SK Zahurul Islam, Cuttack V. ITO, Cuttack

ITA 204/CTK/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4453 (ITAT-CUTTACK)
• Duration Of Justice: 11 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2011
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 20-04-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 17-05-2010
• Court: TRIBUNAL
• Department Lawyers: J KHANRA
• Assessee Lawyers: P K MISHRA
• Keywords: Reason to believe
• Section: 69C; 40A(3); 133(6)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK ( ) BEFORE . . , , HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER. /AND . . . , S HRI K.S.S.PRASAD RAO , JUDICIAL MEMBER / I.T.A.NO. 204/CTK/2010 / ASSESSMENT YEAR 2005 - 06 S.K.ZAHURUL ISLAM, PROP. ORISSA KOHINOOR PRESS, P.O.BUXIBAZAR, CUTTACK. PAN: AAMPI 3258 B - - - VERSUS - INCOME - TAX OFFICER, WARD 2(3 ), CUTTACK. ( /APPELLANT ) ( / RESPONDENT ) / FOR THE APPELLANT : / SHRI P.K.MISHRA, AR / FOR THE RESPONDENT: / SHRI J.KHANRA, DR / ORDER . . , , SHRI K.K.GUPTA, ACC OUNTANT MEMBER. THIS APPEAL BY THE ASSESSEE AGITATES THE ACTION OF THE LEARNED CIT(A) IN CONFIRMING THE ADDITIONS BROUGHT TO TAX BY THE ASSESSING OFFICER UNDER THE PROVISIONS OF SECTION 143(3 ) /147. 2. THE BRIEF FACTS AS HAVE BEEN CONSIDERED BY THE AUTHOR ITIES BELOW ON THE ISSUE IN DISPUTE ARE THAT THE ASSESSEE IS AN AUTHOR OF PANJIS, CALENDERS, DIARIES, BOOKS FOR CHILDREN AND PURANS MAINLY IN ORIYA LANGUAGE. HE HAS A SMALL PRINTING PRESS AT HIS PREMISES AND COMPOS ES HIS WRITTEN SCRIPTS AS A PROOF READ ER, PRINTS, BINDS AND SELLS THEM IN ACCORDANCE WITH THE DEMAND AND SUPPLY OF HIS WORK. HE FILED RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR DECLARING 59,700 INCOME AND AGRICULTURAL INCOME OF 5,000 FOR RATE PURPOSES. THE ASSESSING OFFICER ISSUED N OTICE U/S.148 REQUIRING HIM TO FILE THE RETURN ON THE BASIS OF A CIVIL COURTS ORDER , WHEREIN THE HONBLE JUDGE HAD NOTED THAT THE ASSESSEE WAS INDUL GED IN RUNNING THE PRESS FROM THE PREMISES WHICH REQUIRE D FAMILY PARTITION. THE CLAIM THAT THE PROFITS WERE NOT DECLARED I.T.A.NO.204/CTK/2010 2 APPROPRIATELY BY THE ASSESSEE WAS THE BONE OF CONTENTION WHICH WAS LATER CONSIDERED BY HONBLE ORISSA HIGH COURT WHO VIDE THEIR DECISION DT.30.6.2006 HELD TO BE CONSIDERED FOR BASICALLY A PARTITION AS HAD BEEN PRAYED FOR BY THE VARIOUS MEMBER S OF THE ASSESSEES FAMILY . HE WAS APPOINTED AS THE COURT RECEIVER BUT WITHOUT HAVING INCLINATION OF HAVING INCOME TO BE PARTED WITH WHICH WAS TO BE DETERMINED IN ACCORDANCE WITH THE NOTINGS IN THE BOOKS OF ACCOUNT DULY AUDITED. THE ASSESSING OFFICER, DURI NG THE COURSE OF HEARING, CONSIDERED THAT THE ASSESSEE HAD NOT DISCLOSED PURCHASES TO THE TUNE OF 4,40,840 ON HIS ENQUIRY UNDER THE PROVISIONS OF SECTION 133(6) INSOFAR AS THE ASSESSEE HAD SHOWN TOTAL PURCHASE OF PAPER AND INK AMOUNTING TO 6,76,982 ONLY. HE REQUIRED THE ASSESSEE TO EXPLAIN THAT WHY THE PURCHASE HAD NOT BEEN DISCLOSED IN HIS RETURN A S THE SAME WERE NOT INCORPORATED IN THE PURCHASE REGISTER BEING EXCESS PURCHASE OF PAPER AT QUANTITY OF 1976.5 REAMS. HE ADDED 4,40,840 UNDER THE PROVISIONS OF SECTION 69C AND HE ALSO DETERMINED TH E GROSS MARGIN THEREON WHICH HAD NOT BEEN DISCLOSED IN TH E BOOKS OF ACCOUNT FOR ITS UTILIZATION COMPUTING THE GROSS PROFIT MARGIN RATE OF 47.37% AMOUNTING TO 2,08,825. HE ALSO DISALLOWED A SUM OF 6,369 BEING PURCHASES NOT DISCLOSED TO THE DEPARTMENT PAID IN CASH U/S.40A(3) . AGGRIEVED, THE ASSESSEE APPEALED BEF ORE THE FIRST APPELLATE AUTHORITY WHO CONSIDERED TH E CASE OF THE APPELLANT. IT WAS SUBMITTED BEFORE HIM THAT THE PURCHASES WERE PART AND PARCEL OF THE TOTAL PURCHASES DECLARED AMOUNTING TO 6,76,982 INSOFAR AS THE PURCHASES PURPORTED TO HAVE BEEN MADE BY T HE ASSESSEE AS OUTSIDE THE BOOKS BUT ON INFORMATION OBTAINED BY THE ASSESSING OFFICER U/S.133(6) , WAS NOT VERIFIED BY THE ASSESSING OFFICER IN THE DETAILS FURNISHED TO THE ASSESSING OFFICER INCLUDING THESE REAMS. THE ASSESSING OFFICER HAD ALSO NOT CONSIDE RED THE CLOSING STOCK REMAINING WITH THE ASSESSEE IN EXCESS OF 1976.5 REAMS WHEN THE ASSESSEE HAD DISCLOSED 5,18,803 AS I.T.A.NO.204/CTK/2010 3 CLOSING STOCK OF PAPER AND BOOKS ETC. IT WAS ALSO SUBMITTED THAT THE GROSS MARGIN ON SALE OF PAPER CANNOT BE THE BASIS OF MARGIN ON PRI NTING AND BINDING THE BOOKS WHICH THE ASSESSING OFFICER ERRED IN COMPUTING AT 47.37%. IT WAS SUBMITTED THAT BOTH THE ADDITIONS CANNOT BE MADE SIMULTANEOUSLY SIMPLY BECAUSE ONE EMERGES FROM THE OTHER WHEN THE BASI C FACT THAT A MINISCULE GROSS MARGIN IS EMBO DIED IN THE PURCHASE INVESTMENT. WHEN NEITHER OF THE ADDITIONS COULD BE TESTED FOR ACTUAL FACT FINDING IT WILL EMERGE THAT THE ASSESSEE NEITHER COULD BE TAXED ON THE GROSS MARGIN WHEN THE STOCK IS LYING WITH HIM AND IS TO BE PROCESSED INTO BOOKS AND SOLD S UBSEQUENTLY WAS NOT VERIFIED BY THE ASSESSING OFFICER. HOWEVER, THE LEARNED CIT(A) NEGATED THE CLAIM AND CONFIRMED THE ADDITION AS MADE BY THE ASSESSING OFFICER RELYING ON THE FACT THAT THE EXCESS PURCHASE OF PAPER WAS MADE WHICH WAS NOT ROUTED THROUGH THE PROFIT & LOSS ACCOUNT. HE CONFIRMED THE ADDITION ON ACCOUNT OF PURPORTED GROSS MARGIN THEREON AS WELL. 3. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE INITIATION OF PROCEEDINGS U/S.147/148 WERE VOID AB INITIO INSOFAR AS THERE WAS NO MATERIAL B EFORE THE AO TO HOLD OR HAVE REASON TO BELIEVE THAT INCOME HAD ESCAPED ASSESSMENT. ONCE HAVING VERIFIED THAT THE PURCHASES AND SALES AS PART OF THE PRINTING PRESS INCLUDED THE ASSESSEES LABOUR IN WRITING THE BOOKS AS AN AUTHOR COMPOSING THE SAME , WHO WAS ALSO TO HANDLE THEM AS A PUBLISHER AND THE PRINT ED PRICE IN THE BOOK WAS DISCLOSED IN THE FORM OF CLOSING STOCK , THE ASSESSING OFFICER OUGHT TO HAVE VERIFIED THAT THE STOCK OF REAMS LYING WITH THE ASSESSEE AT THE END OF THE FINANCIAL YEAR AS ON 31.3.2005 WAS KNOWN TO THE HONBLE HIGH COURT WHICH FACT WAS ALSO NOTICED BY THE CIVIL JUDGE AND THE HONBLE HIGH COURT WHEN THEY WRE PLEASED TO NOTE THAT IT WAS BASICALLY A PLAINT FOR A FAMILY PARTITION AND HAD NO BEARING TO THE FUNCTIONING OF THE I.T.A.NO.204/CTK/2010 4 PRESS. THE ASSESS ING OFFICERS EFFORT TO PROCURE INFORMATION UNDER THE PROVISIONS OF SECTION 133(6) WHEN A SUM OF 4,40,840 WAS CONSIDERED AS UNDISCLOSED PURCHASES WAS ALREADY PART OF THE PURCHASE WHICH THE ASSESSEE HAD DECLARED IN THE ORIGINAL RETURN FILED. IT WAS ONLY A MATTER OF SUBMITTING THE PROOF OR VOUCHERS FOR THE PURCHASES WHICH HE HAD DECLARED BUT WAS CONFIRMED UNDER THE PROVISIONS OF SECTION 133(6) IN FAVOUR OF THE ASSESSEE ONLY. THE FACT THAT THE CLOSING STOCK INCLUDES THE PURPORTED REAMS OF PURCHASES HAS NOT BE EN COMMENTED UPON BY THE ASSESSING OFFICER NOR THE LEARNED CIT(A) WHO HAS ERRED IN CONFIRMING THE GROSS MARGIN AMOUNTING TO 2,08,825 ON THE BASIS OF HIS OWN MISINTERPRETING THE FACTS AS BROUGHT OUT BY THE ASSESSING OFFICER. HOW CAN CLOSING STOCK BE CONSIDERED HAVING MARGIN TO BE TAXED IN THE IMPUGNED ASSESSMENT YEAR ITSELF WHEN IT IS TO BE PROCESSED AND SOLD FOR DERIVING THE P ROFIT IN A SUBSEQUENT YEAR. THE LEARNED COUNSEL FOR THE ASSESSEE VEHEMENTLY ARGUED THAT BEING A WRITER AND AUTHOR INSCRIBING TECHNICAL DATA WHICH REQUIRES ADEQUATE KNOWLEDGE OF ASTROLOGY AND ASTRONOMY , CANNOT BE VALUED FOR GROSS MARGIN. IT IS TO BE GIVEN A SEPARATE CONSIDERATION WHICH HAS BEEN DONE AWAY BY BOTH THE AUTHORITIES BELOW. HE POINTED OUT THAT THE FACTS CLEARLY INDICATE THAT IT WAS ON THE BASIS OF DOUBTS IN THE MINDS OF THE AUTHORITIES BELOW AND ON THE BASIS OF ASSUMPTION AND PRESUMPTION THE ADDIT IONS HAVE BEEN MADE WHICH ARE FIT FOR DELETION IN VIEW OF THE FACT THAT THE ASSESSEE HAD COMPLIED WITH ALL THE REQUIREMENTS OF THE ASSESSING OFFICER AS CAN BE PERUSED IN THE COP IES OF THE ORDER SHEET SUBMITTED IN THE PAPER BOOK PAGES 5 TO 9. THE LEARNED C OUNSEL ALSO ENCLOSED THE COPY OF THE DECISION OF HONBLE ORISSA HIGH COURT , THE ASSESSEE BEING ONE OF THE PLAINTIFF WHICH CLEARLY INDICATES THAT NO SUSPICION COULD BE OCURR IN THE MIND OF THE TAXING AUTHORITIES INSOFAR AS THE ASSESSING OFFICER INITIATED PR OCEEDINGS U/S.147/148 THEREAFTER . THE ASSESSING OFFICER FURTHER I.T.A.NO.204/CTK/2010 5 CONTRADICTED HIS OWN FINDINGS TO ASSUME VIOLATION TO THE PROVISIONS OF SECTION 40A(3) BY ASSUMING THAT THE SUPPRESSED PURCHASES SO FOUND BY HIM MUST HAVE BEEN CLAIMED IN THE PROFIT & LOSS ACCO UNT ON PURCHASES IN CASH BY DISALLOWING A SUM OF 6,369.IT IS OBVIOUS THAT ONCE HE HAS NOTED THE CLAIM OF PURCHASES IN THE BOOKS OF ACCOUNT, WHICH INCLUDED THE PURPORTED PURCHASES FROM PARTIES TO WHOM CHEQUES WERE PAID. THE ASSESSING OFFICER OUGHT NOT TO HAVE MADE DISALLOWANCE OF THE SUM OF 4,40,840 AS WELL IN VIEW OF THE FACT THAT HE ACCEPTED THAT 1975 REAMS WERE AVAILABLE TO THE ASSESSEE AS PART OF HIS CLOSING STOCK INCLUDED IN 5,18,803. IN SUPPORT OF HIS CONTENTION HE HAS FILED THE FINANCIAL STATEMENT FOR THE IMPUGNED ASSESSMENT YEAR ALONG WITH THE INTIMATION FROM THE DEPARTMENT FOR ACCEPTANCE OF THE RETURN OF THE ASSESSEE AS SUCH. HE PRAYED THAT THESE ADDITIONS DO NOT STAND THE TEST OF TIME AS ON THE BASIS OF FACTS BROUGHT ON RECORD AND PRAYED FOR THEIR DELETION BY SETTING ASIDE THE ORDER OF THE LEA RNED CIT(A). 4. THE LEARNED DR SUBMITTED THAT THE AUTHORITIES BELOW HAVE CATEGORICALLY FOUND THAT THE ASSESSEE HAD NOT DISCLOSED THOSE PURCHASES AND THEREFORE WAS RIGHTLY CONFIRMED UNDER THE PROVISIONS OF SECTION 147/148 ON THE BASIS OF INFORMATION AVAILA BLE TO THE ASSESSING OFFICER U/S.133(6).THE PR OFIT MARGIN ON THE SALE OF REAMS HAS ALSO BEEN CONFIRMED BY THE LEARNED CIT(A) IN ACCORDANCE WITH THE FACTS AND CIRCUMSTANCE OF THE ASSESSEES CASE. HE FULLY SUPPORTED THE IMPUGNED ORDER OF THE LEARNED CIT(A) FOR HIS PART SUBMISSIONS. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON OUR CAREFUL CONSIDERATION OF THE FACTS, WE ARE INCLINED TO AGREE WITH THE SUBMISSIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT I.T.A.NO.204/CTK/2010 6 THE ADDITI ON OR DISALLOWANCES MADE WERE PURELY ON PRESUMPTION AND ASSUMPTION. THE ASSESSEE DOES NOT DENY THAT HE WAS HOLDING 1975 REAMS OF PAPER WHICH HE HAD PURCHASED AND LYING WITH HIM AS ON 31.3.2005. THE REASON TO BELIEVE THAT INCOME HAD ESCAPED ASSESSMENT WAS O NLY O N THE BASIS OF CERTAIN CIVIL SUIT FILED IN COURT S WITH ALLEGATIONS WHICH HAVE BEEN SETTLED BY THE COURT AS CAN BE PERUSED IN THEIR ORDERS. THERE WAS NO INDICATION OF THE ASSESSEE SUPPRESSING INCOME AND THE PERIOD WHEN SUCH ALLEGATIONS WERE MADE WAS ALREADY SUBMITTED TO THE INCOME - TAX DEPARTMENT FOR SCRUTINY. THE ASSESSING OFFICER HAS NOT BEEN ABLE TO BRING OUT ANY MATERIAL TO ESTABLISH THAT THE PURPORTED PURCHASES WHICH HE CONSIDERED WERE SUPPRESSED BY THE ASSESSEE IN HIS BOOKS OF ACCOUNT U/S.133(6) IN THE ABSENCE OF HIS BOOKS ACCOUNT CAN BE SUBJECTED TO TAX OVER AND ABOVE WHAT HE HAS RETURNED INSOFAR AS THE GROSS MARGIN DECLARED BY HIM IS ACCEPTABLE TO HIM. THE CONFIRMATION BY THE SELLERS U/S.133(6) ONLY CONFIRMED THE ASSESSEES CLAIM. THE GROSS MAR GIN IS ON THE BASIS OF THE COMPOSITE ASSESSEE BEING AUTHOR, WRITER, COMPOSER, PUBLISHER AND BOOK - SELLER HAD RIGHTLY DECLARED THE AMOUNT OF PURCHASES IN ACCORDANCE WITH THE ACTUAL CONDUCT OF HIS BUSINESS WHEN HE COULD SELL, PURCHASE PAPER AMOUNTING TO 6,7 6,982 AT AN AMOUNT OF 6,31,658. IT IS DEFINITELY INCLUDED IN THE MARGIN WHICH HE WOULD EARN HAD HE SOLD THE MANUSCRIPTS OUTSIDE. IN OTHER WORDS THE GROSS MAR GIN INCLUDES HIS REMUNERATION AS AUTHOR OF THE BOOKS , PANJIS ETC., WHICH IS CLEARLY DEPICTED BY HI M IN THE PROFIT & LOSS ACCOUNT WHEN HE SHOW ED THE PAPER LYING WITH HIM AMOUNTING TO 5,18,803. BY NO STRETCH OF IMAGINATION CAN A GROSS MARGIN OF 47 .37% BE COMPUTED ON THE PAPER STOCK LYING WITH HIM AS PROVED TO BE EARNED BY HIM IN THE IMPUGNED ASSESSMENT YEAR ITSELF. WE ARE UNABLE TO SATISFY OURSELVES TO THE THEORY PROP OUNDED BY THE LEARNED ASSESSING OFFICER AND CONFIRMED BY THE LEARNED CIT(A). THIS FURTHER HAS BEEN CONTRADICTED BY I.T.A.NO.204/CTK/2010 7 THE ASSESSING OFFICER HIMSELF BY BRINGING TO TAX ON THE ASSUMPTIONS THAT TH E SUPPRESSED PURCHASES MUST HAVE BEEN PAID IN CASH WHICH HE DID NOT VERIFY FROM THE BOOKS OF ACCOUNT TO HOLD FOR DISALLOWANCE U/S.40A(3). IN OTHER WORDS, THE WRONG ASSUMPTION OF SUPPRESS I ON OF PURCHASES HAVE BEEN FURTHER TAXED ON THE PORTION OF INCOME EMBE DDED THEREIN AND FURTHER TAXED ON THE PORTION FOR DISALLOWANCE U/S.40A(3).THE ASSESSMENT, THEREFORE STRETCHED TOO FAR AGAINST THE ASSESSEE WHICH WE ARE UNABLE TO ACCEP T IN VIEW OF THE FACT THAT A BIA S HAD BEEN CREATED BY THE ASSESSEES RELATIVES BY PURSUIN G A CIVIL LIT IGATION IN THE COURT OF LAW MALIGNING THE ASSESSEES REPUTATION. WE ALSO FIND THAT THE LEARNED CIT(A) HAS GIVEN NO BASIS FOR CONFIRMING THE ADDITIONS INSPITE OF THE ASSESSEE BRINGING MATERIAL FOR CLARIFYING THE FACTUAL POSITION AS HAS BEEN BRO UGHT OUT BY THE LEARNED ASSESSING OFFICER AND NOW PUT BEFORE US. WE DO NOT FIND ANY INFIRMITY IN THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE. THE ORDER OF THE LEARNED CIT(A) IS , THEREFORE, SET ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO DELE TE THE ADDITIONS MADE ON ACCOUNT OF PURPORTED SUPPRESSED PURCHASES AMOUNTING TO 4,40,840, PURPORTED GROSS MARGIN @ 47.37% THEREUPON AMOUNTING TO 2,08,825 AND DISALLOWANCE U/S. 40A(3) FOR CASH PURCHASES AMOUNTING TO 6,369. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON DT. 21 ST APRIL, 2011 S D/ - S D/ - ( . . . ) , ( K.S.S.PRASAD RAO), JUDICIAL MEMBER ( . . ) , , (K.K.GUPTA), ACCOUNTANT MEMBER. ( ) DATE: 21 ST APRIL, 2011 ( ), ( H.K.PADHEE ), SENIOR.PRIVATE SECRETARY. I.T.A.NO.204/CTK/2010 8 - COPY OF THE ORDER FORWARDED TO: 1 . / THE APPELLANT : S.K.ZAHURUL ISLAM, PROP. ORISSA KOHINOOR PRESS, P.O.BUXIBAZAR, CUTTACK. 2 / THE RESPONDENT: INCOME - TAX OFFICER, WARD 2(3), CUTTACK. 3 . / THE CIT, 4 . ( )/ THE CIT(A), 5 . / DR, CUTTACK B ENCH 6 . GUARD FILE . / TRUE COPY, / BY ORDER, [ ] SENIOR PRIVATE SECRETARY