SHRI DHARAM PAUL ANAND, JALANDHAR V. INCOME TAX OFFICER WARD-1(1), JALANDHAR

ITA 72/ASR/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 4483 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-05-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2014-2015
• Appeal Filed On: 07-02-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Peak credit
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR (SMC) BEFORE SH. SANJAY ARORA, ACCOUNTANT MEMBER I.T.A. NO. 72/ASR/2018 AS SESSMENT YEAR: 2014-15 DHARAM PAUL ANAND, W-X-66, C/O SIALKOT SPORTS CO. BASTI NAU, JALANDHAR [PAN: AAQPA 8414L] VS. INCOME TAX OFFICER, WARD-1(1), JALANDHAR (APPELLANT) (RESPONDENT) APPELLANT BY : SH. SURINDER MAHAJAN (C.A.) RESPONDENT BY: SH. CHARAN DASS (D.R .) DATE OF HEARING: 13.05.2019 DATE OF PRONOUNCEMENT: 16.05.2019 ORDER PER SANJAY ARORA, AM: THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-1, JALANDHAR ( 'CIT (A)' FOR SHORT) DATED 28.12.2017, PARTLY ALLOWING THE ASSESSEES APPEAL C ONTESTING HIS ASSESSMENT U/S. 143(3) OF THE INCOME TAX ACT, 1961 ('THE ACT' HEREI NAFTER) DATED 28.12.2016 FOR THE ASSESSMENT YEAR (AY) 2014-15. 2. THE FACTS OF THE CASE IN BRIEF ARE THAT THE ASSE SSEE, A PARTNER IN A FIRM, M/S. SIALKOT SPORTS COMPANY, JALANDHAR (SSC HEREINAFTE R) DEALING IN SPORTS GOODS, WAS, ON THE BASIS OF THE ANNUAL INFORMATION REPORT (AIR), FOUND TO HAVE CASH DEPOSITS IN HIS SAVING BANK ACCOUNTS DURING F.Y. 20 13-14, THE PREVIOUS YEAR RELEVANT TO AY 2014-15, AT AN AGGREGATE OF RS.1,77,30,450, D ETAILED AS UNDER: ITA NO. 72/ASR/2018 (AY 2014-15) DHARAM PAUL ANAND V. ITO 2 PNB, BASTI NAU, JALANDHAR : RS.1,29,12,379/- INDIAN BANK G.T. ROAD, JALANDHAR : RS. 48,18,071 /- THE ASSESSEE, ON BEING QUESTIONED IN ITS RESPECT DU RING ASSESSMENT PROCEEDINGS, SUBMITTED THAT THE RECEIPTS IN HIS TWO SAVING BANK ACCOUNTS ARE IN FACT THE TRADING RECEIPTS OF THE PARTNERSHIP FIRM SSC, DULY ACCOUNTE D FOR IN ITS REGULAR BOOKS OF ACCOUNT. THE ASSESSEE, HOWEVER, DID NOT FURNISH ANY EVIDENCE IN SUPPORT OF HIS CLAIM, WHICH WAS, ACCORDINGLY, NOT ACCEPTED BY THE ASSESSING OFFICER (AO). FURTHER, CONSIDERING THE REGULARITY OF THE WITHDRAW ALS THERE-FROM, THE SAME WERE REGARDED BY HIM AS BUSINESS RECEIPTS, SO THAT THE M ONEY WAS TURNED OVER, AND THE INCOME ESTIMATED AT 10% OF THE GROSS RECEIPT, I.E., AT RS.17,73,045/-, AND THE INCOME ASSESSED AT RS.20,57,175, I.E., AS AGAINST T HE RETURNED INCOME OF RS.2,84,130/- (VIDE RETURN OF INCOME FILED ON 29.3. 2015). IN APPEAL, THE ASSESSEE FURNISHED THE COPY OF THE SAID BANK ACCOUNTS, I.E., AS STATED TO BE APPEARING IN THE BOOKS OF ACCOUNT OF SSC (PB PGS. 13-150, 151-171). HOWEVER, THE BOOKS OF THE SAID FIRM, EVEN AS BEFORE THE AO, AND DESPITE BEING CALLED FOR BY HIM (AO), WERE NOT PRODUCED BEFORE THE LD. CIT(A). NO CREDENCE TO THE ASSESSEES CASE COULD BE GIVEN UNDER THE CIRCUMSTANCES, I.E., IN VIEW OF THE NON-PRODUCTION OF THE FIRMS REGULAR BOOKS OF ACCOUNT, DULY AUDITED, AS INDEED O F THE SUPPORTING BILLS AND VOUCHERS. THE ADDITION WAS ACCORDINGLY CONFIRMED IN PRINCIPLE BY THE LD. CIT(A), EVEN AS HE DIRECTED FOR THE ADOPTION OF THE PROFIT RATE AT 8%, I.E., AS AGAINST 10% BY THE AO. AGGRIEVED, THE ASSESSEE IS IN SECOND APPEAL . 3. I HAVE HEARD THE PARTIES, AND PERUSED THE MATERI AL ON RECORD. THE FIRST ISSUE IS OF TREATING THE CREDITS/DEPOSIT S IN THE ASSESSEES TWO SAVING BANK ACCOUNTS AS THE TRADING RECEIPTS OF HIS BUSINE SS, AS AGAINST THAT OF THE PARTNERSHIP FIRM, SSC, AS CONTENDED BY THE ASSESSEE . THE ASSESSEE HAS TOWARD THIS ITA NO. 72/ASR/2018 (AY 2014-15) DHARAM PAUL ANAND V. ITO 3 NOT MADE ANY IMPROVEMENT IN HIS CASE BEFORE THE TRI BUNAL. THERE IS NO EXPLANATION FOR NOT FURNISHING THE BOOKS OF ACCOUNT, RATHER, AL SO THE BILLS AND VOUCHERS, OF THE FIRM, WHICH ARE CLAIMED TO BEAR THE SAID BANK ACCOU NTS. WHY? THERE WAS NO ANSWER TO THIS QUESTION BY THE ASSESSEES COUNSEL, SH. MAHAJAN, BEFORE ME, WHICH IS PUZZLING; THE SAME BEING VITAL TO THE ASSESSEES CASE . THERE IS IN FACT NOT EVEN AN ASSERTION THAT THE SAME WOULD BE SUBMITTED FORTHWIT H, NOR, EVEN ANY ALTERNATE EXPLANATION. THE VERY INCORPORATION OF THE SAID BAN K ACCOUNTS IN THE PARTNERHIP FIRMS ACCOUNTS WOULD EXPLAIN THE IMPUGNED RECEIPTS AS FORMING PART OF ITS RECEIPTS. THOUGH DEFINITELY SURPRISING, IN-AS-MUCH AS THESE APPEAR TO BE THE REGULAR RECEIPTS OF THE BUSINESS, A PARTNER CAN UNDOUBTEDLY HOLD AN ASSET/S OF THE PARTNERSHIP, WHICH IS ONLY A CONTRACTUAL RELATIONSH IP BETWEEN THE PARTNERS CONSTITUTING IT FOR THE TIME BEING, IN HIS NAME. TH E INCLUSION OF THE BANK ACCOUNTS IN THE FIRMS ACCOUNTS, DULY AUDITED, WOULD SHOW TH E SAME TO BE THE FIRMS RECEIPTS, AND THE BALANCE THEREIN (AT ANY POINT OF TIME) AS T HE FIRMS PROPERTY, ALSO EXHIBITING, AT THE SAME TIME, THE PURPOSE/S FOR WHI CH, AND THE AVENUE/S TOWARD WHICH, THE WITHDRAWALS FROM THE SAID BANK ACCOUNTS HAVE BEEN APPLIED, WHICH WOULD ONLY BE TOWARD THE FIRMS PURPOSES, SATISFACT ORILY EXPLAINING THE CREDITS. THIS WOULD ALSO DISPEL THE REVENUES QUESTIONING TH E ASSESSEES EXPLANATION AS BEING ONLY AN AFTER-THOUGHT. THE SAID BOOKS, MUCH L ESS THE BILLS AND VOUCHERS, ON WHICH THE SAME ARE BASED, WERE NOT PRODUCED EVEN AS THE SAME ARE INTEGRAL TO THE ASSESSEES EXPLANATION, WHICH IS THUS WHOLLY UNSUBS TANTIATED, IF NOT FALSE. THE FIRMS AUDITED BALANCE-SHEET AS ON 31.3.2014, COPY OF WHICH WAS ADDUCED DURING HEARING BY SH. MAHAJAN, ALSO DOES NOT BEAR THE SAID BANK ACCOUNTS. THE EXPLANATION FOR THIS, ON BEING ASKED, BY SH. MAHAJA N, WAS THAT THE BALANCE/S STOOD TRANSFERRED TO THE PARTNERS CAPITAL ACCOUNT (IN TH E FIRM) AS AT THE YEAR-END. WHY? THERE IS AGAIN NO ANSWER . THIS IS SURPRISING INDEED AS WHY WOULD A FIRM INCORPORATING THE BANK ACCOUNT/S (OF A PARTNER) IN ITS BOOKS AS THE SAME FORMS PART ITA NO. 72/ASR/2018 (AY 2014-15) DHARAM PAUL ANAND V. ITO 4 OF THE FIRMS PROPERTY, SO THAT THE ACCOUNT HOLDER IS A TRUSTEE FOR THE MONIES HELD THEREIN, WOULD, THEN, TRANSFER THE BALANCE/S THEREI N TO HIS CAPITAL ACCOUNT, INDICATING IT TO BE HIS PERSONAL ASSET AND, BESIDES, NECESSITA TING A TRANSFER, SIMILARLY, OF THE OPENING BALANCE AS WELL. THE CAPITAL ACCOUNT WAS, U PON THIS, ASKED TO BE PRODUCED, IN VALIDATION, WHICH SH. MAHAJAN EXPLAINED DIFFICUL T IT AS DIFFICULT TO PRODUCE. UNMISTAKABLY, THE ONLY INFERENCE IS THAT THE ASSESS EES EXPLANATION QUA THE DEPOSITS IN HIS BANK ACCOUNT IS ONLY A BALD ASSERTI ON WITHOUT ANY BASIS IN FACTS. SH. MAHAJAN WOULD, AS BEFORE THE LD. CIT(A), FURTHER SU BMIT THAT THE INCOME BE ASSESSED ON THE BASIS OF THE PEAK BALANCE IN THE SA ID BANK ACCOUNTS DURING THE RELEVANT YEAR, WHICH WAS STATED BY HIM TO BE AT RS. 1,54,766 WITH PNB (ON 20.7.2013/PB PG. 86) AND AT RS.55,652 IN INDIAN BAN K (ON 03.11.2013/PB PG. 161). PROCEEDINGS, THEN, ON THIS ASPECT OF THE MATTER, W HICH IS OF THE QUANTIFICATION OF THE INCOME, IT IS WITHOUT DOUBT THE INCOME EMBED DED IN THE RECEIPT, AND NOT THE TOTAL RECEIPT ITSELF, WHERE IT IS THE NATURE OF A T RADING RECEIPT, THAT IS ASSESSABLE AS INCOME. THIS IS PRECISELY WHAT THE REVENUE HAS DONE . A PEAK BALANCE WOULD, HOWEVER, ONLY INCLUDE THE INCOME, I.E., BY WAY OF U NEXPLAINED DEPOSIT, AS WELL AS THE INCOME, TO WHATEVER EXTENT, INCLUDED IN THE SAI D RECEIPTS, UP TO THE DATE OF THE PEAK BALANCE AND NOT FOR THE PERIOD THEREAFTER. FOR EXAMPLE, IF THE PEAK BALANCE IS ON 20.7.2013 (SAY), THE PROFIT ARISING ON THE RECEI PTS THEREAFTER (I.E., FROM 21.7.2013 TO 31.3.2014) CANNOT BE SAID TO HAVE BEEN SUBJECT T O ASSESSMENT. SH. MAHAJAN COULD NOT OFFER ANY REBUTTAL TO THIS OBSERVATION BY THE BENCH, WHICH IS QUA A FACTUAL MATTER, STATING THAT THE PROFIT BE ASSESSED AT THE NET PROFIT RATE. ON BEING ASKED ABOUT THE SALE-TAX (VAT) APPLICABLE ON THE SPORT GO ODS, HE WOULD STATE IT TO BE AT 2% AND 7% FOR THE LOCAL AND OUT-OF-STATE SALES RESP ECTIVELY. THIS WAS ENQUIRED AS THERE IS AN OBVIOUS SAVING OF THE SALES-TAX ON UNDI SCLOSED TRADE RECEIPTS/SALES. THE RECEIPTS BEING, AS EXPLAINED, FROM THE SAME TR ADE PARTIES AS BY THE FIRM, SSC, AS ALSO NOTED FROM THE ASSESSEES SUBMISSIONS AT THE APPELLATE STAGE, IT IS CLEAR ITA NO. 72/ASR/2018 (AY 2014-15) DHARAM PAUL ANAND V. ITO 5 THAT THE TRADE RECEIPTS ARE OF THE SAME BUSINESS, I .E., OF THE FIRM, SSC. THE FIRMS FINANCIAL ACCOUNTS FOR THE RELEVANT YEAR REFLECT A TRADING MARGIN OF 9.58%. THE ENTIRE INDIRECT EXPENDITURE HAS ALREADY BEEN CLAIME D IN THE HANDS OF THE FIRM; THE SAME BEING IN FACT QUA THE ASSETS THEREOF. THERE IS EVEN OTHERWISE NO CLA IM OF SOME PERSONAL ASSETS DEPLOYED FOR THE PURPOSE, OR ANYTHI NG TO SHOW THAT ANY ASSET NOT BELONGING TO THE FIRM WAS UTILIZED AND EXPENDITURE IN ITS RESPECT, FOR THE SAID BUSINESS, INCURRED. THE ASSESSMENT OF THE PROFIT, T HUS, AT 8% OF THE GROSS RECEIPT, AS SUSTAINED BY THE LD. CIT(A), IS, LOWER BY NEARLY 1. 6% OF THE FIRMS MARGIN AND, FURTHER, WITHOUT INCLUDING ANY BENEFIT ON ACCOUNT O F TAX SAVING, AT A VERY CONSERVATIVE RATE INDEED, WARRANTING NO FURTHER REL AXATION. 4. IT IS, ACCORDINGLY, HELD AS UNDER: (A) THE DEPOSITS/CREDITS IN THE ASSESSEES SAVING B ANK ACCOUNTS UNDER REFERENCE BE REGARDED AS THE BUSINESS RECEIPTS OF HIS BUSINESS A S A DEALER IN SPORT GOODS, I.E., IN WHICH THE FIRM SSC DEALS IN; (B) THE PEAK BALANCE IN THE SAID TWO ACCOUNTS DURIN G THE RELEVANT YEAR BE BROUGHT TO TAX U/S. 69A AS UNEXPLAINED DEPOSIT; (C) THE PROFIT OF THE BUSINESS BE ASSESSED AT 8% OF THE GROSS RECEIPTS, I.E., ON THAT ARISING AFTER THE PEAK VALUE DATE IN EACH OF THE TW O BANK ACCOUNTS. HERE IT MAY BE RELEVANT TO STATE THAT THE PEAK BALA NCE/S SHOULD NOT BE LOWER THAN THE AGGREGATE OF THE PEAK BALANCE/S PRIOR TO THAT D ATE AND THE PROFIT (RECKONED AT 8%) OF THE RECEIPT ARISING SINCE (UP TO THE PEAK DA TE). FURTHER, THE PEAK BALANCE HAS TO BE SEPARATELY FOR THE TWO BANK ACCOUNTS INASMUCH AS THERE IS NOTHING TO SHOW, NOR EVEN A CLAIM TO THE EFFECT, THAT THE WITHDRAWAL S FROM ONE ACCOUNT ARE DEPOSITED IN THE OTHER. ON THE CONTRARY, THE DEPOSITS ARE EXP LAINED TO BE THE TRADING RECEIPTS, SO THAT THE ONLY QUESTION THAT AROSE WAS IF THE SAM E ARE THAT OF THE PARTNERSHIP FIRM, AS CONTENDED, OR THAT OF THE ASSESSEE HIMSELF, AS T AKEN BY THE REVENUE. ITA NO. 72/ASR/2018 (AY 2014-15) DHARAM PAUL ANAND V. ITO 6 BEFORE PARTING WITH THIS ORDER, IT MAY BE RELEVANT TO CLARIFY ANOTHER ASPECT OF THE MATTER. IT MAY BE ARGUED THAT THE INCOME LIABLE TO BE ASSESSED HAS BEEN ADOPTED AT THE PEAK VALUE/S AS WELL AS THE INCOME ON THE RE CEIPTS, I.E., A COMBINATION OF TWO METHODS. THE REASON FOR THE SAME HAS ALREADY BEEN E XPLAINED HEREINBEFORE, AS INDEED DURING THE COURSE OF HEARING, TO NO ANSWER I N REBUTTAL AND, TO BE FAIR TO HIM, POSSIBLY SO, BY SH. MAHAJAN, BEING A MATTER OF A MA THEMATICAL IDENTITY, WHICH THEREFORE DOES NOT ADMIT OF ANY VARIATION. IN THIS REGARD IT MAY ALSO BE RELEVANT TO EMPHASIZE THE DICTUM LAID DOWN BY THE APEX COURT IN CIT V . WALCHAND & CO. PVT. LTD . [1967] 65 ITR 381 (SC), THAT THE TRIBUNAL IS TO D ETERMINE ALL THE QUESTIONS WHICH ARISE OUT OF THE SUBJECT MATTER OF THE APPEAL IN LIGHT OF THE EVIDENCE, AND CONSISTENTLY WITH THE JUSTICE OF THE CASE. I DECIDE ACCORDINGLY. 4. IN THE RESULT, THE ASSESSEES APPEAL IS DISPOSED ON THE AFORE-STATED TERMS. ORDER PRONOUNCED IN THE OPEN CO URT ON MAY 16, 2019 SD/- (SANJAY ARORA) ACCOUNTANT MEMBER DATE: 16.05.2019 /GP/SR. PS. COPY OF THE ORDER FORWARDED TO: (1) THE APPELLANT: DHARAM PAUL ANAND, W-X-66, C /O SIALKOT SPORTS CO., BASTI NAU, JALANDHAR (2) THE RESPONDENT: INCOME TAX OFFICER, WARD-1( 1), JALANDHAR (3) THE CIT(APPEALS)-1, JALANDHAR (4) THE CIT CONCERNED (5) THE SR. DR, I.T.A.T TRUE COPY BY ORDER