RAJENDRA KUMAR SAHA,BARIPADA vs. PRINCIPAL CIT, CUTTACK

IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK

BEFORE S/SHRI N.S SAINI, ACCOUNTANT MEMBER AND PAVAN KUMAR GADALE, JUDICIAL MEMBER

ITA No. 154/CTK/2018 Assessment Year : 2013-2014

Rajendra Kumar Saha, Ward Vs. ITO, Ward-1, Baripada. No.5, Badabazar, Baripada. PAN/GIR No.AIVPS 8616 B (Appellant) .. ( Respondent)

Assessee by : None (written submission) Revenue by : Shri Piyus Kolhe, CIT DR

Date of Hearing : 27/09/ 2018 Date of Pronouncement : 28/09/ 2018

O R D E R Per N.S.Saini, AM This is an appeal filed by the assessee against the order of

the Pr. Commissioner of Income Tax, Cuttack dated 28.3.2018

for the assessment year 2013-14.

Commissioner of Income Tax, Cuttack was not was not justified in

holding the order passed by the Assessing Officer is erroneous and

prejudicial to the interest of the revenue.

Income Tax, Cuttack observed that on examination of assessment

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records, it is found that the assessee had claimed liability of

Rs.1,98,31,756/- under the head 'unsecured loan' in the Balance

Sheet filed along with the return of income. On further

requirement of details, the assessee furnished a list of 27 loan

creditors. He observed that as seen from the list of parties who

have extended unsecured loan during the year under

consideration, the assessee has received fresh unsecured loans

from the following parties.

Sl. no. Unsecured lenders Rs

1 Raj Dayal Saha 10,00,000 2 Seema Prasad 4,00,000 3 Surekha Saha 2,00,000 4 Kusum Saha 2,40,000 5 Snehalata Saha 2,50,000 6 Jay Prakash Saha 6,00,000 7 Sanjeeb Kumar Saha 8,00,000 Total 34,90,000

The Assessing Officer had requested the assessee to furnish

confirmation letter, PAN Card copy, IT return copy, capital account

of last five years and bank account copy of the loan creditors.

There was no compliance from the assessee. The Assessing Officer

issued notice u/s 133(6) of the Income Tax Act, 1961 to all the 27

parties on 7.8.2015 requesting them to furnish the following

details:

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i) Payment made or received ii) Closing balance (Ledger copy) iii) Bank account copy. iv) Details of transaction with assessee v) PAN vi) Opening balance vii) Transaction during the year.

He observed that out of above, notices to the following parties

were returned unserved with postal remarks ‘not known’ and

‘insufficient address’:

Name & address Opening balance as Balance as on on 1.4.2012 31.3.2013 Babita Behera 4,51,559.35 50,165.20

Nursingha Behera 5,26,819 5,83,525.86

Sushil Kumar Agarwal 2,76,910 2,76,910

He observed that in response to notice u/s.133(6) of the Act, reply

was received only from one party i.e. Sushil Kumar Agarwal, who

denied having any transaction with the assessee. In two more

cases, namely (i) Babita Behera and (ii) Nursingha Behera, letters

issued u/s.133(6) of the Act came back unserved with postal

remarks ‘insufficient address” and ‘not known’, respectively. No

reply was received in respect of the balance 24 loan creditors till

the date of completion of assessment. Therefore, the genuineness

of the claim of liability of Rs.1,98,31,756/- under the head

“unsecured loan” remained unexplained and unverified to the hilt.

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Hence, the unsecured loan during the year of Rs.34,90,000/- was

required to be assessed to tax as income of the assessee for the

year under consideration u/s.68 of the Act.

the opening balance of ‘unsecured loan’ as on 1.4.2012 also

needed to be added u/s.41(1) of the I.T.Act, if such creditors were

found to be bogus after enquiry. Failure to do so by the Assessing

Office, has rendered the assessment order erroneous in so far as

prejudicial to the interest of the revenue.

observed that another error found in the assessment order was

that in the balance sheet, the assessee has claimed liability of

Rs.1,88,71,406/- under the head “sundry creditors”. Ld A.R. of

the assessee submitted during the assessment the details of

sundry creditors as under:

i) M/s. M.P. Rice Mill -121 parties Rs. 85,89,758.15

ii) Garment A/c - 44 parties Rs.1,02,81,647.68

Total; Rs.1,88,71,405.83

units of the assessee, was Rs.1,50,79,561 during the relevant

year. But, sundry creditors of Rs.85,89,758 appearing in its books,

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when compared with its turnover of Rs.1,50,79,561-, appeared

very high. The Assessing Officer called for details of sundry

creditors with account confirmation of parties having balance

above Rs.10,000 by notice dated 22/05/2015 and again vide the

order sheet entry dated 15/07/2015, only a list of sundry creditors

was furnished but no confirmation letter from any of the creditors

was furnished in spite of repeated queries by the Assessing

Officer. Therefore, the Assessing Officer issued notices u/s 133(6)

of the IT Act directly to the sundry creditors. But he was

hampered because in majority of the cases addresses of the

creditors were not mentioned. Reply to notices u/s.133(6) has

not been received in a majority of cases. Notice to the following

parties were returned unserved with the postal remarks ‘not

known’ and ‘insufficient address’:

Sr. Name Amount Remarks No. 1. Hadibandhu Behera 38,334

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He observed that the assessee was not confronted with these

deficiencies/adverse evidences available on record. The Assessing

Officer has passed a routine assessment order after glossing over

the adverse evidence and without making further enquiry and

verification, which the circumstances of the case so demanded.

So the nature and source of sundry creditors of Rs 1,88,71,405/-

remained unexplained and should have been charged to income

tax as income of the assessee for the assessment year concerned

u/s 68 of the Act. He further observed that the corresponding

purchases similar to the amount of bogus sundry creditors, should

also have been disallowed at the time of computing profit from the

assessee's rice mill business. Failure to do so on the part of the

Assessing Officer has rendered the assessment order erroneous in

so far as prejudicial to the interest of revenue. Therefore, he set

aside the order of the Assessing Officer passed u/s.143(3) of the

Act dt.8.3.2016 and restored the matter back to the file of the

Assessing Officer with the following directions.

i) The AO would provide another opportunity u/s.133(6) to the remaining unsecured loan creditors for compliance, calling for details such as confirmation letter, Aadhar card, PAN card copies, IT returns for last three years, statement of income for last three years, capital account copy for the last 05 years, bank statement for the entire year.

ii. The AO would provide another opportunity u/s 133(6) to the remaining "sundry creditors" for

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compliance, calling for details such as confirmation letter, Aadhar card, PAN card copies, ledger account copies etc.

iii. Examine them for their creditworthiness and the genuineness of the transactions in respect of the loan creditors by issuing them summons u/s 131 of the Act, wherever doubt arise after their response to the requisition u/s 133(6),

iv. Decide on the chargeability of the above sum Rs3,87,03,162 representing unexplained cash credit in the form of unsecured loans and sundry creditors, to income tax as the income in addition to the returned income of the assessee for the assessment year concerned u/s 68 or 41(1) of the IT Act.

Needless to say, while reframing the assessment order, the AO would confront the assessee with adverse evidence collected if any against him and provide adequate opportunity to the assessee to rebut the same.

The Assessing Officer is directed to pass the fresh assessment order latest by 31/12/2018, as mandated u/s 153(3) of the Act.”

submission, wherein, it has been stated that the books of account

of the assessee were rejected by the Assessing Officer invoking

the provisions of section 145(3) of the Act and, thereafter the

Assessing Officer estimated the income of the assessee by

applying net profit rate of 5% and assessed the income of the

assessee at Rs.24,70,990/- in place of returned income of

Rs.14,13,390/-. He submitted that when the income of the

assessee was estimated by applying net profit rate and,

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thereafter, the Assessing Officer relying on the same books of

account could not have made addition u/s.68 of the Act to the

income of the assessee.

Income Tax, Cuttack.

authorities and written submission filed by ld A.R. of the assessee.

In the instant case the Pr. Commissioner of Income Tax, Cuttack

observed that the assessee had claimed liability of

Rs.1,98,31,756/- under the head 'unsecured loan' in the Balance

Sheet filed along with the return of income. Since notices

u/s.133(6) of the Act were either returned unserved or no reply

was received from the loan creditors, therefore, the Assessing

Officer should have assessed Rs.1,63,41,756/- as income

u/s.41(1) of the Act after reducing the opening balance of

Rs.34,90,000/-. Further, he observed that the assessee had

sundry creditors of Rs.85,89,758.15 from M.P.Rice Mills and

Rs.1,02,81,647.68 from Garment account aggregating to

Rs.1,88,71,405.83. The Assessing Officer called for details of

creditors having balance of Rs.10,000/- but no confirmation

letters of the creditors were furnished by the assessee.

Thereafter, the Assessing Officer issued notice u/s.133(6) of the

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Act to the creditors directly and in majority of cases, notices were

returned back unserved with the postal remarks “not known” or

“insufficient addresses”. These were not confronted to the

assessee and the Assessing Officer passed the order in a routine

manner without making further inquiry and verification. Hence,

the nature and source of sundry creditors of Rs.1,88,71,405/-

remained unexplained, which have been charged to tax u/s.68 of

the Act. He held that therefore, the order of the Assessing Officer

was erroneous and prejudicial to the interest of the revenue and

set aside the same by passing the impugned order u/s.263 of the

Act.

the books of account of the assessee were rejected by the

Assessing Officer and income was determined by applying net

profit rate of 5% on gross receipts from the business of Rice Mill

of Rs.1,50,79,561/- at Rs.7,53,978/-. Similarly, the net profit

rate of 3.5% was applied on the gross receipts of

Rs.4,39,80,709/- on garment business and the income was

determined at Rs.15,39,325/-. Similarly, the net profit rate of 8%

was applied on the gross receipts from truck and H&T contract of

Rs.9,98,650/- and the income was estimated at Rs.79,892/-. In

this manner, the total income of the assessee was assessed at

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Rs.25,17,321/- after adding on account of discount shown at

Rs.1,02,625/- and income from interest of Rs.32,835/-.

books of account are rejected, then no other addition can be made

u/s.68 of the Act by relying on the very same books of account for

which he relied on the decision of Hon’ble Rajasthan high Court in

the case of CIT vs. J.K.Contractor, 19 DTR 305 (Raj) as well as

the decision of Hon’ble Allahabad High Court in the case of Devi

Prasad Vishwanath Prasad vs Commissioner Of Income-

Tax, 50 ITR 641 (All) and Hon’ble A.P. High Court in the

case of Indwell Constructions vs Commissioner Of Income-Tax, 232

ITR 776 (AP).

J.K.Contractor(supra) has held as under:

“The Assessing Officer having estimated the profit by applying a higher profit rate on total contract receipts after rejection of the books of account invoking the provisions under section 145(3), no separate additions can be made on account of unexplained cash credit under section 68 of the Act of 1961 even though the assessee has failed to discharge the onus of proof in explaining the amount shown in the books as market outstanding”. 13. Thus, we find that the order of the Assessing Officer is in

conformity with the order of the Hon’ble Rajasthan High Court

quoted above. Hence, we hold that Pr. Commissioner of Income

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Tax, Cuttack was not justified, in the given facts and

circumstances of the case, to set aside the order of the Assessing

Officer and remand the matter back to his file for denovo

assessment. Hence, we set aside the order of the ld Pr.

Commissioner of Income Tax and allow the grounds of appeal of

the assessee.

Order pronounced on 28/09/2018. Sd/- sd/- (Pavan Kumar Gadale) (N.S Saini) JUDICIALMEMBER ACCOUNTANT MEMBER Cuttack; Dated 28/09/2018 B.K.Parida, SPS Copy of the Order forwarded to : 1. The Appellant : Rajen dra Kumar Saha, Bripad 2. The Respondent. ITO, Ward-1, baripada 3. The CIT(A)- 4. Pr.CIT- Cuttack 5. DR, ITAT, Cuttack 6. Guard file. //True Copy// By order

Sr. Pvt. Secretary, ITAT, Cuttack

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