M/s Balaram Sahoo, Jagatsinghpur V. ITO, Cuttack

ITA 185/CTK/2012

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7833 (ITAT-CUTTACK)
• Duration Of Justice: 3 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 27-06-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 14-03-2012
• Court: TRIBUNAL
• Department Lawyers: S C MOHANTY
• Assessee Lawyers: S N SAHU
• Keywords: Unexplained expenditure; Principle of natural justice
• Section: 69C; 68

Judgement Text

IN THE INC O ME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE : SHRI K.K.GUPTA, AM , AND SHRI K.S.S.PRASAD RAO, JM ITA NO. 185 AND 186/CTK/2012 (ASSESSMENT YEAR 2005 - 06) BALARAM SAHOO, AT: TUMBHAN DEI SAHI, P.O.ASHRAM PATNA, DIST.JAGATSINGHPUR P AN: ANTPS 3253 M VERSUS INCOME - TAX OFFICER, WARD 2(1), CUTTACK. (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI S.N.SAHU, AR FOR THE RESPONDENT SHRI S.C.MOHANTY, DR DATE OF HEARING : 27.06.2012 DATE OF PRONOUNCEMENT : 29.06.2012 ORDER SHRI K.K.GUPTA, AM : THESE TWO APPEALS BY THE ASSESSEE ARE CHALLENGING THE QUANTUM ASSESSED BY THE ASSESSING OFFICER ON THE FACTS AND CIRCUMSTANCES AND CONFIRMED BY THE LEARNED CIT(A) WHICH QUANTUM U/S.143(3) IS BEFORE THE TRIBUNAL ALONG WITH AN APPEAL ON THE CONSEQUENTIAL LEVY OF PENALTY SO CONFIRMED BY THE LEARNED CIT(A) ARE TO BE DEALT WITH TOGETHER . 2. IN THE QUANTUM APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS. 1. FOR THAT THE LEARNED CIT (A) IS WHOLLY UNJUSTIFIED TO CONFIRMED THE ADDITIONS OF 5,14,637 ALLEGING IT AS UNEXPLAINED LIABILITY SHOWN ON ACCOUNT OF M/S CUTTACK SALES CORPORATION, MANGALORE, WITHOUT OBSERVING DUE PROCESS OF LAW AND PLACING RELIANCE ON THE BOOKS OF ACCOUNT OF THE THIRD PARTY AND THEREFORE THE ADDITION MADE BEING ILLEGAL UNJUDICIOUS AND VITIATED SHOULD BE DELETED IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. FOR THAT THE LEARNED CIT (A) IS WHOLLY UNJUSTIFIED TO CONFIRM ADDITION OF 2,60,035 ALLEGING IT AS UNEXPLAINED LIABILITY AND 1,25,910 AS UNEXPLAINED EXPENDITURE B ASING ON ACCOUNTS OF M/S GOKUL AGENCIES, MANGALORE WITHOUT OBSERVING DUE PROCESS OF LAW AND THEREFORE THE ADDITION SO MADE BEING UNFAIR AND UNREASONABLE, ILLEGAL AND ARBITRARY SHOULD BE DELETED IN THE FACTS AND CIRCUMSTANCES OF THE CASE . 3. FOR THAT THE ABOVE ADDITIONS OF 5,14,637 , 2,60,035 AND 1,25,910 WERE THE RESULT OF NON - APPLICATION OF MIND IGNORING ALL REASONABLE EXPLANATIONS OFFERED AND VIOLATING RULES OF NATURAL JUSTICE AND FAIR PLAY AND THEREFORE BEING ARBITRARY UNJUST AND ITA NO.185 AND 186/CTK/2012 2 AGAINST THE RULE OF LAW ARE LIABLE TO B E DELETED IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE BRIEF FACTS AS HAVE BEEN BROUGHT ON RECORD AND CONSIDERED BY THE AUTHORITIES BELOW WERE SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE ALONG WITH HIS ARGUMENTS LEADING TO ERRONEOUS CONFIRMAT ION OF THE AMOUNT ASSESSED TO TAX UNDER THE PROVISIONS OF SECTION 69C BY THE ASSESSING OFFICER. HE SUBMITTED THAT THE ASSESSEE WAS PURCHASING GOODS FROM M/S.CUTTACK SALES CORPORATION AND M/S. GOKUL AGENCIES, MANGALORE IN K ARNATAKA . HE HAD NO DIRECT CONTACT AND MONETARY TRANSACTIONS WITH BOTH THE PARTIES M/S.CUTTACK SALES CORPORATION AND M/S.GOKUL AGENCIES. THE MONETARY TRANSACTIONS WITH BOTH THE PARTIES WERE MADE THROUGH BROKERS. WHENEVER ANY CASH WAS PAID TO THE BROKER IT WAS DULY RECORDED IN THE CASH BOOK AND LEDGER. DURING THE COURSE OF ASSESSMENT ON BEING ASKED BY THE ASSESSING OFFICER THE ASSESSEE FURNISHED THE LEDGER COPY OF BOTH THE PARTIES. ON COMPARISON OF BOTH THE LEDGER COPY OF ACCOUNTS OBTAINED FROM THE SELLER PARTIES WITH THE BOOKS OF ACCOUNT OF THE ASSESSEE, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAD TO PAY 7,48,978 TO M/S.CUTTACK SALES CORPORATION AND 2,34,341 TO M/S.GOKUL AGENCIES BUT ACCORDING TO THE ACCOUNTS OF BOTH THE PARTIES SUCH OUTSTANDING AGAINST THE ASSESSEE WERE DIFFERENT. TH E ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS NOT BEEN ABLE TO SUBSTANTIATE THE BOGUS LIABILITIES SHOWN ON ACCOUNT OF M/S.CUTTACK SALES CORPORATION TO THE EXTENT OF 5,14,637 AS WELL AS 2,60,035 SHOWN IN THE ACCOUNT OF M/S.GOKUL AGENCIES. THE ASSESSI NG OFFICER FURTHER OBSERVED THAT PURCHASES OF 1,25,910 HAD BEEN MADE OUTSIDE THE BOOKS OF ACCOUNT FROM UNDISCLOSED SOURCES. THE ASSESSING OFFICER MADE ADDITIONS OF THE ABOVE THREE AMOUNTS TO THE TOTAL INCOME OF THE ASSESSEE. IN APPEAL, THE LEARNED CIT(A) CONFIRMED THE SAME AGAINST WHICH ON FURTHER APPEAL BY THE ASSESSEE, THE TRIBUNAL RESTORED THE ISSUE TO THE FILE OF THE ITA NO.185 AND 186/CTK/2012 3 LEARNED CIT(A), WHO IN THE ORDER DT.22.12.2011 AGAIN CONFIRMED THE ADDITIONS, AGAINST WHICH ORDER THE ASSESSEE IS IN THE PRESENT APPEAL B EFORE THE TRIBUNAL. BASED ON THESE ADDITIONS, THE ASSESSING OFFICER LEVIED PENALTY U/S.271(1)(C) OF THE I.T.ACT,1961 WHICH HAVING BEEN CONFIRMED BY THE LEARNED CIT(A), THE ASSESSEE HAS FILED APPEAL BEFORE THE TRIBUNAL. 4. THE LEARNED COUNSEL FOR THE ASSESS EE FURTHER SUBMITTED THAT FOR THE CLARIFICATION OF THE FACTS IT WAS CONSIDERED FIT FOR RESTORATION BY THE TRIBUNAL TO THE FILE OF THE CIT(A) IN THE ORDER DT.26.11.2009 WHICH COPY IS PRODUCED AND PLACED ON RECORD. HE SUBMITTED THAT THE FACTS AS HAVE BEEN BR OUGHT ON RECORD BY THE ASSESSING OFFICER HAVE TO BE ADDRESSED IN THE LINE OF THE LEARNED CIT(A) UPHOLDING THE AMOUNT BROUGHT TO TAX. HE POINTED OUT THAT THE LEARNED CIT(A) AFTER VERIFYING THE FACT CONFIRMED THE ADDITIONS. THIS CLEARLY INDICATE THAT EVEN T HE BASIC PRINCIPLES OF ACCOUNTING HAVE BEEN MISCONSTRUED TO CONFIRM THE TAXATION OF THE AMOUNT U/S.69C INSOFAR AS THE AMOUNTS ARE NEITHER APPEARING AS OWED TO THE RESPECTIVE PARTIES NOR CAN BE DISALLOWED U/S.69C FOR WANT OF SOURCE TO BE EXPLAINED AFTER HAV ING INCURRED THE EXPENSES. THE PURCHASE BILL SOUGHT TO BE TAXED BY THE ASSESSING OFFICER WAS THEREFORE NEVER GIVEN A CREDIT BY THE ASSESSEE CAN BE TAXED IN THE HANDS OF THE ASSESSEE. HE THEREFORE, PRAYED TO DELETE THE ADDITIONS. 5. WITH RESPECT TO THE PENA LTY U/S.271(1)(C), THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT ENTRIES IN THE BOOKS OF ACCOUNT OF THIRD PARTIES CANNOT BE HELD AS FURNISHING OF INACCURATE PARTICULARS OR FOR THAT MATTER CONCEALMENT OF INCOME UNDER THE PROVISIONS OF SECTION 68 OR SECTION 69C. HE PRAYED THAT THE PENALTY SO LEVIED MAY ALSO BE DIRECTED TO BE DELETED. THE LEARNED DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW FOR HIS PART OF SUBMISSIONS ON BOTH COUNTS. HE POINTED OUT THAT SECTION 69C WAS INVOKED FOR 1,25,10 WHICH PURCHASE WAS NOT RECORDED BY THE ASSESSEE AND THE OTHER ITA NO.185 AND 186/CTK/2012 4 TWO AMOUNTS WERE AMOUNTS PAID BY THE ASSESSEE NOT RECORDED BY THE ASSESSEE SHOWING BOGUS LIABILITY. CONSEQUENTIAL LEVY OF PENALTY WAS LEVIED ON ACCOUNT OF FURNISHING OF INACCURATE PART ICULARS ALONG WITH CONCEALMENT OF INCOME WHICH MAY ALSO BE CONFIRMED AS PER AW. 6. WE HAVE HEARD THE RIVAL CONTENTIONS OF THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE INCLINED TO FIND THAT THE ASSESSING OFFICER AND THE LEARNED CIT(A) BY WAY OF SEPARATE ORDERS HAVE ONLY SUBSTANTIATED THE CLAIM OF THE ASSESSEE FROM THE VERY BEGINNING IN ITS FAVOUR . FIRST THE ASSESSING OFFICER HE HAS RECOGNIZED THAT THE AMOUNT WAS PAID IN CASH TO LIQUID ATE THE CREDIT BEING BILLS RAISED BY THE ASSESSEE WERE SUFFICIENT AND INSCRIBED IN THE BOOKS OF ACCOUNT WHEN THE ASSESSING OFFICER SOUGHT TO BALANCE THE SAME ON ACCOUNT OF CREDITS CONFIRMED BY THE RECEIPIENT ON ACCOUNT OF PAYMENT RECEIVED IN THE FORM OF DE MAND DRAFT WHICH VALUE OF DEMAND DRAFT ARE NOT IN ACCORDANCE WITH THE CASH PAID BY THE ASSESSEE. IN OTHER WORDS, THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE BROKER WAS PAID CASH TO FULFIL THE AMOUNT OF BILL RAISED BY IT WAS SUFFICIENT A ND THE RESIDUAL AMOUNT WAS SHOWN AS LIABILITY WHEN THE LIABILITY HAS BEEN SHOWN IN THE BALANCE SHEET AS ON 31.3.2005. THE ASSESSEE DOES NOT HAVE A BANK ACCOUNT AND THEREFORE, THE DEMAND DRAFTS PURPORTEDLY SQUARED OFF TO LIQUIDATE THE DEBIT BALANCE BY THE R ECIPIENT WERE NOT THE DRAFTS PAID BY THE ASSESSEE. THE VERY AMOUNTS WHICH HAVE BEEN SHOWN AGAINST THE LIQUIDATION OF THE DEBIT BALANCE ARE THE DRAFTS PAID BY THE BROKERS THEREFORE BY NO STRETCH OF IMAGINATION CAN BE SQUARED OFF AGAINST THE BALANCE LIQUIDAT ED BY THE BROKERS WHEN HE CHOSE TO PAY THE SAME BY WAY OF DEMAND DRAFT. THE RECIPIENT OF DRAFT THEREFORE CANNOT BE SAID TO BE SQUARING OFF DEBIT BALANCE INSOFAR AS THE CREDIT BALANCE SHOWN BY THE ASSESSEE IS IN ACCORDANCE WITH THE BILLS RAISED ON THE ASSES SEE AND THE CASH PAID TO THE ITA NO.185 AND 186/CTK/2012 5 BROKER. IT IS NOBODYS CASE THAT A CREDITOR WOULD NOT LIKE TO RECEIVE THE AMOUNT OWED TO IT INSOFAR AS THE ASSESSING OFFICER WAS TO INDICATE THAT THE CREDITOR HAS BEEN PAID THE AMOUNT HAS NOT BEEN SHOWN BY THE ASSESSEE. IN FACT , THE LEARNED CIT(A) HAS RATHER DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY SAYING THAT THE LIABILITY SHOWN REMAINED UNEXPLAINED. IT CLEARLY MEANS THAT THE SAME SET OF FACTS HAVE BEEN INTERPRETED BY THE RESPECTIVE AUTHORITIES IN CONTRADICTION WHETHER CA N BE TAXED U/S.68 OR U/S.69C INSOFAR AS THE LEARNED COUNSEL FOR THE ASSESSEE HAVE VEHEMENTLY ARGUED CITING CASE LAWS WHICH RELATE TO THE FACT THAT THE THIRD PARTY CLAIMING LESS AMOUNT THEN THE ACTUAL AMOUNT OWED BY THE ASSESSEE CANNOT BE TAXED IN THE HANDS OF THE ASSESSEE INSOFAR AS IT IS THE RECIPIENT WHO HAS TO EXPLAIN WHERE FROM HE GOT THE DRAFTS . IT IS A CLEAR THAT HAVING ACCEPTED THE CASH CONVERTED TO DEMAND DRAFT, THE PARTIES HAVE BEEN IDENTIFIED, THE GENUINE NE SS AND CREDITWORTHINESS HAVE BEEN ESTABLI SHED BY BOTH THE AUTHORITIES THEREFORE CANNOT LEAD TO ADDITION IN THE HANDS OF THE ASSESSEE ALONE INSOFAR AS THE ASSESSEE HAS RETURNED THE INCOME IN ACCORDANCE WITH THE PURCHASES WHICH SALES ARE NOT CONTROVERTED EITHER BY THE ASSESSING OFFICER OR THE LEARN ED CIT(A). THE LEARNED DR EMPHASIZED ON THE METHOD OF VERIFICATION UNDER THE PROVISIONS OF SECTIONS 68/69C INSOFAR AS THE AO HAS POWER TO INCORPORATE THE INFORMATION AVAILABLE HAS TO BE GIVEN EFFECT IN THE MANNER SO THAT THE ASSESSEES HAVE TO EXPLAIN OR RE BUT THE FINDINGS ON THE BASIS OF SUCH INFORMATION AVAILABLE TO IT . THE ASSESSEE SAYS THAT HE OWES THIS AMOUNT TO THE PARTY AND THE PARTY SHOWS THAT HE HAS RECEIVED THE PAYMENT IS BEYOND ANY BODY IMAGINATION INSOFAR AS NO PARTY WOULD AGREE TO THE PROPOSITIO N THAT THE AMOUNT ACTUALLY OWED BY THE PARTY HAS BEEN PAID AND SQUARED OFF O N BEHALF OF THE ASSESSEE FROM ANOTHER PARTY. THE BROKER INVOLVED THEREFORE CO NVERTING CASH INTO DRAFTS CAN HAVE MANY OTHER PARTIES TO ADJUST THE SALE S , ONE PARTY BEING THE ASSESSEE CANNOT ITA NO.185 AND 186/CTK/2012 6 BE HELD AGAINST THE ASSESSEE ALONE . WE ARE THEREFORE, UNABLE TO SATISFY OURSELVES TO THE BASIS AND MERITS OF THE ADDITIONS MADE BY THE ASSESSING OFFICER AND THE CONFIRMATION THEREOF HOLDING THE LIABILITY AS UNEXPLAINED WHEN IDENTITY, GENUINENESS AN D CREDITWORTHINESS OF THE BROKERS STAND ACCEPTED BY THE LEARNED CIT(A) AS WELL. IN THIS VIEW OF THE MATTER, THE AMOUNT CANNOT BE TAXED IN THE HANDS OF THE ASSESSEE FOR THE IMPUGNED ASSESSMENT YEAR WHICH IS DIRECTED TO BE DELETED. IN RESPECT OF ADDITION OF 1,25,910 AS UNEXPLAINED EXPENDITURE, WE FIND FORCE IN THE CONTENTION OF THE LEARNED AR OF THE ASSESSEE THAT WHEN THIS BILL WAS NOT RECEIVED AND NO PAYMENT WAS MADE AGAINST IT, NATURALLY IT IS NOT INCLUDED IN THE PURCHASE ACCOUNT. IF THIS AMOUNT IS TREATED AS UNEXPLAINED PURCHASE THERE WILL BE AN INFLATION TO PURCHASE ACCOUNT AND THE PROFIT WILL BE ACCORDINGLY REDUCED BY THAT AMOUNT. BUT THIS IS NOT THE CASE AS CONSIDERED BY THE ASSESSING OFFICER AS WELL AS THE LEARNED CIT(A). THEREFORE, SINCE THE ASSESSEE HAS NOT SHOWN THE SAME IN THE ACCOUNTS BECAUSE OF NON - RECEIPT OF BILLS, THERE IS NOTHING WRONG IN IT AND IN THAT VIEW OF THE MATTER, THE ADDITION OF 1,2,5,9810 IS NOT JUSTIFIED AND AS SUCH, WE DIRECT DELETION OF THE SAID ADDITION. IN CONSEQUENCE THEREOF, THE PENALTY LEVIED U/S.271(1)(C) BASED ON THESE THREE ADDITIO NS IS ALSO CANCELLED. 7. IN THE RESULT, BOTH THE APPEALS FILED BY THE ASSESSEE ARE ALLOWED. S D/ - S D/ - (K.S.S.PRASAD RAO) JUDICIAL MEMBER (K.K.GUPTA) ACCOUNTANT MEMBER DATE: 29.06.2012 H.K.PADHEE, SENIOR PRIVATE SECRETARY. ITA NO.185 AND 186/CTK/2012 7 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT: BALARAM SAHOO, AT: TUMBHAN DEI SAHI, P.O.ASHRAM PATNA, DIST.JAGATSINGHPUR 2. THE RESPONDENT: INCOME - TAX OFFICER, WARD 2(1), CUTTACK. 3. THE CIT, 4. THE CIT(A), 5. THE DR, CUTTACK 6. GUARD FILE (IN DUPLICATE) TRUE COPY, BY ORDER, SENIOR PRIVATE SECRETARY. APPENDIX X VII SEAL TO BE AFFIXED ON THE ORDER SHEET BY THE SR. P.S./P.S. AFTER DICTATION IS GIVEN 1. DATE OF DICTATION 27.06.2012 .. 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 28.06.2012 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 PRONOUNCEME NT.... 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 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 ..