Sushil Kumar & Co., New Delhi vs Assessee

1 ITA 5716/Del/13

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH "G" NEW DELHI BEFORE SHRI G.D. AGRAWAL : VICE PRESIDENT AND SHRI GEORGE GEORGE K.: JUDICIAL MEMBER

ITA no. 5716/Del/2013 Asstt. Yr: 2009-10 Sushil Kumar & Co., Vs. Income-tax Officer, 543, Guru Har Kishan Nagar, Ward 38(3), New Delhi. Paschim Vihar, New Delhi. PAN: AASFS 6352 D.

( Appellant ) (Respondent)

Appellant by : Shri B.R.R. Kumar Sr. DR Respondent by : Shri J.C. Kapoor CA

Date of hearing : 03/03/2015. Date of order : 05/03/2015.

ORDER

PER G.D. AGRAWAL, V.P.:

This appeal, by the assessee, is directed against CIT(A)'s order dated

19-08-2013, relating to A.Y. 2010-11.

2. Ground no. 1 of the assessee's appeal reads as under:

"On the facts and circumstances of the case the Ld. CIT(Appeals) is wrong and unjustified in giving partial relief on account of addition of Rs. 6,01,100/- being disallowance of interest."

3. We have heard both the parties and perused the material placed before

us. The fact of the case are that during the course of assessment proceedings, 2 ITA 5716/Del/13

AO noticed that the assessee, which is a partnership firm, had shown

investment of Rs. 40,10,611/- under the head "current assets loans and

advances" as on 31-3-2010. On inquiry, he found that this amount was paid

by the assessee partially during the previous year and partially in this year

in respect of construction of some property. At the time of hearing before us,

the ld. counsel for the assessee fairly admitted that the agreement was

executed by Sushil Kumar, partner and the property after the construction

was to be owned by Sushil Kumar and not the firm. He submitted that by

mistake, since the names of the firm and the partner are the same, the

accountant instead of debiting the amount to the partner's account, debited it

to the "loans and advance account". He, therefore, submitted that the

amount can be debited to the account of Sushil Kumar. He also referred to

the balance-sheet of the assessee firm and pointed out that the credit balance

in the account of Sushil Kumar was about Rs. 25 lacs and, therefore, the

interest, if any, can be charged on the resultant debit balances in the account

of the partner, which may arise after the debit of Rs. 40,10,611/- to the

account of the partner.

4. The ld. DR, on the other hand, relied on the order of authorities

below.

3

ITA 5716/Del/13

5. After considering the facts of the case and arguments of both the

sides, we direct the AO to work out the debit balance in the account of

Sushil Kumar, after considering the debit of Rs. 40,10,611/- in his account.

On such debit balance, the AO will work out the interest receivable from

him as per the rate of interest provided in the partnership deed.

6. Ground no. 2 of the assessee's appeal reads as under:

"On the facts and circumstances of the case the Ld. CIT(Appeals) is wrong and unjustified in confirming the addition of Rs. 5,39,676/- on account of work in progress."

7. At the time of hearing before us, it was submitted by the ld. counsel

that during the course of assessment proceedings the AO asked for the

details of the contract receipt by the assessee on the month of April 2010 i.e.

month immediately after the close of the year. He noticed that there was

contract receipt of Rs. 33,74,963/-. On the basis of such contract receipt, the

AO formed an opinion that closing stock as well as the work in progress,

disclosed by the assessee at Rs. 22.25 lacs and Rs. 6.32 lacs respectively,

were not correctly disclosed. He, therefore, rejected the assessee's books of

account and applied G.P. rate of 11.64% as against 11.14% disclosed by the

assessee, which resulted in the addition of Rs. 5,39,676/-. He stated that for

rejection of books of a/c the only mistake pointed out by the AO was 4 ITA 5716/Del/13

doubting the correctness of the closing stock and work in progress disclosed

by the assessee for the year ended on 31-3-2010. He stated that considering

the contract receipt of Rs. 33.74 lacs in the month of April 2010, the closing

stock as well as work in progress disclosed by the assessee on 31-3-2010

was correct and not understated. He, however, alternatively stated that if the

closing stock/ work-in-progress was understated by the assessee, then the

right course would have been to make the addition to the closing stock/ work

in progress and not to reject the books of a/c and apply G.P. rate. He,

therefore, submitted that the addition made by the AO and sustained by the

CIT(A) may be deleted. He alternatively submitted that if the addition is not

deleted, then the direction may be given that the addition may be treated as

addition to the closing stock or to work-in-progress and the set off of the

same may be given by increasing the opening stock/ work in progress of

next year.

8. Ld. DR relied on the order of authorities below. However, he has no

serious objection if the alternate request of the assessee is accepted.

9. After considering the facts of the case and the arguments of both the

sides, we are of the opinion that the only reason given by the AO for

rejecting the books of account is the probable understatement of the closing

stock. Therefore, in our opinion, instead of rejecting the books of account, 5 ITA 5716/Del/13

the AO should have enhanced the value of closing stock. We, accordingly,

modify the order of the AO and direct that the addition of Rs. 5,39,676/-

should be treated as addition to the closing stock. Thus, the addition of Rs.

5,39,676/- is sustained. However, before we part with the matter, we direct

the AO to allow consequential set off in the next year by increasing the

opening stock of the next year by the sum of Rs. 5,39,676/-. With this

observation ground no. 2 of the assessee's appeal is rejected.

Order pronounced in open court on 05/03/2015..

Sd/- Sd/- ( GEORGE GEORGE K. ) ( G.D. AGRAWAL) JUDICIAL MEMBER VICE PRESIDENT Dated: 05/03/2015. *MP* Copy of order to:

1. Assessee 2. AO 3. CIT 4. CIT(A) 5. DR, ITAT, New Delhi.