GURDAS MAL ARORA,KANPUR vs. THE A O CIRCLE-1(2)(1), KANPUR

The appellant has filed his return on 30-10-2017 alongwith audited financial statements disclosing return of income at Rs. 73,64,740/-. The assessment in this case has been framed u/s 143(3) on a total income of Rs. 2,90,18,740/- after making an addition of Rs. 1,93,48,000/- u/s 69A of the I.T. Act, 1961 as discussed in para 6 of the assessment order and addition of Rs. 23,06,000/- u/s 40A(2)(b) of the I.T. Act, 1961. Addition of Rs. 1,93,48,000/- on Cash Deposit from Sale u/s 68/69A of the Income Tax Act, 1961: 3. That the appellant humbly submits before your honour that the Id.AO as well Id.CIT(A) has erred in making addition of Rs.1,93,48,000/- on account of cash deposit from cash sale made during the demonetization period. The conclusive finding of the Id.AO is reproduced as under: "the assessee has shown fictitious purchase and sale to cover up the unexplained cash deposits of Rs. 1,93,48,000/- during the demonetization period i.e. from 09.11.2016 to 31.12.2016 for the year under consideration, there were no opening stock as on 01.04.2016, but in the shape of fictitious trading of jewellery, the assessee has made an imaginary story of trading of jewellery business so that the unexplained money/cash deposits made during demonetization period may be whitened. As the assessee could not established the sale, purchase, opening stock etc. with supporting evidences, therefore, in absence of the required documents/explanation the book of account is hereby rejected u/s 145(3) of the Income Tax Act, 1961 to the extent of cash deposits Page 27 of 35 mode during the demonetization period i.e. from 09.11.2016 to 30.12.2016."

That the appellant being aggrieved from the order of Id.AO as well as the order of Id.CIT(A) is in appeal before your honour for appropriate relief in the interest of justice. The Id.CIT(A) has dismissed the appeal by giving verbatim finding of the Id.AO.

The appellant humbly submits before your honour that Id.AO has doubted the cash deposit on account of sale on the basis of erroneous presumption that the appellant does not have any jewellery business and that there is no opening stock as on 01.04.2016 and that the appellant has made an imaginary story of trading of jewellery business so that the unexplained cash deposit may be whitened. Whereas the appellant humbly submits that the Id.AO has erred in making such presumption as the appellant has been doing trading of jewellery business since long in support of which the appellant has filed ITR, Computation, Balance Sheet and Sale Tax Order for FY 2013-14, FY 2014-15 & FY 2015-16 as appearing on page 27 to 73 of the paper book.

The appellant further humbly submits that the allegation of the A.O. that there is a abnormal high sales in huge volume mainly in the month of October, 2016 whereas the Ld. A.O. has failed to appreciate that there is high sale in October because of Diwali festival and because of appellants determination to close the business because of old age, the appellant has cleared his entire inventory as per books upto October, 2016 and had closed the business on 29.11.2016 copy of intimation filed before Sale tax authorities, surrender of TIN and closure of business is appearing at page 245-246 of the paper book.

The appellant has filed VAT return as per requirement of government law and all the transactions, closing stocks has been disclosed in VAT return. In the instant case the appellant has opening inventory as on 01.04.2016 at Rs. 1,04,96,122/- reflecting in the VAT Return for FY 2015- 16 and VAT Order for FY 2015-16 on page 66-68 and 69-73 respectively which has also been shown in ITR filed for A.Y. 2016-17 reflecting on page 58 of the paperbook and the return has been processed u/s 143(1) of the I.T. Act, 1961 dated 25.03.2017 appearing on page 49 of the paperbook to which the Id.AO has erroneously alleged that the ITR filed for AY 2016-17 and AY 2015-16 are invalid. For the AY 2015-16, the ITR filed and its processing u/s 143(1) is appearing at page 41 and 35 to 40 of the paperbook respectively. The objection of the A.O. is based on presumption and assumption.

Further, the total purchase during the year is at Rs. 76,92,388/- out of which cash purchase is at Rs. 16,04,353/-only. The contention of the A.O. is misleading and contrary to the facts stating that the assessee has shown total purchase of Rs. 76,92,388/-including VAT/excise duty and these are mostly in cash in the range of 18000 to 19000 shown from 01.09.2016 to 07.10.2016. Whereas the fact is that the cash purchase 01.09.2016 to 07.10.2016 is at 747.406 gms. only.

The appellant humbly submits before your honour the supporting documentary evidence to establish the existence of business and stock on which the Id.AO has alleged on the presumption while making addition as to existence of trading of jewellery business and stock availability as on 01.04.2016 and the cash purchase made during the year as following: Existence of Business & Availability of Stock:

The Ld. Indore Bench in the case of DEWAS SOYA LTD, UJJAIN v/s Income Tax (Appeal No 336/Ind/2012 has held that "The claim of the appellant that such addition resulted into double taxation of the same income in the same year is also acceptable because on one hand cost of the sales has been taxed (after deducting gross profit from same price ultimately credited to profit & loss account) and on the other hand amounts received from above parties has also been added u/s. 68 of the Act. This view has been held by the Hon 'ble Supreme Court in the case of CIT vs Devi Prasad Vishwnath Prasad (1969) 72ITR194 (SC) that "It is for the assessee to prove that even if the cash credit represents income, it is income from a source, which has already been taxed". The assessee has already offered the sales for taxation hence the onus has been discharged by it and the same income cannot be taxed again. (Disallowance of Salary of Rs. 23,06,000/- u/s 40A(2)(b) 13. The appellant would like to humbly submit that the issue has been discussed by the Ld. A.O. in the body of assessment order vide para 7 & 8. The Ld. A.O. has disallowed salary by estimate paid to Pankaj Arora, Versha Kumari Arora, Palak Arora, Beena Arora and Mohit Kumar Dua holding without investigation, examination of persons and without giving comparable cases of market wrongly held that salary of Rs. 3 lacs per person per year is being estimated as reasonable and therefore out of total claim of salary to the tune of salary 38,02,000/- on turnover of Rs. 3,05,04,137/-. He has not doubted the services rendered by them and bonafide payment of salary expenses. It is accepted practice that the jewellery business is run by family members themselves and salary is paid in the form of remuneration for their work in the business which are discussed below.

That Shri Pankaj Arora is a regular income tax payer and he is well verse with testing of gold and repairing thereof. He has also introduced interest free capital of Rs. 8 lacs. Sale for the assessment year under question has increased substantially. He is a graduate, he has vast experience in this line of business and on the basis of his experience he has started his own partnership business. He has disclosed his salary in his ITR as salary income from this concern as well as his professional income arises from testing of Gold and repairing work. This can be seen from computation of income for A. Y 2016-17 & 2017-18. Whatever the Page 30 of 35 salary he has offered the same in his ITR and has paid taxes @ 30%. Therefore the disallowance in the hands of employer is amount to double taxation. It is not permissible in the I.T law. Taking into consideration his day to day activities in the participation of his old father's business, the payment of salary is quite reasonable and had the Id. A.O examine him he might has been satisfy the salary paid to him. But the Id. A.O sitting in the own chair, at his own whims has estimated the salary saying that there is a market trend therefore Rs. 3 lac salary is reasonable. His basis of judgment is not reflecting in the assessment order. Therefore the action of A.O is wrong. No interest is being taken by them on deposit with concern.

That Smt. Versha Kumari Aroa, she is a regular employee of assessee drawing salary from A.Y 2015-16 except in A.Y 2016-17 (in this year she has done in her own business making chain) she is also introduced interest free capital of Rs. 14,20,000/- in assessee's firm. She participate in his day to day business activity as your honour is aware that in this line of trading of gold ornament the major role of female member cannot be denied.. Therefore salary paid to her in consolence of services the Id. A.O has not denied her services but he has estimated the same on presumptive basis.

That Smt. Palak Arora, she is a regular employee of assessee. She has also introduced interest free capital of Rs. 1240000/-, she is well verse in repairing in motimala of gold. She also disclosed income thereform in her hand. She is skill lady having knowledge in sales of jewellery ornaments and looking entire counter sales. Therefore salary paid to her in consolence of services the Id. A.O has not denied her services but he has estimated the same on presumptive basis.

That the salary of Mohit Kumar has not increased in this year as in A.Y 2014-15, 2015-16, 2017-18. His salary was Rs. 192000, 198000, 160000/- respectively. The id. A.O has himself stated that a salary of Rs. 3 lac per year is reasonable therefore salary is below 3 lacs and similar is the position of Smt. Beena Arora.

Your honour may appreciate that the remuneration during the year has link with the turnover / profit of the entity. The Id. A.O has not issued any show cause notice. He himself raised the query and draws the question without any investigation or opportunity of being heard. That the A.O has not disputed the rendering of services of the employees. It has been held in the case of Ramlal Kashi 106 ITR 189 Madras HC matter of commercial expediency should be left to the business concern. In the instant case recipients are identified and payment of salary is also taxed in their hands they assessed in higher bracket of tax slab. The disallowance is purely based on surmises and conjuncture. The A.O has not brought any material on record, any cognizance basis as to why the business expenditure is disallowed. It is not the case that the expenditure was considered as bogus. It is an estimation without any basis. No disallowance in preceding year is made. The details of salary paid was filed before the A.O. the observation for estimation of remuneration paid to the employee, allowed in previous year is very general in nature. The assessee was doing business in his all segments and this is undisputed fact, which is not possible without services of employee. Once the services are undisputed remuneration cannot be disallowed. In the light of decision of Hon'ble Supreme Court in the case of Upper India Publishing House P. Ltd. Vs. CIT reported in 117 ITR 569 it is held that onus is on the revenue to prove that the expenditure incurred by the business man is unreasonable then the provision of section 40A(2)(b) can be applied. The action of the A.O should be based on well founded reason the assessee Page 31 of 35 also relied upon CIT vs. NEPC India Ltd. reported in 303 ITR 271, CIT vs. Forbes Tea Brokers reported in 315 ITR 404 and CIT vs. Denso Haryana (P.) Ltd. Reported in 328 ITR 14. In the case of Coronation Flour Mills vs. ACIT reported in 314 ITR 1 it is held that A.O. has to record it is finding as to whether the expenditure is excessive or unreasonable on the basis of three basic requirement/section (like a fair market price of the goods, services for which the payment is made, legitimate need of business and benefit derived to the assessee on receipt of services,) In the instant case this exercise is missing the disallowances made purely on the basis of assumption and presumption which is unjustified.” (C.2) At the time of hearing, the Ld. Counsel for the assessee relied on the aforesaid written submissions and on the aforesaid paper book referred to in foregoing paragraph no. (C) and (C.1) of this order. The Ld. Departmental Representative for Revenue supported the impugned order of the Ld. CIT(A) as well as on the assessment order referred to foregoing paragraph no. (B) and (B.1) of this order.