Smt. Rama Sharma V. Commissioner of Income Tax-II, Chandigarh

ITA/230/2013

AI Insights

Smt. Rama Sharma, the appellant and legal heir of late Sh. Mukesh Sharma, challenged the orders of the Income Tax Appellate Tribunal, Chandigarh, which affirmed the assessment order and the order passed by the Commissioner of Income Tax (Appeals). The dispute centered on the addition of amounts shown as payments to sundry creditors, which were included in the appellant's income after the application of a net profit rate of 10%. The Tribunal and the CIT(A) found these entries to be fraudulent, as the appellant failed to provide satisfactory evidence to prove the genuineness of these creditors despite multiple opportunities. The High Court dismissed the appeal, agreeing with the findings of the lower authorities.

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 795616 (HC-CHANDIGARH)
• Appeal Type: Others
• Pronouncement Date: 11-10-2013
• Assessment Year: misc
• Other Referred Cases: Kale Khan Mohammad Hanif V CIT, Maddi Sundarsanam Oil Mills Co. V CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Assessee Lawyers: RAVISHANKAR
• Keywords: Bogus creditors; Income Tax; Net profit rate; Sundry creditors; Fraudulent Expenditure
• Section: 68; 145(3)

Judgement Text

"ITA No.230 of 2013 [1] IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No.230 of 2013 Decided on: 11.10.2013 Smt.Rama Sharma Legal Heir and w/o late Sh.Mukesh Sharma ..... Appellant VERSUS Commissioner of Income Tax-II, Chandigarh ..... Respondent CORAM: HON'BLE MR. JUSTICE RAJIVE BHALLA HON'BLE MR. JUSTICE DR. BHARAT BHUSHAN PARSOON Present: Mr.Ravi Shankar, Advocate, for the appellant. ******* RAJIVE BHALLA, J. The appellant-assessee challenges order dated 17.05.2013, passed by the Income Tax Appellate Tribunal (hereinafter referred to as the 'Tribunal') Chandigarh Bench 'B', Chandigarh, affirming the assessment order as well as the order passed by the Commissioner of Income Tax (Appeals) [hereinafter referred to as the [CIT(A)], Chandigarh. Counsel for the appellant submits that after remand of the case by the Tribunal, the CIT(A) erred in affirming addition of amounts shown towards sundry creditors as income was calculated on net profit rate. It is further argued that finding recorded that the amount shown as payment to sundry creditors is fraudulent, is contrary to the record as this expenditure was incurred on freight and ITA No.230 of 2013 [2] is duly reflected in the account books as well as various documents and vouchers etc. placed on record. We have heard counsel for the appellant, perused the impugned orders and find no reason to hold that any question of law much less a substantial question of law arises for adjudication. The Assessing Officer assessed an income of Rs.92,81,294/- after invoking Section 145(3) of the Income Tax Act, 1961, by applying a net profit rate of 10 % and adding an amount of Rs.56,57,525/- shown as payment for hiring trucks, shown as sundry creditors in the balance-sheet. Aggrieved by this order, the appellant filed an appeal. The CIT(A) partly allowed the appeal. The Tribunal confirmed income calculated on net profit rate of 10% but remitted the matter to the CIT(A) to consider evidence adduced by the assessee to prove genuineness of sundry creditors. After remand, the CIT(A) reconsidered the matter but dismissed the appeal. The Tribunal has also dismissed the appeal filed by the appellant. A perusal of findings recorded by the Tribunal reveals that the appellant's argument that as net profit rate was applied, no further addition could be made, was rejected by assigning clear and cogent reasons for departure from the general principle that once net profit rate is applied no further addition is permissible and held as follows: - “9. The above para and the assessment order clearly shows that assessee has not produced anything except list of sundry ITA No.230 of 2013 [3] creditors. No evidence has been filed to substantiate that such balance was really payable. It is very difficult to believe that every time a freight is carried by a particular truck, then a paltry sum ranging from Rs.1000/- to Rs.5000/- would be retained by the assessee. Normally whenever the transporter or a truck owner would carry freight, he would demand the payment. Sometimes, funds may not be available, in that case either full money will be retained or substantial portion would be retained. It seems to be a simple case of showing bogus creditors. There is no force in the contention that since funds were not paid by the Defence Department, therefore, payments could not be made. A perusal of balance-sheet filed before us shows that no sundry debtors are shown by the assessee as on 31.03.2006 and only loans and advances amounting to Rs.32,66,869/- are shown. Further, the cash and bank balance has been shown at Rs.32,34,682/-. This clearly shows that no funds were blocked in the sundry debtors and cash was available to the extent of Rs.32,68,869/-” After recording the above finding on facts, the Tribunal proceeded to consider whether after calculating the assessee's income on a net profit rate any further addition could be made and held as follows: - “10. We have also perused the decision of Hon'ble Andhra Pradesh High Court in case of Maddi Sundarsanam Oil Mills Co. V CIT (supra). However, during the hearing, reference was ITA No.230 of 2013 [4] made to the decision of Hon'ble Apex Court in case of Kale Khan Mohammad Hanif V CIT 50 ITR 1, consisting of four learned judges. In that case, similar issue came up for consideration. The assessee was a trader carrying on the business of general merchandise and bidies. He also had some income from property. Since, the accounts were not found complete, the ITO assessed the income on estimated basis at certain percentage. Later on, it was noticed that assessee had shown certain credit entries, which had not been examined. Therefore, assessment was reopened and in the re-assessment proceedings, since assessee could not substantiate the creditors, further addition on account of these credit entries was made. The Hon'ble Apex Court ultimately adjudicated Question No.4, 5 & 6. Question No.4 reads as under: - “Whether the burden of proving the source of the cash credits is on the assessee?” It was answered as under: - “It seems to us that the answer to this question must be in the affirmative and that is how it was answered by the High Court. It is well established that the onus of proving the source of a sum of money found to have been received by the assessee is on him. If he disputes liability for tax, it is for him to show either that the receipt was not income or that if it was, it was exempt from taxation under the provisions of the Act. In the absence of such proof, the Income Tax Officer is entitled to treat it as taxable income: see A. Govindarajulu Mudaliar v. Commissioner of Income Tax?” We come now to question No.5, which is as follows: - “If so, then whether in the absence of satisfactory proof as to the source of credits the inference of the Tribunal that these credits are the assessee's income from some ITA No.230 of 2013 [5] undisclosed sources is an inference of fact or an inference of law?” 5th question also, after detailed discussion was decided against the assessee. In any case, it is by now, settled principle of law that if cash creditors are not satisfactorily explained, then the same has to be added to the income of the assessee. Question No.6 reads as under: - “Whether having regard to the fact that the Income Tax Officer has assessed the income on a percentage basis, he was justified in treating the said sums of Rs.41,300 and Rs.11,000 as profits from an undisclosed source?” After detailed discussion, it was observed on page 5 of the report as under: - “Therefore, it cannot be said that the taxing authorities were precluded from treating the amounts of the credit entries as income from undisclosed sources simply because the entries appear in the books of a business whose income they had previously computed on a percentage basis. That is why we think that the answer to the question as framed must be in the affirmative.” 10(i) The above clearly shows that Hon'ble Supreme Court clearly held that a separate addition for cash credit can be made even if the profits have been estimated on percentage basis. It is further noted that this decision was rendered by Hon'ble Apex Court on 08.02.1963 whereas the decision in case of Maddi Sudarsanam Oil Mills Co. V CIT (supra) by Hon'ble Andhra Pradesh High Court was rendered much before on 24.02.1959. When a decision from Hon'ble Apex Court is there, then everybody is bound to follow the same as it becomes law of land under Article 141 of the Constitution of India. In the case before us, the addition has been made on ITA No.230 of 2013 [6] account of bogus sundry creditors i.e. bogus liability which would be covered by section 68 only and therefore, the decision of Hon'ble Apex Court in case of Kale Khan Mohamad Hanif (supra) is squarely applicable.” The Tribunal thereafter dealt with the plea on facts and held as follows: - 11. We also find no force in the submission that sundry creditors arose because of freight and since 10% profit has been estimated, which would mean that 90% of the balance freight has already been allowed. Therefore, no addition can be made on the same. Section 68 reads as follows:- “68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. 12..... Now, assessee has booked the freight and it has been claimed that such freight was credited to the party's account. It has to be kept in mind that no books of account were produced before the AO or even before CIT(Appeals) and also a list of sundry creditors has been furnished which also shows the payments were made later on. The only inference which can be drawn is that assessee must have paid the paltry sums ranging from Rs.1000/- to Rs.5000/- to each of the truck from ITA No.230 of 2013 [7] unaccounted cash but no entries were made for such cash payment. The very fact that payments have been shown payable to more than 1000 trucks and it does not seem to be normal situation because part-payment of small sum cannot be withheld for all trucks. This is further evident from the reference to one Shri Randhir. The name of Shri Randhir has been mentioned in the list of 1014 parties for more than 150 times. Sometimes he has been shown as owner of truck. Sometimes he has been shown as Truck Operator Union and sometimes, even as driver. Truck numbers mentioned against his name are totally different. We are giving below few examples: - Date Truck No. Amt.due Particulars Address Amount Name paid on 1. 6.7.05 HR38D-9998 3000/- Himachal Assam Sanjay Gandhi 3000/- Randhir Owner Road Line Trp Nagar, 11.1.06 Delhi 2. 6.7.05 HP58-5673 8000/- Truck Operator Damtal 4500/- Randhir Owner Union 18.1.07 3. 28.7.05 HP36-6840 3200/- -do- Dera 3200/- Randhir Owner 19.2.07 4. 11.8.05 HP03B-3337 3200/- -do- Simla 3200/- Randhir Owner 11.11.06 5. 12.8.05 HP19B-4595 3200/- -do- Kala Amb 3200/- Randhir Owner 10.10.06 6. 13.8.05 HP21A-0379 3000/- -do- Hamirpur 3000/- Randhir Owner 11.11.06 7. 25.8.05 HP38-6625 4000/- -do- Damtal 4000/- Randhir Owner 10.10.06 8. 3.9.05 HP19-9282 6000/- -do- Kala Amb 6000/- Randhir Owner 1.2.07 How can same person be owner of different trucks and belong to different places in different states. If he is the same person, then why one account has not been prepared. It clearly shows that these creditors are bogus. In any case, assessee was given more than 15 opportunities by the AO to furnish the evidence to show that such payments were really outstanding. Assessee ITA No.230 of 2013 [8] could have atleast filed confirmations from some parties before the AO or CIT (Appeals), particularly in second round when the matter was remitted by the Tribunal to the file of CIT (Appeals). Even no attempt has been made to file any evidence before us in the form of confirmation.” A perusal of the aforesaid findings clearly reveals that despite grant of repeated opportunities, by the Assessing Officer, the assessee was unable to adduce any credible material to prove that payments were actually outstanding. The Tribunal has, therefore, rightly recorded a finding of fact that these entries are fraudulent and bogus. The question relating to addition made after applying a percentage to assessee's income has been duly considered and departure from the general rule that no addition is to be made after applying a percentage to calculate income suitably explained and dealt with. We, therefore, find no reason to hold that these findings of fact are in any manner illegal, void or give rise to any substantial question of law. As a consequence, the appeal is dismissed. [ RAJIVE BHALLA ] JUDGE 11.10.2013 [ DR. BHARAT BHUSHAN PARSOON ] shamsher JUDGE Singh Shemsher 2014.01.14 14:38 I attest to the accuracy and integrity of this document Chandigarh "