SUKUMAR MONDAL,HOWRAH vs. I.T.O.,WARD-47(4), KOLKATA

The assessee in the present case is an individual, who is engaged in the business of distribution of food and supply of Ration Goods and dealing in Lafarge and ACC Cement. The return of income for the year under consideration was filed by him on 17.09.2014 declaring total income of Rs.5,54,330/-. The said return was selected for limited scrutiny on the ground that the cash deposits found to be made in the Savings Bank Accounts of the assessee were more than the turnover. During the course of assessment proceedings, the Assessing Officer found that the assessee has maintained three Bank accounts namely Account No. 10380100001206 with Paschim Banga Gramin Bank, Account No. 08160510000298 with UCO Bank, Shyampur and Account No. 11245243909 with State Bank of India. He also found that out of the said three Bank accounts, the balance of only one Bank account with State Bank of India was reflected in the audited balance-sheet filed by the assessee, whereas the balances of the remaining two Bank accounts maintained with Paschim Banga Gramin Bank and UCO Bank were not reflected in the balance-sheet. He also noticed that interest charged in one account and interest credited in the other accounts had also not been reflected in the accounts of the assessee. Keeping in view these serious discrepancies in the accounts of the assessee, the Assessing Officer treated the total deposits found to be made in the two Bank accounts maintained by the assessee with Paschim Banga Gramin Bank and UCO Bank aggregating to Rs.5,42,38,779/- as the undisclosed turnover of the assessee’s business and applying a gross profit rate of 9.52% as reflected in the audited accounts of the assessee, he made an addition of Rs.51,63,531/- to the total income of the assessee in the assessment completed under section 143(3) of the Act vide an order dated 23.11.2016.

Against the order passed by the Assessing Officer under section 143(3), an appeal was preferred by the assessee before the ld. CIT(Appeals) and the following submissions were made on behalf of the Assessment year: 2014-2015 Sukumar Mondal assessee before the ld. CIT(Appeals) in support of his case that the addition of Rs.51,63,531/- made by the Assessing Officer on account of profit allegedly earned on undisclosed turnover was not sustainable:- “The assessee hhas three bank accounts viz. (i) Paschimbanga Gramin Bank, (ii) CC Account with UCO Bank, Shyampur and (iii) State Bank of India, Uluberia. All the cash received from the ration shop is deposited in Paschimbanga Gramin Bank account and from the same, the demand drafts are prepared for payment to FCI. It is submitted that the total sales on account of this business as disclosed in my books of accounts is Rs.3,29,61,654/- whereas the total deposits in the Paschimbanga Gramin Bank account is Rs.2,91,40,029/-. Therefore, the total amount deposited in Paschimbanga Gramin Bank account is less than the total sales disclosed by the assessee in his profit and loss account from ration shop. Hence all the deposits made in this bank account is forming part of sales and already disclosed in the profit and loss account. This is further proved from the fact stated above that the payment for purchase is made from the very same account and all purchases are also forming part of the accounts for which the payment is made from this bank.

Further, in relation to the second business of the assessor as cement dealer of Lafarge, ACC, it is submitted that the same process which is followed in the ration supply business is followed in this business i.e. the sales are made in cash and the proceeds are deposited in the CC account of UCO Bank. The payment for purchase of cement is made in cheques or demand drafts from the CC account of UCO Bank itself. The total amount deposited in this account is Rs.2,50,98,750/- whereas the sales on this business as disclosed in profit and loss account filed before the department is Rs.2,60,60,841/-. Therefore, the total amount of deposits in UCO Bank account is less than the total sales disclosed by the assessee in his profit and loss account. Hence, all the deposits made in this bank account is forming part sales and already disclosed in the profit and loss account.

The ld. CIT(Appeals) did not find merit in the submissions made on behalf of the assessee and rejecting the same, he confirmed the addition of Rs.51,63,531/- on the issue under consideration for the following reasons given in paragraph no. 3.3 of his impugned order:- “3.3. I have gone through the submission of the appellant and perused the relevant records. The appellant has three accounts with the following banks:- (i) Paschimbanga Gramin Bank (A/c. No.10380100001206); (ii) CC Account with UCO Bank, Shyampur (A/c. no. 08160510000298) & (iii) State Bank of India, Uluberia (A/c. No. 11245243909).

We have heard the arguments of both the sides and also perused the relevant material available on record. The first contention raised by the ld. Counsel for the assessee is that the case of the assessee having been selected for limited scrutiny on the issue of cash deposits in the Bank accounts being more than the turnover, the scope of the assessment was limited and the Assessing Officer was not justified to make the addition on account of profit allegedly earned by the assessee on undisclosed turnover, which was an altogether different issue. We are unable to accept this contention of the ld. Counsel for the assessee. While examining the issue of cash deposits in the Bank accounts of the assessee being more than the turnover, it was found by the Assessing Officer that two Bank accounts maintained by the assessee with Paschim Banga Assessment year: 2014-2015 Sukumar Mondal Gramin Bank and UCO Bank were not reflected in the accounts of the assessee. He also noticed that huge deposits aggregating to Rs.5,42,38,779/- were made in the said Bank accounts and since the said Bank accounts were found to be not reflected in the accounts of the assessee, the same were treated by him as the undisclosed turnover of the assessee’s business and estimated profit thereon was added by him to the total income of the assessee. It is thus clear that the impugned addition made by the Assessing Officer on account of profit allegedly earned by the assessee on undisclosed turnover was directly related to the ground on which the case of the assessee was selected for limited scrutiny and the same being fall-out of the verification made by the Assessing Officer on the issue on which the case of the assessee was selected for limited scrutiny, we do not find merit in the contention raised by the ld. Counsel for the assessee that the impugned addition made by the Assessing officer is beyond the scope of limited scrutiny.

The second contention raised by the ld. Counsel for the assessee is that the deposits found to be made in the two Bank accounts maintained with Paschim Banga Gramin Bank and UCO Bank aggregating to Rs.5,42,38,779/- represented the sale proceeds of the regular business of the assessee and the same having been included in the turnover of Rs.5,65,50,985/- as declared by the assessee in his return of income for the year under consideration (copy at page no. 15 of the paper book), it was not a case of undisclosed turnover and the addition made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of profit allegedly earned by the assessee on such undisclosed turnover is not sustainable. In this regard, it is observed that a similar contention was raised by the assessee even during the course of appellate proceedings before the ld. CIT(Appeals) but the same was rejected by the ld. CIT(Appeals) on the ground that the assessee could not co-relate between the cash deposits found to be made in his two Bank accounts and the sales reflected in the books. As already noted by us, serious Assessment year: 2014-2015 Sukumar Mondal discrepancies were found in the books of account of the assessee, inasmuch as, the substantial balances in the two accounts maintained by the assessee with Paschim Banga Gramin Bank and UCO Bank were not reflected in the audited balance-sheet of the assessee. Similarly the interest earned by the assessee in one Bank account as well as interest charged in the other Bank account was also not reflected in the accounts of the assessee. Keeping in view these serious discrepancies seriously doubting the reliability of the audited accounts of the assessee, the onus, in our opinion, was greater on the assessee to establish by furnishing cash flow statement duly supported by the relevant books of account that the deposits found to be made in the Bank accounts maintained with Paschim Banga Gramin Bank and UCO Bank represented the sale proceeds of his business, which were duly reflected in the books of account and included in the total turnover finally declared in the return of income. Since this exercise was not specifically done by the assessee either during the course of assessment proceedings before the Assessing Officer or during the course of appellate proceedings before the ld. CIT(Appeals), we consider it fair and proper and in the interest of justice to set aside the impugned order of the ld. CIT(Appeals) on this issue and restore the matter back to the file of the Assessing Officer for deciding the same afresh after giving the assessee an opportunity to support and substantiate his case on the issue by preparing and furnishing a cash flow statement duly supported by the relevant books of account.

In the result, the appeal of the assessee is treated as allowed for statistical purposes. Order pronounced in the open Court on July 22, 2020.