Loading judgment…
Facts
The assessee challenged the CIT(A)'s order which confirmed two additions made by the AO: Rs. 7,42,900/- for estimated business profits at 2% of gross sales from the original VAT return due to non-production of books, and Rs. 15 lakhs for unexplained investment in land based on documents found during an NIA search. The assessee contended that revised VAT returns showed a lower turnover accepted by VAT authorities and that the land investment was from partnership firm withdrawals, but failed to provide sufficient evidence at lower levels.
Held
The Tribunal partly allowed the appeal. It accepted the assessee's revised turnover of Rs. 2.20 crores for estimating business profits at 2%, granting consequential relief. However, the Tribunal upheld the addition of Rs. 15 lakhs for unexplained investment in land, finding the assessee's explanations contradictory and lacking supporting evidence.
Key Issues
Whether business profits should be estimated based on original or revised VAT returns when books of accounts are not produced; and whether the addition for unexplained investment in land should be sustained due to lack of evidence for the source of funds.
Sections Cited
Section 250(6), Section 144, Section 131(1A), Section 69, Rule 34(4) of Income Tax (Appellate Tribunal) Rules, 1963
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR
Before: SH. MANOJ KUMAR AGGARWAL & SH. UDAYAN DASGUPTA
This appeal is filed by the assessee against the order of the ld. CIT(A)-5, Ludhiana dated 29.03.2024 passed u/s 250(6) of the Income Tax Act, 1961 which has emanated from the order of the DCIT, Central Circle, Jammu passed u/s 144 of the Act, 1961 dated 16.09.2019. belatedly by one day. There is no appearance by the assessee or his Ld. AR on repeated calls and neither any application for adjournment has been filed. However, considering the delay is just of one single day, we condone the same and admit the appeal for hearing on merits.
The Ld. DR present in court has no objection.
We find from order sheet entries that the assessee has taken adjournments earlier and the case has been adjourned on two earlier occasions. In absence of any application for adjournment today, we proceed to dispose of the case, on merits, by hearing the Ld. DR and on the basis of materials on record.
The assessee has taken six grounds of appeals but all are related to two specific additions made by the AO and sustained by the Ld. first appellate authority, firstly an addition of Rs. 7,42,900/- on account of business profits determined by the AO on trading of fruits @ 2% of gross sales as disclosed by the assessee in his VAT return and secondly an addition of Rs.15 lakhs on account of unexplained investment made for purchase of immovable property (land) on the basis of purchase documents found in course of search conducted by NIA (National Investigation Agency, Delhi) , at the premises of the assessee on 4th June, 2017, a copy of which was shared with the DDIT (investigation) Jammu, and the purchase amount confirmed and admitted by the u/s 131(1A) of the Act 61.
Brief facts appearing from records are that the assessee is a partner in a partnership firm M/s Raja Fruits Traders, Srinagar, and also a partner in M/s Royal Industries, Industrial Estate, Srinagar. He has filed his revised return disclosing income of Rs.2,36,470/- which consist of income from salary and interest from the partnership firm, and the case was selected for scrutiny after necessary approval from higher authorities.
In course of search conducted by NIA (National Investigation Agency) at the residential premises on 4th June, 2017, documents relating to purchase of land by the assessee has been seized, a copy of which has been forwarded to the Income Tax Department, and further information was also obtained from the VAT Authority regarding sale proceeds declared by the assessee in his proprietorship concern M/s Khan Impex, Srinagar, (engaged in LOC Trade business), dealing in export of red chili, banana, jeera and ilaichi against imports of almonds, grapes and mangoes.
No books of account could be produced by the assessee before the AO in course of assessment proceedings and in absence of any supporting invoices, bills, vouchers or ledger account being produced as evidence of his own proprietorship business, the @ 2% on such turnover as disclosed in VAT returns which works out to Rs.7,42,900/.
Apart from the above, the assessee in spite of repeated opportunities has failed to explain the source of investments in purchase of immovable property during the year though he has admitted to the said purchase but was unable to identify the nature and mode of payment. As such, the assessment was completed on a total income of Rs.24.79 lakhs (with an addition of Rs.7.42 lakhs on A/c of business profits on trading of fruits plus an amount of Rs.15 lakhs being the addition on account of unexplained investment in purchase of land u/s 69 of the Act).
The matter caried in first appeal has been dismissed by the ld. CIT(A) by observing as follows:
“I have carefully considered the facts of the case, submissions of the appellant, assessment order as well as legal position. In the light of the above submissions, it is apparent that the difference of sale between VAT return as declared in IT return is an undisputed fact. The AO has granted opportunity during assessment proceeding to explain the difference. However, no proper explanation was filed. Even during appellate proceedings, no proper explanation was furnished. Even rejoinder to the remand report was not filed even after more than 15 months. The AO has been very reasonable in applying NP rate of 2%. In view of undisputed fact of difference in sale as per VAT return and as disclosed by the appellant in income tax return, and in view of detailed finding given by the AO in assessment order, I find no reason to differ from the finding given by the AO. Therefore, the addition made by the AO on this issue is confirmed.”
The addition on account of purchase of land has also been dismissed by the ld. first appellate by observing as follows:
“7.2.2 As per the AR, it is submitted that the assessee appellant with my brother has purchased land measuring 2 Kanals at Ganderbal. The Ld. DCIT has without going deep in the transaction disallowed the total purchase cost to the tune of Rs. 15,00,000/-as unexplained investment and added back the same to the income declared. It is submitted that both the brothers have met the said purchase of land out of the withdrawals made from two firms/concerns namely Raja Fruit Traders and Khan Impex, as is borne out from the copy of their personal accounts, copy enclosed.
In the light of above submissions, it is evident that the source of investment in the purchase of land measuring 2 kanals have been met out from the personal withdrawals /funds.
7.2.3 I have carefully considered the facts of the case, submissions of the appellant, assessment order as well as legal position. In the light of the above submissions, it is observed that no proper compliance with supporting documentary evidence has been made by appellant. The AO has granted opportunity during assessment proceeding to explain the difference. However, no proper explanation was filed. Even during appellate proceedings, no proper explanation was furnished. Even rejoinder to the remand report was not filed even after more than 15 months. It is a fact that as per agreement dated 26.11.2016, the sale consideration was Rs 15,00,000/-, The appellant has not been able to prove the source of same. In view of these facts, and in view of detailed finding given by the AO in assessment order, I find no reason to differ from the finding given by the AO. Therefore, the addition made by the AO on this issue is confirmed.” there has not been any compliance by the assessee or his ld. AR neither physically nor virtually.
However, we find from materials on record that the assessee, in course of first appellate proceedings has clarified that the sales disclosed in the VAT returns for the financial year initially reflected a total turnover of Rs.3.71 crores which has been subsequently revised and the revised turnover for the four quarters are stated to be as follows:
(i) First Quarter Rs. 1,75,66,585/- (ii) Second Quarter, NIL (iii) Third Quarter Rs. 20,35,333/- (iv) Fourth Quarter Rs.24,96,417/- Totaling of Rs. 2,20,98,335/-
It is further seen or observed that the VAT Audit has also been done in this case where total turnover has been disclosed at Rs.2.20 crores as per revised VAT Returns which are in agreement with the VAT Audit Report and as per the submissions of the ld. AR (filed in course of first appeal), the said turnover disclosed in the revised return Authorities.
It is also seen that additional evidences containing the above documents has been filed before the first appellate authority against which remand report was obtained where the AO has not brought any materials on record to disprove the figure of Rs.2.20 crores as appearing in the VAT returns (revised return) which has been accepted by the VAT Authorities. However, no reply to such remand report has been furnished by the assessee in course of first appellate proceedings, but the figures in revised VAT returns are not disputed by the A.O.
The ld. DR relied on the order of the ld. CIT(A) and has submitted that the AO has taken the turnover as disclosed by the assessee originally in his VAT returns, in absence of any books of account, but he has not countered the issue that the said VAT returns has been revised and the revised figures stand reduced at Rs.2.20 cores, and it has been stated to have been accepted by the VAT authorities and supported VAT audit report.
Regarding the addition of Rs.15 lakhs made by the AO on account of purchase 16. of land by the assessee which has been duly accepted and admitted in course of deposition before the DDIT, the ld. CIT-DR pointed out that the statements originally cheque is totally false, and the subsequent clarifications of the assessee that the funds have been withdrawn from the partnership firm by the assessee and his brother for making payment in cash is also not supported by any evidence and is just an afterthought without any supporting documents.
He prayed for sustaining the appellate order.
We have considered the rival submissions and considered the materials on record and we find that in absence of any books of account being produced at any stage in support of his proprietorship business, profits are to be taken or estimated at a fair rate on gross sales. In the instant case, the VAT returns are the only basis for determining the total turnover which was originally taken at Rs.3.71 crores on the basis of the original VAT returns, which was subsequently revised at a lower figure of Rs.2.30 crores and which has also been accepted by the VAT authorities. We find that in course of remand all these materials were before the AO but the AO has not gathered any information from the VAT Authorities regarding the returns being revised or to disprove the contention of the assessee and as such to take a logical view in this matter, we accept the turnover of the assessee as disclosed in the revised VAT returns at Rs.2.20 crores and determine the business profits @ 2% as applied by the AO. The AO consequential relief on this ground.
Regarding the investment made by the assessee amounting to Rs. 15 (fifteen) lakhs for purchase of immovable property (land), the source of which could not be explained and the statement and clarifications issued by the assessee at different stages are contradictory in nature and without any supporting documentary evidence and as such, the explanation offered by the assessee could not be accepted at face value, and this ground of appeal of the assessee is dismissed and we uphold the addition of Rs.15 lakhs made by the AO and sustained by the ld. first appellate authority on this ground.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in accordance with Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963 as on 14.11.2025