ACIT, CIR. 2(1), JALPAIGURI vs. SHRI BHOLANATH AGARWAL, COOCHBEHAR

आयकर अपीलीय अधिकरण कोलकाता 'बी' पीठ, कोलकाता में IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA ‘B’ BENCH, KOLKATA डॉ. मनीष बोरड, लेखा सदस्य एवं श्री संजय शमाा, न्याधयक सदस्य के समक्ष Before DR. MANISH BORAD, ACCOUNTANT MEMBER & SONJOY SARMA, JUDICIAL MEMBER I.T.A. No.: 46/Kol/2021 Assessment Year: 2016-17 ACIT, Circle2(1), Jalpaiguri.....................................Appellant Vs. Shri Bholanath Agarwal.......................................Respondent [PAN: ADMPA 7198 J] Appearances by: Sh. Siddarth Agarwal, Adv., appeared on behalf of the Assessee. Sh. P.P. Barman, Addl. CIT, appeared on behalf of the Revenue. Date of concluding the hearing : December 6th, 2022 Date of pronouncing the order : January 4th, 2023 ORDER

Per Manish Borad, Accountant Member:

That, on the facts and circumstances of the case, the Ld. CIT(A) was not justified in her decision to ignore the fact that the discrepancy to a tune of Rs. 2,09,25,288/- as determined on the basis of the findings during the course of survey operation u/s 133 A of the I.T. Act, as well as after providing ample opportunities to assessee during the course of scrutiny proceedings. Thus, it is crystal clear here that the addition made in the assessment order was not made solely upon the findings during the course of survey u/s 133A of the I.T. Act, 1961 but also on the basis examinations of the documentary evidences as produced by the assessee during the scrutiny u/s 143(3). The case laws cited by the Ld. CIT(A) are found to be distinguishable on facts and but not applicable in the instant case. Thus, the Ld. CIT(A) erred in her verdict to delete the addition of Rs. 2,09,25,288/-. The grounds of appeal for each issue are enumerated as under:

1. That, on the facts and circumstances of the case, the Ld. CIT(A) has failed to justify deletion of Rs. 91,98,488/- added by the A.O. which had been wrongly claimed by the assessee as set off for the A.Y. 2011-12 without any additional proof made by the assessee.

2. That, on the facts and circumstances of the case, the Ld. CIT(A) was not justified in deletion of Rs. 1,09, 02,800/- in contrary to the express provisions of section 188 and 192 of IDS 2016.

I.T.A. No.: 46/Kol/2021 Assessment Year: 2016-17 Shri Bholanath Agarwal.

3. That, on the facts and circumstances of the case, the Ld. CIT(Appeals), Jalpaiguri has failed to appreciate the fact the addition of undisclosed cash of Rs.8,24,000/- as admitted by the assessee in his statement which was recorded under oath u/s 131 of the Act on 18/07/2015 and not u/s 133A of the Act. The Ld. CIT(A), Jalpaiguri has deleted the addition of Rs. 8,24,000/- made by A.O. by citing the verdict of the Hon’ble Supreme Court of India in the case of CIT vs. S. Khader Khan & Sons in which it is held that the survey does not empower the ITO to examine any person on oath and the statement recorded u/s 133 A of the I.T. Act, 1961 has no evidentiary value. However, in this case, the statement of the assessee was recorded u/s 131 of the I.T. Act, 1961 and not u/s 133A of the I.T Act, 1961. The Hon’ble Supreme Court of India in the case of M/s Pebble investment and Finance Ltd. vs. Income Tax Officer 2017-TIOL-238- SC- it has dismissed the petition of the appellant and confirmed the judgment of the Hon’ble High Court.

in the course of hearing.”

4. Brief facts of the case are that the assessee is an individual and is engaged in the business of trading of cotton waste, cotton rags, cotton yarn and mosquito net. A survey operation was carried out u/s 133A of the Act on 18.07.2015 at the business premises of the assessee during which the assessee admitted undisclosed income of Rs. 8,00,20,013/- which comprised of undisclosed cash of Rs. 8,24,000/-, undisclosed stock of Rs. 3,91,81,368/- and bogus sundry debtors of Rs. 4,00,14,645/-. Thereafter, the assessee filed return of income on 05.10.2016 declaring total income of Rs. 2,14,22,050/-. This was followed by selection of the I.T.A. No.: 46/Kol/2021 Assessment Year: 2016-17 Shri Bholanath Agarwal. case for complete scrutiny through CASS and serving of valid notices u/s 143(2) & 142(1) of the Act upon the assessee. During the assessment proceedings, ld. AO called for various details. After considering the same, the assessment was concluded. Addition was made towards undisclosed cash at Rs. 8,24,000/-. As regards bogus sundry debtors of Rs. 4,00,14,645/-, ld. AO based on the submissions filed by the assessee accepted the assessee disclosure of Rs. 2,00,99,770/- and did not made the addition for the remaining amount as the assessee explained the difference being the debtor belonging to another concern M/s. Laxmi Cotton Industry. As regards undisclosed stock, the assessee filed complete details as well as the reconciliation statement and considering the same, ld. AO observed that the assessee has shown closing stock as on the date of survey i.e. 18.07.2015 at Rs. 3,01,59,910/- in its books of accounts but the actual closing stock found during the course of survey was Rs. 1,00,53,929/- and, therefore, there is a discrepancy of Rs. 2,06,08,009/-. Before, ld. AO, it was stated by the assessee that it had made IDS, 2016 declaring Rs. 1,09,02,800/- and there was an addition in assessment for AY 2011-12 at Rs. 92,03,181/- and both these amounts were included as part of the closing balance as on 18.07.2015 in its books of accounts. However, ld. AO was not satisfied and he made the addition for undisclosed stock at Rs. 2,06,08,009/-.

5. Aggrieved, the assessee preferred appeal before ld. CIT(A) and succeeded in getting relief. Ld. CIT(A) observed that ld. AO did not reject the book results and the assessee had cash of Rs. 8,24,093/- as per the cash book and therefore, in view of the settled judicial precedence, addition was uncalled for. Further, ld. CIT(A), Page 4 of 16 I.T.A. No.: 46/Kol/2021 Assessment Year: 2016-17 Shri Bholanath Agarwal. appreciating that addition of undisclosed business transactions for AY 2011-12 made in the hands of the assessee at Rs. 92,03,181/- and disallowance of Rs. 1,09,02,800/- under IDS, 2016 has rightly been claimed to be set off against the undisclosed stock found at the assessee's premises during the course of survey.

before us.

7. On the other hand, ld. Counsel for the assessee, apart from referring to the written submissions filed before ld. CIT(A), supporting the order of ld. CIT(A) also took us through the relevant pages of the paper book containing 127 pages providing the details of ITR computation and balance sheet for AY 2016-17, forms filed under IDS, copy of assessment order u/s 147 r.w.s. 143(3) of the Act for AY 2011-12 and sample bank statements of bank accounts held with ICICI Bank.

8. We have heard rival contentions and perused the records placed before us. The Revenue is aggrieved with the relief granted by ld. CIT(A).

9. Ground nos. 1, 2 & 4 relate to addition made for undisclosed stock by ld. AO at Rs. 2,06,08,009/- which has been deleted by ld. CIT(A). This figure of alleged addition comprises of the following: a) Additions made in the re-assessment proceedings for AY 2011- 12 at Rs. 92,03,181/-, b) Disclosure made in IDS 2016 at Rs. 1,09,02,810/- & I.T.A. No.: 46/Kol/2021 Assessment Year: 2016-17 Shri Bholanath Agarwal. c) Difference in stock at Rs. 5,02,028/-.

10. We notice that during the survey, statement was given by the assessee surrendering the undisclosed stock at Rs. 3,91,81,368/- . Ld. AO, on perusal of the income tax return observed that the assessee has failed to reflect the said undisclosed stock/income of Rs. 3,91,81,368/-. The assessee gave the following reply along with filing profit and loss account for the period from 01.04.2015 to 18.07.2015: “Sir, during survey operation the Survey Team had found a total stock of Rs.4,22,11,880/- lying in the godown as on 17.07.15. The Survey Team had excluded a stock of Rs.30,30,432/- being disclosed stock as per books of account of Laxmi Cotton Industry. Your Assessee would like to submit that as per impounded books of account of Laxmi cotton Industry bearing identification mark no.BNA/2, Page 1 to 12, the entries was completed only up to 30.06.2015, laxmi Cotton Industry is a partnership firm in which your assessee is a one of the partners. Your assessee would like to state that the godown in which the stocks of his proprietorship concern, M/s.Agarwal Trading Co. and stocks of his partnership firm, Laxmi Cotton Industry are kept and stored in the same godown having 3(three) different and distinct parts by way of brick wall partitions. In one part of the godown, the stocks of the assessee’s proprietorship concern are kept and the raw material 7 finished goods of his partnership firm, Laxmi Cotton Industry are kept in the other two parts of the same godown. It is also pertinent to mention here that the impounded books as per BNA/2 were written and completed only up to 30.06.2015. The stocks of Rs.30,30,432/- of Laxmi Cotton Industry as per Page 12 of BNA/2 was also the stock as on 30.06.2015 as per books were written and completed only upto 30.06.2015. The stock summary printed on 17.07.15 by the survey team putting date from 01.04.2015 to 11.07.2015 was auto generated print out from Tally software of the Laxmi Cotton Industry. As the books was completed up to 30.06.2015 in Tally software of the Laxmi Cotton Industry, naturally the stock summary so printed by the Department was for the period 01.04.2015 to 30.06.2015 and not 01.04.15 to 11.07.15. The stock as on 17.07.2015 of the Laxmi cotton industry was for Rs.41,34,983/-as per tally software of the said partnership firm. A Page 6 of 16 I.T.A. No.: 46/Kol/2021 Assessment Year: 2016-17 Shri Bholanath Agarwal. detail print out of stock summary as on 17.07.15 from tally software of Laxmi cotton Industry may please be found enclosed herewith. Your Honour may observe that the item and quantity of stocks remain same as per stock summary taken by the survey team on 17.07.2015 as per Page 12 of BNA/2. Hence, your honour is requested to exclude a sum of Rs.41,34,983/- being the stocks of Laxmi Cotton Industry. Regarding balance stock of Rs.3,80,76,817/- found by the survey team as on 17.07.2015 at the premises of your assessee, your assessee would like to explain the same as follows: The stock valuation drawn by the survey team as per Annexure-3, Page 1 was excessive. The assessee deals in various qualities of the same item, the rare of which varies quality wise. A detail valuation of stock as on 17.07.2015 from tally software of the assessee may please be found enclosed herewith. While the highest sales rate had been considered by the survey team to determine the value of stock as on 17.07.2015(not purchase price), the stock summary generated from tally software has been considered average purchase value of stocks as on 17.07.2015. As the method of valuation adopted by the survey team was wrong as per accounting standard, the said value may please be ignored and the actual value of Rs.3,06,61,938.19/- may please be considered for the sake of justice. There is approxly same(higher) in quantity of stocks found by the survey team and considered in the stock summary generated from tally software by your assessee. Regarding stock of Rs.3,06,61,938.19/- as on 17.07.2015, your assessee likes to produce his audited books of account for F.Y:15-16 and purchase & sale bills. There was a deficit investment of Rs.74,14,878.80 in the books of the assessee in comparison to the quantity and value of stocks held by him. Sir, your assessee was reassessed on 19.02.2016 for ASST. Year 2011-12 by the Department and a total addition of Rs.92,03,181/- had been made by the Department on account of unexplained investment and unexplained income, against which your assessee did not prefer any appeal. Your assessee had capitalized the said sum of Rs.92,03,181/- in his book of account as per recognized accounting standard and as per various verdict of Courts. Your assessee had also made a disclosure of Rs.1,09,02,880/- under IDS on account of his undisclosed business income. The income of Rs.1,09,02,880/- so disclosed under IDS had also been capitalized by the assessee in his books of account. All taxes on undisclosed Page 7 of 16 I.T.A. No.: 46/Kol/2021 Assessment Year: 2016-17 Shri Bholanath Agarwal. income of Rs.92,03,181/- and Rs.1,09,02,880/- have duly been paid from time to time and duly recorded in the regular books of the assessee. Your honour may find in the books of the assessee produced herewith that all the purchases and sales are duly recorded and there was no deficiency of cash or capital in the book of the assessee. Hence, no further addition should be made on account of undisclosed stock.”

11. Further, we notice that in the trading and profit & loss account for the period 01.04.2015 to 18.07.2015 the assessee has shown closing stock at Rs. 3,01,59,910/-. Now when the matter travelled before ld. CIT(A) the following reconciliation statement was filed by the assessee: “Details of additions made by the Ld. A.O.: Value of Stock as on 18.07.2015 (Survey) (Accepted by the Ld. A.O.) – Rs. 3,06,61,938/- Source of Investments as explained by the Assessee 1) As per regular books of account (disclosed capital) (Accepted by the Ld. A.O.) – Rs. 1,00,53,929/- 2) Intangible addition made in Asst. Year 2011-12, capitalized – Rs. 92,03,181/- 3) Business income up to 31.03.2015, disclosed under IDS 2016, capitalized – Rs. 1,09,02,800/- Source of investments as explained by the assessee – Rs. 3,01,59,910/- Additions made by the Ld. A.O. (a) Difference in stock – Rs. 5,02,028/- (Rs. 3,06,61,938 - Rs. 3,01,59,910) (b) Intangible addition, capitalized (not allowed) – Rs. 92,03,181/- (c) Disclosure under IDS, 2016, capitalized (not allowed) – Rs. 1,09,02,800/- Total additions Rs. 2,06,08,009/-”

I.T.A. No.: 46/Kol/2021 Assessment Year: 2016-17 Shri Bholanath Agarwal. 12. Ld. CIT(A) after considering these details, held as follows:

“4.2 Ground No. 2: Claim for get-off of Rs. 91,98,488/-: It is seen from assessment order of the appellant u/s 147/143(3) dated 19.2.2016 for assessment Year 2011-12 that his case was reopened and an addition of Rs.85,63,527/-, being peak balance of undisclosed bank account and Rs.6,39,6543/- being profit on undisclosed business transactions (total additions for Rs.92,03,181/- ) had been made. The appellant had claimed the benefit of set-off of Rs.91,98,488/- (addition of Rs.92,03,181/-minus expenses for attending hearings) in explaining the source of investment in undisclosed stocks found in survey. The AO had noticed that the reopening assessment for assessment year 2011-12 had been drawn on 19.2.2016, after the date of survey on 18.7.2015. So, the claim for set-off on account of additions vide assessment order dated 19.2.2016 against undisclosed stocks found much before that date on 18.7.2015 was not allowable. The AO had also stated in his order that the case law cited by the appellant was different than the fact of the case of the appellant. The appellant before the AO and also at appellate stage has relied on the decision of Calcutta High Court in Balaram Saha us. CIT, I.T. Appeal No. 319 of 2003, dated 19.04.2011. In his case a survey was conducted at appellant’s business premises on 09.01.1997 and following impoundments of books and other documents, the assessments for previous assessment years 1995-96 and 1996-97 were reopened. In asst, year 1995-96 an intangible addition of Rs. 1,43,688/- and in assessment year 1996-97 an estimated addition of Rs. 8,19,704/- (reduced to Rs. 2,84,699/ in appeal) had been made. Both the additions had been made after the date of survey and the Calcutta High Court has allowed the claim of set off of the assessee to explain the discrepancy found in stocks in survey. As the fact of the case of Balaram Saha vs. CIT squarely applies to the case of the appellant in hand, the claim of set-off of Rs.91,98,488/- is allowed and the addition of Rs.91,98,488/- is hereby deleted. Ground No. 3: Claim for set-off of Rs. 1,09,02,880/-: The appellant had declared his undisclosed incomes up to 31.3.2015 for Rs. 1,09,02,880/-under IDS 2016 and capitalized the said undisclosed income in his books of account for assessment year 2016-17. The AO has stated in his order that capitalization of the Page 9 of 16 I.T.A. No.: 46/Kol/2021 Assessment Year: 2016-17 Shri Bholanath Agarwal. amount of disclosure made under the scheme IDS 2016 is not allowable u/s 188 of the Income Declaration Scheme 2016. The AO has further stated in his order that declaration is not admissible in evidence against declarant in the case of scrutiny assessment proceedings for the asst year 2016-17 u/s 192 of the Income Declaration Scheme, 2016. The AO has disallowed the claim of set-off of the appellant by further stating that the survey was conducted on 18.7.201.5. whereas the declaration under IDS 2016 had been made on 23.9.2016. I have gone through the sections of 188 and 192 of the Finance Act 2016, which reads as follows- Section 188. The amount of undisclosed income declared in accordance with section 183 shall not be included in the total income of the declarant for any assessment year under the Income-Tax Act, if the declarant makes the payment of tax and surcharge referred to in section 184 and the penalty referred to in section 185, by the date specified under subsection (1) of section 187. Section 192. Notwithstanding anything contained in any other law for the time being in force, nothing contained in any declaration made under section 183 shall be admissible in evidence against the declarant for the purpose of any proceeding relating to imposition of penalty, other than the penalty leviable under section 185, or for the purposes of prosecution under the Income-tax Act or the Wealth-tax Act 1957. I find that the AO has misread the provisions of section 188 and 192 of IDS 2016 in disallowing the claim of the appellant. Circular No.29 of 2016, dated 18.12.2016 (F.No. 142/8/2016-TPL) reads as follows- "Question No. 2: Where the amount declared under the scheme for an earlier assessment year can be taken into account to explain the transaction(s) in the assessment proceedings for subsequent years(s)? Answer: As per section 189 of the Finance Act,2016, any declaration made under the Scheme shall not affect finality of completed assessments. However, in an assessment proceeding before the Assessing Officer for an assessment year subsequent to the year for which the income declared under the Scheme, the income declared for an earlier assessment year can be taken into account to explain the transactions provided there is a nexus between the income declared and the transactions of the subsequent year. Page 10 of 16 I.T.A. No.: 46/Kol/2021 Assessment Year: 2016-17 Shri Bholanath Agarwal. Question No. 12: In answer (b) to question No.6 of Circular No 17 of 2016 dated 20.5.2016, it has been stated that “person is barred from making a declaration under the Scheme in respect of an undisclosed income in which the survey was conducted". Please clarify? Answer: The clause (b) of answer 6 may be read as “In case of survey operation, the person is barred for making a declaration under the Scheme in respect of the previous year in which the survey was conducted. The person is, however, eligible to make declaration in respect of an undisclosed income of any other previous year". The Circular issued by the Ministry of Finance clearly says that the income disclosed under the Scheme for an earlier assessment year can be taken into account to explain the transactions in assessment proceedings for subsequent years. So, date of declaration is irrelevant as per circular and also as per the ratio laid down by the jurisdictional High Court (Calcutta High Court) in-the case of Balaram Saha vs. CIT, I.T. Appeal No.319 of 2003, date 19.04.2011. In view of the Finance Act, 2016, Income Declaration Scheme 2016 and Circulars issued by Ministry of Finance, the appellant’s claim for set-off of Rs. 1,09,02,880/- is hereby allowed and the addition of Rs. 1,09,02,880/- made by the AO is deleted.”

is allowed.”

18. Since ld. D/R could not controvert the finding of ld. CIT(A), we find no reason to interfere in the finding of ld. CIT(A) and therefore, dismiss ground no. 3 raised by the Revenue.

19. Other grounds are general in nature which need no adjudication.

20. In the result, the appeal filed by the Revenue is dismissed. Kolkata, the 4th January, 2023.

Sd/- Sd/- [Sonjoy Sarma] [Manish Borad] Judicial Member Accountant Member Dated: 04.01.2023 Bidhan (P.S.) Page 15 of 16 I.T.A. No.: 46/Kol/2021 Assessment Year: 2016-17 Shri Bholanath Agarwal. Copy of the order forwarded to:

1. 1. ACIT, Circle2(1), Jalpaiguri.

2. Shri Bholanath Agarwal, Prop. M/s. Agarwal Trading Co., 4th Floor, Rajeswari Apartment, B.S. Road, Ward No. 7, Minakumari Chowpathi, P.O. & Dist. Coochbehar-736 101.

3. CIT(A), Jalpaiguri.

4. CIT- 5. CIT(DR), Kolkata Benches, Kolkata.