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Facts
The appeals by the revenue and cross-objections by the assessee arose from assessment orders for AY 2017-18 and 2018-19. The additions were based on survey proceedings, involving cash books, loose papers, and ledger accounts of third parties. The assessee acted as a commission agent.
Held
The Tribunal held that additions based solely on loose sheets without corroboration, where the assessee's name or transaction details were not recorded in regular books, could not be sustained. The estimation of profit was restricted, and certain additions were deleted.
Key Issues
Whether additions based on uncorroborated loose sheets and unexplained cash credits can be sustained? Whether the CIT(A) was justified in applying peak theory and telescoping benefits?
Sections Cited
143(3), 68, 115BBE, 133A, 245(D)(4)
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Income Tax Appellate Tribunal, “A” BENCH, CHANDIGARH
Before: HON’BLE SHRI RAJPAL YADAV & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
सुनवाईकीतारीख/Date of Hearing : 12-03-2025 घोषणाकीतारीख /Date of Pronouncement : 02-06-2025 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1.1 The revenue is in further appeal before us for Assessment Years (AY) 2017-18 & 2018-19 whereas the assessee has filed cross- objections against the same. These appeals were heard along with similar appeals for AYs 2014-15 to 2016-17 which has separately been disposed-off by us. The substantial issues are identical. First, we take up revenue’s appeal and assessee’s cross-objections for AY 2017-18 which arises out of an order passed by learned Commissioner of Income Tax (Appeals)-5, Ludhiana on 29-03-2024 in the matter of an assessment framed by Ld. AO u/s 143(3) of the Act on 28-12-2019. 1.2 The grounds as raised by the revenue read as under:- 1. Whether upon facts and circumstances of the case and in law, the Ld. CIT(A) was justified to treat unaccounted receipts as business transactions by ignoring of the facts that the assessee failed to provide name, PAN, address of the parties alongwith nature of transactions of unaccounted receipts? 2. Whether upon facts and circumstances of the case and in law, the Ld. CIT(A) was justified in applying GP rate of 6% on unaccounted receipts of Rs.2,04,57,170/- by treating the same as business transaction as the assessee failed to meet the requirement of section 68 of the Act.? 3. Whether upon the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in applying GP rate of 6% and hereby allowing benefit of unverifiable purchases and in contradiction to the decision Hon'ble High Court of Madras in the case of SVS Oil Mills vs ACIT in of 2015? 4. Whether upon the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in holding that in the assessment order any other document indicating the unexplained receipts are business income of assessee ignoring the decision of Hon'ble Punjab & Haryana High Court in the case of Khushi Ram & Sons, of 2015 wherein Hon'ble High Court has held that there is no presumption that absent anything else an amount surrendered by assessee is his business income and it is for the assessee to establish the source of income?
5. Whether upon the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in applying the peak theory on cash loans given to M/s Triveni Rice Mills during the year under consideration as the assessee failed to substantiate the receipts from M/s Triveni Rice Mills were actually used to male further advances to M/s Triveni Rice Mills.
Whether upon the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in allowing benefit of telescoping of Rs.12,27,430/- as investment in advancing loans to M/s Triveni Rice Mills in the absence of any evidence regarding the same? 7. Whether upon the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition made on account of opening balance shown in the incriminating documents in the name of M/s Triveni Rice Mills as the assessee has failed to bifurcate / identifying the year to which the amount of opening balance pertains and hence, the addition should be made in the current Assessment Year? 8. Whether upon the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition made by the AO on account of non-disclosure of interest income received from M/s Triveni Rice Mills & M.s Triveni Rice Industry as the assessee as followed the mercantile system of accounting? 1.3 The assessee, in its cross-objection, has raised following grounds: - 1. a) That the CIT(A) has erred in sustaining the addition of Rs.12,27,430/- by applying gross profit @ 6% on the alleged unaccounted receipts as per the seizeddocuments. b) Notwithstanding the above said grounds of appeal, the submission on gross profit rate of 6% on the said alleged unaccounted receipt is very much of the higher side, since the Kacha Aartiya, percentage of commission is 2.5% only, as per notification of Punjab State Agricultural Marketing Board and, thus estimation of G.P. 6% is very much on the higher side. 2. a) That the Ld. CIT(A) has erred in sustaining the net addition of Rs.86,04,687/- on account of peak credit calculation as per Page 63, Para (xvi) of the order of the Ld. CIT(A). b) That the Ld. CIT(A) has erred in applying the provision of Section 115BBE on the addition as sustained to the tune of Rs.86,04,687/- and which addition has been made against the facts and circumstances of the case. 1.4 As is evident, the impugned addition stem from survey proceedings on the assessee. Having heard rival submissions and upon perusal of case records, our adjudication would be as under. Proceedings before lower authorities 2.1 The assessee being resident individual has acted as commission agent (Kacha ahrtiya) in his proprietorship concerns. The assessee’s business premise was subjected to survey u/s 133A on 07-12-2017 which led to impugned assessment on the assessee. In this year,the additions have been made on the basis of three volumes of cash books and loose papers which contain all transactions of assessee’s business either through cheque or in cash. Upon analysis of these cash books, it was found that the assessee introduced cash by way of 105 entries for Rs.322.16 Lacs. Further, upon perusal of loose sheets, it was alleged by Ld. AO that the assessee granted fresh loans to M/s Triveni Rice Mills for Rs.237.32 Lacs. The opening loan was shown for Rs.139 Lacs. All the three items aggregated to Rs.698.48 Lacs which was added as unexplained cash credit u/s 68 r.w.s. 115BBE. The assessee allegedly received interest of Rs.15.68 Lacs from M/s Triveni Rice Mills which was also added as undisclosed income of the assessee. Similar interest of Rs.77.25 Lacs was alleged to be received from M/s Triveni Rice industry which was also added as undisclosed interest income. 2.2 Upon further appeal, Ld. CIT(A) noted that the correct receipts were Rs.204.57 Lacs as against Rs.322.16 Lacs as wrongly noted by Ld. AO. Considering the nature of entries as noted in the cash books, Ld. CIT(A) estimated profit of 6% on receipts of Rs.204.57 Lacs and restricted impugned additions to Rs.12.27 Lacs. 2.3 The addition of Rs.376.32 Lacs was made against alleged loan given by the assessee to M/s Triveni Rice Mills. The same was on the basis of loose sheets Pages 8 & 9 of documents A-19 which contained a ledger account of M/s Triveni Rice Mills in the books of an entity by the name ‘Company’. The assessee contended that the addition was merely on the basis of unsubstantiated and uncorroborated ledger account in the books of an entity ‘Company’. It was stated that the impugned ledger was a computer-generated ledger of some entity by the name ‘company’ whereas the assessee had no correlation with the entity ‘company’ and the said entity ‘company’ did not belong to it. There was no mention of the name of the assessee on this document. The assessee also contended that the provisions of Sec.68 could not be invoked since the said amount was neither receipt nor it was found recorded in the regular books of accounts of the assessee. Alternatively, the assessee sought exclusion of opening balance and pleaded for application of peak theory since there was debit and credit entries in the said ledger. The assessee also sought telescoping benefit of business income. 2.4 The Ld. CIT(A) partly accepted these submissions and observed that one of the proprietorship concerns of the assessee was ‘Lalit & Company’. If this document was logically interpreted, the ‘company’ as mentioned in the ledger would mean ‘Lalit & Company’. However, the addition of opening balance of Rs.139 Lacs could not be made in this year. There was regular receipts and payments in cash and in such a situation, it would be appropriate to compute peak amount of investment which worked out to be Rs.98.32 Lacs. Against the same, telescoping benefit of business income of Rs.12.27 Lacs was granted and the addition thus sustained by Ld. CIT(A) amounted to Rs.86.04 Lacs. Aggrieved, the assessee as well as revenue is in further appeal before us.
2.5 The interest income as added by Ld. AO was deleted considering the settlement order u/s 245(D)(4) in the case of M/s Triveni Rice Mills wherein a finding was rendered by Hon’ble Interim Board of settlement that interest was calculated on notional basis by the software. Aggrieved, the revenue is in further appeal before us. Our findings and Adjudication 3. So far as the estimation of business income on receipts of Rs.204.57 Lacs is concerned, we find that similar issue arose in AYs 2014-15 to 2016-17 wherein the bench has estimated profit rate of 3% on these receipts. Facts being pari-materia the same, we restrict the impugned addition to the extent of 3% of receipts of Rs.204.57 Lacs. The Ld. AO is directed to re-compute the same. The grounds raised by the revenue stand dismissed whereas the corresponding grounds raised in assessee’s cross-objection stand partly allowed.
4. So far as the addition of loan allegedly granted to M/s Triveni Rice Mills is concerned, we find that the same has merely been made on the basis of loose sheets without any corroboration thereof. These loose sheets do not bear the name of the assessee or his associated concerns. The loose sheets contain the ledger of M/s Triveni Rice Mills in the books of ‘Company’. The Trial balance of this entity by the name ‘Company’ was also found. However, none of the entry as contained therein has been found matching with the regular books as maintained by the assessee. There is no corroboration of any of the entry by way of third-party investigation. The name of the assessee or his concerns is nowhere been mentioned on these loose sheets. It is trite law that no addition could be made on the basis of mere presumptions, assumptions or surmises. Pertinently, as per the findings of Ld. AO, the cash books as found during survey contained all the business transactions of the assessee whether in cheque or in cash and none of the entries as found noted in the loose sheet has been found recorded in the said cash books. Therefore, this addition could not have been made in the hands of the assessee. Another aspect of the issue is that the assessee has allegedly granted loan to the other party and it is not a case of unexplained cash credit in the regular books of the assessee. On these facts, the provisions of Sec.68 would have no application and no addition could be made in the hands of the assessee by invoking these provisions. For all these reasons, no addition of principle amount or interest amount as allegedly received by the assessee could have been made in the hands of the assessee. In other words, the addition of Rs.86.04 Lacs as sustained in the impugned order stand deleted. The addition of interest income has rightly been deleted. The grounds stand disposed-off accordingly.
The revenue’s appeal stands dismissed. The assessee’s cross- objections stand partly allowed. Assessment Year 2018-19 6. It is admitted position that facts in this year are quite identical. The Ld. AO, on the basis of cash books Annexure A-12 to A-14, made addition of cash receipts for Rs.429.44 Lacs. The interest income as allegedly received from M/s Triveni Rice Mills for Rs.15.68 Lacs was brought to tax. Another interest income of Rs.1.59 Lacs as alleged to be received from 4 parties was separately added. The Ld. AO made another addition of Rs.19.76 Lacs as undisclosed sales on the basis of Pages 41-46 of Annexure A-19. The last addition of Rs.409.76 Lacs was made on the basis of Trial Balance of the entity ‘Company’.
Upon further appeal, Ld. CIT(A) estimated income of 6% on receipts of Rs.429.44 Lacs and restricted the additions to the extent of Rs.25.76 Lacs. The interest income of Rs.15.68 Lacs was deleted considering the order of Hon’ble Interim Board of Settlement. On the addition of interest income of Rs.1.59 Lacs stated to be received from 4 parties, the assessee contended that these entries did not pertain to the assessee and further these entries did not pertain to this year. There was no mention of assessee’s name on the rough workings. However, Ld. CIT(A) confirmed the same. On the issue of undisclosed sales of Rs.19.76 Lacs, Ld. CIT(A) applied profit rate of 6% and estimated additions of Rs.1.18 Lacs. On the issue of addition of Rs.409.76 Lacs, Ld. CIT(A) estimated peak addition of Rs.64.32 Lacs. A further benefit of Rs.56.70 Lacs was given for cash received from M/s Triveni Rice Mills. On the balance Rs.7.62 Lacs, telescoping benefit was granted. Aggrieved, the revenue as well as the assessee is in further appeal before us.
Facts being pari-materia the same as in AY 2017-18, we estimate profit rate of 3% on receipts of Rs.429.44 Lacs and on undisclosed sales of Rs.19.76 Lacs. The interest income of Rs.15.68 Lacs, Rs.1.59 Lacs and Rs.409.76 Lacs stand deleted since all these additions have been made merely on the basis of loose sheets which were to be considered as dumb documents only. The name of the assessee was nowhere mentioned in these loose sheets. None of the entries as contained therein has been found recorded either in seized cash books or in regular books of accounts of the assessee. This being so, the impugned additions could not be sustained in law. In the result, the appeal of the revenue stand dismissed. The cross-objection of the assessee stand partly allowed. Conclusion 9. The twin appeals as filed by the revenue stand dismissed. Both the cross-objection as filed by the assessee stand partly allowed.A copy of this common order may be placed in respective case files. Order pronounced on 02-06-2025.