IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES: "A" NEW DELHI
BEFORE SHRI AD JAIN, JM AND
SHRI J.SUDHAKAR REDDY, A.M.
ITA No: 1966/Del/2011
Assessment Year : - 2007-08
Shri Bhupinder Kumar Gambhir vs. ITO, Ward 2
C/o Gaurav Kumar Gupta, Adv. Gurgaeon
House no. 404/7, Subhash Nagar
Near Jacobpura,
RamLila ground, Gurgaon.
PAN: ACMPG 6187 C
(Appellant) (Respondent)
Appellant by: Shri Gautam Jain, C.A.
Respondent: Shri Pirthi Lal, Sr.D.R.
ORDER
PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER
This is an appeal filed by the assessee directed against the order of the
Commissioner of Income Tax (Appeals), Panchkula dt. 11.3.2011 pertaining to
the Assessment Year 2007-08.
2. The assessee is an individual carrying on the business of iron and steel
fabrication under the name and style of "Instrumentation and Engineering
Enterprises". It filed its return of income on 31/10/2007 declaring an income
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Sh.Bhupinder Kumar Gambhir
of Rs.51,440/-. The Assessing Officer passed an order u/s 143(3) on
31/12/2009 assessing the income at Rs.76,01,510/- inter-alia making
additions on account of difference in stock, u/s 145 A, difference in
confirmation of balances etc. Aggrieved the assessee carried the matter in
appeal before the First Appellate Authority. The first appellate authority
considered various submissions of the assessee. He called for remand report
from the A.O. and thereafter granted part relief. Aggrieved the assessee is in
appeal before us on the following grounds :-
"1. That the ld.CIT(A)-Panchkula has erred both in law and on facts in upholding
the addition of Rs. 1 lakh on account of alleged understatement of closing stock.
1.1. That the ld.CIT(A) has sustained the addition by failing to appreciate that
purchase made on 1.4.2007 had been erroneously taken into opening stock and
as such, error in the accounts could not be held to be an after thought and hence,
addition sustained is not tenable.
2.That the Ld.CIT(A) has erred both in law and on facts in directing the
Assessing Officer to verify that the refund of Noida application of the equivalent
amount had been received by the appellant instead of deleting the addition of Rs.
1,08,212/- made by ;assuming that, there is difference between closing balance
of capital account as on 31.3.2007 and opening balance as on 1.4.2007.
3. That the Ld.CIT(A) has erred both in law and on facts in upholding the
addition fo Rs. 5,79,619/- by invoking the provisions contained in s.145A of the
Income Tax Act, 1961.
3.1. That the Ld.CIT(A) has erred both in law and on facts in upholding the
addition holding that "the appellant has snot explained as to how VAT balance is
accounted for while valuing the closing stock. The appellant's explanation is
therefore rejected as unsubstantiated and without merit." The finding is
factually incorrect, legally misconceived and untenable.
4. That the Ld.CIT(A) has erred both in law and on facts in upholding the
addition of Rs.11,47,668/- representing the balance as per books of accounts of
the appellant and balance as per the confirmation dt. 23.12.2009.
4.1. That the Commissioner of Income Tax (Appeals) has failed to appreciate that,
the confirmation dt. 23.12.2009 could not have been adopted as a basis to
sustain the addition as the same did not pertain to the instant year, more
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Sh.Bhupinder Kumar Gambhir
particularly when the confirmation for the instant Assessment Year had been
placed on record.
5. That the Ld.CIT(A) has erred both in law and on facts in upholding the
addition of Rs.14,51,791/- representing the alleged difference between the
balance of the following creditors as per the books of accounts and confirmation
from the creditors:-
Sl.No. Name of the Creditors Alleged
difference Rs.
1. M/s Lakshmi Ind.Corp. 1,79,060/-
2. M/s Sagar Steel Corp. 1,53,779/-
3. M/s Techno Plastic & Engg. Works 9,95,517/-
4. M/s Puneet Steel Corp. 4,329/-
5. M/s Steel Mongers 1,19,106/-
Total: 14,51,791/-
6. That the Ld.CIT(A) has sustained the additions of Rs. 11,47,668/- and
Rs.14,51,791/- without appreciating that alleged difference in balances
of the parties from whom purchases have been made could not be held
as income of the appellant.
7. That the Ld.CIT(A) has otherwise made the order without granting fair
and proper opportunity to the appellant which is contrary to the
principles of natural justice.
It is therefore prayed that, it be held that, additions made by AO and
sustained by Ld.CIT(A) may kindly be deleted and, appeal of the appellant be
allowed."
3. We have heard Mr. Gautam, C.A. the Ld. Counsel for the assessee and
Mr. Pirthi Lal, the Ld. Sr.DR. On a careful consideration of the facts and
circumstances of the case and on a perusal of the papers on record, and the
orders of the authorities below, as well as case laws cited, we hold as follows:-
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Sh.Bhupinder Kumar Gambhir
4. Ground no.1 is against the addition of Rs. 1,00,000/- on account of
alleged understatement of closing stock. The closing stock as on 31/03/2007
was Rs.1,44,90,480/-. On 1/04/2007 the opening stock was taken at
Rs.1,45,90,480/-. The assessee explained the same as a clerical mistake. The
authorities below did not accept the same. The Ld. Counsel for the assessee
points out that for the purpose of S.145 A computation the AO himself has
taken the closing stock figure as on 31/03/2007.
5. Closing stock of the Previous Year has to be taken as opening stock of
the subsequent year. The assessee`s explanation that this was a clerical
mistake should have been accepted by the revenue authorities and the correct
figure taken into account. No addition can be sustained on this count. Thus
ground no. 1 and 1.1 is allowed.
6. Ground no.2 is not pressed by the assessee and hence dismissed as
such.
7. Ground no.3 and 3.1 are on the addition made u/s 145A of the act.
S.145A refers to the valuation of purchases and sale of goods, as well as
inventory for the purpose of determining the income chargeable under the head
"profits and gains of business or profession". The Hon`ble Delhi High Court in
the case of Mahaveer Alluminum has laid down that both the opening stock as
well as the closing stock have to be adjusted in terms of S 145A of the Income
Tax Act, 1961. In view of the above we set aside the issue to the file of AO for
fresh adjudication in accordance with law. The AO shall include VAT not only
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Sh.Bhupinder Kumar Gambhir
in the opening stock but also on purchases, sales, as well as closing stock. In
the result this ground is set aside to the file of AO.
8. Ground no.4 and 4.1 is against the addition of Rs.11,47,668/-. The
assessee filed paper book to demonstrate that the difference was wrongly
considered. He submitted that the payments made during the year were not
taken into account. He further submits that the second confirmation of balance
supposed to have been taken by the Revenue by M/s. Karan Arjun Industrial
Corporation, has not been given to the assessee. After considering the finding
of the AO as well as the CIT(A), we find that the opening balance with M/s
Karan Arjun Industrial Corp. as on 01/04/2006 was Rs.16,96,027/-. There
are repayments to the tune of Rs.16,46,000/- made during the year. Most of
the payments were through crossed account payee cheques. There is a receipt
of Rs.5 lacs through an account payee cheque. If these payments and receipts
are considered, the question of there being a variation does not arise. The AO
as well as the CIT(A) have not considered these bank transactions. The addition
is made based on surmises and conjectures. The assessee has not been
confronted with so called confirmations received by the A.O. from M/s Karan
Arjun Industrial Corporation. Repayments through a/c payee cheques are not
considered. Addition is based on opening balances. In any event, such
difference in balances if any cannot become income. Under the circumstances
we delete the addition of Rs.11,46,668/- on the ground that the same is not
made on cogent material and not made in accordance with law. In the result
ground no.4 and 4.1 are allowed.
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Sh.Bhupinder Kumar Gambhir
9. Ground no.5 is against the addition representing the difference between
the balances in the accounts of the creditors as per the books of accounts of
the assessee and confirmations received. The assessee`s submissions are as
follows:-
a. In the case of M/s. Lakshmi Industrial Corporation, it is submitted that
entry of the bills along with Dharam Kanta, Slip and VAT form was filed.
It is argued that mere non receipt of confirmation, cannot lead to the
amount being treated as income. It was submitted that the purchases
have been accepted and in such circumstances no addition can be made
u/s.68. Reliance was placed on the following case laws :-
CIT vs. Pancham Dass Jain 205 CTR 444(All)
Elnad International P.Ltd. vs DCIT, 124 TTJ 554(Delhi)
Manoj Aggarwal vs. DCIT, 113 ITD 377(SB)(Delhi)
b) In the case of Sagar Steel Corporation it was submitted that it is
factually incorrect on the part of the CIT(A), to state that no confirmation
was filed. Confirmation was placed on record. It was further submitted
that purchases have been accepted and hence the question of addition
u/s 68 does not arise. Copies of the accounts statement were filed.
c) In the case of Techno Plastic and Engineering Works, similar
submission were made. It was further submitted that transactions are by
account payee cheques and that the party is assessed to Income Tax.
Copy of confirmation is placed on record.
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d) In the case of M/s Puneet Steel Corporation it was submitted that
confirmation was placed on record and there was a difference of
Rs.4,329/- only. This difference was explained.
e) In the case of M/s. Steel Mongers it was submitted that the
balance has come down. It was submitted that no purchases to have
been made in the year and under these circumstances Sec.68 cannot
apply.
10. Ld. DR on the other hand submitted that the assessee`s submissions
that confirmations have been received in the office of the AO was considered by
the CIT(A) and a Remand Report was called for. He submitted that the CIT(A)
has considered each and every creditor on merits, after giving the assessee
ample opportunity and also calling for the Remand Report from the AO, and
then he has decided the issue. He prayed that the findings of the ld.CIT(A) be
upheld.
11. Rival contentions heard. We find from the papers on record that it is not
correct on the part of CIT(A) or the AO to state that no confirmations have been
placed on record by the assessee, before the authorities below in respect to
these creditors. At pages 63,64,65,66 and 67 of the paper book confirmation of
balances from respective parties as filed before the Assessing Officer are placed
before us. The Ld.D.R. could not demonstrate that this claim of the assessee is
wrong. In the case of Lakshmi Industrial Corporation an invoice has been
raised from the parties Entry bills, Dharmakathas slip, VAT form etc. being
contemporary documents, cannot be ignored and rejected without
investigation. On the face of these documents, it would not be correct for the
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Sh.Bhupinder Kumar Gambhir
AO to reject the claim of the assessee without any adverse material. Even in the
case where there are differences the issue whether the difference become
income or not during the year has to be considered in the light of the decision
of the jurisdictional High Court in the case of CIT Vs. Vardhaman Overseas
Ltd., 343 ITR 408; CIT Vs. Hotline 205 Taxman 245 and other cases. In our
view the Assessing Officer as well as the Commissioner of Income Tax (Appeals)
have misdirected themselves on this issue.
12. We are of the considered opinion that this issue has to be re examined in
the light of the material submitted by the assessee before the lower authorities,
which in our considered view has not been properly appreciated by them. The
lower authorities have also to consider the legal submissions made by the
assessee. In the result this ground is set aside to the A.O. for fresh
adjudication in accordance with law. In the result this ground is allowed for
statistical purposes.
13. Ground no.6 is general in nature.
14. Ground no.7 is not pressed by the assessee.
15. In the result the appeal of the assessee is allowed in part.
Order pronounced in the Open Court on 17th September, 2012.
Sd/- Sd/-
(A.D. JAIN) (J.SUDHAKAR REDDY)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: the 17th September, 2012
*Manga
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Sh.Bhupinder Kumar Gambhir
Copy of the Order forwarded to:
1. Appellant; 2.Respondent; 3.CIT; 4.CIT(A); 5.DR; 6.Guard File
By Order
Dy. Registrar
1. Date of Dictation:
2. Draft placed before the Author on:
3. Draft proposed and placed before Second Member on:
4. Draft discussed/approved by the Second Member on:
5. Approved draft came to Sr.P.S. on:
6. Date of Pronouncement :
7. File sent to Bench Clerk on :
8. Date on which file given to Head Clerk on:
9. Date of dispatching the Order on:
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