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Income Tax Appellate Tribunal, JAIPUR BENCHES,”A” JAIPUR
Before: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM
vkns'k@ ORDER PER: SHRI VIKRAM SINGH YADAV, A.M.
This is an appeal filed by the Revenue against the order of the ld. CIT(A), Kota dated 01.03.2017 for the assessment year 2012-13 and the Cross Objection by the assessee wherein the respective grounds of appeal are as under:- (Revenue’s Grounds of appeal):
1. On the facts and in the circumstances of the case, the ld. CIT(A), Kota has erred in:- (i) not upholding the rejection of books of account u/s 145(3) without appreciating the defects pointed out by the AO in the assessment order; (ii) deleting the trading addition of Rs. 8,48,795/- without appreciating the facts mentioned by the AO in the assessment order for estimation of gross profit; (iii) deleting the addition of Rs. 1,76,330/- made on account of excess agriculture income; (iv) deleting the addition of Rs. 94,53,800/- made u/s 68 on account of unexplained cash deposits;”
CO No. 35/JP/2017 (Assessee’s Grounds of appeal
):
1. The impugned order u/s 143(3) dated 31.03.2015 is bad in law and on facts of the case, for want of jurisdiction and various other reasons and hence the same may kindly be quashed.
2. Rs. 13,55,000/-: The ld. CIT(A) has grossly erred in law as well as on the facts of the case in sustain the addition of Rs. 13,55,000/- on account of cash deposit in Axis Bank, Kota. Hence the addition so made by the AO and partly confirmed by the ld. CIT(A) is being totally contrary to the provisions of law and facts on the record and hence the addition may kindly be deleted in full.
The ld. AO erred in law as well as on the facts of the case in charging of interest u/s 234B, 234C & 234D as consequential in nature. The appellant totally denies it liability of charging of any such interest. Hence the interest so charged, being contrary to the provisions of law and facts, may kindly be deleted in full.”
Briefly the facts of the case are that the assessee is a sole proprietor of M/s Raj Shree Goods Transport Corporation. He filed his return of income declaring business income of Rs. 9,98,716/- which was taken up for scrutiny by the Assessing officer. The books of accounts of the assessee were rejected by the Assessing Officer and net profit @ 5% was determined resulting in a trading addition of Rs. 8,48,795/-. Further, the Assessing Officer has restricted the agricultural income to Rs. 23,59,670/- as against Rs. 25,36,000/- shown by the assessee and has made an addition of Rs. 1,76,330/-. Further, the addition of Rs. 1,08,08,800/- was made on account of unexplained cash deposits in various bank accounts maintained by the assessee U/s 68 of the I.T. Act. Accordingly the assessment was completed at assessed total income of Rs. 1,28,32,640/- as against the returned income of Rs 9,98,716.
3. Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A) who has deleted the trading addition of Rs. 8,48,795/- and addition of Rs. 1,76,330/- on account of excess agriculture income. The addition U/s 68 of the Act was deleted to the extent of Rs. 94,53,800/-and the balance amount of Rs. 13,55,000/- was sustained. Now both the parties are in appeal before us.
In ground nos. 1 & 2 taken by the Revenue, it relates to rejection of books of accounts U/s 145(3) of the Act and the deletion of trading addition by the ld. CIT(A). In this regard, briefly the facts of the case are that during the course of assessment proceedings, the Assessing Officer observed that the assessee has made total payment of Rs. 3,09,85,180/- towards transportation cost as against total transportation receipts of Rs. 3,25,81,686/-. The assessee was asked to file the details of party wise payments made to truck drivers with complete address, PAN and truck no. and also asked to furnish complete vouchers and copy of bilties and copy of contracts made with various companies for necessary verification. However, in response, the assessee merely filed a copy of freight account but no supporting vouchers/bilities were produced for verification. Further on perusal of ledger account, the AO observed that the payment or vehicle no. or cash is written however, no bilty number was written and details of persons to whom the payment was made is not found written and further no vouchers were produced for verification. Further, in respect of various expenses in the nature of conveyance & petrol expenses, Telephone & mobile expenses, interest and audit fees etc,. the assessee was asked to produce complete bills, vouchers along with complete justification of above expenses, whether expenses incurred by you wholly and exclusively for the business purpoes as per Section 37 however, the assessee has failed to produce the vouchers against various expenditure claimed in the Profit and loss account. The Assessing Officer accordingly held that the books of accounts maintained by the assessee are not open for verification and therefore the real profit cannot be ascertained and therefore invoked the provisions of Section 145(3) of the IT Act and thereafter has estimated the net profit @ 5% as against 2.39% declared by the assessee which has resulted in trading addition of Rs. 848,795/- to the returned income.
Being aggrieved the assessee carried the matter in appeal before the ld. CIT(A) who has held that the AO’s reasons for rejection of books of accounts are not justifiable for various reasons. As per the ld. CIT(A), the AO has not doubted the nature of receipt as such in the bank account and enhancing only the GP rate while passing the order, it is clear that he was only dissatisfied with the profit element. Further, the AO has not been able to highlight how the maintenance of record was adversely different from earlier years when the assessee was doing the same business with similar turnover, how could the department not be consistent in not accepting the nature of business per se & the record keeping attached with it. Further, the ld CIT(A) stated that how the AO determined the net profit rate @ 5% as reasonable without citing comparable cases or even without considering the profit shown by the assessee in earlier years wherein the net profit declared by the assessee is highest for the year which makes the estimation look arbitrary and whimsical. It was further held by the ld. CIT(A) that the AO himself not carried out any independent enquiries to ascertain the net profit due on each trip or the veracity of the receipts & payments claimed by the assessee. Further, the entries of cash in the bank have also not been held by the AO as not being from transportation business. Accordingly, the ld. CIT(A) held that the rejection of books of accounts by the AO was unjustified and liable to be rejected and consequent trading addition of Rs. 848,795/- was also directed to be deleted.
During the course of hearing the ld. DR has relied on the findings of the Assessing Officer and submitted that when the books of accounts were not opened for verification as was apparent from the assessment order, the AO was justified in rejection of books of accounts and once the books of accounts are rejected, the only recourse available to the Assessing Officer is to estimate the net profit in the hands of the assessee. He, therefore, supported the findings of the Assessing Officer.
Per contra, the ld AR supported the findings of the ld CIT(A). The ld. AR submitted that the assessee has declared better NP rate on a higher turnover as compared to previous years and our reference was drawn to the following figures of NP rate for last five years:
A.Y. Gross turnover Net profit Net profit rate. 2008-09 2,66,10,975/- 5,41,611/- 2.04% 2009-10 3,33,83,962/- 5,15,331/- 1.54% 2010-11 3,11,52,890/- 2,51,230/- 0.81% 2011-12 3,11,84,575/- 5,57,769/- 1.78% 2012-13 3,25,81,686/- 7,80,289/- 2.39% It was further submitted by the ld AR that the assessee has declared NP rate of 2.39% which is better than the average NP rate of last 5 years which come to 1.71%. It was submitted that the Hon’ble Rajasthan High Court has also held that for estimation of NP rate, past history of the assessee of last 5 years may be taken as a reasonable basis for estimation and in this regard our reference was drawn to the decision of Hon’ble Rajasthan High Court in case of Shri Kishan Kumar Saraiwala vs. CIT (DBIT No. 325 and 338/2011 dated 29.08.2017). It was further submitted that even where the books of accounts are rejected, mere rejection of books of accounts need not necessarily lead to additions to the returned income and in support reliance was placed on the Hon’ble Rajasthan High Court in case of CIT vs. Gotan Lime Khaniz Udyog 256 ITR 243. It was submitted that in such cases, in view of better results declared by the assessee based on assessee’s past history, no trading addition can be made in the hands of the assessee.
We have heard the rival contentions and perused the material available on record. We are of the view that the books of accounts have been rightly rejected by the Assessing officer as the assessee failed to produce the books of accounts for verification and in absence thereof, it is difficult for the Assessing officer to determine whether the trading results so declared by the assessee are true and correct. Regarding estimation of profits, we find that the assessee has declared better net profit rate as compared to earlier years and therefore, even where the books of accounts are rejected, given better results declared by the assessee as compared to average of last five years, the trading addition so made is directed to be deleted. In the result, ground no.1 of the Revenue’s appeal is allowed and the ground no. 2 is dismissed.
In ground no. 3, the Revenue has challenged the deletion of addition of Rs. 1,76,330/- made on account of excess agriculture income shown by the assessee. In this regard, we have gone through the findings of the Assessing Officer as well as ld. CIT(A) and we are in agreement with the findings of the ld. CIT(A) which is reproduced as under:-
“As regards Ground of appeal no, 2, related to enhancement made to the agricultural income, again it is seen that it is not the A.O's case that the agricultural income was not genuine or receipts were unexplained. If the A.O. had any doubts regarding the expenses he would have brought them to fore. However, he went on another track by trying to work out average yielded income per bigha. While the assessee has filed copies of the Khasra Girdwari records of samvat 2068 showing details of crops produced being soyabean on his land (65.50 Bighas) & that taken on hire from others (293 bighas) & showing the produce as wheat, soyabean etc. the A.O. has not carried out any further enquiries to check these documents & details in case he had any doubts. Further, the sale receipts of the Mandi samiti showing sale of crops by the assessee is also enclosed as per the assessee’s letter dated 23.01.2015 but no further enquiry is done by the A.O. on this aspect as well If he doubted the expenses incurred, he should have enhanced the agricultural income. Instead he has reduced the agricultural income, meaning thereby that he was satisfied with the claimed expenses but not the income shown.
How the A.O. estimated the cost on sale proceeds to be less is also not clear since as per the A.O's own working, the rate estimated was Rs. 10,000/- per bigha in the earlier year but he increased it to Rs. 11,500/- per bigha in this year without any basis, whereas as per the assessee's working it comes to Rs. 7074/- per bigha. When the assessee's cost on hired land is much less than the estimation resorted by the A.O., then in order to establish how the cost of agricultural proceeds on self owned land could be double, the Assessing officer should have brought some scientific or practical findings on record, which he failed to do.
By resorting to this entire hypothetical averaging, he has aimed to reduce the agricultural receipts by an amount of Rs. 1, 76,330/ -, which constitutes around 7% of the total agricultural receipts shown by the assessee.
In the entirely of facts, the whole working of the A.O. is found to be neither backed by any enquiries, nor any basis which is sustainable.
The addition by way of reduction in the claim of agricultural income without holding any expenses as false is held to be unjustified and directed to be deleted. This ground of appeal is allowed.”
In the result, ground no. 3 of the Revenue’s appeal is dismissed.
In ground no. 4 the Revenue has challenged the deletion of addition of Rs. 94,53,800/- made U/s 68 on account of unexplained cash deposits and the assessee in his cross objection has raised the sustenance of Rs. 13,55,000/- out of the said cash deposits U/s 68 of the Act.
During the course of assessment proceedings, the Assessing Officer based on the FIR Information observed that there are cash deposit in various bank accounts maintained by the assessee aggregating to Rs. 1,08,08,800/-. Accordingly, a show cause was issued to the assessee in this regard and in response, the assessee submitted that the said cash deposits are arising out of his transportation business and receipt from his agriculture produce. It was submitted that out of total transportation receipt of Rs. 3,25,81,686/-, cash received as freight was deposited into various banks and cash withdrawals were made for payment to truck owners/ drivers during the year. It was further submitted that out of total agriculture receipts of Rs. 58,35,770, receipt of Rs 55,78,970/- was received in cash which was deposited in the bank account. However, the submissions so filed by the assessee was not found acceptable to the Assessing Officer and he made the addition of Rs. 1,08,84,500/- U/s 68 of the Act.
Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A) who after examining the matter at length has given his findings which are reproduced as under:-
“ In this regard, the following points need to be highlighted:- 1) On his part, the A.O. himself accepted the cash freight income of the assessee though he did enhance the N.P. on the same to 5%. Thus very source of that much cash should have been acceptable. 2) On his part, the A.O. had also accepted agricultural income & expenditure and only made a reduction of around 7% in the net receipts. Thus, the availability of cash from such operations was also not questioned to the extent of the remaining 93%. 3) it is not the A.O.’s case that these were receipts outside of business/agriculture, but he disputed the fact of lack of evidences in this regard, when in fact he had himself examined transportation & agriculture related receipts.
He has not commented at all on the bank statements produced in the course of assessment proceedings as seen from the case records though the very basis of the scrutiny was cash deposits in the bank accounts.
It is seen from the assessment record that as per the return filed by the assessee, in the Balance Sheet itself, 10 bank accounts are reflected out of which except for Axis Bank, Kota, all the other banks listed in A.O.’s order, are also appearing.
Thus, substantial information is on record with the A.O. & all he needed to do was to carry out independent enquiries on the bank accounts, which though he initiated, but apparently he did not take to logical conclusion.
4) The ledgers filed with the submissions shows that there are substantial cash entries. On a perusal of the assessee’s letter dated 30/03/2015 also he has clarified deposit to an extent of Rs. 62,43,800/- while not knowing the details of two other bank accounts because these account numbers were wrongly mentioned by the A.O. Thus while an amount of Rs. 55,78,970/- out of agricultural operations was received in cash which remains uncontroverted by the A.O. as well, the balance amount of Rs. 1/6th 55,05,530/- which constitutes of the receipts of transportation needed to be linked to the cash deposited in Bank Accounts.
5) further, out of the transportation receipts, the A.O. has not made out a case that there was cash income outside the books of accounts so the source of the remaining cash remained unexplained. There are numerous deposit and withdrawal entries for cash in different accounts on different dates (precisely of Rs. 2.84 Crores) which far exceed the working down by the A.O. even if the agricultural receipts are not considered.
Thus, the A.O. has given no consideration of the cash withdrawals made during the year out of which the appellant claimed certain amounts being re-deposited in different accounts as per business need. This coupled with the fact that the A.O. has not made out a case that there were excess cash amounts deposited in the bank outside of the transportation receipts shows the addition u/s 68 as vaguely made.
6) The A.O. did get certain Bank statements as seen from the Assessment records, but has not given any finding on them in the assessment order.
The bank statements were also examined in the course of the appellate proceedings & it was observed that in the following bank accounts, the cash deposit receipts are matching from the bank book & ledger accounts:- 1) ICICI Bank Bundi (A/c no. 045405000307) Rs. 25,49,000/- (2) Axis Bank (A/c no. 583010200000790) Rs. 87,800/- 3) IDBI Bank (A/c no. 348104000006095) Rs. 36,07,000/- 4) Canara Bank (A/c no. 3381105000003) Rs. 32,10,000/- As regards the Canara Bank a/c at Sr. no. 4 above, this had not been initially accepted in the course of assessment proceedings by the assessee because of the difference in the account number cited by the A.O. However, he has presented detailed bank book of this account showing recorded transactions as also appearing in the balance sheet & P&L account.
Since the A.O. has not been able to question the receipts of the appellant, nor has he bifurcated the cash deposits as being more than the known receipts after excluding the cheque receipts from various parties with whom the business is conducted, I am not inclined to accept the vague finding arrived at by the A.O. to reach the conclusion that he has arrived at.
However, to be fair, it was also noted in the course of the appellant proceedings that the appellant had not disclosed account with Axis Bank, Kota in his return and he has also not been able to reconcile the cash deposit of Rs. 13,55,000/- in that account even during the appellate proceedings. He has cursorily mentioned in the reply dated 12/01/2017 that the details of such deposits were not traceable at their end.
Thus, it is clear that the assessee has been unable to explain the source of this amount of Rs. 13,55,000/- made in Axis Bank, Kota. This amount is thus treated as unexplained cash deposit u/s 68 and addition to this extent only is liable to be confirmed out of the total addition of Rs. 1,08,08,800/-.
The balance addition of Rs. 94,53,800/- is directed to be deleted. This ground of appeal is partly allowed.”
13. Both the parties were heard and material available on record gone through and we find that similar issue was involved in the earlier assessment year 2011-12 wherein the Coordinate Bench (vide its order in dated 8.11.2017) has similarly deleted the addition made U/s 68 of the Act where the receipt from the transportation business and agriculture produce far exceeds the quantum of deposits in the bank accounts. Following the same and in view of the detail findings of the ld CIT(A), as we have noted above, wherein he has given a specific finding that cash deposit receipts are matching from the bank book & ledger accounts, we find that the source of cash deposit in his bank accounts has been reasonably explained to be out of assessee’s transportation business and agriculture produce. Therefore, we affirm the order of the ld CIT(A) to the extent where he has directed the deletion of addition of Rs 94,53,800 u/s 68 of the Act. In the result, the ground of revenue’s appeal is dismissed
14. Regarding the addition of Rs. 13,55,300/- so sustained by the ld CIT(A) and in respect of which the assessee has filed his cross- objection, the ld. CIT(A) has given a finding that such bank account was not disclosed at the time of filing of the return of income, the assessee has not been able to reconcile the same and explain the source of this amount of Rs. 13,55,000/- made in his Axis Bank account.
During the course of hearing, the ld AR submitted that it is an admitted fact that the income of the assessee is from the transportation business and agriculture produce, and receipts from transportation business and agriculture produce far exceeds the amount deposited in the bank account, therefore, the said cash deposits is out of his transportation business and no addition should be made. It was further submitted that without prejudice, the said cash deposits should be treated as part of the business turnover of the assessee and the addition to the extent of net profit should be sustained.
Heard both the parties and pursued the material available on record. Given the fact that such bank account maintained with the Axis Bank was not reported by the assessee at the time of filing of return of incomeand the fact that the assessee is engaged in the transportation business and in absence of any contrary findings by the lower authorities regarding any other source of income, such cash deposits are treated as undeclared receipts from the assessee’s transportation business and net profit on such undeclared business receipts is directed to be applied. Given that the assessee has declared net profit of 2.39% which has been accepted by us while adjudicating earlier grounds, the same net profit is directed to be applied on such business receipts of Rs 13,55,000. In the result, the assessee’s cross objection is partly allowed.
In the result, both the appeal of the Revenue and the cross- objection of the assessee are partly allowed.
Order pronounced in the open Court on 30/04/2019.