ITO, Cuttack V. Sri Purusottam Bagri, Jajpur

ITA 177/CTK/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65085 (ITAT-CUTTACK)
• Duration Of Justice: 5 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2012
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 06-08-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 08-03-2012
• Court: TRIBUNAL
• Keywords: Unexplained investment; Cost of acquisition

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK ( ) BEFORE . . , , HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER. /AND . . . , HONBLE SHRI K.S.S.PRASAD RAO, JUDICIAL MEMBER / I.T.A.NO. 177/CTK/2012 & C.O.NO.30/CTK/2012 (FILED BY ASSESSEE) ( / ASSESSMENT YEAR 2008 - 09) INCOME - TAX OFFICER, WARD 1(2), CUTTACK. - - - VERSUS - SRI SRI PURUSOTTAM BAGRI, P ROP.HANUMAN AUTO AGENCY, AT/P.O.JAJPUR ROAD, DIST.JAJPUR PAN: AAWPB 4054 B ( /APPELLANT ) ( / RESPONDENT ) / FOR THE APPELLANT : / SHRI A.BHATTACHARJEE, DR / FOR THE RESPONDENT: / SHRI . S.K.JENA, AR / DATE OF HEARING: 06.08.2012 / DATE OF PRONOUNCEMENT: 14.08.2012 / ORDER . . , , SHRI K.K.GUPTA, ACCOUNTANT MEMBER . THIS APPEAL BY THE REVENUE RAISES THE FOLLOWING GROUNDS. 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. FIRST APPELLATE AUTHORITY WAS NOT JUSTIFIED IN DELETING THE ADDITIONS OF 3,99,963, MADE ON ACCOUNT OF DIFFERENCE ON EXCESS SHORTAGE OF HSD(DIESEL) AND MS(PETROL) RELYING ON THE SAME TYPE OF ISSUE REPORTED IN ITA NO: 157/ CTK/2011 PASSED BY THE HONBLE ITAT,CUTTACK BENCH,CUTTACK -- WHERE CIRCULAR ISSUED BY THE MINISTRY OF PETROLEUM & CHEMICAL SPECIFY THE GROSS PROFIT FROM THE TRADING BUSINESS OF PETROLEUM PRODUCTS AS O.75/O OF GROSS TURNOVER OR GROSS PURCHASE COST. A MISCE LLANEOUS APPLICATION HAS BEEN FILED BEFORE THE ITAT REGARDING THE APPARENT MISTAKE COMMITTED IN INTERPRETING THE CONTENTS OF THE CIRCULAR. 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD.CIT(A) IS NOT JUSTIFIED IN DELETING THE ASSESSEES INCOME FROM THE UNDISCLOSED SOURCES OF 3,35,215 MADE BY THE AO AS THERE IS A CREDIT BALANCE OF 3,35,215 REMAINING UN - REFLECTED IN THE I.T.A.NO. 177/CTK/2012 2 BALANCE SHEET AFTER THE ADJUSTMENT OF OUTSTANDING DISCREPANCY WITH THE CREDITORS WHEN THE ASSESSEE MAINTAINS MERCANTILE SYSTEM OF AC COUNTING. 03. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD.FIRST APPELLATE AUTHORITY IS JUSTIFIED TO HOLD THAT THE STATUTORY PROVISION LAID DOWN IN SECTION 197(A) AND 197A(1A) DO NOT MANDATE THE ASSESSEE TO MAKE TDS ON INTEREST ON UNSECURED LOANS AS THE DEDUCTEES SHOW THE RECEIPT OF INTEREST IN THE RETURN OF INCOME FILED IN SUBSEQUENT YEAR. 04. WHETHER THE LD.CIT(A) IS JUSTIFIED TO HOLD THAT THERE CAN NOT BE ANY INVESTMENT OUTSIDE THE BOOKS OF A/C IN RESPECT OF PURCHASES MADE OUTSIDE THE BO OKS AND ALSO SALES MADE OUTSIDE THE BOOKS, WHERE THE LD APPELLATE AUTHORITY HAS CONFIRMED THE FINDINGS OF THE AC. THAT THE ASSESSEE HAD NOT DISCLOSED THE CREDIT SALES AMOUNTING TO 10,91,32,303 AND ALSO HAS CONFIRMED THAT FOR SUCH UN - RECORDED SALES THE COR RESPONDING PURCHASES WOULD BE 10,70,02,443. EVIDENTLY FOR SUCH PURCHASES NOT DISCLOSED IN THE REGULAR BOOKS OF A/C, THERE HAS TO BE A CERTAIN CAPITAL INVESTMENT OUTSIDE THE BOOKS WHICH THE AO HAS DETERMINED AT REASONABLE FIGURE AT 50,00,000 AND HAS TREAT ED SUCH UNEXPLAINED INVESTMENT RELATABLE TO UNRECORDED PURCHASES OF 10,70,02,443 AS INCOME FROM OTHER SOURCES. TO THIS EXTENT, THE FINDING OF THE LD. AUTHORITY IN DELETING SUCH UNEXPLAINED INVESTMENT IS GROSSLY ERRONEOUS. 2. THE ASSESSEE HAS FILED CROSS OBJECTION SUPPORTING THE IMPUGNED ORDER OF THE LEARNED CIT(A). 3 . THE BRIEF FACTS ARE THAT THE ASSESSEE DERIVES INCOME FROM RUNNING A RETAIL OUTLET OF PETROLEUM PRODUCTS UNDER HPCL IN THE TRADE NAME OF M/S.HANUMAN AUTO AGENCIES AT JAJPUR ROAD, JAJPUR. RE TURN OF INCOME WAS FILED N 24.9.2009 ON A TAXABLE INCOME OF 1,58,330. THE RETURN OF INCOME WAS PROCESSED U/S.143(1). SUBSEQUENTLY THE CASE WAS SELECTED FOR SCRUTINY. DURING THE COURSE OF SCRUTINY PROCEEDINGS, THE ASSESSING OFFICER CONSIDERED THE CLAIM OF THE ASSESSEE ON ACCOUNT OF LEAKAGES BY WAY OF PILFERAGE AND EVAPORATION WHEN ON OBTAINING ALLOWABLE PERMISSIBLE LIMIT TO RETAILERS OF I.T.A.NO. 177/CTK/2012 3 PETROL PRODUCTS FROM HPCL HE OBSERVED THAT THE ASSESSEE HAD CLAIMED MORE LOSS ON ACCOUNT OF LEAKAGE ETC., DISALLOWED 3,99 ,963 AS EXCESS CLAIMED. HE ALSO CONSIDERED THE CLAIM OF THE ASSESSEE BEING INTEREST AMOUNTING TO 7,56,300 WHEN HE FOUND THAT M/S.SOHANLAL JAYKISHAN HAD BEEN PAID A SUM OF 55,000 WITHOUT DEDUCTION OF TAX AT SOURCE WHICH NON - DEDUCTION IS IN VIOLATION TO T HE PROVISIONS OF SECTION 197A RECIPIENT BEING FIRM. HE ALSO VERIFIED THE DETAIL ACCOUNT OF PETROL AND LUBRICANTS TALLIED WITH BY THE ASSESSEE WHEN HE FOUND THAT THE CASH SALES REPORTED BY THE ASSESSEE WERE LESS THAN THE PURCHASE AS PER THE INFORMATION A VAILABLE WHICH PURCHASES HE APPLIED THE COST OF SALES AS PER THE GROSS MARGIN AND BROUGHT TO TAX A SUM OF 20,29,860. HE FURTHER VERIFIED THE BALANCE SHEET WHEN THE AMOUNT OWED TO HPCL WAS SHOWN AT LESSER FIGURE INSOFAR AS THE CHEQUES ISSUED TO HPCL HAD NOT BEEN ENCASHED TILL 31 ST MARCH, 2008. HE TOTALED THE OUTSTANDING CHEQUES AND HELD A DISCREPANCY OF 3, 35, 215 WHICH OUGHT TO BE A CREDIT IN THE NAME OF HPCL WAS TAXED IN THE HANDS OF THE ASSESSEE. HE FURTHER CONSIDERED THE PURCHASES TO COMPARE THE CAPITAL EMPLOYED BY THE ASSESSEE DEALING FROM A CASH CREDIT ACCOUNT FROM URBAN CO - OP. BANK. HE APPLIED THE RATIO O F THE CAPITAL EMPLOYED TO THE PURCHASES MADE WHEN HE HELD THAT A CREDITOR TO WHOM THE ASSESSEE OWED 48,36,960 BEING THE USER OF THE PRODUCT WAS ASSESSEES UNDISCLOSED CIRCULATING CAPITAL WHICH HE BROUGHT TO TAX AT 50 LAKHS. THE ASSESSING OFFICER, THEREAFTER COMPUTED THE TAXABLE INCOME WHEN THE ASSESSEE HAD RETURNED INCOME OF 1,58,330 TO 79,78,370. 4 . AGGRIEVED THE ASSESSEE APPEALED BEFORE THE FIRST APPELLATE AUTHORITY. THE LEARNED CIT(A) APPRECIATED THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE BEFORE HIM AND DELETED ALL THE ADDITIONS AS HAVE BEEN MENTIONED ABOVE. HOWEVER, THE ADDITION WITH R ESPECT TO THE SALES NOT I.T.A.NO. 177/CTK/2012 4 DECLARED AMOUNTING TO 20,29,860 BEING PROFITS OF THE UNDISCLOSED SALES HAS NOT BEEN CHALLENGED WHICH WAS CONFIRMED BY THE LEARNED CIT(A) BY THE ASSESSEE AS OF NOW. ON A SPECIFIC QUERY BY THE BENCH THE LEARNED COUNSEL FOR THE ASSESSEE HAD NO INSTRUCTION TO FILE APPEAL ON THIS I SSUE. 5 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE IMPUGNED ORDERS OF THE AUTHORITIES BELOW AND THE MATERIAL AVAILABLE ON RECORD. THE LEARNED COUNSEL FOR THE ASSESSEE HAS RELIED ON THE ORDER OF THE LEARNED CIT(A), WHEREAS THE LEARNED DR RELIED ON THE OBSERVATIONS OF THE AO FOR HIS PART OF SUBMISSIONS ON THE FACTS AND CIRCUMSTANCES AS HAVE BEEN BROUGHT N RECORD. WE ARE UNABLE TO SATISFY OURSELVES TO THE CONTENTION OF THE ASSESSING OFFICER IN THE GROUNDS RAISED BEFORE US INSOFAR AS WITH RESPECT TO G ROUND NO.1, THE ASSESSEE HAD NOT CLAIMED LOSS ON ACCOUNT OF LEAKAGE AND EVAPORATION. WHEN THE ASSESSING OFFICER CHOSE TO VERIFY THE SAME FROM THE QUANTITATIVE DETAILS AS CERTIFIED BY THE AUDITOR IN THEIR AUDIT REPORT, HE COMPARED THE LEAKAGES CLAIMED THERE FROM AS INFORMED BY THE HPCL WAS A POSSIBLE LEAKAGE ALLOWABLE TO THE RETAILERS. HE CALCULATED A PERCENTAGE AND HELD THAT 3,99,963 WAS THE AMOUNT WHICH OUGHT TO HAVE BEEN BROUGHT ON RECORD AS SALES WHICH WAS CONSIDERED BY THE LEARNED CIT(A) ON THE ASSESSEES APPEAL THAT THE ASSESSEE HAD DECLARED THE NET PROFIT ON THE BASIS OF COMMISSION EARNED ON THE SALES OF PETROL PRODUCTS WHICH WAS IN ACCORDANCE WITH THE OTHER DEALERS OF PETROLEUM PRODUCTS TAKING COGNIZANCE OF ORDER OF THE ITAT, CUTTACK BENCH IN THE CASE OF RADHA KRISHNA PRADHAN V. INCOME - TAX OFFICER IN ITA NO.157/CTK/20111 FOR THE ASSESSMENT YEAR 2006 - 07. HE HELD THAT TH E SYSTEM OF VALUING THE CLOSING STOCK WAS CONSISTENT AND THEREFORE , WITHOUT DISPUTING THE OPENING STOCK , THE CLOSING STOCK CANNOT BE HELD TO HAVE REDUCED BY THE AMOUNT OF SALES WHICH THE AO HAD BROUGHT TO TAX ON RECORD. I.T.A.NO. 177/CTK/2012 5 IN OTHER WORDS, THE LOSS HAD NOT BE EN CLAIMED BY THE ASSESSEE COMPUTED BY THE ASSESSING OFFICER. WE DO NOT FIND ANY INFIRMITY IN THE FINDING OF THE LEARNED CIT(A) ON THIS SCORE WHO RIGHTLY CONSIDERED THE AMOUNT FOR DELETION . THIS GROUND RAISED BY THE REVENUE, THEREFORE, STANDS DISMISSED. 5 . 1. ON THE NEXT GROUND WITH RESPECT TO CREDIT BALANCE OF HPCL, THE LEARNED CIT(A) OBSERVED THAT THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND HAD ISSUED CHEQUES TILL 31.3.2008 WHICH WERE TO BE ENCASHED BY THE CREDITORS AFTER THE CLOSE OF TH E FINANCIAL YEAR THEREFORE COULD NOT HAVE CERTIFIED BALANCE AT 1,22,523. THE ASSESSING OFFICER RECONCILED THE AMOUNT AS REPORTED AND FOUND THAT THERE WOULD BE A CREDIT BALANCE OF 3,35,215 WHICH SHOULD REMAIN IN THE ASSET SIDE OF THE BALANCE SHEET. IN OTH ER WORDS THE ASSESSING OFFICER DID NOT APPRECIATE THAT THE ASSET SIDE ON ACCOUNT OF THIS CREDIT BALANCE SHOWS THE CLOSING STOCK WHICH WAS DECLARED BY THE ASSESSEE. THEREFORE, THE LEARNED CIT(A) ON A SPECIFIC FINDING THAT THE CALCULATION MADE BY THE ASSESSI NG OFFICER WAS NOT BASED ON COGENT REASON INSOFAR AS THE PAYMENTS WERE DULY ACKNOWLEDGED ON THE BASI S OF ASSESSEE ISSUING THE CHEQU ES AND THERE WAS NO REASON TO RECONCILE THE DIFFERENCE BETWEEN 1,22,523 FOR BRINGING TO TAX A SUM OFRS.3,35,2315 AS CONCEALM ENT OF AN ASSET. HERE AGAIN , WE UPHOLD THE ORDER OF THE LEARNED CIT(A) DELETING THE SAID ADDITION, FINDING NO INFIRMITY IN HIS ORDER ON THIS SCORE. 5.2. ON THE ISSUE OF NON - DEDUCTION OF TAX SOURCE U/S.197A, THE LEARNED CIT(A)HAS DELETED THE DISALLOWANCE A S THE SAME WAS NOT DISALLOWED U/S.40(A)(IA) BUT BECAUSE THE RECIPIENT HAD SHOWN THE INCOME IN THE VERY IMPUGNED ASSESSMENT YEAR, THE SAME COULD NOT BE TAXED AS INCOME IN THE I.T.A.NO. 177/CTK/2012 6 HANDS OF THE ASSESSEE. WE UPHOLD THE SAME AND DISMISS THE GROUND RAISED BY THE REV ENUE. 5 .3 . ON THE LAST ISSUE, AS CAN BE PERUSED IN THE GROUNDS ABOVE, THERE IS NO METHOD FOR TRYING TO COMPUTE THE CAPITAL EMPLOYED FOR THE PURCHASES DURING THE YEAR MADE BY THE ASSESSEE HAVING FOUND THAT THE DEBTORS AND CREDITORS STAND BALANCED. THE CAPI TAL EMPLOYED THEREFORE JUSTIFIES THE INVESTMENT OF THE ASSESSEE TO THE EXTENT THAT THE ASSESSING OFFICER HAS HIMSELF OBSERVED AS EACH CONSIGNMENT OF PETROL AND DIESEL WAS LESS THAN 6 LAKHS. IT IS A METHOD OF CONDUCTING BUSINESS WHICH THE ASSESSING OFFICER HAS TRIED TO SUPER IMPO SE BY HIS OWN UNDERSTANDING TO D EDUCE AND ANALYZE AS A FINANCE MANAGEMENT ACCOUNTANT. THERE IS NO LINK TO CAPITAL EMPLOYED FOR FINDING THE AMOUNT THAT OUGHT TO HAVE REMAINED INVESTED INSOFAR AS A DEBTOR CANNOT BECOME A CREDITOR FOR HOLDING THE ASSESSEE RESPONSIBLE FOR OBTAINING AND FUNCTIONING FROM THE MONEY OWED BY A DEBTOR TO IT . THE ADDITION OF 50,00,000 WAS RIGHTLY CONSIDERED FIT FOR DELETION BY THE LEARNED CIT(A) OBSERVING THAT THE RATIO ADOPTED BY THE AO WAS DEVOID OF ANY CO RRELATION. WE DO NOT FIND ANY INFIRMITY THEREIN AND THE SAME IS THEREFORE UPHELD. 6 . IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. THE CO FILED BY THE ASSESSEE SUPPORTING THE IMPUGNED ORDER OF THE LEARNED CIT(A) IS DISPOSED OF ACCORDINGLY. S D/ - S D/ - ( . . . ) , (K.S.S.PRASAD RAO), JUDICIAL MEMBER ( . . ) , , (K.K.GUPTA), ACCOUNTANT MEMBER. ( ) DATE: ( ), (H.K.PADHEE), SENIOR.PRIVATE SECRETARY. I.T.A.NO. 177/CTK/2012 7 - COPY OF THE ORDER FORWARDED TO: 1 . / THE APPELLANT : INCOME - TAX OFFICER, WARD 1(2), CUTTACK. 2 / THE RESPONDENT: SRI SRI PURUSOTTAM BAGRI, PROP.HANUMAN AUTO AGENCY, AT/P.O.JAJPUR ROA D, DIST.JAJPUR 3 . / THE CIT, 4 . ( )/ THE CIT(A), 5 . / DR, CUTTACK BENCH 6 . GUARD FILE . / TRUE COPY, / BY ORDER, APPENDIX XVII SEAL TO BE AFFIXED ON THE ORDER SHEET BY THE SR. P.S./P.S. AFTER DICTATION IS GIVEN 1. DATE OF DICTATION 8.8.2012 . 2. DATE ON WHICH THE TYPED DRAF T IS PLACED BEFORE THE DICTATING MEMBER 10.8.2012 OTHER MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.... 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S 14.08.2012 . 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 14.08.2012 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE G OES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER ................ 9. DATE OF DESPATCH OF THE ORDER ..