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Sh. Jai Prakash Garg, Prop. M/s Prakash Trading Company, 19-A, New Mandi, Muzaffarnagar Vs. Income Tax Officer, Ward-1(2) Aayakar Bhawan, Muzaffarnagar
July, 21st 2015
                                                           ITA NO.3819/Del/2014


                IN THE INCOME TAX APPELLATE TRIBUNAL
                      DELHI BENCH "D", NEW DELHI
          BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER
                                  AND
                   SHRI H.S. SIDHU, JUDICIAL MEMBER


                       I.T.A. No. 3819/DEL/2014
                              A.Y. : 2009-10
Sh. Jai Prakash Garg,                        Income Tax Officer,
Prop.     M/s   Prakash     Trading VS. Ward-1(2)
Company,                                     Aayakar Bhawan,
19-A, New Mandi,                             Muzaffarnagar
Muzaffarnagar
(PAN: ABCPG2520H)
(APPELLANT)                                    (RESPONDENT)

           Assessee by                :    Sh. Ankit Gupta, Adv.
          Department by               :    Sh. Gaurav Dudeja, Sr. DR


                      Date of Hearing : 01-07-2015
                      Date of Order       : 20-07-2015


                             ORDER
PER H.S. SIDHU : JM
     This appeal by the Assessee is directed against the Order of

the Ld. Commissioner of Income Tax (Appeals), Muzaffarnagar

dated 31.3.2014 pertaining to assessment year 2009-10 and

following grounds have been raised:-


     1.    That the notice issued and order passed u/s 154 are

           illegal, bad in law and without jurisdiction.




                                      1
                                                 ITA NO.3819/Del/2014


2.   That, in view of the facts and circumstances, the order

     passed under section 154 of the Act is illegal, bad in law

     and cannot be justified by any material on record and the

     CIT(A) has also erred in upholding the same.


3.   That CIT(A)/ AO , in view of the facts and circumstances

     of the case failed to appreciate that the assessment order

     passed under section 143(3) of the Act after considering

     the relevant material and after appropriate reasoning

     hence there is no mistake apparent from record which

     can be rectified under section 154 of the Act therefore

     the notice U/s 154 and order passed are illegal, bad in

     law and without jurisdiction.


4.   The addition/ disallowances made by the assessing

     officer are illegal, unjust, highly excessive and are not

     based on any material on record by the assessing officer.

     The total income of the appellant has been wrongly and

     illegally computed by the assessing officer at Rs.

     35,75,080/- as against declared income of Rs.1,47,920/-.


5.   The Assessing Officer has, in view of the facts and

     circumstances of the case, erred on facts and in law, in

     making   addition/disallowance   of   Rs.   33,70,800/- on

     account of the violation of the section 40A(3) of the


                            2
                                                   ITA NO.3819/Del/2014


     Income Tax Act,1961 and the CIT(A) had also erred in

     upholding the same.


6.   That the CIT(A)/AO failed to appreciate that the amount

     paid in cash is to run the business in smoothly and it is

     for business expediency and no disallowances is called

     for. In any case the Assessing Officer has failed to

     appreciate that the said payments were covered by rule

     6DD and no disallowance should have been made.


7.   That CIT(A)/ AO failed to appreciate that no disallowance

     need to made U/s 40A(3) when the gross rate is applied

     and recast the books of accounts/ trading account of the

     appellant after rejecting the books of accounts U/s 145 of

     the Act hence the addition/ disallowance made is illegal,

     bad in law and without jurisdiction.


8.   That the CIT(A)/ AO erred in ignoring/ not considering the

     decision of the Jurisdictional High court, even after relying

     by the assessee that it is squarely applicable to the facts

     and circumstances of the case.


9.   That the Assessing Officer, in view of the facts and

     circumstances of the case erred on facts and in law in

     making the ad-hoc addition/ disallowance on estimated

     basis,   which   is   unjust,   arbitrary,   unlawful,    highly

                              3
                                                  ITA NO.3819/Del/2014


      excessive, based on surmises and conjectures and

      cannot be justified by any material on record.


10.   The additions made and the observations made are

      unjust, unlawful and based on mere surmises and

      conjunctures. The additions made cannot be justified by

      any material on record.





11.   That the explanation given evidence produced, material

      placed and available on record has not been properly

      considered and judicially interpreted and the same do not

      justify the additions/ allowances made.


12.   That the impugned Assessment Order passed by the

      Assessing Officer and order passed by CIT(A) are against

      the principles of natural justice and the same has been

      passed   without   affording   reasonable   and    adequate

      opportunity of being heard.


13.   That the interest u/s 234B has been wrongly and illegally

      charged as the appellant could not have foreseen the

      disallowances/additions    made   and     could   not    have

      included the same in current income for payment of

      Advance tax. The interest charged under various sections

      is also wrongly worked out.



                             4
                                                        ITA NO.3819/Del/2014


      14.   The appellant craves leave to add, amend, alter and or

            modify the grounds of appeal of the said appeal.


            All of the above grounds of appeal are without prejudice

      and are mutually exclusive to each other."


2.    The brief facts of the case are that the assessment in this case
was completed u/s. 143(3) of the Act dated 23.12.2011 determining
total income at Rs. 2,04,280/-. Subsequently, it was gathered by
the AO that as per cash book, ledger account of purchase of DAP
and ledger account of purchase of MOP, cash purchases were made
in excess of Rs. 20,000/-, details of which have been reproduced by
the AO in the assessment order as under:-

            (i)     Cash Book             Rs. 5,90,400/-

            (ii)    Purchase of DAP       Rs. 22,35,570/-

            (iii)   Purchase of MOP       Rs. 5,44,830/-

                    Total                 Rs. 33,70,800/-

2.1   Thus as per the amended provisions of section 40A(3) of the
Act 100% of such cash purchases at Rs. 33,70,800/- was liable to be
added to the income of the assessee. Thus the AO issued notice u/s.
154 of the Act dated 17.1.2013 requiring the assessee to explain as
to why addition of Rs. 33,70,800/- being cash purchases be not
made to the income in violation of provisions of section 40A(3) of
the Act.

2.2   In response       the assessee explained that there was no
contravention of provisions of section 40A(3) of the Act in respect of
purchase of AP/MOP.         As per the assessee during the course of
assessment proceedings all the purchase vouchers were produced

                                      5
                                                     ITA NO.3819/Del/2014


before the AO which were verifiable from the books of account.
Besides the above, the persons from whom the goods were
purchased were produced for examination and their statements on
oath were recorded.    The assessee further placed reliance on the
decision of   Hon'ble Allahabad High Court in the case of CIT vs.
Banswari Lal Bansidhar 229 ITR 229 (All.).   Further, on the point of
GP, it was contended by the assessee that the AO at the time of
assessment proceedings rejected the account books of the assessee
u/s. 145 and increased the GP rate more than what had been shown
by the assessee. Thus it was argued that if the books were rejected
by the AO, Section 40A(3) of the Act would not be applicable.

2.3   However, the AO rejected the contentions made by the
assessee and held that the assessee had        failed to explain the
reason of the purchase made in cash exceeding Rs. 20,000/-
aggregating to Rs. 33,70,800/- which was made in contravention of
provisions of section 40A(3) of the Act.      The AO      also found
distinguishable the case law relied upon by the assessee and
rejected the same. Since there was apparent mistake on the face of
record, the AO disallowed cash purchases made at Rs. 33,70,800/-
u/s. 40A(3) of the Act which was added to the income of the
assessee vide order dated 17.6.2014 passed u/s. 154 of the I.T. Act,
1961.

3.    Aggrieved with the   aforesaid Order dated 17.6.2013 passed
by the AO u/s. 154 of the I.T. Act, assessee appealed before the Ld.
CIT(A), who vide impugned order dated 31.3.2014 has dismissed the
Appeal of the assessee.

4.    Against the aforesaid order dated 31.3.2014 of the Ld. CIT(A),
assessee appealed before the Tribunal.



                                 6
                                                        ITA NO.3819/Del/2014


5.   Ld. Counsel of the assessee has reiterated the           contention
raised by the Assessee.        He submitted that the legal issue in
respect of additions made u/s. 154 without any mistake apparent on
record and on debatable issue, which itself amounts to review the
assessment order passed u/s. 143(3) of the Act and also stated that
issues on merit are also squarely covered by the decision of the
Hon'ble Jurisdictional High court of Allahabad in the case of CIT vs.
Banwari Lal Bansidhar 229 ITR 299 (All.). To support his contentions,
he also filed the copies of the following judgments:-

     -     CIT vs. Smt. Santosh Jain 159 Taxman 392 (P&H)

     -     ITO vs. Nardev Kumar Gupta 142 ITD 303 (Jai.)

     -     CIT vs. Gayatri Glass Works 317 ITR 319 (All.)

     -     M/s Mepco Industries Ltd. vs. CIT 319 ITR 208 (SC)

     -     CIT vs. India Cements Ltd. 265 ITR 479 (Mad.)

     -     CIT vs. Sherwani Sugar Syndicate Ltd. 294 ITR 247 (All.)

     -     CIT vs. Lakahni Rubber Udyog Ltd. 312 ITR 14 (P&H)

     -     ITO vs. Volkart Brothers and others 82 ITR 50 (SC)

6.   on the contrary, Ld. DR relied upon the orders of the revenue
authorities and requested that the same may be upheld.

7.   We have heard both the parties and perused the records
especially the orders of the    lower authorities and the submissions
made by both the parties.        We find that the assessment was
completed u/s. 143(3) of the Act dated 23.12.2011 determining total
income at Rs. 2,04,280/-.      AO gathered   that as per cash book,
ledger account of purchase of DAP and ledger account of purchase
of MOP, cash purchases were made in excess of Rs. 20,000/-,

                                   7
                                                        ITA NO.3819/Del/2014


details of which have been reproduced by the AO in the assessment
order as under:-

            (i)     Cash Book             Rs. 5,90,400/-

            (ii)    Purchase of DAP       Rs. 22,35,570/-

            (iii)   Purchase of MOP       Rs. 5,44,830/-

                    Total                 Rs. 33,70,800/-

7.1   We further find that as per the AO the amended provisions of
section 40A(3) of the Act 100% of such cash purchases at
Rs. 33,70,800/- was liable to be added to the income of the
assessee.    Thus the AO issued notice u/s. 154 of the Act dated
17.1.2013 requiring the assessee to explain as to why addition of
Rs. 33,70,800/- being cash purchases be not made to the income in
violation of provisions of section 40A(3) of the Act. In response
thereto the assessee explained that there was no contravention of
provisions of section 40A(3) of the Act in respect of purchase of
AP/MOP. As per the assessee during the course of assessment
proceedings all the purchase vouchers were produced before the AO
which were verifiable from the books of account. Besides the above,
the persons from whom the goods were purchased were produced
for examination and their statements on oath were recorded.            The
assessee further placed reliance on the decision of Hon'ble
Allahabad High Court in the case of CIT vs. Banswari Lal Bansidhar
229 ITR 229 (All.).    Further, on the point of GP, it was contended by
the assessee that the AO at the time of assessment proceedings
rejected the account books of the assessee u/s. 145 and increased
the GP rate more than what had been shown by the assessee. Thus
it was argued that if the books were rejected by the AO, Section
40A(3) of the Act would not be applicable. However, the AO rejected


                                      8
                                                      ITA NO.3819/Del/2014


the contentions made by the assessee and held that the assessee
had   failed to explain the   reason of the purchase made in cash
exceeding Rs. 20,000/- aggregating to Rs. 33,70,800/- which was
made in contravention of provisions of section 40A(3) of the Act.
The AO also found distinguishable the case law relied upon by the
assessee and rejected the same. AO observed that since there was
apparent mistake on the face of record, he disallowed cash
purchases made at Rs. 33,70,800/- u/s. 40A(3) of the Act which was
added to the income of the assessee vide order dated 17.6.2013
passed u/s. 154 of the I.T. Act, 1961 and the same was upheld by
the Ld. CIT(A) vide order dated   31.3.2014.




7.2   We     find considerable cogency in the submissions of the
assessee's   counsel that assessment order passed under section
143(3) of the Act after considering the relevant material and after
appropriate reasoning hence there is no mistake apparent from
record which can be rectified under section 154 of the Act therefore
the notice U/s 154 and order passed are illegal, bad in law and
without jurisdiction. We have also gone through the judgments filed
by the assessee's counsel and find that the issue in dispute is
squarely covered by the said judgments. We are dealing some of
the judgments in the forgoing paragraphs:-

7.3   In the case of CIT vs. Banwari Lal Banshidhar 229 ITR 229 (All),
we find that the Hon'ble High Court of Allahabad has observed that
"when the gross profit rate is applied, that would take care of
everything and there was no need for the AO to make scrutiny of
the amount incurred on the purchases by the assessee."

7.4   In the case of CIT vs. Gayatri Glass Works (2009) 317 ITR 319
(All), we find that the Hon'ble High Court of Allahabad has observed
that order passed on the basis of relevant facts ­ where a decision


                                  9
                                                        ITA NO.3819/Del/2014


has been arrived at after considering the relevant material and after
appropriate reasoning, although the reasoning and consequently the
conclusion may be mistaken on facts or on law; and where to
demonstrate the mistake of fact or of law it requires a process of
detailed reasoning, it would not be a case of an error apparent on
record capable of rectification under section 154, but would virtually
amount to review of the order. By dealing this case, the Hon'ble
High Court while deciding this case,     has referred     the judgment
delivered in the case of CIT vs. Hero Cycles (P) Ltd. etc. (1997) 228
ITR 463 (SC) of the Hon'ble Supreme Court of India,         wherein the
Hon'ble Supreme Court of India has held as under:-

                "Rectification under section 154 can only be made
                when a glaring mistake of fact or law committed by
                the Officer passing the order becomes apparent
                from the record. Rectification is not possible if the
                question is debatable. Moreover, a point which was
                not examined on facts or in law cannot be dealt
                with as a mistake apparent from the record."

7.5   And in the case     of T.S. Balaram, ITO, Company Circle-IV,
Bombay vs. Volkart Brothers and others, the Hon'ble Supreme Court
of India vide its order dated 5.8.1971 has observed that "a mistake
apparent on the record must be an obvious and patent mistake and
not something which can be established by a long drawn process of
reasoning on points on which there may be conceivably two
opinions.   A decision on debatable point of law is not a mistake
apparent from the record."

8.    Keeping in view of the aforesaid discussions and precedents
relied upon by the Ld. Counsel of the assessee, it is amply clear that
the issue in dispute is a legal issue in respect of additions made u/s.


                                  10
                                                      ITA NO.3819/Del/2014


154 without any mistake apparent on record and on debatable issue
and we are of the view that the order u/s. 154 passed by the AO
and upheld by the Ld. CIT(A) are not sustainable in the eyes of law.
Therefore, we are of the considered view that the issue in dispute is
squarely covered by the judgments mentioned in paras 7.3 & 7.5 of
this order.     Therefore, respectfully, following the precedents as
above, we quash the order dated 17.6.2013 passed u/s. 154 of the
I.T. Act by the AO and the order dated 31.3.2014 passed by the Ld.
CIT(A) u/s. 250 of the I.T. Act and delete the additions       emanate
therefrom and allow the appeal of the Assessee.

9.    In the result, the Appeal filed by the Assessee stands allowed.

      Order pronounced in the Open Court on 20/7/2015.

      Sd/-                                              Sd/-

[S.V. MEHROTRA]                                   [H.S. SIDHU]
ACCOUNTANT MEMBER                              JUDICIAL MEMBER

Date 20/7/2015
"SRBHATNAGAR"
Copy forwarded to: -
1.    Appellant
2.    Respondent
3.    CIT
4.    CIT (A)
5.    DR, ITAT
                            TRUE COPY             By Order,




                                                  Assistant Registrar,
                                                  ITAT, Delhi Benches




                                  11

 
 
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