N.Rajendra Babu, Trivandrum V. ITO, Trivandrum

ITA 570/COCH/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73914 (ITAT-COCHIN)
• Duration Of Justice: 2 year(s) 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 23-01-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 12-10-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: LATHA V KUMAR
• Assessee Lawyers: DANIEL P

Judgement Text

1 ITA NO.570/COCH/2011 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.R.S. GANESAN (JM) AND SHRI B.R. BASKA RAN(AM) I.T.A NO. 570/COCH/2011 (ASSESSMENT YEAR 2005-06) SHRI N RAJENDRA BABU VS ITO, WD.1(2) M/S PARVATHY FINANCIERS TRIVANDRUM PUTHENCHANTHA VARKALA, TRIVANDRUM PAN : ADVPN6321R (APPELLANT) (RESPONDENT) APPELLANT BY : DANIEL P RESPONDENT BY : SMT. LATHA V KUMAR DATE OF HEARING : 23-01-2014 DATE OF PRONOUNCEMENT : 07-03-2014 O R D E R PER N.R.S. GANESAN (JM) THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF CIT(A)-I, TRIVANDRUM DATED 09-02-2011 AND PERTAINS TO ASSESSM ENT YEAR 2005-06. 2. SHRI DANIEL P, THE LD.COUNSEL FOR THE ASSESSEE S UBMITTED THAT THE ASSESSEE IS A NON RESIDENT INDIAN AND PROPRIETOR OF PARVATHY FINANCIERS. THE ASSESSEE NOMINATED ONE SMT. N RADHABAI AS HIS P OWER OF ATTORNEY AGENT FOR CONDUCTING BUSINESS OF MONEY LENDING AND AS FRANCHISE OF M/S 2 ITA NO.570/COCH/2011 WALL STREET FINANCE LTD. ACCORDING TO THE LD.REPRE SENTATIVE, ON 18-01- 2005, CIRCLE INSPECTOR OF POLICE, VARKALA SEIZED RS .3 LAKHS FROM ONE SHRI S SABEER. THE SAID S SABEER IS SAID TO HAVE BEEN WOR KING UNDER SHRI S BASHEER, THE OWNER OF SULTHANA JEWELLERY. ACCORDIN G TO THE LD.REPRESENTATIVE, THE ASSESSING OFFICER, ON THE BA SIS OF THE STATEMENT SAID TO HAVE BEEN RECORDED FROM SMT. N RADHABAI, THE POW ER OF ATTORNEY HOLDER OF THE ASSESSEE MADE THE ADDITION WITHOUT GIVING AN Y OPPORTUNITY TO CROSS EXAMINE THE ABOVESAID SHRI S SABEER AND SMT. N RADH ABAI. ACCORDING TO THE LD.REPRESNTATIVE, SMT. N RADHABAI APPEARS TO HA VE TOLD THE ASSESSING OFFICER THAT SHE DID NOT RECALL OF HAVING MADE ANY TRANSACTION WITH SHRI S SABEER ON 18-01-2005. ON 18-01-2005, THERE WAS A T RANSACTION FOR EXCHANGE OF MONEY TO THE EXTENT OF RS.3,00,051.50. THE RECORD DOES NOT SHOW ANY TRANSACTION WITH SHRI S SABEER. THEREFORE , THE MONEY SEIZED FROM THE ABOVE SAID SHRI S SABEER CANNOT BE RELATED TO THE ASSESSEE. ACCORDING TO THE LD.REPRESENTATIVE, THERE WAS NO UN ACCOUNTED PURCHASE OF FOREIGN CURRENCY BY THE ASSESSEE. THE LD. REPRESEN TATIVE FURTHER SUBMITTED THAT THE ASSESSING OFFICER, WITHOUT ANY PROPER REAS ON REJECTED THE BOOKS OF ACCOUNT AND ESTIMATED THE PROFIT AT 1%. ACCORDING TO THE LD.REPRESENTATIVE, WHEN THE ASSESSEE RECORDED ALL THE TRANSACTIONS IN THE BOOKS OF ACCOUNT MAINTAINED IN THE REGULAR COURSE OF BUSINESS, THERE IS NO QUESTION OF ANY ESTIMATION OF PROFIT. THE LD.REPRESENTATIVE FURTHE R SUBMITTED THAT THE CIT(A) WITHOUT ANY MATERIAL CONFIRMED THE LOSS CLAIMED BY THE ASSESSEE TO THE 3 ITA NO.570/COCH/2011 EXTENT OF 36,008 ON MONEY LENDING BUSINESS. ACCORD ING TO THE LD.REPRESENTATIVE, THE CIT(A) OUGHT TO HAVE DELETED THE ENTIRE ADDITION MADE BY THE ASSESSING OFFICER. 3. ON THE CONTRARY, SMT. LATHA V NAIR, THE LD.DR SU BMITTED THAT THE INSPECTOR POLICE, VARKALA, DURING THE COURSE OF ROU TINE CHECK SEIZED A SUM OF RS.3 LAKHS FROM ONE SHRI S SABEER. ON INFORMATI ON, THE ASSESSING OFFICER EXAMINED SHRI S SABEER AND HE EXPLAINED THA T IN EXCHANGE OF SAUDI RIAL HANDED OVER TO HIM BY SHRI S BASHEER, HE RECEIVED RS.3 LAKHS FROM SMT. N RADHABAI. SMT. N RADHABAI ALSO ADMITTE D THAT SHE HANDED OVER RS.3 LAKHS ON 18-01-2005, THOUGH SHE COULD NOT SPECIFICALLY REMEMBER THE NAME OF SHRI S SABEER, SHE CLARIFIED T HAT THE GENTLEMAN COULD BE SHRI S SABEER. THEREFORE, THE ASSESSING O FFICER VERIFIED THE BOOKS OF ACCOUNT AND THE ASSESSEES FINANCIAL TRANS ACTION AND FOUND NO ENTRY WITH REGARD TO TRANSACTION OF RS.3 LAKHS. TH EREFORE, ACCORDING TO THE LD.DR, THE ASSESSING OFFICER HAS RIGHTLY TREATED TH E TRANSACTION OF RS.3 LAKHS AS UNACCOUNTED TRANSACTION AND THE SAME WAS A DDED AS TOTAL INCOME OF THE ASSESSEE. SINCE THE BOOKS OF ACCOUNT WAS NOT MAINTAINED PROPERLY, ACCORDING TO THE LD.DR, THE ASSESSING OFF ICER ESTIMATED THE INCOME AT 1% ON THE GROSS TRANSACTIONS. ACCORDING TO THE LD.DR, 1% OF THE NET PROFIT ON THE GROSS TRANSACTION IS VERY NORMAL, THEREFORE, THE CIT(A) HAS RIGHTLY CONFIRMED THE SAME. REFERRING TO THE ADDIT ION OF RS.36,008, THE LD. 4 ITA NO.570/COCH/2011 DR SUBMITTED THAT THE ASSESSING OFFICER HAS REJECTE D THE CLAIM OF LOSS ON MONEY LENDING BUSINESS. ACCORDING TO THE LD.DR, TH ERE CANNOT BE ANY LOSS IN THE MONEY LENDING BUSINESS. IN THE ABSENCE OF A NY MATERIAL TO SHOW THAT THE ASSESSEE HAS SUFFERED LOSS, THE CLAIM OF L OSS WAS DISALLOWED BY THE ASSESSING OFFICER WHICH WAS RIGHTLY CONFIRMED B Y THE CIT(A). 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. 4.1 THE FIRST ISSUE IS WITH REGARD TO ADDITION OF R S.3 LAKHS IN RESPECT OF UNACCOUNTED TRANSACTION ON 18-01-2005 DURING THE CO URSE OF ROUTINE SECURITY CHECK BY CIRCLE INSPECTOR OF POLICE, VARKA LA, WHO SEIZED A SUM OF RS.3 LAKHS FROM SHRI S SABEER, SON OF SHRI SULEMAN FROM HIS TWO WHEELER (REGISTRATION NO. KL-164-3957). ON INFORMATION FRO M THE POLICE, A STATEMENT WAS RECORDED BY THE ASSESSING OFFICER FRO M THE SAID SHRI S SABEER. HE EXPLAINED BEFORE THE ASSESSING OFFICER THAT HE WAS WORKING IN M/S SULTHANA JEWELLERY WHICH WAS OWNED BY SHRI S BA SHEER. ON 18-01- 2005, SHRI S BASHEER HANDED OVER TO HIM SOME SAUDI RIALS FOR CONVERTING THE SAME INTO INDIAN CURRENCY FROM M/S PARVATHY FIN ANCIERS, THE CONCERN OF THE PRESENT ASSESSEE. WHEN HE REACHED M/S PARVA THY FINANCIERS, A LADY GAVE HIM RS.3 LAKHS AND TOOK AWAY SAUDI RIALS. THE ASSESSING OFFICER FOUND THAT THIS SUM OF RS.3 LAKHS WAS NOT R ECORDED IN THE BOOKS OF 5 ITA NO.570/COCH/2011 ACCOUNT MAINTAINED BY THE ASSESSEE. SMT. N RADHABA I, THE POWER OF ATTORNEY HOLDER OF THE ASSESSEE WAS EXAMINED AND SH E ADMITTED IN HER SWORN STATEMENT THAT THE MONEY GIVEN TO SHRI S SABE ER WAS NOT ACCOUNTED IN THE BOOKS OF ACCOUNT. 4.2 THE QUESTION ARISES FOR CONSIDERATION IS WHETHE R THE MONEY SEIZED FROM SHRI S SABEER IS INCOME OF THE ASSESSEE OR NOT ? ADMITTEDLY, THE ASSESSEE IS IN THE MONEY LENDING BUSINESS. THE CUR RENCY IS THE STOCK IN TRADE OF THE ASSESSEE ON 18-01-2005. THE ALLEGATIO N AGAINST THE ASSESSEE IS THAT THE POWER OF ATTORNEY OF THE ASSESSEE HANDE D OVER RS.3 LAKHS IN EXCHANGE OF SAUDI RIALS. IT IS NOT KNOWN FROM THE MATERIALS AVAILABLE ON RECORD, HOW MUCH SAUDI RIAL WAS HANDED OVER BY SHRI S BASHEER TO SHRI S SABEER. IT IS ALSO NOT KNOWN FROM THE MATERIAL AVA ILABLE ON RECORD HOW MUCH SAUDI RIAL WAS HANDED OVER TO SMT. N RADHABAI BY SHRI S SABEER. HOWEVER, FROM THE MATERIAL AVAILABLE ON RECORD IT S HOWS THAT SMT. N RADHABAI HANDED OVER RS.3 LAKHS IN EXCHANGE OF SOME SAUDI RIALS. IN THE CASE OF EXCHANGE TRADING WHICH IS REGULATED BY FOREIGN EXCHANGE MANAGEMENT ACT, THE ASSESSEE HAS TO NECESSARILY MAI NTAIN CERTAIN STATUTORY RECORDS BOTH FOR INDIAN CURRENCY AS WELL AS FOR FOREIGN CURRENCY. THE OPENING STOCK AND CLOSING STOCK AS ON 18-01-200 5 WILL SHOW HOW MUCH TRANSACTION WAS CARRIED OUT BY THE ASSESSEE ON A PARTICULAR DAY AND ALSO THE DETAILS OF THE TRANSACTION. THE ASSESSING OFFICER EXTRACTED THE 6 ITA NO.570/COCH/2011 DETAILS OF TRANSACTION ON PAGE 6 OF THE ASSESSMENT ORDER, THE OPENING CASH BALANCE AND CLOSING CASH BALANCE OF INDIAN CURRENCY AND OTHER FOREIGN CURRENCY WERE NOT NOTED BY THE ASSESSING OFFICER. IF THE ASSESSEE HAS SUFFICIENT INDIAN CURRENCY AS STOCK IN TRADE IN THE BOOKS OF ACCOUNT AND HANDED OVER RS.3 LAKHS IN EXCHANGE OF SAUDI RIALS T O SHRI S SABEER, THEN WHAT IS TO BE TAXED IS ONLY THE PROFIT ELEMENT EMBE DDED IN THE TRANSACTION. IF THE ASSESSEE HAS NO SUCH STOCK IN TRADE TO THE E XTENT OF RS.3 LAKHS, THEN THE ENTIRE RS.3 LAKHS WAS HANDED OVER FROM UNACCOUN TED MONEY. IN THAT CASE, THE ASSESSING OFFICER MAY BE JUSTIFIED IN BRI NGING THE ENTIRE AMOUNT OF RS.3 LAKHS AS INCOME OF THE ASSESSEE. IF THE TRANS ACTION IS BECAUSE OF EXCHANGE OF SAUDI RIALS EQUIVALENT AMOUNT OF SAUDI RIALS AS PER THE EXCHANGE RATE AS ON 18-01-2005 SHOULD BE AVAILABLE WITH THE ASSESSEE. IT IS NOT FORTHCOMING FROM THE ORDER OF THE ASSESSING AUTHORITY WHETHER THE EQUIVALENT AMOUNT OF SAUDI RIALS AS PER THE EXCHAN GE RATE WAS AVAILABLE WITH THE ASSESSEE OR NOT ON THAT DAY. IF THE EQUIV ALENT AMOUNT OF SAUDI RIALS IS NOT AVAILABLE WITH THE ASSESSEE, THEN THE ENTIRE TRANSACTION WOULD BE BOGUS AND THE CLAIM OF SHRI S SABEER THAT HE REC EIVED MONEY FROM SMT. N RADHABAI IN EXCHANGE OF SAUDI RIALS IS ALSO FALSE. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT A PROPER ENQUIRY WAS NOT CONDUCTED BY THE LOWER AUTHORITIES TO FIND OUT WHET HER THE TRANSACTION WAS MADE IN EXCHANGE OF SAUDI RIALS AND IF SO WHAT IS T HE AMOUNT OF SAUDI RIALS HANDED OVER TO THE ASSESSEE. IN THE ABSENCE OF ANY MATERIAL, THIS 7 ITA NO.570/COCH/2011 TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE MATT ER NEEDS TO BE RE- EXAMINED BY THE ASSESSING OFFICER. ACCORDINGLY, TH E ORDERS OF LOWER AUTHORITIES ARE SET ASIDE AND THE ISSUE IS RESTORED TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL EXA MINE AFRESH AND FIND OUT THE OPENING AND CLOSING BALANCE OF INDIAN CURRENCY AND FOREIGN CURRENCY ON 18-01-2005 AND ALSO FIND OUT HOW MUCH SAUDI RIAL S WAS HANDED OVER BY SHRI S BASHEER TO SHRI S SABEER, THEN SHRI S SAB EER TO SMT. N RADHABAI. THESE DETAILS WOULD DEFINITELY BRING TO LIGHT WHETHER THE ASSESSEE IS TRANSACTING IN FOREIGN CURRENCY EXCHANG E OUTSIDE THE BOOKS OF ACCOUNT OR NOT? THEREAFTER, THE ASSESSING OFFICER SHALL DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW AFTER GIVING REASONAB LE OPPORTUNITY TO THE ASSESSEE. 4.3 NOW COMING TO THE ESTIMATION OF PROFIT, THIS TR IBUNAL IS OF THE CONSIDERED OPINION THAT ESTIMATION OF PROFIT AT 1% IS VERY REASONABLE. IT IS NORMAL THAT IN FOREIGN CURRENCY EXCHANGE COMMISSION IS CHARGED AT 3% TO 4% BY SIMILARLY PLACED TRADERS AS FOUND BY THE ASSE SSING OFFICER. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINI ON THAT THE ASSESSING OFFICER HAS ESTIMATED THE NET PROFIT AT 1% VERY REA SONABLY, THEREFORE, THE SAME IS CONFIRMED. 8 ITA NO.570/COCH/2011 4.4 NOW COMING TO THE CLAIM OF LOSS TO THE EXTENT O F RS.36,008 THE ASSESSEE COULD NOT PRODUCE ANY DETAILS AS TO HOW TH E LOSS WAS OCCURRED. FROM THE ASSESSMENT ORDER, IT APPEARS THAT THE ASSE SSEE IS ALSO ENGAGED IN LENDING OF MONEY ON PLEDGE OF GOLD JEWELLERIES / ORNAMENTS. THE ASSESSEE CLAIMED LOSS OF RS.36,008. IN THE ABSENCE OF DETAILS, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE ASSE SSING OFFICER HAS TO EXAMINE WHAT EXACTLY THE CLAIM OF THE ASSESSEE AND FROM WHICH TRANSACTION THE LOSS OCCURRED AND THEREAFTER THE AS SESSING OFFICER SHALL DECIDE THE ISSUE IN ACCORDANCE WITH LAW AFTER GIVIN G REASONABLE OPPORTUNITY. 5. IN THE RESULT, THE APPEAL OF THE ASSESEE IS PART LY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 07 TH MARCH, 2014. SD/- SD/- (B.R. BASKARAN) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 07 TH MARCH, 2014 PK/- COPY TO: 1. SHRI N RAJENDRAN BABU, M/S PARVATHY FINNCIERS, P UTHENCHANTHA, VARKALA, TRIVANDRUM 2. THE ITO, WD.1(2), TRIVANDRUM 3. THE COMMISSIONER OF INCOME-TAX, TRIVANDRUM 4. THE COMMISSIONER OF INCOME-TAX(A)-I, TRIVANDRUM 5. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL, COCHIN BENCH