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Income Tax Appellate Tribunal, “A” BENCH, AHMEDABAD
Before: SHRI P.M. JAGTAP, VICE- & SHRI T.R. SENTHIL KUMAR
आयकर अपील�य अ�धकरण, अहमदाबाद �यायपीठ ‘A’ अहमदाबाद । IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, AHMEDABAD ] ] BEFORE SHRI P.M. JAGTAP, VICE-PRESIDENT AND SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER ITA No. 2153/Ahd/2018 Assessment Year : 2010-11 Dipika Kishorkumar Patel, The Income Tax Officer, A-76, Marketing Yard, Vs Ward-1 (2), Chitra, Bhavnagar-364 004 Bhavnagar PAN: AWKPP 2049 L अपीलाथ�/ (Appellant) �� यथ�/ (Respondent) Assessee by : Shri B.R. Popat, A.R. Revenue by : Shri Shramdeep Sinha, Sr. DR सुनवाई क� तार�ख/Date of Hearing : 22/08/2022 घोषणा क� तार�ख /Date of Pronouncement: 30/09/2022 आदेश/O R D E R PER P.M. JAGTAP, VICE-PRESIDENT :
This appeal filed by the assessee is directed against the order of learned Commissioner of Income-tax (Appeals)-6, Ahmedabad [“CIT(A)” in short] dated 12.07.2018 and the grounds raised by the assessee therein read as under:-
“The learned CIT(A)-6, Ahmedabad has erred in law and on facts in 1. Confirming the addition of Rs.27,04,965/- made by the AO, to the extent of Rs.24,02,815/-, first by arbitrarily treating a sum of Rs.3,00,35,190/-, as found credited in the banking account maintained with ICICI Bank Ltd., as unaccounted turnover, and then by estimating the net profit at the rate of 8% on the same;
Confirming the disallowance of Rs.40,89,100/- made by the AO by invoking the provisions of Section 40A(3) of the Act.”
The assessee, in the present case, is an individual who is engaged in the business of trading of Old Bardan. She filed her return of income for the year under consideration originally on 26.07.2010 declaring a total
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income of Rs.2,44,000/-. On the basis of information received regarding the undisclosed bank account maintained by the assessee with ICICI Bank, Bhavnagar, the assessment was reopened by the Assessing Officer and a notice under Section 148 of the Income-tax Act, 1961 (“the Act” in short) was issued by him to the assessee on 30.03.2017 after recording the reasons. In response to the notice under Section 148 of the Act, a letter was filed by the assessee stating that the return filed by her originally on 26.07.2010 may be treated as the return filed in response to notice under Section 148 of the Act. During the course of assessment proceedings, the assessee was called upon by the Assessing Officer to explain the total credits of Rs.3,09,77,311/- appearing in her bank account maintained with ICICI Bank, Bhavnagar which had not been disclosed in the return of income. In reply, it was submitted by the assessee that the said credit entries represented sale proceeds of her business made on consignment basis while the debit entries reflected in the said account were payments made against purchases. It was submitted that the profit margin of the consignment business was very low and keeping in view the nature of the business, the resultant loss of Rs.31,820/- was debited to the Profit & Loss account without showing the corresponding purchases and sales. The Assessing Officer did not find this explanation offered by the assessee to be acceptable. He found from the relevant details furnished by the assessee that the transactions reflected in the relevant bank account were of purchase & sales and it was not a case of consignment transactions. He also found that the purchase and sale transactions reflected in the relevant bank account were not properly recorded in the relevant books of account of the assessee. Keeping in view the same as well as other deficiencies noticed by him, the Assessing Officer rejected the books of account of the assessee and proceeded to estimate the income of the assessee from business by applying a net profit rate of 8% to
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the total turnover of Rs.3,38,12,073/- including the turnover of Rs.3,00,35,190/- as reflected in the bank account of the assessee maintained with ICICI Bank, Bhavnagar. He accordingly determined the business income of the assessee at Rs.27,04,965/- as against Rs.3,02,150/- declared by the assessee.
On perusal of the transactions reflected in the bank account of the assessee maintained with ICICI Bank, Bhavnagar, the Assessing Officer found that cash payments exceeding Rs.20,000/- were made by the assessee aggregating to Rs.40,89,100/- in contravention with the provisions of Section 40A(3) of the Act. Since the said payments were made against purchases and the assessee could not offer any satisfactory explanation to establish that the said payments were made under the exceptional circumstances as specified in Rule 6DD(j), the Assessing Officer invoked Section 40A(3) of the Act and made a disallowance of Rs.40,89,100/-. The total income of the assessee thus was determined by the Assessing Officer at Rs.67,95,700/- in the assessment completed under Section 143(3) r.ws. 147 of the Act vide an order dated 11.12.2017.
Against the order passed by the Assessing Officer under Section 143(3) r.w.s. 147 of the Act, an appeal was preferred by the assessee before the learned CIT(A) challenging both the additions made by the Assessing Officer. After considering the submissions made by the assessee and the material available on record, the learned CIT(A) did not uphold the action of the Assessing Officer in rejecting the books of account of the assessee, but sustained the trading addition made by the Assessing Officer to the extent of Rs.24,02,815/- for the following reasons given in his impugned order:-
ITA No. 2153/Ahd/2018 Dipika Kishorkumar Patel Vs. ITO AY : 2010-11 4 “After considering all facts and circumstances of the case I am inclined to partly agree with the contention of the appellant. It is seen that the contention of the appellant regarding balance in ICICI Bank account having been included in ‘Sundry Debtors' is found to be correct. Though no details of the above bank account are mentioned in the relevant column of ITR asking for bank details but it is seen that as per the Balance Sheet as on 31/03/2010, balance in the ICICI Bank account is Rs. 7,79,696/-. It is further seen that this amount has been included in the amount of ‘Sundry Debtors' shown at Rs. 25,96,082/- shown in column. 3(a)(ii) of Schedule "Part A- Balance Sheet.' Thus, it is held that the A.O was not justified in rejecting books of accounts of the appellant on the ground that the above bank account was not shown in the return of income. Hence, action of the AO in rejecting books of accounts of the appellant is not upheld.
However, it is seen that the A.O has mentioned that total receipts credited to the above account are Rs.3,09,77,311/- and that total sales in this account come to Rs. 3,00,35,190/-. It is seen that the appellant has shown total sales of Rs. 37,76,883/- in the return of income. The appellant failed to give explanation as to why sales of Rs. 3,00,35,190/- credited in the above accounts have not been shown by the appellant in the P&L A/c. The appellant tried to give explanation for credit entries in the above bank account saying that the debit and credit transactions routed through the above referred bank account included the transactions of acceptance and repayment of loans and deposits, withdrawal and deposit of cash incurrence of certain expenses, payment to creditors, realization from debtors, etc. Though, the appellant submitted as above, however, no supporting evidences were filed to explain the above contention. Accordingly, it is held that the A.O was justified in concluding that sales of Rs.3,00,35,190/- have been credited into the above accounts and that the same have not been reflected in the books of accounts. Accordingly, the A.O was justified in estimating profit @ 8% on the above sales and making additions of Rs. 24,02,815/- on this account. Accordingly, addition of Rs.24,02,815/- out of addition of Rs.27,04,965/- is upheld.”
The learned CIT(A) also confirmed the addition of Rs.40,89,100/- made by the Assessing Officer under Section 40A(3) of the Act for the following reasons given in his impugned order:-
“It is seen that during the assessment proceedings, the A.O noted that the appellant had made various payments in cash or by bearer cheques which was in violation of provision u/s. 40A(3) of the Act. The A.O noted that total
ITA No. 2153/Ahd/2018 Dipika Kishorkumar Patel Vs. ITO AY : 2010-11 5 payments of Rs. 40,89,100/- have been paid in violation of provisions of section 40A(3) of the Act. After giving an opportunity to the appellant to give explanation and not accepting her explanation, the A.O made addition of Rs. 40,89,110/- u/s. 40A(3) of the Act. The appellant submitted that once the A.O had rejected the books of accounts, no addition could have been made by invoking the provisions u/s 40A(3) of the Act. This contention of the appellant has become infructuous since it has been upheld in Para 5.3 above that the A.O was not justified in rejecting books of accounts of the appellant. Further, on merits, by way of explanation, the appellant submitted that the case of the appellant was covered by exceptions provided under rule 6DD(j) of the Income Tax Rules, 1962 (the Rules). Though, the appellant submitted so, however, no evidence was filed to show that the case of the appellant was covered by Rule 6DD(j) of the Rules and that she had to make payments in cash due to business exigency. Case laws relied on by the appellant are not applicable to the present case as the same are distinguished on facts.
In view of the above discussion, it is held that the A.O was justified in making addition of Rs. 40,89,100/- u/s 40A(3) of the Act. Accordingly, addition of Rs. 40,89,100/- is upheld.”
Aggrieved by the order of the learned CIT(A), the assessee has preferred this appeal before the Tribunal.
We have heard the arguments of both the sides and also perused the relevant material available on record. It is observed that even though the balance with ICICI Bank, Bhavnagar was inadvertently shown by the assessee in the balance-sheet under the head “Sundry Debtors” as pointed out by the learned Counsel for the assessee, the transactions reflected therein representing purchase and sales of the assessee’s business were not properly reflected in the books of account of the assessee as found by the authorities below. At the time of hearing before us, the learned Counsel for the assessee has not been able to bring anything on record to rebut or controvert this finding of fact recorded by the authorities below. Although he has claimed that the entire credits reflected in the said bank account did not represent sales of the assessee, there is no evidence produced by him to
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support and substantiate this claim. He has not furnished any details regarding the nature of transactions reflected in the bank account of the assessee to show that the credits reflected in the said bank account did not entirely represent the sales of the assessee as claimed by him. He has also not furnished any details or evidence to show that the net profit rate of 8% applied by the authorities below estimating the income of the assessee from the undisclosed turnover is excessive or unreasonable. Keeping in view all the facts of the case, we do not find any justifiable reason to interfere with the impugned order of the learned CIT(A) on this issue and upholding the same, we dismiss Ground No.1 of the assessee’s appeal.
As regards the second issue relating to the addition made by the Assessing Officer and confirmed by the learned CIT(A) under Section 40A(3) of the Act, we find that the payments exceeding cash of Rs.20,000/- as reflected in the bank account of the assessee with ICICI Bank were made against the purchases. Since the said purchases were pertaining to the undisclosed business transactions of the assessee as held by the authorities below and profit of the said undisclosed business transactions was estimated by them by applying a net profit rate, we find merit in the contention of the learned Counsel for the assessee that the same purchases cannot be disallowed separately under Section 40A(3) of the Act. To arrive at this conclusion, we derive support from the decision of Hon’ble Madhya Pradesh High Court in the case of CIT Vs. Hindustan Equipment (P.) Ltd., [2013] 30 taxmann.com 295 (MP), cited by the learned Counsel for the assessee wherein it was held that when profit was estimated by applying net profit rate, there was no scope for further disallowance under Section 40A(3) of the Act separately in respect of purchases. To the similar effect is the decision of the Hon’ble Allahabad High Court in the case of CIT Vs.
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Banwari Lal Banshidhar, [1998] 229 ITR 229], wherein it was held that where income of the assessee was computed applying gross profit rate and when no deduction was claimed by the assessee in respect of purchases, no disallowance under Section 40A(3) of the Act could be made by the Assessing Officer. We accordingly delete the disallowance of Rs.40,89,100/- made by the Assessing Officer and confirmed by the learned CIT(A) and allow Ground No.2 of the assessee’s appeal.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open Court on 30th September, 2022 at Ahmedabad.
Sd/- Sd/-
(T.R. SENTHIL KUMAR) (P.M. JAGTAP) JUDICIAL MEMBER VICE-PRESIDENT Ahmedabad, Dated 30/09/2022 *Bt आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त ( अपील ) / The CIT(A)- 5. �वभागीय ��त�न�ध आयकर अपील�य अ�धकरण/DR,ITAT, Ahmedabad, , 6. गाड� फाईल /Guard file. आदेशानुसार/ BY ORDER, TRUE COPY सहायक पंजीकार (Asstt. Registrar) आयकर अपील�य अ�धकरण
Date of dictation- 28.09.2022……two pages dictation pad attached …… 2. Date on which the typed draft is placed before the Dictating Member …29.09.2022 ………… Other member.… ………. 3. Date on which the approved draft comes to the Sr.P.S./P.S. - ……………… 4. Date on which the fair order is placed before the Dictating Member for Pronouncement … 5. Date on which the file goes to the Bench Clerk…………… 6. Date on which the file goes to the Head Clerk……………………………. 7. The date on which the file goes to the Assistant Registrar for signature on the order………………… 8. Date of Despatch of the Order………………