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Income Tax Appellate Tribunal, BENCH- A, BANGALORE
Before: SMT. ASHA VIJAYARAGHAVAN
PER ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER:`
This appeal by the Assessee is directed against the order of Commissioner of Income-tax (Appeals), Mysore dated 10/04/2014 and it pertains to the assessment year 2007-08.
2 2. The ld AO held with respect to applicability of provision of section 44AF of the IT Act as follows:-
“The assessee has filed the return of income for the assessment year 2007-08 along with financial statements on 18/03/2008 without considering the provisions of section 44AF of the IT Act. Now that, the assessee is claiming that the provisions of section is applicable in its case ie., at the time of assessment proceedings consequent to survey action u/s 133A of the IT Act. It’s claim is not acceptable at this stage.”
The AO held as follows with respect to difference in pigmy deposits amounting to Rs. 1,20,600/-:
At the time of survey proceedings it was noticed that the assessee had deposited Rs. 1,42,200/- towards pigmy account in the previous year 2006-07 relevant to the Asst. Year 2007-08. Whereas the assessee had declared Rs. 39,600/-, as reflected in the balance sheet filed for the A.Y. 2007-08. Thus, the difference pigmy deposit of Rs. 1,02,600/- was not accounted by the assessee for the Asst. Year 2007-08. Sri. Naushad (one of the partners of M/s Aman Gold Plaza) vide his sworn statement dt. 26/03/2008 had offered this 3 difference pigmy deposit of Rs. 1,02,600/- as additional income for the Asst. Year. 2007-08.
The assessee vide it’s letter dated 29/12/2009 has submitted that the bank confirmation letter of pigmy deposit, reconciliation statement and statement of term loan and overdraft for the financial year 2006-07 have already been filed, wherein transfers/credit from pigmy accounts to overdraft and term loan have been highlighted. Further, is stated that ‘without prejudice, since our return of income is under presumptive basis as declared u/s 44AF, no further addition can be made, since pigmy deposits, repayment of term loan and deposit in overdraft account are all business transactions’.
The assessee’s submission is not considered in view of the following reasons:- (a) The certificate issued by the Syndicate bank, Puttur branch shows that the balance of pigmy deposits total amounting to Rs. 39,600/-
(b)The statements of term loan and overdraft for the financial year 2006-07 do not show correct credits/transfers from the pigmy deposits. On verification it is found that the credit/transfer entries show different pigmy deposit numbers. Hence, the assessee’s claim of pigmy amount of Rs.
4 1,02,600/- was adjusted towards term loan and overdraft is not considered. (c) In view of the fact that, the assessee has not filed return of income under presumptive basis as per provisions of section 44AF of the IT Act, it’s claim of no further addition can be made for the A.Y. 2007-08 is not considered.
Therefore the difference of pigmy deposit amount of Rs. 1,02,600/- is added to income as discussed above.
4. On appeal before CIT(A) it was reiterated that provisions of Sec. 44AF of IT Act are applicable to the assessee.
Further, the assessee relied on written submission filed for 2006-07. In this submission, the assessee has argued that the A.O. based on the purchases from Tamanna Jewellers of 200 gms which is gold bars which are converted into jewellery has concluded that the assessee is a manufacturer. The assessee submitted that this is only a small portion of the turnover. Further assessee stated that it has been observed by the AO that, for that particular FY i.e. 06-07 the goldsmiths sold gold ornaments and therefore going by the statement of AO, the assessee can be treated as retail trader.
5 6. The CIT(A) was of the view that for the present AY, the assessee filed return without any reference to 44AF, CIT(A) observed that for the size of the business of the assessee, even in the assessee’s own words the turnover with Tamanna Jewellers in the form of gold bars which are admitted by the assessee to be manufacture is not a small quantity as attempted to make out by the assessee. The CIT(A) further noted that the assessee is claiming that he purchased old jewellery from goldsmiths which was polished and kept in the showroom. According to the CIT(A) the assessee himself has sated in the assessment order that in this line of trade, normally gold is given for making jewellery to goldsmiths who are paid making charges while, in the case of the assessee the assessee is claiming to have purchased ornaments from them and hence the CIT(A) observed that from the submissions of the assessee, that the assessee is doing both purchase of gold bar and getting it converted into jewellery and also purchase of ornaments from goldsmith.
7. Hence the CIT(A) was of the view that the assessee is involved both in manufacture and trading The CIT(A) further
6 observed that the applicability of Section 44AF is denied by the AO not on the ground of manufacturer but on the ground that the assessee has filed return in the regular course without any reference to 44AF.
The CIT(A) agreed with the observations of the AO and dismissed the appeal of the assessee.
Aggrieved the assessee has filed the following grounds before us.
The impugned order u/s 143(3) dt. 10-04-14 passed by the authority below is opposed to the law , equity, weight evidence, probabilities, facts and circumstances of the case.
The impugned order is illegal, barred by limitation, and has been made in violation of the principle of natural justice and equity.
3. On the facts and circumstances of the case, the authorities below erred in not giving sufficient opportunity of being heard to the assessee.
On the facts and circumstances of the case the authorities below erred in stating that provisions of Section 44AF of the Act is not applicable to your assessee.
5. On the facts and circumstances of the case, the authority below erred in confirming the addition of Rs. 1,02,600/- being investment in pigmy deposit.
Without prejudice, the authorities below erred in not giving telescoping effect on the additions made under asset method and income method which amounts to double taxation.
On the facts and circumstances of the case, the authority below erred in not disposing the ground on charging of interest u/s 234B.
8. Your assessee craves for leave to add, to delete from, or to amend the grounds of appeal.
It was submitted before us that the assessee is an eligible assessee for the purpose of 44AF and it can avail the benefit of section 44AF even if it is not earlier claimed in the original return.
It was further contended that even though the assessee had not returned income u/s 44AF, assessee can file return of income u/s 44AF in assessment proceedings.
8 10. It was further submitted by the Assessee when 44AF applies, then Assessing Officer cannot make addition based on asset method.
The ld counsel also pointed out that the Financial Statements such as balance Sheet and Profit and loss Account are not prepared from complete set of books of accounts.
Section 44AF imposes tax on presumptive basis which is nothing but an estimation basis. The assessee submits that, in such a scenario the Assessing Officer is not again allowed to look into the correctness of the books and tax any discrepancies if any. Doing so would defeat the purpose of section 44AF which is intended to reduce the burden of maintaining books of accounts for small businesses. The assessee further submits that, the Assessing officer is allowed only to check the correctness of Turnover which is the sole determinant of taxable profits from the business which falls under 44AF. The Assessee drew attention to the fact that, books are also not prescribed for this category of business which again supports the above point. It was further submitted that once an income is taxed based on income method, the same should not be taxed again under asset method especially when
9 taxed based on presumptive basis. Doing so would lead to taxing the same income twice in the hands of the assessee.
We heard both parties.
Section 44AF imposes tax on presumptive basis and the AO is expected to check the turnover which is the sole determining factor for taxing the profit from the business which falls u/s 44AF.
According to the ld counsel for the assessee the AO has taken the turnover based on sales tax return. Hence, it is also to be noted that certain items of jewellery have been returned and, therefore, the total turnover has to be reworked taking into account the returned items.
Hence, we set aside the issue with respect to applicability of sec.
44AF to the file of the AO, who shall determine whether the turnover is less than 40 lakhs after taking into account the return jewellery.
With respect to pigmy deposit we find that the total payment made during the year to pigmy account is Rs.1,42,200/- out of which Rs.1,02,600/- is adjusted with overdraft account. Balance of Rs.39,600/- is reflected in the balance sheet as outstanding balance.
10 The pigmy number of closed and outstanding are different due to which Rs.1,02,600/- is not given credit. The AO shall examine this aspect from the balance sheet/accounts. Hence, we restore the issue to the file of the AO who shall to verify the certificate issued by the Syndicate Bank, Puttur Branch which shows that the balance of pigmy deposit amounts to Rs.39,600/- and decide the issue in accordance with law.
In the result, the appeal of the asseessee is allowed for statistical purpose.
Order pronounced in the open court on 16th September, 2016.