Dama Prusty, Puri V. ITO, Puri

ITA 138/CTK/2011

• Counselvise Citation: 13822114 RSA 2011
• Duration Of Justice: 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2011
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 12-09-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 10-03-2011
• Court: TRIBUNAL
• Department Lawyers: S C MOHANTY
• Assessee Lawyers: B PANDA
• Keywords: Unexplained investment
• Section: 40A(3)

Judgement Text

IN THE INCME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE : SHRI K.K.GUPTA, AM , AND SHRI K.S.S.PRASAD RAO, JM ITA NO. 138/CTK/2011 (ASSESSMENT YEAR 2005 - 06) SRI DAMA PRUSTY, HADAGODIA SAHI, PURI 752 001 PAN AHCPP 7041 D VERSUS INCOME - TAX OFFI CER, PURI WARD, PURI. (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI B.PANDA, AR FOR THE RESPONDENT SHRI S.C.MOHANTY, DR DATE OF HEARING : 12.09.2011 DATE OF PRONOUNCEMENT : 16.09.2011 ORDER SHRI K.K.GUPTA, AM : THE ASSESSEE IS IN APPEAL AGAINST THE ORDER DT.20.10.2010 OF THE COMMISSIONER OF INCOME - TAX (APPEALS) FOR THE ASSESSMENT YEAR 2005 - 06. 2. THE APPEAL IS FILED BY THE ASSESSEE BELATEDLY BY 55 DAYS FOR WHICH THE ASSESSEE HAS FILED A CONDONATION PETITION STATING THAT THE ASSESSEE BEING AN AGED OLD MAN OF 78 YEARS WAS SUFFERING FROM VARIOUS DISEASES SUCH AS HYPERTENSION WITH ARTHIRITS FROM 15.11.2010 TO 15.2.2001 AND AFTER BEING CURED HE CONTACTED THE ADVOCATE AT CUTTACK ON 8.3.2011 AND THE APPEAL WAS FILED AFTER COLLECTING THE RELEVANT PAPERS ON 10.3.2011. WE HAVE CONSIDERED THE REASON FOR THE DELAY AS STATED IN THE CONDONATION PETITION TO BE JUSTIFIED . THE DELAY IS CONDONED AND THE APPEAL IS ADMITTED FOR HEARING. 3 . THE FIRST ISSUE AS RAISED BY THE ASSESSEE RELATES TO CONFIRMATION OF TH E ADDITION OF 1,82,280 MADE ON ESTIMATION OF PROFIT FROM GROSS TUIRNOVER . 4 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT IN ABSENCE OF PROPER BOOKS OF ACCOUNTS, THE ASSESSING OFFICER ESTIMATED THE TURN OVER AT 36,75,000 ON THE BASIS OF LOCAL ENQUIRY ETC., AT 10,500 PER DAY FOR 350 DAYS AND THEREAFTER, ADOPTING DISCLOSED PROFIT RATE OF 4.96% THEREON, DETERMINED THE INCOME OF THE ITA NO.138/CTK/2011 2 ASSESSEE 1,82,280. SINCE THE ASSESSING OFFICER FAILED TO CONSIDER THE R ETURNED INCOME OF THE ASSESSEE OF 1,57,410, HE RECTIFIED THE ASSESSMENT ORDER ACCORDINGLY VIDE HIS ORDER DT.26.11.2007 PASSED U/S.154. THUS THE DETERMINATION OF INCOME ON THIS ACCOUNT GETS REDUCED TO 24,870. IN APPEAL, THE LEARNED CIT(A) CONFIRMED THE SAME. THE LEARNED AR OF THE ASSESSEE CONTENDED BEFORE US THAT THE ASSESSEE HAS SHOWN PROFIT OF 1,57,410 I.E., ABOUT 4.96% . THEREFORE, MAKING ADDITION ON ESTIMATION OF PROFIT BY ESTIMATING THE SALES IS NOT PROPER . BUT, W E CANNOT ACCEPT THIS CONTENTION OF THE LEARNED AR OF THE ASSESSEE, BECAUSE AS RIGHTLY POINTED OUT BY THE LEARNED DR THAT ADMITTEDLY THE ASSESSEE HAS NOT MAINTAINED STOCK REGISTER OR CASH BOOK. IN ABSENCE OF THESE ES SENTIAL BOOKS OF ACCOUNT COUPLED WITH ABSENCE OF BILLS AND VOUCHERS FOR PUR CHASES, AS OBSERVED BY THE ASSESSING OFFICER IN HIS ORDER, WE ARE OF THE CONSIDERED VIEW THAT THE SALES TURNOVER DISCLOSED BY THE ASSESSEE BASED ON IMPROPER BOOKS OF ACCOUNT CANNOT BE ACCEPTED IN TOTO AND SO ALSO THE BOOK RESULT SO FAR AS PROFIT IS CONCERN ED . REJECTION OF BOOKS OF ACCOUNT U/S.145 IS, THEREFORE, PROPER IN THE INSTANT CASE. SO FAR AS ESTIMATION OF INCOME IS CONCERNED, WE FIND THAT THE AUTHORITIES BELOW HAVE ENHANCED THE PROFIT BY 24,870 AS AGAINST DECLARED BY THE ASSESSEE AT 1,57,410, WHI CH IN OUR CONSIDERED VIEW IS NOT UNREASONABLE OR EXCESSIVE AND IS CONFIRMED . 5 . THE NEXT ISSUE RELATES TO ADDITION OF 5,11,720 U/S.40A(3). 6 . HAVING HEARD BOTH THE PARTIES, THERE IS NO DISPUTE TO THE FACT THAT THIS AMOUNT RELATES TO PURCHASE OF GOODS I N CASH. IN THE INSTANT CASE, SINCE THE INCOME HAS BEEN COMPUTED BY REJECTING THE BOOK RESULTS AND BY APPLYING THE NET PROFIT RATE, WE ARE OF THE CONSIDERED VIEW THAT NO DEDUCTION AS SUCH HAVING BEEN ALLOWED TO THE ASSESSEE ON ACCOUNT OF PURCHASES, NO QUEST ION OF ANY DISALLOWANCE ON ACCOUNT OF PURCHASE CAN BE MADE IN THIS CASE UNDER SECTION 40A(3). WE FIND SUPPORT FROM THE DECISIONS, AS RELIED ON BY THE ITA NO.138/CTK/2011 3 LEARNED AR OF THE ASSESSEE, IN THE CASE OF CIT V. BANWANLAL BANSHIDHAR (229 ITR 299)(ALL), INDWELL CONSTRU CTIONS V. CIT (232 ITR 776)(AP), SARWAN SINGH CONTRACTORS V. ITO (55 ITD 192) . THE LEARNED DR TRIED TO DISTINGUISH THE DECISION OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT V. BANWARI LALBANSHIDHAR (229 ITR 229) STATING THAT THE FACT THEREIN WAS THAT A HIGHER GROSS PROFIT RATE WAS APPLIED TO THE RETURNED SALES WHEREAS IN THE INSTANT CASE ON HAND THE RETURNED NET PROFIT RATE HAS BEEN APPLIED TO ENHANCED SALES. HONBLE HIGH COURT HELD THAT SECTION 40A(3) WITH REFERENCE TO CASH PURCHASES WAS INAPPLICABLE BECAUSE PURCHASES WERE NEITHER CLAIMED NOR ALLOWED. THE METHOD ADOPTED IN THIS CASE IMPLIED PURCHASES AS CLAIMED IN THE TRADING ACCOUNT WERE ALLOWED IN THE NET PROFIT ESTIMATED. BUT, WE CANNOT AGREE TO THE PROPOSITION OF THE LEARNED DR. AS STATED EARLIER THERE IS NO DISPUTE TO THE FACT THAT THE INCOME OF THE ASSESSEE HAS BEEN ESTIMATED. THE ESTIMATION OF INCOME ON ENHANCED SALES ADOPTING THE PROFIT RATE AS DISCLOSED BY THE ASSESSEE CANNOT BE A FACTOR TO HOLD DISTINGUISHABLE WITH THE FACTS IN THE CITED CASE I.E., CIT V. BANWARI LALBANSHIDHAR(SUPRA). FURTHER WHEN PROFIT HAS BEEN ESTIMATED ON SALES, WE DO NOT FIND ANY LOGIC IN THE CONTENTION OF THE LEARNED DR THAT THE METHOD ADOPTED IN THIS CASE IMPLIED PURCHASES AS CLAIMED IN THE TRADING ACCOUNT WERE ALLOWED IN THE NET PROFIT ESTIMATED. ACCORDINGLY, BY FOLLOWING THE JUDICIAL PRONOUNCEMENT CITED ABOVE, WE DIRECT THE DELETION OF 5,11,720 MADE U/S.40A(3). 7 . THE NEXT ISSUE RELATES TO ADDITION OF 5,00,000 MADE U/S.69. 8 . THE RELEVANT FACTS ARE THAT UPON COLLECTING INFORMATION U/S.133(6) FROM UNITED BANK OF INDIA, PURI, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD DEPO SITED 5 LAKHS ON 5.10.2004 BY TRANSFERRING FROM CD ACCOUNT NO.712 TO CD ACCOUNT NO.678 VIDE CASH DEPOSIT VOUCHER DT.1.10.2004 EVIDENCING CASH DEPOSIT OF 3 LAKHS AND 2 LAKHS IN THE CD ACCOUNT NO.712 ON ITA NO.138/CTK/2011 4 1.10.2004. THE ASSESSING OFFICER ASKED THE ASSES SEE TO EXPLAIN THE SOURCE OF SUCH DEPOSITS AND ON THE OBSERVATION THAT THE ASSESSEE FAILED TO FURNISH SUPPOR TING EVIDENCE, HE CONSIDERED SUCH DEPOSITS OF 5 LAKHS AS UNEXPLAINED INVESTMENT. IN APPEAL, THE LEARNED CIT(A) CONFIRMED THE SAME. 9 . THE LEARNED AR OF THE ASSESSEE CONTENDED THAT OUT OF 5 LAKHS, 4 LAKHS WERE TEMPORARILY UNSECURED LOAN @ 1 LAKH EACH BROUGHT FROM FOUR DAUGHTERS OF THE ASSESSEE NAMELY, SUNITA RANI PRUSTY, NAMITA SAHU, SMITA CHOUDHURY AND SASMITA PRUSTY OF THE ASSESSEE AND THE BA LANCE OF 1 LAKH WAS OUT OF THE BUSINESS SALES PROCEEDS. THE ASSESSEE HAS ALSO FILED COPIES OF AFFIDAVITS FROM THE DAUGHTERS TO CONFIRM THE PAYMENTS MADE WITH THE HOPE OF JOINING AS PARTNERS IN THE BUSINESS . SI NCE THE PROPOSAL WAS NOT MATERIALIZED THEN T HE AMOUNT BORROWED GOT RETURNED BACK TO THEM . THEREFORE, SUCH ADDITION SHOULD NOT HAVE BEEN MADE IN THE HANDS OF THE A SSESSEE. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED THE IMPUGNED ORDERS OF THE AUTHORITIES BELOW. 10 . WE HAVE HEARD THE RIVAL CONTENTION S AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON CAREFUL PERUSAL OF THE IMPUGNED ORDERS OF THE AUTHORITIES BELOW, WE FIND THAT SIMILAR CONTENTIONS AS RAISED BEFORE THE TRIBUNAL WERE ALSO RAISED BEFORE THE LEARNED CIT(A), WHICH THE LEARNED CIT(A) CONSIDER ED AS AFTER THOUGHT. SINCE NO SUCH EVIDENCE AS PRODUCED BEFORE HIM WERE NOT PRODUCED BEFORE THE ASSESSING OFFICER, THE LEARNED CIT(A) DID NOT ADMIT THE SAME. THERE IS NO DISPUTE TO THE FACT IF THE EVIDENCE SO PRODUCED BEFORE THE LEARNED CIT(A) AS WELL AS BE FORE THE TRIBUNAL, IF CONSIDERED, THERE IS NOTHING UNEXPLAINED. HOWEVER, ON OUR FINDING ON PERUSING THE BANK STATEMENT THAT THE BANK HAS GRANTED THE LOAN TO THE ASSESSEE AND THE AMOUNT RECEIVED BY THE BANK WAS THE MARGIN AGAINST THE OVERDRAFT FACILITY ENJO YED BY THE ASSESSEE AGAINST THE GOODS PURCHASED. AS MENTIONED ABOVE, ITA NO.138/CTK/2011 5 THE PURCHASES COULD NOT BE CONSIDERED FOR DISALLOWANCE U/S.40A(3) AND THE ASSESSEES HOLDING SUFFICIENT STOCK AGAINST THE BANK BORROWINGS THEREFORE CANNOT BE CONSIDERED FOR WANT OF EVIDEN CE FOR THE MARGIN HELD BY THE BANK. THE ASSESSEE BEING AN OLD MAN WAS DEPENDENT ON SUSTAINING HIS RESIDUAL LIFE BY RUNNING A RETAIL BUSINESS OF PETTY ITEMS MANUFACTURED IN KOLKATA AND PURCHASED BY IT THROUGH THE MANUFACTURERS AGENT IN ODISHA, THEREFORE R EQUIRED PRELIMINARY FUNDS TO BE GIVEN TO THE BANK FOR ALLOWING THE ASSESSEE TO HOLD STOCK UPTO 25 LAKHS. NO CONTROVERTING MATERIAL HAS BEEN FOUND BY THE ASSESSING AUTHORITIES TO INDICATE THAT THE ASSESSEE COULD NOT REPAY THE SAID SUM BORROWED FROM HIS DA UGHTERS BEFORE THE CLOSING OF THE FINANCIAL YEAR. IN FACT THE ASSESSEE HAS REPAID THE AMOUNT TO THREE DAUGHTERS DURING THE FINANCIAL YEAR THEREFORE DID NOT APPEAR IN THE LIST OF SUNDRY CREDITORS AS VERIFIED BY THE ASSESSING OFFICER. THEREFORE, THE OBJECTIO N OF THE LEARNED DR THAT THE NAME OF THE DAUGHTERS DID NOT APPEAR IN THE SUNDRY CREDITORS LIST CANNOT BE SUSTAINED. IN VIEW OF THE ABOVE, WE HAVE NO HESITATION TO DELETE THE ADDITION OF 5,00,000 MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE LEARNED CIT(A) U/S.69. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. S D/ - S D/ - (K.S.S.PRASAD RAO) JUDICIAL MEMBER (K.K.GUPTA) ACCOUNTANT MEMBER DATE: 16 TH SEPTEMBER, 2011 H.K.PADHEE, SENIOR PRIVATE SECRETARY. ITA NO.138/CTK/2011 6 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT: SRI DAMA PRUSTY, HADAGODIA SAHI, PURI 752 001 2. THE RESPONDENT: INCOME - TAX OFFICER, PURI WARD, PURI. 3. THE CIT, 4. THE CIT (A), 5. THE DR, CUTTACK 6. GUARD FILE (IN DUPLICATE) TRUE COPY, BY ORDER, SENIOR PRIVATE SECRETARY.