SMT SMT. PRIYA SONI, RAIPUR (CG) V. THE INCOME TAX OFFICER, WARD-4(5), RAIPUR (CG)

ITA 32/BIL/2017

• Counselvise Citation: [2022] 103 COUNSELVISE.COM (IT) 9308 (ITAT-RAIPUR)
• Duration Of Justice: 5 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: DB
• Next Hearing Date: 26-07-2022
• Assessment Year: 2012-2013
• Appeal Filed On: 30-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Rejection of books of accounts; Question of law; Set aside
• Section: 68; 145; 195; 264; 44AB; 73; 145(3)

Judgement Text

आयकर अऩीऱीय अधधकरण, रायऩ ु र न्यायऩीठ, रायऩ ु र IN THE INCOME TAX APPELLATE TRIBUNAL RAIPUR BENCH, RAIPUR श्री रविश स ू द, न्याययक सदस्य एवं श्री अरुण खोड़वऩया, ऱेखा सदस्य के समक्ष । BEFORE SHRI RAVISH SOOD, JM & SHRI ARUN KHODPIA, AM आयकर अऩीऱ सं./ITA No.32/RPR/2017 (ननधाारण वषा / Assessment Year : 2012-2013) Smt. Priya Soni, C/o-M/s Shivani Jewellers Ramnarayan Soni, Lilli Chowk, Purani Basti, Raipur Vs ITO, Ward-4(5), Raipur PAN No. : AWIPS 5478 A (अऩीऱाथी /Appellant) .. (प्रत्यथी / Respondent) ननधााररती की ओर से /Assessee by : Shri R.B.Doshi, CA राजस्व की ओर से /Revenue by : Shri G.N.Singh, Sr. DR स ु निाई की तारीख / Date of Hearing : 27/07/2022 घोषणा की तारीख/Date of Pronouncement : 31/10/2022 आदेश / O R D E R Per Arun Khodpia, AM : This appeal is filed by the assessee against the order passed by the CIT(A), Raipur, dated 30.01.2017, on the following grounds :- 1) In the facts and circumstances of the case, Commissioner of Income-tax (Appeals) erred in confirming addition of Rs. 7,28,286/- made by the Assessing Officer to books result by rejecting books of account u/s 145(3) and applying net profit rate of 6.28% on sales without giving any basis whatsoever for such application. 2) In the facts and circumstances of the case, addition of Rs. 36,75,000/- made by the Assessing Officer u/s 68 and confirmed by the Commissioner of Income-tax (Appeals) is unjustified, unwarranted and uncalled for as they have failed to properly appreciate the evidences as well as additional evidences filed before appellate authority and sent for remand report to the AO. 3) Without prejudice to ground no. 2 above, in the facts and circumstances of the case, Commissioner of Income-tax (Appeals) erred in confirming addition of Rs. 36,75,000/- made by the Assessing Officer u/s 68 for alleged unexplained cash credit in the name of Late Smt. Shanti Soni by ignoring the facts that books of account had been rejected by the AO and such action is confirmed by him. ITA No.32/RPR/2017 2 4) In the facts and circumstances of the case, Commissioner of Income-tax (Appeals) erred in setting aside addition of Rs. 75,561/- made by the Assessing Officer for alleged undisclosed interest income on deposits with Central Bank of India without considering the evidences filed before him. 5) Without prejudice to ground no. 4 above, in the facts and circumstances of the case, Commissioner of Income-tax (Appeals) erred in setting aside addition of Rs. 75,561/- made by the Assessing Officer for alleged undisclosed interest income on deposits with Central Bank of India by ignoring the facts that books of account had been rejected by the AO and such action is confirmed by him. 6) The appellant reserves the right to add, amend or alter any ground or grounds of appeal at the time of hearing. 2. Brief facts of the case are that the assessee is the proprietor of M/s. Pumima Stone Industries Raipur and derives income from the business of manufacturing and trading of black stone. The assessee filed her return of income electronically on 12.12.2012 declaring total income of Rs.5,75,190/-. The case was selected for scrutiny and during the course of scrutiny proceedings the AO required the assessee to submit the books of accounts and various other accounts related to purchase and sale of items, closing stock and manufacturing details of black stone, details of consumables and the fixed assets of the manufacturing concern. Regarding quantitative details for manufacturing in column 28(b) of 3CD the tax auditor has commented as “not furnished”. During the assessment proceedings register/ records pertaining to quantitative details were produced, but yield position was not maintained by the assessee. Certain more observations were made by the AO and thus was not satisfied with the completeness and correctness of the books of accounts, therefore, he rejected u/s. 145(3) of the Act and worked out net profit at 6.28% on the ITA No.32/RPR/2017 3 turnover of Rs. 2,07,55,996/- at Rs. 13,03,476/- and considered the same as the total income by making an addition of Rs.7,28,286/-. Further the AO observed that the assessee had also taken unsecured loan amounting to Rs.36,75,000/- from Smt. Shanti Soni and in connection with the loan taken the assessee was required to furnish confirmations in order to prove the identity, creditworthiness and genuineness of the transactions. Since the assessee did not furnish the necessary details such as complete address, PAN of Smt. Shanti Soni, and Bank statements the AO concluded that the loans are not genuine and added back u/s. 68 of the Act to the total income of the assessee. The AO also added Rs.75,561/- on account of interest income on investments made in the Central Bank of India which was not disclosed by the assessee in the computation of the total income. 3. Against the above additions made by the AO in the assessment order, the assessee preferred appeal before the CIT(A) and the CIT(A) confirmed the addition made by the AO applying net profit @6.28% of the total sales and the addition made u/s.68 of the Act, however, the CIT(A) restored the issue of interest received by the assessee form investment in Central Bank of India to the file of AO for further verification and examination. Accordingly, the CIT(A) partly allowed the appeal of the assessee. 4. Now, the assessee is in further appeal before the Tribunal. ITA No.32/RPR/2017 4 5. In the instant case out of 6 grounds raised by the assessee, ground Nos.4 & 5 have not been pressed by the ld. AR, therefore, ground Nos.4 & 5 are dismissed as not pressed. 6. Ground No.6 is general in nature, which does not require any adjudication. 7. Now, the grounds remained to be decided as ground Nos.1 to 3. Ground No.1 : Against the action of CIT(A) in confirming the net profit applied by the AO @ 6.28% on the sales 8. Ld. AR before us submitted that opening and closing stock is of processed black stone and purchases made was of raw black stone which is yet to be shaped into sizes and polished, therefore, the opening stock and closing stock of black stone is finished product which is saleable so its rate would always be higher than the purchase rate of Raw black stone. It was submitted by the ld. AR that in the valuation of closing stock the direct expenses such as wages, power and fuel are included in the valuation because the basis of valuation is cost or market price whichever is lower, so the valuation of stock is done at cost price (cost price of raw black stone + Direct expenses to make it saleable). It is further submitted by the ld. AR that books of accounts cannot be rejected merely on the ground that day to day register were not maintained by the assessee. Quantitative details of raw materials, finished products and by products were not furnished in 3CD report, but during the course of assessment proceedings the quantitative details of stocks were produced before the AO along with valuation. Although, the day to day stock register was not maintained by the assessee but she maintained the quantitative details for ITA No.32/RPR/2017 5 whole year and valuation of closing inventory has been made by her on the basis of quantitative charts prepared for the whole year. So, the basic purpose of maintenance of day to day stock register was otherwise fulfilled by the assessee. In support of contention that why the delay was occurred in producing books and records, it was the submission that, the factory of the assessee is situated in Mahasamund which is 60 Kms far from Raipur where all books of accounts are maintained, also the local accountant of the assessee was not available at that time thus, the assessee was unable to produce the book of accounts at a short notice. It was also alleged that sufficient time was not granted to the assessee by AO. It is further submitted that, the books of accounts of the assessee are duly audited u/s. 44AB and the assessee has maintained proper books of units, however, without considering the facts in totality, the CIT(A) has also affirmed the view taken by the AO and confirmed the addition made by applying the net profit rate @ 6.28% of the total sales, which is not justified and deserves to be deleted. It was also submitted by the Ld AR that business of the assessee was on hike during the current financial year and evident from the turnover of the business which has increased from Rs. 62.26 lac of preceding year to Rs. 207.56 Lac in the current financial year, hence the same cannot be compared and the addition based on rate of net profit in previous assessment year by the assessee and the same cannot be applied on the turnover of the relevant assessment year without proper analysis of the facts, merely on the basis ITA No.32/RPR/2017 6 of assumption. Thus the order of the Ld CIT(A) deserves to be set aside and the order of the Ld AO is liable to be quashed. 9. Ld AR relied upon the following case laws with regard to rejection of books of accounts and adoption of rate of profit under similar situations:- i) Jaytick Intermediates (P) Ltd Vs ACIT, [[2016] 73 taxmann.com 195 (Gujarat), wherein the Hon’ble High Court has held as under :- Section 145 of the Income-tax Act, 1961 - Method of accounting - Rejection of accounts (Stock Register) - Whether non-maintaining of day-to-day stock register is not a ground to reject books of account - Held, yes - Whether further change of method of accounting on account of MODVAT could not be a reason to reject books of account particularly when there was nothing to hold that change in accounting method of MODVAT was not a mala fide act on assessee's part - Held, yes [Paras 8 and 10] [In favour of assessee] ii) CIT Vs. Poonam Rani (2010) 326 ITR 223(Delhi), wherein the Hon’ble Delhi High Court has held as under:- Section 145 of the Income-tax Act, 1961 - Method of accounting - Rejection of accounts - Assessment year 2003- 04 - Whether if stock register is not maintained by assessee, that may put Assessing Officer on guard against falsity of return made by assessee and persuade him to carefully scrutinize account books of assessee, but absence of one register alone does not amount to such a material as would lead to a conclusion that account books were incomplete or inaccurate - Held, yes - Whether similarly, if rate of gross profit declared by assessee in a particular period is lower than gross profit declared by him in preceding year, that may alert Assessing Officer and serve as a warning to him to look into accounts more carefully, but a low rate of gross profit, in absence of any material pointing towards falsehood of account books, cannot, by itself, be a ground to reject account books under section 145(3) - Held, yes 10. On the other hand, ld. Sr DR relied on the orders of the authorities below and submitted that both the lower authorities have rightly rejected the books of assessee u/s 145(3) of the Act and applied the net profit at 6.28 % of turnover which assessee herself has declared in preceding ITA No.32/RPR/2017 7 year, as the assessee could not produce the required documents either before the AO in the assessment proceedings or before the CIT(A) during the appellate proceedings, even after providing ample opportunity to provide the same. Therefore, ld. Sr. DR submitted that no interference is called for in the orders of both the authorities below. 11. We have heard rival submissions and perused the record carefully. The AO during the course of assessment proceedings observed that the books of accounts of the assessee are not reliable; therefore, he applied provisions of Section 145(3) of the Act and rejected the books of accounts of the assessee as the same are not correct and complete. Accordingly, the AO adopted the net profit rate of 6.28% of the total turnover, which has been confirmed by the CIT(A) in first appeal. At the outset, without going much into the merits of the case, we do not see any cogent reason for rejection of books summarily and applying the net profit on an estimate @ 6.28% by the AO. AO’s observation that purchases are made at a rate higher than the Opening Stock is not a well thought remark, it should be understood that if the purchases are made at lower rates, it would increase the profit of the assessee, in no way it would have resulted in the reduction of taxable Income of the assessee, thus, the same could not be a reason for evasion of tax. 12. From the case law relied upon by the Ld AR it is clearly coming out that “Rejection of accounts (Stock Register) - Whether non-maintaining of day-to-day stock register is not a ground to reject books of account” as ITA No.32/RPR/2017 8 held in the case of Jaytick Intermediates (P) Ltd (supra) by Hon’ble Gujarat High Court. 13. Regarding adopting rate of net profit of the previous year in case where rate of profit to turnover during the current year is lower Hon’ble Delhi High Court in the case of CIT Vs, Poonam Rani (supra) has held that “if rate of gross profit declared by assessee in a particular period is lower than gross profit declared by him in preceding year, that may alert Assessing Officer and serve as a warning to him to look into accounts more carefully, but a low rate of gross profit, in absence of any material pointing towards falsehood of account books, cannot, by itself, be a ground to reject account books under section 145(3) - Held, yes” 14. In backdrop of the above observations and principles of law laid down by the judicial forms, we are of the considered opinion that rejection of books of accounts by Ld AO and unrealistic estimation of profit, was not justified, thus, action of the Ld AO and concurrence by Ld CIT(A) were arbitrary, unsustainable and deserves to be reversed and we do so. Accordingly, ground No.1 of assessee is allowed. Ground Nos.2 & 3: Regarding confirmation of addition of Rs.36,75,000/- u/s.68 of the Act. 15. Before us, on this issue, Ld. AR drew our attention to the copy of submissions before the Ld. CIT(A), the same are extracted as under: Smt. Shanti Soni was the aunt(Bua) of Shri Ashish soni (husband of Smt. Priya Soni). Smt. Shanti Soni was a retired Senior teacher in a govt, school in Sagaur (M.P.). Smt. Shanti Soni was divorced soon after her marriage. She worked for 25 years (copy of service records is enclosed herewith) and took voluntarily retirement on 30/9/2004 and after that she shifted to Raipur to her younger brother Shri P.V Soni who is the father in law of the Assessee. On her retirement she got a lump sum amount in the form of GPF, ITA No.32/RPR/2017 9 Gratuity and also have with her some of her private savings and she was earning a good Rental income from House Property owned by her at Main city at Sagaur (M.P) which has a area of 2500 sq. ft (approx.).The documentary evidence of such property is also enclosed herewith. The Copy of last ITR which was produced before the AO is also enclosed herewith. Also Smt Shanti Soni executed her Registered "Will ".The Copy of the same is enclosed herewith. The Contents of the will clearly shows that she has transferred all her movable and immovable property in the name of father in law of the Assessee Shri P.V Soni. Further the service record of Smt Shanti Soni clearly shows that she has nominated husband of the Assessee that clearly indicates that Smt Shanti Soni was how closely connected with the Assessee and had great love and affection with the family of the Assessee. Smt. Shanti Soni got expired on 23/3/2012. Please find enclosed herewith copy of death certificate of Smt. Shanti Soni. also We are enclosing following documents for your kind perusal to prove the genuineness of the transactions as well as credit worthiness of the lender: a) Service Record to show the income earned in the past b) Property Paper in support of rental income c) Registered Will dated 23/10/1992 to prove that the Assessee d) owns movable and immovable property e) Bank Statement for such period f) Last ITR Copy The above documents mentioned in Point a to d above could not be submitted to AO because the same has been obtained after the completion of the Assessment proceedings and could not be produced due to the death of the lender. Therefore, we request you to kindly accept the same at appellate stage? 3. Consideration of interest of Rs.75561/- received from investment in central bank of India as an undisclosed income is also arbitrary as interest received was squared up against the interest expense of loan taken from the same bank. Due to which interest income was not reflected in profit & loss A/c. The Copies of FDR Statement and Loan Statement is enclosed herewith. The details of interest received and paid is as under:- Interest Paid Interest Received Rs. 70,837.00 Rs.75,561.00 The above facts were also informed to the Assessing officer but the same has not been considered. ITA No.32/RPR/2017 10 16. On the other hand, ld. Sr. DR relied on the orders of the authorities below. 17. We have heard rival submissions and perused the material available on record. The basis of addition made by the AO u/s.68 of the Act is that the assessee has received unsecured loan of Rs.36.75 lakhs for which the assessee could not prove the creditworthiness of the lenders of the loan. Ld. CIT(A) also thumbed to the view taken by the AO. Ld. AR before us vehemently submitted that all the relevant documents as required by the AO during the course of assessment proceedings were submitted and even before the CIT(A) a detailed submission was filed, however, both the authorities have not considered the same. In this case, the AO found that the assessee has taken an amount of Rs.36,75,000/- as unsecured loan from Smt. Shanti Soni, who is Bua (Father’s Sister) of husband of the assessee. The assessee before the AO stated that Smt. Shanti Soni was unmarried and was a retired headmaster of a Government school in Sagaur (M.P). The extracts of service records of Smt. Shanti Soni have been filed at page book pages 54 to 122. The assessee and her husband were looking after Smt Shanti Soni at her old- age. Out of the retiral benefits, Smt. Shanti Soni transferred the disputed amount to the account of the assessee as loan required for purchase of property, for which Smt. Shanti Soni has confirmed the same. In this regard, ld. AR drew our attention to page 42 and submitted that the transactions with regard to the impugned amount is very clear and the same have been made through proper banking channel, through cheque ITA No.32/RPR/2017 11 payments. On perusal of the confirmation of accounts filed at page 42 of the paper book, it is seen that the amount of Rs.36,75,000/- has been credited to the assesee’s account on the following dates :- Date Cheque No. Credit Amount 20-Apr-2011 22701 10,00,000,00 5-Jul-2011 22703 10,00,000.00 13-Jul-2011 22704 5,00,000.00 25-Jul-2011 22706 2,00,000.00 10-Aug-2011 fund transferred 538976288 9,75,00,000 18. The assessee has also filed bank statement of Smt. Shanti Soni, copy of which is at 46 of the paper book, wherein the above amounts have been transferred through cheques with proper banking channel. From the above, it is clear that there would not be any doubt regarding creditworthiness of the lender and genuineness of transactions of disputed amount as alleged by the Ld AO and affirmed by the Ld CIT(A). The assessee has brought into the notice of the Ld AO about the death of Smt. Shanti Soni for which death certificate has also been filed and placed at page 41 of the paper book. It is also a fact that the source of amount received by the assessee has not been disputed by either of the authorities below and there is also confirmation from the lender that that amount has been transferred by her through proper banking channel, meaning thereby the assessee has discharged its onus to explain the source of the amount received. Even on perusal of the service record, the lender had substantial capacity to provide loan to the assessee. In this regard, reliance was placed on the decision of Hon’ble Gujarat High Court in the case of Rohini Builders [2003] 127 Taxman 523 (Gujarat)/256 ITR 360 (Guj.), wherein the Hon’ble High Court has held as under :- ITA No.32/RPR/2017 12 Section 68 of the Income-tax Act, 1961 - Cash Credits - Assessing Officer made addition of Rs. 12,85,000 as unexplained cash credits in respect of loans taken by assessee from 21 parties - Assessee had discharged initial onus by providing identity of all creditors by giving their complete addresses, GIR numbers/permanent account numbers and copies of assessment orders wherever readily available - Assessee had also proved capacity of creditors by showing that amounts were received by account payee cheques drawn from bank accounts of creditors - Repayment of loans and interest thereon was also made by account payee cheques by assessee and tax also had been deducted at source on interest payments and remitted - Whether assessee was not expected to prove genuineness of cash deposited in bank accounts of creditors, because under law, assessee can be asked to prove source of credits in its books of account but not source of source - Held, yes - Whether merely because summons issued to some of creditors could not be served or they failed to appear before Assessing Officer, could not be ground to treat those credits as non-genuine - Held, yes - Whether considering totality of facts and circumstances of case, especially fact that Assessing Officer had not disallowed interest claimed/paid in relation to those credits in assessment year under consideration or even in subsequent assessment years, and tax at source had been deducted out of interest paid/credited to creditors, Tribunal was justified in deleting addition made - Held, yes - Whether as there was no substance in appeal and no substantial question of law arose, appeal was liable to be dismissed - Held, yes 19. The Hon’ble Gauhati High Court in the case of Nemi Chand Kothari Vs. CIT, 264 ITR 0254 has held that “once the assessee has disclosed the sources from which he has received the loans, his burden stands discharged. It is not the burden of the assessee to show the source of his/her creditor or to prove the creditworthiness of source of sub-creditors. Our view finds support from the decision of Hon’ble M.P. High Court in the case of CIT vs. Metachem Industries (supra)”. 20. In the instant case, the assessee has discharged her onus by providing details relating to the loan amount availed from Smt. Shanti Soni by producing her bank accounts, Income-Tax Returns, confirmation, etc., however, the AO has doubted source of the lender/creditor inquiring ITA No.32/RPR/2017 13 source of source which is not permitted as held in above judgments. Even the CIT(A) has also not taken into consideration the above factual position as well as the provisions of law. In view of above judicial precedence as well as factual aspects of the matter, we are of the opinion that both the authorities below have committed error in making the addition u/s.68 of the Act in the hands of the assessee. Accordingly, we set aside the order of Ld CIT(A) and direct the Ld AO to delete the addition made u/s.68 of the Act. Consequently, ground Nos. 2 & 3 of the assessee are allowed. 21. In the result, the appeal of the assessee is partly allowed in terms of our aforesaid observations. Order pronounced in pursuance with Rule 34(4) of the ITAT Rules, 1963 on 31/10/ 2022. Sd/- (RAVISH SOOD) Sd/- (ARUN KHODPIA) न्यानयक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER रायऩ ु र/Raipur; ददनाांक Dated 31/10/2022 Prakash Kumar Mishra, Sr.P.S. आदेश की प्रनतलऱपऩ अग्रेपषत/Copy of the Order forwarded to : आदेशान ु सार/ BY ORDER, (Assistant Registrar) आयकर अऩीऱीय अधधकरण, रायऩ ु र/ITAT, Raipur 1. अऩीऱाथी / The Appellant- 2. प्रत्यथी / The Respondent- 3. आयकर आय ु क्त(अऩीऱ) / The CIT(A), 4. आयकर आय ु क्त / CIT 5. विभागीय प्रयतयनधध, आयकर अऩीऱीय अधधकरण, रायऩ ु र/ DR, ITAT, Raipur 6. गार्ड पाईऱ / Guard file. सत्यावऩत प्रयत //True Copy//