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I.T.A No.638/2015
1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 22ND DAY OF JULY 2022 PRESENT THE HON’BLE MR. JUSTICE P.S. DINESH KUMAR
AND THE HON’BLE MR. JUSTICE C.M. POONACHA
I.T.A NO.638 OF 2015
BETWEEN :
M.L. KRUPAL (HUF) REPRESENTED BY KARTHA OF HUF SRI. M.L. KRUPAL AGED ABOUT 52 YEARS PROP:M/S. ASSOCIATED COFFEE BLV COMPLEX SOMAWARPET-571 236 KODAGU DISTRICT
…APPELLANT
(BY SHRI. V. CHANDRA SEKHAR FOR SHRI. M. LAVA, ADVOCATES)
AND :
THE INCOME TAX OFFICER WARD-1, SRIVALLI BUILDING CHIKPET, MADIKERI-571 201 …RESPONDENT
(BY SHRI. K.V. ARAVIND, ADVOCATE) . . . .
THIS ITA IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 29.06.2015 PASSED IN ITA NO.338/BANG/2014, FOR THE ASSESSMENT YEAR 2007-08 PRAYING TO 1. TO FORMULATE THE SUBSTANTIAL QUESTION OF LAW AND ANSWER THE SAME IN FAVOUR OF THE APPELLANT; 2. TO ALLOW THE APPEAL AND
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2 SET ASIDE THE FINDINGS TO THE EXTENT AGAINST THE APPELLANT IN THE ORDER PASSED BY THE TRIBUNAL IN ITA NO.338/BANG/2014 DATED 29.06.2015.
THIS ITA, HAVING BEEN HEARD AND RESERVED FOR JUDGMENT ON 12.07.2022 COMING ON FOR PRONOUNCEMENT OF JUDGMENT, THIS DAY, P.S. DINESH KUMAR J, PRONOUNCED THE FOLLOWING:-
JUDGMENT
This appeal by the assessee has been admitted to consider following substantial questions of law: "1. Whether the Tribunal was justified in law in confirming the addition of Rs.25,64,032/- made by the learned Assessing officer as against the 1% margin considered as income in respect of unaccounted sales being a sum of Rs.1,69,281/- on the facts and circumstances of the case and consequently passed a perverse order?
Whether the Tribunal was justified in law in upholding the order of the learned Commissioner of Income-tax (Appeals) by giving a perverse finding that the difference between the unaccounted sales and unaccounted purchases would include an amount of Rs.1,69,289/- towards suppressed profits from the unaccounted transactions and the balance amount of Rs.23,94,751/- represents the undisclosed investment in unaccounted purchases on the facts and circumstances of the case?
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Whether the Tribunal was justified in law in confirming a sum of Rs.23,94,951/- as undisclosed investment without any factual foundation by the assessing authority and consequently passed a perverse finding on the facts and circumstances of the case?"
Heard Shri. V. Chandra Sekhar, learned Advocate for assessee and Shri. K.V. Aravind, learned Standing Advocate for the Revenue.
Brief facts of the case are, assessee is an HUF1 and runs its business in the name and style of M/s. Associated Coffee. On March 9, 2007, a survey was conducted under Section 133A of the Income Tax Act2. Pursuant to the survey, assessee's return for A.Y.2007-08 declaring an income of Rs.1,31,940/- was taken up for scrutiny and details were called for by the Assessing Officer. The Books of Accounts and purchase register
1 Hindu Undivided Family 2 'IT' Act for short
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4 produced by the assessee were impounded and it was found that purchase to the extent of Rs.1,43,64,108/- and sale to the extent of Rs.1,69,28,140/- was not accounted in the regular books of accounts. The Assessing Officer passed an order under Section 143(3) of the IT Act adding suppressed profit of Rs.25,64,032/-. Feeling aggrieved, the assessee challenged the same before the CIT(A)3 and the CIT(A) confirmed the addition made by the Assessing Officer in ITA No.97/CIT(A)/Mys/09-10 dated November 29, 2011. On further appeal in ITA No.230/Bang/2012, the ITAT4 vide order dated December 26, 2012 remanded the matter to CIT(A) to verify the Statement of assessee with regard to wrong entries made in the Books of accounts and also to look into the proportion of gross profit. After the remand, the CIT(A) observed that the net effect was the
3 Commissioner of Income Tax (Appeals) 4 Income Tax Appellate Tribunal
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5 same and there was no infirmity in the Assessment order and accordingly dismissed the appeal. Assessee challenged the same in ITA No.338/Bang/2014. The ITAT concurred with the findings of CIT(A) that the difference between unaccounted sales and purchases would include 1% profit from the unaccounted transactions and the balance amount represents the undisclosed investment in unaccounted purchases; and accordingly dismissed the appeal.
Shri. Chandra Sekhar submitted that after ITAT remanded the matter, the CIT(A) vide order dated June 27, 2013, has dismissed the appeal with a cryptic order without assigning any reasons. The said order was challenged before ITAT. The ITAT in para 11.5.6 of the impugned order, has inter alia recorded a finding that the CIT(A) had taken the profit element on the unaccounted sales and dismissed the appeal and
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6 this finding is factually incorrect because, CIT(A) has not recorded any reasons at all. Hence, the said findings are liable to be set aside.
Shri. Aravind submitted that the Assessing Officer has recorded a categorical finding that the assessee has not disputed the fact that it has concealed the particulars of sales. Therefore, the Assessing Officer has rightly held that the difference between the sale and purchase prices outside the books as suppressed profit. Hence, the questions raised in this appeal do not merit any consideration.
We have carefully considered rival contentions and perused the records.
Undisputed facts of the case are, in the first round of litigation, Assessing Officer's order was unsuccessfully challenged before CIT(A). On further appeal, ITAT remanded the matter to the
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7 CIT(A). By his order dated June 27, 2013, CIT(A) has held as follows: Accordingly the case has been heard. The appellant has furnished the trading account highlighting the effect of the omissions which is as follows:
Original Final
Original Final Opening stock NIL NIL Sales 20,98,09,444 20,98,09,444 Purchases 21,51,63,466 21,51,63,466 Omitted Sales NIL 1,69,28,140 Omitted Purchases NIL 1,43,64,108 Closing Stock 74,52,100 50,57,363 Gross Profit 20,98,078 22,67,376
Total 21,72,61,544 23,17,94,947 Total 21,72,61,544 23,17,94,947
On further appeal, ITAT has held in para 11.5.6 as follows: "11.5.6 The learned CIT (Appeals) in the impugned order dt.27.6.2013 had taken the profit element on the unaccounted sales at Rs.1,69,281 (i.e. at 1% of unaccounted sales of Rs.1,69,28,140) and considered the balance amount of the difference as unexplained investment and adjusted the same in the closing stock. In our view, this approach of the learned CIT (Appeals) cannot be faulted as the assessee itself has adjusted the closing stock in the re-cast accounts. In this view of the matter, we concur with the findings of the learned CIT (Appeals) that the difference between the unaccounted sales and purchases would include an amount of Rs.1,69,289 towards suppressed profits from the unaccounted transactions and the balance amount represents
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8 the undisclosed investment in unaccounted purchases."
A careful perusal of the orders passed by CIT(A) and ITAT extracted above, clearly shows that according to ITAT, CIT(A) had taken profit element on unaccounted sales as Rs.1,69,281/- (i.e., at 1% of unaccounted sales of Rs.1,69,28,140/-) and considered the balance amount of difference as unexplained investment and adjusted the same in the closing stock. Shri. Chandrasekar is right in his submission that this finding is not found in the order passed by CIT(A). The ITAT has recorded a further finding that assessee had adjusted the closing stock in re-cast accounts. If this finding is accepted, the question of adjusting the difference as 'unexplained investment' does not arise. Appellant has raised this specific ground in para 27 of the Memorandum of appeal. Thus, we are of the considered view that
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9 the findings recorded by the ITAT in para 11.5.6 is not sustainable and therefore, this appeal merits consideration.
Hence, the following:
(a) Appeal is allowed.
(b) The questions of law raised by assessee are answered in favour of the assessee and against the Revenue.
(c) Case is remanded to the ITAT to re-examine the matter and pass fresh orders in the light of the observations made herein.
No costs.
Sd/- JUDGE
Sd/- JUDGE
SPS