Naresh Kumar Garg, New Delhi vs Department Of Income Tax

Assessee by : Shri S.M. Mathur, CA. Revenue by : Shri P. Dam Kanunjha, Sr.DR.

Date of hearing : 17.03.2015 Date of pronouncement : 01.04.2015

ORDER

PER G.C. GUPTA, GUPTA, VP :

These cross-appeals by the assessee and the Revenue for the AY 2007-08 are directed against the order of learned CIT(A)-XXII, New Delhi dated 30th June, 2011. These are being disposed of with this consolidated order.

2 ITA-4115 & 3975/D/2011

ITA No.4115/Del/2011 - Assessee's appeal :- :-

2. The effective grounds of appeal of the assessee are as under:-

"1. That the Hon'ble Commissioner of Income Tax (Appeals) has erred in law as much as on the facts of the case by sustaining the trading addition to the extent of Rs.26,68,936/- as against the trading addition of Rs.42,52,038/- made by the learned Assessing Officer in the assessment of the appellant for the year under appeal.

2. That the Hon'ble Commissioner of Income Tax (Appeals) while confirming the aforesaid trading addition has erred in law as much as on the facts of the case in applying the gross margin of profit @ 10% on unrecorded sales of Rs.2,66,89,358/- as against the declared margin of profit of 2.56% on such sale of Rs.2,62,05,311/-. The Hon'ble Commissioner of Income Tax (Appeals) has arbitrarily disbelieved the comparable case which was filed by the appellant during the course of hearing of the appeal in order to justify the declared margin of profit of 2.56% and without placing any other comparable case to justify her findings for estimation of gross profit rate @ 10%. The estimation of G.P. Rate @ 10% on undisclosed sales was on suspicious and surmises which is not only bad in law but against the principles of natural justice."

3. The learned counsel for the assessee submitted that the only issue in this appeal of the assessee is regarding the trading addition sustained by the learned CIT(A) at `26.68 lakhs as against trading addition of `42.52 lakhs made by the Assessing Officer. He submitted that the assessee is in the business of X-ray and MRI films and has filed return of income declaring income of `1,49,000/- only. He submitted that the assessee has declared gross profit rate of 2.56% in the revised accounts on the so-called unrecorded transactions of sales. He 3 ITA-4115 & 3975/D/2011

submitted that complete details of income and expenses claimed on the unrecorded transactions were filed in the revised accounts filed by the assessee. He submitted that in the immediately preceding assessment year 2006-07, the Assessing Officer himself has accepted the GP rate of 6.4% in scrutiny assessment framed under Section 143(3) of the Act. He submitted that it is pertinent to point out that the assessment for the earlier assessment year 2006-07 was completed subsequent to the order of the CIT(A) was passed for the relevant assessment year 2007-08. He submitted that there was no evidence before the CIT(A) to apply a net profit rate of 10% on the undisclosed sales of `2.66 crores and making an addition of `26,68,936/- as against addition of `42,52,038/- made by the Assessing Officer. He submitted that the addition sustained is very high and should be substantially reduced, if not deleted in full.

4. Learned DR has opposed the submissions of the learned counsel for the assessee. He submitted that it is a case of transaction of sales made by the assessee outside the books of account and, therefore, there is a difference in the facts of the case of the assessee for the relevant assessment year 2007-08 when compared to the facts of the case of the assessee for the earlier assessment year 2006-07. He referred to the relevant portion of the assessment order in support of the case of the Revenue.

5. We have considered the rival submissions and have perused the order of the Assessing Officer and the CIT(A) and also the copies of available documents filed in the compilation before us. We find that there were defects in the books of account of the assessee and, therefore, they were rightly rejected by the Assessing Officer. It is 4 ITA-4115 & 3975/D/2011

well-settled that the entire amount of unrecorded transactions could not be treated as income in the hands of the assessee. However, a reasonable percentage of profit has to be estimated on the unrecorded transactions and added as income in the hands of the assessee. In this case, we find that the gross profit rate of 2.56% offered by the assessee in the revised accounts on the unrecorded transactions of sales is clearly on the lower side. The assessee himself has declared a rate of 6.4% in the immediately preceding assessment year 2006-07 and the same was accepted by the Department in scrutiny assessment of the assessee. The scrutiny assessment of the assessee for the AY 2006-07 was after the completion of assessment proceedings for the relevant AY 2007-08. In these facts of the case, we are of the view that considering the totality of the facts and circumstances of the case, the ends of justice shall be met if the net profit rate of 7% is applied by way of estimate on the transactions of `2,66,89,358/- as against the addition of `26,68,936/- confirmed by the CIT(A). Accordingly, the grounds of appeal of the assessee are partly allowed.

ITA No.3975/Del/2011 - Revenue's appeal :- :-

6. The grounds of appeal of the Revenue are as under:-

"1. The CIT(A) erred in law and on the facts and circumstances of the case in accepting additional evidences under Rule 46A(3) of Income Tax Rules, 1962.

2. The CIT(A) erred in law and on the facts and circumstances of the case in accepting the assessee's revised disclosure of unrecorded sales of Rs.2,66,89,358/- in the appellate proceedings and income from undisclosed sales of Rs.28,07,872/- that was submitted before the Assessing Officer during the assessment proceedings.

5 ITA-4115 & 3975/D/2011

3. The CIT(A) erred in law and on the facts and circumstances of the case in accepting revised turn over/total sales of Rs.2,78,78,432/- and in accepting revised accounts prepared at the time of appellate proceedings instead of turnover of Rs.11,89,074/- originally disclosed at Rs.11,89,074/- in the return of income filed by the assessee, the difference of sales certainly attracted penalty provisions U/s 271(1)(c) on account of furnishing inaccurate particulars of his income in the original return of income U/s 139(1).

4. The CIT(A) erred in law and on the facts and circumstances of the case in estimating and calculating the profit of the assessee at 10% of undisclosed sales of Rs.2,66,89,358/- instead of Rs.42,52,038/-, the addition made by the A.O. U/s 69A of Income Tax Act, 1961 on account of unexplained cash deposit, thus deleting an addition of Rs.15,83,102/- out of assessed income of the assessee."

7. Learned DR could not point out any specific violation of Rule 46A(3) of the Income-tax Rules, 1962 and, accordingly, we find that there is no merit in the ground of appeal No.1 of the Revenue's appeal.

8. With regard to other grounds of appeal No.2 to 4, the issue in these grounds is covered with our decision in the foregoing paragraphs of this order while disposing of the assessee's appeal for the relevant assessment year 2007-08 in ITA No.4115/Del/2011 and, for the reasons recorded therein, we hold that there is no merit in these grounds of appeal of the Revenue. Learned CIT(A) was perfectly justified in law in applying the rate of net profit on the undisclosed transactions of sales and in not adding the entire value of the unrecorded transactions. We have already directed to adopt the net profit rate of 7% on the undisclosed transactions of `2,66,89,358/- while disposing of the assessee's appeal and, accordingly, we hold that there is no merit in 6 ITA-4115 & 3975/D/2011

ground Nos.2 to 4 of the Revenue's appeal, which are accordingly dismissed.

9. In the result, the appeal of the assessee is partly allowed and the appeal of the Revenue is dismissed.

Decision pronounced in the open Court on 1st April, 2015.

Sd/- Sd/- (T.S. KAPOOR) KAPOOR) (G.C. (G.C. GUPTA) GUPTA) ACCOUNTANT MEMBER VICE PRESIDENT

VK.

Copy forwarded to: -

1. Assessee : Shri Naresh Kumar Garg, A-8/29, Ground Floor, Sector Sector-15, Rohini, Delhi - 110 085.

2. Revenue : Income Tax Officer, Ward- Ward-21(1), New Delhi.

3. CIT 4. CIT(A) 5. DR, ITAT

Assistant Registrar