M/S DHANUSH GENERAL STORES, NAWAGARH vs. THE COMMISSIONER OF INCOME TAX, RAIPUR

The AO heldasi under: ^ : I "These: credits are appearing in the baoks of accounts for which no . description as regard to from whom money on accounfof credns havebeen . received also there is no mention inffiie /edgemsga/dfrig thesetfansactions.The practice followed bytheassessee isthat the assessee used to issue receipts in token of having the received the amdunt and make the entries in the register: captionecS as Daily Wage from 01.04.1997 to 31,3,1998. TTie enfrVes relatihg to the abave credits are not reflected in this register nor any receipts have been issued. During the course of assessment prQceedings, the assessee was required to explain the pos/fein, np explanation has been put-forth. /n tfi/s - view of the matter,yide this office letter ; . No. ITOM/d-3/BHI/D-308/98-99/837 , dated ^12.01.2001, the assessee was confro'nted that an' amount of ~ Rs.1,94,088/- has been proposed to 6e ' assessed as income of the assessee u/S 69 ofthe Income TaxAct, 1961. Further,, : : scrutiny af register for credit sales on^ 5.4.97 showedtotal receipts pf • Rs.2,700/- vide cash receipt no. 905 & 906 issued by thefinn, However, iri ffie cash book dated S.4.97, an amount of Rs.3,700/- has be6n credited towards rSceiptfrQm credit sales. The assessee was, therehire, required to show cause ' wftyRs,'?,OOQ4-s/)ou/dnofibeacteteGfto; ' it's total income. For this purpose, case \ wasfwed forfinal hean'ng on 18.1.2001 .. ..' at 1S3Q hours sharp. fhe above said letter was duly served 6n the assessee . on 17.1.2001. However.onthe datecsf hearing i.e: 18.1.2001, none affenctec/ norsnyapplication seeking adjoumment has been received till the date of passing ofthe Assessment Order. From ' the discussion made above, itissrystal clearthat the assessee has intrbduced , the cash of Rs.1,94,088/- and since no satisfactory explangtion is offered, a : ' sum of Rs.1,75,OS8/-is being added to the total income of the assessee. For cancealment of income, : penalty pmceedings u/s ' 271 fl) fo) are separately mitiated" '

Thereagainst, an appeal was preferred before the Cpmmissioner, Income Tax Appe'als. The Commissioner vide OFder dated 24-5-2001 (Annexure - P/7) deleted the addition of Rs.88,918/-. The relevant portion ofthesaid order reads as under: "THe total effect of enhancement of expenditure under the above heads was the reduction af net profit by Rs.34500/-. .11 appears that in the . absence of reflection ofthe entire value ofthe excess stock found during Survey intheincomeretumedby the assessee, ' the AO was undep the impression the value of excess stqck found during SLiweyi-has^ not been added and shown in\ the retum of income filed by the assessee. But the fact remains that the value of the excess stock found during suryey has been dulycredited to trading a/b with the resultthat the percentage of' NP before depreciation and salary & ' (nterest to partners increased from 3.077% in the lastyearto 4.30%forthe ' year under anneal. Since the assessee ll9S alreadyjncludedihe ewessstockin his account there is no question of making another addition of the'jdentical amauht to the income retumed by the assessee. Accordihgly, the additioh of Rs.88918/-madebytheAOi eleted."

Thereagainst, an appeal was preferred by the assessee before the ITAT on the following grpunds : °0n ffiie facts and circumstances of the case, the Id, CIT (A) was not justifiedin: '. 1, Deleting the additipn of Rs.88,900/- made by the A.Q. on account ofexcess stockfound durihgsurvey.

Restoring back the issue -, . •.' - , • ,- • -loffie file.of the A.G. to decide afresh the matter of . • addition of Rs.175088/- made by the A.O. as unexplained loan ori account of "Udhari Khate KaJama".

It is crystal clear that the assessee had shown the surrendered income iri the trading account or profit and loss account, but not in the computation of income. Thus, it cannpt be held ^s business income, asifthe incomewas treated as business incomethat must find place in the computation ofincome, which has not been dpne inthecase. 1,::.:. ' '', ''.,'' 1:::, , ' 1' 1 •.':. ':1!:\' ; 1

The ITAT has rightly eome to the conclusion that pn survey the excess stock valued at Rs.89,QOO/- was found, which was not shown in the computafion of income. Thus, the assessee had not deposited ttie income tax on the real income by showing in the trading account or profit and loss account. The assessee cannot claim that this be tpeated as income. Thus, the substantial question of law(ii)is answeredaccordingly. ;

With regard fo substantial question of law (i) & (iii), it is necessary to quote relevant provisions i.e. Sections 69 &69B oftheAct, 1961 which read as urider:

Where in the financial year immediately preceding the assessment - year the assessee has mgcte investments which are not recorded in . , theboQksof.account,if^any,mainfained by hirh for any source of income, aricS ~

15. 16. the assessee offers no explanation about ," e nature and- source of the investments or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactary, the value of the investments may be deemed to be the inconie of fhe^ assessee of such financial year. " 69B. Where in any financiaS r • year fhe assessee has made . investments or is found to be the awner ' of any bullion, jewellery, or offier valuable article, and the Assessing . Qfficer finds that the amount expended ori making sucti investments or in acquinng such bulliqhjewellery or otHer valuable arficle exceecfe the amount recorded in this behalf in the books of account mainfained by the assesseefor ariy source of income, and the assessee offers no explanatian about such excess. amount Qrthe explanation offered by : • him is not, in the opinion of the AsSessing Qfficer, satisfactory, ffie pxcess amount may be deemed to be . the income of the assessee for such :financialyear." • , • . ! If there is undisGlosed investmenf in bullion, jewellery or other yaluable articles, which are not fully disclosed in the bobks of account, the caSewould fall under ambit ofsection 69-B oftheAct, 1961. In the case on hand, therewasexceSsstock,whichcanbe held as unexplained investment, not investment in bullion.jewellery or othervaluable articles, Inthe entire survey, itwas notfound that any bullion, jewellery 6r other yaluable artiGles has been found. The torana ariiicles can not be held as other valuable articles: 'Va/uabte art/cte' means an article which is valuable and having a high price; not other ordinary articles, as in the instaht case. The surrendered inGome ought to have been treated as deemed income under ithe provisions of Section 69 of the Act, 1961, however, on the wrong provision applied in the assessment order though the effect is one and the same, the surrendered incame cannot be held that it was not an income under the provisions •' '^.\r';''-.;:'''''':

Reliance of the learned Counset appearing for the assessee uppn the decision of the High Courtof Madhya Pradesh ih Comm/ss/oner of Income Tax v. Hindustan Mills & Electtical Stores^ is na\. applicable to the facts bf the present case, as in the case of Wfncfusten Mffls & Efeotoca/ Stores (supra),the ITO adopted pie^^ '?and choose methodiinapplyingthe gross profit rate on salefbrtwo varying periods. Other decisiQns cited by the assessee are also not applicable tothefact&oflhepresentease. ,18. ,ln respect of qyestion No. (ii),since the income surrendered was shown in the trading account fcut not in computation pf incpme for • the purpose ofitaxaitibn, it cannot beheld that th& pbsen/ation of ITAT that the amount should nat betreated as business incQme is unsustainabl®.Thus, the question No. (ii) is answered affirmatively.

The finding of) the! AO as afbrestated, was eonfirmed by the Commissioner,CIT(A)aswel]asthelTAT.

In the result, the appeal 1ails and is accordingly dismissed, No ^''...orderastocosts.1.1'- :.' ;1.';1 . :;:.',1:'- , ; .'l.::'<'::;--',: •'..,,'' '1 Satish K. Agnihotri Judge R.S. Sharma Judge GOV.n-