SHRI KUSHAL D.OSWAL vs. THE COMMISSIONER OF INCOME TAX

1 IN THE HIGH COURT OF KARNATAKA KALABURAGI BENCH DATED THIS THE 13TH DAY OF JUNE, 2016 PRESENT THE HON’BLE MR.JUSTICE ANAND BYRAREDDY AND THE HON’BLE MR.JUSTICE RAGHVENDRA S. CHAUHAN INCOME TAX APPEAL No. 6005 OF 2012 BETWEEN: Shri Kushal D. Oswal Prop: Hemendra Kirana Bhandar, Kirana Bazar, Bijapur, PAN: AABPO9185D … APPELLANT (Shri K.R. Prasad, Advocate) AND: The Commissioner of Income Tax, Belgaum – 590 001. … RESPONDENT (Shri Ameet Kumar Deshpande, Advocate)

2 This Income Tax Appeal is filed Under Section 260 A of the Income Tax Act, 1961 praying to formulate the substantial questions of law and allow the appeal by setting aside the order of the Income Tax Appellate Tribunal in ITA No.593/BANG/11 dated 29.06.2012 and set aside the order of the Commissioner of Income Tax Belgaum in Pan No. AABPO9185D dated 29.3.11 and suitably modifying it as sought in the appeal. This appeal coming on for hearing this day, Anand Byrareddy J., delivered the following: JUDGMENT Heard the learned counsel for the appellant and the learned counsel for the revenue. 2. The appellant is an individual assessed to tax. He is engaged in retail business dealing in kirana goods under the name and style of ‘Hemendra Kirana Bhandar’, Bijapur, Karnataka. The appellant seeks to question the validity of the Income Tax Appellate Tribunal’s order in ITA.No.593/2011 dated 29.06.2012. For the assessment year 2004-05, the appellant is said to have filed its return of income declaring an income of Rs.1,63,930/-. The case

3 however was taken up for scrutiny and it was said to have been noticed that the Commercial Tax authorities had conducted an inspection of the appellant’s premises and noticed that there were certain sales not accounted for in the Books of Account and relying on such material found during inspection, the Commercial Tax Authority had quantified such sales at Rs.37,99,755/-. The Assessing Officer under the Income Tax Act, 1961 (hereinafter referred to as ‘the IT Act’, for brevity), estimated the income at 8.01% on such suppressed sales and made an addition of Rs.3,04,360/- by order dated 19.12.2008. Aggrieved by the said assessment order, an appeal was preferred before the Commissioner of Income Tax (Appeals). That appeal having been considered on merits, the authority had reduced the percentage of income on suppressed sales to 5%. The appellant not being satisfied, had made a further appeal to the Tribunal, which restricted the percentage of income to 3% of the net sales, with an observation that no other expenses are to be allowed. That order of the Tribunal had attained finality. Thereafter, the Commissioner of Income Tax,

4 Belgaum, was of the view that the assessment order passed was erroneous and prejudicial to the interest of the revenue and therefore, in exercise of power, issued notice under Section 263 of the IT Act, raising the following issues namely, that the sales tax of Rs.87,635/- was allowed as deduction. But the said sum was not paid during the previous year and therefore, the same should not have been allowed as a deduction. Secondly, in respect of suppressed sales, the assessee had made corresponding purchases, the source of which is not reflected in the books of account. Having regard to the tenor of Section 69 of the IT Act, the unexplained investment on such purchases was deemed to be income. The first issue relating to sales tax deduction amount relating to Rs.87,635/-, is however not the subject matter of the present appeal. The appellant had appeared before the Commissioner of Income Tax and had filed written submissions. The Commissioner however not being satisfied with the explanation, directed the Assessing Officer to add Rs.21,24,207/- being the unaccounted

5 purchases under Section 69 of the IT Act. It was observed by the said authority that the Assistant Commissioner, by order dated 31.11.2005 had brought out that there were unaccounted purchases to the tune of Rs.21.24 lakh and the appellant had not explained the source of such investment. The appeal filed before the Income Tax Appellate Tribunal against the order passed under Section 263, it was contended interalia that the cash purchases alone excluding credit may be considered for the purpose of determination of the investment in the unaccounted purchases. The determination of unaccounted purchases of Rs.21.24 lakh by the Sales Tax authorities could not ipso facto added under Section 69 of the IT Act without any material to suggest that the investment for such unaccounted purchases were made during the financial year. It was further contended that the appellant made purchases on credit basis, as was evident from material found during inspection by the sales tax authorities on 8.6.2004, which may form part of the turnover for the purpose of sales tax, but could not

6 constitute unexplained investment for the purpose of Section 69 of the IT Act. Alternatively, it was contended that only the peak investments made during the financial year on account of unaccounted purchases may be brought to tax. The Tribunal however, was not impressed with the contentions and dismissed the appeal. The Tribunal placed reliance on the order passed by the Assistant Commissioner of Commercial Taxes wherein the unaccounted purchases have been quantified at Rs.21,24,207/-. The contentions raised by the appellant were ignored. It was observed that since the appellant had accepted the order passed by the Sales Tax Authorities, he was precluded from seeking to urge grounds afresh insofar as those findings were concerned. The Commissioner of Income Tax incidentally had directed the Assessing Officer to make addition under Section 69 of the IT Act, which was affirmed by the Tribunal. It is emphasized therefore in the present appeal that the purchases were made on credit basis with no cash outflow. Alternatively, that only the peak investment may be considered as unexplained and that there is

7 sufficient material to establish that there was credit purchase and which was not taken into account by the Sales Tax authorities in arriving at its findings. It is in this vein that the present appeal is filed. 3. The learned counsel for the appellant would particularly take this Bench through the old documents which were available with the Sales Tax authorities and on the basis of which the report was generated of the inspection conducted by the sales tax authorities, which was never looked into by the income tax authorities but have proceeded mainly on the report of the sales tax authorities which was prepared for a wholly different purpose and was not so much relevant in the Income Tax authorities arriving at their findings. It is this which is emphasized in seeking that the appellant be given a further opportunity of demonstrating from the material on record that there was an error committed in not addressing the material available in its proper perspective and that there has been a miscarriage of justice on account of material available on record being overlooked. And hence, seeks that the

8 matter may be remanded to the Assessing Authority in order that the appellant be given a fresh opportunity of establishing the case as sought to be urged in this appeal. 4. The learned counsel for the revenue however would vehemently resist the appeal and would submit that the appellant’s endeavour to bring on record fresh material at this stage before this Court, is impermissible. It is after the matter has gone through a tear of the authorities that the appellant having suffered findings, is not in a position to seek a remand at this stage seeking to draw sustenance from material which may never have formed part of the record. 5. However, the learned counsel for the appellant would point out that the documents that are sought to be relied upon and pressed into service were in fact documents that were seized and were not available to the appellant at the relevant point of time and the fact that it has now emanated from the said authorities as demonstrated from the acknowledgement and the seal of the Sales Tax authorities. Therefore, it was not on account of any want of

9 diligence on the part of the appellant that these documents could not be produced or relied upon at the relevant point of time, but for the reason that the documents were not at all available with the appellant and the Income Tax authorities have proceeded irrespective of the said material being available, which would have brought home the case that the appellant seeks to put forth in this appeal. 6. Given the circumstances that the appellant is indeed justified in contending that the material documents were not available on hand in order to establish his case at the earliest point of time, the appellant seeking an opportunity even at this point to establish his case and to offer an explanation which would take away the case sought to be made out by the revenue, cannot be brushed aside. Consequently, we are of the opinion that the matter requires to be remanded for a fresh consideration. Hence, the appeal is allowed. The impugned orders are set aside and the matter is remanded to the Assessing Officer in order to enable the appellant

10 to produce the relevant materials and to put forth his case as sought to be urged in this appeal. The appellant shall be afforded an opportunity of hearing before a fresh assessment order is passed. Sd/- JUDGE Sd/- JUDGE KS