V.Manivannan, CHENNAI V. ITO, CHENNAI

ITA 2831/CHNY/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9296 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 5 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-05-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 29-02-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 17-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A B KOLI
• Assessee Lawyers: S SRIDHAR
• Keywords: Bogus purchase; Unexplained cash credit; Business income; Principle of natural justice; Onus to prove
• Section: 143(3); 68

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI . . . , . , % BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NOS.601/MDS/2013 & 2831/MDS/2014 ( / ASSESSMENT YEAR: 2007-08) MR. V.MANIVANNAN, PROP. EASWARI ENTERPRISES, G-9, HOPE WELL CENTRE, 39, GP ROAD, CHENNAI - 600 002. VS THE INCOME TAX OFFICER, BUSINESS WARD-VI(4), CHENNAI-34. PAN: AANPM1804F ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. S.SRIDHAR, ADVOCATE /RESPONDENT BY : MR. A.B.KOLI, JCIT /DATE OF HEARING : 3 RD MARCH, 2016 /DATE OF PRONOUNCEMENT : 12 TH MAY, 2016 / O R D E R PER A. MOHAN ALANKAMONY, AM: BOTH THESE APPEALS ARE FILED BY THE ASSESSEE AGGRIE VED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-IX, CHENNAI DATED 23.12.2011 IN ITA NO .118/09- 10 PASSED UNDER SECTION 143(3) READ WITH SECTION 25 0(6) OF THE ACT AND THE ORDER OF LEARNED COMMISSIONER OF IN COME TAX (APPEALS)-II, CHENNAI DATED 21.08.2014 IN ITA NO.288/2013-14 PASSED UNDER SECTION 271(1)(C) R.W.S 250(6) OF THE ACT. SINCE BOTH THE APPEALS ARE PERTAINING T O QUANTUM APPEAL & PENALTY APPEAL, THEY ARE HEARD TOGETHER AN D 2 ITA NO.601/MDS/2013 & ITA NO.2831/MDS/2014 DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NO.601/MDS/2013 : 2. THE ASSESSEE HAS RAISED SEVERAL GROUNDS IN HIS A PPEAL, HOWEVER, THE CRUX OF THE ISSUE IS AS FOLLOWS:- THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE ADDITION OF ` 19,39,677/- MADE BY THE LEARNED ASSESSING OFFICER ON ACCOUNT OF UNEXPLAINED CASH CREDIT UNDER SECTION 68 OF THE ACT. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF BUYING & SELL ING OF AUTOMOBILE SPARE PARTS FILED HIS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2007-08 ON 31.10.2007 ADMITTING TOT AL INCOME OF ` 1,92,230/-. SUBSEQUENTLY, THE CASE WAS TAKEN UP FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED UNDE R SECTION 143(3) OF THE ACT ON 29.12.2009, WHEREIN TH E LEARNED ASSESSING OFFICER MADE ADDITION OF RS.19,39,677/- B ECAUSE CERTAIN SUNDRY CREDITORS WERE NOT PROVED TO BE GENU INE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LE ARNED ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD SH OWN SUNDRY CREDITORS AMOUNTING TO RS.26,06,589.21 IN HI S BALANCE 3 ITA NO.601/MDS/2013 & ITA NO.2831/MDS/2014 SHEET. ON VERIFICATION THE LEARNED ASSESSING OFFICE R OPINED THAT CERTAIN SUNDRY CREDITORS WERE NOT GENUINE BECA USE THERE WAS DISCREPANCY IN THE CONFIRMATION STATEMENTS SUBM ITTED BY THOSE SUNDRY CREDITORS AND THE AMOUNT DISCLOSED BY THE ASSESSEE IN HIS BALANCE SHEET. ON QUERY, THE ASSES SEE COULD NOT PROVE THE GENUINENESS OF THE CREDITORS AM OUNTING TO RS.19,39,677/-. THEREFORE, THE LEARNED ASSESSING OFFICER MADE ADDITION OF RS.19,39,677/- UNDER SECTION 68 O F THE ACT. 4. IN THE APPELLATE PROCEEDINGS, THE ASSESSEE MAD E THE FOLLOWING SUBMISSIONS TO THE LEARNED COMMISSIONER O F INCOME TAX (APPEALS) :- THE APPELLANT AN INDIVIDUAL IS A RETAILER IN AUTOMO BILE SPARE PARTS FOR THE ASSESSMENT YEAR 2007-08 THE LD AO ADDED A SUM OF RS. 19,39,677/- U/E 68 OR THE IT ACT, BEING THE 'SUNDRY CREDITORS PROVED TO BE NOT GENUINE' IN RESPECT F PURCHASES FROM 10 SUPPLIERS. ACCORDING TO THE LD. AO, THESE PARTIES HAVE DENIED HAVING SUPPLIED THE GOODS TO THE APPELLANT AND CONSEQUENTLY, NO AMOUNT IS DUE FROM THE APPELLANT. HOWEVER, CONTRARY TO THE RESULT OF THE ENQUIRY, THE PURCHASES AND SALES ADMITTED IN THE ACCOUNTS HAVE NOT BEEN DISTURBED BY THE LD. AO. THE FACTS OF THE TRANSACTIONS ARE AS UNDER: - THE APPELLANT HAS BEEN NEGOTIATING FOR LOAN FOR THE PURPOSE OF THE BUSINESS FROM THE SO CALLED 'MARKET FINANCIERS' WHO WILL ADVANCE MONIES SANS SECURITY. THE 4 ITA NO.601/MDS/2013 & ITA NO.2831/MDS/2014 PRINCIPLE WITH INTEREST IS COLLECTED AT EQUATED DAILY INSTALLMENTS AT THE END OF EACH DAY THROUGH ITS COLLECTION AGENTS. BEFORE DISBURSEMENT OF THE LOAN, THESE FINANCIERS MAKE SURE THAT, ENOUGH LIQUID CASH WITH SUFFICIENT MARGIN IS AVAILABLE EVERY DAY ON THE BASIS OF CASH SALES AS OTHERWISE COLLECTION MAY SUFFER ON SOME DAYS. AS IS THE PRACTICE, IN ORDER TO SHOW SUFFICIENT CASH SALES, THE APPELLANT HAS INTRODUCED UNREAL STOCK AS IF THESE ARE PURCHASED FROM PARTIES ON CREDIT BASIS .IF CASH PURCHASES ARE SHOWN, THE PURPOSE WILL BE DEFEATED, AS, IN SUCH A SITUATION, CASH BALANCE WILL COME DOWN. THESES UNREAL PURCHASES ARE ENTERED IN THE STOCK REGISTER AND SIMULTANEOUSLY SHOWN AS CASH SALES ADDING THE GROSS PROFIT MARGIN FROM TIME TO TIME OVER AND ABOVE THE REAL DAY TO DAY CASH SALES. THUS THE UNREAL STOCK WILL VANISH-FROM THE ACCOUNTS WITHIN A REASONABLE TIME. THIS PRACTICE IS PREVALENT IN THE LINE OF TRADE TO ENJOY CREDIT FACILITIES FROM THE MARKET FINANCIERS. AT THE TIME OF INTRODUCING BOGUS BILLS AND RESORTING TO BOGUS PURCHASES THE APPELLANT DID NOT THINK OF ANY OTHER CONSEQUENCES BUT HAD IN MIND ONLY THE NECESSITY OF GETTING THE LOAN SOME WAY OR OTHER. AS ALREADY MENTIONED ABOVE, NO SECURITY IS TAKEN BY THESE FINANCIERS AND IN THE EVENT OF DEFAULT, STEM ACTION BY USING THE MUSCLE POWER OF THEIR AGENTS IS RESORTED TO AND ULTIMATELY, IT MAY BECOME IMPOSSIBLE TO RUN THE BUSINESS. SOME TIMES EVEN GOODS ARE FORCIBLY REMOVED FROM THE SHOP TO REALIZE THEIR LEGITIMATE DUES AND RETURNED ONLY WHEN PAYMENT IS MADE, POLICE COMPLAINT WILL NOT BE OF ANY AVAIL. 4. IT WOULD BE NOTICED FROM THE TRADING RESULTS SUBMITTED THAT THE ENTIRE BOGUS PURCHASES AND BOGUS SALES ARE FULLY ACCOUNTED FOR, IN RESPECT OF SUCH IMAGINARY SALES, THE NORMAL GROSS PROFIT IS ADDED AND BILLED AS OTHERWISE THE TRADING RESULT WILL BE LOWER THAN THE PREVAILING GROSS PROFIT RATE AND MAY NOT BE ACCEPTED BY THE 5 ITA NO.601/MDS/2013 & ITA NO.2831/MDS/2014 SALES TAX AND INCOME TAX DEPARTMENT. THE FACT THAT NORMAL TRADING RESULT IS ADMITTED IN THE ACCOUNTS ITSELF IS ENOUGH PROOF THAT THE GROSS PROFIT IS ADDED TO THESE SALES ALSO. THE TRADING RESULT OF THE APPELLANT FOR THE YEAR IS EXTRACTED HEREUNDER:- TOTAL SALES AS PER TRADING AND P& L ACCOUNT -RS.47,71,815/- TOTAL COST OF GOODS SOLD AS PER TRADING AND P&L ACCOUNT -RS, 41,00,098/- (RS. 8,76,325 + RS. 54,20,863-RS. 21,97,090) GROSS PROFIT 47,71,815 -RS.6,71,716/- GP PERCENTAGE-6,71,716 X 100 14.08% IT IS SUBMITTED THAT THE NORMAL GROSS PROFIT RATE OBTAINING IN RETAIL TRADE IN AUTOMOBILE SPARES OF THE TYPE OF THE APPELLANT IS 15% TO 16%. 5. CONSIDERING THE FACT THAT THE UNREAL PURCHASES AS PER THE BILLS AND SALES INCLUDING GROSS PROFIT IS ALREADY ADMITTED AND TAXES PAID ON THESE ONREAL TRANSACTION, THE ENTIRE ADDITION MADE MAY BE DELETED. IT IS PAINTED OUT THAT [HE LD AO VERIFIED THE TEN ITEMS OF PURCHASES AND FOUND THAT THESE ARE NOT REAL, AS THE VERIFICATION CONFIRMED THAT THE OUTSTANDING SHOWN IN SUNDRY CREDITORS ARE ALSO NOT REAL. 6, YES, IT IS ADMITTED THAT THE APPELLANT HAS RESORTED TO A PRACTICE PREVALENT IN THE TRADE, BUT NOT ACCEPTABLE TO THE DEPARTMENT AND CANNOT GO SCOT-FREE, BY ADMITTING SUCH NOTIONAL PURCHASES AND SALES, THE TOTAL INCOME HAS GONE UP NOTIONALLY ON SUCH PURCHASES. THE APPELLANT HAS ALREADY PAID TAXES ON THIS AMOUNT AND HENCE HE SHOULD NOT BE PUNISHED ONCE AGAIN BY ADDING THE RELEVANT UNREAL SUNDRY CREDITOR BALANCES. THUS ADDING THE UNREAL BALANCE IN THE SUNDRY CREDITS VERIFIED BY THE LEARNED ASSESSING OFFICER AND FOUND TO BE SUCH WILL BE AGAINST THE PRINCIPLES OF NATURAL JUSTICE AND AGAINST THE PRINCIPLES OF DOUBLE 6 ITA NO.601/MDS/2013 & ITA NO.2831/MDS/2014 JEOPARDY. ARTICLE 20 OF THE INDIAN CONSTITUTION PROTECTS A PERSON FROM SUFFERING MORE THAN ONCE FOR ANY DEFAULT. I HAVE COME BEFORE YOUR HONOUR BEING THE JUDICIAL AUTHORITY WITH AN APPEAL HOPING TO GET FLAT JUSTICE. 7. IT IS SUBMITTED THAT THE APPELLANT IS UNABLE TO PAY THE ADDITIONAL BURDEN OF TAX AS A RESULT OF THE SCRUTINY ASSESSMENT AND MAY THUS BE DELETED. 5. HOWEVER, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE ORDER OF THE LEARNED ASSESS ING OFFICER BY OBSERVING AS UNDER:- 6. I HAVE CONSIDERED THE ASSESSMENT ORDER, GROUNDS OF APPEAL, WRITTEN SUBMISSIONS OF THE APPELLANT. I AM OF THE VIEW THAT THE CONTENTION OF THE APPELLANT IS NOT ACCEPTABLE AS THE APPELLANT MAINTAINS THE BOOKS OF ACCOUNT WHICH ARE SUBJECTED TO AUDIT U/S.44AB. HENC E WHATEVER BE THE TRADE RESULTS DECLARED IN THE R ETURN OF INCOME ARE FINAL AND THERE IS NO QUESTION OF ALTERING TRADING RESULTS AT THIS JUNCTURE. 6.1 SECONDLY, EVEN IF THE APPELLANT'S CONTENTIONS WERE TO BE ACCEPTED THE APPELLANT WOULD NOT GET ANY BENEFIT AS PER THE DECISION OF THE HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF KAVERI RICE MILLS REPORTED IN 157 TAXMAN 376 THAT WHEN PURCHASES ARE BOGUS, ALL PURCHASES ARE TO BE ADDED AND NOT THE GROSS PROFIT (GP) IRRESPECTIVE OF THE FACT THAT GP WILL GO UP DRAMATICALLY. 6.2 IN VIEW OF THE ABOVE DISCUSSION, THE ACTION OF THE AO IS CORRECT IN TREATING UNPROVED SUNDRY CREDITORS TO THE EXTENT OF RS. 19,39,677/- AS UNEXPLAINED CREDITS U/S 68 OF THE I.T.ACT, 1961 UNDER THE HEAD 'OTHER SOURCES'. 7 ITA NO.601/MDS/2013 & ITA NO.2831/MDS/2014 6. BEFORE US, THE LEARNED AUTHORIZED REPRESENTATIVE SUBMITTED THAT ONE MORE OPPORTUNITY MAY BE GIVEN TO THE ASSESSEE TO PROVE THE GENUINENESS OF HIS CLAIM OTHE RWISE IT WILL LEAD TO MISCARRIAGE OF JUSTICE. HE FURTHER ARG UED STATING THAT OUT OF HIS TOTAL TURNOVER OF RS.47,71,815.47 T HE ASSESSEE HAS DECLARED NET PROFIT OF RS.2,14,831/- WHICH IS A BOUT 4.5% OF SALES, WHICH IS THE ACTUAL STATE OF AFFAIRS OF T HE ASSESSEES BUSINESS AND THEREFORE FURTHER ADDITION OF RS.19,39 ,677/- ON THE PRESUMPTION OF BOGUS SUNDRY CREDITORS WILL JEOP ARDIZE THE BUSINESS OF THE ASSESSEE. THE LEARNED AUTHORIZED REPRESENTATIVE FURTHER SUBMITTED THAT THE ASSESSEE HAD WINDOW DRESSED HIS BALANCE SHEET IN ORDER TO OBTAIN LOAN FROM THE BANK BY SUPERFICIOUSLY INCREASING THE STOC K AND CORRESPONDINGLY INCREASING THE SUNDRY CREDITORS. T HEREFORE, THERE WAS NO ACTUAL INCREASE OF STOCK OR SUNDRY CRE DITORS. IT WAS THEREFORE HUMBLY SUBMITTED THAT THE MATTER MAY BE REMITTED BACK TO THE FILE OF THE LEARNED ASSESSING OFFICER FOR FRESH CONSIDERATION. 8 ITA NO.601/MDS/2013 & ITA NO.2831/MDS/2014 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, VEHEMENTLY ARGUED IN SUPPORT OF THE ORDERS OF THE REVENUE. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULL Y PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS A PPARENT FROM THE FACTS OF THE CASE THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS SIMPLY BRUSHED ASIDE THE ARGUMENTS ADVANCED BEFORE HIM BY THE ASSESSEE AND H IS LEARNED AUTHORIZED REPRESENTATIVE BUT ONLY RELIED U PON THE AUDIT REPORT FURNISHED UNDER SECTION 44AB OF THE AC T AND THEREBY CAME TO A CONCLUSION THAT THE ACCOUNTS DRAW N BY THE ASSESSEE IS GENUINE WITH RESPECT TO THE STOCK, HOWE VER HELD CERTAIN SUNDRY CREDITORS TO BE BOGUS WITHOUT FURTHE R VERIFICATION. IT WOULD HAVE BEEN PROPER ON THE PA RT OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) TO OBT AIN A REMAND REPORT FROM THE LEARNED ASSESSING OFFICER ON THE EXPLANATION ADVANCED BY THE ASSESSEE BEFORE CONFIRM ING THE ADDITION OF RS.19,39,677/-. AT THE SAME TIME, WE AR E NOT ABLE TO APPRECIATE THE CONDUCT OF THE ASSESSEE WHOSE INT ENTIONS 9 ITA NO.601/MDS/2013 & ITA NO.2831/MDS/2014 ARE MALAFIDE BY FURNISHING UNREALISTIC STATEMENT OF ACCOUNTS INTENDED FOR DIFFERENT PURPOSES AND TO GAIN UNDUE A DVANTAGE. WE ARE FURTHER OF THE VIEW THAT NO PURPOSE WILL BE SOLVED BY REMANDING THE CASE BACK TO THE FILE OF THE ASSESSIN G OFFICER BECAUSE OF THE LONG LAPSE OF TIME. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN THE INTEREST OF JU STICE, WE ARE OF THE CONSIDERED VIEW THAT SUSTAINING THE ADDI TION BY 50% OF RS.19,39,677/- WILL SUFFICE TO MEET THE ENDS OF JUSTICE. ACCORDINGLY, WE HEREBY CONFIRM THE ADDITION OF RS.9 ,50,000/- MADE UNDER SECTION 68 OF THE ACT BY THE LEARNED ASS ESSING OFFICER AND DELETE THE BALANCE. ITA NO.2831/MDS/2014 : 9. SINCE THE ENTIRE ADDITION HAS NOT BEEN CONCLUSIV ELY PROVED AND IT IS BASED ON ASSUMPTION AND NOT BY VER IFICATION OF THE EXPLANATION PRESENTED BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), WE ARE OF THE CONSIDERED VIEW THAT LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT WILL NOT BE APPROPRIATE. WHILE ARRIVING AT THIS CONCLUSION WE PLACE RELIANCE IN THE CASE OF HARI GO PAL SINGH 10 ITA NO.601/MDS/2013 & ITA NO.2831/MDS/2014 VS. CIT REPORTED IN 258 ITR 85 WHEREIN IT WAS HELD THAT THE ONUS TO PROVE THERE IS CONCEALMENT IS ON THE PART O F THE DEPARTMENT. THEREFORE, WE HEREBY DELETE THE PENAL TY LEVIED BY THE LEARNED ASSESSING OFFICER WHICH IS FURTHER C ONFIRMED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) . 10. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IN ITA NO.601/MDS/2013 IS PARTLY ALLOWED AND THAT OF ITA NO.2831/MDS/2014 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 12 TH MAY, 2016 SD/- SD/- ( . . . ) ( . ) (N.R.S.GANESAN) ( A.M OHAN ALANKAMONY ) # % / JUDICIAL MEMBER % / ACCOUNTANT MEMBER # /CHENNAI, ( /DATED 12 TH MAY, 2016 SOMU *+ ,+ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. - () /CIT(A) 4. - /CIT 5. + 1 /DR 6. /GF .