ACIT, Trichy V. Smt. S.Inbajothi, Dindigul

ITA 819/CHNY/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52197 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 14-12-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 03-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V SUBBARAYAN
• Keywords: Presumptive income; Business income; Income from undisclosed sources; Principle of natural justice; Peak credit
• Section: 44AD

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER I.T.A. NO. 819/MDS/2011 (ASSESSMENT YEAR : 2005-06) A.C.I.T CENTRAL CIRCLE 1 TIRUCHIRAPALLI (APPELLANT) VS. SMT. S. INBAJOTHI W/O SHRI V. SUBRAMANI MUTHAMIZH NAGAR, VAZHAKKAPATTY PIRIVU, ADIYANOORTHU VILLAGE DINDIGUL PAN NO. AANP12875 G (RESPONDENT) APPELLANT BY : SHRI V. SUBBARAYAN RESPONDENT BY : SHRI SHA JI P. JACOB, SR. DR. DATE OF HEARING : 14.12.2011 DATE OF PRONOUNCEMENT : 16.12.2011 O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY REVENUE FOR THE ASSESSM ENT YEAR 2005-2006 AGAINST THE ORDER DATED 22.02.2011 OF COM MISSIONER OF INCOME TAX [APPEALS] -VI, TIRUCHIRAPALLI. I.T.A. NO. 819/MDS/11 2 2. THE FIRST ISSUE INVOLVED IS THAT THE LD. CIT(A) ERRED IN DELETING THE ENTIRE ADDITION MADE BY THE ASSESSING OFFICER AT RS. 3,33,543/- BY ESTIMATING THE BUSINESS INCOME FROM CIVIL CONTRA CT. 3. THE LD. CIT(A) HAS DECIDED THIS ISSUE BY OBSERVI NG AS UNDER: 4. INCOME FROM CONTRACT BUSINESS ESTIMATED RS. 4,4 6,303:-- THE ASSESSING OFFICER OBSERVED THAT THE TOTAL CHEQUE AMOUNTS RECEIVED FROM CONTRACT WORKS DURING THE YEAR WAS RS. 43,03,336/- AND AFTER REJECTING THE PLEA OF THE APP ELLANT, ESTIMATED THE PROFIT AT RS. 4,46,303/-. IN HER WRIT TEN SUBMISSIONS DATED 26-10-2009, THE APPELLANT SUBMITTED AS UNDER:-- 'AS AGAINST ADMITTED INCOME OF RS. 1,12,760/-, THE LEARNED A.D. ASSESSED RS. 4,46,303 AS INCOME FROM CONTRACT BUSINESS. THE TOTAL AMOUNT OF CONTRACTS RECEIVED BY CHEQUE WAS RS. 43,03,336/-. IN OTHER WORDS, THE LEARNED A.O. ASSESSED 10.37% AS INCOME. YOUR APPELLANT WISHES TO SUBMIT THAT THE PROFIT FROM CONTRACTS AS ESTIMATED BY THE LEARNED A. O. IS TOO HIGH AND ARBITRARY AS HE HAD NOT I.T.A. NO. 819/MDS/11 3 DISCLOSED OR DISCUSSED FOR THE ESTIMATE OF INCOME. THE LEARNED A. O. FAILED TO NOTE THAT ACCORDING TO THE PROVISO TO SEC. 44AD(1), THE ASSESSMENT OF 'PRESUMPTIVE INCOME' AT 8% OF THE GROSS CONTRACT RECEIPT SHAL1 APPLY ONLY IF THE GROSS RECEIPTS DOES NOT EXCEED RS. 40 LAKHS, WHEREAS IN THE CASE OF YOUR APPEL1ANT THE GROSS CONTRACT RECEIPTS WERE RS. 43,03,336. HAVING NOT REJECTED THE ACCOUNTS OF THE ASSESSEE, THE ACTION OF THE LEARNED A. O. IN ESTIMATING THE NET INCOME U/S 44AD IS UNJUSTIFIED AND IT IS PRAYED THAT THE ADDITION MAY PLEASE BE DELETED AND JUSTICE RENDERED'. I HAVE DULY CONSIDERED THE OBSERVATIONS OF THE ASSES SING OFFICER AND THE SUBMISSIONS OF THE APPELLANT. FROM A PERUSAL OF PARA 3.3 OF THE ASSESSMENT ORDER, I FIND THAT TH E ASSESSING OFFICER HAD NOT DISCUSSED ABOUT THE ACCOUNTS OF THE APPELLANT, EXCEPT A PASSING REFERENCE TO SELF - VOU CHERS. IN OTHER WORDS, THE ASSESSING OFFICER HAD NOT MADE OUT A CASE FOR REJECTING THE ACCOUNTS AND THUS RESORTING TO A FA IR ESTIMATE OF THE PROFIT. FURTHER, AS POINTED OUT BY TH E APPELLANT, THE QUANTUM OF GROSS RECEIPT FROM CONTRACT S EXCEEDS RS. 40 LAKHS AND, THEREFORE, THE QUESTION OF ADOPTING INCOME U/S. 44AD(1) DOES NOT ARISE FOR CONSIDERATION - VIDE PROVISO THERETO. THE ACCEPTED LEGAL POSITION IS THA T 'THERE IS I.T.A. NO. 819/MDS/11 4 NO QUESTION OF GOING INTO ESTIMATION WITHOUT REJECTIN G THE BOOKS WHICH HAD BEEN MAINTAINED IN THE REGULAR COURS E' AND THIS HAS BEEN RECOGNIZED BY THE HON'BLE SUPREME COUT 1 WHILE REJECTING THE DEPT.'S SLP - PLEASE SEE 319 ITR ST, 3. THE ASSESSING OFFICER HAD NEITHER DISCUSSED THE REASONS FOR ESTIMATION NOR THE BASIS FOR SUCH ESTIMATION. IN TH E CIRCUMSTANCES, I AM UNABLE TO SUSTAIN ADDITION MADE BY THE ASSESSING OFFICER. ACCORDINGLY, I HEREBY DIRECT TH E ASSESSING OFFICER TO ADOPT INCOME OF RS. 1,12,760/- AS AGAIN ST RS. 4,46,303/- ESTIMATED BY HIM. 4. THE LD. D.R. SHRI SHAJI P. JACOB, VEHEMENTLY ARG UED AND SUPPORTED THE ORDER OF THE ASSESSING OFFICER. HE S UBMITTED THAT THE ASSESSEE HAS FILED RETURN OF INCOME ON THE BASIS OF ESTIMATE. THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS NOT M AINTAINED ALL VOUCHERS FOR EXPENDITURE INCURRED AND THAT THE VOUC HERS WERE SELF- MADE. THEREFORE, HE ESTIMATED THE INCOME OF THE AS SESSEE AT 10% OF THE GROSS RECEIPTS. THE LD. CIT(A) WAS NOT JUST IFIED IN OBSERVING THAT THE ASSESSING OFFICER HAS NOT REJECTED THE BOO KS OF ACCOUNT AND THEREFORE, WAS NOT JUSTIFIED IN ESTIMATING THE INCO ME OF THE ASSESSEE. THE LD. D.R., BY REFERRING TO PARA 3.1 A T PAGE 2 OF THE I.T.A. NO. 819/MDS/11 5 ASSESSMENT ORDER SUBMITTED THAT BEFORE ESTIMATING T HE INCOME, THE ASSESSING OFFICER ISSUED A SHOW CAUSE NOTICE WHICH IS REPRODUCED IN THE ASSESSMENT ORDER ITSELF. THEREFORE, IT CANNOT BE SAID THAT THE ASSESSING OFFICER HAS NOT REJECTED THE BOOKS OF ACC OUNT BEFORE ESTIMATING THE INCOME OF THE ASSESSEE. 5. ON THE OTHER HAND, THE LD. A.R. OF THE ASSESSEE SHRI V. SUBBARAYAN SUPPORTED THE ORDER OF THE ASSESSING OFF ICER. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT IT IS NOT IN DISPUTE THAT THE ASSESSEES RETUR N OF INCOME WAS SUPPORTED BY BOOKS OF ACCOUNT AND VOUCHERS. THE AS SESSING OFFICER STATED THAT THE BOOKS OF ACCOUNT WERE NOT COMPLETE. IN HIS OPINION, THE BOOKS OF ACCOUNT HAVE NO SANCTITY AS VOUCHERS W ERE SELF-MADE. HE, THEREFORE, ESTIMATED THE PROFIT OF THE ASSESSEE AT 10.37% OF THE TOTAL RECEIPTS. I.T.A. NO. 819/MDS/11 6 7. ON APPEAL, THE LD. CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE FINDING THAT THE BOOKS OF ACCOUNT WERE NOT REJECTED BY THE ASSESSING OFFICER. WE FIND THAT NO SPECIFIC ERROR IN THE BOOKS OF ACCOUNT OR SUPPORTING VOUCHERS COULD BE BROUGHT ON RECORD BY THE REVENUE. FROM THE RECORDS AVAILABLE BEFORE US, IT IS NOT CLEAR AS TO HOW THE BOOKS OF ACCOUNT OF THE ASSESSEE WERE INCOM PLETE. FURTHER, IT IS ALSO OBSERVED THAT NO SPECIFIC ERROR IN THE VOUCHERS PRODUCED BY THE ASSESSEE COULD BE POINTED OUT BY TH E ASSESSING OFFICER. IT IS NOT THE CASE OF THE REVENUE THAT TH E SELF-MADE VOUCHERS WERE NOT VERIFIABLE. THE ASSESSEE EXPLAI NED THAT IN ITS LINE OF BUSINESS, THIRD PARTY VOUCHERS WERE NOT AVA ILABLE AND THEREFORE, SELF MADE VOUCHERS WERE PREPARED. IN OU R CONSIDERED OPINION, BOOKS OF ACCOUNT CANNOT BE REJECTED MERELY BECAUSE THEY WERE SUPPORTED BY SELF MADE VOUCHERS UNLESS IT IS O BSERVED THAT THERE IS SOME SPECIFIC ERROR IN THE VOUCHERS OR PAY EES ARE NOT VERIFIABLE. FURTHER, WE FIND THAT ESTIMATION OF PR OFIT AT 10.37% IS ALSO WITHOUT ANY BASIS. IN THE ABOVE CIRCUMSTANCES , WE DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A). IT IS CONFIRMED. GROUND OF APPEAL OF THE REVENUE IS DISM ISSED. I.T.A. NO. 819/MDS/11 7 8. THE ONLY OTHER ISSUE IN THIS APPEAL IS THAT THE LD. CIT(A) ERRED IN DELETING THE ENTIRE ADDITION MADE BY THE ASSESS ING OFFICER RELATING TO PEAK CREDIT OF RS. 10.34.382/- WITHOUT VERIFYING THE SB ACCOUNT NO. 1190013776. 9. THE LD. CIT(A) HAS OBSERVED AS UNDER: 7. ADDITION TOWARDS PEAK CREDIT IN BANK ACCOUNT & S. 10,34,382:-- IN PARA. 3.6 OF THE ASSESSMENT ORDER, THE A.O. OBSERVED AS UNDER:-- 'IT HAS BEEN OBSERVED THAT THERE HAS BEEN A PLETHOR A OF TRANSACTION SUCH AS DEPOSITS AND WITHDRAWALS AND INT RA TRANSFERS IN SB ACCOUNT 1190013776 OF INBAJOTHI FOR THE PERIOD END OF 2004 TO EARLY 2006. THE ASSESSEE FAIL ED TO EXPLAIN THE TRANSACTION AND ESCAPED BY SAYING THAT ALL ARE ACCOUNTED IN HER BOOKS OF ACCOUNTS. UNDER THE CIRCUMSTANCES, I HEREBY PROPOSED TO ADD THE PEAK CRE DIT AMONG THE TRANSACTIONS AS UNACCOUNTED INCOME OF THE ASSESSEE FLOWING OUTSIDE THE BOOKS. THE PEAK CREDIT APPEARING ON FOR RS. 10,34,382/- IS ADDED TO THE TO TAL INCOME OF THE ASSESSEE. ' I.T.A. NO. 819/MDS/11 8 IN HER WRITTEN SUBMISSIONS DT. 26-10-2009, THE APPEL LANT SUBMITTED AS UNDER:- 'WHILE MAKING THE ADDITION OF RS. 10,34,382/- THE ASSESSING OFFICER OBSERVED THUS: I 'IT HAS BEEN OBSERVED THAT THERE HAS BEEN A PLETHOR A . . . . .. I THE PEAK CREDIT APPEARING ON FOR RS. 10, 3,382/- IS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. YOUR APPELLANT IS SUBMITTING HEREWITH A PHOTO COPY OF THE SAID BANK ACCOUNT [ANNEXURE B] YOU R APPELLANT WISHES TO SUBMIT THAT THE A.O. FAILED TO CONSIDER THE FOLLOWING FACTS:-- (A) THE S.B. ACCOUNT WITH SBI IN QUESTION IS DISCLOSED IN THE BALANCE SHEET OF YOUR APPELLANT AS AT 31-3-2005. THE BALANCE AS ON 31-3-0 5 IS RS. 1,76, 605 WHICH IS DISCLOSED IN THE BALANCE SHE ET AS ON 31-3-05. THUS, THE SAID ACCOUNT IS DISCLOSED AND T HE A.O IS IN ERROR TO TREAT IT AS UNDISCLOSED. (B) THE CREDIT BALANCE AS ON 31-3-2005 IS RS. 1,76,605 WHICH IS DISCLOSED IN THE BALANCE SHEET AS ON 31-3-05 FILED ALONG WITH THE ORIGINAL RETURN LONG BEFORE THE DATE OF SE ARCH. THUS THE SAID ACCOUNT IS DISCLOSED AND THE A. O. IS I N ERROR TO TREAT IT AS UNDISCLOSED (C) YOUR APPELLANT W ISHES TO SUBMIT THAT THE QUESTION OF ASSESSMENT OF PEAK CRE DIT IN A BANK ACCOUNT SHAL1 ARISE ONLY IF IT IS AN UNDISC LOSED I.T.A. NO. 819/MDS/11 9 ACCOUNT. (D) FURTHER, THE A. O. HAS NOT DISCLOSED THE BASIS ON WHICH HE ARRIVED AT THE 'PEAK CREDIT'. (E) IT APPEARS THAT THE LEARNED A.O. HAD BROUGHT TO TAX TH E CREDIT OF RS. 10.34.382 APPEARING ON 24-01-2006 BEI NG CHEQUE NO. 390322 ON CANARA BANK CREDITED TO THE ACCOUNT ALTER CLEARING. THE A.O. ,FAILED TO NOTE THA T THE ABOVE CREDIT [WHICH IS ONE OF THE CONTRACT BILL AMO UNTS RECEIVED DURING THE PY RELATING TO A Y 2006-071 DOES NOT RELATE TO THE PREVIOUS YEAR RELEVANT TO A Y 2005-06. FURTHER, THE ADDITION MADE DOES NOT REPRESENT 'PEAK CREDIT' FOR THE PY 2004-05, THOUGH HE OBSERVES THAT HE IS ASSESSING THE 'PEAK CREDIT'. (1) TO CAP IT ALL, THE A. O. DID NOT OBSERVE THE BASIC REQUIREMENT OF PUTTING THIS POI NT ACROSS TO THE ASSESSEE DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, AS IS EVIDENT DOM THE PRE- ASSESSMENT NOTICE AND THUS VIOLATED THE PRINCIPLES O F NATURAL JUSTICE. IT IS PRAYED THAT THE UNJUSTIFIED ADD ITION MADE BY THE A. O. MAY PLEASE BE DELETED AND JUSTICE RENDERED. I HAVE CONSIDERED THE OBSERVATIONS OF THE ASSESSING OFFICER . AND THE ARGUMENTS OF THE APPELLANT. THE CONTENTION O F THE APPELLANT SAYS IT ALL AND I HAVE NO HESITATION TO S AY THAT THE ARGUMENTS ARE IMMENSELY WELL TAKEN. THE APPELLANT FI LED HER ORIGINAL RETURN ON 03-08-2005 (I.E. MORE THAN A YEAR BEFORE I.T.A. NO. 819/MDS/11 10 THE DATE OF SEARCH) ALONG WITH THE BALANCE SHEET AS ON 31-3- 05. THE SAVINGS BANK ACCOUNT THE APPELLANT HAD WITH SBI IS DISCLOSED IN THE BALANCE SHEET AND THUS IT WOULD BE R ATHER TOTALLY INCORRECT TO TREAT IT AS UNDISCLOSED BANK ACCOUNT. T HE QUESTION OF ASSESSMENT OF 'PEAK CREDIT' SHALL ARISE ONLY IF THE' SAID BANK ACCOUNT IS AN UNDISCLOSED ONE. I HAVE CAREFULLY GONE THE PHOTO COPY OF THE SAID BANK ACCOUNT SUBMITTED BY THE APPELLANT ALONG WITH HER WRITTEN SUBMISSIONS. THE BA LANCE AS ON 31-3-2005 VIZ. RS. 1,76,605.20 IS THE SAME AS SH OWN IN THE BALANCE SHEET FILED ON 31-3-2005. FURTHER, THE A.O. HAD ALSO NOT APPLIED THE PRINCIPLES OF ACCOUNTANCY RELATING TO 'PEAK CREDIT' CORRECTLY - FIRST. HE HAD TAKEN ONE OF THE CREDITS AS THE PEAK CREDIT AND SECONDLY, THE SAID CREDIT IS ON 24- 01-2006 WHICH FALLS OUTSIDE THE PREVIOUS YEAR RELEVANT TO AY 2005-06. IT IS THUS TOTALLY INCORRECT ON THE PART OF THE A.O. TO MAKE THE ADDITION. I HAVE NO HESITATION IN HOLDING THAT THE ADDITION OF RS. 10,34,382 MADE BY THE A.D. IS ILL-CONCEIVED AND UNWARRANTED. ACCORDINGLY DIRECT THE A.O. TO DELETE T HE SAME. 10. THE LD. D.R. SUPPORTED THE ORDER OF THE AO WHER EAS THE LD. A.R. SUPPORTED THE ORDER OF THE LD. CIT(A). I.T.A. NO. 819/MDS/11 11 11. AFTER HEARING THE RIVAL SUBMISSIONS AND PERUSIN G THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE LD. CIT(A), WH ILE DELETING THE ADDITION OF RS. 10,34,382/- ON ACCOUNT OF PEAK CR EDIT IN THE BANK ACCOUNT HAS OBSERVED THAT THE CREDIT WHICH HAS BEEN TAKEN AS PEAK ON 24.1.2006 IS OUTSIDE THE RELEVANT ACCOUNTING YEA R 2004-05 RELEVANT TO ASSESSMENT YEAR 2005-06. THE LD. D.R. C OULD NOT CONTROVERT THE ABOVE FINDING OF THE LD. CIT(A) BY B RINGING ANY COGENT OR RELEVANT MATERIAL ON RECORD. FURTHER, TH E ASSESSING OFFICER ALSO COULD NOT CONTROVERT THE EXPLANATION O F THE ASSESSEE THAT ALL THE ENTRIES IN THE BOOKS OF ACCOUNT WERE D ULY RECORDED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AND THE BOOKS OF ACCOUNT CLEARLY SHOW THE SOURCE OF SUCH DEPOSITS. THEREFORE , WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) WHICH IS CONFIRMED AND THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. I.T.A. NO. 819/MDS/11 12 12. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE COURT ON 16 TH DECEMBER, 2011. SD/- SD/- (GEORGE MATHAN) (N.S. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 16 TH DECEMBER, 2011. VL COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A), CHENNAI (4) CIT, CHENNAI (5) D.R. (6) GUARD FILE