Kunjalata Sahoo, Cuttack V. ITO, Khurda

ITA 184/CTK/2012

• Counselvise Citation: 18422114 RSA 2012
• Duration Of Justice: 7 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 07-11-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 14-03-2012
• Court: TRIBUNAL
• Department Lawyers: S C MOHANTYDR
• Assessee Lawyers: A KEDIAP K PATTNAIKARS
• Keywords: Unexplained investment; Business income
• Section: 68; 44AD; 40A(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK ( ) BEFORE . . , , HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER. /AND . . . , H ONBLE SHRI K.S.S.PRASAD RAO, JUDICIAL MEMBER / I.T.A.NO. 184/CTK/2012 / ASSESSMENT YEAR 2008 - 09 SMT.KUNJALATA SAHOO, PROP.MAA STORE, GAJAPATINAGAR, RAJA BAZAR, JATNI 752 050, DIST. KHURDA PAN:AMWPS 8861 R - - - VERSUS - INCOME - TAX OFFICER, KHURDA WARD, KHURDA. ( /APPELLANT ) ( / RESPONDENT ) / FOR THE APPELLANT : / SHRI A.KEDIA/P.K.PATTNAIK,ARS / FOR THE RESPONDENT: / SHRI S.C.MOHANTY,DR / DATE OF HEARING: 07.11.2012 / DATE OF PRONOUNCEMENT: 09.11.2012 / ORDER . . , , SHRI K.K.GUPTA, ACCOUNTANT MEMBER . THIS APPEAL BY THE ASSESSEE RAISES THE FOLLOWING GROUNDS. 1 . FOR THAT THE LEARNED CIT (A) SHOULD HA VE DELETED THE ADDITION MADE BY THE LEARNED ASSESSING OFFICER AMOUNTING TO 2,15,508 BY ENHANCING THE GROSS PROFIT TO 6% IN THE PARTICULAR CIRCUMSTANCES OF THE CASE. 2. FOR THAT THE LEARNED CIT (A) SHOULD HAVE DELETED THE ADDITION MADE BY THE LEARNED ASS ESSING OFFICER AMOUNTING TO 1,74,431 BY TREATING THE DIFFERENCE IN SUNDRY CREDITOR SHOWN BY US AND AS PROVIDED BY THE SUNDRY CREDITOR AS UNEXPLAINED INCOME OF THE APPELLANT IN THE PARTICULAR CIRCUMSTANCES OF THE CASE. 3. FOR THAT THE LEARNED CIT (A) SHO ULD HAVE DELETED THE ADDITION MADE BY THE LEARNED ASSESSING OFFICER AMOUNTING TO 33,595 BY TREATING THE DIFFERENCE IN SUNDRY CREDITOR SHOWN BY US AND AS PROVIDED BY THE SUNDRY CREDITOR AS UNEXPLAINED INVESTMENT OF THE APPELLANT IN THE PARTICULAR CIRCUMST ANCES OF THE CASE. 4. FOR THAT THE LEARNED CIT (A) SHOULD HAVE DELETED THE ADDITION MADE BY THE LEARNED ASSESSING OFFICER AMOUNTING TO 97,000 AS PER SECTION 40A (3) OF THE INCOME TAX ACT TO THE INCOME OF THE APPELLANT IN THE PARTICULAR CIRCUMSTANCES OF THE CASE. I.T.A.NO. 184/CTK/2012 2 2. THE BRIEF FACTS AS HAVE BEEN BROUGHT ON RECORD ARE THAT THE ASSESSEE IS AN INDIVIDUAL DERIVING INCOME FROM HER PROPRIETORSHIP BUSINESS MAA STORE WHICH DEALS IN WHOLESALE TRADING IN GROCERY GOODS. RETURN OF INCOME FOR THE ASSESSMENT YEAR 200 8 - 09 WAS FILED BY THE ASSESSEE ON 30.9.2008 DISCLOSING NET INCOME FROM BUSINESS 2,06,180. IN THE SCRUTINY ASSESSMENT U/S.143(3)/144 THE ASSESSING OFFICER MADE VARIOUS ADDITIONS INCLUDING THE ADDITION ON GROSS PROFIT BY ESTIMATING THE GROSS PROFIT @6%. THE ADDITIONS MADE BY THE ASSESSING OFFICER ARE ON ACCOUNT OF FINDING THAT THE ASSE SSEE HAD NOT MAINTAINED THE STOCK REGISTER VIOLATING THE PROVISIONS OF SECTION 145(3) UNDERTOOK TO COMPUTE THE CORRECT INCOME OF THE ASSESSEE BY CALLING FOR INFORMATION WITH RESPECT TO THE BALANCES OF SUNDRY CREDITORS ON ACCOUNT OF PURCHASES MADE BY THE AS SESSEE. HE OBSERVED AS FOLLOWS : FURTHER, ON GOING THROUGH THE BALANCE SHEET IT IS SEEN THAT THE ASSESSEE HAS SHOWN SUNDRY CREDITORS AT 6,03,360.31. TO EXAMINE THE CORRECTNESS OF THE SUNDRY CREDITORS, REFERENCES WERE MADE TO THEM AND REPLIES HAVE BEEN RECEIVED. ON GOING THROUGH THE L EDGE R COPIES OF SOME OF THE CREDITORS, THE FOLLOWING FACTS EMERGE: NAME OF THE CREDITORS CLOSING BALANCE S HOWN BY CREDITOR CLOSING BALANCE SHOWN BY ASSESSEE DIFFERENCE MAHALAXMI BANIJYA PRATISTAN NIL 97,000 (+) 97,000 ANIK INDUSTRIES LTD. 24.52 77,455 (+) 77,431 MAA DURGA RICE & FLOUR MILL 36,762.44 19,500 ( - ) 17,262.44 SUBUDHI TRADERS 2,38,500 2,22,16 7.32 ( - ) 16,332.68 THE ASSESSEE WAS ASKED TO RECONCILE THE ABOVE DISCREPANCY WITH PROPER DOCUMENTS AND BOOKS OF ACCOUNT. BUT SHE HAS FAILED TO RECONCILE THE SAME, IN THE ABSENCE OF BOOKS OF ACCOUNT. ACCORDINGLY, THE DIFFERENCE OF 1 ,74,431 IN SL .1 AND 2 REMAINS UNEXPLAINED. THEREFORE, THE SAME IS TREATED AS UNEXPLAINED INCOME. SO FAR AS THE DIFFERENCE OF 33,595 . 12 IS TREATED AS UNEXPLAINED INVESTMENT AND ADDED TO THE TOTAL INCOME. I.T.A.NO. 184/CTK/2012 3 FURTHER ON GOING THROUGH THE LEDGER ACCOUNT COPY FURNISHED BY M/S MAHALAXMI BANIJYA PRATISTAN IT IS SEEN THAT THE ASSESSEE HAS PAID CASH ON 3.3.08 AT 60,000/ VIDE RECEIPT NO.271 AND 37,000 ON 4.3.08 VIDE RECEIPT NO.272. ON BEING ASKED TO EXPLAIN AS TO WHY SHE HAS PAID CASH EXCEEDING 20,000 THEREBY VIO LATING THE PROVISIONS OF SECTION 40A(3), THE ASSESSEE COULD NOT FURNISH ANY EXPLANATION TO THE EFFECT. THEREFORE, THE ABOVE SUM OF 97,000 WARRANTS ADDITION U/S 40A(3) OF THE I. T. ACT, 1961. HAVING DONE SO, HE CONTINUED THAT BECAUSE HE HAS TO COMPUTE TH E CORRECT INCOME IN ;ACCORDANCE WITH SECTION 145(3), HE HAS TO PASS THE ORDER U/S.1 4 4 WHEN HE WAS TO ESTIMATE THE GROSS PROFIT AT 6% WHICH WAS COMPUTED BY HIM AT 5,56,147 AS AGAINST DECLARED BY THE ASSESSEE AT 3,40,639. THE DIFFERENCE OF 2,15,508 WAS AD DED ALONG WITH THE EXPENSES TO BE DISALLOWED BEING 10% OF THE TOTAL CLAIM WAS 15,237. 3. AGGRIEVED, THE ASSESSEE APPEALED BEFORE THE FIRST APPELLATE AUTHORITY WHO CONFIRMED THE ESTIMATION ALONG WITH THE INVESTMENTS AND SUNDRY CREDITORS AND ALSO WITH THE S ECTION 40A(3) DISALLOWANCE BUT DELETED THE DISALLOWANCE OF EXPENSES AT 10% WHICH LACKED SOUND BASIS AS PER THE ORDER OF THE ASSESSING OFFICER. 4. THE LEARNED COUNSEL OF THE ASSESSEE INITIATING HIS ARGUMENTS SUBMITTED THAT ONCE THE ASSESSING OFFICER RESORT ED TO REJECT THE BOOK RESULTS ON THE BASIS OF BILLS AND VOUCHERS PRODUCED BEFORE IT, THE ASSESSING OFFICER OUGHT NOT TO HAVE CONSIDERED ADDITION ON ACCOUNT OF THIRD PARTYS CONFIRMATIONS INSOFAR AS HE HAS WRONGLY CONSIDERED THE ADDITIONS WHEN THE SALE CRED IT WAS CONSIDERED FOR THE PURPOSE OF ADDITION AND ADDITION AS UNEXPLAINED SUNDRY CREDITORS AND ALSO AS EXPENSES CREDIT SHOWN BY THE ASSESSEE. IN OTHER WORDS, HE HAS SOUGHT TO DISALLOW , FOR ADDITION , THE VERY AMOUNTS U/S.68 ON THE INFORMATION OF THIRD PARTY WHEN THESE AMOUNTS IF NOTED WOULD BE MUCH LESS THAN THE AMOUNT ESTIMATED BY ENHANCING THE GP RATE BECOME PART OF THE PURCHASES AND SALES INSOFAR AS INTERPRETATION OF THE FACTS AND THE ACCOUNTING THEREOF W AS FAULTY AND NOT BECAUSE HE HIMSELF HAD I.T.A.NO. 184/CTK/2012 4 COMPUTED T HE CORRECT INCOME BY INVOKING THE PROVISIONS OF SECTION 145(3). FURTHERMORE HAVING GIVEN A FINDING THAT THE AMOUNT OWED BY THE ASSESSEE TO A PARTY NAMELY MAHALAXMI BANIJYA PRATISTHAN WAS ON ACCOUNT OF CASH PAYMENT TO IT WAS OWED TO THE ASSESSEE BY MAHALAXM I BANIJYA, HE DISALLOWED THE SAME UNDER THE PROVISIONS OF SECTION 40A(3) WHICH WAS NEVER CLAIMED AS EXPENSES. THEREFORE, HE SUBMITTED THAT THE ADDITIONS SO CONFIRMED BY THE LEARNED CIT(A) HAVE NOT BEEN DEALT WITH BY THE LEARNED CIT(A) IN ACCORDANCE WITH TH E FINDING OF THE ASSESSING OFFICER MAY KINDLY BE DELETED. THE LEARNED CIT(A) DELETED THE AD HOC DISALLOWANCE OF 10% EVEN AFTER ESTIMATING THE INCOME AT 6% WAS CONSIDERED BY THE LEARNED CIT(A) APPROPRIATELY INSOFAR AS THE ASSESSEE IS A RETAILER WAS TO BE GO VERNED BY THE PROVISIONS OF SECTION 44AE WHICH PRESCRIBES 5% INCOME IN CASE THE BOOKS OF ACCOUNT ARE NOT MAINTAINED OR ARE NOT CORRECTLY MAINTAINED. HE SUBMITTED THAT THE BOOKS OF ACCOUNT ARE MAINTAINED AND ARE TO BE DECIPHERED BY THE AUTHORITIES IN ACCORD ANCE WITH LAW TO REACH TO A CORRECT FINDING AND NOT A FINDING WHICH WOULD ITSELF BECOME DETRIMENTAL TO THE INVOKING OF THE PROVISIONS OF SECTION 145(3). HE SUBMITTED THAT THE ESTIMATION IS WITHOUT ANY BASIS INSOFAR AS THE BOOK RESULT CLEARLY SHOWS THAT THE PROPER GROSS MARGIN RETURNED BY THE ASSESSEE AT 3.67% WHICH IF AT ALL BE ENHANCED COULD HAVE BEEN ENHANCED UP TO 5% ONLY INSOFAR AS THE ASSESSING OFFICER HAS NOT COMPUTED THE INCOME CORRECTLY U/S.145(3) A S HAS BEEN POINTED OUT ABOVE. 5. THE LEARNED DR SUP PORTED THE ORDERS OF THE AUTHORITIES BELOW. HE SUBMITTED THAT THERE ARE CASE LAWS WHICH INDICATE THAT WHEN SUNDRY CREDITORS ARE NOT EXPLAINED PROPER L Y CAN BE CONSIDERED FOR INVOCATION OF THE PROVISIONS OF SECTION 68. [CIT V. DEVI PRASAD VISHWANATH (1969) 7 2 ITR 194 (SC)]. THE LEARNED DR ALSO SUPPORTED THE DISALLOWANCE U/S.40A(3) BY CITING THE DECISION OF HONBLE P & H HIGH COURT IN THE CASE OF CHANANA ASSOCIATES I.T.A.NO. 184/CTK/2012 5 V. CIT [(1997) 225 ITR 72 (PUNJ. & HAR.), WHEN SECTION 40A(3) COULD BE INVOKED WHEN THE PROFIT W AS ESTIMATED WAS TO BE CONSIDERED AS A FINDING OF FACT. HE ALSO CITED THE DECISION OF THE ITAT OF THIS BENCH IN THE CASE OF SAI CONSTRUCTION V. ITO, REPORTED IN (2010) 127 TTJ 15 (CTK)(UO) WHEN THE TRIBUNAL WAS OF THE VIEW THAT THERE IS NO LAW THAT THE DEE MING PROVISIONS OF SECTION 68 AND SECTION 69A WOULD NOT APPLY IN CASE WHERE THERE HAS BEEN AN ESTIMATION OF INCOME. THE MONEY RECEIPTS FROM CREDITOR ARE NOT THE ONUS NOTED BY THE LEARNED ASSESSING OFFICER IN HIS ORDER. HE SUPPORTED THE ORDER OF THE LEARNED CIT(A) FOR HIS PART OF SUBMISSIONS. 6. IT MAY BE MENTIONED THAT THE LEARNED COUNSEL OF THE ASSESSEE HAS RELIED ON THE DECISION OF THE ITAT, CUTTACK BENCH IN THE CASE OF ITO V. NITYANANDA SWAIN IN ITA NO.491 & 529/CTK/2011 AND C.O.NO.35/CTK/2011 IN CONSOLI DATED ORDER DT.22.03.2012 FOR THE ASSESSMENT YEAR 2008 - 09 WHEN REJECTING THE BOOKS FOR MAKING ASSESSMENT U/S.144 THE GUIDANCE FACTOR FOR APPLYING THE PROVISIONS OF SECTION 44AD AND 44A E HAVE TO BE INVOKED ONLY FOR THE PURPOSE OF BUSINESS INCOME. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THE CONTENTION OF THE LEARNED COUNSEL OF THE ASSESSEE JUSTIFIED TO THE EXTENT THAT THE COMPUTATION OF CORRECT INCOME U/S.145(3) HAS TO BE AN ONUS TO BE DISCHARGED BY THE ASS ESSING OFFICER NOT ON FAULTY INTERPRETATION OF THE FINDINGS AS INSCRIBED IN THE BOOKS OF ACCOUNT. A PAYMENT TO A CREDITOR CANNOT BE MADE AS AN EXPENSE TILL THE BILL HAS BEEN RAISED BY THE CREDITOR. AFTER HAVING OBTAINED THE CONFIRMATION OF A THIRD PARTY, HE HAS SOUGHT TO TAX THE PAYMENT MADE BY THE ASSESSEE THE CREDITOR BECOMING DEBTOR CANNOT BE DISALLOWED U/S.40A(3) BECAUSE THE EXPENSES HAVE NOT BEEN CLAIMED. SIMILARLY, THE AMOUNT SHOWN PAID BY THE ASSESSEE NOT ACKNOWLEDGED BY THE CREDITOR COULD NOT BE TA XED AS AN INVESTMENT BY THE I.T.A.NO. 184/CTK/2012 6 ASSESSEE FROM UNDISCLOSED SOURCES. THE ASSESSING OFFICER THEREFORE MISDIRECTED HIMSELF TO ADD THESE AMOUNTS OF 1,74,431 AND 33,595 AS MENTIONED ABOVE ALONG WITH THE DISALLOWANCE OF 97,000 IS GLARING INCORRECT INTERPRETATION OF THE FACTS IN THE ACCOUNT BOOKS WHICH DESERVES DELETION TO THE EXTENT THAT THEY ARE NOT RIPE GROUND FOR INVOKING THE PROVISIONS OF SECTION 145(3). THE STOCK REGISTER ABSENCE LED THE ASSESSING OFFICER TO ESTIMATE THE GROSS MARGIN AT 6% CLEARLY INDICATE THAT HE WAS ALLOWING 94% OF THE EXPENDITURES TO BE ALLOWED TO THE ASSESSEE WHEN HE CHOSE TO DISALLOW ONLY 15,237 BEING 10% THERE FROM. IN OT HER WORDS, HIS ESTIMATION WAS FAULTY. THE LEARNED CIT(A) THEREFORE TOOK NOTE OF THIS FACT AND DELETED THE EXPENSES BUT SUSTAINED THE ESTIMATION AT 6% WHICH BECOMES CONTRADICTORY. THE LEARNED COUNSEL OF THE ASSESSEE BEFORE US HAS SUBMITTED THAT THE BOOKS OF ACCOUNT ARE MAINTAINED IN ORDER TO DECKARE THE GROSS MARGIN LESS THAN THE PRESCRIBED UNDER THE PROVISIONS OF SECTION 44AE. WE DO FIND THAT THE ESTIMATION OF 6% IS ON HIGHER SIDE WHICH WE DIRECT TO REDUCE TO 5% (FIVE PERCENT) IN ACCORDANCE WITH THE PROVISI ONS OF THE I.T.ACT. REFRAINING OURSELVES TO COMMENT ON THE VALIDITY OF INVOKING THE PROVISIONS OF SECTION 145(3) LEADING TO PASSING OF ORDER U/S.144,WE ARE OF THE VIEW THAT THE ESTIMATION OF THE INCOME OF THE ASSESSEE AT 5%(FIVE PERCENT) OF THE GROSS TURNO VER WOULD MEET THE ENDS OF JUSTICE WHICH THE LEARNED COUNSEL OF THE ASSESSEE AGREED. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. SD/ - SD/ - ( . . . ) , (K.S.S.PRASAD RAO), JUDICIAL MEMBER ( . . ) , , (K.K.GUPTA), ACCOUNTANT MEMBER. ( ) DATE: 09.11.2012 ( ), (H.K.PADHEE), SENIOR.PRIVATE SECRETARY. I.T.A.NO. 184/CTK/2012 7 - COPY OF THE ORDER FORWARDED TO: 1 . / THE APPELLANT : SMT.KUNJALATA SAHOO, PROP.MAA STORE, GAJAPATINAGAR, RAJA BAZAR, JATNI 752 050, DIST. KHURDA 2 / THE RESPONDENT: INCOME - TAX OFFI CER, KHURDA WARD, KHURDA. 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 08.11.2012 . 2. DATE ON WHIC H THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 09.11.2012 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 P RONOUNCEMENT.... 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S . 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 09.11.2012 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . . 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER ................ 9. DATE OF DESPATCH OF THE ORDER ..