NARAYAN CHANDRA JANA,PURBA MEDINIPUR vs. ITO, WARD - 27(3), HALDIA, HALDIA

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, KOLKATA [Before Shri Rajesh Kumar, Accountant Member & Shri Sonjoy Sarma, Judicial Member]

I.T.A. No. 1310/Kol/2017 Assessment Year: 2012-13 Narayan Chandra Jana Vs. Income Tax Officer, Ward-27(3), Haldia. Bhuban Kalua, Tamluk, Purba Medinipur, West Bengal, Pin-721627. (PAN: ADFPJ4085L) Appellant Respondent

Date of Hearing 28.06.2023 Date of Pronouncement 22.09.2023 For the Appellant Shri Siddarth Agarwal, Advocate For the Respondent Shri P. P. Barman, Addl. CIT, Sr. DR

ORDER Per Shri Rajesh Kumar, AM This is an appeal preferred by the assessee against the order of Ld. CIT(A_- 7, Kolkata dated 21.03.2017 for AY 2012-13. 2. The issue raised in ground no. 1 is against the confirmation of addition of Rs.73,10,784/- by Ld. CIT(A) as made by the AO on account of capital balance in the proprietary capital account.

ITA No. 1310/Kol/2017 Narayan Chandra Jana, AY 2012-13 profit u/s. 44AD, interest of saving bank and subtracting the withdrawals of Rs.1,50,000/-, a net balance of Rs.76,44,401/- was calculated. The assessee has shown cash balance of Rs.50,66,287.93 at the year end. During the course of survey, the survey team could find only Rs.2,670/- in the shop and assessee explained cash balance to be lying at his residence for the safety reasons. The shop is located in the far-flung area and, therefore, the cash could not have kept in the shop premises. The AO did not accept the said contention of the assessee and treated the capital of Rs.73,10,874/- as capital built up and added the same to the income of the assessee in the assessment framed u/s. 143(3) of the Act.

ITA No. 1310/Kol/2017 Narayan Chandra Jana, AY 2012-13 the time of survey in the shop of the assessee and disbelieved the explanation that the cash was lying at his residence. The Ld. CIT(A) has simply confirmed the finding of AO that assessee has not returned the true and correct income and the income of the assessee was much higher than the limit as contemplated u/s. 44AD of the Act. We note that the capital of Rs.73,10,874/- was closing capital balance as on 31.03.2011 and opening capital as on 01.04.2011. In our opinion, the genuineness of the opening capital cannot be adjudicated by the AO in the current year and consequently, the opening capital cannot be added either as unexplained cash credit u/s. 68 or unexplained investment u/s. 69 of the Act. The case of the assessee finds support from the decision of Coordinate Bench in the case of ITO, Ward- 1(4), Kolkata Vs. M/s. jellotic Supply Pvt. Ltd. (ITA No. 1972/Kol/2016) and Hon’ble Rajasthan High Court in the case of CIT Vs. Parmeshwar Bohra 267 ITR 698 (Raj.) wherein it has been held that no addition can be made on account of opening capital either u/s. 68 or u/s. 69 of the Act. Considering these facts and circumstances and in the light of aforesaid decisions, we are inclined to set aside the order of Ld. CIT(A) and direct the AO to delete the addition. Therefore, this ground of appeal of the assessee is allowed.

ITA No. 1310/Kol/2017 Narayan Chandra Jana, AY 2012-13 opinion, the direction of the Ld. CIT(A) to reopen the assessment for preceding two assessment years is against the provision of the Act. We find that the case of the assessee finds support from the order of Hon’ble Calcutta High Court in the case of R. S. Davey Vs. CIT 140 ITR 1035 (Cal) wherein a similar issue relating to scope of power of the first appellate authority has come up for consideration before the Hon’ble Court and it was held by the Court that Ld. CIT(A) was not competent to give direction to AO in respect of an assessment year which is not in appeal before him and the said decision has been followed by Coordinate Bench in the case of Shalini Agarwal, AY 2013-14, ITA No. 957/Kol/2017. Accordingly, we quash the said direction of the Ld. CIT(A) given to AO to reopen the two assessment years as being contrary to law. Therefore, ground no. 2 is allowed.

ITA No. 1310/Kol/2017 Narayan Chandra Jana, AY 2012-13 considered the purchases as well as sales for the purpose of arriving at the profit which was finally declared u/s. 44AD of the Act. In our opinion, when the assessee has declared his income u/s. 44AD the provisions of section 40A(3) cannot be invoked. The case of the assessee finds support from the decision of Coordinate Bench in the case of Sanjay Vasantrao Wani, ITA No. 2491/Pune/2016 wherein the Bench has held as under: “7. On hearing both the sides on this limited issue, we find there is no dispute on facts. The dispute is only on the legal issue if the provisions of section 40A(3) of the Act are rightly applied in the case where presumptive profits are determined u/s.44AD of the Act by the assessee and undisturbed by the AO in the assessment. On perusal of the said provisions, we find even if the maintenance of books of account or otherwise, is not a condition precedent/or invoking the provisions of section 44AD of the Act by the assessee. Once the said provisions are invoked by the assessee and undisturbed by the AO, it is common sense that the provisions of section 40A(3) of the Act cannot be invoked separately and therefore, making addition on account of the violation of section 40A (3) of the Act over and above the said presumptive profits. This issue was answered by the Hon'ble Gujarat High Court in the case of CIT Vs. M. V. Construction (supra). For the sake of completeness, we proceed to extract the relevant paras from the said judgment and the said paras read as under:

“3. As can be seen on a plain reading of the provision, all that it requires is that, (1) an assessee must be engaged in the business of civil construction or supply of labour for civil construction, (2) in case of such an assessee, a sum equal to 8% of the gross receipts received or accrued to the assessee in the previous year, have to be compared with the sum declared by the assessee in his return of income, (3) then, the higher of the two figures has to be adopted for the purposes of assessing the assessee. The opening portion, namely, non obstante clause, stipulates that, for the purposes of working out the figure of 8% of gross receipts, the provisions contained in sections 28 to 43C of the Act have to be ignored. The said provision, namely, the non-obstante clause, does not have any further role to play. Similarly, insofar as the return of income is concerned, it is the figure declared by the assessee, and that is what is stated by the provision, has to be adopted. No processing at that stage is permissible. Therefore, the provisions of Section 40A (3) of the Act cannot be pressed into service at this stage." 7.1 Similarly, we also perused the order of Pune Bench of the Tribunal in the case of Shri Sanjay Javerilal lain Vs. DCIT (supra) and found that the facts before the Tribunal are similar to the facts of the present case. For the sake of completeness of this order, we proceed to extract the finding given by the Tribunal here as under: "11. We have considered the rival submissions, orders of the authorities below and perused the case laws relied upon. The only question for determination is whether estimated purchases entry in the Profit & Loss Account prepared for reconciliation and matching the estimated declared income from unrecorded sales at the time of survey are subjected to disallowance under section 40A(3) of the Act on the assumption that these

ITA No. 1310/Kol/2017 Narayan Chandra Jana, AY 2012-13 purported unaccounted purchases are impliedly made in cash. We notice that there has been consistent plea of the assessee that the estimated purchases are only in the nature of balancing entry to arrive at the pre- determined profit from undisclosed sale transactions as declared in survey which has remained uncontroverted by the Revenue. Another noticeable fact is that the income declared from these unaccounted transactions are consistent with the estimated income declared in the course of survey. It is also undisputed fact that the estimated purchases stated to be a balancing accounting entry to arrive at the income declare towards unaccounted business activities is not corroborated by any tangible evidence found during the course of search/survey. In other words, the alleged cash purchases as shown in the Profit & Loss Account prepared to declare the unaccounted income is not backed any underlying document. We find that the Pune Bench of the Tribunal in the case of ITA Nos.268 to 271/PN/2014 Kirtikumar Vishnudas Bhutada (supra) after taking cognizance several decisions of various High Courts on the issue has held in essence that once the income emanating from unrecorded and undisclosed transactions outside of account are declared and accepted, no additional disallowance under section 40A (3) of the Act is called for. Respectfully following the decision of the Pune Bench of the Tribunal, we hold that further disallowance under section 40A(3) on purported unaccounted purchases is not justified in the facts of the case and therefore is directed to be deleted.” From the above, it is now binding on us to hold that in cases where presumptive profits are eventually offered by the assessee for taxation uls.44AD of the Act and the same is .finally accepted by the CIT(A), then the provisions of section 40A(3) of the Act cannot be pressed into service. Accordingly, the legal grounds raised by the assessee stand allowed."

Order is pronounced in the open court on 22nd September, 2023

Sd/- Sd/- (Sonjoy Sarma) (Rajesh Kumar) Judicial Member Accountant Member Dated: 22nd September, 2023 JD, Sr. PS

ITA No. 1310/Kol/2017 Narayan Chandra Jana, AY 2012-13

Copy of the order forwarded to: 1. Appellant– 2. Respondent . 3. CIT(A)-7, Kolkata. 4. CIT, Kolkata. , 5. DR, ITAT, Kolkata, (sent through e-mail). True Copy By Order

Assistant Registrar ITAT, Kolkata Bench, Kolkata