Dr.Anoop Manchanda , Faizabad V. Commissioner of Income Tax(Appeals)-I, Lucknow

ITA 223/LKW/2012

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8148 (ITAT-LUCKNOW)
• Duration Of Justice: 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-08-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 22-08-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 23-04-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Unexplained investment; Business income; Reasonable cause
• Section: 148; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B : LUCKNOW BEFORE SHRI S. K. YADAV, JUDICIAL MEMBER AND SHRI B. R. JAIN, ACCOUNTANT MEMBER I.T.A. NO S . 223 & 224 /LKW/ 12 ASSESSMENT YEAR S : 0 2 - 03 & 03 - 04 DR. ANOOP MANCHANDA, VS. CIT(A) - I, ALKA TOWER, REKABGANJ, LUCKNOW. FAIZABAD. (PAN: AJSPM5577H (APPELLANT) (RESPONDENT) APPE LLANT B Y : SHRI A. K. SHAH, ADVOCATE RESPONDENT BY : SHRI R. K. RAM, D.R. DATE OF HEARING : 22 /0 8 /2012 DATE OF PRONOUNCEMENT : 27/08/2012 ORDER PER B. R. JAIN : TH ESE TWO APPEAL S BY THE ASSESSEE ARE AGAINST THE ORDER S DATED 02/01/2012 OF LEARNED CIT(A) - I , LUCKNOW CHALLENGING VALIDITY OF ACTION TAKEN U/S 148 OF THE ACT AS WELL AS ADDITION OF ENTIRE AMOUNT OF UNACCOUNTED SALES OF ` 1,37,071/ - IN ASSESSMENT YEAR 2002 - 2003 AND ` 7,58,250/ - IN ASSESSMENT YEAR 2003 - 2004. THAT BESIDES, THE ASSESSEE HAS ALSO CHALLENGED DISALLOWANCE OF SALARY PAID TO EMPLOYEES FOR ` 39,600/ - IN ASSESSMENT YEAR 2002 - 2003 AND ` 43,600/ - IN ASSESSMENT YEAR 2003 - 2004. 2 2. THE ADDITIONAL GROUND RAISED THAT NO VALID NOTICE U/S 143(2) HAS BEEN SERVED IN BOTH THE YEARS UNDER APPEAL WHERE ACTION HAS BEEN TAKEN U/S 148 AND AS SUCH THE ASSESSMENT MADE REQUIRES TO BE ANNULLED , HAS NOT BEEN PRESSED AND THE SAME STOOD DISMISSED AS WITHD RAWN BY BENCH ORDER, AS CONTAINED IN ORDER SHEET DATED 22/08/2012 ITSELF. 3. THE ASSESSEE HAS NOT ADVANCE S ANY ARGUMENT WITH RESPECT TO VALIDITY OF ACTION TAKEN U/S 148 OF THE ACT IN BOTH THE YEAR S UNDER APPEAL NOR AD DU CED ANY REASON TO SHOW AS TO HOW THE IMPUGNED ORDERS ARE NOT LEGALLY CORRECT . WE DO NOT FIND ANY ERROR IN THE DECISION REACHED BY LEARNED CIT(A) IN UPHOLDING THE VALIDITY OF BONAFIDE ACTION TAKEN U/S 148 OF THE ACT BY THE ASSESSING AUTHORITY AFTER RECORDING MANDATORY REASONS AS INCOME OF TH E ASSESSEE HAS ESCAPED ASSESSMENT DUE TO NON DISCLOSURE OF SALES FOUND NOT RECORDED DURING THE COURSE OF SURVEY PROCEEDINGS AT THE ASSESSEES PREMISES. WE, THEREFORE, REJECT THE GROUND R AISED IN APPEAL IN THIS RESPECT IN BOTH THE YEARS UNDER CONSIDERATION . 4. IN SO FAR AS THE ADDITION OF ENTIRE AMOUNT OF UNRECORDED SALES RUNNING FROM 31/10/2011 TO 31/03/2002 FOR SALE S OF MEDICINE, THE REVENUES CASE IS THAT THE DETAILS CAN BE FOUND NARRATED AT INTERNAL PAGES 2 TO 5 OF THE ASSESSMENT ORDER . IN THE ASSESS MENT YEAR 2002 - 2003, THE ASSESSING AUTHORITY IS FOUND TO HAVE RECORDED A FINDING THAT THE ENTIRE SALE S OF MEDICINE IS TREATED AS INCOME OF THE ASSESSEE WHICH INCLUDED PROFITS AS WELL AS UNEXPLAINED INVESTMENT IN MAKING 3 PURCHASES. THE ASSESSEE HAD NOT GIVE N ANY EXPLANATION FOR INVESTMENT IN PURCHASE S BEFORE THE ASSESSING AUTHORITY. THE AFORESAID SALES WERE FOUND RECORDED IN THE DIARIES FOUND AS A RESULT OF SURVEY AT ASSESSEES BUSINESS PREMISES AND THE ASSESSEE HAS ADMITTED DURING SURVEY OF THE UNRECORDED SALE S AND PURCHASE S OF MEDICINES AND OPTICAL. 5. ON THE OTHER HAND, THE ASSESSEES CASE IS THAT THE BUSINESS OF MEDICINES AND OPTICAL DID NOT BELONG TO THE ASSESSEE. HOWEVER, HE WAS NOT ABLE TO STATE OR BRING ON RECORD THE PERSON WHO CARRIED SUCH BUSINES S FROM HIS PREMISE S . IN ANY EVENT, THERE IS NO JUSTIFICATION FOR MAKING ADDITION OF THE ENTIRE AMOUNT OF SALES AS ASSESSEES INCOME. AT BEST THE AUTHORITIES COULD HAVE MADE ADDITION EQUIVALENT TO 5% OF THE PROFIT ON PRESUMPTIVE BASIS AS PROVIDED IN THE S TATUTE FOR A RETAIL TRADER. AS REGARDS INVESTMENT IN PURCHASES, THE ASSESSEE HAD RECEIVED CREDIT ON THE GOODS AND AFTER CARRYING OUT SALES, MADE THE PAYMENT TO ITS SUPPLIERS. IN THESE CIRCUMSTANCES THERE IS NO JUSTIFICATION TO MAKE ANY ADDITION FOR UNEXP LAINED INVESTMENT IN THIS CASE. 6. HEARD PARTIES WITH REFERENCE TO MATERIAL ON RECORD. ADMITTEDLY, THE SURVEY PROCEEDINGS REVEALED UNACCOUNTED SALES FOUND RECORDED IN THE DIARIES AT ASSESSEES BUSINESS PREMISES. DESPITE OPPORTUNITY THE APPELLANT WAS NEITHER ABLE TO SUBSTANTIATE THAT THE B USINESS OF SALE OF MEDICINES DID NOT BELONG TO HIM NOR HAS H E PRODUCED ANY MATERIAL TO SHOW THAT THE STOCK OF MEDICINES SO SOLD WAS PURCHASED BY HIM ON CREDIT. COMPLETE PARTICULARS OF THE PARTIES, FROM WHOM 4 ANY SUPPLIES ARE RECEIVED FOR MAKING ALLEGED SAL E S HAVE ALSO BEEN NOT FURNISHED. IT MAY BE CORRECT THAT THE ENTIRE AMOUNT OF SALES COULD NOT REPRESENT THE INCOME OF THE ASSESSEE WHO HAD NOT DISCLOSED THE SALES AS THE SALES ONLY REPRESENT THE PRICE RECEIVED BY THE SELLER OF THE GOODS IN EXCESS OVER THE COST INCURRED FOR SUCH MEDICINES AND IN THAT EVENT ONLY THE PART OF THE PROFIT COULD BECOME ITS INCOME. THIS PRINCIPLE IS FOUND LAID BY HON'BLE GUJARAT HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME - TAX VS PRESIDENT INDUSTRIES [2002] 258 ITR 654 (GUJ) . THE ASSESSING OFFICER, HOWEVER, AFFORDED EFFECTIVE OPPORTUNITY TO THE ASSESSEE TO SHOW THE SOURCE OF COST FOR ACQUIRING THE GOODS FOR EFFECTING THE SALES THEREOF. THE ASSESSEE, HOWEVER, PRODUCED NO MATERIAL IN THAT RESPECT. UNDER THE PECULIAR FACTS OF THIS CASE AND KEEPING IN VIEW THE UNACCOUNTED SALES SCATTERED OVER NUMBER OF DAYS DURING THE YEAR UNDER CONSIDERATION AND INVESTMENT BEING CIRCULAT ING , IT SHALL BE APPROPRIATE TO TREAT AN AMOUNT EQUAL TO 30% EQUIVALENT TO ` 41,121/ - OF THE SALES OF ` 1,37,0 71/ - AS COST INCURRED BY THE ASSESSEE IN ACQUIRING SUCH GOODS. SINCE THIS INVESTMENT REMAINED UNEXPLAINED, THE ADDITION FOR UNEXPLAINED PURCHASES IS ACCORDINGLY UPHELD FOR ` 41,121/ - IN ASSESSMENT YEAR 2002 - 2003. THE APPELLANT IS NOT SHOWN TO HAVE RETURNE D INCOME BY APPLYING A PRESUMPTIVE RATE OF PROFIT AS A RETAIL TRADER. UNDER THE PECULIAR FACTS AND CIRCUMSTANCES, 10% OF THE SALES AMOUNT IS TREATED AS PROFIT ON SALE OF MEDICINES, WHICH WORK S OUT TO ` 13,707/ - I.E. 10% OF ` 1,37,071/ - . IN EFFECT, THE RESU LTANT ADDITION OF ( ` 41,121 + ` 13,707) ` 54,828/ - IS UPHELD AS AGAINST THE 5 ADDITION OF ` 1,37,071/ - AND THE ORDER OF THE LEARNED CIT(A) STANDS MODIFIED ACCORDINGLY. 7. IN SO FAR AS DISALLOWANCE OF SALARY OF ` 39,600/ - IS CONCERNED, THE ASSESSEES CASE IS THAT THE SALARY HAS BEEN PAID TO ITS EMPLOYEES FOR THE WORK DONE BY THEM. REVENUES CASE IS NOT THAT THE ASSESSEE HAS INFLATED SALARY IN THE NAME OF ANY OF ITS EMPLOYEE NOR THAT SALARY IS SHOWN TO HAVE BEEN PA ID TO A NON - EXISTENT PERSONS AND AS SUCH DISALLOWANCE MADE IS UNJUST AND UNCALLED FOR. 8. HAVING HEARD PARTIES AND AFTER CAREFUL PERUSAL OF RECORD, WE FIND THAT THE LEARNED ASSESSING AUTHORITY CONSIDERED THE CLAIM OF SALARY TO BE EXCESSIVE WITHOUT ANY JU ST AND REASONABLE CAUSE OR EVEN WITHOUT FINDING THAT THE SALARY HAS BEEN PAID TO ANY NON - EXISTENT EMPLOYEE OR THAT THE PAYMENT HAS BEEN MADE TO THE PERSONS FOR NOT DOING ANY WORK BY THEM . THE REASONABLENESS OF THE SALARY COULD NOT BE A BASIS TO TREAT TH E ACTUAL AMOUNT PAID AS EXCESSIVE. WE, THEREFORE, SET ASIDE THE DISALLOWANCE AND ALLOW THE RELIEF ACCORDINGLY. 9. IN ASSESSMENT YEAR 2003 - 2004, THE UNACCOUNTED SALES OF MEDICINES AND OPTICALS HAVE BEEN MADE FOR THE PARITY OF REASONS AS ARE TAKEN IN ASSE SSMENT YEAR 2002 - 2003. THE SALES ARE FOUND SCATTERED THROUGHOUT THE WHOLE YEAR. KEEPING IN VIEW THE PATTERN OF THE SALES FOUND RECORDED IN DIARIES AS A RESULT OF SURVEY IN ASSESSEES BUSINESS PREMISES, THE ASSESSING AUTHORITY IS FOUND TO HAVE MADE THE AD DITION OF ENTIRE AMOUNT OF SALES OF ` 7,58,250/ - . FOR THE PARITY OF 6 REASONS, AS ARE TAKEN IN ASSESSMENT YEAR 2002 - 2003 AND THE FACT THAT THE ASSESSEE HAS FAILED TO EXPLAIN THE INVESTMENT IN PURCHASE OF SUCH GOODS AND CAPITAL BEING CIRCULATORY , 30% OF SUCH UNACCOUNTED SALES IS TREATED AS UNEXPLAINED INVESTMENT IN PURCHASES , THE AMOUNT WHEREOF WORKS OUT TO ` 2,27,475/ - . SINCE ADDITION FOR UNEXPLAINED INVESTMENT AND UNACCOUNTED PROFIT FOR ` 54,828/ - HAS ALREADY BEEN MADE IN ASSESSMENT YEAR 2002 - 2003, THE SAID A MOUNT WILL BE AVAILABLE FOR FINANCING THE UNACCOUNTED PURCHASE S OF THE YEAR UNDER CONSIDERATION. TELESCOPING THEREOF IS DIRECTED TO BE ALLOWED SO THAT THE RESULTANT ADDITION ON ACCOUNT OF UNEXPLAINED INVESTMENT IN ACQUIRING THE GOODS IS MADE AT ` 1,72,647/ - ( ` 2,27,475 - ` 54,828) TOWARDS UNEXPLAINED INVESTMENT IN PURCHASE OF THE GOODS, WHICH WERE SOLD BY THE ASSESSEE OUTSIDE THE BOOKS. THAT APART, THE AMOUNT EQUAL TO 10% OF THE SALES IS TREATED AS PROFIT ON THE SAME BASIS AS ARE TAKEN IN ASSESSMENT YEAR 200 2 - 2003. THE PROFIT THUS WORKS OUT TO ` 75,825/ - BEING 10% ON TOTAL SALES OF ` 7,58,250/ - . THE RESULTANT ADDITION ON ACCOUNT OF PROFIT AND UNEXPLAINED INVESTMENT IN PURCHASE OF GOODS THUS WORK S OUT TO ` 2,48,472/ - AS AGAINST THE ADDITION OF ` 7,58,250/ - CONFIRMED BY THE LEARNED CIT(A). THE IMPUGNED ORDER , THEREFORE, STANDS MODIFIED ACCORDINGLY. 10. AS REGARDS DISALLOWANCE OF SALARY OF ` 43,600/ - , FOR PARITY OF REASONS AS ARE TAKEN FOR ASSESSMENT YEAR 2002 - 2003, WE DO NOT FIND ANY JUSTIFICATION IN MAKING DISALLOWANCE OF SALARY BY TREATING IT AS EXCESSIVE WITHOUT THERE BEING ANY MATERIAL IN POSSESSION OF THE REVENUE TO SHOW THAT THE SALARY HAS BEEN PAID TO THE NON - 7 EXISTENT EMPLOYEES OR THAT THE AMOUNT HAS BEEN PAID FOR THE WORK NOT DONE BY ITS EMPLOYEES . IN THAT VIEW OF THE MATTER, THE DISALLOWANCE OF SALARY IS DIRECTED TO BE DELETED. 11. IN THE RESULT, BOTH THE APPEALS STAND PARTLY ALLOWED. (ORDER PRONOUNCED IN THE OPEN COURT ON 27/08/2012 ) SD/. SD/. ( S. K. YADAV ) ( B. R. JAIN ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 27/08/2012 *SINGH COPY FORWARDED TO THE: 1. APPELLANT. 2. RESPONDENT. 3. CIT (A) 4. CIT 5. DR. ASSISTANT REGISTRAR