SATISH KUMAR MADANLAL GUPTA,GONDIA vs. INCOME TAX OFFICER WARD -1, GONDIA

Date of Hearing – 31/07/2024 Date of Order – 01/08/2024

O R D E R PER BENCH

Cross appeals have been filed for the assessment year 2009–10 and 2011–12 along with cross objections by the assessee and a separate appeal has also been filed by the assessee for the assessment year 2011–12. All these cross appeals, cross objections and appeal by the assessee have been filed challenging the impugned orders of even date 29/11/2019, passed by the learned Commissioner of Income Tax (Appeals)–1, Nagpur, [“the learned CIT(A)”]. Page | 2

Satish Kumar Madanlal Gupta A.Y. 2009–10, 2010–11 and 2011–12

Since both these appeals and cross appeals pertain to the same 2. assessee involving common issues arising out of identical set of facts and circumstances, therefore, as a matter of convenience, these appeals and cross objections were heard together and are being disposed off by way of this consolidated order.

./2020 Assessee’s Appeal : A.Y. 2009–10

“1. The Honorable CIT(A) has arrived at the difference between bank deposit less inter branch transfer with the total sales and treated the difference of Rs.5158766.00 as unexplained deposit u/s 69A which is unjustified proposition and assumption and inference. It cannot be considered as unexplained without considering the fact that in any business concern the bank deposits have multiple reasons. Thereby it is not necessary that in all situations the bank deposits must tally with the sales only. It depends on the business transactions held in any concern on case to case basis. All the banking transactions are recorded in our books of account maintained and produced by us and have been verified by the AO during the remand report proceeding on dt. 23.4.2015. The honourable CIT(A) has not accepted the source of Rs.2024495.00 stating that no supporting confirmation has been submitted and regarding the balance of RS.3138638.00 no verifiable explanation has been given hence it is treated as unexplained deposit u/s 69A. This is not justified in view of the fact that our last hearing was held on 25.11.2019 and the CIT(A) has asked us to produce the confirmation but without giving adequate opportunity to us to submit the confirmation letters and to explain and verify with books of account the difference, appeal order has been passed on 29.11.2019. However the banking transaction which have been well mentioned in our submission dt. 15.3.2019 have been overlooked while working out the amount to be taxed. In view of the above fact we submit that it is not justified to tax the difference between bank deposits and sales which will not give 100% true figure in all the situations. In addition to this the CIT(A) has applied Section 69A to the recorded and verifiable transaction which is against the provisions of Section 69A which considers only unrecorded value of money, bullion, Jewellary or other valuation articles in the books of accounts maintained. In view of the above fact we pray your honor to delete the amount of RS.5158766.00 added in our income as unexplained deposits.

Satish Kumar Madanlal Gupta A.Y. 2009–10, 2010–11 and 2011–12

3. The honourable CIT(A) has dismissed the appeal for waiver of penalty u/s 271(1)(b) stating that separate appeal ought to have been filed as a separate order has been passed by AO. This is not justified in view of the fact that penalty order pertains to the year concerned and appeal was admitted by the office of CIT(A) on this point also. In view of this fact, we pray your honor that penalty u/s 271(1)(b) be orders to be waived.”

Satish Kumar Madanlal Gupta A.Y. 2009–10, 2010–11 and 2011–12 13/03/2014, under section 144 r/w section 147 of the Act. Aggrieved, the assessee carried the matter in appeal before the first appellate authority.

Satish Kumar Madanlal Gupta A.Y. 2009–10, 2010–11 and 2011–12 of the assessee by considering the income of the assessee as well as any other deductions (Chapter–VI–A) of the Act, upheld the addition of ` 51,58,766, by treating the appeal of the assessee as partly allowed. The relevant observations / decision of the learned CIT(A) are reproduced below:– “5.0 I have considered the Assessment order and the appellant's numerous submissions, as well the multiple remand reports from the AO. The appellant has taken three grounds of appeals. Vide first ground of appeal, the appellant has challenged the addition of Rs.5,28,35,502/-. Vide second ground of appeal, the appellant has challenged validity of penalty levied under section 271B and the third ground is a general in nature. 6.0 Ground No.1: The first Ground of Appeal pertains to addition of Rs.5,28,35,502/-.The assessee was dealing in tobacco products and other miscellaneous items which are normally sold in small shops. He had the dealership of ITC, and the products purchased from ITC were strictly accounted for. During this year, the Assessing Officer has passed an ex-parte order under section 144 r.w.s.

147. The appellant had not filed return of income for A.Y. 2009-10. The Assessing Officer was in possession of information that the assessee had deposited total cash of Rs 5,28,35,502/- during the year under consideration. As the assessee has failed to file return of income, the Assessing Officer issued notice under section 148 and asked the assessee to file return of income within 30 days. The appellant neither submitted return in response to 148 notice nor submitted requisite details sought under section 142(1). Finally, an ex-parte assessment order was passed by the Assessing Officer as the assessee failed to file return of income and submit requisite details. The Assessing Officer added the entire deposits appearing in the bank account as unexplained cash deposits. Total addition of Rs.5,28,35,502/- was made for this year. 6.1 During the appellate proceedings, the appellant vide his submission dated 18/03/2015& 15/04/2015, submitted that the Assessing Officer erred in not giving sufficient opportunity of being heard and has not considered the documents submitted during the proceedings before AO. It was submitted that on the date mentioned in the show cause notice (i.e.) 16/01/2014, the appellant attended the office of the Assessing Officer. However, as the Assessing Officer was busy in the survey proceedings, the case could not be heard. The appellant in the same submission also mentioned that he has left all books of accounts, Bills vouchers, bank statements, etc at the office of the Assessing Officer. The appellant in the same breath also stated that he again visited office on 20/01/2014, 03/02/2014, 04/02/2014 & 12/03/2014 but hearing of the appellant was not recorded. Considering the submission of the appellant, the books of accounts, documents, bills and ledger accounts were allowed to be admitted as evidence, in the interest of justice and fair play. The appellant had pleaded that he should be allowed to explain his case, especially since his submissions had not been taken on record at the assessment stage. Therefore, this case was remanded to the Assessing Officer on 15/04/2015 for his comments. The Assessing Officer vide its remand report dated 05/05/2015 strongly rebutted the submission of the appellant that sufficient opportunity Page | 6

Satish Kumar Madanlal Gupta A.Y. 2009–10, 2010–11 and 2011–12 was not provided during the assessment proceedings. The Assessing Officer also mentioned, that during the remand proceedings the appellant produced all books of accounts and other documents. The Assessing Officer requested for rejecting books of accounts submitted by the appellant during the appellate proceedings. 6.2 The appellant submitted a rejoinder to the remand report vide submission dated 21/05/2015. The appellant highlighted the facts that during remand proceedings, he had produced before Assessing Officer complete books of accounts for verification and the remand report is silent about the verification of books of accounts. The appellant also pleaded for setting aside case to the AO for assessing the income afresh. The Assessing Officer, thereafter, suo- moto sent another remand report on 13/01/2016, stating that the facts mentioned in the erstwhile remand report are not fully correct and he again highlighted his findings. The Assessing Officer again highlighted that the appellant has failed to file original return of income as well as return of income in pursuance to notice under section 148. The Assessing Officer also made out a case, that the appellant is a habitual defaulter and he had not filed return of income for A.Y. 2009-10, 2010-11 & 2011-12. The Assessing Officer also pointed out that irrespective of the fact that the turnover runs into crores, the appellant has not got books of accounts audited or paid advance taxes. The Assessing Officer also highlighted the fact that the accounts submitted by the appellant during the appellate proceedings as well as remand proceedings lacks sanctity. The Assessing Officer highlighted the discrepancy by way of an example, wherein he has tabulated the closing stock reported in the preceding year which is not carried forward in the subsequent years. The Assessing Officer pleaded for rejection of the books of accounts and requested that the additional evidences submitted by the appellant may not be admitted in view of Rule 46 A of the Income Tax Rules. 6.3 As both the remand reports were silent on the issue of explanation given by the appellant during remand proceedings vis-à-vis cash deposits, another remand report was sought from the Assessing Officer vide letter dated 20/01/2016. The Assessing Officer submitted the third remand report dated 15/03/2016, in which he has made out a case for rejecting books of accounts by highlighting various discrepancies in the books of accounts. These detailed observations are contained in para 5 of the said remand report. It has been stated that during remand proceedings, the appellant failed to submit stock registers, various bills and vouchers relating to expenses incurred. The appellant also failed to provide detail such as name and addresses of the creditors [as per para 5(g) of remand report]. The Assessing Officer once again requested for rejection of the books of accounts submitted during the appellate and remand proceedings. 6.4 The appellant vide, his rejoinder to remand report dated 06/10/2016 submitted few bills and confirmations which were not submitted during the remand proceedings. The appellant also requested for the case to be referred for special audit under section 142(2A) Another remand report was called vide letter dated 10/10/2016 for giving an opportunity to the Assessing Officer to examine the additional evidence submitted during the appellate proceedings. The Assessing Officer vide letter dated 01/02/2017 submitted a fourth remand report, wherein he has again submitted that the books of accounts are fabricated and should not be relied upon. The Joint Commissioner vide its remand report dated 09/02/2017 strongly rebutted the admission of new Page | 7

Satish Kumar Madanlal Gupta A.Y. 2009–10, 2010–11 and 2011–12 evidences. The Joint Commissioner again submitted that the appellant has deliberately not submitted details during the assessment proceedings. 6.5 To obtain clarity on the issues raised, the AR was requested to once again furnish specific details. The appellant submitted a detailed submission on 14/02/2018. The appellant submitted that he was doing business of the ITC products under the name of 'Jagdamba Enterprises and Venus Traders', Gondia. The appellant submitted that even though his majority trade is of ITC products, he also deals in product of other companies. The appellant also requested for estimation of net profit on the total turnover. As the appellant majorly dealt with ITC, a letter dated 12/12/2018 was written to the ITC, by this office seeking ledger account of the appellant in the books of ITC from 01/04/2008 to 31/03/2011 and break-up of commodity wise sale made by the ITC to the appellant. ITC vide its letter dated 27/12/2018 provided the details of transaction with the appellant for F.Y. 2008-09, 2009-10 & 2010-11. Although the details received from ITC was not in the format as sought by this office, however, as per the details submitted by ITC, the total sales made by the ITC during the year to the appellant is Rs.4,20,75,366.97/-. The ITC has not provided product wise break up. As per the details submitted by the appellant, approx. 90% of purchases pertains to cigarettes and approx. 10% sales pertain to other miscellaneous items. As per the rate list provided by the appellant, the average Gross Profit ratio for cigarettes is 1.60% and for food items its 3.5%. The appellant has not provided any details of the trading of goods of the other companies. 6.6 During the appellate proceedings, the appellant submitted the financial statements, computation of income and summary statements of bank accounts, but did not submit the bank statements. The appellant has articulately submitted that all the documents during the appellate proceedings which were sent to the Assessing Officer for examination, but not considered by him. It is my view that once the Appellate Authority decides to accept additional evidence under Rule 46 A, which is well within the jurisdiction of the authority, the Assessing Officer should examine such evidences in the interest of equity and natural justice. This is all the more important as it is only the real income of the assessee that can be taxed, under the Income Tax Act. As held by the Hon'ble Supreme Court in the case of CIT v. Bokaro Steel Ltd. (1999) 236 ITR 315 (SC), "any strait-jacket formula (to determine the income) is bound to create problems in its application to every situation, it must depend upon the facts and circumstances of each case. When and how does an income accrue and what are the consequences that follow from accrual of income are well settled. The accrual must be real taking into account the actuality of the situation. Whether an accrual has taken place or not must, in appropriate cases, be judged on the principles of the real income theory." 6.7 In any case, in view of the unwillingness of the Assessing Officer to examine the books of accounts and documentary evidences, the issue is decided strictly on the basis of the following:

1. 1. The summary statements of all bank accounts submitted by the assessee. 2. The ledger accounts and confirmation by ITC. 3. The cash flow statements produced by assessee. Page | 8 Satish Kumar Madanlal Gupta A.Y. 2009–10, 2010–11 and 2011–12

4. The profit and Loss Account and Balance Sheet submitted. 6.8 Although the Assessing Officer has been insistent that the books of accounts produced now should be rejected outright- I am unable to subscribe to such a constricted and unfair plea- as it denies the assessee an opportunity to explain his case. The Income Tax statute itself provides the assessee with an opportunity to state his case, not just at assessment level but also at appellate stages. In fact, the Act provides ample scope to the assessee and the Department to arrive at the true and correct income. If for any reason, the correct income was not ascertained at the assessment stage, the assessee has every right to seek redressal / correction of the same in subsequent proceedings. Hence the Assessing Officer ought to have made some efforts to arrive at the correct income and the assessment carried out by simply adding the credits in the bank account displays a complete disregard to the provisions of the Income Tax Act. 6.9 I also find that the appellant has failed to abide by the provisions of the Income Tax Act. The appellant has neither filed original return of income for A.Y. 2008-09, 2009-10 & 2010-11 nor has filed return of income in pursuance to notice/s. 148. The appellant did not get his books of accounts audited as per the provisions of the law. In my considered opinion the appellant has himself not filed details for almost 15 months (i.e.) from the date of issue of notice to the date of issue of show cause. Therefore, his income for the year is now determined strictly on the basis of documents submitted as mentioned in Para 6.7 above. Even though this office had allowed the assessee to file additional evidences, in the absence of confirmations from debtors and loan creditors, no cognizance as such can be taken of any figures that are not supported by primary evidences. 6.10 Having stated the above, the Assessing Officer is found to have gone too far in bringing to tax the entire deposits in the bank account. As per the statute, the tax is levied only on the income portion and not on the complete receipts or the turnover. In the absence of documents at the assessment stage and being unaware about the exact modus operandi of the business, the Assessing Officer brought to tax the entire deposits. During the appellate proceedings the appellant was directed to explain nature of cash deposits in the bank. The appellant submitted that the said cash deposits are out of the business receipts. The appellant also explained that he operates multiple bank accounts. As and when required, funds lying in the different bank account are pooled in cash credit account and final payment is made to ITC through this Cash Credit (CC) account. The appellant was asked to submit a complete explanation of deposits in the bank accounts. The appellant also submitted a one pager working of deposits in bank account. For the sake of brevity, the working submitted by the appellant is annexed to this order. The appellant is having below mentioned 5 bank accounts.

Name of Bank Total Deposits (`) Bank of Baroda-142 4,18,13,179 Janta Sahkari Bank 3,64,515 Bank of Baroda -7528 1,04,34,845 Page | 9

Satish Kumar Madanlal Gupta A.Y. 2009–10, 2010–11 and 2011–12

Bank of Baroda -70 56,70,132 Mahila Urban 1,93,24,482 Total 7,76,07,153

As per the working submitted by the appellant total deposits in the bank account is Rs.7,76,07,153/-.Out of this aggregate, contra entries (interbank transfers) are to the tune of Rs.2,93,77,151/. Therefore, total deposits for which the appellant owed explanation is Rs.4,82,30,002/- 6.11 During the appellate proceedings, the appellant submitted that total sales during the year is Rs.4,30,71,236/-. Therefore, to this extent I consider that the deposits in the bank account pertains to sales. The appellant vide his letter dated 14/02/2018 submitted that the 90% of sales pertains to cigarettes sales where profit margin is roughly 1.6%, whereas remaining 10% pertains to other items where approx. profit margin is 3.5% on average. Therefore, the net business profit is estimated @ 1.60% on 90% turnover and net profit at 3.5% is estimated on remaining turnover. Now the appellant owes an explanation for remaining amount of Rs.51.58,76/-. As per the working of the appellant, the appellant has received Rs:1,00,000/- from debtor, Harish M Gupta, Rs. 7,99,630/- from Jagdamba Enterprises Amgaon (purpose not specified) and Rs 2,50,000/- from Manish M Gupta as unsecured loan in Bank of Baroda, Cash Credit Account. However, in the absence of any supporting confirmations submitted, the appellant's explanation is not accepted. Similarly, in the case of the other deposits totaling to Rs 8,47,865- appearing in the Current account of Mahila Urban Bank, the appellant has not adduced any supporting primary evidences. Therefore, both the amounts reflecting as other deposit in the working spreadsheet submitted by the appellant (annexed to this order), are treated as unexplained. As far as balance amount (i.e.) Rs. 31,38,638/- [51,63,133 (11,49,630-8,47,8650)] is concerned, no verifiable explanation is given by the appellant and hence same is treated as unexplained. Based on the above discussion and calculations, the income of the appellant for AY 2009-10 is arrived at as under.

Particulars Amount (`) (a) Total Sales 4,30,71,236.00 (b) Cigarettes Sales (90% of (a)] 3,87,64,112.40 (c) Other items sales (10% of (a) 43,07,123.60 Profit Margin (d) Cigarettes sales @ 1.60% 6,20,225.80 (e) Other items sales @ 3.5% 1,50,749.33 (f) Total business profit [(d) + 7,70,975.12 (e)] (g) Unexplained money u/s 69A 51,58,766.00 (h) Interest received credited to 33,349.48 (P&L A/c) Page | 10

Satish Kumar Madanlal Gupta A.Y. 2009–10, 2010–11 and 2011–12

(i) PPF Interest 2,290.00 (j) Accrued interest on NSC 9,362.00 (k) Accrued interest on FDR 6,268.00 (l) Interest on saving a/c 313.00 Total: 59,81,323.60 Note:- Items from (h) to (1) are extracted from the computation submitted by the appellant during the appellate proceedings. 6.12 The assessing officer is directed to compute the taxable income of the appellant by considering the above income as well as any other deductions (Chapter VI-A of the Income Tax Act). The addition made by Assessing Officer at Rs.5,28,35,502/- is thus reduced as discussed above. The details of the working as enumerated in Para 6.11 is also given separately in Annexure A, as enclosure. The ground of the appellant is accordingly, partly allowed.”

Satish Kumar Madanlal Gupta A.Y. 2009–10, 2010–11 and 2011–12 hence, we find no merit in the request of the learned A.R. that there was lake of any opportunity. We are also not aggreable to his proposition of suggesting upon remand as he could not adduce any sort of evidence before the Bench to canvas his arguments. The learned CIT(A) has passed a detailed and meticulous order and has strenuously arrived at the computation of the income after getting inputs from the assessee, cross–verification from the suppliers, verification by the Assessing Officer, the findings are of–course based on a certain assumption and estimate, which cannot be faulted with because the assessee has not been frank enough its true state–of–affairs. Once the assessee has himself conceded before the learned CIT(A) about the computation of income, he simply cannot turn around and argue against the same before us. Therefore, in view of our aforesaid findings, we uphold the order passed by the learned CIT(A), as the learned CIT(A) has taken up a plausible view and the estimate of income is not found arbitrary. Hence, all the grounds raised by the assessee are dismissed.

Satish Kumar Madanlal Gupta A.Y. 2009–10, 2010–11 and 2011–12