ITO, Ward-53(1), Kolkata, Kolkata V. Shri Chittaranjan Ghosh, Kolkata

ITA 1549/KOL/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4578 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 1 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-09-2016
• Appeal Filed By: Department
• Bench Allotted: SMC
• Next Hearing Date: 16-06-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 21-07-2014
• Court: TRIBUNAL
• Department Lawyers: S M S T AUHEED
• Assessee Lawyers: MIHIR BANDYOPADHYAY

Judgement Text

I.T.A. NO. 1549/KOL./2014 ASSESSMENT YEAR: 2006-2007 PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA SMC BENCH, KOLKATA BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER I.T.A. NO. 1549/KOL/2014 ASSESSMENT YEAR: 2006-2007 INCOME TAX OFFICER,................................ .................................. .....APPELLANT WARD-53(1), KOLKATA, AAYAKAR BHAWAN DAKSHIN, 2, GARIAHAT ROAD (SOUTH), KOLKATA-700 068 -VS.- SHRI CHITTARANJAN GHOSH,........................... .....................................RESPONDENT 695/1A, D.H. ROAD, HINDUSTHAN PARK, KOLKATA-700 034 [PAN: AGDPG 2977 P] APPEARANCES BY: SHRI S.M.S. TAUHEED, JCIT, D.R., FOR THE DEPARTMENT SHRI MIHIR BANDYOPADHYAY, A.R., FOR THE ASSESSEE DATE OF CONCLUDING THE HEARING : AUGUST 17, 2016 DATE OF PRONOUNCING THE ORDER : SEPTEMBER 02, 2016 O R D E R THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-XXXIII, KOLKAT A DATED 23.05.2014 AND THE SOLITARY ISSUE INVOLVED THEREIN RELATES TO THE ACTION OF THE LD. CIT(APPEALS) IN RESTRICTING THE ADDITION OF RS.34,9 3,270/- MADE BY THE ASSESSING OFFICER TO THE TOTAL INCOME OF THE ASSESS EE ON ACCOUNT OF UNDISCLOSED PURCHASES TO RS.5,20,726/-. 2. THE ASSESSEE IN THE PRESENT CASE IS AN INDIVIDUA L, WHO IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING. THE RETU RN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY HIM ON 31.10. 2006 DECLARING TOTAL INCOME OF RS.3,80,580/-. IN THE ASSESSMENT ORIGINAL LY COMPLETED UNDER SECTION 144, THE TOTAL INCOME OF THE ASSESSEE WAS D ETERMINED BY THE ASSESSING OFFICER AT THE SAME FIGURE OF RS.3,80,580 /- AS RETURNED BY THE I.T.A. NO. 1549/KOL./2014 ASSESSMENT YEAR: 2006-2007 PAGE 2 OF 5 ASSESSEE. SUBSEQUENTLY, IT WAS NOTICED BY THE ASSES SING OFFICER FROM THE DETAILS OF CREDITORS FURNISHED BY THE ASSESSEE THAT THE PURCHASES MADE BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION WE RE RS.1,21,93,270/- AS AGAINST THE PURCHASES OF RS.86,99,734/- SHOWN BY THE ASSESSEE IN THE PROFIT & LOSS ACCOUNT. ACCORDING TO HIM, THERE WAS THUS ESCAPEMENT OF INCOME OF THE ASSESSEE FROM ASSESSMENT TO THE EXTEN T OF RS.34,93,270/- AND, THEREFORE, THE ASSESSMENT OF THE ASSESSEE WAS REOPENED BY HIM. IN REPLY TO A NOTICE ISSUED BY THE ASSESSING OFFICER U NDER SECTION 148, THE ASSESSEE REQUESTED TO CONSIDER THE RETURN OF INCOME ORIGINALLY FILED BY HIM ON 31.10.2006 AS THE RETURN FILED IN RESPONSE T O THE NOTICE UNDER SECTION 148. DURING THE COURSE OF ASSESSMENT PROCEE DINGS, THE ASSESSEE COULD NOT OFFER ANY SATISFACTORY EXPLANATION AS REG ARDS THE UNDERSTATEMENT OF PURCHASES BY RS.34,93,270/- AS NO TICED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER, THEREFORE , MADE AN ADDITION OF RS.34,93,270/- TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF UNDISCLOSED PURCHASES IN THE ASSESSMENT COMPLETED U NDER SECTION 147/144 VIDE AN ORDER DATED 21.12.2011. 3. AGAINST THE ORDER PASSED BY THE ASSESSING OFFICE R UNDER SECTION 147/144, AN APPEAL WAS PREFERRED BY THE ASSESSEE BE FORE THE LD. CIT(APPEALS) AND AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE AS WELL AS THE MATERIAL AVAILABLE ON RECORD, THE LD . CIT(APPEALS) RESTRICTED THE ADDITION OF RS.34,93,270/- MADE BY THE ASSESSIN G OFFICER ON ACCOUNT OF UNDISCLOSED PURCHASES TO RS.5,20,726/- FOR THE F OLLOWING REASONS GIVEN IN PARAGRAPH NO. 5 OF HIS IMPUGNED ORDER:- 5. I HAVE CONSIDERED THE APPELLANTS SUBMISSION. T HE APPELLANT HAS ADMITTED THAT UNDISCLOSED PURCHASES O F RS.34,93,270/- WERE MADE BY HIM DURING THE RELEVANT PREVIOUS YEAR. HOWEVER, HE HAS OBJECTED TO THE ADDI TION OF THE ENTIRE PURCHASES AS UNDISCLOSED INCOME. IT IS T HE APPELLANTS CONTENTION THAT THE UNDISCLOSED PURCHAS ES HAVE BEEN PROCESSED AND SOLD DURING THE YEAR AND HA VE BEEN FINANCED FROM THE FUNDS GENERATED OUT OF THE UNACCOUNTED SALES. FOR THIS PURPOSE, THE APPELLANT HAS ALSO POINTED OUT TO THE ABSURD GROSS PROFIT MARGIN AND NET PROFIT MARGIN WHICH WILL RESULT IF THE ENTIRE P URCHASES I.T.A. NO. 1549/KOL./2014 ASSESSMENT YEAR: 2006-2007 PAGE 3 OF 5 ARE ADDED TO THE NET PROFIT/TOTAL INCOME. I AGREE W ITH THE APPELLANT THAT THE ENTIRE PURCHASES CANNOT BE TREAT ED AS THE APPELLANT'S NET PROFIT OR TOTAL INCOME. THE VER Y REASON FOR MAKING PURCHASES IS TO SELL THE SAME AND EARN P ROFIT OUT OF THE DIFFERENCE IN SELLING AND PURCHASE PRICE . THERE IS NO EVIDENCE ON RECORD THAT THE APPELLANT HAD MAD E ANY INITIAL INVESTMENT TO MAKE THE UNACCOUNTED PURCHASE S. AS A MATTER OF FACT, THE DISCREPANCY WAS DISCOVERED FR OM THE LIST OF SUNDRY CREDITORS FURNISHED BY THE APPELLANT IN WHICH THE IMPUGNED PURCHASES HAVE BEEN SHOWN AS PURCHASES ON CREDIT AND AS AT THE END OF THE YEAR A LSO, THE PURCHASES HAD NOT BEEN PAID FOR. IT IS AN ESTABLISH ED PROPOSITION OF LAW THAT ONLY NET PROFIT EARNED ON UNDISCLOSED SALES CAN BE ADDED UNLESS THERE IS ANY MATERIAL ON RECORD TO SUGGEST THAT THE ASSESSEE HAD MADE ANY INVESTMENT OUTSIDE BOOKS OF ACCOUNT TO MAKE ALL EGED UNACCOUNTED SALES. THIS PROPOSITION HAS BEEN FOLLOW ED IN VARIOUS JUDICIAL PRONOUNCEMENTS LIKE CIT VS. BALCHA ND AJIT KUMAR (2003) 263 ITR 610 (MP)/135 TAXMAN 180 (MP), CIT VS. PRESIDENT INDUSTRIES (2002) 258 ITR 6 54 (GUJ)/124 TAXMAN 654 (GUJ) AND MANMOHAN SADANI VS. CIT (2008) 304 ITR 52 (MP). UNDER THE CIRCUMSTANCES ONLY PROFIT SHOWN BY THE APPELLANT ON THE SALES OF THE UNDISCLOSED MATERIALS/ ITEMS PURCHASED BY THE APPEL LANT CAN BE BROUGHT TO TAX. THE APPELLANT HAS WORKED OUT ESTIMATED GROSS PROFIT OF RS.5,11,415/., ON THE PRO JECTED SALES ON THE BASIS OF THE CORRESPONDING FIGURES OF PURCHASES, SALES ETC. IN THE DECLARED P&L A/ C. THE APPELLANT HAS ESTIMATED THE PROFIT IN A CIRCUITOUS MANNER. A SIMPLER WAY WOULD BE TO ESTIMATE THE GROSS PROFIT DIRECTLY ON THE BASIS OF THE RATIO OF THE GROSS PRO FIT TO THE PURCHASES IN THE DECLARED P&L A/C. IN HIS P&L A/C., THE APPELLANT HAS DECLARED SALES OF RS.1,06,64,432/- PURCHASES OF RS.86,99,734/-, GROSS PROFIT OF RS.12,96,831/-: OPENING STOCK OF RS.1,35,500/-, CLO SING STOCK OF RS.4,25,500/-, WAGES AND LABOUR EXPENSES O F RS.10,96,666/- CARRIAGE INWARD EXPENSES OF RS.11,66 7/- AND INCOME OF RS.1,50,467/- ON ACCOUNT OF RECEIPTS OF LABOUR CHARGES. THE GROSS PROFIT OF RS.12,96,831/- WORKS OUT TO 14.91% OF THE PURCHASES OF RS.86,99,734/-. APPLYING THE SAME RATIO TO THE UNACCOUNTED PURCHASE S OF RS.34,93,270/-, THE PROFIT ON THE UNDISCLOSED PURCH ASES WORKS OUT TO RS.5,20,726/-. THIS PROFIT IS HELD TO BE THE UNDISCLOSED PROFIT OF THE APPELLANT EARNED ON THE T RADING OF THE UNDISCLOSED PURCHASES OF RS.34,93,270/-. THE ASSESSING OFFICER IS DIRECTED TO ADD ONLY THIS PROF IT OF RS.5,20,726/- INSTEAD OF THE ENTIRE PURCHASES OF RS.34,93,270/-. AS A RESULT, ADDITION OF RS.5,20,72 6/- IS I.T.A. NO. 1549/KOL./2014 ASSESSMENT YEAR: 2006-2007 PAGE 4 OF 5 CONFIRMED AND THE BALANCE ADDITION OF RS.29,72,544/ - IS DELETED. AGGRIEVED BY THE ORDER OF THE LD. CIT(APPEALS), THE REVENUE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 4. I HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT THE UNDISCLOSED PURCHASES OF RS.34,93,270/- WERE MADE B Y THE ASSESSEE IN RELATION TO HIS REGULAR BUSINESS AND THERE WAS NOTH ING BROUGHT ON RECORD BY THE ASSESSING OFFICER TO SHOW THAT ANY INVESTMEN T OUTSIDE THE BOOKS WAS MADE BY THE ASSESSEE FOR SUCH UNDISCLOSED PURCH ASES. SINCE THE UNDISCLOSED PURCHASES WERE MADE BY THE ASSESSEE IN RELATION TO HIS REGULAR BUSINESS, THE LOGICAL CONCLUSION THAT FOLLO WED IS THAT THERE WERE UNDISCLOSED SALES MADE BY THE ASSESSEE OUT OF SUCH PURCHASES. IN SHORT, THE RELEVANT PURCHASES AS WELL AS THE CORRESPONDING SALES MADE OUT OF THE SAID PURCHASES WERE UNDISCLOSED BY THE ASSESSEE AND THERE BEING NOTHING BROUGHT ON RECORD TO SHOW SPECIFICALLY THAT ANY INV ESTMENT WAS MADE BY THE ASSESSEE FOR THE PURPOSE OF THIS UNDISCLOSED BU SINESS, WHAT COULD BE ADDED TO THE TOTAL INCOME OF THE ASSESSEE IS ONLY T HE NET PROFIT EARNED FROM SUCH UNDISCLOSED BUSINESS AND NOT THE ENTIRE A MOUNT OF UNDISCLOSED PURCHASES AS RIGHTLY HELD BY THE LD. CIT(APPEALS). AT THE TIME OF HEARING BEFORE ME, EVEN THE LD. D.R. HAS NOT BEEN ABLE TO R EBUT OR CONTROVERT THIS POSITION. I, THEREFORE, FIND NO INFIRMITY IN THE IM PUGNED ORDER OF THE LD. CIT(APPEALS) RESTRICTING THE ADDITION OF RS.34,93,2 70/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF UNDISCLOSED PURCHAS ES TO RS.5,20,726/- AND UPHOLDING THE SAME, I DISMISS THIS APPEAL FILED BY THE REVENUE. 5. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON SEPTEMBER 02, 2016. SD/- (P.M. JAGTAP) ACCOUNTANT MEMBER KOLKATA, THE 2 ND DAY OF SEPTEMBER, 2016 I.T.A. NO. 1549/KOL./2014 ASSESSMENT YEAR: 2006-2007 PAGE 5 OF 5 COPIES TO : (1) INCOME TAX OFFICER, WARD-53(1), KOLKATA, AAYAKAR BHAWAN DAKSHIN, 2, GARIAHAT ROAD (SOUTH), KOLKATA-700 068 (2) SHRI CHITTARANJAN GHOSH, 695/1A, D.H. ROAD, HINDUSTHAN PARK, KOLKATA-700 034 (3) COMMISSIONER OF INCOME TAX (APPEALS)-XXXIII, KOLKATA; (4) COMMISSIONER OF INCOME TAX- , (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, KOLKATA BENCHES, KOLKATA LAHA/SR. P.S.