$ 16 & 19 * IN HIGH COURT OF DELHI AT NEW DELHI Decided on: May 05, 2015. + ITA 212/2013 + ITA 221/2013 COMMISSIONER OF INCOME TAX CENTRAL II ..... Appellant Through: Ms. Suruchi Aggarwal, Sr. Standing counsel and Mr. Abhishek Sharma, Adv. versus M/S NAVBHARAT EXPORT ..... Respondent Through: Mr. Salil Kapoor, Mr. Vikas Jain and Mr. Shubham Rastogi, Advs. CORAM: HON'BLE MR. JUSTICE S. RAVINDRA BHAT HON'BLE MR. JUSTICE R.K. GAUBA MR. JUSTICE S. RAVINDRA BHAT (OPEN COURT) % 1. Revenue appeals to this Court under Section 260-A of Income Tax Act, 1961 (hereinafter referred to as Act ), aggrieved by order of Income Tax Appellate Tribunal (hereinafter referred to as ITAT ) dated 31.01.2011, so far as it relates to dismissal of its appeal and correspondingly relief granted to assessee for Assessment Year (AY) 2003-04. Assessments for four years 2002-03 to 2005-06 were made on 29.12.2006 under Section 153A pursuant to search conducted on 07.10.2004. Revenue urges that ITAT fell into error on following questions:- W.P.(C) 212/2013 and 221/2013 Page 1 (i) Disallowance of expenses in profit & loss account, specifically with respect to transport expenses claimed only 3,38,184 /- out of total claim of 36,01,764/-, sought to be added was actually allowed by Assessing Officer (AO); (ii) Deletion of findings with respect to error in rejection of books and imposition of 12% GP rate by AO on account of absence of stock register and other alleged irregularities; and (iii) Direction to cancel addition on account of notional income worked out by AO. 2. assessee at relevant time, used to procure and restore rice after due processing. In course of such procurement, it was contended to retain gunny bags supplied by Food Corporation of India (FCI) and deal with them. After search and during assessment proceedings, assessee had surrendered sum of 1.75 Crores. Apparently, in course of search, some excess stocks were found. On this basis as well as on observation of materials on record, AO rejected books of account. In doing so, he was influenced by following considerations:- (a) Absence of stock register; (b) Irregularity or failure to disclose receipts and transactions pertaining to gunny bags ( bardana ); (c) excess stock found in premises; and (d) portion of transport expenses were found to have been transacted in cash with no supporting evidence. 3. assessee appealed to Commissioner of Income Tax (Appeals) [hereinafter referred to as CIT(A) ] contending that AO s rejecting books of account and imposing gross profit margin of 12% was W.P.(C) 212/2013 and 221/2013 Page 2 arbitrary. In doing so, assessee attacked AO s approach stating that so far as transport expenses were concerned, of total expenses, entire expenses of more than 7.21 crores had been substantially accepted of which details and records in respect of 36 Lacs odd was not available. This constituted just about 5.1% of total transport expenses. AO had rejected said claim of expenditure of 36 Lacs and instead worked out 1.75% of total expenditure, amounting to 36,01,764/-, as admissible figure. CIT(A) upheld rejection of books of account but granted limited relief to extent that GP rate was reduced from 12% to 11.6%. 4. Aggrieved by order of CIT(A), both Revenue and assessee carried matter in appeal. ITAT by impugned order, analysed entirety of material and evidence on record for all years i.e. AY 2002-03 to 2005-06. It held that reason for rejection of books of account was not sound given that assessee was maintaining consistent accounting method which had been accepted during all previous years. So far as irregularities with respect to bardana was concerned, ITAT held as follows:- 12. First objection given by Assessing Officer for doubting book results of assessee is that it has not shown sale of bardana (gunny bags). assessee has demonstrated that this observation is factually incorrect. learned counsel for assessee during course of hearing drew our attention towards balance sheet and accounts and shown us opening stock, purchases and sale of bardana... 5. In view of these findings which are entirely based on fact, this Court is of opinion that unless Revenue points out something W.P.(C) 212/2013 and 221/2013 Page 3 fundamentally wrong or unreasonable in ITAT s approach, question urged by it with regard to addition on this score, is inadmissible. 6. In dealing with rejection of cash transactions towards transport expenditure, ITAT reasoned as follows:- 12...The second objection pointed out by Assessing Officer is that assessee has carried out cash transaction. These cash transactions relate to payment of freight charges to transporter. We find from record that assessee had incurred sum of 7,21,16,088/- towards freight. Out of this huge amount, it has incurred expenses of 36,84,500/- in cash. According to it, some time petty transports emphasized for making payment in cash. In our opinion, this is not such factor which may prevent Assessing Officer to compute true income of assessee from accounts This Court is of opinion that ITAT s reasoning is sound and does not call for interference. extent of disallowance made towards transportation expenses claimed was 36,01,764/- which was concededly in cash. Counsel for Revenue points out that lower questionnaire was sought given to assessee on 05.04.2006. reply on this score belatedly on 04.05.2006 did not contain any particular. Be that as case may be, at same time, this Court is of opinion that considering totality of expenditure which was about `7,21,16,088/-, cash expenditure of `36,84,500/-, could not be said to be of such magnitude as to have led to startling result of rejecting entire books of account. Furthermore, AO does not indicate any reason why he accepted 1.75% of entire transaction as permissible cash transportation expenditure. We, therefore, agree with findings of ITAT and held that expense W.P.(C) 212/2013 and 221/2013 Page 4 claimed for transportation could not have been valid ground for rejecting books of account. 7. ITAT noted very importantly that AO s observation with regard to assessee not maintaining any stock register was not correct. AO, in fact, does not appear to have rejected any results for AY 2002- 03. ITAT further held:- 12 assessee in its audit report specifically alleged that it is maintaining stock register. assessee has been lifting rice from FCI godown and thereafter it is exporting. All details of purchase, sales and exports are being maintained and shown to Assessing Officer. In spite of that, in flimsy way, Assessing Officer had made above remark. next objection pointed out by Assessing Officer is that yield shown by assessee is not reliable. criteria for making comparison of yield by Assessing Officer is not discernible. He observed that loose paper was found at premises of erstwhile partner and yield computed on that loose paper did not match with ultimate yield shown by assessee. It is not coming out on record that how that loose paper is relevant for working out yield. yield of assessee ought to be verified from factor, what type of rice it had purchased, how it has processed, what type of machinery it has used, those percentage ought to be compared with some similarly situated assessee or with result of other years. No such steps have been taken by Assessing Officer. He merely assigned one reason for sake of giving reasons. 13. Assessing Officer has estimated GP at 12%. In assessment year 2005-06, assessee itself has shown GP at 13.14%. In that year, he estimated GP at 13.5%. It gives impression that Assessing Officer instead of finding out actual defects in books of account of assessee, he wants to reject result whatever may be reasons. Taking into consideration alleged defects pointed out by Assessing Officer as well as explanations of assessee, we find that W.P.(C) 212/2013 and 221/2013 Page 5 Assessing Officer has made reference to lame excuses for disbelieving book results of assessee, Learned CIT(Appeals) though agreed with contention of assessee that objections pointed out by Assessing Officer have been refuted by it, still uphold rejections of book results, only on ground that excess stock was declared during course of search. As observed earlier, this may be one corroborative factor for doubting accounts of assessee, but it cannot be sole criteria. More so, on similar books of account and details, Assessing Officer could not find any fault in assessment year 2002-03 and in earlier years. Thus, taking into consideration all these factors we are of opinion that Learned CIT(Appeals) has erred in upholding rejection of book results. Assessing Officer is unable to point out serious lapse in accounts maintained by assessee which can unable him to deduce true income. We allow ground of appeal raised by assessee in all three years and set aside finding of learned revenue authorities. income of assessee is to be computed on basis of books of account maintained by it and GP addition made by Assessing Officer in all three assessment years is deleted. 8. above findings are again finding of fact. Revenue s appeal does not in any manner reflect how these findings are unreasonable or unsupported by materials on record. Consequently, no question of law arises for consideration, as to rejection of books of account. 9. In view of above conclusion, further finding of ITAT that imposing of GP rate of 12% - later reduced to 11.6% was entirely unwarranted. This finding, of course, cannot be disturbed in view of fact that each of reasons which impelled AO to reject books of account, has been upheld. 10. As far as interest of `50,200/-, attributed as notional interest accruing from other sources is concerned, this Court agrees with findings W.P.(C) 212/2013 and 221/2013 Page 6 of ITAT that entire basis of this addition was hypothetical and not based upon any material evidence except cheques found in premises during search. assessee s explanation was that these amounts had been returned. So far as addition on account of interest which ought to have accrued is concerned, both CIT(A) and ITAT were in unanimity in holding that such additions could not have been made. We also noticed that ITAT based its decision on judgment of Supreme Court in Commissioner of Income Tax v. Shoorji Vallabhdas and Co. (1962) 46 ITR 144 (SC). Having regard to these facts, this Court is of opinion that there was no real income in facts and circumstances of this case. In view of concurrent findings, Court will not interfere in this aspect. 11. For foregoing reasons, no substantial question of law arises. appeal is dismissed. S. RAVINDRA BHAT (JUDGE) R.K. GAUBA (JUDGE) MAY 05, 2015 ik W.P.(C) 212/2013 and 221/2013 Page 7 Commissioner of Income-tax Central -II v. M/s. Navbharat Export