In The Case Ofcit v. Sanjay Chhabra336 Itr 71 (P&H),When In That Case The Issue Was Of Undisclosed Investmentmade In Unaccounted Sales, Whereas In Present Case, Thedispute Was Only

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH ITA No.138 of 2014Date of decision: 11.7.2014 M/s Self Knitting Works .....- Appe Vs, Commissioner of Income Tax, Central Circle, Ludhiana ....AmeSsponde CORAM: HON’?BLE MR. JUSTICEK AJAY KUMAR MITTHON BLE MR. JUSTICE JASPAL SINGH Present:Mr. J.S.Bhasin, Advocate andMr. Rajiv Sharma, Advocate for the appellant. Ajay Kumar Mittal,J, 1.This appeal has been preferred by the appellant-assessee underSection 260A of the Income Tax Act, 1961 (in short, “the Act”) against theorder dated 30.8.2013, Annexure A.3 passed by the Income Tax AppellateTribunal Chandigarh ‘A’ Bench in ITA No.318/CHD/2011, for theassessment year 2005-06, claiming following substantial questions of law:- *’a) That whether 1n the facts and circumstances of the case, thTribunal was correct in holding that credit of|37,30,300/- inprofit and loss account was not relating to sale of goods but inthe nature of cash credit? b) That whether in the facts and circumstances of the case, theTribunal was correct in applying the ratio of this Hon'ble Court in the case ofCIT vs. Sanjay Chhabra336 ITR 71 (P&H),when in that case the issue was of undisclosed investmentmade in unaccounted sales, whereas in present case, thedispute was only of genuineness of ‘cash sales' made 1n books,to unidentified parties? c) That whether the Tribunal was justified in reversing themost cogent findings of learned CIT(A) to the effect that whenthe sales were not proved to be outside the books orunaccounted, and even the purchases and closing stock werenot disputed, the impugned sales could not be disbelieved? d) that whether in the facts and circumstances of the case, thelearned Tribunal was correct in law to hold that under rule 27of the [TAT Rules, 1963, 1t was not open to the respondent toclaim any fresh relief denied by CIT(A) and which is not partof the grounds of appeal raised by the revenue’ e) That in the facts and circumstances of the case, whether thelearned Tribunal was correct in law to hold that the factualissues could not be raised under Rule 27 of the ITAT Rules,'(#.: 1) Whether the order of the Tribunal is legally unsustainableand bad in law and perverse?” ? Briefly,the facts necessary for adjudication of the controversyinvolved, as narrated in the appeal may be noticed. The appellant-assessee 1sa partnership firm having its office at Basti Jodhewal, Ludhiana. It isengaged in the business of manufacturing and sale of knitted cloth. It filedits return of Income for the assessment year 2005-06 on 16.11.2007returning a loss of|“a22,06,350/-. Its premises were subjected to search andseizure by the Income Tax department on 7.10.2003. However, the searchaction on being challenged before this court, finalization of assessmentpertaining to block period ending upto 31.3.2004 was stayed by this Court. ITA No.138 of 2014. 1) Whether the order of the Tribunal is legally unsustainableand bad in law and perverse?” ? Briefly,the facts necessary for adjudication of the controversyinvolved, as narrated in the appeal may be noticed. The appellant-assessee 1sa partnership firm having its office at Basti Jodhewal, Ludhiana. It isengaged in the business of manufacturing and sale of knitted cloth. It filedits return of Income for the assessment year 2005-06 on 16.11.2007returning a loss of|“a22,06,350/-. Its premises were subjected to search andseizure by the Income Tax department on 7.10.2003. However, the searchaction on being challenged before this court, finalization of assessmentpertaining to block period ending upto 31.3.2004 was stayed by this Court. ITA No.138 of 2014. In the meantime, the Director, Revenue Intelligence also conducted a searchon 14.2.2007 and seized the entire record which was not released till theassessment was finalised. As a result, there was delay in filing of the incometax return. The Assessing officer made certain additions after rejecting thebooks of account under Section 145(3) of the Act vide order dated26.12.2007, Annexure A.|. The additions were on account of disallowanceof cash sales made in lots as per three sale bills to unidentifiable parties,application of GP rate of 5% on enhanced sales of ©=a2.) crores,disallowance of expenses under section 40(a) (1a) for non deduction of TDS,disallowance out of car expenses and telephone expenses. The majoraddition of|37,30,300/- was made by rejecting the assessee's contentionthat stocks which had deteriorated because of prolonged storage for want ofexport orders, were sold in lots vide three cash memos against cash receiptsto realize the blocked funds. Aggrieved by the order, the assessee filedappeal before the Commissioner of Income Tax (Appeals) |CIT(A)]. Videorder dated 11.10.2010, Annexure A.2, the CIT(A) partly allowed the appealAddition of Lv37,30,300/- was deleted by accepting the assessee'scontention supported by judgment of the Bombay High Court inR.B.Jessaram Fatechand vs. CIT» (1970) 75 ITR 33 (Bom) to the effectthat for cash sales, identity of the customer was not essential more so whenthe status of opening stock, purchases and closing stock was not disputed.The CIT(A) also upheld that when the sales were not proved to have beenmade outside the books of account, disallowance of sale would result inincrease 1n closing stock. Aggrieved by the order, the revenue filed appealbefore the Tribunal. The assessee however chose to file application under ITA No.138 of 2014. A ITA No.138 of 2014. A Rule 27 of the Income Tax Appellate Tribunal Rules, 1963 (in short, “theRules”) before the Tribunal to assail the order passed by the CIT(A) on thegrounds decided against it. Vide order dated 30.8.2013, Annexure A.3, theTribunal allowed the appeal of the revenue and dismissed the applicationfiled by the assessee as not maintainable. Hence the present appeal by theaSsessee.3]Learned counsel for the appellant-assessee submitted that no|addition could have been made on account of unexplained credit of=37,30,300/-1in the profit and loss account of the assessee. It was urged thathere was no dispute regarding purchase etc. and in such circumstances,addition made by the Assessing Officer and sustained by the Tribunal wasuncalled for. It was further contended that the GP rate of 5% on enhancedsales of <a2.) crores had been applied by the Assessing officer by rejectingthe books of account and in such circumstances, separate addition onaccount of unexplained cash credit ofa37,30,300/- in the books of accountcould not have been made. Support was drawn from judgments 1n|CIT yvAbdul Rahman Sait,(2008) 306 ITR 142 (Mad.),|Dahod Sahakari KharidVechan Sangh Limitedv. CIT, (2006) 282 ITR 321 (Guj.), CIT vs. |DehatiCoop.Marketing Society, (1981) 130 ITR 505 (P&H),Deep Chand Kotharivy. CIT(1988) 171 ITR 381 (Raj.) andCIT vy. Sanjay Chhabra(2011) 336ITR 71 (P&H). It was also argued that the Tribunal had wrongly notallowed the appellant to invoke Rule 27 of the Rules with regard todisallowance of expenditure amounting to<a6,90,462/- under Section 40(a)(1a) and part disallowance out of car expenses, car depreciation andtelephone expenses. ITA No.138 of 2014. 4After hearing learned counsel for the appellant, we do not find any merit in the appeal. 4 The answer to the following two questions arise for adjudication in the present appeal:- (a) Whether in the facts and circumstances, the addition of=37,30,300/- as unexplained sales was justified? (b) Whether the assessee was entitled to invoke Rule 27 of theRules in the present case? 6.|The Tribunal while adjudicating the issue against the assesseehad noticed in its order dated 30.8.2013, Annexure A.3 that the dispute wasrelating to three sales bills amounting toLy37,30,300/- under which allegedcash sales were made. There was no mention of any quantity sold. Thename of the parties to whom the goods were sold was also missing. Therewas totalling errors in each bill and the mode of transportation of thosegoods also could not be explained by the assessee. On consideration ofentire material on record, it was concluded that the genuineness of thetransaction could not be established. The Tribunal was, thus, justified insustaining the addition of=a37,30,300/- as unexplained sales with thefollowing observations:- “The Assessing Officer had also sought information from the StateExcise and Taxation department and as per the said information, theassessee had declared sales ofLy1,96,07,007/-. The said informationreceived by the AO was prior to the filing of the return of income bythe assessee. AO noted that in the trading account accompanyingthereto, the assessee had declared sales ofL2.78 crores though inthe sales tax return, total sales declared wereLy1.96 crores. Theexplanation of the assessee to the show cause notice was that thedifference 1n sales was attributable to the sales made in lots vide 14lot Sale Bill Nos.1 — Lot Sale to 14 — Lot Sale in April 2004, “The Assessing Officer had also sought information from the StateExcise and Taxation department and as per the said information, theassessee had declared sales ofLy1,96,07,007/-. The said informationreceived by the AO was prior to the filing of the return of income bythe assessee. AO noted that in the trading account accompanyingthereto, the assessee had declared sales ofL2.78 crores though inthe sales tax return, total sales declared wereLy1.96 crores. Theexplanation of the assessee to the show cause notice was that thedifference 1n sales was attributable to the sales made in lots vide 14lot Sale Bill Nos.1 — Lot Sale to 14 — Lot Sale in April 2004, amounting toLy1,01,26,294/-, majority of which were not declaredin the original sales tax return through oversight. The AssessingOfficer scrutinized each of the sale bills and came to the conclusionthat there were four categories of sales made by the assessee astabulated in the chart. The AO has accepted the category of salesunder Sr.No.(11) to (iv). However, in respect of Sr. No.(1), 1t wasobserved that the cash sales of|=a37,30,300/-were in respect of lotsales made in cash without mention of any quantity of goods soldnor the name/s of the party/s to whom sold as per cash memo Nos. I-lot, to No.3 — lot sale, in the month ofApril 2004. The AO noted thatthere was no mention of quantity of goods sold which reflect that noactual sale of goods as per the said cash memos had been made bythe assessee, another show cause notice was issued to the assesseethat why said receipt in cash be not treated as Income fromundisclosed sources introduced in the garb of cash sales ingenuinelymade. The reply of the assessee was that the said sales were madewith the intention to liquidate the stocks which were piled up due tonon procurement of export order and as the quality of the goods hadstarted deteriorating, the sales were made to realize the funds fromsuch stocks. The assessee claimed that it had stock of=3,07,48,100/- brought forward from last year in addition topurchases of41,58,66,097/- made during the year. The sales wereclaimed to be made jin distress. The AQO found no merit in texplanation filed by the assessee in respect of cash sale of=37,30,300/- allegedly made in lots but without mention of anyquantity of goods sold. As per various reasons tabulated at page 7 ofthe assessment order, the Assessing Officer treated the said sum of=37,30,300/- as income from undisclosed source. The AO furtherexcluded the said amount of |37,30,300/- from the sales accountand adopted the sale of the assessee at 241,36,929/- (=2,/8,67,229/- - =a37,30,300/-) on which GP rate was applied by theAssessing Officer to compute the estimated profits inthe hands of the assessee. | &&&&&&&&&&&&&&&&& hands of the assessee. | &&&&&&&&&&&&&&&&& 13. We have heard the rival contentions and perused the record,The assessee is engaged in the manufacturing and sale ofknitted cloth. The assessee failed to furnish the return of incomein time and thereafter, notice under Section 142(1) of the Actwas issued to the assessee time and again and there was totalnon compliance by the assessee. The assessee furnished returnof income declaring loss of v22,06,350/-. The sequence ofevents during assessment proceedings are referred to by the AOat pages | and 2 of the assessment order. The assessee didfurnish some information during the course of assessmentproceedings. The AO noted that during the year underconsideration, the assessee had declared sales of <a2.78 croresout of which, cash sales in lots without mentioning the quantitysold and/or names and addresses of the parties to whom sold,totalling “a37,30,300/- was made by the assessee. After pickingup the case for scrutiny and before the assessee furnished thereturn of income, the Assessing Officer sought information ofthe sales made during the year from State Excise and Taxationdepartment. Vide the said information, the assessee was foundto have declared sales of41.96 crore including fabricationreceipt of=a7 lacs, while as per trading account, later filedalong with the return of Income, the sales were declared atRs.2.78 crore. The assessee claims to have filed revised salestax return on 12.11.2007 in which the sales of|=2) 7T8$ crore wdeclared to State Excise and Taxation Department. Thedifference in sales as originally declared to the sales taxdepartment and as 1n the revised return of Income was claimedto be on account of sales made 1n lots vide 14 lot sale bills No.1— lot sale to 14 — lot sales in April 2004 amounting to41,01,26,294/- which the assessee claims that by omission wasnot declared in the original sales tax return. Sales totalling 463,95,994/- were supported by bills without mentioning of anyquantity of goods sold but with names of parties to whom saleswere effected in April 2004 itself and the same were acceptedby the Assessing Officer. The dispute is 1n relation to the threeSales bills totallinga37,30,300/- under which cash sales weremade in lots without mention of any quantity sold and/or nameof the parties to whom sold. Details of the sales made by theassessee vide three bills are as under:- 14. The lot sales made by the assessee totalingLC37,30,300/-were made in cash and in the month of April 2004,withoutmentioning any quantity of goods sold in the relevant cashmemos. The assessee has declared closing stock of TL2.17 croreas on 3.3.2005. The opening stock declared by the assessee was=3.07 crores and the total purchases made during the year were=1.58 crores. The plea of the assessee before the Assessingofficer was that it had ample stocks available with it and out ofthe said available stock, the aforesaid cash sales were made.The Assessing officer observed that if old stocks were availablewith the assessee where was the need to make fresh purchasesto the tune oT L1.58 crores and further stock of L)17 croreshas been shown at the close of the year. The AO thus questioned the genuineness of the cash sales made 1in the lotamounting to<a37,30,300/-. The CIT(Appeals) accepting saidplea of the assessee had deleted the addition. We find no meritin the order of the CIT(Appeals) 1n this regard. | Perusal of the sales bills placed at pages 19 to 2 of the paperbook reflect in the order of CIT(A) in this regard. The onus isupon the assessee to prove and establish the sales made by itduring the year under consideration. questioned the genuineness of the cash sales made 1in the lotamounting to<a37,30,300/-. The CIT(Appeals) accepting saidplea of the assessee had deleted the addition. We find no meritin the order of the CIT(Appeals) 1n this regard. | Perusal of the sales bills placed at pages 19 to 2 of the paperbook reflect in the order of CIT(A) in this regard. The onus isupon the assessee to prove and establish the sales made by itduring the year under consideration. Perusal of the sales bills placed at pages 19 to 21 of the paperbook reflect the assessee to have sold knitted cloth 1n cash tounknown parties and each bill prepared by the assessee reflectstotalling errors which could not be explained by the learned ARfor the assessee, though the same was put to him during thecourse of hearing. The Bill no.1 — lot sale for|LT11,38,500/- infact totals to L11,17,000/-, the bill No.2 — lot sale ofL11,79,750/- totals to-411,58,300/- and the bill No.3 — lot saletotals to =26,67,280/- where as the correct total was=26,18,784/-. The assessee had shown gross value of the goodssold and had added the excise duty to the said value but thecalculation error has been made while totaling the two figuresin each of the three figures. In absence of any explanationbeing given by the learned AR for the assessee, adverseinference is to be drawn against the assessee. Further theassessee has failed to produce any evidence as to how the saidgoods were transported and even the bills do not talk of therequisite details of GR numbers. 15. The paper book reflects another bill No.07 — lot dated6.4.2004 which 1s placed at page 37 of the paper book in suchdetails in which the quantity is mentioned at 12810@|<a'$3 sold for|41,28,300/-. Other lot sales made by the assessee havebeen accepted in view of the names of the parties beingavailable and the same are not in dispute. However, in respectof first three bills 1.e. 1 to 3. lot sales, no such details havebeen filed by the assessee. Further, the assessee had failed to declare the said sales in the return of income filed by it beforethe sales tax authority and only after the information wasreceived by the Assessing officer, revised returns were filedbefore the sale tax authority including the said cash lot sale asits turnover. The assessee against Bill No. 1- lot sale claims tohave received return of goods and also cash transaction in thisregard. Where basic details 1.e. name of the party 1s notavailable with the assessee, the said return of goods cannot beaccepted. In view thereof, no reliance can be placed on the saletax return filed by the assessee. The onus was upon the assesseeto explain the credit of<a37,30,300/- which the assessee hasfailed to discharge and in the absence of having establishedthat the said amount relates to sale of goods, mere reliance onthe three sale bills does not absolve the assessee from 1ts onusand we find no merit in the stand of the assessee in thisregard.” TiIn view of the aforesaid findings, the assessee cannot deriveany benefit from the judgments relied upon. The said judgments beingbased on individual fact situation, do not advance the case of the assessee.8S.Adverting to applicability of Rule 27 of the Rules, it would beexpedient to reproduce Rule 27 of the Rules which reads thus:- OTThe respondent may support order on grounds decided against him -The respondent though he may not have, mayhave appealed may support the order appealed against on anyof the grounds decided against him.” QThe Tribunal noticed that by virtue of Rule 27 of the Rules, therespondent is entitled to support the order appealed against and raisedefence against the appeal filed by the appellant on any of the groundswhich have been decided against him but cannot invoke the said rule toclaim any fresh relief which was denied by CIT(A) and which 1s not part of the ground so raised by the appellant. The Tribunal had rejected thecontention of the assessee by recording as under:- OTThe respondent may support order on grounds decided against him -The respondent though he may not have, mayhave appealed may support the order appealed against on anyof the grounds decided against him.” QThe Tribunal noticed that by virtue of Rule 27 of the Rules, therespondent is entitled to support the order appealed against and raisedefence against the appeal filed by the appellant on any of the groundswhich have been decided against him but cannot invoke the said rule toclaim any fresh relief which was denied by CIT(A) and which 1s not part of the ground so raised by the appellant. The Tribunal had rejected thecontention of the assessee by recording as under:- “18. The assessee has filed an application under rule 27 ofIncome Tax Appellate Tribunal Rules under which it has raisedtwo grounds of appeal 1.e. one against disallowance of expensesamounting to|Lv6,90,462/- under section 40(a) (a1) of the Actand second against part disallowance out of car expenses, cardepreciation and telephone expenses. The learned AR for theassessee pointed out that this stands covered by the decision ofthe Chennai Bench of the Tribunal in ACIT vs. India CementLimited [124 ITD 343 (Chennai)| and by the decision ofHon’be Punjab and Haryana High Court in CIT vs. DehatiCooperative Marketing cum Processing Society [130 ITR 505(P&H)|. The learned DR for the revenue pointed out that theerounds of appeal raised by the assessee vide said applicationunder Rule 27 of the Income Appellate Tribunal Rules wereabsolutely different from the issue raised by the revenue in itsappeal and the present application was not maintainable, 19. We have heard the rival contentions and perused the record.Under the provisions of section 253 of the Income Tax Act, theprocedure of appeals to the Appellate Tribunal is provided,Both the assessee and the Commissioner are empowered toappeal against the orders passed by the lower authorities undervarious provisions of the Act as enumerated in sub section (1)and sub section (2) of section 253 of the Act. Under sub section(3), time limit for filing the appeal before the Tribunal isprovided under sub section 4 to section 253 of the Act, theprovisions lay down the procedure of filing memorandum ofcross objections by the Assessing officer or the assessee, as thecase may be, on the receipt of the notice that an appeal againstthe order of the Dy. Commissioner of Income Tax or CIT(Appeals) had been preferred under sub section (1) or subsection (2) of section 253 of the Act. It is further providedunder sub section (4) that the said memorandum of cross 10.) objection can be treated as an appeal presented within the timeSpecified in sub section and would be disposed of by theTribunal accordingly. Under sub section (6) of section 253 ofthe Act, the appeal is to be filed in prescribed form and verifiedin the prescribed manner and is to be accompanied withTribunal fee, where the appeal is filed by the assessee,|However, where the appeal is filed by the revenue, then noappeal fee is payable. Further alongwith an application for stayof demand, fee of“a500/- is prescribed under sub section (7) tosection 253 of the Act. 20.The Appellate Tribunal, in order to regulate its powersand functions have tormulated the Income Tax Appellate Rules,1963. Rule 27 of Income Tax Appellate Tribunal Rules reads4s under:- ‘The respondent though he may not have, may haveappealed may support the order appealed against on any ofthe grounds decided against him. The said rule 27 provides remedy to the respondent tosupport an order passed on any of the grounds decidedagainst him.’ 20.The Appellate Tribunal, in order to regulate its powersand functions have tormulated the Income Tax Appellate Rules,1963. Rule 27 of Income Tax Appellate Tribunal Rules reads4s under:- ‘The respondent though he may not have, may haveappealed may support the order appealed against on any ofthe grounds decided against him. The said rule 27 provides remedy to the respondent tosupport an order passed on any of the grounds decidedagainst him.’ 21. The respondent by way of the said Rule 27 is empowered toSupport the order appealed against any of the ground decidedagainst him. Rule 27 of the Income Tax Appellate Tribunal Ruleslays down that where no appeal has been filed by any respondenthe may support the order appealed against i.e. the order of theCIT(Appeals) on any of the grounds decided against him. Theproposition proposed under Rule 27 of the Income Tax AppellateTribunal Rules is that the respondent can raise defence againstthe appeal filed by the appellant on any of the grounds whichhave been decided against him but under the said provisions ofthe Act, it is not open to the respondent to claim any fresh reliefwhich was denied to him by the CIT (Appeals) and which is notpart of the ground so raised by the Revenue.” It may be noticed that where the respondent 1s aggrieved ITA No.138 of 2014. against any disallowance or addition sustained by the CIT(A) which 1s notunder challenge at the behest of the appellant, the only remedy availablewith the respondent 1s to either file separate appeal or agitate the issue byway of cross objections in the appeal filed by the appellant 1mpugning thedisallowance or the addition sustained. Thus, no error could be pointed outby learned counsel for the respondent-assessee in the approach of theTribunal which may warrant interference by this Court under Section 260Aof the Act. The Tribunal had rightly not allowed the assessee to urge relatingto disallowance of expenditure under Section 40(a)(1a) of the Act and partdisallowance out of car expenses, car depreciation and telephone expenses.11.In view of the aforesaid findings, no substantial question of lawarises. [he appeal stands dismissed. July 11, 2013>+"8 (Ajay Kumar Mittal)Judge(Jaspal Singh)Judge