RANJANBEN G KASODARIA, SURAT V. DCIT, CC-3, SURAT

ITA 141/SRT/2020

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 1658 (ITAT-SURAT)
• Duration Of Justice: 2 year(s) 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 06-07-2022
• Assessment Year: 2014-2015
• Appeal Filed On: 28-06-2020
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business income; Income from undisclosed sources; Loose papers; Tax effect; Retraction; Set aside
• Section: 132; 271(1)(c); 274

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER ITA No. 141 & 144/Srt/2020 (A.Y 2014-15) (Physical hearing) Ranjanben G. Kasodaria, Underground Dhan Laxmi Complex, Near-Ayurvedic Hospital Lal Darwaja, Surat. PAN: ACRPK 1032 H Vs. D.C.I.T., Central Circle-3, Surat. Appellant/ assessee Respondent/ revenue Assessee represented by Shri Rasesh Shah, CA Department represented by Shri Vinod Kumar, Sr.DR Date of hearing 07/07/2022 Date of pronouncement 21/09/2022 Order under Section 254(1) of Income Tax Act PER: PAWAN SINGH, JUDICIAL MEMBER: 1. These two appeals by the assessee are directed against the separate orders of learned Commissioner of Income Tax (Appeals)-4, Surat (in short, the ld. CIT(A) dated 19/02/2020 and 18/03/2020 for the Assessment year 2014-15. In ITA No. 141/Srt/2020, the assessee has challenged the addition on the quantum assessment. Similarly, in ITA No. 144/Srt/2020, the assessee has challenged the validity of penalty levied under Section 271(1)(c) of the Income Tax Act, 1961 (in short, the Act) 2. In appeal for quantum assessment in ITA No. 141/Srt/2020 for the A.Y. 2014-15, the assessee has raised following grounds of appeal: “1. On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in partly confirming the action of Assessing ITA No. 141 &144/Srt/2020 Ranjanben G. Kasodaria s DCIT 2 Officer by sustaining the addition of Rs. 6,33,339/- out of total addition of Rs. 35,00,000/- on account of alleged unaccounted business receipts. 2. It is therefore prayed that penalty levied by the Assessing Officer and confirmed by CIT(A) may please be deleted or the matter may please be set aside to the file of CIT(A). 3. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.” 3. The assessee in penalty appeal i.e. ITA No. 144/Srt/2020 (AY 2014-15) has raised following grounds of appeal: “1. On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming the action of Assessing Officer by partly sustaining the penalty on addition of Rs. 6,33,339/- out of total addition of Rs. 35,00,000/- on account of alleged unaccounted business receipts. 2. On the facts and circumstances of the case as well as law on the subject, the learned Assessing officer has erred in not specifying in the notice u/s 271(1)(c) r.w.s. 274 or in the assessment order or in the penalty order whether the penalty was leviable for concealment of particulars of income or for furnishing inaccurate particulars thereof. 3. It is therefore prayed that penalty levied by the Assessing Officer and confirmed by CIT(A) may please be deleted or the matter may please be set aside to the file of CIT(A). 4. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.” 4. Brief facts of the case are that assessee is proprietor of Niti Pathology Laboratory, filed its return of income for A.Y. 2014-15 on 29/11/2014 declaring income of Rs.23,74,710/-. The case was selected for scrutiny. During assessment, the assessing officer noted that a search action ITA No. 141 &144/Srt/2020 Ranjanben G. Kasodaria s DCIT 3 under Section 132 of the Act was carried out on 04/03/2014 in case of Medical Professionals Group, Surat. The assessees laboratory was also covered under Section 133(A) of the Act. During the survey action, certain incriminating documents were found from the premises of the assessee. The assesse was confronted with the incriminating evidence and she accepted to have suppressed the receipts in her books of account and made disclosure of Rs. 35.00 lacs. The assessee confirmed her disclosure vide her letter dated 13/6/2014. The Assessing Officer noted that the assessee has not shown such disclosure in the return of income and thus impliedly retracted from the disclosure. The assessee was issued show cause notice as to whey aforesaid disclosure of Rs. 35.00 lacs should not be treated as unaccounted income and added to the income of the assessee. The Assessing officer noted that till passing of the assessment order no explanation was given by the assesse. 5. The assessing officer further noticed that during the course of survey certain loose papers were found which revealed the receipt of various tests undertaking during the month of February, 2014 seized as Annexure-A-1. The amount of charge receipt in the month of February mentioned in the loose sheets were quantified as to Rs. 6,33,339/-. Accordingly, the assessing officer worked out the receipt for the whole year i.e. for 12 months at Rs. 76,00,068/- (Rs. 6,33,339 x 12). Such fact ITA No. 141 &144/Srt/2020 Ranjanben G. Kasodaria s DCIT 4 was also confronted with the assessee. The assessee stated that in the previous year, she offered income of Rs. 42,90,650/- in her return of income and this year as well, she wanted to show her income around Rs. 43.00 lacs. On the basis of which the income of current year was estimated at Rs. 33,09,428/- (76,00,068-42,90,650). On the basis of such figure, the assessee offered Rs. 35.00 lacs as undisclosed income. The assessing officer noted that the assessee vide her confirmation letter dated 13.06.2014 again confirmed the discloser and payment of tax thereon. The assessing officer in para- 5, at page-4 of assessment order noted that the assessee has not shown the declared income of Rs. 35 lacks, while filing her return of income. On the basis of such discrepancies, the Assessing Officer issued show cause notice to the assessee to explain on or before 25/02/2016 but the Assessing Officer noted that till 26/2/2016, no response was made by the assessee. On the basis of aforesaid observation, the Assessing Officer made the addition of Rs. 35.00 lacs in the income of assessee and also initiated penalty under section 271(1)(c) of the Act. 6. Aggrieved by the additions made in the assessment order, the assessee filed appeal before the ld. CIT(A). Before the ld. CIT(A), the assessee filed her detailed written submissions. The submission of assessee are recorded in para 5 of impugned order. In the written submission, the ITA No. 141 &144/Srt/2020 Ranjanben G. Kasodaria s DCIT 5 assessee has stated that she had made retraction and an affidavit was also filed but the copy of retraction letter was not traceable. During the course of survey proceedings, the loose papers related to only one month was found on the basis of which the gross receipt of the whole year was estimated, which itself was an adhoc estimation without any base whatsoever and therefore, the estimation of additional income on such method was completely baseless. As such, the statement recorded during the course of survey proceedings has no evidentiary value. The assessee has also stated that during the course of survey proceedings, no incriminating documents were found except some loose papers wherein daily records of laboratory tests conducted of different persons and the amount of testing charges for only one month i.e. of February 2014 were found. The assessee stated that during the survey proceedings, the assessee was under stress and mental pressure and the survey team had made the working of estimation of gross receipt by extrapolating the figure of one (1) month and asked the assessee to make declaration of Rs. 35,00,000/- and the assessee, to get rid of all this mental stress and pressure, made a statement without verifying the base as well as actual details of working. The assessee has stated that the statement recorded during the course of survey proceedings has no evidentiary value in the eyes of law and the assessment finalized purely ITA No. 141 &144/Srt/2020 Ranjanben G. Kasodaria s DCIT 6 on such statements and so called incriminating documents is quite unjustifiable. It was stated that statement recorded during the course of survey proceedings has no evidentiary value and no addition can be made on the basis of such statements and that the assessee had not made a total retraction from declaration made by her and the affidavit filed was of clarificatory nature whereby, the assessee conveyed the fact that the declaration made through statement during survey proceedings was conveying her intention of declaring enhancement of gross professional receipts of the current year and the working made during survey on the of basis of receipt of one month was not correct and the assessee had filed her correct return of income In support of her submissions, the assessee relied on the decision of Hon'ble Kerala High Court in Paul Mathews & Sons Vs. CIT [263 ITR 101]. 7. The assessee further stated that she is running a pathological laboratory and the pathological tests conducted at her laboratory are very limited and the advanced level of testing are not conducted by her. Therefore, obviously, the margin as well as turnover of the assessee is restricted. During the course of survey proceedings, some loose papers reflecting professional receipts for the month of February 2014 were found and her statement was recorded under section 131(1A). In her statement, the assessee had stated that the cash book for the F.Y. 2013-14 was ITA No. 141 &144/Srt/2020 Ranjanben G. Kasodaria s DCIT 7 incomplete and only bank related entries were passed but entries of cash receipts and other cash transactions were not yet. The assessee also stated that in reply to question No.12, the assessee clearly stated that her cash book for FY 2013-14 was not complete and on the basis of the papers related to the Feb-2014, the gross receipt was estimated at Rs. 76,00,078/- In the previous year the assesse has shown gross receipt of Rs. 42,90,650/- and the gross receipt in the current assessment year is more. The assessee also furnished the total gross receipt, gross profit, net profit and net profit ratio in the following manner; AY Gross receipt (Rs.000/-) Net Profit (NP) % (NP) 2014-15 69,15,375/- 24,22,016/- 35.02 2013-14 42,90,650/- 8,20,860/- 19.13 2012-13 39,60,317/- 7,52,474/- 19.00 2011-12 28,98,022/- 7,02,448/- 24.24 2010-11 21,65,052/- 5,10,199/- 23.57 8. On the basis of aforesaid details, the assessee contended that the assessee has shown higher income as committed by her during the ITA No. 141 &144/Srt/2020 Ranjanben G. Kasodaria s DCIT 8 survey action and truly and fully disclosed the actual gross receipt which was earned during the year. The estimation of survey team on ad-hock basis was just an estimation which cannot be compared with the actual receipt. 9. The assessee has stated the Assessing officer has wrongly made the addition of gross amount of professional receipt on estimated basis of the entire year without appreciating the fact that only the income profit element embedded therein can be taxed. To support her submissions, the assessee has relied on the decision of the Hon'ble Gujarat High Court in DCIT Vs Panna Corporation [82 CCH 0266 / 74 DTR 0089], wherein it was held that upon detection of on money receipt or unaccounted cash receipt, what can be brought to tax is the profit embedded in such receipts and not the entire receipts themselves. The assessee also relied the decision in the case of CIT Vs. President industries [258 ITR 654 (Guj)] wherein it was held by the Hon'ble Gujarat High Court that it cannot be a matter of argument that the amount of sales by itself cannot represent the income of the assessee who has not disclosed the sales. The sales only represented the price received by the seller of the goods for the acquisition of which it has incurred the cost. 10. In without prejudice submissions, the assessee stated that even if it is presumed without admitting that the additional receipt as estimated by ITA No. 141 &144/Srt/2020 Ranjanben G. Kasodaria s DCIT 9 the survey team of Rs. 33,09,438/- was rightly accepted by assessing officer for assessment purpose. The assessing officer ought to have appreciated that the assessee had shown the additional receipt of Rs. 26,24,725/- in the books of account and filed return of income and thus, the assessing officer should have restricted the addition to the extent of Rs.6,84,713/- only instead of making addition of Rs. 35,00,000/-, which resulted in double taxation on the basis of same estimation. 11. The ld. CIT(A) after considering the submissions of the assessee and material available on record granted partial relief to the assessee by taking a view that the main contention of the assessee was that during the course of survey proceedings, the loose papers were found only for one month on the basis of which the professional receipt of the entire year was estimated which was baseless and illogical without any evidence. It was contended before him that statement recorded during the course of survey proceedings has no evidentiary value and no addition can be made on the basis of such statements and that the assessee had not made a total retraction from declaration made by her and the affidavit filed was of clarificatory nature whereby, the assessee conveyed the fact that the declaration made through statement during survey proceedings was conveying her intention of declaring enhancement of gross professional receipts of the current year and the ITA No. 141 &144/Srt/2020 Ranjanben G. Kasodaria s DCIT 10 working made during survey on the of basis of receipt of one month was not correct and the assessee had filed her correct return of income. The ld. CIT(A) has held that the loose papers and incriminating papers were found only for the month of Feb,2014, which was quantified as Rs.6,33,339/-. The method of extrapolating and estimating the gross profession receipts of Rs. 76,00,000/- for the entire year is not logical as the same cannot remain consistent all throughout the year. The ld. CIT(A) has held that he is agreed with the contention of the assessee that the actual receipt for the whole year is bound to differ from month to month and variations are possible depending on seasons, climatic changes, festivals, vacations, etc. and the gross receipts cannot be the net profit of the assessee. It was held that the assessee has offered substantially higher gross professional receipts of Rs.69,15,375/- as against Rs, 42,90,650/- shown in earlier year. Thus, effectively the assessee has offered additional receipts of Rs.26,24,725/- as actually earned by her against the alleged difference of Rs.33,09,438/- on the basis of extrapolation method. The theory of extrapolation is not logical for determining the actual total Income and it is established law that the assessment should be made on the basis of only incriminating documents found during the course of survey proceedings. It was further held that during survey, the incriminating material was found indicating ITA No. 141 &144/Srt/2020 Ranjanben G. Kasodaria s DCIT 11 the amount of Rs.6,33,339/- for the month of February,2014 and therefore the addition should be restricted to that amount only considering the fact that the assessee has offered higher gross professional receipts in her return of income in the spirit of her statement recorded. The ld CIT(A) held that addition of Rs.6,33,339/- would serve the purpose to cover the difference between the yearly estimated professional receipts and actual total professional receipts offered by the assessee in her return of income. Therefore, the ld. CIT(A) has restricted the addition to the extent of Rs. Rs.6,33,339/- based on incriminating lose papers. Further aggrieved, the assessee has filed the present appeal before this Tribunal. 12. We have heard the submissions of the learned authorised representative (AR) of the assessee and the learned senior departmental representative (Sr DR) for the revenue for the revenue and have seen the orders of the lower authorities carefully. The ld AR for the assessee submits that during the survey some incriminating material was found, on the basis of which the survey team quantified the income of Feb-2014 at Rs. 6,33,339/-. And on the basis of such figure the income of the assessee for whole of the financial year was extrapolated at Rs. 76,00,078/-. On the basis of gross of income for proceeding assessment year of Rs. 42,90,650/-, the assessee wanted to declare income of Rs. 43,00,000/-, ITA No. 141 &144/Srt/2020 Ranjanben G. Kasodaria s DCIT 12 as there was difference of Rs. 33,09,428/- (76,00,078 – 42,90,650/-), the assessee disclosed round figure of Rs. 35 lacks as unaccounted receipt. The ld AR for the assessee submits that the copy of the statement recorded during the survey action is filed on record. And as per answer to the question No.12, the assessee offered Rs. 35 lacks. During the survey incrimination material only for the month of Feb-1014 was found. The books of the assessee on the date of survey was not complete. No other incrimination material was found during the survey. The estimation of survey team on ad-hock basis was just an estimation which cannot be compared with the actual receipt, the actual receipt always differs in the other months. The assessee has stated the Assessing officer has wrongly made the addition of gross amount of professional receipt on estimated basis of the entire year without appreciating the fact that only the income profit element embedded therein can be taxed. Though, he ld CIT(A) granted partial relief to the assessee by accepting the fact that the assessee has shown substantial increase in her return of income. However, he missed the fact that only profit element in the alleged unaccounted receipt of Feb-2014 was to be taxed and not the entire receipt. The assessee has shown profit ratio of more than 35%, which was very high compared with the earlier years and at the most the profit ratio declared by the assessee may be taxed ITA No. 141 &144/Srt/2020 Ranjanben G. Kasodaria s DCIT 13 from the figure of Rs. 6,33,339/-. The ld AR for the assessee also relied on the same case laws, on which he relied before ld CIT(A). 13. On the other hand, the ld Sr DR for the revenue supported the order of the ld CIT(A). the ld SR DR for the revenue submits that in the statement recorded by survey team, the assessee clearly and unambiguously declared additional undisclosed income of Rs. 35 lacks, which was not offered by the assessee while filing return of income. No retraction was made by the assessee. Rather the assessee in her subsequent letter confirmed her discloser. The ld CIT(A) granted relief to the assessee, the revenue/ officer was precluded in filing appeal before Tribunal as the tax effect on the issue was below the threshold limit for filing appeal before Tribunal. 14. We have considered the rival contentions of the parties and have gone through the orders of the lower authorities carefully. We have also deliberated on various case laws relied by the ld AR during the hearing before ld CIT(A) as well as before Tribunal. The assessing officer made addition of Rs. 35 lacks by taking view that no response was made by the assessee to the show cause notice issued by him. The assessing officer made addition of Rs. 35 lacks only on the basis of discloser made during the survey action. As recorded above that before ld CIT(A) the assessee has filed detailed written submission, which we have recorded ITA No. 141 &144/Srt/2020 Ranjanben G. Kasodaria s DCIT 14 above. We find that he ld CIT(A) while restricting the addition to the extent of Rs. 633,339/- by taking view that during the course of survey proceedings, the loose papers were found only for one month on the basis of which the professional receipt of the entire year was estimated which was baseless and illogical without any evidence. The ld. CIT(A) has held that the loose papers and incriminating papers were found only for the month of Feb,2014, which was quantified as Rs.6,33,339/-. The method of extrapolating and estimating the gross profession receipts of Rs. 76,00,000/- for the entire year is not logical as the same cannot remain consistent all throughout the year. The ld. CIT(A) has held that he is agreed with the contention of the assessee that the actual receipt for the whole year is bound to differ from month to month and variations are possible depending on seasons, climatic changes, festivals, vacations, etc. and the gross receipts cannot be the net profit of the assessee. On comparison of the return if income for earlier years, the ld CIT(A) held that the assessee has offered substantially higher gross professional receipts of Rs.69,15,375/- as against Rs, 42,90,650/- shown in earlier year. Thus, effectively the assessee has offered additional receipts of Rs.26,24,725/- as actually earned by her against the alleged difference of Rs.33,09,438/- on the basis of extrapolation method. It was also held that the theory of extrapolation is not logical ITA No. 141 &144/Srt/2020 Ranjanben G. Kasodaria s DCIT 15 for determining the actual total Income and it is established law that the assessment should be made on the basis of only incriminating documents found during the course of survey proceedings. 15. The ld CIT(A) noted that that during survey, the incriminating material was found indicating the amount of Rs.6,33,339/- for the month of February,2014 and therefore the addition should be restricted to that amount only considering the fact that the assessee has offered higher gross professional receipts in her return of income in the spirit of her statement recorded. The ld CIT(A) held that addition of Rs.6,33,339/- would serve the purpose to cover the difference between the yearly estimated professional receipts and actual total professional receipts offered by the assessee in her return of income. We find that the finding of the ld CIT(A) is based on sound reasoning that the incrimination material was found for the month of Feb-2014 and the income for remaining months was estimated, which may be differ, depending on various factors. Before, us the ld AR for the assessee vehemently argued that the NP ratio of the assesse for this year is substantially higher comparative to earlier years. However, we find that the ld CIT(A) restricted the addition of considering all the facts and the evidence on record. In view of the above discussions, we do not find any merit in the grounds of appeal raised by the assessee, thus, we affirm the order ITA No. 141 &144/Srt/2020 Ranjanben G. Kasodaria s DCIT 16 of ld CIT(A). In the result, the grounds of appeals raised by the assessee are dismissed. 16. In the result, the appeal of the assessee is dismissed. ITA No. 144/SRT/2020, under section 271(1)(c) for AY 2014-15 17. We find that the assessing officer while passing the assessing order made addition of Rs. 35 lacks and initiated penalty under section 271(1)(c). The assessing officer levied penalty of Rs. 10,81,500/- being 100% of tax sought to be evaded vide order dated 29.08.2016. We find that in first appeal against quantum assessment, the additions were restricted to the extent of Rs. 6,33,339/- only. The ld CIT(A) while considering the appeal in penalty matter directed to restrict the penalty only on the addition of Rs. 6,33,339/-. We further find that the ld CIT(A) while deciding the appeal in quantum assessment held that the assessee has already declared income on higher side compared to the earlier assessment year. In our view the additions in the quantum assessment was restricted on the basis of different view taken by ld CIT(A). Though, we have affirmed the order of ld CIT(A), still we are of the view that the assessee has neither concealed the particulars of the income nor furnished such facts which leads to furnishing of inaccurate particulars. Thus, in our considered this in not a fit case for levy of penalty under section 271(1)(c) of the Act. Hence, we direct the assessing officer to delete the ITA No. 141 &144/Srt/2020 Ranjanben G. Kasodaria s DCIT 17 entire penalty under section 271(1)(c). In the result, the grounds of appeal raised by the assessee are allowed. 18. In the result, the grounds of appeal raised by the assessee are allowed. Order pronounced in the open court on 21 st September, 2022 in open court and result was also placed on notice board. Sd/- Sd/- (Dr. ARJUN LAL SAINI) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Surat, Dated: 21/09/2022 *Ranjan Copy to: 1. Assessee – 2. Revenue - 3. CIT(A) 4. CIT 5. DR 6. Guard File By order Sr.Private Secretary, ITAT, Surat