M/S V.k. Timber Pvt. Ltd v. Commissioner Income Tax (Appeals) & Another

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH. I.T.A. No.321 of 2010 (O&M)Date of decision: 4.8.2010 M/s V.K. Timber Pvt. Ltd. -----Appellant. Vs. Commissioner Income Tax (Appeals) & another. -----Respondents CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOELHON'BLE MR. JUSTICE AJAY KUMAR MITTAL Present:-Mr. Akshay Bhan, Advocate for the Assessee. --- ADARSH KUMAR GOEL, J. 1. This appeal has been preferred by the assesseeunder Section 260-A of the Income Tax Act, 1961 (for short, “theAct”) against the order dated 27.11.2009 in I.T.A.No.2518/Del/2008 passed by the Income Tax Appellate Tribunal,Delhi, for the assessment year 2005-06, proposing to raisefollowing substantial questions of law:- “i) Whether in facts and circumstances of the case,the action of the authorities below in ignoring thedocuments produced on record to show the fallin the Gross profit is legally sustainable in theeyes of law?the action of the authorities below in ignoring thedocuments produced on record to show the fallin the Gross profit is legally sustainable in theeyes of law? ii) Whether in facts and circumstances of the case,the action of the authorities below in rejectingthe claim of the assessee without their beingany material evidence to rebut the claim of theassessee/appellant is legally sustainable in theeyes of law?the action of the authorities below in rejectingthe claim of the assessee without their beingany material evidence to rebut the claim of theassessee/appellant is legally sustainable in theeyes of law? iii) Whether in facts and circumstances of the case,the action of the authorities below in rejectingthe claim of the assessee when all the detailsregarding the source of unsecured loans havebeen given and have been explainedsatisfactorily is legally sustainable in the eyes oflaw?the action of the authorities below in rejectingthe claim of the assessee when all the detailsregarding the source of unsecured loans havebeen given and have been explainedsatisfactorily is legally sustainable in the eyes oflaw? iv) Whether in the facts and circumstances of thecase, the action of the authorities below in notallowing the claims of the present assessee/appellant when the same have been dulyexplained and proved is legally sustainable inthe eyes of law?case, the action of the authorities below in notallowing the claims of the present assessee/appellant when the same have been dulyexplained and proved is legally sustainable inthe eyes of law? v) Whether in fact and circumstances of the case,the action of the authorities below, impugnedorders Annexure A-1 and A-3 are legallysustainable in the eyes of law?”the action of the authorities below, impugnedorders Annexure A-1 and A-3 are legallysustainable in the eyes of law?” 2. The assessee is a timber merchant. During thecourse of assessment, the Assessing Officer noticed declarationof steep decline in gross profit of the assessee and the assesseewas required to produce books of account and explain thereasons for decline. After considering the reply, it was held thatthe gross profit declared by the assessee was not genuine.Having regard to material on record, the assessment was madeby applying higher gross profit rate i.e. 2.44%, which was the ratedeclared in the earlier year. The Assessing Officer also did notbelieve the genuineness of the credit entries from Ram Niwas andChand Ram. The said amount was added to the income of the assessee. On appeal, CIT(A) partly allowed the appeal andaccepted the explanation of the assessee for declining G.P. Rate.The addition on account of credit entries of Ram Niwas andChand Ram were also deleted. The revenue carried the matter tothe Tribunal who restored the order of the Assessing Officer. Itwas held:- assessee. On appeal, CIT(A) partly allowed the appeal andaccepted the explanation of the assessee for declining G.P. Rate.The addition on account of credit entries of Ram Niwas andChand Ram were also deleted. The revenue carried the matter tothe Tribunal who restored the order of the Assessing Officer. Itwas held:- “11. We have heard the rival contentions andperused the material on record. Apropos gross profit,we find that AO asked pertinent queries and assesseeonly gave a general submission that g.p. rate isdecreasing every year due to higher volume of saleand increasing market competition. AO specificallyasked to substantiate the claim besides further askedto produce stock register and vouchers in this behalf,which were not produced. Therefore, assessee's replywas considered on this general reply. In CIT (A)'sorder, there is no mention about the furnishing ofstock details or the papers, which were not filedbefore AO. Some statements were given comparison,CIT(A) has held that the g.p. reported by assessee iscomparable. He has taken into consideration carriageexpenses on general basis. In our view, when there isspecific fall in g.p. and assessee does not producerelevant stock details and supporting material,addition is called for to correct the profits earned bythe assessee. The assessee failed to producequantitative details before AO. In our view, CIT(A)should have insisted for these documents and withouttheir availability the relief could not be given. In viewthereof, we hold that CIT(A) has given relief onsubjective considerations without considering the vital aspects on which AO proceeded to make theadditions. In view thereof, we uphold the G.P. additionas made by AO. 12. Apropos the credits of Shri Ram Niwas and ShriChand Ram, it has not been disputed that theassessee did not give any interest to these persons.Shri Ram Niwas owns 7-8 acres of land and fatheredfive children, on 30[th] June, 2006 one of his daughterswas married. This is suppressing and against humanprobabilities that the creditor, an agriculturist, had afamily to maintain, having marriageable daughter,neither amount was repaid nor interest was given atthe time of marriage. It is not the claim of theassessee that he is relative or a dear friend. In viewthereof, we are unable to agree with CIT(A) that ShriRam Niwas had Rs. 5 lacs readily available as cashno lend to the assessee for years together withoutcharging interest and not insisting for repayment evenwhen his daughter was getting married on which ahuge amount of Rs. 7.5 lacs had been contended tohave been spent. In view thereof and consideringHon'ble Supreme Court judgment in the case ofSumiti Dayal (supra) and on consideration of humanprobabilities and attending circumstances, we upholdthe order of AO on his issue. The addition sustainedon this account. 13. Apropos Shri Chand Ram, he also owns 7-8 acresof agricultural land fathered three children, had noother property or fixed deposit. Although he hadsmaller family, he deposited only Rs. 4 lacs in cash on20[th] April, 2004 and gave this amount by ways ofinterest fee loan to the assessee in the same type of circumstances as in the case of Ram Niwas. Thiscredit also suffers from the same inconsistencies andimprobable human conduct as mentioned in the caseof Shri Ram Niwas. In view thereof, for the samereasons, we uphold this addition made by AO. In viewthereof, on ground Nos. 2 & 3, we reverse the order ofCIT(A) and restore that of AO.” 3. We have heard learned counsel for the assessee. 4. Learned counsel for the assessee submits that theTribunal was not justified in interfering with the view taken by theCIT(A) and there are valid reasons for decrease in the G.P. Rate.He further submitted that credit entries of Ram Niwas and ChandRam were genuine entries as held by the CIT(A) and finding ofthe Tribunal to the contrary is erroneous. circumstances as in the case of Ram Niwas. Thiscredit also suffers from the same inconsistencies andimprobable human conduct as mentioned in the caseof Shri Ram Niwas. In view thereof, for the samereasons, we uphold this addition made by AO. In viewthereof, on ground Nos. 2 & 3, we reverse the order ofCIT(A) and restore that of AO.” 3. We have heard learned counsel for the assessee. 4. Learned counsel for the assessee submits that theTribunal was not justified in interfering with the view taken by theCIT(A) and there are valid reasons for decrease in the G.P. Rate.He further submitted that credit entries of Ram Niwas and ChandRam were genuine entries as held by the CIT(A) and finding ofthe Tribunal to the contrary is erroneous. 5. It cannot be disputed that the findings recorded by theTribunal are findings of fact which cannot be interfered with evenif two views are possible. 6. No substantial question of law arises. The appeal is dismissed.The appeal is dismissed. (ADARSH KUMAR GOEL) JUDGE August 04, 2010MITTAL )ashwani ( AJAY KUMAR JUDGE