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DCIT, Central Circle-1, Faridabad. Vs M/s D.P. Woodtech Pvt. Ltd., 14/7, Mathura Road, Mewla Chowk, Faridabad.
August, 17th 2015
              IN THE INCOME TAX APPELLATE TRIBUNAL
                     DELHI BENCH `B' NEW DELHI

          BEFORE SHRI J.S. REDDY, ACCOUNTANT MEMBER
                               AND
          SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER

                           I.T.A.No.5080/Del/2012
                          Assessment Year : 2007-08
DCIT,                          vs    M/s D.P. Woodtech Pvt. Ltd.,
Central Circle-1,                    14/7, Mathura Road,
Faridabad.                           Mewla Chowk, Faridabad.
                                     (AAACD2776M)

                        C.O. No. 416/Del/2012
                     (IN I.T.A.No.5080/Del/2012)
                     Assessment Year : 2007-08
M/s D.P. Woodtech Pvt. Ltd., vs DCIT, CC-1,
C/o RRA Taxindia,                   Faridabad.
D-28, South Extension
Part-I, New Delhi.
(Appellant)                         (Respondent)
                      Appellant by: Md.Mohsin Alam CIT DR
             Respondent by : Dr. Rakesh Gupta, Adv., Sh. Tarun Kumar, Adv.

                               ORDER

PER CHANDRAMOHAN GARG, J.M.

      This appeal of the revenue as well as C.O. of the assessee have been

preferred against the order of CIT(A)(Central), Gurgaon dated 25.07.2012 in

Appeal No. 68F/121(LDH)/CIT(A)(C)/GGN/2008-09 for AY 2007-08. The

grounds raised by the revenue read as under:-

     "(i) Ld. CIT (A) has erred in taking only gross profit on
     unaccounted turnover of Rs. 25, 08,740/- without considering
ITA No. 5680/D/12
CO No.416/D/2012
AY: 2007-08

     the fact that the assessee in order to make such turnover would
     require investment in stocks. Ld. CIT(A) should have made an
     addition of fixed % age of turnover as unaccounted investment in
     stock.

      (ii) Ld. CIT (A) erred in permitting telescopic view to the extent
     of Rs. 4,86,007/- invested in purchase of fixed asset out of the
     unaccounted profits without considering that the assessee need to
     demonstrate that on date of purchase of fixed asset (02-08-2006)
     sufficient amount of profit was earned from unaccounted
     turnover to make investment in the aforesaid fixed asset."




2.     Apropos these grounds, we have heard arguments of both the sides and

carefully perused the relevant material placed on record. Supporting the action

of the AO, ld. DR pointed out that the AO was correct in making the addition of

Rs.29,94,740 on the ground that entries in seized documents were unaccounted.

Ld. DR vehemently contended that the CIT(A) has grossly erred in allowing

relief to the assessee without considering the fact that the assessee in order to

make such turnover would require investment in stocks.           Ld. DR further

submitted that the CIT(A) should have made addition of fixed percentaage of

turnover as unaccounted investment in stock. Ld. DR strenuously contended

that the CIT(A) was not justified in permitting telescopic view to the extent of

Rs. 4,86,007/- invested in purchase of fixed asset out of the unaccounted profits

without considering that the assessee needs to demonstrate that on the date of

purchase of fixed assets (02-08-2006) sufficient amount of profit was earned

from unaccounted turnover to make investment in the aforesaid fixed asset. Ld.

DR submitted that the assessee could not establish required facts to substantiate

                                        2
ITA No. 5680/D/12
CO No.416/D/2012
AY: 2007-08

and establish that on the date of purchase of fixed assets i.e. machinery,

sufficient amount of profit was earned from unaccounted turnover to make

investment in the said fixed asset. Ld. DR lastly submitted that the impugned

order may be set aside by restoring that of the AO.


3.     Ld. Counsel of the assessee strongly supporting the appellate order of the

CIT(A) submitted that the AO made addition without considering the fact that

the assessee would require substantial investment in stock for making such

alleged turnover and the CIT(A) was right in restricting the addition to the fixed

percentage of turnover as unaccounted investment in stock. Ld. Counsel also

pointed out that on the date of purchase of fixed assets i.e. 2.8.2006, the assessee

had earned sufficient amount of income/profit from unaccounted turnover to

make further investment in provision of machine/fixed asset, therefore, the

CIT(A) was quite reasonable and justified in permitting telescopic view to the

extent of Rs.4,86,000 in this regard. Ld. Counsel strenuously pointed out that on

taking a telescopic view, no further and separate addition was required to be

made on account of alleged purchase of machine by the assessee during the

relevant financial period, therefore, the view taken by the first appellate

authority deserves to be upheld.


4.     On careful consideration of above submissions and vigilant perusal of the

relevant material, inter alia, assessment order and impugned order of the



                                         3
ITA No. 5680/D/12
CO No.416/D/2012
AY: 2007-08

CIT(A), we note that the CIT(A) granted relief to the assessee with following

observations and conclusion:-


          "4. The assessee has taken 4 grounds of appeal. Ground
     no. 1 and 4 are general in nature while ground No. 3 pertains to
     charging of interest u/s 2348 though mandatory is
     consequential in nature. In ground of appeal no. 2 the assessee
     has agitated against the addition of Rs. 29,94,740/- on the
     ground that the entries in seized documents were unaccounted,
     It was further submitted that the addition included a sum of Rs.
     4,86,000/- spent towards purchase of plant and machinery and
     Rs. 21,958/- as difference in reconciliation of stock. A chart was
     also furnished to show which of the alleged unaccounted
     transactions were clearly recorded in the books of accounts. It
     was also put forth that the amount in any case could not be
     treated as income and that at the most it could be considered as
     sales on which GP rate could be applied on the transactions not
     reflected in the books viz. Rs.5,85,585/-. Reliance was placed in
     the case of DCIT vs Panna Corporation, Tax Appeal 323/2000
     Gujarat High Court decision dated 16.6.2012. As regards the
     alleged unaccounted investment in Plant and machinery, it was
     submitted that the same could only have been expended out of
     the undisclosed income determined by the Ld AO.
           5. It is seen from para 5 of the impugned assessment order
     that several documents were found and seized which were held
     to be containing details of sale transaction outside the books of
     accounts. These unaccounted entries have been discussed at
     length by the Ld. AO before adding back the said amounts and
     after having decoded the entries.
          6. I have carefully considered the submission of the
     assessee and the impugned assessment order. Several
     documents were found in the course of search, and as stated by
     the Ld. AO the entries were decoded to arrive at the correct
     figure of undisclosed sales. These notings were in the shape of
     rough pads. It is also undisputed that the Ld. AO had rejected
     the books of accounts. In appeal it was put forth that these
     alleged unaccounted entries reflected in the rough pads, other
     than the investment in Plant and machinery, could be at the
     most considered as sale receipts, and the benefit of telescoping

                                        4
ITA No. 5680/D/12
CO No.416/D/2012
AY: 2007-08

     be given. The Ld. AO in the assessment order has accounted for
     these entries as cash receipts. Hence after carefully considering
     the facts and circumstances of the case, the amount of Rs.
     25,08,740/- (i.e. Rs. 29,94,740/-less Rs. 4,86,000/-) is treated as
     unaccounted receipts on account of sale on which the GP rate
     of 29.01 % is applied to work out the undisclosed income. The
     same works out to Rs. 7,27,534/-. This amount also includes Rs.
     21,958/- which is the shortage in stock on physical verification
     which has been treated by the AO as unaccounted sale of the
     assessee during the year.
             6.1 As regards Rs. 4,86,000/- it is seen that the same
     is on account of investment in fixed assets. It is the case of the
     assessee that the machinery was purchased from M/s
     Dellantechica Ltd. and that the payments were made through
     banking channel, besides being partly financed by State Bank of
     India. However no supporting documents as regards the Bank
     loan, hypothecation etc. have not been produced nor the exact
     type of machine allegedly purchased by the assessee. Hence, the
     addition of Rs. 4,86,000/- by the Ld. AO is confirmed. However,
     on taking a telescopic view, no further and separate addition is
     made on this account. In the result, the addition made by the Ld.
     AO of Rs. 29,94,740/- is restricted to Rs.727,534."
5.     In view of above, we observe that the assessee explained that the

impugned addition of Rs. 29,94,740 included a sum of Rs.4,86,000 spent

towards plant and machinery/fixed asset and Rs. 21,958 as difference in

reconciliation of stock and trade. The assessee clarified these facts by way of

furnishing a chart before the authorities below and it was also submitted that at

the most, the impugned amount of alleged unaccounted sale may be considered

as sales on which GP rate could be applied on the transactions not reflected in

the books. Ld. Counsel has also placed reliance on the decision of Hon'ble

Gujarat High Court in the case of DCIT vs Panna Corporation dated 16.6.2012

and tax appeal no. 323/2000 and submitted that entire amount of unaccounted
                                         5
ITA No. 5680/D/12
CO No.416/D/2012
AY: 2007-08

turnover cannot be added to the returned income of the assessee only and

addition in accordance with GP rate could be made.





6.     The main contention of the assessee with regard to alleged unaccounted

investment in plant and machinery is that the same could only have been

expended out of undisclosed income as determined by the AO, therefore no

separate addition can be made on this count.


7.     On careful consideration of above noted facts and circumstances in the

light of observations and conclusion of the CIT(A), we are of the considered

opinion that the first appellate authority was right in holding that the amount of

Rs.25,08,740 deserves to be treated as unaccounted receipt on account of sale on

which GP rate of 29.01% was applied to work out undisclosed income of

Rs.7,27,534. Ld. CIT(A) also noted that the amount of shortage in stock of

physical verification of Rs.21,958 was also included in the said amount of

undisclosed income as calculated by applying GP rate.

8.     In the operative para 6.1, ld. CIT(A) rightly concluded that the assessee

purchased machinery from M/s Dellantechica Ltd. and the payments were made

through banking channel besides being partly financed by SBI. In absence of

supporting documents as regards bank loan, hypothecation etc., the CIT(A)

confirmed addition of Rs.4,86,000 made by the AO in this regard. We further

note that the CIT(A) allowed telescoping of the other investment in the fixed


                                        6
ITA No. 5680/D/12
CO No.416/D/2012
AY: 2007-08

assets/capital and concluded that no further and separate addition is required to

be made on this count since the assessee purchased this machine on 2.8.2006 in

the fifth month of financial period, therefore, it can easily be inferred that

sufficient amount of profit was earned by the assessee from unaccounted

turnover to make investment in the aforesaid fixed asset viz. Plant and

machinery, therefore, the CIT(A) was right in granting telescoping of this

unaccounted investment. We are unable to see any perversity, ambiguity or any

other valid reason to interfere with the observations and findings of the first

appellate authority and we uphold the same. Accordingly, ground no. 1 and 2 of

the revenue are dismissed.


C.O. No. 416/Del/2012 of the assessee

9.     Ld. Counsel of the assessee submitted that the assessee does not want to

press its cross objection, therefore, we dismiss the same as not pressed.


10.    In the result, the appeal of the revenue as well as C.O. of the assessee are

dismissed.


              Order pronounced in the open court on 14/08/2015.

       Sd/-                                                Sd/-

   (J.S.REDDY)                              (CHANDRAMOHAN GARG)
ACCOUNTANT MEMBER                               JUDICIAL MEMBER

DT. 14th AUGUST 2015
`GS'

                                        7
ITA No. 5680/D/12
CO No.416/D/2012
AY: 2007-08



Copy forwarded to:-

   1.   Appellant
   2.   Respondent
   3.   C.I.T.(A)
   4.   C.I.T. 5. DR       By Order

                           Asstt.Registrar




                       8

 
 
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