ITO, NEW DELHI vs. SHRI OM PRAKASH, DELHI

ORDER

PER BEENA A PILLAI, JUDICIAL MEMBER

1. Restricting the addition to Rs.83,66,172/- @10% of total turnover instead of Rs.1,41,37,320/- @ 20% thus deleting the addition of Rs.57,71,148/-, on estimate basis without making any substantive enquiries or comparing any case in the similar line of business.

2. The appellant craves the right to add, alter or amend any ground of appeal

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2. Notice of hearing dated 06/12/17 was issued to assessee on 20/12/07, intimating the date of hearing to be fixed on 08/02/18 at the registered address provided in form 36, which has been returned with an intimation ‘left’. On the earlier two occasions also intimation sent from the office of this Tribunal has been returned back. We are therefore left with no option, but to proceed with the hearing without the presence of assessee or his representative.

3. Brief facts of the case are as under: Briefly stated facts of the case are that the appellant filed his return of income for the relevant assessment year 2006-07 on 4.8.2006 declaring income of Rs. 9,550/-. During the assessment proceedings, the Ld.A.O. noticed that cash totalling to Rs. 7,06,86,600/- was deposited in the bank accounts of the assessee in the instant year. Assessee in this regard stated that cash deposits represented turnover of assessee in the business of food grains. However, as assessee did not produce books of accounts and vouchers. Ld.AO determined income at Rs. 1,41,37,320/- by adopting a rate of 20% on the total deposits of Rs. 7,06,86,600/-. On appeal, the addition of Rs. 1,41,37,320/- was enhanced by Rs. 5,65,44,280/- and it was held that the entire deposits are income of the assessee on the basis that assessee failed to explain the deposits and corresponding outgoings. 3.1. On further appeal by assessee this Tribunal vide order dated 29.5.2014 (ITA No 2033/De1/2011) restored the issue back to tLd.AO by observing as under: 2 "9 In the present case, we find that though the learned CIT(A) in para no. 3.3 at page no. 6 has noted about the issuance of notice u/s 251(2) on 20.1.2011, but it does reflect from the first appellate order as to whether this notice was served upon the assessee or not. The very object of the provision for issuance of show cause notice before the proposed enhancement is to afford opportunity of being heard to the assessee. Thus the mandatory part of the requirement of the provisions laid down u/s 251 (2) has remained to be complied. We thus, in the interest of justice set aside the matter to the file of the learned CIT(A) to dispose of the matter afresh by ensuring that the show cause notice for the proposed enhancement has been duly served upon the assessee, affording the opportunity of being heard to the assessee on the show cause notice issued for the proposed enhancement of the addition.” Ld.A.O. on the basis of books produced by assessee estimated profit at 20%. 3.1. Aggrieved by assessment order, assessee contended before Ld. CIT (A) as under: “4. Assessee was engaged in the sale purchase business (traders of food grains) in Naya Bazaar having two proprietorship firms namely M/s Vakunth Sales Corporation and M/s Kamkhya Sales agency. He submitted that net profit of both the firm were declared in the return of income of the proprietor/assessee. He also submitted that the books of account were regularly maintained, vouched, audited and the regular profit and loss account along with balance sheet and copy of tax audit report on 3CD was filed in both the firm before Ld.AO. It was further submitted as under: “1. The assessee made a total turnover of Rs. 8,36,61,719/- during the period 1.4.2005 to 31.3.2006 assessee deposited 7,06,86,600/- in IDBI Bank and HDFC Bank by making sales realization from business of food grains.

it cannot be denied that the assessee had not entered into any purchase transaction. Once it is established that the purchases are made through account payee cheques then, the sales are definitely to take place. Since the business of assessee is to make sales in the open market, transactions of cash involvement against the day to day sales is there, further, the cash show realized out of the sale proceeds are banked which is a true evidence of making sales. Alternatively, after deposit of this amount, the account payee cheques were issued against the purchases from the following few parties whose names are also appearing in the bank statement: M/s Geeta Enterprises M/s Ganpati Overseas M/s T.R.Agri We invite your kind attention to Annexure 4 as party wise purchases made by M/s Vakunth Sales Corporation mostly through cross account payee cheques cleared from the bank accounts which are placed at Annexure 5&6. There is no doubt at all that these purchases are bogus or ingenuine as the learned Assessing Officer has no evidence contrary to the explanation submitted by the assessee.

5. The assessee made total purchases of Rs. 6,93,39,222/- out of which purchases worth Rs. 6,06,54,9841- are from three reputed parties by issuing cheques to them from the bank accounts (Retail Business Premium Current Accounts). The purchases were recorded in the regular books of accounts maintained. Purchases were supported by proper bills. The assessee filed the necessary details vide letter dated 28.4.2014 (annexure no. 14). The payments were made through banking channels. The sales against these purchases should not be doubted at all. It was not the case of Assessing Officer that the amount paid for purchases had come back to the assessee. When purchases were supported with authenticated purchase bills, payments through cheques. The cheques were duly cleared which are evidenced from the bank statements even if the names of the parties are appearing bank statements, to whom payments are made against the purchases made through them. [Relied on (2006) 100 TT J 892 (Ahd) 6. Since the learned Assessing Officer agrees for volume of sales, therefore, he has estimated profit element @ 20% amounting to Rs.1,41,37,320/- and made the additions on estimated basis. This estimation of 20% has no relevance, illogical without application of mind, he should have understood that in case of food grain trade the profit element is very thin. When aggregate credits appearing in bank account were considered as sales, entire sales, could not be considered as income but only profit embedded in it could be considered as income, on the basis of AIR information available with 4 Assessing Officer. Therefore the learned Assessing Officer wanted to make the additions of 20% of total deposits in the bank account without application of mind. He rejected the profits computed by the assessee duly and added straight 20% of the amount to the returned income. [Relied on 49 taxmann.com 583 (Ahmedabad- Trib) 7. The cash collected by the asessee against its sales transactions cannot be doubted at all since the purchases are duly recorded, vouched, authenticated against payments through banking. channels, the same cash generated are being deposited in bank accounts regularly maintained. The assessee is the General Foodgrain Retail Traders. The cash collected by the assessee against sales were deposited in bank accounts regularly maintained. The assessee is General Foodgrain Retail Traders. The cash collected by the assessee against sales were deposited in bank accounts maintained with IDBI. The fact that the sales id duly recognized books of accounts were regularly maintained, duly audited by Chartered Accountant, copies of invoices, utilization out of cash and deposited in the account were in the name of suppliers. The 20% of day to day cash deposited in bank accounts were treated as income of the assessee company on estimation basis which is unjustified. [Relied on (2014) 51 taxmann.com ITAT Delhi Bench-CIT(A)) 8. The learned Assessing Officer has made addition of Rs. 1,41,37,320/- directly calculating 20% of the amount deposited in bank account. Neither he has mentioned that he wanted to make an addition u/s 68 unexplained cash credit or u/s 69-Unexplained Investments. Both the sections have its own nature of explanations. Section 68 cash credits-Where any sum is found credited in the books of an assesee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income tax as the income of the assessee of that previous year Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee company shall be deemed to be not satisfactory, unless- (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b)such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory; 5 Provided further that nothing contained in the first proviso shall apply if the person, In whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10) Section 69 Unexplained Investments-Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation by him is not, in the opinion of the Assessing Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year. In view of the provision of both the sections of the Income Tax Act, the learned Assessing Officer simply made the additions of the 20% of the amount deposited in the bank accounts. If we go by section 68, then there is no amount credited in the books of account without explanations. The sales to the parties were genuine and the genuineness substantiated with the deposits in the bank accounts. The deposits in the bank accounts cannot be doubted at all. If at all the learned Assessing Officer wanted to make an addition u/s 69 treating as unexplained investments to the aggregate deposits in the bank accounts and the explanations submitted by the assessee was not acceptable to him then how he should arrive to an estimated 20% of the amount deposited in bank accounts. The learned Assessing Officer was not crystal clear in his mind what he wanted to treat the total deposits in the bank accounts. It is also ubmitted here that the word "Unexplained" amount of Rs.1,41,37,320/- or Rs. 7,07,82,100/- do not arise out of the order of the Assessing Officer as unexplained. If the amount of deposits in the bank is disclosed and explained with the sufficient explanations which the learned Assessing Officer also agrees to one extent. Therefore, he has estimated the profit element to the extent of 20%. If at all, he was not convinced with the explanations submitted to him then the whole amount of deposits could have been added. (Sita Ram Vijay Kumar vs. CIT 216 ITR 526 (Del)” 3.2. Assessee had produced the books of accounts in respect of such proprietary concerns owned by assessee, for which remand report was called for from assessing officer. In the remand report Ld. AO submitted as under: “5.2 In pursuance to above direction, the AO furnished a report date 6 7.10.2010 whereby it was stated as under: “During the course of appellate proceedings, as mentioned in your letter under reference, the AR of the assessee agreed to produce his books of account of the proprietary concerns namely M/s Vakunth Sales Corporation and M/s Kamakhya Sales Agency and get these examined by the AO. The assessee vide this office letters dated 3.2.2010, 15.3.2010, 14.6.2010 and 28.6.2010 was asked to produce the books of accounts and other details. The assessee or his authorized representative never responded to any of the notices except he filed few details vide his letter dated 28.4.2010. No books of accounts and the vouchers in respect of the year under consideration were produced before the AO for the examination as directed by your goodself. This clearly shows that no such books of accounts has been maintained by the assessee and as a such the assessment u/s 143(3) vide order dated 31.12.2008 has correctly been made at an income of Rs. 1,42,32,820/-. 5.3 As directed vide your letter under reference the assessee was asked to explain the following vide this office letter dated 3.2.010. The assessee submitted part reply vide his letter dated 28.4.2010 is as under: i) To furnish details of party wise purchase giving quantity and price as well as their complete address and complete ledger copy extracts. The assessee vide his reply dated 28.4.2010 stated to have submitted the details of purchases in respect of M/s Gomti Overseas, M/s Geeta Enterprises, M/s T. R. Agri with the letter but no such details were enclosed ii) To furnish mode of transport of goods to assessee's premises, vehicle no. challan etc along with stock register. No such details were furnished iii) Details of items traded during the year and purchase sale prices of each items. The assessee is dealing in food grain items the price of the items are not fixed and the same cannot given in reply. iv) Similar details in respect of sales as called for in respect of purchases as at serial no. 1 above. The asessee has sold the goods in cash. v) Copy of sale tax assessment order for the relevant period. vi) To furnish Arhat details viz parties whose goods are sold on commission basis, mode and rate of item wise commission receipts No goods was sold on commission basis and the assessee had not received any Arhat/Commission. vii) Cash flow statement. No such details filed viii) Any direct expenses debited to P&L account, to furnish details vouchers. The copy of profit and loss account is enclosed. The assessee only filed an audit account in respect of Vakunth Sales Corporation showing sales at Rs.6,99,97, 119/- and net profit at Rs. 55,222/-. No accounts in respect of Kamakhya Sales Agencies has been filed ix) Copies of bank statements of all account maintaining during the year with narration to each debit/credit entry. Photocopy of bank statement is enclosed. No narration of debit/credit entry was given (x) Complete books of accounts. Not produced in spite of repeated reminder.

by revenue stands allowed.

4. In the result appeal filed by revenue stands allowed. Order pronounced in the open court on 23.02.18.