P.Pachamuthu, Erode V. ITO, Erode

ITA 1345/CHNY/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68742 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 05-09-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 12-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S SRIDHAR
• Section: 40A(3); 148; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER I.T.A. NO. 1702/MDS/2012 (ASSESSMENT YEAR : 2007-08) SHRI P. PACHAMUTHU, C/O SHRI S. SRIDHAR, ADVOCATE, 112/1, PERIYAR STREET, ERODE. PAN : AVEPP 9855 D (APPELLANT) V. THE INCOME TAX OFFICER, WARD I(4), ERODE. (RESPONDENT) I.T.A. NO. 1817/MDS/2012 (ASSESSMENT YEAR : 2007-08) THE INCOME TAX OFFICER, WARD I(4), ERODE. (APPELLANT) V. SH.P. PACHAMUTHU (AVEPP 9855 D), PROP: SABARIS LEATHER EXPORTS, SAKTHY BHAVANI CONNECTION ROAD, B.P. AGRAHARAM, ERODE 638 005. (RESPONDENT) C.O. NO. 169/MDS/2012 (IN I.T.A. NO. 1817/MDS/2012) (ASSESSMENT YEAR : 2007-08) SHRI P. PACHAMUTHU, C/O SHRI S. SRIDHAR, ADVOCATE, 112/1, PERIYAR STREET, ERODE. (CROSS-OBJECTOR) V. THE INCOME TAX OFFICER, WARD I(4), ERODE. (RESPONDENT) I.T.A. NO. 1702/MDS/12 I.T.A. NO. 1817/MDS/12 I.T.A. NO. 1345/MDS/13 C.O. NO. 169/MDS/12 2 I.T.A. NO. 1345/MDS/2013 (ASSESSMENT YEAR : 2007-08) SHRI P. PACHAMUTHU, C/O SHRI S. SRIDHAR, ADVOCATE, 112/1, PERIYAR STREET, ERODE. PAN : AVEPP 9855 D (APPELLANT) V. THE INCOME TAX OFFICER, WARD I(4), ERODE. (RESPONDENT) ASSESSEE BY : SHRI S. SRIDHAR, ADVOCATE REVENUE BY : SHRI GURU BASHYAM, JCIT DATE OF HEARING : 05.09.2013 DATE OF PRONOUNCEMENT : 26.09.2013 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : THE FIRST TWO ABOVE ARE CROSS APPEALS OF ASSESSEE AND REVENUE RESPECTIVELY, DIRECTED AGAINST AN ORDER DAT ED 30.7.2012 OF COMMISSIONER OF INCOME TAX (APPEALS)-I, COIMBATORE, FOR THE IMPUGNED ASSESSMENT YEAR. THIRD ONE IS A CROSS-OBJ ECTION FILED BY THE ASSESSEE IN SUPPORT OF THE ORDER OF CIT(APPEALS ) INSOFAR AS IT WENT FAVOURABLE TO HIM. LAST ONE IS AN APPEAL FILE D BY THE ASSESSEE ASSAILING LEVY OF PENALTY UNDER SECTION 271B OF INC OME-TAX ACT, 1961 I.T.A. NO. 1702/MDS/12 I.T.A. NO. 1817/MDS/12 I.T.A. NO. 1345/MDS/13 C.O. NO. 169/MDS/12 3 (IN SHORT 'THE ACT'). CROSS APPEALS FOR ASSESSMENT YEAR 2007-08 AND RELATED C.O. ARE CONSIDERED FIRST FOR DISPOSAL. 2. ASSESSEE HAS RAISED FIVE GROUNDS IN HIS APPEAL, OF WHICH, GROUNDS 1 AND 5 ARE GENERAL NEEDING NO ADJUDICATION . 3. VIDE ITS GROUND NO.2, ASSESSEE ASSAILS VALIDITY OF THE ASSESSMENT SINCE, ACCORDING TO HIM, NO NOTICE UNDER SECTION 143(2) OF THE ACT WAS SERVED. 4. FACTS APROPOS ARE THAT ASSESSEE, ENGAGED IN TRAD ING OF SKINS AND HIDES, HAD NOT FILED ANY RETURN OF INCOME AS RE QUIRED UNDER SECTION 139 OF THE ACT. BASED ON CERTAIN INFORMATI ON RECEIVED IN THE CASE OF ONE SHRI A. GNANAPAUL, SUGANA ROLEX MARY AN D A. CHARLES, ASSESSING OFFICER ISSUED A NOTICE UNDER SECTION 148 OF THE ACT ON THE ASSESSEE ON 18.5.2010. NOTICE WAS SERVED ON THE AS SESSEE ON 15.6.2010. ASSESSEE FILED A RETURN PURSUANT TO SUC H NOTICE ON 16.7.2010 DECLARING A LOSS OF ` 21,048/-. A NOTICE UNDER SECTION 143(2) WAS ISSUED ON 25.8.2010. AS PER THE ASSESSE E, THE NOTICE UNDER SECTION 143(2) RECEIVED BY HIM ON 26.8.2010, MENTIONED ASSESSMENT YEAR AS 2008-09 AND NOT ASSESSMENT YEA R 2007-08. I.T.A. NO. 1702/MDS/12 I.T.A. NO. 1817/MDS/12 I.T.A. NO. 1345/MDS/13 C.O. NO. 169/MDS/12 4 AS PER ASSESSEE, INSOFAR AS ASSESSMENT YEAR 2007-08 WAS CONCERNED, THERE WAS NO COMPLIANCE AS REQUIRED UNDE R LAW. THEREFORE, ACCORDING TO HIM, ASSESSMENT PROCEEDINGS COULD NOT BE CONTINUED. THOUGH THIS CLAIM WAS MADE BEFORE THE A .O. ALSO, THE LATTER CONSIDERED IT AS TYPOGRAPHICAL ERROR AND PRO CEEDED WITH THE ASSESSMENT. A.O. ALSO NOTED THAT AUTHORIZED REPRES ENTATIVE OF THE ASSESSEE HAD APPEARED TWICE BEFORE HIM AND ALSO FIL ED PARTICULARS CALLED FOR. FURTHER, AS PER THE A.O., ASSESSEE HAD NOT FILED ANY RETURN FOR ASSESSMENT YEAR 2008-09 AND HENCE THERE WAS NO QUESTION OF ANY 143(2) NOTICE BEING ISSUED FOR THAT YEAR. HE H ELD THAT EVEN IF THERE WAS ANY LACUNA, IT STOOD CURED BY SECTION 292 B OF THE ACT. ASSESSEE DID PLACE RELIANCE ON THE DECISION OF HON' BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CONTINENTAL COMMERCIAL CO RPORATION V. ITO (100 ITR 170) AND ALSO THE DECISION OF HONBLE PUNJ AB AND HARYANA HIGH COURT IN THE CASE OF CIT V. AVI-OIL INDIA P. L TD. (323 ITR 242). HOWEVER, THE ASSESSING OFFICER WAS NOT IMPRESSED. ACCORDING TO HIM, IN ALL THE CASES RELIED ON BY THE ASSESSEE, TH ERE WAS A FAILURE TO SERVE NOTICE. ON THE OTHER HAND, HERE THE NOTICE W AS INDEED SERVED AND THERE WAS ONLY A PROCEDURAL DEFECT. ASSESSING OFFICER PLACING RELIANCE ON THE DECISION OF HON'BLE APEX COURT IN T HE CASE OF CIT V. I.T.A. NO. 1702/MDS/12 I.T.A. NO. 1817/MDS/12 I.T.A. NO. 1345/MDS/13 C.O. NO. 169/MDS/12 5 JAI PRAKASH SINGH (219 ITR 737), PROCEEDED WITH THE ASSESSMENT AND COMPLETED IT. 5. AGGRIEVED BY THE DECISION OF A.O. ON HIS OBJECTI ONS REGARDING THE NOTICE UNDER SECTION 143(2) OF THE ACT, ASSESSE E MOVED IN APPEAL BEFORE THE CIT(APPEALS). CIT(APPEALS) ALSO WAS OF THE OPINION THAT THE PROCEEDINGS WERE VALID. 6. NOW BEFORE US, ADV. S. SRIDHAR, LEARNED A.R. OF THE ASSESSEE, STRONGLY ASSAILING THE ORDERS OF AUTHORITIES BELOW, SUBMITTED THAT NOTICE UNDER SECTION 143(2) WAS NOT A PROCEDURAL RE QUIREMENT, BUT, WAS SUBSTANTIVE REQUIREMENT. ACCORDING TO HIM, CON SENT COULD NOT CONFER JURISDICTION. RELYING ON THE DECISION OF HO N'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF V. RAMAIAH V. CIT (356 IT R 646), LEARNED A.R. SUBMITTED THAT SECTION 292B COULD CURE ONLY TH OSE LACUNAE, WHICH WERE CURABLE. FOR APPLYING SECTION 292B, SUM MONS, NOTICES, ETC. SHOULD BE IN SUM AND SUBSTANCE IN ACCORDANCE W ITH THE REQUIREMENTS OF THE ACT. ASSESSING OFFICER HAVING WRONGLY MENTIONED THE ASSESSMENT YEAR, IT COULD NOT BE CONSIDERED AS A SIMPLE ERROR AMENABLE FOR A CURING UNDER SECTION 292B OF THE ACT . I.T.A. NO. 1702/MDS/12 I.T.A. NO. 1817/MDS/12 I.T.A. NO. 1345/MDS/13 C.O. NO. 169/MDS/12 6 7. PER CONTRA, SHRI GURU BASHYAM, APPEARING FOR THE REVENUE, STRONGLY SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 8. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. THERE IS NO DISPUTE THAT A NOTICE UNDER SECTION 143 (2) WAS SERVED. GRIEVANCE OF THE ASSESSEE IS THAT THE SAID NOTICE M ENTIONED ASSESSMENT YEAR AS 2008-09, WHEREAS, THE IMPUGNED A SSESSMENT YEAR WAS 2007-08. AT THE SAME TIME, IT IS AN ADMIT TED POSITION THAT ASSESSEE HAD NOT FILED RETURN FOR ASSESSMENT YEAR 2 008-09. CHRONOLOGY OF EVENTS SHOWS THAT A NOTICE UNDER SECT ION 148 WAS ISSUED ON 18.5.2010 AND WAS SERVED ON ASSESSEE ON 1 5.6.2010. ASSESSEE FILED THE RETURN PURSUANT TO SUCH NOTICE O N 16.7.2010. NOTICE UNDER SECTION 143(2), THOUGH IT MENTIONED A SSESSMENT YEAR 2008-09, WAS SERVED ON THE ASSESSEE ON 26.8.2010. AT THE POINT OF TIME WHEN THE NOTICE WAS SERVED ON THE ASSESSEE, TH ERE WAS NO RETURN WHATSOEVER FILED BY HIM FOR ASSESSMENT YEAR 2008-09. IN SUCH CIRCUMSTANCES, WE ARE OF THE OPINION THAT THE NOTIC E COULD NOT HAVE BEEN UNDERSTOOD AS ANYTHING OTHER THAN FOR ASSESSME NT YEAR 2007- 08. IT IS ALSO PERTINENT TO KNOW THAT ASSESSEES R EPRESENTATIVE HAD I.T.A. NO. 1702/MDS/12 I.T.A. NO. 1817/MDS/12 I.T.A. NO. 1345/MDS/13 C.O. NO. 169/MDS/12 7 APPEARED BEFORE ASSESSING OFFICER PURSUANT TO SUCH NOTICE. SECTION 292B IS REPRODUCED HEREUNDER:- 292B. NO RETURN OF INCOME, ASSESSMENT, NOTICE, SUMM ONS OR OTHER PROCEEDING, FURNISHED OR MADE OR ISSUED OR TA KEN OR PURPORTED TO HAVE BEEN FURNISHED OR MADE OR ISSUED OR TAKEN I N PURSUANCE OF ANY OF THE PROVISIONS OF THIS ACT SHALL BE INVALID OR S HALL BE DEEMED TO BE INVALID MERELY BY REASON OF ANY MISTAKE, DEFECT OR OMISSION IN SUCH RETURN OF INCOME, ASSESSMENT, NOTICE, SUMMONS OR OT HER PROCEEDING IS IN SUBSTANCE AND EFFECT IN CONFORMITY WITH OR ACCOR DING TO THE INTENT AND PURPOSE OF THIS ACT. A READING OF THE ABOVE SECTION WOULD CLEARLY SHOW T HAT A NOTICE CANNOT BE DEEMED AS INVALID ONLY FOR A REASON THAT THERE WAS A MISTAKE THEREIN. PROCEEDINGS WHICH HAVE UNFOLDED C LEARLY SHOW THAT NOTICE WAS IN SUBSTANCE AND EFFECT FOR ASSESSMENT Y EAR 2007-08 ONLY. WE ARE, THEREFORE, OF THE OPINION THAT THE N OTICE WAS IN SUBSTANCE AND EFFECT IN ACCORDANCE WITH THE INTENT OF THE ACT. THE NOTICE COULD ONLY BE CONSTRUED BY ANY REASONABLE MA N AS ISSUED FOR ASSESSMENT YEAR 2007-08 ONLY. 9. GROUND NO.2 OF THE ASSESSEE IS DISMISSED. 10. VIDE HIS GROUND NO.3, GRIEVANCE RAISED BY THE A SSESSEE IS THAT CIT(APPEALS) CONFIRMED AN ADDITION OF ` 2,54,33,505/- MADE BY THE ASSESSING OFFICER UNDER SECTION 40A(3) OF THE ACT, WHEREAS IN HIS I.T.A. NO. 1702/MDS/12 I.T.A. NO. 1817/MDS/12 I.T.A. NO. 1345/MDS/13 C.O. NO. 169/MDS/12 8 GROUND NO.4, ASSESSEE IS AGGRIEVED ON THE ESTIMATIO N OF PROFITS AT 5.32% OF THE TOTAL SALES. 11. FACTS APROPOS ARE THAT ASSESSING OFFICER, DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS, REQUIRED THE ASSESSEE TO PR ODUCE BOOKS OF ACCOUNTS AND OTHER RECORDS IN SUPPORT OF HIS RETURN . ASSESSEE DID NOT COMPLY WITH SUCH REQUIREMENT. ASSESSEE WAS MAINTAI NING AN ACCOUNT WITH INDIAN OVERSEAS BANK, PERIASEMUR, EROD E, WITH NO.13462000000762, IN THE NAME OF HIS PROPRIETARY C ONCERN CALLED SABARIS LEATHER EXPORTS. WITHDRAWALS THEREFROM WER E MADE IN CASH ONLY. THE TOTAL WITHDRAWALS CAME TO ` 2,54,33,505/-. ASSESSING OFFICER APPLIED SECTION 40A(3) TO SUCH WITHDRAWALS, CONSIDERING THE WITHDRAWALS TO HAVE BEEN USED FOR EFFECTING PURCHAS ES IN CASH. HE WAS OF THE OPINION THAT A DISALLOWANCE UNDER SECTIO N 40A(3) OF THE ACT WAS REQUIRED. HE MADE A DISALLOWANCE OF 20% OF ` 2,54,33,505/- UNDER SECTION 40A(3) OF THE ACT. 12. SINCE ASSESSEE FAILED TO PRODUCE THE BOOKS OF A CCOUNTS, A.O. APPLIED A GROSS PROFIT RATE OF 5.32% ON THE SALE OF ` 2,58,91,785/- DECLARED BY THE ASSESSEE. A.O. ARRIVED AT THIS RAT E BASED ON THE PROFITS RETURNED BY ONE SHRI A. CHARLES TO WHOM ASS ESSEE HAD SOLD I.T.A. NO. 1702/MDS/12 I.T.A. NO. 1817/MDS/12 I.T.A. NO. 1345/MDS/13 C.O. NO. 169/MDS/12 9 GOODS DURING THE RELEVANT PREVIOUS YEAR. ADDITION ON THIS SCORE CAME TO ` 13,77,442/-. 13. ASSESSING OFFICER ALSO NOTED THAT ASSESSEE HAD TRADE CREDITORS OF ` 72,75,875/-. ASSESSEE DID FURNISH CONFIRMATION LE TTERS FROM FIVE PERSONS IN SUPPORT. HOWEVER, IT SEEMS NOTICES ISSU ED TO SUCH PERSONS WERE RETURNED UNSERVED. ASSESSING OFFICER ALSO CONDUCTED ENQUIRIES WITH MANAGER OF INDIAN OVERSEAS BANK, ERO DE, WHO INFORMED THAT THERE WERE NO CHEQUE PAYMENTS MADE BY THE ASSESSEE TO THESE PARTIES. HE, THEREFORE, TREATED THE SUM O F ` 72,75,875/- AS INCOME OF THE ASSESSEE. 14. THUS, IN ALL, THERE WERE THREE ADDITIONS MADE B Y THE A.O. (I) ESTIMATE OF PROFIT OF ASSESSEE AT 5.32% OF ` 2,58,91,785/-, (II) TRADE CREDITORS OF ` 72,75,875/- CONSIDERED AS BOGUS AND (III) DISALLO WANCE UNDER SECTION 40A(3) OF 20% OF THE CASH WITHDRAWALS OF ` 2,54,33,505/-. 15. ASSESSEE MOVED IN APPEAL BEFORE CIT(APPEALS) ON THE ABOVE ADDITIONS. AS PER ASSESSEE, SECTION 40A(3) COULD N OT BE APPLIED, SINCE BOOKS OF ACCOUNTS WERE NEVER PRODUCED, NOR VE RIFIED BY THE I.T.A. NO. 1702/MDS/12 I.T.A. NO. 1817/MDS/12 I.T.A. NO. 1345/MDS/13 C.O. NO. 169/MDS/12 10 ASSESSING OFFICER. UNLESS AND UNTIL ASSESSING OFFI CER COULD SHOW THAT PAYMENTS FOR PURCHASES WERE MADE IN CASH EXCEE DING ` 20,000/- IN EACH CASE, AN ADDITION UNDER SECTION 40A(3) COUL D NOT BE MADE. VIS--VIS THE ADDITION FOR TRADE CREDITORS, ARGUMEN T OF THE ASSESSEE WAS THAT THE PURCHASES WERE GENUINE AND HAD NEVER I NFLATED THE PURCHASES. AS PER THE ASSESSEE, ONCE GROSS PROFIT WAS ESTIMATED, THERE COULD NOT BE A SEPARATE ADDITION FOR TRADE CR EDITORS. 16. LD. CIT(APPEALS), AFTER CONSIDERING THE ARGUMEN T OF THE ASSESSEE, WAS OF THE OPINION THAT THE DISALLOWANCE MADE UNDER SECTION 40A(3) WAS CORRECT. NEVERTHELESS, ACCORDIN G TO HIM, ADDITION MADE FOR UNPROVED TRADE CREDITORS WAS NOT CORRECT. SINCE ASSESSING OFFICER HAD MADE AN ADDITION UNDER SECTION 40A(3), ACCORDING TO LD. CIT(APPEALS), ANY FURTHER ADDITION FOR UNPROVED TRA DE CREDITORS WOULD RESULT IN A DOUBLE WHAMMY. FURTHER, AS PER LD. CIT (APPEALS), PROFITS HAVING BEEN ESTIMATED, THERE WAS NO QUESTION OF TRA DE CREDITORS BEING CONSIDERED NOT GENUINE. IN THIS VIEW OF THE MATTER, HE CONFIRMED THE ADDITION MADE UNDER SECTION 40A(3) AN D ESTIMATION OF INCOME AT 5.32% OF THE TOTAL SALES. NEVERTHELESS, HE DELETED THE ADDITION ON TRADE CREDITORS OF ` 72,75,875/-. I.T.A. NO. 1702/MDS/12 I.T.A. NO. 1817/MDS/12 I.T.A. NO. 1345/MDS/13 C.O. NO. 169/MDS/12 11 17. NOW BEFORE US, ASSESSEE IS AGGRIEVED ON THE ADD ITION MADE UNDER SECTION 40A(3) AS ALSO THE ESTIMATION OF INCO ME AT 5.32% OF HIS SALES. AS AGAINST THIS, REVENUE IN ITS CROSS A PPEAL IS AGGRIEVED ON THE DELETION OF ADDITION OF ` 72,75,875/- MADE FOR UNPROVED TRADE CREDITORS. 18. LEARNED A.R. SUBMITTED THAT ONCE INCOME WAS EST IMATED, THERE COULD BE NO QUESTION OF FURTHER DISALLOWANCE UNDER SECTION 40A(3). INSOFAR AS DELETION OF ADDITION MADE FOR TRADE CRED ITORS WAS CONCERNED, LEARNED A.R. SUPPORTED THE ORDER OF CIT( APPEALS) AND SUBMITTED THAT THIS ADDITION WAS RIGHTLY DELETED BY THE LD. CIT(APPEALS) SINCE PROFITS WERE ESTIMATED. 19. PER CONTRA, LEARNED D.R. SUBMITTED THAT ASSESSE E HAD WITHDRAWN SUBSTANTIAL AMOUNTS IN CASH FROM HIS BANK ACCOUNT. TOTAL TURNOVER RETURNED BY THE ASSESSEE WAS ` 2,58,91,785/- AGAINST WHICH, THE TOTAL PURCHASES SHOWN CAME TO ` 2,53,83,250/-. WITHDRAWALS IN CASH FROM THE BANK ACCOUNT, WERE THUS ONLY FOR EFFE CTING PAYMENTS FOR THE PURCHASES MADE IN CASH. THUS, DISALLOWANCE UND ER SECTION 40A(3) WAS RIGHTLY DONE BY THE A.O. AS FOR THE ADD ITION MADE ON I.T.A. NO. 1702/MDS/12 I.T.A. NO. 1817/MDS/12 I.T.A. NO. 1345/MDS/13 C.O. NO. 169/MDS/12 12 UNPROVED TRADE CREDITORS, WHICH WAS DELETED BY THE CIT(APPEALS), LEARNED D.R. SUBMITTED THAT ASSESSEE COULD NOT PROD UCE ANY EVIDENCE FOR THE TRADE CREDITORS BALANCES, EXCEPT F OR SOME CONFIRMATION LETTERS FILED. 20. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. INSOFAR AS ADDITION APPLYING PROFIT RATE, ASSESSEE HAVING NOT PRODUCED BOOKS OR ANY RECORDS, WE CANNOT FAULT THE ASSESSING OFFICER. ASSESSING OFFICER HAD CONSIDERED THE PROFIT RATE SH OWN BY ONE SHRI A. CHARLES, WHO WAS IN THE SAME LINE OF BUSINESS OF TH E ASSESSEE. NO DOUBT, LEARNED A.R. HAS SUBMITTED THAT SHRI A. CHAR LES WAS A MANUFACTURER OF HIDES, WHEREAS, ASSESSEE WAS ONLY A TRADER. NEVERTHELESS, ASSESSEE WAS UNABLE TO SHOW ANY COMPA RABLE CASE WHERE THE PROFIT RATE WAS LOWER THAN 5.32%. HENCE, WE ARE OF THE OPINION THAT THE A.O. WAS JUSTIFIED IN TAKING 5.32% AS THE APPROPRIATE PROFIT RATE ON SALES. CIT(APPEALS) WAS JUSTIFIED I N CONFIRMING THIS. 21. COMING TO THE ADDITION MADE UNDER SECTION 40A(3 ) OF THE ACT, THE SAID SECTION CAN BE APPLIED ONLY WHERE PAYMENTS MADE EXCEEDED ` 20,000/- IN EACH INSTANCE. ADMITTEDLY, ASSESSEE H AD NOT PRODUCED BOOKS OF ACCOUNTS BEFORE THE AUTHORITIES B ELOW. IN SUCH A I.T.A. NO. 1702/MDS/12 I.T.A. NO. 1817/MDS/12 I.T.A. NO. 1345/MDS/13 C.O. NO. 169/MDS/12 13 SITUATION, HOW THE ASSESSING OFFICER CAME TO A CONC LUSION THAT PAYMENTS IN CASH EFFECTED BY THE ASSESSEE IN EACH I NSTANCE EXCEEDED ` 20,000/-, IS NOT CLEAR. SECTION 40A(3) COULD BE A PPLIED ONLY WHERE BOOKS WERE MAINTAINED AND PRODUCED BY TH E ASSESSEE AND IT IS POSITIVELY SHOWN BY THE REVENUE THAT THE AMOUNT PAID IN CASH EXCEEDED ` 20,000/- TRANSACTION WISE. JUST BECAUSE ASSESSEE HAD EFFECTED PURCHASE OF ` 2,54,33,505/-, IT WOULD NOT MEAN THAT PAYMENTS MADE IN CASH IN EACH CASE EXCEEDED ` 20,000/-. IN OUR OPINION, CONDITIONS SET OUT IN SECTION 40A(3) WERE NOT SATISFIED. THEREFORE, DISALLOWANCE UNDER SECTION 40A(3) COULD NOT HAVE BEEN MADE. ORDERS OF THE AUTHORITIES BELOW IN THIS REGA RD ARE SET ASIDE AND DISALLOWANCE MADE STANDS DELETED. 22. COMING TO THE ISSUE OF TRADE CREDITORS ADDED BY THE A.O. AND DELETED BY THE CIT(APPEALS), THERE IS A CLEAR FINDI NG GIVEN BY THE CIT(APPEALS) THAT THE ADDITION MADE BY THE ASSESSIN G OFFICER WAS FOR INFLATION OF PURCHASES. NO DOUBT, LETTERS OF THE A SSESSING OFFICER TO FIVE TRADE CREDITORS SHOWN BY THE ASSESSEE, HAD RET URNED WITH THE REMARKS NO SUCH COMPANY. HOWEVER, WE ARE OF THE OPINION THAT BALANCES STANDING IN THE ACCOUNTS OF THE TRADE CRED ITORS CANNOT BE I.T.A. NO. 1702/MDS/12 I.T.A. NO. 1817/MDS/12 I.T.A. NO. 1345/MDS/13 C.O. NO. 169/MDS/12 14 TREATED ON PAR WITH BALANCES STANDING IN THE ACCOUN TS OF LOAN CREDITORS. TRADE CREDIT COMES INTO EXISTENCE BECA USE OF TRADING TRANSACTION WITH CONCERNED PARTIES. UNLESS AND UNT IL IT IS SHOWN THAT PURCHASES WERE INFLATED, THERE CANNOT BE ANY INFERE NCE THAT THE TRADE CREDITORS WERE BOGUS. ONCE ADDITION IS MADE APPLYI NG GROSS PROFIT RATE ON SALES, THERE IS AN IMPLIED ACCEPTANCE THAT PURCHASE REQUIRED FOR MAKING THE SALES ON WHICH SUCH PROFIT RATE HAS BEEN EFFECTED AND IS SUBSTANTIATED. IN SUCH A SITUATION, TO DISBELIE VE THE PURCHASES, AFTER MAKING AN ESTIMATION OF PROFIT, WOULD NOT BE FAIR. LD. CIT(APPEALS) HAS GIVEN A CLEAR FINDING THAT ONCE AN ESTIMATION OF PROFIT IS MADE IN THE ABSENCE OF BOOKS OF ACCOUNTS, ADDITION MADE ON TRADE CREDITORS WOULD NOT BE JUSTIFIED. WE THUS DO NOT FIND ANY NEED TO INTERFERE WITH THE ORDER OF CIT(APPEALS) ON THIS ASPECT. 23. GROUND NO.3 OF THE ASSESSEE IS ALLOWED, WHEREAS , ITS GROUND NO.4 IS DISMISSED. 24. GROUNDS RAISED BY THE REVENUE IN ITS CROSS APPE AL ARE DISMISSED. I.T.A. NO. 1702/MDS/12 I.T.A. NO. 1817/MDS/12 I.T.A. NO. 1345/MDS/13 C.O. NO. 169/MDS/12 15 25. CROSS-OBJECTION FILED BY THE ASSESSEE BEING IN SUPPORT OF THE ORDER OF CIT(APPEALS) INSOFAR AS IT IS IN HIS FAVOU R, IS DISMISSED AS INFRUCTUOUS. 26. THIS LEAVES US WITH AN APPEAL OF THE ASSESSEE A GAINST AN ORDER LEVYING PENALTY UNDER SECTION 271B OF THE ACT. 27. THE A.O. HAD LEVIED THE PENALTY UNDER SECTION 2 71B FOR THE REASON THAT ASSESSEE HAD NOT CARRIED OUT AUDIT AS R EQUIRED UNDER SECTION 44AB OF THE ACT, DESPITE BOOKS OF ACCOUNTS HAVING BEEN MAINTAINED. AS PER THE A.O., ENTRIES IN THE RETURN OF INCOME AND THE SALES TAX RETURNS FILED BY THE ASSESSEE CLEARLY SHO WED THAT ASSESSEE WAS MAINTAINING BOOKS OF ACCOUNTS FOR THE RELEVANT PREVIOUS YEAR. TURNOVER OF THE ASSESSEE WAS ` 2,58,91,785/-. ASSESSEE HAD FAILED TO CONDUCT AUDIT UNDER SECTION 44AB OF THE ACT. A. O. ISSUED SHOW CAUSE NOTICE AS TO WHY A PENALTY UNDER SECTION 271B SHOULD NOT BE LEVIED. REPLY OF THE ASSESSEE WAS THAT BEFORE SALE S TAX AUTHORITIES ALSO HE HAD NOT PRODUCED ANY BOOKS. AS PER ASSESSE E, NO BOOKS WERE MAINTAINED AT ALL. ASSESSEE SUBMITTED THAT AN AUDIT UNDER SECTION 44AB COULD NOT BE DONE WHEN BOOKS OF ACCOUN TS WERE NOT THERE. HOWEVER, THE A.O. WAS NOT IMPRESSED BY THE REPLY GIVEN BY I.T.A. NO. 1702/MDS/12 I.T.A. NO. 1817/MDS/12 I.T.A. NO. 1345/MDS/13 C.O. NO. 169/MDS/12 16 THE ASSESSEE. ACCORDING TO HIM, IN THE SALES TAX R ETURN FILED BY THE ASSESSEE, IT WAS CLEARLY MENTIONED BY THE ASSESSEE THAT HE HAD MAINTAINED DAY BOOK, LEDGER, PURCHASE AND SALE BILL S. A.O. NOTED THAT WITHOUT SUCH BOOKS, ASSESSEE COULD NOT HAVE GIVEN D ETAILS OF PURCHASE INCLUDING THE STOCK COUNTS IN HIS SALES TA X RETURNS. ASSESSEE HAD EVEN GIVEN A PARTY WISE LIST OF PURCHA SE. HE HAD GIVEN DATE WISE DETAILS OF SALES INCLUDING MONTHLY TURNOV ER. THESE, ACCORDING TO HIM, PROVED BEYOND DOUBT THAT ASSESSEE HAD MAINTAINED REGULAR BOOKS. JUST BECAUSE IT WAS NOT PRODUCED BE FORE ASSESSING AUTHORITY, WOULD NOT MEAN THAT ASSESSEE WAS NOT MAI NTAINING BOOKS OF ACCOUNTS. ACCORDING TO HIM, ASSESSEE FAILED TO CARRY OUT THE AUDIT AS REQUIRED UNDER SECTION 44AB OF THE ACT. HE, THE REFORE, LEVIED A PENALTY OF 0.5% OF THE TURNOVER LIMITING IT TO ` 1 LAKHS, RELYING ON SECTION 271B OF THE ACT. 28. APPEAL OF THE ASSESSEE BEFORE CIT(APPEALS) DID NOT MEET WITH ANY SUCCESS. ACCORDING TO HIM, ASSESSEE HAD CLEARL Y STATED IN THE STATEMENT FILED BEFORE SALES TAX AUTHORITIES THAT I T WAS MAINTAINING DAY BOOK, LEDGER, PURCHASE AND SALE BILLS. HAVING MAIN TAINED THE BOOKS, ACCORDING TO LD. CIT(APPEALS), ASSESSEE WAS OBLIGED TO AUDIT AS I.T.A. NO. 1702/MDS/12 I.T.A. NO. 1817/MDS/12 I.T.A. NO. 1345/MDS/13 C.O. NO. 169/MDS/12 17 REQUIRED UNDER SECTION 44AB OF THE ACT, SINCE TURNO VER EXCEEDED ` 40 LAKHS. HAVING NOT DONE SO, CIT(APPEALS) HELD TH E PENALTY UNDER SECTION 271B TO BE JUSTIFIED. 29. NOW BEFORE US, LEARNED A.R. SUBMITTED THAT DETA ILS FILED BEFORE SALES TAX AUTHORITIES WERE COMPILED FROM THE INVOIC ES. ACCORDING TO HIM, SUCH DETAILS WOULD NOT MEAN THAT ASSESSEE WAS MAINTAINING BOOKS OF ACCOUNTS. RELYING ON THE COPIES OF THE SA LES TAX ASSESSMENT ORDER DATED 23.2.2010, LEARNED A.R. SUBM ITTED THAT NO DOCUMENT WAS PRODUCED BY THE ASSESSEE BEFORE THE SA LES TAX AUTHORITIES ALSO. JUST BECAUSE A STATEMENT WAS FIL ED BEFORE SALES TAX AUTHORITIES MENTIONING THAT DAY BOOK, LEDGER, PURCH ASE AND SALES BILLS WERE KEPT, WOULD NOT MEAN THAT THE BOOKS WERE INDEE D MAINTAINED BY THE ASSESSEE. 30. PER CONTRA, LEARNED D.R. SUBMITTED THAT ASSESSE E COULD NOT BE ALLOWED TO APPROBATE AND REPROBATE. ASSESSEE COULD NOT SAY BEFORE THE SALES TAX AUTHORITIES THAT HE WAS MAINTAINING B OOKS AND BEFORE INCOME-TAX AUTHORITIES HE WAS NOT MAINTAINING ANY B OOKS. SUCH A STATEMENT OF THE ASSESSEE COULD NOT BE ACCEPTED. D ESPITE THE BOOKS, ASSESSEE HAD NOT AUDITED HIS ACCOUNTS AS REQUIRED U NDER SECTION I.T.A. NO. 1702/MDS/12 I.T.A. NO. 1817/MDS/12 I.T.A. NO. 1345/MDS/13 C.O. NO. 169/MDS/12 18 44AB OF THE ACT. THEREFORE, ACCORDING TO LEARNED D .R., THE LEVY OF PENALTY UNDER SECTION 271B WAS JUSTIFIED. 31. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. IT IS AN ADMITTED POSITION THAT ASSESSEE HAD NOT FI LED ANY RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR TILL SUCH T IME NOTICE UNDER SECTION 148 WAS ISSUED. DURING THE COURSE OF ASSES SMENT PROCEEDINGS, ASSESSEE HAD PRODUCED CREDITOR AS WELL AS DEBTOR STATEMENTS, BANK STATEMENTS AND SALES TAX STATEMENT . HE HAD ALSO PRODUCED PARTY WISE SALES LIST AND MONTHLY BREAK-UP OF HIS TURNOVER. BUT, AT THE SAME TIME, HE ALWAYS MAINTAINED THAT NO BOOKS WERE KEPT BY HIM. TO ARRIVE AT MONTHLY PURCHASE AND MONTHLY SALES, IT IS NOT NECESSARY THAT BOOKS OF ACCOUNTS ARE ESSENTIAL. IF THE ASSESSEE IS HAVING SALES BILLS AND PURCHASE BILLS, AND QUANTITY PARTICULARS OF ITEMS PURCHASED AND SOLD, IT WILL BE POSSIBLE TO ARRIVE A T A DEBTOR STATEMENT, CREDITOR STATEMENT, PARTY WISE PURCHASE AND PARTY W ISE SALES. NONE OF THE STATEMENTS PRODUCED BEFORE SALES TAX AUTHORI TIES CAN CONCLUSIVELY SHOW THAT ASSESSEE WAS MAINTAINING BOO KS OF ACCOUNTS. THE DETAILS FILED WOULD HAVE BEEN DERIVED BY THE AS SESSEE FROM RECORDS OTHER THAN BOOKS OF ACCOUNTS. NO DOUBT, AS SESSEE IN ITS I.T.A. NO. 1702/MDS/12 I.T.A. NO. 1817/MDS/12 I.T.A. NO. 1345/MDS/13 C.O. NO. 169/MDS/12 19 FILINGS BEFORE SALES TAX AUTHORITIES HAD STATED THA T DAY BOOK, LEDGER, PURCHASE AND SALES BILLS WERE MAINTAINED BY HIM. L OWER AUTHORITIES HAD MAINLY RELIED ON THIS STATEMENT FOR COMING TO A CONCLUSION THAT ASSESSEE HAD NOT SUBJECTED HIS ACCOUNTS FOR TAX AUD IT. IN THIS REGARD SALES TAX ASSESSMENT ORDER DATED 23.2.2010 PRODUCED BY THE LEARNED A.R. IS VERY RELEVANT. AGAINST COL. 7 VIZ. DOCUMEN TS PRODUCED IN SUPPORT OF THE RETURN, NOTHING WHATSOEVER IS MENTIO NED. IN OUR OPINION, IT IS NOT REASONABLE TO PRESUME THAT AN AS SESSEE DESPITE MAINTAINING BOOKS OF ACCOUNTS DID NOT PRODUCE IT BE FORE REVENUE AUTHORITIES. HE WOULD HAVE PRODUCED IT AT LEAST BE FORE SALES TAX AUTHORITIES. THE FACT THAT ASSESSEE HAD NOT PRODUC ED ANY BOOKS BEFORE SALES TAX AUTHORITIES AS WELL AS INCOME-TAX AUTHORITIES WOULD ONLY GIVE CREDENCE TO HIS ARGUMENT THAT NO BOOKS WE RE MAINTAINED BY HIM. IF BOOKS ARE NOT MAINTAINED, THERE IS NO QUES TION OF CONDUCTING AN AUDIT UNDER SECTION 44AB OF THE ACT. AN ASSESSE E CANNOT BE EXPECTED TO DO SOMETHING WHICH IS IMPOSSIBLE. IF B OOKS ARE NOT MAINTAINED, AN AUTHORITY CANNOT INSIST THAT IT SHOU LD BE SUBJECTED TO TAX AUDIT. IN SUCH A SITUATION, WE ARE OF THE OPIN ION THAT A LEVY OF PENALTY FOR NOT SUBJECTING A NON-EXISTENT SET OF BO OKS OF ACCOUNTS, TO I.T.A. NO. 1702/MDS/12 I.T.A. NO. 1817/MDS/12 I.T.A. NO. 1345/MDS/13 C.O. NO. 169/MDS/12 20 TAX AUDIT CANNOT BE LEVIED. LEVY OF PENALTY, THERE FORE, STANDS CANCELLED. 32. TO SUMMARIZE THE RESULT, APPEAL OF THE ASSESSEE IN I.T.A. NO. 1702/MDS/2012 IS PARTLY ALLOWED, APPEAL OF THE ASSE SSEE IN I.T.A. NO. 1345/MDS/2013 IS ALLOWED, APPEAL OF THE REVENUE IN I.T.A. NO. 1817/MDS/2012 IS DISMISSED, AND C.O. OF THE ASSESSE E IS DISMISSED. ORDER WAS PRONOUNCED IN THE COURT ON THURSDAY, THE 26 TH OF SEPTEMBER, 2013, AT CHENNAI. SD/- SD/- (CHALLA NAGENDRA PRASAD) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 26 TH SEPTEMBER, 2013. KRI. COPY TO: (1) ASSESSEE (2) ASSESSING OFFICER (3) CIT(A)-I, COIMBATORE (4) CIT-II, COIMBATORE (5) D.R. (6) GUARD FILE