HIGH COURT OF GUJARAT
Commissioner of Income-tax-III
TAX APPEAL NO. 361 OF 2011
AUGUST 9, 2012
V.M. Sahai, J. – This Tax appeal has been filed on the following three proposed substantial proposed substantial questions of law.
“(A) Whether the Appellate Tribunal is right in law and on facts in reducing the gross profit addition from Rs. 2,70,829/- to Rs. 75,916/-?”
(B) Whether the Appellate Tribunal is right in law and on facts in deleting addition of Rs. 75,916/- on account of unsecured loan ?
(C) Whether the Appellate Tribunal is right in law and on facts in deleting the addition of Rs. 24 lacs on account of undisclosed cash deposits in bank ?”
2. We have heard Mr. Varun K. Patel, learned counsel appearing for the Revenue.
3. The assessee had been engaged in the business of manufacturing and trading of educational material and office equipment like steel cupboard, chairs, tables, racks etc. and the assessee supplies the said items on rate contracts mainly to the Educational Department of the Government.
3.1 With reference to the first question, the relevant facts may be noticed. A survey was carried out under section 133A of the Income Tax Act, 1961 (for short ‘the Act’) on 5.3.2004. The Books of Accounts were examined and the inventory of the physical stock was prepared as on the date of survey. In respect of two items namely steel cupboards and CRC sheets, discrepancy in the stock shown in the Books of Accounts with physical stock was found in excess and its value at the rate of Rs. 2,800/- per cupboard was determined to be 1,400/-. As far as CRC sheets are concerned, as per the Books of Accounts they were 42,023 kgs, whereas on physical verification they were 19,694 kgs.. Thus there was a shortage of 22,329 kgs. The value of the said shortage was determined at Rs. 6,02,883/- at the rate of Rs. 27 per kg.
3.2 The explanation of the assessee regarding the discrepancy was that five steel cupboards were returned by the customers for repainting/colour touching due to damage in transit and therefore, they were not included in the stock, but were physically available. Regarding the CRC sheets discrepancy, it is submitted by the assessee that the survey party has wrongly applied rate per kg and incorrectly taken the size which resulted into the discrepancy. The Assessing Officer did not accept the said explanation and estimated the gross profit at the rate of 10.75% against 10.27% declared by the assessee. By applying higher rate of gross profit, the difference of Rs. 2,70,829/- was worked out and added to the returned income.
3.3 The Commissioner of Income Tax (Appeals), while dealing with the appeal of the appellant by his order dated 27.04.2007 granted relief to the extent of Rs. 1,94,913/-. It has been observed by the Appellate Commissioner that the assessee had declared gross profit of 10.27% during the year, and applying the same rate of gross profit, the profit of the appellant on the lesser stock of the CRC would work-out to Rs. 61,917/- on the basis of 10.27% gross profit to the shortfall figure of Rs. 6,02,883/-. The assessee had admitted excess stock of Rs. 14,000/- on account of steel cupboard. Accordingly, the CIT (A) restricted the addition the total of Rs. 75,916/- (Rs. 61916/- plus Rs. 14,000/).
3.4 In the impugned order, the Tribunal has upheld the order of the CIT(A) on the said issue by recording the following observations and findings :
“We find that the assessee has agreed that shortfall for tune of Rs. 6,02,883/- which was worked out by survey party to which Shri R.P. Thakkar, one partner of the firm has agreed. We found from the order of Ld. Commissioner of Income Tax (Appeals) in respect of shortage of stock of CRC Sheets is concerned technically on the GP of said amount can be added. Thus, the assessee has sold the sheets without recording the sales in their books of account. The assessee’s turnover have increased from Rs. 4.79 crores to 5.26 crores during the year and all the sales are made to Government agencies, whereby, there is no scope of any manipulation. The GP rate declared by the assessee at 10.27 % has been accepted by Ld. Commissioner of Income Tax (Appeals) and Ld. Commissioner of Income Tax (Appeals) has applying the same rate of GP Profit of such lesser stock of CRC sheets was worked out and GP of 10.27 was upheld by Ld. Commissioner of Income Tax (Appeals). Therefore, our interference is not required in the order of Ld. Commissioner of Income Tax (Appeals) and appeal is dismissed.”
3.5 The aforesaid findings by the Tribunal and by the CIT(A) are the concurrent findings of fact. The Tribunal while confirming the order of CIT(A), has appreciated the relevant facts, figures and material relating to the issue, which were before it.
4. The second question relates to the deletion of addition of Rs. 75,916/- on account of unsecured loans. The Assessing Officer was of the view that the assessee had failed to explain the genuineness of the deposits received from ten different parties and on that basis Rs. 1,90,000/- was added to the income.
4.1 The CIT(A) upheld the addition to the extent of Rs. 75,916/- on the following reasons :
“There, however, appears to be a substance in the alternative plea taken by the appellant that addition confirmed if any in the trading results should be allowed to be set off against the unaccounted income of Rs. 1,90,000/- introduced in the grab of cash deposits. In para 2.3 above, I have already upheld the addition in the trading account to the extent of Rs. 75,916/-. It would in the interest of fair play and justice if the telescoping effect of the same addition is allowed because the same income can be said to have been introduced in the books by the appellant in the grab of loans. In support of my findings that telescoping effect can be legitimately allowed against the trading addition already upheld, the decision of ITAT, Amritsar Bench in the case of CIT v. Ashok Kumar Verma  92 Taxman 281 (Asr) (Mag.) and also the decision of Punjab and Haryana High Court in the case of CIT v. Ram Sanehi Gian Chand  86 ITR 724 are relied on. In this view of he matter, the addition of Rs. 1,90,000/- made on this score is reduced by Rs. 75,916/-. With the result, the addition to the extent of Rs. 1,14,084/- is confirmed on this score and the appellant gets a relief of Rs. 75,916.”
5. While dismissing the appeal of the Revenue, the Tribunal upheld the above observations in the decision of the CIT(A), and held,
“Looking to the facts and circumstances of the case, we find from the order of Ld. Commissioner of Income Tax (Appeals) and the argument of the assessee that if the addition is confirmed, if any trading result should be allowed to be set off against unaccounted income of Rs. 1,90,000/- introduced in garb of guess deposits. The Ld. Commissioner of Income Tax (Appeals) has upheld the addition of Rs. 75,916/-. Therefore, telescoping effect of this addition was allowed.”
5.1 We do not find any error in the reasoning adopted by the CIT(A) and confirmed by the Tribunal as above.
6. Coming to the third proposed question, which is regarding deletion of addition 24,00,000 on account of undisclosed cash deposit in bank, it may be stated that in Commissioner of Income Tax (Appeals) explanation of the assessee was that he has received this amount from his Delhi Branch. This fact was verified by the CIT(A) and therefore the CIT(A) allowed the additions. The Revenue filed Second Appeal and the Tribunal has accepted findings recorded by the CIT(A) taking note of the fact that CIT(A) has verified all books of accounts and deleted the additions and therefore additions made by the Assessing Officer as mentioned in three different questions have been found to be illegal and they have been deleted, we are in agreement with the view taken by the CIT(A) and the fact that once the amounts were verified by CIT(A) and additions were deleted, the Tribunal did not commit any error in law in dismissing the appeal.
7. In view of the above discussion, on all three questions, the findings and conclusions reached by the Tribunal are proper. Therefore, none of the three questions raise any substantial question of law. Hence, the appeal is dismissed.