ITO, Ward - 2(4), Midnapore, Paschim Medinipur V. Shri Nirmal Sarkar, Paschim Medinipur

ITA 133/KOL/2011

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9130 (ITAT-KOLKATA)
• Duration Of Justice: 4 year(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-02-2015
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 20-01-2011
• Court: TRIBUNAL
• Department Lawyers: NILOY BARAN SOMJCIT
• Keywords: Rejection of books of accounts
• Section: 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH A , KOLKATA [BEFORE HON BLE SRI SHAMIM YAHYA , A M & HON BLE SRI GEORGE MATHAN, J M] ITA NO. 133/KOL/2011 ASSESSMENT YEAR : 2007 - 08 ( APPELLANT ) (RESPONDENT) I.T.O., WARD - 2(4) .. - VS - SRI NIRMAL SARKAR PASCHIM MEDINIPUR PASCHIM MEDINIPUR (PAN: AKWPS 9882 Q) FOR THE APPELLANT SHRI NILOY BARAN SOM,JCIT FOR THE RESPONDENT SHRI RAVI TULSIYAN, FCA DATE OF HEARING : 11.02 .2015 DATE OF PRONOUNCEMENT : 11.02.2015. ORDER PER SHRI SHAMIM YAHYA, AM THIS APPEAL BY THE DEPARTMENT IS DIRECTED AGAINST THE ORDER OF L D. C.I.T.(A ), XXXVI, KOLKATA DT. 24.11.2010 AND PERTAI NS TO ASSESSMENT YEAR 2007 - 08. 2 . THE GROUNDS OF APPEAL READ AS UNDER : - 1. THE LD.CIT(A) - XXXVI/KOL HAS ERR ED IN DELETING THE ADDITION OF R S.24,85,509/ - ON ACCOUNT OF UNDISCLOSED STOCK AS ON 31.03.2007 WITHOUT APPRECIATING THE FACT, THAT THERE WAS DIFFERENCE IN CLOSING STOCK IN QUANTITY WISE AS WELL AS VALUE AS ON 31.03.2007, TO THE TUNE OF RS.24,85,509/ - BETWEEN THE STOCK STATEMENT FURNISHED BY THE ASSESSEE ALONG WITH THE AUDITED ACCOUNTS FILED WITH THE I.T.RETURN AND AUDITED ACCOUNTS FURNISHED BEFORE THE BANK. II. THE LD.CIT(A) - XXXVI/KOL HAS ERRED IN IGNORING THE FACT THAT, NON DI SCLOSURE OF SUCH CLOSING STOCK IN THE BALANCE SHEET AMOUNTS TO SUPPRESSION OF SUCH STOCK TO THAT EXTENT. III. THE REDUCTION OF DEMAND IN THE INSTANT CASE IS RS.11,15,637/ - IN THE LIGHT OF THE BOARD S INSTRUCTION NO.05/2008 DATED 15/05/2008, THE MONETARY LI MIT FOR FILING APPEAL BEFORE THE HON BLE ITAT IS RS2,00,000/ - CONSIDERING THE AFORESAID FACTS, AN APPEAL BEFORE THE HON BLE ITAT IS STRONGLY SUGGESTED. IV. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER/OR AMEND ANY OF THE GROUNDS OF APPEAL DURING THE COURS E OF HEARING. 3. THE BRIEF FACTS OF THE CASE ARE AS UNDER : - ITA.NO. 133/KOL/2011 SRI NIRMAL SARKAR A.YR. 2007 - 08 2 THE ASSESSEE IS AN INDIVIDUAL, ENGAGED IN MILLING AND WHOLESALE TRADING OF RICE AND RICE BRAN. HE WAS ENJOYING CASH CREDIT FACILITY WITH THE UBI, CHANDRI BRANCH. DURING THE ASSESSMENT PROCEEDI NGS, AO REQUISITIONED THE FINANCIAL STATEMENT FILED WITH THE BANK FOR OBTAINING CASH CREDIT FACILITY AND COMPARED THE SAME WITH THE RETURNED BALANCE SHEET AND FOUND DIFFERENCE IN BOTH QUANTITY AND VALUE OF CLOSING STOCK. AS PER THE RETURNED BALANCE SHEET, CLOSING STOCK OF PADDY WAS SHOWN AS 301.95 QUINTALS AND VALUED AT RS.1,81,700/ - , WHEREAS AS PER THE BALANCE SHEET FILED WITH THE BANK CLOSING STOCK OF THE PADDY WAS SHOWN AS 4,301.95 QUINTALS AND VALUED AT RS.26,67,209/ - . THE OTHER ITEMS OF THE CLOSING STO CK REMAINED SAME IN BOTH THE BALANCE SHEETS. SINCE THE ASSESSEE FAILED TO RECONCILE THE DIFFERENCE OF CLOSING STOCK OF PADDY FILED WITH TWO DIFFERENT AUTHORITIES, THE AO REJECTED THE BOOKS OF ACCOUNTS FILED ALONG WITH THE RETURN AND MADE AN ADDITION OF RS. 24,85,509/ - , IN AN EX - PARTE ORDER PASSED U/S 144 OF THE ACT. RELEVANT PORTION OF THE ASSESSMENT ORDER IS EXTRACTED BELOW : WHILE ESTIMATING THE INCOME OF THE ASSESSEE, EMPHASIS IS PUT ON THE FIGURES SUBMITTED TO THE LENDING BANK. BEING THE CREDIT ASSESSIN G AUTHORITY, BEFORE FINANCING ANY BORROWER, THE LENDING BANK FIRSTLY ENSURE THE QUANTITATIVE STOCK INCLUDING THE VALUE THEREOF VERIFYING PHYSICALLY ON INSPECTION TO ARRIVE AT THE LOAN AMOUNT. AS PER THE BANKING NORMS, A BORROWER IS ENTITLED 75% (BORROWER S MARGIN BEING 25%) LOAN ON STOCK AS WORKING CAPITAL LOAN UNDER THE NOMENCLATURE CASH CREDIT LOAN. THE ASSESSEE BEING THE BORROWER DEFINITELY PROCESSED THE SAID STOCK BEFORE AVAILING THE LOAN OF RS.25 LAKH. THE TERMS OF SANCTION AND ASSESSMENT OF WORKING CA PITAL LIMIT ARE KEPT ON RECORD WHEREIN THE STOCK FIGURE OF RS.31,38,654/ - HAD BEEN TAKEN AS SACROSANCT BY THE BANK. BEFORE RELEASING THE LOAN AMOUNT, THE LENDING BANK WAS SATISFIED ABOUT ALL THE PARAMETERS FULFILLED BY THE BORROWER AND HE HAD TO SHOW PHYSI CALLY THE STOCK TO THE INSPECTING BANK AUTHORITY FOR THEIR SATISFACTION. THE FACT THAT A HYPOTHETICAL FIGURE SUBMITTED TO BANK HAVING NO RELATION WITH ACTUAL STOCK AS GENERALLY CLAIMED BY THE ASSESSEE IN LIKEWISE SITUATION DOES NOT HOLD GOOD. UNLESS THERE IS STOCK AS PER DECLARATION, THE LENDING BANK WOULD NEVER DISBURSE THE LOAN TO THE BORROWERS. IN THIS CIRCUMSTANCES, THE DIFFERENCE IN STOCK OF RS.24,85,509/ - IS ADDED TO THE ESTIMATED INCOME OF THE ASSESSEE. 3.1. UPON ASSESSEE S APPEAL THE LD. CIT(A) DE LETED THE ADDITION BY OBSERVING AS UNDER : - THE SUBMISSION OF THE APPELLANT HAS BEEN CONSIDERED CAREFULLY IN THE LIGHT OF MATERIAL PLACED BEFORE ME AND THE JUDGMENTS REFERRED TO. FROM THE TWO FINANCIAL STATEMENTS, ONE FILED WITH THE BANK AND ANOTHER WITH THE DEPARTMENT, IT IS SEEN THAT THE FIGURES OF MOST OF THE ITEMS IN TOW BALANCE SHEETS INCLUDING NET PROFIT ARE ALIKE. THE AO THOUGH REJECTED THE BOOKS OF ACCOUNT FILED WITH THE DEPARTMENT BUT AT THE SAME TIME ESTIMATED THE INCOME OF THE APPELLANT TAKING L AST FOUR YEARS AVERAGE RETURNED INCOME. THEN HE CONSIDERED THE BALANCE SHEET FILED WITH THE BANK AS GENUINE ONE AND ADDED THE DIFFERENCE OF CLOSING STOCK, WITHOUT TAKING INTO ACCOUNT THE OTHER FIGURES IN THE SAID BALANCE SHEET. ITA.NO. 133/KOL/2011 SRI NIRMAL SARKAR A.YR. 2007 - 08 3 INSTEAD OF TAKING INTO ACCOU NT THE WHOLE OF THE AUDITED ACCOUNTS SUBMITTED TO THE BANK, THE AO HAS RESTORED TO PICK & CHOOSE METHOD WHILE ADDING THE DIFFERENCE OF CLOSING STOCK. THE AR OF THE APPELLANT HAS CITED MANY JUDICIAL PRONOUNCEMENTS ON THIS PARTICULAR ISSUE WHERE IT HAS BEEN HELD THAT THE MERE FACT THAT THE ASSESSEE HAD MADE A DECLARATION TO THE BANK A STOCK OF LARGER VALUE THAN APPEARING IN THE BOOKS OF ACCOUNT CANNOT BE TREATED AS IRREBUTTABLE EVIDENCE AGAINST THE ASSESSEE, UNLESS FURTHER EVIDENCE CORROBORATES THE SAID STATE MENT TO BE THE REAL STATE OF FACT. RELIANCE IS PLACED ON CIT VS N.SWAMY, REPORTED IN (2000) 241 ITR 363 (MAD.)_ THE FACTS OF THE APPELLANT S CASE ARE ALSO SIMILAR AS IN THE CASE OF CIT VS. PUNJAB RICE & GENERAL MILLS, 264 ITR 582 (P&H), WHERE IT HAS BEEN H ELD THAT AS THE APPELLANT FIRM HAD FURNISHED CERTAIN FIGURES OF THE STOCKS AVAILABLE TO THE BANK AND THESE FIGURES DIFFER FORM THE STOCK REGISTER, IT IS FOR THE APPELLANT - FIRM TO PROVE WHICH ONE IS CORRECT. THE APPELLANT - FIRM HAD REFERRED TO CERTAIN FAC TS TO SHOW THAT THE FIGURES AS PER THE STOCK REGISTER ARE CORRECT. THE STATEMENTS GIVEN TO THE BANK REGARDING THE GOODS HYP OTHECATED TO THE BANK ARE OF INTEREST ONLY TO THE BANK AND THE CONCERNED CLIENTS, WHEREAS THE POSITION OF THE STOCK AS REFLECTED IN T HE STOCK REGISTER IS RELEVANT TO MANY OTHER AUTHORITIES. THESE ARE CHECKED AND VERIFIED BY SOME GOVERNMENT AGENCIES LIKE CIVIL SUPPLIERS DEPARTMENT, SALES TAX AUTHORITIES, ETC. THE AR HAS FURNISHED DOCUMENTS SHOWING THAT APPELLANT S STOCK OF PADDY WAS EX AMINED BY THE CIVIL SUPPLIES AUTHORITY AND FOUND AT 301.95 QUINTALS AS ON 31/03/2007. FURTHER, IN A VERY RECENT ORDER IN THE CASE OF PAWAN KUMAR DAWN VS ITO, THE JURISDICTIONAL TRIBUNAL HAS HELD THAT WHERE THE PREVALENT PRACTICE IS TO INFLATE THE STOCK PRI CE TO GET HIGHER AND BETTER FACILITIES FROM THE BANK, IN THAT CASE THE REVEN7UE CANNOT ADD SUCH INFLATION TO THE INCOME OF THE ASSESSEE. 5.1. IN VIEW OF THE FOREGOING, THE ADDITION OF RS.24,85,509/ - MADE BY THE AO IS NOT MAINTAINABLE AND THEREFORE, DELETE D. AGAINST THE ABOVE ORDER REVENUE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD BOTH THE COUNSEL AND CAREFULLY PERUSED THE RECORDS. THE LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDERS OF AO. HE SUBMITTED THAT THE STOCK AS IN THE BALANCE SHEET SUBMI TTED TO THE BANK SHOULD BE ADOPTED IN THIS REGARD. THE LD.COUNSEL OF THE ASSESSEE, ON THE OTHER HAND, SUBMITTED THAT THERE IS NO REASON WHY THE BALANCE SHEET SUBMITTED TO THE DEPARTMENT SHOULD BE IGNORED. HE SUBMITTED THAT THIS IS MORE SO IN VIEW OF THE FA CT THAT ASSESSEE S STOCK AS PER THE STOCK BOOK WHICH HAS BEEN INCORPORATED IN THE BALANCE SHEET SUBMITTED TO THE DE PARTMENT WAS VERIFIED BY THE INSPECTOR IN CHARGE, JHARGRAM G.F.D., WHO HAS VERIFIED AND CERTIFIED THE STOCK AS ON 31.03.2007. IN THIS VIEW OF THE MATTER THE LD. COUNSEL SUBMITTED THAT THE BALANCE SHEET SUBMITTED TO THE AO SHOULD BE THE BASIS OF ASSESSMENT. HE FURTHER SUBMITTED THAT THE BALANCE SHEET OR OTHER STOCK REGISTER SUBMITTED TO THE BANK CANNOT ITA.NO. 133/KOL/2011 SRI NIRMAL SARKAR A.YR. 2007 - 08 4 BE THE BASIS OF ASSESSMENT. FOR THIS PROPO SITION THE LD. COUNSEL RELIED ON THE DECISION OF THE HON BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS RIDDHI STEEL AND TUBES (P)LTD 220 TAXMAN 148 (GUJ) AND THE DECISION OF ITAT, DELHI BENCH IN THE CASE OF ACIT VS DIAMOND HUT INDIA (P) LTD IN ITA NO.3373/ DEL/2010. HE FURTHER RELIED ON THE ORDER OF THE LD. CIT(A). 4.1. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS. WE FIND THAT IN THIS CASE THE AO HAS FOUND THAT THE ASSESSEE HAS NOT SUBMITTED THE BOOKS. AO HAS FOUND THAT THE STOCK AS PER THE BALANCE SHEET S UBMITTED TO THE DEPARTMENT AND THE STOCK AS PER BALANCE SHEET SUBMITTED TO THE BANK ARE DIFFERENT. HENCE AO HAS REJECTED THE BOOKS OF ACCOUNT. AO HAS ESTIMATED THE PROFIT ON THE BASIS OF BEST ASSESSMENT BY ESTIMATING THE INCOME ON AN AVERAGE OF FOUR YEARS INCOME . T HE AVERAGE INCOME AND THE NET INCOME ACCORDINGLY WAS ESTIMATED AT A SUM OF RS.2,38,940/ - WHICH WAS CONSEQUENTLY ADDED . THEREAFTER APART FROM THE ABOVE AO HAS ALSO ADDED THE DIFFERENCE BETWEEN THE STOCK AS REFLECTED IN THE BALANCE SHEET AS SUBMITT ED TO THE DEPARTMENT AND AS SUBMITTED TO THE BANK AMOUNTING TO RS.24,85,509/ - WE FIND THAT IT IS NOT THE CASE THAT THERE IS ANY EVIDENCE THAT THE STOCK SUBMITTED TO THE BANK ARE VERIFIED BY THE BANK AUTHORITIES. IN THIS VIEW OF THE MATTER NO COGENT EVIDENC E HAS BEEN BROUGHT ON RECORD AS TO WHY THE BALANCE SHEET AS SUBMITTED TO THE INCOME TAX DEPARTMENT SHOULD BE IGNORED AND THE BALANCE SHEET SUBMITTED TO THE BANK SHOULD BE RELIED UPON. THIS IS MORE SO AS AO HAS NOT RELIED UPON OTHER FIGURES IN THE BALANCE S HEET SUBMITTED TO THE BANK OTHER THAN THE FIGURE OF THE STOCK . D EHORS ANY EVIDENCE THAT THE STOCK SUBMITTED T O THE BANK WERE DULY VERIFIED, T HERE IS NO REASON AS TO WHY THE SAME SHOULD BE GIVEN PREFERENCE OVER STOCK AS PER THE BALANCE SHEET SUBMITTED TO T HE INCOME TAX DEPARTMENT. WE FURTHER NOTE THAT THE ESTIMAT ED PROFIT AS ARRIVED BY THE AO AND ADDED BY HIM UNDER BEST ASSESSMENT IS ON THE BASIS OF THE AVERAGE OF LAST FOUR YEARS. AO HAS ESTIMATED AND MADE THE ADDITION BY WAY OF NET PROFIT AT RS. 2,38,940/ - . NOW WHEN TH E AO HAS ESTIMATED THE PROFIT AT BEST JUDGMENT ASSESSMENT THERE IS NO JUSTIFICATION IN ADDING ANOTHER FIGURE AS THE UNDISCLOSED STOCK OF RS.24,85,509/ - DEHORS COGENT EVIDENCE. THIS GIVES TOTAL LY UNREALISTIC NET PROFIT WHICH IS NOT AT ALL SUSTAI NABLE. ITA.NO. 133/KOL/2011 SRI NIRMAL SARKAR A.YR. 2007 - 08 5 4.2 . WE FURTHER FIND THAT THE HON BLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF CIT VS SIDDHI RICE AND GENERAL MILLS 281 ITR 428 (P&H) HAS HELD THAT WHEN AO HAS NOT BROUGHT ANY MATERIAL TO SHOW THAT ASSESSEE IS IN FACT POSSESSED LARGER QUANTITY OF STOCK IN THE BANK STATEMENT IS AGAINST THE STOCK IN THE BALANCE SHEET ADDITION WAS NOT JUSTIFIED. FURTHER MORE WE NOTE THAT AS EXPOUNDED BY THE HON BLE MADRAS HIGH COURT IN THE CASE OF CIT VS N.SWAMY 241 ITR 363 (MAD) T HE ASSESSEE S INCOME IS TO BE AS SESSED BY THE INCOME - TAX OFFICER ON THE BASIS OF THE MATERIAL WHICH IS REQUIRED TO BE CONSIDERED FOR THE PURPOSE OF ASSESSMENT AND ORDINARILY NOT ON THE BASIS OF THE STATEMENT WHICH THE ASSESSEE MAY HAVE GIVEN TO A THIRD PARTY UNLESS THERE IS MATERIAL TO C ORROBORATE THAT STATEMENT OF THE ASSESSEE GIVEN TO A THIRD PARTY, EVEN IF IT BE A BANK. THE MERE FACT THAT THE ASSESSEE HAD MADE SUCH A STATEMENT BY ITSELF CANNOT BE TREATED AS HAVING RESULTED IN AN IRREBUTTABLE PRESUMPTION AGAINST THE ASSESSEE. THE BURDEN OF SHOWING THAT THE ASSESSEE HAD UNDISCLOSED INCOME IS ON THE REVENUE. THAT BURDEN CANNOT BE SAID TO BE DISCHARGED BY MERELY REFERRING TO THE STATEMENT GIVEN BY THE ASSESSEE TO A THIRD PARTY IN CONNECTION WITH A TRANSACTION WHICH WAS NOT DIRECTLY RELATED TO THE ASSESSMENT AND MAKING THAT THE SOLE FOUNDATION FOR A FINDING THAT THE ASSESSEE HAD DELIBERATELY SUPPRESSED HIS INCOME. THE BURDEN IS ON THE REVENUE TO PROVE THAT THE INCOME SOUGHT TO BE TAXED IS WITHIN THE TAXING PROVISIONS AND THERE WAS IN FACT INC OME. 4.3 . WE FURTHER NOTE THAT THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS M/S. NEO CARBONS PVT. LTD. IN ITAT NO.191 OF 2013 G.A.NO.3286 OF 2013 VIDE ORDER DATED 4 TH MARCH, 2014 HAS UPHELD THE ORDER OF THE TRIBUNAL WHEREIN THE AO HAS PROCE EDED TO MAKE THE ADDITION ON THE BASIS OF THE VALUATION FURNISHED BY THE ASSESSEE TO HIS BANKER. THE CIT(APPEAL) HELD THAT SUCH VALUATION IS NOT MATERIAL FOR THE PURPOSES OF THE INCOME TAX ACT. THE REVENUE S APPEAL BEFORE ITAT WAS DISMISSED. UPON THE REVEN UE S APPEAL THE HON BLE JURISDICTIONAL HIGH COURT HELD THAT THEY ARE SATISFIED THAT THE ISSUES RAISED ARE ESSENTIALLY QUESTIONS OF FACT AND THEREFORE THE HON BLE JURISDICTIONAL HIGH COURT REFUSED TO ADMIT THE CASE. ITA.NO. 133/KOL/2011 SRI NIRMAL SARKAR A.YR. 2007 - 08 6 4.4. IN THE BACKGROUND OF AFORESAID DISC USSION AND PRECEDENT WE HOLD THAT THE ADDITION ON ACCOUNT OF UNDISCLOSED STOCK MADE BY THE AO IS NOT SUSTAINABLE. ACCORDINGLY WE UPHOLD THE ORDER OF LD. CIT(A) 5. IN THE RESULT THE APPEAL OF THE REVENUE STANDS DISMISSED. ORDER PRONOUNCE D IN THE COURT ON 1 1.02.2015. SD/ - SD/ - [ GEORGE MATHAN ] [SHAMIM YAHYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 11.02.2015. R.G.(.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . SRI NIRMAL SARKAR, PROP.M/S.SARKAR ENTERPRISES, NUTANDIHI, P.O.JHARGRAM, DIST. PASCHIM MIDNAPORE. 2 I.T.O., WD - 2(4), MIDN APORE. 3 . CIT(A) - XXXVI, KOLKATA. 4. CIT KOLKATA 5 . CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY, BY ORDER, ASST. REGISTRAR , ITAT, KOLKATA BENCHES