Income Tax Officer-II, Faizabad V. Shri Sushil Kumar, Faizabad

ITA 411/LKW/2012

• Counselvise Citation: 41123714 RSA 2012
• Duration Of Justice: 2 year(s) 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 24-02-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 23-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained investment; Cost of acquisition

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.411/LKW/2012 ASSESSMENT YEAR:2006 - 01 SHRI SUSHIL KUMAR, PROP . YASH SURGICAL HOUSE, REKABGANJ, FAIZABAD. PAN:ADKPK3143R VS INCOME TAX OFFICER - II, FAIZABAD. (RESPONDENT) (APPELLANT) SHRI Y. P. SRIVASTAVA, D. R. APPELLANT BY SHRI RAKESH GARG, ADVOCATE RESPONDENT BY 24/02/2015 DATE OF HEARING 31 /03/2015 DATE OF PRONOUNCEMENT O R D E R PER A. K. GARODIA, A.M. THIS IS REVENUES APPEAL DIRECTED AGAINST THE ORDER PASSED BY LEARNED CIT(A) - I, LUCKNOW DATED 25/05/2012 FOR THE ASSESSMENT YEAR 2006 - 2006. 2. IN THIS APPEAL, THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: 1. THAT THE LD. CIT(A) HAS ERRED IN ALLOWING TOTAL RELIEF OF RS.8 , 85,646/ - ON THE GROUND THAT MERE NON MAINTENANCE OF STOCK REGISTER BY THE ASSESSEE COULD NOT LEAD TO SUCH AN ASTRONOMICAL ESTIMATE OF SALES BY THE AO. TH E L D. C I T(A) HAS ALSO ERRED IN ACCEPTING THE GP RATE SHOWN AT 5.7% WITHOUT CONSIDERING THE FACT THAT THE ASSESSEE WAS NOT ABLE TO SUBSTANTIATE THE GENUINENESS OF THE TRADING ACCOUNT AND FAILED TO PRODUCE BOOKS OF ACCOUNTS AND SUPPORTING VOUCHERS DURING THE COURSE OF ASSESSMENT PROCEEDINGS. 2. THAT THE LD. CIT(A) HAS ERRED IN ALLOWING RELIEF OF RS.3,37 ,6 15 / - WITHOUT CONSIDERING THE FACTS THAT THE ASSESSEE WAS NOT ABLE TO SUBSTANTIATE DIFFERENCE OF RS.7,92,000 / - AGAINST RS.8 ,45 ,615 / - BE ING THE VALUE OF 2 CAR S HOWN BY THE ASSESSEE IN HIS BALANCE SHEET AND OTHER DEFICIENCIES POINTED OUT BY THE AO. WHILE ACCEPTING THE CLAIM OF ASSESSEE THAT THE ASSESSEE HAS MADE PAYMENTS OF TWO AMOUNTS OF RS.39,787 / - AND RS.18,982 / - AS REGISTRATION OF VEHICLE AND INSURANCE IN CASH THE LD. CIT(A) FAILED TO APPRECIATE THE ACTION OF AO THAT THE VALUE OF CAR WOULD AUTOMATICALLY BE INCREASED AND ADDITION MADE BY THE AO SHOULD HAVE BEEN CONFIRMED BY HIM . 3. THAT THE LD. CIT(A) HAS ERRED IN ALLOWING RELIEF OF ADDITION MADE FOR SUNDRY CREDITORS OF RS. 11,2 5,568/ - SHOWN IN BALANCE SHEET WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE FAILED TO FURNISH COMPLETE POSTAL ADDRESSES ETC. OF SUNDRY CREDITORS TO VERIFY THE GENUINENESS OF THE SAME. SUBSEQUENTLY IN REMAND REPORT THE AO HAS SPECIFIC ALLY INFORMED THAT THERE WERE TOTALING MISTAKES CUTTINGS AND OVERWRITING ON THE CONFIRMATION LETTERS AND COPIES OF ACCOUNTS PRODUCED DURING APPELLATE PROCEEDINGS WHICH WAS ALSO NO T CONSIDERED BY THE LD. CIT(A). 3. LEARNED D. R. OF THE REVENUE SUPPORTED T HE ASSESSMENT ORDER WHEREAS LEARNED A. R. OF THE ASSESSEE SUPPORTED THE ORDER OF LEARNED CIT(A). 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. REGARDING GROUND NO. 1 OF THE REVENUE, WE FIND THAT THIS ISSUE HAS BEEN DECIDED BY LEARNED CIT(A) AS PER PARA 3 .2, 3.2.1 AND 3.3 OF HIS ORDER, WHICH ARE REPRODUCED BELOW FOR THE SAKE OF READY REFERENCE: - 3 . 2 ON CAREFUL CONSIDERATION OF THE MATTER , I FIND THAT THE AO HAD NO MATERIAL BASIS TO ESTIMATE THE SALES AT RS.2,75,16,474/ - AS AGAINST THE ADMITTED SALES OF RS.1,34,30,205/ - AND THE ESTIMATE SO MADE WAS MORE THAN TWO TIMES OF DISCLOSED SALES. THE ASSESSING OFFICER H AD NOT FOUND OUT ANY INSTANCES OF UNACCOUNTED SALES TO INFER THAT ALL THE SALES WERE NOT RECORDED. HE ALSO DID NOT EXAMINE WHETHER THE SALES AS ESTIMATED BY HIM WERE POSSIBLE OUT OF OPENING STOCK AND PURCHASES MADE DURING THE Y E AR. HE ALSO DID NOT ACCEPT THE GENUINENESS OF OPENING STOC K WITHOUT EXAMINING THE FACT WHETHER THE CLOSING STOCK FOR THE IMMEDIATELY PRECEDING YEAR (WHICH CONSTITUTES OPENING 3 STOCK FOR THE YEAR) AND THE TRADING RESULTS FOR SUCH PRECEDING YEAR HAD BEEN ACCEPTED OR NOT. THE OPENING STOCK FOR THE YEAR UNDER CONSIDER ATION WAS NOTHING BUT THE CLOSING STOCK OF THE PRECEDING YEAR WHILE THE PERCENTAGE OF CLOSING STOCK HAS BEEN APPLIED AS A YARDSTICK TO REJECT THE TRADING R ESULT AND TO ESTIMATE SALES. THE ESTIMATE OF SALES AS HIGH AS MORE THAN DOUBLE THE ADMITTED SALES IS NOT ONLY WITHOUT ANY BASIS BUT IT ALSO SUFFER FROM AMBIGUITIES AND INHERENT INCONSISTENCIES AND CONTRADICTIONS. MERE NON MAINTENANCE OF STOCK REGISTER BY THE APPELLANT COULD NOT LEAD TO SUCH AN ASTRONOMICAL ESTIMATE OF SALES BY THE AO. 3.2.1 SIMILARLY THE ESTIMATE OF HIGHER GP A ND THAT TOO 'TO PLUG IN THE PROBABLE LEAKAGE IN THE FORM OF UNVERIFIABLE EXPENSES' WAS BASED ON GUESS ARISING FROM PROBABILITY WITHOUT IDENTIFYING THE AREAS OF LEAKAGE AND THE EXPENSES WHICH WERE NOT VERIFIABLE. THE AO HAS NOT EXPLA INED THE BASIS FOR ESTIMATING THE GP RATE OF 6% AS AGAINST THE ADMITTED RATE OF 5.7%. 3.3 IN VIEW OF THE DISCUSSION ABOVE THE ADDITION OF RS.8,85,646/ - ARISING FROM THE ESTIMATE OF SALES AND THEREAFTER, APPLICATION OF HIGHER RATE OF GROSS PROFIT ( I.E. 6%) ON SUCH SALES IS DIRECTED TO BE DELETED AND GROUND NO. 2 ACCORDINGLY STANDS ALLOWED. 4.1 FROM THE ABOVE PARAS FROM THE ORDER OF CIT(A), IT IS SEEN THAT A CLEAR FINDING HAS BEEN GIVEN BY LEARNED CIT(A) THAT THE ASSESSING OFFICER HAS NOT FOUND OUT ANY INS TANCES OF UNACCOUNTED SALES TO INFER THAT ALL THE SALES WERE NOT RECORDED. HE HAS ALSO GIVEN A FINDING THAT THE ASSESSING OFFICER DID NOT EXAMINE WHETHER THE SALES AS ESTIMATED BY HIM WERE POSSIBLE OUT OF OPENING STOCK AND PURCHASES MADE DURING THE YEAR. ON THIS BASIS, THE CIT(A) HAS HELD THAT THE ASSESSING OFFICER HAD NO MATERIAL BASIS TO ESTIMATE THE SALES AT RS.2,75,16,474/ - AS AGAINST THE ADMITTED SALES OF RS.1,34,30,205/ - . THESE FINDINGS OF CIT(A) COULD NOT BE CONTROVERTED BY LEARNED D.R. OF THE RE VENUE AND HENCE, ON THIS ASPECT, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A). 4 4.2 REGARDING THE SECOND ASPECT I.E. REGARDING ESTIMATING THE GROSS PROFIT RATE OF 6% AS AGAINST 5%, WE FIND THAT IT IS HELD BY CIT(A) THAT THE ESTIMATE OF HIGHER GP AND THAT TOO ( TO PLUG IN THE PROBABLE LEAKAGE IN THE FORM OF UNVERIFIABLE EXPENSES ) WAS BASED ON GUESS ARISING FROM PROBABILITY WITHOUT IDENTIFYING THE AREAS OF LEAKAGE AND THE EXPENSES WHICH WERE NOT VERIFIABLE. THESE FINDINGS OF CI T(A) COULD NOT BE CONTROVERTED BY LEARNED D.R. OF THE REVENUE AND HENCE, ON THIS ASPECT ALSO , WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A). 5. REGARDING GROUND NO. 2, WE FIND THAT THE ISSUE WAS DECIDED BY LEARNED CIT(A) AS PER PARA 5, 5. 1 AND 5.2 OF HIS ORDER, WHICH ARE REPRODUCED BELOW FOR THE SAKE OF READY REFERENCE: - 5. GROUND NO. 4 RELATES TO THE ADDITION OF RS.3,37,615/ - WHICH THE AO MADE ON ACCOUNT OF UNEXPLAINED INVESTMENT IN PURCHASE OF TATA SAFARI LX CAR. THE ASSESSING OFFICE R HELD THAT THE PAYMENTS AMOUNTING TO RS.2,87,000/ - CLAIMED TO HAVE BEEN MADE THROUGH CHEQUE NOS. 539646 (RS.51,000/ - ), 923099 (RS.51,000/ - ) AND 905764 (RS.1,85,000/ - ) WERE NOT EXPLAINED WHILE NO EXPLANATION REGARDING THE PAYMENT OF BALANCE AMOUNT OF RS.50 ,615/ - WAS OFFERED. THE AO ACCEPTED THE ASSESSEE'S CLAIM REGARDING BANK FINANCE OF RS.5,05,000/ - FOR PURCHASE OF CAR WHILE THE BALANCE INVESTMENT OF RS.3,37,615/ - (I.E. RS.2,87,000/ - + RS.50,615/ - ) WAS HELD AS UNEXPLAINED. 5.1 IN THE APPEAL BEFORE ME, THE APPELLANT SUBMITTED THAT THE PAYMENTS OF RS.51,000/ - , RS.51,000/ - AND RS.1,85,000/ - (TOTALING TO RS.2,87,000/ - WERE MADE THROUGH THE THREE CHEQUES (AS MENTIONED HEREIN ABOVE). THE AMOUNT OF RS.1,85,000/ - WAS WITHDRAWN IN CASH ON 23.08.2005 FROM HIS ACCOUN T WITH BANK OUT OF WHICH AN AMOUNT OF RS.1,82,000/ - WAS DEPOSITED IN BANK OF BARODA ON THE SAME DATE TOWARDS MARGIN MONEY FOR TERM LOAN OF RS.5,05,000/ - . THEREAFTER A DD NO. 112198 DATED 23.08.2005 FOR RS.6,86,046/ - WAS TAKEN FOR PAYMENT FOR CAR. THE OTHER TWO AMOUNTS OF RS.51,000/ - EACH WERE MADE THROUGH CHEQUE NOS. 539646 AND 923099 DATED 16.08.2005 AND 18.08.2005 DRAWN ON HIS ACCOUNT WITH ICICI BANK AND ALLAHABAD BANK RESPECTIVELY. TWO AMOUNTS OF 5 RS.39,787/ - AND RS.18,982/ - TOWARDS REGISTRATION OF VEHICL E AND INSURANCE WERE PAID IN CASH. THE APPELLANT HAS FURNISHED THE STATEMENT OF BANK ACCOUNTS AND CERTIFICATES FROM BANK OF BARODA AND ALLAHABAD BANK IN SUPPORT OF THE TRANSACTIONS INDICATED ABOVE. AS REGARDS THE PAYMENTS IN CASH FOR REGISTRATION AND INSUR ANCE THE CASH BOOK EXTRACTS HAVE BEEN FURNISHED ALONG WITH COPIES OF PURCHASE INVOICE (FROM GOLDRUSH SALES AND SERVICES LTD.), INSURANCE RECEIPT FROM THE ORIENTAL INSURANCE COMPANY LTD. AND CERTIFICATE OF REGISTRATION ISSUED BY ARTO, FAIZABAD. THE APPELLAN T CLAIMS THAT DETAILS IN THIS REGARD WERE ALREADY FURNISHED BEFORE THE AO. THE APPELLANT FURTHER CONTENDS THAT IN FACT THE COST OF ACQUISITION OF VEHICLE WAS RS.8,46,815/ - THROUGH IT WAS MISTAKENLY SHORT BOOKED FOR RS.8,45,615 - . THE ENTIRE SET OF EVIDENCE, AS DESCRIBED ABOVE, HAS BEEN EXAMINED. 5.2 IN VIEW OF THE FACTS AND EVIDENCE AS DISCUSSED ABOVE NO PART OF INVESTMENT IN PURCHASE OF CAR IS FOUND TO BE UNEXPLAINED AND, THEREFORE, THE ENTIRE ADDITION OF RS.3,37,615 / - IS DIRECTED TO BE DELETED. GROUND NO. 4 STANDS ALLOWED IN THE APPELLANT'S FAVOUR. 5.1 FROM THE ABOVE PARAS FROM THE ORDER OF CIT(A), WE FIND THAT A CLEAR FINDING HAS BEEN GIVEN BY CIT(A) THAT THREE PAYMENTS OF RS.51,000/ - , RS.51,000/ - AND RS.1,85,000/ - TOTALING TO RS.2.87 LACS WERE MADE TH ROUGH THREE CHEQUES. HE HAS ALSO GIVEN A FINDING THAT THE AMOUNT OF RS. 1,85,000/ - WAS WITHDRAWN IN CASH ON 23 / 08 / 2005 FROM HIS ACCOUNT WITH BANK OUT OF WHICH AN AMOUNT OF RS.1,82,000/ - WAS DEPOSITED IN BANK OF BARODA ON THE SAME DATE TOWARDS MARGIN MONEY FOR TERM LOAN OF RS.5,05,000/ - . HE HAS ALSO GIVEN A FINDING THAT T WO AMOUNTS OF RS.39,787/ - AND RS.18,982/ - TOWARDS REGISTRATION OF VEHICLE AND INSURANCE WERE PAID IN CASH. HE HAS ALSO NOTED THAT THE ASSESSEE HAS FURNISHED THE STATEMENT OF BANK ACCOUNTS AND CERTIFICATES FROM BANK OF BARODA AND ALLAHABAD BANK IN SUPPORT OF THE SE TRANSACTIONS . REGARDING CASH PAYMENT FOR REGISTRATION AND INSURANCE, THE ASSESSEE PRODUCED CASH BOOK EXTRACTS ALONG WITH THE COPY OF PURCHASE INVOICE , INSURANCE RECEIPT AND REGISTRATION CERTIFICATE ETC. THESE FINDINGS OF CIT(A) COULD NOT BE CONTROVERTED BY LEARNED D.R. OF THE 6 REVENUE AND HENCE, ON THIS ASPECT ALSO , WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A). 6. REGARDING GROUND NO . 3, WE FIND THAT THIS ISSUE HAS BEEN DECIDED BY CIT(A) AS PER PARA NOS. 6, 6.1, 6.2 AND 6.3 OF HIS ORDER, WHICH ARE REPRODUCED BELOW FOR THE SAKE OF READY REFERENCE: - 6. THE NEXT ISSUE PERTAINS TO THE ADDITION OF RS.11,25,658 / - WHICH HAS BEEN DISPUTED BY THE APPELLANT IN HIS GROUND OF APPEAL NO. 5. THE APPELLANT'S BALANCE SHEET AS ON 31.03.2006 SHOWED SUNDRY CREDITORS OF RS.11,25,658 / - . THE AO ASKED THE ASSES S EE TO FURNISH THE COMPLETE POSTAL ADDRESSES OF THESE SUNDRY CREDITORS. THE ASSESSEE HOWEVER FU RNISHED ONLY THE LIST OF THE CREDITORS WITH RESPECTIVE CITIES. THE AO HELD THAT NO VERIFICATION OF THE SUNDRY CREDITORS WAS POSSIBLE DUE TO LACK OF COMPLETE POSTAL ADDRESS AND HE, THEREFORE, TREATED THE ENTIRE SUNDRY CREDITORS AS UNEXPLAINED WHICH RESULTE D IN AN ADDITION OF RS.11,25,658. 6.2 IN HIS WRITTEN SUBMISSIONS DATED 10.09.2009 THE APPELLANT CONTENDED THAT TRANSACTIONS WITH ALL THE SUNDRY CREDITORS HAD BEEN MADE THROUGH ACCOUNT PAYEE CHEQUES DULY RECORDED IN THE BOOKS OF ACCOUNTS AND BALANCES WERE GOT TALLIED WITH THE PARTIES. WITH THESE SUBMISSIONS THE APPELLANT FURNISHED THE LIST OF CREDITORS AND THEIR RESPECTIVE POSTAL ADDRESSES. COPIES OF LEDGER ACCOUNTS OF THE SUNDRY CREDITORS WERE ALSO FURNISHED WITH THESE SUBMISSIONS. THE MATTER WAS THEN REMA NDED TO THE AO BY MY LEARNED PREDECESSOR VIDE HIS ORDER DATED 05.11.2009 PASSED U/S 250(4) OF THE ACT. 6.2 THE ASSESSING OFFICER IN PARA 4 OF HIS REMAND REPORT, SUBMITTED VIDE LETTER F.NO. REMAND REPORT/ITO - LL/FZD/2010 - 11 DATED 09.08.2010, OBSERVES THAT T HE ASSESSEE SUBMITTED DETAILS OF SUNDRY CREDITORS, COPIES OF ACCOUNTS OF SUNDRY CREDITORS WITH CONFIRMATION LETTERS FROM THE CREDITORS. THE ASSESSING OFFICER FURTHER OBSERVED THAT IN THE COPIES OF ACCOUNTS OF SOME CREDITORS THERE WERE TOTALING MISTAKES, CU TTINGS AND OVERWRITINGS. THE AO HAS HOWEVER, NOT GIVEN SPECIFIC DETAILS OF SUCH ACCOUNTS AND QUANTUM THEREOF. THE AO HAS ALSO NOT SPELT OUT AS TO WHETHER OR NOT, THE DEFICIENCIES/MISTAKES NOTICED BY HIM WERE BROUGHT TO THE NOTICE OF THE ASSESSEE AND HIS CL ARIFICATION/EXPLANATION WAS CALLED FOR OR NOT. IN MY VIEW ONCE 7 THE CONFIRMATIONS FROM ALL THE CREDITORS HAVE BEEN OBTAINED IT WILL NOT BE FAIR AND PROPER TO HOLD THE CREDITORS AS UNEXPLAINED BECAUSE OF SOME PHYSICAL FEATURES OF ACCOUNTS SUCH AS CUTTINGS AN D OVERWRITINGS, THE IMPACT OF WHICH HAS ALSO NOT BEEN QUANTIFIED BY THE AO. 6.3 HAVING REGARD TO THE FACTUAL POSITION AS DISCUSSED ABOVE THE ADDITION OF RS.11,25,568/ - IS DIRECTED TO BE DELETED AND THE APPELLANT'S GROUND NO. 5 IS ALLOWED IN HIS FAVOUR. 6.1 FROM THE ABOVE PARAS FROM THE ORDER OF CIT(A), WE FIND THAT THE CIT(A) HAS OBTAINED REMAND REPORT FROM THE ASSESSING OFFICER AND HAS GIVEN A FINDING THAT ONCE THE CONFIRMATION FROM ALL THE CREDITORS HAVE BEEN OBTAINED , IT WILL NOT BE FAIR AND PROPER TO HOLD THE CREDITORS AS UNEXPLAINED BECAUSE OF SOME PHYSICAL FEATURES OF ACCOUNTS SUCH AS CUTTINGS AND OVERWRITING, THE IMPACT OF WHICH HAS ALSO NOT BEEN QUANTIFIED BY THE AO. THESE FINDINGS OF CIT(A) COULD NOT BE CONTROVERTED BY LEARNED D.R. OF THE REVENU E AND HENCE, ON THIS ASPECT ALSO , WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A). GROUND NO. 3 IS ALSO REJECTED. 7. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) SD/. SD/. (SUNIL KUMAR YADAV) ( A. K. GARODIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 31 /03/2015. *C.L.SINGH COPY OF THE ORDER FORWARDED TO : 1.THE APPELLANT 2.THE RESPONDENT. 3.CONCERNED CIT 4.THE CIT(A) 8 5.D.R., I.T.A.T., LUCKNOW ASSTT. REGISTRAR