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Income Tax Appellate Tribunal, KOLKATA BENCH “C” KOLKATA
Before: Shri N.V.Vasudevan & Shri Waseem Ahmed
आदेश /O R D E R
PER Waseem Ahmed, Accountant Member:-
This appeal by the assessee is against the order of Commissioner of Income Tax (Appeals)-Central-III, Kolkata dated 28.01.2013. Assessment was framed by DCIT, CC-XXII, Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 14.12.2011 for assessment year 2010-11. Shri Arvind Agarwal, Ld. Advocate appeared on behalf of assessee and Shri G. Mallikarjuna, Ld. Departmental Representative appeared on behalf of Revenue.
D.P. Agarwal Vs. DCIT CC-XXII, Kol. Page 2 2. The only inter-connected issue raised by assessee in this appeal is that Ld. CIT(A) erred in confirming the order of Assessing Officer by sustaining the disallowance of ₹ 8,40,938/- as undisclosed investment in the business of assessee.
Briefly, the facts are that the assessee in the present case is an individual and derived income from house property and other source. A search was conducted at different residential and business premises of ‘Begraj Group’ on 22.03.2010 and on subsequent dates. The assessee was one of the searched party in the search proceedings. During the course of search and seizure operation, certain documents were inventoried vide identification marked PMB-1 to PMB-3 showing the vouchers for purchase. The assessee has claimed the ownership of those papers and calculated undisclosed purchases for Rs. 26,69,980/- and offered for taxes @ 5%. However, AO observed that there would certain be an element of capital employed in the aforesaid business of assessee which also needs to be brought under the tax net. Accordingly the AO treated the peak amount of purchase amounting to Rs.8,40,938/- dated 17.03.2010 vide No. 34 of PMB-1 as unexplained investment which was added to the total income of assessee.
Aggrieved, assessee preferred an appeal before Ld. CIT(A) whereas assessee submitted that no record / evidence was found during the course of search on assessee indicating undisclosed investment in the undisclosed business. However, Ld. CIT(A) after considering the submissions of assessee disregarded the plea of assessee confirmed the order of AO by observing as under:- “I have carefully considered the appellant’s arguments and the assessment order. The appellant has contended that he did not make all the purchase against spot payments and that the purchases were being made on credit and the payments were made after the sale of goods. In the same vein the appellant also contended that his hardware business was order based and he used to purchase goods only after receipt of order for the same.
If the hardware business of the appellant was order based, then he would not have made the purchases on regular basis. That being so, it D.P. Agarwal Vs. DCIT CC-XXII, Kol. Page 3 is unlikely that he would buy all the goods on credit. Further, the appellant has not been able to show that it had purchased all the goods on credit and the payments for those were made only on realization of the sale of those goods. In the absence of any evidence brought on record by the appellant to prove his contention the same cannot be accepted. Therefore, in my opinion the AO had rightly considered the peak amount of purchases made by the appellant to be appellant’s undisclo0sed investment in trading business. Hence, the addition of Rs.8,40,938/- made by the AO is confirmed and this ground of appeal is dismissed.”
Being aggrieved by this, assessee has come up in appeal before us.
Before us Ld. AR for the assessee filed written submission and stated that assessee has already made disclosure for Rs.11,38,288/- in its disclosure petition made u/s. 132(4) of the Act and the amount of profit @ 5% on the undisclosed business of assessee has already been offered to tax. As such, there is no requirement to add any amount in the name of undisclosed investment. On the other hand, Ld. DR for the Revenue vehemently relied on the order of Authorities Below and he left the issue to the discretion of the Bench.
We have gone through the submissions made by both the parties and order of the lower authorities as well as perused the materials available on record. In the present case the assessee has shown undisclosed purchase of Rs. 26,69,980.00 and on the same undisclosed profit @ of 5% was offered to the tax. Subsequently the issue arose for the undisclosed investment made by the assessee in the aforesaid undisclosed purchases. The AO treated the peak amount of purchase as undisclosed investment in the business of the assessee i.e. ₹ 8,40,938.00 being peak purchase vide page no. 34 of PMB-1 which was added to the total income of the assessee. The view of the AO was also confirmed by the learned CIT(A). Now the issue before us arises for our adjudication so as to whether the addition made by the lower authorities towards undisclosed investment embedded in the undisclosed purchase on the basis of peak amount of purchase is correct in the aforesaid facts and D.P. Agarwal Vs. DCIT CC-XXII, Kol. Page 4 circumstances. Admittedly, there would certainly be some element of undisclosed investment in the undisclosed business of the assessee. The crucial issue is the determination of such undisclosed investment. The lower authorities have taken peak amount of purchase shown by the assessee in the undisclosed business as undisclosed investment on the presumption that the assessee has not brought anything on record the amount invested in the undisclosed business. At this juncture, we find important to reproduce the relevant observation of the ld. CIT(A) which goes as under:- “In the absence of any evidence brought on record by the appellant to prove his contention the same cannot be accepted. Therefore, in my opinion the AO had rightly considered the peak amount of purchases made by the appellant to be appellant’s undisclosed investment in trading business. Hence, the addition of Rs.8,40,938/- made by the AO is confirmed and this ground of appeal is dismissed.”
On the similar line of thought, we also find that the lower authorities have also not brought any concrete material for presuming the peak amount of purchases invested in the undisclosed business of the assessee. In our considered view the lower authorities before treating the peak amount of purchase as undisclosed investment should have confirmed from the parties both from the buyers and sellers the nature of transaction whether the goods were purchased on credit and the goods were sold on credit. In the aforesaid facts and circumstances, the lower authorities should have enquired the payment pattern both from the supplier and the debtors of the assessee. In the absence of any specific material, we are not inclined to uphold the basis adopted by the lower authorities for working out the undisclosed investment. However, at the same time we cannot ignore the fact that there would certainly be some element of investment in the undisclosed business of the assessee. In our view to determine such undisclosed investment the lower authorities should take the guidance from the historical financial data of the assessee by taking the amount of investment made by the assessee in the business in relation to purchase and sale of the business. In view of above we’re inclined to restore the issue to the file of AO for fresh adjudication as per D.P. Agarwal Vs. DCIT CC-XXII, Kol. Page 5 law with the direction to work out the undisclosed investment on the basis of financial data of the assessee. The AO will work out the number of rotation of the fund required for achieving the purchases of ₹ 26,69,980.00. It is pertinent to note that the assessee should co-operate in the assessment proceedings as and when call for by AO. Hence, this ground of appeal of the assessee is allowed for statistical purpose.