SANTOSH KUMAR SONI,KOLKATA vs. ITO, WD-45(2), KOLKATA, KOLKATA

The assessee in the present case is an individual, who filed his return of income for the year under consideration on 31.07.2005 declaring total income of Rs.1,01,390/-. The said return was initially processed by the Assessing Officer under section 143(1) on 18.08.2006. He, however, subsequently received information about the assessee having made cash purchases of Rs.15,03,107/- from one Shri Kashinath Dutta during the year under consideration. On the basis of the said information, the assessment of the assessee for the year under consideration was re-opened by the Assessing Officer and a notice under section 148 was issued by him to the assessee. In response to the said notice, the return of income was filed by the assessee on 20.09.2011 declaring total income of Rs.1,22,490/-. Along with the said return, a ./2014 Assessment year: 2005-2006 Page 2 of 6 revised Profit & Loss Account and Balance-sheet was filed by the assessee. In the revised Profit & Loss Account so filed, the purchases of Rs.15,03,107/- made in cash from Shri Kashinath Dutta were included by the assessee by increasing the total purchases to that extent. The corresponding sales were also increased by the assessee proportionately after showing the gross profit at the rate of 1.34% and accordingly the total income was shown at Rs.1,22,490/- as against the total income of Rs.1,02,463/- offered in the return of income originally filed. During the course of assessment proceedings, the assessee, however, could not explain any exceptional circumstances as specified in Rule 8DD of Income Tax Rules, under which he was required to make payments in cash against the purchases exceeding threshold limit of Rs.20,000/-. The Assessing Officer, therefore, invoked the provision of section 40A(3) of the Act and disallowed the entire purchases of Rs.15,03,107/- made by the assessee in cash in the assessment completed under section 143(3)/147 vide an order dated 30.12.2011.

Against the order passed by the Assessing Officer under section 143(3)/147, an appeal was preferred by the assessee before the ld. CIT(Appeals) challenging the disallowance made by the Assessing Officer under section 40A(3). During the course of appellate proceedings before the ld. CIT(Appeals), new stand was taken on behalf of the assessee that the payments in cash against the purchases were made in the amounts of less than Rs.20,000/-. A chart giving details of such payments made in cash was also filed by the assessee before the ld. CIT(Appeals). This new stand taken by the assessee before him was not accepted by the ld. CIT(Appeals) keeping in view a specific finding given by the Assessing Officer in the assessment order that the payments made in cash were made in the sums exceeding Rs.20,000/-. He also noted that the claim made by the assessee of having paid cash in the sums less than Rs.20,000/- on the same dates was not supported by any documentary evidence. He held that the pattern of cash payments on specific dates and on the same date on multiple occasion as shown by the assessee was ./2014 Assessment year: 2005-2006 Page 3 of 6 extremely improbable and beyond human probability. He, therefore, upheld the action of the Assessing Officer in making a disallowance made under section 40A(3) on account of payments made in cash against the purchases. He, however, accepted the alternative plea of the assessee that the disallowance only to the extent of 20% of such cash payments was liable to be made under section 40A(3) as applicable to the assessee under consideration, i.e. A.Y. 2005-06. Accordingly, he restricted the disallowance under section 40A(3) to Rs.3,00,621/-. At the same time, he made a further addition of Rs.3,00,621/- to the total income of the assessee on account of alleged investment made by the assessee in the undisclosed business transactions of purchases and sales for the following reasons given in his impugned order:- “The whole purchases, sales and payments connected with the undisclosed purchase of Rs.15,00,000/- were outside the regular Books of Accounts and were in much excess of regular transactions of Rs.2,83,250/-. Thus, it is clear that substantial part of the business of the assessee is outside the regular Books of Accounts. The Assessee has offered only Rs.20,000/- about as profit on undisclosed business connected to the undisclosed purchase of Rs.15,03,107/- of Jewellery. To sustain the said undisclosed business, undisclosed capital is also required. The assessee claims that sale proceeds were utilized for payment of purchase amounts without any basis. It is reasonable to hold that a percentage of the purchase represents undisclosed capital utilized to carry out such transactions. 20% of the undisclosed purchase is held to represent undisclosed capital employed by the appellant in the said undisclosed business. Hence, further amount of 20% of Rs.15,03,107/- is held as undisclosed income representing undisclosed capital employed by the appellant. Accordingly, further enhancement of income of Rs.3,00,621/- is made to the total income of the appellant”.

Aggrieved by the order of the ld. CIT(Appeals), the assessee has preferred this appeal before the Tribunal on the following grounds:-

In the result, the appeal of the assessee is partly allowed. Order pronounced in the open Court on March 24, 2017.