Shri Arun P.Chakraborty, Surat V. The Income Tax Officer, Ward-5(1), Surat

ITA 1969/AHD/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1098 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2006-2007
• Appeal Filed On: 19-07-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Rejection of books of accounts; Third party statement
• Section: 40A(3); 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH AHMEDABAD BEFORE SHRI S. S. GODARA, JM, & SHRI MANISH BORA D, AM. ITA NO.1969/AHD/2013 ASST. YEAR:2006-07 SHRI ARUN P. CHAKRABORTY, 310, MANGALAM APARTMENT, BEGAMPURA, SHETRANJIWAD, SURAT. VS. INCOME-TAX OFFICER, WARD 5(1), SURAT. APPELLANT RESPONDENT PAN AETPC 4684F APPELLANT BY SHRI MEHUL SHAH, AR RESPONDENT BY SHRI KEYUR PATEL, SR.DR DATE OF HEARING: 28/6/2016 DATE OF PRONOUNCEMENT: 20/07/2016 O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER . THIS APPEAL OF ASSESSEE FOR ASST. YEAR 2006-07 IS DIRECTED AGAINST THE ORDER OF LD. CIT(A)-I, SURAT, DATED 05. 03.2013 IN APPEAL NO.CAS-1/TFR.5.113/258/12-13 PASSED AGAINST ORDER U /S 143(3) R.W.S. 147 OF THE INCOME-TAX ACT, 1961 (IN SHORT TH E ACT) FRAMED ON 29.12.2011 BY ITO, WD-5(1), SURAT. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT ASSESS EE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF TRADING IN CL OTHES. HE FILED HIS RETURN OF INCOME ON 31.7.2006 SHOWING TOTAL INCOME OF RS.1,09,650/-. ITA NO. 1969/AHD/2013 ASST. YEAR 2006-07 2 LD. ASSESSING OFFICER ON THE BASIS OF INFORMATION R ECEIVED FROM ITO, OSD, RANGE, SURAT, CAME TO KNOW THAT ASSESSEE HAD M ADE PURCHASES OF GOODS FROM M/S RAJESH & SONS OF RS.1,4 6,80,757/- AND HAD MADE CASH PAYMENT OF RS.1,10,35,000/- AGAINST T HESE PURCHASES. ON THE BASIS OF THIS INFORMATION THE CAS E OF THE ASSESSEE WAS REOPENED WHICH WAS EARLIER PROCESSED U/S 143(3) OF THE ACT AND PROCEEDINGS U/S 147 OF THE ACT WERE CARRIED ON. DUR ING THE COURSE OF PROCEEDINGS, LD. ASSESSING OFFICER OBSERVED THAT AS SESSEE HAS SHOWN TURNOVER OF RS.8,82,940/- AND THE NET PROFIT OF RS.1,06,990/-. WHEN ASSESSEE WAS CONFRONTED BY LD. ASSESSING OFFIC ER ABOUT THE IMPUGNED PURCHASES FROM M/S RAJESH & SONS AT RS. 1, 46,80,757/- HE BLANKLY DENIED OF KNOWING M/S RAJESH & SONS AND CAR RYING ON ANY BUSINESS TRANSACTION WITH THIS CONCERN. WHEREAS WHE N THE OWNER OF M/S RAJESH & SONS, MR.RAJESHWAR PRASAD GUPTA WAS SU MMONED AND STATEMENT WAS RECORDED ON OATH IT WAS CONFIRMED BY HIM THAT ASSESSEE WAS IN REGULAR BUSINESS DEALING WITH HIM T HROUGH HIS PROPRIETARY CONCERN M/S BANGLORE SILK AND THE IMPUG NED TRANSACTION OF PURCHASES AT RS. 1,46,80,757/- WERE ACTUALLY ENT ERED INTO BETWEEN BOTH THE PARTIES AND CASH WAS DIRECTLY DEPOSITED TO THE BANK ACCOUNT OF M/S RAJESH & SONS AGAINST THE PURCHASES MADE FRO M TIME TO TIME AND CONFIRMATION LETTER FOR THE PURCHASES MADE, DUL Y SIGNED BY MR. ARUN CHAKRABORTY WAS PROVIDED TO HIM. EVEN DURING C ROSS- EXAMINATION BOTH THE PARTIES WERE AVAILABLE FOR ONC E BUT THEREAFTER ASSESSEE DID NOT TURN UP TO RAISE OBJECTION AGAINS T THE STATEMENT GIVEN BY RAJESHWAR PRASAD GUPTA. ON THE BASIS OF TH ESE SERIES OF INCIDENCES LD. ASSESSING OFFICER COMPLETED THE ASSE SSMENT BY MAKING TWO ADDITIONS ITA NO. 1969/AHD/2013 ASST. YEAR 2006-07 3 (I) OF RS.7,41,967/- BY APPLYING NET PROFIT OF 5% O N THE IMPUGNED PURCHASES; (II) DISALLOWANCE OF RS.22,07,000/- BY APPLYING AND CALCULATING THE DISALLOWANCE @ 20% OF THE CASH PAYM ENT OF RS.1,10,35,000/-. IN TOTAL ADDITION OF RS.29,48,967/- WAS MADE. AND INCOME WAS ASSESSED AT RS.30,58,617/-. 3. FIRST WE TAKE UP GROUND NO.1 WHICH READS AS UND ER :- (1) ON THE FACTS, CIRCUMSTANCES, EVIDENCE OF THE CA SE AND LAW THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL) - I HAS NOT JUS TIFIED IN CONFIRMING THE ASSESSMENT ORDER OF THE LEARNED ASSESSING OFFIC ER FOR THE ADDITION OF RS. 22,07,000/- UNDER SECTION 40A(3) BEING @ 20% OF THE CASH PAYMENTS. 4. LD. ASSESSING OFFICER INVOKED THE PROVISIONS OF SECTION 40A(3) OF THE ACT AND MADE DISALLOWANCE @ 20% OF THE IMPUG NED CASH PAYMENT MADE BY ASSESSEE AT RS.1,10,35,000/- AGAINS T THE PURCHASES FROM M/S RAJESH & SONS AT RS.1,46,80,757/ -. LD. CIT(A) CONFIRMED THE DISALLOWANCE BY OBSERVING AS BELOW :- 7. AS REGARDS GROUND NO. L, 20 % OF THE PURCHASES M ADE BY THE APPELLANT HAVE BEEN DISALLOWED U/S 40A(3) OF THE I T ACT. THE SAID ADDITION IS OF LEGAL NATURE AND THE ADDITION IS TO BE MADE EVEN IF, THE EXPENDITURE IS GENUINE. THE ESTIMATION OF 5 % NP ON PURCHASE MEANS THAT THE NP ON SALES IS LO WER THAN 5 % WHICH MEANS THAT THE EXPENDITURES OF MORE THAN 95% OF SALES HAV E BEEN ALLOWED. SINCE THERE IS AN EVIDENCE THAT EXPENDITURE TO THE EXTENT OF RS .1,10,35,000/- WAS INCURRED IN CASH, THE PROVISO TO SECTION 40A(3) OF THE ACT IS A UTOMATICALLY INVOKABLE. CONSEQUENTLY, THE GROUND NO. 1 OF THE APPEAL IS ALS O DISMISSED. 5. AGGRIEVED, ASSESSEE IS NOW IN APPEAL BEFORE THE TRIBUNAL AGAINST THE ACTION OF LD.CIT(A) CONFIRMING THE DISA LLOWANCE MADE U/S ITA NO. 1969/AHD/2013 ASST. YEAR 2006-07 4 40A(3) OF THE ACT AT RS.22,07,000/-. LD. AR SUBMITT ED THAT THERE ARE SERIES OF JUDGMENTS AND DECISIONS WHICH SAYS THAT I F THE INCOME OF THE ASSESSEE IS ESTIMATED BY APPLYING GP/NP RATE TH EN IN SUCH CASES NO DISALLOWANCE IS CALLED FOR U/S 40A(3) OF THE ACT . FOLLOWING DECISIONS WERE REFERRED AND RELIED ON BY THE LD. AR :- 1. BANWARI LAL BANSHIDHAR VS. CIT 229 ITR 229 (ALL) 2. CIT VS. SANTOSH JAIN 296 ITR 0324 (P& H) 3. INDWELL CONSTRUCTION VS. CIT 232 ITR 0776 (A.P.) 4. ITO VS. SADANANDA SINGHA 151 ITD 0714 (KOL)(TRIB ) 5. VIJAY PROTEINS LTD. VS. ACIT 58 ITD 0428 (AHD)(T RIB) 6. NEW NARAYAN BUILDERS VS. ITO 43 TTJ 0508 (AHD)(T RIB) 7. GOPALSINGH R. RAJPUROHIT VS. ACIT 23 CCH 0369 (A HD)(TRIB) 8. DCIT VS. NARENDRA AGARWAL ITA NO.811 & 808/PN/20 10 6. ON THE OTHER HAND, LD. DR SUPPORTED THE ORDERS O F LOWER AUTHORITIES. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. ASSESSEE IS AGGRIEVED WITH THE ORDER OF LD. CIT(A) CONFIRMING THE DISALLOWANCE MADE U/S 40A(3) OF THE ACT. AS HELD ABOVE WHILE ADJUDICATING GROUND NO.2, WE FIND THAT ASSESSEE WAS UNABLE TO CONTROVERT THE FACT TOWARDS IMPUGNED PURC HASES OF RS.1,46,80,757/- FROM M/S RAJESH & SONS AND LD. ASS ESSING OFFICER OBSERVED ON THE BASIS OF INFORMATION RECEIVED FROM OTHER SECTION OF INCOME-TAX DEPARTMENT THAT CASH PAYMENT OF RS.1,10, 35,000/- WAS MADE AGAINST THIS PURCHASES. 8. WE OBSERVE THAT LD. AR HAS REFERRED AND RELIED O N VARIOUS JUDGMENTS AND DECISIONS WHEREIN PROVISIONS OF SECTI ON 40A(3) WAS ITA NO. 1969/AHD/2013 ASST. YEAR 2006-07 5 NOT HELD TO BE CORRECT WHERE THE INCOME OF THE ASSE SSEE IS ESTIMATED. HOWEVER, WE FIND THAT IN THE JUDGMENTS AND DECISION S CITED BY THE LD. AR THE FACTS ARE DIFFERENT AS THEY RELATE TO SURVEY AND SEARCH PROCEEDINGS AND INCOME ESTIMATED THEREAFTER OR WHER E THE BOOKS OF ACCOUNTS REJECTED UNDER SECTION 145(3) OF THE ACT A ND INCOME IS ESTIMATED. HOWEVER, IN THE CASE BEFORE US NEITHER I S THERE ANY SEARCH OR SURVEY PROCEEDINGS NOR BOOKS OF ACCOUNT HAVE BEE N REJECTED U/S 145(3) OF THE ACT AND MERELY ON THE BASIS OF INFORM ATION RECEIVED FROM OTHER SECTION OF I.T. DEPARTMENT, LD. ASSESSIN G OFFICER HAS COLLECTED NECESSARY EVIDENCES AND STATEMENT ON OATH FROM THE SELLER FROM WHOM ASSESSEE MADE IMPUGNED PURCHASES AND, THE REFORE, THE JUDGMENTS AND DECISIONS CITED BY LD. AR WILL NOT AP PLY ON THE FACTS OF THIS CASE AND LD. ASSESSING OFFICER HAS RIGHTLY INV OKED THE PROVISIONS OF SECTION 40A(3) OF THE ACT. 9. WE OBSERVE THAT PROVISIONS OF SECTION 40A(3) FOR ASST. YEAR 2006-07 ARE INVOKED WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF WHICH PAYMENT IS IN A SUM EXCEEDING RS.2 0,000/- OTHERWISE THAN BY AN A/C. PAYEE CHEQUE DRAWN ON A B ANK OR A/C. PAYEE DEMAND DRAFT AND SUCH EXPENDITURE DOES NOT FA LL IN THE EXCEPTION PROVIDED IN RULE 6DD OF IT RULES, 1962; T HEN SUCH EXPENDITURE CALLS FOR DISALLOWANCE @ 20%. WE OBSERVE THAT THE VERY BASIS AVAILABLE WITH LD. ASSESSING OFFICER FOR DISA LLOWANCE U/S 40A(3) OF THE ACT WAS INFORMATION PASSED BY ITO(OSD-1), RA NGE-2, SURAT AND THE ACCOUNT CONFIRMATION OF THE TRANSACTIONS BE TWEEN THE ASSESSEES PROPRIETARY CONCERN M/S BANGALORE SILK T RADING CO. AND ITA NO. 1969/AHD/2013 ASST. YEAR 2006-07 6 M/S RAJESH & SONS WHICH WERE SUBMITTED DURING REGUL AR SCRUTINY PROCEEDINGS OF M/S RAJESH & SONS WITH ITO(OSD-1),RA NGE-2. WE ARE OF THE VIEW THAT LD. ASSESSING OFFICER SHOULD H AVE MADE SPECIFIC FINDING BY WAY OF POINTING OUT THE PARTICULAR TRANS ACTIONS WHICH CALLS FOR DISALLOWANCE U/S 40A(3) OF THE ACT @ 20%. FROM GOING THROUGH THE ASSESSMENT ORDER, WE FIND THAT LD. ASSESSING OF FICER HAS MADE A GENERAL FINDING AND HAS MADE DISALLOWANCE @ 20% ON THE TOTAL CASH PAYMENT OF RS.1,10,35,000/- MADE AGAINST IMPUGNED P URCHASES. IN THE GIVEN CIRCUMSTANCES, WE FIND IT JUSTIFIABLE TO SET ASIDE THE ISSUE TO THE FILE OF LD. ASSESSING OFFICER FOR RE-EXAMINING THE INDIVIDUAL TRANSACTIONS OF CASH PAYMENTS SHOWN IN THE CONFIRMA TION LETTER AND THE INFORMATION PROVIDED BY OTHER SECTION OF THE DE PARTMENT AND TO MAKE SPECIFIC FINDING ABOUT THE TRANSACTIONS WHICH ATTRACT 20% DISALLOWANCE U/S 40A(3) OF THE ACT. NEEDLESS TO MEN TION THAT ASSESSEE WILL BE PROVIDED SUFFICIENT OPPORTUNITY TO PLACE NECESSARY DOCUMENTS AND EVIDENCES IN SUPPORT OF HIS CONTENTIO N. ACCORDINGLY, THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 10. NOW WE TAKE UP GROUND NO.2 WHICH READS AS UNDER :- (2) ON THE FACTS, CIRCUMSTANCES, EVIDENCE OF THE CA SH AND LAW THE LEARNED COMMISSIONER OF INCOME-TAX (APPEAL) - I HAS NOT JUSTIFIED IN CONFIRMING THE ORDER OF LEARNER ASSESSING OFFICER I N ESTIMATING NET INCOME @ 5% OF TOTAL PURCHASES BEING PROPRIETARY OF THE TR ANSACTIONS NOT ESTABLISHED. 11. LD. CIT(A) CONFIRMED ADDITION OF RS.7,41,967/- MADE BY LD. ASSESSING OFFICER BY APPLYING N.P. @ 5% ON THE IMP UGNED PURCHASE AMOUNT OF RS. 1,46, 80 ,757/- BY OBSERVING AS UNDER :- ITA NO. 1969/AHD/2013 ASST. YEAR 2006-07 7 6.9 NOW COMING TO THE SPECIFIC GROUNDS OF APPEAL AN D THE NATURE OF ADDITIONS, THE ASSESSING OFFICERS ESTIMATION OF 5% ON TOTAL PURCHASE MADE BY THE APPELLANT IS UPHELD. HOWEVER, THERE APP EARS TO BE SOME TYPOGRAPHICAL ERROR IN THE FIRST PAGE OF THE ASSESS MENT ORDER, WHERE TOTAL PURCHASES HAVE BEEN MENTIONED AT RS 1,46,80,7 57/- . THE GROSS PURCHASES HAVE BEEN MENTIONED IN PARA 5 AT RS 1, 48 , 39, 353/- WHICH IS ALSO THE TOTAL LEDGER ACCOUNT OF APPELLANT IN TH E BOOKS OF SHRI RAJESH & SONS. THE A.O ESTIMATED 5% OF NET PROFIT ON RS. 1 ,48,39,353/- ONLY WHICH IS VERY REASONABLE ESTIMATION AND CONSEQUENTL Y, THE GROUND NO. 2 OF THE APPEAL IS ALSO DISMISSED. 12. AGGRIEVED, ASSESSEE IS NOW IN APPEAL BEFORE THE TRIBUNAL. 13. LD. AR SUBMITTED THAT NO SUCH PURCHASES WERE MA DE BY THE ASSESSEE AND LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION. 14. ON THE OTHER HAND, LD. DR SUPPORTED THE ORDERS OF LOWER AUTHORITIES. 15. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THROUGH THIS GROUND ASSESSEE IS AGGRIEVE D BY THE ACTION OF LD. CIT(A) CONFIRMING THE ORDER OF LD. ASSESSING OFFICER IN ESTIMATING THE NET PROFIT RATE OF 5% OF THE IMPUGNE D PURCHASES AMOUNT OF RS. 1,46,80,757/-. FROM GOING THROUGH THE ASSESSMENT ORDER, WE OBSERVE THAT LD. ASSESSING OFFICER HAS GA THERED SUFFICIENT MATERIAL INCLUDING STATEMENT OF SELLER M/S RAJESH & SONS, LEDGER ACCOUNT OF REGULAR BUSINESS TRANSACTIONS ENTERED IN TO AND ALSO EVEN DURING CROSS-EXAMINATION ASSESSEE COULD NOT BRING A NY MATERIAL EVIDENCE AGAINST THE ALLEGATION IMPOSED ON HIM PROV ING THAT HE MADE PURCHASES OF RS.1,46,80,757/- FROM M/S RAJESH & SON S AND CASH ITA NO. 1969/AHD/2013 ASST. YEAR 2006-07 8 PAYMENT OF RS.1,10,35,000/- WAS MADE AGAINST THIS I MPUGNED PURCHASES. IN THESE CIRCUMSTANCES IT IS CLEARLY EVI DENT THAT ASSESSEE HAD NO EXPLANATION TO DISPROVE THE MATERIAL FACT PL ACED BEFORE LD. ASSESSING OFFICER INFORMATION PROVIDED BY ITO(OSD). WE FURTHER OBSERVE THAT ASSESSEE HAS DISCLOSED NET PROFIT AT R S.1,06,990/- AGAINST TOTAL TURNOVER OF RS.8,82,940/- IN THE REGU LAR RETURN OF INCOME FILED WHICH GIVES THE NET PROFIT RATE OF 12.1%. HOW EVER, LD. ASSESSING OFFICER HAS GENEROUSLY APPLIED 5% NET PROFIT RATE O N THE IMPUGNED UNDISCLOSED TRANSACTIONS. WE ARE, THEREFORE, OF THE VIEW THAT ADDITION OF RS. 7,41,967/- WAS RIGHTLY MADE BY LD. ASSESSING OFFIC ER BY APPLYING 5% NET PROFIT RATE ON THE IMPUGNED PURCHAS ES AND LD. CIT(A) HAS RIGHTLY CONFIRMED THE SAME. WE UPHOLD THE ORDER OF LD. CIT(A). THIS GROUND OF ASSESSEE IS DISMISSED. 16. GROUND NO.3 READS AS UNDER :- (3) THE LD. ASSESSING OFFICER HAS ERRED IN APPRECIA TING AND ACCEPTING THE FALSE STATEMENT GIVEN BY SHRI RAJESHWAR PRASAD GUPTA AS POINTED OUT BY OUR LETTER DATED 29.12.2011 TO THE L D. ASSESSING OFFICER. 17. FROM GOING THROUGH THE ASSESSMENT ORDER WE OBSE RVE THAT LD. ASSESSING OFFICER TOOK SEPARATE STATEMENTS FROM BOT H THE ASSESSEE AS WELL AS MR. RAJESHWAR PRASAD GUPTA (SELLER OF GO ODS) AND THEREAFTER OPPORTUNITY OF CROSS-EXAMINATION WAS ALS O GIVEN TO THE ASSESSEE WHICH WAS DULY AVAILED BY HIM BEFORE LD. A SSESSING OFFICER. BUT THE ASSESSEE MISERABLY FAILED TO DEFEND AND COU NTER THE FACTS NARRATED BY RAJESHWAR PRASAD GUPTA INCLUDING CONTRA CONFIRMATION LETTER SIGNED BY BOTH THE PARTIES. WE ARE, THEREFOR E, OF THE VIEW THAT ITA NO. 1969/AHD/2013 ASST. YEAR 2006-07 9 LD. ASSESSING OFFICER HAS RIGHTLY ACCEPTED THE STAT EMENT GIVEN BY MR. RAJESHWAR PRASAD GUPTA. THIS GROUND OF THE ASSESSEE IS DISMISSED. 18. OTHER GROUNDS ARE GENERAL IN NATURE, WHICH NEED NOT BE ADJUDICATED. 19. IN THE RESULT, APPEAL IS PARTLY ALLOWED FOR STA TISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH JULY, 2016 SD/- SD/- (S. S. GODARA) JUDICIAL MEMBER (MANISH BORAD) ACCOUNTANT MEMBER DATED 20/7/2016 MAHATA/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, AHMEDABAD 1. DATE OF DICTATION: 15/07/2016 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 18/07/2016 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: __________ 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 20/7/16 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: