursuant to the order of the co-ordinate bench (supra), the learned CIT (Appeals)

after examining the issue concluded that there is no infirmity in the order of the

Assessing Officer and accordingly dismissed the assessee's appeal vide the impugned

order dt.27.6.2013.

6. Aggrieved by the order of the CIT (Appeals), Mysore dt.27.6.2013 for Assessment

Year 2007-08, the assessee is in appeal before this Tribunal. Along with the appeal, the

assessee has filed a petition for condonation of delay in filing of this appeal. 5 ITA No.338/Bang/2014

7. Order on petition for condonation of delay in filing this appeal

for Assessment Year 2007-08.

7.1 In the case on hand, the assessee filed this appeal against the order of the CIT

(Appeals), Mysore dt.27.6.2013 before the Tribunal for Assessment Year 2007-08 on

11.3.2014. Along with the appeal the assessee has filed a petition for condonation of delay

in filing this appeal. The fact situation narrated by the petitioner in its petition for

condonation of delay is extracted hereunder :-

"4. As per the information given by the Assessing Officer and the Tax Recovery Officer some time during the end of Jan., 2014, the appellant came to know that the CIT (Appeals), Mysore had already disposed of the appeal so restored, by his order dt.27.6.2013 in ITA No.80/CIT(A)/Mys/12-13.

5. However the aforesaid appellate order dt.27.6.2013 was not received by the appellant and as such the appellant by his application dt.3.2.2014 requested the CIT (Appeals), Mysore to furnish him a copy of his said appellate order dt.27.6.2013.

6. The CIT (Appeals), Mysore by his letter dt.3.3.2014 has furnished the copies of the aforesaid appellate order dt.27.6.2013 in ITA No.80/CIT(A)/Mys/12-13 together with the Corrigendum to the order dt.27.6.2013, which is dated 3.3.2014 to the appellant through his authorized Representative on 10th Day of March, 2014.

7. Therefore as per the appellant the aforesaid appellate order has been received by the appellant only on 10th March, 2014.

8. Therefore the accompanying appeal challenging the said order of the appellate Commissioner is well within the time specified under Section 253(3) of the IT Act.

9. However the Appellate Commissioner in his aforesaid letter dt.3.3.2014 has said that the aforesaid appellate order is served on the appellant on 9.10.2013 and as such the time limit for filing appeal before the ITAT is barred.

10. In case the accompanying appeal is to be considered as belated, in view of the aforesaid facts and circumstances, the said appeal could not have been filed by the appellant within the time specified under Section 253(3) of the IT Act as the said order was not received on 27.6.2013 and as such the delay, if any, so caused is due to reasonable causes and is liable to condone.

In view of the aforesaid facts and circumstances the appellant could not have filed the said appeal till now.

6 ITA No.338/Bang/2014 Therefore the appellant prays that the Hon'ble Appellate Tribunal may, please, condone the delay so caused, if any, in filing the said appeal and may please admit the said appeal under Section 253(5) of the Income Tax Act, 1961 in order to render justice to the appellant."

7.2 We have heard the rival contentions of both the learned Authorised Representative

for the petitioner and the learned Departmental Representative for Revenue in the matter

of condonation of delay and perused and carefully considered the material on record.

According to the learned CIT (Appeals), the impugned appellate order was served on the

assessee on 9.10.2013. In these circumstances, the petitioner's filing of the appeal on

11.3.2014 would render the same having been filed belatedly by approx. 93 days. Per

contra, as per the petitioner's submissions, it has received the order on 10.3.2014 through

its learned Authorised Representative. Be that as it may, taking into account the facts

and circumstances of the case, and the factual reasons narrated in the petition for

condonation of delay, we, in the interest of justice and equity, are of the view that this is

a fit case for condonation of the delay in filing the appeal and do so. The appeal is

accordingly admitted for adjudication.

8. In this appeal, the assessee has raised the following grounds :-

"1. The impugned order of assessment is liable to set aside in so far as it is incorrect, improper, irregular, opposed to facts and circumstances of the case and opposed to the law.

2. That the learned CIT (Appeals) erred in upholding the addition of Rs.25,64,032 made by the Assessing Officer, even though the increase in the gross profit worked out by him in his impugned order is only Rs.1,69,298 and as such the impugned addition is liable to set aside.

3. That the learned CIT (Appeals) erred in upholding the addition of Rs.25,64,032 made by the Assessing Officer, on the ground that the net effect of the revised 7 ITA No.338/Bang/2014

accounts filed by the appellant is the same as the gross profit goes in to sales and as such the impugned addition is liable to set aside.

4. That the learned CIT (Appeals) erred in upholding the impugned addition of Rs.25,64,032 with complete disregard to the facts of the case and the well founded and generally accepted accounting principles in a manner opposed to law and as such the impugned addition is liable to set aside.

5. That the impugned addition having been made out of mere suspicion, surmise and conjecture with complete disregard to the facts of the case are liable to set aside.

6. That the impugned levy of interest of Rs.2,85,022 under Section 234B is liable to set aside in so far as the appellant is not liable there for.

7. That the impugned levy of interest of Rs.261 under Section 234C is liable to set aside in so far as the appellant is not liable there for."

9. The Grounds at S.Nos.1 and 5 are general in nature and not being specifically urged

before us, are dismissed as infructuous.

10. In the Grounds at S.Nos.6 & 7, the assessee denies itself liable to be charged

interest under Section 234B & 234C of the Act respectively. The charging of interest is

consequential and mandatory and the Assessing Officer has no discretion in the matter.

This proposition has been upheld by the Hon'ble Apex Court in the case of Anjum H

Ghaswala (252 ITR 1) and we, therefore, uphold the action of the Assessing Officer in

charging the said interest. The Assessing Officer is, however, directed to recompute the

interest chargeable u/s. 234B and 234C of the Act, if any, while giving effect to this

order.

11.1 Grounds at S.Nos. 2 to 4 relate to the grievance of the assessee against the

impugned order of the learned CIT (Appeals) in confirming the addition of Rs.25,64,832

made on account of differences in accounting the purchases and sales in the books of

account found during the course of survey vis-à-vis the assessee's audited books of

accounts.

8 ITA No.338/Bang/2014

11.2 Before us, the learned Authorised Representative of the assessee besides

reiterating the contentions made before the authorities below, submitted that if at all the

addition has to be made, it should only be Rs.1,68,288 and not Rs.25,64,032 as was made

by the Assessing Officer and upheld by the learned CIT (Appeals). It is contended that

since the learned CIT (Appeals) has determined the gross profit at Rs.22,67,376, the

addition that can be made is the difference between Rs.22,67,376 andRs.20,98,078 i.e.

Rs.1,68,298 only.

11.3 In the appellate proceedings pursuant to the remand by the order of the Tribunal

in its order in ITA No.230/Bang/2012 dt.26.12.2012 (supra), the learned CIT (Appeals)

after considering the rival submissions made in respect of the re-cast accounts, dismissed

the assessee's claim by holding as under at paras 3.1 and 3.2 of the impugned order.

" 3.1 Accordingly the case has been heard. The appellant has furnished the trading account highlighting the effect of the omissions which is as follows :

Original Final Original Final Opening Nil. Nil. Sales 20,98,09,444 20,98,09,444 stock Purchases 21,51,63,466 21,51,63,466 Omitted Nil. 1,69,28,140 Sales Omitted Nil. Closing 74,52,100 50,57,363 Purchases Stock Gross Profit 20,98,078 Total 21,72,61,544 23,17,94,947 Total 21,72,61,544 23,17,94,947

3.2 From the above, after verifying the details as per the directions of Hon'ble ITAT, I find that the net effect is the same since, the gross profit element goes into sales and omitted purchase are also taken into account and the gross profit accordingly goes to increase. Hence I find no infirmity in the order of the Assessing Officer and accordingly the appeal of the appellant stands dismissed."

9 ITA No.338/Bang/2014 11.4 The learned Departmental Representative strongly supported the finding in the

impugned order of the learned CIT (Appeals).

11.5.1 We have heard the rival contentions and perused and carefully considered the

material on record; including the written submissions made, the paper book filed, etc. The

basic facts are not in dispute. In the case on hand, survey under Section 133A of the Act

was conducted at the assessee's premises on 19.3.2007, in the course of which certain

documents were impounded. The impounded documents, inter alia, contained details of

certain unaccounted purchases and sales for the three month period. June to August,

2006. The Assessing Officer found that these purchases and sales were not reflected in

the audited books of accounts submitted by the assessee. The assessee gave explanations

for these unaccounted sales and purchases which were rejected by the Assessing Officer

as these claims were not supported by evidence. The reasons for rejection of the

assessee's contentions are elaborated in the order of assessment, which need not be

reproduced here. Thereupon, the assessee filed revised accounts, recasting the accounts

by including the unaccounted purchases and unaccounted sales therein. As per the re-cast

accounts, the income of the assessee increases to Rs.11,61,255 as compared to the net

profit of Rs.92,458 as per the assessee's audited accounts and the details filed with the

return of income for Assessment Year 2007-08, i.e. the period under consideration. The

closing stock as per the re-cast accounts is substantially different from the closing stock

in the audited accounts; which has not been properly explained by the assessee. 10 ITA No.338/Bang/2014

11.5.2 We find that the contentions of the assessee at various stages of assessment

and appellate proceedings have been inconsistent. In the submissions made before the

Assessing Officer vide letter dt.30.12.2009, the assessee contended that the differences

in purchases and sales were due to wrong entries made by its employees who had inter-

changed the entries between the assessee HUF and the individual business of the Karta

and that bills are raised for purchases made directly by the buyers. Subsequently, the

assessee endeavoured to re-cast the books of account incorporating all the purchases and

sales as per the registers/documents impounded in the course of survey action on

9.3.2007. It was contended that there were omissions to account for certain purchases

and sales, which caused the discrepancies. It was then contended that the audited books

of accounts should be disregarded and the results as per the re-cast books of account

have to be accepted.

11.5.3 The Assessing Officer did not agree with the contentions of the assessee. He

considered the unaccounted purchases and sales as transactions outside the books of

account and considered the differences between the two as suppressed profits. The

learned CIT (Appeals) in the impugned order dt.27.4.2013, passed pursuant to the remand

by the Tribunal, has considered 1% of the unaccounted sales as gross profit and adjusted

the balance amount as closing stock.

11.5.4 We have considered the rival contentions and submissions. On an appreciation of

the material on record, we find it difficult to accept the contention of the assessee that

the audited books of account have to be disregarded and the re-cast accounts are to be 11 ITA No.338/Bang/2014

accepted. It is the finding emanating from the survey on 9.3.2007, that there were

unaccounted purchases and sales made in the period June, 2006 to August, 2006 which has

not been controverted by the assessee. Whatever may be the reasons for the

unaccounted purchase and sales; the fact that there were such purchases and sales which

were not reflected in the audited books of account has been fairly accepted by the

assessee. We, therefore, agree with the action of the Assessing Officer in treating the

unaccounted purchases and unaccounted sales as being outside the audited books of

account.

11.5.5 The issue before us is how to assess the income from out of the unaccounted

purchases and sales. In the show cause notice dt.23.12.2009, the Assessing Officer had

proposed an amount of Rs.1,43,64,108 as unaccounted investment in purchases and 1% of

the unaccounted sales which would work out to Rs.1,69,281 (viz. 1% of Rs.1,69,28,140) as

unexplained income from the unaccounted investment in purchases. In this view of the

matter, the total additional income as proposed in the show cause notice would have

worked out to Rs.1,45,33,389 (viz. Rs.1,43,64,108 + Rs.1,69,298). However, the Assessing

Officer, after considering the submissions in the matter, determined the addition at

Rs.25,64,032 as the difference between the unaccounted sales and purchases.

11.5.6 The learned CIT (Appeals) in the impugned order dt.27.6.2013 had taken the

profit element on the unaccounted sales at Rs.1,69,281 (i.e. at 1% of unaccounted sales of

Rs.1,69,28,140) and considered the balance amount of the difference as unexplained

investment and adjusted the same in the closing stock. In our view, this approach of the 12 ITA No.338/Bang/2014

learned CIT (Appeals) cannot be faulted as the assessee itself has adjusted the closing

stock in the re-cast accounts. In this view of the matter, we concur with the findings of

the learned CIT (Appeals) that the difference between the unaccounted sales and

purchases would include an amount ofRs.1,69,289 towards suppressed profits from the

unaccounted transactions and the balance amount represents the undisclosed investment

in unaccounted purchases.

11.5.7 To sum up :

Ground No.2 is related to the addition of Rs.25,64,032 even though the gross profit

worked out by the learned CIT (Appeals) is only Rs.1,69,258. As discussed in the pre-

paragraphs of this order, the balance amount represents the unexplained in purchases and

is the same is therefore upheld. Consequently, Ground No.2 is dismissed.

Ground Nos.3 and 4 are in respect of the addition of Rs.25,64,632 and as discussed

above (supra), these grounds are dismissed.

12. In the result, the assessee's appeal for Assessment Year 2007-08 is dismissed.

Order pronounced in the open court on 29th June, 2015.

Sd/- Sd/- (N.V.VASUDEVAN) (JASON P BOAZ) Judicial Member Accountant Member

*Reddy gp