The Income tax Officer -V(3), Lucknow V. Syed Rizwan Murtza., Lucknow

ITA 505/LKW/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3225 (ITAT-LUCKNOW)
• Duration Of Justice: 1 year(s) 11 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-06-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 29-05-2013
• Assessment Year: 2004-2005
• Appeal Filed On: 30-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RANU BISWAS
• Assessee Lawyers: K P TANDON
• Keywords: Gross profit estimation; Unexplained expenditure; Income from undisclosed sources
• Section: 133A; 147; 69; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A , LUCKNOW BEFORE SHRI S UNIL KUMAR YADAV , JUDICIAL MEMBER AND SHRI. PRAMOD KUMAR, ACCOUNTANT MEMBER ITA NO S . 505, 506 AND 507/LKW/2011 ASSESSMENT YEAR S : 2004 - 05, 2006 - 07 AND 2007 - 08 INCOME TAX OF FICER V(3) LUCKNOW V. SYED RIZWAN MURTZA 169/11, KHAYALIGANJ KAISERBAGH, LUCKNOW PAN: ADZPM2741G (APPELLANT) (RESPONDENT) APPELLANT BY: SMT. RANU BISWAS, D.R. RESPONDENT BY: SHRI. K. P. TANDON, ADVOCATE DATE OF HEARING: 29.05.13 DATE OF PRONOUNC EMENT: 28.06.13 O R D E R PER SUNIL KUMAR YADAV: THESE APPEALS ARE PREFERRED BY THE REVENUE AGAINST THE ORDERS OF THE LD. CIT(A) DATED 6.6.2011 ON COMMON GROUNDS. FOR THE SAKE OF REFERENCE, WE EXTRACT GROUNDS RAISED IN ITA NO. 505/LKW/2011 AS UNDE R: - 1. THE CIT (A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING THE ENTIRE AMOUNT OF ADDITIONS MADE FOR UNACCOUNTED SALES DETECTED DURING SURVEY U/S 133A. HE FAILED TO APPRECIATE THAT INVESTMENTS MADE BY THE ASSESSEE FOR MAKING THESE SALES HAS AL READY BEEN CLAIMED AS EXPENSES I N THE REGULAR BOOKS OF ACCOUNTS . : - 2 - : 2. THE CIT (A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING THE AD HOC ADDITIONS MADE ON ACCOUNT OF LOW GP MADE BY THE A.O. HE HAS FAILED TO APPRECIATE THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE ARE NEITHER CORRECT NOR COMPLETE AND THAT THE A.O. HAS MADE THIS ADDITION IN COMPARING WITH THE BOOKS OF ACCOUNTS OF THE ASSESSEE HIMSELF IN OTHER YEARS. 3. THE CIT (A) HAS ALSO FAILED TO APPRECIATE THAT SECTION 147 ALSO ALLOWS THE A.O. TO ASS ESS /REASSESS SUCH INCOME CHARGEABLE TO TAX WHICH COMES TO HIS NOTICE DURING THE COURSE OF PROCEEDINGS UNDER THIS SECTION. THEREFORE HE HAS ERRED IN LAW AND FACTS OF THE CASE I N DELETING THE ADDITIONS OF RS. 25,338/ - MADE BY THE A.O. 2 . THOUGH THE GROUNDS RAI SED BY THE REVENUE ARE NOT SPECIFIC, BUT FROM ITS PERUSAL WE FIND THAT THE REVENUE IS AGGRIEVED WITH THE DELETION OF ADDITION MADE ON ACCOUNT OF UNDISCLOSED INVESTMENT UNDER SECTION 69 OF THE INCOME - TAX ACT, 1961 (HEREINAFTER CALLED IN SHORT THE ACT') AND ESTIMATION OF GROSS PROFIT BY THE ASSESSING OFFICER. 3 . THE FACTS IN BRIEF NOTICED FROM THE ORDERS OF THE LOWER AUTHORITIES ARE THAT A SURVEY OPERATION UNDER SECTION 133A OF THE ACT WAS CONDUCTED AT THE PREMISES OF THE ASSESSEE ON 3.3.2009 AND VIDE LETTER DA TED 16.3.2009 ASSESSEE OFFERED AN AMOUNT OF ` 16 LAKHS FOR TAXATION IN ADDITION TO THE RETURNED INCOME SPREAD OVER A PERIOD OF SIX YEARS FROM ASSESSMENT YEAR 2003 - 04 TO 2008 - 09 AND PAID TAX OF ` 5 LAKHS THEREON. FOR ASSESSMENT YEAR 2004 - 05 THE ASSESSEE FILE D RETURN OF INCOME IN COMPLIANCE TO THE NOTICE ISSUED UNDER SECTION 148 OF THE ACT SHOWING TOTAL INCOME AT ` 5,10,220 AFTER INCORPORATING THE ADDITIONAL INCOME OFFERED FOR TAXATION DURING THE YEAR OF ` 2 LAKHS. ASSESSMENT WAS COMPLETED ON A TOTAL INCOME OF ` 22,91,130 ON 30.12.2010, AGAINST WHICH ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. : - 3 - : CIT(A) MAINLY ON THREE GROUNDS ONE IS WITH REGARD TO THE ADDITION OF ` 15,93,775 MADE ON ACCOUNT OF UNDISCLOSED INVESTMENT UNDER SECTION 69 OF THE ACT ; THE SECOND IS WITH REGARD TO THE ADDITION OF ` 1,53,607 AS AD HOC GROSS PROFIT AND THE THIRD ADDITION OF ` 2 LAKHS MADE ON ACCOUNT OF SURRENDER OF ADDITIONAL INCOME. 4 . THE ISSUES WERE EXAMINED BY THE LD. CIT(A) AND THE LD. CIT(A) DELETED THE ADDITIONS AFTER TAKING INTO ACCOUNT THE SURRENDER STATEMENT OF THE ASSESSEE. WHILE DELETING THE ADDITION, THE LD. CIT(A) HAS ALSO OBSERVED THAT THE ADDITION CAN BE MADE FOR THE GROSS PROFIT OF UNACCOUNTED SALE OUTSIDE THE BOOKS OF ACCOUNT, BUT THE ENTIRE UNACCOUNTED SALE S CANNOT BE HELD AS INCOME OF THE ASSESSEE. THE RELEVANT OBSERVATIONS OF THE LD. CIT(A) ARE EXTRACTED HEREUNDER FOR THE SAKE OF REFERENCE: - 4 (4)(I) I HAVE EXAMINED THE FACTS AND CIRCUMSTANCES OF THE CASE. AT THE OUTSET, I AGREE WITH THE AUTHORIZED REPRESENTATIVE OF THE APP ELLANT THAT THE ADDITION OF UNACCOUNTED SALES CANNOT BE MADE UNDER SECTION 69 OF THE ACT AS HAS BEEN DONE BY THE AO. UNDER THE PROVISIONS OF SECTION 69 OF THE ACT THE INVESTMENTS NOT RECORDED IN THE BOOKS OF ACCOUNTS ARE DEEMED TO BE THE INCOME OF THE ASSE SSEE. THERE IS A VAST DIFFERENCE IN INVESTMENTS AND SALES OUTSIDE BOOKS OF ACCOUNTS. HOWEVER, I TREAT THE ADDITION MADE BY THE AO ON ACCOUNT OF UNACCOUNTED SALES AS HAVING BEEN MADE IN THE FORM OF UNDISCLOSED INCOME. THE QUESTION NOW IS WHETHER THE UNACCOU NTED SALES CAN BE ADDED TO T HE INCOME OF THE APPELLANT AS UNDISCLOSED INCOME. TO BE PRECISE, WHETHER THE UNACCOUNTED SALES OF RS.15,93,775/ - DURING THE YEAR CAN BE ADDED TO THE INCOME OF THE APPELLANT. THE SAID QUESTION WAS CONSIDERED BY HON'BLE GUJ A RAT HI GH COURT IN THE CASE OF COMMISSIONER OF INCOME - TAX VS PRESIDENT : - 4 - : INDUSTRIES [2002] 258 ITR 654. THE RELEVANT FINDINGS OF THE HON'BLE COURT ARE AS UNDER - 'THE FACTS GIVING RISE TO THE PRESENT CASE ARE THAT DURING THE COURSE OF SURVEY CONDUCTED ON THE PREMIS ES OF ASSESSEE ON 1ST DECEMBER, 1994, FROM THE EXCISE RECORDS FOUND, INFERENCE WAS DRAWN BY THE ASSESSING OFFICER FROM THE MOVEMENT OF FINISHED GOODS FROM THE PREMISES OF ASSESSEE TO GODOWNS THAT SALES AMOUNTING TO RS . 29,01,300 HAVE NOT BEEN DISCLOSED IN T HE BOOKS OF ACCOUNT. AO MADE THE ADDITION OF THE ENTIRE SUM OF THE SAID UNDISCLOSED SALES AS INCOME OF THE ASSESSEE FOR THE ASSESSMENT YEAR 1994 - 95 . THE ADDITIONS ON ACCOUNT OF UNDISCLOSED SALES WAS AFFIRMED BY THE C IT(A) TO THE REDUCED SUM OF RS. 28,35,88 3. ON FURTHER APPEAL THE TRIBUNAL FOUND THAT THE ENTIRE SALE COULD NOT HAVE BEEN ADDED AS INCOME OF THE ASSESSEE FOR THE ASSESSMENT YEAR IN QUESTION BUT ONLY TO THE EXTENT THE ESTIMATED PROFITS EMBEDDED IN THE SALES FOR WHICH THE NET PROFIT RATE WAS ADOPTE D ENTAILING ADDITION OF INCOME ON THE SUPPRESSED AMOUNT OF SALES. THE TRIBUNAL ALSO FOUND THAT THERE IS NO MATERIAL ON THE RECORD TO SUGGEST THAT THE ASSESSEE MADE ANY INVESTMENT OUTSIDE BOOKS OF ACCOUNTS TO MAKE ALLEGED UNACCOUNTED SALES IN RESPECT OF THE AFORESAID APPELLATE ORDER. THE APPLICANT MADE AN APPLICATION UNDER S. 256(1) FOR REFERRING THE AFORESAID TWO QUESTIONS SAID TO BE ARISING OUT OF TRIBUNAL'S ORDER. 3. HAVING PERUSED THE ASSESSMENT ORDER MADE BY THE AO, THE ORDER MADE BY THE CIT(A) AND THE TRIBUNAL, WE ARE SATISFIED THAT THE TRIBUNAL WAS JUSTIFIED IN REJECTING THE APPLICATION UNDER S. 256(1). IT CANNOT BE A MATTER OF AN ARGUMENT THAT THE AMOUNT OF SALES BY ITSELF CANNOT REPRESENT THE INCOME OF THE ASSESSEE WHO HAS NOT DISCLOSED THE SALES. TH E SALES ONLY REPRESENTED THE PRICE RECEIVED BY THE SELLER : - 5 - : OF THE GOODS FOR THE ACQUISITION OF WHICH IT HAS ALREADY INCURRED THE COST. IT IS THE REALIZATION OF EXCESS OVER THE COST INCURRED THAT ONLY FORMS PART OF THE PROFIT INCLUDED IN THE CONSIDERATION OF SALES. THEREFORE, UNLESS THERE IS A FINDING TO THE EFFECT THAT INVESTMENT BY WAY OF INCURRING COST IN ACQUIRING GOODS WHICH HAVE BEEN SOLD HAVE BEEN MADE BY THE ASSESSEE AND THAT HAS ALSO NOT BEEN DISCLOSED. IN THE ABSENCE OF SUCH FINDING OF FACT THE QUES TION ON ACCOUNT OF GROSS PROFIT BY APPLYING A RATE OF 19.5% ON DISCLOSED SALES OF RS. 1,26,06,057/ - . THE AO HAS FAILED TO CONSIDER THE GROSS PROFIT OH UNACCOUNTED SALES. THE ADDITION TO BE MADE THEREFORE IS NOT THE ONE MADE BY THE AO BUT THE GROSS PROFIT ON UNACCOUNTED SA L ES OUTSIDE BOOKS OF ACCOUNTS. ACCORDINGLY, THE ADDITION OF RS. 1, 53,607/ - MADE BY THE AO IS DELETED. THE GROSS PROFIT RATE AS PER BOOKS OF ACCOUNTS OF THE APPELLANT AS COMPILED BY THE AO IS 18.28% DURING THE YEAR UNDER CONSIDERATION. ACCORD INGLY, ON THE UNACCOUNTED SALES OF RS.15,93,775/ - , THE GROSS PROFIT EARNED OUTSIDE BOOKS OF ACCOUNTS WILL AMOUNT TO RS.2,9 1 ,342/ - . FURTHER, I FIND THAT THE APPELLANT HA S MADE PAYMENT OF SALARY OF RS. 6,47,185/ - AS PER IMPOUNDED BOOKS OF ACCOUN TS AND PAYMENT OF SALARY OF RS. 5,15,300/ - HAS BEEN CLAIMED IN THE PROFIT AND LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION FILED ALONG WITH THE RETURN OF INCOME. ALTHOUGH, THE AO HAS FAILED TO MAKE ANY ADDITION ON ACCOUNT OF UNEXPLAINED EXPENDITURE ON PAYMENT OF SALARY OUTSIDE BOOKS OF ACCOUNTS, IT CAN REASONABLY BE CONCLUDED THAT THIS EXCESS PAYMENT ON SALARY AMOUNTING TO RS.1,31,885/ - (RS.6,47,185/ - - RS. 5,15,300/ - ) HAS BEEN MET OUT OF INCOME EARNED OUTSIDE BOOKS OF ACCOUNTS ON UNACCOUNTED SALES. IN OTHER WORDS, THE I NCOME AVAILABLE TO MAKE THE SALARY PAYMENT OF RS.1,31,8857 - IS RS.2,91,342/ - WHICH IS PROFIT ON UNACCOUNTED SALES OUTSIDE BOOKS OF ACCOUNTS. AFTER CONSIDERING THE SALARY PAYMENT, THE UNACCOUNTED : - 6 - : INCOME EARNED ON UNACCOUNTED SALES OUTSIDE BOOKS OF ACCOUNTS IS RS.1,59,457/ - . THE APPELLANT HAS OFFERED AN ADDITIONAL AMOUNT OF RS.2,00,000/ - FOR THE YEAR UNDER CONSIDERATION, WHICH IS MORE THAN SUFFICIENT TO COVER UP THE INCOME EARNED OUTSIDE BOOKS OF ACCOUNTS ON UNACCOUNTED SALES. IN A NUT SHELL, THE ADDITIONAL A MOUNT OF RS.2,00,000/ - OFFERED BY THE APPELLANT FOR TAXATION COVERS UP THE UNACCOUNTED INCOME EARNED ON UNACCOUNTED SALES. THESE 3 GROUNDS OF APPEAL OF THE APPELLANT ARE THEREFORE ALLOWED. 5 . AGAINST THE DELETION, THE REVENUE IS IN APPEAL, BUT THE LD. D.R. COULD NOT POINT OUT ANY SPECIFIC DEFECT IN THE ORDER OF THE LD. CIT(A). HE, HOWEVER, PLACED HEAVY RELIANCE UPON THE ORDER OF THE ASSESSING OFFICER, WHEREAS THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT WHILE ADJUDICATING THE ISSUE THE LD. CIT(A) HAS PLACED RELIANCE UPON VARIOUS JUDICIAL PRONOUNCEMENTS IN SUPPORT OF HIS OBSERVATION THAT THE ADDITION CAN BE MADE ONLY ON THE GROSS PROFIT EARNED AND NOT ON THE ENTIRE UNDISCLOSED SALE S . THEREFORE, THE ORDER OF THE LD. CIT(A) DESERVES TO BE UPHELD. 6 . HAVING GIVEN A THOUGHTFUL CONSIDERATION TO THE RIVAL SUBMISSIONS, WE FIND THAT DURING THE COURSE OF SURVEY, THE ASSESSEE HAS OFFERED AN AMOUNT OF ` 16 LAKHS FOR TAXATION SPREAD OVER A PERIOD OF SIX YEARS. THIS ADDITIONAL INCOME WAS OFFERED ON ACCOUNT OF PROFIT E ARNED ON UNDISCLOSED SALES. T HE ASSESSING OFFICER HAS NO OTHER EVIDENCE EXCEPT THE STATEMENT OF THE ASSESSEE TO ESTIMATE ANY OTHER INCOME. WHILE ADJUDICATING THE APPEAL, T HE LD. CIT(A) HAS CAREFULLY EXAMINED ISSUE AND HAS RIGHTLY HELD THAT THE UNDISCLOSE D SALE S CANNOT BE ADDED TO THE INCOME OF THE ASSESSEE ; ONLY GROSS PROFIT CAN BE ADDED. HE HAS ALSO TAKEN INTO ACCOUNT THE ADDITIONAL INCOME DECLARED BY THE ASSESSEE. WE, THEREFORE, FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) AND WE CONFIRM THE SAME. : - 7 - : 7 . SIMILAR IS THE POSITION IN OTHER YEARS ALSO. WE, THEREFORE, FIND NO MERIT IN THE APPEALS OF THE REVENUE. ACCORDINGLY, WE DISMISS THE APPEALS OF THE REVENUE. 8 . IN THE RESULT, ALL THE APPEALS OF THE REVENUE STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN CO URT ON 28.6.2013. SD/ - SD/ - [PRAMOD KUMAR] [ S UNIL KUMAR Y ADAV ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 28.6.2013 JJ: 1906 COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT(A) 4 . CIT 5 . DR ASSISTANT REGISTRAR