D.b. Income Tax Appeal v. Babulal Agarwal

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN ATJAIPUR BENCH, JAIPUR :O R D E R: D.B. Income Tax Appeal No.268/2010CIT Jaipur-II, Jaipur Vs. Babulal Agarwal Date of Order : 10[th] July 2013 HON'BLE MR. JUSTICE DINESH MAHESHWARI'HONBLE MR. JUSTICE NARENDRA KUMAR JAIN-II Mr.R.B.Mathur for the appellant <><><> BY THE COURT:(Per Dinesh Maheshwari,J.) By way of this appeal under Section 260-A of the Income TaxAct, 1961 [‘the Act’], the revenue seeks to question the order dated20.11.2009 passed by the Income Tax Appellate Tribunal, JaipurBench, Jaipur [‘ITAT’] in ITA No.1473/JP/2008 for the assessmentyear 2005-06. It may be pointed out at the outset that the aforesaid ITANo.1473/JP/2008 by the revenue was earlier considered and partlyallowed by the ITAT on 13.02.2009. However, the said order dated13.02.2009 was recalled by the ITAT on 25.05.2009 while allowingan application [MA No. 24/JP/2009] moved on behalf of theassessee, stating the grievance against denial of adequateopportunity of hearing. The said order dated 25.05.2009 was soughtto be questioned by the revenue in this Court in D. B. Income Tax Appeal No. 407/2011. The said appeal, was, however, dismissed asinfructuous by this Court on 06.08.2012, essentially for the reasonthat since after recalling its earlier order, the ITAT had decided themain appeal [ITA No.1473/JP/2008] by the impugned order dated20.11.2009, which has been challenged in the instant appeal. In this appeal, the revenue has suggested the following assubstantial questions of law for consideration:- “(i) Whether on the facts and in circumstances of thecase the ITAT was justified in law in deleting additionmade on account of trading addition despite the fact thatinvoking of provisions of Section 145(3) has beenupheld? (ii) Whether on the facts and in circumstances of thecase the ITAT was justified in law in deleting addition ofRs. 13,05,091/- made on account of unexplainedexpenditure in marriage without considering the materialand facts discuss by the Assessing Officer?” In brief, the relevant background aspects of the matter are thatthe respondent-assessee is engaged in manufacturing and trading ofbed sheets, cotton cloths, general cloths & quilts. During the yearunder consideration, he had shown gross profit of Rs.8,28,561/- ona total turn over of Rs.1,11,55,235/-, while giving G.P. rate at 7.43%. The Assessing Officer [‘the AO’] proceeded to complete theassessment while taking the total income at Rs.17,42,360/- asagainst the returned income of Rs.2,30,830/-. The AO observed thatthe assessee did not maintain stock register; and quantitative andqualitative details of goods could not be verified; and the sales were also not verifiable. The AO rejected the books of accounts and,invoking the provisions of Section 145 (3) of the Act, estimated thegross profit by applying G.P. rate on the estimated sales. The AOapplied GP rate of 8.5% on the estimated turn over of Rs.1.20 crore,resulting into the trading addition of Rs.1,91,439/-. The AO further found that during the year under consideration, marriage of two daughters of the assessee weresolemnized but the assessee failed to furnish complete details asregards various expenditures on engagement/ring and marriageceremonies. The AO deduced that the assessee had incurred morethan the declared expenditure on the ceremonies and, while puttingan estimate of Rs.14,79,591/- on expenditure and considering thegifts received by the daughters at Rs.1,74,500/-, made an additionof Rs.13,05,091/- on account of unexplained and undisclosedexpenditure. After making certain more additions, the assessmentwas completed on the total income of Rs.17,42,360/-. The AO further found that during the year under consideration, marriage of two daughters of the assessee weresolemnized but the assessee failed to furnish complete details asregards various expenditures on engagement/ring and marriageceremonies. The AO deduced that the assessee had incurred morethan the declared expenditure on the ceremonies and, while puttingan estimate of Rs.14,79,591/- on expenditure and considering thegifts received by the daughters at Rs.1,74,500/-, made an additionof Rs.13,05,091/- on account of unexplained and undisclosedexpenditure. After making certain more additions, the assessmentwas completed on the total income of Rs.17,42,360/-. In appeal by the assessee, the Commissioner of Income Tax(Appeals)-II, Jaipur [‘the CIT(A)’] proceeded to delete the above-referred additions, in the trading result and towards unexplainedexpenditure, as made by the AO. As regards the trading addition ofRs.1,91,439/-, the CIT(A) observed, with reference to the decidedcases, that mere rejection of books of accounts would notnecessarily lead to addition in the returned income. The CIT(A)further observed that the assessee had shown 7.43% GP rate as D.B. Income Tax Appeal No.268/2010- 4 - against 7.01% for the last year, which was of better trading result.The CIT(A) also referred to the decision of this Court in KansaraBearing Pvt. Ltd. Vs. CIT: 270 ITR 235 wherein this Court hadobserved that the last year’s profit declared by the assessee was thebest guide for application of profit rate. The CIT(A), therefore, foundthe AO not justified in applying GP rate of 8.5% and deleted thetrading addition of Rs.1,91,439/-. With regard to the addition of Rs.13,05,091/- on account ofalleged unexplained expenditure relating to engagement/ring andmarriage ceremonies of two daughters, the CIT(A) found theapproach of the AO unjustified and deleted such addition whileobserving as under:- “I have considered facts of the case and argumentstaken by Sh. Khandelwal quite carefully. It is seen thatexcept the statement recorded of these daughters and sonin law, the assessing officer was not having any evidencewith her in support of estimate of expenditure made by her.From time to time in various communication to assessingofficer it were clearly explained by assessee also whichwere ignored by the assessing officer while estimatingthese expenditures. I have gone through the copies of letterdated 17.9.2007, 26.11.2007 and 27.12.2007 in whichdetailed explanation for expenditure incurred on variousheads and sources thereof were explained to the assessingofficer. During the course of appellate proceedings on thebasis of statement given by Sh. Neeraj and PushpaAgarwal to the A.O. and by Sh. Dheeraj Kumar and PreetaiAgarwal before the A.O. such expenditure on marriage ofPushpa Agarwal are worked out at Rs. 3,25,000/- and onthe marriage of Preeti Agarwal it is worked out at Rs.6,25,000/-. It is seen that both the daughters of theappellant were assessed to tax. They were filing theirincome-tax return alongwith capital account and balancesheet. Smt. Pushpa Agarwal has shown Rs. 2,35,023/- fromher capital account and A.O. himself has accepted 41,000gift to her and taking together the explained sourcebecomes Rs. 2,76,000/-. Over and above, it is quite naturalthat the gold ornament of Rs. 50,000/- were given by her mother namely Smt. Lalita Agarwal who is also assessed totax since long. Similarly, in the case of Preeti Agarwal therewere withdrawals from her bank account of Rs. 6,02,554/-and the credits in the bank account were also explained asrefund of deposit with various firms which were shown inearlier balance sheet as on 31.3.2004. Under thesecircumstances, in totality of the facts when assessing officerwas not having any evidence of expenditure estimated onthe engagement/ ring ceremony and on marriage of his twodaughters except the statement recorded of the daughtersand son in law of the appellant and on this basis also theestimate of expenditure made by A.O. were found on muchhigher side and accordingly, in my considered view theadditions made for estimated expenditure on engagementand marriage ceremony over and above explained sourcesas discussed in the appellate order and as explained toA.O. form time to time in assessing proceedings from timeto time by the appellant does not survive and the same ishereby deleted at Rs. 13,05.091/-.” In further appeal by the revenue [ITA No.1473/JP/2008], theITAT in its impugned order dated 20.11.2009 has affirmed theobservations and findings of the CIT(A) and has held justified thedeletion ordered by the CIT(A). As regards trading additions, the ITAT has observed as under:- “We have heard the rival contentions and perusedthe facts of the case. The assessee is not maintaining thestock register on day to day basis and therefore, the resultsdeclared by the assessee cannot be relied upon andaccurate income cannot be deduced therefrom. Therefore,the Id. CIT (A) has rightly confirmed the application ofsection 145 (3) of the Act. As regards the estimation ofincome, we concur with the view of Id. CIT (A) who hasrightly deleted the addition, since the results declared by theassessee are better during the impugned year as comparedto the results declared by the assessee in immediatelypreceding year in view of the decision of Hon'blejurisdictional High Court in case of CIT Vs. Gotan LimeKhanij Udhyog, 256 ITR 243.Thus ground no. 1 of therevenue is dismissed” As regards the additions pertaining to the expenditure on the engagement and marriage ceremonies of the daughters, the ITAT - 6 - has examined in detail the estimate put by the AO on theexpenditure and that given out by the assessee; and has found theapproach of the AO based on his own guess work not justified whileobserving, inter alia, as under:- “We find that the AO has recorded the statement of thedaughter of the assessee Smt. Priti Agarwal and husbandsof both the daughters. In their statement they have statedthe estimated amount of expenditure. The AO has notconsidered these statements and made the estimation onhis own guess work. Therefore, the estimation made by AOis rightly held by the CIT (A) as without any basis and onhigher side. So far as the source of expenditure isconcerned, the same is out of the withdrawals made bydaughter of the assessee which is duly reflected in thebank account/return of income. The AO has not consideredthat both the daughters of the assessee are income taxassessee and regularly filing return of income from last 6-7years. In statement both the daughters stated that theparents have spent only upto the amount given by way ofgifts and gold ornaments and remaining amounts werespent by each of the daughters from their own funds. Thesource of expenses is verifiable from their bankstatements/return as explained above. In view of above, theld CIT (A) has rightly deleted the addition and we uphold hisorder by dismissing the ground No. 2 of the Revenue.” Seeking to question the order so passed by the ITAT, it iscontended on behalf of the appellant-revenue that the assessee hadnot properly explained and justified the book-profit; and the AO hasmade the addition in trading result after giving proper opportunity tothe assessee. It is submitted that the deficiencies in the accountshaving not been explained and invoking of Section 145(3) havingbeen upheld, there was no reason for deleting the additions made bythe AO. It is further submitted that on the admitted fact situation where the assessee did not maintain stock register and sales werealso not verifiable, application of GP rate of 8.5% on the estimatedturn over of Rs.1.20 crore, resulting into trading addition ofRs.1,91,439/-, did not suffer from any error and the ITAT has notbeen justified in deleting such a justified addition. It is yet further submitted that during the year under consideration, marriage of two daughters of the assessee wassolemnized but the assessee failed to furnish complete details withevidence for various expenditures; and in the given circumstances,the AO made the estimate with reference to the statementsrecorded. It is also submitted that as per the prevailing social normsand the status of the assessee, the estimate put by the AO on themarriage expenditure was justified and called for no interference. Having given a thoughtful consideration to the entire matterand having examined the record, we are unable to find anysubstantial question of law being involved in this appeal. As regards the question of trading addition, apparent it is thatin the name of putting an estimate on gross profit rate, the AOproceeded to enhance it to 8.5% as against 7.43% shown by theassessee without any cogent and convincing basis therefor. On theother hand, admittedly, the G.P. shown in the preceding year [Asstt.Yr. 2004-05] by the assessee had been 7.01%. Before that, for theAsstt. Yr. 2003-04, G.P. had been 6.98%. In an overall analysis, G.P.shown in the present year at 7.43% was reasonably higher than the previous years, and could not have been dubbed as fanciful orpalpably baseless. When the CIT(A) has deleted the addition in thetrading result on relevant considerations and further, when ITAT hasconcurred with the CIT(A), we find nothing of a substantial questionof law in this regard. Similarly, the matter of addition of Rs.13,05,091/- on thealleged unexplained expenditure relating to engagement andmarriage ceremonies of the two daughters of the assessee hadagain been a matter of putting an estimate by the AO, which hasbeen disapproved by the CIT(A) after thorough consideration of thematerial on record. The ITAT has, again, examined the matter insufficient detail before finding the estimate put by the AO beingwithout any basis and rather, the source of expenditure having beenexplained, being out of the withdrawals made by the daughters of theassessee, which were duly reflected in their bank accounts/returns ofincome. This issue also pertains to the appreciation of evidence onrecord. When the CIT(A) and ITAT have concurrently appreciatedthe entire evidence on record and have returned concurrent findingsagainst the revenue, we find nothing of illegality or perversity leadingto any substantial question of law on this ground either. Accordingly and in view of the above, this appeal fails and is,therefore, dismissed. (NARENDRA KUMAR JAIN-II), J. (DINESH MAHESHWARI), J. cpgoyal/- CERTIFIED THAT ALL CORRECTIONS MADE IN THE JUDGMENT / ORDER HAVE BEEN INCORPORATED IN THE JUDGMENT / ORDER BEING EMAILED C.P.GoyalPA