K J Karthik , Chikkaballapur V. The Income Tax Officer Ward-1 , Chikkaballapur

ITA 2281/BANG/2018

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 0695 (ITAT-BANGALORE)
• Duration Of Justice: 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-10-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 30-07-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: NARAYANA MURTHY CAS
• Keywords: Source of fund
• Section: 44AD; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER ITA NO. 2281/BANG/2018 ASSESSMENT YEAR : 2014 - 15 SHRI K.J. KARTHIK, NO.34, HOSAHALLI NAGAMANGALA POST, SHIDLAGHATTA TALUK, CHIKKABALLAPUR 562 105. PAN: CBJPK 0300B VS. THE INCOME TAX OFFICER, WARD 1, CHIKKABALLAPUR. APP ELLANT RESPONDENT APP ELLANT BY : S/SHRI SUKRUTH N. SEGU & NARAYANA MURTHY, CAS RESPONDENT BY : SHRI RAJENDRA CHANDEKAR, JT.CIT(DR)(ITAT), BENGALURU. DATE OF HEARING : 21 .0 8 .2018 DATE OF PRONOUNCEMENT : 03.10. 2018 O R D E R THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER D ATED 25.04.2018 OF CIT(APPEALS), BENGALURU-6, BENGALURU RELATING TO ASSESSMENT YEAR 2014-15. 2. THE ASSESSEE IS AN INDIVIDUAL. HE FILED RETURN OF INCOME FOR AY 2014-15 DECLARING TOTAL INCOME OF RS.2,32,500. ACC ORDING TO ASSESSEE, HE WAS CARRYING ON THE BUSINESS OF SUPPLYING BUILDING MATERIALS. THE ASSESSEE DID NOT MAINTAIN ANY BOOKS OF ACCOUNT. TH E ASSESSEES TURNOVER WAS RS.41,07,080. THE ASSESSEE DECLARED THE PRESUMP TIVE INCOME OF 8% OF THIS TURNOVER AS LAID DOWN IN SECTION 44AD OF TH E INCOME-TAX ACT, 1961 [THE ACT]. ITA NO. 2281/BANG/2018 PAGE 2 OF 5 3. IT APPEARS THAT THERE WERE CASH DEPOSITS IN THE SB ACCOUNT MAINTAINED IN THE NAME OF ASSESSEE OF RS.77,80,000. IN THIS SCENARIO, ASSESSMENT WAS COMPLETED BY THE AO DETERMINING THE TOTAL INCOME OF ASSESSEE AT A SUM OF RS.18,79,500 BY MAKING AN ADDI TION OF RS.16,47,000 FOR THE FOLLOWING REASONS:- THE ASSESSEE CLAIMS THAT HE DOES FINANCE BUSINES S, MAINLY FINANCING HIS FRIENDS, RELATIVES AND SMALL TRADERS IN AND AROUND HIS OWN VILLAGE. HE STATES THAT HE EARNS INTEREST INCO ME OF AROUND 12% TO 15% FROM THESE FINANCES. THE SOURCES FOR TH IS FINANCE BUSINESS IS OBTAINED THROUGH LOANS FROM OTHER PARTI ES. THE ASSESSEE STATED THAT HE HAD A TURNOVER OF RS.91,50, 000/- WHICH INCLUDED THE CASH DEPOSITS FOUND IN HIS SAVINGS BAN K A/C OF RS.77,80,000/-. AFTER DISCUSSION AND PERUSAL OF THE BANK STATEMENT S, THE ASSESSMENT IS CONCLUDED BY ESTIMATING THE INCOME AT 18% ON THE TOTAL TURNOVER OF RS.91,50,000/- WHICH WORKS OUT TO RS.16,47,000/-. 4. AGGRIEVED BY THE AFORESAID ACTION OF THE AO, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(APPEALS) AND CONTENDED THA T THE ASSESSEE WAS NOT INVOLVED IN FINANCE BUSINESS AS WRONGLY OBSERVE D IN THE ORDER OF ASSESSMENT AND THAT HE WAS ENGAGED IN THE BUSINESS OF SUPPLY OF BUILDING MATERIALS. THE ASSESSEE ALSO SUBMITTED THAT BUILDIN G MATERIALS ARE PURCHASED BY THE ASSESSEE FROM SMALL TIME CONTRACTO RS AND ASSESSEE ARRANGES FOR MATERIAL THROUGH HIS CONTACTS AND SUPP LIES THE SAME. THE ASSESSEE COLLECTS CASH FROM THE PURCHASERS AND DEPO SITS TO THE ACCOUNT OF SUPPLIERS IMMEDIATELY. THE VERY NATURE OF BUSINESS THEREFORE INVOLVES CASH AND THE DEPOSITS IN THE BANK ACCOUNT WERE THEREFORE ATTRIBUTABLE TO CASH RECEIVED FROM PURCHASERS WHICH WERE PAID OVER TO SU PPLIERS. THE ASSESSEE SUBMITTED THAT HE WAS NOT OBLIGED TO MAINTAIN BOOKS OF ACCOUNTS AND ENTITLED TO DECLARE INCOME U/S. 44AD OF THE ACT. T HE ASSESSEE ALSO POINTED OUT THAT THERE WAS NO BASIS FOR THE AO TO ARRIVE AT A TURNOVER OF RS.91,50,000. THE ASSESSEE FURTHER SUBMITTED THAT E STIMATION OF INCOME AT ITA NO. 2281/BANG/2018 PAGE 3 OF 5 18% OF TURNOVER BY THE AO IS CONTRARY TO PROVISIONS OF SECTION 44AD OF THE ACT. 5. NONE OF THE SUBMISSIONS WERE CONSIDERED BY THE C IT(APPEALS). HE PROCEEDED TO CONFIRM THE ORDER OF THE AO FOR THE FO LLOWING REASONS:- 10. THE ISSUE TO BE ADJUDICATED IS WHETHER THE AO WAS RIGHT IN MAKING AN ADDITION OF RS.16,47,000/- TO THE INCOME OF THE APPELLANT ON AN ESTIMATED BASIS. THE ASSESSMENT ORD ER IS PASSED U/S 143(3) OF THE ACT AND THE AO HAS NOTED IN THE O RDER THAT THE APPELLANT IS INVOLVED IN FINANCE BUSINESS. THE AO M ADE THE ADDITION AT THE RATE OF 18% OF THE TOTAL TURNOVER O F THE APPELLANT, HOLDING THE SAME TO BE INCOME FROM FINANCE BUSINESS . THE APPELLANT DISPUTES THE SAME AND HAS FILED REVISED S TATEMENT OF FACTS AND DISPUTED THE SAME AND CLAIMS THAT HE IS N OT IN FINANCE BUSINESS AND ONLY DEALS IN BUILDING MATERIALS WITH SOME ACCOMMODATION MADE TO KNOWN PERSONS. THE APPELLANT APART FROM MAKING THESE STATEMENTS HAS NOT FILED ANY EVID ENCE IN SUPPORT OF THE SAME. IN THE STATEMENT OF FACTS FILE D ALONG WITH F- 35, THE APPELLANT ADMITS TO FINANCE BUSINESS, BUT S TATES THAT IT IS OF A SMALL SCALE. BE IT AS IT MAY, THE APPELLANT DOES NOT MAINTAIN BOOKS OF ACCOUNTS. HE IS ADMITTEDLY IN BUSINESS OF BUILDING MATERIALS AND FINANCE BUSINESS. HE RELIES UPON THE PROVISIONS CONTAINED IN SECTION 44AD OF THE ACT IN ESTIMATING INCOME BASED ON TURNOVER, BUT THE SAME DOES NOT APPLY TO THE FAC TS OF HIS CASE. THERE IS NO CLEAR SUBMISSION AS TO HOW MUCH OF HIS TURNOVER RELATE TO BUILDING MATERIAL BUSINESS AND HOW MUCH R ELATE TO FINANCE BUSINESS. THE APPELLANT HAS NOT PRODUCED AN Y EVIDENCE TO MAKE OUT A PROPER CASE FOR HIMSELF. IN ABSENCE OF A NY CONCRETE EVIDENCE TO SUPPORT HIS CASE, THE ADDITION MADE BY THE AO IS SUSTAINED. 6. AGGRIEVED BY THE ORDER OF CIT(APPEALS), THE ASSE SSEE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 7. I HAVE HEARD THE RIVAL SUBMISSIONS. THE LD. COUN SEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE CIT(A), WHEREAS THE LD. DR RELIED ON THE ORDER OF CIT(A). ITA NO. 2281/BANG/2018 PAGE 4 OF 5 8. AFTER CONSIDERING THE RIVAL SUBMISSIONS, I AM OF THE VIEW THAT THE ADDITION MADE BY THE AO CANNOT BE SUSTAINED. THE O RDER OF THE AO IS SILENT AS TO HOW HE ARRIVED AT THE TURNOVER OF ASSE SSEE AT RS.91,50,000. IT IS CLEAR THAT THE AO HAS COMPLETELY MISUNDERSTOOD T HE NATURE OF BUSINESS OF ASSESSEE. IN THIS REGARD, I ALSO FIND FROM THE STATEMENT OF TOTAL INCOME FILED BY THE ASSESSEE FOR THE RELEVANT ASSESSMENT Y EAR THAT THE NATURE OF BUSINESS IS CLEARLY MENTIONED AS INCOME FROM BUILDI NG MATERIAL SUPPLY. IN THESE CIRCUMSTANCES THE BASIS FOR THE AO TO SAY THA T THE ASSESSEE WAS IN FINANCE BUSINESS IS INCORRECT. BESIDES THE ABOVE, THERE IS NO DISCUSSION OF CASH DEPOSITS IN SB ACCOUNT BY THE AO, WHICH MEANS THE AO WAS SATISFIED ABOUT THE SOURCE OF FUNDS FOR THE DEPOSITS IN THE S B ACCOUNT. THE TURNOVER DECLARED BY THE ASSESSEE IS RS.41,07,080 AND THE AS SESSEE IS ENTITLED TO TAKE ADVANTAGE OF THE PROVISIONS OF SECTION 44AD OF THE ACT WITHOUT MAINTAINING ANY BOOKS OF ACCOUNT. THE INCOME DECLA RED BY THE ASSESSEE IS IN ACCORDANCE WITH THE PROVISIONS OF SECTION 44A D OF THE ACT. THERE IS NO REASON WHY THE SAME SHOULD NOT BE ACCEPTED. THE CIT (APPEALS) HAS NOT GIVEN ANY REASON AS TO WHY THE PROVISIONS OF SECTIO N 44AD ARE NOT APPLICABLE TO THE ASSESSEE. IN THE CIRCUMSTANCES, I AM OF THE VIEW THAT THE ADDITION MADE BY THE AO AND SUSTAINED BY CIT(APPEAL S) DESERVES TO BE DELETED. ACCORDINGLY, I DIRECT THAT THE ADDITION I N QUESTION BE DELETED. I ALLOW THE APPEAL OF THE ASSESSEE. 9. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED . PRONOUNCED IN THE OPEN COURT ON THIS 3 RD DAY OF OCTOBER, 2018. SD/- ( N.V. VASUDEVAN ) JUDICIAL MEMBER BANGALORE, DATED, THE 3 RD OCTOBER, 2018. / D ESAI S MURTHY / ITA NO. 2281/BANG/2018 PAGE 5 OF 5 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.