ITO, WD-2(3), SILIGURI, SILIGURI vs. SMT SARATHI MAJUMDER, SILIGURI

The ld. counsel for the assessee challenged the reopening of assessment by submitting that, there is no allegation that there is escapement of income, in the reasons recorded by the Assessing Officer. He relied on case-law, which we would be referring in due course, for the proposition that the Assessing Officer should expressly record, in his reasons for reopening, that income subject to tax has escaped assessment and the reasons, have to be read as it is, and nothing should be added or substituted.

3.1. He further argued that no addition, whatsoever, was made in the Assessment Order, on the issues on which the reasons were recorded for reopening the assessments and that under such circumstances, the other additions made on issues which are not connected with the reasons recorded, cannot be made. He further submitted that the Assessing Officer has rejected the books of accounts and has estimated the profits and under those circumstances, separate additions cannot be made of items of income/expenditure in the trading and profit & loss account of the assessee. For this he relied on the decision of the 3 Assessment Year: 2011-12 I.T.A. No. 1227/Kol/2015 Assessment Year: 2011-12 Smt. Sarathi Majumdar Jurisdictional High Court in the case of Commissioner of Income Tax, Kolkata-1 versus M/s. Infinity Infotech Parks Ltd. in I.T.A. No. 60 of 2014, order dt. 10th September, 2014.

4.1. On the revenue appeal, he submitted that the ld. CIT(A) was wrong in reducing the addition by directing the Assessing Officer to take the business income of the assessee at Rs. 14,42,828/-. He relied on the order of the ld. Assessing Officer.

“In this case information in writing is passed to the undersigned by the Income- tax Officer (Intelligence & Criminal Investigation), Hakimpara, Siliguri that the assessee during the F.Y. 2010 had made cash deposits of Rs.89,10,640/- in one saving bank account no. 2432101004623 since maintained by her in Canara Bank, Siliguri Branch, However, the assessee had violated the provisions of Section 139A(5) by not quoting her PAN while making cash deposits. Further, when summoned u/s. 131 by the Income Tax Officer (Intelligence & Criminal Investigation), Hakimpara, Siliguri to explain the sources of such cash deposits,

4 Assessment Year: 2011-12 I.T.A. No. 1227/Kol/2015 Assessment Year: 2011-12 Smt. Sarathi Majumdar Sri Nimalaya Chakaraborty, Advocate appeared on behalf of assessee as per authorized representative and submitted before the ITO the bank details of such deposits and stated that these deposits were made out of the sale proceeds of whole sale cigarette business of the assessee run under her proprietorship concern “Next Zen”, but could not produce any supporting documents to substantiate the said statement. Besides as per 26AS details of the assessee since extracted online from AST, it is found that during the concerned period, i.e. F.Y. 2010-11, the assessee had received a total amount of Rs.17,36,460/- from one Godfrey Philips (I) Ltd. on which an amount of Rs.17,363/- was deducted as taxed u/s 194C. However, in the E-filed return for the A.Y. 2011-12 uploaded by the assessee on 28.03.2012 and since downloaded online from AST and placed on records, it is found that the claim for any TDS has been made, thus implying that the entire receipt from Godfrey Philips (I) Ltd. may have suppressed.”

6.1. The second argument is that, no addition has been made on the issue on which the assessment was reopened and hence the other addition which have no relation or nexus with the reasons recorded are bad in law. The assessment was reopened on the ground that there was cash deposits of Rs. 89,10,640/-, in one savings bank account maintained in Canara bank, Siliguri Branch and that no evidence was produced by the assessee in support of the contentions that these deposits were out of sale proceeds of cigarettes. The Assessing Officer has come to a conclusion that the undisclosed cash receipts was Rs.48,82,702/-, which he treated as income at Para 6(i) of his order. Thus, irrespective of the fact, whether

5 Assessment Year: 2011-12 I.T.A. No. 1227/Kol/2015 Assessment Year: 2011-12 Smt. Sarathi Majumdar this addition is ultimately made in the same manner or not, the fact remains that an addition was made on the issue on which the re-opening has been done. Thus, this argument of the ld. Counsel for the assessee fails.

6.2. On merits, the ld. Counsel for the assessee, pointed out that at para 6(i), page 12 of the Assessment Order that, there is an assumption, that unexplained receipt of Rs.48,82,702/-, is presumed to have been withdrawn from the business. Such presumption cannot be countenanced. Such an inference cannot be upheld. Even debit entries found in the current account of Sarathi Majumdar with the Bank of Rs.9,77,240/- are held as undisclosed profits which were withdrawn. Such conclusion of the Assessing Officer is without any basis and hence bad in law.

6.2.1 We agree with this submission. When the deposits in a Savings Bank Account, are the subject matter of enquiry, we do not understand how there can be a presumption of withdrawal of a huge amount of Rs.48,82,702/-, in cash from business. 6.2.2. M/s. Godfrey Philips India Ltd., issued to the assessee, credit notes, totalling to Rs.73.56.250/-. Out of this, display and scheme receipts, was a figure of Rs.55,57,483/-. The surplus from the same was Rs.22,39,198/-, after meeting the expenses. This was credited to the Profit & Loss Account of the assessee under the head “Display & Scheme” receipts. Under the head “Distribution of Subsidy”, the assessee received credit notes of Rs.17,83,767/-. The surplus from this account was Rs.2,34,350/-, after expenses. This was credited to the profit and loss account under the head “Miscellaneous Income”. These facts and figures have not been controverted by the ld. D/R.

6.3. Be it as it may, the books of account of the assessee have been rejected and this issue has not been challenged before us. Under these circumstances, the only issue that remains is as to whether the Assessing Officer can made separate additions of items of expenditure reflected in the P & L A/c, when he rejects the books of accounts and estimate the profit as a percentage of turnover.

6 Assessment Year: 2011-12 I.T.A. No. 1227/Kol/2015 Assessment Year: 2011-12 Smt. Sarathi Majumdar 7. The Kolkata ‘C’ Bench of the Tribunal in the case of Income Tax Officer vs M/s. Aakash Developers in I.T.A. No. 859/Kol/2012, for the Assessment Year 2007-08, order dt. 20/11/2015, held that when books of account have been rejected, and net profit estimated, such assumption shall cover all the other addition made for bogus purchase and expenses disallowed, while holding reliance on the decision of the Special Bench of the Tribunal in the case of Income-Tax Officer vs Kenaram Saha And Subhash Saha [2008] 301 ITR 171 (Kol).

7.1. Applying the propositions of law laid down by the Special Bench of the Tribunal in the case of Income-Tax Officer vs Kenaram Saha And Subhash Saha (supra), we uphold the contention of the assessee that, once the books of account have been rejected and the net profit has been estimated as a percentage of turnover by the Assessing Officer, no further additions on account of unverifiable expenditure and of items claimed in the profit and loss account etc., can be made. Gross receipts from M/s. Godfrey Philips (I) Ltd., cannot be treated as income of the assessee. Such action is against the facts of the case. Hence, this argument of the assessee is upheld and the addition estimated at 2 per cent of the turnover as determined by the Assessing Officer, is sustained. The balance of the additions are hereby deleted.