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
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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
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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
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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
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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
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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
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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'
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Copy forwarded to:-
1. Appellant
2. Respondent
3. C.I.T.(A)
4. C.I.T. 5. DR By Order
Asstt.Registrar
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