Abdul Kareem, Nabrangpur V. ITO, Jeypore

ITA 231/CTK/2011

• Counselvise Citation: 23122114 RSA 2011
• Duration Of Justice: 6 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2011
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 18-10-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 26-04-2011
• Court: TRIBUNAL
• Department Lawyers: S C MOHANTY
• Assessee Lawyers: D K SETH
• Section: 69; 40A(3)

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. 231/CTK/2011 (ASSESSMENT YEAR 2007 - 08) ABDUL KAREEM, PROP. KALIGA RICE & FLOUR MILLS, AT. BADOBASINI, P.O.UMARKOTE, DIST. NABARANGPUR 764 073. PAN: ACFPA 1735 K. VERSUS INCOME - TAX OFFICER, WARD 1, JEYPORE. (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI D.K.SETH, AR FOR THE RESPONDENT SHRI S.C.MOHANTY, DR DATE OF HEARING : 18.10.2011 DATE OF PRONOUNCEME NT : 09.11.2011 ORDER SHRI K.S.S.PRASAD RAO, JM : THIS APPEAL IS FILED BY THE ASSESSEE HAVING BEEN AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) DT.06.01.2011 FOR THE ASSESSMENT YEAR 2007 - 08 IN THE CASE OF THE ASSESSEE. 2. THE ASSESSEE HAS RAISED TWO ISSUES IN ITS GROUNDS OF APPEAL AGAINST CONFIRMATION OF THE ADDITIONS OF 1,15,144 MADE UNDER THE HEAD UNDISCLOSED INVESTMENT AND 1,20,400 BY INVOKING THE PROVISIONS OF SECTION 40A(3) OF THE INCOME - TAX ACT,1961. 3. BOTH THE PARTIES WERE HEARD REGARDING THE ISSUES RAISED BY THE ASSESSEE AND THEIR LEGAL IMPLICATIONS. 4. ON C AREFUL CONSIDERATION OF THE MATERIALS MADE AVAILABLE TO THE TRIBUNAL IN THE LIGHT OF THE ORDERS PASSED BY BOTH THE DEPARTMENTAL AUTHORITIES THE UNDISPUTED FACT RELATED TO THE ISSUES ARE THAT THE ASSESSEE IS HAVING INCOME FROM RICE AND FLOUR MILL AS WELL AS FROM AGRICULTURE. RETURN WAS FILED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION ALONG WITH THE AUDITED REPORT AND AUDITED STATEMENT IN FORM 3CB AND 3CD DISCLOSING THE TOTAL INCOME AT 2,86,440 FROM BUSINESS AND 20,000 FROM AGRICULTURE. ITA NO.231/CTK/2011 2 INITIALLY THE SAID RETURN WAS PROCESSED U/S.143(1) AND INTIMATION WAS ISSUED ON 13.3.2008. LATER ON THE RETURN WAS TAKEN UP FOR SCRUTINY. THE ASSESSING OFFICER , AFTER HEARING THE ASSESSEE AND CONSIDER ING THE MATERIAL PLACED BEFORE HIM BY THE ASSESSEE, HAS COME TO THE CONCLUSION THAT THERE IS DIFFERENCE BETWEEN THE ACCOUNT OF FCI MAINTAINED BY THE ASSESSEE AS SHOWN IN THE BALANCE SHEET AND THE LEDGER COPY FURNISHED BY THE FCI ON SUMMONING U/S.1316) OF T HE INCOME - TAX ACT,1961. IN THE BALANCE SHEET THE ASSESSEE HAS SHOWN 15,71,4689 AS DUE FROM FCI BUT THE ACCOUNT COPY FURNISHED BY THE FCI IN RESPONSE TO NOTICE U/S.131(6) A SUM OF 16,86 ,613 WAS DUE TO THE ASSESSEE. ON BEING ASKED TO RECONCILE THE DIFFERENCE BETWEEN THESE TWO FIGURES, THE ASSESSEE COULD NOT RECONCILE THE S AME. HENCE, THE ASSESSING OFFICER HAS ADDED THE DIFFERENTIAL AMOUNT OF 1,15,144 AS UNDISCLOSED INCOME OF THE ASSESSEE. APART FROM THAT THE ASSESSING OFFICER HAS NOTICED THAT THE ASSESSEE HAS PURCHASED PACKING MATERIAL CONSISTING OF GUNNY BAGS ON DIFFERENT DATES DURING THE PERIOD UNDER CONSIDERATION FROM DIFFERENT DEALERS BY CASH ONLY. DURING THE ASSESSMENT PROCEEDINGS, HE WAS REQUESTED BY THE ASSESSING OFFICER TO PRODUCE THE PURCHASE BILLS OF THE SAID GUNNY BAGS. BUT THE ASSESSEE COULD NOT PRODUCE THE SAME . IN THE CASH BOOK MAINTAINED BYTHE ASSESSEE, THE ASSESSING OFFICER FOUND THAT ALL THESE PAYMENTS FOR PURCHASE OF GUNNY BAGS WERE MADE IN ONE VOUCHERS EXCEEDING 20,000 LIMIT PROVIDED IN SECTION 40A(3) OF THE INCOME - TAX ACT,1961. BECAUSE THIS EXPENDITURE BEING INCURRED FOR PURCHASING THE PACKING MATERIAL WHICH WERE CLAIMED AS EXPENDITURE BY THE ASSESSEE FOR ARRIVING AT THE TAXABLE INCOME IN HIS HANDS, THE ASSESSIN G OFFICER HAS DISALLOWED 20% OF THE SAID PURCHASES OF GUNNY BAGS AT 6,02,000 WHICH COMES TO 1,20,400 AND ACCORDINGLY PASSED THE ASSESSMENT ORDER RAISING THE DEMAND AGAINST THE ASSESSEE. THE ASSESSING ITA NO.231/CTK/2011 3 OFFICER HAS ALSO INITIATED PROCEEDINGS U/S.271(1)(C) O F THE INCOME - TAX ACT,1961 FOR FURNISHING OF INACCURATE PARTICULARS BY THE ASSESSEE. 5. AGGRIEVED BY THIS ASSESSMENT ORDER, THE ASSESSEE WENT IN APPEAL BEFORE THE LEARNED CIT(A) AND IS UNSUCCESSFUL. HENCE, THE PRESENT APPEAL IS FILED BY THE ASSESSEE BEFORE THE TRIBUNAL. 6. DURING THE COURSE OF HEARING, THE LEARNED AR OF THE ASSESSEE HAS VEHEMENTLY ARGUED ASSAILING THE ABOVE ADDITIONS MADE BY THE DEPARTMENTAL AUTHORITIES POINTING OUT THAT SIMPLY BECAUSE THE ASSESSEE IS NOT ABLE EXPLAIN THE DIFFERENCE BETWEEN THE AMOUNTS SHOWN IN THE BALANCE SHEET AS DEBTORS AND THE LEDGER COPY OBTAINED BY THE ASSESSING OFFICER FROM THE DEBTOR IN NO WAY AMOUNTS TO UNDISCLOSED INCOME BECAUSE THE DEBTOR IS NOT A TANGIBLE ASSET. IT IS A TRADE DEBIT ONLY. IT IS NOT OF ANY KIND OF A SSET WHICH CAN BE APPREHENDED BY THE DEFINITION GIVEN IN SECTION 69 OF THE INCOME - TAX ACT,1961. THEREFORE, HE CONTENDED THAT SUCH ADDITION IS HIGHLY UNSUSTAINABLE FOR LEGAL SCRUTINY. NOW COMING TO THE OTHER ADDITION OF 1,20,400 REPRESENTING 20% OF THE GUN NY BAG PURCHASES OF 6,02,000 U/S.40A(3) OF THE INCOME - TAX ACT,1961, THE LEARNED AR OF THE ASSESSEE VEHEMENTLY CONTENDED THAT IT IS UNSUSTAINABLE UNDER LAW FOR THE REASON THAT THE ASSESSEE HAS PURCHASE D THESE GUNNY BAGS FROM DIFFERENT PERSONS WHO ARE NOT F ULL - FLEDGED TRADERS. BUT THE ONLY MISTAKE DONE BY THE ASSESSEE IS THAT HE HAS SHOWN THE SINGLE PAYMENT FOR PURCHASE OF GUNNY BAGS FROM DIFFERENT PERSONS SINCE THE ASSESSEE IS NOT ABLE TO GIVE THE DETAILS OF DIFFERENT PERSONS FROM WHOM HE HAS PURCHASED THE GUNNY BAGS EVERY DAY WITH GROSS TOTAL EXCEEDED 20,000 CASH EVERY DAY AS CONTAINED IN SECTION 40A(3) BECAUSE THESE PURCHASES ARE NOT FROM ORGANIZED SECTORS. AS THE PERSONS DO NOT HAVE ANY VOUCHERS, THEY DO NOT GIVE NECESSARY VOUCHERS IN TOKEN OF SALE OF GUNNY BAGS TO THE ASSESSEE. THE ASSESSEE BEING NO T AWARE OF THE CONSEQUENCE OF CROSSING OF THE DAY ITA NO.231/CTK/2011 4 PURCHASES OF GUNNY BAGS FROM DIFFERENT TRADERS HAS VOLUNTARILY PUT A SINGLE FIGURE ON A DAY SHOWING CASH PAYMENT EXCEEDING 20,000 AND THE DEPARTMENT IS INVOKING SECTIONO40A(43) OF THE INCOME - TAX ACT,1961 FOR SUCH PAYMENTS. SINCE THE ASSESSEE HAS CLAIMED THE GUNNY BAGS AS PACKING MATERIALS INCURRED BY HIM DURING THE COURSE OF BUSINESS OF RUNNING RICE AND FLOUR MILL. THE AREA IN WHICH THE ASSESSEE IS CARRYING ON BUSINESS IS AT BADOBASINI IN THE DISTRICT OF NABARANGPUR. IN SUCH A RURAL AREA, THE TRADERS BEING UNAWARE WITH THE TECHNICAL AND LEGAL ASPECTS INVOLVED IN THE BUSINESS ARE DOING THE BUSINESS IN A WAY THEY USUALLY FOLLOWED. BEC A U S E THE OLD GUNNY BAG DEALERS ARE UNORGANIZED SECTORS AND THEY ARE NOT AWA RE OF THE CONSEQUENCES OF NOT ISSUING VOUCHERS FOR THE SALES MADE BY THEM. THE ASSESSEE IS ALSO UN A WARE WITH THE PROVISIONS OF SECTION 40A(3 ) HAVING BEEN CARRYING BUSINESS IN A RURAL AREA LIKE BADOBASINI WHICH IS A PANCHAYAT AREA HAS SHOWN CASH PAYMENT MO RE THAN 20,000 AS HE COULD NOT MAINTAIN THE PARTICULARS OF THE PERSONS FROM WHOM HE PURCHASED GUNNY BAGS APPARENTLY FROM DIFFERENT PARTIES AGGREGATING MORE THAN R.20,000. THEREFORE, THE DEPARTMENT HAS TECHNICALLY INVOKED THE PROVISIONS OF SECTION 40A(3) AND MADE THE ADDITION ON THIS COUNT. THEREFORE, THE LEARNED AR OF THE ASSESSEE CONTENDED THAT A LENIENT VIEW MAY BE TAKEN AGAINST THE ASSESSEE IN THE LIGHT OF THE PECULIAR FACTS AND CIRCUMSTANCES AND MORE SO HAVING BEEN CARRYING ON BUSINESS IN RURAL AREA LIKE BADOB AINI. ACCORDINGLY HE SOUGHT FOR DELETION OF THE SAID ADDITION MADE BY THE DEPARTMENTAL AUTHORITIES. 7. CONTRARY TO THIS, THE LEARNED DR HAS VEHEMENTLY ARGUED SUPPORTING THE ORDERS PASSED BY THE DEPARTMENTAL AUTHORITIES AND ASSAILING THE GROUNDS RAISED B Y THE ASSESSEE, HE SOUGHT FOR DISMISSING THE APPEAL OF THE ASSESSEE BY UPHOLDING THE ORDERS PASSED BY THE DEPARTMENTAL AUTHORITIES. ITA NO.231/CTK/2011 5 8. ON CAREFUL ANALYSIS OF THE ORDERS PASSED BY THE DEPARTMENTAL AUTHORITIES IT IS FOUND THAT UNDISPUTEDLY THE ASSESSEE IS CA RRYING ON BUSINESS OF RUNNING A RICE & FLOUR MILL IN A RURAL AREA SITUATED AT BADOBASINI IN NABARANGPUR DISTRICT OF THE STATE OF ORISSA WHERE A MAJOR PART OF SUCH A POPULATION CANNOT BE EXPECTED TO KNOW THE LEGAL IMPLICATIONS OF TECHNILITIES AS POINTED OUT THE DEPARTMENTAL AUTHORITIES. ON ANALYZING THE UNDISPUTED FACTS STATED SUPRA IN THE BACKGROUND OF THE ABOVE STATED PECULIAR FACTS PREVAILING, WE ARE OF THE CONSIDERED VIEW THAT THE UNEXPLAINED DIFFERENCE BETWEEN THE AMOUNT SHOWN BY THE ASSESSEE AS DEBIT OF A PA RTY AND THE COPY OF THE ACC OUNT FURNISHED BY SUCH DEBTOR TO THE ASSESSING OFFICER IN RESPONSE TO NOTICE U/S.131(6) IS NOT AT ALL FALL WITHIN THE AMBIT OF SECTION 69 WHICH SAYS ABOUT THE UNDISCLOSED INVESTMENT BY THE ASSESSEE. THE DEBTOR BEING AN INTANGIBLE ASSET CANNOT BE CONSIDERED AS A TANGIBLE ASSET FALLING WI THI N THE DEFINITION LAID DOWN U/S.69. THEREFORE, THE ADDITION OF 1,15,144 BEING THE D IFFERENCE BETWEEN TH E ACCOUNT COPY GIVEN BY THE FCI IN RESPONSE TO NOTICE U/S.131(6) AND THE FCI ACCOUNT SHOWN BY THE ASSESSEE IN THE BALANCE SHEET CANNOT BE SUSTAINED. HENCE, THE SAID ADDITION IS HEREBY DELETED BY ALLOWING THE ISSUE RAISED BY THE ASSESSEE IN THIS REGARD. 9. NOW COMING TO THE OTHER ISSUE OF 20% DISALLOWANCE BY INVOKING SECTION 40A(3) OF THE INCOME - TAX ACT,1961 IT IS FOUND THAT UNDISPUTEDLY THE AREA WHERE THE ASSESSE IS CARRYING ON BUSINESS IS A RURAL AREA SITUATED IN THE BACKWARD STATE OF O RISSA AND PEOPLE IN THE SAID AREA ARE MOSTLY UNEDUCATED AND UNAWARE OF THE TECHNICAL IMPLICATIONS OF THE VERY MANY ASPECTS MUCH MORE SO THE INCOME - TAX ACT,1961. THEREFORE, THE ONLY ACT DONE BY THE ASSESSEE IN SHOWING AGGREGATING MORE THAN 20,000 PER DAY P URCHASES OF OLD GUNNY BAGS FROM STREET VENDORS WHO GO AROUND THE VILLAGES PURCHASES USED OLD GUNNY BAGS AND AFTER CARRYING OUT PETTY LABOUR FOR MAKING THEM ITA NO.231/CTK/2011 6 GOOD FOR TRADING AND SELLING THE SAME TO THE NEEDY PEOPLE AND THAT TOO UNAWARE OF THE IMPLICATIONS OF SO MANY LAWS MORE SO THE I.T.ACT. IN THAT PROCESS ONLY THE ASSESSEE HAS SHOWN THE AGGREGATE FIGURE OF PAYMENT PER DAY IN THE CASH BOOK MAINTAINED BY HIM IN THE SELF MADE VOUCHERS. UNDISPUTEDLY THE PAYMENT FOR THE SAID PURCHASES MADE FROM PEOPLE BY AGGRE GATING OF SUCH GUNNY BAGS. THEREFORE, UNDER THE PECULIAR CIRCUMSTANCES OF TRADING GUNNY BAGS, THE INVOCATION OF TECHNICAL SECTION I.E., 40A(3) OF THE I.T.ACT IN A WAY IS NOT JUSTIFIED. HENCE, WE ARE OF THE CONSIDERED VIEW THAT THE DEPARTMENT OUGHT TO HAVE TAKEN A LENIENT VIEW WHILE DEALING WITH THE ILLITERATE PEOPLE CARRYING ON BUSINESS IN A RURAL AREA SITUATED IN A BACKWARD STATE OF ORISSA. THE DEPARTMENT IS UNABLE TO MAKE OUT ANY MATERIAL ON RECORD TO SHOW THAT THE ASSESSEE HAS INTENTIONALLY CONTRAVENED THE PROVISIONS U/S.40A(3) OF THE I.T.CT. IN SUCH PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT THE ADDITION MADE BY THE DEPARTMENT OF 1,20,400 BEING 20% OF THE TOTAL GUNNY BAG PURCHASES DURING THE YEAR AT 6,02,000 IS NO T SUSTAINABLE IN THE LIGHT OF THE FACTS PREVAILING IN RURAL AREA OF BACKWARD STATE OF ORISSA. HENCE, THE SAID ADDITION OF 1,20,400 IS HEREBY DIRECTED TO BE DELETED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. SD/ - SD/ - (K.K.GUPTA) ACCOUNTANT MEMBER ( K.S.S.PRASAD RAO) JUDICIAL MEMBER DATE: 9 TH NOVEMBER, 2011 H.K.PADHEE, SENIOR PRIVATE SECRETARY. ITA NO.231/CTK/2011 7 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT: ABDUL KAREEM, PROP. KALIGA RICE & FLOUR MILLS, AT. BADOBASINI, P.O.UMARKOTE, DIST. NABARANGPUR 764 073. 2. THE RESPONDENT: INCOME - TAX OFFICER, WARD 1, JEYPORE. 3. THE CIT, 4. THE CIT(A), 5. THE DR, CUTTACK 6. GUARD FILE (IN DUPLICATE) TRUE COPY, BY ORDER, SENIOR PRIVATE SECRETARY.