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TMI Blog2018 (3) TMI 1519X X X X Extracts X X X X X X X X Extracts X X X X ..... r the authorities below to make addition of ₹ 6,92,25,000/- under section 40A(3) of the I.T. Act and addition under section 68 of the I.T. Act. - ITA. No. 4709/Del./2017 - - - Dated:- 23-3-2018 - Shri Bhavnesh Saini, Judicial Member And Shri L. P. Sahu, Accountant Member For Assessee : Shri R.S. Singhvi, C.A. and Shri Satyajeet Goel, C.A. For Revenue : Ms. Shefali Swroop, CIT-D.R. ORDER Per Bhavnesh Saini, J. M. This appeal by assessee has been directed against the order of the Ld. CIT(A)-19, New Delhi, Dated 26th June, 2017, for the A.Y. 2013-2014. 2. The facts of the case are that the assessee filed return of income declaring income at ₹ 22,52,471/-. The assessee is an individual and engaged in the business of trading/ Distribution of ITC Products under the name and style of M/s. DK Enterprises. On verification of the P L A/c, audited report and books of account of the assessee, it was noticed that assessee had made huge payments to M/s. Hanuman Traders in cash. The assessee was requested to produce ledger account of the party. The A.O. noted that assessee has made cash payments to this party and required to assessee to explain why the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les in his books of account. The profit earned out of these transactions have not been accounted by the assessee in his books of account. The assessee in his statement further submitted that purchases and sales made of the product so shown in the name of M/s. Hanuman Traders, are not accounted in the books of account and same may be taxed. The assessee offered the same amount for taxation and submitted that he has also incurred expenses relating to purchase and sales made, therefore, requested that gross profit on the sale may be taxed @ 8%. The A.O, therefore, noted that since purchases and sales of unbranded Aatta was not disclosed in the books of account, therefore, books of account of the assessee are not reliable and the same were accordingly, rejected under section 145(3) of the I.T. Act. The A.O. reproduced the letter of the assessee in which it is confirmed that additional turnover was made of ₹ 7,55,15,150/- without claiming expenses, on which, profit rate of 8% was surrendered for taxation in a sum of ₹ 60,41,212/-. The A.O. rejected the explanation of assessee that he was acting as an agent of M/s. Hanuman Traders because no such documentary evidence was prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above account could only be to the tune of ₹ 7,55,15,150/- for the year. The outstanding payable balance could not have been added to increase amount of sales. Therefore, apparently, there is a mistake in recasting of the P L A/c, if the version of the assessee that ledger account of M/s. Hanuman Traders reflect the entire purchase and sales is accepted, the profit out of the same would be to the tune of ₹ 62,90,150/- (sales ₹ 7,55,15,150 (-) purchases ₹ 6,92,25,000/-). The Ld. CIT(A) instead of addition of net profit of ₹ 4,14,44,156/-, restricted the addition of net profit to ₹ 62,90,150/-. 4. The Ld. CIT(A), as regards disallowance under section 40A(3) of the I.T. Act, noted that assessee violated these provisions for making cash payments. Accordingly, confirmed the addition of ₹ 6,92,25,000/-. This ground of appeal of assessee was dismissed. 4.1. The Ld. CIT(A), as regards addition under section 68 of the I.T. Act, which the A.O. did not make separate addition of ₹ 6,31,90,150/- on account of disallowance made under section 40A(3) of the I.T. Act, noted that assessee has stated that he was purchased unbranded Aatta from M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On ground Nos. 5 and 6, the assessee challenged the addition of ₹ 7,12,15,150/- made by Ld. CIT(A), though the A.O. did not make separate addition of ₹ 6,31,19,150/- under section 68 of the I.T. Act on account of peak credit. 9. Learned Counsel for the Assessee submitted that assessee explained before A.O. that transaction of sale of unbranded Aatta purchased from M/s. Hanuman Traders were made outside the books of account and offered the amount for taxation by applying the profit rate of 8% on unrecorded sales. The A.O. also noted in the assessment order that purchase of unbranded Aatta from M/s. Hanuman Traders and corresponding sales have not been shown in the books of account The A.O. accordingly, rejected the books of account under section 145(3) of the I.T. Act. He has submitted that when books of account of the assessee are not reliable and rejected, the A.O. is not justified in making the disallowance under section 40A(3) of the I.T. Act. He has further submitted that there is no evidence on record to prove assessee made any investment in unrecorded purchases or that assessee received any amount from M/s. Hanuman Traders so as to consider the addition under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sales. The Tribunal having declined to state a case, the Department applied to the High Court for an order calling for a reference; Held, dismissing the application for reference, that the amount of sales could not represent the income of the assessee who had not disclosed the sales. The sales only represented the price received by the seller of the goods; only the realisation of excess over the cost incurred could form part of the profit included in the consideration for the sales. Since, there was no finding to the effect that investment by way of incurring the cost in acquiring the goods which were sold had been made by the assessee and that that investment was also not disclosed, only the excess over the cost incurred could be treated as profit. 12. The Honble Gujrat High Court following its earlier Judgment in the case of President Industries (supra), in the case of CIT vs. Samir Synthetics Mill (2010) 326 ITR 410 (Guj.), held as under : In the course of a search by the Excise Department in the premises of the assessee, it was found that the production of man-made fabrics was suppressed and only a small part thereof was shown in the excise register. The asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... offered the amount for taxation i.e., profit out of these transactions @ 8% in a sum of ₹ 60,41,212/-. The A.O. accordingly, rejected the books of account of the assessee under section 145(3) of the I.T. Act and after recasting the Trading P L A/c, made the addition of ₹ 4.14 crores on account of additional profit. The Ld. CIT(A), correctly noted that entire sales could not be profit of the assessee and that re-casting of the Trading P L A/c by the A.O. is not proper as per law. The Ld. CIT(A) has taken the purchases and sales in the appellate order and the difference of the same was taken as undisclosed profit of the assessee in a sum of ₹ 62,91,150/- which is almost same as offered by assessee @ 8% of undisclosed turnover. The assessee did not challenge the rejection of the books of account under section 145(3) and the addition made by Ld. CIT(A) above to the profit of the assessee. There is no challenge to these findings of the Ld. CIT(A) by the Department in the Departmental appeal because filing of Departmental Appeal not reported by Ld. CIT-D.R. Learned Counsel for the Assessee relied upon several decisions of different High Courts in which it was he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that if he wanted to make addition on account of peak credit on account of M/s. Hanuman Traders, whether theory of peak credit would apply in the case of the assessee, For considering the issue of peak credit, the authorities below have to laid-out the foundation that it was unaccounted money of the assessee having both debit and credit which assessee did not agree. It could not be taken into consideration for making such addition under section 68 of the I.T. Act in the hands of the assessee for making any alleged transaction with M/s. Hanuman Traders, which, according to the authorities below, did not exist and that no such entries appear in the books of account of the assessee. Even if, some entries appeared in the books of account of the assessee regarding M/s. Hanuman Traders, according to the findings of the authorities below, such books of account of the assessee are not reliable. Therefore, the authorities below cannot rely upon the same entries in books of account for the purpose of making the addition of the nature of peak against the assessee. Thus, there is no justification for the authorities below to make addition of ₹ 6,92,25,000/- under section 40A(3) of the I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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