$~16 & 19
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Decided on: May 05, 2015.
+ ITA 212/2013
+ ITA 221/2013
COMMISSIONER OF INCOME TAX CENTRAL II ..... Appellant
Through: Ms. Suruchi Aggarwal, Sr. Standing
counsel and Mr. Abhishek Sharma, Adv.
versus
M/S NAVBHARAT EXPORT ..... Respondent
Through: Mr. Salil Kapoor, Mr. Vikas Jain and
Mr. Shubham Rastogi, Advs.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE R.K. GAUBA
MR. JUSTICE S. RAVINDRA BHAT (OPEN COURT)
%
1. The Revenue appeals to this Court under Section 260-A of Income
Tax Act, 1961 (hereinafter referred to as "the Act"), aggrieved by the order
of the Income Tax Appellate Tribunal (hereinafter referred to as "the
ITAT") dated 31.01.2011, so far as it relates to the dismissal of its appeal
and correspondingly the relief granted to the assessee for Assessment Year
(AY) 2003-04. Assessments for four years 2002-03 to 2005-06 were made
on 29.12.2006 under Section 153A pursuant to a search conducted on
07.10.2004. The Revenue urges that the ITAT fell into error on the
following questions:-
W.P.(C) 212/2013 and 221/2013 Page 1
(i) Disallowance of expenses in the profit & loss account,
specifically with respect to transport expenses claimed only
3,38,184 /- out of the total claim of 36,01,764/-, sought to be
added was actually allowed by the Assessing Officer (AO);
(ii) Deletion of findings with respect to the error in rejection of
books and the imposition of 12% GP rate by the AO on account
of absence of stock register and other alleged irregularities; and
(iii) Direction to cancel the addition on account of notional income
worked out by the AO.
2. The assessee at the relevant time, used to procure and restore rice
after due processing. In the course of such procurement, it was contended to
retain gunny bags supplied by the Food Corporation of India (FCI) and deal
with them. After the search and during the assessment proceedings, the
assessee had surrendered a sum of 1.75 Crores. Apparently, in the course
of search, some excess stocks were found. On this basis as well as on an
observation of the materials on record, the AO rejected the books of
account. In doing so, he was influenced by the following considerations:-
(a) Absence of stock register;
(b) Irregularity or failure to disclose the receipts and transactions
pertaining to the gunny bags ("bardana");
(c) The excess stock found in the premises; and
(d) A portion of the transport expenses were found to have been
transacted in cash with no supporting evidence.
3. The assessee appealed to the Commissioner of Income Tax (Appeals)
[hereinafter referred to as "the CIT(A)"] contending that the AO's rejecting
the books of account and imposing a gross profit margin of 12% was
W.P.(C) 212/2013 and 221/2013 Page 2
arbitrary. In doing so, the assessee attacked the AO's approach stating that
so far as the transport expenses were concerned, of the total expenses, the
entire expenses of more than 7.21 crores had been substantially accepted of
which the details and records in respect of 36 Lacs odd was not available.
This constituted just about 5.1% of the total transport expenses. The AO
had rejected the said claim of expenditure of 36 Lacs and instead worked
out 1.75% of the total expenditure, amounting to 36,01,764/ -, as the
admissible figure. The CIT(A) upheld the rejection of books of account but
granted limited relief to the extent that the GP rate was reduced from 12% to
11.6%.
4. Aggrieved by the order of the CIT(A), both the Revenue and the
assessee carried the matter in appeal. The ITAT by impugned order,
analysed the entirety of the material and evidence on record for all the years
i.e. AY 2002-03 to 2005-06. It held that the reason for rejection of the
books of account was not sound given that the assessee was maintaining the
consistent accounting method which had been accepted during all previous
years. So far as the irregularities with respect to "bardana" was concerned,
the ITAT held as follows:-
"12. ...First objection given by the Assessing Officer for
doubting book results of the assessee is that it has not shown
sale of bardana (gunny bags). The assessee has demonstrated
that this observation is factually incorrect. The learned counsel
for the assessee during the course of hearing drew our
attention towards the balance sheet and the accounts and
shown us the opening stock, purchases and sale of bardana..."
5. In view of these findings which are entirely based on fact, this Court
is of the opinion that unless the Revenue points out something
W.P.(C) 212/2013 and 221/2013 Page 3
fundamentally wrong or unreasonable in the ITAT's approach, the question
urged by it with regard to addition on this score, is inadmissible.
6. In dealing with the rejection of the cash transactions towards transport
expenditure, the ITAT reasoned as follows:-
"12...The second objection pointed out by the Assessing Officer
is that assessee has carried out cash transaction. These cash
transactions relate to payment of freight charges to the
transporter. We find from the record that assessee had
incurred a sum of 7,21,16,088/- towards the freight. Out of
this huge amount, it has incurred expenses of 36,84,500/ - in
cash. According to it, some time petty transports emphasized
for making the payment in cash. In our opinion, this is not such
a factor which may prevent the Assessing Officer to compute
the true income of the assessee from the accounts..."
This Court is of the opinion that the ITAT's reasoning is sound and
does not call for interference. The extent of disallowance made towards
transportation expenses claimed was 36,01,764/- which was concededly in
cash. Counsel for the Revenue points out that lower questionnaire was
sought given to the assessee on 05.04.2006. The reply on this score
belatedly on 04.05.2006 did not contain any particular. Be that as the case
may be, at the same time, this Court is of the opinion that considering the
totality of the expenditure which was about `7,21,16,088/-, the cash
expenditure of `36,84,500/-, could not be said to be of such magnitude as to
have led to the startling result of rejecting the entire books of account.
Furthermore, the AO does not indicate any reason why he accepted 1.75%
of the entire transaction as permissible cash transportation expenditure. We,
therefore, agree with the findings of the ITAT and held that the expense
W.P.(C) 212/2013 and 221/2013 Page 4
claimed for transportation could not have been a valid ground for rejecting
the books of account.
7. The ITAT noted very importantly that the AO's observation with
regard to the assessee not maintaining any stock register was not correct.
The AO, in fact, does not appear to have rejected any results for AY 2002-
03. The ITAT further held:-
"12...The assessee in its audit report specifically alleged that it
is maintaining stock register. The assessee has been lifting the
rice from FCI godown and thereafter it is exporting. All the
details of purchase, sales and exports are being maintained and
shown to the Assessing Officer. In spite of that, in a flimsy way,
Assessing Officer had made the above remark. The next
objection pointed out by the Assessing Officer is that yield
shown by the assessee is not reliable. The criteria for making
comparison of yield by the Assessing Officer is not discernible.
He observed that a loose paper was found at the premises of
erstwhile partner and the yield computed on that loose paper
did not match with the ultimate yield shown by the assessee. It
is not coming out on the record that how that loose paper is
relevant for working out the yield. The yield of the assessee
ought to be verified from the factor, what type of rice it had
purchased, how it has processed, what type of machinery it has
used, those percentage ought to be compared with some
similarly situated assessee or with the result of other years. No
such steps have been taken by the Assessing Officer. He merely
assigned one reason for the sake of giving reasons.
13. Assessing Officer has estimated the GP at 12%. In
assessment year 2005-06, assessee itself has shown the GP at
13.14%. In that year, he estimated the GP at 13.5%. It gives
an impression that Assessing Officer instead of finding out
actual defects in the books of account of the assessee, he wants
to reject the result whatever may be the reasons. Taking into
consideration the alleged defects pointed out by the Assessing
Officer as well as the explanations of the assessee, we find that
W.P.(C) 212/2013 and 221/2013 Page 5
Assessing Officer has made a reference to lame excuses for
disbelieving the book results of the assessee, Learned
CIT(Appeals) though agreed with the contention of the assessee
that objections pointed out by the Assessing Officer have been
refuted by it, still uphold the rejections of the book results, only
on the ground that excess stock was declared during the course
of search. As observed earlier, this may be one corroborative
factor for doubting the accounts of the assessee, but it cannot
be a sole criteria. More so, on the similar books of account
and details, Assessing Officer could not find any fault in
assessment year 2002-03 and in earlier years. Thus, taking
into consideration all these factors we are of the opinion that
Learned CIT(Appeals) has erred in upholding the rejection of
book results. Assessing Officer is unable to point out serious
lapse in the accounts maintained by the assessee which can
unable him to deduce the true income. We allow the ground of
appeal raised by the assessee in all the three years and set
aside the finding of the learned revenue authorities. The
income of the assessee is to be computed on the basis of books
of account maintained by it and the GP addition made by the
Assessing Officer in all the three assessment years is deleted. "
8. The above findings are again a finding of fact. Revenue's appeal does
not in any manner reflect how these findings are unreasonable or
unsupported by the materials on record. Consequently, no question of law
arises for consideration, as to the rejection of the books of account.
9. In view of the above conclusion, the further finding of the ITAT that
the imposing of GP rate of 12% - later reduced to 11.6% was entirely
unwarranted. This finding, of course, cannot be disturbed in view of the fact
that each of the reasons which impelled the AO to reject the books of
account, has been upheld.
10. As far as the interest of `50,200/-, attributed as a notional interest
accruing from other sources is concerned, this Court agrees with the findings
W.P.(C) 212/2013 and 221/2013 Page 6
of the ITAT that the entire basis of this addition was hypothetical and not
based upon any material evidence except the cheques found in the premises
during the search. The assessee's explanation was that these amounts had
been returned. So far as the addition on account of interest which ought to
have accrued is concerned, both the CIT(A) and ITAT were in unanimity in
holding that such additions could not have been made. We also noticed that
the ITAT based its decision on the judgment of Supreme Court in
Commissioner of Income Tax v. Shoorji Vallabhdas and Co. (1962) 46 ITR
144 (SC). Having regard to these facts, this Court is of the opinion that
there was no "real income" in the facts and circumstances of this case. In
view of the concurrent findings, the Court will not interfere in this aspect.
11. For the foregoing reasons, no substantial question of law arises. The
appeal is dismissed.
S. RAVINDRA BHAT
(JUDGE)
R.K. GAUBA
(JUDGE)
MAY 05, 2015
ik
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