B AGRAWAL STONE PRODUCTS LTD,SONEBHADRA V. D.C.I.T., CENTRAL CIRCLE, VARANASI

ITA 153/VNS/2024

AI Insights

The case involves B.Agrawal Stone Products Ltd., which faced search and seizure operations leading to the discovery of a ledger account with significant undisclosed income. The company contended that portions of this income were for directors' remuneration and labor charges, which should be deductible. The Assessing Officer initially treated the entire amount as undisclosed income and assessed it under section 68 as unexplained cash credits, applying a higher tax rate under section 115BBE. The Tribunal, after considering the submissions and evidence, including affidavits from site supervisors and statements from the company's directors, found merit in the assessee's claims and directed the re-assessment of the income as business income and the deductions claimed.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 37731 (ITAT-VARANASI)
• Duration Of Justice: 1 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-10-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 10-09-2024
• Assessment Year: 2018-2019
• Appeal Filed On: 27-08-2024
• Other Referred Cases: Shri Krishna Kumar vs. DCIT, Veer Enterprises vs. DCIT, Baljinder Kumar vs. DCIT, Pramod Singla vs. ACIT, Bajaj Sons Ltd vs. DCIT, PCIT vs. Dharti Estate
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMALENDU NATH MISHRA
• Assessee Lawyers: SHISHIR BAJPAI
• Keywords: Set aside; Business income; Business expenditure; Unexplained cash credit; Search and seizure
• Section: 68

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL VARANASI BENCH “DB”, VARANASI BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA No. A.Y. Appellant Respondent 151/VNS/2024 2013-14 B.Agrawal Stone Products Ltd., Ram Mandir Colony, Obra Sonebhadra, Sonbhadra PAN: AACCB2209H DCIT, Central Circle, Aayakar Bhavan, Maqbool Alam Road, Varanasi 145/VNS/2024 2014-15 146/VNS/2024 2015-16 147/VNS/2024 2016-17 148/VNS/2024 2017-18 153/VNS/2024 2018-19 154/VNS/2024 2019-20 For Assessee : Shri Shishir Bajpai, CA., For Revenue : Shri Amalendu Nath Mishra, CIT-DR Date of Hearing : 10-09-2024 Date of Pronouncement : 15-10-2024 ORDER PER BENCH : All the appeals filed by the assessee are directed against the orders passed by Ld.CIT(A), Lucknow-3 and they relate to the Assessment Years 2 B. Agrawal Stone Products Ltd., (batch) (AYs.) 2013-14 to 2019-20. All these appeals were heard together and are being disposed of by this common order, for the sake of convenience. 2. In AYs. 2013-14 to 2017-18, the assessee is contending that the Ld. CIT(A) should have allowed deduction of labour charges amount of Rs.74,77,364/- from the undisclosed income computed by the assessee. Further, it is contended that the amount of undisclosed income surrendered by the assessee should have been assessed as business income under the head Income from Business. Both these issues are common issues in the above said years. They are being adjudicated first. 3. The facts relating to the case are discussed in brief. The assessee is engaged in the business of mining, manufacturing, trading and transportation of boulders and stone grit materials. The Revenue carried our search and seizure operations in the hands of the assessee on 11-04- 2018. Consequent thereto, the present assessments were completed. During the course of search proceedings, certain materials marked as BK- 1, BK-2 & BK-3 were found and seized. These materials contained details of money transactions entered in the name of director of assessee company, viz., Shri Brishban Agrawal for the period from 29-10-2016 to 02-12-2016. It was in the form of ledger account copy containing opening debit balance of Rs.7,12,59,318/- and entries of debits and credits thereafter. 4. When questioned about the opening debit balance of Rs.7,12,59,318/-, the assessee company submitted that the same represents money paid to the above said director and he was spending the same on behalf of the assessee company. It was admitted that some of the payments have been duly accounted for in the books and some payments were omitted to be accounted. It was claimed that the above mentioned debit balance contained a sum of Rs.65,03,993/- paid by way of cheques 3 B. Agrawal Stone Products Ltd., (batch) to the directors as their remuneration and further a sum of Rs.74,77,364/- paid by way of cash towards labour charges. The assessee agreed to voluntarily surrender the remaining amount of Rs.5,72,77,961/- [Rs.7,12,59,318/- (-) Rs.65,03,993/- (-) Rs.74,77,364/-] as its income. The assessee offered the same in AYs.2013-14 to 2017-18 in accordance with its own estimation. 5. The Assessing Officer (AO) refused to allow deduction of Rs.65,03,993/- and Rs.74,77,364/- (referred above). Accordingly, the AO treated the entire amount of Rs.7,12,59,318/- as undisclosed income of the assessee. The AO also did not accept the methodology adopted by the assessee to allocate the undisclosed income in various years. He allocated the undisclosed income in the ratio of income returned by the assessee for AYs.2013-14 to 2017-18. Further, he assessed the surrendered income as unexplained cash credits u/s. 68 of the Income Tax Act, 1961 („the Act‟) and accordingly levied higher rate of tax u/s.115BBE of the Act. 6. In the appellate proceedings, the Ld.CIT(A) allowed credit for the claim of remuneration of Rs.65,03,993/- paid to the directors, since it was claimed to have been paid by way of cheques. Accordingly, he allowed proportionate reduction of the addition made by the AO in various years. He also confirmed the assessment of surrendered income as unexplained cash credits u/s.68 of the Act. 7. With regard to the claim for reduction of Rs.74,77,364/-, the assessee made following submissions before Ld CIT(A):- “(a) While observing the said ledger account, it is found that on 01/11/2016 written as „Hisab‟ of Rs.1,49,600. Sir on perusal of this entruy, it is found that detail of business expenses is given by Brishbhan Agrawal duly recorded in the seized dairy/note book on 01-11-2016 (Karch Khata Rs.1,59,140/- which includes 4 B. Agrawal Stone Products Ltd., (batch) expenses „Hisab‟ of Rs.1,49,600/- given by Brishbhan Agrawal and other expenses as per Day book Rs.9,540/-) (b) Further in the above said seized ledger account, there is some bank transfer entries. Few of which is explained here to conclude as gist Debit on 02-12-2016 Rs.1,50,000/- against the director remuneration and same is recorded in regular books of account of the appellant. (c) Furthermore the fund generated from the business transaction of the company either disclosed or undisclosed, the same was given to the managing director Mr Brishbhan Agrawal to upkeep the same and the said fund was infused again by him as and when needed in the Company which is clearly evident from the transaction recorded in the seized ledger account of Mr Brishbhan Agrawal as pasted above. Further Mr Anand Kumar Agrawal, the present Managing Director of the company has also stated in his stated that the business cash of the company are either lying in the counter or given to the Directors. As a matter of trade practice, it was done for the security reason… Sir, on the bare perusal of the nature of transactions as mentioned in the above said account and statement recorded during the search proceedings, it is clearly evident that this ledger account of Brishbhan Agrawal is related only to the business of the appellant company which is explained in 68 pages (page no. 2-5 & 25-89 of reply dated 31-03-2021 of AY 2017-18) during assessment proceeding and thus nothing is unexplained in that seized ledger account. The nature of transactions as mentioned above are also occurred prior to the date of 29-10-2016 and included in the opening balance of Rs.7,12,59,318/-. In this regard, the appellant had submitted the detail of payments made through banking channel to the Brishbhan Agrawal by the appellant company against the remuneration etc total of Rs.65,03,993/- during the period from 2012-2016 (prior to 29-10-2016) along with corroborative evidences in their reply dated 31-03-2021 at page no.25-53. As stated and placed on record these payments have been fully recorded in their regular financial statement. As the cheque payments are duly entered but corresponding expenses entries of Director Remuneration was not posted in this ledger account hence it is clearly evident that the opening debit balance of 5 B. Agrawal Stone Products Ltd., (batch) Rs.7,12,59,318/- in the ledger account of Brishbhan Agrawal includes cheque payment of Rs.65,03,993/- against director remuneration. Further, the above said fact was also said by the managing director Mr Brishbhan Agrawal in his statement on Oath on 05-06-2018 which corroborates the points in appellant favour…. Further during the assessment proceedings, it was also contended that against various project works total of Rs.16.81 crore in FY 2005 to 2007, a sum of Rs.74,77,364/- which was part of in cash, have been directly paid by Brishbhan Agrawal through his imprest account wholly and exclusively for the business transactions as various labour payments in cash through our site supervisor. In support of the same, affidavits from the site supervisor were submitted before the Ld assessing officer during the assessment proceedings in their reply dated 31-03-2021 pg no.54-58. Statement of Brishbhan Agrawal recorded on 05-06-2018 and affidavit before the learned ADIT, Varanasi in post search proceedings which corroborates recorded expenses through this account. Relevant part of Statement Recorded on Oath, reply to Q no.6 at page no.3/4 is pasted here for framing the fact at a glance…..” 8. We heard the parties on this issue and perused the record. We notice that the impugned addition of Rs.7,12,59,318/- has been made on the basis of a seized document, which is in the form of ledger account copy containing debit and credit entries. It contained opening balance of Rs.7,12,59,318/- and the same has been treated as unexplained income. It is the submission of the assessee that the same represented cash/cheque given to the Director, Shri Brishbhan Agrawal in the earlier years in connection with incurring business expenses and also for other purposes. Out of the above said amount, the assessee is claiming deduction of Directors remuneration of Rs.65,03,993/- paid by way of cheque and further sum of Rs.74,77,364/- paid towards labour charges paid by way of cash. 6 B. Agrawal Stone Products Ltd., (batch) 9. First of all, it is noticed that this is a rough sheet and the assessee has explained the nature of this sheet. Though it contained opening balance of Rs.7,12,59,318/-, the details relating to the earlier period were not available. It is the assessee, who has scrutinized the details and has come up to surrender a sum of Rs.5,72,77,961/- after claiming deduction of Rs.65,03,993/- towards Directors remuneration and Rs.74,77,364/- towards labour charges payments. Though the AO did not accept both the claims, the Ld.CIT(A) has allowed deduction of Directors remuneration of Rs.65,03,993/-. We noticed that it was stated by the assessee that the cash balance was kept with the Director Shri Brishbhan Agrawal for security purposes or as „Imprest cash‟. That is, the cash available in the books is partly kept with the above said director for safe custody purposes and in order to have control over it, his account is debited with the said amount in the Kachha Register. This system of maintaining Kachha Register is quite prevalent in the trade circles. When the above said explanation is accepted, then there is possibility of spending money from the above said account for business purposes cannot be ruled out. Accordingly, the assessee has identified the labour payments made by him out of the cash given to him and claimed the same as deduction while computing the undisclosed income. It is always possible for the assessee to claim that the entire amount of Rs.7.12 crores represented business advance only. However, the assessee chose to identify the portion of undisclosed income and accordingly offered a sum of Rs.5,72,77,961/-, which means that the assessee has made sincere attempt to identify the accounted portion and unaccounted portion of income. In support of its claim of labour payments, the assessee has also furnished affidavits obtained from site supervisors. The very same fact has been mentioned by Shri BrishBhan Agrawal and Shri Anand Agrawal in their respective statements. In view of the unanimous view expressed by both the Directors 7 B. Agrawal Stone Products Ltd., (batch) coupled with the affidavits given by the site supervisors, we are of the view that the claim of labour payments of Rs.74,77,364/- may be allowed. Accordingly, we set aside the order passed by the Ld.CIT(A) on this issue and direct the AO to allow deduction of Rs.74,77,364/-. 10. The next issue is whether the undisclosed income of Rs.5,72,77,961/- has to be considered as business income or not? We noticed that the tax authorities have treated the same as unexplained cash credit u/s.68 of the Act. We notice that the assessee‟s business consisted of mining, manufacturing, trading and transportation of boulders and stone grit materials. No other activities of the assessee have been noted by the tax authorities. Hence, the assessee could have generated the undisclosed income from out of the above said business activities only. Hence, the nature of the undisclosed income could be business receipts only and it source could be the business carried on by the assessee. It appears that the tax authorities have assessed the undisclosed income as unexplained cash credits in order to levy higher rate of tax u/s.115BBE of the Act. In our view, the same is totally unjustified in the facts of the present case. The tax authorities are expected to assess the income under the correct head of income only. Accordingly, we are of the view that the tax authorities are not justified in treating the surrendered income as unexplained cash credit. Accordingly, we set aside the order passed by the Ld.CIT(A) on this issue in all the years referred above and direct the AO to assess the same as business income only. We find support for our decision from the following case laws:- (a) Shri Krishna Kumar vs. DCIT (162 taxmann.com 518) (b) Veer Enterprises vs. DCIT (158 taxmann.com 655) (c) Baljinder Kumar vs. DCIT (157 taxmann.com 739) (d) Pramod Singla vs. ACIT (154 taxmann.com 347) (e) Bjaj Sons Ltd vs. DCIT (128 taxmann.com 406) (f) PCIT vs. Dharti Estate (163 taxmann.com 179) 8 B. Agrawal Stone Products Ltd., (batch) 11. Adjudication of above said two issues would fully dispose of appeals filed by the assessee for AYs.2013-14 and 2014-15. 12. One more common issue urged by the assessee in AYs.2015-16, 2016-17, 2017-18, 2018-19 and 2019-20 relates to the addition of interest income of Rs.2,01,600/- in respect of loan given to Shri Ishwar Chandra Garg. 13. The facts relating to this issue are that the seized records showed that a credit balance of Rs.18,81,600/- was shown against the name of Shri Ishwar Chang Garg. When questioned about the same, the assessee submitted that the same is, in fact, a debit balance and a loan of Rs.15.00 lakhs was given to the above said person. It was further submitted the assessee had omitted to disclose interest income of Rs.2,10,000/- and Rs.2,01,600/- received by the assessee from the above said person in the years relevant to AY 2013-14 and 2014-15 respectively. The assessee offered the same as additional income in the above said two years. The assessee further submitted that the above said loan is still outstanding, but it has not received any interest. However, the AO took the view that the interest is taxable on accrual basis. Accordingly, he assessed the interest income of Rs.2,01,600/- in AY 2015-16 to 2019-20. The Ld CIT(A) also confirmed the same. 14. The submission of ld A.R was that the above said loan of Rs.15.00 lakhs was given to Shri Ishwarchand Garg in the year 2010 and the interest was received upto 2013 only. Thereafter, the above said party has stopped paying interest and also the entire advance itself has become unrecoverable. The Ld.AR submitted that the AO was not justified in charging unrealizable interest income on accrual basis, when the recovery of principal amount itself is in doubt. 9 B. Agrawal Stone Products Ltd., (batch) 15. The Ld.DR, on the contrary, supported the orders passed by the Ld. CIT(A) on this issue. 16. We heard rival contentions and perused the record. It is the submission of the assessee that the principal amount of Rs.15.00 lakhs has become unrealizable and was not recovered till date. Whatever interest was agreed and became payable, has been disclosed by the assessee in the earlier years. However, for other years, it is the submission of the assessee that the principal amount itself became unrealizable. When the assessee has voluntarily agreed to surrender interest income in the earlier years, the explanation of the assessee with regard to the subsequent years could be rejected, only if there is any material found to contradict the explanation of the assessee. We notice that the AO did not conduct any enquiry with Shri Ishwarchand Garg to examine the veracity of the explanation so given by the assessee. Obviously, the above said party will not give any letter to the assessee admitting that he has refused to pay principal and interest. The concept of accrual can be applied only when there is reasonable certainty of realization of income. Accordingly, under these set of facts, we are of the view that the AO was not justified in assessing interest income of Rs.2,01,600/- in AYs.2015-16 to 2019-20. Accordingly, we set aside the order passed by Ld.CIT(A) on this issue in all the years mentioned above and direct the AO to delete the above said addition. 17. With the adjudication of above said issue, the appeals relating to AYs.2015-16, 2016-17 and 2019-20 are fully disposed of. 18. Apart from the above said issues, there is one more issue urged in the appeal filed for AYs.2017-18 and 2018-19. 10 B. Agrawal Stone Products Ltd., (batch) 19. During the course of search proceedings, the Director Shri Brishbhan Agrawal admitted unaccounted rental income of Rs.4,000/- and Rs.37,340/- respectively for AYs.2017-18 and 2018-19. The AO assessed the above said income as unexplained cash credit u/s.68 of the Act. The Ld.CIT(A) also confirmed the same. 20. We heard the parties on this issue and perused the record. There is no dispute with regard to the fact that the above said receipts are in the nature of rental income and the source is the property from which the rental income was derived. It appears that the tax authorities have assessed the rental income as unexplained cash credits in order to levy higher rate of tax u/s.115BBE of the Act. In our view, the same is totally unjustified in the facts of the present case. The tax authorities are expected to assess the income under the correct head of income only. Accordingly, we are of the view that the tax authorities are not justified in treating the rental income as unexplained cash credit. Accordingly, we set aside the order passed by Ld.CIT(A) on this issue in both the years referred above and direct the AO to assess the same under the head Income from house property only. 21. With the adjudication of this issue, the appeals relating to AYs. 2017-18 and 2018-19 are fully disposed of. 22. In the result, all the appeals of the assessee are allowed. Order pronounced on 15-10-2024 by way of proper mentioning in the Notice Board. Sd/- Sd/- [AMIT SHUKLA] [B.R. BASKARAN] JUDICIAL MEMBER ACCOUNTANT MEMBER Varanasi, Dated: 15-10-2024 TNMM 11 B. Agrawal Stone Products Ltd., (batch) Copy to : 1. The Appellant 2. The Respondent 3. The Pr. CIT, concerned 4. D.R. ITAT, Varanasi 5. Guard File. //By Order// //True Copy // Dy./Asst. Registrar, ITAT, Varanasi "