DEPUTY COMMISSIONER OF INCOME TAX. CIRCLE-AGARTALA, AGARTALA vs. SHRI SATYAJIT SAHA, AGARTALA

PER SANJAY AWASTHI, ACCOUNTANT MEMBER:

Revenue, pertaining to AY 2014-15; the CO No. 07/Gty/2019 has been filed by the assessee mainly in support of the findings given by the Ld. CIT(A) in the impugned order.

2. Both these appeals arise from the order under Section 250 of Income Tax Act, 1961 (hereafter “the Act”) passed by the Ld. Commissioner of Income Tax (Appeals), Shillong [hereafter “the Ld. CIT(A)”], dated 18.02.2019.

2.1 In this case, there are basically two additions which relate to the grievance of the Revenue. The first pertains to an addition of Rs. 60,81,948/- on the ground of excess sundry debtors showing by the assessee and the second ground pertains to an addition of Rs. 5,28,58,105/- on account of alleged bogus sundry creditors. Regarding the first ground, the Ld. AO has recorded a finding that the total sundry debtors shown by the assessee were amounting to Rs. 2,62,79,555/-, whereas after verification through issuance of notice u/s 133(6) of the Act, the Ld. AO found that five such debtors had claimed that there was no outstanding against their name vis-à-vis the assessee. The Ld. AO proceeded to add the impugned amount in regard to excess sundry debtors. Regarding the second addition, the Ld. AO has recorded a finding that from the accounts of the assessee the closing liability would work out to Rs. 25,48,15,662/- as against Rs. 30,76,73,767/- shown by the assessee. Thereafter, the Ld. AO proceeded to add the differential amount u/s 68 of the Act.

CO No. 07/Gty/2019 Shri Satyajit Saha 2.1 The Ld. CIT(A) has discussed these issues at length in paras 7.3 and 9.3, respectively for the two issues, in the impugned order. Needless to say, the Ld. CIT(A) has given relief on these to issues. For the sake of reference, the relevant findings in the impugned order deserve to be extracted:

“7.3 I have carefully considered the matter. In the instant case, according to the AO, the sundry debtor shown by the appellant in his audited Balance Sheet to the extent of Rs. 60,81,948/- was non existent or excess. He added the same to the income of the appellant by invoking provisions of section 69 by treating the same as unexplained investment. The main contention of the appellant is that the above finding does not warrant any addition to the income of the appellant and rather calls for reduction of the income of the appellant. The action of the making of addition on the basis of said finding leads to double addition, is self-contradictory, absurd and is beyond the authority of law. The appellant contended that the source of sundry debtors is sales shown in the books of account by the appellant to those parties. In the books of account of the appellant, sales account is credited and sundry debtor party account is debited. The entire debits made in the account of sundry debtors are already included in sales of the appellant and consequently in the income by the appellant himself. Making of again addition in respect of the very same debit balances which have already been included in the income by the appellant himself, tantamount to double addition, which is legally impermissible, bad in law and unsustainable. Further, the appellant argued that the finding of the AO that the difference is appellant's actual asset, Le., amount receivable is lesser by Rs. 60,81,948/-compare to what he has disclosed in his books of account. In other words, the assets of the appellant are found by the AO of lesser amount or value in compare to the sources available as per books of account. This means that appellant had disclosed more asset or more income in the books of account. Consequently, if the above finding of the AO is correct then, he should have held that asset or receivable to the extent of Rs. 60,81,948/- is bad or bad debt and he should have allowed deduction for the same and reduced the income of the appellant. However, contrary to this, the O has added the said amount to the home of the appellant and increased the income of the appellant. Thus, the action of the AO and his finding are self-contradictory. Still further, it was pointed out that according to the AO the sundry debtor shown by the appellant in the Balance Sheet as asset and therefore, the same are 'investments'. The finding of the AO is that such 'investments' to the extent of Rs. 60,81,948/- was not made by the appellant and in the same breath he also alleged that it was 'unexplained investment'. 'Unexplained investment' means an investment which has been found to be made by the assessee and the source of such investment could not be satisfactorily explained by the assessee. Thus, for being 'unexplained investment, making of "investment is a pre-requisite and is sine- qua-non. If the investment itself does not exist, it is not at all an investment and then, it is absurd to allege simultaneously that it is an 'unexplained investment. When finding of the AO is that there was no actual 'investment made by the appellant to the extent of Rs. 60,81,948/-, then he cannot simultaneously held that the said non-existing investment was 'unexplained investment. Lastly, it was contended that there is absolutely no provision in the Act which empowers the AO to make any addition to the income of the assessee when he finds that the actual assets or receivable of the assessee is of lesser amount or value as compared to the value of the asset or the amount of receivable reflected by the books of account of 3 CO No. 07/Gty/2019 Shri Satyajit Saha the assessee. It is seen that the AO has invoked provisions of section 69 of the Act for making the impugned addition of Rs. 60,81,948/-. Section 69 of the Act reads as under- "69. Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the value of investments may be deemed to be the income of the assessee of such financial year."(underlining supplied) A perusal of the above provisions shows that condition precedent for invoking provisions of section 69 of the Act is that there must be some investments made by the assessee which are not recorded in the books of account. In the instant case, it is an admitted fact that sundry debtors of the appellant including amount of Rs. 60,81,948/-under consideration being part of the audited Balance Sheet were duly recorded in the books of account of the appellant. Thus, provision of section 69 is not at all applicable in the instant case. In my considered view, when asset of an assessee is found to be of lesser value then the value disclosed by him in the books of account then in such a situation neither there is any reason or logic for increasing the income of the assessee by the differential value nor is there any provision in the Act which empowers for making of addition to income of the assessee of such a differential value. Thus, the addition of Rs. 60,81,948/- was made on a wrong footing. I, therefore, delete the addition of Rs. 60,81,948/- made by the AO on the ground that actual sundry debtor is of lesser amount then the amount claimed by the appellant. Thus, ground no. 3 is allowed.” “9.3 I have carefully considered the matter and gone through the materials available on record. By letter No. CIT(A)/SHG/10217//2016-17/10224 dated 12.02.2018, copies of submission furnished by appellant were forwarded to the AO for his comment. In his reply dated 12.10.2018, the AO ststed that assessee was still unable to reconcile the purchases vis a vis figures obtained from LCS. It is seen from the impugned order of assessment that the AO has taken CIF value of the appellant's purchase of cement from Bangladesh at Rs. 23,08,54,845/- on the basis of details provided by Agartala and Belonia Land Customs Stations (LCS) and consequently arrived at the finding that the liability of the appellant against purchases of cement was less by Rs. 5,28,58,105/- from the amount of Rs. 30,76,73,767/- disclosed in the Balance Sheet and consequently, made the addition, of Rs. 5,28,58,105/-. Per contra, the claim of the appellant is that the correct CIF value of appellant's purchase of cement from Bangladesh was Rs. 28,40,60,702/-, which is more by Rs. 5,32,05,857/- then the CIF value of purchases taken in the impugned order of assessment and therefore, the liability shown in the Balance Sheet is correct and consequently, the addition made on account of bogus liability is incorrect. Thus, the issue which requires my consideration is CIF value of purchases as per details supplied by LCS, Agartala and Belonia is whether Rs. 23,08,54,845/- as stated by the AO in the impugned order of assessment or is Rs. 28,40,60,702/- as claimed by the appellant. I have gone through the details submitted by the Superintendent, Land Customs Station, Agartala vide letter no. C. No. VIII (48)01/Misc/AGT- LC/2014-15/PT-1/448 dated 05.11.2016 to the AO. The AO has taken CIF value of appellant's purchase from the said details at Rs. 13,89,81,195/- There are 141 nos. of Bill of Entry. A perusal of the said details shows that the assessable value was shown therein at Rs. 15,17,43,166/-whereas CIF value has been shown at Rs. 13,89,81,195/-. The assessable value is 101% of the CIF value. Thus, as per the 4 CO No. 07/Gty/2019 Shri Satyajit Saha assessable value, CIF value ought to have been Rs. 15,02,40,758/- (Rs. 15,17,43,166/101 X 100) and not Rs. 13,89,81,195/-. It is further seen that there are typographical errors in the following 14 Bill of Entry in the said details as stated hereunder:- As per details supplied by Superintendent, Land Custom Station, Agartala Actual CIF Value (Being S.N. Bill of Date Assessable CIF Value assessable Entry No. Value in Rs. in Rs. value/101*100) 7 143 16.04.2013 10,00,900 9,00,989 9,90,989 8 155 17.04.2013 10,00,900 9,00,989 9,90,989 9 166 18.04.2013 10,00,900 9,00,989 9,90,989 62 913 17.08.2013 21,50,824 2,12,959 21,29,529 109 1661 15.01.2014 5,41,615 4,63,252 5,36,252 123 2038 11.02.2014 10,93,654 1,82,826 10,82,826 125 2078 15.02.2014 10,93,654 1,82,826 10,82,826 126 2090 16.02.2014 10,93,654 1,82,826 10,82,826 127 2114 18.02.2014 10,93,654 1,82,826 10,82,826 128 2145 20.02.2014 10,93,654 1,82,826 10,82,826 129 2159 22.02.2014 10,93,654 1,82,826 10,82,826 130 2194 24.02.2014 10,93,654 1,82,826 10,82,826 131 2224 26.02.2014 10,93,654 1,82,826 10,82,826 132 2281 02.03.2014 10,93,654 1,82,826 10,82,826 133 2356 06.03.2014 10,93,654 1,82,826 10,82,826 Total Rs. 52,07,438 1,64,67,008

Once the above typographical error is rectified, the CIF value of purchase through LCS (Land Customs Station), Agartala comes to Rs. 15,02,40,765/- (Rs. 13,89,81,195 minus Rs. 52,07,438 + 1,64,67,008). The same also agrees with calculation of CIF value from assessable value as stated earlier. Therefore, the CIF value of purchases through LCS, Agartala should be Rs. 15,02,40,765/- and not Rs. 13,89,81,195/-.” 2.2 The revenue has filed the present appeal with the following grounds:

“1. For that the Ld. CIT(A) erred in granting relief on account of excess sundry debtors. 2. For that the Ld. CIT(A) erred granting relief on account of bogus sundry creditors. 3. For that that the appellant craves leave to add, alter and amend any/all of the grounds of appeal before or during the course of the hearing of the appeal. 2.3 The assessee’s CO comprises of the following grounds:

“1. For that the appeal filed by the Revenue is barred by limitation. 2. For that the learned CIT(A) ought to have hold that the impugned order of assessment having been passed by the learned ITO, Ward-Udaipur is without 5 CO No. 07/Gty/2019 Shri Satyajit Saha Jurisdiction and being contrary to the circular of the Hon'ble CBDT is bad in law and ought to have cancelled the same.

3. For that the learned CIT(A) was fully justified in deleting the addition of Rs. 60,81,948/- made by the Id. AO by arbitrarily invoking provisions of section 69 of the Act without returning any finding that there existed any actual sundry debtor which was not recorded in the books of account and the action of the Id. AD is contrary to his own finding 4. For that the learned CIT(A) was fully justified in deleting the addition of Rs. 5,28,58,105/- made by the Id. AO on account of alleged bogus sundry creditor on finding that the learned AO had worked out the figure of closing sundry creditor by mistakenly calculating purchase value at a lesser value by Rs 5,32.05.857/- from the details provided by Custom Stations.

5. For that the learned CIT(A) was not justified in arbitrarily rejecting the books of account and estimating business income of the appellant @ 0.78% of the turnover and thereby enhancing the business income of the appellant by Rs. 18,08,832/- which is bad in law.

3. Before us, the Ld. DR vehemently argued that the Ld. AO’s reasoning and fact finding was beyond doubt and hence his findings on the two issues deserve to be upheld. The Ld. DR took us through various portions from the AO’s order.

3.1 Per contra, the Ld. AR emphasised on Ground No. 2 in the CO which challenges the assumption of jurisdiction by the AO passing the assessment order. The Ld. AR also took us through the relevant paragraphs from the Ld. CIT(A)’s orders and stated that his findings were factually correct and had also applied the law correctly.

4.1 Regarding the CO filed by the assessee, we find that except Ground Nos. 2 and 5, Ground Nos. 3 and 4 support the action of Ld. CIT(A) with respect to the findings for grounds 1 and 2 of the Revenue. Regarding Ground No. 2 in the CO, it is seen that the assessee has nowhere objected to the proceedings before the Ld. AO who actually passed the assessment order. It is also understood, after the Hon’ble Apex Court as clarified the issue of jurisdiction in the case of Kalinga Institute of Industrial Technology reported in 454 ITR 582 (SC) order dated 01.05.2023, that the assessee would be barred from raising any objections before any other authority. The following excerpt from the order of the Hon’ble Apex Court would help in guiding us in this matter:

“1. The impugned order set asides the assessment for A.Y. 2014-2015 the ground that the jurisdictional officer had not adjudicated upon the returns. The jurisdiction had been changed after the returns were filed. However, the records also reveals that the assessee had participated pursuant to the notice issued under section 142(1) and had not questioned the jurisdiction of the assessing officer. Section 124(3)(a) of the Income-tax Act precludes the assessee from questioning the jurisdiction of the assessing officer, if he does not do so within 30 days of receipt of notice under section 142(1).

4. The special leave petition is allowed in the above terms. ------------” However, we find that this issue has been discussed by the Ld. CIT(A) in a rather perfunctory manner in paras 10 to 10.2 in the impugned order. Accordingly, we remand this matter back to the file of Ld. CIT(A) for 7 CO No. 07/Gty/2019 Shri Satyajit Saha passing a speaking order on this issue. Regarding Ground No. 5 in the CO, we see that the assessee has challenged the action of Ld. CIT(A) in terms of enhancing the business income by adopting a profit percentage of 0.78% on the turnover of business. While in principle the Ld. CIT(A) appears to have factually analysed the issue in its entirety in paragraphs 9 to 9.4 in the impugned order and has given relief to the assessee and thereafter on the same reasoning and facts he has enhanced the income of the assessee. Thus, in principle, there appears to be no error in this approach. However, since the application of rate of 0.78% amounts to enhancement of income, we find that the Ld. CIT(A) has not followed the procedure laid down in section 251(2) of the Act and hence we remand this matter back on the specific issue of following the mandate of section 251(2) of the Act and thereby allowing the assessee an opportunity to present the facts regarding the proposed enhancement.

Order pronounced on 25.06.2025