M/S GAURISHANKAR BIHANI,KOLKATA vs. A.C.I.T.-CIRCLE-34, KOLKATA, KOLKATA

IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH: KOLKATA [Before Shri A. T. Varkey, JM & Dr. A. L. Saini, AM] I.T.A No.2691/Kol/2013 Assessment Year: 2008-09

M/s. GaurishankarBihani Vs. Assistant Commissioner of Income-tax, (PAN: AACFG8931E) Circle-34, Kolkata. (Appellant) (Respondent)

Date of hearing: 19.01.2017 Date of pronouncement: 15.03.2017 For the Appellant: Shri S. Jhajharia, AR For the Respondent: Md. Ghayas Uddin, JCIT, Sr. DR ORDER Per Dr. A. L. Saini, AM: The captioned appeal filed by the Assessee pertaining to Assessment Year 2008-09, is directed against the order passed by the Ld. CIT(A)-XX, Kolkata in appeal No. 194/CIT(A)-XX/Circle-34/2010-11/Kol, dated 11.09.2013, which in turn arises out of assessment order passed by the ACIT, Circle-34, Kolkata u/s. 133A/143(3) of the Income- tax Act, 1961 (hereinafter referred to as the “Act”), dated 27.12.2010.

“A survey u/s. 133A of the Income Tax Act, 1961 was conducted on 27.02.2008. During the course of survey, the cash physically found was Rs.13,18,000/- whereas as per the cash book available was only Rs.14,315/- Regarding the difference of cash found of Rs.13,03,685/- , during the course of survey, no explanation for the same could be given by the assessee firm. Apart from this, diary maintained by the assessee was found showing cash receipts at 3% to 3.5% on cash sales of Rs.8.69 Crores, i.e. Rs.26,09,823/- which were not reflected in the sales register. During the course of assessment proceeding, the assessee in its letter dt.l0.12.2010 submitted that "However, such working of Rs.26,09,873/- was on estimate basis @ 3% and since the statement so made was in the late hours and our such Partner, Sri.Tarun Bihani did not have any calculation available, it was made on an estimate basis. Further, on subsequent correct calculation of such cash receipts which was received @2%, 2.5% etc& such total cash was computed at Rs.20,62,443.38, a detailed working of such correct computation has already been submitted to the A.O on 31.03.2008 during the statement so taken vide noting in the order sheet." Further, As regards your query in respect of cash found during the course of survey on 27/28/02/2008 at Rs.13,18,000/- and the cash balance on such date being only Rs.14,315/-, this is to submit that such cash balance was the

2 ITA No.2691/Kol/2013 M/s. GaurishankarBihani, AY.2008-09

same lying at the office premises which was created out of the cash received as submitted above. The balance Rs.7,58,758.38/- was lying with one of the Partners. It may not be out of place to mention that the entire sum of Rs.20,62,443/- has been subsequently considered as miscellaneous income." On examination of the details of the assessee's claim, the "correct calculation of such cash receipts" of Rs.20,62,443.38/- submitted by the assessee firm was found to be correct and tallying with the items and amounts entered in the diary found. However, with respect to the explanation offered by the assessee firm regarding the cash difference amount of Rs.13,03,685/- found by the survey party, that if the assessee's contention as mentioned above is genuine, then it is indeed a cause of wonder that during the course of survey, the Partner of the assessee firm, Shri Tarun Bihani was not able to correlate and offer an explanation regarding the-difference of cash difference found amount of Rs.13,03,685/-[Rs.13,18,000 - Rs.14,315=13,03,685] vis-a-vis the cash receipts amount. In the absence of any details and evidences for the same, the contention of the assessee firm is not acceptable, hence the cash difference amount ofRs.13,03,685/- is added back to the total income of the assessee. During the course of survey, the stock found as on the date of survey was Rs.2,98,23,534 and stock as per the stock register was Rs.3,66,64,780, causing a difference in amount of Rs.68,41,246/- Regarding such difference, the ARs of the assessee firm have stated that the survey party had arrived at the valuation "on account of eye estimate", and that "such stock quantity is without considering the stock lying with our regular cutters for which we have already mentioned ill our deposition during the survey on 28.2.2008 . Further, the assessee firm submitted that "As per such reconciliation the value of stock as on 27.02.2008 should be around Rs.3.33 Crores ... However and without prejudice this is to submit that the physical stock found and estimated by the survey party was less than the stock as per books, no adverse inference could be drawn." During the course of scrutiny proceedings, the ARs of the assessee were requested to explain how the survey party could have just conjured up the amounts of Rs.2,98,23,534/- as such an amount cannot be just a figment of imagination. Further, the ARs also informed that there were no stock registers available at the godowns where such stock valuation had also been made during the course of survey. If the contention of the ARs of the assessee is true, then it implies that in the absence of the stock register, the survey party had taken physical valuation of the stocks and therefore, the stock found amount of Rs.2,98,23,534/- as valued by the survey party is the actual stock valuation amount on the date of the survey. Also, in view of the explanation given above by the assessee firm, it is evident that the physical stock found and estimated during the course of survey was indeed less than the stock mentioned in the stock register. Therefore, the contention of the assessee firm is not acceptable in absence of the details with valuation of the items mentioned in the stock register and the stock shown in the inventory of the stock taken by the survey party. Hence, the difference of the stock of Rs.68,41,246/- is considered as undisclosed sales and the Gross Profit (G.P) rate shown by the assessee of 4.97% is applied on the said undisclosed sales, which comes to Rs.3,40,010/-. The same is added back to the total income of the assessee firm. Penalty U/S 271 (l)(c) of the Income Tax Act, 1961 is initiated. During the Scrutiny proceedings, it was observed that form the details of Rent Paid by the assessee firm, it is noted that the assessee had paid rent amount of Rs.6,22,961.60/- to the the party, namely, Kolkata Port Trust. However, it was learnt form the ARs of the assessee that no TDS has been deducted by the assessee firm u/s 1941 , hence, the said amount of Rs.6,22,961.60/- is disallowed u/s 40(a)(ia) of the Income Tax Act, 1961 and added back to the total income of the assessee firm.”

3 ITA No.2691/Kol/2013 M/s. GaurishankarBihani, AY.2008-09

3.Aggrieved from the order of the AO, the assessee filed an appeal before the Ld. CIT(A), who has dismissed the appeal of the assessee by observing the following:

Observation of CIT(A) for ground No.1 “3.2. I have perused the assessment order and considered the submission of the appellant. The fact of the case is that a survey action u/s.133A(1) of the I.T. Act was carried out at the business premises of the appellant. During the course of survey action, physical inventory of cash found was taken. As per physical inventory, cash of Rs.13,18,000/- was found whereas as per books of account cash balance was of Rs.14,315/-. Since, no explanation was offered with regard to difference of cash found, the A.O. made addition of Rs.13,03,685/-. Further, a diary maintained by the appellant was also found during the course of survey action by which it was gathered that cash receipts at 3% to 3.5% on sales of Rs.8.69 crores was not shown in the books of account by which it was concluded that an amount of Rs.26,09,873/- was not considered while calculating total income. However, after taking into account all the relevant facts, a subsequent calculation of such cash receipts was estimated at Rs.20,62,443/- @ 2% to 2.5% on total sale. When confronted the appellant admitted the same as unaccounted income. Now, the appellant's plea that the surrendered amount of Rs.20,62,443/- includes cash found amounting to Rs.13,18,000/- also but the fact remains that the disclosure was of Rs.20,62,443/- was made with regard to figures mentioned in the diary found during the course of survey action. The cash found in one day of Rs.13,18,000/- had no connection with the figures mentioned in the diary. From the facts and circumstances of the case, it can be concluded that the cash amounting to Rs.13,18,000/- was over and above the cash receipts shown in the diary. The disclosure of the appellant pertained to the figures of the diary only but the cash found was remained to be explained/disclosed. The logic given bythe appellant that the receipts in cash coming from the earlier period had been dumped by them at their premise rather than using it in the business, is not found to be acceptable. All these facts show that this cash was different from the cash receipts as mentioned in the diary. Onus was on the appellant to prove the nature and source of the cash found but they failed to do so. Under such situation, I find no infirmity in the order of the A.O. Further, the case laws relied upon by the appellant are not applicable in their case as those facts are not identical with the fact of the present case, hence, appeal on this ground is dismissed.” Observation of CIT(A) for ground No.2 “4.2 The fact of the case is that the appellant made payment of Rs.6,22,961/- to Kolkata Port Trust which was subjected to TDS, however, no tax was deducted on such payment. Therefore, the A.O.invoked section 40(a)(ia) of the I.T. Act. Now, the appellant mentioning circular 735 dated 30.0l.1996 of CBDT and various case laws. However, the facts in the present case are different. The income of Kolkata Port Trust is not exempt, therefore, the argument of the appellant in this regard are not maintainable. Since, the appellant failed to deduct tax, the A.O. was justified to invoke section 40(a)(ia) of the Act. The facts in the case laws relied upon by the appellant are not identical with the facts of the present case. Hence, appeal on this ground is also dismissed.” Observation of CIT(A) for ground No.3 “5.2. The fact of the case is that during the course of survey action, inventory of stock was taken and thereby a difference in stock to the extent of Rs.68,41,246/- was found. There was a stock of Rs.2,98,23,534/- as per physical inventory and Rs.3,66,64,780/- as per stock register maintained by the appellant. The A.O. applied G.P. @ 4.97% on Rs.68,41,246/- being the same was sold out of books and thereby, an addition of Rs.3,40,010/- was made. Though, the

4 ITA No.2691/Kol/2013 M/s. GaurishankarBihani, AY.2008-09 appellant reiterated that they prepared reconciliation chart of stock which was submitted to the AO after consideration of the entries of stock taken and stock lying with the cutters/outside parties. However, the explanation of the appellant was not supported by documentary evidences. No details of stock lying with the cutters/outside parties was given. Under such circumstances, I find no infirmity in the order of the AO. Further, the facts in the case laws relied upon by the appellant are not identical with the facts of the present case. Hence, appeal on this ground is dismissed.” 4. Not being satisfied with the order of the Ld. CIT(A), the assessee is in further appeal before us and has taken the following grounds of appeal:

“1. For that in view of the facts and in the circumstances, the Ld. CIT(A) was wholly unjustified in confirming the addition of Rs. 13,03,685/- being the cash found during the course of surveyu/s. 133A and such amount having already been considered and' offered by the appellant as part of the computation of income in the said assessment year, the action of the Ld. CIT(A) confirming the action of AO is wholly bad in law, illegal and the addition so confirmed is liable to be deleted. 2. For that in view of the facts and in the circumstances, the Ld. CIT(A) was wholly unjustified in disallowing Rs. 6,22,961/- by invoking the provisions of sec. 40(a)(ia) and such action of the Ld. CIT(A) and the AO is wholly bad in law, illegal and such disallowance made is liable to be deleted. 3. For that in view of the facts and in the circumstances, the Ld. CIT(A) was wholly unjustified in confirming the addition of Rs. 3,40,010/- as alleged gross profit on the alleged undisclosed sales of Rs. 68,41,246/- without considering the facts in the matter and such action of the Ld. CIT(A) & AO is wholly bad in law, illegal and in view of the facts and in the circumstances such addition made is liable to be deleted and it may kindly be held accordingly.” 4.1 Ground No. 1 relates to addition of Rs. 13,03,685/- being the cash found during the course of survey u/s. 133A.

4.2Ld AR for the assessee has submitted before us that during the course of survey, a query was raised in respect of cash received on sales of the percentage thereof. A full working of cash received and the relevant bill amount and the percentage of such amount on cash sales was furnished before the AO. The total of such cash receipts was determined at Rs.20,62,443.38, the said amount of Rs.20,62,443.38 was duly offered to tax by the appellant. It may be pertinent to note that the AO after fully examining the details/particulars in support to such sum, offered by the appellant as miscellaneous income, had accepted the said amount as income of the assessee and had categorically mentioned in the assessment order that such sum was found to be correct and tallying with the items and amounts entered in diary found. The assessee also submitted before the ldCIT(A) that the said sum of Rs. 13,18,000/- as alleged by the AO being difference between the cash found

5 ITA No.2691/Kol/2013 M/s. GaurishankarBihani, AY.2008-09 during the survey and that entered in the cash book was already included in the sum of Rs.20,62,443.38, which had already been offered to tax by the assessee and hence no separate additions in this regard can never be made. As regards the discrepancy, in the physical cash found during the survey and that entered in the cash book, it was duly submitted before the AO that the balance amount Rs.7,44,443.38 [ Cash received of Rs. 20,62,443.38 –Rs. 13,18,000 being cash found during survey] was laying with one of the partners and since the entire amount of Rs.20,62,443.38 has been offered to tax, no separate addition in respect of Rs. 13,18,000 can be made on the alleged ground of discrepancy in cash found physically and that entered in the cash book on the date of survey, when the total cash receipts had been offered to tax and have been found to be correct by the AO, while framing the assessment. The ld AR for the assessee also relied on the judgment of Kolkata Tribunal in the case of Vivek Kumar Kathotia Vs, DCIT (2012) 150TTJ 462, wherein the hon`ble Tribunal held as under:

“Since total undisclosed income arising from seized documents have been already offered for taxation by the assessee and cash found in the course of search stood explained from the entries recorded in the seized documents, no separate addition can be made in respect of cash found”

4.3 On the other hand, the ld DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para, and is not being repeated for the sake of brevity.

4.4 Having heard the rival submissions, perused the material available on record, we are of the view that there is merit in the submissions of the assessee, as the propositions canvassed by the Ld AR for the assessee are supported by the facts narrated by him above. As the ld AR for the assessee pointed out that the said sum of Rs. 13,18,000/- as alleged by the AO being difference between the cash found during the survey and that entered in the cash book was already included in the sum of Rs.20,62,443.38, which had already been offered to tax by the assessee. The ldCIT(A) did not bring any cogent evidence on record to establish that the explanation submitted by the assessee is false. Therefore, considering the factual

6 ITA No.2691/Kol/2013 M/s. GaurishankarBihani, AY.2008-09 position, the addition made by AO and confirmed by the LdCIT(A) needs to be deleted. Accordingly, we delete the addition of Rs.13,03,685/-.

4.5 In the result, the appeal filed by the assessee on ground No. 1, is allowed.

5.1Ld AR for the assessee has submitted that the assessee made payment of Rs.6,22,961/- to Kolkata Port Trust which was not subjected to TDS, therefore, no tax was deducted on such payment. The A.O. invoked section 40(a)(ia) of the I.T. Act and made addition and the said addition confirmed by the ld CIT(A), without considering the factual position of the case. The assessee mentioned circular 735 dated 30.0l.1996 of CBDT and various case laws but ld CIT(A) ignored them. The Kolkata Port Trust is a charitable institution and its income is not chargeable to tax under the provisions of the Act. Therefore, in the instant caseno tax was deductible at source under section 194-I read with section 204 comprised in Chapter XVII-B from the rent paid by the assessee to Kolkata Port Trust (KPT). This is because such rent was not to be included in the taxable total income of the KPT and was, therefore, not chargeable under the provisions of the Act. Further, the ld AR for the assessee also stated that this issue is fully covered by the assessee`s own case in, Gourishankar Bihani, ITA No. 1127/K/2011, A.Y. 2007-08 dated 18/12/2014, wherein the Hon`ble Kolkata Tribunal held as follows:

“In view of the above fact, we are of the view that in the instant case no tax was deductible at source under section 194-I read with section 204 comprised in Chapter XVII-B from the rent by the assessee to KPT. This is because such rent was not to be included in the total income of KPT and was therefore, not chargeable under the provisions of the Act. In the case law referred ld Sr. DR the fact relating to the claim of exemption of the income of the KPT was not to be Tribunal or that issue was not raised but in the instant case, KPT was not required to pay any and in turn cannot be treated to be in default within the meaning of section 201(1). Accordingly, we are of the view that no disallowance ought to have been made under section 40(a) (ia) of the Act.”

7 ITA No.2691/Kol/2013 M/s. GaurishankarBihani, AY.2008-09 5.2 On the other hand, the ld DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para, and is not being repeated for the sake of brevity.

5.3 Having heard the rival submissions, perused the material available on record, we are of the view that there is merit in the submissions of the assessee, as the propositions canvassed by the Ld AR for the assessee are supported by the Judgment cited by him, in assessee`s own case Gourishankar bihani, ITA No. 1127/K/2011, A.Y. 2007-08 dated 18/12/2014, above. As ld AR for the assessee has rightly pointed out that the Kolkata Port Trust is a charitable institution and its income is not chargeable to tax under the provisions of the Act. Therefore, in the instant case no tax was deductible at source under section 194-I read with section 204 comprised in Chapter XVII-B from the rent paid by the assessee to Kolkata Port Trust (KPT). This is because such rent was not to be included in the taxable total income of the KPT and was, therefore, not chargeable under the provisions of theAct. Therefore, considering the factual position, we are of the view that the addition made by AO and confirmed by CIT(A) needs to be deleted. Accordingly, we delete the addition of Rs.6,22,961/-

5.4 In the result, the appeal filed by the assessee on ground No.2, is allowed.

6.Ground No.3 relates to addition of Rs. 3,40,010/- as alleged gross profit on the alleged undisclosed sales of Rs. 68,41,246/-.

6.1 The Ld AR for the assessee has submitted before us that the facts of the issueunder consideration, is that during the course of survey action, inventory of stock was taken and thereby a difference in stock to the extent of Rs.68,41,246/- was found. There was a stock of Rs.2,98,23,534/- as per physical inventory and Rs.3,66,64,780/- as per stock register maintained by the appellant. The difference of physical stock and stock as per stock register comes at Rs. 68,41,246 [ Rs.3,66,64,780 – Rs.2,98,23,534]. The A.O. applied G.P. @ 4.97% on Rs.68,41,246/- being the same was sold out of books and thereby, an addition of Rs.3,40,010/- [ Rs.68,41,246 x 4.97%], was made. The assessee prepared reconciliation chart of stock which was submitted to the AO after consideration of the entries of stock taken and stock lying with the cutters/outside parties. The

8 ITA No.2691/Kol/2013 M/s. GaurishankarBihani, AY.2008-09 assessee explained before the ld CIT(A) about the details of stock lying with the cutters/outside parties. The ld AR for the assessee has pointed out that the survey party prepared the stock on the date of survey on account of “eye estimate” without taking into consideration the quantitative details of the stock or the fact that stock of HR Coils were lying with that with the cutters, the names and addresses of which were also furnished with the AO. The assessee, at the time of assessment proceedings, submitted the complete reconciliation of stock before the AO. Neither the AO nor the ld CIT(A) find any mistake in the reconciliation of stock submitted by the assessee. The ld AR for the assessee also submitted that the physical stock found and estimated by the survey party was less than the stock as per books, no adverse inference could be drawn. The stock as per books were later sold and is wholly verifiable therefore no adverse inference can be drawn. Therefore, the ld AR submitted that in absence of any proper inventory prepared by the survey team without giving and quantitative details of the stock, such inventory based on mere surmise conjecture and on the basis of estimate can never be ground for addition in the hands of the assessee.

6.2.On the other hand, the ld DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para, and is not being repeated for the sake of brevity.

6.3 Having heard the rival submissions, perused the material available on record, we are of the view that there is merit in the submissions of the assessee, as the propositions canvassed by the Ld AR for the assessee are supported by the facts narrated by him above. As, the ld AR for the assessee has pointed out that the assessee submitted the stock reconciliation before the AO and ld CIT(A). Neither the AO nor the CIT(A) found any mistake in the reconciliation of stock submitted by the assessee. The AO has failed to point out any mistake in the reconciliation submitted by the assessee. The physical stock found and estimated by the survey party was less than the stock as per books, no adverse inference could be drawn. The stock as per books were later sold and is wholly verifiable therefore no adverse inference can be drawn. Therefore, considering the factual position, we are of the view that the addition made by AO and confirmed by the ld CIT(A) needs to be deleted. Accordingly, we delete the addition.

6.4. In the result, the appeal filed by the assessee on ground No.3, is allowed.

9 ITA No.2691/Kol/2013 M/s. GaurishankarBihani, AY.2008-09 Order pronounced in the open court on 15.03.2017

Sd/- Sd/- (A. T. Varkey) (Dr. A. L. Saini) Judicial Member Accountant Member 15th March, 2017 Dated : Jd. Sr. P.S

Copy of the order forwarded to: 1. Appellant – M/s. GaurishankarBihani, C/o M/s. SalarpuriaJajodia& Co., 7, Chittaranjan Avenue, Kolkata-700 072.. 2. Respondent – ACIT, Circle-34, Kolkata. 3. CIT(A), Kolkata 4. CIT, Kolkata 5. DR, Kolkata Benches, Kolkata /True Copy, By order, Asstt. Registrar.