SRI A C JAGADESH ,MYSORE vs. INCOME TAX OFFICER WARD-2(2), MYSORE

The assessee has filed this appeal challenging the order dated 29/9/2016 passed by ld CIT(A), Mysore and it relates to asst. year 2011-12.

The grounds of appeal urged by the assessee relate to the following issues:-

The assessee is a civil contractor and he filed his return of income for the year under consideration declaring a total income of Rs.10.08 lakhs. The assessee has declared income on estimated basis by adopting profit rate of 8%. It is further stated that the assessee has not maintained books of accounts. During the course of assessment proceedings, the AO asked the assessee to furnish statement of affairs as on 31/3/2010 and 31.3.2011, since the assessee claimed before him that he did not maintain any books of accounts. In the statement of total income filed for 31/3/2011 the assessee had shown sundry creditors balance of Rs.40.00 lakhs. The AO asked the assessee to produce all the creditors. However the assessee could produce only 2 creditors named Shri Srinivas and Shri Abdul Ahmeed and both of them could not confirm the balance outstanding against their name. Accordingly the AO assessed the sundry credit balance of Rs.40.00 lakhs as unproved credits. The AO also noticed that the assessee has deposited cash into his bank account to the tune of Rs.47.73 lakhs. The assessee did not offer any explanations with regard to the sources of deposits. Hence the AO assessed the same as income of the assessee. Similarly the assessee could not furnish any evidence with regard to HDFC loan shown as outstanding in the statement of affairs and also could not furnish proof for the claim of deduction u/s 80C of the Act towards LIC payment. Hence the AO added the HDFC loan of Rs.84,810/- to the total income of the assessee and disallowed the claim of deduction u/s 80C of the Act. The ld CIT(A) confirmed all the additions and hence the assessee has filed this appeal before us.

We shall first take up the issue relating to unexplained cash deposits of Rs.47.73 lakhs made into the savings bank account of the assessee. At the time of hearing, the assessee furnished a certificate obtained from Kanataka Bank as “additional evidence” to show that cash deposits to the tune of Rs.30.24 lakhs made into the savings bank account of the assessee was out of withdrawals of Rs.37.27 lakhs made from the current account of the assessee. The ld AR prayed that the above said certificate may kindly be admitted as additional evidence. He further submitted the cash deposits made into the savings bank account actually represents business receipts partly and some of the deposits have been made out of earlier withdrawals. He submitted that the assessee did not maintain books of account and hence the AO was justified in requesting for fool proof evidences. Accordingly he prayed that this addition may kindly be deleted.

On the contrary the ld AR submitted that the assessee has not furnished proper explanations with regard the sources of deposits. He further submitted that the additional evidence furnished by the assessee require verification.

Since the assessee has filed additional evidence, we are of the view that this issue requires fresh examination at the end of the AO. The claim of the assessee that deposits made consisted of business receipts and withdrawals made earlier and this claim also requires verification. Accordingly we set aside the order passed by ld CITA() on this issue and restore the same to the file of the AO for examining it afresh.

The next issue relates to addition of sundry creditors balance of Rs.40.00 lakhs. The ld AR submitted that the assessee has not maintained any books of account during the year under consideration and he did not furnish any financial statements along with the return of income. However, during the course of assessment proceedings, he filed a “Statement of affairs” before the AO, at the request of the AO. He submitted that the Statement of Affairs has been prepared on estimated basis and hence the same cannot be equated with the financial statements prepared on the basis of books of accounts. He further submitted that the assessee has offered income on estimated basis @ 8% of the gross receipts. Hence the AO should not have placed reliance on the Statement of Affairs to make the addition of Rs.40.00 lakhs. He further submitted that the assessee has furnished before Ld CIT(A) the confirmation letters obtained from all the creditors shown in the Statement of Affairs. However, the Ld CIT(A) has proceeded to decide the issue under the presumption that the confirmation letters were not furnished, which is against the facts available on record. He submitted that the assessee is a civil contractor and has been dealing with people from unorganized sector, who also did not maintain books of account. Hence they could not also confirm from memory the balances outstanding against their name as on a particular date, since the assessee is having running account and continuous dealing with them. The ld AR relied on a decision rendered by Kolkatta SMC Bench of Tribunal in the case of Mohankumar Agarwal Vs. ITO (ITA No.1750/Kol/2018 dated 8/5/2019) and submitted that no separate addition should be made when income is estimated u/s 44AD of the Act. However we notice that the above said case was related to an assessee to whom the provisions of sec. 44AD was straight away applicable. Under section 44AD, there is statutory requirement to estimate income. In the instant case, it is an admitted fact that he provisions of sec. 44AD are not applicable. However the asseseee has estimated income @ 8% by taking cue from sec.44AD of the Act. Hence, we are of the view that the assessee cannot place reliance on the above said case law.

The ld DR, on the contrary, submitted that the assessee could produce only two creditors, who also could not confirm the outstanding balances.

We heard the parties on this issue and perused on record. It is an admitted fact that the assessee has not maintained books of account for the year under consideration. The assessee has furnished a Statement of affairs before AO, which has been prepared on estimated basis, meaning thereby, the statement of affairs is not based on any books of accounts. Hence the sundry creditors balance of Rs.40.00 lakhs shown by the assessee could only be an estimated figure. It is also an admitted fact that the assessee has offered income on estimate basis, i.e., @ 8% of gross receipts.

The main reason for disallowance of the Sundry creditors balance of Rs.40.00 lakhs was that the assessee did not furnish confirmation letters and also he did not produce the creditors before the AO. We noticed from the paper book that the assessee has furnished confirmation letters claimed to have been produced before ld CIT(A). Those confirmation letters are addressed to Ld CIT(A) only. However the ld CIT(A) has observed that the assessee has not furnished the confirmation letters which is contradictory to copies of confirmation letters available on record. In any case the confirmation letters have not been furnished before the AO and hence there was no occasion for the AO to examine this letters. Accordingly we are of the view that this issue also requires fresh examination at the end of the AO. Accordingly we set aside the order passed by ld CIT(A) on this issue and restore the same to the file of AO for examining it afresh by duly considering the confirmation letters filed by the assessee. While examining this issue, the AO should also keep in mind that the assessee has not maintained books of accounts, income has been declared by the assessee on estimated basis and the Statement of Affairs have been prepared on estimated basis only.

The next issue relates to the addition of outstanding HDFC bank loan of Rs.0.84 lakh. The assessee has furnished a certificate obtained from HDFC bank certifying the outstanding balance as on 31/3/2011. Since it is a new evidence produced for the first time before us, the same requires examination at the end of the AO. Accordingly we set aside the order passed by the ld CIT(A) on this issue and restore the same to the file of AO for examining it afresh by duly considering the certificate furnished by the assessee.

The last issue relates to disallowance of deduction claimed u/s 80C of the Act. Before us also, the assessee did not furnish any evidence to support the claim and hence we have no other option but to confirm the order passed by the ld CIT(A) on this issue.

In the result, the appeal filed by the assessee is treated as partly allowed for statistical purpose.