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Income Tax Appellate Tribunal, ‘’ A’’ BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED & SHRI SIDDHARATHA NAUTIYAL
आदेश/O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income Tax (Appeals)-3, Ahmedabad, dated 26/11/2018 arising in the matter of penalty order passed under s. 143(3) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2015-2016.
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The assessee has raised the following grounds of appeal:
(1) The assessment order passed u/s 143(3} dated 29-12-2017 assessing the total income at Rs. 92,21,7007- as against income returned of Rs. 77,050/- and order passed by learned C.I.T.(A)-3, Partly allowing the appeal are bad in law and the same should be cancelled. (2) The learned A.O. erred in making an addition of Rs.20,08,550/- being the total credit side of loose page No.9 found at the time of survey and learned C.I.T.(A) erred in confirming the addition of Rs.13,99,686/-. Your appellant submits that on the facts of the case as well submission and explanation submitted by appellant the learned A.O. is not justified in making the addition of Rs.20,08,550/- and learned C.I.T.(A) is also not justified in confirming the balance amount of Rs.13,99,686/- Your appellant submits that it be so deleted now. (3) The learned A.O. erred in making an addition of Rs.10,92,840/-being the cash difference between the cash of Rs.12,50,362/- balance as per books of accounts and actual cash found of Rs.28,500/- at the time of survey. Your appellant submits that on the facts of the case the learned A.O. and learned C.I.T.(A) are not justified in not accepting the details and explanation field by appellant. Your appellant submits that the addition made of Rs.10,92,840/- should be deleted now. (4) The learned A.O. erred in making an addition of Rs.57,54,705/-being the amounts of difference In closing stock U/s.68 and learned C.I.T.{A) erred in confirming the same. Your appellant submits that on the facts of the case the learned A.O. and learned C.I.T.(A) are not justified in confirming the said amount of Rs. 57,54,705/-. Your appellant submits that it be so deleted now. Your appellant craves, leave, to add or after any of the grounds on or before the final date of appeal hearing of the appeal.
The issue raised by the assessee in ground No. 1 of its appeal is general in nature which does not require any separate adjudication. Hence the same is dismissed accordingly.
The next issue raised by the assessee is that learned CIT(A) erred in sustaining the part addition of Rs. 13,99,688/- instead of deleting the whole addition of Rs. 20,08,550/- on account of loose paper found during the survey.
4.1 The assessee is a partnership firm and engaged in the business of job work of converting S.S. plates to S.S. Patta for its customer. There was survey proceeding under section 133A of the Act carried out dated 21st January 2015 at the premises
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of the assessee. During survey proceedings several loose papers and documents were found and impounded. On confrontation of such loose papers the partner of the assessee firm namely Shri Praful B. Jain has admitted to have unaccounted income of Rs. 2,03,06,191/- for the period starting from October 2013 to April 2014. However, such income was not offered to tax in the return filed by the assessee.
4.2 The assessee during the assessment proceeding made various submissions on different dates and also furnished details such as audit reports, partners’ capital, month wise sales register and purchases register, debtors and creditors details, stock register, unsecured loans, advances, fixed assets register etc. The assessee also submitted that loose papers found during survey contain income of Rs. 1.6 crores and expenditure of Rs. 1.55 crores and the transactions recorded in loose paper are in cash as well as in bank. The bank transactions have already been recorded in the books of account. It has already offered an amount of Rs. 1,25,55,069/- as gross income in the audited books of account. The assessee in support of its contentions has highlighted the page numbers 9, 10, 11, 12, 43, 44 of Annexure A1, impounded material where transactions through banking channel were also recorded.
4.3 The assessee also submitted that electricity expenses for the period is of Rs. 40,34,017/- and industry average electricity cost is of Rs. 0.7 for per kg of production. Therefore its production as per industry rate would be of 57,62,881 kg and as per industry rate, the job work charges is at Rs. 3.6 per kg. Thus its income would not be more than Rs. 2,07,46,373/-. If the income of Rs. 2,03,06,191/- as per alleged loose paper and statement considered separately then its total income would be of Rs. 3,25,55,069/- which is not possible for its business in the given facts and circumstances.
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4.4 The Assessee also claimed that the partner namely Shri Praful B Jain nowhere in statement dated 21st January 2015 and 27th January 2015 has admitted an income of Rs. 2,03,06,191/- based on loose papers.
4.5 However, the AO dismissed the submission and explanation of the assessee by holding that the partner of the assessee firm on oath categorically admitted that the income of Rs. 2,03,06,191/- for period October 2013 to April 2014 has not been accounted in the books of accounts. Therefore, such books of accounts and submissions made by the assessee are vogue and afterthought in order to escape from the tax liability on the impugned income. Further, the assessee also failed to establish that the loose paper found during the course of survey does not belong to it. Thus, the AO as per loose paper held that income of Rs. 20,08,550/- is out Rs. 2,03,06,191/- belong to the moth of April 2014 i.e. for the year under consideration which was added to the total income of the assessee.
Aggrieved assessee preferred an appeal to the learned CIT(A) who provided part relief to the assessee by observing as under: 2.5 On careful consideration of entire facts it is observed that Annexure - A being page No. 9 was found during the course of survey at Appellant's own premises The Appellant has not brought anything on record to prove that such loose paper does not pertains to Appellant Firm. The Appellant has not even referred to any specific statement given by partners of the Appellant stating that such loose paper does not pertains to the firm. It is a matter of fact that Appellant itself has admitted that few entries as mentioned herein above are recorded their Books of Account which means that loose paper pertains to Appellant Firm and not to any other individual person. The loose papers contains details like petrol expense, blade grinding expenditure, salary, AC repairing, oil, etc., and these entries are not recorded in the Books of Account except five entries stated in Appellant's written submission. The Appellant has not denied handwriting in loose paper nor proved that such other notings pertain to which concern hence AO was correct in making addition in the hands of Appellant Firm for treating notings in Annexure - A as undisclosed income of Appellant. It is also observed that above loose paper contains opening balance as on 1s' April, 2014 for Rs.1,06,864/-, which cannot be considered as undisclosed income of current Assessment Year hence addition made by AO to that extent is deleted. Further, AO has not found that five entries amounting to Rs.5,02,000/- is 'already recorded in Books of Account hence addition to that extent is also deleted. In view of this fact, addition made by AO to the extent of Rs. 6,08,864/- is deleted and balance addition of Rs. 73,99.. 6867- is confirmed. This ground of appeal is partly allowed.
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Being aggrieved by the order of the learned CIT(A) the assessee is in appeal before us.
The learned AR before us submitted that the loose sheet found during the survey operation contains the financial transactions wherein the receipts and payments have been shown. As such these details were representing the rough notings which were made for the purpose of making business decisions. These rough notings cannot be construed as income of the assessee.
On the other hand, the learned DR vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, we note that there were certain loose sheets which were found during the survey operation at the premises of the assessee under the provisions of section 133A of the Act dated 21st January 2015. These loose sheets were containing the cash transactions as well as bank transaction pertaining to the month of October 2013 to April 2014. The financial year before us relates to 1st April 2014 to 31st March 2015. In other words, in the loose sheets, there was only single sheet containing the cash and bank transactions pertaining to the month of April 2014 which is relevant to the year under dispute. Such loose sheet was containing the transactions in cash including the opening balance as on 1 April 2014. There were receipts including the opening balance aggregating to ₹20,10,500/- and payment of Rs. 15,27,000 leaving a difference of Rs. 4,83,500/- in such loose sheet. However, the AO has calculated
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the gross amount of cash receipt along with the opening balance aggregating to Rs. 20,08,550/- as undisclosed income of the assessee.
9.1 Some of the transactions appearing in such loose sheet were found recorded in the books of accounts amounting to ₹ 5,02,000/- which was deleted by the learned CIT(A). Likewise. The learned CIT(A) was also pleased to delete the addition of the opening balance amounting to ₹ 1,06,864/-. In other words, the learned CIT deleted the addition aggregating to ₹ 6,08,864/ and confirmed the balance amount of ₹ 13,99,866/- which is in dispute before us.
9.2 It was contended by the learned AR for the assessee that there cannot be made any addition to the total income of the assessee merely on the basis of the statement recorded during the survey proceedings. However, we are not convinced with the argument of the learned AR for the assessee. It is for the reason that the addition was not merely based on the statement recorded during the survey proceedings. Thus without going into the legality of the survey statement, we are of the view that the additions were made based on the loose sheets which were recovered from the premises of the assessee. The provisions of section 292C(1) of the Act says that any books of accounts, other documents etc. found in possession or control of a person during the course of search or survey proceeding then it is to be presumed that such books of account, other documents etc belong to such person and the content in such document is true. Admittedly, the presumption provided under section 292C of the Act is rebuttable presumption but the burden lies upon the assessee to rebut the same. At the time of hearing, the learned AR for the assessee has not brought any material available on record suggesting that the impugned loose sheet was merely a dumb document. At this juncture, it is also important to note that the assessee itself in its submission has admitted that part of the transactions were recorded in the books of accounts. Thus, in our considered view the impugned piece of document was incriminating in nature which was used
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for the purpose of making the addition besides statement recorded under section 133A of the Act.
9.3 It was also contended by the learned AR that the document in dispute was belonging to the partner of the firm. For this purpose, the learned AR has drawn our attention on the statement recorded under the provisions of section 133A of the Act wherein the word MARA was recorded which is a Gujarati word and its translation in English stands as MY. Based on this, the learned AR contended that the impugned piece of document belongs to the partner of the firm. We are not again convinced with the argument of the learned AR for the assessee on the reasoning that part of the transactions of such loose sheets were recorded in the books of the assessee firm. Furthermore, it was the onus upon the assessee to justify that the transactions recorded in the loose sheet were not belonging to the firm but to the partner based on the documentary evidence in support of his contention. But no such documentary evidence has been brought on record. Accordingly we hold that such document belongs to the assessee.
9.4 The next point of dispute arises whether gross amount of receipt recorded in loos sheet should be made subject to tax or the element of profit embedded in such gross receipt should be brought to tax. Undeniably, there are transactions of receipt and payment appearing on such loose paper. Accordingly, in our considered view the entire amount of gross receipt cannot be treated as income of the assessee without considering the payment side. Likewise, it is also an admitted fact that part of the transactions were duly recorded in the books of accounts. It is also important to note that the assessee during the assessment proceedings as evident from the assessment order has also contended that one of the party namely Vikram Industries has deducted the TDS. Likewise, it was also contended by the assessee that these are the loose sheets wherein business transactions are recorded. The relevant contention of the assessee is extracted below: Annexure Al, page 9,10,11,12 Vikram Industries. The assessee has also deducted TDS amount from total receivable from party. Apart from this, on the back side of page no 11 &
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12 he has reduced cheque payment received of Rs. 70,000/- in October and Rs. 70,000/- & Rs. 1,00,000/- in the month of November, This suggests that payment received by cheque is also accounted. Please, find Exhibit-1. Annexure Al page 43 & 44 Shree Laxmi Metal Rolling Mills. The assessee first mentioned payment received of Rs. 5,00,000 and Rs. 6,00,000 in the month of October and November respectively. Please, find Exhibit-11.
9.5 From the above submission, which has not been disputed by the authorities below, we hold that the impugned transactions recorded in the loose sheets were representing the business transactions. The Hon’ble Gujarat High Court in the case of CIT vs. President Industries reported in 258 ITR 654 has held as under: The amount of sales by itself cannot represent the income of the assessee who has not disclosed the sales. The sales only represent the price received by the seller of the goods for the acquisition of which it has already incurred the cost. It is the realisation of excess over the cost incurred that only forms part of the profit included in the consideration of sales. Therefore, unless there is a finding to the effect that the investment by way of incurring cost in acquiring goods which have been sold has been made by the assessee and that has also not been disclosed, the question whether entire sum of undisclosed sales proceeds can be treated as income, answers by itself in the negative.
9.6 In view of the above, we are of the view that it is the profit element embedded in such transactions found in the loose sheet can only be brought to tax. In other words, the entire amount of gross receipt cannot be brought to tax.
9.7 The next question arises how to determine the profit embedded in such transaction. There is no standard formula which can be used to determine the amount of profit embedded in such transaction. In our considered view, the amount of gross profit by the assessee for the year under consideration can be adopted as one of the yardstick to work out the profit embedded in such transactions. This is also important to note that amount which is not been recorded in the books of accounts stands at Rs. 13,99,686/- which is subject to the addition on estimated basis being the amount of gross profit embedded therein. Accordingly, we set aside the finding of the learned CIT(A) and direct the AO to tax the amount of gross profit embedded in such transactions of Rs. 13,99,686.00 as discussed above. Hence the ground of appeal of the assessee is partly allowed.
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The next issue raised by the assessee in ground number 3 of its appeal is that the learned CIT(A) erred in confirming the addition of Rs, 10,92,840/- being difference in cash balance as per book viz-a-viz physical cash found.
During survey proceeding it was found that the assessee on date of survey has shown cash balance in books at Rs. 12,78,862/- however on physical verification only an amount of Rs. 28,500/- of cash was found available with the assessee leading to difference of Rs. 12,50,362/-.
11.1 The assessee during the assessment proceeding submitted that at the time of survey books of account was not updated and further when accountant was asked to draw cash book the accountant due to haste forgot to consider the cash payment to M/s Onyx Sales Corporation and Nandini Enterprise against the purchase of oil and gas and bonus cash pay. The assessee in support of its contentions furnished a ledger copy of both the parties along with a receipt slip duly signed by the both the parties.
11.2 The assessee without prejudice also submitted that for safety reason majority of cash was kept at the residence of the partners and cash required for day to day functions ranges between Rs. 30 to 50 thousand only which brought at business premises.
11.3 The AO being dissatisfied with the assessee’s submission held that the partner of the assessee firm in the statement admitted that cash was paid for purchase of spares part and oil from unregistered dealer which was not recorded in books of account. Now the assessee is claiming that the cash was paid to M/s Onyx Sales Corporation and Nandani Enterprises which is nothing but afterthought. The receipt slips furnished by the assessee are nothing but self-made as the same is
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prepared and signed by single person. Thus the AO made addition of Rs. 10,92,840/- on account of difference in cash balance on the date of survey.
Aggrieved assessee preferred an appeal to the learned CIT(A) who confirmed the order of the AO by observing as under: 3.5 On careful consideration of entire facts, Appellant has explained that difference between physical cash found during the course of survey and cash referred in Appellant’s cash book is on account of various payments made to Nandini Enterprise, Onyx Sales Corporation and bonus payment not recorded in Books of Account. This reconciliation of Appellant cannot be accepted for the reason that survey was carried out in the case of Appellant on 20th January, 2015 whereas cash payment pertaining to above panics and not recorded in Books of Account are claimed to be for the period 1sl October, 2014 to the date of survey. No accountant or businessman would not record such entries for longer period when other Books of Account are regularly recorded in Books of Account. There was no reason for not accounting such entries including bonus payment claimed to have been made on 21st October, 2014 in Books of Account hence theory of Appellant that above entries were not recorded or left to be recorded due to mistake on the part of accountant cannot be accepted. The theory of Appellant that Nandini Enterprise has stopped supplying the material and demanding cash payment cannot be accepted because any business person can give cheques of similar amount or in instalment of Rs. 20:000 easily. Similarly, Appellant has not brought on record which financial crisis has happened which led them to make the payment in cash. Further, Appellant has not brought any confirmation of the payee which can prove that payments were made to them in cash, It is a matter of fact that survey was carried out in the case of Appellant Firm and in such survey proceedings no payment vouchers were found which pertains to payments made to above referred two parties in instalments. The Appellant has not referred to any loose receipt vouchers inventoried in survey which reflect above referred cash payment hence preparing of cash payment vouchers is an afterthought on the part of the Appellant and this theory of reconciliation is without any basis hence same is rejected. The addition made by AO for Rs. 10,92,840/~ is confirmed. This ground of appeal is dismissed.
Being aggrieved by the order of the learned CIT(A) the assessee is in appeal before us.
The learned AR before us contended that the difference in the cash balance cannot be treated as income of the assessee. Therefore, the question of making any addition to the total income of the assessee on account of difference in the cash balance between the books of accounts viz a viz physical cash does not arise.
On the contrary learned DR vehemently supported the order of the authorities below.
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We heard the rival contentions of both the parties and perused the materials available on record. In the present case, there was the difference in the amount of cash recorded in the cash book at the time of survey viz a viz the cash found physically from the premises. As such as per the cash book the amount of cash stands at Rs. 12,78,862/- whereas the physical cash found stands at Rs. 28,500/- leading to a difference of short of cash at Rs. 12,50,362/-. However the AO has made the addition on account of such deficit of cash for 10,92,840/- instead of the entire amount of difference of cash. As such, there arises a difference between the amount of cash deficit viz a viz the amount which was added by the AO to the total income of the assessee. Such, difference in the amount of addition was not explained suitably by the authorities below.
16.1 Be that as it may be, the moot question arises whether the deficit of cash as discussed above in the given facts and circumstances represents the income of the assessee. So far we have seen the addition are mainly made by the income tax Department as a result of survey operation where the excess amount of cash in the physical form than in the books was found during the survey proceedings. But there is no provision under the Act to treat the cash deficit as income of the assessee.
16.2 We have also referred the provisions of section 69A of the Act which says that amount of money of which the assessee was found to the owner and the assessee failed to explain the source of such money then the same shall be deemed to be the income of the assessee. Admittedly in the given facts and circumstances there was no money found during the course of survey which was unexplained.
16.3 Furthermore, we also note that the AO has made the addition of Rs. 10,92,840/- representing the deficit of cash under the provisions of section 68 of the Act. In our considered view, the provisions of section 68 of the Act cannot be applied on the amount of cash deficit as discussed above. It is for the reason that,
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the same does not represent the unexplained cash credit entry. Accordingly, we are of the view that the addition made by the AO which was subsequently confirmed by the learned CIT (A) is not sustainable in the given facts and circumstances. Hence we set aside the finding of the learned CIT (A) and direct the AO to delete the addition made by him. Thus the ground of appeal of the assessee is allowed.
The last issue raised by the assessee in ground No. 4 of its appeal is that the learned CIT(A) erred in confirming the addition of Rs. 57,54,705/- on account of difference in stock.
During the survey proceeding, it was found that there was difference in physical stock viz-a-viz books of account. As per stock register inventory was of 2,54,385 kg whereas physical stock was of 80000 kg only leading to difference of 174385 kg. However the assessee did not offer the difference in stock as income for tax. The assessee during the assessment proceeding submitted that it has received the stock from customer for job work in bulk. However, it returns the same to customer after processing in small lot but issue invoices on completion of whole work. Therefore, difference arise due to this practice. Further the ownership of goods received from the customer is always lies with customer only and never shown as purchases. As it indulges in the activity of job work, it does not require to purchase materials. Therefore, there is no question of having stock of material as such. Whatever material lies with it, it belongs to the customers only.
18.1 However, the AO held that the partner of the assessee firm has categorically admitted the difference in physical stock viz-a-viz stock declared in books of account on the date of survey as income. But the assessee with mala-fide intention manipulated the books of account to escape from the income for deficit of stock as declared during survey proceeding and adjusted the stock as received for job work. Thus, the AO treated the difference in stock for 174385 kg as unexplained stock
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and valued the same at Rs. 57,54,705/- @ 3.30 per kg which was added to the total income of the assessee.
18.2 Subsequently AO in rectification order dated 10-03-2018 passed a rectification order under section 154 of the Act upon realization of mistake in computation of value of stock and reduced the addition to the tune of Rs. 5,75,470/-
Aggrieved assessee preferred appeal to the learned CIT(A), who confirmed the order of the AO by observing as under: 4.4 On careful consideration of entire facts, it is observed that during the course of survey, physical stock found was less than stock mentioned in stock register. The Appellant has admitted that it is carrying out only job work activity hence there cannot be any difference in physical stock and stock register maintained by it The Appellant before AO has claimed that in stock register inward entry is made when stock comes for job work and after completion of job work, same are entered in outward register. He has also stated that when material comes for job work, and same is returned in different instalments, billing is made only on completion of entire job work. This fact dearly prove that as soon as job work is completed, and goods is dispatched to customer, stock in stock register is reduced. However, during the course of survey stock found in register is higher than physical stock which means that though stock is dispatched to customers, same is not reduced from stock register which represents unaccounted job work income of Appellant. The Appellant has argued that AO has considered difference between stock mentioned in stock register and physical stock as stock of Appellant but fact is that AO has not made any addition towards unexplained purchase but has adopted a rate of Rs.3.30 per Kg., which represents job work income earned by Appellant in its processing activity. The Appellant has failed to submit any reconciliation between physical stock found during the course of survey and stock mentioned in stock register hence AO was correct in making addition of Rs.57,54,705/- representing job work income of unexplained stock. This ground of appeal is dismissed.
Being aggrieved by the order of the learned CIT(A) the assessee is in appeal before us.
The learned AR before us submitted that the activities of the assessee are limited to the extent of the job work. As such, the assessee does not deal in the purchase and sale of the goods. Therefore, there cannot be any addition in the hands of the assessee based on the difference of stock found during the survey operation.
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On the contrary learned DR vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. There is no dispute to the fact that the assessee was engaged in the job work meaning thereby assessee was receiving the goods from its customers and used to carry out some processing work on those goods which were subsequently returned to those parties. The assessee for carrying out such job work/processing work was charging income from the respective parties. Thus it can safely be inferred that the goods received by the assessee were not owned by it. Indeed, there was the difference between the stock recorded by the assessee in the books viz a viz found during the survey proceedings for 1,74,385 KG which belongs to the 3rd party. The question arises that the difference in the stock gives any rise to believe to the AO that the assessee has not offered the income on the difference of such stock. To our understanding, the difference in the stock as discussed above certainly creates suspicion which needs to be investigated. But the difference, cannot be a basis of drawing a conclusion that the assessee has not offered job work charges income on such difference of stock. However, we find that the AO nowhere in his order has recorded the finding that the assessee has not offered the job work charges as income on such difference in the stock. It was the assertion of the AO for making the impugned addition and therefore the onus lies upon the AO for the proposition made by him. However, we note that the AO has not brought any material on record suggesting that the assessee failed to offer the job work charges qua the difference in the stock as discussed above. Furthermore, in such kinds of transactions there is no question of attracting the provisions of section 68 of the Act. It is for the simple reason that to invoke the provisions of section 68 of the Act, there has to be some unexplained cash credit in the books of accounts of the assessee. But we note that there is no such allegation raised by the authorities below so as to attract the provisions of section 68 of the Act. In our considered view, the additions made by the AO which was subsequently confirmed by the
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learned CIT (A) is not sustainable in the given facts and circumstances. Thus we set aside the finding of the learned CIT(A) and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed.
In the result the appeal filed by the assessee is partly allowed.
Order pronounced in the Court on 30/03/2022 at Ahmedabad.
Sd/- Sd/- (SIDDHARATHA NAUTIYAL) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER
(True Copy) Ahmedabad; Dated 30/03/2022 Manish