(Per: HONOURABLE MS.JUSTICE HARSHA DEVANI) 1. In this appeal under section 260A of the Income Tax Act, 1961 (hereinafter referred to as “the Act”), the appellant-
revenue has challenged the order dated 18.08.2011 made by the Income Tax Appellate Tribunal, Ahmedabad Bench “C” in ITA No.1687/Ahd/2010 (hereinafter referred to as 'the Tribunal') by proposing the following questions:
“[A] Whether the Appellate Tribunal is right in law and on facts in deleting the addition of Rs. 18,44,422/- made on account of unaccounted sales?
[B] Whether the Appellate Tribunal is right in law and on facts in deleting the addition of Rs. 14,40,866/- made on account of under valuation of closing stock of finished goods?
[C] Whether the Appellate Tribunal is right in law and on facts in deleting the addition of Rs. 5,55,270/- made on account of job charges?
[D] Whether the Appellate Tribunal is right in law and on facts in deleting the addition of Rs. 1,50,000/-
made on account of salary expenses?
[E] Whether the Appellate Tribunal is right in law and on facts in deleting the unsecured loan u/s. 68 of Rs.11,00,000/- and interest of Rs. 79,249/- made on account of unsecured loan received by the assessee?”
2. The assessment year is 2007-08 and the corresponding accounting period is 01.04.2006 to 31.03.2007. The respondent-assessee who is engaged in the business of trading in sarees and dress materials filed his return of income for the assessment year under consideration declaring total income of Rs.3,87,399/-. The Assessing Officer framed assessment under section 143(3) of the Act on a total income of Rs. 56,63,940/- after making the following additions:
3. The assessee went in appeal to the Commissioner (Appeals) who dismissed the appeal and confirmed the additions made by the Assessing Officer. The assessee carried the matter in further appeal before the Tribunal and partly succeeded.
4. The Assessing Officer firstly verified the correctness of the books of account maintained by the assessee. After discussing a number of glaring mistakes, he rejected the books of accounts. Such rejection of the books of account was not contested by the assessee. The Assessing Officer, however, made further additions by relying upon the same books of accounts which had been rejected by him. The Tribunal was of the view that the Assessing Officer, once having rejected the books of accounts, could not have made further additions by relying upon the same books and that it would have been better, if the Assessing Officer had estimated a reasonable profit of the assessee considering the history and nature of the business.
5. As regards proposed question [A], which pertains to addition of Rs. 18,44,422/- in relation to wastage, the Tribunal, upon appreciation of the evidence on record, found that the assessee had claimed wastage in the preceding assessment year, that is, 2006-07 at 8.5% and disclosed gross profit rate of 8.22% whereas in the year under consideration, the assessee had claimed wastage of 8.84% and shown gross profit rate of 10.75%. Thus, the wastage that was claimed in the assessment year under consideration was more or less similar to that claimed in the preceding assessment year. However, the gross profit rate was much better in the assessment year under consideration. The Tribunal, accordingly, noted that this was not a case of inflating the expenses or claiming unreasonable expenses on account of wastage. After considering the details furnished by the assessee which were supported by relevant bills and vouchers, the Tribunal was of the view that the findings of the Assessing Officer with regard to the wastage were unjustified.
6. As regards proposed question [B] with regard to addition of Rs.14,40,886/- on account of under valuation of closing stock, the assessee had shown closing stock of finished goods at 99302 metres which was valued at Rs.32,02,496/- and accordingly the per metre cost of the closing stock of finished goods worked out to Rs.32.25 per metre. As against this, the Assessing Officer observed that the average sale rate of the assessee was Rs.52.39 per metre and reducing the GP rate @ 10.75 therefrom, worked out the cost at Rs.46.76 per metre. The Commissioner (Appeals) found that the assessee had maintained his books of account on computer whereas the item wise details of closing stock had been prepared manually. Noting that the assessee had not maintained item wise inventory record which could be obtained from computerized books of account, he confirmed the additions. On behalf of the assessee reference was made to the details of bifurcation of closing stock in the paper book to show that the details of closing stock was maintained item wise and there was no bar against maintaining manual quantitative details. The Tribunal was of the view that merely because the assessee did not maintain certain details on the computer was no ground for rejecting the explanation given by the assessee.
7. As regards proposed question [C] relating to disallowance of Rs.5,55,270/- on account of job charges paid to M/s Seema Creation, during the course of verification of the ledger accounts and the audit report the Assessing Officer noted that the assessee had claimed payment of Rs.15,18,878/- to Seema Creations whereas the ledger accounts showed job charges of Rs.9,63,608/- and accordingly, added the difference. Tribunal found that the assessee had explained the discrepancies which were pointed out by the Assessing Officer and had filed copy of ledger accounts of M/s. Seema Creation in the paper book to reconcile such discrepancies. Moreover, M/s. Seema Creation was also assessed to tax and had filed return of income on the same figure which tallied with that of the assessee. The Tribunal was of the view that merely because initially there was a discrepancy, was no ground to make the addition once the assessee had explained the discrepancy in the books of accounts. According to the Tribunal, the Assessing Officer had not made proper investigation in the matter. It, therefore, did not approve of the findings given by the Assessing Officer as confirmed by the Commissioner (Appeals), that the assessee had inflated the job charges.
8. Insofar as proposed question [D] which pertains to addition on account of salary expenses is concerned, there was a difference of Rs.1,50,000/- in the audit report and the ledger account in respect of salary expenses. The Tribunal found that the assessee had explained that the mistakes were inadvertent which had been subsequently rectified.
9. In relation to the above grounds, the Tribunal, however, took note of the fact that the Assessing Officer had rejected the books of accounts, and as such was of the view that the some reasonable addition was required to be made by enhancing the profit of the assessee. The Tribunal found that the profit ratio of the assessee was better as compared to the earlier years and found it reasonable to make a lump sum addition of Rs. 2 lacs to protect the interest of the revenue. The Tribunal, therefore, set aside the additions in relation to the above four grounds of appeal and made a lump sum addition of Rs. 2 lacs.
10. Insofar as proposed question [E] which pertains to addition of Rs. 11 lacs on account of unsecured loans under section 68 of the Act and disallowance of interest expenses of Rs. 79,249/-, the assessee had accepted loans from two persons namely one Mr. Prem Ratan Sharma and Mr. Kishanlal Sharma. The Assessing Officer asked the assessee to justify the cash credits in terms of section 68 of the Act. After considering the material produced by the assessee, the Assessing Officer was of the view that the creditworthiness of the two depositors was not established and accordingly made addition of rupees eleven lacs as unexplained cash credits and disallowed interest of Rs.79,249/- paid by the assessee thereon. The Tribunal, upon appreciation of the evidence on record, found that Mr. Prem Ratan Sharma had become major on 15.08.2006 and had furnished a copy of his income tax return, computation of income, profit and loss account, balance sheet and relevant extract of bank statement. It further found that the assessee had been able to prove the identity of the creditor and the genuineness of the transaction in the matter. The Tribunal also noted that upon issuance of the summons to the creditor, Mr. Prem Ratan Sharma, he had responded to the same and filed reply before the Assessing Officer directly confirming the loan to the assessee which was shown in his balance sheet as well as shown to the Revenue Department. It was also noted that the Assessing Officer did not ask the assessee to produce the creditor for examining him nor did he bring any evidence on record that the cash deposits in the bank account of the creditor came from the side of the assessee. Similar was the case in respect of the loan taken from Mr. Kishanlal Sharma, who also had filed return of income and shown the deposit given to the assessee in his balance sheet which were shown to the Revenue Department and the assessee had deducted the TDS on the interest amount. In light of the fact that the assessee had been able to prove the identity of the creditors, genuineness of the transaction in the matter and creditworthiness of the creditor, the Tribunal found no reason for making the addition treating the same as unexplained cash credit and accordingly, set aside the said addition.
11. From the facts noted hereinabove, it is apparent that the Tribunal has based its conclusion upon the findings of fact recorded by it upon appreciation of the evidence on record. The learned counsel for the appellant is not in a position to point out any material to the contrary so as to dislodge the findings of fact recorded by the Tribunal. Having regard to the findings of fact recorded by the Tribunal, it is not possible to state that the view taken by the Tribunal is, in any manner, unreasonable or perverse so as to give rise to the question of law.
12. In the absence of any substantial question of law, the appeal is dismissed.
[AKIL KURESHI, J.] [HARSHA DEVANI, J.] JYOTI