M/s. Shree Abharana, Gadag V. The Income Tax Officer, Ward - 1, Gadag

ITA 931/BANG/2019

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 8925 (ITAT-BANGALORE)
• Duration Of Justice: 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 17-09-2019
• Assessment Year: 2014-2015
• Appeal Filed On: 01-05-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C H SUNDAR RAO I
• Assessee Lawyers: PRATIBHA
• Keywords: Business income; Source of fund; Set aside
• Section: 143(3); 69; 145; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND S HRI VIKRAM SINGH YADAV , ACCOUNTANT MEMBE ITA NO S . 931 & 932/BANG/2019 ASSESSMENT YEAR : 2014 - 15 M/S. SHREE ABHARANA, MAIN MARKET ROAD, MUNDARGI (POST) GADAG (DIST). PAN: ABWFS 5593H M/S. SHREE JEWELLERS, MAIN MARKET ROAD, MUNDARGI (POST) GADAG (DIST). P AN: ABBFS 7605P VS. THE INCOME TAX OFFICER, WARD 1, GADAG. APP ELLANT RESPONDENT APP ELLANT S BY : S MT. PRA TIBHA, ADVO CATE RESPONDENT BY : SHRI C.H. SUNDAR RAO, CIT(DR - I), ITAT, BANGALORE. DATE O F HEARING : 17 .09.2019 DATE OF PRONOUNCEMENT : 20 . 09.2019 O R D E R PER N.V. VASUDEVAN, VICE PRESIDENT THESE ARE APPEALS BY TWO ASSESSEES AGAINST TWO SEPARATE ORDERS DATED 28.03.2019 AND 27.03.2019 PASSED BY THE PR.CI T, HUBBALLI U/S. 263 OF THE INCOME-TAX ACT, 1961 [THE ACT] RELATING TO ASSESSMENT YEAR ITA NOS. 931 & 932/BANG/2019 PAGE 2 OF 6 2014-15. SINCE BOTH THESE APPEALS INVOLVE COMMON I SSUES, WE DEEM IT FIT TO PASS A COMMON ORDER. 2. THE ASSESSEE IN ITA 931/B/2019 IS A PARTNERSHIP FIRM CARRYING ON BUSINESS AS JEWELLERS. FOR THE AY 2014-15 THE ASSE SSEE FILED A RETURN OF INCOME DECLARING TOTAL INCOME OF RS.30,01,010. A S URVEY IN THE BUSINESS PREMISES OF ASSESSEE HAD TAKEN PLACE ON 11.12.2013. IN THE COURSE OF SURVEY, THE ASSESSEE OFFERED A SUM OF RS.12,63,731 ON ACCOUNT OF EXCESS STOCK OF RS.20,34,479 ON ACCOUNT OF UNACCOUNTED DEB TORS FOR CREDIT SALES AND RS.32,35,521 ON ACCOUNT OF RECEIVABLES. THUS, IN ALL, THE ASSESSEE OFFERED TO TAX A SUM OF RS.65,33,731. IN THE RETUR N FILED, THIS SUM WAS ALSO INCLUDED IN THE PROFIT & LOSS ACCOUNT AND THE SUM D ECLARED IN THE RETURN OF INCOME WAS ARRIVED AT ACCORDINGLY. THE AO PASSED A N ORDER DATED 30.12.2016 ACCEPTING THE AFORESAID DECLARATION OF I NCOME. 3. AS FAR AS ITA 932/B/2019 IS CONCERNED, THE ASSES SEE IS A PARTNERSHIP FIRM CARRYING ON BUSINESS AS JEWELERS. FOR AY 2014-15, THIS ASSESSEE FILED A RETURN OF INCOME DECLARING TOTAL I NCOME OF RS.31,10,340. A SURVEY WAS CONDUCTED IN THE BUSINESS PREMISES OF AS SESSEE ON 11.12.2013. IN THE COURSE OF SURVEY, THE ASSESSEE OFFERED A SUM OF RS.35,32,850 COMPRISING OF RS.23,09,200 ON ACCOUNT OF UNACCOUNTED EXPENSES AND RS.12,23,650 ON ACCOUNT OF RECEIVABLES . THE SAID AMOUNT WAS CREDITED IN THE P&L ACCOUNT AND INCOME DECLARED IN THE RETURN OF INCOME WAS ARRIVED AT AFTER SUCH CREDIT IN THE P&L ACCOUNT. THE INCOME DECLARED BY THE ASSESSEE WAS ACCEPTED BY THE AO IN HIS ORDER DATED 30.12.2016 PASSED U/S. 143(3) OF THE ACT. 4. THE PR. CIT, HUBBALLI IN EXERCISE OF THE P OWERS U/S. 263 OF THE ACT WAS OF THE VIEW THAT THE AFORESAID ORDERS OF AS SESSMENT WERE ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTER ESTS OF REVENUE FOR TWO REASONS. (1) THE INCOME DECLARED IN THE SURVEY WAS AN INCOME WHICH IS ITA NOS. 931 & 932/BANG/2019 PAGE 3 OF 6 TAXABLE U/S. 69 OF THE ACT AND IN VIEW OF SPECIFIC PROVISIONS OF SECTION 115BBE(2) OF THE ACT, THE SAID SUM SHOULD HAVE BEEN SEPARATELY CHARGED TO TAX @ 30% AND OUGHT NOT TO HAVE BEEN CREDITED IN THE P&L ACCOUNT, BECAUSE BY CREDITING IN THE P&L ACCOUNT, THE ASSESS EE WOULD BE CLAIMING EXPENSES AGAINST THE INCOME OFFERED AT THE TIME OF SURVEY WHICH IS SPECIFICALLY PROHIBITED U/S. 115BBE(2) OF THE ACT. (2) THE GP RATIO HAD DRASTICALLY REDUCED AND THEREFORE THE AO OUGHT TO H AVE EXAMINED THE CORRECTNESS AND COMPLETENESS OF BOOKS OF ACCOUNT OF ASSESSEE BY INVOKING THE PROVISIONS OF SECTION 145 OF THE ACT. 3. THE ASSESSEE IN REPLY TO THE AFORESAID SHOWCAUSE NOTICE, TOOK A STAND THAT INCOME DECLARED AT THE TIME OF SURVEY WA S BUSINESS INCOME AND IT WAS SHOWN AS SUCH IN THE BOOKS OF ACCOUNT AND TH EREFORE THE QUESTION OF APPLYING THE PROVISIONS OF SECTION 69 OF THE ACT AN D CONSEQUENTLY THE PROVISIONS OF SECTION 115BBE(2) OF THE ACT WILL NOT ARISE FOR CONSIDERATION. THE ASSESSEE ALSO SUBMITTED THAT THE CORRECTNESS OF BOOKS OF ACCOUNT HAS BEEN ADMITTED BY THE AO AND THERE WERE NO REASONS W HY THE AO SHOULD BE DIRECTED TO EXAMINE THE APPLICABILITY OF SECTION 14 5 OF THE ACT, RESORTING TO ESTIMATION OF INCOME OF ASSESSEE. THE PR.CIT, HOWE VER, REJECTED THE CONTENTION OF THE ASSESSEE AND HELD THAT THE INCOME DECLARED AT THE TIME OF SURVEY WAS LIABLE TO BE ADDED U/S. 69 OF THE ACT AN D THEREFORE OUGHT TO HAVE BEEN TAXED SEPARATELY @ 30%, WITHOUT ALLOWING ANY EXPENSES AGAINST THE SAID INCOME AS PER THE PROVISIONS OF SE CTION 115BBE(3) OF THE ACT. THE FINAL CONCLUSION OF THE PR.CIT WAS AS FOLL OWS:- ITA 931/B/2019 8. IN VIEW OF THE FOREGOING, I HAVE NO HESITATION TO COME TO THE CONCLUSION THAT THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER U/S.143(3)ON 30/12/2016 IS ERRONEOUS IN AS MUCH AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE AS SUCH, UND ER THE POWERS VESTED IN ME U/S.263 OF THE INCOME TAX ACT, 1961, T HE SAID ITA NOS. 931 & 932/BANG/2019 PAGE 4 OF 6 ASSESSMENT ORDER IS SET ASIDE WITH A DIRECTION TO T HE ASSESSING OFFICER TO PASS A FRESH ASSESSMENT ORDER ACCORDINGL Y. THE ASSESSING OFFICER SHALL PROVIDE THE NECESSARY OPPOR TUNITY TO THE ASSESSEE TO EXPLAIN VARIOUS ISSUES DISCUSSED IN THI S ORDER VIZ., THE REDUCTION IN GROSS PROFIT AND NON-OFFERING OF INCOM E FROM LABOUR AND MAKING CHARGES. APPROPRIATE ADDITIONS SH ALL BE MADE TO THE RETURNED INCOME / LOSS IN RESPECT OF THESE I SSUES AFTER DUE ANALYSIS OF FACTS. BESIDES, THE UNEXPLAINED INVESTM ENT OF RS.65,33,731/- SHALL BE BROUGHT TO TAX AS PER THE P ROVISIONS OF SECTION 115BBE, APPLYING THE SPECIAL RATE OF TAX OF 30% MENTIONED THEREIN, WITHOUT ALLOWING ANY DEDUCTION T HEREFROM. ITA 932/B/2019 8. IN VIEW OF THE FOREGOING, I HAVE NO HESITATION TO COME TO THE CONCLUSION THAT THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER U/S.143(3)ON 30/12/2016 IS ERRONEOUS IN AS MUCH AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE AS SUCH, UND ER THE POWERS VESTED IN ME U/S.263 OF THE INCOME TAX ACT, 1961, T HE SAID ASSESSMENT ORDER IS SET ASIDE WITH A DIRECTION TO T HE ASSESSING OFFICER TO PASS A FRESH ASSESSMENT ORDER ACCORDINGL Y. THE ASSESSING OFFICER SHALL PROVIDE THE NECESSARY OPPOR TUNITY TO THE ASSESSEE TO EXPLAIN VARIOUS ISSUES DISCUSSED IN THI S ORDER VIZ., THE REDUCTION IN GROSS PROFIT AND NON-OFFERING OF INCOM E FROM LABOUR AND MAKING CHARGES AND THE DIFFERENCE / SHOR TFALL IN QUANTITY OF CLOSING STOCK OF GOLD & SILVER. APPROPR IATE ADDITIONS SHALL BE MADE TO THE RETURNED INCOME / LOSS IN RESP ECT OF THESE ISSUES AFTER DUE ANALYSIS OF FACTS. BESIDES, THE UN EXPLAINED INVESTMENT OF RS.35,32,850 SHALL BE BROUGHT TO TAX AS PER THE PROVISIONS OF SECTION 115BBE, APPLYING THE SPECIAL RATE OF TAX OF 30% MENTIONED THEREIN, WITHOUT ALLOWING ANY DEDUCTI ON THEREFROM. 4. AGGRIEVED BY THE AFORESAID ORDERS OF PR. CIT, TH E ASSESSEES HAVE PREFERRED THE PRESENT APPEALS BEFORE THE TRIBUNAL. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LD. CO UNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS AS WERE MADE B EFORE THE PR.CIT AND FURTHER PLACED RELIANCE ON CIRCULAR NO.11/2019 DATE D 19.6.2019, WHEREIN THE BOARD HAS CLARIFIED THAT THE AMENDMENT TO SECTI ON 115BBE(2) OF THE ACT ITA NOS. 931 & 932/BANG/2019 PAGE 5 OF 6 BY THE FINANCE ACT, 2016 W.E.F. 1.4.2017 IS ONLY PR OSPECTIVE AND NOT APPLICABLE TO ASSESSMENT YEARS PRIOR TO 2017-18. A S FAR AS THIS SUBMISSION IS CONCERNED, WE ARE OF THE VIEW THAT THE AFORESAID AMENDMENT IS ONLY WITH REGARD TO SET OFF OF ANY LOSS AGAINST INCOME ADDED U/S. 69 OF THE ACT. AS FAR AS SET OFF OF EXPENSES AGAINST INCOME ADDED U/S. 69 IS CONCERNED, THE PROVISIONS OF SECTION 115BBE(2) INTRODUCED BY THE F INANCE ACT, 2012 W.E.F. 1.4.2013 ALREADY CONTAIN A PROVISION PROHIBITING DE DUCTION ON ACCOUNT OF EXPENDITURE AGAINST INCOME ADDED U/S. 69 OF THE ACT . HENCE, THE PLEA OF THE ASSESSEE IN THIS REGARD CANNOT BE ACCEPTED. TH E DECISION CITED BY THE LD. COUNSEL FOR THE ASSESSEE IN RESPECT OF THE AFOR ESAID PROPOSITION IS ALSO NOT ACCEPTABLE FOR THE VERY SAME REASON. 6. THE LD. DR PLACED RELIANCE ON THE ORDER OF PR.CI T. 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE ARE OF THE VIEW THAT INCOME OFFERED AT THE TIME OF SURVEY BY BOTH THE AS SESSEES WAS CREDITED IN P&L ACCOUNT AND THE ROUTINE EXPENSES WERE CLAIMED B Y THE ASSESSEE. SINCE THE DECLARATION OF INCOME WAS MADE IN THE COU RSE OF SURVEY AND THE INCOME SO OFFERED IS NORMALLY TAXED U/S. 69 OF THE ACT, THE AO OUGHT TO HAVE MADE INVESTIGATION AS TO WHETHER THE INCOME DE CLARED AT THE TIME OF SURVEY IS ASSESSABLE U/S. 69 OF THE ACT OR UNDER TH E HEAD INCOME FROM BUSINESS OR INCOME FROM OTHER SOURCES. FOR THIS , THE ASSESSEE SHOULD BE SPECIFICALLY CONFRONTED ABOUT THE SOURCE OF FUNDS I N RESPECT OF INCOME DECLARED AT THE TIME OF SURVEY AND WHEREFROM AND HO W SUCH FUNDS EMANATED. WE ARE OF THE VIEW THAT THE ORDER OF PR. CIT NEEDS TO BE MODIFIED AND THE ISSUE WITH REGARD TO APPLICABILITY OF SECTION 115BBE(2) OF THE ACT SHOULD BE LEFT OPEN TO BE EXAMINED BY THE A O IN THE PROCEEDINGS PURSUANT TO THE ORDER U/S. 263 OF THE ACT. THE PR. CIT IN THE IMPUGNED ORDER HAS DIRECTED THE AO TO MAKE ADDITION U/S. 115 BBE(2) OF THE ACT, WHICH IN OUR OPINION, MAY NOT BE PROP ER WITHOUT AN ENQUIRY INTO ITA NOS. 931 & 932/BANG/2019 PAGE 6 OF 6 THE SOURCE OF FUNDS. WE THEREFORE MODIFY THE ORDER S OF PR.CIT TO THIS EXTENT. IT IS ORDERED ACCORDINGLY. 8. AS FAR AS THE REJECTION OF BOOKS OF ACCOUNT IS C ONCERNED, WE ARE OF THE VIEW THAT THERE ARE NO FACTS WHICH ARE BROUGHT ON RECORD TO SHOW THAT THE BOOKS OF ACCOUNT NEED TO BE REJECTED OR CIRCUMS TANCES WHICH JUSTIFY THAT THE AO OUGHT TO HAVE MADE AN ENQUIRY ON THE CO RRECTNESS AND COMPLETENESS OF BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE. THEREFORE, THE DIRECTION IN THE IMPUGNED ORDERS IN THIS REGARD ARE HELD TO BE NOT PROPER AND IN ACCORDANCE WITH LAW. TO THIS EXTENT, THE OR DERS OF PR.CIT IS QUASHED. 9. IN THE RESULT, BOTH THE APPEALS BY ASSESSEES ARE TREATED AS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 20 TH DAY OF SEPTEMBER, 2019. SD/- SD/- ( VIKRAM SINGH YADAV ) ( N.V. VASUDEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED, THE 20 TH SEPTEMBER, 2019. / D ESAI S MURTHY / COPY TO: 1 . APPELLANT 2 . RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.