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Income Tax Appellate Tribunal, NAGPUR BENCH, NAGPUR
Before: SHRI V. DURGA RAO & SHRI K.M. ROY, ACCOUNTANT, MEMBER
Date of Hearing – 05/08/2024 Date of Order – 02/09/2024
O R D E R PER K.M. ROY, A.M.
The present appeal has been filed by the assessee challenging the impugned order dated 27/01/2023, passed by the learned Commissioner of Income Tax (Appeals)–3, Nagpur, [“learned CIT(A)”], for the assessment year 2020–21.
In its appeal, the assessee has raised following grounds:–
“1. That the order framed under sec 250 by the Hon’ble CIT(A) is unjustified and bad in law. 2. That the Hon’ble CIT(A) erred in making addition of Rs.33,00,000/- at the hands of the assessee in absence of any legal evidence.
Manoj Kumar Vishandas Kamnani ITA no.58/Nag./2023
That the Hon’ble CIT(A) failed to appreciate the fact that the assessee has not been provided any evidence for making addition of Rs 33,00,000/-.
That the Hon’ble CIT(A) erred in presuming that assessee has paid on- money to Manoj Dayani sans any incriminating document or documentary evidence. 5. That the Hon’ble CIT(A) erred in estimating the NP ratio at the rate of 5% as against 3%. 6. That the Hon’ble CIT(A) erred in neglecting the fact that the assessee has declared sufficient additional income of Rs 75,00,000/- to avoid protracted litigation and buy peace of mind. 7. Any other ground shall be prayed at the time of hearing.”
Ground no.1, being general in nature, hence no adjudication is required.
Insofar as grounds no.2, 3 and 4 are concerned, brief facts of the case are the assessee is engaged in the business of trading in Kirana items. In assessee’s case, a search & seizure action was carried out on 16/01/2020. Pursuant to such action, proceedings under section 143(3) r/w section 153A of the Income Tax Act, 1961 ("the Act") have been initiated issuance of notice under section 143(2) of the Act. The assessee filed his return of income declaring a total income of ` 86,75,500. The Assessing Officer, on a perusal of the information and seized material, determined the total assessed income at ` 1,95,78,784, after making a total addition of ` 1,09,03,284, on 3 counts i.e., (i) the addition of ` 33,00,000, on the account of on-money paid by the assessee on the purchase of immovable property under section 69 of the Act; (ii) the estimated profit on turnover @ 8%, i.e., ` 11,97,016; and (iii) ` 64,06,268/-, which has not been disputed in this appeal. Aggrieved, the assessee filed appeal before the first appellate authority. Page | 2
Manoj Kumar Vishandas Kamnani ITA no.58/Nag./2023
Before the learned CIT(A), the assessee made following submissions:–
“6.2. At the outset, the assessee would like to explain the Unexplained Investment in Immovable property u/s 69 of the I.T. Act, 1961. During the concerned A.Y., the assessee has purchased an immovable property being piece and parcel of land bearing 72A having area 743 sq mtrs Kh No 63, 64, and 69 Chikhli, 46 Sheet No 411/78 of House No 1252/72/A Ward No 22 of Chikhli Layout for an total consideration of Rs 85,00,000/- on 16.05.2019.
6.3. It is humbly submitted before your honour that the Ld. A.O. has relied on the seized material i.e. Party H-2/Annexure B-14, and has observed that the assessee has paid a substantial amount of cash for the purchase of the immovable property from Shri Manoj Dayani. As stated by the Ld, A.O. that there is conversation between the seller and the other person, wherein it was stated that the sale agreement was made for the amount of Rs 1,18,00,000/-, but the sale deed has been executed for Rs.85,00,000/- only.
6.4. The assessee would like to invite your honour’s kind attention towards the fact that the assessee has truly and fairly paid the sale consideration to Shri Manoj Dayani and the transactions are duly recorded in the financial books of accounts of the assessee. Apart from the above, the assessee also requested the Ld. A.O. for the cross verification of the recording and the legal authenticity of the said conversation. Whereas, the Ld. A.O. has failed to provide the cross examination to the assessee and has made the addition merely on the basis of the dumb recordings/evidence.
6.5. The assessee would like to further state that the Ld. A.O. is not in possession of any clinching evidence/information/document, other than the dumb recording, which suggests that the assessee has paid any amount over and above the amount as fixed in the sale deed.
6.6. Therefore, the assessee objects such addition on the basis that the Ld. A.O. has merely relied on the dumb recording/information, and has not provided an opportunity of cross examination to the assessee.
6.7. Without prejudice to the above, the assessee would like to submit that the said conversation does not have any nexus with the search and seizure operations/proceedings u/s 132 of the I.T. Act, 1961. The assessment u/s 153A/C of the I.T. Act, 1961 shall be based on the evidence found in the course of search, and it does not mean that the assessment can be arbitrary made without any relevance or nexus with the seized material.
6.8. The assessee would also like to submit that the assessee has already brought on record the affidavit/undertaking of Shri Manoj Dayani (Seller) stating that he has not received any penny over and above the amount as Page | 3
Manoj Kumar Vishandas Kamnani ITA no.58/Nag./2023 agreed as per the registered sale deed. Further, the Ld. A.O. not even bothered to investigate deep/further into the case. Also, the Ld. A.O. failed to record the statement of the seller, which was within the power under the provisions of the I.T. Act, 1961.
6.9. Therefore, the addition made by the Ld. A.O. with regards to the Unexplained Investment in Immovable property u/s 69 of the I.T. Act, 1961 for Rs 33,00,000/- is not justified, and bad in law and the same shall be deleted by your honour.
6.10 ……… 6.11 ……… 6.12 ……… 6.13 ……… 6.14 ……… 6.15 ………
6.16. With respect to the addition made on account of Unaccounted Sale of Rs 11,97,016/- i.e. @8% on Rs 1,49,62,700.
6.17. In this regards, the assessee would like to respectfully submit that the assessee carrying on the business activity as a trader in various commodities under the various concerns. The assessee is also carrying on certain turnover on the basis of commission and consignment basis for which the assessee having only commission income. The said turnover in respect of commission and consignment has not been recorded in regular books of accounts. However the assessee has earned certain amount of commission and the assessee has already offered an additional income of Rs.75,00,000/-in respect of certain unreconciled transaction in the return filed under section 153A in respect of assessment year 20-21.
6.18. Without prejudice to the above, the assessee would like to humbly submit before your honour that the Ld. A.O. has erred in considering the rate @8%, whereas the same shall be considered at 3%, on the basis of the previous Net Profit ratio declared by the assessee.
6.19. The assessee would like to submit the comparative turnover, net profit and percentages are as under:
A.Y Turnover NP % NP 2020-21 5,20,34,173 13,28,667 2.55 2019-20 5,98,93,557 17,53,453 2.93 2018-19 3,23,76,018 14,65,367 4.53 Average % 3.34
Manoj Kumar Vishandas Kamnani ITA no.58/Nag./2023
From the above figures, your honour will observe that he percentage of net profit is 3%. If the assessing officer wants to assess income on basis of the dump documents, it should be assessed at 3% being the net profit disclosed in the earlier years in returns of the assessee.
6.20 ……… 6.21 ……… 6.22 ……… Conclusion
It is respectfully submitted before your honour that Ld. A.O. has not considered the submissions made by the assessee and has relied on the dumb evidence/information. Further, the Ld. A.O. has failed to provide an opportunity for cross examination to the assessee. The Ld. A.O. has failed to consider the reconciliation provided by the assessee with respect to the stock. Further, the Ld. A.O. assessed the income @8% on the sale amount and has not consider the estimate rate at 3%. And, if we assume to tax the aforestated income, the same shall be setoff against the additional income of Rs.75,00,000/- as declared by the assessee in his return of income.”
After considering the assessee's submission, the learned CIT(A) allowed the assessee's appeal and deleted the additions by observing as follows:–
“4. Discussion and decision; - As many as nine grounds of appeals have been raised. Ground no. 1 being general in nature and thus requires no separate adjudication and is dismissed.
Ground no. 2 to 4 challenges the addition of Rs. 33,00,000 /- made by AO u/s 69 of the Act. I hereby confirm the addition of Rs. 33,00,000/- made by AO. As is evident from the assessment order Rs. 33,00,000/- is the on money paid by the appellant for acquiring the NIT plot bearing 72A having area 743 sq.mt.Kh. No.63,64 and 69 chikhli, 46 Sheet No.411/78 f House No. 1252/72/ A. Ward No.22 of chikhli. The said plot was purchased for official consideration of Rs.85,00,000/- on 16-05-2019 from Manoj Jagdish kumar Dayani. As per assessment order there is substantial evidence in the form of recorded video conversation that Rs. 33,00,000 /- on money was paid for the above transaction. I find no merit in the submissions of the appellant and confirm the addition of Rs. 33,00,000/- made by the AO.
Ground no. 8 pertains to estimation of Rs. 1197016 / - applying 8% profit trade to turnover of goods of Rs. 14962700/-. After rejecting book of accounts. The net profit offered by the appellant for previous assessment Page | 5
Manoj Kumar Vishandas Kamnani ITA no.58/Nag./2023 years has a much lower range then as concluded by the AO, which is not reasonable hence, I estimate net profit at the rate of 5% on turnover of Rs. 14962700 /-. Further the appellant has offered additional income of Rs.l,00,00,000 /- in respect of A.Ys. 2018-19, 2019-20 & 2020-21 and 93,00,000/- for A.Y. 2020-21, 2019-20 and 2014-15 has been offered in case of Shri Ajay Kamnani. Hence considering the above facts Grounds no. 5 to 8 are disposed of as above.
Result: In the result, the appeals filed by the appellant for A.Y. 2020-21 are treated as "partially allowed".”
The assessee being aggrieved, filed an appeal before the Tribunal.
Before us, the learned Departmental Representative strongly relied on the order of the Assessing Officer, Learned CIT(A).
Ground no.1, is general and need not be adjudicated.
On the other hand, the learned A.R. submitted that the Assessing Officer made the same addition in the hands of the vendor, Shri Manoj Dayani, also towards suppressed consideration of ` 33 lakh. However, the same addition was deleted during the appellate proceedings in case of the vendor by the same CIT(A) relying upon the statement recorded of the assessee by the counsel of the vendor in cross-examination dated 27/03/2023. The affidavit of the vendor dated 23/09/2021 was also examined. During the cross examination held on 27/03/2023, the counsel of the vendor heavily relied upon the statement of assessee, wherein both parties to the transaction denied exchanging of on-money. He vehemently submitted that different conclusions cannot be drawn on same set of facts Page | 6
Manoj Kumar Vishandas Kamnani ITA no.58/Nag./2023 for different assessee. The order passed by the learned CIT(A) in case of Manoj Dayani dated 02/08/2023, was brought on record through an application as additional evidence under rule 29 of ITAT Rules, 1963, as the said documents came into existence only after the date of first appellate order framed under section 250 of the Act in the case of the assessee i.e. 27/01/2023. Since this evidence is very vital and goes to the root of the matter, we admit the same for adjudication.
While going through the application for additional evidence, wherein the A.R. has submitted the copy of the order of the learned CIT(A) passed in the case of the vendor Shri Manoj Dayani, cross-examination by the counsel of the vendor and the English translated copy of the cross- examination. We find that the additional evidence came into existence only after the first appellate order was framed under section 250 of the Act in case of the assessee and hence, could not be produced at the earliest juncture. Further, the said evidence goes to the root of the matter of the case and, therefore, we accept the additional evidences. During the course of hearing, it was also brought to our notice that the audio recording was taken at the back of the assessee and was never provided to him, which is against the natural justice and is in violation of section 65B of the Indian Evidence Act, 1872.
We have given a thoughtful consideration to the arguments made by the learned Departmental Representative and perused the material available on record. We find that the Assessing Officer has made an addition of ` 33 lakh on the basis of audio recording. The same addition Page | 7
Manoj Kumar Vishandas Kamnani ITA no.58/Nag./2023 was also made in the hands of the vendor, Shri Manoj Dayani. On further appeal, the Learned CIT(A) appeal in the case of the vendor has allowed the appeal stating that there is no conclusive evidence brought on record by the Assessing Officer that the vendor has received on-money in the alleged transaction, and the addition made is merely based upon the assumption and presumption. The learned CIT(A) while passing the order in vendor’s case, Shri Manoj Dayani, also relied on the cross-examination wherein the parties to the transaction have denied the exchange of on- money. Since, the matter is concurrent to that extent and the learned D.R. failed to demolish the binding precedent of the finality in case of seller, we find no compelling reason to differ from the decision taken in the case of the vendor, Shri Manoj Dayani, who is a party of the alleged transaction. Consequently, we set aside the impugned order passed by the learned CIT(A) and delete the addition of ` 33 lakh made by the Assessing Officer and confirmed by the learned CIT(A). Thus, ground no.2, 3 and 4, are allowed.
Ground no.5, relates to estimation of profit percentage on the turnover, as modified by the learned CIT(A).
Before us, the learned Departmental Representative vehemently argued that the Assessing Officer had correctly estimated the profit @ 8% based on seized material.
On the other hand, the learned A.R. submitted that the profit ratio in the trading business is not more than 3%. A chart showing the Manoj Kumar Vishandas Kamnani ITA no.58/Nag./2023 comparative profit ratio declared by the assessee and accepted by the Revenue authorities have been submitted in the paper book by the learned A.R., wherein it is demonstrated that the assessee has declared a profit percentage not exceeding 3%. It has also been argued that the profits shall be estimated based on comparable profits declared in preceding years, and reliance was placed upon various case laws.
We have given a thoughtful consideration to the arguments made by the learned Departmental Representative and perused the material available on record. The Assessing Officer has estimated the profit @ 8% on the sales. On appeal, the learned CIT(A) reduced the profit rate to 5%. It is well-settled that in the case of sales, the Revenue has to make an honest and fair estimate of the income by applying the profit rate declared in the preceding years. Considering that the assessee is engaged in the business of trading in Kirana items, we are of the opinion that the profit at the rate of 4% shall meet justice. Therefore, we reduce the net profit rate to 4%. However, we make it clear that this observation should be read along with our comments in ground no.6. Thus, grounds no.5, is accordingly disposed off.
The issue raised in ground no.6 is, whether the additional income declared by the assessee of ` 75 lakh covers the addition based on 4% net profit estimated on the turnover.
Before us, the learned Departmental Representative stated that the income declared is general in nature and is not to be set off against the addition based on estimated profit on turnover. Page | 9
Manoj Kumar Vishandas Kamnani ITA no.58/Nag./2023
On the other hand, the learned A.R. submitted that the said additional income has been declared under the head Business and Profession considering the discrepancies, un–reconciled transactions, errors, and omissions involuntarily occurring in writing books of accounts, to avoid protracted litigation and buy peace of mind. The same has been duly reflected in the return of income under the head Business and Profession and taxes thereon have been duly paid at the time of filing return of income.
We have given a thoughtful consideration to the arguments made by the learned Departmental Representative and perused the material available on record. We find that the learned CIT(A) has recorded that the assessee offered ` 75 lakh as additional income, which duly covers the profit @ 4% on the total turnover amounting to ` 5,98,508 and hence needs to be telescoped. Hence no separate addition is warranted and the entire addition of net profit as modified is deleted. In effect, the returned income is directed to be modified in the light of the above discussions. Accordingly, ground no.6, is hereby disposed of.
In the result, appeal filed by the assessee is allowed. Order pronounced in the open Court on 02/09/2024
Sd/- Sd/- V. DURGA RAO K.M. ROY ACCOUNTANT MEMBER JUDICIAL MEMBER NAGPUR, DATED: 02/09/2024
Manoj Kumar Vishandas Kamnani ITA no.58/Nag./2023 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Nagpur; and (5) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary Sr. Private Secretary ITAT, Nagpur
Manoj Kumar Vishandas Kamnani ITA no.58/Nag./2023
Date Initial 1. Dictated on 21.08.2024 Sr.PS 2. Draft placed before author 26.08.2024 Sr.PS 3. Draft proposed & placed – – JM/AM before the second member 4. Draft discussed / approved – – JM/AM by Second Member 5. Approved Draft comes to 30.08.2024 Sr.PS the Sr.PS/PS 6. Date of pronouncement 02.09.2024 Sr.PS 7. File sent to the Bench Clerk 02.09.2024 Sr.PS 8. Date on which file goes to the Head Clerk 9. Date of dispatch of Order