SMT. KOMAL ARORA,NOIDA vs. ACIT, NEW DELHI

[A]. This appeal has been filed by the assessee against the impugned appellate order dated 31.01.2015 passed by Learned Commissioner of Income Tax (Appeals)-11, New Delhi [in short, “Ld.CIT(A)”] pertaining to Assessment Year 2009-10. The Assessee has raised following grounds of appeal:-

1. That the evidences furnished by the assessee apropos the sources of the funds to the tune of Rs. 60,38,000/-, ought to had been considered by the ld. CIT(A) and made the basis of the appellant order.

2. That the ld. CIT(A) had erred in arbitrary rejecting the evidences furnished by the assessee on the ground that the notice u/s 13(6) issued to M/s Mahindra Enterprises had returned undelivered, thereby overlooking the facts that (i) the assessee had subsequently paid the purchase consideration tot it through banking Page 1 of 15

ITA No.- 2402/Del/2015. Komal Arora vs. ACIT channel; and (ii) the postal authorities remark was “addressee moved” and not that “no such party at this address”.

3. That on the facts of the case and under the law, the ld. CIT(A) had erred in disbelieving the explanation regarding sources of the funds to the tune of Rs. 60,38,000/-.

4. That on the facts of the case and under the law, the ld. CIT(A) had erred in upholding the addition of Rs. 60,38,000/-, as arbitrarily made by the ld. A.O.”

[B]. Vide Assessment Order dated 20.12.2011 passed u/s 143(3) of the Income Tax Act, 1961 (in short “the Act”), income of the assessee was determined at Rs. 82,02,460/- (rounded off). In this Assessment Order, an amount of Rs. 60,38,000/- (deposited by the assessee in his bank account in Corporation Bank) was added to the assessee’s returned income. The relevant portion of the Assessment Order is reproduced as under:-

The return of income for the assessment year 2009-10 was filed on 31.7.2009 declaring an income of Rs.21,64,456/- which was processed under section 143(1) on returned income. The case was selected for scrutiny under Cass as per guidelines/procedure for selection of cases for scrutiny.

2. Accordingly notice under section 143(2) was issued by ITO Ward 24(4), New Delhi on 20.8.2010 and served upon the assessee fixing for hearing on 10.9.2010. Thereafter case was transferred to this circle and my predecessor issued notices u/s 143(2) and 142(1) on 10.6.2011 calling foi'ijiformation on AIR and sources of income. Thereafter, after taking over the charge of this circle, the undersigned issued notices u/s 142(1) on & on 20.10.2011 which was complied with. Shri Anoop Kumar Jairath, CA appeared on behalf of the assessee and the information called for has been filed and the same was verified and placed on records.

ITA No.- 2402/Del/2015. Komal Arora vs. ACIT 4. The assessee was asked to file details of AIR information and in response to the same the assessee’s counsel filed a reply on behalf of the assessee which is reproduced as under:

“Please refer to the AIR information provided by you of the Assessee. As per AIR assessee has deposited Rs.55,38,000/- in his saving a/c with Corporatation Bank No. 009676, ABN Amro Bank A/c No.1281665, ABN Amro Bank A/c No.1337535 and HDFC Bank A/c No.06511600000712. Assessee hereby admit that the amount mentioned above was undisclosed sale proceeds earned by the assessee during the course of its Business Activity. Assessee also admit that the investment in Birla Sun Life Mutual Fund for Rs. 5,00,000/- was also made out of the sale proceeds. Assessee was also engaged in the business of trading of cloths. Assessee sold the cloths to the various petty street vendors. Copies of some sale and purchase bills along bank statements are enclosed for your reference. Assessee also admits that he has earned approx. 4% to 5% profit on the sale. Assessee suomoto offer the said percentage of profit on for the taxable by the department.

5. The assessee has accepted that he was doing cloth selling business which was never disclosed in the return of Income. The amount of investment in the purchase of cloth has not been explained instead the amount earned out of sale of the cloth stated to have been deposited in the banks and in Birla Sun Life Mutual Fund. From the above facts it is established that the entire amount of deposit in the bank and mutual fund was his income from undisclosed sources. The assessee in his letter filed on through his counsel, has stated that he admits that he has earned approx., 4% to 5% profit on the sale. Assessee suomoto offer the said percentage of profit on sale for the taxable by the department. When confronted to explain the investment made in the purchase of cloth and the source of deposit in the banks and Birla Sun Life Mutual Fund amounting to Rs.55,38,000/- and Rs.5,00,000/- respectively, the counsel for the assessee could not explain any thing else except whatever stated in his letter.

6. In view of the above, it is held that the assessee was doing the business of sale of cloths to the petty vendors and the source of deposit/investment in the Bank/Mutual Fund and purchase of cloths has also not explained. The assessee vide his letter has himself accepted that the amount deposited in the Banks is out of undisclosed sale proceeds of cloth, and the deposit in Mutual Funds amounting to Rs.5,00,000/- is also from the sale proceeds of undisclosed cloth activities. The assessee could not explain the investment in purchase of cloth for sale and stated that sale proceeds have been deposited in the bank/mutual fund which is not acceptable. Hence the entire amount of ITA No.- 2402/Del/2015. Komal Arora vs. ACIT Rs.55,38,000/- + Rs.5,00,000/- totaling Rs.60,38,000/- is considered assessee’s own income from undisclosed sources and the same is added in the income of the assessee as income from undisclosed sources. I am satisfied that assessee has concealed the taxable income by furnishing inaccurate particulars of his income, penalty proceedings under section 271(l)(c) are initiated separately.

[D] Aggrieved by the Assessment Order, the Assessee preferred appeal before the Ld. CIT(A). Vide aforesaid impugned appellate order dated 30.01.2015, the Ld. CIT(A) dismissed the assessee’s appeal. The relevant portion of the order of the Ld. CIT(A) is reproduced as under:-

“2. The return declared income of Rs.21,64,456/- was filed on 31.7.2009 which was processed u/s 143(1) and later selected for scrutiny under CASS. Accordingly AO issued statutory notices u/s 143(2) and 142(1) of the Act. Assessee was engaged in the consultancy business and apart from this income from salary and income from other sources was also disclosed by the assessee during the year under consideration.

2.1.1 During the course of assessment proceedings, AO asked the assessee to explain the information as per AIR, which was supplied to him, relating to cash deposit of Rs.55,38,000/- in the savings bank accounts maintained with Corporation Bank (A/c No. 009676), ABN Amro Bank (A/c No. 1281665 and A/c No. 1337535), and HDFC Bank (A/c No.06511600000712) and investments in mutual funds of Rs.5,00,000/-. In response AR of the assessee filed following replies before the assessing officer: "Please refer to the AIR information provided by you of the assessee. As per AIR assessee has deposited Rs.55,38,000/- in his saving a/c with Corporation Bank No. 009676, ABN Amro Bank A/c No.1281665, ABN Amro Bank A/c No. 1337535 and HDFC Bank A/c No. 06511600000712. Assessee hereby admit that the amount mentioned above was undisclosed sale proceeds earned by the assessee during the course of its Business Activity. Assessee also ITA No.- 2402/Del/2015. Komal Arora vs. ACIT admit that the investment in Birla Sun Life Mutual Fund for Rs.5,00,000/- was also made out of the sale proceeds. Assessee was also engaged in the business of trading of cloths. Assessee sold the cloths to the various petty street vendors. Copies of some sale and purchase bills along bank statements are enclosed for your reference. Assessee also admits that he has earned approx. 4% to 5% profit on the sale. Assessee suo moto offer the said percentage of profit on sale for the taxable by the department. ”

Considering the above submissions, it was observed by the AO that though assessee submitted that he earned out of sale of cloth out of which investment in mutual funds and deposits in the bank accounts were made, but he failed to explain the source of investment for making purchases etc. With regard to source of investment for making purchases no explanation could be filed by the AR before the AO. Considering the totality of the facts and circumstances of the case, AO treated the entire cash deposits in the bank accounts, as mentioned supra, of Rs.55.38 lacs and investment in mutual funds as made from undisclosed sources. Thus, total taxable income of the assessee was computed by the AO at Rs.82,02,460/- as against the returned income of Rs.82,02,460/-. Penalty proceedings u/s 271(1)(C) were also initiated by the AO separately.

Grounds of Appeal 2. Aggrieved by the order of the AO, the assessee raised the following grounds of appeal:

2.1 The Ld. AO has erred on facts in law in passing the impugned order which is contrary to law, enquiry and justice and facts and material on record, based on conjectures and surmises, passes without application of mind, without granting proper opportunity to defend.

2.2 The appellant denies his liability to tax AND interest as determined and Page 5 of 15

ITA No.- 2402/Del/2015. Komal Arora vs. ACIT computed by the Ld. AO and the manner in which it has been so determined or computed.

2.3 The Ld. AO has erred in law and on facts in making the impugned addition in total income to the extent of Rs.60,38,000/- on account of alleged undisclosed sale of cloth in the absence of any purchase thereof.

2.4 The appellant craves leave to and permission of the Hon’ble C1T(A) to add to or alter any of the grounds of appeal at any time up to the final decision of the appeal.

2.5 The appellant craves leave and sanction of the Hon’ble CIT(A) to file additional evidence, if so required for proper prosecution of the case, based on facts and circumstances, which has not been or could not be educed or filed before lower authorities either because proper and sufficient opportunity was not provided or because it was not solicited or its need was not appreciated.

2.6 The assessment order be set aside as null and void and the net income as per return be accepted; or such other relief as Your Honors may deem fit, under the circumstances of the case, be granted.

Findings 3. During the course of appellate proceedings, AR has filed additional evidences before my Id. predecessor which were entertained by him and a copy of the same was forwarded to the assessing officer for furnishing the remand report. In response to the remand report the concern assessing officer submitted her remand report vide letter no. ACIT/Circle 24(1)/Remand Report/14-15/1471 dated 22.9.2014, which is reproduced below:

“Kindly refer to your office letter no. CIT(A)XXIII/2013-14/111 dated 26.08.2013 on the subject mentioned above.

ITA No.- 2402/Del/2015. Komal Arora vs. ACIT A Kind reference be made to your office letter no. CIT(A)XXIII/2013-14/112 dated 26.08.2013 asking for submission of the remand report in connection with the written submissions filed before your honour in the case of the aforesaid assessee for A. Y. 2009-10. In this connection, a requisite remand report, as desired by your honour, is submitted here under: 2. In this case, the AO has passed order u/s. 143(3) of the I. T. Act on 20.12.2011 at an income of Rs. 82,02,460/- against the returned income of Rs. 21,64,456/-.

3. During the year under consideration the AO found that the assessee has deposited cash amounting to Rs.55,38,000/- in her bank account and purchased Birla Life Mutual fund amounting to Rs. 5,00,000/-. The assessee has stated that she has doing undisclosed business of cloth trading and the cash sales were deposited to the account but she has failed to disclose its income. Hence, AO has made an addition of Rs.60,38,000/- 4. Now the assessee has filed additional evidence before your good self. The assessee has now filed the purchase bills, cash book and balance sheet of the cloth business which she has not disclosed in her return of income.

The gist of the remand report of the AO is as under:

• That genuineness of the purchase of cloth from M/s Mangalam Traders amounting to Rs.56,86,019/- is doubtful as notice u/s 133(6) issued by the AO to this party was returned undelivered with the remarks of the postal authorities that “addressee moved”. • That as per copy of ledger filed before the AO in respect of above party, it was observed by the AO that not a single payment has been made to this party as on A.Y. 2010-11 and whole amount of Rs.56,86,019/- was outstanding. • Assessee produced 15 sale bills - all were cash sales to unidentified parties.

Considering the above facts, it has been held by the AO that the claim of the assessee of purchase and sale of cloth was an afterthought. Even audit report filed was signed on 8.10.2013 i.e. after four years from the end of the financial year under consideration. Considering all these facts, it has been contended by the AO that additional evidences furnished by the Ld. AR are liable to be rejected.

4.1.1 In the rejoinder to the remand report, the AR has submitted as under: “This is with reference to the remand report dated 22.09.2014 w.r.t. Appeal No. 245/11-12 for the A.Y. 2009-10 and further to the detailed submissions already on record. In this regards, the appellant respectfully submits as under:- 1. The Id A.O. has vide para 5 on page 1 of her remand report alleged as under: “To verify the genuineness of purchase of cloth from a major party M/s Mangalam Traders amounting to Rs. 56,86,019/- as explained by the assessee, a notice u/s 133(6) was issued to M/s Mangalam Traders, A- 139, Basement, Madhu Vihar, New Delhi-110092 but the ITA No.- 2402/Del/2015. Komal Arora vs. ACIT same was undelievered and received back with remark “address moved”. Hence, the genuineness of the cloth business as explained by the assessee is not confirmed. ”

In this regards, it is hereby submitted that the address of M/s Mangalam Traders, A-139, Basement, Madhu Vihar, New Delhi-110092 provided by the assessee is the only address of the said party available with the assessee. The aforesaid address is as per the bills issued by the said party and also the same was duly confirmed by the party in the ledger confirmation signed by it. The necessary copies of bills issued by him alongwith the confirmation has already been submitted by the appellant. The copies of the bills on sample basis are enclosed herewith. Further, it is hereby submitted that transactions with M/s Mangalam Traders had taken place in the relevant year only and presently we are not in contact with the said party, therefore, the assessee does not have knowledge of its address other than the address mentioned in the bills issued by the said party i.e. M/s Mangalam Traders.

As stated earlier, detailed confirmation of transactions and account balances from M/s Mangalam Traders in the form of duly signed ledger account of the party containing the PAN and address details along with the copies of purchase bills have already been duly submitted by the assessee. Therefore, it is hereby requested that the necessary verification about the party should be carried out from its jurisdictional Income Tax Ward.

First of all, it is worthwhile noticing here the fact that that the assessee had not merely filed the copy of ledger account of M/s Mangalam Traders for the referred years, but the same were also duly signed and confirmed by the said party.

Further, no adverse influence should be drawn from the fact that no payment against the purchase has made by the assessee. This is on account of the reason that the terms of discharge of payment depend Page 9 of 15

ITA No.- 2402/Del/2015. Komal Arora vs. ACIT upon the dealing between the parties involved in sales purchase transactions. The payments were not being made by the assessee to the supplier, M/s Mangalam Traders on account of the following reasons:

As per the normal practice followed in trade in an unorganized sector, the supplier makes the supply of goods on credit upto a certain credit limit.

Beyond that limit the buyer starts black mailing the supplier that the payment would be released only when the further supplies are made. However, what happened in the case of the assessee was that the supplier refused to make further supplies until the time the assessee releases the old payments. Whereas the assessee was arguing that he would release the payments only when the further supplies were made to him. As a result, neither the supplier made any further supply nor did the assessee make any payment to the supplier. ii. Further, certain disputes concerning the product quality issue had also arisen between the parties. The assessee started receiving quality complaints from the customers. The assessee made request to the supplier to replace the substandard quality goods with the desired quality goods. However, the supplier refused to replace the sub-standard goods. As a result of which the reputation of the assessee in his newly started business during the relevant year was severely affected. The customers started pressurizing the assessee to make refund of the purchase price paid by them. As a result, the assessee did not make any payment to the supplier.

Moreover, it is hereby submitted that once the supplier/creditor has duly confirmed the transactions and outstanding balance, as per the confirmations filed, no adverse influence is warranted against the assessee.

3. The Id. A. O. has vide para 7 on page 2 of the remand report grossly erred in casting highly arbitrary and baseless allegation against the assessee 'that the whole story of purchase appears to be an afterthought. The aforesaid allegation is totally based on surmise and conjectures and without conducting proper verification of the facts involved in the case. The reason for non-release of payment to the supplier has already been explained above in detail.

In this regards, it is hereby submitted that tax audit report is basically a report issued by the auditor who is normally a Chartered

ITA No.- 2402/Del/2015. Komal Arora vs. ACIT Accountant after conducting thorough verification of the books of accounts maintained by the assessee. There is no requirement as such under the provisions of Income Tax Act, 1961 that the audit has to be conducted in the year of business itself. If the books of accounts maintained by the assessee are found to be in order, then the auditor can duly issue the compliance audit report subsequently. Although for delay in obtaining audit report, separate consequences are prescribed under the statute. However, the issue of audit report after lapse of three-four years cannot be the sole ground for rejecting its authenticity and creditability as an evidence 5. The ld. A. O. has further alleged as under vide para 9 on page 2 of her report:

“Under these circumstances, the present case is more of a case of undisclosed money, etc under 69A than of income from undisclosed sources. The assessee has failed to explain the source of cash deposit in bank account and in such a situation whole deposit should be deemed as income. ”

Further, the ld A. O. has grossly erred in concluding that the present case is more of a case of undisclosed money u/s 69A and the whole of amount deposited in bank should be treated as income of the assessee. The assessee has been duly carrying out the business of trading in cloth. The aforesaid fact of conduct of business by the assessee is well supported by the glaring evidences in the form of purchase bills, sales bills, confirmation of account from the creditor i.e. M/s Mangalam Traders including his PAN and address details, duly audited Balance Sheet of cloth trading concern of the assessee along with the tax audit report submitted by the assessee.

6. In the light of aforesaid submissions, it is hereby prayed that the additional evidence submitted by the assessee should be duly admitted and considered in terms of Rule 46A and the addition of ' 60,38,000 made by the A.O. u/s 69A should be deleted by your goodself in the interest of justice. Further, the income from the said cloth business of ' 2,57,461 should be assessed as additional income of the assessee. ”

4.1.2 I have considered the submissions of the AR and have also gone through the assessment order passed by the assessing officer and the remand report with its rejoinder. It is an undisputed fact that claim of the business of purchase and sale of cloth has been admitted by the AR when AO asked the appellant to explain source of the cash deposits in the bank accounts and ITA No.- 2402/Del/2015. Komal Arora vs. ACIT investment in the mutual funds as discussed above. Before that, no such submission was made by the appellant. If there was there was nothing to conceal on the part of the appellant, the same could be done even after filing the return of income when the appellant had sufficient time to take remedial measures, as provided in the provisions of Income Tax Act, 1961. Considering the totality of the facts, it is crystal clear that the submissions are nothing but a concocted story just to say something in support when there is no option left with the appellant to keep herself away from the clutches of tax authorities. Even the submissions filed by the Ld. AR are sans any evidentiary value. The alleged claim of making purchases from M/s Mangalam Traders remained unverified as party was not available at the given address i.e. A-139, Basement Madhu Vihar, New Delhi-110092 for which appellant is now claiming that she has no knowledge about its present whereabouts. Simply claiming that confirmations duly signed by the party containing PAN and address and copies of the purchase bills are not sufficient to substantiate the claim of having made huge purchases from the above party. Thus, the onus to prove genuineness and source is not discharged. The version of the AR also cannot be accepted considering the fact that when substantial amount is still due to be paid to the above party, it cannot be believed that there is no contact between the appellant and the above party. The justification given for outstanding amount is nothing but a routine reply having no evidentiary value. A primary fact that hobbles the appellant is that the source of capital is not explained properly. The Ld.AR in the rejoinder has tried to avoid the onus on account of wrong/incomplete address of supplier. This audacious contention cannot be accepted. It is for the appellant to corroborate his motives and acts. It is for the appellant to establish its credentials. It is pertinent state here that vigilantibus non dormientibus - law helps only those who are vigilant and careful of their interest. The appellant has failed in this duty cast on him by law and presumes the onus discharged. This is not so when the notice of AO Page 12 of 15

ITA No.- 2402/Del/2015. Komal Arora vs. ACIT was not served on address given by appellant. The Ld. AR has also not sought correct the factual position in rejoinder filed before me. The appellant could have furnished correct position at his stage also. Hence, it cannot be pleaded that appellant was not afforded opportunity to remedy the deficient/wrong information.”

[E] This present appeal has been filed by the assessee against the aforesaid impugned appellate order dated 30.01.2015 of the Ld. CIT(A). At the time of hearing, Revenue was represented by Ms. Rakhi Vimal, the learned Senior Departmental Representative (“Ld. Sr. DR”, for short). However, none was present from the assessee’s side. In the absence of any representation from assessee’s side, at the time of hearing before us, we heard the Ld. Sr. DR; who relied upon the order dated 20.12.2011 of the Assessing Officer and the aforesaid impugned order dated 30.01.2015 of the Ld. CIT(A). After perusal of the materials on record, including the order of the AO and the aforesaid impugned order dated 30.01.2015 of the Ld. CIT(A), we find that the Ld. CIT(A) has passed speaking order on merits. Relevant portion of the impugned order of the Ld. CIT(A) has already been reproduced in foregoing paragraph [B] of this order. We find that the Ld. CIT(A) has given detailed reasons for his decision on merits in the aforesaid impugned appellate order dated 30.01.2015 of Ld. CIT(A). During appellate proceedings in Income Tax Appellate Tribunal (“ITAT”, for short) no material has been brought for our consideration to persuade us to take a view different from the view taken by the Ld. CIT(A) in the impugned order on merit. After hearing the Ld. DR and after perusal of materials on record, and further, in view of the ITA No.- 2402/Del/2015. Komal Arora vs. ACIT foregoing discussion, we decline to interfere with the aforesaid impugned appellate order dated 30.01.2015 of Ld. CIT(A).

[F] In view of the foregoing discussion, the appeal filed by assessee is dismissed.

Before we part; we explicitly clarify that the assessee will be at liberty to approach ITAT for restoration of the appeal in accordance with Proviso to Rule 24 of Income Tax (Appellate Tribunal), Rules, 1963. If the assessee does approach ITAT for restoration of the appeals in ITAT, the matter will be considered in accordance with law having regard to the facts and circumstances.

[G] In the result, appeal filed by Assessee is dismissed.