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.
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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
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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
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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.
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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
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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.
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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/-,
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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
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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
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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.
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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
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