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Income Tax Appellate Tribunal, MUMBAI BENCHES “A”, MUMBAI
Before: SHRI B.R. BASKARAN (AM) & SHRI RAM LAL NEGI (JM)
O R D E R
PER RAM LAL NEGI, JM
This appeal has been filed by the assessee against order dated 27/09/2013 passed by Ld. CIT (Appeals)- 29, Mumbai for the assessment year 2005-2006, whereby the Ld. CIT(A) has dismissed the appeal filed by the assessee against assessment order passed u/s 143(3) of the Income Tax Act, 1961 (for short ‘ the Act’).
Brief facts of the case are that the assessee proprietor M/s Unique Enterprises, having income from business and agriculture, filed its return of income for the relevant assessment year declaring the total income of Rs.1,40,000/-. The return was processed u/s 143(1) of the Act.
2 Assessment Year: 2005-2006
Subsequently, information was received from RCC that the assessee had deposited cash of Rs. 25,47,500/- in saving Bank account with Indian Overseas Bank during the F.Y. 2004-05. Since, the source of the said cash deposit remained unverified, the AO issue notice u/s 148 of the Act and in response thereof the assessee submitted that his original return may be treated as the return filed in response to the notice u/s 148 of the Act. After providing reasons recorded, notices u/s 143(2) and 142(1) were served upon the assessee. The assessee filed written submissions and contended that the amount was deposited in the saving account out of the sales done during the year and the payments made are mainly for the purchases and expenses. By oversight plastic chairs business was not added, however, he is ready to offer the said income u/s 44AF. The assessee also filed revised computation of total income and calculated the total gross income at Rs. 3,71,545/-.
The AO rejected the contention of the assessee and prepared a cash book on the basis of the Bank statement and computed the total negative cash balance of Rs.17,44,500/- and added the same to the total income of the assessee.
Aggrieved by the assessment order, the assessee carried the matter to the CIT(A) in the first appeal. The Ld CIT(A) after hearing the assessee upheld the action of the AO and dismissed the assessee’s appeal. The assessee is in appeal before the Tribunal against the said order
The assessee has preferred the present appeal on the following effective grounds:- I “The learned CIT (A) has erred in not considering following facts. a) Method adopted by the Assessing Officer arriving at negative cash balance is wrong and not based on facts of the case.
3 Assessment Year: 2005-2006 b) The Assessing Officer has not considered cash received from agricultural income and receipts from sale of chairs for arriving at negative Cash Balance of Rs. 17,44,550/- c) All bills for purchase of chairs and sale thereof were not considered even though the original bills and delivery Challans were produced before Assessment Officer.
The learned CIT (Appeals) has erred in not directing the Assessing Officer to delete the addition of Rs. 17,44,550/- from assessee’s income.
II The learned CIT (Appeals) has erred in not considering application of Section 44AF of the Income Tax Act 1961 to the Assessee’s case and directing the Income Tax Officer to apply Section 44AF to Assessee’s case.”
Before us, the Ld. Counsel for the assessee submitted that the Ld. CIT(A) has wrongly affirmed the action of the AO. The assessee started the business of plastic chairs in the year 2004 and the same were sold to small retailers, decorators, schools and other institutions. Cash received on sale of chairs was deposited in Bank account and records were also maintained. The assessee also deposited his agricultural income in the said account. The assessee has produced all bills for purchase of chairs and sale thereof during the assessment proceedings. The Ld. CIT(A) has not considered the submission of the assessee regarding application of section 44AF of the Act. The Ld. counsel further contended that the order passed by the Ld. CIT(A) is not based on the evidence on record, therefore the same is liable to be set aside.
On the other hand the Ld. Departmental representative relying on the concurrent findings of the authorities below submitted that there is no merit in the assessee’s appeal.
4 Assessment Year: 2005-2006
We have heard the rival submissions and also perused the material placed before us. The only grievance of the assessee is that the Ld, CIT(A) has wrongly sustained the addition made by the AO. We notice that the Ld. CIT(A) has upheld the action of the AO holding that there is no evidence which suggest that the deposits in the bank account were out of the explained sources. The Ld. CIT(A) has also affirmed the action of the AO in holding that such a claim cannot be made in the computation of income filed during the assessment proceeding. So far as the application of section 44AF is concerned we agree with the Ld. CIT(A) that in order to get the benefit of the provisions u/s 44AF of the Act, the claim should be made in the original return of income or in revised return. So in our considered view the Ld. CIT(A) has rightly rejected the contention of the assessee. As regards addition of Rs. 17,44,500/-, we are of the considered view that there is no justification of making 100% addition. The conclusion of the AO is not based on any cogent and convincing evidence, therefore the Ld. CIT(A) has wrongly sustained the addition. No doubt the notices u/s 133(6) of the Act, issued to the parties from whom the assessee has claimed to have purchased plastic chairs, have received back by the AO with the remarks of the postal department “left”, but this fact itself is not sufficient to conclusively hold that the assessee had not made any purchases. The Ld. CIT(A) should have taken into consideration the surrounding circumstances while adjudicating the said issue.
10 Hon’ble Bombay High Court In CIT Vs. Nikunj Eximp Enterprises Pvt. Ltd. 372 ITR 619 (Bom) has held that merely because the suppliers had not appeared before the Assessing Officer or the CIT (A) one could not conclude that the purchases were not made by the respondent/assessee. The Hon’ble Gujrat High Court in CIT vs. Simit P. Seth 356 ITR 451(Guj) upheld the decision of the Tribunal and sustained the addition 12.5% of the total bogus purchases 5 Assessment Year: 2005-2006 holding that only profit element embedded in such purchases can be added to income of the assessee.
So in the light of the law laid down by the Hon’ble High Courts in the cases referred above, we partly allow the appeal of the assessee and restrict the addition to 10% of the total addition sustained by the Ld. CIT(A), in the interest of justice. We, accordingly direct the AO to compute the addition in terms of this order. In the result, appeal filed by the assessee for the assessment year 2005- 2006 stands partly allowed.