Mohd. Akbar, Hyd, Hyderabad V. ITO, Ward-4(1), Hyd, Hyderabad

ITA 88/HYD/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6597 (ITAT-HYDERABAD)
• Duration Of Justice: 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 25-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M SITARAM
• Assessee Lawyers: D V ANJANEYULU; P PRAVALLIKA
• Keywords: Principle of natural justice
• Section: 44AD; 69C; 80C; 143(3); 68; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 88/HYD/2016 ASSESSMENT YEAR: 2009-10 MOHD. AKBAR, HYDERABAD PAN AIDPM 5709 R VS. INCOME-TAX OFFICER, WARD 4(1), HYDERABAD. APPELLANT RESPONDENT ASSESSEE BY: SRI D.V. ANJANEYULU & MS. P. PRAVALLIKA REVENUE BY: SRI M. SITARAM DATE OF HEARING: 28/03/2016 DATE OF PRONOUNCEMENT: 27/04/2016 O R D E R PER S. RIFAUR RAHMAN, AM: THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE O RDER OF CIT(A) - 1, HYDERABAD DATED 05/10/2015 RELATES TO T HE AY 2009-10. 2. THE ASSESSEE IS AN INDIVIDUAL DERIVING INCOME FR OM TRADING OF IRON AND STEEL SCRAP BUSINESS. THE ASSES SEE HAD FILED HIS RETURN OF INCOME FOR AY 2009-10 ON 21/08 /2009. THE CASE WAS SELECTED FOR SCRUTINY AND ASSESSMENT WAS C OMPLETED U/S 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT A CT) ON 28/12/2011. AO DETERMINED THE TAXABLE INCOME AT RS. 9,37,170 AFTER MAKING FOLLOWING ADDITIONS: A) MADE ADDITION FOR NON-SUBMITTING EVIDENCE TO CLA IM DEDUCTION U/S 80C RS. 85,504/-. B) THE ASSESSEE OPERATED BANK ACCOUNT AND AO FOUND THAT ASSESSEE RECEIVED DEPOSITS TO THE EXTENT OF RS . I.T.A. NO. 88/HYD/2016 MOHD. AKBAR 2 15,80,207/-. AO TREATED THE SAME AS BUSINESS TURNOVER AND ADOPTED 20.22% AS NET PROFIT FROM THE BUSINESS, ADDED RS. 3,19,517/- AS INCOME. C) THE BALANCE SHEET SUBMITTED BY THE ASSESSEE, THE BANK BALANCE SHOWN WERE RS. 74,793/- WHEREAS THE ACTUAL BANK BALANCE WERE RS. 4,34,636/-. THE DIFFERENCE WAS TREATED AS UNDISCLOSED INCOME AND ACCORDINGLY ADDED RS. 3,59,843/- AS INCOME 3. AGGRIEVED WITH THE ABOVE ADDITIONS, ASSESSEE PR EFERRED AN APPEAL BEFORE THE CIT(A). THE CIT(A) HAD GIVEN P ARTIAL RELIEF TO THE ASSESSEE BY DELETING THE PROFIT MARGI N TO THE EXTENT ALREADY DECLARED IN THE RETURN OF INCOME RS . 2,74,023/- AND HAS CONFIRMED THE BALANCE ADDITIONS. 4. AGGRIEVED WITH THE ABOVE ORDER, ASSESSEE IS IN A PPEAL BEFORE US BY RAISING THE FOLLOWING SUBSTANTIVE GROU NDS OF APPEAL: THE ORDER OF THE CIT (A) IN SO FAR AS SUSTAINING THE ADDITION OF RS. 3,59,843/- BEING ALLEGED DIFFERENCE IN CASH AND BANK BALANCES AS PER STATEMENT OF ACCOUNTS PREP ARED ON ESTIMATE AND AD HOC BASIS VIDE CORRIGENDUM TO TH E APPELLATE ORDER DT. 27/11/2015 IS ERRONEOUS IN LAW, CONTRARY TO FACTS AND AGAINST THE PRINCIPLES OF EQU ITY AND NATURAL JUSTICE. 02. LD. CIT(A) ERRED IN LAW BY IN ONE WAY ACCEPTING THE FACT THAT NO BOOKS OF ACCOUNTS ARE MAINTAINED AND E NTIRE ASSESSMENT WAS COMPLETED BASED ON BANK STATEMENTS, ON THE OTHER SIDE SUSTAINED THE ADDITION MADE BASED ON UNRELIABLE STATEMENTS OF ACCOUNTS ACCOMPANIED BY RE TURN OF INCOME AS THE AD ALSO RELIED PURELY ON BANK STATEMENTS ACCEPTING THAT THERE ARE NO PROPER BOOKS OF ACCOUNTS WITHOUT DOUBTING THE GENUINENESS OF THE TURNOVER REFLECTED IN THE BANK STATEMENT. 03. THE APPELLANT BEING HAWKER TRADING IN IRON SCRA P WITHOUT MAINTAINING PROPER BOOKS OF ACCOUNTS AND DISCLOSING TURNOVER RS. 13,55,510/- AND PROFIT OFFE RED RS. 2,51,024/- BY CLAIMING CERTAIN EXPENDITURE @ INSTEA D OF 20.22%) AS STATED BY AD IS FAR EXCESS THAN THE RATE OF PERCENTAGE IN SECTION 44AD @ 8%) WHICH IS APPLICABL E I.T.A. NO. 88/HYD/2016 MOHD. AKBAR 3 WHERE NO BOOKS OF ACCOUNTS ARE MAINTAINED AND THEREFORE, SUSTAINING THE ADDITION IS TOTALLY UNJUS TIFIED, UNWARRANTED BOTH IN LAW AND FACTS. 5. LD. AR SUBMITTED THAT EVEN BEFORE THE CIT (A), T HE ASSESSEE CATEGORICALLY STATED THAT NO BOOKS OF ACCO UNT WERE MAINTAINED AND THE STATEMENTS WERE PREPARED ON AD H OC AND ESTIMATION BASIS. EVEN THE ASSESSING OFFICER RELIED ON BANK DEPOSITS MADE IN THE BANK TO DETERMINE THE TURNOVER AND ESTIMATE THE PROFIT, WHICH WAS LATER DELETED BY THE CIT(A). 5.1 HE ALSO SUBMITTED THAT THE ASSESSEES TURNOVER FOR RELEVANT AY 2009-10 IS RS. 13,55,210/- AND THE PROF IT DISCLOSED IS @ 18.52% NOT OF 20.22% AS STATED BY AO IS VERY MUCH HIGHER THAN THE PRESCRIBED RATE IN SECTION 44A D @ 8% AND ALSO THE VERY ADDITION IS ONLY THE MISTAKE COMM ITTED IN PREPARING THE STATEMENTS BY NOT TAKING CORRECT BANK BALANCE RS. 4,34,636/- WHICH CLEARLY SHOWS THAT THE ACCOUNT ING STATEMENTS PREPARED ARE NOT RELIABLE AND NOT BASED ON ACTUALS. 5.2 HE, THEREFORE, SUBMITTED THAT MAKING AN ADDITI ON OF RS. 3,59,843/- BEING THE DIFFERENCE IN CASH AND BANK BA LANCES AS PER BANK STATEMENTS AND STATEMENTS OF ACCOUNTS IS T OTALLY UNJUSTIFIED AND UNWARRANTED BOTH IN LAW AND FACTS. IN OTHER WORDS, THE TOTAL INCOME DETERMINED AT RS. 6,10,867/ - WORKS OUT TO ABOUT 50% OF THE TOTAL TURNOVER OF RS. 13,55 ,210/- WHICH IS HYPOTHETICAL AND UNIMAGINABLE, THAT TOO WITHOUT DOUBTING THE SALES/TURNOVER IS NOT IN ACCORDANCE WITH FACTS AND LAW. 6. LD. DR SUBMITTED THAT AO HAS NOT MADE ANY ADDITI ON BASED ON ESTIMATION, HE HAD ADOPTED THE PROFIT MARG IN AS CLAIMED BY ASSESSEE IN HIS P&L A/C AND BALANCE SHEE T. HE I.T.A. NO. 88/HYD/2016 MOHD. AKBAR 4 ARGUED THAT THESE ADDITIONS MADE WERE PROPER AND AS PER BOOKS OF ACCOUNT SUBMITTED. 7. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES AND MATERIALS ON RECORD. LD. AR SUBMITTED THAT ASS ESSEE HAD NOT MAINTAINED THE BOOKS OF ACCOUNT AND SUBMITTED T HAT FINANCIAL STATEMENT WHICH WAS PREPARED BASED ON ADH OC INFORMATION. THIS FINANCIAL STATEMENT CANNOT BE REL IED UPON TO ASSESS THE ACTUAL TRANSACTION OF THE ASSESSEE. IN O UR VIEW, THE AO HAS TO ASSESS THE ACTUAL INCOME OF THE ASSESSEE. NO DOUBT, THE TURNOVER OF THE ASSESSEE IS LESS THAN TH E TURNOVER PRESCRIBED FOR TAX AUDIT U/S 44AB. ASSESSEE HAD OP PORTUNITY TO OPT FOR ASSESSMENT U/S 44AD. HOWEVER, ASSESSEE CHOSE TO DECLARE MORE THAN 8%, ASSESSEE MAY HAVE BETTER REAS ON FOR DECLARING MORE THAN THE LIMIT PRESCRIBED U/S 44AD. 8. IT IS NOTICED THAT WHILE MAKING ADDITION OF RS. 3,59,843/-, ASSESSING OFFICER HAS TAKEN INTO CONSIDERATION TOTA L DEPOSITS IN HDFC BANK ACCOUNT AND ESTIMATED THE TURNOVER AT RS. 15,80,207/-. EVEN AFTER ESTIMATING THE TURNOVER BAS ED ON THE BANK STATEMENT, ASSESSING OFFICER CHOSE TO TAKE THE DIFFERENCE BETWEEN CASH AND BANK BALANCE TO MAKE A SEPARATE AD DITION. ONCE THE BOOKS RESULTS ARE REJECTED AND TURNOVER IS ESTIMATED BASED ON THE BANK STATEMENT, IT IS INTRIGUING AS T O HOW THE ASSESSING OFFICER SOUGHT TO TAKE INTO CONSIDERATION THE SO CALLED MISMATCH BETWEEN THE BALANCE SHEET PREPARED BY THE ASSESSEE AND THE BANK BALANCE SHOWN THEREIN. AT ANY RATE, A SEPARATE ADDITION OF RS. 3,59,843/- WAS SOUGHT TO B E MADE WITHOUT SPECIFYING AS TO UNDER WHICH SECTION SUCH DISALLOWANCE/ADDITION CAN BE MADE. ARTICLE 265 OF T HE CONSTITUTION OF INDIA SPECIFIES THAT NO TAX CAN BE MADE WITHOUT AUTHORITY OF LAW AND IT IS THE ASSESSING OFFICER T O SPECIFY UNDER WHICH SECTION ADDITION SOUGHT TO BE MADE. EVE N, IF WE I.T.A. NO. 88/HYD/2016 MOHD. AKBAR 5 PRESUME THAT ADDITION COULD HAVE BEEN MADE U/S 69B OF THE ACT, ASSESSING OFFICER CANNOT AUTOMATICALLY PRESUME THAT THE ASSESSEE HAD EARNED ADDITIONAL INCOME OF RS. 3,59,8 43/-. WHEN HE HAS, ON ONE HAND, ESTIMATED THE INCOME BY T AKING INTO CONSIDERATION THE TOTAL DEPOSITS IN HDFC BANK ACCOUNT AS THE BASIS FOR PRESUMING IT AS TURNOVER AND ADOPTING PROFIT RATE OF 20.22%, WHICH IS ALSO NO BASIS SINCE ASSESSEE HA D ALL ALONG BEEN DECLARING GROSS PROFIT MARGIN OF 15 TO 1 8% FOR THE PAST SEVERAL YEARS, WHICH HAS ALSO BEEN ACCEPTED B Y THE ASSESSING OFFICER NOT ONLY IN EARLIER AYS BUT ALSO IN THIS YEAR IN SO FAR AS THE BALANCE TURNOVER WHICH WAS OFFERED BY THE ASSESSEE. 8.1 THE PROVISIONS OF SECTION 68 & 69, 69A, 69B AND 69C MERELY REFERS TO INITIAL ONUS BEING CAST UPON THE A SSESSEE WHILE USE OF THE EXPRESSION MAY BE DEEMED EXPRESS LY SUGGESTS THAT ADDITION SHOULD NOT BE MADE AUTOMATIC ALLY, WHICH PRINCIPLE WAS LAID DOWN BY THE APEX COURT IN THE CASE OF P.K. NOORJAHAN, 237 ITR 570 (SC). IN OUR CONSIDERED OPINION, THOUGH, THIS PRINCIPLE CANNOT HAVE UNIVERSAL APPLIC ATION AUTOMATICALLY, BUT, IT HAS TO BE SPARINGLY USED WHE RE THE FACTS NECESSITATE A JUDICIAL FORUM TO IMPLEMENT THE PRINC IPLE. IN THE PRESENT CASE, THE ASSESSING OFFICER HAVING ESTIMATE D THE TURNOVER AND THE PERCENTAGE OF PROFIT, IT IMPLIES T HAT THE BOOKS OF ACCOUNT WERE REJECTED AND INCOME IS ESTIMATED. I T ALSO IMPLIES THAT THE ASSESSING OFFICER IS OF THE OPINIO N THAT THE ASSESSEE HAD EARNED A SPECIFIED INCOME FROM THE BUS INESS OF SALE OF SCRAP. IN SUCH AN EVENT, ASSESSING OFFICER MAY NOT BE JUSTIFIED IN BLOWING HOT AND COLD AND MAKING A SPEC IFIED ADDITION AGAIN BASED ON THE BALANCE SHEET PREPARED BY THE ASSESSEE, WHICH WAS NOT ACCEPTED IN TOTALITY BY THE ASSESSING OFFICER WHILE ESTIMATING THE INCOME. AT ANY RATE, I N THE INSTANT CASE, ASSESSING OFFICER HAVING NOT SPECIFIED ANY I.T.A. NO. 88/HYD/2016 MOHD. AKBAR 6 SECTION/PROVISION, THE ADDITION MADE BY THE ASSESSI NG OFFICER IN OUR CONSIDERED OPINION IS NOT SUSTAINABLE. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF MADDI SUDA RSANAM OIL MILLS CO., 37 ITR 369 HAS OBSERVED THAT WHEN BOOKS OF ACCOUNT ARE REJECTED AND INCOME IS ESTIMATED, ASSES SING OFFICER IS NOT ENTITLED TO MAKE FURTHER ADDITION BA SING ON THE SAME PRINCIPLE. THIS STATEMENT OF THE JURISDICTIONA L HIGH COURT HAS STOOD THE TEST OF TIME AND APTLY APPLIES IN THE PECULIAR FACTS OF THIS CASE AND THUS, WE RESPECTFULLY FOLLOW THE SAID DECISION TO HOLD THAT THE ASSESSING OFFICER IS NOT JUSTIFIED IN MAKING FURTHER ADDITION FOR RS. 3,59,843/- IN THE G IVEN CIRCUMSTANCES. IF A SEPARATE ADDITION HAS TO BE MAD E, THE ONUS IS UPON THE ASSESSING OFFICER TO BRING ON RECO RD SOME EVIDENCES TO JUSTIFY THAT THE ASSESSEE HAD ACTUALLY EARNED UNDISCLOSED INCOME OVER AND ABOVE WHAT WAS ESTIMATE D FROM THE BUSINESS OF SALE OF SCRAP AND ALSO TO BRING THA T THERE WERE ADDITIONAL SALES WHICH HAVE GENERATED INCOME OR THE RE WAS OTHER SOURCE OF INCOME. NO SUCH EFFORT WAS MADE BY THE ASSESSING OFFICER IN THIS CASE. 8.2 EVEN OTHERWISE, THE TOTAL INCOME COMPUTED BY TH E ASSESSING OFFICER INCLUDING THE IMPUGNED ADDITION O F RS. 3,59,843 WORKS OUT TO RS. 6,79,360/- AND THE PERCEN TAGE OF PROFIT VIS-A-VIS TURNOVER ESTIMATED BY THE ASSESSIN G OFFICER WORKS OUT TO APPROXIMATELY 43%, WHICH IN OUR HUMBLE OPINION, IS ABSURD IN THE LINE OF THIS BUSINESS, NOT ONLY B ECAUSE OF THE FACT THAT THE ASSESSING OFFICER HIMSELF ESTIMATED A RBITRARY PROFIT RATE OF 20.22%, BUT, ALSO HAVING REGARD TO T HE PAST RECORD OF THE ASSESSEE WHERE THE ASSESSEE HAS DECLA RED THE PROFIT RANGE BETWEEN 15 TO 18%, WHICH WAS ACCEPTED BY THE ASSESSING OFFICER. I.T.A. NO. 88/HYD/2016 MOHD. AKBAR 7 8.3 ON CONSPECTUS OF THE MATTER, WE ARE OF THE VIEW THAT THE ASSESSING OFFICER IS NOT MADE OUT A CASE FOR MAKING A SEPARATE ADDITION OF RS. 3,59,843/- AND, THEREFORE, WE HEREBY DELETE THE IMPUGNED ADDITION AND DIRECT THE ASSESS ING OFFICER ACCORDINGLY. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOW ED. PRONOUNCED IN THE OPEN COURT ON 27 TH APRIL, 2016. SD/- (D. MANMOHAN) VICE PRESIDENT SD/- (S. RIFAUR RAHMAN) ACCOUNTANT MEMBER HYDERABAD, DATED 27 TH APRIL, 2016 KV COPY FORWARDED TO: 1. SHRI MOHD. AKBAR, C/O M/S ANJANEYULU & CO., CAS., 30, BAGHYALAKSHMI NAGAR, GANDHI NAGAR, HYDERABAD 500 080 2. ITO, WARD 4(1), HYDERABAD. 3. CIT(A) - 1, HYDERABAD 4 PR. CIT - 1, HYDERABAD 5 THE DR, ITAT, HYDERABAD